-----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, DZEwKYt9xrk4QKxozCL1+jbTRhxEhZnwS7I3bkKj4TfF+J9pJKYGLJzvgwai9hYq tRYV3PRNx9C4iHoe8Um3Mw== 0000002691-01-000003.txt : 20010307 0000002691-01-000003.hdr.sgml : 20010307 ACCESSION NUMBER: 0000002691-01-000003 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20010228 EFFECTIVENESS DATE: 20010228 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: 485BPOS SEC ACT: SEC FILE NUMBER: 002-10638 FILM NUMBER: 1557972 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-00005 FILM NUMBER: 1557973 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 485BPOS 1 0001.txt LORD ABBETT AFFILIATED FUND N-1A 1933 Act File No. 2-10638 1940 Act File No. 811-5 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. 88 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT [X] OF 1940 Amendment No. 88 [X] LORD ABBETT AFFILIATED FUND, INC. --------------------------------- Exact Name of Registrant as Specified in Charter 90 Hudson Street Jersey City, New Jersey 07302 Address of Principal Executive Office REGISTRANT'S TELEPHONE NUMBER (800) 201-6984 Christina T. Simmons, Vice President 90 Hudson Street Jersey City, New Jersey 07302 (Name and Address of Agent for Service) It is proposed that this filing will become effective (check appropriate box) immediately upon filing pursuant to paragraph (b) - ------- X on March 1, 2001 pursuant to paragraph (b) - ------- 60 days after filing pursuant to paragraph (a) (1) - ------- on (date) pursuant to paragraph (a) (1) - ------- 75 days after filing pursuant to paragraph (a) (2) - ------- on (date) pursuant to paragraph (a) (2) of Rule 485 - ------- If appropriate, check the following box: this post-effective amendment designates a new effective date for a - -------- previously filed post-effective amendment. LORD ABBETT [GRAPHIC OF CHESS KNIGHT]-REGISTERED TRADEMARK- AFFILIATED FUND March 1, 2001 PROSPECTUS - -------------------------------------------------------------------------------- As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. TABLE OF CONTENTS THE FUND Page What you should know GOAL 2 about the Fund PRINCIPAL STRATEGY 2 MAIN RISKS 2 PERFORMANCE 3 FEES AND EXPENSES 4 YOUR INVESTMENT Information for PURCHASES 5 managing your SALES COMPENSATION 7 Fund account OPENING YOUR ACCOUNT 8 REDEMPTIONS 9 DISTRIBUTIONS AND TAXES 9 SERVICES FOR FUND INVESTORS 10 MANAGEMENT 11 FOR MORE INFORMATION How to learn more OTHER INVESTMENT TECHNIQUES 12 about the Fund GLOSSARY OF SHADED TERMS 13 RECENT PERFORMANCE 14 FINANCIAL INFORMATION FINANCIAL HIGHLIGHTS 16 LINE GRAPH COMPARISON 17 COMPENSATION FOR YOUR DEALER 18 How to learn more BACK COVER about the Fund and other Lord Abbett Funds THE FUND GOAL The Fund's investment objective is long-term growth of capital and income without excessive fluctuations in market value. PRINCIPAL STRATEGY To pursue this goal, the Fund purchases equity securities of large, seasoned, U.S. and multinational companies that we believe are undervalued. The Fund may invest in such equity securities as common stocks, convertible bonds, convertible preferred stocks, and warrants. The Fund chooses stocks using - QUANTITATIVE RESEARCH to identify which stocks we believe represent the best bargains - FUNDAMENTAL RESEARCH to learn about a company's operating environment, resources and strategic plans and to assess its prospects for exceeding earnings expectations - BUSINESS CYCLE ANALYSIS to determine how buying or selling securities changes our overall portfolio's sensitivity to interest rates and economic conditions The Fund is intended for investors looking for long-term growth with low fluctuations in market value. For this reason, we will forego some opportunities for gains when, in our judgment, they are too risky. The Fund tries to keep its assets invested in securities selling at reasonable prices in relation to value. While there is the risk that an investment may never reach what we think is its full value, or may go down in value, our emphasis on large, seasoned company value stocks may limit our downside risk because value stocks in theory are already underpriced and large, seasoned company stocks tend to be less volatile than small company stocks. We generally sell a stock when we think it is no longer a bargain, seems less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or falls short of our expectations. While typically fully invested, at times the Fund may invest temporarily, in short-term fixed income securities such as U.S. Government obligations, bank certificates of deposit, bankers' acceptances, commercial paper and repurchase agreements. We may take a temporary defensive position by investing some of the Fund's assets in short-term debt securities. This could reduce the benefit from any upswing in the market and prevent the Fund from achieving its investment objective. MAIN RISKS The Fund is subject to the general risks and considerations associated with equity investing, as well as the particular risks associated with value stocks. The value of your investment will fluctuate in response to movements in the stock market in general and to the changing prospects of individual companies in which the Fund invests. Large value stocks may perform differently than the market as a whole and other types of stocks, such as small company stocks and growth stocks. This is because different types of stocks tend to shift in and out of favor depending on market and economic conditions. The market may fail to recognize the intrinsic value of particular value stocks for a long time. In addition, if the Fund's assessment of a company's value or prospects for exceeding earnings expectations or market conditions is wrong, the Fund could suffer losses or produce poor performance relative to other funds, even in a rising market. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund is not a complete investment program and may not be appropriate for all investors. You could lose money by investing in the Fund. [SIDENOTE] WE OR THE FUND refers to Lord Abbett Affiliated Fund, Inc. ABOUT THE FUND. The Fund is a professionally managed portfolio primarily holding securities purchased with the pooled money of investors. It strives to reach its stated goal, although as with all mutual funds, it cannot guarantee results. LARGE COMPANIES are established companies that are considered "known quantities." Large companies often have the resources to weather economic shifts, although they can be slower to innovate than small companies. SEASONED COMPANIES are usually established companies whose securities have gained a reputation for quality with the investing public and enjoy liquidity in the market. SMALL-COMPANY STOCKS are stocks of smaller companies which often are new and less established with a tendency to be faster-growing but more volatile than large company stocks. VALUE STOCKS are stocks of companies that we believe the market undervalues according to certain financial measurements of their intrinsic worth or business prospects. GROWTH STOCKS are stocks which exhibit faster-than-average gains in earnings and are expected to continue profit growth at a high level, but also tend to be more volatile than bargain stocks. You should read this entire prospectus, including "Other Investment Techniques," which concisely describes the other investment strategies used by the Fund and their risks. 2 The Fund -------------------------- AFFILIATED FUND Symbols: Class A - LAFFX Class B - LAFBX Class C - LAFCX PERFORMANCE The bar chart and table below provide some indication of the risks of investing in the Fund by illustrating the variability of the Fund's returns. Each assumes reinvestment of dividends and distributions. The Fund's past performance is not necessarily an indication of how the Fund will perform in the future. The bar chart shows changes in the performance of the Fund's Class A shares from calendar year to calendar year. This chart does not reflect the sales charges applicable to Class A shares. If the sales charges were reflected, returns would be less. - -------------------------------------------------------------------------------- BAR CHART (PER CALENDAR YEAR) - CLASS A SHARES - -------------------------------------------------------------------------------- 91 22.0% 92 12.4% 93 13.2% 94 4.1% 95 31.7% 96 20.1% 97 25.2% 98 14.4% 99 16.9% 00 15.2%
BEST QUARTER 4th Q '98 17.1% WORST QUARTER 3rd Q '98 -11.6% - -------------------------------------------------------------------------------- The table below shows how the average annual total returns of the Fund's Class A, B, C and P shares compare to those of a broad-based securities market index and a more narrowly based index that more closely reflects the market sectors in which the Fund invests. The Fund's returns reflect payment of the maximum applicable front-end or deferred sales charges.
- ---------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS THROUGH DECEMBER 31, 2000 SHARE CLASS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION(1) Class A shares 8.60% 16.89% 16.59% 12.80% - ---------------------------------------------------------------------------------------------- Class B shares 9.50% - - 18.91% - ---------------------------------------------------------------------------------------------- Class C shares 13.50% - - 19.16% - ---------------------------------------------------------------------------------------------- Class P shares 15.15% - - 15.28% - ---------------------------------------------------------------------------------------------- S&P 500-Registered Trademark- Index(2) -9.10% 18.33% 17.44% 19.60%(3) 12.26%(4) - ---------------------------------------------------------------------------------------------- S&P Barra Value Index(2) 6.08% 16.81% 16.88% 18.18%(3) 11.10%(4) - ----------------------------------------------------------------------------------------------
(1) The dates of inception for each class are: A -1/1/50; B -8/1/96; C -8/1/96; and P -12/8/97. (2) Performance for the unmanaged indices does not reflect fees or expenses. The performance of the indices is not necessarily representative of the Fund's performance. (3) Represents total return for the period 7/31/96 - 12/31/00, to correspond with Class B and C inception dates. (4) Represents total return for the period 12/31/97 - 12/31/00, to correspond with Class P inception date. The Fund 3 AFFILIATED FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
- -------------------------------------------------------------------------------------------------------------------- FEE TABLE - -------------------------------------------------------------------------------------------------------------------- CLASS A CLASS B(2) CLASS C CLASS P SHAREHOLDER FEES (Fees paid directly from your investment) - -------------------------------------------------------------------------------------------------------------------- Maximum Sales Charge on Purchases (as a % of offering price) 5.75% none none none - -------------------------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (See "Purchases")(3) none(1) 5.00% 1.00%(1) none - -------------------------------------------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (Expenses deducted from Fund assets) (as a % of average net assets) - -------------------------------------------------------------------------------------------------------------------- Management Fees (See "Management") 0.31% 0.31% 0.31% 0.31% - -------------------------------------------------------------------------------------------------------------------- Distribution (12b-1) and Service Fees(4) 0.38% 1.00% 1.00% 0.45% - -------------------------------------------------------------------------------------------------------------------- Other Expenses 0.14% 0.14% 0.14% 0.14% - -------------------------------------------------------------------------------------------------------------------- Total Operating Expenses(5) 0.83% 1.45% 1.45% 0.90% - --------------------------------------------------------------------------------------------------------------------
(1) A contingent deferred sales charge of 1.00% may be assessed on certain redemptions (a) of Class A shares made within 24 months following any purchases made without a sales charge, and (b) Class C shares if they are redeemed before the first anniversary of their purchase. (2) Class B shares will convert to Class A shares on the eighth anniversary of your original purchase of Class B shares. (3) The maximum CDSC is a percentage of the lesser of the net asset value at the time of the redemption or the net asset value when the shares were originally purchased. (4) Because distribution and other fees are paid out on an ongoing basis, over time they will increase the cost of your investment and may cost you more than paying other types of sales charges. (5) The annual operating expenses have been restated from fiscal year amounts to reflect an estimate of current fees. - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This example, like that in other funds' prospectuses, assumes that you invest $10,000 in the Fund at maximum sales charge, if any, for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs (including any applicable contingent deferred sales charges) would be:
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A shares $655 $825 $1,009 $1,541 - ------------------------------------------------------------------------------------------ Class B shares $648 $759 $ 992 $1,567 - ------------------------------------------------------------------------------------------ Class C shares $248 $459 $ 792 $1,735 - ------------------------------------------------------------------------------------------ Class P shares $ 92 $287 $ 498 $1,108 - ------------------------------------------------------------------------------------------ You would have paid the following expenses if you did not redeem your shares: - ------------------------------------------------------------------------------------------ Class A shares $655 $825 $1,009 $1,541 - ------------------------------------------------------------------------------------------ Class B shares $148 $459 $ 792 $1,567 - ------------------------------------------------------------------------------------------ Class C shares $148 $459 $ 792 $1,735 - ------------------------------------------------------------------------------------------ Class P shares $ 92 $287 $ 498 $1,108 - ------------------------------------------------------------------------------------------
[SIDENOTE] MANAGEMENT FEES are payable to Lord, Abbett & Co. ("Lord Abbett") for the Fund's investment management. 12b-1 FEES refer to fees incurred for activities that are primarily intended to result in the sale of Fund shares and service fees for shareholder account service and maintenance. OTHER EXPENSES include fees paid for miscellaneous items such as shareholder service fees and professional fees. 4 The Fund YOUR INVESTMENT PURCHASES The Fund offers in this prospectus four classes of shares: Class A, B, C and P, each with different expenses and dividends. You may purchase shares at the net asset value ("NAV") per share determined after we receive your purchase order submitted in proper form. A front-end sales charge may be added to the NAV in the case of the Class A shares. There is no front-end sales charge in the case of Class B, C and P shares, although there may be a contingent deferred sales charge ("CDSC") as described below. You should read this section carefully to determine which class of shares represents the best investment option for your particular situation. It may not be suitable for you to place a purchase order for Class B shares of $500,000 or more or a purchase order for Class C shares of $1,000,000 or more. You should discuss purchase options with your investment professional. FOR MORE INFORMATION, SEE "CAPITAL STOCK AND OTHER SECURITIES" IN THE STATEMENT OF ADDITIONAL INFORMATION. We reserve the right to withdraw all or any part of the offering made by this prospectus or to reject any purchase order. We also reserve the right to waive or change minimum investment requirements. All purchase orders are subject to our acceptance and are not binding until confirmed or accepted in writing. - -------------------------------------------------------------------------------- SHARE CLASSES - -------------------------------------------------------------------------------- CLASS A - normally offered with a front-end sales charge CLASS B - no front-end sales charge, however, a CDSC is applied to shares sold prior to the sixth anniversary of purchase - higher annual expenses than Class A shares - automatically converts to Class A shares after eight years CLASS C - no front-end sales charge, however, a CDSC is applied to shares sold prior to the first anniversary of purchase - higher annual expenses than Class A shares CLASS P - available to certain pension or retirement plans and pursuant to a MUTUAL FUND FEE BASED PROGRAM - -------------------------------------------------------------------------------- FRONT-END SALES CHARGES - CLASS A SHARES - --------------------------------------------------------------------------------
TO COMPUTE AS A % OF AS A % OF OFFERING PRICE YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT DIVIDE NAV BY - ----------------------------------------------------------------------------------------- Less than $50,000 5.75% 6.10% .9425 - ----------------------------------------------------------------------------------------- $50,000 to $99,999 4.75% 4.99% .9525 - ----------------------------------------------------------------------------------------- $100,000 to $249,999 3.95% 4.11% .9605 - ----------------------------------------------------------------------------------------- $250,000 to $499,999 2.75% 2.83% .9725 - ----------------------------------------------------------------------------------------- $500,000 to $999,999 1.95% 1.99% .9805 - ----------------------------------------------------------------------------------------- $1,000,000 and over No Sales Charge 1.0000 - -----------------------------------------------------------------------------------------
[SIDENOTE] NAV per share for each class of Fund shares is calculated each business day at the close of regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time. Purchases and sales of Fund shares are executed at the NAV next determined after the Fund receives your order in proper form. In calculating NAV, securities for which market quotations are available are valued at those quotations. Securities for which such quotations are not available are valued at fair value under procedures approved by the Fund's Board. Your Investment 5 REDUCING YOUR CLASS A FRONT-END SALES CHARGES. Class A shares may be purchased at a discount if you qualify under either of the following conditions: - RIGHTS OF ACCUMULATION - A PURCHASER may apply the value at public offering price of the shares already owned to a new purchase of Class A shares of any ELIGIBLE FUND in order to reduce the sales charge. - LETTER OF INTENTION - A PURCHASER of Class A shares can purchase additional shares of any ELIGIBLE FUND over a 13-month period and receive the same sales charge as if all shares were purchased at once. Shares purchased through reinvestment of dividends or distributions are not included. A Letter of Intention can be backdated 90 days. Current holdings under Rights of Accumulation may be included in a Letter of Intention. FOR MORE INFORMATION ON ELIGIBILITY FOR THESE PRIVILEGES, READ THE APPLICABLE SECTIONS IN THE ATTACHED APPLICATION. CLASS A SHARE PURCHASES WITHOUT A FRONT-END SALES CHARGE. Class A shares may be purchased without a front-end sales charge under any of the following conditions: - purchases of $1 million or more* - purchases by Retirement Plans with at least 100 eligible employees* - purchases under a SPECIAL RETIREMENT WRAP PROGRAM* - purchases made with dividends and distributions on Class A shares of another ELIGIBLE FUND - purchases representing repayment under the loan feature of the Lord Abbett-sponsored prototype 403(b) Plan for Class A shares - purchases by employees of any consenting securities dealer having a sales agreement with Lord Abbett Distributor - purchases under a MUTUAL FUND FEE BASED PROGRAM - purchases by trustees or custodians of any pension or profit sharing plan, or payroll deduction IRA for employees of any consenting securities dealer having a sales agreement with Lord Abbett Distributor - purchases by each Lord Abbett-sponsored fund's Directors or Trustees, officers of each Lord Abbett-sponsored fund, employees and partners of Lord Abbett (including retired persons who formerly held such positions). These categories of purchasers also include family members of such purchasers. SEE THE STATEMENT OF ADDITIONAL INFORMATION FOR A LISTING OF OTHER CATEGORIES OF PURCHASERS WHO QUALIFY FOR CLASS A SHARE PURCHASES WITHOUT A FRONT-END SALES CHARGE. * THESE CATEGORIES MAY BE SUBJECT TO A CDSC. CLASS A SHARE CDSC. If you buy Class A shares under one of the starred (*) categories listed above or if you acquire Class A shares in exchange for Class A shares of another Lord Abbett-sponsored fund subject to a CDSC and you redeem any of the Class A shares within 24 months after the month in which you initially purchased those shares, the Fund will normally collect a CDSC of 1% and remit it to the fund in which you originally purchased the shares. The Class A share CDSC generally will be waived for the following conditions: - benefit payments under Retirement Plans in connection with loans, hardship withdrawals, death, disability, retirement, separation from service or any excess distribution under Retirement Plans (documentation may be required) - redemptions continuing as investments in another fund participating in a SPECIAL RETIREMENT WRAP PROGRAM [SIDENOTE] RETIREMENT PLANS include employer-sponsored retirement plans under the Internal Revenue Code, excluding Individual Retirement Accounts. Lord Abbett offers a variety of Retirement Plans. Call 800-253-7299 for information about: - - Traditional, Rollover, Roth and Education IRAs - - Simple IRAs, SEP-IRAs, 401(k) and 403(b) accounts - - Defined Contribution Plans LORD ABBETT DISTRIBUTOR LLC ("Lord Abbett Distributor") acts as agent for the Fund to work with investment professionals that buy and/or sell shares of the Fund on behalf of their clients. Generally, Lord Abbett Distributor does not sell Fund shares directly to investors. BENEFIT PAYMENT DOCUMENTATION. (Class A CDSC only) - - under $50,000 - no documentation necessary - - over $50,000 - reason for benefit payment must be received in writing. Use the address indicated under "Opening your Account." 6 Your Investment CLASS B SHARE CDSC. The CDSC for Class B shares normally applies if you redeem your shares before the sixth anniversary of their initial purchase. The CDSC will be remitted to Lord Abbett Distributor. The CDSC declines the longer you own your shares, according to the following schedule:
- ------------------------------------------------------------------------------------------ CONTINGENT DEFERRED SALES CHARGES - CLASS B SHARES - ------------------------------------------------------------------------------------------ ANNIVERSARY(1) OF THE DAY ON CONTINGENT DEFERRED SALES CHARGE WHICH THE PURCHASE ORDER ON REDEMPTION (AS % OF AMOUNT WAS ACCEPTED SUBJECT TO CHARGE) On Before - ------------------------------------------------------------------------------------------ 1st 5.0% - ------------------------------------------------------------------------------------------ 1st 2nd 4.0% - ------------------------------------------------------------------------------------------ 2nd 3rd 3.0% - ------------------------------------------------------------------------------------------ 3rd 4th 3.0% - ------------------------------------------------------------------------------------------ 4th 5th 2.0% - ------------------------------------------------------------------------------------------ 5th 6th 1.0% - ------------------------------------------------------------------------------------------ on or after the 6th(2) None - ------------------------------------------------------------------------------------------
(1) The anniversary is the same calendar day in each respective year after the date of purchase. For example, the anniversary for shares purchased on May 1 will be May 1 of each succeeding year. (2) Class B shares will automatically convert to Class A shares on the eighth anniversary of the purchase of Class B shares The Class B share CDSC generally will be waived under the following circumstances: - benefit payments under Retirement Plans in connection with loans, hardship withdrawals, death, disability, retirement, separation from service or any excess contribution or distribution under Retirement Plans - ELIGIBLE MANDATORY DISTRIBUTIONS under 403(b) Plans and individual retirement accounts - death of the shareholder - redemptions of shares in connection with Div-Move and Systematic Withdrawal Plans (up to 12% per year) SEE "SYSTEMATIC WITHDRAWAL PLAN" UNDER "SERVICES FOR FUND INVESTORS" BELOW FOR MORE INFORMATION ON CDSCS WITH RESPECT TO CLASS B SHARES. CLASS C SHARE CDSC. The 1% CDSC for Class C shares normally applies if you redeem your shares before the first anniversary of the purchase of such shares. The CDSC will be remitted to either Lord Abbett Distributor or the fund involved in the original purchase, depending on which entity originally paid the sales compensation to your dealer. CLASS P SHARES. Class P shares have lower annual expenses than Class B and Class C shares, no front-end sales charge, and no CDSC. Class P shares are currently sold and redeemed at NAV (a) pursuant to a MUTUAL FUND FEE BASED PROGRAM, or (b) to the trustees of, or employer-sponsors with respect to, pension or retirement plans with at least 100 eligible employees (such as a plan under Section 401(a), 401(k) or 457(b) of the Internal Revenue Code) which engage an investment professional providing or participating in an agreement to provide certain recordkeeping, administrative and/or sub-transfer agency services to the Fund on behalf of the Class P shareholders. SALES COMPENSATION As part of its plan for distributing shares, the Fund and Lord Abbett Distributor pay sales and service compensation to AUTHORIZED INSTITUTIONS that sell the Fund's shares and service their shareholder accounts. [SIDENOTE] CDSC, regardless of class, is not charged on shares acquired through reinvestment of dividends or capital gains distributions and is charged on the original purchase cost or the current market value of the shares at the time they are being sold, whichever is lower. In addition, repayment of loans under Retirement Plans and 403(b) Plans will constitute new sales for purposes of assessing the CDSC. To minimize the amount of any CDSC, the Fund redeems shares in the following order: 1. shares acquired by reinvestment of dividends and capital gains (always free of a CDSC) 2. shares held for six years or more (Class B) or two years or more after the month of purchase (Class A) or one year or more (Class C) 3. shares held the longest before the sixth anniversary of their purchase (Class B) or before the second anniversary after the month of purchase (Class A) or before the first anniversary of their purchase (Class C). 12b-1 FEES ARE PAYABLE REGARDLESS OF EXPENSES. The amounts payable by a Fund need not be directly related to expenses. If Lord Abbett Distributor's actual expenses exceed the fee payable to it, the Fund will not have to pay more than that fee. If Lord Abbett Distributor's expenses are less than the fee it receives, Lord Abbett Distributor will keep the full amount of the fee. Your Investment 7 Sales compensation originates from two sources, as shown in the table "Fees and Expenses": sales charges which are paid directly by shareholders; and 12b-1 distribution fees that are paid out of the Fund's net assets. Service compensation originates from 12b-1 service fees. Because distribution and other fees are paid out on an ongoing basis, over time they will increase the cost of your investment and may cost you more than paying other types of sales charges. The total 12b-1 fees payable annually with respect to each share class are up to .39% of Class A shares (plus distribution fees of up to 1.00% on certain qualifying purchases), 1.00% of Class B and C shares, and .45% of Class P shares. The amounts payable as compensation to AUTHORIZED INSTITUTIONS, such as your dealer, are shown in the chart at the end of this prospectus. The portion of such compensation paid to Lord Abbett Distributor is discussed under "Sales Activities" and "Service Activities." Sometimes we do not pay compensation where tracking data is not available for certain accounts or where the AUTHORIZED INSTITUTION waives part of the compensation. In such cases, we may not require payment of any otherwise applicable CDSC. We may pay ADDITIONAL CONCESSIONS to AUTHORIZED INSTITUTIONS from time to time. SALES ACTIVITIES. We may use 12b-1 distribution fees to pay AUTHORIZED INSTITUTIONS to finance any activity which is primarily intended to result in the sale of shares. Lord Abbett Distributor uses its portion of the distribution fees attributable to the Fund's Class A and Class C shares for activities which are primarily intended to result in the sale of such Class A and Class C shares, respectively. These activities include, but are not limited to, printing of prospectuses and statements of additional information and reports for other than existing shareholders, preparation and distribution of advertising and sales material, expenses of organizing and conducting sales seminars, ADDITIONAL CONCESSIONS to AUTHORIZED INSTITUTIONS, the cost necessary to provide distribution-related services or personnel, travel, office expenses, equipment and other allocable overhead. SERVICE ACTIVITIES. We may pay 12b-1 service fees to AUTHORIZED INSTITUTIONS for any activity that is primarily intended to result in personal service and/or the maintenance of shareholder accounts. Any portion of the service fees paid to Lord Abbett Distributor will be used to service and maintain shareholder accounts. OPENING YOUR ACCOUNT
MINIMUM INITIAL INVESTMENT - Regular Account $250 ----------------------------------------------------------------- - Individual Retirement Accounts and 403(b) Plans under the Internal Revenue Code $250 ----------------------------------------------------------------- - Uniform Gift to Minor Account $250 ----------------------------------------------------------------- - Invest-A-Matic $250 -----------------------------------------------------------------
For Retirement Plans and Mutual Fund Fee Based Programs no minimum investment is required, regardless of share class. You may purchase shares through any independent securities dealer who has a sales agreement with Lord Abbett Distributor or you can fill out the attached application and send it to the Fund at the address stated below. You should carefully read the paragraph below entitled "Proper Form" before placing your order to ensure that your order will be accepted. LORD ABBETT AFFILIATED FUND, INC. P.O. Box 219100 Kansas City, MO 64121 [SIDENOTE] EXCHANGE LIMITATIONS. Exchanges should not be used to try to take advantage of short-term swings in the market. Frequent exchanges and similar trading practices can disrupt management of the Fund and raise expenses. Accordingly, the Fund reserves the right to limit or terminate this privilege for any shareholder making frequent exchanges or abusing the privilege. The Fund also may revoke the privilege for all shareholders upon 60 days' written notice. In addition, as stated under "Purchases", the Fund reserves the right to reject any purchase order, including purchase orders from shareholders whose trading has been or may be disruptive to the Fund. 8 Your Investment PROPER FORM. An order submitted directly to the Fund must contain: (1) a completed application, and (2) payment by check. When purchases are made by check, redemption proceeds will not be paid until the Fund or transfer agent is advised that the check has cleared, which may take up to 15 calendar days. For more information call the Fund at 800-821-5129. BY EXCHANGE. Telephone the Fund at 800-821-5129 to request an exchange from any eligible Lord Abbett-sponsored fund. REDEMPTIONS Redemptions of Fund shares are executed at the NAV next determined after the Fund receives your order in proper form. BY BROKER. Call your investment professional for instructions on how to redeem your shares. BY TELEPHONE. To obtain the proceeds of a redemption of $50,000 or less from your account, you or your representative should call the Fund at 800-821-5129. BY MAIL. Submit a written redemption request indicating the name(s) in which the account is registered, the Fund's name, the class of shares, your account number, and the dollar value or number of shares you wish to sell. Include all necessary signatures. If the signer has any Legal Capacity, the signature and capacity must be guaranteed by an Eligible Guarantor. Certain other legal documentation may be required. For more information regarding proper documentation call 800-821-5129. Normally a check will be mailed to the name(s) and address in which the account is registered (or otherwise according to your instruction) within three business days after receipt of your redemption request. Your account balance must be sufficient to cover the amount being redeemed or your redemption order will not be processed. Under unusual circumstances, the Fund may suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities laws. To determine if a CDSC applies to a redemption, see "Class A share CDSC," "Class B share CDSC" or "Class C share CDSC." DISTRIBUTIONS AND TAXES The Fund expects to pay its shareholders dividends from its net investment income each quarter and distribute its net capital gains (if any) as "capital gains distributions" on an annual basis. Distributions will be reinvested in Fund shares unless you instruct the Fund to pay them to you in cash. Effective June 1, 2001 with respect to distributions payable on or after November 1, 2000 on accounts other than those held in the name of your dealer, if you instruct the Fund to pay distributions in cash, and the Post Office is unable to deliver one or more of your checks or one or more of your checks remains uncashed for a certain period, the Fund reserves the right to reinvest your checks in your account at the NAV on the day of the reinvestment following such period. In addition, the Fund reserves the right to reinvest all subsequent distributions in additional Fund shares in your account. Similarly, any checks representing distributions payable prior to November 1, 2000 and remaining outstanding as of June 1, 2001 will be reinvested in shares of the Fund after June 1, 2001. No interest will accrue on checks while they remain uncashed before they are reinvested or on amounts represented by uncashed redemption checks. There are no sales charges on such reinvestments. For federal income tax purposes, the Fund's distribution of investment income and short-term capital gain is taxable to you as ordinary income. Distributions from the [SIDENOTE] SMALL ACCOUNTS. Our Board may authorize closing any account in which there are fewer than 25 shares if it is in the Fund's best interest to do so. ELIGIBLE GUARANTOR is any broker or bank that is a member of the medallion stamp program. Most major securities firms and banks are members of this program. A NOTARY PUBLIC IS NOT AN ELIGIBLE GUARANTOR. Your Investment 9 Fund's net long-term capital gains are taxable as long-term capital gains in the year of receipt. The tax status of distributions, including net long-term capital gains, is the same for all shareholders regardless of how long they have owned Fund shares or whether distributions are reinvested or paid in cash. If you buy shares when the Fund has realized but not yet distributed income or capital gains, you will be "buying a dividend" by paying the full price for shares and then receiving a portion of the price back in the form of a potentially taxable dividend. Information concerning the tax treatment of distributions, including the source of dividends and distributions of capital gains by the Fund, will be mailed to shareholders each year. Because everyone's tax situation is unique, you should consult your tax adviser regarding the treatment of distributions under the federal, state and local tax rules that apply to you as well as the tax consequences of gains or losses from the redemption or exchange of your shares. SERVICES FOR FUND INVESTORS AUTOMATIC SERVICES Buying or selling shares automatically is easy with the services described below. With each service, you select a schedule and amount, subject to certain restrictions. You may set up most of these services when filling out your application or by calling 800-821-5129. - -------------------------------------------------------------------------------- FOR INVESTING INVEST-A-MATIC You can make fixed, periodic investments ($50 minimum) into (Dollar-cost your Fund account by means of automatic money transfers averaging) from your bank checking account. See the attached application for instructions. DIV-MOVE You can automatically reinvest the dividends and distributions from your account into another account in any ELIGIBLE FUND ($50 minimum). FOR SELLING SHARES SYSTEMATIC You can make regular withdrawals from most Lord Abbett WITHDRAWAL Funds. Automatic cash withdrawals will be paid to you from PLAN ("SWP") your account in fixed or variable amounts. To establish a plan, the value of your shares must be at least $10,000, except for Retirement Plans for which there is no minimum. Your shares must be in non-certificate form. CLASS B SHARES The CDSC will be waived on redemptions of up to 12% of the current net asset value of your account at the time of your SWP request. For Class B share redemptions over 12% per year, the CDSC will apply to the entire redemption. Please contact the Fund for assistance in minimizing the CDSC in this situation. CLASS B AND Redemption proceeds due to a SWP for Class B and Class C C SHARES shares will be redeemed in the order described under "CDSC" under "Purchases." - -------------------------------------------------------------------------------- OTHER SERVICES TELEPHONE INVESTING. After we have received the attached application (selecting "yes" under Section 8C and completing Section 7), you may instruct us by phone to have money transferred from your bank account to purchase shares of the Fund for an existing account. The Fund will purchase the requested shares when it receives the money from your bank. [SIDENOTE] TELEPHONE TRANSACTIONS. You have this privilege unless you refuse it in writing. For your security, telephone transaction requests are recorded. We will take measures to verify the identity of the caller, such as asking for your name, account number, social security or taxpayer identification number and other relevant information. The Fund will not be liable for following instructions communicated by telephone that it reasonably believes to be genuine. Transactions by telephone may be difficult to implement in times of drastic economic or market change. 10 Your Investment EXCHANGES. You or your investment professional, may instruct the Fund to exchange shares of any class for shares of the same class of any ELIGIBLE FUND. Instruction may be provided in writing or by telephone, with proper identification, by calling 800-821-5129. The Fund must receive instructions for the exchange before the close of the NYSE on the day of your call in which case you will get the NAV per share of the ELIGIBLE FUND determined on that day. Exchanges will be treated as a sale for federal tax purposes. Be sure to read the current prospectus for any fund into which you are exchanging. REINVESTMENT PRIVILEGE. If you sell shares of the Fund, you have a one time right to reinvest some or all of the proceeds in the same class of any ELIGIBLE FUND within 60 days without a sales charge. If you paid a CDSC when you sold your shares, you will be credited with the amount of the CDSC. All accounts involved must have the same registration. ACCOUNT STATEMENTS. Every Lord Abbett investor automatically receives quarterly account statements. HOUSEHOLDING. Shareholders with the same last name and address will receive a single copy of a prospectus and an annual and semi-annual report, unless additional reports are specifically requested in writing to the Fund. ACCOUNT CHANGES. For any changes you need to make to your account, consult your investment professional or call the Fund at 800-821-5129. SYSTEMATIC EXCHANGE. You or your investment professional can establish a schedule of exchanges between the same classes of any ELIGIBLE FUND. MANAGEMENT The Fund's investment adviser is Lord, Abbett & Co., which is located at 90 Hudson Street, Jersey City, NJ 07302-3973. Founded in 1929, Lord Abbett manages one of the nation's oldest mutual fund complexes, with approximately $35 billion in more than 40 mutual fund portfolios and other advisory accounts. For more information about the services Lord Abbett provides to the Fund, see the Statement of Additional Information. Lord Abbett is entitled to an annual management fee based on the Fund's average daily net assets. The fees are calculated daily and payable monthly as follows: .50 of 1% on the first $200 million in assets .40 of 1% on the next $300 million .375 of 1% on the next $200 million .35 of 1% on the next $200 million .30 of 1% on the Fund's assets over $900 million For the fiscal year ended October 31, 2000, the actual fee paid to Lord Abbett was at an effective annual rate of .31 of 1%. In addition, the Fund pays all expenses not expressly assumed by Lord Abbett. INVESTMENT MANAGERS. Lord Abbett uses a team of investment managers and analysts acting together to manage the Fund's investments. The senior members of the team are: Thomas Hudson Jr., Robert Morris and Eli M. Salzmann, each a Partner of Lord Abbett. Messrs. Hudson and Morris have been with Lord Abbett since 1982 and 1991, respectively. Mr. Salzmann joined Lord Abbett in 1997 and previously was a Vice President with Mutual of America Capital Corp. from 1996 to 1997 and a Vice President with Mitchell Hutchins Asset Management, Inc. from 1991 to 1996. Your Investment 11 FOR MORE INFORMATION OTHER INVESTMENT TECHNIQUES This section describes some of the investment techniques that might be used by the Fund and their risks. ADJUSTING INVESTMENT EXPOSURE. The Fund will be subject to the risks associated with investments. The Fund may, but is not required to, use various strategies to change its investment exposure to adjust to changes in economic, social, political, and general market conditions, which affect changes in security prices, interest rates, currency exchange rates, commodity prices and other factors. The Fund may use these transactions to change the risk and return characteristics of the Fund's portfolio. If we judge market conditions incorrectly or use a strategy that does not correlate well with the Fund's investments, it could result in a loss, even if we intended to lessen risk or enhance returns. These transactions may involve a small investment of cash compared to the magnitude of the risk assumed and could produce disproportionate gains or losses. Also, these strategies could result in losses if the counterparty to a transaction does not perform as promised. CONVERTIBLE SECURITIES. The Fund may invest in convertible bonds and convertible preferred stocks. These investments tend to be more volatile than debt securities but tend to be less volatile and produce more income than their underlying common stocks. DEBT SECURITIES. The Fund may invest in debt securities such as bonds, debentures, government obligations, commercial paper and pass-through instruments. When interest rates rise, prices of these investments are likely to decline, and when interest rates fall, prices tend to rise. There is also the risk that an issuer of a debt security will fail to make timely payments of principal or interest to the Fund. DEPOSITORY RECEIPTS. The Fund may invest in sponsored and unsponsored American Depository Receipts ("ADRs") and similar depository receipts. ADRs, typically issued by a financial institution (a "depository"), evidence ownership interests in a security or a pool of securities issued by a foreign company and deposited with the depository. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the United States. EQUITY SECURITIES. These include common stocks, preferred stocks, convertible securities, convertible preferred securities, warrants and similar instruments. Common stocks, the most familiar type, represent an ownership interest in a corporation. Although equity securities have a history of long-term growth in their value, their prices fluctuate based on changes in a company's financial condition and on market and economic conditions. FOREIGN SECURITIES. The Fund may invest up to 10% of its net assets in foreign securities which are primarily traded outside the United States. Foreign markets may not be subject to the same degree of regulation as U.S. markets. Securities clearance, settlement procedures and trading practices may be different, and transaction costs may be higher in foreign countries. There may be less trading volume and liquidity in foreign markets, subjecting the securities traded in them to higher price fluctuations. Foreign investments also may be affected by changes in currency rates or currency controls. HIGH YIELD DEBT SECURITIES. High yield debt securities or "junk bonds" are rated BB/Ba or lower and typically pay a higher yield than investment grade debt securities. These bonds have a higher risk of default than investment grade bonds and their prices can be much more volatile. The Fund will not invest more than 5% of its assets in high yield debt securities. 