-----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, EdNlQ4olCzHPHQKtJGybWzh8lw61BVFJrGlePVJhQ65fdzv2YqJO7A+bH/2FyG/Z WH1hPsaEiJ0LjpgqIWoamg== 0001047469-03-006987.txt : 20030227 0001047469-03-006987.hdr.sgml : 20030227 20030227111645 ACCESSION NUMBER: 0001047469-03-006987 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20030227 EFFECTIVENESS DATE: 20030227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LORD ABBETT AFFILIATED FUND INC CENTRAL INDEX KEY: 0000002691 IRS NUMBER: 136020600 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00005 FILM NUMBER: 03582271 BUSINESS ADDRESS: STREET 1: 90 HUDSON STREET CITY: JERSEY CITY STATE: NJ ZIP: 07302 BUSINESS PHONE: 201-395-2000 MAIL ADDRESS: STREET 1: 90 HUDSON STREET CITY: JERSEY CITY STATE: NJ ZIP: 07302 FORMER COMPANY: FORMER CONFORMED NAME: AFFILIATED INC DATE OF NAME CHANGE: 19920721 FORMER COMPANY: FORMER CONFORMED NAME: AFFILIATED FUND INC DATE OF NAME CHANGE: 19941207 FORMER COMPANY: FORMER CONFORMED NAME: LORD ABBOTT AFFILIATED FUND INC DATE OF NAME CHANGE: 19960315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LORD ABBETT AFFILIATED FUND INC CENTRAL INDEX KEY: 0000002691 IRS NUMBER: 136020600 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-10638 FILM NUMBER: 03582272 BUSINESS ADDRESS: STREET 1: 90 HUDSON STREET CITY: JERSEY CITY STATE: NJ ZIP: 07302 BUSINESS PHONE: 201-395-2000 MAIL ADDRESS: STREET 1: 90 HUDSON STREET CITY: JERSEY CITY STATE: NJ ZIP: 07302 FORMER COMPANY: FORMER CONFORMED NAME: AFFILIATED INC DATE OF NAME CHANGE: 19920721 FORMER COMPANY: FORMER CONFORMED NAME: AFFILIATED FUND INC DATE OF NAME CHANGE: 19941207 FORMER COMPANY: FORMER CONFORMED NAME: LORD ABBOTT AFFILIATED FUND INC DATE OF NAME CHANGE: 19960315 485BPOS 1 a2100252z485bpos.txt 485BPOS 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. 90 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT [X] OF 1940 Amendment No. 90 [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, including Area Code: (201) 395-2000 Christina T. Simmons, Esq., Vice President and Assistant Secretary 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, 2003 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 [LOGO] MARCH 1, 2003 LORD ABBETT AFFILIATED FUND PROSPECTUS - -------------------------------------------------------------------------------- AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE CALL 800-821-5129 FOR FURTHER INFORMATION. - -------------------------------------------------------------------------------- Table of Contents
PAGE The FUND What you should know Goal 2 about the Fund Principal Strategy 2 Main Risks 2 Performance 3 Fees and Expenses 4 Additional Investment Information 5 Management 6 Your INVESTMENT Information for managing Purchases 7 your Fund account Sales Compensation 11 Opening Your Account 12 Redemptions 13 Distributions and Taxes 13 Services For Fund Investors 14 Financial INFORMATION Financial Highlights 16 Additional INFORMATION How to learn more about the Fund Back Cover 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 primarily purchases equity securities of large, seasoned, U.S. and multinational companies that we believe are undervalued. Under normal circumstances, the Fund will invest at least 80% of its net assets in equity securities of large companies with market capitalizations of at least $5 billion at the time of purchase. This market capitalization threshold may vary in response to changes in the markets. Equity securities may include common stocks, preferred stocks, convertible securities, warrants, and similar instruments. Common stocks, the most familiar type of equity security, represent an ownership interest in a company. In selecting investments, the Fund attempts to invest in securities selling at reasonable prices in relation to our assessment of their potential 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 the Fund's downside risk because value stocks are believed to be underpriced, and large, seasoned company stocks tend to be less volatile than the stocks of smaller companies. We generally sell a stock when we think it seems less likely to benefit from the current market and economic environment, shows deteriorating fundamentals, or has reached our valuation target. 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. This means the value of your investment will fluctuate in response to movements in the equity securities 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. Due to its investments in multinational companies, the Fund may experience increased market liquidity, currency, political, information, and other risks. 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 OR AFFILIATED FUND refers to the 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. VALUE STOCKS are stocks of companies that we believe the market undervalues according to certain financial measurements of their intrinsic worth or business prospects. 2 AFFILIATED FUND Symbols: Class A - LAFFX Class B - LAFBX Class C - LAFCX Class P - LAFPX 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, before and after taxes, 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. [CHART]
===================================================================== BAR CHART (PER CALENDAR YEAR) -- CLASS A SHARES - --------------------------------------------------------------------- 1993 13.2% - --------------------------------------------------------------------- 1994 4.1% - --------------------------------------------------------------------- 1995 31.7% - --------------------------------------------------------------------- 1996 20.1% - --------------------------------------------------------------------- 1997 25.2% - --------------------------------------------------------------------- 1998 14.4% - --------------------------------------------------------------------- 1999 16.9% - --------------------------------------------------------------------- 2000 15.2% - --------------------------------------------------------------------- 2001 -7.9% - --------------------------------------------------------------------- 2002 -18.8% - --------------------------------------------------------------------- BEST QUARTER 4th Q '98 +17.1% WORST QUARTER 3rd Q '02 -19.7% =====================================================================
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. The after-tax returns of Class A shares included in the table below are calculated using the historical highest individual federal marginal income tax rates, and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. After-tax returns for Class B, Class C, and Class P shares are not shown in the table and will vary from those shown for Class A shares.
================================================================================================ AVERAGE ANNUAL TOTAL RETURNS THROUGH DECEMBER 31, 2002 - ------------------------------------------------------------------------------------------------ SHARE CLASS 1 YEAR 5 YEARS 10 YEARS LIFE OF FUND(1) Class A Shares Return Before Taxes -23.49% 1.66% 9.73% - - ------------------------------------------------------------------------------------------------ Return After Taxes on Distributions -24.54% -0.98% 6.06% - - ------------------------------------------------------------------------------------------------ Return After Taxes on Distributions and Sale of Fund Shares -13.85% 0.52% 6.33% - - ------------------------------------------------------------------------------------------------ Class B Shares -22.33% 2.07% - 7.62% - ------------------------------------------------------------------------------------------------ Class C Shares -19.11% 2.17% - 7.61% - ------------------------------------------------------------------------------------------------ Class P Shares -18.81% 2.73% - 2.96% - ------------------------------------------------------------------------------------------------ S&P 500 Index(2) (reflects no deduction for fees, -22.09% -0.58% 9.34% 6.67%(3) expenses or taxes) -0.24%(4) - ------------------------------------------------------------------------------------------------ S&P 500/Barra Value Index(2) (reflects no deduction for fees, -20.85% -0.85% 9.39% 6.09%(3) expenses or taxes) -0.41%(4) - ------------------------------------------------------------------------------------------------
(1) The dates of inception for Class B shares, Class C shares and Class P shares are 8/1/96, 8/1/96 and 11/24/97, respectively. (2) The performance of the unmanaged indices is not necessarily representative of the Fund's performance. (3) Represents total returns for the period 7/31/96 - 12/31/02, to correspond with the Class B and Class C periods shown. (4) Represents total returns for the period 11/30/97 - 12/31/02, to correspond with the Class P period shown. 3 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(1) 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")(2) none(3) 5.00% 1.00%(4) 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 and Service (12b-1) Fees(5) 0.35%(6) 1.00% 1.00%(6) 0.45% - ----------------------------------------------------------------------------------------------------------------------- Other Expenses(6) 0.20% 0.20% 0.20% 0.20% Total Operating Expenses(6) 0.86% 1.51% 1.51% 0.96% - -----------------------------------------------------------------------------------------------------------------------
(1) Class B shares will convert to Class A shares on the eighth anniversary of your original purchase of Class B shares. (2) The maximum contingent deferred sales charge ("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. (3) A CDSC of 1.00% may be assessed on certain redemptions of Class A shares made within 24 months following any purchases made without a sales charge. (4) A CDSC of 1.00% may be assessed on Class C shares if they are redeemed before the first anniversary of their purchase. (5) Because 12b-1 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. (6) These amounts have been restated from fiscal year amounts to reflect estimated 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 the 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, that dividends and distributions are reinvested, 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 $658 $834 $1,024 $1,575 - --------------------------------------------------------------------------------------------- Class B Shares $654 $777 $1,024 $1,626 - --------------------------------------------------------------------------------------------- Class C Shares $254 $477 $ 824 $1,802 - --------------------------------------------------------------------------------------------- Class P Shares $ 98 $306 $ 531 $1,178 - --------------------------------------------------------------------------------------------- You would pay the following expenses if you did not redeem your shares: Class A Shares $658 $834 $1,024 $1,575 - --------------------------------------------------------------------------------------------- Class B Shares $154 $477 $ 824 $1,626 - --------------------------------------------------------------------------------------------- Class C Shares $154 $477 $ 824 $1,802 - --------------------------------------------------------------------------------------------- Class P Shares $ 98 $306 $ 531 $1,178 - ---------------------------------------------------------------------------------------------
[SIDENOTE] MANAGEMENT FEES are payable to Lord, Abbett & Co. LLC ("Lord Abbett") for the Fund's investment management. 12b-1 FEES are 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 services, professional services, administrative services provided by Lord Abbett, and fees to certain Financial Intermediaries for providing recordkeeping or other administrative services in connection with investments in the Fund. 4 ADDITIONAL INVESTMENT INFORMATION This section describes some of the investment techniques that might be used by the Fund and some of the risks associated with those techniques. 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 security prices, interest rates, currency exchange rates, commodity prices and other factors. For example, the Fund may seek to hedge against certain market risks. These strategies may involve effecting transactions in derivative and similar instruments, including but not limited to options, futures, forward contracts, swap agreements, warrants, and rights. If we judge market conditions incorrectly or use a hedging 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 strategies may involve a small investment of cash compared to the magnitude of the risk assumed, and could produce disproportionate gains or 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. The markets for convertible securities may be less liquid than markets for common stocks or bonds. DEPOSITARY RECEIPTS. The Fund may invest in sponsored and unsponsored American Depositary Receipts ("ADRs") and similar depositary receipts. ADRs, typically issued by a financial institution (a "depositary"), evidence ownership interests in a security or a pool of securities issued by a foreign company and deposited with the depositary. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. Ownership of ADRs entails similar investment risks to direct ownership of foreign securities traded outside the U.S., including increased market liquidity, currency, political, information and other risks. Although the Fund may not invest more than 10% of its assets in foreign securities, ADRs are not subject to this limitation. LISTED OPTIONS ON SECURITIES. The Fund may purchase and write national securities exchange-listed put and call options on securities or securities indices. The Fund may use options for hedging or cross-hedging purposes, or to seek to increase total return (which is considered a speculative activity). A "call option" is a contract sold for a price giving its holder the right to buy a specific number of securities 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. The Fund may write covered call options with respect to securities in its portfolio in an attempt to increase income and to provide greater flexibility in the disposition of portfolio securities. A "put option" gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying securities at the exercise price at any time during the option period. A put option sold by the Fund is covered when, among other things, the Fund segregates permissible liquid assets having a value equal to or greater than the exercise price of the option to fulfill the obligation undertaken. The Fund will not purchase an option if, as a result of such purchase, more than 10% of its total assets would be invested in premiums for such options. The Fund may only sell (write) covered put options to the extent that cover for such options does not exceed 15% of its net assets. The Fund may only sell (write) covered call options having an aggregate market value of less than 25% of its total assets. 5 RISKS OF OPTIONS. Fund transactions in options, if any, involve additional risk of loss. Loss may result, for example, from adverse market movements, a lack of correlation between changes in the value of these derivative instruments and the Fund's assets being hedged, the potential illiquidity of the markets for derivative instruments, the risk that the counterparty to an OTC contract will fail to perform its obligations, or the risks arising from margin requirements and related leverage factors associated with such transactions. TEMPORARY DEFENSIVE INVESTMENTS. At times the Fund may take a temporary defensive position by investing some or all of its assets in short-term fixed income securities. Such securities may be used to attempt to avoid losses in response to adverse market, economic, political or other conditions, to invest uncommitted cash balances, or to maintain liquidity to meet shareholder redemptions. These securities may include: obligations of the U.S. Government and its agencies and instrumentalities, commercial paper, bank certificates of deposit, bankers' acceptances, and repurchase agreements collateralized by cash and obligations of the U.S. Government and its agencies and instrumentalities. These investments could reduce the benefit from any upswing in the market and prevent the Fund from achieving its investment objective. MANAGEMENT The Fund's investment adviser is Lord, Abbett & Co. LLC, 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 assets under management of approximately $48 billion in more than 40 mutual funds and other advisory accounts as of December 31, 2002. Lord Abbett is entitled to an annual management fee based on the Fund's average daily net assets. The fee is 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, 2002, the fee paid to Lord Abbett was at an effective annual rate of .31 of 1%. In addition, Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement in return for a fee at the annual rate of .04% of the Fund's average daily net assets.The Fund pays all expenses not expressly assumed by Lord Abbett. For more information about the services Lord Abbett provides to the Fund, see the Statement of Additional Information. 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: Sholom Dinsky, Thomas Hudson Jr., Robert G. Morris, Eli M. Salzmann and Kenneth G. Fuller. Messrs. Dinsky, Hudson, Morris, and Salzmann are Partners of Lord Abbett. Messrs. Hudson, Salzmann, and Morris have been with Lord Abbett since 1982, 1997, and 1991, respectively. Mr. Dinsky joined Lord Abbett in 2000 from Prudential Investments, where he served as Managing Director of Prudential Asset Management. Mr. Fuller, Investment Manager - Large Cap Value, joined Lord Abbett in 2002 from Pioneer Investment Management, Inc., where he served as Portfolio Manager and Senior Vice President from 1999 to 2002. Prior thereto, he served as a Principal of Manley, Fuller Asset Management. 6 YOUR INVESTMENT PURCHASES The Fund offers in this prospectus four classes of shares: Classes 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. We will not consider an order to be in proper form until we have completed our review and verification of information provided. A front-end sales charge is normally added to the NAV in the case of the Class A shares. There is no front-end sales charge in the case of the Class B, Class C, and Class 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 "CLASSES OF SHARES" 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, but a CDSC is applied to shares redeemed before 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, but a CDSC is applied to shares redeemed before the first anniversary of purchase - higher annual expenses than Class A shares CLASS P - available only to certain investors - no front-end sales charge and no CDSC
============================================================================================= FRONT-END SALES CHARGES - CLASS A SHARES - --------------------------------------------------------------------------------------------- TO COMPUTE MAXIMUM DEALER'S AS A % OF AS A % OF OFFERING PRICE CONCESSION YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT DIVIDE NAV BY (% OF OFFERING PRICE) - --------------------------------------------------------------------------------------------- Less than $50,000 5.75% 6.10% .9425 5.00% - --------------------------------------------------------------------------------------------- $50,000 to $99,999 4.75% 4.99% .9525 4.00% - --------------------------------------------------------------------------------------------- $100,000 to $249,999 3.95% 4.11% .9605 3.25% - --------------------------------------------------------------------------------------------- $250,000 to $499,999 2.75% 2.83% .9725 2.25% - --------------------------------------------------------------------------------------------- $500,000 to $999,999 1.95% 1.99% .9805 1.75% - --------------------------------------------------------------------------------------------- $1,000,000 and over No Sales Charge 1.0000 + - ---------------------------------------------------------------------------------------------
+ See "Dealer Concessions on Class A Share Purchases Without a Front-End Sales Charge." [SIDENOTE] NAV per share for each class of Fund shares is calculated, under normal circumstances, 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. Certain foreign securities that are primarily listed on foreign exchanges may trade on weekends or days when the Fund's NAV is not calculated. As a result, the Fund's NAV may change on days when shareholders will not be able to purchase or redeem Fund shares. 7 REDUCING YOUR CLASS A SHARE 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 Class A 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 may purchase additional Class A 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 may be backdated 90 days. Current holdings under Rights of Accumulation may be included in a Letter of Intention. The term "Purchaser" includes: (1) an individual, (2) an individual, his or her spouse and children under the age of 21, or (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). Please note that 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, although more than one beneficiary is involved. FOR MORE INFORMATION ON ELIGIBILITY FOR THESE PRIVILEGES, READ THE APPLICABLE SECTIONS IN THE 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 AND BENEFIT PLANS with at least 100 eligible employees,* - purchases for Retirement and Benefit Plans made through FINANCIAL INTERMEDIARIES that perform participant recordkeeping or other administrative services for the Plans and that have entered into special arrangements with the Fund and/or LORD ABBETT DISTRIBUTOR LLC specifically for such purchases,* - 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 made by or on behalf of Financial Intermediaries for clients that pay the Financial Intermediaries fees for services that include investment advisory or management services, provided that the Financial Intermediaries or their trading agents have entered into special arrangements with the Fund and/or Lord Abbett Distributor specifically for such purchases, - purchases by trustees or custodians of any pension or profit sharing plan, or payroll deduction IRA for the 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 and family members of such purchasers), or - purchases through an omnibus account of a dealer that features ten or fewer preferred mutual fund families, including the Lord Abbett-sponsored funds, within 30 days of, and with the proceeds from, a redemption through the same dealer's omnibus account of shares of a mutual fund that were originally purchased subject to a sales charge. SEE THE STATEMENT OF ADDITIONAL INFORMATION FOR A LISTING OF OTHER CATEGORIES OF PURCHASES THAT QUALIFY FOR CLASS A SHARE PURCHASES WITHOUT A FRONT-END SALES CHARGE. * THESE CATEGORIES MAY BE SUBJECT TO A CDSC. [SIDENOTE] IT IS YOUR RESPONSIBILITY TO INFORM THE FUND IF YOU BELIEVE YOU QUALIFY FOR A REDUCED FRONT-END SALES CHARGE. 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, Inc.; (3) Lord Abbett U.S. Government Securities Money Market Fund, Inc. ("GSMMF") (except for holdings in GSMMF which are attributable to any shares exchanged from the Lord Abbett-sponsored 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 meeting criteria set by Lord Abbett Distributor LLC as to certain omnibus account and other criteria. RETIREMENT AND BENEFIT PLANS include qualified and non-qualified retirement plans, deferred compensation plans and certain other retirement, savings or benefit plans, 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 FINANCIAL INTERMEDIARIES include broker-dealers, registered investment advisers, banks, trust companies, certified financial planners, third-party administrators, recordkeepers, trustees, custodians, financial consultants and insurance companies. 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. 8 DEALER CONCESSIONS ON CLASS A SHARE PURCHASES WITHOUT A FRONT-END SALES CHARGE. Dealers may receive distribution-related compensation (i.e., concessions) according to the Schedule set forth below under the following circumstances: - purchases of $1 million or more, - purchases by Retirement and Benefit Plans with at least 100 eligible employees, or - purchases for Retirement and Benefit Plans made through Financial Intermediaries that perform participant recordkeeping or other administrative services for the Plans and have entered into special arrangements with the Fund and/or Lord Abbett Distributor specifically for such purchases ("alliance arrangements"). ================================================================================ DEALER CONCESSION SCHEDULE - CLASS A SHARES (FOR CERTAIN PURCHASES WITHOUT A FRONT-END SALES CHARGE) - -------------------------------------------------------------------------------- The dealer concession received is based on the amount of the Class A share investment as follows:
FRONT-END CLASS A INVESTMENTS SALES CHARGE* DEALER'S CONCESSION - -------------------------------------------------------------------------------- First $5 million None 1.00% - -------------------------------------------------------------------------------- Next $5 million above that None 0.55% - -------------------------------------------------------------------------------- Next $40 million above that None 0.50% - -------------------------------------------------------------------------------- Over $50 million None 0.25% - --------------------------------------------------------------------------------
* Class A shares purchased without a sales charge will be subject to a 1% CDSC if they are redeemed on or before the 24th month after the month in which the shares were initially purchased. For alliance arrangements involving Financial Intermediaries offering multiple fund families to Retirement or Benefit Plans, the CDSC normally will be collected only when a Plan effects a complete redemption of all or substantially all shares of all Lord Abbett-sponsored funds in which the Plan is invested. Dealers receive concessions expressed above on purchases made within a 12-month period beginning with the first NAV purchase for the account. The concession rate resets on each anniversary date of the initial NAV purchase, provided that the account continues to qualify for treatment at NAV. The Fund may not pay concessions with respect to alliance arrangements unless Lord Abbett Distributor can monitor the applicability of the CDSC. In addition, if a Financial Intermediary decides to waive receipt of the concession, the Fund may waive any CDSC that might otherwise have applied to any such purchase. Financial Intermediaries should contact Lord Abbett Distributor for more complete information on the commission structure. ================================================================================ CONTINGENT DEFERRED SALES CHARGE (CDSC) - -------------------------------------------------------------------------------- A 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 redeemed, whichever is lower. In addition, repayment of loans under Retirement and Benefit 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 their purchase (Class A) or before the first anniversary of their purchase (Class C) 9 CLASS A SHARE CDSC. If you buy Class A shares of the Fund 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 on or before the 24th month after the month in which you initially purchased those shares, the Fund normally will 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 not be assessed under the following circumstances: - benefit payments under Retirement and Benefit Plans in connection with loans, hardship withdrawals, death, disability, retirement, separation from service or any excess distribution under Retirement and Benefit Plans (documentation may be required) - redemptions by Retirement and Benefit Plans made through Financial Intermediaries that have special arrangements with the Fund and/or Lord Abbett Distributor, provided the Plan has not redeemed all, or substantially all, of its assets from the Lord Abbett-sponsored funds 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 not be assessed under the following circumstances: - benefit payments under Retirement and Benefit Plans in connection with loans, hardship withdrawals, death, disability, retirement, separation from service or any excess contribution or distribution under Retirement and Benefit 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" FOR MORE INFORMATION ON CDSCS WITH RESPECT TO CLASS B SHARES. [SIDENOTE] BENEFIT PAYMENT DOCUMENTATION. (Class A CDSC only) Requests for benefit payments of $50,000 or more must be in writing. Use the address indicated under "Opening your Account." 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 Class B share investment bears to the total investment. 10 CLASS C SHARE CDSC. The 1% CDSC for Class C shares normally applies if you redeem your shares before the first anniversary of their purchase. The CDSC will be remitted to Lord Abbett Distributor. 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 in connection with (a) orders made by or on behalf of Financial Intermediaries for clients that pay the Financial Intermediaries fees for services that include investment advisory or management services, provided that the Financial Intermediaries or their trading agents have entered into special arrangements with the Fund and/or Lord Abbett Distributor specifically for such orders; and (b) orders for Retirement and Benefit Plans made through Financial Intermediaries that perform participant recordkeeping or other administrative services for the Plans and have entered into special arrangements with the Fund and/or Lord Abbett Distributor specifically for such orders. 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 its shareholder accounts. As shown in the table "Fees and Expenses," sales compensation originates from sales charges, which are paid directly by shareholders, and 12b-1 distribution fees, which are paid by the Fund. Service compensation originates from 12b-1 service fees. Because 12b-1 fees are paid 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 fees are accrued daily at annual rates based upon average daily net assets as follows:
FEE CLASS A CLASS B CLASS C CLASS P - ------------------------------------------------------------------------------------------ Service .25% .25% .25% .20% - ------------------------------------------------------------------------------------------ Distribution .10%* .75% .75% .25% - ------------------------------------------------------------------------------------------
* Class A shares also pay a one-time distribution fee of up to 1% on certain qualifying purchases, which is generally amortized over a two-year period. See "Dealer Concessions on Class A Share Purchases Without a Front-End Sales Charge." The Rule 12b-1 plans for Class A and Class P shares provide that the maximum payments that may be authorized by the Board are .50% and .75%, respectively. We may 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. ADDITIONAL CONCESSIONS TO AUTHORIZED INSTITUTIONS. 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 the Fund and may be made in the form of cash or, if permitted, non-cash payments. The non-cash payments may include business seminars at Lord Abbett's headquarters or other locations, including meals and entertainment, or merchandise. The cash payments may include payment of various business expenses of the dealer. [SIDENOTE] AUTHORIZED INSTITUTIONS are institutions and persons permitted by law to receive service and/or distribution fees under a Rule 12b-1 Plan. Lord Abbett Distributor is an Authorized Institution. 12b-1 FEES ARE PAYABLE REGARDLESS OF EXPENSES. The amounts payable by the 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. 11 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 or shares of other Lord Abbett-sponsored funds. SALES ACTIVITIES. We may use 12b-1 distribution fees to pay Authorized Institutions to finance any activity that 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 that 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 ---------------------------------------------------------------------------------------------------
No minimum investment is required for certain Retirement and Benefit Plans and certain purchases through Financial Intermediaries that charge their clients a fee for services that include investment advisory or management services. You may purchase shares through any independent securities dealer who has a sales agreement with Lord Abbett Distributor, or you can fill out the Application and send it to the Fund at the address stated below. You should note that your purchases and other transactions may be subject to review and verification on an ongoing basis. Please 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 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, please call the Fund at 800-821-5129. BY EXCHANGE. Please call the Fund at 800-821-5129 to request an exchange from any eligible Lord Abbett-sponsored fund. 12 REDEMPTIONS Redemptions of Fund shares are executed at the NAV next determined after the Fund receives your order in proper form. In the case of redemptions involving Retirement and Benefit Plans, you may be required to provide the Fund with one or more completed forms before your order will be executed. For more information, please call 800-821-5129. To determine if a CDSC applies to a redemption, see "Class A Share CDSC," "Class B Share CDSC," or "Class C Share CDSC." BY BROKER. Call your investment professional for instructions on how to redeem your shares. BY TELEPHONE. To obtain the proceeds of a redemption of less than $50,000 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 redeem and include all necessary signatures. 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. If the signer has any legal capacity (i.e., the authority of an individual to act on behalf of an entity or other person(s)), the signature and capacity must be guaranteed by an ELIGIBLE GUARANTOR. Certain other legal documentation may be required. For more information regarding proper documentation, please call 800-821-5129. A GUARANTEED SIGNATURE is designed to protect you from fraud by verifying your signature. We require a Guaranteed Signature by an Eligible Guarantor on requests for: - a redemption check for which you have the legal capacity to sign on behalf of another person or entity (i.e., on behalf of an estate or on behalf of a corporation), - a redemption check payable to anyone other than the shareholder(s) of record, - a redemption check to be mailed to an address other than the address of record, - a redemption check payable to a bank other than the bank we have on file, or - a redemption for $50,000 or more. REDEMPTIONS IN KIND. Under circumstances in which it is deemed detrimental to the best interests of the Fund's shareholders to make redemption payments wholly in cash, the Fund may pay, in accordance with rules adopted by the SEC, any portion of a redemption in excess of the lesser of $250,000 or 1% of the Fund's net assets by a distribution in kind of readily marketable securities in lieu of cash. The Fund presently has no intention to make redemptions in kind under normal circumstances, unless specifically requested by a shareholder. DISTRIBUTIONS AND TAXES The Fund expects to pay you dividends from its net investment income quarterly and to distribute its net capital gains (if any) annually as "capital gains distributions." Distributions will be reinvested in Fund shares unless you instruct the Fund to pay them to you in cash. For distributions payable on accounts other than those held in the name of your dealer, if you instruct the Fund to pay your distributions in cash, and the Post Office [SIDENOTE] SMALL ACCOUNTS. The 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 usually 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. GUARANTEED SIGNATURE. An acceptable form of guarantee would be as follows: - - In the case of an estate - Robert A. Doe Executor of the Estate of John W. Doe [Date] [GRAPHIC] - - In the case of a corporation - ABC Corporation Mary B. Doe By Mary B. Doe, President [Date] [GRAPHIC] 13 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. 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 reinvestments. The Fund's distributions are taxable to you in the year they are considered received for tax purposes. Distributions of investment income and short-term capital gains are taxable to you as ordinary income. Distributions of net long-term capital gains are taxable to you as long-term capital gains. This tax treatment of distributions applies regardless of how long you have owned Fund shares or whether distributions are reinvested or paid in cash. Except in tax-advantaged accounts, any sale, redemption, or exchange of Fund shares may be taxable to you. 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. Certain tax reporting information concerning the tax treatment of Fund 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 such 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 sale, 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 the Application or by calling 800-821-5129. ==================================================================================================== FOR INVESTING INVEST-A-MATIC You can make fixed, periodic investments ($50 minimum) into your Fund account by (Dollar-cost means of automatic money transfers from your bank checking account. See the averaging) Application for instructions. DIV-MOVE You may 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-sponsored funds. WITHDRAWAL Automatic cash withdrawals will be paid to you from your account in fixed or PLAN ("SWP") variable amounts. To establish a SWP, the value of your shares for Class A or Class C must be at least $10,000, and for Class B the value of your shares must be at least $25,000, except in the case of a SWP established for Retirement and Benefit 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 SWP 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 shares will be CLASS C SHARES redeemed in the order described under "CDSC" under "Purchases." ====================================================================================================
