Firm Overview Lord, Abbett & Co. LLC (“Lord Abbett” or “the firm”) is an independent money management firm founded in 1929. Lord Abbett provides discretionary and nondiscretionary investment management services to a broad range of clients, including registered investment compa- nies. Managing money is the singular focus of Lord Abbett. All of Lord Abbett’s investment and operations personnel are primarily located in Lord Abbett’s office in Jersey City, New Jersey. Lord Abbett is owned solely by current and former senior professionals of the firm (or by their estate or members of their family) and is not publicly traded. No individual or company owns 25% or more of Lord Abbett.
As of September 30, 2019, Lord Abbett’s regulatory assets under management were approximately $208.4 billion, of which approxi- mately $207.1 billion were managed on a discretionary basis and approximately $1.3 billion were managed on a nondiscretionary basis.
Investment Advisory Services Lord Abbett manages equity, fixed-income, and multi-asset class portfolios across a wide range of investment strategies. Portfolio management teams employ a rigorous investment approach and the firm’s investment processes are supported by a strong internal focus on fundamental and quantitative research.
At Lord Abbett, we take great pride in the efforts of our investment research team. We have dedicated significant resources to this effort and continually work to improve our fundamental and quantitative research.
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„Institutional Clients—Lord Abbett provides discretionary investment advice to U.S. and Non U.S. retirement and benefit plans, corporations, public funds, foundations, endowments, unions, insurance companies, religious and healthcare organiza- tions, pooled investment vehicles, and family trusts. Lord Abbett also sponsors and provides discretionary investment advisory services to commingled funds offered on a private placement basis to eligible institutional investors.
„Registered Investment Companies—Lord Abbett provides investment advisory services to a family of SEC-registered investment companies (the “Lord Abbett Funds”) and registered investment companies sponsored by unaffiliated third parties.
„Foreign Pooled Investment Vehicles—Lord Abbett provides investment advisory services to a family of funds that are autho- rized and regulated by the Central Bank of Ireland pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011 (the “Lord Abbett UCITS Funds”) and to an alternative investment fund that is authorized and regulated by the Commission de Surveillance du Secteur Financier (“CSSF”) in Luxembourg pursuant to Part II of the Luxembourg Law of 17 December 2010 relating to undertakings for collective investment (the “Lord Abbett Luxembourg Fund”). In addition, Lord Abbett provides investment sub-advisory services to foreign pooled investment vehicles.
„Managed Account Services—Lord Abbett provides investment advisory services, as well as nondiscretionary security recom- mendations in the form of model portfolios, through its participation in two types of managed account or “wrap fee” programs. These programs are referred to as Managed Accounts and Model Portfolios. — Managed Accounts—In traditional Managed Account pro- grams, a client selects a financial institution sponsor (a “Sponsor”), which provides a bundle of services for a single fee. Typically, this bundle of services includes the research of firms such as Lord Abbett in order to be included as a discre- tionary investment adviser in the Sponsor’s program, payment of Lord Abbett’s investment advisory fee, ongoing monitoring and evaluation of Lord Abbett’s performance, execution of the client’s portfolio transactions, and/or custodial services for the client’s assets. In some Managed Account programs, so-called “dual contract” programs, the client enters into both an investment management agreement with Lord Abbett and a program agreement with the Sponsor. In a dual contract program, the investment management fee may not be included in the Sponsor’s bundled fee and, in those cases, the client pays the investment management fee directly to Lord Abbett.
— Model Portfolios—Pursuant to a master investment advisory services agreement, Sponsors of Model Portfolios receive Lord Abbett’s model securities portfolio for a particular investment style. Based on the model, the Sponsor or its designated representative, often referred to as an “overlay manager,” exercises investment discretion and executes each client’s portfolio transactions predicated on the Sponsor’s or overlay manager’s own investment judgment. Lord Abbett does not provide Model Portfolios based on the individual needs of any program client.
Differences in Investment Management Services Lord Abbett provides investment management services through Managed Account and Model Portfolio programs, which generally differ from the investment advisory services it furnishes to other clients. Many of the primary differences include the investment types and strategies used. Managed Accounts and Model Portfolios generally tend to limit eligible investments to publicly traded equity securities and fixed-income securities, while other Lord Abbett client accounts may also invest in private placements and derivatives, as well as other instruments that are less liquid or not as freely traded. In addition, equity Managed Accounts do not participate in initial or secondary offerings because of the difficulty in obtaining sufficient allocations to distribute fairly across all client accounts. Managed Accounts also at times have lower portfolio turnover than other Lord Abbett client accounts, especially in certain strategies. Finally, Managed Accounts and Model Portfolios typically have fewer holdings than other client portfolios. Lord Abbett typically relies on the program Sponsor or consultant/financial adviser to provide client portfolio reporting. Additional differences include the following: „Equity securities transactions in Managed Accounts and Model Portfolios generally are executed through the Sponsor without a separate commission charge or at a fixed commission amount per trade negotiated by the Sponsor. Equity securities transac- tions for other Lord Abbett investment management clients are placed through broker-dealers selected by Lord Abbett and are subject to separate commission charges that are negotiated by Lord Abbett.
„In Managed Account and Model Portfolio programs, Lord Abbett will generally rely exclusively on the Sponsor’s determination that its particular investment strategy is suitable for a Managed Account or Model Portfolio client, and will not seek to collect and conduct a review of any client information separate from the Sponsor.
Please refer to the sections entitled Methods of Analysis, Investment Strategies, and Risk of Loss and Investment Discretion below for discussions of how Lord Abbett tailors its advisory services to the individual needs of its clients.
FEES AND COMPENSATION Lord Abbett’s investment advisory fees typically are based on a percentage of the value of the account. Fees are set based on the investment strategy and the type and level of services provided. Fees for institutional client accounts normally are billed and payable in arrears based on month- or quarter-end assets, subject to adjustments for interim contributions to or withdrawals from an account.
Appendix 1 to this brochure contains Lord Abbett’s standard institutional separate account fee schedules and the typical range of fees payable to Lord Abbett for Managed Account programs. Lord Abbett retains discretion to negotiate, and does negotiate, the fees charged to clients for investment advisory services, subject to applicable law. When Lord Abbett negotiates investment advisory fees, it takes into consideration a client’s special circumstances, asset levels, service requirements or other factors, each as determined in Lord Abbett’s sole discretion. Some fee schedules provide additional breakpoints on larger accounts, including investment companies or other pooled investment vehicles. Lord Abbett charges different advisory fees for different strategies and accounts, and permits clients and financial advisors to aggregate the assets of related accounts to take advantage of breakpoints. Fees for Managed Account programs (other than dual-contract programs) are paid to Lord Abbett by the program’s Sponsor from the single fee a client pays to the Sponsor.
From time to time, Lord Abbett has agreed on a performance based fee structure with a qualified client, which fee structure will be designed to be in compliance with the Advisers Act and other applicable law.
Lord Abbett’s management fees do not include fees charged by a client’s custodian or the fees and other expenses deducted by or paid to third party service providers from the assets of a non- proprietary fund in which a client account may invest. In addition, client accounts usually incur transaction costs when they buy and sell securities. For more information, please see the Brokerage Practices section below.
Lord Abbett provides investment advisory and administrative services to the Lord Abbett Funds. Lord Abbett receives investment advisory and administrative fees for its services typically paid monthly in arrears based on the average daily net assets of each Fund at annual rates described in each Lord Abbett Fund’s Prospectus and Statement of Additional Information. Similarly, Lord Abbett receives investment advisory fees for its services to the Lord Abbett UCITS Funds and the Lord Abbett Luxembourg Fund, which fees accrue daily and are calculated and payable monthly in arrears at annual rates as described in each Lord Abbett UCITS Fund’s Prospectus and Supplement and the Lord Abbett Luxem- bourg Fund’s Prospectus.
PERFORMANCE-BASED FEES AND SIDE-BY-SIDE MANAGEMENT Lord Abbett charges both performance-based fees and asset- based fees. The management of accounts with performance-based fees has the potential to cause a conflict of interest by creating an incentive to favor accounts with performance-based fees in order to generate greater revenue for Lord Abbett. A similar conflict exists from managing client accounts paying a higher asset-based fee than other accounts or accounts containing assets owned by Lord Abbett, its employees, or its owners.
Lord Abbett has adopted securities allocation policies and proce- dures to address these potential conflicts of interest. These policies and procedures are reasonably designed to monitor and prevent Lord Abbett from inappropriately favoring one type of account over another. Further details on Lord Abbett’s securities allocation policies and procedures are provided in the Brokerage Practices section below.
Lord Abbett provides advisory services to a variety of institutional clients, the Lord Abbett Funds and other registered investment companies sponsored by third parties, the Lord Abbett UCITS Funds, the Lord Abbett Luxembourg Fund, other foreign funds, privately offered commingled funds and various Managed Accounts. For institutional clients, Lord Abbett typically requires a minimum account size that ranges between $10–100 million based on the particular strategy being used for the account. Lord Abbett reserves the right, in its sole discretion, to waive or change investment minimums in certain circumstances.
Managed Accounts are typically smaller in size. The minimum account size for Managed Accounts is generally $100,000, depend- ing on the Sponsor’s requirements, with the exception of accounts investing in municipal securities, for which the minimum account size is generally $250,000. The minimum account size for a Man- aged Account under a dual contract program is generally $100,000, with accounts investing in municipal securities generally subject to a $250,000 to $500,000 minimum.
METHODS OF ANALYSIS, INVESTMENT STRATEGIES, AND RISK OF LOSS Methods of Analysis Lord Abbett provides investment advisory services across a broad range of strategies and asset classes. The method of analysis varies based on each strategy. Our general investment approach and a brief description of the risks associated with our investment programs are described in this section. Please see Appendix 2 to this brochure and, if applicable, the disclosures or risk factors contained in any offering materials or other disclosure statements provided to you separately for a more complete description of the risks associated with Lord Abbett’s investment activities. Equities Lord Abbett manages a wide range of equity investment products, including growth, core, and value oriented products. Some approaches focus on specific capitalization ranges—micro cap, small cap, mid cap, and large cap. Other approaches look for investment opportunities in more than one capitalization category or across all capitalization levels. Lord Abbett manages both domestic and international equity strategies. Lord Abbett’s investment approach at its core is based on a belief in active management and risk controls. This belief is grounded in a foundation of fundamental and quantita- tive research.
Investments in equity markets are subject to many risks, including the risk of general market fluctuations and company-specific changes in profitability. Also, small and micro cap company securi- ties tend to be more sensitive to changing economic conditions and tend to be more volatile and less liquid than equity securities of larger companies. In addition, investments in foreign companies may be adversely affected by political, economic, and social volatility, lack of transparency or inadequate regulatory and accounting standards, inadequate exchange control regulations, foreign taxes, higher transaction and other costs, and delays in settlement.
Fixed Income Lord Abbett invests in fixed-income instruments across the spectrum of duration (from money market and short duration to intermediate to long bond) and credit (from investment grade to high yield and distressed) in both the taxable and tax-exempt marketplaces. Some approaches seek investment opportunities across various sectors, including government, mortgage, corporate, municipal, bank loan, and emerging markets currency and debt, while others are limited to one or more of those sectors. Lord Abbett’s fixed-income investment teams generally rely on a combination of fundamental and quantitative research capabilities to aid security selection within their portfolios.
Investments in both taxable and tax-exempt fixed-income securities are subject to many risks, including interest-rate, regulatory, liquidity, mortgage prepayment, issuer or credit, and distressed debt/default risks. With respect to interest rates, investors should be aware of the potential for unanticipated rapid changes in interest rates that could adversely affect investment performance. Tax-exempt bonds may be subject to adverse effects due to governmental actions, including actions by local, state, and regional governments, as well as municipal bankruptcies or credit events. Finally, convertible securities are subject to risks affecting both equity and fixed-income securities, including market, credit, and interest-rate risk.
Counterparty Risk By its nature, investing in securities involves exposure to the risk that the counterparty to a transaction will fail to perform its obligations under the transaction. This risk arises in the context of ordinary securities purchases and sales, where a counterparty may be unable to satisfy its obligation to deliver cash or securities necessary to settle the transaction, and is especially pronounced in derivative or other transactions that may not close or settle for an extended period of time and for which there may be no central clearinghouse or other facility that requires daily mark-to-market valuations, margin payments or other protections that are designed to reduce the financial impact of counterparty failure. In an effort to mitigate counterparty risk, Lord Abbett has adopted policies and procedures governing the evaluation and monitoring of counterparties and the manner in which it enters into transactions with such counterparties. As part of these policies, Lord Abbett reviews each counterparty through an initial approval process and then engages in ongoing monitoring to seek to identify changes in counterparty creditworthi- ness and to limit concentrated exposure to a single counterparty. While it is Lord Abbett’s general policy to mitigate counterparty risk by trading with a range of counterparties, at times Lord Abbett will concentrate its trading in certain types of securities with a small number of counterparties or clearing firms, including in some cases a single counterparty, where it believes the risk of doing so is reasonable in relation to the benefits of such concentration.
General Risks In addition to the strategy-specific risks identified above, there are more general risks associated with investing. Investing in securities involves a risk of loss that all clients should be prepared to bear. If a security is denominated in a currency other than the U.S. dollar, there is a risk that the value of that security will be diminished due to fluctuations in the relative value of the foreign currency against the U.S. dollar. In some strategies Lord Abbett uses derivatives, such as swaps, forwards, futures, options on futures and other options, which are subject to additional risks, including that the value of the derivative does not correlate with the value of the underlying security, rate or index, that portfolio volatility increases due to the leverage associated with the use of derivatives, and that the counterparty to the derivative is unable to satisfy its obligations or Lord Abbett is not otherwise able to sell or close out its position.
Research Information Portfolio management teams generally use both qualitative and quantitative research in the investment process. Generally, each investment team leverages analysts who are organized by invest- ment style along sector lines to conduct company research, including through on-site visits to companies, competitors, suppli- ers, and customers. Analysts also attend management meetings that occur at our offices in New Jersey and relevant industry conferences. Analysts may also use expert networks to conduct research. Sharing of information between investment teams occurs on a formal and informal basis. Regular investment meetings facilitate communication between the research analysts and among different portfolio management teams. Investment Guidelines, Client Requests, and Account Management Lord Abbett seeks to manage accounts with the same strategy in a uniform manner. However, Lord Abbett agrees in some cases to accommodate requests to incorporate specific client direction into Lord Abbett’s investment approach. Lord Abbett seeks to accommodate reasonable requests by equity Managed Account clients or their investment consultants to consider tax-optimization strategies. In doing so, Lord Abbett generally will invest in exchange traded funds, or ETFs, to maintain a particular investment exposure while it seeks to avoid a tax “wash sale” result. This could result in a taxable event for that client leading to results that may differ from those of other Managed Account clients that are not seeking to optimize their tax profile.