12 For More Information GLOSSARY OF SHADED TERMS ADDITIONAL CONCESSIONS. Lord Abbett Distributor may, for specified periods, allow dealers to retain the full sales charge for sales of shares or may pay an additional concession to a dealer who sells a minimum dollar amount of our shares and/or shares of other Lord Abbett-sponsored funds. In some instances, such additional concessions will be offered only to certain dealers expected to sell significant amounts of shares. Additional payments may be paid from Lord Abbett Distributor's own resources or from distribution fees received from a fund and will be made in the form of cash or, if permitted, non-cash payments. The non-cash payments will include business seminars at Lord Abbett's headquarters or other locations, including meals and entertainment, or the receipt of merchandise. The cash payments may include payment of various business expenses of the dealer. In selecting dealers to execute portfolio transactions for the Fund's portfolio, if two or more dealers are considered capable of obtaining best execution, we may prefer the dealer who has sold our shares and/or shares of other Lord Abbett-sponsored funds. AUTHORIZED INSTITUTIONS. Institutions and persons permitted by law to receive service and/or distribution fees under a Rule 12b-1 Plan are "Authorized Institutions." Lord Abbett Distributor is an Authorized Institution. ELIGIBLE FUND. An Eligible Fund is any Lord Abbett-sponsored fund except for (1) certain tax-free, single-state funds where the exchanging shareholder is a resident of a state in which such a Fund is not offered for sale; (2) Lord Abbett Series Fund; (3) Lord Abbett U.S. Government Securities Money Market Fund ("GSMMF") (except for holdings in GSMMF which are attributable to any shares exchanged from the Lord Abbett Family of Funds); and (4) any other fund the shares of which are not available to the investor at the time of the transaction due to a limitation on the offering of the fund's shares. An ELIGIBLE FUND also is any AUTHORIZED INSTITUTION'S affiliated money market fund satisfying Lord Abbett Distributor as to certain omnibus account and other criteria. ELIGIBLE MANDATORY DISTRIBUTIONS. If Class B shares represent a part of an individual's total IRA or 403(b) investment, the CDSC will be waived only for that part of a mandatory distribution that bears the same relation to the entire mandatory distribution as the B share investment bears to the total investment. LEGAL CAPACITY. This term refers to the authority of an individual to act on behalf of an entity or other person(s). For example, if a redemption request were to be made on behalf of the estate of a deceased shareholder, John W. Doe, by a person (Robert A. Doe) who has the legal capacity to act for the estate of the deceased shareholder because he is the executor of the estate, then the request must be executed as follows: Robert A.Doe, Executor of the Estate of John W. Doe. That signature using that capacity must be guaranteed by an Eligible Guarantor. To give another example, if a redemption request were to be made on behalf of the ABC Corporation by a person (Mary B. Doe) who has the legal capacity to act on behalf of the Corporation, because she is the President of the Corporation, the request must be executed as follows: ABC Corporation by Mary B. Doe, President. That signature using that capacity must be guaranteed by an Eligible Guarantor (see example in right column). MUTUAL FUND FEE BASED PROGRAM. Certain unaffiliated authorized brokers, dealers, registered investment advisers or other financial institutions ("entities") who either (1) have an arrangement with Lord Abbett Distributor in accordance with certain standards approved by Lord Abbett Distributor, providing specifically for the use of our shares [SIDENOTE] GUARANTEED SIGNATURE. An acceptable form of guarantee would be as follows: - - In the case of the estate - /s/ ROBERT A. DOE EXECUTOR OF THE ESTATE OF JOHN W. DOE [Date] SIGNATURE GUARANTEED MEDALLION GUARANTEED NAME OF GUARANTOR /s/ David R. [Illegible] - ------------------------ AUTHORIZED SIGNATURE (960) X9003470 SECURITIES TRANSFER AGENTS MEDALLION PROGRAM-TM- SR - - In the case of the corporation - ABC Corporation /s/ Mary B. Doe By Mary B. Doe, President [Date] SIGNATURE GUARANTEED MEDALLION GUARANTEED NAME OF GUARANTOR /s/ David R. [Illegible] - ------------------------ AUTHORIZED SIGNATURE (960) X9003470 SECURITIES TRANSFER AGENTS MEDALLION PROGRAM-TM- SR For More Information 13 (and sometimes providing for acceptance of orders for such shares on our behalf) in particular investment products made available for a fee to clients of such entities, or (2) charge an advisory, consulting or other fee for their services and buy shares for their own accounts or the accounts of their clients. PURCHASER. The term "purchaser" includes: (1) an individual, (2) an individual and his or her spouse and children under the age of 21, and (3) a trustee or other fiduciary purchasing shares for a single trust estate or single fiduciary account (including a pension, profit-sharing, or other employee benefit trust qualified under Section 401 of the Internal Revenue Code - more than one qualified employee benefit trust of a single employer, including its consolidated subsidiaries, may be considered a single trust, as may qualified plans of multiple employers registered in the name of a single bank trustee as one account), although more than one beneficiary is involved. SPECIAL RETIREMENT WRAP PROGRAM. A program sponsored by an AUTHORIZED INSTITUTION showing one or more characteristics distinguishing it, in the opinion of Lord Abbett Distributor, from a MUTUAL FUND FEE BASED PROGRAM. Such characteristics include, among other things, the fact that an AUTHORIZED INSTITUTION does not charge its clients any fee of a consulting or advisory nature that is economically equivalent to the distribution fee under the Class A 12b-1 Plan and the fact that the program relates to participant-directed Retirement Plans. RECENT PERFORMANCE The following is a discussion of recent performance for the twelve month period ended October 31, 2000. The past fiscal year was characterized by a major swing in market sentiment toward value stocks. If the signs of a broadening out of the market and a turn back toward value investing were knocking at the back door then, they were using a battering ram during the usually quiet summer trading months. The high-flying growth stocks that had led the market throughout all of 1999 experienced a severe correction that has lasted well into the autumn. Conversely, the stocks of companies with attractive valuations and positive cash flows began to garner the interest of investors and surged ahead of the former market leaders. Granted, growth-oriented tech stocks saw a brief rally in June, but the first stone had been cast. Investors had been awakened to the perils of momentum investing, and for the first time in years, value stocks began to handily outperform growth stocks and the broad equity market. As of October 31, 2000, the S&P 500/BARRA Value Index was up 6.3% on a year-to-date basis versus a negative return of 8.9% for the S&P 500/BARRA Growth Index and a negative return of 1.8% for the S&P 500 Index. In addition, earnings shortfalls and other disparaging company news releases that brought down the stock prices of several large, widely-held companies once again proved that careful, bottom-up company research was worth more than wide-sweeping sector investing. At home in a value-friendly investment environment, the Affiliated Fund was able to perform very respectably. Stocks of electric utility companies, which constituted a large portion of the portfolio, contributed significantly to the Fund's positive performance, despite investors' concerns about rising interest rates. Many of our holdings were able to benefit from increasing deregulation in the industry, as well as high power consumption associated with mounting technology usage. Moreover, our relatively large exposure to energy companies paid off well, as rising oil prices helped boost the price of many of these stocks. Our careful stock picking in stocks of consumer non-cyclical companies, particularly healthcare companies, also significantly buoyed performance. 14 For More Information At the onset of the second quarter, we had already begun to significantly reduce the portfolio's exposure to many companies in the technology, telecommunications and media sectors due to high valuations and unstable business fundamentals. Many telecommunications services stocks experienced difficulties, as price competition in a number of markets caused companies to miss earnings estimates and to lower future growth forecasts. As we pared back our exposure to technology companies, we made select investments in undervalued companies in basic industries, utilities and financial services (especially insurance companies) where we saw more intrinsic value. While we maintained this weighting shift throughout the period, some of our remaining technology holdings still hampered overall performance. After a shaky start at the beginning of the year, financial services was one of the Fund's strongest performing areas by the end of the period. We were overweighted in insurance stocks and other financial intermediaries, many of which posted double-digit gains. However, we remained underweighted in the banking sector due to our expectation that some banks may experience credit quality issues. Our move to basic industries (paper, chemicals, and metals) proved to be a bit premature and worked against our performance early on. However, if the U.S. economy continues to slow, we believe investors will begin to anticipate a more balanced global economic growth environment that should favor the performance of these stocks. We believe the market is in the final stages of adjusting to a slowing growth rate for the U.S. economy over the next six to nine months. Interest rates are down and should be moving irregularly lower still. Current concerns about energy prices and dollar strength versus the Euro should ebb as our economy slows. We do not anticipate a change in our investment strategy for the short term. The low economic sensitivity and high interest rate sensitivity of our portfolio has served us well throughout this year. As the U.S. economy slows over the next six months, we will look to add to some of our favorite consumer cyclical stocks, as well as to rebuild our positions in technology when we see select companies offer good value. For More Information 15 FINANCIAL INFORMATION FINANCIAL HIGHLIGHTS This table describes the Fund's performance for the fiscal periods indicated. "Total return" shows how much your investment in the Fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These Financial Highlights have been audited by Deloitte & Touche LLP, the Fund's independent auditors, in conjunction with their annual audit of the Fund's financial statements. Financial statements for the fiscal year ended October 31, 2000 and the Independent Auditors' Report thereon appear in the Annual Report to Shareholders for the fiscal year ended October 31, 2000 and are incorporated by reference into the Statement of Additional Information, which is available upon request. Certain information reflects financial results for a single Fund share.
- ----------------------------------------------------------------------------------------------------------------------------------- CLASS A SHARES ------------------------------------------------------------------------------ Year Ended October 31, Per Share Operating Performance: 2000 1999 1998 1997 1996 NET ASSET VALUE, BEGINNING OF YEAR $16.22 $14.56 $14.84 $13.02 $11.98 INCOME FROM INVESTMENT OPERATIONS Net investment income .24(e) .21(e) .24 .30 .30 Net realized and unrealized gain on investments 2.01 2.64 1.14 2.85 2.23 TOTAL FROM INVESTMENT OPERATIONS 2.25 2.85 1.38 3.15 2.53 DISTRIBUTIONS Distributions from net investment income (.24) (.24) (.27) (.30) (.30) Distributions from net realized gain (1.76) (.95) (1.39) (1.03) (1.19) Total distributions (2.00) (1.19) (1.66) (1.33) (1.49) NET ASSET VALUE, END OF YEAR $16.47 $16.22 $14.56 $14.84 $13.02 TOTAL RETURN(a) 15.12% 20.69% 10.27% 25.80% 23.23% RATIOS TO AVERAGE NET ASSETS: Expenses, including expense reductions .79%(b) .74%(b) .63%(b) .65%(b) .66% Expenses, excluding expense reductions .80% .74%(b) .63%(b) .65%(b) .66% Net investment income 1.62% 1.36% 1.64% 2.15% 2.61% - -----------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES CLASS C SHARES -------------------------------------------------------------- ----------------------- Year Ended October 31, ---------------------------------------------------------------------------------------- Per Share Operating Performance: 2000 1999 1998 1997 1996(c) 2000 1999 NET ASSET VALUE, BEGINNING OF PERIOD $16.23 $14.56 $14.84 $13.03 $11.88 $16.23 $14.56 INCOME FROM INVESTMENT OPERATIONS Net investment income .14(e) .10(e) .14 .20 .06 .14(e) .10(e) Net realized and unrealized gain on investments 2.02 2.65 1.12 2.84 1.14 2.02 2.65 TOTAL FROM INVESTMENT OPERATIONS 2.16 2.75 1.26 3.04 1.20 2.16 2.75 DISTRIBUTIONS Distributions from net investment income (.14) (.13) (.15) (.20) (.05) (.14) (.13) Distribution from net realized gain (1.76) (.95) (1.39) (1.03) -- (1.76) (.95) Total distributions (1.90) (1.08) (1.54) (1.23) (.05) (1.90) (1.08) NET ASSET VALUE, END OF PERIOD $16.49 $16.23 $14.56 $14.84 $13.03 $16.49 $16.23 TOTAL RETURN(a) 14.42% 19.87% 9.41% 24.78% 10.15%(d) 14.48% 19.80% RATIOS TO AVERAGE NET ASSETS: Expenses, including expense reduction 1.44%(b) 1.43%(b) 1.38%(b) 1.42% .34%(d) 1.44%(b) 1.43%(b) Expenses, excluding expense reduction 1.45% 1.43%(b) 1.38%(b) 1.42%(b) .34%(d) 1.45% 1.43%(b) Net investment income .94% .66% .87% 1.19% .27%(d) .93% .66% - ----------------------------------------------------------------------------------------------------------------------------------- CLASS C SHARES CLASS P SHARES ---------------------------------- ------------------------------------ Year Ended October 31, -------------------------------------------------------------------------- Per Share Operating Performance: 1998 1997 1996(c) 2000 1999 1998(c) NET ASSET VALUE, BEGINNING OF PERIOD $14.84 $13.02 $11.88 $16.19 $14.53 $14.24 INCOME FROM INVESTMENT OPERATIONS Net investment income .14 .22 .06 .22(e) .19(e) .18 Net realized and unrealized gain on investments 1.12 2.83 1.13 2.02 2.63 .27 TOTAL FROM INVESTMENT OPERATIONS 1.26 3.05 1.19 2.24 2.82 .45 DISTRIBUTIONS Distributions from net investment income (.15) (.20) (.05) (.22) (.21) (.16) Distribution from net realized gain (1.39) (1.03) -- (1.76) (.95) -- Total distributions (1.54) (1.23) (.05) (1.98) (1.16) (.16) NET ASSET VALUE, END OF PERIOD $14.56 $14.84 $13.02 $16.45 $16.19 $14.53 TOTAL RETURN(a) 9.41% 24.88% 10.07%(d) 15.11% 20.51% 3.21%(d) RATIOS TO AVERAGE NET ASSETS: Expenses, including expense reduction 1.40%(b) 1.34%(b) .33%(d) .89%(b) .88%(b) .76%(b)(d) Expenses, excluding expense reduction 1.40%(b) 1.34%(b) .33%(d) .89% .88%(b) .76%(b)(d) Net investment income .85% 1.28% .25%(d) 1.30% 1.22% 1.21%(d) - --------------------------------------------------------------------------------------------------------------------------
Year Ended October 31, ---------------------------------------------------------------------------------------- SUPPLEMENTAL DATA FOR ALL CLASSES: 2000 1999 1998 1997 1996 NET ASSETS, END OF YEAR (000) $11,424,493 $10,080,754 $8,520,603 $7,697,754 $6,100,665 PORTFOLIO TURNOVER RATE 52.27% 62.30% 56.49% 46.41% 47.06%
(a) Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions. (b) The ratio includes expenses paid through an expense offset arrangement. (c) From commencement of operations for each class of shares: August 1, 1996 (Class B and C) and December 8, 1997 (Class P). (d) Not annualized. (e) Calculated using average shares outstanding during the year. 16 Financial Information LINE GRAPH COMPARISON Immediately below is a comparison of a $10,000 investment in Class A shares to the same investment in the S&P 500-Registered Trademark- Index and S&P Barra Value Index, assuming reinvestment of all dividends and distributions. - -------------------------------------------------------------------------------- [CHART] Past performance is no guarantee of future results.
Fiscal Year-end 10/31 The Fund (Class A shares) The Fund (Class A) S&P 500-Registered Trademark- at net asset value at maximum offering price(1) Index(2) S&P Barra Value Index(2) 10/31/1990 $10,000 $9,429 $10,000 $10,000 10/31/1991 $12,801 $12,069 $13,342 $13,069 10/31/1992 $14,126 $13,318 $14,668 $14,152 10/31/1993 $16,635 $15,684 $16,056 $17,572 10/31/1994 $17,743 $16,730 $17,506 $17,956 10/31/1995 $23,375 $20,152 $22,129 $22,092 10/31/1996 $26,338 $24,033 $27,458 $27,521 10/31/1997 $33,230 $34,238 $36,272 $35,706 10/31/1998 $36,534 $34,446 $44,256 $39,899 10/31/1999 $44,094 $43,574 $55,613 $47,483 10/31/2000 $50,764 $47,864 $50,993 $52,080
- -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN AT MAXIMUM APPLICABLE SALES CHARGE FOR THE PERIODS ENDING OCTOBER 31, 2000 1 YEAR 5 YEARS 10 YEARS (OR LIFE) - -------------------------------------------------------------------------------- Class A(3) 8.50% 17.48% 16.95% - -------------------------------------------------------------------------------- Class B(4) 9.42% - 18.30% - -------------------------------------------------------------------------------- Class C(5) 13.49% - 18.57% - -------------------------------------------------------------------------------- Class P(6) 15.11% - 14.18% - --------------------------------------------------------------------------------
(1) Reflects the deduction of the maximum initial sales charge of 5.75%. (2) Performance for each unmanaged index does not reflect any fees or expenses. The performance of the indices, particularly that of the S&P 500-Registered Trademark- Index, is not necessarily representative of the Fund's performance. (3) This shows total return which is the percent change in value, after deduction of the maximum initial sales charge of 5.75% applicable to Class A shares, with all dividends and distributions reinvested for the periods shown ending October 31, 2000 using the SEC-required uniform method to compute such return. (4) The Class B shares were first offered on 8/1/96. Performance reflects the deduction of a CDSC of 5% (for 1 year) and 3% (for life of the class). (5) The Class C shares were first offered on 8/1/96. Performance reflects the deduction of a CDSC of 1% (for 1 year) and 0% (for the life of the class). (6) The Class P shares were first offered on 12/8/97. Performance is at net asset value. Financial Information 17 COMPENSATION FOR YOUR DEALER
- --------------------------------------------------------------------------------------------------------------------------- FIRST YEAR COMPENSATION Front-end sales charge Dealer's paid by investors concession Service fee(1) Total compensation(2) Class A investments (% of offering price) (% of offering price) (% of net investment) (% of offering price) - ------------------------------------------------------------------------------------------------------------------------------------ Less than $50,000 5.75% 5.00% 0.25% 5.24% $50,000 - $99,999 4.75% 4.00% 0.25% 4.24% $100,000 - $249,999 3.95% 3.25% 0.25% 3.49% $250,000 - $499,999 2.75% 2.25% 0.25% 2.49% $500,000 - $999,999 1.95% 1.75% 0.25% 2.00% $1 million or more(3) or Retirement Plan - 100 or more eligible employees(3) or Special Retirement Wrap Program(3) First $5 million no front-end sales charge 1.00% 0.25% 1.25% Next $5 million above that no front-end sales charge 0.55% 0.25% 0.80% Next $40 million above that no front-end sales charge 0.50% 0.25% 0.75% Over $50 million no front-end sales charge 0.25% 0.25% 0.50% - ------------------------------------------------------------------------------------------------------------------------------------ Class B investments(4) Paid at time of sale (% of net asset value) All amounts no front-end sales charge 3.75% 0.25% 4.00% - ------------------------------------------------------------------------------------------------------------------------------------ Class C investments(4) All amounts no front-end sales charge 0.75% 0.25% 1.00% - ------------------------------------------------------------------------------------------------------------------------------------ Class P investments Percentage of average net assets All amounts no front-end sales charge 0.25% 0.20% 0.45% - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ANNUAL COMPENSATION AFTER FIRST YEAR Class A investments Percentage of average net assets(5) All amounts no front-end sales charge none 0.25% 0.25% - ------------------------------------------------------------------------------------------------------------------------------------ Class B investments(4) All amounts no front-end sales charge none 0.25% 0.25% - ------------------------------------------------------------------------------------------------------------------------------------ Class C investments(4) All amounts no front-end sales charge 0.75% 0.25% 1.00% - ------------------------------------------------------------------------------------------------------------------------------------ Class P investments All amounts no front-end sales charge 0.25% 0.20% 0.45% - ------------------------------------------------------------------------------------------------------------------------------------
(1) The service fees for Class A and P shares are paid quarterly. The first year's service fees on Class B and C shares are paid at the time of sale. (2) Reallowance/concession percentages and service fee percentages are calculated from different amounts, and therefore may not equal total compensation percentages if combined using simple addition. ADDITIONAL CONCESSIONS may be paid to AUTHORIZED INSTITUTIONS, such as your dealer, from time to time. (3) Concessions are paid at the time of sale on all Class A shares sold during any 12-month period starting from the day of the first net asset value sale. With respect to (a) Class A share purchases at $1 million or more, sales qualifying at such level under rights of accumulation and statement of intention privileges are included and (b) for SPECIAL RETIREMENT WRAP PROGRAMS, only new sales are eligible and exchanges into the Fund are excluded. Certain purchases of Class A shares are subject to a CDSC. (4) Class B and C shares are subject to CDSCs. (5) With respect to Class B, C and P shares, 0.25%, 1.00% and 0.45%, respectively, of the average annual net asset value of such shares outstanding during the quarter (including distribution reinvestment shares after the first anniversary of their issuance) is paid to AUTHORIZED INSTITUTIONS, such as your dealer. These fees are paid quarterly in arrears. 18 Financial Information ADDITIONAL INFORMATION More information on the Fund is available free upon request, including the following: ANNUAL/SEMI-ANNUAL REPORT Describes the Fund, lists portfolio holdings and contains a letter from the Fund's manager discussing recent market conditions and the Fund's investment strategies. STATEMENTS OF ADDITIONAL INFORMATION ("SAI") Provides more details about the Fund and its policies. A current SAI is on file with the Securities and Exchange Commission ("SEC") and is incorporated by reference (is legally considered part of this prospectus). Lord Abbett Affiliated Fund, Inc. LAA-1-300 (3/01) SEC FILE NUMBER: 811-5 [SIDENOTE] TO OBTAIN INFORMATION BY TELEPHONE. Call the Fund at: 888-522-2388 BY MAIL. Write to the Fund at: The Lord Abbett Family of Funds 90 Hudson Street Jersey City, NJ 07302-3973 VIA THE INTERNET. LORD, ABBETT & CO. www.LordAbbett.com Text only versions of Fund documents can be viewed online or downloaded from the SEC: www.sec.gov You can also obtain copies by visiting the SEC's Public Reference Room in Washington, DC (phone 202-942-8090) or by sending your request and a duplicating fee to the SEC's Public Reference Section, Washington, DC 20549-6009 or by sending your request electronically to publicinfo@sec.gov. LORD ABBETT [GRAPHIC OF CHESS KNIGHT]-REGISTERED TRADEMARK- - -------------------------------------------------------------------------------- INVESTMENT MANAGEMENT A TRADITION OF PERFORMANCE THROUGH DISCIPLINED INVESTING Lord Abbett Mutual Fund shares are distributed by: LORD ABBETT DISTRIBUTOR LLC 90 Hudson Street - Jersey City, New Jersey 07302-3973 - -------------------------------------------------------------------------------- PRESORTED STANDARD US POSTAGE PAID PERMIT 552 HACKENSACK NJ LORD ABBETT STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 2001 Lord Abbett Affiliated Fund, Inc. - ------------------------------------------------------------------------------- This Statement of Additional Information is not a Prospectus. A Prospectus may be obtained from your securities dealer or from Lord Abbett Distributor LLC ("Lord Abbett Distributor") at 90 Hudson Street, Jersey City, New Jersey 07302-3973. This Statement of Additional Information relates to, and should be read in conjunction with, the Prospectus dated March 1, 2001. Shareholder inquiries should be made by directly contacting the Fund or by calling 800-821-5129. The Annual Report to Shareholders is available without charge, upon request by calling that number. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS Page 1. Fund History 2 2. Investment Policies 2 3. Management of the Fund 5 4. Control Persons and Principal Holders of Securities 9 5. Investment Advisory and Other Services 9 6. Brokerage Allocations and Other Practices 10 7. Capital Stock & Other Securities 11 8. Purchases, Redemptions & Pricing 15 9. Taxation of the Fund 18 10. Underwriter 20 11. Performance 20 12. Financial Statements 21
1. FUND HISTORY The Lord Abbett Affiliated Fund, Inc. (the "Fund") is a diversified open-end investment management company registered under the Investment Company Act of 1940, as amended (the "Act"). The Fund was organized in 1934 and was reincorporated under Maryland law on November 26, 1975. The Fund has 2,000,000,000 shares of authorized capital stock consisting of five classes (A, B, C, P and Y), $0.001 par value. The Fund offers five classes of shares: Class A, Class B, Class C, Class P, and Class Y. Only the Fund's Class A, B, C and P shares are offered in this Statement of Additional Information. 2. INVESTMENT POLICIES FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund is subject to the following fundamental investment restrictions, which cannot be changed without approval of a majority of the Fund's outstanding shares. The Fund may not: (1) borrow money, except that (i) the Fund may borrow from banks (as defined in the Act) in amounts up to 33 1/3% of its total assets (including the amount borrowed), (ii) the Fund may borrow up to an additional 5% of its total assets for temporary purposes, (iii) the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities and (iv) the Fund may purchase securities on margin to the extent permitted by applicable law; (2) pledge its assets (other than to secure borrowings, or to the extent permitted by the Fund's investment policies, as permitted by applicable law); (3) engage in the underwriting of securities, except pursuant to a merger or acquisition or to the extent that, in connection with the disposition of its portfolio securities, it may be deemed to be an underwriter under federal securities laws; (4) make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in government obligations, commercial paper, pass-through instruments, certificates of deposit, bankers acceptances, repurchase agreements or any similar instruments shall not be subject to this limitation, and except further that the Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law; (5) buy or sell real estate (except that the Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies which invest in real estate or interests therein) or commodities or commodity contracts (except to the extent the Fund may do so in accordance with applicable law and without registering as a commodity pool operator under the Commodity Exchange Act as, for example, with futures contracts); (6) with respect to 75% of the gross assets of the Fund, buy securities of one issuer representing more than (i) 5% of the Fund's gross assets, except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities or (ii) 10% of the voting securities of such issuer; (7) invest more than 25% of its assets, taken at market value, in the securities of issuers in any particular industry (excluding securities of the U.S. Government, its agencies and instrumentalities); or (8) issue senior securities to the extent such issuance would violate applicable law. Compliance with the investment restrictions above will be determined at the time of purchase or sale of the portfolio. 2 NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. In addition to the policies in the Prospectus and the investment restrictions above which cannot be changed without shareholder approval, the Fund is subject to the following non-fundamental investment policies which may be changed by the Board of Directors without shareholder approval. The Fund may not: (1) borrow in excess of 33 1/3% of its total assets (including the amount borrowed), and then only as a temporary measure for extraordinary or emergency purposes; (2) make short sales of securities or maintain a short position except to the extent permitted by applicable law; (3) invest knowingly more than 15% of its net assets (at the time of investment) in illiquid securities, except for securities qualifying for resale under Rule 144A of the Act, deemed to be liquid by the Board of Directors; (4) invest in the securities of other investment companies except as permitted by applicable law; (5) invest in securities of issuers which, with their predecessors, have a record of less than three years' continuous operations, if more than 5% of the Fund's total assets would be invested in such securities (this restriction shall not apply to mortgage-backed securities, asset-backed securities or obligations issued or guaranteed by the U. S. Government, its agencies or instrumentalities); (6) hold securities of any issuer if more than 1/2 of 1% of the securities of such issuer are owned beneficially by one or more officers or directors of the Fund or by one or more partners or members of the Fund's underwriter or investment adviser if these owners in the aggregate own beneficially more than 5% of the securities of such issuer; (7) invest in warrants if, at the time of the acquisition, its investment in warrants, valued at the lower of cost or market, would exceed 5% of 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); (8) invest in real estate limited partnership interests or interests in oil, gas or other mineral leases, or exploration or other development programs, except that the Fund may invest in securities issued by companies that engage in oil, gas or other mineral exploration or other development activities; (9) write, purchase or sell puts, calls, straddles, spreads or combinations thereof, except to the extent permitted in the Fund's prospectus and statement of additional information, as they may be amended from time to time; (10) buy from or sell to any of its officers, directors, employees, or its investment adviser or any of its officers, directors, partners or employees, any securities other than shares of the Fund's common stock; or (11) 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. PORTFOLIO TURNOVER RATE. For the year ended October 31, 2000, the Fund's portfolio turnover rate was 52.27% versus 62.30% for the prior year. ADDITIONAL INFORMATION ON PORTFOLIO RISKS, INVESTMENTS AND TECHNIQUES. The following sections provide information on certain types of investments and investment techniques that may be used by the Fund, including their associated risks. BORROWINGS. The Fund may borrow money for temporary or emergency purposes from banks and other financial institutions in amounts not exceeding one-third of its total assets. If the Fund borrows money and experiences a decline 3 in net asset value, the borrowing will incur the Fund losses. CONVERTIBLE SECURITIES. The Fund may invest in convertible bonds and convertible preferred stocks. These investments tend to be more volatile than debt securities but tend to be less volatile and produce more income than their underlying common stocks. COVERED CALL OPTIONS. We may write covered call options which are traded on a national securities exchange with respect to securities in our portfolio in an attempt to increase our income and to provide greater flexibility in the disposition of our portfolio securities. A "call option" is a contract sold for a price (the "premium") giving its holder the right to buy a specific number of shares of stock at a specific price prior to a specified date. A "covered call option" is a call option issued on securities already owned by the writer of the call option for delivery to the holder upon the exercise of the option. During the period of the option, we forgo the opportunity to profit from any increase in the market price of the underlying security above the exercise price of the option (to the extent that the increase exceeds our net premium). We also may enter into "closing purchase transactions" in order to terminate our obligation to deliver the underlying security (this may result in a short-term gain or loss). A closing purchase transaction is the purchase of a call option (at a cost which may be more or less than the premium received for writing the original call option) on the same security, with the same exercise price and call period as the option previously written. If we are unable to enter into a closing purchase transaction, we may be required to hold a security that we might otherwise have sold to protect against depreciation. We do not intend to write covered call options with respect to securities with an aggregate market value of more than 10% of our gross assets at the time an option is written. This percentage limitation will not be increased without prior disclosure in our current Prospectus. DEBT SECURITIES. The Fund may invest in debt securities such as bonds, debentures, government obligations, commercial paper and pass-through instruments. When interest rates rise, prices of these investments are likely to decline, and when interest rates fall, prices tend to rise. There is also the risk that an issuer of a debt security will fail to make timely payments of principal or interest to the Fund. FOREIGN SECURITIES. The Fund may invest up to 10% of its net assets in foreign securities which are primarily traded outside the United States. Foreign investments involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and changes in exchange control regulations (i.e., currently blockage). A decline in the exchange rate of the currency (i.e., weakening of the currency against the U.S. dollar) in which a portfolio security is quoted or denominated relative to the U.S. dollar would reduce the value of the portfolio security. Brokerage commissions, custodial services and other costs relating to investment in international securities markets generally are more expensive than in the United States. Clearance and settlement procedures may be different in foreign countries and, in certain markets, such procedures have been unable to keep pace with the volume of securities transactions, thus making it difficult to conduct such transactions. Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to U.S. Issuers. There may be less publicly available information about a foreign issuer than about a U.S. issuer. In addition, there is generally less government regulation of foreign markets, companies and securities dealers than in the United States. Foreign securities markets may have substantially less volume than U.S. securities markets and securities of many foreign issuers are less liquid and more volatile then securities of comparable domestic issuers. The Fund may hold foreign securities which trade on days when the Fund does not sell shares. As a result, the value of the Fund's portfolio securities may change on days an investor may not be able to purchase or redeem Fund shares. With respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on dividend or interest payments (or, in some cases, capital gains), limitations on the removal of funds or other assets of the Fund, and political or social instability or diplomatic developments which could affect investments in those countries. HIGH YIELD DEBT SECURITIES. High yield debt securities or "junk bonds" are rated BB/Ba or lower and typically pay a higher yield than investment grade debt securities. These bonds have a higher risk of default than investment grade 4 bonds and their prices can be much more volatile. The Fund will not invest more than 5% of its assets in high yield debt securities. In general, the market for lower-rated, high-yield bonds is more limited than the market for higher-rated bonds, and because trading in such bonds may be thinner and less active, the market prices of such bonds may fluctuate more than the prices of higher-rated bonds, particularly in times of market stress. In addition, while the market for high-yield, corporate debt securities has been in existence for many years, the market in recent years experienced a dramatic increase in the large-scale use of such securities to fund highly-leveraged corporate acquisitions and restructurings. Accordingly, past experience may not provide an accurate indication of future performance of the high-yield bond market, especially during periods of economic recession. Other risks which may be associated with lower-rated, high-yield bonds include their relative insensitivity to interest-rate changes; the exercise of any of their redemption or call provisions in a declining market which may result in their replacement by lower-yielding bonds; and legislation, from time to time, which may adversely affect their market. Since the risk of default is higher among lower-rated, high-yield bonds, Lord Abbett's research and analyses are an important ingredient in the selection of such bonds. Through portfolio diversification, good credit analysis and attention to current developments and trends in interest rates and economic conditions, investment risk can be reduced, although there is no assurance that losses will not occur. The Fund does not have any minimum rating criteria applicable to the fixed-income securities in which it invests. PORTFOLIO SECURITIES LENDING. The Fund may lend securities to broker-dealers and financial institutions as a means of earning income. This practice could result in a loss or delay in recovering the Fund's securities, if the borrower defaults. The Fund will limit its securities loans to 30% of its total assets and all loans will be fully collateralized. COVERED CALL OPTIONS. We may write covered call options which are traded on a national securities exchange with respect to securities in our portfolio in an attempt to increase our income and to provide greater flexibility in the disposition of our portfolio securities. A "call option" is a contract sold for a price (the "premium") giving its holder the right to buy a specific number of shares of stock at a specific price prior to a specified date. A "covered call option" is a call option issued on securities already owned by the writer of the call option for delivery to the holder upon the exercise of the option. During the period of the option, we forgo the opportunity to profit from any increase in the market price of the underlying security above the exercise price of the option (to the extent that the increase exceeds our net premium). We also may enter into "closing purchase transactions" in order to terminate our obligation to deliver the underlying security (this may result in a short-term gain or loss). A closing purchase transaction is the purchase of a call option (at a cost which may be more or less than the premium received for writing the original call option) on the same security, with the same exercise price and call period as the option previously written. If we are unable to enter into a closing purchase transaction, we may be required to hold a security that we might otherwise have sold to protect against depreciation. We do not intend to write covered call options with respect to securities with an aggregate market value of more than 10% of our gross assets at the time an option is written. This percentage limitation will not be increased without prior disclosure in our current Prospectus. 3. MANAGEMENT OF THE FUND The Board of Directors of the Fund is responsible for the management of the business and affairs of the Fund. The following Director is the managing partner of Lord, Abbett & Co. ("Lord Abbett"), 90 Hudson Street, Jersey City, New Jersey 07302-3973. He has been associated with Lord Abbett for over five years and is an officer, director or trustee of twelve other Lord Abbett-sponsored funds. *ROBERT S. DOW, Chairman and President, Age 55 *Mr. Dow is an "interested person" as defined in the Act. The following outside Directors are also directors or trustees of twelve other Lord Abbett-sponsored funds referred to above. E. THAYER BIGELOW, DIRECTOR Bigelow Media, LLC 717 Fifth Avenue, 26th Floor 5 New York, New York Managing General Partner, Bigelow Media, LLC (since 2000); Senior Adviser, Time Warner Inc. (1998-2000); Acting Chief Executive Officer of Courtroom Television Network (1997-1998); President and Chief Executive Officer of Time Warner Cable Programming, Inc. (1991-1997). Currently serves as director of Crane Co. and Huttig Building Products Inc.. Age 59. WILLIAM H.T. BUSH, DIRECTOR Bush-O'Donnell & Co., Inc. 101 South Hanley Road, Suite 1025 St. Louis, Missouri Co-founder and Chairman of the Board of the financial advisory firm of Bush-O'Donnell & Company (since 1986). Currently serves as director of Rightchoice Managed Care, Inc., Mississippi Valley Bancorp, DT Industries Inc., and Engineered Support Systems, Inc. Age 62. ROBERT B. CALHOUN, JR., DIRECTOR Monitor Clipper Partners 650 Madision Avenue, 9th Floor New York, New York Managing Director of Monitor Clipper Partners (since 1997) and President of The Clipper Group L.P., both private equity investment funds (since 1990). Currently serves as director of Avondale, Inc., Interstate Bakeries Corp., and Travel Center of America, Inc. Age 58. STEWART S. DIXON, DIRECTOR Wildman, Harrold, Allen & Dixon 225 W. Wacker Drive (Suite 2800) Chicago, Illinois Partner in the law firm of Wildman, Harrold, Allen & Dixon (since 1990). Age 70. FRANKLIN W. HOBBS, DIRECTOR 720 Park Avenue, #8B New York, New York Chairman of Warburg Dillon Read (1999-2000); Global Head of Corporate Finance of SBC Warburg Dillon Read (1997-1999); and Chief Executive Officer of Dillon, Read & Co. (1994-1997). Age 53. C. ALAN MACDONALD, DIRECTOR 415 Round Hill Road Greenwich, Connecticut President of Club Management Co., LLC, consultants on golf development management (since 1999); Managing Director of The Directorship Inc., a consultancy in board management and corporate governance (1997-1999); General Partner of The Marketing Partnership, Inc., a full service marketing consulting firm (1995-1997). Currently serves as director of Fountainhead Water Company, Careside, Inc., Lincoln Snacks, Samco Funds, Inc. and J.B. Williams Co., Inc.. Age 67. THOMAS J. NEFF, DIRECTOR Spencer Stuart, U.S. 277 Park Avenue New York, New York 6 Chairman of Spencer Stuart, U.S., an executive search consulting firm (since 1976). Currently serves as director of Ace, Ltd. and Exult, Inc. Age 63. COMPENSATION DISCLOSURE The following table summarizes the compensation for each of the Directors/Trustees for the Fund and for all Lord Abbett-sponsored funds. The second column of the following table sets forth the compensation accrued by the Fund for outside Directors. The third column sets forth information with respect to the benefits accrued by all Lord Abbett-sponsored funds for outside directors/trustees under the Fund's retirement plans, which were terminated effective October 31, 2000. The fourth column sets forth the total compensation paid by all Lord Abbett-sponsored funds to the outside directors/trustees, and amounts payable but deferred at the option of the director/trustee, but does not include amounts accrued under the third column. No director/trustee of the funds associated with Lord Abbett and no officer of the funds received any compensation from the funds for acting as a director/trustee or officer.
