Securities Act File No. 33-68090
Investment Company Act File No. 811-7988
SECURITIES & 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. 32 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT [X]
OF 1940
Amendment No. 32 [X]
LORD ABBETT INVESTMENT TRUST
----------------------------
Exact Name of Registrant as Specified in Charter
90 Hudson Street
Jersey City, New Jersey 07302-3973
Address of Principal Executive Office
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Christina T. Simmons, Vice President
90 Hudson Street
Jersey City, New Jersey 07302-3973
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
____ immediately on filing pursuant to paragraph (b) __X_ on APRIL 1, 2002 pursuant to paragraph (b) ____ 60 days after filing pursuant to paragraph (a) (1) ____ (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]
APRIL 1, 2002
PROSPECTUS
LORD ABBETT
BALANCED FUND
HIGH YIELD FUND
LIMITED DURATION U.S.
GOVERNMENT FUND
U.S. GOVERNMENT FUND
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TABLE OF CONTENTS
PAGE
THE FUNDS
Information about the goal, Balanced Fund 2
principal strategy,main risks, High Yield Fund 8
performance,and fees
and expenses Limited Duration U.S.Government Fund 11
U.S. Government Fund 14
Additional Investment Information 17
Management 19
YOUR INVESTMENT
Information for managing Purchases 20
your Fund account Sales Compensation 23
Opening Your Account 25
Redemptions 25
Distributions and Taxes 26
Services For Fund Investors 27
FINANCIAL INFORMATION
Financial highlights Balanced Fund 28
High Yield Fund 29
Limited Duration U.S.
Government Fund 30
U.S. Government Fund 31
ADDITIONAL INFORMATION
How to learn more about the Funds
and other Lord Abbett Funds Back Cover
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BALANCED FUND
THE FUNDS
GOAL
The Fund's investment objective is current income and capital growth.
PRINCIPAL STRATEGY
This Fund is a "fund of funds"--meaning it invests in other mutual funds rather than directly in portfolio securities like stocks, bonds and money market instruments. To pursue its goal, the Fund uses an asset allocation investment process by investing in other funds managed by Lord, Abbett & Co. ("Lord Abbett"). These underlying Funds generally focus their investments in either equity or fixed income securities.
The Fund will generally seek to allocate investments in equity and fixed income Funds in a proportion that the manager believes is best-suited to achieving the Fund's investment objective in light of current market conditions. The current proportion is the Target Allocation. The manager may vary this proportion within the Target Range.
The Fund will decide in which of the underlying funds it will invest at any particular time, as well as the relative amounts invested in those funds. The Fund may change the amounts invested in any or all of the underlying funds at any time without shareholder approval.
The table below illustrates the current underlying equity and fixed income funds' target allocation and target ranges:
UNDERLYING FUNDS BY CATEGORY TARGET ALLOCATION TARGET RANGE EQUITY FUNDS 60% 40-60% -------------------------------------------------------------------------------- Affiliated Fund All Value Fund Growth Opportunities Fund Large-Cap Research Fund Mid-Cap Value Fund -------------------------------------------------------------------------------- FIXED INCOME FUNDS 40% 40-60% -------------------------------------------------------------------------------- Bond-Debenture Fund Core Fixed Income Fund Total Return Fund U.S. Government Fund -------------------------------------------------------------------------------- |
MAIN RISKS
The Fund's investments are concentrated in the underlying funds, and as a result, the Fund's performance is directly related to their performance. The Fund's ability to meet its investment objective depends on the ability of the underlying funds to achieve their investment objectives. Consequently, the Fund is subject to the particular risks of the underlying funds.
You may invest in the underlying funds directly. By investing in the Fund, you will incur a proportionate share of the expenses of the underlying funds in addition to any expenses of the Fund.
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. While the Fund offers a greater level of diversification than many other types of mutual funds, it is not a complete investment program and may not be appropriate for all investors. You could lose money by investing in this Fund.
[SIDENOTE]
WE OR THE FUND OR THE BALANCED FUND refers to Lord Abbett Balanced Fund, a portfolio or series of Lord Abbett Investment Trust (the "Trust").
BALANCED FUND may invest in nine separate underlying funds, each with its own investment objective and policies. These Funds currently consist of:
- LORD ABBETT AFFILIATED FUND ("Affiliated Fund")
- LORD ABBETT ALL VALUE FUND ("All Value Fund")
- LORD ABBETT BOND-DEBENTURE FUND ("Bond-Debenture Fund")
- LORD ABBETT CORE FIXED INCOME FUND ("Core Fixed Income Fund")
- LORD ABBETT GROWTH OPPORTUNITIES FUND ("Growth Opportunities Fund")
- LORD ABBETT LARGE-CAP RESEARCH FUND ("Large-Cap Research Fund")
- LORD ABBETT MID-CAP VALUE FUND ("Mid-Cap Value Fund")
- LORD ABBETT TOTAL RETURN FUND ("Total Return Fund")
- LORD ABBETT U.S. GOVERNMENT FUND ("U.S. Government Fund")
2 | The Funds
BALANCED FUND
ABOUT THE BALANCED FUND'S UNDERLYING FUNDS
The following is a concisedescription of the investment objectives and practices of each underlying fund other than the U.S. Government Fund, whose description may be found on page 14 of this prospectus. No offer is made in this prospectus of the shares of the underlying funds, other than the U.S. Government Fund.
THE AFFILIATED FUND'S investment objective is long-term growth of capital and income without excessive fluctuations in market value. The Affiliated Fund normally invests at least 80% of its net assets in equity securities of large, seasoned U.S. and multinational companies with market capitalizations of at least $5 billion at the time of purchase. In selecting investments, the fund attempts to invest in securities selling at reasonable prices in relation to its assessment of their potential value.
THE ALL VALUE FUND'S investment objective is long-term growth of capital and income without excessive fluctuations in market value. The All Value Fund purchases equity securities of U.S. and multinational companies in all market capitalization ranges that it believes are undervalued. Under normal circumstances, the fund will invest at least 65% of its net assets in equity securities of large, seasoned companies with market capitalizations of at least $5 billion at the time of purchase. The fund may invest its remaining assets in mid-sized and small company securities.
THE BOND-DEBENTURE FUND'S investment objective is high current income and the opportunity for capital appreciation to produce a high total return. The Bond-Debenture Fund normally invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in fixed income securities of various types. These securities may include high yield debt securities or "junk bonds," convertible securities, investment grade, corporate, government and other fixed income securities. At least 20% of its assets must be invested in any combination of investment grade securities, U.S. Government securities and cash equivalents.
THE CORE FIXED INCOME FUND'S investment objective is to seek income and capital appreciation to produce a high total return. The Core Fixed Income Fund normally invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in fixed income securities of various types. These securities primarily include U.S. Government, mortgage-related, and investment grade debt securities, including those issued by non-U.S. entities but denominated in U.S. dollars (known as "Yankees").
THE GROWTH OPPORTUNITIES FUND'S investment objective is to seek capital appreciation. The fund uses a growth style of investing favoring companies that show the potential for strong revenue and earnings growth. Under normal circumstances, the fund invests primarily in common stocks of mid-sized companies with market capitalizations between $1 billion and $10 billion.
THE LARGE-CAP RESEARCH FUND'S investment objective is growth of capital and growth of income consistent with reasonable risk. The Large-Cap Research Fund normally invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities of large, seasoned, U.S. and multinational companies with market capitalizations of at least $5 billion at the time of purchase. The fund selects securities for investment it believes are undervalued
THE MID-CAP VALUE FUND'S investment objective is to seek capital appreciation through investments, primarily in equity securities, which are believed to be undervalued in the marketplace. Under normal circumstances, the fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities of mid-sized companies with market capitalizations of roughly $500 million to $10 billion.
[SIDENOTE]
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 smaller 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.
HIGH-YIELD DEBT SECURITIES (sometimes called "lower rated bonds" or "junk bonds") are rated BB/Ba or lower and typically pay a higher yield than investment-grade debt securities. High-yield securities have a higher risk of default than investment-grade debt securities, and their prices are much more volatile. The market for high-yield debt securities may also be less liquid.
INVESTMENT GRADE DEBT SECURITIES are debt securities that are rated within the four highest grades assigned by Moody's Investor Service, Inc. (Aaa, Aa, A, Baa), Standard & Poor's Ratings Services (AAA, AA, A, BBB) or Fitch Investors Service (AAA, AA, A, BBB), (each a "Rating Agency") or are unrated but determined by Lord Abbett to be of comparable quality.
The Funds | 3
BALANCED FUND
THE TOTAL RETURN FUND'S investment objective is to seek income and capital appreciation to produce a high total return. The Total Return Fund invests primarily in U.S. Government, mortgage-related, and investment grade debt securities, as well as in high yield debt securities or "junk bonds" and securities issued by non-U.S. entities and denominated in currencies other than the U.S. dollar. Investments in high yield debt and non-U.S. debt denominated in foreign currencies are each limited to 20% of its net assets.
MAIN RISKS OF THE BALANCED FUND'S UNDERLYING FUNDS
The following summarizes some, but not all, of the risks that apply to each underlying fund and may result in a loss of your investment. There can be no assurance that an underlying fund will achieve its investment objective.
AFFILIATED FUND, ALL VALUE FUND, GROWTH OPPORTUNITIES FUND, LARGE-CAP RESEARCH FUND, AND MID-CAP VALUE FUND. These underlying funds are subject to the general risks and considerations associated with equity investing. Their values will fluctuate in response to movements in the stock market in general and to the changing prospects of individual companies in which the underlying fund invests. If an underlying fund's assessment of market conditions or companies held in the fund is wrong, the fund could suffer losses or produce poor performance relative to other funds, even in a rising market.
The underlying funds also are subject to the particular risks associated with the types of stocks in which they normally invest: value stocks in the case of the Affiliated Fund, All Value Fund, Large-Cap Research Fund and the Mid-Cap Value Fund; and growth stocks in the case of the Growth Opportunities Fund. Value and growth stocks may perform differently than the market as a whole and differently from each other or other types of stocks. This is because these types of stocks shift in and out of favor depending on market and economic conditions. For instance, the market may fail to recognize the intrinsic value of particular value stocks for a long time. Also, growth companies may grow faster than other companies which may result in greater volatility in their stock prices.
Investments in mid-sized or small companies generally involve greater risks than investments in large company stocks. Smaller companies may be less able to weather economic shifts or other adverse developments than larger, more established companies. They may have relatively less experienced management and unproven track records. They may rely on limited product lines and have more limited financial resources. In addition, there may be less liquidity in mid-sized or small company stocks, subjecting them to greater price fluctuations than larger company stocks.
BOND-DEBENTURE FUND, CORE FIXED INCOME FUND AND TOTAL RETURN FUND. These underlying funds are subject to the general risks and considerations associated with investing in debt securities. The value of an investment in each fund will change as interest rates fluctuate in response to market movements. When interest rates rise, the prices of debt securities are likely to decline. Longer-term fixed income securities are usually more sensitive to interest rate changes. This means that the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price. High-yield securities or junk bonds are usually more credit sensitive than interest rate sensitive. In times of economic uncertainty, these securities may decline in price, even when interest rates are falling.
4 | The Funds
BALANCED FUND
There is also the risk that an issuer of a debt security will fail to make timely payments of principal or interest to an underlying fund, a risk that is greater with junk bonds in which the Bond-Debenture Fund and Total Return Fund may invest. Some issuers, particularly of junk bonds, may default as to principal and/or interest payments after the fund purchases their securities. A default, or concerns in the market about an increase in risk of default, may result in losses to the underlying funds. In addition, the market for high yield securities generally is less liquid than the market for higher rated securities, subjecting them to greater price fluctuations.
The Bond-Debenture Fund and Total Return Fund may invest up to 20% of their assets in foreign securities. Investments in foreign securities may present increased market, liquidity, currency, political, information, and other risks.
The mortgage-related securities in which the Core Fixed Income Fund and Total Return Fund may invest, including collateralized mortgage obligations ("CMOs"), may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose a fund to a lower rate of return upon reinvestment of prinicipal. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security. These factors may result in lower performance or losses for these underlying funds.
U.S. GOVERNMENT FUND. A description of the risks of this underlying fund may be found on page 14 of this prospectus.
The Funds | 5
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BALANCED FUND Symbols: Class A - LABFX
Class B - LABBX
Class C - BFLAX
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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.
95 22.8% 96 9.1% 97 17.3% 98 8.8% 99 11.0% 00 7.4% 01 -1.8% |
BEST QUARTER 4th Q '98 +12.2% WORST QUARTER 3rd Q '98 -8.6% -------------------------------------------------------------------------------- |
The table below shows how the average annual total returns of the Fund's Class A, B and C shares compare to those of a broad-based securities market index and two more narrowly based indices that more closely reflect 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 for 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 and Class C shares are not shown in the table and will vary from those shown for Class A shares.
SHARE CLASS 1 YEAR 5 YEARS LIFE OF FUND
Class A shares
Return Before Taxes -7.46% 7.11% 9.45%(1)
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Return After Taxes on Distributions -9.16% 3.61% 6.21%
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Return After Taxes on Distributions and
Sale of Fund Shares -4.55% 4.03% 6.12%
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Class B shares -7.12% - 3.64%(1)
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Class C shares -3.18% 7.51% 8.89%(1)
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Russell 3000 Index(2) -11.46% 10.14% 15.25%(3)
(reflects no deduction for fees, expenses or taxes) 2.05%(4)
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12.54%(5)
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60% Russell 3000, 40% Lehman -3.50% 9.06% 12.50%(3)
Brothers Aggregate Bond Index(2) 4.00%(4)
(reflects no deduction for fees, expenses or taxes) 10.62%(5)
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Lipper Balanced Funds Average(2) -4.39% 7.64% 11.10%(3)
(reflects no deduction for fees, expenses or taxes) 3.02%(4)
9.16%(5)
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(1) The date each class was first offered to the public is: A - 12/27/94;
B - 5/1/98; and C - 7/15/96.
(2) The performance of the unmanaged indices is not necessarily
representative of the Fund's performance.
(3) Represents total returns for the period 12/31/94 to 12/31/01, to
correspond with Class A period shown.
(4) Represents total returns for the period 4/30/98 to 12/31/01, to
correspond with Class B period shown.
(5) Represents total returns for the period 7/31/96 to 12/31/01, to
correspond with Class C period shown.
6 | The Funds
FEES AND EXPENSES BALANCED FUND
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
CLASS A CLASS B(1) CLASS C CLASS P
SHAREHOLDER FEES (Fees paid directly from your investment)
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Maximum Sales Charge on Purchases
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(as a % of offering price) 5.75% none none none
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Maximum Deferred Sales Charge (See "Purchases")(2) none(3) 5.00% 1.00%(4) none
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ANNUAL FUND OPERATING EXPENSES (Expenses deducted from Fund assets) (as a % of average net assets)
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Management Fees (See "Management") 0.75% 0.75% 0.75% 0.75%
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Distribution and Service (12b-1) Fees(5) 0.39% 1.00% 1.00% 0.45%
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Other Expenses 0.40% 0.40% 0.40% 0.40%
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Total Operating Expenses 1.54%(6) 2.15% 2.15%(6) 1.60%
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(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) The annual operating expenses have been restated from fiscal year amounts to reflect an estimate of current fees.
While each class of shares of the Balanced Fund is expected to operate with the direct total operating expenses shown under "Fee Table" above, shareholders in the Balanced Fund bear indirectly the Class Y share expenses of the underlying funds in which the Balanced Fund invests. The following chart provides the expense ratio for each of the underlying fund's Class Y shares, as well as the approximate percentage of the Balanced Fund's net assets invested in each underlying fund on November 30, 2001:
UNDERLYING FUNDS' % OF BALANCED FUND
EXPENSE RATIOS NET ASSETS
Affiliated Fund .25% 60%
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Bond-Debenture Fund .19% 30%
--------------------------------------------------------------------------------
Total Return Fund .10% 10%
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Based on these figures, the weighted average Class Y share expense ratio for the underlying funds in which Balanced Fund invests is .54% (the "underlying expense ratio"). This figure is only an approximation of the Balanced Fund's underlying expense ratio, since the amount of assets invested in each of the underlying funds may change daily.
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This example, like that in other funds' prospectuses, assumes that you invest $10,000 in the Fund at maximum sales charge, if any, for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. In addition, the example assumes the Fund pays the operating expenses set forth in the fee table above and the Fund's pro rata share of the Class Y expenses of the underlying Funds. 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 $774 $1,189 $1,629 $2,847 --------------------------------------------------------------------------------------- Class B shares $772 $1,135 $1,625 $2,875 --------------------------------------------------------------------------------------- Class C shares $372 $ 835 $1,425 $3,022 --------------------------------------------------------------------------------------- Class P shares $217 $ 670 $1,149 $2,472 --------------------------------------------------------------------------------------- You would have paid the following expenses if you did not redeem your shares: Class A shares $774 $1,189 $1,629 $2,847 --------------------------------------------------------------------------------------- Class B shares $272 $ 835 $1,425 $2,875 --------------------------------------------------------------------------------------- Class C shares $272 $ 835 $1,425 $3,022 --------------------------------------------------------------------------------------- Class P shares $217 $ 670 $1,149 $2,472 --------------------------------------------------------------------------------------- |
[SIDENOTE]
MANAGEMENT FEES are payable to Lord Abbett for the Fund's investment management
LORD ABBETT IS CURRENTLY WAIVING THE MANAGEMENT FEE FOR THE FUND. LORD ABBETT MAY STOP WAIVING THE MANAGEMENT FEE AT ANY TIME. TOTAL OPERATING EXPENSES WITH THE MANAGEMENT FEE WAIVER AND EXPENSE REDUCTIONS ARE 0.39% (CLASS A SHARES), 1.00% (CLASS B AND C SHARES), AND 0.45% (CLASS P SHARES).
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 service fees and professional fees. The Fund has entered into a servicing arrangement with the underlying funds under which the underlying funds may bear certain of the Fund's Other Expenses. As a result, the Fund does not expect to bear any of these Other Expenses.
The Funds | 7
HIGH YIELD FUND
GOAL
The Fund's investment objective is to seek high current income and the opportunity for capital appreciation to produce a high total return.
PRINCIPAL STRATEGY
To pursue its goal, the Fund normally invests in high-yield debt securities, sometimes called "lower-rated bonds" or "junk bonds," which entail greater risks than investments in higher-rated or investment-grade debt securities. Under normal circumstances, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in lower-rated debt securities, some of which are convertible into common stock or have warrants to purchase common stock. The Fund will provide shareholders with at least 60 days notice of any change in this 80% policy.
We believe that a high total return (current income and capital appreciation) may be derived from an actively-managed, diversified portfolio of investments. We seek unusual values, particularly in lower-rated debt securities. Also, buying lower-rated bonds when we believe the credit risk is likely to decrease, may generate higher returns. Through portfolio diversification, credit analysis and attention to current developments and trends in interest rates and economic conditions, we attempt to reduce investment risk, but losses may occur.
MAIN RISKS
The Fund is subject to the general risks and considerations associated with investing in debt securities. The value of your investment will change as interest rates fluctuate and in response to market movements. When interest rates rise, the prices of debt securities are likely to decline. Longer-term fixed income securities are usually more sensitive to interest rate changes. This means that the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price. High yield securities or junk bonds are usually more credit sensitive than interest rate sensitive. In times of economic uncertainty, these securities may decline in price, even when interest rates are falling.
There is also the risk that an issuer of a debt security will fail to make timely payments of principal or interest to the Fund, a risk that is greater with junk bonds. Some issuers, particularly of junk bonds, may default as to principal and/or interest payments after the Fund purchases their securities. A default, or concerns in the market about an increase in risk of default, may result in losses to the Fund. In addition, the market for high-yield securities generally is less liquid than the market for higher-rated securities, subjecting them to greater price fluctuations.
The High Yield Fund may invest up to 20% of its assets in foreign securities. Investments in foreign securities may present 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 HIGH YIELD FUND refers to the Lord Abbett High Yield Fund ("High Yield Fund"), a portfolio of the Trust.
ABOUT THE FUND. This Fund is a professionally managed portfolio primarily holding securities purchased with the pooled money of investors. It strives to reach its stated goal; although, as with all funds, it cannot guarantee results.
INVESTMENT GRADE DEBT SECURITIES are debt securities that are rated within the four highest grades assigned by Moody's Investor Service, Inc. (Aaa, Aa, A, Baa), Standard & Poor's Ratings Services (AAA, AA, A, BBB) or Fitch Investors Service (AAA, AA, A, BBB), (each a "Rating Agency") or are unrated but determined by Lord Abbett to be of comparable quality.
HIGH-YIELD DEBT SECURITIES (sometimes called "lower rated bonds" or "junk bonds") are rated BB/Ba or lower and typically pay a higher yield than investment-grade debt securities. High-yield securities have a higher risk of default than investment-grade debt securities, and their prices are much more volatile. The market for high-yield debt securities may also be less liquid.
8 | The Funds
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HIGH YIELD FUND Symbols: Class A - LHYAX
Class B - LHYBX
Class C - LHYCX
|
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.
99 6.6% 00 -3.0% 01 5.4% |
BEST QUARTER 4th Q '01 +6.2% WORST QUARTER 3rd Q '01 -4.0% -------------------------------------------------------------------------------- |
The table below shows how the average annual total returns of the Fund's Class A, B and C shares compare to those of two broad-based securities market indices. The Fund's returns reflect payment of the maximum applicable front-end sales or deferred sales charges.
The after-tax returns for 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 and Class C shares are not shown in the table and will vary from those shown for Class A shares.
SHARE CLASS 1 YEAR SINCE INCEPTION(1) Class A shares ----------------------------------------------------------------------------------------- Return Before Taxes 0.34% 1.24% ---------------------------------------------------------------------------------------- Return After Taxes on Distributions -3.64% -2.64% ---------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares 0.18% -0.91% ---------------------------------------------------------------------------------------- Class B shares -0.14% 1.39% ----------------------------------------------------------------------------------------- Class C shares 3.64% 2.20% ----------------------------------------------------------------------------------------- Merrill Lynch High Yield Master Index(2) (reflects no deduction for fees, expenses or taxes) 6.20% 1.25%(3) ----------------------------------------------------------------------------------------- First Boston High Yield Index(2) (reflects no deduction for fees, expenses or taxes) 5.79% 1.17%(3) ----------------------------------------------------------------------------------------- |
(1) The date each class was first offered to the public for Class A, B and C
shares is 12/31/98.
(2) The performance of the unmanaged indices is not necessarily representative
of the Fund's performance.
(3) Represents total return for the period 12/31/98 - 12/31/01, to correspond
with Class A, B and C periods shown.
The Funds | 9
FEES AND EXPENSES HIGH YIELD FUND
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) 4.75% none none none
------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (See "Purchases")(2) none(3) 5.00% 1.00%(4) none
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ANNUAL FUND OPERATING EXPENSES (Expenses deducted from Fund assets) (as a % of average net assets)
------------------------------------------------------------------------------------------------------
Management Fees (See "Management") 0.60% 0.60% 0.60% 0.60%
-----------------------------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees(5) 0.39% 1.00% 1.00% 0.45%
-----------------------------------------------------------------------------------------------------
Other Expenses 0.37% 0.37% 0.37% 0.37%
-----------------------------------------------------------------------------------------------------
Total Operating Expenses 1.36%(6) 1.97% 1.97% 1.42%
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(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) The annual operating expenses have been restated from fiscal year amounts
to reflect an estimate of current fees.
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This example, like that in other funds' prospectuses, assumes that you invest $10,000 in the Fund at maximum sales charge, if any, for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs (including any applicable contingent deferred sales charges) would be:
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A shares $607 $885 $1,184 $2,032 ---------------------------------------------------------------------------------------- Class B shares $700 $918 $1,262 $2,138 ---------------------------------------------------------------------------------------- Class C shares $300 $618 $1,062 $2,296 ---------------------------------------------------------------------------------------- Class P shares $145 $449 $ 776 $1,702 ---------------------------------------------------------------------------------------- You would have paid the following expenses if you did not redeem your shares: Class A shares $607 $885 $1,184 $2,032 ---------------------------------------------------------------------------------------- Class B shares $200 $618 $1,062 $2,138 ---------------------------------------------------------------------------------------- Class C shares $200 $618 $1,062 $2,296 ---------------------------------------------------------------------------------------- Class P shares $145 $449 $ 776 $1,702 ---------------------------------------------------------------------------------------- |
[SIDENOTE]
MANAGEMENT FEES are payable to 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 service fees and professional fees.
10 | The Funds
LIMITED DURATION U.S. GOVERNMENT FUND
GOAL
The Fund's investment objective is to seek a high level of income from a portfolio consisting primarily of limited duration U.S. Government securities. The Fund is not a money market fund.
PRINCIPAL STRATEGY
To pursue its goal, the Fund primarily invests in short- and intermediate-duration U.S. Government securities which the Fund expects will produce a high level of income. Under normal circumstances, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in direct obligations of the U.S. Treasury (such as Treasury bills, notes and bonds) and certain obligations issued or guaranteed by U.S. Government agencies and instrumentalities (including mortgage-related securities), such as:
- FEDERAL HOME LOAN BANKS
- FEDERAL HOME LOAN MORTGAGE CORPORATION
- FEDERAL NATIONAL MORTGAGE ASSOCIATION
- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
The Fund will provide shareholders with at least 60 days notice of any change in this policy. The Fund attempts to manage, but not eliminate, interest rate risk through its management of the average duration of the securities it holds. Duration is a mathematical concept that measures a portfolio's exposure to interest rate changes. The Fund expects to maintain its average duration range between one and four years. The higher the Fund's duration, the more sensitive it is to interest rate risk.
MAIN RISKS
The Fund is subject to the general risks and considerations associated with investing in debt securities. Although the U.S. Government securities in which the Fund invests are guaranteed as to payments of interest and principal, their market prices are not guaranteed and will fluctuate in response to market movements. When interest rates rise, the prices of debt securities are likely to decline in value. Likewise, the value of your investment will change as interest rates fluctuate and in response to market movements. The Fund does not attempt to maintain a stable net asset value.
The mortgage-related securities in which the Fund may invest may be particularly sensitive to changes in prevailing interest rates. Like other debt securities, when interest rates rise, the value of mortgage-related securities generally will decline; however, when interest rates are declining, the value of mortgage-related securities with prepayment features may not increase as much as other fixed income securities. Early repayment of principal on some mortgage-related securities may deprive the Fund of income payments above current market rates. The rate of prepayments on underlying mortgages also will affect the price and volatility of a mortgage-related security.
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 LIMITED DURATION U.S. GOVERNMENT FUND refers to Limited
Duration U.S. Government Securities Series, a series of the Trust.
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.
The Funds | 11
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.
94 -3.5% 95 10.1% 96 1.3% 97 6.9% 98 6.6% 99 2.8% 00 9.2% 01 6.5% |
BEST QUARTER 3rd Q '01 +3.5% WORST QUARTER 1st Q '94 -2.9% ------------------------------------------------------------------------------- |
The table below shows how the average annual total returns of the Fund's Class A, B and C shares compare to those of a broad-based securities market index. The Fund's returns reflect payment of the maximum applicable front-end or deferred sales charges.
The after-tax returns for 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 and Class C shares are not shown in the table and will vary from those shown for Class A shares.
SHARE CLASS 1 YEAR 5 YEARS LIFE OF FUND Class A shares ---------------------------------------------------------------------------------------- Return Before Taxes 3.25% 5.66% 4.45%(1) -------------------------------------------------------------------------------------- Return After Taxes on Distributions 1.09% 3.25% 2.07% -------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares 1.95% 3.30% 2.31% ---------------------------------------------------------------------------------------- Class C shares 4.32% 5.27% 5.44%(1) ---------------------------------------------------------------------------------------- Lehman Intermediate Government Bond Index(2) 6.28%(3) (reflects no deduction for fees, expenses or taxes) 8.42% 7.06% 7.23%(4) --------------------------------------------------------------------------------------- |
(1) The date each class was first offered to the public is: A - 11/4/93; and
C - 7/15/96.
(2) The performance of the unmanaged index is not necessarily representative
of the Fund's performance.
(3) Represents total returns for the period 10/31/93 to 12/31/01, to
correspond with Class A period shown.
(4) Represents total returns for the period 7/31/96 to 12/31/01, to
correspond with Class C period shown.
12 | The Funds
FEES AND EXPENSES LIMITED DURATION U.S. GOVERNMENT FUND
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) 3.25% 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") 0.50% 0.50% 0.50% 0.50%
-------------------------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees(5) 0.39% 1.00% 1.00% 0.45%
-------------------------------------------------------------------------------------------------
Other Expenses 0.45% 0.45% 0.45% 0.45%
-------------------------------------------------------------------------------------------------
Total Operating Expenses 1.34%(6) 1.95% 1.95% 1.40%
-------------------------------------------------------------------------------------------------
|
(1) Class B shares will convert to Class A shares on the eigth 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) The annual operating expenses have been restated from fiscal year amounts to reflect an estimate of current fees.
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This example, like that in other funds' prospectuses, assumes that you invest $10,000 in the Fund at maximum sales charsge, if any, for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs (including any applicable contingent deferred sales charges) would be:
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A shares $457 $736 $1,035 $1,885 ------------------------------------------------------------------------------------- Class B shares $698 $912 $1,252 $2,117 ------------------------------------------------------------------------------------- Class C shares $298 $612 $1,052 $2,275 ------------------------------------------------------------------------------------- Class P shares $143 $443 $ 766 $1,680 ------------------------------------------------------------------------------------- You would have paid the following expenses if you did not redeem your shares: Class A shares $457 $736 $1,035 $1,885 ------------------------------------------------------------------------------------- Class B shares $198 $612 $1,052 $2,117 ------------------------------------------------------------------------------------- Class C shares $198 $612 $1,052 $2,275 ------------------------------------------------------------------------------------- Class P shares $143 $443 $ 766 $1,680 ------------------------------------------------------------------------------------- |
[SIDENOTE]
MANAGEMENT FEES are payable to Lord Abbett for the Fund's investment management.
12b-1 FEES are incurred for activities that are primarily intended to result in the sale of Fund shares and service fees for shareholder account service and maintenance.
THE 12b-1 PLAN FOR THE FUND WILL NOT BECOME OPERATIVE FOR CLASS A SHARES UNTIL THE CLASS A SHARES NET ASSETS REACH $100 MILLION.
OTHER EXPENSES include fees paid for miscellaneous items such as shareholder service fees and professional fees.
The Funds | 13
U.S. GOVERNMENT FUND
GOAL
The Fund's investment objective is high current income consistent with reasonable risk. By reasonable risk we mean that the volatility the Fund is expected to have over time will approximate that of the Lehman Brothers Government Bond Index.
PRINCIPAL STRATEGY
To pursue its goal, the Fund primarily invests in U.S. government securities which the Fund expects will produce high current income consistent with reasonable risk. Under normal circumstances, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in obligations issued by the U.S. Treasury and certain obligations issued or guaranteed by U.S. Government agencies and instrumentalities (including mortgage-related securities), such as:
- FEDERAL HOME LOAN BANKS
- FEDERAL HOME LOAN MORTGAGE CORPORATION
- FEDERAL NATIONAL MORTGAGE ASSOCIATION
- FEDERAL FARM CREDIT BANK
- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
- STUDENT LOAN MARKETING ASSOCIATION
- TENNESSEE VALLEY AUTHORITY
The Fund will provide shareholders with at least 60 days notice of any change in this policy. The Fund attempts to manage, but not eliminate, interest rate risk through its management of the average duration of the securities it holds. Duration is a mathematical concept that measures a portfolio's exposure to interest rate changes. The Fund expects to maintain its average duration range between three and eight years. The higher the Fund's duration, the more sensitive it is to interest rate risk.
MAIN RISKS
The Fund is subject to the general risks and considerations associated with investing in debt securities. Although the U.S. Government securities in which the Fund invests are guaranteed as to payments of interest and principal, their market prices are not guaranteed and will fluctuate in response to market movements. When interest rates rise, the prices of debt securities are likely to decline in value. Likewise, the value of your investment will change as interest rates fluctuate and in response to market movements. The Fund does not attempt to maintain a stable net asset value.
The mortgage-related securities in which the Fund may invest may be particularly sensitive to changes in prevailing interest rates. Like other debt securities, when interest rates rise, the value of mortgage-related securities generally will decline; however, when interest rates are declining, the value of mortgage-related securities with prepayment features may not increase as much as other fixed income securities. Early repayment of principal on some mortgage-related securities may deprive the Fund of income payments above current market rates. The rate of prepayments on underlying mortgages also will affect the price and volatility of a mortgage-related security.
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 U.S. GOVERNMENT FUND refers to U.S. Government Securities Series, a portfolio of the Trust.
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.
14 | The Funds
--------------------
U.S. GOVERNMENT FUND Symbols: Class A - LAGVX
Class B - LAVBX
Class C - LAUSX
|
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]
92 7.1% 93 9.3% 94 -4.3% 95 15.6% 96 1.7% 97 9.1% 98 7.9% 99 -1.5% 00 11.3% 01 6.9% |
BEST QUARTER 3rd Q '92 +5.0% WORST QUARTER 1st Q '94 -3.4% ----------------------------------------------------------------------------------------- |
The table below shows how the average annual total returns of the Fund's Class A, B and C shares compare to those of a broad-based securities market index. The Fund's returns reflect payment of the maximum applicable front-end or deferred sales charges.
The after-tax returns for 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 and Class C shares are not shown in the table and will vary from those shown for Class A shares.
SHARE CLASS 1 YEAR 5 YEARS 10 YEARS LIFE OF FUND Class A shares ---------------------------------------------------------------------------------------------- Return Before Taxes 1.70% 5.61% 5.65% 9.34%(1) --------------------------------------------------------------------------------------------- Return After Taxes on Distributions -0.61% 2.90% 2.56% 5.33% --------------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sales of Fund Shares 1.01% 3.09% 2.91% 5.43% ---------------------------------------------------------------------------------------------- Class B shares 1.32% 5.61% - 6.11%(1) ---------------------------------------------------------------------------------------------- Class C shares 5.25% 5.99% - 6.43%(1) ---------------------------------------------------------------------------------------------- Lehman Government Bond Index(2) 10.07%(3) (reflects no deduction for fees, expenses or taxes) 7.23% 7.40% 7.14% 7.67%(4) ---------------------------------------------------------------------------------------------- |
(1) The date each class was first offered to the public are: A - 1/1/82; B - 8/1/96; and C - 7/15/96.
(2) The performance of the unmanaged index is not necessarily representative of the Fund's performance.
(3) Represents total returns for the period 12/31/81 to 12/31/01, to correspond with Class A period shown.
(4) Represents total returns for the period 7/31/96 to 12/31/01, to correspond with Class B and Class C period shown.
The Funds | 15
U.S. GOVERNMENT FUND
FEES AND EXPENSES
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) 4.75% 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") 0.50% 0.50% 0.50% 0.50%
------------------------------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees(5) 0.39% 1.00% 1.00% 0.45%
------------------------------------------------------------------------------------------------------
Other Expenses 0.21% 0.21% 0.21% 0.21%
------------------------------------------------------------------------------------------------------
Total Operating Expenses 1.10% 1.71% 1.71% 1.16%
------------------------------------------------------------------------------------------------------
|
(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.
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A shares $ 582 $ 808 $ 1,052 $ 1,752 -------------------------------------------------------------------------------------------- Class B shares $ 674 $ 839 $ 1,128 $ 1,858 -------------------------------------------------------------------------------------------- Class C shares $ 274 $ 539 $ 928 $ 2,019 -------------------------------------------------------------------------------------------- Class P shares $ 118 $ 368 $ 638 $ 1,409 -------------------------------------------------------------------------------------------- You would have paid the following expenses if you did not redeem your shares: Class A shares $ 582 $ 808 $ 1,052 $ 1,752 -------------------------------------------------------------------------------------------- Class B shares $ 174 $ 539 $ 928 $ 1,858 -------------------------------------------------------------------------------------------- Class C shares $ 174 $ 539 $ 928 $ 2,019 -------------------------------------------------------------------------------------------- Class P shares $ 118 $ 368 $ 638 $ 1,409 -------------------------------------------------------------------------------------------- |
[SIDENOTE]
MANAGEMENT FEES are payable to 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 service fees and professional fees.
16 | The Funds
ADDITIONAL INVESTMENT TECHNIQUES
This section describes some of the investment techniques used by each Fund and the Balanced Fund's underlying funds and some of the risks associated with those techniques.
ADJUSTING INVESTMENT EXPOSURE. Each Fund and the Balanced Fund's underlying funds will be subject to the risks associated with investments. Each Fund and the Balanced Fund's underlying Funds 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, each Fund and the Balanced Fund's underlying Funds may seek to hedge against certain market risks. These strategies may involve, with board approval, 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 or underlying 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. A number of the Balanced Fund's underlying funds, as well as the High Yield Fund, may invest in convertible securities. 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.
FOREIGN SECURITIES. Certain of the Balanced Fund's underlying funds may invest in foreign securities.
Foreign markets and the securities traded in them may not be subject to the same degree of regulation as U.S. markets. Securities clearance, settlement procedures and trading practices may be different, and transaction costs may be higher, in foreign countries. There may be less trading volume and liquidity in foreign markets, subjecting the securities traded in them to greater price fluctuations. Foreign investments also may be affected by changes in currency rates or currency controls.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Certain of the Balanced Fund's underlying funds, as well as the High Yield Fund, Limited Duration U.S. Government Fund and U.S. Government Fund, may enter into financial futures contracts and options thereon for bona fide hedging purposes or to pursue risk management strategies. These transactions involve the purchase or sale of a contract to buy or sell a specified security or other financial instrument at a specific future date and price on an exchange or in over the counter market ("OTC"). Each of these funds may not purchase or sell futures contracts or options on futures contracts on a CFTC-regulated exchange for non-bona fide hedging purposes if the aggregated 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.
LISTED OPTIONS ON SECURITIES. Certain of the Balanced Fund's underlying funds, as well as the High Yield Fund, Limited Duration U.S. Government Fund and U.S. Government Fund, may purchase and write national securities exchange-listed put and call options on securities or securities indices. The Funds 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 Funds may write covered call options with respect to securities in their portfolios 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 Funds is covered when, among other things, the Fund segregates
The Funds | 17
permissible liquid assets having a value equal to or greater than the exercise
price of the option to fulfill the obligation undertaken. Each Fund will not
purchase an option if, as a result of such purchase, more than 10% of its net
assets would be invested in premiums for such options. Each Fund may only sell
(write) covered put options to the extent that cover for such options does not
exceed 15% of its net assets. Each Fund may only sell (write) covered call
options having an aggregate market value of less than 25% of its net assets.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. Certain of the Balanced Fund's underlying funds, as well as the Limited Duration U.S. Government Fund and U.S. Government Fund may invest extensively in mortgage-related securities and certain of the Balanced Fund's underlying funds also may invest in other asset-backed securities. Mortgage-related securities include mortgage pass-through securities, collateralized mortgage obligations ("CMOs"), commercial mortgage-backed securities, mortgage dollar rolls, stripped mortgage-backed securities ("SMBSs") and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or "IO" class), while the other class will receive all of the principal (the principal-only, or "PO" class). The value of an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage assets, and a rapid rate of principal payments may cause the Funds to lose money.
OPTIONS TRANSACTIONS. Certain of the underlying funds in which the Balanced Fund may invest, as well as the High Yield Fund, Limited Duration U.S. Government Fund and U.S. Government Fund, may purchase and write put and call options on securities and indices that are traded on national securities exchanges. A fund will not purchase an option if, as a result of such purchase, more than 10% of its net assets would be invested in premiums for such options. A fund may only sell (write) covered put options to the extent that cover for such options does not exceed 15% of its net assets. A fund may only sell (write) covered call options having an aggregate market value of less than 25% of its net assets.
PORTFOLIO TURNOVER RATE. The U.S. Government Fund and Limited Duration U.S. Government Fund may engage in active and frequent trading of their portfolio securities to achieve their principal investment strategies. Each Fund can expect to have a portfolio turnover rate substantially in excess of 100%. For the fiscal year ended November 30, 2001, the portfolio turnover rate for the Limited Duration U.S. Government Fund was 564% and the portfolio turnover rate for the U.S. Government Fund was 688%. This rate varies from year to year. High turnover increases transaction costs and may increase taxable capital gains.
RISKS OF FUTURES OPTIONS AND FUTURES. A fund's transactions, if any, in futures, options on futures and other options involve additional risk of loss. Loss may result from 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, or the risks arising from margin requirements and related leverage factors associated with such transactions. The use of these investment techniques also involves the risk of loss if Lord Abbett is incorrect in its expectation of fluctuations in securities prices. In addition, the loss that may be incurred by the funds in entering into futures contracts and in writing call options is potentially unlimited and may exceed the amount of the premium received.
TEMPORARY DEFENSIVE INVESTMENTS. At times each 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 these securities. These investments could reduce the benefit from any upswing in the market and prevent a Fund from achieving its investment objective.
18 | The Funds
MANAGEMENT
The Funds' investment adviser is Lord, Abbett & Co., which is located at 90 Hudson Street, Jersey City, NJ 07302-3973. Founded in 1929, Lord Abbett manages one of the nation's oldest mutual fund complexes, with approximately $43 billion in more than 40 mutual fund portfolios and other advisory accounts. For more information about the services Lord Abbett provides to the Funds, see the Statement of Additional Information.
Lord Abbett is entitled to an annual management fee based on each Fund's average daily net assets. Each fee is calculated daily and payable monthly.
For the fiscal year ended November 30, 2001, the fees paid to Lord Abbett for the following Funds were as follows:
.75 of 1% for Balanced Fund
.60 of 1% for High Yield Fund and
.50 of 1% for Limited Duration U.S.Government Fund.
For the fiscal year ended November 30, 2001, Lord Abbett waived its entire management fees for the Balanced Fund, and waived a portion of its management fees for High Yield Fund and Limited Duration U.S. Government Fund. Lord Abbett also subsidized a portion of the other expenses for High Yield Fund and Limited Duration U.S. Government Fund.
Lord Abbett is entitled to a monthly fee based on U.S. Government Fund's average daily net assets for each month at the annual rate set forth below:
.50 of 1% on the first $3 billion of average daily net assets and .45 of 1% on its assets over $3 billion.
For the fiscal year ended November 30, 2001, the fees paid to Lord Abbett were at an effective annual rate of .50 of 1% for the U.S. Government Fund. Each Fund pays all expenses not expressly assumed by Lord Abbett.
INVESTMENT MANAGERS. Lord Abbett uses teams of investment managers and analysts acting together to manage the Funds' investments.
BALANCED FUND. Robert S. Dow, Managing Partner and Chief Investment Officer of Lord Abbett, Zane E. Brown, Partner and Director of Fixed Income of Lord Abbett, and Robert G. Morris, Partner and Director of Equity Investments of Lord Abbett, oversee and review the allocation and investment of the Fund's assets in underlying funds. Mr. Dow began his tenure with Lord Abbett in 1972. Mr. Brown has been with Lord Abbett since 1992. Mr. Morris has been with Lord Abbett since 1991.
HIGH YIELD FUND. Christopher J. Towle, Partner of Lord Abbett, heads the team, the other senior members of which include Richard Szaro, Michael S. Goldstein and Thomas Baade. Messrs. Towle and Szaro have been with Lord Abbett since 1988 and 1983, respectively. Mr. Goldstein has been with Lord Abbett since 1997. Before joining Lord Abbett, Mr. Goldstein was a bond trader for Credit Suisse Asset Management Associates from August 1992 through April 1997. Mr. Baade joined Lord Abbett in 1998; prior to that he was a credit analyst with Greenwich Street Advisors from 1990 to 1998.
LIMITED DURATION U.S. GOVERNMENT FUND AND U.S. GOVERNMENT FUND. Robert I. Gerber, Partner of Lord Abbett heads the team, the other senior members of which include Walter H. Prahl and Robert A. Lee. Mr. Gerber joined Lord Abbett in July 1997 as Director of Taxable Fixed Income. Before joining Lord Abbett, Mr. Gerber served as a Senior Portfolio Manager at Sanford C. Bernstein & Co., Inc. since 1992. Mr. Prahl joined Lord Abbett in 1997 as Director of Quantitative Research, Taxable Fixed Income. Before joining Lord Abbett, Mr. Prahl served as a Fixed Income Research Analyst at Sanford C. Bernstein & Co., Inc. since 1994. Mr. Lee joined Lord Abbett in 1997 as a Fixed Income Portfolio Manager; prior to that he served as a Portfolio Manager at ARM Capital Advisors since 1995.
The Funds | 19
YOUR INVESTMENT
PURCHASES
The Funds offer in this prospectus four classes of shares: Classes A, B, C and P for the Balanced Fund, High Yield Fund, U.S. Government Fund and Limited Duration U.S. Government Fund, each with different expenses and dividends. You may purchase shares at the net asset value ("NAV") per share determined after we receive your purchase order submitted in proper form. A front-end sales charge 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 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 pricing options with your investment professional.
FOR MORE INFORMATION, SEE "CAPITAL STOCK AND OTHER SECURITIES" IN THE
STATEMENT OF ADDITIONAL INFORMATION.
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 convert 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 - no front-end sales charge and no CDSC
- available only to certain investors
|
FRONT-END SALES CHARGES - CLASS A SHARES
(BALANCED FUND ONLY)
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
-------------------------------------------------------------------------------------------
|
[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 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 be impacted on days when shareholders will not be able to purchase or redeem Fund shares.
20 | Your Investment
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 $100,000 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
-------------------------------------------------------------------------------------------
|
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 3.25% 3.36% .9675 2.75%
--------------------------------------------------------------------------------------------
$50,000 to $99,999 2.75% 2.83% .9725 2.25%
--------------------------------------------------------------------------------------------
$100,000 to $249,999 2.50% 2.56% .9750 2.00%
--------------------------------------------------------------------------------------------
$250,000 to $499,999 2.00% 2.04% .9800 1.70%
--------------------------------------------------------------------------------------------
$500,000 to $999,999 1.50% 1.52% .9850 1.25%
--------------------------------------------------------------------------------------------
$1,000,000 and over 1.00% 1.01% .9900 1.00%
--------------------------------------------------------------------------------------------
|
WITH RESPECT TO EACH FUND EXCEPT THE LIMITED DURATION U.S. GOVERNMENT FUND, AN AMOUNT OF UP TO 1% OF AN INVESTMENT MAY BE PAID TO A DEALER WITH RESPECT TO PURCHASES OF $1 MILLION OR MORE AND PURCHASES BY CERTAIN RETIREMENT AND BENEFIT PLANS.
REDUCING YOUR CLASS A FRONT-END SALES CHARGES. Class A shares may be purchased at a discount if you qualify under either of the following conditions:
- RIGHTS OF ACCUMULATION - A Purchaser may apply the value at public
offering price of the Class A shares you already owned to a new purchase
of Class A shares of any ELIGIBLE FUND in order to reduce the sales
charge.
- LETTER OF INTENTION - A Purchaser of Class A shares can purchase
additional 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 and his or her spouse, and children under the age of 21, and (3) a trustee or other fiduciary purchasing shares for a single trust, estate or single fiduciary account (including a pension, profit-sharing, or other employee benefit trust qualified under Section 401 of the Internal Revenue Code.) 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 be considered as one account; although, more than one beneficiary is involved.
FOR MORE INFORMATION ON ELIGIBILITY FOR THESE PRIVILEGES, READ THE
APPLICABLE SECTIONS IN THE ATTACHED APPLICATION.
CLASS A SHARE PURCHASES WITHOUT A FRONT-END SALES CHARGE. Class A shares may be purchased without a front-end sales charge under any of the following circumstances:
- purchases of $1 million or more, except with respect to the Limited Duration U.S. Government Fund*
- 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 Funds and/or Lord Abbett Distributor specifically for such purchases, *
[SIDENOTE]
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 Family of Funds); and (4) any other fund
the shares of which are not available to the investor at the time of the
transaction due to a limitation on the offering of the Fund's shares. An
Eligible Fund also is any Authorized Institution's affiliated money market fund
meeting criteria set by Lord Abbett Distributor 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.
Your Investment | 21
- 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 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 Funds 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 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 family of 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 PURCHASERS WHO QUALIFY FOR CLASS A SHARE PURCHASES WITHOUT A FRONT-END SALES CHARGE.
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 Plans and Benefit Plans will constitute new sales for purposes of assessing the CDSC.
To minimize the amount of any CDSC, each Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains (always free of a CDSC)
2. shares held for six years or more (Class B) or two years or more after the month of purchase (Class A) or one year or more (Class C)
3. shares held the longest before the sixth anniversary of their purchase (Class B) or before the second anniversary after the month of purchase (Class A) or before the first anniversary of their purchase (Class C).
CLASS A SHARE CDSC. If you buy Class A shares of a 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 within 24 months after the month in which you initially purchased those shares, the Fund will normally collect a CDSC of 1% and remit it to the fund in which you originally purchased the shares.
The Class A share CDSC generally will not be assessed at the time of the following transactions:
- 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 Funds and/or Lord Abbett Distributor, provided the Plan has not redeemed all, or substantially all, of its assets from the Lord Abbett family of funds
[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."
22 | Your Investment
CLASS B SHARE CDSC (BALANCED FUND, HIGH YIELD FUND AND U.S. GOVERNMENT FUND ONLY). 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:
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" BELOW
FOR MORE INFORMATION ON CDSCS WITH RESPECT TO CLASS B SHARES.
CLASS C SHARE CDSC. The 1% CDSC for Class C shares normally applies if you redeem your shares before the first anniversary of their purchase. The CDSC will be remitted to either Lord Abbett Distributor or the fund involved in the original purchase, depending on which entity originally paid the sales compensation to your dealer.
CLASS P SHARES. Class P shares have lower annual expenses than Class B and Class C shares, no front-end sales charge, and no CDSC. Class P shares are currently sold and redeemed at NAV in connection with (a) orders made by or on behalf of Financial Intermediaries for clients that pay the 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 that have entered into special arrangements with the Funds and/or Lord Abbett Distributor specifically for such orders.
SALES COMPENSATION
As part of its plan for distributing shares, each Fund and LORD ABBETT DISTRIBUTOR pay sales and service compensation to AUTHORIZED INSTITUTIONS that sell the Fund's shares and service their shareholder accounts.
[SIDENOTE]
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.
LORD ABBETT DISTRIBUTOR LLC ("Lord Abbett Distributor") acts as agent for the Funds to work with investment professionals who buy and/or sell shares of the Funds on behalf of their clients. Generally, Lord Abbett Distributor does not sell Fund shares directly to investors.
Your Investment | 23
Sales compensation originates from two sources, as shown in the table "Fees and Expenses": sales charges, which are paid directly by shareholders; and 12b-1 distribution fees that are paid by the Fund. Service compensation originates from 12b-1 service fees. 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. The total annualized 12b-1 fees payable with respect to each share class for the current fiscal year are approximated at .39% of Class A shares (consisting of .10% distribution fee, .25% service fee, one-time distribution fees of up to 1.00% payable at the time of sale to Authorized Institutions, such as your dealer, on certain qualifying purchases and amortized over a 24 month period, and an incremental marketing expense of approximately .03%), 1.00% of Class B and C shares (consisting of .75% distribution fee and .25% service fee), and .45% for Class P shares (consisting of .25% distribution fee and .20% service fee). 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. Sometimes we do not pay compensation where tracking data is not available for certain accounts or where the Authorized Institution waives part of the compensation. In such cases, we may not require payment of any otherwise applicable CDSC.
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 Fund 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 will 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.
In selecting dealers to execute portfolio transactions for a 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 Rule 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.
[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 a Fund need not be directly related to expenses. If Lord Abbett Distributor's actual expenses exceed the fee payable to it, the Fund will not have to pay more than that fee. If Lord Abbett Distributor's expenses are less than the fee it receives, Lord Abbett Distributor will keep the full amount of the fee.
24 | Your Investment
OPENING YOUR ACCOUNT
MINIMUM INITIAL INVESTMENT
- Regular Account (Balanced Fund, High Yield Fund and Limited Duration U.S. Government Fund) $ 1,000 (U.S. Government Fund) $ 500 ------------------------------------------------------------------------------------ - 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 for 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 attached application and send it to the Fund you select at the address stated below. You should carefully read the paragraph below entitled "Proper Form" before placing your order to ensure that your order will be accepted.
NAME OF FUND
P.O. Box 219100
Kansas City, MO 64121
PROPER FORM. An order submitted directly to a Fund must contain: (1) a completed application, and (2) payment by check. When purchases are made by check, redemption proceeds will not be paid until the Fund or transfer agent is advised that the check has cleared, which may take up to 15 calendar days. For more information call the Fund at 800-821-5129.
BY EXCHANGE. Please call the Fund at 800-821-5129 to request an exchange from any eligible Lord Abbett-sponsored fund.
REDEMPTIONS
Redemptions of Fund shares are executed at the NAV next determined after the Fund receives your order in proper form. 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 $50,000 or less from your account, you or your representative should call the Fund at 800-821-5129.
BY MAIL. Submit a written redemption request indicating the name(s) in which the account is registered, the Fund's name, the class of shares, your account number, and the dollar value or number of shares you wish to 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 instructions) 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.
[SIDENOTE]
SMALL ACCOUNTS. The Board may authorize closing any account in which there are
fewer than 25 shares if it is in a Fund's best interest to do so.
Your Investment | 25
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, o 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.
DISTRIBUTIONS AND TAXES
Each Fund expects to pay you dividends from its net investment income monthly. The Limited Duration and U.S. Government Funds normally declare dividends from their net investment income daily. Each Fund distributes 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 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 such 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 each 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.
[SIDENOTE]
ELIGIBLE GUARANTOR is any broker or bank that is a member of the medallion stamp program. Most major securities firms and banks are members of this program. A NOTARY PUBLIC IS NOT AN ELIGIBLE GUARANTOR.
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]
[SEAL]
/s/ [ILLEGIBLE] --------------- - In the case of a corporation - ABC Corporation |
MARY B. DOE
By Mary B. Doe, President
[Date]
[SEAL]
/s/ [ILLEGIBLE] --------------- 26 | Your Investment |
SERVICES FOR FUND INVESTORS
AUTOMATIC SERVICES
Buying or selling shares automatically is easy with the services described below. With each service, you select a schedule and amount, subject to certain restrictions. You may set up most of these services when filling out your application or by calling 800-821-5129.
FOR INVESTING
INVEST-A-MATIC You can make fixed, periodic investments ($50 minimum) into your (Dollar-cost Fund account by means of automatic money transfers from your bank
averaging) checking account. See the attached application for instructions.
DIV-MOVE You can automatically reinvest the dividends and distributions
from your account into another account in any Eligible Fund ($50
minimum).
|
FOR SELLING SHARES
SYSTEMATIC You may make regular withdrawals from most Lord Abbett funds.
WITHDRAWAL Automatic cash withdrawals will be paid to you from your account
in fixed or variable amounts. To establish a plan, the value of
PLAN ("SWP") your shares must be at least $10,000, except 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
C SHARES will be redeemed in the order described under "CDSC" under
"Purchases."
--------------------------------------------------------------------------------
|
OTHER SERVICES
TELEPHONE INVESTING. After we have received the attached application (selecting "yes" under Section 8C and completing Section 7), you may instruct us by phone to have money transferred from your bank account to purchase shares of the Fund for an existing account. The Fund will purchase the requested shares when it receives the money from your bank.
EXCHANGES. You or your investment professional may instruct the Fund to exchange shares of any class for shares of the same class of any Eligible Fund. Instruction may be provided in writing or by telephone, with proper identification, by calling 800-821-5129. The Fund must receive instructions for the exchange before the close of the NYSE on the day of your call, in which case you will get the NAV per share of the Eligible Fund determined on that day. Exchanges will be treated as a sale for federal tax purposes and will be taxable to 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 sell shares of the Fund, you have a one-time right to reinvest some or all of the proceeds in the same class of any Eligible Fund within 60 days without a sales charge. If you paid a CDSC when you sold your shares, you will be credited with the amount of the CDSC. All accounts involved must have the same registration.
ACCOUNT STATEMENTS. Every Lord Abbett investor automatically receives quarterly account statements.
HOUSEHOLDING. Shareholders with the same last name and address will receive a single copy of a prospectus and an annual or semi-annual report, unless additional reports are specifically requested in writing to the Fund.
ACCOUNT CHANGES. For any changes you need to make to your account, consult your investment professional or call the Fund at 800-821-5129.
SYSTEMATIC EXCHANGE. You or your investment professional can establish a schedule of exchanges between the same classes of any Eligible Fund.
[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 Funds will not be liable for following instructions
communicated by telephone that they reasonably believe 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 Funds and raise their expenses. Accordingly, the Funds reserve the right to limit or terminate this privilege for any shareholder making frequent exchanges or abusing the privilege. The Funds also may revoke the privilege for all shareholders upon 60 days' written notice. In addition, as stated under "Purchases," the Funds reserve the right to reject any purchase order, including purchase orders from shareholders whose trading has been or may be disruptive to the Funds.
Your Investment | 27
BALANCED 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 2001 Annual Report to Shareholders and are incorporated by reference into the Statement of Additional Information, which is available upon request. Certain information reflects financial results for a single Fund share.