Lord Abbett invests in unaffiliated ETFs, investment companies, and other commingled or pooled vehicles (e.g., CLOs, CDOs) for a variety of investment reasons, including to facilitate the handling of cash flows or trading, or to provide a more efficient means to obtain market exposure. Fees and expenses associated with investing in an investment company or other commingled or pooled vehicle, potentially including an embedded investment management fee, are in addition to the advisory fees paid by the client to Lord Abbett, and reduce the account’s performance.
Litigation, Class Actions and Bankruptcies In its capacity as an investment manager, Lord Abbett is made aware of litigation and similar matters related to investments in client accounts. Where appropriate, Lord Abbett will consult with clients on such matters, but it is the client’s responsibility to monitor and analyze its portfolio and consult with its own advisers and custodian about whether it may have claims that it should consider pursuing. As a general matter, Lord Abbett cannot, without client written authorization, exercise any rights a client may have in participating in, commencing or defending suits or legal proceedings, such as class actions for investments held currently or previously in a client’s account, although we ordinarily do so for the Lord Abbett Funds and may do so for the Lord Abbett UCITS Funds and Lord Abbett Luxembourg Fund. Institutional separate account and Managed Account clients’ custodians will ordinarily receive all documents relating to class action, bankruptcy, or other litigation matters because the client’s securities are held in the client’s name at its custodian, and such clients should direct their custodian and/ or legal counsel as to the manner in which such matters should be handled. In connection with bankruptcies, reorganizations or other transactions, subject to the terms of the investment management agreement with the applicable client, Lord Abbett may enter into debtor-in-possession financing arrangements, restructuring support agreements, or other related arrangements (some of which involve releases of certain claims) on behalf of institutional separate account clients in order for those clients to participate in the bankruptcy, reorganization or other transaction. Any such actions taken by Lord Abbett may bind the client and limit the actions that may be taken by the client with respect to the affected securities. For example, Lord Abbett may enter into a lockup agreement that limits Lord Abbett’s and the client’s ability to sell a security for a certain time period, or Lord Abbett may enter into a nondisclosure agreement that limits the client’s ability to disclose certain informa- tion relating to the security that it may receive from Lord Abbett.
Investment Strategies The following table lists Lord Abbett’s investment strategies:
Domestic Equity
Value EquityLarge Cap Growth Large Cap ValueMid Cap Growth Mid Cap ValueSmall Cap Growth Smid Cap ValueMicro Cap Growth Small Cap ValueFocused Growth Equity IncomeDividend Growth
Global & International Equity
Global Core EquityInternational Value International EquityGlobal Equity Research International Small CapGlobal Bond
Balanced
Domestic Equity & Taxable Fixed Income
Taxable Fixed Income
Ultra Short DurationGovernment Short Duration CoreBank Loans Short Duration CreditMulti-Sector Intermediate Government/CreditHigh Yield Core CoreHigh Yield Opportunistic Core PlusGlobal High Yield Long DurationConvertible Securities Inflation FocusedEmerging Markets Corporate Debt Corporate BondEmerging Markets Bond Global BondCore Plus Full Discretion Corporate Credit
Tax Free Income
Short DurationHigh Yield Intermediate DurationShort Duration High Yield Long Duration Lord Abbett’s Managed Account investment advisory services also include certain fixed-income investment strategies in which Lord Abbett will construct a laddered portfolio of municipal bonds that are designed to be held to maturity. Lord Abbett will purchase new bonds to replace maturing positions, but will generally not sell bonds prior to maturity absent a significant change in circumstances or outlook, such as with respect to an issuer or a particular sector.
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Neither Lord Abbett nor its management personnel have been the subject of legal or regulatory findings, or are the subject of any pending criminal proceedings, that are material to a client’s or prospective client’s evaluation of our advisory business or the integrity of the firm.
OTHER FINANCIAL INDUSTRY ACTIVITIES AND AFFILIATIONS In addition to its registration as an investment adviser under the Investment Advisers Act of 1940, Lord Abbett is registered as a commodity pool operator and commodity trading advisor under the Commodity Exchange Act. Lord Abbett has five subsidiary companies: „Lord Abbett Distributor LLC, a New York limited liability company, is registered as a broker-dealer under the U.S. Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority, Inc. Lord Abbett Distributor is a limited purpose broker-dealer that serves solely as the principal underwriter for the Lord Abbett Funds, as distributor of the Lord Abbett UCITS Funds and the Lord Abbett Luxembourg Fund, and as placement agent for privately offered, commingled funds sponsored or subadvised by Lord Abbett.
„Lord, Abbett Asia LLC, a Delaware limited liability company, provides client liaison services from its branch office located in Japan. Lord Abbett Asia also refers investment advisory business to Lord Abbett.
„Lord Abbett (UK) Ltd., a Private Limited Company incorporated in the United Kingdom that serves as a distributor of the Lord Abbett UCITS Funds and a sales office for Lord Abbett products and services throughout Europe.
„Lord Abbett (Ireland) Limited, a Private Company Limited by Shares incorporated in Ireland, is authorized by the Central Bank of Ireland pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulation 2011, as amended, as a management company and is the appointed manager of the Lord Abbett UCITS Funds.
„Lord Abbett (Uruguay) S.R.L., a limited liability company (socie- dad de responsabilidad limitada) organized under the laws of Uruguay that serves as a wholesaler of the Lord Abbett UCITS Funds to locally licensed financial advisers and broker-dealers located in Argentina and Uruguay.
Lord Abbett has entered into an arrangement with Wilshire Associates Incorporated (“Wilshire”) under which Wilshire and Lord Abbett have agreed to cooperate in the joint marketing and support of certain model portfolio strategies designed by Wilshire (referred to in this paragraph as the “Wilshire strategies”) to invest exclusively in certain of the Lord Abbett Funds. Wilshire generally makes the Wilshire strategies available to independent investment advisers through third party investment platforms. Lord Abbett receives no direct compensa- tion with respect to the marketing of the Wilshire strategies or Wilshire’s provision of advisory services. Lord Abbett and Lord Abbett Distributor LLC receive fees in their respective roles from the Lord Abbett Funds. Lord Abbett does not recommend or select other investment advisers for its clients and is not responsible for the selection or oversight of Wilshire.
CODE OF ETHICS, PARTICIPATION OR INTEREST IN CLIENT TRANSACTIONS AND PERSONAL TRADING Lord Abbett has implemented a number of policies and procedures that are designed to manage any actual or potential conflicts of interest. Code of Ethics Lord Abbett has adopted policies constituting its code of ethics (the “Code”) designed to set forth general ethical and fiduciary principles and the standard of conduct that we require of our personnel and to set forth certain restrictions on activities, such as personal trading and receipt of gifts and entertainment, which give rise to conflicts of interest. All personnel are required to certify annually that they have complied with the terms of the Code. Compliance with the Code is a condition of employment for all personnel and a violation of the Code or any related policies may result in disciplinary action, which may include termination of employment. Below is a summary of key provisions of the Code. A copy of the Code may be obtained by any client or prospective client upon request by calling Lord Abbett’s Chief Compliance Officer at 201-827-2000.
Personal Trading In order to avoid conflicts of interests and to comply with our legal and regulatory obligations, the Code places restrictions on personal trading in accounts over which Lord Abbett personnel and/or certain immediate family members have investment discretion or accounts in which they have a beneficial interest. Lord Abbett investment department personnel are subject to more stringent requirements. The Code prohibits certain types of investments and requires that certain other transactions be pre-approved, reported and/or subject to a 30-day holding period. Investment department personnel may not trade in any security that requires pre-approval within 7 calendar days before or after Lord Abbett trades in that same security for any client, unless the general counsel or chief compliance officer exempts such transac- tion by determining it will not have a material effect on and/or will not benefit from the client transaction.
Gifts and Entertainment The Code and Lord Abbett’s Gifts and Entertainment Policies and Procedures place strict limits on the receipt and provision of gifts, travel, and entertainment by Lord Abbett personnel. Occasionally, Lord Abbett personnel participate in entertainment opportunities related to legitimate business purposes, subject to the require- ments and limitations set forth in the Code and the Gifts and Entertainment Policies and Procedures. Such requirements and limitations are intended to ensure that Lord Abbett employees avoid actual or potential conflicts of interest between their personal interests and those of the firm and its clients.
Investments by Lord Abbett and Our Personnel in Products We Manage Lord Abbett often provides the initial investment assets for newly launched investment funds, which is commonly referred to as “seeding” such funds. In addition, Lord Abbett occasionally seeds proprietary accounts for the purpose of evaluating a new investment strategy that eventually may be available to clients as a new mutual fund or other investment vehicle or for maintaining an existing strategy. Such funds or proprietary accounts also may serve the purpose of establishing a performance record to enable Lord Abbett to offer such an account’s investment style to clients. In some instances, Lord Abbett has engaged in proprietary trading in futures or other derivatives to hedge such seed investments or other proprietary investments by Lord Abbett in investment funds. In addition, some Lord Abbett personnel are investors in the Lord Abbett Funds or may maintain separate accounts in strategies that Lord Abbett manages for its clients. Lord Abbett’s management of accounts with proprietary interests alongside nonproprietary client accounts creates a potential incentive to favor the proprietary accounts over the nonproprietary accounts in the allocation of investment opportunities, time, aggregation and timing of invest- ments. Lord Abbett has established allocation policies and procedures that require Lord Abbett investment personnel to make purchase and sale decisions and allocate investment opportunities among accounts consistent with its fiduciary obligations, including avoiding favoring any accounts over others over time. Please see please register to get more info

Executions below for more information on these policies and procedures.
Political Contributions Lord Abbett partners and employees are not permitted to make or solicit political contributions for the purpose of obtaining or retaining business with government entities. Lord Abbett partners and employees, on their own behalf and on behalf of their spouses, domestic partners and immediate family members sharing the same household, are required to obtain approval from Lord Abbett before making a personal political contribution to any federal, state, local or U.S. territorial candidate, official, party or organiza- tion. Such personal contributions may support political candidates or officials who share the firm’s views related to its business interests, but it is a violation of Lord Abbett policy for any partner or employee to require another Lord Abbett employee to contribute to, support, or oppose any political group or candidate.
Donations to Charities Lord Abbett periodically makes donations to charitable organiza- tions that are clients or are supported by current or prospective clients, consultants or their respective employees at the request of such parties.
Identification and Resolution of Errors It is Lord Abbett’s policy to exercise appropriate care in making and implementing investment decisions on behalf of client accounts. Nonetheless, Lord Abbett may commit an error in the process of providing services to its clients, for example by purchasing a security or amount of a security that is inconsistent with a client’s investment restrictions or executing a security purchase when a sale was intended. In such event, it is Lord Abbett’s policy to ensure that clients do not incur a loss from errors caused by Lord Abbett. Lord Abbett has adopted policies and procedures relating to trade errors in an effort to ensure appropriate escalation and resolution of trade errors whenever they occur. Under these procedures, Lord Abbett will seek where practicable to correct an error without a financial impact on any client account, for example by reallocating a trade to Lord Abbett’s error account or to another client account when such a reallocation is consistent with a legitimate investment decision on behalf of each account involved. Any gains in Lord Abbett’s error account may be used to offset losses in the account incurred in connection with other erroneous transactions. Where reallocation is not permissible or practicable, Lord Abbett will engage in such transaction(s) in the affected client’s account as may be necessary to correct the error and will reimburse the client for any loss caused by Lord Abbett; any gain realized by a client as a result of correcting such a trade error shall remain in the client’s account. While Lord Abbett is responsible for its own errors, it will not be responsible to correct the errors of third parties, such as broker-dealers, client custodians and Sponsors of Managed Account programs, unless Lord Abbett has otherwise expressly assumed this obligation. Generally, Lord Abbett will make reason- able efforts to attempt to have a third party correct any error the third party has caused, and Lord Abbett may in its sole discretion determine to provide financial or other assistance with the appropriate correction of errors committed by third parties. If Lord Abbett commits an error in an account that is part of a Managed Account program, Lord Abbett will generally be obligated to take actions in accordance with a different policy determined by the Sponsor of that program, which may include making use of an error account controlled by the Sponsor.
Other Potential Conflicts of Interest Lord Abbett recommends transactions to, and makes investment decisions on behalf of, clients based solely on investment consider- ations, including whether the investments are suitable for the client and are consistent with the client’s investment objectives, policies and restrictions. Accordingly, Lord Abbett may invest a client’s account in a manner that competes or conflicts with the investment of another client’s account. For example, Lord Abbett may buy or sell a position in a client’s account while undertaking for another client’s account the same or a differing, including potentially opposite, investment strategy. Similarly, different investment teams may invest client accounts in different parts of an issuer’s capital structure, which may result in Lord Abbett acting on behalf of one client in a manner inconsistent with the interest of another client in connection with corporate events such as proxy votes or distressed security workouts.
To the extent permitted by law and/or account guidelines, Lord Abbett will invest client accounts in securities issued by companies with which Lord Abbett has material business relationships, including companies that act as a Managed Account Sponsor, that distribute or place orders on behalf of clients for shares of the Lord Abbett Funds, that provide services, such as retirement and benefit plan administra- tion, to Lord Abbett, or that are, or are related to, Lord Abbett clients. In addition, at times Lord Abbett personnel will buy or sell securities that Lord Abbett has recommended to, or purchased or sold on behalf of, clients. Lord Abbett also will buy or sell on behalf of clients or recommend to clients the purchase or sale of securities in which it or its personnel have a financial interest, including the Lord Abbett Funds. Moreover, Lord Abbett maintains brokerage or trading relationships with broker-dealers who are, or are an affiliate of, clients that have appointed Lord Abbett to serve as investment adviser or who have other business relationships with Lord Abbett or an affiliate, or the Lord Abbett Funds. These transactions are subject to the requirements and limitations set forth in the Code and related policies, as well as to the requirements of the Investment Advisers Act of 1940, the Investment Company Act of 1940 and/or other applicable laws.
It is Lord Abbett’s policy that our clients’ interests come first. Lord Abbett’s ability to place and/or recommend transactions may be restricted by applicable regulatory requirements and/or its internal policies designed to comply with such requirements.
