-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A5X/onOLx0buppilWbQMNgH3UDkPukC/URlJawQ4TgoyQhudqxJIsjsXP2zEzrYg n2YeZTBn0eeaVPKcyTOQcg== 0000002691-96-000005.txt : 19960318 0000002691-96-000005.hdr.sgml : 19960318 ACCESSION NUMBER: 0000002691-96-000005 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960619 FILED AS OF DATE: 19960315 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LORD ABBETT AFFILIATED FUND INC CENTRAL INDEX KEY: 0000002691 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 136020600 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: 1934 Act SEC FILE NUMBER: 811-00005 FILM NUMBER: 96535282 BUSINESS ADDRESS: STREET 1: 767 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10153 BUSINESS PHONE: 2128481870 MAIL ADDRESS: STREET 1: 767 FIFTH AVE STREET 2: 767 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10153-0203 FORMER COMPANY: FORMER CONFORMED NAME: LORD ABBOTT AFFILIATED FUND INC DATE OF NAME CHANGE: 19960315 FORMER COMPANY: FORMER CONFORMED NAME: AFFILIATED FUND INC DATE OF NAME CHANGE: 19941207 PRE 14A 1 AFFILIATED FUND PROXY Draft--March 11, 1996 ================================================================================ SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [x] Filed by a Party other than the Registrant [_] Check the appropriate box: [x] Preliminary Proxy Statement [_] Confidential, for Use of the Commission Only (as permitted by Rule 14a- b(e)(2)) [_] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12 LORD ABBETT AFFILIATED FUND, INC. (Name of Registrant as Specified in Its Charter) (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a- 6(i)(3). [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: 2) Form, Schedule or Registration Statement No.: 3) Filing Party: 4) Date Filed: ================================================================================ [Letterhead of Lord Abbett Affiliated Fund, Inc.] FROM THE CHAIRMAN OF THE BOARD - ------------------------------ Dear Shareholder, The Board of Directors of Lord Abbett Affiliated Fund, Inc. (the "Fund") has called an Annual Meeting of Shareholders of the Fund to consider the matters described below. The board recommends that you vote in favor of each proposal. First, the board recommends that you vote to reelect the current directors of the Fund and to ratify the selection of Deloitte & Touche LLP as the Fund's independent public accountants. Second, the board recommends that you vote in favor of a proposed revision of the fundamental investment policies and restrictions of the Fund which are intended to provide for greater flexibility in managing the Fund's portfolio and to permit the board to change applicable policies in the future without incurring the expense of shareholder meetings. Third, the directors propose that the Fund enter into a new 12b-1 Plan and Dis tribution Agreement for your class of shares. This new 12b-1 Plan has several changes which are designed primarily to maintain the competitive position of the Fund and to encourage sales of Fund shares. These changes, and the estimated effect of these changes on the Fund's expenses, are described in detail in the proxy statement. Fourth, the directors propose that the Fund's Articles of Incorporation be amended (i) to authorize the creation of new classes and series of shares of - the capital stock of the Fund, which is intended to encourage sales of Fund shares, (ii) to confirm that the Fund may impose contingent deferred sales -- charges in connection with new classes of shares to be created (this change will have no effect on your shares) and (iii) to reduce the par value of shares --- of capital stock of the Fund from $1.25 to $.001 per share in order to reduce costs when authorizing new shares (this change will have no effect on the value of your shares). These various matters are to be voted upon at a meeting of the shareholders of the Fund to be held in New York on Wednesday, June 19, 1996 at 11:00 a.m. YOUR VOTE ON THESE ISSUES IS CRITICAL. TO ENSURE THAT YOUR VOTE IS COUNTED, IT IS IMPORTANT THAT YOU: 1. REVIEW THE ENCLOSED PROXY STATEMENT; 2. COMPLETE AND SIGN THE ENCLOSED PROXY CARD; AND 3. RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE. Your prompt response will help save the Fund the expense of additional solicitations. We encourage you to review the enclosed materials. Because we believe these proposals are in the best interests of shareholders, we encourage you to vote in favor of the proposals. Sincerely, Ronald P. Lynch Chairman of the Board April 17, 1996 PRELIMINARY COPY LORD ABBETT AFFILIATED FUND, INC. 767 Fifth Avenue New York, New York 10153 Tel. No. (212) 848-1800 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 19, 1996 PROXY STATEMENT You are urged to sign and mail the proxy card in the enclosed postage-paid envelope whether you own a few or many shares. Your prompt return of the proxy may save the Fund the necessity and expense of further solicitations to insure a quorum at this meeting. LORD ABBETT AFFILIATED FUND, INC. 767 Fifth Avenue New York, New York 10153 Telephone No. (212) 848-1800 Notice of Annual Meeting of Shareholders To Be Held June 19, 1996 April 17, 1996 Notice is given hereby of an annual meeting of the shareholders of Lord Abbett Affiliated Fund, Inc. (the "Fund"). The meeting will be held at the offices of Lord, Abbett & Co., on the 11th floor of The General Motors Building, 767 Fifth Avenue, New York, New York, on Wednesday, June 19, 1996, at 11:00 a.m., for the following purposes and to transact such other business as may properly come before the meeting and any adjournments thereof. ITEM 1. To elect directors; ITEM 2. To ratify or reject the selection of Deloitte & Touche LLP as independent public accountants of the Fund for the current fiscal year; ITEM 3. To approve or disapprove certain changes in the Fund's fundamental investment policies and restrictions; ITEM 4. To approve or disapprove a new Distribution Plan and Agreement for the Fund's existing class of shares pursuant to Rule 12b-1 under the In vestment Company Act of 1940; ITEM 5. To approve or disapprove an amendment to the Fund's Articles of Incorporation (i) authorizing the Board of Directors to - create new classes and series of shares of capital stock; and (ii) confirming that the board may impose contingent deferred -- sales charges in connection with new classes of shares to be created (this change will have no effect on your shares); and ITEM 6. To approve or disapprove an amendment to the Fund's Articles of Incorporation reducing the par value per share from $1.25 to $0.001 in order to reduce costs when authorizing new shares (this change will have no effect on the value of your shares). By order of the Board of Directors Kenneth B. Cutler Vice President and Secretary The Board of Directors has fixed the close of business on March 22, 1996 as the record date for determination of shareholders of the Fund entitled to notice of and to vote at the meeting. Shareholders are entitled to one vote for each share held. As of March 22, 1996, there were ____ shares of the Fund issued and outstanding. ================================================================================ PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD. SIGN, DATE AND RETURN IT IN THE ENVELOPE PROVIDED. TO SAVE THE COST OF ADDITIONAL SOLICITATIONS, PLEASE MAIL YOUR PROXY PROMPTLY. LORD ABBETT AFFILIATED FUND, INC. 767 Fifth Avenue New York, New York 10153 April 17, 1996 PROXY STATEMENT --------------- This Proxy Statement is furnished in connection with the solicitation of proxies by and on behalf of the Board of Directors of Lord Abbett Affiliated Fund, Inc., a diversified open-end management investment company incorporated under the laws of Maryland (the "Fund"), for use at an annual meeting of shareholders of the Fund to be held at 11:00 a.m. on Wednesday, June 19, 1996 at the offices of Lord, Abbett & Co., the investment manager and principal underwriter of the Fund ("Lord Abbett"), on the 11th floor of the General Motors Building, 767 Fifth Avenue, New York, New York 10153, and at any adjournments thereof. This proxy statement and the enclosed proxy card are first being mailed to shareholders on or about April 17,1996. At the close of business on March 22, 1996 (the "Record Date"), there were issued and outstanding ___________ shares of the Fund. Only shareholders of record at the close of business on the Record Date are entitled to notice of, and to vote at, the annual meeting or any adjournment thereof. Proxies will be solicited by mail. Additional solicitations may be made by telephone, facsimile or personal contact by officers or employees of Lord Abbett and its affiliates. The Fund may also request brokerage houses, custodians, nominees, and fiduciaries who are shareholders of record to forward proxy materials to beneficial owners. D.F. King & Co. has been retained to assist in the solicitation of proxies at an estimated cost of $_______. The cost of the solicitation will be borne by _____________. Shareholders are entitled to one vote for each full share, and a pro portionate vote for each fractional share, of the Fund held as of the Record Date. Under Maryland law, shares owned by two or more persons (whether as joint tenants, co-fiduciaries or otherwise) will be voted as follows, unless a written instrument or court order providing to the contrary has been filed with the Secretary of the Fund: (1) if only one votes, that vote binds all; (2) if more - - than one votes, the vote of the majority binds all; and (3) if more than one - votes and the vote is evenly divided, the vote will be cast proportionately. If the enclosed form of proxy is properly executed and returned in time to be voted at the meeting, the proxies named therein will vote the shares represented by the proxy in accordance with the instructions marked thereon. Unmarked proxies will be voted FOR each of the items described in this Proxy Statement and any other matters as deemed appropriate. A proxy may be revoked by the signer at any time at or before the meeting by written notice to the Fund, by execution of a later-dated proxy or by voting in person at the meeting. 1. ELECTION OF DIRECTORS The nominees for election as directors are Ronald P. Lynch, Robert S. Dow, Thomas S. Henderson, E. Thayer Bigelow, Stewart S. Dixon, John C. Jansing, C. Alan MacDonald, Hansel B. Millican, Jr. and Thomas J. Neff, who have been nominated by the Board of Directors to succeed themselves. The individuals named as proxies intend to vote the proxies, unless otherwise directed, in favor of the election of such nominees, each of whom has agreed to continue to serve as a director of the Fund. Management of the Fund has no reason to believe that any nominee will be unable to serve as a director. If any nominee should be unable to serve as a director, it is the intention of the individuals named as proxies to vote for the election of such person or persons as the Board of Directors may, in its discretion, recommend. Information about each person nominated for election as a director is set forth in the following table. Except where indicated, each of the persons listed in the table has held the principal occupation listed opposite his name for the past five years.
Director of Names and Ages of Principal Occupation and Director- the Fund Directors of the Fund ships Since ---------------------- ----------------------------------- -------- Ronald P. Lynch (1)(2) Chairman of the Board of the Fund. 1983 60 Partner of Lord Abbett. Robert S. Dow (1)(2) President of the Fund. 1995 51 Partner of Lord Abbett. Thomas S. Henderson Executive Vice President of the Fund. 1991 (1)(2) 64 Partner of Lord Abbett. E. Thayer Bigelow President and Chief Executive of 1994 (2) 54 Time Warner Cable Programming, Inc. Formerly President and Chief Operating Officer of Home Box Office, Inc. Stewart S. Dixon (2) Partner in the law firm of Wildman, 1976 65 Harrold, Allen & Dixon. John C. Jansing (2) Retired. Former Chairman of Inde- 1979 70 pendent Election Corporation of America, a proxy tabulating firm. C. Alan MacDonald (2) General Partner, The Marketing 1988 62 Partnership, Inc., a full service marketing consulting firm. Formerly Chairman and Chief Executive Officer of Lincoln Snacks, Inc., manufacturer of branded snack foods (1992-1994). Formerly President and Chief Executive Officer of Nestle Foods Corp., and prior to that, President and Chief Executive Officer of Stouffer Foods Corp., both subsidiaries of Nestle SA, Switzerland. Currently serves as Director of Den West Restaurant Co., J. B. Williams, and Fountainhead Water Company.