CLASS A SHARES
---------------------------------------------------------
PERIOD ENDED NOVEMBER 30,
PER SHARE OPERATING PERFORMANCE: 2001 2000 1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD $11.64 $12.34 $12.87 $12.80 $11.81
---------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
---------------------------------------------------------------------------------------------------------------
Net investment income .52(a) .58(a) .54(a) .54(a) .47(a)
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized
---------------------------------------------------------------------------------------------------------------
gain (loss) on investments (.26) (.01) .61 .40 1.15
---------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .26 .57 1.15 .94 1.62
---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
---------------------------------------------------------------------------------------------------------------
Net investment income (.56) (.60) (.54) (.52) (.46)
---------------------------------------------------------------------------------------------------------------
Paid-in Capital (.05) -- -- -- --
---------------------------------------------------------------------------------------------------------------
Net realized gain (.49) (.67) (1.14) (.35) (.17)
---------------------------------------------------------------------------------------------------------------
Total distributions (1.10) (1.27) (1.68) (.87) (.63)
---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.80 $11.64 $12.34 $12.87 $12.80
---------------------------------------------------------------------------------------------------------------
TOTAL RETURN(b) 2.24% 4.85% 10.01% 7.69% 14.24%
---------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
---------------------------------------------------------------------------------------------------------------
Expenses, including waiver and expense reductions .32% .36% .25% .27% 1.10%
---------------------------------------------------------------------------------------------------------------
Expenses, excluding waiver and expense reductions 1.47% 1.51% 1.00% .92% 1.53%
---------------------------------------------------------------------------------------------------------------
Net investment income 4.72% 4.94% 4.41% 4.28% 3.89%
---------------------------------------------------------------------------------------------------------------
|
CLASS B SHARES CLASS C
---------------------------------------------- -----------------------------------
PERIOD ENDED NOVEMBER 30, PERIOD ENDED NOVEMBER 30,
PER SHARE OPERATING PERFORMANCE: 2001 2000 1999 1998(d) 2001 2000 1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD $11.63 $12.32 $12.86 $13.14 $11.61 $12.31 $12.85 $12.78 $11.79
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------------------------------------------------
Net investment income .46(a) .53(a) .52(a) .25(a) .45(a) .50(a) .52(a) .41(a) .35(a)
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.28) (.04) .52 (.28) (.24) (.02) .52 .40 1.15
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 18 .49 1.04 (.03) .21 .48 1.04 .81 1.50
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
-----------------------------------------------------------------------------------------------------------------------------
Net investment income (.48) (.51) (.44) (.25) (.48) (.51) (.44) (.39) (.34)
-----------------------------------------------------------------------------------------------------------------------------
Paid-in Capital (.05) -- -- -- (.05) -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Net realized gain (.49) (.67) (1.14) -- (.49) (.67) (1.14) (.35) (.17)
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.02) (1.18) (1.58) (.25) (1.02) (1.18) (1.58) (.74) (.51)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.79 $11.63 $12.32 $12.86 $10.80 $11.61 $12.31 $12.85 $12.78
-----------------------------------------------------------------------------------------------------------------------------
Total Return(b) 1.54% 4.22% 9.03% (.16)%(c) 1.81% 4.12% 9.03% 6.62% 13.14%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
-----------------------------------------------------------------------------------------------------------------------------
Expenses, including waiver and
expense reductions 1.00% 1.00% 1.00% .61%(c) .82% 1.00% 1.00% 1.26% 2.08%
-----------------------------------------------------------------------------------------------------------------------------
Expenses, excluding waiver and
expense reductions 2.15% 2.15% 1.75% 1.26%(c) 1.97% 2.15% 1.75% 1.91% 2.51%
-----------------------------------------------------------------------------------------------------------------------------
Net investment income 4.16% 4.52% 4.28% 1.98%(c) 4.10% 4.28% 4.28% 3.24% 2.88%
-----------------------------------------------------------------------------------------------------------------------------
|
PERIOD ENDED NOVEMBER 30,
-----------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES: 2001 2000 1999 1998 1997
------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $140,704 $106,665 $100,130 $57,675 $20,340
------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 30.69% 3.86% 8.30% 131.36% 216.07%
------------------------------------------------------------------------------------------------------------
|
(a) Calculated using average shares outstanding during the year.
(b) Total return does not consider the effects of sales loads and assumes
reinvestment of all distributions.
(c) Not annualized.
(d) Commencement of offering Class B shares: May 1, 1998.
28 | Financial Information
HIGH YIELD FUND
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 2001 Annual Report to Shareholders and are incorporated by reference into the Statement of Additional Information, which is available upon request. Certain information reflects financial results for a single Fund share.
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
PER SHARE OPERATING PERFORMANCE: 2001 2000 1999(a) 2001 2000 1999(a) 2001 2000 1999(a)
NET ASSET VALUE, BEGINNING OF PERIOD $8.39 $9.72 $10.08 $8.37 $9.70 $10.08 $8.37 $9.70 $ 10.08
-------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
-------------------------------------------------------------------------------------------------------------------------------
Net investment income .79(b) .85(b) .83(b) .74(b) .79(b) .78(b) .74(b) .79(b) .78(b)
-------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.04) (1.25) (.34) (.05) (1.24) (.37) (.04) (1.24) (.37)
-------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .75 (.40) .49 .69 (.45) .41 .70 (.45) .41
-------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
-------------------------------------------------------------------------------------------------------------------------------
Net investment income (.82) (.93) (.85) (.77) (.88) (.79) (.77) (.88) (.79)
-------------------------------------------------------------------------------------------------------------------------------
Paid-in capital (.07) -- -- (.07) -- -- (.07) -- --
-------------------------------------------------------------------------------------------------------------------------------
Total distributions (.89) (.93) (.85) (.84) (.88) (.79) (.84) (.88) (.79)
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.25 $8.39 $9.72 $8.22 $8.37 $9.70 $8.23 $8.37 $ 9.70
-------------------------------------------------------------------------------------------------------------------------------
Total Return(c) 9.14% (4.60)% 4.99%(d) 8.36% (5.17)% 4.22%(d) 8.48% (5.17)% 4.21%(d)
-------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------------------------------------------------------------------------------------------
Expenses, including waiver and
expense reductions 1.33% .86% .46%(d) 1.96% 1.48% .90%(d) 1.96% 1.48% .90%(d)
-------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding waiver and
expense reductions 1.34% 1.37% 1.25%(d) 1.97% 1.99% 1.45%(d) 1.97% 1.99% 1.45%(d)
-------------------------------------------------------------------------------------------------------------------------------
Net investment income 9.36% 9.18% 8.44%(d) 8.74% 8.57% 7.92%(d) 8.71% 8.60% 7.92%(d)
-------------------------------------------------------------------------------------------------------------------------------
|
YEAR ENDED NOVEMBER 30,
-------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES: 2001 2000 1999(a)
NET ASSETS, END OF YEAR (000) $65,062 $31,846 $ 28,688
------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 93.11% 80.53% 109.57%
------------------------------------------------------------------------------
|
(a) Commencement of operations - 12/31/98.
(b) Calculated using average shares outstanding during the year.
(c) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(d) Not annualized.
Financial Information | 29
LIMITED DURATION U.S. GOV'T SECURITIES FUND
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 2001 Annual Report to Shareholders and are incorporated by reference into the Statement of Additional Information, which is available upon request. Certain information reflects financial results for a single Fund share.
CLASS A SHARES
-----------------------------------------------------------
PERIOD ENDED NOVEMBER 30,
PER SHARE OPERATING PERFORMANCE: 2001 2000 1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD $ 4.45 $ 4.34 $ 4.46 $ 4.40 $ 4.42
--------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
--------------------------------------------------------------------------------------------------------------------
Net investment income .19(a)(c) .27(a) .27(a) .26(a) .25(a)
--------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .17 .08 (.15) .04 (.02)
--------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .36 .35 .12 .30 .23
--------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
--------------------------------------------------------------------------------------------------------------------
Net investment income (.33) (.24) (.24) (.24) (.25)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 4.48 $ 4.45 $ 4.34 $ 4.46 $ 4.40
--------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(b) 8.27% 8.03% 3.05% 7.06% 5.46%
--------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
--------------------------------------------------------------------------------------------------------------------
Expenses, including waiver and expense reductions .94% .29% .32% .47% .51%
--------------------------------------------------------------------------------------------------------------------
Expenses, excluding waiver and expense reductions .95% .91% 1.00% 1.38% 1.40%
--------------------------------------------------------------------------------------------------------------------
Net investment income 4.30% 6.27% 6.21% 5.86% 5.81%
--------------------------------------------------------------------------------------------------------------------
|
CLASS C SHARES
-----------------------------------------------------------
PERIOD ENDED NOVEMBER 30,
PER SHARE OPERATING PERFORMANCE: 2001 2000 1999 1998 1997
NET ASSET VALUE, BEGINNING OF PERIOD $ 4.44 $ 4.33 $ 4.47 $ 4.40 $ 4.42
--------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
--------------------------------------------------------------------------------------------------------------------
Net investment income .14(a)(c) .23(a) .23(a) .22(a) .21(a)
--------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .17 .08 (.17) .05 (.02)
--------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .31 .31 .06 .27 .19
--------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
--------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (.24) (.20) (.20) (.20) (.21)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 4.51 $ 4.44 $ 4.33 $ 4.47 $ 4.40
--------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(b) 7.12% 7.23% 1.33% 6.23% 4.45%
--------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
--------------------------------------------------------------------------------------------------------------------
Expenses, including waiver and expense reductions 1.94% 1.29% 1.29% 1.35% 1.44%
--------------------------------------------------------------------------------------------------------------------
Expenses, excluding waiver and expense reductions 1.95% 1.91% 1.97% 2.26% 2.32%
--------------------------------------------------------------------------------------------------------------------
Net investment income 2.91% 5.35% 5.30% 4.94% 4.84%
--------------------------------------------------------------------------------------------------------------------
|
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES: 2001 2000 1999 1998 1997
Net assets, end of year (000) $ 51,885 $ 13,479 $ 16,249 $ 11,000 $ 10,276
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 564.26% 448.04% 310.16% 346.67% 343.53%
--------------------------------------------------------------------------------------------------------------------
|
(a) Calculated using average shares outstanding during the year.
(b) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(c) Interest expense is less than $.01.
30 | Financial Information
U.S. GOVERNMENT FUND
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 2001 Annual Report to Shareholders and are incorporated by reference into the Statement of Additional Information, which is available upon request. Certain information reflects financial results for a single Fund share.
CLASS A SHARES
-------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
PER SHARE OPERATING PERFORMANCE: 2001 2000 1999 1998 1997
NET ASSET VALUE, BEGINNING OF YEAR $ 2.51 $ 2.45 $ 2.64 $ 2.59 $ 2.63
-----------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------------------------------------
Net investment income (net of interest expense) .12(a)(c) .14(a)(c) .15(a) .17(a) .20(a)
-----------------------------------------------------------------------------------------------------------------
Net realized and unrealized
-----------------------------------------------------------------------------------------------------------------
gain (loss) on investments .12 .08 (.18) .05 (.03)
-----------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .24 .22 (.03) .22 .17
-----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
-----------------------------------------------------------------------------------------------------------------
Net investment income (.16) (.16) (.16) (.17) (.21)
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 2.59 $ 2.51 $ 2.45 $ 2.64 $ 2.59
-----------------------------------------------------------------------------------------------------------------
TOTAL RETURN(b) 9.62% 8.68% (.72)% 8.86% 6.67%
-----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-----------------------------------------------------------------------------------------------------------------
Expenses, including expense reductions 1.09% 1.11% 1.02% .96% .92%
-----------------------------------------------------------------------------------------------------------------
Expenses, excluding expense reductions 1.10% 1.12% 1.02% .96% .92%
-----------------------------------------------------------------------------------------------------------------
Net investment income 4.76% 5.75% 6.07% 6.36% 7.82%
-----------------------------------------------------------------------------------------------------------------
|
CLASS B SHARES CLASS C SHARES
------------------------------------------------ ------------------------------------------------
PER SHARE OPERATING YEAR ENDED NOVEMBER 30, YEAR ENDED NOVEMBER 30,
PERFORMANCE: 2001 2000 1999 1998 1997 2001 2000 1999 1998 1997
NET ASSET VALUE, BEGINNING
OF PERIOD $ 2.52 $ 2.45 $ 2.64 $ 2.58 $ 2.63 $ 2.52 $ 2.45 $ 2.65 $ 2.59 $ 2.63
---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
---------------------------------------------------------------------------------------------------------------------------------
Net investment income
(net of interest expense) .10(a)(c) .12(a)(c) .14(a) .14(a) .18(a) .11(a)(c) .13(a)(c) .14(a) .15(a) .18(a)
---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .11 .09 (.19) .07 (.04) .11 .08 (.20) .06 (.03)
---------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS .21 .21 (.05) .21 .14 .22 .21 (.06) .21 .15
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (.14) (.14) (.14) (.15) (.19) (.14) (.14) (.14) (.15) (.19)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF PERIOD $ 2.59 $ 2.52 $ 2.45 $ 2.64 $ 2.58 $ 2.60 $ 2.52 $ 2.45 $ 2.65 $ 2.59
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(b) 8.56% 8.39% (1.43)% 8.49% 5.47% 8.93% 8.38% (1.80)% 8.47% 5.86%
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
---------------------------------------------------------------------------------------------------------------------------------
Expenses, including
expense reductions 1.70% 1.76% 1.69% 1.66% 1.64% 1.70% 1.76% 1.64% 1.62% 1.55%
---------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding
expense reductions 1.71% 1.77% 1.69% 1.66% 1.64% 1.71% 1.77% 1.64% 1.62% 1.55%
---------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.00% 5.10% 5.33% 5.36% 6.77% 4.14% 5.15% 5.46% 5.69% 7.25%
---------------------------------------------------------------------------------------------------------------------------------
|
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES: 2001 2000 1999 1998 1997
NET ASSETS, END OF YEAR (000) $ 1,251,026 $ 1,250,300 $ 1,505,590 $ 1,902,404 $ 2,286,412
-------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 688.68% 406.10% 396.37% 399.64% 712.82%
-------------------------------------------------------------------------------------------------------------------------
|
(a) Calculated using average shares outstanding during the year.
(b) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(c) Interest expense is less than $0.01.
Financial Information | 31
ADDITIONAL INFORMATION
More information on these Funds is available free upon request, including the following:
ANNUAL/SEMI-ANNUAL REPORT
Describes the Funds, lists portfolio holdings, contains a letter from each Fund's manager discussing recent market conditions, each Fund's investment strategies and contains additional performance information.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
Provides more details about the Funds and their policies. A current SAI is on file with the Securities and Exchange Commission (OSECO) and is incorporated by reference (is legally considered part of this prospectus).
Lord Abbett Investment Trust -
Balanced Series
High Yield Fund
Limited Duration U.S. Government Securities Series
U.S. Government Securities Series LAIT-1
(4/01)
TO OBTAIN INFORMATION
BY TELEPHONE. Call each Fund at: 888-522-2388
BY MAIL. Write to each Fund at:
The Lord Abbett Family of Funds
90 Hudson Street
Jersey City, NJ 07302-3973
VIA THE INTERNET.
LORD, ABBETT & CO.
www.LordAbbett.com
Text only versions of Fund documents can be viewed online or downloaded from the SEC: www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in Washington, DC (phone 202-942-8090) or by sending your request and a duplicating fee to the SEC's Public Reference Section, Washington, DC 20549-6009 or by sending your request electronically to publicinfo@sec.gov.
[LORD ABBETT LOGO]
Lord Abbett Mutual Fund shares are distributed by:
LORD ABBETT DISTRIBUTOR LLC
90 Hudson Street - Jersey City, New Jersey 07302-3973
SEC FILE NUMBER: 811-7988
LORD ABBETT APRIL 1, 2002
STATEMENT OF ADDITIONAL INFORMATION
LORD ABBETT INVESTMENT TRUST
BALANCED SERIES
HIGH YIELD FUND
LIMITED DURATION U.S. GOVERNMENT SECURITIES SERIES
U.S. GOVERNMENT SECURITIES SERIES
(CLASS A, B, C AND P)
This Statement of Additional Information is not a Prospectus. A Prospectus may be obtained from your securities dealer or from Lord Abbett Distributor LLC ("Lord Abbett Distributor") at 90 Hudson Street, Jersey City, New Jersey 07302-3973. This Statement of Information relates to, and should be read in conjunction with, the Prospectus dated April 1, 2002.
Shareholder inquiries should be made by directly contacting the Funds or by calling 800-821-5129. The Annual Report to Shareholders is available without charge, upon request by calling that number. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS PAGE
1. Fund History 2
2. Investment Policies 2
3. Management of the Funds 11
4. Control Persons and Principal Holders of Securities 17
5. Investment Advisory and Other Services 17
6. Brokerage Allocations and Other Practices 19
7. Capital Stock and Other Securities 20
8. Purchases, Redemptions and Pricing 25
9. Taxation of the Funds 28
10. Underwriter 30
11. Performance 31
12. Financial Statements 33
Appendix 34
1.
FUND HISTORY
Lord Abbett Investment Trust (the "Trust") is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the "Act"). The Trust was organized as a Delaware Business Trust on August 16, 1993, with an unlimited amount of shares of beneficial interest authorized. The Trust has six funds, four of which are discussed in this Statement of Additional Information: Balanced Series ("Balanced Fund"), Lord Abbett High Yield Fund ("High Yield Fund"), Limited Duration U.S. Government Securities Series ("Limited Duration U.S. Government Securities Fund") and U.S. Government Securities Series ("U.S. Government Fund"). The Balanced Fund, High Yield Fund, U.S. Government Securities Fund, offer three classes of shares (A, B, and C); Limited Duration U.S. Government Securities Fund offers two classes of shares (A, B, and C). Class P shares of each Fund are neither offered to the general public or available in all states.
2.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS. Each Fund is subject to the following fundamental investment restrictions that cannot be changed without approval of a majority of each Fund's outstanding shares.
Each Fund may not:
(1) borrow money, except that (i) it 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) it may borrow up to an additional 5% of its total assets for temporary purposes, (iii) it may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities, and (iv) it 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 each Fund's investment policies as permitted by applicable law);
(3) engage in the underwriting of securities, except pursuant to a merger or acquisition or to the extent that, in connection with the disposition of its portfolio securities, it may be deemed to be an underwriter under federal securities laws;
(4) make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in government obligations, commercial paper, pass-through instruments, certificates of deposit, bankers acceptances, repurchase agreements or any similar instruments shall not be subject to this limitation, and except further that each Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law;
(5) buy or sell real estate (except that each Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies which invest in real estate or interests therein), or commodities or commodity contracts (except to the extent each Fund may do so in accordance with applicable law and without registering as a commodity pool operator under the Commodity Exchange Act as, for example, with futures contracts);
(6) with respect to 75% of its gross assets, buy securities of one issuer representing more than (i) 5% of the its gross assets, except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, and for the Balanced Fund, securities issued by an investment company 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);
(8) issue senior securities to the extent such issuance would violate applicable law; or
(9) (with respect to the U.S. Government Securities Fund only) invest in securities other than U.S. Government securities, as described in the Prospectus.
Compliance with the investment restrictions in this Section will be determined at the time of purchase or sale by the Funds.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. In addition to the policies in the Prospectus and the investment restrictions above that cannot be changed without shareholder approval, each Fund is also subject to the following non-fundamental investment policies that may be changed by the Board of Trustees without shareholder approval.
Each Fund may not:
(1) borrow in excess of 33 1/3 % of its total assets (including the amount borrowed), and then only as a temporary measure for extraordinary or emergency purposes;
(2) make short sales of securities or maintain a short position except to the extent permitted by applicable law;
(3) invest knowingly more than 15% of its net assets (at the time of investment) in illiquid securities, except for securities qualifying for resale under Rule 144A of the Securities Act of 1933, deemed to be liquid by the Board of Trustees;
(4) invest in securities issued by other investment companies except to the extent permitted by applicable law (the U.S. Government Fund may not, however, rely on Sections 12(d)(1)(F) and 12(d)(1)(G) of the Act);
(5) invest in securities of issuers which, with their predecessors, have a record of less than three years' continuous operations, if more than 5% of its total assets would be invested in such securities. (This restriction shall not apply to mortgage-backed securities, asset-backed securities or obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities);
(6) hold securities of any issuer if more than 1/2 of 1% of the securities of such issuer are owned beneficially by one or more officers or trustees or by one or more of its partners or members or underwriter or investment adviser if these owners in the aggregate own beneficially more than 5% of the securities of such issuer;
(7) invest in warrants if, at the time of the acquisition, its investment in warrants, valued at the lower of cost or market, would exceed 5% of its total assets (included within such limitation, but not to exceed 2% of its total assets, are warrants that are not listed on the New York or American Stock Exchange or a major foreign exchange);
(8) invest in real estate limited partnership interests or interests in oil, gas or other mineral leases, or exploration or other development programs, except that it may invest in securities issued by companies that engage in oil, gas or other mineral exploration or other development activities;
(9) write, purchase or sell puts, calls, straddles, spreads or combinations thereof, except to the extent permitted in its Prospectus and Statement of Additional Information, as they may be amended from time to time; or
(10)buy from or sell to any of its officers, trustees, employees, or its investment adviser or any of its officers, trustees, partners or employees, any securities other than its shares.
PORTFOLIO TURNOVER. For the fiscal years ended November 30, the portfolio turnover rate for each Fund is as follows:
2001 2000 1999
---- ---- ----
Balanced Fund 30.69% 3.86% 8.30%
High Yield Fund 93.11% 80.53% 109.57%
Limited Duration U.S. Government
Securities Fund 564.26% 448.04% 310.16%
U.S. Government Securities Fund 688.68% 406.10% 396.37%
|
ADDITIONAL INFORMATION ON PORTFOLIO RISKS, INVESTMENTS AND TECHNIQUES. The following section provides further information on certain types of investments and investment techniques that may be used by each Fund, including their associated risks. In the case of the Balanced Fund, references to each Fund refers to the underlying funds.
BORROWING MONEY. Each Fund, and the Balanced Fund's underlying Funds, may borrow money for temporary or emergency purposes from banks and other financial institutions in amounts not exceeding one-third of their total assets. If a Fund borrows money and experiences a decline in its net asset value, the borrowing could increase its losses.
EQUITY SECURITIES. Certain of Balanced Fund's underlying funds, as well as the High Yield Fund (up to 20% of its assets to the extent consistent with its investment objective), may invest in equity securities. These include common stocks, preferred stocks, convertible securities, depository receipts, warrants and similar instruments. Common stocks, the most familiar type, represent an ownership interest in a company. The value of equity securities fluctuates based on changes in a company's financial condition, and on market and economic conditions.
FOREIGN SECURITIES. Certain of Balanced Fund's underlying funds, as well as the High Yield Fund may invest 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 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 Funds do not sell shares.
As a result, the value of the Funds' 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 Funds, and political or social instability or diplomatic developments that could affect investments in those countries.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Each Fund is authorized to 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 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.
Each 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. Each Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. Futures contracts and options on futures contracts present substantial risks, including the following:
- While the Funds 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 transaction.
- Because perfect correlation between a futures position and a portfolio position that the Funds intend to hedge is impossible to achieve, a hedge may not work as intended, and the Funds may thus be exposed to additional risk of loss.
- The loss that the Funds 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 Funds.
- 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.
ILLIQUID SECURITIES. Each Fund, and the Balanced Fund's underlying Funds, may invest up to 15% of their 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.
- Certain restricted securities 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 each 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. Each Fund, and the Balanced Fund's underlying funds, may invest in securities of other investment companies subject to limitations prescribed by the Act. 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 Funds indirectly will bear their proportionate share of any management fees and other expenses paid by the investment companies in which they invest. 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.
Each Fund may, consistent with its investment policies, purchase Standard & Poor's Depository Receipts ("SPDRs"). SPDRs are securities traded on the American Stock Exchange ("AMEX") that represent ownership in the SPDR Trust, a trust which has been established to accumulate and hold a portfolio of common stocks that is intended to track the price performance and dividend yield of a well-known securities index. The SPDR Trust is sponsored by a subsidiary of the AMEX. SPDRs may be used for several reasons, including, but not limited to, facilitating the handling of cash flows or trading, or reducing transaction costs. The price movement of SPDRs may not perfectly parallel the price movement of the S&P 500 Index.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. Each Fund, and the Balanced Fund's underlying Funds, may invest extensively in mortgage-related securities and also may invest in and other asset-backed securities in connection with public or private offerings, or secondary market transactions. Mortgage-related securities are interests in pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and others. Pools of mortgage loans are assembled as securities for sale to investors by various governmental, government-related and private organizations.
MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of mortgage-related securities differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by individual borrowers on their residential or commercial mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal resulting from the sale of the underlying property, refinancing or foreclosure, net of fees or costs which may be incurred. Some mortgage-related securities (such as securities issued by the "Government National Mortgage Association," or "GNMA") are described as "modified pass-through." These securities entitle the holder to receive all interest and principal payments owed on the mortgage pool, net of certain fees, at the scheduled payment dates regardless of whether or not the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage-related securities is GNMA. GNMA is authorized to guarantee, with the full faith and credit of the United States Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of mortgages insured by the Federal Housing Administration (the "FHA"), or guaranteed by the Department of Veterans Affairs (the "VA").
Government-related guarantors (I.E., not backed by the full faith and credit of the United States Government)
include the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). Both are government-sponsored corporations owned entirely by private stockholders. FHLMC issues Participation Certificates ("PCs") which represent interests in conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the United States Government.
Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential mortgage loans. Such issuers may, in addition, be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government or agency guarantees of payments in the former pools. However, timely payment of interest and principal of these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit, which may be issued by governmental entities, private insurers or the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets the Funds' investment quality standards. There can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable.
Mortgage-backed securities that are issued or guaranteed by the U.S. Government, its agencies or instrumentalities, are not subject to Fund industry concentration restrictions by virtue of the exclusion from that test available to all U.S. Government securities. In the case of privately issued mortgage-related securities, the Funds take the position that mortgage-related securities do not represent interests in any particular "industry" or group of industries. The assets underlying such securities may be represented by a portfolio of first lien residential mortgages (including both whole mortgage loans and mortgage participation interests) or portfolios of mortgage pass-through securities issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a mortgage-related security may in turn be insured or guaranteed by the FHA or the VA. In the case of private issue mortgage-related securities whose underlying assets are neither U.S. Government securities nor U.S. Government-insured mortgages, to the extent that real properties securing such assets may be located in the same geographical region, the security may be subject to a greater risk of default than other comparable securities in the event of adverse economic, political or business developments that may affect such region and, ultimately, the ability of residential homeowners to make payments of principal and interest on the underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS AND REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("CMOS"). A CMO is a hybrid between a mortgage-backed bond and a mortgage pass-through security. Similar to a bond, interest and prepaid principal is paid, in most cases, on a monthly basis. CMOs may be collateralized by whole mortgage loans, but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income streams.
CMOs are issued in multiple classes, each bearing a different stated maturity. Payments of principal normally are applied to the CMO classes in the order of their respective stated maturities, so that no principal payments will be made on a CMO class until all other classes having an earlier stated maturity date are paid in full.
FHLMC COLLATERALIZED MORTGAGE OBLIGATIONS. FHLMC CMOs are debt obligations of FHLMC issued in multiple classes having different maturity dates which are secured by the pledge of a pool of conventional mortgage loans purchased by FHLMC.
COMMERCIAL MORTGAGE-BACKED SECURITIES. Commercial mortgage-backed securities include securities that reflect an interest in, and are secured by, mortgage loans on commercial real property. The market for these securities developed more recently and in terms of total outstanding principal amount of issues is relatively small compared to the market for residential single-family mortgage-backed securities. Many of the risks of investing in commercial mortgage-backed securities reflect the risks of investing in the real estate securing the underlying mortgage loans. These risks reflect the effects of local and other economic conditions on real estate markets, the ability of tenants to
make loan payments, and the ability of a property to attract and retain tenants. Commercial mortgage-backed securities may be less liquid and exhibit greater price volatility than other types of mortgage- or asset-backed securities.
OTHER MORTGAGE-RELATED SECURITIES. Other mortgage-related securities include securities other than those described above that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property, including mortgage dollar rolls, CMO residuals or stripped mortgage-backed securities ("SMBS"). Other mortgage-related securities may be equity or debt securities issued by agencies or instrumentalities of the U.S. Government or by private originators of, or investors in, mortgage loans, including savings and loan associations, homebuilders, mortgage banks, commercial banks, investment banks, partnerships, trusts and special purpose entities of the foregoing.
MORTGAGE DOLLAR ROLLS. The Funds may enter into mortgage dollar rolls in which a Fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. During the roll period, the Fund loses the right to receive principal (including prepayments of principal) and interest paid on the securities sold. However, the Fund may benefit from the interest earned on the cash proceeds of the securities sold until the settlement date of the forward purchase. The Fund will hold and maintain in a segregated account until the settlement date cash or liquid securities in an amount equal to the forward purchase price. The benefits derived from the use of mortgage dollar rolls depend upon the Funds' ability to manage mortgage prepayments. There is no assurance that mortgage dollar rolls can be successfully employed. For financial reporting and tax purposes, the Funds treat mortgage dollar rolls as two separate transactions: one involving the purchase of a security and another involving a sale. As a result, the use of mortgage dollar rolls significantly increases the Funds' portfolio turnover.
CMO RESIDUALS. CMO residuals are mortgage securities issued by agencies or instrumentalities of the U.S. Government or by private originators of, or investors in, mortgage loans, including savings and loan associations, homebuilders, mortgage banks, commercial banks, investment banks and special purpose entities of the foregoing. The cash flow generated by the mortgage assets underlying a series of CMOs is applied first to make required payments of principal and interest on the CMOs and second to pay the related administrative expenses of the issuer. The residual in a CMO structure generally represents the interest in any excess cash flow remaining after making the foregoing payments. Each payment of such excess cash flow to a holder of the related CMO residual represents income and/or a return of capital. The value of CMO residuals is extremely sensitive to prepayments on the related underlying mortgage assets, in the same manner as an interest-only ("IO") class of stripped mortgage-backed securities. The CMO residual market has only very recently developed and CMO residuals currently may not have the liquidity of other more established securities trading in other markets.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"). SMBS are derivative multi-class mortgage securities. SMBS may be issued by agencies or instrumentalities of the U.S. Government, or by private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose entities of the foregoing. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. A common type of SMBS will have one class receiving some of the interest and most of the principal from the mortgage assets, while the other class will receive most of the interest and the remainder of the principal. In the most extreme case, one class will receive all of the interest (the "IO" class), while the other class will receive all of the principal (the principal-only or "PO" class). The value of an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may cause the Funds to lose money. SMBS were only recently developed. As a result, established trading markets have not yet developed and these securities may be deemed illiquid.
OTHER ASSET-BACKED SECURITIES. The Funds may invest in asset-backed securities (unrelated to mortgage loans). Asset-backed securities are securities whose principal and interest payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. In addition to prepayment risks, these securities present credit risks that are not inherent in mortgage-related securities.
REPURCHASE AGREEMENTS. Each 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. In this type of transaction, the securities purchased by the Fund have a total value in excess of the value of the repurchase agreement. The Funds require at all times that the repurchase agreement be collateralized by cash or U.S. Government securities having a value equal to, or in excess of, the value of the repurchase agreement. Such agreements permit the Funds to keep all 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 Funds may incur a loss upon disposition of them. If the seller of the agreement becomes insolvent and subject to liquidation or reorganization under the Bankruptcy Code or other laws, a bankruptcy court may determine that the underlying securities are collateral not within the control of the Funds and are therefore subject to sale by the trustee in bankruptcy. Even though the repurchase agreements may have maturities of seven days or less, they may lack liquidity, especially if the issuer encounters financial difficulties. The Funds intend to limit repurchase agreements to transactions with dealers and financial institutions believed by Fund management to present minimal credit risks. The Funds will monitor the creditworthiness of the repurchase agreement sellers on an ongoing basis.
REVERSE REPURCHASE AGREEMENTS. The Limited Duration U.S. Government Fund and U.S. Government Fund may enter into reverse repurchase agreements. In a reverse repurchase agreement, a 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 also involve the use of leverage, in that the Fund may reinvest the cash it receives in additional securities. Each Fund will attempt to minimize this risk by managing their duration. A Fund's reverse repurchase agreements will not exceed 20% of the Fund's net assets.
SECURITIES LENDING. Each Fund, and the Balanced Fund's underlying funds, 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 the market value of the loaned securities. The Funds 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 Funds and is acting as a "placing broker." No fee will be paid to affiliated person of the Funds.
By lending portfolio securities, the Funds 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 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. Each 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. Each 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.
WHEN-ISSUED OR FORWARD TRANSACTIONS. Each Fund may purchase portfolio securities on a when-issued basis. When-issued 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 which could result in depreciation of value of fixed-income when-issued securities. At the time each 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. Each 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.
AVERAGE DURATION. The Limited Duration Government Fund limits its average dollar weighted portfolio duration to a range of one to four years. However, many of the securities in which the Fund invests will have remaining durations in excess of four years.
Some of the securities in the Limited Duration Government Fund's portfolio may have periodic interest rate adjustments based upon an index such as the 90-day Treasury Bill rate. This periodic interest rate adjustment tends to lessen the volatility of the security's price. With respect to securities with an interest rate adjustment period of one year or less, the Limited Duration Government Fund will, when determining average-weighted duration, treat such a security's maturity as the amount of time remaining until the next interest rate adjustment.
Instruments such as GNMA, FNMA, FHLMC securities and similar securities backed by amortizing loans generally have shorter effective maturities than their stated maturities. This is due to changes in amortization caused by demographic and economic forces such as interest rate movements. These effective maturities are calculated based upon historical payment patterns and therefore have shorter duration than would be implied by their stated final maturity. For purposes of determining the Limited Duration Government Fund's average maturity, the maturities of such securities will be calculated based upon the issuing agency's payment factors using industry-accepted valuation models.
As discussed above, each Fund may purchase U.S. Government securities on a when-issued basis with settlement taking place after the purchase date (without amortizing any premiums). This investment technique is expected to contribute significantly to portfolio turnover rates. However, it will have little or no transaction cost or adverse tax consequences. Transaction costs normally will exclude brokerage because each Fund's fixed-income portfolio transactions are usually on a principal basis and any markups charged normally will be more than offset by the beneficial economic consequences anticipated at the time of purchase or no purchase will be made. Generally, short-term losses on short-term U.S. Government securities purchased under this investment technique tend to offset any short-term gains due to such high portfolio turnover.
3.
MANAGEMENT OF THE FUND
The Trust's Board of Trustees is responsible for the management of the business and affairs of the Funds in accordance with the laws of the State of Delaware. The Board appoints officers who are responsible for the day-to-day operations of each Fund and who execute policies authorized by the Board. As discussed fully below, the Board also initially approves an investment adviser to each Fund and continues to monitor the cost and quality of the services provided by the investment adviser.
The following Trustee is the Managing Partner of Lord, Abbett & Co. ("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 43 portfolios or series.
NAME AND CURRENT POSITION PRINCIPAL OCCUPATION OTHER (DATE OF BIRTH) LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS --------------- ----------------- ---------------------- ------------- ROBERT S. DOW Trustee since 1993; Managing Partner and Chief 90 Hudson Street Chairman since 1996 Investment Officer of Lord Abbett N/A Jersey City, New Jersey and President since since 1996 Date of Birth: 3/8/1945 1995 |
The following outside Trustees are also directors or trustees of the fourteen Lord Abbett-sponsored funds, which consist of 43 portfolios or series.
NAME, ADDRESS AND CURRENT POSITION PRINCIPAL OCCUPATION OTHER
(DATE OF BIRTH) LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
--------------- ----------------- ---------------------- -------------
E. THAYER BIGELOW, Trustee since 1994 Managing General Partner, Bigelow Currently serves as a
Bigelow Media, LLC Media, LLC (since 2000); Senior director of Crane Co. and
717 Fifth Avenue, 26th Floor Adviser, Time Warner Inc. (1998 - Huttig Building Products
New York, New York 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 Trustee since 1998 Co-founder and Chairman of the Currently serves as
Bush-O'Donnell & Co., Inc. Board of the financial advisory director of Well
101 South Hanley Rd, Suite 1025 firm of Bush-O'Donnell & Company Healthpoint Network,
St. Louis, Missouri (since 1986) Mississippi Valley
Date of Birth: 7/14/1938 Bancorp, DT Industries
Inc., and Engineered
Support Systems, Inc.
ROBERT B. CALHOUN, JR. Trustee 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, Massachusetts Management Corp., both private Inc., IGI/Earth Color,
Date of Birth: 10/25/1942 equity investment funds (since Inc., Integrated
1991) Graphics, Inc. and
Interstate Bakeries Corp.
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STEWART S. DIXON Trustee since 1993 Partner in the law firm of Wildman, N/A
Wildman, Harrold, Allen & Dixon Harrold, Allen & Dixon (since
225 W. Wacker Drive, Suite 2800 1967)
Chicago, Illinois
Date of Birth: 11/5/1930
FRANKLIN W. HOBBS Trustee since 2001 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, New York 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 Trustee since 1993 Retired - Special Projects Currently serves as
415 Round Hill Road Consulting (since 1992) director of Fountainhead
Greenwich, Connecticut Water Company, Careside,
Date of Birth: 5/19/1933 Inc., Lincoln Snacks,
J.B. Williams Co., Inc.
(personal care products),
and Seix Fund, Inc. 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 and
President and Managing
General Partner of Lord
Abbett.
THOMAS J. NEFF Trustee since 1993 Chairman of Spencer Stuart, an Currently serves as
Spencer Stuart, U.S. executive search consulting firm director of Ace, Ltd. and
277 Park Avenue (since 1976) Exult, Inc.
New York, New York
Date of Birth: 10/2/1937
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None of the officers listed below have received compensation from the Funds. All the officers of the Funds may also be officers of the other Lord Abbett-sponsored funds and maintain offices at 90 Hudson Street, Jersey City, New Jersey 07302.
CURRENT POSITION LENGTH OF SERVICE
NAME AND (DATE OF BIRTH) WITH FUND OF CURRENT POSITION PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
------------------------- ----------------- -------------------- --------------------------------------------
Zane E. Brown (12/09/1951) Executive Vice Elected in 1996 Partner and Director of Fixed Income
President Management, joined Lord Abbett in 1992.
Robert I. Gerber (5/29/1954) Executive Vice Elected in 1998 Partner and Director of Taxable Fixed Income
President Management, joined Lord Abbett in 1997
formerly Senior Portfolio Manager of Sanford
C. Bernstein & Co. Inc.
Robert G. Morris (11/06/1944) Executive Vice Elected in 1995 Partner and Director of Equity Investments,
President joined Lord Abbett in 1991.
Christopher J. Towle (10/12/1957) Executive Vice Elected in 1999 Partner and Investment Manager, joined Lord
President Abbett in 1987.
Joan A. Binstock (3/4/1954) Vice President Elected in 1999 Partner and Chief Operations Officer, joined
Lord Abbett in 1999, prior thereto Chief
Operating Officer of Morgan Grenfell.
Thomas J. Baade (7/13/1964) Vice President Elected in 1999 Senior Fixed Income Analyst, joined Lord
Abbett in 1998, prior thereto Vice
President/Bond Analyst at Smith Barney Inc.
Daniel E. Carper (1/22/1952) Vice President Elected in 1993 Partner, joined Lord Abbett in 1979.
Michael S. Goldstein (10/29/1968) Vice President Elected in 1999 Fixed Income Investment Manager, joined Lord
Abbett in 1997, prior thereto Assistant
President of Credit Suisse Asset Management.
Paul A. Hilstad (12/13/1942) Vice President and Elected in 1997 Partner and General Counsel, joined Lord
Secretary Abbett in 1995.
Lawrence H. Kaplan (1/16/1957) Vice President and Elected in 1997 Partner and Deputy General Counsel, joined
Assistant Secretary Lord Abbett in 1997, prior thereto Vice
President and Chief Counsel of Salomon
Brothers Asset Management Inc.
Robert A. Lee (8/28/1969) Vice President Elected in 1998 Fixed Income Investment Manager, Mortgage
and Asset Backed Securities, joined Lord
Abbett in 1997, prior thereto Fixed Income
Portfolio Manager and Vice President at ARM
Capital Advisors.
Walter H. Prahl (2/13/1958) Vice President Elected in 1998 Director of Quantitative Research Analyst,
Taxable Fixed Income, joined Lord Abbett in
1997, formerly Quantitative Analyst at
Sanford C. Bernstein & Co. from 1994 to 1997.
A. Edward Oberhaus, III Vice President Elected in 1993 Manager of Equity Trading, joined Lord
(12/21/1959) Abbett in 1983.
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Tracie E. Richter (1/12/1968) Vice President Elected in 1999 Director of Operations and Fund Accounting,
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.
Eli M. Salzmann (3/24/1964) Vice President Elected in 1999 Partner and Director of Institutional Equity
Investments, joined Lord Abbett in 1997,
formerly a Portfolio Manager Analyst at
Mutual of America from 1996 to 1997,
prior thereto Vice President at Mitchell
Hutchins Asset Management.
Christina T. Simmons (11/12/1957) Vice President and Elected in 2000 Assistant General Counsel, joined Lord
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.
Richard S. Szaro (10/8/1942) Vice President Elected in 1993 Associate Investment Manager-Fixed Income,
joined Lord Abbett in 1983.
Francie W. Tai (6/11/1965) Treasurer Elected in 2000 Director of Fund Administration, joined Lord
Abbett in 2000, formerly Manager of Goldman
Sachs from 1997 to 2000, prior thereto
Assistant Vice President of Bankers Trust.
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COMMITTEES
The standing committees of the Board of Trustees are the Audit Committee, the
Proxy Committee, and the Nominating and Governance Committee.
The Audit Committee is composed of Trustees who are not "interested persons" of the Fund. The members of the Audit Committee are Messrs. Bigelow, Calhoun, Hobbs, and MacDonald. The Audit Committee provides assistance to the Board of Trustees in fulfilling its responsibilities relating to corporate accounting, the reporting practices of the Funds, and the quality and integrity of the Funds' financial reports. Among other things, the Audit Committee is responsible for reviewing and evaluating the performance and independence of the Funds' 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 Trustees who are not "interested persons" of the Funds, and also may include one or more trustees who are partners or employees of Lord Abbett. The current members of the Proxy Committee are three independent Trustees: Messrs. Dixon, Hobbs, and Neff, and Mr. Dow. The Proxy Committee assists the Board of Trustees in fulfilling its responsibilities relating to the voting of securities held by the Funds. During the past fiscal year, the Proxy Committee met once.
The Nominating and Governance Committee is composed of all the Trustees who are not "interested persons" of the Funds. Among other things, the Nominating and Governance Committee is responsible for (i) evaluating and nominating individuals to serve as independent Trustees and as committee members; and (ii) periodically reviewing director/trustee compensation. During the past fiscal year, the Nominating and Governance Committee met four times.
APPROVAL OF ADVISORY CONTRACT
At meetings on December 12, 2001, the Board and its outside Trustees considered whether to approve the continuation of the existing management agreement between each of the Funds and Lord Abbett. In addition to the materials the Trustees had reviewed throughout the course of the year, the Trustees 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 OUTSIDE TRUSTEES. The materials received by the
Trustees included, but were not limited to, (1) information on the investment
performance of each Fund and a peer group of funds for the preceding twelve
months and for 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 each 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 each Fund, (7) information regarding the personnel,
information technology, and other resources devoted by Lord Abbett to managing
each Fund.
In considering whether to approve the continuation of the management agreement, the Board and the outside Trustees 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 and the outside Trustees in connection with their approval of the continuation of the management agreement included, but were not limited to, the following:
INVESTMENT MANAGEMENT SERVICES GENERALLY. The Board and the outside Trustees considered the investment management services provided by Lord Abbett to each Fund, including investment research, portfolio management, and trading.
INVESTMENT PERFORMANCE AND COMPLIANCE. The Board and the outside Trustees reviewed each 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 and the outside Trustees also considered whether each Fund had operated within its investment restrictions.
LORD ABBETT'S PERSONNEL AND METHODS. The Board and the outside Trustees considered the qualifications of the personnel providing investment management services to each 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 and the outside Trustees 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 each Fund's transfer agent, custodian, and subcustodians.
EXPENSES. The Board and the outside Trustees considered each class' expense ratios 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 and the outside Trustees considered the level of Lord Abbett's profits in managing the Funds, including a review of Lord Abbett's methodology for allocating its costs to its management of each Fund. The Board and the outside Trustees 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 each Fund and whether the amount of profit is fair for the management of each Fund. They also considered the profits realized from other businesses of Lord Abbett, which may benefit from or be related to each Fund's business. The Board and the outside Trustees 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 and the outside Trustees considered whether there have been any economies of scale in managing each Fund, whether each 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 and the outside Trustees considered the character and amount of fees paid by each Fund and each 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 and the outside Trustees 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 each Fund.
ALTERNATIVE ARRANGEMENTS. The Board and the outside Trustees considered whether, instead of approving continuation of the management agreement, employing one or more alternative arrangements might be in the best interests of each Fund, such as continuing to employ Lord Abbett, but on different terms.
After considering all of the relevant factors, the Board and the outside Trustees unanimously voted to approve continuation of the existing management agreement.
COMPENSATION DISCLOSURE
The following table summarizes the compensation for each of the
Directors/Trustees by the Trust and by all Lord Abbett-sponsored funds.
The second column of the following table sets forth the compensation accrued by the Trust for outside Trustees. 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 FISCAL YEAR ENDED DECEMBER 31, 2001
NOVEMBER 30, 2001 TOTAL COMPENSATION
AGGREGATE COMPENSATION PAID BY THE TRUST AND
ACCRUED BY THIRTEEN OTHER LORD
NAME OF TRUSTEE THE TRUST(1) ABBETT-SPONSORED FUNDS(2)
--------------- ----------------- ------------------------
E. Thayer Bigelow $5,053 $86,000
William H.T. Bush $5,154 $87,400
Robert B. Calhoun, Jr. $5,069 $86,000
Stewart S. Dixon $5,088 $86,200
Franklin W. Hobbs $4,394 $85,000
C. Alan MacDonald $5,053 $86,000
Thomas J. Neff $5,015 $85,000
|
1. Outside directors'/trustees' fees, including attendance fees for board and committee meetings, are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. A portion of the fees payable by the Trust to its outside directors/trustees may be deferred at the option of a director/trustee under an equity-based plan (the "equity-based plan") that deems the deferred amounts to be invested in shares of the Trust for later distribution to the directors/trustees. In addition, $25,000 of each director/trustee's retainer must be deferred and is deemed invested in shares of the Trust 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, 2001, including fees directors/trustees have chosen to defer.
The following chart provides each Trustee's equity ownership of the Funds and ownership of the Lord Abbett-sponsored Funds as of December 31, 2001.
AGGREGATED DOLLAR
RANGE OF TRUSTEE
DOLLAR RANGE OF TRUSTEE OWNERSHIP IN THE FUNDS OWNERSHIP IN
LIMITED DURATION U.S. LORD ABBETT
NAME OF TRUSTEE HIGH YIELD U.S. GOVERNMENT GOVERNMENT SPONSORED FUNDS
--------------- BALANCED FUND FUND FUND FUND ---------------
------------- ---- ---- ----
Robert S. Dow None Over $100,000 None None Over $100,000
E. Thayer Bigelow $1-$10,000 Over $100,000 $1-$10,000 $1-$10,000 Over $100,000
William H. T. Bush $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000 $50,001-$100,000
Robert B. Calhoun, Jr. $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000 Over $100,000
Stewart S. Dixon $10,001-$50,000 None None None Over $100,000
Franklin W. Hobbs $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000 $50,001-$100,000
C. Alan MacDonald $10,001-$50,000 None $1-$10,000 None Over $100,000
Thomas J. Neff $10,001-$50,000 $1-$10,000 $1-$10,000 $1-$10,000 Over $100,000
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Note: The dollar amounts shown above include deferred compensation to the Trustees deemed invested in Fund shares. The amounts ultimately received by the directors/trustees under the deferred compensation plan will be directly linked to the investment performance of the funds.
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 Trust's Code of Ethics (the
"Code") which complies, in substance, with each of the recommendations of the
Investment Company Institute's Advisory Group on Personal Investing. Among other
things, the Code requires, 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 7 days before or after any Lord Abbett-sponsored fund or
Lord Abbett-managed account considers a trade or trades in such security,
prohibiting profiting on trades of the same security within 60 days and trading
on material and non-public information. The Code imposes certain similar
requirements and restrictions on the independent directors and trustees of each
Lord Abbett-sponsored fund to the extent contemplated by the recommendations of
such Advisory Group.
4.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 22, 2002, our officers and trustees, as a group, owned less than one percent of the outstanding shares of each Fund. As of March 22, 2002, to the best of our knowledge, other than Lord Abbett Distributor and other institutional broker-dealers for the benefit of their clients, there were no shareholders who owned more than 5% of a particular class of each Fund's outstanding shares.
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 each Fund's
investment manager. Of the general partners of Lord Abbett, the following are
officers and/or directors of the Trust: Joan A. Binstock, Zane E. Brown,
Daniel E. Carper, Robert S. Dow, Robert I. Gerber, Lawrence H. Kaplan, Paul A. Hilstad, W. Thomas Hudson, Jr., Robert G. Morris, Eli M. Salzmann and Christopher J. Towle. The other general partners are: John E. Erard, Robert P. Fetch, Daria L. Foster, Michael A. Grant, Stephen J. McGruder, Robert J. Noelke, R. Mark Pennington, Douglas B. Sieg, Edward 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 between Lord Abbett and the Trust, each Fund is obligated to pay Lord Abbett a monthly fee, based on average daily net assets for each month. The annual rates for each Fund are as follows: For the U.S. Government Fund* and the Limited Duration U.S. Government Fund, at an annual rate of .50 of 1%, For allocating the Balanced Fund's assets among the underlying funds, at an annual rate of .75 of 1%, For the High Yield Fund, at an annual rate of .60 of 1%.
*The management fee for the U.S. Government Fund is reduced to .45% for average daily net assets in excess of $3 billion.
The management fees paid to Lord Abbett for each Fund are as follows:
2000 1999
2001 2000 WAIVER 1999 WAIVER
---- ---- ------ ---- ------
Balanced Series $ 900,421 $790,477 $790,477 $ 613,069 $613,069
High Yield Fund $ 279,382 $193,939 $110,822 $ 113,526 $113,526
Limited Duration
U.S. Government $ 124,062 $ 67,585 $ 62,055 $ 72,512 $ 72,512
Securities Series
U.S. Government $6,215,794 $6,685,999 - $8,529,176 -
Securities Series
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Each Fund pays all expenses attributable to its operations not expressly assumed by Lord Abbett, including, without limitation, 12b-1 expenses, outside trustees' fees and expenses, association membership dues, legal and auditing fees, taxes, transfer and dividend disbursing agent fees, shareholder servicing costs, expenses relating to shareholder meetings, expenses of preparing, printing and mailing share certificates and shareholder reports, expenses of registering its shares under federal and state securities laws, expenses of preparing, printing and mailing prospectuses to existing shareholders, insurance premiums, brokerage and other expenses connected with executing portfolio transactions.
Although not obligated to do so, Lord Abbett may waive all or a part of its management fees and or may assume other expenses of the Funds. For the year ended November 30, 2001 Lord Abbett waived its fee for the Balanced Fund in the amount of $900,421, however, Lord Abbett did not waive its management fees nor assume other expenses of the other Funds.
PRINCIPAL UNDERWRITER
Lord Abbett Distributor LLC, a New York limited liability company and subsidiary
of Lord Abbett, 90 Hudson Street, Jersey City, 07302-3973, serves as the
principal underwriter for each Fund.
CUSTODIAN AND ACCOUNTING AGENT
State Street Bank and Trust Company, 801 Pennsylvania Avenue, Kansas City,
Missouri, is each Fund's custodian. State Street Bank and Trust Company performs
certain accounting and record keeping functions relating to portfolio
transactions and calculates each 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 each Fund.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, Two World Financial Center, New York, New York, 10281,
are the independent auditors of each Fund and must be approved at least annually
by the Board of Trustees to continue in such capacity. Deloitte & Touche LLP
performs audit services for each Fund, including the examination of financial
statements included in each Fund's Annual Report to Shareholders.
6.
BROKERAGE ALLOCATIONS AND OTHER PRACTICES
Each 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, each 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, a Fund, if considered advantageous, make a purchase from or sale to another Lord Abbett-sponsored fund without the intervention of any broker-dealer.
Broker-dealers are selected on the basis of their professional capability and the value and quality of their brokerage and research services. Normally, the selection is made by traders who are employees of Lord Abbett. These traders also do the trading for other accounts -- investment companies and other investment clients -- managed by Lord Abbett. They are responsible for obtaining best execution.
We may 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 Funds. 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 Funds, 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 each Fund and/or shares of other Lord Abbett-sponsored funds, or who have provided investment research, statistical, or other related services to each 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.
During the fiscal years ended November 30, 2001, 2000, and 1999, the High Yield Fund paid total brokerage commissions on transactions of securities to independent broker-dealers of $1,050.00, $0, and $0, respectively.
7.
CAPITAL STOCK AND OTHER SECURITIES
CLASSES OF SHARES. Each Fund offers investors different classes of shares as described in the Prospectus. The different classes of shares represent investments in the same portfolio of securities but are subject to different expenses and will likely have different share prices. 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 such as a Fund shall not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares of each class 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 are substantially identical or the matter does not affect any interest of such class, series, or fund. However, the Rule exempts the selection of independent public accountants, the approval of a contract with a principal underwriter and the election of trustees from the separate voting requirements.
The Trust does not hold meetings of shareholders unless one or more matters are required to be acted on by shareholders under the Act. Under the Trust's Declaration of Trust, shareholder meetings may be called at any time by certain officers of the Trust or by a majority of the Trustees (i) for the purpose of taking action upon any matter requiring the vote or authority of each Fund's shareholders or upon other matters deemed to be necessary or desirable or (ii) upon the written request of the holders of at least one-quarter of each Fund's outstanding shares and entitled to vote at the meeting.
Shareholder Liability. Delaware law provides that Trust's shareholders shall be entitled to the same limitations of personal liability extended to shareholders of private for profit corporations. The courts of some states, however, may decline to apply Delaware law on this point. The Declaration of Trust contains an express disclaimer of shareholder liability for the acts, obligations, or affairs of the Trust and requires that a disclaimer be given in each contract entered into or executed by the Trust. The Declaration provides for indemnification out of the Trust's property of any shareholder or former shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which Delaware law does not
apply, no contractual limitation of liability was in effect and the portfolio is unable to meet its obligations. Lord Abbett believes that, in view of the above, the risk of personal liability to shareholders is extremely remote.
Under the Declaration of Trust, the Trustees may, without shareholder vote, cause the Trust to merge or consolidate into, or sell and convey all or substantially all of, the assets of the Trust to one or more trusts, partnerships or corporations, so long as the surviving entity is an open-end management investment company that will succeed to or assume the Trust's registration statement. In addition, the Trustees may, without shareholder vote, cause the Trust to be incorporated under Delaware law.
Derivative actions on behalf of the Trust may be brought only by shareholders owning not less than 50% of the then outstanding shares of the Trust.
CLASS A SHARES. If you buy Class A shares, you pay an initial sales charge on investments of less than $1million or on investments for Retirement and Benefit Plans with less then 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 within 24 months after the month in which you buy them, you may pay 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 CDSC varies depending on how long you own shares. Class B shares are subject to service and distribution fees at an annual rate of 1% of the annual net asset value of the Class B shares. The CDSC and the Rule 12b-1 plan applicable to the Class B shares are described in each 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 that Fund a CDSC of 1%. 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 Funds' 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 prospectus of each Fund which offers Class P shares. Class P shares are available to a limited number of investors.
RULE 12b-1 PLANS
CLASS A, B, C, AND P. Each Fund has adopted a Distribution Plan and Agreement pursuant to Rule 12b-1 of the Act for each of the four Fund classes, as applicable: 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 Statement of Additional Information contains additional information that may be of interest to investors. Each Plan is a compensation plan. This allows 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 of Trustees has concluded that there is a reasonable likelihood that each Plan will benefit its respective class and such class's 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 Funds. 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 and 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 Funds.
The amounts paid by each Fund pursuant to the A Plan for the fiscal year ended November 30, 2001 in connection with advertising and marketing activities, and payments to dealers were:
Balanced Fund -- $23,048 and $246,030.14, totaling $269,078 High Yield Fund -- $6,563 and $80,168, totaling $86,731 Limited Duration Fund -- $0, $0, totaling $0 U.S. Government Fund -- $301,632 and $3,984,340, totaling $4,285,972 |
The amounts paid by each Fund pursuant to the B Plan for the fiscal year ended November 30, 2001 in connection with advertising and marketing activities, and payments to dealers were:
Balanced Fund -- $0 and $186,257, totaling $186,257 High Yield Fund -- $0 and $123,317, totaling $123,317 Limited Duration Fund -- $0 and $0, totaling $0 U.S. Government Fund -- $0 and $411,773, totaling $411,773 |
The amounts paid by each Fund pursuant to the C Plan for the fiscal year ended November 30, 2001 in connection with advertising and marketing activities, and payments to dealers were:
Balanced Fund -- $0 and $145,092, totaling $145,092 High Yield Fund -- $0 and $107,231, totaling $107,231 Limited Duration Fund -- $0 and $86,411, totaling $86,411 U.S. Government Fund -- $0 and $935,317, totaling $935,317 |
Each Plan requires the Board of Trustees 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 of Trustees reasonably requests to 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 Trustees, including a majority of the Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan ("outside Trustees"), 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 Trustees, including a majority of the outside Trustees. As long as the Plans are in effect, the selection or nomination of outside Trustees is committed to the discretion of the outside Trustees.
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 Trustees or by vote of a majority of its class' outstanding voting securities.
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 a 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 each 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.
CLASS C SHARES. As stated in the Prospectus, subject to certain exceptions, if Class C shares are redeemed for cash before the first anniversary of their purchase, the redeeming shareholder normally will be required to pay to the Funds on behalf of Class C shares a CDSC of 1% of the lower of cost or the then net asset value of Class C shares redeemed. If such shares are exchanged into the same class of another Lord Abbett-sponsored fund and subsequently redeemed before the first anniversary of their original purchase, the charge will be collected by the fund of original purchase on behalf of this Fund's Class C shares.
