UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number | 811-00005 | |||||||
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LORD ABBETT AFFILIATED FUND, INC. | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
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90 Hudson Street, Jersey City, NJ |
| 07302 | ||||||
(Address of principal executive offices) |
| (Zip code) | ||||||
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Thomas R. Phillips, Esq., Vice President & Assistant Secretary 90 Hudson Street, Jersey City, NJ 07302 | ||||||||
(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: | (800) 201-6984 |
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Date of fiscal year end: | 10/31 |
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Date of reporting period: | 4/30/2009 |
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Item 1: Report to Shareholders.
2009
LORD ABBETT
SEMIANNUAL REPORT
Lord Abbett Affiliated Fund
For the six-month period ended April 30, 2009
Lord Abbett Affiliated Fund Semiannual Report
For the six-month period ended April 30, 2009
Dear Shareholders: We are pleased to provide you with this semiannual report of the Lord Abbett Affiliated Fund for the six-month period ended April 30, 2009. For additional information about the Fund, please visit our Website at www.lordabbett.com, where you can access the quarterly commentaries by the Fund's portfolio managers. General information about Lord Abbett mutual funds, as well as in-depth discussions of market trends and investment strategies, is also provided in Lord Abbett Insights, a quarterly newsletter available on our Website.
Thank you for investing in Lord Abbett mutual funds. We value the trust that you place in us and look forward to serving your investment needs in the years to come.
Best regards,
Robert S. Dow
Chairman
From left to right: Robert S. Dow, Director and Chairman of the Lord Abbett Funds; E. Thayer Bigelow, Independent Lead Director of the Lord Abbett Funds; and Daria L. Foster, Director and President of the Lord Abbett Funds.
1
Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments (these charges vary among the share classes); and (2) ongoing costs, including management fees; distribution and service (12b-1) fees (these charges vary among the share classes); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (November 1, 2008 through April 30, 2009).
Actual Expenses
For each class of the Fund, the first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses Paid During the Period 11/1/08 – 4/30/09" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
For each class of the Fund, the second line of the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
2
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value | Ending Account Value | Expenses Paid During Period† | |||||||||||||
11/1/08 | 4/30/09 | 11/1/08 – 4/30/09 | |||||||||||||
Class A | |||||||||||||||
Actual | $ | 1,000.00 | $ | 869.10 | $ | 4.22 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,020.30 | $ | 4.56 | |||||||||
Class B | |||||||||||||||
Actual | $ | 1,000.00 | $ | 866.40 | $ | 7.22 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,017.06 | $ | 7.80 | |||||||||
Class C | |||||||||||||||
Actual | $ | 1,000.00 | $ | 866.20 | $ | 7.22 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,017.06 | $ | 7.80 | |||||||||
Class F | |||||||||||||||
Actual | $ | 1,000.00 | $ | 870.60 | $ | 3.06 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,021.52 | $ | 3.31 | |||||||||
Class I | |||||||||||||||
Actual | $ | 1,000.00 | $ | 871.50 | $ | 2.60 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,022.01 | $ | 2.81 | |||||||||
Class P | |||||||||||||||
Actual | $ | 1,000.00 | $ | 869.20 | $ | 4.68 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,019.79 | $ | 5.06 | |||||||||
Class R2 | |||||||||||||||
Actual | $ | 1,000.00 | $ | 868.60 | $ | 5.37 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,019.04 | $ | 5.81 | |||||||||
Class R3 | |||||||||||||||
Actual | $ | 1,000.00 | $ | 869.30 | $ | 4.91 | |||||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,019.55 | $ | 5.31 |
† For each class of the Fund, net expenses are equal to the annualized expense ratio for such class (0.91% for Class A, 1.56% for Class B and C, 0.66% for Class F, 0.56% for Class I, 1.01% for Class P, 1.16% for Class R2 and 1.06% for Class R3) multiplied by the average account value over the period, multiplied by 181/365 (to reflect one-half year period).
Portfolio Holdings Presented by Sector
April 30, 2009
Sector* | %** | ||||||
Auto & Transportation | 2.97 | % | |||||
Consumer Discretionary | 22.12 | % | |||||
Consumer Staples | 7.28 | % | |||||
Financial Services | 30.84 | % | |||||
Healthcare | 9.97 | % | |||||
Integrated Oils | 4.34 | % | |||||
Sector* | %** | ||||||
Materials & Processing | 2.45 | % | |||||
Other Energy | 5.43 | % | |||||
Producer Durables | 3.32 | % | |||||
Technology | 4.43 | % | |||||
Utilities | 2.71 | % | |||||
Short-Term Investment | 4.14 | % | |||||
Total | 100.00 | % |
* A sector may comprise several industries.
** Represents percent of total investments.
3
Schedule of Investments (unaudited)
April 30, 2009
Investments | Shares | Value (000) | |||||||||
LONG-TERM INVESTMENTS 96.31% | |||||||||||
COMMON STOCKS 95.85% | |||||||||||
Advertising Agency 0.24% | |||||||||||
Omnicom Group, Inc. | 695,350 | $ | 21,883 | ||||||||
Air Transportation 2.14% | |||||||||||
Delta Air Lines, Inc.* | 31,545,308 | 194,635 | |||||||||
Automobiles 0.44% | |||||||||||
Ford Motor Co.* | 6,709,946 | 40,125 | |||||||||
Banks 7.71% | |||||||||||
Bank of America Corp. | 5,946,570 | 53,103 | |||||||||
BB&T Corp. | 2,949,949 | 68,852 | |||||||||
M&T Bank Corp. | 1,929,892 | 101,223 | |||||||||
PNC Financial Services Group, Inc. (The) | 3,183,233 | 126,374 | |||||||||
Wells Fargo & Co. | 17,571,424 | 351,604 | |||||||||
Total | 701,156 | ||||||||||
Beverage: Soft Drinks 3.42% | |||||||||||
Coca-Cola Enterprises, Inc. | 18,231,311 | 311,026 | |||||||||
Biotechnology Research & Production 1.61% | |||||||||||
Amgen, Inc.* | 3,029,481 | 146,839 | |||||||||
Building Materials 0.29% | |||||||||||
Masco Corp. | 2,955,292 | 26,184 | |||||||||
Cable Television Services 1.18% | |||||||||||
Comcast Corp. Class A | 6,135,804 | 94,860 | |||||||||
Time Warner Cable, Inc. | 388,994 | 12,537 | |||||||||
Total | 107,397 | ||||||||||
Chemicals 0.78% | |||||||||||
E.I. du Pont de Nemours & Co. | 75,732 | 2,113 | |||||||||
Praxair, Inc. | 927,678 | 69,214 | |||||||||
Total | 71,327 |
Investments | Shares | Value (000) | |||||||||
Communications & Media 0.37% | |||||||||||
Time Warner, Inc. | 1,549,715 | $ | 33,830 | ||||||||
Communications Technology 0.21% | |||||||||||
Cisco Systems, Inc.* | 986,000 | 19,050 | |||||||||
Computer Services, Software & Systems 2.41% | |||||||||||
Adobe Systems, Inc.* | 1,886,400 | 51,593 | |||||||||
Oracle Corp. | 8,652,591 | 167,341 | |||||||||
Total | 218,934 | ||||||||||
Computer Technology 0.87% | |||||||||||
Hewlett-Packard Co. | 2,205,527 | 79,355 | |||||||||
Diversified Financial Services 13.72% | |||||||||||
Bank of New York Mellon Corp. (The) | 14,071,307 | 358,537 | |||||||||
Goldman Sachs Group, Inc. (The) | 2,012,575 | 258,616 | |||||||||
JPMorgan Chase & Co. | 15,167,739 | 500,535 | |||||||||
Morgan Stanley | 5,546,648 | 131,123 | |||||||||
Total | 1,248,811 | ||||||||||
Diversified Production 1.75% | |||||||||||
Eaton Corp. | 3,643,080 | 159,567 | |||||||||
Drug & Grocery Store Chains 1.58% | |||||||||||
Kroger Co. (The) | 6,656,304 | 143,909 | |||||||||
Drugs & Pharmaceuticals 3.91% | |||||||||||
Abbott Laboratories | 2,992,522 | 125,237 | |||||||||
Schering-Plough Corp. | 2,150,400 | 49,502 | |||||||||
Teva Pharmaceutical Industries Ltd. ADR | 4,120,434 | 180,846 | |||||||||
Total | 355,585 | ||||||||||
Electrical & Electronics 0.13% | |||||||||||
Corning, Inc. | 777,500 | 11,367 |
See Notes to Financial Statements.
