UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-05876
LORD ABBETT SERIES FUND, INC.
(Exact name of Registrant as specified in charter)
90 Hudson Street, Jersey City, NJ 07302
(Address of principal executive offices) (Zip code)
John T. Fitzgerald, Esq., Vice President & Assistant Secretary
90 Hudson Street, Jersey City, NJ 07302
(Name and address of agent for service)
Registrant’s telephone number, including area code:(888) 522-2388
Date of fiscal year end: 12/31
Date of reporting period: 12/31/2019
Item 1: | Report(s) to Shareholders. |
LORD ABBETT
ANNUAL REPORT
Lord Abbett
Series Fund—Bond Debenture Portfolio
For the fiscal year ended December 31, 2019
Table of Contents
Lord Abbett Series Fund — Bond Debenture Portfolio
Annual Report
For the fiscal year ended December 31, 2019
From left to right: James L.L. Tullis, Independent Chairman of the Lord Abbett Funds and Douglas B. Sieg, Director, President, and Chief Executive Officer of the Lord Abbett Funds. | Dear Shareholders:We are pleased to provide you with this overview of the performance of Lord Abbett Series Fund – Bond Debenture Portfolio for the fiscal year ended December 31, 2019. On this page and the following pages, we discuss the major factors that influenced fiscal year performance. For additional information about the Fund, please visit our website at www.lordabbett.com, where you also can access quarterly commentaries that provide updates on the Fund’s performance and other portfolio related updates. Thank you for investing in Lord Abbett mutual funds. We value the trust that you place in us and look forward to serving your investment needs in the years to come.
Best regards, Douglas B. Sieg Director, President, and Chief Executive Officer |
For the fiscal year ended December 31, 2019, the Fund returned 13.35%, reflecting performance at the net asset value (NAV) of Class VC shares with all distributions reinvested, compared to its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index,1which returned 8.72% over the same period.
The trailing 12-month period was characterized by several market-moving events. Following a tumultuous fourth quarter of 2018, where trade tensions and monetary policy uncertainty sent many investors toward safety, the market staged a strong recovery. Trade tensions continued
to dominate headlines, as trade negotiations between the U.S. and China remained volatile throughout the period. One of the more notable shifts over the year was the U.S. Federal Reserve’s (the “Fed”) transition to a more dovish policy stance, with Chairman Jerome Powell stating that the Fed would act appropriately to sustain economic growth. The combination of a dovish Fed, trade pressures, and slowing economic growth resulted in a downward shift in the U.S. Treasury yield curve.
Despite bouts of volatility arising from U.S./China trade, risk assets rallied during
1
the 12-months ended December 31, 2019, primarily due to the dovish comments from central banks around the globe, culminating in the longest U.S. economic expansion on record. Credit sectors performed exceptionally well, with investment grade bonds benefiting from a sizeable decline in spreads along with a sharp downward shift in the yield curve. Additionally, high yield bonds produced strong returns. High yield performance was characterized by a sharp up-in-quality bias, as the CCC segment sharply underperformed. The CCC tier was adversely affected during the year by idiosyncratic weakness in select industries along with overall investor hesitation to enter the space given late cycle concerns and a strong preference for perceived quality and liquidity. The energy sector dragged on high yield performance, which we believe was due largely to idiosyncratic issues within select industries.
The Fund’s exposure to high yield bonds contributed to relative performance, as the high yield market outperformed the broader fixed income market, as represented by the Fund’s benchmark, the
Bloomberg Barclays U.S. Aggregate Bond Index1. High yield bonds benefited from a dynamic in which both duration and credit were in favor, as we witnessed a sharp fall in bond yields around the globe, which subsequently increased the demand for yield. The Fund’s overweight to and selection within the investment grade bond allocation was also a relative contributor during the period. The Fund’s modest allocation to equities was a relative contributor. The Fund’s modest allocation to bank loans and CLOs detracted from relative performance during the period. The bank loan asset class was adversely affected by declining rates and a negative technical backdrop during the period, underperforming many duration-sensitive assets. The Fund’s modest allocation to sovereign bonds was also a relative detractor during the year.
The Fund’s portfolio is actively managed and, therefore, its holdings and the weightings of a particular issuer or particular sector as a percentage of portfolio assets are subject to change. Sectors may include many industries.
2
1 The Bloomberg Barclays U.S. Aggregate Bond Index is an index of U.S dollar-denominated, investment-grade U.S. government and corporate securities, and mortgage pass-through securities, and asset-backed securities. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and an investor cannot invest directly in an index.
Unless otherwise specified, indexes reflect total return, with all dividends reinvested. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Important Performance and Other Information
Performance data quoted in the following pages reflect past performance and are no guarantee of future results. Current performance may be higher or lower than the performance quoted. The investment return and principal value of an investment in the Funds will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. You can obtain performance data current to the most recent month end by calling Lord Abbett at 888-522-2388 or referring to www.lordabbett.com.
During certain periods shown, expense waivers and reimbursements were in place. Without such expense waivers and reimbursements, the Fund’s returns would have been lower.
The annual commentary above discusses the views of the Fund’s management and various portfolio holdings of the Fund as of December 31, 2019. These views and portfolio holdings may have changed after this date. Information provided in the commentary is not a recommendation to buy or sell securities. Because the Fund’s portfolio is actively managed and may change significantly, the Fund may no longer own the securities described above or may have otherwise changed its position in the securities. For more recent information about the Fund’s portfolio holdings, please visit www.lordabbett.com.
A Note about Risk:See Notes to Financial Statements for a discussion of investment risks. For a more detailed discussion of the risks associated with the Fund, please see the Fund’s prospectus.
Mutual funds are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, banks, and are subject to investment risks including possible loss of principal amount invested.
The Fund serves as an underlying investment vehicle for variable annuity contracts and variable life insurance policies.
3
Below is a comparison of a $10,000 investment in Class VC shares with the same investment in the Bloomberg Barclays U.S. Aggregate Bond Index and the ICE BofA Merrill Lynch U.S. High Yield Constrained Index, assuming reinvestment of all dividends and distributions. The Fund’s shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. This line graph comparison does not reflect the sales charges or other expenses of these contracts. If those sales charges and expenses were reflected, returns would be lower. The graph and performance table below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. During certain periods, expenses of the Fund have been waived or reimbursed by Lord Abbett; without such waiver or reimbursement of expenses, the Fund’s returns would have been lower.Past performance is no guarantee of future results.
Average Annual Total Returns for the Periods Ended December 31, 2019 | |||||||
1 Year | 5 Years | 10 Years | |||||
Class VC | 13.35% | 5.58% | 6.93% |
1 Performance for each unmanaged index does not reflect any fees or expenses. The performance of each index is not necessarily representative of the Fund’s performance.
4
As a shareholder of the Fund, you incur ongoing costs, including management fees; expenses related to the Fund’s services arrangements with certain insurance companies; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2019 through December 31, 2019).
The Example reflects only expenses that are deducted from the assets of the Fund. Fees and expenses, including sales charges applicable to the various insurance products that invest in the Fund, are not reflected in this Example. If such fees and expenses were reflected in the Example, the total expenses shown would be higher. Fees and expenses regarding such variable insurance products are separately described in the prospectus related to those products.
Actual Expenses
The first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled “Expenses Paid During Period 7/1/19 – 12/31/19” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
5
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value | Ending Account Value | Expenses Paid During Period† | |||||||
7/1/19 | 12/31/19 | 7/1/19 - 12/31/19 | |||||||
Class VC | |||||||||
Actual | $1,000.00 | $ | 1,025.30 | $4.70 | |||||
Hypothetical (5% Return Before Expenses) | $1,000.00 | $ | 1,020.57 | $4.69 |
† | Net expenses are equal to the Fund’s annualized expense ratio of 0.92%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect one-half year period). |
Portfolio Holdings Presented by Sector
December 31, 2019
Sector* | %** | |
Asset Backed | 1.64 | % |
Automotive | 2.35 | % |
Banking | 6.41 | % |
Basic Industry | 3.82 | % |
Capital Goods | 3.22 | % |
Consumer Goods | 4.27 | % |
Consumer Staples | 0.06 | % |
Energy | 9.73 | % |
Financial Services | 2.35 | % |
Foreign Government | 6.31 | % |
Health Care | 5.76 | % |
Insurance | 1.95 | % |
Leisure | 3.14 | % |
Media | 4.78 | % |
Mortgage Backed | 3.22 | % |
Municipal | 3.58 | % |
Real Estate | 1.89 | % |
Retail | 4.48 | % |
Services | 2.88 | % |
Technology & Electronics | 5.36 | % |
Telecommunications | 1.86 | % |
Transportation | 3.62 | % |
U.S. Government | 11.03 | % |
Utility | 6.02 | % |
Repurchase Agreement | 0.27 | % |
Total | 100.00 | % |
* | A sector may comprise several industries. | |
** | Represents percent of total investments. |
6
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
LONG-TERM INVESTMENTS 110.22% | |||||||||||
ASSET-BACKED SECURITIES 3.30% | |||||||||||
Automobiles 0.18% | |||||||||||
ACC Trust 2018–1 B† | 4.82% | 5/20/2021 | $ | 582 | $ | 584,759 | |||||
ACC Trust 2018–1 C† | 6.81% | 2/21/2023 | 500 | 511,038 | |||||||
TCF Auto Receivables Owner Trust 2016–1A B† | 2.32% | 6/15/2022 | 979 | 978,459 | |||||||
Total | 2,074,256 | ||||||||||
Credit Cards 0.10% | |||||||||||
Perimeter Master Note Business Trust 2019–2A A† | 4.23% | 5/15/2024 | 1,235 | 1,237,964 | |||||||
Other 3.02% | |||||||||||
AMMC CLO XII Ltd. 2013–12A DR† | 4.601% (3 Mo. LIBOR + 2.70% | )# | 11/10/2030 | 391 | 353,484 | (a) | |||||
APEX CREDIT CLO LLC 2017–2A B† | 3.758% (3 Mo. LIBOR + 1.85% | )# | 9/20/2029 | 522 | 522,345 | ||||||
Apidos CLO XXXII 2019–32A C†(b) | Zero Coupon | (c) | 1/20/2033 | 504 | 504,214 | (a) | |||||
Ascentium Equipment Receivables Trust 2016–2A B† | 2.50% | 9/12/2022 | 117 | 116,811 | |||||||
Battalion CLO XV Ltd. 2019–16A B† | Zero Coupon | (c) | 12/19/2032 | 1,714 | 1,713,864 | ||||||
Benefit Street Partners CLO XIX Ltd. 2019–19A B†(b) | Zero Coupon | (c) | 1/15/2033 | 578 | 578,533 | ||||||
Benefit Street Partners CLO XIX Ltd. 2019–19A C†(b) | Zero Coupon | (c) | 1/15/2033 | 469 | 469,300 | ||||||
BlueMountain CLO XXIII Ltd. 2018–23A D† | 4.866% (3 Mo. LIBOR + 2.90% | )# | 10/20/2031 | 369 | 355,724 | ||||||
Carlyle US CLO Ltd. 2019–4A B†(b) | Zero Coupon | (c) | 1/15/2033 | 1,141 | 1,140,510 | ||||||
Cedar Funding VI CLO Ltd. 2016–6A DR† | 4.966% (3 Mo. LIBOR + 3.00% | )# | 10/20/2028 | 657 | 644,999 | ||||||
Conn’s Receivables Funding LLC 2017-B C† | 5.95% | 11/15/2022 | 1,939 | 1,950,020 | |||||||
Halcyon Loan Advisors Funding Ltd. 2015–2A CR† | 4.09% (3 Mo. LIBOR + 2.15% | )# | 7/25/2027 | 465 | 465,120 | ||||||
Halcyon Loan Advisors Funding Ltd. 2017–2A A2† | 3.702% (3 Mo. LIBOR + 1.70% | )# | 1/17/2030 | 680 | 673,437 | ||||||
Hardee’s Funding LLC 2018–1A A2II† | 4.959% | 6/20/2048 | 3,298 | 3,380,277 | |||||||
Jamestown CLO VII Ltd. 2015–7A BR† | 3.59% (3 Mo. LIBOR + 1.65% | )# | 7/25/2027 | 1,202 | 1,180,883 | ||||||
KKR CLO 9 Ltd. 9 B1R† | 3.751% (3 Mo. LIBOR + 1.75% | )# | 7/15/2030 | 500 | 496,494 | ||||||
KVK CLO Ltd. 2013-A BR† | 3.451% (3 Mo. LIBOR + 1.45% | )# | 1/14/2028 | 268 | 266,769 |
See Notes to Financial Statements. | 7 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Other (continued) | |||||||||||
Madison Park Funding XIV Ltd. 2014–14A DRR† | 4.903% (3 Mo. LIBOR + 2.95% | )# | 10/22/2030 | $ | 333 | $ | 325,565 | ||||
Madison Park Funding XXXVI Ltd. 2019–36A C† | 2.60% (3 Mo. LIBOR + 2.60% | )# | 1/15/2033 | 914 | 914,003 | ||||||
Mariner CLO Ltd. 2017–4A D† | 4.986% (3 Mo. LIBOR + 3.05% | )# | 10/26/2029 | 694 | 679,230 | ||||||
Mountain View CLO X Ltd. 2015–10A BR† | 3.351% (3 Mo. LIBOR + 1.35% | )# | 10/13/2027 | 1,336 | 1,324,753 | ||||||
Northwoods Capital 20 Ltd. 2019–20A C† | 4.701% (3 Mo. LIBOR + 2.80% | )# | 1/25/2030 | 1,099 | 1,101,125 | ||||||
Octagon Investment Partners 39 Ltd. 2018–3A D† | 4.916% (3 Mo. LIBOR + 2.95% | )# | 10/20/2030 | 322 | 313,305 | ||||||
OHA Loan Funding Ltd. 2015–1A CR2† | 4.501% (3 Mo. LIBOR + 2.65% | )# | 11/15/2032 | 607 | 606,814 | ||||||
OZLM Funding III Ltd. 2013–3A A2AR† | 3.82% (3 Mo. LIBOR + 1.95% | )# | 1/22/2029 | 1,200 | 1,200,842 | ||||||
Palmer Square Loan Funding Ltd. 2018–1A A1† | 2.601% (3 Mo. LIBOR + .60% | )# | 4/15/2026 | 1,698 | 1,691,925 | ||||||
Palmer Square Loan Funding Ltd. 2018–1A A2† | 3.051% (3 Mo. LIBOR + 1.05% | )# | 4/15/2026 | 884 | 882,467 | ||||||
Palmer Square Loan Funding Ltd. 2018–1A B† | 3.401% (3 Mo. LIBOR + 1.40% | )# | 4/15/2026 | 670 | 666,256 | ||||||
Planet Fitness Master Issuer LLC 2018–1A A2I† | 4.262% | 9/5/2048 | 1,536 | 1,565,080 | |||||||
Planet Fitness Master Issuer LLC 2018–1A A2II† | 4.666% | 9/5/2048 | 1,920 | 2,000,834 | |||||||
Planet Fitness Master Issuer LLC 2019–1A A2† | 3.858% | 12/5/2049 | 1,124 | 1,109,393 | |||||||
Regatta VI Funding Ltd. 2016–1A DR† | 4.666% (3 Mo. LIBOR + 2.70% | )# | 7/20/2028 | 250 | 247,788 | ||||||
Regatta XVI Funding Ltd. 2019–2A B† | 3.953% (3 Mo. LIBOR + 2.05% | )# | 1/15/2033 | 2,300 | 2,305,510 | ||||||
THL Credit Wind River CLO Ltd. 2018–3A D† | 4.916% (3 Mo. LIBOR + 2.95% | )# | 1/20/2031 | 608 | 556,997 | ||||||
Towd Point Mortgage Trust 2019-HY2 A1† | 2.792% (1 Mo. LIBOR + 1.00% | )# | 5/25/2058 | 1,338 | 1,345,480 | ||||||
West CLO Ltd. 2014–2A BR† | 3.751% (3 Mo. LIBOR + 1.75% | )# | 1/16/2027 | 459 | 457,109 | ||||||
Wingstop Funding LLC 2018–1 A2† | 4.97% | 12/5/2048 | 1,665 | 1,716,360 | |||||||
Total | 35,823,620 | ||||||||||
Total Asset-Backed Securities (cost $39,040,353) | 39,135,840 |
8 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Shares (000) | Fair Value | |||||
COMMON STOCKS 5.80% | |||||||
Auto Parts & Equipment 0.05% | |||||||
Chassix Holdings, Inc. | 59 | $ | 594,750 | ||||
Banking 0.51% | |||||||
First Republic Bank | 26 | 3,099,975 | |||||
Northern Trust Corp. | 11 | 1,189,888 | |||||
SVB Financial Group* | 7 | 1,784,644 | |||||
Total | 6,074,507 | ||||||
Beverages 0.28% | |||||||
Brown-Forman Corp. Class B | 19 | 1,275,477 | |||||
Budweiser Brewing Co. APAC Ltd.†*(d) | HKD | 223 | 753,328 | ||||
Carlsberg A/S Class B(d) | DKK | 9 | 1,326,260 | ||||
Total | 3,355,065 | ||||||
Discount Stores 0.10% | |||||||
Target Corp. | 9 | 1,201,071 | |||||
Diversified Capital Goods 0.31% | |||||||
Carlisle Cos., Inc. | 7 | 1,195,674 | |||||
Dover Corp. | 11 | 1,232,590 | |||||
Illinois Tool Works, Inc. | 7 | 1,257,410 | |||||
Total | 3,685,674 | ||||||
Electric: Generation 0.12% | |||||||
SolarEdge Technologies, Inc. (Israel)*(e) | 15 | 1,406,191 | |||||
Electronics 0.10% | |||||||
Universal Display Corp. | 6 | 1,133,385 | |||||
Energy: Exploration & Production 0.23% | |||||||
Chaparral Energy, Inc. Class A* | 60 | 106,077 | |||||
MEG Energy Corp.*(d) | CAD | 459 | 2,610,177 | ||||
Templar Energy LLC Class A Units | 46 | 3,698 | (a) | ||||
Total | 2,719,952 | ||||||
Food & Drug Retailers 0.11% | |||||||
Casey’s General Stores, Inc. | 8 | 1,308,170 | |||||
Food: Wholesale 0.23% | |||||||
Beyond Meat, Inc.* | 16 | 1,241,579 | |||||
Sanderson Farms, Inc. | 9 | 1,532,409 | |||||
Total | 2,773,988 |
See Notes to Financial Statements. | 9 |
Schedule of Investments (continued)
December 31, 2019
Investments | Shares (000) | Fair Value | |||||
Forestry/Paper 0.11% | |||||||
Westrock Co. | 29 | $ | 1,246,064 | ||||
Medical Products 0.41% | |||||||
DexCom, Inc.* | 6 | 1,265,849 | |||||
Edwards Lifesciences Corp.* | 5 | 1,183,014 | |||||
Intuitive Surgical, Inc.* | 2 | 1,167,521 | |||||
Teleflex, Inc. | 3 | 1,246,769 | |||||
Total | 4,863,153 | ||||||
Metals/Mining (Excluding Steel) 0.10% | |||||||
Arconic, Inc. | 38 | 1,166,706 | |||||
Oil Field Equipment & Services 0.05% | |||||||
Halliburton Co. | 25 | 599,515 | |||||
Personal & Household Products 0.20% | |||||||
Estee Lauder Cos., Inc. (The) Class A | 6 | 1,250,187 | |||||
Gibson Brands, Inc. | 9 | 1,110,257 | |||||
Remington Outdoor Co., Inc.* | 16 | 13,412 | |||||
Total | 2,373,856 | ||||||
Pharmaceuticals 0.21% | |||||||
NextCure, Inc.* | 43 | 2,427,203 | |||||
Rail 0.20% | |||||||
Kansas City Southern | 16 | 2,422,072 | |||||
Restaurants 0.39% | |||||||
Shake Shack, Inc. Class A* | 79 | 4,681,130 | |||||
Software/Services 0.96% | |||||||
Adyen NV†*(d) | EUR | 1 | 1,188,946 | ||||
Alibaba Group Holding Ltd. ADR* | 11 | 2,390,155 | |||||
Alphabet, Inc. Class A* | 1 | 1,169,287 | |||||
DocuSign, Inc.* | 24 | 1,786,347 | |||||
RingCentral, Inc. Class A* | 7 | 1,215,099 | |||||
Shopify, Inc. Class A (Canada)*(e) | 6 | 2,398,203 | |||||
Trade Desk, Inc. (The) Class A* | 5 | 1,277,338 | |||||
Total | 11,425,375 |
10 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Shares (000) | Fair Value | |||||||||
Specialty Retail 0.42% | |||||||||||
Claires Holdings LLC | 1 | $ | 693,698 | ||||||||
Lululemon Athletica, Inc. (Canada)*(e) | 19 | 4,313,232 | |||||||||
Total | 5,006,930 | ||||||||||
Support: Services 0.20% | |||||||||||
Booz Allen Hamilton Holding Corp. | 17 | 1,208,072 | |||||||||
IHS Markit Ltd. (United Kingdom)*(e) | 16 | 1,187,968 | |||||||||
Total | 2,396,040 | ||||||||||
Technology Hardware & Equipment 0.31% | |||||||||||
Apple, Inc. | 4 | 1,302,925 | |||||||||
NVIDIA Corp. | 10 | 2,369,236 | |||||||||
Total | 3,672,161 | ||||||||||
Telecommunications: Wireless 0.10% | |||||||||||
Qorvo, Inc.* | 10 | 1,178,688 | |||||||||
Transportation: Infrastructure/Services 0.10% | |||||||||||
XPO Logistics, Inc.* | 15 | 1,210,723 | |||||||||
Total Common Stocks (cost $67,567,811) | 68,922,369 | ||||||||||
Interest Rate | Maturity Date | Principal Amount (000) | |||||||||
CONVERTIBLE BOND 0.18% | |||||||||||
Automakers | |||||||||||
Tesla, Inc. (cost $1,664,586) | 2.00% | 5/15/2024 | $ | 1,384 | 2,095,822 | ||||||
FLOATING RATE LOANS(f)7.03% | |||||||||||
Advertising 0.14% | |||||||||||
Clear Channel Outdoor Holdings, Inc. Term Loan B | 5.299% (1 Mo. LIBOR + 3.50% | ) | 8/21/2026 | 1,613 | 1,624,619 | ||||||
Air Transportation 0.24% | |||||||||||
American Airlines, Inc. 2018 Term Loan B | 3.542% (1 Mo. LIBOR + 1.75% | ) | 6/27/2025 | 1,741 | 1,745,993 | ||||||
Kestrel Bidco Inc. Term Loan B (Canada)(e) | – | (g) | 8/7/2026 | 1,122 | 1,133,523 | ||||||
Total | 2,879,516 | ||||||||||
Auto Parts & Equipment 0.20% | |||||||||||
American Axle and Manufacturing, Inc. Term Loan B | 4.10% (3 Mo. LIBOR + 2.25%) – 4.20% | 4/6/2024 | 2,386 | 2,392,297 |
See Notes to Financial Statements. | 11 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Building Materials 0.26% | |||||||||||
Forterra Finance, LLC 2017 Term Loan B | 4.799% (3 Mo. LIBOR + 3.00% | ) | 10/25/2023 | $ | 1,819 | $ | 1,783,907 | ||||
Yak Access, LLC 2018 1st Lien Term Loan B | 6.792% (1 Mo. LIBOR + 5.00% | ) | 7/11/2025 | 1,314 | 1,272,162 | ||||||
Total | 3,056,069 | ||||||||||
Chemicals 0.23% | |||||||||||
Polar US Borrower, LLC 2018 1st Lien Term Loan | 6.62% (3 Mo. LIBOR + 4.75%) – 6.69% | 10/15/2025 | 354 | 352,870 | (h) | ||||||
Starfruit Finco B.V 2018 USD Term Loan B (Netherlands)(e) | 4.96% (1 Mo. LIBOR + 3.25% | ) | 10/1/2025 | 2,323 | 2,327,529 | ||||||
Total | 2,680,399 | ||||||||||
Diversified Capital Goods 0.15% | |||||||||||
Granite Holdings US Acquisition Co. Term Loan B | 7.211% (3 Mo. LIBOR + 5.25% | ) | 9/30/2026 | 1,737 | 1,746,025 | (h) | |||||
Electric: Generation 0.58% | |||||||||||
Astoria Energy LLC Term Loan B | 5.80% (1 Mo. LIBOR + 4.00% | ) | 12/24/2021 | 1,548 | 1,547,238 | ||||||
Edgewater Generation, L.L.C. Term Loan | 5.549% (3 Mo. LIBOR + 3.75% | ) | 12/13/2025 | 1,836 | 1,765,990 | ||||||
Frontera Generation Holdings LLC 2018 Term Loan B | 5.99% (1 Mo. LIBOR + 4.25% | ) | 5/2/2025 | 1,393 | 1,204,821 | ||||||
Lightstone Holdco LLC 2018 Term Loan B | 5.549% (1 Mo. LIBOR + 3.75% | ) | 1/30/2024 | 1,166 | 1,074,736 | ||||||
Lightstone Holdco LLC 2018 Term Loan C | 5.549% (1 Mo. LIBOR + 3.75% | ) | 1/30/2024 | 66 | 60,617 | ||||||
Moxie Patriot LLC Delayed Draw Term Loan B2 | 7.69% (3 Mo. LIBOR + 5.75% | ) | 12/19/2020 | 902 | 804,037 | ||||||
Moxie Patriot LLC Term Loan B1 | 7.69% (3 Mo. LIBOR + 5.75% | ) | 12/19/2020 | 516 | 459,612 | ||||||
Total | 6,917,051 | ||||||||||
Electric: Integrated 0.45% | |||||||||||
Pacific Gas & Electric Company DIP Delayed Draw Term Loan | 2.25% | 12/31/2020 | 360 | 361,800 | (h) | ||||||
Pacific Gas & Electric Company DIP Term Loan | 3.97% (1 Mo. LIBOR + 2.25% | ) | 12/31/2020 | 1,081 | 1,086,405 | (h) | |||||
Pacific Gas & Electric Company Revolving Term Loan | – | (g) | 12/31/2020 | 3,896 | 3,910,610 | (h) | |||||
Total | 5,358,815 |
12 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Entertainment 0.20% | |||||||||||
Playtika Holding Corp Term Loan B | 7.799% (1 Mo. LIBOR + 6.00% | ) | 12/10/2024 | $ | 2,360 | $ | 2,389,175 | ||||
Food & Drug Retailers 0.09% | |||||||||||
GOBP Holdings, Inc. 2019 Term Loan B | 5.24% (1 Mo. LIBOR + 3.50% | ) | 10/22/2025 | 1,111 | 1,126,832 | ||||||
Food: Wholesale 0.10% | |||||||||||
United Natural Foods, Inc. Term Loan B | – | (g) | 10/22/2025 | 1,373 | 1,179,546 | ||||||
Gaming 0.43% | |||||||||||
MGM Growth Properties Operating Partnership LP 2016 TermLoan B | 3.799% (1 Mo. LIBOR + 2.00% | ) | 3/21/2025 | 1,691 | 1,701,017 | ||||||
PCI Gaming Authority Term Loan | 4.299% (1 Mo. LIBOR + 2.50% | ) | 5/29/2026 | 1,028 | 1,036,761 | ||||||
VICI Properties 1 LLC Replacement Term Loan B | 3.785% (1 Mo. LIBOR + 2.00% | ) | 12/20/2024 | 2,338 | 2,352,274 | ||||||
Total | 5,090,052 | ||||||||||
Gas Distribution 0.19% | |||||||||||
Buckeye Partners, L.P. 2019 Term Loan B | 4.441% (1 Mo. LIBOR + 2.75% | ) | 11/1/2026 | 1,159 | 1,170,598 | ||||||
Lower Cadence Holdings LLC Term Loan B | 5.799% (1 Mo. LIBOR + 4.00% | ) | 5/22/2026 | 1,103 | 1,094,495 | ||||||
Total | 2,265,093 | ||||||||||
Health Care Services 0.10% | |||||||||||
Da Vinci Purchaser Corp. 2019 Term Loan | – | (g) | 12/3/2026 | 1,186 | 1,189,160 | ||||||
Health Services 0.74% | |||||||||||
Emerald TopCo Inc Term Loan | 5.299% (1 Mo. LIBOR + 3.50% | ) | 7/24/2026 | 1,173 | 1,181,312 | ||||||
Air Medical Group Holdings, Inc. 2018 Term Loan B1 | 5.035% (1 Mo. LIBOR + 3.25% | ) | 4/28/2022 | 1,310 | 1,287,157 | ||||||
Parexel International Corporation Term Loan B 2019 Term Loan B2 | 4.555% (1 Mo. LIBOR + 2.75% | ) | 9/27/2024 | 1,990 | 1,958,026 | ||||||
RegionalCare Hospital Partners Holdings, Inc. 2018 Term Loan B | 6.299% (1 Mo. LIBOR + 4.50% | ) | 11/17/2025 | 2,288 | 2,309,160 | ||||||
U.S. Renal Care, Inc. 2019 Term Loan B | 6.813% (1 Mo. LIBOR + 5.00% | ) | 6/26/2026 | 2,100 | 2,089,533 | ||||||
Total | 8,825,188 |
See Notes to Financial Statements. | 13 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Insurance Brokerage 0.19% | |||||||||||
Hub International Limited 2018 Term Loan B | 4.69% (3 Mo. LIBOR + 2.75% | ) | 4/25/2025 | $ | 2,283 | $ | 2,284,711 | ||||
Media: Content 0.10% | |||||||||||
Univision Communications Inc. Term Loan C5 | 4.549% (1 Mo. LIBOR + 2.75% | ) | 3/15/2024 | 1,215 | 1,202,104 | ||||||
Personal & Household Products 0.24% | |||||||||||
FGI Operating Company, LLC Exit Term Loan | 11.945% (3 Mo. LIBOR + 10.00% | ) | 5/15/2022 | 105 | 83,986 | (h) | |||||
Revlon Consumer Products Corporation 2016 Term Loan B | 5.409% (3 Mo. LIBOR + 3.50% | ) | 9/7/2023 | 2,115 | 1,627,517 | ||||||
TGP Holdings III, LLC 2018 1st Lien Term Loan | 6.049% (3 Mo. LIBOR + 4.25% | ) | 9/25/2024 | 1,212 | 1,146,144 | ||||||
Total | 2,857,647 | ||||||||||
Rail 0.15% | |||||||||||
Genesee & Wyoming Inc. (New) Term Loan | – | (g) | 11/6/2026 | 1,740 | 1,759,069 | ||||||
Recreation & Travel 0.30% | |||||||||||
Alterra Mountain Company Term Loan B1 | 4.549% (1 Mo. LIBOR + 2.75% | ) | 7/31/2024 | 1,138 | 1,149,543 | ||||||
Delta 2 (LUX) S.a.r.l. 2018 USD Term Loan (Luxembourg)(e) | 4.299% (1 Mo. LIBOR +2.50% | ) | 2/1/2024 | 1,198 | 1,205,290 | ||||||
Kingpin Intermediate Holdings LLC 2018 Term Loan B | 5.30% (1 Mo. LIBOR + 3.50% | ) | 7/3/2024 | 1,172 | 1,179,081 | ||||||
Total | 3,533,914 | ||||||||||
Restaurants 0.27% | |||||||||||
IRB Holding Corp 1st Lien Term Loan | 5.216% (3 Mo. LIBOR + 3.25% | ) | 2/5/2025 | 1,785 | 1,799,023 | ||||||
Panera Bread Co. Term Loan A | 3.563% (1 Mo. LIBOR + 1.75% | ) | 7/18/2022 | 1,432 | 1,400,033 | ||||||
Total | 3,199,056 | ||||||||||
Software/Services 0.52% | |||||||||||
Ancestry.com Operations Inc. Non-Extended Term Loan B | 5.55% (1 Mo. LIBOR + 3.75% | ) | 10/19/2023 | 706 | 698,672 | ||||||
Ancestry.com Operations, Inc. 2019 Extended Term Loan B | 6.05% (1 Mo. LIBOR + 4.25% | ) | 8/27/2026 | 1,105 | 1,089,890 | ||||||
Ellie Mae, Inc. Term Loan | 5.945% (3 Mo. LIBOR + 4.00% | ) | 4/17/2026 | 1,971 | 1,987,235 |
14 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Software/Services (continued) | |||||||||||
Tibco Software Inc. 2019 Term Loan B | 5.71% (1 Mo. LIBOR + 4.00% | ) | 6/30/2026 | $ | 1,148 | $ | 1,154,764 | ||||
Ultimate Software Group Inc. (The) Term Loan B | 5.549% (3 Mo. LIBOR + 3.75% | ) | 5/4/2026 | 1,216 | 1,225,644 | ||||||
Total | 6,156,205 | ||||||||||
Specialty Retail 0.44% | |||||||||||
BJ’s Wholesale Club, Inc. 2017 1st Lien Term Loan | 4.491% (1 Mo. LIBOR + 2.75% | ) | 2/3/2024 | 1,882 | 1,897,396 | ||||||
Claire’s Stores, Inc. 2019 Term Loan B | – | (g) | 12/18/2026 | 685 | 620,322 | ||||||
Mavis Tire Express Services Corp. 2018 1st Lien Term Loan | 5.049% (1 Mo. LIBOR + 3.25% | ) | 3/20/2025 | 1,282 | 1,253,130 | ||||||
Mavis Tire Express Services Corp. 2018 Delayed Draw Term Loan | 5.049% (1 Mo. LIBOR + 3.25% | ) | 3/20/2025 | 164 | 159,867 | ||||||
PetSmart, Inc. Consenting Term Loan | – | (g) | 3/11/2022 | 1,282 | 1,271,266 | ||||||
Total | 5,201,981 | ||||||||||
Support: Services 0.59% | |||||||||||
DG Investment Intermediate Holdings 2, Inc. 2018 1st Lien Term Loan | 4.799% (3 Mo. LIBOR + 3.00% | ) | 2/3/2025 | 1,194 | 1,190,618 | ||||||
NEP/NCP Holdco, Inc. 2018 1st Lien Term Loan | – | (g) | 10/20/2025 | 1,252 | 1,233,271 | ||||||
Pike Corporation 2019 Term Loan B | 5.049% (1 Mo. LIBOR + 3.25% | ) | 7/24/2026 | 1,790 | 1,802,205 | ||||||
Southern Graphics, Inc. 2018 Term Loan B | 5.049% (1 Mo. LIBOR + 3.25% | ) | 12/31/2022 | 1,717 | 1,074,212 | ||||||
Trans Union, LLC 2019 Term Loan B5 | 3.549% (1 Mo. LIBOR + 1.75% | ) | 11/16/2026 | 1,651 | 1,659,539 | ||||||
Total | 6,959,845 | ||||||||||
Telecommunications: Satellite 0.06% | |||||||||||
Iridium Satellite LLC Term Loan (France)(e) | 5.542% (1 Mo. LIBOR + 3.75% | ) | 11/4/2026 | 746 | 756,049 | ||||||
Transportation: Infrastructure/Services 0.07% | |||||||||||
Commercial Barge Line Company 2015 1st Lien Term Loan | 10.677% (3 Mo. LIBOR + 8.75% | ) | 11/12/2020 | 1,515 | 787,635 | ||||||
Total Floating Rate Loans (cost $84,137,079) | 83,418,053 | ||||||||||
FOREIGN GOVERNMENT OBLIGATIONS 5.86% | |||||||||||
Angola 0.35% | |||||||||||
Republic of Angola†(e) | 8.25% | 5/9/2028 | 2,189 | 2,370,048 | |||||||
Republic of Angola†(e) | 9.375% | 5/8/2048 | 1,592 | 1,751,209 | |||||||
Total | 4,121,257 |
See Notes to Financial Statements. | 15 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Argentina 0.63% | |||||||||||
Ciudad Autonoma De Buenos Aires†(e) | 7.50% | 6/1/2027 | $ | 1,908 | $ | 1,855,530 | |||||
Province of Santa Fe†(e) | 6.90% | 11/1/2027 | 1,751 | 1,392,045 | |||||||
Provincia de Cordoba†(e) | 7.125% | 6/10/2021 | 1,642 | 1,223,290 | |||||||
Provincia de Cordoba†(e) | 7.45% | 9/1/2024 | 2,162 | 1,567,450 | |||||||
Provincia de Mendoza†(e) | 8.375% | 5/19/2024 | 1,987 | 1,500,185 | |||||||
Total | 7,538,500 | ||||||||||
Australia 0.19% | |||||||||||
Australian Government(d) | 4.25% | 4/21/2026 | AUD | 2,775 | 2,314,363 | ||||||
Bahrain 0.18% | |||||||||||
Bahrain Government International Bond†(e) | 6.75% | 9/20/2029 | $ | 1,800 | 2,107,203 | ||||||
Bermuda 0.22% | |||||||||||
Government of Bermuda† | 4.138% | 1/3/2023 | 1,350 | 1,416,386 | |||||||
Government of Bermuda† | 4.75% | 2/15/2029 | 1,107 | 1,252,679 | |||||||
Total | 2,669,065 | ||||||||||
Canada 0.67% | |||||||||||
Province of British Columbia Canada(d) | 2.85% | 6/18/2025 | CAD | 3,000 | 2,406,908 | ||||||
Province of Ontario Canada(e) | 2.55% | 2/12/2021 | $ | 5,494 | 5,539,912 | ||||||
Total | 7,946,820 | ||||||||||
Dominican Republic 0.26% | |||||||||||
Dominican Republic†(e) | 6.40% | 6/5/2049 | 2,783 | 3,060,423 | |||||||
Egypt 0.28% | |||||||||||
Arab Republic of Egypt†(e) | 5.577% | 2/21/2023 | 3,126 | 3,276,364 | |||||||
Honduras 0.16% | |||||||||||
Honduras Government†(e) | 6.25% | 1/19/2027 | 1,716 | 1,877,471 | |||||||
Ivory Coast 0.11% | |||||||||||
Ivory Coast Government International Bond†(d) | 5.875% | 10/17/2031 | EUR | 1,090 | 1,275,472 | ||||||
Jamaica 0.44% | |||||||||||
Government of Jamaica(e) | 6.75% | 4/28/2028 | $ | 2,073 | 2,462,408 | ||||||
Government of Jamaica(e) | 8.00% | 3/15/2039 | 2,031 | 2,769,136 | |||||||
Total | 5,231,544 | ||||||||||
Japan 0.39% | |||||||||||
Japan Bank for International Corp.(e) | 3.125% | 7/20/2021 | 4,572 | 4,663,491 |
16 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Kenya 0.29% | |||||||||||
Republic of Kenya†(e) | 7.25% | 2/28/2028 | $ | 1,918 | $ | 2,090,131 | |||||
Republic of Kenya†(e) | 8.25% | 2/28/2048 | 1,229 | 1,320,621 | |||||||
Total | 3,410,752 | ||||||||||
Mongolia 0.20% | |||||||||||
Development Bank of Mongolia LLC†(e) | 7.25% | 10/23/2023 | 2,254 | 2,389,123 | |||||||
Paraguay 0.18% | |||||||||||
Republic of Paraguay†(e) | 5.60% | 3/13/2048 | 1,804 | 2,116,877 | |||||||
Qatar 0.18% | |||||||||||
State of Qatar†(e) | 3.25% | 6/2/2026 | 2,052 | 2,164,224 | |||||||
Senegal 0.20% | |||||||||||
Republic of Senegal†(e) | 6.25% | 7/30/2024 | 2,141 | 2,376,161 | |||||||
Suriname 0.09% | |||||||||||
Republic of Suriname†(e) | 9.25% | 10/26/2026 | 1,375 | 1,083,290 | |||||||
Ukraine 0.31% | |||||||||||
Ukraine Government†(e) | 7.375% | 9/25/2032 | 3,394 | 3,628,923 | |||||||
United Arab Emirates 0.32% | |||||||||||
Abu Dhabi Government International†(e) | 3.125% | 5/3/2026 | 3,607 | 3,765,127 | |||||||
Vietnam 0.21% | |||||||||||
Socialist Republic of Vietnam†(e) | 4.80% | 11/19/2024 | 2,302 | 2,511,718 | |||||||
Total Foreign Government Obligations (cost $66,544,482) | 69,528,168 | ||||||||||
GOVERNMENT SPONSORED ENTERPRISES PASS-THROUGHS 12.57% | |||||||||||
Federal National Mortgage Assoc.(i) | 3.00% | TBA | 21,300 | 21,590,323 | |||||||
Federal National Mortgage Assoc.(i) | 3.50% | TBA | 78,300 | 80,510,303 | |||||||
Federal National Mortgage Assoc.(i) | 4.50% | TBA | 44,850 | 47,219,755 | |||||||
Total Government Sponsored Enterprises Pass-Throughs (cost $149,162,463) | 149,320,381 | ||||||||||
HIGH YIELD CORPORATE BONDS 67.55% | |||||||||||
Advertising 0.09% | |||||||||||
Clear Channel Worldwide Holdings, Inc.† | 9.25% | 2/15/2024 | 1,002 | 1,111,804 | |||||||
Aerospace/Defense 0.91% | |||||||||||
Signature Aviation US Holdings, Inc.† | 4.00% | 3/1/2028 | 2,147 | 2,121,558 | |||||||
Signature Aviation US Holdings, Inc.† | 5.375% | 5/1/2026 | 1,087 | 1,146,712 | |||||||
TransDigm, Inc.† | 6.25% | 3/15/2026 | 1,558 | 1,689,626 |
See Notes to Financial Statements. | 17 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Aerospace/Defense (continued) | |||||||||||
TransDigm, Inc. | 6.375% | 6/15/2026 | $ | 2,771 | $ | 2,944,077 | |||||
United Technologies Corp. | 4.125% | 11/16/2028 | 2,600 | 2,928,822 | |||||||
Total | 10,830,795 | ||||||||||
Air Transportation 1.27% | |||||||||||
Air Canada 2013–1 Class A Pass Through Trust (Canada)†(e) | 4.125% | 11/15/2026 | 752 | 800,264 | |||||||
Azul Investments LLP† | 5.875% | 10/26/2024 | 3,034 | 3,155,132 | |||||||
British Airways 2018–1 Class A Pass Through Trust (United Kingdom)†(e) | 4.125% | 3/20/2033 | 735 | 772,404 | |||||||
British Airways 2018–1 Class AA Pass Through Trust (United Kingdom)†(e) | 3.80% | 3/20/2033 | 398 | 422,417 | |||||||
British Airways 2019–1 Class A Pass Through Trust (United Kingdom)†(e) | 3.35% | 6/15/2029 | 1,196 | 1,233,012 | |||||||
British Airways 2019–1 Class AA Pass Through Trust (United Kingdom)†(e) | 3.30% | 6/15/2034 | 2,936 | 3,047,641 | |||||||
Delta Air Lines 2019–1 Class AA Pass Through Trust | 3.204% | 10/25/2025 | 1,949 | 2,028,531 | |||||||
Delta Air Lines, Inc. | 3.75% | 10/28/2029 | 1,211 | 1,211,315 | |||||||
JetBlue 2019–1 Class A Pass Through Trust | 2.95% | 11/15/2029 | 1,012 | 1,012,392 | |||||||
United Airlines 2019–2 Class AA Pass Through Trust | 2.70% | 11/1/2033 | 1,416 | 1,423,106 | |||||||
Total | 15,106,214 | ||||||||||
Auto Loans 0.08% | |||||||||||
Ford Motor Credit Co. LLC | 3.81% | 1/9/2024 | 916 | 929,884 | |||||||
Auto Parts & Equipment 0.30% | |||||||||||
Adient US LLC† | 7.00% | 5/15/2026 | 1,624 | 1,773,203 | |||||||
Delphi Technologies plc (United Kingdom)†(e) | 5.00% | 10/1/2025 | 1,966 | 1,823,465 | |||||||
Total | 3,596,668 | ||||||||||
Automakers 1.89% | |||||||||||
Aston Martin Capital Holdings Ltd.(d) | 5.75% | 4/15/2022 | GBP | 1,074 | 1,367,494 | ||||||
Aston Martin Capital Holdings Ltd. (Jersey)†(e) | 6.50% | 4/15/2022 | $ | 1,281 | 1,221,882 | ||||||
BMW US Capital LLC† | 3.10% | 4/12/2021 | 1,217 | 1,235,346 | |||||||
Ford Motor Credit Co. LLC | 5.584% | 3/18/2024 | 10,616 | 11,490,420 | |||||||
Navistar International Corp.† | 6.625% | 11/1/2025 | 1,112 | 1,135,168 | |||||||
Tesla, Inc.† | 5.30% | 8/15/2025 | 6,185 | 6,014,851 | |||||||
Total | 22,465,161 |
18 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Banking 6.11% | |||||||||||
ABN AMRO Bank NV (Netherlands)†(e) | 4.75% | 7/28/2025 | $ | 1,705 | $ | 1,861,366 | |||||
AIB Group plc (Ireland)†(e) | 4.263% (3 Mo. LIBOR + 1.87% | )# | 4/10/2025 | 1,203 | 1,274,012 | ||||||
AIB Group plc (Ireland)†(e) | 4.75% | 10/12/2023 | 2,691 | 2,890,384 | |||||||
Ally Financial, Inc. | 4.625% | 3/30/2025 | 1,087 | 1,178,944 | |||||||
Ally Financial, Inc. | 8.00% | 11/1/2031 | 3,091 | 4,296,335 | |||||||
Associated Banc-Corp. | 4.25% | 1/15/2025 | 901 | 952,256 | |||||||
Australia & New Zealand Banking Group Ltd. (United Kingdom)†(e) | 6.75% (USD Swap + 5.17% | )# | – | (j) | 1,776 | 2,028,378 | |||||
Banco Mercantil del Norte SA† | 7.625% (10 Yr Treasury CMT + 5.35% | )# | – | (j) | 1,219 | 1,304,982 | |||||
Bank of America Corp. | 4.45% | 3/3/2026 | 1,137 | 1,248,715 | |||||||
Bank of Ireland Group plc (Ireland)†(e) | 4.50% | 11/25/2023 | 2,692 | 2,880,424 | |||||||
BankUnited, Inc. | 4.875% | 11/17/2025 | 2,178 | 2,375,556 | |||||||
BBVA Bancomer SA† | 5.125% (5 Yr Treasury CMT + 2.65% | )# | 1/18/2033 | 2,456 | 2,483,716 | ||||||
BBVA USA | 3.875% | 4/10/2025 | 2,353 | 2,471,166 | |||||||
CIT Group, Inc. | 5.25% | 3/7/2025 | 527 | 580,799 | |||||||
CIT Group, Inc. | 6.125% | 3/9/2028 | 2,709 | 3,204,334 | |||||||
Citigroup, Inc. | 4.45% | 9/29/2027 | 1,164 | 1,282,007 | |||||||
Fidelity National Financial, Inc. | 4.50% | 8/15/2028 | 2,193 | 2,375,797 | |||||||
Fifth Third Bancorp | 8.25% | 3/1/2038 | 377 | 575,506 | |||||||
Global Bank Corp. (Panama)†(e) | 5.25% (3 Mo. LIBOR + 3.30% | )# | 4/16/2029 | 3,246 | 3,493,508 | ||||||
Goldman Sachs Group, Inc. (The) | 3.50% | 11/16/2026 | 1,520 | 1,598,699 | |||||||
Goldman Sachs Group, Inc. (The) | 4.25% | 10/21/2025 | 1,600 | 1,737,347 | |||||||
Home BancShares, Inc. | 5.625% (3 Mo. LIBOR + 3.58% | )# | 4/15/2027 | 1,656 | 1,713,820 | ||||||
Huntington Bancshares, Inc. | 5.70% (3 Mo. LIBOR + 2.88% | )# | – | (j) | 1,217 | 1,263,508 | |||||
Huntington National Bank (The) | 3.125% | 4/1/2022 | 2,332 | 2,383,934 | |||||||
Intesa Sanpaolo SpA (Italy)†(e) | 5.71% | 1/15/2026 | 4,060 | 4,394,139 | |||||||
JPMorgan Chase & Co. | 3.54% (3 Mo. LIBOR + 1.38% | )# | 5/1/2028 | 1,306 | 1,387,119 | ||||||
JPMorgan Chase & Co. | 6.10% (3 Mo. LIBOR + 3.33% | )# | – | (j) | 1,088 | 1,188,112 | |||||
Leggett & Platt, Inc. | 4.40% | 3/15/2029 | 1,974 | 2,157,737 | |||||||
Macquarie Bank Ltd. (United Kingdom)†(e) | 6.125% (5 Yr. Swap rate + 3.70% | )# | – | (j) | 2,899 | 3,003,074 | |||||
Morgan Stanley | 3.125% | 7/27/2026 | 2,144 | 2,213,201 | |||||||
Morgan Stanley | 3.625% | 1/20/2027 | 776 | 826,073 | |||||||
Popular, Inc. | 6.125% | 9/14/2023 | 1,370 | 1,478,456 |
See Notes to Financial Statements. | 19 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Banking (continued) | |||||||||||
Santander UK Group Holdings plc (United Kingdom)†(e) | 4.75% | 9/15/2025 | $ | 2,986 | $ | 3,212,281 | |||||
US Bancorp | 3.00% | 7/30/2029 | 1,090 | 1,126,402 | |||||||
Washington Mutual Bank(k) | 6.875% | 6/15/2011 | 1,250 | 125 | (l) | ||||||
Webster Financial Corp. | 4.10% | 3/25/2029 | 2,322 | 2,462,262 | |||||||
Westpac Banking Corp. (Australia)(e) | 4.11% (5 Yr Treasury CMT + 2.00% | )# | 7/24/2034 | 1,607 | 1,684,154 | ||||||
Total | 72,588,628 | ||||||||||
Beverages 1.20% | |||||||||||
Bacardi Ltd.† | 2.75% | 7/15/2026 | 1,749 | 1,721,178 | |||||||
Bacardi Ltd.† | 4.70% | 5/15/2028 | 2,843 | 3,097,884 | |||||||
Becle SAB de CV (Mexico)†(e) | 3.75% | 5/13/2025 | 1,438 | 1,476,265 | |||||||
Brown-Forman Corp. | 3.50% | 4/15/2025 | 797 | 849,808 | |||||||
Brown-Forman Corp. | 4.50% | 7/15/2045 | 1,572 | 1,927,387 | |||||||
PepsiCo, Inc. | 3.60% | 3/1/2024 | 1,653 | 1,759,897 | |||||||
Suntory Holdings Ltd. (Japan)†(e) | 2.25% | 10/16/2024 | 3,413 | 3,392,902 | |||||||
Total | 14,225,321 | ||||||||||
Building & Construction 0.95% | |||||||||||
Beazer Homes USA, Inc.† | 7.25% | 10/15/2029 | 1,164 | 1,245,509 | |||||||
ITR Concession Co. LLC† | 5.183% | 7/15/2035 | 785 | 790,363 | |||||||
Lennar Corp. | 4.75% | 11/15/2022 | 1,304 | 1,371,521 | |||||||
Lennar Corp. | 4.75% | 5/30/2025 | 645 | 694,720 | |||||||
Lennar Corp. | 4.75% | 11/29/2027 | 661 | 713,450 | |||||||
PulteGroup, Inc. | 6.375% | 5/15/2033 | 2,250 | 2,634,124 | |||||||
Shea Homes LP/Shea Homes Funding Corp.† | 6.125% | 4/1/2025 | 1,261 | 1,308,811 | |||||||
Toll Brothers Finance Corp. | 4.875% | 3/15/2027 | 1,084 | 1,173,807 | |||||||
Toll Brothers Finance Corp. | 5.625% | 1/15/2024 | 1,208 | 1,327,791 | |||||||
Total | 11,260,096 | ||||||||||
Building Materials 0.50% | |||||||||||
Allegion plc (Ireland)(e) | 3.50% | 10/1/2029 | 918 | 935,032 | |||||||
Hillman Group, Inc. (The)† | 6.375% | 7/15/2022 | 1,311 | 1,222,916 | |||||||
Owens Corning, Inc. | 4.30% | 7/15/2047 | 1,287 | 1,220,368 | |||||||
Owens Corning, Inc | 4.40% | 1/30/2048 | 1,255 | 1,214,802 | |||||||
Vulcan Materials Co. | 4.50% | 6/15/2047 | 1,186 | 1,301,754 | |||||||
Total | 5,894,872 |
20 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Cable & Satellite Television 2.73% | |||||||||||
Altice France SA (France)†(e) | 8.125% | 2/1/2027 | $ | 3,262 | $ | 3,679,862 | |||||
Altice Luxembourg SA (Luxembourg)†(e) | 10.50% | 5/15/2027 | 1,507 | 1,720,843 | |||||||
CCO Holdings LLC/CCO Holdings Capital Corp.† | 5.125% | 5/1/2027 | 2,783 | 2,941,214 | |||||||
CCO Holdings LLC/CCO Holdings Capital Corp.† | 5.75% | 2/15/2026 | 3,946 | 4,170,409 | |||||||
CCO Holdings LLC/CCO Holdings Capital Corp.† | 5.875% | 4/1/2024 | 1,035 | 1,072,089 | |||||||
CSC Holdings LLC† | 5.50% | 4/15/2027 | 2,372 | 2,551,561 | |||||||
CSC Holdings LLC† | 5.75% | 1/15/2030 | 1,274 | 1,361,588 | |||||||
CSC Holdings LLC† | 6.50% | 2/1/2029 | 1,046 | 1,168,251 | |||||||
CSC Holdings LLC† | 10.875% | 10/15/2025 | 1,430 | 1,600,706 | |||||||
DISH DBS Corp. | 7.75% | 7/1/2026 | 6,732 | 7,144,268 | |||||||
LCPR Senior Secured Financing DAC (Ireland)†(e) | 6.75% | 10/15/2027 | 1,133 | 1,203,076 | |||||||
Ziggo BV (Netherlands)†(e) | 5.50% | 1/15/2027 | 3,541 | 3,768,863 | |||||||
Total | 32,382,730 | ||||||||||
Chemicals 0.88% | |||||||||||
CF Industries, Inc.† | 4.50% | 12/1/2026 | 2,002 | 2,179,423 | |||||||
CF Industries, Inc. | 4.95% | 6/1/2043 | 253 | 264,410 | |||||||
CF Industries, Inc. | 5.15% | 3/15/2034 | 422 | 472,366 | |||||||
CNAC HK Finbridge Co. Ltd. (Hong Kong)(e) | 4.125% | 7/19/2027 | 2,759 | 2,899,300 | |||||||
FMC Corp. | 3.45% | 10/1/2029 | 1,050 | 1,086,310 | |||||||
OCI NV (Netherlands)†(e) | 6.625% | 4/15/2023 | 1,138 | 1,190,348 | |||||||
Yingde Gases Investment Ltd. (Hong Kong)†(e) | 6.25% | 1/19/2023 | 2,233 | 2,312,486 | |||||||
Total | 10,404,643 | ||||||||||
Consumer/Commercial/Lease Financing 0.94% | |||||||||||
AerCap Ireland Capital DAC/AerCap Global | |||||||||||
Aviation Trust (Ireland)(e) | 3.65% | 7/21/2027 | 762 | 784,986 | |||||||
AerCap Ireland Capital DAC/AerCap Global | |||||||||||
Aviation Trust (Ireland)(e) | 4.45% | 4/3/2026 | 469 | 503,368 | |||||||
American Tower Corp. | 2.95% | 1/15/2025 | 1,132 | 1,157,852 | |||||||
General Electric Co. | 2.894% (3 Mo. LIBOR + 1.00% | )# | 3/15/2023 | 122 | 122,513 | ||||||
Navient Corp. | 6.125% | 3/25/2024 | 1,728 | 1,879,183 | |||||||
Navient Corp. | 6.75% | 6/25/2025 | 1,609 | 1,780,358 | |||||||
Navient Corp. | 6.75% | 6/15/2026 | 1,831 | 2,015,839 | |||||||
Quicken Loans, Inc.† | 5.25% | 1/15/2028 | 1,111 | 1,152,465 | |||||||
Springleaf Finance Corp. | 5.375% | 11/15/2029 | 1,743 | 1,822,568 | |||||||
Total | 11,219,132 |
See Notes to Financial Statements. | 21 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Department Stores 0.38% | ||||||||||||
Kohl’s Corp. | 5.55% | 7/17/2045 | $ | 1,350 | $ | 1,375,408 | ||||||
Seven & i Holdings Co. Ltd. (Japan)†(e) | 3.35% | 9/17/2021 | 3,076 | 3,137,812 | ||||||||
Total | 4,513,220 | |||||||||||
Discount Stores 0.94% | ||||||||||||
Amazon.com, Inc. | 3.15% | 8/22/2027 | 1,014 | 1,073,039 | ||||||||
Amazon.com, Inc. | 4.25% | 8/22/2057 | 1,325 | 1,612,679 | ||||||||
Amazon.com, Inc. | 4.80% | 12/5/2034 | 3,679 | 4,636,266 | ||||||||
Amazon.com, Inc. | 5.20% | 12/3/2025 | 3,295 | 3,841,145 | ||||||||
Total | 11,163,129 | |||||||||||
Diversified Capital Goods 1.13% | ||||||||||||
