-----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, U0uvhv4ow/5LO66YlFKWZZUF+UF8BLjyEBqxDWIwcKbl+pb9HlvXvZXpz6TIrK+M KuNbOI6fSyG5pUHPKbSb9w== 0000002691-96-000001.txt : 19960111 0000002691-96-000001.hdr.sgml : 19960111 ACCESSION NUMBER: 0000002691-96-000001 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19960109 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AFFILIATED FUND INC CENTRAL INDEX KEY: 0000002691 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 136020600 STATE OF INCORPORATION: NY FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-00005 FILM NUMBER: 96502114 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 N-30D 1 10/31/95 ANNUAL REPORT Lord Abbett Affiliated Fund 1995 ANNUAL REPORT [PHOTO OF GRADUATION CAP AND DIPLOMA] Helping you prepare for tomorrow, today Affiliated Fund Building Investor Confidence Since 1934 A Tradition of Value Investing Affiliated's history highlights the concept of value investing: buying quality companies when they are "on sale" and selling them when they reach their potential. Through the years, this discipline has helped Affiliated Fund achieve competitive returns with relatively moderate fluctuations in price. - ------------------------------------------------------------------------------------------------------------------- Competitive Total Returns, Consistently Average Annual Rates of Total Return as of 10/31/95 - ------------------------------------------------------------------------------------------------------------------- Consistency The Fund has increased in value 33 out of the last 40 fiscal years. - ------------------------------------------------------------------------------------------------------------------- Large and Growing Dividends Shareholders taking dividends in cash saw their dividend checks increase 32 out of the last 40 fiscal years/(1)/. - ------------------------------------------------------------------------------------------------------------------- Shareholder Satisfaction Affiliated investors, on average, have owned their shares for over 18 1/2 years. - ------------------------------------------------------------------------------------------------------------------- SEC-Required Average annual compound returns for periods 1 year: +17.40% Information ended 9/30/95 at the 5.75% maximum sales 5 years: +15.46% charge, with all distributions reinvested: 10 years: +13.86% The Fund's SEC yield for the 30 days ended 10/31/95 was 2.20%.
This past performance is no indication of future results. The investment return and principal value of an investment in the Fund will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. /(1)/ Capital gains were reinvested. Period ends 10/31/95. The Fund's fiscal year-end is 10/31. Results quoted above (unless stated otherwise) are shown at net asset value with all distributions reinvested. See Important Information on page 7. Report to Shareholders For the Fiscal Year Ended October 31, 1995 [PHOTO OF RONALD P. LYNCH] /s/ Ronald P. Lynch Ronald P. Lynch Chairman Affiliated Fund completed its sixty-first fiscal year on October 31, 1995 with a net asset value of $11.98 per share, 16.8% above the $10.26 per share posted a year earlier, after adjustment for a $.77 per-share capital gains distribution paid last December. Assuming reinvestment of both the capital gains distribution and dividends totaling $.30 per share, Affiliated produced a total return of 20.5%. While that was less than the 26.4% return for the unmanaged S&P 500, we are confident that our dedication to value-oriented disciplines will serve our shareholders well over the long term, as they have in the past. Over the 25-year period ended October 31, 1995, Affiliated produced a total return that averaged 13.2% annually (at net asset value), versus a 12.4% return for the S&P 500. Our Board of Directors declared a capital gains distribution of $1.19 per share, and a regular quarterly dividend of $.075 per share, paid November 21 to shareholders of record on November 15. [PHOTO OF ROBERT S. DOW] /s/ Robert S. Dow Robert S. Dow President November 24, 1995 The economic environment over the fiscal year has been better than we anticipated. After a surge last fall that heightened inflation concerns, the economy slowed during the winter in response to credit restraint by the Federal Reserve. Since December, the economy has grown at an annual rate of 2 1/2%, excluding the effects of inflation. Inflation, as measured by the Consumer Price Index, averaged under 3% annually and slowed to 2% in the most recent quarter. As a result, the Federal Reserve relaxed credit modestly in the past several months. The yield on a 30-year Treasury bond, which peaked at over 8% a year ago, is close to 6%. Corporate operating profits, moreover, continued to climb at a double-digit pace, despite slowing economic growth. The outlook for the coming year is broadly positive. The drop in interest rates during 1995, and the potential for a further reduction of short-term interest rates in the months ahead, should sustain economic growth at a modest pace, while inflation should continue to be low in 1996. Given this economic backdrop, monetary conditions and interest rates should remain favorable for stock market valuations. One important difference going into 1996, however, relates to corporate earnings. Already, the pace of sales growth has slowed, reflecting slowing economic growth and a more competitive pricing environment. Cost reductions and other improvements in efficiency--which spurred much of the growth in corporate profits in recent years--will be more difficult to achieve as the most obvious potentials for such actions have been exploited. Overall, we expect a much greater variance of earnings performance among U.S. corporations, and we believe this poses a major challenge for investment managers. "The outlook for the coming year is broadly positive." We are confident that Affiliated Fund is advantageously positioned to meet this challenge; we hold issues that generally do not have lofty expectations of earnings growth reflected in their current prices. The frequent contact our research analysts have with corporate managements also provides good insight into the many factors influencing earnings performance of individual companies. We are pleased to announce that Affiliated Fund's Board of Directors has elected Robert S. Dow as President of the Fund. Mr. Dow, who has been a partner of Lord, Abbett & Co. for nine years, also serves as the Firm's Chief Investment Officer. We welcome our new shareholders and thank all the Fund's 198,200 shareholders for their continued support and confidence. 1 The Income Perspective Income Generated from $100,000 Investments: 11/1/70-10/31/95 The Affiliated Advantage: A history of increasing dividends vs. fluctuating income from guaranteed CDs