GENERAL. The percentage (1% in the case of Class A and C shares and 5% through 1% in the case of Class B shares) used to calculate CDSCs described above for the Class A, Class B and Class C shares is sometimes hereinafter referred to as the "Applicable Percentage."
With respect to Class A 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 shares purchased pursuant to a special retirement wrap program, no CDSC is payable on redemptions which continue as investments in another fund participating in the program. With respect to Class B shares, no CDSC is payable for redemptions (i) in connection with Systematic Withdrawal Plan and Div-Move services as described below under those headings, (ii) in connection with mandatory distribution under 403(b) plans and IRAs and (iii) in connection with death of the shareholder. In the case of Class A and Class C shares, the CDSC is received by the Fund and is intended to reimburse all or a portion of the amount paid by the Fund if the shares are redeemed before the Fund has had an opportunity to realize the anticipated benefits of having a long-term shareholder account in the Fund. In the case of Class B shares, the CDSC is received by Lord Abbett Distributor and is intended to reimburse its expenses of providing distribution-related service to the Fund
(including recoupment of the commission payments made) in connection with the sale of Class B shares before Lord Abbett Distributor has had an opportunity to realize its anticipated reimbursement by having such a long-term shareholder account subject to the B Plan distribution fee.
In no event will the amount of the 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 your 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 which, together with exchanged shares, have been held continuously for 24 months from the end of the month in which the original sale occurred (in the case of Class A shares); for six years or more (in the case of Class B shares) and for one year or more (in the case of Class C shares). In determining whether a CDSC is payable, (a) shares not subject to the CDSC will be redeemed before shares subject to the CDSC and (b) of the shares subject to a CDSC, those held the longest will be the first to be redeemed.
WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that a 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. A 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 a 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 that Fund's actual investment returns, the operating expenses borne by each class of shares, and the class of shares you purchase. The factors briefly discussed below are not intended to be investment advice, guidelines or recommendations, because each investor's financial considerations are different. The discussion below of the factors to consider in purchasing a particular class of shares assumes that you will purchase only one class of shares and not a combination of shares of different classes.
HOW LONG DO YOU EXPECT TO HOLD YOUR INVESTMENT? While future financial needs cannot be predicted with certainty, knowing how long you expect to hold your investment will assist you in selecting the appropriate class of shares. For example, over time, the reduced sales charges available for larger purchases of Class A shares may offset the effect of paying an initial sales charge on your investment, compared to the effect over time of higher class-specific expenses on Class B or Class C shares for which no initial sales charge is paid. Because of the effect of class-based expenses, your choice should also depend on how much you plan to invest.
INVESTING FOR THE SHORT TERM. If you have a short-term investment horizon (that is, you plan to hold your shares for not more than six years), you should probably consider purchasing Class A or Class C shares rather than Class B shares. This is because of the effect of the Class B CDSC if you redeem before the sixth anniversary of your purchase, as well as the effect of the Class B distribution fee on the investment return for that class in the short term. Class C shares might be the appropriate choice (especially for investments of less than $100,000), because there is no initial sales charge on Class C shares, and the CDSC does not apply to amounts you redeem after holding them one year.
However, if you plan to invest more than $100,000 for the short term, then the more you invest and the more your investment horizon increases toward six years, the more attractive the Class A share option may become. This is because the annual distribution fee on Class C shares will have a greater impact on your account over the longer term than the reduced front-end sales charge available for larger purchases of Class A shares. For example, Class A might be more appropriate than Class C for investments of more than $100,000 expected to be held for 5 or 6 years (or more). For investments over $250,000, 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, not matter how long you intent 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 a Retirement and Benefit Plans made through Financial Intermediaries that perform participant recordkeeping or other administrative services for the Plan and that have entered into special arrangements with the fund an/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 $100,000. If you plan to invest more than $100,000 over the long term, Class A shares will likely be more advantageous than Class B shares or Class C shares, as discussed above, because of the effect of the expected lower expenses for Class A shares and the reduced initial sales charges available for larger investments in Class A shares under each 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.
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 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 a Fund and Class C shareholders.
8.
PURCHASES, REDEMPTIONS
AND PRICING
Information concerning how we value our shares for the purchase and redemption of our shares is contained in the Prospectus under "Purchases" and "Redemptions," respectively.
Under normal circumstances we calculate a Fund's net asset value as of the close of the NYSE on each day that the NYSE is open for trading by dividing our total net assets by the number of shares outstanding at the time of calculation. The NYSE is closed on Saturdays and Sundays and the following holidays -- New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
Each Fund values its portfolio securities at market value as of the close of the NYSE. Market value will be determined as follows: securities listed or admitted to trading privileges on 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 price, or, in the case of bonds, in the over-the-counter market if, in the judgment of the Fund's officers, that market more accurately reflects the market value of the bonds. Over-the-counter securities not traded on the NASDAQ National Market System are valued at the mean between the last bid and asked prices. Securities for which market quotations are not available are valued at fair market value under procedures approved by the Board of Trustees.
All assets and liabilities expressed in foreign currencies will be converted into United States dollars at the mean between the buying and selling rates of such currencies against United States dollars last quoted by any major bank chosen by the investment manager. If such quotations are not available, the rate of exchange will be determined in accordance with policies established by the Board of Trustees. The Board of Trustees will monitor, on an ongoing basis, each Fund's method of valuation.
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 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 fro clients that pay the 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, g) 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 specifically for such purchases, g) 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, h) 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 I) purchases through an omnibus account of a dealer that features ten or fewer preferred mutual fund families, including the Lord Abbett family of 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 purchases 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 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) 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 our 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 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 AMMF have the same right to exchange their shares for the corresponding class of each 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 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 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 and Class C shares and (ii) to Lord Abbett Distributor if the
original purchase was subject to a CDSC, in the case of the Class B shares.
Thus, if shares of a Lord Abbett fund are exchanged for shares of the same class
of another such fund and the shares of the same class tendered ("Exchanged
Shares") are subject to a CDSC, the CDSC will carry over to the shares of the
same class being acquired, including GSMMF and AMMF ("Acquired Shares"). Any
CDSC that is carried over to Acquired Shares is calculated as if the holder of
the Acquired Shares had held those shares from the date on which he or she
became the holder of the Exchanged Shares. Although the Non-12b-1 Funds will not
pay a distribution fee on their own shares, and will, therefore, not impose
their own CDSC, the Non-12b-1 Funds will collect the CDSC (a) on behalf of other
Lord Abbett funds, in the case of the Class A and Class C shares and (b) on
behalf of Lord Abbett Distributor, in the case of the Class B shares. Acquired
Shares held in GSMMF and AMMF 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 AMMF, that Applicable Percentage will apply to redemptions for cash from
AMMF, regardless of the time you have held Acquired Shares in AMMF.
LETTER OF INTENTION. Under the terms of the Letter of Intention as described in the Prospectus you may invest $100,000 or more over a 13-month period in 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 supplementally by Lord Abbett Distributor or the Fund to carry out the order. The signature(s) and any legal capacity of the signer(s) must be guaranteed by an eligible guarantor. See 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.
Our Board of Trustees 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 PLANS. The Systematic Withdrawal Plan ("SWP") also is described in the Prospectus. You may establish a SWP if you own or purchase uncertificated shares having a current offering price value of at least $10,000. Lord Abbett prototype retirement plans have no such minimum. With respect to 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. Because the value of shares redeemed may be more or less than their cost, gain or loss may be recognized for income tax purposes on each periodic payment. Normally, you may not make regular investments at the same time you are receiving systematic withdrawal payments because it is not in your interest to pay a sales charge on new investments when, in effect a portion of that new investment is soon withdrawn. The minimum investment accepted while a withdrawal plan is in effect is $1,000. The SWP may be terminated by you or by us at any time by written notice.
RETIREMENT PLANS. The Prospectus indicates the types of retirement plans for which Lord Abbett provides forms and explanations. Lord Abbett makes available the retirement plan forms 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. A Financial Intermediary may charge transaction fees on the purchase and/or sale of Fund shares. 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 the Fund's or Lord Abbett Distributor's behalf. 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.
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 kin 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 FUNDS
Each 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 a Fund so qualifies, 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 a 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 a 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. Each Fund intends to distribute to its shareholders each year an amount adequate to avoid the imposition of this excise tax.
Each Fund intends to declare and pay as dividends each year substantially all of its net investment income. Dividends paid by a Fund from its ordinary income or net realized short-term capital gains are taxable to you as ordinary income. Dividends paid by a 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 a 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 a 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 a 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 a 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. Each 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 exceed 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 gains 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% for capital assets held for more than one year. Capital gains or losses recognized by corporate shareholders are subject to tax at the ordinary income tax rates applicable to corporations.
Certain investment practices that a 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 a Fund. Such transactions may in turn affect the amount and character of Fund distributions to you.
A 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 a Fund.
You may be subject to a 30% withholding tax on reportable dividends, capital gains 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. Generally, you will be subject to backup withholding if a 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 a 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 a Fund's income be derived from federal obligations before such dividends may be excluded from state taxable income. A Fund may invest some or all of its assets in such federal obligations. Each 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 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 exclusive underwriter for the Funds. The Trust 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 each 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.
For the last three fiscal years, Lord Abbett as the Funds' 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 NOVEMBER,
--------------------
BALANCED FUND
2001 2000 1999
---- ---- ----
Gross sales charge $1,061,993 $507,785 $1,040,062
Amount allowed to dealers $ 897,172 $430,126 $ 892,059
---------- -------- ----------
Net Commissions received
by Lord Abbett $ 164,821 $ 77,659 $ 148,003
HIGH YIELD FUND
2001 2000 1999
---- ---- ----
Gross sales charge $ 317,721 $153,427 $310,096
Amount allowed to dealers $ 265,376 $128,542 $276,728
---------- -------- --------
Net Commissions received
by Lord Abbett $ 52,345 $ 24,885 $ 33,368
LIMITED DURATION U.S. GOVERNMENT SECURITIES FUND
2001 2000 1999
---- ---- ----
Gross sales charge $ 287,017 $ 79,223 $100,681
Amount allowed to dealers $ 237,599 $ 65,551 $ 86,421
---------- -------- --------
Net Commissions received
by Lord Abbett $ 49,418 $ 13,672 $ 14,260
U.S GOVERNMENT SECURITIES FUND
2001 2000 1999
---- ---- ----
Gross sales charge $ 814,189 $262,610 $747,456
Amount allowed
to dealers $ 675,587 $222,269 $646,899
---------- -------- --------
Net Commissions received
by Lord Abbett $ 138,602 $ 40,341 $100,557
========== ======== ========
|
11.
PERFORMANCE
Each 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 sales) of the Funds
shares at the end of the measurement period. Each 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 the Funds shares at the end of the
measurement period, to a power equal to the number of years covered by the
computation and multiplying the result by one thousand dollars, which represents
a hypothetical initial investment. The calculation assumes deduction of the
maximum sales charge from the initial amount invested and reinvestment of all
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 the 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) with respect to the Balanced Fund , 3.25% with respect to the Limited Duration Government Fund, 4.75% with respect to U.S. Government Securities Fund and High Yield Fund (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 of the U.S. Government Securities Fund and the High Yield Fund, 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 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 November 30, 2001, for each Fund, for one, five, or ten-years and 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 Funds. Actual after-tax returns will depend on an investor's tax situation and may differ from those shown. The after-tax returns for other classes of shares not shown in the table will vary from those shown. The after-tax returns for other classes of shares not shown in the table will vary 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. A 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 YEAR 10 YEAR LIFE OF FUND
------ ------ ------- ------------
BALANCED FUND
Class A shares
Before Taxes -3.64% 6.47% - 9.39% (12/27/94)
Class A shares after
Taxes on Distributions -6.40% 2.87% - 6.14%
Class A shares after Taxes on
Distributions and Sales of
Fund shares -1.41% 3.46% - 6.06%
Class B shares -3.09% - - 3.42% (5/1/98)
|
Class C shares 0.88% 6.88% - 8.81% (7/15/96)
HIGH YIELD FUND
Class A shares
Before Taxes 3.94% - - 1.40% (12/31/98)
Class A shares after
Taxes on Distributions -0.21% - - -2.48%
Class A shares after Taxes on
Distributions and Sales of
Fund shares 2.35% - - -0.79%
Class B shares 3.45% - - 1.57% (12/31/98)
Class C shares 7.50% - - 2.41% (12/31/98)
LIMITED DURATION FUND
Class A shares
Before Taxes 4.96% 5.65% - 4.57% (11/4/93)
Class A shares after
Taxes on Distributions 2.02% 3.22% - 2.18%
Class A shares after Taxes on
Distributions and Sales of
Fund shares 2.94% 3.28% - 2.40%
Class C shares 6.12% 5.25% - 5.65% (7/15/96)
|
U.S. GOVERNMENT FUND
Class A shares
Before Taxes 4.22% 5.53% 6.14% 9.42% (1/1/82)
Class A shares after
Taxes on Distributions 1.79% 2.79% 3.04% 5.41%
Class A shares after Taxes on
Distributions and Sales of
Fund shares 2.52% 3.00% 3.31% 5.49%
Class B shares 3.56% 5.50% - 6.37% (8/1/96)
Class C shares 7.93% 5.88% - 6.70% (7/15/96)
|
Yield quotation for each Class of a fixed-income fund is based on a 30-day period ended on a specified date, computed by dividing the net investment income per share earned during the period by the maximum offering price per share of such class on the last day of the period. This is determined by finding the following quotient: the dividends, and interest earned by a class during the period minus the aggregate expenses attributable to the class accrued during the period (net of reimbursements) and divided by the product of (i) the average daily number of class shares outstanding during the period that were entitled to receive dividends and (ii) the maximum offering price per share of such class on the last day of the period. To this quotient add one, and then increase the sum to the sixth power. Then subtract one from the product of this multiplication and multiply the remainder by two. Yield for the Class A shares reflects the deduction of the maximum initial sales charge, but may also be shown based on the Class A net asset value per share. Yields for Class B and C shares do not reflect the deduction of the CDSC. For the 30-day period ended November 30, 2001 the yield for the Class A shares of the Balanced Fund was 4.15%, for the High Yield Fund was 8.89%, for the Limited Duration Fund was 3.56% and for the U.S. Government Fund was 3.61%.
These figures represent past performance, and an investor should be aware that the investment return and principal value of a Fund investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Therefore, there is no assurance that this performance will be repeated in the future.
Each 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. Each Fund may also from time to time quote distribution rates in reports to shareholders and in sales literature. In addition, each 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 investments for which reliable performance information is available.
12.
FINANCIAL STATEMENTS
The financial statements incorporated herein by reference from Lord Abbett Investment Trust's 2001 Annual Report to Shareholders have been audited by Deloitte & Touche LLP, independent auditors, as stated in its report, which is incorporated 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.
APPENDIX
CORPORATE BOND RATINGS (HIGH YIELD FUND ONLY)
Moody's Investors Service, Inc.'s Corporate Bond Ratings
Aaa - Bonds which are rated Aaa are judged to be of the best quality and carry the smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high-quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities, fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance and other terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca - Bonds that are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest-rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Standard & Poor's Corporation's Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong and in the majority of instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the A category.
BB-B-CCC-CC-C - Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal. 'BB' indicates the least degree of speculation and 'CCC' the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
D - Debt rated 'D' is in payment default. The 'D' rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
[LORD ABBETT LOGO]
LORD ABBETT
LORD ABBETT
HIGH YIELD FUND
APRIL 1, 2002
PROSPECTUS
CLASS Y SHARES
As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Class Y shares of the Fund are neither offered to the general public nor available in all states. Please call 800-821-5129 for further information.
TABLE OF CONTENTS
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 4
Management 5
YOUR INVESTMENT
Information for managing Purchases 6
your fund account Redemptions 7
Distributions and Taxes 7
Services For Fund Investors 8
FINANCIAL INFORMATION
Financial Highlights 9
ADDITIONAL INFORMATION
How to learn more about the Fund Back Cover
and other Lord Abbett Funds
|
HIGH YIELD FUND
GOAL
The Fund's investment objective is to seek high current income and the opportunity for capital appreciation to produce a high total return.
PRINCIPAL STRATEGY
To pursue its goal, the Fund normally invests in high-yield debt securities, sometimes called "lower-rated bonds" or "junk bonds," which entail greater risks than investments in higher-rated or investment-grade debt securities. Under normal circumstances, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in lower-rated debt securities, some of which are convertible into common stock or have warrants to purchase common stock. The Fund will provide shareholders with at least 60 days notice of any change in this policy.
We believe that a high total return (current income and capital appreciation) may be derived from an actively-managed, diversified portfolio of investments. We seek unusual values, particularly in lower-rated debt securities. Also, buying lower-rated bonds when we believe the credit risk is likely to decrease, may generate higher returns. Through portfolio diversification, credit analysis and attention to current developments and trends in interest rates and economic conditions, we attempt to reduce investment risk, but losses may occur.
MAIN RISKS
The Fund is subject to the general risks and considerations associated with investing in debt securities. The value of your investment will change as interest rates fluctuate and in response to market movements. When interest rates rise, the prices of debt securities are likely to decline. Longer-term fixed income securities are usually more sensitive to interest rate changes. This means that the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price. High yield securities or junk bonds are usually more credit sensitive than interest rate sensitive. In times of economic uncertainty, these securities may decline in price, even when interest rates are falling.
There is also the risk that an issuer of a debt security will fail to make timely payments of principal or interest to the Fund, a risk that is greater with junk bonds. Some issuers, particularly of junk bonds, may default as to principal and/or interest payments after the Fund purchases their securities. A default, or concerns in the market about an increase in risk of default, may result in losses to the Fund. In addition, the market for high-yield securities generally is less liquid than the market for higher-rated securities, subjecting them to greater price fluctuations.
The High Yield Fund may invest up to 20% of its assets in foreign securities. Investments in foreign securities may present 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 HIGH YIELD FUND refers to the Lord Abbett High Yield Fund ("High Yield Fund"), a portfolio of Lord Abbett Investment Trust.
ABOUT THE FUND. This Fund is a professionally managed portfolio primarily holding securities purchased with the pooled money of investors. It strives to reach its stated goal; although, as with all funds, it cannot guarantee results.
INVESTMENT GRADE DEBT SECURITIES are debt securities that are rated within the four highest grades assigned by Moody's Investor Service, Inc. (Aaa, Aa, A, Baa), Standard & Poor's Ratings Services (AAA, AA, A, BBB) or Fitch Investors Service (AAA, AA, A, BBB), (each a "Rating Agency") or are unrated but determined by Lord Abbett to be of comparable quality.
HIGH-YIELD DEBT SECURITIES (sometimes called "lower rated bonds" or "junk bonds") are rated BB/Ba or lower and typically pay a higher yield than investment-grade debt securities. High-yield securities have a higher risk of default than investment-grade debt securities, and their prices are much more volatile. The market for high-yield debt securities may also be less liquid.
2 The Funds
HIGH YIELD FUND
PERFORMANCE
The bar chart and table below provide some indication of the risks of investing in the Fund by illustrating the variability of the Fund's returns. Each assumes reinvestment of dividends and distributions. The Fund's past performance, 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.
-2.8% 5.5% |
BEST QUARTER 4th Q'01 +6.1% WORST QUARTER 3rd Q'01 -4.0% ---------------------------------------------- |
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.
SHARE CLASS 1 YEAR SINCE INCEPTION(1) Class Y Shares 5.51% 1.30% Return Before Taxes ------------------------------------------------------------------------------------------------- Return After Taxes on Distributions 1.17% -2.79% ------------------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares 3.33% -0.97% ------------------------------------------------------------------------------------------------- Merrill Lynch High Yield Master Index(2) (reflects no deduction for fees, expenses or taxes) 6.20% 0.41%(3) ------------------------------------------------------------------------------------------------- First Boston High Yield Index(2) (reflects no deduction for fees, expenses or taxes) 5.79% -0.12%(3) ------------------------------------------------------------------------------------------------- |
(1) The date of inception for Class Y shares is 5/4/99.
(2) The performance of the unmanaged indices is not necessarily representative
of the Fund's performance.
(3) Represents total return for the period 4/30/99 - 12/31/01, to correspond
with Class Y period shown.
The Funds 3
High Yield Funds
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
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") 0.60%
------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.37%
------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 0.97%
------------------------------------------------------------------------------------------------------------------------
|
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class Y shares $99 $309 $536 $1,190 |
ADDITIONAL INVESTMENT INFORMATION
This section describes some of the Fund's investment techniques and their associated risks.
ADJUSTING INVESTMENT EXPOSURE. The Fund will be subject to the risks associated with investments. The Fund may, but is not required to, use various strategies to change its investment exposure to adjust to changes in economic, social, political, and general market conditions, which affect changes in security prices, interest rates, currency exchange rates, commodity prices and other factors. The Fund may use these transactions to change the risk and return characteristics of the Fund's portfolio. If we judge market conditions incorrectly or use a strategy that does not correlate well with the Fund's investments, it could result in a loss, even if we intended to lessen risk or enhance returns. These transactions may involve a small investment of cash compared to the magnitude of the risk assumed and could produce disproportionate gains or losses. Also, these strategies could result in losses if the counterparty to a transaction does not perform as promised.
CONVERTIBLE SECURITIES. The Fund may invest in convertible bonds and convertible preferred stocks. These investments tend to be more volatile than debt securities, but tend to be less volatile and produce more income than their underlying common stocks. 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. When interest rates rise, prices of these investments are likely to decline, and when interest rates fall, prices tend to rise. There is also the risk that an issuer of a debt security will fail to make timely payments of principal or interest to the Fund.
[SIDENOTE]
MANAGEMENT FEES are payable to Lord Abbett for the Fund's investment management.
OTHER EXPENSES include fees paid for miscellaneous items such as shareholder service fees and professional fees.
4 The Funds
HIGH YIELD FUND
DEPOSITORY RECEIPTS. The Fund may invest in sponsored and unsponsored American Depository Receipts ("ADRs") and similar depository receipts. ADRs, typically issued by a financial institution (a "depository"), evidence ownership interests in a security or a pool of securities issued by a foreign company and deposited with the depository. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the United States. Ownership of ADRs entails similar investment risks to direct ownership of foreign securities traded outside the U.S.; however, for purposes of the Fund's investment policies, ADRs are not treated as foreign securities.
EQUITY SECURITIES. The High Yield Fund may invest up to 20% of its total assets in equity securities. These include common stocks, preferred stocks, convertible securities, depository receipts, warrants, and similar instruments. Common stocks, the most familiar type, represent an ownership interest in a company. The value of equity securities fluctuates based on changes in a company's financial condition, and on market and economic conditions.
FOREIGN SECURITIES. The Fund may invest up to 20% of its net assets in foreign securities that are primarily traded outside the United States. This limitation does not include ADRs. Foreign securities may pose greater risks than domestic securities. Foreign markets and the securities traded in them may not be subject to the same degree of regulation as U.S. markets. As a result, there may be less information publicly available about foreign companies than most U.S. companies. Securities clearance, settlement procedures and trading practices may be different, and transaction costs may be higher, in foreign countries. There may be less trading volume and liquidity in foreign markets, subjecting the securities traded in them to higher price fluctuations. Foreign securities also may be affected by changes in currency rates or currency controls.
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 these securities. 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., which is located at 90 Hudson Street, Jersey City, NJ 07302-3973. Founded in 1929, Lord Abbett manages one of the nation's oldest mutual fund complexes, with approximately $43 billion in more than 40 mutual fund portfolios and other advisory accounts. For more information about the services Lord Abbett provides to the Fund, see the Statement of Additional Information.
Lord Abbett is entitled to an annual management fee of .60% based on the Fund's average daily net assets. The fees are calculated daily and payable monthly. In addition, the Fund pays all expenses not expressly assumed by Lord Abbett.
INVESTMENT MANAGERS. Lord Abbett uses a team of investment managers and analysts acting together to manage the Fund's investments. Christopher J. Towle, Partner of Lord Abbett, heads the team, the other senior members of which include Richard Szaro, Michael Goldstein and Thomas Baade. Messrs. Towle and Szaro have been with Lord Abbett since 1988 and 1983, respectively. Mr. Goldstein has been with Lord Abbett since 1997. Before joining Lord Abbett, Mr. Goldstein was a bond trader for Credit Suisse Asset Management Associates from August 1992 through April 1997. Mr. Baade joined Lord Abbett in 1998; prior to that he was a credit analyst with Greenwich Street Advisors from 1990 to 1998.
The Funds 5
YOUR INVESTMENT
PURCHASES
CLASS Y SHARES. You may purchase Class Y shares at the net asset value ("NAV") per share next determined after we receive and accept your purchase order submitted in proper form. No sales charges apply.
We reserve the right to withdraw all or part of the offering made by this prospectus or to reject any purchase order. We also reserve the right to waive or change minimum investment requirements. All purchase orders are subject to our acceptance and are not binding until confirmed or accepted in writing.
WHO MAY INVEST? Class Y shares are currently available in connection with:
(1) purchases by or on behalf of FINANCIAL INTERMEDIARIES for clients that
pay the 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; (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; (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 securities business. Additional payments
may be made by Lord Abbett out of its own resources with respect to certain
of these sales.
HOW MUCH MUST YOU INVEST? You may buy our shares through any independent securities dealer having a sales agreement with Lord Abbett Distributor, our exclusive selling agent. Place your order with your investment dealer or send the money to the Fund (P.O. Box 419100, Kansas City, Missouri 64141). The minimum initial investment is $1 million except 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 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.
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.
6 Your Investment
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
Redemption 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 $50,000 or less from your account, you or your representative should call the Fund at 800-821-5129.
BY MAIL. Submit a written redemption request indicating the name(s) in which the account is registered, the Fund's name, the class of shares, your account number, and the dollar value or number of shares you wish to 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.
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]
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 the estate -
Robert A. Doe
Executor of the Estate of
John W. Doe
[Date]
[SEAL]
- In the case of the corporation -
ABC Corporation
Mary B. Doe
By Mary B. Doe, President
[Date]
[SEAL]
Your Investment 7
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 such 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
We offer the following shareholder services:
TELEPHONE EXCHANGE PRIVILEGE. Class Y shares may be exchanged without a service charge for Class Y shares of any Eligible Fund among the Lord Abbett-sponsored funds.
ACCOUNT STATEMENTS. Every Lord Abbett investor automatically receives quarterly account statements.
HOUSEHOLDING. Shareholders with the same last name and address will receive a single copy of a prospectus and an annual or semi-annual report, unless additional reports are specifically requested in writing to the Fund.
ACCOUNT CHANGES. For any changes you need to make to your account, consult your investment professional or call the Fund at 800-821-5129.
SYSTEMATIC EXCHANGE. You or your investment professional can establish a schedule of exchanges between the same classes of any Eligible Fund.
[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.
8 Your Investment
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 2001 Annual Report to Shareholders and are incorporated by reference into the Statement of Additional Information, which is available upon request. Certain information reflects financial results for a single Fund share.
------------------------------------------------------------------------------------------------------
CLASS Y SHARES
-------------------------------------------
PERIOD ENDED NOVEMBER 30,
-------------------------------------------
PER SHARE OPERATING PERFORMANCE: 2001 2000 1999(a)
---- ---- -------
NET ASSET VALUE, BEGINNING OF PERIOD $8.38 $9.73 $10.36
------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
------------------------------------------------------------------------------------------------------
Net investment income .81(b) .88(b) .55(b)
------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments (.06) (1.25) (.62)
------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .75 (.37) (.07)
------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
------------------------------------------------------------------------------------------------------
Net investment income (.85) (.98) (.56)
------------------------------------------------------------------------------------------------------
Paid-in capital (.07) -- --
------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.92) (.98) (.56)
------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $8.21 $8.38 $9.73
------------------------------------------------------------------------------------------------------
Total Return(c) 9.18% (4.31)% (.59)%(d)
------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
------------------------------------------------------------------------------------------------------
Expenses, including waiver and expense reductions .96% .48% --
------------------------------------------------------------------------------------------------------
Expenses, excluding waiver and expense reductions .97% .99% .51%(d)
------------------------------------------------------------------------------------------------------
Net investment income 9.75% 9.49%(e) 5.59%(d)
------------------------------------------------------------------------------------------------------
PERIOD ENDED NOVEMBER 30,
-------------------------------------------
SUPPLEMENTAL DATA: 2001 2000 1999(a)
---- ---- -------
NET ASSETS, END OF YEAR (000) $1 $1 $1
------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 93.11% 80.53% 109.57%
------------------------------------------------------------------------------------------------------
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(a) From May 4, 1999 (commencement of offering of class shares).
(b) Calculated using average shares outstanding during the period.
(c) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(d) Not annualized.
Financial Information 9
THIS PAGE INTENTIONALLY LEFT BLANK
TO OBTAIN INFORMATION:
BY TELEPHONE. Call the Fund at:
888-522-2388
BY MAIL. Write to the Fund at:
The Lord Abbett Family of Funds
90 Hudson Street
Jersey City, NJ 07302-3973
VIA THE INTERNET.
LORD, ABBETT & CO.
www.LordAbbett.com
Text only versions of Fund documents can be viewed online or downloaded 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 20549-6009 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 or will be available free upon request, including the following:
ANNUAL/SEMI-ANNUAL REPORT
Describes the Fund, lists portfolio holdings, and contains a letter from the Fund's manager discussing recent market conditions, the Fund's investment strategies and contains additional performance information.
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 High Yield Fund
LAHYY(4101)
SEC FILE NUMBERS: 811-7988
LORD ABBETT
STATEMENT OF ADDITIONAL INFORMATION APRIL 1, 2002
LORD ABBETT HIGH YIELD FUND
CLASS Y SHARES
This Statement of Additional Information is not a Prospectus. A Prospectus for the Class Y shares of Lord Abbett High Yield Fund may be obtained from your securities dealer or from Lord Abbett Distributor LLC ("Lord Abbett Distributor") at 90 Hudson Street, Jersey City, New Jersey 07302-3973. This Statement of Additional Information relates to, and should be read in conjunction with, the Prospectus dated April 1, 2002.
Shareholder inquiries should be made by directly contacting the Fund or by calling 800-821-5129. The Annual Report to Shareholders are available without charge, upon request by calling that number. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS PAGE
1. Fund History 2
2. Investment Policies 2
3. Management of the Fund 5
4. Control Persons and Principal Holders of Securities 12
5. Investment Advisory and Other Services 12
6. Brokerage Allocations and Other Practices 13
7. Capital Stock and Other Securities 14
8. Purchases, Redemptions and Pricing 15
9. Taxation of the Fund 16
10. Underwriter 17
11. Performance 17
12. Financial Statements 19
1.
FUND HISTORY
The Lord Abbett Investment Trust (the "Trust") is a diversified open-end investment management company registered under the Investment Company Act of 1940, as amended (the "Act"). The Trust was organized as a Delaware Business Trust on August 16, 1993, with an unlimited amount of shares of beneficial interest authorized. The Trust has six funds or series, but only Class Y shares of the Lord Abbett High Yield Fund (the "Fund") are being offered in this Statement of Additional Information.
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 above will be determined at the time of purchase or sale of the portfolio investment.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. In addition to the policies in the Prospectus and the investment restrictions above that cannot be changed without shareholder approval, the Fund is subject to the following non-fundamental investment policies that may be changed by the Board of Trustees without shareholder approval.
The Fund may not:
(1) borrow in excess of 33 1/3% of its total assets (including the amount borrowed), and then only as a temporary measure for extraordinary or emergency purposes;
(2) make short sales of securities or maintain a short position except to the extent permitted by applicable law;
(3) invest knowingly more than 15% of its net assets (at the time of investment) in illiquid securities, except for securities qualifying for resale under Rule 144A of the Securities Act of 1933, deemed to be liquid by the Board of Trustees;
(4) invest in securities issued by other investment companies except to the extent permitted by applicable law;
(5) invest in securities of issuers which, with their predecessors, have a record of less than three years' continuous operations, if more than 5% of its total assets would be invested in such securities. (This restriction shall not apply to mortgage-backed securities, asset-backed securities or obligations issued or guaranteed by the U. S. Government, its agencies or instrumentalities);
(6) hold securities of any issuer if more than 1/2 of 1% of the securities of such issuer are owned beneficially by one or more officers or trustees or by one or more of its partners or members or underwriter or investment adviser if these owners in the aggregate own beneficially more than 5% of the securities of such issuer;
(7) invest in warrants if, at the time of the acquisition, its investment in warrants, valued at the lower of cost or market, would exceed 5% of its total assets (included within such limitation, but not to exceed 2% of its total assets, are warrants which are not listed on the New York or American Stock Exchange or a major foreign exchange);
(8) invest in real estate limited partnership interests or interests in oil, gas or other mineral leases, or exploration or other development programs, except that it may invest in securities issued by companies that engage in oil, gas or other mineral exploration or other development activities;
(9) write, purchase or sell puts, calls, straddles, spreads or combinations thereof, except to the extent permitted in its Prospectus and Statement of Additional Information, as they may be amended from time to time;
(10)buy from or sell to any of its officers, trustees, employees, or its investment adviser or any of its officers, directors, partners or employees, any securities other than shares of the Fund's common stock; or
(11)invest more than 10% of the market value of its gross assets at the time of investment in debt securities which are in default as to interest or principal.
PORTFOLIO TURNOVER RATE. For the fiscal year ended November 30, 2001, the Fund's portfolio turnover rate was 93.11% versus 80.53% for the prior year.
ADDITIONAL INFORMATION ON PORTFOLIO RISKS, INVESTMENTS AND TECHNIQUES. The following 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 temporary or emergency purposes from banks and other financial institutions in amounts not exceeding one-third of its total assets. If a Fund borrows money and experiences a decline in its net asset value, the borrowing will increase its losses.
EQUITY SECURITIES. The Fund may invest up to 20% of its total assets in equity securities. These include common stocks, preferred stocks, convertible securities, depository receipts, warrants, and similar instruments. Common stocks, the most familiar type, represent an ownership interest in a company. The value of equity securities fluctuates based on changes in a company's financial condition, and on market and economic conditions.
FOREIGN SECURITIES. The Fund may invest 20% of its assets in foreign securities. 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 commission, 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.
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.
- Certain restricted securities 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.
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. In this type of transaction, the securities purchased by the Fund have a total value in excess of the value of the repurchase agreement. The Fund requires at all times that the repurchase agreement be collateralized by cash or U.S. Government securities having a value equal to, or in excess of, the value of the repurchase agreement. Such
agreements permit the Fund to keep all assets at work while retaining flexibility in pursuit of investments of a longer term nature.
The use of repurchase agreements involves certain risks. For example, if the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the value of these securities has declined, the Fund may incur a loss upon disposition of them. If the seller of the agreement becomes insolvent and subject to liquidation or reorganization under the Bankruptcy Code or other laws, a bankruptcy court may determine that the underlying securities are collateral not within the control of the Fund and are therefore subject to sale by the trustee in bankruptcy. Even though the repurchase agreements may have maturities of seven days or less, they may lack liquidity, especially if the issuer encounters financial difficulties. The Fund intends to limit repurchase agreements to transactions with dealers and financial institutions believed by Fund management to present minimal credit risks. The Fund will monitor creditworthiness of the repurchase agreement sellers on an ongoing basis.
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 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 obtaining yield in the form of interest paid by the borrower when U.S. Government securities or other forms of non-cash collateral are received. Lending portfolio securities could result in a loss or delay in recovering a Fund's securities if the borrower defaults.
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, which could result in depreciation of 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.
3.
MANAGEMENT OF THE FUND
The Trust's Board of Trustees is responsible for the management of the business and affairs of the Funds in accordance with the laws of the State of Delaware. The Board appoints officers who are responsible for the day-to-day operations of each Fund and who execute policies authorized by the Board. As discussed fully below, the Board also initially approves an investment adviser to each Fund and continues to monitor the cost and quality of the services provided by the investment adviser.
The following Trustee is the Managing Partner of Lord, Abbett & Co. ("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 43 portfolios or series.
CURRENT POSITION
NAME AND LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER
(DATE OF BIRTH) WITH TRUST DURING PAST FIVE YEARS DIRECTORSHIPS
--------------- ---------- ---------------------- -------------
ROBERT S. DOW Trustee since 1993; Managing Partner and Chief N/A
90 Hudson Street Chairman since 1996 Investment Officer of Lord Abbett
Jersey City, New Jersey and President since since 1996
Date of Birth: 3/8/1945 1995
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The following outside Trustees are also directors or trustees of the fourteen Lord Abbett-sponsored funds, which consist of 43 portfolios or series.
CURRENT POSITION
NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER
(DATE OF BIRTH) WITH TRUST DURING PAST FIVE YEARS DIRECTORSHIPS
--------------- ---------- ---------------------- -------------
E. THAYER BIGELOW Trustee since 1994 Managing General Partner, Bigelow Currently serves as a
Bigelow Media, LLC Media, LLC (since 2000); Senior director of Crane Co. and
717 Fifth Avenue, 26th Floor Adviser, Time Warner Inc. (1998 - Huttig Building Products
New York, New York 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 Trustee 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 Rd, Suite 1025 firm of Bush-O'Donnell & Company Health Network,
St. Louis, Missouri (since 1986) Mississippi Valley
Date of Birth: 7/14/1938 Bancorp, DT Industries
Inc., and Engineered
Support Systems, Inc.
ROBERT B. CALHOUN, JR. Trustee 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, Massachusetts Management Corp., both private Inc., IGI/Earth Color,
Date of Birth: 10/25/1942 equity investment funds (since Inc., Integrated
1991) Graphics, Inc. and
Interstate Bakeries Corp.
STEWART S. DIXON Trustee since 1993 Partner in the law firm of Wildman, N/A
Wildman, Harrold, Allen & Dixon Harrold, Allen & Dixon (since
225 W. Wacker Drive, Suite 2800 1967)
Chicago, Illinois
Date of Birth: 11/5/1930
|
FRANKLIN W. HOBBS Trustee since 2001 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, New York 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 Trustee since 1993 Retired - Special Projects Currently serves as
415 Round Hill Road Consulting (since 1992) director of Fountainhead
Greenwich, Connecticut Water Company, Careside,
Date of Birth: 5/19/1933 Inc., Lincoln Snacks,
J.B. Williams Co., Inc.
(personal care products),
and Seix Fund, Inc. 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 and
President and Managing
General Partner of Lord
Abbett.
THOMAS J. NEFF Trustee since 1993 Chairman of Spencer Stuart, an Currently serves as
Spencer Stuart executive search consulting firm director of Ace, Ltd. and
277 Park Avenue (since 1976) Exult, Inc.
New York, New York
Date of Birth: 10/2/1937
|
None of the officers listed below have received compensation from the Trust. All the officers of the Trust may also be officers of the other Lord Abbett-sponsored funds and maintain offices at 90 Hudson Street, Jersey City, New Jersey 07302.
CURRENT POSITION LENGTH OF SERVICE PRINCIPAL OCCUPATION
NAME AND (DATE OF BIRTH) WITH TRUST OF CURRENT POSITION DURING PAST FIVE YEARS
------------------------ ---------- ------------------- ----------------------
Zane E. Brown (12/09/1951) Executive Vice Elected in 1996 Partner and Director of Fixed Income
President Management, joined Lord Abbett in 1992.
Robert I. Gerber (5/29/1954) Executive Vice Elected in 1998 Partner and Director of Taxable Fixed Income
President Management, joined Lord Abbett in 1997
formerly Senior Portfolio Manager of Sanford
C. Bernstein & Co. Inc.
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Robert G. Morris (11/06/1944) Executive Vice Elected in 1995 Partner and Director of Equity Investments,
President joined Lord Abbett in 1991.
Christopher J. Towle (10/12/1957) Executive Vice Elected in 1999 Partner and Investment Manager, joined Lord
President Abbett in 1987.
Joan A. Binstock (3/4/1954) Vice President Elected in 1999 Partner and Chief Operations Officer, joined
Lord Abbett in 1999, prior thereto Chief
Operating Officer of Morgan Grenfell.
Thomas J. Baade (7/13/1964) Vice President Elected in 1999 Senior Fixed Income Analyst, joined Lord
Abbett in 1998, prior thereto Vice
President/Bond Analyst at Smith Barney Inc.
Daniel E. Carper (1/22/1952) Vice President Elected in 1993 Partner, joined Lord Abbett in 1979.
Michael S. Goldstein (10/29/1968) Vice President Elected in 1999 Fixed Income Investment Manager, joined Lord
Abbett in 1997, prior thereto Assistant
President of Credit Suisse Asset Management.
Paul A. Hilstad (12/13/1942) Vice President and Elected in 1997 Partner and General Counsel, joined Lord
Secretary Abbett in 1995.
Lawrence H. Kaplan (1/16/1957) Vice President and Partner and Deputy General Counsel, joined
Assistant Secretary Elected in 1997 Lord Abbett in 1997, prior thereto Vice
President and Chief Counsel of Salomon
Brothers Asset Management Inc.
Robert A. Lee (8/28/1969) Vice President Elected in 1998 Fixed Income Investment Manager, Mortgage
and Asset Backed Securities, joined Lord
Abbett in 1997, prior thereto Fixed Income
Portfolio Manager and Vice President at ARM
Capital Advisors.
Walter H. Prahl (2/13/1958) Vice President Elected in 1998 Director of Quantitative Research Analyst,
Taxable Fixed Income, joined Lord Abbett in
1997, formerly Quantitative Analyst at
Sanford C. Bernstein & Co. from 1994 to 1997.
A. Edward Oberhaus, III Vice President Elected in 1993 Manager of Equity Trading, joined Lord
(12/21/1959) Abbett in 1983.
Tracie E. Richter (1/12/1968) Vice President Elected in 1999 Director of Operations and Fund Accounting,
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.
|
Eli M. Salzmann (3/24/1964) Vice President Elected in 1999 Partner and Director of Institutional Equity
Investments, joined Lord Abbett in 1997,
formerly a Portfolio Manager Analyst at
Mutual of America from 1996 to 1997, prior
thereto Vice President at Mitchell Hutchins
Asset Management.
Christina T. Simmons (11/12/1957) Vice President and Elected in 2000 Assistant General Counsel, joined Lord
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.
Richard S. Szaro (10/8/1942) Vice President Elected in 1993 Associate Investment Manager-Fixed Income,
joined Lord Abbett in 1983.
Francie W. Tai (6/11/1965) Treasurer Elected in 2000 Director of Fund Administration, joined Lord
Abbett in 2000, formerly Manager of Goldman
Sachs from 1997 to 2000, prior thereto
Assistant Vice President of Bankers Trust.
|
COMMITTEES
The standing committees of the Board of Trustees are the Audit Committee, the
Proxy Committee, and the Nominating and Governance Committee.
The Audit Committee is composed of Trustees who are not "interested persons" of the Fund. The members of the Audit Committee are Messrs. Bigelow, Calhoun, Hobbs, and MacDonald. The Audit Committee provides assistance to the Board of Trustees in fulfilling its responsibilities relating to corporate accounting, the reporting practices of the Funds, and the quality and integrity of the Funds' financial reports. Among other things, the Audit Committee is responsible for reviewing and evaluating the performance and independence of the Funds' 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 Trustees who are not "interested persons" of the Funds, and also may include one or more trustees who are partners or employees of Lord Abbett. The current members of the Proxy Committee are three independent Trustees: Messrs. Dixon, Hobbs, and Neff, and Mr. Dow. The Proxy Committee assists the Board of Trustees in fulfilling its responsibilities relating to the voting of securities held by the Funds. During the past fiscal year, the Proxy Committee met once.
The Nominating and Governance Committee is composed of all the Trustees who are not "interested persons" of the Funds. Among other things, the Nominating and Governance Committee is responsible for (i) evaluating and nominating individuals to serve as independent Trustees and as committee members; and (ii) periodically reviewing director/trustee compensation. During the past fiscal year, the Nominating and Governance Committee met four times.
APPROVAL OF ADVISORY CONTRACT
At meetings on December 12, 2001, the Board and its outside Trustees considered
whether to approve the continuation of the existing management agreement between
the Fund and Lord Abbett. In addition to the materials the Trustees had reviewed
throughout the course of the year, the Trustees 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 OUTSIDE TRUSTEES. The materials received by the Trustees included, but were not limited to, (1) information on the investment performance of the Fund and a peer group of funds for the preceding twelve
months and for 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 and the outside Trustees 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 and the outside Trustees in connection with their approval of the continuation of the management agreement included, but were not limited to, the following:
INVESTMENT MANAGEMENT SERVICES GENERALLY. The Board and the outside Trustees 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 and the outside Trustees reviewed each 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 and the outside Trustees also considered whether the Fund had operated within its investment restrictions.
LORD ABBETT'S PERSONNEL AND METHODS. The Board and the outside Trustees 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 and the outside Trustees 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 and the outside Trustees considered each class' expense ratios 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 and the outside Trustees considered the level of Lord Abbett's profits in managing the Funds, including a review of Lord Abbett's methodology for allocating its costs to its management of the Fund. The Board and the outside Trustees 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 and the outside Trustees 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 and the outside Trustees 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 and the outside Trustees 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 and the outside Trustees 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 and the outside Trustees 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 and the outside Trustees unanimously voted to approve continuation of the existing management agreement.
COMPENSATION DISCLOSURE
The following table summarizes the compensation for each of the
Directors/Trustees for the Trust and for all Lord Abbett-sponsored funds.
The second column of the following table sets forth the compensation accrued by the Trust for outside Trustees. 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 FISCAL YEAR ENDED DECEMBER 31, 2001
NOVEMBER 30, 2001 TOTAL COMPENSATION
AGGREGATE COMPENSATION PAID BY THE TRUST AND
ACCRUED BY THIRTEEN OTHER LORD
NAME OF TRUSTEE THE TRUST(1) ABBETT-SPONSORED FUNDS(2)
--------------- ----------------- -------------------------
E. Thayer Bigelow $5,095 $86,000
William H.T. Bush $5,196 $87,400
Robert B. Calhoun, Jr. $5,111 $86,000
Stewart S. Dixon $5,130 $86,200
Franklin W. Hobbs $4,430 $85,000
C. Alan MacDonald $5,095 $86,000
Thomas J. Neff $5,057 $85,000
|
1. Outside directors'/trustees' fees, including attendance fees for board and committee meetings, are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. A portion of the fees payable by the Trust to its outside directors/trustees may be deferred at the option of a director/trustee under an equity-based plan (the "equity-based plan") that deems the deferred amounts to be invested in shares of the Trust for later distribution to the directors/trustees. In addition, $25,000 of each director/trustee's retainer must be deferred and is deemed invested in shares of the Trust 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, 2001, including fees directors/trustees have chosen to defer.
DOLLAR RANGE OF AGGREGATED DOLLAR RANGE OF
TRUSTEE OWNERSHIP TRUSTEE OWNERSHIP IN LORD
IN THE FUNDS ABBETT SPONSORED FUNDS
------------ ----------------------
NAME OF TRUSTEE HIGH YIELD
--------------- FUND
----
Robert S. Dow Over $100,000 Over $100,000
E. Thayer Bigelow Over $100,000 Over $100,000
William H. T. Bush $1-$10,000 $50,001-$100,000
Robert B. Calhoun, Jr. $1-$10,000 Over $100,000
Stewart S. Dixon None Over $100,000
|
Franklin W. Hobbs $1-$10,000 $50,001-$100,000 C. Alan MacDonald None Over $100,000 Thomas J. Neff $1-$10,000 Over $100,000 |
Note: The dollar amounts shown above include deferred compensation to the Trustees deemed invested in Fund shares. The amounts ultimately received by the directors/trustees under the deferred compensation plan will be directly linked to the investment performance of the funds.
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 Trust's Code of Ethics (the
"Code") which complies, in substance, with each of the recommendations of the
Investment Company Institute's Advisory Group on Personal Investing. Among other
things, the Code requires, 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 7 days before or after any Lord Abbett-sponsored fund or
Lord Abbett-managed account considers a trade or trades in such security,
prohibiting profiting on trades of the same security within 60 days and trading
on material and non-public information. The Code imposes certain similar
requirements and restrictions on the independent directors and trustees of each
Lord Abbett-sponsored fund to the extent contemplated by the recommendations of
such Advisory Group.
4.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 22, 2002, the Fund's officers and directors, as a group, owned less than one percent of the Fund's outstanding Class Y shares. As of March 22, 2002, to the best of our knowledge, other than Lord Abbett Distributor and other institutional broker-dealers for the benefit of their clients, there were no shareholders who owned more than 5% of a particular class of the Fund's outstanding shares.
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 general partners of Lord Abbett, the following are
officers and/or Trustees of the Fund: Joan A. Binstock, Zane E. Brown, Daniel E.
Carper, Robert S. Dow, Robert I. Gerber, Paul A. Hilstad, Lawrence H. Kaplan, W.
Thomas Hudson, Jr., Robert G. Morris, Eli M. Salzmann, and Christopher J. Towle.
The other partners are: John E. Erard, Robert P. Fetch, Daria L. Foster, Michael
A. Grant, Stephen J. McGruder, Robert J. Noelke, R. Mark Pennington, Douglas B.
Sieg, Edward 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 between Lord Abbett and the Trust, the Fund is obligated to pay Lord Abbett a monthly fee, based on average daily net assets for each month at an annual rate of .60 of 1%.
For the fiscal years ended November 30, 2001, 2000, and 1999, the management fees paid to Lord Abbett by the Fund amounted to $279,382, $193,939, and $113,526, respectively. The management fees waived for the fiscal years ended November 31, 2000 and 1999 were $110,822 and $113,526, respectively. For the fiscal year ended November 31, 2001 Lord Abbett did not waive its management fee.
The Fund pays all expenses attributable to its operations not expressly assumed by Lord Abbett, including, without limitation, 12b-1 expenses, outside trustees' fees and expenses, association membership dues, legal and auditing fees,
taxes, transfer and dividend disbursing agent fees, shareholder servicing costs, expenses relating to shareholder meetings, expenses of preparing, printing and mailing share certificates and shareholder reports, expenses of registering its shares under federal and state securities laws, expenses of preparing, printing and mailing prospectuses to existing shareholders, insurance premiums, brokerage and other expenses connected with executing portfolio transactions.
Although not obligated to do so, Lord Abbett may waive all or a part of its management fees and or may assume other expenses of the Fund.
PRINCIPAL UNDERWRITER
Lord Abbett Distributor LLC, a New York limited liability company and subsidiary
of Lord Abbett, 90 Hudson Street, Jersey City, New Jersey 07302-3973, serves as
the principal underwriter for the Fund.
CUSTODIAN
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 countries
and to hold cash and currencies for the Fund. In accordance with the
requirements of Rule 17f-1, the Board of Trustees have approved arrangements
permitting each Fund's foreign assets not held by the custodian or its foreign
branches to be held by certain qualified foreign banks and depositories. 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 of Trustees 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 of our portfolio transactions, which means that it seeks to have purchases and sales of portfolio securities executed at the most favorable prices, considering all costs of the transaction including brokerage commissions and dealer markups and markdowns and taking into account the full range and quality of the brokers' services. Consistent with obtaining best execution, the Fund generally pays, as described below, a higher commission than some brokers might charge on the same transaction. This policy with respect to best execution governs the selection of brokers or dealers and the market in which the transaction is executed. To the extent permitted by law, a Fund may, if considered advantageous, make a purchase from or sale to another Lord Abbett-sponsored fund without the intervention of any broker-dealer.
Broker-dealers are selected on the basis of their professional capability and the value and quality of their brokerage and research services. Normally, the selection is made by traders who are employees of Lord Abbett. These traders do the trading for other accounts -- investment companies and other investment clients -- managed by Lord Abbett. They are responsible for obtaining best execution.
We pay a brokerage commission rate that we believe is appropriate to give maximum assurance that our brokers will provide us, on a continuing basis, the highest level of brokerage services available. While we do not always seek the lowest possible commissions on particular trades, we believe that our commission rates are in line with the rates that many other institutions pay. Our traders are authorized to pay brokerage commissions in excess of those that other brokers might accept on the same transactions in recognition of the value of the services performed by the executing brokers, viewed in terms of either the particular transactions or the overall responsibilities of Lord Abbett with respect to us and the other accounts they manage. Such services include showing us trading opportunities including blocks, a willingness and ability to take positions in securities, knowledge of a particular security or market proven ability to
handle a particular type of trade, confidential treatment, promptness and reliability.
Some of these brokers also provide research services, at least some of which are useful to Lord Abbett in their overall responsibilities with respect to us and the other accounts they manage. Research includes the furnishing of analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts and trading equipment and computer software packages, acquired from third-party suppliers, that enable Lord Abbett to access various information bases. Such services may be used by Lord Abbett in servicing all their accounts, and not all of such services will necessarily be used by Lord Abbett in connection with their management of the Fund. Conversely, such services furnished in connection with brokerage on other accounts managed by Lord Abbett may be used in connection with their management of the Fund, and not all of such services will necessarily be used by Lord Abbett in connection with their advisory services to such other accounts. We have been advised by Lord Abbett that research services received from brokers cannot be allocated to any particular account, are not a substitute for Lord Abbett's services but are supplemental to their own research effort and, when utilized, are subject to internal analysis before being incorporated by Lord Abbett into their investment process. As a practical matter, it would not be possible for Lord Abbett to generate all of the information presently provided by brokers. While receipt of research services from brokerage firms has not reduced Lord Abbett's normal research activities, the expenses of Lord Abbett could be materially increased if it attempted to generate such additional information through its own staff and purchased such equipment and software packages directly from the suppliers.
No commitments are made regarding the allocation of brokerage business to or among brokers, and trades are executed only when they are dictated by investment decisions of the Lord Abbett-sponsored funds to purchase or sell portfolio 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 year ended November 30, 2001, the Fund paid total brokerage commissions on transactions of securities to independent broker-dealers of $1,050.
7.
CAPITAL STOCK AND OTHER SECURITIES
CLASSES OF SHARES. The Fund offers investors different classes of shares; only Class Y shares are offered in this Statement of Additional Information. The different classes of shares represent investments in the same portfolio of securities but are subject to different expenses and will likely have different share prices. 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 such as a Fund shall
not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares of each class 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 are substantially identical or the matter does not affect any interest of such class, series, or fund. However, the Rule exempts the selection of independent public accountants, the approval of a contract with a principal underwriter and the election of trustees from the separate voting requirements.
The Trust does not hold meetings of shareholders unless one or more matters are required to be acted on by shareholders under the Act. Under the Trust's Declaration of Trust, shareholders meetings may be called at any time by certain officers of the Trust or by a majority of the Trustees (i) for the purpose of taking action upon any matter requiring the vote or authority of the Fund's shareholders or upon other matters deemed to be necessary or desirable or (ii) upon the written request of the holders of at least one-quarter of the Fund's outstanding shares and entitled to vote at the meeting.
Shareholder Liability. Delaware law provides that Trust's shareholders shall be entitled to the same limitations of personal liability extended to shareholders of private for profit corporations. The courts of some states, however, may decline to apply Delaware law on this point. The Declaration of Trust contains an express disclaimer of shareholder liability for the acts, obligations, or affairs of the Trust and requires that a disclaimer be given in each contract entered into or executed by the Trust. The Declaration provides for indemnification out of the Trust's property of any shareholder or former shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which Delaware law does not apply, no contractual limitation of liability was in effect and the portfolio is unable to meet its obligations. Lord Abbett believes that, in view of the above, the risk of personal liability to shareholders is extremely remote.
Under the Declaration of Trust, the Trustees may, without shareholder vote, cause the Trust to merge or consolidate into, or sell and convey all or substantially all of, the assets of the Trust to one or more trusts, partnerships or corporations, so long as the surviving entity is an open-end management investment company that will succeed to or assume the Trust's registration statement. In addition, the Trustees may, without shareholder vote, cause the Trust to be incorporated under Delaware law.
8.
PURCHASES, REDEMPTIONS
AND PRICING
Information concerning how we value our shares for the purchase and redemption of our shares is contained in the Prospectus under "Purchases" and "Redemptions," respectively.
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 price, or, in the case of bonds, in the over-the-counter market if, in the judgment of the Fund's officers, that market more accurately reflects the market value of the bonds. Over-the-counter securities not traded on the NASDAQ National Market System are valued at the mean between the last bid and asked prices. Securities for which market quotations are not available are valued at fair market value under procedures approved by the Board of Trustees.
The net asset value per share for the Class Y shares will be determined by taking the net assets and dividing by the number of Class Y shares outstanding. Our Class Y shares will be offered at net asset value.
CLASS Y SHARE EXCHANGES. The Prospectus briefly describes the Telephone Exchange Privilege. You may exchange some or all of your Class Y shares for Class Y shares of any Lord Abbett-sponsored funds currently offering Class Y
shares to the public. You should read the prospectus of the other funds before exchanging. In establishing a new account by exchange, shares of the fund being exchanged must have a value equal to at least the minimum initial investment required for the other funds into which the exchange is made.
REDEMPTIONS. A redemption order is in proper form when it contains all of the information and documentation required by the order form or supplementary by Lord Abbett Distributor or the Fund to carry out the order. The signature(s) and any legal capacity of the signer(s) must be guaranteed by an eligible guarantor. See the Prospectus for expedited redemption procedures.
The right to redeem and receive payment, as described in the Prospectus, may be suspended if the NYSE is closed (except for weekends or customary holidays), trading on the NYSE is restricted or the Securities and Exchange Commission deems an emergency to exist.
Our Board of Trustees 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. A Financial Intermediary may charge transaction fees on the purchase and/or sale of Fund shares. 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 the Fund's or Lord Abbett Distributor's behalf. 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.
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 kin 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 so qualifies, 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 to be 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% for capital assets held for more than one year. Capital gains or losses recognized by corporate shareholders are subject to tax at the ordinary income tax rates applicable to corporations.