Lord Abbett contracts with third-party vendors to establish enhanced connectivity with broker-dealers through which the firm trades on behalf of client accounts. Lord Abbett receives payments from, or credits against amounts otherwise owed to, some of such vendors. These payments or credits are based on amounts paid by the broker-dealers to such vendors. In no case are the payments or credits to Lord Abbett dependent on the trading by Lord Abbett of any particular client’s assets. Lord Abbett’s selection of broker- dealers to execute client trades is based on considerations relating to best execution and is not impacted by these arrangements.
Material Non-Public Information/Insider Trading: Lord Abbett personnel may come into possession of material, non-public information (“MNPI”) which, if disclosed, might affect an investor’s decision to buy, sell or hold a security. Such MNPI may be received intentionally in order to consider a confidential investment opportu- nity or unintentionally as a result of inadvertent disclosure by a third party. It may also be received as a result of outside business activities engaged in by a Lord Abbett employee. Under applicable law, Lord Abbett personnel are generally prohibited from improp- erly disclosing or using such information for their personal benefit or for the benefit of any other person, regardless of whether that person is a client. Accordingly, should Lord Abbett personnel come into possession of MNPI with respect to an issuer, Lord Abbett is generally prohibited from communicating such information to, or using such information for the benefit of, clients, which could limit the ability of clients to buy, sell or hold certain investments. Lord Abbett shall have no obligation or responsibility to disclose such information to, or use such information for the benefit of, any person (including clients). Lord Abbett has implemented proce- dures that prohibit the misuse of such information (e.g., illegal securities trading based on the information). Similarly, no employee who is aware of MNPI which relates to any other company or entity in circumstances in which such person is deemed to be an insider or is otherwise subject to restrictions under federal securities laws may buy or sell securities of that company or otherwise take advantage of, or pass on to others, such MNPI. Participants in the bank loan market are often given the option of receiving certain non-public information while continuing to trade in that market. Lord Abbett ordinarily elects not to receive such non-public information in order to facilitate the free exchange of information among its investment teams.
Below we describe our core business practices relating to trading and brokerage. In addition, we provide information regarding certain conflicts of interest that arise in connection with the execution of trades for client accounts and describe the policies and procedures that we have designed and implemented to help us manage these conflicts of interest.
Broker Selection and Best Execution Generally, the discretionary investment authority granted to Lord Abbett by each client includes discretion over client brokerage. This means that Lord Abbett has discretion to select broker- dealers and negotiate the transaction costs, including commissions or bid-ask spreads, in the execution of client portfolio transactions. Clients in Managed Account, commission recapture, or directed brokerage programs, however, limit Lord Abbett’s discretion with respect to the selection of broker-dealers. Please see the discussion below regarding Lord Abbett’s client brokerage policies in these circumstances.
When exercising discretion over client brokerage, it is Lord Abbett’s policy to seek “best execution,” or the most favorable results under the circumstances, when placing orders for securities transactions for client accounts. We define best execution as a process, not a result: it is the process of executing transactions at prices and, if applicable, transaction costs that provide the most favorable total cost or proceeds reasonably obtainable under the circumstances (taking into account all relevant factors). Trading practices, regula- tory requirements, liquidity, public availability of transaction information and transaction cost structures vary considerably from one market to another. Best execution incorporates many such factors, as well as the portfolio manager’s investment intentions, and involves an evaluation of the trading process and execution results over extended periods. Lord Abbett’s determination of best execution does not necessarily mean that the client is paying the lowest possible commission rate or bid-ask spread, as there are several additional important factors to consider when evaluating best execution in client brokerage. Among the factors Lord Abbett considers when selecting a broker-dealer are the broker-dealer’s execution capabilities (including block positioning), financial stability, ability to maintain confidentiality, delivery capability, ability to obtain best price, operational and reputational risks, and the value and availability of research services or credit arrangements for the purpose of obtaining such research services. In addition, certain clients may request that Lord Abbett seek to trade with certain broker-dealers while maintaining its obligation to seek best execution on all transactions. For such purpose, Lord Abbett may take such request into account in determining best execution notwithstanding that execution for the client is achieved in a manner that is different from an otherwise similarly situated client.
Accordingly, Lord Abbett will not select broker-dealers solely on the basis of “posted” or “standard” commission schedules, nor will it always seek advance competitive bidding for the most favorable commission rate or bid-ask spread applicable to a particular transaction. Lord Abbett has adopted policies and procedures designed to ensure that the choice of brokerage firm to execute transactions is based on considerations relevant to seeking best execution and not other factors, such as a broker’s ability to refer clients to Lord Abbett or distribute Lord Abbett Funds. Lord Abbett often uses alternative execution venues in lieu of placing transac- tions with a traditional brokerage firm to facilitate best execution and to reduce transaction costs.
In seeking to obtain best execution, Lord Abbett recognizes that some broker-dealers are better at executing some types of orders than others and it may be in the clients’ best interests to use a broker-dealer whose commission rates or bid-ask spreads are not the lowest but whose executions and other services Lord Abbett believes will result in lower overall transaction costs or more favorable or more certain results. From time to time, Lord Abbett will agree to have client accounts pay higher commission rates or other costs to broker-dealers on particular client transactions if Lord Abbett believes that the client has obtained best execution and the amount paid by the client is reasonable in relation to the overall value of the execution and any other services provided by the broker-dealer. The reasonableness of transaction costs is based on Lord Abbett’s view of the broker-dealer’s ability to provide professional services, competitive commission rates, research, and other services that will help Lord Abbett in providing investment advisory services to its clients, viewed in terms of either the particular transaction or Lord Abbett’s overall responsibility to its clients. In particular, Lord Abbett at times will agree to have client accounts pay higher commission rates to those broker-dealers whose execution abilities, brokerage or research services, or other legitimate and appropriate services are deemed helpful by Lord Abbett’s investment teams in the overall management of client accounts.
Subject to applicable law, Lord Abbett will occasionally effect “cross” transactions between client accounts, including registered invest- ment companies. In these cases, one client account will purchase securities held by another client account. Lord Abbett effects these transactions only (1) when it deems the transaction to be in the best interests of both client accounts and (2) at a price that Lord Abbett has determined by reference to independent market indicators, which Lord Abbett believes to constitute “best execution” for both accounts. Neither Lord Abbett nor any related party receives any compensation in connection with “cross” transactions. Lord Abbett is not obligated to seek to effect “cross” transactions and may be prohibited by legal or regulatory considerations from doing so with respect to certain types of client accounts. Managed Accounts Lord Abbett generally places all transactions in equities for Managed Accounts through the Sponsor or a broker-dealer firm designated by the Sponsor. For these types of equity transactions, Lord Abbett does not negotiate brokerage commissions since execution costs are included in the overall fees charged by the Sponsor or are set as a fixed commission amount per trade by the Sponsor. Lord Abbett’s practice avoids the incremental brokerage costs that would be incurred if Lord Abbett used for such transac- tions broker-dealers other than the Sponsor. Since execution costs are included in the client’s single fee agreed with the Sponsor and are not individually negotiated or are the result of a Sponsor’s direction, Lord Abbett typically does not monitor or evaluate the commission rates clients pay or the nature and quality of the services (i.e., best execution) they receive from Sponsors and their designated service providers, including broker-dealer firms. Occasionally, when deemed beneficial for clients, Lord Abbett will place equity transactions with broker-dealers other than the relevant Sponsor. As a result, the associated client accounts will pay brokerage commission costs that are in addition to the charges for execution otherwise included in the Sponsor’s overall fee. For certain Managed Accounts taxable and tax exempt fixed-income and convertibles strategies, Lord Abbett will consistently execute fixed-income transactions at financial institutions other than the Sponsor. Such transactions ordinarily occur at net prices, meaning that the broker-dealer’s charge for the trade is built into the security’s purchase or sale price and is ultimately borne by the client in addition to any charges for execution otherwise included in the Sponsor’s overall fee. Each client should evaluate whether particular Managed Accounts are suitable for his or her needs, including the fees charged and services provided.
Transactions Involving Non-U.S. Securities and Depositary Receipts Some client accounts may not be able to hold non-U.S. securities in direct or “ordinary” form because of custodial limitations or other restrictions. In these cases, and subject to any investment guidelines or restrictions, Lord Abbett generally will buy depositary receipts (“DRs”) or arrange for the purchase of ordinary shares in non-U.S. markets that settle and convert into DRs. Fees and costs associated with each of the DR conversion and withdrawal transactions typically are included in the net price of the transaction and borne by the client. Foreign Currency Transactions Lord Abbett engages in foreign currency transactions in some accounts or strategies. Where available and practicable, Lord Abbett believes it is in a client’s best interest to deal directly with a broker-dealer; however, third party broker-dealer transactions are not available for certain emerging market or certain restricted foreign securities and may be impracticable for some payments such as dividends. In these instances, Lord Abbett will trade foreign currency through a client’s custodian on a transaction-by-transac- tion basis and/or via standing instructions. Lord Abbett will not be responsible for overseeing charges of, or execution quality provided by, a client’s custodian; clients should contact their custodians directly for this information.
Trade Aggregation Equity Transactions When appropriate and feasible, Lord Abbett will seek to combine or “batch” multiple orders (purchase or sale) of the same security that are placed at or about the same time with the trading desk. Further, when a second order with respect to a security reaches the trading desk while another order in that security has not been com- pleted, Lord Abbett will seek to batch the remainder of the earlier order with the second order. Portfolio managers have the ability to place orders with the equity trading desk indicating the immediacy with which the trade should be executed. Orders in the same security with differing levels of immediacy will generally not be aggregated. Moreover, orders placed for execution with price limits may not be aggregated with orders placed to be executed at the prevailing market price. In addition, not all similarly situated accounts will necessarily participate in the same batched order due to issues such as cash flow considerations, investment restrictions, tax concerns, and brokerage restrictions.
At times, Lord Abbett is not able to batch purchases and sales for all accounts or products it is managing, such as when an individually managed account client directs Lord Abbett to use a particular broker for a trade (sometimes referred to herein as “directed accounts”) or when a client restricts Lord Abbett from selecting certain brokers to execute trades for such account (sometimes referred to herein as “restricted accounts”).
When transactions for all products using a particular investment strategy are communicated to the equity trading desk at or about the same time, Lord Abbett generally will place trades first for transactions on behalf of the Lord Abbett Funds, Lord Abbett UCITS Funds, Lord Abbett Luxembourg Fund and nondirected, unre- stricted individually managed institutional accounts, second for restricted accounts, third for Managed Accounts by Sponsor or consultant/financial adviser (as described below), and finally for directed accounts (see Brokerage Practices—Directed Brokerage and Other Client Restrictions on Brokerage section below for more details). Communication of changes to portfolio holdings informa- tion for Model Portfolios is handled separately near the end of the trading day or at the beginning of the next trading day, and gener- ally after the completion of transactions for Managed Accounts. Lord Abbett may determine in its sole discretion to place transac- tions for one group of accounts before other accounts based on a variety of factors, including size of overall trade, the broker- dealer’s commitment of capital, liquidity, or other conditions of the market, or confidentiality. Lord Abbett’s overall policy is to treat similarly situated groups of accounts equitably over time.
Frequently, a batched order will not be fully filled during a trading day and will be canceled or subsequently filled or combined with orders for other accounts and then filled. Generally, each account that participates in a particular batched order will do so at the average price for all transactions related to that batched order. However, in certain circumstances, significant account size disparity, use of algorithmic trading, and/or significant market price movements may cause some accounts to receive an average price different from the average price of the other accounts in the batched order.
Lord Abbett generally allocates securities purchased or sold in a batched transaction among participating client accounts on a pro rata basis. In certain strategies, however, a pro rata allocation of the securities or proceeds will not be possible or desirable, as described below. Lord Abbett will decide how to allocate the securi- ties or proceeds according to each account’s particular circumstances and needs, and in a manner Lord Abbett believes is fair and equitable to clients over time in light of a variety of factors.
Fixed-Income Transactions As is the case with equity transactions, transactions in fixed-income securities will ordinarily be batched and allocated pro rata among participating client accounts for transactions that are communicated to the trading desk at or about the same time. Unlike equity transac- tions, however, Lord Abbett generally will not batch fixed-income orders that are placed at separate times, even if the earlier order has not been completed when a second order reaches the trading desk, unless Lord Abbett believes that batching such orders will not impact trading of the earlier-placed order.
Some client accounts will be excluded from a batched transaction for a variety of reasons, including issuer requirements regarding minimum trade or lot size or client limitations on the use of certain broker-dealers. When an account is excluded from a batched trade, Lord Abbett will seek to purchase securities in that account in a manner that is fair and equitable to all client accounts over time, which may include purchasing a security for an excluded account first based on factors such as the availability of a desirable purchase opportunity that would not be suitable for the non-excluded client accounts. In addition, unlike the case of equity securities, when an account is excluded from or unable otherwise to participate in a transaction Lord Abbett’s investment team often can purchase another fixed-income security with substantially similar investment characteristics.
Managed Accounts Lord Abbett generally will not batch equity transactions for Managed Accounts with transactions for the Lord Abbett Funds, Lord Abbett UCITS Funds, or Lord Abbett Luxembourg Fund and unrestricted (as to transaction execution) individually managed institutional accounts, and these clients will not derive the same advantage from batching orders as a single transaction for the pur- chase and sale of a particular security. Accounts subject to batch- ing may receive more favorable results than accounts for which execution costs are covered as part of such service. Lord Abbett generally will batch equity transactions for Managed Accounts for execution through the same Sponsor or directed broker-dealer. Lord Abbett consistently places transactions in certain fixed-income securities with or through firms other than the Managed Account Sponsor or directed broker-dealer. Such transactions occur at net prices that include the broker-dealer’s charge for the trade and are ultimately borne by the client.
Where Lord Abbett manages the same product for multiple Sponsors or consultants/financial advisers, Lord Abbett will rotate the order in which it places equity transactions among the relevant accounts. Lord Abbett normally uses a rotation methodology designed to avoid systematically favoring one Sponsor or group over another and to treat similarly situated groups of accounts equitably over time by assigning each Sponsor or group a place in the rotation for a particular trading day, and then moving the first Sponsor or group to the end of the rotation order the follow- ing trading day. Each succeeding Sponsor or group will move up a place in the rotation order each subsequent trading day. Lord Abbett deviates occasionally from this rotation methodology to take advantage of special opportunities in the market. For example, transactions in certain limited-supply securities typically will not be subject to this rotation methodology because not all Sponsors or directed broker-dealers will have access to, or an adequate supply of, such limited-supply securities. Lord Abbett will also place a Sponsor’s or directed broker-dealer’s transactions after those of other Sponsors/directed broker-dealers to avoid delays Lord Abbett deems too long in execution of transactions for such accounts. These accounts would be consistently placed at the end of the rotation schedule among Sponsors, which may disadvantage such accounts, depending on market conditions.