Year Six-Month Affiliated Ended CD/(1)/ Fund/(2)/ Oct. 31 Interest Dividends - ------------------------------------------------------------------------- 1971 $ 5,486 $ 4,569 1972 4,900 4,580 1973 7,504 4,870 1974 9,921 5,322 1975 7,417 4,348 1976 6,000 5,594 1977 5,540 6,257 1978 7,779 6,927 1979 10,816 7,941 1980 12,771 9,541 1981 16,038 11,705 1982 13,467 12,500 1983 9,204 12,366 1984 10,711 13,052 1985 8,591 14,933 1986 6,898 16,106 1987 6,644 16,470 1988 7,652 17,692 1989 9,258 18,496 1990 8,263 17,575 1991 6,593 17,264 1992 4,077 17,559 1993 3,337 16,279 1994 4,323 15,781 1995 6,161 15,887 Interest/Dividend Total $199,351 $293,614 - ----------------------------------------------======== ======== 25 Years Later Initial $100,000 Investment plus Growth $100,000 $646,227 - ----------------------------------------------======== ======== Total Value $299,351 $939,841 - ----------------------------------------------======== ======== The Real Cost of the CD Guarantee $640,490 =========================================================================
If capital gains and dividends had been reinvested, the Fund's total value would have been $2,126,414 Unlike the Fund, a CD is insured, and its rate and principal are guaranteed if held until maturity. The FDIC insures CDs up to $100,000. The CD rate is subject to change when the CD is renewed. Although CDs may offer safety on the downside, they sacrifice capital growth on the up side. /(1)/ Average of six-month CD rates available each period. Source: Salomon Brothers and The Federal Reserve Bank. /(2)/ Reflects the deduction of the 3.75% sales charge for investments of $100,000. Dividends were taken in cash; capital gains were reinvested. See Important Information on page 7. 2 Affiliated's Growth Record Results Based on Fiscal Year-End October 31
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Growth of Capital/(1)/ +30.2% -2.1% + 6.9% +12.8% -12.0% +23.1% + 6.3% +14.3% +3.7% +17.6% Dividend Return/(1)/ + 6.2 +4.9 + 5.3 + 5.2 + 4.4 + 4.9 + 4.1 + 3.5 +3.0 + 2.9 Total Return/(2)/ +36.4 +2.8 +12.2 +18.0 - 7.6 +28.0 +10.4 +17.8 +6.7 +20.5
/(1)/ Growth of capital and dividend return reflect the reinvestment of capital gains distributions and dividends. /(2)/ Total return is the percent change in value with both dividends and capital gains distributions reinvested. These results are at net asset value. Net asset value purchases are available to investors of $1 million or more. For performance at the maximum sales charge, as well as other information, please turn to the inside front cover and pages 4 and 7. Affiliated's Growth Exceeded Inflation In our illustration, 1985 and 1995 are actual costs -- then and now. "Affiliated 1995" is what the 1985 amount would have grown to had it been invested in the Fund. Investments in Affiliated Fund (up 266.9%) surpassed increases in the cost of living (up 41.4%) in these 10 years. Protection against the erosion caused by inflation is one important way to maintain -- and enhance -- your lifestyle.
One-Year Private One-Family House/(1)/ U.S. Passport First-Class Stamp Income per Capita/(1)/ College Tuition/(1)/ 1985 $ 5,418 $ 90,800 $ 42 $ .22 $12,339 1995 $12,432 $136,700 $ 65 $ .32 $19,860 Affiliated 1995 $19,879 $333,145 $154 $ .81 $45,272
Affiliated's results reflect total return at net asset value, with all distributions reinvested for the 10 years ended 10/31/95. See Important Information on page 7. /(1)/ National average. Sources: U.S. Department of Education, Statistics Bureau Section, College Board Annual Survey of Colleges; National Association of Realtors, Research Division; U.S. State Department; U.S. Postal Service; Department of Commerce, Bureau of Economic Analysis Statistics. 3 The Total Return Perspective The Fund is managed to anticipate change, to find good value and to maintain a low level of risk in relation to expected returns. The Fund's average shareholder ownership of over 18 1/2 years reflects the success of this strategy. Growth of a $10,000 Fund Investment/(1)/: 11/1/70-10/31/95 A History of Consistent Performance
Value of Cumulative Value Cumulative How Year Shares of Capital Gains Value of $10,000 Ended Initially Distributions Reinvested Grew Oct. 31 Acquired Taken in Shares Dividends Total Value - ---------------------------------------------------------------------------------------------- 1971 $ 9,840 $ 230 $ 421 $ 10,491 1972 10,364 651 920 11,935 1973 10,510 998 1,481 12,989 1974 7,988 1,001 1,676 10,665 1975 9,898 1,313 2,646 13,857 1976 11,822 1,866 3,901 17,589 1977 10,671 2,127 4,273 17,071 1978 10,379 2,403 5,055 17,837 1979 11,633 3,592 6,871 22,096 1980 13,280 5,565 9,442 28,287 1981 11,822 6,936 10,157 28,915 1982 12,507 9,316 13,242 35,065 1983 14,665 12,565 18,028 45,258 1984 13,440 15,104 19,157 47,701 1985 14,300 18,861 23,605 56,766 1986 17,070 28,340 32,010 77,420 1987 15,219 32,579 31,820 79,618 1988 14,052 41,354 33,920 89,326 1989 15,204 48,557 41,676 105,437 1990 12,988 44,691 39,777 97,456 1991 15,000 58,557 51,187 124,744 1992 15,379 64,517 57,767 137,663 1993 16,414 78,860 66,845 162,119 1994 16,079 86,342 70,499 172,920 1995 $17,464 $108,610 $82,227 $208,301
The dollar amounts of dividends and capital gains distributions reinvested in shares were $65,001 and $84,538, respectively. The initial investment plus all distributions reinvested amounted to $159,539. If dividends and capital gains distributions had been withdrawn in cash, the amounts of these payments would have been $15,260 and $17,159, respectively. /(1)/ Reflects the deduction of the maximum 5.75% sales charge for investments under $50,000. All distributions were reinvested. See Important Information on page 7. Who Owns the Fund?