14 OTHER SERVICES TELEPHONE INVESTING. After we have received the 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. 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. Instructions 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 and may create a taxable situation for you (see "Distributions and Taxes" section). Be sure to read the current prospectus for any fund into which you are exchanging. REINVESTMENT PRIVILEGE. If you redeem 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 redeemed 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. We have adopted a policy that allows us to send only one copy of the Fund's prospectus, proxy material, annual report and semi-annual report to certain shareholders residing at the same "household." This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be "householded," please call us at 800-821-5129 or send a written request with your name, the name of your fund or funds, and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219100, Kansas City, MO 64121. 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. [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. 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. 15 Affiliated Fund 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 audits of the Fund's financial statements. Financial statements and the Independent Auditors' Report thereon appear in the 2002 Annual Report to Shareholders, and are incorporated by reference in 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 10/31 PER SHARE OPERATING PERFORMANCE 2002 2001 2000 1999 1998 NET ASSET VALUE, BEGINNING OF YEAR $13.04 $16.47 $16.22 $14.56 $14.84 - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT OPERATIONS - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .14(a) .19(a) .24(a) .21(a) .24 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) (1.59) (1.99) 2.01 2.64 1.14 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL FROM INVESTMENT OPERATIONS (1.45) (1.80) 2.25 2.85 1.38 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income (.22) (.24) (.24) (.24) (.27) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized gain (.57) (1.39) (1.76) (.95) (1.39) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS (.79) (1.63) (2.00) (1.19) (1.66) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR $10.80 $13.04 $16.47 $16.22 $14.56 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN(b) (12.21)% (11.98)% 15.12% 20.69% 10.27% - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------------------------------------------------------------ Expenses, including expense reductions .85% .79% .79% .74% .63% - ------------------------------------------------------------------------------------------------------------------------------------ Expenses, excluding expense reductions .85% .80% .80% .74% .63% - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 1.08% 1.28% 1.62% 1.36% 1.64% ==================================================================================================================================== YEAR ENDED 10/31 ----------------------------------------------------------------------------------------- SUPPLEMENTAL DATA: 2002 2001 2000 1999 1998 NET ASSETS, END OF YEAR (000) $8,744,220 $9,363,248 $10,309,845 $9,307,645 $8,051,342 - ------------------------------------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE 59.88% 77.18% 52.27% 62.30% 56.49% ==================================================================================================================================== CLASS B SHARES ----------------------------------------------------------------------------------------- YEAR ENDED 10/31 PER SHARE OPERATING PERFORMANCE 2002 2001 2000 1999 1998 NET ASSET VALUE, BEGINNING OF YEAR $13.06 $16.49 $16.23 $14.56 $14.84 - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT OPERATIONS - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .06(a) .09(a) .14(a) .10(a) .14 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) (1.61) (1.99) 2.02 2.65 1.12 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL FROM INVESTMENT OPERATIONS (1.55) (1.90) 2.16 2.75 1.26 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income (.13) (.14) (.14) (.13) (.15) - ------------------------------------------------------------------------------------------------------------------------------------ Net realized gain (.57) (1.39) (1.76) (.95) (1.39) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS (.70) (1.53) (1.90) (1.08) (1.54) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR $10.81 $13.06 $16.49 $16.23 $14.56 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN(b) (12.85)% (12.53)% 14.42% 19.87% 9.41% - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------------------------------------------------------------ Expenses, including expense reductions 1.47% 1.42% 1.44% 1.43% 1.38% - ------------------------------------------------------------------------------------------------------------------------------------ Expenses, excluding expense reductions 1.47% 1.43% 1.45% 1.43% 1.38% - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .46% .62% .94% .66% .87% ==================================================================================================================================== YEAR ENDED 10/31 ----------------------------------------------------------------------------------------- SUPPLEMENTAL DATA: 2002 2001 2000 1999 1998 NET ASSETS, END OF YEAR (000) $928,421 $904,004 $713,161 $524,974 $315,695 - ------------------------------------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE 59.88% 77.18% 52.27% 62.30% 56.49% - ------------------------------------------------------------------------------------------------------------------------------------
16
============================================================================================================================== CLASS C SHARES ---------------------------------------------------------------------------------- YEAR ENDED 10/31 PER SHARE OPERATING PERFORMANCE 2002 2001 2000 1999 1998 NET ASSET VALUE, BEGINNING OF YEAR $13.02 $16.49 $16.23 $14.56 $14.84 - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT OPERATIONS - ------------------------------------------------------------------------------------------------------------------------------ Net investment income .08(a) .05(a) .14(a) .10(a) .14 - ------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) (1.59) (1.99) 2.02 2.65 1.12 - ------------------------------------------------------------------------------------------------------------------------------ TOTAL FROM INVESTMENT OPERATIONS (1.51) (1.94) 2.16 2.75 1.26 - ------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: - ------------------------------------------------------------------------------------------------------------------------------ Net investment income (.14) (.14) (.14) (.13) (.15) - ------------------------------------------------------------------------------------------------------------------------------ Net realized gain (.57) (1.39) (1.76) (.95) (1.39) - ------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS (.71) (1.53) (1.90) (1.08) (1.54) - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR $10.80 $13.02 $16.49 $16.23 $14.56 - ------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN(b) (12.59)% (12.79)% 14.48% 19.80% 9.41% - ------------------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------------------------------------------------------ Expenses, including expense reductions 1.32% 1.70% 1.44% 1.43% 1.40% - ------------------------------------------------------------------------------------------------------------------------------ Expenses, excluding expense reductions 1.32% 1.71% 1.45% 1.43% 1.40% - ------------------------------------------------------------------------------------------------------------------------------ Net investment income .61% .32% .93% .66% .85% ============================================================================================================================== YEAR ENDED 10/31 ---------------------------------------------------------------------------------- SUPPLEMENTAL DATA: 2002 2001 2000 1999 1998 NET ASSETS, END OF YEAR (000) $692,976 $555,759 $331,910 $197,440 $120,453 - ------------------------------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE 59.88% 77.18% 52.27% 62.30% 56.49% ============================================================================================================================== CLASS P SHARES ------------------------------------------------------------------------------- YEAR ENDED 10/31 12/8/1997(c) ------------------------------------------------------------------- TO PER SHARE OPERATING PERFORMANCE 2002 2001 2000 1999 10/31/1998 NET ASSET VALUE, BEGINNING OF PERIOD $13.02 $16.45 $16.19 $14.53 $14.24 - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT OPERATIONS - ------------------------------------------------------------------------------------------------------------------------------ Net investment income .12(a) .16(a) .22(a) .19(a) .18 - ------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) (1.58) (1.97) 2.02 2.63 .27 - ------------------------------------------------------------------------------------------------------------------------------ TOTAL FROM INVESTMENT OPERATIONS (1.46) (1.81) 2.24 2.82 .45 - ------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: - ------------------------------------------------------------------------------------------------------------------------------ Net investment income (.21) (.23) (.22) (.21) (.16) - ------------------------------------------------------------------------------------------------------------------------------ Net realized gain (.57) (1.39) (1.76) (.95) -- - ------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS (.78) (1.62) (1.98) (1.16) (.16) - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $10.78 $13.02 $16.45 $16.19 $14.53 - ------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN(b) (12.31)% (12.07)% 15.11% 20.51% 3.21%(d) - ------------------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------------------------------------------------------ Expenses, including expense reductions .92% .87% .89% .88% .76%(d) - ------------------------------------------------------------------------------------------------------------------------------ Expenses, excluding expense reductions .92% .88% .89% .88% .76%(d) - ------------------------------------------------------------------------------------------------------------------------------ Net investment income 1.01% 1.10% 1.30% 1.22% 1.21%(d) ============================================================================================================================== YEAR ENDED 10/31 12/8/1997(c) ------------------------------------------------------------------- TO SUPPLEMENTAL DATA: 2002 2001 2000 1999 10/31/1998 NET ASSETS, END OF PERIOD (000) $82,038 $35,939 $12,072 $2,046 $1,811 - ------------------------------------------------------------------------------------------------------------------------------ PORTFOLIO TURNOVER RATE 59.88% 77.18% 52.27% 62.30% 56.49% - ------------------------------------------------------------------------------------------------------------------------------
(a) Calculated using average shares outstanding during the period. (b) Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions. (c) Commencement of offering of class shares. (d) Not annualized. 17 TO OBTAIN INFORMATION: BY TELEPHONE. For shareholder account inquiries call the Fund at: 800-821-5129. For literature requests 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. LLC 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 20549-0102 or by sending your request electronically to publicinfo@sec.gov. [LORD ABBETT LOGO] 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 available free upon request, including the following: ANNUAL/SEMI-ANNUAL REPORT The Fund's Annual and Semi-Annual Reports contain more information about the Fund's investments and performance. The Annual Report also includes details about the market conditions and investment strategies that had a significant effect on the Fund's performance during the last fiscal year. 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-1 SEC FILE NUMBER: 811-5 (3/03) [LORD ABBETT LOGO] LORD ABBETT AFFILIATED FUND MARCH 1,2003 PROSPECTUS CLASS Y SHARES - -------------------------------------------------------------------------------- As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved of these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. 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 Additional Investment Information 5 Management 6 Your INVESTMENT Information for managing Purchases 7 your Fund account Redemptions 8 Distributions and Taxes 9 Services For Fund Investors 9 Financial INFORMATION Financial Highlights 10 Additional INFORMATION How to learn more about the Fund Back Cover 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 primarily purchases equity securities of large, seasoned, U.S. and multinational companies that we believe are undervalued. Under normal circumstances, the Fund will invest at least 80% of its net assets in equity securities of large companies with market capitalizations of at least $5 billion at the time of purchase. This market capitalization threshold may vary in response to changes in the markets. Equity securities may include common stocks, preferred stocks, convertible securities, warrants, and similar instruments. Common stocks, the most familiar type of equity security, represent an ownership interest in a company. In selecting investments, the Fund attempts to invest in securities selling at reasonable prices in relation to our assessment of their potential 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 the Fund's downside risk because value stocks are believed to be underpriced, and large, seasoned company stocks tend to be less volatile than the stocks of smaller companies. We generally sell a stock when we think it seems less likely to benefit from the current market and economic environment, shows deteriorating fundamentals, or has reached our valuation target. 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. This means the value of your investment will fluctuate in response to movements in the equity securities 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. Due to its investments in multinational companies, the Fund may experience increased market, liquidity, currency, political, information, and other risks. 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 OR AFFILIATED FUND refers to the 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. VALUE STOCKS are stocks of companies that we believe the market undervalues according to certain financial measurements of their intrinsic worth or business prospects. 2 The Fund Affiliated Fund Symbol: Class Y - LAFYX 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, before and after taxes, 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. [CHART] Bar Chart (per calendar year) - Class Y Shares 1999 17.2% 2000 15.6% 2001 -7.6% 2002 -18.4%
BEST QUARTER 4th Q '01 +12.3% WORST QUARTER 3rd Q '02 -19.6% 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. The after-tax returns of Class Y shares included in the table below are calculated using the historical highest individual federal marginal income tax rates, and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
- -------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS THROUGH DECEMBER 31, 2002 - -------------------------------------------------------------------------------------------------------- SHARE CLASS 1 YEAR LIFE OF FUND(1) Class Y Shares Return Before Taxes -18.43% 1.20% - -------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions -19.68% -1.67% - -------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares -10.71% 0.05% - -------------------------------------------------------------------------------------------------------- S&P 500 Index(2) (reflects no deduction for fees, expenses or taxes) -22.09% -3.30%(3) - -------------------------------------------------------------------------------------------------------- S&P 500/Barra Value Index(2) (reflects no deduction for fees, expenses or taxes) -20.85% -3.15%(3) - --------------------------------------------------------------------------------------------------------
(1) The date of inception for Class Y shares is 3/27/98. (2) The performance of the unmanaged indices is not necessarily representative of the Fund's performance. (3) Represents total returns for the period 3/31/98 - 12/31/02, to correspond with the Class Y period shown. The Fund 3 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(1) 0.20% - --------------------------------------------------------------------------------------------------------------- Total Operating Expenses(1) 0.51% - ---------------------------------------------------------------------------------------------------------------
(1) These amounts have been restated from fiscal year amounts to reflect estimated 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, that dividends and distributions are reinvested, 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 $52 $164 $285 $640
[SIDENOTE] MANAGEMENT FEES are payable to Lord, Abbett & Co. LLC ("Lord Abbett") for the Fund's investment management. OTHER EXPENSES include fees paid for miscellaneous items such as shareholder services, professional services, administrative services provided by Lord Abbett, and fees to certain Financial Intermediaries for providing recordkeeping or other administrative services in connection with investments in the Fund. 4 The Fund ADDITIONAL INVESTMENT INFORMATION This section describes some of the investment techniques that might be used by the Fund and some of the risks associated with those techniques. 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 security prices, interest rates, currency exchange rates, commodity prices and other factors. For example, the Fund may seek to hedge against certain market risks. These strategies may involve effecting transactions in derivative and similar instruments, including but not limited to options, futures, forward contracts, swap agreements, warrants, and rights. If we judge market conditions incorrectly or use a hedging 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 strategies may involve a small investment of cash compared to the magnitude of the risk assumed, and could produce disproportionate gains or 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. The markets for convertible securities may be less liquid than markets for common stocks or bonds. DEPOSITARY RECEIPTS. The Fund may invest in sponsored and unsponsored American Depositary Receipts ("ADRs") and similar depositary receipts. ADRs, typically issued by a financial institution (a "depositary"), evidence ownership interests in a security or a pool of securities issued by a foreign company and deposited with the depositary. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. Ownership of ADRs entails similar investment risks to direct ownership of foreign securities traded outside the U.S., including increased market liquidity, currency, political, information and other risks. Although the Fund may not invest more than 10% of its assets in foreign securities, ADRs are not subject to this limitation. LISTED OPTIONS ON SECURITIES. The Fund may purchase and write national securities exchange-listed put and call options on securities or securities indices. The Fund may use options for hedging or cross-hedging purposes, or to seek to increase total return (which is considered a speculative activity). A "call option" is a contract sold for a price giving its holder the right to buy a specific number of securities 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. The Fund may write covered call options with respect to securities in its portfolio in an attempt to increase income and to provide greater flexibility in the disposition of portfolio securities. A "put option" gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying securities at the exercise price at any time during the option period. A put option sold by the Fund is covered when, among other things, the Fund segregates permissible liquid assets having a value equal to or greater than the exercise price of the option to fulfill the obligation undertaken. The Fund will not purchase an option if, as a result of such purchase, more than 10% of its total assets would be invested in premiums for such options. The Fund may only sell (write) covered put options to the extent that cover for such options does not exceed 15% of its net assets. The Fund may only sell (write) covered call options having an aggregate market value of less than 25% of its total assets. The Fund 5 RISKS OF OPTIONS. Fund transactions in options, if any, involve additional risk of loss. Loss may result, for example, from adverse market movements, a lack of correlation between changes in the value of these derivative instruments and the Fund's assets being hedged, the potential illiquidity of the markets for derivative instruments, the risk that the counterparty to an OTC contract will fail to perform its obligations, or the risks arising from margin requirements and related leverage factors associated with such transactions. TEMPORARY DEFENSIVE INVESTMENTS. At times the Fund may take a temporary defensive position by investing some or all of its assets in short-term fixed income securities. Such securities may be used to attempt to avoid losses in response to adverse market, economic, political or other conditions, to invest uncommitted cash balances, or to maintain liquidity to meet shareholder redemptions. These securities may include: obligations of the U.S. Government and its agencies and instrumentalities, commercial paper, bank certificates of deposit, bankers' acceptances, and repurchase agreements collateralized by cash and obligations of the U.S. Government and its agencies and instrumentalities. These investments could reduce the benefit from any upswing in the market and prevent the Fund from achieving its investment objective. MANAGEMENT The Fund's investment adviser is Lord, Abbett & Co. LLC, 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 assets under management of approximately $48 billion in more than 40 mutual funds and other advisory accounts as of December 31, 2002. Lord Abbett is entitled to an annual management fee based on the Fund's average daily net assets. The fee is 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, 2002, the fee paid to Lord Abbett was at an effective annual rate of .31 of 1%. In addition, Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement in return for a fee at the annual rate of .04% of the Fund's average daily net assets.The Fund pays all expenses not expressly assumed by Lord Abbett. For more information about the services Lord Abbett provides to the Fund, see the Statement of Additional Information. 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: Sholom Dinsky, Thomas Hudson Jr., Robert G. Morris, Eli M. Salzmann and Kenneth G. Fuller. Messrs. Dinsky, Hudson, Morris, and Salzmann are Partners of Lord Abbett. Messrs. Hudson, Salzmann, and Morris have been with Lord Abbett since 1982, 1997, and 1991, respectively. Mr. Dinsky joined Lord Abbett in 2000 from Prudential Investments, where he served as Managing Director of Prudential Asset Management. Mr. Fuller, Investment Manager - Large Cap Value, joined Lord Abbett in 2002 from Pioneer Investment Management, Inc., where he served as Portfolio Manager and Senior Vice President from 1999 to 2002. Prior thereto, he served as a Principal of Manley, Fuller Asset Management. 6 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 order submitted in proper form. We will not consider an order to be in proper form until we have completed our review and verification of information provided. 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? Class Y shares are currently available in connection with: (1) purchases by or on behalf of FINANCIAL INTERMEDIARIES for clients that pay the Financial Intermediaries fees for services that include investment advisory or management services, provided that the Financial Intermediaries or their trading agents have entered into special arrangements with the Fund and/or LORD ABBETT DISTRIBUTOR LLC specifically for such purchases; (2) purchases by 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; or (3) purchases by 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 principal underwriter. Place your order with your investment dealer or send the money to the Fund (P.O. Box 219100, Kansas City, Missouri 64121). The minimum initial investment is $1 million, except for certain purchases through Financial Intermediaries that charge a fee for services that include investment advisory or management services, 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 the 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: UMB, N.A., Kansas City, Routing number - 101000695, bank account number: 987800033-3, 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 [SIDENOTE] NAV per share for the Fund is calculated, under normal circumstances, 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 Board. Certain foreign securities that are primarily listed on foreign exchanges may trade on weekends or days when the Fund's NAV is not calculated. As a result, the Fund's NAV may change on days when shareholders will not be able to purchase or redeem Fund shares. FINANCIAL INTERMEDIARIES include broker-dealers, registered investment advisers, banks, trust companies, certified financial planners, third-party administrators, recordkeepers, trustees, custodians, financial consultants and insurance companies. 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. Your Investment 7 name. To add to an existing account, wire to: UMB, N.A., Kansas City, routing number - 101000695, bank account number: 987800033-3, 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 Redemptions of Fund shares are executed at the NAV next determined after the Fund receives your order in proper form. In the case of redemptions involving Retirement and Benefit Plans, you may be required to provide the Fund with one or more completed forms before your order will be executed. For more information, please call 800-821-5129. BY BROKER. Call your investment professional for instructions on how to redeem your shares. BY TELEPHONE. To obtain the proceeds of a redemption of less than $50,000 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 redeem and include all necessary signatures. 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. If the signer has any legal capacity (i.e., the authority of an individual to act on behalf of an entity or other person(s)), the signature and capacity must be guaranteed by an ELIGIBLE GUARANTOR. Certain other legal documentation may be required. For more information regarding proper documentation, please call 800-821-5129. A GUARANTEED SIGNATURE is designed to protect you from fraud by verifying your signature. We require a Guaranteed Signature by an Eligible Guarantor on requests for: - a redemption check for which you have the legal capacity to sign on behalf of another person or entity (i.e., on behalf of an estate or on behalf of a corporation), - a redemption check payable to anyone other than the shareholder(s) of record, - a redemption check to be mailed to an address other than the address of record, - a redemption check payable to a bank other than the bank we have on file, or - a redemption for $50,000 or more. 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. REDEMPTIONS IN KIND. Under circumstances in which it is deemed detrimental to the best interests of the Fund's shareholders to make redemption payments wholly in cash, the Fund may pay, in accordance with rules adopted by the SEC, any portion of a redemption in excess of the lesser of $250,000 or 1% of the Fund's net assets by a distribution in kind of readily marketable securities in lieu of cash. The Fund presently has no intention to make redemptions in kind under normal circumstances, unless specifically requested by a shareholder. [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. ELIGIBLE GUARANTOR is any broker or bank that is usually 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. GUARANTEED SIGNATURE. An acceptable form of guarantee would be as follows: - - In the case of an estate - Robert A. Doe Executor of the Estate of John W. Doe [Date] SIGNATURE GUARANTEED MEDALLION GUARANTEED NAME OF GUARANTOR /s/ ILLEGIBLE - ------------------------------ AUTHORIZED SIGNATURE (960) X9003470 SECURITIES TRANSFER AGENTS MEDALLION PROGRAM SR - - In the case of a corporation - ABC Corporation Mary B. Doe By Mary B. Doe, President [Date] SIGNATURE GUARANTEED MEDALLION GUARANTEED NAME OF GUARANTOR /s/ ILLEGIBLE - ------------------------------ AUTHORIZED SIGNATURE (960) X9003470 SECURITIES TRANSFER AGENTS MEDALLION PROGRAM SR 8 Your Investment DISTRIBUTIONS AND TAXES The Fund expects to pay you dividends from its net investment income quarterly and to distribute its net capital gains (if any) annually as "capital gains distributions." Distributions will be reinvested in Fund shares unless you instruct the Fund to pay them to you in cash. The Fund's distributions are taxable to you in the year they are considered received for tax purposes. Distributions of investment income and short-term capital gains are taxable to you as ordinary income. Distributions of net long-term capital gains are taxable to you as long-term capital gains. This tax treatment of distributions applies regardless of how long you have owned Fund shares or whether distributions are reinvested or paid in cash. Except in tax-advantaged accounts, any sale, redemption, or exchange of Fund shares may be taxable to you. 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. Certain tax reporting information concerning the tax treatment of Fund 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 such 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 sale, redemption, or exchange of your shares. SERVICES FOR FUND INVESTORS 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. We have adopted a policy that allows us to send only one copy of the Fund's prospectus, proxy material, annual report and semi-annual report to certain shareholders residing at the same "household." This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be "householded," please call us at 800-821-5129 or send a written request with your name, the name of your Fund or Funds, and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219100, Kansas City, MO 64121. ACCOUNT CHANGES. For any changes you need to make to your account, consult your investment professional or call the Fund at 800-821-5129. [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 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. ELIGIBLE FUND. An Eligible Fund is any Lord Abbett-sponsored fund offering Class Y shares. Your Investment 9 Affiliated Fund Financial Information FINANCIAL HIGHLIGHTS This table describes the Fund's Class Y 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 audits of the Fund's financial statements. Financial statements and the Independent Auditors' Report thereon appear in the 2002 Annual Report to Shareholders, and are incorporated by reference in 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 10/31 3/27/1998(c) ------------------------------------------------------- to Per Share Operating Performance 2002 2001 2000 1999 10/31/1998 NET ASSET VALUE, BEGINNING OF PERIOD $ 13.07 $ 16.50 $ 16.25 $ 14.57 $ 15.44 - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS - --------------------------------------------------------------------------------------------------------------------------------- Net investment income .18(a) .22(a) .30(a) .26(a) .15 - --------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) (1.59) (1.97) 2.01 2.65 (.89) - --------------------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS (1.41) (1.75) 2.31 2.91 (.74) - --------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: - --------------------------------------------------------------------------------------------------------------------------------- Net investment income (.27) (.29) (.30) (.28) (.13) - --------------------------------------------------------------------------------------------------------------------------------- Net realized gain (.57) (1.39) (1.76) (.95) -- - --------------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS (.84) (1.68) (2.06) (1.23) (.13) - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.82 $ 13.07 $ 16.50 $ 16.25 $ 14.57 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN(b) (11.96)% (11.64)% 15.52% 21.15% (4.77)%(d) - --------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------------------------------------------------------------------------- Expenses, including expense reductions 0.47% .42% .44% .43% .24%(d) - --------------------------------------------------------------------------------------------------------------------------------- Expenses, excluding expense reductions 0.47% .43% .46% .43% .24%(d) - --------------------------------------------------------------------------------------------------------------------------------- Net investment income 1.46% 1.53% 1.96% 1.67% 1.03%(d) - --------------------------------------------------------------------------------------------------------------------------------- Year Ended 10/31 3/27/1998(c) -------------------------------------------------------- to SUPPLEMENTAL DATA: 2002 2001 2000 1999 10/31/1998 NET ASSETS, END OF PERIOD (000) $274,454 $215,165 $57,505 $48,649 $31,302 - --------------------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 59.88% 77.18% 52.27% 62.30% 56.49% - ---------------------------------------------------------------------------------------------------------------------------------
(a) Calculated using average shares outstanding during the period. (b) Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions. (c) Commencement of offering of class shares. (d) Not annualized. 10 Financial Information TO OBTAIN INFORMATION: BY TELEPHONE. For shareholder account inquiries call the Fund at: 800-821-5129. For literature requests 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. LLC www.LordAbbett.com Text only versions of Fund documents can be viewed online or downloaded directly 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 20549-0102 or by sending your request electronically to publicinfo@sec.gov. [LORD ABBETT LOGO] Lord Abbett Mutual Fund shares are distributed by: LORD ABBETT DISTRIBUTOR LLC 90 Hudson Street - Jersey City, NJ 07302-3973 ADDITIONAL INFORMATION More information on the Fund is available free upon request, including the following: ANNUAL/SEMI-ANNUAL REPORT The Fund's Annual and Semi-Annual Reports contain more information about the Fund's investments and performance. The Annual Report also includes details about the market conditions and investment strategies that had a significant effect on the Fund's performance during the last fiscal year. 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-Y-1 SEC File Number: 811-5 (3/03) LORD ABBETT STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 2003 LORD ABBETT AFFILIATED FUND, INC. (CLASS A, B, C, AND P SHARES) - -------------------------------------------------------------------------------- This Statement of Additional Information ("SAI") 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, NJ 07302-3973. This SAI relates to, and should be read in conjunction with, the Prospectus for the Lord Abbett Affiliated Fund, Inc. (the "Fund") dated March 1, 2003. Shareholder account 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 888-522-2388. 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 10 4. Control Persons and Principal Holders of Securities 16 5. Investment Advisory and Other Services 16 6. Brokerage Allocations and Other Practices 18 7. Classes of Shares 19 8. Purchases, Redemptions, and Pricing 24 9. Taxation of the Fund 27 10. Underwriter 29 11. Performance 29 12. Financial Statements 30