BCD Acquisition, Inc.† | 9.625% | 9/15/2023 | 1,128 | 1,164,649 | ||||||||
Dover Corp. | 2.95% | 11/4/2029 | 1,320 | 1,331,182 | ||||||||
General Electric Co. | 3.10% | 1/9/2023 | 2,189 | 2,236,597 | ||||||||
General Electric Co. | 3.15% | 9/7/2022 | 260 | 265,760 | ||||||||
General Electric Co. | 5.00% (3 Mo. LIBOR + 3.33% | )# | – | (j) | 3,371 | 3,306,883 | ||||||
Siemens Financieringsmaatschappij NV (Netherlands)†(e) | 3.25% | 5/27/2025 | 1,235 | 1,301,251 | ||||||||
SPX FLOW, Inc.† | 5.875% | 8/15/2026 | 1,465 | 1,553,409 | ||||||||
Westinghouse Air Brake Technologies Corp. | 3.45% | 11/15/2026 | 1,338 | 1,353,431 | ||||||||
Westinghouse Air Brake Technologies Corp. | 4.95% | 9/15/2028 | 794 | 873,659 | ||||||||
Total | 13,386,821 | |||||||||||
Electric: Distribution/Transportation 0.54% | ||||||||||||
Adani Transmission Ltd. (India)†(e) | 4.25% | 5/21/2036 | 1,000 | 1,013,377 | ||||||||
Atlantic City Electric Co. | 4.00% | 10/15/2028 | 1,149 | 1,281,361 | ||||||||
Oklahoma Gas & Electric Co. | 4.15% | 4/1/2047 | 1,087 | 1,182,332 | ||||||||
State Grid Overseas Investment 2016 Ltd.† | 3.50% | 5/4/2027 | 2,836 | 2,970,144 | ||||||||
Total | 6,447,214 | |||||||||||
Electric: Generation 1.64% | ||||||||||||
Acwa Power Management & Investments One Ltd. (Saudi Arabia)†(e) | 5.95% | 12/15/2039 | 1,386 | 1,482,327 | ||||||||
Adani Renewable Energy RJ Ltd./Kodangal Solar Parks Pvt Ltd/Wardha Solar Maharash (India)†(e) | 4.625% | 10/15/2039 | 645 | 655,159 | ||||||||
Calpine Corp. | 5.75% | 1/15/2025 | 1,126 | 1,158,372 | ||||||||
Clearway Energy Operating LLC† | 4.75% | 3/15/2028 | 656 | 665,840 | ||||||||
Clearway Energy Operating LLC | 5.75% | 10/15/2025 | 1,344 | 1,417,362 | ||||||||
Greenko Solar Mauritius Ltd. (Mauritius)†(e) | 5.95% | 7/29/2026 | 1,400 | 1,415,158 | ||||||||
NextEra Energy Operating Partners LP† | 3.875% | 10/15/2026 | 2,442 | 2,455,734 |
22 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Electric: Generation (continued) | ||||||||||||
NextEra Energy Operating Partners LP† | 4.50% | 9/15/2027 | $ | 1,709 | $ | 1,785,602 | ||||||
NRG Energy, Inc. | 5.75% | 1/15/2028 | 3,273 | 3,557,260 | ||||||||
NSG Holdings LLC/NSG Holdings, Inc.† | 7.75% | 12/15/2025 | 1,453 | 1,609,420 | ||||||||
TerraForm Power Operating LLC† | 4.75% | 1/15/2030 | 1,484 | 1,512,715 | ||||||||
TerraForm Power Operating LLC† | 5.00% | 1/31/2028 | 561 | 594,189 | ||||||||
Vistra Operations Co. LLC† | 4.30% | 7/15/2029 | 1,123 | 1,145,425 | ||||||||
Total | 19,454,563 | |||||||||||
Electric: Integrated 3.48% | ||||||||||||
AES Corp. (The) | 4.50% | 3/15/2023 | 1,054 | 1,082,548 | ||||||||
AES Corp. (The) | 5.125% | 9/1/2027 | 553 | 591,351 | ||||||||
Arizona Public Service Co. | 2.95% | 9/15/2027 | 1,333 | 1,368,547 | ||||||||
Ausgrid Finance Pty Ltd. (Australia)†(e) | 4.35% | 8/1/2028 | 1,217 | 1,325,560 | ||||||||
Avangrid, Inc. | 3.80% | 6/1/2029 | 486 | 515,467 | ||||||||
Black Hills Corp. | 4.35% | 5/1/2033 | 1,155 | 1,280,907 | ||||||||
Dayton Power & Light Co. (The)† | 3.95% | 6/15/2049 | 898 | 921,379 | ||||||||
DPL, Inc.† | 4.35% | 4/15/2029 | 1,537 | 1,482,841 | ||||||||
DTE Energy Co. | 2.60% | 6/15/2022 | 896 | 902,387 | ||||||||
El Paso Electric Co. | 5.00% | 12/1/2044 | 1,953 | 2,306,244 | ||||||||
Electricite de France SA (France)†(e) | 3.625% | 10/13/2025 | 1,044 | 1,107,891 | ||||||||
Empresa de Transmision Electrica SA (Panama)†(e) | 5.125% | 5/2/2049 | 1,205 | 1,374,839 | ||||||||
Empresas Publicas de Medellin ESP (Colombia)†(e) | 4.25% | 7/18/2029 | 774 | 806,549 | ||||||||
Enel Finance International NV (Netherlands)†(e) | 2.65% | 9/10/2024 | 2,243 | 2,250,981 | ||||||||
Enel Finance International NV (Netherlands)†(e) | 3.50% | 4/6/2028 | 2,829 | 2,895,129 | ||||||||
Entergy Arkansas LLC | 4.00% | 6/1/2028 | 1,589 | 1,724,614 | ||||||||
Entergy Arkansas LLC | 4.95% | 12/15/2044 | 1,109 | 1,187,913 | ||||||||
Entergy Louisiana LLC | 4.00% | 3/15/2033 | 958 | 1,083,030 | ||||||||
Entergy Mississippi LLC | 2.85% | 6/1/2028 | 1,547 | 1,581,844 | ||||||||
Indianapolis Power & Light Co.† | 4.05% | 5/1/2046 | 2,203 | 2,444,667 | ||||||||
Louisville Gas & Electric Co. | 4.375% | 10/1/2045 | 1,017 | 1,176,553 | ||||||||
Monongahela Power Co.† | 3.55% | 5/15/2027 | 1,188 | 1,237,146 | ||||||||
NRG Energy, Inc.† | 3.75% | 6/15/2024 | 2,302 | 2,380,309 | ||||||||
NRG Energy, Inc.† | 5.25% | 6/15/2029 | 632 | 684,519 | ||||||||
Ohio Power Co. | 4.00% | 6/1/2049 | 1,172 | 1,314,012 | ||||||||
Ohio Power Co. | 4.15% | 4/1/2048 | 1,223 | 1,382,021 | ||||||||
Pacific Gas & Electric Co.(k) | 6.05% | 3/1/2034 | 2,250 | 2,361,037 | ||||||||
Puget Sound Energy, Inc. | 4.223% | 6/15/2048 | 1,174 | 1,350,659 | ||||||||
Rochester Gas & Electric Corp.† | 3.10% | 6/1/2027 | 1,113 | 1,149,568 | ||||||||
Total | 41,270,512 |
See Notes to Financial Statements. | 23 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Electronics 1.37% | ||||||||||||
Amphenol Corp. | 2.80% | 2/15/2030 | $ | 2,475 | $ | 2,453,448 | ||||||
KLA Corp. | 4.10% | 3/15/2029 | 776 | 849,791 | ||||||||
Lam Research Corp. | 4.875% | 3/15/2049 | 1,558 | 1,953,265 | ||||||||
Micron Technology, Inc. | 5.327% | 2/6/2029 | 2,218 | 2,544,800 | ||||||||
NVIDIA Corp. | 3.20% | 9/16/2026 | 2,872 | 3,015,204 | ||||||||
Trimble, Inc. | 4.75% | 12/1/2024 | 2,232 | 2,410,605 | ||||||||
Xilinx, Inc. | 2.95% | 6/1/2024 | 2,945 | 3,029,734 | ||||||||
Total | 16,256,847 | |||||||||||
Energy: Exploration & Production 4.64% | ||||||||||||
Apache Corp. | 4.25% | 1/15/2030 | 2,286 | 2,370,824 | ||||||||
Berry Petroleum Co. LLC† | 7.00% | 2/15/2026 | 1,270 | 1,179,954 | ||||||||
Callon Petroleum Co. | 6.125% | 10/1/2024 | 1,232 | 1,258,414 | ||||||||
Centennial Resource Production LLC† | 5.375% | 1/15/2026 | 1,972 | 1,943,105 | ||||||||
Centennial Resource Production LLC† | 6.875% | 4/1/2027 | 2,028 | 2,113,830 | ||||||||
Continental Resources, Inc. | 4.90% | 6/1/2044 | 5,539 | 5,879,657 | ||||||||
Endeavor Energy Resources LP/EER Finance, Inc.† | 5.50% | 1/30/2026 | 1,131 | 1,170,384 | ||||||||
Endeavor Energy Resources LP/EER Finance, Inc.† | 5.75% | 1/30/2028 | 1,114 | 1,173,153 | ||||||||
HighPoint Operating Corp. | 7.00% | 10/15/2022 | 1,254 | 1,194,826 | ||||||||
Hilcorp Energy I LP/Hilcorp Finance Co.† | 5.00% | 12/1/2024 | 1,270 | 1,231,754 | ||||||||
Hilcorp Energy I LP/Hilcorp Finance Co.† | 5.75% | 10/1/2025 | 1,278 | 1,249,826 | ||||||||
Hilcorp Energy I LP/Hilcorp Finance Co.† | 6.25% | 11/1/2028 | 1,704 | 1,623,652 | ||||||||
Hunt Oil Co. of Peru LLC Sucursal Del Peru (Peru)†(e) | 6.375% | 6/1/2028 | 1,350 | 1,489,185 | ||||||||
Indigo Natural Resources LLC† | 6.875% | 2/15/2026 | 1,406 | 1,325,190 | ||||||||
Jagged Peak Energy LLC | 5.875% | 5/1/2026 | 1,253 | 1,296,670 | ||||||||
Laredo Petroleum, Inc. | 5.625% | 1/15/2022 | 1,268 | 1,233,526 | ||||||||
MEG Energy Corp. (Canada)†(e) | 6.50% | 1/15/2025 | 2,622 | 2,732,609 | ||||||||
MEG Energy Corp. (Canada)†(e) | 7.00% | 3/31/2024 | 2,507 | 2,527,896 | ||||||||
Murphy Oil Corp. | 5.75% | 8/15/2025 | 1,165 | 1,220,961 | ||||||||
Murphy Oil Corp. | 5.875% | 12/1/2027 | 1,115 | 1,172,144 | ||||||||
Murphy Oil Corp. | 6.875% | 8/15/2024 | 988 | 1,044,400 | ||||||||
Noble Energy, Inc. | 3.85% | 1/15/2028 | 1,886 | 1,992,215 | ||||||||
Oasis Petroleum, Inc.† | 6.25% | 5/1/2026 | 1,846 | 1,536,841 | ||||||||
Oasis Petroleum, Inc. | 6.875% | 3/15/2022 | 1,208 | 1,165,720 | ||||||||
Oasis Petroleum, Inc. | 6.875% | 1/15/2023 | 1,272 | 1,246,560 | ||||||||
Parsley Energy LLC/Parsley Finance Corp.† | 5.625% | 10/15/2027 | 1,673 | 1,772,293 | ||||||||
SM Energy Co. | 6.625% | 1/15/2027 | 1,457 | 1,435,404 | ||||||||
SM Energy Co. | 6.75% | 9/15/2026 | 1,303 | 1,280,650 | ||||||||
Southwestern Energy Co. | 6.20% | 1/23/2025 | 1,378 | 1,267,333 |
24 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Energy: Exploration & Production (continued) | ||||||||||||
SRC Energy, Inc. | 6.25% | 12/1/2025 | $ | 1,890 | $ | 1,908,881 | ||||||
Texaco Capital, Inc. | 8.625% | 11/15/2031 | 1,223 | 1,935,234 | ||||||||
Tullow Oil plc (United Kingdom)†(e) | 7.00% | 3/1/2025 | 1,350 | 1,139,819 | ||||||||
W&T Offshore, Inc.† | 9.75% | 11/1/2023 | 325 | 310,778 | ||||||||
WPX Energy, Inc. | 5.25% | 10/15/2027 | 1,110 | 1,173,103 | ||||||||
WPX Energy, Inc. | 5.75% | 6/1/2026 | 520 | 556,308 | ||||||||
Total | 55,153,099 | |||||||||||
Environmental 0.10% | ||||||||||||
Waste Pro USA, Inc.† | 5.50% | 2/15/2026 | 1,143 | 1,194,232 | ||||||||
Food: Wholesale 1.40% | ||||||||||||
Arcor SAIC (Argentina)†(e) | 6.00% | 7/6/2023 | 1,939 | 1,877,456 | ||||||||
BRF SA (Brazil)†(e) | 4.875% | 1/24/2030 | 1,386 | 1,431,405 | ||||||||
Chobani LLC/Chobani Finance Corp., Inc.† | 7.50% | 4/15/2025 | 1,312 | 1,321,827 | ||||||||
FAGE International SA/FAGE USA Dairy Industry, Inc. (Luxembourg)†(e) | 5.625% | 8/15/2026 | 1,241 | 1,145,254 | ||||||||
JBS USA LUX SA/JBS USA Finance, Inc.† | 6.75% | 2/15/2028 | 2,153 | 2,383,070 | ||||||||
Lamb Weston Holdings, Inc.† | 4.625% | 11/1/2024 | 1,299 | 1,381,272 | ||||||||
McCormick & Co., Inc. | 4.20% | 8/15/2047 | 1,893 | 2,085,871 | ||||||||
MHP Lux SA (Luxembourg)†(e) | 6.95% | 4/3/2026 | 1,187 | 1,247,608 | ||||||||
Performance Food Group, Inc.† | 5.50% | 10/15/2027 | 686 | 734,895 | ||||||||
Smithfield Foods, Inc.† | 5.20% | 4/1/2029 | 2,768 | 3,068,278 | ||||||||
Total | 16,676,936 | |||||||||||
Forestry/Paper 0.10% | ||||||||||||
Norbord, Inc. (Canada)†(e) | 6.25% | 4/15/2023 | 1,060 | 1,137,290 | ||||||||
Gaming 1.56% | ||||||||||||
Boyd Gaming Corp. | 6.00% | 8/15/2026 | 1,197 | 1,288,687 | ||||||||
Everi Payments, Inc.† | 7.50% | 12/15/2025 | 847 | 910,876 | ||||||||
GLP Capital LP/GLP Financing II, Inc. | 5.75% | 6/1/2028 | 1,666 | 1,895,446 | ||||||||
Jacobs Entertainment, Inc.† | 7.875% | 2/1/2024 | 604 | 642,001 | ||||||||
Las Vegas Sands Corp. | 3.90% | 8/8/2029 | 1,226 | 1,281,187 | ||||||||
Mohegan Gaming & Entertainment† | 7.875% | 10/15/2024 | 1,181 | 1,208,063 | ||||||||
Penn National Gaming, Inc.† | 5.625% | 1/15/2027 | 2,251 | 2,385,278 | ||||||||
Scientific Games International, Inc.† | 7.00% | 5/15/2028 | 1,136 | 1,217,622 | ||||||||
Scientific Games International, Inc.† | 7.25% | 11/15/2029 | 1,145 | 1,247,306 | ||||||||
Stars Group Holdings BV/Stars Group US Co-Borrower LLC (Netherlands)†(e) | 7.00% | 7/15/2026 | 1,147 | 1,245,183 | ||||||||
Station Casinos LLC† | 5.00% | 10/1/2025 | 2,070 | 2,111,400 |
See Notes to Financial Statements. | 25 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Gaming (continued) | ||||||||||||
Wynn Macau Ltd. (Macau)†(e) | 5.125% | 12/15/2029 | $ | 753 | $ | 770,326 | ||||||
Wynn Macau Ltd. (Macau)†(e) | 5.50% | 10/1/2027 | 2,277 | 2,373,368 | ||||||||
Total | 18,576,743 | |||||||||||
Gas Distribution 2.34% | ||||||||||||
Buckeye Partners LP | 6.375% (3 Mo. LIBOR + 4.02% | )# | 1/22/2078 | 2,274 | 1,679,770 | |||||||
Cheniere Corpus Christi Holdings LLC† | 3.70% | 11/15/2029 | 837 | 854,568 | ||||||||
Cheniere Corpus Christi Holdings LLC | 5.125% | 6/30/2027 | 2,154 | 2,384,543 | ||||||||
Cheniere Corpus Christi Holdings LLC | 5.875% | 3/31/2025 | 1,059 | 1,193,011 | ||||||||
Cheniere Energy Partners LP† | 4.50% | 10/1/2029 | 2,471 | 2,543,771 | ||||||||
Dominion Energy Gas Holdings LLC | 3.60% | 12/15/2024 | 1,175 | 1,233,479 | ||||||||
Florida Gas Transmission Co. LLC† | 4.35% | 7/15/2025 | 1,145 | 1,234,403 | ||||||||
IFM US Colonial Pipeline 2 LLC† | 6.45% | 5/1/2021 | 1,400 | 1,463,798 | ||||||||
Midwest Connector Capital Co. LLC† | 4.625% | 4/1/2029 | 2,722 | 2,965,702 | ||||||||
NGPL PipeCo LLC† | 4.875% | 8/15/2027 | 2,762 | 2,936,577 | ||||||||
Northern Natural Gas Co.† | 4.30% | 1/15/2049 | 1,811 | 2,039,210 | ||||||||
ONE Gas, Inc. | 4.50% | 11/1/2048 | 1,149 | 1,363,305 | ||||||||
Sabal Trail Transmission LLC† | 4.246% | 5/1/2028 | 1,125 | 1,226,965 | ||||||||
Southern Star Central Corp.† | 5.125% | 7/15/2022 | 1,145 | 1,159,670 | ||||||||
Targa Resources Partners LP/Targa Resources Partners Finance Corp. | 5.875% | 4/15/2026 | 1,131 | 1,203,807 | ||||||||
Transportadora de Gas Internacional SA ESP (Colombia)†(e) | 5.55% | 11/1/2028 | 2,056 | 2,357,425 | ||||||||
Total | 27,840,004 | |||||||||||
Health Facilities 0.12% | ||||||||||||
Surgery Center Holdings, Inc.† | 10.00% | 4/15/2027 | 511 | 562,277 | ||||||||
Tenet Healthcare Corp.† | 4.875% | 1/1/2026 | 835 | 875,623 | ||||||||
Total | 1,437,900 | |||||||||||
Health Facilities 2.17% | ||||||||||||
AHP Health Partners, Inc.† | 9.75% | 7/15/2026 | 1,193 | 1,314,206 | ||||||||
Ascension Health | 3.945% | 11/15/2046 | 1,017 | 1,127,523 | ||||||||
Dignity Health | 3.812% | 11/1/2024 | 675 | 712,472 | ||||||||
HCA, Inc. | 5.50% | 6/15/2047 | 4,213 | 4,836,496 | ||||||||
HCA, Inc. | 7.05% | 12/1/2027 | 390 | 462,637 | ||||||||
HCA, Inc. | 7.58% | 9/15/2025 | 552 | 665,160 | ||||||||
HCA, Inc. | 7.69% | 6/15/2025 | 1,240 | 1,497,815 | ||||||||
HCA, Inc. | 8.36% | 4/15/2024 | 261 | 318,420 | ||||||||
Memorial Sloan-Kettering Cancer Center | 4.20% | 7/1/2055 | 1,478 | 1,711,491 |
26 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Health Facilities (continued) | ||||||||||||
Mount Sinai Hospitals Group, Inc. | 3.737% | 7/1/2049 | $ | 1,566 | $ | 1,567,572 | ||||||
MPT Operating Partnership LP/MPT Finance Corp. | 5.00% | 10/15/2027 | 1,192 | 1,266,530 | ||||||||
New York & Presbyterian Hospital (The) | 4.063% | 8/1/2056 | 1,770 | 1,949,414 | ||||||||
NYU Langone Hospitals | 4.368% | 7/1/2047 | 1,191 | 1,344,120 | ||||||||
Providence St. Joseph Health Obligated Group | 2.532% | 10/1/2029 | 1,160 | 1,138,799 | ||||||||
Rede D’or Finance Sarl (Luxembourg)†(e) | 4.95% | 1/17/2028 | 1,112 | 1,152,988 | ||||||||
RegionalCare Hospital Partners Holdings, Inc./LifePoint Health, Inc.† | 9.75% | 12/1/2026 | 1,663 | 1,883,389 | ||||||||
Tenet Healthcare Corp. | 5.125% | 5/1/2025 | 1,128 | 1,164,660 | ||||||||
Tenet Healthcare Corp. | 6.75% | 6/15/2023 | 1,513 | 1,665,503 | ||||||||
Total | 25,779,195 | |||||||||||
Health Services 0.93% | ||||||||||||
DaVita, Inc. | 5.00% | 5/1/2025 | 1,185 | 1,221,540 | ||||||||
Hadrian Merger Sub, Inc.† | 8.50% | 5/1/2026 | 1,128 | 1,158,002 | ||||||||
Montefiore Obligated Group | 5.246% | 11/1/2048 | 1,553 | 1,747,543 | ||||||||
MPH Acquisition Holdings LLC† | 7.125% | 6/1/2024 | 1,276 | 1,237,707 | ||||||||
NVA Holdings, Inc.† | 6.875% | 4/1/2026 | 1,125 | 1,219,219 | ||||||||
Tenet Healthcare Corp.† | 6.25% | 2/1/2027 | 2,370 | 2,553,675 | ||||||||
Verscend Escrow Corp.† | 9.75% | 8/15/2026 | 1,692 | 1,854,897 | ||||||||
Total | 10,992,583 | |||||||||||
Hotels 0.45% | ||||||||||||
Hilton Domestic Operating Co., Inc. | 4.875% | 1/15/2030 | 1,077 | 1,143,481 | ||||||||
Hilton Domestic Operating Co., Inc. | 5.125% | 5/1/2026 | 2,182 | 2,302,768 | ||||||||
Wyndham Destinations, Inc. | 5.75% | 4/1/2027 | 712 | 774,547 | ||||||||
Wyndham Destinations, Inc. | 6.35% | 10/1/2025 | 998 | 1,113,184 | ||||||||
Total | 5,333,980 | |||||||||||
Insurance Brokerage 0.21% | ||||||||||||
Farmers Insurance Exchange† | 4.747% (3 Mo. LIBOR + 3.23% | )# | 11/1/2057 | 1,230 | 1,286,064 | |||||||
HUB International Ltd.† | 7.00% | 5/1/2026 | 1,133 | 1,201,008 | ||||||||
Total | 2,487,072 | |||||||||||
Integrated Energy 1.70% | ||||||||||||
Cenovus Energy, Inc. (Canada)(e) | 5.40% | 6/15/2047 | 5,049 | 5,891,720 | ||||||||
Cheniere Energy Partners LP | 5.25% | 10/1/2025 | 1,149 | 1,200,222 | ||||||||
Cheniere Energy Partners LP | 5.625% | 10/1/2026 | 1,913 | 2,026,583 | ||||||||
Exxon Mobil Corp. | 3.043% | 3/1/2026 | 1,101 | 1,154,881 | ||||||||
Hess Corp. | 5.60% | 2/15/2041 | 2,861 | 3,348,700 |
See Notes to Financial Statements. | 27 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Integrated Energy (continued) | ||||||||||||
Hess Corp. | 5.80% | 4/1/2047 | $ | 1,976 | $ | 2,416,928 | ||||||
Rio Oil Finance Trust Series 2018-1 (Brazil)†(e) | 8.20% | 4/6/2028 | 1,121 | 1,297,958 | ||||||||
Shell International Finance BV (Netherlands)(e) | 6.375% | 12/15/2038 | 1,973 | 2,876,964 | ||||||||
Total | 20,213,956 | |||||||||||
Investments & Miscellaneous Financial Services 0.84% | ||||||||||||
AI Candelaria Spain SLU (Spain)†(e) | 7.50% | 12/15/2028 | 1,050 | 1,180,302 | ||||||||
Global Aircraft Leasing Co. Ltd. PIK 7.25%† | 6.50% | 9/15/2024 | 2,264 | 2,368,031 | ||||||||
MDGH - GMTN BV (Netherlands)†(e) | 3.70% | 11/7/2049 | 1,949 | 2,031,004 | ||||||||
Neuberger Berman Group LLC/Neuberger Berman Finance Corp.† | 4.875% | 4/15/2045 | 2,377 | 2,442,182 | ||||||||
Power Finance Corp. Ltd. (India)†(e) | 6.15% | 12/6/2028 | 1,668 | 1,925,748 | ||||||||
Total | 9,947,267 | |||||||||||
Life Insurance 0.49% | ||||||||||||
Northwestern Mutual Life Insurance Co. (The)† | 3.85% | 9/30/2047 | 2,206 | 2,321,366 | ||||||||
Nuveen Finance LLC† | 4.125% | 11/1/2024 | 703 | 763,754 | ||||||||
Teachers Insurance & Annuity Association of America† | 4.27% | 5/15/2047 | 889 | 1,009,453 | ||||||||
Teachers Insurance & Annuity Association of America† | 4.90% | 9/15/2044 | 1,424 | 1,748,738 | ||||||||
Total | 5,843,311 | |||||||||||
Machinery 0.34% | ||||||||||||
Itron, Inc.† | 5.00% | 1/15/2026 | 1,123 | 1,166,906 | ||||||||
Roper Technologies, Inc. | 4.20% | 9/15/2028 | 1,665 | 1,824,014 | ||||||||
Xylem, Inc. | 3.25% | 11/1/2026 | 1,004 | 1,039,321 | ||||||||
Total | 4,030,241 | |||||||||||
Managed Care 0.57% | ||||||||||||
Centene Corp.† | 4.25% | 12/15/2027 | 1,324 | 1,364,514 | ||||||||
Centene Corp.† | 4.625% | 12/15/2029 | 1,182 | 1,247,837 | ||||||||
Centene Corp.† | 5.375% | 6/1/2026 | 1,131 | 1,202,366 | ||||||||
Kaiser Foundation Hospitals | 4.15% | 5/1/2047 | 1,648 | 1,881,432 | ||||||||
Molina Healthcare, Inc.† | 4.875% | 6/15/2025 | 1,088 | 1,121,092 | ||||||||
Total | 6,817,241 | |||||||||||
Media: Content 1.53% | ||||||||||||
AMC Networks, Inc. | 4.75% | 8/1/2025 | 2,332 | 2,345,607 | ||||||||
Diamond Sports Group LLC/Diamond Sports Finance Co.† | 5.375% | 8/15/2026 | 681 | 690,143 |
28 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Media: Content (continued) | ||||||||||||
Diamond Sports Group LLC/Diamond Sports Finance Co.† | 6.625% | 8/15/2027 | $ | 2,485 | $ | 2,421,260 | ||||||
Gray Television, Inc.† | 5.875% | 7/15/2026 | 1,163 | 1,239,293 | ||||||||
Netflix, Inc.(d) | 3.625% | 5/15/2027 | EUR | 3,466 | 4,173,839 | |||||||
Netflix, Inc.†(d) | 3.625% | 6/15/2030 | EUR | 1,020 | 1,179,888 | |||||||
Netflix, Inc.†(d) | 3.875% | 11/15/2029 | EUR | 765 | 910,659 | |||||||
Netflix, Inc. | 4.875% | 4/15/2028 | $ | 2,136 | 2,224,057 | |||||||
Nexstar Broadcasting, Inc.† | 5.625% | 7/15/2027 | 1,682 | 1,775,603 | ||||||||
Univision Communications, Inc.† | 5.125% | 2/15/2025 | 1,197 | 1,186,526 | ||||||||
Total | 18,146,875 | |||||||||||
Media: Diversified 0.27% | ||||||||||||
Cable Onda SA (Panama)†(e) | 4.50% | 1/30/2030 | 1,165 | 1,228,900 | ||||||||
TWDC Enterprises 18 Corp. | 2.35% | 12/1/2022 | 1,956 | 1,985,256 | ||||||||
Total | 3,214,156 | |||||||||||
Medical Products 0.50% | ||||||||||||
Boston Scientific Corp. | 7.00% | 11/15/2035 | 1,473 | 2,075,411 | ||||||||
Edwards Lifesciences Corp. | 4.30% | 6/15/2028 | 2,411 | 2,679,833 | ||||||||
Ortho-Clinical Diagnostics, Inc./Ortho-Clinical Diagnostics SA† | 6.625% | 5/15/2022 | 1,191 | 1,186,526 | ||||||||
Total | 5,941,770 | |||||||||||
Metals/Mining (Excluding Steel) 0.88% | ||||||||||||
Baffinland Iron Mines Corp./Baffinland Iron Mines LP (Canada)†(e) | 8.75% | 7/15/2026 | 1,143 | 1,153,687 | ||||||||
Freeport-McMoRan, Inc. | 3.875% | 3/15/2023 | 4,607 | 4,700,591 | ||||||||
Industrias Penoles SAB de CV (Mexico)†(e) | 4.15% | 9/12/2029 | 1,187 | 1,228,957 | ||||||||
Mirabela Nickel Ltd. (Australia)(e) | 1.00% | 9/10/2044 | 15 | 2 | (l) | |||||||
Novelis Corp.† | 5.875% | 9/30/2026 | 1,000 | 1,066,427 | ||||||||
Rain CII Carbon LLC/CII Carbon Corp.† | 7.25% | 4/1/2025 | 1,175 | 1,144,932 | ||||||||
Warrior Met Coal, Inc.† | 8.00% | 11/1/2024 | 1,107 | 1,124,297 | ||||||||
Total | 10,418,893 | |||||||||||
Monoline Insurance 0.11% | ||||||||||||
MGIC Investment Corp. | 5.75% | 8/15/2023 | 1,204 | 1,333,930 | ||||||||
Multi-Line Insurance 0.10% | ||||||||||||
Assurant, Inc. | 3.70% | 2/22/2030 | 1,158 | 1,174,739 | ||||||||
Non-Electric Utilities 0.12% | ||||||||||||
Brooklyn Union Gas Co. (The)† | 3.407% | 3/10/2026 | 1,368 | 1,422,347 |
See Notes to Financial Statements. | 29 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Oil Field Equipment & Services 0.80% | ||||||||||||
Abu Dhabi Crude Oil Pipeline LLC (United Arab Emirates)†(e) | 4.60% | 11/2/2047 | $ | 2,529 | $ | 2,928,898 | ||||||
Oceaneering International, Inc. | 4.65% | 11/15/2024 | 903 | 887,198 | ||||||||
Oceaneering International, Inc. | 6.00% | 2/1/2028 | 2,094 | 2,058,083 | ||||||||
Transocean Phoenix 2 Ltd.† | 7.75% | 10/15/2024 | 716 | 761,153 | ||||||||
Transocean Pontus Ltd.† | 6.125% | 8/1/2025 | 1,038 | 1,066,268 | ||||||||
Transocean Proteus Ltd.† | 6.25% | 12/1/2024 | 699 | 722,317 | ||||||||
Transocean, Inc. | 6.80% | 3/15/2038 | 1,535 | 1,093,841 | ||||||||
Total | 9,517,758 | |||||||||||
Oil Refining & Marketing 0.99% | ||||||||||||
Citgo Holding, Inc.† | 9.25% | 8/1/2024 | 1,769 | 1,901,675 | ||||||||
Phillips 66 Partners LP | 2.45% | 12/15/2024 | 1,417 | 1,418,474 | ||||||||
Saudi Arabian Oil Co. (Saudi Arabia)†(e) | 2.75% | 4/16/2022 | 3,265 | 3,301,229 | ||||||||
Saudi Arabian Oil Co. (Saudi Arabia)†(e) | 4.375% | 4/16/2049 | 4,714 | 5,147,032 | ||||||||
Total | 11,768,410 | |||||||||||
Packaging 0.43% | ||||||||||||
Crown Cork & Seal Co., Inc. | 7.375% | 12/15/2026 | 1,295 | 1,541,500 | ||||||||
Mauser Packaging Solutions Holding Co.† | 7.25% | 4/15/2025 | 1,812 | 1,793,862 | ||||||||
Sealed Air Corp.† | 6.875% | 7/15/2033 | 1,060 | 1,253,818 | ||||||||
Trivium Packaging Finance BV (Netherlands)†(e) | 5.50% | 8/15/2026 | 534 | 563,703 | ||||||||
Total | 5,152,883 | |||||||||||
Personal & Household Products 1.21% | ||||||||||||
Coty, Inc.† | 6.50% | 4/15/2026 | 1,476 | 1,557,217 | ||||||||
Energizer Holdings, Inc.† | 6.375% | 7/15/2026 | 1,074 | 1,145,797 | ||||||||
Hasbro, Inc. | 3.90% | 11/19/2029 | 2,327 | 2,345,620 | ||||||||
Hasbro, Inc. | 5.10% | 5/15/2044 | 1,761 | 1,749,339 | ||||||||
Mattel, Inc.† | 6.75% | 12/31/2025 | 1,176 | 1,266,417 | ||||||||
Newell Brands, Inc. | 4.20% | 4/1/2026 | 4,710 | 4,910,641 | ||||||||
SC Johnson & Son, Inc.† | 4.75% | 10/15/2046 | 1,177 | 1,434,662 | ||||||||
Total | 14,409,693 | |||||||||||
Pharmaceuticals 0.73% | ||||||||||||
AbbVie, Inc.† | 3.20% | 11/21/2029 | 1,998 | 2,033,832 | ||||||||
Bausch Health Americas, Inc.† | 8.50% | 1/31/2027 | 1,621 | 1,848,994 | ||||||||
Bausch Health Cos, Inc.† | 5.00% | 1/30/2028 | 610 | 627,623 | ||||||||
Bausch Health Cos, Inc.† | 5.25% | 1/30/2030 | 750 | 779,625 | ||||||||
Bausch Health Cos., Inc.† | 5.875% | 5/15/2023 | 110 | 111,031 | ||||||||
Bausch Health Cos., Inc.† | 6.125% | 4/15/2025 | 631 | 653,284 |
30 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Pharmaceuticals (continued) | ||||||||||||
Bausch Health Cos., Inc.† | 7.00% | 3/15/2024 | $ | 1,332 | $ | 1,388,057 | ||||||
Zoetis, Inc. | 3.90% | 8/20/2028 | 1,159 | 1,257,105 | ||||||||
Total | 8,699,551 | |||||||||||
Property & Casualty 0.39% | ||||||||||||
Allstate Corp. (The) | 3.28% | 12/15/2026 | 1,244 | 1,313,953 | ||||||||
Arch Capital Finance LLC | 4.011% | 12/15/2026 | 1,172 | 1,286,994 | ||||||||
Selective Insurance Group, Inc. | 5.375% | 3/1/2049 | 1,669 | 1,983,341 | ||||||||
Total | 4,584,288 | |||||||||||
Rail 0.41% | ||||||||||||
Central Japan Railway Co. (Japan)†(e) | 4.25% | 11/24/2045 | 1,524 | 1,743,554 | ||||||||
China Railway Xunjie Co. Ltd. (China)(e) | 3.25% | 7/28/2026 | 1,200 | 1,211,850 | ||||||||
Rumo Luxembourg Sarl (Luxembourg)†(e) | 5.875% | 1/18/2025 | 1,799 | 1,933,178 | ||||||||
Total | 4,888,582 | |||||||||||
Real Estate Development & Management 0.18% | ||||||||||||
Ontario Teachers’ Cadillac Fairview Properties Trust (Canada)†(e) | 3.875% | 3/20/2027 | 2,039 | 2,181,548 | ||||||||
Real Estate Investment Trusts 1.95% | ||||||||||||
Alexandria Real Estate Equities, Inc. | 3.80% | 4/15/2026 | 543 | 580,410 | ||||||||
Alexandria Real Estate Equities, Inc. | 3.95% | 1/15/2028 | 1,194 | 1,282,451 | ||||||||
Brixmor Operating Partnership LP | 4.125% | 5/15/2029 | 2,044 | 2,194,895 | ||||||||
EPR Properties | 3.75% | 8/15/2029 | 1,793 | 1,817,331 | ||||||||
EPR Properties | 4.50% | 6/1/2027 | 1,152 | 1,236,858 | ||||||||
Goodman US Finance Four LLC† | 4.50% | 10/15/2037 | 1,137 | 1,222,630 | ||||||||
Goodman US Finance Three LLC† | 3.70% | 3/15/2028 | 769 | 789,379 | ||||||||
Hudson Pacific Properties LP | 3.25% | 1/15/2030 | 2,783 | 2,768,282 | ||||||||
Hudson Pacific Properties LP | 3.95% | 11/1/2027 | 1,644 | 1,721,373 | ||||||||
Liberty Property LP | 4.375% | 2/1/2029 | 1,106 | 1,258,443 | ||||||||
National Retail Properties, Inc. | 4.30% | 10/15/2028 | 1,724 | 1,907,157 | ||||||||
Prologis LP | 3.875% | 9/15/2028 | 781 | 861,314 | ||||||||
Spirit Realty LP | 3.40% | 1/15/2030 | 2,521 | 2,533,675 | ||||||||
Spirit Realty LP | 4.00% | 7/15/2029 | 1,218 | 1,282,493 | ||||||||
VEREIT Operating Partnership LP | 4.875% | 6/1/2026 | 1,483 | 1,642,533 | ||||||||
Total | 23,099,224 | |||||||||||
Recreation & Travel 0.30% | ||||||||||||
Royal Caribbean Cruises Ltd. | 7.50% | 10/15/2027 | 1,450 | 1,839,480 | ||||||||
Silversea Cruise Finance Ltd.† | 7.25% | 2/1/2025 | 1,587 | 1,682,878 | ||||||||
Total | 3,522,358 |
See Notes to Financial Statements. | 31 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Reinsurance 0.70% | |||||||||||
AXIS Specialty Finance plc (United Kingdom)(e) | 5.15% | 4/1/2045 | $ | 1,595 | $ | 1,741,188 | |||||
Berkshire Hathaway, Inc. | 2.75% | 3/15/2023 | 907 | 930,038 | |||||||
Berkshire Hathaway, Inc. | 3.125% | 3/15/2026 | 907 | 955,789 | |||||||
PartnerRe Finance B LLC | 3.70% | 7/2/2029 | 2,237 | 2,326,747 | |||||||
Transatlantic Holdings, Inc. | 8.00% | 11/30/2039 | 1,584 | 2,355,632 | |||||||
Total | 8,309,394 | ||||||||||
Restaurants 0.73% | |||||||||||
Darden Restaurants, Inc. | 4.55% | 2/15/2048 | 1,154 | 1,169,480 | |||||||
IRB Holding Corp.† | 6.75% | 2/15/2026 | 1,177 | 1,236,259 | |||||||
KFC Holding Co./Pizza Hut Holdings LLC/Taco Bell of America LLC† | 4.75% | 6/1/2027 | 2,083 | 2,197,195 | |||||||
KFC Holding Co./Pizza Hut Holdings LLC/Taco Bell of America LLC† | 5.00% | 6/1/2024 | 1,610 | 1,671,719 | |||||||
Starbucks Corp. | 4.45% | 8/15/2049 | 2,037 | 2,358,905 | |||||||
Total | 8,633,558 | ||||||||||
Software/Services 1.93% | |||||||||||
Autodesk, Inc. | 3.50% | 6/15/2027 | 1,446 | 1,515,626 | |||||||
Global Payments, Inc. | 4.15% | 8/15/2049 | 1,792 | 1,919,287 | |||||||
Go Daddy Operating Co. LLC/GD Finance Co., Inc.† | 5.25% | 12/1/2027 | 937 | 987,926 | |||||||
j2 Cloud Services LLC/j2 Global Co-Obligor, Inc.† | 6.00% | 7/15/2025 | 565 | 600,078 | |||||||
Match Group, Inc.† | 5.00% | 12/15/2027 | 1,647 | 1,721,687 | |||||||
Microsoft Corp. | 3.125% | 11/3/2025 | 5,817 | 6,156,879 | |||||||
salesforce.com, Inc. | 3.70% | 4/11/2028 | 1,580 | 1,732,623 | |||||||
Tencent Holdings Ltd. (China)†(e) | 3.595% | 1/19/2028 | 1,766 | 1,844,422 | |||||||
Tencent Holdings Ltd. (China)†(e) | 3.925% | 1/19/2038 | 1,995 | 2,104,763 | |||||||
VeriSign, Inc. | 4.75% | 7/15/2027 | 1,117 | 1,180,501 | |||||||
VeriSign, Inc. | 5.25% | 4/1/2025 | 1,593 | 1,759,301 | |||||||
Visa, Inc. | 3.15% | 12/14/2025 | 1,289 | 1,362,331 | |||||||
Total | 22,885,424 | ||||||||||
Specialty Retail 0.88% | |||||||||||
Best Buy Co., Inc. | 4.45% | 10/1/2028 | 1,593 | 1,747,570 | |||||||
Murphy Oil USA, Inc. | 4.75% | 9/15/2029 | 1,180 | 1,248,346 | |||||||
PetSmart, Inc.† | 5.875% | 6/1/2025 | 1,195 | 1,220,394 | |||||||
PetSmart, Inc.† | 7.125% | 3/15/2023 | 1,269 | 1,246,792 | |||||||
Tiffany & Co. | 4.90% | 10/1/2044 | 1,816 | 2,368,217 | |||||||
Under Armour, Inc. | 3.25% | 6/15/2026 | 1,340 | 1,303,684 | |||||||
WW International, Inc.† | 8.625% | 12/1/2025 | 1,220 | 1,297,513 | |||||||
Total | 10,432,516 |
32 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Steel Producers/Products 0.32% | ||||||||||||
Allegheny Technologies, Inc. | 7.875% | 8/15/2023 | $ | 1,633 | $ | 1,833,720 | ||||||
CSN Resources SA (Brazil)†(e) | 7.625% | 4/17/2026 | 1,100 | 1,173,530 | ||||||||
Joseph T Ryerson & Son, Inc.† | 11.00% | 5/15/2022 | 723 | 764,567 | ||||||||
Total | 3,771,817 | |||||||||||
Support: Services 2.25% | ||||||||||||
Ahern Rentals, Inc.† | 7.375% | 5/15/2023 | 1,190 | 946,544 | ||||||||
Aircastle Ltd. | 4.25% | 6/15/2026 | 1,244 | 1,316,978 | ||||||||
Ashtead Capital, Inc.† | 4.25% | 11/1/2029 | 1,000 | 1,023,750 | ||||||||
Ashtead Capital, Inc.† | 4.375% | 8/15/2027 | 1,741 | 1,809,069 | ||||||||
Ashtead Capital, Inc.† | 5.25% | 8/1/2026 | 600 | 643,708 | ||||||||
Brand Energy & Infrastructure Services, Inc.† | 8.50% | 7/15/2025 | 1,671 | 1,716,936 | ||||||||
Brink’s Co. (The)† | 4.625% | 10/15/2027 | 2,367 | 2,443,507 | ||||||||
Cleveland Clinic Foundation (The) | 4.858% | 1/1/2114 | 1,100 | 1,370,179 | ||||||||
Cloud Crane LLC† | 10.125% | 8/1/2024 | 990 | 1,041,564 | ||||||||
IHS Markit Ltd. (United Kingdom)†(e) | 4.00% | 3/1/2026 | 2,627 | 2,774,926 | ||||||||
IHS Markit Ltd. (United Kingdom)(e) | 4.75% | 8/1/2028 | 1,550 | 1,729,936 | ||||||||
Marble II Pte Ltd. (Singapore)†(e) | 5.30% | 6/20/2022 | 449 | 455,285 | ||||||||
Metropolitan Museum of Art (The) | 3.40% | 7/1/2045 | 1,975 | 2,036,452 | ||||||||
Ritchie Bros Auctioneers, Inc. (Canada)†(e) | 5.375% | 1/15/2025 | 1,130 | 1,180,381 | ||||||||
United Rentals North America, Inc. | 4.875% | 1/15/2028 | 2,047 | 2,135,185 | ||||||||
United Rentals North America, Inc. | 5.875% | 9/15/2026 | 755 | 811,833 | ||||||||
WeWork Cos., Inc.† | 7.875% | 5/1/2025 | 3,916 | 3,240,451 | ||||||||
Total | 26,676,684 | |||||||||||
Technology Hardware & Equipment 0.85% | ||||||||||||
Apple, Inc. | 1.80% | 9/11/2024 | 1,768 | 1,756,631 | ||||||||
Apple, Inc. | 3.00% | 6/20/2027 | 2,081 | 2,180,802 | ||||||||
CDW LLC/CDW Finance Corp. | 5.50% | 12/1/2024 | 1,425 | 1,584,721 | ||||||||
Motorola Solutions, Inc. | 4.60% | 5/23/2029 | 1,513 | 1,650,810 | ||||||||
Western Digital Corp. | 4.75% | 2/15/2026 | 2,745 | 2,866,809 | ||||||||
Total | 10,039,773 | |||||||||||
Telecommunications: Satellite 0.55% | ||||||||||||
Connect Finco SARL/Connect US Finco LLC (Luxembourg)†(e) | 6.75% | 10/1/2026 | 2,264 | 2,413,990 | ||||||||
Hughes Satellite Systems Corp. | 5.25% | 8/1/2026 | 1,111 | 1,222,486 | ||||||||
Intelsat Jackson Holdings SA (Luxembourg)(e) | 5.50% | 8/1/2023 | 1,351 | 1,163,380 | ||||||||
Intelsat Jackson Holdings SA (Luxembourg)†(e) | 8.50% | 10/15/2024 | 1,908 | 1,741,842 | ||||||||
Total | 6,541,698 |
See Notes to Financial Statements. | 33 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Telecommunications: Wireless 0.42% | ||||||||||||
Sprint Capital Corp. | 6.875% | 11/15/2028 | $ | 4,661 | $ | 5,030,850 | ||||||
Telecommunications: Wireline Integrated & Services 1.48% | ||||||||||||
Altice Financing SA (Luxembourg)†(e) | 7.50% | 5/15/2026 | 2,336 | 2,515,522 | ||||||||
Altice France SA (France)†(e) | 7.375% | 5/1/2026 | 3,398 | 3,654,515 | ||||||||
DKT Finance ApS (Denmark)†(e) | 9.375% | 6/17/2023 | 1,903 | 2,030,406 | ||||||||
Equinix, Inc.(d) | 2.875% | 2/1/2026 | EUR | 2,781 | 3,242,357 | |||||||
GCI LLC | 6.875% | 4/15/2025 | $ | 1,230 | 1,288,935 | |||||||
Verizon Communications, Inc. | 2.625% | 8/15/2026 | 4,735 | 4,807,591 | ||||||||
Total | 17,539,326 | |||||||||||
Transportation (Excluding Air/Rail) 0.11% | ||||||||||||
CMA CGM SA(d) | 5.25% | 1/15/2025 | EUR | 1,418 | 1,277,721 | |||||||
Transportation: Infrastructure/Services 1.14% | ||||||||||||
Adani Ports & Special Economic Zone Ltd. (India)†(e) | 4.375% | 7/3/2029 | $ | 2,180 | 2,261,131 | |||||||
Aeropuerto Internacional de Tocumen SA (Panama)†(e) | 6.00% | 11/18/2048 | 1,935 | 2,403,647 | ||||||||
Autopistas del Sol SA (Costa Rica)†(e) | 7.375% | 12/30/2030 | 1,308 | 1,330,880 | ||||||||
Autoridad del Canal de Panama (Panama)†(e) | 4.95% | 7/29/2035 | 1,000 | 1,168,445 | ||||||||
CH Robinson Worldwide, Inc. | 4.20% | 4/15/2028 | 1,736 | 1,894,902 | ||||||||
Mersin Uluslararasi Liman Isletmeciligi AS (Turkey)†(e) | 5.375% | 11/15/2024 | 1,675 | 1,728,252 | ||||||||
Promontoria Holding 264 BV†(d) | 6.75% | 8/15/2023 | EUR | 1,080 | 1,088,172 | |||||||
Stena AB (Sweden)†(e) | 7.00% | 2/1/2024 | $ | 1,557 | 1,616,034 | |||||||
Total | 13,491,463 | |||||||||||
Total High Yield Corporate Bonds (cost $756,188,770) | 802,076,533 | |||||||||||
MUNICIPAL BONDS 4.47% | ||||||||||||
Air Transportation 0.26% | ||||||||||||
CT Airport Auth - Ground Trans Proj | 4.282% | 7/1/2045 | 365 | 387,323 | ||||||||
Miami Dade Cnty, FL | 3.982% | 10/1/2041 | 970 | 1,012,758 | ||||||||
Miami-Dade Cnty, FL | 4.28% | 10/1/2041 | 1,550 | 1,660,732 | ||||||||
Total | 3,060,813 | |||||||||||
Education 1.05% | ||||||||||||
California State University | 3.899% | 11/1/2047 | 2,675 | 2,931,372 | ||||||||
Ohio Univ | 5.59% | 12/1/2114 | 1,000 | 1,291,960 | ||||||||
Permanent University Fund - Texas A&M University System | 3.66% | 7/1/2047 | 6,640 | 6,796,637 | ||||||||
Univ of California Bd of Regents | 6.548% | 5/15/2048 | 1,000 | 1,445,870 | ||||||||
Total | 12,465,839 |
34 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
General Obligation 1.53% | ||||||||||||
California | 7.55% | 4/1/2039 | $ | 1,285 | $ | 2,063,659 | ||||||
Chicago Transit Auth, IL | 6.899% | 12/1/2040 | 1,000 | 1,352,230 | ||||||||
Chicago, IL | 5.432% | 1/1/2042 | 1,792 | 1,852,390 | ||||||||
Chicago, IL | 6.314% | 1/1/2044 | 2,167 | 2,466,263 | ||||||||
City of Portland | 7.701% | 6/1/2022 | 1,470 | 1,592,965 | ||||||||
District of Columbia | 5.591% | 12/1/2034 | 1,445 | 1,791,280 | ||||||||
Honolulu HI City & Cnty, | 5.418% | 12/1/2027 | 740 | 902,756 | ||||||||
Los Angeles Unif Sch Dist, CA | 5.75% | 7/1/2034 | 1,000 | 1,281,850 | ||||||||
New York City | 5.985% | 12/1/2036 | 1,134 | 1,473,848 | ||||||||
Ohio St Univ | 4.048% | 12/1/2056 | 676 | 781,949 | ||||||||
Pennsylvania | 5.45% | 2/15/2030 | 1,336 | 1,605,725 | ||||||||
The Bd of Governors of the Univ of North Carolina | 3.847% | 12/1/2034 | 855 | 966,441 | ||||||||
Total | 18,131,356 | |||||||||||
Government Guaranted 0.04% | ||||||||||||
City & County of San Francisco CA | 5.45% | 6/15/2025 | 460 | 535,219 | ||||||||
Lease Obligation 0.07% | ||||||||||||
Wisconsin | 3.294% | 5/1/2037 | 790 | 819,585 | ||||||||
Miscellaneous 0.72% | ||||||||||||
Dallas Convention Center Hotel Dev Corp., TX | 7.088% | 1/1/2042 | 1,210 | 1,681,065 | ||||||||
New York City Indl Dev Agy† | 11.00% | 3/1/2029 | 2,350 | 3,136,545 | ||||||||
Pasadena Public Fing Auth | 7.148% | 3/1/2043 | 2,445 | 3,741,926 | ||||||||
Total | 8,559,536 | |||||||||||
Tax Revenue 0.30% | ||||||||||||
Massachusetts Sch Bldg Auth | 5.715% | 8/15/2039 | 1,720 | 2,273,101 | ||||||||
Memphis-Shelby County Industrial Development Board, TN | 7.00% | 7/1/2045 | 1,225 | 1,324,237 | ||||||||
Total | 3,597,338 | |||||||||||
Transportation 0.07% | ||||||||||||
Foothill-Eastern Transportation Corridor Agency | 4.094% | 1/15/2049 | 787 | 787,000 | ||||||||
Transportation: Infrastructure/Services 0.27% | ||||||||||||
Chicago Transit Auth, IL | 6.20% | 12/1/2040 | 1,030 | 1,349,413 | ||||||||
Port of Seattle, WA | 3.571% | 5/1/2032 | 650 | 669,260 | ||||||||
Port of Seattle, WA | 3.755% | 5/1/2036 | 1,105 | 1,144,736 | ||||||||
Total | 3,163,409 |
See Notes to Financial Statements. | 35 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Utilities 0.16% | ||||||||||||
San Antonio, TX | 5.718% | 2/1/2041 | $ | 1,480 | $ | 1,971,893 | ||||||
Total Municipal Bonds (cost $49,628,077) | 53,091,988 | |||||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES 1.80% | ||||||||||||
BBCMS Mortgage Trust 2019-BWAY A† | 2.696% (1 Mo. LIBOR + .96% | )# | 11/25/2034 | 1,750 | 1,743,433 | |||||||
Benchmark Mortgage Trust 2019-B12 WMA† | 4.246% | #(m) | 8/15/2052 | 2,892 | 2,897,466 | (a) | ||||||
BX Trust 2019-OC11 A† | 3.202% | 12/9/2041 | 2,278 | 2,348,751 | ||||||||
BX Trust 2019-OC11 E† | 4.076% | 12/9/2041 | 2,041 | 1,982,084 | ||||||||
CF Trust 2019-BOSS A1† | 4.953% (1 Mo. LIBOR + 3.25% | )# | 12/15/2021 | 1,340 | 1,342,330 | (a) | ||||||
Citigroup Commercial Mortgage Trust 2016-P3 D† | 2.804% | #(m) | 4/15/2049 | 828 | 724,301 | |||||||
CSAIL Commercial Mortgage Trust 2019-C18 AS | 3.321% | 12/15/2052 | 1,296 | 1,313,269 | ||||||||
Great Wolf Trust 2019-WOLF A† | 2.756% (1 Mo. LIBOR + 1.03% | )# | 12/15/2029 | 2,917 | 2,908,793 | |||||||
Great Wolf Trust 2019-WOLF E† | 4.454% (1 Mo. LIBOR + 2.73% | )# | 12/15/2029 | 2,380 | 2,382,263 | |||||||
PFP Ltd. 2019–6 A† | 2.964% (1 Mo. LIBOR + 1.05% | )# | 4/14/2037 | 1,750 | 1,750,528 | |||||||
PFP Ltd. 2019–6 C† | 4.014% (1 Mo. LIBOR + 2.10% | )# | 4/14/2037 | 1,995 | 1,996,793 | |||||||
Total Non-Agency Commercial Mortgage-Backed Securities(cost $21,368,086) | 21,390,011 | |||||||||||
Dividend | Shares | |||||||||||
Rate | (000) | |||||||||||
PREFERRED STOCK 0.00% | ||||||||||||
Energy: Exploration & Production | ||||||||||||
Templar Energy LLC (cost $428,695) | Zero Coupon | 45 | – | (a) | ||||||||
Principal | ||||||||||||
Interest | Maturity | Amount | ||||||||||
Rate | Date | (000) | ||||||||||
U.S. TREASURY OBLIGATIONS 1.66% | ||||||||||||
U.S. Treasury Bond | 2.25% | 8/15/2049 | $ | 3,659 | 3,546,437 | |||||||
U.S. Treasury Bond | 2.375% | 11/15/2049 | 3,212 | 3,198,439 | ||||||||
U.S. Treasury Note | 1.75% | 11/15/2029 | 10,049 | 9,890,805 | ||||||||
U.S. Treasury Note | 2.75% | 8/31/2023 | 3,000 | 3,115,722 | ||||||||
Total U.S. Treasury Obligations (cost $19,981,785) | 19,751,403 |
36 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Exercise Price | Expiration Date | Principal Amount (000) | Fair Value | |||||||||
WARRANT 0.00% | |||||||||||||
Personal & Household Products | |||||||||||||
Remington Outdoor Co., Inc.* (cost $86,340) | $35.05 | 5/14/2022 | $ | 16 | $ | 164 | (l) | ||||||
Total Long-Term Investments (cost $1,255,798,527) | 1,308,730,732 | ||||||||||||
Interest Rate | Maturity Date | ||||||||||||
SHORT-TERM INVESTMENTS 2.37% | |||||||||||||
FLOATING RATE LOAN 0.10% | |||||||||||||
Aerospace/Defense | |||||||||||||
Doncasters Finance US LLC USD Term Loan (cost $1,311,142) | 5.445% (3 Mo. LIBOR + 3.5% | ) | 4/9/2020 | 1,459 | 1,179,186 | ||||||||
FOREIGN GOVERNMENT OBLIGATION 1.84% | |||||||||||||
Japan | |||||||||||||
Japan Treasury Discount Bill(d) (cost $22,231,831) | Zero Coupon | 1/8/2020 | JPY | 2,375,150 | 21,860,049 | ||||||||
HIGH YIELD CORPORATE BOND 0.13% | |||||||||||||
Diversified Capital Goods | |||||||||||||
GE Capital International Funding Co. Unlimited Co. (Ireland)(e)(cost $1,557,991) | 2.342% | 11/15/2020 | $ | 1,558 | 1,559,502 | ||||||||
REPURCHASE AGREEMENT 0.30% | |||||||||||||
Repurchase Agreement dated 12/31/2019, 0.85% due 1/2/2020 with Fixed Income Clearing Corp. collateralized by $3,585,000 of U.S. Treasury Note at 2.75% due 8/15/2021; value: $3,687,183; proceeds: $3,614,717 (cost $3,614,547) | 3,615 | 3,614,547 | |||||||||||
Total Short-Term Investments (cost $28,715,511) | 28,213,284 | ||||||||||||
Total Investments in Securities 112.59% (cost $1,284,514,038) | 1,336,944,016 | ||||||||||||
Less Unfunded Loan Commitments (0.04)% (cost $486,013) | (484,787 | ) | |||||||||||
Net Investments 112.55% (cost $1,284,028,025) | 1,336,459,229 | ||||||||||||
Liabilities in Excess of Cash, Foreign Cash and Other Assets(n)(12.55%) | (149,015,819 | ) | |||||||||||
Net Assets 100.00% | $ | 1,187,443,410 |
See Notes to Financial Statements. | 37 |
Schedule of Investments (continued)
December 31, 2019
AUD | Australian dollar. | |
CAD | Canadian dollar. | |
DKK | Danish Krone. | |
EUR | Euro. | |
GBP | British pound. | |
HKD | Hong Kong dollar. | |
JPY | Japanese yen. | |
ADR | American Depositary Receipt. | |
CMT | Constant Maturity Rate. | |
LIBOR | London Interbank Offered Rate. | |
PIK | Payment-in-kind. | |
Units | More than one class of securities traded together. | |
† | Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and, unless registered under such Act or exempted from registration, may only be resold to qualified institutional buyers. At December 31, 2019, the total value of Rule 144A securities was $495,968,283, which represents 41.77% of net assets. | |
# | Variable rate security. The interest rate represents the rate in effect at December 31, 2019. | |
* | Non-income producing security. | |
(a) | Level 3 Investment as described in Note 2(p) in the Notes to Financials. Security valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information could result in a significantly lower or higher value of such Level 3 investments. | |
(b) | Securities purchased on a when-issued basis (See Note 2(i)). | |
(c) | Variable Rate is Fixed to Float: Rate remains fixed until designated future date. | |
(d) | Investment in non-U.S. dollar denominated securities. | |
(e) | Foreign security traded in U.S. dollars. | |
(f) | Floating Rate Loans in which the Fund invests generally pay interest at rates which are periodically re-determined at a margin above the London Interbank Offered Rate (“LIBOR”) or the prime rate offered by major U.S. banks. The rate(s) shown is the rate(s) in effect at December 31, 2019. | |
(g) | Interest rate to be determined. | |
(h) | Level 3 Investment as described in Note 2(p) in the Notes to Financials. Floating Rate Loans categorized as Level 3 are valued based on a single quotation obtained from a dealer. Accounting principles generally accepted in the United States of America do not require the Fund to create quantitative unobservable inputs that were not developed by the Fund. Therefore, the Fund does not have access to unobservable inputs and cannot disclose such inputs in the valuation. | |
(i) | To-be-announced (“TBA”). Security purchased on a forward commitment basis with an approximate principal and maturity date. Actual principal and maturity will be determined upon settlement when the specific mortgage pools are assigned. | |
(j) | Security is perpetual in nature and has no stated maturity. | |
(k) | Defaulted (non-income producing security). | |
(l) | Level 3 Investment as described in Note 2(p) in the Notes to Financials. Security fair valued by the Pricing Committee. | |
(m) | Interest rate is based on the weighted average interest rates of the underlying mortgages within the mortgage pool. | |
(n) | Liabilities in Excess of Cash, Foreign Cash and Other Assets include net unrealized appreciation/depreciation on forward foreign currency exchange contracts, futures contracts and swaps as follows: |
38 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Centrally Cleared Credit Default Swaps on Indexes - Buy Protection at December 31, 2019(1):
Referenced Index | Central Clearing Party | Fund Pays (Quarterly) | Termination Date | Notional Amount | Notional Value | Payments Upfront(2) | Unrealized Depreciation(3) | |||||||||||||||
Markit CDX. NA.EM.32(4)(5) | Credit Suisse | 1.00% | 12/20/2024 | $ | 20,600,000 | $ | 19,907,681 | $ | 1,008,506 | $ | (316,187 | ) | ||||||||||
Markit CDX. NA.IG.33(4)(6) | Credit Suisse | 1.00% | 12/20/2024 | 90,396,000 | 92,740,182 | (1,747,545 | ) | (596,637 | ) | |||||||||||||
Markit CDX. NA.HY.32(4)(7) | Credit Suisse | 5.00% | 6/20/2024 | 1,647,380 | 1,810,153 | (105,427 | ) | (57,346 | ) | |||||||||||||
