Lord Abbett Affiliated Fund
Lord Abbett Growth Opportunities Fund
Lord Abbett High Yield Fund
Lord Abbett Securities Trust --
International Series
Lord Abbett Research Fund --
Large-Cap Series
Small-Cap Value Series
CLASS Y SHARES
PROSPECTUS
May 1, 1999
[LOGO]
As with all mutual funds, the Securities and Exchange Commission does not
guarantee that the information in this prospectus is accurate or complete,
and it has not judged these funds for investment merit. It is a criminal
offense to state otherwise.
Only class Y shares of the International Series, the Large-Cap Series an
the Small-Cap Value Series are available in all states. Please call
800-821-5129 for further information.
Page>
Table of Contents
The Funds Page
Information about goal/ Affiliated Fund 2
strategy, main risks, past Growth Opportunities Fund 4
performance, fees and expenses High Yield Fund 6
International Series 8
Large-Cap Series 10
Small-Cap Value Series 12
Your Investment
Information for managing Purchases 14
your fund account Redemptions 15
Distributions and Taxes 15
Services For Fund Investors 16
Management 16
For More Information
How to learn more Other Investment Techniques 18
about the funds Glossary of Shaded Terms 22
Recent Performance 22
Financial Information
Financial highlights and/or Affiliated Fund 24
line graph comparisons Growth Opportunities Fund 26
of certain funds International Series 27
Large-Cap Series 29
Small-Cap Value Series 30
How to learn more about the Back Cover
funds and other Lord Abbett funds
<PAGE>
Affiliated Fund
GOAL / STRATEGY
The fund's investment objective is long-term growth of capital and income
without excessive fluctuations in market value.
Typically, in choosing stocks, we look for companies using a three-step
process:
QUANTITATIVE RESEARCH is performed on a universe of large, seasoned U.S.
and multinational companies to identify those whose stocks we believe
represent the best bargains.
FUNDAMENTAL RESEARCH is conducted to assess a company's operating
environment, resources and strategic plans, and to determine its
prospects for exceeding the earnings expectations reflected in its stock
price.
BUSINESS CYCLE ANALYSIS is used to assess the economic and interest-rate
sensitivity of our portfolio. This analysis helps us assess how adding or
deleting stocks changes our portfolio's overall sensitivity to economic
activity and interest rates.
We believe that investors purchase and redeem our shares to meet long-term
financial objectives rather than to try to take advantage of short-term
price fluctuations. If so, their needs are best served by an investment
seeking capital appreciation with less fluctuations in market value than
the Standard & Poor's Composite Index of 500 stocks ("S&P 500'r' Index").
For this reason, we try to keep our assets invested in securities which are
selling at reasonable prices and, therefore, we are willing to forego some
opportunities for gains when, in our judgment, they are too risky.
We generally sell a stock when we think it is no longer a bargain, appears
less likely to benefit from the current market and economic environment,
shows deteriorating fundamentals or falls short of our expectations.
While typically fully invested, at times we may take a temporary defensive
position by investing some of our assets in short-term debt securities.
This could have the effect of reducing the benefit from any upswing in the
market and prevent the fund from realizing its investment objective.
MAIN RISKS
While stocks have historically been a leading choice of long-term
investors, they fluctuate in price. The value of your investment in the
fund will go up and down.
Our performance may sometimes be lower or higher than that of other types
of funds (such as those emphasizing small-company stocks or growth stocks)
because different types of stocks tend to shift in and out of favor
depending on market and economic conditions. While there is the risk that
an investment may never reach what we think is its full value, or may go
down in value, our emphasis on large, seasoned company bargain stocks could
potentially limit our downside risk because bargain stocks in theory are
already underpriced and large, seasoned company stocks tend to be less
volatile than small-company stocks. In the long run, we may produce more
modest gains than riskier stock funds as a trade-off for this potentially
lower risk.
An investment in the fund is not a bank deposit. It is not FDIC insured or
government-endorsed. It is not a complete investment program. You could
lose money in this fund.
WE OR THE FUND refers to Lord Abbett Affiliated Fund, Inc., which operates
under the supervision of the fund's Board with the advice of Lord, Abbett &
Co. ("Lord Abbett"), its investment manager.
ABOUT THE FUND. The fund is a professionally managed portfolio primarily
holding securities purchased with the pooled money of investors. It strives
to reach its stated goal, although as with all funds, it cannot guarantee
results.
LARGE COMPANIES are established companies that are considered "known
quantities." Large companies often have the resources to weather economic
shifts, though they can be slower to innovate than small companies.
SEASONED COMPANIES are usually established companies whose securities have
gained a reputation for quality with the investing public and enjoy
liquidity in the market.
SMALL COMPANIES are often new and less established, with a tendency to be
faster-growing but more volatile than large companies.
GROWTH STOCKS exhibit faster-than-average gains in earnings and are
expected to continue profit growth at a high level, but also tend to be
more volatile than bargain stocks.
BARGAIN STOCKS are stocks of companies that appear underpriced according to
certain financial measurements of their intrinsic worth or business
prospects.
You should read this entire prospectus, including "Other Investment
Techniques," which concisely describes the other investment strategies, and
their risks, used by the fund.
2 The Funds
Page>
Affiliated Fund
PAST PERFORMANCE(i)
The information below provides some indication of the risks of investing in
the fund, by showing changes in the fund's class A shares' performance from
calendar year to calendar year and by showing how the fund's average annual
returns compare with those of a broad measure of market performance. The
returns shown do not reflect deduction of any sales loads related to class
A shares, which are not applicable to class Y shares. Past performance is
not a prediction of future results.
1989 23.5%
1990 -5.2%
1991 22.0%
1992 12.4%
1993 13.2%
1994 4.1%
1995 31.7%
1996 20.1%
1997 25.2%
1998 14.4%
Best Quarter: 4th Q '98 17.10%
Worst Quarter: 3rd Q '90 (12.57)%
================================================================================
The table below shows a comparison of the fund's class A average annual total
returns to that of a broad measure of market performance, as represented by the
S&P 500'r' Index. Fund returns assume reinvestment of dividends and
distributions. All periods end on December 31, 1998.
CLASS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION(iii)
A(i) 14.41% 18.70% 15.65% 12.81%
- ------------------------------------------------------------------------------
S&P 500'r' Index(ii) 28.74% 24.08% 19.20%
- ------------------------------------------------------------------------------
(i) Because class Y shares are new, the bar chart and table show returns for
class A shares. Returns for class Y shares will be somewhat higher
because class Y shares have lower expenses.
(ii) Performance for the unmanaged S&P 500'r' Index does not reflect
transaction costs or management fees.
(iii) The date of inception for class A shares is 1/1/50.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
================================================================================
Fee table
- --------------------------------------------------------------------------------
CLASS Y
SHAREHOLDER FEES (Fees paid directly from your investment)
- --------------------------------------------------------------------------------
Maximum Sales Charge on Purchases (as a % of offering price) none
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge none
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (Expenses deducted from fund assets)
(as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fees (See "Management") 0.31%
- --------------------------------------------------------------------------------
Other Expenses 0.09%
- --------------------------------------------------------------------------------
Total Operating Expenses 0.40%
- --------------------------------------------------------------------------------
================================================================================
Expense example
- --------------------------------------------------------------------------------
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment, 5% total return each year and no changes in expenses. You pay the
following expenses over the course of each period shown if you sell your shares
at the end of the period, although your actual cost may be higher or lower. You
also would pay the same expenses, assuming you kept your shares.
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class Y shares $41 $128 $224 $507
- ----------------------------------------------------------------
This example is for comparison and is not a representation of the fund's actual
expenses or returns, either past or present.
MANAGEMENT FEES are payable to Lord Abbett for the fund's investment
management.
OTHER EXPENSES include fees paid for miscellaneous items such as shareholder
services and professional fees.
The Funds 3
<PAGE>
Growth Opportunities Fund
GOAL / STRATEGY
The fund's investment objective is capital appreciation. Normally, we
invest primarily in common stocks of mid-sized companies with outstanding
equity securities having an aggregate market value between $1 billion and
$6 billion. The fund uses a growth style of investing which means that we
favor companies that show the potential for stronger than expected earnings
or growth. Under normal circumstances, at least 65% of our total assets
will consist of investments made in growth companies, as determined at the
time of purchase. The fund may invest up to 35% of its assets in foreign
securities.
Typically, in choosing stocks, we look for companies using the following
process:
QUANTITATIVE RESEARCH is performed on a universe of mid-sized companies
to identify those with superior growth possibilities.
FUNDAMENTAL RESEARCH is performed to identify companies likely to produce
superior returns over a thirty-six month time frame, identified by
analyzing the dynamics in each company within its industry and within the
economy.
Before July 15, 1998, the fund used a value style of investing. This meant
that companies were selected without regard to current earnings, under a
process that sought to identify and invest in undervalued securities.
We may take a temporary defensive position by investing some of our assets
in short-term debt securities. This could reduce the benefit from any
upswing in the market and prevent the fund from achieving its investment
objective.
MAIN RISKS
The value of your investment will fluctuate in response to stock market
movements. In addition, growth stocks tend to be more volatile than
slower-growing value stocks. This means that the fund could be more
volatile than the stock market as a whole.
The foreign securities in which the fund may invest are subject to currency
fluctuations. Foreign securities markets may not be subject to the same
degree of regulation as the U.S. markets and may be more volatile and less
liquid than the U.S. markets. Investors should also be aware that the fund
has the ability to invest in derivatives, the value of which may fluctuate
greatly.
An investment in the fund is not a bank deposit. It is not FDIC insured or
government-endorsed. It is not a complete investment program. You could
lose money in this fund.
WE OR THE FUND refers to Lord Abbett Growth Opportunities Fund, which
operates under the supervision of the fund's Board with the advice of Lord,
Abbett & Co. ("Lord Abbett"), its investment manager.
ABOUT THE FUND. The fund is a professionally managed portfolio primarily
holding securities purchased with the pooled money of investors. It strives
to reach its stated goal, although as with all funds, it cannot guarantee
results.
GROWTH STOCKS exhibit faster-than-average gains in earnings and are
expected to continue profit growth at a high level, but also tend to be
more volatile than bargain stocks.
You should read this entire prospectus, including "Other Investment
Techniques," which concisely describes the other investment strategies, and
their risks, used by the fund.
4 The Funds
Page>
Growth Opportunities Fund
PAST PERFORMANCE(i)
The information below provides some indication of the risks of investing in
the fund, by showing changes in the fund's class A shares' performance from
calendar year to calendar year and by showing how the fund's average annual
returns compare with those of a broad measure of market performance. The
returns shown do not reflect deduction of any sales loads related to class
A shares, which are not applicable to class Y shares. Past performance is
not a prediction of future results.
1996 23.7%
1997 30.9%
1998 13.4%
Best Quarter: 4th Q '98 29.75%
Worst Quarter: 3rd Q '98 (20.70)%
================================================================================
The table below shows a comparison of the fund's class A average annual total
returns to that of a broad measure of market performance, as represented by the
Russell Mid-Cap Growth Index ("RMCG Index"). Fund returns assume reinvestment of
dividends and distributions. All periods end on December 31, 1998.
CLASS 1 YEAR SINCE INCEPTION(iv)
A(i) 13.35% 21.59%
- ---------------------------------------------------
RMCG Index(ii) 17.86% 18.49%(iii)
- ---------------------------------------------------
(i) Because class Y shares are new, the bar chart and table show returns for
class A shares. Returns for class Y shares will be somewhat higher
because class Y shares have lower expenses.
(ii) Performance for the unmanaged RMCG Index does not reflect transaction
costs or management fees.
(iii) This represents total return for the period 7/31/95 - 12/31/98, to
correspond with class A inception date.
(iv) The date of inception for class A shares is 8/1/95.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
================================================================================
Fee table
- --------------------------------------------------------------------------------
CLASS Y
SHAREHOLDER FEES (Fees paid directly from your investment)
- --------------------------------------------------------------------------------
Maximum Sales Charge on Purchases (as a % of offering price) none
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge none
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (Expenses deducted from fund assets)
(as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fees (See "Management") 0.90%
- --------------------------------------------------------------------------------
Other Expenses 0.81%
- --------------------------------------------------------------------------------
Total Operating Expenses 1.71%
- --------------------------------------------------------------------------------
================================================================================
Expense example
- --------------------------------------------------------------------------------
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment, 5% total return each year and no changes in expenses. You pay the
following expenses over the course of each period shown if you sell your shares
at the end of the period, although your actual cost may be higher or lower. You
also would pay the same expenses, assuming you kept your shares.
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class Y shares $174 $538 $928 $2,022
- --------------------------------------------------------------------------------
This example is for comparison and is not a representation of the fund's actual
expenses or returns, either past or present.
MANAGEMENT FEES are payable to Lord Abbett for the fund's investment
management.
OTHER EXPENSES include fees paid for miscellaneous items such as shareholder
services and professional fees.
Lord Abbett is currently waiving the management fee and subsidizing the other
expenses of the Growth Opportunities Fund. Lord Abbett may stop waiving the
management fee and subsidizing all other expenses at any time. Total operating
expenses with the fee waiver and expense subsidy for class Y shares are 0% of
average net assets.
The Funds 5
<PAGE>
High Yield Fund
GOAL / STRATEGY
The fund's investment objective is to seek high current income and the
opportunity for capital appreciation to produce a high total return.
Normally, we invest in lower-rated debt securities, sometimes called "junk
bonds," which entail greater risks than investments in higher-rated debt
securities.
We believe that a high total return (current income and capital
appreciation) may be derived from an actively managed, diversified security
portfolio. Under normal circumstances, we invest at least 65% of our total
assets in lower-rated debt securities, some of which are convertible into
common stock or have warrants to purchase common stock.
We seek unusual values, particularly in those lower-rated debt securities.
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, likely to decrease, may
generate higher yields.
While typically fully invested, we may take a temporary defensive position
by investing some of our assets in short-term debt securities. This could
reduce the benefit from any upswing in the market.
MAIN RISKS
The lower-rated bonds in which the fund invests involve risks that the
bond's issuers will not make payments of interest and principal payments
when due. Some issuers may default as to principal and/or interest payments
after we purchase their securities. Through portfolio diversification,
credit analysis and attention to current developments and trends in
interest rates and economic conditions, we attempt to reduce investment
risk, but losses may occur. In addition, the value of your investment will
change as interest rates fluctuate. When interest rates decline, share
value may rise. When interest rates rise, share value may decline. The fund
uses investment practices that could adversely affect performance, such as
investments in foreign securities and illiquid securities.
An investment in the fund is not a bank deposit. It is not FDIC insured or
government endorsed. It is not a complete investment program. You could
lose money in this fund.
WE OR THE FUND refers to Lord Abbett High Yield Fund, which operates under the
supervision of the fund's Board with the advice of Lord, Abbett & Co. ("Lord
Abbett"), its investment manager.
ABOUT THE FUND. The fund is a professionally managed portfolio primarily holding
securities purchased with the pooled money of investors. It strives to reach its
stated goal, although as with all funds, it cannot guarantee results.
HIGH YIELD DEBT SECURITIES, commonly known as "junk bonds," typically pay a
higher yield than investment-grade debt securities. These bonds have a higher
risk of default than investment-grade bonds and their prices can be much more
volatile.
FOREIGN SECURITIES are securities primarily traded in countries outside the
United States. These securities are not subject to the same degree of regulation
and may be more volatile and less liquid than securities traded in major U.S.
markets. Other considerations include political and social instability,
expropriations, higher transaction costs, currency fluctuations, nondeductible
withholding taxes and different settlement practices.
You should read this entire prospectus, including "Other Investment Techniques,"
which concisely describes the other investment strategies, and their risks, used
by the fund.
6 The Funds
Page>
High Yield Fund
PAST PERFORMANCE
Because the fund is new, no information regarding past performance is
available.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
================================================================================
Fee table
- --------------------------------------------------------------------------------
CLASS Y
SHAREHOLDER FEES (Fees paid directly from your investment)
- --------------------------------------------------------------------------------
Maximum Sales Charge on Purchases (as a % of offering price) none
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge none
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (Expenses deducted from fund assets)
(as a % of average net assets)(i)
- --------------------------------------------------------------------------------
Management Fees (See "Management") 0.60%
- --------------------------------------------------------------------------------
Other Expenses 0.25%
- --------------------------------------------------------------------------------
Total Operating Expenses 0.85%
- --------------------------------------------------------------------------------
================================================================================
Expense example
- --------------------------------------------------------------------------------
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment, 5% total return each year and no changes in expenses. You pay the
following expenses over the course of each period shown if you sell your shares
at the end of the period, although your actual cost may be higher or lower. You
also would pay the same expenses, assuming you kept your shares.
SHARE CLASS 1 YEAR 3 YEARS
Class Y shares $87 $271
- --------------------------------------------
This example is for comparison and is not a representation of the fund's actual
expenses or returns, either past or present.
MANAGEMENT FEES are payable to Lord Abbett for the fund's investment
management.
OTHER EXPENSES include fees paid for miscellaneous items such as shareholder
services and professional fees.
- --------------------------------------------------------------------------------
(i) The annual operating expenses are based on estimated expenses for the
current fiscal year.
The Funds 7
<PAGE>
International Series
GOAL / STRATEGY
The fund's investment objective is long-term capital appreciation. Current
income is incidental to this objective. The fund may invest in stocks that
do not produce any income.
Typically, in choosing stocks, we look for companies using the following
process:
QUANTITATIVE RESEARCH is performed on a universe of foreign companies
which guides selection of companies with strong growth potential that
also sell at attractive prices.
FUNDAMENTAL RESEARCH examines global trends, seeking to identify
developments on an industry-by-industry basis and the strongest and/or
best positioned companies ("Best of Breed") within each global industry.
VALUATION TECHNIQUES determine the selection of the 40-60 companies with
strong growth potential and attractive share prices that collectively
form the final portfolio.
Limiting the number of holdings ensures their performance is not diluted
across too many securities. However, investors should be aware that this
concentration could result in increased volatility.
Investments are made in stocks of companies which are in developed or
developing countries. Under normal circumstances, at least 80% of the total
assets of the fund are invested in stocks of companies in at least three
different countries outside the United States.
Although the fund intends to invest primarily in stocks of small companies
with market capitalization of less than $1 billion listed on stock
exchanges, it may also invest in stocks of companies traded in
over-the-counter markets, as well as stocks of large and mid-sized
companies.
The fund may temporarily reduce its stock holdings for defensive purposes
in response to adverse market conditions and invest in domestic, Eurodollar
and foreign short-term money market instruments. Of course, this would
reduce any benefit from an upswing in the market.
MAIN RISKS
The fund sometimes has above-average investment risk compared to the U.S.
stock market since a large amount of the assets of the fund will be
denominated or traded in foreign currencies. A change in the value of any
foreign currency relative to the U.S. dollar results in changes in the U.S.
dollar value of the fund's assets denominated or traded in that currency.
The fund's performance is measured in U.S. dollars, the base currency of
the fund. Also, securities in which the fund invests are usually not
subject to the same degree of regulation as domestic securities and may be
more volatile and less liquid than those of major U.S. markets.
Lack of liquidity may affect the fund's ability to trade in large blocks of
securities and obtain the best price. There is often less information
available on publicly-traded companies, banks and governments than in the
U.S., and a lack of uniform accounting standards and practices among
countries impairs a direct comparison for stocks and bonds. Also, foreign
securities may be traded on days when the fund does not value its shares.