1. FUND HISTORY Lord Abbett Affiliated Fund, Inc. 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 2,500,000,000 shares of authorized capital stock, $0.001 par value, consisting of five classes of shares: Class A, Class B, Class C, Class P, and Class Y. The Board of Directors will allocate these authorized shares of capital stock among the classes from time to time. Only the Fund's Class A, B, C, and P shares are offered in this SAI. 2. INVESTMENT POLICIES FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund is subject to the following fundamental investment restrictions that 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 in this Section will be determined at the time of the purchase or sale of the security. 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) make short sales of securities or maintain a short position except to the extent permitted by applicable law; (2) invest knowingly more than 15% of its net assets (at the time of investment) in illiquid securities, except for securities qualifying for resale under Rule 144A of the Securities Act of 1933, deemed to be liquid by the Board of Directors; (3) invest in the securities of other investment companies except as permitted by applicable law (the Fund may not, however, rely on Sections 12(d)(1)(F) and 12(d)(1)(G) of the Act); (4) 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); (5) 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; (6) 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); (7) invest in real estate limited partnership interests or interests in oil, gas or other mineral leases, or exploration or other development programs, except that the Fund may invest in securities issued by companies that engage in oil, gas or other mineral exploration or other development activities; (8) write, purchase or sell puts, calls, straddles, spreads or combinations thereof, except to the extent permitted in the Fund's prospectus and SAI, as they may be amended from time to time; (9) buy from or sell to any of the Fund's officers, directors, employees, or its investment adviser or any of the adviser's officers, partners or employees, any securities other than the Fund's shares; or (10) 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 fiscal years ended October 31, 2002 and 2001, the Fund's portfolio turnover rate was 59.88% and 77.18%, respectively. ADDITIONAL INFORMATION ON PORTFOLIO RISKS, INVESTMENTS AND TECHNIQUES. This section provides further information on certain types of investments and investment techniques that may be used by the Fund, including their associated risks. BORROWING MONEY. The Fund may borrow money for certain purposes as described above under "Fundamental Investment Restrictions." If the Fund borrows money and experiences a decline in its net asset value, the borrowing could increase its losses. 3 CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. Convertible securities are preferred stocks or debt obligations that are convertible into common stock. They generally offer lower interest or dividend yields than non-convertible securities of similar quality. Convertible securities have both equity and fixed income risk characteristics. Like all fixed income securities, the value of convertible securities is susceptible to the risk of market losses attributable to changes in interest rates. Generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. However, when the market price of the common stock underlying a convertible security approaches or exceeds the conversion price of the convertible security, the convertible security tends to reflect the market price of the underlying common stock. As the market price of the underlying common stock declines, the convertible security, like a fixed income security, tends to trade increasingly on a yield basis, and thus, may not decline in price to the same extent as the underlying common stock. The markets for convertible securities may be less liquid than markets for common stocks or bonds. DEBT SECURITIES. The Fund may invest in debt securities, such as bonds, debentures, government obligations, commercial paper and pass-through instruments. The value of debt securities may fluctuate based on changes in interest rates and the issuer's financial condition. When interest rates rise or the issuer's financial condition worsens or is perceived by the market to be at greater risk, the value of debt securities tends to decline. DEPOSITARY RECEIPTS. The Fund may invest in sponsored and unsponsored American Depositary Receipts ("ADRs") and similar depositary receipts. ADRs, typically issued by a financial institution (a "depositary"), evidence ownership interests in a security or a pool of securities issued by a foreign company and deposited with the depositary. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. Ownership of ADRs entails similar investment risks to direct ownership of foreign securities traded outside the U.S., including increased market liquidity, currency, political, information and other risks. Although the Fund may not invest more than 10% of its assets in foreign securities, ADRs are not subject to this limitation. FOREIGN CURRENCY TRANSACTIONS. The Fund may, but is not required to, engage in various types of foreign currency exchange transactions to seek to hedge against the risk of loss from changes in currency exchange rates. The Fund may employ a variety of investments and techniques, including spot and forward foreign exchange transactions, currency swaps, listed or OTC options on currencies, and currency futures and options on currency futures (collectively, "Foreign Exchange"). Currently, the Fund generally does not intend to hedge most currency risks. Forward foreign exchange transactions are OTC contracts to purchase or sell a specified amount of a specified currency or multinational currency unit at a price and future date set at the time of the contract. Spot foreign exchange transactions are similar but require current, rather than future, settlement. Currency futures are similar to forward foreign exchange transactions except that futures are standardized, exchange-traded contracts. Currency options are similar to options on securities, but in consideration for an option premium the writer of a currency option is obligated to sell (in the case of a call option) or purchase (in the case of a put option) a specified amount of a specified currency on or before the expiration date for a specified amount of another currency. The Fund may engage in transactions in options on currencies either on exchanges or OTC markets. The Fund will not speculate in Foreign Exchange. Accordingly, the Fund will not hedge a currency in excess of the aggregate market value of the securities that it owns (including receivables for unsettled securities sales), or has committed to or anticipates purchasing, which are denominated in such currency. The Fund may, however, hedge a currency by entering into a Foreign Exchange transaction in a currency other than the currency being hedged (a "cross-hedge"). The Fund will only enter into a cross-hedge if we believe that (i) there is a high correlation between the currency in which the cross-hedge is denominated and the currency being hedged, and (ii) executing a cross-hedge through the currency in which the cross-hedge is denominated will be more cost-effective or provide greater liquidity than executing a similar hedging transaction in the currency being hedged. Foreign Exchange transactions involve substantial risks. Although the Fund will use Foreign Exchange transactions to hedge against adverse currency movements, Foreign Exchange transactions involve the risk that anticipated currency movements will not be accurately predicted and that the Fund's hedging strategies will be ineffective. To the extent that the Fund hedges against anticipated currency movements which do not occur, the Fund may realize losses. Foreign Exchange transactions may subject the Fund to the risk that the counterparty will be unable to honor its financial obligation to the Fund, and the risk that relatively small market movements may result in large changes in the value of a 4 Foreign Exchange instrument. If the Fund cross-hedges, the Fund will face the risk that the Foreign Exchange instrument purchased will not correlate as expected with the position being hedged. FOREIGN SECURITIES. The Fund may invest up to 10% of its net assets in foreign securities that are primarily traded outside the United States. This limitation does not include ADRs. Foreign securities may involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers, including the following: - Foreign securities may be affected by changes in currency rates, changes in foreign or U.S. laws or restrictions applicable to foreign securities and changes in exchange control regulations (i.e., currency blockage). A decline in the exchange rate of the foreign currency in which a portfolio security is quoted or denominated relative to the U.S. dollar would reduce the value of the portfolio security in U.S. dollars. - Brokerage commissions, custodial services and other costs relating to investment in foreign securities markets generally are more expensive than in the U.S. - Clearance and settlement procedures may be different in foreign countries and, in certain markets, such procedures may be 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 comparable U.S. issuer. - There is generally less government regulation of foreign markets, companies and securities dealers than in the U.S. - 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 than securities of comparable domestic issuers. - Foreign securities may 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 that could affect investments in those countries. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Although the Fund has no current intention of doing so, the Fund may engage in futures and options on futures transactions in accordance with its investment objective and policies. Futures contracts are standardized contracts that provide for the sale or purchase of a specified financial instrument at a future time at a specified price. An option on a futures contract gives the purchaser the right (and the writer of the option the obligation) to assume a position in a futures contract at a specified exercise price within a specified period of time. In addition to incurring fees in connection with futures and options, an investor is required to maintain margin deposits. At the time of entering into a futures transaction or writing an option, an investor is required to deposit a specified amount of cash or eligible securities called "initial margin." Subsequent payments, called "variation margin," are made on a daily basis as the market price of the futures contract or option fluctuates. The Fund may purchase and sell futures contracts, and purchase and write call and put options on futures contracts for bona fide hedging purposes, including to hedge against changes in interest rates, securities prices, or to the extent the Fund invests in foreign securities, currency exchange rates, or in order to pursue risk management strategies, including gaining efficient exposure to markets and minimizing transaction costs. The Fund may also enter into closing purchase 5 and sale transactions with respect to such contracts and options. The Fund may not purchase or sell futures contracts, options on futures contracts or options on currencies traded on a CFTC-regulated exchange if the aggregate initial margin and premiums required to establish such positions would exceed 5% of the liquidation value of the Fund's portfolio, after taking into account unrealized profits and losses on any such contracts it has entered into. Futures contracts and options on futures contracts present substantial risks, including the following: - While the Fund may benefit from the use of futures and related options, unanticipated market events may result in poorer overall performance than if the Fund had not entered into any futures or related options transactions. - Because perfect correlation between a futures position and a portfolio position that the Fund intends to hedge is impossible to achieve, a hedge may not work as intended, and the Fund may thus be exposed to additional risk of loss. - The loss that the Fund may incur in entering into futures contracts and in writing call options on futures is potentially unlimited and may exceed the amount of the premium received. - Futures markets are highly volatile, and the use of futures may increase the volatility of the Fund's net asset value. - As a result of the low margin deposits normally required in futures and options on futures trading, a relatively small price movement in a contract may result in substantial losses to the Fund. - Futures contracts and related options may be illiquid, and exchanges may limit fluctuations in futures contract prices during a single day. - The counterparty to an OTC contract may fail to perform its obligations under the contract. STOCK INDEX FUTURES. Although the Fund has no current intention of doing so, it may seek to reduce the volatility in its portfolio through the use of stock index futures contracts. A stock index futures contract is an agreement pursuant to which two parties agree, one to receive and the other to pay, on a specified date an amount of cash equal to a specified dollar amount -- established by an exchange or board of trade -- times the difference between the value of the index at the close of the last trading day of the contract and the price at which the futures contract is originally written. The purchaser pays no consideration at the time the contract is entered into; the purchaser only pays the good faith deposit described below. The market value of a stock index futures contract is based primarily on the value of the underlying index. Changes in the value of the index will cause roughly corresponding changes in the market price of the futures contract. If a stock index is established that is made up of securities whose market characteristics closely parallel the market characteristics of the securities in the Fund's portfolio, then the market value of a futures contract on that index should fluctuate in a way closely resembling the market fluctuation of the portfolio. Thus, if the Fund sells futures contracts, a decline in the market value of the portfolio will be offset by an increase in the value of the short futures position to the extent of the hedge (i.e., the size of the futures position). Conversely, when the Fund has cash available (for example, through substantial sales of shares) and wishes to invest the cash in anticipation of a rising market, the Fund could rapidly hedge against the expected market increase by buying futures contracts to offset the cash position and thus cushion the adverse effect of attempting to buy individual securities in a rising market. Stock index futures contracts are subject to the same risks as other futures contracts discussed above under "Futures Contracts and Options on Futures Contracts." ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in illiquid securities that cannot be disposed of in seven days in the ordinary course of business at fair value. Illiquid securities include: - Domestic and foreign securities that are not readily marketable. - Repurchase agreements and time deposits with a notice or demand period of more than seven days. 6 - Certain restricted securities, unless Lord Abbett determines, subject to the oversight of the Board, based upon a review of the trading markets for a specific restricted security, that such restricted security is eligible for resale pursuant to Rule 144A under the Securities Act of 1933 ("144A Securities") and is liquid. 144A Securities may be resold to a qualified institutional buyer without registration and without regard to whether the seller originally purchased the security for investment. Investing in 144A Securities may decrease the liquidity of the Fund's portfolio to the extent that qualified institutional buyers become for a time uninterested in purchasing these securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market price of comparable securities for which a liquid market exists. INVESTMENT COMPANIES. The Fund may invest in securities of other investment companies subject to limitations prescribed by the Act, except that the Fund cannot rely on Sections 12(d)(1)(F) and (G). These limitations include a prohibition on the Fund acquiring more than 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of the Fund's total assets in securities of any one investment company or more than 10% of its total assets in securities of all investment companies. The Fund indirectly will bear its proportionate share of any management fees and other expenses paid by the investment companies in which it invests. Such investment companies will generally be money market funds or have investment objectives, policies and restrictions substantially similar to those of the Fund and will be subject to substantially the same risks. The Fund may, consistent with its investment policies, invest in investment companies established to accumulate and hold a portfolio of securities that is intended to track the price performance and dividend yield of a well-known securities index. The Fund may use such investment company securities for several reasons, including, but not limited to, facilitating the handling of cash flows or trading, or reducing transaction costs. The price movement of such securities may not perfectly parallel the price movement of the underlying index. An example of this type of security is the Standard & Poor's Depositary Receipt, commonly known as a "SPDR." LISTED OPTIONS ON SECURITIES. The Fund may purchase and write national securities exchange-listed put and call options on securities or securities indices. A "call option" is a contract sold for a price giving its holder the right to buy a specific amount of securities 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. The Fund may write covered call options that are traded on a national securities exchange with respect to securities in its portfolio in an attempt to increase income and to provide greater flexibility in the disposition of portfolio securities. During the period of the option, the Fund forgoes the opportunity to profit from any increase in the market price of the underlying security above the exercise price of the option (to the extent that the increase exceeds its net premium). The Fund may also enter into "closing purchase transactions" in order to terminate its obligation to deliver the underlying security. This may result in a short-term gain or loss. A closing purchase transaction is the purchase of a call option (at a cost which may be more or less than the premium received for writing the original call option) on the same security, with the same exercise price and call period as the option previously written. If the Fund is unable to enter into a closing purchase transaction, it may be required to hold a security that it might otherwise have sold to protect against depreciation. A "put option" gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying securities at the exercise price at any time during the option period. A put option sold by the Fund is covered when, among other things, the Fund segregates permissible liquid assets having a value equal to or greater than the exercise price of the option to fulfill the obligation undertaken. Writing listed put options may be a useful portfolio investment strategy when the Fund has cash or other reserves available for investment as a result of sales of Fund shares or when the investment manager believes a more defensive and less fully invested position is desirable in light of market conditions. The Fund will not purchase an option if, as a result of such purchase, more than 10% of its total assets would be invested in premiums for such options. The Fund may write covered put options to the extent that cover for such options does not exceed 15% of its net assets. The Fund may only sell (write) covered call options having an aggregate market value of less than 25% of its net assets. The purchase and writing of options is a highly specialized activity that involves special investment risks. The Fund may use options for hedging or cross-hedging purposes, or to seek to increase total return (which is considered a speculative activity). If the investment manager is incorrect in its expectation of changes in market prices or determination of the 7 correlation between the securities on which options are based and the Fund's portfolio securities, the Fund may incur losses. The use of options can also increase the Fund's transaction costs. PREFERRED STOCK, WARRANTS AND RIGHTS. The Fund may invest in preferred stock, warrants and rights. Preferred stocks are securities that represent an ownership interest providing the holder with claims on the issuer's earnings and assets before common stockholders, but after bond holders and other creditors. Unlike debt securities, the obligations of an issuer of preferred stock, including dividend and other payment obligations, may not typically be accelerated by the holders of such preferred stock on the occurrence of an event of default or other non-compliance by the issuer of the preferred stock. Investments in preferred stock present market and liquidity risks. The value of a preferred stock may be highly sensitive to the economic condition of the issuer, and markets for preferred stock may be less liquid than the market for the issuer's common stock. Warrants are options to buy a stated number of shares of common stock at a specified price at any time during the life of the warrant. Rights represent a privilege offered to holders of record of issued securities to subscribe (usually on a pro rata basis) for additional securities of the same class, of a different class or of a different issuer. The holders of warrants and rights have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer. The value of a warrant or right may not necessarily change with the value of the underlying securities. Warrants and rights cease to have value if they are not exercised prior to their expiration date. Investments in warrants and rights are thus speculative and may result in a total loss of the money invested. REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction by which the purchaser acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. The resale price reflects the purchase price plus an agreed-upon market rate of interest which is unrelated to the coupon rate or date of maturity of the purchased security. The Fund requires at all times that the repurchase agreement be collateralized by cash or U.S. Government securities having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). Such agreements permit the Fund to keep all of its assets at work while retaining flexibility in pursuit of investments of a longer term nature. The use of repurchase agreements involves certain risks. For example, if the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the value of these securities has declined, the Fund may incur a loss upon disposition of them. Even though the repurchase agreements may have maturities of seven days or less, they may lack liquidity, especially if the issuer encounters financial difficulties. The Fund intends to limit repurchase agreements to transactions with dealers and financial institutions believed by Lord Abbett, as the investment manager, to present minimal credit risks. Lord Abbett will monitor the creditworthiness of the repurchase agreement sellers on an ongoing basis. REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase agreements. In a reverse repurchase agreement, the Fund sells a security to a securities dealer or bank for cash and also agrees to repurchase the same security later at a set price. Reverse repurchase agreements expose the Fund to credit risk (that is, the risk that the counterparty will fail to resell the security to the Fund). This risk is greatly reduced because the Fund receives cash equal to 100% of the price of the security sold. Engaging in reverse repurchase agreements may also involve the use of leverage, in that the Fund may reinvest the cash it receives in additional securities. The Fund will attempt to minimize this risk by managing its duration. The Fund's reverse repurchase agreements will not exceed 20% of its net assets. SECURITIES LENDING. The Fund may lend portfolio securities to registered broker-dealers. These loans may not exceed 30% of the Fund's total assets. Securities loans will be collateralized by cash or marketable securities issued or guaranteed by the U.S. Government or its agencies ("U.S. Government securities") or other permissible means at least equal to 102% of the market value of the loaned securities. The Fund may pay a part of the interest received with respect to the investment of collateral to a borrower and/or a third party that is not affiliated with the Fund and is acting as a "placing broker." No fee will be paid to persons affiliated with the Fund. By lending portfolio securities, the Fund can increase income by continuing to receive interest or dividends on the loaned securities as well as by either investing the cash collateral in permissible investments, such as U.S. Government securities, or obtaining yield in the form of interest paid by the borrower when U.S. Government securities or other forms 8 of non-cash collateral are received. Lending portfolio securities could result in a loss or delay in recovering the Fund's securities if the borrower defaults. SHORT SALES. The Fund may make short sales of securities or maintain a short position, if at all times when a short position is open the Fund owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for an equal amount of the securities of the same issuer as the securities sold short. The Fund does not intend to have more than 5% of its net assets (determined at the time of the short sale) subject to short sales. TEMPORARY DEFENSIVE INVESTMENTS. As described in the Prospectus, the Fund is authorized to invest temporarily a substantial amount, or even all, of its assets in various short-term fixed-income securities to take a defensive position. These securities include: - Obligations of the U.S. Government and its agencies and instrumentalities. U.S. Government obligations are debt securities issued or guaranteed as to principal or interest by the U.S. Treasury. These securities include Treasury bills, notes and bonds. - Commercial paper. Commercial paper consists of unsecured promissory notes issued by corporations to finance short-term credit needs. Commercial paper is issued in bearer form with maturities generally not exceeding nine months. Commercial paper obligations may include variable amount master demand notes. - Bank certificates of deposit and time deposits. Certificates of deposit are certificates issued against funds deposited in a bank or a savings and loan. They are issued for a definite period of time and earn a specified rate of return. - Bankers' acceptances. Bankers' acceptances are short-term credit instruments evidencing the obligation of a bank to pay a draft that has been drawn on it by a customer. These instruments reflect the obligations both of the bank and of the drawer to pay the face amount of the instrument upon maturity. They are primarily used to finance the import, export, transfer or storage of goods. They are "accepted" when a bank guarantees their payment at maturity. - Repurchase agreements. Repurchase agreements are arrangements involving the purchase of an obligation by the Fund and the simultaneous agreement to resell the same obligation on demand or at a specified future date and at an agreed-upon price. WHEN-ISSUED OR FORWARD TRANSACTIONS. The Fund may purchase portfolio securities on a when-issued or forward basis. When-issued or forward transactions involve a commitment by the Fund to purchase securities, with payment and delivery ("settlement") to take place in the future, in order to secure what is considered to be an advantageous price or yield at the time of entering into the transaction. The value of fixed-income securities to be delivered in the future will fluctuate as interest rates vary. During the period between purchase and settlement, the value of the securities will fluctuate and assets consisting of cash and/or marketable securities (normally short-term U.S. government securities) marked to market daily in an amount sufficient to make payment at settlement will be segregated at our custodian in order to pay for the commitment. There is a risk that market yields available at settlement may be higher than yields obtained on the purchase date that could result in depreciation of the value of fixed-income when-issued securities. At the time the Fund makes the commitment to purchase a security on a when-issued basis, it will record the transaction and reflect the liability for the purchase and the value of the security in determining its net asset value. The Fund, generally, has the ability to close out a purchase obligation on or before the settlement date rather than take delivery of the security. Under no circumstances will settlement for such securities take place more than 120 days after the purchase date. 9 3. MANAGEMENT OF THE FUND The Board of Directors is responsible for the management of the business and affairs of the Fund in accordance with the laws of the State of Maryland. The Board appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies authorized by the Board. As discussed fully below, the Board also approves an investment adviser to the Fund and continues to monitor the cost and quality of the services provided by the investment adviser, and annually considers whether to renew the contract with the adviser. The following Director is the Managing Partner of Lord, Abbett & Co. LLC ("Lord Abbett") and is an "interested person" as defined in the Act. Mr. Dow is also an officer, director, or trustee of the fourteen Lord Abbett-sponsored funds, which consist of 42 portfolios or series.
CURRENT POSITION NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION DATE OF BIRTH WITH FUND DURING PAST FIVE YEARS OTHER DIRECTORSHIPS - ------------- --------- ---------------------- ------------------- ROBERT S. DOW Director since 1995 Managing Partner and Chief N/A Lord, Abbett & Co. LLC and Chairman since Investment Officer of Lord Abbett 90 Hudson Street 1996 since 1996. Jersey City, NJ Date of Birth: 3/8/1945
----------------------------------- The following outside Directors are also directors or trustees of each of the fourteen Lord Abbett-sponsored funds.
CURRENT POSITION NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION DATE OF BIRTH WITH FUND DURING PAST FIVE YEARS OTHER DIRECTORSHIPS E. THAYER BIGELOW Director since 1994 Managing General Partner, Bigelow Currently serves as Bigelow Media, LLC Media, LLC (since 2000); Senior director of Crane Co. and 909 Third Ave., 5th Floor Adviser, Time Warner Inc. (1998 - Huttig Building Products New York, NY 2000); Acting Chief Executive Inc. Date of Birth: 10/22/1941 Officer of Courtroom Television Network (1997 - 1998); President and Chief Executive Officer of Time Warner Cable Programming, Inc. (1991 - 1997). WILLIAM H.T. BUSH Director since 1998 Co-founder and Chairman of the Currently serves as Bush-O'Donnell & Co., Inc. Board of the financial advisory director of Wellpoint 101 South Hanley Road firm of Bush-O'Donnell & Company Health Network, Inc., DT Suite 1025 (since 1986). Industries Inc., and St. Louis, MO Engineered Support Date of Birth: 7/14/1938 Systems, Inc. ROBERT B. CALHOUN, JR. Director since 1998 Managing Director of Monitor Currently serves as Monitor Clipper Partners Clipper Partners (since 1997) and director of Avondale, Two Canal Park President of Clipper Asset Inc., Avondale Mills, Cambridge, MA Management Corp. (since 1991), both Inc., IGI/Earth Color, Date of Birth: 10/25/1942 private equity investment funds. Inc., Integrated Graphics, Inc., and Interstate Bakeries Corp.
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CURRENT POSITION NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION DATE OF BIRTH WITH FUND DURING PAST FIVE YEARS OTHER DIRECTORSHIPS - ------------- --------- ---------------------- ------------------- FRANKLIN W. HOBBS Director since 2000 Chief Executive Officer of Houlihan Currently serves as Houlihan Lokey Howard & Zukin Lokey Howard & Zukin, an investment director of Adolph Coors 685 Third Ave. bank (January 2002 to present); Company. New York, NY Chairman of Warburg Dillon Read Date of Birth: 7/30/1947 (1999 - 2000); Global Head of Corporate Finance of SBC Warburg Dillon Read (1997 - 1999); Chief Executive Officer of Dillon, Read & Co. (1994 - 1997). C. ALAN MACDONALD Director since 1988 Retired - General Business and Currently serves as 415 Round Hill Road Governance Consulting (since 1992); director of Fountainhead Greenwich, CT formerly President and CEO of Water Company, Careside, Date of Birth: 5/19/1933 Nestle Foods. Inc., Lincoln Snacks, J.B. Williams Co., Inc. (personal care products) and Seix Fund, Inc.* THOMAS J. NEFF Director since 1982 Chairman of Spencer Stuart, an Currently serves as Spencer Stuart executive search consulting firm director of Ace, Ltd. and 277 Park Avenue (since 1996); President of Spencer Exult, Inc. New York, NY Stuart (1979-1996). Date of Birth: 10/2/1937 JAMES F. ORR, III Director since 2002 President and CEO of LandingPoint Currently serves as 80 Pinckney Street Capital (since 2002); Chairman and Chairman of Rockefeller Boston, MA CEO of United Asset Management Foundation, Director of Date of Birth: 3/5/1943 Corporation (2000 to 2001); Nashua Corp. and Chairman and CEO of UNUM SteelPoint Technologies. Provident Corporation (1999 - merger); Chairman and CEO of UNUM Corporation (1988 - 1999).
- ------------ *Seix Fund, Inc. is a registered investment company that is advised by Seix Investment Advisors Inc. Seix Investment Advisors Inc.'s Chairman, CEO, and Chief Investment Officer is married to Robert Dow, the Fund's Chairman, CEO, and President and the Managing Partner of Lord Abbett. -------------------------------- 11 None of the officers listed below have received compensation from the Fund. All the officers of the Fund may also be officers of the other Lord Abbett-sponsored funds and maintain offices at 90 Hudson Street, Jersey City, New Jersey 07302.
NAME AND CURRENT POSITION LENGTH OF SERVICE PRINCIPAL OCCUPATION (DATE OF BIRTH) WITH FUND OF CURRENT POSITION DURING PAST FIVE YEARS - --------------- --------- ------------------- ---------------------- ROBERT S. DOW Chief Executive Elected in 1996 Managing Partner and Chief Investment (3/8/1945) Officer and Officer of Lord Abbett since 1996. President SHOLOM DINSKY Executive Vice Elected in 2001 Partner and Large Cap Value Investment (3/24/1944) President Manager, joined Lord Abbett in 2000, formerly Managing Director of Prudential Asset Management, prior thereto Director of Equity Research and Senior Vice President at Mitchell Hutchins Asset Management. KENNETH G. FULLER Executive Vice Elected in 2002 Investment Manager - Large Cap Value, joined (4/22/45) President Lord Abbett in 2002, formerly Portfolio Manager and Senior Vice President at Pioneer Investment Management, Inc. from 1999 to 2002; prior thereto Principal, Manley, Fuller Asset Management. W. THOMAS HUDSON, JR. Executive Vice Elected in 1997 Partner and Investment Manager, joined Lord (12/16/1941) President Abbett in 1982. ROBERT G. MORRIS Executive Vice Elected in 1995 Partner and Director of Equity Investments, (11/6/1944) President joined Lord Abbett in 1991. ELI M. SALZMANN Executive Vice Elected in 2000 Partner and Director of Institutional Equity (3/24/1964) President Investments, joined Lord Abbett in 1997. TRACIE E. AHERN Vice President and Elected in 1999 Partner and Director of Portfolio Accounting (1/12/1968) Treasurer and Operations, joined Lord Abbett in 1999, formerly Vice President - Head of Fund Administration of Morgan Grenfell from 1998 to 1999, prior thereto Vice President of Bankers Trust. JOAN A. BINSTOCK Chief Financial Elected in 1999 Partner and Chief Operations Officer, joined (3/4/1954) Officer and Vice Lord Abbett in 1999, prior thereto Chief President Operating Officer of Morgan Grenfell. DANIEL E. CARPER Vice President Elected in 1993 Partner, joined Lord Abbett in 1979. (1/22/1952) PAUL A. HILSTAD Vice President and Elected in 1995 Partner and General Counsel, joined Lord (12/13/1942) Secretary Abbett in 1995.
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NAME AND CURRENT POSITION LENGTH OF SERVICE PRINCIPAL OCCUPATION (DATE OF BIRTH) WITH FUND OF CURRENT POSITION DURING PAST FIVE YEARS - --------------- --------- ------------------- ---------------------- LAWRENCE H. KAPLAN Vice President and Elected in 1997 Partner and Deputy General Counsel, joined (1/16/1957) Assistant Secretary Lord Abbett in 1997. A. EDWARD OBERHAUS, III Vice President Elected in 1996 Partner and Manager of Equity Trading, (12/21/1959) joined Lord Abbett in 1983. CHRISTINA T. SIMMONS Vice President and Elected in 2000 Assistant General Counsel, joined Lord (11/12/1957) Assistant Secretary Abbett in 1999, formerly Assistant General Counsel of Prudential Investments from 1998 to 1999, prior thereto Counsel of Drinker, Biddle & Reath LLP, a law firm. FRANCIE W. TAI Assistant Treasurer Elected in 2000 Director of Fund Administration, joined Lord (6/11/1965) Abbett in 2000, prior thereto Manager of Goldman Sachs.