Markit CDX. NA.HY.33(4)(7) | Credit Suisse | 5.00% | 12/20/2024 | 8,713,980 | 9,553,679 | (536,811 | ) | (302,888 | ) | |||||||||||||
$ | (1,381,277 | ) | $ | (1,273,058 | ) |
(1) | If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities. | |
(2) | Upfront payments received by Central Clearing Party are presented net of amortization. | |
(3) | Total unrealized appreciation on Credit Default Swaps on Indexes amounted to $0. Total unrealized depreciation on Credit Default Swaps on Indexes amounted to $1,273,058. | |
(4) | Central Clearinghouse: Intercontinental Exchange (ICE). | |
(5) | The Referenced Index is for the Centrally Cleared Credit Default Swaps on Indexes, which is comprised of a basket of emerging markets sovereign issuers. | |
(6) | The Referenced Index is for the Centrally Cleared Credit Default Swaps on Indexes, which is comprised of a basket of investment grade securities. | |
(7) | The Referenced Index is for the Centrally Cleared Credit Default Swaps on Indexes, which is comprised of a basket of high yield securities. |
See Notes to Financial Statements. | 39 |
Schedule of Investments (continued)
December 31, 2019
Credit Default Swaps on Indexes - Sell Protection at December 31, 2019(1):
Referenced Index/Issuer | Swap Counterparty | Fund Receives (Quarterly) | Termi- nation Date | Notional Amount | Notional Value | Payments Upfront(2) | Unrealized Appreciation(3) | Credit Default Swap Agreements Payable at Fair Value(4) | ||||||||||||||
Markit CMBX NA.BBB.9* | Credit Suisse | 3.00% | 9/17/2058 | $ | 2,112,000 | $ | 2,099,502 | $ | (152,613 | ) | $ | 140,115 | $ | (12,498) | ||||||||
Markit CMBX NA.BBB.10* | Credit Suisse | 3.00% | 11/17/2059 | 3,242,000 | 3,234,011 | (193,318 | ) | 185,329 | (7,989) | |||||||||||||
Markit CMBX NA.BBB.9* | Deutsche Bank | 3.00% | 9/17/2058 | 3,363,000 | 3,343,098 | (243,010 | ) | 223,108 | (19,902) | |||||||||||||
Markit CMBX NA.BBB.10* | Deutsche Bank | 3.00% | 11/17/2059 | 851,000 | 848,904 | (50,743 | ) | 48,647 | (2,096) | |||||||||||||
Markit CMBX NA.BBB.11* | Deutsche Bank | 3.00% | 11/18/2054 | 838,000 | 825,789 | (47,832 | ) | 35,621 | (12,211) | |||||||||||||
Markit CMBX NA.BBB.9* | Goldman Sachs | 3.00% | 9/17/2058 | 1,153,000 | 1,146,177 | (83,316 | ) | 76,493 | (6,823) | |||||||||||||
Markit CMBX NA.BBB.9* | Morgan Stanley | 3.00% | 9/17/2058 | 4,739,000 | 4,710,957 | (342,439 | ) | 314,396 | (28,043) | |||||||||||||
Markit CMBX NA.BBB.11* | Morgan Stanley | 3.00% | 11/18/2054 | 8,545,000 | 8,420,485 | (487,741 | ) | 363,226 | (124,515) | |||||||||||||
Markit CMBX NA.BBB.11* | J.P. Morgan Chase | 3.00% | 11/18/2054 | 393,000 | 387,273 | (22,432 | ) | 16,705 | (5,727) | |||||||||||||
Tesla | J.P. Morgan Chase | 1.00% | 6/20/2020 | $ | 1,358,000 | $ | 1,357,708 | (26,984 | ) | 26,692 | (292) | |||||||||||
$ | (1,650,428 | ) | $ | 1,430,332 | $ | (220,096) |
* | The Referenced Index is for the Credit Default Swaps on Indexes, which is comprised of a basket of commercial mortgage backed securities. | |
(1) | If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities. | |
(2) | Upfront payments received are presented net of amortization. | |
(3) | Total unrealized appreciation on Credit Default Swaps on Indexes/Issuers amounted to $1,430,332. Total unrealized depreciation on Credit Default Swaps on Indexes/Issuers amounted to $0. | |
(4) | Includes upfront payments received. |
Open Forward Foreign Currency Exchange Contracts at December 31, 2019:
Forward Foreign Currency Exchange Contracts | Transaction Type | Counterparty | Expiration Date | Foreign Currency | U.S. $ Cost on Origination Date | U.S. $ Current Value | Unrealized Appreciation | ||||||||||||
euro | Buy | Barclays Bank plc | 3/9/2020 | 1,270,000 | $ | 1,419,472 | $ | 1,430,435 | $ | 10,963 | |||||||||
Japanese yen | Sell | State Street Bank and Trust | 1/8/2020 | 2,358,000,000 | 22,209,454 | 21,703,003 | 506,451 | ||||||||||||
Unrealized Appreciation on Forward Foreign Currency Exchange Contracts | $ | 517,414 |
40 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Forward Foreign Currency Exchange Contracts | Transaction Type | Counterparty | Expiration Date | Foreign Currency | U.S. $ Cost on Origination Date | U.S. $ Current Value | Unrealized Depreciation | |||||||||||||
Australian dollar | Sell | State Street Bank and Trust | 2/24/2020 | 3,393,000 | $ | 2,311,867 | $ | 2,384,107 | $ | (72,240 | ) | |||||||||
British pound | Sell | State Street Bank and Trust | 3/5/2020 | 995,000 | 1,297,659 | 1,320,236 | (22,577 | ) | ||||||||||||
Danish krone | Sell | State Street Bank and Trust | 3/13/2020 | 8,843,000 | 1,321,560 | 1,333,843 | (12,283 | ) | ||||||||||||
euro | Sell | Morgan Stanley | 3/9/2020 | 703,000 | 785,796 | 791,808 | (6,012 | ) | ||||||||||||
euro | Sell | State Street Bank and Trust | 3/9/2020 | 365,000 | 406,220 | 411,109 | (4,889 | ) | ||||||||||||
euro | Sell | Toronto Dominion Bank | 3/9/2020 | 13,013,000 | 14,530,719 | 14,656,893 | (126,174 | ) | ||||||||||||
Japanese yen | Sell | Standard Chartered Bank | 1/8/2020 | 12,896,000 | 117,899 | 118,695 | (796 | ) | ||||||||||||
Unrealized Depreciation on Forward Foreign Currency Exchange Contracts | $ | (244,971 | ) |
Open Futures Contracts at December 31, 2019:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation | ||||||||||||
Euro-Bobl | March 2020 | 6 | Short | EUR (806,209 | ) | EUR (801,780 | ) | $ | 4,968 | |||||||||
U.S. 10-Year Treasury Note | March 2020 | 151 | Short | $ | (19,561,315 | ) | $ | (19,391,703 | ) | 169,612 | ||||||||
U.S. 10-Year Ultra Treasury Note | March 2020 | 395 | Short | (56,210,397 | ) | (55,577,734 | ) | 632,663 | ||||||||||
U.S. Long Bond | March 2020 | 659 | Short | (104,813,215 | ) | (102,742,219 | ) | 2,070,996 | ||||||||||
U.S. Ultra Treasury Bond | March 2020 | 447 | Short | (84,124,251 | ) | (81,200,344 | ) | 2,923,907 | ||||||||||
Total Unrealized Appreciation on Open Futures Contracts | $ | 5,802,146 | ||||||||||||||||
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||
U.S. 2-Year Treasury Note | March 2020 | 1,745 | Long | $ | 376,228,275 | $ | 376,047,500 | $ | (180,775 | ) | ||||||||
U.S. 5-Year Treasury Note | March 2020 | 885 | Long | 105,358,073 | 104,969,297 | (388,776 | ) | |||||||||||
Total Unrealized Depreciation on Open Futures Contracts | $ | (569,551 | ) |
See Notes to Financial Statements. | 41 |
Schedule of Investments (continued)
December 31, 2019
The following is a summary of the inputs used as of December 31, 2019 in valuing the Fund’s investments carried at fair value(1):
Investment Type(2) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Long-Term Investments | ||||||||||||||||
Asset-Backed Securities | ||||||||||||||||
Other | $ | – | $ | 34,965,922 | $ | 857,698 | $ | 35,823,620 | ||||||||
Remaining Industries | – | 3,312,220 | – | 3,312,220 | ||||||||||||
Common Stocks | ||||||||||||||||
Auto Parts & Equipment | – | 594,750 | – | 594,750 | ||||||||||||
Beverages | 2,028,805 | 1,326,260 | – | 3,355,065 | ||||||||||||
Energy: Exploration & Production | 2,716,254 | – | 3,698 | 2,719,952 | ||||||||||||
Personal & Household Products | 1,250,187 | 13,412 | 1,110,257 | 2,373,856 | ||||||||||||
Specialty Retail | 4,313,232 | 693,698 | – | 5,006,930 | ||||||||||||
Remaining Industries | 54,871,816 | – | – | 54,871,816 | ||||||||||||
Convertible Bond | – | 2,095,822 | – | 2,095,822 | ||||||||||||
Floating Rate Loans | ||||||||||||||||
Chemicals | – | 2,327,529 | 352,870 | 2,680,399 | ||||||||||||
Diversified Capital Goods | – | – | 1,746,025 | 1,746,025 | ||||||||||||
Electric: Integrated | – | – | 5,358,815 | 5,358,815 | ||||||||||||
Personal & Household Products | – | 2,773,661 | 83,986 | 2,857,647 | ||||||||||||
Specialty Retail | – | 4,581,659 | 620,322 | 5,201,981 | ||||||||||||
Remaining Industries | – | 65,573,186 | – | 65,573,186 | ||||||||||||
Less Unfunded Commitments | – | (122,987 | ) | (361,800 | ) | (484,787 | ) | |||||||||
Foreign Government Obligations | – | 69,528,168 | – | 69,528,168 | ||||||||||||
Government Sponsored Enterprises Pass-Throughs | – | 149,320,381 | – | 149,320,381 | ||||||||||||
High Yield Corporate Bonds | ||||||||||||||||
Banking | – | 72,588,503 | 125 | 72,588,628 | ||||||||||||
Metals/Mining (Excluding Steel) | – | 10,418,891 | 2 | 10,418,893 | ||||||||||||
Remaining Industries | – | 719,069,012 | – | 719,069,012 | ||||||||||||
Municipal Bonds | – | 53,091,988 | – | 53,091,988 | ||||||||||||
Non-Agency Commercial Mortgage-Backed Securities | – | 17,150,215 | 4,239,796 | 21,390,011 | ||||||||||||
Preferred Stock | – | – | – | – | ||||||||||||
U.S. Treasury Obligations | – | 19,751,403 | – | 19,751,403 | ||||||||||||
Warrant | – | – | 164 | 164 | ||||||||||||
Short-Term Investments | ||||||||||||||||
Floating Rate Loan | – | 1,179,186 | – | 1,179,186 | ||||||||||||
Foreign Government Obligation | – | 21,860,049 | – | 21,860,049 | ||||||||||||
High Yield Corporate Bond | – | 1,559,502 | – | 1,559,502 | ||||||||||||
Repurchase Agreement | – | 3,614,547 | – | 3,614,547 | ||||||||||||
Total | $ | 65,180,294 | $ | 1,257,266,977 | $ | 14,011,958 | $ | 1,336,459,229 |
42 | See Notes to Financial Statements. |
Schedule of Investments (concluded)
December 31, 2019
Investment Type(2) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Centrally Cleared Credit Default Swap Contracts | ||||||||||||||||
Assets | $ | – | $ | – | $ | – | $ | – | ||||||||
Liabilities | – | (1,273,058 | ) | – | (1,273,058 | ) | ||||||||||
Credit Default Swap Contracts | ||||||||||||||||
Assets | – | – | – | – | ||||||||||||
Liabilities | – | (220,096 | ) | – | (220,096 | ) | ||||||||||
Forward Foreign Currency Exchange Contracts | ||||||||||||||||
Assets | – | 517,414 | – | 517,414 | ||||||||||||
Liabilities | – | (244,971 | ) | – | (244,971 | ) | ||||||||||
Futures Contracts | ||||||||||||||||
Assets | 5,802,146 | – | – | 5,802,146 | ||||||||||||
Liabilities | (569,551 | ) | – | – | (569,551 | ) | ||||||||||
Total | $ | 5,232,595 | $ | (1,220,711 | ) | $ | – | $ | 4,011,884 |
(1) | Refer to Note 2(p) for a description of fair value measurements and the three-tier hierarchy of inputs. | |
(2) | See Schedule of Investments for fair values in each industry and identification of foreign issuers and/or geography. The table above is presented by Investment Type. Industries are presented within an Investment Type should such Investment Type include securities classified as two or more levels within the three-tier fair value hierarchy. Each Level 3 security is identified on the Schedule of Investments along with the valuation technique utilized. |
The following is a reconciliation of investments with unobservable inputs (Level 3) that were used in determining fair value:
Investment Type | Asset-Backed Securities | Common Stocks | Floating Rate Loans | High Yield Corporate Bonds | Non-Agency Commercial Mortgage- Backed Securities | Preferred Stocks | Warrants | |||||||||||||||||||||
Balance as of January 1, 2019 | $ | – | $ | 912,300 | $ | 4,366,142 | $ | 127 | $ | – | $ | – | $ | 164 | ||||||||||||||
Accrued Discounts (Premiums) | – | – | (19,959 | ) | – | 716 | – | – | ||||||||||||||||||||
Realized Gain (Loss) | – | 56,700 | (189,963 | ) | – | – | – | – | ||||||||||||||||||||
Change in Unrealized Appreciation (Depreciation) | (2,722 | ) | 133,648 | 439,015 | – | 15,086 | (136,434 | ) | – | |||||||||||||||||||
Purchases | 504,214 | 1,399,920 | 13,488,669 | – | 4,223,994 | 10,488 | – | |||||||||||||||||||||
Sales | – | (1,417,500 | ) | (10,283,686 | ) | – | – | – | – | |||||||||||||||||||
Transfers into Level 3 | 356,206 | 28,887 | – | – | – | 125,946 | – | |||||||||||||||||||||
Transfers out of Level 3 | – | – | – | – | – | – | – | |||||||||||||||||||||
Balance as of December 31, 2019 | $ | 857,698 | $ | 1,113,955 | $ | 7,800,218 | $ | 127 | $ | 4,239,796 | $ | – | $ | 164 | ||||||||||||||
Change in unrealized appreciation/ depreciation for the year ended December 31, 2019, related to Level 3 investments held at December 31, 2019 | $ | (2,722 | ) | $ | 133,648 | $ | 215,464 | $ | – | $ | 15,086 | $ | (136,434 | ) | $ | – |
See Notes to Financial Statements. | 43 |
Statement of Assets and Liabilities
December 31, 2019
ASSETS: | ||||
Investments in securities, at fair value (cost $1,284,028,025) | $ | 1,336,459,229 | ||
Cash | 308,076 | |||
Deposits with brokers for futures collateral | 4,119,654 | |||
Deposits with brokers for swaps collateral | 2,419,790 | |||
Foreign cash, at value (cost $468) | 4 | |||
Receivables: | ||||
Interest and dividends | 12,614,829 | |||
Investment securities sold | 7,986,212 | |||
Capital shares sold | 813,132 | |||
Variation margin for futures contracts | 616,015 | |||
Variation margin for centrally cleared credit default swap agreements | 14,580 | |||
Unrealized appreciation on forward foreign currency exchange contracts | 517,414 | |||
Prepaid expenses and other assets | 8,211 | |||
Total assets | 1,365,877,146 | |||
LIABILITIES: | ||||
Payables: | ||||
Investment securities purchased | 176,235,318 | |||
Management fee | 470,923 | |||
Capital shares reacquired | 212,868 | |||
Directors’ fees | 125,155 | |||
Fund administration | 39,972 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 244,971 | |||
Credit default swap agreements payable, at fair value (including upfront payments of $1,650,428) | 220,096 | |||
Unrealized depreciation on unfunded commitments | 1,226 | |||
Accrued expenses and other liabilities | 883,207 | |||
Total liabilities | 178,433,736 | |||
Commitments and contingent liabilities | ||||
NET ASSETS | $ | 1,187,443,410 | ||
COMPOSITION OF NET ASSETS: | ||||
Paid-in capital | $ | 1,151,924,837 | ||
Total distributable earnings (loss) | 35,518,573 | |||
Net Assets | $ | 1,187,443,410 | ||
Outstanding shares (200 million shares of common stock authorized, $.001 par value) | 98,283,299 | |||
Net asset value, offering and redemption price per share (Net assets divided by outstanding shares) | $12.08 |
44 | See Notes to Financial Statements. |
For the Year Ended December 31, 2019
Investment income: | ||||
Dividends (net of foreign withholding taxes of $3,620) | $ | 649,655 | ||
Interest and other | 54,056,424 | |||
Total investment income | 54,706,079 | |||
Expenses: | ||||
Management fee | 5,505,077 | |||
Non 12b-1 service fees | 2,874,684 | |||
Shareholder servicing | 1,217,915 | |||
Fund administration | 459,812 | |||
Reports to shareholders | 147,419 | |||
Professional | 111,911 | |||
Custody | 50,527 | |||
Directors’ fees | 32,838 | |||
Other | 210,606 | |||
Gross expenses | 10,610,789 | |||
Expense reductions (See Note 9) | (37,370 | ) | ||
Net expenses | 10,573,419 | |||
Net investment income | 44,132,660 | |||
Net realized and unrealized gain (loss): | ||||
Net realized gain on investments | 6,325,728 | |||
Net realized loss on futures contracts | (15,435,226 | ) | ||
Net realized gain on forward foreign currency exchange contracts | 899,570 | |||
Net realized loss on swap contracts | (64,461 | ) | ||
Net realized gain on foreign currency related transactions | 72,936 | |||
Net change in unrealized appreciation/depreciation on investments | 95,972,451 | |||
Net change in unrealized appreciation/depreciation on futures contracts | 7,791,501 | |||
Net change in unrealized appreciation/depreciation on forward foreign currency exchange contracts | 493,046 | |||
Net change in unrealized appreciation/depreciation on swap contracts | 1,143,740 | |||
Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies | 3,576 | |||
Net change in unrealized appreciation/depreciation on unfunded commitments | 5,422 | |||
Net realized and unrealized gain | 97,208,283 | |||
Net Increase in Net Assets Resulting From Operations | $ | 141,340,943 |
See Notes to Financial Statements. | 45 |
Statements of Changes in Net Assets
INCREASE (DECREASE) IN NET ASSETS | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | ||||||
Operations: | ||||||||
Net investment income | $ | 44,132,660 | $ | 46,421,749 | ||||
Net realized gain (loss) on investments, futures contracts, forward foreign currency exchange contracts, swaps and foreign currency related transactions | (8,201,453 | ) | 6,839,916 | |||||
Net change in unrealized appreciation/depreciation on investments, futures contracts, forward foreign currency exchange contracts, swaps, unfunded commitments and translation of assets and liabilities denominated in foreign currencies | 105,409,736 | (98,964,928 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 141,340,943 | (45,703,263 | ) | |||||
Distributions to shareholders: | (45,228,305 | ) | (73,991,299 | ) | ||||
Capital share transactions (See Note 15): | ||||||||
Proceeds from sales of shares | 122,181,693 | 123,044,541 | ||||||
Reinvestment of distributions | 45,228,305 | 73,991,366 | ||||||
Cost of shares reacquired | (153,383,836 | ) | (173,257,966 | ) | ||||
Net increase in net assets resulting from capital share transactions | 14,026,162 | 23,777,941 | ||||||
Net increase (decrease) in net assets | 110,138,800 | (95,916,621 | ) | |||||
NET ASSETS: | ||||||||
Beginning of year | $ | 1,077,304,610 | $ | 1,173,221,231 | ||||
End of year | $ | 1,187,443,410 | $ | 1,077,304,610 |
46 | See Notes to Financial Statements. |
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47
Per Share Operating Performance: | ||||||||||||||||||||||||||||||
Investment Operations: | Distributions to shareholders from: | |||||||||||||||||||||||||||||
Net | Total | |||||||||||||||||||||||||||||
Net asset | Net | realized | from | Net | ||||||||||||||||||||||||||
value, | invest- | and | invest- | invest- | Net | |||||||||||||||||||||||||
beginning | ment | unrealized | ment | ment | realized | Total | ||||||||||||||||||||||||
of period | income(a) | gain (loss) | operations | income | gain | distributions | ||||||||||||||||||||||||
12/31/2019 | $11.08 | $0.46 | $ | 1.02 | $ | 1.48 | $ | (0.48 | ) | $ | – | $ | (0.48 | ) | ||||||||||||||||
12/31/2018 | 12.38 | 0.49 | (0.99 | ) | (0.50 | ) | (0.53 | ) | (0.27 | ) | (0.80 | ) | ||||||||||||||||||
12/31/2017 | 11.94 | 0.52 | 0.58 | 1.10 | (0.53 | ) | (0.13 | ) | (0.66 | ) | ||||||||||||||||||||
12/31/2016 | 11.14 | 0.52 | 0.83 | 1.35 | (0.55 | ) | – | (0.55 | ) | |||||||||||||||||||||
12/31/2015 | 11.89 | 0.47 | (0.65 | ) | (0.18 | ) | (0.49 | ) | (0.08 | ) | (0.57 | ) |
(a) | Calculated using average shares outstanding during the period. | |
(b) | Total return does not consider the effects of sales charges or other expenses imposed by an insurance company and assumes the reinvestment of all distributions. |
48 | See Notes to Financial Statements. |
Ratios to Average Net Assets: | Supplemental Data: | |||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||
expenses | ||||||||||||||||||||||||||
after | ||||||||||||||||||||||||||
Net | waivers | Net | ||||||||||||||||||||||||
asset | and/or | Net | assets, | Portfolio | ||||||||||||||||||||||
value, | Total | reimburse- | Total | investment | end of | turnover | ||||||||||||||||||||
end of | return(b) | ments | expenses | income | period | rate | ||||||||||||||||||||
period | (%) | (%) | (%) | (%) | (000) | (%) | ||||||||||||||||||||
$ | 12.08 | 13.35 | 0.92 | 0.92 | 3.84 | $ | 1,187,443 | 232 | ||||||||||||||||||
11.08 | (4.02 | ) | 0.92 | 0.93 | 4.04 | 1,077,305 | 153 | |||||||||||||||||||
12.38 | 9.21 | 0.90 | 0.92 | 4.13 | 1,173,221 | 121 | ||||||||||||||||||||
11.94 | 12.13 | 0.90 | 0.93 | 4.41 | 1,066,633 | 120 | ||||||||||||||||||||
11.14 | (1.53 | ) | 0.90 | 0.94 | 3.91 | 978,129 | 116 |
See Notes to Financial Statements. | 49 |
1. | ORGANIZATION |
Lord Abbett Series Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified, open-end management investment company and was incorporated under Maryland law in 1989. The Company consists of nine separate portfolios. This report covers Bond-Debenture Portfolio (the “Fund”).
The Fund’s investment objective is to seek high current income and the opportunity for capital appreciation to produce a high total return. The Fund has Variable Contract class shares (“Class VC Shares”), which are currently issued and redeemed only in connection with investments in, and payments under, variable annuity contracts and variable life insurance policies issued by life insurance and insurance-related companies.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S.GAAP and follows the accounting and reporting guidance applicable to investment companies.
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Investment Valuation–Under procedures approved by the Fund’s Board of Directors (the “Board”), Lord, Abbett & Co. LLC (“Lord Abbett”), the Fund’s investment manager, has formed a Pricing Committee to administer the pricing and valuation of portfolio investments and to ensure that prices utilized reasonably reflect fair value. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value. |
Securities actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to reflect their fair value as of the close of regular trading on the New York Stock Exchange. The Fund may utilize an independent fair valuation service in adjusting the valuations of foreign securities. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices. Fixed income securities are valued based on evaluated prices supplied by independent pricing services, which reflect broker/dealer supplied valuations and the independent pricing services’ own electronic data processing techniques. Exchange traded options and futures contracts are valued at the last quoted sale price in the market where they are principally traded. If no sale has occurred, the mean between the most recently quoted bid and asked prices is used. Floating rate loans are valued at the average of bid and ask quotations obtained from dealers in loans on the basis of prices supplied by independent pricing services. Forward foreign currency exchange contracts are valued using daily forward exchange rates. Swaps are valued daily using independent pricing services or quotations from broker/dealers to the extent available. |
50
Notes to Financial Statements (continued)
Securities for which prices are not readily available are valued at fair value as determined by the Pricing Committee. The Pricing Committee considers a number of factors, including observable and unobservable inputs, when arriving at fair value. The Pricing Committee may use related or comparable assets or liabilities, recent transactions, market multiples, book values, yield curves, broker quotes, observable trading activity, option adjusted spread models and other relevant information to determine the fair value of portfolio investments. The Board or a designated committee thereof regularly reviews fair value determinations made by the Pricing Committee and may employ techniques such as reviewing related market activity, reviewing inputs and assumptions, and retrospectively comparing prices of subsequent purchases and sales transactions to fair value determinations made by the Pricing Committee. | |
Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates fair value. | |
(b) | Security Transactions–Security transactions are recorded as of the date that the securities are purchased or sold (trade date). Realized gains and losses on sales of portfolio securities are calculated using the identified-cost method. |
(c) | Investment Income–Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis as earned. Discounts are accreted and premiums are amortized using the effective interest method and are included in Interest and other on the Statement of Operations. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates. |
(d) | Income Taxes–It is the policy of the Fund to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income and capital gains to its shareholders. Therefore, no income tax provision is required. |
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s filed U.S. federal tax returns remains open for the fiscal years ended December 31, 2016 through December 31, 2019. The statutes of limitations on the Company’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. | |
(e) | Expenses–Expenses incurred by the Company that do not specifically relate to an individual fund are generally allocated to the funds within the Company on a pro rata basis by relative net assets. |
(f) | Foreign Transactions–The books and records of the Fund are maintained in U.S. dollars and transactions denominated in foreign currencies are recorded in the Fund’s records at the rate prevailing when earned or recorded. Asset and liability accounts that are denominated in foreign currencies are adjusted daily to reflect current exchange rates and any unrealized gain (loss), if applicable, is included in Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies on the Fund’s Statement of Operations. The resultant exchange gains and losses upon settlement of such transactions are included in Net realized gain (loss), if applicable, on foreign currency related transactions on the Fund’s Statement of Operations. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in market prices of the securities. |
51
Notes to Financial Statements (continued)
The Fund uses foreign currency exchange contracts to facilitate transactions in foreign-denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms. | |
(g) | Forward Foreign Currency Exchange Contracts–The Fund may enter into forward foreign currency exchange contracts in order to reduce exposure to changes in foreign currency exchange rates on foreign portfolio holdings, or gain or reduce exposure to foreign currency solely for investment purposes. A forward foreign currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated rate. The contracts are valued daily at forward exchange rates and any unrealized gain (loss) is included in Net change in unrealized appreciation/depreciation on forward foreign currency exchange contracts on the Fund’s Statement of Operations. The gain (loss) arising from the difference between the U.S. dollar cost of the original contract and the value of the foreign currency in U.S. dollars upon closing of such contracts is included in Net realized gain (loss) on forward foreign currency exchange contracts on the Fund’s Statement of Operations. |
(h) | Futures Contracts–The Fund may purchase and sell futures contracts to enhance returns, to attempt to economically hedge some of its investment risk, or as a substitute position in lieu of holding the underlying asset on which the instrument is based. At the time of entering into a futures transaction, an investor is required to deposit and maintain a specified amount of cash or eligible securities called “initial margin.” Subsequent payments made or received by the Fund called “variation margin” are made on a daily basis as the market price of the futures contract fluctuates. The Fund will record an unrealized gain (loss) based on the amount of variation margin. When a contract is closed, a realized gain (loss) is recorded equal to the difference between the opening and closing value of the contract. |
(i) | When-Issued, Forward Transactions or To-Be-Announced (“TBA”) Transactions–The Fund may purchase portfolio securities on a when-issued or forward basis. When-issued, forward transactions or TBA transactions involve a commitment by a fund to purchase securities, with payment and delivery (“settlement”) to take place in the future, in order to secure what is considered to be an advantageous price or yield at the time of entering into the transaction. During the period between purchase and settlement, the fair value of the securities will fluctuate and assets consisting of cash and/or marketable securities (normally short-term U.S. Government or U.S. Government sponsored enterprise securities) marked to market daily in an amount sufficient to make payment at settlement will be segregated at the Fund’s custodian in order to pay for the commitment. At the time the Fund makes the commitment to purchase a security on a when-issued basis, it will record the transaction and reflect the liability for the purchase and fair value of the security in determining its net asset value (“NAV”). The Fund, generally, has the ability to close out a purchase obligation on or before the settlement date rather than take delivery of the security. Under no circumstances will settlement for such securities take place more than 120 days after the purchase date. |
(j) | TBA Sale Commitments–The Fund may enter into TBA sale commitments to hedge its positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities, or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as “cover” for the transaction. Unsettled TBA sale commitments are valued at the current market value of the underlying securities, according to the procedures described under |
52
Notes to Financial Statements (continued)
“Investment Valuation” above. The contract is adjusted to market value daily and the change in market value is recorded by the Fund as unrealized appreciation (depreciation). If the TBA sale (purchase) commitment is closed through the acquisition of an offsetting purchase (sale) commitment, the Fund realizes a gain or loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. | |
(k) | Mortgage Dollar Rolls–The Fund may enter into mortgage dollar rolls in which the Fund sells mortgage-backed securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. During the roll period, the Fund loses the right to receive principal (including prepayments of principal) and interest paid on the securities sold. |
(l) | Repurchase Agreements–The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which a fund acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. The Fund requires at all times that the repurchase agreement be collateralized by cash, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). If the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the fair value of these securities has declined, the Fund may incur a loss upon disposition of the securities. |
(m) | Credit Default Swaps–The Fund may enter into credit default swap contracts in order to hedge credit risk or for speculation purposes. As a seller of a credit default swap contract (“seller of protection”), the Fund is required to pay the notional amount or other agreed-upon value of a referenced debt obligation to the counterparty in the event of a default by or other credit event involving the referenced issuer, obligation or index. In return, the Fund receives from the counterparty a periodic stream of payments over the term of the contract. |
As a purchaser of a credit default swap contract (“buyer of protection”), the Fund would receive the notional amount or other agreed upon value of a referenced debt obligation from the counterparty in the event of default by or other credit event involving the referenced issuer, obligation or index. In return, the Fund would make periodic payments to the counterparty over the term of the contracts, provided no event of default has occurred. | |
These credit default swaps may have as a reference obligation corporate or sovereign issuers or credit indices. These credit indices are comprised of a basket of securities representing a particular sector of the market. | |
Credit default swaps are fair valued based upon quotations from counterparties, brokers or market-makers and the change in value, if any, is recorded as an unrealized appreciation or depreciation. For a credit default swap sold by the Fund, payment of the agreed-upon amount made by the Fund in the event of default of the referenced debt obligation is recorded as the cost of the referenced debt obligation purchased/received. For a credit default swap purchased by the Fund, the agreed-upon amount received by the Fund in the event of default of the referenced debt obligation is recorded as proceeds from sale/delivery of the referenced debt obligation and the resulting gain or loss realized on the referenced debt obligation is recorded as such by the Fund. |
53
Notes to Financial Statements (continued)
Any upfront payments made or received upon entering a credit default swap contract would be amortized or accreted over the life of the swap and recorded as realized gains or losses. Collateral, in the form of cash or securities, may be required to be held in segregated accounts with the custodian bank or broker in accordance with the swap agreement. The value and credit rating of each credit default swap where the Fund is the seller of protection, are both measures of the current payment/performance risk of the swap. As the value of the swap changes as a positive or negative percentage of the total notional amount, the payment/performance risk may decrease or increase, respectively. The maximum potential amount of future payments (undiscounted) that the Fund as a seller of protection could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into by the Fund for the same referenced entity or entities. | |
Entering into credit default swaps involves credit and market risk. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates, and that Lord Abbett does not correctly predict the creditworthiness of the issuers of the reference obligation on which the credit default swap is based. For the centrally cleared credit default swaps, there was minimal counterparty risk to the Fund, since such credit default swaps entered into were traded through a central clearinghouse, which guarantees against default. | |
(n) | Total Return Swaps–The Fund may enter into total return swap agreements to obtain exposure to a security or market without owning such security or investing directly in that market. The Fund may agree to make payments that are the equivalent of interest in exchange for the right to receive payments equivalent to any appreciation in the value of an underlying security, index or other asset, as well as receive payments equivalent to any distributions made on that asset, over the term of the swap. If the value of the asset underlying a total return swap declines over the term of the swap, the Fund also may be required to pay an amount equal to that decline in value to their counterparty. |
(o) | Floating Rate Loans–The Fund may invest in floating rate loans, which usually take the form of loan participations and assignments. Loan participations and assignments are agreements to make money available to U.S. or foreign corporations, partnerships or other business entities (the “Borrower”) in a specified amount, at a specified rate and within a specified time. A loan is typically originated, negotiated and structured by a U.S. or foreign bank, insurance company or other financial institution (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 and may hold any collateral on behalf of the Loan Investors. Such loan participations and assignments are typically senior, secured and collateralized in nature. The Fund records an investment when the Borrower withdraws money and records interest as earned. These loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or London InterBank Offered Rate (“LIBOR”). |
The loans in which the Fund invests may be subject to some restrictions on resale. For example, the Fund may be contractually obligated to receive approval from the Agent and/or Borrower |
54
Notes to Financial Statements (continued)
prior to the sale of these investments. The Fund generally has no right to enforce compliance with the terms of the loan agreement with the Borrower. As a result, the Fund assumes the credit risk of the Borrower, the selling participant and any other persons interpositioned between the Fund and the Borrower (“Intermediate Participants”). In the event that the Borrower, selling participant or Intermediate Participants become insolvent or enter into bankruptcy, the Fund may incur certain costs and delays in realizing payment or may suffer a loss of principal and/or interest. | |
Unfunded commitments represent the remaining obligation of the Fund to the Borrower. At any point in time, up to the maturity date of the issue, the Borrower may demand the unfunded portion. Until demanded by the Borrower, unfunded commitments are not recognized as an asset on the Statement of Assets and Liabilities. Unrealized appreciation/depreciation on unfunded commitments presented on the Statement of Assets and Liabilities represents mark to market of the unfunded portion of the Fund’s floating rate notes. As of December 31, 2019, the Fund had the following unfunded loan commitments: |
Pacific Gas and Electric Company DIP Delayed Draw Term Loan | $360,000 | |
Mavis Tire Services Corp. | 126,815 | |
Total | $486,815 |
(p) | Fair Value Measurements–Fair value is defined as the price that the Fund would receive upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk—for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy classification is determined based on the lowest level of inputs that is significant to the fair value measurement, and is summarized in the three broad Levels listed below: |
• | Level 1 – | unadjusted quoted prices in active markets for identical investments; |
• | Level 2 – | other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and |
• | Level 3 – | significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
A summary of inputs used in valuing the Fund’s investments and other financial instruments as of December 31, 2019 and, if applicable, Level 3 rollforwards for the fiscal year then ended is included in the Fund’s Schedule of Investments. | |
Changes in valuation techniques may result in transfers into or out of an assigned level within the three-tier hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. |
55
Notes to Financial Statements (continued)
3. | MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES |
Management Fee
The Company has a management agreement with Lord Abbett, pursuant to which Lord Abbett supplies the Fund with investment management services and executive and other personnel, provides office space and pays for ordinary and necessary office and clerical expenses relating to research and statistical work and supervision of the Fund’s investment portfolio.
Effective May 1, 2019, the management fee is based on the Fund’s average daily net assets at the following annual rate:
First $500 million | .50% |
Next $9.5 billion | .45% |
Over $10 billion | .40% |
Prior to May 1, 2019, the management fee was based on the Fund’s average daily net assets at the following annual rate:
First $1 billion | .50% |
Over $1 billion | .45% |
For the fiscal year ended December 31, 2019, the effective management fee, net of waivers, was at an annualized rate of .48% of the Fund’s average daily net assets.
In addition, Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement in return for a fee at an annual rate of .04% of the Fund’s average daily net assets.
The Company, on behalf of the Fund, has entered into services arrangements with certain insurance companies. Under these arrangements, certain insurance companies will be compensated up to .25% of the average daily NAV of the Fund’s Class VC Shares held in the insurance company’s separate account to service and maintain the Variable Contract owners’ accounts. This amount is included in Non 12b-1 service fees on the Statement of Operations. The Fund may also compensate certain insurance companies, third-party administrators and other entities for providing recordkeeping, sub-transfer agency and other administrative services to the Fund. This amount is included in Shareholder servicing on the Statement of Operations.
One Director and certain of the Company’s officers have an interest in Lord Abbett.
4. | DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS |
Dividends from net investment income, if any, are declared and paid at least semi-annually. Taxable net realized gains from investment transactions, reduced by allowable capital loss carryforwards, if any, are declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, is available to offset future net capital gains. Dividends and distributions to shareholders are recorded on the ex-dividend date. The amounts of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions that exceed earnings and profits for tax purposes are reported as a tax return of capital.
56
Notes to Financial Statements (continued)
The tax character of distributions paid during the fiscal years ended December 31, 2019 and December 31, 2018 was as follows:
Year Ended 12/31/2019 | Year Ended 12/31/2018 | |||||||||
Distributions paid from: | ||||||||||
Ordinary income | $ | 44,694,373 | $ | 56,836,725 | ||||||
Net long-term capital gains | – | 17,154,574 | ||||||||
Tax Return of Capital | 533,932 | – | ||||||||
Total distributions paid | $ | 45,228,305 | $ | 73,991,299 |
As of December 31, 2019, the components of accumulated gains (losses) on a tax-basis were as follows:
Bond Debenture Portfolio | |||||
Capital loss carryforwards* | $ | (13,949,114 | ) | ||
Temporary differences | (203,938 | ) | |||
Unrealized gains – net | 49,671,625 | ||||
Total accumulated gains – net | $ | 35,518,573 |
* | The capital losses will carry forward indefinitely. |
At the Fund’s election, certain losses incurred within the taxable year (Qualified Late-Year Losses) are deemed to arise on the first business day of the Fund’s next taxable year. The Fund incurred and will elect to defer late year ordinary losses of $78,784 during fiscal 2019.
As of December 31, 2019, the aggregate unrealized security gains (losses) on investments and other financial instruments, if any, based on cost for U.S. federal income tax purposes were as follows:
Tax cost | $ | 1,292,450,750 | ||
Gross unrealized gain | 64,683,526 | |||
Gross unrealized loss | (15,013,961 | ) | ||
Net unrealized security gain | $ | 49,669,565 |
The difference between book-basis and tax-basis unrealized gains (losses) is attributable to the tax treatment of certain securities, other financial instruments, premium amortization and wash sales.
Permanent items identified during the fiscal year ended December 31, 2019 have been reclassified among the components of net assets based on their tax basis treatment as follows:
Total Distributable Earnings (loss) | Paid-in Capital | ||
$533,932 | $(533,932) |
The permanent differences are primarily attributable to the tax treatment of certain distributions.
5. | PORTFOLIO SECURITIES TRANSACTIONS |
Purchases and sales of investment securities (excluding short-term investments) for the fiscal year ended December 31, 2019 were as follows:
U.S. Government Purchases* | Non-U.S. Government Purchases | U.S. Government Sales* | Non-U.S. Government Sales | |||
$2,023,548,927 | $896,145,567 | $1,981,336,993 | $879,281,661 |
* | Includes U.S. Government sponsored enterprises securities. |
57
Notes to Financial Statements (continued)
The Fund is permitted to purchase and sell securities (“cross-trade”) from and to other Lord Abbett funds or client accounts pursuant to procedures approved by the Board in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at a fair market price in compliance with provisions of the Rule. For the fiscal year ended December 31, 2019, the Fund engaged in cross-trades purchases of $436,333 and sales of $14,083,047 which resulted in net realized gain of $259,245.
6. | DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
The Fund entered into forward foreign currency exchange contracts for the fiscal year ended December 31, 2019 (as described in note 2(g)). A forward foreign currency exchange contract reduces the Fund’s exposure to changes in the value of the currency it will deliver (or settle in cash) and increases its exposure to changes in the value of the currency it will receive (or settle in cash) for the duration of the contract. The Fund’s use of forward foreign currency exchange contracts involves the risk that Lord Abbett will not accurately predict currency movements, and the Fund’s returns could be reduced as a result. Forward foreign currency exchange contracts are subject to the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedged positions, that the U.S. dollar will decline relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time. The Fund’s risk of loss from counterparty credit risk is the unrealized appreciation on forward foreign currency exchange contracts and deposits with brokers as collateral.
The Fund entered into futures contracts for the fiscal year ended December 31, 2019 (as described in note 2(h)) to economically hedge against changes in interest rates. The Fund bears the risk of interest rates moving unexpectedly, in which case the Fund may not achieve the anticipated benefits of the futures contracts and realize a loss. There is minimal counterparty credit risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees futures against default.
The Fund entered into credit default swaps for the fiscal year ended December 31, 2019 (as described in note 2(m)) to economically hedge credit risk. Credit default swaps involve the exchange of a fixed rate premium for protection against the loss in value of an underlying security within the index in the event of a defined credit event, such as payment default or bankruptcy. Under a credit default swap one party acts as a guarantor by receiving the fixed periodic payment in exchange for the commitment to purchase the underlying security at par if the defined credit event occurs. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. For the centrally cleared credit default swaps, there is minimal counterparty credit risk to the Fund since these credit default swaps are traded through a central clearinghouse. As a counterparty to all centrally cleared credit default swaps, the clearinghouse guarantees credit default swaps against default.
As of December 31, 2019, the Fund had the following derivatives at fair value, grouped into appropriate risk categories that illustrate the Fund’s use of derivative instruments:
Asset Derivatives | Interest Rate Contracts | Foreign Currency Contracts | Credit Contracts | |||||||||||
Forward Foreign Currency Exchange Contracts(1) | – | $ | 517,414 | – | ||||||||||
Futures Contracts(2) | $ | 5,802,146 | – | – |
58
Notes to Financial Statements (continued)
Liability Derivatives | Interest Rate Contracts | Foreign Currency Contracts | Credit Contracts | |||||||||||
Centrally Cleared Credit Default Swap Contracts(3) | – | – | $ | 1,273,058 | ||||||||||
Credit Default Swap Contracts(4) | – | – | 220,096 | |||||||||||
Futures Contracts(2) | $569,551 | – | – | |||||||||||
Forward Foreign Currency Exchange Contracts(5) | – | $ | 244,971 | – |
(1) | Statement of Assets and Liabilities location: Unrealized appreciation on forward foreign currency exchange contracts. |
(2) | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/depreciation on futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities. |
(3) | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/depreciation of centrally cleared swap contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
(4) | Statement of Assets and Liabilities location: Credit default swap agreements payable, at fair value. |
(5) | Statement of Assets and Liabilities location: Unrealized depreciation on forward foreign currency exchange contracts. |
Transactions in derivative instruments for the year ended December 31, 2019, were as follows:
Interest Rate Contracts | Foreign Currency Contracts | Credit Contracts | Equity Contracts | |||||||||||||||||
Net Realized Gain (Loss) | ||||||||||||||||||||
Credit Default Swap Contracts(1) | – | – | $ | 47,115 | – | |||||||||||||||
Total Return Swap Contracts(1) | – | – | – | $ | (111,576 | ) | ||||||||||||||
Forward Foreign Currency Exchange Contracts(2) | – | $ | 899,570 | – | – | |||||||||||||||
Futures Contracts(3) | $ | (15,435,226 | ) | – | – | – | ||||||||||||||
Net Change in Unrealized Appreciation/Depreciation | ||||||||||||||||||||
Credit Default Swap Contracts(4) | – | – | $ | 1,228,102 | – | |||||||||||||||
Total Return Swap Contracts(4) | – | – | – | $ | (84,362 | ) | ||||||||||||||
Forward Foreign Currency Exchange Contracts(5) | – | $ | 493,046 | – | – | |||||||||||||||
Futures Contracts(6) | $ | 7,791,501 | – | – | – | |||||||||||||||
Average Number of Contracts/Notional Amounts* | ||||||||||||||||||||
Credit Default Swap Contracts(7) | – | – | $ | 190,955,229 | – | |||||||||||||||
Total Return Swap Contracts(7) | – | – | – | $ | 423,077 | |||||||||||||||
Forward Foreign Currency Exchange Contracts(7) | – | $ | 33,324,403 | – | – | |||||||||||||||
Futures Contracts(8) | 3,702 | – | – | – |
* | Calculated based on the number of contracts or notional amounts for the fiscal year ended December 31, 2019. |
(1) | Statement of Operations location: Net realized loss on swap contracts. |
(2) | Statement of Operations location: Net realized gain on forward foreign currency exchange contracts. |
(3) | Statement of Operations location: Net realized loss on futures contracts. |
59
Notes to Financial Statements (continued)
(4) | Statement of Operations location: Net change in unrealized appreciation/depreciation on swap contracts. |
(5) | Statement of Operations location: Net change in unrealized appreciation/depreciation on forward foreign currency exchange contracts. |
(6) | Statement of Operations location: Net change in unrealized appreciation/depreciation on futures contracts. |
(7) | Amount represents notional amounts in U.S. dollars. |
(8) | Amount represents number of contracts. |
7. | DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES |
The Financial Accounting Standards Board (“FASB”) requires disclosures intended to help better assess the effect or potential effect of offsetting arrangements on a fund’s financial position. The following tables illustrate gross and net information about recognized assets and liabilities eligible for offset in the Statement of Assets and Liabilities; and disclose such amounts subject to an enforceable master netting agreement or similar agreement, by counterparty. A master netting agreement is an agreement between a fund and a counterparty which provides for the net settlement of amounts owed under all contracts traded under that agreement, as well as cash collateral, through a single payment by one party to the other in the event of default on or termination of any one contract. The Fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the master netting agreement does not result in an offset of reported amounts of financial assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty:
Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Assets Presented in the Statement of Assets and Liabilities | |||||||||
Forward Foreign Currency Exchange Contracts | $ | 517,414 | $ | – | $ | 517,414 | ||||||
Repurchase Agreement | 3,614,547 | – | 3,614,547 | |||||||||
Total | $ | 4,131,961 | $ | – | $ | 4,131,961 |
Net Amounts | ||||||||||||||||||||
of Assets | Amounts Not Offset in the | |||||||||||||||||||
Presented in | Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Received(a) | Securities Collateral Received(a) | Net Amount(b) | |||||||||||||||
Barclays Bank plc. | $ | 10,963 | $ | – | $ | – | $ | – | $ | 10,963 | ||||||||||
Fixed Income Clearing Corp. | 3,614,547 | – | – | (3,614,547 | ) | – | ||||||||||||||
State Street Bank and Trust | 506,451 | (111,989 | ) | – | (394,462 | ) | – | |||||||||||||
Total | $ | 4,131,961 | $ | (111,989 | ) | $ | – | $ | (4,009,009 | ) | $ | 10,963 |
Description | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Liabilities Presented in the Statement of Assets and Liabilities | |||||||||
Credit Default Swap Contracts | $220,096 | $ | – | $220,096 | ||||||||
Forward Foreign Currency Exchange Contracts | 244,971 | – | 244,971 | |||||||||
Total | $465,067 | $ | – | $465,067 |
60
Notes to Financial Statements (continued)
Net Amounts | ||||||||||||||||||||
of Liabilities | Amounts Not Offset in the | |||||||||||||||||||
Presented in | Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Pledged(a) | Securities Collateral Pledged(a) | Net Amount(c) | |||||||||||||||
Credit Suisse | $ | 20,487 | $ | – | $ | (20,487 | ) | $ | – | $ | – | |||||||||
Deutsche Bank | 34,209 | – | (34,209 | ) | – | – | ||||||||||||||
Goldman Sachs | 6,823 | – | (6,823 | ) | – | – | ||||||||||||||
J.P. Morgan Chase | 6,019 | – | – | – | 6,019 | |||||||||||||||
Morgan Stanley | 158,570 | – | (158,570 | ) | – | – | ||||||||||||||
Standard Chartered Bank | 796 | – | – | – | 796 | |||||||||||||||
State Street Bank and Trust | 111,989 | (111,989 | ) | – | – | – | ||||||||||||||
Toronto Dominion Bank | 126,174 | – | – | – | 126,174 | |||||||||||||||
Total | $ | 465,067 | $ | (111,989 | ) | $ | (220,089 | ) | $ | – | $ | 132,989 |
(a) | Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets (liabilities) presented in the Statement of Assets and Liabilities, for each respective counterparty. |
(b) | Net amount represents the amount owed to the Fund by the counterparty as of December 31, 2019. |
(c) | Net amount represents the amount owed by the Fund to the counterparty as of December 31, 2019. |
8. | DIRECTORS’ REMUNERATION |
The Company’s officers and one Director, who are associated with Lord Abbett, do not receive any compensation from the Company for serving in such capacities. Independent Directors’ fees are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all Independent Directors under which Independent Directors must defer receipt of a portion of, and may elect to defer receipt of an additional portion of Directors’ fees. The deferred amounts are treated as though equivalent dollar amounts had been invested in the funds. Such amounts and earnings accrued thereon are included in Directors’ fees on the Statement of Operations and in Directors’ fees payable on the Statement of Assets and Liabilities and are not deductible for U.S. federal income tax purposes until such amounts are paid.
9. | EXPENSE REDUCTIONS |
The Company has entered into an arrangement with its transfer agent and custodian, whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s expenses.
10. | LINE OF CREDIT |
For the period ended August 7, 2019, the Fund and certain other funds managed by Lord Abbett (collectively, the “Participating Funds”) entered into a Syndicated Facility with various lenders for $1.1 billion whereas State Street Bank and Trust Company (“SSB”) participated as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if Fund net assets are less than $750 million), $250 million, $300 million, $350 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
Effective August 8, 2019, the Participating Funds entered into a Syndicated Facility with various lenders for $1.17 billion whereas SSB participates as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, $500 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
For the period ended August 7, 2019, the Participating Funds entered into an additional line of credit facility with SSB for $250 million (the “Bilateral Facility” and together with the Syndicated
61
Notes to Financial Statements (continued)
Facility, the “Facilities”). Under the Bilateral Facility, each Participating Fund may borrow up to the lesser of $250 million or one-third of Fund net assets.
Effective August 8, 2019, the Participating Funds entered into a Bilateral Facility with SSB for $330 million ($250 million committed and $80 million uncommitted). Under the Bilateral Facility, the Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, or $330 million, based on past borrowings and likelihood of future borrowings, among other factors.
The Facilities are to be used for temporary or emergency purposes as an additional source of liquidity to satisfy redemptions.
For the fiscal year ended December 31, 2019, the Fund did not utilize the Facilities.
11. | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission (“SEC exemptive order”), certain registered open-end management investment companies managed by Lord Abbett, including the Fund, participate in a joint lending and borrowing program (the “Interfund Lending Program”). The SEC exemptive order allows the Funds to borrow money from and lend money to each other for temporary or emergency purposes subject to the limitations and conditions.
For the fiscal year ended December 31, 2019, the Fund did not participate as a borrower or lender in the Interfund Lending Program.
12. | CUSTODIAN AND ACCOUNTING AGENT |
SSB is the Company’s custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund’s NAV.
13. | SECURITIES LENDING AGREEMENT |
The Fund has established a securities lending agreement with Citibank N.A. for the lending of securities to qualified brokers in exchange for securities or cash collateral equal to at least the market value of securities loaned, plus interest, if applicable. Cash collateral is invested in an approved money market fund. In accordance with the Fund’s securities lending agreement, the market value of securities on loan is determined each day at the close of business and any additional collateral required to cover the value of securities on loan is delivered to the Fund on the next business day. As with other extensions of credit, the Fund may experience a delay in the recovery of their securities or incur a loss should the borrower of the securities breach its agreement with the Fund or become insolvent at a time when the collateral is insufficient to cover the cost of repurchasing securities on loan. Any income earned from lending securities will be noted on the Statement of Operations.
For the fiscal year ended December 31, 2019, the Fund did not loan any securities.
14. | INVESTMENT RISKS |
The Fund is subject to the general risks and considerations associated with investing in debt securities and to the changing prospects of individual companies and/or sectors in which the Fund invests. The value of an investment will change as interest rates fluctuate and in response to market movements. When interest rates rise, the prices of debt securities are likely to decline; when rates fall, such prices tend to rise. Longer-term debt securities are usually more sensitive to interest rate changes. There is also the risk that an issuer of a debt security will fail to make timely
62
Notes to Financial Statements (continued)
payments of principal or interest to the Fund, a risk that is greater with high-yield securities (sometimes called “lower-rated bonds” or “junk bonds”) in which the Fund may substantially invest. Some issuers, particularly of high-yield securities, may default as to principal and/or interest payments after the Fund purchases its securities. A default, or concerns in the market about an increase in risk of default, may result in losses to the Fund. High-yield securities are subject to greater price fluctuations, as well as additional risks. The market for below investment grade securities may be less liquid, which may make such securities more difficult to sell at an acceptable price, especially during periods of financial distress, increased market volatility, or significant market decline.
The Fund is subject to the risk of investing in securities issued or guaranteed by the U.S. Government or its agencies and instrumentalities (such as the Government National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”), or the Federal Home Loan Mortgage Corporation (“Freddie Mac”)). Unlike Ginnie Mae securities, securities issued or guaranteed by U.S. Government-related organizations such as Fannie Mae and Freddie Mac are not backed by the full faith and credit of the U.S. Government and no assurance can be given that the U.S. Government would provide financial support to its agencies and instrumentalities if not required to do so by law. Consequently, the Fund may be required to look principally to the agency issuing or guaranteeing the obligation.
The asset backed securities and mortgage-related securities in which the Fund may invest may be particularly sensitive to changes in prevailing interest rates and economic conditions, including delinquencies and/or defaults. These changes can affect the value, income and/or liquidity of such positions. When interest rates are declining, the value of these securities with prepayment features may not increase as much as other fixed income securities. Early principal repayment may deprive the Fund of income payments above current market rates. Alternatively, rising interest rates may cause prepayments to occur at a slower-than-expected rate, extending the duration of a security and typically reducing its value. The payment rate will thus affect the price and volatility of a mortgage-related security. In addition, the Fund may invest in non-agency asset backed and mortgage-related securities, which are issued by private institutions, not by government sponsored enterprises.
The Fund may invest up to 20% of its net assets in equity securities, the value of which fluctuates in response to movements in the equity securities market in general, changing prospects of individual companies in which the Fund invests, or an individual company’s financial condition.
The Fund may invest in convertible securities, which have both equity and fixed income risk characteristics, including market, credit, liquidity, and interest rate risks. Generally, convertible securities offer lower interest or dividend yields than non-convertible securities of similar quality and less potential for gains or capital appreciation in a rising equity securities market than equity securities. They tend to be more volatile than other fixed income securities, and the market for convertible securities may be less liquid than the markets for stocks or bonds. A significant portion of convertible securities have below investment grade credit ratings and are subject to increased credit and liquidity risks.
Due to the Fund’s investment exposure to foreign companies and American Depositary Receipts, the Fund may experience increased market, industry and sector, liquidity, currency, political, information and other risks. The securities of foreign companies also may be subject to inadequate exchange control regulations, the imposition of economic sanctions or other government restrictions, higher transaction and other costs, and delays in settlement to the extent they are traded on non-U.S. exchanges or markets.
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Notes to Financial Statements (concluded)
The Fund is subject to the risks associated with derivatives, which may be different from and greater than the risks associated with directly investing in securities. Derivatives may be subject to risks such as liquidity risk, leveraging risk, interest rate risk, market risk, and credit risk. Illiquid securities may lower the Fund’s returns since the Fund may be unable to sell these securities at their desired time or price. Derivatives also may involve the risk of mispricing or improper valuation and the risk that changes in the value of the derivative may not correlate perfectly with the value of the underlying asset, rate or index. Whether the Fund’s use of derivatives is successful will depend on, among other things, the Fund’s ability to correctly forecast market movements and other factors. If the Fund incorrectly forecasts these and other factors, the Fund’s performance could suffer. The Fund’s use of derivatives could result in a loss exceeding the amount of the Fund’s investment in these instruments.
The Fund may invest up to 15% of its net assets in floating rate or adjustable rate senior loans, including bridge loans, novations, assignments, and participations, which are subject to increased credit and liquidity risks. Senior loans are business loans made to borrowers that may be U.S. or foreign corporations, partnerships or other business entities. The senior loans in which the Fund invests may consist primarily of senior loans that are rated below investment grade or, if unrated, deemed by Lord Abbett to be equivalent to below investment grade securities. Below investment grade senior loans, as in the case of high-yield debt securities, or junk bonds, are usually more credit sensitive than interest rate sensitive, although the value of these instruments may be impacted by broader interest rate swings in the overall fixed income market. Below investment grade senior loans may be affected by interest rate swings in the overall fixed income market. In addition, senior loans may be subject to structural subordination.
These factors can affect the Fund’s performance.
15. | SUMMARY OF CAPITAL TRANSACTIONS |
Transactions in shares of capital stock were as follows:
Year Ended December 31, 2019 | Year Ended December 31, 2018 | |||||||
Shares sold | 10,115,665 | 10,012,434 | ||||||
Reinvestment of distributions | 3,750,032 | 6,608,633 | ||||||
Shares reacquired | (12,772,407 | ) | (14,182,529 | ) | ||||
Increase | 1,093,290 | 2,438,538 |
64
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Lord Abbett Series Fund, Inc.
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Bond-Debenture Portfolio, one of the funds constituting Lord Abbett Series Fund, Inc. (the “Fund”), as of December 31, 2019, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Bond-Debenture Portfolio of the Fund as of December 31, 2019, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the custodian, brokers and selling or agent banks; when replies were not received from brokers and selling or agent banks, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
New York, New York
February 14, 2020
We have served as the auditor of one or more Lord Abbett Family of Funds’ investment companies since 1932.
65
Supplemental Proxy Information (unaudited)
A joint special meeting of shareholders of the Fund was held on August 26, 2019. The joint special meeting was held for the purpose of electing members of the Fund’s Board of Directors. Shareholders elected the following ten (10) Directors at the joint special meeting:
• | Eric C. Fast |
• | Evelyn E. Guernsey |
• | Julie A. Hill |
• | Kathleen M. Lutito |
• | James M. McTaggart |
• | Charles O. Prince |
• | Karla M. Rabusch |
• | Mark A. Schmid |
• | Douglas B. Sieg |
• | James L.L. Tullis |
The results of the proxy solicitation on the preceding matter were as follows:
Lord Abbett Series Fund, Inc.
Nominee Votes | Votes For | Votes Withheld |
Eric C. Fast | 186,329,820.614 | 7,776,255.685 |
Evelyn E. Guernsey | 186,718,826.419 | 7,387,249.880 |
Julie A. Hill | 186,486,240.620 | 7,619,835.679 |
Kathleen M. Lutito | 187,082,042.409 | 7,024,033.890 |
James M. McTaggart | 186,269,131.867 | 7,836,944.422 |
Charles O. Prince | 186,103,251.100 | 8,002,825.199 |
Karla M. Rabusch | 186,796,719.683 | 7,309,356.626 |
Mark A. Schmid | 186,825,573.395 | 7,280,502.894 |
Douglas B. Sieg | 186,702,410.889 | 7,403,665.410 |
James L.L. Tullis | 186,229,277.817 | 7,876,798.472 |
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Basic Information About Management
The Board is responsible for the management of the business and affairs of the Company in accordance with the laws of the State of Maryland. The Board elects officers who are responsible for the day-to-day operations of the Fund and who execute policies authorized by the Board. The Board also approves an investment adviser to the Fund and continues to monitor the cost and quality of the services the investment adviser provides, and annually considers whether to renew the contract with the investment adviser. Generally, each Director holds office until his/her successor is elected and qualified or until his/her earlier resignation or removal, as provided in the Company’s organizational documents.
Lord Abbett, a Delaware limited liability company, is the Fund’s investment adviser. Designated Lord Abbett personnel are responsible for the day-to-day management of the Fund.
Interested Directors
Mr. Sieg is affiliated with Lord Abbett and is an “interested person” of the Company as defined in the Act. Mr. Sieg is director/trustee of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios. Mr. Sieg is an officer of the Lord Abbett Family of Funds.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Douglas B. Sieg Lord, Abbett & Co. LLC 90 Hudson Street Jersey City, NJ 07302 (1969) | Director since 2016; President and Chief Executive Officer since 2018 | Principal Occupation:Managing Partner (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. Other Directorships:None. |
Independent Directors
The following Independent Directors also are directors/trustees of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Evelyn E. Guernsey Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1955) | Director since 2011 | Principal Occupation:None.
Other Directorships:None. | ||
Julie A. Hill Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1946) | Director since 2004 | Principal Occupation:Owner and CEO of The Hill Company, a business consulting firm (since 1998).
Other Directorships:Currently serves as director of Anthem, Inc., a health benefits company (since 1994). | ||
Kathleen M. Lutito Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1963) | Director since 2017 | Principal Occupation:President and Chief Investment Officer of CenturyLink Investment Management Company (since 2006).
Other Directorships:None. |
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Basic Information About Management (continued)
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
James M. McTaggart Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2012 | Principal Occupation:Independent management advisor and consultant (since 2012).
Other Directorships:Blyth, Inc., a home products company (2004–2015).
| ||
Charles O. Prince Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1950) | Director since 2019 | Principal Occupation:None. Formerly Chairman and Chief Executive Officer, Citigroup, Inc.
Other Directorships:Currently serves as director of Johnson & Johnson (2006–Present). Previously served as director of Xerox Corporation (2008–2018). | ||
Karla M. Rabusch Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2017 | Principal Occupation:President and Director of Wells Fargo Funds Management, LLC (2003–2017); President of Wells Fargo Funds (2003–2016).
Other Directorships:None.
| ||
Mark A. Schmid Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2016 | Principal Occupation:Vice President and Chief Investment Officer of the University of Chicago (since 2009).
Other Directorships:None.
| ||
James L.L. Tullis Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2006; Chairman since 2017 | Principal Occupation:Chairman of Tullis Health Investors - FL LLC (since 2018); CEO of Tullis–Dickerson and Co. Inc., a venture capital management firm (1990–2016).
Other Directorships:Currently serves as director of Crane Co. (since 1998), Alphatec Spine, Inc. (since 2018), and electroCore, Inc. (since 2018). |
Officers
None of the officers listed below have received compensation from the Company. All of the officers of the Company also may be officers of the other Lord Abbett Funds and maintain offices at 90 Hudson Street, Jersey City, NJ 07302. Unless otherwise indicated, the position(s) and title(s) listed under the “Principal Occupation During the Past Five Years” column indicate each officer’s position(s) and title(s) with Lord Abbett. Each officer serves for an indefinite term (i.e., until his or her death, resignation, retirement, or removal).
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Douglas B. Sieg (1969) | President and Chief Executive Officer | Elected as President and Chief Executive Officer in 2018 | Managing Partner of Lord Abbett (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. |
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Basic Information About Management (concluded)
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Jackson C. Chan (1964) | AML Compliance Officer | Elected in 2018 | Deputy Chief Compliance Officer and Director of Regulatory Affairs, joined Lord Abbett in 2014. | |||
Pamela P. Chen (1978) | Vice President, Assistant Secretary and Privacy Officer | Elected as Vice President and Assistant Secretary in 2018 and Privacy Officer in 2019 | Associate General Counsel, joined Lord Abbett in 2017 and was formerly Special Counsel at Schulte, Roth & Zabel LLP (2005–2017). | |||
John T. Fitzgerald (1975) | Vice President and Assistant Secretary | Elected in 2018 | Deputy General Counsel, joined Lord Abbett in 2018 and was formerly Deputy Head of U.S. Funds Legal, Executive Director and Assistant General Counsel at JPMorgan Chase (2005-2018). | |||
Vito A. Fronda (1969) | Treasurer | Elected in 2018 | Partner and Director of Fund Treasury and Tax, joined Lord Abbett in 2003. | |||
Bernard J. Grzelak (1971) | Chief Financial Officer and Vice President | Elected in 2017 | Partner and Chief Operating Officer, Global Funds and Risk, joined Lord Abbett in 2003. | |||
Linda Y. Kim (1980) | Vice President and Assistant Secretary | Elected in 2016 | Counsel, joined Lord Abbett in 2015. | |||
Joseph M. McGill (1962) | Chief Compliance Officer | Elected in 2014 | Partner and Chief Compliance Officer, joined Lord Abbett in 2014. | |||
Amanda S. Ryan (1978) | Vice President and Assistant Secretary | Elected in 2018 | Counsel, joined Lord Abbett in 2016 and was formerly a Director and Corporate Counsel at PGIM Investments (2012–2016). | |||
Lawrence B. Stoller (1963) | Vice President, Secretary and Chief Legal Officer | Elected as Vice President and Secretary in 2007 and Chief Legal Officer in 2019 | Partner and General Counsel, joined Lord Abbett in 2007. |
Please call 888-522-2388 for a copy of the statement of additional information, which contains further information about the Company’s Directors. It is available free upon request.
69
Approval of Advisory Contract
The Board, including all of the Directors who are not “interested persons” of the Company or of Lord Abbett, as defined in the Investment Company Act of 1940, as amended (the “Independent Directors”), annually considers whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett (the “Agreement”). In connection with its most recent approval, the Board reviewed materials relating specifically to the Agreement, as well as numerous materials received throughout the course of the year, including information about the Fund’s investment performance compared to the performance of its benchmarks. Before making its decision as to the Fund, the Board had the opportunity to ask questions and request further information, taking into account its knowledge of Lord Abbett gained through its meetings and discussions. These meetings and discussions included reviews of Fund performance conducted by members of the Contract Committee, the deliberations of the Contract Committee, and discussions between the Contract Committee and Lord Abbett’s management. The Independent Directors also met with their independent legal counsel in various private sessions at which no representatives of management were present.
The materials received by the Board included, but were not limited to: (1) information provided by Broadridge Financial Solutions (“Broadridge”) regarding the investment performance of the Fund compared to the investment performance of certain funds with similar investment styles as determined by Broadridge, based, in part, on the Fund’s Morningstar category (the “performance peer group”), and the investment performance of two appropriate benchmarks; (2) information provided by Broadridge regarding the expense ratios, contractual and actual management fee rates, and other expense components for the Fund and certain funds in the same Morningstar category, with generally the same or similar share classes and operational characteristics, including asset size (the “expense peer group”); (3) certain supplemental investment performance information provided by Lord Abbett; (4) information provided by Lord Abbett on the expense ratios, management fee rates, and other expense components for the Fund; (5) sales and redemption information for the Fund; (6) information regarding Lord Abbett’s financial condition; (7) an analysis of the relative profitability of the Agreement to Lord Abbett; (8) information provided by Lord Abbett regarding the investment management fee schedules for Lord Abbett’s other advisory clients maintaining accounts with a similar investment strategy as the Fund; and (9) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
Investment Management and Related Services Generally.The Board considered the services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading, and Lord Abbett’s commitment to compliance with all applicable legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest that may result from being engaged in other lines of business. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to the Fund and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other. After reviewing these and related factors, the Board concluded that the Fund was likely to continue to benefit from the nature, extent and quality of the investment services provided by Lord Abbett under the Agreement.
Investment Performance.The Board reviewed the Fund’s investment performance in relation to that of the performance peer group and two appropriate benchmarks as of various periods ended June 30, 2019. The Board observed that the Fund’s investment performance was above the median of the performance peer group for the one-, three-, five-, and ten-year periods. The Board further considered Lord Abbett’s performance and reputation generally, the performance of other Lord
70
Approval of Advisory Contract (continued)
Abbett-managed funds overseen by the Board, and the willingness of Lord Abbett to take steps intended to improve performance when appropriate. After reviewing these and related factors, the Board concluded that the Fund’s Agreement should be continued.
Lord Abbett’s Personnel and Methods.The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of its investment objective and discipline, and other services provided to the Fund by Lord Abbett. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining personnel.
Nature and Quality of Other Services.The Board considered the nature, quality, and extent of compliance, administrative, and other services performed by Lord Abbett and the nature and extent of Lord Abbett’s supervision of third party service providers, including the Fund’s transfer agent and custodian.
Expenses.The Board considered the expense level of the Fund, including the contractual and actual management fee rates, and the expense levels of the Fund’s expense peer group. It also considered how the expense level of the Fund related to those of the expense peer group and the amount and nature of the fees paid by shareholders. The Board observed that the net total expense ratio of the Fund was below the median of the expense peer group. The Board further considered that the Fund’s management fee was reduced, effective May 1, 2019. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that the management fees paid by, and expense level of, the Fund were reasonable in light of all of the factors it considered and supported the continuation of the Agreement.
Profitability.The Board considered the level of Lord Abbett’s operating margin in managing the Fund, including a review of Lord Abbett’s methodology for allocating its costs to its management of the Fund. It considered whether the Fund was profitable to Lord Abbett in connection with the Fund’s operation, including the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the profits realized from other business segments of Lord Abbett, which may benefit from or be related to the Fund’s business. The Board considered Lord Abbett’s profit margins excluding Lord Abbett’s marketing and distribution expenses. The Board also considered Lord Abbett’s profit margins, without those exclusions, in comparison with available industry data and how those profit margins could affect Lord Abbett’s ability to recruit and retain personnel. The Board recognized that Lord Abbett’s overall profitability was a factor in enabling it to attract and retain qualified personnel to provide services to the Fund. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that Lord Abbett’s profitability with respect to the Fund was not excessive.
Economies of Scale.The Board considered the extent to which there had been economies of scale in managing the Fund, whether the Fund’s shareholders had appropriately benefited from such economies of scale, and whether there was potential for realization of any further economies of scale. The Board concluded that the existing management fee schedule, with its breakpoints in the level of the management fee, adequately addressed any economies of scale in managing the Fund.
Other Benefits to Lord Abbett.The Board considered the amount and nature of the fees paid by the Fund and the Fund’s shareholders to Lord Abbett for services other than investment advisory services, such as the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the revenues and profitability of Lord Abbett’s investment advisory business apart from its mutual fund business, and the intangible benefits
71
Approval of Advisory Contract (concluded)
enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that the Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees it receives, and receives a portion of the sales charges on sales and redemptions of some classes of shares of the Lord Abbett Funds. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectus of the Fund, has entered into revenue sharing arrangements with certain entities that distribute shares of the Lord Abbett Funds. The Board also took into consideration the investment research that Lord Abbett receives as a result of client brokerage transactions.
Alternative Arrangements.The Board considered whether, instead of approving continuation of the Agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms. After considering all of the relevant factors, the Board unanimously found that continuation of the Agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve the continuation of the Agreement. In considering whether to approve the continuation of the Agreement, the Board did not identify any single factor as paramount or controlling. Individual Directors may have evaluated the information presented differently from one another, giving different weights to various factors. This summary does not discuss in detail all matters considered.
72
Householding
The Company has adopted a policy that allows it to send only one copy of the Fund’s prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same “household.” This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.
Proxy Voting Policies, Procedures and Records
A description of the policies and procedures that Lord Abbett uses to vote proxies related to the Fund’s portfolio securities, and information on how Lord Abbett voted the Fund’s proxies during the 12-month period ended December 31 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett’s Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission’s (“SEC”) Website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund are required to file their complete schedule of portfolio holdings with the SEC for their first and third fiscal quarters as an attachment to Form N-PORT. Copies of the filings are available without charge, upon request on the SEC’s Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388.
Tax Information
For corporate shareholders, 2% of the Fund’s ordinary income distributions qualified for the dividends received deduction.
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This report, when not used for the general information of shareholders of the Fund, is to be distributed only if preceded or accompanied by a current fund prospectus. | |||
Lord Abbett mutual fund shares are distributed by LORD ABBETT DISTRIBUTOR LLC. | Lord Abbett Series Fund, Inc.
Bond-Debenture Portfolio | LASFBD-3 |
LORD ABBETT
ANNUAL REPORT
Lord Abbett
Series Fund—Calibrated Dividend Growth Portfolio
For the fiscal year ended December 31, 2019
Table of Contents
Lord Abbett Series Fund — Calibrated Dividend Growth Portfolio
Annual Report
For the fiscal year ended December 31, 2019
From left to right: James L.L. Tullis, Independent Chairman of the Lord Abbett Funds and Douglas B. Sieg, Director, President, and Chief Executive Officer of the Lord Abbett Funds. | Dear Shareholders:We are pleased to provide you with this overview of the performance of Lord Abbett Series Fund – Calibrated Dividend Growth Portfolio for the fiscal year ended December 31, 2019. On this page and the following pages, we discuss the major factors that influenced fiscal year performance. For additional information about the Fund, please visit our website at www.lordabbett.com, where you also can access quarterly commentaries that provide updates on the Fund’s performance and other portfolio related updates. Thank you for investing in Lord Abbett mutual funds. We value the trust that you place in us and look forward to serving your investment needs in the years to come.
Best regards,
Douglas B. Sieg Director, President, and Chief Executive Officer |
For the fiscal year ended December 31, 2019, the Fund returned 26.45%, reflecting performance at the net asset value (NAV) of Class VC shares with all distributions reinvested, compared to its benchmark, the S&P 500® Index1, which returned 31.49% over the same period.
Domestic equity returns were positive over the past year, with large cap stocks, as represented by the S&P 500® Index,2rising 31.49% during the period, while small cap stocks, as represented by the Russell 2000® Index,3were up 25.52%. Following a tumultuous fourth quarter of 2018, where
trade tensions and monetary policy uncertainty sent many investors toward safety, the market staged a strong recovery. After the worst December since 1931, the S&P 500 posted its best January performance since 1987. Trade tensions continued to dominate headlines, as trade negotiations between the U.S. and China remained volatile throughout the period. Since the beginning of 2019, both the U.S. and China have imposed tariffs of roughly $550 billion and $185 billion on each country’s products, respectively. One of the more notable shifts over the year was the
1
U.S. Federal Reserve’s (the “Fed”) transition to a more dovish policy stance, with Chairman Jerome Powell stating that the Fed would act appropriately to sustain economic growth. Given an uncertain market outlook and muted inflation pressures, the Fed announced its decision to cut interest rates by 25 basis points on July 31, 2019 to a range of 2.00–2.25%. This was the first time that the Fed had cut interest rates since December 2008. The Fed followed that decision with two more 25 basis point rate cuts in September and October, citing “implications of global developments for the economic outlook as well as muted inflation pressures”. After the October rate cut, Fed Chairman Powell signaled a likely pause on future rate cuts. The combination of a dovish Fed, trade pressures, and slowing economic growth resulted in falling rates across the U.S. Treasury yield curve. In fact, in July, the yield on the 10-year U.S. Treasury fell to its lowest level since 2016. Bond yields continued to fall, and in August, the spread between the U.S. 10-year Treasury and the 2-year Treasury temporarily inverted. In September, a large rotation from growth stocks into value took place and continued through November. Geopolitics also contributed to market volatility. Following a coordinated drone strike on Saudi Arabia in the third quarter, Brent crude oil prices increased 20% in one trading session. Despite the record increase, oil prices retracted their gains within weeks. Investor sentiment was buoyed in November as the
market grew optimistic about the possibility of a “Phase One” trade deal between the U.S. and China, which was ultimately reached in December. The agreement included structural reforms to China’s trade regime in areas such as intellectual property and agriculture, as well as a commitment from China to make additional purchases of U.S. goods and services moving forward. In return, the U.S. would not proceed with tariffs that were scheduled to go into effect in December on nearly $160 billion worth of Chinese goods and would cut the tariff rate imposed on September 1, 2019 on $120 billion worth of Chinese goods from 15% to 7.5%.
Stock selection within the consumer discretionary and materials sectors contributed most to relative performance over the period. Within the consumer discretionary sector, the Fund’s holding of Target Corp., a general merchandise stores operator, contributed most to relative performance. Shares of Target rose after the company reported second quarter results that saw earnings per share (EPS) come in above expectations while management increased EPS guidance. Target’s gross margin also expanded 30 basis points year-over-year, which marked the company’s first gross margin expansion in roughly three years. Nike, Inc., an athletic footwear, apparel, and equipment retailer, also contributed to relative performance. Despite facing foreign exchange headwinds, the firm reported better than expected fiscal first quarter
2
earnings, which, in turn, increased the price of Nike’s shares. Nike’s earnings performance was largely driven by growth in China, EMEA, and digital sales. Within the materials sector, Sherwin-Williams Co. contributed most to relative performance. Shares of the paint manufacturer rose following the company’s annual Investor Day conference, where management reaffirmed its FY 2019 guidance for EPS and net sales growth. Management also remained constructive on the growth opportunities in U.S. residential and commercial industries.
Conversely, stock selection within the information technology and consumer staples sectors detracted most from relative performance. Within the information technology sector, Xilinx, Inc., a programmable logic semiconductor devices developer, detracted most from relative performance. Shares of Xilinx came under pressure following the U.S. ban on products manufactured by Huawei Technologies Co., Ltd. Xilinx supplies re-programmable integrated semiconductors
to a breadth of Chinese companies, including Huawei. The Fund’s underweight position relative to the benchmark in IBM Corp., an integrated solutions provider, also detracted from relative performance, as IBM’s return over the period was greater than that of the information technology group. IBM’s share price rose following fourth quarter 2018 earnings, where the company reported better-than-expected full-year guidance. Within the consumer staples sector, Walgreens Boots Alliance, Inc., a drug store retailer, detracted most from relative performance. Shares of Walgreens fell after the second quarter earnings release, where the company missed EPS projections and management lowered guidance. The poor results caused the market to question longer term growth.
The Fund’s portfolio is actively managed and, therefore, its holdings and the weightings of a particular issuer or particular sector as a percentage of portfolio assets are subject to change. Sectors may include many industries.
3
1 The S&P 500® Index is widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries.
2 The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index.
Unless otherwise specified, indexes reflect total return, with all dividends reinvested. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Important Performance and Other Information
Performance data quoted in the following pages reflect past performance and are no guarantee of future results. Current performance may be higher or lower than the performance quoted. The investment return and principal value of an investment in the Funds will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. You can obtain performance data current to the most recent month end by calling Lord Abbett at 888-522-2388 or referring to www.lordabbett.com.
During certain periods shown, expense waivers and reimbursements were in place. Without such expense waivers and reimbursements, the Fund’s returns would have been lower.
The annual commentary above discusses the views of the Fund’s management and various portfolio holdings of the Fund as of December 31, 2019. These views and portfolio holdings may have changed after this date. Information provided in the commentary is not a recommendation to buy or sell securities. Because the Fund’s portfolio is actively managed and may change significantly, the Fund may no longer own the securities described above or may have otherwise changed their positions in the securities. For more recent information about the Fund’s portfolio holdings, please visit www.lordabbett.com.
A Note about Risk:See Notes to Financial Statements for a discussion of investment risks. For a more detailed discussion of the risks associated with the Fund, please see the Fund’s prospectus.
Mutual funds are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, banks, and are subject to investment risks including possible loss of principal amount invested.
The Fund serves as an underlying investment vehicle for variable annuity contracts and variable life insurance policies.
4
Below is a comparison of a $10,000 investment in Class VC shares with the same investment in the S&P 500® Index, assuming reinvestment of all dividends and distributions. The Fund’s shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. The line graph comparison does not reflect the sales charges or other expenses of these contracts. If those sales charges and expenses were reflected, returns would be lower. The graph and performance table below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. During certain periods, expenses of the Fund have been waived or reimbursed by Lord Abbett; without such waiver or reimbursement of expenses, the Fund’s returns would have been lower.Past performance is no guarantee of future results.
Average Annual Total Returns for the
Periods Ended December 31, 2019
1 Year | 5 Years | 10 Years | ||||
Class VC | 26.45% | 10.10% | 11.55% |
1 | Performance for the unmanaged index does not reflect transaction costs, management fees or sales charges. The performance of the index is not necessarily representative of the Fund’s performance. |
5
As a shareholder of the Fund, you incur ongoing costs, including management fees; expenses related to the Fund’s services arrangements with certain insurance companies; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2019 through December 31, 2019).
The Example reflects only expenses that are deducted from the assets of the Fund. Fees and expenses, including sales charges applicable to the various insurance products that invest in the Fund, are not reflected in this Example. If such fees and expenses were reflected in the Example, the total expenses shown would be higher. Fees and expenses regarding such variable insurance products are separately described in the prospectus related to those products.
Actual Expenses
The first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled “Expenses Paid During Period 7/1/19 – 12/31/19” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
6
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value | Ending Account Value | Expenses Paid During Period† | |||||
7/1/19 | 12/31/19 | 7/1/19 - 12/31/19 | |||||
Class VC | |||||||
Actual | $1,000.00 | $1,087.00 | $5.21 | ||||
Hypothetical (5% Return Before Expenses) | $1,000.00 | $1,020.21 | $5.04 |
† | Net expenses are equal to the Fund’s annualized expense ratio of 0.99%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect one-half year period). |
Portfolio Holdings Presented by Sector
December 31, 2019
Sector* | %** | |||
Communication Services | 6.72 | % | ||
Consumer Discretionary | 9.26 | % | ||
Consumer Staples | 14.24 | % | ||
Energy | 4.07 | % | ||
Financials | 8.23 | % | ||
Health Care | 9.86 | % | ||
Industrials | 17.56 | % | ||
Information Technology | 15.85 | % | ||
Materials | 5.91 | % | ||
Utilities | 7.38 | % | ||
Repurchase Agreement | 0.92 | % | ||
Total | 100.00 | % |
* | A sector may comprise several industries. | |
** | Represents percent of total investments. |
7
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
COMMON STOCKS 99.00% | ||||||||
Aerospace & Defense 5.16% | ||||||||
General Dynamics Corp. | 10,500 | $ | 1,852 | |||||
L3Harris Technologies, Inc. | 11,800 | 2,335 | ||||||
Northrop Grumman Corp. | 7,300 | 2,511 | ||||||
United Technologies Corp. | 18,200 | 2,725 | ||||||
Total | 9,423 | |||||||
Banks 0.71% | ||||||||
Prosperity Bancshares, Inc. | 18,000 | 1,294 | ||||||
Beverages 3.86% | ||||||||
Coca-Cola Co. (The) | 56,168 | 3,109 | ||||||
PepsiCo, Inc. | 28,824 | 3,939 | ||||||
Total | 7,048 | |||||||
Biotechnology 1.51% | ||||||||
AbbVie, Inc. | 31,099 | 2,753 | ||||||
Capital Markets 2.84% | ||||||||
Ameriprise Financial, Inc. | 13,000 | 2,166 | ||||||
S&P Global, Inc. | 8,900 | 2,430 | ||||||
T. Rowe Price Group, Inc. | 4,900 | 597 | ||||||
Total | 5,193 | |||||||
Chemicals 4.95% | ||||||||
Air Products & Chemicals, Inc. | 10,000 | 2,350 | ||||||
Linde plc (United Kingdom)(a) | 8,800 | 1,873 | ||||||
PPG Industries, Inc. | 17,006 | 2,270 | ||||||
Sherwin-Williams Co. (The) | 4,375 | 2,553 | ||||||
Total | 9,046 | |||||||
Commercial Services & Supplies 1.15% | ||||||||
Waste Management, Inc. | 18,400 | 2,097 | ||||||
Diversified Telecommunication Services 4.51% | ||||||||
AT&T, Inc. | 101,108 | 3,951 | ||||||
Verizon Communications, Inc. | 69,900 | 4,292 | ||||||
Total | 8,243 |
Investments | Shares | Fair Value (000) | ||||||
Electric: Utilities 4.52% | ||||||||
Duke Energy Corp. | 33,400 | $ | 3,046 | |||||
Edison International | 27,300 | 2,059 | ||||||
NextEra Energy, Inc. | 13,000 | 3,148 | ||||||
Total | 8,253 | |||||||
Electrical Equipment 0.78% | ||||||||
Hubbell, Inc. | 9,600 | 1,419 | ||||||
Food & Staples Retailing 5.70% | ||||||||
Costco Wholesale Corp. | 9,700 | 2,851 | ||||||
Sysco Corp. | 30,200 | 2,583 | ||||||
Walgreens Boots Alliance, Inc. | 19,521 | 1,151 | ||||||
Walmart, Inc. | 32,180 | 3,824 | ||||||
Total | 10,409 | |||||||
Gas Utilities 0.64% | ||||||||
UGI Corp. | 26,100 | 1,179 | ||||||
Health Care Equipment & Supplies 5.47% | ||||||||
Abbott Laboratories | 58,500 | 5,081 | ||||||
Medtronic plc (Ireland)(a) | 43,391 | 4,923 | ||||||
Total | 10,004 | |||||||
Health Care Providers & Services 0.89% | ||||||||
AmerisourceBergen Corp. | 19,100 | 1,624 | ||||||
Hotels, Restaurants & Leisure 1.54% | ||||||||
Cracker Barrel Old Country Store, Inc. | 5,500 | 845 | ||||||
McDonald’s Corp. | 9,974 | 1,971 | ||||||
Total | 2,816 | |||||||
Household Products 2.70% | ||||||||
Procter & Gamble Co. (The) | 39,500 | 4,933 | ||||||
Industrial Conglomerates 2.15% | ||||||||
3M Co. | 13,067 | 2,305 | ||||||
Carlisle Cos., Inc. | 10,100 | 1,635 | ||||||
Total | 3,940 |
8 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
Information Technology Services 6.03% | ||||||||
Accenture plc Class A(Ireland)(a) | 13,900 | $ | 2,927 | |||||
Automatic Data Processing, Inc. | 14,900 | 2,540 | ||||||
International Business Machines Corp. | 15,387 | 2,063 | ||||||
Visa, Inc. Class A | 18,600 | 3,495 | ||||||
Total | 11,025 | |||||||
Insurance 4.68% | ||||||||
American Financial Group, Inc. | 9,300 | 1,020 | ||||||
Chubb Ltd. (Switzerland)(a) | 20,300 | 3,160 | ||||||
Prudential Financial, Inc. | 11,000 | 1,031 | ||||||
RenaissanceRe Holdings Ltd. | 8,000 | 1,568 | ||||||
Travelers Cos., Inc. (The) | 12,900 | 1,767 | ||||||
Total | 8,546 | |||||||
Machinery 4.46% | ||||||||
Cummins, Inc. | 11,700 | 2,094 | ||||||
Dover Corp. | 15,800 | 1,821 | ||||||
Illinois Tool Works, Inc. | 11,800 | 2,120 | ||||||
Stanley Black & Decker, Inc. | 12,800 | 2,121 | ||||||
Total | 8,156 | |||||||
Media 2.21% | ||||||||
Comcast Corp. Class A | 89,700 | 4,034 | ||||||
Metals & Mining 0.95% | ||||||||
Nucor Corp. | 30,900 | 1,739 | ||||||
Multi-Line Retail 1.49% | ||||||||
Target Corp. | 21,300 | 2,731 | ||||||
Multi-Utilities 2.21% | ||||||||
CMS Energy Corp. | 30,500 | 1,917 | ||||||
WEC Energy Group, Inc. | 23,000 | 2,121 | ||||||
Total | 4,038 |
Investments | Shares | Fair Value (000) | ||||||
Oil, Gas & Consumable Fuels 4.06% | ||||||||
Chevron Corp. | 36,949 | $ | 4,453 | |||||
Exxon Mobil Corp. | 17,700 | 1,235 | ||||||
Occidental Petroleum Corp. | 21,473 | 885 | ||||||
ONEOK, Inc. | 11,300 | 855 | ||||||
Total | 7,428 | |||||||
Pharmaceuticals 1.98% | ||||||||
Johnson & Johnson | 24,819 | 3,620 | ||||||
Road & Rail 3.85% | ||||||||
CSX Corp. | 11,300 | 818 | ||||||
J.B. Hunt Transport Services, Inc. | 14,200 | 1,658 | ||||||
Union Pacific Corp. | 25,200 | 4,556 | ||||||
Total | 7,032 | |||||||
Semiconductors & Semiconductor Equipment 6.57% | ||||||||
Analog Devices, Inc. | 25,200 | 2,995 | ||||||
Microchip Technology, Inc. | 28,466 | 2,981 | ||||||
QUALCOMM, Inc. | 15,057 | 1,328 | ||||||
Texas Instruments, Inc. | 22,200 | 2,848 | ||||||
Xilinx, Inc. | 19,000 | 1,858 | ||||||
Total | 12,010 | |||||||
Software 3.24% | ||||||||
Microsoft Corp. | 37,500 | 5,914 | ||||||
Specialty Retail 4.16% | ||||||||
Lowe’s Cos., Inc. | 31,625 | 3,787 | ||||||
Ross Stores, Inc. | 13,000 | 1,514 | ||||||
TJX Cos., Inc. (The) | 37,600 | 2,296 | ||||||
Total | 7,597 | |||||||
Textiles, Apparel & Luxury Goods 2.06% | ||||||||
NIKE, Inc. Class B | 37,100 | 3,759 | ||||||
Tobacco 1.97% | ||||||||
Philip Morris International, Inc. | 42,400 | 3,608 | ||||||
Total Common Stocks (cost $153,641,412) | 180,911 |
See Notes to Financial Statements. | 9 |
Schedule of Investments (continued)
December 31, 2019
Investments | Principal Amount (000) | Fair Value (000) | ||||||
SHORT-TERM INVESTMENT 0.92% | ||||||||
Repurchase Agreement | ||||||||
Repurchase Agreement dated 12/31/2019, 0.85% due 1/2/2020 with Fixed Income Clearing Corp. collateralized by $1,710,000 of U.S. Treasury Note at 1.50% due 8/31/2021; value: $1,715,506; proceeds: $1,677,801 (cost $1,677,722) | $1,678 | $ | 1,678 | |||||
Total Investments in Securities 99.92% (cost $155,319,134) | 182,589 | |||||||
Other Assets in Excessof Liabilities(b)0.08% | 139 | |||||||
Net Assets 100.00% | $ | 182,728 |
(a) | Foreign security traded in U.S. dollars. | |
(b) | Other Assets in Excess of Liabilities include net unrealized appreciation on futures contracts as follows: |
Open Futures Contracts at December 31, 2019:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation | |||||||
E- Mini S&P 500 Index | March 2020 | 7 | Long | $1,113,863 | $1,130,885 | $17,022 |
10 | See Notes to Financial Statements. |
Schedule of Investments (concluded)
December 31, 2019
The following is a summary of the inputs used as of December 31, 2019 in valuing the Fund’s investments carried at fair value(1):
Investment Type(2) | Level 1 (000) | Level 2 (000) | Level 3 (000) | Total (000) | ||||||||||||
Common Stocks | $ | 180,911 | $ | – | $ | – | $ | 180,911 | ||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | – | 1,678 | – | 1,678 | ||||||||||||
Total | $ | 180,911 | $ | 1,678 | $ | – | $ | 182,589 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts | ||||||||||||||||
Assets | $ | 17 | $ | – | $ | – | $ | 17 | ||||||||
Liabilities | – | – | – | – | ||||||||||||
Total | $ | 17 | $ | – | $ | – | $ | 17 |
(1) | Refer to Note 2(i) for a description of fair value measurements and the three-tier hierarchy of inputs. | |
(2) | See Schedule of Investments for fair values in each industry and identification of foreign issuers and/or geography. |
See Notes to Financial Statements. | 11 |
Statement of Assets and Liabilities
December 31, 2019
ASSETS: | ||||
Investments in securities, at fair value (cost $155,319,134) | $ | 182,589,129 | ||
Deposits with brokers for futures collateral | 44,100 | |||
Receivables: | ||||
Investment securities sold | 765,310 | |||
Interest and dividends | 258,965 | |||
Capital shares sold | 16,348 | |||
Variation margin for futures contracts | 9,316 | |||
From advisor (See Note 3) | 6,850 | |||
Prepaid expenses | 644 | |||
Total assets | 183,690,662 | |||
LIABILITIES: | ||||
Payables: | ||||
Investment securities purchased | 677,280 | |||
Management fee | 84,530 | |||
Capital shares reacquired | 46,836 | |||
Directors’ fees | 19,159 | |||
Fund administration | 6,148 | |||
Accrued expenses | 128,640 | |||
Total liabilities | 962,593 | |||
Commitments and contingent liabilities | ||||
NET ASSETS | $ | 182,728,069 | ||
COMPOSITION OF NET ASSETS: | ||||
Paid-in capital | $ | 155,435,844 | ||
Total distributable earnings (loss) | 27,292,225 | |||
Net Assets | $ | 182,728,069 | ||
Outstanding shares (50 million shares of common stock authorized, $.001 par value) | 11,448,121 | |||
Net asset value, offering and redemption price per share (Net assets divided by outstanding shares) | $15.96 |
12 | See Notes to Financial Statements. |
For the Year Ended December 31, 2019
Investment income: | ||||
Dividends | $ | 4,332,648 | ||
Interest | 23,047 | |||
Total investment income | 4,355,695 | |||
Expenses: | ||||
Management fee | 1,047,539 | |||
Non 12b-1 service fees | 428,831 | |||
Shareholder servicing | 181,144 | |||
Fund administration | 68,537 | |||
Professional | 53,598 | |||
Reports to shareholders | 35,392 | |||
Custody | 27,072 | |||
Directors’ fees | 4,876 | |||
Other | 44,424 | |||
Gross expenses | 1,891,413 | |||
Expense reductions (See Note 9) | (5,549 | ) | ||
Fees waived and expenses reimbursed (See Note 3) | (236,875 | ) | ||
Net expenses | 1,648,989 | |||
Net investment income | 2,706,706 | |||
Net realized and unrealized gain: | ||||
Net realized gain on investments | 8,832,085 | |||
Net realized gain on futures contracts | 272,268 | |||
Net change in unrealized appreciation/depreciation on investments | 26,720,304 | |||
Net change in unrealized appreciation/depreciation on futures contracts | 18,551 | |||
Net realized and unrealized gain | 35,843,208 | |||
Net Increase in Net Assets Resulting From Operations | $ | 38,549,914 |
See Notes to Financial Statements. | 13 |
Statements of Changes in Net Assets
INCREASE (DECREASE) IN NET ASSETS | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | ||||||
Operations: | ||||||||
Net investment income | $ | 2,706,706 | $ | 2,973,966 | ||||
Net realized gain on investments and futures contracts | 9,104,353 | 13,992,877 | ||||||
Net change in unrealized appreciation/depreciation on investments and futures contracts | 26,738,855 | (24,284,863 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 38,549,914 | (7,318,020 | ) | |||||
Distributions to shareholders: | (11,725,920 | ) | (17,013,093 | ) | ||||
Capital share transactions (See Note 15): | ||||||||
Proceeds from sales of shares | 39,221,778 | 32,964,166 | ||||||
Reinvestment of distributions | 11,725,920 | 17,013,093 | ||||||
Cost of shares reacquired | (35,682,954 | ) | (77,228,521 | ) | ||||
Net increase (decrease) in net assets resulting from capital share transactions | 15,264,744 | (27,251,262 | ) | |||||
Net increase (decrease) in net assets | 42,088,738 | (51,582,375 | ) | |||||
NET ASSETS: | ||||||||
Beginning of year | $ | 140,639,331 | $ | 192,221,706 | ||||
End of year | $ | 182,728,069 | $ | 140,639,331 |
14 | See Notes to Financial Statements. |
This page is intentionally left blank.
