LORD ABBETT
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Prospectus
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March __, 1998
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Application Inside
LORD ABBETT
SECURITIES
TRUST
WORLD BOND-DEBENTURE
SERIES
[LOGO] LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
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LORD ABBETT SECURITIES TRUST
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
800-426-1130
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World Bond-Debenture Series ("we" or the "Series"), is a separate series of Lord
Abbett Securities Trust (the "Fund"). The Fund currently consists of four
series. Only shares of the World Bond-Debenture Series are being offered by this
Prospectus. The Series offers three classes of shares: Class A, Class B and
Class C. These classes provide investors different investment options in
purchasing shares of the Fund. See "Purchases" for a description of these
choices.
We seek high current income and the opportunity for capital appreciation
to produce a high total return. See "Investment Objective." In seeking this
investment objective, the Series invests in lower-rated debt securities which
entail greater risks than investments in higher-rated debt securities. The
former are referred to colloquially as "junk bonds." Before investing, investors
should carefully consider these risks set forth under "How We Invest" and also
that at least 20% of our assets must be invested in any combination of
investment grade debt securities, U.S. Government or other sovereign state
securities and cash equivalents. There can be no assurance that we will achieve
our objective.
By investing in globally-diversified debt securities, the Series offers
the opportunity for investors to take advantage of high current income with
capital appreciation that may be present, from time to time, in particular
countries throughout the world.
This Prospectus sets forth concisely the information about the Series that
a prospective investor should know before investing. Additional information
about the Series and the Fund has been filed with the Securities and Exchange
Commission. The Statement of Additional Information is incorporated by reference
into this Prospectus and may be obtained, 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."
The date of this Prospectus and of the Statement of Additional Information is
March __, 1998.
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PROSPECTUS
Investors should read and retain this Prospectus. Shareholder inquiries should
be made in writing to the Fund or by calling 800-821-5129. You can also make
inquiries through your broker-dealer.
Shares of the Series are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
An investment in the Series involves risks, including the possible loss of
principal.
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CONTENTS PAGE
1 Investment Objective 2
2 Fee Table 2
3 How We Invest 3
4 Purchases 7
5 Shareholder Services 15
6 Our Management 16
7 Dividends, Capital Gains
Distributions and Taxes 16
8 Redemptions 17
9 Performance 18
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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.
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1 INVESTMENT OBJECTIVE
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Our investment objective is high current income and the opportunity for capital
appreciation to produce a high total return. We seek to achieve this objective
through a professionally-managed portfolio consisting primarily of convertible
and debt securities, many of which are lower-rated, as well as by investing at
least 20% of our assets in any combination of investment grade, U.S. Government
or other sovereign state debt securities and cash equivalents.
2 FEE TABLE
<TABLE>
<CAPTION>
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Class A Class B Class C
Shares Shares Shares
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<S> <C> <C> <C>
Shareholder Transaction Expenses(1)
(as a percentage of offering price)
Maximum Sales Load(2) on Purchases
(See "Purchases") 4.75% None None
Deferred Sales Load(2)
(See "Purchases") None 5% if shares are redeemed 1% if shares
before 1st anniversary are redeemed
of purchase, declining before 1st anniversary
to 1% before 6th of purchase
anniversary and
eliminated on and
after 6th anniversary(3)
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Annual Fund Operating Expenses(4)
(as a percentage of average net assets)
Management Fees (See "Our Management") 0.50% 0.50% 0.50%
12b-1 Fees (See "Purchases")(1)(2) 0.25% 1.00% 1.00%
Other Expenses (See "Our Management") 0.30% 0.30% 0.30%
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Total Operating Expenses 1.05% 1.80% 1.80%
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</TABLE>
A summary of the Series' expenses is set forth in the table below. The example
should not be considered a representation of past or future expenses. Actual
expenses may be greater or less than those shown.
Example: Assume an annual return of 5% and there is no change in the level of
expenses described above. For a $1,000 investment, with reinvestment of all
dividends and distributions, you would pay the following total expenses,
assuming redemption on the last day of each period indicated.
1 year 3 years 5 years 10 years
------ ------- ------- --------
Class A shares $58 $79 $103 $170
Class B shares(3) $68 $87 $117 $192
Class C shares $28 $57 $97 $212
Example: You would pay the following expenses on the same investment, assuming
no redemption:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Class A shares $58 $79 $103 $170
Class B shares(3) $18 $57 $97 $192
Class C shares $18 $57 $97 $212
(1) Although the Fund does not, with respect to the Class B and Class C
shares, charge a front-end sales charge, investors should be aware that
long-term shareholders may pay, under the Rule 12b-1 plans applicable to
the Class B and Class C shares of the Fund (both of which pay annual 0.25%
service and 0.75% distribution fees), more than the economic equivalent of
the maximum front-end sales charge as permitted by certain rules of the
National Association of Securities Dealers, Inc. Likewise, with respect to
Class A shares, investors should be aware that, over the long term, such
maximum may be exceeded due to the Rule 12b-1 plan applicable to Class A
shares which permits the Fund to pay up to 0.50% in total annual fees,
half for service and the other half for distribution.
(2) Sales "load" is referred to as sales "charge," "deferred sales load" is
referred to as "contingent deferred sales charge" (or "CDSC") and "12b-1
fees" which consist of a "service fee" and a "distribution fee" are
referred to by either or both of these terms where appropriate with
respect to Class A, Class B and Class C shares throughout this Prospectus.
(3) Class B shares will automatically convert to Class A shares on the eighth
anniversary of the purchase of Class B shares.
(4) The annual operating expenses shown in the summary are based on estimated
expenses for the current fiscal year.
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3 HOW WE INVEST
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The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in the Fund
We believe that a high total return (current income and capital appreciation)
may be derived from an actively-managed, diversified debt-security portfolio. We
seek unusual values, particularly in lower-rated debt securities, some of which
are convertible into common stocks or have warrants to purchase common stocks.
Higher yield on debt securities can occur during periods of inflation when
the demand for borrowed funds is high. Also, buying lower-rated bonds when the
credit risk is above average but, we think, to offer good value, can generate
higher yields. Such debt securities normally will consist of secured debt
obligations of the issuer (i.e., bonds), general unsecured debt obligations of
the issuer (i.e., debentures) and debt securities which are subordinate in right
of payment to other debt of the issuer.
Capital appreciation potential is an important consideration in the
selection of portfolio securities. Capital appreciation is sought by (1)
investing in debt securities when the trend of interest rates is expected to be
down; (2) investing in convertible debt securities or debt securities with
warrants attached entitling the holder to purchase common stock; and (3)
investing in debt securities of issuers in financial difficulties when, in our
opinion, the problems giving rise to such difficulties can be successfully
resolved, with a consequent improvement in the credit standing of the issuers.
Such investments involve corresponding risks that interest and principal
payments may not be made if such difficulties are not resolved. In no event will
we invest more than 10% of our gross assets at the time of investment in debt
securities which are in default as to interest or principal.
Under normal circumstances, we invest at least 65% of our total assets in
bonds and/or debentures. Also, under normal circumstances our total assets will
be invested in securities, primarily traded in at least three different
countries, including the United States (the "guideline"). Except for this
guideline, there are neither limitations on how much of the Series' assets can
be invested in securities primarily traded in any one country, nor is there a
requirement that the securities of each issuer held by the Series be primarily
traded in the same three countries. However, this guideline may not be followed
for temporary defensive periods when Fund management (hereinafter meaning the
officers of the Fund subject to the direction of the Fund's Board of Trustees
with the advice of Lord, Abbett &Co., hereinafter "Lord Abbett") believes that
it should invest entirely in domestic securities or in securities primarily
traded in fewer than three such countries or in equity or short-term debt
securities.
If the Board of Trustees determines that the change will benefit
shareholders, the following investment policies are subject to change by the
Board without shareholder approval: (a) we must keep at least 20% of the value
of our total assets in (1) debt securities which, at the time of purchase, are
"investment grade," i.e., rated within one of the four highest grades determined
either by Moody's Investors Service, Inc. or Standard & Poor's Ratings Services,
(2) debt securities issued or guaranteed by the U.S. Government or another
sovereign state or its agencies or instrumentalities, (3) cash or cash
equivalents (short-term obligations of banks, corporations, the U.S. Government
or another sovereign state), or (4) a combination of any of the foregoing; (b)
while we may invest our gross assets, at market value, in debt securities
primarily traded in foreign countries -- such foreign debt securities normally
will be limited to issues where there does not appear to be substantial risk of
nationalization, exchange controls, confiscation or other government
restrictions; (c) subject to the percentage limitations for purchases of other
than debt securities described below, we may purchase common and preferred
stocks; (d) we may hold or sell any property or securities which we may obtain
through the exercise of conversion rights or warrants or as a result of any
reorganization, recapitalization or liquidation proceedings for any issuer of
securities owned by us. In no event will we voluntarily purchase any securities
other than debt securities, if, at the time of such purchase or acquisition, the
value of the property and securities, other than debt securities, in our
portfolio is greater than 35% of the value of our gross assets. A purchase or
acquisition will not be considered "voluntary" if
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made in order to avoid loss in value of a conversion or other premium; and (e)
we neither purchase securities for short-term trading, nor for the purpose of
exercising control of management.
We may invest up to 15% of our net assets in illiquid securities. Bonds
which are subject to legal or contractual restrictions on resale, but which have
been determined by the Board of Trustees to be liquid, will not be subject to
this limit. Investment by the Series in such securities, initially determined to
be liquid, could have the effect of diminishing the level of the Series'
liquidity during periods of decreased market interest in such securities.
The Series may purchase U.S. Government or other sovereign state
securities on a when-issued basis and, while awaiting delivery and before paying
for them ("settlement"), normally may invest in short-term U.S. Government or
other sovereign state securities. The Series does not start earning interest on
these when-issued securities until settlement and often they are sold prior to
settlement. While this investment strategy may contribute significantly to a
portfolio turnover rate substantially in excess of 100%, it has little or no
transaction costs or adverse tax consequences for the Series. Transaction costs
normally do not include brokerage because the Series' fixed-income portfolio
transactions usually are on a principal basis and, at the time of purchase, the
Series normally anticipates that any markups charged will be more than offset by
the anticipated economic benefits of the transaction. During the period between
purchase and settlement, the value of the securities will fluctuate and assets
consisting of cash and/or marketable securities marked to market daily in an
amount sufficient to make payment at settlement will be segregated at our
custodian in order to pay for the commitment. There is a risk that market yields
available at settlement may be higher than yields obtained on the purchase date,
which could result in depreciation of value.
The other debt securities in which the Series may invest include, but are
not limited to, domestic and foreign, fixed and floating-rate notes, convertible
securities, certificates, warrants, commercial paper, and principal and interest
pass-throughs issued by governments, authorities, partnerships, corporations,
trust companies, banks and bank holding companies, and banker's acceptances,
certificates of deposit, time deposits and deposit notes issued by domestic and
foreign banks.
Other Investment Policies and Techniques
Country Diversification. Subject to the guideline described above with
respect to investing in at least three different countries, including the United
States, the Series may invest its assets in securities which are primarily
traded in the countries throughout the world.
Foreign Currency Hedging Techniques. The Series may utilize various
foreign currency hedging techniques described below when Fund management
believes that the currency of a particular foreign country may suffer a decline
against the U.S. dollar.
A forward foreign currency contract involves an obligation to purchase or
sell a specific amount of a currency at a set price on a future date. The Series
may enter into forward foreign currency contracts (but not in excess of the
amount the Series has invested in non-U.S. dollar-denominated securities at the
time any such contract is entered into) in primarily two circumstances. First,
when the Series enters into a contract for the purchase or sale of a security
denominated in a foreign currency, the Series may desire to "lock in" the U.S.
dollar price of a security. By entering into a forward contract for the purchase
or sale of the amount of foreign currency involved in the underlying security
transaction, the 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, the Series may enter into a forward contract to sell the amount of
foreign currency approximating the value of some or all of the Series' portfolio
securities denominated in such foreign currency or, in the alternative, the
Series may use a cross-currency-hedging technique whereby it enters into such a
forward contract to sell another currency (obtained in exchange for the currency
in which the portfolio securities are denominated if such securities are sold)
which it expects to decline in a similar manner. Precise matching of the forward
contract and the value of the securities involved will generally not be possible
since the future value of such securities denominated in foreign currencies will
change as a consequence of market movements in the value of those securities
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between the date the forward contract is entered into and the date the contract
matures. The Series intends to enter into such forward contracts under this
second circumstance periodically. The Series also may enter into forward foreign
currency contracts which are non-deliverable .