-------------------------------- COMMITTEES The standing committees of the Board of Directors are the Audit Committee, the Proxy Committee, and the Nominating and Governance Committee. The Audit Committee is composed of Directors who are not "interested persons" of the Fund. The members of the Audit Committee are Messrs. Bigelow, Calhoun, Hobbs, and Orr. The Audit Committee provides assistance to the Board of Directors in fulfilling its responsibilities relating to accounting matters, the reporting practices of the Fund, and the quality and integrity of the Fund's financial reports. Among other things, the Audit Committee is responsible for reviewing and evaluating the performance and independence of the Fund's independent auditors and considering violations of the Fund's Code of Ethics to determine what action should be taken. The Audit Committee meets quarterly and during the past fiscal year met four times. The Proxy Committee is composed of at least two Directors who are not "interested persons" of the Fund, and also may include one or more Directors who are Partners or employees of Lord Abbett. The current members of the Proxy Committee are three independent Directors: Messrs. Bush, Neff, and MacDonald. The Proxy Committee assists the Board of Directors in fulfilling its responsibilities relating to the voting of securities held by the Fund. During the past fiscal year, the Proxy Committee met once. The Nominating and Governance Committee is composed of all the Directors who are not "interested persons" of the Fund. Among other things, the Nominating and Governance Committee is responsible for (i) evaluating and nominating individuals to serve as independent Directors and as committee members; and (ii) periodically reviewing director/trustee compensation. During the past fiscal year, the Nominating and Governance Committee met six times. --------------------------------- APPROVAL OF ADVISORY CONTRACT At a meeting on December 12, 2002, the Board of Directors of the Fund, including all its Directors who are not interested persons of the Fund (the "Board"), considered whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett. In addition to the materials the Board had reviewed throughout the course of the year, the Board received materials relating to the management agreement before the meeting and had the opportunity to ask questions and request further information in connection with their consideration. INFORMATION RECEIVED BY THE BOARD. The materials received by the Board included, but were not limited to, (1) information on the investment performance of the Fund and a peer group of funds for preceding twelve months and for 13 other periods, (2) information on the effective management fee rates and expense ratios for funds with the same objectives and similar size, (3) sales and redemption information for the Fund, (4) information regarding Lord Abbett's financial condition, (5) an analysis of the relative profitability of the management agreement to Lord Abbett, (6) information regarding the distribution arrangements of the Fund, (7) information regarding the personnel, information technology, and other resources devoted by Lord Abbett to managing the Fund. In considering whether to approve the continuation of the management agreement, the Board did not identify any single factor as paramount or controlling. This summary does not discuss in detail all matters considered. Matters considered by the Board in connection with its approval of the continuation of the management agreement included, but were not limited to, the following: INVESTMENT MANAGEMENT SERVICES GENERALLY. The Board considered the investment management services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading. INVESTMENT PERFORMANCE AND COMPLIANCE. The Board reviewed the Fund's investment performance as well as the performance of the peer group of funds, both in terms of total return and in terms of other statistical measures for the preceding twelve months and for other periods. The Board also considered whether the Fund had operated within its investment restrictions. LORD ABBETT'S PERSONNEL AND METHODS. The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of the Fund's investment objective and discipline. Among other things, they considered the size, education, and experience of Lord Abbett's investment management staff, its use of technology, and Lord Abbett's approach to recruiting, training, and retaining investment management personnel. NATURE AND QUALITY OF OTHER SERVICES. The Board considered the nature, quality, costs, and extent of administrative and other services performed by Lord Abbett and Lord Abbett Distributor and the nature and extent of Lord Abbett's supervision of third party service providers, including the Fund's transfer agent, custodian, and subcustodians. EXPENSES. The Board considered the expense ratios of each class and the expense ratios of a peer group of funds. They also considered the amount and nature of fees paid by shareholders. PROFITABILITY. The Board considered the level of Lord Abbett's profits in managing the Fund, including a review of Lord Abbett's methodology for allocating its costs to its management of the Fund. The Board concluded that the allocation methodology had a reasonable basis and was appropriate. They considered the profits realized by Lord Abbett in connection with the operation of the Fund and whether the amount of profit is fair for the management of the Fund. They also considered the profits realized from other businesses of Lord Abbett, which may benefit from or be related to the Fund's business. The Board also considered Lord Abbett's profit margins in comparison with available industry data, both accounting for and ignoring marketing and distribution expenses, and how those profit margins could affect Lord Abbett's ability to recruit and retain investment personnel. ECONOMIES OF SCALE. The Board considered whether there have been any economies of scale in managing the Fund, whether the Fund has appropriately benefited from any such economies of scale, and whether there is potential for realization of any further economies of scale. OTHER BENEFITS TO LORD ABBETT. The Board considered the character and amount of fees paid by the Fund and the Fund's shareholders to Lord Abbett and Lord Abbett Distributor for services other than investment management, the allocation of Fund brokerage, and the receipt of research by Lord Abbett in return for fund brokerage. The Board also considered the revenues and profitability of Lord Abbett's investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. ALTERNATIVE ARRANGEMENTS. The Board considered whether, instead of approving continuation of the management agreement, employing one or more alternative arrangements might be in the best interests of the Fund, such as continuing to employ Lord Abbett, but on different terms. After considering all of the relevant factors, the Board unanimously voted to approve continuation of the existing 14 management agreement. COMPENSATION DISCLOSURE The following table summarizes the compensation for each of the directors/trustees of 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 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. No director/trustee of the funds who is also associated with Lord Abbett, and no officer of the funds, received any compensation from the funds for acting as a director/trustee or officer.
(1) (2) (3) FOR YEAR ENDED FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 OCTOBER 31, 2002 TOTAL COMPENSATION AGGREGATE COMPENSATION PAID BY THE FUND AND ACCRUED BY THIRTEEN OTHER LORD NAME OF DIRECTOR THE FUND(1) ABBETT-SPONSORED FUNDS(2) - ---------------- ----------------- ------------------------- E. Thayer Bigelow $38,475 $85,000 William H.T. Bush $38,663 $85,200 Robert B. Calhoun, Jr. $38,985 $86,400 Stewart S. Dixon* $38,126 $84,000 Franklin W. Hobbs $38,360 $85,000 C. Alan MacDonald $38,475 $85,000 Thomas J. Neff $38,015 $84,000 James F. Orr, III** $11,428 $70,500
- --------------------------------- *Retired December 31, 2002. **Elected effective July 18, 2002. 1. Outside Directors' fees, including attendance fees for board and committee meetings, are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. A portion of the fees payable by the Fund to its outside Directors may be deferred at the option of a Director under an equity-based plan (the "equity-based plan") that deems the deferred amounts to be invested in shares of the funds for later distribution to the Directors. In addition, $25,000 of each Director's retainer must be deferred and is deemed invested in shares of the Fund and other Lord Abbett-sponsored funds under the equity-based plan. 2. The third column shows aggregate compensation, including the types of compensation described in the second column, accrued by all Lord Abbett-sponsored funds during the year ended December 31, 2002, including fees directors/trustees have chosen to defer. --------------------------------- 15 The following chart provides certain information on the dollar range of equity securities beneficially owned by each Director in the Fund and other Lord Abbett-sponsored funds as of December 31, 2002. The amounts shown include deferred compensation to the Directors deemed invested in Fund shares. The amounts ultimately received by the Directors under the deferred compensation plan will be directly linked to the investment performance of the Funds.
AGGREGATE DOLLAR RANGE OF DOLLAR RANGE OF EQUITY EQUITY SECURITIES IN NAME OF DIRECTOR SECURITIES IN THE FUND ABBETT-SPONSORED FUNDS LORD - ------- -------- ---------------------- --------------------------- Robert S. Dow Over $100,000 Over $100,000 E. Thayer Bigelow Over $100,000 Over $100,000 William H. T. Bush $10,001-$50,000 $50,001-$100,000 Robert B. Calhoun, Jr. Over $100,000 Over $100,000 Stewart S. Dixon* Over $100,000 Over $100,000 Franklin W. Hobbs $50,001-$100,000 Over $100,000 C. Alan MacDonald Over $100,000 Over $100,000 Thomas J. Neff Over $100,000 Over $100,000 James F. Orr, III** $10,001-$50,000 Over $100,000
- ----------------------------- * Retired December 31, 2002. **Elected effective July 18, 2002. 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 which complies, in substance, with Rule 17j-1 of the Act and each of the recommendations of the Investment Company Institute's Advisory Group on Personal Investing. Among other things, the Code of Ethics requires, with limited exceptions, 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 seven days before or after any Lord Abbett-sponsored fund or Lord Abbett-managed account considers a trade or trades in such security, prohibiting profiting on trades of the same security within 60 days and trading on material and non-public information. The Code of Ethics 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 18, 2003, the Fund's officers and Directors, as a group, owned less than 1% of the Fund's 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 the Fund's outstanding Class A, B, C or P 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 Partners of Lord Abbett, the following are officers and/or directors of the Fund: Tracie E. Ahern, Joan A. Binstock, Daniel E. Carper, Sholom Dinsky, Robert S. Dow, Paul A. Hilstad, W. Thomas Hudson, Jr., Lawrence H. Kaplan, Robert G. Morris, A. Edward Oberhaus, III, and Eli M. Salzmann. The other Partners are: Michael Brooks, Zane E. Brown, Patrick Browne, John J. DiChiaro, Lesley-Jane Dixon, John E. Erard, Kevin P. Ferguson, Robert P. Fetch, Daria L. Foster, Daniel H. Frascarelli, Robert I. Gerber, Michael S. Goldstein, Michael A. Grant, Howard E. Hansen, Charles Hofer, Cinda Hughes, Ellen G. Itskovitz, Robert A. Lee, Maren Lindstrom, Gregory M. Macosko, Thomas Malone, Charles 16 Massare, Jr., Stephen J. McGruder, Paul McNamara, Robert J. Noelke, R. Mark Pennington, Walter Prahl, Michael Rose, Douglas B. Sieg, Richard Sieling, Michael T. Smith, Richard Smola, Diane Tornejal, Christopher J. Towle, Edward K. von der Linde and Marion Zapolin. The address of each Partner is 90 Hudson Street, Jersey City, New Jersey 07302-3973. Under the Management Agreement, the Fund pays Lord Abbett a monthly fee, based on average daily net assets for each month. The annual rate for the Fund is 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 the separate classes based on the classes' proportionate shares of such average daily net assets. The Fund pays all expenses attributable to its operations 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 registering its shares under federal and state securities laws, expenses of preparing, printing and mailing prospectuses and shareholder reports to existing shareholders, fund accounting expenses, insurance premiums, and other expenses connected with executing portfolio transactions. For the fiscal years ended October 31, 2002, 2001, and 2000, the management fees paid to Lord Abbett by the Fund amounted to $36,805,615, $35,993,672, and $32,372,356, respectively. ADMINISTRATIVE SERVICES Effective January 1, 2003, Lord Abbett and the Fund entered into an Administrative Services Agreement under which Lord Abbett will provide certain administrative services not involving the provision of investment advice to the Fund. Pursuant to the Agreement, the Fund will pay Lord Abbett a monthly fee, based on average daily net assets for each month, at an annual rate of .04%. This will be allocated among the classes of shares of the Fund based on average daily net assets. This will result in Lord Abbett paying fund accounting expenses that were previously charged to the Fund. PRINCIPAL UNDERWRITER Lord Abbett Distributor LLC, a New York limited liability company and a subsidiary of Lord Abbett, 90 Hudson Street, Jersey City, New Jersey 07302-3973, serves as the principal underwriter for the Fund. CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company, 801 Pennsylvania Avenue, Kansas City, Missouri is the Fund's custodian. The custodian pays for and collects proceeds of securities bought and sold by the Fund and attends to the collection of principal and income. The custodian 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 Board has approved arrangements permitting the Fund's foreign assets not held by the custodian or its foreign branches to be held by certain qualified foreign banks and depositaries. In addition, State Street Bank and Trust Company performs certain accounting and record keeping functions relating to portfolio transactions and calculates the Fund's net asset value. 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 to continue in such capacity. Deloitte & Touche LLP performs audit services for the Fund, including the examination of financial statements included in the Fund's Annual Report to Shareholders. 17 6. BROKERAGE ALLOCATIONS AND OTHER PRACTICES The Fund's policy is to obtain best execution on all 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 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. Our policy with respect to best execution governs the selection of brokers or dealers and the market in which the transaction is executed. To the extent permitted by law, the Fund, if considered advantageous, may 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 also do the trading for other accounts -- investment companies and other investment clients -- managed by Lord Abbett. They are responsible for obtaining best execution. In transactions on stock exchanges in the United States, commissions are negotiated, whereas on many foreign stock exchanges commissions are fixed. In the case of securities traded in the foreign and domestic over-the-counter markets, there is generally no stated commission, but the price usually includes an undisclosed commission or markup. Purchases from underwriters of newly-issued securities for inclusion in the Fund's portfolio usually will include a concession paid to the underwriter by the issuer, and purchases from dealers serving as market makers will include the spread between the bid and asked prices. We pay a commission rate that we believe is appropriate to give maximum assurance that our brokers will provide us, on a continuing basis, the highest level of brokerage services available. While we do not always seek the lowest possible commissions on particular trades, we believe that our commission rates are in line with the rates that many other institutions pay. Our traders are authorized to pay brokerage commissions in excess of those that other brokers might accept on the same transactions in recognition of the value of the services performed by the executing brokers, viewed in terms of either the particular transaction or the overall responsibilities of Lord Abbett, with respect to us and the other accounts they manage. Such services include showing us trading opportunities including blocks, a willingness and ability to take positions in securities, knowledge of a particular security or market-proven ability to handle a particular type of trade, confidential treatment, promptness and reliability. Some of these brokers also provide research services, at least some of which are useful to Lord Abbett in their overall responsibilities with respect to us and the other accounts they manage. Research includes the furnishing of analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts and trading equipment and computer software packages, acquired from third-party suppliers, that enable Lord Abbett to access various information bases. Such services may be used by Lord Abbett in servicing all their accounts, and not all of such services will necessarily be used by Lord Abbett in connection with their management of the Fund. Conversely, such services furnished in connection with brokerage on other accounts managed by Lord Abbett may be used in connection with their management of the Fund, and not all of such services will necessarily be used by Lord Abbett in connection with their advisory services to such other accounts. We have been advised by Lord Abbett that research services received 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 securities. 18 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, 2002, 2001, and 2000, the Fund paid total commissions to independent dealers of $27,249,265, $26,213,126, and $13,129,004, respectively. 7. CLASSES OF SHARES The Fund offers investors different classes of shares in this SAI. The different classes of shares represent investments in the same portfolio of securities but are subject to different expenses and will likely have different share prices. Investors should read this section carefully to determine which class represents the best investment option for their particular situation. All classes of 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, series, or funds may be added in the future. The Act requires that where more than one class, series, or fund exists, each class, series, or fund must be preferred over all other classes, series, or funds in respect of assets specifically allocated to such class, series, 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 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, series, or fund in the matter is substantially identical or the matter does not affect any interest of such class, series, or fund. However, the Rule exempts the selection of independent auditors, the approval of a contract with a principal underwriter and the election of directors from its separate voting requirements. The Fund's By-Laws provide that the Fund shall not hold a meeting of its shareholders in any year unless one or more matters are required to be acted on by shareholders under the Act, or unless called by a majority of the Board or by shareholders 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 shareholders 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 Retirement and Benefit Plans with less than 100 eligible employees or on investments that do not qualify under the other categories listed under "Net Asset Value Purchases of Class A Shares." If you purchase Class A shares as part of an investment of at least $1 million (or for certain Retirement and Benefit Plans) in shares of one or more Lord Abbett-sponsored funds, you will not pay an initial sales charge, but, subject to certain exceptions, if you redeem any of those shares on or before the 24th month after the month in which you buy them, you may pay to the Fund a contingent deferred sales charge ("CDSC") of 1%. 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 19 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 average daily 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 a CDSC of 1% to Lord Abbett Distributor. Class C shares are subject to service and distribution fees at an annual rate of 1% of the average daily net asset value of the Class C shares. The CDSC and the Rule 12b-1 plan applicable to the Class 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. The Fund has adopted a Distribution Plan and Agreement pursuant to Rule 12b-1 of the Act for each of the Fund classes offered in this SAI: the "A Plan," the "B Plan," the "C Plan," and the "P Plan," respectively. The principal features of each Plan are described in the Prospectus; however, this SAI contains additional information that may be of interest to investors. Each Plan is a compensation plan, allowing each class to pay a fixed fee to Lord Abbett Distributor that may be more or less than the expenses Lord Abbett Distributor actually incurs. In adopting each Plan and in approving its continuance, the Board has concluded there is a reasonable likelihood that each Plan will benefit its respective class and its 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. Each Plan compensates Lord Abbett Distributor for financing activities primarily intended to sell shares of the Fund. These activities include, but are not limited to, the preparation and distribution of advertising material and sales literature and other marketing activities. Lord Abbett Distributor also uses amounts received under each Plan as described in the Prospectus for payments to dealers for (i) providing continuous services to shareholders, such as answering shareholder inquiries, maintaining records, and assisting shareholders in making redemptions, transfers, additional purchases and exchanges and (ii) their assistance in distributing shares of the Fund. The amounts paid by the Fund pursuant to the A Plan for the fiscal year ended October 31, 2002, in connection with advertising and marketing activities, and payments to dealers and other agents were $3,000,254 and $35,006,139, respectively, totaling $38,006,393. The amount paid to dealers and other agents by the Fund pursuant to the B Plan for the fiscal year ended October 31, 2002 was $10,270,747. The amount paid to dealers and other agents by the Fund pursuant to the C Plan for the fiscal year ended October 31, 2002 was $5,872,856. The amount paid to dealers and other agents by the Fund pursuant to the P Plan for the fiscal year ended October 31, 2002 was $302,961. Each Plan requires the Board to review, on a quarterly basis, written reports of all amounts expended pursuant to the Plan, the purposes for which such expenditures were made, and any other information the Board reasonably requests to 20 enable it to make an informed determination of whether the Plans should be continued. 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. As long as the Plans are in effect, the selection or nomination of outside Directors is committed to the discretion of the outside Directors. Payments made pursuant to a Plan are subject to any applicable limitations imposed by rules of the National Association of Securities Dealers, Inc. A Plan terminates automatically if it is assigned. In addition, each Plan may be terminated at any time by vote of a majority of the outside Directors or by vote of a majority of the outstanding voting securities of such class. CONTINGENT DEFERRED SALES CHARGES. A CDSC applies upon early redemption 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 your 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 services 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 dividends and capital gains distributions, (2) shares held on or after the sixth anniversary of their purchase, and (3) shares held the longest before such sixth anniversary. The amount of the 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. All purchases are considered to have been made on the business day on which the purchase order was accepted. 21 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 Lord Abbett Distributor 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 also will be collected by Lord Abbett Distributor. GENERAL. The percentage (1% in the case of Class A and Class 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 shares, a CDSC will not be assessed at the time of certain transactions, including redemptions by participants or beneficiaries from certain Retirement and Benefit Plans and benefit payments under Retirement and Benefit Plans in connection with plan loans, hardship withdrawals, death, retirement or separation from service and for returns of excess contributions to retirement plan sponsors. With respect to Class A share purchases by Retirement and Benefit Plans made through Financial Intermediaries that have special arrangements with the Fund and/or Lord Abbett Distributor, no CDSC will be assessed at the time of redemptions that continue as investments in another fund participating in the program provided the Plan has not redeemed all, or substantially all, of its assets from Lord Abbett-sponsored funds. 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 a mandatory distribution under 403(b) plans and IRAs and (iii) in connection with the death of the shareholder. In the case of Class A 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 and Class C shares, the CDSC is received by Lord Abbett Distributor and is intended to reimburse its expenses of providing distribution-related services to the Fund (including recoupment of the commission payments made) in connection with the sale of Class B and Class C 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 or C Plan distribution fee. In no event will the amount of the CDSC exceed the Applicable Percentage of the lesser of (i) the net asset value of the shares redeemed or (ii) the original cost of such shares (or of the exchanged shares for which such shares were acquired). No CDSC will be imposed when the investor redeems (i) shares representing an aggregate dollar amount of his or her account, in the case of Class A shares, (ii) that percentage of each share redeemed, in the case of Class B and Class 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-sponsored fund paid a 12b-1 fee and, in the case of Class B shares, Lord Abbett Distributor paid no sales charge or service fee (including shares acquired through reinvestment of dividend income and capital gains distributions) or (iv) shares that, 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 that 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 generally 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 22 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 be the appropriate choice (especially for investments of less than $50,000), 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 $50,000 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 $50,000 expected to be held for 5 or 6 years (or more). For investments over $250,000, that are 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, Class A shares will generally 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 Class C shares for Retirement and Benefit Plans with at least 100 eligible employees or for Retirement and Benefit Plans made through Financial Intermediaries that perform participant recordkeeping or other administrative services for the Plans and that have entered into special arrangements with the Fund and/or Lord Abbett Distributor specifically for such purchases. 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 $50,000. If you plan to invest more than $50,000 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. Of course, these examples are based on approximations of the effect of current sales charges and expenses on a hypothetical investment over time, and should not be relied on as rigid guidelines. ARE THERE DIFFERENCES IN ACCOUNT FEATURES THAT MATTER TO YOU? Some account features are available in whole or in part to Class A, Class B, and Class C shareholders. Other features (such as Systematic Withdrawal Plans) might not be advisable in non-Retirement and Benefit 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 "Services For Fund Investors" 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. 23 HOW DO PAYMENTS AFFECT 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 Class 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 is contained in the Prospectus under "Purchases" and "Redemptions," respectively. Under normal circumstances we calculate the Fund's net asset value as of the close of the New York Stock Exchange ("NYSE") on each day that the NYSE is open for trading by dividing our total net assets by the number of shares outstanding at the time of calculation. The NYSE is closed on Saturdays and Sundays and the following holidays -- New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. 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 or foreign securities exchange, or on the NASDAQ National Market System are valued at the last sales price, or, if there is no sale on that day, at the mean between the last bid and asked prices, or, in the case of bonds, in the over-the-counter market if, in the judgment of the Fund's officers, that market more accurately reflects the market value of the bonds. Over-the-counter securities not traded on the NASDAQ National Market System are valued at the mean between the last bid and asked prices. Securities for which market quotations are not available are valued at fair market value under procedures approved by the Board. All assets and liabilities expressed in foreign currencies will be converted into United States dollars at the exchange rates of such currencies against United States dollars provided by Reuters at the close of regular trading on the NYSE. If such exchange rates are not available, the rate of exchange will be determined in accordance with policies established by the Board. NET ASSET VALUE PURCHASES OF CLASS A SHARES. As stated in the Prospectus, our Class A shares may be purchased at net asset value under the following circumstances: a) purchases of $1 million or more, b) purchases by Retirement and Benefit Plans with at least 100 eligible employees, c) purchases for Retirement and Benefit Plans made through Financial Intermediaries that perform participant recordkeeping or other administrative services for the Plans and that have entered into special arrangements with the Fund and/or Lord Abbett Distributor specifically for such purchases, d) purchases made with dividends and distributions on Class A shares of another Eligible Fund, e) purchases representing repayment under the loan feature of the Lord Abbett-sponsored prototype 403(b) Plan for Class A shares, f) purchases by employees of any consenting securities dealer having a sales agreement with Lord Abbett Distributor, g) purchases made by or on behalf of Financial Intermediaries for clients that pay the Financial Intermediaries fees for services that include investment advisory or management services, provided that the Financial Intermediaries or their trading agents have entered into special arrangements with the Fund and/or Lord Abbett Distributor specifically for such purchases, h) purchases by trustees or custodians of any pension or profit sharing plan, or payroll deduction IRA for the employees of any consenting securities dealer having a sales agreement with Lord Abbett Distributor, i) 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 and family members of such purchasers), or j) purchases through an omnibus account of a dealer that features ten or fewer preferred mutual fund families, including the Lord Abbett-sponsored funds, within 30 days of, and with the proceeds from, a redemption through the same dealer's omnibus account of shares of a mutual fund that were originally purchased subject to a sales charge. Our Class A shares also may be purchased at net asset value i) 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 24 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, ii) in connection with a merger, acquisition or other reorganization, iii) by employees of our shareholder servicing agent, or iv) by the trustee or custodian under any pension or profit-sharing plan or Payroll Deduction IRA established for the benefit of the directors, trustees, employees of Lord Abbett, or employees of our shareholder service agents. 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 a business relationship. EXCHANGES. The Prospectus briefly describes the Telephone Exchange Privilege. You may exchange some or all of your shares of any class for those in the same class of: (i) Lord Abbett-sponsored funds currently offered to the public with a sales charge (front-end, back-end or level), (ii) Lord Abbett U.S. Government Securities Money Market Fund, Inc. ("GSMMF"), or (iii) any authorized institution's affiliated money market fund satisfying Lord Abbett Distributor as to certain omnibus accounts and other criteria, hereinafter referred to as an "authorized money market fund" or "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 AMMFs 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 in proper form prior to the close of the NYSE. 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 that are eligible for the exchange privilege, except Lord Abbett Series Fund, Inc. ("LASF"). The exchange privilege will not be available with respect to any otherwise "Eligible Funds," the shares of which at the time are not available to new investors of the type requesting the exchange. The other funds and series that 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-sponsored funds or between such funds and AMMF. Upon redemption of shares out of the Lord Abbett-sponsored 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 shares and (ii) to Lord Abbett Distributor if the original purchase was subject to a CDSC, in the case of the Class B and the Class C shares. Thus, if shares of a Lord Abbett-sponsored 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-sponsored funds, in the case of the Class A shares and (b) on behalf of Lord Abbett Distributor, in the case of the Class B and the Class C shares. Acquired Shares held in GSMMF and AMMF that 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 25 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 $50,000 or more over a 13-month period in Class A shares of a Lord Abbett-sponsored fund (other than shares of LASF, GSMMF and AMMF, unless holdings in GSMMF and AMMF are attributable to Class A shares exchanged from a Lord Abbett-sponsored fund offered with a front-end sales charge). Class A shares currently owned by you are credited as purchases (at their current offering prices on the date the Letter of Intention 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. RIGHTS OF ACCUMULATION. As stated in the Prospectus, purchasers (as defined in the Prospectus) may accumulate their investment in Class A shares of Lord Abbett-sponsored funds (other than LASF, GSMMF, and AMMF unless holdings in GSMMF or AMMF are attributable to Class A shares exchanged from a Lord Abbett-sponsored fund offered with a front-end sales charge) so that a current investment, plus the purchaser's holdings valued at the public 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 ("SEC") deems an emergency to exist. The Board 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 either be 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 PLAN. 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 in the case of Class A or Class C shares and $25,000 in the case of Class B shares. Lord Abbett prototype retirement plans have no such minimum. With respect to Class B shares, the CDSC will be waived on redemptions of up to 12% per year of the current net asset value of your account at the time the SWP is established. For Class B share redemptions over 12% per year, the CDSC will apply to the entire redemption. Therefore, please contact the Fund for assistance in minimizing the CDSC in this situation. With respect to Class C shares, the CDSC will be waived on and after the first anniversary of their purchase. The SWP involves the planned redemption of shares on a periodic basis by receiving either fixed or variable amounts at periodic intervals. Since the value of shares redeemed may be more or less than their cost, gain or loss may be recognized for income tax purposes on each periodic payment. Normally, you may not make regular investments at the same time you are receiving systematic withdrawal payments because it is not in your interest to pay a sales charge on new investments when, in effect, a portion of that new investment is soon withdrawn. The 26 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 including 401(k) plans and custodial agreements for IRAs (Individual Retirement Accounts, including Traditional, Education, Roth and SIMPLE IRAs and Simplified Employee Pensions), 403(b) plans and qualified pension and profit-sharing plans. The forms name State Street Bank & Trust Company as custodian and contain specific information about the plans excluding 401(k) plans. Explanations of the eligibility requirements, annual custodial fees and allowable tax advantages and penalties are set forth in the relevant plan documents. Adoption of any of these plans should be on the advice of your legal counsel or qualified tax adviser. PURCHASES THROUGH FINANCIAL INTERMEDIARIES. The Fund and/or Lord Abbett Distributor has authorized one or more agents to receive on its behalf purchase and redemption orders. Such agents are authorized to designate other intermediaries to receive purchase and redemption orders on behalf of the Fund or Lord Abbett Distributor. The Fund will be deemed to have received a purchase or redemption order when an authorized agent or, if applicable, an agent's authorized designee, receives the order. A Financial Intermediary may charge transaction fees on the purchase and/or sale of Fund shares. REDEMPTIONS IN KIND. Under circumstances in which it is deemed detrimental to the best interests of the Fund's shareholders to make redemption payments wholly in cash, the Fund may pay, in accordance with rules adopted by the SEC, any portion of a redemption in excess of the lesser of $250,000 or 1% of the Fund's net assets by a distribution in kind of readily marketable securities in lieu of cash. The Fund presently has no intention to make redemptions in kind under normal circumstances, unless specifically requested by a shareholder. 9. TAXATION OF THE FUND The Fund intends to elect and to qualify for the special tax treatment afforded regulated investment companies under the Internal Revenue Code of 1986 (the "Code"). If it qualifies as a regulated investment company, the Fund will not be liable for U.S. federal income taxes on income and capital gains that the Fund timely distributes to its 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. Assuming the Fund does qualify as a regulated investment company, it will be subject to a 4% non-deductible excise tax on certain amounts that are not distributed or treated as having been distributed on a timely basis each calendar year. The Fund intends to distribute to its shareholders each year an amount adequate to avoid the imposition of this excise tax. The Fund intends to declare and pay as dividends each year substantially all of its net investment income. Dividends paid by the Fund from its ordinary income or net realized short-term capital gains are taxable to you as ordinary income. Dividends paid by the Fund from its net realized long-term capital gains are taxable to you as long-term capital gains, regardless of the length of time you have owned Fund shares. All dividends are taxable to you regardless of whether they are received in cash or reinvested in Fund shares. Dividends paid by the Fund to corporate shareholders will qualify for the dividends received deduction to the extent they are derived from dividends paid to the Fund by domestic corporations. If you are a corporation, you must have held your Fund shares for more than 45 days to qualify for the dividends received deduction. The dividends received deduction may be limited if you incur indebtedness to acquire Fund shares. Distributions paid by the Fund that do not constitute dividends because they exceed the Fund's current and accumulated earnings and profits will be treated as a return of capital and reduce the tax basis of your Fund shares. To the extent that such distributions exceed the tax basis of your Fund shares, the excess amounts will be treated as gains from the sale of the shares. Ordinarily, you are required to take distributions by the Fund into account in the year in which they are made. A distribution declared in October, November, or December of any year and payable to shareholders of record on a specified date in those months, however, is deemed paid by the Fund and received by you on December 31 of that 27 calendar year if the distribution is paid by the Fund in January of the following year. The Fund will send you annual information concerning the tax treatment of dividends and other distributions paid to you by the Fund. Upon your sale, exchange, or redemption of Fund shares, you will recognize short- or long-term capital gain or loss, depending upon whether your holding period of the Fund shares exceeds one year. However, if your holding period in your Fund shares is six months or less, any capital loss realized from a sale, exchange, or redemption of such shares must be treated as long-term capital loss to the extent of dividends classified as "capital gain dividends" received with respect to such shares. Losses on the sale of Fund 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, you acquire shares that are substantially identical. The maximum tax rates applicable to net capital gains recognized by individuals and other non-corporate taxpayers are currently (i) the same as ordinary income tax rates for capital assets held for one year or less and (ii) 20% (10% for taxpayers in the 10% or 15% tax brackets) for capital assets held for more than one year. Reduced capital gains rates will apply to gains on the sale of (1) Fund shares held more than 5 years to the extent the capital gains would otherwise be taxed at the 10% capital gains rate; and (2) Fund shares acquired on or after January 1, 2001, and held for more than 5 years. Capital gains or losses recognized by corporate shareholders are subject to tax at the ordinary income tax rates applicable to corporations. Certain investment practices that the Fund may utilize, such as investing in futures, foreign currency, or foreign entities classified as "passive foreign investment companies" for U.S. tax purposes, may affect the character and timing of the recognition of gains and losses by the Fund. Such transactions may in turn affect the amount and character of Fund distributions to you. The Fund may in some cases be subject to foreign withholding taxes, which would reduce the yield on its investments. It is generally expected that you will not be entitled to claim a federal income tax credit or deduction for foreign income taxes paid by the Fund. You may be subject to a 30% withholding tax on reportable dividends, capital gain distributions, and redemption payments ("backup withholding"). The withholding tax is reduced to 29% for dividends, distributions, and payments that are received for tax purposes after December 31, 2003, and before January 1, 2006. Generally, you will be subject to backup withholding if the Fund does not have your certified taxpayer identification number on file, or, to the Fund's knowledge, you have furnished an incorrect number. When establishing an account, you must certify under penalties of perjury that your taxpayer identification number is correct and that you are not otherwise subject to backup withholding. The tax rules of the various states of the United States and their local jurisdictions with respect to distributions from the Fund can differ from the U.S. federal income tax rules described above. Many states allow you to exclude from your state taxable income the percentage of dividends derived from certain federal obligations, including interest on some federal agency obligations. Certain states, however, may require that a specific percentage of the Fund's income be derived from federal obligations before such dividends may be excluded from state taxable income. The Fund may invest some or all of its assets in such federal obligations. The Fund intends to provide to you on an annual basis information to permit you to determine whether Fund dividends derived from interest on federal obligations may be excluded from state taxable income. If you are investing through a tax-deferred retirement account, such as an IRA, special tax rules apply and you should consult your tax adviser for detailed information about the tax consequences to you of owning Fund shares. The foregoing discussion addresses only the U.S. federal income tax consequences applicable to U.S. persons (generally, U.S. citizens or residents (including certain former citizens and former long-term residents), domestic corporations or domestic entities taxed as corporations for U.S. tax purposes, estates the income of which is subject to U.S. federal income taxation regardless of its source, and trusts if a court within the United States is able to exercise primary supervision over their administration and at least one U.S. person has the authority to control all substantial decisions of the trusts). The treatment of the owner of an interest in an entity that is a pass-through entity for U.S. tax purposes (e.g., partnerships and disregarded entities) and that owns Fund shares will generally depend upon the status of the owner and the activities of the pass-through entity. If you are not a U.S. person or are the owner of an interest in a pass-through entity that owns Fund shares, you should consult your tax adviser regarding the U.S. and foreign tax consequences of the 28 ownership of Fund shares, 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. 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 sale, exchange, or redemption of your Fund shares. 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 on a continuous basis so long as, in Lord Abbett Distributor's judgment, a substantial distribution can be obtained by reasonable efforts. Lord Abbett Distributor, as the Fund's 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, ---------------------- 2002 2001 2000 ---- ---- ---- Gross sales charge $36,664,403 $33,889,703 $16,641,772 Amount allowed to dealers $31,223,554 $28,675,599 $14,174,968 ----------- ------------ ----------- Net commissions received by Lord Abbett Distributor $ 5,440,849 $ 5,214,104 $ 2,466,804 =========== ============ ===========