For the Fiscal Year Ended October 31, 2000 ------------------------------------------ (1) (2) (3) (4) Equity-Based For Year Ended Retirement Benefits December 31, 2000 Accrued by the Total Compensation Paid Aggregate Fund and Twelve by the Fund and Compensation Other Lord Twelve Other Lord Accrued by Abbett-sponsored Abbett-sponsored Name of Director the Fund(1) Funds(2) Funds(3) - ---------------- ------------ -------------------- ------------------------ E. Thayer Bigelow $28,596 $19,491 $60,000 William H. T. Bush $28.719 $16,396 $60,500 Stewart S. Dixon $29,749 $35,872 $62,900 Robert B. Calhoun, Jr. $28,838 $12,530 $61,000 Franklin W. Hobbs* none none none C. Alan MacDonald $28,245 $29,308 $59,500 Thomas J. Neff $29,166 $21,765 $61,200
*Elected effective December 14, 2000. 1. Outside directors'/trustees' fees, including attendance fees for board and committee meetings, are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. A portion of the fees payable by the Fund to its outside directors/trustees may be deferred at the option of a director/trustee under an equity-based plan ("equity-based plan") that deems the deferred amounts to be invested in shares of the Fund for later distribution to the directors/trustees. Effective November 1, 2000, each director/trustee will receive an additional annual $25,000 retainer, the full amount of which must be deferred under that plan. The amounts ultimately received by the directors/trustees under the plan will be directly linked to the investment performance of the funds. The amounts of the aggregate compensation payable by the Fund as of October 31, 2000 deemed invested in fund shares, including dividends reinvested and changes in net asset value applicable to such deemed investments were: Mr. Bigelow, $240,119; Mr. Bush, $9,065; Mr. Calhoun, $81,217; Mr. Dixon, $388,367; Mr. MacDonald, $485,957 and Mr. Neff, $787,997. 2. The amounts in Column 3 were accrued by the Lord Abbett-sponsored funds for the twelve months ended October 31, 2000. In 1996, the equity-based plans superseded a previously approved retirement plan for all directors/trustees, although accruals continued under the retirement plan until October 31, 2000. All of the current outside directors/trustees elected to convert their accrued benefits under the retirement plan. 7 3. This column shows aggregate compensation, including directors/trustees' fees and attendance fees for board and committee meetings, of a nature referred to in footnote one, accrued by the Lord Abbett-sponsored funds during the year ended December 31, 2000, including fees directors'/trustees' have chosen to defer, but does not include amounts accrued under the equity-based plan and shown in Column 3. --------------------------------------- Except where indicated, the following executive officers of the Fund have been associated with Lord Abbett for over five years. Of the following, Ms. Binstock, Messrs. Carper, Hilstad, Hudson, Morris, Salzmann are partners of Lord Abbett; the others are employees. None have received compensation from the Fund. EXECUTIVE VICE PRESIDENT: W. Thomas Hudson, Jr., age 59 Robert G. Morris, age 56 Eli M. Salzmann, age 36 (with Lord Abbett since 1997, formerly a Portfolio Manager, Analyst at Mutual of America from 1996 to 1997, prior thereto Vice President at Mitchell Hutchins Asset Management) VICE PRESIDENTS: Paul A. Hilstad, age 58, Vice President and Secretary Joan A. Binstock, age 46 (with Lord Abbett since 1999, formerly Chief Operating Officer of Morgan Grenfell from 1996 to 1999, prior thereto Principal of Ernst & Young LLP) Daniel E. Carper, age 49 Stan Dinsky, age 56 (with Lord Abbett since 2000, formerly Managing Director of Prudential Asset Management from 1997 to 2000, prior thereto Director of Equity Research and Senior Vice President of Mitchell Hutchins Asset Management from 1987 to 1997) Lawrence H. Kaplan, age 44 (with Lord Abbett since 1997, formerly Vice President and Chief Counsel of Salomon Brothers Asset Management Inc. from 1995 to 1997) A.Edward Oberhaus III, age 41 Tracie E. Richter, age 33 (with Lord Abbett since 1999, formerly Vice President - - Head of Fund Administration of Morgan Grenfell from 1998 to 1999, Vice President of Bankers Trust from 1996 to 1998, prior thereto Tax Associate of Goldman Sachs) Christina T. Simmons, age 43 (with Lord Abbett since 1999, formerly Assistant General Counsel of Prudential Investments from 1998 to 1999, prior thereto Counsel of Drinker, Biddle & Reath LLP, a law firm, from 1985 to 1998) TREASURER: Francie W. Tai, age 35 (with Lord Abbett since 2000, formerly Manager of Goldman Sachs from 1997 to 2000, prior thereto Assistant Vice President of Bankers Trust from 1994 to 1997) CODE OF ETHICS The directors, trustees and officers of Lord Abbett-sponsored funds, together with the partners and employees of Lord Abbett, are permitted to purchase and sell securities for their personal investment accounts. In engaging in personal securities transactions, however, such persons are subject to requirements and restrictions contained in the Fund's Code of Ethics (the "Code") which complies, in substance, with each of the recommendations of the Investment Company Institute's Advisory Group on Personal Investing. Among other things, the Code requires that Lord Abbett partners and employees obtain advance approval before buying or selling securities, submit confirmations and quarterly transaction reports, and obtain approval before becoming a director of any company; and it prohibits such persons from investing in a security 7 days before or after any Lord Abbett-sponsored fund or Lord Abbett-managed account considers a trade 8 or trades in such security, prohibiting profiting on trades of the same security within 60 days and trading on material and non-public information. The Code imposes certain similar requirements and restrictions on the independent directors and trustees of each Lord Abbett-sponsored fund to the extent contemplated by the recommendations of such Advisory Group. 4. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of February 15, 2001, the Fund's officers and directors, as a group, owned less than 1% of our outstanding shares and other than Lord Abbett Distributor and other institutional broker-dealers for the benefit of their clients, there were no record holders of 5% or more of a particular class of the Fund's outstanding shares. 5. INVESTMENT ADVISORY AND OTHER SERVICES INVESTMENT MANAGER As described under "Management" in the Prospectus, Lord Abbett is the Fund's investment manager. Of the general partners of Lord Abbett, the following are officers and/trustees of the Fund: Joan A. Binstock, Daniel E. Carper, Robert S. Dow, Paul A. Hilstad, W. Thomas Hudson, Jr., Robert G. Morris, and Eli M. Salzmann. The other partners are: Stephen I. Allen, Zane E. Brown, John E. Erard, Robert P. Fetch, Daria L. Foster, Robert I. Gerber, Stephen J. McGruder, Michael B. McLaughlin, Robert J. Noelke, R. Mark Pennington and Christopher J. Towle. The address of each partner is 90 Hudson Street, Jersey City, New Jersey 07302-3973. Under the Management Agreement between Lord Abbett and the Affiliated Fund, the Fund is obligated to pay Lord Abbett a monthly fee, based on average daily net assets for each month as follows: .50 of 1% on the first $200 million in assets; .40 of 1% on the next $300 million; .375 of 1% on the next $200 million; .35 of 1% on the next $200 million; and .30 of 1% on the Fund's assets over $900 million. This fee is allocated among Class A, B , C and P based on the classes' proportionate shares of such average daily net assets. The Fund pays all expenses not expressly assumed by Lord Abbett, including, without limitation 12b-1 expenses, outside directors' fees and expenses, association membership dues, legal and auditing fees, taxes, transfer and dividend disbursing agent fees, shareholder servicing costs, expenses relating to shareholder meetings, expenses of preparing, printing and mailing stock certificates and shareholder reports, expenses of registering its shares under federal and state securities laws, expenses of preparing, printing and mailing prospectuses to existing shareholders, insurance premiums, brokerage and other expenses connected with executing portfolio transactions. For the fiscal years ended October 31, 2000, 1999, and 1998, the management fees paid to Lord Abbett by the Fund amounted to $32,372,356, $26,317,934, and $22,192,209 respectively. PRINCIPAL UNDERWRITER Lord Abbett Distributor LLC , a New York limited liability company and subsidiary of Lord Abbett, 90 Hudson Street, Jersey City, New Jersey 07302-3973, serves as the principal underwriter for the Fund. CUSTODIAN The Bank of New York ("BNY"), 1 Wall Street, New York, New York, 10286, is the Fund's custodian. BNY may appoint domestic and foreign sub-custodians from time to time to hold certain securities purchased by the Fund in foreign countries and to hold cash and currencies for the Fund. In accordance with the requirements of Rule 17f-5, the Fund's Board of Directors have approved arrangements permitting the Fund's foreign assets not held by BNY or its foreign branches to be held by certain qualified foreign banks and depositories. 9 TRANSFER AGENT UMB, N.A., 928 Grand Blvd., Kansas City, Missouri, 64106, acts as the transfer agent and dividend disbursing agent for the Fund. INDEPENDENT AUDITORS Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281, are the independent auditors of the Fund and must be approved at least annually by the Fund's Board of Directors to continue in such capacity. Deloitte & Touche LLP perform audit services for the Fund, including the examination of financial statements included in the Fund's Annual Report to Shareholders. 6. BROKERAGE ALLOCATIONS AND OTHER PRACTICES The Fund's policy is to obtain best execution on all our portfolio transactions, which means that it seeks to have purchases and sales of portfolio securities executed at the most favorable prices, considering all costs of the transaction including brokerage commissions and dealer markups and markdowns and brokerage commissions and taking into account the full range and quality of the brokers' services. Consistent with obtaining best execution, the Fund generally pays, as described below, a higher commission than some brokers might charge on the same transaction. This policy with respect to best execution governs the selection of brokers or dealers and the market in which the transaction is executed. To the extent permitted by law, we may, if considered advantageous, make a purchase from or sale to another Lord Abbett-sponsored fund without the intervention of any broker-dealer. Broker-dealers are selected on the basis of their professional capability and the value and quality of their brokerage and research services. Normally, the selection is made by traders who are employees of Lord Abbett. These traders do the trading as well for other accounts, investment companies and other investment clients, managed by Lord Abbett. They are responsible for obtaining best execution. We pay a brokerage commission rate that we believe is appropriate to give maximum assurance that our brokers will provide us, on a continuing basis, the highest level of brokerage services available. While we do not always seek the lowest possible commissions on particular trades, we believe that our commission rates are in line with the rates that many other institutions pay. Our traders are authorized to pay brokerage commissions in excess of those that other brokers might accept on the same transactions in recognition of the value of the services performed by the executing brokers, viewed in terms of either the particular transactions or the overall responsibilities of Lord Abbett with respect to us and the other accounts they manage. Such services include showing us trading opportunities including blocks, a willingness and ability to take positions in securities, knowledge of a particular security or market proven ability to handle a particular type of trade, confidential treatment, promptness and reliability. Some of these brokers also provide research services at least some of which are useful to Lord Abbett in their overall responsibilities with respect to us and the other accounts they manage. Research includes the furnishing of analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts and trading equipment and computer software packages, acquired from third-party suppliers, that enable Lord Abbett to access various information bases. Such services may be used by Lord Abbett in servicing all their accounts, and not all of such services will necessarily be used by Lord Abbett in connection with their management of the Fund. Conversely, such services furnished in connection with brokerage on other accounts managed by Lord Abbett may be used in connection with their management of the Fund, and not all of such services will necessarily be used by Lord Abbett in connection with their advisory services to such other accounts. We have been advised by Lord Abbett that research services received 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. 10 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 Lord Abbett-sponsored funds to purchase or sell portfolio securities. When in the opinion of Lord Abbett, two or more broker-dealers (either directly or through their correspondent clearing agents) are in a position to obtain the best price and execution, preference may be given to brokers who have sold shares of the Fund and/or shares of other Lord Abbett-sponsored funds, or who have provided investment research, statistical, or other related services to the Fund. If other clients of Lord Abbett buy or sell the same security at the same time as a Lord Abbett-sponsored fund does, transactions will, to the extent practicable, be allocated among all participating accounts in proportion to the amount of each order and will be executed daily until filled so that each account shares the average price and commission cost of each day. Other clients who direct that their brokerage business be placed with specific brokers or who invest through wrap accounts introduced to Lord Abbett by certain brokers may not participate with a Lord Abbett-sponsored 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 a Lord Abbett-sponsored fund does, they may have their transactions executed at times different from our transactions and thus may not receive the same price or incur the same commission cost as a Lord Abbett-sponsored fund does. For the fiscal years ended October 31, 2000, 1999, and 1998, the Fund paid total commissions to independent dealers of $13,129,004, $11,088,462, and $12,832,030, respectively. 7. CAPITAL STOCK AND OTHER SECURITIES CLASSES OF SHARES. The Fund offers Class A, B, C or P shares as described in the Prospectus. The different classes of shares represent investments in the same portfolio of securities but are subject to different expenses and will likely have different share prices. All shares have equal noncumulative voting rights and equal rights with respect to dividends, assets and liquidation, except for certain class-specific expenses. They are fully paid and nonassessable when issued and have no preemptive or conversion rights. Additional classes or funds may be added in the future. The Act requires that where more than one class or fund exists, each class or fund must be preferred over all other classes or funds in respect of assets specifically allocated to such class or fund. Rule 18f-2 under the Act provides that any matter required to be submitted, by the provisions of the Act or applicable state law or otherwise, to the holders of the outstanding voting securities of an investment company such as the Fund shall not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares of each class affected by such matter. Rule 18f-2 further provides that a class shall be deemed to be affected by a matter unless the interests of each class or fund in the matter are substantially identical or the matter does not affect any interest of such class or fund. However, the Rule exempts the selection of independent public accountants, the approval of a contract with a principal underwriter and the election of directors from the separate voting requirements. The Fund's By-Laws provide that the Fund shall not hold a meeting of its stockholders in any year unless one or more matters are required to be acted on by stockholders under the Act, or unless called by a majority of the Board of Directors or by stockholders holding at least one quarter of the stock of the Fund outstanding and entitled to vote at the meeting. When any such meeting is held, the stockholders will elect directors and vote on the approval of the independent auditors of the Fund. CLASS A SHARES. If you buy Class A shares, you pay an initial sales charge on investments of less than $1 million (or on investments for employer-sponsored retirement plans under the Internal Revenue Code (hereinafter referred to as "Retirement Plans") with less than 100 eligible employees or on investments that do not qualify to be under a "special retirement wrap program" as a program sponsored by an authorized institution showing one or more characteristics distinguishing it, in the opinion of Lord Abbett Distributor from a mutual fund wrap fee program). If you purchase Class A shares as part of an investment of at least $1 million (or for Retirement Plans with at least 100 eligible employees or 11 under a special retirement wrap program) in shares of one or more Lord Abbett-sponsored funds, you will not pay an initial sales charge, but if you redeem any of those shares within 24 months after the month in which you buy them, you may pay to the Fund a contingent deferred sales charge ("CDSC") of 1% except for redemptions under a special retirement wrap program. The initial sales charge rates, the CDSC and the Rule 12b-1 plan applicable to the Class A shares are described in the Fund's prospectus. CLASS B SHARES. If you buy Class B shares, you pay no sales charge at the time of purchase, but if you redeem your shares before the sixth anniversary of buying them, you will normally pay a CDSC to Lord Abbett Distributor. That CDSC varies depending on how long you own shares. Class B shares are subject to service and distribution fees at an annual rate of 1% of the annual net asset value of the Class B shares. The CDSC and the Rule 12b-1 plan applicable to the Class B shares are described in the Fund's prospectus. CONVERSIONS OF CLASS B SHARES. The conversion of Class B shares on the eighth anniversary of their purchase is subject to the continuing availability of a private letter ruling from the Internal Revenue Service, or an opinion of counsel or tax adviser, to the effect that the conversion of Class B shares does not constitute a taxable event for the holder under Federal income tax law. If such a revenue ruling or opinion is no longer available, the automatic conversion feature may be suspended, in which event no further conversions of Class B shares would occur while such suspension remained in effect. Although Class B shares could then be exchanged for Class A shares on the basis of relative net asset value of the two classes, without the imposition of a sales charge or fee, such exchange could constitute a taxable event for the holder. CLASS C SHARES. If you buy Class C shares, you pay no sales charge at the time of purchase, but if you redeem your shares before the first anniversary of buying them, you will normally pay the Fund a CDSC of 1%. Class C shares are subject to service and distribution fees at an annual rate of 1% of the annual net asset value of the Class C shares. The CDSC and the Rule 12b-1 plan applicable to the C shares are described in the Fund's prospectus. CLASS P SHARES. If you buy Class P shares, you pay no sales charge at the time of purchase, and if you redeem your shares you pay no CDSC. Class P shares are subject to service and distribution fees at an annual rate of .45 of 1% of the average daily net asset value of the Class P shares. The Rule 12b-1 plan applicable to the Class P shares is described in the Fund's prospectus. Class P shares are available to a limited number of investors. RULE 12b-1 PLANS. CLASS A, B, C AND P. As described in the Prospectus, the Fund has adopted a Distribution Plan and Agreement pursuant to Rule 12b-1 of the Act for each of the three Fund Classes: the "A Plan", the "B Plan" and the "C Plan", respectively. In adopting each Plan and in approving its continuance, the Board of Directors has concluded that there is a reasonable likelihood that each Plan will benefit its respective class and such class' shareholders. The expected benefits include greater sales and lower redemptions of class shares, which should allow each class to maintain a consistent cash flow, and a higher quality of service to shareholders by authorized institutions than would otherwise be the case. Lord Abbett uses amounts received under the A, B and C Plans for payments to dealers for (i) providing continuous services to the shareholders, such as answering shareholder inquiries, maintaining records, and assisting shareholders in making redemptions, transfers, additional purchases and exchanges and (ii) their assistance in distributing shares of the Fund. Each Plan requires the Board of Directors to review, on a quarterly basis, written reports of all amounts expended pursuant to the Plan and the purposes for which such expenditures were made. Each Plan shall continue in effect only if its continuance is specifically approved at least annually by vote of the Directors, including a majority of the Directors who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan ("outside directors"), cast in person at a meeting called for the purpose of voting on the Plan. No Plan may be amended to increase materially above the limits set forth therein the amount spent for distribution expenses thereunder without approval by a majority of the outstanding voting securities of the applicable class and the approval of a majority of the directors, including a majority of the outside directors. Each Plan may be terminated at any time by vote of a majority of the outside directors or by vote of a majority of its class's outstanding voting securities. CONTINGENT DEFERRED SALES CHARGES. A Contingent Deferred Sales Charge ("CDSC") applies upon early redemption 12 of shares regardless of class, and (i) will be assessed on the lesser of the net asset value of the shares at the time of redemption or the original purchase price and (ii) will not be imposed on the amount of your account value represented by the increase in net asset value over the initial purchase price (including increases due to the reinvestment of dividends and capital gains distributions) and upon early redemption of shares. In the case of Class A shares, this increase is represented by shares having an aggregate dollar value in you account. In the case of Class B and Class C shares, this increase is represented by that percentage of each share redeemed where the net asset value exceeded the initial purchase price. CLASS A SHARES. As stated in the Prospectus, subject to certain exceptions, a CDSC of 1% is imposed with respect to those Class A shares (or Class A shares of another Lord Abbett-sponsored fund or series acquired through exchange of such shares) on which the Fund has paid the one-time distribution fee of 1% if such shares are redeemed out of the Lord Abbett-sponsored fund within a period of 24 months from the end of the month in which the original sale occurred. CLASS B SHARES. As stated in the Prospectus, subject to certain exceptions, if Class B shares (or Class B shares of another Lord Abbett-sponsored fund or series acquired through exchange of such shares) are redeemed out of the Lord Abbett-sponsored funds for cash before the sixth anniversary of their purchase, a CDSC will be deducted from the redemption proceeds. The Class B CDSC is paid to Lord Abbett Distributor to reimburse its expenses, in whole or in part, for providing distribution-related service to the Fund in connection with the sale of Class B shares. To minimize the effects of the CDSC or to determine whether the CDSC applies to a redemption, the Fund redeems shares in the following order: (1) shares acquired by reinvestment of income and capital gains distributions, (2) shares held on or after the sixth anniversary of their purchase, and (3) shares held the longest before such sixth anniversary. The amount of the CDSC will depend on the number of years since you invested and the dollar amount being redeemed, according to the following schedule:
Anniversary of the Day on Contingent Deferred Sales Charge Which the Purchase Order Was Accepted on Redemptions (As % of Amount Subject to Charge) Before the 1st............................................5.0% On the 1st, before the 2nd................................4.0% On the 2nd, before the 3rd................................3.0% On the 3rd, before the 4th................................3.0% On the 4th, before the 5th................................2.0% On the 5th, before the 6th ...............................1.0% On or after the 6th anniversary...........................None
In the table, an "anniversary" is the same calendar day in each respective year after the date of purchase. For example, the anniversaries for shares purchased on May 1 will be May 1 of each succeeding year. All purchases are considered to have been made on the business day on which the purchase order was accepted. CLASS C SHARES. As stated in the Prospectus, subject to certain exceptions, if Class C shares are redeemed for cash before the first anniversary of their purchase, the redeeming shareholder normally will be required to pay to the Fund on behalf of Class C shares a CDSC of 1% of the lower of cost or the then net asset value of Class C shares redeemed. If such shares are exchanged into the same class of another Lord Abbett-sponsored fund and subsequently redeemed before the first anniversary of their original purchase, the charge will be collected by the other fund on behalf of this Fund's Class C shares. GENERAL. The percentage (1% in the case of Class A and C shares and 5% through 1% in the case of Class B shares) used to calculate CDSCs described above for the Class A, Class B and Class C shares is sometimes hereinafter referred to as the "Applicable Percentage". With respect to Class A and Class B shares, no CDSC is payable on redemptions by participants or beneficiaries from employer-sponsored retirement plans under the Internal Revenue Code for benefit payments due to plan loans, hardship withdrawals, death, retirement or separation from service and for returns of excess contributions to retirement plan 13 sponsors. With respect to Class A shares purchased pursuant to a special retirement wrap program, no CDSC is payable on redemptions which continue or investments in another fund participating in the program. With respect to Class B shares, no CDSC is payable for redemptions (i) in connection with Systematic Withdrawal Plan and Div-Move services as described below under those headings, (ii) in connection with mandatory distribution under 403(b) plans and IRAs and (iii) in connection with death of the shareholder. In the case of Class A and Class C shares, the CDSC is received by the Fund and is intended to reimburse all or a portion of the amount paid by the Fund if the shares are redeemed before the Fund has had an opportunity to realize the anticipated benefits of having a long-term shareholder account in the Fund. In the case of Class B shares, the CDSC is received by Lord Abbett Distributor and is intended to reimburse its expenses of providing distribution-related service to the Fund (including recoupment of the commission payments made) in connection with the sale of Class B shares before Lord Abbett Distributor has had an opportunity to realize its anticipated reimbursement by having such a long-term shareholder account subject to the B Plan distribution fee. In no event will the amount of the CSDC exceed the Applicable Percentage of the lesser of (i) the net asset value of the shares redeemed or (ii) the original cost of such shares (or of the Exchanged Shares for which such shares were acquired). No CDSC will be imposed when the investor redeems (i) shares representing an aggregate dollar amount of you account, in the case of Class A shares, (ii) that percentage of each share redeemed, in the case of Class B and C shares, derived from increases in the value of the shares above the total cost of shares being redeemed due to increases in net asset value, (iii) shares with respect to which no Lord Abbett fund paid a 12b-1 fee and, in the case of Class B shares, Lord Abbett Distributor paid no sales chare or service fee (including shares acquired through reinvestment of dividend income and capital gains distributions) or (iv) shares which, together with Exchanged Shares, have been held continuously for 24 months from the end of the month in which the original sale occurred (in the case of Class A shares); for six years or more (in the case of Class B shares) and for one year or more (in the case of Class C shares). In determining whether a CDSC is payable, (a) shares not subject to the CDSC will be redeemed before shares subject to the CDSC and (b) of the shares subject to a CDSC, those held the longest will be the first to be redeemed. WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an appropriate investment for you, the decision as to which class of shares is better suited to your needs depends on a number of factors which you should discuss with your financial adviser. The Fund's class-specific expenses and the effect of the different types of sales charges on your investment will affect your investment results over time. The most important factors are how much you plan to invest and how long you plan to hold your investment. If your goals and objectives change over time and you plan to purchase additional shares, you should re-evaluate those factors to see if you should consider another class of shares. In the following discussion, to help provide you and your financial adviser with a framework in which to choose a class, we have made some assumptions using a hypothetical investment in the Fund. We used the sales charge rates that apply to Class A, Class B and Class C, and considered the effect of the higher distribution fees on Class B and Class C expenses (which will affect your investment return). Of course, the actual performance of your investment cannot be predicted and will vary, based on the Fund's actual investment returns, the operating expenses borne by each class of shares, and the class of shares you purchase. The factors briefly discussed below are not intended to be investment advice, guidelines or recommendations, because each investor's financial considerations are different. The discussion below of the factors to consider in purchasing a particular class of shares assumes that you will purchase only one class of shares and not a combination of shares of different classes. HOW LONG DO YOU EXPECT TO HOLD YOUR INVESTMENT? While future financial needs cannot be predicted with certainty, knowing how long you expect to hold your investment will assist you in selecting the appropriate class of shares. For example, over time, the reduced sales charges available for larger purchases of Class A shares may offset the effect of paying an initial sales charge on your investment, compared to the effect over time of higher class-specific expenses on Class B or Class C shares for which no initial sales charge is paid. Because of the effect of class-based expenses, your choice should also depend on how much you plan to invest. INVESTING FOR THE SHORT TERM. If you have a short-term investment horizon (that is, you plan to hold your shares for not more than six years), you should probably consider purchasing Class A or Class C shares rather than Class B shares. This is because of the effect of the Class B CDSC if you redeem before the sixth anniversary of your purchase, as well as the effect of the Class B distribution fee on the investment return for that class in the short term. Class C shares might 14 be the appropriate choice (especially for investments of less than $100,000), because there is no initial sales charge on Class C shares, and the CDSC does not apply to amounts you redeem after holding them one year. However, if you plan to invest more than $100,000 for the short term, then the more you invest and the more your investment horizon increases toward six years, the more attractive the Class A share option may become. This is because the annual distribution fee on Class C shares will have a greater impact on your account over the longer term than the reduced front-end sales charge available for larger purchases of Class A shares. For example, Class A might be more appropriate than Class C for investments of more than $100,000 expected to be held for 5 or 6 years (or more). For investments over $250,000 expected to be held 4 to 6 years (or more), Class A shares may become more appropriate than Class C. If you are investing $500,000 or more, Class A may become more desirable as your investment horizon approaches 3 years or more. For most investors who invest $1 million or more or for Retirement Plans with at least 100 eligible employees or for investments pursuant to a special retirement wrap program, in most cases Class A shares will be the most advantageous choice, no matter how long you intend to hold your shares. For that reason, it may not be suitable for you to place a purchase order for Class B shares of $500,000 or more or a purchase order for Class C shares of $1,000,000 or more. In addition, it may not be suitable for you to place an order for Class B or C shares for a Retirement Plan with at least 100 eligible employees or for a special retirement wrap program. You should discuss this with your financial advisor. INVESTING FOR THE LONGER TERM. If you are investing for the longer term (for example, to provide for future college expenses for your child) and do not expect to need access to your money for seven years or more, Class B shares may be an appropriate investment option, if you plan to invest less than $100,000. If you plan to invest more than $100,000 over the long term, Class A shares will likely be more advantageous than Class B shares or Class C shares, as discussed above, because of the effect of the expected lower expenses for Class A shares and the reduced initial sales charges available for larger investments in Class A shares under the Fund's Rights of Accumulation. ARE THERE DIFFERENCES IN ACCOUNT FEATURES THAT MATTER TO YOU? Some account features are available in whole or in part to Class A, Class B and Class C shareholders. Other features (such as Systematic Withdrawal Plans) might not be advisable in non-Retirement Plan accounts for Class B shareholders (because of the effect of the CDSC on the entire amount of a withdrawal if it exceeds 12% annually) and in any account for Class C shareholders during the first year of share ownership (due to the CDSC on withdrawals during that year). See "Systematic Withdrawal Plan" under "Shareholder Services" in the Prospectus for more information about the 12% annual waiver of the CDSC. You should carefully review how you plan to use your investment account before deciding which class of shares you buy. For example, the dividends payable to Class B and Class C shareholders will be reduced by the expenses borne solely by each of these classes, such as the higher distribution fee to which Class B and Class C shares are subject. HOW DOES IT AFFECT PAYMENTS TO MY BROKER? A salesperson, such as a broker, or any other person who is entitled to receive compensation for selling Fund shares may receive different compensation for selling one class than for selling another class. As discussed in more detail below, such compensation is primarily paid at the time of sale in the case of Class A and B shares and is paid over time, so long as shares remain outstanding, in the case of Class C shares. It is important that investors understand that the primary purpose of the CDSC for the Class B shares and the distribution fee for Class B and Class C shares is the same as the purpose of the front-end sales charge on sales of Class A shares: to compensate brokers and other persons selling such shares. The CDSC, if payable, supplements the Class B distribution fee and reduces the Class C distribution fee expenses for the Fund and Class C shareholders. 