Model Portfolios Lord Abbett typically releases its Model Portfolio holdings informa- tion to a Sponsor daily. When the related Lord Abbett investment team makes core changes to the Model Portfolio, Lord Abbett generally will communicate its changes to the Sponsor at or near the end of the trading day and generally after the completion of the rotation methodology described above. For Sponsors unable to accept Model Portfolio changes at that time, Lord Abbett will communicate its Model Portfolio changes the following trading day morning. The Sponsor or an overlay manager is responsible for adjusting existing Model Portfolio accounts to conform to the core changes. Model Portfolio clients may experience account perfor- mance that is different from the results obtained when Lord Abbett exercises investment discretion due to the timing and implementa- tion of orders by a Sponsor or overlay manager.
Derivatives Transactions Whenever practicable, Lord Abbett will seek to batch transactions in derivatives such as futures, swaps, and currency forwards among eligible client accounts. Because many derivatives require negotiation and execution of trading agreements between each client and each counterparty, some counterparties may be avail- able to some client accounts and not others. When the counterparty that Lord Abbett believes can provide best execution for a particular transaction is unavailable to a portion of client accounts participating in that transaction, Lord Abbett is faced with a choice. It may choose to trade with the preferred counterparty on behalf of the accounts to which that counterparty is available and trade the excluded client accounts with a different counterparty available to them, or it may choose to enter into a single trade with a counterparty that is available to all of the relevant accounts. In making this choice, Lord Abbett will balance the benefits of batching the transaction against the benefit of choosing the most desirable counterparty among those available to each client. Such decisions will be made subject to Lord Abbett’s continuing obligation to treat all client accounts in a manner it believes is fair and equitable over time.
Mixed Asset Class Transaction Modeling When modeling orders for client accounts that include accounts that may invest across multiple asset classes, investment alloca- tion varies. With respect to “mixed asset class accounts” managed by two or more portfolio manager teams (e.g., balanced strategy), the portfolio manager for a particular asset class will generally determine an account’s positioning for pro rata allocation purposes based on the portfolio’s target allocation to that asset class rather than the size of the account as a whole. However, for mixed asset class accounts managed by a single portfolio manager team (e.g., high yield), such accounts will be positioned for pro rata allocation purposes based on the total size of the account regardless of the target allocation to the relevant asset class. Thus, mixed asset class accounts managed by a single portfolio manager team may receive greater allocations than would otherwise be the case if the relevant asset class were managed on a stand-alone basis, which could negatively impact the allocations to and performance of other client accounts participating in these trades.
Allocation of Trade Executions Once a batched order is filled, Lord Abbett generally allocates the securities or cash on a pro rata basis among the participating client accounts. In the event that there is limited availability or limited liquidity for investments, however, a pro rata allocation may not be possible or desirable. For example, limited availability will exist at times, without limitation, in certain security types or categories such as fixed-income securities (including bank loans and high- yield securities), emerging markets, regulated industries, small and micro cap securities, and initial public offerings or new issues.
In these cases, Lord Abbett’s investment management teams will make allocations that reflect a number of other factors based on Lord Abbett’s good-faith assessment of the investment opportunity relative to the objectives, limitations, and requirements of each client account. These factors, which Lord Abbett applies in a manner that it believes is fair and equitable to clients over time, include, without limitation, some or all of the following: (1) client- specific considerations, including investment objectives, guidelines and restrictions, risk profile, and anticipated liquidity needs; (2) type of account; (3) number of securities relative to size and expected future size of an account; (4) availability of other appropriate investment opportunities; (5) other holdings and/or prior allocation affecting an account; (6) rebalancing needs, such as over- or under-weighting in a particular investment, industry, sector, credit rating, maturity, and coupon or interest rate, of an account; (7) minimum denomination, increments, and round lot considerations; (8) issuer-imposed limitations; (9) tax considerations; (10) purchases for accounts with a disproportionate cash position or newly established accounts for which Lord Abbett is seeking to fully invest as promptly as possible; and (11) with respect to bank loans, dealer assignment fees. Accordingly, Lord Abbett will increase or decrease the amount of securities allocated to one or more accounts if necessary, under certain circumstances. Lord Abbett’s allocation decisions among client accounts will potentially be more or less advantageous to any one account or group of accounts. As a result of these allocation issues, the amount, timing, structuring, or terms of an investment by a client account at times will differ from, and performance potentially will be lower than, investments and perfor- mance of other client accounts. Client accounts that either receive a less than pro rata or no allocation of an investment opportunity that performs well may experience lower performance overall.
Client Commission Arrangements and Soft Dollars It is Lord Abbett’s policy to seek to obtain best execution on all client transactions over which Lord Abbett exercises discretion. It is generally the case that more than one broker-dealer can provide best execution, and in the case of equity transactions, if consistent with applicable law and regulation, Lord Abbett often selects broker-dealers that furnish Lord Abbett with proprietary and third-party brokerage and research services in connection with commissions paid on transactions it places for client accounts. The brokerage and research services Lord Abbett receives are within the eligibility requirements of Section 28(e) of the Securities Exchange Act of 1934 and, in particular, provide Lord Abbett with lawful and appropriate assistance in the provision of investment advice to client accounts. Such services include (1) furnishing advice as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the availability of securities or purchasers or sellers of securities; (2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions inciden- tal to securities transactions (such as clearance, settlement, and please register to get more info

electronic delivery or print, online data services, oral discussions with researchers and other experts, and meetings with company representatives and third party analysts. Lord Abbett has entered into Client Commission Arrangements with a number of broker- dealers that it selects to execute client transactions. These Client Commission Arrangements provide for the broker-dealers to pay a portion of the commissions paid by eligible client accounts for securities transactions to providers of certain research services designated by Lord Abbett, including research service providers that are affiliates of such broker-dealers or of Lord Abbett advisory clients. Lord Abbett initiates a significant percentage, and poten- tially up to all, of its clients’ equity security transactions with broker-dealers pursuant to Client Commission Arrangements.
In addition to Client Commission Arrangements, certain full service broker-dealers (that is, broker-dealers that provide brokerage and execution services) also furnish proprietary research services on a “bundled” basis to Lord Abbett. Proprietary research may include research from an affiliate of the broker-dealer and services that provide access to unaffiliated industry experts. Bundled brokerage is a brokerage arrangement whereby the underlying commission is informally comprised of both trade execution and other services, most often investment research meant to assist with Lord Abbett’s internal research process. These services are generally not offered on a stand-alone basis by broker-dealers.
The services that Lord Abbett receives from Client Commission Arrangements and “bundled” proprietary research include the use of expert referral networks. Expert referral networks provide access to industry consultants, vendors, and suppliers. Such services are commonly relied on by investment managers to supplement their investment process and gain unbiased industry insights. Lord Abbett uses a limited number of expert networks and monitors its use to ensure compliance with the law, as well as internal guidelines.
Lord Abbett believes that access to independent investment research is beneficial to its investment decision-making processes and, therefore, to its clients. Receipt of independent investment research allows Lord Abbett to supplement its own internal research and analysis and makes available the views of, and information from, individuals and the research staffs of other firms.
The receipt of research services from broker-dealers therefore does not tend to reduce the need for Lord Abbett to maintain its own research personnel. Further, Lord Abbett values the receipt of independent, supplemental viewpoints and analyses. Any invest- ment advisory or other fees paid by clients to Lord Abbett are not reduced as a result of Lord Abbett’s receipt of research services from broker-dealers. Also, the expenses of Lord Abbett would be increased substantially if it attempted to generate such additional information through its own staff or if it paid for these products or services itself. To the extent that research services of value are provided by or through such broker-dealers, Lord Abbett will not have to pay for such services itself. In addition, Lord Abbett from time to time selects broker-dealers that provide research services in order to ensure the continued receipt of such research services which Lord Abbett believes are useful in its investment decision- making process. Lord Abbett has an incentive to place trades through broker-dealers that provide Client Commission Arrange- ments or other research services. In addition, Lord Abbett has an incentive to place trades with broker-dealers with which it has negotiated more favorable Client Commission Arrangements, rather than executing through a broker-dealer with an arrangement that is less favorable to Lord Abbett. To the extent that Lord Abbett uses brokerage commissions paid in connection with client portfolio transactions to obtain research services, the brokerage commis- sions paid by such clients might exceed those that would otherwise be paid for execution only. These circumstances give rise to actual and potential conflicts of interest. In order to manage such conflicts of interest, Lord Abbett has adopted internal procedures designed to ensure that (1) the value, type, and quality of any products or services it receives from broker-dealers are permissible under applicable law and (2) investment transactions are placed based solely on best execution considerations.
Lord Abbett believes that any brokerage and research services received from a broker-dealer are, in the aggregate, of assistance to Lord Abbett in fulfilling its overall responsibilities to its clients. Accordingly, research services received for a particular client’s brokerage commissions may be useful to Lord Abbett in the manage- ment of that client’s account, but may also be useful in Lord Abbett’s management of other clients’ accounts, including accounts that do not generate eligible Section 28(e) brokerage commissions or generate less than a proportionate share of such eligible commissions to pay for research services; similarly, the research received for the commis- sions of other client accounts may be useful in Lord Abbett’s management of that client account. Thus, Lord Abbett uses brokerage and research services received from broker-dealers in servicing any or all of its accounts, and not all of such services will necessarily be used by Lord Abbett in connection with its management of every client account. Such products and services may disproportionately benefit certain clients relative to others based on the amount of brokerage commissions paid by the client account. For example, Lord Abbett uses research services obtained through soft-dollar arrangements, including Client Commission Arrangements, in its management of certain directed accounts, Managed Accounts, and accounts of clients who have restricted Lord Abbett’s use of soft dollars regardless of the fact that brokerage commissions paid by such accounts are not used to obtain research services.
All accounts included in a batched transaction executed through a broker-dealer pursuant to a Client Commission Arrangement pay the same commission rate, regardless of whether one or more accounts within the batched order has prohibited Lord Abbett from receiving any credit toward such services from its commissions. Some broker-dealers who have negotiated an arrangement with Lord Abbett for the provision of brokerage and research services offer a lower commission rate for client accounts not participating in such arrangement. It is Lord Abbett’s policy, however, to seek to include nonparticipating accounts in a batched trade, as Lord Abbett believes these nonparticipating accounts would receive overall better execution notwithstanding the fact that the nonpar- ticipating account may be able to pay a lower commission rate if it were not included in the batched trade.
In some cases, Lord Abbett receives from a broker-dealer a product or service that has both a “research” and a “non-research” use. When this occurs, Lord Abbett makes a good faith allocation between the research and non-research uses of the product or service. The percentage of the product or service Lord Abbett uses for research purposes generally will be paid for with client commissions, while Lord Abbett will use its own funds to pay for the percentage of the product or service that it uses for non- research purposes. In making this good faith allocation, Lord Abbett faces a potential conflict of interest, but Lord Abbett believes that its allocation procedures are reasonably designed to ensure that it appropriately allocates the anticipated use of such products or services to their research and non-research uses.
Lord Abbett periodically assesses the contributions of the brokerage and research services provided by broker-dealers and creates a ranking of broker-dealers reflecting these assessments, as deter- mined by Lord Abbett’s investment staff. Lord Abbett’s investment personnel evaluate the research services they receive from broker- dealers and make judgments as to the value and quality of such services. These assessments are intended to affect the extent to which Lord Abbett trades with a broker-dealer, although the actual amount of transactions placed with a particular broker-dealer may not directly reflect its ranking in the voting process. Lord Abbett monitors the allocation of equity trading among broker-dealers through periodic reviews. Lord Abbett’s arrangements for proprietary and third-party research services do not involve any commitment by Lord Abbett regarding the allocation of brokerage business to or among any particular broker-dealer. Rather, Lord Abbett executes portfolio transactions only when they are dictated by investment decisions to purchase or sell portfolio securities. Some electronic trading systems offering uniform pricing for trades effected over the system allow Lord Abbett to specify a broker-dealer of its choice as a counterparty. Consistent with its obligation to seek best execution, Lord Abbett sets internal targets for certain counterparties over such systems in order to receive research or to help satisfy client requests that Lord Abbett engage in trading with certain types of broker- dealers such as those that are owned by women or minorities.
Lord Abbett periodically prepares a relative categorization and ranking of research providers that it considers to provide valuable research services as determined through evaluations and other feedback provided by Lord Abbett’s investment staff. Lord Abbett uses the ranking as a guide for evaluating and determining payments to research providers for research services, including proprietary research services provided to Lord Abbett by executing broker- dealers. Lord Abbett at times uses commissions generated pursuant to a Client Commission Arrangement to pay a research provider, including an executing broker-dealer who provides proprietary research services to Lord Abbett. Alternatively, Lord Abbett makes cash payments from its own resources to pay research providers for research services. Lord Abbett uses commissions generated pursuant to Client Commission Arrangements to pay for a significant portion of the research services that it receives.
Client Commission Arrangements generally do not apply to fixed-income security transactions. The fixed-income securities market is an over-the-counter (OTC) market where commissions typically are not paid and soft dollars are not accumulated on portfolio trades. The expenses that clients pay buying and selling fixed-income securities are a component of the net price paid in the trade. Even though Lord Abbett does not obtain soft dollar research for fixed-income trades, Lord Abbett’s fixed-income investment personnel are permitted to make use of soft dollar research obtained by Lord Abbett’s equity investment personnel. In addition, many Lord Abbett investment personnel receive investment research from various broker-dealers, including, in addition to broker-dealers that execute equity trades, broker-dealers through which fixed-income trades are executed in accordance with Lord Abbett’s best execution obligations. The receipt of such research, however, is not contingent on specific trades. Furthermore, some fixed-income strategies employed by Lord Abbett also invest in equity securities. In those cases, in addition to making use of soft dollar research services obtained by Lord Abbett’s equity invest- ment personnel, the fixed-income investment team also will be permitted to obtain research services directly using soft dollars. Thus, the investment personnel managing fixed-income accounts will benefit from, or be “cross-subsidized” by, research services received without additional cost by Lord Abbett through soft dollars, even though some fixed-income accounts do not generate eligible Section 28(e) brokerage commissions or generate less than a proportionate share of such eligible commissions to pay for such research services.