Investor Profile of Affiliated Fund - ------------------------------------------------------------------------------------------------ Fiduciaries Custodians for minors 15,720 Trusts 9,268 Pension & profit-sharing plans 6,810 Estates 597 - ------------------------------------------------------------------------------------------------ Institutions Corporate organizations 1,750 Religious, charitable & welfare organizations 332 Clubs & fraternal organizations 91 Cemeteries 64 Nursing homes & hospitals 38 Colleges & universities 36 - ------------------------------------------------------------------------------------------------ Individuals Single & joint accounts 81,428 IRAs 39,041 - ------------------------------------------------------------------------------------------------ Other 43,025 Total Accounts in Affiliated on 10/31/95 198,200
4 The Total Return Perspective The past 25 years have included several periods of economic, political and stock market turmoil. By focusing on value investing, Affiliated reduced downside volatility in periods of stock market weakness and produced returns that outpaced the S&P 500 (an unmanaged index), guaranteed CDs and inflation. Using the Value Method of Investing, Affiliated Fund Reduced Volatility and Produced Rewarding Gains 1972-1974 The last protracted bear market; S&P 500 declined 28.8%. Affiliated Fund held the decline to 10.6%. 1980-1982 Interest rates rose dramatically; prime rate hit 20%. Economy suffered a recession. During these two years, Affiliated rose 24%. 1986-1991 Two corrections jolted the stock market; war and recession followed a year later. Affiliated rose 61.1% over this period. Average Annual Total Returns/(1)/ Over 25 Years Affiliated: 12.9% S&P 500: 12.4% CDs: 7.9% Inflation: 5.6%
Affiliated Unmanaged Six-Month Date Fund S&P 500 Inflation CD(3) - ---- ---------- --------- ---------- ------ 10-31-70 $ 9,425 $10,000 $10,000 $10,000 10-31-71 10,491 11,686 10,381 10,549 10-31-72 11,935 14,247 10,736 11,065 10-31-73 12,989 14,250 11,574 11,896 10-31-74 10,665 10,147 12,970 13,076 10-31-75 13,857 12,783 13,934 14,046 10-31-76 17,589 15,361 14,695 14,889 10-31-77 17,071 14,433 15,635 15,713 10-31-78 17,837 15,349 17,030 16,936 10-31-79 22,096 17,720 19,086 18,767 10-31-80 28,287 23,401 21,523 21,164 10-31-81 28,915 23,535 23,706 24,558 10-31-82 35,065 27,369 24,924 27,866 10-31-83 45,258 35,018 25,635 30,430 10-31-84 47,701 37,248 26,726 33,690 10-31-85 56,766 44,458 27,589 36,584 10-31-86 77,420 59,211 27,995 39,108 10-31-87 79,618 62,999 29,264 41,706 10-31-88 89,326 72,390 30,508 44,897 10-31-89 105,437 91,415 31,878 49,054 10-31-90 97,456 84,599 33,883 53,107 10-31-91 124,744 112,903 34,873 56,608 10-31-92 137,663 124,130 35,990 58,916 10-31-93 162,119 142,488 36,980 60,882 10-31-94 172,920 147,986 37,944 63,514 10-31-95 208,301 187,067 39,010 67,427 An investor cannot invest directly in an index, such as the S&P 500. For more information on CDs, see page 2. /(1)/ Average annual total return at maximum offering price from 11/1/70 through 10/31/95. /(2)/ Average of six-month CD rates available each period. Source: Salomon Brothers and The Federal Reserve Bank. See Important Information on page 7.
5 The Impact of a Disciplined Investment Plan Unless you have a crystal ball, perfectly timing the market is impossible. Often times opportunity can only be identified after it has already passed. For long-term investors in Lord Abbett's Affiliated Fund, the key to one successful strategy has focused on following a disciplined investment plan -- not timing the market. Let's compare two hypothetical investments made over the last 20 calendar years ending December 31, 1994, where $5,000 was invested in the Fund every year. For Investment A, shares were purchased (with the benefit of hindsight) when the Dow Jones Industrial Average was at the low for each given year. Shares were purchased for Investment B on the first business day of every year. Your financial adviser can help you discipline your investing and set up a systematic plan you are comfortable with Here's What Happened...
- ------------ Investment A Timing - ------------ Account Date of Cumulative Value Investments Investments at Year-End - ------------------------------------------------------------------------------- 1/2/75 $ 5,000 $ 6,424 1/2/76 10,000 14,948 11/2/77 15,000 18,951 2/28/78 20,000 24,902 11/7/79 25,000 37,430 4/21/80 30,000 52,995 9/25/81 35,000 58,327 8/12/82 40,000 78,773 1/3/83 45,000 104,951 7/24/84 50,000 117,847 1/4/85 55,000 155,738 1/22/86 60,000 197,522 10/19/87 65,000 209,207 1/20/88 70,000 241,527 1/3/89 75,000 304,413 10/11/90 80,000 293,912 1/9/91 85,000 364,759 10/9/92 90,000 415,243 1/20/93 95,000 475,638 4/4/94 100,000 500,249 Account Value on 12/31/94 $500,249 - -----------------------------------------------------------------------======== Average Annual Total Return 14.1% - -----------------------------------------------------------------------======== - ------------ Investment B Systematic Investing - ------------ Account Date of Cumulative Value Investments Investments at Year-End - ------------------------------------------------------------------------------- 1/2/75 $ 5,000 $ 6,424 1/2/76 10,000 14,948 1/3/77 15,000 18,363 1/2/78 20,000 23,940 1/2/79 25,000 37,028 1/2/80 30,000 52,112 1/2/81 35,000 57,029 1/4/82 40,000 76,579 1/3/83 45,000 102,196 1/2/84 50,000 114,335 1/2/85 55,000 151,221 1/2/86 60,000 191,863 1/2/87 65,000 202,877 1/4/88 70,000 234,121 1/2/89 75,000 295,265 1/2/90 80,000 284,353 1/2/91 85,000 352,895 1/2/92 90,000 402,097 1/4/93 95,000 460,734 1/3/94 100,000 484,521 Account Value on 12/31/94 $484,521 - -----------------------------------------------------------------------======== Average Annual Total Return 13.5% - -----------------------------------------------------------------------========
The disciplined investment plan (B) provided an average annual total return almost the same as the "perfect" investment scenario (A). Since determining the "perfect" time to invest without the benefit of hindsight is impossible, why not sit down with your financial adviser and set up a disciplined investment plan today? The above illustrations assume the reinvestment of all dividends and distributions. All investments were made at the applicable sales charge of 5.75% for account values up to $50,000 and at the applicable reduced sales charges thereafter under rights of accumulation. Making periodic investments in the Fund does not guarantee against a loss of principal. If held until 9/30/95 (with no additional investments made), Investment A and Investment B would have been worth $621,545 and $602,003, respectively. For performance at the maximum sales charge, please turn to the inside front cover. 6 Portfolio Diversification