8. PURCHASES, REDEMPTIONS AND PRICING Information concerning how we value our shares for the purchase and redemption of our shares is described in the Prospectus under "Purchases" and "Redemptions", respectively. As disclosed in the Prospectus, we calculate our net asset value as of the close of the New York Stock Exchange ("NYSE") on each day that the NYSE is open for trading by dividing our total net assets by the number of shares 15 outstanding at the time of calculation. The NYSE is closed on Saturdays and Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. The Fund values its portfolio securities at market value as of the close of the NYSE. Market value will be determined as follows: securities listed or admitted to trading privileges on any national securities exchange are valued at the last sales price, or, if there is no sale on that day, at the mean between the last bid and asked price, or, in the case of bonds, in the over-the-counter market if, in the judgment of the Fund's officers, that market more accurately reflects the market value of the bonds. Over-the-counter securities not traded on the NASDAQ National Market System are valued at the mean between the last bid and asked prices. Securities for which market quotations are not available are valued at fair market value under procedures approved by the Board of Directors. NET ASSET VALUE PURCHASES OF CLASS A SHARES. As stated in the Prospectus, our Class A shares may be purchased at net asset value by our directors, employees of Lord Abbett, employees of our shareholder servicing agent and employees of any securities dealer having a sales agreement with Lord Abbett who consents to such purchases or by the director or custodian under any pension or profit-sharing plan or Payroll Deduction IRA established for the benefit of such persons or for the benefit of employees of any national securities trade organization to which Lord Abbett belongs or any company with an account(s) in excess of $10 million managed by Lord Abbett on a private-advisory-account basis. For purposes of this paragraph, the terms "directors" and "employees" include a director's or employee's spouse (including the surviving spouse of a deceased director or employee). The terms "our directors" and "employees of Lord Abbett" also include retired directors and employees and other family members thereof. Our Class A shares also may be purchased at net asset value (a) at $1 million or more, (b) with dividends and distributions from Class A shares of other Lord Abbett-sponsored funds, except for LARF, LAEF and LASF, (c) under the loan feature of the Lord Abbett-sponsored prototype 403(b) plan for share purchases representing the repayment of principal and interest, (d) by certain authorized brokers, dealers, registered investment advisers or other financial institutions who have entered into an agreement with Lord Abbett Distributor in accordance with certain standards approved by Lord Abbett Distributor, providing specifically for the use of our shares in particular investment products made available for a fee to clients of such brokers, dealers, registered investment advisers and other financial institutions, ("mutual fund wrap fee program"), (e) by employees, partners and owners of unaffiliated consultants and advisors to Lord Abbett, Lord Abbett Distributor or Lord Abbett-sponsored funds who consent to such purchase if such persons provide service to Lord Abbett, Lord Abbett Distributor or such funds on a continuing basis and are familiar with such funds, (f) through Retirement Plans with at least 100 eligible employees, (g) in connection with a merger, acquisition or other reorganization, and (h) through a "special retirement wrap program" sponsored by an authorized institution showing one or more characteristics distinguishing it, in the opinion of Lord Abbett Distributor from a mutual fund wrap program. Such characteristics include, among other things, the fact that an authorized institution does not charge its clients any fee of a consulting or advisory nature that is economically equivalent to the distribution fee under Class A 12b-1 Plan and the fact that the program relates to participant-directed Retirement Plan. Shares are offered at net asset value to these investors for the purpose of promoting goodwill with employees and others with whom Lord Abbett Distributor and/or the Fund has business relationships. The maximum offering price of our Class A shares on October 31, 2000 was computed as follows: Net asset value per share (net assets divided by shares outstanding) ........................................ $16.47 Maximum offering price per share (net asset value divided by .9425) .......................................... $17.47
The net asset value per share for the Class B and Class C shares will be determined in the same manner as for the Class A shares (net assets divided by shares outstanding). Our Class B and Class C shares will be sold at net asset value. EXCHANGES. The Prospectus briefly describes the Telephone Exchange Privilege. You may exchange some or all of your shares of any class for those in the same class of: (i) Lord Abbett-sponsored funds currently offered to the public with 16 a sales charge (front-end, back-end or level ), (ii) GSMMF or (iii) AMMF, to the extent offers and sales may be made in your state. You should read the prospectus of the other fund before exchanging. In establishing a new account by exchange, shares of the Fund being exchanged must have a value equal to at least the minimum initial investment required for the other fund into which the exchange is made. Shareholders in other Lord Abbett-sponsored funds and AMMF have the same right to exchange their shares for the corresponding class of the Fund's shares. Exchanges are based on relative net asset values on the day instructions are received by the Fund in Kansas City if the instructions are received prior to the close of the NYSE in proper form. No sales charges are imposed except in the case of exchanges out of GSMMF or AMMF (unless a sales charge (front-end, back-end or level) was paid on the initial investment in a Lord Abbett-sponsored fund). Exercise of the exchange privilege will be treated as a sale for federal income tax purposes, and, depending on the circumstances, a gain or loss may be recognized. In the case of an exchange of shares that have been held for 90 days or less where no sales charge is payable on the exchange, the original sales charge incurred with respect to the exchanged shares will be taken into account in determining gain or loss on the exchange only to the extent such charge exceeds the sales charge that would have been payable on the acquired shares had they been acquired for cash rather than by exchange. The portion of the original sales charge not so taken into account will increase the basis of the acquired shares. Shareholders have the exchange privilege unless they refuse it in writing. You should not view the exchange privilege as a means for taking advantage of short-term swings in the market, and we reserve the right to terminate or limit the privilege of any shareholder who makes frequent exchanges. We can revoke or modify the privilege for all shareholders upon 60 days' prior notice. "Eligible Funds" are AMMF and other Lord Abbett-sponsored funds which are eligible for the exchange privilege, except Lord Abbett Series Fund ("LASF") which offers its shares only in connection with certain variable annuity contracts and Lord Abbett Equity Fund ("LAEF") which is not issuing shares. The other funds and series which participate in the Telephone Exchange Privilege [except (a) GSMMF, (b) certain series of Lord Abbett Tax-Free Income Fund and Lord Abbett Tax-Free Income Trust for which a Rule 12b-1 Plan is not yet in effect, and (c) AMMF (collectively, the "Non-12b-1 Funds")] have instituted a CDSC for each class on the same terms and conditions. No CDSC will be charged on an exchange of shares of the same class between Lord Abbett funds or between such funds and AMMF. Upon redemption of shares out of the Lord Abbett family of funds or out of AMMF, the CDSC will be charged on behalf of and paid: (i) to the fund in which the original purchase (subject to a CDSC) occurred, in the case of the Class A and Class C shares and (ii) to Lord Abbett Distributor if the original purchase was subject to a CDSC, in the case of the Class B shares. Thus, if shares of a Lord Abbett fund are exchanged for shares of the same class of another such fund and the shares of the same class tendered ("Exchanged Shares") are subject to a CDSC, the CDSC will carry over to the shares of the same class being acquired, including GSMMF and AMMF ("Acquired Shares"). Any CDSC that is carried over to Acquired Shares is calculated as if the holder of the Acquired Shares had held those shares from the date on which he or she became the holder of the Exchanged Shares. Although the Non-12b-1 Funds will not pay a distribution fee on their own shares, and will, therefore, not impose their own CDSC, the Non-12b-1 Funds will collect the CDSC (a) on behalf of other Lord Abbett funds, in the case of the Class A and Class C shares and (b) on behalf of Lord Abbett Distributor, in the case of the Class B shares. Acquired Shares held in GSMMF and AMMF which are subject to a CDSC will be credited with the time such shares are held in GSMMF but will not be credited with the time such shares are held in AMMF. Therefore, if your Acquired Shares held in AMMF qualified for no CDSC or a lower Applicable Percentage at the time of exchange into AMMF, that Applicable Percentage will apply to redemptions for cash from AMMF, regardless of the time you have held Acquired Shares in AMMF. LETTER OF INTENTION. Under the terms of the Letter of Intention as described in the Prospectus you may invest $100,000 or more over a 13-month period in shares of a Lord Abbett-sponsored fund (other than shares of LASF, GSMMF and AMMF, unless holdings in GSMMF and AMMF are attributable to shares exchanged from a Lord Abbett-sponsored fund offered with a front-end, back-end or level sales charge). Shares currently owned by you are credited as purchases (at their current offering prices on the date the Letter is signed) toward achieving the stated investment and reduced initial sales charge for Class A shares. Class A shares valued at 5% of the amount of intended purchases are escrowed and may be redeemed to cover the additional sales charge payable if the Letter of Intention is not completed. The Letter of Intention is neither a binding obligation on you to buy, nor on the Fund to sell, the full amount indicated. 17 RIGHTS OF ACCUMULATION. As stated in the Prospectus, purchasers (as defined in the Prospectus) may accumulate their investment in Lord Abbett-sponsored funds (other than LASF, GSMMF, and AMMF unless holdings in GSMMF or AMMF are attributable to shares exchanged from a Lord Abbett-sponsored fund offered with a front-end, back-end or level sales charge) so that a current investment, plus the purchaser's holdings valued at the current maximum offering price, reach a level eligible for a discounted sales charge for Class A shares. REDEMPTIONS. A redemption order is in proper form when it contains all of the information and documentation required by the order form or supplementary by Lord Abbett Distributor or the Fund to carry out the order. The signature(s) and any legal capacity of the signer(s) must be guaranteed by an eligible guarantor. See the Prospectus for expedited redemption procedures. The right to redeem and receive payment, as described in the Prospectus, may be suspended if the NYSE is closed (except for weekends or customary holidays), trading on the NYSE is restricted or the Securities and Exchange Commission deems an emergency to exist. Our Board of Directors may authorize redemption of all of the shares in any account in which there are fewer than 25 shares. Before authorizing such redemption, the Board must determine that it is in our economic best interest or necessary to reduce disproportionately burdensome expenses in servicing shareholder accounts. At least 6 months prior written notice will be given before any such redemption, during which time shareholders may avoid redemption by bringing their accounts up to the minimum set by the Board. DIV-MOVE. Under the Div-Move service described in the Prospectus, you can invest the dividends paid on your account of any class into an existing account of the same class in any other Eligible Fund. The account must be either your account, a joint account for you and your spouse, a single account for your spouse, or a custodial account for your minor child under the age of 21. You should read the prospectus of the other fund before investing. INVEST-A-MATIC. The Invest-A-Matic method of investing in the Fund and/or any other Eligible Fund is described in the Prospectus. To avail yourself of this method you must complete the application form, selecting the time and amount of your bank checking account withdrawals and the funds for investment, include a voided, unsigned check and complete the bank authorization. SYSTEMATIC WITHDRAWAL PLANS. The Systematic Withdrawal Plan ("SWP") also is described in the Prospectus. You may establish a SWP if you own or purchase uncertificated shares having a current offering price value of at least $10,000. Lord Abbett prototype retirement plans have no such minimum. With respect to a SWP for Class B shares, on redemptions over 12% per year, the CDSC will apply to the entire redemption. Therefore, please contact the Fund for assistance in minimizing the CDSC in this situation. With respect to Class C shares, the CDSC will be waived on and after the first anniversary of their purchase. The SWP involves the planned redemption of shares on a periodic basis by receiving either fixed or variable amounts at periodic intervals. Since the value of shares redeemed may be more or less than their cost, gain or loss may be recognized for income tax purposes on each periodic payment. Normally, you may not make regular investments at the same time you are receiving systematic withdrawal payments because it is not in your interest to pay a sales charge on new investments when in effect a portion of that new investment is soon withdrawn. The minimum investment accepted while a withdrawal plan is in effect is $1,000. The SWP may be terminated by you or by us at any time by written notice. RETIREMENT PLANS. The Prospectus indicates the types of retirement plans for which Lord Abbett provides forms and explanations. Lord Abbett makes available the retirement plan forms and custodial agreements for IRAs (Individual Retirement Accounts, including Simple IRAs and Simplified Employee Pensions), 403(b) plans and qualified pension and profit-sharing plans, including 401(k) plans. The forms name State Street Bank & Trust Company as custodian and contain specific information about the plans. Explanations of the eligibility requirements, annual custodial fees and allowable tax advantages and penalties are set forth in the relevant plan documents. Adoption of any of these plans should be on the advice of your legal counsel or qualified tax adviser. 18 9. TAXATION OF THE FUND The Fund intends to elect and to qualify for special tax treatment afforded regulated investment companies under the Internal Revenue Code of 1986 (the "Code"). If it so qualifies, the Fund (but not its shareholders) will be relieved of federal income taxes on the amount it distributes to shareholders. If in any taxable year any Fund does not qualify as a regulated investment company, all of its taxable income will be taxed to the Fund at regular corporate rates. The Fund contemplates declaring as dividends substantially all of its net investment income. Dividends paid by the Fund from its ordinary income and distributions of its net realized short-term capital gains are taxable to shareholders as ordinary income from dividends. Distributions paid by a Fund from its net realized long-term capital gains are taxable to shareholders as capital gains, regardless of the length of time the shareholder owned shares. All dividends are taxable to shareholders whether received in cash or reinvested in Fund shares. The Fund will send each shareholder annual information concerning the tax treatment of dividends and other distributions. Upon sale, exchange or redemption of shares of the Fund, a shareholder will recognize short- or long-term capital gain or loss, depending upon the shareholder's holding period in the Fund's shares. However, if a shareholder's holding period in his shares is six months or less, any capital loss realized from a sale or exchange of such shares must be treated as long-term capital loss to the extent of dividends classified as "capital gains dividends" received with respect to such shares. The maximum tax rates applicable to net capital gains recognized by individuals and other non- corporate taxpayers are (i) the same as ordinary income rates for capital assets held for one year or less and (ii) 20% for capital assets held for more than one year. Capital gains or losses recognized by corporate shareholders are subject to tax at the ordinary income tax rates applicable to corporations. Losses on the sale of shares are not deductible if, within a period beginning 30 days before the date of the sale and ending 30 days after the date of the sale, the taxpayer acquires shares that are substantially identical. Some shareholders may be subject to a 31% withholding tax on reportable dividends, capital gains distributions and redemption payments ("backup withholding"). Generally, shareholders subject to backup withholding will be those for whom a certified taxpayer identification number is not on file with the applicable Fund or who, to the Fund's knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalties of perjury that such number is correct and that he is not otherwise subject to backup withholding. The writing of call options and other investment techniques and practices which the Fund may utilize may affect the character and timing of the recognition of gains and losses. Such transactions may increase the amount of short-term capital gain realized by the Fund, which is taxed as ordinary income when distributed to shareholders. The Fund may be subject to foreign withholding taxes, which would reduce the yield on its investments. It is generally expected that Fund shareholders who are subject to U.S. federal income tax will not be entitled to claim a federal income tax credit or deduction for foreign income taxes paid by the Fund. The Fund will also be subject to a 4% non-deductible excise tax on certain amounts not distributed or treated as having been distributed on a timely basis each calendar year. The Fund intends to distribute to shareholders each year an amount adequate to avoid the imposition of such excise tax. Dividends paid by the Fund will qualify for the dividends-received deduction for corporations to the extent they are derived from dividends paid by domestic corporations. Corporate shareholders must have held their shares in the Fund for more than 45 days to qualify for the deduction on dividends paid by the Fund. Gain and loss realized by the Fund on certain transactions, including sales of foreign debt securities and certain transactions involving foreign currency, will be treated as ordinary income or loss for federal income tax purposes to the extent, if any, that such gain or loss is attributable to changes in exchange rates for foreign currencies. Accordingly, distributions taxable as ordinary income will include the net amount, if any, of such foreign exchange gain and will be 19 reduced by the net amount, if any, of such foreign exchange loss. If the Fund purchases shares in certain foreign investment entities called "passive foreign investment companies," the Fund may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain from the disposition of such shares, even if such income is distributed as a taxable dividend by the Fund to its shareholders. Additional charges in the nature of interest may be imposed on either the Fund in respect of deferred taxes arising from such distributions or gains. If the Fund were to make a "qualified electing fund" election with respect to its investment in a passive foreign investment company, in lieu of the foregoing requirements, the Fund might be required to include in income each year a portion of the ordinary earnings and net capital gains of the qualified electing fund, even if such amount were not distributed to the Fund. Alternatively, if the Fund were to make a mark-to-market election with respect to its investment in a passive foreign investment company, gain or loss with respect to the investment would generally be considered realized at the end of each taxable year of the Fund, even if the Fund continued to hold the investment and would be treated as ordinary income or loss to the Fund. The foregoing discussion relates solely to U.S. federal income tax law as applicable to U.S. persons (U.S. citizens or residents and United States domestic corporations, partnerships, trusts and estates). Each shareholder who is not a U.S. person should consult his tax adviser regarding the U.S. and foreign tax consequences of the ownership of shares of a Fund, including the applicable rate of U.S. withholding tax on dividends representing ordinary income and net short-term capital gains, and the applicability of U.S. gift and estate taxes. 10. UNDERWRITER The Fund has entered into a distribution agreement with Lord Abbett Distributor LLC, a New York limited liability company ("Lord Abbett Distributor") and subsidiary of Lord Abbett, under which Lord Abbett Distributor is obligated to use its best efforts to find purchasers for the shares of the Fund, and to make reasonable efforts to sell Fund shares so long as, in Lord Abbett Distributor's judgment, a substantial distribution can be obtained by reasonable efforts. Lord Abbett Distributor is obligated to distribute our shares on a best effort basis. Our shares are offered on a continuous basis. For the last three fiscal years, Lord Abbett Distributor, as our principal underwriter, received net commissions after allowance of a portion of the sales charge to independent dealers with respect to Class A shares as follows:
YEAR ENDED OCTOBER 31, 2000 1999 1998 ---- ---- ---- Gross sales charge $16,641,772 $18,730,335 $21,698,908 Amount allowed to dealers $14,174,968 $16,074,161 $18,696,650 ------------ ----------- ----------- Net commissions received by Lord Abbett $2,466,804 $ 2,656,174 $ 3,002,258 =========== =========== ===========
11. PERFORMANCE The Fund computes the average annual compounded rate of total return during specified periods that would equate the initial amount invested to the ending redeemable value of such investment by adding one to the computed average annual total return, raising the sum to a power equal to the number of years covered by the computation and multiplying the result by one thousand dollars, which represents a hypothetical initial investment. The calculation assumes deduction of the maximum sales charge from the initial amount invested and reinvestment of all income dividends and capital gains distributions on the reinvestment dates at prices calculated as stated in the Prospectus. The ending redeemable value is determined by assuming a complete redemption at the end of the period(s) covered by the average 20 annual total return computation. In calculating total returns for Class A shares, the current maximum sales charge of 5.75% (as a percentage of the offering price) is deducted from the initial investment (unless the return is shown at net asset value). For Class B shares, the payment of the applicable CDSC (5.0% prior to the first anniversary of purchase, 4.0% prior to the second anniversary of purchase, 3.0% prior to the third and fourth anniversaries of purchase, 2.0% prior to the fifth anniversary of purchase, 1.0% prior to the sixth anniversary of purchase and no CDSC on and after the sixth anniversary of purchase) is applied to the Fund's investment result for that class for the time period shown (unless the total return is shown at net asset value). For Class C shares, the 1.0% CDSC is applied to the Fund's investment result for that class for the time period shown prior to the first anniversary of purchase (unless the total return is shown at net asset value). Total returns also assume that all dividends and capital gains distributions during the period are reinvested at net asset value per share, and that the investment is redeemed at the end of the period. Using the computation method described above, the Fund's average annual compounded rates of total return for the last one, five and ten fiscal-years ended on October 31, 2000 are as follows: 8.50%, 17.48% and 16.95%, respectively, for the Fund's Class A shares. For the fiscal year ended on October 31, 2000 and for the period since inception, August 1, 1996, the average annual compounded rate of total return 9.42% and 18.30%, respectively, for the Fund's Class B shares. For the fiscal year ended October 31, and for fiscal year ended October 31, 2000 and for the period since inception, August 1, 1996, the average annual compounded rate of total return was 13.49% and 18.57%, respectively, for the Fund's Class C shares. Yield quotation for each Class is based on a 30-day period ended on a specified date, computed by dividing the net investment income per share earned during the period by the maximum offering price per share of such class on the last day of the period. This is determined by finding the following quotient: take the dividends and interest earned during the period for a class minus its expenses accrued for the period and divide by the product of (i) the average daily number of Class shares outstanding during the period that were entitled to receive dividends and (ii) the maximum offering price per share of such class on the last day of the period. To this quotient add one. This sum is multiplied by itself five times. Then one is subtracted from the product of this multiplication and the remainder is multiplied by two. Yield for the Class A shares reflects the deduction of the maximum initial sales charge, but may also be shown based on the Class A net asset value per share. Yields for Class B and C shares do not reflect the deduction of the CDSC. For the 30-day period ended October 31, 2000 the yield for the Class A shares of Fund was 1.25%. These figures represent past performance, and an investor should be aware that the investment return and principal value of a Fund investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Therefore, there is no assurance that this performance will be repeated in the future. The Fund may from time to time quote or otherwise use yield and total return information in advertisements, shareholder reports or sales literature. Thirty-day yield and average annual total return values are computed pursuant to formulas specified by the SEC. The Fund may also from time to time quote distribution rates in reports to shareholders and in sales literature. In addition, the Fund may from time to time advertise or describe in sales literature its performance relative to certain averages, performance rankings, indices, other information prepared by recognized mutual fund statistical services and investment for which reliable performance information is available. 12. FINANCIAL STATEMENTS The financial statements for the fiscal year ended October 31, 2000 and the report of Deloitte & Touche LLP, independent auditors, on such financial statements, included in the 2000 Annual Report to Shareholders of Lord Abbett Affiliated Fund, Inc., are incorporated herein by reference in reliance upon the authority of Deloitte & Touche LLP as experts in auditing and accounting. 21 LORD ABBETT [SIDEBAR] [LORD ABBETT LOGO]-REGISTERED TRADEMARK- AFFILIATED FUND MARCH 1 2001 PROSPECTUS Y-SHARE As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. Class Y shares of the Fund are neither offered to the general public nor available in all states. Please call 800-821-5129 for further information. TABLE OF CONTENTS
The FUND Page What you should know Goal 2 about the Fund Principal Strategy 2 Main Risks 2 Performance 3 Fees and Expenses 4 Your INVESTMENT Information for managing Purchases 5 your Fund account Redemptions 6 Distributions and Taxes 6 Services For Fund Investors 7 Management 7 For More INFORMATION How to learn more Other Investment Techniques 8 about the Fund Glossary of Shaded Terms 9 Recent Performance 9 Financial INFORMATION Financial Highlights 11 Line Graph Comparison 12 How to learn more about Back Cover the Fund and other Lord Abbett Funds
THE FUND GOAL The Fund's investment objective is long-term growth of capital and income without excessive fluctuations in market value. PRINCIPAL STRATEGY To pursue this goal, the Fund purchases equity securities of large, seasoned, U.S. and multinational companies that we believe are undervalued. The Fund may invest in such equity securities as common stocks, convertible bonds, convertible preferred stocks, and warrants. The Fund chooses stocks using - QUANTITATIVE RESEARCH to identify which stocks we believe represent the best bargains - FUNDAMENTAL RESEARCH to learn about a company's operating environment, resources and strategic plans and to assess its prospects for exceeding earnings expectations - BUSINESS CYCLE ANALYSIS to determine how buying or selling securities changes our overall portfolio's sensitivity to interest rates and economic conditions The Fund is intended for investors looking for long-term growth with low fluctuations in market value. For this reason, we will forego some opportunities for gains when, in our judgment, they are too risky. The Fund tries to keep its assets invested in securities selling at reasonable prices in relation to value. While there is the risk that an investment may never reach what we think is its full value, or may go down in value, our emphasis on large, seasoned company value stocks may limit our downside risk because value stocks in theory are already underpriced and large, seasoned company stocks tend to be less volatile than small company stocks. We generally sell a stock when we think it is no longer a bargain, seems less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or falls short of our expectations. While typically fully invested, at times the Fund may invest temporarily, in short-term fixed income securities such as U.S. Government obligations, bank certificates of deposit, bankers' acceptances, commercial paper and repurchase agreements. We may take a temporary defensive position by investing some of the Fund's assets in short-term debt securities. This could reduce the benefit from any upswing in the market and prevent the Fund from achieving its investment objective. MAIN RISKS The Fund is subject to the general risks and considerations associated with equity investing, as well as the particular risks associated with value stocks. The value of your investment will fluctuate in response to movements in the stock market in general and to the changing prospects of individual companies in which the Fund invests. Large value stocks may perform differently than the market as a whole and other types of stocks, such as small company stocks and growth stocks. This is because different types of stocks tend to shift in and out of favor depending on market and economic conditions. The market may fail to recognize the intrinsic value of particular value stocks for a long time. In addition, if the Fund's assessment of a company's value or prospects for exceeding earnings expectations or market conditions is wrong, the Fund could suffer losses or produce poor performance relative to other funds, even in a rising market. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund is not a complete investment program and may not be appropriate for all investors. You could lose money by investing in the Fund. [SIDENOTE] WE OR THE FUND refers to Lord Abbett Affiliated Fund, Inc. ABOUT THE FUND. The Fund is a professionally managed portfolio primarily holding securities purchased with the pooled money of investors. It strives to reach its stated goal, although as with all mutual funds, it cannot guarantee results. LARGE COMPANIES are established companies that are considered "known quantities." Large companies often have the resources to weather economic shifts, although they can be slower to innovate than small companies. SEASONED COMPANIES are usually established companies whose securities have gained a reputation for quality with the investing public and enjoy liquidity in the market. SMALL-COMPANY STOCKS are stocks of smaller companies which often are new and less established with a tendency to be faster-growing but more volatile than large company stocks. VALUE STOCKS are stocks of companies that we believe the market undervalues according to certain financial measurements of their intrinsic worth or business prospects. GROWTH STOCKS are stocks which exhibit faster-than-average gains in earnings and are expected to continue profit growth at a high level, but also tend to be more volatile than bargain stocks. You should read this entire prospectus, including "Other Investment Techniques," which concisely describes the other investment strategies used by the Fund and their risks. 2 The Fund AFFILIATED FUND PERFORMANCE The bar chart and table below provide some indication of the risks of investing in the Fund by illustrating the variability of the Fund's returns. Each assumes reinvestment of dividends and distributions. The Fund's past performance is not necessarily an indication of how the Fund will perform in the future. The bar chart shows changes in the performance of the Fund's Class Y shares from calendar year to calendar year. [BAR CHART] [PLOT POINTS] BAR CHART (PER CALENDAR YEAR) - CLASS Y SHARES 1999 17.2% 2000 15.6%
BEST QUARTER 2nd Q '99 10.9% WORST QUARTER 3rd Q '99 -6.6% The table below shows how the average annual total returns of the Fund's Class Y shares compare to those of a broad-based securities market index and a more narrowly based index that more closely reflects the market sectors in which the Fund invests.