Directed Brokerage and Other Client Restrictions on Brokerage Clients may direct Lord Abbett to place some or all of the transac- tions for their accounts with one or more broker-dealers they specify. Such clients do so for several reasons, including offsetting consulting and other fees or participating in a bundled services program, including but not limited to Managed Accounts under a dual contract program. A client that designates use of a particular broker-dealer should understand, however, that such an instruction might prevent Lord Abbett from freely negotiating commission rates or selecting brokers based on the most favorable price and execution for the transaction. Clients also may prohibit Lord Abbett from placing transactions for their accounts with certain broker- dealers. A client that prohibits Lord Abbett from selecting certain broker-dealers for the placement of transactions for its account should understand that such a prohibition prevents Lord Abbett from selecting a restricted broker-dealer even though such broker-dealer may offer a more favorable price and execution for the transaction. In addition, the client may lose the possible advantage that non-designating and unrestricted clients derive from batching orders into single larger transactions, utilizing alternative trading venues, or alternative trading techniques for the purchase or sale of a particular security. Finally, Lord Abbett normally will place transactions for directed accounts, restricted accounts, and Managed Accounts after those placed for non- directed accounts. In order to comply with a client direction, Lord Abbett usually will seek to engage in “step-out” or “broker-of-credit” transactions. Such situations involve placing a transaction with a broker-dealer with the instruction that the broker-dealer execute the transaction and “step-out,” or credit all or a portion of the commission to another broker-dealer that the client has designated. Lord Abbett believes that such arrangements afford the opportunity both to seek best execution with respect to the transaction and to comply with the client’s direction. Overall, any instruction that Lord Abbett use a certain broker- dealer or restrict trading with a particular broker-dealer may cause a client to pay higher commissions, receive less favorable net prices or investment results, or incur additional custodial or other external administrative charges than would be the case if Lord Abbett were authorized to choose the broker-dealers through which to execute transactions for the client’s account. REVIEW OF ACCOUNTS Institutional Accounts Each client account is managed by a Lord Abbett investment team, which is assigned primary responsibility for the day-to-day manage- ment and ongoing monitoring of the client account. The investment team’s continuous review of a client account includes the review of the appropriateness of portfolio holdings and transactions in light of the client account’s investment objective, guidelines, and restrictions and changes in market conditions. The number of accounts managed by each investment team varies depending on the nature and size of the accounts under management and may change over time.
In all cases, accounts are also subject to review by operations and compliance personnel, who monitor account trading on a daily basis with the aid of Lord Abbett’s portfolio accounting system and separate equity and fixed-income trading systems that incorporate pretrade or post-trade compliance testing against many account restrictions.
On a quarterly basis, each investment team meets with the Invest- ment Review Committee, which includes Lord Abbett’s Managing Partner, Chief Investment Officer and Chief Risk Officer. These quarterly meetings ordinarily include review of portfolio holdings, characteristics, strategies, and performance attribution analysis, as well as the team’s personnel and other resources. Managed Accounts Managed Account investment and operations teams ensure that each such account is subject to reviews similar to those described above. The number of such accounts assigned to each investment or operations team varies depending on the nature and size of the accounts under management, and typically is greater than the number of institutional accounts assigned for review. Nature and Frequency of Reports Institutional Accounts: The nature and frequency of reports to institutional account clients vary based on client needs and prefer- ences. Typically, clients receive monthly or quarterly reports that may include portfolio transactions, holdings, characteristics, strategies, performance attribution analysis, and account performance versus portfolio benchmarks. Meetings with institutional clients are held as agreed upon with clients and generally occur annually. Managed Accounts and Model Portfolio Accounts: Managed Account and Model Portfolio Sponsors typically receive market commentaries prepared by Lord Abbett and generally send such commentaries on to Managed Account or Model Portfolio clients. Sponsors also typically issue performance reports to clients on a quarterly basis. Upon request, Lord Abbett will provide supplemental reporting to these types of clients. In addition, Lord Abbett personnel who are knowledgeable about a Managed Account client’s account will be reasonably available to the client for consultation. CLIENT REFERRALS AND OTHER COMPENSATION Lord Abbett makes payments out of its past profits and other available sources to certain financial intermediaries for marketing/ distribution support, investor/shareholder servicing, entertainment, training and education activities, and/or the purchase of products or services from such intermediaries. Lord Abbett and/or Lord Abbett Distributor LLC also make payments for these purposes to financial intermediaries in connection with the Lord Abbett Funds, Lord Abbett UCITS Funds, and Lord Abbett Luxembourg Fund. The products or services purchased include analytical software and data. In addition, Lord Abbett sometimes pays for meals, entertain- ment and educational meetings with institutional client consultants that may recommend our services to their clients.
With the exception of purchases of products or services from the financial intermediaries, the amounts of Lord Abbett’s payments are determined by Lord Abbett or Lord Abbett Distributor LLC, as the case may be, and in some cases are substantial. The intermediaries receiving such payments include consulting firms and broker- dealers that may recommend that their clients consider or select Lord Abbett to provide them with investment advisory services, as well as to intermediaries that act as dealers for the Lord Abbett Funds, Lord Abbett UCITS Funds, and Lord Abbett Luxembourg Fund or as agents for their clients with respect to purchases of shares of the funds. In some circumstances, such payments may create an incentive for an intermediary or its employees or associ- ated persons to recommend Lord Abbett’s advisory services or funds or to sell shares of a fund to a client. Lord Abbett compen- sates its affiliates and non-affiliates for solicitation and/or other client-related services provided to Lord Abbett clients and prospec- tive clients. Under the arrangements, generally, Lord Abbett pays a portion of its advisory fee to the solicitor or service provider. Where applicable, any such arrangements comply with Rule 206(4)-3 under the Investment Advisers Act of 1940.
Lord Abbett does not maintain physical possession of the funds or securities held in clients’ accounts. Typically, clients deposit assets with a qualified custodian selected by the client. Generally, under the terms of an investment management agreement between Lord Abbett and each client, Lord Abbett will periodically invoice the client and the client will direct its custodian to pay Lord Abbett. The assets of Managed Account clients are typically deposited with the Sponsor or a qualified custodian selected by the Sponsor or client. Lord Abbett is not involved in the selection or ongoing monitoring of client custodians for institutional and Managed Account clients.
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Generally, clients retain Lord Abbett on a discretionary basis to provide continuous investment advice pursuant to an investment management agreement that describes the investment services to be provided. Consistent with the client’s investment objectives, Lord Abbett typically will have full investment decision-making authority over the type of investments and brokerage for the client’s account. From time to time, a client may impose restrictions on certain investments from their account or direct that Lord Abbett use certain broker-dealers to execute transactions for the client’s account.
For Managed Accounts investing in equity securities, Lord Abbett’s brokerage discretion is generally limited by the applicable Sponsor or client. When investing in fixed-income securities for Managed Accounts, Lord Abbett brokerage selection may be limited by the applicable Sponsor or client, but for certain fixed-income strategies Lord Abbett consistently has the investment decision-making authority to place fixed-income transactions with or through firms other than the Sponsor or directed broker-dealer since such transactions ordinarily occur at net prices. Lord Abbett has neither investment nor brokerage discretion for those clients to whom it provides nondiscre- tionary investment advice or clients of certain Model Portfolios.
Lord Abbett generally makes investment decisions for each client account for which it has investment and brokerage discretion independently. As a result, due to different investment objectives, poli- cies, or restrictions, if any, Lord Abbett may purchase a particular security for one or more accounts when one or more other accounts are selling the same security. Lord Abbett may also purchase or sell the same securities for a number of client accounts at or about the same time. Lord Abbett’s ability to place and/or recommend transac- tions may be restricted by applicable regulatory requirements and/or Lord Abbett’s internal policies designed to comply with such require- ments. For example, Lord Abbett’s ownership position on behalf of its client accounts may be restricted by regulation or by a company’s corporate charter.
In most cases, a separate investment management team is respon- sible for portfolio management for all products using a particular investment discipline or style, including institutional accounts, Managed Accounts, mutual funds, and other commingled investment vehicles. Individual members of each such separate investment management team may have primary or exclusive responsibility for managing specific accounts or products invested according to that team’s particular investment discipline or style.
As a general matter, each Lord Abbett investment team manages each strategy using a common style in substantially the same manner across all accounts investing in each such strategy. An investment management team (and, in certain circumstances, individual members of that team) may implement its investment decisions in somewhat different ways for each product, however, to the extent that the team members responsible for a particular strategy determine that such differences are appropriate. The differences are typically attributable to the unique considerations relating to each type of product. For example, investment decisions for Managed Accounts may take into account tax considerations that would not be relevant for tax-exempt institutional accounts. As another example, account size, cash flow considerations, and/or redemption requests/withdraw- als may cause Lord Abbett to invest differently for Managed Accounts as compared with other types of accounts. These kinds of consider- ations may cause one product to have a higher cash position than another product at a given time, to reflect implementation of Lord Abbett’s investment strategies in different increments or on a different basis with respect to timing of purchases and sales of securities, or to maintain fewer holdings in the interest of avoiding nonstandard principal amounts of fixed-income securities.
In the event that an institutional or Managed Account client terminates Lord Abbett from managing its account, the client or Sponsor will notify Lord Abbett of the termination of Lord Abbett’s Lord Abbett as to the client’s desire to maintain the securities held in the portfolio or to transition all or a part of the client’s portfolio to cash. Unless more time is necessary to complete trading instructed by the client, any orders issued by Lord Abbett before the receipt of a termination notice will generally be executed on the day of receipt and discretion will be maintained until the end of such business day, after which Lord Abbett will not be responsible for any trading or investment decisions.
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Lord Abbett has adopted proxy voting policies and procedures that govern the voting of client securities. Lord Abbett votes proxies in the manner it believes is in the best interests of its clients, including the Lord Abbett Funds and their shareholders. Proxy voting decisions are made by the Investment Department in accordance with Lord Abbett’s proxy voting policies and procedures. Lord Abbett has retained a third-party service to analyze proxy issues and recommend how to vote on those issues, and to provide assistance in the administration of the proxy process, including maintaining complete proxy voting records. Conflicts of Interest Lord Abbett has adopted policies and procedures designed to ensure that conflicts of interests are identified and resolved in its clients’ best interests rather than its own. Generally, when Lord Abbett identifies a potential conflict of interest, Lord Abbett adheres to its voting guidelines on the issue or, if the guidelines do not address the particular issue, Lord Abbett would follow the recommendation of the third-party service.
On occasion, a proxy vote will relate to securities of a company with which Lord Abbett has a significant business relationship, such as a company that is an institutional client of Lord Abbett or a company known by Lord Abbett to have a substantial investment in a Lord Abbett Fund. In such circumstances, Lord Abbett will request voting instructions from a committee consisting of members of the Board of Directors/Trustees of the Lord Abbett Funds who are not “interested persons” as defined in the Invest- ment Company Act of 1940. In the absence of explicit instructions from an institutional account client to resolve proxy voting conflicts in a different manner, Lord Abbett will vote all shares on behalf of all clients that hold such a security in accordance with the voting instructions received from the committee of the Lord Abbett Funds’ Board.
To serve the best interests of a client that holds a given voting security, Lord Abbett generally will vote proxies without regard to other clients’ investments in different classes or types of securi- ties or instruments of the same issuer that are not entitled to vote. Accordingly, when the voting security in one account is from an issuer whose other, non-voting securities or instruments are held in a second account in a different strategy, Lord Abbett will vote without input from members of the Investment Department that act on behalf of the second account. Lord Abbett employees may seek guidance from Lord Abbett’s senior management with respect to any potential conflict of interest arising out of the holdings of multiple clients.
Summary of Proxy Voting Guidelines Summarized below are the guidelines that Lord Abbett normally follows in voting proxies. Lord Abbett evaluates each proxy proposal based on the particular facts it believes are relevant to its overall goal of maximizing shareholder value. Lord Abbett reserves the flexibility to vote in a manner contrary to its general views on particu- lar issues if it believes doing so is in the best interests of its clients. For institutional accounts managed on behalf of multi-employer pension or benefit plans, commonly referred to as Taft-Hartley plans, Lord Abbett will vote proxies in accordance with the Proxy Voting Guidelines issued by the AFL-CIO rather than the guidelines summa- rized below unless instructed otherwise by the client. „Directors. Lord Abbett believes that a company’s independent directors generally are in the best position to identify qualified director nominees and determine a board’s leadership structure. Lord Abbett therefore normally votes in accordance with man- agement’s recommendations on proposals concerning directors, including proposals that call for separation of the chairman and CEO functions. Lord Abbett may oppose management on a case-by-case basis if it believes that a company’s governance structure does not promote independent oversight, among other reasons. Lord Abbett generally votes against proposals to classify a board, that is, to stagger the election of the board’s members. „Compensation and Benefits. Lord Abbett believes that manage- ment generally is in the best position to assess compensation and benefits. Accordingly, Lord Abbett generally votes with manage- ment on compensation and benefit matters, including incentive compensation plans, say-on-pay, clawbacks, anti-gross-up policies, and severance pay. Lord Abbett may oppose manage- ment on a case-by-case basis if it deems a company’s compensation to be excessive or inconsistent with its peer companies’ compensation, it believes a company’s compensation measures do not foster a long-term focus among its executive officers and other employees, or it believes a company has not met performance expectations, among other reasons. „Anti-Takeover Issues and Shareholder Rights. Lord Abbett considers proposals concerning anti-takeover issues and share- holder rights on a case-by-case basis based on the particular factors it considers relevant. Some examples of proposals that Lord Abbett tends to support include: (1) proposals to eliminate shareholder rights plans or “poison pills” and proposals to require that companies submit poison pills for shareholder ratification; (2) anti-greenmail provisions and fair price provisions, unless they are bundled with other measures that serve to entrench management or discourage attractive takeover offers; (3) proposals to remove supermajority vote requirements; (4) cumulative voting; and (5) confidential voting. „Environmental, Social and Governance Issues. Lord Abbett evaluates proposals relating to environmental, social and governance (“ESG”) issues based on their potential effect on shareholder value. Lord Abbett generally follows management’s recommendation on such proposals, but may support proposals that ask for useful disclosure. However, Lord Abbett evaluates proposals involving ESG matters on a case-by-case basis, under- standing that ESG risks and opportunities can vary greatly by industry and company. As a result, Lord Abbett may vote similar proposals differently based on the particular facts and circum- stances. Lord Abbett pays particular attention to highly controversial issues, as well as instances where management has failed repeatedly to take corrective actions with respect to an issue. Client Voting Instructions A client may instruct Lord Abbett how to vote a particular proxy or how to vote all proxies for securities held in its Lord Abbett account. Obtaining Further Information If a Lord Abbett institutional client would like a copy of Lord Abbett’s complete proxy voting policies and procedures or information as to how Lord Abbett voted the securities in the client’s account, the client should call their Lord Abbett client service representative or 201-827-2000. If a client of Lord Abbett’s Managed Accounts would like the complete policies and procedures or voting information, that client should contact the Sponsor or the related consultant/ financial adviser and request that the Sponsor or consultant/ financial adviser call Lord Abbett’s Service Center at 888-522-2388. please register to get more info

Lord Abbett is not required to provide a balance sheet for its most recent fiscal year, as it does not require or solicit prepayment of more than $1,200 in fees per client, six months or more in advance.