Affiliated Fund's Top Ten Equity Holdings Percent of Total Net Assets - ----------------------------------------------------------------------------------------------------------------- SmithKline Beecham plc ADR United Kingdom-based producer of pharmaceuticals 3.05% - ----------------------------------------------------------------------------------------------------------------- MCI Communications Nation's second largest provider of long-distance telecommunications services 3.01% - ----------------------------------------------------------------------------------------------------------------- Emerson Electric Co. A leading factor in world markets for electrical equipment and related components 2.87% - ----------------------------------------------------------------------------------------------------------------- Deere & Co. World's largest manufacturer of farm equipment 2.70% - ----------------------------------------------------------------------------------------------------------------- Boeing Co. Dominant supplier to the world market for commercial aircraft 2.45% - ----------------------------------------------------------------------------------------------------------------- AMP Inc. Global leader in manufacture of connectors and terminals for electronic and electrical circuitry 2.37% - ----------------------------------------------------------------------------------------------------------------- Browning Ferris Industries, Inc. Major provider of solid waste disposal services 2.26% - ----------------------------------------------------------------------------------------------------------------- General Motors Corp. Nation's largest automobile manufacturer 2.20% - ----------------------------------------------------------------------------------------------------------------- Total S.A. Sponsored ADR Large international oil company based in France 2.07% - ----------------------------------------------------------------------------------------------------------------- CIGNA Corp. A leading provider of insurance and managed health care 2.00% - ----------------------------------------------------------------------------------------------------------------- Total 24.98%
Data as of 10/31/95. Important Information Bonds purchased by the Fund are subject to market fluctuations upward and downward inversely to the rise and fall of interest rates. Common stocks are also subject to market fluctuations, providing the potential for gains and the risk of loss. Performance results quoted herein reflect past performance, current sales charges (where applicable) and appropriate Rule 12b-1 Plan expenses from commencement of the Plan. Past performance is no indication of future results. Tax consequences are not reflected. The Fund's sales charge structure has changed in the past. The investment return and principal value of an investment will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. If used as sales material after 12/31/95, this report must be accompanied by Lord Abbett's Performance Quarterly for the most recently completed calendar quarter. Statement of Net Assets October 31, 1995
Number of Market Value Security Shares (Note 1a) - ---------------------------------------------------------------------------------------------------------------------- INVESTMENTS IN SECURITIES 96.13% - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS AND CONVERTIBLE SECURITIES 95.05% - ---------------------------------------------------------------------------------------------------------------------- Aerospace 2.45% Boeing Co. 1,850,000 $ 121,406,250 - ---------------------------------------------------------------------------------------------------------------------- Agricultural Deere & Co. 1,500,000 134,062,500 Equipment/ Pioneer Hi-Bred Supplies International, Inc. 750,000 37,218,750 3.45% Total 171,281,250 - ---------------------------------------------------------------------------------------------------------------------- Apparel 1.54% VF Corp. 1,600,000 76,600,000 - ---------------------------------------------------------------------------------------------------------------------- Auto Parts Genuine Parts Company 1,750,000 69,343,750 3.72% Johnson Controls, Inc. 850,000 49,512,500 TRW Inc. 1,000,000 65,750,000 Total 184,606,250 - ---------------------------------------------------------------------------------------------------------------------- Automobiles 2.20% General Motors Corp. 2,500,000 109,375,000 - ---------------------------------------------------------------------------------------------------------------------- Banks: Bank of Boston Corp. 690,200 30,713,900 Money Center First Chicago Corp. 750,000 50,906,250 1.64% Total 81,620,150 --------------------------------------------------------------------------------- Number of Market Value Security Shares (Note 1a) - ---------------------------------------------------------------------------------------------------------------------- Banks: BankAmerica Corp. 700,000 $ 40,250,000 Regional Comerica Inc. 1,250,000 42,031,250 2.41% First Union Corp. 750,000 37,218,750 Total 119,500,000 - ---------------------------------------------------------------------------------------------------------------------- Chemicals Atlantic Richfield 3.32% (Lyondell Petrochemical) $2.23 Conv. Pfd. 1,000,000 22,375,000 Dow Chemical Co. 1,250,000 85,781,250 Union Carbide Corp. 1,500,000 56,812,500 Total 164,968,750 - ---------------------------------------------------------------------------------------------------------------------- Containers .40% Sonoco Products Co. 800,000 19,800,000 - ---------------------------------------------------------------------------------------------------------------------- Data Processing Apple Computer Inc. 1,500,000 54,468,750 Equipment and Hewlett-Packard Co. 900,000 83,362,500 Components 3.68% Seagate Technology Inc. 1,000,000 44,750,000 Total 182,581,250 ---------------------------------------------------------------------------------
7 Statement of Net Assets October 31, 1995
Number of Market Value Security Shares (Note 1a) - ---------------------------------------------------------------------------------------------------------------------- Data Processing General Motors Corp. Services (Electronic Data Systems) 1.68% $3.25 Conv. Pfd. 350,000 $ 23,450,000 General Motors Corp. (Electronic Data Systems) Class E 1,276,700 60,164,488 Total 83,614,488 - ---------------------------------------------------------------------------------------------------------------------- Drugs/Health Care Baxter International Inc. 2,234,000 86,288,250 Products Lilly, Eli & Co. 650,000 62,806,250 7.50% Merck & Co., Inc. 1,250,000 71,875,000 SmithKline Beecham plc ADR 2,917,600 151,350,500 Total 372,320,000 - ---------------------------------------------------------------------------------------------------------------------- Electric Power Allegheny Power 7.32% System, Inc. 1,750,000 46,156,250 American Electric Power Co., Inc. 1,500,000 57,187,500 Carolina Power & Light Co. 2,500,000 81,875,000 Detroit Edison Co. 1,450,000 48,937,500 Florida Progress Corp. 1,768,900 58,594,813 Public Service Enterprises Group Inc. 2,400,000 70,500,000 Total 363,251,063 - ---------------------------------------------------------------------------------------------------------------------- Electrical Equipment 2.87% Emerson Electric Co. 2,000,000 142,500,000 - ---------------------------------------------------------------------------------------------------------------------- Electronics: Components 2.37% AMP Inc. 3,000,000 117,750,000 - ---------------------------------------------------------------------------------------------------------------------- Financial: American Express Co. 750,000 30,468,750 Miscellaneous Transamerica Corp. 1,427,600 96,719,900 2.56% Total 127,188,650 - ---------------------------------------------------------------------------------------------------------------------- Food Conagra Inc. 2,022,160 78,105,930 3.75% Hershey Foods Corp. 700,000 41,825,000 Sara Lee Corp. 2,250,000 66,093,750 Total 186,024,680 - ---------------------------------------------------------------------------------------------------------------------- Insurance Aetna Life & Casualty Co. 750,000 52,781,250 7.15% Chubb Corp. 650,000 58,418,750 CIGNA Corp. 1,000,000 99,125,000 General Re Corp. 350,000 50,706,250 Lincoln National Corp. 1,251,300 55,839,263 St. Paul Companies Inc. 750,000 38,062,500 Total 354,933,013 - ---------------------------------------------------------------------------------------------------------------------- Multi-Industry Minnesota Mining & 2.18% Mfg. Co. 1,300,000 73,937,500 Textron, Inc. 500,000 34,375,000 Total 108,312,500 - ---------------------------------------------------------------------------------------------------------------------- Natural Gas Consolidated Natural Distribution .77% Gas Co. 1,000,000 38,000,000 - ---------------------------------------------------------------------------------------------------------------------- Oil: International Chevron Corp. 1,750,000 81,812,500 6.78% Exxon Corp. 1,000,000 76,375,000 Mobil Corp. 750,000 75,562,500 Total S.A. Sponsored ADR 3,329,780 102,806,957 Total 336,556,957 --------------------------------------------------------------------------------- Number of Shares or Principal Market Value Security Amount (Note 1a) - ---------------------------------------------------------------------------------------------------------------------- Paper and Federal Paper Board Inc. 750,000 $ 31,500,000 Forest Products International Paper Co. 1,000,000 37,000,000 5.43% James River Corp. 1,500,000 48,187,500 Kimberly Clark Corp. 500,000 36,312,500 Scott Paper Co. 1,250,000 66,562,500 Westvaco Corporation 1,800,000 49,950,000 Total 269,512,500 - ---------------------------------------------------------------------------------------------------------------------- Printing and Donnelley, R.R. & Publishing 1.45% Sons Co. 1,970,500 71,923,250 - ---------------------------------------------------------------------------------------------------------------------- Retail Dayton Hudson Corp. 500,000 34,375,000 2.40% Sears, Roebuck & Co. 2,500,000 85,000,000 Total 119,375,000 - ---------------------------------------------------------------------------------------------------------------------- Savings Ahmanson, H.F. & Co. 2,750,000 68,750,000 and Loan Great Western 2.46% Financial Corp. 2,350,000 53,168,750 Total 121,918,750 - ---------------------------------------------------------------------------------------------------------------------- Telecommunications AT&T Corp. 1,200,000 76,800,000 4.56% MCI Communications Corp. 6,000,000 149,625,000 Total 226,425,000 - ---------------------------------------------------------------------------------------------------------------------- Tire and Rubber Cooper Tire & Goods .47% Rubber Company 1,000,000 23,125,000 - ---------------------------------------------------------------------------------------------------------------------- Tobacco .86% American Brands Inc. 1,000,000 42,875,000 - ---------------------------------------------------------------------------------------------------------------------- Transportation: Miscellaneous 1.07% Ryder Systems Inc. 2,196,900 53,000,212 - ---------------------------------------------------------------------------------------------------------------------- Waste Management Browning Ferris 3.67% Industries Inc. 3,850,000 112,131,250 WMX Technologies Inc. 2,500,000 70,312,500 Total 182,443,750 - ---------------------------------------------------------------------------------------------------------------------- Other 2.94% 146,208,750 --------------------------------------------------------------------------------- Total Investments in Common Stocks and Convertible Securities (Cost $3,847,490,108) 4,718,997,463 - ---------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS 1.08% - ---------------------------------------------------------------------------------------------------------------------- Federal National Mortgage Association 14% due 9/25/1996 (Cost $54,064,500) 50,000M 53,625,000 --------------------------------------------------------------------------------- Total Investments in Securities (Cost $3,901,554,608) 4,772,622,463 - ---------------------------------------------------------------------------------------------------------------------- OTHER ASSETS, LESS LIABILITIES 3.87% - ---------------------------------------------------------------------------------------------------------------------- Short-Term Investments, at Cost - ---------------------------------------------------------------------------------------------------------------------- U.S. Government Federal Home Obligations Loan Banks 5.62% due 11/7/1995 35,000M 34,923,506 5.65% due 11/7/1995 24,000M 23,973,632 Federal National Mortgage Association 5.70% due 11/3/1995 29,000M 28,839,292 5.65% due 11/7/1995 36,000M 35,960,450 5.62% due 11/13/1995 40,000M 39,843,889 Total 163,540,769 ---------------------------------------------------------------------------------
8 Statements of Net Assets October 31, 1995
Principal Market Value Security Amount (Note 1a) - ---------------------------------------------------------------------------------------------------------------------- Corporate Beneficial Corp. Obligations 5.72% due 11/1/1995 $10,000M $ 10,000,000 Chevron Oil Finance Co. 5.71% due 11/6/1995 3,000M 3,000,000 General Electric Co. 5.75% due 11/2/1995 20,000M 20,000,000 Total 33,000,000 --------------------------------------------------------------------------------- Total Short-Term Investments 196,540,769 --------------------------------------------------------------------------------- Market Value Security (Note 1a) - ---------------------------------------------------------------------------------------------------------------------- Cash and Receivables, Net of Liabilities $ (4,638,168) --------------------------------------------------------------------------------- Total Other Assets, Less Liabilities 191,902,601 - ---------------------------------------------------------------------------------------------------------------------- Net Assets (equivalent to $11.98 a share on 100.00% 414,384,777 shares of $1.25 par value capital stock outstanding; authorized, 500,000,000 shares) $4,964,525,064 ---------------------------------------------------------------------------------
See Notes to Financial Statements. Portfolio Changes Issues added to or eliminated from the portfolio (exclusive of U.S. Government obligations and short-term investments) during the six months ended October 31, 1995 Additions+ Apple Computer Inc. AT&T Corp. Bank of Boston Corp. Comerica, Inc. Conagra Inc. Cooper Tire & Rubber Company First Union Corp. Hershey Foods Corp. James River Corp. Johnson Controls, Inc. Kimberly Clark Corp. Lilly, Eli & Co. Mobil Corp. Scott Paper Co. Seagate Technology Inc. Sonoco Products Co. Westvaco Corporation - -------------------------------------------------------------------------------- Eliminations+ Allstate Corp. Anheuser-Busch Companies Inc. Archer-Daniels-Midland Co. Bristol-Myers Squibb Co. British Airways plc ADR Champion International Corp. Crown Vantage Inc. First Chicago Corp. $2.875 Conv. Pfd. Ford Motor Co. $4.20 Conv. Pfd. SAFECO Corp. Whirlpool Corp. Xerox Corp. +Includes securities previously classified in the Investment Portfolio under "Other". Statement of Operations For the Year Ended October 31, 1995