2 Director of Names and Ages of Principal Occupation and Director- the Fund Directors of the Fund ships Since ---------------------- ----------------------------------- -------- Hansel B. Millican, Jr. (2) President and Chief Executive Officer 1983 67 of Rochester Button Company. Thomas J. Neff (2) President, Spencer Stuart & Asso- 1983 58 ciates, an executive search consulting firm.
- --------------------------- (1) "Interested person" of the Fund and Lord Abbett, within the meaning of the Investment Company Act of 1940, as amended, because of his association with Lord Abbett. (2) Also an officer and/or a director or trustee of other Lord Abbett-sponsored funds. Listed below is the number of shares of the Fund owned beneficially by each director as of March 22, 1996, together with the number of "phantom" shares credited to the account of each director under a plan (the "Deferred Plan") permitting independent directors to defer their directors' fees and to have the deferred amounts deemed invested in shares of the Fund for later payment. Also shown is the number of shares owned beneficially by the directors and officers as a group, together with such "phantom" shares credited to the accounts of directors and officers as a group. In each case, the amounts shown are less than 1% of the Fund's outstanding capital stock.
Number of Shares Beneficially Name Owned and Phantom Shares/(1)/ - ----------------------- ----------------------------------- Ronald P. Lynch 440,773 Robert S. Dow 8,695 Thomas S. Henderson 166,982 E. Thayer Bigelow 1,714 Stewart S. Dixon 20,124 John C. Jansing 39,013 C. Alan MacDonald 53,650 Hansel B. Millican, Jr. 21,058 Thomas J. Neff 23,148 Directors and Officers as a 1,148,387 group
- ------------- ___________________ (1) Of the shares listed in the foregoing table, the following constitute "phantom" shares credited to directors under the Deferred Plan: Mr. Bigelow, 1,714 shares; Mr. Dixon, 19,448 shares; Mr. 3 Jansing, 20,849 shares; Mr. MacDonald, 14,084 shares; Mr. Millican, 21,058 shares; Mr. Neff, 20,882 shares; and directors and officers as a group: shares. The Board of Directors has only one standing committee, an Audit Committee, consisting of Messrs. Bigelow, MacDonald and Millican. The functions performed by the Audit Committee include recommendation of the selection of independent public accountants for the Fund to the Board of Directors for approval, review of the scope and results of audit and non-audit services, the adequacy of internal controls and material changes in accounting principles and practices and other matters when requested from time to time by the directors (the "Independent Directors") who are not "interested persons" of the Fund within the meaning of the Investment Company Act of 1940, as amended (the "Act"). The Audit Committee held four meetings during the fiscal year ended October 31, 1995. The Board of Directors of the Fund met twelve times during the fiscal year ended October 31, 1995, and each director attended at least 75% of the total number of meetings of the Board and, if he was a member of the Audit Committee, of such committee. The second column of the following table sets forth the compensation accrued by the Fund for the Independent Directors. The third and fourth columns set forth information with respect to the retirement plan for Independent Directors maintained by the Fund and the other Lord Abbett-sponsored funds. The fifth column sets forth the total compensation accrued by the Fund and such other funds for the Independent Directors. The second, third and fourth columns give information for the Fund's most recent fiscal year; the fifth column gives information for the calendar year ended December 31, 1995. No director of the Fund associated with Lord Abbett and no officer of the Fund received any compensation from the Fund for acting as a director or officer.
For the Fiscal Year Ended October 31, 1995 For Year Ended December 31, 1995 ------------------------------------------------------------ ------------------- (I) (II) (III) (IV) (V) - --------------------- ----------------- ------------------- ------------------ --------------------- Name of Director Aggregate Pension or Retire- Estimated Annual Total Compensation Com- ment Benefits Benefits Upon Re- Accrued by the Fund pensation Ac- Accrued by the tirement Proposed and Fifteen Other crued by the Fund and to be Paid by the Lord Abbett-spon- Fund/1/ Fifteen Other Fund and Fifteen sored Funds/3/ Lord Abbett- Other Lord sponsored Funds/2/ Abbett-sponsored Funds/2/ - --------------------- ----------------- ------------------- ------------------ --------------------- E. Thayer Bigelow $14,089 $ 9,772 $33,600 $41,700 Stewart S. Dixon $14,245 $22,472 $33,600 $42,000 John C. Jansing $14,520 $28,480 $33,600 $42,960 C. Alan MacDonald $14,500 $27,435 $33,600 $42,750 Hansel B. Millican, Jr. $14,530 $24,707 $33,600 $43,000 Thomas J. Neff $14,191 $16,126 $33,600 $42,000
4 (1) Independent Directors' fees, including attendance fees for board and committee meetings , are generally allocated among all Lord Abbett- sponsored funds based on net assets of each fund. A portion of the fees payable by the Fund to its Independent 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. The total amount accrued under the plan for each Independent Director since the beginning of his tenure with the Fund, including dividends reinvested and changes in net asset value applicable to such deemed investments, as of October 31, 1995, were as follows: Mr. Bigelow, $15,558; Mr. Dixon, $208,646; Mr. Jansing, $220,753; Mr. MacDonald, $151,097; Mr. Millican, $222,990; and Mr. Neff, $221,195. (2) Each Lord Abbett-sponsored fund has a retirement plan providing that Independent Directors will receive annual retirement benefits for life equal to 80% of their final annual retainers following retirement at or after age 72 with at least 10 years of service. Each plan also provides for a reduced benefit upon early retirement under certain circumstances, a pre- retirement death benefit and actuarially reduced joint-and-survivor spousal benefits. The amounts stated in column (IV) would be payable annually under such re tirement plans if the director were to retire at age 72 and the annual retainers payable by such funds were the same as they are today. The amounts set forth in column (III) were accrued by the Lord Abbett- sponsored funds during the fiscal year ended October 31, 1995 with respect to the retirement benefits set forth in column (IV). (3) This column shows aggregate Independent Director's fees, including attendance fees for board and committee meetings, of a nature referred to in the first sentence of footnote (1), accrued by the Lord Abbett-sponsored funds during the year ended December 31, 1995. Listed below are the executive officers of the Fund, other than Messrs. Lynch, Dow and Henderson who are listed above in the table of nominees. Each executive officer has been associated with Lord Abbett for over five years, except as indicated. Messrs. Allen, Carper, Cutler, Morris, Nordberg and Walsh are partners of Lord Abbett; the others listed below are employees. Stephen I. Allen, age 42, Vice President since 1994. Daniel E. Carper, age 43, Vice President since 1986. Kenneth B. Cutler, age 63, Vice President and Secretary since 1966. John J. Gargana, Jr., age 64, Vice President since 1971. Paul A. Hilstad, age 53, Vice President and Assistant Secretary since 1995 (with Lord Abbett since 1995 - formerly Senior Vice President and General Counsel of American Capital Management & Research, Inc.). Thomas F. Konop, age 54, Vice President and Assistant Secretary since 1987. Robert G. Morris, age 51, Vice President since 1995. E. Wayne Nordberg, age 59, Vice President since 1988. 5 Keith F. O'Connor, age 40, Treasurer since 1987. Victor W. Pizzolato, age 63, Vice President since 1980. John J. Walsh, age 60, Vice President since 1974. Pursuant to the Fund's By-Laws, the election of each director of the Fund requires the affirmative vote of a majority of the shares of the Fund voted at the meeting. If a shareholder abstains from voting on this matter, then the shares held by such shareholder shall be deemed present at the meeting for purposes of determining a quorum and for purposes of calculating the vote with respect to this matter, but shall not be deemed to have been voted in favor of this matter. If a broker returns a "non-vote" proxy, indicating a lack of authority to vote on this matter, then the shares covered by such non-vote shall be deemed present at the meeting for purposes of determining a quorum but shall not be deemed to be represented at the meeting for purposes of calculating the vote with respect to this matter. The Board of Directors recommends that the shareholders vote FOR the election of each of the nominees as a director of the Fund. 2. RATIFICATION OR REJECTION OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors has selected Deloitte & Touche LLP as the in dependent public accountants of the Fund for the fiscal year ending October 31, 1996. The Act requires that such selection be submitted for ratification or rejection at the next annual meeting of shareholders if such meeting be held. Deloitte & Touche LLP (or a predecessor firm) acted as the Fund's independent public accountants for the year ended October 31, 1995, and for a number of years prior thereto. Based on in formation in the possession of the Fund, and information furnished by Deloitte & Touche LLP, the firm has no direct financial interest and no material indirect financial interest in the Fund. A representative of Deloitte & Touche LLP is expected to attend the meeting and will be provided with an opportunity to make a statement and answer appropriate questions. Ratification of the selection of Deloitte & Touche LLP requires the affirmative vote of a majority of the shares of the Fund voted at the meeting. If a shareholder abstains from voting on this matter, then the shares held by such shareholder shall be deemed present at the meeting for purposes of determining a quorum and for purposes of calculating the vote with respect to this matter, but shall not be deemed to have been voted in favor of this matter. If a broker returns a "non-vote" proxy, indicating a lack of authority to vote on this matter, then the shares covered by such non-vote shall be deemed present at the meeting for purposes of determining a quorum but shall not be deemed to be represented at the meeting for purposes of calculating the vote with respect to this matter. The Board of Directors recommends that shareholders vote to ratify the selection of Deloitte & Touche LLP as the Fund's independent public accountants for the fiscal year ending October 31, 1996. 6 3. PROPOSAL TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTIONS AND POLICIES OF THE FUND The Board of Directors has approved various amendments to the Fund's investment restrictions and policies in order to provide increased flexibility in managing the Fund's investment portfolio. Those investment policies and restrictions designated "fundamental" may only be changed by the vote of a "majority" (as defined in the Act) of the Fund's voting securities. Those investment policies and restrictions designated "non-fundamental" may be changed by the vote of the Board of Directors alone. Therefore, the proposed amendments to the fundamental policies and restrictions described below require shareholder approval. The Fund's current and proposed investment restrictions and policies (both fundamental and non-fundamental) with respect to various investment techniques and securities are set forth in Exhibit A attached hereto. Investment policies and restrictions govern generally the investment activities of the Fund and limit its ability to invest in certain types of securities or engage in certain types of transactions. The proposed changes are not expected to affect materially the current operations of the Fund. Although the proposed fundamental investment policies and restrictions are less restrictive than the current fundamental investment policies and restrictions of the Fund, non-fundamental restrictions have been adopted, to become effective with the proposed amendments to the fundamental policies and restrictions, which will limit the effect of such changes on the operations of the Fund. The proposed fundamental policies and restrictions are intended principally to provide greater flexibility in the future management of the Fund's investment portfolio. The Board of Directors has no present intention of approving actions permitted by these less restrictive fundamental policies. If it were to do so, the risks of investing in the Fund could be increased. No change is proposed with respect to the Fund's investment objective, which is long-term growth of capital and income without excessive fluctuations in market value. The proposed policies and restrictions restate many of the policies and restrictions currently in effect for the Fund. In some instances, certain fundamental policies and restrictions have been modified or eliminated in accordance with developments in Federal or state blue sky regulations or in the securities markets since the inception of the Fund. In other instances, as illustrated in Exhibit A, certain policies and restrictions previously deemed fundamental have been redesignated non-fundamental. By making certain policies and restrictions non-fundamental, the Board may amend a policy or restriction as it deems appropriate and in the best interest of the Fund and its shareholders, without incurring the costs (normally borne by the Fund and its shareholders) of seeking a shareholder vote. Also, certain of the proposed fundamental investment policies and restrictions are stated in terms of "to the extent permitted by applicable law". Applicable law can change over time and may become more or less restrictive as a result. The policies and restrictions have been drafted in this manner so that a change in law would not require the Fund to seek a shareholder vote to amend the policy or restriction to conform to applicable law, as revised. Approval of the proposed amendments to the Fund's fundamental investment restrictions and policies requires the affirmative vote of a "majority" (as defined in the Act) of the Fund's voting securities. A "majority" vote is defined in the Act as the vote of the holders of the lesser of: (i) 67% or more - of the voting securities present or represented by proxy at the shareholders meeting, if the holders 7 of more than 50% of the outstanding voting securities are present or represented by proxy, or (ii) more than 50% of the outstanding voting securities. If a -- shareholder abstains from voting on this matter, then the shares held by such shareholder shall be deemed present at the meeting for purposes of determining a quorum and for purposes of calculating the vote with respect to this matter, but shall not be deemed to have been voted in favor of this matter. If a broker returns a "non-vote" proxy, indicating a lack of authority to vote on this matter, then the shares covered by such non-vote shall be deemed present at the meeting for purposes of determining a quorum but shall not be deemed to be represented at the meeting for purposes of calculating the vote with respect to this matter. If the proposed amendments are not approved by the shareholders of the Fund, the current fundamental policies and restrictions will continue in effect. The Board of Directors recommends that shareholders vote in favor of the proposed amendments to the Fund's fundamental investment restrictions and policies. 