11. PERFORMANCE The Fund computes the average annual compounded rates of total return during specified periods (i) before taxes, (ii) after taxes on Fund distributions, and (iii) after taxes on Fund distributions and redemption (or sale) of Fund shares at the end of the measurement period. The Fund equates the initial amount invested to the ending (redeemable) value of such investment by adding one to the computed average annual total return, expressed as a percentage (i) before taxes, (ii) after taxes on Fund distributions, and (iii) after taxes on Fund distributions and redemption of Fund shares at the end of the measurement period, 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, if any, from the initial amount invested and reinvestment of all distributions (i) without the effect of taxes, (ii) less taxes due on such Fund distributions, and (iii) less taxes due on such Fund distributions and redemption of Fund shares, 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 and, in the case of after taxes on Fund distributions and redemption of Fund shares, includes subtracting capital gains taxes resulting from the redemption and adjustments to take into account the tax benefit from any capital losses that may have resulted from the redemption. 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 total 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). For Class P 29 shares, total returns are shown at net asset value. Using the computation methods described above, the following table indicates the average annual compounded rates of total return on an initial investment of one thousand dollars as of October 31, 2002, for the Fund, per class, for one, five, and ten years or the life of Fund, where applicable. The after-tax returns were calculated using the highest applicable individual federal marginal tax rates in effect on the reinvestment date. The rates used correspond to the tax character of each component of the distribution (e.g., the ordinary income rate for ordinary income distributions, the short-term capital gain rate for short-term capital gains distributions, and the long-term capital gain rate for long-term capital gains distributions). The tax rates may vary over the measurement period. Potential tax liabilities other than federal tax liabilities (e.g., state and local taxes) were disregarded, as were the effect of phaseouts of certain exemptions, deductions and credits at various income levels, and the impact of the federal alternative minimum income tax. Before- and after-tax returns are provided for Class A shares for the Fund. The after-tax returns for the other classes of shares not shown in the table will vary from those shown. Actual after-tax returns will depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The Fund's past performance, before and after taxes, is not necessarily an indication of how the Fund will perform in the future.
1 YEAR 5 YEARS 10 YEARS LIFE OF FUND ------ ------- -------- ------------ Class A Shares -17.29% 2.21% 10.10% - Before Taxes Class A Shares After -18.49% -1.06% 6.27% - Taxes on Distributions Class A Shares After Taxes on -9.70% 0.59% 6.53% - Distributions and Sale of Fund Shares Class B Shares -16.16% 2.60% - 7.51% (8/1/96) Class C Shares -12.59% 2.73% - 7.51% (8/1/96) Class P Shares -12.31% - - 2.66% (11/24/97)
These figures represent past performance, and an investor should be aware that the investment return and principal value of an investment in the Fund 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 past 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/or investments for which reliable performance information is available. 12. FINANCIAL STATEMENTS The financial statements incorporated herein by reference from Lord Abbett Affiliated Fund's 2002 Annual Report to Shareholders have been audited by Deloitte & Touche LLP, independent auditors, as stated in its report, which is incorporated herein by reference, and has been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 30 LORD ABBETT STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 2003 LORD ABBETT AFFILIATED FUND, INC. (CLASS Y SHARES) - -------------------------------------------------------------------------------- This Statement of Additional Information ("SAI") is not a Prospectus. A Prospectus for Class Y Shares of Lord Abbett Affiliated Fund (the "Fund") may be obtained from your securities dealer or from Lord Abbett Distributor LLC ("Lord Abbett Distributor") at 90 Hudson Street, Jersey City, NJ 07302-3973. This SAI relates to, and should be read in conjunction with, the Prospectus for Class Y Shares of Lord Abbett Affiliated Fund, Inc. dated March 1, 2003. Shareholder account 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 888-522-2388. 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 10 4. Control Persons and Principal Holders of Securities 16 5. Investment Advisory and Other Services 17 6. Brokerage Allocations and Other Practices 18 7. Classes of Shares 20 8. Purchases, Redemptions, and Pricing 20 9. Taxation of the Fund 21 10. Underwriter 23 11. Performance 23 12. Financial Statements 24
1. FUND HISTORY Lord Abbett Affiliated Fund, Inc. 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 2,500,000,000 shares of authorized capital stock, $0.001 par value, consisting of five classes of shares: Class A, Class B, Class C, Class P, and Class Y. The Board of Directors will allocate these authorized shares of capital stock among the classes from time to time. Only the Fund's Class Y shares are offered in this SAI. 2. INVESTMENT POLICIES FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund is subject to the following fundamental investment restrictions that 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 in this Section will be determined at the time of the purchase or sale of the security. 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) make short sales of securities or maintain a short position except to the extent permitted by applicable law; (2) invest knowingly more than 15% of its net assets (at the time of investment) in illiquid securities, except for securities qualifying for resale under Rule 144A of the Securities Act of 1933, deemed to be liquid by the Board of Directors; (3) invest in the securities of other investment companies except as permitted by applicable law (the Fund may not, however, rely on Sections 12(d)(1)(F) and 12(d)(1)(G) of the Act); (4) 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); (5) 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; (6) 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); (7) invest in real estate limited partnership interests or interests in oil, gas or other mineral leases, or exploration or other development programs, except that the Fund may invest in securities issued by companies that engage in oil, gas or other mineral exploration or other development activities; (8) write, purchase or sell puts, calls, straddles, spreads or combinations thereof, except to the extent permitted in the Fund's prospectus and SAI, as they may be amended from time to time; (9) buy from or sell to any of the Fund's officers, directors, employees, or its investment adviser or any of the adviser's officers, partners or employees, any securities other than the Fund's shares; or (10) 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 fiscal years ended October 31, 2002 and 2001, the Fund's portfolio turnover rate was 59.88% and 77.18%, respectively. ADDITIONAL INFORMATION ON PORTFOLIO RISKS, INVESTMENTS AND TECHNIQUES. This section provides further information on certain types of investments and investment techniques that may be used by the Fund, including their associated risks. BORROWING MONEY. The Fund may borrow money for certain purposes as described above under "Fundamental Investment Restrictions." If the Fund borrows money and experiences a decline in its net asset value, the borrowing could increase its losses. 3 CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. Convertible securities are preferred stocks or debt obligations that are convertible into common stock. They generally offer lower interest or dividend yields than non-convertible securities of similar quality. Convertible securities have both equity and fixed income risk characteristics. Like all fixed income securities, the value of convertible securities is susceptible to the risk of market losses attributable to changes in interest rates. Generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. However, when the market price of the common stock underlying a convertible security approaches or exceeds the conversion price of the convertible security, the convertible security tends to reflect the market price of the underlying common stock. As the market price of the underlying common stock declines, the convertible security, like a fixed income security, tends to trade increasingly on a yield basis, and thus, may not decline in price to the same extent as the underlying common stock. The markets for convertible securities may be less liquid than markets for common stocks or bonds. DEBT SECURITIES. The Fund may invest in debt securities, such as bonds, debentures, government obligations, commercial paper and pass-through instruments. The value of debt securities may fluctuate based on changes in interest rates and the issuer's financial condition. When interest rates rise or the issuer's financial condition worsens or is perceived by the market to be at greater risk, the value of debt securities tends to decline. DEPOSITARY RECEIPTS. The Fund may invest in sponsored and unsponsored American Depositary Receipts ("ADRs") and similar depositary receipts. ADRs, typically issued by a financial institution (a "depositary"), evidence ownership interests in a security or a pool of securities issued by a foreign company and deposited with the depositary. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. Ownership of ADRs entails similar investment risks to direct ownership of foreign securities traded outside the U.S., including increased market liquidity, currency, political, information and other risks. Although the Fund may not invest more than 10% of its assets in foreign securities, ADRs are not subject to this limitation. FOREIGN CURRENCY TRANSACTIONS. The Fund may, but is not required to, engage in various types of foreign currency exchange transactions to seek to hedge against the risk of loss from changes in currency exchange rates. The Fund may employ a variety of investments and techniques, including spot and forward foreign exchange transactions, currency swaps, listed or OTC options on currencies, and currency futures and options on currency futures (collectively, "Foreign Exchange"). Currently, the Fund generally does not intend to hedge most currency risks. Forward foreign exchange transactions are OTC contracts to purchase or sell a specified amount of a specified currency or multinational currency unit at a price and future date set at the time of the contract. Spot foreign exchange transactions are similar but require current, rather than future, settlement. Currency futures are similar to forward foreign exchange transactions except that futures are standardized, exchange-traded contracts. Currency options are similar to options on securities, but in consideration for an option premium the writer of a currency option is obligated to sell (in the case of a call option) or purchase (in the case of a put option) a specified amount of a specified currency on or before the expiration date for a specified amount of another currency. The Fund may engage in transactions in options on currencies either on exchanges or OTC markets. The Fund will not speculate in Foreign Exchange. Accordingly, the Fund will not hedge a currency in excess of the aggregate market value of the securities that it owns (including receivables for unsettled securities sales), or has committed to or anticipates purchasing, which are denominated in such currency. The Fund may, however, hedge a currency by entering into a Foreign Exchange transaction in a currency other than the currency being hedged (a "cross-hedge"). The Fund will only enter into a cross-hedge if we believe that (i) there is a high correlation between the currency in which the cross-hedge is denominated and the currency being hedged, and (ii) executing a cross-hedge through the currency in which the cross-hedge is denominated will be more cost-effective or provide greater liquidity than executing a similar hedging transaction in the currency being hedged. Foreign Exchange transactions involve substantial risks. Although the Fund will use Foreign Exchange transactions to hedge against adverse currency movements, Foreign Exchange transactions involve the risk that anticipated currency movements will not be accurately predicted and that the Fund's hedging strategies will be ineffective. To the extent that the Fund hedges against anticipated currency movements which do not occur, the Fund may realize losses. Foreign Exchange transactions may subject the Fund to the risk that the counterparty will be unable to honor its financial obligation to the Fund, and the risk that relatively small market movements may result in large changes in the value of a 4 Foreign Exchange instrument. If the Fund cross-hedges, the Fund will face the risk that the Foreign Exchange instrument purchased will not correlate as expected with the position being hedged. FOREIGN SECURITIES. The Fund may invest up to 10% of its net assets in foreign securities that are primarily traded outside the United States. This limitation does not include ADRs. Foreign securities may involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers, including the following: - Foreign securities may be affected by changes in currency rates, changes in foreign or U.S. laws or restrictions applicable to foreign securities and changes in exchange control regulations (i.e., currency blockage). A decline in the exchange rate of the foreign currency in which a portfolio security is quoted or denominated relative to the U.S. dollar would reduce the value of the portfolio security in U.S. dollars. - Brokerage commissions, custodial services and other costs relating to investment in foreign securities markets generally are more expensive than in the U.S. - Clearance and settlement procedures may be different in foreign countries and, in certain markets, such procedures may be 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 comparable U.S. issuer. - There is generally less government regulation of foreign markets, companies and securities dealers than in the U.S. - 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 than securities of comparable domestic issuers. - Foreign securities may 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 that could affect investments in those countries. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Although the Fund has no current intention of doing so, the Fund may engage in futures and options on futures transactions in accordance with its investment objective and policies. Futures contracts are standardized contracts that provide for the sale or purchase of a specified financial instrument at a future time at a specified price. An option on a futures contract gives the purchaser the right (and the writer of the option the obligation) to assume a position in a futures contract at a specified exercise price within a specified period of time. In addition to incurring fees in connection with futures and options, an investor is required to maintain margin deposits. At the time of entering into a futures transaction or writing an option, an investor is required to deposit a specified amount of cash or eligible securities called "initial margin." Subsequent payments, called "variation margin," are made on a daily basis as the market price of the futures contract or option fluctuates. The Fund may purchase and sell futures contracts, and purchase and write call and put options on futures contracts for bona fide hedging purposes, including to hedge against changes in interest rates, securities prices, or to the extent the Fund invests in foreign securities, currency exchange rates, or in order to pursue risk management strategies, including gaining efficient exposure to markets and minimizing transaction costs. The Fund may also enter into closing purchase 5 and sale transactions with respect to such contracts and options. The Fund may not purchase or sell futures contracts, options on futures contracts or options on currencies traded on a CFTC-regulated exchange if the aggregate initial margin and premiums required to establish such positions would exceed 5% of the liquidation value of the Fund's portfolio, after taking into account unrealized profits and losses on any such contracts it has entered into. Futures contracts and options on futures contracts present substantial risks, including the following: - While the Fund may benefit from the use of futures and related options, unanticipated market events may result in poorer overall performance than if the Fund had not entered into any futures or related options transactions. - Because perfect correlation between a futures position and a portfolio position that the Fund intends to hedge is impossible to achieve, a hedge may not work as intended, and the Fund may thus be exposed to additional risk of loss. - The loss that the Fund may incur in entering into futures contracts and in writing call options on futures is potentially unlimited and may exceed the amount of the premium received. - Futures markets are highly volatile, and the use of futures may increase the volatility of the Fund's net asset value. - As a result of the low margin deposits normally required in futures and options on futures trading, a relatively small price movement in a contract may result in substantial losses to the Fund. - Futures contracts and related options may be illiquid, and exchanges may limit fluctuations in futures contract prices during a single day. - The counterparty to an OTC contract may fail to perform its obligations under the contract. STOCK INDEX FUTURES. Although the Fund has no current intention of doing so, it may seek to reduce the volatility in its portfolio through the use of stock index futures contracts. A stock index futures contract is an agreement pursuant to which two parties agree, one to receive and the other to pay, on a specified date an amount of cash equal to a specified dollar amount -- established by an exchange or board of trade -- times the difference between the value of the index at the close of the last trading day of the contract and the price at which the futures contract is originally written. The purchaser pays no consideration at the time the contract is entered into; the purchaser only pays the good faith deposit described below. The market value of a stock index futures contract is based primarily on the value of the underlying index. Changes in the value of the index will cause roughly corresponding changes in the market price of the futures contract. If a stock index is established that is made up of securities whose market characteristics closely parallel the market characteristics of the securities in the Fund's portfolio, then the market value of a futures contract on that index should fluctuate in a way closely resembling the market fluctuation of the portfolio. Thus, if the Fund sells futures contracts, a decline in the market value of the portfolio will be offset by an increase in the value of the short futures position to the extent of the hedge (i.e., the size of the futures position). Conversely, when the Fund has cash available (for example, through substantial sales of shares) and wishes to invest the cash in anticipation of a rising market, the Fund could rapidly hedge against the expected market increase by buying futures contracts to offset the cash position and thus cushion the adverse effect of attempting to buy individual securities in a rising market. Stock index futures contracts are subject to the same risks as other futures contracts discussed above under "Futures Contracts and Options on Futures Contracts." ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in illiquid securities that cannot be disposed of in seven days in the ordinary course of business at fair value. Illiquid securities include: - Domestic and foreign securities that are not readily marketable. - Repurchase agreements and time deposits with a notice or demand period of more than seven days. 6 - Certain restricted securities, unless Lord Abbett determines, subject to the oversight of the Board, based upon a review of the trading markets for a specific restricted security, that such restricted security is eligible for resale pursuant to Rule 144A under the Securities Act of 1933 ("144A Securities") and is liquid. 144A Securities may be resold to a qualified institutional buyer without registration and without regard to whether the seller originally purchased the security for investment. Investing in 144A Securities may decrease the liquidity of the Fund's portfolio to the extent that qualified institutional buyers become for a time uninterested in purchasing these securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market price of comparable securities for which a liquid market exists. INVESTMENT COMPANIES. The Fund may invest in securities of other investment companies subject to limitations prescribed by the Act, except that the Fund cannot rely on Sections 12(d)(1)(F) and (G). These limitations include a prohibition on the Fund acquiring more than 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of the Fund's total assets in securities of any one investment company or more than 10% of its total assets in securities of all investment companies. The Fund indirectly will bear its proportionate share of any management fees and other expenses paid by the investment companies in which it invests. Such investment companies will generally be money market funds or have investment objectives, policies and restrictions substantially similar to those of the Fund and will be subject to substantially the same risks. The Fund may, consistent with its investment policies, invest in investment companies established to accumulate and hold a portfolio of securities that is intended to track the price performance and dividend yield of a well-known securities index. The Fund may use such investment company securities for several reasons, including, but not limited to, facilitating the handling of cash flows or trading, or reducing transaction costs. The price movement of such securities may not perfectly parallel the price movement of the underlying index. An example of this type of security is the Standard & Poor's Depositary Receipt, commonly known as a "SPDR." LISTED OPTIONS ON SECURITIES. The Fund may purchase and write national securities exchange-listed put and call options on securities or securities indices. A "call option" is a contract sold for a price giving its holder the right to buy a specific amount of securities 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. The Fund may write covered call options that are traded on a national securities exchange with respect to securities in its portfolio in an attempt to increase income and to provide greater flexibility in the disposition of portfolio securities. During the period of the option, the Fund forgoes the opportunity to profit from any increase in the market price of the underlying security above the exercise price of the option (to the extent that the increase exceeds its net premium). The Fund may also enter into "closing purchase transactions" in order to terminate its obligation to deliver the underlying security. This may result in a short-term gain or loss. A closing purchase transaction is the purchase of a call option (at a cost which may be more or less than the premium received for writing the original call option) on the same security, with the same exercise price and call period as the option previously written. If the Fund is unable to enter into a closing purchase transaction, it may be required to hold a security that it might otherwise have sold to protect against depreciation. A "put option" gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying securities at the exercise price at any time during the option period. A put option sold by the Fund is covered when, among other things, the Fund segregates permissible liquid assets having a value equal to or greater than the exercise price of the option to fulfill the obligation undertaken. Writing listed put options may be a useful portfolio investment strategy when the Fund has cash or other reserves available for investment as a result of sales of Fund shares or when the investment manager believes a more defensive and less fully invested position is desirable in light of market conditions. The Fund will not purchase an option if, as a result of such purchase, more than 10% of its total assets would be invested in premiums for such options. The Fund may write covered put options to the extent that cover for such options does not exceed 15% of its net assets. The Fund may only sell (write) covered call options having an aggregate market value of less than 25% of its net assets. The purchase and writing of options is a highly specialized activity that involves special investment risks. The Fund may use options for hedging or cross-hedging purposes, or to seek to increase total return (which is considered a speculative activity). If the investment manager is incorrect in its expectation of changes in market prices or determination of the 7 correlation between the securities on which options are based and the Fund's portfolio securities, the Fund may incur losses. The use of options can also increase the Fund's transaction costs. PREFERRED STOCK, WARRANTS AND RIGHTS. The Fund may invest in preferred stock, warrants and rights. Preferred stocks are securities that represent an ownership interest providing the holder with claims on the issuer's earnings and assets before common stockholders, but after bond holders and other creditors. Unlike debt securities, the obligations of an issuer of preferred stock, including dividend and other payment obligations, may not typically be accelerated by the holders of such preferred stock on the occurrence of an event of default or other non-compliance by the issuer of the preferred stock. Investments in preferred stock present market and liquidity risks. The value of a preferred stock may be highly sensitive to the economic condition of the issuer, and markets for preferred stock may be less liquid than the market for the issuer's common stock. Warrants are options to buy a stated number of shares of common stock at a specified price at any time during the life of the warrant. Rights represent a privilege offered to holders of record of issued securities to subscribe (usually on a pro rata basis) for additional securities of the same class, of a different class or of a different issuer. The holders of warrants and rights have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer. The value of a warrant or right may not necessarily change with the value of the underlying securities. Warrants and rights cease to have value if they are not exercised prior to their expiration date. Investments in warrants and rights are thus speculative and may result in a total loss of the money invested. REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction by which the purchaser acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. The resale price reflects the purchase price plus an agreed-upon market rate of interest which is unrelated to the coupon rate or date of maturity of the purchased security. The Fund requires at all times that the repurchase agreement be collateralized by cash or U.S. Government securities having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). Such agreements permit the Fund to keep all of its assets at work while retaining flexibility in pursuit of investments of a longer term nature. The use of repurchase agreements involves certain risks. For example, if the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the value of these securities has declined, the Fund may incur a loss upon disposition of them. Even though the repurchase agreements may have maturities of seven days or less, they may lack liquidity, especially if the issuer encounters financial difficulties. The Fund intends to limit repurchase agreements to transactions with dealers and financial institutions believed by Lord Abbett, as the investment manager, to present minimal credit risks. Lord Abbett will monitor the creditworthiness of the repurchase agreement sellers on an ongoing basis. REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase agreements. In a reverse repurchase agreement, the Fund sells a security to a securities dealer or bank for cash and also agrees to repurchase the same security later at a set price. Reverse repurchase agreements expose the Fund to credit risk (that is, the risk that the counterparty will fail to resell the security to the Fund). This risk is greatly reduced because the Fund receives cash equal to 100% of the price of the security sold. Engaging in reverse repurchase agreements may also involve the use of leverage, in that the Fund may reinvest the cash it receives in additional securities. The Fund will attempt to minimize this risk by managing its duration. The Fund's reverse repurchase agreements will not exceed 20% of its net assets. SECURITIES LENDING. The Fund may lend portfolio securities to registered broker-dealers. These loans may not exceed 30% of the Fund's total assets. Securities loans will be collateralized by cash or marketable securities issued or guaranteed by the U.S. Government or its agencies ("U.S. Government securities") or other permissible means at least equal to 102% of the market value of the loaned securities. The Fund may pay a part of the interest received with respect to the investment of collateral to a borrower and/or a third party that is not affiliated with the Fund and is acting as a "placing broker." No fee will be paid to persons affiliated with the Fund. By lending portfolio securities, the Fund can increase income by continuing to receive interest or dividends on the loaned securities as well as by either investing the cash collateral in permissible investments, such as U.S. Government securities, or obtaining yield in the form of interest paid by the borrower when U.S. Government securities or other forms 8 of non-cash collateral are received. Lending portfolio securities could result in a loss or delay in recovering the Fund's securities if the borrower defaults. SHORT SALES. The Fund may make short sales of securities or maintain a short position, if at all times when a short position is open the Fund owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for an equal amount of the securities of the same issuer as the securities sold short. The Fund does not intend to have more than 5% of its net assets (determined at the time of the short sale) subject to short sales. TEMPORARY DEFENSIVE INVESTMENTS. As described in the Prospectus, the Fund is authorized to invest temporarily a substantial amount, or even all, of its assets in various short-term fixed-income securities to take a defensive position. These securities include: - Obligations of the U.S. Government and its agencies and instrumentalities. U.S. Government obligations are debt securities issued or guaranteed as to principal or interest by the U.S. Treasury. These securities include Treasury bills, notes and bonds. - Commercial paper. Commercial paper consists of unsecured promissory notes issued by corporations to finance short-term credit needs. Commercial paper is issued in bearer form with maturities generally not exceeding nine months. Commercial paper obligations may include variable amount master demand notes. - Bank certificates of deposit and time deposits. Certificates of deposit are certificates issued against funds deposited in a bank or a savings and loan. They are issued for a definite period of time and earn a specified rate of return. - Bankers' acceptances. Bankers' acceptances are short-term credit instruments evidencing the obligation of a bank to pay a draft that has been drawn on it by a customer. These instruments reflect the obligations both of the bank and of the drawer to pay the face amount of the instrument upon maturity. They are primarily used to finance the import, export, transfer or storage of goods. They are "accepted" when a bank guarantees their payment at maturity. - Repurchase agreements. Repurchase agreements are arrangements involving the purchase of an obligation by the Fund and the simultaneous agreement to resell the same obligation on demand or at a specified future date and at an agreed-upon price. WHEN-ISSUED OR FORWARD TRANSACTIONS. The Fund may purchase portfolio securities on a when-issued or forward basis. When-issued or forward transactions involve a commitment by the Fund to purchase securities, with payment and delivery ("settlement") to take place in the future, in order to secure what is considered to be an advantageous price or yield at the time of entering into the transaction. The value of fixed-income securities to be delivered in the future will fluctuate as interest rates vary. During the period between purchase and settlement, the value of the securities will fluctuate and assets consisting of cash and/or marketable securities (normally short-term U.S. government securities) marked to market daily in an amount sufficient to make payment at settlement will be segregated at our custodian in order to pay for the commitment. There is a risk that market yields available at settlement may be higher than yields obtained on the purchase date that could result in depreciation of the value of fixed-income when-issued securities. At the time the Fund makes the commitment to purchase a security on a when-issued basis, it will record the transaction and reflect the liability for the purchase and the value of the security in determining its net asset value. The Fund, generally, has the ability to close out a purchase obligation on or before the settlement date rather than take delivery of the security. Under no circumstances will settlement for such securities take place more than 120 days after the purchase date. 9 3. MANAGEMENT OF THE FUND The Board of Directors is responsible for the management of the business and affairs of the Fund in accordance with the laws of the State of Maryland. The Board appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies authorized by the Board. As discussed fully below, the Board also approves an investment adviser to the Fund and continues to monitor the cost and quality of the services provided by the investment adviser, and annually considers whether to renew the contract with the adviser. The following Director is the Managing Partner of Lord, Abbett & Co. LLC ("Lord Abbett") and is an "interested person" as defined in the Act. Mr. Dow is also an officer, director, or trustee of the fourteen Lord Abbett-sponsored funds, which consist of 42 portfolios or series.