4
Schedule of Investments (unaudited) (continued)
April 30, 2009
Investments | Shares | Value (000) | |||||||||
Electronics: Semi-Conductors/Components 0.84% | |||||||||||
Intel Corp. | 4,715,000 | $ | 74,403 | ||||||||
Texas Instruments, Inc. | 96,200 | 1,737 | |||||||||
Total | 76,140 | ||||||||||
Entertainment 0.26% | |||||||||||
Viacom, Inc.* | 1,211,300 | 23,305 | |||||||||
Financial Information Services 0.83% | |||||||||||
Moody's Corp. | 2,571,194 | 75,902 | |||||||||
Foods 1.85% | |||||||||||
J.M. Smucker Co. (The) | 239,200 | 9,425 | |||||||||
Kraft Foods, Inc. Class A | 6,796,034 | 159,027 | |||||||||
Total | 168,452 | ||||||||||
Healthcare Management Services 1.19% | |||||||||||
UnitedHealth Group, Inc. | 3,555,096 | 83,616 | |||||||||
WellPoint, Inc.* | 578,200 | 24,724 | |||||||||
Total | 108,340 | ||||||||||
Homebuilding 0.36% | |||||||||||
Pulte Homes, Inc. | 2,852,143 | 32,828 | |||||||||
Hotel/Motel 0.93% | |||||||||||
Marriott International, Inc. Class A | 3,583,176 | 84,420 | |||||||||
Identification Control & Filter Devices 0.48% | |||||||||||
Parker Hannifin Corp. | 956,364 | 43,371 | |||||||||
Insurance: Multi-Line 3.04% | |||||||||||
ACE Ltd. (Switzerland)(a) | 667,036 | 30,897 | |||||||||
Aon Corp. | 4,416,644 | 186,382 | |||||||||
MetLife, Inc. | 2,006,857 | 59,704 | |||||||||
Total | 276,983 |
Investments | Shares | Value (000) | |||||||||
Investment Management Companies 4.98% | |||||||||||
Franklin Resources, Inc. | 3,127,237 | $ | 189,135 | ||||||||
Legg Mason, Inc. | 1,702,832 | 34,176 | |||||||||
Northern Trust Corp. | 290,343 | 15,783 | |||||||||
State Street Corp. | 1,142,781 | 39,003 | |||||||||
T. Rowe Price Group, Inc. | 4,551,233 | 175,314 | |||||||||
Total | 453,411 | ||||||||||
Leisure Time 1.21% | |||||||||||
Carnival Corp. Unit | 4,084,346 | 109,787 | |||||||||
Machinery: Industrial/Specialty 0.04% | |||||||||||
Joy Global, Inc. | 153,800 | 3,922 | |||||||||
Machinery: Oil Well Equipment & Services 3.19% | |||||||||||
Cameron International Corp.* | 374,500 | 9,580 | |||||||||
Halliburton Co. | 3,425,006 | 69,254 | |||||||||
Schlumberger Ltd. | 4,323,401 | 211,803 | |||||||||
Total | 290,637 | ||||||||||
Medical & Dental Instruments & Supplies 3.30% | |||||||||||
Boston Scientific Corp.* | 25,960,000 | 218,324 | |||||||||
Covidien Ltd. | 2,490,016 | 82,121 | |||||||||
Total | 300,445 | ||||||||||
Milling: Fruit & Grain Processing 1.39% | |||||||||||
Archer Daniels Midland Co. | 5,144,403 | 126,655 | |||||||||
Miscellaneous Business & Consumer Discretionary 0.16% | |||||||||||
Western Union Co. | 869,067 | 14,557 | |||||||||
Oil: Crude Producers 1.90% | |||||||||||
Apache Corp. | 242,000 | 17,632 | |||||||||
Occidental Petroleum Corp. | 1,464,484 | 82,436 | |||||||||
XTO Energy, Inc. | 2,110,588 | 73,153 | |||||||||
Total | 173,221 |
See Notes to Financial Statements.
5
Schedule of Investments (unaudited) (continued)
April 30, 2009
Investments | Shares | Value (000) | |||||||||
Oil: Integrated Domestic 1.84% | |||||||||||
EnCana Corp. (Canada)(a) | 390,700 | $ | 17,867 | ||||||||
Hess Corp. | 2,734,329 | 149,814 | |||||||||
Total | 167,681 | ||||||||||
Oil: Integrated International 2.52% | |||||||||||
Chevron Corp. | 963,972 | 63,719 | |||||||||
Exxon Mobil Corp. | 2,479,992 | 165,341 | |||||||||
Total | 229,060 | ||||||||||
Pollution Control & Environmental Services 0.71% | |||||||||||
Waste Management, Inc. | 2,410,061 | 64,276 | |||||||||
Railroads 0.39% | |||||||||||
Canadian National Railway Co. (Canada)(a) | 884,200 | 35,739 | |||||||||
Rental & Leasing Services: Consumer 1.87% | |||||||||||
Hertz Global Holdings, Inc.*(b) | 24,977,249 | 169,845 | |||||||||
Restaurants 0.07% | |||||||||||
Starbucks Corp.* | 467,510 | 6,760 | |||||||||
Retail 14.71% | |||||||||||
Best Buy Co., Inc. | 4,682,938 | 179,731 | |||||||||
Home Depot, Inc. (The) | 9,788,682 | 257,638 | |||||||||
HSN, Inc.*(b) | 5,176,041 | 35,766 | |||||||||
IAC/InterActiveCorp.*(b) | 9,374,430 | 150,178 | |||||||||
J.C. Penney Co., Inc. | 2,486,913 | 76,323 | |||||||||
Kohl's Corp.* | 4,562,389 | 206,904 | |||||||||
Lowe's Cos., Inc. | 431,600 | 9,280 | |||||||||
Target Corp. | 7,116,121 | 293,611 | |||||||||
Wal-Mart Stores, Inc. | 2,562,080 | 129,129 | |||||||||
Total | 1,338,560 | ||||||||||
Securities Brokerage & Services 0.24% | |||||||||||
TD Ameritrade Holding Corp.* | 1,357,775 | 21,602 |
Investments | Shares | Value (000) | |||||||||
Soaps & Household Chemicals 0.23% | |||||||||||
Colgate-Palmolive Co. | 348,400 | $ | 20,556 | ||||||||
Textiles Apparel Manufacturers 1.23% | |||||||||||
J. Crew Group, Inc.*(b) | 5,622,789 | 96,768 | |||||||||
V.F. Corp. | 249,900 | 14,812 | |||||||||
Total | 111,580 | ||||||||||
Tobacco 0.24% | |||||||||||
Altria Group, Inc. | 1,334,449 | 21,792 | |||||||||
Transportation: Miscellaneous 0.01% | |||||||||||
Expeditors International of Washington, Inc. | 31,400 | 1,090 | |||||||||
Utilities: Gas Pipelines 0.35% | |||||||||||
El Paso Corp. | 4,669,455 | 32,219 | |||||||||
Utilities: Telecommunications 2.73% | |||||||||||
AT&T, Inc. | 6,571,349 | 168,358 | |||||||||
Sprint Nextel Corp.* | 5,705,053 | 24,874 | |||||||||
Verizon Communications, Inc. | 1,803,800 | 54,727 | |||||||||
Total | 247,959 | ||||||||||
Total Common Stocks (cost $10,844,074,721) | 8,722,075 | ||||||||||
LIMITED LIABILITY COMPANIES 0.46% | |||||||||||
Investment Management Companies | |||||||||||
Oaktree Capital Management, LLC† (cost $136,400,000) | 3,100,000 | 41,850 | |||||||||
Total Long-Term Investments (cost $10,980,474,721) | 8,763,925 |
See Notes to Financial Statements.
6
Schedule of Investments (unaudited) (concluded)
April 30, 2009
Investments | Principal Amount (000) | Value (000) | |||||||||
SHORT-TERM INVESTMENT 4.16% | |||||||||||
Repurchase Agreement | |||||||||||
Repurchase Agreement dated 4/30/2009, 0.01% due 5/1/2009 with State Street Bank & Trust Co. collateralized by $175,825,000 of U.S. Treasury Bill at 0.645% due 11/19/2009, $30,000,000 of U.S. Treasury Note at 4.375% due 12/15/2010, $25,375,000 of U.S. Treasury Note at 4.75% due 3/31/2011, $60,000,000 of U.S. Treasury Note at 1.50% due 10/31/2010, and $90,000,000 of U.S. Treasury Note at 0.87 5% due 2/28/2011; value: $385,792,785; proceeds: $378,225,449 (cost $378,225,344) | $ | 378,225 | $ | 378,225 | |||||||
Total Investments in Securities 100.47% (cost $11,358,700,065) | 9,142,150 | ||||||||||
Liabilities in Excess of Other Assets (0.47%) | (42,622 | ) | |||||||||
Net Assets 100.00% | $ | 9,099,528 |
ADR American Depositary Receipt.
Unit More than one class of securities traded together.
* Non-income producing security.
† Security was purchased pursuant to Rule 144A under the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be resold to qualified institutional investors. Unless otherwise noted, 144A securities are deemed to be liquid.
(a) Foreign security traded in U.S. dollars.
(b) Affiliated issuer (holding represents 5% or more of the underlying issuer's outstanding voting shares). (See Note 9).
See Notes to Financial Statements.
7
Statement of Assets and Liabilities (unaudited)
April 30, 2009
ASSETS: | |||||||
Investments in unaffiliated issuers, at value (cost $10,469,926,016) | $ | 8,689,591,614 | |||||
Investments in affiliated issuers, at value (cost $888,774,049) | 452,558,304 | ||||||
Receivables: | |||||||
Capital shares sold | 547,356,863 | ||||||
Investment securities sold | 65,420,731 | ||||||
Interest and dividends | 12,153,033 | ||||||
Prepaid expenses and other assets | 89,706 | ||||||
Total assets | 9,767,170,251 | ||||||
LIABILITIES: | |||||||
Payables: | |||||||
Capital shares reacquired | 559,381,593 | ||||||
Investment securities purchased | 90,564,875 | ||||||
12b-1 distribution fees | 6,484,323 | ||||||
Directors' fees | 4,705,922 | ||||||
Management fee | 2,486,274 | ||||||
Fund administration | 297,472 | ||||||
To affiliates (See Note 3) | 58,369 | ||||||
Accrued expenses and other liabilities | 3,663,208 | ||||||
Total liabilities | 667,642,036 | ||||||
NET ASSETS | $ | 9,099,528,215 | |||||
COMPOSITION OF NET ASSETS: | |||||||
Paid-in capital | $ | 13,859,665,585 | |||||
Distributions in excess of net investment income | (35,475,758 | ) | |||||
Accumulated net realized loss on investments | (2,508,111,465 | ) | |||||
Net unrealized depreciation on investments | (2,216,550,147 | ) | |||||
Net Assets | $ | 9,099,528,215 |
See Notes to Financial Statements.