Thus, share values could be affected on days when an investor cannot buy or
redeem fund shares.
An investment in the fund is not a bank deposit. It is not FDIC insured or
government endorsed. It is not a complete investment program. You could
lose money in the fund.
WE OR THE FUND refers to the International Series of Lord Abbett Securities
Trust (the "company"), which operates under the supervision of the company's
Board with the advice of Lord, Abbett & Co. ("Lord Abbett"), its investment
manager.
ABOUT THE FUND. The fund is a professionally managed portfolio primarily holding
securities purchased with the pooled money of investors. It strives to reach its
stated goal, although as with all funds, it cannot guarantee results.
DEVELOPING COUNTRIES may have higher and more rapidly fluctuating inflation
rates, a higher demand for capital investment, a higher dependence on export
markets for their major industries, and a greater need to develop basic economic
infrastructures than more developed countries.
LARGE COMPANIES are established companies that are considered "known
quantities." Large companies often have the resources to weather economic
shifts, though they can be slower to innovate than small companies.
MID-SIZED COMPANIES usually have market capitalizations of roughly $500 million
to $5 billion.
SMALL COMPANIES often are new and less established, with a tendency to be
faster-growing but more volatile and less liquid than large companies.
OVER-THE-COUNTER STOCKS are usually those of smaller companies that do not meet
the listing requirements of major exchanges. Transactions are conducted by
telephone and computer network rather than on the floor of an exchange.
You should read this entire prospectus, including "Other Investment Techniques,"
which concisely describes the other investment strategies, and their risks, used
by the fund.
8 The Funds
Page>
International Series
PAST PERFORMANCE(i)
The information below provides some indication of the risks of investing in
the fund, by showing changes in the fund's class A shares' performance from
calendar year to calendar year and by showing how the fund's average annual
returns compare with those of a broad measure of market performance. The
returns shown do not reflect deduction of any sales loads related to class
A shares, which are not applicable to class Y shares. Past performance is
not a prediction of future results.
1997 19.7%
1998 15.5%
Best Quarter: 1st Q '98 23.70%
Worst Quarter: 3rd Q '98 (19.01)%
================================================================================
The table below shows a comparison of the fund's class A average annual total
returns to that of a broad measure of market performance, as represented by the
Morgan Stanley European, Australasia and Far East Index ("MSCI EAFE Index").
Fund returns assume reinvestment of dividends and distributions. All periods end
on December 31, 1998.
CLASS 1 YEAR SINCE INCEPTION(iv) MSCI EAFE INDEX(ii)
A(i) 15.50% 17.38% 10.82%(iii)
- --------------------------------------------------------------------------------
MSCI EAFE Index(ii) 20.33% -- --
- --------------------------------------------------------------------------------
(i) Because class Y shares are new, the bar chart and table show returns for
class A shares. Returns for class Y shares will be somewhat higher
because class Y shares have lower expenses.
(ii) Performance for the unmanaged MSCI EAFE Index does not reflect
transaction costs or management fees.
(iii) This represents total return for the period 12/31/96 - 12/31/98, to
correspond with class A inception date.
(iv) The date of inception for class A shares is 12/13/96.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
================================================================================
Fee table
- --------------------------------------------------------------------------------
CLASS Y
SHAREHOLDER FEES (Fees paid directly from your investment)
- --------------------------------------------------------------------------------
Maximum Sales Charge on Purchases (as a % of offering price) none
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge none
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (Expenses deducted from fund assets)
(as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fees (See "Management") 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.31%
- --------------------------------------------------------------------------------
Total Operating Expenses 1.06%
- --------------------------------------------------------------------------------
================================================================================
Expense example
- --------------------------------------------------------------------------------
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment, 5% total return each year and no changes in expenses. You pay the
following expenses over the course of each period shown if you sell your shares
at the end of the period, although your actual cost may be higher or lower. You
also would pay the same expenses, assuming you kept your shares.
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class Y shares $108 $337 $585 $1,297
- --------------------------------------------------------------------------------
This example is for comparison and is not a representation of the fund's actual
expenses or returns, either past or present.
MANAGEMENT FEES are payable to Lord Abbett for the fund's investment
management.
OTHER EXPENSES include fees paid for miscellaneous items such as shareholder
services and professional fees.
The Funds 9
<PAGE>
Large-Cap Series
GOAL / STRATEGY
The fund's investment objective is growth of capital and growth of income
consistent with reasonable risk. Normally, we invest in the undervalued
common stocks of large-capitalization companies with outstanding equity
securities having an aggregate market value of at least $1.5 billion.
Current income is not emphasized.
Typically, in choosing stocks, we look for companies using the following
process:
QUANTITATIVE RESEARCH is performed on a universe of large, seasoned U.S.
companies to identify those which have stocks that we believe represent
the best bargains.
FUNDAMENTAL RESEARCH is conducted to identify current bargain-priced
securities among the largest publicly-traded companies.
Under normal circumstances, at least 65% of the fund's total assets will
consist of investments made in large-cap companies, determined at the time
of purchase.
We may take a temporary defensive position by investing some of our assets
in short-term debt securities. This could reduce the benefit from any
upswing in the market and prevent the fund from achieving its investment
objective.
MAIN RISKS
The fund will invest in companies that appear to have good prospects for
improvement in earnings trends or asset values. The fund will invest in
companies on the basis of the fundamental economic and business factors
which will affect future earnings and which the fund believes are the
primary factors determining the future market valuation of stocks. There
can be no assurance that stocks selected for the fund will appreciate in
value.
At the time of purchase, securities selected for our portfolio may be
largely neglected by the investment community or, if widely followed, they
may be out of favor. Our investment portfolio typically will be less
volatile and prices will move less dramatically than the overall stock
market. Individual-security risk is managed through broad company and
industry diversification.
An investment in the fund is not a bank deposit. It is not FDIC insured or
government endorsed. It is not a complete investment program. You could
lose money in this fund.
WE OR THE FUND refers to the Large-Cap Series of Lord Abbett Research Fund, Inc.
(the "company"), which operates under the supervision of the company's Board
with the advice of Lord, Abbett & Co. ("Lord Abbett"), its investment manager.
ABOUT THE FUND. The fund is a professionally managed portfolio primarily
holding securities purchased with the pooled money of investors. It strives
to reach its stated goal, although as with all funds, it cannot guarantee
results.
LARGE COMPANIES are established companies that are considered "known
quantities." Large companies often have the resources to weather economic
shifts, though they can be slower to innovate than small companies.
SEASONED COMPANIES are usually established companies whose securities have
gained a reputation for quality with the investing public and enjoy
liquidity in the market.
BARGAIN STOCKS are stocks of companies that appear underpriced according to
certain financial measurements of their intrinsic worth or business
prospects.
You should read this entire prospectus, including "Other Investment
Techniques," which concisely describes the other investment strategies, and
their risks, used by the fund.
10 The Funds
Page>
Large-Cap Series
PAST PERFORMANCE(i)
The information below provides some indication of the risks of investing in
the fund, by showing changes in the fund's class A shares' performance from
calendar year to calendar year and by showing how the fund's average annual
returns compare with those of a broad measure of market performance. The
returns shown do not reflect deduction of any sales loads related to class
A shares, which are not applicable to class Y shares. Past performance is
not a prediction of future results.
1993 18.4%
1994 6.2%
1995 34.8%
1996 20.2%
1997 23.4%
1998 16.2%
Best Quarter: 4th Q '98 18.88%
Worst Quarter: 3rd Q '98 (12.45)%
================================================================================
The table below shows a comparison of the fund's class A average annual total
returns to that of a broad measure of market performance, as represented by the
S&P 500'r' Index. Fund returns assume reinvestment of dividends and
distributions. All periods end on December 31, 1998.
CLASS 1 YEAR 5 YEARS SINCE INCEPTION(iv)
A(i) 16.24% 19.82% 19.34%
- --------------------------------------------------------------------------------
S&P 500'r'Index(ii) 28.74% 24.08% 20.73%(iii)
- --------------------------------------------------------------------------------
(i) Because class Y shares are new, the bar chart and table show returns for
class A shares. Returns for class Y shares will be somewhat higher
because class Y shares have lower expenses.
(ii) Performance for the unmanaged S&P 500'r' Index does not reflect
transaction costs or management fees.
(iii) This represents total return for the period 6/30/92 - 12/31/98, to
correspond with class A inception date.
(iv) The date of inception for class A shares is 6/3/92.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
================================================================================
Fee table
- --------------------------------------------------------------------------------
CLASS Y
SHAREHOLDER FEES (Fees paid directly from your investment)
- --------------------------------------------------------------------------------
Maximum Sales Charge on Purchases (as a % of offering price) none
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge none
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (Expenses deducted from fund assets)
(as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fees (See "Management") 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.24%
- --------------------------------------------------------------------------------
Total Operating Expenses 0.99%
- --------------------------------------------------------------------------------
================================================================================
Expense example
- --------------------------------------------------------------------------------
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment, 5% total return each year and no changes in expenses. You pay the
following expenses over the course of each period shown if you sell your shares
at the end of the period, although your actual cost may be higher or lower. You
also would pay the same expenses, assuming you kept your shares.
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class Y shares $101 $315 $547 $1,215
- --------------------------------------------------------------------------------
This example is for comparison and is not a representation of the fund's actual
expenses or returns, either past or present.
MANAGEMENT FEES are payable to Lord Abbett for the fund's investment
management.
OTHER EXPENSES include fees paid for miscellaneous items such as shareholder
services and professional fees.
The Funds 11
<PAGE>
Small-Cap Value Series
GOAL /STRATEGY
The fund's investment objective is long-term capital appreciation. Usually
we invest primarily in equity securities of smaller companies with market
capitalizations of less than $1 billion.
Typically, in choosing stocks, we usually look for companies using the
following process:
QUANTITATIVE RESEARCH is performed to evaluate various criteria,
including the price of shares in relation to book value, sales, asset
value, earnings, dividends and cash flow.
FUNDAMENTAL RESEARCH is conducted to assess the dynamics of each company
within its industry and within the economy. We evaluate the company's
business strategies by assessing management's ability to execute those
strategies, and by evaluating the adequacy of its financial resources.
Usually, at least 65% of the fund's total assets will be invested in common
stocks issued by smaller, less well-known companies (with market
capitalizations of less than $1 billion) selected by using fundamental
investment analysis. The fund may invest up to 35% of its total assets in
the securities of larger companies. Companies in which the fund is likely
to invest may have more limited product lines, markets or financial
resources and may lack management depth or experience as compared with
companies with larger market capitalizations. The fund may invest up to 35%
of its assets in foreign securities.
We may take a temporary defensive position by investing some of our assets
in short-term debt securities. This could reduce the benefit from any
upswing in the market and prevent the fund from achieving its investment
objective.
MAIN RISKS
Small-company stocks offer significant appreciation potential. Generally,
small companies carry more risk than larger companies. Generally, small
companies rely on limited product lines and markets, financial resources,
or other factors, and this may make them more susceptible to setbacks or
economic downturns. Small-company stocks tend to be more volatile in price,
have fewer shares outstanding and trade less frequently than large-company
stocks. Therefore, small-company stocks may be subject to wider price
fluctuations. Many small-company stocks are traded over-the-counter and are
not traded in the volume typical of stocks listed on a national securities
exchange.
The foreign securities in which the fund may invest are subject to currency
fluctuations. Foreign securities markets may not be subject to the same
degree of regulation as the U.S. markets and may be more volatile and less
liquid than the U.S. markets. Investors should also be aware that the fund
has the ability to invest in derivatives, the value of which may fluctuate
greatly.
An investment in the fund is not a bank deposit. It is not FDIC insured or
government endorsed. It is not a complete investment program. You could
lose money in the fund.
WE OR THE FUND refers to Small-Cap Value Series of Lord Abbett Research Fund,
Inc. (the "company"), which operates under the supervision of the company's
Board with the advice of Lord, Abbett & Co. ("Lord Abbett"), its investment
manager.
ABOUT THE FUND. The fund is a professionally managed portfolio primarily holding
securities purchased with the pooled money of investors. It strives to reach its
stated goal, although as with all funds, it cannot guarantee results.
LARGE COMPANIES are established companies that are considered "known
quantities." Large companies often have the resources to weather economic
shifts, though they can be slower to innovate than small companies.
SMALL COMPANIES often are new and less established, with a tendency to be
faster-growing but more volatile and less liquid than large companies.
You should read this entire prospectus, including "Other Investment Techniques,"
which concisely describes the other investment strategies, and their risks, used
by the fund.
12 The Funds
Page>
Small-Cap Value Series
PAST PERFORMANCE(i)
The information below provides some indication of the risks of investing in
the fund, by showing changes in the fund's class A shares' performance from
calendar year to calendar year and by showing how the fund's average annual
returns compare with those of a broad measure of market performance. The
returns shown do not reflect deduction of any sales loads related to class
A shares, which are not applicable to class Y shares. Past performance is
not a prediction of future results.
1996 30.5%
1997 36.7%
1998 -7.4%
Best Quarter: 4th Q '98 19.61%
Worst Quarter: 3rd Q '98 (24.40)%
================================================================================
The table below shows a comparison of the fund's class Y average annual total
returns to that of a broad measure of market performance, as represented by the
Russell 2000 Index. Fund returns assume reinvestment of dividends and
distributions. All periods end on December 31, 1998.
CLASS 1 YEAR SINCE INCEPTION(iv) RUSSELL 2000 INDEX(ii)
A(i) (7.35)% 18.02% 11.58%(iii)
- -----------------------------------------------------------------------------
Russell 2000 Index(ii) (2.55)% -- --
- -----------------------------------------------------------------------------
(i) Because class Y shares are new, the bar chart and table show returns for
class A shares. Returns for class Y shares will be somewhat higher because
class Y shares have lower expenses.
(ii) Performance for the unmanaged Russell 2000 Index does not reflect
transaction costs or management fees.
(iii) This represents total return for the period 12/31/95 - 12/31/98, to
correspond with class A inception date.
(iv) The date of inception for class A shares is 12/13/95.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
================================================================================
Fee table
- --------------------------------------------------------------------------------
CLASS Y
SHAREHOLDER FEES (Fees paid directly from your investment)
- --------------------------------------------------------------------------------
Maximum Sales Charge on Purchases (as a % of offering price) none
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge none
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (Expenses deducted from fund assets)
(as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fees (See "Management") 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.24%
- --------------------------------------------------------------------------------
Total Operating Expenses 0.99%
- --------------------------------------------------------------------------------
================================================================================
Expense example
- --------------------------------------------------------------------------------
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment, 5% total return each year and no changes in expenses. You pay the
following expenses over the course of each period shown if you sell your shares
at the end of the period, although your actual cost may be higher or lower. You
also would pay the same expenses, assuming you kept your shares.
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class Y shares $101 $315 $547 $1,215
- --------------------------------------------------------------------------------
This example is for comparison and is not a representation of the fund's actual
expenses or returns, either past or present.
MANAGEMENT FEES are payable to Lord Abbett for the fund's investment
management.
OTHER EXPENSES include fees paid for miscellaneous items such as shareholder
services and professional fees.
The Funds 13
<PAGE>
Your Investment
PURCHASES
CLASS Y SHARES. Class Y shares are purchased at Net Asset Value ("NAV")
with no sales charge of any kind. The NAV of our shares is calculated every
business day as of the close of the New York Stock Exchange. Our shares are
continuously offered. The offering price is based on NAV per share next
determined after we receive your order submitted in proper form. We reserve
the right to withdraw all or part of the offering made by this prospectus,
or to reject any purchase order. We also reserve the right to waive or
change minimum investment requirements. All purchase orders are subject to
our acceptance and are not binding until confirmed or accepted in writing.
WHO MAY INVEST? Eligible purchasers of class Y shares include: (i) certain
authorized brokers, dealers, registered investment advisers or other
financial institutions who either (a) have an arrangement with Lord Abbett
Distributor in accordance with certain standards approved by Lord Abbett
Distributor, providing specifically for the use of our class Y shares in
particular investment products made available for a fee to clients of such
brokers, dealers, registered investment advisers or other financial
institutions, or (b) charge an advisory consulting or other fee for their
services and buy shares for their own accounts or the accounts of their
clients ("Mutual Fund Advisory Programs"); (ii) the trustee or custodian
under any deferred compensation or pension or profit-sharing plan or
payroll deduction IRA established for the benefit of the employees of any
company with an account(s) in excess of $10 million managed by Lord Abbett
or its sub-advisers on a private-advisory-account basis; (iii)
institutional investors, including retirement plans, companies,
foundations, trusts, endowments and other entities where the total amount
of potential investable assets exceeds $50 million that were not introduced
to Lord Abbett by persons associated with a broker or dealer primarily
involved in the retail security business; and (iv) members of each fund's
Board of Directors or Trustees, officers of the funds and partners of Lord
Abbett. Additional payments may be made by Lord Abbett out of its own
resources with respect to certain of these sales.
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 the money to the fund you selected (P.O. Box 419100, Kansas City,
Missouri 64141). The minimum initial investment is $1 million except for
Mutual Fund Advisory Programs, Directors, Trustees or officers of the funds
and partners of Lord Abbett, which are subject to no minimum. This offering
may be suspended, changed or withdrawn by Lord Abbett Distributor which
reserves the right to reject any order. When purchases are made by check,
redemptions will not be allowed until the fund or the transfer agent is
advised that the check has cleared, which may take up to 15 calendar days.
BUYING SHARES THROUGH YOUR DEALER. Orders for shares received by a fund
prior to the close of the NYSE, or received by dealers prior to such close
and received by Lord Abbett Distributor prior to the close of its business
day, will be confirmed at NAV 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
NAV 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.
NAV per share is calculated each business day at the close of regular trading on
the New York Stock Exchange ("NYSE"). Each fund is open on those business days
when the NYSE is open. Purchases and sales of fund shares are executed at the
NAV next determined after the fund receives your order. In calculating NAV,
securities for which market quotations are available are valued at those
quotations. Securities for which such quotations are not available are valued at
fair value under procedures approved by the Board.
LORD ABBETT DISTRIBUTOR LLC ("Lord Abbett Distributor") acts as agent for the
funds to work with investment professionals that buy and/or sell shares of the
funds on behalf of their clients. Generally, Lord Abbett Distributor does not
sell fund shares directly to investors.
14 Your Investment
Page>
BUYING SHARES BY WIRE. To open an account, call 800-821-5129 Ext. 34028,
Institutional Trade Dept., to set up your account and to arrange a wire
transaction. Wire to: United Missouri Bank of Kansas City, N.A., Routing
number - 101000695, bank account number: 9878002611, FBO: (account name)
and (your Lord Abbett account number). Specify the complete name of the
fund of your choice, note class Y shares and include your new account
number and your name. To add to an existing account, wire to: United
Missouri Bank of Kansas City, N.A., routing number - 101000695, bank
account number: 9878002611, FBO: (account name) and (your Lord Abbett
account number). Specify the complete name of the fund of your choice, note
class Y shares and include your account number and your name.
REDEMPTIONS
BY BROKER. Call your investment professional for directions on how to
redeem your shares.
BY TELEPHONE. To obtain the proceeds of a redemption of $50,000 or less
from your account, you or your representative can call the fund at
800-821-5129.