CURRENT POSITION NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION DATE OF BIRTH WITH FUND DURING PAST FIVE YEARS OTHER DIRECTORSHIPS - ------------- --------- ---------------------- ------------------- ROBERT S. DOW Director since 1995 Managing Partner and Chief N/A Lord, Abbett & Co. LLC and Chairman since Investment Officer of Lord Abbett 90 Hudson Street 1996 since 1996. Jersey City, NJ Date of Birth: 3/8/1945
----------------------------------- The following outside Directors are also directors or trustees of each of the fourteen Lord Abbett-sponsored funds.
CURRENT POSITION NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION DATE OF BIRTH WITH FUND DURING PAST FIVE YEARS OTHER DIRECTORSHIPS - ------------- --------- ---------------------- ------------------- E. THAYER BIGELOW Director since 1994 Managing General Partner, Bigelow Currently serves as Bigelow Media, LLC Media, LLC (since 2000); Senior director of Crane Co. and 909 Third Ave., 5th Floor Adviser, Time Warner Inc. (1998 - Huttig Building Products New York, NY 2000); Acting Chief Executive Inc. Date of Birth: 10/22/1941 Officer of Courtroom Television Network (1997 - 1998); President and Chief Executive Officer of Time Warner Cable Programming, Inc. (1991 - 1997). WILLIAM H.T. BUSH Director since 1998 Co-founder and Chairman of the Currently serves as Bush-O'Donnell & Co., Inc. Board of the financial advisory director of Wellpoint 101 South Hanley Road firm of Bush-O'Donnell & Company Health Network, Inc., DT Suite 1025 (since 1986). Industries Inc., and St. Louis, MO Engineered Support Date of Birth: 7/14/1938 Systems, Inc. ROBERT B. CALHOUN, JR. Director since 1998 Managing Director of Monitor Currently serves as Monitor Clipper Partners Clipper Partners (since 1997) and director of Avondale, Two Canal Park President of Clipper Asset Inc., Avondale Mills, Cambridge, MA Management Corp. (since 1991), both Inc., IGI/Earth Color, Date of Birth: 10/25/1942 private equity investment funds. Inc., Integrated Graphics, Inc., and Interstate Bakeries Corp.
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CURRENT POSITION NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION DATE OF BIRTH WITH FUND DURING PAST FIVE YEARS OTHER DIRECTORSHIPS - ------------- --------- ---------------------- ------------------- FRANKLIN W. HOBBS Director since 2000 Chief Executive Officer of Houlihan Currently serves as Houlihan Lokey Howard & Zukin Lokey Howard & Zukin, an investment director of Adolph Coors 685 Third Ave. bank (January 2002 to present); Company. New York, NY Chairman of Warburg Dillon Read Date of Birth: 7/30/1947 (1999 - 2000); Global Head of Corporate Finance of SBC Warburg Dillon Read (1997 - 1999); Chief Executive Officer of Dillon, Read & Co. (1994 - 1997). C. ALAN MACDONALD Director since 1988 Retired - General Business and Currently serves as 415 Round Hill Road Governance Consulting (since 1992); director of Fountainhead Greenwich, CT formerly President and CEO of Water Company, Careside, Date of Birth: 5/19/1933 Nestle Foods. Inc., Lincoln Snacks, J.B. Williams Co., Inc. (personal care products) and Seix Fund, Inc.* THOMAS J. NEFF Director since 1982 Chairman of Spencer Stuart, an Currently serves as Spencer Stuart executive search consulting firm director of Ace, Ltd. and 277 Park Avenue (since 1996); President of Spencer Exult, Inc. New York, NY Stuart (1979-1996). Date of Birth: 10/2/1937 JAMES F. ORR, III Director since 2002 President and CEO of LandingPoint Currently serves as 80 Pinckney Street Capital (since 2002); Chairman and Chairman of Rockefeller Boston, MA CEO of United Asset Management Foundation, Director of Date of Birth: 3/5/1943 Corporation (2000 to 2001); Nashua Corp. and Chairman and CEO of SteelPoint Technologies. UNUM Provident Corporation (1999 - merger); Chairman and CEO of UNUM Corporation (1988 - 1999).
- ------------ *Seix Fund, Inc. is a registered investment company that is advised by Seix Investment Advisors Inc. Seix Investment Advisors Inc.'s Chairman, CEO, and Chief Investment Officer is married to Robert Dow, the Fund's Chairman, CEO, and President and the Managing Partner of Lord Abbett. -------------------------------- 11 None of the officers listed below have received compensation from the Fund. All the officers of the Fund may also be officers of the other Lord Abbett-sponsored funds and maintain offices at 90 Hudson Street, Jersey City, New Jersey 07302.
NAME AND CURRENT POSITION LENGTH OF SERVICE PRINCIPAL OCCUPATION (DATE OF BIRTH) WITH FUND OF CURRENT POSITION DURING PAST FIVE YEARS - --------------- --------- ------------------- ---------------------- ROBERT S. DOW Chief Executive Elected in 1996 Managing Partner and Chief Investment (3/8/1945) Officer and Officer of Lord Abbett since 1996. President SHOLOM DINSKY Executive Vice Elected in 2001 Partner and Large Cap Value Investment (3/24/1944) President Manager, joined Lord Abbett in 2000, formerly Managing Director of Prudential Asset Management, prior thereto Director of Equity Research and Senior Vice President at Mitchell Hutchins Asset Management. KENNETH G. FULLER Executive Vice Elected in 2002 Investment Manager - Large Cap Value, joined (4/22/1945) President Lord Abbett in 2002, formerly Portfolio Manager and Senior Vice President at Pioneer Investment Management, Inc. from 1999 to 2002; prior thereto Principal, Manley, Fuller Asset Management. W. THOMAS HUDSON, JR. Executive Vice Elected in 1997 Partner and Investment Manager, joined Lord (12/16/1941) President Abbett in 1982. ROBERT G. MORRIS Executive Vice Elected in 1995 Partner and Director of Equity Investments, (11/6/1944) President joined Lord Abbett in 1991. ELI M. SALZMANN Executive Vice Elected in 2000 Partner and Director of Institutional Equity (3/24/1964) President Investments, joined Lord Abbett in 1997. TRACIE E. AHERN Vice President and Elected in 1999 Partner and Director of Portfolio Accounting (1/12/1968) Treasurer and Operations, joined Lord Abbett in 1999, formerly Vice President - Head of Fund Administration of Morgan Grenfell from 1998 to 1999, prior thereto Vice President of Bankers Trust. JOAN A. BINSTOCK Chief Financial Elected in 1999 Partner and Chief Operations Officer, joined (3/4/1954) Officer and Vice Lord Abbett in 1999, prior thereto Chief President Operating Officer of Morgan Grenfell. DANIEL E. CARPER Vice President Elected in 1993 Partner, joined Lord Abbett in 1979. (1/22/1952) PAUL A. HILSTAD Vice President and Elected in 1995 Partner and General Counsel, joined Lord (12/13/1942) Secretary Abbett in 1995.
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NAME AND CURRENT POSITION LENGTH OF SERVICE PRINCIPAL OCCUPATION (DATE OF BIRTH) WITH FUND OF CURRENT POSITION DURING PAST FIVE YEARS - --------------- --------- ------------------- ---------------------- LAWRENCE H. KAPLAN Vice President and Elected in 1997 Partner and Deputy General Counsel, joined (1/16/1957) Assistant Secretary Lord Abbett in 1997. A. EDWARD OBERHAUS, III Vice President Elected in 1996 Partner and Manager of Equity Trading, (12/21/1959) joined Lord Abbett in 1983. CHRISTINA T. SIMMONS Vice President and Elected in 2000 Assistant General Counsel, joined Lord (11/12/1957) Assistant Secretary Abbett in 1999, formerly Assistant General Counsel of Prudential Investments from 1998 to 1999, prior thereto Counsel of Drinker, Biddle & Reath LLP, a law firm. FRANCIE W. TAI Assistant Treasurer Elected in 2000 Director of Fund Administration, joined Lord (6/11/1965) Abbett in 2000, prior thereto Manager of Goldman Sachs.
-------------------------------- COMMITTEES The standing committees of the Board of Directors are the Audit Committee, the Proxy Committee, and the Nominating and Governance Committee. The Audit Committee is composed of Directors who are not "interested persons" of the Fund. The members of the Audit Committee are Messrs. Bigelow, Calhoun, Hobbs, and Orr. The Audit Committee provides assistance to the Board of Directors in fulfilling its responsibilities relating to accounting matters, the reporting practices of the Fund, and the quality and integrity of the Fund's financial reports. Among other things, the Audit Committee is responsible for reviewing and evaluating the performance and independence of the Fund's independent auditors and considering violations of the Fund's Code of Ethics to determine what action should be taken. The Audit Committee meets quarterly and during the past fiscal year met four times. The Proxy Committee is composed of at least two Directors who are not "interested persons" of the Fund, and also may include one or more Directors who are Partners or employees of Lord Abbett. The current members of the Proxy Committee are three independent Directors: Messrs. Bush, Neff, and MacDonald. The Proxy Committee assists the Board of Directors in fulfilling its responsibilities relating to the voting of securities held by the Fund. During the past fiscal year, the Proxy Committee met once. The Nominating and Governance Committee is composed of all the Directors who are not "interested persons" of the Fund. Among other things, the Nominating and Governance Committee is responsible for (i) evaluating and nominating individuals to serve as independent Directors and as committee members; and (ii) periodically reviewing director/trustee compensation. During the past fiscal year, the Nominating and Governance Committee MET six times. --------------------------------- APPROVAL OF ADVISORY CONTRACT At a meeting on December 12, 2002, the Board of Directors of the Company, including all its Directors who are not interested persons of the Company (the "Board"), considered whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett. In addition to the materials the Board had reviewed throughout the course of the year, the Board received materials relating to the management agreement before the meeting and had the opportunity to ask questions and request further information in connection with their consideration. INFORMATION RECEIVED BY THE BOARD. The materials received by the Board included, but were not limited to, (1) information on the investment performance of the Fund and a peer group of funds for preceding twelve months and for 13 other periods, (2) information on the effective management fee rates and expense ratios for funds with the same objectives and similar size, (3) sales and redemption information for the Fund, (4) information regarding Lord Abbett's financial condition, (5) an analysis of the relative profitability of the management agreement to Lord Abbett, (6) information regarding the distribution arrangements of the Fund, (7) information regarding the personnel, information technology, and other resources devoted by Lord Abbett to managing the Fund. In considering whether to approve the continuation of the management agreement, the Board did not identify any single factor as paramount or controlling. This summary does not discuss in detail all matters considered. Matters considered by the Board in connection with its approval of the continuation of the management agreement included, but were not limited to, the following: INVESTMENT MANAGEMENT SERVICES GENERALLY. The Board considered the investment management services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading. INVESTMENT PERFORMANCE AND COMPLIANCE. The Board reviewed the Fund's investment performance as well as the performance of the peer group of funds, both in terms of total return and in terms of other statistical measures for the preceding twelve months and for other periods. The Board also considered whether the Fund had operated within its investment restrictions. LORD ABBETT'S PERSONNEL AND METHODS. The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of the Fund's investment objective and discipline. Among other things, they considered the size, education, and experience of Lord Abbett's investment management staff, its use of technology, and Lord Abbett's approach to recruiting, training, and retaining investment management personnel. NATURE AND QUALITY OF OTHER SERVICES. The Board considered the nature, quality, costs, and extent of administrative and other services performed by Lord Abbett and Lord Abbett Distributor and the nature and extent of Lord Abbett's supervision of third party service providers, including the Fund's transfer agent, custodian, and subcustodians. EXPENSES. The Board considered the expense ratios of each class and the expense ratios of a peer group of funds. They also considered the amount and nature of fees paid by shareholders. PROFITABILITY. The Board considered the level of Lord Abbett's profits in managing the Fund, including a review of Lord Abbett's methodology for allocating its costs to its management of the Fund. The Board concluded that the allocation methodology had a reasonable basis and was appropriate. They considered the profits realized by Lord Abbett in connection with the operation of the Fund and whether the amount of profit is fair for the management of the Fund. They also considered the profits realized from other businesses of Lord Abbett, which may benefit from or be related to the Fund's business. The Board also considered Lord Abbett's profit margins in comparison with available industry data, both accounting for and ignoring marketing and distribution expenses, and how those profit margins could affect Lord Abbett's ability to recruit and retain investment personnel. ECONOMIES OF SCALE. The Board considered whether there have been any economies of scale in managing the Fund, whether the Fund has appropriately benefited from any such economies of scale, and whether there is potential for realization of any further economies of scale. OTHER BENEFITS TO LORD ABBETT. The Board considered the character and amount of fees paid by the Fund and the Fund's shareholders to Lord Abbett and Lord Abbett Distributor for services other than investment management, the allocation of Fund brokerage, and the receipt of research by Lord Abbett in return for fund brokerage. The Board also considered the revenues and profitability of Lord Abbett's investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. ALTERNATIVE ARRANGEMENTS. The Board considered whether, instead of approving continuation of the management agreement, employing one or more alternative arrangements might be in the best interests of the Fund, such as continuing to employ Lord Abbett, but on different terms. After considering all of the relevant factors, the Board unanimously voted to approve continuation of the existing 14 management agreement. COMPENSATION DISCLOSURE The following table summarizes the compensation for each of the directors/trustees of 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 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. No director/trustee of the funds who is also associated with Lord Abbett, and no officer of the funds, received any compensation from the funds for acting as a director/trustee or officer.
(1) (2) (3) FOR YEAR ENDED FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 OCTOBER 31, 2002 TOTAL COMPENSATION AGGREGATE COMPENSATION PAID BY THE FUND AND ACCRUED BY THIRTEEN OTHER LORD NAME OF DIRECTOR THE FUND(1) ABBETT-SPONSORED FUNDS(2) - ---------------- ----------------- ------------------------- E. Thayer Bigelow $38,475 $85,000 William H.T. Bush $38,663 $85,200 Robert B. Calhoun, Jr. $38,985 $86,400 Stewart S. Dixon* $38,126 $84,000 Franklin W. Hobbs $38,360 $85,000 C. Alan MacDonald $38,475 $85,000 Thomas J. Neff $38,015 $84,000 James F. Orr, III** $11,428 $70,500
- --------------------------------- *Retired December 31, 2002. **Elected effective July 18, 2002. 1. Outside Directors' fees, including attendance fees for board and committee meetings, are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. A portion of the fees payable by the Fund to its outside Directors may be deferred at the option of a Director under an equity-based plan (the "equity-based plan") that deems the deferred amounts to be invested in shares of the funds for later distribution to the Directors. In addition, $25,000 of each Director's retainer must be deferred and is deemed invested in shares of the Fund and other Lord Abbett-sponsored funds under the equity-based plan. 2. The third column shows aggregate compensation, including the types of compensation described in the second column, accrued by all Lord Abbett-sponsored funds during the year ended December 31, 2002, including fees directors/trustees have chosen to defer. --------------------------------- 15 The following chart provides certain information on the dollar range of equity securities beneficially owned by each Director in the Fund and other Lord Abbett-sponsored funds as of December 31, 2002. The amounts shown include deferred compensation to the Directors deemed invested in Fund shares. The amounts ultimately received by the Directors under the deferred compensation plan will be directly linked to the investment performance of the Funds.