4. NEW DISTRIBUTION PLAN AND AGREEMENT FOR THE CLASS A SHARES At a meeting of the Board of Directors of the Fund held on March 14, 1996, the directors of the Fund unanimously approved, subject to shareholder approval, and determined to submit to the shareholders for approval, a new Distribution Plan and Agreement pursuant to Rule 12b-1 under the Act (the "Proposed Plan") for the existing class of Fund shares. This class of shares is to be designated the Class A Shares -- see Item 5 below. The text of the Proposed Plan is attached hereto as Exhibit B. The directors who approved the Proposed Plan include all of the Independent Directors, none of whom is an "interested person" of the Fund within the meaning of the Act or has a direct or indirect financial interest in the operations of the Proposed Plan or in any agreements related thereto. If approved by shareholders, the Proposed Plan will replace a dis tribution plan and agreement (the "Current Plan") that was approved by shareholders on March 14, 1990 and became effective June 1, 1990. The Current Plan was last amended by action of the Board of Directors on June 12, 1991. The changes included in the Proposed Plan, which are described below, are designed primarily to maintain the competitive position of the Class A Shares of the Fund. Under the Current Plan (except as to certain accounts for which tracking data is not available), the Fund pays dealers through Lord Abbett (1) an annual - service fee (payable quarterly) of 0.25% of the average daily net asset value of shares sold by dealers on or after June 1, 1990 (0.15% of the average daily net asset value of shares sold, or attributable to shares sold, by dealers prior to that date) and (2) a one-time 1% distribution fee, at the time of sale, on all - shares sold at the $1 million level by dealers, including sales qualifying at such level under the rights of accumulation and statement of intention privileges described in the Fund's prospectus in effect at such time. These service and distribution fees provide additional incentives for dealers (a) to - provide continuing information and investment services to their shareholder accounts and otherwise to encourage their accounts to remain invested in the Fund and (b) to sell shares of the Fund. - 8 Under the Current Plan, holders of shares on which the 1% dis tribution fee has been paid are required to pay to the Fund a contingent deferred reimbursement charge ("CDRC") of 1% of the original cost or the then net asset value, whichever is less, of such shares if they are redeemed out of the Lord Abbett-sponsored family of funds on or before the end of the twenty-fourth month after the month in which the purchase occurred. (An exception is made for certain re demptions by tax-qualified plans under Section 401 of the Internal Revenue Code due to plan loans, hardship withdrawals, death, retirement or separation from service with respect to plan participants.) If the shares are exchanged into another Lord Abbett fund and are thereafter redeemed out of the Lord Abbett family on or before the end of such twenty-fourth month, the charge is collected for the Fund by the other fund. The Fund collects such a charge for other Lord Abbett-sponsored funds in a similar situation. Set forth below is a description of the principal changes to be effected under the Proposed Plan: (a) Distribution Fees. The Fund's Board of Directors will be authorized ----------------- under the Proposed Plan, without further shareholder vote, to increase the amount of distribution fees up to 0.25% of the average annual net assets attributable to the Class A Shares (the "Distribution Fee Ceiling"). This increased spending limit is intended primarily to permit the directors to increase the amount to be spent for distribution to meet changing sales competition. The directors believe it is desirable to be able to make these changes without further shareholder approval because additional shareholder meetings would be time-consuming and costly to the Fund and its shareholders. The Board of Directors will approve additional charges under this increased authority only if a majority of the Independent Directors conclude in their business judgment that there is a reasonable likelihood that the increase will benefit the Fund and its shareholders. The one-time 1% distribution fee, payable at the time of certain sales as described above, is to be charged against the Distribution Fee Ceiling. During the Fund's last fiscal year, payments of the one-time 1% distribution fee under the Current Plan totaled 0.00% of the Fund's average net assets. Subject to shareholder approval of the Proposed Plan, the Board of Directors has authorized the Fund to continue paying this one-time distribution fee with respect to sales of Class A Shares, subject to three changes: First, the payments will be made ----- in connection with sales to retirement plans with 100 or more eligible employees, in addition to sales at the $1 million level as under the Current Plan; Second, the payments will be scaled down at certain breakpoints, as ------ follows: 1% of the first $5 million, 0.55% of the next $5 million, 0.50% of the next $40 million and 0.25% over $50 million of shares sold to a retirement plan or other qualifying purchaser within a 12-month period (beginning when the first purchase is made at net asset value); and Third, the payments will be made to ----- institutions and persons permitted by applicable law and/or rules to receive such payments ("Authorized Institutions"), rather than just to dealers as is the case under the Current Plan. If shareholders approve the Proposed Plan, the Board of Directors has authorized the Fund to pay, as an additional distribution fee, a supplemental payment to dealers who have accounts comprising a significant percentage of the Fund's Class A Share assets and having a lower than average redemption rate and who have a satisfactory program for the promotion of Class A Shares. Any such payments will be 0.10% per annum of the average assets of the Fund represented by the Class A 9 Share accounts of qualifying dealers. This supplemental payment is intended by the Board of Directors to enhance the Fund's relationships with those dealers most likely to have a significant impact on the growth of the Class A Shares. (b) Service Fees. Service fee payments, which are to be continued under ------------ the Proposed Plan at an annual rate of 0.25% of the average daily net asset value of shares sold on or after June 1, 1990 (0.15% of the average daily net asset value of shares sold, or attributable to shares sold, prior to such date), could be made to all Authorized Institutions (institutions and persons permitted by applicable law and/or rules to receive such payments), rather than just to dealers as is the case under the Current Plan. (c) Use of Payments by Lord Abbett. Lord Abbett would be permitted to use ------------------------------ payments received under the Proposed Plan to provide continuing services to shareholder accounts not serviced by Authorized Institutions and, with Board approval, to finance any activity which is primarily intended to result in the sale of Class A Shares. Any such payments to finance activities primarily intended to result in the sale of Class A Shares would be subject to the Distribution Fee Ceiling. (d) CDRC. The CDRC applicable to the Class A Shares would be substantially ---- similar to that payable under the Current Plan, except that no CDRC would be payable in connection with redemptions by retirement plans (not just those qualified under Section 401 of the Internal Revenue Code) attributable to any benefit payment or distribution of any excess contribution thereunder (not just those described above in connection with such exception under the Current Plan). Because CDRC payments will be made directly to the Fund, they will have the effect of reducing the amount of the distribution fees paid by the Fund for the purpose of complying with the Distribution Fee Ceiling. As in the case of the specific distribution fees authorized by the Board of Directors of the Fund, the CDRC authorized from time to time by the board for the Class A Shares will be described in the then current prospectus of the Fund. If the supplemental payment to dealers, the revised one-time dis tribution fee and the other changes described above had been in effect for the Fund's last fiscal year, it is estimated that, in the aggregate, they would have increased the ratio of expenses to average net assets of the Fund from 0.63% to approximately 0.64%, representing a difference of 0.01%. (e) Lord Abbett Distributor. The other party to the Proposed Plan is to be ----------------------- Lord Abbett Distributor LLC, a New York limited liability company, to be formed as a subsidiary of Lord Abbett ("Lord Abbett Distributor"), rather than Lord Abbett. Lord Abbett Distributor is to take on all the underwriting functions currently performed directly by Lord Abbett. In considering whether to recommend the Proposed Plan for approval, the Board considered, among other things, the factors set forth below: (i) Flexibility in Adapting Distribution Fees to Meet Industry-Wide --------------------------------------------------------------- Changes. During the last several years, there has been significantly increased competition and pricing experimentation in the mutual fund industry. As the pace of change increases, the Board of Directors believes it will be useful to be able to respond more quickly to marketplace pressures, and change in appropriate cases the amount of the Class A 12b-1 distribution fees to be paid, without unnecessarily 10 burdening the shareholders with the costs of additional proxy solicitations. The directors believe that the increased distribution fees described above are good examples of the desirability of this flexibility. Based on advice received from Lord Abbett, the decision by the Board to approve the payment of distribution fees in connection with sales to retirement plans with 100 or more eligible employees will enable the Class A Shares to compete more effectively in this growing and important market. The 0.10% per annum supplemental payments to dealers who meet certain criteria will permit the Fund to enhance relationships with those dealers most likely to have a significant impact on the growth of the Class A Shares. (ii) Expanding Categories of Persons Eligible to Receive Payments. The ------------------------------------------------------------ Current Plan limits payments thereunder to dealers selling Fund shares. Since the Current Plan was adopted, different methods of distribution, using different entities, have developed in the industry. The Board of Directors sees no reason to limit arbitrarily the categories of persons eligible to receive payments under the Proposed Plan, and believes that the availability of payments under the plan will induce such other entities to invest in Class A Shares. (iii) Flexibility in Distributor's Use of Payments. Lord Abbett has -------------------------------------------- advised the Board of Directors of the Fund that allowing Lord Abbett Distributor to retain fees received from the Fund to (i) provide continuing information and in vestment services to shareholder accounts and (ii) finance, with Board approval, any activity which is primarily intended to result in the sale of Class A Shares, will provide useful flexibility and will be in line with common practice in the industry. In light of the anticipated benefits to the Fund and its shareholders as a result of adopting the Proposed Plan, and having reviewed a comparison of the costs to the Fund of the Current Plan and the Proposed Plan, the Directors of the Fund have concluded, in the exercise of reasonable business judgment and in light of their fiduciary duties, that there is a reasonable likelihood that the Proposed Plan will benefit the Fund and its shareholders. There can, however, be no assurance that the anticipated benefits will be realized. Payments by the Fund to dealers through Lord Abbett under the Current Plan for the fiscal year ended October 31, 1995 were $8,408,090 (representing 0.19% of the Fund's average net assets during that period). Set forth in the table below is a summary comparison of the Fund's expenses, on a current and pro-forma basis taking into account the increased fees that could be paid under the Proposed Plan. The annual operating expenses shown in the second column are the Fund's actual expenses for the fiscal year ended October 31, 1995. The expenses shown in the third column represent, on a pro-forma basis, such actual expenses of the Fund adjusted to show the effect of the maximum distribution fee the Board would be authorized to approve under the Proposed Plan. The fourth column shows such pro-forma annual operating expenses based on the distribution fee rate the Board has approved subject to approval of the Proposed Plan by shareholders. The example set forth below is not a representation of past or future expenses. Actual expenses may be greater or less than those shown. 11
I II III IV - ----------------------------------------------------------------------------------------- Pro-Forma Pro Forma (reflecting (reflecting Year Ended maximum estimated October 31, 1995 amounts amounts that (reflecting the payable under would have Current Plan) the Proposed been paid --------------- Plan) under the -------------- Proposed Plan) -------------- - ----------------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES (AS A PERCENTAGE OF OFFERING PRICE) - ----------------------------------------------------------------------------------------- Maximum Sales Load/1/ on Purchases 5.75% 5.75% 5.75% Deferred Sales Load /1/ None/2/ None/2/ None/2/ - ----------------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) - ----------------------------------------------------------------------------------------- Management Fee 0.32% 0.32% 0.32% 12b-1 Fees 0.19% 0.50%/3/ 0.20%/4/ Other Expenses 0.12% 0.12% 0.12% - ----------------------------------------------------------------------------------------- Total Operating Expenses 0.63% 0.94% 0.64% - -----------------------------------------------------------------------------------------
Example: Assume an annual return of 5% and there is no change in the level of - ------- expenses described above. For every $1,000 invested, with reinvestment of all distributions, you would pay the following total expenses if you closed your account after the number of years indicated.