Investment Income - -------------------------------------------------------------------------------------------------------------------------- Income Dividends $ 133,082,084 ------------------------------------------------------------------------------------------------ Interest 25,776,844 ------------------------------------------------------------------------------------------------ Total income $158,858,928 - -------------------------------------------------------------------------------------------------------------------------- Expenses Management fee (Note 5) 14,431,000 ------------------------------------------------------------------------------------------------ 12b-1 distribution plan (Note 5) 8,547,599 ------------------------------------------------------------------------------------------------ Shareholder servicing 4,258,090 ------------------------------------------------------------------------------------------------ Reports to shareholders 425,584 ------------------------------------------------------------------------------------------------ Legal and audit 171,455 ------------------------------------------------------------------------------------------------ Directors' fees 125,361 ------------------------------------------------------------------------------------------------ Other 378,621 ------------------------------------------------------------------------------------------------ Total expenses 28,337,710 ------------------------------------------------------------------------------------------------ Net investment income 130,521,218 ------------------------------------------------------------------------------------------------ Net Realized and Unrealized Gain on Investments (Note 4) - -------------------------------------------------------------------------------------------------------------------------- Net realized gain from security transactions (excluding short-term securities) ------------------------------------------------------------------------------------------------ Proceeds from sales 2,429,432,924 ------------------------------------------------------------------------------------------------ Cost of securities sold 1,938,346,443 ------------------------------------------------------------------------------------------------ Net realized gain 491,086,481 - -------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments ------------------------------------------------------------------------------------------------ Beginning of year 655,247,887 ------------------------------------------------------------------------------------------------ End of year 871,067,855 ------------------------------------------------------------------------------------------------ Net unrealized appreciation 215,819,968 ------------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments 706,906,449 ------------------------------------------------------------------------------------------------ Net Increase in Net Assets Resulting from Operations $837,427,667 - --------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 9 Statements of Changes in Net Assets
Year Ended October 31, Increase (Decrease) in Net Assets 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- Operations Net investment income $ 130,521,218 $ 119,525,270 ---------------------------------------------------------------------------------------------------------------- Net realized gain from security transactions 491,086,481 296,760,098 ---------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments 215,819,968 (149,915,037) ---------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 837,427,667 266,370,331 - --------------------------------------------------------------------------------------------------------------------------------- Undistributed net investment income included in price of shares sold (reacquired) (Note 1d) 55,513 (208,561) - --------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from (Note 2) ---------------------------------------------------------------------------------------------------------------- Net investment income (120,712,716) (122,118,161) ---------------------------------------------------------------------------------------------------------------- Net realized gain from security transactions (295,129,557) (222,409,905) ---------------------------------------------------------------------------------------------------------------- Total distributions (415,842,273) (344,528,066) - --------------------------------------------------------------------------------------------------------------------------------- Capital share transactions ---------------------------------------------------------------------------------------------------------------- Net proceeds from sales of 29,806,062 and 18,972,145 shares, respectively 330,545,662 202,120,967 ---------------------------------------------------------------------------------------------------------------- Net asset value of 31,322,483 and 23,766,084 shares, respectively, issued to shareholders in reinvestment of net investment income and realized gain from security transactions 312,141,819 250,501,482 ---------------------------------------------------------------------------------------------------------------- Total 642,687,481 452,622,449 ---------------------------------------------------------------------------------------------------------------- Cost of 30,197,287 and 29,946,629 shares reacquired, respectively (329,389,161) (318,702,989) ---------------------------------------------------------------------------------------------------------------- Increase in net assets derived from capital share transactions (net increase of 30,931,258 and 12,791,600 shares, respectively) 313,298,320 133,919,460 - --------------------------------------------------------------------------------------------------------------------------------- Increase in net assets 734,939,227 55,553,164 - --------------------------------------------------------------------------------------------------------------------------------- Net Assets - --------------------------------------------------------------------------------------------------------------------------------- Beginning of year 4,229,585,837 4,174,032,673 ---------------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income of $32,055,343 and $5,637,421, respectively) $4,964,525,064 $4,229,585,837 - ---------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. Financial Highlights
Year Ended October 31, Per Share Operating Performance: 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $ 11.03 $ 11.26 $ 10.55 $ 10.29 $ 8.91 ------------------------------------------------------------------------------------------------------------------------- Income from investment operations --------------------------------------------------------------------------------------------------------------------- Net investment income .32 .31 .31 .38 .40 --------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 1.70 .38 1.43 .61 1.92 --------------------------------------------------------------------------------------------------------------------- Total from investment operations 2.02 .69 1.74 .99 2.32 ------------------------------------------------------------------------------------------------------------------------- Distributions --------------------------------------------------------------------------------------------------------------------- Dividends from net investment income (.30) (.32) (.35) (.40) (.41) --------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain (.77) (.60) (.68) (.33) (.53) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of year $ 11.98 $ 11.03 $ 11.26 $ 10.55 $ 10.29 - ------------------------------------------------------------------------------------------------------------------------------ Total Return* 20.46% 6.66% 17.76% 10.36% 28.00% - ------------------------------------------------------------------------------------------------------------------------------ Ratios/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of year (000) $4,964,525 $4,229,586 $4,174,033 $3,680,332 $3,565,230 --------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets: ------------------------------------------------------------------------------------------------------------------------- Expenses 0.63% 0.63% 0.63% 0.60% 0.58% --------------------------------------------------------------------------------------------------------------------- Net investment income 2.90% 2.91% 2.95% 3.73% 4.22% ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 53.84% 51.48% 45.15% 42.00% 56.38% - ------------------------------------------------------------------------------------------------------------------------------