15
Per Share Operating Performance: | ||||||||||||||||||||||||||||
Investment operations: | Distributions to shareholders from: | |||||||||||||||||||||||||||
Net asset value, beginning of period | Net invest- ment income(a) | Net realized and unrealized gain (loss) | Total from invest- ment opera- tions | Net investment income | Net realized gain | Total distri- butions | ||||||||||||||||||||||
12/31/2019 | $13.48 | $0.24 | $ 3.31 | $ | 3.55 | $(0.25 | ) | $(0.82 | ) | $(1.07 | ) | |||||||||||||||||
12/31/2018 | 16.02 | 0.27 | (1.03 | ) | (0.76 | ) | (0.30 | ) | (1.48 | ) | (1.78 | ) | ||||||||||||||||
12/31/2017 | 14.47 | 0.26 | 2.49 | 2.75 | (0.27 | ) | (0.93 | ) | (1.20 | ) | ||||||||||||||||||
12/31/2016 | 13.60 | 0.28 | 1.78 | 2.06 | (0.25 | ) | (0.94 | ) | (1.19 | ) | ||||||||||||||||||
12/31/2015 | 15.55 | 0.27 | (0.60 | ) | (0.33 | ) | (0.27 | ) | (1.35 | ) | (1.62 | ) |
(a) | Calculated using average shares outstanding during the period. |
(b) | Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions. |
16 | See Notes to Financial Statements. |
Ratios to Average Net Assets: | Supplemental Data: | |||||||||||||||||||||||||
Net asset value, end of period | Total return(b) (%) | Total expenses after waivers and/or reim- bursements (%) | Total expenses (%) | Net investment income (%) | Net assets, end of period (000) | Portfolio turnover rate (%) | ||||||||||||||||||||
$ | 15.96 | 26.45 | 0.96 | 1.10 | 1.58 | $ | 182,728 | 61 | ||||||||||||||||||
13.48 | (4.67 | ) | 0.88 | 1.22 | 1.68 | 140,639 | 58 | |||||||||||||||||||
16.02 | 19.12 | 0.85 | 1.21 | 1.71 | 192,222 | 58 | ||||||||||||||||||||
14.47 | 15.10 | 0.85 | 1.25 | 1.89 | 171,330 | 75 | ||||||||||||||||||||
13.60 | (2.13 | ) | 0.85 | 1.28 | 1.76 | 105,016 | 70 |
See Notes to Financial Statements. | 17 |
1. | ORGANIZATION |
Lord Abbett Series Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified, open-end management investment company and was incorporated under Maryland law in 1989. The Company consists of nine separate portfolios. This report covers Calibrated Dividend Growth Portfolio (the “Fund”).
The Fund’s investment objective is to seek current income and capital appreciation. The Fund has Variable Contract class shares (“Class VC Shares”), which are currently issued and redeemed only in connection with investments in, and payments under, variable annuity contracts and variable life insurance policies issued by life insurance and insurance-related companies.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies.
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Investment Valuation–Under procedures approved by the Fund’s Board of Directors (the “Board”), Lord, Abbett & Co. LLC (“Lord Abbett”), the Fund’s investment manager, has formed a Pricing Committee to administer the pricing and valuation of portfolio investments and to ensure that prices utilized reasonably reflect fair value. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value. |
Securities actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to reflect their fair value as of the close of regular trading on the New York Stock Exchange. The Fund may utilize an independent fair valuation service in adjusting the valuations of foreign securities. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices. Exchange traded options and futures contracts are valued at the last sale price in the market where they are principally traded. If no sale has occurred, the mean between the most recently quoted bid and asked prices is used. | |
Securities for which prices are not readily available are valued at fair value as determined by the Pricing Committee. The Pricing Committee considers a number of factors, including observable and unobservable inputs, when arriving at fair value. The Pricing Committee may use related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant information to determine the fair value of portfolio investments. The Board or a designated committee thereof regularly reviews fair value determinations made by the Pricing Committee and may employ techniques such as reviewing related market activity, reviewing inputs and assumptions, and retrospectively comparing prices of subsequent purchases and sales transactions to fair value determinations made by the Pricing Committee. | |
Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates fair value. |
18
Notes to Financial Statements (continued)
(b) | Security Transactions–Security transactions are recorded as of the date that the securities are purchased or sold (trade date). Realized gains and losses on sales of portfolio securities are calculated using the identified-cost method. |
(c) | Investment Income–Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis as earned. Discounts are accreted and premiums are amortized using the effective interest method and are included in Interest on the Statement of Operations. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates. |
(d) | Income Taxes–It is the policy of the Fund to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income and capital gains to its shareholders. Therefore, no income tax provision is required. |
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s filed U.S. federal tax returns remains open for the fiscal years ended December 31, 2016 through December 31, 2019. The statutes of limitations on the Company’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. | |
(e) | Expenses–Expenses incurred by the Company that do not specifically relate to an individual fund are generally allocated to the funds within the Company on a pro rata basis by relative net assets. |
(f) | Foreign Transactions–The books and records of the Fund are maintained in U.S. dollars and transactions denominated in foreign currencies are recorded in the Fund’s records at the rate prevailing when earned or recorded. Asset and liability accounts that are denominated in foreign currencies are adjusted daily to reflect current exchange rates and any unrealized gain (loss), if applicable, is included in Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies in the Fund’s Statement of Operations. The resultant exchange gains and losses upon settlement of such transactions are included in Net realized gain (loss), if applicable, on foreign currency related transactions in the Fund’s Statement of Operations. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in market prices of the securities. |
The Fund uses foreign currency exchange contracts to facilitate transactions in foreign denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms. | |
(g) | Futures Contracts–The Fund may purchase and sell index futures contracts to manage cash, or as a substitute position in lieu of holding the underlying asset on which the instrument is based. At the time of entering into a futures transaction, an investor is required to deposit and maintain a specified amount of cash or eligible securities called “initial margin.” Subsequent payments made or received by the Fund called “variation margin” are made on a daily basis as the market price of the futures contract fluctuates. The Fund will record an unrealized gain (loss) based on the amount of variation margin. When a contract is closed, a realized gain (loss) is recorded equal to the difference between the opening and closing value of the contract. |
19
Notes to Financial Statements (continued)
(h) | Repurchase Agreements–The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which a fund acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. The Fund requires at all times that the repurchase agreement be collateralized by cash, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). If the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the fair value of these securities has declined, the Fund may incur a loss upon disposition of the securities. |
(i) | Fair Value Measurements–Fair value is defined as the price that the Fund would receive upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk—for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy classification is determined based on the lowest level of inputs that is significant to the fair value measurement, and is summarized in the three broad Levels listed below: |
• | Level 1 – | unadjusted quoted prices in active markets for identical investments; |
• | Level 2 – | other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and |
• | Level 3 – | significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
A summary of inputs used in valuing the Fund’s investments and other financial instruments as of December 31, 2019 and, if applicable, Level 3 rollforwards for the fiscal year then ended is included in the Fund’s Schedule of Investments. | |
Changes in valuation techniques may result in transfers into or out of an assigned level within the three-tier hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. | |
3. | MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES |
Management Fee
The Company has a management agreement with Lord Abbett, pursuant to which Lord Abbett supplies the Fund with investment management services and executive and other personnel, provides office space and pays for ordinary and necessary office and clerical expenses relating to research and statistical work and supervision of the Fund’s investment portfolio.
20
Notes to Financial Statements (continued)
Effective May 1, 2019, the management fee is based on the Fund’s average daily net assets at the following annual rate:
First $2 billion | .55% |
Over $2 billion | .49% |
Prior to May 1, 2019, the management fee was based on the Fund’s average daily net assets at the following annual rate:
First $1 billion | .75% |
Next $1 billion | .70% |
Over $2 billion | .65% |
For the fiscal year ended December 31, 2019, the effective management fee, net of waivers, was at an annualized rate of .47% of the Fund’s average daily net assets.
In addition, Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement in return for a fee at an annual rate of .04% of the Fund’s average daily net assets.
Effective May 1, 2019, Lord Abbett has contractually agreed to waive its fees and reimburse expenses to the extent necessary to limit total net annual operating expenses to an annual rate of .99%. This agreement may be terminated only upon the approval of the Board.
Prior to May 1, 2019, Lord Abbett contractually agreed to waive its fees and reimburse expenses to the extent necessary to limit total net annual operating expenses to an annual rate of .90%.
The Company, on behalf of the Fund, has entered into services arrangements with certain insurance companies. Under these arrangements, certain insurance companies will be compensated up to ..25% of the average NAV of the Fund’s Class VC Shares held in the insurance company’s separate account to service and maintain the Variable Contract owners’ accounts. This amount is included in Non 12b-1 service fees on the Statement of Operations. The Fund may also compensate certain insurance companies, third-party administrators and other entities for providing recordkeeping, sub-transfer agency and other administrative services to the Fund. This amount is included in Shareholder servicing on the Statement of Operations.
One Director and certain of the Company’s officers have an interest in Lord Abbett.
4. | DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS |
Dividends from net investment income, if any, are declared and paid at least semi-annually. Taxable net realized gains from investment transactions, reduced by allowable capital loss carryforwards, if any, are declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, is available to offset future net capital gains. Dividends and distributions to shareholders are recorded on the ex-dividend date. The amounts of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions that exceed earnings and profits for tax purposes are reported as a tax return of capital.
The tax character of distributions paid during the fiscal years ended December 31, 2019 and December 31, 2018 was as follows:
21
Notes to Financial Statements (continued)
Year Ended 12/31/2019 | Year Ended 12/31/2018 | |||||||||
Distributions paid from: | ||||||||||
Ordinary income | $ | 2,751,116 | $ | 5,997,659 | ||||||
Net long-term capital gains | 8,974,804 | 11,015,434 | ||||||||
Total distributions paid | $ | 11,725,920 | $ | 17,013,093 |
As of December 31, 2019, the components of accumulated gains (losses) on a tax-basis were as follows:
Undistributed ordinary income – net | $ | 243,094 | |||
Undistributed long-term capital gains | 915,683 | ||||
Total undistributed earnings | 1,158,777 | ||||
Temporary differences | (19,158 | ) | |||
Unrealized gains – net | 26,152,606 | ||||
Total accumulated gains – net | $ | 27,292,225 |
As of December 31, 2019, the aggregate unrealized security gains (losses) on investments and other financial instruments, if any, based on cost for U.S. federal income tax purposes were as follows:
Tax cost | $ | 156,453,545 | ||||||||
Gross unrealized gain | 28,092,610 | |||||||||
Gross unrealized loss | (1,940,004 | ) | ||||||||
Net unrealized security gain | $ | 26,152,606 |
The difference between book-basis and tax-basis unrealized gains (losses) is attributable to the tax treatment of other financial instruments and wash sales.
5. | PORTFOLIO SECURITIES TRANSACTIONS |
Purchases and sales of investment securities (excluding short-term investments) for the fiscal year ended December 31, 2019 were as follows:
Purchases | Sales | |
$108,633,239 | $103,777,180 |
There were no purchases or sales of U.S. Government securities for the fiscal year ended December 31, 2019.
The Fund is permitted to purchase and sell securities (“cross-trade”) from and to other Lord Abbett funds or client accounts pursuant to procedures approved by the Board in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at a fair market price in compliance with provisions of the Rule. For the fiscal year ended December 31, 2019, the Fund engaged in cross-trades purchases of $14,819,090, and sales of $1,846,027, which resulted in net realized gains of $130,264.
6. | DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
The Fund entered into E-Mini S&P 500 Index futures contracts for the fiscal year ended December 31, 2019 (as described in note 2(g)) to manage cash. The Fund bears the risk that the underlying index will move unexpectedly, in which case the Fund may realize a loss. There is minimal counterparty credit risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees futures against default.
22
Notes to Financial Statements (continued)
As of December 31, 2019, the Fund had futures contracts with unrealized appreciation of $17,022, which is included in the Schedule of Investments. Only current day’s variation margin is reported within the Fund’s Statement of Assets and Liabilities. Amounts of $272,268 and $18,551 are included in the Statement of Operations related to futures contracts under the captions Net realized gain on futures contracts and Net change in unrealized appreciation on futures contracts, respectively. The average number of futures contracts throughout the period was 8.
7. | DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES |
The Financial Accounting Standards Board (“FASB”) requires disclosures intended to help better assess the effect or potential effect of offsetting arrangements on a fund’s financial position. The following tables illustrate gross and net information about recognized assets and liabilities eligible for offset in the Statement of Assets and Liabilities; and disclose such amounts subject to an enforceable master netting agreement or similar agreement, by counterparty. A master netting agreement is an agreement between a fund and a counterparty which provides for the net settlement of amounts owed under all contracts traded under that agreement, as well as cash collateral, through a single payment by one party to the other in the event of default on or termination of any one contract. The Fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the master netting agreement does not result in an offset of reported amounts of financial assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty:
Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Assets Presented in the Statement of Assets and Liabilities | |||||||||
Repurchase Agreement | $ | 1,677,722 | $ | – | $ | 1,677,722 | ||||||
Total | $ | 1,677,722 | $ | – | $ | 1,677,722 |
Net Amounts of Assets Presented in | Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Received(a) | Securities Collateral Received(a) | Net Amount(b) | |||||||||||||||
Fixed Income Clearing Corp. | $ | 1,677,722 | $ | – | $ | – | $ | (1,677,722 | ) | $ | – | |||||||||
Total | $ | 1,677,722 | $ | – | $ | – | $ | (1,677,722 | ) | $ | – |
(a) | Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets presented in the Statement of Assets and Liabilities, for each respective counterparty. |
(b) | Net amount represents the amount owed to the Fund by the counterparty as of December 31, 2019. |
8. | DIRECTORS’ REMUNERATION |
The Company’s officers and one Director, who are associated with Lord Abbett, do not receive any compensation from the Company for serving in such capacities. Independent Directors’ fees are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all Independent Directors under which Independent Directors must defer receipt of a portion of, and may elect to defer receipt of an additional portion of Directors’ fees. The deferred amounts are treated as though equivalent dollar amounts had been invested in the funds. Such amounts and earnings accrued thereon are included in Directors’ fees on the
23
Notes to Financial Statements (continued)
Statement of Operations and in Directors’ fees payable on the Statement of Assets and Liabilities and are not deductible for U.S. federal income tax purposes until such amounts are paid.
9. | EXPENSE REDUCTIONS |
The Company has entered into an arrangement with its transfer agent and custodian, whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s expenses.
10. | LINE OF CREDIT |
For the period ended August 7, 2019, the Fund and certain other funds managed by Lord Abbett (collectively, the “Participating Funds”) entered into a Syndicated Facility with various lenders for $1.1 billion whereas State Street Bank and Trust Company (“SSB”) participated as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if Fund net assets are less than $750 million), $250 million, $300 million, $350 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
Effective August 8, 2019, the Participating Funds entered into a Syndicated Facility with various lenders for $1.17 billion whereas SSB participates as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, $500 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
For the period ended August 7, 2019, the Participating Funds entered into an additional line of credit facility with SSB for $250 million (the “Bilateral Facility” and together with the Syndicated Facility, the “Facilities”). Under the Bilateral Facility, each Participating Fund may borrow up to the lesser of $250 million or one-third of Fund net assets.
Effective August 8, 2019, the Participating Funds entered into a Bilateral Facility with SSB for $330 million ($250 million committed and $80 million uncommitted). Under the Bilateral Facility, the Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, or $330 million, based on past borrowings and likelihood of future borrowings, among other factors.
The Facilities are to be used for temporary or emergency purposes as an additional source of liquidity to satisfy redemptions.
For the fiscal year ended December 31, 2019, the Fund did not utilize the Facilities.
11. | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission (“SEC exemptive order”), certain registered open-end management investment companies managed by Lord Abbett, including the Fund, participate in a joint lending and borrowing program (the “Interfund Lending Program”). The SEC exemptive order allows the Funds to borrow money from and lend money to each other for temporary or emergency purposes subject to the limitations and conditions.
For the fiscal year ended December 31, 2019, the Fund did not participate as a borrower or lender in the Interfund Lending Program.
24
Notes to Financial Statements (continued)
12. | CUSTODIAN AND ACCOUNTING AGENT |
SSB is the Company’s custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund’s NAV.
13. | SECURITIES LENDING AGREEMENT |
The Fund has established a securities lending agreement with Citibank, N.A. for the lending of securities to qualified brokers in exchange for securities or cash collateral equal to at least the market value of securities loaned, plus interest, if applicable. Cash collateral is invested in an approved money market fund. In accordance with the Fund’s securities lending agreement, the market value of securities on loan is determined each day at the close of business and any additional collateral required to cover the value of securities on loan is delivered to the Fund on the next business day. As with other extensions of credit, the Fund may experience a delay in the recovery of their securities or incur a loss should the borrower of the securities breach its agreement with the Fund or become insolvent at a time when the collateral is insufficient to cover the cost of repurchasing securities on loan. Any income earned from lending securities will be noted on the Statement of Operations.
For the fiscal year ended December 31, 2019, the Fund did not loan any securities.
14. | INVESTMENT RISKS |
The Fund is subject to the general risks and considerations associated with equity investing. The Fund invests primarily in equity securities of large and mid-sized company stocks that have a history of growing their dividends, but there is no guarantee that a company will pay a dividend. At times, the performance of dividend paying companies may lag the performance of other companies or the broader market as a whole. The value of the Fund’s investments in equity securities will fluctuate in response to general economic conditions and to the changes in the prospects of particular companies and/or sectors in the economy. If the Fund’s fundamental research and quantitative analysis fail to produce the intended result, the Fund may suffer losses or underperform its benchmark or other funds with the same investment objective or similar strategies, even in a favorable market.
Large and mid-sized company stocks each may perform differently than the market as a whole and other types of stocks. This is because different types of stocks tend to shift in and out of favor over time depending on market and economic conditions. Mid-sized company stocks may be less able to weather economic shifts or other adverse developments than those of larger, more established companies. Although investing in mid-sized companies offers the potential for above average returns, these companies may not succeed and the value of their stock could decline significantly. Mid-sized companies also may fall out of favor relative to larger companies in certain market cycles, causing the Fund to incur losses or under perform.
The Fund’s exposure to foreign companies and markets presents increased market, industry and sector, liquidity, currency, political and other risks. The securities of foreign companies also may be subject to inadequate exchange control regulations, the imposition of economic sanctions or other government restrictions, higher transaction and other costs, and delays in settlement to the extent they are traded on non-U.S. exchanges or markets.
These factors can affect the Fund’s performance.
25
Notes to Financial Statements (concluded)
15. | SUMMARY OF CAPITAL TRANSACTIONS |
Transactions in shares of capital stock were as follows:
Year Ended December 31, 2019 | Year Ended December 31, 2018 | |||||||
Shares sold | 2,675,880 | 2,056,130 | ||||||
Reinvestment of distributions | 737,009 | 1,257,879 | ||||||
Shares reacquired | (2,399,283 | ) | (4,880,648 | ) | ||||
Increase (decrease) | 1,013,606 | (1,566,639 | ) |
26
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Lord Abbett Series Fund, Inc.
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Calibrated Dividend Growth Portfolio, one of the funds constituting Lord Abbett Series Fund, Inc. (the “Fund”), as of December 31, 2019, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Calibrated Dividend Growth Portfolio of the Fund as of December 31, 2019, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
New York, New York
February 14, 2020
We have served as the auditor of one or more Lord Abbett Family of Funds’ investment companies since 1932.
27
Supplemental Proxy Information (unaudited)
A joint special meeting of shareholders of the Fund was held on August 26, 2019. The joint special meeting was held for the purpose of electing members of the Fund’s Board of Directors. Shareholders elected the following ten (10) Directors at the joint special meeting:
• | Eric C. Fast |
• | Evelyn E. Guernsey |
• | Julie A. Hill |
• | Kathleen M. Lutito |
• | James M. McTaggart |
• | Charles O. Prince |
• | Karla M. Rabusch |
• | Mark A. Schmid |
• | Douglas B. Sieg |
• | James L.L. Tullis |
The results of the proxy solicitation on the preceding matter were as follows:
Lord Abbett Series Fund, Inc.
Nominee Votes | Votes For | Votes Withheld |
Eric C. Fast | 186,329,820.614 | 7,776,255.685 |
Evelyn E. Guernsey | 186,718,826.419 | 7,387,249.880 |
Julie A. Hill | 186,486,240.620 | 7,619,835.679 |
Kathleen M. Lutito | 187,082,042.409 | 7,024,033.890 |
James M. McTaggart | 186,269,131.867 | 7,836,944.422 |
Charles O. Prince | 186,103,251.100 | 8,002,825.199 |
Karla M. Rabusch | 186,796,719.683 | 7,309,356.626 |
Mark A. Schmid | 186,825,573.395 | 7,280,502.894 |
Douglas B. Sieg | 186,702,410.889 | 7,403,665.410 |
James L.L. Tullis | 186,229,277.817 | 7,876,798.472 |
28
Basic Information About Management
The Board is responsible for the management of the business and affairs of the Company in accordance with the laws of the State of Maryland. The Board elects officers who are responsible for the day-to-day operations of the Fund and who execute policies authorized by the Board. The Board also approves an investment adviser to the Fund and continues to monitor the cost and quality of the services the investment adviser provides, and annually considers whether to renew the contract with the investment adviser. Generally, each Director holds office until his/her successor is elected and qualified or until his/her earlier resignation or removal, as provided in the Company’s organizational documents.
Lord Abbett, a Delaware limited liability company, is the Fund’s investment adviser. Designated Lord Abbett personnel are responsible for the day-to-day management of the Fund.
Interested Directors
Mr. Sieg is affiliated with Lord Abbett and is an “interested person” of the Company as defined in the Act. Mr. Sieg is director/trustee of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios. Mr. Sieg is an officer of the Lord Abbett Family of Funds.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Douglas B. Sieg Lord, Abbett & Co. LLC 90 Hudson Street Jersey City, NJ 07302 (1969) | Director since 2016; President and Chief Executive Officer since 2018 | Principal Occupation: Managing Partner (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. Other Directorships: None. |
Independent Directors
The following Independent Directors also are directors/trustees of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Evelyn E. Guernsey Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1955) | Director since 2011 | Principal Occupation: None. Other Directorships: None. | ||
Julie A. Hill Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1946) | Director since 2004 | Principal Occupation: Owner and CEO of The Hill Company, a business consulting firm (since 1998). Other Directorships: Currently serves as director of Anthem, Inc., a health benefits company (since 1994). | ||
Kathleen M. Lutito Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1963) | Director since 2017 | Principal Occupation: President and Chief Investment Officer of CenturyLink Investment Management Company (since 2006). Other Directorships: None. |
29
Notes to Financial Statements (continued)
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
James M. McTaggart Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2012 | Principal Occupation:Independent management advisor and consultant (since 2012). Other Directorships:Blyth, Inc., a home products company (2004–2015). | ||
Charles O. Prince Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1950) | Director since 2019 | Principal Occupation:None. Formerly Chairman and Chief Executive Officer, Citigroup, Inc. Other Directorships:Currently serves as director of Johnson & Johnson(2006–Present). Previously served as director of Xerox Corporation (2008–2018). | ||
Karla M. Rabusch Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2017 | Principal Occupation:President and Director of Wells Fargo Funds Management, LLC (2003–2017); President of Wells Fargo Funds (2003–2016). Other Directorships:None. | ||
Mark A. Schmid Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2016 | Principal Occupation:Vice President and Chief Investment Officer of the University of Chicago (since 2009). Other Directorships:None. | ||
James L.L. Tullis Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2006; Chairman since 2017 | Principal Occupation:Chairman of Tullis Health Investors - FL LLC (since 2018); CEO of Tullis–Dickerson and Co. Inc., a venture capital management firm (1990–2016). Other Directorships:Currently serves as director of Crane Co. (since 1998), Alphatec Spine, Inc. (since 2018), and electroCore, Inc. (since 2018). |
Officers
None of the officers listed below have received compensation from the Company. All of the officers of the Company also may be officers of the other Lord Abbett Funds and maintain offices at 90 Hudson Street, Jersey City, NJ 07302. Unless otherwise indicated, the position(s) and title(s) listed under the “Principal Occupation During the Past Five Years” column indicate each officer’s position(s) and title(s) with Lord Abbett. Each officer serves for an indefinite term (i.e., until his or her death, resignation, retirement, or removal).
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Douglas B. Sieg (1969) | President and Chief Executive Officer | Elected as President and Chief Executive Officer in 2018 | Managing Partner of Lord Abbett (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. |
30
Basic Information About Management (concluded)
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Jackson C. Chan (1964) | AML Compliance Officer | Elected in 2018 | Deputy Chief Compliance Officer and Director of Regulatory Affairs, joined Lord Abbett in 2014. | |||
Pamela P. Chen (1978) | Vice President, Assistant Secretary and Privacy Officer | Elected as Vice President and Assistant Secretary in 2018 and Privacy Officer in 2019 | Associate General Counsel, joined Lord Abbett in 2017 and was formerly Special Counsel at Schulte, Roth & Zabel LLP (2005–2017). | |||
John T. Fitzgerald (1975) | Vice President and Assistant Secretary | Elected in 2018 | Deputy General Counsel, joined Lord Abbett in 2018 and was formerly Deputy Head of U.S. Funds Legal, Executive Director and Assistant General Counsel at JPMorgan Chase (2005–2018). | |||
Vito A. Fronda (1969) | Treasurer | Elected in 2018 | Partner and Director of Fund Treasury and Tax, joined Lord Abbett in 2003. | |||
Bernard J. Grzelak (1971) | Chief Financial Officer and Vice President | Elected in 2017 | Partner and Chief Operating Officer, Global Funds and Risk, joined Lord Abbett in 2003. | |||
Linda Y. Kim (1980) | Vice President and Assistant Secretary | Elected in 2016 | Counsel, joined Lord Abbett in 2015. | |||
Joseph M. McGill (1962) | Chief Compliance Officer | Elected in 2014 | Partner and Chief Compliance Officer, joined Lord Abbett in 2014. | |||
Amanda S. Ryan (1978) | Vice President and Assistant Secretary | Elected in 2018 | Counsel, joined Lord Abbett in 2016 and was formerly a Director and Corporate Counsel at PGIM Investments (2012–2016). | |||
Lawrence B. Stoller (1963) | Vice President, Secretary and Chief Legal Officer | Elected as Vice President and Secretary in 2007 and Chief Legal Officer in 2019 | Partner and General Counsel, joined Lord Abbett in 2007. |
Please call 888-522-2388 for a copy of the statement of additional information, which contains further information about the Company’s Directors. It is available free upon request.
31
Approval of Advisory Contract
The Board, including all of the Directors who are not “interested persons” of the Company or of Lord Abbett, as defined in the Investment Company Act of 1940, as amended (the “Independent Directors”), annually considers whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett (the “Agreement”). In connection with its most recent approval, the Board reviewed materials relating specifically to the Agreement, as well as numerous materials received throughout the course of the year, including information about the Fund’s investment performance compared to the performance of its benchmark. Before making its decision as to the Fund, the Board had the opportunity to ask questions and request further information, taking into account its knowledge of Lord Abbett gained through its meetings and discussions. These meetings and discussions included reviews of Fund performance conducted by members of the Contract Committee, the deliberations of the Contract Committee, and discussions between the Contract Committee and Lord Abbett’s management. The Independent Directors also met with their independent legal counsel in various private sessions at which no representatives of management were present.
The materials received by the Board included, but were not limited to: (1) information provided by Broadridge Financial Solutions (“Broadridge”) regarding the investment performance of the Fund compared to the investment performance of certain funds with similar investment styles as determined by Broadridge, based, in part, on the Fund’s Morningstar category (the “performance peer group”), and the investment performance of the Fund’s benchmark; (2) information provided by Broadridge regarding the expense ratios, contractual and actual management fee rates, and other expense components for the Fund and certain funds in the same Morningstar category, with generally the same or similar share classes and operational characteristics, including asset size (the “expense peer group”); (3) certain supplemental investment performance information provided by Lord Abbett; (4) information provided by Lord Abbett on the expense ratios, management fee rates, and other expense components for the Fund; (5) sales and redemption information for the Fund; (6) information regarding Lord Abbett’s financial condition; (7) an analysis of the relative profitability of the Agreement to Lord Abbett; and (8) [1]information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
Investment Management and Related Services Generally.The Board considered the services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading, and Lord Abbett’s commitment to compliance with all applicable legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest that may result from being engaged in other lines of business. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to the Fund and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other. After reviewing these and related factors, the Board concluded that the Fund was likely to continue to benefit from the nature, extent and quality of the investment services provided by Lord Abbett under the Agreement.
Investment Performance.The Board reviewed the Fund’s investment performance in relation to that of the performance peer group and the Fund’s benchmark as of various periods ended June 30, 2019. The Board observed that the Fund’s investment performance was above the median of the performance peer group for the one-year period, was equal to the median of the performance peer group for the five-year period, and was below the median of the performance peer group for the three- and ten-year periods, and took into account actions taken by Lord Abbett to attempt to
32
Approval of Advisory Contract (continued)
improve equity fund performance. The Board further considered Lord Abbett’s performance and reputation generally, the performance of other Lord Abbett-managed funds overseen by the Board, and the willingness of Lord Abbett to take steps intended to improve performance when appropriate. After reviewing these and related factors, the Board concluded that the Fund’s Agreement should be continued.
Lord Abbett’s Personnel and Methods.The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of its investment objective and discipline, and other services provided to the Fund by Lord Abbett. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining personnel.
Nature and Quality of Other Services.The Board considered the nature, quality, and extent of compliance, administrative, and other services performed by Lord Abbett and the nature and extent of Lord Abbett’s supervision of third party service providers, including the Fund’s transfer agent and custodian.
Expenses.The Board considered the expense level of the Fund, including the contractual and actual management fee rates, and the expense levels of the Fund’s expense peer group. It also considered how the expense level of the Fund related to those of the expense peer group and the amount and nature of the fees paid by shareholders. The Board observed that, although the net total expense ratio of the Fund was above the median of the expense peer group, its advisory fee was below the median of the expense peer group. The Board further considered that the Fund’s management fee was reduced, effective May 1, 2019. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that the management fees paid by, and expense level of, the Fund were reasonable in light of all of the factors it considered and supported the continuation of the Agreement.
Profitability.The Board considered the level of Lord Abbett’s operating margin in managing the Fund, including a review of Lord Abbett’s methodology for allocating its costs to its management of the Fund. It considered whether the Fund was profitable to Lord Abbett in connection with the Fund’s operation, including the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the profits realized from other business segments of Lord Abbett, which may benefit from or be related to the Fund’s business. The Board considered Lord Abbett’s profit margins excluding Lord Abbett’s marketing and distribution expenses. The Board also considered Lord Abbett’s profit margins, without those exclusions, in comparison with available industry data and how those profit margins could affect Lord Abbett’s ability to recruit and retain personnel. The Board recognized that Lord Abbett’s overall profitability was a factor in enabling it to attract and retain qualified personnel to provide services to the Fund. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that Lord Abbett’s profitability with respect to the Fund was not excessive.
Economies of Scale.The Board considered the extent to which there had been economies of scale in managing the Fund, whether the Fund’s shareholders had appropriately benefited from such economies of scale, and whether there was potential for realization of any further economies of scale. The Board concluded that the existing management fee schedule, with its breakpoint in the level of the management fee, in conjunction with the Fund’s expense limitation agreement, adequately addressed any economies of scale in managing the Fund.
33
Approval of Advisory Contract (concluded)
Other Benefits to Lord Abbett.The Board considered the amount and nature of the fees paid by the Fund and the Fund’s shareholders to Lord Abbett for services other than investment advisory services, such as the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the revenues and profitability of Lord Abbett’s investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that the Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees it receives, and receives a portion of the sales charges on sales and redemptions of some classes of shares of the Lord Abbett Funds. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectus of the Fund, has entered into revenue sharing arrangements with certain entities that distribute shares of the Lord Abbett Funds. The Board also took into consideration the investment research that Lord Abbett receives as a result of client brokerage transactions.
Alternative Arrangements.The Board considered whether, instead of approving continuation of the Agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms. After considering all of the relevant factors, the Board unanimously found that continuation of the Agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve the continuation of the Agreement. In considering whether to approve the continuation of the Agreement, the Board did not identify any single factor as paramount or controlling. Individual Directors may have evaluated the information presented differently from one another, giving different weights to various factors. This summary does not discuss in detail all matters considered.
34
Householding
The Company has adopted a policy that allows it to send only one copy of the Fund’s prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same “household.” This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.
Proxy Voting Policies, Procedures and Records
A description of the policies and procedures that Lord Abbett uses to vote proxies related to the Fund’s portfolio securities, and information on how Lord Abbett voted the Fund’s proxies during the 12-month period ended December 31 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett’s Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission’s (“SEC”) Website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters as an attachment to Form N-PORT. Copies of the filings are available without charge, upon request on the SEC’s Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388.
Tax Information |
For corporate shareholders, 100% of the Fund’s ordinary income distributions qualified for the dividends received deduction. |
Additionally, of the distributions paid to the shareholders during the fiscal year ended December 31, 2019, $42,625 and $8,974,804, respectively, represent short-term capital gains and long-term capital gains. |
35
This report, when not used for the general information of shareholders of the Fund, is to be distributed only if preceded or accompanied by a current fund prospectus. | |||
Lord Abbett mutual fund shares are distributed by LORD ABBETT DISTRIBUTOR LLC. | Lord Abbett Series Fund, Inc.
Calibrated Dividend Growth Portfolio | SFCS-PORT-3 |
LORD ABBETT
ANNUAL REPORT
Lord Abbett
Series Fund—Developing Growth Portfolio
For the fiscal year ended December 31, 2019
Table of Contents
Lord Abbett Series Fund — Developing Growth Portfolio
Annual Report
For the fiscal year ended December 31, 2019
From left to right: James L.L. Tullis, Independent Chairman of the Lord Abbett Funds and Douglas B. Sieg, Director, President, and Chief Executive Officer of the Lord Abbett Funds.
Dear Shareholders:We are pleased to provide you with this overview of the performance of Lord Abbett Series Fund — Developing Growth Portfolio for the fiscal year ended December 31, 2019. On this page and the following pages, we discuss the major factors that influenced fiscal year performance. For additional information about the Fund, please visit our website at www.lordabbett.com, where you also can access quarterly commentaries that provide updates on the Fund’s performance and other portfolio related updates.
Thank you for investing in Lord Abbett mutual funds. We value the trust that you place in us and look forward to serving your investment needs in the years to come.
Best regards,
Douglas B. Sieg
Director, President, and Chief Executive Officer
For the fiscal year ended December 31, 2019, the Fund returned 31.77%, reflecting performance at the net asset value (NAV) of Class VC shares with all distributions reinvested, compared to its benchmark, the Russell 2000® Growth Index,1which returned 28.48% over the same period.
Domestic equity returns were positive over the past year, with large cap stocks, as represented by the S&P 500® Index,2rising 31.49% during the period, while small cap stocks, as represented by the Russell 2000® Index,3were up 25.52%. Following a
tumultuous fourth quarter of 2018, where trade tensions and monetary policy uncertainty sent many investors toward safety, the market staged a strong recovery. After the worst December since 1931, the S&P 500 posted its best January performance since 1987. Trade tensions continued to dominate headlines, as trade negotiations between the U.S. and China remained volatile throughout the period. Since the beginning of 2019, both the U.S. and China have imposed tariffs of roughly $550 billion and $185 billion on each
1
country’s products, respectively. One of the more notable shifts over the year was the U.S. Federal Reserve’s (the “Fed”) transition to a more dovish policy stance, with Chairman Jerome Powell stating that the Fed would act appropriately to sustain economic growth. Given an uncertain market outlook and muted inflation pressures, the Fed announced its decision to cut interest rates by 25 basis points on July 31, 2019, to a range of 2.00–2.25%. This was the first time that the Fed had cut interest rates since December 2008. The Fed followed that decision with two more 25 basis point rate cuts in September and October, citing “implications of global developments for the economic outlook as well as muted inflation pressures”. After the October rate cut, Fed Chairman Powell signaled a likely pause on future rate cuts. The combination of a dovish Fed, trade pressures, and slowing economic growth resulted in falling rates across the U.S. Treasury yield curve. In fact, in July, the yield on the 10-year U.S. Treasury fell to its lowest level since 2016. Bond yields continued to fall, and in August, the spread between the U.S. 10-year Treasury and the 2-year Treasury temporarily inverted. In September, a large rotation from growth stocks into value took place and continued through November. Geopolitics also contributed to market volatility. Following a coordinated drone strike on Saudi Arabia in the third quarter, Brent crude oil prices increased 20% in one trading session. Despite the record increase, oil prices
retracted their gains within weeks. Investor sentiment was buoyed in November as the market grew optimistic about the possibility of a “Phase One” trade deal between the U.S. and China, which was ultimately reached in December. The agreement included structural reforms to China’s trade regime in areas such as intellectual property and agriculture, as well as a commitment from China to make additional purchases of U.S. goods and services moving forward. In return, the U.S. would not proceed with tariffs that were scheduled to go into effect in December on nearly $160 billion worth of Chinese goods and would cut the tariff rate imposed on September 1, 2019 on $120 billion worth of Chinese goods from 15% to 7.5%.
The leading contributor to the Fund’s absolute and relative performance during the period was security selection and positioning in the information technology sector. Within this sector, the Fund’s holdings of Coupa Software Inc., a provider of business spend management solutions, contributed most. Shares of Coupa appreciated rapidly as the company emerged as a leading platform for business spend management and began to enhance its business-to-business capabilities. Another contributor to relative performance within this sector during the reporting period was the Fund’s position in Okta, Inc., a provider of cloud-based identity and access management solutions. Shares of Okta rose throughout the period as the addressable market for identity and
2
access management grew rapidly, while the company added large clients and increased billings.
Security selection within the health care sector also contributed to the Fund’s relative performance during the reporting period. Within this sector, the Fund’s holdings of Repligen Corp., a provider of bioprocessing solutions for the development of biologic drugs, contributed as the company posted its best organic growth rate in over 3 years, with all segments contributing to its substantial growth.
The leading detractor from the Fund’s performance relative to the benchmark during the reporting period was security selection and positioning within the industrials sector. Within this sector, the Fund’s position in NV5 Global, Inc., a provider of consulting services, detracted. Shares of NV5 fell as the company reported third quarter results that missed expectations as the company experienced
delays in three projects. Another detractor within the sector was the Fund’s position in Herman Miller, Inc., a designer of interior furnishings, which reported revenue and third quarter earnings per share guidance that were below expectations.
Security selection in the communication services sector also detracted from the Fund’s performance relative to the benchmark during the reporting period. Within this sector, the Fund’s holdings of Eventbrite, Inc., an operator of a self-service online ticketing platform, detracted. Shares of Eventbrite declined precipitously as execution issues and challenges surrounding its migration of Ticketfly weighed on the company’s performance.
The Fund’s portfolio is actively managed and, therefore, its holdings and the weightings of a particular issuer or particular sector as a percentage of portfolio assets are subject to change. Sectors may include many industries.
1 The Russell 2000® Growth Index measures the performance of those Russell 2000® companies with higher price-to-book ratios and higher forecasted growth values.
2 The S&P 500® Index is widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries.
3 The Russell 2000® Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest companies based on a combination of their market capitalization and current index membership.
Unless otherwise specified, indexes reflect total return, with all dividends reinvested. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Important Performance and Other Information
Performance data quoted in the following pages reflect past performance and are no guarantee of future results. Current performance may be higher or lower than the performance quoted. The investment return and principal value of an investment in the Funds will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. You can obtain performance data current to the most recent month end by calling Lord Abbett at 888–522–2388 or referring to www.lordabbett.com.
During certain periods shown, expense waivers and reimbursements were in place. Without such expense waivers and reimbursements, the Fund’s returns would have been lower.
The annual commentary above discusses the views of the Fund’s management and various portfolio
3
holdings of the Fund as of December 31, 2019. These views and portfolio holdings may have changed after this date. Information provided in the commentary is not a recommendation to buy or sell securities. Because the Fund’s portfolio is actively managed and may change significantly, the Fund may no longer own the securities described above or may have otherwise changed their positions in the securities. For more recent information about the Fund’s portfolio holdings, please visit www.lordabbett.com.
A Note about Risk:See Notes to Financial Statements for a discussion of investment risks. For a
more detailed discussion of the risks associated with each Fund, please see the Fund’s prospectus.
Mutual funds are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, banks, and are subject to investment risks including possible loss of principal amount invested.
The Fund serves as an underlying investment vehicle for variable annuity contracts and variable life insurance policies.
4
Below is a comparison of a $10,000 investment in Class VC shares with the same investment in the Russell 2000® Growth Index, assuming reinvestment of all dividends and distributions. The Fund’s shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. The line graph comparison does not reflect the sales charges or other expenses of these contracts. If those sales charges and expenses were reflected, returns would be lower. The graph and performance table below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. During the period, expenses of the Fund have been waived or reimbursed by Lord Abbett; without such waiver or reimbursement of expenses, the Fund’s returns would have been lower.Past performance is no guarantee of future results.
Average Annual Total Returns for the Periods Ended December 31, 2019 | ||||||
1 Year | 5 Years | Life of Class | ||||
Class VC2 | 31.77% | 9.93% | 14.02% |
1 Performance for the unmanaged index does not reflect any fees or expenses. The performance of the index is not necessarily representative of the Fund’s performance. Performance for the index began on May 1, 2010.
2 The Class VC shares commenced operations on April 23, 2010. Performance for the Class began on May 1, 2010.
5
As a shareholder of the Fund, you incur ongoing costs, including management fees; expenses related to the Fund’s services arrangements with certain insurance companies; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2019 through December 31, 2019).
The Example reflects only expenses that are deducted from the assets of the Fund. Fees and expenses, including sales charges applicable to the various insurance products that invest in the Fund, are not reflected in this Example. If such fees and expenses were reflected in the Example, the total expenses shown would be higher. Fees and expenses regarding such variable insurance products are separately described in the prospectus related to those products.