8
Statement of Assets and Liabilities (unaudited) (concluded)
April 30, 2009
Net assets by class: | |||||||
Class A Shares | $ | 7,280,633,271 | |||||
Class B Shares | $ | 428,735,740 | |||||
Class C Shares | $ | 650,334,151 | |||||
Class F Shares | $ | 58,913,500 | |||||
Class I Shares | $ | 474,347,984 | |||||
Class P Shares | $ | 199,700,087 | |||||
Class R2 Shares | $ | 77,854 | |||||
Class R3 Shares | $ | 6,785,628 | |||||
Outstanding shares by class: | |||||||
Class A Shares (2.9 billion shares of common stock authorized, $.001 par value) | 905,201,161 | ||||||
Class B Shares (300 million shares of common stock authorized, $.001 par value) | 53,033,501 | ||||||
Class C Shares (300 million shares of common stock authorized, $.001 par value) | 80,667,361 | ||||||
Class F Shares (300 million shares of common stock authorized, $.001 par value) | 7,329,455 | ||||||
Class I Shares (300 million shares of common stock authorized, $.001 par value) | 58,858,936 | ||||||
Class P Shares (200 million shares of common stock authorized, $.001 par value) | 24,876,247 | ||||||
Class R2 Shares (300 million shares of common stock authorized, $.001 par value) | 9,673 | ||||||
Class R3 Shares (300 million shares of common stock authorized, $.001 par value) | 843,224 | ||||||
Net asset value, offering and redemption price per share (Net assets divided by outstanding shares): | |||||||
Class A Shares-Net asset value | $ | 8.04 | |||||
Class A Shares-Maximum offering price | |||||||
(Net asset value plus sales charge of 5.75%) | $ | 8.53 | |||||
Class B Shares-Net asset value | $ | 8.08 | |||||
Class C Shares-Net asset value | $ | 8.06 | |||||
Class F Shares-Net asset value | $ | 8.04 | |||||
Class I Shares-Net asset value | $ | 8.06 | |||||
Class P Shares-Net asset value | $ | 8.03 | |||||
Class R2 Shares-Net asset value | $ | 8.05 | |||||
Class R3 Shares-Net asset value | $ | 8.05 |
See Notes to Financial Statements.
9
Statement of Operations (unaudited)
For the Six Months Ended April 30, 2009
Investment income: | |||||||
Dividends (net of foreign withholding taxes of $243,213) | $ | 129,468,188 | |||||
Interest and other | 10,527 | ||||||
Total investment income | 129,478,715 | ||||||
Expenses: | |||||||
Management fee | 14,054,254 | ||||||
12b-1 distribution plan-Class A | 12,572,373 | ||||||
12b-1 distribution plan-Class B | 2,302,749 | ||||||
12b-1 distribution plan-Class C | 3,344,093 | ||||||
12b-1 distribution plan-Class F | 12,131 | ||||||
12b-1 distribution plan-Class P | 463,236 | ||||||
12b-1 distribution plan-Class R2 | 216 | ||||||
12b-1 distribution plan-Class R3 | 12,195 | ||||||
Shareholder servicing | 8,002,530 | ||||||
Fund administration | 1,811,088 | ||||||
Subsidy (See Note 3) | 416,524 | ||||||
Reports to shareholders | 410,966 | ||||||
Directors' fees | 222,579 | ||||||
Registration | 148,712 | ||||||
Professional | 70,834 | ||||||
Custody | 66,290 | ||||||
Other | 192,469 | ||||||
Gross expenses | 44,103,239 | ||||||
Expense reductions (See Note 7) | (27,399 | ) | |||||
Net expenses | 44,075,840 | ||||||
Net investment income | 85,402,875 | ||||||
Net realized and unrealized gain (loss): | |||||||
Net realized loss on investments in unaffiliated issuers | (2,449,572,343 | ) | |||||
Net realized loss on investments in affiliated issuers | (3,847,995 | ) | |||||
Net change in unrealized depreciation on investments | 781,739,863 | ||||||
Net realized and unrealized loss | (1,671,680,475 | ) | |||||
Net Decrease in Net Assets Resulting From Operations | $ | (1,586,277,600 | ) |
See Notes to Financial Statements.
10
Statements of Changes in Net Assets
DECREASE IN NET ASSETS | For the Six Months Ended April 30, 2009 (unaudited) | For the Year Ended October 31, 2008 | |||||||||
Operations: | |||||||||||
Net investment income | $ | 85,402,875 | $ | 219,445,137 | |||||||
Net realized gain (loss) on investments in affiliated and unaffiliated issuers | (2,453,420,338 | ) | 30,488,902 | ||||||||
Net change in unrealized appreciation/depreciation on investments | 781,739,863 | (7,206,593,926 | ) | ||||||||
Net decrease in net assets resulting from operations | (1,586,277,600 | ) | (6,956,659,887 | ) | |||||||
Distributions to shareholders from: | |||||||||||
Net investment income | |||||||||||
Class A | (99,707,918 | ) | (218,212,766 | ) | |||||||
Class B | (4,213,639 | ) | (8,504,792 | ) | |||||||
Class C | (6,088,051 | ) | (11,937,162 | ) | |||||||
Class F | (192,128 | ) | (141,012 | ) | |||||||
Class I | (6,731,975 | ) | (11,984,766 | ) | |||||||
Class P | (2,697,970 | ) | (5,562,695 | ) | |||||||
Class R2 | (834 | ) | (1,148 | ) | |||||||
Class R3 | (56,044 | ) | (22,122 | ) | |||||||
Net realized gain | |||||||||||
Class A | — | (1,627,071,395 | ) | ||||||||
Class B | — | (121,514,862 | ) | ||||||||
Class C | — | (165,099,779 | ) | ||||||||
Class F | — | (991 | ) | ||||||||
Class I | — | (64,793,049 | ) | ||||||||
Class P | — | (42,237,458 | ) | ||||||||
Class R2 | — | (988 | ) | ||||||||
Class R3 | — | (988 | ) | ||||||||
Total distributions to shareholders | (119,688,559 | ) | (2,277,085,973 | ) | |||||||
Capital share transactions (Net of share conversions) (See Note 12): | |||||||||||
Net proceeds from sales of shares | 560,901,818 | 1,549,300,303 | |||||||||
Reinvestment of distributions | 103,428,393 | 1,995,735,186 | |||||||||
Cost of shares reacquired | (1,388,515,046 | ) | (3,648,077,046 | ) | |||||||
Net decrease in net assets resulting from capital share transactions | (724,184,835 | ) | (103,041,557 | ) | |||||||
Net decrease in net assets | (2,430,150,994 | ) | (9,336,787,417 | ) | |||||||
NET ASSETS: | |||||||||||
Beginning of period | $ | 11,529,679,209 | $ | 20,866,466,626 | |||||||
End of period | $ | 9,099,528,215 | $ | 11,529,679,209 | |||||||
Distributions in excess of net investment income | $ | (35,475,758 | ) | $ | (1,190,074 | ) |
See Notes to Financial Statements.
11
Financial Highlights
Class A Shares | |||||||||||||||||||||||||||
Six Months Ended 4/30/2009 | Year Ended 10/31 | ||||||||||||||||||||||||||
(unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
Per Share Operating Performance | |||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.38 | $ | 16.55 | $ | 15.84 | $ | 14.52 | $ | 13.95 | $ | 12.68 | |||||||||||||||
Investment operations: | |||||||||||||||||||||||||||
Net investment income(a) | .07 | .18 | .22 | .20 | .18 | .12 | |||||||||||||||||||||
Net realized and unrealized gain (loss) | (1.31 | ) | (5.53 | ) | 1.69 | 2.34 | .84 | 1.35 | |||||||||||||||||||
Total from investment operations | (1.24 | ) | (5.35 | ) | 1.91 | 2.54 | 1.02 | 1.47 | |||||||||||||||||||
Distributions to shareholders from: | |||||||||||||||||||||||||||
Net investment income | (.10 | ) | (.21 | ) | (.20 | ) | (.20 | ) | (.20 | ) | (.20 | ) | |||||||||||||||
Net realized gain | — | (1.61 | ) | (1.00 | ) | (1.02 | ) | (.25 | ) | — | (b) | ||||||||||||||||
Total distributions | (.10 | ) | (1.82 | ) | (1.20 | ) | (1.22 | ) | (.45 | ) | (.20 | ) | |||||||||||||||
Net asset value, end of period | $ | 8.04 | $ | 9.38 | $ | 16.55 | $ | 15.84 | $ | 14.52 | $ | 13.95 | |||||||||||||||
Total Return(c) | (13.09 | )%(d) | (35.65 | )% | 12.96 | % | 18.55 | % | 7.38 | % | 11.71 | % | |||||||||||||||
Ratios to Average Net Assets: | |||||||||||||||||||||||||||
Expenses, including expense reductions | .45 | %(d) | .82 | % | .81 | % | .82 | % | .82 | % | .83 | % | |||||||||||||||
Expenses, excluding expense reductions | .45 | %(d) | .82 | % | .81 | % | .82 | % | .83 | % | .83 | % | |||||||||||||||
Net investment income | .97 | %(d) | 1.40 | % | 1.38 | % | 1.31 | % | 1.26 | % | .92 | % | |||||||||||||||
Supplemental Data: | |||||||||||||||||||||||||||
Net assets, end of period (000) | $ | 7,280,633 | $ | 9,253,480 | $ | 16,793,740 | $ | 16,090,845 | $ | 14,513,173 | $ | 13,790,608 | |||||||||||||||
Portfolio turnover rate | 36.58 | %(d) | 105.60 | % | 85.96 | % | 39.95 | % | 49.36 | % | 33.02 | % |
(a) Calculated using average shares outstanding during the period.