AGGREGATE DOLLAR RANGE OF DOLLAR RANGE OF EQUITY EQUITY SECURITIES IN NAME OF DIRECTOR SECURITIES IN THE FUND LORD ABBETT-SPONSORED FUNDS - ---------------- ---------------------- --------------------------- Robert S. Dow Over $100,000 Over $100,000 E. Thayer Bigelow Over $100,000 Over $100,000 William H. T. Bush $10,001-$50,000 $50,001-$100,000 Robert B. Calhoun, Jr. Over $100,000 Over $100,000 Stewart S. Dixon* Over $100,000 Over $100,000 Franklin W. Hobbs $50,001-$100,000 Over $100,000 C. Alan MacDonald Over $100,000 Over $100,000 Thomas J. Neff Over $100,000 Over $100,000 James F. Orr, III** $10,001-$50,000 Over $100,000
- ----------------------------- * Retired December 31, 2002. **Elected effective July 18, 2002. 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 which complies, in substance, with Rule 17j-1 of the Act and each of the recommendations of the Investment Company Institute's Advisory Group on Personal Investing. Among other things, the Code of Ethics requires, with limited exceptions, 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 seven days before or after any Lord Abbett-sponsored fund or Lord Abbett-managed account considers a trade or trades in such security, prohibiting profiting on trades of the same security within 60 days and trading on material and non-public information. The Code of Ethics 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 18, 2003, the Fund's officers and Directors, as a group, owned less than 1% of the Fund's outstanding shares. As of February 18, 2003, to the best of our knowledge, other than Lord Abbett Distributor and other institutional broker-dealers for the benefit of their clients, the following shareholders owned more than 5% of the Fund's outstanding Class Y shares: Lord Abbett Balanced Series 37.62% 90 Hudson Street Jersey City, NJ Wilmington Trust Comp 11.36% FBO PWC LLP EMP RBAP PO Box 8971 Wilmington, DE
16 Wilmington Trust Comp 18.07% FBO PWC LLP EMP & PART SVGS PO Box 8971 Wilmington, DE Putnam Fiduciary Trust Comp 6.32% Illinois Tool Works SP Putnam Investments One Investors Way MS N 4 E Norwood, MA BNY Clearing Services LLC 16.40% Wendel & CO 111 E Kilbourn Ave. Milwaukee, WI
Shareholders owning 25% or more of outstanding shares may be in control and be able to affect the outcome of certain matters presented for a vote of shareholders. 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 Partners of Lord Abbett, the following are officers and/or directors of the Fund: Tracie E. Ahern, Joan A. Binstock, Daniel E. Carper, Sholom Dinsky, Robert S. Dow, Paul A. Hilstad, W. Thomas Hudson, Jr., Lawrence H. Kaplan, Robert G. Morris, A. Edward Oberhaus, III, and Eli M. Salzmann. The other Partners are: Michael Brooks, Zane E. Brown, Patrick Browne, John J. DiChiaro, Lesley-Jane Dixon, John E. Erard, Kevin P. Ferguson, Robert P. Fetch, Daria L. Foster, Daniel H. Frascarelli, Robert I. Gerber, Michael S. Goldstein, Michael A. Grant, Howard E. Hansen, Charles Hofer, Cinda Hughes, Ellen G. Itskovitz, Robert A. Lee, Maren Lindstrom, Gregory M. Macosko, Thomas Malone, Charles Massare, Jr., Stephen J. McGruder, Paul McNamara, Robert J. Noelke, R. Mark Pennington, Walter Prahl, Michael Rose, Douglas B. Sieg, Richard Sieling, Michael T. Smith, Richard Smola, Diane Tornejal, Christopher J. Towle, Edward K. von der Linde and Marion Zapolin. The address of each Partner is 90 Hudson Street, Jersey City, New Jersey 07302-3973. Under the Management Agreement, the Fund pays Lord Abbett a monthly fee, based on average daily net assets for each month. The annual rate for the Fund is 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 the separate classes based on the classes' proportionate shares of such average daily net assets. The Fund pays all expenses attributable to its operations 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 registering its shares under federal and state securities laws, expenses of preparing, printing and mailing prospectuses and shareholder reports to existing shareholders, fund accounting expenses, insurance premiums, and other expenses connected with executing portfolio transactions. For the fiscal years ended October 31, 2002, 2001, and 2000, the management fees paid to Lord Abbett by the Fund 17 amounted to $36,805,615, $35,993,672, and $32,372,356, respectively. ADMINISTRATIVE SERVICES Effective January 1, 2003, Lord Abbett and the Fund entered into an Administrative Services Agreement under which Lord Abbett will provide certain administrative services not involving the provision of investment advice to the Fund. Pursuant to the Agreement, the Fund will pay Lord Abbett a monthly fee, based on average daily net assets for each month, at an annual rate of .04%. This will be allocated among the classes of shares of the Fund based on average daily net assets. This will result in Lord Abbett paying fund accounting expenses that were previously charged to the Fund. PRINCIPAL UNDERWRITER Lord Abbett Distributor LLC, a New York limited liability company and a subsidiary of Lord Abbett, 90 Hudson Street, Jersey City, New Jersey 07302-3973, serves as the principal underwriter for the Fund. CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company, 801 Pennsylvania Avenue, Kansas City, Missouri is the Fund's custodian. The custodian pays for and collects proceeds of securities bought and sold by the Fund and attends to the collection of principal and income. The custodian 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 Board has approved arrangements permitting the Fund's foreign assets not held by the custodian or its foreign branches to be held by certain qualified foreign banks and depositaries. In addition, State Street Bank and Trust Company performs certain accounting and record keeping functions relating to portfolio transactions and calculates the Fund's net asset value. 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 to continue in such capacity. Deloitte & Touche LLP performs 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 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 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. Our policy with respect to best execution governs the selection of brokers or dealers and the market in which the transaction is executed. To the extent permitted by law, the Fund, if considered advantageous, may 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 also do the trading for other accounts -- investment companies and other investment clients -- managed by Lord Abbett. They are responsible for obtaining best execution. In transactions on stock exchanges in the United States, commissions are negotiated, whereas on many foreign stock exchanges commissions are fixed. In the case of securities traded in the foreign and domestic over-the-counter markets, there is generally no stated commission, but the price usually includes an undisclosed commission or markup. Purchases from underwriters of newly-issued securities for inclusion in the Fund's portfolio usually will include a concession paid to 18 the underwriter by the issuer, and purchases from dealers serving as market makers will include the spread between the bid and asked prices. We pay a commission rate that we believe is appropriate to give maximum assurance that our brokers will provide us, on a continuing basis, the highest level of brokerage services available. While we do not always seek the lowest possible commissions on particular trades, we believe that our commission rates are in line with the rates that many other institutions pay. Our traders are authorized to pay brokerage commissions in excess of those that other brokers might accept on the same transactions in recognition of the value of the services performed by the executing brokers, viewed in terms of either the particular transaction or the overall responsibilities of Lord Abbett, with respect to us and the other accounts they manage. Such services include showing us trading opportunities including blocks, a willingness and ability to take positions in securities, knowledge of a particular security or market-proven ability to handle a particular type of trade, confidential treatment, promptness and reliability. Some of these brokers also provide research services, at least some of which are useful to Lord Abbett in their overall responsibilities with respect to us and the other accounts they manage. Research includes the furnishing of analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts and trading equipment and computer software packages, acquired from third-party suppliers, that enable Lord Abbett to access various information bases. Such services may be used by Lord Abbett in servicing all their accounts, and not all of such services will necessarily be used by Lord Abbett in connection with their management of the Fund. Conversely, such services furnished in connection with brokerage on other accounts managed by Lord Abbett may be used in connection with their management of the Fund, and not all of such services will necessarily be used by Lord Abbett in connection with their advisory services to such other accounts. We have been advised by Lord Abbett that research services received 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 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, 2002, 2001, and 2000, the Fund paid total commissions to independent dealers of $27,249,265, $26,213,126, and $13,129,004, respectively. 19 7. CLASSES OF SHARES The Fund offers investors five different classes of shares; only Class Y shares are offered in this SAI. 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 classes of 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, series, or funds may be added in the future. The Act requires that where more than one class, series, or fund exists, each class, series, or fund must be preferred over all other classes, series, or funds in respect of assets specifically allocated to such class, series, 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 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, series, or fund in the matter is substantially identical or the matter does not affect any interest of such class, series, or fund. However, the Rule exempts the selection of independent auditors, the approval of a contract with a principal underwriter and the election of directors from its separate voting requirements. The Fund's By-Laws provide that the Fund shall not hold a meeting of its shareholders in any year unless one or more matters are required to be acted on by shareholders under the Act, or unless called by a majority of the Board or by shareholders 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 shareholders will elect directors and vote on the approval of the independent auditors of the Fund. 8. PURCHASES, REDEMPTIONS, AND PRICING Information concerning how we value our shares is contained in the Prospectus under "Purchases" and "Redemptions," respectively. Under normal circumstances we calculate the Fund's net asset value as of the close of the New York Stock Exchange ("NYSE") on each day that the NYSE is open for trading by dividing our total net assets by the number of shares outstanding at the time of calculation. The NYSE is closed on Saturdays and Sundays and the following holidays -- New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. 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 or foreign securities exchange, or on the NASDAQ National Market System are valued at the last sales price, or, if there is no sale on that day, at the mean between the last bid and asked prices, or, in the case of bonds, in the over-the-counter market if, in the judgment of the Fund's officers, that market more accurately reflects the market value of the bonds. Over-the-counter securities not traded on the NASDAQ National Market System are valued at the mean between the last bid and asked prices. Securities for which market quotations are not available are valued at fair market value under procedures approved by the Board. All assets and liabilities expressed in foreign currencies will be converted into United States dollars at the exchange rates of such currencies against United States dollars provided by Reuters at the close of regular trading on the NYSE. If such exchange rates are not available, the rate of exchange will be determined in accordance with policies established by the Board. 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. 20 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 fund currently offering Class Y shares to the public. 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. 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 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. PURCHASES THROUGH FINANCIAL INTERMEDIARIES. The Fund and/or Lord Abbett Distributor has authorized one or more agents to receive on its behalf purchase and redemption orders. Such agents are authorized to designate other intermediaries to receive purchase and redemption orders on behalf of the Fund or Lord Abbett Distributor. The Fund will be deemed to have received a purchase or redemption order when an authorized agent or, if applicable, an agent's authorized designee, receives the order. A Financial Intermediary may charge transaction fees on the purchase and/or sale of Fund shares. REDEMPTIONS IN KIND. Under circumstances in which it is deemed detrimental to the best interests of the Fund's shareholders to make redemption payments wholly in cash, the Fund may pay, in accordance with rules adopted by the SEC, any portion of a redemption in excess of the lesser of $250,000 or 1% of the Fund's net assets by a distribution in kind of readily marketable securities in lieu of cash. The Fund presently has no intention to make redemptions in kind under normal circumstances, unless specifically requested by a shareholder. 9. TAXATION OF THE FUND The Fund intends to elect and to qualify for the special tax treatment afforded regulated investment companies under the Internal Revenue Code of 1986 (the "Code"). If it qualifies as a regulated investment company, the Fund will not be liable for U.S. federal income taxes on income and capital gains that the Fund timely distributes to its 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. Assuming the Fund does qualify as a regulated investment company, it will be subject to a 4% non-deductible excise tax on certain amounts that are not distributed or treated as having been distributed on a timely basis each calendar year. The Fund intends to distribute to its shareholders each year an amount adequate to avoid the imposition of this excise tax. The Fund intends to declare and pay as dividends each year substantially all of its net investment income. Dividends paid by the Fund from its ordinary income or net realized short-term capital gains are taxable to you as ordinary income. Dividends paid by the Fund from its net realized long-term capital gains are taxable to you as long-term capital gains, regardless of the length of time you have owned Fund shares. All dividends are taxable to you regardless of whether they are received in cash or reinvested in Fund shares. Dividends paid by the Fund to corporate shareholders will qualify for the dividends received deduction to the extent they are derived from dividends paid to the Fund by domestic corporations. If you are a corporation, you must have held your Fund shares for more than 45 days to qualify for the dividends received deduction. The dividends received deduction 21 may be limited if you incur indebtedness to acquire Fund shares. Distributions paid by the Fund that do not constitute dividends because they exceed the Fund's current and accumulated earnings and profits will be treated as a return of capital and reduce the tax basis of your Fund shares. To the extent that such distributions exceed the tax basis of your Fund shares, the excess amounts will be treated as gains from the sale of the shares. Ordinarily, you are required to take distributions by the Fund into account in the year in which they are made. A distribution declared in October, November, or December of any year and payable to shareholders of record on a specified date in those months, however, is deemed paid by the Fund and received by you on December 31 of that calendar year if the distribution is paid by the Fund in January of the following year. The Fund will send you annual information concerning the tax treatment of dividends and other distributions paid to you by the Fund. Upon your sale, exchange, or redemption of Fund shares, you will recognize short- or long-term capital gain or loss, depending upon whether your holding period of the Fund shares exceeds one year. However, if your holding period in your Fund shares is six months or less, any capital loss realized from a sale, exchange, or redemption of such shares must be treated as long-term capital loss to the extent of dividends classified as "capital gain dividends" received with respect to such shares. Losses on the sale of Fund 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, you acquire shares that are substantially identical. The maximum tax rates applicable to net capital gains recognized by individuals and other non-corporate taxpayers are currently (i) the same as ordinary income tax rates for capital assets held for one year or less and (ii) 20% (10% for taxpayers in the 10% or 15% tax brackets) for capital assets held for more than one year. Reduced capital gains rates will apply to gains on the sale of (1) Fund shares held more than 5 years to the extent the capital gains would otherwise be taxed at the 10% capital gains rate; and (2) Fund shares acquired on or after January 1, 2001, and held for more than 5 years. Capital gains or losses recognized by corporate shareholders are subject to tax at the ordinary income tax rates applicable to corporations. Certain investment practices that the Fund may utilize, such as investing in futures, foreign currency, or foreign entities classified as "passive foreign investment companies" for U.S. tax purposes, may affect the character and timing of the recognition of gains and losses by the Fund. Such transactions may in turn affect the amount and character of Fund distributions to you. The Fund may in some cases be subject to foreign withholding taxes, which would reduce the yield on its investments. It is generally expected that you will not be entitled to claim a federal income tax credit or deduction for foreign income taxes paid by the Fund. You may be subject to a 30% withholding tax on reportable dividends, capital gain distributions, and redemption payments ("backup withholding"). The withholding tax is reduced to 29% for dividends, distributions, and payments that are received for tax purposes after December 31, 2003, and before January 1, 2006. Generally, you will be subject to backup withholding if the Fund does not have your certified taxpayer identification number on file, or, to the Fund's knowledge, you have furnished an incorrect number. When establishing an account, you must certify under penalties of perjury that your taxpayer identification number is correct and that you are not otherwise subject to backup withholding. The tax rules of the various states of the United States and their local jurisdictions with respect to distributions from the Fund can differ from the U.S. federal income tax rules described above. Many states allow you to exclude from your state taxable income the percentage of dividends derived from certain federal obligations, including interest on some federal agency obligations. Certain states, however, may require that a specific percentage of the Fund's income be derived from federal obligations before such dividends may be excluded from state taxable income. The Fund may invest some or all of its assets in such federal obligations. The Fund intends to provide to you on an annual basis information to permit you to determine whether Fund dividends derived from interest on federal obligations may be excluded from state taxable income. If you are investing through a tax-deferred retirement account, such as an IRA, special tax rules apply and you should consult your tax adviser for detailed information about the tax consequences to you of owning Fund shares. 22 The foregoing discussion addresses only the U.S. federal income tax consequences applicable to U.S. persons (generally, U.S. citizens or residents (including certain former citizens and former long-term residents), domestic corporations or domestic entities taxed as corporations for U.S. tax purposes, estates the income of which is subject to U.S. federal income taxation regardless of its source, and trusts if a court within the United States is able to exercise primary supervision over their administration and at least one U.S. person has the authority to control all substantial decisions of the trusts). The treatment of the owner of an interest in an entity that is a pass-through entity for U.S. tax purposes (e.g., partnerships and disregarded entities) and that owns Fund shares will generally depend upon the status of the owner and the activities of the pass-through entity. If you are not a U.S. person or are the owner of an interest in a pass-through entity that owns Fund shares, you should consult your tax adviser regarding the U.S. and foreign tax consequences of the ownership of Fund shares, 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. 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 sale, exchange, or redemption of your Fund shares. 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 rates of total return during specified periods (i) before taxes, (ii) after taxes on Fund distributions, and (iii) after taxes on Fund distributions and redemption (or sale) of Fund shares at the end of the measurement period. The Fund equates the initial amount invested to the ending (redeemable) value of such investment by adding one to the computed average annual total return, expressed as a percentage (i) before taxes, (ii) after taxes on Fund distributions, and (iii) after taxes on Fund distributions and redemption of Fund shares at the end of the measurement period, 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, if any, from the initial amount invested and reinvestment of all distributions (i) without the effect of taxes, (ii) less taxes due on such Fund distributions, and (iii) less taxes due on such Fund distributions and redemption of Fund shares, 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 and, in the case of after taxes on Fund distributions and redemption of Fund shares, includes subtracting capital gains taxes resulting from the redemption and adjustments to take into account the tax benefit from any capital losses that may have resulted from the redemption. In calculating total returns for Class Y shares, no sales charge is deducted from the initial investment and the total return is shown at net asset value. Using the computation methods described above, the following table indicates the average annual compounded rates of total return on an initial investment of one thousand dollars as of October 31, 2002, for the Fund's Class Y shares for one year and the life of Fund. The after-tax returns were calculated using the highest applicable individual federal marginal tax rates in effect on the reinvestment date. The rates used correspond to the tax character of each component of the distribution (e.g., the ordinary income rate for ordinary income distributions, the short-term capital gain rate for short-term capital gains distributions, and the long-term capital gain rate for long-term capital gains distributions). The tax rates may vary over the measurement period. Potential tax liabilities other than federal tax liabilities (e.g., state and local 23 taxes) were disregarded, as were the effect of phaseouts of certain exemptions, deductions and credits at various income levels, and the impact of the federal alternative minimum income tax. Before- and after-tax returns are provided for Class Y shares for the Fund. Actual after-tax returns will depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The Fund's past performance, before and after taxes, is not necessarily an indication of how the Fund will perform in the future.
LIFE OF FUND 1 YEAR CLASS Y - 3/27/98 ------ ----------------- Class Y Shares -11.96% 0.79% Before Taxes Class Y Shares After -13.35% -1.94% Taxes on Distributions Class Y Shares After Taxes on -6.36% -0.22% Distributions and Sale of Fund Shares
These figures represent past performance, and an investor should be aware that the investment return and principal value of an investment in the Fund 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 past 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/or investments for which reliable performance information is available. 12. FINANCIAL STATEMENTS The financial statements incorporated herein by reference from Lord Abbett Affiliated Fund's 2002 Annual Report to Shareholders have been audited by Deloitte & Touche LLP, independent auditors, as stated in its report, which is incorporated herein by reference, and has been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 24 LORD ABBETT AFFILIATED FUND, INC. PART C OTHER INFORMATION Item 23. EXHIBITS (a) (i) 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. (ii) ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION DATED JANUARY 27, 1998. Incorporated by reference to Post-Effective Amendment No. 89 to the Registration Statement on Form N-1A filed on February 28, 2002. (iii) ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION DATED June 20, 2002. FILED HEREIN. (b) BY-LAWS, AS AMENDED MARCH 9, 2000. Incorporated by reference to Post-Effective Amendment No. 88 to the Registration Statement on Form N-1A filed on February 28, 2001. (c) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS. Not applicable. (d) INVESTMENT ADVISORY CONTRACT, MANAGEMENT AGREEMENT. Incorporated by reference to Post-Effective Amendment No. 89 to the Registration Statement on Form N-1A filed on February 28, 2002. (e) UNDERWRITING CONTRACT. DISTRIBUTION AGREEMENT. Incorporated by reference to Post-Effective Amendment No. 89 to the Registration Statement on Form N-1A on February 28, 2002. (f) BONUS OR PROFIT SHARING CONTRACTS. Incorporated by reference to Post-Effective Amendment No. 88 to the Registration Statement on Form N-1A filed on February 28, 2001. (g) CUSTODIAN AGREEMENT. Incorporated by reference to Post-Effective Amendment No. 89 to the Registration Statement on Form N-1A on February 28, 2002. (h) OTHER MATERIAL CONTRACTS (a) Transfer Agency Agreement. Incorporated by reference. (b) ADMINISTRATIVE SERVICES AGREEMENT. FILED HEREIN. (i) LEGAL OPINION. FILED HEREIN. (J) OTHER OPINION. CONSENT OF DELOITTE & TOUCHE, LLP. FILED HEREIN. (k) OMITTED FINANCIAL STATEMENTS. Incorporated by reference to Registrant's 2002 Annual Report on Form N-30D filed on December 30, 2002 (Accession Number 0001047469-02-008523). (l) INITIAL CAPITAL AGREEMENTS. Incorporated by reference. 1 (m) RULE 12b-1 PLANS. (1) Class A shares. Incorporated by reference to Post-Effective Amendment No. 89 to the Registration Statement on Form N-1A filed on February 28, 2002. (2) Class B shares. Incorporated by reference to Post-Effective Amendment No. 89 to the Registration Statement on Form N-1A filed on February 28, 2002. (3) CLASS C SHARES. FILED HEREIN. (4) CLASS P SHARES. FILED HEREIN. (n) AMENDED AND RESTATED RULE 18F-3 PLAN. FILED HEREIN. (o) Not applicable. (p) CODE OF ETHICS. FILED HEREIN. Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND None. Item 25. INDEMNIFICATION The 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. The general effect of these statutes is to protect officers, directors and employees of the 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 the Registrant, without limiting the authority of the 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, the 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), the 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 2 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 the 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 the Registrant nor parties to the proceeding, or (b) an independent legal counsel in a written opinion. Also, the 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) the 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 the 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 (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, the 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. LLC 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 LLC, a limited liability company, 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. LLC, none of Lord, Abbett & Co. LLC's partners have, 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, trustee, officer, employee, or partner of any entity. 3 Item 27. PRINCIPAL UNDERWRITER (a) Lord Abbett Distributor LLC serves as principal underwriter for the Registrant. Lord Abbett Distributor LLC also serves as principal underwriter for the following Lord Abbett-sponsored funds: 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 Securities Money Market Fund, Inc. Lord Abbett Blend Trust (b) Lord Abbett Distributor LLC is a wholly-owned subsidiary of Lord, Abbett & Co. LLC. The partners of Lord, Abbett & Co. LLC who are also officers of the Registrant are:
NAME AND PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS* WITH REGISTRANT ----------------- --------------- Robert S. Dow Chairman and President Paul A. Hilstad Vice President and Secretary Sholom Dinsky Executive Vice President W. Thomas Hudson, Jr. Executive Vice President Eli M. Salzmann Executive Vice President Lawrence H. Kaplan Vice President Joan A. Binstock Vice President Daniel E. Carper Vice President Robert G. Morris Vice President A. Edward Oberhaus, III Vice President Tracie E. Ahern Vice President and Treasurer
The other partners of Lord, Abbett & Co. LLC who are neither officers nor Directors of the Registrant are: Michael Brooks, Zane E. Brown, Patrick Browne, John J. DiChiaro, Lesley-Jane Dixon, John E. Erard, Kevin P. Ferguson, Robert P. Fetch, Daria L. Foster, Daniel H. Frascarelli, Robert I. Gerber, Michael S. Goldstein, Michael A. Grant, Howard E. Hansen, Charles Hofer, Cinda Hughes, Ellen G. Itskovitz, Robert Lee, Maren Lindstrom, Gregory M. Macosko, Thomas Malone, Charles Massare, Jr., Stephen J. McGruder, Paul McNamara, Robert J. Noelke, R. Mark Pennington, Walter Prahl, Michael Rose, Douglas B. Sieg, Richard Sieling, Michael T. Smith, Richard Smola, Diane Tornejal, Christopher J. Towle, Edward von der Linde and Marion Zapolin. *Each of the above has a principal business address: 90 Hudson Street, Jersey City, NJ 07302 (c) Not applicable. 4 Item 28. LOCATION OF ACCOUNTS AND RECORDS The Registrant maintains the records, required by Rules 31a - 1(a) and (b), and 31a - 2(a) at its main office. Lord, Abbett & Co. LLC 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. 5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act and had 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 New Jersey on the 27th day of February, 2003. LORD ABBETT AFFILIATED FUND, INC. BY: /s/Christina T. Simmons ---------------------------------------- Christina T. Simmons Vice President & Assistant Secretary BY: /s/Joan A. Binstock ---------------------------------------- Joan A. Binstock Vice President & Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, 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 February 27, 2003 - --------------------------- Robert S. Dow /s/E. Thayer Bigelow* Director February 27, 2003 - --------------------------- E. Thayer Bigelow /s/William H. T. Bush* Director February 27, 2003 - --------------------------- William H. T. Bush /s/Robert B. Calhoun, Jr.* Director February 27, 2003 - --------------------------- Robert B. Calhoun, Jr. /s/Franklin W. Hobbs* Director February 27, 2003 - ---------------------------- Franklin W. Hobbs /s/C. Alan MacDonald* Director February 27, 2003 - ---------------------------- C. Alan MacDonald /s/Thomas J. Neff* Director February 27, 2003 - ---------------------------- Thomas J. Neff /s/James F. Orr, III* Director February 27, 2003 - ---------------------------- James F. Orr, III
By: /s/Christina T. Simmons ------------------------ Christina T. Simmons Attorney - in - Fact* POWER OF ATTORNEY Each person whose signature appears below on this Amendment to the Registration Statement hereby constitutes and appoints Paul A. Hilstad, Lawrence H. Kaplan and Christina T. Simmons, each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities (until revoked in writing) to sign any and all amendments to this Registration Statement of each Fund enumerated on Exhibit A hereto (including post-effective amendments and amendments thereto), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, 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 July 23, 2002 - ------------------ -------------------------- ----------------- Robert S. Dow /s/ E. Thayer Bigelow Director/Trustee July 23, 2002 - --------------------------- -------------------------- ----------------- E. Thayer Bigelow /s/ William H. T. Bush Director/Trustee July 23 2002 - --------------------------- -------------------------- ----------------- William H. T. Bush /s/ Robert B. Calhoun, Jr. Director/Trustee July 23, 2002 - -------------------------- -------------------------- ----------------- Robert B. Calhoun, Jr. /s/ Stewart S. Dixon Director/Trustee July 23, 2002 - --------------------------- -------------------------- ----------------- Stewart S. Dixon /s/ Franklin W. Hobbs Director/Trustee July 23, 2002 - --------------------------- -------------------------- ----------------- Franklin W. Hobbs /s/ C. Alan MacDonald Director/Trustee July 23, 2002 - --------------------------- -------------------------- ----------------- C. Alan MacDonald /s/ Thomas J. Neff Director/Trustee July 23, 2002 - --------------------------- -------------------------- ----------------- Thomas J. Neff /s/ James F. Orr, III Director/Trustee July 23, 2002 - --------------------------- -------------------------- ----------------- James F. Orr, III