AVERAGE ANNUAL TOTAL RETURNS THROUGH DECEMBER 31, 2000 SHARE CLASS 1 YEAR SINCE INCEPTION Class Y shares 15.64% 13.08%(2) S&P 500-Registered Trademark- Index(1) -9.10% 8.19%(3) S&P Barra Value Index(1) 6.08% 7.80%(3)
(1) Performance for the unmanaged Indices does not reflect fees or expenses. The performance of the indices is not necessarily representative of the Fund's performance. (2) The date of inception for Class Y shares is 3/27/98. (3) This represents total return for the period 3/31/98 - 12/31/00, to correspond with Class Y inception date. The Fund 3 AFFILIATED FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
FEE TABLE CLASS Y SHAREHOLDER FEES (Fees paid directly from your investment) Maximum Sales Charge on Purchases (as a % of offering price) none Maximum Deferred Sales Charge none ANNUAL FUND OPERATING EXPENSES (Expenses deducted from Fund assets) (as a % of average net assets) Management Fees (See "Management") 0.31% Other Expenses 0.14% Total Operating Expenses(1) 0.45%
(1) The annual operating expenses have been restated from fiscal year amounts to reflect an estimate of current fees. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This example, like that in other funds' prospectuses, assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class Y shares $46 $144 $252 $567
[SIDENOTE] MANAGEMENT FEES are payable to Lord, Abbett & Co. ("Lord Abbett") for the Fund's investment management. OTHER EXPENSES include fees paid for miscellaneous items such as shareholder service fees and professional fees. 4 The Fund YOUR INVESTMENT PURCHASES CLASS Y SHARES. You may purchase Class Y shares at the net asset value ("NAV") per share next determined after we receive and accept your purchase order submitted in proper form. No sales charges apply. We reserve the right to withdraw all or part of the offering made by this prospectus or to reject any purchase order. We also reserve the right to waive or change minimum investment requirements. All purchase orders are subject to our acceptance and are not binding until confirmed or accepted in writing. WHO MAY INVEST? Eligible purchasers of Class Y shares include: (1) certain authorized brokers, dealers, registered investment advisers or other financial institutions ("entities") who either (a) have an arrangement with Lord Abbett Distributor in accordance with certain standards approved by Lord Abbett Distributor, providing specifically for the use of our Class Y shares in particular investment products made available for a fee to clients of such entities, or (b) charge an advisory, consulting or other fee for their services and buy shares for their own accounts or the accounts of their clients ("Mutual Fund Fee Based Programs"); (2) the trustee or custodian under any deferred compensation or pension or profit-sharing plan or payroll deduction IRA established for the benefit of the employees of any company with an account(s) in excess of $10 million managed by Lord Abbett or its sub-advisers on a private-advisory-account basis; (3) institutional investors, such as retirement plans, companies, foundations, trusts, endowments and other entities where the total amount of potential investable assets exceeds $50 million that were not introduced to Lord Abbett by persons associated with a broker or dealer primarily involved in the retail security business. Additional payments may be made by Lord Abbett out of its own resources with respect to certain of these sales. HOW MUCH MUST YOU INVEST? You may buy our shares through any independent securities dealer having a sales agreement with Lord Abbett Distributor, our exclusive selling agent. Place your order with your investment dealer or send the money to the Fund (P.O. Box 419100, Kansas City, Missouri 64141). The minimum initial investment is $1 million except for Mutual Fund Fee Based Programs, which have no minimum. This offering may be suspended, changed or withdrawn by Lord Abbett Distributor, which reserves the right to reject any order. BUYING SHARES THROUGH YOUR DEALER. Orders for shares received by the Fund prior to the close of the NYSE, or received by dealers prior to such close and received by Lord Abbett Distributor prior to the close of its business day, will be confirmed at NAV effective at such NYSE close. Orders received by dealers after the NYSE closes and received by Lord Abbett Distributor in proper form prior to the close of its next business day are executed at the NAV effective as of the close of the NYSE on that next business day. The dealer is responsible for the timely transmission of orders to Lord Abbett Distributor. A business day is a day on which the NYSE is open for trading. BUYING SHARES BY WIRE. To open an account, call 800-821-5129 Ext. 34028, Institutional Trade Dept., to set up your account and to arrange a wire transaction. Wire to: United Missouri Bank of Kansas City, N.A., Routing number - 101000695, bank account number: 9878002611, FBO: (account name) and (your Lord Abbett account number). Specify the complete name of the Fund, note Class Y shares and include your new account number and your name. To add to an existing account, wire to: United Missouri Bank of [SIDENOTE] NAV per share for the Fund is calculated each business day at the close of regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time. Purchases and sales of Fund shares are executed at the NAV next determined after the Fund receives your order in proper form. In calculating NAV, securities for which market quotations are available are valued at those quotations. Securities for which such quotations are not available are valued at fair value under procedures approved by the Fund's Board. LORD ABBETT DISTRIBUTOR LLC ("Lord Abbett Distributor") acts as agent for the Fund to work with investment professionals that buy and/or sell shares of the Fund on behalf of their clients. Generally, Lord Abbett Distributor does not sell Fund shares directly to investors. EXCHANGE LIMITATIONS. Exchanges should not be used to try to take advantage of short-term swings in the market. Frequent exchanges and similar trading practices can disrupt management of the Fund and raise its expenses. Accordingly, the Fund reserves the right to limit or terminate this privilege for any shareholder making frequent exchanges or abusing the privilege. The Fund also may revoke the privilege for all shareholders upon 60 days' written notice. In addition, as stated under "Purchases," the Fund reserves the right to reject any purchase order, including purchase orders from shareholders whose trading has been or may be disruptive to the Fund. The Fund 5 Kansas City, N.A., routing number - 101000695, bank account number: 9878002611, FBO: (account name) and (your Lord Abbett account number). Specify the complete name of the Fund, note Class Y shares and include your account number and your name. REDEMPTIONS Redemption of Fund shares are executed at the NAV next determined after the Fund receives your order in proper form. BY BROKER. Call your investment professional for instructions on how to redeem your shares. BY TELEPHONE. To obtain the proceeds of a redemption of $50,000 or less from your account, you or your representative should call the Fund at 800-821-5129. BY MAIL. Submit a written redemption request indicating the name(s) in which the account is registered, the Fund's name, the class of shares, your account number, and the dollar value or number of shares you wish to sell. Include all necessary signatures. If the signer has any Legal Capacity, the signature and capacity must be guaranteed by an Eligible Guarantor. Certain other legal documentation may be required. For more information regarding proper documentation call 800-821-5129. Normally a check will be mailed to the name(s) and address in which the account is registered (or otherwise according to your instruction) within three business days after receipt of your redemption request. Your account balance must be sufficient to cover the amount being redeemed or your redemption order will not be processed. Under unusual circumstances, the Fund may suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities laws. BY WIRE. In order to receive funds by wire, our servicing agent must have the wiring instructions on file. To verify that this feature is in place, call 800-821-5129 Ext. 34028, Institutional Trading Dept. (minimum wire: $1,000). Your wire redemption request must be received by the Fund before the close of the NYSE for money to be wired on the next business day. DISTRIBUTIONS AND TAXES The Fund expects to pay its shareholders dividends from its net investment income each quarter and distribute its net capital gains (if any) as "capital gains distributions" on an annual basis. Distributions will be reinvested in Fund shares unless you instruct the Fund to pay them to you in cash. Effective June 1, 2001 with respect to distributions payable on or after November 1, 2000 on accounts other than those held in the name of your dealer, if you instruct the Fund to pay distributions in cash, and the Post Office is unable to deliver one or more of your checks or one or more of your checks remains uncashed for a certain period, the Fund reserves the right to reinvest your checks in your account at the NAV on the day of the reinvestment following such period. In addition, the Fund reserves the right to reinvest all subsequent distributions in additional Fund shares in your account. Similarly, any checks representing distributions payable prior to November 1, 2000 and remaining outstanding as of June 1, 2001 will be reinvested in shares of the Fund after June 1, 2001. No interest will accrue on checks while they remain uncashed before they are reinvested or on amounts represented by uncashed redemption checks. There are no sales charges on such reinvestments. For federal income tax purposes, the Fund's distribution of investment income and short-term capital gain is taxable to you as ordinary income. Distributions from the Fund's net long-term capital gains are taxable as long-term capital gains in the year of receipt. [SIDENOTE] ELIGIBLE GUARANTOR is any broker or bank that is a member of the medallion stamp program. Most major securities firms and banks are members of this program. A NOTARY PUBLIC IS NOT AN ELIGIBLE GUARANTOR. 6 The Fund The tax status of distributions, including net long-term capital gains, is the same for all shareholders regardless of how long they have owned Fund shares or whether distributions are reinvested or paid in cash. If you buy shares when the Fund has realized but not yet distributed income or capital gains, you will be "buying a dividend" by paying the full price for shares and then receiving a portion of the price back in the form of a potentially taxable dividend. Information concerning the tax treatment of distributions, including the source of dividends and distributions of capital gains by the Fund, will be mailed to shareholders each year. Because everyone's tax situation is unique, you should consult your tax adviser regarding the treatment of distributions under the federal, state and local tax rules that apply to you as well as the tax consequences of gains or losses from the redemption or exchange of your shares. SERVICES FOR FUND INVESTORS AUTOMATIC SERVICES We offer the following shareholder services: TELEPHONE EXCHANGE PRIVILEGE. Class Y shares may be exchanged without a service charge for Class Y shares of any Eligible Fund among the Lord Abbett-sponsored funds. ACCOUNT STATEMENTS. Every Lord Abbett investor automatically receives quarterly account statements. HOUSEHOLDING. Shareholders with the same last name and address will receive a single copy of a prospectus and an annual or semi-annual report, unless additional reports are specifically requested in writing to the Fund. ACCOUNT CHANGES. For any changes you need to make to your account, consult your investment professional or call the Fund at 800-821-5129. SYSTEMATIC EXCHANGE. You or your investment professional can establish a schedule of exchanges between the same classes of any Eligible Fund. MANAGEMENT The Fund's investment adviser is Lord, Abbett & Co., which is located at 90 Hudson Street, Jersey City, NJ 07302-3973. Founded in 1929, Lord Abbett manages one of the nation's oldest mutual fund complexes, with approximately $35 billion in more than 40 mutual fund portfolios and other advisory accounts. For more information about the services Lord Abbett provides to the Fund, see the Statement of Additional Information. Lord Abbett is entitled to an annual management fee based on the Fund's average daily net assets. The fees are calculated daily and payable monthly as follows: .50 of 1% on the first $200 million in assets .40 of 1% on the next $300 million .375 of 1% on the next $200 million .35 of 1% on the next $200 million .30 of 1% on the Fund's assets over $900 million For the fiscal year ended October 31, 2000, the actual fee paid to Lord Abbett was at an effective annual rate of .31 of 1%. In addition, the Fund pays all expenses not expressly assumed by Lord Abbett. INVESTMENT MANAGERS. Lord Abbett uses a team of investment managers and analysts acting together to manage the Fund's investments. The senior members of the team are: Thomas Hudson Jr., Robert Morris and Eli M. Salzmann, each a Partner of Lord Abbett. Messrs. Hudson and Morris have been with Lord Abbett since 1982 and 1991, respectively. Mr. Salzmann joined Lord Abbett in 1997 and previously was a Vice President with Mutual of America Capital Corp. from 1996 to 1997 and a Vice President with Mitchell Hutchins Asset Management, Inc. from 1991 to 1996. [SIDENOTE] TELEPHONE TRANSACTIONS. You have this privilege unless you refuse it in writing. For your security, telephone transaction requests are recorded. We will take measures to verify the identity of the caller, such as asking for your name, account number, social security or taxpayer identification number and other relevant information. The Fund will not be liable for following instructions communicated by telephone that it reasonably believes to be genuine. Transactions by telephone may be difficult to implement in times of drastic economic or market change. The Fund 7 FOR MORE INFORMATION OTHER INVESTMENT TECHNIQUES This section describes some of the investment techniques that might be used by the Fund and their risks. ADJUSTING INVESTMENT EXPOSURE. The Fund will be subject to the risks associated with investments. The Fund may, but is not required to, use various strategies to change its investment exposure to adjust to changes in economic, social, political, and general market conditions, which affect changes in security prices, interest rates, currency exchange rates, commodity prices and other factors. The Fund may use these transactions to change the risk and return characteristics of the Fund's portfolio. If we judge market conditions incorrectly or use a strategy that does not correlate well with the Fund's investments, it could result in a loss, even if we intended to lessen risk or enhance returns. These transactions may involve a small investment of cash compared to the magnitude of the risk assumed and could produce disproportionate gains or losses. Also, these strategies could result in losses if the counterparty to a transaction does not perform as promised. CONVERTIBLE SECURITIES. The Fund may invest in convertible bonds and convertible preferred stocks. These investments tend to be more volatile than debt securities but tend to be less volatile and produce more income than their underlying common stocks. DEBT SECURITIES. The Fund may invest in debt securities such as bonds, debentures, government obligations, commercial paper and pass-through instruments. When interest rates rise, prices of these investments are likely to decline, and when interest rates fall, prices tend to rise. There is also the risk that an issuer of a debt security will fail to make timely payments of principal or interest to the Fund. DEPOSITORY RECEIPTS. The Fund may invest in sponsored and unsponsored American Depository Receipts ("ADRs") and similar depository receipts. ADRs, typically issued by a financial institution (a "depository"), evidence ownership interests in a security or a pool of securities issued by a foreign company and deposited with the depository. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the United States. EQUITY SECURITIES. These include common stocks, preferred stocks, convertible securities, convertible preferred securities, warrants and similar instruments. Common stocks, the most familiar type, represent an ownership interest in a corporation. Although equity securities have a history of long-term growth in their value, their prices fluctuate based on changes in a company's financial condition and on market and economic conditions. FOREIGN SECURITIES. The Fund may invest up to 10% of its net assets in foreign securities which are primarily traded outside the United States. Foreign markets may not be subject to the same degree of regulation as U.S. markets. Securities clearance, settlement procedures and trading practices may be different, and transaction costs may be higher, in foreign countries. There may be less trading volume and liquidity in foreign markets, subjecting the securities traded in them to higher price fluctuations. Foreign investments also may be affected by changes in currency rates or currency controls. HIGH YIELD DEBT SECURITIES. High yield debt securities or "junk bonds" are rated BB/Ba or lower and typically pay a higher yield than investment grade debt securities. These bonds have a higher risk of default than investment grade bonds and their prices can be much more volatile. The Fund will not invest more than 5% of its assets in high yield debt securities. 8 For More Information GLOSSARY OF SHADED TERMS ELIGIBLE FUND. An Eligible Fund is any Lord Abbett-sponsored fund offering Class Y shares. LEGAL CAPACITY. This term refers to the authority of an individual to act on behalf of an entity or other person(s). For example, if a redemption request were to be made on behalf of the estate of a deceased shareholder, John W. Doe, by a person (Robert A. Doe) who has the legal capacity to act for the estate of the deceased shareholder because he is the executor of the estate, then the request must be executed as follows: Robert A. Doe, Executor of the Estate of John W. Doe. That signature using that capacity must be guaranteed by an Eligible Guarantor. To give another example, if a redemption request were to be made on behalf of the ABC Corporation by a person (Mary B. Doe) who has the legal capacity to act on behalf of the Corporation, because she is the president of the corporation, the request must be executed as follows: ABC Corporation by Mary B. Doe, President. That signature using that capacity must be guaranteed by an Eligible Guarantor (see example in right column). MUTUAL FUND FEE-BASED PROGRAM. Certain unaffiliated authorized brokers, dealers, registered investment advisers or other financial institutions ("entities") who either (1) have an arrangement with Lord Abbett Distributor in accordance with certain standards approved by Lord Abbett Distributor, providing specifically for the use of our shares (and sometimes providing for acceptance of orders for such shares on our behalf) in particular investment products made available for a fee to clients of such entities, or (2) charge an advisory, consulting or other fee for their services and buy shares for their own accounts or the accounts of their clients. RECENT PERFORMANCE The following is a discussion of recent performance for the twelve month period ended October 31, 2000. The past fiscal year was characterized by a major swing in market sentiment toward value stocks. If the signs of a broadening out of the market and a turn back toward value investing were knocking at the back door then, they were using a battering ram during the usually quiet summer trading months. The high-flying growth stocks that had led the market throughout all of 1999 experienced a severe correction that has lasted well into the autumn. Conversely, the stocks of companies with attractive valuations and positive cash flows began to garner the interest of investors and surged ahead of the former market leaders. Granted, growth-oriented tech stocks saw a brief rally in June, but the first stone had been cast. Investors had been awakened to the perils of momentum investing, and for the first time in years, value stocks began to handily outperform growth stocks and the broad equity market. As of October 31, 2000, the S&P 500/BARRA Value Index was up 6.3% on a year-to-date basis versus a negative return of 8.9% for the S&P 500/BARRA Growth Index and a negative return of 1.8% for the S&P 500 Index. In addition, earnings shortfalls and other disparaging company news releases that brought down the stock prices of several large, widely-held companies once again proved that careful, bottom-up company research was worth more than wide-sweeping sector investing. [SIDENOTE] GUARANTEED SIGNATURE. An acceptable form of guarantee would be as follows: - - In the case of the estate - Robert A. Doe Executor of the Estate of John W. Doe [Date] SIGNATURE GUARANTEED MEDALLION GUARANTEED NAME OF GUARANTOR [David R. Leeg illegible signature] - ----------------------------------- AUTHORIZED SIGNATURE (960) X 9 0 0 3 4 7 0 SECURITIES TRANSFER AGENTS MEDALLION PROGRAM -Trademark- SR - - In the case of the corporation - ABC Corporation Mary B. Doe By Mary B. Doe, President [Date] SIGNATURE GUARANTEED MEDALLION GUARANTEED NAME OF GUARANTOR [David R. Leeg illegible signature] - ----------------------------------- AUTHORIZED SIGNATURE (960) X 9 0 0 3 4 7 0 SECURITIES TRANSFER AGENTS MEDALLION PROGRAM -Trademark- SR Your Investment 9 At home in a value-friendly investment environment, the Affiliated Fund was able to perform very respectably. Stocks of electric utility companies, which constituted a large portion of the portfolio, contributed significantly to the Fund's positive performance, despite investors' concerns about rising interest rates. Many of our holdings were able to benefit from increasing deregulation in the industry, as well as high power consumption associated with mounting technology usage. Moreover, our relatively large exposure to energy companies paid off well, as rising oil prices helped boost the price of many of these stocks. Our careful stock picking in stocks of consumer non-cyclical companies, particularly healthcare companies, also significantly buoyed performance. At the onset of the second quarter, we had already begun to significantly reduce the portfolio's exposure to many companies in the technology, telecommunications and media sectors due to high valuations and unstable business fundamentals. Many telecommunications services stocks experienced difficulties, as price competition in a number of markets caused companies to miss earnings estimates and to lower future growth forecasts. As we pared back our exposure to technology companies, we made select investments in undervalued companies in basic industries, utilities and financial services (especially insurance companies) where we saw more intrinsic value. While we maintained this weighting shift throughout the period, some of our remaining technology holdings still hampered overall performance. After a shaky start at the beginning of the year, financial services was one of the Fund's strongest performing areas by the end of the period. We were overweighted in insurance stocks and other financial intermediaries, many of which posted double-digit gains. However, we remained underweighted in the banking sector due to our expectation that some banks may experience credit quality issues. Our move to basic industries (paper, chemicals, and metals) proved to be a bit premature and worked against our performance early on. However, if the U.S. economy continues to slow, we believe investors will begin to anticipate a more balanced global economic growth environment that should favor the performance of these stocks. We believe the market is in the final stages of adjusting to a slowing growth rate for the U.S. economy over the next six to nine months. Interest rates are down and should be moving irregularly lower still. Current concerns about energy prices and dollar strength versus the Euro should ebb as our economy slows. We do not anticipate a change in our investment strategy for the short term. The low economic sensitivity and high interest rate sensitivity of our portfolio has served us well throughout this year. As the U.S. economy slows over the next six months, we will look to add to some of our favorite consumer cyclical stocks, as well as to rebuild our positions in technology when we see select companies offer good value. 10 The Fund FINANCIAL INFORMATION FINANCIAL HIGHLIGHTS This table describes the Fund's performance for the fiscal period indicated. "Total return" shows how much your investment in the Fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These Financial Highlights have been audited by Deloitte & Touche LLP, the Fund's independent auditors, in conjunction with their annual audit of the Fund's financial statements. Financial statements for the period ended October 31, 2000 and the Independent Auditors' Report thereon appear in the Annual Report to Shareholders for the period ended October 31, 2000 and are incorporated by reference into the Statement of Additional Information, which is available upon request. Certain information reflects financial results for a single Fund share.
- ------------------------------------------------------------------------------------------------------ CLASS Y SHARES ---------------------------------------------- Year Ended October 31, Per Share Operating Performance: 2000 1999 1998(c) NET ASSET VALUE, BEGINNING OF PERIOD $16.25 $14.57 $15.44 INVESTMENT OPERATIONS Net investment income .30(e) .26(e) .15 Net realized and unrealized gain (loss) on investments 2.01 2.65 (.89) TOTAL FROM INVESTMENT OPERATIONS 2.31 2.91 (.74) Distributions to shareholders from: Net investment income (.30) (.28) (.13) Net realized gain (1.76) (.95) -- Total distributions (2.06) (1.23) (.13) NET ASSET VALUE, END OF PERIOD $16.50 $16.25 $14.57 TOTAL RETURN(a) 15.52% 21.15% (4.77)(d) RATIOS TO AVERAGE NET ASSETS: Expenses, including expense reduction .44%(b) .43%(b) .24%(b)(d) Expenses, excluding expense reduction .46% .43%(b) .24%(b)(d) Net investment income 1.96% 1.67% 1.03%(d) - ------------------------------------------------------------------------------------------------------ Year Ended October 31, ---------------------------------------------- SUPPLEMENTAL DATA FOR ALL CLASSES: 2000 1999 1998 NET ASSETS, END OF YEAR (000) $11,424,493 $10,080,754 $8,520,603 PORTFOLIO TURNOVER RATE 52.27% 62.30% 56.49%
(a) Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions. (b) The ratio includes expenses paid through an expense offset arrangement. (c) From March 27, 1998, commencement of offering of class shares. (d) Not annualized. (e) Calculated using average shares outstanding during the year. Financial Information 11 LINE GRAPH COMPARISON Immediately below is a comparison of a $10,000 investment in Class Y shares to the same investment in the S&P 500-Registered Trademark- Index and S&P Barra Value Index, assuming reinvestment of all dividends and distributions. - ------------------------------------------------------------------------------ Past performance is no guarantee of future results.
The Fund (Class Y shares) S&P 500 -Registered Trademark- S&P Barra at net asset value Index(1) Value Index 3/31/1998 $10,000 $10,000 $10,000 10/31/1998 $9,523 $10,062 $ 9,440 10/31/1999 $11,536 $12,645 $11,234 10/31/2000 $13,325 $13,413 $12,322
Fiscal Year-end 10/31 - ------------------------------------------------------------------------------ Average Annual Total Return At Maximum Applicable Sales Charge For The Periods Ending October 31, 2000
1 YEAR 10 YEARS (OR LIFE)(2) Class Y(3) 15.52% 11.69%
(1) Performance for each unmanaged index does not reflect any fees or expenses. The performance of the indices, particularly that of the S&P 500-Registered Trademark- Index, is not necessarily representative of the Fund's performance. (2) The Class Y shares were first offered on 3/27/98. Performance is at net asset value. (3) This shows total return which is the percent change in net assets, with all dividends and distributions reinvested for the periods shown ending October 31, 2000 using the SEC-required uniform method to compute total return. 12 Financial Information [SIDENOTE] TO OBTAIN INFORMATION BY TELEPHONE. Call the Fund at: 888-522-2388 BY MAIL. Write to the Fund at: The Lord Abbett Family of Funds 90 Hudson Street Jersey City, NJ 07302-3973 VIA THE INTERNET. LORD, ABBETT & CO. www.LordAbbett.com Text only versions of Fund docu- ments can be viewed online or downloaded directly from the SEC: www.sec.gov You can also obtain copies by visit- ing the SEC's Public Reference Room in Washington, DC (phone 202-942-8090) or by sending your request and a duplicating fee to the SEC's Public Reference Section, Washington, DC 20549-6009 or by sending your request electronically to publicinfo@sec.gov. LORD ABBETT [LORD ABBETT LOGO]-Registered Trademark- INVESTMENT MANAGEMENT A TRADITION OF PERFORMANCE THROUGH DISCIPLINED INVESTING Lord Abbett Mutual Fund shares are distributed by: LORD ABBETT DISTRIBUTOR LLC 90 Hudson Street - Jersey City, New Jersey 07302-3973 ADDITIONAL INFORMATION More information on the Fund is or will be available free upon request, including the following: ANNUAL/SEMI-ANNUAL REPORT Describes the Fund, lists portfolio holdings, and contains a letter from the Fund's manager discussing recent market conditions and the Fund's investment strategies. STATEMENT OF ADDITIONAL INFORMATION ("SAI") Provides more details about the Fund and its policies. A current SAI is on file with the Securities and Exchange Commission ("SEC") and is incorporated by reference (is legally considered part of this prospectus). Lord Abbett Affiliated Fund, Inc. LAA-300 (3/01) SEC FILE NUMBERS: 811-5 LORD ABBETT STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 2001 LORD ABBETT AFFILIATED FUND, INC. Y SHARES - ------------------------------------------------------------------------------- This Statement of Additional Information is not a Prospectus. A Prospectus for the Class Y shares of Lord Abbett Affiliated Fund, Inc. may be obtained from your securities dealer or from Lord Abbett Distributor LLC ("Lord Abbett Distributor") at 90 Hudson Street, Jersey City, New Jersey 07302-3973. This Statement of Additional Information relates to, and should be read in conjunction with, the Prospectus dated March 1, 2001. Shareholder inquiries should be made by directly contacting the Fund or by calling 800-821-5129. The Annual Report to Shareholders is available without charge, upon request by calling that number. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS Page 1. Fund History 1 2. Investment Policies 1 3. Management of the Fund 5 4. Control Persons and Principal Holders of Securities 9 5. Investment Advisory and Other Services 9 6. Brokerage Allocations and Other Practices 10 7. Capital Stock & Other Securities 11 8. Purchase, Redemption & Pricing 11 9. Taxation of the Fund 12 10. Underwriter 14 11. Performance 14 12. Financial Statements 15
1. FUND HISTORY The Lord Abbett Affiliated Fund, Inc. (the "Fund") is a diversified open-end investment management company registered under the Investment Company Act of 1940, as amended (the "Act"). The Fund was organized in 1934 and was reincorporated under Maryland law on November 26, 1975. The Fund has 2,000,000,000 shares of authorized capital stock consisting of five classes (A, B, C, P and Y), $0.001 par value. The Fund offers five classes of shares: Class A, Class B, Class C, Class P, and Class Y. Only the Fund's Class Y shares are offered in this Statement of Additional Information. 2. INVESTMENT POLICIES FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund is subject to the following fundamental investment restrictions, which cannot be changed without approval of a majority of the Fund's outstanding shares. The Fund may not: (1) borrow money, except that (i) the Fund may borrow from banks (as defined in the Act) in amounts up to 33 1/3% of its total assets (including the amount borrowed), (ii) the Fund may borrow up to an additional 5% of its total assets for temporary purposes, (iii) the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities and (iv) the Fund may purchase securities on margin to the extent permitted by applicable law; (2) pledge its assets (other than to secure borrowings, or to the extent permitted by the Fund's investment policies, as permitted by applicable law); (3) engage in the underwriting of securities, except pursuant to a merger or acquisition or to the extent that, in connection with the disposition of its portfolio securities, it may be deemed to be an underwriter under federal securities laws; (4) make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in government obligations, commercial paper, pass-through instruments, certificates of deposit, bankers acceptances, repurchase agreements or any similar instruments shall not be subject to this limitation, and except further that the Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law; (5) buy or sell real estate (except that the Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies which invest in real estate or interests therein) or commodities or commodity contracts (except to the extent the Fund may do so in accordance with applicable law and without registering as a commodity pool operator under the Commodity Exchange Act as, for example, with futures contracts); (6) with respect to 75% of the gross assets of the Fund, buy securities of one issuer representing more than (i) 5% of the Fund's gross assets, except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities or (ii) 10% of the voting securities of such issuer; (7) invest more than 25% of its assets, taken at market value, in the securities of issuers in any particular industry (excluding securities of the U.S. Government, its agencies and instrumentalities); or (8) issue senior securities to the extent such issuance would violate applicable law. Compliance with the investment restrictions above will be determined at the time of purchase or sale of the portfolio. 2 NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. In addition to the policies in the Prospectus and the investment restrictions above which cannot be changed without shareholder approval, the Fund is subject to the following non-fundamental investment policies which may be changed by the Board of Directors without shareholder approval. The Fund may not: (1) borrow in excess of 33 1/3% of its total assets (including the amount borrowed), and then only as a temporary measure for extraordinary or emergency purposes; (2) make short sales of securities or maintain a short position except to the extent permitted by applicable law; (3) invest knowingly more than 15% of its net assets (at the time of investment) in illiquid securities, except for securities qualifying for resale under Rule 144A of the Act, deemed to be liquid by the Board of Directors; (4) invest in the securities of other investment companies except as permitted by applicable law; (5) invest in securities of issuers which, with their predecessors, have a record of less than three years' continuous operations, if more than 5% of the Fund's total assets would be invested in such securities (this restriction shall not apply to mortgage-backed securities, asset-backed securities or obligations issued or guaranteed by the U. S. Government, its agencies or instrumentalities); (6) hold securities of any issuer if more than 1/2 of 1% of the securities of such issuer are owned beneficially by one or more officers or directors of the Fund or by one or more partners or members of the Fund's underwriter or investment adviser if these owners in the aggregate own beneficially more than 5% of the securities of such issuer; (7) invest in warrants if, at the time of the acquisition, its investment in warrants, valued at the lower of cost or market, would exceed 5% of 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); (8) invest in real estate limited partnership interests or interests in oil, gas or other mineral leases, or exploration or other development programs, except that the Fund may invest in securities issued by companies that engage in oil, gas or other mineral exploration or other development activities; (9) write, purchase or sell puts, calls, straddles, spreads or combinations thereof, except to the extent permitted in the Fund's prospectus and statement of additional information, as they may be amended from time to time; (10) buy from or sell to any of its officers, directors, employees, or its investment adviser or any of its officers, directors, partners or employees, any securities other than shares of the Fund's common stock; or (11) 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. PORTFOLIO TURNOVER RATE. For the year ended October 31, 2000, the Fund's portfolio turnover rate was 52.27% versus 62.30% for the prior year. ADDITIONAL INFORMATION ON PORTFOLIO RISKS, INVESTMENTS AND TECHNIQUES. The following sections provide further information on certain types of investments and investment techniques that may be used by the Fund, including their associated risks. BORROWINGS. The Fund may borrow money for temporary or emergency purposes from banks and other financial institutions in amounts not exceeding one-third of its total assets. If the Fund borrows money and experiences a decline 3 in net asset value, the borrowing will incur the Fund losses. CONVERTIBLE SECURITIES. The Fund may invest in convertible bonds and convertible preferred stocks. These investments tend to be more volatile than debt securities but tend to be less volatile and produce more income than their underlying common stocks. COVERED CALL OPTIONS. We may write covered call options which are traded on a national securities exchange with respect to securities in our portfolio in an attempt to increase our income and to provide greater flexibility in the disposition of our portfolio securities. A "call option" is a contract sold for a price (the "premium") giving its holder the right to buy a specific number of shares of stock at a specific price prior to a specified date. A "covered call option" is a call option issued on securities already owned by the writer of the call option for delivery to the holder upon the exercise of the option. During the period of the option, we forgo the opportunity to profit from any increase in the market price of the underlying security above the exercise price of the option (to the extent that the increase exceeds our net premium). We also may enter into "closing purchase transactions" in order to terminate our obligation to deliver the underlying security (this may result in a short-term gain or loss). A closing purchase transaction is the purchase of a call option (at a cost which may be more or less than the premium received for writing the original call option) on the same security, with the same exercise price and call period as the option previously written. If we are unable to enter into a closing purchase transaction, we may be required to hold a security that we might otherwise have sold to protect against depreciation. We do not intend to write covered call options with respect to securities with an aggregate market value of more than 10% of our gross assets at the time an option is written. This percentage limitation will not be increased without prior disclosure in our current Prospectus. DEBT SECURITIES. The Fund may invest in debt securities such as bonds, debentures, government obligations, commercial paper and pass-through instruments. When interest rates rise, prices of these investments are likely to decline, and when interest rates fall, prices tend to rise. There is also the risk that an issuer of a debt security will fail to make timely payments of principal or interest to the Fund. FOREIGN SECURITIES. The Fund may invest up to 10% of its net assets in foreign securities which are primarily traded outside the United States. Foreign investments involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and changes in exchange control regulations (i.e., currently blockage). A decline in the exchange rate of the currency (i.e., weakening of the currency against the U.S. dollar) in which a portfolio security is quoted or denominated relative to the U.S. dollar would reduce the value of the portfolio security. Brokerage commissions, custodial services and other costs relating to investment in international securities markets generally are more expensive than in the United States. Clearance and settlement procedures may be different in foreign countries and, in certain markets, such procedures have been unable to keep pace with the volume of securities transactions, thus making it difficult to conduct such transactions. Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to U.S. Issuers. There may be less publicly available information about a foreign issuer than about a U.S. issuer. In addition, there is generally less government regulation of foreign markets, companies and securities dealers than in the United States. Foreign securities markets may have substantially less volume than U.S. securities markets and securities of many foreign issuers are less liquid and more volatile then securities of comparable domestic issuers. The Fund may hold foreign securities which trade on days when the Fund does not sell shares. As a result, the value of the Fund's portfolio securities may change on days an investor may not be able to purchase or redeem Fund shares. With respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on dividend or interest payments (or, in some cases, capital gains), limitations on the removal of funds or other assets of the Fund, and political or social instability or diplomatic developments which could affect investments in those countries. HIGH YIELD DEBT SECURITIES. High yield debt securities or "junk bonds" are rated BB/Ba or lower and typically pay a higher yield than investment grade debt securities. These bonds have a higher risk of default than investment grade 4 bonds and their prices can be much more volatile. The Fund will not invest more than 5% of its assets in high yield debt securities. In general, the market for lower-rated, high-yield bonds is more limited than the market for higher-rated bonds, and because trading in such bonds may be thinner and less active, the market prices of such bonds may fluctuate more than the prices of higher-rated bonds, particularly in times of market stress. In addition, while the market for high-yield, corporate debt securities has been in existence for many years, the market in recent years experienced a dramatic increase in the large-scale use of such securities to fund highly-leveraged corporate acquisitions and restructurings. Accordingly, past experience may not provide an accurate indication of future performance of the high-yield bond market, especially during periods of economic recession. Other risks which may be associated with lower-rated, high-yield bonds include their relative insensitivity to interest-rate changes; the exercise of any of their redemption or call provisions in a declining market which may result in their replacement by lower-yielding bonds; and legislation, from time to time, which may adversely affect their market. Since the risk of default is higher among lower-rated, high-yield bonds, Lord Abbett's research and analyses are an important ingredient in the selection of such bonds. Through portfolio diversification, good credit analysis and attention to current developments and trends in interest rates and economic conditions, investment risk can be reduced, although there is no assurance that losses will not occur. The Fund does not have any minimum rating criteria applicable to the fixed-income securities in which it invests. PORTFOLIO SECURITIES LENDING. The Fund may lend securities to broker-dealers and financial institutions as a means of earning income. This practice could result in a loss or delay in recovering the Fund's securities, if the borrower defaults. The Fund will limit its securities loans to 30% of its total assets and all loans will be fully collateralized. COVERED CALL OPTIONS. We may write covered call options which are traded on a national securities exchange with respect to securities in our portfolio in an attempt to increase our income and to provide greater flexibility in the disposition of our portfolio securities. A "call option" is a contract sold for a price (the "premium") giving its holder the right to buy a specific number of shares of stock at a specific price prior to a specified date. A "covered call option" is a call option issued on securities already owned by the writer of the call option for delivery to the holder upon the exercise of the option. During the period of the option, we forgo the opportunity to profit from any increase in the market price of the underlying security above the exercise price of the option (to the extent that the increase exceeds our net premium). We also may enter into "closing purchase transactions" in order to terminate our obligation to deliver the underlying security (this may result in a short-term gain or loss). A closing purchase transaction is the purchase of a call option (at a cost which may be more or less than the premium received for writing the original call option) on the same security, with the same exercise price and call period as the option previously written. If we are unable to enter into a closing purchase transaction, we may be required to hold a security that we might otherwise have sold to protect against depreciation. We do not intend to write covered call options with respect to securities with an aggregate market value of more than 10% of our gross assets at the time an option is written. This percentage limitation will not be increased without prior disclosure in our current Prospectus. 3. MANAGEMENT OF THE FUND The Board of Directors of the Fund is responsible for the management of the business and affairs of the Fund. The following Director is the managing partner of Lord, Abbett & Co. ("Lord Abbett"), 90 Hudson Street, Jersey City, New Jersey 07302-3973. He has been associated with Lord Abbett for over five years and is an officer, director or trustee of twelve other Lord Abbett-sponsored funds. *ROBERT S. DOW, Chairman and President, Age 55 *Mr. Dow is an "interested person" as defined in the Act. The following outside Directors are also directors or trustees of twelve other Lord Abbett-sponsored funds referred to above. E. THAYER BIGELOW, DIRECTOR Bigelow Media, LLC 717 Fifth Avenue, 26th Floor 5 New York, New York Managing General Partner, Bigelow Media, LLC (since 2000); Senior Adviser, Time Warner Inc. (1998-2000); Acting Chief Executive Officer of Courtroom Television Network (1997-1998); President and Chief Executive Officer of Time Warner Cable Programming, Inc. (1991-1997). Currently serves as director of Crane Co. and Huttig Building Products Inc.. Age 59. WILLIAM H.T. BUSH, DIRECTOR Bush-O'Donnell & Co., Inc. 101 South Hanley Road, Suite 1025 St. Louis, Missouri Co-founder and Chairman of the Board of the financial advisory firm of Bush-O'Donnell & Company (since 1986). Currently serves as director of Rightchoice Managed Care, Inc., Mississippi Valley Bancorp, DT Industries Inc., and Engineered Support Systems, Inc. Age 62. ROBERT B. CALHOUN, JR., DIRECTOR Monitor Clipper Partners 650 Madision Avenue, 9th Floor New York, New York Managing Director of Monitor Clipper Partners (since 1997) and President of The Clipper Group L.P., both private equity investment funds (since 1990). Currently serves as director of Avondale, Inc., Interstate Bakeries Corp., and Travel Center of America, Inc. Age 58. STEWART S. DIXON, DIRECTOR Wildman, Harrold, Allen & Dixon 225 W. Wacker Drive (Suite 2800) Chicago, Illinois Partner in the law firm of Wildman, Harrold, Allen & Dixon (since 1990). Age 70. FRANKLIN W. HOBBS, DIRECTOR 720 Park Avenue, #8B New York, New York Chairman of Warburg Dillon Read (1999-2000); Global Head of Corporate Finance of SBC Warburg Dillon Read (1997-1999); and Chief Executive Officer of Dillon, Read & Co. (1994-1997). Age 53. C. ALAN MACDONALD, DIRECTOR 415 Round Hill Road Greenwich, Connecticut President of Club Management Co., LLC, consultants on golf development management (since 1999); Managing Director of The Directorship Inc., a consultancy in board management and corporate governance (1997-1999); General Partner of The Marketing Partnership, Inc., a full service marketing consulting firm (1995-1997). Currently serves as director of Fountainhead Water Company, Careside, Inc., Lincoln Snacks, Samco Funds, Inc. and J.B. Williams Co., Inc.. Age 67. THOMAS J. NEFF, DIRECTOR Spencer Stuart, U.S. 277 Park Avenue New York, New York 6 Chairman of Spencer Stuart, U.S., an executive search consulting firm (since 1976). Currently serves as director of Ace, Ltd. and Exult, Inc. Age 63. COMPENSATION DISCLOSURE The following table summarizes the compensation for each of the Directors/Trustees for the Fund for all Lord Abbett-sponsored funds. The second column of the following table sets forth the compensation accrued by the Fund for outside Directors. The third column sets forth information with respect to the benefits accrued by all Lord Abbett-sponsored funds for outside directors/trustees under the Fund's retirement plans, which were terminated effective October 31, 2000. The fourth column sets forth the total compensation paid by all Lord Abbett-sponsored funds to the outside directors/trustees, and amounts payable but deferred at the option of the director/trustee, but does not include amounts accrued under the third column. No director/trustee of the funds associated with Lord Abbett and no officer of the funds received any compensation from the funds for acting as a director/trustee or officer.