(b) Amount is less than $.01.
(c) Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions.
(d) Not annualized.
See Notes to Financial Statements.
12
Financial Highlights (continued)
Class B Shares | |||||||||||||||||||||||||||
Six Months Ended 4/30/2009 | Year Ended 10/31 | ||||||||||||||||||||||||||
(unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
Per Share Operating Performance | |||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.41 | $ | 16.60 | $ | 15.88 | $ | 14.55 | $ | 13.97 | $ | 12.70 | |||||||||||||||
Investment operations: | |||||||||||||||||||||||||||
Net investment income(a) | .05 | .09 | .11 | .10 | .09 | .04 | |||||||||||||||||||||
Net realized and unrealized gain (loss) | (1.31 | ) | (5.56 | ) | 1.71 | 2.35 | .85 | 1.34 | |||||||||||||||||||
Total from investment operations | (1.26 | ) | (5.47 | ) | 1.82 | 2.45 | .94 | 1.38 | |||||||||||||||||||
Distributions to shareholders from: | |||||||||||||||||||||||||||
Net investment income | (.07 | ) | (.11 | ) | (.10 | ) | (.10 | ) | (.11 | ) | (.11 | ) | |||||||||||||||
Net realized gain | — | (1.61 | ) | (1.00 | ) | (1.02 | ) | (.25 | ) | — | (b) | ||||||||||||||||
Total distributions | (.07 | ) | (1.72 | ) | (1.10 | ) | (1.12 | ) | (.36 | ) | (.11 | ) | |||||||||||||||
Net asset value, end of period | $ | 8.08 | $ | 9.41 | $ | 16.60 | $ | 15.88 | $ | 14.55 | $ | 13.97 | |||||||||||||||
Total Return(c) | (13.36 | )%(d) | (36.12 | )% | 12.24 | % | 17.80 | % | 6.75 | % | 10.94 | % | |||||||||||||||
Ratios to Average Net Assets: | |||||||||||||||||||||||||||
Expenses, including expense reductions | .77 | %(d) | 1.48 | % | 1.46 | % | 1.47 | % | 1.47 | % | 1.48 | % | |||||||||||||||
Expenses, excluding expense reductions | .77 | %(d) | 1.48 | % | 1.46 | % | 1.47 | % | 1.48 | % | 1.48 | % | |||||||||||||||
Net investment income | .65 | %(d) | .74 | % | .73 | % | .66 | % | .61 | % | .27 | % | |||||||||||||||
Supplemental Data: | |||||||||||||||||||||||||||
Net assets, end of period (000) | $ | 428,736 | $ | 611,888 | $ | 1,261,984 | $ | 1,346,862 | $ | 1,366,197 | $ | 1,424,229 | |||||||||||||||
Portfolio turnover rate | 36.58 | %(d) | 105.60 | % | 85.96 | % | 39.95 | % | 49.36 | % | 33.02 | % |
(a) Calculated using average shares outstanding during the period.
(b) Amount is less than $.01.
(c) Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions.
(d) Not annualized.
See Notes to Financial Statements.
13
Financial Highlights (continued)
Class C Shares | |||||||||||||||||||||||||||
Six Months Ended 4/30/2009 | Year Ended 10/31 | ||||||||||||||||||||||||||
(unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
Per Share Operating Performance | |||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.39 | $ | 16.56 | $ | 15.85 | $ | 14.53 | $ | 13.95 | $ | 12.68 | |||||||||||||||
Investment operations: | |||||||||||||||||||||||||||
Net investment income(a) | .05 | .09 | .11 | .10 | .09 | .04 | |||||||||||||||||||||
Net realized and unrealized gain (loss) | (1.31 | ) | (5.54 | ) | 1.70 | 2.34 | .85 | 1.34 | |||||||||||||||||||
Total from investment operations | (1.26 | ) | (5.45 | ) | 1.81 | 2.44 | .94 | 1.38 | |||||||||||||||||||
Distributions to shareholders from: | |||||||||||||||||||||||||||
Net investment income | (.07 | ) | �� | (.11 | ) | (.10 | ) | (.10 | ) | (.11 | ) | (.11 | ) | ||||||||||||||
Net realized gain | — | (1.61 | ) | (1.00 | ) | (1.02 | ) | (.25 | ) | — | (b) | ||||||||||||||||
Total distributions | (.07 | ) | (1.72 | ) | (1.10 | ) | (1.12 | ) | (.36 | ) | (.11 | ) | |||||||||||||||
Net asset value, end of period | $ | 8.06 | $ | 9.39 | $ | 16.56 | $ | 15.85 | $ | 14.53 | $ | 13.95 | |||||||||||||||
Total Return(c) | (13.38 | )%(d) | (36.07 | )% | 12.22 | % | 17.77 | % | 6.77 | % | 10.97 | % | |||||||||||||||
Ratios to Average Net Assets: | |||||||||||||||||||||||||||
Expenses, including expense reductions | .77 | %(d) | 1.48 | % | 1.46 | % | 1.47 | % | 1.47 | % | 1.48 | % | |||||||||||||||
Expenses, excluding expense reductions | .77 | %(d) | 1.48 | % | 1.46 | % | 1.47 | % | 1.48 | % | 1.48 | % | |||||||||||||||
Net investment income | .65 | %(d) | .74 | % | .73 | % | .66 | % | .60 | % | .27 | % | |||||||||||||||
Supplemental Data: | |||||||||||||||||||||||||||
Net assets, end of period (000) | $ | 650,334 | $ | 870,934 | $ | 1,710,033 | $ | 1,665,058 | $ | 1,552,369 | $ | 1,457,255 | |||||||||||||||
Portfolio turnover rate | 36.58 | %(d) | 105.60 | % | 85.96 | % | 39.95 | % | 49.36 | % | 33.02 | % |
(a) Calculated using average shares outstanding during the period.
(b) Amount is less than $.01.
(c) Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions.
(d) Not annualized.
See Notes to Financial Statements.
14
Financial Highlights (continued)
Class F Shares | |||||||||||||||
Six Months Ended 4/30/2009 (unaudited) | Year Ended 10/31/2008 | 9/28/2007(a) to 10/31/2007 | |||||||||||||
Per Share Operating Performance | |||||||||||||||
Net asset value, beginning of period | $ | 9.38 | $ | 16.56 | $ | 16.29 | |||||||||
Investment operations: | |||||||||||||||
Net investment income(b) | .07 | .21 | .02 | ||||||||||||
Net realized and unrealized gain (loss) | (1.29 | ) | (5.54 | ) | .25 | ||||||||||
Total from investment operations | (1.22 | ) | (5.33 | ) | .27 | ||||||||||
Distributions to shareholders from: | |||||||||||||||
Net investment income | (.12 | ) | (.24 | ) | — | ||||||||||
Net realized gain | — | (1.61 | ) | — | |||||||||||
Total distributions | (.12 | ) | (1.85 | ) | — | ||||||||||
Net asset value, end of period | $ | 8.04 | $ | 9.38 | $ | 16.56 | |||||||||
Total Return(c) | (12.94 | )%(d) | (35.52 | )% | 1.66 | %(d) | |||||||||
Ratios to Average Net Assets: | |||||||||||||||
Expenses, including expense reductions | .33 | %(d) | .59 | % | .05 | %(d) | |||||||||
Expenses, excluding expense reductions | .33 | %(d) | .59 | % | .05 | %(d) | |||||||||
Net investment income | .87 | %(d) | 1.89 | % | .14 | %(d) | |||||||||
Supplemental Data: | |||||||||||||||
Net assets, end of period (000) | $ | 58,914 | $ | 16,844 | $ | 10 | |||||||||
Portfolio turnover rate | 36.58 | %(d) | 105.60 | % | 85.96 | % |
(a) Commencement of investment operations was 9/28/2007, SEC effective date was 9/14/2007 and date shares first became available to the public was 10/1/2007.
(b) Calculated using average shares outstanding during the period.
(c) Total return assumes the reinvestment of all distributions.
(d) Not annualized.
See Notes to Financial Statements.