* Total return does not consider the effects of sales loads. See Notes to Financial Statements. 10 Notes to Financial Statements 1. Significant Accounting Policies The Company is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The following is a summary of significant accounting policies consistently followed by the Company. The policies are in conformity with generally accepted accounting principles. (a) Market value is determined as follows: Securities listed or admitted to trading privileges on any national securities exchange are valued at the last sales price on the principal securities exchange on which such securities are traded, or, if there is no sale, at the mean between the last bid and asked prices on such exchange, or, in the case of bonds, in the over-the-counter market if, in the judgment of the Company's officers, that market more accurately reflects the market value of the bonds. Securities traded only in the over-the-counter market are valued at the mean between the bid and asked prices, except that securities admitted to trading on the NASDAQ National Market System are valued at the last sales price if it is determined that such price more accurately reflects the value of such securities. Securities for which market quotations are not available are valued at fair value under procedures approved by the Board of Directors. (b) It is the policy of the Company to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income in taxable distributions. Therefore, no federal income tax provision is required. (c) Security transactions are accounted for on the date that the securities are purchased or sold (trade date). Dividend income and distributions to shareholders are recorded on the ex-dividend date. (d) A portion of the proceeds from sales and costs of repurchases of capital shares, equivalent to the amount of distributable net investment income on the date of the transaction, is credited or charged to undistributed income. Undistributed net investment income per share thus is unaffected by sales or repurchases of shares. 2. Distributions Net realized gain from security transactions is distributed to shareholders in the succeeding year. Accumulated undistributed net realized gain at October 31, 1995 for financial reporting purposes, which is substantially the same as for federal income tax purposes, aggregated $485,622,077. Income and capital gains distributions are determined in accordance with income tax regulations which may differ from methods used to determine the corresponding income and capital gains amounts in accordance with generally accepted accounting principles. These differences are primarily caused by differences in the timing of recognition of certain components of income, expenses or capital gains and losses. Where such differences are permanent in nature, they are reclassified based upon their ultimate characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations or net asset value of the Fund. A distribution of $1.19 a share aggregating $493,941,384 was declared on November 15, 1995 from net realized gains from security transactions. Such distribution was paid November 21, 1995 to each shareholder of record on November 15, 1995 in shares of the Company or in cash, in accordance with the shareholder's election. A dividend of $.075 a share from net investment income aggregating $31,130,759 was declared on November 15, 1995 and was paid on November 21, 1995 to shareholders of record on November 15, 1995. 3. Capital Paid In At October 31, 1995, capital paid in aggregated $3,575,779,789. 4. Portfolio Securities The Company loans its portfolio securities to brokers. As of October 31, 1995, the market value of securities on loan to brokers was $45,757,168, for which the Company has obtained collateral aggregating $47,084,700, consisting of cash and U.S. Treasury securities. Purchases and sales of investment securities (other than U.S. Government obligations and short-term securities) aggregated $2,189,951,204 and $2,234,432,924, respectively. Security gains and losses are computed on the identified cost basis. As of October 31, 1995, unrealized appreciation based on cost for federal income tax purposes aggregated $871,067,855 of which $908,688,829 related to appreciated securities and $37,620,974 related to depreciated securities. The cost of investments for federal income tax purposes is substantially the same as that used for financial reporting purposes. 5. Management Fee and Other Transactions with Affiliates Lord, Abbett & Co. received a management fee of $14,431,000 for which it supplied investment management, research, statistical and advisory services and paid officers' remuneration and certain other expenses of the Company. The management fee is based on average daily net assets at the following annual rates: 1/2 of 1% on the first $200 million; 2/5 of 1% on the next $300 million; 3/8 of 1% on the next $200 million; 7/20 of 1% on the next $200 million and 3/10 of 1% on the excess over $900 million. Lord, Abbett & Co. also received $644,813 representing payment of commissions on sales of capital stock of the Company after deducting $6,295,403 allowed to authorized distributors as concessions. The Company adopted a Rule 12b-1 Plan which provides for the payment of (1) an annual fee for services (payable quarterly) of .15% of the average daily net asset value of the Company's shares sold by dealers prior to the Plan's effective date and .25% of the average daily net asset value of such shares sold on and after that date and (2) a one-time 1% sales distribution fee, at the time of sale, on such shares sold at net asset value of $1 million or more. Certain of the Company's officers and directors have an interest in Lord, Abbett & Co. 6. Directors` Remuneration The Directors of the Company associated with Lord, Abbett & Co. and all officers of the Company receive no compensation from the Company for acting as such. Outside Directors' fees, including attendance fees for board and committee meetings, and outside Directors' retirement costs, are allocated among all funds in the Lord Abbett group based on net assets of each fund. The direct remuneration accrued during the period for outside Directors of the Company as a group was $80,170 (exclusive of expenses), a portion of which has been deemed invested in shares of the Company under a deferred compensation plan contemplating future payment of the value of those shares. As of October 31, 1995, the aggregate amount in Directors' accounts maintained under the Plan was $1,250,555. Retirement costs accrued during the period amounted to $54,682. 11 1995 Tax Information In early 1996, shareholders of Affiliated Fund will receive information which must be included in each shareholder's federal income tax return. In accordance with the regulations of the U.S. Treasury Department, this information must be reported by the Fund to the Internal Revenue Service. 