Lord Abbett is not aware of any financial condition that is reasonably likely to impair its ability to meet its contractual commitments to clients. APPENDIX 1 The following table provides the standard fee schedule for each of Lord Abbett’s available institutional strategies:
StrategyStandard Fee Schedule
Bank Loans.50% on the first $50 million in assets under management .46% on the next $100 million in assets under management .40% on the next $100 million in assets under management .38% on the next $250 million in assets under management .35% on assets in excess of $500 million Calibrated Dividend Growth.60% on the first $25 million in assets under management .45% on the next $75 million in assets under management .42% on the next $150 million in assets under management .39% on the next $250 million in assets under management Negotiable on assets in excess of $500 million Calibrated Equity Income.55% on the first $25 million in assets under management .46% on the next $75 million in assets under management .33% on the next $400 million in assets under management Negotiable on assets in excess of $500 million Calibrated Large Cap Value.55% on the first $25 million in assets under management .46% on the next $75 million in assets under management .33% on the next $400 million in assets under management Negotiable on assets in excess of $500 million Calibrated Mid Cap Value.74% on the first $25 million in assets under management .53% on the next $75 million in assets under management .50% on the next $150 million in assets under management .47% on the next $250 million in assets under management Negotiable on all assets in excess of $500 million Convertible Securities.51% on the first $50 million in assets under management .47% on the next $100 million in assets under management .38% on all assets in excess of $150 million Core Fixed Income.28% on the first $50 million in assets under management .20% on the next $100 million in assets under management .16% on the next $350 million in assets under management .14% on all assets in excess of $500 million Core Plus Fixed Income.30% on the first $50 million in assets under management .23% on the next $100 million in assets under management .20% on the next $100 million in assets under management .19% on all assets in excess of $250 million Corporate Credit.30% on the first $50 million in assets under management .23% on the next $100 million in assets under management .20% on the next $100 million in assets under management .19% on all assets in excess of $250 million Corporate Bond.30% on the first $50 million in assets under management .23% on the next $100 million in assets under management .20% on the next $100 million in assets under management .19% on all assets in excess of $250 million Emerging Markets Corporate Debt.45% on the first $150 million in assets under management .42% on the next $250 million in assets under management .36% on all assets in excess of $400 million Emerging Markets Bond.48% on the first $50 million in assets under management .42% on the next $100 million in assets under management .35% on all assets in excess of $150 million Focused Growth.55% on the first $25 million in assets under management .45% on the next $75 million in assets under management .38% on the next $150 million in assets under management .35% on the next $250 million in assets under management Negotiable on assets in excess of $500 million APPENDIX 1 (CONT.)
StrategyStandard Fee Schedule
Global Bond.40% on the first $50 million in assets under management .35% on the next $100 million in assets under management .30% on all assets in excess of $150 million Global Equity Research.48% on the first $50 million in assets under management .46% on the next $50 million in assets under management .42% on the next $150 million in assets under management .40% on the next $250 million in assets under management .35% on all assets in excess of $500 million Global High Yield.50% on the first $50 million in assets under management .40% on the next $100 million in assets under management .38% on the next $100 million in assets under management .35% on all assets in excess of $250 million Growth Equity.55% on the first $25 million in assets under management .45% on the next $75 million in assets under management .38% on the next $150 million in assets under management .35% on the next $250 million in assets under management Negotiable on all assets in excess of $500 million High Yield Fixed Income.50% on the first $50 million in assets under management .40% on the next $100 million in assets under management .38% on the next $100 million in assets under management .35% on all assets in excess of $250 million Inflation Focused.25% on the first $100 million in assets under management .22% on the first $400 million in assets under management .18% on all assets in excess of $500 million International Equity.75% on the first $25 million in assets under management .60% on the next $25 million in assets under management .40% on the next $200 million in assets under management .35% on the next $250 million in assets under management Negotiable on all assets in excess of $500 million International Value.71% on the first $25 million in assets under management .51% on the next $75 million in assets under management .41% on the on the next $150 million in assets under management .37% on the next $250 million is assets under management Negotiable on all assets in excess of $500 million International Small Cap.85% on the first $25 million in assets under management .78% on the next $75 million in assets under management .70% on the next $400 million in assets under management Negotiable on all assets in excess of $500 million Large Cap Core.54% on the first $25 million in assets under management .42% on the next $75 million in assets under management .35% on the next $150 million in assets under management .31% on the next $250 million in assets under management Negotiable on all assets in excess of $500 million Large Cap Value.75% on the first $10 million in assets under management .50% on the next $40 million in assets under management .35% on the next $50 million in assets under management .25% on the next $100 million in assets under management .20% on all assets in excess of $200 million Long Duration Fixed Income.27% on the first $50 million in assets under management .21% on the next $100 million in assets under management .16% on the next $350 million in assets under management .14% on all assets in excess of $500 million APPENDIX 1 (CONT.)
StrategyStandard Fee Schedule
Micro Cap Growth1.25% on the first $25 million in assets under management 1.00% on all assets in excess of $25 million Micro Cap Value1.25% on the first $25 million in assets under management 1.00% on all assets in excess of $25 million Mid Cap Growth.73% on the first $25 million in assets under management .58% on the next $75 million in assets under management .52% on the next $150 million in assets under management .50% on the next $250 million in assets under management Negotiable on all assets in excess of $500 million Mid Cap Value.74% on the first $25 million in assets under management .53% on the next $75 million in assets under management .50% on the next $150 million in assets under management .47% on the next $250 million in assets under management Negotiable on all assets in excess of $500 million Multi-Sector.40% on the first $50 million in assets under management .31% on the next $100 million in assets under management .29% on the next $100 million in assets under management .26% on the next $250 million in assets under management .25% on all assets in excess of $500 million Municipals.21% on the first $50 million in assets under management .19% on the next $100 million in assets under management .14% on the next $100 million in assets under management .13% on all assets in excess of $250 million Short Duration Core.20% on the first $50 million in assets under management .15% on the next $100 million in assets under management .13% on the next $350 million in assets under management .11% on all assets in excess of $500 million Short Duration Credit.20% on the first $50 million in assets under management .17% on the next $100 million in assets under management .15% on the next $100 million assets under management .13% on all assets in excess of $250 million Small Cap Growth1.00% on the first $10 million in assets under management .75% on the next $40 million in assets under management .625% on the next $50 million in assets under management .50% on all assets in excess of $100 million Small Cap Value1.00% on the first $10 million in assets under management .75% on the next $40 million in assets under management .65% on the next $50 million in assets under management .60% on the next $100 million in assets under management .55% on all assets in excess of $200 million Smid Cap Value.85% on the first $25 million in assets under management .68% on the next $75 million in assets under management .60% on the next $150 in assets under management .57% on the next $250 million in assets under management Negotiable on all assets in excess of $500 million Ultra Short Bond.20% on the first $50 million in assets under management .17% on the next $100 million in assets under management .15% on the next $100 million assets under management .13% on all assets in excess of $250 million Value Equity.70% on the first $25 million in assets under management .50% on the next $75 million in assets under management .48% on the next $400 million in assets under management Negotiable on all assets in excess of $500 million The following table provides the typical range of fees payable to Lord Abbett for Managed Account programs:
StrategyStandard Fee Range
Managed Accounts—Equities0.34–0.50% Managed Accounts—Fixed Income0.14–0.36% Managed Accounts—Laddered Tax-Exempt Fixed Income0.10–0.15% Model Portfolios—Equities0.28–0.35% Model Portfolios—Fixed Income0.22–0.28% APPENDIX 1 (CONT.) APPENDIX 2 Below is a summary of the material risks associated with the significant strategies and significant methods of analysis used by Lord Abbett. Investing in securities involves risk of loss that clients should be prepared to bear. However, clients should be aware that not all of the risks listed below will pertain to every client account as certain risks may only apply to certain invest- ment strategies. Furthermore, the risks listed below are not intended to be a complete description or enumeration of the risks associated with the strategies and methods of analysis used by Lord Abbett. Lord Abbett clients and investors in funds or investment vehicles managed by Lord Abbett should refer to any disclosures or risk factors contained in the offering materials or other disclosure statements provided to such clients or investors in addition to the factors set forth in this Appendix 2. When used in this Appendix 2, an “Account” refers to any Lord Abbett client account, including funds or other investment vehicles, which can use the investments and techniques described below.
Duration. Duration is a measure of the expected life of a bond or other fixed income instrument on a present value basis. Duration incorporates the bond’s or other fixed income instrument’s yield, coupon interest payments, final maturity, and call features into one measure. Duration allows an investment adviser to make certain predictions as to the effect that changes in the level of interest rates will have on the value of an Account’s portfolio of bonds or other fixed income instruments. However, various factors, such as changes in anticipated prepayment rates, qualitative considerations, and market supply and demand, can cause particular securities to respond somewhat differently to changes in interest rates. Moreover, in the case of mortgage- backed and other complex securities, duration calculations are estimates and are not precise. This is particularly true during periods of market volatility.
An Account’s portfolio will have a duration that is equal to the weighted average of the durations of the bonds or other fixed income instruments in its portfolio. The longer an Account’s portfolio’s duration, the more sensitive it is to interest rate risk. The shorter an Account’s portfolio’s duration, the less sensitive it is to interest rate risk. For example, the value of a portfolio with a duration of five years would be expected to fall approximately five percent if interest rates rose by one percentage point and the value of a portfolio with a duration of two years would be expected to fall approximately two percent if interest rates rose by one percentage point.
Some securities 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, an Account 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 securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”), and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) 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 maturi- ties are calculated based upon historical payment patterns and, therefore, have a shorter duration than would be implied by their stated final maturity. For purposes of determining an Account’s average maturity, the maturities of such securities will be calculated based upon the issuing agency’s payment factors using industry accepted valuation models.
Bank Loans. An Account may invest in direct debt instruments, which are interests in amounts owed to lenders or lending syndicates, to suppliers of goods or services, or to other parties by a corporate, governmental, or other borrower. Accordingly, an Account may invest in senior loans and other bank loans and loan interests. Senior loans primarily include senior floating rate loans, first and second lien loans, and secondarily senior floating rate debt obligations (including those issued by an asset-backed pool), and interests therein. Loan interests may take the form of direct interests acquired during a primary distribution and also may take the form of assignments of, novations of, or participa- tions in, a bank loan acquired in secondary markets. The loans an Account generally invests in are originated, negotiated, and structured by a U.S. or foreign commercial bank, insurance company, finance company, or other financial institution (collec- tively, the “Agent”) for a group of loan investors (“Loan Investors”). The Agent typically administers and enforces the loan on behalf of the other Loan Investors in the syndicate. In addition, an institution, typically but not always the Agent, holds any collateral on behalf of the Loan Investors.
Purchasers of forms of direct indebtedness, such as senior loans and other bank loans, depend primarily upon the creditworthi- ness of the corporate or other borrower for payment of principal and interest, and adverse changes in the creditworthiness of the borrower may affect its ability to pay principal and interest. Investment in the indebtedness of borrowers with low creditwor- thiness involves substantially greater risks, and may be highly speculative. In the event of non-payment of interest or principal, loans that are secured by collateral offer an Account more protection than comparable unsecured loans. However, no assurance can be given that the collateral for a secured loan can be liquidated or that the proceeds will satisfy the borrower’s obligation.
Senior loans and interests in other bank loans may not be readily marketable and may be subject to restrictions on resale. Senior loans and other bank loans may not be considered “securities,” and investors in these loans may not be entitled to rely on anti-fraud and other protections under the federal securities laws. In some cases, negotiations involved in disposing of indebtedness may require weeks to complete. Consequently, some indebtedness may be difficult or impossible to dispose of readily at what Lord Abbett believes to be a fair price. In addition, valuation of illiquid indebtedness involves a greater degree of judgment in determining the investment’s value than if that value were based on available market quotations, and could result in significant variations in the investment’s value. At the same time, some loan interests are traded among certain financial institu- tions and accordingly may be deemed liquid. Further, the settlement period (the period between the execution of the trade and the delivery of cash to the purchaser) for some senior loans and other bank loans transactions may be significantly longer than the settlement period for other investments, and in some case may take longer than seven days. Requirements to obtain the consent of the borrower and/or Agent can delay or impede an Account’s ability to sell loans and can adversely affect the price that can be obtained. As a result, it is possible an Account may not receive the proceeds from a sale of a loan for a significant period of time, which may affect an Account’s ability to take advantage of new investment opportunities.
Prepayment. Senior loans may require or permit, in addition to scheduled payments of interest and principal, the prepayment of the senior loan from free cash flow. The degree to which borrow- ers prepay senior loans, whether as a contractual requirement or at their election, is unpredictable. Upon a prepayment, either in part or in full, the actual outstanding debt on which an Account derives interest income will be reduced, and the Account may decide to invest in lower yielding investments. However, an Account may receive both a prepayment penalty fee from the prepaying borrower and a facility fee upon the purchase of a new senior loan with the proceeds from the prepayment of the former. The effect of prepayments on an Account’s performance may be mitigated by the receipt of prepayment fees and an Account’s ability to reinvest prepayments in other senior loans that have similar or identical yields.
Bridge Loans. Bridge loans are short-term loan arrangements (typically 12 to 18 months) usually made by a Borrower in antici- pation of receipt of intermediate-term or long-term permanent financing. Most bridge loans are structured as floating-rate debt with “step-up” provisions under which the interest rate on the bridge loan rises (or “steps up”) the longer the loan remains outstanding. In addition, bridge loans commonly contain a conversion feature that allows the bridge Loan Investor to convert its interest to senior exchange notes if the loan has not been prepaid in full on or before its maturity date. Bridge loans may be subordinate to other debt and may be secured or undersecured.