7 EXHIBIT A Lord Abbett Affiliated Fund, Inc. Lord Abbett Blend Trust 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 Securities Money Market Fund, Inc. 8 EX-23.(A)(III) 3 a2100252zex-23_aiii.txt EXHIBIT 23.(A)(III) ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION OF LORD ABBETT AFFILIATED FUND, INC. LORD ABBETT AFFILIATED FUND, INC., a Maryland corporation having its principal office c/o The Prentice-Hall Corporation System, 11 East Chase Street, Baltimore, Maryland 21202 (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland, that: FIRST: The Corporation presently has authority to issue 1,500,000,000 shares of capital stock, of the par value $.001 each, having an aggregate par value of $1,500,000. The Board of Directors has previously classified and designated 1,150,000,000 authorized shares as Class A shares, 100,000,000 authorized shares as Class B shares, 100,000,000 authorized shares as Class C shares, 75,000,000 authorized shares as Class P shares, and 75,000,000 authorized shares as Class Y shares. The number of shares of capital stock which the Corporation shall have authority to issue is hereby increased to 2,500,000,000, of the par value $.001 each, having an aggregate par value of $2,500,000. SECOND: Pursuant to the authority of the Board of Directors to classify and reclassify unissued shares of stock of the Corporation and to classify a series into one or more classes of such series, the Board of Directors hereby classifies and reclassifies the 1,000,000,000 newly authorized but unissued shares, as follows: (i) 450,000,000 shares to Class A resulting in a total of 1,600,000,000 authorized Class A shares, (ii) 200,000,000 shares to Class B resulting in a total of 300,000,000 authorized Class B shares, (iii) 200,000,000 to Class C resulting in a total of 300,000,000 authorized Class C shares, (iv) 125,000,000 to Class P resulting in a total of 200,000,000 authorized Class P shares, and (v) 25,000,000 to Class Y resulting in a total of 100,000,000 authorized Class Y shares. THIRD: Subject to the power of the Board of Directors to classify and reclassify unissued shares, all shares of the Corporation hereby classified or reclassified as specified in Article Second above shall be invested in the same investment portfolio of the Corporation and shall have the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption set forth in Article V of the Articles of Incorporation of the Corporation (hereinafter called the "Articles") and shall be subject to all other provisions of the Articles relating to stock of the Corporation generally. FOURTH: The shares of stock of the Corporation hereby classified or reclassified as specified in Article Second above have been duly classified by the Board of Directors under the authority contained in the Articles. FIFTH: The Corporation is registered as an open-end company under the Investment Company Act of 1940. SIXTH: The total number of shares of capital stock that the Corporation has authority to issue has been increased by the Board of Directors in accordance with Section 2-105(c) of Title 2 of the Corporations and Associations law of the State of Maryland. IN WITNESS WHEREOF, the Corporation has caused these presents to be signed in its name and on its behalf by its Vice President and witnessed by its Assistant Secretary on June 20, 2002. LORD ABBETT AFFILIATED FUND, INC. By: /s/ Paul A. Hilstad Paul A. Hilstad Vice President & Secretary WITNESS: /s/ Christina T. Simmons Christina T. Simmons Vice President and Assistant Secretary 2 THE UNDERSIGNED, Vice President and Secretary of LORD ABBETT AFFILIATED FUND, INC., who executed on behalf of said Corporation the foregoing Articles Supplementary, of which this Certificate is made a part, hereby acknowledges, in the name and on behalf of said Corporation, the foregoing Articles Supplementary to be the corporate act of said Corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. /s/ Paul A. Hilstad Paul A. Hilstad Vice President & Secretary 3 EX-23.(I) 4 a2100252zex-23_i.txt EXHIBIT 23.(I) Wilmer, Cutler & Pickering 2445 M Street, N.W. Washington, D.C. 20037-1420 Telephone (202) 663-6000 Facsimile (202) 663-6363 WWW. WILMER.COM February 27, 2003 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. 90 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 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/ Robert G. Bagnall ------------------------------- Robert G. Bagnall, a partner EX-23.(J) 5 a2100252zex-23_j.txt EXHIBIT 23.(J) INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Post-Effective Amendment No. 90 to Registration Statement No. 2-10638 on Form N-1A of Lord Abbett Affiliated Fund, Inc. of our report dated December 17, 2002 on the financial statements of Lord Abbett Affiliated Fund, Inc. and to the references to us under the captions "Financial Highlights" in the Prospectuses and "Independent Auditors" and "Financial Statements" in the Statements of Additional Information, all of which are part of this Registration Statement. Deloitte and Touche LLP New York, New York February 26, 2003 EX-23.(M) 6 a2100252zex-23_m.txt EXHIBIT 23.(M) Rule 12b-1 Distribution Plan and Agreement Lord Abbett Affiliated Fund, Inc. Class C Shares ------------------------------------------------------------------ RULE 12b-1 DISTRIBUTION PLAN AND AGREEMENT dated as of November 1, 2001 by and between LORD ABBETT AFFILIATED FUND, INC., a Maryland corporation (the "Fund"), and LORD ABBETT DISTRIBUTOR LLC, a New York limited liability company (the "Distributor"). WHEREAS, the Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "Act"); and the Distributor is the exclusive selling agent of the Fund's Class C shares of capital stock (the "Shares") pursuant to the Distribution Agreement between the Fund and the Distributor, and WHEREAS, the Fund desires to adopt a Distribution Plan and Agreement (the "Plan") for its Shares with the Distributor, as permitted by Rule 12b-1 under the Act, pursuant to which the Fund may make certain payments to the Distributor for payment to institutions and persons permitted by applicable law and/or rules to receive such payments ("Authorized Institutions") in connection with sales of Shares and for use by the Distributor as provided in paragraph 3 of this Plan, and WHEREAS, the Fund's Board of Directors has determined that there is a reasonable likelihood that the Plan will benefit the Fund and the holders of the Shares. NOW, THEREFORE, in consideration of the mutual covenants and of other good and valuable consideration, receipt of which is hereby acknowledged, it is agreed as follows: 1. The Fund hereby authorizes the Distributor to enter into agreements with Authorized Institutions (the "Agreements") which may provide for the payment to such Authorized Institutions of distribution and service fees which the Distributor receives from (or is reimbursed for by) the Fund in order to provide incentives to such Authorized Institutions (i) to sell Shares and (ii) to provide continuing information and investment services to their accounts holding Shares and otherwise to encourage their accounts to remain invested in the Shares. The Distributor may, from time to time, waive or defer payment of some fees payable at the time of the sale of Shares provided for under paragraph 2 hereof. 2. Subject to possible reduction as provided below in this paragraph 2, the Fund shall pay to the Distributor fees at each month-end after the sale of Shares (a) for services, at an annual rate not to exceed .25 of 1% of the average annual net asset value of Shares outstanding and (b) for distribution, at an annual rate not to exceed .75 of 1% of the average annual net asset value of Shares outstanding. For purposes of the payment of the fees above, (A) Shares issued pursuant to an exchange for Class C shares of another series of the Fund or another Lord Abbett-sponsored fund (or for shares of a fund acquired by the Fund) will be credited with the time held from the initial purchase of such other shares when determining how long Shares have been outstanding and (B) payments will be based on Shares outstanding during any such month. Shares outstanding above include Shares issued for reinvested dividends and distributions. The Board of Directors of the Fund shall from time to time determine the amounts, within the foregoing maximum amounts, that the Fund may pay the Distributor hereunder. Such determinations by the Board of Directors shall be made by votes of the kind referred to in paragraph 10 of this Plan. The service fees mentioned in this paragraph are for the purposes mentioned in clause (ii) of paragraph 1 of this Plan and the distribution fees mentioned in this paragraph are for the purposes mentioned in clause (i) of paragraph 1. The Distributor will monitor the payments hereunder and shall reduce such payments or take such other steps as may be necessary to assure that (x) the payments pursuant to this Plan shall be consistent with Article III, Section 26, subparagraphs (d)(2) and (5) of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. with respect to investment companies with asset-based sales charges and service fees as the same may be in effect from time to time and (y) the Fund shall not pay with respect to any Authorized Institution service fees equal to more than .25 of 1% of the average annual net asset value of Shares sold by (or attributable to shares sold by) such Authorized Institution and held in an account covered by an Agreement. 3. The Distributor may use amounts received as distribution fees hereunder from the Fund to finance any activity which is primarily intended to result in the sale of Shares including, but not limited to, commissions or other payments relating to selling or servicing efforts. The Fund's Board of Directors (in the manner contemplated in paragraph 10 of this Plan) shall approve the timing, categories and calculation of any payments under this paragraph 3. 4. The net asset value of the Shares shall be determined as provided in the Articles of Incorporation of the Fund. If the Distributor waives all or a portion of fees which are to be paid by the Fund hereunder, the Distributor shall not be deemed to have waived its rights under this Agreement to have the Fund pay such fees in the future. 5. The Secretary of the Fund, or in his absence the Chief Financial Officer, is hereby authorized to direct the disposition of monies paid or payable by the Fund hereunder and shall provide to the Fund's Board of Directors, and the Board of Directors shall review, at least quarterly, a written report of the amounts so expended pursuant to this Plan and the purposes for which such expenditures were made. 6. Neither this Plan nor any other transaction between the parties hereto pursuant to this Plan shall be invalidated or in any way affected by the fact that any or all of the directors, officers, shareholders, or other representatives of the Fund are or may be "interested persons" of the Distributor, or any successor or assignee thereof, or that any or all of the directors, officers, partners, members or other representatives of the Distributor are or may be "interested persons" of the Fund, except as otherwise may be provided in the Act. 7. The Distributor shall give the Fund the benefit of the Distributor's best judgment and good faith efforts in rendering services under this Plan. Other than to abide by the provisions hereof and render the services called for hereunder in good faith, the Distributor assumes 2 no responsibility under this Plan and, having so acted, the Distributor shall not be held liable or held accountable for any mistake of law or fact, or for any loss or damage arising or resulting therefrom suffered by the Fund or any of its shareholders, creditors, directors or officers; provided however, that nothing herein shall be deemed to protect the Distributor against any liability to the Fund or the Fund's shareholders by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties hereunder, or by reason of the reckless disregard of its obligations and duties hereunder. 8. This Plan shall become effective on the date hereof, and shall continue in effect for a period of more than one year from such date only so long as such continuance is specifically approved at least annually by a vote of the Board of Directors of the Fund, including the vote of a majority of the directors who are not "interested persons" of the Fund and who have no direct or indirect financial interest in the operation of this Plan or in any agreement related to this Plan, cast in person at a meeting called for the purpose of voting on such renewal. 9. This Plan may not be amended to increase materially the amount to be spent by the Fund hereunder without the vote of a majority of its outstanding Shares and each material amendment must be approved by a vote of the Board of Directors of the Fund, including the vote of a majority of the directors who are not "interested persons" of the Fund and who have no direct or indirect financial interest in the operation of this Plan or in any agreement related to this Plan, cast in person at a meeting called for the purpose of voting on such amendment. 10. Amendments to this Plan other than material amendments of the kind referred to in the foregoing paragraph 9 of this Plan may be adopted by a vote of the Board of Directors of the Fund, including the vote of a majority of the directors who are not "interested persons" of the Fund and who have no direct or indirect financial interest in the operation of this Plan or in any agreement related to this Plan. The Board of Directors of the Fund may, by such a vote, interpret this Plan and make all determinations necessary or advisable for its administration. 11. This Plan may be terminated at any time without the payment of any penalty by (a) the vote of a majority of the directors of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or in any agreement related to this Plan, or (b) by a shareholder vote in compliance with Rule 12b-1 and Rule 18f-3 under the Act as in effect at such time. This Plan shall automatically terminate in the event of its assignment. 12. So long as this Plan shall remain in effect, the selection and nomination of those directors of the Fund who are not "interested persons" of the Fund are committed to the discretion of such disinterested directors. The terms "interested persons," "assignment" and "vote of a majority of the outstanding voting securities" shall have the same meaning as those terms are defined in the Act. 3 IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and on its behalf by its duly authorized representative as of the date first above written. LORD ABBETT AFFILIATED FUND, INC. By: /s/ Christina T. Simmons --------------------------------- Vice President ATTEST: /s/ Lawrence H. Kaplan - ----------------------------------- Assistant Secretary LORD ABBETT DISTRIBUTOR LLC By: LORD, ABBETT & CO. Managing Member By: /s/ Paul A. Hilstad --------------------------------- A Partner 4 Rule 12b-1 Distribution Plan and Agreement Lord Abbett Affiliated Fund, Inc. Class P Shares ------------------------------------------------------------------ RULE 12b-1 DISTRIBUTION PLAN AND AGREEMENT dated as of December 22, 1997, by and between LORD ABBETT AFFILIATED FUND, INC., a Maryland corporation (the "Fund"), and LORD ABBETT DISTRIBUTOR LLC, a New York limited liability company (the "Distributor"). WHEREAS, the Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "Act"); and the Distributor is the exclusive selling agent of the Fund's shares of capital stock, including the Fund's Class P shares (the "Shares"), pursuant to the Distribution Agreement between the Fund and the Distributor, and WHEREAS, the Fund desires to adopt a Distribution Plan and Agreement (the "Plan") for the Fund's Shares with the Distributor, as permitted by Rule 12b-1 under the Act, pursuant to which the Fund may make certain payments to the Distributor for payment to institutions and persons permitted by applicable law and/or rules to receive such payments ("Authorized Institutions") in connection with sales of Shares and for use by the Distributor as provided in paragraph 3 of this Plan, and WHEREAS, the Fund's Board of Directors has determined that there is a reasonable likelihood that the Plan will benefit the Fund and the holders of the Shares. NOW, THEREFORE, in consideration of the mutual covenants and of other good and valuable consideration, receipt of which is hereby acknowledged, it is agreed as follows: 1. The Fund hereby authorizes the Distributor to enter into agreements with Authorized Institutions (the "Agreements") which may provide for the payment to such Authorized Institutions of distribution and service fees which the Distributor receives from the Fund in order to provide incentives to such Authorized Institutions (i) to sell Shares and (ii) to provide continuing information and investment services to their accounts holding Shares and otherwise to encourage their accounts to remain invested in the Shares. The Distributor may, from time to time, waive or defer payment of some fees payable at the time of the sale of Shares provided for under paragraph 2 hereof. 2. Subject to possible reduction as provided below in this paragraph 2, the Fund shall pay to the Distributor fees at each quarter-end (a) for services, at an annual rate not to exceed .20% of 1% of the average annual net asset value of Shares outstanding for the quarter or more and (b) for distribution, at an annual rate not to exceed .25 of 1% of the average annual net asset value of Shares outstanding for the quarter or more. For purposes of the quarter-end fee payments above (A) Shares issued pursuant to an exchange for shares of another series of the Fund or another Lord Abbett-sponsored fund (or for shares of a fund acquired by the Fund) will be credited with the time held from the initial purchase of such other shares when determining how long Shares mentioned in clauses (a) and (b) have been outstanding and (B) payments will be based on Shares outstanding during any such quarter. Shares outstanding in clauses (a) and (b) above include Shares issued for reinvested dividends and distributions that have been outstanding for the quarter or more. The Board of Directors of the Fund shall from time to time determine the amounts and the time of payments (such as, at the time of sale, quarterly or otherwise), within the foregoing maximum amounts, that the Fund may pay the Distributor hereunder. Such determinations by the Board of Directors shall be made by votes of the kind referred to in paragraph 10 of this Plan. The service fees mentioned in this paragraph are for the purposes mentioned in clause (ii) of paragraph 1 of this Plan and the distribution fees mentioned in this paragraph are for the purposes mentioned in clause (i) of paragraph 1 and the second sentence of paragraph 3 of this Plan. The Distributor will monitor the payments hereunder and shall reduce such payments or take such other steps as may be necessary to assure that (x) the payments pursuant to this Plan shall be consistent with Rule 2830, subparagraphs (d)(2) and (5) of the Conduct Rules of the NASD Regulation, Inc. with respect to investment companies with asset-based sales charges and service fees as the same may be in effect from time to time and (y) the Fund shall not pay with respect to any Authorized Institution service fees equal to more than .20% of 1% of the average annual net asset value of Shares sold by (or attributable to shares sold by) such Authorized Institution and held in an account covered by an Agreement. 3. Within the foregoing maximum amounts, the Distributor may use amounts received as distribution fees hereunder from the Fund to finance any activity that is primarily intended to result in the sale of Shares including, but not limited to, commissions or other payments relating to selling or servicing efforts. Without limiting the generality of the foregoing, the Distributor may apply amounts authorized by the Fund's Board of Directors designated as the distribution fee referred to in clause (b) of paragraph 2 to expenses incurred by the Distributor if such expenses are primarily intended to result in the sale of Shares. The Fund's Board of Directors (in the manner contemplated in paragraph 10 of this Plan) shall approve the timing, categories and calculation of any payments under this paragraph 3 other than those referred to in the foregoing sentence. 4. The net asset value of the Shares shall be determined as provided in the Articles of Incorporation of the Fund. If the Distributor waives all or a portion of fees which are to be paid by the Fund hereunder, the Distributor shall not be deemed to have waived its rights under this Agreement to have the Fund pay such fees in the future. 5. The Secretary of the Fund, or in his absence the Treasurer, is hereby authorized to direct the disposition of monies paid or payable by the Fund hereunder and shall provide to the Fund's Board of Directors, and the Board of Directors shall review, at least quarterly, a written report of the amounts so expended pursuant to this Plan and the purposes for which such expenditures were made. 6. Neither this Plan nor any other transaction between the parties hereto pursuant to this Plan shall be invalidated or in any way affected by the fact that any or all of the directors, officers, shareholders, or other representatives of the Fund are or may be "interested persons" of the Distributor, or any successor or assignee thereof, or that any or all of the directors, officers, partners, members or other representatives of the Distributor are or may be "interested persons" of the Fund, except as otherwise may be provided in the Act. 7. The Distributor shall give the Fund the benefit of the Distributor's best judgment and good faith efforts in rendering services under this Plan. Other than to abide by the provisions hereof and render the services called for hereunder in good faith, the Distributor assumes no responsibility 2 under this Plan and, having so acted, the Distributor shall not be held liable or held accountable for any mistake of law or fact, or for any loss or damage arising or resulting therefrom suffered by the Fund, or any of the shareholders, creditors, directors or officers of the Fund; provided however, that nothing herein shall be deemed to protect the Distributor against any liability to the Fund or the Fund's shareholders by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties hereunder, or by reason of the reckless disregard of its obligations and duties hereunder. 8. This Plan shall become effective on the date hereof, and shall continue in effect for a period of more than one year from such date only so long as such continuance is specifically approved at least annually by a vote of the Board of Directors of the Fund, including the vote of a majority of the Directors who are not "interested persons" of the Fund and who have no direct or indirect financial interest in the operation of this Plan or in any agreement related to this Plan, cast in person at a meeting called for the purpose of voting on such renewal. 9. This Plan may not be amended to increase materially the amount to be spent by the Fund hereunder without the vote of a majority of the Shares and each material amendment must be approved by a vote of the Board of Directors of the Fund, including the vote of a majority of the directors who are not "interested persons" of the Fund and who have no direct or indirect financial interest in the operation of this Plan or in any agreement related to this Plan, cast in person at a meeting called for the purpose of voting on such amendment. 10. Amendments to this Plan other than material amendments of the kind referred to in the foregoing paragraph 9 of this Plan may be adopted by a vote of the Board of Directors of the Fund, including the vote of a majority of the directors who are not "interested persons" of the Fund and who have no direct or indirect financial interest in the operation of this Plan or in any agreement related to this Plan. The Board of Directors of the Fund may, by such a vote, interpret this Plan and make all determinations necessary or advisable for its administration. 11. This Plan may be terminated at any time without the payment of any penalty by (a) the vote of a majority of the Directors of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or in any agreement related to this Plan, or (b) by a shareholder vote in compliance with Rule 12b-1 and Rule 18f-3 under the Act as in effect at such time. 3 12. So long as this Plan shall remain in effect, the selection and nomination of those Directors of the Fund who are not "interested persons" of the Fund are committed to the discretion of such disinterested directors. The terms "interested persons," "assignment" and "vote of a majority of the outstanding voting securities" shall have the same meaning as those terms are defined in the Act. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and on its behalf by its duly authorized representative as of the date first above written. LORD ABBETT AFFILIATED FUND, INC. By: /s/ Lawrence H. Kaplan --------------------------------- Lawrence H. Kaplan, Vice President LORD ABBETT DISTRIBUTOR LLC By: LORD, ABBETT & CO. Managing Member By: /s/ Paul A. Hilstad --------------------------------- Paul A. Hilstad, A Partner 4 EX-99 8 a2096582zex-99_h.txt ADMINISTRATIVE SERVICES AGREEMENT This Administrative Services Agreement ("Agreement") is made as of December 12, 2002 by and among each of the investment companies in the Lord Abbett Family of Funds, as set forth on Exhibit 1 hereto, and each new Lord Abbett Fund added as a party to this Agreement pursuant to section 9, (each, a "Fund" or collectively, the "Funds") and Lord, Abbett & Co. LLC, a Delaware limited liability company ("Lord Abbett"). RECITALS A. WHEREAS, Lord Abbett has entered into a Management Agreement with each Fund whereby Lord Abbett provides investment management services to each Fund. B. WHEREAS, each Fund desires to retain Lord Abbett to provide certain administrative services and Lord Abbett is willing to provide, or arrange to have provided, such services upon the terms and conditions as hereinafter provided. NOW THEREFORE, in consideration of the mutual covenants and of other good and valuable consideration, receipt of which is hereby acknowledged, it is agreed as follows: 1. AGREEMENT TO PERFORM ADMINISTRATIVE SERVICES. Each Fund hereby employs Lord Abbett under the terms and conditions of this Agreement, and Lord Abbett hereby accepts such employment and agrees to perform the administrative services described below. It is understood that the persons employed by Lord Abbett to assist in the performance of its duties hereunder will not devote their full time to such services, and may in fact devote a substantial portion of their time to the performance of duties relating to Lord Abbett's provision of services to other clients, and nothing herein shall be deemed to limit or restrict the right of Lord Abbett, its affiliates, and their respective employees, to engage in and devote time and attention to other business or to render services of whatever kind or nature to Lord Abbett's other clients. 2. LORD ABBETT SERVICES AND DUTIES. Lord Abbett will provide, or arrange to have provided in accordance with section 3 below, for each Fund those facilities, equipment, and personnel to carry out the administrative services which are described in Exhibit 2 hereto ("Administrative Services"). Lord Abbett represents that it has sufficient personnel and experience to perform the 1 Administrative Services, and agrees to perform such Administrative Services in accordance with industry standards for mutual fund administrators. In performing its duties under this Agreement, Lord Abbett agrees that it shall observe and be bound by all of the provisions of (1) each Fund's Articles of Incorporation/Declaration and Agreement of Trust and By-laws (including any amendments thereto) which in any way limit or restrict or prohibit or otherwise regulate any action by Lord Abbett, (2) each Fund's registration statement, and (3) the instructions and directions of the Boards of Directors/Trustees of each Fund. In addition, Lord Abbett agrees and warrants that it will use its best efforts to conform to and comply with the requirements of the Investment Company Act of 1940, as amended ("1940 Act") and all other applicable federal and state laws and regulations. 3. LORD ABBETT SUBCONTRACTORS. It is understood that Lord Abbett may from time to time employ or associate with such person or persons ("Subcontractors") as Lord Abbett may believe to be particularly fitted to assist in its performance of this Agreement; provided, however, that the compensation of such Subcontractors shall be paid by Lord Abbett and that Lord Abbett shall be as fully responsible to each Fund for the acts and omissions of any Subcontractor as it is for its own acts and omissions. Lord Abbett shall use its best efforts to ensure that any Subcontractor complies with the provisions of section 2 above. 4. EXPENSES ASSUMED. Except as otherwise set forth in this section 4 or as otherwise approved by the Funds' Boards of Directors/Trustees, Lord Abbett shall pay all expenses incurred by it in performing the Administrative Services, including the cost of providing office facilities, equipment and personnel related to such services. Each Fund will pay its own fees, costs, expenses or charges relating to its assets and operations, including without limitation: fees and expenses under the Management Agreement; fees and expenses of Directors/Trustees not affiliated with Lord Abbett; governmental fees; interest charges; taxes; association membership dues; fees and charges for legal and auditing services; fees and expenses of any custodians or trustees with respect to custody of its assets; fees, charges and expenses of dividend disbursing agents, registrars and transfer agents (including the cost of keeping all necessary shareholder records and accounts, and of handling any problems relating thereto and the expense of furnishing to all shareholders statements of their accounts after every transaction, including the expense of mailing); costs and expenses of repurchase and redemption of its shares; costs and expenses of preparing, printing and mailing to shareholders ownership certificates, proxy statements and materials, prospectuses, reports and notices; costs of preparing reports to governmental agencies; brokerage fees and commissions of every kind and expenses in connection with the execution of portfolio security transactions (including the cost of any service or agency designed to facilitate the purchase 2 and sale of portfolio securities); and all postage, insurance premiums, and any other fee, cost, expense or charge of any kind incurred by and on behalf of the Trust and not expressly assumed by Lord Abbett under this Agreement or the Management Agreement. 5. COMPENSATION. For the services rendered, facilities furnished and expenses assumed by Lord Abbett under this Agreement, each Fund will pay to Lord Abbett an annual administrative services fee, computed and payable monthly, at the annual rate of .04% of the value of the Fund's average daily net assets. Such value shall be calculated in the same manner as provided in each Fund's Management Agreement. It is specifically understood and agreed that any fees for fund accounting services payable by the Funds to State Street Bank and Trust Company pursuant to that separate Custodian and Investment Accounting Agreement dated November 1, 2001 shall be paid directly by Lord Abbett on behalf of the Funds. It is further understood and agreed that should the Funds' regulatory environment change so that the costs to Lord Abbett of providing Administrative Services increase or decrease significantly, then Lord Abbett and the Funds' Boards of Directors/Trustees will consider whether it would be appropriate to adjust the compensation under this Agreement. 6. STANDARD OF CARE. Other than to abide by the provisions hereof and render the services called for hereunder in good faith, Lord Abbett assumes no responsibility under this Agreement and, having so acted, Lord Abbett shall not be held liable or accountable for any mistakes of law or fact, or for any error or omission of its officers, directors, members or employees, or for any loss or damage arising or resulting therefrom suffered by a Fund or any of its shareholders, creditors, Directors/Trustees or officers; provided however, that nothing herein shall be deemed to protect Lord Abbett against any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties hereunder, or by reason of the reckless disregard of its obligations and duties hereunder. 7. CONFLICTS OF INTEREST. Neither this Agreement nor any other transaction between the parties hereto pursuant to this Agreement shall be invalidated or in any way affected by the fact that any of the Directors/Trustees, officers, shareholders, or other representatives of a Fund are or may be an interested person of Lord Abbett, or any successor or assignee thereof, or that any or all of the officers, members, or other representatives of Lord Abbett are or may be an interested person of the Fund, except as otherwise may be provided in the 1940 Act. Lord Abbett in acting hereunder shall be an independent contractor and not an agent of the Funds. 8. EFFECTIVE DATE AND TERMINATION. This Agreement shall become effective with respect to a Fund on January 1, 2003, or at such other date as may be set by the Fund's Board of Directors/Trustees by resolution, and shall 3 continue in force for two years from the date hereof, and is renewable annually thereafter by specific approval of the Directors/Trustees of the Fund or by vote of a majority of the outstanding voting securities of the Fund; any such renewal shall be approved by the vote of a majority of the Directors/Trustees who are not parties to this Agreement or interested persons of Lord Abbett or of the Fund, cast in person at a meeting called for the purpose of voting on such renewal. This Agreement may be terminated without penalty at any time by the Directors/Trustees of a Fund or by Lord Abbett on 60 days' written notice. This Agreement shall automatically terminate in the event of its assignment. The terms "interested persons," "assignment" and "vote of a majority of the outstanding voting securities" shall have the same meaning as those terms are defined in the 1940 Act. 9. ADDITION OF NEW FUNDS TO AGREEMENT. In the event that a new fund is created in the Lord Abbett Family of Funds and such fund wishes to engage Lord Abbett to perform Administrative Services under this Ageement, such fund shall be entitled to do so by executing and delivering to Lord Abbett a document accepting this Agreement. The employment of Lord Abbett on behalf of any new fund shall become effective upon Lord Abbett's receipt of such counterpart executed by such new fund. 10. INDIVIDUAL LIABILITY. The obligations of each Company/Trust, including those imposed hereby, are not personally binding upon, nor shall resort be had to the private property of, any of the Directors/Trustees, shareholders, officers, employees or agents of the Company/Trust individually, but are binding only upon the assets and property of the Company/Trust. Any and all personal liability, either at common law or in equity, or by statute or constitution, of every such Director/Trustee, shareholder, officer, employee or agent for any breach by the Company/Trust of any agreement, representation or warranty hereunder is hereby expressly waived as a condition of and in consideration for the execution of this Agreement by the Company/Trust. 11. LIABILITY OF FUNDS SEVERAL AND NOT JOINT. The obligations of a Fund under this Agreement are enforceable solely against that Fund and its assets. 12. DELAWARE LAW. This Agreement shall be construed and the provisions interpreted under and in accordance with the laws of the State of Delaware. 4 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative. On Behalf of each of the Lord Abbett Funds listed on Exhibit 1 Attached hereto By: /s/Joan A. Binstock ------------------------ Joan A. Binstock Chief Financial Officer Attested: /s/Christina T. Simmons ----------------------- Christina T. Simmons Assistant Secretary LORD, ABBETT & CO. LLC By: /s/Robert S. Dow ------------------------ Robert S. Dow Managing Member Attested: /s/Paul A. Hilstad ----------------------- Paul A. Hilstad Member, General Counsel EXHIBIT 1 TO ADMINISTRATIVE SERVICES AGREEMENT The following funds comprise the Lord Abbett Family of Funds: Lord Abbett Affiliated Fund, Inc. Lord Abbett Blend Trust Lord Abbett Small-Cap Blend Fund Lord Abbett Bond-Debenture Fund, Inc. Lord Abbett Developing Growth Fund, Inc. Lord Abbett Global Fund, Inc. Equity Series Income Series Lord Abbett Investment Trust Balanced Series Core Fixed Income Fund Lord Abbett High Yield Fund Limited Duration U.S. Government Securities Series Lord Abbett Total Return Fund U.S. Government Securities Series Lord Abbett Large-Cap Growth Fund Lord Abbett Mid-Cap Value Fund, Inc. Lord Abbett Research Fund, Inc. Lord Abbett Growth Opportunities Fund Large-Cap Series Small-Cap Value Series Lord Abbett Securities Trust Alpha Series Lord Abbett All Value Fund International Series Lord Abbett Micro-Cap Growth Fund Lord Abbett Micro-Cap Value Fund Lord Abbett Series Fund, Inc. Bond-Debenture Portfolio Growth and Income Portfolio International Portfolio Mid-Cap Value Portfolio Lord Abbett Tax-Free Income Fund, Inc. Lord Abbett Tax-Free Income Trust Lord Abbett U.S. Government Securities Money Market Fund, Inc. EXHIBIT 2 TO ADMINISTRATIVE SERVICES AGREEMENT In accordance with section 2 of the Agreement, Lord Abbett will provide, or arrange to have provided, the following Administrative Services for each Fund: (a) FUND ACCOUNTING, FINANCIAL REPORTING, SHAREHOLDER SERVICING AND TECHNOLOGY (1) Perform Fund accounting services which include, but are not limited to, daily NAV calculation and dissemination, and maintenance of books and records as required by Rule 31(a) of the 1940 Act. (2) Perform the functions of a mutual fund's chief financial officer and treasurer. (3) Perform Fund budgeting and accounts payable functions. (4) Perform Financial Reporting, including reports to the Board of Directors/Trustees, and preparation of financial statements, NSARs and registration statements. (5) Coordinate regulatory examinations. (6) Calculate and facilitate payment of dividends. (7) Oversee the preparation and ensure the filing of all Federal/State Tax Returns. (8) Monitor the Fund's compliance with IRS regulations. (9) Monitor compliance with Fund policies on valuing (pricing) all Fund assets. (10) Monitor Transfer Agent to ensure shareholder accounts are being processed in compliance with the appropriate regulations and are reflected appropriately in the Fund's records. Ensure 12b-1 payments being paid by the Fund are accurate and in accordance with the 12b-1 plans. (11) Maintain the technology platforms and market data feeds necessary for the daily accounting and reporting functions set forth in this Agreement. (b) LEGAL, COMPLIANCE AND BLUE SKY FUNCTIONS (1) Prepare and maintain files of all Board and shareholder meeting materials, including minutes. (2) Monitor compliance by each Fund with various conditions imposed by exemptive orders and/or regulatory requirements relating to multiple classes of shares, and fund of funds. (3) Prepare and review periodic Prospectus/Statement of Additional Information compliance reports. (4) Prepare, update and file with the SEC the Funds' registration statements, including pre-effective and post-effective amendments, Prospectuses, SAIs, and supplements. (5) Prepare and/or review and file proxy materials with the SEC. (6) Review annual and semi-annual reports of the Funds. (7) Negotiate D&O/E&O insurance matters and annual renewals on behalf of the Funds. (8) Monitor fidelity bond coverage for the Funds. (9) Review Rule 24f-2 notices relating to registration fees and file with the SEC. (10) Coordinate regulatory examinations of the Funds. (11) Assist in preparation of Board members' questionnaires. (12) Register Fund shares with appropriate state blue sky authorities. (13) Obtain and renew all sales permits required by relevant state authorities in order to permit the sale of shares in the state. (14) Monitor the sale of shares in individual states. (15) Respond to all blue sky audit and examination issues. 8 EX-99 9 a2091819zex-99_n.txt AMENDED AND RESTATED PLANS AS OF OCTOBER 22, 2002 PURSUANT TO RULE 18f-3(d) UNDER THE INVESTMENT COMPANY ACT OF 1940 (ORIGINALLY 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, shares of the Growth and Income Portfolio shall be divided into Variable Contract Class shares (Class VC shares) and P Class shares and shares of the Bond-Debenture Portfolio, International Portfolio, and Mid-Cap Value Portfolio shall be designated Bond-Debenture Portfolio shares, International Portfolio shares, and Mid-Cap Value Portfolio shares, respectively, all of which are also known as Class VC shares of the respective portfolio, 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, 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 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 has 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. Pursuant to such authority, the Board has approved in connection with a marketing program the payment of certain amounts over a period of years by those Funds 1 with operational 12b-1 Plans for their Class A shares subject to certain conditions. 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 continuing annual fee 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). The Class VC shares do not have a Rule 12b-1 Plan. However, pursuant to a separate Services Agreement for the Class VC shares, each Fund will generally pay a continuing annual fee of up to .25% of the average annual NAV of such shares then outstanding to certain insurance companies for the service and maintenance of shareholder accounts. Pursuant to a 12b-1 Plan with respect to the P Class shares, if operational, each Fund will generally pay a continuing annual fee of .45% of the average annual NAV of such shares then outstanding. The Board has 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. (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. 2 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, each Fund's Blue Sky expenses will be treated as common expenses. In the case of Series Fund, Blue Sky expenses will be allocated entirely to the P Class, as the Variable Contract Class of Series Fund 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 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. 3 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 has been adopted for a Fund with the approval of, and all material amendments thereto must be approved by, a majority of the members of the Board of such Fund, including a majority of the Board members who are not interested persons of the Fund. 4 SCHEDULE A As of October 22, 2002 The Lord Abbett - Sponsored Funds ESTABLISHING MULTI-CLASS STRUCTURES
FUNDS CLASSES - ----- ------- Lord Abbett Affiliated Fund, Inc. A, B, C, P, Y Lord Abbett Blend Trust Lord Abbett Small-Cap Blend Fund 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 Large-Cap Growth Fund 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, B, C, P U.S. Government Securities Series A, B, C, P Lord Abbett Core Fixed Income Fund A, B, C, P, Y Lord Abbett Total Return Fund A, B, C, P, Y Lord Abbett Securities Trust Lord Abbett All Value Fund A, B, C, P, Y International Series A, B, C, P, Y Alpha Series A, B, C, P Lord Abbett Micro-Cap Growth Fund A, Y Lord Abbett Micro-Cap Value Fund A, 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 Missouri Series A, P
5
FUNDS CLASSES - ----- ------- 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 Lord Abbett Growth Opportunities Fund A, B, C, P, Y Small-Cap Series A, B, C, P, Y Lord Abbett America's Value Fund A, B, C, P, Y Lord Abbett Series Fund Growth & Income Portfolio VC, P Bond-Debenture Portfolio Bond-Debenture Portfolio (VC) International Portfolio International Portfolio (VC) Mid-Cap Value Portfolio Mid-Cap Value Portfolio (VC)
6 EX-99 10 a2085363zex-99_p.txt 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. No employee or partner of Lord Abbett may purchase the common stock of a company that has a market capitalization at the time of purchase below $3 billion. 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 Lord, Abbett & Co. Code of Ethics April 2002 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. 2 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 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 public 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 3 (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 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. 4 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 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. 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. 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.(2) "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. - ---------- (2)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. 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. 7 -----END PRIVACY-ENHANCED MESSAGE-----