BY MAIL. Submit a written redemption request indicating, the name(s) in
which the account is registered, the fund's name, the class of shares, your
account number, and the dollar value or number of shares you wish to sell.
Include all necessary signatures. If the signer has any Legal Capacity, the
signature and capacity must be guaranteed by an Eligible Guarantor. Certain
other legal documentation may be required. For more information regarding
proper documentation call 800-821-5129.
Normally a check will be mailed to the name and address in which the
account is registered (or otherwise according to your instruction) within
three business days after receipt of your redemption request. Your account
balance must be sufficient to cover the amount being redeemed or your
redemption order will not be processed. Under normal circumstances, the
fund may suspend redemptions or postpone payment for more than seven days,
as permitted by federal securities laws.
BY WIRE. In order to receive funds by wire, our servicing agent must have
the wiring instructions on file. To verify that this feature is in place,
call 800-821-5129 Ext. 34028, Institutional Trading Dept. Minimum wire:
$1,000. Your wire redemption request must be received by your fund before
the close of the NYSE for money to be wired on the next business day.
DISTRIBUTIONS AND TAXES
Each fund pays its shareholders dividends from its net investment income,
and distributes any net capital gains that it has realized. Each fund
expects to pay income dividends -- quarterly, for the Affiliated Fund;
monthly for the High Yield Fund; semi-annually for the Large-Cap Series;
and annually for Growth Opportunities Fund, International Series and
Small-Cap Value Series; and capital gain distributions, if any, once a
year. Your distributions will be reinvested in your fund unless you
instruct the fund to pay them to you in cash.
IMPORTANT INFORMATION. You may be subject to a $50 penalty under the Internal
Revenue Code if you do not provide a correct taxpayer identification number
(Social Security Number for individuals) or make certain required
certifications. In addition, we may be required to withhold from your account
and pay to the U.S. Treasury 31% of any redemption proceeds and any dividend or
distribution from your account.
ELIGIBLE GUARANTOR is any broker or bank that is a member of the Medallion Stamp
Program. Most major securities firms and banks are members of this program. A
NOTARY PUBLIC IS NOT AN ELIGIBLE GUARANTOR.
Your Investment 15
<PAGE>
The tax status of distributions is the same regardless of how long they
have been in the fund or whether distributions are reinvested or paid in
cash. In general, distributions are taxable as follows:
==========================================================
Federal Taxability Of Distributions
Type of Tax rate for Tax rate for 28%
distribution 15% bracket bracket and above
==========================================================
INCOME Ordinary Ordinary
DIVIDENDS Income Rate Income Rate
- ----------------------------------------------------------
SHORT-TERM Ordinary Ordinary
CAPITAL GAINS Income Rate Income Rate
- ----------------------------------------------------------
LONG-TERM
CAPITAL GAINS 10% 20%
- ----------------------------------------------------------
Except in tax-advantaged accounts, any sale or exchange of fund shares may
be a taxable event.
ANNUAL INFORMATION -- Information concerning the tax treatment of dividends
and other distributions will be mailed to shareholders each year. Each fund
will also provide annually to its shareholders information regarding the
source of dividends and distributions of capital gains paid by that fund.
Because everyone's tax situation is unique, you should consult your tax
adviser regarding the treatment of those distributions under the federal,
state and local tax rules that apply to you, as well as the tax
consequences of gains or losses from the redemption or exchange of your
shares.
SERVICES FOR FUND INVESTORS
AUTOMATIC SERVICES
We offer the following shareholder services:
TELEPHONE EXCHANGE PRIVILEGE. Class Y shares may be exchanged without a
service charge for class Y shares of any Eligible Fund among the Lord
Abbett-sponsored funds.
ACCOUNT STATEMENTS. Every Lord Abbett investor automatically receives
quarterly account statements.
HOUSEHOLDING. Shareholders with the same last name and address will receive
a single copy of a prospectus and an annual or semi-annual report, unless
additional reports are specifically requested in writing to the funds.
ACCOUNT CHANGES. For any changes you need to make to your account, consult
your investment professional or call the fund at 800-821-5129.
SYSTEMATIC EXCHANGE. You or your investment professional can establish a
schedule of exchanges between the same classes of any Eligible Fund.
MANAGEMENT
The funds' investment adviser is Lord, Abbett & Co., 767 Fifth Avenue, New
York, NY 10153-0203. Founded in 1929, Lord Abbett manages one of the
nation's oldest mutual fund complexes, with over $30 billion in more than
35 mutual fund portfolios and other advisory accounts. For more information
about the services Lord Abbett provides to the funds, see the Statement of
Additional Information.
Each fund pays Lord Abbett a monthly fee based on average daily net assets
for each month. For each of the fund's respective fiscal year end, the
management fee paid to Lord Abbett was at an annual rate of .31 of 1% for
Affiliated Fund and .75 of 1% for
TAXES ON TRANSACTIONS. The chart at left also can provide a "rule of thumb"
guide for your potential U.S. federal income tax liability when selling or
exchanging fund shares. The second row, "Short-term capital gains," applies to
fund shares sold within 12 months of purchase. The third row, "Long-term capital
gains," applies to shares held for more than 12 months.
Starting January 1, 2001, sales of securities held for more than five years will
be taxed at special lower rates.
TELEPHONE TRANSACTIONS. You have this privilege unless you refuse it in writing.
For your security, telephone transaction requests are recorded. We will take
measures to verify the identity of the caller, such as asking for your name,
account number, social security or taxpayer identification number and other
relevant information. Each fund will not be liable for following instructions
communicated by telephone that it reasonably believes to be genuine.
Transactions by telephone may be difficult to implement in times of drastic
economic or market change.
Exchanges by telephone should not be used to take advantage of short-term swings
in the market. Each fund reserves the right to limit or terminate this privilege
for any shareholder making frequent exchanges or abusing the privilege and may
revoke the privilege for all shareholders upon 60 days' written notice.
16 Your Investment
Page>
International Series, Large-Cap Series and Small-Cap Value Series. Lord
Abbett waived its management fee and subsidized other expenses (except for
12b-1 fees) for Growth Opportunities Fund. High Yield Fund commenced
operations subsequent to the November 30, 1998 fiscal year end. Each fund
pays all expenses not expressly assumed by Lord Abbett.
Lord Abbett uses teams of portfolio managers and analysts acting together
to manage the funds' investments.
AFFILIATED FUND. Thomas Hudson Jr., Partner of Lord Abbett, heads the
fund's team, the other senior members of which are Robert G. Morris,
Partner of Lord Abbett, and Eli M. Salzman. Messrs. Hudson and Morris have
been with Lord Abbett for more than five years. Mr. Salzman joined Lord
Abbett in 1997; prior to that he was a Vice President with Mutual of
America Capital Corp. from 1996 to 1997 and a Vice President with Mitchell
Hutchins Asset Management, Inc. from 1986 to 1996.
GROWTH OPPORTUNITIES FUND. Stephen J. McGruder, Partner of Lord Abbett,
heads the fund's team, the other senior member of which is Frederic D. Ohr.
Mr. McGruder has been with Lord Abbett since 1995. Prior to joining Lord
Abbett, Mr. McGruder served as Vice President of Wafra Investment Advisory
Group, a private investment company from 1988 to 1995. Mr. Ohr joined Lord
Abbett in 1998. Before joining Lord Abbett, Mr. Ohr was a Vice President
and Senior Analyst with Chase Asset Management from 1991 to 1998. The fund
is a portfolio of Lord Abbett Research Fund, Inc.
HIGH YIELD FUND. Christopher J. Towle, Partner of Lord Abbett, heads the
fund's team, the other senior members of which are Michael Goldstein,
Richard Szaro and Thomas Baade. Messrs. Towle and Szaro joined Lord Abbett
in 1988 and 1983, respectively. Mr. Goldstein has been with Lord Abbett
since April 1997. Before joining Lord Abbett, Mr. Goldstein was a bond
trader for Credit Suisse BEA Associates from August 1992 through April
1997. Mr. Baade joined Lord Abbett in 1998; prior to that he was a credit
analyst with Greenwich Street Advisors. The fund is a portfolio of Lord
Abbett Investment Trust.
INTERNATIONAL SERIES. Lord Abbett has entered into an agreement with
Fuji-Lord Abbett International Ltd. (the "Sub-Adviser"), under which the
Sub-Adviser provides Lord Abbett with advice regarding the International
Series' assets. Lord Abbett pays the Sub-Adviser a monthly fee equal to one
half of Lord Abbett's fee.
Christopher J. Taylor is Managing Director of the Sub-Adviser and heads the
fund's team, the other senior member of which is Simon Steele, U.K. Equity
Fund Manager. Mr. Steele joined the Sub-Adviser in 1996 and previously was
responsible for the WH Smith Pension Trust's U.K. Equities, as well as the
whole fund's International Asset allocation. Mr. Taylor has been employed
by the Sub-Adviser since 1987.
LARGE-CAP SERIES. Robert G. Morris, Partner of Lord Abbett, heads the
fund's team, the other senior members of which are W. Thomas Hudson, Jr.,
Partner of Lord Abbett, and Eli M. Salzman. Messrs. Morris and Hudson have
been with Lord Abbett for more than five years. Mr. Salzman joined Lord
Abbett in 1997; prior to that he was a Vice President with Mutual of
America Capital Corp. from 1996 to 1997, and a Vice President at Mitchell
Hutchins Asset Management, Inc. from 1986 to 1996.
SMALL-CAP VALUE SERIES. Robert P. Fetch, Partner of Lord Abbett, heads the
fund's team, the other senior member of which is Gregory M. Macosko. Mr.
Fetch joined Lord Abbett in 1995; prior to that, he was was a Managing
Director of Prudential Investment Advisors from 1983 to 1995. Mr. Macosko
joined Lord Abbett in 1996; prior to that he was an Equity Analyst with
Quest Advisory Service from 1991 to 1996.
Your Investment 17
<PAGE>
For More Information
OTHER INVESTMENT TECHNIQUES
This section describes some of the investment techniques that might be used
by the funds, and their risks.
ADJUSTING INVESTMENT EXPOSURE. Each fund may, but is not required to, use
various strategies to change its investment exposure to adjust to changing
security prices, interest rates, currency exchange rates, commodity prices
and other factors. Each fund may use these transactions to change the risk
and return characteristics of each fund's portfolio. If we judge market
conditions incorrectly or use a strategy that does not correlate well with
the fund's investments, it could result in a loss, even if we intended to
lessen risk or enhance returns. These transactions may involve a small
investment of cash compared to the magnitude of the risk assumed and could
produce disproportionate gains or losses. Also, these strategies could
result in losses if the counterparty to a transaction does not perform as
promised.
BORROWING. Each fund may borrow from banks. If a fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. Each fund may borrow only for temporary or emergency purposes,
and not in an amount exceeding 33 1/3% of its total assets.
CLOSED-END INVESTMENT COMPANIES. Each of the Growth Opportunities Fund,
International Series, Large-Cap Series and Small-Cap Value 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. Each of the Small-Cap Value Series and
Large-Cap Series may not invest more than 5% of its assets in closed-end
investment companies.
DIVERSIFICATION. Each fund is a diversified fund, which means that with
respect to 75% of its total assets, it will not purchase a security if, as
a result, more than 5% of the fund's total assets would be invested in
securities of a single issuer or the fund would hold more than 10% of the
outstanding voting securities of the issuer. This does not apply to U.S.
government securities.
DEPOSITORY RECEIPTS. The International Series may invest in Depository
Receipts which are securities, typically issued by a financial institution
(a "depository"), that evidence ownership interests in a security or a pool
of securities issued by a foreign issuer (the "underlying issuer") and
deposited with the depository. Generally, Depository Receipts in registered
form are designed for use in U.S. securities markets and Depository
Receipts in bearer form are designed for use in securities markets outside
the United States. The fund may invest in sponsored and unsponsored
Depository Receipts. For purposes of the International Series' investment
policies, investments in Depository Receipts will be deemed to be
investments in the underlying securities.
EQUITY SECURITIES. The High Yield Fund may also invest up to 20% of its
total assets in equity securities. These include common stocks, preferred
stocks, convertible securities, warrants, and similar instruments. Common
stocks, the most familiar type, represent an ownership interest in a
corporation. Although equity securities have a history of long-term growth
in their value, their prices fluctuate based on changes in a company's
financial condition and on market and economic conditions.
FINANCIAL FUTURES TRANSACTIONS. A financial futures transaction is an
exchange-traded contract to buy or sell a standard quantity and quality of
a financial instrument or index at a specific future date and price. The
High Yield Fund, Growth Opportunities Fund,
18 For More Information
Page>
International Series and Large-Cap Series may purchase and sell futures
contracts and options thereon. The High Yield Fund may not invest more than
5% of its assets in such transactions. The Growth Opportunities Fund,
International Series and Large-Cap Series will not enter into any futures
contracts or options thereon, if the aggregate market value of the
securities covered by such contracts exceeds 50% of each such fund's total
assets.
FOREIGN CURRENCY HEDGING TECHNIQUES. Both the International Series and the
Small-Cap Value Series may use Foreign Currency Hedging Techniques.
Although these two funds do not normally engage in extensive currency
hedging, they may use currency forwards and options to hedge the risk to
the portfolio if they expect that foreign exchange price movements will be
unfavorable for U.S. investors. Generally, these instruments allow a fund
to lock in a specified exchange rate for a period of time. If the fund's
forecast proves to be wrong, such a hedge may cause a loss. Also, it may be
difficult or impractical to hedge currency risk in many emerging countries.
The underlying funds generally will not enter into a forward contract with
a term greater than one year. Under some circumstances, a fund may commit a
substantial portion or the entire value of its portfolio to the completion
of forward contracts. Although such contracts will be used primarily to
attempt to protect the fund from adverse currency movements, their use
involves the risk Lord Abbett will not accurately predict currency
movements, and the fund's return could be reduced.
FOREIGN SECURITIES. The International Series invests primarily in foreign
securities; the Growth Opportunities Fund and Small-Cap Value Series will
limit their investments in foreign securities to 35% of their total assets.
The Affiliated Fund and High Yield Fund will limit their investments in
foreign securities to 10% and 20%, respectively, of their total assets. The
Large-Cap Series may invest up to 10% in foreign securities. These
securities are not subject to the same degree of regulation and may be more
volatile and less liquid than securities traded in major U.S. markets.
Foreign portfolio securities may trade on days when a fund does not value
them. Fund share prices could be affected on days an investor cannot
purchase or sell shares. Other risks include less information on public
companies, banks and governments; political and social instability;
expropriations; higher transaction costs; currency fluctuations;
nondeductible withholding taxes and different accounting and settlement
practices.
ILLIQUID SECURITIES. These securities include those that are not traded on
the open market or that trade irregularly or in very low volume. They may
be difficult or impossible to sell at the time and price the fund would
like. Each fund may invest up to 15% of its assets in illiquid securities.
INVESTMENT FUNDS. The International Series may invest (normally not more
than 5% of the fund's total assets) in investment funds. Some emerging
countries have laws and regulations that currently preclude direct foreign
investment in the securities of their companies. However, indirect foreign
investment in the securities of such countries is permitted through
investment funds which have been specifically authorized. If the fund
invests in such investment funds, the fund's shareholders will bear not
only their proportionate share of the expenses of the fund (including
operating expenses and the fees of Lord Abbett), but also will indirectly
bear similar expenses of the underlying investment funds.
OPTIONS TRANSACTIONS. A put option on securities gives the purchaser, in
return for a premium, the right, for a specified period of time, to sell
the securities subject to the option to the writer (seller) of the put at
the specified exercise price. The writer of the put option, in return for
the premium, has the obligation, upon exercise of the option, to acquire
the securities underlying the option at the exercise price.
A call option on securities gives the purchaser, in return for a premium
paid, the right for a specified period of time to purchase the securities
subject to the option at a specified price
For More Information 19
<PAGE>
(the "exercise price" or "strike price"). The writer of a call option, in
return for the premium, has the obligation, upon exercise of the option, to
deliver, depending upon the terms of the option contract, the underlying
securities to the purchaser upon receipt of the exercise price.
Options on stock indices are similar to options on equity securities except
that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right, in
return for a premium paid, to receive, upon exercise of the option, an
amount of cash if the closing level of the stock index upon which the
option is based is greater than, in the case of a call, or less than, in
the case of a put, the exercise price of the option. The writer of an index
option, in return for a premium, is obligated to pay the amount of cash due
upon exercise of the option.
The writer of a put option might be obligated to purchase underlying
securities for more than their current market value.
When a fund writes a call option, it gives up the potential for gain on the
underlying securities in excess of the exercise price of the option during
the period that the option is open. The Small-Cap Value Series, High Yield
Fund and Growth Opportunities Fund may purchase and write put and call
options on equity securities or stock indices that are traded on national
securities exchanges.
The Growth Opportunities Fund may purchase foreign currency put options and
write foreign currency call options on national securities exchanges or
national over-the-counter ("OTC") markets. OTC options are generally less
liquid and involve issuer credit risk. The premiums paid for Growth
Opportunities Fund's foreign currency put options will not exceed 5% of the
net assets of the fund. Unlisted options, together with other illiquid
securities, may comprise no more than 15% of the Growth Opportunities
Fund's net assets. The face value of currency call option writing or
cross-hedging may not exceed 90% of the value of the securities denominated
in such currency (a) invested in by the Growth Opportunities Fund to cover
such call writing or (b) to be crossed.
The Small-Cap Value Series and the Growth Opportunities Fund may only write
covered put options to the extent that cover for such options does not
exceed 25% of each fund's net assets. Each fund will not purchase an option
if, as a result of such purchase, more than 20% of its total assets would
be invested in premiums for such options. In addition, the Growth
Opportunities Fund may write covered call options on securities having an
aggregate market not to exceed 5% of that fund's assets.
Each fund including the Large-Cap Series, will write (sell) only "covered"
options. This means that the funds may only sell the call options on
securities which the funds own. The Affiliated Fund and International
Series will only write "covered" call options on securities having an
aggregate market value not to exceed 10% of the Affiliated Fund's assets or
5% of the International Series' and Large-Cap Series' gross assets. The
High Yield Fund will only write covered call options and secured put
options on securities having an aggregate market value not to exceed 25% of
the High Yield Fund's assets.
PORTFOLIO SECURITIES LENDING. Each fund may lend securities to
broker-dealers and financial institutions, as a means of earning income.
This practice could result in a loss or delay in recovering a fund's
securities, if the borrower defaults. The Affiliated Fund, High Yield Fund
and International Series will limit their securities loans to 30% of their
total assets, while the Growth Opportunities Fund, Large-Cap Series and
Small-Cap Value Series will limit their securities loans to 5% of their
total assets.
REPURCHASE AGREEMENTS. Each fund may enter into Repurchase Agreements. In a
Repurchase Agreement, a fund buys a security at one price from a
broker-dealer or financial institution and simultaneously agrees to sell
the same security back to the
20 For More Information
<PAGE>
same party at a higher price in the future. If the other party to the
agreement defaults or becomes insolvent, a fund could lose money.
RIGHTS AND WARRANTS. Each of the Growth Opportunities Fund, International
Series, Large-Cap Series and Small-Cap Value 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 privilege to purchase securities at a stipulated
price and are usually valid for several years. Rights and warrants
generally do not entitle a holder to dividends or voting rights with
respect to the underlying securities, nor do they represent any rights in
the assets of the issuing company.