The Series also may transact in currency put and call options on U.S.
exchanges or U.S. over-the-counter markets ("OTC") to protect the dollar against
foreign currency exposure. A put option gives the Series, upon payment of a
premium, the right to sell a currency at the exercise price until the expiration
of the option and serves to insure against adverse currency price movements in
the underlying portfolio assets denominated in that currency. The premiums paid
for such currency put and call options will not exceed 5% of the net assets of
the Series.
Exchange-listed options markets in the United States include several major
currencies, and trading may be thin and illiquid. A number of major investment
firms and banks trade options which are more flexible than exchange-listed
options with respect to strike price and maturity date. These OTC options
generally are available on a wider range of currencies. OTC foreign-currency
options generally are more liquid than listed options and involve the credit
risk associated with the individual issuer. OTC options together with illiquid
securities may comprise no more than 15% of the Series' net assets.
A currency call option, upon payment of a premium, gives the purchaser of
the option the right to buy and the seller (writer) of the obligation to sell,
the underlying currency at the exercise price until the expiration of the
option. The Series' purchase of a call option on a currency might be intended to
protect the Series against an increase in the price of the underlying currency
that it intends to purchase in the future by fixing the price at which it may
purchase such currency. The Series may sell (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 (as
well as the cross-hedging described above) may not exceed 90% of the value of
the securities denominated in such currency (a) invested in by the Series to
cover such call writing or (b) to be crossed.
Limitations imposed by the Internal Revenue Code on regulated investment
companies may restrict the Series' ability to engage in transactions in options,
forward contracts and cross hedges.
The Series will segregate cash or permitted liquid securities belonging to
the Series in an amount not less than that required by SEC Release 10666 and SEC
staff interpretations thereof with respect to the Series' assets committed to
(a) currency put and call options, (b) forward foreign currency contracts and
(c) cross hedges entered into by the Series. If the value of the securities
segregated declines, additional cash or permitted securities will be added on a
daily basis (i.e., marked to market), so that the segregated amount will not be
less than the amount of the Series' commitments with respect to such options,
forward foreign currency contracts and cross hedges.
Borrowing. The 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). The Series may borrow up to an
additional 5% of its total assets for temporary purposes, and may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities.
Diversification. The Series intends to meet the diversification rules
under Subchapter M of the Internal Revenue Code. Generally, this requires, at
the end of each quarter of the taxable year, that (a) not more than 25% of the
Series' total assets be invested in any one issuer and (b) with respect to 50%
of the Series' total assets, no more than 5% of the Series' total assets be
invested in any one issuer, except U.S. Government securities. Since under these
rules the Series, may invest its assets in the securities of a limited number of
issuers, the value of the Series' investments may be more affected by any single
adverse economic, political or regulatory occurrence than in the case of a
"diversified" investment company under the Act.
Risk and Volatility Reduction. The Series intends to utilize, from time to
time, one or more of the investment techniques identified below. While some of
these techniques involve risk when utilized independently, Fund management
intends to use them to reduce risk
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and volatility in the Series' portfolio, although this result cannot be assured.
Covered Call Options. The Series may sell call options on securities it
owns. A call &option on securities gives the purchaser of the option, upon
payment of a premium to the seller of the option, the right to call upon the
seller to deliver a specified security on or before a fixed date at a
predetermined price.
Rights and Warrants. The Series may invest in rights and warrants to
purchase securities.
Rights represent a privilege offered to holders of record of issued
securities (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 privelege 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.
The value of a right or warrant may not necessarily change with the value
of the underlying securities and rights and warrants cease to have value if they
are not exercised prior to their expiration date.
Repurchase Agreements. The Series may enter into repurchase agreements
with respect to a security. A repurchase agreement is a transaction by which the
Series acquires a security and simultaneously commits to resell that security to
the seller (a bank or securities dealer) at an agreed-upon price on an
agreed-upon date. Such repurchase agreement must, at all times, be
collateralized by cash or U.S. Government securities having a value equal to, or
in excess of, the value of the repurchase agreement.
Other Policies. The Series may engage in any one of the acitivities pursuant to
the policies identified below.
Closed-end Investment Companies. The Series may invest in shares of
closed-end investment companies if bought in the primary or secondary market
with a fee or commission no greater than the customary broker's commission.
Shares of such investment companies sometimes trade at a discount or premium in
relation to their net asset value and there may be duplication of fees, for
example, to the extent that the Series and the closed-end investment company
both charge a management fee. No more than 5% of the Series' net assets may be
invested in shares of closed-end investment companies.
Lending of Portfolio Securities. We may engage in the lending of our
portfolio securities. These loans may not exceed 30% of the value of the Series'
total assets. In such an arrangement, the Series loans securities from its
portfolio to registered broker-dealers. Such loans are continuously
collateralized by an amount at least equal to 100% of the market value of the
securities loaned. Cash collateral is invested in obligations issued or
guaranteed by the U.S. Government or its agencies, commercial paper or bond
obligations rated AA or A-1/P-1 by Standard & Poor's Rating Services ("S&P") or
Moody's Investors Services, Inc. ("Moody's"), respectively, or repurchase
agreements with respect to the foregoing. As with other extensions of credit,
there are risks of delay in recovery and market loss should the borrowers of the
portfolio securities fail financially.
Risk Factors. High Yield Debt Secrities----We may invest substantially in
lower-rated bonds because they tend to have higher yields. In general, the
market for lower-rated bonds is more limited than that for higher-rated bonds
and, therefore, may be less liquid. Market prices of lower-rated bonds may
fluctuate more than those of higher-rated bonds, particularly in times of
economic change and stress. In addition, because the market for lower-rated
corporate debt securities has in past years experienced wide fluctuations in the
values of certain of these securities, past experience may not provide an
accurate indication of the future performance of that market or of the frequency
of default, especially during periods of recession. Objective pricing data for
lower-rated bonds may be more limited than for higher-rated bonds and valuation
of such securities may be more difficult and require greater reliance upon
judgment.
While the market for lower-rated bonds may be relatively insensitive to
interest rate changes, the market prices of these bonds structured as zero
coupon or pay-in-kind securities may be affected to a greater extent by such
changes and thus may be more volatile than prices of lower-rated securities
paying interest periodically in cash. Lower-rated bonds that are callable prior
to maturity may be more susceptible to refunding during periods of falling
interest rates, requiring replacement with
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lower-yielding securities.
Since the risk of default generally is higher among lower-rated bonds, the
research and analysis performed by Lord, Abbett &Co. ("Lord Abbett") are
especially important in the selection of such bonds. If bonds are rated BB/Ba or
lower, they are described as "high-yield bonds" because of their generally
higher yields and are referred to colloquially as "junk bonds" because of their
greater risks. In selecting lower-rated bonds for investment, Lord Abbett does
not rely upon ratings, which evaluate only the safety of principal and interest,
not market value risk, and which, furthermore, may not accurately reflect an
issuer's current financial condition. We do not have any minimum rating criteria
for our investments in bonds. Some issuers may default as to principal and/or
interest payments subsequent to our purchase of their securities. Through
portfolio diversification, good credit analysis and attention to current
developments and trends in interest rates and economic conditions, investment
risk can be reduced, although there is no assurance that losses will not occur.
Laws enacted from time to time could limit the tax or other advantages of,
and the issuance of, lower-rated securities and could adversely affect their
secondary market and the financial condition of their issuers. On the other
hand, such legislation (curtailing the supply of new issues) could improve the
liquidity, market values and demand for outstanding issues.
Foreign Securities--Securities markets of foreign countries in which the
Series may invest generally are not subject to the same degree of regulation as
the U.S. markets and may be more volatile and less liquid than the major U.S.
markets. Lack of liquidity may affect the Series' ability to purchase or sell
large blocks of securities and thus obtain the best price. There may be less
publicly-available information on publicly-traded companies, banks and
governments in foreign countries than 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, withholding taxes that cannot be passed through as a tax
credit or deduction to shareholders, currency fluctuations and different
securities settlement practices. Settlement periods for foreign securities,
which are sometimes longer than those for securities of U.S. issuers, may affect
portfolio liquidity. In addition, foreign securities held by the Series may be
traded on days that the Series does not value its portfolio securities, such as
Saturdays and customary business holidays and, accordingly, the Series' net
asset values may be significantly affected on days when shareholders do not have
access to the Fund.
Portfolio Turnover. The portfolio turnover rate for the Series is expected to be
within a range from 100% to 150%. See the discussion of when-issued securities
under "How We Invest" as to why this will have little or no transaction cost or
adverse tax consequences for the Series.
Change of Investment Objective and Policies. The Series will not change its
investment objective without shareholder approval. If the Series determines that
its objective can best be achieved by a change in investment policy or strategy,
it may make such change without shareholder approval by disclosing it in its
prospectus.
4 PURCHASES
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ALTERNATIVE SALES ARRANGEMENTS
Classes of Shares. The Series offers investors three different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will likely
have different share prices. Investors should read this section carefully to
determine which class represents the best investment option for their particular
situation.
Class A Shares. If you buy Class A shares, you pay an initial sales charge on
investments of less than $1 million (or on investments for employer-sponsored
retirement plans under the Internal Revenue Code (hereinafter referred to as
"Retirement Plans") with less than 100 eligible employees or on investments that
do not qualify to be under a "special retirement wrap program" defined under
"Class A
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Share Net Asset Value Purchases" below). 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 Series a contingent deferred sales
charge ("CDSC") of 1% except for redemptions under a "special retirement wrap
program." Class A shares are subject to service and distribution fees that are
currently estimated to total annually approximately 0.25 of 1% of the annual net
asset value of the Class A shares. The initial sales charge rates, the CDSC and
the Rule 12b-1 plan applicable to the Class A shares are described under
"General" 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 under "General" 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 Series 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 under "General" below.
Which Class of Shares Should You Choose? Once you decide that the Series is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial adviser. The Series' 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 Series. We used the sales
charge rates that apply to Class A, Class B and Class C shares, 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 Series' actual
investment returns, the operating expenses borne by each class of shares, and
the class of shares you purchase. The factors briefly discussed below are not
intended to be investment advice, guidelines or recommendations, because each
investor's financial considerations are different. The discussion below of the
factors to consider in purchasing a particular class of shares assumes that you
will purchase only one class of shares and not a combination of shares of
different classes.
How Long Do You Expect to Hold Your Investment? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold your
investment will assist you in selecting the appropriate class of shares. For
example, over time, the reduced sales charges available for larger purchases of
Class A shares may offset the effect of paying an initial sales charge on your
investment, compared to the effect over time of higher class-specific expenses
on Class B or Class C shares for which no initial sales charge is paid. Because
of the effect of class-based expenses, your choice should also depend on how
much you plan to invest.
Investing for the Short Term. If you have a short-term investment horizon
(that is, you plan to hold your shares for not more than six years), you should
probably consider purchasing Class A or Class C shares rather than Class B
shares. This is
8
<PAGE>
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 for 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 shares. If you are investing $500,000 or more, Class A shares may become
more desirable as your investment horizon approaches 3 years or more.
For most investors who invest $1 million or more, or for Retirement Plans
with at least 100 eligible employees or for investments pursuant to a special
retirement wrap program, in most cases Class A shares will be the most
advantageous choice, no matter how long you intend to hold your shares. For that
reason, it may not be suitable for you to place a purchase order for Class B
shares of $500,000 or more or a purchase order for Class C shares of $1,000,000
or more. In addition, it may not be suitable for you to place an order for Class
B or C shares for a Retirement Plan with at least 100 eligible employees or for
a special retirement wrap program. You should discuss this with your financial
advisor.
Investing for the Longer Term. If you are investing for the longer term
(for example, to provide for future college expenses for your child) and do not
expect to need access to your money for seven years or more, Class B shares may
be an appropriate investment option if you plan to invest less than $100,000. If
you plan to invest more than $100,000 over the long term, Class A shares will
likely be more advantageous than Class B shares or Class C shares, as discussed
above, because of the effect of the expected lower expenses for Class A shares
and the reduced initial sales charges available for larger investments in Class
A shares under the Series' rights of accumulation.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses on a hypothetical investment over time, and
should not be relied on as rigid guidelines.