1 year 3 years 5 years 10 years - ------------------------------------------------------------------------------------------------------------------------------ Current Pro Pro Current Pro Pro Current Pro Pro Current Pro Pro - --------- Forma Forma ------- Forma Forma ------- Forma Forma ------- Forma Forma (max.) (est.) (max.) (est.) (max.) (est.) (max.) (est.) - ------------------------------------------------------------------------------------------------------------------------------ $64/5/ $67/3,5/ $64/4,5/ $77/5/ $86/3,5/ $77/4,5/ $91/5/ $107/3,5/ $91/4,5/ $132/5/ $166/3,5/ $133/4,5/ - ------------------------------------------------------------------------------------------------------------------------------
1. Sales "load" is referred to as sales "charge" and "deferred sales load" is referred to as "contingent deferred reimbursement charge" or "CDRC" throughout this Proxy State ment. 2. Under both the Current Plan and the Proposed Plan, redemptions of shares on which the Fund's Rule 12b-1 sales distribution fee has been paid are subject to a CDRC of 1% of the original cost or the then net asset value, whichever is less, of all shares so purchased which are redeemed out of the Lord Abbett-sponsored family of funds on or before the end of the twenty-fourth month after the month in which the purchase occurred, subject to certain exceptions described herein. 3. Reflects the maximum annual 12b-1 fee of 0.50% that could be paid under the proposed plan in any year, consisting of a distribution fee of 0.25% and a service fee of 0.25%. 4. Reflects the estimated level of distribution fees that would have been paid under the Proposed Plan had it been in effect for the Fund's last fiscal year. 12 5. Based on total current and pro-forma operating expenses shown in the table above. If the shareholders approve the Proposed Plan, the Proposed Plan shall, unless terminated as described below, become effective July 12, 1996 and continue in effect until July 12, 1997 and from year to year thereafter only so long as such continuance is specifically approved, at least annually, by the Fund's Board of Directors and its Independent Directors by a vote cast in person at a meeting called for the purpose of voting on such continuance. The Proposed Plan may be terminated at any time by a vote of a majority of the Independent Directors or by a shareholder vote in compliance with Rule 12b-1 under the Act. The Plan may not be amended to increase materially the amount to be spent for distribution above the maximum amounts set forth in the Proposed Plan without a shareholder vote in compliance with Rule 12b-1 under the Act. All material amendments must be approved by a majority of the Independent Directors. The Proposed Plan provides that while it is in effect, the selection and nomination of Independent Directors is committed to the discretion of the Independent Directors then sitting on the Board. This does not prevent the involvement of others in such selection and nomination if the final decision on any such selection or nomination is approved by a majority of the Independent Directors. Pursuant to Rule 12b-1 under the Act, an affirmative vote of the holders of a "majority" (as defined in the Act) of the Fund's voting securities is required for approval of the Proposed Plan. A "majority" vote is defined in the Act as the vote of the holders of the lesser of: (i) 67% or more of the voting - securities present or represented by proxy at the shareholders meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy, or (ii) more than 50% of the outstanding voting -- securities. If a shareholder abstains from voting on this matter, then the shares held by such shareholder shall be deemed present at the meeting for purposes of determining a quorum and for purposes of calculating the vote with respect to this matter, but shall not be deemed to have been voted in favor of this matter. If a broker returns a "non-vote" proxy, indicating a lack of authority to vote on this matter, then the shares covered by such non-vote shall be deemed present at the meeting for purposes of determining a quorum but shall not be deemed to be represented at the meeting for purposes of calculating the vote with respect to this matter. If the Proposed Plan is not approved by the shareholders of the Fund, the Current Plan will continue in effect according to its terms. The Board of Directors recommends that shareholders vote in favor of adoption of the Proposed Plan. 5. AMENDMENT OF THE ARTICLES OF INCORPORATION TO AUTHORIZE CLASSES AND SERIES OF SHARES AND TO CONFIRM THAT THE FUND MAY IMPOSE CONTINGENT DEFERRED SALES CHARGES IN CONNECTION WITH REDEMPTIONS On March 14, 1996, the Fund's Board of Directors unanimously voted to approve an amendment to the Articles of Incorporation of the Fund to give the Fund's Board of Directors the power to classify the Fund's shares into classes and 13 series, and voted to submit such amendment to the Fund's shareholders for approval. The full text of the amendment is attached hereto as Exhibit C. The Fund's Articles of Incorporation presently designate one class of shares of capital stock and do not authorize the Board of Directors to create additional classes or series. The Board of Directors believes that the Fund's best interests will be served if the Board of Directors is able to create new series of shares and classes of shares within a series, with each share of a series, regardless of class, sharing pro rata (based on net asset value) in the portfolio and income of the series and in the series' expenses, except for differences in expenses resulting from different Rule 12b-1 plans for the various classes and possibly other class-specific expenses. It is expected that implementation of such a multi-class fund structure will (i) enable investors in - the Fund to choose the distribution option that best suits their individual situations, (ii) facilitate distribution of the Fund's shares, and (iii) -- --- maintain the competitive position of the Fund in relation to other funds that have implemented or are seeking to implement similar distribution arrangements. The Board of Directors has approved, subject to shareholder approval, two classes of shares which are to share in the Fund's portfolio but are to have different distribution arrangements. The existing class of Fund shares, to be desig nated the "Class A Shares," will continue to be offered as described in the Fund's current prospectus, except that the Board of Directors is recommending that share holders approve a new Distribution Plan and Agreement pursuant to Rule 12b-1 under the Act that, if approved, will be applicable to the Class A Shares. See Item 4 above. The second class of shares, to be designated the "Class C Shares," will be offered at net asset value without an initial sales charge, but if redeemed for cash before the first anniversary of purchase, will be subject to a CDRC, or contingent deferred reimbursement charge, equal to 1% of the lower of their cost or then net asset value. The Class C Shares are to be subject to a Rule 12b-1 plan that involves annual distribution and service fee payments for the account of such class equal to 1% of the average net asset value of the Class C shares. None of these charges will be allocated to the Class A Shares. If the proposed amendment to the Fund's Articles of Incorporation is approved, the Board of Directors will be authorized to create and issue one or more additional classes of shares within the existing series and to create additional series. Lord Abbett has advised the Board of Directors of the Fund that it intends to propose to the board in the near future that the board authorize the Fund to issue a third class of shares, to be designated the "Class B Shares". If authorized, the Class B Shares are expected to be sold without an initial sales charge and otherwise to be similar to the Class C Shares except that (i) they will be subject to a contingent deferred sales charge ("CDSC") - that is payable to the distributor of such shares, rather than subject to a contingent deferred reimbursement charge payable to the Fund as is the case with the Class C Shares, (ii) the B Share CDSC will be substantially larger than the -- 1% CDRC charged on early redemptions of Class C Shares, (iii) the B Share CDSC --- will apply over a period of time substantially longer than the 12 months applicable to the C Share CDRC, and will scale down to zero over that longer period, and (iv) the Class B Shares will convert automatically into Class A -- Shares at net asset value after a period of time. Shares of all classes will vote together on all matters affecting the Fund, except for matters, such as approval of a Rule 12b-1 plan or a related service 14 plan, affecting only a particular class or classes. All shares voting on a matter will have identical voting rights. All issued shares will be fully paid and non-assessable, and shareholders will have no pre-emptive or other right to subscribe to any additional shares. All shares within a series will have the same rights and be subject to the same limitations set forth in the Articles of Incorporation with respect to dividends, redemptions and liquidation except for differences resulting from class-specific Rule 12b-1 plans and related service plans and certain other class-specific expenses. The proposed amendment to the Fund's Articles of Incorporation will also make clear that the Fund may impose a CDSC and other charges (which charges may vary within and among the classes) payable upon redemption as may be estab lished from time to time by the Board of Directors of the Fund. The Fund's Articles of Incorporation currently provide that the Fund may deduct a redemption charge not exceeding 1% of the net asset value of the shares being redeemed. The proposed amendment is deemed advisable in order to avoid any question as to whether the proposed B Share CDSC referred to above, which in some instances may exceed 1%, may be imposed in connection with the proposed issuance of the Class B Shares. The Board of Directors has no intention of increasing the CDRC currently payable or proposed to be payable on certain early redemptions of your Fund shares. See Item 4 above. Approval of the proposed amendment to the Articles of Incorporation requires an affirmative vote of more than 50% of the outstanding shares of the Fund. If a shareholder abstains from voting on this matter, then the shares held by such shareholder shall be deemed present at the meeting for purposes of determining a quorum and for purposes of calculating the vote with respect to this matter, but shall not be deemed to have been voted in favor of this matter. If a broker returns a "non-vote" proxy, indicating a lack of authority to vote on this matter, then the shares covered by such non-vote shall be deemed present at the meeting for purposes of determining a quorum but shall not be deemed to be represented at the meeting for purposes of calculating the vote with respect to this matter. The Board of Directors recommends that shareholders vote in favor of this proposed amendment to the Articles of Incorporation. 6. AMENDMENT OF THE ARTICLES OF INCORPORATION TO REDUCE THE PAR VALUE OF SHARES (THIS CHANGE WILL HAVE NO EFFECT ON THE VALUE OF YOUR SHARES) On March 14, 1996, the Fund's Board of Directors unanimously voted to approve an amendment to the Articles of Incorporation of the Fund to reduce the par value of shares of capital stock of the Fund from $1.25 to $0.001 per share, and voted to submit such amendment to the Fund's shareholders for approval. This proposed amendment is included in the text of the amendment attached as Exhibit C. Under Maryland law, the par value of shares determines the amount of a corporation's stated capital. Stated capital has little meaning in the case of an investment company like the Fund. However, when the Fund increases its authorized capital stock, it must pay a fee based on the aggregate par value of the new shares. This change will have no effect on the value of your shares. The Board of Directors 15 therefore recommends that the par value of the Fund's shares be reduced in order to save the Fund some expense when it increases its authorized capital stock. Approval of the proposed amendment to the Articles of Incorporation requires an affirmative vote of a majority of the outstanding shares of the Fund. If a shareholder abstains from voting on this matter, then the shares held by such shareholder shall be deemed present at the meeting for purposes of determining a quorum and for purposes of calculating the vote with respect to this matter, but shall not be deemed to have been voted in favor of this matter. If a broker returns a "non-vote" proxy, indicating a lack of authority to vote on this matter, then the shares covered by such non-vote shall be deemed present at the meeting for purposes of determining a quorum but shall not be deemed to be represented at the meeting for purposes of calculating the vote with respect to this matter. The Board of Directors recommends that shareholders vote in favor of this proposed amendment to the Articles of Incorporation. 