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. 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 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 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 the 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 the 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 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 the 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 indicated the average annual compounded rates of total return on an initial investment of one thousand dollars as of November 30, 2001, for the Fund's 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 distributions (e.g., the ordinary income rate for ordinary income distributions, the short-term capital gain rate for short-term capital gain 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 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. A Fund's past performance, before and after taxes, is not necessarily an indication of how the Fund will perform in the future.
1 YEAR LIFE OF FUND (5/4/99)
------ ---------------------
Class Y shares
Before Taxes 9.18% 1.48%
Class Y shares after
Taxes on Distributions 4.66% -2.62%
Class Y shares after Taxes on
Distributions and Sale of
Fund shares 5.53% -0.84%
|
Yield quotation for Class Y shares is based on a 30-day period ended on a
specified date, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share of such class on the
last day of the period. This is determined by finding the following quotient:
the dividends and interest earned by the class during the period minus its
aggregate expenses accrued during the period (net of reimbursements) and divided
by the product of (i) the average daily number of class shares outstanding
during the period that were entitled to receive dividends and (ii) the maximum
offering price per share of such class on the last day of the period. To this
quotient add one, and then increase the sum to the sixth power. Then subtract
one from the product of this multiplication and multiply the remainder by tow.
Yield for the Class Y shares do not reflect the deduction of any sales charge.
These figures represent past performance, and an investor should be aware that the investment return and principal value of a Fund investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Therefore, there is no assurance that this performance will be repeated in the future.
The Fund may from time to time quote or otherwise use yield and total return information in advertisements, shareholder reports, or sales literature. Thirty-day yield and average annual total return values are computed pursuant to formulas specified by the SEC. The Fund may also from time to time quote distribution rates in reports to shareholders and in sales literature. In addition, the Fund may from time to time advertise or describe in sales literature its performance relative to certain averages, performance rankings, indices, other information prepared by recognized mutual fund statistical services, and investments for which reliable performance information is available.
12.
FINANCIAL STATEMENTS
The financial statements incorporated herein by reference from Lord Abbett Investment Trust's 2001 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.
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LORD ABBETT [LOGO]
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LORD ABBETT
APRIL 1,
2002
PROSPECTUS
CORE FIXED INCOME FUND
TOTAL RETURN FUND
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Please call 800-821-5129 for further information.
TABLE OF CONTENTS
THE FUNDS PAGE
Information about investment Goal 2
strategies, risks, performance, Principal Strategy 2
fees and expenses Main Risks 2
Core Fixed Income Fund 3
Total Return Fund 5
Additional Investment Information 7
Management 9
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YOUR INVESTMENT
Information for managing Purchases 10
your Fund account Sales Compensation 13
Opening Your Account 14
Redemptions 15
Distributions and Taxes 15
Services For Fund Investors 16
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FINANCIAL INFORMATION
Financial highlights Core Fixed Income Fund 18 Total Return Fund 19
ADDITIONAL INFORMATION
How to learn more about the Funds Back Cover and other Lord Abbett Funds
CORE FIXED INCOME FUND
TOTAL RETURN FUND
THE FUNDS
GOAL
The investment objective of each Fund is to seek income and capital
appreciation to produce a high total return.
PRINCIPAL STRATEGY
Under normal circumstances, the Core Fixed Income Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in fixed income securities of various types. The Fund will provide shareholders with at least 60 days notice of any change in this policy. The Core Fixed Income Fund invests primarily in U.S. Government, mortgage-related, and investment grade debt securities, including those issued by non-U.S. entities but denominated in U.S. dollars (known as "Yankees"). The Total Return Fund invests primarily in those securities, as well as in high yield debt securities (sometimes called "lower-rated bonds" or "junk bonds") and securities issued by non-U.S. entities and denominated in currencies other than the U.S. dollar. Investments in high yield debt and non-U.S. debt denominated in foreign currencies are each limited to 20% of the Total Return Fund's net assets.
Both Funds attempt to manage, but cannot eliminate, interest rate risk through their management of the average duration of the securities they hold. Duration is a mathematical concept that measures a portfolio's exposure to interest rate changes. Each Fund expects to maintain its average duration range within two years of the bond market's duration as measured by the Lehman Aggregate Bond Index (currently approximately 5 years). The higher a Fund's duration, the more sensitive it is to interest rate risk.
MAIN RISKS
These Funds are subject to the general risks and considerations associated
with investing in debt securities. The value of an investment in each Fund
will change as interest rates fluctuate in response to market movements.
When interest rates rise, the prices of debt securities are likely to
decline, and when interest rates fall, the prices of debt securities tend
to rise.
The mortgage- and asset-backed securities in which each Fund may invest may be particularly sensitive to changes in prevailing interest rates. Like other debt securities, when interest rates rise, the value of mortgage- and other asset-backed securities generally will decline; however, when interest rates are declining, the value of mortgage-related securities with prepayment features may not increase as much as other fixed income securities. Early repayment of principal on some mortgage-related securities may deprive the Funds of income payments above current market rates. The rate of prepayments on underlying mortgages also will affect the price and volatility of a mortgage-related security. The value of some mortgage-related and other asset-backed securities may fluctuate in response to the market's perception of the creditworthiness of the issuers. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.
The lower-rated bonds in which the Total Return Fund may invest involve greater risks than higher rated bonds. First, there is a greater risk that the bond's issuer will not make payments of interest and principal payments when due. Some issuers may default as to principal and/or interest payments after the Fund purchases their securities. Second, the market for high yield bonds generally is less liquid than the market for higher-rated securities. Third, during periods of uncertainty or market turmoil, prices of high yield bonds generally decline. These risks may result in losses to the Fund.
The Funds' investments in foreign securities may present increased market, liquidity, currency, political, information, and other risks.
An investment in the Funds is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Each Fund is not a complete investment program and may not be appropriate for all investors. You could lose money by investing in either Fund.
[SIDENOTE]
WE OR THE FUND refers to Lord Abbett Core Fixed Income Fund ("Core Fixed Income Fund") or Lord Abbett Total Return Fund ("Total Return Fund"), each a series of Lord Abbett Investment Trust (the "Trust").
ABOUT EACH FUND. Each Fund is a professionally managed portfolio primarily holding securities purchased with the pooled money of investors. The Funds strive to reach their stated goals; although, as with all mutual funds, they cannot guarantee results.
INVESTMENT GRADE DEBT SECURITIES are debt securities that are rated within the four highest grades assigned by Moody's Investor Service, Inc. (Aaa, Aa, A, Baa), Standard & Poor's Ratings Services (AAA, AA, A, BBB) or Fitch Investors Service (AAA, AA, A, BBB), (each a "Rating Agency") or are unrated but determined by Lord Abbett to be of comparable quality.
HIGH-YIELD DEBT SECURITIES (sometimes called "lower rated bonds" or "junk bonds") are rated BB/Ba or lower and typically pay a higher yield than investment-grade debt securities. High-yield securities have a higher risk of default than investment-grade debt securities, and their prices are much more volatile. The market for high-yield debt securities may also be less liquid.
2 | The Funds
CORE FIXED INCOME FUND
PERFORMANCE
The bar chart and table below provide some indication of the risks of
investing in the Fund by illustrating the variability of the Fund's
returns. Each assumes reinvestment of dividends and distributions. The
Fund's past performance, 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]
01 9.5% |
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. 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, 2001
SHARE CLASS 1 YEAR LIFE OF FUND(1) Class A shares ------------------------------------------------------------------------------------------- Return Before Taxes 4.25% 7.53% ------------------------------------------------------------------------------------------- Return After Taxes on Distributions 1.05% 2.94% ------------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares 2.61% 3.73% ------------------------------------------------------------------------------------------- Class B shares 4.28% 8.53% ------------------------------------------------------------------------------------------- Class C shares 8.23% 11.37% ------------------------------------------------------------------------------------------- Class P shares 9.56% 11.70% ------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index(2) (reflects no deduction for fees, expenses or taxes) 8.44% 10.12%(3) ------------------------------------------------------------------------------------------- |
(1) The date of inception for Class A shares, Class B shares, Class C shares
and Class P shares is 8/31/00.
(2) The performance of the unmanaged index is not necessarily representative of
the Fund's performance.
(3) Represents total return for the period 8/31/00 - 12/31/01, to correspond
with the Class A, Class B, Class C and Class P inception dates.
The Funds | 3
CORE FIXED INCOME FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
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) 4.75% 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") 0.50% 0.50% 0.50% 0.50%
-------------------------------------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees(5) 0.39% 1.00% 1.00% 0.45%
-------------------------------------------------------------------------------------------------------------
Other Expenses 0.65% 0.65% 0.65% 0.65%
-------------------------------------------------------------------------------------------------------------
Total Operating Expenses(6) 1.54% 2.15% 2.15% 1.60%
-------------------------------------------------------------------------------------------------------------
|
(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) The annual operating expenses have been restated from fiscal year amounts
to reflect estimated current fees.
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ----------- ------ ------- ------- -------- Class A shares $624 $938 $1,275 $2,222 -------------------------------------------------------------------------------- Class B shares $718 $973 $1,354 $2,328 -------------------------------------------------------------------------------- Class C shares $318 $673 $1,154 $2,483 -------------------------------------------------------------------------------- Class P shares $163 $505 $ 871 $1,900 -------------------------------------------------------------------------------- You would have paid the following expenses if you did not redeem your shares: -------------------------------------------------------------------------------- Class A shares $624 $938 $1,275 $2,222 -------------------------------------------------------------------------------- Class B shares $218 $673 $1,154 $2,328 -------------------------------------------------------------------------------- Class C shares $218 $673 $1,154 $2,483 -------------------------------------------------------------------------------- Class P shares $163 $505 $ 871 $1,900 -------------------------------------------------------------------------------- |
[SIDENOTE]
MANAGEMENT FEES are payable to Lord, Abbett & Co. ("Lord Abbett") for the Fund's investment management.
LORD ABBETT IS CURRENTLY WAIVING ITS MANAGEMENT FEES AND SUBSIDIZING THE OTHER EXPENSES TO THE EXTENT NECESSARY TO MAINTAIN ITS "OTHER EXPENSES" AT AN AGGREGATE OF 0.30% OF ITS AVERAGE DAILY NET ASSETS OF EACH CLASSES OF SHARES. ACCORDINGLY, THE ESTIMATED EXPENSE RATIOS (NET OF WAIVERS AND EXPENSE REIMBURSEMENTS) OF THE FUND ARE 0.69%, 1.30%, 1.30% AND 0.75% FOR CLASS A, CLASS B, CLASS C AND CLASS P SHARES, RESPECTIVELY. LORD ABBETT MAY STOP WAIVING THE MANAGEMENT FEES AND SUBSIDIZING THE OTHER EXPENSES AT ANY TIME.
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 service fees and professional fees.
4 | The Funds
TOTAL RETURN FUND
PERFORMANCE
The bar chart and table below provide some indication of the risks of investing in the Fund by illustrating the variability of the Fund's returns. Each assumes reinvestment of dividends and distributions. The Fund's past performance, 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]
01 9.4% |
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 broad-based securities market indices. 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.
SHARE CLASS 1 YEAR LIFE OF FUND(1) Class A shares ------------------------------------------------------------------------------------------------ Return Before Taxes 4.15% 7.47% ------------------------------------------------------------------------------------------------ Return After Taxes on Distributions 1.71% 3.46% ------------------------------------------------------------------------------------------------ Return After Taxes on Distributions and Sale of Fund Shares 2.50% 3.95% ------------------------------------------------------------------------------------------------ Class B shares 4.28% 8.53% ------------------------------------------------------------------------------------------------ Class C shares 8.25% 11.33% ------------------------------------------------------------------------------------------------ Class P shares 9.50% 11.53% ------------------------------------------------------------------------------------------------ Lehman Brothers Aggregate Bond Index(2) (reflects no deduction for fees, expenses or taxes) 8.44% 10.12%(3) ------------------------------------------------------------------------------------------------ Lehman Brothers U.S. Universal Index(2) (reflects no deduction for fees, expenses or taxes) 8.09% 9.36%(3) ------------------------------------------------------------------------------------------------ |
(1) The date of inception for Class A shares, Class B shares, Class C shares
and Class P shares is 8/31/00.
(2) The performance of the unmanaged indices is not necessarily representative
of the Fund's performance.
(3) Represents total return for the period 8/31/00 - 12/31/01, to correspond
with the Class A, Class B, Class C and Class P inception dates.
The Funds | 5
TOTAL RETURN FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
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) 4.75% 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") 0.50% 0.50% 0.50% 0.50%
-------------------------------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees(5) 0.39% 1.00% 1.00% 0.45%
-------------------------------------------------------------------------------------------------------
Other Expenses 0.28% 0.28% 0.28% 0.28%
-------------------------------------------------------------------------------------------------------
Total Operating Expenses(6) 1.17% 1.78% 1.78% 1.23%
-------------------------------------------------------------------------------------------------------
|
(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) The annual operating expenses have been restated from fiscal year amounts
to reflect estimated current fees.
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A shares $589 $829 $1,088 $1,828 ------------------------------------------------------------------------------------- Class B shares $681 $860 $1,164 $1,934 ------------------------------------------------------------------------------------- Class C shares $281 $560 $ 964 $2,095 ------------------------------------------------------------------------------------- Class P shares $125 $390 $ 676 $1,489 ------------------------------------------------------------------------------------- You would have paid the following expenses if you did not redeem your shares: Class A shares $589 $829 $1,088 $1,828 ------------------------------------------------------------------------------------- Class B shares $181 $560 $ 964 $1,934 ------------------------------------------------------------------------------------- Class C shares $181 $560 $ 964 $2,095 ------------------------------------------------------------------------------------- Class P shares $125 $390 $ 676 $1,489 ------------------------------------------------------------------------------------- |
[SIDENOTE]
MANAGEMENT FEES are payable to Lord Abbett for the Fund's investment management.
LORD ABBETT IS CURRENTLY WAIVING THE MANAGEMENT FEES. ACCORDINGLY, THE EXPENSE RATIOS OF THE FUND ARE 0.67%, 1.28%, 1.28% AND 0.73% FOR CLASS A, CLASS B, CLASS
C AND CLASS P SHARES, RESPECTIVELY. LORD ABBETT MAY STOP WAIVING THE MANAGEMENT FEES AT ANY TIME.
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 service fees and professional fees.
6 | The Funds
ADDITIONAL INVESTMENT INFORMATION
This section describes some of the investment techniques used by each Fund and some of the risks associated with those techniques.
ADJUSTING INVESTMENT EXPOSURE. Each Fund will be subject to the risks associated with investments. Each 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, a Fund may seek to hedge against certain market risks. These strategies may involve, with board approval, 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 a 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.
FOREIGN CURRENCY TRANSACTIONS. The Total Return Fund may use currency forwards and options to hedge the risk to the portfolio that foreign exchange price movements will be unfavorable for U.S. investors. Generally, these instruments allow the Total Return Fund to lock in a specified exchange rate for a period of time. They may also be used to increase the Total Return Fund's exposure to foreign currencies that Lord Abbett believes may rise in value relative to the U.S. dollar or to shift the Fund's exposure to foreign currency fluctuations from one country to another. If price movements are favorable to U.S. investors such transactions may cause a loss. Also, it may be difficult or impractical to hedge currency risk in many emerging countries. The Total Return Fund generally will not enter into a forward contract with a term greater than one year. Under some circumstances, the Total Return Fund may commit a substantial portion or the entire value of its portfolio to the completion of forward contracts. Although such contracts will be used primarily to attempt to protect the Total Return Fund from adverse currency movements, their use involves the risk Lord Abbett will not accurately predict currency movements, and the Fund's return could be reduced as a result.
FOREIGN SECURITIES. Each Fund may invest in securities that are issued by non-U.S. entities and the Total Return Fund may invest up to 20% of its net assets in such securities denominated in currencies other than the U.S. dollar. Foreign securities may pose greater risks than domestic securities. Foreign markets and the securities traded in them may not be subject to the same degree of regulation as U.S. markets. As a result, there may be less information publicly available about foreign companies than most U.S. companies. Securities clearance, settlement procedures and trading practices may be different, and transaction costs may be higher in foreign countries. There may be less trading volume and liquidity in foreign markets, subjecting the securities traded in them to greater price fluctuations. Foreign investments also may be affected by changes in currency rates or currency controls.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Each Fund may enter into financial futures contracts and options thereon for bona fide hedging purposes or to pursue risk management strategies. These transactions involve the purchase or sale of a contract to buy or sell a specified security or other financial instrument at a specific future date and price on an exchange or in the over the counter market ("OTC"). The Fund may not purchase or sell futures contracts or options on futures contracts on a CFTC regulated exchange for non-bona fide hedging purposes if the aggregated initial margin
The Fund | 7
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.
LISTED OPTIONS ON SECURITIES. Each Fund may purchase and write national securities exchange-listed put and call options on securities or securities indices. The Funds 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 Funds may write covered call options with respect to securities in their portfolios 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 Funds 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. Each 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. Each Fund may only sell (write) covered put options to the extent that cover for such options does not exceed 15% of its net assets. Each Fund may only sell (write) covered call options having an aggregate market value of less than 25% of its net assets.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. Each Fund may invest extensively in mortgage-related securities and also may invest in other asset-backed securities. Mortgage-related securities include mortgage pass-through securities, collateralized mortgage obligations ("CMOs"), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities ("SMBSs") and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or "IO" class), while the other class will receive all of the principal (the principal-only, or "PO" class). The value of an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage assets, and a rapid rate of principal payments may cause the Funds to lose money.
PORTFOLIO TURNOVER. Each Fund may engage in active and frequent trading of its portfolio securities to achieve its principal investment strategies and can be expected to have a portfolio turnover rate substantially in excess of 100%. For the fiscal year ended November 30, 2001, the portfolio turnover rates for Core Fixed Income Fund and Total Return Fund were 641.36% and 720.60%, respectively. These rates vary from year to year. High turnover increases transaction costs and may increase taxable capital gains.
RISKS OF OPTIONS AND FUTURES. Fund transactions, if any, in futures, options on futures and other options 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 Funds' 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.
8 | The Fund
TEMPORARY DEFENSIVE INVESTMENTS. At times each 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 these securities. These investments could reduce the benefit from any upswing in the market and prevent a Fund from achieving its investment objective.
MANAGEMENT
The Funds' investment adviser is Lord, Abbett & Co., which is located at 90 Hudson St., Jersey City, NJ 07302-3973. Founded in 1929, Lord Abbett manages one of the nation's oldest mutual fund complexes, with approximately $43 billion in more than 40 mutual fund portfolios and other advisory accounts. For more information about the services Lord Abbett provides to the Funds, see the Statement of Additional Information.
Each Fund pays Lord Abbett a monthly fee based on average daily net assets for each month at an annual rate of .50 of 1%. For the fiscal year ended November 30, 2001, Lord Abbett waived its management fee for Core Fixed Income Fund and Total Return Fund. In addition, each Fund pays all expenses not expressly assumed by Lord Abbett.
INVESTMENT MANAGERS. Lord Abbett uses a team of investment managers and analysts acting together to manage each Fund's investments. Robert I. Gerber, Partner and Director of Taxable Fixed Income Management, heads the team, the other senior members of the team include Walter H. Prahl and Robert A. Lee. Mr. Gerber joined Lord Abbett in July 1997 from Sanford C. Bernstein & Co., Inc. where he was a Shareholder and served as the Senior Portfolio Manager - Mortgage Group. Mr. Gerber has been in the investment business since 1987. Mr. Prahl joined Lord Abbett in 1997 as Director of Quantitative Research, Taxable Fixed Income. Before joining Lord Abbett, Mr. Prahl served as a Fixed Income Research Analyst at Sanford C. Bernstein & Co., Inc. Mr. Lee joined Lord Abbett in 1997 as a Fixed Income Investment Manager. Before joining Lord Abbett he served as a Portfolio Manager at ARM Capital Advisors.
The Fund | 9
YOUR INVESTMENT
PURCHASES
The Funds offer 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. 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 "CAPITAL STOCK AND OTHER SECURITIES" IN THE
STATEMENT OF ADDITIONAL INFORMATION.
We reserve the right to withdraw all or any part of the offering made by this prospectus or to reject any purchase order. We also reserve the right to waive or change minimum investment requirements. All purchase orders are subject to our acceptance and are not binding until confirmed or accepted in writing.
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 $100,000 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
------------------------------------------------------------------------------------------------
|
An amount of up to 1% of an investment may be paid by the Fund to a dealer for purchases of $1 million or more and purchases by certain Retirement and Benefit Plans.
[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 Board.
10 | Your Investment
REDUCING YOUR CLASS A FRONT-END SALES CHARGES. Class A shares may be purchased at a discount if you qualify under either of the following conditions:
- RIGHTS OF ACCUMULATION - A Purchaser may apply the value at public offering price of the Class A shares you 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 and (3) a trustee or other fiduciary purchasing shares for a single trust, estate or single fiduciary account (including a pension, profit-sharing, or other employee benefit trust qualified under Section 401 of the Internal Revenue Code). 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 be considered as one account; although more than one beneficiary is involved.
FOR MORE INFORMATION ON ELIGIBILITY FOR THESE PRIVILEGES, READ THE APPLICABLE SECTIONS IN THE ATTACHED APPLICATION.
CLASS A SHARE PURCHASES WITHOUT A FRONT-END SALES CHARGE. Class A shares may be purchased without a front-end sales charge under any of the following conditions:
- purchases of $1 million or more, *
- purchases by RETIREMENT 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 Funds and/or Lord Abbett Distributor 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 Funds 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 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 family of 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 PURCHASERS WHO QUALIFY FOR CLASS A SHARE PURCHASES WITHOUT A FRONT-END SALES CHARGE.
* THESE CATEGORIES MAY BE SUBJECT TO A CDSC.
[SIDENOTE]
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 family of funds); and (4) any other
fund the shares of which are not available to the investor at the time of the
transaction due to a limitation on the offering of the Fund's shares. An
Eligible Fund also is any Authorized Institution's affiliated money market fund
meeting criteria set by Lord Abbett Distributor 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, record-keepers, trustees, custodians, financial consultants and insurance companies.
Your Investment | 11
To minimize the amount of any CDSC, each Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains (always free of a CDSC)
2. shares held for six years or more (Class B) or two years or more after the month of purchase (Class A) or one year or more (Class C)
3. shares held the longest before the sixth anniversary of their purchase
(Class B) or before the second anniversary after the month of purchase
(Class A) or before the first anniversary of their purchase (Class C)
CLASS A SHARE CDSC. If you buy Class A shares of a 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 within 24 months after the month in which you initially purchased those shares, the Fund will normally collect a CDSC of 1% and remit it to the fund in which you originally purchased the shares.
The Class A share CDSC generally will not be assessed at the time of the following transactions:
- 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 Funds and/or
Lord Abbett Distributor, provided the Plan has not redeemed all, or
substantially all, of its assets from the Lord Abbett family of 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:
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.
[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."
12 | Your Investment
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.
CLASS C SHARE CDSC. The 1% CDSC for Class C shares normally applies if you redeem your shares before the first anniversary of the purchase. The CDSC will be remitted to either Lord Abbett Distributor or the fund involved in the original purchase, depending on which entity originally paid the sales compensation to your dealer.
CLASS P SHARES. Class P shares have lower annual expenses than Class B and Class C shares, no front-end sales charge, and no CDSC. Class P shares are currently sold and redeemed at NAV 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 Funds 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 that have entered into special arrangements with the Funds and/or Lord Abbett Distributor specifically for such orders.
SALES COMPENSATION
As part of its plan for distributing shares, each Fund and LORD ABBETT DISTRIBUTOR pay sales and service compensation to AUTHORIZED INSTITUTIONS that sell the Fund's shares and service its shareholder accounts.
Sales compensation originates from two sources, as shown in the table "Fees and Expenses," sales charges, which are paid directly by shareholders and 12b-1 distribution fees 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 total annualized 12b-1 fees payable with respect to each share class for the current fiscal year are approximated at .39% of Class A shares (consisting of .10% distribution fee, .25% service fee, one-time distribution fees of up to 1.00% payable at the time of sale to Authorized Institutions, such as your dealer, on certain qualifying purchases, and amortized over a 24 month period, and an incremental marketing expense of approximately .03%), 1.00% of Class B and Class C shares (consisting of .75% distribution fee and .25% service fee), and .45% of Class P shares (consisting of .25% distribution fee and .20% service fee). 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. Sometimes we do not pay compensation where tracking data is not available for certain accounts or where the Authorized Institution waives part of the compensation. In such cases, we may not require payment of any otherwise applicable CDSC.
[SIDENOTE]
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.
LORD ABBETT DISTRIBUTOR LLC ("Lord Abbett Distributor") acts as agent for the Funds to work with investment professionals who buy and/or sell shares of the Funds on behalf of their clients. Generally, Lord Abbett Distributor does not sell Fund shares directly to investors.
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 a Fund need not be directly related to expenses. If Lord Abbett Distributor's actual expenses exceed the fee payable to it, a Fund will not have to pay more than that fee. If Lord Abbett Distributor's expenses are less than the fee it receives, Lord Abbett Distributor will keep the full amount of the fee.
Your Investment | 13
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.
In selecting dealers to execute portfolio transactions for a 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.
- Regular account $1,000 ------------------------------------------------------------- - Individual Retirement Accounts and 403(b) Plans under the Internal Revenue Code $250 ------------------------------------------------------------- - Uniform Gift to Minor Account $250 ------------------------------------------------------------- - Invest-A-Matic $250 ------------------------------------------------------------- |
NAME OF FUND
P.O. Box 219100
Kansas City, MO 64121
14 | Your Investment
PROPER FORM. An order submitted directly to a Fund must contain: (1) a completed application, and (2) payment by check. When purchases are made by check, redemption proceeds will not be paid until the Fund or transfer agent is advised that the check has cleared, which may take up to 15 calendar days. For more information call the Fund at 800-821-5129.
BY EXCHANGE. Please call the Fund at 800-821-5129 to request an exchange from any eligible Lord Abbett-sponsored fund.
REDEMPTIONS
Redemptions of Fund shares are executed at the NAV next determined after the Fund receives your order in proper form. 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 $50,000 or less from your account, you or your representative should call the Fund at 800-821-5129.
BY MAIL. Submit a written redemption request indicating the name(s) in which the account is registered, the Fund's name, the class of shares, your account number, and the dollar value or number of shares you wish to 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.
DISTRIBUTIONS AND TAXES
Each Fund expects to declare dividends from its net investment income daily and pay you dividends from its net investment income monthly. Each Fund distributes 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 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
[SIDENOTE]
SMALL ACCOUNTS. Our Board may authorize closing any account in which there are fewer than 25 shares if it is in a 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]
SIGNATURE GUARANTEED
MEDALLION GUARANTEED
NAME OF GUARANTOR
/s/ ILLEGIBLE
-----------------------------
AUTHORIZED SIGNATURE
(960) X9003470
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM(SM)
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(SM)
SR
|
Your Investment | 15
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 such 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 each 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 your application or by calling 800-821-5129.
FOR INVESTING
INVEST-A-MATIC You can make fixed, periodic investments ($50 minimum) into
(Dollar-cost your Fund account by means of automatic money transfers from
averaging) your bank checking account. See the attached application
for instructions.
DIV-MOVE You can automatically reinvest the dividends and
distributions from your account into another account in any
Eligible Fund ($50 minimum).
FOR SELLING SHARES
SYSTEMATIC You can make regular withdrawals from most Lord Abbett
WITHDRAWAL funds. Automatic cash withdrawals will be paid to you from
PLAN ("SWP") your account in fixed or variable amounts. To establish a
plan, the value of your shares must be at least $10,000,
except for Retirement 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
CLASS C SHARES shares will be redeemed in the order described under "CDSC"
under "Purchases."
================================================================================
16 | Your Investment
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|
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OTHER SERVICES
TELEPHONE INVESTING. After we have received the attached application (selecting "yes" under Section 8C and completing Section 7), you may instruct us by phone to have money transferred from your bank account to purchase shares of the Fund for an existing account. The Fund will purchase the requested shares when it receives the money from your bank.
EXCHANGES. You or your investment professional may instruct the Fund to exchange shares of any class for shares of the same class of any Eligible Fund. Instruction may be provided in writing or by telephone, with proper identification, by calling 800-821-5129. The Fund must receive instructions for the exchange before the close of the NYSE on the day of your call, in which case you will get the NAV per share of the Eligible Fund determined on that day. Exchanges will be treated as a sale for federal tax purposes and will be taxable to 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 sell shares of the Fund, you have a one-time right to reinvest some or all of the proceeds in the same class of any Eligible Fund within 60 days without a sales charge. If you paid a CDSC when you sold your shares, you will be credited with the amount of the CDSC. All accounts involved must have the same registration.
ACCOUNT STATEMENTS. Every Lord Abbett investor automatically receives quarterly account statements.
HOUSEHOLDING. Shareholders with the same last name and address will receive a single copy of a prospectus and an annual and semi-annual report, unless additional reports are specifically requested in writing to the Fund.
ACCOUNT CHANGES. For any changes you need to make to your account, consult your investment professional or call the Fund at 800-821-5129.
SYSTEMATIC EXCHANGE. You or your investment professional can establish a schedule of exchanges between the same classes of any Eligible Fund.
[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 Funds will not be liable for following instructions communicated by telephone that they reasonably believe 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 Funds and raise their expenses. Accordingly, the Funds reserve the right to limit or terminate this privilege for any shareholder making frequent exchanges or abusing the privilege. The Funds also may revoke the privilege for all shareholders upon 60 days' written notice.In addition, as stated under "Purchases," the Funds reserve the right to reject any purchase order, including purchase orders from shareholders whose trading has been or may be disruptive to the Funds.
Your Investment | 17
CORE FIXED INCOME 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 2001 Annual Report to Shareholders and are incorporated by reference into the Statement of Additional Information, which is available upon request. Certain information reflects financial results for a single fund share.
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
---------------------- --------------------------
8/31/2000(a) 8/31/2000(a)
YEAR ENDED TO YEAR ENDED TO
PER SHARE OPERATING PERFORMANCE 11/30/2001 11/30/2000 11/30/2001 11/30/2000
NET ASSET VALUE, BEGINNING OF PERIOD $10.91 $10.55 $10.91 $10.55
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income .66(b) .18(b) .61(b) .18(b)
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .61 .18 .66 .18
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.27 .36 1.27 .36
-----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (1.37) -- (1.36) --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.81 $10.91 $10.82 $10.91
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(c) 12.64% 3.41%(d) 12.57% 3.41%(d)
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
Expenses, including waiver and expense reductions .01% .00%(d) .45% .00%(d)
-----------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding waiver and expense reductions 1.77% .16%(d) 2.21% .16%(d)
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income 6.21% 1.67%(d) 5.77% 1.67%(d)
-----------------------------------------------------------------------------------------------------------------------------------
8/31/2000(a) 8/31/2000(a)
YEAR ENDED TO YEAR ENDED TO
SUPPLEMENTAL DATA 11/30/2001 11/30/2000 11/30/2001 11/30/2000
NET ASSETS, END OF PERIOD (000) $5,139 $2,814 $1,642 $1
-----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 641.36% 595.00% 641.36% 595.00%
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES CLASS P SHARES
----------------------- --------------------------
8/31/2000(a) 8/31/2000(a)
YEAR ENDED TO YEAR ENDED TO
PER SHARE OPERATING PERFORMANCE 11/30/2001 11/30/2000 11/30/2001 11/30/2000
NET ASSET VALUE, BEGINNING OF PERIOD $10.91 $10.55 $10.91 $10.55
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income .61(b) .18(b) .64(b) .18(b)
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .64 .18 .65 .18
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.25 .36 1.29 .36
-----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (1.37) -- (1.37) --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.79 $10.91 $10.83 $10.91
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(c) 12.42% 3.41%(d) 12.84% 3.41%(d)
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
Expenses, including waiver and expense reductions .53% .00%(d) .24% .00%(d)
-----------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding waiver and expense reductions 2.29% .16%(d) 2.00% .16%(d)
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income 5.69% 1.67%(d) 6.06% 1.67%(d)
-----------------------------------------------------------------------------------------------------------------------------------
8/31/2000(a) 8/31/2000(a)
YEAR ENDED TO YEAR ENDED TO
SUPPLEMENTAL DATA 11/30/2001 11/30/2000 11/30/2001 11/30/2000
NET ASSETS, END OF PERIOD (000) $846 $1 $2 $1
-----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 641.36% 595.00% 641.36% 595.00%
-----------------------------------------------------------------------------------------------------------------------------------
|
(a) Commencement of offering class of shares.
(b) Calculated using average shares outstanding during the period.
(c) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(d) Not annualized.
18 | Financial Information
TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
This table describes the Fund's performance for the fiscal period indicated. "Total return" shows how much your investment in the Fund would have increased (or decreased) during the 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 2001 Annual Report to Shareholders and are incorporated by reference into the Statement of Additional Information, which is available upon request. Certain information reflects financial results for a single fund share.
-----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
---------------------- --------------------------
8/31/2000(a) 8/31/2000(a)
YEAR ENDED TO YEAR ENDED TO
PER SHARE OPERATING PERFORMANCE 11/30/2001 11/30/2000 11/30/2001 11/30/2000
NET ASSET VALUE, BEGINNING OF PERIOD $10.43 $10.12 $10.44 $10.12
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income .58(b) .17(b) .54(b) .17(b)
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .66 .14 .71 .15
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.24 .31 1.25 .32
-----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (1.20) -- (1.20) --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.47 $10.43 $10.49 $10.44
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(c) 12.79% 3.06%(d) 12.82% 3.16%(d)
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
Expenses, including waiver and expense reductions .14% .00%(d) .48% .00%(d)
-----------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding waiver and expense reductions 1.11% .42%(d) 1.45% .42%(d)
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income 5.62% 1.68%(d) 5.29% 1.68%(d)
-----------------------------------------------------------------------------------------------------------------------------------
8/31/2000(a) 8/31/2000(a)
YEAR ENDED TO YEAR ENDED TO
SUPPLEMENTAL DATA 11/30/2001 11/30/2000 11/30/2001 11/30/2000
NET ASSETS, END OF PERIOD (000) $14,068 $161 $9,093 $1
-----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 720.60% 562.50% 720.60% 562.50%
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES CLASS P SHARES
---------------------- --------------------------
8/31/2000(a) 8/31/2000(a)
YEAR ENDED TO YEAR ENDED TO
PER SHARE OPERATING PERFORMANCE 11/30/2001 11/30/2000 11/30/2001 11/30/2000
NET ASSET VALUE, BEGINNING OF PERIOD $10.44 $10.12 $10.43 $10.12
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income .54(b) .17(b) .57(b) .17(b)
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .69 .15 .69 .14
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.23 .32 1.26 .31
-----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (1.19) -- (1.21) --
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.48 $10.44 $10.48 $10.43
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(c) 12.67% 3.16%(d) 12.93% 3.06%(d)
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
Expenses, including waiver and expense reductions .55% .00%(d) .24% .00%(d)
-----------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding waiver and expense reductions 1.52% .42%(d) 1.21% .42%(d)
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income 5.22% 1.68%(d) 5.57% 1.68%(d)
-----------------------------------------------------------------------------------------------------------------------------------
8/31/2000(a) 8/31/2000(a)
YEAR ENDED TO YEAR ENDED TO
SUPPLEMENTAL DATA 11/30/2001 11/30/2000 11/30/2001 11/30/2000
NET ASSETS, END OF PERIOD (000) $5,526 $1 $1 $1
-----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 720.60% 562.50% 720.60% 562.50%
-----------------------------------------------------------------------------------------------------------------------------------
|
(a) Commencement of offering class of shares.
(b) Calculated using average shares outstanding during the period.
(c) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(d) Not annualized.
Financial Information | 19
ADDITIONAL INFORMATION
More information on each Fund is available free upon request, including the following:
ANNUAL/SEMI-ANNUAL REPORT
Describes the Funds, lists portfolio holdings, contains a letter from each Fund's manager discussing recent market conditions, each Fund's investment strategies and contains additional performance information.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
Provides more details about the Funds and their policies. A current SAI is on file with the Securities and Exchange Commission ("SEC") and is incorporated by reference (is legally considered part of this prospectus).
Lord Abbett Investment Trust -
Lord Abbett Core Fixed Income Fund
Lord Abbett Total Return Fund
LACORE-1
(4/02)
SEC FILE NUMBER: 811-7988
[SIDENOTE]
TO OBTAIN INFORMATION:
BY TELEPHONE. Call each Fund at:
888-522-2388
BY MAIL. Write to each Fund at:
The Lord Abbett Family of Funds
90 Hudson Street
Jersey City, NJ 07302-3973
VIA THE INTERNET.
LORD, ABBETT & CO.
www.LordAbbett.com
Text only versions of Fund
documents can be viewed
online or downloaded from the
SEC: www.sec.gov
You can also obtain copies by
visiting the SEC's Public Reference
Room in Washington, DC (phone
202-942-8090) or by sending your
request and a duplicating fee to
the SEC's Public Reference Section,
Washington, DC 20549-6009 or by
sending your request electronically
to publicinfo@sec.gov.
LORD ABBETT [LOGO]
Lord Abbett Mutual Fund shares are distributed by:
LORD ABBETT DISTRIBUTOR LLC
90 Hudson Street - Jersey City, New Jersey 07302-3973
LORD ABBETT
STATEMENT OF ADDITIONAL INFORMATION APRIL 1, 2002
LORD ABBETT INVESTMENT TRUST
LORD ABBETT CORE FIXED INCOME FUND
LORD ABBETT TOTAL RETURN FUND
(CLASS A, B, C, & P)
This Statement of Additional Information is not a Prospectus. A Prospectus may be obtained from your securities dealer or from Lord Abbett Distributor LLC ("Lord Abbett Distributor") at 90 Hudson Street, Jersey City, New Jersey 07302-3973. This Statement of Additional Information relates to, and should be read in conjunction with, the Prospectus dated April 1, 2002.
Shareholder inquiries should be made by directly contacting the Funds or by calling 800-821-5129. The Annual Report to Shareholders is available without charge, upon request by calling that number. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS PAGE
1. Fund History 2
2. Investment Policies 2
3. Management of the Funds 12
4. Control Persons and Principal Holders of Securities 18
5. Investment Advisory and Other Services 18
6. Brokerage Allocation and Other Practices 19
7. Capital Stock and Other Securities 21
8. Purchases, Redemptions and Pricing 25
9. Taxation of the Funds 28
10. Underwriter 30
11. Performance 31
12. Financial Statements 33
1.
FUND HISTORY
Lord Abbett Investment Trust (the "Trust") was organized as a Delaware business trust on August 16, 1993 with an unlimited amount of shares of beneficial interest authorized. The Trust has six funds, two of which are discussed in this Statement of Additional Information: Lord Abbett Core Fixed Income Fund ("Core Fixed Income Fund"), formerly known as Core Fixed Income Series and Lord Abbett Total Return Fund ("Total Return Fund"), formerly known as Strategic Core Fixed Income Series (each a "Fund", collectively "Funds"). Each of these Funds changed its name effective April 12, 2001. These Funds are diversified open-end investment management companies registered under the Investment Company Act of 1940, as amended (the "Act"). Each Fund has five classes of shares (A, B, C, P, and Y), but only four classes of shares (A, B, C, and P) are offered in this Statement of Additional Information.
2.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS. Each Fund is subject to the following investment restrictions, which cannot be changed without the approval of a majority of its outstanding shares.
Each Fund may not:
(1) borrow money (except that (i) each 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) each Fund may borrow up to an additional 5% of its total assets for temporary purposes, (iii) each Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities and (iv) each Fund may purchase securities on margin to the extent permitted by applicable law);
(2) pledge its assets (other than to secure such borrowings or to the extent permitted by each Fund's investment policies as permitted by applicable law);
(3) engage in the underwriting of securities, except pursuant to a merger or acquisition or to the extent that, in connection with the disposition of its portfolio securities, it may be deemed to be an underwriter under federal securities laws;
(4) make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in government obligations, commercial paper, pass-through instruments, certificates of deposit, bankers acceptances, repurchase agreements or any similar instruments shall not be subject to this limitation, and except further that each Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law;
(5) buy or sell real estate (except that each Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies which invest in real estate or interests therein), commodities or commodity contracts (except to the extent each Fund may do so in accordance with applicable law and without registering - as a commodity pool operator under the Commodity Exchange Act as, for example, with futures contracts);
(6) with respect to 75% of the gross assets, 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 (i) securities of the U.S. Government, its agencies and instrumentalities and (ii) mortgage-backed securities); and
(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 purchase or sale of the security.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. In addition to the policies in the Prospectus and the investment restrictions above which cannot be changed without shareholder approval, each Fund is also subject to the following non-fundamental investment policies which may be changed by the Board of Trustees without shareholder approval.
Each Fund may not:
(1) borrow in excess of 5% of its gross assets taken at cost or market value, whichever is lower at the time of borrowing, and then only as a temporary measure for extraordinary or emergency purposes;
(2) make short sales of securities or maintain a short position except to the extent permitted by applicable law;
(3) invest knowingly more than 15% of its net assets (at the time of investment) in illiquid securities, except for securities qualifying for resale under Rule 144A of the Securities Act of 1933 deemed to be liquid by the Board of Trustees;
(4) invest in securities of other investment companies, except as permitted by applicable law (each Fund may not, however rely on Sections 12(d)(1)(F) and 12(d)(1)(G) of the Act);
(5) hold securities of any issuer if more than 1/2 of 1% of the issuer's securities are owned beneficially by one or more of the Fund's officers or directors or by one or more partners or members of each 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 acquisition, its investment in warrants, valued at the lower of cost or market, would exceed 5% of each Fund's total assets (included within such limitation, but not to exceed 2% of 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 development programs, except that each Fund may invest in securities issued by companies that engage in oil, gas or other mineral exploration or 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 Statement of Additional Information, as they may be amended from time to time; or
(9) buy from or sell to any of the Fund's officers, directors, employees, or each Fund's investment adviser or any of the investment adviser's officers, directors, partners or employees, any securities other than shares of beneficial interest in the Fund.
PORTFOLIO TURNOVER RATE. For the fiscal years ended November 30, 2001 and 2000, the portfolio turnover rates were 641.36% and 595% for Core Fixed Income Fund and 720.6% and 562.5% for Total Return Fund, respectively.
ADDITIONAL INFORMATION ON PORTFOLIO RISKS, INVESTMENTS AND TECHNIQUES. The following sections provide information on certain types of investments and investment techniques that may be used by the Funds, including their associated risks.
AVERAGE DURATION. Each Fund will maintain a duration within two years of the bond market's duration as measured by the Lehman Aggregate Bond Index. Currently this index has a duration of approximately five years.
Some of the securities in each Fund's portfolio may have periodic interest rate adjustments based upon an index such as the 91-day Treasury Bill rate. This periodic interest rate adjustment tends to lessen the volatility of the security's price. With respect to securities with an interest rate adjustment period of one year or less, the Funds will, when determining average-weighted duration, treat such a security's maturity as the amount of time remaining until the next interest rate adjustment.
Instruments such as GNMA, FNMA, FHLMC securities, and similar securities backed by amortizing loans generally have shorter effective maturities than their stated maturities. This is due to changes in amortization caused by demographic and economic forces such as interest rate movements. These effective maturities are calculated based upon historical payment patterns and therefore have shorter duration than would be implied by their stated final maturity. For purposes of determining each Fund's average maturity, the maturities of such securities will be calculated based upon the issuing agency's payment factors using industry-accepted valuation models.
BORROWING MONEY. Each Fund may borrow money for temporary or emergency purposes from banks and other financial institutions in amounts not exceeding one-third of their total assets. If a Fund borrows money and experiences a decline in its net asset value, the borrowing could increase its losses.
FOREIGN CURRENCY OPTIONS. The Total Return Fund may take positions in options on foreign currencies to hedge against the risk that foreign exchange rate fluctuations will affect the value of foreign securities the Fund holds in its portfolio or intends to purchase. For example, if the Total Return Fund were to enter into a contract to purchase securities denominated in a foreign currency, it could effectively fix the maximum U.S. dollar cost of the securities by purchasing call options on that foreign currency. Similarly, if the Total Return Fund held securities denominated in a foreign currency and anticipated a decline in the value of that currency against the U.S. dollar, it could hedge against such a decline by purchasing a put option on the currency involved. The markets in foreign currency options are relatively new, and the Total Return Fund's ability to establish and close out positions in such options is subject to the maintenance of a liquid secondary market. There can be no assurance that a liquid secondary market will exist for a particular option at any specific time. In addition, options on foreign currencies are affected by all of those factors that influence foreign exchange rates and investments generally.
Transaction costs may be higher because the quantities of currencies underlying option contracts that the Firm enters represent odd lots in a market dominated by transactions between banks.
There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations be firm or revised on a timely basis. Quotation information is generally representative of very large transactions in the interbank market and may not reflect smaller transactions where rates may be less favorable. Option markets may be closed while round-the-clock interbank currency markets are open, and this can create price and rate discrepancies.
The Total Return Fund may effectively terminate its rights or obligations under options by entering into closing transactions. Closing transactions permit the Total Return Fund to realize profits or limit losses on its options positions prior to the exercise or expiration of the option. The value of a foreign currency option depends on the value of the underlying currency relative to the U.S. dollar. Other factors affecting the value of an option are the time remaining until expiration, the relationship of the exercise price to market price, the historical price volatility of the underlying currency and general market conditions. As a result, changes in the value of an option position may have no relationship to the investment merit the foreign currency. Whether a profit or loss is realized on a closing transaction depends on the price movement of the underlying currency and the market value of the option.
Options normally have expiration dates of up to nine months. The exercise price may be below, equal to or above the
current market value of the underlying currency. Options that expire unexercised have no value, and the Total Return Fund will realize a loss of any premium paid and any transaction costs. Closing transactions may be effected only by negotiating directly with the other party to the option contract, unless a secondary market for the options develops. Although the Total Return Fund intends to enter into foreign currency options only with dealers which agree to enter into, and which are expected to be capable of entering into, closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate an option at a favorable price at any time prior to expiration. In the event of insolvency of the counter-party, the Total Return Fund may be unable to liquidate a foreign currency option. Accordingly, it may not be possible to effect closing transactions with respect to certain options, with the result that the Total Return Fund would have to exercise those options that it had purchased in order to realize any profit.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Total Return Fund may use forward contracts to protect against uncertainty in the level of future exchange rates. The Total Return Fund will not speculate with forward contracts or foreign currency exchange rates.
The Total Return Fund may enter into forward contracts with respect to specific transactions. For example, when the Total Return Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when the Fund anticipates the receipt in a foreign currency of dividend or interest payments on a security that it holds, the Fund may desire to "lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of the payment, by entering into a forward contract for the purchase or sale, for a fixed amount of U.S. dollars or foreign currency, of the amount of foreign currency involved in the underlying transaction. The Total Return Fund will thereby be able to protect itself against a possible loss resulting from an adverse change in the relationship between the currency exchange rates during the period between the date on which the security is purchased or sold, or on which the payment is declared, and the date on which such payments are made or received.
The Total Return Fund also may use forward contracts in connection with existing portfolio positions to lock in the U.S. dollar value of those positions, to increase the Fund's exposure to foreign currencies that the Investment Adviser believes may rise in value relative to the U.S. dollar or to shift the Fund's exposure to foreign currency fluctuations from one country to another. For example, when the Total Return Fund believes that the currency of a particular foreign country may suffer a substantial decline relative to the U.S. dollar or another currency, it may enter into a forward contract to sell the amount of the former foreign currency approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. This investment practice generally is referred to as "cross-hedging" when another foreign currency is used.
The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. Accordingly, it may be necessary for the Total Return Fund to purchase additional foreign currency on the spot (that is, cash) market (and bear the expense of such purchase) if the market value of the security is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Total Return Fund is obligated to deliver. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Forward contracts involve the risk that anticipated currency movements will not be accurately predicted, causing the Total Return Fund to sustain losses on these contracts and transaction costs.
At or before the maturity date of a forward contract that requires the Total Return Fund to sell a currency, the Fund may either sell a portfolio security and use the sale proceeds to make delivery of the currency or retain the security and offset its contractual obligation to deliver the currency by purchasing a second contract pursuant to which the Fund will obtain, on the same maturity date, the same amount of the currency that it is obligated to deliver. Similarly, the Total Return Fund may close out a forward contract requiring it to purchase a specified currency by entering into a second contract entitling it to sell the same amount of the same currency on the maturity date of the first contract. The Total Return Fund would realize a gain or loss as a result of entering into such an offsetting forward contract under either circumstance to the extent the exchange rate between the currencies involved moved between the execution dates of the first and second contracts.
The cost to the Total Return Fund of engaging in forward contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions then prevailing. The use of forward contracts does not eliminate fluctuations in the prices of the underlying securities the Total Return Fund owns or intends to acquire, but it does fix a rate of exchange in advance. In addition, although forward contracts limit the risk of loss due to a decline in the value of the hedged currencies, at the same time they limit any potential gain that might result should the value of the currencies increase.
FOREIGN SECURITIES. As described in the Prospectus, the Funds may invest in foreign securities. 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 Funds do not sell shares. As a result, the value of the Funds' 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 Funds, and political or social instability or diplomatic developments that could affect investments in those countries.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Each Fund may engage in futures and options on futures transactions in accordance with their 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.
Each 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 a
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. Each Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. Futures contracts and options on futures contracts present substantial risks, including the following:
- While the Funds may benefit from the use of futures and related options, unanticipated market events may result in poorer overall performance than if the Funds had not entered into any futures or related options transactions.
- Because perfect correlation between a futures position and a portfolio position that the Funds intend to hedge is impossible to achieve, a hedge may not work as intended, and the Funds may thus be exposed to additional risk of loss.
- The loss that the Funds 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 Funds.
- 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.
HIGH-YIELD DEBT SECURITIES. The Total Return Fund may invest up to 20% of its assets in high-yield debt securities. High-yield debt securities (also referred to as "junk bonds") are rated BB/Ba or lower and typically pay a higher yield, but entail greater risks, than investment grade debt securities. When compared to investment grade debt securities, high-yield debt securities:
- have a higher risk of default and their prices can be much more volatile due to lower liquidity;
- tend to be less sensitive to interest rate changes; and
- pose a greater risk that exercise of any of their redemption or call provisions in a declining market may result in their replacement by lower-yielding bonds.
In addition, while the market for high-yield, corporate debt securities has been in existence for many years, the market in recent years experienced a dramatic increase in the large-scale use of such securities to fund highly-leveraged corporate acquisitions and restructurings. Accordingly, past experience may not provide an accurate indication of future performance of the high-yield bond market, especially during periods of economic recession.
Since the risk of default is higher among high-yield debt securities, Lord Abbett's research and analyses are an important ingredient in the selection of such securities. Through portfolio diversification, good credit analysis and attention to current developments and trends in interest rates and economic conditions, the Total Return Fund seeks to reduce this risk. There can be no assurance, however, that this risk will in fact be reduced and that losses will not occur. The Total Return Fund does not have any minimum rating criteria applicable to the fixed-income securities in which it invests.
INVESTMENT COMPANIES. The Funds may invest in securities of other investment companies subject to limitations prescribed by the Act. 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 Funds indirectly will bear their proportionate share of any management fees and other expenses paid by the investment companies in which they invest. Such investment companies will generally be money market funds or have investment objectives, policies and restrictions substantially similar to those of the investing Fund and will be subject to substantially the same risks.
The Funds may, consistent with their 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 the securities of such an investment company may not perfectly parallel the price movement of the underlying index.
LISTED OPTIONS ON SECURITIES. The Funds 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 Funds may write covered call options that are traded on a national securities exchange with respect to securities in their portfolios in an attempt to increase income and to provide greater flexibility in the disposition of portfolio securities. During the period of the option, the Funds forgo the opportunity to profit from any increase in the market price of the underlying security above the exercise price of the option (to the extent that the increase exceeds its net premium). The Funds may also enter the "closing purchase transactions" in order to terminate its obligation to deliver the underlying security. This may result in a short-term gain or loss. A closing purchase transaction is the purchase of a call option (at a cost which may be more or less than the premium received for writing the original call option) on the same security, with the same exercise price and call period as the option previously written. If a Fund is unable to enter into a closing purchase transaction, they 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 a 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. Each Fund will not purchase an option if, as a result of
such purchase, more than 10% of its net assets would be invested in premiums for
such options. Each Fund may write covered put options to the extent that cover
for such options does not exceed 15% of its net assets. Each 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 Funds 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 correlation between the securities on which options are based and Fund portfolio securities, the Funds may incur losses. The use of options can also increase a Fund's transaction costs.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. Each Fund may invest extensively in mortgage-related securities and also may invest in and other asset-backed securities in connection with public or private offerings, or secondary market transactions. Mortgage-related securities are interests in pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and others. Pools of mortgage loans are assembled as securities for sale to investors by various governmental, government-related and private organizations.
MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of mortgage-related securities differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by individual borrowers on their residential or commercial mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal resulting from the sale of the underlying property, refinancing or foreclosure, net of fees or costs which may be incurred.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION. The principal governmental guarantor of mortgage-related securities
is the "GNMA." GNMA is authorized to guarantee, with the full faith and credit of the United States Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of mortgages insured by the Federal Housing Administration (the "FHA"), or guaranteed by the Department of Veterans Affairs (the "VA").
Government-related guarantors (I.E., not backed by the full faith and credit of the United States Government) include the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). Both are government-sponsored corporations owned entirely by private stockholders. FHLMC issues Participation Certificates ("PCs") which represent interests in conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the United States Government.
Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential mortgage loans. Such issuers may, in addition, be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government or agency guarantees of payments in the former pools. However, timely payment of interest and principal of these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit, which may be issued by governmental entities, private insurers or the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets the Funds' investment quality standards. There can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable.
Mortgage-backed securities that are issued or guaranteed by the U.S. Government, its agencies or instrumentalities, are not subject to Fund industry concentration restrictions by virtue of the exclusion from that test available to all U.S. Government securities. In the case of privately issued mortgage-related securities, the Funds take the position that mortgage-related securities do not represent interests in any particular "industry" or group of industries. The assets underlying such securities may be represented by a portfolio of first lien residential mortgages (including both whole mortgage loans and mortgage participation interests) or portfolios of mortgage pass-through securities issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a mortgage-related security may in turn be insured or guaranteed by the FHA or the VA. In the case of private issue mortgage-related securities whose underlying assets are neither U.S. Government securities nor U.S. Government-insured mortgages, to the extent that real properties securing such assets may be located in the same geographical region, the security may be subject to a greater risk of default than other comparable securities in the event of adverse economic, political or business developments that may affect such region and, ultimately, the ability of residential homeowners to make payments of principal and interest on the underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS AND REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("CMOS"). A CMO is a hybrid between a mortgage-backed bond and a mortgage pass-through security. Similar to a bond, interest and prepaid principal is paid, in most cases, on a monthly basis. CMOs may be collateralized by whole mortgage loans, but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income streams.
CMOs are issued in multiple classes, each bearing a different stated maturity. Payments of principal normally are applied to the CMO classes in the order of their respective stated maturities, so that no principal payments will be made on a CMO class until all other classes having an earlier stated maturity date are paid in full.
COMMERCIAL MORTGAGE-BACKED SECURITIES. Commercial mortgage-backed securities include securities that reflect an interest in, and are secured by, mortgage loans on commercial real property. Many of the risks of investing in commercial mortgage-backed securities reflect the risks of investing in the real estate securing the underlying mortgage loans. These risks reflect the effects of local and other economic conditions on real estate markets, the ability of tenants to make loan payments, and the ability of a property to attract and retain tenants. Commercial
mortgage-backed securities may be less liquid and exhibit greater price volatility than other types of mortgage- or asset-backed securities.
OTHER MORTGAGE-RELATED SECURITIES. Other mortgage-related securities include securities other than those described above that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property, including mortgage dollar rolls, or stripped mortgage-backed securities ("SMBS").
MORTGAGE DOLLAR ROLLS. The Funds may enter into mortgage dollar rolls in which a Fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. During the roll period, the Fund loses the right to receive principal (including prepayments of principal) and interest paid on the securities sold. However, the Fund may benefit from the interest earned on the cash proceeds of the securities sold until the settlement date of the forward purchase. The Fund will hold and maintain in a segregated account until the settlement date cash or liquid securities in an amount equal to the forward purchase price. The benefits derived from the use of mortgage dollar rolls depend upon the Funds' ability to manage mortgage prepayments. There is no assurance that mortgage dollar rolls can be successfully employed. For financial reporting and tax purposes, the Funds treat mortgage dollar rolls as two separate transactions: one involving the purchase of a security and another involving a sale. As a result, the use of mortgage dollar rolls significantly increases the Funds' portfolio turnover.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"). SMBS are derivative multi-class mortgage securities. SMBS may be issued by agencies or instrumentalities of the U.S. Government, or by private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose entities of the foregoing. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. A common type of SMBS will have one class receiving some of the interest and most of the principal from the mortgage assets, while the other class will receive most of the interest and the remainder of the principal. In the most extreme case, one class will receive all of the interest (the "IO" class), while the other class will receive all of the principal (the principal-only or "PO" class). The value of an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may cause the Funds to lose money. The value of a PO class generally increases as interest rates decline and prepayment rates rise. The price of these securities is typically more volatile than that of coupon bearing bonds of the same maturity.
OTHER ASSET-BACKED SECURITIES. The Funds may invest in asset-backed securities (unrelated to mortgage loans). Asset-backed securities are securities whose principal and interest payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. In addition to prepayment risks, these securities present credit risks that are not inherent in mortgage-related securities.