Are There Differences in Account Features That Matter to You? Some account
features are available in whole or in part to Class A, Class B and Class C
shareholders. Other features (such as Systematic Withdrawal Plans) might not be
advisable in non-Retirement Plan accounts for Class B shareholders (because of
the effect of the CDSC on the entire amount of a withdrawal if it exceeds 12%
annually) and in any account for Class C shareholders during the first year of
share ownership (due to the CDSC on withdrawals during that year). See
"Systematic Withdrawal Plan" under "Shareholder Services" for more information
about the 12% annual waiver of the CDSC with respect to Class B shares. 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 Series
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
9
<PAGE>
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.
GENERAL
How Much Must You Invest? You may buy our shares through any independent
securities dealer having a sales agreement with Lord Abbett Distributor, our
exclusive selling agent. Place your order with your investment dealer or send it
to World Bond-Debenture Series of Lord Abbett Securities Trust (P.O. Box 419100,
Kansas City, Missouri 64141). The minimum initial investment is $1,000, except
for Invest-A-Matic and Div-Move ($250 initial and $50 subsequent minimum) and
Individual Retirement Accounts ($250 minimum). For Retirement Plans there is no
minimum initial investment required. See "Shareholder Services." For information
regarding the proper form of a purchase or redemption order, call the Fund at
800-821-5129. This offering may be suspended, changed or withdrawn. Lord Abbett
Distributor reserves the right to reject any order.
The net asset value of our shares is calculated every business day as of
the close of the New York Stock Exchange ("NYSE") by dividing net assets by the
number of shares outstanding. Securities are valued at their market value as
more fully described in the Statement of Additional Information.
Buying Shares Through Your Dealer. Orders for shares received by the Series
prior to the close of the NYSE, or received by dealers prior to such close and
received by Lord Abbett Distributor prior to the close of its business day, will
be confirmed at the applicable public offering price effective at such NYSE
close. Orders received by dealers after the NYSE closes and received by Lord
Abbett Distributor in proper form prior to the close of its next business day
are executed at the applicable public offering price effective as of the close
of the NYSE on that next business day. The dealer is responsible for the timely
transmission of orders to Lord Abbett Distributor. A business day is a day on
which the NYSE is open for trading.
Lord Abbett Distributor may, for specified periods, allow dealers to
retain the full sales charge for sales of shares during such periods, or pay an
additional concession to a dealer who, during a specified period, sells a
minimum dollar amount of our shares and/or shares of other Lord Abbett-sponsored
funds. In some instances, such additional concessions will be offered only to
certain dealers expected to sell significant amounts of shares. Lord Abbett
Distributor may, from time to time, implement promotions under which Lord Abbett
Distributor will pay a fee to dealers with respect to certain purchases not
involving imposition of a sales charge. Additional payments may be paid from
Lord Abbett Distributor's own resources and will be made in the form of cash or,
if permitted, non-cash payments. The non-cash payments will include business
seminars at resorts or other locations, including meals and entertainment, or
the receipt of merchandise. The cash payments will include payment of various
business expenses of the dealer. In selecting dealers to execute portfolio
transactions for the Series' 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.
Buying Class A Shares. The offering price of
- --------------------------------------------------------------------------------
Sales Charge as a Dealer's
Percentage of:
-------------- Concession
as a To Compute
Net Percentage Offering
Offering Amount of Offering Price, Divide
Size of Investment Price Invested Price NAV by
- --------------------------------------------------------------------------------
Less than $50,000 4.75% 4.99% 4.00% .9525
- --------------------------------------------------------------------------------
$ 50,000 to $99,999 4.75% 4.99% 4.25% .9525
- --------------------------------------------------------------------------------
$100,000 to $249,999 3.75% 3.90% 3.25% .9625
- --------------------------------------------------------------------------------
$250,000 to $499,999 2.75% 2.83% 2.50% .9725
- --------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75% .9800
- --------------------------------------------------------------------------------
$1,000,000 or more No Sales Charge 1.00%+ 1.0000
- --------------------------------------------------------------------------------
+ Authorized institutions receive concessions on purchases made by a
retirement plan, pursuant to a special retirement wrap program or by
another qualified purchaser within a 12-month period (beginning with the
first net asset value purchase) as follows: 1.00% on purchases of $5
million, 0.55% of the next $5 million, 0.50% of the next $40 million and
0.25% on purchases over $50 million. See "Class A Rule 12b-1 Plan" below.
- --------------------------------------------------------------------------------
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<PAGE>
Class A shares is based on the per-share net asset value next computed after
your order is accepted plus a sales charge as follows.
Class A Share Volume Discounts. This section describes several ways to qualify
for a lower sales charge when purchasing Class A shares if you inform Lord
Abbett Distributor or the Fund that you are eligible at the time of purchase.
(1) Any purchaser (as described below) may aggregate a Class A share purchase in
the Series with any share purchases of any other eligible Lord Abbett-sponsored
fund, together with the current value at maximum offering price of any shares in
the Series and in any eligible Lord Abbett-sponsored funds held by the
purchaser. (Holdings in the following funds are not eligible for the above
rights of accumulation: Lord Abbett Equity Fund ("LAEF"), Lord Abbett Series
Fund ("LASF"), any series of Lord Abbett Research Fund not offered to the
general public ("LARF") and Lord Abbett U.S. Government Securities Money Market
Fund ("GSMMF"), except for holdings in GSMMF which are attributable to any
shares exchanged from a Lord Abbett-sponsored fund.) (2) A purchaser may sign a
non-binding 13-month statement of intention to invest $100,000 or more in any
shares of the Series or in any of the above eligible funds. If the intended
purchases are completed during the period, the total amount of your intended
purchases of any shares will determine the reduced sales charge rate for the
Class Ashares purchased during the period. If not completed, each Class A share
purchase will be at the sales charge for the aggregate of the actual share
purchases. Shares issued upon reinvestment of dividends or distributions are not
included in the statement of intention. The term "purchaser" includes (i) an
individual, (ii) an individual and his or her spouse and children under the age
of 21 and (iii) a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account (including a pension, profit-sharing,
or other employee benefit trust qualified under Section 401 of the Internal
Revenue Code -- more than one qualified employee benefit trust of a single
employer, including its consolidated subsidiaries, may be considered a single
trust, as may qualified plans of multiple employers registered in the name of a
single bank trustee as one account), although more than one beneficiary is
involved.
Class A Share Net Asset Value Purchases. Our Class A shares may be purchased at
net asset value by our directors, employees of Lord Abbett, employees of our
shareholder servicing agent and employees of any securities dealer having a
sales agreement with Lord Abbett Distributor who consents to such purchases or
by the trustee or custodian under any pension or profit-sharing plan or Payroll
Deduction IRA established for the benefit of such persons or for the benefit of
any national securities trade organization to which Lord Abbett or Lord Abbett
Distributor belongs or any company with an account(s) in excess of $10 million
managed by Lord Abbett on a private-advisory-account basis. For purposes of this
paragraph, the terms "directors" and "employees" include a director's or
employee's spouse (including the surviving spouse of a deceased director or
employee). The terms "directors" and "employees of Lord Abbett" also include
other family members and retired directors and employees. Our Class A shares
also may be purchased at net asset value (a) at $1 million or more; (b) with
dividends and distributions on Class A shares of other Lord Abbett-sponsored
funds, except for dividends and distributions on shares of LARF, LAEF and LASF;
(c) under the loan feature of the Lord Abbett-sponsored prototype 403(b) plan
for Class A share purchases representing the repayment of principal and
interest; (d) by certain authorized brokers, dealers, registered investment
advisers or other financial institutions who have entered into an agreement with
Lord Abbett Distributor in accordance with certain standards approved by Lord
Abbett Distributor, providing specifically for the use of our Class A shares in
particular investment products made available for a fee to clients of such
brokers, dealers, registered investment advisers and other financial
institutions ("mutual fund wrap fee programs"); (e) by employees, partners and
owners of unaffiliated consultants and advisers to Lord Abbett, Lord Abbett
Distributor or Lord Abbett-sponsored funds who consent to such purchase if such
persons provide services to Lord Abbett, Lord Abbett Distributor or such funds
on a continuing basis and are familiar with such fund; (f) through Retirement
Plans with at least 100 eligible
11
<PAGE>
employees; (g) through a "special retirement wrap program" sponsored by an
authorized institution having one or more characteristics distinguishing it, in
the opinion of Lord Abbett Distributor from a mutual fund wrap 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 a Class A
12b-1 Plan and the fact that the program relates to participant-directed
Retirement Plans.
Class A Rule 12b-1 Plan. We have adopted a Class A share Rule 12b-1 Plan (the "A
Plan") which authorizes the payment of fees to authorized institutions (except
as to certain accounts for which tracking data is not available) in order to
provide additional incentives for them (a) to provide continuing information and
investment services to their Class A shareholder accounts and otherwise to
encourage those accounts to remain invested in the Series and (b) to sell Class
A shares of the Series. Under the A Plan, in order to save on the expense of
shareholders' meetings and to provide flexibility to the Board of Trustees, the
Board, including a majority of the outside trustees who are not "interested
persons" of the Fund as defined in the Act, is authorized to approve annual fee
payments from our Class A assets of up to 0.50 of 1% of the average net of such
assets consisting of distribution and service fees, each at a maximum annual
rate not exceeding 0.25 of 1% (the "Fee Ceiling").
Under the A Plan, the Board has approved payments by the Series to Lord
Abbett Distributor which uses or passes on to authorized institutions (1) an
annual service fee (payable quarterly) of .25% of the average daily net asset
value of the Class A shares serviced by authorized institutions and (2) a
one-time distribution fee of up to 1% (reduced according to the following
schedule: 1% of the first $5 million, .55% of the next $5 million, .50% of the
next $40 million and .25% over $50 million), payable at the time of sale on all
Class A shares sold during any 12-month period starting from the day of the
first net asset value sale (i) at the $1 million level by authorized
institutions, including sales qualifying at such level under the rights of
accumulation and statement of intention privileges; (ii) through Retirement
Plans with at least 100 eligible employees or (iii) constituting new sales
pursuant to a special retirement wrap program and excluding exchanges into the
Series under such a program. In addition, the Board has approved for those
authorized institutions which qualify, a supplemental annual distribution fee
equal to 0.10% of the average daily net asset value of the Class A shares
serviced by authorized institutions which have a satisfactory program for the
promotion and retention of such shares satsifying Lord Abbett Distributor. Class
A shares held pursuant to a satisfacotry program would, for example, (i)
constitute a significant percentage of the Fund's net asests, (ii) be held for a
substantial length of time and/or (iii) have a lower than average redemption
rate. Institutions and persons permitted by law to receive such fees are
"authorized institutions."
Under the A Plan, Lord Abbett Distributor is permitted to use payments
received to provide continuing services to Class A shareholder accounts not
serviced by authorized institutions and, with Board approval, to finance any
activity which is primarily intended to result in the sale of Class Ashares. Any
such payments are subject to the Fee Ceiling. Any payments under that Plan not
used by Lord Abbett Distributor in this manner are passed on to authorized
institutions.
Holders of Class A shares on which the 1% sales distribution fee has been
paid may be required to pay to the Series on behalf of its Class A shares a CDSC
of 1% of the original cost or the then net asset value, whichever is less, of
all Class A shares so purchased which are redeemed out of the Lord
Abbett-sponsored family of funds on or before the end of the twenty-fourth month
after the month in which the purchase occurred. (Exceptions are made for: (i)
redemptions by Retirement Plans due to any benefit payment such as Plan loans,
hardship withdrawals, death, retirement or separation from service with respect
to plan participants or the distribution of any excess contributions and (ii)
participant directed redemptions which continue as program investments in
another fund participating in a special retirement wrap program.) If the Class A
shares have been exchanged
12
<PAGE>
into another Lord Abbett-sponsored fund and are thereafter redeemed out of the
Lord Abbett family of funds on or before the end of such twenty-fourth month,
the charge will be collected for the Series' Class A shares by the other fund.
The Series will collect such a charge for other Lord Abbett-sponsored funds in a
similar situation.
Buying Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed for
cash before the sixth anniversary of their purchase, a CDSC may be deducted from
the redemption proceeds. That sales charge will not apply to shares purchased by
the reinvestment of dividends or capital gains distributions. The charge will be
assessed on the lesser of the net asset value of the shares at the time of
redemption or the original purchase price. The Class B CDSC is paid to Lord
Abbett Distributor to compensate it for its services rendered in connection with
the distribution of Class B shares, including the payment and financing of sales
commissions. See "Class B Rule 12b-1 Plan" below.