For the Fiscal Year Ended October 31, 2000 ------------------------------------------ (1) (2) (3) (4) Equity-Based For Year Ended Retirement Benefits December 31, 2000 Accrued by the Total Compensation Paid Aggregate Fund and Twelve by the Fund and Compensation Other Lord Twelve Other Lord Accrued by Abbett-sponsored Abbett-sponsored Name of Director the Fund(1) Funds(2) Funds(3) - ---------------- ------------- --------------------- ------------------------ E. Thayer Bigelow $28,596 $19,491 $60,000 William H. T. Bush $28,719 $16,396 $60,500 Robert B. Calhoun, Jr. $28,838 $12,530 $61,000 Stewart S. Dixon $29,749 $35,872 $62,900 Franklin W. Hobbs* none none none C. Alan MacDonald $28,957 $29,308 $59,500 Thomas J. Neff $29,166 $21,530 $61,000
*Elected effective December 14, 2000. 1. Outside directors'/trustees' fees, including attendance fees for board and committee meetings, are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. A portion of the fees payable by the Fund to its outside directors/trustees may be deferred at the option of a director/trustee under an equity-based plan (the "equity-based plan") that deems the deferred amounts to be invested in shares of the Fund for later distribution to the directors/trustees. Effective November 1, 2000, each director/trustee received an additional annual $25,000 retainer, the full amount of which must be deferred under the equity-based plan. The amounts ultimately received by the directors/trustees under the plan will be directly linked to the investment performance of the funds. The amounts of the aggregate compensation payable by the Fund as of October 31, 2000 deemed invested in fund shares, including dividends reinvested and changes in net asset value applicable to such deemed investments were: Mr. Bigelow, $240,119; Mr. Bush, $9,065; Mr. Calhoun, $81,217; Mr. Dixon, $388,367; Mr. MacDonald, $485,957 and Mr. Neff, $787,997. 2. The amounts in Column 3 were accrued by the Lord Abbett-sponsored funds for the twelve months ended October 31, 2000. In 1996, the equity-based plans superseded a previously approved retirement plan for all directors/trustees, although accruals continued under the retirement plan until October 31, 2000. All of the current outside directors/trustees elected to convert their accrued benefits under the retirement plan. 7 3. This column shows aggregate compensation, including directors/trustees' fees and attendance fees for board and committee meetings, of a nature referred to in footnote one, accrued by the Lord Abbett-sponsored funds during the year ended December 31, 2000, including fees directors'/trustees' have chosen to defer, but does not include amounts accrued under the equity-based plan and shown in Column 3. ----------------------------------------- Except where indicated, the following executive officers of the Fund have been associated with Lord Abbett for over five years. Of the following, Ms. Binstock, Messrs. Carper, Hilstad, Hudson, Morris and Salzmann are partners of Lord Abbett; the others are employees. None have received compensation from the Fund. EXECUTIVE VICE PRESIDENT: W. Thomas Hudson, Jr., age 59 Robert G. Morris, age 56 Eli M. Salzmann, age 36 (with Lord Abbett since 1997, formerly a Portfolio Manager, Analyst at Mutual of America from 1996 to 1997, prior thereto Vice President at Mitchell Hutchins Asset Management) VICE PRESIDENTS: Paul A. Hilstad, age 58, Vice President and Secretary Joan A. Binstock, age 46 (with Lord Abbett since 1999, formerly Chief Operating Officer of Morgan Grenfell from 1996 to 1999, prior thereto Principal of Ernst & Young LLP) Daniel E. Carper, age 49 Stan Dinsky, age 56 (with Lord Abbett since 2000, formerly Managing Director of Prudential Asset Management from 1997 to 2000, prior thereto Director of Equity Research and Senior Vice President of Mitchell Hutchins Asset Management from 1987 to 1997) Lawrence H. Kaplan, age 44 (with Lord Abbett since 1997, formerly Vice President and Chief Counsel of Salomon Brothers Asset Management Inc. from 1995 to 1997) A.Edward Oberhaus III, age 41 Tracie E. Richter, age 33 (with Lord Abbett since 1999, formerly Vice President - - Head of Fund Administration of Morgan Grenfell from 1998 to 1999, Vice President of Bankers Trust from 1996 to 1998, prior thereto Tax Associate of Goldman Sachs) Christina T. Simmons, age 43 (with Lord Abbett since 1999, formerly Assistant General Counsel of Prudential Investments from 1998 to 1999, prior thereto Counsel of Drinker, Biddle & Reath LLP, a law firm, from 1985 to 1998) TREASURER: Francie W. Tai, age 35 (with Lord Abbett since 2000, formerly Manager of Goldman Sachs from 1997 to 2000, prior thereto Assistant Vice President of Bankers Trust from 1994 to 1997) CODE OF ETHICS The directors, trustees and officers of Lord Abbett-sponsored mutual funds, together with the partners and employees of Lord Abbett, are permitted to purchase and sell securities for their personal investment accounts. In engaging in personal securities transactions, however, such persons are subject to requirements and restrictions contained in the Fund's Code of Ethics (the "Code") which complies, in substance, with each of the recommendations of the Investment Company Institute's Advisory Group on Personal Investing. Among other things, the Code requires that Lord Abbett partners and employees obtain advance approval before buying or selling securities, submit confirmations and quarterly transaction reports, and obtain approval before becoming a director of any company; and it prohibits such persons from investing in a security 7 days before or after any Lord Abbett-sponsored fund or Lord Abbett-managed account 8 considers a trade or trades in such security, prohibiting profiting on trades of the same security within 60 days and trading on material and non-public information. The Code imposes certain similar requirements and restrictions on the independent directors and trustees of each Lord Abbett-sponsored fund to the extent contemplated by the recommendations of such Advisory Group. 4. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of February 15, 2001, the Fund's officers and directors, as a group, owned less than 1% of our outstanding shares and other than Lord Abbett Distributor and other institutional broker-dealers for the benefit of their clients, there were no record holders of 5% or more of a particular class of the Fund's outstanding shares. 5. INVESTMENT ADVISORY AND OTHER SERVICES INVESTMENT MANAGER As described under "Management" in the Prospectus, Lord Abbett is the Fund's investment manager. Of the general partners of Lord Abbett, the following are officers and/trustees of the Fund: Joan A. Binstock, Daniel E. Carper, Robert S. Dow, Paul A. Hilstad, W. Thomas Hudson, Jr., Robert G. Morris, and Eli M. Salzmann. The other partners are: Stephen I. Allen, Zane E. Brown, John E. Erard, Robert P. Fetch, Daria L. Foster, Robert I. Gerber, Stephen J. McGruder, Michael B. McLaughlin, Robert J. Noelke, R. Mark Pennington and Christopher J. Towle. The address of each partner is 90 Hudson Street, Jersey City, New Jersey 07302-3973. Under the Management Agreement between Lord Abbett and the Affiliated Fund, the Fund is obligated to pay Lord Abbett a monthly fee, based on average daily net assets for each month as follows: .50 of 1% on the first $200 million in assets; .40 of 1% on the next $300 million; .375 of 1% on the next $200 million; .35 of 1% on the next $200 million; and .30 of 1% on the Fund's assets over $900 million. The Fund pays all expenses not expressly assumed by Lord Abbett, including, without limitation 12b-1 expenses, outside directors' fees and expenses, association membership dues, legal and auditing fees, taxes, transfer and dividend disbursing agent fees, shareholder servicing costs, expenses relating to shareholder meetings, expenses of preparing, printing and mailing stock certificates and shareholder reports, expenses of registering its shares under federal and state securities laws, expenses of preparing, printing and mailing prospectuses to existing shareholders, insurance premiums, brokerage and other expenses connected with executing portfolio transactions. For the fiscal years ended October 31, 2000, 1999, and 1998, the management fees paid to Lord Abbett by the Fund amounted to $32,372,356, $26,317,934, and $22,192,209 respectively. PRINCIPAL UNDERWRITER Lord Abbett Distributor LLC , a New York limited liability company and subsidiary of Lord Abbett, 90 Hudson Street, Jersey City, New Jersey 07302-3973, serves as the principal underwriter for the Fund. CUSTODIAN The Bank of New York ("BNY"), 1 Wall Street, New York, New York, 10286, is the Fund's custodian. BNY may appoint domestic and foreign sub-custodians from time to time to hold certain securities purchased by the Fund in foreign countries and to hold cash and currencies for the Fund. In accordance with the requirements of Rule 17f-5, the Fund's Board of Directors have approved arrangements permitting the Fund's foreign assets not held by BNY or its foreign branches to be held by certain qualified foreign banks and depositories. TRANSFER AGENT UMB, N.A., 928 Grand Blvd., Kansas City, Missouri, 64106, acts as the transfer agent and dividend disbursing agent 9 for the Fund. INDEPENDENT AUDITORS Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281, are the independent auditors of the Fund and must be approved at least annually by the Fund's Board of Directors to continue in such capacity. Deloitte & Touche LLP perform audit services for the Fund, including the examination of financial statements included in the Fund's Annual Report to Shareholders. 6. BROKERAGE ALLOCATIONS AND OTHER PRACTICES The Fund's policy is to obtain best execution on all our portfolio transactions, which means that it seeks to have purchases and sales of portfolio securities executed at the most favorable prices, considering all costs of the transaction including brokerage commissions and dealer markups and markdowns and brokerage commissions and taking into account the full range and quality of the brokers' services. Consistent with obtaining best execution, the Fund generally pays, as described below, a higher commission than some brokers might charge on the same transaction. This policy with respect to best execution governs the selection of brokers or dealers and the market in which the transaction is executed. To the extent permitted by law, we may, if considered advantageous, make a purchase from or sale to another Lord Abbett-sponsored fund without the intervention of any broker-dealer. Broker-dealers are selected on the basis of their professional capability and the value and quality of their brokerage and research services. Normally, the selection is made by traders who are employees of Lord Abbett. These traders do the trading as well for other accounts -- investment companies and other investment clients -- managed by Lord Abbett. They are responsible for obtaining best execution. We pay a brokerage commission rate that we believe is appropriate to give maximum assurance that our brokers will provide us, on a continuing basis, the highest level of brokerage services available. While we do not always seek the lowest possible commissions on particular trades, we believe that our commission rates are in line with the rates that many other institutions pay. Our traders are authorized to pay brokerage commissions in excess of those that other brokers might accept on the same transactions in recognition of the value of the services performed by the executing brokers, viewed in terms of either the particular transactions or the overall responsibilities of Lord Abbett with respect to us and the other accounts they manage. Such services include showing us trading opportunities including blocks, a willingness and ability to take positions in securities, knowledge of a particular security or market proven ability to handle a particular type of trade, confidential treatment, promptness and reliability. Some of these brokers also provide research services at least some of which are useful to Lord Abbett in their overall responsibilities with respect to us and the other accounts they manage. Research includes the furnishing of analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts and trading equipment and computer software packages, acquired from third-party suppliers, that enable Lord Abbett to access various information bases. Such services may be used by Lord Abbett in servicing all their accounts, and not all of such services will necessarily be used by Lord Abbett in connection with their management of the Fund. Conversely, such services furnished in connection with brokerage on other accounts managed by Lord Abbett may be used in connection with their management of the Fund, and not all of such services will necessarily be used by Lord Abbett in connection with their advisory services to such other accounts. We have been advised by Lord Abbett that research services received from brokers cannot be allocated to any particular account, are not a substitute for Lord Abbett's services but are supplemental to their own research effort and when utilized, are subject to internal analysis before being incorporated by Lord Abbett into their investment process. As a practical matter, it would not be possible for Lord Abbett to generate all of the information presently provided by brokers. While receipt of research services from brokerage firms has not reduced Lord Abbett's normal research activities, the expenses of Lord Abbett could be materially increased if it attempted to generate such additional information through its own staff and purchased such equipment and software packages directly from the suppliers. No commitments are made regarding the allocation of brokerage business to or among brokers, and trades are executed only when they are dictated by investment decisions of the Lord Abbett-sponsored funds to purchase or sell portfolio 10 securities. When in the opinion of Lord Abbett, two or more broker-dealers (either directly or through their correspondent clearing agents) are in a position to obtain the best price and execution, preference may be given to brokers who have sold shares of the Fund and/or shares of other Lord Abbett-sponsored funds, or who have provided investment research, statistical, or other related services to the Fund. If other clients of Lord Abbett buy or sell the same security at the same time as a Lord Abbett-sponsored fund does, transactions will, to the extent practicable, be allocated among all participating accounts in proportion to the amount of each order and will be executed daily until filled so that each account shares the average price and commission cost of each day. Other clients who direct that their brokerage business be placed with specific brokers or who invest through wrap accounts introduced to Lord Abbett by certain brokers may not participate with a Lord Abbett-sponsored 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 a Lord Abbett-sponsored fund does, they may have their transactions executed at times different from our transactions and thus may not receive the same price or incur the same commission cost as a Lord Abbett-sponsored fund does. For the fiscal years ended October 31, 2000, 1999, and 1998, the Fund paid total commissions to independent dealers of $13,129,004 , $11,088,462, and $12,832,030, respectively. 7. CAPITAL STOCK AND OTHER SECURITIES CLASSES OF SHARES. The Fund offers investors five different classes of shares; only Class Y shares are offered in this Statement of Additional Information. The different classes of shares represent investments in the same portfolio of securities but are subject to different expenses and will likely have different share prices. All shares have equal noncumulative voting rights and equal rights with respect to dividends, assets and liquidation, except for certain class-specific expenses. They are fully paid and nonassessable when issued and have no preemptive or conversion rights. Additional classes or funds may be added in the future. The Act requires that where more than one class or fund exists, each class or fund must be preferred over all other classes or funds in respect of assets specifically allocated to such class or fund. Rule 18f-2 under the Act provides that any matter required to be submitted, by the provisions of the Act or applicable state law or otherwise, to the holders of the outstanding voting securities of an investment company such as the Fund shall not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares of each class affected by such matter. Rule 18f-2 further provides that a class shall be deemed to be affected by a matter unless the interests of each class or fund in the matter are substantially identical or the matter does not affect any interest of such class or fund. However, the Rule exempts the selection of independent public accountants, the approval of a contract with a principal underwriter and the election of directors from the separate voting requirements. The Fund's By-Laws provide that the Fund shall not hold an annual meeting of its stockholders in any year unless one or more matters are required to be acted on by stockholders under the Act, or unless called by a majority of the Board of Directors or by stockholders holding at least one quarter of the stock of the Fund outstanding and entitled to vote at the meeting. When any such annual meeting is held, the stockholders will elect directors and vote on the approval of the independent auditors of the Fund. 8. PURCHASE, REDEMPTIONS AND PRICING Information concerning how we value our shares for the purchase and redemption of our shares is described in the Prospectus under "Purchases" and "Redemptions", respectively. As disclosed in the Prospectus, we calculate our net asset value as of the close of the New York Stock Exchange 11 ("NYSE") on each day that the NYSE is open for trading by dividing our total net assets by the number of shares outstanding at the time of calculation. The NYSE is closed on Saturdays and Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. The Fund values its portfolio securities at market value as of the close of the NYSE. Market value will be determined as follows: securities listed or admitted to trading privileges on any national securities exchange are valued at the last sales price, or, if there is no sale on that day, at the mean between the last bid and asked price, or, in the case of bonds, in the over-the-counter market if, in the judgment of the Fund's officers, that market more accurately reflects the market value of the bonds. Over-the-counter securities not traded on the NASDAQ National Market System are valued at the mean between the last bid and asked prices. Securities for which market quotations are not available are valued at fair market value under procedures approved by the Board of Directors. The net asset value per share for the Class Y shares will be determined by taking the net assets and dividing by the number of Class Y shares outstanding. Our Class Y shares will be offered at net asset value. CLASS Y SHARE EXCHANGES. The Prospectus briefly describes the Telephone Exchange Privilege. You may exchange some or all of your Class Y shares for Class Y shares of any Lord Abbett-sponsored funds currently offering Class Y shares to the public. You should read the prospectus of the other funds before exchanging. In establishing a new account by exchange, shares of the fund being exchanged must have a value equal to at least the minimum initial investment required for the other funds into which the exchange is made. REDEMPTIONS. A redemption order is in proper form when it contains all of the information and documentation required by the order form or supplementary by Lord Abbett Distributor or the Fund to carry out the order. The signature(s) and any legal capacity of the signer(s) must be guaranteed by an eligible guarantor. See the Prospectus for expedited redemption procedures. The right to redeem and receive payment, as described in the Prospectus, may be suspended if the NYSE is closed (except for weekends or customary holidays), trading on the NYSE is restricted or the Securities and Exchange Commission deems an emergency to exist. Our Board of Directors may authorize redemption of all of the shares in any account in which there are fewer than 25 shares. Before authorizing such redemption, the Board must determine that it is in our economic best interest or necessary to reduce disproportionately burdensome expenses in servicing shareholder accounts. At least 6 months prior written notice will be given before any such redemption, during which time shareholders may avoid redemption by bringing their accounts up to the minimum set by the Board. 9. TAXATION OF THE FUND The Fund intends to elect and to qualify for special tax treatment afforded regulated investment companies under the Internal Revenue Code of 1986 (the "Code"). If it so qualifies, the Fund (but not its shareholders) will be relieved of federal income taxes on the amount it distributes to shareholders. If in any taxable year the Fund does not qualify as a regulated investment company, all of its taxable income will be taxed to the Fund at regular corporate rates. The Fund contemplates declaring as dividends substantially all of its net investment income. Dividends paid by the Fund from its ordinary income and distributions of its net realized short-term capital gains are taxable to shareholders as ordinary income from dividends. Distributions paid by a Fund from its net realized long-term capital gains are taxable to shareholders as capital gains, regardless of the length of time the shareholder owned shares. All dividends are taxable to shareholders whether received in cash or reinvested in Fund shares. The Fund will send each shareholder annual information concerning the tax treatment of dividends and other distributions.. Upon sale, exchange or redemption of shares of the Fund, a shareholder will recognize short- or long-term capital gain 12 or loss, depending upon the shareholder's holding period in the Fund's shares. However, if a shareholder's holding period in his shares is six months or less, any capital loss realized from a sale or exchange of such shares must be treated as long-term capital loss to the extent of dividends classified as "capital gains dividends" received with respect to such shares. The maximum tax rates applicable to net capital gains recognized by individuals and other non- corporate taxpayers are (i) the same as ordinary income rates for capital assets held for one year or less and (ii) 20% for capital assets held for more than one year. Capital gains or losses recognized by corporate shareholders are subject to tax at the ordinary income tax rates applicable to corporations. Losses on the sale of shares are not deductible if, within a period beginning 30 days before the date of the sale and ending 30 days after the date of the sale, the taxpayer acquires shares that are substantially identical. Some shareholders may be subject to a 31% withholding tax on reportable dividends, capital gains distributions and redemption payments ("backup withholding"). Generally, shareholders subject to backup withholding will be those for whom a certified taxpayer identification number is not on file with the Fund or who, to the Fund's knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalties of perjury that such number is correct and that he is not otherwise subject to backup withholding. The writing of call options and other investment techniques and practices which the Fund may utilize may affect the character and timing of the recognition of gains and losses. Such transactions may increase the amount of short-term capital gain realized by the Fund, which is taxed as ordinary income when distributed to shareholders. The Fund may be subject to foreign withholding taxes, which would reduce the yield on its investments. It is generally expected that Fund shareholders who are subject to U.S. federal income tax will not be entitled to claim a federal income tax credit or deduction for foreign income taxes paid by the Fund. The Fund will also be subject to a 4% non-deductible excise tax on certain amounts not distributed or treated as having been distributed on a timely basis each calendar year. The Fund intends to distribute to shareholders each year an amount adequate to avoid the imposition of such excise tax. Dividends paid by the Fund will qualify for the dividends-received deduction for corporations to the extent they are derived from dividends paid by domestic corporations. Corporate shareholders must have held their shares in the Fund for more than 45 days to qualify for the deduction on dividends paid by the Fund. Gain and loss realized by the Fund on certain transactions, including sales of foreign debt securities and certain transactions involving foreign currency, will be treated as ordinary income or loss for federal income tax purposes to the extent, if any, that such gain or loss is attributable to changes in exchange rates for foreign currencies. Accordingly, distributions taxable as ordinary income will include the net amount, if any, of such foreign exchange gain and will be reduced by the net amount, if any, of such foreign exchange loss. If the Fund purchases shares in certain foreign investment entities called "passive foreign investment companies," the Fund may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain from the disposition of such shares, even if such income is distributed as a taxable dividend by the Fund to its shareholders. Additional charges in the nature of interest may be imposed on either the Fund in respect of deferred taxes arising from such distributions or gains. If the Fund were to make a "qualified electing fund" election with respect to its investment in a passive foreign investment company, in lieu of the foregoing requirements, the Fund might be required to include in income each year a portion of the ordinary earnings and net capital gains of the qualified electing fund, even if such amount were not distributed to the Fund. Alternatively, if the Fund were to make a mark-to-market election with respect to its investment in a passive foreign investment company, gain or loss with respect to the investment would generally be considered realized at the end of each taxable year of the Fund, even if the Fund continued to hold the investment and would be treated as ordinary income or loss to the Fund. The foregoing discussion relates solely to U.S. federal income tax law as applicable to U.S. persons (U.S. citizens or residents and United States domestic corporations, partnerships, trusts and estates). Each shareholder who is not a U.S. 13 person should consult his tax adviser regarding the U.S. and foreign tax consequences of the ownership of shares of a Fund, including the applicable rate of U.S. withholding tax on dividends representing ordinary income and net short-term capital gains, and the applicability of U.S. gift and estate taxes. 10. UNDERWRITER Lord Abbett Distributor LLC, a New York limited liability company and subsidiary of Lord Abbett, 90 Hudson Street, Jersey City, New Jersey 07302-3973, serves as the principal underwriter for the Fund. The Fund has entered into a distribution agreement with Lord Abbett Distributor, under which Lord Abbett Distributor is obligated to use its best efforts to find purchasers for the shares of the Fund, and to make reasonable efforts to sell Fund shares so long as, in Lord Abbett Distributor's judgment, a substantial distribution can be obtained by reasonable efforts. 11. PERFORMANCE The Fund computes the average annual compounded rate of total return during specified periods that would equate the initial amount invested to the ending redeemable value of such investment by adding one to the computed average annual total return, raising the sum to a power equal to the number of years covered by the computation and multiplying the result by one thousand dollars, which represents a hypothetical initial investment. The calculation assumes deduction of the maximum sales charge from the initial amount invested and reinvestment of all income dividends and capital gains distributions on the reinvestment dates at prices calculated as stated in the Prospectus. The ending redeemable value is determined by assuming a complete redemption at the end of the period(s) covered by the average annual total return computation. In calculating total returns for Class Y shares no sales charge is deducted from the initial investment and the return is shown at net asset value. Total returns also assume that all dividends and capital gains distributions during the period are reinvested at net asset value per share, and that the investment is redeemed at the end of the period. The Fund's average annual returns for the fiscal year ended October 31, 2000 and for the period since inception, March 27, 1998 was 15.52% and 11.69%, respectively. Yield quotation for Class Y shares is based on a 30-day period ended on a specified date, computed by dividing the net investment income per share earned during the period by the net asset value per share of such class on the last day of the period. This is determined by finding the following quotient: Take the dividends and interest earned during the period for the class minus its expenses accrued for the period and divide by the product of (i) the average daily number of class shares outstanding during the period that were entitled to receive dividends and (ii) the net asset value per share of such class on the last day of the period. To this quotient add one. This sum is multiplied by itself five times. Than one is subtracted from the produce of this multiplication and the remainder is multiplied by two. Yield for Class Y shares do not reflect the deduction of any sales charge. These figures represent past performance, and an investor should be aware that the investment return and principal value of a Fund investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Therefore, there is no assurance that this performance will be repeated in the future. The Fund may from time to time quote or otherwise use yield and total return information in advertisements, shareholder reports or sales literature. Thirty-day yield and average annual total return values are computed pursuant to formulas specified by the SEC. The Fund may also from time to time quote distribution rates in reports to shareholders and in sales literature. In addition, the Fund may from time to time advertise or describe in sales literature its performance relative to certain averages, performance rankings, indices, other information prepared by recognized mutual fund statistical services and investment for which reliable performance information is available. 14 12. FINANCIAL STATEMENTS The financial statements for the fiscal year ended October 31, 2000 and the report of Deloitte & Touche LLP, independent auditors, on such financial statements, included in the 2000 Annual Report to Shareholders of Lord Abbett Affiliated Fund, Inc., are incorporated herein by reference in reliance upon the authority of Deloitte & Touche LLP as experts in auditing and accounting. 15 LORD ABBETT AFFILIATED FUND, INC. PART C OTHER INFORMATION Item 23. Exhibits (a) ARTICLES OF INCORPORATION, ARTICLES SUPPLEMENTARY. Incorporated by reference to Post-Effective Amendment No. 73 to the Registration Statement on Form N-1A filed on March 2, 1998. (b) BY-LAWS, AS AMENDED MARCH 9, 2000. FILED HEREIN. (b) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS. Not applicable. (c) MANAGEMENT AGREEMENT. Incorporated by reference to Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A of Lord Abbett Equity Fund, Inc. (File No. 811-6033). (e) DISTRIBUTION AGREEMENT. Incorporated by reference to Post-Effective Amendment No. to the Registration Statement on form N-1A filed on . (f) BONUS OR PROFIT SHARING CONTRACTS. FILED HEREIN. (g) CUSTODIAN AGREEMENTS is incorporated by reference. (g) TRANSFER AGENCY AGREEMENT is incorporated by reference. (i) LEGAL OPINION. FILED HEREWITH. (j) OTHER OPINION. CONSENT OF DELOITTE & TOUCHE, LLP FILED HEREIN. (k) OMITTED FINANCIAL STATEMENTS is incorporated by reference. (k) INITIAL CAPITAL AGREEMENTS is incorporated by reference. (m) RULE 12b-1 PLAN. Incorporated by reference to Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A of Lord Abbett Research Fund, Inc. (File No. 811-6650). (n) FINANCIAL DATA SCHEDULE. Not applicable. (o) RULE 18f-3 PLAN. FILED HEREIN. (p) CODE OF ETHICS. FILED HEREIN. Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND None. 1 Item 25. INDEMNIFICATION Registrant is incorporated under the laws of the State of Maryland and is subject to Section 2-418 of the Corporations and Associations Article of the Annotated Code of the State of Maryland controlling the indemnification of directors and officers. Since Registrant has its executive offices in the State of New York, and is qualified as a foreign corporation doing business in such State, the persons covered by the foregoing statute may also be entitled to and subject to the limitations of the indemnification provisions of Section 721-726 of the New York Business Corporation Law. The general effect of these statutes is to protect officers, directors and employees of Registrant against legal liability and expenses incurred by reason of their positions with the Registrant. The statutes provide for indemnification for liability for proceedings not brought on behalf of the corporation and for those brought on behalf of the corporation, and in each case place conditions under which indemnification will be permitted, including requirements that the officer, director or employee acted in good faith. Under certain conditions, payment of expenses in advance of final disposition may be permitted. The By-laws of Registrant, without limiting the authority of Registrant to indemnify any of its officers, employees or agents to the extent consistent with applicable law, make the indemnification of its directors mandatory subject only to the conditions and limitations imposed by the above- mentioned Section 2-418 of Maryland law and by the provisions of Section 17(h) of the Investment Company Act of 1940 as interpreted and required to be implemented by SEC Release No. IC-11330 of September 4, 1980. In referring in its By-laws to, and making indemnification of directors subject to the conditions and limitations of, both Section 2-418 of the Maryland law and Section 17(h) of the Investment Company Act of 1940, Registrant intends that conditions and limitations on the extent of the indemnification of directors imposed by the provisions of either Section 2-418 or Section 17(h) shall apply and that any inconsistency between the two will be resolved by applying the provisions of said Section 17(h) if the condition or limitation imposed by Section 17(h) is the more stringent. In referring in its By-laws to SEC Release No. IC-11330 as the source for interpretation and implementation of said Section 17(h), Registrant understands that it would be required under its By-laws to use reasonable and fair means in determining whether indemnification of a director should be made and undertakes to use either (1) a final decision on the merits by a court or other body before whom the proceeding was brought that the person to be indemnified ("indemnitee") was not liable to Registrant or to its security holders by reason of willful malfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office ("disabling conduct") or (2) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the indemnitee was not liable by reason of such disabling conduct, by (a) the vote of a majority of a quorum of directors who are neither "interested persons" (as defined in the 1940 Act) of Registrant nor parties to the proceeding, or (b) an independent legal counsel in a written opinion. Also, Registrant will make advances of attorneys' fees or other expenses incurred by a director in his defense only if (in addition to his undertaking to repay the advance if he is not ultimately entitled to indemnification) (1) the indemnitee provides a security for his undertaking, (2) Registrant shall be insured against losses arising by reason of any lawful advances, or (3) a majority of a quorum of the non-interested, non-party directors of Registrant, or an independent legal counsel in a written opinion, shall determine, based on a review of readily available facts, that there is reason to believe that the indemnitee ultimately will be found entitled to indemnification. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities 2 (other than the payment by the Registrant of expense incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. In addition, Registrant maintains a directors' and officers' errors and omissions liability insurance policy protecting directors and officers against liability for breach of duty, negligent act, error or omission committed in their capacity as directors or officers. The policy contains certain exclusions, among which is exclusion from coverage for active or deliberate dishonest or fraudulent acts and exclusion for fines or penalties imposed by law or other matters deemed uninsurable. Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER Lord, Abbett & Co. acts as investment adviser for the Lord Abbett registered investment companies and provides investment management services to various pension plans, institutions and individuals. Lord Abbett Distributor, a limited liability corporation, serves as their distributor and principal underwriter. Other than acting as trustees, directors and/or officers of open-end investment companies managed by Lord, Abbett & Co., none of Lord, Abbett & Co.'s partners has, in the past two fiscal years, engaged in any other business, profession, vocation or employment of a substantial nature for his or her own account or in the capacity of director, officer, employee, or partner of any entity. Item 27. PRINCIPAL UNDERWRITER (a) Lord Abbett Bond-Debenture Fund, Inc. Lord Abbett Developing Growth Fund, Inc. Lord Abbett Global Fund, Inc. Lord Abbett Investment Trust Lord Abbett Large-Cap Growth Fund Lord Abbett Mid-Cap Value Fund, Inc Lord Abbett Research Fund, Inc. Lord Abbett Securities Trust Lord Abbett Series Fund, Inc. Lord Abbett Tax-Free Income Fund, Inc. Lord Abbett Tax-Free Income Trust Lord Abbett U.S. Government Money Market Fund, Inc. (b) The partners of Lord, Abbett & Co. are: Name and Principal Positions and Offices Business Address * With Registrant ------------------ --------------------- Robert S. Dow Chairman and President Paul A. Hilstad Vice President & Secretary Daniel E. Carper Vice President W. Thomas Hudson, Jr. Executive Vice President Robert G. Morris Executive Vice President Eli M. Salzmann Executive Vice President Joan A. Binstock Vice President 3 The other general partners of Lord, Abbett & Co. who are neither officers nor directors of the Registrant are Stephen I. Allen, John E. Erard, Zane E. Brown, Robert P. Fetch, Daria L. Foster, Robert I. Gerber, Stephen J. McGruder, Michael McLaughlin, Robert J. Noelke, R. Mark Pennington and Christopher Towle. Each of the above has a principal business address: 90 Hudson Street, Jersey City, NJ 07302 (c) Not applicable Item 28. LOCATION OF ACCOUNTS AND RECORDS Registrant maintains the records, required by Rules 31a - 1(a) and (b), and 31a - 2(a) at its main office. Lord, Abbett & Co. maintains the records required by Rules 31a - 1(f) and 31a - 2(e) at its main office. Certain records such as cancelled stock certificates and correspondence may be physically maintained at the main office of the Registrant's Transfer Agent, Custodian, or Shareholder Servicing Agent within the requirements of Rule 31a-3. Item 29. MANAGEMENT SERVICES None Item 30. UNDERTAKINGS The Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. The registrant undertakes, if requested to do so by the holders of at least 10% of the Registrant's outstanding shares, to call a meeting of shareholders for the purpose of voting upon the question of removal of a Director or Directors and to assist in communications with other shareholders as required by Section 16(c) of the Investment Company Act of 1940, as amended. 4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended and the Investment Company Act of 1940, as amended, the Fund certifies that it meets all of the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act and has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Jersey City, and State of Jersey City, and State of New Jersey, on the 28th of February, 2001. LORD ABBETT AFFILIATED FUND, INC. /s/ Christina T. Simmons ------------------------------ By: Christina T. Simmons Vice President /s/ Francie W. Tai ------------------------------ By: Francie W. Tai Treasurer LORD ABBETT AFFILIATED FUND, INC. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE Chairman, President /s/Robert S. Dow* and Director/Trustee February 28, 2000 - ---------------------------- ------------------------ ------------------ Robert S. Dow /s/ E. Thayer Bigelow* Director/Trustee February 28, 2000 - ---------------------------- ------------------------ ----------------- E. Thayer Bigelow /s/William H. T. Bush* Director/Trustee February 28, 2000 - ---------------------------- ------------------------ ----------------- William H. T. Bush /s/Robert B. Calhoun, Jr*. Director/Trustee February 28, 2000 - -------------------------- ------------------------ ----------------- Robert B. Calhoun, Jr. /s/Stewart S. Dixon* Director/Trustee February 28, 2000 - ---------------------------- ------------------------ ----------------- Stewart S. Dixon /s/C. Alan MacDonald* Director/Trustee February 28, 2000 - ---------------------------- ------------------------ ------------------ C. Alan MacDonald /s/Thomas J. Neff* Director/Trustee February 28, 2000 - ---------------------------- ------------------------ ----------------- Thomas J. Neff