98% of the Fund's dividends for the fiscal year ended October 31, 1995 qualify for the dividend-received deduction available to corporate shareholders in accordance with Section 243 of the Internal Revenue Code. Special Distribution of Net Realized Securities Gains Federal Tax Information. The special distribution of $1.19 a share is from net realized securities gains in the fiscal year ended October 31, 1995 (paid November 21, 1995). Concerning the distribution, $.01 should be reported as ordinary taxable income and $1.18 should be reported as realized long-term gain. If a shareholder receives shares of stock in payment of the special distribution, the stock should be assigned a "cost" of $11.21 a share for federal income tax purposes. The cost basis of the shares on which the distribution is received is not affected. State Tax Information. The treatment of the special distribution for state income tax purposes varies with the tax laws and regulations of the various states. It is suggested that you consult your local tax adviser for information relating to the taxes which may be imposed by the laws of your state. Affiliated Fund, Inc. New York, New York Independent Auditors' Report The Board of Directors and Shareholders, Affiliated Fund, Inc.: We have audited the accompanying statement of net assets of Affiliated Fund, Inc. as of October 31, 1995, the related statements of operations for the year then ended and of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and the financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at October 31, 1995 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Affiliated Fund, Inc. at October 31, 1995, the results of its operations, the changes in its net assets and the financial highlights for the above-stated periods, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Deloitte & Touche LLP New York, New York December 8, 1995 This report to shareholders inaugurates a new procedure whereby a single copy of the report is sent to an address to which more than one registered shareholder of the Fund with the same last name has indicated mail is to be delivered, unless additional reports are specifically requested in writing or by telephone. Our Management Board of Directors Ronald P. Lynch Robert S. Dow Thomas S. Henderson E. Thayer Bigelow* Stewart S. Dixon* John C. Jansing*+ C. Alan MacDonald*+ Hansel B. Millican, Jr.*+ Thomas J. Neff* * Outside Director + Audit Committee Officers Ronald P. Lynch, Chairman Robert S. Dow, President Thomas S. Henderson, Executive Vice President and Portfolio Manager Kenneth B. Cutler, Vice President and Secretary Stephen I. Allen, Vice President Daniel E. Carper, Vice President Robert G. Morris, Vice President E. Wayne Nordberg, Vice President John J. Walsh, Vice President John J. Gargana, Jr., Vice President Paul A. Hilstad, Vice President and Assistant Secretary Thomas F. Konop, Vice President and Assistant Secretary Victor W. Pizzolato, Vice President Keith F. O'Connor, Treasurer Joseph Van Dyke, Assistant Treasurer Lydia Guzman, Assistant Secretary Robert M. Hickey, Assistant Secretary A. Edward Oberhaus III, Assistant Secretary Investment Manager and Underwriter Lord, Abbett & Co. The General Motors Building 767 Fifth Avenue New York, NY 10153-0203 212-848-1800 Custodian Morgan Guaranty Trust Company of New York Transfer Agent United Missouri Bank of Kansas City, N.A. Shareholder Servicing Agent DST Systems, Inc. P.O. Box 419100 Kansas City, MO 64141 800-821-5129 Auditors Deloitte & Touche LLP New York, NY Counsel Debevoise & Plimpton New York, NY Copyright (C) 1995 by Affiliated Fund, Inc. 767 Fifth Avenue, New York, NY 10153-0203 This publication, when not used for the general information of shareholders of Affiliated Fund, Inc., is to be distributed only if preceded or accompanied by a current prospectus which includes information concerning the Fund's investment objective and policies, sales charges and other matters. All rights reserved. Printed in the U.S.A. 12 Lord, Abbett & Co. A Tradition of Performance Through Disciplined Investing [PHOTOS OF PERSONNEL BELOW] (from left to right) Thomas S. Henderson, partner and portfolio manager--Affiliated Fund John J. Walsh, partner Robert G. Morris, partner and director of equity investments A successful long-term track record is evidence of a successful investment strategy. For decades we, at Lord, Abbett & Co., have believed that investing with a disciplined, value approach is the best way to achieve competitive returns and reduce portfolio risk. This commitment and the dedication of our team of 42 investment professionals have helped us earn the trust of financial professionals and investors for over 65 years. About Your Fund's Board of Directors The Securities and Exchange Commission (SEC) views the role of the independent Board of Directors as one of the most important components in overseeing a mutual fund. The Board of Directors watches over your Fund's general operations and represents your interests. Board members review and approve every contract between your Fund and Lord, Abbett & Co. (the Fund's investment manager). They meet regularly to review a wide variety of information and issues regarding your Fund. Every member of the Board possesses extensive business experience; Affiliated Fund's shareholders are indeed fortunate to have a group of independent directors with diverse backgrounds to provide a variety of viewpoints in the oversight of their Fund. [PHOTO OF JOHN C. JANSING] JOHN C. JANSING DIRECTOR--AFFILIATED FUND An alumnus of Dartmouth College, Mr. Jansing is the founder and retired Chairman of Independent Election Corporation of America, a proxy tabulating firm. His diversified business career has spanned 40 years and includes extensive experience in the investment company industry. Mr. Jansing has served on the American Stock Exchange Board of Governors as well as on a Securities and Exchange Commission Special Advisory Committee on Investment Advisors. He has been an independent director for all of Lord Abbett's funds since 1978. Investing in the Lord Abbett Family of Funds - -------------------------------------------------------------------------------- GROWTH - -------------------------------------------------------------------------------- INCOME - -------------------------------------------------------------------------------- Growth Funds Developing Growth Fund Value Appreciation Fund Global Fund-Equity Series Growth & Income Funds Affiliated Fund Fundamental Value Fund Balanced Fund Investment Trust- Balanced Series Income Funds U.S. Government Securities Fund* Bond-Debenture Fund Global Fund-Income Series Investment Trust-Limited Duration U.S. Government Securities Series* Tax-Free Income Funds .National .California .Connecticut .Florida .Georgia .Hawaii .Michigan .Minnesota .Missouri .New Jersey .New York .Pennsylvania .Texas .Washington Money Market Fund U.S. Government Securities Money Market Fund+ Finding the right mutual fund can be confusing. At Lord, Abbett & Co., we believe your financial adviser provides value in helping you identify and understand your investment objectives and, ultimately, offering fund recommendations suitable for your individual needs. For more complete information about a Lord Abbett fund, including charges and expenses, call your financial adviser or Lord, Abbett & Co. at 800-874-3733 for a prospectus. Read it carefully before investing. When you invest in a family of funds, you benefit from: Diversification. You and your financial adviser can diversify your investments between equity and income funds. Flexibility. As your investment goals change, your financial adviser can help you reallocate your portfolio. As an investor in the Lord Abbett Family of Funds, you have access to 25 portfolios designed to meet a variety of investment needs. While you may reallocate your assets among our funds at any time, we recommend speaking with your financial adviser to help you customize your investment plan. * An investment in this Fund is neither insured nor guaranteed by the U.S. Government. + An investment in this Fund is neither insured nor guaranteed by the U.S. Government and there can be no assurance that this Fund will be able to maintain a stable net asset value of $1.00 per share. This Fund is managed to maintain, and has maintained, its stable $1.00 per share price. [LOGO OF LORD, ABBETT & CO. APPEARS HERE] LAA-2-1095 The GM Building * 767 Fifth Avenue * New York, NY 10153-0203 (12/95) -----END PRIVACY-ENHANCED MESSAGE-----