7. OTHER INFORMATION Management is not aware of any matters to come before the meeting other than those set forth in the notice. If any such other matters do come before the meeting, the individuals named as proxies will vote, act, and consent with respect thereto in accordance with their best judgment. a. Timeliness of Shareholder Proposals. ----------------------------------- Any shareholder proposals to be presented for action at the Fund's next shareholder meeting pursuant to the provisions of Rule 14a-8 under the Securities Exchange Act of 1934, as amended, must be received at the Fund's principal execu tive offices within a reasonable time in advance of the date solicitation is made for such meeting. The Fund does not intend to hold another annual or special meeting of shareholders unless required to do so by the Act. b. Investment Adviser and Underwriter. ---------------------------------- Lord, Abbett & Co., 767 Fifth Avenue, New York, New York, 10153, acts as investment adviser and principal underwriter with respect to the Fund. c. Annual Report Available Upon Request. ------------------------------------ The Fund will furnish, without charge, a copy of the Fund's most recent annual report and the most recent semi-annual report succeeding the annual report, if any, to a shareholder upon request. A shareholder may obtain such reports(s) by writing to the Fund or by calling 800-___-____. d. Portfolio Transactions. ---------------------- The Fund's policy is to obtain best execution on all portfolio trans actions, which means that the Fund seeks to have purchases and sales of portfolio securities executed at the most favorable prices, considering all costs of the trans action including brokerage commissions and dealer markups and markdowns and taking into account the full range and quality of the brokers' services. Consistent 16 with obtaining best execution, the Fund may pay, as described below, a higher commission than some brokers might charge on the same transactions. The Fund's 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, the Fund 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 capacity 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. The Fund pays a commission rate that the Fund believes is appropriate to give maximum assurance that the Fund's brokers will provide to the Fund, on a continuing basis, the highest level of brokerage services available. While the Fund does not always seek the lowest possible commissions on particular trades, the Fund believes that its commission rates are in line with the rates that many other institutions pay. The Fund's 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 the Fund and the other accounts they manage. Such services include showing the Fund 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 the Fund's brokers also provide research services at least some of which are useful to Lord Abbett in their overall responsibilities with respect to the Fund 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. The Fund has been advised by Lord Abbett that research services received from brokers cannot be allocated to any particular account, are not a substitute for Lord Abbett's services but are supplemental to their own research effort and, when utilized, are subject to internal analysis before being incorporated by Lord Abbett into their investment process. As a practical matter, it would not be possible for Lord Abbett to generate all of the information presently provided by brokers. While receipt of research services from brokerage firms has not reduced Lord Abbett's normal research activities, the expenses of Lord Abbett could be materially increased if it attempted to generate such additional information through its own staff and purchased such equipment and software packages directly from the suppliers. 17 No commitments are made regarding the allocation of brokerage business to or among brokers and trades are executed only when they are dictated by investment decisions of the Fund to purchase or sell portfolio securities. If two or more broker-dealers are considered capable of offering the equivalent likelihood of best execution, the broker-dealer who has sold the Fund's 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 the Fund, 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 com mission 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 the Fund in the buying and selling of the same securities as described above. If these clients wish to buy or sell the same security as the Fund does, they may have their transactions executed at times different from the Fund's transactions and thus may not receive the same price or incur the same commission cost as the Fund does. For the fiscal years ended October 31, 1995, 1994 and 1993, the Fund paid total commissions to independent broker-dealers of $6,542,354, $6,133,695 and $5,835,046, respectively. LORD ABBETT AFFILIATED FUND, INC. By:_______________________ Kenneth B. Cutler Vice President and Secretary 18 EXHIBIT A COMPARISON OF CURRENT AND PROPOSED INVESTMENT POLICIES AND RESTRICTIONS
CURRENT POLICIES/RESTRICTIONS PROPOSED POLICIES/RESTRICTIONS - ------------------------------------------------------------------------------------------------- SHORT SALES/MARGIN. FUNDAMENTAL FUNDAMENTAL The Fund may not sell short or buy on The Fund may purchase securities on margin. margin to the extent permitted by applica- ble law. NON-FUNDAMENTAL The Fund may not make short sales of securities or maintain a short position except to the extent permitted by applic- able law. - ------------------------------------------------------------------------------------------------- BORROWING. FUNDAMENTAL FUNDAMENTAL The Fund may not borrow money, unless im- The Fund may not borrow money, except mediately thereafter it has an asset coverage of that (i) the Fund may borrow from banks at least 400% of all borrowings, except that (as defined in the Act) in amounts up to the assets may be less than 400% of borrow- 33-1/3% of its total assets (including the ings if reduced because of changes in the value amount borrowed), (ii) the Fund may of the Fund's investments (the Fund has not borrow up to an additional 5% of its total borrowed money since 1950 and has no assets for temporary purposes, and present plans to do so - the market risk (iii) the Fund may obtain such short-term inherent in an investment is increased when credit as may be necessary for the clear- borrowed money is used). ance of purchases and sales of portfolio securities. NON-FUNDAMENTAL The Fund may not borrow in excess of 5% of its gross assets taken at cost or market value, whichever is lower at the time of borrowing, and then only as a temporary measure for extraordinary or emergency purposes. - ------------------------------------------------------------------------------------------------- UNDERWRITING. FUNDAMENTAL FUNDAMENTAL The Fund may not engage in the underwriting The Fund may not engage in the under- of securities. writing 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 securi- ties laws. - -------------------------------------------------------------------------------------------------
CURRENT POLICIES/RESTRICTIONS PROPOSED POLICIES/RESTRICTIONS - ------------------------------------------------------------------------------------------------- LENDING. FUNDAMENTAL FUNDAMENTAL The Fund may not lend money or securities to The Fund may not make loans to other any person, except through entering into short- persons, except that the acquisition of term repurchase agreements with sellers of bonds, debentures or other corporate debt securities the Fund has purchased and through securities and investment in government lending the Fund's portfolio securities to obligations, commercial paper, pass- registered broker-dealers where the loan is through instruments, certificates of depos- 100% secured by cash or its equivalent, as it, bankers acceptances, repurchase agree- long as the Fund complies with regulatory ments or any similar instruments shall not requirements and management deems such be subject to this limitation, and except loans not to expose the Fund to significant risk further that the Fund may lend its or adversely affect the Fund's qualification for portfolio securities, provided that the pass-through tax treatment under the Internal lending of portfolio securities may be Revenue Code (investment in repurchase made only in accordance with applicable agreements exceeding seven days and in other law. illiquid investments is limited to a maximum of 10% of the Fund's assets). - ------------------------------------------------------------------------------------------------- REAL ESTATE/COMMODITIES. FUNDAMENTAL FUNDAMENTAL The Fund may not deal in real estate, com- The Fund may not buy or sell real estate modities or commodity contracts. (except that the Fund may invest in secu- rities directly or indirectly secured by real estate or interests therein or issued by companies which invest in real estate or interests therein), commodity or com- modity contracts (except to the extent the Fund may do so in accordance with ap- plicable law and without registering as a commodity pool operator under the Com- modity Exchange Act as, for example, with futures contracts). NON-FUNDAMENTAL The Fund may not invest in real estate limited partnership interests or interests in oil, gas or other mineral leases, or exploration or other development programs, except that the Fund may invest in securities issued by companies that engage in oil, gas or other mineral exploration or development activities. - -------------------------------------------------------------------------------------------------
2
CURRENT POLICIES/RESTRICTIONS PROPOSED POLICIES/RESTRICTIONS - ------------------------------------------------------------------------------------------------- DIVERSIFICATION. FUNDAMENTAL FUNDAMENTAL The Fund may not buy securities if the With respect to 75% of its gross purchase would then cause the Fund to assets, the Fund may not buy have more than 5% of its gross assets, at securities of one issuer representing market value at the time of investment, more than (i) 5% of the Fund's gross invested in the securities of any one issuer assets, except securities issued or (except securities issued or guaranteed by guaranteed by the U.S. Government, the U.S. Government, its agencies or its agencies or instrumentalities, or instrumentalities), or to own more than (ii) 10% of the voting securities of 10% of the voting securities of any issuer. such issuer. - ------------------------------------------------------------------------------------------------- INVESTMENT IN A SINGLE INDUSTRY. FUNDAMENTAL FUNDAMENTAL The Fund may not invest more than The Fund may not concentrate its 25% of its assets, taken at market investments in any one industry. (The value, in the securities of issuers in Fund's investment policy of keeping Fund any particular industry (excluding assets in those securities which are selling securities of the U.S. Government, its at the most reasonable prices in relation to agencies and instrumentalities). value normally results in diversification among many industries -- consistent with this, the Fund does not intend to invest more than 25% of its assets in any one industry classification it uses for investment purposes, although such concentration could, under unusual economic and market conditions, amount to 30% or conceivably somewhat more.) - ------------------------------------------------------------------------------------------------- RESTRICTED/ILLIQUID SECURITIES. FUNDAMENTAL NON-FUNDAMENTAL Investment in repurchase agreements The Fund may not invest knowingly exceeding seven days and in other illiquid more than 15% of its net assets (at investments is limited to a maximum of the time of investment) in illiquid 10% of Fund assets. securities, except for securities qualifying for resale under Rule 144A of the Securities Act of 1933, deemed to be liquid by the Board of Directors. - -------------------------------------------------------------------------------------------------
3
CURRENT POLICIES/RESTRICTIONS PROPOSED POLICIES/RESTRICTIONS - ------------------------------------------------------------------------------------------------- MORTGAGING AND PLEDGING OF ASSETS. FUNDAMENTAL The Fund may not pledge, mortgage or FUNDAMENTAL hypothecate its assets - however, this The Fund may not pledge its assets provision does not apply to the grant of (other than to secure borrowings, or escrow receipts or the entry into other to the extent permitted by the Fund's similar escrow arrangements arising out of investment policies, in connection the writing of covered call options. with hedging transactions, short sales, when-issued and forward commitment transactions and similar investment strategies). NON-FUNDAMENTAL The Fund may not 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 of the writing of covered call options. - ------------------------------------------------------------------------------------------------- INVESTMENTS IN SECURITIES OF OTHER INVESTMENT COMPANIES. FUNDAMENTAL NON-FUNDAMENTAL The Fund may not invest in securities The Fund may not invest in the issued by other investment companies as securities of other investment defined in the Investment Company Act of companies, except as permitted by 1940. applicable law. - ------------------------------------------------------------------------------------------------- OPTIONS. NON-FUNDAMENTAL NON-FUNDAMENTAL The Fund may write covered call options The Fund may not write, purchase or which are traded on a national securities sell puts, calls, straddles, spreads or exchange with respect to securities in the combinations thereof, except to the Fund's portfolio in an attempt to increase extent permitted in the Fund's Fund income and to provide greater prospectus and statement of additional flexibility in the disposition of portfolio information, as they may be amended securities. from time to time. Although it has no current intention to do so, the Fund may invest in financial futures and options on financial futures. - -------------------------------------------------------------------------------------------------
4