REPURCHASE AGREEMENTS. The Funds 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. In this type of transaction, the securities purchased by the Fund have a total value in excess of the value of the repurchase agreement. The Funds requires at all times that the repurchase agreement be collateralized by cash or U.S. Government securities having a value equal to, or in excess of, the value of the repurchase agreement. Such agreements permit the Funds to keep all 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 Funds may incur a loss upon disposition of them. If the seller of the agreement becomes insolvent and subject to liquidation or reorganization under the Bankruptcy Code or other laws, a bankruptcy court may determine that the underlying securities are collateral not within the control of the Funds and are therefore subject to sale by the trustee in bankruptcy. Even though the repurchase agreements may have maturities of seven days or less, they may lack liquidity, especially if the issuer encounters financial difficulties. The Funds intends to limit repurchase agreements to
transactions with dealers and financial institutions believed by Fund management to present minimal credit risks. The Funds will monitor the creditworthiness of the repurchase agreement sellers on an ongoing basis.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase agreements. In a reverse repurchase agreement, a 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. Each Fund will attempt to minimize this risk by managing its duration. A Fund's reverse repurchase agreements will not exceed 20% of the Fund's net assets.
SECURITIES LENDING. The Funds may lend portfolio securities to registered broker-dealers. These loans may not exceed 30% of each 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 the market value of the loaned securities. The Funds 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 Funds and is acting as a "placing broker." No fee will be paid to persons affiliated with the Funds.
By lending portfolio securities, the Funds 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 of non-cash collateral are received. Lending portfolio securities could result in a loss or delay in recovering a Fund's securities if the borrower defaults.
SHORT SALES. Each Fund may make short sales of securities or maintain a short position, if at all times when a short position is opened a 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. Each 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, each 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 which 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 a portfolio 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. Each 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 which could result in
depreciation of 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. Each 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.
3.
MANAGEMENT OF THE FUNDS
The Trust's Board of Trustees is responsible for the management of the business and affairs of the Funds in accordance with the laws of the State of Delaware. The Board appoints officers who are responsible for the day-to-day operations of each Fund and who execute policies authorized by the Board. As discussed fully below, the Board also initially approves an investment adviser to each Fund and continues to monitor the cost and quality of the services provided by the investment adviser.
The following Trustee is the Managing Partner of Lord, Abbett & Co. ("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 43 portfolios or series.
CURRENT POSITION
NAME AND LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER
(DATE OF BIRTH) WITH TRUST DURING PAST FIVE YEARS DIRECTORSHIPS
--------------- ---------- ---------------------- -------------
ROBERT S. DOW Trustee since 1993; Managing Partner and Chief N/A
90 Hudson Street Chairman since 1996 Investment Officer of Lord Abbett
Jersey City, New Jersey and President since since 1996.
Date of Birth: 3/8/1945 1995
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The following outside Trustees are also directors or trustees of the fourteen Lord Abbett-sponsored funds, which consist of 43 portfolios or series.
CURRENT POSITION
NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER
(DATE OF BIRTH) WITH TRUST DURING PAST FIVE YEARS DIRECTORSHIPS
--------------- ---------- ---------------------- -------------
E. THAYER BIGELOW Trustee since 1994 Managing General Partner, Bigelow Currently serves as a
Bigelow Media, LLC Media, LLC (since 2000); Senior director of Crane Co. and
717 Fifth Avenue, 26th Floor Adviser, Time Warner Inc. (1998 - Huttig Building Products
New York, New York 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).
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WILLIAM H.T. BUSH Trustee 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 Rd, Suite 1025 firm of Bush-O'Donnell & Company Health Network,
St. Louis, Missouri (since 1986). Mississippi Valley
Date of Birth: 7/14/1938 Bancorp, DT Industries
Inc., and Engineered
Support Systems, Inc.
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CURRENT POSITION
NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION
(DATE OF BIRTH) WITH TRUST DURING PAST FIVE YEARS OTHER DIRECTORSHIPS
--------------- ---------- ---------------------- -------------------
ROBERT B. CALHOUN, JR. Trustee 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, Massachusetts Management Corp., both private Inc., IGI/Earth Color,
Date of Birth: 10/25/1942 equity investment funds (since Inc., Integrated
1991). Graphics, Inc. and
Interstate Bakeries Corp.
STEWART S. DIXON Trustee since 1993 Partner in the law firm of Wildman, N/A
Wildman, Harrold, Allen & Dixon Harrold, Allen & Dixon (since
225 W. Wacker Drive, Suite 2800 1967).
Chicago, Illinois
Date of Birth: 11/5/1930
FRANKLIN W. HOBBS Trustee since 2001 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, New York 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 Trustee since 1993 Retired - Special Projects Currently serves as
415 Round Hill Road Consulting (since 1992). director of Fountainhead
Greenwich, Connecticut Water Company, Careside,
Date of Birth: 5/19/1933 Inc., Lincoln Snacks,
J.B. Williams Co., Inc.
(personal care products),
and Seix Fund, Inc. 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 and
President and Managing
General Partner of Lord
Abbett.
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THOMAS J. NEFF Trustee since 1993 Chairman of Spencer Stuart, an Currently serves as Spencer Stuart executive search consulting firm director of Ace, Ltd. and 277 Park Avenue (since 1976). Exult, Inc. New York, New York Date of Birth: 10/2/1937 |
None of the officers listed below have received compensation from the Trust. All the officers of the Trust may also be officers of the other Lord Abbett-sponsored funds and maintain offices at 90 Hudson Street, Jersey City, New Jersey 07302.
CURRENT POSITION LENGTH OF SERVICE PRINCIPAL OCCUPATION
NAME AND (DATE OF BIRTH) WITH TRUST OF CURRENT POSITION DURING PAST FIVE YEARS
------------------------ ---------- ------------------- ----------------------
Zane E. Brown (12/9/1951) Executive Vice Elected in 1996 Partner and Director of Fixed Income
President Management, joined Lord Abbett in 1992.
Robert I. Gerber (5/29/1954) Executive Vice Elected in 1998 Partner and Director of Taxable Fixed Income
President Management, joined Lord Abbett in 1997
formerly Senior Portfolio Manager of Sanford
C. Bernstein & Co. Inc.
Robert G. Morris (11/06/1944) Executive Vice Elected in 1995 Partner and Director of Equity Investments,
President joined Lord Abbett in 1991.
Christopher J. Towle (10/12/1957) Executive Vice Elected in 1999 Partner and Investment Manager, joined Lord
President Abbett in 1987.
Joan A. Binstock (3/4/1954) Vice President Elected in 1999 Partner and Chief Operations Officer, joined
Lord Abbett in 1999, prior thereto Chief
Operating Officer of Morgan Grenfell.
Thomas J. Baade (7/13/1964) Vice President Elected in 1999 Senior Fixed Income Analyst, joined Lord
Abbett in 1998, prior thereto Vice
President/Bond Analyst at Smith Barney Inc.
Daniel E. Carper (1/22/1952) Vice President Elected in 1993 Partner, joined Lord Abbett in 1979.
Michael S. Goldstein (10/29/1968) Vice President Elected in 1999 Fixed Income Investment Manager, joined Lord
Abbett in 1997, prior thereto Assistant
President of Credit Suisse Asset Management.
Paul A. Hilstad (12/13/1942) Vice President and Elected in 1997 Partner and General Counsel, joined Lord
Secretary Abbett in 1995.
Lawrence H. Kaplan (1/16/1957) Vice President and Elected in 1997 Partner and Deputy General Counsel, joined
Assistant Secretary Lord Abbett in 1997, prior thereto Vice
President and Chief Counsel of Salomon
Brothers Asset Management Inc.
Robert A. Lee (8/28/1969) Vice President Elected in 1998 Fixed Income Investment Manager, Mortgage
and Asset Backed Securities, joined Lord
Abbett in 1997, prior thereto Fixed Income
Portfolio Manager and Vice President at ARM
Capital Advisors.
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Walter H. Prahl (2/13/1958) Vice President Elected in 1998 Director of Quantitative Research Analyst,
Taxable Fixed Income, joined Lord Abbett in
1997, formerly Quantitative Analyst at
Sanford C. Bernstein & Co. from 1994 to 1997.
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CURRENT POSITION LENGTH OF SERVICE PRINCIPAL OCCUPATION
NAME AND (DATE OF BIRTH) WITH TRUST OF CURRENT POSITION DURING PAST FIVE YEARS
------------------------ ---------- ------------------- ----------------------
A. Edward Oberhaus, III Vice President Elected in 1993 Manager of Equity Trading, joined Lord
(12/21/1959) Abbett in 1983.
Tracie E. Richter (1/12/1968) Vice President Elected in 1999 Director of Operations and Fund Accounting,
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.
Eli M. Salzmann (3/24/1964) Vice President Elected in 1999 Partner and Director of Institutional
Equity Investments, joined Lord Abbett
in 1997, formerly a Portfolio Manager
Analyst at Mutual of America from 1996
to 1997, prior thereto Vice President at
Mitchell Hutchins Asset Management.
Christina T. Simmons (11/12/1957) Vice President and Elected in 2000 Assistant General Counsel, joined Lord
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.
Richard S. Szaro (10/8/1942) Vice President Elected in 1993 Associate Investment Manager-Fixed Income,
joined Lord Abbett in 1983.
Francie W. Tai (6/11/1965) Treasurer Elected in 2000 Director of Fund Administration, joined Lord
Abbett in 2000, formerly Manager of Goldman
Sachs from 1997 to 2000, prior thereto
Assistant Vice President of Bankers Trust.
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COMMITTEES
The standing committees of the Board of Trustees are the Audit Committee, the
Proxy Committee, and the Nominating and Governance Committee.
The Audit Committee is composed of Trustees who are not "interested persons" of the Fund. The members of the Audit Committee are Messrs. Bigelow, Calhoun, Hobbs, and MacDonald. The Audit Committee provides assistance to the Board of Trustees in fulfilling its responsibilities relating to corporate accounting, the reporting practices of the Funds, and the quality and integrity of the Funds' financial reports. Among other things, the Audit Committee is responsible for reviewing and evaluating the performance and independence of the Funds' 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 Trustees who are not "interested persons" of the Funds, and also may include one or more trustees who are partners or employees of Lord Abbett. The current members of the Proxy Committee are three independent Trustees: Messrs. Dixon, Hobbs, and Neff, and Mr. Dow. The Proxy Committee assists the Board of Trustees in fulfilling its responsibilities relating to the voting of securities held by the Funds. During the past fiscal year, the Proxy Committee met once.
The Nominating and Governance Committee is composed of all the Trustees who are not "interested persons" of the Funds. Among other things, the Nominating and Governance Committee is responsible for (i) evaluating and nominating individuals to serve as independent Trustees and as committee members; and (ii) periodically reviewing director/trustee compensation. During the past fiscal year, the Nominating and Governance Committee met three times.
APPROVAL OF ADVISORY CONTRACT
At meetings on December 12, 2001, the Board and its outside Trustees considered
whether to approve the continuation of the existing management agreement between
each of the Funds and Lord Abbett. In addition to the materials the Trustees had
reviewed throughout the course of the year, the Trustees 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 OUTSIDE TRUSTEES. The materials received by the
Trustees included, but were not limited to, (1) information on the investment
performance of each Fund and a peer group of funds for the preceding twelve
months and for 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 each 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 each Fund, (7) information regarding the personnel,
information technology, and other resources devoted by Lord Abbett to managing
each Fund.
In considering whether to approve the continuation of the management agreement, the Board and the outside Trustees 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 and the outside Trustees in connection with their approval of the continuation of the management agreement included, but were not limited to, the following:
INVESTMENT MANAGEMENT SERVICES GENERALLY. The Board and the outside Trustees considered the investment management services provided by Lord Abbett to each Fund, including investment research, portfolio management, and trading.
INVESTMENT PERFORMANCE AND COMPLIANCE. The Board and the outside Trustees reviewed each 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 and the outside Trustees also considered whether each Fund had operated within its investment restrictions.
LORD ABBETT'S PERSONNEL AND METHODS. The Board and the outside Trustees considered the qualifications of the personnel providing investment management services to each 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 and the outside Trustees 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 supervision of third party service providers, including each Fund's transfer agent, custodian, and subcustodians.
EXPENSES. The Board and the outside Trustees considered each class' expense ratios 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 and the outside Trustees considered the level of Lord Abbett's profits in managing the Funds, including a review of Lord Abbett's methodology for allocating its costs to its management of each Fund. The Board and the outside Trustees 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 each Fund and whether the amount of profit is fair for the management of each Fund. They also considered the profits realized from other businesses of Lord Abbett, which may benefit from or be related to each Fund's business. The Board and the outside Trustees 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 and the outside Trustees considered whether there have been any economies of scale in managing each Fund, whether each 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 and the outside Trustees considered the character and amount of fees paid by each Fund and each 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 and the outside Trustees 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 each Fund.
ALTERNATIVE ARRANGEMENTS. The Board and the outside Trustees considered whether, instead of approving continuation of the management agreement, employing one or more alternative arrangements might be in the best interests of each Fund, such as continuing to employ Lord Abbett, but on different terms.
After considering all of the relevant factors, the Board and the outside Trustees unanimously voted to approve continuation of the existing management agreement.
COMPENSATION DISCLOSURE
The following table summarizes the compensation for each of the
Directors/Trustees for the Trust and for all Lord Abbett-sponsored funds.
The second column of the following table sets forth the compensation accrued by the Trust for outside Trustees. 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 FISCAL YEAR ENDED DECEMBER 31, 2001
NOVEMBER 30, 2001 TOTAL COMPENSATION
AGGREGATE COMPENSATION PAID BY THE TRUST AND
ACCRUED BY THIRTEEN OTHER LORD
NAME OF TRUSTEE THE TRUST(1) ABBETT-SPONSORED FUNDS(2)
--------------- ----------------- -------------------------
E. Thayer Bigelow $5,095 $86,000
William H.T. Bush $5,196 $87,400
Robert B. Calhoun, Jr. $5,111 $86,000
Stewart S. Dixon $5,130 $86,200
Franklin W. Hobbs $4,430 $85,000
C. Alan MacDonald $5,095 $86,000
Thomas J. Neff $5,057 $85,000
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1. Outside directors'/trustees' fees, including attendance fees for board and committee meetings, are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. A portion of the fees payable by the Trust to its outside directors/trustees may be deferred at the option of a director/trustee under an equity-based plan (the "equity-based plan") that deems the deferred amounts to be invested in shares of the Trust for later distribution to the directors/trustees. In addition, $25,000 of each director/trustee's retainer must be deferred and is deemed invested in shares of the Trust and other Lord Abbett-sponsored funds under the equity-based plan.
2. The third column shows aggregate compensation, including the types of compensation descried in the second column, accrued by all Lord Abbett-sponsored funds during the year ended December 31, 2001, including fees
directors/trustees have chosen to defer.
The following chart provides each Trustee's equity ownership of the Funds and ownership of the Lord Abbett-sponsored Funds as of December 31, 2001.
DOLLAR RANGE OF TRUSTEE DOLLAR RANGE OF TRUSTEE AGGREGATED DOLLAR RANGE OF
OWNERSHIP IN THE OWNERSHIP IN THE TRUSTEE OWNERSHIP IN
NAME OF TRUSTEE CORE FIXED INCOME FUND TOTAL RETURN FUND LORD ABBETT SPONSORED FUNDS
--------------- ---------------------- ----------------- ---------------------------
Robert S. Dow Over $100,000 None Over $100,000
E. Thayer Bigelow $1-$10,000 $1-$10,000 Over $100,000
William H. T. Bush $1-$10,000 None $50,001-$100,000
Robert B. Calhoun, Jr. $1-$10,000 $1-$10,000 Over $100,000
Stewart S. Dixon None None Over $100,000
Franklin W. Hobbs $1-$10,000 $1-$10,000 $50,001-$100,000
C. Alan MacDonald None None Over $100,000
Thomas J. Neff $1-$10,000 $1-$10,000 Over $100,000
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Note: The dollar amounts shown above include deferred compensation to the Trustees deemed invested in Fund shares. The amounts ultimately received by the directors/trustees under the deferred compensation plan will be directly linked to the investment performance of the funds.
CODE OF ETHICS:
The directors, trustees and officers of Lord Abbett-sponsored funds, together
with the partners and employees of Lord Abbett, are permitted to purchase and
sell securities for their personal investment accounts. In engaging in personal
securities transactions, however, such persons are subject to requirements and
restrictions contained in the Fund's Code of Ethics (the "Code") which complies,
in substance, with each of the recommendations of the Investment Company
Institute's Advisory Group on Personal Investing. Among other things, the Code
requires that Lord Abbett partners and employees, with limited exception, obtain
advance approval before buying or selling securities, submit confirmations and
quarterly transaction reports, and obtain approval before becoming a director of
any company; and it prohibits such persons from investing in a security 7 days
before or after any Lord Abbett sponsored fund or Lord, Abbett managed account
considers a trade or trader in such security, prohibiting profiting on trades of
the same security within 60 days and trading on material and non-public
information. The Code imposes certain similar requirements and restrictions on
the independent directors and trustees of each Lord Abbett-sponsored fund to the
extent contemplated by the recommendations of such Advisory Group.
4.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 28, 2002, each Fund's officers and trustees, as a group, owned 13.30% of Core Fixed Income Fund's outstanding Class A shares and 2.50% of Total Return Fund's outstanding Class A shares. As of March 22, 2002, other than Lord Abbett Distributor and other institutional broker-dealers for the benefit of their clients, the following were record holders of 5% or more of each Fund's outstanding shares:
5.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT MANAGER
As described under "Management" in the Prospectus, Lord Abbett is the Fund's investment manager. Of the general partners of Lord Abbett, the following are officers and/or trustees of the Funds: Zane E. Brown, Joan A. Binstock, Daniel E. Carper, Robert S. Dow, Robert I. Gerber, Paul A. Hilstad, Lawrence H. Kaplan, W. Thomas Hudson, Jr., Robert G. Morris, Eli M. Salzmann and Christopher J. Towle. The other general partners are: John E. Erard, Robert P. Fetch, Daria L. Foster, Michael A. Grant, Stephen J. McGruder, Robert J. Noelke, R. Mark Pennington, Douglas B. Sieg, Edward 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, between Lord Abbett and the Trust, each Fund is obligated to pay Lord Abbett a monthly fee, based on average daily net assets for each month, at the annual rate of .50 of 1%. These fees are allocated among Class A, B, C and P shares based on the classes' proportionate share of each Fund's average daily net assets.
Each Fund pays all of its expenses not expressly assumed by Lord Abbett, including, without limitation, 12b-1 expenses, outside trustees' fees and expenses, association membership dues, legal and auditing fees, taxes, transfer and dividend disbursing agent fees, shareholder servicing costs, expenses relating to shareholder meetings, expenses of preparing, printing and mailing stock certificates and shareholder reports, expenses of registering its shares under federal and state securities laws, expenses of preparing, printing and mailing prospectuses to existing shareholders, insurance premiums, brokerage and other expenses connected with executing portfolio transactions.
Although not obligated to do so, Lord Abbett may waive all or a portion of its management fees and may assume other expenses of each Fund.
Lord Abbett was entitled to a management fee for Core Fixed Income Fund for the fiscal year ended November 30, 2001, 2000 and 1999 of $51,169, $44,100 and $39,615, respectively. Lord Abbett waived its entire management fee for the fiscal year ended November 30, 2001.
Lord Abbett was entitled to a management fee for Total Return Fund for the fiscal year ended November 30, 2001, 2000 and for the period December 14, 1998 to November 30, 1999 of $81,042, $10,982 and $10,023, respectively. Lord Abbett waived its entire management fee for the fiscal year ended to November 30, 2001.
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 each Fund.
CUSTODIAN AND ACCOUNTING AGENT
State Street Bank and Trust Company, 801 Pennsylvania Avenue, Kansas City,
Missouri is each 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 each
Fund in foreign countries and to hold cash and currencies for each Fund. In
accordance with the requirements of Rule 17f-5, the Board of Trustees have
approved arrangements permitting each Fund's foreign assets not held by the
custodian or its foreign branches to be held by certain qualified foreign banks
and depositories. In addition, State Street Bank and Trust Company performs
certain accounting and record keeping functions relating to portfolio
transactions and calculates each 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 each Fund.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281, are
the independent auditors of each Fund and must be approved at least annually by
the Fund's Board of Trustees to continue in such capacity. Deloitte & Touche LLP
performs audit services for each Fund, including the examination of financial
statements included in the Funds' Annual Report to Shareholders.
6.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Each 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, each 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, a Fund, if considered advantageous, make a purchase from or sale to another Lord Abbett-sponsored fund without the intervention of any broker-dealer.
Broker-dealers are selected on the basis of their professional capability and the value and quality of their brokerage and research services. Normally, the selection is made by traders who are employees of Lord Abbett. These traders also do the trading for other accounts -- investment companies and other investment clients -- managed by Lord Abbett. They are responsible for obtaining best execution.
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 Funds. 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 Funds, 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 each Fund and/or shares of other Lord-Abbett-sponsored funds, or who have provided investment research, statistical, or other related services to each 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 November 31, 2001, 2000 and 1999, the Core Fixed Income Fund and Total Return Fund paid no commissions to independent brokers.
7.
CAPITAL STOCK AND OTHER SECURITIES
CLASSES OF SHARES. Each Fund offers Class A, B, C, or P as described in the Prospectus. The different classes of shares represent investments in the same portfolio of securities but are subject to different expenses and will likely have different share prices. 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 liquidations, 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 such as the Trust shall not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares of each class or fund affected by such matter. Rule 18f-2 further provides that a class or fund shall be deemed to be affected by a matter unless the interests of each class or fund in the matter are substantially identical or the matter does not affect any interest of such class or fund.
The Funds' By-Laws provide that the Funds shall not hold annual meetings of shareholders unless one or more matters are required to be acted on by shareholders under the Act. Under the Company's Declaration of Trust, shareholder meetings may be called at any time by certain officers of the Company or by a majority of the Trustees (i) for the purpose of taking action upon any matter requiring the vote or authority of the Company's shareholders or upon other matters deemed to be necessary or desirable or (ii) upon the written request of the holders of a least one-quarter of the shares of the Company's outstanding shares and entitled to vote at the meeting.
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 within 24 months after the month in which you buy them, you may pay to the Fund a contingent deferred sales charge ("CDSC") of 1%.
CLASS B SHARES. If you buy Class B shares, you pay no sales charge at the time of purchase, but if you redeem your shares before the sixth anniversary of buying them, you will normally pay a CDSC to Lord Abbett Distributor. That
CDSC varies depending on how long you own shares. Class B shares are subject to service and distribution fees at an annual rate of 1% of the 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 in described 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 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 that Fund a CDSC of 1%. 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 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. Each Fund has adopted a Distribution Plan and Agreement
pursuant to Rule 12b-1 of the Act for each of the four Fund classes: 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 Statement
of Additional Information 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 of Trustees has concluded that there is a
reasonable likelihood that each Plan will benefit its respective class and such
class' shareholders. The expected benefits include greater sales and lower
redemptions of class shares, which should allow each class to maintain a
consistent cash flow, and a higher quality of service to shareholders by
authorized institutions than would otherwise be the case. Each Plan compensates
Lord Abbett Distributor for financing activities primarily intended to sell
shares of the Funds. 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 and 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 Funds.
The amounts paid by each Fund pursuant to the A Plan for the fiscal year ended November 30, 2001, in connection with advertising and marketing activities, and payments to dealers were: Core Fixed Income Fund: $0 and $470 totaling $470; Total Return Fund: $0 and 3,446 totaling $3,446.
The amounts paid to dealers by each Fund pursuant to the B Plan for the fiscal year ended November 30, 2001 were: Core Fixed Income Fund: $1,144; Total Return Fund $7,232.
The amounts paid to dealers by each Fund pursuant to the C Plan for the fiscal year ended November 30, 2001were: Core Fixed Income Fund: $750; Total Return Fund $5,108.
The amounts paid to dealers by each Fund pursuant to the P Plan for the fiscal year ended November 30, 2001were: Core Fixed Income Fund: $3; Total Return Fund $3.
Each Plan requires the Board of Trustees 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 of
Trustees reasonably requests to 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 Trustees, including a majority of the Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan ("outside Trustees"), 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 Trustees, including a majority of the outside Trustees. As long as the Plans are in effect, the selection or nomination of outside Trustees is committed to the discretion of the outside Trustees.
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 Trustees or by vote of a majority of its class' outstanding voting securities.
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 each 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.
CLASS C SHARES. As stated in the Prospectus, subject to certain exceptions, if Class C shares are redeemed for cash before the first anniversary of their purchase, the redeeming shareholder normally will be required to pay to the Funds on behalf of Class C shares a CDSC of 1% of the lower of cost or the then net asset value of Class C shares redeemed. If such shares are exchanged into the same class of another Lord Abbett-sponsored fund and subsequently redeemed before the first anniversary of their original purchase, the charge will be collected by the fund of original purchase on behalf of this Fund's Class C shares.
GENERAL. The percentage (1% in the case of Class A and C shares and 5% through 1% in the case of Class B shares) used to calculate CDSCs described above for the Class A, Class B and Class C shares is sometimes hereinafter referred to as the "Applicable Percentage."
With respect to Class A 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 the Lord Abbett family of 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 and Class C shares, the CDSC is received by the Fund and is intended to reimburse all or a portion of the amount paid by the Fund if the shares are redeemed before the Fund has had an opportunity to realize the anticipated benefits of having a long-term shareholder account in the Fund. In the case of Class B shares, the CDSC is received by Lord Abbett Distributor and is intended to reimburse its expenses of providing distribution-related service to the Fund (including recoupment of the commission payments made) in connection with the sale of Class B shares before Lord Abbett Distributor has had an opportunity to realize its anticipated reimbursement by having such a long-term shareholder account subject to the B Plan distribution fee.
In no event will the amount of the 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 which, together
with exchanged shares, have been held continuously for 24 months from the end of
the month in which the original sale occurred (in the case of Class A shares);
for six years or more (in the case of Class B shares) and for one year or more
(in the case of Class C shares). In determining whether a CDSC is payable, (a)
shares not subject to the CDSC will be redeemed before shares subject to the
CDSC and (b) of the shares subject to a CDSC, those held the longest will be the
first to be redeemed.
WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an appropriate investment for you, the decision as to which class of shares is better suited to your needs depends on a number of factors which you should discuss with your financial adviser. The Fund's class-specific expenses and the effect of the different types of sales charges on your investment will affect your investment results over time. The most important factors are how much you plan to invest and how long you plan to hold your investment. If your goals and objectives change over time and you plan to purchase additional shares, you should re-evaluate those factors to see if you should consider another class of shares.
In the following discussion, to help provide you and your financial adviser with a framework in which to choose a class, we have made some assumptions using a hypothetical investment in a Fund. We used the sales charge rates that apply to Class A, Class B and Class C, and considered the effect of the higher distribution fees on Class B and Class C
expenses (which will affect your investment return). Of course, the actual performance of your investment cannot be predicted and will vary, based on a Fund's actual investment returns, the operating expenses borne by each class of shares, and the class of shares you purchase. The factors briefly discussed below are not intended to be investment advice, guidelines or recommendations, because each investor's financial considerations are different. The discussion below of the factors to consider in purchasing a particular class of shares assumes that you will purchase only one class of shares and not a combination of shares of different classes.
HOW LONG DO YOU EXPECT TO HOLD YOUR INVESTMENT? While future financial needs cannot be predicted with certainty, knowing how long you expect to hold your investment will assist you in selecting the appropriate class of shares. For example, over time, the reduced sales charges available for larger purchases of Class A shares may offset the effect of paying an initial sales charge on your investment, compared to the effect over time of higher class-specific expenses on Class B or Class C shares for which no initial sales charge is paid. Because of the effect of class-based expenses, your choice should also depend on how much you plan to invest.
INVESTING FOR THE SHORT TERM. If you have a short-term investment horizon (that is, you plan to hold your shares for not more than six years), you should probably consider purchasing Class A or Class C shares rather than Class B shares. This is because of the effect of the Class B CDSC if you redeem before the sixth anniversary of your purchase, as well as the effect of the Class B distribution fee on the investment return for that class in the short term. Class C shares might be the appropriate choice (especially for investments of less than $100,000), because there is no initial sales charge on Class C shares, and the CDSC does not apply to amounts you redeem after holding them one year.
However, if you plan to invest more than $100,000 for the short term, then the more you invest and the more your investment horizon increases toward six years, the more attractive the Class A share option may become. This is because the annual distribution fee on Class C shares will have a greater impact on your account over the longer term than the reduced front-end sales charge available for larger purchases of Class A shares. For example, Class A might be more appropriate than Class C for investments of more than $100,000 expected to be held for 5 or 6 years (or more). For investments over $250,000 expected to be held 4 to 6 years (or more), Class A shares may become more appropriate than Class C. If you are investing $500,000 or more, Class A may become more desirable as your investment horizon approaches 3 years or more.
For most investors who invest $1 million or more, 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 a 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 $100,000. If you plan to invest more than $100,000 over the long term, Class A shares will likely be more advantageous than Class B shares or Class C shares, as discussed above, because of the effect of the expected lower expenses for Class A shares and the reduced initial sales charges available for larger investments in Class A shares under the Fund's Rights of Accumulation.
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.
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 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 a Fund and Class C shareholders.
8.
PURCHASES, REDEMPTIONS AND PRICING
With respect to the foreign assets of the Total Return Fund, all assets and liabilities expressed in foreign currencies will be converted into U.S. dollars at the mean between the buying and selling rates of such currencies against U.S. dollars last quoted by any major bank. If such quotations are not available, the rate of exchange will be determined in accordance with policies established by the Board of Trustees of the Trust. The Board of Trustees will monitor, on an ongoing basis, each Fund's method of valuation.
Information concerning how we value our shares for the purchase and redemption of our shares is described in the Prospectus under "Purchases" and "Redemptions," respectively.
Under normal market conditions, we calculate a 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.
Each Fund values its portfolio securities at market value as of the close of the NYSE. Market value will be determined as follows: securities listed or admitted to trading privileges on 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 price, or, in the case of bonds, in the over-the-counter market if, in the judgment of the Fund's officers, that market more accurately reflects the market value of the bonds. Over-the counter securities not traded on the NASDAQ National Market System are valued at the mean between the last bid and asked prices. Securities for which market quotations are not available are valued at fair market value under procedures approved by the Board of Trustees.
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 though 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 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 family of 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 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) 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 our 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 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 each 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 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 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 and Class C shares and (ii) to Lord Abbett Distributor if the
original purchase was subject to a CDSC, in the case of the Class B shares.
Thus, if shares of a Lord Abbett fund are exchanged for shares of the same class
of another such fund and the shares of the same class tendered ("Exchanged
Shares") are subject to a CDSC, the CDSC will carry over to the shares of the
same class being acquired, including
GSMMF and AMMF ("Acquired Shares"). Any CDSC that is carried over to Acquired Shares is calculated as if the holder of the Acquired Shares had held those shares from the date on which he or she became the holder of the Exchanged Shares. Although the Non-12b-1 Funds will not pay a distribution fee on their own shares, and will, therefore, not impose their own CDSC, the Non-12b-1 Funds will collect the CDSC (a) on behalf of other Lord Abbett funds, in the case of the Class A and Class C shares and (b) on behalf of Lord Abbett Distributor, in the case of the Class B shares. Acquired Shares held in GSMMF and AMMF 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 AMMF, that Applicable Percentage will apply to redemptions for cash from AMMF, regardless of the time you have held Acquired Shares in AMMF.
LETTER OF INTENTION. Under the terms of the Letter of Intention as described in the Prospectus you may invest $100,000 or more over a 13-month period in 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 supplementally by Lord Abbett Distributor or the Fund to carry out the order. The signature(s) and any legal capacity of the signer(s) must be guaranteed by an eligible guarantor. See 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.
Our Board of Trustees 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 PLANS. The Systematic Withdrawal Plan ("SWP") also is described in the Prospectus. You may establish a SWP if you own or purchase uncertificated shares having a current offering price value of at least $10,000. Lord Abbett prototype retirement plans have no such minimum. With respect to 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. Because the value of shares redeemed may be more or less than their cost, gain or loss may be recognized for income tax purposes on each periodic payment. Normally, you may not make regular investments at the same time you are receiving systematic withdrawal payments because it is not in your interest to pay a sales charge on new investments when, in effect, a portion of that new investment is soon withdrawn. The minimum investment accepted while a withdrawal plan is in effect is $1,000. The SWP may be terminated by you or by us at any time by written notice.
RETIREMENT PLANS. The Prospectus indicates the types of retirement plans for which Lord Abbett provides forms and explanations. Lord Abbett makes available the retirement plan forms 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. A Financial Intermediary may charge transaction fees on the purchase and/or sale of Fund shares. 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 the Fund's or Lord Abbett Distributor's behalf. 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.
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.
9.
TAXATION OF THE FUND
Each 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"). Because each Fund is treated as a separate entity for federal income tax purposes, the status of each Fund as a regulated investment company is determined separately by the Internal Revenue Service. If a Fund so qualifies, 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. Each Fund intends to distribute to its shareholders each year an amount adequate to avoid the imposition of this excise tax.
Each Fund intends to declare and pay as dividends each year substantially all of its net investment income. Dividends paid by a Fund from its ordinary income or net realized short-term capital gains are taxable to you as ordinary income. Dividends paid by a 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 a 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 a 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 a 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 a 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. Each 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% for capital assets held for more than one year. Capital gains or losses recognized by corporate shareholders are subject to tax at the ordinary income tax rates applicable to corporations.
Certain investment practices that a 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 a Fund. Such transactions may in turn affect the amount and character of Fund distributions to you.
A 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 a 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. Generally, you will be subject to backup withholding if a 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 a 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 a Fund's income be derived from federal obligations before such dividends may be excluded from state taxable income. A Fund may invest some or all of its assets in such federal obligations. Each 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 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 exclusive underwriter for the Funds. The Trust 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 each 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.
For the last three fiscal years, Lord Abbett Distributor, as the Funds' 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 NOVEMBER 30, 2001
----------------------------
CORE FIXED TOTAL
INCOME FUND RETURN FUND
----------- -----------
Gross sales charge $37,903 $279,803
Amount allowed to dealers $33,158 $233,291
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Net commissions
received by Lord Abbett Distributor $ 4,745 $ 46,512
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11.
PERFORMANCE
Each 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 the Fund
shares at the end of the measurement period. Each Fund equate 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 the 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 from the initial amount invested and reinvestment of all
distributions (i) without the effect of taxes, (ii) less taxes due on such
distributions, and (iii) less taxes due on such Fund distributions and
redemption of the 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 Funds
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 4.75% (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 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 November 30, 2001, for each Fund, for one-year and 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 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 Funds. 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. A Fund's past performance, before and after taxes, is not
necessarily an indication of how the Fund will perform in the future.
1 YEAR LIFE OF FUND (8/31/00)
------ ----------------------
Class A shares
Before Taxes 7.33% 8.64%
Class A shares after
Taxes on Distributions 2.11% 4.40%
Class A shares after Taxes on
Distributions and Sale of
Fund shares 4.21% 4.75%
Class B shares 7.61% 9.81%
Class C shares 11.43% 12.81%
Class P shares 12.84% 13.15%
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1 YEAR LIFE OF FUND (8/31/00)
------ ----------------------
Class A shares
Before Taxes 7.43% 8.53%
Class A shares after
Taxes on Distributions 2.68% 4.67%
Class A shares after Taxes on
Distributions and Sale of
Fund shares 4.30% 4.85%
Class B shares 7.82% 9.80%
Class C shares 11.67% 12.80%
Class P shares 12.93% 12.91%
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Yield quotation for each Class is based on a 30-day period ended on a specified date, computed by dividing the net investment income per share earned during the period by the maximum offering price per share of such class on the last day of the period. This is determined by finding the following quotient: the dividends, and interest earned by a class during the period minus the aggregate expenses attributable to the class accrued during the period (net of reimbursements) and divided by the product of (i) the average daily number of class shares outstanding during the period that were entitled to receive dividends and (ii) the maximum offering price per share of such class on the last day of the period. To this quotient add one, and then increase the sum to the sixth power. Then subtract one from the product of this multiplication and multiply the remainder by two. Yield for the Class A shares reflects the deduction of the maximum initial sales charge, but may also be shown based on the Class A net asset value per share. Yields for Class B and C shares do not reflect the deduction of the CDSC. For the 30-day period ended November 30, 2001 the yield for the Class A, Class B, Class C and Class P shares of the Core Fixed Income Fund was 5.48%, 5.20%, 5.28%, and 5.44%, respectively. For the 30-day period ended November 30, 2001 the yield for the Class A, Class B, Class C and Class P shares of Total Return Fund was 4.80%, 4.64%, 4.68%, and 4.74%, respectively.
These figures represent past performance, and an investor should be aware that the investment return and principal value of a Fund investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Therefore, there is no assurance that this performance will be repeated in the future.
Each 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. Each Fund may also from time to time quote distribution rates in reports to shareholders and in sales literature. In addition, each 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 investments for which reliable performance information is available.
12.
FINANCIAL STATEMENTS
The financial statement incorporated herein by reference from Lord Abbett Investment Trust - Lord Abbett Core Fixed Income Fund's and Lord Abbett Total Return Fund's 2001 Annual Reports to Shareholders have been audited by Deloitte & Touche LLP, independent auditors, as stated in its reports, which are incorporated herein by reference, and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
[LORD ABBETT LOGO]
Lord Abbett
Core Fixed Income Fund
Total Return Fund
April 1, 2002 PROSPECTUS CLASS Y SHARES
As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Class Y shares of each Fund are neither offered to the general public nor available in all states. Please call 800-821-5129 for further information.
TABLE OF CONTENTS
Information about investment strategies, risks, performance, fees and expenses
PAGE
THE FUNDS
Goal 2
Principal Strategy 2
Main Risks 2
Core Fixed Income Fund 3
Total Return Fund 5
Additional Investment Information 7
Management 9
YOUR INVESTMENT
Information for managing your Fund account
Purchases 10
Redemptions 11
Distributions and Taxes 12
Services For Fund Investors 12
FINANCIAL INFORMATION
Financial highlights
Core Fixed Income Fund 13
Total Return Fund 14
ADDITIONAL INFORMATION
How to learn more about the Funds and
other Lord Abbett Funds
Back Cover
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Core Fixed Income Fund Total Return Fund
THE FUNDS
GOAL
The investment objective of each Fund is to seek income and capital appreciation to produce a high total return.
PRINCIPAL STRATEGY
Under normal circumstances, the Core Fixed Income Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in fixed income securities of various types. The Fund will provide shareholders with at least 60 days notice of any change in this policy. The Core Fixed Income Fund invests primarily in U.S. Government, mortgage-related, and investment grade debt securities, including those issued by non-U.S. entities but denominated in U.S. dollars (known as "Yankees"). The Total Return Fund invests primarily in those securities, as well as in high yield debt securities (sometimes called "lower-rated bonds" or "junk bonds") and securities issued by non-U.S. entities and denominated in currencies other than the U.S. dollar. Investments in high yield debt and non-U.S. debt denominated in foreign currencies are each limited to 20% of the Total Return Fund's net assets.
Both Funds attempt to manage, but cannot eliminate, interest rate risk through their management of the average duration of the securities they hold. Duration is a mathematical concept that measures a portfolio's exposure to interest rate changes. Each Fund expects to maintain its average duration range within two years of the bond market's duration as measured by the Lehman Aggregate Bond Index (currently approximately 5 years). The higher a Fund's duration, the more sensitive it is to interest rate risk.
MAIN RISKS
These Funds are subject to the general risks and considerations associated with investing in debt securities. The value of an investment in each Fund will change as interest rates fluctuate in response to market movements. When interest rates rise, the prices of debt securities are likely to decline, and when interest rates fall, the prices of debt securities tend to rise.
The mortgage- and asset-backed securities in which each Fund may invest may be particularly sensitive to changes in prevailing interest rates. Like other debt securities, when interest rates rise, the value of mortgage- and other asset-backed securities generally will decline; however, when interest rates are declining, the value of mortgage-related securities with prepayment features may not increase as much as other fixed income securities. Early repayment of principal on some mortgage-related securities may deprive the Funds of income payments above current market rates. The rate of prepayments on underlying mortgages also will affect the price and volatility of a mortgage-related security. The value of some mortgage-related and other asset-backed securities may fluctuate in response to the market's perception of the creditworthiness of the issuers. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.
The lower-rated bonds in which the Total Return Fund may invest involve greater risks than higher rated bonds. First, there is a greater risk that the bond's issuer will not make payments of interest and principal payments when due. Some issuers may default as to principal and/or interest payments after the Fund purchases their securities. Second, the market for high yield bonds generally is less liquid than the market for higher-rated securities. Third, during periods of uncertainty or market turmoil, prices of high yield bonds generally decline. These risks may result in losses to the Fund.
The Funds' investments in foreign securities may present increased market, liquidity, currency, political, information, and other risks.
An investment in the Funds is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Each Fund is not a complete investment program and may not be
appropriate for all investors. You could lose money by investing in either Fund.
[SIDENOTE]
WE OR THE FUND refers to Lord Abbett Core Fixed Income Fund ("Core Fixed Income Fund") or Lord Abbett Total Return Fund ("Total Return Fund"), each a series of Lord Abbett Investment Trust (the "Trust").
ABOUT EACH FUND. Each Fund is a professionally managed portfolio primarily holding securities purchased with the pooled money of investors. The Funds strive to reach their stated goals; although, as with all mutual funds, they cannot guarantee results.
INVESTMENT GRADE DEBT SECURITIES are debt securities that are rated within the four highest grades assigned by Moody's Investor Service, Inc. (Aaa, Aa, A, Baa), Standard & Poor's Ratings Services (AAA, AA, A, BBB) or Fitch Investors Service (AAA, AA, A, BBB), (each a "Rating Agency") or are unrated but determined by Lord Abbett to be of comparable quality.
HIGH-YIELD DEBT SECURITIES (sometimes called "lower rated bonds" or "junk bonds") are rated BB/Ba or lower and typically pay a higher yield than investment-grade debt securities. High-yield securities have a higher risk of default than investment-grade debt securities, and their prices are much more volatile. The market for high-yield debt securities may also be less liquid.
2|The Funds
Core Fixed Income Fund
PERFORMANCE
The bar chart and table below provide some indication of the risks of investing in the Fund by illustrating the variability of the Fund's returns. Each assumes reinvestment of dividends and distributions. The Fund's past performance, 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.
99 0.2% 00 13.0% 01 9.5% |
BEST QUARTER 3rd Q '01 +5.0% WORST QUARTER 2nd Q '99 -0.9% ----------------------------------------------- |
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.
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.
SHARE CLASS 1 YEAR LIFE OF FUND(1) Class Y shares Return Before Taxes 9.47% 7.85% ------------------------------------------------------------------------------------------- Return After Taxes on Distributions 6.11% 4.99% ------------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares 5.79% 4.87% ------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index(2) (reflects no deduction for fees, expenses or taxes) 8.44% 6.91%(3) ------------------------------------------------------------------------------------------- |
(1) The Class Y shares were first offered on 3/16/98.
(2) The performance of the index is not necessarily representative of the Fund's
performance.
(3) Represents total returns for the period 3/31/98 to 12/31/01, to correspond
with Class Y inception date.
The Funds|3
Core Fixed Income Fund
FEES AND EXPENSES
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") 0.50%
--------------------------------------------------------------------
Other Expenses 0.65%
--------------------------------------------------------------------
Total Operating Expenses(1) 1.15%
--------------------------------------------------------------------
|
(1) Total operating expenses have been restated from fiscal year amounts to reflect an estimate of current fees.
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This example, like that in other funds' prospectuses, assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ----------- ------ ------- ------- -------- Class Y shares $ 117 $ 365 $ 633 $ 1,398 -------------------------------------------------------------------- |
[SIDENOTE]
MANAGEMENT FEES are payable to Lord, Abbett & Co. ("Lord Abbett") for the Fund's
investment management.
LORD ABBETT IS CURRENTLY WAIVING ITS MANAGEMENT FEES AND SUBSIDIZING THE OTHER EXPENSES TO THE EXTENT NECESSARY TO MAINTAIN ITS "OTHER EXPENSES" AT AN AGGREGATE OF 0.30% OF ITS AVERAGE DAILY NET ASSETS. LORD ABBETT MAY STOP WAIVING THE MANAGEMENT FEES AND SUBSIDIZING THE OTHER EXPENSES AT ANY TIME.
OTHER EXPENSES include fees paid for miscellaneous items such as shareholder service fees and professional fees.
4|The Funds
Total Return Fund
PERFORMANCE
The bar chart and table below provide some indication of the risks of investing in the Fund by illustrating the variability of the Fund's returns. Each assumes reinvestment of dividends and distributions. The Fund's past performance, 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.
99 0.7% 00 13.0% 01 9.5% |
BEST QUARTER 3rd Q '01 +4.8% WORST QUARTER 2nd Q '99 -0.8% -------------------------------------------------------------------- |
The table below shows how the average annual total returns of the Fund's Class Y shares compare to those of broad-based securities market indices.
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.
SHARE CLASS 1 YEAR LIFE OF FUND(1) Class Y shares Return Before Taxes 9.51% 7.63% -------------------------------------------------------------------------------------------- Return After Taxes on Distributions 6.93% 4.94% -------------------------------------------------------------------------------------------- Return After Taxes on Distributions and Sale of Fund Shares 5.76% 4.76% -------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index(2) (reflects no deduction for fees, expenses or taxes) 8.44% 6.28%(3) -------------------------------------------------------------------------------------------- Lehman Brothers U.S. Universal Index(2) (reflects no deduction for fees, expenses or taxes) 8.09% 6.26%(3) -------------------------------------------------------------------------------------------- |
(1) The date of inception of Class Y shares is 12/14/98.
(2) The performance of the unmanaged indices is not necessarily representative
of the Fund's performance.
(3) Represents total returns for the period 12/31/98 to 12/31/01, to correspond
with Class Y inception date.
The Funds|5
Total Return Fund
FEES AND EXPENSES
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") 0.50%
-----------------------------------------------------------------------------
Other Expenses 0.28%
-----------------------------------------------------------------------------
Total Operating Expenses(1) 0.78%
-----------------------------------------------------------------------------
|
(1) Total operating expenses have been restated from fiscal year amounts to reflect an estimate of current fees.
SHARE CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ----------- ------ ------- ------- -------- Class Y shares $ 80 $ 249 $ 433 $ 966 -------------------------------------------------------------------------------------- |
[SIDENOTE]
MANAGEMENT FEES are payable to Lord Abbett for the Fund's investment management.
LORD ABBETT IS CURRENTLY WAIVING THE MANAGEMENT FEES. ACCORDINGLY, THE EXPENSE RATIO OF THE FUND IS ESTIMATED AT 0.28%. LORD ABBETT MAY STOP WAIVING THE MANAGEMENT FEES AT ANY TIME.
OTHER EXPENSES include fees paid for miscellaneous items such as shareholder service fees and professional fees.
6|The Funds
ADDITIONAL INVESTMENT INFORMATION
This section describes some of the investment techniques used by each Fund and some of the risks associated with those techniques.
ADJUSTING INVESTMENT EXPOSURE. Each Fund will be subject to the risks associated with investments. Each 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, a Fund may seek to hedge against certain market risks. These strategies may involve, with board approval, 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 a 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.
FOREIGN CURRENCY TRANSACTIONS. The Total Return Fund may use currency forwards and options to hedge the risk to the portfolio that foreign exchange price movements will be unfavorable for U.S. investors. Generally, these instruments allow the Total Return Fund to lock in a specified exchange rate for a period of time. They may also be used to increase the Total Return Fund's exposure to foreign currencies that Lord Abbett believes may rise in value relative to the U.S. dollar or to shift the Fund's exposure to foreign currency fluctuations from one country to another. If price movements are favorable to U.S. investors such transactions may cause a loss. Also, it may be difficult or impractical to hedge currency risk in many emerging countries. The Total Return Fund generally will not enter into a forward contract with a term greater than one year. Under some circumstances, the Total Return Fund may commit a substantial portion or the entire value of its portfolio to the completion of forward contracts. Although such contracts will be used primarily to attempt to protect the Total Return Fund from adverse currency movements, their use involves the risk Lord Abbett will not accurately predict currency movements, and the Fund's return could be reduced as a result.
FOREIGN SECURITIES. Each Fund may invest in securities that are issued by non-U.S. entities and the Total Return Fund may invest up to 20% of its net assets in such securities denominated in currencies other than the U.S. dollar. Foreign securities may pose greater risks than domestic securities. Foreign markets and the securities traded in them may not be subject to the same degree of regulation as U.S. markets. As a result, there may be less information publicly available about foreign companies than most U.S. companies. Securities clearance, settlement procedures and trading practices may be different, and transaction costs may be higher in foreign countries. There may be less trading volume and liquidity in foreign markets, subjecting the securities traded in them to greater price fluctuations. Foreign investments also may be affected by changes in currency rates or currency controls.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Each Fund may enter into financial futures contracts and options thereon for bonafide hedging purposes or to pursue risk management strategies. These transactions involve the purchase or sale of a contract to buy or sell a specified security or other financial instrument at a specific future date and price on an exchange or in the over the counter market ("OTC"). The Fund may not purchase or sell futures contracts or options on futures contracts on a CFTC regulated exchange for non-bonafide hedging purposes if the aggregated initial margin
The Funds|7
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.
LISTED OPTIONS ON SECURITIES. Each Fund may purchase and write national securities exchange-listed put and call options on securities or securities indices. The Funds 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 Funds may write covered call options with respect to securities in their portfolios 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 Funds 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. Each 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. Each Fund may only sell (write) covered put options to the extent that cover for such options does not exceed 15% of its net assets. Each Fund may only sell (write) covered call options having an aggregate market value of less than 25% of its net assets.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. Each Fund may invest extensively in mortgage-related securities and also may invest in other asset-backed securities. Mortgage-related securities include mortgage pass-through securities, collateralized mortgage obligations ("CMOs"), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities ("SMBSs") and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or "IO" class), while the other class will receive all of the principal (the principal-only, or "PO" class). The value of an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage assets, and a rapid rate of principal payments may cause the Funds to lose money.
PORTFOLIO TURNOVER. Each Fund may engage in active and frequent trading of its portfolio securities to achieve its principal investment strategies and can be expected to have a portfolio turnover rate substantially in excess of 100%. For the fiscal year ended November 30, 2001, the portfolio turnover rates for Core Fixed Income Fund and Total Return Fund were 641.36% and 720.60%, respectively. These rates vary from year to year. High turnover increases transaction costs and may increase taxable capital gains.
RISKS OF OPTIONS AND FUTURES. Fund transactions, if any, in futures, options on futures and other options 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 Funds' 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.
8|The Funds
TEMPORARY DEFENSIVE INVESTMENTS. At times each 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 these securities. These investments could reduce the benefit from any upswing in the market and prevent a Fund from achieving its investment objective.
MANAGEMENT
The Funds' investment adviser is Lord, Abbett & Co., which is located at 90 Hudson St., Jersey City, NJ 07302-3973. Founded in 1929, Lord Abbett manages one of the nation's oldest mutual fund complexes, with approximately $43 billion in more than 40 mutual fund portfolios and other advisory accounts. For more information about the services Lord Abbett provides to the Funds, see the Statement of Additional Information.
Each Fund pays Lord Abbett a monthly fee based on average daily net assets for each month at an annual rate of .50 of 1%. For the fiscal year ended November 30, 2001, Lord Abbett waived its management fee for Core Fixed Income Fund and Total Return Fund. In addition, each Fund pays all expenses not expressly assumed by Lord Abbett.
INVESTMENT MANAGERS. Lord Abbett uses a team of investment managers and analysts acting together to manage each Fund's investments. Robert I. Gerber, Partner and Director of Taxable Fixed Income Management, heads the team, the other senior members of the team include Walter H. Prahl and Robert A. Lee. Mr. Gerber joined Lord Abbett in July 1997 from Sanford C. Bernstein & Co., Inc. where he was a Shareholder and served as the Senior Portfolio Manager - Mortgage Group. Mr. Gerber has been in the investment business since 1987. Mr. Prahl joined Lord Abbett in 1997 as Director of Quantitative Research, Taxable Fixed Income. Before joining Lord Abbett, Mr. Prahl served as a Fixed Income Research Analyst at Sanford C. Bernstein & Co., Inc. Mr. Lee joined Lord Abbett in 1997 as a Fixed Income Investment Manager. Before joining Lord Abbett he served as a Portfolio Manager at ARM Capital Advisors.
The Funds|9
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 your order submitted in proper form. No sales charges apply.
We reserve the right to withdraw all or part of the offering made by this prospectus, or to reject any purchase order. We also reserve the right to waive or change minimum investment requirements. All purchase orders are subject to our acceptance and are not binding until confirmed or accepted in writing.
WHO MAY INVEST? 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
Funds and /or LORD ABBETT DISTRIBUTOR 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; (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
securities business. Additional payments may be made by Lord Abbett out of
its own resources with respect to certain of these sales.
HOW MUCH MUST YOU INVEST? You may buy our shares through any independent securities dealer having a sales agreement with Lord Abbett Distributor, our exclusive selling agent. Place your order with your investment dealer or send the money to the Fund you selected (P.O. Box 219100, Kansas City, Missouri 64121). The minimum initial investment is $1 million except 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 name. To add to an existing
account, wire to: UMB, N.A., Kansas City, routing number - 101000695,
[SIDENOTE]
NAV per share for a 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.
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.
10|Your Investment
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 directions on how to redeem your shares.
BY TELEPHONE. To obtain the proceeds of a redemption of $50,000 or less from your account, you or your representative can call the Fund at 800-821-5129.
BY MAIL. Submit a written redemption request indicating the name(s) in which the account is registered, the Fund's name, the class of shares, your account number, and the dollar value or number of shares you wish to 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 the 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.
[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]
[SEAL]
/s/ [ILLEGIBLE] ---------------------- - In the case of a corporation ABC Corporation |
Mary B. Doe
By Mary B. Doe, President
[Date]
[SEAL]
/s/ [ILLEGIBLE]
----------------------
11|Your Investment
|
DISTRIBUTIONS AND TAXES
Each Fund expects to declare dividends from its net investment income daily and pay you dividends from its net investment income monthly. Each Fund distributes 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 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 such 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 each 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. Shareholders with the same last name and address will receive a single copy of a prospectus and an annual or semi-annual report, unless additional reports are specifically requested in writing to the Fund.
ACCOUNT CHANGES. For any changes you need to make to your account, consult your investment professional or call the Fund at 800-821-5129.
SYSTEMATIC EXCHANGE. You or your investment professional can establish a
schedule of exchanges between the same classes of any Eligible Fund.
[SIDENOTE]
EXCHANGE LIMITATIONS. Exchanges should not be used to try to take advantage of
short-term swings in the market. Frequent exchanges and similar trading
practices can disrupt management of the Fund and raise expenses. Accordingly,
the Fund reserves the right to limit or terminate this privilege for any
shareholder making frequent exchanges or abusing the privilege. The Fund also
may revoke the privilege for all shareholders upon 60 days' written notice. In
addition, as stated under "Purchases," the Fund reserves the right to reject any
purchase order, including any 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.
12|Your Investment
Core Fixed Income 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 2001 Annual Report to Shareholders and are incorporated by reference into the Statement of Additional Information, which is available upon request. Certain information reflects financial results for a single fund share.
-------------------------------------------------------------------------------------------------------------------------------
CLASS Y SHARES
-------------------------------------------------------------------
YEAR ENDED 11/30 12/10/1997(a)
---------------------------------------------- to
Per Share Operating Performance: 2001 2000 1999 11/30/1998
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.90 $ 10.54 $ 10.97 $ 10.00
-------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
-------------------------------------------------------------------------------------------------------------------------------
Net investment income .66(b) .71(b) .69 .62
-------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .61 .29 (.59) .35
-------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.27 1.00 .10 .97
-------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
-------------------------------------------------------------------------------------------------------------------------------
Net investment income (1.37) (.64) (.41) -
-------------------------------------------------------------------------------------------------------------------------------
Net realized gains - - (.12) -
-------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.37) (0.64) (.53) -
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.80 $ 10.90 $ 10.54 $ 10.97
-------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(c) 12.65% 10.06% 1.08% 9.70%(d)
-------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------------------------------------------------------------------------------------------
Expenses, including waiver and expense reductions .00% .00% .00% .00%(d)
-------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding waiver and expense reductions 1.76% .67% .63% .75%(d)
-------------------------------------------------------------------------------------------------------------------------------
Net investment income 6.22% 6.88% 6.62% 5.98%(d)
-------------------------------------------------------------------------------------------------------------------------------
|
YEAR ENDED 11/30 12/10/1997(a)
-------------------------------------------- to
SUPPLEMENTAL DATA: 2001 2000 1999 11/30/1998
NET ASSETS, END OF PERIOD (000) $ 6,409 $ 6,557 $ 8,713 $ 4,694
-------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 641.36% 595.00% 412.77% 411.03%
-------------------------------------------------------------------------------------------------------------------------------
|
(a) Commencement of investment operations.
(b) Calculated using average shares outstanding during the period.
(c) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(d) Not annualized.
Financial Information|13
Total Return Fund
FINANCIAL HIGHLIGHTS
This table describes the Fund's Class Y performance for the fiscal period indicated. "Total return" shows how much your investment in the Fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These Financial Highlights have been audited by Deloitte & Touche LLP, the Fund's independent auditors, in conjunction with their annual audits of the Fund's financial statements. Financial statements and the Independent Auditors' Report thereon appear in the 2001 Annual Report to Shareholders and are incorporated by reference into the Statement of Additional Information, which is available upon request. Certain information reflects financial results for a single fund share.