Assignments. An investor in senior loans typically purchases “Assignments” from the Agent or other Loan Investors and, by doing so, typically becomes a Loan Investor under the loan agreement with the same rights and obligations as the assigning Loan Investor. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an Assignment may differ from, and be more limited than, those held by the assigning Loan Investor.
Participations. “Participations” in a Loan Investor’s portion of a senior loan typically will result in the investing Account having a contractual relationship only with such Loan Investor, rather than with the borrower. As a result, an Account may have the right to receive payments of principal, interest, and any fees to which it is entitled only from the Loan Investor selling the Participation and only upon receipt by such Loan Investor of such payments from the borrower. In connection with purchasing Participations, an Account generally will have no right to enforce compliance by the borrower with the terms of the loan agreement and an Account may not directly benefit from the collateral supporting the senior loan in which it has purchased the Participation. As a result, an Account may assume the credit risk of both the borrower and the Loan Investor selling the Participation. If a Loan Investor selling a Participation becomes insolvent, an Account may be treated as a general creditor of such Loan Investor.
Revolving Credit Facility Loans. For some loans, such as revolving credit facility loans (“revolvers”), a Loan Investor may be obligated under the loan agreement to, among other things, make additional loans in certain circumstances. Delayed draw term loans are similar to revolvers, except that, once drawn upon by the borrower during the commitment period, they remain permanently drawn and become term loans. A prefunded letter of credit (L/C) term loan is a facility created by the borrower in conjunction with an Agent, with the loan backed by letters of credit. Each participant in a prefunded L/C term loan fully funds its commitment amount to the Agent for the facility.
Convertible Securities. Convertible securities are preferred stocks or debt obligations that may be converted into or exchanged for shares of common stock (or cash or other securi- ties) of the same or a different issuer at a stated price or exchange ratio. Convertible securities generally rank senior to common stock in a corporation’s capital structure but usually are subordinated to comparable non-convertible securities. A convertible security entitles the holder to receive a dividend or interest that generally is paid or accrued on the underlying security until the convertible security matures or is redeemed, converted, or exchanged. While convertible securities generally do not participate directly in any dividend increases or decreases of the underlying securities, market prices of convertible securi- ties may be affected by such dividend changes or other changes in the underlying securities. In addition, if the market price of the common stock underlying a convertible security approaches or exceeds the conversion price of the convertible security, the convertible security tends to reflect the market price of the underlying common stock. Alternatively, a convertible security may lose much or all of its value if the value of the underlying common stock falls below the conversion price of the security.
Convertible securities have both equity and fixed income risk characteristics. A significant portion of convertible securities have below investment grade credit ratings and are subject to increased credit and liquidity risks. A convertible security may be subject to redemption at the option of the issuer at a price established in the convertible security’s governing instrument. If a convertible security held by an Account is called for redemp- tion, an Account will be required to convert it into the underlying common stock, sell it to a third party, or permit the issuer to redeem the security. Any of these actions could have an adverse effect on Lord Abbett’s ability to achieve its investment objective, which, in turn, could result in losses to the Account.
Synthetic Convertible Securities. Synthetic convertible securi- ties are derivative instruments comprising two or more securities whose combined investment characteristics resemble those of a convertible security. A typical convertible security combines fixed income securities or preferred stock with an equity component, such as a warrant, which offers the potential to own the underlying equity security. The value of a synthetic convertible security may respond differently to market fluctua- tions than the value of a traditional convertible security in response to the same market fluctuations.
Contingent Convertible Securities (“CoCos”). CoCos are typically issued by non-U.S. issuers and are subordinated instruments that are designed to behave like bonds or preferred equity in times of economic health yet absorb losses when a pre-deter- mined trigger event occurs. CoCos are either convertible into equity at a predetermined share price or written down in value based on the specific terms of the individual security if a pre- specified trigger event occurs. Trigger events vary by instrument and are defined by the documents governing the contingent convertible security. Such trigger events may include a decline in the issuer’s capital below a specified threshold level, an increase in the issuer’s risk-weighted assets, the share price of the issuer falling to a particular level for a certain period of time and certain regulatory events. In addition, CoCos have no stated maturity and have fully discretionary coupons.
Credit Rating Agencies. Credit rating agencies are companies that assign credit ratings, which operate as a preliminary evaluation of the credit risk of a prospective debtor. Credit rating agencies include, but are not limited to, S&P, Moody’s, and Fitch. Credit ratings are provided by credit rating agencies that specialize in evaluating credit risk, but there is no guarantee that a highly rated debt instrument will not default or be downgraded. Credit ratings issued by these agencies are designed to evaluate the safety of principal and interest pay- ments of rated securities. They do not evaluate the market risk and, therefore, may not fully reflect the true risks of an invest- ment. In addition, credit rating agencies may not make timely changes in a rating to reflect changes in the economy or in the conditions of the issuer that affect the market value of the security. Consequently, credit ratings are used only by Lord Abbett as a preliminary indicator of investment quality. Lord Abbett may use any national recognized statistical rating organization when evaluating investment quality. Each agency applies its own methodology in measuring creditworthiness and uses a specific rating scale to publish its ratings opinions. Debt Securities. Debt securities are used by issuers to borrow money. The issuer usually pays a fixed, variable, or floating rate of interest and typically must repay the amount borrowed at the maturity of the instrument. Debt securities include, but are not limited to, bonds, debentures, government obligations, commer- cial paper, repurchase agreements, and pass-through instruments. A debt security is typically considered “investment grade” if it is rated BBB/Baa or higher by a rating agency or if Lord Abbett determines the security to be of comparable quality. Prices of debt securities fluctuate and, in particular, are subject to several key risks including, but not limited to, interest rate risk, credit risk, prepayment risk, extension risk, and spread risk.
When interest rates rise or the issuer’s or the counterparty’s financial condition worsens or is perceived by the market to be at greater risk, the value of debt securities typically declines. Investments in debt securities may face a heightened level of interest rate risk, especially because the Federal Reserve Board has begun to raise rates after a period of historically low rates. While fixed income securities with longer final maturities often have higher yields than those with shorter maturities, their prices are usually more sensitive to changes in interest rates and other factors.
Credit risk, also known as default risk, represents the possibility that an issuer may be unable to meet scheduled interest and principal payment obligations. If the market perceives a deterio- ration in the creditworthiness of an issuer, the value and liquidity of debt securities issued by that issuer may decline. Spread risk is the potential for the value of an Account’s debt security investments to fall due to the widening of spreads. Debt securi- ties generally compensate for greater credit risk by paying interest at a higher rate. The difference (or “spread”) between the yield of a security and the yield of a benchmark, such as a U.S. Treasury security with a comparable maturity, measures the additional interest paid for such greater credit risk. As the spread on a security widens (or increases), the price (or value) of the security falls. Spread widening may occur, among other reasons, as a result of market concerns over the stability of the market, excess supply, general credit concerns in other markets, secu- rity- or market-specific credit concerns, or general reductions in risk tolerance.
Prepayment risk, also known as call risk, arises due to the issuer’s ability to prepay all or most of the debt security before the stated final maturity date. Prepayments generally rise in response to a decline in interest rates as debtors take advantage of the opportunity to refinance their obligations. This risk often is associated with mortgage securities where the underlying mortgage loans can be refinanced, although it also can be present in corporate or other types of bonds with call provisions. When a prepayment occurs, an Account may be forced to reinvest in lower yielding debt securities. Extension risk is the chance that, during periods of rising interest rates, certain debt obligations will be paid off substantially more slowly than originally anticipated, and the value of those securities may fall. Extension risk generally is low for short-term bond funds, moderate for intermediate-term bond funds, and high for long-term bond funds.
Debt securities trade on an OTC basis in which parties buy and sell securities through bilateral transactions. While the total amount of assets invested in debt markets has grown in recent years, the capacity for traditional dealer counterparties to engage in debt trading has not kept pace and has decreased, in part due to regulations and capital requirements applicable to these entities. As a result, because market makers provide stability to a market through their intermediary services, a significant reduction in dealer inventories has decreased liquidity and potentially could increase volatility in the debt markets. Such issues may be exacerbated during periods of economic uncer- tainty or market volatility.
Economic, political, and other events also may affect the prices of broad debt markets, although the risks associated with such events are transmitted to the market via changes in the prevail- ing levels of interest rates, credit risk, prepayment risk, or spread risk.
Many debt securities use or may use a floating rate based on the London Interbank Offered Rate, or “LIBOR,” which is the offered rate for short-term Eurodollar deposits between major interna- tional banks. On July 27, 2017, the head of the United Kingdom’s (“UK”) Financial Conduct Authority announced a desire to phase out the use of LIBOR by the end of 2021. There remains uncer- tainty regarding the future utilization of LIBOR and the nature of any replacement rate. As such, the potential effect of a transition away from LIBOR on an Account or the debt securities or other instruments in which an Account invests cannot yet be deter- mined. The transition process might lead to increased volatility and illiquidity in markets that currently rely on LIBOR to deter- mine interest rates. It could also lead to a reduction in the value of some LIBOR-based investments and reduce the effectiveness of new hedges placed against existing LIBOR-based instruments. Since the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior and/ or subsequent to the end of 2021.
Depositary Receipts. An Account may invest in American Depositary Receipts (“ADRs”), Global Depositary Receipts (“GDRs”), and similar depositary receipts. ADRs typically are trust receipts issued by a U.S. bank or trust company or other financial institution (a “depositary”) that evidence an indirect interest in underlying securities issued by a foreign entity and deposited with the depositary. Prices of ADRs are quoted in U.S. dollars, and ADRs are listed and traded in the United States. GDRs typically are issued by non-U.S. banks or financial institutions (a “foreign depositary”) to evidence an interest in underlying securities issued by either a U.S. or a non-U.S. entity and deposited with the foreign depositary. Ownership of ADRs and GDRs entails similar investment risks to direct ownership of foreign securities traded outside the United States, including increased market, liquidity, currency, political, information, and other risks. To the extent an Account acquires depositary receipts through banks that do not have a contractual relationship to issue and service unsponsored depositary receipts with the foreign issuer of the underlying security underlying the deposi- tary receipts, there is an increased possibility that Lord Abbett will not become aware of, and, thus, be able to respond to, corporate actions such as stock splits or rights offerings involv- ing the issuer in a timely manner. In addition, the lack of information may affect the accuracy of the valuation of such instruments. The market value of depositary receipts is depen- dent upon the market value of the underlying securities and fluctuations in the relative value of the currencies in which the depositary receipts and the underlying securities are quoted. However, by investing in certain depositary receipts, such as ADRs, which are quoted in U.S. dollars, an Account may avoid currency risks during the payment and delivery (“settlement”) period for purchases and sales.
Defaulted Bonds and Distressed Debt. Defaulted bonds are subject to greater risk of loss of income and principal than higher rated securities and are considered speculative. In the event of a default, an Account may incur additional expenses to seek recovery. The repayment of defaulted bonds is subject to significant uncertainties, and, in some cases, there may be no recovery of repayment. Further, defaulted bonds might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer might not make any interest or other payments. Workout or bankruptcy proceedings typically result in only partial recovery of cash payments or an exchange of the defaulted bond for other securities of the issuer or its affiliates. Often, the securities received are illiquid or speculative. Invest- ments in securities following a workout or bankruptcy proceeding typically entail a higher degree of risk than invest- ments in securities that have not recently undergone a reorganization or restructuring. Moreover, these securities can be subject to heavy selling or downward pricing pressure after the completion of a workout or bankruptcy proceeding. If an Account’s evaluation of the anticipated outcome of an investment should prove inaccurate, the Account could experience a loss. Such securities obtained in exchange may include, but are not limited to, equity securities, warrants, rights, participation interests in sales of assets, and contingent interest obligations.
An Account may hold securities of issuers that are, or are about to be, involved in reorganizations, financial restructurings, or bankruptcy (also known as ‘‘distressed debt’’). Defaulted bonds and distressed debt securities are speculative and involve substantial risks in addition to the risks of investing in junk bonds. To the extent that an Account holds distressed debt, that Account will be subject to the risk that it may lose a portion or all of its investment in the distressed debt and may incur higher expenses trying to protect its interests in distressed debt. The prices of distressed bonds are likely to be more sensitive to adverse economic changes or individual issuer developments than the prices of higher rated securities. During an economic downturn or substantial period of rising interest rates, distressed security issuers may experience financial stress that would adversely affect their ability to service their principal and interest payment obligations, to meet their projected business goals, or to obtain additional financing. An Account may invest in additional securities of a defaulted issuer to retain a controlling stake in any bankruptcy proceeding or workout. Even if an Account invests in tax-exempt bonds, it may receive taxable bonds in connection with the terms of a restructuring deal, which could result in taxable income to investors. In addition, any distressed securities or any securities received in exchange for such securities may be subject to restrictions on resale. In any reorganization or liquidation proceeding, an Account may lose its entire investment or may be required to accept cash or securities with a value less than its original investment. Moreover, it is unlikely that a liquid market will exist for an Account to sell its holdings in distressed debt securities.
Derivatives. An Account may invest in, or enter into, derivatives for a variety of reasons, including to hedge certain market or interest rate risks, to provide a substitute for purchasing or selling particular securities, or to increase potential returns. Generally, derivatives are financial contracts whose values depend upon, or are derived from, the value of an underlying asset, reference rate or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, commodi- ties and other assets, and related indices. Examples of derivative instruments an Account may use include options contracts, futures contracts, options on futures contracts, forward con- tracts, forward currency contracts, structured notes, swap agreements, and credit derivatives. Derivatives may provide a cheaper, quicker, or more efficient or specifically focused way for an Account to invest or to hedge than “traditional” securities would. An Account’s portfolio management team, however, may decide not to employ some or all of these strategies. Similarly, suitable derivatives transactions may not be available or avail- able on the terms desired, and derivatives transactions may not perform as intended. There is no assurance that any derivatives strategy used by Lord Abbett will succeed.
Derivatives can be volatile and involve various types and degrees of risk, depending upon the characteristics of the particular derivative and the portfolio as a whole. Derivatives permit an Account to increase or decrease the level of risk, or change the character of the risk, to which its portfolio is exposed in much the same way as an Account can increase or decrease the level of risk, or change the character of the risk, of its portfolio by making investments in specific securities. However, derivatives may entail investment exposures that are greater than their cost or notional value would suggest, meaning that a small invest- ment in derivatives could have a large potential impact on an Account’s performance. An Account’s notional derivatives exposure and/or the percentage of total investment exposure may be greater than the total value of its assets, which would have the result of leveraging the Account.