15
Financial Highlights (continued)
Class I Shares | |||||||||||||||||||||||||||
Six Months Ended 4/30/2009 | Year Ended 10/31 | ||||||||||||||||||||||||||
(unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
Per Share Operating Performance | |||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.40 | $ | 16.60 | $ | 15.88 | $ | 14.56 | $ | 13.98 | $ | 12.70 | |||||||||||||||
Investment operations: | |||||||||||||||||||||||||||
Net investment income(a) | .09 | .22 | .27 | .25 | .23 | .17 | |||||||||||||||||||||
Net realized and unrealized gain (loss) | (1.31 | ) | (5.55 | ) | 1.71 | 2.34 | .85 | 1.35 | |||||||||||||||||||
Total from investment operations | (1.22 | ) | (5.33 | ) | 1.98 | 2.59 | 1.08 | 1.52 | |||||||||||||||||||
Distributions to shareholders from: | |||||||||||||||||||||||||||
Net investment income | (.12 | ) | (.26 | ) | (.26 | ) | (.25 | ) | (.25 | ) | (.24 | ) | |||||||||||||||
Net realized gain | — | (1.61 | ) | (1.00 | ) | (1.02 | ) | (.25 | ) | — | (b) | ||||||||||||||||
Total distributions | (.12 | ) | (1.87 | ) | (1.26 | ) | (1.27 | ) | (.50 | ) | (.24 | ) | |||||||||||||||
Net asset value, end of period | $ | 8.06 | $ | 9.40 | $ | 16.60 | $ | 15.88 | $ | 14.56 | $ | 13.98 | |||||||||||||||
Total Return(c) | (12.85 | )%(d) | (35.50 | )% | 13.39 | % | 18.91 | % | 7.80 | % | 12.14 | % | |||||||||||||||
Ratios to Average Net Assets: | |||||||||||||||||||||||||||
Expenses, including expense reductions | .28 | %(d) | .47 | % | .46 | % | .47 | % | .48 | % | .48 | % | |||||||||||||||
Expenses, excluding expense reductions | .28 | %(d) | .48 | % | .46 | % | .47 | % | .48 | % | .48 | % | |||||||||||||||
Net investment income | 1.12 | %(d) | 1.75 | % | 1.74 | % | 1.66 | % | 1.60 | % | 1.27 | % | |||||||||||||||
Supplemental Data: | |||||||||||||||||||||||||||
Net assets, end of period (000) | $ | 474,348 | $ | 504,923 | $ | 666,851 | $ | 1,208,936 | $ | 1,049,314 | $ | 907,011 | |||||||||||||||
Portfolio turnover rate | 36.58 | %(d) | 105.60 | % | 85.96 | % | 39.95 | % | 49.36 | % | 33.02 | % |
(a) Calculated using average shares outstanding during the period.
(b) Amount is less than $.01.
(c) Total return assumes the reinvestment of all distributions.
(d) Not annualized.
See Notes to Financial Statements.
16
Financial Highlights (continued)
Class P Shares | |||||||||||||||||||||||||||
Six Months Ended 4/30/2009 | Year Ended 10/31 | ||||||||||||||||||||||||||
(unaudited) | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||
Per Share Operating Performance | |||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.36 | $ | 16.52 | $ | 15.82 | $ | 14.50 | $ | 13.93 | $ | 12.66 | |||||||||||||||
Investment operations: | |||||||||||||||||||||||||||
Net investment income(a) | .07 | .16 | .20 | .18 | .16 | .11 | |||||||||||||||||||||
Net realized and unrealized gain (loss) | (1.30 | ) | (5.52 | ) | 1.69 | 2.34 | .85 | 1.35 | |||||||||||||||||||
Total from investment operations | (1.23 | ) | (5.36 | ) | 1.89 | 2.52 | 1.01 | 1.46 | |||||||||||||||||||
Distributions to shareholders from: | |||||||||||||||||||||||||||
Net investment income | (.10 | ) | (.19 | ) | (.19 | ) | (.19 | ) | (.19 | ) | (.19 | ) | |||||||||||||||
Net realized gain | — | (1.61 | ) | (1.00 | ) | (1.01 | ) | (.25 | ) | — | (b) | ||||||||||||||||
Total distributions | (.10 | ) | (1.80 | ) | (1.19 | ) | (1.20 | ) | (.44 | ) | (.19 | ) | |||||||||||||||
Net asset value, end of period | $ | 8.03 | $ | 9.36 | $ | 16.52 | $ | 15.82 | $ | 14.50 | $ | 13.93 | |||||||||||||||
Total Return(c) | (13.08 | )%(d) | (35.73 | )% | 12.80 | % | 18.46 | % | 7.28 | % | 11.60 | % | |||||||||||||||
Ratios to Average Net Assets: | |||||||||||||||||||||||||||
Expenses, including expense reductions | .50 | %(d) | .92 | % | .91 | % | .92 | % | .92 | % | .93 | % | |||||||||||||||
Expenses, excluding expense reductions | .50 | %(d) | .93 | % | .91 | % | .92 | % | .93 | % | .93 | % | |||||||||||||||
Net investment income | .92 | %(d) | 1.30 | % | 1.27 | % | 1.21 | % | 1.14 | % | .82 | % | |||||||||||||||
Supplemental Data: | |||||||||||||||||||||||||||
Net assets, end of period (000) | $ | 199,700 | $ | 267,251 | $ | 433,828 | $ | 433,955 | $ | 368,761 | $ | 302,389 | |||||||||||||||
Portfolio turnover rate | 36.58 | %(d) | 105.60 | % | 85.96 | % | 39.95 | % | 49.36 | % | 33.02 | % |
(a) Calculated using average shares outstanding during the period.
(b) Amount is less than $.01.
(c) Total return assumes the reinvestment of all distributions.
(d) Not annualized.
See Notes to Financial Statements.
17
Financial Highlights (continued)
Class R2 Shares | |||||||||||||||
Six Months Ended 4/30/2009 (unaudited) | Year Ended 10/31/2008 | 9/28/2007(a) to 10/31/2007 | |||||||||||||
Per Share Operating Performance | |||||||||||||||
Net asset value, beginning of period | $ | 9.38 | $ | 16.55 | $ | 16.29 | |||||||||
Investment operations: | |||||||||||||||
Net investment income(b) | .06 | .14 | .02 | ||||||||||||
Net realized and unrealized gain (loss) | (1.30 | ) | (5.53 | ) | .24 | ||||||||||
Total from investment operations | (1.24 | ) | (5.39 | ) | .26 | ||||||||||
Distributions to shareholders from: | |||||||||||||||
Net investment income | (.09 | ) | (.17 | ) | — | ||||||||||
Net realized gain | — | (1.61 | ) | — | |||||||||||
Total distributions | (.09 | ) | (1.78 | ) | — | ||||||||||
Net asset value, end of period | $ | 8.05 | $ | 9.38 | $ | 16.55 | |||||||||
Total Return(c) | (13.14 | )%(d) | (35.83 | )% | 1.60 | %(d) | |||||||||
Ratios to Average Net Assets: | |||||||||||||||
Expenses, including expense reductions | .58 | %(d) | 1.07 | % | .09 | %(d) | |||||||||
Expenses, excluding expense reductions | .58 | %(d) | 1.07 | % | .09 | %(d) | |||||||||
Net investment income | .83 | %(d) | 1.16 | % | .10 | %(d) | |||||||||
Supplemental Data: | |||||||||||||||
Net assets, end of period (000) | $ | 78 | $ | 85 | $ | 10 | |||||||||
Portfolio turnover rate | 36.58 | %(d) | 105.60 | % | 85.96 | % |
(a) Commencement of investment operations was 9/28/2007, SEC effective date was 9/14/2007 and date shares first became available to the public was 10/1/2007.
(b) Calculated using average shares outstanding during the period.
(c) Total return assumes the reinvestment of all distributions.
(d) Not annualized.
See Notes to Financial Statements.
18
Financial Highlights (concluded)
Class R3 Shares | |||||||||||||||
Six Months Ended 4/30/2009 (unaudited) | Year Ended 10/31/2008 | 9/28/2007(a) to 10/31/2007 | |||||||||||||
Per Share Operating Performance | |||||||||||||||
Net asset value, beginning of period | $ | 9.38 | $ | 16.56 | $ | 16.29 | |||||||||
Investment operations: | |||||||||||||||
Net investment income(b) | .07 | .16 | .02 | ||||||||||||
Net realized and unrealized gain (loss) | (1.30 | ) | (5.54 | ) | .25 | ||||||||||
Total from investment operations | (1.23 | ) | (5.38 | ) | .27 | ||||||||||
Distributions to shareholders from: | |||||||||||||||
Net investment income | (.10 | ) | (.19 | ) | — | ||||||||||
Net realized gain | — | (1.61 | ) | — | |||||||||||
Total distributions | (.10 | ) | (1.80 | ) | — | ||||||||||
Net asset value, end of period | $ | 8.05 | $ | 9.38 | $ | 16.56 | |||||||||
Total Return(c) | (13.07 | )%(d) | (35.79 | )% | 1.66 | %(d) | |||||||||
Ratios to Average Net Assets: | |||||||||||||||
Expenses, including expense reductions | .52 | %(d) | .98 | % | .08 | %(d) | |||||||||
Expenses, excluding expense reductions | .52 | %(d) | .98 | % | .08 | %(d) | |||||||||
Net investment income | .85 | %(d) | 1.41 | % | .11 | %(d) | |||||||||
Supplemental Data: | |||||||||||||||
Net assets, end of period (000) | $ | 6,786 | $ | 4,275 | $ | 10 | |||||||||
Portfolio turnover rate | 36.58 | %(d) | 105.60 | % | 85.96 | % |
(a) Commencement of investment operations was 9/28/2007, SEC effective date was 9/14/2007 and date shares first became available to the public was 10/1/2007.