To determine whether the CDSC applies to a redemption, the Series redeems
shares in the following order: (1) shares acquired by reinvestment of dividends
and capital gains distributions, (2) shares held until the sixth anniversary of
their purchase or later, and (3) shares held the longest before the sixth
anniversary of their purchase.
Anniversary Contingent Deferred
of the Day on Sales Charge on
Which the Purchase Redemptions
Order Was Accepted (As % of Amount
On Before Subject to Charge)
- --------------------------------------------------------------------------------
1st 5.0%
- --------------------------------------------------------------------------------
1st 2nd 4.0%
- --------------------------------------------------------------------------------
2nd 3rd 3.0%
- --------------------------------------------------------------------------------
3rd 4th 3.0%
- --------------------------------------------------------------------------------
4th 5th 2.0%
- --------------------------------------------------------------------------------
5th 6th 1.0%
- --------------------------------------------------------------------------------
on or after the None
6th anniversary
The amount of the CDSC will depend on the number of years since you
invested and the dollar amount being redeemed, according to the following
schedule.
In the table, an "anniversary" is the 365th day subsequent to a purchase
or a prior anniversary. All purchases are considered to have been made on the
business day the purchase was made. See "Buying Shares Through Your Dealer"
above.
If Class B shares are exchanged into the same class of another Lord
Abbett-sponsored fund and the new shares are subsequently redeemed for cash
before the sixth anniversary of the original purchase, the CDSC will be payable
on the new shares on the basis of the time elapsed from the original purchase.
The Series will collect such a charge for other Lord Abbett-sponsored funds in a
similar situation.
Waiver of Class B Sales Charges. The Class B CDSC will not be applied to shares
purchased in certain types of transactions nor will it apply to shares redeemed
in certain circumstances as described below.
The Class B CDSC will be waived for redemptions of shares (i) in
connection with the Systematic Withdrawal Plan and Div-Move services, as
described in more detail under "Shareholder Services" below; (ii) by Retirement
Plans due to any benefit payment such as Plan loans, hardship withdrawals,
death, retirement or separation from service with respect to plan participants
or the distribution of any excess contributions; (iii) in connection with
mandatory distributions under 403(b) plans and individual retirement accounts;
and (iv) in connection with the death of the shareholder.
Class B Rule 12b-1 Plan. The Series has adopted a Class B share Rule 12b-1 Plan
(the "B Plan") under which the Series periodically pays Lord Abbett Distributor
(i) an annual service fee of 0.25 of 1% of the average daily net asset value of
the Class B shares and (ii) an annual distribution fee of 0.75 of 1% of the
average daily net asset value of the Class B shares that are outstanding for
less than 8 years.
Lord Abbett Distributor uses the service fee to compensate authorized
institutions (except as to certain accounts for which tracking data is not
available) for providing personal services for accounts that hold Class B
shares. Those services are similar to those provided under the A Plan, described
above.
Lord Abbett Distributor pays an up-front pay-
13
<PAGE>
ment to authorized institutions totalling 4%, consisting of 0.25% for service
and 3.75% for a sales commission as described below.
Lord Abbett Distributor pays the 0.25% service fee to authorized
institutions in advance for the first year after Class B shares have been sold
by the authorized institutions. After the shares have been held for a year, Lord
Abbett Distributor pays the service fee on a quarterly basis. Lord Abbett
Distributor is entitled to retain such service fee payable under the B Plan with
respect to accounts for which there is no authorized institution of record or
for which such authorized institution did not qualify. Although not obligated to
do so, Lord Abbett Distributor may waive receipt from the Series of part or all
of the service fee payments.
The 0.75% annual distribution fee is paid to Lord Abbett Distributor to
compensate it for its services rendered in connection with the distribution of
Class B shares, including the payment and financing of sales commissions.
Although Class B shares are sold without a front-end sales charge, Lord Abbett
Distributor pays authorized institutions responsible for sales of Class B shares
a sales commission of 3.75% of the purchase price. This payment is made at the
time of sale from Lord Abbett Distributor's own resources. Lord Abbett has made
arrangements to finance these commission payments, which arrangements include
non-recourse assignments by Lord Abbett Distributor to the financing party of
such distribution and CDSC payments concerning Class B shares.
The distribution fee and CDSC payments described above allow investors to
buy Class B shares without a front-end sales charge while allowing Lord Abbett
Distributor to compensate authorized institutions that sell Class B shares. The
CDSC is intended to supplement Lord Abbett Distributor's reimbursement for the
commission payments it has made with respect to Class B shares and its related
distribution and financing costs. The distribution fee payments are at a fixed
rate and the CDSC payments are of a nature that, during any year, both forms of
payment may not be sufficient to reimburse Lord Abbett Distributor for its
actual expenses. The Series is not liable for any expenses incurred by Lord
Abbett Distributor in excess of (i) the amount of such distribution fee payments
to be received by Lord Abbett Distributor and (ii) unreimbursed distribution
expenses of Lord Abbett Distributor incurred in a prior plan year, subject to
the right of the Board of Directors or shareholders to terminate the B Plan.
Over the long term, the expenses incurred by Lord Abbett Distributor are likely
to be greater than such distribution fee and CDSC payments. Nevertheless, there
exists a possibility that for a short-term period Lord Abbett Distributor may
not have sufficient expenses to warrant reimbursement by receipt of such
distribution fee payments. Although Lord Abbett Distributor does not intend to
make a profit under the B Plan, the B Plan is considered a compensation plan
(i.e., distribution fees are paid regardless of expenses incurred) in order to
avoid the possibility of Lord Abbett Distributor not being able to receive
distribution fees because of a temporary timing difference between its incurring
expenses and receipt of such distribution fees.
Automatic Conversion of Class B Shares. On the eighth anniversary of your
purchase of Class B shares, those shares will automatically convert to Class A
shares. This conversion relieves Class B shareholders of the higher annual
distribution fee that applies to Class B shares under the Class B Rule 12b-1
Plan. The conversion is based on the relative net asset values of the two
classes, and no sales charge or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the reinvestment of
dividends and distributions will also convert to Class A shares on a pro rata
basis. The conversion feature is subject to the continued availability of an
opinion of counsel or a tax ruling described in "Purchases, Redemptions and
Shareholder Services" in the Statement of Additional Information.
Buying Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed for
cash before the first anniversary of their purchase, a CDSC of 1% will be
deducted from the redemption proceeds. That reimbursement charge will not apply
to shares purchased by the reinvestment of dividends or capital gains
distributions. The charge will be assessed on the lesser of the net asset value
of the shares at the time of redemption
14
<PAGE>
or the original purchase price. The Class C CDSC is paid to the Series to
reimburse it, in whole or in part, for the service and distribution fee payments
made by the Series at the time such shares were sold, as described below.
To determine whether the CDSC applies to a redemption, the Series redeems
shares in the following order: (1) shares acquired by reinvestment of dividends
and capital gains distributions, (2) shares held for one year or more and (3)
shares held the longest before the first anniversary of their purchase. If Class
C shares are exchanged into the same class of another Lord Abbett-sponsored fund
and subsequently redeemed before the first anniversary of their original
purchase, the charge will be collected by the other fund on behalf of this
Series' Class C shares. The Series will collect such a charge for other Lord
Abbett-sponsored funds in a similar situation.
Class C Rule 12b-1 Plan. The Series has adopted a Class C share Rule 12b-1 Plan
(the "C Plan") under which (except as to certain accounts for which tracking
data is not available) the Series pays authorized institutions through Lord
Abbett Distributor (1) a service fee and a distribution fee, at the time shares
are sold, not to exceed 0.25 and 0.75 of 1%, respectively, of the net asset
value of such shares and (2) at each quarter-end after the first anniversary of
the sale of shares, fees for services and distribution at annual rates not to
exceed 0.25 and 0.75 of 1% respectively, of the average annual net asset value
of such shares outstanding (payments with respect to shares not outstanding
during the full quarter to be prorated). These service and distribution fees are
for purposes similar to those mentioned above with respect to the A Plan. Sales
in clause (1) exclude shares issued for reinvested dividends and distributions
and shares outstanding in clause (2) include shares issued for reinvested
dividends and distributions after the first anniversary of their issuance.
5 SHAREHOLDER SERVICES
================================================================================
We offer the following shareholder services:
Telephone Exchange Privilege: Shares of any class may be exchanged without
a service charge: (a) for shares of the same class of any other Lord
Abbett-sponsored fund except for (i) LAEF, LASF and Mid-Cap Series of LARF and
(ii) certain tax-free, single-state series where the exchanging shareholder is a
resident of a state in which such series is not offered for sale and (b) for
shares of any authorized institution's affiliated money market fund satisfying
Lord Abbett Distributor as to certain omnibus account and other criteria
(together, "Eligible Funds").
You or your representative with proper identification can instruct the
Series to exchange uncertificated shares of a class (held by the transfer agent)
by telephone. Shareholders have this privilege unless they refuse it in writing.
The Series will not be liable for following instructions communicated by
telephone that it reasonably believes to be genuine and will employ reasonable
procedures to confirm that instructions received are genuine, including
requesting proper identification and recording all telephone exchanges.
Instructions must be received by the Series in Kansas City (800-821-5129) prior
to the close of the NYSE to obtain each fund's net asset value per class share
on that day. Expedited exchanges by telephone may be difficult to implement in
times of drastic economic or market change. The exchange privilege should not be
used to take advantage of short-term swings in the market. The Series reserves
the right to terminate or limit the privilege of any shareholder who makes
frequent exchanges. The Series can revoke the privilege for all shareholders
upon 60 days' prior written notice. A prospectus for the other Lord
Abbett-sponsored fund selected by you should be obtained and read before an
exchange. Exercise of the exchange privilege will be treated as a sale for
federal income tax purposes and, depending on the circumstances, a capital gain
or loss may be recognized.
Systematic Withdrawal Plan ("SWP"): Except for Retirement Plans for which
there is no such minimum, if the maximum offering price value of your
uncertificated shares is at least $10,000, you may have periodic cash
withdrawals automatically paid to you in either fixed or variable amounts. With
respect to Class B shares, the CDSC will be waived on redemptions of up to 12%
per year of the current
15
<PAGE>
net asset value of your account at the time your SWP is established. For Class B
shares (over 12% per year) and C shares, redemption proceeds due to a SWP will
be derived from the following sources in the order listed: (1) shares acquired
by reinvestment of dividends and capital gains, (2) shares held for six years or
more (Class B) or one year or more (Class C); and (3) shares held the longest
before the sixth anniversary of their purchase (Class B) or before the first
anniversary of their purchase (Class C). For Class B share redemptions over 12%
per year, the CDSC will apply to the entire redemption. Therefore, please
contact the Series for assistance in minimizing the CDSC in this situation.
Shareholders should be careful in establishing a SWP, especially to the extent
that such a withdrawal exceeds the annual total return for a class, in which
case, the shareholder's original principal will be invaded and, over time, may
be depleted.
Div-Move: You can invest the dividends paid on your account ($250 initial
and $50 subsequent minimum) into an existing account within the same class in
any Eligible Fund. The account must be either your account, a joint account for
you and your spouse, a single account for your spouse or a custodial account for
your minor child under the age of 21. Such dividends are not subject to a CDSC.
You should read the prospectus of any other fund before investing.
Invest-A-Matic: You can make fixed, periodic investments ($250 initial and
$50 subsequent minimum) into the Series and/or any Eligible Fund by means of
automatic money transfers from your bank checking account. You should read the
prospectus of the other fund before investing.
Retirement Plans: Lord Abbett makes available retirement plan documents
including 401(k) plans and custodial agreements for IRAs (Individual Retirement
Accounts including SIMPLE IRAs and Simplified Employee Pensions), 403(b) plans
and pension and profit-sharing plans.
Householding: A single copy of an annual or semi-annual report will be
sent to an address to which more than one registered shareholder of the Series
with the same last name has indicated mail is to be delivered, unless additional
reports are specifically requested in writing or by telephone.
6 OUR MANAGEMENT
================================================================================
All correspondence should be directed to the World Bond-Debenture Series
of Lord Abbett Securities Trust (P.O. Box 419100, Kansas City, Missouri 64141;
800-821-5129).
Our business is managed by our officers on a day-to-day basis under the overall
direction of our Board of Trustees with the advice of Lord Abbett. We employ
Lord Abbett as investment manager pursuant to a Management Agreement. Lord
Abbett has been an investment manager for over 67 years and currently manages
approximately $25 billion in a family of mutual funds and other advisory
accounts. Under the Management Agreement, Lord Abbett provides us with
investment management services and executive and other personnel, pays the
remuneration of our officers and trustees affiliated with Lord Abbett, provides
us with office space and pays for ordinary and necessary office and clerical
expenses relating to research, statistical work and supervision of the Series'
portfolio and certain other costs. Lord Abbett provides similar services to
twelve other Lord Abbett-sponsored funds having various investment objectives
and also advises other investment clients.