CURRENT POLICIES/RESTRICTIONS PROPOSED POLICIES/RESTRICTIONS - ------------------------------------------------------------------------------------------------- INVESTMENTS IN SECURITIES OF ISSUERS IN OPERATION FOR LESS THAN THREE YEARS. FUNDAMENTAL NON-FUNDAMENTAL The Fund may not purchase securities of The Fund may not invest in securities any issuer unless it or its predecessor has a of issuers which, with their record of three years' continuous predecessors, have a record of less operation, except that the Fund may than three years continuous purchase securities of such issuers through operations, if more than 5% of the subscription offers or other rights the Fund Fund's total assets would be invested receives as a security holder of companies in such securities (this restriction shall offering such subscriptions or rights, and not apply to mortgage-backed such purchases will then be limited in the securities, asset-backed securities or aggregate to 5% of the Fund's net assets at obligations issued or guaranteed by the time of investment. the U.S. Government, its agencies or instrumentalities). - ------------------------------------------------------------------------------------------------- OWNERSHIP OF PORTFOLIO SE- CURITIES BY OFFICERS AND DIRECTORS. FUNDAMENTAL NON-FUNDAMENTAL The Fund may not hold securities of any The Fund may not hold securities of issuer when more than 1/2 of 1% of its any issuer if more than 1/2 of 1% of securities are owned beneficially by one or the securities of such issuer are more of the Fund's officers or directors or owned beneficially by one or more by one or more partners of the Fund's officers or directors of the Fund or by underwriter or investment manager if these one or more partners or members of owners in the aggregate own beneficially the underwriter or investment advisor more than 5% of such securities. if these owners in the aggregate own beneficially more than 5% of the securities of such issuer. - -------------------------------------------------------------------------------------------------
5
CURRENT POLICIES/RESTRICTIONS PROPOSED POLICIES/RESTRICTIONS - ------------------------------------------------------------------------------------------------- TRANSACTIONS WITH CERTAIN PERSONS. FUNDAMENTAL The Fund may not engage in securities NON-FUNDAMENTAL transactions with its underwriter or investment manager, with officers or The Fund may not buy from or sell to directors, or firms (acting as principals) any of its officers, directors, with which any of the foregoing are asso- employees, or its investment adviser ciated - however, this provision does not or any of its officers, directors, apply to Fund shares, or to securities the partners or employees, any securities Fund may become entitled to by reason of other than shares of the Fund's its ownership of securities already held common stock. (the Fund has no intention of engaging in any such transactions with respect to any such securities), or to transactions on a securities exchange when only the regular exchange commissions and charges are imposed (the Fund has not had, nor does it intend to have, any such transactions on an exchange) or to transactions in accordance with Investment Company Act of 1940 Rule 17a-7. - ------------------------------------------------------------------------------------------------- SENIOR SECURITIES. No Policy/Restriction stated. FUNDAMENTAL The Fund may not issue senior se- curities to the extent such issuance would violate applicable law. - ------------------------------------------------------------------------------------------------- PURCHASE OF WARRANTS. NON-FUNDAMENTAL NON-FUNDAMENTAL The Fund may not invest in warrants Pursuant to state law, the Fund will not invest if, at the time of the acquisition, its more than 5% of its assets in warrants and not investment in warrants, valued at the more than 2% in warrants not listed on the lower of cost or market, would New York or American Stock Exchanges. exceed 5% of the Fund's total assets (included within such limitation, but not to exceed 2% of the Fund's total assets, are warrants which are not listed on the New York or American Stock Exchange or a major foreign exchange). - -------------------------------------------------------------------------------------------------
6 EXHIBIT B Rule 12b-1 Distribution Plan and Agreement Lord Abbett Affiliated Fund, Inc. -- Class A Shares --------------------------------------------------- RULE 12b-1 DISTRIBUTION PLAN AND AGREEMENT dated as of July 12, 1996 by and between LORD ABBETT AFFILIATED FUND, INC., a Maryland corporation (the "Fund"), and LORD ABBETT DISTRIBUTOR LLC, a New York limited liability company (the "Distributor"). WHEREAS, the Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "Act"); and the Distributor is the exclusive selling agent of the Fund's Class A shares of capital stock (the "Shares") pursuant to the Distribution Agreement between the Fund and the Distributor, dated as of the date hereof (the "Distribution Agreement"). WHEREAS, the Fund desires to adopt a Distribution Plan and Agreement (the "Plan") with the Distributor, as permitted by Rule 12b-1 under the Act, pursuant to which the Fund may make certain payments to the Distributor to be used by the Distributor or paid to institutions and persons permitted by applicable law and/or rules to receive such payments ("Authorized Institutions") in connection with sales of Shares and/or servicing of accounts of shareholders holding Shares. WHEREAS, the Plan will succeed a Rule 12b-1 Distribution Plan and Agreement between the Fund and Lord, Abbett & Co. ("Lord Abbett"), an affiliate of the Distributor. WHEREAS, the Fund's Board of Directors has determined that there is a reasonable likelihood that the Plan will benefit the Fund and the holders of the Shares. NOW, THEREFORE, in consideration of the mutual covenants and of other good and valuable consideration, receipt of which is hereby acknowledged, it is agreed as follows. 1. The Fund hereby authorizes the Distributor to enter into agree ments with Authorized Institutions (the "Agreements") which may provide for the payment to such Authorized Institutions of distribution and service fees which the Distributor receives from the Fund in order to provide additional incentives to such Authorized Institutions (i) to sell Shares and (ii) to provide - -- continuing information and investment services to their accounts holding Shares and otherwise to encourage their accounts to remain invested in the Shares. 2. The Fund also hereby authorizes the Distributor to use payments received hereunder from the Fund in order to (a) finance any activity which is - primarily intended to result in the sale of Shares and (b) provide continuing - information and investment services to shareholder accounts not serviced by Authorized Institutions receiving a service fee from the Distributor hereunder and otherwise to encourage such accounts to remain invested in the Shares; provided that (i) any payments referred to in the foregoing clause (a) shall not - -------- - exceed the distribution fee permitted to be paid at the time under paragraph 3 of this Plan and shall be authorized by the Board of Directors of the Fund by a vote of the kind referred to in paragraph 10 of this Plan and (ii) any payments referred to in clause (b) shall not exceed -- the service fee permitted to be paid at the time under paragraph 3 of this Plan. 3. The Fund is authorized to pay the Distributor hereunder for remittance to Authorized Institutions and/or use by the Distributor pursuant to this Plan (a) service fees and (b) distribution fees, each at an annual rate not to exceed - -- - .25 of 1% of the average annual net asset value of Shares outstanding, except that service fees payable with respect to Shares that were initially issued, or are attributable to shares that were initially issued by the Fund or a predecessor fund prior to June 1, 1990 shall not exceed .15 of 1% of the average net asset value of such Shares. The Board of Directors of the Fund shall from time to time determine the amounts, within the foregoing maximum amounts, that the Fund may pay the Distributor hereunder. Any such fees (which may be waived by the Authorized Institutions in whole or in part) may be calculated and paid quarterly or more frequently if approved by the Board of Directors of the Fund. Such determinations and approvals by the Board of Directors shall be made and given by votes of the kind referred to in paragraph 10 of this Plan. Payments by holders of Shares to the Fund of contingent deferred reim bursement charges relating to distribution fees paid by the Fund hereunder shall reduce the amount of distribution fees for purposes of the annual 0.25% distribution fee limit. The Distributor will monitor the payments hereunder and shall reduce such payments or take such other steps as may be necessary to assure that (i) the - payments pursuant to this Plan shall be consistent with Article III, Section 26, subparagraphs (d)(2) and (5) of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. with respect to investment companies with asset-based sales charges and service fees, as the same may be in effect from time to time and (ii) the Fund shall not pay with respect to any Authorized -- Institution service fees equal to more than .25 of 1% of the average annual net asset value of Shares sold by (or attributable to Shares or shares sold by) such Authorized Institution and held in an account covered by an Agreement. 4. The net asset value of the Shares shall be determined as provided in the Articles of Incorporation of the Fund. If the Distributor waives all or a portion of the fees which are to be paid by the Fund hereunder, the Distributor shall not be deemed to have waived its rights under this Agreement to have the Fund pay such fees in the future. 5. The Secretary of the Fund, or in his absence the Chief Financial Officer, is hereby authorized to direct the disposition of monies paid or payable by the Fund hereunder and shall provide to the Fund's Board of Directors, and the Directors shall review at least quarterly, a written report of the amounts so expended pursuant to this Plan and the purposes for which such expenditures were made. 6. Neither this Plan nor any other transaction between the parties hereto pursuant to this Plan shall be invalidated or in any way affected by the fact that any or all of the directors, officers, shareholders, or other representatives of the Fund are or may be "interested persons" of the Distributor, or any successor or assignee thereof, or that any or all of the directors, officers, partners, members or other representatives of the Distributor are or may be "interested persons" of the Fund, except as may otherwise be provided in the Act. 2 7. The Distributor shall give the Fund the benefit of the Distributor's best judgment and good faith efforts in rendering services under this Plan. Other than to abide by the provisions hereof and render the services called for hereunder in good faith, the Distributor assumes no responsibility under this Plan and, having so acted, the Distributor shall not be held liable or held accountable for any mistake of law or fact, or for any loss or damage arising or resulting therefrom suffered by the Fund or any of the shareholders, creditors, directors, or officers of the Fund; provided however, that nothing herein shall be deemed to protect the Distributor against any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties hereunder, or by reason of the reckless disregard of its obligations and duties hereunder. 8. This Plan shall become effective upon the date hereof, and shall continue in effect for a period of more than one year from that date only so long as such continuance is specifically approved at least annually by a vote of the Board of Directors of the Fund, including the vote of a majority of the directors who are not "interested persons" of the Fund and who have no direct or indirect financial interest in the operation of this Plan or in any agreement related to this Plan, cast in person at a meeting called for the purpose of voting on such renewal. 9. This Plan may not be amended to increase materially the amount to be spent by the Fund hereunder above the maximum amounts referred to in paragraph 3 of this Plan without a shareholder vote in compliance with Rule 12b-1 and Rule 18f-3 under the Act as in effect at such time, and each material amendment must be approved by a vote of the Board of Directors of the Fund, including the vote of a majority of the directors who are not "interested persons" of the Fund and who have no direct or indirect financial interest in the operation of this Plan or in any agree ment related to this Plan, cast in person at a meeting called for the purpose of voting on such amendment. Amendments to this Plan which do not increase materially the amount to be spent by the Fund hereunder above the maximum amounts referred to in paragraph 3 of this Plan may be made pursuant to paragraph 10 of this Plan. 10. Amendments to this Plan other than material amendments of the kind referred to in the forgoing paragraph 9 may be adopted by a vote of the Board of Directors of the Fund, including the vote of a majority of the directors who are not "interested persons" of the Fund and who have no direct or indirect financial interest in the operation of this Plan or in any agreement related to this Plan. The Board of Directors of the Fund may, by such a vote, interpret this Plan and make all determinations necessary or advisable for its administration. 