-------------------------------------------------------------------------------------------------------------------------------
CLASS Y SHARES
-----------------------------------------------
YEAR ENDED 11/30 12/14/1998(a)
--------------------------- to
Per Share Operating Performance 2001 2000 11/30/1999
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.43 $ 10.13 $ 10.00
-------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
-------------------------------------------------------------------------------------------------------------------------------
Net investment income .59(b) .69(b) .62
-------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .66 .27 (.49)
-------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.25 .96 .13
-------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (1.21) (.66) -
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.47 $ 10.43 $ 10.13
-------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(c) 12.82% 10.14% 1.30%(d)
-------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------------------------------------------------------------------------------------------
Expenses, including waiver and expense reductions .00% .00% .00%(d)
-------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding waiver and expense reductions .97% 1.20% .89%(d)
-------------------------------------------------------------------------------------------------------------------------------
Net investment income 5.76% 6.96% 6.23%(d)
-------------------------------------------------------------------------------------------------------------------------------
|
YEAR ENDED 11/30 12/14/1998(a)
--------------------------- to
SUPPLEMENTAL DATA: 2001 2000 11/30/1999
NET ASSETS, END OF PERIOD (000) $ 12,988 $ 2,231 $ 2,103
-------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 720.60% 562.50% 415.82%
-------------------------------------------------------------------------------------------------------------------------------
|
(a) Commencement of investment operations.
(b) Calculated using average shares outstanding during the period.
(c) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(d) Not annualized.
14|Financial Information
ADDITIONAL INFORMATION
More information on each Fund is or will be available free upon request, including the following:
ANNUAL/SEMI-ANNUAL REPORT
Describes the Funds, lists portfolio holdings, contains a letter from each Fund's manager discussing recent market conditions, each Fund's investment strategies and contains additional performance information.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
Provides more details about the Funds and their policies. A current SAI is on file with the Securities and Exchange Commission ("SEC") and is incorporated by reference (is legally considered part of this prospectus).
Lord Abbett Investment Trust -
Lord Abbett Core Fixed Income Fund LACORE-Y-1 Lord Abbett Total Return Fund (4/02)
SEC FILE NUMBERS: 811-7988
[SIDENOTE]
TO OBTAIN INFORMATION:
BY TELEPHONE. Call the Funds at 888-522-2388
BY MAIL. Write to each Fund at:
The Lord Abbett Family of Funds
90 Hudson Street
Jersey City, NJ 07302-3973
VIA THE INTERNET.LORD, ABBETT & CO.
www.LordAbbett.com
Text only versions of Fund documents can be viewed online or downloaded from the SEC:www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in Washington, DC (phone 202-942-8090) or by sending your request and a duplicating fee to the SEC's Public Reference Section, Washington, DC 20549-6009 or by sending your request electronically to publicinfo@sec.gov.
[LORD ABBETT LOGO]
Lord Abbett Mutual Fund shares are distributed by:
LORD ABBETT DISTRIBUTOR LLC
90 Hudson Street - Jersey City, New
Jersey 07302-3973
LORD ABBETT
STATEMENT OF ADDITIONAL INFORMATION APRIL 1, 2002
LORD ABBETT INVESTMENT TRUST
LORD ABBETT CORE FIXED INCOME FUND
LORD ABBETT TOTAL RETURN FUND
CLASS Y SHARES
This Statement of Additional Information is not a Prospectus. A Prospectus for the Class Y shares may be obtained from your securities dealer or from Lord Abbett Distributor LLC ("Lord Abbett Distributor") at 90 Hudson Street, Jersey City, New Jersey 07302-3973. This Statement of Additional Information relates to, and should be read in conjunction with, the Prospectus dated April 1, 2002.
Shareholder inquiries should be made by directly contacting the Funds or by calling 800-821-5129. The Annual Report to Shareholders is available without charge, upon request by calling that number. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS PAGE
1. Fund History 2
2. Investment Policies 2
3. Management of the Funds 12
4. Control Persons and Principal Holders of Securities 18
5. Investment Advisory and Other Services 18
6. Brokerage Allocations and Other Practices 19
7. Capital Stock & Other Securities 21
8. Purchases, Redemptions & Pricing 21
9. Taxation of the Funds 22
10. Underwriter 24
11. Performance 24
12. Financial Statements 26
1.
FUND HISTORY
Lord Abbett Investment Trust (the "Trust") was organized as a Delaware business trust on August 16, 1993 with an unlimited amount of shares of beneficial interest authorized. The Trust has six funds, two of which are discussed in this Statement of Additional Information: Lord Abbett Core Fixed Income Fund ("Core Fixed Income Fund"), formerly known as Core Fixed Income Series and Lord Abbett Total Return Fund ("Total Return Fund"), formerly known as Strategic Core Fixed Income Series (each a "Fund", collectively "Funds). Each of these Funds changed its name effective April 12, 2001. These Funds are diversified open-end investment management companies registered under the Investment Company Act of 1940, as amended (the "Act"). Each Fund has five classes of shares (A, B, C, P and Y), but only Class Y shares are offered in this Statement of Additional Information.
2.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS. Each Fund is subject to the following fundamental investment restrictions, which cannot be changed without approval of a majority of its outstanding shares.
Each Fund may not:
(1) borrow money, except that (i) each 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) each Fund may borrow up to an additional 5% of its total assets for temporary purposes, (iii) each Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities and (iv) each Fund may purchase securities on margin to the extent permitted by applicable law;
(2) pledge its assets (other than to secure borrowings, or to the extent permitted by the Fund's investment policies as permitted by applicable law);
(3) engage in the underwriting of securities, except pursuant to a merger or acquisition or to the extent that, in connection with the disposition of its portfolio securities, it may be deemed to be an underwriter under federal securities laws;
(4) make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in government obligations, commercial paper, pass-through instruments, certificates of deposit, bankers acceptances, repurchase agreements or any similar instruments shall not be subject to this limitation, and except further that each Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law;
(5) buy or sell real estate (except that each Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies which invest in real estate or interests therein) or commodities or commodity contracts (except to the extent each Fund may do so in accordance with applicable law and without registering as a commodity pool operator under the Commodity Exchange Act as, for example, with futures contracts);
(6) with respect to 75% of the gross assets of each Fund, buy securities of one issuer representing more than (i) 5% of each Fund's gross assets, except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities or (ii) 10% of the voting securities of such issuer;
(7) invest more than 25% of its assets, taken at market value, in the securities of issuers in any particular industry (excluding (i) securities of the U.S. Government, its agencies and instrumentalities and (ii) mortgage-backed securities); and
(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 purchase or sale of the security.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. In addition to the policies in the Prospectus and the investment restrictions above which cannot be changed without shareholder approval, each Fund is also subject to the following non-fundamental investment policies which may be changed by the Board of Trustees without shareholder approval.
Each Fund may not:
(1) borrow in excess of 5% of its gross assets taken at cost or market value, whichever is lower at the time of borrowing, and then only as a temporary measure for extraordinary or emergency purposes;
(2) make short sales of securities or maintain a short position except to the extent permitted by applicable law;
(3) invest knowingly more than 15% of its net assets (at the time of investment) in illiquid securities, except for securities qualifying for resale under Rule 144A of the Act, deemed to be liquid by the Board of Trustees;
(4) invest in the securities of other investment companies except as permitted by applicable law (each Fund may not, however rely on Sections 12(d)(1)(F) and 12(d)(1)(G) of the Act);
(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 trustees 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 each 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 statement of additional information, as they may be amended from time to time; or
(9) buy from or sell to any of its officers, trustees, employees, or its investment adviser or any of its officers, trustees, partners or employees, any securities other than shares of beneficial interest in such Fund.
PORTFOLIO TURNOVER RATE. For the fiscal years ended November 30, 2001 and 2000, the portfolio turnover rates were 641.36% and 595% for Core Fixed Income Fund and 720.6% and 562.5% for Total Return Fund, respectively.
ADDITIONAL INFORMATION ON PORTFOLIO RISKS, INVESTMENTS AND TECHNIQUES. The following sections provide information on certain types of investments and investment techniques that may be used by the Funds, including their associated risks.
AVERAGE DURATION. Each Fund will maintain a duration within two years of the bond market's duration as measured by the Lehman Aggregate Bond Index. Currently this index has a duration of approximately five years.
Some of the securities in each Fund's portfolio may have periodic interest rate adjustments based upon an index such as the 91-day Treasury Bill rate. This periodic interest rate adjustment tends to lessen the volatility of the security's price. With respect to securities with an interest rate adjustment period of one year or less, the Funds will, when determining average-weighted duration, treat such a security's maturity as the amount of time remaining until the next interest rate adjustment.
Instruments such as GNMA, FNMA, FHLMC securities, and similar securities backed by amortizing loans generally have shorter effective maturities than their stated maturities. This is due to changes in amortization caused by demographic and economic forces such as interest rate movements. These effective maturities are calculated based upon historical payment patterns and therefore have shorter duration than would be implied by their stated final maturity. For purposes of determining each Fund's average maturity, the maturities of such securities will be calculated based upon the issuing agency's payment factors using industry-accepted valuation models.
BORROWING MONEY. Each Fund may borrow money for temporary or emergency purposes from banks and other financial institutions in amounts not exceeding one-third of their total assets. If a Fund borrows money and experiences a decline in its net asset value, the borrowing could increase its losses.
FOREIGN CURRENCY OPTIONS. The Total Return Fund may take positions in options on foreign currencies to hedge against the risk that foreign exchange rate fluctuations will affect the value of foreign securities the Fund holds in its portfolio or intends to purchase. For example, if the Total Return Fund were to enter into a contract to purchase securities denominated in a foreign currency, it could effectively fix the maximum U.S. dollar cost of the securities by purchasing call options on that foreign currency. Similarly, if the Total Return Fund held securities denominated in a foreign currency and anticipated a decline in the value of that currency against the U.S. dollar, it could hedge against such a decline by purchasing a put option on the currency involved. The markets in foreign currency options are relatively new, and the Total Return Fund's ability to establish and close out positions in such options is subject to the maintenance of a liquid secondary market. There can be no assurance that a liquid secondary market will exist for a particular option at any specific time. In addition, options on foreign currencies are affected by all of those factors that influence foreign exchange rates and investments generally.
Transaction costs may be higher because the quantities of currencies underlying option contracts that the Firm enters represent odd lots in a market dominated by transactions between banks.
There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations be firm or revised on a timely basis. Quotation information is generally representative of very large transactions in the interbank market and may not reflect smaller transactions where rates may be less favorable. Option markets may be closed while round-the-clock interbank currency markets are open, and this can create price and rate discrepancies.
The Total Return Fund may effectively terminate its rights or obligations under options by entering into closing transactions. Closing transactions permit the Total Return Fund to realize profits or limit losses on its options positions prior to the exercise or expiration of the option. The value of a foreign currency option depends on the value of the underlying currency relative to the U.S. dollar. Other factors affecting the value of an option are the time remaining until expiration, the relationship of the exercise price to market price, the historical price volatility of the underlying currency and general market conditions. As a result, changes in the value of an option position may have no relationship to the investment merit the foreign currency. Whether a profit or loss is realized on a closing transaction depends on the price movement of the underlying currency and the market value of the option.
Options normally have expiration dates of up to nine months. The exercise price may be below, equal to or above the
current market value of the underlying currency. Options that expire unexercised have no value, and the Total Return Fund will realize a loss of any premium paid and any transaction costs. Closing transactions may be effected only by negotiating directly with the other party to the option contract, unless a secondary market for the options develops. Although the Total Return Fund intends to enter into foreign currency options only with dealers which agree to enter into, and which are expected to be capable of entering into, closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate an option at a favorable price at any time prior to expiration. In the event of insolvency of the counter-party, the Total Return Fund may be unable to liquidate a foreign currency option. Accordingly, it may not be possible to effect closing transactions with respect to certain options, with the result that the Total Return Fund would have to exercise those options that it had purchased in order to realize any profit.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Total Return Fund may use forward contracts to protect against uncertainty in the level of future exchange rates. The Total Return Fund will not speculate with forward contracts or foreign currency exchange rates.
The Total Return Fund may enter into forward contracts with respect to specific transactions. For example, when the Total Return Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when the Fund anticipates the receipt in a foreign currency of dividend or interest payments on a security that it holds, the Fund may desire to "lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of the payment, by entering into a forward contract for the purchase or sale, for a fixed amount of U.S. dollars or foreign currency, of the amount of foreign currency involved in the underlying transaction. The Total Return Fund will thereby be able to protect itself against a possible loss resulting from an adverse change in the relationship between the currency exchange rates during the period between the date on which the security is purchased or sold, or on which the payment is declared, and the date on which such payments are made or received.
The Total Return Fund also may use forward contracts in connection with existing portfolio positions to lock in the U.S. dollar value of those positions, to increase the Fund's exposure to foreign currencies that the Investment Adviser believes may rise in value relative to the U.S. dollar or to shift the Fund's exposure to foreign currency fluctuations from one country to another. For example, when the Total Return Fund believes that the currency of a particular foreign country may suffer a substantial decline relative to the U.S. dollar or another currency, it may enter into a forward contract to sell the amount of the former foreign currency approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. This investment practice generally is referred to as "cross-hedging" when another foreign currency is used.
The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. Accordingly, it may be necessary for the Total Return Fund to purchase additional foreign currency on the spot (that is, cash) market (and bear the expense of such purchase) if the market value of the security is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Total Return Fund is obligated to deliver. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Forward contracts involve the risk that anticipated currency movements will not be accurately predicted, causing the Total Return Fund to sustain losses on these contracts and transaction costs.
At or before the maturity date of a forward contract that requires the Total Return Fund to sell a currency, the Fund may either sell a portfolio security and use the sale proceeds to make delivery of the currency or retain the security and offset its contractual obligation to deliver the currency by purchasing a second contract pursuant to which the Fund will obtain, on the same maturity date, the same amount of the currency that it is obligated to deliver. Similarly, the Total Return Fund may close out a forward contract requiring it to purchase a specified currency by entering into a second contract entitling it to sell the same amount of the same currency on the maturity date of the first contract. The Total Return Fund would realize a gain or loss as a result of entering into such an offsetting forward contract under either circumstance to the extent the exchange rate between the currencies involved moved between the execution dates of the first and second contracts.
The cost to the Total Return Fund of engaging in forward contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions then prevailing. The use of forward contracts does not eliminate fluctuations in the prices of the underlying securities the Total Return Fund owns or intends to acquire, but it does fix a rate of exchange in advance. In addition, although forward contracts limit the risk of loss due to a decline in the value of the hedged currencies, at the same time they limit any potential gain that might result should the value of the currencies increase.
FOREIGN SECURITIES. As described in the Prospectus, the Funds may invest in foreign securities. 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 Funds do not sell shares. As a result, the value of the Funds' 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 Funds, and political or social instability or diplomatic developments that could affect investments in those countries.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Each Fund may engage in futures and options on futures transactions in accordance with their 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.
Each 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 a 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. Each Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. Futures contracts and options on futures contracts present substantial risks, including the following:
- While the Funds may benefit from the use of futures and related options, unanticipated market events may result in poorer overall performance than if the Funds had not entered into any futures or related options transactions.
- Because perfect correlation between a futures position and a portfolio position that the Funds intend to hedge is impossible to achieve, a hedge may not work as intended, and the Funds may thus be exposed to additional risk of loss.
- The loss that the Funds 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 Funds.
- 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.
HIGH-YIELD DEBT SECURITIES. The Total Return Fund may invest up to 20% of its assets in high-yield debt securities. High-yield debt securities (also referred to as "junk bonds") are rated BB/Ba or lower and typically pay a higher yield, but entail greater risks, than investment grade debt securities. When compared to investment grade debt securities, high-yield debt securities:
- have a higher risk of default and their prices can be much more volatile due to lower liquidity;
- tend to be less sensitive to interest rate changes; and
- pose a greater risk that exercise of any of their redemption or call provisions in a declining market may result in their replacement by lower-yielding bonds.
In addition, while the market for high-yield, corporate debt securities has been in existence for many years, the market in recent years experienced a dramatic increase in the large-scale use of such securities to fund highly-leveraged corporate acquisitions and restructurings. Accordingly, past experience may not provide an accurate indication of future performance of the high-yield bond market, especially during periods of economic recession.
Since the risk of default is higher among high-yield debt securities, Lord Abbett's research and analyses are an important ingredient in the selection of such securities. Through portfolio diversification, good credit analysis and attention to current developments and trends in interest rates and economic conditions, the Total Return Fund seeks to reduce this risk. There can be no assurance, however, that this risk will in fact be reduced and that losses will not occur. The Total Return Fund does not have any minimum rating criteria applicable to the fixed-income securities in which it invests.
INVESTMENT COMPANIES. The Funds may invest in securities of other investment companies subject to limitations prescribed by the Act. 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 Funds indirectly will bear their proportionate share of any management fees and other expenses paid by the investment companies in which they invest. Such investment companies will generally be money market funds or have investment objectives, policies and restrictions substantially similar to those of the investing Fund and will be subject to substantially the same risks.
The Funds may, consistent with their 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 the securities of such an investment company may not perfectly parallel the price movement of the underlying index.
LISTED OPTIONS ON SECURITIES. The Funds 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 Funds may write covered call options that are traded on a national securities exchange with respect to securities in their portfolios in an attempt to increase income and to provide greater flexibility in the disposition of portfolio securities. During the period of the option, the Funds forgo the opportunity to profit from any increase in the market price of the underlying security above the exercise price of the option (to the extent that the increase exceeds its net premium). The Funds may also enter the "closing purchase transactions" in order to terminate its obligation to deliver the underlying security. This may result in a short-term gain or loss. A closing purchase transaction is the purchase of a call option (at a cost which may be more or less than the premium received for writing the original call option) on the same security, with the same exercise price and call period as the option previously written. If a Fund is unable to enter into a closing purchase transaction, they 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 a 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. Each Fund will not purchase an option if, as a result of
such purchase, more than 10% of its net assets would be invested in premiums for
such options. Each Fund may write covered put options to the extent that cover
for such options does not exceed 15% of its net assets. Each 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 Funds 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 correlation between the securities on which options are based and Fund portfolio securities, the Funds may incur losses. The use of options can also increase a Fund's transaction costs.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. Each Fund may invest extensively in mortgage-related securities and also may invest in and other asset-backed securities in connection with public or private offerings, or secondary market transactions. Mortgage-related securities are interests in pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and others. Pools of mortgage loans are assembled as securities for sale to investors by various governmental, government-related and private organizations.
MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of mortgage-related securities differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by individual borrowers on their residential or commercial mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal resulting from the sale of the underlying property, refinancing or foreclosure, net of fees or costs which may be incurred.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION. The principal governmental guarantor of mortgage-related
securities is the "GNMA." GNMA is authorized to guarantee, with the full faith and credit of the United States Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of mortgages insured by the Federal Housing Administration (the "FHA"), or guaranteed by the Department of Veterans Affairs (the "VA").
Government-related guarantors (I.E., not backed by the full faith and credit of the United States Government) include the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). Both are government-sponsored corporations owned entirely by private stockholders. FHLMC issues Participation Certificates ("PCs") which represent interests in conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the United States Government.
Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential mortgage loans. Such issuers may, in addition, be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government or agency guarantees of payments in the former pools. However, timely payment of interest and principal of these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit, which may be issued by governmental entities, private insurers or the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets the Funds' investment quality standards. There can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable.
Mortgage-backed securities that are issued or guaranteed by the U.S. Government, its agencies or instrumentalities, are not subject to Fund industry concentration restrictions by virtue of the exclusion from that test available to all U.S. Government securities. In the case of privately issued mortgage-related securities, the Funds take the position that mortgage-related securities do not represent interests in any particular "industry" or group of industries. The assets underlying such securities may be represented by a portfolio of first lien residential mortgages (including both whole mortgage loans and mortgage participation interests) or portfolios of mortgage pass-through securities issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a mortgage-related security may in turn be insured or guaranteed by the FHA or the VA. In the case of private issue mortgage-related securities whose underlying assets are neither U.S. Government securities nor U.S. Government-insured mortgages, to the extent that real properties securing such assets may be located in the same geographical region, the security may be subject to a greater risk of default than other comparable securities in the event of adverse economic, political or business developments that may affect such region and, ultimately, the ability of residential homeowners to make payments of principal and interest on the underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS AND REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("CMOS"). A CMO is a hybrid between a mortgage-backed bond and a mortgage pass-through security. Similar to a bond, interest and prepaid principal is paid, in most cases, on a monthly basis. CMOs may be collateralized by whole mortgage loans, but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income streams.
CMOs are issued in multiple classes, each bearing a different stated maturity. Payments of principal normally are applied to the CMO classes in the order of their respective stated maturities, so that no principal payments will be made on a CMO class until all other classes having an earlier stated maturity date are paid in full.
COMMERCIAL MORTGAGE-BACKED SECURITIES. Commercial mortgage-backed securities include securities that reflect an interest in, and are secured by, mortgage loans on commercial real property. Many of the risks of investing in commercial mortgage-backed securities reflect the risks of investing in the real estate securing the underlying mortgage loans. These risks reflect the effects of local and other economic conditions on real estate markets, the
ability of tenants to make loan payments, and the ability of a property to attract and retain tenants. Commercial mortgage-backed securities may be less liquid and exhibit greater price volatility than other types of mortgage- or asset-backed securities.
OTHER MORTGAGE-RELATED SECURITIES. Other mortgage-related securities include securities other than those described above that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property, including mortgage dollar rolls, or stripped mortgage-backed securities ("SMBS").
MORTGAGE DOLLAR ROLLS. The Funds may enter into mortgage dollar rolls in which a Fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. During the roll period, the Fund loses the right to receive principal (including prepayments of principal) and interest paid on the securities sold. However, the Fund may benefit from the interest earned on the cash proceeds of the securities sold until the settlement date of the forward purchase. The Fund will hold and maintain in a segregated account until the settlement date cash or liquid securities in an amount equal to the forward purchase price. The benefits derived from the use of mortgage dollar rolls depend upon the Funds' ability to manage mortgage prepayments. There is no assurance that mortgage dollar rolls can be successfully employed. For financial reporting and tax purposes, the Funds treat mortgage dollar rolls as two separate transactions: one involving the purchase of a security and another involving a sale. As a result, the use of mortgage dollar rolls significantly increases the Funds' portfolio turnover.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"). SMBS are derivative multi-class mortgage securities. SMBS may be issued by agencies or instrumentalities of the U.S. Government, or by private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose entities of the foregoing. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. A common type of SMBS will have one class receiving some of the interest and most of the principal from the mortgage assets, while the other class will receive most of the interest and the remainder of the principal. In the most extreme case, one class will receive all of the interest (the "IO" class), while the other class will receive all of the principal (the principal-only or "PO" class). The value of an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may cause the Funds to lose money. The value of a PO class generally increases as interest rates decline and prepayment rates rise. The price of these securities is typically more volatile than that of coupon bearing bonds of the same maturity.
OTHER ASSET-BACKED SECURITIES. The Funds may invest in asset-backed securities (unrelated to mortgage loans). Asset-backed securities are securities whose principal and interest payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. In addition to prepayment risks, these securities present credit risks that are not inherent in mortgage-related securities.
REPURCHASE AGREEMENTS. The Funds 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. In this type of transaction, the securities purchased by the Fund have a total value in excess of the value of the repurchase agreement. The Funds requires at all times that the repurchase agreement be collateralized by cash or U.S. Government securities having a value equal to, or in excess of, the value of the repurchase agreement. Such agreements permit the Funds to keep all 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 Funds may incur a loss upon disposition of them. If the seller of the agreement becomes insolvent and subject to liquidation or reorganization under the Bankruptcy Code or other laws, a bankruptcy court may determine that the underlying securities are collateral not within the control of the Funds and are therefore subject to sale by the trustee in bankruptcy. Even though the repurchase agreements may have maturities of seven days or less, they may lack liquidity, especially if the issuer encounters financial difficulties. The Funds intends to limit repurchase agreements
to transactions with dealers and financial institutions believed by Fund management to present minimal credit risks. The Funds will monitor the creditworthiness of the repurchase agreement sellers on an ongoing basis.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase agreements. In a reverse repurchase agreement, a 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. Each Fund will attempt to minimize this risk by managing its duration. A Fund's reverse repurchase agreements will not exceed 20% of the Fund's net assets.
SECURITIES LENDING. The Funds may lend portfolio securities to registered broker-dealers. These loans may not exceed 30% of each 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 the market value of the loaned securities. The Funds 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 Funds and is acting as a "placing broker." No fee will be paid to persons affiliated with the Funds.
By lending portfolio securities, the Funds 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 of non-cash collateral are received. Lending portfolio securities could result in a loss or delay in recovering a Fund's securities if the borrower defaults.
SHORT SALES. Each Fund may make short sales of securities or maintain a short position, if at all times when a short position is opened a 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. Each 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, each 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 which 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 a portfolio 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. Each 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 which could result in
depreciation of 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. Each 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.
3.
MANAGEMENT OF THE FUNDS
The Trust's Board of Trustees is responsible for the management of the business and affairs of the Funds in accordance with the laws of the State of Delaware. The Board appoints officers who are responsible for the day-to-day operations of each Fund and who execute policies authorized by the Board. As discussed fully below, the Board also initially approves an investment adviser to each Fund and continues to monitor the cost and quality of the services provided by the investment adviser.
The following Trustee is the Managing Partner of Lord, Abbett & Co. ("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 43 portfolios or series.
CURRENT POSITION
NAME AND LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER
(DATE OF BIRTH) WITH TRUST DURING PAST FIVE YEARS DIRECTORSHIPS
--------------- ---------- ---------------------- -------------
ROBERT S. DOW Trustee since 1993; Managing Partner and Chief N/A
90 Hudson Street Chairman since 1996 Investment Officer of Lord Abbett
Jersey City, New Jersey and President since since 1996.
Date of Birth: 3/8/1945 1995
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The following outside Trustees are also directors or trustees of the fourteen Lord Abbett-sponsored funds, which consist of 43 portfolios or series.
CURRENT POSITION
NAME, ADDRESS AND LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER
(DATE OF BIRTH) WITH TRUST DURING PAST FIVE YEARS DIRECTORSHIPS
--------------- ---------- ---------------------- -------------
E. THAYER BIGELOW Trustee since 1994 Managing General Partner, Bigelow Currently serves as a
Bigelow Media, LLC Media, LLC (since 2000); Senior director of Crane Co. and
717 Fifth Avenue, 26th Floor Adviser, Time Warner Inc. (1998 - Huttig Building Products
New York, New York 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).
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WILLIAM H.T. BUSH Trustee 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 Rd, Suite 1025 firm of Bush-O'Donnell & Company Health Network,
St. Louis, Missouri (since 1986). Mississippi Valley
Date of Birth: 7/14/1938 Bancorp, DT Industries
Inc., and Engineered
Support Systems, Inc.
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CURRENT POSITION
NAME AND LENGTH OF SERVICE PRINCIPAL OCCUPATION OTHER
(DATE OF BIRTH) WITH TRUST DURING PAST FIVE YEARS DIRECTORSHIPS
--------------- ---------- ---------------------- -------------
ROBERT B. CALHOUN, JR. Trustee 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, Massachusetts Management Corp., both private Inc., IGI/Earth Color,
Date of Birth: 10/25/1942 equity investment funds (since Inc., Integrated
1991). Graphics, Inc. and
Interstate Bakeries Corp.
STEWART S. DIXON Trustee since 1993 Partner in the law firm of Wildman, N/A
Wildman, Harrold, Allen & Dixon Harrold, Allen & Dixon (since
225 W. Wacker Drive, Suite 2800 1967).
Chicago, Illinois
Date of Birth: 11/5/1930
FRANKLIN W. HOBBS Trustee since 2001 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, New York 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 Trustee since 1993 Retired - Special Projects Currently serves as
415 Round Hill Road Consulting (since 1992). director of Fountainhead
Greenwich, Connecticut Water Company, Careside,
Date of Birth: 5/19/1933 Inc., Lincoln Snacks,
J.B. Williams Co., Inc.
(personal care products),
and Seix Fund, Inc. 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 and
President and Managing
General Partner of Lord
Abbett.
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THOMAS J. NEFF Trustee since 1993 Chairman of Spencer Stuart, an Currently serves as Spencer Stuart executive search consulting firm director of Ace, Ltd. and 277 Park Avenue (since 1976). Exult, Inc. New York, New York Date of Birth: 10/2/1937 |
None of the officers listed below have received compensation from the Trust. All the officers of the Trust may also be officers of the other Lord Abbett-sponsored funds and maintain offices at 90 Hudson Street, Jersey City, New Jersey 07302.
CURRENT POSITION LENGTH OF SERVICE PRINCIPAL OCCUPATION
NAME AND (DATE OF BIRTH) WITH TRUST OF CURRENT POSITION DURING PAST FIVE YEARS
------------------------ ----------- ------------------- ----------------------
Zane E. Brown (12/9/1951) Executive Vice Elected in 1996 Partner and Director of Fixed Income
President Management, joined Lord Abbett in 1992.
Robert I. Gerber (5/29/1954) Executive Vice Elected in 1998 Partner and Director of Taxable Fixed Income
President Management, joined Lord Abbett in 1997
formerly Senior Portfolio Manager of Sanford
C. Bernstein & Co. Inc.
Robert G. Morris (11/06/1944) Executive Vice Elected in 1995 Partner and Director of Equity Investments,
President joined Lord Abbett in 1991.
Christopher J. Towle (10/12/1957) Executive Vice Elected in 1999 Partner and Investment Manager, joined Lord
President Abbett in 1987.
Joan A. Binstock (3/4/1954) Vice President Elected in 1999 Partner and Chief Operations Officer, joined
Lord Abbett in 1999, prior thereto Chief
Operating Officer of Morgan Grenfell.
Thomas J. Baade (7/13/1964) Vice President Elected in 1999 Senior Fixed Income Analyst, joined Lord
Abbett in 1998, prior thereto Vice
President/Bond Analyst at Smith Barney Inc.
Daniel E. Carper (1/22/1952) Vice President Elected in 1993 Partner, joined Lord Abbett in 1979.
Michael S. Goldstein (10/29/1968) Vice President Elected in 1999 Fixed Income Investment Manager, joined Lord
Abbett in 1997, prior thereto Assistant
President of Credit Suisse Asset Management.
Paul A. Hilstad (12/13/1942) Vice President and Elected in 1997 Partner and General Counsel, joined Lord
Secretary Abbett in 1995.
Lawrence H. Kaplan (1/16/1957) Vice President and Elected in 1997 Partner and Deputy General Counsel, joined
Assistant Secretary Lord Abbett in 1997, prior thereto Vice
President and Chief Counsel of Salomon
Brothers Asset Management Inc.
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Robert A. Lee (8/28/1969) Vice President Elected in 1998 Fixed Income Investment Manager, Mortgage
and Asset Backed Securities, joined Lord
Abbett in 1997, prior thereto Fixed Income
Portfolio Manager and Vice President at ARM
Capital Advisors.
Walter H. Prahl (2/13/1958) Vice President Elected in 1998 Director of Quantitative Research Analyst,
Taxable Fixed Income, joined Lord Abbett in
1997, formerly Quantitative Analyst at
Sanford C. Bernstein & Co. from 1994 to 1997.
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CURRENT POSITION LENGTH OF SERVICE PRINCIPAL OCCUPATION
NAME AND (DATE OF BIRTH) WITH TRUST OF CURRENT POSITION DURING PAST FIVE YEARS
------------------------ ---------- ------------------- ----------------------
A. Edward Oberhaus, III Vice President Elected in 1993 Manager of Equity Trading, joined Lord
(12/21/1959) Abbett in 1983.
Tracie E. Richter (1/12/1968) Vice President Elected in 1999 Director of Operations and Fund Accounting,
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.
Eli M. Salzmann (3/24/1964) Vice President Elected in 1999 Partner and Director of Institutional Equity
Investments, joined Lord Abbett in 1997,
formerly a Portfolio Manager Analyst at
Mutual of America from 1996 to 1997, prior
thereto Vice President at Mitchell Hutchins
Asset Management.
Christina T. Simmons (11/12/1957) Vice President and Elected in 2000 Assistant General Counsel, joined Lord
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.
Richard S. Szaro (10/8/1942) Vice President Elected in 1993 Associate Investment Manager-Fixed Income,
joined Lord Abbett in 1983.
Francie W. Tai (6/11/1965) Treasurer Elected in 2000 Director of Fund Administration, joined Lord
Abbett in 2000, formerly Manager of Goldman
Sachs from 1997 to 2000, prior thereto
Assistant Vice President of Bankers Trust.
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COMMITTEES
The standing committees of the Board of Trustees are the Audit Committee, the
Proxy Committee, and the Nominating and Governance Committee.
The Audit Committee is composed of Trustees who are not "interested persons" of the Fund. The members of the Audit Committee are Messrs. Bigelow, Calhoun, Hobbs, and MacDonald. The Audit Committee provides assistance to the Board of Trustees in fulfilling its responsibilities relating to corporate accounting, the reporting practices of the Funds, and the quality and integrity of the Funds' financial reports. Among other things, the Audit Committee is responsible for reviewing and evaluating the performance and independence of the Funds' 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 Trustees who are not "interested persons" of the Funds, and also may include one or more trustees who are partners or employees of Lord Abbett. The current members of the Proxy Committee are three independent Trustees: Messrs. Dixon, Hobbs, and Neff, and Mr. Dow. The Proxy Committee assists the Board of Trustees in fulfilling its responsibilities relating to the voting of securities held by the Funds. During the past fiscal year, the Proxy Committee met once.
The Nominating and Governance Committee is composed of all the Trustees who are not "interested persons" of the Funds. Among other things, the Nominating and Governance Committee is responsible for (i) evaluating and nominating individuals to serve as independent Trustees and as committee members; and (ii) periodically reviewing director/trustee compensation. During the past fiscal year, the Nominating and Governance Committee met three times.
APPROVAL OF ADVISORY CONTRACT
At meetings on December 12, 2001, the Board and its outside Trustees considered
whether to approve the continuation of the existing management agreement between
each of the Funds and Lord Abbett. In addition to the materials the Trustees had
reviewed throughout the course of the year, the Trustees 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 OUTSIDE TRUSTEES. The materials received by the
Trustees included, but were not limited to, (1) information on the investment
performance of each Fund and a peer group of funds for the preceding twelve
months and for 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 each 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 each Fund, (7) information regarding the personnel,
information technology, and other resources devoted by Lord Abbett to managing
each Fund.
In considering whether to approve the continuation of the management agreement, the Board and the outside Trustees 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 and the outside Trustees in connection with their approval of the continuation of the management agreement included, but were not limited to, the following:
INVESTMENT MANAGEMENT SERVICES GENERALLY. The Board and the outside Trustees considered the investment management services provided by Lord Abbett to each Fund, including investment research, portfolio management, and trading.
INVESTMENT PERFORMANCE AND COMPLIANCE. The Board and the outside Trustees reviewed each 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 and the outside Trustees also considered whether each Fund had operated within its investment restrictions.
LORD ABBETT'S PERSONNEL AND METHODS. The Board and the outside Trustees considered the qualifications of the personnel providing investment management services to each 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 and the outside Trustees 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 supervision of third party service providers, including each Fund's transfer agent, custodian, and subcustodians.
EXPENSES. The Board and the outside Trustees considered each class' expense ratios 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 and the outside Trustees considered the level of Lord Abbett's profits in managing the Funds, including a review of Lord Abbett's methodology for allocating its costs to its management of each Fund. The Board and the outside Trustees 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 each Fund and whether the amount of profit is fair for the management of each Fund. They also considered the profits realized from other businesses of Lord Abbett, which may benefit from or be related to each Fund's business. The Board and the outside Trustees 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 and the outside Trustees considered whether there have been any economies of scale in managing each Fund, whether each 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 and the outside Trustees considered the character and amount of fees paid by each Fund and each 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 and the outside Trustees 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 each Fund.
ALTERNATIVE ARRANGEMENTS. The Board and the outside Trustees considered whether, instead of approving continuation of the management agreement, employing one or more alternative arrangements might be in the best interests of each Fund, such as continuing to employ Lord Abbett, but on different terms.
After considering all of the relevant factors, the Board and the outside Trustees unanimously voted to approve continuation of the existing management agreement.
COMPENSATION DISCLOSURE
The following table summarizes the compensation for each of the
Directors/Trustees for the Trust and for all Lord Abbett-sponsored funds.
The second column of the following table sets forth the compensation accrued by the Trust for outside Trustees. 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 FISCAL YEAR ENDED DECEMBER 31, 2001
NOVEMBER 30, 2001 TOTAL COMPENSATION
AGGREGATE COMPENSATION PAID BY THE TRUST AND
ACCRUED BY THIRTEEN OTHER LORD
NAME OF TRUSTEE THE TRUST(1) ABBETT-SPONSORED FUNDS(2)
--------------- ----------------- -------------------------
E. Thayer Bigelow $5,095 $86,000
William H.T. Bush $5,196 $87,400
Robert B. Calhoun, Jr. $5,111 $86,000
Stewart S. Dixon $5,130 $86,200
Franklin W. Hobbs $4,430 $85,000
C. Alan MacDonald $5,095 $86,000
Thomas J. Neff $5,057 $85,000
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1. Outside directors'/trustees' fees, including attendance fees for board and committee meetings, are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. A portion of the fees payable by the Trust to its outside directors/trustees may be deferred at the option of a director/trustee under an equity-based plan (the "equity-based plan") that deems the deferred amounts to be invested in shares of the Trust for later distribution to the directors/trustees. In addition, $25,000 of each director/trustee's retainer must be deferred and is deemed invested in shares of the Trust and other Lord Abbett-sponsored funds under the equity-based plan.
2. The third column shows aggregate compensation, including the types of compensation descried in the second column, accrued by all Lord Abbett-sponsored funds during the year ended December 31, 2001, including fees
directors/trustees have chosen to defer.
The following chart provides each Trustee's equity ownership of the Funds and ownership of the Lord Abbett-sponsored Funds as of December 31, 2001.
DOLLAR RANGE OF TRUSTEE DOLLAR RANGE OF TRUSTEE AGGREGATED DOLLAR RANGE OF
OWNERSHIP IN THE OWNERSHIP IN THE TRUSTEE OWNERSHIP IN
NAME OF TRUSTEE CORE FIXED INCOME FUND TOTAL RETURN FUND LORD ABBETT SPONSORED FUNDS
--------------- ---------------------- ----------------- ---------------------------
Robert S. Dow Over $100,000 None Over $100,000
E. Thayer Bigelow $1-$10,000 $1-$10,000 Over $100,000
William H. T. Bush $1-$10,000 None $50,001-$100,000
Robert B. Calhoun, Jr. $1-$10,000 $1-$10,000 Over $100,000
Stewart S. Dixon None None Over $100,000
Franklin W. Hobbs $1-$10,000 $1-$10,000 $50,001-$100,000
C. Alan MacDonald None None Over $100,000
Thomas J. Neff $1-$10,000 $1-$10,000 Over $100,000
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Note: The dollar amounts shown above include deferred compensation to the Trustees deemed invested in Fund shares. The amounts ultimately received by the directors/trustees under the deferred compensation plan will be directly linked to the investment performance of the funds.
CODE OF ETHICS:
The directors, trustees and officers of Lord Abbett-sponsored funds, together
with the partners and employees of Lord Abbett, are permitted to purchase and
sell securities for their personal investment accounts. In engaging in personal
securities transactions, however, such persons are subject to requirements and
restrictions contained in the Fund's Code of Ethics (the "Code") which complies,
in substance, with each of the recommendations of the Investment Company
Institute's Advisory Group on Personal Investing. Among other things, the Code
requires that Lord Abbett partners and employees, with limited exception, obtain
advance approval before buying or selling securities, submit confirmations and
quarterly transaction reports, and obtain approval before becoming a director of
any company; and it prohibits such persons from investing in a security 7 days
before or after any Lord Abbett sponsored fund or Lord, Abbett managed account
considers a trade or trader in such security, prohibiting profiting on trades of
the same security within 60 days and trading on material and non-public
information. The Code imposes certain similar requirements and restrictions on
the independent directors and trustees of each Lord Abbett-sponsored fund to the
extent contemplated by the recommendations of such Advisory Group.
4.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 22, 2002, each Fund's officers and trustees, as a group, owned less than 1% of each Fund's outstanding Class Y shares. As of March 22, 2002, 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 each Fund's outstanding shares.
5.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT MANAGER
As described under "Management" in the Prospectus, Lord Abbett is the Fund's
investment manager. Of the general partners of Lord Abbett, the following are
officers and/or trustees of the Funds: Zane E. Brown, Joan A. Binstock, Daniel
E. Carper, Robert S. Dow, Robert I. Gerber, Paul A. Hilstad, Lawrence H. Kaplan,
W. Thomas Hudson, Jr., Robert G. Morris, Eli M. Salzmann and Christopher J.
Towle. The other general partners are: John E. Erard, Robert P. Fetch, Daria L.
Foster, Michael A. Grant, Stephen J. McGruder, Robert J. Noelke, R. Mark
Pennington, Douglas B. Sieg, Edward 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, between Lord Abbett and the Trust, each Fund is obligated to pay Lord Abbett a monthly fee, based on average daily net assets for each month, at the annual rate of .50 of 1%. These fees are allocated among Class A, B, C and P shares based on the classes' proportionate share of each Fund's average daily net assets.
Each Fund pays all of its expenses not expressly assumed by Lord Abbett, including, without limitation, 12b-1 expenses, outside trustees' fees and expenses, association membership dues, legal and auditing fees, taxes, transfer and dividend disbursing agent fees, shareholder servicing costs, expenses relating to shareholder meetings, expenses of preparing, printing and mailing stock certificates and shareholder reports, expenses of registering its shares under federal and state securities laws, expenses of preparing, printing and mailing prospectuses to existing shareholders, insurance premiums, brokerage and other expenses connected with executing portfolio transactions.
Although not obligated to do so, Lord Abbett may waive all or a portion of its management fees and may assume other expenses of each Fund.
Lord Abbett was entitled to a management fee for Core Fixed Income Fund for the fiscal year ended November 30, 2001, 2000 and 1999 of $51,169, $44,100 and $39,615, respectively. Lord Abbett waived its entire management fee for the fiscal year ended November 30, 2001.
Lord Abbett was entitled to a management fee for Total Return Fund for the fiscal year ended November 30, 2001, 2000 and for the period December 14, 1998 to November 30, 1999 of $81,042, $10,982 and $10,023, respectively. Lord Abbett waived its entire management fee for the fiscal year ended to November 30, 2001.
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 each Fund.
CUSTODIAN AND ACCOUNTING AGENT
State Street Bank and Trust Company, 801 Pennsylvania Avenue, Kansas City,
Missouri is each 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 each
Fund in foreign countries and to hold cash and currencies for each Fund. In
accordance with the requirements of Rule 17f-5, the Board of Trustees have
approved arrangements permitting each Fund's foreign assets not held by the
custodian or its foreign branches to be held by certain qualified foreign banks
and depositories. In addition, State Street Bank and Trust Company performs
certain accounting and record keeping functions relating to portfolio
transactions and calculates each 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 each Fund.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281, are
the independent auditors of each Fund and must be approved at least annually by
the Fund's Board of Trustees to continue in such capacity. Deloitte & Touche LLP
performs audit services for each Fund, including the examination of financial
statements included in the Funds' Annual Report to Shareholders.
6.
BROKERAGE ALLOCATIONS AND OTHER PRACTICES
Each 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, each 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, a Fund, if considered advantageous, make a purchase from or sale to another Lord Abbett-sponsored fund without the intervention of any broker-dealer.
Broker-dealers are selected on the basis of their professional capability and the value and quality of their brokerage and research services. Normally, the selection is made by traders who are employees of Lord Abbett. These traders also do the trading for other accounts -- investment companies and other investment clients -- managed by Lord Abbett. They are responsible for obtaining best execution.
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 Funds. 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 Funds, 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 each Fund and/or shares of other Lord-Abbett-sponsored funds, or who have provided investment research, statistical, or other related services to each 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 November 31, 2001, 2000 and 1999, the Core Fixed Income Fund and Total Return Fund paid no commissions to independent brokers.
7.
CAPITAL STOCK AND OTHER SECURITIES
CLASSES OF SHARES. Each Fund offers investors five different classes of shares; only Class Y shares are offered in this Statement of Additional Information. The different classes of shares represent investments in the same portfolio of securities but are subject to different expenses and will likely have different share prices.
All shares have equal noncumulative voting rights and equal rights with respect to dividends, assets and liquidation, except for certain class-specific expenses. They are fully paid and nonassessable when issued and have no preemptive or conversion rights. Additional classes or funds may be added in the future. The Act requires that where more than one class or fund exists, each class or fund must be preferred over all other classes or funds in respect of assets specifically allocated to such class or fund.
Rule 18f-2 under the Act provides that any matter required to be submitted, by the provisions of the Act or applicable state law or otherwise, to the holders of the outstanding voting securities of an investment company such as the Fund shall not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares of each class affected by such matter. Rule 18f-2 further provides that a class shall be deemed to be affected by a matter unless the interests of each class or fund in the matter are substantially identical or the matter does not affect any interest of such class or fund. However, the Rule exempts the selection of independent public auditors, the approval of a contract with a principal underwriter and the election of directors from the separate voting requirements.
8.
PURCHASES, REDEMPTIONS AND PRICING
With respect to the foreign assets of the Total Return Fund, all assets and liabilities expressed in foreign currencies will be converted into U.S. dollars at the mean between the buying and selling rates of such currencies against U.S. dollars last quoted by any major bank. If such quotations are not available, the rate of exchange will be determined in accordance with policies established by the Board of Trustees of the Trust. The Board of Trustees will monitor, on an ongoing basis, each Fund's method of valuation.
Information concerning how we value our shares for the purchase and redemption of our shares is described in the Prospectus under "Purchases" and "Redemptions," respectively.
Under normal market conditions, we calculate a 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.
Each Fund values its portfolio securities at market value as of the close of the NYSE. Market value will be determined as follows: securities listed or admitted to trading privileges on 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 price, or, in the case of bonds, in the over-the-counter market if, in the judgment of the Fund's officers, that market more accurately reflects the market value of the bonds. Over-the counter securities not traded on the NASDAQ National Market System are valued at the mean between the last bid and asked prices. Securities for which market quotations are not available are valued at fair market value under procedures approved by the Board of Trustees.
The net asset value per share for the Class Y shares will be determined by taking the net assets and dividing by the number of Class Y shares outstanding. Our Class Y shares will be offered at net asset value.
CLASS Y SHARE EXCHANGES. The Prospectus briefly describes the Telephone Exchange Privilege. You may exchange some or all of your Class Y shares for Class Y shares of any Lord Abbett-sponsored funds currently offering Class Y shares to the public. You should read the prospectus of the other 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 supplementally by Lord Abbett Distributor or the Fund to carry out the order. The signature(s) and any legal capacity of the signer(s) must be guaranteed by an eligible guarantor. See each Prospectus for expedited redemption procedures.
The right to redeem and receive payment, as described in each Prospectus, may be suspended if the NYSE is closed (except for weekends or customary holidays), trading on the NYSE is restricted or the Securities and Exchange Commission deems an emergency to exist.
Our Board of Trustees 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 month's prior written notice will be given before any such redemption, during which time shareholders may avoid redemption by bringing their accounts up to the minimum set by the Board.
PURCHASES THROUGH FINANCIAL INTERMEDIARIES. A Financial Intermediary may charge transaction fees on the purchase and/or sale of Fund shares. 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 the Fund's or Lord Abbett Distributor's behalf. 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.
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.
9.
TAXATION OF THE FUNDS
Each 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"). Because each Fund is treated as a separate entity for federal income tax purposes, the status of each Fund as a regulated investment company is determined separately by the Internal Revenue Service. If a Fund so qualifies, 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. Each Fund intends to distribute to its shareholders each year an amount adequate to avoid the imposition of this excise tax.
Each Fund intends to declare and pay as dividends each year substantially all of its net investment income. Dividends paid by a Fund from its ordinary income or net realized short-term capital gains are taxable to you as ordinary income. Dividends paid by a 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 a 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 a 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 a 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 a 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. Each 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% for capital assets held for more than one year. Capital gains or losses recognized by corporate shareholders are subject to tax at the ordinary income tax rates applicable to corporations.
Certain investment practices that a 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 a Fund. Such transactions may in turn affect the amount and character of Fund distributions to you.
A 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 a 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. Generally, you will be subject to backup withholding if a 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 a 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 a Fund's income be derived from federal obligations before such dividends may be excluded from state taxable income. A Fund may invest some or all of its assets in such federal obligations. Each 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 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 exclusive underwriter for the Funds. The Trust 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 each 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.
11.
PERFORMANCE
Each 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 the Fund
shares at the end of the measurement period. Each Fund equate 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 the 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 from the initial amount invested and reinvestment of all
distributions (i) without the effect of taxes, (ii) less taxes due on such
distributions, and (iii) less taxes due on such Fund distributions and
redemption of the 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 Funds
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 return is shown at net asset value. Total returns also assume that all dividends and capital gains distributions during the period are reinvested at net asset value per share, and that the investment is redeemed at the end of the period.
Using the computation 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 November 30, 2001, for each Fund, for one-year and 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 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 Funds. 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. A Fund's past performance, before and after taxes, is not necessarily an indication of how the Fund will perform in the future.
1 YEAR LIFE OF FUND (3/16/98)
------ ----------------------
Class Y shares
Before Taxes 12.65% 8.24%
Class Y shares after
Taxes on Distributions 7.17% 5.53%
Class Y shares after Taxes on
Distributions and Sale of
Fund shares 7.44% 5.23%
|
1 YEAR LIFE OF FUND (12/14/98)
------ -----------------------
Class Y shares
Before Taxes 12.82% 8.08%
Class Y shares after
Taxes on Distributions 7.81% 5.50%
Class Y shares after Taxes on
Distributions and Sale of
Fund shares 7.57% 5.16%
|
Yield quotation for Class Y shares is based on a 30-day period ended on a
specified date, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share of such class on the
last day of the period. This is determined by finding the following quotient:
the dividends, and interest earned by a class during the period minus the
aggregate expenses attributable to the class accrued during the period (net of
reimbursements) and divided by the product of (i) the average daily number of
class shares outstanding during the period that were entitled to receive
dividends and (ii) the maximum offering price per share of such class on the
last day of the period. To this quotient add one, and then increase the sum to
the sixth power. Then subtract one from the product of this multiplication and
multiply the remainder by two. For the 30-day period ended November 30, 2001 the
yields for the Class Y shares of the Core Fixed Income Fund and Total Return
Fund were 5.80% and 5.22%, respectively.
These figures represent past performance, and an investor should be aware that the investment return and principal value of a Fund investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Therefore, there is no assurance that this performance will be repeated in the future.
Each 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. Each Fund may also from time to time quote distribution rates in reports to shareholders and in sales literature. In addition, each 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 investments for which reliable performance information is available.
12.
FINANCIAL STATEMENTS
The financial statement incorporated herein by reference from Lord Abbett Investment Trust - Lord Abbett Core Fixed Income Fund's and Lord Abbett Total Return Fund's 2001 Annual Reports to Shareholders have been audited by Deloitte & Touche LLP, independent auditors, as stated in its reports, which are incorporated herein by reference, and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
LORD ABBETT INVESTMENT TRUST
PART C
OTHER INFORMATION
Item 23. EXHIBITS
(a) (i) ARTICLES OF INCORPORATION. Amendments to Declaration and
Agreement of Trust incorporated by reference to Post-Effective
Amendments Nos. 14, 28 and 30 to the Registration Statements filed
on Form N-1A on April 14, 1998, August 1, 2001 and April 16, 2001.
(ii) AMENDMENT TO DECLARATION AND AGREEMENT OF TRUST DATED
DECEMBER 12, 2001. FILED HEREIN.
(iii) AMENDMENT TO DECLARATION AND AGREEMENT OF TRUST DATED
MARCH 14, 2002. FILED HEREIN.
(b) BY-LAWS. Amended and Restated as of March 9, 2000, is incorporated by reference to Post-Effective Amendment No. 29 to the Registration Statement filed on Form N-1A on March 30, 2001.
(c) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS. Not applicable.
(d) (i) MANAGEMENT AGREEMENT DATED OCTOBER 20, 1993. FILED HEREIN.
(ii) ADDENDUM TO MANAGEMENT AGREEMENT DATED OCTOBER 20, 1993.
FILED HEREIN.
(iii) ADDENDUM TO MANAGEMENT AGREEMENT DATED NOVEMBER 16,
1994. FILED HEREIN.
(iv) ADDENDUM TO MANAGEMENT AGREEMENT DATED JULY 8, 1996. FILED
HEREIN.
(v) ADDENDUM TO MANAGEMENT AGREEMENT DATED DECEMBER 12, 1997.
FILED HEREIN.
(vi) ADDENDUM TO MANAGEMENT AGREEMENT DATED MARCH 16, 1998.
FILED HEREIN.
(vii) ADDENDUM TO MANAGEMENT AGREEMENT DATED OCTOBER 21, 1998.
FILED HEREIN.
(e) DISTRIBUTION AGREEMENT. FILED HEREIN.
(f) BONUS OR PROFIT SHARING CONTRACT. Equity Based Plans for Non-Interested Persons, Directors and Trustees of Lord Abbett Funds is incorporated by reference to Post-Effective Amendment No. 29 to the Registration Statement filed on Form N-1A on March 30, 2001.
(g) CUSTODIAN AGREEMENT. INCORPORATED BY REFERENCE.
(h) TRANSFER AGENCY AGREEMENT. Incorporated by reference.
(i) LEGAL OPINION. FILED HEREIN.
(j) OTHER OPINION. CONSENT OF DELOITTE & TOUCHE, LLP. FILED HEREIN.
(k) OMITTED FINANCIAL STATEMENTS are incorporated by reference.
(l) INITIAL CAPITAL AGREEMENTS. Not applicable.
(m) FORM OF RULE 12b-1 PLANS. FILED HEREIN.
(n) RULE 18f-3 PLAN. FILED HEREIN.
(o) CODE OF ETHICS. Incorporated by reference to Post-Effective Amendment No. 29 to the Registration Statement filed on Form N-1A on March 30, 2001.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
None.
Item 25. INDEMNIFICATION
The Registrant is a Delaware Business Trust established under Chapter 38 of Title 12 of the Delaware Code. The Registrant's Declaration and Instrument of Trust at Section 4.3 relating to indemnification of Trustees, officers, etc. states the following:
The Trust shall indemnify each of its Trustees, officers, employees and agents (including any individual who serves at its request as director, officer, partner, trustee or the like of another organization in which it has any interest as a shareholder, creditor or otherwise) against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by him or her in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body in which he or she may be or may have been involved as a party or otherwise or with which he or she may be or may have been threatened, while acting as Trustee or as an officer, employee or agent of the Trust or the Trustees, as the case may be, or thereafter, by reason of his or her being or having been such a Trustee, officer, employee or agent, EXCEPT with respect to any matter as to which he or she shall have been adjudicated not to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Trust or any Series thereof. Notwithstanding anything herein to the contrary, if any matter which is the subject of indemnification hereunder relates only to one Series (or to more than one but not all of the Series of the Trust), then the indemnity shall be paid only out of the assets of the affected Series. No individual shall be indemnified hereunder against any liability to the Trust or any Series thereof or the Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. In addition, no such indemnity shall be provided with respect to any matter disposed of by settlement or a compromise payment by such Trustee, officer, employee or agent, pursuant to a consent decree or otherwise, either for said payment or for any other expenses unless there has been a determination that such compromise is in the best interests of the Trust or, if appropriate, of any affected Series thereof and that such Person appears to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Trust or, if appropriate, of any affected Series thereof, and did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. All determinations that the applicable standards of conduct have been met for indemnification hereunder shall be made by (a) a majority vote of a quorum consisting of disinterested Trustees who are not parties to the proceeding relating to indemnification, or (b) if such a quorum is not obtainable or, even if obtainable, if a majority vote of such quorum so directs, by independent legal counsel in a written opinion, or (c) a vote of Shareholders (excluding Shares owned of record or beneficially by such individual). In addition, unless a matter is disposed of with a court determination (i) on the merits that such Trustee, officer, employee or agent was not liable or (ii) that such Person was not guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office, no indemnification shall be provided hereunder unless there has been a determination by independent legal counsel in a written opinion that such Person did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
The Trustees may make advance payments out of the assets of the Trust or, if appropriate, of the affected Series in connection with the expense of defending any action with respect to which indemnification might be sought under this Section 4.3. The indemnified Trustee, officer, employee or agent shall give a written undertaking to reimburse the Trust or the Series in the event it is subsequently determined that he or she is not entitled to such indemnification and (a) the indemnified Trustee, officer, employee or agent shall provide security for his or her undertaking, (b) the Trust shall be insured against losses arising by reason of lawful advances, or (c) a majority of a quorum of disinterested Trustees or an independent legal counsel in a written opinion shall determine, based on a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the indemnitee ultimately will be found entitled to
indemnification. The rights accruing to any Trustee, officer, employee or agent under these provisions shall not exclude any other right to which he or she may be lawfully entitled and shall inure to the benefit of his or her heirs, executors, administrators or other legal representatives.
Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to Trustees, 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 Trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, 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.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Lord, Abbett & Co. acts as investment adviser for the Lord Abbett registered investment companies and provides investment management services to various pension plans, institutions and individuals. Lord Abbett Distributor LLC, a limited liability corporation, serves as their distributor and principal underwriter. Other than acting as trustees, directors and/or officers of open-end investment companies managed by Lord, Abbett & Co., none of Lord, Abbett & Co.'s partners has, in the past two fiscal years, engaged in any other business, profession, vocation or employment of a substantial nature for his or her own account or in the capacity of director, officer, employee, partner or trustee of any entity.
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 Affiliated Fund, Inc.
Lord Abbett Bond-Debenture Fund, Inc.
Lord Abbett Blend Trust
Lord Abbett Developing Growth Fund, Inc.
Lord Abbett Global Fund, Inc.
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.