We pay Lord Abbett a monthly fee, based on average daily net assets for
each month. For the first fiscal year of the Series, the fee paid to Lord Abbett
as a percentage of average daily net assets is expected to be at the annual rate
of .50%. In addition, we pay all expenses not expressly assumed by Lord Abbett.
The Fund.-. The Fund was organized as a Delaware business trust on
February 26, 1993. The Series is a non-diversified open-end management
investment company. 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.
7 DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
================================================================================
Our net investment income is paid to shareholders quarterly as a dividend.
Dividends may be taken in cash or reinvested in additional shares at net asset
value without a sales charge.
16
<PAGE>
If you elect a cash payment (i) a check will be mailed to you as soon as
possible after the quarterly reinvestment date or (ii) if you arrange for direct
deposit, your payment will be wired directly to your bank account within one day
after the date on which the dividend is paid.
A long-term capital gains distribution is made when we have net profits
during the year from sales of securities which we have held more than one year.
If we realize net short-term capital gains, they also will be distributed. Any
capital gains distribution are expected to be paid in November. You may take
them in cash or reinvest them in additional shares at net asset value without a
sales charge.
Dividends and distributions declared in October, November or December of
any year to shareholders of record as of a date in such a month will be treated
for federal income tax purposes as having been received by shareholders in that
year if they are paid before February 1 of the following year.
We intend to continue to meet the requirements of Subchapter M of the
Internal Revenue Code. We will try to distribute to shareholders all our net
investment income and net realized capital gains, so as to avoid the necessity
of the Series paying federal income tax. Shareholders, however, must report
dividends and capital gains distributions as taxable income. Dividends derived
from the Series' ordinary income and net short-term capital gains are taxable to
Shareholders at ordinary income rates. 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 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 between 12 and 18 months, the tax rate remains at 28% (15% if the taxpayer
is in the 15% tax bracket).
Shareholders may be subject to a $50 penalty under the Internal Revenue
Code and we may be required to withhold and remit to the U.S. Treasury a portion
(31%) of any redemption proceeds (including the value of shares exchanged into
another Lord Abbett-sponsored fund), and of any dividend or distribution on any
account, where the payee (shareholder) failed to provide a correct taxpayer
identification number or to make certain required certifications.
We will inform shareholders of the federal tax status of each dividend and
distribution after the end of each calendar year. Shareholders should consult
their tax advisers concerning applicable state and local taxes as well as on the
tax consequences of gains or losses from the redemption or exchange of our
shares.
8 REDEMPTIONS
================================================================================
To obtain the proceeds of an expedited redemption of $50,000 or less, you
or your representative with proper identification can telephone the Series. The
Series will not be liable for following instructions communicated by telephone
that it reasonably believes to be genuine and will employ reasonable procedures
to confirm that instructions received are genuine, including requesting proper
identification, recording all telephone redemptions and mailing the proceeds
only to the named shareholder at the address appearing on the account
registration.
If you do not qualify for the expedited procedures described above, to
redeem shares directly, send your request to World Bond-Debenture Series of Lord
Abbett Securities Trust (P.O. Box 419100, Kansas City, Missouri 64141) with
signature(s) and any legal capacity of the signer(s) guaranteed by an eligible
guarantor, accompanied by any certificates for shares to be redeemed and other
required documentation. We will make payment of the net asset value of the
shares on the date the redemption order was received in proper form. Payment
will be made within three days. The Series may suspend the right to redeem
shares for not more than seven days (or longer under unusual circumstances as
permitted by Federal law). If you have purchased Series shares by check and
subsequently submit a redemption request, redemption proceeds will be paid upon
clearance of your purchase check, which may take up to 15 days. To avoid delays
you may arrange for the bank upon which a check was drawn to communicate to the
17
<PAGE>
Series that the check has cleared. Shares also may be redeemed by the Series at
net asset value through your securities dealer who, as an unaffiliated dealer,
may charge you a fee. If your dealer receives your order prior to the close of
the NYSE and communicates it to Lord Abbett, as our agent, prior to the close of
Lord Abbett's business day, you will receive the net asset value as of the close
of the NYSE on that day. If the dealer does not communicate such an order to
Lord Abbett until the next business day, you will receive the net asset value as
of the close of the NYSE on that next business day.
Shareholders who have redeemed their shares have a one-time right to
reinvest, in another account having the identical class and registration, in any
of the Eligible Funds at the then applicable net asset value (i) without the
payment of a front-end sales charge or (ii) with reimbursement for the payment
of any CDSC. Such reinvestment must be made within 60 days of the redemption and
is limited to no more than the amount of the redemption proceeds.
Under certain circumstances and subject to prior written notice, our Board
of Trustees may authorize redemption of all of the shares in any account in
which there are fewer than 25 shares.
Tax-qualified Plans: For redemptions of $50,000 or less, follow normal
redemption procedures. Redemptions over $50,000 must be in writing from the
employer, broker or plan administrator stating the reason for the redemption.
The reason for the redemption must be received by the Series prior to, or
concurrent with, the redemption request.
9 PERFORMANCE
================================================================================
Yield and Total Return. Yield and total return data may, from time to time, be
included in advertisements about the Series. 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 an investment return based on dividends actually paid to shareholders.
To show that return, a dividend distribution rate may be calculated. A 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. The yield 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 Series' net asset value per share. Yields for
Class B and Class C shares do not reflect the deduction of the CDSC.
"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
Series 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.
The Series' dividend distribution rate may differ from its SECyield
primarily because the Series may purchase short- and intermediate-term
high-coupon securities at a premium and, consistent with applicable tax
regulations, distribute to shareholders all of the interest income on these
securities without amortizing the premiums. This practice also is used by the
Series for financial statement purposes and is in accordance with generally
accepted accounting principles. In other words, the Series may pay more than
face value for a security that pays a greater-than-market rate of interest and
then distribute all such interest as dividends. The principal payable on the
security at maturity will equal face value, and so the market value of the
security will gradually decrease to face value,
18
<PAGE>
assuming no change in the market rate of interest or in the credit quality of
the issuer. Shareholders should recognize that such dividends therefore will
tend to decrease the net asset value of the Series. Dividends paid from this
interest income are taxable to shareholders at ordinary income rates.
The Series may make distributions in excess of net investment income from
time to time to provide more stable dividends. Such distributions could cause
slight decreases in net asset value over time, but historically have not
resulted in a return of capital for tax purposes.
See "Performance" in the Statement of Additional Information for a more
detailed discussion concerning the computation of the Series' total return and
yield.
- --------------------------------------------------------------------------------
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.
19
<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.
LABD-1-597
(5/97)
LORD ABBETT
SECURITIES TRUST
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
20
<PAGE>
LORD ABBETT March 19, 1998
Statement of Additional Information
Lord Abbett Securities Trust
World Bond-Debenture Series
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a Prospectus. A Prospectus may
be obtained from your securities dealer or from Lord Abbett Distributor LLC
("Lord Abbett Distributor") at The General Motors Building, 767 Fifth Avenue,
New York, New York 10153-0203. This Statement of Additional Information, relates
to, and should be read in conjunction with, the Prospectus dated March 19, 1998.
Lord Abbett Securities Trust (sometimes referred to as the "Fund") was organized
as a Delaware business trust on February 26, 1993. The Fund has four series, but
only World Bond-Debenture Series ("we" or the "Series") is described in this
Statement of Additional Information. The Series has three classes of shares (A,
B and C). All Fund 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 a contract with a principal
underwriter and the election of directors from its separate voting requirements.
Shareholder inquiries should be made by writing directly to the Fund or by
calling 800-821-5129. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS Page
1. Investment Policies 2
2. Trustees and Officers 4
3. Investment Advisory and Other Services 7
4. Portfolio Transactions 7
5. Purchases, Redemptions and
Shareholder Services 9
6. Past Performance 15
7. Taxes 16
8. Information About the Fund 17
9. Financial Statements 17
10. Appendix 18
<PAGE>
1.
Investment Policies
Fundamental Investment Restrictions
We are subject to the following investment restrictions which cannot be changed
without approval of a majority of our outstanding shares. The Series may not:
(1) borrow money, except that (i) the 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) the Series may
borrow up to an additional 5% of its total assets for temporary purposes, (iii)
the Series may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the 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 the 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 the 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 the 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 the Series, buy securities of one issuer representing more than (i) 5%
of the 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 Trustees without shareholder approval. The Series may
not: (1) borrow in excess of 33 1/3% of its total assets, and then only as a
temporary measure for extraordinary or emergency purposes; (2) make short sales
of securities or maintain a short position except to the extent permitted by
applicable law; (3) invest knowingly more than 15% of its net assets (at the
time of investment) in illiquid securities, except for securities qualifying for
resale under Rule 144A of the Securities Act of 1933, deemed to be liquid by the
Board of Directors; (4) invest in the securities of other investment companies
except as permitted by applicable law; (5) invest in securities of issuers
which, with their predecessors, have a record of less than three years'
continuous operations, if more than 5% of the 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 trustees of the Fund or by one
or more partners or members of the Series' underwriter or investment adviser if
these owners in the aggregate own beneficially more than 5% of the securities of
such issuer; (7) invest in real estate limited partnership interests or
interests in oil, gas or other mineral leases, or exploration or other
development programs, except that the Series may invest in securities issued by
companies that engage in oil, gas or other mineral exploration or other
development activities; (8) write, purchase or sell puts, calls, straddles,
spreads or combinations thereof, except to the extent permitted in the Series'
prospectus and statement of additional information, as they may be amended from
time to time; (9) buy from or sell to any of its officers, trustees, employees,
or its investment adviser or any of its officers, directors, partners or
employees, any securities other than shares
<PAGE>
of the Series; or (10) invest more than 10% of the market value of its gross
assets at the time of investment in debt securities which are in default as to
interest or principal.
Portfolio Turnover Rate. For the first year of operation, our portfolio turnover
is expected to be between 100% and 150%.
Investment Techniques
The Series intends to utilize, from time to time, one or more of the investment
techniques described below, including covered call options, rights and warrants
and repurchase agreements. While some of these techniques involve risk when
utilized independently, the Series intends to use them to reduce risk and
volatility in its portfolios.
Covered Call Options. The Series may write covered call options on securities it
owns ("call options"). A call option on securities gives the purchaser of the
option, upon payment of a premium to the writer of the option, the right to call
upon the writer to deliver a specified security on or before a fixed date at a
predetermined price.
The writing of call options will, therefore, involve a potential loss of
opportunity to sell securities at higher prices. In exchange for the premium
received. The writer of a fully collateralized call option gives up the gain
possibility of the underlying security beyond the call price and continues to
have the downside risk of such securities. In addition, in exchange for the
premium received, the writer of the call gives up the gain possibility of the
stock appreciating above the call price. While an option that has been written
is in force, the maximum profit that may be derived from the optioned security
is the sum of the premium less brokerage commissions and fees plus the
difference between the strike price of the call and the market price of the
underlying security.
Repurchase Agreements. The Series may enter into repurchase agreements with
respect to a security. A repurchase agreement is a transaction by which the
Series acquires a security and simultaneously commits to resell that security to
the seller (a bank or securities dealer) at an agreed-upon price on an
agreed-upon date. The resale price reflects the purchase price plus an
agreed-upon market rate of interest which is unrelated to the coupon rate or
date of maturity of the purchased security. In this type of transaction, the
securities purchased by the Series have a total value in excess of the value of
the repurchase agreement. The Series requires at all times that the repurchase
agreement be collateralized by cash or U.S. Government securities having a value
equal to, or in excess of, the value of the repurchase agreement. Such
agreements permit the Series to keep all of its assets at work while retaining
flexibility in pursuit of investments of a longer-term nature.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreement defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, the Series
may incur a loss upon their disposition. If the seller of the agreement becomes
insolvent and subject to liquidation or reorganization under the Bankruptcy Code
or other laws, a bankruptcy court may determine that the underlying securities
are collateral not within the control of the Series and are therefore subject to
sale by the trustee in bankruptcy. Even though the repurchase agreements may
have maturities of seven days or less, they may lack liquidity, especially if
the issuer encounters financial difficulties. While the Series acknowledges
these risks, it is expected that they can be controlled through stringent
selection criteria and careful monitoring procedures. The Series intends to
limit repurchase agreements to transactions with dealers and financial
institutions believed by the Series to present minimal credit risks. The Series
will monitor creditworthiness of the repurchase agreement sellers on an ongoing
basis.