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.
RULE 144A SECURITIES. Each fund may invest in Rule 144A securities, which
are securities determined by the Board to be liquid pursuant to Securities
and Exchange Commission Rule 144A (the "Rule"). Under the Rule, a
qualifying unregistered security may be resold to a qualified institutional
buyer without registration and without regard to whether the seller
originally purchased the security for investment. A substantial part of the
lower-rated debt market consists of Rule 144A securities, many of which are
registered within a few months of their purchases. Investments in Rule 144A
securities initially determined to be liquid could have the effect of
diminishing the level of a fund's liquidity during periods of decreased
market interest in such securities.
STOCK INDEX FUTURES. A stock index futures contract is an agreement in
which one party agrees to deliver to another an amount of cash equal to a
specific dollar amount times the difference between a specific stock index
at the close of the last trading day of the contract and the price at which
the agreement is made. No physical delivery of the underlying stocks in the
index is made.
Participation in the options or futures markets involves investment risks
and transaction costs to which the Small-Cap Value Series would not be
subject absent the use of these strategies. If the Small-Cap Value Series
management's prediction of movement in the direction of the securities
markets is inaccurate, the adverse consequences to the fund may leave it in
a worse position than if such strategies were not used. Risks inherent in
the use of options and stock index futures include: (1) dependence on
management's ability to predict correctly movements in the direction of
specific securities being hedged or the movement in stock indices; (2)
imperfect correlation between the price of options and stock index futures
and options thereon and movements in the prices of the securities being
hedged; (3) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (4) the
possible absence of a liquid secondary market for any particular instrument
at any time; (5) the possible need to defer closing out certain hedged
positions to avoid adverse tax consequences; and (6) daily limits on price
variance for a futures contract or related options imposed by certain
futures exchanges and boards of trade may restrict transactions in such
securities on a particular day.
The Small-Cap Value Series may not purchase or sell stock index futures if,
immediately after a purchase or sale, more than one-third of its net assets
would be hedged. In addition, except in the case of a call written and held
on the same index, the Small-Cap Value Series will write call options on
indices or sell stock index futures only if the amount resulting from the
multiplication of the then current level of the index (or indices) upon
For More Information 21
<PAGE>
which the options or futures contract(s) is based, the applicable
multiplier(s), and the number of futures or options contracts which would
be outstanding would not exceed one-third of the value of the Small-Cap
Value Series' net assets.
The Small-Cap Value Series' ability to enter into stock index futures and
listed options is limited by certain tax requirements in order to qualify
as a regulated investment company.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. Each of the International
Series, Small-Cap Value Series and Growth Opportunities Fund may purchase
or sell securities with payment and delivery taking place as much as a
month or more later. A fund would do this in an effort to buy or sell the
securities at an advantageous price and yield. The securities involved are
subject to market fluctuation and no interest accrues to the purchaser
during the period between purchase and settlement. At the time of delivery
of the securities, their market value may be less than the purchase price.
Also, if a fund commits a significant amount of assets to when-issued or
delayed delivery transactions, it may increase the volatility of the fund's
portfolio.
GLOSSARY OF SHADED TERMS
ELIGIBLE FUND. An Eligible Fund is any Lord Abbett-sponsored fund offering
class Y shares.
EURODOLLAR. Eurodollars are U.S. currency held in banks outside the United
States, mainly in Europe, and commonly used for settling international
transactions. Some securities are issued in Eurodollars--that is, with a
promise to pay interest in dollars deposited in foreign bank accounts.
LEGAL CAPACITY. This term refers to the authority of an individual to act
on behalf of an entity or other person(s). For example, if a redemption
request were to be made on behalf of the estate of a deceased shareholder,
John W. Doe, by a person (Robert A. Doe) who has the legal capacity to act
for the estate of the deceased shareholder because he is the executor of
the estate, then the request must be executed as follows: Robert A. Doe,
Executor of the Estate of John W. Doe. That signature using that capacity
must be guaranteed by an Eligible Guarantor.
To give another example, if a redemption request were to be made on behalf
of the ABC Corporation by a person (Mary B. Doe) who has the legal capacity
to act on behalf of the Corporation, because she is the president of the
Corporation, the request must be executed as follows: ABC Corporation by
Mary B. Doe, President. That signature using that capacity must be
guaranteed by an Eligible Guarantor (see example in right column).
MUTUAL FUND ADVISORY PROGRAM. Certain unaffiliated authorized brokers,
dealers, registered investment advisers or other financial institutions who
either (a) have an arrangement with Lord Abbett Distributor in accordance
with certain standards approved by Lord Abbett Distributor, providing
specifically for the use of our shares (and sometimes providing for
acceptance of orders for such shares on our behalf) in particular
investment products made available for a fee to clients of such brokers,
dealers, registered investment advisers and other financial institutions,
or (b) charge an advisory, consulting or other fee for their services and
buy shares for their own accounts or the accounts of their clients.
RECENT PERFORMANCE
AFFILIATED FUND. During the past fiscal year, the stock market and the fund
enjoyed returns above historical averages due to an environment of solid
economic growth, low inflation and strong corporate profit gains.
Throughout most of the period, the portfolio has been evenly diversified,
but with a moderate overweighting in financial stocks. Further-
GUARANTEED SIGNATURE. An acceptable form of guarantee would be as follows:
In the case of the estate -
Robert A. Doe
Executor of the Estate of
John W. Doe
[Date]
SIGNATURE GUARANTEED
MEDALLION GUARANTEED
NAME OF GUARANTOR
/s/ David R. Levy
- --------------------------------------------------
AUTHORIZED SIGNATURE
(960) X9003470
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM'TM'
SR
In the case of the corporation -
ABC Corporation
Mary B. Doe
By Mary B. Doe, President
[Date]
SIGNATURE GUARANTEED
MEDALLION GUARANTEED
NAME OF GUARANTOR
/s/ David R. Levy
- --------------------------------------------------
AUTHORIZED SIGNATURE
(960) X9003470
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM'TM'
SR
22 For More Information
<PAGE>
more, we have shifted our focus within this group of stocks towards
insurance companies, which are benefiting from industry-wide consolidation
and cost-cutting efforts.
GROWTH OPPORTUNITIES FUND. During the first half of the fund's fiscal year,
stocks performed strongly, followed by sizable downdrafts during the summer
months, and a subsequent recovery from late September through November. We
believe much of the volatility was due to investors' growing reluctance to
bear risk in response to economic and political uncertainties in Japan, the
Pacific Rim, Russia and other emerging markets, and the impact those
uncertainties might have on future U.S. corporate earnings.
A series of rate cuts initiated by the U.S. Federal Reserve Board helped to
ease investor concern later in the fund's fiscal year. As a more optimistic
view of the global economies emerged, stocks rallied with most sectors
participating in the upswing.
HIGH YIELD FUND. The commencement of operations for this fund was after
November 30, 1998. Consequently, there is no recent performance information
available for the fund's most recent fiscal year.
INTERNATIONAL SERIES. The fund's investment strategy consisted of holding a
relatively concentrated portfolio, comprised of a restricted number of
markets and stocks of industry-leading companies. The stocks were bought at
low valuation levels, and in line with our investment philosophy, which
means that we used the recent period of market weakness to steadily add to
existing positions.
In addition, the fund was not invested in the emerging and Far Eastern
markets, but was instead concentrated primarily in Europe and Canada. This,
in addition to the fund's superior stock selection, contributed to the last
fiscal year's high performance. Throughout this period, portfolio turnover
remained low. We used new purchase monies to add to our existing holdings
during this period. As a result, there was very little actual change to our
list.
LARGE-CAP SERIES. The fund's strong absolute returns for the fiscal year
ended November 30, 1998 were due, in part, to our decision to maintain an
overweighting of financial company holdings. After a weak start, these
holdings benefited from attractive valuations relative to their expected
earnings and from ongoing industry consolidations.
Favorable earnings developments and merger activity among pharmaceutical
and health care holdings also enhanced the portfolio's performance, as did
our particular stock selections in the energy sector. Interim price
weakness among technology companies created the opportunity to add
technology stocks to the portfolio, as we anticipated that this industry
would continue to perform well into 1998. The announcement of the
Exxon-Mobil merger had a positive impact on the fund's performance,
although, overall, companies in the electric utilities and energy sectors
did not perform well during the period.
We believe that the anticipated environment of continued low inflation,
modest eco-nomic growth and benign interest rates, combined with S&P 500'r'
Index's flat projected earnings growth in 1999, will favor the fund's
research-driven value investment strategy in the years ahead.
SMALL-CAP VALUE SERIES. In a year of challenge for small-cap stocks, our
management team focused on various industry sectors. For example, our
overweighting of companies in the technology and consumer non-cyclical
industries, such as apparel and general retailers, which moved ahead of the
broad market early in the year and then again during the fourth quarter,
added significant value to the portfolio. On the other hand, we reduced our
exposure to industrial companies late in the year when they continued to
struggle despite improved market conditions.
We believe the stage is set for a small-cap rebound now that these
companies are selling at historically low prices relative to larger
companies and that our value approach will enable us to continue to provide
attractive long-term returns relative to our peers.
YEAR 2000 ISSUES. Each fund could be adversely affected if the computers used by
each fund and their service providers do not properly process and calculate
date-related information from and after January 1, 2000.
Lord Abbett is working to avoid such problems and has received assurances from
each fund's service providers that they are taking similar steps. Of course,
the Year 2000 problem is unprecedented and, therefore, Lord Abbett cannot
eliminate altogether the possibility that it or the fund will be affected.
For More Information 23
<PAGE>
Affiliated Fund
Financial Information
FINANCIAL HIGHLIGHTS
This table describes the fund's performance for the fiscal period
indicated. "Total return" shows how much your investment in the fund would
have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These Financial Highlights have
been audited by Deloitte & Touche LLP, the fund's independent auditors, in
conjunction with their annual audit of the fund's financial statements.
Financial statements for the fiscal year ended October 31, 1998 and the
Independent Auditors' Report thereon appear in the Annual Report to
Shareholders for the fiscal year ended October 31, 1998 and are
incorporated by reference into the Statement of Additional Information,
which is available upon request.
=============================================================================
CLASS Y SHARES
---------------------------
Year Ended October 31,
Per Share Operating Performance: 1998(a)
NET ASSET VALUE, BEGINNING OF PERIOD $15.44
- -----------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------
Net investment income .15
- -----------------------------------------------------------------------------
Net realized and unrealized
- -----------------------------------------------------------------------------
loss on investments (.89)
- -----------------------------------------------------------------------------
Total from investment operations (.74)
- ------------------------------------------------------------------------------
DISTRIBUTIONS
- -----------------------------------------------------------------------------
Dividends from net investment income (.13)
- -----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.57
- -----------------------------------------------------------------------------
TOTAL RETURN(b)(c) (4.77)%
- -----------------------------------------------------------------------------
Ratios to Average Net Assets (c) (d)
- -----------------------------------------------------------------------------
Expenses 0.24%
- -----------------------------------------------------------------------------
Net investment income 1.03%
- -----------------------------------------------------------------------------
=============================================================================
Year Ended October 31,
---------------------
SUPPLEMENTAL DATA FOR ALL CLASSES: 1998
NET ASSETS, END OF YEAR (000) $8,520,603
- -----------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 56.49%
- ------------------------------------------------------------------------------
(a) From March 27, 1998 (commencement of offering) to October 31, 1998.
(b) Total return assumes the reinvestment of all distributions.
(c) Not annualized.
(d) The ratios for 1998 include expenses paid through an expense offset
arrangement.
24 Financial Information
<PAGE>
Affiliated Fund
LINE GRAPH COMPARISON
Immediately below is a comparison of a $10,000 investment in class A shares
to the same investment in the S&P 500'r' Index, assuming reinvestment of
all dividends and distributions.
Affiliated Fund S&P 500 Index
at NAV
12/31/70 $10,412
10/31/71 $11,346 $11,685
10/31/72 $12,753 $14,246
10/31/73 $12,052 $14,247
10/31/74 $10,176 $10,147
10/31/75 $14,210 $12,782
10/31/76 $19,135 $15,359
10/31/77 $17,861 $14,431
10/31/78 $18,498 $15,348
10/31/79 $23,936 $17,717
10/31/80 $29,831 $23,407
10/31/81 $29,928 $23,540
10/31/82 $37,103 $27,375
10/31/83 $46,576 $35,026
10/31/84 $49,758 $37,257
10/31/85 $63,128 $44,459
10/31/86 $77,614 $59,216
10/31/87 $80,091 $63,005
10/31/88 $90,352 $72,305
10/31/89 $111,614 $91,358
10/31/90 $105,776 $84,524
10/31/91 $129,048 $112,772
10/31/92 $145,041 $123,993
10/31/93 $164,204 $142,481
10/31/94 $170,870 $147,980
10/31/95 $225,035 $187,062
10/31/96 $270,154 $232,107
10/31/97 $338,128 $306,613
10/31/98 $356,046 $374,099
Fiscal Year-end 10/31
================================================================================
Average Annual Total Return
For The Periods Ending October 31, 1998
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A(2) 10.27% 17.04% 14.83%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Performance for the unmanaged S&P 500'r' Index does not reflect transaction
costs, management fees or sales charges.
(2) This shows total return which is the percent change in net asset value,
with all dividends and distributions reinvested for the periods shown
ending October 31, 1998 using the SEC-required uniform method to compute
total return. Because the class Y shares were first offered on 3/27/98, the
line graph comparison and the total returns shown are for class A shares at
net asset value. Returns for class Y shares will be somewhat higher because
Y shares have lower expenses. Inception date for class A shares is 1/1/50.
Financial Information 25
<PAGE>
Growth Opportunities Fund
LINE GRAPH COMPARISON
Immediately below is a comparison of a $10,000 investment in class A shares
to the same investment in the RMCG Index, assuming reinvestment of all
dividends and distributions.
Growth Opportunities RMCG Index
Fund at NAV
7/31/95 $10,000
11/30/95 $10,630 $11,672
11/30/96 $13,144 $13,953
11/30/97 $17,205 $16,593
11/30/98 $17,729 $17,955
Fiscal Year-end 11/30
The fund (class A shares) at net asset value
RMCG Index (1)
==========================================================
Average Annual Total Return
For The Periods Ending November 30, 1998
1 YEAR LIFE
- ----------------------------------------------------------
Class A(2) 5.71% 18.74%
- ----------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Performance for the unmanaged RMCG Index does not reflect transaction
costs, management fees or sales charges.
(2) This shows total return which is the percent change in net asset value,
with all dividends and distributions reinvested for the periods shown
ending November 30, 1998 using the SEC-required uniform method to compute
total return. Because class Y shares are new, the line graph comparison and
the total returns shown are for class A shares at net asset value. Returns
for class Y shares will be somewhat higher because Y shares have lower
expenses.The class A share inception date is 8/1/95.
26 Financial Information
<PAGE>
FINANCIAL HIGHLIGHTS
This table describes the fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in the fund would
have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These Financial Highlights have
been audited by Deloitte & Touche LLP, the fund's independent auditors, in
conjunction with their annual audit of the fund's financial statements.
Financial statements for the fiscal year ended October 31, 1998 and the
Independent Auditors' Report thereon appear in the Annual Report to
Shareholders for the fiscal year ended October 31, 1998 and are
incorporated by reference into the Statement of Additional Information,
which is available upon request.
==========================================================================
CLASS Y SHARES
--------------------------
Year Ended October 31,
Per Share Operating Performance: 1998(a)
NET ASSET VALUE, BEGINNING OF PERIOD $11.28
- -------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------
Net investment income .15(d)
- -------------------------------------------------------------------------------
Net realized and unrealized gain on
- -------------------------------------------------------------------------------
investments and foreign currency holdings .98
- -------------------------------------------------------------------------------
Total from investment operations 1.13
- -------------------------------------------------------------------------------
DISTRIBUTIONS
- -------------------------------------------------------------------------------
Dividends from net investment income --
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.41
- -------------------------------------------------------------------------------
TOTAL RETURN(b)(c) 10.02%
- -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(c)
- -------------------------------------------------------------------------------
Expenses 0.84%
- -------------------------------------------------------------------------------
Net investment income 1.11%
- -------------------------------------------------------------------------------
===============================================================================
Year Ended October 31,
----------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES: 1998
NET ASSETS, END OF PERIOD (000) $153,033
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 20.52%
- ------------------------------------------------------------------------------
(a) From December 30, 1997 (commencement of offering) to October 31, 1998.
(b) Total return assumes the reinvestment of all distributions.
(c) Not annualized.
(d) Calculated using average shares outstanding during the period.
Financial Information 27
<PAGE>
International Series
LINE GRAPH COMPARISON
Immediately below is a comparison of a $10,000 investment in class A shares
to the same investment in the MSCI EAFE Index, assuming reinvestment of all
dividends and distributions.
International Series MSCI EAFE INDEX
at NAV
12/31/96 $10,047 $10,000
1/31/97 $10,174 $9,652
2/28/97 $10,609 $9,812
3/31/97 $10,673 $9,850
4/30/97 $10,662 $9,905
5/31/97 $10,938 $10,551
6/30/97 $11,224 $11,136
7/31/97 $11,245 $11,319
8/31/97 $10,874 $10,475
9/30/97 $11,553 $11,064
10/31/97 $11,521 $10,217
11/30/97 $11,325 $10,114
12/31/97 $12,027 $10,205
1/31/98 $12,558 $10,675
2/28/98 $13,601 $11,362
3/31/98 $14,877 $11,715
4/30/98 $15,514 $11,809
5/31/98 $16,003 $11,755
6/30/98 $15,610 $11,847
7/31/98 $15,631 $11,970
8/31/98 $13,398 $10,489
9/30/98 $12,643 $10,170
10/31/98 $13,175 $11,233
Fiscal Year-end 10/31
==========================================================
Average Annual Total Return
For The Periods Ending October 31, 1998
1 YEAR LIFE
- ----------------------------------------------------------
Class A(2) 14.36% 15.76%
- ----------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Performance for the unmanaged MSCI EAFE Index does not reflect transaction
costs, management fees or sales charges. Performance for this index begins
on 12/31/96.
(2) This shows total return which is the percent change in net asset value,
with all dividends and distributions reinvested for the periods shown
ending October 31, 1998 using the SEC-required uniform method to compute
total return. Because class Y shares are new, the line graph comparison and
the total returns shown are for class A shares at net asset value. Returns
for class Y shares will be somewhat higher because Y shares have lower
expenses.The class A share inception date is 12/13/96.
28 Financial Information
<PAGE>
Large-Cap Series
LINE GRAPH COMPARISON
Immediately below is a comparison of a $10,000 investment in class A shares
to the same investment in the S&P 500'r' Index, assuming reinvestment of
all dividends and distributions.
Large-Cap Series S&P 500
at NAV Index
6/3/92 $10,000
6/30/92 -- $10,000
11/30/92 $10,610 $10,702
11/30/93 $12,490 $11,780
11/30/94 $13,516 $11,903
11/30/95 $17,952 $16,229
11/30/96 $22,665 $20,838
11/30/97 $27,169 $26,777
11/30/98 $30,882 $33,118
Fiscal Year-end 11/30
The fund (class A shares) at net asset value
S&P 500'r' Index (1)
================================================================================
Average Annual Total Return
For The Periods Ending November 30, 1998
1 YEAR 5 YEARS LIFE
- --------------------------------------------------------------------------------
Class A(2) 13.45% 19.80% 18.93%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Performance for the unmanaged S&P 500'r' Index does not reflect transaction
costs, management fees or sales charges. Performance for this index begins
on 6/30/92.