11. This Plan may be terminated at any time without the payment of any penalty (a) by the vote of a majority of the directors of the Fund who are not - "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or in any agreement related to the Plan, or (b) by a shareholder vote in compliance with Rule 12b-1 and Rule 18f-3 under - the Act as in effect at such time. This Plan shall automatically terminate in the event of its assignment. 12. So long as this Plan shall remain in effect, the selection and nomination of those directors of the Fund who are not "interested persons" of the Fund are committed to the discretion of such disinterested directors. The terms 3 "interested persons," "assignment" and "vote of a majority of the outstanding voting securities" shall have the same meanings as those terms are defined in the Act. IN WITNESS WHEREOF, each of the parties has caused this in strument to be executed in its name and on its behalf by its duly authorized repre sentative as of the date first above written. LORD ABBETT AFFILIATED FUND, INC. By:_____________________________ President ATTEST: ___________________ Assistant Secretary LORD ABBETT DISTRIBUTOR LLC By:_____________________________ 4 EXHIBIT C PROPOSED AMENDMENT TO ARTICLES OF INCORPORATION OF THE FUND AUTHORIZING THE BOARD OF DIRECTORS TO CREATE NEW CLASSES AND SERIES OF SHARES OF THE CAPITAL STOCK OF THE FUND, CONFIRMING THAT THE FUND MAY IMPOSE CONTINGENT DEFERRED SALES CHARGES IN CONNECTION WITH ITS RULE 12B-1 PLANS AND REDUCING PAR VALUE ---------------------------------------------------------------------------- The following text shows those provisions of the Articles of Incorporation of the Fund that are to be amended; the text that is lined through shows deletions and the text that is double underlined indicates additions. ARTICLE V SECTION 1. The total number of shares which the Corporation has authority to issue is 500,000,000 shares of capital stock of the par value of $.001 each, having an aggregate par value of $500,000. The Board of Directors of the Corporation shall have full power and authority, from time to time, to classify or reclassify any unissued shares of stock of the Corporation, including, without limitation, the power to classify or reclassify unissued shares into series, and to classify or reclassify a series into one or more classes of stock that may be invested together in the common investment portfolio in which the series is invested, by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of such shares of stock. All shares of stock of a series shall represent the same interest in the Corporation and have the same preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption as the other shares of stock of that series, except to the extent that the Board of Directors provides for differing preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of shares of stock of classes of such series as determined pursuant to Articles Supplementary filed for record with the State Department of Assessments and Taxation of Maryland, as otherwise determined pursuant to these Articles or by the Board of Directors in accordance with law. Prior to the first classification of unissued shares of stock into additional series, all outstanding shares of stock shall be of a single series, and prior to the first classification of a series into additional classes, all outstanding shares of stock of such series shall be of a single class. Notwithstanding any other provision of these Articles, upon the first classification of unissued shares of stock into additional series, the Board of Directors shall specify a legal name for the outstanding series, as well as for the new series, in appropriate charter documents filed for record with the State Department of Assessments and Taxation of Maryland providing for such name change and classification, and upon the first classification of a series into additional classes, the Board of Directors shall specify a legal name for the outstanding class, as well as for the new class or classes, in appropriate charter documents filed for record with the State Department of Assessments and Taxation of Maryland providing for such name change and classification. SECTION 2. A description of the relative preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of all series and classes of series of shares is as follows, unless otherwise set forth in Articles Supplementary filed for record with the State Department of Assessments and Taxation of Maryland or otherwise determined pursuant to these Articles: (a) Assets Belonging to Series. All consideration received or -------------------------- receivable by the Corporation for the issue or sale of shares of a particular series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to that series for all pur poses, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Corporation. Such consideration, assets, income, earnings, profits and proceeds, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, together with any unallocated items (as hereinafter defined) relating to that series as provided in the following sentence, are herein referred to as "assets belonging to" that series. In the event that there are any assets, income, earnings, profits or proceeds thereof, funds or payments which are not readily identifiable as belonging to any particular series (collectively "Unallocated Items"), the Board of Directors shall allocate such Unallocated Items to and among any one or more of the series created from time to time in such manner and on such basis as it, in its sole discretion, deems fair and equitable; and any Unallocated Items so allocated to a particular series shall belong to that series. Each such allocation by the Board of Directors shall be conclusive and binding upon the stockholders of all series for all purposes. (b) Liabilities Belonging to Series. The assets belonging to each ------------------------------- particular series shall be charged with the liabilities of the Corporation in respect of that series, including any class thereof, and with all expenses, costs, charges and reserves attributable to that series, including any such class, and shall be so recorded upon the books of account of the Corporation. Such liabilities, expenses, costs, charges and reserves, together with any unallocated items (as hereinafter defined) relating to that series, including any class thereof, as provided in the following sentence, so charged to that series, are herein referred to as "liabilities belonging to" that series. In the event there are any unallocated liabilities, expenses, costs, charges or reserves of the Corporation which are 2 not readily identifiable as belonging to any particular series (collectively "Unallocated Items"), the Board of Directors shall allocate and charge such Unallocated Items to and among any one or more of the series created from time to time in such manner and on such basis as the Board of Directors in its sole discretion deems fair and equitable; and any Unallocated Items so allocated and charged to a particular series shall belong to that series. Each such allocation by the Board of Directors shall be conclusive and binding upon the stockholders of all series for all purposes. To the extent determined by the Board of Directors, liabilities and expenses relating solely to a particular class (including, without limitation, distribution expenses under a Rule 12b-1 plan and administrative expenses under an administration or service agreement, plan or other arrangement, however designated, which may be adopted for such class) shall be allocated to and borne by such class and shall be appropriately reflected (in the manner determined by the Board of Directors) in the net asset value, dividends and distributions and liquidation rights of the shares of such class. (c) Dividends. Dividends and distributions on shares of a particular --------- series may be paid to the holders of shares of that series at such times, in such manner and from such of the income and capital gains, accrued or realized, from the assets belonging to that series, after providing for actual and accrued liabilities belonging to that series, as the Board of Directors may determine. Such dividends and distributions may vary between or among classes of a series to reflect differing allocations of liabilities and expenses of such series between or among such classes to such extent as may be provided in or determined pursuant to Articles Supplementary filed for record with the State Department of Assessments and Taxation of Maryland or as may otherwise be determined by the Board of Directors. (d) Liquidation. In the event of the liquidation or dissolution of ----------- the Corporation, the stockholders of each series shall be entitled to receive, as a series, when and as declared by the Board of Directors, the excess of the assets belonging to that series over the liabilities belonging to that series. The assets so distributable to the stockholders of one or more classes of a series shall be distributed among such stockholders in proportion to the respective aggregate net asset values of the shares of such series held by them and recorded on the books of the Corporation. 3 (e) Voting. On each matter submitted to vote of the stockholders, ------ each holder of a share shall be entitled to one vote for each such share standing in his name on the books of the Corporation irrespective of the series or class thereof and all shares of all series and classes shall vote as a single class ("Single Class Voting"); provided, however, that (i) as to any matter with respect to which a separate vote of any series or class is required by the Investment Company Act of 1940, as amended from time to time, applicable rules and regulations thereunder, or the Maryland General Corporation Law, such requirement as to a separate vote of that series or class shall apply in lieu of Single Class Voting as described above; (ii) in the event that the separate vote requirements referred to in (i) above apply with respect to one or more (but less than all) series or classes, then, subject to (iii) below, the shares of all other series and classes shall vote as a single class; and (iii) as to any matter --- which does not affect the interest of a particular series or class, only the holders of shares of the one or more affected series or classes shall be entitled to vote. (f) Conversion. At such times (which times may vary among shares of a ---------- class) as may be determined by the Board of Directors, shares of a particular class of a series may be automatically converted into shares of another class of such series based on the relative net asset values of such classes at the time of conversion, subject, however, to any conditions of conversion that may be imposed by the Board of Directors. SECTION 3. Each share of the capital stock of the Corporation shall be subject to the following provisions: (a) All shares of the capital stock of the Corporation now or hereafter authorized shall be subject to redemption and redeemable at the option of the stockholder, in the sense used in the General Laws of the State of Maryland authorizing the formation of corporations. Each holder of the shares of capital stock of the Corporation, upon request to the Corporation accompanied by surrender (to the Corporation, or an agent designated by it) of the appropriate stock certificate or certificates, if any, in proper form for transfer, and such other instruments as the Board of Directors may require, shall be entitled to require the Corporation to redeem all or any part of the shares of capital stock outstanding in the name of such holder on the books of the Corporation, at a redemption price equal to the net asset value of such shares determined as hereinafter set forth. Notwithstanding the foregoing, the Corporation may deduct from the proceeds otherwise due to any stockholder requiring the Corporation to redeem shares a 4 redemption charge not to exceed one percent (1%) of such net asset value or a reimbursement charge, a deferred sales charge or other charge that is integral to the Corporation's distribution program (which charges may vary within and among series and classes) as may be established from time to time by the Board of Directors. SECTION 4. Notwithstanding any provision of law requiring that any action be taken or authorized by the affirmative vote of the holders of a designated proportion greater than a majority of the shares or votes entitled to be cast, such action shall be effective and valid if taken or authorized by the affirmative vote of the holders of a majority of the total number of shares outstanding and entitled to vote thereon. SECTION 5. No holder of stock of the Corporation shall, as such holder, have any right to purchase or subscribe for any shares of the capital stock of the Corpora tion which it may issue or sell (whether out of the number of shares now or hereafter authorized by these Articles of Incorporation, or any amendment thereof, or out of any shares of the capital stock of the Corporation acquired by it after the issue thereof, or otherwise) other than such right, if any, as the Board of Directors, in its discretion, may determine. ARTICLE VII SECTION 1. In furtherance and not in limitation of the powers conferred by statute and pursuant to these Articles of Incorporation, the Board of Directors is ex pressly authorized to do the following: (b) To distribute, in its discretion, for any fiscal year (in the year or in the next fiscal year) as ordinary dividends and as capital gains distributions, respectively, amounts sufficient to enable the Cor poration as a regulated investment company to avoid any liability for Federal income tax in respect of such year. Any distribution or dividend paid to stockholders from any capital source shall be accompanied by a written statement showing the source or sources of such