Lending Portfolio Securities
The Series may lend its portfolio securities to registered broker-dealers. These
loans, if and when made, may not exceed 30% of theSeries' total assets. The
Series' lending of securities will be collateralized by cash or marketable
securities issued or guaranteed by the U.S. Government or its agencies ("U.S.
Government securities") or other permissible means. The cash or instruments
collateralizing the Series' lending of securities will be maintained at all
times in an amount at least equal to the current market value of the loaned
securities. From time to time, the Series may allow a part of the interest
received with respect to the investment of collateral to be paid to the borrower
and/or a third party that is not affiliated with the Series and is acting as a
"placing broker." No fee will be paid to affiliated persons of the Series.
3
<PAGE>
By lending portfolio securities, the Series can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in permissible investments, such as U.S.
Government securities, or obtaining yield in the form of interest paid by a
borrower when such U.S. Government securities are used as collateral. The Series
will comply with the following conditions whenever it lends securities: (i) the
Series must receive at least 100% collateral from the borrower; (ii) the
borrower must increase the collateral whenever the market value of the
securities loaned rises above the level of the collateral; (iii) the Series must
be able to terminate the loan at any time; (iv) the Series must receive
reasonable compensation with respect to the loan, as well as any dividends,
interest or other distributions on the loaned securities; (v) the Series may pay
only reasonable fees in connection with the loan; and (vi) voting rights on the
loaned securities may pass to the borrower, except that if a material event
adversely affecting the investment in the loaned securities occurs, the Fund's
Board of Trustees must terminate the loan and regain the right to vote the
securities.
When-Issued Transactions
As stated in the Prospectus, the Series may purchase portfolio securities on a
when-issued basis. When-issued transactions involve a commitment by the Series
to purchase securities, with payment and delivery ("settlement") to take place
in the future, in order to secure what is considered to be an advantageous price
or yield at the time of entering into the transaction. When the Series enters
into a when-issued purchase, it becomes obligated to purchase securities and it
assumes all the rights and risks attendant to ownership of a security, although
settlement occurs at a later date. The value of fixed-income securities to be
delivered in the future will fluctuate as interest rates vary. At the time the
Series makes the commitment to purchase a security on a when-issued basis, it
will record the transaction and reflect the liability for the purchase and the
value of the security in determining its net asset value. The Series generally
has the ability to close out a purchase obligation on or before the settlement
date, rather than take delivery of the security. Under no circumstances will
settlement for such securities take place more than 120 days after the purchase
date.
2.
Trustees and Officers
The following trustees are partners of Lord, Abbett & Co. ("Lord Abbett"), The
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/or directors or 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 Plan
described in the Prospectus.
Robert S. Dow, age 53, Chairman and President
E. Wayne Nordberg, age 59, Vice President
The following outside trustees 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 Network. Formerly President
and Chief Executive Officer of Time Warner Cable Programming, Inc. Prior to
that, President and Chief Operating Officer of Home Box Office, Inc. Age 56.
4
<PAGE>
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,
formerly Chairman and Chief Executive Officer of Lincoln Snacks, Inc.,
manufacturer of branded snack foods (1992-1994). Currently serves as Director of
Den West Restaurant Co., J.B. Williams, and Fountainhead Water Company. 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.
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 column sets forth information with
respect to the equity-based benefits accrued for outside directors by the Lord
Abbett-sponsored funds. The fourth column sets forth information with respect to
the retirement plan for outside directors maintained by each of the Lord
Abbett-sponsored funds. The fifth column sets forth the total compensation
payable by such funds to the outside directors. No director of the Fund
associated with Lord Abbett and no officer of the Fund received any compensation
from the Fund for acting as a director or officer.
For The Fiscal Year Ended October 31, 1997
------------------------------------------
(1) (2) (3) (4)
For Year Ended
Equity-Based December 31, 1997
Benefits Accrued Total Compensation
5
<PAGE>
Aggregate By The Fund And Accrued By The Fund
Compensation Twelve Other Lord And Twelve Other Lord
Accrued By Abbett-Sponsored Abbett-Sponsored
Name Of Director The Fund(1) Funds(2) Funds(3)
- ---------------- ----------- ----------------- ---------------------
E. Thayer Bigelow $450 $16,641 $56,000
Stewart S. Dixon $442 $32,015 $55,000
John C. Jansing $442 $46,430 $55,000
C. Alan MacDonald $460 $29,994 $57,400
Hansel B. Millican, Jr. $446 $38,069 $55,000
Thomas J. Neff $449 $18,804 $56,000
1. Outside trustees' 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 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
trustees. The amounts of the aggregate compensation payable by the Fund as
of October 31, 1997, deemed invested in Fund shares, including dividends
reinvested and changes in net asset value applicable to such deemed
investments, were: Mr. Bigelow, 939; Mr. Dixon, 21,555; Mr. Jansing,
165,003; Mr. MacDonald, 9,515; Mr. Millican, 21,626 and Mr. Neff, 22,587.
If the amounts deemed invested in Fund shares were added to each trustee's
actual holdings of Fund shares as of October 31, 1997, each would own the
following: Mr. Bigelow, shares; Mr. Dixon, shares; Mr. Jansing, shares;
Mr. MacDonald, shares; Mr.Millican, shares; Mr. Neff, shares.
2. Each Lord Abbett-sponsored fund has a retirement plan providing that
outside directors(trustees) may receive annual retirement benefits for
life equal to 100% of their final annual retainers following retirement at
or after age 72 with at least 10 years of service. Each plan also provides
for a reduced benefit upon early retirement under certain circumstances, a
pre-retirement death benefit and actuarially reduced joint-and-survivor
spousal benefits. Such retirement plans, and the deferred compensation
plans referred to in footnote one, were amended during 1996 to, among
other things, enable outside directors(trustees) to elect to convert their
prospective benefits under the retirement plans to equity-based benefits
under the deferred compensation plans (renamed the equity-based plans and
hereinafter referred to as such). Five of the six outside
directors(trustees) made such an election. Mr. Jansing did not. The
amounts accrued in column 3 were accrued by the Lord Abbett-sponsored
funds for the twelve months ended October 31, 1997 with respect to the
equity-based plans. Under the 1996 amendments, the annual retainer was
increased to $50,000 and the annual retirement benefits were increased
from 80% to 100% of a trustee's final annual retainer. Thus, if Mr.
Jansing were to retire at or after age 72 and the annual retainer payable
by the funds were the same as it is today, he would receive annual
retirement benefits of $50,000.
3. This column shows aggregate compensation, including trustees 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.
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, Nordberg and
Walsh are partners of Lord Abbett; the others are employees; Zane Brown, age 46,
Executive Vice President; Paul A. Hilstad, age 55 (with Lord Abbett since 1995 -
formerly Senior Vice President and General Counsel of American Capital
Management & Research, Inc.), Vice President and Secretary; Stephen I. Allen,
age 44; Daniel E. Carper, age 46; Daria 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 - 1995 to 1997, prior thereto Senior Vice
President and Associate General Counsel of Kidder, Peabody & Co. Incorporated);
Thomas F. Konop, age 55; Robert Noelke, age 41; E. Wayne Nordberg, age 59; 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.
The Fund does not hold annual meetings of shareholders unless one or more
matters are required to be acted on by shareholders under the Act. Under the
Fund's Declaration of Trust, shareholder meetings may be called at any time by
certain officers of the Fund or by a majority of the trustees (i) for the
purpose of taking action upon any matter requiring the vote or authority of the
Fund's shareholders or upon other matters deemed to be necessary or desirable or
(ii) upon the written request of the holders of at least one-quarter of the
shares of the Series outstanding and entitled to vote at the meeting.
As of December 26, 1997, Lord, Abbett & Co. owns all of our shares. Therefore,
those trustees and officers who are also partners of Lord, Abbett & Co. own as a
group, 100% of our outstanding shares.
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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, all of
whom are officers and/or directors of the Fund, are: 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 other
general partners of Lord Abbett who are neither officers nor directors of the
Fund are W. Thomas Hudson and Michael McLaughlin. The address of each partner is
The General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203.
The services performed by Lord Abbett are described in the Prospectus under "Our
Management". Under the Management Agreement, we are obligated to pay Lord Abbett
a monthly fee, based on average daily net assets for each month, at the annual
rate of .50 of 1% of the Series' average daily net assets. This fee is allocated
among Classes A, B and C based on the classes' proportionate shares of such
average daily net assets.
We pay all expenses not expressly assumed by Lord Abbett, including, without
limitation, 12b-1 expenses, outside trustees' fees and expenses, association
membership dues, legal and auditing fees, taxes, transfer and dividend
disbursing agent fees, shareholder servicing costs, expenses relating to
shareholder meetings, expenses of preparing, printing and mailing stock
certificates and shareholder reports, expenses of registering our shares under
federal and state securities laws, expenses of preparing, printing and mailing
prospectuses to existing shareholders, insurance premiums, brokerage and other
expenses connected with executing portfolio transactions.
The Bank of New York ("BNY"), 48 Wall Street, New York, New York, is the Fund's
custodian. In accordance with the requirements of Rule 17f-5, the Fund's
trustees have approved arrangements permitting the Series' foreign assets not
held by BNY or its foreign branches to be held by certain qualified foreign
banks and depositories.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281 are
the independent accountants of the Fund and must be approved at least annually
by our Board of Trustees to continue in such capacity. Independent public
accountants perform audit services for the Fund including the examination of
financial statements included in our annual report to shareholders.
4.
Portfolio Transactions
With respect to the Series, purchases and sales of portfolio securities usually
will be principal transactions and normally such securities will be purchased
directly from the issuer or from an underwriter or market maker for the
securities. Therefore, the Series usually will pay no brokerage commissions for
such purchases. Purchases from underwriters of portfolio securities will include
a commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers will include a dealer's markup. Principal
transactions, including riskless principal transactions, are not afforded the
protection of the safe harbor in Section 28(e) of the Securities Exchange Act
of 1934.
Our policy is to obtain best execution on all our portfolio transactions, which
means that we seek to have purchases and sales of portfolio securities executed
at the most favorable prices, considering all costs of the transaction including
brokerage commissions and dealer markups and markdowns and taking into account
the full range and quality of the brokers' services. Consistent with obtaining
best execution, the Series may pay, as described below, a higher commission than
some brokers might charge on the same transaction. This policy governs the
selection of brokers or dealers and the market in which the transaction is
executed. To the extent permitted by law, we may, if considered advantageous,
make a purchase from or sale to another Lord Abbett-sponsored fund without the
intervention of any broker-dealer.
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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.
In transactions on stock exchanges in the United States, commissions are
negotiated, whereas on many foreign stock exchanges commissions are fixed. In
the case of securities traded in the foreign and domestic over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup. Purchases from underwriters of newly-issued
securities for inclusion in the Series' portfolio usually will include a
concession paid to the underwriter by the issuer and purchases from dealers
serving as market makers will include the spread between the bid and asked
prices. When commissions are negotiated, we pay a commission rate that we
believe is appropriate to give maximum assurance that our brokers will provide
us, on a continuing basis, the highest level of brokerage services available.
While we do not always seek the lowest possible commissions on particular
trades, we believe that our commission rates are in line with the rates that
many other institutions pay. Our traders are authorized to pay brokerage
commissions in excess of those that other brokers might accept on the same
transactions in recognition of the value of the services performed by the
executing brokers, viewed in terms of either the particular transaction or the
overall responsibilities of Lord Abbett with respect to us and the other
accounts they manage. Such services include showing us trading opportunities
including blocks, a willingness and ability to take positions in securities,
knowledge of a particular security or market, proven ability to handle a
particular type of trade, confidential treatment, promptness and reliability.
Some of our brokers also provide research services at least some of which are
useful to Lord Abbett in their overall responsibilities with respect to us and
the other accounts they manage. Research includes the furnishing of analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts and trading equipment and
computer software packages, acquired from third-party suppliers, that enable
Lord Abbett to access various information bases. Such services may be used by
Lord Abbett in servicing all their accounts, and not all of such services will
necessarily be used by Lord Abbett in connection with their management of the
Series; 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 Series; 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 the Series' 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.
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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.