(b) Calculated using average shares outstanding during the period.
(c) Total return assumes the reinvestment of all distributions.
(d) Not annualized.
See Notes to Financial Statements.
19
Notes to Financial Statements (unaudited)
1. ORGANIZATION
Lord Abbett Affiliated Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund was organized in 1934 and was reincorporated under Maryland law on November 26, 1975.
The Fund's investment objective is to seek long-term growth of capital and income without excessive fluctuations in market value.
The Fund offers eight classes of shares: Class A, B, C, F, I, P, R2 and R3, each with different expenses and dividends. A front-end sales charge is normally added to the Net Asset Value ("NAV") for Class A shares. There is no front-end sales charge in the case of the Class B, C, F, I, P, R2 and R3 shares, although there may be a contingent deferred sales charge ("CDSC") as follows: Class A shares purchased without a sales charge and redeemed before the first day of the month in which the one-year anniversary of the purchase falls (subject to certain exceptions); Class B shares redeemed before the sixth anniversary of purchase; and Class C shares redeemed before the first anniversary of purchase. Class B shares will automatically convert to Class A shares on the 25th day of the month (or, if the 25th is not a business day, the next business day thereafter) following the eighth anniversary of the day on which the purchase order was accepted. T he Fund's Class P shares are closed to substantially all new retirement and benefit plans and fee-based programs, with certain exceptions as set forth in the Fund's Prospectus.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Investment Valuation–Securities actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the close of regular trading on the New York Stock Exchange LLC. The Fund may rely on an independent fair valuation service in adjusting the valuations of foreign securities. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices. Securiti es for which market quotations are not readily available are valued at fair value as determined by management and approved in good faith by the Board of Directors. Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates current market value.
(b) Security Transactions–Security transactions are recorded as of the date that the securities are purchased or sold (trade date). Realized gains and losses on sales of portfolio securities are calculated using the identified-cost method. Realized and unrealized gains (losses) are
20
Notes to Financial Statements (unaudited) (continued)
allocated to each class of shares based upon the relative proportion of net assets at the beginning of the day.
(c) Investment Income–Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Discounts are accreted and premiums are amortized using the effective interest method. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country's tax rules and rates. Investment income is allocated to each class of shares based upon the relative proportion of net assets at the beginning of the day.
(d) Income Taxes–It is the policy of the Fund to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income and capital gains to its shareholders. Therefore, no income tax provision is required.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund's U.S. federal tax returns remains open for the fiscal years ended October 31, 2005 through October 31, 2008. The statutes of limitations on the Fund's state and local tax returns may remain open for an additional year depending upon the jurisdiction.
(e) Expenses–Expenses, excluding class specific expenses, are allocated to each class of shares based upon the relative proportion of net assets at the beginning of the day. Class A, B, C, F, P, R2 and R3 shares bear their class specific share of all expenses and fees relating to the Fund's 12b-1 Distribution Plan.
(f) Foreign Transactions–The books and records of the Fund are maintained in U.S. dollars and transactions denominated in foreign currencies are recorded in the Fund's records at the rate prevailing when earned or recorded. Asset and liability accounts that are denominated in foreign currencies are adjusted to reflect current exchange rates. The resultant exchange gains and losses are included in Net realized gain (loss) on investments on the Statement of Operations. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in market prices of the securities.
(g) Repurchase Agreements–The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which the Fund 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 Fund requires at all times that the repurchase agreement be collateralized by cash, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). 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 dec lined, the Fund may incur a loss upon disposition of the securities.
(h) Fair Value Measurements–The Fund adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"), effective November 1, 2008. In accordance with SFAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment.
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Notes to Financial Statements (unaudited) (continued)
SFAS 157 established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk – for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liabil ity. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below:
• Level 1 – quoted prices in active markets for identical investments;
• Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and
• Level 3 – significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of April 30, 2009 in valuing the Fund's investments carried at value:
Valuation Inputs | Investments in Securities | ||||||
Level 1 – Quoted Prices | $ | 9,100,299,918 | |||||
Level 2 – Other Significant Observable Inputs | 41,850,000 | ||||||
Total | $ | 9,142,149,918 |
3. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Management Fee
The Fund has a management agreement with Lord, Abbett & Co. LLC ("Lord Abbett") pursuant to which Lord Abbett supplies the Fund with investment management services and executive and other personnel, pays the remuneration of officers, provides office space and pays for ordinary and necessary office and clerical expenses relating to research and statistical work and supervision of the Fund's investment portfolio.
The management fee is based on the average daily net assets at the following annual rates:
First $200 million | .50 | % | |||||
Next $300 million | .40 | % | |||||
Next $200 million | .375 | % | |||||
Next $200 million | .35 | % | |||||
Over $900 million | .30 | % |
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Notes to Financial Statements (unaudited) (continued)
For the six months ended April 30, 2009, the effective management fee paid to Lord Abbett was at an annualized rate of .31% of the Fund's average daily net assets.
Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement at an annual rate of .04% of the Fund's average daily net assets.
The Fund, along with certain other funds managed by Lord Abbett (the "Underlying Funds"), has entered into a Servicing Arrangement with Lord Abbett Balanced Strategy Fund, Lord Abbett Diversified Equity Strategy Fund, Lord Abbett Diversified Income Strategy Fund, and Lord Abbett Growth & Income Strategy Fund of Lord Abbett Investment Trust, and Lord Abbett Global Allocation Fund of Lord Abbett Global Fund, Inc. (each, a "Fund of Funds"), pursuant to which each Underlying Fund pays a portion of the expenses (excluding management fees and distribution and service fees) of each Fund of Funds in proportion to the average daily value of Underlying Fund shares owned by each Fund of Funds. Amounts paid pursuant to the Servicing Arrangement are included in Subsidy expense on the Fund's Statement of Opera tions and Payable to affiliates on the Fund's Statement of Assets and Liabilities.
As of April 30, 2009, the percentages of the Fund's outstanding shares owned by Lord Abbett Balanced Strategy Fund, Lord Abbett Diversified Equity Strategy Fund, Lord Abbett Diversified Income Strategy Fund, Lord Abbett Growth & Income Strategy Fund and Lord Abbett Global Fund, Inc. were 2.94%, 0.15%, 0.03%, 0.38% and 0.06%, respectively.
12b-1 Distribution Plan
The Fund has adopted a distribution plan with respect to its Class A, B, C, F, P, R2 and R3 shares pursuant to Rule 12b-1 under the Act, which provides for the payment of ongoing distribution and service fees to Lord Abbett Distributor LLC (the "Distributor"), an affiliate of Lord Abbett. The fees are accrued daily at annual rates based upon average daily net assets as follows:
Fees* | Class A | Class B | Class C | Class F | Class P | Class R2 | Class R3 | ||||||||||||||||||||||||
Service | .25 | %(1) | .25 | % | .25 | % | - | .20 | % | .25 | % | .25 | % | ||||||||||||||||||
Distribution | .10 | % | .75 | % | .75 | % | .10 | % | .25 | % | .35 | % | .25 | % |
* The Fund may designate a portion of the aggregate fee as attributable to service activities for purposes of calculating Financial Industry Regulatory Authority, Inc. ("FINRA") sales charge limitations.
(1) Annual service fee on shares sold prior to June 1, 1990 is .15% of the average daily net assets attributable to Class A.
Class I does not have a distribution plan.
Commissions
Distributor received the following commissions on sales of shares of the Fund, after concessions were paid to authorized dealers, for the six months ended April 30, 2009:
Distributor Commissions | Dealers' Concessions | ||||||
$ | 904,285 | $ | 4,995,851 |
Distributor received CDSCs of $63,551 and $30,361 for Class A and Class C shares, respectively, for the six months ended April 30, 2009.
Two Directors and certain of the Fund's officers have an interest in Lord Abbett.
23
Notes to Financial Statements (unaudited) (continued)
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS
Dividends from net investment income, if any, are declared and paid at least quarterly. Taxable net realized gains from investment transactions, reduced by capital loss carryforwards, if any, are declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, is available to offset future net capital gains. Dividends and distributions to shareholders are recorded on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from accounting principles generally accepted in the United States of America. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their federal tax basis treatment; temporary d ifferences do not require reclassification. Dividends and distributions, which exceed earnings and profits for tax purposes, are reported as a tax return of capital.
The tax character of distributions paid during the six months ended April 30, 2009 and the fiscal year ended October 31, 2008 was as follows:
Six Months Ended 4/30/2009 (unaudited) | Year Ended 10/31/2008 | ||||||||||
Distributions paid from: | |||||||||||
Ordinary income | $ | 119,688,559 | $ | 345,635,077 | |||||||
Net long-term capital gains | - | 1,931,450,896 | |||||||||
Total distributions paid | $ | 119,688,559 | $ | 2,277,085,973 |
As of April 30, 2009, the aggregate unrealized security gains and losses based on cost for U.S. federal income tax purposes were as follows:
Tax cost | $ | 11,409,862,677 | |||||
Gross unrealized gain | 246,717,465 | ||||||
Gross unrealized loss | (2,514,430,224 | ) | |||||
Net unrealized security loss | $ | (2,267,712,759 | ) |
The difference between book-basis and tax-basis unrealized gains (losses) is attributable to the tax treatment of certain securities and wash sales.
5. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments) for the six months ended April 30, 2009 were as follows:
Purchases | Sales | ||||||
$ | 3,357,181,187 | $ | 4,137,483,998 |
There were no purchases or sales of U.S. Government securities for the six months ended April 30, 2009.
6. DIRECTORS' REMUNERATION
The Fund's officers and the two Directors who are associated with Lord Abbett do not receive any compensation from the Fund for serving in such capacities. Outside Directors' fees are allocated
24
Notes to Financial Statements (unaudited) (continued)
among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all outside Directors under which outside Directors must defer receipt of a portion of, and may elect to defer receipt of an additional portion of, Directors' fees. The deferred amounts are treated as though equivalent dollar amounts had been invested in the funds. Such amounts and earnings accrued thereon are included in Directors' fees on the Statement of Operations and in Directors' fees payable on the Statement of Assets and Liabilities and are not deductible for U.S. federal income tax purposes until such amounts are paid.
7. EXPENSE REDUCTIONS
The Fund has entered into arrangements with the Fund's transfer agent and custodian, whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's expenses.
8. LINE OF CREDIT
The Fund and certain other funds managed by Lord Abbett have available an unsecured revolving credit facility ("Facility") from State Street Bank and Trust Company ("SSB"), to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Facility is renewed annually under terms that depend on market conditions at the time of the renewal. Accordingly, effective December 5, 2008, the amount available under the Facility was changed from $250,000,000 to $200,000,000 and the annual fee to maintain the Facility (of which each participating fund pays its pro rata share based on the net assets of each participating fund) was changed from .08% of the amount available under the Facility to .125%. Any borrowings under this Facility will bear interest at current market rates as set forth in the credit agreement. As of April 30, 2009, there were no loans outstanding pursuant to this Facility nor was the Facility utilized at any time during the six months ended April 30, 2009.
9. TRANSACTIONS WITH AFFILIATED ISSUERS
An affiliated issuer is one in which the Fund has ownership of at least 5% of the outstanding voting securities of the underlying issuer at any point during the fiscal year. The Fund had the following transactions with affiliated issuers during the six months ended April 30, 2009:
Affiliates Issuer | Balance of Shares Held at 10/31/2008 | Gross Additions | Gross Sales | Balance of Shares Held at 4/30/2009 | Value at 4/30/2009 | Net Realized Gain (Loss) 11/1/2008 to 4/30/2009(a) | Dividend Income 11/1/2008 to 4/30/2009(a) | ||||||||||||||||||||||||
Hertz Global Holdings, Inc. | 23,431,245 | 1,911,415 | (365,411 | ) | 24,977,249 | $ | 169,845,293 | $ | 767,833 | $ | - | ||||||||||||||||||||
IAC/InterActiveCorp. | 7,523,191 | 1,931,700 | (80,461 | ) | 9,374,430 | 150,178,369 | 157,190 | - | |||||||||||||||||||||||
J. Crew Group, Inc. | 5,755,359 | - | (132,570 | ) | 5,622,789 | 96,768,199 | (4,774,800 | ) | - | ||||||||||||||||||||||
HSN, Inc. | 4,781,158 | 399,700 | (4,817 | ) | 5,176,041 | 35,766,443 | 1,782 | - | |||||||||||||||||||||||
Total | $ | 452,558,304 | $ | (3,847,995 | ) | $ | - |
(a) Represents realized gains (losses) and dividend income earned only when the issuer was an affiliate of the Fund.
10. CUSTODIAN AND ACCOUNTING AGENT
SSB is the Fund's custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund's NAV.
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Notes to Financial Statements (unaudited) (continued)
11. INVESTMENT RISKS
The Fund is subject to the general risks and considerations associated with equity investing, as well as the particular risks associated with value stocks. The value of an investment will fluctuate in response to movements in the equity securities market in general and to the changing prospects of individual companies in which the Fund invests. Large-cap value stocks may perform differently than the market as a whole and other types of stocks, such as small company stocks and growth stocks. Different types of stocks tend to shift in and out of favor depending on market and economic conditions. The market may fail to recognize the intrinsic value of particular value stocks for a long time. In addition, if the Fund's assessment of a company's value or prospects for exceeding earnings expectations or market conditions is wrong, the Fund could suffer losses or produce poor performance relative to other funds, even in a rising market. Due to its investments in multinational companies, the Fund may experience increased market, liquidity, currency, political, information, and other risks.
These factors can affect the Fund's performance.
12. SUMMARY OF CAPITAL TRANSACTIONS
Transactions in shares of capital stock were as follows:
Six Months Ended April 30, 2009 (unaudited) | Year Ended October 31, 2008 | ||||||||||||||||||
Class A Shares | Shares | Amount | Shares | Amount | |||||||||||||||
Shares sold | 48,274,144 | $ | 372,686,038 | 76,858,780 | $ | 972,525,947 | |||||||||||||
Converted from Class B* | 5,148,563 | 37,934,997 | 5,353,658 | 66,147,967 | |||||||||||||||
Reinvestment of distributions | 11,656,141 | 86,691,889 | 122,342,287 | 1,660,831,372 | |||||||||||||||
Shares reacquired | (146,551,710 | ) | (1,085,821,433 | ) | (232,469,098 | ) | (2,799,965,788 | ) | |||||||||||
Decrease | (81,472,862 | ) | $ | (588,508,509 | ) | (27,914,373 | ) | $ | (100,460,502 | ) | |||||||||
Class B Shares | |||||||||||||||||||
Shares sold | 2,633,357 | $ | 20,338,637 | 5,026,003 | $ | 64,261,281 | |||||||||||||
Reinvestment of distributions | 488,480 | 3,655,771 | 8,089,779 | 110,547,993 | |||||||||||||||
Shares reacquired | (9,982,259 | ) | (75,419,676 | ) | (18,809,300 | ) | (231,262,574 | ) | |||||||||||
Converted to Class A* | (5,122,043 | ) | (37,934,997 | ) | (5,332,323 | ) | (66,147,967 | ) | |||||||||||
Decrease | (11,982,465 | ) | $ | (89,360,265 | ) | (11,025,841 | ) | $ | (122,601,267 | ) | |||||||||
Class C Shares | |||||||||||||||||||
Shares sold | 4,472,701 | $ | 34,720,230 | 11,601,340 | $ | 150,389,582 | |||||||||||||
Reinvestment of distributions | 532,046 | 3,967,155 | 8,255,859 | 112,476,647 | |||||||||||||||
Shares reacquired | (17,126,064 | ) | (128,559,372 | ) | (30,340,205 | ) | (370,476,317 | ) | |||||||||||
Decrease | (12,121,317 | ) | $ | (89,871,987 | ) | (10,483,006 | ) | $ | (107,610,088 | ) | |||||||||
Class F Shares | |||||||||||||||||||
Shares sold | 6,935,519 | $ | 41,411,488 | 2,453,936 | $ | 29,711,321 | |||||||||||||
Reinvestment of distributions | 22,019 | 163,672 | 9,606 | 113,995 | |||||||||||||||
Shares reacquired | (1,423,846 | ) | (10,438,610 | ) | (668,395 | ) | (7,408,835 | ) | |||||||||||
Increase | 5,533,692 | $ | 31,136,550 | 1,795,147 | $ | 22,416,481 |
26
Notes to Financial Statements (unaudited) (concluded)
Six Months Ended April 30, 2009 (unaudited) | Year Ended October 31, 2008 | ||||||||||||||||||
Class I Shares | Shares | Amount | Shares | Amount | |||||||||||||||
Shares sold | 10,177,925 | $ | 73,593,917 | 18,439,022 | $ | 213,413,871 | |||||||||||||
Reinvestment of distributions | 866,655 | 6,456,896 | 5,167,337 | 70,117,251 | |||||||||||||||
Shares reacquired | (5,875,575 | ) | (42,706,993 | ) | (10,096,591 | ) | (120,796,952 | ) | |||||||||||
Increase | 5,169,005 | $ | 37,343,820 | 13,509,768 | $ | 162,734,170 | |||||||||||||
Class P Shares | |||||||||||||||||||
Shares sold | 1,859,762 | $ | 14,371,120 | 8,954,352 | $ | 112,194,576 | |||||||||||||
Reinvestment of distributions | 329,777 | 2,449,123 | 3,074,876 | 41,628,399 | |||||||||||||||
Shares reacquired | (5,868,967 | ) | (44,849,264 | ) | (9,733,485 | ) | (117,035,958 | ) | |||||||||||
Increase (decrease) | (3,679,428 | ) | $ | (28,029,021 | ) | 2,295,743 | $ | 36,787,017 | |||||||||||
Class R2 Shares | |||||||||||||||||||
Shares sold | 449 | $ | 3,398 | 8,341 | $ | 114,560 | |||||||||||||
Reinvestment of distributions | 112 | 834 | 162 | 2,136 | |||||||||||||||
Shares reacquired | (1 | ) | (4 | ) | (4 | ) | (63 | ) | |||||||||||
Increase | 560 | $ | 4,228 | 8,499 | $ | 116,633 | |||||||||||||
Class R3 Shares | |||||||||||||||||||
Shares sold | 479,895 | $ | 3,776,990 | 556,353 | $ | 6,689,165 | |||||||||||||
Reinvestment of distributions | 5,784 | 43,053 | 1,431 | 17,393 | |||||||||||||||
Shares reacquired | (98,111 | ) | (719,694 | ) | (102,742 | ) | (1,130,559 | ) | |||||||||||
Increase | 387,568 | $ | 3,100,349 | 455,042 | $ | 5,575,999 |
* Automatic conversion of Class B shares occurs on the 25th day of the month (or, if the 25th is not a business day, the next business day thereafter) following the eighth anniversary of the day on which the purchase order was accepted.
13. RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"), which is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance and cash flows. Management is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statements and disclosures.
In April 2009, FASB issued FASB Staff Position No. 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP 157-4"). FSP 157-4 provides additional guidance for estimating fair value in accordance with FASB SFAS 157, when the volume and level of activity for the asset or liability have significantly decreased as well as guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 is effective for fiscal years and interim periods ending after June 15, 2009. Management is currently evaluating the impact the adoption of FSP 157-4 will have on the Fund's financial statement disclosures.
27
Approval of Advisory Contract
At meetings held on December 10 and 11, 2008, the Board, including all of the Directors who are not interested persons of the Fund or Lord, Abbett & Co. LLC ("Lord Abbett"), considered whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett. In addition to the materials the Board had reviewed throughout the course of the year, the Board received materials relating to the management agreement before the meeting and had the opportunity to ask questions and request further information in connection with its consideration. The Board also took into account its familiarity with Lord Abbett gained through its previous meetings and discussions, and the examination of the portfolio management team conducted by members of the Contract Committee during the y ear.
The materials received by the Board included, but were not limited to, (1) information provided by Lipper Inc. regarding the investment performance of the Fund compared to the investment performance of one or more groups of funds with substantially similar investment objectives (the "performance universe") and to the investment performance of an appropriate securities index for various time periods each ended September 30, 2008, (2) information on the effective management fee rates and expense ratios for one or more groups of funds with similar objectives and of similar size (the "peer expense group"), (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, and (7) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund. In light of the recent volatility in the securities markets, the Board also considered the investment performance of the Fund for the period from September 30, 2008 through December 9, 2008.
Investment Management Services Generally. The Board considered the investment management services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading, and Lord Abbett's commitment to compliance with all relevant legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest resulting from being engaged in other lines of business. The Board noted that in recent years Lord Abbett had not used brokerage commissions to purchase third-party research, but intended to change this practice in 2009, as it had previously discussed with the Board. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to the Fund and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other.
Investment Performance. The Board reviewed the Fund's investment performance in relation to that of the performance universe, both in terms of total return and in terms of other statistical measures. The Board observed that the investment performance of the Class A shares of the Fund was in the fourth quintile of its performance universe for the nine-month and five-year periods, in the third quintile for the one-year and three-year periods, and in the second quintile for the ten-year period. The Board also observed that the investment performance was higher than that of the Lipper Large-Cap Value Index for the one-year, three-year, and ten-year periods and lower than that of the Index for the nine-month and five-year periods.
Lord Abbett's Personnel and Methods. The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of its investment objective and discipline. Among other things, the Board considered the size, experience, and
28
turnover rates of Lord Abbett's investment management staff, Lord Abbett's investment methodology and philosophy, and Lord Abbett's approach to recruiting, training, and retaining investment management personnel. In addition, the Board noted the changes that Lord Abbett had made in July 2008 to realign its existing large- and mid-cap research resources into a single team supporting those investment disciplines. The Board determined that Lord Abbett had the expertise and resources to manage the Fund effectively.
Nature and Quality of Other Services. The Board considered the nature, quality, costs, and extent of compliance, administrative, and other services performed by Lord Abbett and Lord Abbett Distributor LLC ("Distributor") and the nature and extent of Lord Abbett's supervision of third party service providers, including the Fund's transfer agent and custodian.
Expenses. The Board considered the expense levels of the Fund and the expense levels of the peer expense group. It also considered the amount and nature of the fees paid by shareholders. The Board observed that for the eleven months ended September 30, 2008 the contractual management fees and administrative services fees were approximately twenty-three basis points below the median of the peer group and the actual management and administrative service fees were approximately sixteen basis points below the median of the peer group. The Board also observed that for the eleven months ended September 30, 2008 the total expense ratio of Class A was approximately thirteen basis points below the median of the peer group, the total expense ratios of Class B and Class C were approximately twenty-six basis points below the median of the peer group, the total expense ratio o f Class F was approximately thirty basis points below the median of the peer group, the total expense ratio of Class I was approximately eleven basis points below the median of the peer group, the total expense ratio of Class P was approximately twenty-nine basis points below the median of the peer group, the total expense ratio of Class R2 was approximately fifteen basis points below the median of the peer group, and the total expense ratio of Class R3 was approximately twenty-five basis points below the median of the peer group.
Profitability. The Board considered the level of Lord Abbett's profits in managing the Fund, including a review of Lord Abbett's methodology for allocating its costs to its management of the Fund. The Board concluded that the allocation methodology had a reasonable basis and was appropriate. It considered the profits realized by Lord Abbett in connection with the operation of the Fund and whether the amount of profit was fair for the management of the Fund. The Board 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 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 personn el. The Board recognized that Lord Abbett's profitability was a factor in enabling it to attract and retain qualified investment management personnel to provide services to the Fund. The Board noted that Lord Abbett's overall profitability had decreased in fiscal 2008, largely due to declines in market prices and shareholder redemptions. The Board concluded that Lord Abbett's profitability overall and as to the Fund was not excessive.
Economies of Scale. The Board considered whether there had been any economies of scale in managing the Fund, whether the Fund had appropriately benefited from any such economies of scale, and whether there was potential for realization of any further economies of scale. The Board concluded that the existing advisory fee schedule, with its breakpoints in the level of the advisory fee, adequately addressed any economies of scale in managing the Fund.
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Other Benefits to Lord Abbett. The Board considered the character and amount of fees paid by the Fund and the Fund's shareholders to Lord Abbett and Distributor for services other than investment advisory services. The Board also considered the revenues and profitability of Lord Abbett's investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees from the Funds, and receives a portion of the sales charges on sales and redemptions of some classes of shares. The Board observed that, in addition, Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectus of the Fund, has entered into revenue sharing arrangements with certain entities that distribute shares of the Fund. The Board also took into consideration the investment research that Lord Abbett receives as a result of Fund brokerage transactions.
Alternative Arrangements. The Board considered whether, instead of approving the continuation of the management agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms.
In considering whether to approve the continuation of the management agreement, the Board did not identify any single factor as paramount or controlling. This summary does not discuss in detail all matters considered. After considering all of the relevant factors, the Board unanimously found that continuation of the existing management agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve the continuation of the management agreement.
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Householding
The Fund has adopted a policy that allows it to send only one copy of the Fund's Prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same "household." This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be "householded," please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.
Proxy Voting Policies, Procedures and Records
A description of the policies and procedures that Lord Abbett uses to vote proxies related to the Fund's portfolio securities, and information on how Lord Abbett voted the Fund's proxies during the 12-month period ended June 30 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett's Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission's ("SEC") Website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. Copies of the filings are available without charge, upon request on the SEC's Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388. You can also obtain copies of Form N-Q by (i) visiting the SEC's Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330); (ii) sending your request and duplicating fee to the SEC's Public Reference Section, Washington, DC 20549-0102; or (iii) sending your request electronically, after paying a duplicating fee, to publicinfo@sec.gov.
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This report, when not used for the general information of shareholders of the fund, is to be distributed only if preceded or accompanied by a current fund prospectus.
Lord Abbett Mutual Fund shares are distributed by
LORD ABBETT DISTRIBUTOR LLC
Lord Abbett Affiliated Fund, Inc.
LAA-3-0409
(06/09)
Item 2: Code of Ethics.
Not applicable.
Item 3: Audit Committee Financial Expert.
Not applicable.
Item 4: Principal Accountant Fees and Services.
Not applicable.
Item 5: Audit Committee of Listed Registrants.
Not applicable.
Item 6: Investments.
Not applicable.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9: Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11: Controls and Procedures.
(a) Based on their evaluation of the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) as of a date within 90 days prior to the filing date of this report, the Chief Executive Officer and Chief Financial Officer of the Registrant have concluded that such disclosure controls and procedures are reasonably designed and effective to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to them by others within those entities.
(b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
Item 12: Exhibits.
(a)(1) Amendments to Code of Ethics — Not applicable.
(a)(2) Certification of each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2 under the Investment Company Act of 1940 is attached hereto as a part of EX-99.CERT.
(a)(3) Not applicable.
(b) Certification of each principal executive officer and principal financial officer of the Registrant as required by Section 906 of the Sarbanes-Oxley Act of 2002 is provided as a part of EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LORD ABBETT AFFILIATED FUND, INC. | |
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| By: | /s/ Robert S. Dow |
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| Robert S. Dow |
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| Chief Executive Officer and Chairman |
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Date: June 25, 2009 |
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| By: | /s/ Joan A. Binstock |
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| Joan A. Binstock |
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| Chief Financial Officer and Vice President |
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Date: June 25, 2009 |
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| By: | /s/ Robert S. Dow |
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| Robert S. Dow |
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| Chief Executive Officer and Chairman |
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Date: June 25, 2009 |
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| By: | /s/ Joan A. Binstock |
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| Joan A. Binstock |
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| Chief Financial Officer and Vice President |
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Date: June 25, 2009 |
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