*Lawrence H. Kaplan - ------------------- Attorney-in-Fact - ---------------- 5 EX-99.B 2 a2040180zex-99_b.txt EXHIBIT 99.B (as amended March 9, 2000) BY-LAWS OF LORD ABBETT AFFILIATED FUND, INC. (a Maryland Corporation) ARTICLE I OFFICES Section 1. PRINCIPAL OFFICE. The principal office of the Corporation in Maryland shall be in the City of Baltimore, and the name of the resident agent in charge thereof is the Prentice-Hall Corporation Systems, Maryland. Section 2. OTHER OFFICES. The Corporation may also have an office in the City and State of New York and offices at such other places as the Board of Directors may from time to time determine. ARTICLE II Section 1. ANNUAL MEETINGS. The Corporation shall not hold an annual meeting of its stockholders in any fiscal year of the Corporation unless required in accordance with the following sentence. The Chairman of the Board or the President shall call an annual meeting of the stockholders when the election of directors is required to be acted on by stockholders under the Investment Company Act of 1940, as amended, and the Chairman of the Board, the President, a Vice President, the Secretary or any director shall call an annual meeting of stockholders at the request in writing of a majority of the Board of Directors or of stockholders holding at least one-quarter of the stock of the Corporation outstanding and entitled to vote at the meeting. Any annual meeting of the stockholders held pursuant to the foregoing sentence shall be held at such time and at such place, within the City of New York or elsewhere, as may be fixed by the Chairman of the Board or the President or the Board of Directors or by the stockholders holding at least one-quarter of the stock of the Corporation outstanding and entitled to vote, as the case may be, and as may be stated in the notice setting forth such call, provided that any stockholders requesting such meeting shall have paid to the Corporation the reasonably estimated cost of preparing and mailing the notice thereof, which the Secretary shall determine and specify to such stockholders. Any meeting of stockholders held in accordance with this Section 1 shall for all purposes constitute the annual meeting of stockholders for the fiscal year of the Corporation in which the meeting is held and, without limiting the generality of the foregoing, shall be held for the purposes of (a) acting on any such matter or matters so required to be acted on by stockholders under the Investment Company Act of 1940, as amended, and (b) electing directors to hold the offices of any directors who have held office for more than one year (or, in the case of directors elected prior to July 1, 1987, who have held office for more than three years) or who have been elected by the Board of Directors to fill vacancies which result from any cause and for transacting such other business as may properly be brought before the meeting. Only such business, in addition to that prescribed by law, by the Articles of Incorporation and by these By-laws, may be brought before such meeting as may be specified by resolution of the Board of Directors or by writing filed with the Secretary of 2 the Corporation and signed by the Chairman of the Board or by the President or by a majority of the directors or by stockholders holding at least one-quarter of the stock of the Corporation outstanding and entitled to vote at the meeting. Section 2. SPECIAL MEETINGS. Special meetings of the stockholders for any purpose or purposes may be held upon call of the Chairman of the Board or the President or by a majority of the Board of Directors, and shall be called by the Chairman of the Board, the President, a Vice President, the Secretary or any director at the request in writing of a majority of the Board of Directors or of stockholders holding at least one-quarter of the stock of the Corporation outstanding and entitled to vote at the meeting, at such time and at such place where an annual meeting of stockholders could be held, as may be fixed by the Chairman of the Board or the President or the Board of Directors or by the stockholders holding at least one-quarter of the stock of the Corporation outstanding and so entitled to vote, as the case may be, and as may be stated in the notice setting forth such call, provided that any stockholders requesting such meeting shall have paid to the Corporation the reasonably estimated cost of preparing and mailing the notice thereof, which the Secretary shall determine and specify to such stockholders. Such request shall state the purpose or purposes of the proposed meeting, and only such purpose or purposes so specified may properly be brought before such meeting. No special meeting need be called upon the request of the holders of less than a majority of the stock of the Corporation outstanding and so entitled to vote to consider any matter which is 3 substantially the same as a matter voted upon at any special meeting of the stockholders held during the preceding 12 months. Section 3. NOTICE OF MEETINGS. Written or printed notice of every annual or special meeting of stockholders, stating the time and place thereof and the general nature of the business proposed to be transacted at any such meeting, shall be delivered personally or mailed not less than 10 or more than 90 days previous thereto to each stockholder of record entitled to vote at the meeting or entitled to notice of the meeting at his address as the same appears on the books of the Corporation. Meetings may be held without notice if all of the stockholders entitled to vote are present or represented at the meeting or if notice is waived in writing, either before or after the meeting, by those not present or represented at the meeting. No notice of an adjourned meeting of the stockholders other than an announcement of the time and place thereof at the preceding meeting shall be required. Section 4. QUORUM. At every meeting of the stockholders the holders of record of a majority of the outstanding shares of the stock of the Corporation entitled to vote at the meeting, whether present in person or represented by proxy, shall, except as otherwise provided by law, constitute a quorum. If at any meeting there shall be no quorum, the holders of record of a majority of such shares entitled to vote at the meeting so present or represented may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall have been obtained, at which time any 4 business may be transacted which might have been transacted at the meeting as originally called. Section 5. VOTING. All elections shall be had and all questions decided by a majority of the votes cast, without regard to Class, at a duly constituted meeting, except as otherwise provided by law or by the Articles of Incorporation or by these By-laws and except that with respect to a question as to which the holders of Shares of any Class or Classes are entitled or required to vote as a Separate Class or a Combined Class, as the case may be, such question shall be decided as to such Separate Class or such Combined Class, as the case may be, by a majority of the votes cast by Shares of such Separate Class or such Combined Class, as the case may be. With respect to all Shares having voting rights (a) a shareholder may vote the shares owned of record by him either in person or by proxy executed in writing by the shareholder of by his duly authorized attorney-in-fact, provided that no proxy shall be valid after eleven months from its date unless otherwise provided in the proxy and (b) in all elections for directors every shareholder shall have the right to vote, in person or by proxy, the Shares owned of record by him, for as many persons as there are directors to be elected and for whose elections he has a right to vote. Any Shareholder may give authorization by telephone, facsimile, or the internet for another person to execute his or her proxy. Unless otherwise specifically limited by their terms, proxies shall entitle the holder thereof to vote at any adjournment of a meeting. 5 ARTICLE III BOARD OF DIRECTORS Section 1. GENERAL POWERS. The property, affairs and business of the Corporation shall be managed by the Board of Directors, provided, however, that the Board of Directors may authorize the Corporation to enter into an agreement or agreements with any person, corporation, association, partnership or other organization, subject to the Board's supervision and control for the purpose of providing managerial, investment advisory and related services to the Corporation which may include management or supervision of the investment portfolio of the Corporation. Section 2. NUMBER, CLASS, QUORUM, ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The Board of Directors of the Corporation shall consist of not less than three or more than fifteen persons, none of whom need be stockholders of the Corporation. The number of directors (within the above limits) shall be determined by the Board of Directors from time to time, as it sees fit, by vote of a majority of the whole board. Directors elected prior to July 1, 1987, shall be divided into three classes, each to hold office for a term of three years; directors elected thereafter shall consist of one class only. The directors shall be elected at each annual meeting of stockholders and, whether or not elected for a specific term, shall hold office, unless sooner removed, until their respective successors are elected and qualify. One-third of the whole Board, but in no event less than two, shall constitute a quorum for the transaction of business, but if at any meeting of the Board there shall be less than a quorum present, a majority of the directors 6 present may adjourn the meeting from time to time until a quorum shall have been obtained, when any business may be transacted which might have been transacted at the meeting as originally convened. No notice of an adjourned meeting of the directors other than an announcement of the time and place thereof at the preceding meeting shall be required. The acts of the majority of the directors present at any meeting at which there is a quorum shall be the acts of the Board, except as otherwise provided by law, by the Articles of Incorporation or by these By-laws. Section 3. VACANCIES. The Board of Directors, by vote of a majority of the whole Board, may elect directors to fill vacancies in the Board resulting from an increase in the number of directors or from any other cause. Directors so chosen shall hold office until their respective successors are elected and qualify, unless sooner displaced pursuant to law or by these By-laws. The stockholders, at any meeting called for the purpose, may, with or without cause, remove any director by the affirmative vote of the holders of a majority of the votes entitled to be cast, and at any meeting called for the purpose may fill the vacancy in the Board thus caused. Section 4. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such time and place, within or without the State of Maryland, as may from time to time be fixed by Resolution of the Board or as may be specified in the notice of any meeting. No notice of regular meetings of the Board shall be required. Section 5. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called from time to time by the Chairman of the Board, the President, any Vice President 7 or any two directors. Each special meeting of the Board shall be held at such place, either within or outside the State of Maryland, as shall be designated in the notice of such meeting. Notice of each such meeting shall be mailed to each director, at his residence or usual place of business, at least two days before the day of the meeting, or shall be directed to him at such place by telegraph or cable, or be delivered to him personally not later than the day before the day of the meeting. Every such notice shall state the time and place of the meeting but need not state the purposes thereof, except as otherwise expressly provided in these By-laws or by statute. Section 6. TELEPHONE CONFERENCE MEETINGS. Any meeting of the Board or any committee thereof may be held by conference telephone, regardless where each director may be located at the time, by means of which all persons participating in the meeting can hear each other, and participation in such meeting in such manner shall constitute presence in person at such meeting. Section 7. FEES AND EXPENSES. The directors shall receive such fees and expenses for services to the Corporation as may be fixed by the Board of Directors, subject however, to such limitations as may be provided in the Articles of Incorporation. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent or otherwise and receiving compensation therefor. Section 8. TRANSACTIONS WITH DIRECTORS. Except as otherwise provided by law or in the Articles of Incorporation, a director of the Corporation shall not in the absence of 8 fraud be disqualified from office by dealing or contracting with the Corporation either as a vendor, purchaser or otherwise, nor in the absence of fraud shall any transaction or contract of the Corporation be void or voidable or affected by reason of the fact that any director, or any firm of which any director is a member, or any corporation of which any director is an officer, director or stockholder, is in any way interested in such transaction or contract, provided that at the meeting of the Board of Directors, at which said contract or transaction is authorized or confirmed, the existence of an interest of such director, firm or corporation is disclosed or made known and there shall be present a quorum of the Board of Directors a majority of which, consisting of directors not so interested, shall approve such contract or transaction. Nor shall any director be liable to account to the Corporation for any profit realized by him from or through any such transaction or contract of the Corporation ratified or approved as aforesaid, by reason of the fact that he or any firm of which he is a member, or any corporation of which he is an officer, director, or stockholder, was interested in such transaction or contract. Directors so interested may be counted when present at meetings of the Board of Directors for the purpose of determining the existence of a quorum. Any contract, transaction or act of the Corporation or of the Board of Directors (whether or not approved or ratified as hereinabove provided) which shall be ratified by a majority of the votes cast at any annual or special meeting at which a quorum is present called for such purpose, or approved in writing by a majority in interest of the stockholders having voting power 9 without a meeting, shall except as otherwise provided by law, be valid and as binding as though ratified by every stockholder of the Corporation. Section 9. COMMITTEES. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees each such committee to consist of two or more directors of the Corporation, which, to the extent permitted by law and provided in said resolution, shall have and may exercise the powers of the Board over the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. A majority of the members of any such committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board of Directors shall have power at any time to change the membership of, to fill vacancies in, or to dissolve any such committee. Section 10. WRITTEN CONSENTS. Any action required or permitted to be taken at any meeting of the Board of Directors or by any committee thereof may be taken without a meeting, if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes or proceedings of the Board or committee. Section 11. WAIVER OF NOTICE. Whenever under the provisions of these By-laws, or of the Articles of Incorporation, or of any of the laws of the State of Maryland, or other 10 applicable statute, the Board of Directors is authorized to hold any meeting or take any action after notice or after the lapse of any prescribed period of time, a waiver thereof, in writing, signed by the person or persons entitled to such notice or lapse of time, whether before or after the time of meeting or action stated herein, shall be deemed equivalent thereto. The presence at any meeting of a person or persons entitled to notice thereof shall be deemed a waiver of such notice as to such person or persons. ARTICLE IV OFFICERS Section 1. NUMBER AND DESIGNATION. The Board of Directors shall each year appoint from among their members a Chairman and a President of the Corporation, and shall appoint one or more Vice Presidents, a Secretary and a Treasurer and, from time to time, any other officers and agents as it may deem proper. Any two of the above-mentioned offices, except those of the President and a Vice President, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument be required by law or by these By-laws to be executed, acknowledged or verified by any two or more officers. Section 2. TERM OF OFFICE. The term of office of all officers shall be one year or until their respective successors are chosen; but any officer or agent chosen or appointed by the Board of Directors may be removed, with or without cause, at any time, by the affirmative vote of a majority of the members of the Board then in office. 11 Section 3. DUTIES. Subject to such limitations as the Board of Directors may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally appertain to their respective offices as well as such powers and duties as from time to time may be conferred by the Board of Directors. ARTICLE V CERTIFICATE OF STOCK Section 1. FORM AND ISSUANCE. Each stockholder of the Corporation shall be entitled upon request, to a certificate or certificates, in such form as the Board of Directors may from time to time prescribe, which shall represent and certify the number of shares of stock of the Corporation owned by such stockholder. The certificates for shares of stock of the Corporation shall bear the signature, either manual or facsimile, of the Chairman of the Board or the President or a Vice President and the Treasurer or an 12 Assistant Treasurer or the Secretary or an Assistant Secretary, and shall be sealed with the seal of the Corporation or bear a facsimile of such seal. The validity of any stock certificate shall not be affected if any officer whose signature appears thereon ceases to be an officer of the Corporation before such certificate is issued. Section 2. TRANSFER OF STOCK. The shares of stock of the Corporation shall be transferable on the books of the Corporation by the holder thereof in person or by a duly authorized attorney, upon surrender for cancellation of a certificate or certificates for a like number of shares, with a duly executed assignment and power of transfer endorsed thereon or attached thereto, or, if no certificate has been issued to the holder in respect of shares of stock of the Corporation, upon receipt of written instructions, signed by such holder, to transfer such shares from the account maintained in the name of such holder by the Corporation or its agent. Such proof for the authenticity of the signatures as the Corporation or its agent may reasonable require shall be provided. Section 3. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The holder of any stock of the Corporation shall immediately notify the Corporation of any loss, theft, destruction or mutilation of any certificate therefor, and the Board of Directors may, in its discretion, cause to be issued to him a new certificate or certificates of stock, upon the surrender of the mutilated certificate or in the case of loss, theft or destruction of the certificate upon satisfactory proof of such loss, theft, or destruction; and the Board of Directors may, in its discretion, require the owner of the lost, stolen or destroyed certificate, or 13 his legal representatives, to give to the Corporation and to such registrar or transfer agent as may be authorized or required to countersign such new certificate or certificates a bond, in such sum as they may direct, and with such surety or sureties, as they may direct, as indemnity against any claim that may be made against them or any of them on account of or in connection with the alleged loss, theft, or destruction of any such certificate. Section 4. RECORD DATE. The Board of Directors may fix in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of stockholders for any other proper purpose. Such date, in any case, shall be not more than 90 days, and in case of a meeting of stockholders, not less than 10 days, prior to the date on which the particular action requiring such determination of stockholders is to be taken. In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, 20 days prior to the date of any meeting of stockholders or the date for payment of any dividend or the allotment of rights. If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least 10 days immediately preceding such meeting. If no record date is fixed and the stock transfer books are not closed for determination of stockholders, the record date for the determination of stockholders entitled to notice of, or to vote at, a 14 meeting of stockholders shall be at the close of business on the day on which notice of the meeting is mailed or the day 30 days before the meeting, whichever is closer date to the mailing, and the record date for the determination of stockholders entitled to receive payment of a dividend or an allotment of any rights is adopted, provided that the payment or allotment date shall not be more than 90 days after the date of the adoption of such resolution. ARTICLE VI CORPORATE BOOKS The books of the Corporation, except the original or a duplicate stock ledger, may be kept outside the State of Maryland at such place or places as at the Board of Directors may from time to time determine. The original or duplicate stock ledger shall be maintained at the office of the Corporation's transfer agent. ARTICLE VII SIGNATURES Except as otherwise provided in these By-laws or as the Board of Directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the Corporation and all endorsements, assignments, transfers, stock powers or other instruments of transfer of securities owned by or standing 15 in the same of the Corporation shall be signed or executed by two officers of the Corporation, who shall be the Chairman of the Board, the President or a Vice President and a Vice President, the Secretary or the Treasurer. ARTICLE VIII FISCAL YEAR The fiscal year of the Corporation shall be established by resolution of the Board of Directors of the Corporation. ARTICLE IX CORPORATE SEAL The corporate seal of the Corporation shall consist of a flat faced circular die with the word "Maryland" together with the name of the Corporation, the year of its organization, and such other appropriate legend as the Board of Directors may from time to time determine, cut or engraved thereon. In lieu of the corporate seal, when so authorized by the Board of Directors or a duly empowered committee thereof, a facsimile thereof may be impressed or affixed or reproduced. 16 ARTICLE X INDEMNIFICATION As part of the consideration for agreeing to serve and serving as a director of the Corporation, each director of the Corporation shall be indemnified by the Corporation against every judgment, penalty, fine, settlement, and reasonable expense (including attorneys' fees) actually incurred by the director in connection with any threatened, pending or completed action, suit or proceeding in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, in which the director was, is, or is threatened to be made a named defendant or respondent (or otherwise becomes a party) by reason of such director's service in that capacity or status as such, and the amount of every such judgment, penalty, fine, settlement and reasonable expense so incurred by the director shall be paid by the Corporation or, if paid by the director, reimbursed to the director by the Corporation, subject only to the conditions and limitations imposed by the applicable provisions of Section 2-418 of the Corporations and Associations Article of the Annotated Code of the State of Maryland and by the provisions of Section 17(h) of the United States Investment Company Act of 1940 as interpreted and as required to be implemented by Securities and Exchange Commission Release No. IC-11330 of September 4, 1980. The foregoing shall not limit the authority of the Corporation to indemnify any of its officers, employees or agents to the extent consistent with applicable law. 17 ARTICLE XI AMENDMENTS All By-laws of the Corporation shall be subject to alteration, amendment, or repeal, and new By-laws not consistent with any provision of the Articles of Incorporation of the Corporation may be made, either by the affirmative vote of the holders of record of a majority of the outstanding stock of the Corporation entitled to vote in respect thereof, given at an annual meeting or at any special meeting, provided notice of the proposed alteration, amendment, or repeal of the proposed new By-laws is included in or accompanies the notice of such meeting, or by the affirmative vote of a majority of the whole Board of Directors given at a regular special meeting of the Board of Directors, provided that the notice of any such special meeting indicates that the By-laws are to be altered, amended, repealed, or that new By-laws are to be adopted. 18 EX-99.F 3 a2040180zex-99_f.txt EXHIBIT 99.F EQUITY-BASED PLANS FOR NON-INTERESTED PERSON DIRECTORS AND TRUSTEES OF LORD ABBETT FUNDS (As Amended and Restated as of June 19, 2000) 1. PURPOSE. The purpose of these Equity-Based Plans for Non-Interested Person Directors and Trustees (collectively, the "Equity-Based Plans" and separately, an "Equity-Based Plan"), which were initially called the Deferred Compensation Plan for Non-Interested Person Directors and Trustees of Lord Abbett Funds, is to provide eligible directors and trustees of each investment company referred to on Schedule I that has adopted an Equity-Based Plan and any other investment company sponsored and managed by Lord, Abbett & Co. that adopts an Equity-Based Plan (collectively, the "Companies" and separately, a "Company") with the opportunity to defer the receipt of compensation earned by them as directors and trustees in lieu of receiving payment of such compensation currently and to give them to the extent of such deferred compensation and other compensation a pecuniary interest in the investment performance of the Companies. The Equity-Based Plans constitute a separate Equity-Based Plan of each Company. 2. ELIGIBILITY. Any member of the Board of Trustees (if a Company is a trust) and any member of the Board of Directors (if a Company is a corporation) of a Company (the "Board") who is not an "interested person" of such Company as such term is defined in the Investment Company Act of 1940 (an "Independent Board Member") shall be eligible to participate in the Equity-Based Plan of such Company, if he or she so elects (a "Participant"). 3. AMOUNTS OF DEFERRALS. (a) ACCRUED PENSION PLAN DEFERRALS. The "Retirement Plan for Non-Interested Person Directors and Trustees of Lord Abbett Funds" (the "Pension Plan") has been amended, effective October 16, 1996, to provide that Independent Board Members may elect to receive equity-based benefits under the Equity-Based Plans in lieu of retirement benefits under the Pension Plan. Any Independent Board Member who makes such an election by the close of business on November 29, 1996 shall not be entitled to retirement benefits under the Pension Plan, but shall have his Account (as defined in section 4) for each Company increased, as of November 29, 1996, through credit of an amount equal to the value of such Independent Board Member's retirement benefits under such Company's Pension Plan (prior to giving effect to such amendment) as accrued to such date to reflect the terms of the Pension Plan. (b) MANDATORY DEFERRALS. Each Independent Board Member who makes the election referred to in the foregoing section 3(a) by the close of business on November 29, 1996, and each Independent Board Member who becomes an Independent Board Member after such date, shall defer receipt of such amount, if any, of the compensation earned by such Independent Board Member for serving as a member of the Board or as a member of any committee (or subcommittee of such committee) of the Board of which such Independent Board Member from time to time may be a member as may be specified with respect to such Independent Board Member from time to time by resolution of the Independent Board Members. (c) OPTIONAL DEFERRALS. In addition to the above deferrals an Independent Board Member may elect to defer receipt of all or a specified portion of any other compensation (including fees for attending meetings) earned by such Independent Board Member by notice to 2 the Companies consistent with the timing requirements of Section 7 hereof. Expenses of attending meetings of the Board, committees of the Board or subcommittees of such committees may not be deferred. 4. EQUITY-BASED ACCOUNTS. A deferred compensation equity-based account (the "Account") shall be established by each Company in the name of each Participant. Any amounts credited to an Account pursuant to section 3(a) will be credited as of the close of business on November 29, 1996. Any compensation earned by a Participant during any year and deferred pursuant to section 3(b) will be credited to such Participant's Account on a quarterly basis on the last days of March, June, September and December of such year. Any compensation deferred by a Participant pursuant to section 3(c) will be credited to such Participant's Account on the date such compensation otherwise would have been payable to such Participant. 5. ACCOUNT INVESTMENT. (a) TREATMENT OF CREDIT AMOUNTS. Except as provided in section 5(e), any amounts credited at any time to a Participant's Account established by a Company shall be deemed invested in a number of shares, which shall be class A shares if such Company has multiple classes of shares, of such Company's Common Stock equal to the quotient of (i) the amount credited to the Participant's Account divided by (ii) the Net Asset Value per share as of the date such amount is so credited. The Net Asset Value per share shall be determined as set forth in the Company's Articles of Incorporation. If such Company has more than one series, the amount credited to the Participant's Account shall be allocated between or among the series on the same basis as the compensation being deferred is charged to the series (or, in the case of an 3 amount credited pursuant to section 3(a), on the same basis as the amount thereof was charged to the series). (b) MERGERS, ETC. In the event that the Company shall pay a stock dividend on, or split up, combine, reclassify or substitute other securities by merger, consolidation or otherwise for its outstanding shares, the number of shares credited to the Participant's Account shall be adjusted to preserve rights substantially proportionate to the rights held immediately prior to such event. (c) DISTRIBUTIONS. On each payable date of a dividend or capital gains distribution declared by the Board of a Company, the Account will be credited with the number of full and fractional shares of the Company or series that the shares of such Company or series deemed to be held in the Account would have purchased if such dividend or distribution had been reinvested at the Net Asset Value on the investment date established by the Board with respect to such dividend or distribution. (d) Notwithstanding the foregoing, to the extent that a Participant continues to have an Account after having terminated service as an Independent Board Member, such Participant may elect, from time to time, but no more frequently than once in any semi-annual period, to have his Account treated as though invested in the shares of up to five (or such greater or lesser number as the Administrator appointed pursuant to section 14 hereof shall determine) Companies. Any such election shall be made in writing and delivered to the Company, and shall take effect at the end of the third business day following receipt thereof by the Company. Any change in the manner in which a Participant's Account is deemed invested will not affect the 4 period over which such Account is payable or the time at which or the formula pursuant to which any Installments due will be payable. (e) Effective November 1, 2000, amounts (i) in the Accounts of each Participant other than Hansel B. Millican and attributable to amounts credited under section 3(a) hereof before November 1, 2000; and (ii) in the Accounts of E. Thayer Bigelow, William H. T. Bush, Robert B. Calhoun, and C. Alan MacDonald attributable to amounts deferred under section 3(b) hereof before November 1, 2000 shall be reduced to their discounted present value at October 31, 2000 at a rate of 8% and thereafter shall appreciate at an annual rate of 8%, provided, however, that if a Participant whose Account has been adjusted as described herein shall die before age 72, the amounts in his Account attributable to amounts contributed under sections 3(a) and (b) hereof shall be increased at death to their value at October 31, 2000, if such value is greater than the appreciated value at death. 6. MANNER OF ELECTING OPTIONAL DEFERRALS; PAYMENT ELECTIONS. (a) NOTICE. Each Participant shall complete, sign and file with the Companies for which he is an Independent Board Member a Notice of Election (the "Notice") in one or more of the forms attached hereto as Exhibits A and B. The Notice shall include, as appropriate: (i) the amount, if any, of compensation to be deferred under section 3 (c); 5 (ii) the time or times of payment of any amounts credited and deferred under sections 3(a) and (b) and of any amounts deferred under section 3(c); (iii) the manner of payment of any amounts credited and deferred under sections 3(a) and (b) and of any amounts deferred under section 3(c) (I.E., in a lump sum or in a number of annual installments); and (iv) any beneficiary designated pursuant to section 9(b) and the manner of payment to such designated beneficiary. (b) DATE OF FIRST PAYOUT OF OPTIONAL DEFERRALS UNDER SECTION 3(c). With respect to amounts deferred pursuant to section 3(c), each Participant shall have the right in the Notice to elect to defer the receipt of such deferred compensation until any one of the following events, which such Participant shall specify in the Notice: (i) the first business day of January following the year in which such Participant ceases to be an Independent Board Member of the Companies; (ii) the date such Participant specifically chooses (but not earlier than the January 1 of the second calendar year following the calendar year in which such election is made); or (iii) the date on which some specific future event occurs which is not within the Participant's control. 6 (c) DATE OF FIRST PAYOUT OF AMOUNTS CREDITED AND DEFERRED UNDER SECTION 3(a) AND (b). With respect to amounts credited to an Account and deferred under sections 3(a) and (b), each Participant shall defer the receipt of such amounts until any one of the following dates or events, which such Participant shall specify in the Notice: (i) the first business day of January following the year in which such Participant ceases to be an Independent Board Member of the Companies; (ii) the later of the first business day of January following the year in which such Participant turns 65 and January 1 of the second calendar year following the calendar year in which such election is made; (iii) the later of the first business day of January following the year in which such Participant retires from his or her principal occupation and January 1 of the second calendar year following the calendar year in which such election is made; and (iv) the first business day of a month not earlier than the earliest of the dates referred to in (i), (ii) and (iii) above. (d) FAILURE TO DESIGNATE. If a Participant fails to designate in his Notice a time or date as of which payment of his Account (or any part of his Account) shall commence, payment of such amount shall commence as of the date set forth in (b) (i) above (unless the Participant files an amended Notice in compliance with section 8(b) selecting a different distribution date). If a Participant fails to designate in his Notice the manner of distribution to apply to his Account 7 (or any part of his Account), such Account shall be distributed in a lump sum (unless the Participant files an amended Notice in compliance with section 8(b) selecting a different method of distribution). (e) DISSOLUTION, ETC. Deferrals under this Equity-Based Plan which are deemed invested in shares of a Company (or series of a Company) shall be distributed upon the dissolution, liquidation or winding up of the Company (or other termination of the series), whether voluntary or involuntary; or the voluntary sale, conveyance or transfer of all or substantially all of a Company's (or a series') assets (unless the obligations of the Company or the series shall have been assumed by another investment company or another series of an investment company); or the merger of a Company into another trust or corporation or its consolidation with one or more other trusts or corporations (unless the obligations of the Company are assumed by such surviving entity and such surviving entity is another investment company). (f) HARDSHIP. Upon application by a Participant and a determination by the Compensation and Nominating Committees of the Boards that the Participant has suffered a severe and unanticipated financial hardship, the Administrator shall distribute to the Participant, in a single lump sum, an amount equal to the lesser of the amount needed by the Participant to meet the hardship (pro-rata among the Accounts), or the balance of the Participant's Accounts. 7. EFFECTIVE DATE AND DURATION OF DEFERRAL ELECTIONS. (a) ELECTION IRREVOCABLE. Except as provided in sections 7(b) and 8(a), any election by a Participant to defer compensation pursuant to section 3(c) shall be irrevocable from and after the date on which such person's Notice is filed with the Companies. Elections to defer 8 compensation pursuant to section 3(c) shall be effective to defer a Participant's compensation as follows: (i) As to any Independent Board Member in office on the effective date of the Equity-Based Plans who files a Notice no later than 60 days after such effective date, the Notice shall be effective to defer any compensation which may be deferred pursuant to section 3(c) and is earned by such Independent Board Member after the date of the filing of the Notice; (ii) As to any nominee for the office of trustee or director who has not previously served as an Independent Board Member and who files a Notice prior to his election as an Independent Board Member, such election to defer compensation pursuant to section 3(c) shall be effective to defer any compensation which may be deferred pursuant to section 3(c) and is earned by such nominee after his election as an Independent Board Member; and (iii) As to any other Independent Board Member, the election to defer compensation pursuant to section 3(c) shall be effective to defer any compensation which may be deferred pursuant to section 3(c) and is earned from and after January 1 of the calendar year next succeeding the year in which the Notice is filed. (b) CONTINUANCE OF NOTICES. Any election to defer compensation pursuant to section 3(c) made by an Independent Board member shall continue in effect unless and until the 9 Company is notified in writing by such Independent Board Member prior to the end of any calendar year that he wishes to terminate such election or modify the amount of compensation deferred pursuant to such election. Any such revocation or modification shall be effective only with respect to compensation earned after the calendar year in which such amended Notice is filed with the Company. Upon receipt by the Company from an Independent Board Member of such an amended Notice, the applicable portion of compensation earned by such Independent Board Member from and after January 1 of the calendar year succeeding the day on which such Notice was received shall be paid currently and no longer deferred as provided in the Equity-Based Plan. However, any amounts in such Independent Board Member's Account on such January 1 and any amount which the Independent Board Member thereafter defers shall continue to be payable in accordance with the Notice (or Notices) pursuant to which it was deferred except as provided in section 8(a). (c) SUBSEQUENT NOTICE. An Independent Board Member who has filed a Notice to terminate deferment of compensation may thereafter again file a Notice to participate pursuant to section 6 hereof effective for the calendar year subsequent to the calendar year in which he files the new Notice. 8. CHANGES IN FORM AND TIMING OF PAYMENT OF DEFERRED AMOUNTS. A Participant may elect to change the timing and manner of any distribution election with respect to any or all amounts deferred and credited with respect to the Participant under the Equity-Based Plans by filing an amended Notice with the Companies (a) prior to the calendar year in which the Participant ceases to be an Independent Board Member of the Companies, and 10 (b) by a date such that at least one full calendar year elapses between (i) the date as of which such amended Notice is filed and (ii) each of (A) the date as of which a distribution would otherwise have commenced and (B) the date as of which such distribution will commence under such amended Notice. No such amended Notice shall, however, provide for payment of an amount credited under section 3(a) or 3(b) earlier than permitted in accordance with section 6(c), except as provided in section 9(b). 9. PAYMENT OF AMOUNTS CREDITED TO ACCOUNTS. (a) MANNER OF PAYMENT. An Account established by a Company for a Participant will be paid in a lump sum or in installments, or both, as specified in his Notice or amended Notice, and at the time or times specified in the Notice or amended Notice. If installments are elected by a Participant, such installments shall be paid in cash and the amount of the first cash payment shall be a fraction of the then value of the portion of such Account to be paid in installments, the numerator of which is one, and the denominator of which is the total number of installments. The amount of each subsequent cash payment shall be a fraction of the then value of such portion of such Account remaining after the prior payment, the numerator of which is one and the denominator of which is the total number of installments elected minus the number of installments previously paid. If a lump sum is elected, payment shall be made in the full and 11 fractional shares of the Company (and of any series of such Company) in which the portion of such Participant's Account to be paid in a lump sum is deemed invested. (b) PAYMENT TO BENEFICIARY. In the event of a Participant's death before he has received payment of all amounts in an Account established by a Company for such Participant, the value of such Account shall be paid to the beneficiary designated in such Participant's Notice or, if no such beneficiary is designated, to such Participant's estate, in accordance with the provisions of the Equity-Based Plans. Any beneficiary so designated by a Participant may be changed at any time by notice in writing from such Participant to the Companies. Payments to a beneficiary shall be made in a lump sum or in installments, or both, as specified in the Participant's Notice or amended Notice. If a lump sum is elected, payment shall be made as soon as reasonably possible in the full and fractional shares of the Company (and of any series of such Company) in which such Account is deemed invested. If installments are elected, such installments shall be paid in cash in amounts determined as provided in section 9(a). If a Participant fails to designate in a Notice or amended Notice on file with the Companies at the time of his death the manner of distribution to his designated beneficiary, any distribution to such beneficiary (or if no such beneficiary is designated, to his estate) shall be made in a lump sum. 10. PRIOR DEFERRALS. Notwithstanding anything else contained herein to the contrary, if an Independent Board Member who is eligible to participate in a Equity-Based Plan under section 2 hereof has deferred any compensation under any arrangement in effect prior to the establishment of such Equity-Based Plan (i) such Independent Board Member shall be deemed to be a participant in such Equity-Based Plan, (ii) the amount credited for the benefit of such Independent Board Member 12 under such arrangement as of December 31, 1992 shall be credited to such Independent Board Member's Account under such Equity-Based Plan as of January 1, 1993 and (iii) the provisions of such Equity-Based Plan shall apply to such Independent Board Member and to the amount described in subclause (ii) above as though such amount had been deferred under the terms of such Equity-Based Plan. Elections under sections 6 or 8 by an Independent Board Member subject to the provisions of this section 10 shall govern any amounts described in this section. 11. STATEMENTS OF ACCOUNT. Each Company will furnish each Participant with a statement setting forth the value of such Participant's Account under that Company's Equity-Based Plan and the value of each portion of the Account that relates to amounts deferred under each subsection of section 3 as of the end of each calendar year and all credits to and payments from such Account during such year. Such statements will be furnished no later than 60 days after the end of each calendar year. 12. RIGHTS IN ACCOUNTS. Credits to Accounts and any shares purchased by the Companies to help satisfy the contractual obligations with respect to such Accounts shall remain part of the general assets of the Companies, shall at all times be the sole and absolute property of the Companies and shall in no event be deemed to constitute a fund, trust or collateral security for the payment of the deferred compensation to which Participants are entitled from such Accounts. The right of any Participant or his designated beneficiary or estate to receive future payment of deferred compensation under the provisions of the Equity-Based Plans shall be an unsecured claim against general assets of the Companies, if any, available at the time of payment. 13 13. NON-ASSIGNABILITY. Neither any Participant, his designated beneficiary nor his estate, nor any other person shall have the right to encumber, pledge, sell, assign or transfer the right to receive payments under the Equity-Based Plans, except by will or by the laws of descent and distribution. All such payments and the right thereto are expressly declared to be non-assignable. 14. ADMINISTRATION. The Equity-Based Plans shall be administered by one or more officers of the Companies appointed by the Compensation and Nominating Committees of the Boards (the "Administrator"). All Notices and amendments shall be filed with the Administrator and the Administrator shall be responsible for maintaining records of all Accounts and for furnishing the annual statements of account provided for in section 11. The Administrator shall also have the general authority to interpret, construe and implement provisions of the Equity-Based Plans. Any determination by such officer(s) shall be binding on the Participant and shall be final and conclusive. 15. AMENDMENT OR TERMINATION. The Equity-Based Plans may at any time be amended, modified or terminated by the Board. However, no amendment, modification or termination shall adversely affect any Participant's rights in respect of amounts theretofore credited to his Accounts. 14 16. EFFECTIVE DATE. The Equity-Based Plans shall be effective as of January 1, 1993, and any amendments hereto shall be effective on the date of adoption thereof by the Boards or as otherwise provided in such amendments. 15 SCHEDULE I Funds Adopting the Equity-Based Plans for Non-Interested Person Directors and Trustees of Lord Abbett Funds --------------------------------- Lord Abbett Developing Growth Fund, Inc. Lord Abbett Mid-Cap Value Fund, Inc. Lord Abbett Affiliated Fund, Inc. Lord Abbett Series Fund, Inc. Lord Abbett Global Fund, Inc. Lord Abbett Securities Trust Lord Abbett Investment Trust Lord Abbett Research Fund, Inc. Lord Abbett Bond-Debenture Fund, Inc. Lord Abbett Tax-Free Income Fund, Inc. Lord Abbett Tax-Free Income Trust Lord Abbett U.S. Government Securities Money Market Fund, Inc. Lord Abbett Large-Cap Growth Fund Lord Abbett Delta Fund [For use by new Board members or Exhibit A by Board members who are not currently deferring compensation] INDEPENDENT BOARD MEMBERS OF LORD, ABBETT & CO.-SPONSORED FUNDS ----------------------------------- Notice of Election Under the Equity-based Plans ---------------------------- Effective for compensation that I earn as an Independent Board Member of each Lord Abbett-sponsored Fund in the future after I become an Independent Board Member or after the calendar year in which this Notice of Election is filed with the Companies if I am already an Independent Board Member, I hereby elect under section 6(a) and, if I am not already an Independent Board Member, section 6(c) of the Equity-Based Plans, as follows: A. OPTIONAL DEFERRALS PURSUANT TO SECTION 3(c) OF THE EQUITY-BASED PLANS. 