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 Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The Series values its portfolio securities at market value as of the close of
the NYSE. Market value will be determined as follows: securities listed or
admitted to trading privileges on the New York or American Stock Exchange or on
the NASDAQ National Market System are valued at the last sales price, or, if
there is no sale on that day, at the mean between the last bid and asked prices,
or, in the case of bonds, in the over-the-counter market if, in the judgment of
the Fund's officers, that market more accurately reflects the market value of
the bonds. Over-the-counter securities not traded on the NASDAQ National Market
System are valued at the mean between the last bid and asked prices. Securities
for which market quotations are not available are valued at fair market value
under procedures approved by the Board of Trustees.
The maximum offering price of Class A shares on December 26, 1997 was computed
as follows:
Class A
-------
Net asset value per share (net assets divided
by shares outstanding)................................$10.03
Maximum offering price per share (net asset
value divided by .9525)...............................$10.53
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All assets and liabilities expressed in foreign currencies will be converted
into United States dollars at the mean between the buying and selling rates of
such currencies against United States dollars last quoted by any major bank. If
such quotations are not available, the rate of exchange will be determined in
accordance with policies established by the Board of Trustees of the Fund. The
Board of Trustees will monitor, on an ongoing basis, the Fund's method of
valuation.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York. In addition, European or Far Eastern
securities trading generally or in a particular country or countries may not
take place on all business days in New York. Furthermore, trading takes place in
various foreign markets on days which are not business days in New York and on
which the Series' net asset values are not calculated. Such calculation does not
take place contemporaneously with the determination of the prices of the
majority of the portfolio securities used in such calculation. Events affecting
the values of portfolio securities that occur between the time their prices are
determined and the close of the NYSE will not be reflected in the Series'
calculation of net asset values unless the Fund's trustees determine that the
particular event would materially affect net asset value, in which case an
adjustment will be made.
The net asset value per share for the Class B and C shares is determined in the
same manner as for the Class A shares (net assets divided by shares
outstanding). Our Class B and C shares are offered at net asset value.
The Fund has entered into a distribution agreement with Lord Abbett Distributor
LLC, a New York limited liability company ("Lord Abbett Distributor") and
subsidiary of Lord Abbett under which Lord Abbett Distributor is obligated to
use its best efforts to find purchasers for the shares of the Series, and to
make reasonable efforts to sell Series shares so long as, in Lord Abbett
Distributor's judgment, a substantial distribution can be obtained by reasonable
efforts.
Conversion of Class B Shares. The conversion of Class B shares on the eighth
anniversary of their purchase is subject to the continuing availability of a
private letter ruling from the Internal Revenue Service, or an opinion of
counsel or tax adviser, to the effect that the conversion of Class B shares does
not constitute a taxable event for the holder under Federal income tax law. If
such a revenue ruling or opinion is no longer available, the automatic
conversion feature may be suspended, in which event no further conversions of
Class B shares would occur while such suspension remained in effect. Although
Class B shares could then be exchanged for Class A shares on the basis of
relative net asset value of the two classes, without the imposition of a sales
charge or fee, such exchange could constitute a taxable event for the holder.
Class A, B and C Rule 12b-1 Plans. As described in the Prospectus, the Series
has adopted a Distribution Plan and Agreement pursuant to Rule 12b-1 of the Act
for each of the three Series Classes: the "A Plan", the "B Plan" and the "C
Plan", respectively. In adopting each Plan and in approving its continuance, the
Board of Trustees 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. Lord Abbett used all amounts received under each Plan for
payments to dealers for (i) providing continuous services to shareholders, such
as answering shareholder inquiries, maintaining records, and assisting
shareholders in making redemptions, transfers, additional purchases and
exchanges and (ii) their assistance in distributing shares of the Fund.
Each Plan requires the trustees 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 trustees,
including a majority of the trustees 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 trustees"), cast in
person at a meeting called for the purpose of voting on the Plan. No Plan may be
amended to increase materially above the limits set forth therein the amount
spent for distribution expenses thereunder without approval by a majority of the
outstanding voting securities of the applicable class and the approval of a
majority of the trustees, including a majority of the outside trustees. Each
Plan may be terminated at any time by vote of a majority of the outside trustees
or by vote of a majority of its Class's outstanding voting securities.
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Contingent Deferred Sales Charges. A Contingent Deferred Sales Charge ("CDSC")
(i) applies regardless of class, (ii) will not apply to shares purchased by the
reinvestment of dividends or capital gains distributions; (iii) will be assessed
on the lesser of the net asset value of the shares at the time of redemption or
the original purchase price and (iv) will not be imposed on the amount of your
account value represented by the increase in net asset value over the initial
purchase price (including increases due to the reinvestment of dividends and
capital gains distributions) and upon early redemption of shares.
Class A Shares. As stated in the Prospectus, subject to certain exceptions ,a
CDSC of 1% is imposed with respect to those Class A shares (or Class A shares of
another Lord Abbett-sponsored fund or series acquired through exchange of such
shares) on which the Fund has paid the one-time distribution fee of 1% if such
shares are redeemed out of the Lord Abbett-sponsored family of funds within a
period of 24 months from the end of the month in which the original sale
occurred.
Class B Shares. As stated in the Prospectus, subject to certain exceptions, if
Class B shares (or Class B shares of another Lord Abbett-sponsored fund or
series acquired through exchange of such shares) are redeemed out of the Lord
Abbett-sponsored family of funds for cash before the sixth anniversary of their
purchase, a CDSC will be deducted from the redemption proceeds. The Class B CDSC
is paid to Lord Abbett Distributor to reimburse its expenses, in whole or in
part, for providing distribution-related service to the Fund in connection with
the sale of Class B shares.
To determine whether the CDSC applies to a redemption, the Fund redeems shares
in the following order: (1) shares acquired by reinvestment of dividends and
capital gains distributions, (2) shares held on or after the sixth anniversary
of their purchase, and (3) shares held the longest before such sixth
anniversary.
The amount of the contingent deferred sales charge will depend on the number of
years since you invested and the dollar amount being redeemed, according to the
following schedule:
Anniversary of the Day on Contingent Deferred Sales Charge
Which the Purchase Order Was Accepted on Redemptions (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, subject to certain exceptions if
Class C shares are redeemed for cash before the first anniversary of their
purchase, the redeeming shareholder will be required to pay to the Fund on
behalf of Class C shares a CDSC of 1% of the lower of cost or the then net asset
value of Class C shares redeemed. If such shares are exchanged into the same
class of another Lord Abbett-sponsored fund and subsequently redeemed before the
first anniversary of their original purchase, the charge will be collected by
the other fund on behalf of this Fund's Class C shares.
General. The percentage (1% in the case of Class A and C shares and 5% through
1% in the case of Class B shares) used to calculate CDSCs described above for
the Class A, Class B and Class C shares is sometimes hereinafter referred to as
the "Applicable Percentage".
With respect to Class A and Class B shares, no CDSC is payable on redemptions by
participants or beneficiaries from employer-sponsored retirement plans under the
Internal Revenue Code for benefit payments due to plan loans, hardship
withdrawals, death, retirement or separation from service and for returns of
excess contributions to retirement plan sponsors. With respect to Class A shares
purchased pursuant to a special retirement wrap program, no CDSC is payable on
11
<PAGE>
redemptions which continue as investments in another fund participating in the
program. With respect to Class B shares, no CDSC is payable for redemptions (i)
in connection with Systematic Withdrawal Plan and Div-Move services as described
below under those headings, (ii) in connection with mandatory distribution under
403(b) plans and IRAs and (iii) in connection with death of the shareholder. In
the case of Class A and Class C shares, the CDSC is received by the Fund and is
intended to reimburse all or a portion of the amount paid by the Fund if the
shares are redeemed before the Fund has had an opportunity to realize the
anticipated benefits of having a long-term shareholder account in the Fund. In
the case of Class B shares, the CDSC is received by Lord Abbett Distributor and
is intended to reimburse its expenses of providing distribution-related service
to the Fund (including recoupment of the commission payments made) in connection
with the sale of Class B shares before Lord Abbett Distributor has had an
opportunity to realize its anticipated reimbursement by having such a long-term
shareholder account subject to the B Plan distribution fee.
The other funds and series which participate in the Telephone Exchange Privilege
(except (a) Lord Abbett U.S. Government Securities Money Market Fund, Inc.
("GSMMF"), (b) certain series of Lord Abbett Tax-Free Income Fund and Lord
Abbett Tax-Free Income Trust for which a Rule 12b-1 Plan is not yet in effect,
and (c) any authorized institution's affiliated money market fund satisfying
Lord Abbett Distributor as to certain omnibus account and other criteria,
hereinafter referred to as an "authorized money market fund" or "AMMF"
(collectively, the "Non-12b-1 Funds")) have instituted a CDSC for each class on
the same terms and conditions. No CDSC will be charged on an exchange of shares
of the same class between Lord Abbett funds or between such funds and AMMF. Upon
redemption of shares out of the Lord Abbett family of funds or out of AMMF, the
CDSC will be charged on behalf of and paid: (i) to the fund in which the
original purchase (subject to a CDSC) occurred, in the case of the Class A and
Class C shares and (ii) to Lord Abbett Distributor if the original purchase was
subject to a CDSC, in the case of the Class B shares. Thus, if shares of a Lord
Abbett fund are exchanged for shares of the same class of another such fund and
the shares of the same class tendered ("Exchanged Shares") are subject to a
CDSC, the CDSC will carry over to the shares of the same class being acquired,
including GSMMF and AMMF ("Acquired Shares"). Any CDSC that is carried over to
Acquired Shares is calculated as if the holder of the Acquired Shares had held
those shares from the date on which he or she became the holder of the Exchanged
Shares. Although the Non-12b-1 Funds will not pay a distribution fee on their
own shares, and will, therefore, not impose their own CDSC, the Non-12b-1 Funds
will collect the CDSC (a) on behalf of other Lord Abbett funds, in the case of
the Class A and Class C shares and (b) on behalf of Lord Abbett Distributor, in
the case of the Class B shares. Acquired Shares held in GSMMF and AMMF which are
subject to a CDSC will be credited with the time such shares are held in GSMMF
but will not be credited with the time such shares are held in AMMF. Therefore,
if your Acquired Shares held in AMMF qualified for no CDSC or a lower Applicable
Percentage at the time of exchange into AMMF, that Applicable Percentage will
apply to redemptions for cash from AMMF, regardless of the time you have held
Acquired Shares in AMMF.
In no event will the amount of the CDSC exceed the Applicable Percentage of the
lesser of (i) the net asset value of the shares redeemed or (ii) the original
cost of such shares (or of the Exchanged Shares for which such shares were
acquired). No CDSC will be imposed when the investor redeems (i) amounts derived
from increases in the value of the account above the total cost of shares being
redeemed due to increases in net asset value, (ii) shares with respect to which
no Lord Abbett fund paid a 12b-1 fee and, in the case of Class B shares, Lord
Abbett Distributor paid no sales charge or service fee (including shares
acquired through reinvestment of dividend income and capital gains
distributions) or (iii) shares which, together with Exchanged Shares, have been
held continuously for 24 months from the end of the month in which the original
sale occurred (in the case of Class A shares); for six years or more (in the
case of Class B shares) and for one year or more (in the case of Class C
shares). In determining whether a CDSC is payable, (a) shares not subject to the
CDSC will be redeemed before shares subject to the CDSC and (b) of the shares
subject to a CDSC, those held the longest will be the first to be redeemed.
Exchanges. The Prospectus briefly describes the Telephone Exchange Privilege.
You may exchange some or all of your shares of any class for those in the same
class of: (i) Lord Abbett-sponsored funds currently offered to the public with a
sales charge (front-end, back-end or level ), (ii) GSMMF or (iii) AMMF, to the
extent offers and sales may be made in your state. You should read the
prospectus of the other fund before exchanging. In establishing a new account by
exchange, shares of the Fund being exchanged must have a value equal to at least
the minimum initial investment required for the other fund into which the
exchange is made.
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<PAGE>
Shareholders in other Lord Abbett-sponsored funds and AMMF have the same right
to exchange their shares for the corresponding class of the Fund's shares.