Actual Expenses
The first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled “Expenses Paid During Period 7/1/19 – 12/31/19” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
6
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning | Ending | Expenses | |||||
Account | Account | Paid During | |||||
Value | Value | Period† | |||||
7/1/19 - | |||||||
7/1/19 | 12/31/19 | 12/31/19 | |||||
Class VC | |||||||
Actual | $1,000.00 | $ 951.20 | $5.11 | ||||
Hypothetical (5% Return Before Expenses) | $1,000.00 | $1,019.96 | $5.30 |
† | Net expenses are equal to the Fund’s annualized expense ratio of 1.04%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect one-half year period). |
Portfolio Holdings Presented by Sector
December 31, 2019
Sector* | %** | |||
Communication Services | 0.52 | % | ||
Consumer Discretionary | 17.20 | % | ||
Consumer Staples | 3.48 | % | ||
Financials | 5.23 | % | ||
Health Care | 31.00 | % | ||
Industrials | 11.29 | % | ||
Information Technology | 28.59 | % | ||
Real Estate | 0.78 | % | ||
Repurchase Agreement | 1.91 | % | ||
Total | 100.00 | % |
* | A sector may comprise several industries. | |
** | Represents percent of total investments. |
See Notes to Financial Statements. | 7 |
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
COMMON STOCKS 98.33% | ||||||||
Aerospace & Defense 2.28% | ||||||||
Axon Enterprise, Inc.* | 14,347 | $ | 1,051 | |||||
Cubic Corp. | 11,966 | 761 | ||||||
Total | 1,812 | |||||||
Auto Components 0.70% | ||||||||
Fox Factory Holding Corp.* | 7,978 | 555 | ||||||
Banks 2.38% | ||||||||
CenterState Bank Corp. | 28,619 | 715 | ||||||
Western Alliance Bancorp | 20,569 | 1,172 | ||||||
Total | 1,887 | |||||||
Beverages 0.73% | ||||||||
Boston Beer Co., Inc. (The) Class A* | 1,542 | 583 | ||||||
Biotechnology 16.26% | ||||||||
ACADIA Pharmaceuticals, Inc.* | 23,988 | 1,026 | ||||||
Amarin Corp. plc ADR* | 25,271 | 542 | ||||||
Argenx SE ADR* | 6,239 | 1,001 | ||||||
Blueprint Medicines Corp.* | 8,970 | 718 | ||||||
Bridgebio Pharma, Inc.* | 29,368 | 1,029 | ||||||
CareDx, Inc.* | 18,810 | 406 | ||||||
ChemoCentryx, Inc.* | 11,245 | 445 | ||||||
Coherus Biosciences, Inc.* | 72,991 | 1,314 | ||||||
CRISPR Therapeutics AG (Switzerland)*(a) | 8,977 | 547 | ||||||
Deciphera Pharmaceuticals, Inc.* | 6,623 | 412 | ||||||
Forty Seven, Inc.* | 11,185 | 440 | ||||||
Karuna Therapeutics, Inc.* | 3,115 | 235 | ||||||
Mirati Therapeutics, Inc.* | 10,732 | 1,383 | ||||||
Myovant Sciences Ltd. (United Kingdom)*(a) | 24,645 | 382 | ||||||
Natera, Inc.* | 11,065 | 373 | ||||||
NextCure, Inc.* | 5,905 | 333 | ||||||
Rocket Pharmaceuticals, Inc.* | 18,305 | 417 | ||||||
Sarepta Therapeutics, Inc.* | 4,431 | 572 | ||||||
Turning Point Therapeutics, Inc.* | 10,751 | 670 | ||||||
uniQure NV (Netherlands)*(a) | 9,251 | 663 | ||||||
Total | 12,908 |
Investments | Shares | Fair Value (000) | ||||||
Building Products 1.02% | ||||||||
Trex Co., Inc.* | 9,045 | $ | 813 | |||||
Capital Markets 1.09% | ||||||||
Assetmark Financial Holdings, Inc.* | 29,763 | 864 | ||||||
Commercial Services & Supplies 2.04% | ||||||||
Herman Miller, Inc. | 20,210 | 842 | ||||||
Tetra Tech, Inc. | 8,990 | 774 | ||||||
Total | 1,616 | |||||||
Communications Equipment 1.54% | ||||||||
Comtech Telecommunications Corp. | 17,275 | 613 | ||||||
Lumentum Holdings, Inc.* | 7,725 | 613 | ||||||
Total | 1,226 | |||||||
Construction & Engineering 1.42% | ||||||||
MasTec, Inc.* | 11,690 | 750 | ||||||
Quanta Services, Inc. | 9,366 | 381 | ||||||
Total | 1,131 | |||||||
Diversified Consumer Services 3.78% | ||||||||
Bright Horizons Family Solutions, Inc.* | 7,747 | 1,164 | ||||||
Chegg, Inc.* | 30,438 | 1,154 | ||||||
Strategic Education, Inc. | 4,308 | 685 | ||||||
Total | 3,003 | |||||||
Electrical Equipment 2.90% | ||||||||
Generac Holdings, Inc.* | 22,851 | 2,299 | ||||||
Electronic Equipment, Instruments & Components 1.34% | ||||||||
Novanta, Inc.* | 5,258 | 465 | ||||||
OSI Systems, Inc.* | 5,931 | 597 | ||||||
Total | 1,062 | |||||||
Entertainment 0.53% | ||||||||
HUYA, Inc. ADR* | 23,296 | 418 |
8 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
Food & Staples Retailing 0.50% | ||||||||
Grocery Outlet Holding Corp.* | 12,288 | $ | 399 | |||||
Food Products 2.25% | ||||||||
Calavo Growers, Inc. | 9,948 | 901 | ||||||
Freshpet, Inc.* | 15,042 | 889 | ||||||
Total | 1,790 | |||||||
Health Care Equipment & Supplies 6.92% | ||||||||
Glaukos Corp.* | 6,914 | 376 | ||||||
Insulet Corp.* | 5,630 | 964 | ||||||
iRhythm Technologies, Inc.* | 5,657 | 385 | ||||||
Masimo Corp.* | 5,274 | 834 | ||||||
Nevro Corp.* | 13,806 | 1,623 | ||||||
Penumbra, Inc.* | 5,545 | 911 | ||||||
Tandem Diabetes Care, Inc.* | 6,746 | 402 | ||||||
Total | 5,495 | |||||||
Health Care Providers & Services 0.86% | ||||||||
Guardant Health, Inc.* | 8,776 | 686 | ||||||
Health Care Technology 3.27% | ||||||||
Inspire Medical Systems, Inc.* | 21,763 | 1,615 | ||||||
Teladoc Health, Inc.* | 11,695 | 979 | ||||||
Total | 2,594 | |||||||
Hotels, Restaurants & Leisure 2.41% | ||||||||
Planet Fitness, Inc. Class A* | 17,582 | 1,313 | ||||||
Wingstop, Inc. | 6,943 | 599 | ||||||
Total | 1,912 | |||||||
Household Durables 1.84% | ||||||||
Helen of Troy Ltd.* | 2,401 | 431 | ||||||
LGI Homes, Inc.* | 14,519 | 1,026 | ||||||
Total | 1,457 | |||||||
Information Technology Services 1.89% | ||||||||
Verra Mobility Corp.* | 78,312 | 1,096 | ||||||
Wix.com Ltd. (Israel)*(a) | 3,296 | 403 | ||||||
Total | 1,499 |
Investments | Shares | Fair Value (000) | ||||||
Insurance 1.78% | ||||||||
eHealth, Inc.* | 8,154 | $ | 784 | |||||
Goosehead Insurance, Inc. Class A | 14,774 | 626 | ||||||
Total | 1,410 | |||||||
Internet & Direct Marketing Retail 0.55% | ||||||||
RealReal, Inc. (The)* | 23,166 | 437 | ||||||
Internet Software & Services 0.32% | ||||||||
Cardlytics, Inc.* | 3,990 | 251 | ||||||
Leisure Products 3.23% | ||||||||
Malibu Boats, Inc. Class A* | 21,221 | 869 | ||||||
YETI Holdings, Inc.* | 48,814 | 1,698 | ||||||
Total | 2,567 | |||||||
Life Sciences Tools & Services 3.27% | ||||||||
10X Genomics, Inc. Class A* | 10,028 | 765 | ||||||
Repligen Corp.* | 19,755 | 1,827 | ||||||
Total | 2,592 | |||||||
Machinery 1.65% | ||||||||
Federal Signal Corp. | 29,648 | 956 | ||||||
RBC Bearings, Inc.* | 2,234 | 354 | ||||||
Total | 1,310 | |||||||
Pharmaceuticals 0.49% | ||||||||
GW Pharmaceuticals plc ADR* | 3,730 | 390 | ||||||
Real Estate Management & Development 0.78% | ||||||||
Redfin Corp.* | 29,303 | 619 | ||||||
Semiconductors & Semiconductor Equipment 9.36% | ||||||||
Cirrus Logic, Inc.* | 10,921 | 900 | ||||||
Inphi Corp.* | 21,764 | 1,611 | ||||||
MKS Instruments, Inc. | 10,048 | 1,105 | ||||||
Monolithic Power Systems, Inc. | 6,898 | 1,228 | ||||||
Semtech Corp.* | 12,009 | 635 | ||||||
Silicon Laboratories, Inc.* | 9,816 | 1,139 | ||||||
SolarEdge Technologies, Inc. (Israel)*(a) | 8,521 | 810 | ||||||
Total | 7,428 |
See Notes to Financial Statements. | 9 |
Schedule of Investments (concluded)
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
Software 14.22% | ||||||||
Alteryx, Inc. Class A* | 9,092 | $ | 910 | |||||
Anaplan, Inc.* | 18,058 | 946 | ||||||
Appian Corp.* | 16,794 | 642 | ||||||
Avalara, Inc.* | 14,483 | 1,061 | ||||||
Coupa Software, Inc.* | 6,676 | 976 | ||||||
Everbridge, Inc.* | 4,872 | 381 | ||||||
Five9, Inc.* | 19,476 | 1,277 | ||||||
Globant SA (Argentina)*(a) | 8,053 | 854 | ||||||
HubSpot, Inc.* | 2,632 | 417 | ||||||
LivePerson, Inc.* | 13,943 | 516 | ||||||
Medallia, Inc.* | 18,623 | 579 | ||||||
Paylocity Holding Corp.* | 10,117 | 1,222 | ||||||
Q2 Holdings, Inc.* | 7,474 | 606 | ||||||
SVMK, Inc.* | 50,178 | 897 | ||||||
Total | 11,284 | |||||||
Specialty Retail 4.73% | ||||||||
Asbury Automotive Group, Inc.* | 6,971 | 779 | ||||||
Dick’s Sporting Goods, Inc. | 16,506 | 817 | ||||||
Lithia Motors, Inc. Class A | 6,650 | 978 | ||||||
National Vision Holdings, Inc.* | 13,077 | 424 | ||||||
RH* | 3,540 | 756 | ||||||
Total | 3,754 | |||||||
Total Common Stocks (cost $69,082,660) | 78,051 |
Investments | Principal Amount (000) | Fair Value (000) | ||||||
SHORT-TERM INVESTMENT 1.92% | ||||||||
Repurchase Agreement | ||||||||
Repurchase Agreement dated 12/31/2019, 0.85% due 1/2/2020 with Fixed Income Clearing Corp. collateralized by $1,550,000 of U.S. Treasury Note at 1.50% due 8/31/2021; value: $1,554,991; proceeds: $1,520,481 (cost $1,520,409) | $1,520 | $ | 1,520 | |||||
Total Investments in Securities 100.25% (cost $70,603,069) | 79,571 | |||||||
Liabilities in Excess of Other Assets (0.25)% | (197 | ) | ||||||
Net Assets 100.00% | $ | 79,374 |
ADR | American Depositary Receipt. | |
* | Non-income producing security. | |
(a) | Foreign security traded in U.S. dollars. |
The following is a summary of the inputs used as of December 31, 2019 in valuing the Fund’s investments carried at fair value(1):
Investment Type(2) | Level 1 (000) | Level 2 (000) | Level 3 (000) | Total (000) | ||||||||||||
Common Stocks | $ | 78,051 | $ | – | $ | – | $ | 78,051 | ||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | – | 1,520 | – | 1,520 | ||||||||||||
Total | $ | 78,051 | $ | 1,520 | $ | – | $ | 79,571 |
(1) | Refer to Note 2(h) for a description of fair value measurements and the three-tier hierarchy of inputs. | |
(2) | See Schedule of Investments for fair values in each industry and identification of foreign issuers and/or geography. |
10 | See Notes to Financial Statements. |
Statement of Assets and Liabilities
December 31, 2019
ASSETS: | ||||
Investments in securities, at fair value (cost $70,603,069) | $ | 79,570,647 | ||
Receivables: | �� | |||
From advisor (See Note 3) | 12,333 | |||
Interest and dividends | 7,500 | |||
Capital shares sold | 6,733 | |||
Prepaid expenses | 280 | |||
Total assets | 79,597,493 | |||
LIABILITIES: | ||||
Payables: | ||||
Investment securities purchased | 51,998 | |||
Management fee | 49,843 | |||
Capital shares reacquired | 27,090 | |||
Directors’ fees | 3,522 | |||
Fund administration | 2,658 | |||
Accrued expenses | 88,023 | |||
Total liabilities | 223,134 | |||
Commitments and contingent liabilities | ||||
NET ASSETS | $ | 79,374,359 | ||
COMPOSITION OF NET ASSETS: | ||||
Paid-in capital | $ | 70,771,245 | ||
Total distributable earnings (loss) | 8,603,114 | |||
Net Assets | $ | 79,374,359 | ||
Outstanding shares (50 million shares of common stock authorized, $.001 par value) | 2,656,338 | |||
Net asset value, offering and redemption price per share (Net assets divided by outstanding shares) | $29.88 |
See Notes to Financial Statements. | 11 |
For the Year Ended December 31, 2019
Investment income: | ||||
Dividends | $ | 86,872 | ||
Interest | 24,504 | |||
Total investment income | 111,376 | |||
Expenses: | ||||
Management fee | 539,322 | |||
Non 12b-1 service fees | 180,027 | |||
Shareholder servicing | 76,221 | |||
Professional | 39,779 | |||
Fund administration | 28,764 | |||
Reports to shareholders | 20,491 | |||
Custody | 10,040 | |||
Directors’ fees | 1,958 | |||
Other | 20,671 | |||
Gross expenses | 917,273 | |||
Expense reductions (See Note 8) | (2,330 | ) | ||
Fees waived and expenses reimbursed (See Note 3) | (186,378 | ) | ||
Net expenses | 728,565 | |||
Net investment loss | (617,189 | ) | ||
Net realized and unrealized gain: | ||||
Net realized gain on investments | 7,587,224 | |||
Net change in unrealized appreciation/depreciation on investments | 10,126,655 | |||
Net realized and unrealized gain | 17,713,879 | |||
Net Increase in Net Assets Resulting From Operations | $ | 17,096,690 |
12 | See Notes to Financial Statements. |
Statements of Changes in Net Assets
INCREASE IN NET ASSETS | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | ||||||
Operations: | ||||||||
Net investment loss | $ | (617,189 | ) | $ | (345,413 | ) | ||
Net realized gain on investments | 7,587,224 | 8,921,414 | ||||||
Net change in unrealized appreciation/depreciation on investments | 10,126,655 | (8,760,781 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 17,096,690 | (184,780 | ) | |||||
Distributions to shareholders: | (7,311,730 | ) | (8,137,620 | ) | ||||
Capital share transactions (See Note 14): | ||||||||
Proceeds from sales of shares | 25,502,884 | 30,041,903 | ||||||
Reinvestment of distributions | 7,311,730 | 8,137,608 | ||||||
Cost of shares reacquired | (17,973,808 | ) | (14,766,834 | ) | ||||
Net increase in net assets resulting from capital share transactions | 14,840,806 | 23,412,677 | ||||||
Net increase in net assets | 24,625,766 | 15,090,277 | ||||||
NET ASSETS: | ||||||||
Beginning of year | $ | 54,748,593 | $ | 39,658,316 | ||||
End of year | $ | 79,374,359 | $ | 54,748,593 |
See Notes to Financial Statements. | 13 |
Per Share Operating Performance: | |||||||||||||||||||||||||
Investment operations: | Distributions to shareholders from: | ||||||||||||||||||||||||
Net asset value, beginning of period | Net investment income (loss)(a) | Net realized and unrealized gain (loss) | Total from investment operations | Net realized gain | Net asset value, end of period | ||||||||||||||||||||
12/31/2019 | $ | 24.97 | $ | (0.27 | ) | $ | 8.23 | $ | 7.96 | $ | (3.05 | ) | $ | 29.88 | |||||||||||
12/31/2018 | 28.18 | (0.21 | ) | 1.41 | 1.20 | (4.41 | ) | 24.97 | |||||||||||||||||
12/31/2017 | 21.69 | (0.13 | ) | 6.62 | 6.49 | – | 28.18 | ||||||||||||||||||
12/31/2016 | 22.28 | (0.07 | ) | (0.52 | ) | (0.59 | ) | – | 21.69 | ||||||||||||||||
12/31/2015 | 24.46 | (0.14 | ) | (1.86 | ) | (2.00 | ) | (0.18 | ) | 22.28 |
(a) | Calculated using average shares outstanding during the period. | |
(b) | Total return does not consider the effects of sales charges or other expenses imposed by an insurance company and assumes the reinvestment of all distributions. |
14 | See Notes to Financial Statements. |
Ratios to Average Net Assets: | Supplemental Data: | |||||||||||||||||||||
Total return(b) (%) | Total expenses after waivers and/or reimburse- ments (%) | Total expenses (%) | Net investment income (loss) (%) | Net assets, end of period (000) | Portfolio turnover rate (%) | |||||||||||||||||
31.77 | 1.01 | 1.27 | (0.86 | ) | $ | 79,374 | 106 | |||||||||||||||
4.88 | 0.94 | 1.31 | (0.63 | ) | 54,749 | 112 | ||||||||||||||||
29.92 | 0.90 | 1.38 | (0.52 | ) | 39,658 | 103 | ||||||||||||||||
(2.60 | ) | 0.90 | 1.51 | (0.34 | ) | 28,605 | 222 | |||||||||||||||
(8.21 | ) | 0.90 | 1.56 | (0.56 | ) | 28,882 | 197 |
See Notes to Financial Statements. | 15 |
1. | ORGANIZATION |
Lord Abbett Series Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified, open-end management investment company and was incorporated under Maryland law in 1989. The Company consists of nine separate portfolios. This report covers Developing Growth Portfolio (the “Fund”).
The Fund’s investment objective is long-term growth of capital. The Fund has Variable Contract class shares (“Class VC Shares”), which are currently issued and redeemed only in connection with investments in, and payments under, variable annuity contracts and variable life insurance policies issued by life insurance and insurance-related companies.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies.
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Investment Valuation–Under procedures approved by the Fund’s Board of Directors (the “Board”), Lord, Abbett & Co. LLC (“Lord Abbett”), the Fund’s investment manager, has formed a Pricing Committee to administer the pricing and valuation of portfolio investments and to ensure that prices utilized reasonably reflect fair value. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value. |
Securities actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to reflect their fair value as of the close of regular trading on the New York Stock Exchange. The Fund may utilize an independent fair valuation service in adjusting the valuations of foreign securities. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices. | |
Securities for which prices are not readily available are valued at fair value as determined by the Pricing Committee. The Pricing Committee considers a number of factors, including observable and unobservable inputs, when arriving at fair value. The Pricing Committee may use related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant information to determine the fair value of portfolio investments. The Board or a designated committee thereof regularly reviews fair value determinations made by the Pricing Committee and may employ techniques such as reviewing related market activity, reviewing inputs and assumptions, and retrospectively comparing prices of subsequent purchases and sales transactions to fair value determinations made by the Pricing Committee. | |
Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates fair value. |
16
Notes to Financial Statements (continued)
(b) | Security Transactions–Security transactions are recorded as of the date that the securities are purchased or sold (trade date). Realized gains and losses on sales of portfolio securities are calculated using the identified-cost method. |
(c) | Investment Income–Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis as earned. Discounts are accreted and premiums are amortized using the effective interest method and are included in Interest on the Statement of Operations. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates. |
(d) | Income Taxes–It is the policy of the Fund to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income and capital gains to its shareholders. Therefore, no income tax provision is required. |
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s filed U.S. federal tax returns remains open for the fiscal years ended December 31, 2016 through December 31, 2019. The statutes of limitations on the Company’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. | |
(e) | Expenses–Expenses incurred by the Company that do not specifically relate to an individual fund are generally allocated to the funds within the Company on a pro rata basis by relative net assets. |
(f) | Foreign Transactions–The books and records of the Fund are maintained in U.S. dollars and transactions denominated in foreign currencies are recorded in the Fund’s records at the rate prevailing when earned or recorded. Asset and liability accounts that are denominated in foreign currencies are adjusted daily to reflect current exchange rates and any unrealized gain (loss), if applicable, is included in Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies in the Fund’s Statement of Operations. The resultant exchange gains and losses upon settlement of such transactions are included in Net realized gain (loss), if applicable, on foreign currency related transactions in the Fund’s Statement of Operations. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in market prices of the securities. |
The Fund uses foreign currency exchange contracts to facilitate transactions in foreign denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms. | |
(g) | Repurchase Agreements–The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which a fund acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. The Fund requires at all times that the repurchase agreement be collateralized by cash, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). If the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the fair value of these securities has declined, the Fund may incur a loss upon disposition of the securities. |
17
Notes to Financial Statements (continued)
(h) | Fair Value Measurements–Fair value is defined as the price that the Fund would receive upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk—for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy classification is determined based on the lowest level of inputs that is significant to the fair value measurement, and is summarized in the three broad Levels listed below: |
• | Level 1 – | unadjusted quoted prices in active markets for identical investments; |
• | Level 2 – | other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and |
• | Level 3 – | significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
A summary of inputs used in valuing the Fund’s investments as of December 31, 2019 and, if applicable, Level 3 rollforwards for the fiscal year then ended is included in the Fund’s Schedule of Investments. | |
Changes in valuation techniques may result in transfers into or out of an assigned level within the three-tier hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. |
3. | MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES |
Management Fee
The Company has a management agreement with Lord Abbett, pursuant to which Lord Abbett supplies the Fund with investment management services and executive and other personnel, provides office space and pays for ordinary and necessary office and clerical expenses relating to research and statistical work and supervision of the Fund’s investment portfolio.
The management fee is based on the Fund’s average daily net assets at the following annual rate:
First $100 million | .75% |
Over $100 million | .50% |
For the fiscal year ended December 31, 2019, the effective management fee, net of waivers, was at an annualized rate of 0.49% of the Fund’s average daily net assets.
In addition, Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement in return for a fee at an annual rate of .04% of the Fund’s average daily net assets.
18
Notes to Financial Statements (continued)
Effective May 1, 2019, Lord Abbett has contractually agreed to waive its fees and reimburse expenses to the extent necessary to limit total net annual operating expenses to an annual rate of 1.04%. This agreement may be terminated only upon the approval of the Board. Prior to May 1, 2019, Lord Abbett contractually agreed to waive its fees and reimburse expenses to the extent necessary to limit total net annual operating expenses to an annual rate of 0.95%.
The Company, on behalf of the Fund, has entered into services arrangements with certain insurance companies. Under these arrangements, certain insurance companies will be compensated up to .25% of the average daily NAV of the Fund’s Class VC Shares held in the insurance company’s separate account to service and maintain the Variable Contract owners’ accounts. This amount is included in Non 12b-1 service fees on the Statement of Operations. The Fund may also compensate certain insurance companies, third-party administrators and other entities for providing recordkeeping, sub-transfer agency and other administrative services to the Fund. This amount is included in Shareholder servicing on the Statement of Operations.
One Director and certain of the Company’s officers have an interest in Lord Abbett.
4. | DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS |
Dividends from net investment income, if any, are declared and paid at least semi-annually. Taxable net realized gains from investment transactions, reduced by allowable capital loss carryforwards, if any, are declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, is available to offset future net capital gains. Dividends and distributions to shareholders are recorded on the ex-dividend date. The amounts of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions that exceed earnings and profits for tax purposes are reported as a tax return of capital.
The tax character of distributions paid during the fiscal years ended December 31, 2019 and December 31, 2018, was as follows:
Year Ended 12/31/2019 | Year Ended 12/31/2018 | |||||||||
Distributions paid from: | ||||||||||
Ordinary income | $ | – | $ | 1,901,367 | ||||||
Net long-term capital gains | 7,311,730 | 6,236,253 | ||||||||
Total distributions paid | $ | 7,311,730 | $ | 8,137,620 |
As of December 31, 2019, the components of accumulated gains (losses) on a tax-basis were as follows:
Undistributed long-term capital gains | $ | 953 | ||
Total Undistributed Earnings | 953 | |||
Temporary differences | (3,522 | ) | ||
Unrealized gains – net | 8,605,683 | |||
Total accumulated gains – net | $ | 8,603,114 |
19
Notes to Financial Statements (continued)
As of December 31, 2019, the aggregate unrealized security gains (losses) on investments and other financial instruments, if any, based on cost for U.S. federal income tax purposes were as follows:
Tax cost | $ | 70,964,964 | ||
Gross unrealized gain | 10,545,107 | |||
Gross unrealized loss | (1,939,424 | ) | ||
Net unrealized security gain | $ | 8,605,683 |
The difference between book-basis and tax-basis unrealized gains (losses) is attributable to the tax treatment of wash sales.
Permanent items identified during the fiscal year ended December 31, 2019 have been reclassified among the components of net assets based on their tax basis treatment as follows:
Total Distributable Earnings (Loss) | Paid-in Capital | |||||
$617,219 | $(617,219 | ) |
The permanent differences are attributable primarily to the tax treatment of net investment losses.
5. | PORTFOLIO SECURITIES TRANSACTIONS |
Purchases and sales of investment securities (excluding short-term investments) for the fiscal year ended December 31, 2019 were as follows:
Purchases | Sales | |||||
$81,537,192 | $74,175,633 |
There were no purchases or sales of U.S. Government securities for the fiscal year ended December 31, 2019.
The Fund is permitted to purchase and sell securities (“cross-trade”) from and to other Lord Abbett funds or client accounts pursuant to procedures approved by the Board in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at a fair market price in compliance with provisions of the Rule. For the fiscal year ended December 31, 2019, the Fund engaged in cross-trades purchases of $618,074, and sales of $366,711, which resulted in net realized gains of $169,691.
6. | DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES |
The Financial Accounting Standards Board (“FASB”) requires disclosures intended to help better assess the effect or potential effect of offsetting arrangements on a fund’s financial position. The following tables illustrate gross and net information about recognized assets and liabilities eligible for offset in the Statement of Assets and Liabilities; and disclose such amounts subject to an enforceable master netting agreement or similar agreement, by counterparty. A master netting agreement is an agreement between a fund and a counterparty which provides for the net settlement of amounts owed under all contracts traded under that agreement, as well as cash collateral, through a single payment by one party to the other in the event of default on or termination of any one contract. The Fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the master netting agreement does not result in an offset of reported amounts of financial assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty:
20
Notes to Financial Statements (continued)
Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Assets Presented in the Statement of Assets and Liabilities | |||||||||
Repurchase Agreement | $1,520,409 | $ | – | $ | 1,520,409 | |||||||
Total | $1,520,409 | $ | – | $ | 1,520,409 |
Net Amounts of Assets Presented in | Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | the Statement of Assets and Liabilities | Financial Instruments | Cash Received(a) | Securities Collateral Received(a) | Net Amount(b) | |||||||||||||||
Fixed Income Clearing Corp. | $ | 1,520,409 | $ | – | $ | – | $ | (1,520,409 | ) | $ | – | |||||||||
Total | $ | 1,520,409 | $ | – | $ | – | $ | (1,520,409 | ) | $ | – |
(a) | Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets (liabilities) presented in the Statement of Assets and Liabilities, for each respective counterparty. |
(b) | Net amount represents the amount owed to the Fund by the counterparty as of December 31, 2019. |
7. | DIRECTORS’ REMUNERATION |
The Company’s officers and one Director, who are associated with Lord Abbett, do not receive any compensation from the Company for serving in such capacities. Independent Directors’ fees are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all Independent Directors under which Independent Directors must defer receipt of a portion of, and may elect to defer receipt of an additional portion of Directors’ fees. The deferred amounts are treated as though equivalent dollar amounts had been invested in the funds. Such amounts and earnings accrued thereon are included in Directors’ fees on the Statement of Operations and in Directors’ fees payable on the Statement of Assets and Liabilities and are not deductible for U.S. federal income tax purposes until such amounts are paid.
8. | EXPENSE REDUCTIONS |
The Company has entered into an arrangement with its transfer agent and custodian, whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s expenses.
9. | LINE OF CREDIT |
For the period ended August 7, 2019, the Fund and certain other funds managed by Lord Abbett (collectively, the “Participating Funds”) entered into a Syndicated Facility with various lenders for $1.1 billion whereas State Street Bank and Trust Company (“SSB”) participated as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if Fund net assets are less than $750 million), $250 million, $300 million, $350 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
Effective August 8, 2019, the Participating Funds entered into a Syndicated Facility with various lenders for $1.17 billion whereas SSB participates as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, $500 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
21
Notes to Financial Statements (continued)
For the period ended August 7, 2019, the Participating Funds entered into an additional line of credit facility with SSB for $250 million (the “Bilateral Facility” and together with the Syndicated Facility, the “Facilities”). Under the Bilateral Facility, each Participating Fund may borrow up to the lesser of $250 million or one-third of Fund net assets.
Effective August 8, 2019, the Participating Funds entered into a Bilateral Facility with SSB for $330 million ($250 million committed and $80 million uncommitted). Under the Bilateral Facility, the Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, or $330 million, based on past borrowings and likelihood of future borrowings, among other factors.
The Facilities are to be used for temporary or emergency purposes as an additional source of liquidity to satisfy redemptions.
For the fiscal year ended December 31, 2019, the Fund did not utilize the Facilities.
10. | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission (“SEC exemptive order”), certain registered open-end management investment companies managed by Lord Abbett, including the Fund, participate in a joint lending and borrowing program (the “Interfund Lending Program”). The SEC exemptive order allows the Funds to borrow money from and lend money to each other for temporary or emergency purposes subject to the limitations and conditions.
For the fiscal year ended December 31, 2019, the Fund did not participate as a borrower or lender in the Interfund Lending Program.
11. | CUSTODIAN AND ACCOUNTING AGENT |
SSB is the Company’s custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund’s NAV.
12. | SECURITIES LENDING AGREEMENT |
The Fund has established a securities lending agreement with Citibank, N.A. for the lending of securities to qualified brokers in exchange for securities or cash collateral equal to at least the market value of securities loaned, plus interest, if applicable. Cash collateral is invested in an approved money market fund. In accordance with the Fund’s securities lending agreement, the market value of securities on loan is determined each day at the close of business and any additional collateral required to cover the value of securities on loan is delivered to the Fund on the next business day. As with other extensions of credit, the Fund may experience a delay in the recovery of their securities or incur a loss should the borrower of the securities breach its agreement with the Fund or become insolvent at a time when the collateral is insufficient to cover the cost of repurchasing securities on loan. Any income earned from lending securities will be noted on the Statement of Operations.
For the fiscal year ended December 31, 2019, the Fund did not loan any securities.
13. | INVESTMENT RISKS |
The Fund is subject to the general risks and considerations associated with equity investing. The value of an investment will fluctuate in response to movements in the equity securities markets in general and to the changing prospects of individual companies in which the Fund invests.
22
Notes to Financial Statements (concluded)
The Fund has particular risks associated with growth stocks. Different types of stocks shift in and out of favor over time depending on market and economic conditions. Growth stocks tend to be more volatile than other stocks. Growth stocks are often more sensitive to marker fluctuations than other securities because their market prices are highly sensitive to future earnings expectations. In addition, if the Fund’s assessment of a company’s potential for growth or market conditions is wrong, it could suffer losses or produce poor performance relative to other funds, even in a favorable market. The Fund invests primarily in small-cap growth company stocks, which tend to be more volatile and can be less liquid than other types of stocks. The shares of small and mid-sized companies tend to trade less frequently than those of larger, more established companies, which can adversely affect the pricing of these securities and the ability to sell these securities in the future. Small-cap companies may also have more limited product lines, markets or financial resources, and typically experience a higher risk of failure than large-cap companies. Because the Fund may invest a portion of its assets in foreign securities and American Depositary Receipts, it may experience increased market, industry and sector, liquidity, currency, political, information and other risks. The securities of foreign companies also may be subject to inadequate exchange control regulations, the imposition of economic sanctions or other government restrictions, higher transaction and other costs, and delays in settlement to the extent they are traded on non-U.S. exchanges or markets.
These factors can affect the Fund’s performance.
14. | SUMMARY OF CAPITAL TRANSACTIONS |
Transactions in shares of capital stock were as follows:
Year Ended December 31, 2019 | Year Ended December 31, 2018 | |||||||
Shares sold | 798,540 | 893,328 | ||||||
Reinvestment of distributions | 242,753 | 338,785 | ||||||
Shares reacquired | (577,185 | ) | (447,289 | ) | ||||
Increase | 464,108 | 784,824 |
23
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Lord Abbett Series Fund, Inc.
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Developing Growth Portfolio, one of the funds constituting Lord Abbett Series Fund, Inc. (the ��Fund”), as of December 31, 2019, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Developing Growth Portfolio of the Fund as of December 31, 2019, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
New York, New York
February 14, 2020
We have served as the auditor of one or more Lord Abbett Family of Funds’ investment companies since 1932.
24
Supplemental Proxy Information (unaudited)
A joint special meeting of shareholders of the Fund was held on August 26, 2019. The joint special meeting was held for the purpose of electing members of the Fund’s Board of Directors. Shareholders elected the following ten (10) Directors at the joint special meeting:
• | Eric C. Fast |
• | Evelyn E. Guernsey |
• | Julie A. Hill |
• | Kathleen M. Lutito |
• | James M. McTaggart |
• | Charles O. Prince |
• | Karla M. Rabusch |
• | Mark A. Schmid |
• | Douglas B. Sieg |
• | James L.L. Tullis |
The results of the proxy solicitation on the preceding matter were as follows:
Lord Abbett Series Fund, Inc.
Nominee Votes | Votes For | Votes Withheld |
Eric C. Fast | 186,329,820.614 | 7,776,255.685 |
Evelyn E. Guernsey | 186,718,826.419 | 7,387,249.880 |
Julie A. Hill | 186,486,240.620 | 7,619,835.679 |
Kathleen M. Lutito | 187,082,042.409 | 7,024,033.890 |
James M. McTaggart | 186,269,131.867 | 7,836,944.422 |
Charles O. Prince | 186,103,251.100 | 8,002,825.199 |
Karla M. Rabusch | 186,796,719.683 | 7,309,356.626 |
Mark A. Schmid | 186,825,573.395 | 7,280,502.894 |
Douglas B. Sieg | 186,702,410.889 | 7,403,665.410 |
James L.L. Tullis | 186,229,277.817 | 7,876,798.472 |
25
Basic Information About Management
The Board is responsible for the management of the business and affairs of the Company in accordance with the laws of the State of Maryland. The Board elects officers who are responsible for the day-to-day operations of the Fund and who execute policies authorized by the Board. The Board also approves an investment adviser to the Fund and continues to monitor the cost and quality of the services the investment adviser provides, and annually considers whether to renew the contract with the investment adviser. Generally, each Director holds office until his/her successor is elected and qualified or until his/her earlier resignation or removal, as provided in the Company’s organizational documents.
Lord Abbett, a Delaware limited liability company, is the Fund’s investment adviser. Designated Lord Abbett personnel are responsible for the day-to-day management of the Fund.
Interested Directors
Mr. Sieg is affiliated with Lord Abbett and is an “interested person” of the Company as defined in the Act. Mr. Sieg is director/trustee of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios. Mr. Sieg is an officer of the Lord Abbett Family of Funds.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Douglas B. Sieg Lord, Abbett & Co. LLC 90 Hudson Street Jersey City, NJ 07302 (1969) | Director since 2016; President and Chief Executive Officer since 2018 | Principal Occupation:Managing Partner (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994.
Other Directorships:None. |
Independent Directors
The following Independent Directors also are directors/trustees of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Evelyn E. Guernsey Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1955) | Director since 2011 | Principal Occupation:None.
Other Directorships:None. | ||
Julie A. Hill Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1946) | Director since 2004 | Principal Occupation:Owner and CEO of The Hill Company, a business consulting firm (since 1998).
Other Directorships:Currently serves as director of Anthem, Inc., a health benefits company (since 1994). | ||
Kathleen M. Lutito Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1963) | Director since 2017 | Principal Occupation:President and Chief Investment Officer of CenturyLink Investment Management Company (since 2006).
Other Directorships:None. |
26
Basic Information About Management (continued)
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
James M. McTaggart Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2012 | Principal Occupation:Independent management advisor and consultant (since 2012).
Other Directorships:Blyth, Inc., a home products company (2004–2015). | ||
Charles O. Prince Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1950) | Director since 2019 | Principal Occupation:None. Formerly Chairman and Chief Executive Officer, Citigroup, Inc.
Other Directorships:Currently serves as director of Johnson & Johnson (2006–Present). Previously served as director of Xerox Corporation (2008–2018). | ||
Karla M. Rabusch Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2017 | Principal Occupation:President and Director of Wells Fargo Funds Management, LLC (2003–2017); President of Wells Fargo Funds (2003–2016).
Other Directorships:None. | ||
Mark A. Schmid Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2016 | Principal Occupation:Vice President and Chief Investment Officer of the University of Chicago (since 2009).
Other Directorships:None. | ||
James L.L. Tullis Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2006; Chairman since 2017 | Principal Occupation:Chairman of Tullis Health Investors - FL LLC (since 2018); CEO of Tullis–Dickerson and Co. Inc., a venture capital management firm (1990–2016).
Other Directorships:Currently serves as director of Crane Co. (since 1998), Alphatec Spine, Inc. (since 2018), and electroCore, Inc. (since 2018). |
Officers
None of the officers listed below have received compensation from the Company. All of the officers of the Company also may be officers of the other Lord Abbett Funds and maintain offices at 90 Hudson Street, Jersey City, NJ 07302. Unless otherwise indicated, the position(s) and title(s) listed under the “Principal Occupation During the Past Five Years” column indicate each officer’s position(s) and title(s) with Lord Abbett. Each officer serves for an indefinite term (i.e., until his or her death, resignation, retirement, or removal).
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Douglas B. Sieg (1969) | President and Chief Executive Officer | Elected as President and Chief Executive Officer in 2018 | Managing Partner of Lord Abbett (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. |
27
Basic Information About Management (concluded)
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Jackson C. Chan (1964) | AML Compliance Officer | Elected in 2018 | Deputy Chief Compliance Officer and Director of Regulatory Affairs, joined Lord Abbett in 2014. | |||
Pamela P. Chen (1978) | Vice President, Assistant Secretary and Privacy Officer | Elected as Vice President and Assistant Secretary in 2018 and Privacy Officer in 2019 | Associate General Counsel, joined Lord Abbett in 2017 and was formerly Special Counsel at Schulte, Roth & Zabel LLP (2005–2017). | |||
John T. Fitzgerald (1975) | Vice President and Assistant Secretary | Elected in 2018 | Deputy General Counsel, joined Lord Abbett in 2018 and was formerly Deputy Head of U.S. Funds Legal, Executive Director and Assistant General Counsel at JPMorgan Chase (2005-2018). | |||
Vito A. Fronda (1969) | Treasurer | Elected in 2018 | Partner and Director of Fund Treasury and Tax, joined Lord Abbett in 2003. | |||
Bernard J. Grzelak (1971) | Chief Financial Officer and Vice President | Elected in 2017 | Partner and Chief Operating Officer, Global Funds and Risk, joined Lord Abbett in 2003. | |||
Linda Y. Kim (1980) | Vice President and Assistant Secretary | Elected in 2016 | Counsel, joined Lord Abbett in 2015. | |||
Joseph M. McGill (1962) | Chief Compliance Officer | Elected in 2014 | Partner and Chief Compliance Officer, joined Lord Abbett in 2014. | |||
Amanda S. Ryan (1978) | Vice President and Assistant Secretary | Elected in 2018 | Counsel, joined Lord Abbett in 2016 and was formerly a Director and Corporate Counsel at PGIM Investments (2012–2016). | |||
Lawrence B. Stoller (1963) | Vice President, Secretary and Chief Legal Officer | Elected as Vice President and Secretary in 2007 and Chief Legal Officer in 2019 | Partner and General Counsel, joined Lord Abbett in 2007. |
Please call 888–522–2388 for a copy of the statement of additional information, which contains further information about the Company’s Directors. It is available free upon request.
28
Approval of Advisory Contract
The Board, including all of the Directors who are not “interested persons” of the Company or of Lord Abbett, as defined in the Investment Company Act of 1940, as amended (the “Independent Directors”), annually considers whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett (the “Agreement”). In connection with its most recent approval, the Board reviewed materials relating specifically to the Agreement, as well as numerous materials received throughout the course of the year, including information about the Fund’s investment performance compared to the performance of its benchmark. Before making its decision as to the Fund, the Board had the opportunity to ask questions and request further information, taking into account its knowledge of Lord Abbett gained through its meetings and discussions. These meetings and discussions included reviews of Fund performance conducted by members of the Contract Committee, the deliberations of the Contract Committee, and discussions between the Contract Committee and Lord Abbett’s management. The Independent Directors also met with their independent legal counsel in various private sessions at which no representatives of management were present.
The materials received by the Board included, but were not limited to: (1) information provided by Broadridge Financial Solutions (“Broadridge”) regarding the investment performance of the Fund compared to the investment performance of certain funds with similar investment styles as determined by Broadridge, based, in part, on the Fund’s Morningstar category (the “performance peer group”), and the investment performance of the Fund’s benchmark; (2) information provided by Broadridge regarding the expense ratios, contractual and actual management fee rates, and other expense components for the Fund and certain funds in the same Morningstar category, with generally the same or similar share classes and operational characteristics, including asset size (the “expense peer group”); (3) certain supplemental investment performance information provided by Lord Abbett; (4) information provided by Lord Abbett on the expense ratios, management fee rates, and other expense components for the Fund; (5) sales and redemption information for the Fund; (6) information regarding Lord Abbett’s financial condition; (7) an analysis of the relative profitability of the Agreement to Lord Abbett; (8) information provided by Lord Abbett regarding the investment management fee schedules for Lord Abbett’s other advisory clients maintaining accounts with a similar investment strategy as the Fund; and (9) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
Investment Management and Related Services Generally.The Board considered the services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading, and Lord Abbett’s commitment to compliance with all applicable legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest that may result from being engaged in other lines of business. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to the Fund and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other. After reviewing these and related factors, the Board concluded that the Fund was likely to continue to benefit from the nature, extent and quality of the investment services provided by Lord Abbett under the Agreement.
Investment Performance.The Board reviewed the Fund’s investment performance in relation to that of the performance peer group and the Fund’s benchmark as of various periods ended June 30, 2019. The Board observed that the Fund’s investment performance was above the median of the performance peer group for the one- and three-year periods, and below the median of the
29
Approval of Advisory Contract (continued)
performance peer group for the five-year period. The Board further considered Lord Abbett’s performance and reputation generally, the performance of other Lord Abbett-managed funds overseen by the Board, and the willingness of Lord Abbett to take steps intended to improve performance when appropriate. After reviewing these and related factors, the Board concluded that the Fund’s Agreement should be continued.
Lord Abbett’s Personnel and Methods.The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of its investment objective and discipline, and other services provided to the Fund by Lord Abbett. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining personnel.
Nature and Quality of Other Services.The Board considered the nature, quality, and extent of compliance, administrative, and other services performed by Lord Abbett and the nature and extent of Lord Abbett’s supervision of third party service providers, including the Fund’s transfer agent and custodian.
Expenses.The Board considered the expense level of the Fund, including the contractual and actual management fee rates, and the expense levels of the Fund’s expense peer group. It also considered how the expense level of the Fund related to those of the expense peer group and the amount and nature of the fees paid by shareholders. The Board observed that the net total expense ratio of the Fund was below the median of the expense peer group. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that the management fees paid by, and expense level of, the Fund were reasonable in light of all of the factors it considered and supported the continuation of the Agreement.
Profitability.The Board considered the level of Lord Abbett’s operating margin in managing the Fund, including a review of Lord Abbett’s methodology for allocating its costs to its management of the Fund. It considered whether the Fund was profitable to Lord Abbett in connection with the Fund’s operation, including the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the profits realized from other business segments of Lord Abbett, which may benefit from or be related to the Fund’s business. The Board considered Lord Abbett’s profit margins excluding Lord Abbett’s marketing and distribution expenses. The Board also considered Lord Abbett’s profit margins, without those exclusions, in comparison with available industry data and how those profit margins could affect Lord Abbett’s ability to recruit and retain personnel. The Board recognized that Lord Abbett’s overall profitability was a factor in enabling it to attract and retain qualified personnel to provide services to the Fund. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that Lord Abbett’s profitability with respect to the Fund was not excessive.
Economies of Scale.The Board considered the extent to which there had been economies of scale in managing the Fund, whether the Fund’s shareholders had appropriately benefited from such economies of scale, and whether there was potential for realization of any further economies of scale. The Board concluded that the existing management fee schedule, with its breakpoint in the level of the management fee, in conjunction with the Fund’s expense limitation agreement, adequately addressed any economies of scale in managing the Fund.
Other Benefits to Lord Abbett.The Board considered the amount and nature of the fees paid by the Fund and the Fund’s shareholders to Lord Abbett for services other than investment advisory
30
Approval of Advisory Contract (concluded)
services, such as the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the revenues and profitability of Lord Abbett’s investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that the Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees it receives, and receives a portion of the sales charges on sales and redemptions of some classes of shares of the Lord Abbett Funds. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectus of the Fund, has entered into revenue sharing arrangements with certain entities that distribute shares of the Lord Abbett Funds. The Board also took into consideration the investment research that Lord Abbett receives as a result of client brokerage transactions.
Alternative Arrangements.The Board considered whether, instead of approving continuation of the Agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms. After considering all of the relevant factors, the Board unanimously found that continuation of the Agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve the continuation of the Agreement. In considering whether to approve the continuation of the Agreement, the Board did not identify any single factor as paramount or controlling. Individual Directors may have evaluated the information presented differently from one another, giving different weights to various factors. This summary does not discuss in detail all matters considered.
31
Householding
The Company has adopted a policy that allows it to send only one copy of the Fund’s prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same “household.” This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.
Proxy Voting Policies, Procedures and Records
A description of the policies and procedures that Lord Abbett uses to vote proxies related to the Fund’s portfolio securities, and information on how Lord Abbett voted the Fund’s proxies during the 12-month period ended December 31 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett’s Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission’s (“SEC”) Website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters as an attachment to Form N-PORT. Copies of the filings are available without charge, upon request on the SEC’s Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388.
Tax Information |
Of the distributions paid to the shareholders during the year ended December 31, 2019, $7,311,730 represent long-term capital gains. |
32
This report, when not used for the general information of shareholders of the Fund, is to be distributed only if preceded or accompanied by a current fund prospectus. | |||
Lord Abbett mutual fund shares are distributed by LORD ABBETT DISTRIBUTOR LLC. | Lord Abbett Series Fund, Inc.
Developing Growth Portfolio | SFDG-PORT-3 (02/20) |
LORD ABBETT
ANNUAL REPORT
Lord Abbett
Series Fund—Fundamental Equity Portfolio
For the fiscal year ended December 31, 2019
Table of Contents
Lord Abbett Series Fund — Fundamental Equity Portfolio
Annual Report
For the fiscal year ended December 31, 2019
From left to right: James L.L. Tullis, Independent Chairman of the Lord Abbett Funds and Douglas B. Sieg, Director, President, and Chief Executive Officer of the Lord Abbett Funds.
Dear Shareholders:We are pleased to provide you with this overview of the performance of Lord Abbett Series Fund — Fundamental Equity Portfolio for the fiscal year ended December 31, 2019. On this page and the following pages, we discuss the major factors that influenced fiscal year performance. For additional information about the Fund, please visit our website at www.lordabbett.com, where you also can access quarterly commentaries that provide updates on the Fund’s performance and other portfolio related updates.
Thank you for investing in Lord Abbett mutual funds. We value the trust that you place in us and look forward to serving your investment needs in the years to come.
Best regards,
Douglas B. Sieg
Director, President, and Chief Executive Officer
For the fiscal year ended December 31, 2019, the Fund returned 21.51%, reflecting performance at the net asset value (NAV) of Class VC shares with all distributions reinvested, compared to its benchmark, the Russell 1000® Value Index1, which returned 26.54% over the same period.
Domestic equity returns were positive over the past year, with large cap stocks, as represented by the S&P 500® Index,2rising 31.49% during the period, while small cap stocks, as represented by the Russell 2000® Index,3were up 25.52%. Following a tumultuous fourth quarter of 2018, where trade tensions and monetary policy
uncertainty sent many investors toward safety, the market staged a strong recovery. After the worst December since 1931, the S&P 500 posted its best January performance since 1987. Trade tensions continued to dominate headlines, as trade negotiations between the U.S. and China remained volatile throughout the period. Since the beginning of 2019, both the U.S. and China have imposed tariffs of roughly $550 billion and $185 billion on each country’s products, respectively. One of the more notable shifts over the year was the U.S. Federal Reserve’s (the “Fed”) transition to a more dovish policy stance, with
1
Chairman Jerome Powell stating that the Fed would act appropriately to sustain economic growth. Given an uncertain market outlook and muted inflation pressures, the Fed announced its decision to cut interest rates by 25 basis points on July 31, 2019 to a range of 2.00–2.25%. This was the first time that the Fed had cut interest rates since December 2008. The Fed followed that decision with two more 25 basis point rate cuts in September and October, citing “implications of global developments for the economic outlook as well as muted inflation pressures.” After the October rate cut, Fed Chairman Powell signaled a likely pause on future rate cuts. The combination of a dovish Fed, trade pressures, and slowing economic growth resulted in falling rates across the U.S. Treasury yield curve. In fact, in July, the yield on the 10-year U.S. Treasury fell to its lowest level since 2016. Bond yields continued to fall, and in August, the spread between the U.S. 10-year Treasury and the 2-year Treasury temporarily inverted. In September, a large rotation from growth stocks into value took place and continued through November. Geopolitics also contributed to market volatility. Following a coordinated drone strike on Saudi Arabia in the third quarter, Brent crude oil prices increased 20% in one trading session. Despite the record increase, oil prices retracted their gains within weeks. Investor sentiment was buoyed in November as the market grew optimistic about the possibility of a “Phase One” trade deal between the U.S. and China, which was ultimately reached in December.
The agreement included structural reforms to China’s trade regime in areas such as intellectual property and agriculture, as well as a commitment from China to make additional purchases of U.S. goods and services moving forward. In return, the U.S. would not proceed with tariffs that were scheduled to go into effect in December on nearly $160 billion worth of Chinese goods and would cut the tariff rate imposed on September 1, 2019 on $120 billion worth of Chinese goods from 15% to 7.5%.
The Fund underperformed its benchmark for the period. During the trailing 12-month period, the Fund’s holding of Foot Locker, Inc., an athletic shoes and apparel retailer, detracted most from relative performance. Shares of Foot Locker traded down 16% following the company’s first quarter earnings release. Both revenue and earnings came in lower than the market expected and management lowered fiscal year guidance. Hewlett-Packard Co., a personal computing, imaging and printing provider, also detracted from relative performance. Shares of the company fell throughout the period, but dropped precipitously following the company’s first quarter earnings release. The company reported softer than expected top line growth, which was due in part to the printing supplies segment. PG&E Corp., an electricity and natural gas company, also detracted from relative performance. PG&E’s stock price fell as the company prepared to file for bankruptcy in an attempt to dismiss the liability charges stemming from wildfires in 2017 and 2018.
2
Conversely, the largest contributor to relative performance during the trailing 12-month period was the Fund’s position in Apple Inc., a mobile communication, media devices, and personal computers manufacturer. Shares of Apple rose after the company reported fiscal fourth quarter results. The company’s iPhone business grew above market expectations and the recently released iPhone 11 has been received well by consumers. The Fund’s position in CVS Health Corporation, a health care services provider, also contributed to relative performance. Shares of CVS Health rose after the company reported third quarter earnings that beat
market expectations. Profits rose 10% year-over-year and were largely boosted by CVS Health’s Aetna insurance business. JPMorgan Chase & Co., a financial holding company, also contributed to relative performance. Shares of JPMorgan rose in the back half of the year as the banking industry was a beneficiary of both the yield curve steepening and the rotation from growth to value stocks.
The Fund’s portfolio is actively managed and, therefore, its holdings and the weightings of a particular issuer or particular sector as a percentage of portfolio assets are subject to change. Sectors may include many industries.
1 The Russell 1000® Value Index measures the performance of those Russell 1000® companies with lower price-to-book ratios and lower forecasted growth values.
2 The S&P 500® Index is widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries.
3 The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index.
Unless otherwise specified, indexes reflect total return, with all dividends reinvested. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Important Performance and Other Information
Performance data quoted in the following pages reflect past performance and are no guarantee of future results. Current performance may be higher or lower than the performance quoted. The investment return and principal value of an investment in the Funds will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. You can obtain performance data current to the most recent month end by calling Lord Abbett at 888-522-2388 or referring to www.lordabbett.com.
During certain periods shown, expense waivers and reimbursements were in place. Without such expense waivers and reimbursements, the Fund’s returns would have been lower.
The annual commentary above discusses the views of the Fund’s management and various portfolio holdings of the Fund as of December 31, 2019. These views and portfolio holdings may have changed after this date. Information provided in the commentary is not a recommendation to buy or sell securities. Because the Fund’s portfolio is actively managed and may change significantly, the Fund may no longer own the securities described above or may have otherwise changed its position in the securities. For more recent information about the Fund’s portfolio holdings, please visit www.lordabbett.com.
A Note about Risk:See Notes to Financial Statements for a discussion of investment risks. For a more detailed discussion of the risks associated with the Fund, please see the Fund’s prospectus.
Mutual funds are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, banks, and are subject to investment risks including possible loss of principal amount invested.
The Fund serves as an underlying investment vehicle for variable annuity contracts and variable life insurance policies.
3
Below is a comparison of a $10,000 investment in Class VC shares with the same investment in the Russell 1000® Value Index, Russell 3000® Index, Russell 3000® Value Index, and S&P 500® Index, assuming reinvestment of all dividends and distributions. The Fund’s shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. This line graph comparison does not reflect the sales charges or other expenses of these contracts. If those sales charges and expenses were reflected, returns would be lower. The graph and performance table below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. During certain periods, expenses of the Fund have been waived or reimbursed by Lord Abbett; without such waiver or reimbursement of expenses, the Fund’s returns would have been lower.Past performance is no guarantee of future results.
Average Annual Total Returns for the
Periods Ended December 31, 2019
1 Year | 5 Years | 10 Years | ||||
Class VC | 21.51% | 7.02% | 9.89% |
1 Performance for each unmanaged index does not reflect any fees or expenses. The performance of each index is not necessarily representative of the Fund’s performance.
4
As a shareholder of the Fund, you incur ongoing costs, including management fees; expenses related to the Fund’s services arrangements with certain insurance companies; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2019 through December 31, 2019).
The Example reflects only expenses that are deducted from the assets of the Fund. Fees and expenses, including sales charges applicable to the various insurance products that invest in the Fund, are not reflected in this Example. If such fees and expenses were reflected in the Example, the total expenses shown would be higher. Fees and expenses regarding such variable insurance products are separately described in the prospectus related to those products.
Actual Expenses
The first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled “Expenses Paid During Period 7/1/19 – 12/31/19” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
5
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value | Ending Account Value | Expenses Paid During Period† | |||||
7/1/19 | 12/31/19 | 7/1/19 - 12/31/19 | |||||
Class VC | |||||||
Actual | $1,000.00 | $1,080.60 | $5.66 | ||||
Hypothetical (5% Return Before Expenses) | $1,000.00 | $1,019.76 | $5.50 |
† Net expenses are equal to the Fund’s annualized expense ratio of 1.08%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect one-half year period).