(b) Lord Abbett Distributor LLC is a wholly-owned subsidiary of Lord, Abbett & Co. The partners of Lord, Abbett & Co. who are also officers of the Registrant are::
POSITIONS AND OFFICES
NAME AND PRINCIPAL WITH REGISTRANT
------------------ ---------------
Robert S. Dow Chairman and President
Zane E. Brown Executive Vice President
Robert I. Gerber Executive Vice President
Robert G. Morris Executive Vice President
Christopher J. Towle Executive Vice President
3
|
Paul A. Hilstad Vice President & Secretary Lawrence H. Kaplan Vice President & Assistant Secretary Joan A. Binstock Vice President Daniel E. Carper Vice President W. Thomas Hudson, Jr. Vice President Eli M. Salzmann Vice President |
The other general partners of Lord Abbett & Co. who are neither officers nor directors of the Registrant are John E. Erard, Robert P. Fetch, Daria L. Foster, Michael A. Grant, Stephen J. McGruder, Robert J. Noelke, R. Mark Pennington, Douglas B. Sieg, Edward von der Linde and Marion Zapolin.
Each Partner has a principal business address:
90 Hudson Street, Jersey City, New Jersey 07302-3973.
(c) Not applicable.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
Registrant maintains the records, required by Rules 31a - 1(a) and
(b), and 31a - 2(a) at its main office.
Lord, Abbett & Co. maintains the records required by Rules 31a - 1(f) and 31a - 2(e) at its main office.
Certain records such as cancelled stock certificates and correspondence may be physically maintained at the main office of the Registrant's Transfer Agent, Custodian, or Shareholder Servicing Agent within the requirements of Rule 31a-3.
Item 29. MANAGEMENT SERVICES
None.
Item 30. UNDERTAKINGS
The Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge.
The Registrant undertakes, if requested to do so by the holders of at least 10% of the Registrant's outstanding shares, to call a meeting of shareholders for the purpose of voting upon the question of removal of a director or directors and to assist in communications with other shareholders as required by Section 16(c) of the Investment Company Act of 1940, as amended.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended and the Investment Company Act, the Fund certifies that it meets all of the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act and has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Jersey City, and State of Jersey City, and State of New Jersey, on the 27th of March, 2002.
LORD ABBETT INVESTMENT TRUST
BY: /s/ Christina T. Simmons
------------------------
Christina T. Simmons
Vice President and Assistant Secretary
BY: /s/ Francie W. Tai
------------------
Francie W. Tai
Treasurer
|
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 date indicated.
SIGNATURES TITLE DATE /s/Robert S. Dow* Chairman, President ----------------- and Trustee March 27, 2002 Robert S. Dow /s/ E. Thayer Bigelow* Trustee March 27, 2002 ---------------------- E. Thayer Bigelow /s/William H. T. Bush* Trustee March 27, 2002 ---------------------- William H. T. Bush /s/Robert B. Calhoun, Jr.* Trustee March 27, 2002 -------------------------- Robert B. Calhoun, Jr. /s/Stewart S. Dixon* Trustee March 27, 2002 -------------------- Stewart S. Dixon /s/Franklin W. Hobbs* Trustee March 27, 2002 --------------------- Franklin W. Hobbs /s/C. Alan MacDonald* Trustee March 27, 2002 --------------------- C. Alan MacDonald /s/Thomas J. Neff* Trustee March 27, 2002 ------------------ Thomas J. Neff |
BY: /s/ Christina T. Simmons ----------------------------------- *Christina T. Simmons Attorney-in-Fact |
LORD ABBETT INVESTMENT TRUST
AMENDMENT TO
DECLARATION AND AGREEMENT OF TRUST
The undersigned, being at least a majority of the Trustees of Lord Abbett Investment Trust, a Delaware business trust (the "Trust"), organized pursuant to a Declaration and Agreement of Trust dated August 16, 1993 (the "Declaration"), do hereby establish, pursuant to Section 5.3 of the Declaration, a new class of shares for the Series of the Trust previously designated the Lord Abbett Limited Duration U.S. Government Securities Series, to be designated the Class B Shares of such Series. Any variations as to purchase price, determination of net asset value, the price, terms and manner of redemption and special and relative rights as to dividends on liquidation, and conditions under which such classes shall have separate voting rights, shall be as set forth in the Declaration or as elsewhere determined by the Board of Trustees of the Trust.
This instrument shall constitute an amendment to the Declaration.
IN WITNESS WHEREOF, the undersigned have executed this instrument this 12th day of December, 2001.
/s/ Robert S. Dow /s/ E Thayer Bigelow --------------------------- ----------------------------------- Robert S. Dow E. Thayer Bigelow /s/ William H.T. Bush /s/ Robert B. Calhoun, Jr. ------------------------------------ -------------------------- William H.T. Bush Robert B. Calhoun, Jr. /s/ Stewart S. Dixon /s/ Franklin W. Hobbs ------------------------------------ ------------------------ Stewart S. Dixon Franklin W. Hobbs /s/ C Alan MacDonald /s/ Thomas J. Neff --------------------------- ----------------------------------- C. Alan MacDonald Thomas J. Neff |
State of New Jersey )
) ss.
County of Hudson )
|
On December 12, 2001, there personally appeared before me the above-named individuals who severally acknowledged the foregoing instrument to be their free act and deed.
Before me
/s/Patricia J. Defilippis -------------------------------------------- Notary Public |
My commission expires
Patricia J. DeFilippis
Notary Public of New Jersey
Commission Expires 9/29/2005
LORD ABBETT INVESTMENT TRUST
AMENDMENT TO DECLARATION AND AGREEMENT OF TRUST
The undersigned, being at least a majority of the Trustees of Lord
Abbett Investment Trust (the "Trustees"), a Delaware business trust (the
"Trust"), organized pursuant to a Declaration and Agreement of Trust dated
August 16, 1993 (the "Declaration"), do hereby amend the Declaration by deleting
Section 5.2 in its entirety and replacing it with the following:
Section 5.2. SERIES DESIGNATION. Subject to the designation of additional Series pursuant to Section 5.3, the Shares shall constitute six Series: the "Balanced Series," consisting of Class A, Class B, Class C, and Class P shares; the "Limited Duration U.S. Government Securities Series," consisting of Class A, Class B, Class C, and Class P shares; the "U.S. Government Securities Series," consisting of Class A, Class B, Class C, and Class P shares; the "Lord Abbett Core Fixed Income Fund," consisting of Class A, Class B, Class C, Class P, and Class Y shares; the "Lord Abbett Total Return Fund," consisting of Class A, Class B, Class C, Class P, and Class Y shares; and the "Lord Abbett High Yield Fund," consisting of Class A, Class B, Class C, Class P, and Class Y shares.
This instrument shall constitute an amendment to the Declaration and shall be effective upon execution by a majority of the Trustees. This instrument may be executed in several parts. The undersigned has executed this instrument this 14th day of March, 2002.
/s/ Robert S. Dow /s/ William H. T. Bush ----------------- ---------------------- Robert S. Dow William H.T. Bush /s/ Robert B. Calhoun /s/ C. Alan MacDonald --------------------- --------------------- Robert B. Calhoun C. Alan MacDonald /s/ E. Thayer Bigelow /s/ Thomas J. Neff --------------------- ------------------ E. Thayer Bigelow Thomas J. Neff /s/ Stewart S/ Dixon /s/ Franklin W. Hobbs -------------------- --------------------- Stewart S. Dixon Franklin W. Hobbs |
State of New Jersey )
) ss.
County of Hudson )
|
On March 14, 2002 there personally appeared before me the above-named individuals who severally acknowledged the foregoing instrument to be their free act and deed.
Before me
/s/Patricia J. DeFilippis ----------------------------- Notary Public |
My commission expires
Patricia J. DeFilippis
Notary Public of New Jersey
Commission Expires 9/29/2005
MANAGEMENT AGREEMENT
AGREEMENT made as of this 20th day of October, 1993 by and between LORD ABBETT INVESTMENT TRUST, a Delaware business trust (hereinafter called the "Trust"), on behalf of each Series of the Trust (hereinafter called the "Series") and LORD, ABBETT & CO., a New York partnership (hereinafter called the "Investment Manager").
WHEREAS, the Trust, on behalf of each Series thereof, desires to obtain the investment management services of the Investment Manager and the Investment Manager is willing to provide services of the nature desired upon the terms and conditions 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. The Trust, on behalf of each Series thereof, hereby employs the Investment Manager under the terms and conditions of this Agreement, and the Investment Manager hereby accepts such employment and agrees to perform supervisory functions of the Trust with respect to the investment and reinvestment of its property and assets (whether or not held in trust or in the custody of a bank or trust company subject to the Trust's direction or control) including, without limitation, the supervision of its investment portfolios and the recommendation of investment policies and procedures within the limitations set forth in the Trust's Registration Statement on file with the Securities and Exchange Commission under the Securities Act of 1933 and the Investment Company Act of 1940, as amended (the
"Act").
The Investment Manager agrees to maintain an adequate organization of competent persons to perform the supervisory functions mentioned herein.
All recommendations with respect to the investment portfolios will be made to the Trust's trading department which, with the approval of authorized officers of the Trust, will execute all trades in accordance with the Trust's investment procedures.
The Investment Manager reserves the right, in its discretion, to purchase or otherwise obtain statistical information and services from other sources, including affiliated persons of the Investment Manager.
Notwithstanding the provisions of this paragraph 1, the investment policies and procedures and all other actions of the Trust are, and shall at all times be, subject to the control and direction of its trustees.
2. Each Series of the Trust will pay the Investment Manager for its services under this Agreement and for the expenses assumed an annual management fee computed and payable monthly, at a percentage of the average daily net assets of such Series as set forth in an Addendum to this Agreement between the Investment Manager and the Trust on behalf of such Series. The value of the net assets of the Series shall include all assets held in trust or in custody of any bank, savings bank or trust company for the Series, subject to its control or direction, and shall be determined as provided in the Declaration and Agreement of Trust of the Trust. The fee shall be paid on the first day of each month for the preceding month.
While recognizing that principal transactions, including
riskless principal transactions, are not afforded the protection of the safe
harbor in Section 28 (e) of the Securities Exchange Act of 1934, the Investment
Manager may receive research and other statistical information from
broker-dealers and from other sources and, in accordance with said Section
28(e), a broker-dealer may be paid a commission for a transaction involving
portfolio securities of the Trust exceeding the amount another broker-dealer
would have charged for the same transaction if it is determined by the
Investment Manager in good faith that such amount of commission is reasonable in
relation to the value of the research services provided by the executing
broker-dealer, viewed in terms of either the particular transaction or the
overall responsibilities of the Investment Manager with respect to the Trust and
other accounts (investment companies and other investment clients) with respect
to which it exercises investment discretion. Such research services may be used
by the Investment Manager in serving all its accounts, and not all of such
research services need necessarily be used by the Investment Manager in
connection with its services to the Trust.
It is understood that any supplemental advisory or statistical services which may be provided to the Trust or to the Investment Manager from time to time by independent broker-dealers or persons other than the Investment Manager, for whatever reason, shall not reduce the amount of the fees payable to the Investment Manager hereunder. It is recognized that such supplementary advisory or statistical services may be useful to the Investment Manager and the Trust, but their value is indeterminable and is not to be considered a substitute for the services provided by the Investment Manager hereunder.
3. It is understood that the services of the Investment Manager are not deemed to be exclusive, and nothing in this Agreement shall prevent the Investment Manager, or any officer, director, partner or employee thereof, from providing similar services to other investment companies and other clients (whether or not their investment objectives and policies are similar to those of the Trust) or to engage in other activities. When other clients of the Investment Manager desire to purchase or sell the same portfolio security at the same time as the Trust, it is understood that such purchases and sales will be made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each client.
4. The Trust, on behalf of each Series thereof, will, at its own expense, furnish to the Investment Manager periodic (but not less than semi-annually) statements of its books of account, including balance sheets and earnings statements, and all other information which may reasonably be required, from time to time, by the Investment Manager, and will, at its own expense, at all times keep the Investment Manager fully advised as to the cash, securities and other property then comprising its assets, and furnish daily detailed price makeup sheets with respect to its investment portfolio and its shares of beneficial interests outstanding.
5. The Investment Manager shall be under no obligation to pay any fees, costs, expenses or other charges of the Trust, except for the compensation of its officers, the compensation, if any, of its trustees who are affiliated with the Investment Manager, the rental for its office space, and the ordinary and necessary office and clerical expenses relating to research, statistical work and
supervision of each Series' investment portfolio, to be performed by the Investment Manager under paragraph 1 of this Agreement. Each Series of the Trust will pay its own fees, costs, expenses or charges relating to its assets and operations, including without limitation: office and clerical expenses not relating to research, statistical work and supervision of its investment portfolio; fees and expenses of trustees not affiliated with the Investment Manager; 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 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 the Investment Manager under this Agreement.
Notwithstanding the above, to encourage sales of shares of
beneficial interest in any Series of the Trust, the Investment Manager may, but is not required to, waive its fee hereunder attributable to such Series and directly pay or reimburse the Trust for any portion of the operating expenses of such Series not expressly assumed by the Investment Manager under this Agreement. The amount of any such expenses so voluntarily paid or reimbursed by the Investment Manager shall be paid back to the Investment Manager by the applicable Series of the Trust without interest to the extent provided as follows. No such pay-back will be made prior to the first day of the calendar quarter after the net assets of such Series first reach $50 million (the "commencement date"). Thereafter, if the ratio of operating expenses of such Series (determined before taking into account any fee waiver or payment or reimbursement of expenses by the Investment Manager) to average net assets ("expense ratio") is less than the percentage set forth in an Addendum to this Agreement between the Investment Manager and the Trust on behalf of such Series, such Series shall repay the Investment Manager an amount equal in dollars to the difference between the expenses included in the determination of such expense ratio and the expenses required to achieve such percentage set forth in the addendum to this Agreement. The expense ratios will be determined on a full fiscal year basis and, if the commencement date does not begin at the start of a fiscal year, the determination will be based on the remaining portion of the fiscal year annualized. Any such repayments shall be made promptly (but in any event within 60 days) after the end of the fiscal years of the Series with respect to which they are payable, and no such repayment shall exceed the amount of the expenses of the applicable Series paid or reimbursed by the Investment Manager and not
previously paid back. The amount of any expenses of a Series paid or reimbursed that is subject to the repayment provisions of this paragraph and not repaid as provided above prior to termination of this Agreement, or by the end of the fifth full fiscal year after the commencement date that shares of the Series are first publicly sold, whichever first occurs, shall not be repaid to the Investment Manager.
Notwithstanding any other provision of this Agreement, if expenses (including management fees hereunder but excluding interest, taxes, brokerage fees, and where permitted, extraordinary expenses) borne by the Trust in any fiscal year exceed expense limitations applicable to the Trust imposed by state securities administrators, as such limitations may be lowered or raised from time to time, the Investment Manager will reimburse the applicable Series of the Trust for any such excess. If the Investment Manager pays for other expenses of the Trust or furnishes without charge to the Trust services the cost of which is to be borne by the Trust under this Agreement, the Investment Manager shall not be deemed to have waived its rights under this Agreement to have the Trust pay for such expenses or provide or pay for such services in the future. The Investment Manager may also advance the payment of expenses, subject to reimbursement by the Trust in the ordinary course of business.
6. The Investment Manager agrees that it shall observe and be bound by all of the provisions of the Declaration and Agreement of Trust (including any amendments thereto) of the Trust which shall in any way limit or restrict or prohibit or otherwise regulate any action by the Investment Manager.
7. Other than to abide by the provisions hereof and render
the services called for hereunder in good faith, the Investment Manager assumes no responsibility under this Agreement and, having so acted, the Investment Manager shall not be held liable or accountable for any mistakes of law or fact, or for any error or omission of its officers, directors, partners or employees, or for any loss or damage arising or resulting therefrom suffered by the Trust or any of its shareholders, creditors, trustees or officers; provided however, that nothing herein shall be deemed to protect the Investment Manager against any liability to the Trust or to 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. The Investment Manager shall not be responsible for any action of the Trustees of the Trust in following or declining to follow any advice or recommendation of the Investment Manager.
8. 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 or all of the trustees, officers, shareholders, or other representatives of the Trust are or may be interested in the Investment Manager, or any successor or assignee thereof, or that any or all of the officers, partners, or other representatives of the Investment Manager are or may be interested in the Trust, except as otherwise may be provided in the Act. The Investment Manager in acting hereunder shall be an independent contractor and not any agent of the Trust.
9. This Agreement shall become effective upon the date hereof and shall continue in force until January 30, 1995, and is renewable annually thereafter by specific approval of the trustees of
the Trust or by vote of a majority of the outstanding voting securities of the Trust; any such renewal shall be approved by the vote of a majority of the trustees who are not parties to this Agreement or interested persons of the Investment Manager or of the Trust, 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 trustees of the Trust 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 Act.
10. The Investment Manager reserves the right to grant the use of the name "LORD ABBETT" or "LORD, ABBETT & CO.", or any derivative thereof, or any other part of the name of the Trust or any Series, to any other investment company, any series of an investment company or any business enterprise. The Investment Manager reserves the right to withdraw from the Trust the use of the name "LORD ABBETT" and the use of its registered service mark; at such time of withdrawal of the right to use the name "LORD ABBETT", the Investment Manager agrees that the question of continuing this Agreement may be submitted to a vote of the Trust's shareholders. In the event of such withdrawal or the termination of this Agreement, for any reason, the Trust will, on the written request of the Investment Manager, take such action as may be necessary to change its name and eliminate all reference to the words "LORD ABBETT" in any form, and will no longer use such registered service mark.
11. The obligations of the Trust, including those imposed
hereby, are not personally binding upon, nor shall resort be had to the private property of, any of the trustees, shareholders, officers, employees or agents of the Trust individually, but are binding only upon the assets and property of the Trust. Any and all personal liability, either at common law or in equity, or by statute or constitution, of every such trustee, shareholder, officer, employee or agent for any breach by the 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 Trust.
IN WITNESS WHEREOF, the Trust has caused this Agreement to be executed by its duly authorized officers and its seal to be affixed hereto, and the Investment Manager has caused this Agreement to be executed by one of its partners all on the day and year first above written.
LORD ABBETT INVESTMENT TRUST
By:/s/ Ronald P. Lynch
--------------------
Chairman of the Board
/s/ Thomas F. Konop
-------------------
Assistant Secretary
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LORD, ABBETT & CO.
By: /s/ Kenneth B. Cutler
-----------------------
A Partner
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Addendum to Management Agreement between Lord Abbett Investment Trust and Lord, Abbett & Co.
DATED OCTOBER 20, 1993 (THE "AGREEMENT")
Lord, Abbett & Co. and Lord Abbett Investment Trust (the "Trust") on behalf of Lord Abbett Limited Duration U.S. Government Securities Series the ("Fund Series") do hereby agree that (a) the annual management fee rate for the Fund Series with respect to paragraph 2 of the Agreement shall be one-half (.50) of one percent (1%) of the average daily net assets of the Fund Series and (b) the expense ratio for the determination of the repayment by the Fund Series of expenses voluntarily paid or reimbursed by the Investment Manager pursuant to paragraph 5 of the Agreement shall be .75% for the period commencing on the first day of the calendar quarter after the net assets of the Fund Series first reach $50 million until the first day of the calendar quarter after the net assets of the Fund Series first reach $100 million (the "recalculation date"). Beginning with the recalculation date, the reimbursement of expenses shall be measured by the difference between the expenses included in the determination of such expense ratio and those at an expense ratio of .95%.
For purposes of Section 15 (a) of the Act, this addendum and the Agreement shall together constitute the investment advisory contract of each Series.
LORD, ABBETT & CO.
BY: /s/ Ronald P. Lynch
-------------------
Managing Partner
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LORD ABBETT INVESTMENT TRUST
(on behalf of Lord Abbett Limited Duration U.S. Government Securities Series)
BY: /s/ Kenneth B. Cutler
---------------------
Vice President
Dated: October 20, 1993
|
Addendum to Management Agreement between Lord Abbett Investment Trust and Lord, Abbett & Co.
DATED OCTOBER 20, 1993 (THE "AGREEMENT")
Lord, Abbett & Co. and Lord Abbett Investment Trust (the "Trust") on behalf of Lord Abbett Balanced Series ("Fund Series") do hereby agree that (a) the annual management fee rate for the Fund Series with respect to paragraph 2 of the Agreement shall be three-quarters (.75) of one percent (1%) of the average daily net assets of the Fund Series and (b) the expense ratio for the determination of the repayment by the Fund Series of expenses voluntarily paid or reimbursed by the Investment Manager pursuant to paragraph 5 of the Agreement shall be 1.15% for the period commencing on the first day of the calendar quarter after the net assets of the Fund Series first reach $50 million. There shall be no change in such ratio on the recalculation date (as defined in the Agreement).
For purposes of Section 15 (a) of the Act, this Addendum and the Agreement shall together constitute the investment advisory contract of the Series.
LORD, ABBETT & CO.
BY: /s/ Ronald P. Lynch
-------------------
Managing Partner
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LORD ABBETT INVESTMENT TRUST
(on behalf of Lord Abbett Balanced Series)
BY: /s/ Kenneth B. Cutler
---------------------
Vice President
Dated: November 16, 1994
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Addendum to Management
Agreement between Lord Abbett
Investment Trust and Lord, Abbett & Co,
DATED OCTOBER 20, 1993 (THE "AGREEMENT")
Lord, Abbett & Co. and Lord Abbett Investment Trust (the "Trust") on behalf of Lord Abbett U.S. Government Series ("Fund Series") do hereby agree that the annual management fee rate for the Fund Series with respect to paragraph 2 of the Agreement shall be .50% 1% of the average daily net assets of the Fund Series up to $3,000,000,000 and .45% of 1% of the average daily net assets of the Fund Series in excess of $3,000,000,000.
For purposes of Section 15 (a) of the Act, this Addendum and the Agreement shall together constitute the investment advisory contract of the Series.
LORD, ABBETT & CO.
BY: /s/ Robert S. Dow
-----------------
Managing Partner
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LORD ABBETT INVESTMENT TRUST
(on behalf of Lord Abbett U.S. Government Series)
BY: /s/ Kenneth B. Cutler
---------------------
Vice President
Dated: July 8, 1996
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Strategic Core Series
Addendum to Management
Agreement between Lord Abbett
Investment Trust and Lord, Abbett & Co.
DATED OCTOBER 20, 1993 (THE "AGREEMENT")
Lord, Abbett & Co. and Lord Abbett Investment Trust (the "Trust") on
behalf of STRATEGIC CORE SERIES ("Series") do hereby agree that the annual
management fee rate for the Series with respect to paragraph 2 of the Agreement
shall be .50% of 1% of the average daily net assets of the Series.
For purposes of Section 15 (a) of the Act, this Addendum and the
Agreement shall together constitute the investment advisory contract of the
Series.
LORD, ABBETT & CO.
BY: /s/ Paul A. Hilstad
-------------------
Partner
|
LORD ABBETT INVESTMENT TRUST
(on behalf of Strategic Core Series)
BY: /s/ Thomas F. Konop
-------------------
Vice President
Dated: December 12, 1997
|
Core Series
Addendum to Management
Agreement between Lord Abbett
Investment Trust and Lord, Abbett & Co.
DATED OCTOBER 20, 1993 (THE "AGREEMENT")
Lord, Abbett & Co. and Lord Abbett Investment Trust (the "Trust") on behalf of CORE SERIES ("Series") do hereby agree that the annual management fee rate for the Series with respect to paragraph 2 of the Agreement shall be .50% of 1% of the average daily net assets of the Series.
For purposes of Section 15 (a) of the Act, this Addendum and the Agreement shall together constitute the investment advisory contract of the Series.
LORD, ABBETT & CO.
BY: /s/ Paul A. Hilstad
-------------------
Partner
|
LORD ABBETT INVESTMENT TRUST
(on behalf of Core Series)
BY: /s/ Thomas F. Konop
-------------------
Vice President
Dated: March 16, 1998
|
LORD ABBETT HIGH YIELD FUND
Addendum to Management
Agreement between Lord Abbett
Investment Trust and Lord, Abbett & Co.
DATED OCTOBER 20, 1993 (THE "AGREEMENT")
Lord, Abbett & Co. ("Lord Abbett") and Lord Abbett Investment Trust (the "Trust") on behalf of Lord Abbett High Yield Fund ("Series") do hereby agree that (I) the annual management fee rate for the Series with respect to paragraph 2 of the Agreement shall be 0.60 of 1% of the average daily net assets of the Series; and (II) with respect to the repayment provisions pursuant to paragraph 5 of the Agreement, (i) they shall be applied for a period ending on the earlier of (A) three full fiscal years from the commencement of the sale of Series' shares to the public or (B) termination of the Agreement and (ii) the expense ratio for such repayment provisions shall be 1.35%.
For purposes of Section 15 (a) of the Investment Company Act of 1940, as amended, this Addendum and the Agreement shall together constitute the investment advisory contract of the Series.
LORD, ABBETT & CO.
BY: /s/ Paul A. Hilstad
-------------------
Partner
|
LORD ABBETT INVESTMENT TRUST
(on behalf of Lord Abbett High Yield Fund)
BY: /s/ Thomas F. Konop
-------------------
Vice President
Dated: October 21, 1998
|
DISTRIBUTION AGREEMENT
AGREEMENT made this 12th day of July, 1996 by and between LORD ABBETT INVESTMENT TRUST, a Delaware business trust (hereinafter called the "Trust"), and LORD ABBETT DISTRIBUTOR LLC, a New York limited liability company (hereinafter called the "Distributor").
WHEREAS, the Trust desires to enter into an agreement with the Distributor for the purpose of finding purchasers for its securities which are issued in various Series, and the Distributor is desirous of undertaking to perform these services upon the terms and conditions hereinafter provided.
NOW, THEREFORE in consideration of the mutual covenants and of other good and valuable consideration, receipt of which acknowledged, it is agreed as follows:
1. The Trust hereby appoints the Distributor its exclusive selling agent for the sale of its shares of beneficial interest, of all classes, and all other securities now or hereafter created or issued by the Trust (except notes and other evidences of indebtedness issued for borrowed money), pursuant to paragraph 2 of this Agreement, and the Trust agrees to issue (and upon request of its shareholders make delivery of certificates for) its shares of beneficial interest or other securities, subject to the provisions of its Declaration and Agreement of Trust, to purchasers thereof and against payment of the consideration to be received by the Trust therefor. The Distributor may appoint one or more independent broker-dealers and the Distributor or any such broker-dealer may transmit orders to the Trust at the office of the Trust's Transfer Agent in Kansas City, Missouri, for acceptance at its office in New York. Such shares of beneficial interest shall be registered in such name or names and amounts as the Distributor or any such broker-dealer may request from time to time, and all shares of stock when so paid for and issued shall be fully paid and non-assessable.
2. The Distributor will act as exclusive selling agent for the Trust in selling shares of beneficial interest.
The Distributor agrees to sell exclusively through independent broker-dealers, or financial institutions exempt from registration as a broker-dealer, and agrees to use its best efforts to find purchasers for shares of beneficial interest of the Trust to be offered; provided however, that the services of the Distributor under this Agreement are not
deemed to be exclusive, and nothing in this Agreement shall prevent Distributor, or any officer, trustee, partner, member or employee thereof, from providing similar services to other investment companies and other clients or to engage in other activities.
The sales charge or premium relating to each class of shares of beneficial interest of the Trust shall be determined by the Board of Trustees, but in no event shall the sales charge or premium exceed the maximum rate permitted under Federal regulations, and the amount to be retained by the Trust on any sale of its shares of beneficial interest shall in each case be the net asset value thereof (determined as provided in the Declaration and Agreement of Trust). From the premium the Trust agrees to pay the Distributor a sales commission. The Distributor may allow concessions from such sales commissions. In such event the amount of the payment hereunder by the Trust to the Distributor shall be the difference between the sales commission and any concessions which have been allowed in accordance herewith. The sales commission payable to the Distributor shall not exceed the premium.
Recognizing the need for providing an incentive to sell and providing necessary and continuing informational and investment services to stockholders of the Trust, the Trust or the Distributor (by agreement) may pay independent broker-dealers periodic servicing and distribution fees based on percentages of average annual net asset value of shareholder accounts of such broker-dealers. The parties hereto incorporate by reference and agree to the terms and provisions of the 12b-1 Plans of each class of shares of beneficial interest of the Trust.
3. Notwithstanding anything herein to the contrary, sales and distributions of the Trust's shares of beneficial interest may be upon any special terms as approved by the Trust's Board of Trustees and discussed in the Trust's current prospectus.
4. The independent broker-dealers who sell the Trust's shares may also render other services to the Trust, such as executing purchases and sales of portfolio securities, providing statistical information, and similar services. The receipt of compensation for such other services shall in no way reduce the amount of the sales commissions payable hereunder by the Trust to the Distributor or the amount of the commissions, concessions or fees allowed.
5. The Distributor agrees to act as agent of the Trust in connection with the repurchase of shares of beneficial interest of the Trust, or in connection with exchanges
of shares between investment companies having the same Distributor, and the Trust agrees to advise the Distributor of the net asset value of its shares of beneficial interest as frequently as may be mutually agreed, and to accept shares duly tendered to the Distributor. The net asset value shall be determined as provided in the Declaration and Agreement of Trust.
6. The Trust will pay all fees, costs, expenses and charges in connection with the issuance, federal registration, transfer, redemption and repurchase of its shares of beneficial interest, including without limitation, all fees, costs, expenses and charges of transfer agents and registrars, all taxes and other Governmental charges, the costs of qualifying or continuing the qualifications of the Trust as broker-dealer, if required, and of registering the shares of beneficial interest of the Trust under the state blue sky laws, or similar laws of any jurisdiction (domestic or foreign), costs of preparation and mailing prospectuses to its shareholders, and any other cost, expense or charge not expressly assumed by the Distributor hereunder. The Trust will also furnish to the Distributor daily such information as may reasonably be requested by the Distributor in order that it may know all of the facts necessary to sell shares of the Trust.
7. The Distributor agrees to pay the cost of all sales literature and other material which it may require or think desirable to use in connection with sale of such shares, including the cost of reproducing the offering prospectus furnished to it by the Trust, although the Distributor may obtain reimbursement for such expenses through a 12b-1 Plan with respect to each class of shares of beneficial interest of the Trust. The Trust agrees to use its best efforts to qualify its shares for sale under the laws of such states of the United States and such other jurisdictions (domestic or foreign) as the Distributor may reasonably request.
If the Distributor pays for other expenses of the Trust or furnishes the Trust with services, the cost of which is to be borne by the Trust under this Agreement, the Distributor shall not be deemed to have waived its rights under this Agreement to have the Trust pay for such expenses or provide such services in the future.
8. The Distributor agrees to use its best efforts to find purchasers for shares of beneficial interest of the Trust and to make reasonable efforts to sell the same so long as in the judgement of the Distributor and a substantial distribution can be obtained by
reasonable efforts. The Distributor is not authorized to act otherwise than in accordance with applicable laws.
9. 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 or all of the trustees, officers, stockholders, or other representatives of the Trust are or may be interested in the Distributor, or any successor or assignee thereof, or that any or all of the trustees, officers, partners or other representatives of the Distributor are or may be interested in the Trust, except as otherwise may be provided in the Investment Company Act of 1940.
10. The Distributor agrees that it will not sell for its own account to the Trust any shares of beneficial interest, bonds or other securities of any kind of character, except that if it shall own any of the Trust's shares of beneficial interest or other securities, it may sell them to the Trust on the same terms as any other holder might do.
11. Other than to abide by the provisions hereof and render the services called for hereunder in good faith, the Distributor assumes no responsibility under this Agreement 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 Trust or any of the stockholders, creditors, trustees, or officers of the Trust; provided, however, that nothing herein shall be deemed to protect the Distributor against any liability to the Trust 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.
12. The Distributor agrees that it shall observe and be bound by all the terms of the Declaration and Agreement of Trust, including any amendments thereto, of the Trust which shall in any way limit or restrict or prohibit or otherwise regulate any action of the Distributor.
13. This Agreement shall continue in force for two years from the date hereof, and its renewable annually thereafter by specific approval of the Board of Trustees or by vote of a majority of the outstanding voting securities of the Trust; any such renewal shall be approved by the vote of a majority of the trustees who are not parties to this Agreement or interested persons of the Distributor or of the Trust, 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 Board of Trustees or by vote of a majority of the outstanding voting securities of the Trust on 60 days' written. 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 Investment Company Act of 1940.
IN WITNESS WHEREOF, the Trust has caused this Agreement to be executed by its duly authorized officers and its corporate seal to be affixed thereto, and the Distributor has caused this Agreement to be executed by one of its partners all on the day and year first above written.
LORD ABBETT INVESTMENT TRUST
BY: /s/ KENNETH B. CUTLER
---------------------
Vice President
Attest:
/s/THOMAS F. KONOP
------------------
Assistant Secretary
|
LORD ABBETT DISTRIBUTOR LLC
By LORD, ABBETT & CO.
By: /s/ ROBERT S. DOW
-----------------
A Partner
Managing Member
|
March 22, 2002
Lord Abbett Investment Trust
90 Hudson Street
Jersey City, NJ 07302-3972
Dear Sirs:
You have requested our opinion in connection with your filing of Amendment No. 32 to the Registration Statement on Form N-1A (the "Amendment") under the Investment Company Act of 1940, as amended, of Lord Abbett Investment Trust, a Delaware business trust (the "Company"), and in connection therewith your registration of the following shares of beneficial interest, without par value, of the Company (collectively, the "Shares"): Balanced Series (Classes A, B, C, and P); Lord Abbett Core Fixed Income Fund (Classes A, B, C, P, and Y); Lord Abbett High Yield Fund (Classes A, B, C, P, and Y); Limited Duration U.S. Government Securities Series (Classes A, B, C, and P); Lord Abbett Total Return Fund (Classes A, B, C, P, and Y); and U.S. Government Securities Series (Classes A, B, C, and P).
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 therefore as set forth in the Amendment, the Shares will be validly issued, fully paid, and nonassessable.
We express no opinion as to matters governed by any laws other than
Title 12 of the Delaware Code. 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
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment No. 32 to Registration Statement No. 33-68090 on Form N-1A of Lord Abbett Investment Trust of our reports dated January 24, 2002 on the financial statements of Balanced Series, Lord Abbett High Yield Fund, Limited Duration U.S. Government Securities Series, U.S Government Securities Series, Lord Abbett Core Fixed Income Fund and Lord Abbett Total Return Fund (formerly Lord Abbet Strategic Core Fixed Income Series) 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 & TOUCHE LLP
New York, New York
March 25, 2001
RULE 12b-1 DISTRIBUTION PLAN AND AGREEMENT dated as of [DATE] by and between LORD ABBETT INVESTMENT TRUST, a Delaware business trust (the "Fund"), on behalf of the [NAME OF FUND] (the "Series"), 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 beneficial interest, including the Series' Class A shares (the "Shares") pursuant to the Distribution Agreement between the Fund and the Distributor, dated as the date hereof (the "Distribution Agreement").
WHEREAS, the Fund desires to adopt a Distribution Plan and Agreement (the "Plan") for the Series with the Distributor, as permitted by Rule 12b-1 under the Act, pursuant to which the Series may make certain payments to the Distributor to be used by the Distributor or paid to institutions and persons permitted by applicable law and/or rules to receive such payments ("Authorized Institutions") in connection with sales of Shares and/or servicing of accounts of shareholders holding Shares.
WHEREAS, the Fund's Board of Trustees has determined that there is a reasonable likelihood that the Plan will benefit the Series 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, and subject to the provisions of paragraph 8 of this Plan, 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 Series in order to provide additional incentives to such Authorized Institutions (i) to sell Shares and (ii) to provide continuing information and investment services to their accounts holding Shares and otherwise to encourage their accounts to remain invested in the Shares.
2. The Fund also hereby authorizes the Distributor to use payments received hereunder from the Series in order to (a) finance any activity which is primarily intended to result in the sale of Shares and (b) provide continuing information and investment services to shareholder accounts not serviced by Authorized Institutions receiving a service fee from the Distributor hereunder and otherwise to encourage such accounts to remain invested in the Shares; PROVIDED that (i) any payments referred to in the foregoing clause (a) shall not exceed the distribution fee permitted to be paid at the time under paragraph 3 of this Plan and shall be authorized by the Board of Trustees
of the Fund by a vote of the kind referred to in paragraph 10 of this Plan and
(ii) any payments referred to in clause (b) shall not exceed the service fee
permitted to be paid at the time under paragraph 3 of this Plan.
3. The Series is authorized to pay the Distributor hereunder for remittance to Authorized Institutions and/or use by the Distributor pursuant to this Plan (a) service fees and (b) distribution fees, each at an annual rate not to exceed .25 of 1% of the average annual net asset value of Shares outstanding. The Board of Trustees of the Fund shall from time to time determine the amounts, within the foregoing maximum amounts, that the Series may pay the Distributor hereunder. Any such fees (which may be waived by the Authorized Institutions in whole or in part) may be calculated and paid quarterly or more frequently if approved by the Board of Trustees of the Fund. Such determinations and approvals by the Board of Trustees shall be made and given by votes of the kind referred to in paragraph 10 of this Plan. Payments by holders of Shares to the Series of contingent deferred reimbursement charges relating to distribution fees paid by the Series hereunder shall reduce the amount of distribution fees for purposes of the annual 0.25% distribution fee limit. The Distributor will monitor the payments hereunder and shall reduce such payments or take such other steps as may be necessary to assure that (i) the payments pursuant to this Plan shall be consistent with Rule 2830, subparagraphs (d)(2) and (5) of the Conduct Rules of the National Association of Securities Dealers, Inc. with respect to investment companies with asset-based sales charges and service fees, as the same may be in effect from time to time and (ii) the Series shall not pay with respect to any Authorized Institution service fees equal to more than .25 of 1% of the average annual net asset value of Shares sold by (or attributable to Shares or shares sold by) such Authorized Institution and held in an account covered by an Agreement.
4. The net asset value of the Shares shall be determined as provided in the Declaration and Agreement of Trust of the Fund. If the Distributor waives all or a portion of the fees which are to be paid by the Series hereunder, the Distributor shall not be deemed to have waived its rights under this Agreement to have the Series 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 Series hereunder and shall provide to the Fund's Board of Trustees, and the trustees 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 trustees, 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 trustees, officers, partners, members or other representatives of the Distributor are or may be "interested persons" of the Fund, except as may otherwise be provided in the Act.
7. The Distributor shall give the Fund the benefit of the Distributor's best judgment
and good faith efforts in rendering services under this Plan. Other than to abide by the provisions hereof and render the services called for hereunder in good faith, the Distributor assumes no responsibility under this Plan and, having so acted, the Distributor shall not be held liable or held accountable for any mistake of law or fact, or for any loss or damage arising or resulting therefrom suffered by the Fund, the Series or any of the shareholders, creditors, trustees, 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 Series' shareholders by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties hereunder, or by reason of the reckless disregard of its obligations and duties hereunder.
8. This Plan shall become effective upon the date hereof, and shall continue in effect for a period of more than one year from that date only so long as such continuance is specifically approved at least annually by a vote of the Board of Trustees of the Fund, including the vote of a majority of the trustees 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 Series hereunder above the maximum amounts referred to in paragraph 3 of this Plan without a shareholder vote in compliance with Rule 12b-1 and Rule 18f-3 under the Act as in effect at such time, and each material amendment must be approved by a vote of the Board of Trustees of the Fund, including the vote of a majority of the trustees 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. Amendments to this Plan which do not increase materially the amount to be spent by the Series hereunder above the maximum amounts referred to in paragraph 3 of this Plan may be made pursuant to paragraph 10 of this Plan.
10. Amendments to this Plan other than material amendments of the kind referred to in the foregoing paragraph 9 may be adopted by a vote of the Board of Trustees of the Fund, including the vote of a majority of the trustees 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 Trustees of the Fund may, by such a vote, interpret this Plan and make all determinations necessary or advisable for its administration.
11. This Plan may be terminated at any time without the payment of any penalty (a) by the vote of a majority of the trustees of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Plan or in any agreement related to the Plan, or (b) by a shareholder vote in compliance with Rule 12b-1 and Rule 18f-3 under the Act as in effect at such time. This Plan shall automatically terminate in the event of its assignment.
12. So long as this Plan shall remain in effect, the selection and nomination of those trustees of the Fund who are not "interested persons" of the Fund are committed to the discretion of
such disinterested trustees. The terms "interested persons," "assignment" and "vote of a majority of the outstanding voting securities" shall have the same meanings as those terms are defined in the Act.
13. The obligations of the Fund and the Series, including those imposed hereby, are not personally binding upon, nor shall resort be had to the private property of, any of the trustees, shareholders, officers, employees or agents of the Fund or Series individually, but are binding only upon the assets and property of the Series. Any and all personal liability, either at common law or in equity, or by statute or constitution, of every such trustee, shareholder, officer, employee or agent for any breach of the Fund or Series 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 Fund.
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 INVESTMENT TRUST
ATTEST:
LORD ABBETT DISTRIBUTOR LLC
RULE 12b-1 DISTRIBUTION PLAN AND AGREEMENT dated [DATE] by and between LORD ABBETT INVESTMENT TRUST, a Delaware business trust (the "Fund"), on behalf of the [NAME OF FUND] (the "Series") 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 beneficial interest (the "Shares") pursuant to the Distribution Agreement between the Fund and the Distributor, dated as of the date hereof, and
WHEREAS, the Fund desires to adopt a Distribution Plan and Agreement (the "Plan") with the Distributor, as permitted by Rule 12b-1 under the Act, pursuant to which the Series 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 Trustees has determined that there is a reasonable likelihood that the Plan will benefit the Series 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 Series 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 Series shall pay to the Distributor fees at each quarter-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 for one year or more 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 the period. 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 mentioned above have been outstanding and (B) payments will be based on Shares outstanding during any such quarter. Shares outstanding above include Shares issued for reinvested dividends and distributions. The Board of Trustees of the Fund shall from time to time determine the amounts, within the foregoing maximum amounts, that the Series may pay the Distributor hereunder. Such determinations by the Board of Trustees 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 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 Series 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 Trustees (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 Declaration and Agreement of Trust of the Fund. If the Distributor waives all or a portion of fees which are to be paid by the Series hereunder, the Distributor shall not be deemed to have waived its rights under this Agreement to have the Series 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 Series hereunder and shall provide to the Fund's Board of Trustees, and the Board of
Trustees 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 trustees, 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 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, the Series 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 Series' 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 Trustees of the Fund, including the vote of a majority of the trustees 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 Series hereunder without the vote of a majority of its outstanding voting securities and each material amendment must be approved by a vote of the Board of Trustees of the Fund, including the vote of a majority of the trustees 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 Trustees of the Fund, including the vote of a majority of the trustees 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 Trustees 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 trustees 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 trustees of the Fund who are not "interested persons" of the Fund are committed to the discretion of such disinterested trustees. 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.
13. The obligations of the Fund and the Series, including those imposed hereby, are not personally binding upon, nor shall resort be had to the private property of, any of the trustees, shareholders, officers, employees or agents of the Fund or Series individually, but are binding only upon the assets and property of the Series. Any and all personal liability, either at common law or in equity, or by statute or constitution, of every such trustee, shareholder, officer, employee or agent for any breach of the Fund or Series 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 Fund.
IN WITNESS WHEREOF, each of the parties has caused this amended and restated 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 INVESTMENT TRUST
ATTEST:
LORD ABBETT DISTRIBUTOR LLC
By: LORD, ABBETT & CO.
Rule 12b-1 Distribution Plan and Agreement Lord Abbett Investment Trust - [FUND NAME] Class B Shares
RULE 12b-1 DISTRIBUTION PLAN AND AGREEMENT dated as of [DATE] by and between LORD ABBETT INVESTMENT TRUST, a Delaware business trust (the "Fund"), on behalf of the [NAME OF FUND] (the "Series") 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 B shares (the "Shares") pursuant to the Distribution Agreement between the Fund and the Distributor, dated as of the date hereof, and
WHEREAS, the Fund desires to adopt a Distribution Plan and Agreement
(the "Plan") with the Distributor, as permitted by Rule 12b-1 under the Act,
pursuant to which the Series may make certain payments to the Distributor (a) to
help reimburse the Distributor for the payment of sales commissions to
institutions and persons permitted by applicable law and/or rules to receive
such payments ("Authorized Institutions") in connection with sales of Shares and
(b) for use by the Distributor in rendering service to the Fund, including
paying and financing the payment of sales commissions, service fees, and other
costs of distributing and selling Shares as provided in paragraph 3 of this
Plan, and
WHEREAS, the Fund's Board of Trustees has determined that there is a reasonable likelihood that the Plan will benefit the Series 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 (a) sales commissions (particularly those paid or financed with payments received hereunder) and (b) service fees received hereunder 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, respectively. 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 reductions as provided below in this paragraph 2, the Series periodically, as determined by the Fund's Board of Trustees (in the manner contemplated in paragraph 11), shall pay to the Distributor fees (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. Payments will be based on Shares outstanding during any such
period. Shares outstanding include Shares issued for reinvested dividends and
distributions. The Board of Trustees of the Fund shall from time to time
determine the amounts, within the foregoing maximum amounts, that the Series may
pay the Distributor hereunder. Such determinations by the Board of Trustees
shall be made by votes of the kind referred to in paragraph 11 of this Plan. The
service fees mentioned in this paragraph are for the purposes mentioned in
clause (b) (ii) of paragraph 1 of this Plan and the distribution fees mentioned
in this paragraph are for the purposes mentioned in clause (b) (i) of paragraph
1 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 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 Series to engage directly or indirectly in financing any activity which is primarily intended to result in the sale of Shares including, but not limited to: (a) paying and financing the payment of commissions or other payments relating to selling or servicing efforts and (b) paying interest, carrying, or any other financing charges on any unreimbursed distribution or other expense incurred in a prior fiscal year of the Series whether or not such charges and unreimbursed distribution or other expense are determined to be a legal obligation of the Series, in whole or in part, by the Fund's Board of Trustees. The Fund's Board of Trustees (in the manner contemplated in paragraph 11 of this Plan) shall approve the timing, categories and calculation of any payments under this paragraph 3.
4.1. The Series will pay each person which has acted as Distributor of Shares its Allocable Portion (as such term is defined in paragraphs 13.1 through 13.3) of the distribution fees with respect to Shares of the Series in consideration of its services as principal underwriter for the Shares of the Fund. The distribution agreement pursuant to which a person acts or acted as principal underwriter of the Shares is referred to as the "Applicable Distribution Agreement". Such person shall be paid its Allocable Portion of such distribution fees notwithstanding such person's termination as Distributor of the Shares, such payments to be changed or terminated only (i) as required by a change in applicable law or a change in accounting policy adopted by the Investment Companies Committee of the AICPA and approved by FASB that results in a determination by the Fund's independent accountants that any sales charges in respect of such Fund, which are not contingent deferred sales charges and which are not yet due and payable, must be accounted for by such Fund as a liability in accordance with GAAP, each after the effective date of this Plan and restatement; (ii) if in the sole discretion of the Board of Trustees, after due consideration of such factors as they considered relevant, including the transactions contemplated in any purchase and sale agreement entered into between the Fund's Distributor and any commission financing entity, the Board of Trustees determines (in the manner contemplated in paragraph 12), in the exercise of its fiduciary duty, that
this Plan and the payments thereunder must be changed or terminated, notwithstanding the effect this action might have on the Fund's ability to offer and sell Shares; or (iii) in connection with a Complete Termination of this Plan, it being understood that for this purpose a Complete Termination of this Plan occurs only if this Plan is terminated and the Fund has discontinued the distribution of Shares or other back-end load or substantially similar classes of shares; it being understood that such does not include Class C shares, I.E., those sold with a level load. The services rendered by a Distributor for which that Distributor is entitled to receive its Allocable Portion of the distribution fee shall be deemed to have been completed at the time of the initial purchase of the Shares (as defined in the Applicable Distribution Agreement) (whether of that Fund or another fund) taken into account in computing that Distributor's Allocable Portion of the distribution fee.
4.2. The obligation of the Series to pay the distribution fee shall terminate upon the termination of this Plan in accordance with the terms hereof.
4.3. The right of a Distributor to receive payments hereunder may be transferred by that Distributor (but not the distribution agreement itself or that Distributor's obligations thereunder) in order to raise funds which may be useful or necessary to perform its duties as principal underwriter, and any such transfer shall be effective upon written notice from that Distributor to the Fund. In connection with the foregoing, the Series is authorized to pay all or part of the distribution fee and/or contingent deferred sales charges with respect to Shares (upon the terms and conditions set forth in the then current Fund prospectus) directly to such transferee as directed by that Distributor.
4.4. As long as this Plan is in effect, the Fund shall not change the manner in which the distribution fee is computed (except as may be required by a change in applicable law or a change in accounting policy adopted by the Investment Companies Committee of the AICPA and approved by FASB that results in a determination by the Fund's independent accountants that any distribution fees which are not yet due and payable, must be accounted for by such Fund as a liability in accordance with GAAP).
5. The net asset value of the Shares shall be determined as provided in the Declaration and Agreement of Trust 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.
6. 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 Trustees, and the Board of Trustees 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. Over the long-term the expenses incurred by the Distributor for engaging directly or indirectly in financing any activity which is primarily intended to result in the sale of Shares are likely to be greater then the distribution fees receivable by the Distributor hereunder. Nevertheless, there exists the possibility that for a short-term period the Distributor may not have a sufficient amount of such expenses to warrant reimbursement by receipt of such distribution fees.
Although the Distributor undertakes not to make a profit under this Plan, the Plan will be considered a compensation plan (i.e. distribution fees will be paid regardless of expenses incurred) in order to avoid the possibility of the Distributor not being able to receive such distribution fees because of a temporary timing difference between its incurring such expenses and the receipt of such distribution fees.
7. Neither this Plan nor any other transaction between the Fund and the Distributor, or any successor or assignee thereof, pursuant to this Plan shall be invalidated or in any way affected by the fact that any or all of the trustees, 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 trustees, 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.
8. The Distributor shall give the Fund the benefit of the Distributor's best judgment and good faith efforts in rendering services under this Plan. Other than to abide by the provisions hereof and render the services called for hereunder in good faith, the Distributor assumes no responsibility under this Plan and, having so acted, the Distributor shall not be held liable or held accountable for any mistake of law or fact, or for any loss or damage arising or resulting therefrom suffered by the Fund or any of its shareholders, creditors, Trustees 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.
9. 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 Trustees of the Fund, including the vote of a majority of the Trustees 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.
10. 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 voting securities and each material amendment must be approved by a vote of the Board of Trustees of the Fund, including the vote of a majority of the Trustees 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.
11. Amendments to this Plan other than material amendments of the kind referred to in the foregoing paragraph 10 of this Plan may be adopted by a vote of the Board of Trustees of the Fund, including the vote of a majority of the Trustees 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 Trustees of the Fund may, by such a vote, interpret this Plan and make all determinations necessary or advisable for its administration.
12. This Plan may be terminated at any time without the payment of any penalty by (a) the vote of a majority of the Trustees 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.
13.1. For purposes of this Plan, the Distributor's "Allocable Portion"
of the distribution fee shall be 100% of such distribution fees unless or until
the Fund uses a principal underwriter other than the Distributor. Thereafter the
Allocable Portion shall be the portion of the distribution fee attributable to
(i) Shares of the Fund sold by the Distributor before there is a new principal
underwriter, plus (ii) Shares of the Fund issued in connection with the exchange
of Shares of another Fund in the Lord, Abbett Family of Funds, plus (iii) Shares
of the Fund issued in connection with the reinvestment of dividends and capital
gains.
13.2. The Distributor's Allocable Portion of the distribution fees and the contingent deferred sales charges arising with respect to Shares taken into account in computing the Distributor's Allocable Portion shall be limited under Article III, Sections 26(b) and (d) or other applicable regulations of the NASD as if the Shares taken into account in computing the Distributor's Allocable Portion themselves constituted a separate class of shares of the Fund.
13.3. The services rendered by the Distributor for which the Distributor is entitled to receive the Distributor's Allocable Portion of the distribution fees shall be deemed to have been completed at the time of the initial purchase of the Shares (or shares of another Fund in the Lord Abbett Family of Funds) taken into account in computing the Distributor's Allocable Portion. In addition, the Fund will pay to the Distributor any contingent deferred sales charges imposed on redemption of Shares (upon the terms and conditions set forth in the then current Fund prospectus) taken into account in computing the Distributor's Allocable Portion of the distribution fees. Notwithstanding anything to the contrary in this Plan, the Distributor shall be paid its Allocable Portion of the distribution fees regardless of the Distributor's termination as principal underwriter of the Shares of the Fund, or any termination of this Agreement other than in connection with a Complete Termination (as defined in paragraph 4.1) of the Plan as in effect on the date of execution of Distribution Agreement with the new Distributor. Except as provided in paragraph 4.1 and in the preceding sentence, the Fund's obligation to pay the distribution fees to the Distributor shall be absolute and unconditional and shall not be subject to any dispute, offset, counterclaim or defense whatsoever (it being understood that nothing in this sentence shall be deemed a waiver by the Fund of its right separately to pursue any claims it may have against the Distributor and to enforce such claims against any assets of the Distributor (other than the assets represented by the Distributor's rights to be paid its Allocable Portion of the distribution fees and to be paid the contingent deferred sales charges).
14. So long as this Plan shall remain in effect, the selection and nomination of those Trustees of the Fund who are not "interested persons" of the Fund are committed to the discretion of
such disinterested Trustees. 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 INVESTMENT TRUST
ATTEST:
LORD ABBETT DISTRIBUTOR LLC
AMENDED AND RESTATED PLANS AS OF DECEMBER 12, 2001
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, each Fund shares shall be divided
into Variable Contract Class shares and P Class shares as indicated on Schedule
A.
2. SALES CHARGES AND DISTRIBUTION AND SERVICE FEES.
(a) INITIAL SALES CHARGE. Class A shares will be traditional front-end sales charge shares, offered at their net asset value ("NAV") plus a sales charge in the case of each Fund as described in such Fund's prospectus as from time to time in effect.
Class B shares, Class C shares, Class Y shares, Variable Contract Class shares and P Class shares will be offered at their NAV without an initial sales charge.
(b) SERVICE AND DISTRIBUTION FEES. In respect of the Class A shares, Class B shares, Class C shares, Variable Contract Class shares and P Class shares, each Fund will pay service and/or distribution fees under plans from time to time in effect adopted for such classes pursuant to Rule 12b-1 under the 1940 Act (each, a "12b-1 Plan").
Pursuant to a 12b-1 Plan with respect to the Class A shares, if effective, each Fund will generally pay (i) at the time such shares are sold, a one-time distribution fee of up to 1% of the NAV 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 0.13% 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. The effective dates of various of the
12b-1 Plans for the Class A shares are based on achievement by the Funds of specified total net assets for the Class A shares of such Funds.
Pursuant to a 12b-1 Plan with respect to the Class B shares, if effective, each Fund will generally pay a continuing annual fee of up to 1% of the average annual NAV of such shares then outstanding (each fee comprising .25% in service fee and .75% in distribution fee).
Pursuant to a 12b-1 Plan with respect to the Class C shares, if effective, each Fund will generally pay a one-time service and distribution fee at the time such shares are sold of up to 1% of their NAV and a continuing annual fee, commencing 12 months after the first anniversary of such sale, of up to 1% of the average annual NAV of such shares then outstanding (each fee comprising .25% in service fees and .75% in distribution fees).
Pursuant to a Type II 12b-1 Plan with respect to the Class C shares, if effective, each Fund will generally pay a continuing annual fee, commencing after the sale of shares, of up to 1% of the average annual NAV of such shares then outstanding (each fee comprising .25% in service fees and .75% in distribution fees).
Pursuant to a 12b-1 Plan with respect to the Variable Contract Class, if operational, each Fund will generally pay a continuing annual fee of up to .15% of the average annual NAV of such shares then outstanding to reimburse an insurance company for its expenditure related to the distribution of such shares which expenditures are not also reimbursable pursuant to fees paid under the variable contract issued by such insurance company.
Pursuant to a 12b-1 Plan with respect to the P Class shares, if operational, 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.
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.
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.
LORD, ABBETT & CO.
By: /s/Paul A. Hilstad
---------------------------
Paul A. Hilstad
Partner
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LORD ABBETT-SPONSORED FUNDS
(As indicated on Schedule A)
By: /s/Christina T. Simmons
---------------------------
Christina T. Simmons
Vice President & Assistant Secretary
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SCHEDULE A
As of December 12, 2001
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 Delta Fund 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
International Series A, B, C, P, Y
World Bond-Debenture Series A, B, C, P
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
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FUNDS CLASSES
----- -------
New Jersey Series A, P
Connecticut Series A, P
Missouri Series A, P
Hawaii Series A, P
Washington Series A, P
Minnesota Series A, P
Lord Abbett Tax-Free Income Trust
Florida Series A, C, P
Pennsylvania Series A, P
Michigan Series A, P
Georgia Series A, P
Lord Abbett U.S. Government Securities
Money Market Fund, Inc. A, B, C
Lord Abbett Research Fund, Inc.