1. Amount Deferred: _____ (a) All compensation that I may defer pursuant to section 3(c) of the Equity-Based Plans _____ (b) $ ____________ per month (pro rated among all Funds and series on the basis of such compensation) _____ (c) Other: ______________________________________ 2. Period of Election: ------------------- Subject to my further election to change or terminate this election, my deferred election under item 1 shall continue: _____ (a) Until I cease to be an Independent Board Member _____ (b) Until __________________________ [specify date or event] 3. Time of Payment: ---------------- _____ (a) The first business day of January following the year in which I cease to be an Independent Board Member _____ (b) The first business day of (not earlier than January 1 of the second calendar year following the calendar year in which this Notice of Election is filed with the Companies):____________________ [specify month/year] _____ (c) The date of the following specific event which is not within my control: _________________________ 4. Number of Payments: ------------------- _____ (a) Entire amount in a lump sum _____ (b) In _____________ annual installments calculated as provided in section 9(a) of the Equity-Based Plans _____ (c) With the consent of the Companies, as follows: _________ B. Mandatory deferrals pursuant to section 3(b) of the Equity-based Plans (new Independent Board Members only) ------------------------------------------------------- 1. Time of Payment: _____ (a) The first business day of January following the year in which I cease to be an Independent Board Member _____ (b) The later of the first business day of January following the year in which I turn 65 and January of the second calendar year following the calendar year in which this Notice of Election is filed with the Companies _____ (c) The later of the first business day of January following the year in which I retire from my principal occupation and January of the second calendar year following the calendar year in which this Notice of Election is filed with the Companies _____ (d) The first business day of (which day cannot be earlier than the earliest of (a) , (b) and (c) above) : _____________________ [specify month/year] 2. Number of Payments: ------------------- _____ (a) Entire amount in a lump sum _____ (b) In annual installments calculated as provided in section 9(a) of the Equity-Based Plans _____ (c) With the consent of the Companies, as follows: __________ C. Designation of and Payments to Beneficiary: ------------------------------------------ I hereby designate ___________________* as my beneficiary to receive payments of the benefits under sections 3(b) and 3(c) of the Equity-Based Plans in the event of my death before payments of such benefits have been made in full. In the event that the said beneficiary predeceases me, I hereby designate ____________* as beneficiary instead. Benefits payable to my designated beneficiary shall be paid in accordance with section 9(b) of the Equity-Based Plans, as follows: _____ (a) Entire amount in a lump sum _____ (b) In __________ annual installments calculated as provided in section 9(a) of the Equity-Based Plans _____ (c) In the event I have elected pursuant to 3(b) above to receive annual installments but such installments have not been paid in full, such installments shall be continued and paid to my designated beneficiary _____ (d) With the consent of the Companies, as follows: ___________ ------------------------------ Name: Date: _____________ * If more than one beneficiary is to be designated, add a page listing the beneficiaries and specify the percentage of each payment to be received by each beneficiary. [For use by Board members EXHIBIT B who wish to change a prior election] INDEPENDENT BOARD MEMBERS OF LORD ABBETT & CO.-SPONSORED FUNDS --------------------------------- Amended Notice of Election Under the Equity-based Plans ---------------------------- I hereby elect pursuant to section 7(b) or 7(c) and section 8 of the Equity-Based Plans to change all prior Notices of Election I have filed with the Companies as follows: A. Optional deferrals pursuant to section 3(c) Of the Equity-Based Plans. -------------------------------------- 1. Amount Deferred: Effective for compensation earned as an Independent Board Member of each Lord Abbett-sponsored Fund after the calendar year in which this Amended Notice of Election is filed with the Companies, I hereby elect to defer under section 3(c) of the Equity-Based Plans: _____ (a) All compensation that I may defer pursuant to section 3(c) of the Equity-Based Plans _____ (b) $___________ per month (pro rated among all Funds and series on the basis of such compensation) _____ (c) Other: _________________________ _____ (d) None 2. Period of Election: ------------------- Subject to my further election to change or terminate this election, my deferred election under item 1 shall continue: _____ (a) Until I cease to be an Independent Board Member _____ (b) Until ______________________________ [specify date or event] Effective for all amounts deferred under section 3(c) of the Equity-Based Plans, including any amounts previously deferred, I hereby elect as follows: 3. Time of Payment: --------------- _____ (a) The first business day of January following the year in which I cease to be an Independent Board Member _____ (b) The first business day of (which day cannot be earlier than the January 1 of the second calendar year following the calendar year in which this Amended Notice of Election is filed with the Companies): _______________________________ [specify month/year] _____ (c) The date of the following specific event which is not within my control: ____________ 4. Number of Payments: ------------------ _____ (a) Entire amount in a lump sum _____ (b) In annual installments calculated as provided in section 9(a) of the Equity-Based Plans _____ (c) With the consent of the Companies, as follows: ______________ B. Mandatory Deferrals Pursuant to Section 3(b) of the Equity-based Plans. ---------------------------------------------------------------------- 1. Time of Payment: --------------- _____ (a) The first business day of January following the year in which I cease to be an Independent Board Member _____ (b) The later of the first business day of January following the year in which I turn 65 and January of the second calendar year following the calendar year in which this Amended Notice of Election is filed with the Companies ______ (c) The later of the first business day of January following the year in which I retire from my principal occupation and January of the second calendar year following the calendar year in which this Amended Notice of Election is filed with the Companies _____ (d) The first business day of (which day cannot be earlier than the earliest of (a) , (b) and (c) above) : ___________________ [specify month/year] 2. Number of Payments: ------------------ _____ (a) Entire amount in a lump sum _____ (b) In annual installments calculated as provided in section 9(a) of the Equity-Based Plans ______ (c) With the consent of the Companies, as follows: ________ C. Deferrals Pursuant to Section 3(a) of the Equity-based Plans. ------------------------------------------------------------ 1. Time of Payment: --------------- _____ (a) The first business day of January following the year in which I cease to be an Independent Board Member _____ (b) The later of the first business day of January following the year in which I turn 65 and January of the second calendar year following the calendar year in which this Amended Notice of Election is filed with the Companies ______ (c) The later of the first business day of January following the year in which I retire from my principal occupation and January of the second calendar year following the calendar year in which this Amended Notice of Election is filed with the Companies _____ (d) The first business day of (which day cannot be earlier than the earliest of (a) , (b) and (c) above) : ___________________ [specify month/year] 2. Number of Payments: ------------------ _____ (a) Entire amount in a lump sum _____ (b) In annual installments calculated as provided in section 9(a) of the Equity-Based Plans _____ (c) With the consent of the Companies, as follows: ________ D. Designation of Beneficiary: --------------------------- I hereby revoke any prior beneficiary designation I may have made under the Equity-Based Plans, and I hereby designate __________________* as my beneficiary to receive payments in the event of my death before payments in full hereunder have been made. In the event that the said beneficiary predeceases me, I hereby designate ________________ * as beneficiary instead. Benefits payable to my designated beneficiary shall be paid in accordance with section 9(b) of the Equity-Based Plans, as follows: _____ (a) Entire amount in a lump sum _____ (b) In __________ annual installments calculated as provided in section 9(a) of the Equity-Based Plans _____ (c) In the event I have elected pursuant to A4(b) or B2(b) above to receive annual installments but such installments have not been paid in full, such installments shall be continued and paid to my designated beneficiary _____ (d) With the consent of the Companies, as follows: ____________ I understand that this Amended Notice of Election shall be valid with respect to changes in the timing or number of payments only if it is filed with the Company (i) prior to the calendar year in which I cease to be an Independent Board member, (ii) by a date such that one full calendar year elapses between the filing of this Amended Notice with the Companies and the date my distribution would otherwise have commenced under my prior Notice of Election and (iii) by a date such that one full calendar year elapses between the filing of this Amended Notice with the Companies and the date my distribution will commence under this Amended Notice of Election. My prior Notice of Election shall be effective to the extent this Amended Notice of Election is invalid and to the extent no entry is made under any of the above items. ------------------------- Name: Date: ______________________ * If more than one beneficiary is to be designated, add a page listing the beneficiaries and specify the percentage of each payment to be received by each beneficiary. EX-99.I 4 a2040180zex-99_i.txt EXHIBIT 99.I February 27, 2001 Lord Abbett Affiliated Fund, Inc. 90 Hudson Street Jersey City, NJ 07302-3972 Dear Sirs: You have requested our opinion in connection with your filing of Amendment No. 88 to the Registration Statement on Form N-1A (the "Amendment") under the Investment Company Act of 1940, as amended, of Lord Abbett Affiliated Fund, Inc., a Maryland corporation (the "Company"), and in connection therewith your registration of Class A, B, C, P, and Y shares of capital stock, with a par value of $.001 each, of the Company (collectively, the "Shares"). We have examined and relied upon originals, or copies certified to our satisfaction, of such company records, documents, certificates and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion set forth below. We are of the opinion that the Shares issued in the continuous offering have been duly authorized and, assuming the issuance of the Shares for cash at net asset value and receipt by the Company of the consideration therefor as set forth in the Amendment and that the number of shares issued does not exceed the number authorized, the Shares will be validly issued, fully paid and nonassessable. We express no opinion as to matters governed by any laws other than the Title 2 of the Maryland Code: Corporations and Associations. We consent to the filing of this opinion solely in connection with the Amendment. In giving such consent, we do not hereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, WILMER, CUTLER & PICKERING By:/s/ James E. Anderson James E. Anderson, a partner EX-99.J 5 a2040180zex-99_j.txt EXHIBIT 99.J CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Post-Effective Amendment No. 88 to Registration Statement No. 2-10638 of Lord Abbett Affiliated Fund, Inc. on Form N-1A of our report dated December 20, 2000, appearing in the Annual Report to Shareholders of Lord Abbett Affiliated Fund, Inc. for the year ended October 31, 2000 and to the references to us under the captions "Financial Highlights" in the Prospectus and "Independent Auditors" and "Financial Statements" in the Statement of Additional Information, both of which are part of such Registration Statement. Deloitte & Touche LLP New York, New York February 26, 2001 EX-99.O 6 a2040180zex-99_o.txt EXHIBIT 99.O Amended and Restated Plans as of September 20, 1999 Pursuant to Rule 18f-3(d) under the Investment Company Act of 1940 (As adopted August 15, 1996) Rule 18f-3 (the "Rule") under the Investment Company Act of 1940, as amended (the "1940 Act"), requires that the Board of Directors or Trustees of an investment company desiring to offer multiple classes pursuant to the Rule adopt a plan setting forth the separate arrangement and expense allocation of each class, and any related conversion features or exchange privileges. This document constitutes an amended and restated plan (individually, a "Plan" and collectively, the "Plans") of each of the investment companies, or series thereof, listed on Schedule A attached hereto (each, a "Fund"). The Plan of any Fund is subject to amendment by action of the Board of Directors or Trustees (the "Board") of such Fund and without the approval of shareholders of any class, to the extent permitted by law and by the governing documents of such Fund. The Board, including a majority of the non-interested Board members, has determined that the following separate arrangement and expense allocation, and the related conversion features, if any, and exchange privileges, of each class of each Fund are in the best interest of each class of each Fund individually and each Fund as a whole. 1. CLASS DESIGNATION. Shares of all Funds except Lord Abbett Series Fund, Inc. shall be divided into Class A, Class B, Class C, Class Y and Class P (Pension Class) shares as indicated for each Fund on Schedule A attached hereto. In the case of the Lord Abbett Series Fund - Growth & Income Portfolio, shares shall be divided into Variable Contract Class shares and P Class shares as indicated on Schedule A. 2. SALES CHARGES AND DISTRIBUTION AND SERVICE FEES. (a) INITIAL SALES CHARGE. Class A shares will be traditional front-end sales charge shares, offered at their net asset value ("NAV") plus a sales charge in the case of each Fund as described in such Fund's prospectus as from time to time in effect. Class B shares, Class C shares, Class Y shares, Variable Contract Class shares and P Class shares will be offered at their NAV without an initial sales charge. (b) SERVICE AND DISTRIBUTION FEES. In respect of the Class A shares, Class B shares, Class C shares, Variable Contract Class shares and P Class shares, each Fund will pay service and/or distribution fees under plans from time to time in effect adopted for such classes pursuant to Rule 12b-1 under the 1940 Act (each, a "12b-1 Plan"). Pursuant to a 12b-1 Plan with respect to the Class A shares, if effective, each Fund will generally pay (i) at the time such shares are sold, a one-time distribution fee of up to 1% of the NAV 1 of the shares sold in the amount of $1 million or more, including sales qualifying at such level under the rights of accumulation and statement of intention privileges, or to retirement plans with 100 or more eligible employees, as described in the Fund's prospectus as from time to time in effect, (ii) a continuing distribution fee at an annual rate of 0.10% of the average daily NAV of the Class A share accounts of dealers who meet certain sales and redemption criteria, and (iii) a continuing service fee at an annual rate not to exceed 0.25% of the average daily NAV of the Class A shares. The Board will have the authority to increase the distribution fees payable under such 12b-1 Plan by a vote of the Board, including a majority of the independent directors thereof, up to an annual rate of 0.25% of the average daily NAV of the Class A shares. The effective dates of various of the 12b-1 Plans for the Class A shares are based on achievement by the Funds of specified total net assets for the Class A shares of such Funds. Pursuant to a 12b-1 Plan with respect to the Class B shares, if effective, each Fund will generally pay a continuing annual fee of up to 1% of the average annual NAV of such shares then outstanding (each fee comprising .25% in service fee and .75% in distribution fee). Pursuant to a 12b-1 Plan with respect to the Class C shares, if effective, each Fund will generally pay a one-time service and distribution fee at the time such shares are sold of up to 1% of their NAV and a continuing annual fee, commencing 12 months after the first anniversary of such sale, of up to 1% of the average annual NAV of such shares then outstanding (each fee comprising .25% in service fees and .75% in distribution fees). Pursuant to a Type II 12b-1 Plan with respect to the Class C shares, if effective, each Fund will generally pay a continuing annual fee, commencing after the sale of shares, of up to 1% of the average annual NAV of such shares then outstanding (each fee comprising .25% in service fees and .75% in distribution fees). Pursuant to a 12b-1 Plan with respect to the Variable Contract Class, if operational, the Growth & Income Portfolio will generally pay a continuing annual fee of up to .15% of the average annual NAV of such shares then outstanding to reimburse an insurance company for its expenditure related to the distribution of such shares which expenditures are not also reimbursable pursuant to fees paid under the variable contract issued by such insurance company. Pursuant to a 12b-1 Plan with respect to the P Class shares, if operational, the Growth & Income Portfolio will generally pay a continuing annual fee of .45% of the average annual NAV of such shares then outstanding. The Board will have the authority to increase the distribution fees payable under such 12b-1 Plan by a vote of the Board, including a majority of the independent directors thereof, up to an annual rate of 0.75% of the average daily NAV of such shares (consisting of distribution and service fees, at maximum annual rates not exceeding 0.50 and 0.25 of 1%, respectively). The Class Y shares do not have a Rule 12b-1 Plan. 2 (c) CONTINGENT DEFERRED SALES CHARGES ("CDSC"). Subject to some exceptions, Class A shares subject to the one-time sales distribution fee of up to 1% under the Rule 12b-1 Plan for the Class A shares will be subject to a CDSC equal to 1% of the lower of the cost or the NAV of such shares if the shares are redeemed for cash on or before the end of the twenty-fourth month after the month in which the shares were purchased. Class B shares will be subject to a CDSC ranging from 5% to 1% of the lower of the cost or the NAV of the shares, if the shares are redeemed for cash before the sixth anniversary of their purchase. The CDSC for the Class B shares may be waived for certain transactions. Class C shares will be subject to a CDSC equal to 1% of the lower of the cost or the NAV of the shares if the shares are redeemed for cash before the first anniversary of their purchase. Neither the Class Y, Variable Contract Class nor the Class P shares will be subject to a CDSC. 3. CLASS-SPECIFIC EXPENSES. The following expenses shall be allocated, to the extent such expenses can reasonably be identified as relating to a particular class and consistent with Revenue Procedure 96-47, on a class-specific basis: (a) fees under a 12b-1 Plan applicable to a specific class (net of any CDSC paid with respect to shares of such class and retained by the Fund) and any other costs relating to implementing or amending such Plan, including obtaining shareholder approval of such Plan or any amendment thereto; (b) transfer and shareholder servicing agent fees and shareholder servicing costs identifiable as being attributable to the particular provisions of a specific class; (c) stationery, printing, postage and delivery expenses related to preparing and distributing materials such as shareholder reports, prospectuses and proxy statements to current share holders of a specific class; (d) Securities and Exchange Commission registration fees incurred by a specific class; (e) Board fees or expenses identifiable as being attributable to a specific class; (f) fees for outside accountants and related expenses relating solely to a specific class; (g) litigation expenses and legal fees and expense relating solely to a specific class; (h) expenses incurred in connection with shareholders meetings as a result of issues relating solely to a specific class and (i) other expenses relating solely to a specific class, provided, that advisory fees and other expenses related to the management of a Fund's assets (including custodial fees and tax-return preparation fees) shall be allocated to all shares of such Fund on the basis of NAV, regardless of whether they can be specifically attributed to a particular class. All common expenses shall be allocated to shares of each class at the same time they are allocated to the shares of all other classes. All such expenses incurred by a class of shares will be charged directly to the net assets of the particular class and thus will be borne on a pro rata basis by the outstanding shares of such class. For all Funds, with the exception of Series Fund - Growth & Income Portfolio, Blue Sky expenses will be treated as common expenses. In the case of Series Fund - Growth & Income Portfolio, Blue Sky expenses will be allocated entirely to the P Class, as the Variable Contract Class of Series Fund Growth & Income Portfolio has no Blue Sky expenses. 4. INCOME AND EXPENSE ALLOCATIONS. Income, realized and unrealized capital gains and losses and expenses not allocated to a class as provided above shall be allocated to each class on the basis 3 of the net assets of that class in relation to the net assets of the Fund, except that, in the case of each daily dividend Fund, income and expenses shall be allocated on the basis of relative net assets (settled shares). 5. DIVIDENDS AND DISTRIBUTIONS. Dividends and Distributions paid by a Fund on each class of its shares, to the extent paid, will be calculated in the same manner, will be paid at the same time, and will be in the same amount, except that the amount of the dividends declared and paid by a particular class may be different from that paid by another class because of expenses borne exclusively by that class. 6. NET ASSET VALUES. The NAV of each share of a class of a Fund shall be determined in accordance with the Articles of Incorporation or Declaration of Trust of such Fund with appropriate adjustments to reflect the allocations of expenses, income and realized and unrealized capital gains and losses of such Fund between or among its classes as provided above. 7. CONVERSION FEATURES. The Class B shares will automatically convert to Class A shares 8 years after the date of purchase. Such conversion will occur at the relative NAV per share of each Class without the imposition of any sales charge, fee or other charge. When Class B shares convert, any other Class B shares that were acquired by the shareholder by the reinvestment of dividends and distributions will also convert to Class A shares on a pro rata basis. The conversion of Class B shares to Class A shares after 8 years is subject to the continuing availability of a private letter ruling from the Internal Revenue Service or an opinion of counsel to the effect that the conversion does not constitute a taxable event for the Class B shareholder under Federal income tax law. If such a revenue ruling or opinion is no longer available, the automatic conversion feature may be suspended, in which event no further conversions of Class B shares would occur while such suspension remained in effect. Subject to amendment by the Board, Class A shares and Class C shares shall not be subject to any automatic conversion feature. 8. EXCHANGE PRIVILEGES. Except as set forth in a Fund's prospectus as from time to time in effect, shares of any class of such Fund may be exchanged, at the holder's option, for shares of the same class of another Fund, or other Lord Abbett-sponsored fund or series thereof, without the imposition of any sales charge, fee or other charge. Each Plan is qualified by and subject to the terms of the then current prospectus for the applicable Fund; provided, however, that none of the terms set forth in any such prospectus shall be inconsistent with the terms contained herein. The prospectus for each Fund contains additional information about that Fund's classes and its multiple-class structure. Each Plan is being adopted for a Fund with the approval of, and all material amendments thereto must be approved by, a majority of the Board of such Fund, including a majority of the Board who are not interested persons of the Fund. 4 As of September 20, 1999 The Lord Abbett - Sponsored Funds ESTABLISHING MULTI-CLASS STRUCTURES
CLASSES ------- Lord Abbett Affiliated Fund, Inc. A, B, C, P, Y Lord Abbett Bond-Debenture Fund, Inc. A, B, C, P, Y Lord Abbett Developing Growth Fund, Inc. A, B, C, P, Y Lord Abbett Mid-Cap Value Fund, Inc. A, B, C, P, Y Lord Abbett Global Fund, Inc. Equity Series A, B, C, P Income Series A, B, C, P Lord Abbett Investment Trust Balanced Series A, B, C, P High Yield Fund A, B, C, P, Y Limited Duration U.S. Government Securities Series A, C, P U.S. Government Securities Series A, B, C, P Core Series Y Strategic Core Fund Y Lord Abbett Large-Cap Growth Fund A, B, C, P Lord Abbett Securities Trust Growth & Income Trust A, B, C, P International Series A, B, C, P, Y World Bond-Debenture Series A, B, C, P Alpha Series A, B, C, P Lord Abbett Large-Cap International Fund A, B, C Lord Abbett Micro-Cap Growth Fund Y Lord Abbett Micro-Cap Value Fund Y Lord Abbett Tax-Free Income Fund, Inc. California Series A, C, P National Series A, B, C, P New York Series A, C, P Texas Series A, P New Jersey Series A, P Connecticut Series A, P
5
CLASSES ------- Missouri Series A, P Hawaii Series A, P Washington Series A, P Minnesota Series A, P Lord Abbett Tax-Free Income Trust Florida Series A, C, P Pennsylvania Series A, P Michigan Series A, P Georgia Series A, P Lord Abbett U.S. Government Securities Money Market Fund, Inc. A, B, C Lord Abbett Research Fund, Inc. Large-Cap Series A, B, C, P, Y Growth Opportunities Fund A, B, C, P, Y Small-Cap Series A, B, C, P, Y Lord Abbett Series Fund Growth & Income Portfolio VC, P Lord Abbett Equity Fund 1990 Series
Lord, Abbett & Co. ----------------------- Paul A. Hilstad Partner LORD ABBETT LARGE-CAP GROWTH FUND By: _________________________ Lawrence H. Kaplan Vice President 6 DATED: October 20, 1999 7 EX-99.P 7 a2040180zex-99_p.txt EXHIBIT 99.P LORD, ABBETT & CO. LORD ABBETT-SPONSORED FUNDS AND LORD ABBETT DISTRIBUTOR LLC CODE OF ETHICS I. STATEMENT OF GENERAL PRINCIPLES The personal investment activities of any officer, director, trustee or employee of the Lord Abbett-sponsored Funds (the Funds) or any partner or employee of Lord, Abbett & Co. (Lord Abbett) will be governed by the following general principles: (1) Covered Persons have a duty at all times to place first the interests of Fund shareholders and, in the case of employees and partners of Lord Abbett, beneficiaries of managed accounts; (2) all securities transactions by Covered Persons shall be conducted consistent with this Code and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual's position of trust and responsibility; and (3) Covered Persons should not take inappropriate advantage of their positions with Lord Abbett or the Funds. II. SPECIFIC PROHIBITIONS No person covered by this Code, shall purchase or sell a security, except an Excepted Security, if there has been a determination to purchase or sell such security for a Fund (or, in the case of any employee or partner of Lord, Abbett, for another client of Lord Abbett), or if such a purchase or sale is under consideration for a Fund (or, in the case of an employee or partner of Lord Abbett, for another client of Lord Abbett), nor may such person have any dealings in a security that he may not purchase or sell for any other account in which he has Beneficial Ownership, or disclose the information to anyone, until such purchase, sale or contemplated action has either been completed or abandoned. III. OBTAINING ADVANCE APPROVAL Except as provided in Sections V and VI of this Code, all proposed transactions in securities (privately or publicly owned) by Covered Persons, except transactions in Excepted Securities AND EXCEPTED TRANSACTIONS, should be approved consistent with the provisions of this Code.. In order to obtain approval, the Covered Person must send their request to the Legal Department (see Appendix I for details on the approval process). After approval has been obtained, the Covered Person may act on it within the next seven business days, unless he sooner learns of a contemplated action by Lord Abbett. After the seven business days, or upon hearing of such contemplated action, a new approval must be obtained. Furthermore, in addition to the above requirements, partners and employees directly involved must disclose information they may have concerning securities they may want to purchase or - -------- (1) The day approval is received is the first day of the seven business day window. Lord, Abbett & Co. Code of Ethics November 2000 sell to any portfolio manager who might be interested in the securities for the portfolios they manage. IV. REPORTING AND CERTIFICATION REQUIREMENTS; BROKERAGE CONFIRMATIONS (1) Except as provided in Sections V and VI of this Code, within 10 days following the end of each calendar quarter each Covered Person must file a signed Security Transaction Reporting Form. The form must be signed and filed whether or not any security transaction has been effected. If any transaction has been effected during the quarter for the Covered Person's account or for any account in which he has a direct or indirect Beneficial Ownership, it must be reported. Excepted from this reporting requirement are transactions effected in any accounts over which the Covered Person has no direct or indirect influence or control and transactions in Excepted Securities. Securities acquired in an Excepted Transaction should be reported. The Legal Department is responsible for reviewing these transactions and must bring any apparent violation to the attention of the General Counsel of Lord Abbett. (2) Each employee and partner of Lord Abbett will upon commencement of employment (within 5 business days) and annually thereafter disclose all personal securities holdings and annually certify that: (i) they have read and understand this Code and recognize they are subject hereto; and (ii) they have complied with the requirements of this Code and disclosed or reported all securities transactions required to be disclosed or reported pursuant to the requirements of this Code. (3) Each employee and partner of Lord Abbett will direct his brokerage firm to send copies of all confirmations and all monthly statements directly to the Legal Department. (4) Each employee and partner of Lord Abbett who has a Fully-Discretionary Account (as defined in Section VI) shall disclose all pertinent facts regarding such Account to Lord Abbett's General Counsel upon commencement of employment. Each such employee or partner shall thereafter annually certify on the prescribed form that he or she has not and will not exercise any direct or indirect influence or control over such Account, and has not discussed any potential investment decisions with such independent fiduciary in advance of any such transactions. V. SPECIAL PROVISIONS APPLICABLE TO OUTSIDE DIRECTORS AND TRUSTEES OF THE FUNDS The primary function of the Outside Directors and Trustees of the Funds is to set policy and monitor the management performance of the Funds' officers and employees and the partners and employees of Lord Abbett involved in the management of the Funds. Although they receive complete information as to actual portfolio transactions, Outside Directors and Trustees are not given advance information as to the Funds' contemplated investment transactions. An Outside Director or Trustee wishing to purchase or sell any security will therefore generally not be required to obtain advance approval of his security transactions. If, however, during discussions at Board meetings or otherwise an Outside Director or Trustee should learn in Lord, Abbett & Co. Code of Ethics November 2000 2 advance of the Funds' current or contemplated investment transactions, then advance approval of transactions in the securities of such company(ies) shall be required for a period of 30 days from the date of such Board meeting. In addition, an Outside Director or Trustee can voluntarily obtain advance approval of any security transaction or transactions at any time. No report described in Section IV (1) will be required of an Outside Director or Trustee unless he knew, or in the ordinary course of fulfilling his official duties as a director or trustee should have known, at the time of his transaction, that during the 15-day period immediately before or after the date of the transaction (i.e., a total of 30 days) by the Outside Director or Trustee such security was or was to be purchased or sold by any of the Funds or such a purchase or sale was or was to be considered by a Fund. If he makes any transaction requiring such a report, he must report all securities transactions effected during the quarter for his account or for any account in which he has a direct or indirect Beneficial Ownership interest and over which he has any direct or indirect influence or control. Each Outside Director and Trustee will direct his brokerage firm to send copies of all confirmations of securities transactions to the Legal Department, and annually make the certification required under Section IV(2)(i) and (ii). Outside Directors' and Trustees' transactions in Excepted Securities are excepted from the provisions of this Code. It shall be prohibited for an Outside Director or Trustee to (i) trade on material non-public information, or (ii) trade in options with respect to securities covered by this Code without advance approval from Lord Abbett. Prior to accepting an appointment as a director of any company, an Outside Director or Trustee will advise Lord Abbett and discuss with Lord Abbett's Managing Partner whether accepting such appointment creates any conflict of interest or other issues. If an Outside Director or Trustee, who is a director or an employee of, or consultant to, a company, receives a grant of options to purchase securities in that company (or an affiliate), neither the receipt of such options, nor the exercise of those options and the receipt of the underlying security, requires advance approval from Lord Abbett. Further, neither the receipt nor the exercise of such options and receipt of the underlying security is reportable by such Outside Director or Trustee. Finally, neither the receipt nor the exercise of such options shall be considered "trading in options" within the meaning of the preceding paragraph of this Section V. VI. ADDITIONAL REQUIREMENTS RELATING TO PARTNERS AND EMPLOYEES OF LORD ABBETT It shall be prohibited for any partner or employee of Lord Abbett: (1) To obtain or accept favors or preferential treatment of any kind or gift or other thing having a value of more than $100 from any person or entity that does business with or on behalf of the investment company (2) to trade on material non-public information or otherwise fail to comply with the Firm's Statement of Policy and Procedures on Receipt and Use of Inside Information adopted Lord, Abbett & Co. Code of Ethics November 2000 3 pursuant to Section 15(f) of the Securities Exchange Act of 1934 and Section 204A of the Investment Advisers Act of 1940; (3) to trade in options with respect to securities covered under this Code; (4) to profit in the purchase and sale, or sale and purchase, of the same (or equivalent) securities within 60 calendar days (any profits realized on such short-term trades shall be disgorged to the appropriate Fund or as otherwise determined); (5) to trade in futures or options on commodities, currencies or other financial instruments, although the Firm reserves the right to make rare exceptions in unusual circumstances which have been approved by the Firm in advance; (6) to engage in short sales or purchase securities on margin; (7) to buy or sell any security within seven business days before or after any Fund (or other Lord Abbett client) trades in that security (any profits realized on trades within the proscribed periods shall be disgorged to the Fund (or the other client) or as otherwise determined); (8) to subscribe to new or secondary public offerings, even though the offering is not one in which the Funds or Lord Abbett's advisory accounts are interested; (9) to become a director of any company without the Firm's prior consent and implementation of appropriate safeguards against conflicts of interest. In connection with any request for approval, pursuant to Section III of this Code, of an acquisition by partners or employees of Lord Abbett of any securities in a private placement, prior approval will take into account, among other factors, whether the investment opportunity should be reserved for any of the Funds and their shareholders (or other clients of Lord Abbett) and whether the opportunity is being offered to the individual by virtue of the individual's position with Lord Abbett or the Funds. An individual's investment in privately-placed securities will be disclosed to the Managing Partner of Lord Abbett if such individual is involved in consideration of an investment by a Fund (or other client) in the issuer of such securities. In such circumstances, the Fund's (or other client's) decision to purchase securities of the issuer will be subject to independent review by personnel with no personal interest in the issuer. If a spouse of a partner or employee of Lord Abbett who is a director or an employee of, or a consultant to, a company, receives a grant of options to purchase securities in that company (or an affiliate), neither the receipt nor the exercise of those options requires advance approval from Lord Abbett or reporting. Any subsequent sale of the security acquired by the option exercise by that spouse would require advance approval and is a reportable transaction. Advance approval is not required for transactions in any account of a Covered person if the Covered Person has no direct or indirect influence or control ( a "Fully-Discretionary Lord, Abbett & Co. Code of Ethics November 2000 4 Account"). A Covered person will be deemed to have "no direct or indirect influence or control" over an account only if: (i) investment discretion for the account has been delegated to an independent fiduciary and such investment discretion is not shared with the employee, (ii) the Covered Person certifies in writing that he or she has not and will not discuss any potential investment decisions with such independent fiduciary before any transaction and (iii) the General Counsel of Lord Abbett has determined that the account satisfies these requirements. Transaction in Fully-Discretionary Accounts by an employee or partner of Lord Abbett are subject to the post-trade reporting requirements of this Code. VII. ENFORCEMENT The Secretary of the Funds and General Counsel for Lord Abbett (who may be the same person) each is charged with the responsibility of enforcing this Code, and may appoint one or more employees to aid him in carrying out his enforcement responsibilities. The Secretary shall implement a procedure to monitor compliance with this Code through an ongoing review of personal trading records provided under this Code against transactions in the Funds and managed portfolios(2). The Secretary shall bring to the attention of the Funds' Audit Committees any apparent violations of this Code, and the Audit Committees shall determine what action shall be taken as a result of such violation. The record of any violation of this Code and any action taken as a result thereof, which may include suspension or removal of the violator from his position, shall be made a part of the permanent records of the Audit Committees of the Funds. The Secretary shall also prepare an ANNUAL ISSUES AND CERTIFICATION REPORT to the directors or trustees of the Funds that (a) summarizes Lord Abbett's procedures concerning personal investing, including the procedures followed by partners in determining whether to give approvals under Section III and the procedures followed by the Legal Department in determining pursuant to Section IV whether any Funds have determined to purchase or sell a security or are considering such a purchase or sale, and any changes in those procedures during the past year, and certifies to the directors or trustees that the procedures are reasonably necessary to prevent violations, and (b) identifies any recommended changes in the restrictions imposed by this Code or in such procedures with respect to the Code and any changes to the Code based upon experience with the Code, evolving industry practices or developments in the regulatory environment, and (c) summarizes any apparent violations of this Code over the past year and any sanctions imposed in response to those violations including any action taken by the Audit Committee of each of the Funds. The Audit Committee of each of the Funds and the General Counsel of Lord Abbett may determine in particular cases that a proposed transaction or proposed series of transactions does not conflict with the policy of this Code and exempt such transaction or series of transactions from one or more provisions of this Code. - ------------ (2) This procedure is outlined in Appendix I. Lord, Abbett & Co. Code of Ethics November 2000 5 VIII. DEFINITIONS "Covered Person" means any officer, director, trustee, director or trustee emeritus or employee of any of the Funds and any partner or employee of Lord Abbett. (See also definition of "Beneficial Ownership.") "Excepted Securities" are shares of the Funds, bankers' acceptances, bank certificates of deposit, commercial paper, shares of registered open-end investment companies and U.S. Government and Agency securities. Please note that shares of closed-end investment companies and/or exchange traded unit-investment trusts ("UITs") are treated as common stock under the Code. "Excepted Transactions" means securities acquired through tender offers or spin-offs; securities received due to a merger or acquisition; the sale of 300 shares or less of a S&P 500 stock; and any securities purchased through Dividend Reinvestment Programs (DRIPs) and/or Employee Stock Ownership Plans (ESOPs). Please note that any sales made from DRIPs and/or ESOPs require pre-approval as described in Section III of this Code.(3) "Outside Directors and Trustees" are directors and trustees who are not "interested persons" as defined in the Investment Company Act of 1940. "Security" means any stock, bond, debenture or in general any instrument commonly known as a security and includes a warrant or right to subscribe to or purchase any of the foregoing and also includes the writing of an option on any of the foregoing. "Beneficial Ownership" is interpreted in the same manner as it would be under Section 16 of the Securities Exchange Act of 1934 and Rule 16a-1 thereunder. Accordingly, "beneficial owner" includes any Covered Person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest (i.e. the ability to share in profits derived from such security) in any equity security, including: (i) securities held by a person's immediate family sharing the same house (with certain exceptions); (ii) a general partner's interest in portfolio securities held by a general or limited partnership; (iii) a person's interest in securities held in trust as trustee, beneficiary or settlor, as provided in Rule 16a-8(b); and (iv) a person's right to acquire securities through options, rights or other derivative securities. - -------------- (3) All Excepted Transactions are subject to the reporting requirements of Section IV and VI. However, with respect to DRIPs and ESOPs only the initial purchase must be reported on the quarterly transaction forms and the present balance updated annually on the Annual Holdings Report. Lord, Abbett & Co. Code of Ethics November 2000 6 "Gender/Number" whenever the masculine gender is used herein, it includes the feminine gender as well, and the singular includes the plural and the plural includes the singular, unless in each case the context clearly indicates otherwise. Lord, Abbett & Co. Code of Ethics November 2000 7 Appendix 1 LORD, ABBETT & CO. PERSONAL SECURITIES TRANSACTIONS PREAPPROVAL FORM As part of my request for approval, I acknowledge to Lord, Abbett & Co. that: - I may not buy or sell any security if there has been a determination to purchase or sell such security by Lord Abbett or if such a purchase or sale is under consideration; - My approval to trade is good for only seven (7) business days, and that I may not profit in any purchase and sale or sale and purchase of the same security within 60 calendar days; - I may not engage in short sales and purchases on margin; - I have no material, non-public information with respect to the securities listed below. - ------------------------------ -------------------- Name Date I hereby request approval of the transaction(s) listed below:
SECURITY TICKER-EXCHANGE B/S - -------- --------------- --- - ------------------------------------------------ -------------------------------- ---------- - ------------------------------------------------ -------------------------------- ---------- - ------------------------------------------------ -------------------------------- ---------- - ------------------------------------------------ -------------------------------- ----------
_____E.M. Salzmann _____Z.E. Brown/C. Towle _____W.T. Hudson S. Dinsky _____R.G. Morris _____E. von der Linde/H. Hansen _____S. Humphrey D. Builder/E. Banko R. St. Louis _____S.J. McGruder _____T. Oberhaus _____R.P. Fetch F. Ohr/K. Ferguson T. Crimmins G. Macosko R. Lesser/L.J. Dixon J. Finkel G. Heffernan _____W. Sadler Lord, Abbett & Co. Code of Ethics November 2000 8 Lord, Abbett & Co. Code of Ethics November 2000 9 -----END PRIVACY-ENHANCED MESSAGE-----