(2) This shows total return which is the percent change in net asset value,
with all dividends and distributions reinvested for the periods shown
ending November 30, 1998 using the SEC-required uniform method to compute
total return. Because class Y shares are new, the line graph comparison and
the total returns shown are for class A shares at net asset value. Returns
for class Y shares will be somewhat higher because Y shares have lower
expenses. The class A share inception date is 6/3/92.
Financial Information 29
<PAGE>
Small-Cap Value Series
FINANCIAL HIGHLIGHTS
This table describes the fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in the fund would
have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These Financial Highlights have
been audited by Deloitte & Touche LLP, the fund's independent auditors, in
conjunction with their annual audit of the fund's financial statements.
Financial statements for the fiscal year ended November 30, 1998 and the
Independent Auditors' Report thereon appear in the Annual Report to
Shareholders for the fiscal year ended November 30, 1998 and are
incorporated by reference into the Statement of Additional Information,
which is available upon request.
============================================================================
CLASS Y SHARES
------------------------
Year Ended November 30,
Per Share Operating Performance: 1998(a)
NET ASSET VALUE, BEGINNING OF PERIOD $16.34
- -----------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------
Net investment loss (.01)(c)
- -----------------------------------------------------------------------------
Net realized and unrealized
- -----------------------------------------------------------------------------
loss on investments (1.93)
- -----------------------------------------------------------------------------
Total from investment operations (1.94)
- -----------------------------------------------------------------------------
DISTRIBUTIONS
- ------------------------------------------------------------------------------
Dividends from net investment income --
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.40
- ------------------------------------------------------------------------------
TOTAL RETURN(b)(d) (11.87)%
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(d)
- ------------------------------------------------------------------------------
Expenses 0.96%
- ------------------------------------------------------------------------------
Net investment loss (0.05)%
- ------------------------------------------------------------------------------
==============================================================================
Year Ended November 30,
----------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES: 1998
NET ASSETS, END OF YEAR (000) $515,379
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 67.86%
- ------------------------------------------------------------------------------
(a) From December 30, 1997 (commencement of offering) to November 30, 1998.
(b) Total return assumes the reinvestment of all distributions.
(c) Calculated using average shares outstanding during the period.
(d) Not annualized.
30 Financial Information
<PAGE>
Small-Cap Value Series
LINE GRAPH COMPARISON
Immediately below is a comparison of a $10,000 investment in class A shares
to the same investment in the Russell 2000 Index, assuming reinvestment of
all dividends and distributions.
Small-Cap Value Russell 2000 Index
Series at NAV
12/13/95 $10,000 --
12/31/95 $10,030 $10,000
11/30/96 $13,092 $11,352
11/30/97 $17,894 $14,010
11/30/98 $15,611 $13,082
Fiscal Year-end 11/30
The fund (class A shares) at net asset value
Russell 2000 Index (1)
==========================================================
Average Annual Total Return
For The Periods Ending November 30, 1998
1 YEAR LIFE
- ----------------------------------------------------------
Class A(2) (11.71)% 16.19%
- ----------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Performance for the unmanaged Russell 2000 Index does not reflect
transaction costs, management fees or sales charges. Performance of this
index begins on 12/31/95.
(2) This shows total return which is the percent change in net asset value,
with all dividends and distributions reinvested for the periods shown
ending November 30, 1998 using the SEC-required uniform method to compute
total return. Because class Y shares are new, the line graph comparison and
the total returns shown are for class A shares at net asset value. Returns
for class Y shares will be somewhat higher because Y shares have lower
expenses.The class A share inception date is 12/13/95.
Financial Information 31
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
More information on these funds is available free upon request, including
the following:
ANNUAL/SEMI-ANNUAL REPORT
Describes each fund, lists portfolio holdings and contains a letter from
each fund's manager discussing recent market conditions and each fund's
investment strategies.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
Provides more details about the funds and their policies. A current SAI is
on file with the Securities and Exchange Commission ("SEC") and is
incorporated by reference (is legally considered part of this prospectus).
Lord Abbett Affiliated Fund, Inc.
Lord Abbett Growth Opportunities Fund
Lord Abbett High Yield Fund
Lord Abbett Securities Trust --
International Series
Lord Abbett Research Fund, Inc. --
Large-Cap Series
Small-Cap Value Series
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
- ---------------------------------------------------------------------------
SEC file numbers: 811-5, 811-6650, 811-7988, 811-7538, 811-6650, 811-6650
To obtain information:
BY TELEPHONE. Call the funds at:
800-426-1130
BY MAIL. Write to the funds at:
The Lord Abbett Family of Funds
767 Fifth Avenue
New York, NY 10153-0203
VIA THE INTERNET.
LORD, ABBETT & CO.
http://www.lordabbett.com
Text only versions of fund documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 800-SEC-0330) or by sending your request and a duplicating
fee to the SEC's Public Reference Section, Washington, DC 20549-6009.
LAPROSP-Y6-1-599
(5/99)
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as................... 'r'
The trademark symbol shall be expressed as............................. 'TM'
<PAGE>
Lord, Abbett & Co.
Statement of Additional Information May 1, 1999
Lord Abbett Affiliated Fund
Lord Abbett Growth Opportunities Fund
Lord Abbett High Yield Fund
Lord Abbett International Series
Lord Abbett Large-Cap Series
Lord Abbett Small-Cap Value Series
- ------------------------------------------------------------------------------
This Statement of Additional Information is not a Prospectus. A Prospectus for
Class Y shares of the Funds mentioned below 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 May 1, 1999. This Statement of Additional
Information, relating to Lord Abbett Affiliated Fund, Inc. ("Affiliated Fund");
Lord Abbett Large-Cap Series, ("Large-Cap Series"), Lord Abbett Small-Cap Value
Series ("Small-Cap Value Series"), and Lord Abbett Growth Opportunities Fund
("Growth Opportunities Fund"), which are all portfolios of Lord Abbett Research
und, Inc.; Lord Abbett International Series ("International Series"), which is a
portfolio of Lord Abbett Securities Trust; and Lord Abbett High Yield Fund
("High Yield Fund"), which is a portfolio of Lord Abbett Investment Trust, (each
individually "we" or the "Fund," collectively (the "Funds"), 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 May 1, 1999 (the
"Prospectus").
Our Boards of Directors/Trustees have authority to create and classify shares in
separate series, without further action by shareholders. To date, the Boards of
Directors/Trustees have authorized five classes of shares for each Fund (Class
A, B, C, P and Y). The Board of a Fund will allocate a Fund's shares among its
classes from time to time. All shares of a Fund 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 classes or series may be added to one
or more of the Funds in the future. The Investment Company Act of 1940, as
amended (the "Act"), requires that where more than one series exists for a Fund,
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 a Fund
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each class or series affected
by such matter. Rule 18f-2 further provides that a class or series shall be
deemed to be affected by a matter unless the interests of each class or series
in the matter are substantially identical or the matter does not affect any
interest of such class or series. However, the Rule exempts the selection of
independent public accountants, the approval of principal distribution contracts
and the election of directors from the separate voting requirements of the Rule.
Shareholder inquiries should be made by writing directly to your Fund or by
calling 800-821-5129. In addition, you can make inquiries through Lord Abbett
Distributor.
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
---------------- ----
<S> <C>
1. Investment Policies 2
2. Directors (Trustees) and Officers 11
3. Investment Advisory and Other Services 17
4. Portfolio Transactions 19
5. Purchases, Redemptions
and Shareholder Services 21
6. Taxes 22
7. Past Performance 23
8. Information About The Funds 24
9. Financial Statements 24
</TABLE>
1.
Investment Policies
1
<PAGE>
Fundamental Investment Restrictions. The Funds are subject to the following
investment restrictions which cannot be changed without approval of a majority
of each Fund's outstanding shares. Each Fund may not: (1) borrow money, except
that (i) each Fund may borrow from banks (as defined in the Investment Company
Act of 1940, as amended (the "Act")) in amounts up to 33 1/3% of its total
assets (including the amount borrowed), (ii) each Fund may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) each Fund may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities and (iv) each Fund 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 Fund's investment
policies as permitted by applicable law); (3) engage in the underwriting of
securities, except pursuant to a merger or acquisition or to the extent that, in
connection with the disposition of its portfolio securities, it may be deemed to
be an underwriter under federal securities laws; (4) make loans to other
persons, except that the acquisition of bonds, debentures or other corporate
debt securities and investment in government obligations, commercial paper,
pass-through instruments, certificates of deposit, bankers acceptances,
repurchase agreements or any similar instruments shall not be subject to this
limitation, and except further that each Fund may lend its portfolio securities,
provided that the lending of portfolio securities may be made only in accordance
with applicable law; (5) buy or sell real estate (except that each Fund may
invest in securities directly or indirectly secured by real estate or interests
therein or issued by companies which invest in real estate or interests therein)
or commodities or commodity contracts (except to the extent each Fund may do so
in accordance with applicable law and without registering as a commodity pool
operator under the Commodity Exchange Act as, for example, with futures
contracts); (6) with respect to 75% of the gross assets of each Fund, buy
securities of one issuer representing more than (i) 5% of each Fund's gross
assets, except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or (ii) 10% of the voting securities of such
issuer; (7) invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding securities of the
U.S. Government, its agencies and instrumentalities); or (8) issue senior
securities to the extent such issuance would violate applicable law.
With respect to the restrictions mentioned herein, compliance therewith will not
be affected by changes in the market value of portfolio securities but will be
determined at the time of purchase or sale of such securities.
Non-Fundamental Investment Restrictions. In addition to the investment
restrictions above which cannot be changed without shareholder approval, each
Fund also is subject to the following non-fundamental investment policies which
may be changed by the Boards of Directors (Trustees) without shareholder
approval. Each Fund may not: (1) borrow in excess of 33 1/3% of its total assets
(including the amount borrowed), and then only as a temporary measure for
extraordinary or emergency purposes; (2) make short sales of securities or
maintain a short position except to the extent permitted by applicable law; (3)
invest knowingly more than 15% of its net assets (at the time of investment) in
illiquid securities, except for securities qualifying for resale under Rule 144A
of the Securities Act of 1933, deemed to be liquid by the Boards of Directors
(Trustees); (4) invest in the securities of other investment companies as
defined under the Act, except as permitted by applicable law; (5) invest in
securities of issuers which, with their predecessors, have a record of less than
three years of continuous operation, if more than 5% of each Fund's 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 of each Fund's officers or directors
(trustees) or by one or more partners or members of the Fund's underwriter or
investment adviser if these owners in the aggregate own beneficially more than
5% of the securities of such issuer; (7) invest in warrants if, at the time of
the acquisition, its investment in warrants, valued at the lower of cost or
market, would exceed 5% of each Fund's total assets (included within such
limitation, but not to exceed 2% of each Fund's total assets, are warrants which
are not listed on the New York or American Stock Exchange or a major foreign
exchange); (8) invest in real estate limited partnership interests or interests
in oil, gas or other mineral leases, or exploration or other development
programs, except that each Fund may invest in securities issued by companies
that engage in oil, gas or other mineral exploration or other development
activities; (9) write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in a Fund's prospectus and
statement of additional information, as they may be amended from time to time;
(10) buy from or sell to any of a Fund's officers, directors (trustees),
employees, or its investment adviser or any of a Fund's officers, directors
(trustees), partners or employees, any securities other than shares of a Fund;
(11) with respect to Affiliated Fund, pledge, mortgage or hypothecate its
assets; however, this provision does not apply to the grant of escrow receipts
or the entry into other similar escrow arrangements arising out
2
Page>
of the writing of covered call options; and (12) with respect to High Yield
Fund, 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.
For the year ended October 31, 1998, Affiliated Fund's portfolio turnover rate
was 56.49% versus 46.41% for the prior year. For the year ended November 30,
1998, the Small-Cap Series' portfolio turnover rate was 67.86% versus 45.24% for
the prior year; and the Large-Cap Series' portfolio turnover rate was 99.14%
versus 30.81% for the prior year. For the year ended October 31, 1998, the
International Series' portfolio turnover rate was 20.52% versus 29.72% for the
period December 13, 1996 (commencement of operations) to October 31, 1997. For
the year ended November 30, 1998, the Growth Opportunities Fund's turnover rate
was 136.81% versus 52.86% for the prior year.
With respect to the Affiliated Fund, it has no current intention to do so, but
may invest in financial futures & options on financial futures.
INVESTMENT TECHNIQUES
Lending Portfolio Securities (Affiliated Fund, Growth Opportunities Fund,
International SeriesLarge-Cap Series, Small-Cap Value Series) The Funds may lend
portfolio securities to registered broker-dealers. These loans may not exceed
30% of total assets. The Funds' loans 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 loans 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 Funds may allow to the borrower and/or a
third party that is not affiliated with the Funds and is acting as a "placing
broker" a part of the interest received with respect to the investment of
collateral received for securities loaned. No fee will be paid to affiliated
persons of the Funds.
By lending portfolio securities, the Funds can increase their income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in permissible investments, such as U.S.
Government Securities, or obtaining yield in the form of interest paid by the
borrower when such U.S. Government Securities are used as collateral. The Funds
will comply with the following conditions whenever they loans securities: (i)
the Funds 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 Funds must
be able to terminate the loan at any time; (iv) the Funds must receive
reasonable compensation with respect to the loan, as well as any dividends,
interest or other distributions on the loaned securities; (v) the Funds 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 Funds'
Board must terminate the loan and regain the right to vote the securities.
Rule 144A Securities (Affiliated Fund) The Fund may invest in securities
qualifying for resale to "qualified institutional buyers" under SEC Rule 144A
that are determined by the Board, or by Lord Abbett pursuant to the Board's
delegation, to be liquid securities. The Board will review quarterly the
liquidity of the investments the Fund makes in such securities. Investments by
the Fund in Rule 144A securities initially determined to be liquid could have
the effect of diminishing the level of the Fund's liquidity during periods of
decreased market interest in such securities among qualified institutional
buyers.
Other Investment Policies (Affiliated Fund and Large-Cap Series) Both Funds may
write covered call options which are traded on a national securities exchange
with respect to securities in our portfolio in an attempt to increase income and
to provide greater flexibility in the disposition of portfolio securities. A
"call option" is a contract sold for a price (the "premium") giving its holder
the right to buy a specific number of shares of stock at a specific price prior
to a specified date. A "covered call option" is a call option issued on
securities already owned by the writer of the call option for delivery to the
holder upon the exercise of the option. During the period of the option, a Fund
will forgo the opportunity to profit from any increase in the market price of
the underlying security above the exercise price of the option (to the extent
that the increase exceeds our net premium). We also may enter into "closing
purchase transactions"
3
<PAGE>
in order to terminate the obligation to deliver the underlying security (this
may result in a short-term gain or loss). A closing purchase transaction is the
purchase of a call option (at a cost which may be more or less than the premium
received for writing the original call option) on the same security, with the
same exercise price and call period as the option previously written. If a Fund
is unable to enter into a closing purchase transaction, it may be required to
hold a security that it might otherwise have sold to protect against
depreciation. A Fund does not intend to write covered call options with respect
to securities with an aggregate market value of more than 10% of its gross
assets at the time an option is written. This percentage limitation will not be
increased without prior disclosure in a Fund's current Prospectus.
Repurchase Agreements (International Series) The Fund may enter into repurchase
agreements with respect to a security. A repurchase agreement is a transaction
by which the Fund acquires a security and simultaneously commits to resell that
security to the seller (a bank or securities dealer) at an agreed upon price on
an agreed upon date. The resale price reflects the purchase price plus an agreed
upon market rate of interest which is unrelated to the coupon rate or date of
maturity of the purchased security. In this type of transaction, the securities
purchased by each Fund have a total value in excess of the value of the
repurchase agreement. The Fund requires at all times that the repurchase
agreement be collateralized by cash or U.S. Government securities having a value
equal to, or in excess of, the value of the repurchase agreement. Such
agreements permit the Fund to keep all of its assets at work while retaining
flexibility in pursuit of investments of a longer term nature.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreement defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, the Fund
may incur a loss upon disposition of them. If the seller of the agreement
becomes insolvent and subject to liquidation or reorganization under the
Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of each Fund and are
therefore subject to sale by the trustee in bankruptcy. Even though the
repurchase agreements may have maturities of seven days or less, they may lack
liquidity, especially if the issuer encounters financial difficulties. While
Fund management acknowledges these risks, it is expected that they can be
controlled through stringent selection criteria and careful monitoring
procedures. Fund management intends to limit repurchase agreements to
transactions with dealers and financial institutions believed by Fund management
to present minimal credit risks. Fund management will monitor creditworthiness
of the repurchase agreement sellers on an ongoing basis.
The Fund will enter into repurchase agreements only with those primary reporting
dealers that report to the Federal Reserve Bank of New York and with the 100
largest United States commercial banks and the underlying securities purchased
under the agreements will consist only of those securities in which the Fund
otherwise may invest.
Warrants (International Series and Large-Cap Series) Pursuant to Texas
regulations, both Funds will not invest more than 5% of its assets in warrants
and not more than 2% of such value in warrants not listed on the New York or
American Stock Exchanges, except when they form a unit with other securities. As
a matter of operating policy, we will not invest more than 5% of our net assets
in rights.
Covered Call Options (International Series and Large-Cap Series) Both Funds may
write covered call options which are traded on a national securities exchange
with respect to securities in its portfolio in an attempt to increase its income
and to provide greater flexibility in the disposition of its portfolio
securities. A "call option" is a contract sold for a price (the "premium")
giving its holder the right to buy a specific number of shares of stock at a
specific price prior to a specified date. A "covered call option" is a call
option issued on securities already owned by the writer of the call option for
delivery to the holder upon the exercise of the option. During the period of the
option, a Fund forgoes the opportunity to profit from any increase in the market
price of the underlying security above the exercise price of the option (to the
extent that the increase exceeds its net premium). A Fund may enter into
"closing purchase transactions" in order to terminate its obligation to deliver
the underlying security (this may result in a short-term gain or loss). A
closing purchase transaction is the purchase of a call option (at a cost which
may be more or less than the premium received for writing the original call
option) on the same security, with the same exercise price and call period as
the option previously written. If a Fund is unable to enter into a closing
purchase transaction, it may be required to hold a security that it might
otherwise have sold to protect against depreciation. Both Funds intend to write
covered call
4
<PAGE>
options with respect to securities with an aggregate market value of more than
5% of its gross assets at the time an option is written. This percentage
limitation will not be increased without prior disclosure in the current
Prospectus.