Exchanges are based on relative net asset values on the day instructions are
received by the Fund in Kansas City if the instructions are received prior to
the close of the NYSE in proper form. No sales charges are imposed except in the
case of exchanges out of GSMMF or AMMF (unless a sales charge (front-end,
back-end or level) was paid on the initial investment in a Lord Abbett-sponsored
fund). Exercise of the exchange privilege will be treated as a sale for federal
income tax purposes, and, depending on the circumstances, a gain or loss may be
recognized. In the case of an exchange of shares that have been held for 90 days
or less where no sales charge is payable on the exchange, the original sales
charge incurred with respect to the exchanged shares will be taken into account
in determining gain or loss on the exchange only to the extent such charge
exceeds the sales charge that would have been payable on the acquired shares had
they been acquired for cash rather than by exchange. The portion of the original
sales charge not so taken into account will increase the basis of the acquired
shares.
Shareholders have the exchange privilege unless they refuse it in writing. You
should not view the exchange privilege as a means for taking advantage of
short-term swings in the market, and we reserve the right to terminate or limit
the privilege of any shareholder who makes frequent exchanges. We can revoke or
modify the privilege for all shareholders upon 60 days' prior notice. "Eligible
Funds" are AMMF and other Lord Abbett-sponsored funds which are eligible for the
exchange privilege, except Lord Abbett Series Fund ("LASF") which offers its
shares only in connection with certain variable annuity contracts, Lord Abbett
Equity Fund ("LAEF") which is not issuing shares, and series of Lord Abbett
Research Fund not offered to the general public ("LARF").
Statement of Intention. Under the terms of the Statement of Intention as
described in the Prospectus you may invest $100,000 or more over a 13-month
period in shares of a Lord Abbett-sponsored fund (other than shares of LAEF,
LASF, LARF, GSMMF and AMMF, unless holdings in GSMMF and AMMF are attributable
to shares exchanged from a Lord Abbett-sponsored fund offered with a front-end,
back-end or level sales charge). Shares currently owned by you are credited as
purchases (at their current offering prices on the date the Statement is signed)
toward achieving the stated investment and reduced initial sales charge for
Class A shares. Class A shares valued at 5% of the amount of intended purchases
are escrowed and may be redeemed to cover the additional sales charge payable if
the Statement of Intention is not completed. The Statement of Intention is
neither a binding obligation on you to buy, nor on the Fund to sell, the full
amount indicated.
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 director's or employee's spouse (including the surviving spouse of a
deceased director or employee). The terms "our directors" and "employees of Lord
Abbett" also include retired directors and employees and other family members
thereof.
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Our Class A shares also may be purchased at net asset value (a) at $1 million or
more, (b) with dividends and distributions from Class A shares of other Lord
Abbett-sponsored funds, except for LARF, LAEF and LASF, (c) under the loan
feature of the Lord Abbett-sponsored prototype 403(b) plan for share purchases
representing the repayment of principal and interest, (d) by certain authorized
brokers, dealers, registered investment advisers or other financial institutions
who have entered into an agreement with Lord Abbett Distributor in accordance
with certain standards approved by Lord Abbett Distributor, providing
specifically for the use of our shares in particular investment products made
available for a fee to clients of such brokers, dealers, registered investment
advisers and other financial institutions, ("mutual fund wrap fee program"), (e)
by employees, partners and owners of unaffiliated consultants and advisors to
Lord Abbett, Lord Abbett Distributor or Lord Abbett-sponsored funds who consent
to such purchase if such persons provide service to Lord Abbett, Lord Abbett
Distributor or such funds on a continuing basis and are familiar with such
funds, (f) through Retirement Plans with at least 100 eligible employees,
through a special retirement wrap program sponsored by an authorized institution
having one or more characteristics distinguishing it, in the opinion of Lord
Abbett Distributor, from a mutual fund wrap program. Such characteristics
include, among other things, the fact that an authorized institution does not
charge its clients any fee of a consulting or advisory nature that is
economically equivalent to the distribution fee under Class A 12b-1 Plan and the
fact that the program relates to participant-directed Retirement Plan.
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 Trustees may authorize redemption of all of the shares in any
account in which there are fewer than 60 shares. Before authorizing such
redemption, the Board must determine that it is in our economic best interest or
necessary to reduce disproportionately burdensome expenses in servicing
shareholder accounts. At least 6 months' prior written notice will be given
before any such redemption, during which time shareholders may avoid redemption
by bringing their accounts up to the minimum set by the Board.
Div-Move. Under the Div-Move service described in the Prospectus, you can invest
the dividends paid on your account of any class into an existing account of the
same class in any other Eligible Fund. The account must be either your account,
a joint account for you and your spouse, a single account for your spouse, or a
custodial account for your minor child under the age of 21. You should read the
prospectus of the other fund before investing.
Invest-A-Matic. The Invest-A-Matic method of investing in the Fund and/or any
other Eligible Fund is described in the Prospectus. To avail yourself of this
method you must complete the application form, selecting the time and amount of
your bank checking account withdrawals and the funds for investment, include a
voided, unsigned check and complete the bank authorization.
Systematic Withdrawal Plans. The Systematic Withdrawal Plan ("SWP") also is
described in the Prospectus. You may establish a SWP if you own or purchase
uncertificated shares having a current offering price value of at least $10,000.
Lord Abbett prototype retirement plans have no such minimum. With respect to
Class B shares the CDSC will be waived on redemptions of up to 12% per year of
the current net asset value of your account at the time the SWP is established.
For Class B share redemptions over 12% per year, the CDSC will apply to the
entire redemption. Therefore, please contact the Fund for assistance in
minimizing the CDSC in this situation. With respect to Class C shares, the CDSC
will be waived on and after the first anniversary of their purchase. The SWP
involves the planned redemption of shares on a periodic basis by receiving
either fixed or variable amounts at periodic intervals. Since the value of
shares redeemed may be more or less than their cost, gain or loss may be
recognized for income tax purposes on each periodic payment. Normally, you may
not make regular investments at the same time you are receiving systematic
withdrawal payments because it is not in your interest to pay a sales charge on
new investments when in effect a portion of that new investment is soon
withdrawn. The minimum
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investment accepted while a withdrawal plan is in effect is $1,000. The SWP may
be terminated by you or by us at any time by written notice.
Retirement Plans. The Prospectus indicates the types of retirement plans for
which Lord Abbett provides forms and explanations. Lord Abbett makes available
the retirement plan forms including 401(k) plans and custodial agreements for
IRAs (Individual Retirement Accounts, including SIMPLE IRAs and Simplified
Employee Pensions), 403(b) plans and qualified pension and profit-sharing plans.
The forms name Investors Fiduciary Trust Company as custodian and contain
specific information about the plans excluding 401(k) plans. Explanations of the
eligibility requirements, annual custodial fees and allowable tax advantages and
penalties are set forth in the relevant plan documents. Adoption of any of these
plans should be on the advice of your legal counsel or qualified tax adviser.
6.
Past Performance
The 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 (as described in the next
paragraph) from the amount invested and reinvestment of all income dividends and
capital gains distributions on the reinvestment dates at prices calculated as
stated in the Prospectus. The ending redeemable value is determined by assuming
a complete redemption at the end of the period covered by the average annual
total return computation.
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment (unless the return is shown at net asset value). For Class B
shares, the payment of the applicable CDSC (5.0% prior to the first anniversary
of purchase, 4.0% prior to the second anniversary of purchase, 3.0% prior to the
third and fourth anniversaries of purchase, 2.0% prior to the fifth anniversary
of purchase, 1.0% prior to the sixth anniversary of purchase and no CDSC on and
after the sixth anniversary of purchase) is applied to the Series's investment
result for that class for the time period shown (unless the total return is
shown at net asset value). For Class C shares, the 1.0% CDSC is applied to the
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.
Using the computation method described above, the Series' average annual
compounded rates of total return for the period from December 18, 1997
(commencement of operations) to March , 1998 was %, % and %, for the Series'
Class A, B and C shares, respectively.
Yield quotation for each Class is based on a 30-day period ended on a specified
date, computed by dividing our net investment income per share earned during the
period by the maximum offering price per share of such Class on the last day of
the period. This is determined by finding the following quotient: take the
Class' dividends and interest earned during the period minus its expenses
accrued for the period and divide by the product of (i) the average daily number
of shares of such Class outstanding during the period that were entitled to
receive dividends and (ii) the maximum offering price per share of such Class on
the last day of the period. To this quotient add one. This sum is multiplied by
itself five times. Then one is subtracted from the product of this
multiplication and the remainder is multiplied by two. Yield for the Class A
shares reflects the deduction of the maximum initial sales charge, but may also
be shown based on the Fund's net asset value per share. Yields for Class B and C
shares do not reflect the deduction of the CDSC. For the 30-day period ended
March , 1998, the yield for the Class A, B and C shares of the Series were %,
% and %, respectively.
These figures represent past performance, and an investor should be aware that
the investment return and principal value of a Fund investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Therefore, there is no assurance that this performance will be
repeated in the future.
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7.
Taxes
The value of any shares redeemed by the Fund or repurchased or otherwise sold
may be more or less than your tax basis in the shares at the time 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 Fund shares which you have held for six months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any capital gains distributions which you received with respect to such
shares. Losses on the sale of 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.
The Series will be subject to a 4% non-deductible 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. The Series intends
to distribute to shareholders each year an amount adequate to avoid the
imposition of such excise tax. Dividends paid by the Series will qualify for the
dividends-received deduction for corporations to the extent they are derived
from dividends paid by domestic corporations.
As described in the Prospectus, the Series may be subject to withholding taxes
and other taxes imposed by foreign countries. If, at the close of any fiscal
year, more than 50% of the assets of the Series of the Fund consist of stock or
securities of foreign corporations, the Series may elect to treat foreign income
taxes paid by the Series as having been paid directly by its shareholders. If a
Series qualifies for and makes such an election, the shareholders of the Series
will be required to (i) include in ordinary gross income (in addition to taxable
dividends actually received) their pro rata share of foreign income taxes paid
by the Series and (ii) treat such pro rata share as foreign income taxes paid by
them. Such shareholders may then use such pro rata portion of foreign income
taxes as foreign tax credits, subject to applicable limitations, or,
alternatively, deduct them in computing their taxable income. Shareholders who
do not itemize deductions for federal income tax purposes will not be entitled
to deduct their pro rata portion of foreign taxes paid by the Series, although
such shareholders will be required to include their share of such taxes in gross
income. Shareholders who claim a foreign tax credit for foreign taxes paid by
the Series may be required to treat a portion of dividends received from the
Series as separate category income for purposes of computing the limitations on
the foreign tax credit. Tax-exempt shareholders will ordinarily not benefit from
this election. Each year that the Series qualifies for and makes the election
described above, its shareholders will be notified of the amount of (i) each
shareholder's pro rata share of foreign income taxes paid by the Series and (ii)
the portion of dividends which represents income from each foreign country.
Forward foreign currency contracts, foreign currency put and call options and
other investment techniques and practices which the 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
hedging transactions may increase the amount of short-term capital gain realized
by such Series, which is taxed as ordinary income when distributed to
shareholders. Limitations imposed by the Internal Revenue Code on regulated
investment companies may restrict the Series' ability to engage in transactions
in options and forward contracts.
Gains and losses realized by the 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 the Series purchases shares in certain foreign investment entities, called
"passive foreign investment companies," the Series may be subject to United
States federal income tax on a portion of any "excess distribution" or gain from
the disposition of such shares, even if such income is distributed as a taxable
dividend by the Series to its shareholders. Additional charges in the nature of
interest may be imposed on either the Series or its shareholders with respect to
deferred taxes arising from such distributions or gains. If the Series were to
invest in a passive foreign investment company with respect to which the
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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 fund, even if such amount were not distributed to the Series.
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 adviser
regarding the U. S. and foreign tax consequences of the ownership of shares of
the 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
persons who own Fund 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, from profiting on trades of the
same security within 60 days and from trading on material and non-public
information. The Code imposes certain similar requirements and restrictions on
the independent directors and trustees of each Lord Abbett-sponsored mutual fund
to the extent contemplated by the recommendations of the Advisory Group.
9.
Financial Statements
The financial statements for the fiscal year ended October 31, 1997 and the
report of Deloitte & Touche LLP, independent accountants, on such financial
statements contained in the 1997 Annual Report to Shareholders of Lord Abbett
Securities Trust are incorporated herein by reference to such financial
statements and report, in reliance upon the authority of Deloitte & Touche LLP
as experts in auditing and accounting.
10.
Appendix
Corporate Bond Ratings
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Moody's Investors Service, Inc.'s Corporate Bond Ratings
Aaa - Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high-quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest-rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Standard & Poor's Corporation's Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and in the majority of instances they
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
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BB-B-CCC-CC-C - Debt rated BB, B, CCC, CC and C is regarded as having
predominately speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation and
'CCC' the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
D - Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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