Portfolio Holdings Presented by Sector
December 31, 2019
Sector* | %** | |||
Communication Services | 6.93 | % | ||
Consumer Discretionary | 7.01 | % | ||
Consumer Staples | 8.34 | % | ||
Energy | 8.34 | % | ||
Financials | 21.85 | % | ||
Health Care | 12.76 | % | ||
Industrials | 10.65 | % | ||
Information Technology | 9.02 | % | ||
Materials | 4.49 | % | ||
Real Estate | 2.44 | % | ||
Transportation | 1.02 | % | ||
Utilities | 6.85 | % | ||
Repurchase Agreement | 0.30 | % | ||
Total | 100.00 | % |
* | A sector may comprise several industries. | |
** | Represents percent of total investments. |
6
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
LONG-TERM INVESTMENTS 99.66% | ||||||||
COMMON STOCKS 98.67% | ||||||||
Aerospace & Defense 3.35% | ||||||||
General Dynamics Corp. | 27,111 | $ | 4,781 | |||||
United Technologies Corp. | 41,541 | 6,221 | ||||||
Total | 11,002 | |||||||
Auto Components 3.01% | ||||||||
Dorman Products, Inc.* | 37,804 | 2,863 | ||||||
LCI Industries | 34,880 | 3,737 | ||||||
Lear Corp. | 23,874 | 3,275 | ||||||
Total | 9,875 | |||||||
Banks 12.16% | ||||||||
BankUnited, Inc. | 88,812 | 3,247 | ||||||
Citigroup, Inc. | 78,799 | 6,295 | ||||||
East West Bancorp, Inc. | 85,245 | 4,151 | ||||||
JPMorgan Chase & Co. | 48,121 | 6,708 | ||||||
Signature Bank | 28,413 | 3,882 | ||||||
U.S. Bancorp | 109,351 | 6,483 | ||||||
Wells Fargo & Co. | 169,433 | 9,116 | ||||||
Total | 39,882 | |||||||
Beverages 1.57% | ||||||||
PepsiCo, Inc. | 37,700 | 5,152 | ||||||
Biotechnology 1.11% | ||||||||
Amgen, Inc. | 8,738 | 2,106 | ||||||
Gilead Sciences, Inc. | 23,700 | 1,540 | ||||||
Total | 3,646 | |||||||
Building Products 1.02% | ||||||||
A.O. Smith Corp. | 70,492 | 3,358 | ||||||
Capital Markets 2.58% | ||||||||
E*TRADE Financial Corp. | 110,900 | 5,032 | ||||||
T. Rowe Price Group, Inc. | 28,300 | 3,448 | ||||||
Total | 8,480 |
Investments | Shares | Fair Value (000) | ||||||
Chemicals 3.74% | ||||||||
Corteva, Inc.* | 147,766 | $ | 4,368 | |||||
Dow, Inc.* | 48,776 | 2,669 | ||||||
PPG Industries, Inc. | 39,116 | 5,222 | ||||||
Total | 12,259 | |||||||
Diversified Telecommunication Services 2.15% | ||||||||
Verizon Communications, Inc. | 114,700 | 7,043 | ||||||
Electric: Utilities 4.41% | ||||||||
Duke Energy Corp. | 53,045 | 4,838 | ||||||
Edison International | 60,896 | 4,592 | ||||||
NextEra Energy, Inc. | 20,852 | 5,050 | ||||||
Total | 14,480 | |||||||
Electrical Equipment 1.07% | ||||||||
Hubbell, Inc. | 23,798 | 3,518 | ||||||
Electronic Equipment, Instruments & Components 1.23% | ||||||||
Avnet, Inc. | 95,042 | 4,034 | ||||||
Energy Equipment & Services 1.15% | ||||||||
National Oilwell Varco, Inc. | 151,204 | 3,788 | ||||||
Entertainment 1.96% | ||||||||
Walt Disney Co. (The) | 44,391 | 6,420 | ||||||
Equity Real Estate Investment Trusts 2.44% | ||||||||
Alexandria Real Estate | ||||||||
Equities, Inc. | 15,206 | 2,457 | ||||||
Prologis, Inc. | 28,440 | 2,535 | ||||||
UDR, Inc. | 64,239 | 3,000 | ||||||
Total | 7,992 | |||||||
Food Products 1.99% | ||||||||
General Mills, Inc. | 64,500 | 3,454 | ||||||
J.M. Smucker Co. (The) | 29,500 | 3,072 | ||||||
Total | 6,526 | |||||||
Health Care Equipment & Supplies 1.49% | ||||||||
Medtronic plc (Ireland)(a) | 43,149 | 4,895 |
See Notes to Financial Statements. | 7 |
Schedule of Investments (continued)
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
Health Care Providers & Services 5.60% | ||||||||
Anthem, Inc. | 15,795 | $ | 4,771 | |||||
CVS Health Corp. | 64,313 | 4,778 | ||||||
McKesson Corp. | 11,172 | 1,545 | ||||||
Quest Diagnostics, Inc. | 30,417 | 3,248 | ||||||
Universal Health Services, Inc. Class B | 28,100 | 4,031 | ||||||
Total | 18,373 | |||||||
Hotels, Restaurants & Leisure 0.58% | ||||||||
Starbucks Corp. | 21,500 | 1,890 | ||||||
Household Products 3.45% | ||||||||
Clorox Co. (The) | 18,408 | 2,826 | ||||||
Procter & Gamble Co. (The) | 40,500 | 5,059 | ||||||
Spectrum Brands Holdings, Inc. | 53,479 | 3,438 | ||||||
Total | 11,323 | |||||||
Industrial Conglomerates 1.09% | ||||||||
Carlisle Cos., Inc. | 22,006 | 3,561 | ||||||
Information Technology Services 1.22% | ||||||||
MAXIMUS, Inc. | 53,700 | 3,995 | ||||||
Insurance 7.10% | ||||||||
American International | ||||||||
Group, Inc. | 97,700 | 5,015 | ||||||
Axis Capital Holdings Ltd. | 81,718 | 4,857 | ||||||
Chubb Ltd. (Switzerland)(a) | 33,050 | 5,145 | ||||||
Hartford Financial Services Group, Inc. (The) | 81,463 | 4,951 | ||||||
RenaissanceRe Holdings Ltd. | 16,919 | 3,316 | ||||||
Total | 23,284 | |||||||
Interactive Media & Services 2.10% | ||||||||
Alphabet, Inc. Class A* | 3,252 | 4,356 | ||||||
Facebook, Inc. Class A* | 12,287 | 2,522 | ||||||
Total | 6,878 |
Investments | Shares | Fair Value (000) | ||||||
Machinery 4.11% | ||||||||
Cummins, Inc. | 20,000 | $ | 3,579 | |||||
Stanley Black & Decker, Inc. | 30,469 | 5,050 | ||||||
Westinghouse Air Brake Technologies Corp. | 62,193 | 4,839 | ||||||
Total | 13,468 | |||||||
Media 0.73% | ||||||||
Comcast Corp. Class A | 53,062 | 2,386 | ||||||
Metals & Mining 0.76% | ||||||||
Nucor Corp. | 44,062 | 2,480 | ||||||
Multi-Utilities 1.44% | ||||||||
CMS Energy Corp. | 75,336 | 4,734 | ||||||
Oil, Gas & Consumable Fuels 7.18% | ||||||||
Exxon Mobil Corp. | 58,899 | 4,110 | ||||||
Marathon Petroleum Corp. | 75,937 | 4,575 | ||||||
Noble Energy, Inc. | 192,837 | 4,790 | ||||||
Suncor Energy, Inc. (Canada)(a) | 153,062 | 5,021 | ||||||
Total SA ADR | 91,411 | 5,055 | ||||||
Total | 23,551 | |||||||
Pharmaceuticals 4.54% | ||||||||
Johnson & Johnson | 23,847 | 3,479 | ||||||
Merck & Co., Inc. | 44,932 | 4,087 | ||||||
Novartis AG ADR | 43,125 | 4,083 | ||||||
Pfizer, Inc. | 83,191 | 3,259 | ||||||
Total | 14,908 | |||||||
Road & Rail 1.02% | ||||||||
Saia, Inc.* | 36,031 | 3,355 | ||||||
Semiconductors & Semiconductor Equipment 1.77% | ||||||||
Intel Corp. | 96,842 | 5,796 | ||||||
Software 2.74% | ||||||||
Microsoft Corp. | 37,864 | 5,971 | ||||||
Oracle Corp. | 56,805 | 3,010 | ||||||
Total | 8,981 |
8 | See Notes to Financial Statements. |
Schedule of Investments (concluded)
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
Specialty Retail 3.42% | ||||||||
Foot Locker, Inc. | 78,774 | $ | 3,072 | |||||
TJX Cos., Inc. (The) | 84,979 | 5,189 | ||||||
Urban Outfitters, Inc.* | 106,459 | 2,956 | ||||||
Total | 11,217 | |||||||
Technology Hardware, Storage & Peripherals 2.06% | ||||||||
Apple, Inc. | 23,000 | 6,754 | ||||||
Tobacco 1.33% | ||||||||
Philip Morris International, Inc. | 51,220 | 4,358 | ||||||
Total Common Stocks (cost $298,071,029) | 323,642 | |||||||
Principal Amount (000) | ||||||||
CORPORATE BONDS 0.99% | ||||||||
Electric: Utilities | ||||||||
Pacific Gas & Electric Co.(b)(c) (cost $3,350,229) | $3,082 | 3,234 | ||||||
Total Long-Term Investments (cost $301,421,258) | 326,876 |
Investments | Principal Amount (000) | Fair Value (000) | ||||||
SHORT-TERM INVESTMENT 0.30% | ||||||||
Repurchase Agreement | ||||||||
Repurchase Agreement dated 12/31/2019, 0.85% due 1/2/2020 with Fixed Income Clearing Corp. collateralized by $990,000 of U.S. Treasury Note at 2.750% due 8/15/2021; value: $1,018,218; proceeds: $996,517 (cost $996,470) | $996 | $ | 996 | |||||
Total Investments in Securities 99.96% (cost $302,417,728) | 327,872 | |||||||
Cash and Other Assets in Excess of Liabilities 0.04% | 127 | |||||||
Net Assets 100.00% | $ | 327,999 |
ADR | American Depositary Receipt. | |
* | Non-income producing security. | |
(a) | Foreign security traded in U.S. dollars. | |
(b) | Defaulted (non-income producing security). | |
(c) | The security has an interest rate 6.05% with a maturity of 03/01/2034. |
The following is a summary of the inputs used as of December 31, 2019 in valuing the Fund’s investments carried at fair value(1):
Investment Type(2) | Level 1 (000) | Level 2 (000) | Level 3 (000) | Total (000) | ||||||||||||
Long-Term Investments | ||||||||||||||||
Common Stocks | $ | 323,642 | $ | – | $ | – | $ | 323,642 | ||||||||
Corporate Bonds | – | 3,234 | – | 3,234 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | – | 996 | – | 996 | ||||||||||||
Total | $ | 323,642 | $ | 4,230 | $ | – | $ | 327,872 |
(1) | Refer to Note 2(h) for a description of fair value measurements and the three-tier hierarchy of inputs. | |
(2) | See Schedule of Investments for fair values in each industry and identification of foreign issuers and/or geography. |
See Notes to Financial Statements. | 9 |
Statement of Assets and Liabilities
December 31, 2019
ASSETS: | ||||
Investments in securities, at fair value (cost $302,417,728) | $ | 327,872,483 | ||
Cash | 10 | |||
Receivables: | ||||
Investment securities sold | 840,094 | |||
Interest and dividends | 442,869 | |||
From advisor (See Note 3) | 33,792 | |||
Capital shares sold | 10,892 | |||
Prepaid expenses | 1,018 | |||
Total assets | 329,201,158 | |||
LIABILITIES: | ||||
Payables: | ||||
Investment securities purchased | 546,333 | |||
Management fee | 196,788 | |||
Capital shares reacquired | 117,611 | |||
Directors’ fees | 42,063 | |||
Fund administration | 11,065 | |||
Foreign currency overdraft | 5 | |||
Accrued expenses | 288,667 | |||
Total liabilities | 1,202,532 | |||
Commitments and contingent liabilities | ||||
NET ASSETS | $ | 327,998,626 | ||
COMPOSITION OF NET ASSETS: | ||||
Paid-in capital | $ | 308,717,814 | ||
Total distributable earnings (loss) | 19,280,812 | |||
Net Assets | $ | 327,998,626 | ||
Outstanding shares (110 million shares of common stock authorized, $.001 par value) | 19,824,121 | |||
Net asset value, offering and redemption price per share (Net assets divided by outstanding shares) | $16.55 |
10 | See Notes to Financial Statements. |
For the Year Ended December 31, 2019
Investment income: | ||||
Dividends (net of foreign withholding taxes of $61,085) | $ | 7,259,098 | ||
Interest | 83,928 | |||
Total investment income | 7,343,026 | |||
Expenses: | ||||
Management fee | 2,161,705 | |||
Non 12b-1 service fees | 746,643 | |||
Shareholder servicing | 313,857 | |||
Fund administration | 119,220 | |||
Custody | 60,240 | |||
Professional | 48,236 | |||
Reports to shareholders | 39,859 | |||
Directors’ fees | 8,294 | |||
Other | 62,577 | |||
Gross expenses | 3,560,631 | |||
Expense reductions (See Note 8) | (9,606 | ) | ||
Fees waived and expenses reimbursed (See Note 3) | (225,074 | ) | ||
Net expenses | 3,325,951 | |||
Net investment income | 4,017,075 | |||
Net realized and unrealized gain: | ||||
Net realized gain on investments | 3,897,798 | |||
Net realized gain on foreign currency related transactions | 487 | |||
Net change in unrealized appreciation/depreciation on investments | 39,612,724 | |||
Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies | 1,012 | |||
Net realized and unrealized gain | 43,512,021 | |||
Net Increase in Net Assets Resulting From Operations | $ | 47,529,096 |
See Notes to Financial Statements. | 11 |
Statements of Changes in Net Assets
INCREASE (DECREASE) IN NET ASSETS | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | ||||||
Operations: | ||||||||
Net investment income | $ | 4,017,075 | $ | 3,645,478 | ||||
Net realized gain on investments and foreign currency related transactions | 3,898,285 | 33,830,697 | ||||||
Net change in unrealized appreciation/depreciation on investments and translation of assets and liabilities denominated in foreign currencies | 39,613,736 | (62,036,961 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 47,529,096 | (24,560,786 | ) | |||||
Distributions to shareholders: | (12,066,296 | ) | (39,892,158 | ) | ||||
Capital share transactions (See Note 14): | ||||||||
Proceeds from sales of shares | 275,997,853 | 169,751,566 | ||||||
Reinvestment of distributions | 12,066,296 | 39,892,159 | ||||||
Cost of shares reacquired | (203,255,827 | ) | (326,261,878 | ) | ||||
Net increase (decrease) in net assets resulting from capital share transactions | 84,808,322 | (116,618,153 | ) | |||||
Net increase (decrease) in net assets | 120,271,122 | (181,071,097 | ) | |||||
NET ASSETS: | ||||||||
Beginning of year | $ | 207,727,504 | $ | 388,798,601 | ||||
End of year | $ | 327,998,626 | $ | 207,727,504 |
12 | See Notes to Financial Statements. |
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13
Per Share Operating Performance: | ||||||||||||||||||||||||||||
Investment operations: | Distributions to shareholders from: | |||||||||||||||||||||||||||
Net asset value, beginning of period | Net invest- ment income(a) | Net realized and unrealized gain (loss) | Total from invest- ment opera- tions | Net investment income | Net realized gain | Total distri- butions | ||||||||||||||||||||||
12/31/2019 | $14.13 | $0.21 | $ 2.84 | $ 3.05 | $(0.21 | ) | $(0.42 | ) | $(0.63 | ) | ||||||||||||||||||
12/31/2018 | 18.86 | 0.20 | (1.78 | ) | (1.58 | ) | (0.28 | ) | (2.87 | ) | (3.15 | ) | ||||||||||||||||
12/31/2017 | 18.30 | 0.19 | 2.10 | 2.29 | (0.21 | ) | (1.52 | ) | (1.73 | ) | ||||||||||||||||||
12/31/2016 | 16.28 | 0.23 | 2.34 | 2.57 | (0.21 | ) | (0.34 | ) | (0.55 | ) | ||||||||||||||||||
12/31/2015 | 18.61 | 0.16 | (0.79 | ) | (0.63 | ) | (0.21 | ) | (1.49 | ) | (1.70 | ) |
(a) | Calculated using average shares outstanding during the period. |
(b) | Total return does not consider the effects of sales charges or other expenses imposed by an insurance company and assumes the reinvestment of all distributions. |
14 | See Notes to Financial Statements. |
Ratios to Average Net Assets: | Supplemental Data: | |||||||||||||||||||||||||
Net asset value, end of period | Total return(b) (%) | Total expenses after waivers and/or reim- bursements (%) | Total expenses (%) | Net investment income (%) | Net assets, end of period (000) | Portfolio turnover rate (%) | ||||||||||||||||||||
$ | 16.55 | 21.51 | 1.11 | 1.19 | 1.35 | $ | 327,999 | 124 | ||||||||||||||||||
14.13 | (8.16 | ) | 1.18 | 1.19 | 1.09 | 207,728 | 117 | |||||||||||||||||||
18.86 | 12.57 | 1.15 | 1.19 | 1.01 | 388,799 | 106 | ||||||||||||||||||||
18.30 | 15.74 | 1.15 | 1.20 | 1.36 | 387,518 | 132 | ||||||||||||||||||||
16.28 | (3.44 | ) | 1.15 | 1.21 | 0.90 | 261,006 | 135 |
See Notes to Financial Statements. | 15 |
1. | ORGANIZATION |
Lord Abbett Series Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified, open-end management investment company and was incorporated under Maryland law in 1989. The Company consists of nine separate portfolios. This report covers Fundamental Equity Portfolio (the “Fund”).
The Fund’s investment objective is long-term growth of capital and income without excessive fluctuations in market value. The Fund has Variable Contract class shares (“Class VC Shares”), which are currently issued and redeemed only in connection with investments in, and payments under, variable annuity contracts and variable life insurance policies issued by life insurance and insurance-related companies.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies.
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Investment Valuation–Under procedures approved by the Fund’s Board of Directors (the “Board”), Lord, Abbett & Co. LLC (“Lord Abbett”), the Fund’s investment manager, has formed a Pricing Committee to administer the pricing and valuation of portfolio investments and to ensure that prices utilized reasonably reflect fair value. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value. |
Securities actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to reflect their fair value as of the close of regular trading on the New York Stock Exchange. The Fund may utilize an independent fair valuation service in adjusting the valuations of foreign securities. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices. | |
Securities for which prices are not readily available are valued at fair value as determined by the Pricing Committee. The Pricing Committee considers a number of factors, including observable and unobservable inputs, when arriving at fair value. The Pricing Committee may use related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant information to determine the fair value of portfolio investments. The Board or a designated committee thereof regularly reviews fair value determinations made by the Pricing Committee and may employ techniques such as reviewing related market activity, reviewing inputs and assumptions, and retrospectively comparing prices of subsequent purchases and sales transactions to fair value determinations made by the Pricing Committee. | |
Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates fair value. |
16
Notes to Financial Statements (continued)
(b) | Security Transactions–Security transactions are recorded as of the date that the securities are purchased or sold (trade date). Realized gains and losses on sales of portfolio securities are calculated using the identified-cost method. |
(c) | Investment Income–Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis as earned. Discounts are accreted and premiums are amortized using the effective interest method and are included in Interest on the Statement of Operations. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates. |
(d) | Income Taxes–It is the policy of the Fund to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income and capital gains to its shareholders. Therefore, no income tax provision is required. |
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s filed U.S. federal tax returns remains open for the fiscal years ended December 31, 2016 through December 31, 2019. The statutes of limitations on the Company’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. | |
(e) | Expenses–Expenses incurred by the Company that do not specifically relate to an individual fund are generally allocated to the funds within the Company on a pro rata basis by relative net assets. |
(f) | Foreign Transactions–The books and records of the Fund are maintained in U.S. dollars and transactions denominated in foreign currencies are recorded in the Fund’s records at the rate prevailing when earned or recorded. Asset and liability accounts that are denominated in foreign currencies are adjusted daily to reflect current exchange rates and any unrealized gain (loss), if applicable, is included in Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies in the Fund’s Statement of Operations. The resultant exchange gains and losses upon settlement of such transactions are included in Net realized gain (loss), if applicable, on foreign currency related transactions in the Fund’s Statement of Operations. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in market prices of the securities. |
The Fund uses foreign currency exchange contracts to facilitate transactions in foreign denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms. | |
(g) | Repurchase Agreements–The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which a fund acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. The Fund requires at all times that the repurchase agreement be collateralized by cash, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). If the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the fair value of these securities has declined, the Fund may incur a loss upon disposition of the securities. |
17
Notes to Financial Statements (continued)
(h) | Fair Value Measurements–Fair value is defined as the price that the Fund would receive upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk—for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy classification is determined based on the lowest level of inputs that is significant to the fair value measurement, and is summarized in the three broad Levels listed below: |
• | Level 1 – | unadjusted quoted prices in active markets for identical investments; |
• | Level 2 – | other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and |
• | Level 3 – | significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
A summary of inputs used in valuing the Fund’s investments as of December 31, 2019 and, if applicable, Level 3 rollforwards for the fiscal year then ended is included in the Fund’s Schedule of Investments.
Changes in valuation techniques may result in transfers into or out of an assigned level within the three-tier hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
3. | MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES |
Management Fee
The Company has a management agreement with Lord Abbett, pursuant to which Lord Abbett supplies the Fund with investment management services and executive and other personnel, provides office space and pays for ordinary and necessary office and clerical expenses relating to research and statistical work and supervision of the Fund’s investment portfolio.
Effective May 1, 2019, the management fee is based on the Fund’s average daily net assets at the following annual rate:
First $200 million | .75% |
Next $300 million | .65% |
Over $500 million | .50% |
18
Notes to Financial Statements (continued)
Prior to May 1, 2019, the management fee was based on the Fund’s average daily net assets at the following annual rate:
First $1 billion | .75% |
Next $1 billion | .70% |
Over $2 billion | .65% |
For the fiscal year ended December 31, 2019, the effective management fee, net of waivers, was at an annualized rate of .65% of the Fund’s average daily net assets.
In addition, Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement in return for a fee at an annual rate of .04% of the Fund’s average daily net assets.
Effective May 1, 2019 through April 30, 2020, Lord Abbett has contractually agreed to waive its fees and reimburse expenses to the extent necessary to limit total net annual operating expenses to an annual rate of 1.08%. This agreement may be terminated only upon the approval of the Board.
The Company, on behalf of the Fund, has entered into services arrangements with certain insurance companies. Under these arrangements, certain insurance companies will be compensated up to .25% of the average daily NAV of the Fund’s Class VC Shares held in the insurance company’s separate account to service and maintain the Variable Contract owners’ accounts. This amount is included in Non 12b-1 service fees on the Statement of Operations. The Fund may also compensate certain insurance companies, third-party administrators and other entities for providing recordkeeping, sub-transfer agency and other administrative services to the Fund. This amount is included in Shareholder servicing on the Statement of Operations.
One Director and certain of the Company’s officers have an interest in Lord Abbett.
4. | DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS |
Dividends from net investment income, if any, are declared and paid at least semi-annually. Taxable net realized gains from investment transactions, reduced by allowable capital loss carryforwards, if any, are declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, is available to offset future net capital gains. Dividends and distributions to shareholders are recorded on the ex-dividend date. The amounts of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions that exceed earnings and profits for tax purposes are reported as a tax return of capital.
The tax character of distributions paid during the fiscal years ended December 31, 2019 and December 31, 2018 was as follows:
Year Ended 12/31/2019 | Year Ended 12/31/2018 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 6,488,812 | $ | 11,597,508 | ||||
Net long-term capital gains | 5,577,484 | 28,294,650 | ||||||
Total distributions paid | $ | 12,066,296 | $ | 39,892,158 |
19
Notes to Financial Statements (continued)
As of December 31, 2019, the components of accumulated gains (losses) on a tax-basis were as follows:
Undistributed ordinary income – net | $ | 232,163 | ||
Undistributed long-term capital gains | 83,480 | |||
Total undistributed earnings | 315,643 | |||
Temporary differences | (42,063 | ) | ||
Unrealized gains – net | 19,007,232 | |||
Total accumulated gains – net | $ | 19,280,812 |
As of December 31, 2019, the aggregate unrealized security gains (losses) on investments and other financial instruments, if any, based on cost for U.S. federal income tax purposes were as follows:
Tax cost | $ | 308,865,251 | ||
Gross unrealized gain | 22,589,947 | |||
Gross unrealized loss | (3,582,715 | ) | ||
Net unrealized security gain | $ | 19,007,232 |
The difference between book-basis and tax-basis unrealized gains (losses) is attributable to the tax treatment of wash sales and certain distributions received.
5. | PORTFOLIO SECURITIES TRANSACTIONS |
Purchases and sales of investment securities (excluding short-term investments) for the fiscal year ended December 31, 2019 were as follows:
Purchases | Sales | |
$436,965,831 | $358,879,100 |
There were no purchases or sales of U.S. Government securities for the fiscal year ended December 31, 2019.
The Fund is permitted to purchase and sell securities (“cross-trade”) from and to other Lord Abbett funds or client accounts pursuant to procedures approved by the Board in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at a fair market price in compliance with provisions of the Rule. For the fiscal year ended December 31, 2019, the Fund engaged in cross-trades purchases of $24,363,507, and sales of $13,368,672, which resulted in net realized gains of $1,373,611.
6. | DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES |
The Financial Accounting Standards Board (“FASB”) requires disclosures intended to help better assess the effect or potential effect of offsetting arrangements on a fund’s financial position. The following tables illustrate gross and net information about recognized assets and liabilities eligible for offset in the Statement of Assets and Liabilities; and disclose such amounts subject to an enforceable master netting agreement or similar agreement, by counterparty. A master netting agreement is an agreement between a fund and a counterparty which provides for the net settlement of amounts owed under all contracts traded under that agreement, as well as cash collateral, through a single payment by one party to the other in the event of default on or termination of any one contract. The Fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the master netting agreement does not result in an offset of reported amounts of
20
Notes to Financial Statements (continued)
financial assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty:
Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Assets Presented in the Statement of Assets and Liabilities | |||||||||
Repurchase Agreement | $996,470 | $ | – | $996,470 | ||||||||
Total | $996,470 | $ | – | $996,470 |
Net Amounts of Assets Presented in | Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Received(a) | Securities Collateral Received(a) | Net Amount(b) | |||||||||||||||
Fixed Income Clearing Corp. | $996,470 | $ | – | $ | – | $(996,470 | ) | $ | – | |||||||||||
Total | $996,470 | $ | – | $ | – | $(996,470 | ) | $ | – |
(a) | Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets presented in the Statement of Assets and Liabilities, for each respective counterparty. |
(b) | Net amount represents the amount owed to the Fund by the counterparty as of December 31, 2019. |
7. | DIRECTORS’ REMUNERATION |
The Company’s officers and one Director, who are associated with Lord Abbett, do not receive any compensation from the Company for serving in such capacities. Independent Directors’ fees are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all Independent Directors under which Independent Directors must defer receipt of a portion of, and may elect to defer receipt of an additional portion of Directors’ fees. The deferred amounts are treated as though equivalent dollar amounts had been invested in the funds. Such amounts and earnings accrued thereon are included in Directors’ fees on the Statement of Operations and in Directors’ fees payable on the Statement of Assets and Liabilities and are not deductible for U.S. federal income tax purposes until such amounts are paid.
8. | EXPENSE REDUCTIONS |
The Company has entered into an arrangement with its transfer agent and custodian, whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s expenses.
9. | LINE OF CREDIT |
For the period ended August 7, 2019, the Fund and certain other funds managed by Lord Abbett (collectively, the “Participating Funds”) entered into a Syndicated Facility with various lenders for $1.1 billion whereas State Street Bank and Trust Company (“SSB”) participated as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if Fund net assets are less than $750 million), $250 million, $300 million, $350 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
Effective August 8, 2019, the Participating Funds entered into a Syndicated Facility with various lenders for $1.17 billion whereas SSB participates as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if
21
Notes to Financial Statements (continued)
net assets are less than $750 million), $250 million, $300 million, $500 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
For the period ended August 7, 2019, the Participating Funds entered into an additional line of credit facility with SSB for $250 million (the “Bilateral Facility” and together with the Syndicated Facility, the “Facilities”). Under the Bilateral Facility, each Participating Fund may borrow up to the lesser of $250 million or one-third of Fund net assets.
Effective August 8, 2019, the Participating Funds entered into a Bilateral Facility with SSB for $330 million ($250 million committed and $80 million uncommitted). Under the Bilateral Facility, the Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, or $330 million, based on past borrowings and likelihood of future borrowings, among other factors.
The Facilities are to be used for temporary or emergency purposes as an additional source of liquidity to satisfy redemptions.
For the fiscal year ended December 31, 2019, the Fund did not utilize the Facilities.
10. | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission (“SEC exemptive order”), certain registered open-end management investment companies managed by Lord Abbett, including the Fund, participate in a joint lending and borrowing program (the “Interfund Lending Program”). The SEC exemptive order allows the Funds to borrow money from and lend money to each other for temporary or emergency purposes subject to the limitations and conditions.
For the fiscal year ended December 31, 2019, the Fund did not participate as a borrower or lender in the Interfund Lending Program.
11. | CUSTODIAN AND ACCOUNTING AGENT |
SSB is the Company’s custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund’s NAV.
12. | SECURITIES LENDING AGREEMENT |
The Fund has established a securities lending agreement with Citibank N.A. for the lending of securities to qualified brokers in exchange for securities or cash collateral equal to at least the market value of securities loaned, plus interest, if applicable. Cash collateral is invested in an approved money market fund. In accordance with the Fund’s securities lending agreement, the market value of securities on loan is determined each day at the close of business and any additional collateral required to cover the value of securities on loan is delivered to the Fund on the next business day. As with other extensions of credit, the Fund may experience a delay in the recovery of their securities or incur a loss should the borrower of the securities breach its agreement with the Fund or become insolvent at a time when the collateral is insufficient to cover the cost of repurchasing securities on loan. Any income earned from lending securities will be noted on the Statement of Operations.
For the fiscal year ended December 31, 2019, the Fund did not loan any securities.
22
Notes to Financial Statements (concluded)
13. | INVESTMENT RISKS |
The Fund is subject to the general risks and considerations associated with investing in equity securities as well as the particular risks associated with value stocks. The value of an investment will fluctuate in response to movements in the equity securities market in general and to the changing prospects of individual companies in which the Fund invests. Value investing also is subject to the risk that a company judged to be undervalued may actually be appropriately priced or even overpriced. Large value stocks, in which the Fund invests a significant portion of its assets, may perform differently than the market as a whole and other types of stocks, such as mid-sized or small-company stocks and growth stocks. This is because different types of stocks tend to shift in and out of favor over time depending on market and economic conditions as well as investor sentiment. In addition, large companies may have smaller rates of growth as compared to successful but well established smaller companies. Mid-cap and small-cap company stocks in which the Fund may invest may be more volatile and less liquid than large-cap stocks, especially over the short term. The market may fail to recognize the intrinsic value of a particular value stock for a long time. In addition, if the Fund’s assessment of a company’s value or prospects for exceeding earnings expectations or market conditions is wrong, the Fund could suffer losses or produce poor performance relative to other funds, even in a favorable market.
Due to the Fund’s investment exposure to foreign companies and American Depositary Receipts, the Fund may experience increased market, industry and sector, liquidity, currency, political, information, and other risks. The securities of foreign companies also may be subject to inadequate exchange control regulations, the imposition of economic sanctions or other government restrictions, higher transaction and other costs, and delays in settlement to the extent they are traded on non-U.S. exchanges or markets.
The Fund is subject to the risks associated with derivatives, which may be different and greater than the risks associated with investing directly in securities and other investments. Derivatives may be subject to risks such as liquidity risk, leveraging risk, interest rate risk, market risk, and credit risk. Illiquid securities may lower the Fund’s returns since the Fund may be unable to sell these securities at their desired time or price. Derivatives also may involve the risk of mispricing or improper valuation and the risk that changes in the value of the derivative may not correlate perfectly with the value of the underlying asset, rate or index. Whether the Fund’s use of derivatives is successful will depend on, among other things, the Fund’s ability to correctly forecast market movements, changes in foreign exchange and interest rates, and other factors. If the Fund incorrectly forecasts these and other factors, its performance could suffer. The Fund’s use of derivatives could result in a loss exceeding the amount of the Fund’s investment in these instruments.
These factors can affect the Fund’s performance.
14. | SUMMARY OF CAPITAL TRANSACTIONS |
Transactions in shares of capital stock were as follows:
Year Ended December 31, 2019 | Year Ended December 31, 2018 | |||||||
Shares sold | 17,712,782 | 9,227,349 | ||||||
Reinvestment of distributions | 730,892 | 2,819,102 | ||||||
Shares reacquired | (13,323,396 | ) | (17,955,994 | ) | ||||
Increase (decrease) | 5,120,278 | (5,909,543 | ) |
23
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Lord Abbett Series Fund, Inc.
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Fundamental Equity Portfolio, one of the funds constituting Lord Abbett Series Fund, Inc. (the “Fund”), as of December 31, 2019, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Fundamental Equity Portfolio of the Fund as of December 31, 2019, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
New York, New York
February 14, 2020
We have served as the auditor of one or more Lord Abbett Family of Funds’ investment companies since 1932.
24
Supplemental Proxy Information (unaudited)
A joint special meeting of shareholders of the Fund was held on August 26, 2019. The joint special meeting was held for the purpose of electing members of the Fund’s Board of Directors. Shareholders elected the following ten (10) Directors at the joint special meeting:
• | Eric C. Fast |
• | Evelyn E. Guernsey |
• | Julie A. Hill |
• | Kathleen M. Lutito |
• | James M. McTaggart |
• | Charles O. Prince |
• | Karla M. Rabusch |
• | Mark A. Schmid |
• | Douglas B. Sieg |
• | James L.L. Tullis |
The results of the proxy solicitation on the preceding matter were as follows:
Lord Abbett Series Fund, Inc.
Nominee Votes | Votes For | Votes Withheld |
Eric C. Fast | 186,329,820.614 | 7,776,255.685 |
Evelyn E. Guernsey | 186,718,826.419 | 7,387,249.880 |
Julie A. Hill | 186,486,240.620 | 7,619,835.679 |
Kathleen M. Lutito | 187,082,042.409 | 7,024,033.890 |
James M. McTaggart | 186,269,131.867 | 7,836,944.422 |
Charles O. Prince | 186,103,251.100 | 8,002,825.199 |
Karla M. Rabusch | 186,796,719.683 | 7,309,356.626 |
Mark A. Schmid | 186,825,573.395 | 7,280,502.894 |
Douglas B. Sieg | 186,702,410.889 | 7,403,665.410 |
James L.L. Tullis | 186,229,277.817 | 7,876,798.472 |
25
Basic Information About Management
The Board is responsible for the management of the business and affairs of the Company in accordance with the laws of the State of Maryland. The Board elects officers who are responsible for the day-to-day operations of the Fund and who execute policies authorized by the Board. The Board also approves an investment adviser to the Fund and continues to monitor the cost and quality of the services the investment adviser provides, and annually considers whether to renew the contract with the investment adviser. Generally, each Director holds office until his/her successor is elected and qualified or until his/her earlier resignation or removal, as provided in the Company’s organizational documents.
Lord Abbett, a Delaware limited liability company, is the Fund’s investment adviser. Designated Lord Abbett personnel are responsible for the day-to-day management of the Fund.
Interested Directors
Mr. Sieg is affiliated with Lord Abbett and is an “interested person” of the Company as defined in the Act. Mr. Sieg is director/trustee of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios. Mr. Sieg is an officer of the Lord Abbett Family of Funds.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Douglas B. Sieg Lord, Abbett & Co. LLC 90 Hudson Street Jersey City, NJ 07302 (1969) | Director since 2016; President and Chief Executive Officer since 2018 | Principal Occupation:Managing Partner (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. Other Directorships:None. |
Independent Directors
The following Independent Directors also are directors/trustees of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Evelyn E. Guernsey Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1955) | Director since 2011 | Principal Occupation: None. Other Directorships: None. | ||
Julie A. Hill Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1946) | Director since 2004 | Principal Occupation: Owner and CEO of The Hill Company, a business consulting firm (since 1998). Other Directorships: Currently serves as director of Anthem, Inc., a health benefits company (since 1994). | ||
Kathleen M. Lutito Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1963) | Director since 2017 | Principal Occupation: President and Chief Investment Officer of CenturyLink Investment Management Company (since 2006). Other Directorships: None. |
26
Basic Information About Management (continued)
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
James M. McTaggart Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2012 | Principal Occupation:Independent management advisor and consultant (since 2012). Other Directorships:Blyth, Inc., a home products company (2004–2015). | ||
Charles O. Prince Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1950) | Director since 2019 | Principal Occupation:None. Formerly Chairman and Chief Executive Officer, Citigroup, Inc. Other Directorships:Currently serves as director of Johnson & Johnson (2006–Present). Previously served as director of Xerox Corporation (2008–2018). | ||
Karla M. Rabusch Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2017 | Principal Occupation:President and Director of Wells Fargo Funds Management, LLC (2003–2017); President of Wells Fargo Funds (2003–2016). Other Directorships:None. | ||
Mark A. Schmid Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2016 | Principal Occupation:Vice President and Chief Investment Officer of the University of Chicago (since 2009). Other Directorships:None. | ||
James L.L. Tullis Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2006; Chairman since 2017 | Principal Occupation:Chairman of Tullis Health Investors - FL LLC (since 2018); CEO of Tullis–Dickerson and Co. Inc., a venture capital management firm (1990–2016). Other Directorships:Currently serves as director of Crane Co. (since 1998), Alphatec Spine, Inc. (since 2018), and electroCore, Inc. (since 2018). |
Officers
None of the officers listed below have received compensation from the Company. All of the officers of the Company also may be officers of the other Lord Abbett Funds and maintain offices at 90 Hudson Street, Jersey City, NJ 07302. Unless otherwise indicated, the position(s) and title(s) listed under the “Principal Occupation During the Past Five Years” column indicate each officer’s position(s) and title(s) with Lord Abbett. Each officer serves for an indefinite term (i.e., until his or her death, resignation, retirement, or removal).
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Douglas B. Sieg (1969) | President and Chief Executive Officer | Elected as President and Chief Executive Officer in 2018 | Managing Partner of Lord Abbett (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. |
27
Basic Information About Management (concluded)
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Jackson C. Chan (1964) | AML Compliance Officer | Elected in 2018 | Deputy Chief Compliance Officer and Director of Regulatory Affairs, joined Lord Abbett in 2014. | |||
Pamela P. Chen (1978) | Vice President, Assistant Secretary and Privacy Officer | Elected as Vice President and Assistant Secretary in 2018 and Privacy Officer in 2019 | Associate General Counsel, joined Lord Abbett in 2017 and was formerly Special Counsel at Schulte, Roth & Zabel LLP (2005–2017). | |||
John T. Fitzgerald (1975) | Vice President and Assistant Secretary | Elected in 2018 | Deputy General Counsel, joined Lord Abbett in 2018 and was formerly Deputy Head of U.S. Funds Legal, Executive Director and Assistant General Counsel at JPMorgan Chase (2005-2018). | |||
Vito A. Fronda (1969) | Treasurer | Elected in 2018 | Partner and Director of Fund Treasury and Tax, joined Lord Abbett in 2003. | |||
Bernard J. Grzelak (1971) | Chief Financial Officer and Vice President | Elected in 2017 | Partner and Chief Operating Officer, Global Funds and Risk, joined Lord Abbett in 2003. | |||
Linda Y. Kim (1980) | Vice President and Assistant Secretary | Elected in 2016 | Counsel, joined Lord Abbett in 2015. | |||
Joseph M. McGill (1962) | Chief Compliance Officer | Elected in 2014 | Partner and Chief Compliance Officer, joined Lord Abbett in 2014. | |||
Amanda S. Ryan (1978) | Vice President and Assistant Secretary | Elected in 2018 | Counsel, joined Lord Abbett in 2016 and was formerly a Director and Corporate Counsel at PGIM Investments (2012–2016). | |||
Lawrence B. Stoller (1963) | Vice President, Secretary and Chief Legal Officer | Elected as Vice President and Secretary in 2007 and Chief Legal Officer in 2019 | Partner and General Counsel, joined Lord Abbett in 2007. |
Please call 888-522-2388 for a copy of the statement of additional information, which contains further information about the Company’s Directors. It is available free upon request.
28
Approval of Advisory Contract
The Board, including all of the Directors who are not “interested persons” of the Company or of Lord Abbett, as defined in the Investment Company Act of 1940, as amended (the “Independent Directors”), annually considers whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett (the “Agreement”). In connection with its most recent approval, the Board reviewed materials relating specifically to the Agreement, as well as numerous materials received throughout the course of the year, including information about the Fund’s investment performance compared to the performance of its benchmarks. Before making its decision as to the Fund, the Board had the opportunity to ask questions and request further information, taking into account its knowledge of Lord Abbett gained through its meetings and discussions. These meetings and discussions included reviews of Fund performance conducted by members of the Contract Committee, the deliberations of the Contract Committee, and discussions between the Contract Committee and Lord Abbett’s management. The Independent Directors also met with their independent legal counsel in various private sessions at which no representatives of management were present.
The materials received by the Board included, but were not limited to: (1) information provided by Broadridge Financial Solutions (“Broadridge”) regarding the investment performance of the Fund compared to the investment performance of certain funds with similar investment styles as determined by Broadridge, based, in part, on the Fund’s Morningstar category (the “performance peer group”), and the investment performance of two appropriate benchmarks; (2) information provided by Broadridge regarding the expense ratios, contractual and actual management fee rates, and other expense components for the Fund and certain funds in the same Morningstar category, with generally the same or similar share classes and operational characteristics, including asset size (the “expense peer group”); (3) certain supplemental investment performance information provided by Lord Abbett; (4) information provided by Lord Abbett on the expense ratios, management fee rates, and other expense components for the Fund; (5) sales and redemption information for the Fund; (6) information regarding Lord Abbett’s financial condition; (7) an analysis of the relative profitability of the Agreement to Lord Abbett; (8) information provided by Lord Abbett regarding the investment management fee schedules for Lord Abbett’s other advisory clients maintaining accounts with a similar investment strategy as the Fund; and (9) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
Investment Management and Related Services Generally.The Board considered the services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading, and Lord Abbett’s commitment to compliance with all applicable legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest that may result from being engaged in other lines of business. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to the Fund and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other. After reviewing these and related factors, the Board concluded that the Fund was likely to continue to benefit from the nature, extent and quality of the investment services provided by Lord Abbett under the Agreement.
Investment Performance.The Board reviewed the Fund’s investment performance in relation to that of the performance peer group and two appropriate benchmarks as of various periods ended June 30, 2019. The Board observed that the Fund’s investment performance was above the median of the performance peer group for the one-, five-, and ten-year periods and below the median of
29
Approval of Advisory Contract (continued)
the performance peer group for the three-year period. The Board further considered Lord Abbett’s performance and reputation generally, the performance of other Lord Abbett-managed funds overseen by the Board, and the willingness of Lord Abbett to take steps intended to improve performance when appropriate. After reviewing these and related factors, the Board concluded that the Fund’s Agreement should be continued.
Lord Abbett’s Personnel and Methods.The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of its investment objective and discipline, and other services provided to the Fund by Lord Abbett. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining personnel.
Nature and Quality of Other Services.The Board considered the nature, quality, and extent of compliance, administrative, and other services performed by Lord Abbett and the nature and extent of Lord Abbett’s supervision of third party service providers, including the Fund’s transfer agent and custodian.
Expenses.The Board considered the expense level of the Fund, including the contractual and actual management fee rates, and the expense levels of the Fund’s expense peer group. It also considered how the expense level of the Fund related to those of the expense peer group and the amount and nature of the fees paid by shareholders. The Board observed that the net total expense ratio of the Fund was above the median of the expense peer group. The Board further considered that the Fund’s management fee was reduced, effective May 1, 2019. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that the management fees paid by, and expense level of, the Fund were reasonable in light of all of the factors it considered and supported the continuation of the Agreement.
Profitability.The Board considered the level of Lord Abbett’s operating margin in managing the Fund, including a review of Lord Abbett’s methodology for allocating its costs to its management of the Fund. It considered whether the Fund was profitable to Lord Abbett in connection with the Fund’s operation, including the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the profits realized from other business segments of Lord Abbett, which may benefit from or be related to the Fund’s business. The Board considered Lord Abbett’s profit margins excluding Lord Abbett’s marketing and distribution expenses. The Board also considered Lord Abbett’s profit margins, without those exclusions, in comparison with available industry data and how those profit margins could affect Lord Abbett’s ability to recruit and retain personnel. The Board recognized that Lord Abbett’s overall profitability was a factor in enabling it to attract and retain qualified personnel to provide services to the Fund. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that Lord Abbett’s profitability with respect to the Fund was not excessive.
Economies of Scale.The Board considered the extent to which there had been economies of scale in managing the Fund, whether the Fund’s shareholders had appropriately benefited from such economies of scale, and whether there was potential for realization of any further economies of scale. The Board concluded that the existing management fee schedule, with its breakpoints in the level of the management fee, in conjunction with the Fund’s expense limitation agreement, adequately addressed any economies of scale in managing the Fund.
30
Approval of Advisory Contract (concluded)
Other Benefits to Lord Abbett.The Board considered the amount and nature of the fees paid by the Fund and the Fund’s shareholders to Lord Abbett for services other than investment advisory services, such as the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the revenues and profitability of Lord Abbett’s investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that the Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees it receives, and receives a portion of the sales charges on sales and redemptions of some classes of shares of the Lord Abbett Funds. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectus of the Fund, has entered into revenue sharing arrangements with certain entities that distribute shares of the Lord Abbett Funds. The Board also took into consideration the investment research that Lord Abbett receives as a result of client brokerage transactions.
Alternative Arrangements.The Board considered whether, instead of approving continuation of the Agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms. After considering all of the relevant factors, the Board unanimously found that continuation of the Agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve the continuation of the Agreement. In considering whether to approve the continuation of the Agreement, the Board did not identify any single factor as paramount or controlling. Individual Directors may have evaluated the information presented differently from one another, giving different weights to various factors. This summary does not discuss in detail all matters considered.
31
Householding
The Company has adopted a policy that allows it to send only one copy of the Fund’s prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same “household.” This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.
Proxy Voting Policies, Procedures and Records
A description of the policies and procedures that Lord Abbett uses to vote proxies related to the Fund’s portfolio securities, and information on how Lord Abbett voted the Fund’s proxies during the 12-month period ended December 31 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett’s Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission’s (“SEC”) Website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters as an attachment to Form N-PORT. Copies of the filings are available without charge, upon request on the SEC’s Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388.
Tax Information
For corporate shareholders, 92% of the Fund’s ordinary income distributions qualified for the dividends received deduction.
Additionally, of the distributions paid to the shareholders during the fiscal year ended December 31, 2019, $2,509,580 and $5,577,484, respectively, represent short-term capital gains and long-term capital gains.
32
This report, when not used for the general information of shareholders of the Fund, is to be distributed only if preceded or accompanied by a current fund prospectus.
Lord Abbett mutual fund shares are distributed by | Lord Abbett Series Fund, Inc.
Fundamental Equity Portfolio | SFFE-PORT-3 (02/20) |
LORD ABBETT
ANNUAL REPORT
Lord Abbett
Series Fund—Growth and Income Portfolio
For the fiscal year ended December 31, 2019
Table of Contents
Lord Abbett Series Fund — Growth and Income Portfolio
Annual Report
For the fiscal year ended December 31, 2019
From left to right: James L.L. Tullis, Independent Chairman of the Lord Abbett Funds and Douglas B. Sieg, Director, President, and Chief Executive Officer of the Lord Abbett Funds.
Dear Shareholders:We are pleased to provide you with this overview of the performance of Lord Abbett Series Fund — Growth and Income Portfolio for the fiscal year ended December 31, 2019. On this page and the following pages, we discuss the major factors that influenced fiscal year performance. For additional information about the Fund, please visit our website at www.lordabbett.com, where you also can access quarterly commentaries that provide updates on the Fund’s performance and other portfolio related updates.
Thank you for investing in Lord Abbett mutual funds. We value the trust that you place in us and look forward to serving your investment needs in the years to come.
Best regards,
Douglas B. Sieg
Director, President, and Chief Executive Officer
For the fiscal year ended December 31, 2019, the Fund returned 22.49%, reflecting performance at the net asset value (NAV) of Class VC shares with all distributions reinvested, compared to its benchmark, the Russell 1000® Value Index1, which returned 26.54% over the same period.
Domestic equity returns were positive over the past year, with large cap stocks, as represented by the S&P 500® Index,2rising 31.49% during the period, while small cap stocks, as represented by the Russell 2000® Index,3were up 25.52%. Following a tumultuous fourth quarter of 2018, where trade tensions and monetary policy
uncertainty sent many investors toward safety, the market staged a strong recovery. After the worst December since 1931, the S&P 500 posted its best January performance since 1987. Trade tensions continued to dominate headlines, as trade negotiations between the U.S. and China remained volatile throughout the period. Since the beginning of 2019, both the U.S. and China have imposed tariffs of roughly $550 billion and $185 billion on each country’s products, respectively. One of the more notable shifts over the year was the U.S. Federal Reserve’s (the “Fed”) transition to a more dovish policy stance, with
1
Chairman Jerome Powell stating that the Fed would act appropriately to sustain economic growth. Given an uncertain market outlook and muted inflation pressures, the Fed announced its decision to cut interest rates by 25 basis points on July 31, 2019 to a range of 2.00-2.25%. This was the first time that the Fed had cut interest rates since December 2008. The Fed followed that decision with two more 25 basis point rate cuts in September and October, citing “implications of global developments for the economic outlook as well as muted inflation pressures”. After the October rate cut, Fed Chairman Powell signaled a likely pause on future rate cuts. The combination of a dovish Fed, trade pressures, and slowing economic growth resulted in falling rates across the U.S. Treasury yield curve. In fact, in July, the yield on the 10-year U.S. Treasury fell to its lowest level since 2016. Bond yields continued to fall, and in August, the spread between the U.S. 10-year Treasury and the 2-year Treasury temporarily inverted. In September, a large rotation from growth stocks into value took place and continued through November. Geopolitics also contributed to market volatility. Following a coordinated drone strike on Saudi Arabia in the third quarter, Brent crude oil prices increased 20% in one trading session. Despite the record increase, oil prices retracted their gains within weeks. Investor sentiment was buoyed in November as the market grew optimistic about the possibility of a “Phase One” trade deal between the U.S. and China, which was
ultimately reached in December. The agreement included structural reforms to China’s trade regime in areas such as intellectual property and agriculture, as well as a commitment from China to make additional purchases of U.S. goods and services moving forward. In return, the U.S. would not proceed with tariffs that were scheduled to go into effect in December on nearly $160 billion worth of Chinese goods and would cut the tariff rate imposed on September 1, 2019 on $120 billion worth of Chinese goods from 15% to 7.5%.
The Fund underperformed its benchmark for the period. During the trailing 12-month period, the Fund’s holding of Foot Locker, Inc., an athletic shoes and apparel retailer, detracted most from relative performance. Shares of Foot Locker traded down 16% following the company’s first quarter earnings release. Both revenue and earnings came in lower than the market expected and management lowered fiscal year guidance. Hewlett-Packard Co., a personal computing, imaging and printing provider, also detracted from relative performance. Shares of the company fell throughout the period, but dropped precipitously following the company’s first quarter earnings release. The company reported softer than expected top line growth, which was due in part to the printing supplies segment. PG&E Corp., an electricity and natural gas company, also detracted from relative performance. PG&E’s stock price fell as the company prepared to file for bankruptcy in an attempt to dismiss the liability charges stemming from wildfires in 2017 and 2018.
2
Conversely, the largest contributor to relative performance during the trailing 12-month period was the Fund’s position in Apple Inc., a mobile communication, media devices, and personal computers manufacturer. Shares of Apple rose after the company reported fiscal fourth quarter results. The company’s iPhone business grew above market expectations and the recently released iPhone 11 has been received well by consumers. The Fund’s position in CVS Health Corporation, a health care services provider, also contributed to relative performance. Shares of CVS Health rose after the company reported third quarter earnings that beat market expectations. Profits rose
10% year-over-year and were largely boosted by CVS Health’s Aetna insurance business. JPMorgan Chase & Co., a financial holding company, also contributed to relative performance. Shares of JPMorgan rose in the back half of the year as the banking industry was a beneficiary of both the yield curve steepening and the rotation from growth to value stocks.
The Fund’s portfolio is actively managed and, therefore, its holdings and the weightings of a particular issuer or particular sector as a percentage of portfolio assets are subject to change. Sectors may include many industries.
1 The Russell 1000®Value Index measures the performance of those Russell 1000® companies with lower price-to-book ratios and lower forecasted growth values.
2 The S&P 500®Index is widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries.
3 The Russell 2000®Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index.
Unless otherwise specified, indexes reflect total return, with all dividends reinvested. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Important Performance and Other Information
Performance data quoted in the following pages reflect past performance and are no guarantee of future results. Current performance may be higher or lower than the performance quoted. The investment return and principal value of an investment in the Funds will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. You
can obtain performance data current to the most recent month end by calling Lord Abbett at 888-522-2388 or referring to www.lordabbett.com.
The annual commentary above discusses the views of the Fund’s management and various portfolio holdings of the Fund as of December 31, 2019. These views and portfolio holdings may have changed after this date. Information provided in the commentary is not a recommendation to buy or sell securities. Because the Fund’s portfolio is actively managed and may change significantly, the Fund may no longer own the securities described above or may have otherwise changed their positions in the securities. For more recent information about the Fund’s portfolio holdings, please visit www.lordabbett.com.
A Note about Risk:See Notes to Financial Statements for a discussion of investment risks. For a more detailed discussion of the risks associated with the Fund, please see the Fund’s prospectus.
Mutual funds are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, banks, and are subject to investment risks including possible loss of principal amount invested.
The Fund serves as an underlying investment vehicle for variable annuity contracts and variable life insurance policies.
3
Below is a comparison of a $10,000 investment in Class VC shares with the same investment in the Russell 1000® Value Index, the S&P 500® Index and the S&P 500® Value Index, assuming reinvestment of all dividends and distributions. The Fund’s shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. This line graph comparison does not reflect the sales charges or other expenses of these contracts. If those sales charges and expenses were reflected, returns would be lower. The graph and performance table below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.Past performance is no guarantee of future results.
Average Annual Total Returns for the Periods Ended December 31, 2019 | |||||||
1 Year | 5 Years | 10 Years | |||||
Class VC | 22.49% | 7.73% | 10.13% |
1 Performance for each unmanaged index does not reflect any fees or expenses. The performance of each index is not necessarily representative of the Fund’s performance.
4
As a shareholder of the Fund, you incur ongoing costs, including management fees; expenses related to the Fund’s services arrangements with certain insurance companies; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2019 through December 31, 2019).
The Example reflects only expenses that are deducted from the assets of the Fund. Fees and expenses, including sales charges applicable to the various insurance products that invest in the Fund, are not reflected in this Example. If such fees and expenses were reflected in the Example, the total expenses shown would be higher. Fees and expenses regarding such variable insurance products are separately described in the prospectus related to those products.