The Fund's custodian will segregate cash or liquid high-grade debt securities in
an amount not less than that required by Securities and Exchange Commission
("SEC") Release 10666 with respect to the Fund's assets committed to written
covered call options. If the value of the segregated securities declines,
additional cash or debt securities will be added on a daily basis (i.e.,
marked-to-market) so that the segregated amount will not be less than the amount
of the Fund's commitments with respect to such written options.
iinancial Futures Contracts(International Series and Large-Cap Series)Both Funds
may enter into contracts for the future delivery of a financial instrument, such
as a security or the cash value of a securities index. This investment technique
is designed primarily to hedge (i.e., protect) against anticipated future
changes in interest rates or market conditions which otherwise might adversely
affect the value of securities which we hold or intend to purchase. A "sale" of
a futures contract means the undertaking of a contractual obligation to deliver
the securities or the cash value of an index called for by the contract at a
specified price during a specified delivery period. A "purchase" of a futures
contract means the undertaking of a contractual obligation to acquire the
securities or cash value of an index at a specified price during a specified
delivery period. At the time of delivery pursuant to the contract, adjustments
are made to recognize differences in value arising from the delivery of
securities which differ from those specified in the contract. In some cases,
securities called for by a futures contract may not have been issued at the time
the contract was written. The Funds will not enter into any futures contracts or
options on futures contracts if the aggregate of the market value of the
securities covered by its outstanding futures contracts and securities covered
by futures contracts subject to the outstanding options written by it would
exceed 50% of its total assets.
Although some financial futures contracts by their terms call for the actual
delivery or acquisition of securities, in most cases, a party will close out the
contractual commitment before delivery without having to make or take delivery
of the security by purchasing (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, if effected through a member of an exchange, cancels the
obligation to make or take delivery of the securities. All transactions in the
futures market are made, offset or fulfilled through a clearing house associated
with the exchange on which the contracts are traded. The International Fund will
incur brokerage fees when it purchases or sells contracts and will be required
to maintain margin deposits. At the time it enters into a futures contract, it
is required to deposit with its custodian, on behalf of the broker, a specified
amount of cash or eligible securities called "initial margin." The initial
margin required for a futures contract is set by the exchange on which the
contract is traded. Subsequent payments, called "variation margin," to and from
the broker are made on a daily basis as the market price of the futures contract
fluctuates. The costs incurred in connection with futures transactions could
reduce the Fund's return. Futures contracts entail risks. If the investment
adviser's judgment about the general direction of interest rates or markets is
wrong, the overall performance may be poorer than if no such contracts had been
entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio securities being hedged. The degree of difference in
price movements between futures contracts and the securities (or securities
indices) being hedged depends upon such things as variations in demand for
futures contracts and securities underlying the contracts and differences
between the liquidity of the markets for such contracts and the securities
underlying them. In addition, the market prices of futures contracts may be
affected by certain factors not directly related to the underlying securities.
At any given time, the availability of futures contracts, and hence their
prices, are influenced by credit conditions and margin requirements. Due to the
possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment adviser may not result in a successful hedging
transaction.
5
<PAGE>
Options on Financial Futures ContractsInternational Series and Large-Cap Series)
Both Funds may purchase and write call and put options on financial futures
contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise, the writer of the option delivers the futures contract to the holder
at the exercise price. Both Funds would be required to deposit with our
custodian initial margin and maintenance margin with respect to put and call
options on futures contracts written by us. Options on futures contracts involve
risks similar to the risks relating to transactions in financial futures
contracts described above. Generally speaking, a given dollar amount used to
purchase an option on a financial futures contract can hedge a much greater
value of underlying securities than if that amount were used to directly
purchase the same financial futures. Should the event that a Fund intends to
hedge (or protect) against not materialize, however, the option may expire
worthless, in which case the Fund would lose the premium paid therefor.
Segregated Accounts (InternationalSeries and Large-Cap Series) To the extent
required to comply with Securities and Exchange Commission Release 10666 and any
related SEC policies, when purchasing a futures contract, or writing a put
option, the Fund will maintain in a segregated account at its custodian bank
cash, U.S. Government and other permitted securities to cover its position.
Forward Foreign Currency Contracts (Growth Opportunities Fund, Small-Cap Value
Series,) A forward foreign currency contract involves an obligation to purchase
or sell a specific amount of a specific currency at a set price at a future
date. Each Fund expects to enter into forward foreign currency contracts in
primarily two circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale of the amount of foreign currency involved in
the underlying security transaction, each Fund will be able to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the date
the security is purchased or sold and the date on which payment is made or
received.
Second, when management believes that the currency of a particular foreign
country may suffer a decline against the U.S. dollar, each Fund may enter into a
forward contract to sell the amount of foreign currency approximating the value
of some or all of each Fund's portfolio securities denominated in such foreign
currency or, in the alternative, each Fund may use a cross-hedging technique
whereby it sells another currency which each Fund expects to decline in a
similar way but which has a lower transaction cost. Precise matching of the
forward contract amount and the value of the securities involved will not
generally be possible since the future value of such securities denominated in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures. Each Fund does not intend to enter into such forward
contracts under this second circumstance on a continuous basis.
Repurchase Agreements (Growth Opportunities Fund, Small-Cap Value Series) If a
Fund enters into repurchase agreements as provided in clause (4) of the
fundamental investment restrictions above, it will do so only with those primary
reporting dealers that report to the Federal Reserve Bank of New York and with
the 100 largest United States commercial banks and the underlying securities
purchased under the agreements will consist only of those securities in which
each Fund otherwise may invest.
Foreign Currency Hedging Techniques (Growth Opportunities Fund, Small-Cap Value
Series) The Funds may utilize various foreign currency hedging techniques,
including forward foreign currency contracts and foreign currency put and call
options.
Foreign Currency Put and Call Options (Growth Opportunities Fund, Small-Cap
Value Series) The Funds also may purchase foreign currency put options and write
foreign currency call options on U.S. exchanges or U.S. over-the-counter
markets. A put option gives the Funds, 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.
6
Page>
Exchange-listed options markets in the United States include several major
currencies, and trading may be thin and illiquid. A number of major investment
firms trade unlisted options which are more flexible than exchange-listed
options with respect to strike price and maturity date. Unlisted options
generally are available in a wider range of currencies. Unlisted foreign
currency options are generally less liquid than listed options and involve the
credit risk associated with the individual issuer. Unlisted options, together
with other illiquid securities, are subject to a limit of 15% of each Funds' net
assets.
A call option written by a Funds gives the purchaser, upon payment of a premium,
the right to purchase from the a currency at the exercise price until the
expiration of the option. The Funds may write call options on a foreign currency
only in conjunction with a purchase of a put option on that currency. Such a
strategy is designed to reduce the cost of downside currency protection by
limiting currency appreciation potential. The face value of such writing may not
exceed 90% of the value of the securities denominated in such currency invested
in by the Funds or in such cross currency (referred to above) to cover such call
writing.
The Funds' custodian will segregate cash or permitted securities belonging to
the Funds in an amount not less than that required by SEC Release 10666 and
related policies with respect to the Funds' assets committed to (a) writing
options, (b) forward foreign currency contracts and (c) cross hedges entered
into by the Funds. If the value of the securities segregated declines,
additional cash or debt securities will be added on a daily basis (i.e., marked
to market), so that the segregated amount will not be less than the amount of
the Funds' commitments with respect to such written options, forward foreign
currency contracts and cross hedges.
Stock Options, Options on Stock Indices and Stock Index Futures (Small-Cap Value
Series) The Fund may write put and call options on stocks only if they are
covered, and such options must remain covered so long as the Fund is obligated
as a writer. The Fund will not (a) write puts having an aggregate exercise price
greater than 25% of the Fund's total net assets; or (b) purchase (i) put options
on stocks not held in the Fund's portfolio, (ii) put options on stock indices or
(iii) call options on stocks or stock indices if, after any such purchase, the
aggregate premiums paid for such options would exceed 20% of the Fund's total
net assets.
Call Options on Stock (Small-Cap Value Series) The Fund may, from time to time,
write call options on its portfolio securities. The Fund may write only call
options which are "covered," meaning that the Fund either owns the underlying
security or has an absolute and immediate right to acquire that security,
without additional cash consideration, upon conversion or exchange of other
securities currently held in its portfolio. In addition, the Fund will not
permit the call to become uncovered prior to the expiration of the option or
termination through a closing purchase transaction as described below. If the
Fund writes a call option, the purchaser of the option has the right to buy (and
the Fund has the obligation to sell) the underlying security at the exercise
price throughout the term of the option. The amount paid to the Fund by the
purchaser of the option is the "premium." The Fund's obligation to deliver the
underlying security against payment of the exercise price would terminate either
upon expiration of the option or earlier if the Fund were to effect a "closing
purchase transaction" through the purchase of an equivalent option on an
exchange. There can be no assurance that a closing purchase transaction can be
effected. The Fund does not intend to write covered call options with respect to
securities with an aggregate market value of more than 5% of it's gross assets
at the time an option is written. This percentage limitation will not be
increased without prior disclosure in our current prospectus. The Fund would not
be able to effect a closing purchase transaction after it had received notice of
exercise. In order to write a call option, the Fund is required to comply with
the rules of The Options Clearing Corporation and the various exchanges with
respect to collateral requirements. The Fund may not purchase call options
except in connection with a closing purchase transaction. It is possible that
the cost of effecting a closing purchase transaction may be greater than the
premium received by the Fund for writing the option.
Generally, the Fund intends to write listed covered call options during periods
when it anticipates declines in the market values of portfolio securities
because the premiums received may offset to some extent the decline in the
Fund's net asset value occasioned by such declines in market value. Except as
part of the "sell discipline" described below, the Fund will generally not write
listed covered call options when it anticipates that the market values of it's
portfolio securities will increase.
7
Page>
One reason for the Fund to write call options is as part of a "sell discipline."
If the Fund decides that a portfolio security would be overvalued and should be
sold at a certain price higher than the current price, it could write an option
on the stock at the higher price. Should the stock subsequently reach that price
and the option be exercised, the Fund would, in effect, have increased the
selling price of that stock, which it would have sold at that price in any
event, by the amount of the premium. In the event the market price of the stock
declined and the option were not exercised, the premium would offset all or some
portion of the decline. It is possible that the price of the stock could
increase beyond the exercise price; in that event, the Fund would forego the
opportunity to sell the stock at that higher price. In addition, call options
may be used as part of a different strategy in connection with sales of
portfolio securities. If, in the judgment of the Fund Management, the market
price of a stock is overvalued and it should be sold, the Fund may elect to
write a call option with an exercise price substantially below the current
market price. As long as the value of the underlying security remains above the
exercise price during the term of the option, the option will, in all
probability, be exercised, in which case the Fund will be required to sell the
stock at the exercise price. If the sum of the premium and the exercise price
exceeds the market price of the stock at the time the call option is written,
the Fund would, in effect, have increased the selling price of the stock. The
Fund would not write a call option in these circumstances if the sum of the
premium and the exercise price were less than the current market price of the
stock.
Put Options on Stock (Small-Cap Value Series) The Fund may also write listed put
options. If the Fund writes a put option, it is obligated to purchase a given
security at a specified price at any time during the term of the option.
Writing listed put options is a useful portfolio investment strategy when the
Fund has cash or other reserves available for investment as a result of sales of
Fund shares or, more importantly, because Fund Management believes a more
defensive and less fully invested position is desirable in light of market
conditions. If the Fund Management wishes to invest its cash or reserves in a
particular security at a price lower than current market value, it may write a
put option on that security at an exercise price which reflects the lower price
it is willing to pay. The buyer of the put option generally will not exercise
the option unless the market price of the underlying security declines to a
price near or below the exercise price. If the Fund writes a listed put, the
price of the underlying stock declines and the option is exercised, the premium,
net of transaction charges, will reduce the purchase price paid by the Fund for
the stock. The price of the stock may decline by an amount in excess of the
premium, in which event the Fund would have foregone an opportunity to purchase
the stock at a lower price.
If, prior to the exercise of a put option, the Fund determines that it no longer
wishes to invest in the stock on which the put option had been written, the Fund
may be able to effect a closing purchase transaction on an exchange by
purchasing a put option of the same Fund as the one which it has previously
written. The cost of effecting a closing purchase transaction may be greater
than the premium received on writing the put option and there is no guarantee
that a closing purchase transaction can be effected.
Stock Index Options (Small-Cap Value Series) Except as describe below, the Fund
will write call options on indices only if on such date it holds a portfolio of
stocks at least equal to the value of the index times the multiplier times the
number of contracts. When the Fund writes a call option on a broadly-based stock
market index, it will segregate or put into escrow with its custodian, or pledge
to a broker as collateral for the option, one or more "qualified securities"
with a market value at the time the option is written of not less than 100% of
the current index value times the multiplier times the number of contracts.
Segregated Accounts (Small-Cap Value Series) If the Fund has written an option
on an industry or market segment index, it will segregate or put into escrow
with its custodian, or pledge to a broker as collateral for the option, at least
ten "qualified securities," which are securities of an issuer in such industry
or market segment, with a market value at the time the option is written of not
less than 100% of the current index value times the multiplier times the number
of contracts. A "qualified security" is an equity security which is listed on a
national securities exchange or listed on the National Association of Securities
Dealers Automated Quotation System against which the Fund has not written a
stock call option and which has not been hedged by the Fund by the sale of stock
index futures. Such securities will include stocks which represent at least 50%
of the weighing of the industry or market segment index and will represent at
least 50% of the Fund's holdings in that industry or market segment. No
individual security will represent more than 25% of the amount so segregated,
pledged or escrowed. If at the close of business on any day the market value of
such qualified securities so segregated, escrowed or pledged falls below 100% of
the current index value times the multiplier
8
<PAGE>
times the number of contracts, the Fund will so segregate, escrow or pledge an
amount in cash, Treasury bills or other high-grade short-term obligations equal
in value to the difference. In addition, when the Fund writes a call on an index
which is in-the-money at the time the call is written, the Fund will segregate
with its custodian or pledge to the broker as collateral cash, equity
securities, non-investment grade debt, short term U.S. Government securities or
other high-grade short-term debt obligations equal in value to the amount by
which the call is in-the-money times the multiplier times the number of
contracts. Any amount segregated pursuant to the foregoing sentence may be
applied to the Small-Cap Fund's obligation to segregate additional amounts in
the event that the market value of the qualified securities falls below 100% of
the current index value times the multiplier times the number of contracts.
However, if the Fund holds a call on the same index as the call written where
the exercise price of the call held is equal to or less than the exercise price
of the call written or greater than the exercise price of the call written if
the difference is maintained by the Fund in cash, equity securities,
non-investment grade debt, treasury bills or other high-grade short-term
obligations in a segregated account with its custodian, it will not be subject
to the requirements describe in this paragraph. In instances involving the
purchase of stock index futures contracts by the Fund, an amount of cash or
permitted securities equal to the market value of the futures contracts will be
deposited in a segregated account with the its custodian and/or in a margin
account with a broker to collateralize the position and thereby insure that the
use of such futures are unleveraged.
Under regulations of the Commodity Exchange Act, investment companies registered
under the Act are exempt from the definition of "commodity pool operator,"
provided all of the Fund's commodity futures or commodity options transactions
constitute bona fide hedging transactions within the meaning of the CFTC's
regulations. The Fund will use stock index futures and options on futures as
described herein in a manner consistent with this requirement.
Stock Index Futures (Small-Cap Value Series) The Fund will engage in
transactions in stock index futures contracts as a hedge against changes
resulting from market conditions in the values of securities which are held in
the Fund's portfolio or which it intends to purchase. The Fund will engage in
such transactions when they are economically appropriate for the reduction of
risks inherent in the ongoing management of the Fund. The Fund may not purchase
or sell stock index futures if, immediately thereafter, more than one-third of
its net assets would be hedged and, in addition, except as described above in
the case of a call written and held on the same index, will write call options
on indices or sell stock index futures only if the amount resulting from the
multiplication of the then current level of the index (or indices) upon which
the option or future contract(s) is based, the applicable multiplier(s), and the
number of futures or options contracts which would be outstanding, would not
exceed one-third of the value of the Fund's net assets.
RISK FACTORS
Risk Factors (Affiliated Fund) As stated in the Prospectus, the Fund may invest
no more than 5% of its net assets (at the time of investment) in lower-rated,
high-yield bonds. In general, the market for lower-rated, high-yield bonds is
more limited than the market for higher-rated bonds, and because trading in such
bonds may be thinner and less active, the market prices of such bonds may
fluctuate more than the prices of higher-rated bonds, particularly in times of
market stress. In addition, while the market for high-yield, corporate debt
securities has been in existence for many years, the market in recent years
experienced a dramatic increase in the large-scale use of such securities to
fund highly-leveraged corporate acquisitions and restructurings. Accordingly,
past experience may not provide an accurate indication of future performance of
the high-yield bond market, especially during periods of economic recession.
Other risks which may be associated with lower-rated, high-yield bonds include
their relative insensitivity to interest-rate changes; the exercise of any of
their redemption or call provisions in a declining market which may result in
their replacement by lower-yielding bonds; and legislation, from time to time,
which may adversely affect their market. Since the risk of default is higher
among lower-rated, high-yield bonds, Lord Abbett's research and analyses are an
important ingredient in the selection of such bonds. 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. The Fund
does not have any minimum rating criteria applicable to the fixed-income
securities in which it invests.
Risks of Transactions in Stock Options (Small-Cap Value Series) Writing options
involves the risk that there will be no market in which to effect a closing
transaction. An option position may be closed out only on an exchange which
provides a secondary market for an option of the same Fund. Although the Fund
will generally write only those options
9
Page>
for which there appears to be an active secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
option, or at any particular time, and for some options no secondary market on
an exchange may exist. If the Fund, as a covered call option writer, is unable
to effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it delivers the
underlying security upon exercise.
Risks of Options on Indices (Small-Cap Value Series) The Fund's purchase and
sale of options on indices will be subject to risks described above under "Risk
of Transactions in Stock Options." In addition, the distinctive characteristics
of options on indices create certain risks that are not present with stock
options.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Fund will realize
a gain or loss on the purchase or sale of an option on an index depends upon
movements in the level of stock prices in the stock market generally or in an
industry or market segment rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks.
Index prices may be distorted if trading of certain stocks included in the index
is interrupted. Trading in the index option also may be interrupted in certain
circumstances, such as if trading were halted in a substantial number of stocks
included in the index. If this occurred, the Fund would not be able to close out
options which it had purchased or written and, if restrictions on exercise were
imposed, may be unable to exercise an option it holds, which could result in
substantial losses to the Fund. It is the Fund's policy to purchase or write
options only on indices which include a number of stocks sufficient to minimize
the likelihood of a trading halt in the index.
Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the CBOE 100). Since that time a number of additional index
option contracts have been introduced including options on industry indices.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop in all index option contracts. The Fund will not
purchase or sell any index option contract unless and until, in Fund
management's opinion, the market for such options has developed sufficiently
that such risk in connection with such transactions in no greater than such risk
in connection with options on stocks.
Special Risks of Writing Calls on Indices (Small-Cap Value Series) Because
exercises of index options are settled in cash, a call writer cannot determine
the amount of its settlement obligations in advance and, unlike call writing on
specific stocks, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities.
However, the Fund will write call options on indices only under the
circumstances described above under "Limitations on the Purchases and Sales of
Stock Options, Options on Stock Indices and Stock Index Futures."
Price movements in the Fund's portfolio probably will not correlate precisely
with movements in the level of the index and, therefore, the Fund bears the risk
that the price of the securities held may not increase as much as the index. In
such event the Fund would bear a loss on the call which is not completely offset
by movements in the price of the Fund's portfolio. It is also possible that the
index may rise when the Fund's portfolio of stocks does not rise. If this
occurred, the Fund would experience a loss on the call which is not offset by an
increase in the value of its portfolio and might also experience a loss in its
portfolio. However, because the value of a diversified portfolio will, over
time, tend to move in the same direction as the market, movements in the value
of the Fund in the opposite direction to the market would be likely to occur for
only a short period or to a small degree.