If Lord Abbett invests in derivatives at inopportune times or judges market conditions incorrectly, such investments may lower an Account’s return or result in a loss. An Account also could experience losses if its derivatives were poorly correlated with its other investments (or not correlated as expected), or if the Account were unable to liquidate its position because of an illiquid secondary market. The market for many derivatives is, or suddenly can become, illiquid. Changes in liquidity may result in significant, rapid, and unpredictable changes in the prices for derivatives.
Derivatives may be purchased on established exchanges or through privately negotiated transactions (referred to as “OTC derivatives”). Exchange-traded derivatives generally are guaran- teed by the clearing agency that is the issuer or counterparty to such derivatives. This guarantee usually is supported by a daily variation margin system operated by the clearing agency in order to reduce overall credit risk. As a result, unless the clearing agency defaults, there is relatively little counterparty credit risk associated with derivatives purchased on an exchange. In contrast, many OTC derivatives are not guaranteed by a clearing agency and are therefore not subject to the same level of credit evaluation and regulatory oversight as are centrally cleared derivatives. Accordingly, each party to an OTC derivative that is not centrally cleared bears the risk that the counterparty will default. Accordingly, Lord Abbett will consider the creditworthi- ness of counterparties to non-centrally cleared OTC derivatives in the same manner as it would review the credit quality of a security to be purchased by an Account. OTC derivatives generally are less liquid than exchange-traded derivatives.
New requirements also may result in increased uncertainty about counterparty credit risk, and they also may limit the flexibility of an Account to protect its interests in the event of an insolvency of a derivatives counterparty. In the event of a counterparty’s (or its affiliate’s) insolvency, an Account’s ability to exercise remedies, such as the termination of transactions, netting of obligations and realization of collateral, could be stayed or eliminated under new special resolution regimes adopted in the United States, the European Union and various other jurisdictions. Such regimes provide government authorities with broad authority to intervene when a financial institution is experiencing financial difficulty and may prohibit an Account from exercising termination rights based on the financial institution’s insolvency. In particular, with respect to counterparties who are subject to such proceedings in the European Union, the liabilities of such counterparties to an Account could be reduced, eliminated, or converted to equity in such counterparties (sometimes referred to as a “bail in”).
Regulatory and Market Considerations. New U.S. and non-U.S. rules and regulations could, among other things, further restrict an Account’s ability to engage in, or increase the cost to an Account of, derivatives transactions by, for example, making some types of derivatives no longer available to an Account or making them less liquid. The implementation of the clearing requirement has increased the costs of derivatives transactions for an Account, because an Account has to pay fees to its clearing members and is typically required to post more margin for cleared derivatives than it has historically posted for bilateral derivatives. The costs of derivatives transactions are expected to increase further as clearing members raise their fees to cover the costs of additional capital requirements and other regulatory changes applicable to the clearing members. These rules and regulations are new and evolving, so their potential impact on an Account and the financial system are not yet known. While the new rules and regulations and central clearing of some deriva- tives transactions are designed to reduce systemic risk (i.e., the risk that the interdependence of large derivatives dealers could cause them to suffer liquidity, solvency, or other challenges simultaneously), there is no assurance that they will achieve that result, and, in the meantime, central clearing and related requirements expose an Account to new kinds of costs and risks.
Credit Derivatives. An Account may engage in credit derivative transactions, such as those involving default price risk deriva- tives and market spread derivatives. Default price risk derivatives are linked to the price of reference securities or loans after a default by the issuer or borrower, respectively. Market spread derivatives are based on the risk that changes in certain market factors, such as credit spreads, can cause a decline in the value of a security, loan, or index. There are three basic transactional forms for credit derivatives: swaps, options, and structured instruments. The use of credit derivatives is a highly specialized activity that involves strategies and risks different from those associated with ordinary portfolio security transactions. If Lord Abbett is incorrect in its forecasts of default risks, market spreads, or other applicable factors, the investment performance of an Account would diminish compared with what it would have been if these techniques were not used. Moreover, even if Lord Abbett is correct in its forecasts, there is a risk that a credit derivative position may correlate imperfectly with the price of the asset or liability being hedged. An Account’s risk of loss in a credit derivative transaction varies with the form of the transac- tion. For example, if an Account purchases a default option on a security, and, if no default occurs, with respect to the security, an Account’s loss is limited to the premium it paid for the default option. In contrast, if there is a default by the grantor of a default option, an Account’s loss will include both the premium it paid for the option and the decline in value of the underlying security that the default option hedged. If an Account “writes” (sells) protec- tion, it may be liable for the entire value of the security underlying the derivative. Combined Transactions. An Account may enter into multiple transactions, including multiple options transactions, multiple futures transactions, multiple currency transactions including forward currency contracts and multiple interest rate transac- tions, swaps, structured notes, and any combination of futures, options, swaps, currency, and interest rate transactions (“compo- nent transactions”), instead of a single transaction, as part of a single or combined strategy when, in the opinion of Lord Abbett, it is in the best interests of an Account to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions normally are entered into based on Lord Abbett’s judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio manage- ment goal, it is possible that the combination instead will increase such risks or hinder achievement of the portfolio management objective.
Commodity-Related Investments. Commodity-related invest- ments provide exposure to the investment returns of the commodities markets, without investing directly in physical commodities. Commodities include assets that have tangible properties, such as oil, metals, and agricultural products. Commodity-related investments include, for example, commodity index-linked notes, swap agreements, commodity options, futures, and options on futures. Commodity-related investments may subject an Account to greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-related investments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs, and international economic, political, and regulatory developments. Use of leveraged commodity-related investments creates the possibility for greater loss, and there can be no assurance that an Account’s use of leverage will be successful. Tax considerations and position limits established by the commodities exchanges may limit an Account’s ability to pursue investments in commodity- related investments.
Options Contracts on Securities and Securities Indices. An Account may purchase call and put options and write covered call and put option contracts. A call option gives the purchaser of the option the right to buy, and obligates the writer to sell, the under- lying security or securities at the exercise price at any time during the option period or at a specific date depending on the terms of the option. Conversely, a put option gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying security or securities at the exercise price at any time during the option period or at a specific date depending on the terms of the option. An Account also may enter into “closing purchase transactions” in order to terminate its obligation to deliver the underlying security. A closing purchase transaction is the purchase of a call option (at a cost that 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 an Account is unable to enter into a closing purchase transaction, it may be required to hold a security that it otherwise might have sold to protect against depreciation. Certain “European” options only permit exercise on the exercise date. Options that are not exercised or closed out before their expiration date will expire worthless.
A “covered call option” written by an Account is a call option with respect to which an Account owns the underlying security. A put option written by an Account is covered when, among other things, an Account segregates permissible liquid assets having a value equal to or greater than the exercise price of the option to fulfill the obligation undertaken or otherwise covers the transac- tion. The principal reason for writing covered call and put options is to realize, through the receipt of premiums, a greater return than would be realized on the underlying securities alone. An Account receives a premium from writing covered call or put options, which it retains whether or not the option is exercised. However, an Account also may realize a loss on the transaction greater than the premium received.
There is no assurance that sufficient trading interest to create a liquid secondary market on a securities exchange will exist for any particular option or at any particular time, and, for some options, no such secondary market may exist. A liquid secondary market in an option may cease to exist for a variety of reasons. In the past, for example, higher than anticipated trading activity or order flow, or other unforeseen events, at times have rendered certain of the clearing facilities inadequate and resulted in the institution of special procedures, such as trading rotations, restrictions on certain types of orders, trading halts, or suspen- sions in one or more options. Similar events, or events that may otherwise interfere with the timely execution of customers’ orders, may recur in the future. In such event, it might not be possible to effect closing transactions in particular options. If, as a covered call option writer, an Account is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise, or it otherwise covers its position.
The securities exchanges generally have established limits on the maximum number of options an investor or group of inves- tors acting in concert may write. An Account, Lord Abbett, and other funds advised by Lord Abbett may constitute such a group. These limits could restrict an Account’s ability to purchase or write options on a particular security.
Specific Options Transactions. Examples of the types of options an Account may purchase and sell include call and put options in respect of specific securities (or groups or “baskets” of specific securities) such as U.S. Government securities, mortgage- related securities, asset-backed securities, foreign sovereign debt, corporate debt securities, equity securities (including convertible securities), and Eurodollar instruments that are traded on U.S. or foreign securities exchanges or in the OTC market, or securities indices, currencies, or futures.
An option on an index is similar to an option in respect of specific securities, except that settlement does not occur by delivery of the securities comprising the index. Instead, the option holder receives an amount of cash if the closing level of the index upon which the option is based is greater than in the case of a call, or less than in the case of a put, the exercise price of the option. Thus, the effectiveness of purchasing or writing index options will depend upon price movements in the level of the index rather than the price of a particular security.
An Account may purchase and sell call and put options on foreign currencies. These options convey the right to buy or sell the underlying currency at a price that is expected to be lower or higher than the spot price of the currency at the time the option is exercised or expires.
Successful use by an Account of options and options on futures will be subject to Lord Abbett’s ability to predict correctly movements in the prices of individual securities, the relevant securities market generally, foreign currencies, or interest rates. To the extent Lord Abbett’s predictions are incorrect, an Account may incur losses. The use of options also can increase an Account’s transaction costs.
OTC Options. OTC options contracts (“OTC options”) differ from exchange-traded options in several respects. OTC options are transacted directly with dealers and not with a clearing corpora- tion and there is a risk of nonperformance by the dealer as a result of the insolvency of the dealer or otherwise, in which event an Account may experience material losses. Because there is no exchange, pricing normally is done by reference to information from the counterparty or other market participants.
In the case of OTC options, there can be no assurance that a liquid secondary market will exist for any particular option at any given time. Consequently, an Account may be able to realize the value of an OTC option it has purchased only by exercising it or entering into a closing sale transaction with the dealer that issued it. Similarly, when an Account writes an OTC option, generally it can close out that option before its expiration only by entering into a closing purchase transaction with the dealer to which the Account originally wrote it. If a covered call option writer cannot effect a closing transaction, it cannot sell the underlying security until the option expires or the option is exercised. Therefore, a covered call option writer of an OTC option may not be able to sell an underlying security even though it otherwise might be advantageous to do so. Likewise, a put writer of an OTC option may be unable to sell the securities segregated to cover the put for other investment purposes while it is obligated as a put writer. Similarly, a purchaser of such put or call option also might find it difficult to terminate its position on a timely basis in the absence of a secondary market.
Foreign Currency Options. An Account may take positions in options on foreign currencies. For example, if an Account were to enter into a contract to purchase securities denominated in a foreign currency, it effectively could fix the maximum U.S. dollar cost of the securities by purchasing call options on that foreign currency. Similarly, if an Account 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. An Account’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. Option markets may be closed while non-U.S. securi- ties markets or round-the-clock interbank currency markets are open, and this can create price and rate discrepancies.
The value of a foreign currency option depends on, among other factors, 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 of 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.
There can be no assurance that an Account will be able to liquidate an option at a favorable price at any time before expiration. In the event of insolvency of the counterparty, an Account 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 an Account would have to exercise those options that it had purchased in order to realize any profit. Yield Curve Options. Options on the yield spread or differential between two securities are commonly referred to as “yield curve” options. In contrast to other types of options, a yield curve option is based on the difference between the yields of desig- nated securities, rather than the prices of the individual securities, and is settled through cash payments. Accordingly, a yield curve option is profitable to the holder if this differential widens (in the case of a call) or narrows (in the case of a put), regardless of whether the yields of the underlying securities increase or decrease.
The trading of yield curve options is subject to all of the risks associated with the trading of other types of options. In addition, such options present a risk of loss even if the yield of one of the underlying securities remains constant, or if the spread moves in a direction or to an extent that was not anticipated.
Forward Contracts. A forward contract is a contract to buy or sell an underlying security or currency at a pre-determined price on a specific future date. The initial terms of the contract are set so that the contract has no value at the outset. Forward prices are obtained by taking the spot price of a security or currency and adding it to the cost of carry. No money is transferred upon entering into a forward contract and the trade is delayed until the specified date when the underlying security or currency is exchanged for cash. As the price of the underlying security or currency moves, the value of the contract also changes, generally in the same direction. A relatively small price movement in a forward contract may result in substantial losses to an Account, exceeding the amount of the margin paid. Forward contracts increase an Account’s risk exposure to the underlying references and their attendant risks, including but not limited to, credit, market, foreign currency and interest rate risks, while also exposing an Account to correlation, counterparty, hedging, leverage, liquidity, pricing, and volatility risks. Forward contracts generally involve the same characteristics and risks as futures contracts, except for several differences. Forward contracts are generally OTC contracts, meaning they are not market traded, and are not necessarily marked to market on a daily basis. They settle only at the pre-determined settlement date, which can result in deviations between forward prices and futures prices, especially in circumstances where interest rates and futures prices are positively correlated. In addition, in the absence of exchange trading and involvement of clearing houses, there are no standardized terms for forward contracts. As a result, the parties are free to establish such settlement times and underlying amounts of a security or currency as desirable, which may vary from the standardized terms available through any futures contract. Lastly, forward contracts, as two-party obligations for which there is no secondary market, involve counterparty credit risk that is not present with futures. Futures Contracts and Options on Futures Contracts. An Account may buy and sell index futures contracts to manage cash. For example, an Account may gain exposure to an index or to a basket of securities by entering into futures contracts rather than buying securities in a rising market.
In addition to investing in futures for cash management pur- poses, an Account may engage in futures and options on futures transactions in accordance with its investment objective and policies, for example, to hedge risk or to efficiently gain desired investment exposure. Futures are standardized, exchange-traded contracts to buy or sell a specified quantity of an underlying reference instrument at a specified price at a specified future date. In most cases, the contractual obligation under a futures contract may be offset or “closed out” before the settlement date so that the parties do not have to make or take delivery. An Account usually closes out a futures contract by buying or selling, as the case may be, an identical, offsetting futures contract. This transaction, which is effected through an exchange, cancels the obligation to make or take delivery of the underlying reference instrument. 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 the United States, a clearing organi- zation associated with the exchange on which futures are traded assumes responsibility for closing out transactions and guaran- tees that, as between the clearing members of an exchange, the sale and purchase obligations will be performed with regard to all positions that remain open at the termination of the contract. Thus, each holder of such a futures contract bears the credit risk of the clearinghouse (and has the benefit of its financial strength) rather than that of a particular counterparty.
When an Account enters into a futures contract or writes an option, it generally must deposit collateral or “initial margin” equal to a percentage of the contract value. Each day thereafter until the futures contract or option is closed out, matures, or expires, an Account will pay or receive additional “variation margin” depending on, please register to get more info