Large-Cap Series A, B, C, P, Y
Growth Opportunities Fund A, B, C, P, Y
Small-Cap Series A, B, C, P, Y
Lord Abbett America's Value Fund A, B, C, P, Y
Lord Abbett Series Fund
Growth & Income Portfolio VC, P
Bond-Debenture Portfolio Bond-Debenture Portfolio
International Portfolio International Portfolio
Mid-Cap Value Portfolio Mid-Cap Value Portfolio
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CUSTODIAN AND INVESTMENT ACCOUNTING AGREEMENT
This Agreement between EACH LEGAL ENTITY LISTED ON EXHIBIT A HERETO, each a business trust or corporation organized and existing under the laws of the jurisdiction indicated on Exhibit A (each a "FUND"), and STATE STREET BANK and TRUST COMPANY, a Massachusetts trust company ("STATE STREET"),
WITNESSETH:
WHEREAS, each Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and
WHEREAS, each Fund intends that this Agreement be applicable to each of its series existing on the date hereof (such series together with all other series subsequently established by the Fund and made subject to this Agreement in accordance with Section 17, be referred to herein as the "PORTFOLIO(S)");
NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows:
SECTION 1. APPOINTMENT OF STATE STREET AS CUSTODIAN AND RECORDKEEPER. Each Fund hereby appoints State Street as the custodian of the assets of the Portfolios of the Fund, including securities which the Fund, on behalf of the applicable Portfolio, desires to be held in places within the United States ("DOMESTIC SECURITIES") and securities it desires to be held outside the United States ("FOREIGN SECURITIES"). The Fund, on behalf of the Portfolio(s), agrees to deliver to State Street all securities and cash of the Portfolios, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Portfolio(s) from time to time, and the cash consideration received by it for such new or treasury shares of beneficial interest of the Fund representing interests in the Portfolios ("Shares") as may be issued or sold from time to time. State Street shall not be responsible for any property of a Portfolio held or received by the Portfolio and not delivered to State Street.
Upon receipt of "PROPER INSTRUCTIONS" (as such term is defined in Section 6 hereof), State Street shall on behalf of the applicable Portfolio(s) from time to time appoint one or more sub-custodians located in the United States, but only in accordance with an applicable vote by the Board of Trustees or Directors of the Fund (the "BOARD") on behalf of the applicable Portfolio(s). State Street may appoint as sub-custodian for the Fund's foreign securities on behalf of the applicable Portfolio(s) the foreign banking institutions and foreign securities depositories designated in Schedules A and B hereto, but only in accordance with the applicable provisions of Sections 3 and 4 of this Agreement. State Street shall use all reasonable efforts to include in each agreement whereby State Street appoints any such sub-custodian a provision to the effect that the sub-custodian will be liable to State Street for losses and liabilities caused by the negligence, misfeasance, or willful misconduct of the sub-custodian. State Street shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so appointed than any such sub-custodian has to State Street.
The Fund hereby constitutes and appoints State Street to perform certain accounting and recordkeeping functions relating to portfolio transactions required of a duly registered investment company under Section 31(a) of the Investment Company Act of 1940, as amended (the "1940 Act") and to calculate the net asset value of the Portfolios.
SECTION 2. DUTIES OF STATE STREET WITH RESPECT TO PROPERTY OF EACH FUND HELD BY STATE STREET IN THE UNITED STATES
SECTION 2.1 HOLDING SECURITIES. State Street shall hold and physically segregate for the account of each Portfolio all non-cash property, to be held by it in the United States, including all domestic securities owned by such Portfolio other than securities which are maintained pursuant to Section 2.8 in a clearing agency registered with the SEC and which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury (each, a "U.S. SECURITIES SYSTEM").
SECTION 2.2 DELIVERY OF SECURITIES. State Street shall release and deliver domestic securities owned by a Portfolio held by State Street or in a U.S. Securities System account of State Street only upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in accordance with the provisions of Section 2.8 hereof;
4) To the depository agent in connection with tender or other similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to State Street;
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of State Street
or into the name or nominee name of any agent appointed pursuant to
Section 2.7 or into the name or nominee name of any sub-custodian
appointed pursuant to Section 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any such
case, the new securities are to be delivered to State Street;
7) Upon the sale of such securities for the account of the Portfolio, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, State Street shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from State Street's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any corporate action, including without limitation, any calls for redemption, tender or exchange offers, declarations, record and payment dates and amounts of any dividends or income, plan of merger, consolidation, recapitalization, reorganization, readjustment, split-up of shares, changes of par value, or conversion ("CORPORATE ACTION") of the securities of the
issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to State Street;
9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to State Street;
10) For delivery in connection with any loans of securities made by the Portfolio, but only against receipt of adequate collateral as agreed upon from time to time by State Street and the Fund on behalf of the Portfolio, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to State Street's account in the book-entry system authorized by the U.S. Department of the Treasury, State Street will not be held liable or responsible for the delivery of securities owned by the Portfolio prior to the receipt of such collateral except as may arise from State Street's own negligence or willful misconduct;
11) For delivery as security in connection with any borrowing by the Fund on behalf of the Portfolio requiring a pledge of assets by the Fund on behalf of the Portfolio, but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, State Street and a broker-dealer registered under the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, State Street, and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission ("CFTC") and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent for the Fund (the "TRANSFER AGENT") for delivery to such Transfer Agent or to the holders of Shares in connection with distributions in kind, as may be described from time to time in the currently effective prospectus and statement of additional information of the Fund related to the Portfolio (the "Prospectus"), in satisfaction of requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio specifying the securities of the Portfolio to be delivered and naming the person or persons to whom delivery of such securities shall be made.
SECTION 2.3 REGISTRATION OF SECURITIES. Domestic securities held by State Street (other than bearer securities) shall be registered in the name of a Portfolio or in the name of any nominee of a Fund on behalf of a Portfolio or of any nominee of State Street which nominee shall be assigned exclusively to the Portfolio, unless the applicable Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment advisor as the Portfolio, or in the name or nominee name of any agent appointed pursuant to Section 2.7 or in the name or nominee name of any sub-custodian appointed pursuant to Section 1. All securities accepted by State Street on behalf of a Portfolio under the terms of this Agreement shall be in "street name" or other good delivery form. If, however, a Fund directs State Street to maintain securities in "street name", State Street shall utilize all reasonable efforts to timely collect income due the Fund on such securities and to notify the Fund using all reasonable efforts of relevant information regarding securities such as maturities and pendency of calls and Corporate Actions.
SECTION 2.4 BANK ACCOUNTS. State Street shall open and maintain a separate bank account or accounts in the United States in the name of each Portfolio of each Fund, subject only to draft or order by State Street acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio, other than cash maintained by the Portfolio in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act. Funds held by State Street for a Portfolio may be deposited by it to its credit as Custodian in the banking department of State Street or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the 1940 Act and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall on behalf of each applicable Portfolio be approved by vote of a majority of the Board. Such funds shall be deposited by State Street in its capacity as Custodian and shall be withdrawable by State Street only in that capacity.
SECTION 2.5 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, State Street shall collect on a timely basis all income and other payments with respect to registered domestic securities held hereunder to which each Portfolio shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer domestic securities if, on the date of payment by the issuer, such securities are held by State Street or its agent thereof and shall credit such income, as collected, to such Portfolio's custodian account. Without limiting the generality of the foregoing, State Street shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due each Portfolio on securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund. State Street will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to State Street of the income to which the Portfolio is properly entitled.
SECTION 2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, State Street shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts to State Street (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the 1940 Act to act as a custodian and has been designated by State Street as its agent for this purpose) registered in the name of the Portfolio or in the name of a nominee of State Street referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a U.S. Securities System, in accordance with the conditions set forth in Section 2.8 hereof; (c) in the case of repurchase agreements entered into between the Fund on behalf of the Portfolio and State Street, or another bank, or a broker-dealer which is a member of NASD, (i) against delivery of the securities either in certificate form or through an entry crediting State Street's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Portfolio of securities owned by State Street along with written evidence of the agreement by State Street to repurchase such securities from the Portfolio; or (d) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions from the Fund as defined herein;
2) In connection with conversion, exchange or surrender of securities owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued as set forth in
Section 5 hereof;
4) For the payment of any expense or liability incurred by the Portfolio, including but not limited to the following payments for the account of the Portfolio: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of securities sold short; and
7) For any proper corporate other purpose, but only upon receipt of Proper Instructions from the Fund on behalf of the Portfolio specifying the amount of such payment and naming the person or persons to whom such payment is to be made.
SECTION 2.7 APPOINTMENT OF AGENTS. State Street may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the 1940 Act to act as a custodian, as its agent to carry out such of the provisions of this Section 2 as State Street may from time to time direct; provided, however, that State Street shall notify the applicable Fund of the appointment of any agent and that such appointment shall not relieve State Street of its responsibilities or liabilities hereunder.
SECTION 2.8 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. State Street may deposit and/or maintain securities owned by a Portfolio in a U.S. Securities System subject to the following provisions:
1) State Street may keep securities of the Portfolio in a U.S. Securities System provided that such securities are represented in an account of State Street in the U.S. Securities System (the "U.S. SECURITIES SYSTEM ACCOUNT") which account shall not include any assets of State Street other than assets held as a fiduciary, custodian or otherwise for customers;
2) The records of State Street with respect to securities of the Portfolio which are maintained in a U.S. Securities System shall identify by book-entry those securities belonging to the Portfolio;
3) State Street shall pay for securities purchased for the account of the Portfolio upon (i) receipt of advice from the U.S. Securities System that such securities have been transferred to the U.S. Securities System Account, and (ii) the making of an entry on the records of State Street to reflect such payment and transfer for the account of the Portfolio. State Street shall transfer securities sold for the account of the Portfolio upon (i) receipt of advice from the U.S. Securities System that payment for such securities has been transferred to the U.S. Securities System Account, and (ii) the making of an entry on the records of State Street to reflect such transfer and payment for the account of the Portfolio. Copies of all advices from the U.S. Securities System of transfers of securities for the account of the Portfolio shall identify the Portfolio, be maintained for the Portfolio by State Street and be provided to the Fund at its request. Upon request, State Street shall furnish the Fund on behalf of the Portfolio confirmation of each transfer to or from the account of the Portfolio in the form of a written advice or notice and shall furnish to the Fund on behalf of the Portfolio copies of daily transaction sheets reflecting each day's transactions in the U.S. Securities System for the account of the Portfolio;
4) State Street shall provide the Fund with any report obtained by State Street on the U.S. Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the U.S. Securities System;
5) Anything to the contrary in this Agreement notwithstanding, State Street shall be liable to the Fund for the benefit of the Portfolio for any loss or damage to the Portfolio resulting from use of the U.S. Securities System by reason of any negligence, misfeasance or misconduct of State Street or any of its agents or of any of its or their employees or from failure of State Street or any such agent to enforce effectively such rights as it may have against the U.S. Securities System; at the election of the Fund, it shall be entitled to be subrogated to the rights of State Street with respect to any claim against the U.S. Securities System or any other person which State Street may have as a consequence of any such loss or damage if and to the extent that the Portfolio has not been made whole for any such loss or damage.
SECTION 2.9 SEGREGATED ACCOUNT. State Street shall upon receipt of Proper Instructions on behalf of each applicable Portfolio establish and maintain a segregated account or accounts for and on behalf of each such Portfolio, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by State Street pursuant to Section 2.8 hereof, (i) in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, State Street and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the CFTC or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio, (ii) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Portfolio or commodity futures contracts or options thereon purchased or sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio with the procedures required by Investment Company Act Release No. 10666, or any subsequent release of the U.S. Securities and Exchange Commission (the "SEC"), or interpretative opinion of the staff of the SEC, relating to the maintenance of segregated accounts by registered investment companies, and (iv) for any other proper corporate purpose upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio.
SECTION 2.10 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. State Street shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of each Portfolio held by it and in connection with transfers of securities.
SECTION 2.11 PROXIES. State Street shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Portfolio or a nominee of the Portfolio, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Portfolio such proxies, all proxy soliciting materials and all notices relating to such securities.
SECTION 2.12 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to the provisions of Section 2.3, State Street shall transmit promptly to each Fund for each Portfolio all written information received by State Street from issuers of securities being held for the Portfolio with respect to Corporate Actions, notices of exercise of call and put options written by the Fund on behalf of the Portfolio and the maturity of futures contracts purchased or sold by the Portfolio. With respect to tender or exchange offers, State Street shall transmit promptly to the Portfolio all written information received by State Street from issuers of the securities whose tender or exchange is sought and from the party (or its agents) making the tender or exchange offer. If the Portfolio desires to take action with respect to any Corporate Action, the Portfolio shall notify State Street at least three business days prior to the date on which State Street is to take such action.
SECTION 3. PROVISIONS RELATING TO RULES 17F-5 AND 17F-7
SECTION 3.1. DEFINITIONS. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings:
"Country Risk" means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's political environment, economic and financial infrastructure (including any Eligible Securities Depository operating in the country), prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country; however, "Country Risk" does not include the custody or settlement practices and procedures of an Eligible Foreign Custodian appointed by the Foreign Custody Manager.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as defined in Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate action of the SEC, or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act; the term does not include any Eligible Securities Depository.
"Eligible Securities Depository" has the meaning set forth in section (b)(1) of Rule 17f-7.
"Foreign Assets" means any of the Portfolios' investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Portfolios' transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(3) of Rule 17f-5.
"Rule 17f-5" means Rule 17f-5 promulgated under the 1940 Act.
"Rule 17f-7" means Rule 17f-7 promulgated under the 1940 Act.
SECTION 3.2. STATE STREET AS FOREIGN CUSTODY MANAGER.
3.2.1 DELEGATION TO STATE STREET AS FOREIGN CUSTODY MANAGER. Each Fund, by
resolution adopted by its Board, hereby delegates to State Street, subject to
Section (b) of Rule 17f-5, the responsibilities set forth in this Section 3.2
with respect to Foreign Assets of the Portfolios held outside the United States,
and State Street hereby accepts such delegation as Foreign Custody Manager with
respect to the Portfolios.
3.2.2 COUNTRIES COVERED. The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Agreement, which list of countries may be amended from time to time by a Fund with the agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain the assets of the Portfolios, which list of Eligible Foreign Custodians may be amended from time to time in the sole discretion of the Foreign Custody Manager. The Foreign Custody Manager will provide amended versions of Schedule A in accordance with Section 3.2.5 hereof.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by the Fund, on behalf of the Portfolios, of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by the Board on behalf of the Portfolios responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Agreement by the Fund shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A in which State Street has previously placed or currently maintains Foreign Assets pursuant to the terms of the contract governing the custody arrangement. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of a Portfolio with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board on behalf of the Portfolios to State Street as Foreign Custody Manager for that country shall be deemed to have been withdrawn and State Street shall
immediately cease to be the Foreign Custody Manager of the Portfolios with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon written notice to the Fund. Thirty days (or such longer period to which the parties agree in writing) after receipt of any such notice by the Fund, State Street shall have no further responsibility in its capacity as Foreign Custody Manager to the Fund with respect to the country as to which State Street's acceptance of delegation is withdrawn.
3.2.3 SCOPE OF DELEGATED RESPONSIBILITIES:
(a) SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the provisions of this Section 3.2, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the relevant market, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1).
(b) CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).
(c) MONITORING. In each case in which the Foreign Custody Manager maintains
Foreign Assets with an Eligible Foreign Custodian selected by the Foreign
Custody Manager, the Foreign Custody Manager shall establish a system to monitor
(i) the appropriateness of maintaining the Foreign Assets with such Eligible
Foreign Custodian and (ii) the contract governing the custody arrangements
established by the Foreign Custody Manager with the Eligible Foreign Custodian.
In the event the Foreign Custody Manager determines that the custody
arrangements with an Eligible Foreign Custodian it has selected are no longer
appropriate or no longer meet the requirements of Rule 17f-5, the Foreign
Custody Manager shall promptly notify the Board in accordance with Section 3.2.5
hereunder.
3.2.4 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes of this Section 3.2, the Board of the applicable Fund, or the Fund's investment adviser, shall be deemed to have considered and determined to accept such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which State Street is serving as Foreign Custody Manager of the Portfolios.
3.2.5 REPORTING REQUIREMENTS. The Foreign Custody Manager shall report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the placement of such Foreign Assets with another Eligible Foreign Custodian by providing to the Board an amended Schedule A at the end of the calendar quarter in which an amendment to such Schedule has occurred. The Foreign Custody Manager shall make written reports notifying the Board of any other material change in the foreign custody arrangements of the Portfolios described in this Section 3.2 after the occurrence of the material change.
3.2.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO. In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the 1940 Act would exercise.
3.2.7 REPRESENTATIONS WITH RESPECT TO RULE 17F-5. The Foreign Custody Manager represents that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5. Each Fund represents to State Street that its Board has determined that it is reasonable for the Board to rely on State Street to perform the responsibilities delegated pursuant to this Agreement to State Street as the Foreign Custody Manager of the Portfolios.
3.2.8 EFFECTIVE DATE AND TERMINATION OF STATE STREET AS FOREIGN CUSTODY MANAGER. The Board's delegation to State Street as Foreign Custody Manager of the Portfolios shall be effective as of the date hereof and shall remain in effect until terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective thirty (30) days after receipt by the non-terminating party of such notice. The provisions of Section 3.2.2 hereof shall govern the delegation to and termination of State Street as Foreign Custody Manager of the Portfolios with respect to designated countries.
SECTION 3.3 ELIGIBLE SECURITIES DEPOSITORIES.
3.3.1 ANALYSIS AND MONITORING. State Street shall (a) provide each Fund (or its duly-authorized investment manager or investment advisor) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories set forth on Schedule B hereto in accordance with section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor such risks on a continuing basis, and promptly notify a Fund (or its duly-authorized investment manager or investment advisor) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7.
3.3.2 STANDARD OF CARE. State Street agrees to exercise reasonable care, prudence and diligence in performing the duties set forth in Section 3.3.1.
SECTION 4. DUTIES OF STATE STREET WITH RESPECT TO PROPERTY OF THE PORTFOLIOS HELD OUTSIDE THE UNITED STATES
SECTION 4.1 DEFINITIONS. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings:
"Foreign Securities System" means an Eligible Securities Depository listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an Eligible Foreign Custodian.
SECTION 4.2. HOLDING SECURITIES. State Street shall identify on its books as belonging to the Portfolios the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. State Street may hold foreign securities for all of its customers, including the Portfolios, with any Foreign Sub-Custodian in an account that is identified as belonging to State Street for the benefit of its customers, provided however, that (i) the records of State Street with respect to foreign securities of the Portfolios which are maintained in such account shall identify those securities as belonging to the Portfolios and (ii), to the extent permitted and customary in the market in which the account is maintained, State Street shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian.
SECTION 4.3. FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign Securities System in a designated country through arrangements implemented by State Street or a Foreign Sub-Custodian, as applicable, in such country.
SECTION 4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
4.4.1. DELIVERY OF FOREIGN ASSETS. State Street or a Foreign Sub-Custodian shall release and deliver foreign securities of the Portfolios held by State Street or such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:
(i) upon the sale of such foreign securities for the Portfolio in accordance with commercially reasonable market practice in the country where such foreign securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment; or (B) in the case of a sale effected through a Foreign Securities System, in accordance with the rules governing the operation of the Foreign Securities System;
(ii) in connection with any repurchase agreement related to foreign securities;
(iii)to the depository agent in connection with tender or other similar offers for foreign securities of the Portfolios;
(iv) to the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name of State Street (or the name of the respective Foreign Sub-Custodian or of any nominee of State Street or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Foreign Sub-Custodian's own negligence or willful misconduct;
(vii)for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities;
(ix) for delivery as security in connection with any borrowing by the Portfolios requiring a pledge of assets by the Portfolios;
(x) in connection with trading in options and futures contracts, including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii)for any other proper corporate purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered and naming the person or persons to whom delivery of such securities shall be made.
4.4.2. PAYMENT OF PORTFOLIO MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, State Street shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of a Portfolio in the following cases only:
(i) upon the purchase of foreign securities for the Portfolio, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such foreign securities; or (B) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of foreign securities of the Portfolio;
(iii)for the payment of any expense or liability of the Portfolio, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Agreement, legal fees, accounting fees, and other operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign exchange contracts for the Portfolio, including transactions executed with or through State Street or its Foreign Sub-Custodians; (v) in connection with trading in options and futures contracts, including delivery as original margin and variation margin;
(vi) for payment of part or all of the dividends received in respect of securities sold short;
(vii)in connection with the borrowing or lending of foreign securities; and
(viii)for any other proper corporate purpose, but only upon receipt of Proper Instructions specifying the amount of such payment and naming the person or persons to whom such payment is to be made.
4.4.3. MARKET CONDITIONS. Notwithstanding any provision of this Agreement to the contrary, settlement and payment for Foreign Assets received for the account of the Portfolios and delivery of Foreign Assets maintained for the account of the Portfolios may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer.
State Street shall provide to the Board the information with respect to custody
and settlement practices in countries in which State Street appoints a Foreign Sub-Custodian described on Schedule C hereto at the time or times set forth on such Schedule. State Street may revise Schedule C from time to time, provided that no such revision shall result in the Board being provided with substantively less information than had been previously provided hereunder.
SECTION 4.5. REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the applicable Portfolio or in the name of State Street or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the applicable Fund on behalf of such Portfolio agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. State Street or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a Portfolio under the terms of this Agreement unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice.
SECTION 4.6 BANK ACCOUNTS. State Street shall identify on its books as belonging to each Fund cash (including cash denominated in foreign currencies) deposited with State Street. Where State Street is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of State Street, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of a Portfolio with a Foreign Sub-Custodian. All accounts referred to in this Section shall be subject only to draft or order by State Street (or, if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Portfolio. Cash maintained on the books of State Street (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, The Commonwealth of Massachusetts.
SECTION 4.7. COLLECTION OF INCOME. State Street shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Portfolios shall be entitled and shall credit such income, as collected, to the applicable Portfolio. In the event that extraordinary measures are required to collect such income, the Fund and State Street shall consult as to such measures and as to the compensation and expenses of State Street relating to such measures.
SECTION 4.8 SHAREHOLDER RIGHTS. With respect to the foreign securities held pursuant to this Section 4, State Street will use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights.
SECTION 4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES. State Street shall transmit promptly to each Fund written information with respect to Corporate Actions received by State Street via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Portfolios. With respect to tender or exchange offers, State Street shall transmit promptly to a Fund written information with respect to materials so received by State Street from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. Absent State Street's negligence, misfeasance, or misconduct, State Street shall not be liable for any untimely exercise of any action, right or power in connection
with a Corporate Action unless (i) State Street or the respective Foreign
Sub-Custodian is in actual possession of such foreign securities or property and
(ii) State Street receives Proper Instructions with regard to the Corporate
Action, and both (i) and (ii) occur at least three business days prior to the
date on which State Street is to take action to exercise such right or power.
SECTION 4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which State Street appoints a Foreign Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties, and to indemnify, and hold harmless, State Street from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian's performance of such obligations. At the Fund's election, the Portfolios shall be entitled to be subrogated to the rights of State Street with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Portfolios have not been made whole for any such loss, damage, cost, expense, liability or claim.
SECTION 4.11 TAX LAW. State Street shall have no responsibility or liability for any obligations now or hereafter imposed on a Fund, the Portfolios or State Street as custodian of the Portfolios by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of each Fund to notify State Street of the obligations imposed on the Fund with respect to the Portfolios or State Street as custodian of the Portfolios by the tax law of countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of State Street with regard to such tax law shall be to use reasonable efforts to assist a Fund with respect to any claim for exemption or refund under the tax law of countries for which the Fund has provided such information.
SECTION 4.12. LIABILITY OF CUSTODIAN. State Street shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub- custodians generally in this Agreement and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities System, State Street shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism, or any other loss where the Sub- Custodian has otherwise acted with reasonable care.
SECTION 5. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES. State Street shall receive from the distributor for the Shares or from the Transfer Agent and deposit into the account of the appropriate Portfolio such payments as are received for Shares thereof issued or sold from time to time by the Fund. State Street will provide timely notification to the Fund on behalf of each such Portfolio and the Transfer Agent of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose, State Street shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares, State Street is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares, State Street shall honor checks drawn on State Street by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to State Street in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and State Street.
SECTION 6. PROPER INSTRUCTIONS. Proper Instructions as used throughout this Agreement means a writing signed or initialed by one or more person or persons as the Board shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Each Fund shall provide State Street with a list of persons authorized to give oral instructions. Oral instructions will be considered Proper Instructions if State Street reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. State Street shall give a Fund prompt notice of the receipt of an oral instruction and the Fund shall cause all oral instructions to be confirmed in writing. Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that each Fund and State Street agree to security procedures, including but not limited to, the security procedures selected by a Fund in the Funds Transfer Addendum attached hereto. For purposes of this Section, Proper Instructions shall include instructions received by State Street pursuant to any three-party agreement which requires a segregated asset account in accordance with Section 2.10.
SECTION 7. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. State Street may in its discretion, without express authority from a Fund on behalf of each applicable Portfolio: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to a Fund on behalf of the Portfolio; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Portfolio, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Portfolio except as otherwise directed by the Board.
SECTION 8. EVIDENCE OF AUTHORITY State Street shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper reasonably believed by it to be genuine and to have been properly executed by or on behalf of a Fund. State Street may receive and accept a copy of a resolution certified by the Secretary or an Assistant Secretary of a Fund ("CERTIFIED RESOLUTION") as conclusive evidence (a) of the authority of any person to act in accordance with such resolution or (b) of any determination or of any action by the Board as described in such resolution, and such resolution may be considered as in full force and effect until receipt by State Street of written notice to the contrary.
SECTION 9. DUTIES OF STATE STREET WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF NET ASSET VALUE AND NET INCOME
SECTION 9.1 DELIVERY OF ACCOUNTS AND RECORDS. Fund will turn over or cause to be turned over to State Street all accounts and records needed by State Street to perform its duties and responsibilities hereunder fully and properly. State Street may rely conclusively on the completeness and correctness of such accounts and records.
SECTION 9.2 ACCOUNTS AND RECORDS. State Street will prepare and maintain, under the direction of and as interpreted by each Fund, each Fund's or Portfolio's accountants and/or other advisors, in complete, accurate and current form such accounts and records: (1) required to be maintained by a Fund with respect to portfolio transactions under Section 31(a) of the 1940 Act and the rules and regulations from time to time adopted thereunder; (2) required as a
basis for calculation of each Portfolio's net asset value; and (3) as otherwise agreed upon by the parties. Fund will advise State Street in writing of all applicable record retention requirements, other than those set forth in the 1940 Act. State Street will preserve such accounts and records in the manner and for the periods prescribed in the 1940 Act or for such longer period as is agreed upon by the parties. Each Fund will furnish, in writing or its electronic or digital equivalent, accurate and timely information needed by State Street to complete such accounts and records when such information is not readily available from generally accepted securities industry services or publications. Upon notification from State Street, a Fund will prepare and maintain the books and records as set forth above on a "back-up" basis from the date hereof until completion of the conversion period in the event that State Street is unable to do so as a result of events or circumstances beyond the reasonable control of State Street, including, without limitation, power or other mechanical or technological failures or interruptions, computer viruses or communications disruptions, work stoppages, natural disasters, or other similar events or acts.
SECTION 9.3 ACCOUNTS AND RECORDS PROPERTY OF EACH FUND. State Street acknowledges that all of the accounts and records maintained by State Street pursuant hereto are the property of a Fund, and will be made available to that Fund for inspection or reproduction within a reasonable period of time, upon demand. State Street will assist a Fund's independent auditors, or upon the prior written approval of a Fund, or upon demand, any regulatory body, in any requested review of that Fund's accounts and records but the Fund will reimburse State Street for all expenses and employee time invested in any such review outside of routine and normal periodic reviews. Upon receipt from a Fund of the necessary information or instructions, State Street will supply information from the books and records it maintains for the Fund that the Fund may reasonably request for tax returns, questionnaires, periodic reports to shareholders and such other reports and information requests as the Fund and State Street may agree upon from time to time.
SECTION 9.4 ADOPTION OF PROCEDURES. State Street and each Fund may from time to time adopt such procedures as they agree upon, and State Street may conclusively assume that no procedure approved or directed by a Fund, a Fund's or Portfolio's accountants or other advisors conflicts with or violates any requirements of the prospectus, articles of incorporation, bylaws, declaration of trust, any applicable law, rule or regulation, or any order, decree or agreement by which the Fund may be bound. Each Fund will be responsible for notifying State Street of any changes in statutes, regulations, rules, requirements or policies which may impact State Street responsibilities or procedures under this Agreement.
SECTION 9.5 VALUATION OF ASSETS. State Street will value the assets of each Portfolio in accordance with a Fund's Instructions utilizing the pricing sources designated by that Fund ("Pricing Sources") on the Price Source and Methodology Authorization Matrix, incorporated herein by this reference.
SECTION 10. RECORDS State Street shall with respect to each Portfolio create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of a Fund under the 1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of State Street be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the SEC. State Street shall, at a Fund's request, supply the Fund with a tabulation of securities owned by each Portfolio and held by State Street and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and State Street, include certificate numbers in
such tabulations.
SECTION 11. OPINION OF FUND'S INDEPENDENT ACCOUNTANT State Street shall take all reasonable action, as a Fund on behalf of each applicable Portfolio may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual reports to the SEC and with respect to any other requirements thereof.
SECTION 12. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS State Street shall provide each Fund, on behalf of each of the applicable Portfolios at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a U.S. Securities System or a Foreign Securities System, relating to the services provided by State Street under this Agreement; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by a Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state.
SECTION 13. COMPENSATION OF STATE STREET State Street shall be entitled to reasonable compensation for its services and expenses as custodian and recordkeeper, as agreed upon from time to time between each Fund on behalf of each applicable Portfolio and State Street. The initial Fee Schedule is attached hereto as Exhibit B.
SECTION 14. RESPONSIBILITY OF CUSTODIAN So long as and to the extent that it is in the exercise of reasonable care, State Street shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. State Street shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, but shall be kept indemnified by and shall be without liability to a Fund for any action taken or omitted by it in good faith without negligence, including, without limitation, acting in accordance with any Proper Instruction. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. State Street shall be without liability to a Fund and the applicable Portfolios for any loss, liability, claim or expense resulting from or caused by anything which is part of Country Risk (as defined in Section 3 hereof), including without limitation nationalization, expropriation, currency restrictions, or acts of war, revolution, riots or terrorism.
Except as may arise from State Street's own negligence or willful misconduct or the negligence or willful misconduct of a sub-custodian or agent, State Street shall be without liability to a Fund for any loss, liability, claim or expense resulting from or caused by; (i) events or circumstances beyond the reasonable control of State Street or any sub-custodian or Securities System or any agent or nominee of any of the foregoing, including, without limitation, the interruption, suspension or restriction of trading on or the closure of any securities market, power or other mechanical or technological failures or interruptions, computer viruses or communications disruptions, work stoppages, natural disasters, or other similar events or acts; (ii) errors by the Fund or its duly-authorized investment manager or investment advisor in their
instructions to State Street provided such instructions have been in accordance
with this Agreement; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to State Street's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of State Street, the Fund,
State Street's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or benefits;
(vi) delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
State Street shall be liable for the acts or omissions of a Foreign Sub-Custodian (as defined in Section 4 hereof) to the same extent as set forth with respect to sub-custodians generally in this Agreement.
If a Fund on behalf of a Portfolio requires State Street to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of State Street, result in State Street or its nominee assigned to the Fund or the Portfolio being liable for the payment of money or incurring liability of some other form, the Fund on behalf of the Portfolio, as a prerequisite to requiring State Street to take such action, shall provide indemnity to State Street in an amount and form satisfactory to it.
If a Fund requires State Street, its affiliates, subsidiaries or agents, to advance cash or securities for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement) or in the event that State Street or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the applicable Portfolio shall be security therefor and should the Fund fail to repay State Street promptly, State Street shall be entitled to utilize available cash and to dispose of such Portfolio's assets to the extent necessary to obtain reimbursement.
State Street is not responsible or liable for, and each Fund will indemnify and hold State Street harmless from and against, any and all costs, expenses, losses, damages, charges, counsel fees (including, without limitation, disbursements and the allocable cost of in-house counsel), payments and liabilities which may be asserted against or incurred by State Street or for which State Street may be held to be liable, arising out of or attributable to any error, omission, inaccuracy or other deficiency in any Portfolio's accounts and records or other information provided to State Street by or on behalf of a Portfolio, including the accuracy of the prices quoted by the Pricing Sources or for the information supplied by that Fund to value the assets, or the failure of that Fund to provide, or provide in a timely manner, any accounts, records, or information needed by State Street to perform its duties hereunder
State Street shall only be liable for direct damages that are the result of State Street's action or failure to act.
State Street agrees to maintain commercially reasonable back-up and disaster
recovery procedures and plans designed to minimize any loss of data or service interruption. Such procedures and plans include each Fund's provision of certain services as set forth more specifically in Section 9.2 above.
SECTION 15. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT This Agreement shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than sixty (60) days after the date of such delivery or mailing; provided, however, that the Fund shall not amend or terminate this Agreement in contravention of any applicable federal or state regulations, or any provision of the Fund's Declaration of Trust, Articles of Incorporation, or other governing documents, and further provided, that a Fund on behalf of one or more of the Portfolios may at any time by action of its Board (i) substitute another bank or trust company for State Street by giving notice as described above to State Street, or (ii) immediately terminate this Agreement in the event of the appointment of a conservator or receiver for State Street by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Agreement:
1) each Fund on behalf of each applicable Portfolio shall (a) pay to State Street such compensation as may be due as of the date of such termination and shall likewise reimburse State Street for its reasonable costs, expenses and disbursements, (b) designate a successor recordkeeper (which may be the Fund) by Proper Instructions; and (c) designate a successor custodian by Proper Instruction.
2) Upon payment of all sums due to it from a Fund, State Street shall (a) deliver all accounts and records to the successor recordkeeper (or, if none, to that Fund) at the office of State Street, and (b) deliver to such successor custodian at the office of State Street, duly endorsed and in the form for transfer, all securities of each applicable Portfolio then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, State Street shall, in like manner, upon receipt of a Certified Resolution, deliver at the office of State Street and transfer such securities, funds and other properties in accordance with such resolution.
In the event that no written order designating a successor custodian or Certified Resolution shall have been delivered to State Street on or before the date when such termination shall become effective, then State Street shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the 1940 Act, doing business in Boston, Massachusetts, or New York, New York, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by State Street on behalf of each applicable Portfolio and all instruments held by State Street relative thereto and all other property held by it under this Agreement on behalf of each applicable Portfolio, and to transfer to an account of such successor custodian all of the securities of each such Portfolio held in any Securities System. Thereafter, such bank or trust company shall be the successor of State Street under this Agreement.
In the event that accounts, records, securities, funds and other properties
remain in the possession of State Street after the date of termination hereof owing to failure of a Fund to procure the Certified Resolution to appoint a successor custodian, State Street shall be entitled to fair compensation for its services during such period as State Street retains possession of such accounts, records, securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of State Street shall remain in full force and effect.
SECTION 16. INTERPRETIVE AND ADDITIONAL PROVISIONS. In connection with the operation of this Agreement, State Street and each Fund, on behalf of each of the applicable Portfolios, may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Fund's Declaration of Trust, Articles of Incorporation, or other governing documents. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement.
SECTION 17. ADDITIONAL FUNDS. In the event that a Fund establishes one or more series with respect to which it desires to have State Street render services as custodian and recordkeeper under the terms hereof, it shall so notify State Street in writing, and if State Street agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder.
SECTION 18. MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts.
SECTION 19. PRIOR AGREEMENTS. This Agreement supersedes and terminates, as of the date hereof, all prior Agreements between each Fund on behalf of each of the Portfolios and State Street relating to the custody or recordkeeper of a Fund's assets.
SECTION 20. NOTICES. Any notice, instruction or other instrument required to be given hereunder may be delivered in person to the offices of the parties as set forth herein during normal business hours or delivered prepaid registered mail or by telex, cable or telecopy to the parties at the following addresses or such other addresses as may be notified by any party from time to time.
To a Fund: FUND NAME
90 Hudson Street
Jersey City, NY 07302-3972
Attention: Tracie Richter
Telephone: 201 395-2118
Telecopy: 201-395-3118
To State Street: STATE STREET BANK AND TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
Attention: Vice President, Custody
Telephone: 816-871-9478
Telecopy: 816-871-9648
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Such notice, instruction or other instrument shall be deemed to have been served in the case of a registered letter at the expiration of five business days after posting, in the case of cable twenty-four hours after dispatch and, in the case
of telex, immediately on dispatch and if delivered outside normal business hours it shall be deemed to have been received at the next time after delivery when normal business hours commence and in the case of cable, telex or telecopy on the business day after the receipt thereof. Evidence that the notice was properly addressed, stamped and put into the post shall be conclusive evidence of posting.
SECTION 21. REPRODUCTION OF DOCUMENTS. This Agreement and all schedules, addenda, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.
SECTION 22. REMOTE ACCESS SERVICES ADDENDUM. State Street and each Fund agree to be bound by the terms of the Remote Access Services Letter, incorporated herein by this reference.
SECTION 23. NO ASSIGNMENT. Neither a Fund nor State Street shall assign any rights or obligations under this Agreement to any other party without the written consent to such assignment signed by both the Fund and State Street. State Street further agrees that its Kansas City location will be primarily responsible for the performance of the services rendered hereunder unless the Fund agrees otherwise.
SECTION 24. TRUST NOTICE. If a Fund is a Trust, notice is hereby given that this Agreement has been executed on behalf of Fund by the undersigned duly authorized representative of Fund in his/her capacity as such and not individually; and that the obligations of this Agreement are binding only upon the assets and property of Fund and not upon any trustee, officer of shareholder of Fund individually, and, if the Fund is a Massachusetts business trust, that a copy of Fund's Trust Agreement and all amendments thereto is on file with the Secretary of State of Massachusetts.
SECTION 25. SHAREHOLDER COMMUNICATIONS ELECTION. SEC Rule 14b-2 requires banks which hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, State Street needs the Fund to indicate whether it authorizes State Street to provide the Fund's name, address, and share position to requesting companies whose securities the Fund owns. If a Fund tells State Street "no", State Street will not provide this information to requesting companies. If a Fund tells State Street "yes" or does not check either "yes" or "no" below, State Street is required by the rule to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund. For each Fund's protection, the Rule prohibits the requesting company from using the Fund's name and address for any purpose other than corporate communications. Please indicate below whether each Fund consents or objects by checking one of the alternatives below.
YES [ ] State Street is authorized to release the Fund's name, address, and
share positions.
NO [X] State Street is not authorized to release the Fund's name, address, and
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share positions.
SECTION 26. LIABILITY OF PORTFOLIOS SEVERAL AND NOT JOINT. The obligations of a Portfolio under this Agreement are enforceable solely against that Portfolio and its assets
IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of November 1, 2001.
ON BEHALF OF EACH OF THE LEGAL ENTITIES
LISTED ON EXHIBIT A, ATTACHED HERETO SIGNATURE ATTESTED TO BY:
By: /s/ JOAN A. BINSTOCK By: /s/ TRACIE E. RICHTER Name: Joan A. Binstock Name: Tracie E. Richter Title: Vice President Title: Vice President |
STATE STREET BANK AND TRUST COMPANY SIGNATURE ATTESTED TO BY:
By: /s/ W. ANDREW FRY By: /s/ STEPHEN HILLIARD Name: W. Andrew Fry Name: Stephen Hilliard Title: Senior Vice President Title: Senior Vice President |
EXHIBIT A
ENTITY AND SERIES TYPE OF JURISDICTION
ENTITY
Lord Abbett Developing Growth Fund, Inc. Corporation Maryland
Lord Abbett Affiliated Fund, Inc. Corporation Maryland
Lord Abbett Bond-Debenture Fund, Inc. Corporation Maryland
Lord Abbett Mid-Cap Value Fund, Inc. Corporation Maryland
Lord Abbett Large-Cap Growth Fund Business Trust Delaware
Lord Abbett Blend Trust Business Trust Delaware
Lord Abbett Small-Cap Blend Fund
Lord Abbett Securities Trust Business Trust Delaware
Alpha Series
Lord Abbett All Value Fund
International Series
Lord Abbett Micro-Cap Growth Fund
Lord Abbett Micro-Cap Value Fund
World Bond-Debenture Series
Lord Abbett Research Fund, Inc. Corporation Maryland
Lord Abbett Growth Opportunities Fund
Large-Cap Series
Small-Cap Value Series
Lord Abbett Investment Trust Business Trust Delaware
Balanced Series
Core Fixed Income Fund
Lord Abbett High Yield Fund
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Limited Duration U.S. Government
Securities Series
Lord Abbett Total Return Fund
U.S. Government Securities Series
Lord Abbett Series Fund, Inc. Corporation Maryland
Bond-Debenture Portfolio
Growth and Income Portfolio
International Portfolio
Mid-Cap Value Portfolio
Lord Abbett Global Fund, Inc. Corporation Maryland
Equity Series
Income Series
Lord Abbett Tax-Free Income Fund, Inc. Corporation Maryland
Lord Abbett California Tax-Free
Income Fund
Lord Abbett Connecticut Tax-Free
Income Fund
Lord Abbett Hawaii Tax-Free
Income Fund
Lord Abbett Minnesota Tax-Free
Income Fund
Lord Abbett Missouri Tax-Free
Income Fund
Lord Abbett National Tax-Free
Income Fund
Lord Abbett New Jersey Tax-Free
Income Fund
Lord Abbett New York Tax-Free
Income Fund
Lord Abbett Texas Tax-Free
Income Fund
Lord Abbett Washington Tax-Free
Income Fund
Lord Abbett Tax-Free Income Trust Business Trust Massachusetts
Florida Series
Georgia Series
Michigan Series
Pennsylvania Series
Lord Abbett U.S. Government Securities
Money Market Fund, Inc. Corporation Maryland
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EXHIBIT B
FEE SCHEDULE
REMOTE ACCESS SERVICES ADDENDUM
To Custody and Investment Accounting Agreement by and between State Street Bank and Trust Company and the Lord, Abbett Fund Family dated November 1, 2001
State Street has developed proprietary accounting and other systems, and has acquired licenses for other such systems, which it utilizes in conjunction with the services we provide to you (the "Systems"). In this regard, we maintain certain information in databases under our control and ownership that we make available on a remote basis to our customers (the "Remote Access Services").
The Services. This addendum shall govern use of all Systems that State Street may from time to time agree to provide you, the Customer, and your designated investment advisors, consultants or other third parties authorized by State Street who agree to abide by the terms of this Addendum ("Authorized Designees") in order to provide Remote Access Services for the purpose of obtaining and analyzing reports and information.
Security Procedures. You agree to comply, and to cause your Authorized Designees to comply, with remote access operating standards and procedures and with user identification or other password control requirements and other security procedures as may be issued from time to time by State Street for use of the Systems and access to the Remote Access Services. You agree to advise State Street immediately in the event that you learn or have reason to believe that any person to whom you have given access to the Systems or the Remote Access Services has violated or intends to violate the terms of this Addendum and you will cooperate with State Street in seeking injunctive or other equitable relief. You agree to discontinue use of the Systems and Remote Access Services, if requested, for any security reasons cited by State Street.
Fees. Fees and charges (if any) for the use of the Systems and the Remote Access Services and related payment terms shall be as set forth in the fee schedule in effect from time to time between the parties (the "Fee Schedule"). You shall be responsible for any tariffs, duties or taxes imposed or levied by any government or governmental agency by reason of the transactions contemplated by this Agreement, including, without limitation, federal, state and local taxes, use, value added and personal property taxes (other than income, franchise or similar taxes which may be imposed or assessed against State Street). Any claimed exemption from such tariffs, duties or taxes shall be supported by proper documentary evidence delivered to State Street.
Proprietary Information/Injunctive Relief. The Systems and Remote Access Services and the databases, computer programs, screen formats, report formats, interactive design techniques, formulae, processes, systems, software, know-how, algorithms, programs, training aids, printed materials, methods, books, records, files, documentation and other information made available to you by State Street as part of the Remote Access Services and through the use of the Systems and all copyrights, patents, trade secrets and other proprietary rights of State Street and its relevant licensors related thereto are the exclusive, valuable and confidential property of State Street and its relevant licensors, as applicable (the "Proprietary Information"). You agree on behalf of yourself and your Authorized Designees to keep the Proprietary Information confidential and to limit access to your employees and Authorized Designees (under a similar duty of confidentiality) who require access to the Systems for the purposes intended. The foregoing shall not apply to Proprietary Information in the public domain or required by law to be made public.
You agree to use the Remote Access Services only in connection with the proper purposes of this Addendum. You will not, and will cause your employees and Authorized Designees not to, (i) permit any third party to use the Systems or the Remote Access Services, (ii) sell, rent, license or otherwise use the Systems or the Remote Access Services in the operation of a service bureau or for any purpose other than as expressly authorized under this Addendum, (iii) use the Systems or the Remote Access Services for any fund, trust or other investment vehicle without the prior written consent of State Street, or (iv)
allow or cause any information transmitted from State Street's databases, including data from third party sources, available through use of the Systems or the Remote Access Services, to be redistributed or retransmitted for other than use for or on behalf of yourself, as our Customer.
You agree that neither you nor your Authorized Designees will modify the Systems in any way, enhance or otherwise create derivative works based upon the Systems, nor will you or your Authorized Designees reverse engineer, decompile or otherwise attempt to secure the source code for all or any part of the Systems.
You acknowledge that the disclosure of any Proprietary Information, or of any information which at law or equity ought to remain confidential, will immediately give rise to continuing irreparable injury inadequately compensable in damages at law, and that State Street and its licensor, if applicable, shall be entitled to obtain immediate injunctive relief against the breach or threatened breach of any of the foregoing undertakings, in addition to any other legal remedies which may be available.
LIMITED WARRANTIES. State Street represents and warrants that it has the right to grant access to the Systems and to provide the Remote Access Services contemplated herein. Because of the nature of computer information technology, including but not limited to the use of the Internet, and the necessity of relying upon third-party sources, and data and pricing information obtained from third parties, the Systems and Remote Access Services are provided "AS IS", and you and your Authorized Designees shall be solely responsible for the investment decisions, results obtained, regulatory reports and statements produced using the Remote Access Services. State Street and its relevant licensors will not be liable to you or your Authorized Designees for any direct or indirect, special, incidental, punitive or consequential damages arising out of or in any way connected with the Systems or the Remote Access Services, nor shall either party be responsible for delays or nonperformance under this Addendum arising out of any cause or event beyond such party's control.
EXCEPT AS EXPRESSLY SET FORTH IN THIS ADDENDUM, STATE STREET FOR ITSELF AND ITS RELEVANT LICENSORS EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES CONCERNING THE SYSTEM AND THE SERVICES TO BE RENDERED HEREUNDER, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE.
INFRINGEMENT. State Street will defend or, at our option, settle any claim or action brought against you to the extent that it is based upon an assertion that access to any proprietary System developed and owned by State Street or use of the Remote Access Services through any such proprietary System by you under this Addendum constitutes direct infringement of any United States patent or copyright or misappropriation of a trade secret, provided that you notify State Street promptly in writing of any such claim or proceeding and cooperate with State Street in the defense of such claim or proceeding. Should any such proprietary System or the Remote Access Services accessed thereby or any part thereof become, or in State Street's opinion be likely to become, the subject of a claim of infringement or the like under the patent or copyright or trade secret laws of the United States, State Street shall have the right, at State Street's sole option, to (i) procure for you the right to continue using such System or Remote Access Services, (ii) replace or modify such System or Remote Access Services so that the System or the Remote Access Services becomes noninfringing, or (iii) terminate access to the Remote Access Services without further obligation.
TERMINATION. Either party may terminate access to the Remote Access
Services (i) for any reason by giving the other party at least one-hundred and eighty (180) days' prior written notice in the case of notice of termination by State Street to you or thirty (30) days' notice in the case of notice from you to State Street of termination, or (ii) immediately for failure of the other party to comply with any material term and condition of the Addendum by giving the other party written notice of termination. In the event of termination, you will return to State Street all Proprietary Information in your possession or in the possession of your Authorized Designees. The foregoing provisions with respect to confidentiality and infringement will survive termination for a period of three (3) years.
MISCELLANEOUS. Except as provided in the next sentence, this Addendum constitutes our entire understanding with respect to access to the Systems and the Remote Access Services. If any State Street custody, accounting or other services agreement with you contains terms and conditions relating to computer systems or data access, this Addendum shall constitute an amendment and supplement to them, and in the event of any inconsistency the provisions providing the greatest benefit to State Street shall control. This Addendum cannot be modified or altered except in a writing duly executed by both of us and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.
STATE STREET
SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory
Depositories
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria Erste Bank der Oesterreichischen --
Sparkassen AG
Bahrain British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Bangladesh Standard Chartered Bank --
Belgium Generale de Banque --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano S.A. --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank, N.A. --
Bulgaria ING Bank N.V. --
Canada State Street Trust Company Canada --
Chile Citibank, N.A. Deposito Central
de Valores S.A.
People's Republic The Hongkong and Shanghai --
of China Banking Corporation Limited,
Shanghai and Shenzhen branches
Colombia Cititrust Colombia S.A. --
Sociedad Fiduciaria
Costa Rica Banco BCT S.A. --
Croatia Privredna Banka Zagreb d.d --
Cyprus The Cyprus Popular Bank Ltd. --
Czech Republic Ceskoslovenska Obchodni --
Banka, A.S.
Denmark Den Danske Bank --
Ecuador Citibank, N.A. --
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Limited --
France Banque Paribas --
Germany Dresdner Bank AG --
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Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A. The Bank of Greece,
System for Monitoring
Transactions in
Securities in Book-
Entry Form
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
Iceland Icebank Ltd.
India Deutsche Bank AG --
The Hongkong and Shanghai
Banking Corporation Limited
Indonesia Standard Chartered Bank --
Ireland Bank of Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Coast Societe Generale de Banques --
en Cote d'Ivoire
Jamaica Scotiabank Jamaica Trust and Merchant --
Bank Ltd.
Japan The Fuji Bank, Limited Japan Securities
Depository Center
Sumitomo Bank, Ltd.
Jordan British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited --
30
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Republic of Korea The Hongkong and Shanghai Banking
Corporation Limited
Latvia JSC Hansabank-Latvija --
Lebanon British Bank of the Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Lithuania Vilniaus Bankas AB --
Malaysia Standard Chartered Bank --
Malaysia Berhad
Mauritius The Hongkong and Shanghai --
Banking Corporation Limited
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa -
The Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group --
(New Zealand) Limited
Norway Christiania Bank og --
Kreditkasse
Oman British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
Poland Citibank (Poland) S.A. --
Bank Polska Kasa Opieki S.A.
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Portugal Banco Comercial Portugus --
Romania ING Bank N.V. --
Russia Credit Suisse First Boston AO, Moscow --
(as delegate of Credit Suisse
First Boston, Zurich)
Singapore The Development Bank --
of Singapore Limited
Slovak Republic Ceskoslovenska Obchodni Banka, A.S. --
Slovenia Bank Austria d.d. Ljubljana --
South Africa Standard Bank of South Africa Limited --
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai --
Banking Corporation Limited
Swaziland Standard Bank Swaziland Limited --
Sweden Skandinaviska Enskilda Banken --
Switzerland UBS AG --
Taiwan - R.O.C. Central Trust of China --
Thailand Standard Chartered Bank --
Trinidad & Tobago Republic Bank Limited --
Tunisia Banque Internationale Arabe de Tunisie --
Turkey Citibank, N.A. --
Ottoman Bank
Ukraine ING Bank, Ukraine --
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United Kingdom State Street Bank and Trust Company, --
London Branch
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
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Euroclear (The Euroclear System)/State Street London Limited
Cedel, S.A. (Cedel Bank, socit anonyme)/State Street London Limited
INTERSETTLE (for EASDAQ Securities)
STATE STREET
SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Argentina Caja de Valores S.A.
Australia Austraclear Limited
Reserve Bank Information and Transfer System
Austria Oesterreichische Kontrollbank AG
(Wertpapiersammelbank Division)
Belgium Caisse Interprofessionnelle de Depot et
de Virement de Titres S.A.
Banque Nationale de Belgique
Brazil Companhia Brasileira de Liquidacao e
Custodia (CBLC)
Bolsa de Valores de Rio de Janeiro
All SSB clients presently use CBLC
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Central de Custodia e de Liquidacao Financeira
de Titulos
Bulgaria Central Depository AD
Bulgarian National Bank
Canada The Canadian Depository for Securities Limited
People's Republic Shanghai Securities Central Clearing and
of China Registration Corporation
Shenzhen Securities Central Clearing Co., Ltd.
Costa Rica Central de Valores S.A. (CEVAL)
Croatia Ministry of Finance
National Bank of Croatia
Czech Republic Stredisko cennych papiru
Czech National Bank
Denmark Vaerdipapircentralen (the Danish Securities Center)
Egypt Misr Company for Clearing, Settlement,
and Central Depository
Estonia Eesti Vaartpaberite Keskdepositoorium
Finland The Finnish Central Securities Depository
France Societe Interprofessionnelle pour la Compensation des
Valeurs Mobilires (SICOVAM)
Germany Deutsche Borse Clearing AG
Greece The Central Securities Depository
(Apothetirion Titlon AE)
Hong Kong The Central Clearing and Settlement System
Central Money Markets Unit
Hungary The Central Depository and Clearing
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House (Budapest) Ltd. (KELER)
[Mandatory for Gov't Bonds only;
SSB does not use for other securities]
India The National Securities Depository Limited
Indonesia Bank Indonesia
Ireland Central Bank of Ireland
Securities Settlement Office
Israel The Tel Aviv Stock Exchange Clearing House Ltd.
Bank of Israel
Italy Monte Titoli S.p.A.
Banca d'Italia
Ivory Coast Depositaire Central - Banque de Reglement
Jamaica The Jamaican Central Securities Depository
Japan Bank of Japan Net System
Kenya Central Bank of Kenya
Republic of Korea Korea Securities Depository Corporation
Latvia The Latvian Central Depository
Lebanon The Custodian and Clearing Center of
Financial Instruments for Lebanon
and the Middle East (MIDCLEAR) S.A.L.
The Central Bank of Lebanon
Lithuania The Central Securities Depository of Lithuania
Malaysia The Malaysian Central Depository Sdn. Bhd.
Bank Negara Malaysia,
Scripless Securities Trading and Safekeeping System
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Mauritius The Central Depository & Settlement Co. Ltd.
Mexico S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de Valores)
Morocco Maroclear
The Netherlands Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. (NECIGEF)
De Nederlandsche Bank N.V.
New Zealand New Zealand Central Securities Depository Limited
Norway Verdipapirsentralen (the Norwegian
Registry of Securities)
Oman Muscat Securities Market
Pakistan Central Depository Company of Pakistan Limited
Peru Caja de Valores y Liquidaciones S.A. (CAVALI)
Philippines The Philippines Central Depository, Inc.
The Registry of Scripless Securities
(ROSS) of the Bureau of the Treasury
Poland The National Depository of Securities
(Krajowy Depozyt Papierow Wartos'ciowych)
Central Treasury Bills Registrar
Portugal Central de Valores Mobiliarios (Central)
Romania National Securities Clearing, Settlement and
Depository Co.
Bucharest Stock Exchange Registry Division
Singapore The Central Depository (Pte)
Limited
Monetary Authority of Singapore
Slovak Republic Stredisko Cennych Papierov
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National Bank of Slovakia
Slovenia Klirinsko Depotna Druzba d.d.
South Africa The Central Depository Limited
Spain Servicio de Compensacion y
Liquidacion de Valores, S.A.
Banco de Espana,
Central de Anotaciones en Cuenta
Sri Lanka Central Depository System (Pvt) Limited
Sweden Vardepapperscentralen AB
(the Swedish Central Securities Depository)
Switzerland Schweizerische Effekten - Giro AG
Taiwan - R.O.C. The Taiwan Securities Central
Depository Co., Ltd.
Thailand Thailand Securities Depository Company Limited
Tunisia Societe Tunisienne Interprofessionelle de
Compensation et de Depot de Valeurs Mobilieres
Central Bank of Tunisia
Tunisian Treasury
Turkey Takas ve Saklama Bankasi A.S. (TAKASBANK)
Central Bank of Turkey
Ukraine The National Bank of Ukraine
United Kingdom The Bank of England,
The Central Gilts Office and
The Central Moneymarkets Office
Uruguay Central Bank of Uruguay
Venezuela Central Bank of Venezuela
Zambia Lusaka Central Depository Limited
Bank of Zambia
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* Mandatory depositories include entities for which use is mandatory as a matter of law or effectively mandatory as a matter of market practice.
SCHEDULE C
MARKET INFORMATION
Publication/Type of Information Brief Description
(Frequency)
The Guide to Custody in World Markets An overview of safekeeping and
(annually) settlement practices and procedures
in each market in which State Street
Bank and Trust Company offers
custodial services.
Global Custody Network Review Information relating to the operating
(annually) history and structure of depositories
and subcustodians located in the
markets in which State Street Bank
and Trust Company offers custodial
services, including transnational
depositories.
Global Legal Survey With respect to each market in which
(annually) State Street Bank and Trust Company
offers custodial services, opinions
relating to whether local law
restricts (i) access of a fund's
independent public accountants to
books and records of a Foreign Sub-
Custodian or Foreign Securities
System, (ii) the Fund's ability to
recover in the event of bankruptcy or
insolvency of a Foreign Sub-Custodian
or Foreign Securities System, (iii)
the Fund's ability to recover in the
event of a loss by a Foreign Sub-
Custodian or Foreign Securities
System, and (iv) the ability of a
foreign investor to convert cash and
cash equivalents to U.S. dollars.
Subcustodian Agreements Copies of the subcustodian contracts
(annually) State Street Bank and Trust Company
has entered into with each
subcustodian in the markets in which
State Street Bank and Trust Company
offers subcustody services to its US
mutual fund clients.
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Network Bulletins (weekly): Developments of interest to investors
in the markets in which State Street
Bank and Trust Company offers
custodial services.
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Foreign Custody Advisories (as necessary): With respect to markets in which State Street Bank and Trust Company offers custodial services which exhibit special custody risks, developments which may impact State Street's ability to deliver expected levels of service.