Unless the Fund has other liquid assets that are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow (in amounts not exceeding 20% of the Fund's
total assets) pending settlement of the sale of securities in its portfolio and
would incur interest charges thereon.
10
<PAGE>
When the Fund has written a call, there is also a risk that the market may
decline between the time the call is written and the time the Fund is able to
sell stocks in its portfolio. As with stock options, the Fund will not learn
that an index option has been exercised until the day following the exercise
date but, unlike a call on stock where the Fund would be able to deliver the
underlying securities in settlement, the Fund may have to sell part of its stock
portfolio in order to make settlement in cash, and the price of such stocks
might decline before they can be sold. This timing risk makes certain strategies
involving more than one option substantially more risky with index options than
with stock options. For example, even if an index call which the Fund has
written is "covered" by an index call held by the Fund with the same strike
price, the Fund will bear the risk that the level of the index may decline
between the close of trading on the date the exercise notice is filed with the
clearing corporation and the close of trading on the date the Fund exercises the
call it holds or the time the Fund sells the call which in either case would
occur no earlier than the day following the day the exercise notice was filed.
Special Risks of Purchasing Puts and Calls on Indices (Small-Cap Value Series)
If the Fund holds an index option and exercises it before final determination of
the closing index value for that day, it runs the risk that the level of the
underlying index may change before closing. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiple) to the assigned writer. Although the Fund may be
able to minimize this risk by withholding exercise instructions until just
before the daily cut off time or by selling rather than exercising an option
when the index level is close to the exercise price it may not be possible to
eliminate this risk entirely because the cut off times for index options may be
earlier than those fixed for other types of options and may occur before
definitive closing index values are announced.
2.
Board Members and Officers
The following director/trustee is a partner of Lord, Abbett & Co. ("Lord
Abbett"), The General Motors Building, 767 Fifth Avenue, New York, New York
10153-0203. He has been associated with Lord Abbett for over five years and is
also an officer, director, or trustee of the other Lord Abbett-sponsored funds.
He is an "interested person" 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 54, Chairman and President
The following outside directors are also directors or trustees of twelve other
Lord Abbett-sponsored funds referred to above.
E. Thayer Bigelow
Time Warner Inc.
1271 Avenue of the Americas
New York, New York
Senior Adviser, Time Warner Inc. Formerly, Acting Chief Executive Officer of
Courtroom Television Network (1997 - 1998). Formerly, President and Chief
Executive Officer of Time Warner Cable Programming, Inc. (1991 - 1997). Prior to
that, President and Chief Operating Officer of Home Box Office, Inc. Age 57.
William H. T. Bush
Bush-O'Donnell & Co., Inc.
101 South Hanley Road, Suite 1025
St. Louis, Missouri
Co-founder and Chairman of the Board of the financial advisory firm of
Bush-O'Donnell & Company. Age 60.
Robert B. Calhoun, Jr.
11
Page>
Monitor Clipper Partners
650 Madison Avenue, 9th Floor
New York, New York
Managing Director of Monitor Clipper Partners and President of The Clipper Group
L.P., both private equity investment funds. Age 56.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon. Age 68.
John C. Jansing
162 S. Beach Road
Hobe Sound, Florida
Retired. Former Chairman of Independent Election Corporation of America, a proxy
tabulating firm. Age 73.
C. Alan MacDonald
Directorship Inc.
8 Sound Shore Drive
Greenwich, Connecticut
Managing Director of Directorship Inc., a consultancy in board management and
corporate governance. Formerly, General Partner of the Marketing Partnership,
Inc., a full service marketing consulting firm (1994 - 1997). Prior to that,
Chairman and Chief Executive Officer of Lincoln Snacks, Inc., manufacturer of
branded snack foods (1992 - 1994). His career spans 36 years at Stouffers and
Nestle with 18 of the years as Chief Executive Officer. Currently serves as
Director of DenAmerica Corp., J.B. Williams Company, Inc., Fountainhead Water
Company and Exigent Diagnostics. Age 65.
Hansel B. Millican, Jr.
Rochester Button Company
1328 Broadway (Suite 816)
New York, New York
President and Chief Executive Officer of Rochester Button Company. Age 70.
Thomas J. Neff
Spencer Stuart
277 Park Avenue
New York, New York
Chairman of Spencer Stuart, an executive search consulting firm. Currently
serves as Director of Ace, Ltd. (NYSE). Age 61.
12
<PAGE>
For the Fiscal Year Ended October 31, 1998-Affiliated Fund; International Series
For the Fiscal Year Ended November 30, 1998 - Growth Opportunities Fund;
Large-Cap Series; Small-Cap Value Series; High Yield Fund
The following table sets forth the compensation accrued for each Fund's outside
directors/trustees.
<TABLE>
<CAPTION>
Aggregate
Name of Director Compensation Accrued by each Fund(1)
- ---------------- ----------------------------------------------------------------------
Affiliated Research Investment Securities
Fund Fund Trust Trust
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
E. Thayer Bigelow $24,154 $1,772 $5,586 $1,235
William H. T. Bush* $ 6,971 $ 512 $2,141 $ 356
Robert B. Calhoun** $ 9,506 $ 698 $2,724 $ 486
Stewart S. Dixon $23,766 $1,744 $5,473 $1,215
John C. Jansing(4) $23,449 $1,721 $5,400 $1,199
C. Alan MacDonald $23,440 $1,720 $5,375 $1,198
Hansel B. Millican, Jr. $ 449 $1,721 $5,400 $1,199
Thomas J. Neff $23,871 $1,752 $5,497 $1,220
</TABLE>
*Elected as of August 13, 1998
**Elected as of June 17, 1998
The following table sets forth information with respect to the equity-based
benefits accrued for outside directors/trustees by the Lord Abbett-sponsored
funds.
<TABLE>
<CAPTION>
Name of Director Pension or Retirement Benefits
- ---------------- Accrued by each Fund and All Other
Lord Abbett-sponsored Funds(2)
----------------------------------
<S> <C>
E. Thayer Bigelow $17,068
William H.T. Bush* $0
Robert B. Calhoun** $0
Stewart S. Dixon $32,190
John C. Jansing(4) $45,085
C. Alan MacDonald $30,703
Hansel B. Millican, Jr. $37,747
Thomas J. Neff $19,853
</TABLE>
The following table sets forth the total compensation payable by such funds to
the outside director/trustees. No director/trustee of the funds associated with
Lord Abbett and no officer of the funds received any compensation from the funds
for acting as a director or officer.
<TABLE>
<CAPTION>
For Year Ended October 31 1998
Total Compensation Accrued by each Fund and
Name of Director Twelve Other Lord Abbett-sponsored Funds(3)
- ---------------- -------------------------------------------
<S> <C>
E. Thayer Bigelow $57,400
William H.T. Bush* $27,500
Robert B. Calhoun** $33,500
</TABLE>
13
Page>
<TABLE>
<S> <C>
Stewart S. Dixon $56,500
John C. Jansing(4) $55,500
C. Alan MacDonald $55,000
Hansel B. Millican, Jr. $55,500
Thomas J. Neff $56,500
</TABLE>
(1) Outside directors' fees, including attendance fees for board and committee
meetings, are allocated among all Lord Abbett-sponsored funds based on the
net assets of each fund. A portion of the fees payable by each Fund to its
outside directors is being deferred under a plan that deems the deferred
amounts to be invested in shares of the Fund for later distribution to the
directors/trustees.
(2) The amounts were accrued by the Lord Abbett-sponsored funds for the 12
months ended October 31, 1998 with respect to the equity based plans
established for independent directors in 1996. This plan supercedes a
previously approved retirement plan for all future directors. Directors
participating in the retirement plan had the option to convert their accrued
benefits under the plan. All of the outside directors except one made such
an election.
(3) This table shows aggregate compensation, including directors/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, 1998. The amounts of the aggregate compensation
payable as of each of their respective 1998 fiscal year ends deemed invested
in Fund shares, including dividends reinvested and changes in net asset
value applicable to such deemed investments were:
For Affiliated Fund, the aggregate compensation payable by the Fund as of
October 31, 1998 deemed invested in Fund shares, including dividends
reinvested and changes in net asset value applicable to such deemed
investments, were: Mr. Bigelow, $105,839; Mr. Bush, $0; Mr. Calhoun, Jr.,
$6,971; Mr. Dixon, $455,675 ; Mr. Jansing, $455,675; Mr. MacDonald,
$258,267; Mr. Millican, $460,231; and Mr. Neff, $456,571. If the amounts
deemed invested in Fund shares were added to each director's actual holdings
of Fund shares as of November 30, 1998 each would own, the following: Mr.
Bigelow, 7,269 shares; Mr. Bush, 0 shares; Mr. Calhoun, 478 shares; Mr.
Dixon, 31,296 shares; Mr. Jansing, 31,296 shares; Mr. MacDonald, 17,738
shares; Mr. Millican, 31,609 shares; and Mr. Neff, 31,357 shares.
The amounts of the aggregate compensation payable by the Large-Cap Series as
of November 30, 1998 deemed invested in Company shares, including dividends
reinvested and changes in net asset value applicable to such deemed
investments, were: Mr. Bigelow, $369.71; Mr. Calhoun, $130.87; Mr. Dixon,
$0; Mr. Jansing, $356.17; Mr. MacDonald, $0; Mr. Millican, $360.68; and Mr.
Neff, $364.43. If the amounts deemed invested in Company shares were added
to each director's actual holdings of Company shares as of November 30,
1998, each would own, the following: Mr. Bigelow, 16.874 shares; Mr.
Calhoun, 5.973; Mr. Dixon, 132 shares; Mr. Jansing, 1,421.25 shares; Mr.
MacDonald, $0 shares; Mr. Millican, 16.462 shares; and Mr. Neff, 16.633
shares.
The amounts of the aggregate compensation payable by the Growth
Opportunities Fund as of November 30, 1998 deemed invested in Company
shares, including dividends reinvested and changes in net asset value
applicable to such deemed investments, were: Mr. Bigelow, $0; Mr. Dixon, $0;
Mr. Jansing, $0; Mr. MacDonald, $0; Mr. Millican, $0; and Mr. Neff, $0. If
the amounts deemed invested in Company shares were added to each director's
actual holdings of Company shares as of November 30, 1998, each would own,
the following: Mr. Bigelow, 0 shares; Mr. Dixon, 0 shares; Mr. Jansing,
607.72 shares; Mr. MacDonald, 0 shares; Mr. Millican, 0 shares; and Mr.
Neff, 650.57 shares.
The amounts of the aggregate compensation payable by the Small-Cap Value
Series as of November 30, 1998 deemed invested in Company shares, including
dividends reinvested and changes in net asset value applicable to such
deemedinvestments, were: Mr. Bigelow, $1,035.94; Mr. Calhoun, $513.24; Mr.
Dixon, $0; Mr. Jansing, $1,004.75; Mr. MacDonald, $0; Mr. Millican,
$1,004.75; and Mr. Neff, $1,002.98. If the amounts deemed invested in
Company shares were added to each director's actual holdings of Company
shares as of November 30, 1998, each would own, the following: Mr. Bigelow,
72.141 shares; Mr. Calhoun, 35.741; Mr. Dixon, 0 shares; Mr. Jansing, 69.969
shares; Mr. MacDonald, 0 shares; Mr. Millican, 69.969 shares; and Mr. Neff,
71.238 shares.
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<PAGE>
For the International Series, the amounts of the aggregate compensation
payable by the Fund as of October 31, 1998 deemed invested in Company
shares, including dividends reinvested and changes in net asset value
applicable to such deemed investments, were: Mr. Bigelow, $1,671; Mr. Bush,
$0; Mr. Calhoun, $264; Mr. Jansing, $25,597; Mr. MacDonald, $10,642; Mr.
Millican, $24,792; and Mr. Neff, $25,874. If the amounts deemed invested in
Company shares were added to each director's actual holdings of Company
shares as of October 31, 1998, each would own, the following: Mr. Bigelow,
183 shares; Mr. Bush, $0; Mr. Calhoun, 28 shares; Mr. Dixon, 625 shares; Mr.
Jansing, 7,370 shares; Mr. MacDonald, 1,163 shares; Mr. Millican, 2,709
shares; and Mr. Neff, 3,273 shares.
(4) Mr. Jansing chose to continue to receive benefits under the retirement plan,
which provides that outside directors (trustees) may receive annual
retirement benefits for life equal to their final annual retainer following
retirement at or after age 72 with at least ten years of service. Thus, if
Mr. Jansing were to retire and the annual retainer payable by the funds were
the same as it is today, he would receive annual retirement benefits of
$50,000.
Except where indicated, the following executive officers of each Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Brown, Fetch, Carper, Gerber, Hilstad, Hudson, McGruder, Morris, and Walsh are
partners of Lord Abbett; the others are employees:
Executive Vice Presidents:
Zane E. Brown, age 47 (International Fund )
Robert P. Fetch, age 46 (Large-Cap Series; Small-Cap Value Series) (with Lord
Abbett since 1995 - formerly Managing Director at Prudential Investment Advisors
from 1983 to 1995)
Robert I. Gerber, age 44 (High Yield Fund) (with Lord Abbett since 1997 -
formerly Senior Portfolio Manager at Sanford Bernstein & Co. from 1992 - 1997)
W. Thomas Hudson, Jr. age 57 (Affiliated Fund )
Robert G. Morris, age 54 (Growth Opportunities Fund; High Yield Fund;
International Fund; Large-Cap Series; Small-Cap Value Series)
Stephen J. McGruder, age 55 (Growth Opportunities Fund; Large-Cap Series) (with
Lord Abbett since 1995 - formerly Vice President of Wafra Securities from 1988
to 1995)
Vice Presidents:
Paul A. Hilstad, age 56, Vice President and Secretary (all Funds) (with Lord
Abbett since 1995 - formerly Senior Vice President and General Counsel of
American Capital Management & Research, Inc.)
Zane E. Brown, age 47 (Large-Cap Series; Small-Cap Value Series)
Daniel E. Carper, age 47 (all Funds)
Timothy Horan, age 44 (International Series) (with Lord Abbett since 1996-
formerly Senior Manager at Credit Suisse from 1994 to 1995; prior thereto Vice
President at Aubrey G. Lanston & Co. from 1992 to 1994)
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Page>
Lawrence H. Kaplan, age 43, Vice President and Assistant Secretary (all Funds)
(with Lord Abbett since 1997 - formerly Vice President and Chief Counsel of
Salomon Brothers Asset Management Inc from 1995 to 1997; prior thereto Senior
Vice President, Director and General Counsel of Kidder Peabody Asset Management,
Inc.)
Jerald Lanzotti, age 31 (International Series)
Gregory M. Macosko, age 51 (Large-Cap Series; Small-Cap Value Series)(with Lord
Abbett since 1997 - formerly Analyst with Royce Associates from 1991 to 1997)
Robert G. Morris, age 54 (Affiliated Fund)
A. Edward Oberhaus III, age 39 (all Funds)
Keith F. O'Connor, age 43 (all Funds)
Fernando Saldanha, age 45 (International Series) (with Lord Abbett since 1998 -
formerly Economist and Senior Financial Officer of World Bank (IBRO) from 1988
to 1998)
Eli M. Salzman, age 34 (Affiliated Fund) (with Lord Abbett since 1997 - formerly
Vice President of Mutual of America Capital Corp.; prior thereto Vice President
of Mitchell Hutchins Asset Mgt. from 1986 to 1996)
Christopher J. Towle, age 41 (International Series)
John J. Walsh, age 62 (all Funds); and
Treasurer:
Donna M. McManus, age 38, Treasurer (all Funds) (with Lord Abbett since 1996 -
formerly a Senior Manager at Deloitte & Touche LLP).
As of February 12, 1999, our officers and directors owned as a group less than
1% of each Fund's shares. As of February 12, 1999, there were no record holders
of 5% or more of each Fund's outstanding shares.
The Funds' By-Laws provide that each Fund shall not hold a meeting of its
stockholders in any year unless one or more matters are required to be acted on
by stockholders under the Investment Company Act of 1940, as amended (the
"Act"), or unless called by a majority of the Board of Directors (Trustees) or
by shareholders holding at least one quarter of the stock of each Fund
outstanding and entitled to vote at the meeting.
3.
Investment Advisory and Other Services
As described under "Management" in the Prospectus, Lord Abbett is the investment
manager of the Funds. Ten of the general partners of Lord Abbett are officers
and/or board members of the Funds, as follows: Zane E. Brown; Daniel E. Carper;
Robert S. Dow; Robert P. Fetch; Robert I. Gerber; Paul A. Hilstad; W. Thomas
Hudson; Stephen J. McGruder; Robert G. Morris; Christopher J. Towle; and John J.
Walsh.
The other general partners who are neither officers nor directors of the Funds
are Stephen Allen, John E. Erard, Daria L. Foster, Michael B. McLaughlin, R.
Mark Pennington, and Robert J. Noelke. 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
"Management." Under its Management Agreement, Affiliated Fund pays Lord Abbett a
monthly fee, based on average daily net assets for each month, at the annual
rate of .5 of 1% of the portion of its net assets not in excess of $200,000,000;
.4 of 1% of the portion in excess of $200,000,000, but not in excess of
$500,000,000; .375 of 1% of the portion in excess
16
<PAGE>
of $500,000,000, but not in excess of $700,000,000; .35 of 1% of the portion in
excess of $700,000,000, but not in excess of $900,000,000; and .3 of 1% of the
portion in excess of $900,000,000.
Under its Management Agreement:
Growth Opportunities Fund is obligated to pay Lord Abbett a monthly fee, based
on average daily net assets for each month, at the annual rate of .90 of 1% of
the Fund's average daily net assets. On September 15, 1998, the Fund's
shareholders voted to raise the management fee to .90 of 1%.
High Yield Fund is obligated to pay Lord Abbett a monthly fee, based on average
daily net assets for each month, at the annual rate of .60 of 1% of its average
daily net assets.
Large-Cap Series and Small-Cap Value Series are each obligated to pay Lord
Abbett a monthly fee, based on average daily net assets for each month, at the
annual rate of .75 of 1% of each's average daily net assets. International Fund
is obligated to pay Lord Abbett a monthly fee, based on average daily net assets
for each month, at the annual rate of .75 of 1%.