payment. (g) To authorize any agreement of the character described in subsection (e) or (f) of this Section 1 or other agreement or transaction with any person, corporation, association, partnership or other organization, although one or more of the members of the Board of Directors or officers of the Corporation may be the other party to any such agreement or transaction or an officer, director, shareholder, or member of such other party, and no such agreement or transaction shall 5 be invalidated or rendered voidable by reason of the existence of any such relationship. Any director of the Corporation who is also an officer, director, shareholder, or member of such other party or who is so interested may be counted in determining the existence of a quorum at any meeting of the Board of Directors which shall authorize any such agreement or transaction, and may vote thereat to authorize any such agreement or transaction, with like force and effect as if he were not such officer, director, shareholder, or member of such other party or not so interested. Any agreement entered into pursuant to said subsections (e) or (f) shall be consistent with and subject to the requirements of the Investment Company Act of 1940, as amended from time to time, applicable rules and regulations thereunder, or any other applicable Act of Congress hereafter enacted, and no amendment to any agreement entered into pursuant to said subsection (e) (other than an amendment reducing the compensation of the other party thereto) shall be effective unless assented to by the affirmative vote of a majority of the outstanding voting securities of the Corporation (as such phrase is defined in the Investment Company Act of 1940, as amended from time to time) entitled to vote on the matter. SECTION 3. For the purposes referred to in these Articles of Incorporation, the net asset value of shares of the capital stock of the Corporation of each series and class as of any particular time (a "determination time") shall be determined by or pursuant to the direction of the Board of Directors as follows: (a) At times when a series is not classified into multiple classes, the net asset value of each share of stock of a series, as of a determination time, shall be the quotient, carried out to not less than three decimal points, obtained by dividing the net value of the assets of the Corporation belonging to that series (determined as hereinafter provided) as of such determination time by the total number of shares of that series then outstanding, including all shares of that series which the Corporation has agreed to sell for which the price has been determined, and excluding shares of that series which the Corporation has agreed to purchase or which are subject to redemption for which the price has been determined. The net value of the assets of the Corporation of a series as of a determination time shall be determined in accordance with sound accounting practice by deducting from the gross value of the assets of the Corporation belonging to that series (determined as hereinafter provided), the amount of all liabilities 6 belonging to that series (as such terms are defined in subsection (b) of Section 2 of Article V), in each case as of such determination time. The gross value of the assets of the Corporation belonging to a series as of such determination time shall be an amount equal to all cash, receivables, the market value of all securities for which market quotations are readily available and the fair value of other assets of the Corporation belonging to that series (as such terms are defined in subsection (a) of Section 2 of Article V) at such determination time, all determined in accordance with sound accounting practice and giving effect to the following: (b) At times when a series is classified into multiple classes, the net asset value of each share of stock of a class of such series shall be determined in accordance with subsections (a) and (c) of this Section 3 with appropriate adjustments to reflect differing allocations of liabilities and expenses of such series between or among such classes to such extent as may be provided in or determined pursuant to Articles Supplementary filed for record with the State Department of Assessments and Taxation of Maryland or as may otherwise be determined by the Board of Directors. (c) The Board of Directors is empowered, in its discretion, to establish other methods for determining such net asset value whenever such other methods are deemed by it to be necessary or desirable, including, but without limiting the generality of the foregoing, any method deemed necessary or desirable in order to enable the Corporation to comply with any provision of the Investment Company Act of 1940 or any rule or regulation thereunder. SECTION 4. The presence in person or by proxy of the holders of one-third of the shares of capital stock of the Corporation issued and outstanding and entitled to vote thereat shall constitute a quorum for the transaction of any business at all meetings of the shareholders, except as otherwise provided by law or in these Articles of Incorporation and except that where the holders of shares of stock of any series or class are entitled to a separate vote as such series or class (each such series or class, a "Separate Class") or where the holders of shares of stock of two or more (but not all) series or classes are required to vote as a single series or class (each such single series or class, a "Combined Class"), the presence in person or by proxy of the holders of one- third of the shares of stock of that Separate Class or Combined Class, as the case may be, issued and outstanding and entitled to vote thereat shall constitute a quorum for such vote. If, however, a quorum with respect to all series, including all classes thereof, a Separate Class or a Combined Class, as the case may be, shall not be present or represented at any meeting of the shareholders, the holders of a majority of the shares of stock of all series, such Separate Class or such Combined Class, as the case may be, present in person or by proxy and entitled to vote shall 7 have power to adjourn the meeting from time to time as to all series, such Separate Class or such Combined Class, as the case may be, without notice other than announcement at the meeting, until the requisite number of shares of the capital stock of the Corporation entitled to vote at such meeting shall be present. At such adjourned meeting at which the requisite number of shares of the capital stock of the Corporation entitled to vote thereat shall be represented any business may be transacted which might have been transacted at the meeting as originally notified. The absence from any meeting of stockholders of the number of shares of capital stock of the Corporation in excess of one- third of the shares of stock of all series or classes, or of the affected series or classes, as the case may be, which may be required by the laws of the State of Maryland, the Investment Company Act of 1940 or any other applicable law, or by these Articles of Incorporation, for action upon any given matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting, if there shall be present thereat, in person or by proxy, holders of the number of shares of stock of the Corporation required for action in respect of such other matter or matters. SECTION 5. Any determination as to any of the following matters made by or pursuant to the direction of the Board of Directors consistent with these Articles of Incorporation and in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of duties, shall be final and conclusive and shall be binding upon the Corporation and every holder of shares of capital stock of the Corporation, of any series or class, namely, the amount of the assets, obligations, liabilities and expenses of the Corporation or belonging to any series or with respect to any class; the amount of the net income of the Corporation from dividends and interest for any period and the amount of assets at any time legally available for the payment of dividends with respect to any series or class; the amount of paid-in surplus, other surplus, annual or other net profits, or net assets in excess of capital, undivided profits, or excess of profits over losses on sales of securities belonging to the Corporation or any series or class; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged) with respect to the Corporation or any series or class; the market value, or any sale, bid or asked price to be applied in determining the market value, of any security owned or held by the Corporation; the fair value of any other asset owned by the Corporation; the number of shares of stock of any series or class issued or issuable; the existence of conditions permitting the postponement of payment of the repurchase price of shares of stock of any series or class or the suspension of the right of redemption as provided by law; any matter relating to the acquisition, holding and disposition of securities and other assets by the Corporation; any question as to whether any transaction constitutes a purchase of securities on margin, a short sale of securities, or an underwriting of the sale of, or participation in any underwriting or selling group in connection with the public distribution of any securities; and any matter relating to the issue, sale, repurchase and/or other acquisition or disposition of shares of stock of any series or class. SECTION 6. Any director, or any officer elected or appointed by the Board of Directors, or by any committee of said board, or by the stockholders or 8 otherwise, may be removed at any time, with or without cause, in such lawful manner as may be provided in the by-laws of the corporation. SECTION 7. The consideration (or the value thereof as determined by the Board of Directors) per share to be received by the Corporation upon the issuance or sale of any shares of its capital stock (including treasury shares) shall not be less than the greater of the par value or the asset value (determined as provided in Section 3 of this Article) per share of such capital stock outstanding at the time as of which the computation of such asset value shall be made (such time to be determined by the Board of Directors and being hereinafter referred to as a Determination Time), and that no shares of such capital stock shall be issued or sold in contravention of any statute, rule or regulation which at the time shall be lawfully applicable to the Corporation. 9 LORD ABBETT AFFILIATED FUND, INC. ANNUAL MEETING OF SHAREHOLDERS JUNE 19, 1996 767 Fifth Avenue New York, New York 10153 Tel. No. (212) 848-1800 The undersigned hereby appoints KENNETH B. CUTLER, ROBERT S. DOW and RONALD P. LYNCH and each of them proxies, with full power of substitution, to vote (according to the number of votes which the undersigned would be entitled to cast if then personally present) at the annual meeting of shareholders of LORD ABBETT AFFILIATED FUND, INC. (the "Fund") on June 19, 1996, including all adjournments, as specified below, and in their discretion upon such other business as may properly be brought before the meeting. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS WHICH RECOMMENDS THAT YOU VOTE FOR PROPOSALS 1-6. UNLESS OTHERWISE SPECIFIED IN THE SQUARES PROVIDED, THE VOTE OF THE UNDERSIGNED IS TO BE CAST FOR ALL PROPOSALS LISTED BELOW. 1. Election of Directors: For [_] Without Authority [_] For All Except [_] (NOTE: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, CHECK THE "FOR ALL EXCEPT" BOX AND STRIKE A LINE THROUGH THE NOMINEE'S NAME BELOW.) Ronald P. Lynch, Robert S. Dow, Thomas S. Henderson, E. Thayer Bigelow, Stewart S. Dixon, John C. Jansing, C. Alan MacDonald, Hansel B. Millican, Jr. and Thomas J. Neff. 2. For [_] Against [_] Abstain [_] To ratify the selection of Deloitte & Touche LLP as independent public accountants of the Fund for the fiscal year ending October 31, 1996. 3. For [_] Against [_] Abstain [_] To approve or disapprove the proposed changes in the Fund's fundamental investment policies and restrictions, as described in the proxy statement. 4. For [_] Against [_] Abstain [_] To approve or disapprove the proposed new Distribution Plan and Agreement for the Fund's existing class of shares pursuant to Rule 12b-1 under the Investment Company Act of 1940, as described in the proxy statement. 5. For [_] Against [_] Abstain [_] To approve or disapprove an amendment to the Fund's Articles of Incorporation (i) authorizing the Board - of Directors to create new classes and series of shares of capital stock; and (ii) confirming that the board may impose contingent deferred sales -- charges in connection with new classes of shares to be created, as described in the proxy statement. 6. For [_] Against [_] Abstain [_] To approve or disapprove an amendment to the Fund's Articles of Incorporation reducing the par value per share from $1.25 to $0.001 in order to reduce costs when authorizing new shares (this change will have no effect on the value of your shares). ACCOUNT NUMBER SHARES PROXY NUMBER LORD ABBETT AFFILIATED FUND, INC. PLEASE SIGN, DATE AND MAIL THIS PROXY IN THE POSTAGE PAID RETURN ENVELOPE PROVIDED. For information as to the voting of stock registered in more than one name, see page 1 of the proxy statement. When signing the proxy as attorney, executor, administrator, trustee or guardian, please indicate the capacity in which you are acting. Only author ized officers should sign for corporations. Date:............................ Signature(s) of Shareholder(s) as shown at left ................................. ................................. (Please read other side) -----END PRIVACY-ENHANCED MESSAGE-----