The following is a summary of the Management Fee for the 1998, 1997 and 1996
fiscal years of the funds:
<TABLE>
<CAPTION>
Gross Management Management
Fund Fiscal Year Management Fees Fees Waived Fees Paid
---- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Affiliated Fund 1998 $ 26,317,934 $ 0 $ 26,317,934
1997 $ 22,192,209 $ 0 $ 22,192,209
1996 $ 17,683,694 $ 0 $ 17,683,694
Growth 1998 $ 16,316 $ 16,316 $ 0
Opportunities 1997 $ 10,844 $ 10,844 $ 0
Fund 1996 $ 8,249 $ 8,249 $ 0
International 1998 $ 700,368 $ 0 $ 700,368
Series 1997 $ 127,715 $ 0 $ 127,715
Small-Cap Value 1998 $ 4,270,210 $ 0 $ 4,270,210
Series 1997 $ 1,075,019 $ 0 $ 1,075,019
1996 $ 24,461 $ 24,461 $ 0
Large-Cap 1998 $ 768,947 $ 0 $ 768,547
Series 1997 $ 334,394 $ 0 $ 334,394
1996 $ 78,668 $ 40,304 $ 38,364
</TABLE>
Lord Abbett has entered into an agreement with Fuji-Lord Abbett International
Ltd. ("the Sub-Adviser"), under which the Sub-Adviser provides Lord Abbett with
advice with respect to the International Series' assets. The Sub-Adviser is
controlled by Fuji Investment Management Co. (Tokyo). Fuji Bank Limited of
Tokyo, Japan ("Fuji Bank") directly owned 40% of the outstanding voting stock of
the Sub-Adviser. Fuji Investment Management Co. (Tokyo) is an affiliate of Fuji
Bank. Lord Abbett owns approximately 27% of such outstanding voting stock. As of
November 30, 1998, the Sub-Adviser manages approximately $915 million, which is
invested globally. The Sub-Adviser furnishes Lord Abbett with advice and
recommendations with respect to the International Fund's assets, including
advice about the allocation of investments among foreign securities markets and
foreign equity and debt securities markets and foreign equity and debt
securities and, subject to consultation with Lord Abbett, advice as to cash
holdings and what securities in the portfolio should be purchased, held or
disposed of. The Sub-Adviser also gives advice with respect to foreign currency
17
<PAGE>
matters. Lord Abbett is obligated to pay the Sub-Adviser a monthly fee, based on
average daily net assets for each month, at the annual rate of .375 of 1%. For
the fiscal year ended October 31, 1998 and for the period December 13, 1996
(commencement of operations) to October 31, 1997, the fees paid to the
Sub-Adviser by Lord Abbett were $350,184 and $63,857, respectively.
Each Fund's fee is allocated among all of its classes based on each Fund's
proportionate share of such daily net assets.
In addition, each Fund is obligated to pay all expenses not expressly assumed by
Lord Abbett, including, without limitation, outside directors' fees and
expenses, association membership dues, legal and auditing fees, taxes, transfer
and dividend disbursing agent fees, shareholder servicing costs, expenses
relating to shareholder meetings, expenses of preparing, printing and mailing
stock certificates and shareholder reports, expenses of registering our shares
under federal and state securities laws, expenses of preparing, printing and
mailing prospectuses to existing shareholders, insurance premiums, brokerage and
other expenses connected with executing portfolio transactions.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281 are
the independent auditors for each Fund and must be approved at least annually by
each Fund's Board of Directors (Trustees) to continue in such capacity. They
perform audit services for each Fund including the audits of financial
statements included in each Fund's annual report to shareholders.
The Bank of New York ("BNY"), 48 Wall Street, New York, New York 10268, is each
Fund's custodian. In accordance with the requirements of Rule 17f-5, each Fund's
directors (trustees) have approved arrangements permitting each Fund's foreign
assets not held by BNY or its foreign branches to be held by certain qualified
foreign banks and depositories.
The Sub-Custodians of BNY are:
Euro-Clear (a transnational securities depository); Australia: ANZ Banking
Group; Austria: Creditanstalt-Bankverein; Canada: Canadian Imperial Bank of
Commerce; Chile: Citibank, N.A.; Czech Republic: Ceskoslovenska Obchodni Banka;
Denmark: Den Danske Bank; Finland: Union Bank of Finland; Germany: J.P. Morgan
GmbH; Greece: National Bank of Greece S.A.; Hong Kong, Indonesia, Philippines,
Taiwan and Thailand: Hong Kong & Shanghai Banking Corp.; Hungary: Citibank
Budapest Rt; India: Hong Kong and Shanghai Banking Corporation; Ireland: Allied
Irish Banks, PLC; Israel: Bank Leumi LE-Israel B.M.; Japan: The Fuji Bank, Ltd.;
Jordan: Citibank, N.A.; Korea: Bank of Seoul; Luxembourg: Banque Internationale
A Luxembourg, S.A.; Mexico: Citibank, N.A.; Morocco: Banque Commerciale du
Maroc; Netherlands: Bank van Haften Labouchere; New Zealand: Anz Banking Group
Ltd.; Norway: Den Norske Bank; Pakistan: Citibank, N.A.; Peru: Citibank, N.A.;
Poland: Bank Handlowy w Warszawie S.A.; Portugal: Banco Espirito Santo E
Comercial de Lisboa; Malaysia, Singapore: Development Bank of Singapore; South
Africa: The First National Bank of Southern Africa; Sri Lanka: Hong Kong and
Shanghai Banking Corporation; Sweden: Skandinaviska Enskilda Banken;
Switzerland: Bank Leu; Turkey: Citibank, N.A.; Venezuela: Citibank, N.A.
4.
Portfolio Transactions
Our policy is to obtain best execution on all our portfolio transactions, which
means that we seek to have purchases and sales of portfolio securities executed
at the most favorable prices, considering all costs of the transaction including
brokerage commissions and dealer markups and markdowns and taking into account
the full range and quality of the brokers' services. Consistent with obtaining
best execution, we generally pay, as described below, a higher commission than
some brokers might charge on the same transactions. Our policy with respect to
best execution governs the selection of brokers or dealers and the market in
which the transaction is executed. To the extent permitted by law, we may, if
considered advantageous, make a purchase from or sale to another Lord
Abbett-sponsored fund without the intervention of any broker-dealer.
Broker-dealers are selected on the basis of their professional capability and
the value and quality of their brokerage and research services. Normally, the
selection is made by traders who are officers of the Fund and also are employees
of Lord Abbett. These traders do the trading as well for other accounts --
investment companies (of which they are also officers) and other investment
clients -- managed by Lord Abbett. They are responsible for obtaining best
execution.
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<PAGE>
We pay a commission rate that we believe is appropriate to give maximum
assurance that our brokers will provide us, on a continuing basis, the highest
level of brokerage services available. While we do not always seek the lowest
possible commissions on particular trades, we believe that our commission rates
are in line with the rates that many other institutions pay. Our traders are
authorized to pay brokerage commissions in excess of those that other brokers
might accept on the same transactions in recognition of the value of the
services performed by the executing brokers, viewed in terms of either the
particular transaction or the overall responsibilities of Lord Abbett with
respect to us and the other accounts they manage. Such services include showing
us trading opportunities including blocks, a willingness and ability to take
positions in securities, knowledge of a particular security or market proven
ability to handle a particular type of trade, confidential treatment, promptness
and reliability.
Some of these brokers also provide research services at least some of which are
useful to Lord Abbett in their overall responsibilities with respect to us and
the other accounts they manage. Research includes the furnishing of analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts and trading equipment and
computer software packages, acquired from third-party suppliers, that enable
Lord Abbett to access various information bases. Such services may be used by
Lord Abbett in servicing all their accounts, and not all of such services will
necessarily be used by Lord Abbett in connection with their management of the
Fund; conversely, such services furnished in connection with brokerage on other
accounts managed by Lord Abbett may be used in connection with their management
of the Fund, and not all of such services will necessarily be used by Lord
Abbett in connection with their advisory services to such other accounts. We
have been advised by Lord Abbett that research services received form brokers
cannot be allocated to any particular account, are not a substitute for Lord
Abbett's services but are supplemental to their own research effort and, when
utilized, and 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 Lord Abbett to purchase or sell portfolio securities.
If two or more broker-dealers are considered capable of offering the equivalent
likelihood of best execution, the broker-dealer who has sold our shares and/or
shares of other Lord Abbett-sponsored funds may be preferred.
If other clients of Lord Abbett buy or sell the same security at the same time
as we do, transactions will, to the extent practicable, be allocated among all
participating accounts in proportion to the amount of each order and will be
executed daily until filled so that each account shares the average price and
commission cost of each day. Other clients who direct that their brokerage
business be placed with specific brokers or who invest through wrap accounts
introduced to Lord Abbett by certain brokers may not participate with us in the
buying and selling of the same securities as described above. If these clients
wish to buy or sell the same security as we do, they may have their transactions
executed at times different from our transactions and thus may not receive the
same price or incur the same commission cost as we do.
We will not seek "reciprocal" dealer business (for the purpose of applying
commissions in whole or in part for our benefit or otherwise) from dealers as
consideration for the direction to them of portfolio business.
For the fiscal years ended October 31, 1998, 1997 and 1996, Affiliated Fund paid
total commissions to independent dealers of $12,832,030, $7,681,037 and
$5,897,259, respectively.
For the fiscal year ended November 30, 1998, 1997 and 1996, Growth Opportunities
Fund paid total commissions to independent broker-dealers of $12,741, $3,678 and
$2,155, respectively.
For the fiscal year ended October 31, 1998 and the period December 13, 1996
(commencement of operations) through October 31, 1997, International Series paid
total commissions to independent broker-dealers of $ and $ ,
respectively.
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For the fiscal years ended November 30, 1998, 1997 and 1996, the Large-Cap
Series paid total commissions to independent broker-dealers of $321,279,
$88,234, and $321,279, respectively.
For the fiscal years ended November 30, 1998, November 30, 1997 and the period
December 13, 1995 (commencement of operations) to November 30, 1996, the
Small-Cap Value Series paid total commissions to independent broker-dealers of
$1,564,340, $1,812,425 and $45,266, respectively.
5.
Purchases, Redemptions
and Shareholder Services
Information concerning how we value our shares for the purchase and redemption
of our shares is contained in the Prospectus under "Purchases" and
"Redemptions," respectively.
As disclosed in the Prospectus, we calculate our net asset value as of the close
of the New York Stock Exchange ("NYSE") on each day that the NYSE is open for
trading by dividing our total net assets by the number of shares outstanding at
the time of calculation. The NYSE is closed on Saturdays and Sundays and the
following holidays -- New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
Each Fund values its portfolio securities at market value as of the close of the
NYSE. Market value will be determined as follows: securities listed or admitted
to trading privileges on the New York or American Stock Exchange or on the
NASDAQ National Market System are valued at the last sales price, or, if there
is no sale on that day, at the mean between the last bid and asked prices, or,
in the case of bonds, in the over-the-counter market if, in the judgment of the
Fund's officers, that market more accurately reflects the market value of the
bonds. Over-the-counter securities not traded on the NASDAQ National Market
System are valued at the mean between the last bid and asked prices. Securities
for which market quotations are not available are valued at fair market value
under procedures approved by the Board of Directors (Trustees).
The net asset value per share for the Class Y shares will be determined by
taking Class Y shares net assets and dividing by shares outstanding. Our Class Y
shares will be offered at net asset value.
Each 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 each Fund, and to make
reasonable efforts to sell Fund shares so long as, in Lord Abbett Distributor's
judgment, a substantial distribution can be obtained by reasonable efforts.
Class Y Share Exchanges. The Prospectus describes the Telephone Exchange
Privilege. You may exchange some or all of your Y shares for Y shares of any
Lord Abbett-sponsored funds currently offering Class Y shares to the public.
Currently those other funds consist of Lord Abbett Investment Trust - Core Fixed
Income Series, Strategic Core Fixed Income Series, Bond-Debenture Fund,
Developing Growth Fund, and Mid-Cap Value Fund.
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 each Prospectus for expedited redemption procedures.
The right to redeem and receive payment, as described in each 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.
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<PAGE>
Our Board of Directors (Trustees) may authorize redemption of all of the shares
in any account in which there are fewer than 25 shares (Affiliated Fund, Growth
Opportunities Fund, High Yield Fund, Large-Cap Series, and Small-Cap Value
Series),and 60 shares(International Series). Before authorizing such redemption,
the Board must determine that it is in our economic best interest or necessary
to reduce disproportionately burdensome expenses in servicing shareholder
accounts. At least 6 month's prior written notice will be given before any such
redemption, during which time shareholders may avoid redemption by bringing
their accounts up to the minimum set by the Board.
6.
Taxes
The value of any shares redeemed by each Fund or repurchased or otherwise sold
may be more or less than your tax basis in the shares at the time of
disposition. Any gain will generally be taxable for federal income tax purposes.
Any loss realized on the disposition of a Fund's 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 shares 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 shares that are substantially
identical.
Each Fund will be subject to a four-percent nondeductible excise tax on certain
amounts not distributed or treated as having been distributed on a timely basis
each calendar year. Each Fund intends to distribute to shareholders each year an
amount adequate to avoid the imposition of such excise tax.
The writing of call options and other investment techniques and practices which
a Fund may utilize 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 each Fund. Such transactions may increase the amount of short-term
capital gain realized by such Fund, which is taxed as ordinary income when
distributed to shareholders. Limitations imposed by the Internal Revenue Code on
regulated investment companies may restrict a Fund's ability to engage in
transactions in options.
Each Fund may be subject to foreign withholding taxes which would reduce the
yield on its investments. It is generally expected that shareholders of a Fund
who are subject to United States federal income tax will not be entitled to
claim a federal income tax credit or deduction for foreign income taxes paid by
such Fund. However, if at the close of any fiscal year, more than 50% of the
assets of a fund consist of stock or securities of foreign corporations, the
Fund may elect to treat foreign income taxes paid by the Fund as having been
paid directly by its shareholder. If a Fund makes such an election, the
shareholders of the Fund 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 Fund 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 still be required to include their share
of such taxes in gross income. Shareholders who claim a foreign tax credit for
foreign taxes paid by a Fund may be required to treat a portion of the dividends
received from the Fund 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 a Fund 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 Fund
and (ii) the portion of dividends which represents income from each foreign
country.
Gains and losses realized by each Fund on certain transactions, including sales
of foreign debt securities and certain transactions involving foreign currency,
will be treated as ordinary income or loss for federal income tax purposes to
the extent, if any, that such gains or losses are attributable to changes in
exchange rates for foreign currencies. Accordingly, distributions taxable as
ordinary income will include the net amount, if any, of such foreign exchange
gains and will be reduced by the net amount, if any, of such foreign exchange
losses.
If either Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies," it may be subject to United States
federal income tax on a portion of any "excess distribution" or gain from the
disposition of such shares, even if such income is distributed as a taxable
dividend by the Fund to its shareholders.
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Additional charges in the nature of interest may be imposed on either the Fund
or its shareholders in respect to deferred taxes arising from such distributions
or gains.
If a Fund were to invest in a passive foreign investment company with respect to
which a Fund elected to make a "qualified electing fund" election, in lieu of
the foregoing requirements, the Fund 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 a Fund.
Dividends paid by a Fund will qualify for the dividends-received deduction for
corporations to the extent they are derived from dividends paid by domestic
corporations.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to United States persons (United States citizens or residents and
United States domestic corporations, partnerships, trusts and estates). Each
shareholder who is not a United States person should consult his tax advisor
regarding U.S. and foreign tax consequences of the ownership of shares of a
Fund, including a 30% (or lower treaty rate) United States withholding tax on
dividends representing ordinary income and net short-term capital gains, and the
applicability of United States gift and estate taxes to non-United States gift
and estate taxes to non-United States persons who own Fund shares.
7.
Past Performance
Each Fund computes the annual compounded rate of total return for Class Y shares
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 no sales charge from the initial amount invested and reinvestment
of all income dividends and capital gains distributions on the reinvestment
dates at prices calculated as stated in each Prospectus. The ending redeemable
value is determined by assuming a complete redemption at the end of the
period(s) covered by the annual total return computation.
In calculating total returns for Class Y shares no sales charge is deducted from
the initial investment and the 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.
Class Y share performance. Using the computation method described above,
Affiliated Fund's total return for Class Y shares for the period from inception
(March 27, 1998) to October 31, 1998 was (4.77)%. Small-Cap Value Series' total
return for Class Y shares for the period from inception (December 30, 1997) to
November 30, 1998 was (11.87)%. International Series' total return for Class Y
shares for the period from inception (December 30, 1997) to October 31, 1998 was
10.02% (not annualized). Growth Opportunities Fund's total return for Class Y
shares for the period from inception (October 15, 1998) to December 31, 1998 was
36.22%.
Our yield quotation for Class Y shares is based on a 30-day period ended on a
specified date, computed by dividing the net investment income per share earned
during the period by the net asset value per share of such class on the last day
of the period. This is determined by finding the following quotient: take the
dividends and interest earned during the period for the class minus its expenses
accrued for the period and divide by the product of (i) the average daily number
of Class shares outstanding during the period that were entitled to receive
dividends and (ii) the net asset value 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. Yields for Class Y shares do not reflect the
deduction of any sales charge.
These figures represent past performance, and an investor should be aware that
the investment return and principal value of a Fund's 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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<PAGE>
8.
Information About the Funds
Affiliated Fund is a Maryland Corporation formed in 1934. Small-Cap Value
Series, Large-Cap Series and Growth Opportunities Fund are series of Lord Abbett
Research Fund, Inc., a Maryland corporation organized in 1992. The International
Series is a series of Lord Abbett Securities Trust, a Delaware business trust
organized in 1993. The High Yield Fund is a series of Lord Abbett Investment
Trust, a Delaware business trust organized in 1993.
The directors, trustees and officers of Lord Abbett-sponsored mutual funds,
together with the partners and employees of Lord Abbett, are permitted to
purchase and sell securities for their personal investment accounts. In engaging
in personal securities transactions, however, such persons are subject to
requirements and restrictions contained in the Fund's Code of Ethics which
complies, in substance, with each of the recommendations of the Investment
Company Institute's Advisory Group on Personal Investing. Among other things,
the Code requires that Lord Abbett partners and employees obtain advance
approval before buying or selling securities, submit confirmations and quarterly
transaction reports, and obtain approval before becoming a director of any
company; and it prohibits such persons from investing in a security 7 days
before or after any Lord Abbett-sponsored fund or Lord Abbett-managed account
considers a trade or trades in such security, prohibiting profiting on trades of
the same security within 60 days and trading on material and non-public
information. The Code imposes certain similar requirements and restrictions on
the independent directors and trustees of each Lord Abbett-sponsored mutual fund
to the extent contemplated by the recommendations of such Advisory Group.
23
Page>
9.
Financial Statements
The financial statements for the fiscal year ended October 31, 1998, and the
reports of Deloitte & Touche LLP, independent auditors, on such financial
statements contained in the 1998 Annual Report to Shareholders of Lord Abbett
Affiliated Fund, Inc. are incorporated herein by reference to such financial
statements and report in reliance upon the authority of Deloitte & Touche LLP as
experts in auditing and accounting.
The financial statements for the fiscal year ended November 30, 1998, and the
report thereon of Deloitte & Touche LLP, independent auditors, on such financial
statements contained in the 1998 Annual Report to Shareholders of the Lord
Abbett Research Fund, Inc. (which includes Growth Opportunities Fund, formerly,
Mid-Cap Fund, Large-Cap Series, and Small-Cap Value Series), 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.
The financial statements for the fiscal year ended October 31, 1998 and the
report of Deloitte & Touche LLP, independent auditors, on such financial
statements contained in the 1998 Annual Report to Shareholders of Lord Abbett
Securities Trust(which includes International Series) 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.
The financial statements for the fiscal year ended November 30, 1998 and the
report thereon of Deloitte & Touche LLP, independent auditors, on such financial
statements contained in the 1998 Annual Report to Shareholders of the Lord
Abbett Investment Trust (which includes High Yield Fund) are incorporated by
reference to such financial statements and report in reliance upon the authority
of Deloitte & Touche LLP as experts in auditing and accounting.
24