Actual Expenses
The first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled “Expenses Paid During Period 7/1/19 – 12/31/19” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
5
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning | Ending | Expenses | ||||||||||
Account | Account | Paid During | ||||||||||
Value | Value | Period† | ||||||||||
7/1/19 - | ||||||||||||
7/1/19 | 12/31/19 | 12/31/19 | ||||||||||
Class VC | ||||||||||||
Actual | $ | 1,000.00 | $ | 1,083.20 | $ | 4.94 | ||||||
Hypothetical (5% Return Before Expenses) | $ | 1,000.00 | $ | 1,020.47 | $ | 4.79 |
† | Net expenses are equal to the Fund’s annualized expense ratio of 0.94%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect one-half year period). |
Portfolio Holdings Presented by Sector
December 31, 2019
Sector* | %** | |
Communication Services | 8.05 | % |
Consumer Discretionary | 5.11 | % |
Consumer Staples | 8.38 | % |
Energy | 8.80 | % |
Financials | 23.63 | % |
Health Care | 13.82 | % |
Industrials | 10.63 | % |
Information Technology | 8.33 | % |
Materials | 4.21 | % |
Real Estate | 2.28 | % |
Utilities | 6.43 | % |
Repurchase Agreement | 0.33 | % |
Total | 100.00 | % |
* | A sector may comprise several industries. | |
** | Represents percent of total investments. |
6
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
LONG-TERM INVESTMENTS 99.62% | ||||||||
COMMON STOCKS 98.64% | ||||||||
Aerospace & Defense 3.87% | ||||||||
General Dynamics Corp. | 47,849 | $ | 8,438 | |||||
United Technologies Corp. | 93,811 | 14,049 | ||||||
Total | 22,487 | |||||||
Auto Components 0.93% | ||||||||
Lear Corp. | 39,600 | 5,433 | ||||||
Banks 12.94% | ||||||||
Citigroup, Inc. | 166,595 | 13,309 | ||||||
East West Bancorp, Inc. | 148,441 | 7,229 | ||||||
JPMorgan Chase & Co. | 134,465 | 18,744 | ||||||
Signature Bank | 50,915 | 6,956 | ||||||
U.S. Bancorp | 202,796 | 12,024 | ||||||
Wells Fargo & Co. | 316,968 | 17,053 | ||||||
Total | 75,315 | |||||||
Beverages 1.57% | ||||||||
PepsiCo, Inc. | 67,000 | 9,157 | ||||||
Biotechnology 1.05% | ||||||||
Amgen, Inc. | 14,737 | 3,553 | ||||||
Gilead Sciences, Inc. | 39,478 | 2,565 | ||||||
Total | 6,118 | |||||||
Building Products 1.09% | ||||||||
Masco Corp. | 132,595 | 6,363 | ||||||
Capital Markets 3.99% | ||||||||
Ameriprise Financial, Inc. | 40,289 | 6,711 | ||||||
E*TRADE Financial Corp. | 196,842 | 8,931 | ||||||
T. Rowe Price Group, Inc. | 62,017 | 7,556 | ||||||
Total | 23,198 | |||||||
Chemicals 3.46% | ||||||||
Corteva, Inc.* | 208,810 | 6,173 | ||||||
Dow, Inc.* | 85,872 | 4,700 | ||||||
PPG Industries, Inc. | 69,341 | 9,256 | ||||||
Total | 20,129 |
Investments | Shares | Fair Value (000) | ||||||
Diversified Telecommunication Services 2.69% | ||||||||
Verizon Communications, Inc. | 254,820 | $ | 15,646 | |||||
Electric: Utilities 4.42% | ||||||||
Duke Energy Corp. | 78,799 | 7,187 | ||||||
Edison International | 118,493 | 8,936 | ||||||
NextEra Energy, Inc. | 39,721 | 9,619 | ||||||
Total | 25,742 | |||||||
Electrical Equipment 1.07% | ||||||||
Hubbell, Inc. | 42,223 | 6,242 | ||||||
Electronic Equipment, Instruments & Components 1.22% | ||||||||
Avnet, Inc. | 167,471 | 7,108 | ||||||
Energy Equipment & Services 1.04% | ||||||||
National Oilwell Varco, Inc. | 242,072 | 6,064 | ||||||
Entertainment 2.05% | ||||||||
Walt Disney Co. (The) | 82,479 | 11,929 | ||||||
Equity Real Estate Investment Trusts 2.28% | ||||||||
Alexandria Real Estate Equities, Inc. | 29,532 | 4,772 | ||||||
Prologis, Inc. | 52,983 | 4,723 | ||||||
Simon Property Group, Inc. | 25,425 | 3,787 | ||||||
Total | 13,282 | |||||||
Food Products 3.05% | ||||||||
Danone SA (France)(a) | 32,100 | 2,661 | ||||||
General Mills, Inc. | 105,371 | 5,643 | ||||||
J.M. Smucker Co. (The) | 50,600 | 5,269 | ||||||
Nestle SA ADR | 38,240 | 4,140 | ||||||
Total | 17,713 | |||||||
Health Care Equipment & Supplies 1.58% | ||||||||
Medtronic plc (Ireland)(a) | 80,952 | 9,184 | ||||||
Health Care Providers & Services 6.28% | ||||||||
Anthem, Inc. | 27,647 | 8,350 | ||||||
CVS Health Corp. | 108,974 | 8,096 | ||||||
Laboratory Corp. of America Holdings* | 24,302 | 4,111 | ||||||
McKesson Corp. | 30,822 | 4,263 |
See Notes to Financial Statements. | 7 |
Schedule of Investments (continued)
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
Health Care Providers & Services (continued) | ||||||||
Quest Diagnostics, Inc. | 40,019 | $ | 4,274 | |||||
Universal Health Services, Inc. Class B | 51,800 | 7,431 | ||||||
Total | 36,525 | |||||||
Hotels, Restaurants & Leisure 0.56% | ||||||||
Starbucks Corp. | 37,100 | 3,262 | ||||||
Household Products 2.43% | ||||||||
Clorox Co. (The) | 30,746 | 4,721 | ||||||
Procter & Gamble Co. (The) | 75,187 | 9,391 | ||||||
Total | 14,112 | |||||||
Insurance 6.69% | ||||||||
American International Group, Inc. | 172,885 | 8,874 | ||||||
Axis Capital Holdings Ltd. | 145,829 | 8,668 | ||||||
Chubb Ltd. (Switzerland)(a) | 57,956 | 9,021 | ||||||
Hartford Financial Services Group, Inc. (The) | 158,347 | 9,623 | ||||||
RenaissanceRe Holdings Ltd. | 13,983 | 2,741 | ||||||
Total | 38,927 | |||||||
Interactive Media & Services 2.37% | ||||||||
Alphabet, Inc. Class A* | 6,571 | 8,801 | ||||||
Facebook, Inc. Class A* | 24,296 | 4,987 | ||||||
Total | 13,788 | |||||||
Internet & Direct Marketing Retail 1.01% | ||||||||
eBay, Inc. | 162,140 | 5,855 | ||||||
Machinery 4.59% | ||||||||
Cummins, Inc. | 51,700 | 9,252 | ||||||
Stanley Black & Decker, Inc. | 53,975 | 8,946 | ||||||
Westinghouse Air Brake Technologies Corp. | 109,394 | 8,511 | ||||||
Total | 26,709 | |||||||
Media 0.94% | ||||||||
Comcast Corp. Class A | 121,578 | 5,467 | ||||||
Metals & Mining 0.76% | ||||||||
Nucor Corp. | 77,972 | 4,388 |
Investments | Shares | Fair Value (000) | ||||||
Multi-Utilities 1.02% | ||||||||
CMS Energy Corp. | 94,500 | $ | 5,938 | |||||
Oil, Gas & Consumable Fuels 7.75% | ||||||||
Chevron Corp. | 48,401 | 5,833 | ||||||
Exxon Mobil Corp. | 82,586 | 5,763 | ||||||
Marathon Petroleum Corp. | 132,754 | 7,998 | ||||||
Noble Energy, Inc. | 380,527 | 9,452 | ||||||
Suncor Energy, Inc. (Canada)(a) | 238,058 | 7,808 | ||||||
Total SA ADR | 149,159 | 8,249 | ||||||
Total | 45,103 | |||||||
Pharmaceuticals 4.91% | ||||||||
Johnson & Johnson | 40,391 | 5,892 | ||||||
Merck & Co., Inc. | 95,007 | 8,641 | ||||||
Novartis AG ADR | 87,776 | 8,311 | ||||||
Pfizer, Inc. | 145,962 | 5,719 | ||||||
Total | 28,563 | |||||||
Semiconductors & Semiconductor Equipment 1.96% | ||||||||
Intel Corp. | 190,614 | 11,408 | ||||||
Software 2.82% | ||||||||
Microsoft Corp. | 62,793 | 9,902 | ||||||
Oracle Corp. | 123,138 | 6,524 | ||||||
Total | 16,426 | |||||||
Specialty Retail 2.60% | ||||||||
Foot Locker, Inc. | 135,291 | 5,275 | ||||||
TJX Cos., Inc. (The) | 161,680 | 9,872 | ||||||
Total | 15,147 | |||||||
Technology Hardware, Storage & Peripherals 2.32% | ||||||||
Apple, Inc. | 45,900 | 13,479 | ||||||
Tobacco 1.33% | ||||||||
Philip Morris International, Inc. | 90,829 | 7,729 | ||||||
Total Common Stocks (cost $506,594,089) | 573,936 |
8 | See Notes to Financial Statements. |
Schedule of Investments (concluded)
December 31, 2019
Investments | Principal Amount (000) | Fair Value (000) | ||||||
CORPORATE BONDS 0.98% | ||||||||
Electric: Utilities | ||||||||
Pacific Gas & Electric Co.(b)(c) (cost $5,972,333) | $ | 5,451,000 | $ | 5,720 | ||||
Total Long-Term Investments (cost $512,566,422) | 579,656 | |||||||
SHORT-TERM INVESTMENT 0.33% | ||||||||
Repurchase Agreement 0.33% | ||||||||
Repurchase Agreement dated 12/31/2019, 0.85% due 1/2/2020 with Fixed Income Clearing Corp. collateralized by $1,900,000 of U.S. Treasury Note at 2.750% due 8/15/2021; value: $1,954,156; proceeds: $1,912,560 (cost $1,912,469) | 1,912 | 1,912 | ||||||
Total Investments in Securities 99.95% (cost $514,478,891) | 581,568 | |||||||
Cash and Other Assets in Excess of Liabilities 0.05% | 283 | |||||||
Net Assets 100.00% | $ | 581,851 |
ADR | American Depositary Receipt. | |
* | Non-income producing security. | |
(a) | Foreign security traded in U.S. dollars. | |
(b) | Defaulted (non-income producing security). | |
(c) | The security has an interest rate of 6.05% with a maturity of 03/01/2034. |
The following is a summary of the inputs used as of December 31, 2019 in valuing the Fund’s investments carried at fair value(1):
Investment Type(2) | Level 1 (000) | Level 2 (000) | Level 3 (000) | Total (000) | ||||||||||||
Long-Term Investments | ||||||||||||||||
Common Stocks | $ | 573,936 | $ | – | $ | – | $ | 573,936 | ||||||||
Corporate Bonds | – | 5,720 | – | 5,720 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | – | 1,912 | – | 1,912 | ||||||||||||
Total | $ | 573,936 | $ | 7,632 | $ | – | $ | 581,568 |
(1) | Refer to Note 2(h) for a description of fair value measurements and the three-tier hierarchy of inputs. | |
(2) | See Schedule of Investments for fair values in each industry and identification of foreign issuers and/or geography. |
See Notes to Financial Statements. | 9 |
Statement of Assets and Liabilities
December 31, 2019
ASSETS: | ||||
Investments in securities, at fair value (cost $514,478,891) | $ | 581,568,144 | ||
Cash | 4 | |||
Receivables: | ||||
Investment securities sold | 2,136,178 | |||
Interest and dividends | 821,896 | |||
Capital shares sold | 3,168 | |||
Prepaid expenses | 2,872 | |||
Total assets | 584,532,262 | |||
LIABILITIES: | ||||
Payables: | ||||
Investment securities purchased | 1,385,345 | |||
Capital shares reacquired | 329,210 | |||
Management fee | 244,828 | |||
Directors’ fees | 144,091 | |||
Fund administration | 19,586 | |||
Accrued expenses | 558,559 | |||
Total liabilities | 2,681,619 | |||
Commitments and contingent liabilities | ||||
NET ASSETS | $ | 581,850,643 | ||
COMPOSITION OF NET ASSETS: | ||||
Paid-in capital | $ | 517,305,262 | ||
Total distributable earnings (loss) | 64,545,381 | |||
Net Assets | $ | 581,850,643 | ||
Outstanding shares (200 million shares of common stock authorized, $.001 par value) | 16,832,132 | |||
Net asset value, offering and redemption price per share (Net assets divided by outstanding shares) | $34.57 |
10 | See Notes to Financial Statements. |
For the Year Ended December 31, 2019
Investment income: | ||||
Dividends (net of foreign withholding taxes of $137,215) | $ | 14,465,574 | ||
Interest | 79,335 | |||
Total investment income | 14,544,909 | |||
Expenses: | ||||
Management fee | 2,872,614 | |||
Non 12b-1 service fees | 1,437,008 | |||
Shareholder servicing | 608,233 | |||
Fund administration | 229,809 | |||
Professional | 68,203 | |||
Directors’ fees | 16,718 | |||
Custody | 13,159 | |||
Reports to shareholders | 12,185 | |||
Other | 138,994 | |||
Gross expenses | 5,396,923 | |||
Expense reductions (See Note 8) | (18,708 | ) | ||
Net expenses | 5,378,215 | |||
Net investment income | 9,166,694 | |||
Net realized and unrealized gain: | ||||
Net realized gain on investments | 33,080,927 | |||
Net realized gain on foreign currency related transactions | 2,205 | |||
Net change in unrealized appreciation/depreciation on investments | 73,641,247 | |||
Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies | 2,598 | |||
Net realized and unrealized gain | 106,726,977 | |||
Net Increase in Net Assets Resulting From Operations | $ | 115,893,671 |
See Notes to Financial Statements. | 11 |
Statements of Changes in Net Assets
INCREASE (DECREASE) IN NET ASSETS | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | ||||||
Operations: | ||||||||
Net investment income | $ | 9,166,694 | $ | 8,663,700 | ||||
Net realized gain on investments and foreign currency related transactions | 33,083,132 | 49,459,494 | ||||||
Net change in unrealized appreciation/depreciation on investments and translation of assets and liabilities denominated in foreign currencies | 73,643,845 | (106,556,132 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 115,893,671 | (48,432,938 | ) | |||||
Distributions to shareholders: | (46,631,283 | ) | (56,851,415 | ) | ||||
Capital share transactions (See Note 14): | ||||||||
Proceeds from sales of shares | 9,794,053 | 18,918,349 | ||||||
Reinvestment of distributions | 46,631,006 | 56,833,112 | ||||||
Cost of shares reacquired | (91,503,941 | ) | (119,363,930 | ) | ||||
Net decrease in net assets resulting from capital share transactions | (35,078,882 | ) | (43,612,469 | ) | ||||
Net increase (decrease) in net assets | 34,183,506 | $ | (148,896,822 | ) | ||||
NET ASSETS: | ||||||||
Beginning of year | $ | 547,667,137 | $ | 696,563,959 | ||||
End of year | $ | 581,850,643 | $ | 547,667,137 |
12 | See Notes to Financial Statements. |
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Per Share Operating Performance: | ||||||||||||||||||||||||||||
Investment Operations: | Distributions to shareholders from: | |||||||||||||||||||||||||||
Net asset value beginning of period | Net invest- ment income(a) | Net realized and unrealized gain (loss) | Total from invest- ment oper- ations | Net invest- ment income | Net realized gain | Total distri- butions | ||||||||||||||||||||||
12/31/2019 | $ | 30.65 | $ | 0.55 | $ | 6.31 | $ | 6.86 | $ | (0.58 | ) | $ | (2.36 | ) | $ | (2.94 | ) | |||||||||||
12/31/2018 | 37.15 | 0.50 | (3.53 | ) | (3.03 | ) | (0.52 | ) | (2.95 | ) | (3.47 | ) | ||||||||||||||||
12/31/2017 | 36.72 | 0.48 | 4.39 | 4.87 | (0.53 | ) | (3.91 | ) | (4.44 | ) | ||||||||||||||||||
12/31/2016 | 32.21 | 0.52 | 4.99 | 5.51 | (0.52 | ) | (0.48 | ) | (1.00 | ) | ||||||||||||||||||
12/31/2015 | 35.54 | 0.40 | (1.43 | ) | (1.03 | ) | (0.44 | ) | (1.86 | ) | (2.30 | ) |
(a) | Calculated using average shares outstanding during the period. |
(b) | Total return does not consider the effects of sales loads and assumes the reinvestment of all distributions. |
14 | See Notes to Financial Statements. |
Ratios to Average Net Assets: | Supplemental Data: | |||||||||||||||||||||
Net asset value, end of period | Total return(b) (%) | Total expenses (%) | Net investment income (%) | Net assets, end of period (000) | Portfolio turnover rate (%) | |||||||||||||||||
$ | 34.57 | 22.49 | 0.94 | 1.59 | $ | 581,851 | 76 | |||||||||||||||
30.65 | (8.14 | ) | 0.93 | 1.35 | 547,667 | 89 | ||||||||||||||||
37.15 | 13.38 | 0.93 | 1.26 | 696,564 | 97 | |||||||||||||||||
36.72 | 17.11 | 0.94 | 1.54 | 718,550 | 98 | |||||||||||||||||
32.21 | (2.86 | ) | 0.94 | 1.15 | 724,298 | 105 |
See Notes to Financial Statements. | 15 |
1. | ORGANIZATION |
Lord Abbett Series Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified, open-end management investment company and was incorporated under Maryland law in 1989. The Company consists of nine separate portfolios. This report covers Growth and Income Portfolio (the “Fund”).
The Fund’s investment objective is long-term growth of capital and income without excessive fluctuations in market value. The Fund’s Variable Contract class shares (“Class VC Shares”), are currently issued and redeemed only in connection with investments in, and payments under, variable annuity contracts and variable life insurance policies issued by life insurance and insurance-related companies.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies.
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Investment Valuation–Under procedures approved by the Fund’s Board of Directors (the “Board”), Lord, Abbett & Co. LLC (“Lord Abbett”), the Fund’s investment manager, has formed a Pricing Committee to administer the pricing and valuation of portfolio investments and to ensure that prices utilized reasonably reflect fair value. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value. |
Securities actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to reflect their fair value as of the close of regular trading on the New York Stock Exchange. The Fund may utilize an independent fair valuation service in adjusting the valuations of foreign securities. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices. | |
Securities for which prices are not readily available are valued at fair value as determined by the Pricing Committee. The Pricing Committee considers a number of factors, including observable and unobservable inputs, when arriving at fair value. The Pricing Committee may use related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant information to determine the fair value of portfolio investments. The Board or a designated committee thereof regularly reviews fair value determinations made by the Pricing Committee and may employ techniques such as reviewing related market activity, reviewing inputs and assumptions, and retrospectively comparing prices of subsequent purchases and sales transactions to fair value determinations made by the Pricing Committee. | |
Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates fair value. |
16
Notes to Financial Statements (continued)
(b) | Security Transactions–Security transactions are recorded as of the date that the securities are purchased or sold (trade date). Realized gains and losses on sales of portfolio securities are calculated using the identified-cost method. |
(c) | Investment Income–Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis as earned. Discounts are accreted and premiums are amortized using the effective interest method and are included in Interest on the Statement of Operations. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates. |
(d) | Income Taxes–It is the policy of the Fund to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income and capital gains to its shareholders. Therefore, no income tax provision is required. |
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s filed U.S. federal tax returns remains open for the fiscal years ended December 31, 2016 through December 31, 2019. The statutes of limitations on the Company’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. | |
(e) | Expenses–Expenses incurred by the Company that do not specifically relate to an individual fund are generally allocated to the funds within the Company on a pro rata basis by relative net assets. |
(f) | Foreign Transactions–The books and records of the Fund are maintained in U.S. dollars and transactions denominated in foreign currencies are recorded in the Fund’s records at the rate prevailing when earned or recorded. Asset and liability accounts that are denominated in foreign currencies are adjusted daily to reflect current exchange rates and any unrealized gain (loss), if applicable, is included in Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies in the Fund’s Statement of Operations. The resultant exchange gains and losses upon settlement of such transactions are included in Net realized gain (loss), if applicable, on foreign currency related transactions in the Fund’s Statement of Operations. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in market prices of the securities. |
The Fund uses foreign currency exchange contracts to facilitate transactions in foreign denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms. | |
(g) | Repurchase Agreements–The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which a fund acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. The Fund requires at all times that the repurchase agreement be collateralized by cash, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). If the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the fair value of these securities has declined, the Fund may incur a loss upon disposition of the securities. |
17
Notes to Financial Statements (continued)
(h) | Fair Value Measurements–Fair value is defined as the price that the Fund would receive upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk—for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy classification is determined based on the lowest level of inputs that is significant to the fair value measurement, and is summarized in the three broad Levels listed below: |
• | Level 1 – | unadjusted quoted prices in active markets for identical investments; |
• | Level 2 – | other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and |
• | Level 3 – | significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
A summary of inputs used in valuing the Fund’s investments as of December 31, 2019 and, if applicable, Level 3 rollforwards for the fiscal year then ended is included in the Fund’s Schedule of Investments. | |
Changes in valuation techniques may result in transfers into or out of an assigned level within the three-tier hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. |
3. | MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES |
Management Fee
The Company has a management agreement with Lord Abbett, pursuant to which Lord Abbett supplies the Fund with investment management services and executive and other personnel, provides office space and pays for ordinary and necessary office and clerical expenses relating to research and statistical work and supervision of the Fund’s investment portfolio.
The management fee is based on the Fund’s average daily net assets at the following annual rate:
First $1 billion | .50% |
Over $1 billion | .45% |
For the fiscal year ended December 31, 2019, the effective management fee was at an annualized rate of .50% of the Fund’s average daily net assets.
In addition, Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement in return for a fee at an annual rate of .04% of the Fund’s average daily net assets.
18
Notes to Financial Statements (continued)
The Company, on behalf of the Fund, has entered into services arrangements with certain insurance companies. Under these arrangements, certain insurance companies will be compensated up to ..25% of the average daily NAV of the Fund’s Class VC Shares held in the insurance company’s separate account to service and maintain the Variable Contract owners’ accounts. This amount is included in Non 12b-1 service fees on the Statement of Operations. The Fund may also compensate certain insurance companies, third-party administrators and other entities for providing recordkeeping, sub-transfer agency and other administrative services to the Fund. This amount is included in Shareholder servicing on the Statement of Operations.
One Director and certain of the Company’s officers have an interest in Lord Abbett.
4. | DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS |
Dividends from net investment income, if any, are declared and paid at least semi-annually. Taxable net realized gains from investment transactions, reduced by allowable capital loss carryforwards, if any, are declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, is available to offset future net capital gains. Dividends and distributions to shareholders are recorded on the ex-dividend date. The amounts of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions that exceed earnings and profits for tax purposes are reported as a tax return of capital.
The tax character of distributions paid during the fiscal years ended December 31, 2019 and December 31, 2018 was as follows:
Year Ended 12/31/2019 | Year Ended 12/31/2018 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 9,183,499 | $ | 19,004,931 | ||||
Net long-term capital gains | 37,447,784 | 37,846,484 | ||||||
Total distributions paid | $ | 46,631,283 | $ | 56,851,415 |
As of December 31, 2019, the components of accumulated gains (losses) on a tax-basis were as follows:
Undistributed ordinary income – net | $ | – | ||
Undistributed long-term capital gains | – | |||
Total Undistributed Earnings | – | |||
Temporary differences | (629,505 | ) | ||
Unrealized gains – net | 65,174,886 | |||
Total accumulated gains – net | $ | 64,545,381 |
At the Fund’s election, certain losses incurred within the taxable year (Qualified Late-Year Losses) are deemed to arise on the first business day of the Fund’s next taxable year. The Fund incurred and will elect to defer post-October capital losses of $485,414 during fiscal year 2019.
19
Notes to Financial Statements (continued)
As of December 31, 2019, the aggregate unrealized security gains (losses) on investments and other financial instruments, if any, based on cost for U.S. federal income tax purposes were as follows:
Tax cost | $ | 516,393,258 | ||
Gross unrealized gain | 74,090,725 | |||
Gross unrealized loss | (8,915,839 | ) | ||
Net unrealized security gain | $ | 65,174,886 |
The difference between book-basis and tax-basis unrealized gains (losses) is attributable to the tax treatment of wash sales and certain distributions received.
Permanent items identified during the fiscal year ended December 31, 2019 have been reclassified among the components of net assets based on their tax basis treatment as follows:
Total Distributable | Paid-in | ||
Earnings (Loss) | Capital | ||
$88,102 | $(88,102 | ) |
The permanent differences are attributable primarily to the tax treatment of certain distributions.
5. | PORTFOLIO SECURITIES TRANSACTIONS |
Purchases and sales of investment securities (excluding short-term investments) for the fiscal year ended December 31, 2019 were as follows:
Purchases | Sales | |
$428,364,686 | $485,517,497 |
There were no purchases or sales of U.S. Government securities for the fiscal year ended December 31, 2019.
The Fund is permitted to purchase and sell securities (“cross-trade”) from and to other Lord Abbett funds or client accounts pursuant to procedures approved by the Board in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at a fair market price in compliance with provisions of the Rule. For the fiscal year ended December 31, 2019, the Fund engaged in cross-trades purchases of $965,582, and sales of $4,099,608 which resulted in net realized gains of $408,541.
6. | DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES |
The Financial Accounting Standards Board (“FASB”) requires disclosures intended to help better assess the effect or potential effect of offsetting arrangements on a fund’s financial position. The following tables illustrate gross and net information about recognized assets and liabilities eligible for offset in the Statement of Assets and Liabilities; and disclose such amounts subject to an enforceable master netting agreement or similar agreement, by counterparty. A master netting agreement is an agreement between a fund and a counterparty which provides for the net settlement of amounts owed under all contracts traded under that agreement, as well as cash collateral, through a single payment by one party to the other in the event of default on or termination of any one contract. The Fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the master netting agreement does not result in an offset of reported amounts of financial assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty:
20
Notes to Financial Statements (continued)
Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Assets Presented in the Statement of Assets and Liabilities | |||
Repurchase Agreement | $1,912,469 | $ | – | $1,912,469 | ||
Total | $1,912,469 | $ | – | $1,912,469 |
Net Amounts of Assets Presented in | Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||
Counterparty | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Received(a) | Securities Received(a) | Net Amount(b) | ||||||||||||||
Fixed Income Clearing Corp. | $1,912,469 | $ | – | $ | – | $(1,912,469 | ) | $ | – | ||||||||||
Total | $1,912,469 | $ | – | $ | – | $(1,912,469 | ) | $ | – |
(a) | Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets presented in the Statement of Assets and Liabilities, for each respective counterparty. |
(b) | Net amount represents the amount owed to the Fund by the counterparty as of December 31, 2019. |
7. | DIRECTORS’ REMUNERATION |
The Company’s officers and one Director, who are associated with Lord Abbett, do not receive any compensation from the Company for serving in such capacities. Independent Directors’ fees are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all Independent Directors under which Independent Directors must defer receipt of a portion of, and may elect to defer receipt of an additional portion of Directors’ fees. The deferred amounts are treated as though equivalent dollar amounts had been invested in the funds. Such amounts and earnings accrued thereon are included in Directors’ fees on the Statement of Operations and in Directors’ fees payable on the Statement of Assets and Liabilities and are not deductible for U.S. federal income tax purposes until such amounts are paid.
8. | EXPENSE REDUCTIONS |
The Company has entered into an arrangement with its transfer agent and custodian, whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s expenses.
9. | LINE OF CREDIT |
For the period ended August 7, 2019, the Fund and certain other funds managed by Lord Abbett (collectively, the “Participating Funds”) entered into a Syndicated Facility with various lenders for $1.1 billion whereas State Street Bank and Trust Company (“SSB”) participated as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if Fund net assets are less than $750 million), $250 million, $300 million, $350 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
Effective August 8, 2019, the Participating Funds entered into a Syndicated Facility with various lenders for $1.17 billion whereas SSB participates as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, $500 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
21
Notes to Financial Statements (continued)
For the period ended August 7, 2019, the Participating Funds entered into an additional line of credit facility with SSB for $250 million (the “Bilateral Facility” and together with the Syndicated Facility, the “Facilities”). Under the Bilateral Facility, each Participating Fund may borrow up to the lesser of $250 million or one-third of Fund net assets.
Effective August 8, 2019, the Participating Funds entered into a Bilateral Facility with SSB for $330 million ($250 million committed and $80 million uncommitted). Under the Bilateral Facility, the Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, or $330 million, based on past borrowings and likelihood of future borrowings, among other factors.
The Facilities are to be used for temporary or emergency purposes as an additional source of liquidity to satisfy redemptions.
For the fiscal year ended December 31, 2019, the Fund did not utilize the Facilities.
10. | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission (“SEC exemptive order”) certain registered open-ended management investment companies managed by Lord Abbett, including the Fund, participate in a joint lending and borrowing program (the Interfund Lending Program”). The SEC exemptive order allows the Funds to borrow money from and lend money to each other for temporary emergency purposes subject to the limitations and conditions.
For the fiscal year ended December 31, 2019, the Fund did not participate as a borrower or lender in the Interfund Lending Program.
11. | CUSTODIAN AND ACCOUNTING AGENT |
SSB is the Company’s custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund’s NAV.
12. | SECURITIES LENDING AGREEMENT |
The Fund has established a securities lending agreement with Citibank, N.A. for the lending of securities to qualified brokers in exchange for securities or cash collateral equal to at least the market value of securities loaned, plus interest, if applicable. Cash collateral is invested in an approved money market fund. In accordance with the Fund’s securities lending agreement, the market value of securities on loan is determined each day at the close of business and any additional collateral required to cover the value of securities on loan is delivered to the Fund on the next business day. As with other extensions of credit, the Fund may experience a delay in the recovery of their securities or incur a loss should the borrower of the securities breach its agreement with the Fund or become insolvent at a time when the collateral is insufficient to cover the cost of repurchasing securities on loan. Any income earned from lending securities will be noted on the Statement of Operations.
For the fiscal year ended December 31, 2019, the Fund did not loan any securities.
13. | INVESTMENT RISKS |
The Fund is subject to the general risks and considerations associated with equity investing, as well as the particular risks associated with value stocks. The value of an investment will fluctuate in
22
Notes to Financial Statements (concluded)
response to movements in the equity securities market in general and to the changing prospects of individual companies in which the Fund invests. Value investing also is subject to the risk that a company judged to be undervalued may actually be appropriately priced or even overpriced. Large-cap value stocks may perform differently than the market as a whole and other types of stocks, such as small company stocks and growth stocks. This is because different types of stocks tend to shift in and out of favor over time depending on market and economic conditions as well as investor sentiment. In addition, large companies may have smaller rates of growth as compared to successful but well established smaller companies. The market may fail to recognize the intrinsic value of particular value stocks for a long time. In addition, if the Fund’s assessment of a company’s value or prospects for exceeding earnings expectations or market conditions is wrong, the Fund could suffer losses or produce poor performance relative to other funds, even in a favorable market.
Due to its investments in multinational companies, foreign companies and American Depositary Receipts, the Fund may experience increased market, industry and sector, liquidity, currency, political, information and other risks. The securities of foreign companies also may be subject to inadequate exchange control regulations, the imposition of economic sanctions or other government restrictions, higher transaction and other costs, and delays in settlement to the extent they are traded on non-U.S. exchanges or markets.
These factors can affect the Fund’s performance.
14. | SUMMARY OF CAPITAL TRANSACTIONS |
Transactions in shares of capital stock were as follows:
Year Ended December 31, 2019 | Year Ended December 31, 2018 | |||||||
Shares sold | 287,670 | 532,820 | ||||||
Reinvestment of distributions | 1,350,380 | 1,833,178 | ||||||
Shares reacquired | (2,675,516 | ) | (3,246,152 | ) | ||||
Decrease | (1,037,466 | ) | (880,154 | ) |
23
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Lord Abbett Series Fund, Inc.
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Growth and Income Portfolio, one of the funds constituting Lord Abbett Series Fund, Inc. (the “Fund”), as of December 31, 2019, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Growth and Income Portfolio of the Fund as of December 31, 2019, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
New York, New York
February 14, 2020
We have served as the auditor of one or more Lord Abbett Family of Funds’ investment companies since 1932.
24
Supplemental Proxy Information (unaudited)
A joint special meeting of shareholders of the Fund was held on August 26, 2019. The joint special meeting was held for the purpose of electing members of the Fund’s Board of Directors. Shareholders elected the following ten (10) Directors at the joint special meeting:
• | Eric C. Fast |
• | Evelyn E. Guernsey |
• | Julie A. Hill |
• | Kathleen M. Lutito |
• | James M. McTaggart |
• | Charles O. Prince |
• | Karla M. Rabusch |
• | Mark A. Schmid |
• | Douglas B. Sieg |
• | James L.L. Tullis |
The results of the proxy solicitation on the preceding matter were as follows:
Lord Abbett Series Fund, Inc.
Nominee Votes | Votes For | Votes Withheld |
Eric C. Fast | 186,329,820.614 | 7,776,255.685 |
Evelyn E. Guernsey | 186,718,826.419 | 7,387,249.880 |
Julie A. Hill | 186,486,240.620 | 7,619,835.679 |
Kathleen M. Lutito | 187,082,042.409 | 7,024,033.890 |
James M. McTaggart | 186,269,131.867 | 7,836,944.422 |
Charles O. Prince | 186,103,251.100 | 8,002,825.199 |
Karla M. Rabusch | 186,796,719.683 | 7,309,356.626 |
Mark A. Schmid | 186,825,573.395 | 7,280,502.894 |
Douglas B. Sieg | 186,702,410.889 | 7,403,665.410 |
James L.L. Tullis | 186,229,277.817 | 7,876,798.472 |
25
Basic Information About Management
The Board is responsible for the management of the business and affairs of the Company in accordance with the laws of the State of Maryland. The Board elects officers who are responsible for the day-to-day operations of the Fund and who execute policies authorized by the Board. The Board also approves an investment adviser to the Fund and continues to monitor the cost and quality of the services the investment adviser provides, and annually considers whether to renew the contract with the investment adviser. Generally, each Director holds office until his/her successor is elected and qualified or until his/her earlier resignation or removal, as provided in the Company’s organizational documents.
Lord Abbett, a Delaware limited liability company, is the Fund’s investment adviser. Designated Lord Abbett personnel are responsible for the day-to-day management of the Fund.
Interested Directors
Mr. Sieg is affiliated with Lord Abbett and is an “interested person” of the Company as defined in the Act. Mr. Sieg is director/trustee of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios. Mr. Sieg is an officer of the Lord Abbett Family of Funds.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Douglas B. Sieg Lord, Abbett & Co. LLC 90 Hudson Street Jersey City, NJ 07302 (1969) | Director since 2016; President and Chief Executive Officer since 2018 | Principal Occupation: Managing Partner (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994.
Other Directorships: None. |
Independent Directors
The following Independent Directors also are directors/trustees of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Evelyn E. Guernsey Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1955) | Director since 2011 | Principal Occupation: None.
Other Directorships: None. | ||
Julie A. Hill Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1946) | Director since 2004 | Principal Occupation: Owner and CEO of The Hill Company, a business consulting firm (since 1998).
Other Directorships: Currently serves as director of Anthem, Inc., a health benefits company (since 1994). | ||
Kathleen M. Lutito Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1963) | Director since 2017 | Principal Occupation: President and Chief Investment Officer of CenturyLink Investment Management Company (since 2006).
Other Directorships: None. |
26
Basic Information About Management (continued)
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
James M. McTaggart Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2012 | Principal Occupation: Independent management advisor and consultant (since 2012).
Other Directorships: Blyth, Inc., a home products company (2004–2015). | ||
Charles O. Prince Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1950) | Director since 2019 | Principal Occupation: None. Formerly Chairman and Chief Executive Officer, Citigroup, Inc.
Other Directorships: Currently serves as director of Johnson & Johnson (2006–Present). Previously served as director of Xerox Corporation (2008–2018). | ||
Karla M. Rabusch Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2017 | Principal Occupation: President and Director of Wells Fargo Funds Management, LLC (2003–2017); President of Wells Fargo Funds (2003–2016).
Other Directorships: None. | ||
Mark A. Schmid Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2016 | Principal Occupation: Vice President and Chief Investment Officer of the University of Chicago (since 2009).
Other Directorships: None. | ||
James L.L. Tullis Lord, Abbett & Co. LLC | Director since 2006; Chairman since 2017 | Principal Occupation: Chairman of Tullis Health Investors - FL LLC (since 2018); CEO of Tullis–Dickerson and Co. Inc., a venture capital management firm (1990–2016).
Other Directorships: Currently serves as director of Crane Co. (since 1998), Alphatec Spine, Inc. (since 2018), and electroCore, Inc. (since 2018). |
Officers
None of the officers listed below have received compensation from the Company. All of the officers of the Company also may be officers of the other Lord Abbett Funds and maintain offices at 90 Hudson Street, Jersey City, NJ 07302. Unless otherwise indicated, the position(s) and title(s) listed under the “Principal Occupation During the Past Five Years” column indicate each officer’s position(s) and title(s) with Lord Abbett. Each officer serves for an indefinite term (i.e., until his or her death, resignation, retirement, or removal).
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Douglas B. Sieg (1969) | President and Chief Executive Officer | Elected as President and Chief Executive Officer in 2018 | Managing Partner of Lord Abbett (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. |
27
Basic Information About Management (concluded)
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation | |||
Jackson C. Chan (1964) | AML Compliance Officer | Elected in 2018 | Deputy Chief Compliance Officer and Director of Regulatory Affairs, joined Lord Abbett in 2014. | |||
Pamela P. Chen (1978) | Vice President, Assistant Secretary and Privacy Officer | Elected as Vice President and Assistant Secretary in 2018 and Privacy Officer in 2019 | Associate General Counsel, joined Lord Abbett in 2017 and was formerly Special Counsel at Schulte, Roth & Zabel LLP (2005–2017). | |||
John T. Fitzgerald (1975) | Vice President and Assistant Secretary | Elected in 2018 | Deputy General Counsel, joined Lord Abbett in 2018 and was formerly Deputy Head of U.S. Funds Legal, Executive Director and Assistant General Counsel at JPMorgan Chase (2005-2018). | |||
Vito A. Fronda (1969) | Treasurer | Elected in 2018 | Partner and Director of Fund Treasury and Tax, joined Lord Abbett in 2003. | |||
Bernard J. Grzelak (1971) | Chief Financial Officer and Vice President | Elected in 2017 | Partner and Chief Operating Officer, Global Funds and Risk, joined Lord Abbett in 2003. | |||
Linda Y. Kim (1980) | Vice President and Assistant Secretary | Elected in 2016 | Counsel, joined Lord Abbett in 2015. | |||
Joseph M. McGill (1962) | Chief Compliance Officer | Elected in 2014 | Partner and Chief Compliance Officer, joined Lord Abbett in 2014. | |||
Amanda S. Ryan (1978) | Vice President and Assistant Secretary | Elected in 2018 | Counsel, joined Lord Abbett in 2016 and was formerly a Director and Corporate Counsel at PGIM Investments (2012–2016). | |||
Lawrence B. Stoller (1963) | Vice President, Secretary and Chief Legal Officer | Elected as Vice President and Secretary in 2007 and Chief Legal Officer in 2019 | Partner and General Counsel, joined Lord Abbett in 2007. |
Please call 888-522-2388 for a copy of the statement of additional information, which contains further information about the Company’s Directors. It is available free upon request.
28
Approval of Advisory Contract
The Board, including all of the Directors who are not “interested persons” of the Company or of Lord Abbett, as defined in the Investment Company Act of 1940, as amended (the “Independent Directors”), annually considers whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett (the “Agreement”). In connection with its most recent approval, the Board reviewed materials relating specifically to the Agreement, as well as numerous materials received throughout the course of the year, including information about the Fund’s investment performance compared to the performance of its benchmarks. Before making its decision as to the Fund, the Board had the opportunity to ask questions and request further information, taking into account its knowledge of Lord Abbett gained through its meetings and discussions. These meetings and discussions included reviews of Fund performance conducted by members of the Contract Committee, the deliberations of the Contract Committee, and discussions between the Contract Committee and Lord Abbett’s management. The Independent Directors also met with their independent legal counsel in various private sessions at which no representatives of management were present.
The materials received by the Board included, but were not limited to: (1) information provided by Broadridge Financial Solutions (“Broadridge”) regarding the investment performance of the Fund compared to the investment performance of certain funds with similar investment styles as determined by Broadridge, based, in part, on the Fund’s Morningstar category (the “performance peer group”), and the investment performance of two appropriate benchmarks; (2) information provided by Broadridge regarding the expense ratios, contractual and actual management fee rates, and other expense components for the Fund and certain funds in the same Morningstar category, with generally the same or similar share classes and operational characteristics, including asset size (the “expense peer group”); (3) certain supplemental investment performance information provided by Lord Abbett; (4) information provided by Lord Abbett on the expense ratios, management fee rates, and other expense components for the Fund; (5) sales and redemption information for the Fund; (6) information regarding Lord Abbett’s financial condition; (7) an analysis of the relative profitability of the Agreement to Lord Abbett; and (8) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
Investment Management and Related Services Generally.The Board considered the services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading, and Lord Abbett’s commitment to compliance with all applicable legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest that may result from being engaged in other lines of business. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to the Fund and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other. After reviewing these and related factors, the Board concluded that the Fund was likely to continue to benefit from the nature, extent and quality of the investment services provided by Lord Abbett under the Agreement.
Investment Performance.The Board reviewed the Fund’s investment performance in relation to that of the performance peer group and two appropriate benchmarks as of various periods ended June 30, 2019. The Board observed that the Fund’s investment performance was above the median of the performance peer group for the one-, five-, and ten-year periods, and below the median of the performance peer group for the three-year period. The Board further considered Lord Abbett’s performance and reputation generally, the performance of other Lord Abbett-managed funds overseen by the Board, and the willingness of Lord Abbett to take steps intended to improve
29
Approval of Advisory Contract (continued)
performance when appropriate. After reviewing these and related factors, the Board concluded that the Fund’s Agreement should be continued.
Lord Abbett’s Personnel and Methods.The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of its investment objective and discipline, and other services provided to the Fund by Lord Abbett. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining personnel.
Nature and Quality of Other Services.The Board considered the nature, quality, and extent of compliance, administrative, and other services performed by Lord Abbett and the nature and extent of Lord Abbett’s supervision of third party service providers, including the Fund’s transfer agent and custodian.
Expenses.The Board considered the expense level of the Fund, including the contractual and actual management fee rates, and the expense levels of the Fund’s expense peer group. It also considered how the expense level of the Fund related to those of the expense peer group and the amount and nature of the fees paid by shareholders. The Board observed that the net total expense ratio of the Fund was below the median of the expense peer group. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that the management fees paid by, and expense level of, the Fund were reasonable in light of all of the factors it considered and supported the continuation of the Agreement.
Profitability.The Board considered the level of Lord Abbett’s operating margin in managing the Fund, including a review of Lord Abbett’s methodology for allocating its costs to its management of the Fund. It considered whether the Fund was profitable to Lord Abbett in connection with the Fund’s operation, including the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the profits realized from other business segments of Lord Abbett, which may benefit from or be related to the Fund’s business. The Board considered Lord Abbett’s profit margins excluding Lord Abbett’s marketing and distribution expenses. The Board also considered Lord Abbett’s profit margins, without those exclusions, in comparison with available industry data and how those profit margins could affect Lord Abbett’s ability to recruit and retain personnel. The Board recognized that Lord Abbett’s overall profitability was a factor in enabling it to attract and retain qualified personnel to provide services to the Fund. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that Lord Abbett’s profitability with respect to the Fund was not excessive.
Economies of Scale.The Board considered the extent to which there had been economies of scale in managing the Fund, whether the Fund’s shareholders had appropriately benefited from such economies of scale, and whether there was potential for realization of any further economies of scale. The Board concluded that the existing management fee schedule, with its breakpoint in the level of the management fee, adequately addressed any economies of scale in managing the Fund.
Other Benefits to Lord Abbett.The Board considered the amount and nature of the fees paid by the Fund and the Fund’s shareholders to Lord Abbett for services other than investment advisory services, such as the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the revenues and profitability of Lord Abbett’s investment advisory business apart from its mutual fund business, and the intangible benefits
30
Approval of Advisory Contract (concluded)
enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that the Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees it receives, and receives a portion of the sales charges on sales and redemptions of some classes of shares of the Lord Abbett Funds. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectus of the Fund, has entered into revenue sharing arrangements with certain entities that distribute shares of the Lord Abbett Funds. The Board also took into consideration the investment research that Lord Abbett receives as a result of client brokerage transactions.
Alternative Arrangements.The Board considered whether, instead of approving continuation of the Agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms. After considering all of the relevant factors, the Board unanimously found that continuation of the Agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve the continuation of the Agreement. In considering whether to approve the continuation of the Agreement, the Board did not identify any single factor as paramount or controlling. Individual Directors may have evaluated the information presented differently from one another, giving different weights to various factors. This summary does not discuss in detail all matters considered.
31
Householding
The Company has adopted a policy that allows it to send only one copy of the Fund’s prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same “household.” This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.
Proxy Voting Policies, Procedures and Records
A description of the policies and procedures that Lord Abbett uses to vote proxies related to the Fund’s portfolio securities, and information on how Lord Abbett voted the Fund’s proxies during the 12-month period ended December 31 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett’s Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission’s (“SEC”) Website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters as an attachment to Form N-PORT. Copies of the filings are available without charge, upon request on the SEC’s Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388.
Tax Information
For corporate shareholders, 100% of the Fund’s ordinary income distributions qualified for the dividends received deduction.
Additionally, of the distributions paid to the shareholders during the fiscal year ended December 31, 2019, $37,447,784 represent long-term capital gains.
32
This report, when not used for the general information of shareholders of the Fund, is to be distributed only if preceded or accompanied by a current fund prospectus. | |||
Lord Abbett mutual fund shares are distributed by | Lord Abbett Series Fund, Inc.
Growth and Income Portfolio | LASFGI-3 (02/20) |
LORD ABBETT
ANNUAL REPORT
Lord Abbett
Series Fund—Growth Opportunities Portfolio
For the fiscal year ended December 31, 2019
Table of Contents
Lord Abbett Series Funds – Growth Opportunities Portfolio
Annual Report
For the fiscal year ended December 31, 2019
From left to right: James L.L. Tullis, Independent Chairman of the Lord Abbett Funds and Douglas B. Sieg, Director, President, and Chief Executive Officer of the Lord Abbett Funds. | Dear Shareholders:We are pleased to provide you with this overview of the performance of Lord Abbett Series Fund — Growth Opportunities Portfolio for the fiscal year ended December 31, 2019. On this page and the following pages, we discuss the major factors that influenced fiscal year performance. For additional information about the Fund, please visit our website at www.lordabbett.com, where you also can access quarterly commentaries that provide updates on the Fund’s performance and other portfolio related updates. Thank you for investing in Lord Abbett mutual funds. We value the trust that you place in us and look forward to serving your investment needs in the years to come.
Best regards,
Douglas B. Sieg Director, President, and Chief Executive Officer |
For the fiscal year ended December 31, 2019, the Fund returned 36.37%, reflecting performance at the net asset value (NAV) of Class VC shares with all distributions reinvested, compared to its benchmark, the Russell Midcap® Growth Index,1 which returned 35.47% over the same period.
Domestic equity returns were positive over the past year, with large cap stocks, as represented by the S&P 500® Index,2 rising 31.49% during the period, while small cap stocks, as represented by the Russell 2000® Index,3 were up 25.52%. Following a tumultuous fourth quarter of 2018, where trade tensions and monetary policy uncertainty sent many investors toward
safety, the market staged a strong recovery. After the worst December since 1931, the S&P 500 posted its best January performance since 1987. Trade tensions continued to dominate headlines, as trade negotiations between the U.S. and China remained volatile throughout the period. Since the beginning of 2019, both the U.S. and China have imposed tariffs of roughly $550 billion and $185 billion on each country’s products, respectively. One of the more notable shifts over the year was the U.S. Federal Reserve’s (the “Fed”) transition to a more dovish policy stance, with Chairman Jerome Powell stating that the Fed would act appropriately to sustain
1
economic growth. Given an uncertain market outlook and muted inflation pressures, the Fed announced its decision to cut interest rates by 25 basis points on July 31, 2019, to a range of 2.00–2.25%. This was the first time that the Fed had cut interest rates since December 2008. The Fed followed that decision with two more 25 basis point rate cuts in September and October, citing “implications of global developments for the economic outlook as well as muted inflation pressures”. After the October rate cut, Fed Chairman Powell signaled a likely pause on future rate cuts. The combination of a dovish Fed, trade pressures, and slowing economic growth resulted in falling rates across the U.S. Treasury yield curve. In fact, in July, the yield on the 10-year U.S. Treasury fell to its lowest level since 2016. Bond yields continued to fall, and in August, the spread between the U.S. 10-year Treasury and the 2-year Treasury temporarily inverted. In September, a large rotation from growth stocks into value took place and continued through November. Geopolitics also contributed to market volatility. Following a coordinated drone strike on Saudi Arabia in the third quarter, Brent crude oil prices increased 20% in one trading session. Despite the record increase, oil prices retracted their gains within weeks. Investor sentiment was buoyed in November as the market grew optimistic about the possibility of a “Phase One” trade deal between the U.S. and China, which was ultimately reached in December. The agreement included structural reforms to China’s trade regime in areas such as intellectual property and agriculture, as
well as a commitment from China to make additional purchases of U.S. goods and services moving forward. In return, the U.S. would not proceed with tariffs that were scheduled to go into effect in December on nearly $160 billion worth of Chinese goods and would cut the tariff rate imposed on September 1, 2019 on $120 billion worth of Chinese goods from 15% to 7.5%.
During the period, security selection in the information technology sector contributed to the Fund’s relative performance. Within the sector, the Fund’s position in RingCentral, Inc., a provider of enterprise cloud communications solutions, contributed to relative performance. Shares of RingCentral steadily rose as strong execution and its partnership with Avaya Holdings Corp. continued to position RingCentral as a leading “cloud” solutions provider. The Fund’s position in Global Payments, Inc., a provider of payment software solutions, also contributed. Shares of Global Payments rose throughout the period as the company slowly shifted its business mix away from domestic independent sales organizations, to the higher growth and higher margin integrated payments channel.
The Fund’s position in TransDigm Group Inc., a producer and designer of aerospace components and systems, contributed to performance. Investors continued to view TransDigm as one of the best businesses in its industry, as the company maintained strong pricing power, high margins, and significant cash flow. Additionally, TransDigm’s acquisition of Esterline Technology Corporation during the period was expected to be highly accretive.
2
The Fund’s position in Healthcare Services Group, Inc., an operator of long-term care and other health care related facilities, detracted from performance as investors expected earnings growth to slow and margins to decline due to deteriorating fundamentals. Twilio, Inc., a communications software developer, also detracted from performance. Twilio reported strong revenue growth; however, the company experienced a modest deceleration versus fourth quarter 2018’s growth rate, which weighed on shares.
The Fund’s position in ABIOMED, Inc., a research and developer of medical devices
related to the treatment of heart failure, weighed on relative performance during the period. Shares of Abiomed fell rapidly after the American Heart Association presented data that observed that Abiomed’s Impella was less effective, associated with negative health effects, and was more expensive when compared to intra-aortic balloon pumps.
The Fund’s portfolio is actively managed and, therefore, its holdings and the weightings of a particular issuer or particular sector as a percentage of portfolio assets are subject to change. Sectors may include many industries.
1 The Russell Midcap® Growth Index measures the performance of those Russell Midcap® companies with higher price-to-book ratios and higher forecasted growth values.
2 The S&P 500® Index is widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries.
3 The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index.
Unless otherwise specified, indexes reflect total return, with all dividends reinvested. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Important Performance and Other Information
Performance data quoted in the following pages reflect past performance and are no guarantee of future results. Current performance may be higher or lower than the performance quoted. The investment return and principal value of an investment in the Funds will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. You can obtain performance data current to the most recent month end by calling Lord Abbett at 888-522-2388 or referring to www.lordabbett.com.
During certain periods shown, expense waivers and reimbursements were in place. Without such expense waivers and reimbursements, the Fund’s returns would have been lower.
The annual commentary above discusses the views of the Fund’s management and various portfolio holdings of the Fund as of December 31, 2019. These views and portfolio holdings may have changed after this date. Information provided in the commentary is not a recommendation to buy or sell securities. Because the Fund’s portfolio is actively managed and may change significantly, the Fund may no longer own the securities described above or may have otherwise changed its position in the securities. For more recent information about the Fund’s portfolio holdings, please visit www.lordabbett.com.
A Note about Risk:See Notes to Financial Statements for a discussion of investment risks. For a more detailed discussion of the risks associated with the Fund, please see the Fund’s prospectus.
Mutual funds are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, banks, and are subject to investment risks including possible loss of principal amount invested.
The Fund serves as an underlying investment vehicle for variable annuity contracts and variable life insurance policies.
3
Below is a comparison of a $10,000 investment in Class VC shares with the same investment in both the Russell Midcap® Growth Index and the Russell Midcap®Index, assuming reinvestment of all dividends and distributions. The Fund’s shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. The line graph comparison does not reflect the sales charges or other expenses of these contracts. If those sales charges and expenses were reflected, returns would be lower. The graph and performance table below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. During certain periods, expenses of the Fund have been waived or reimbursed by Lord Abbett; without such waiver or reimbursement of expenses, the Fund’s returns would have been lower.Past performance is no guarantee of future results.
Average Annual Total Returns for the | |||||||
Periods Ended December 31, 2019 | |||||||
1 Year | 5 Years | 10 Years | |||||
Class VC | 36.37% | 11.10% | 12.00% |
1 Performance for each unmanaged index does not reflect any fees or expenses. The performance of each index is not necessarily representative of the Fund’s performance.
4
As a shareholder of the Fund, you incur ongoing costs, including management fees; expenses related to the Fund’s services arrangements with certain insurance companies; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2019 through December 31, 2019).
The Example reflects only expenses that are deducted from the assets of the Fund. Fees and expenses, including sales charges applicable to the various insurance products that invest in the Fund, are not reflected in this Example. If such fees and expenses were reflected in the Example, the total expenses shown would be higher. Fees and expenses regarding such variable insurance products are separately described in the prospectus related to those products.
Actual Expenses
The first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled “Expenses Paid During Period 7/1/19 – 12/31/19” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
5
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning | Ending | Expenses | |||||||
Account | Account | Paid During | |||||||
Value | Value | Period† | |||||||
7/1/19 – | |||||||||
7/1/19 | 12/31/19 | 12/31/19 | |||||||
Class VC | |||||||||
Actual | $1,000.00 | $ | 1,072.90 | $6.58 | |||||
Hypothetical (5% Return Before Expenses) | $1,000.00 | $ | 1,018.85 | $6.41 |
† | Net expenses are equal to the Fund’s annualized expense ratio of 1.26%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect one-half year period). |
Portfolio Holdings Presented by Sector
December 31, 2019
Sector* | %** | |
Communication Services | 2.35 | % |
Consumer Discretionary | 15.78 | % |
Consumer Staples | 3.34 | % |
Energy | 1.11 | % |
Financials | 6.79 | % |
Health Care | 16.24 | % |
Industrials | 18.19 | % |
Information Technology | 29.73 | % |
Materials | 3.26 | % |
Real Estate | 1.99 | % |
Repurchase Agreement | 1.22 | % |
Total | 100.00 | % |
* | A sector may comprise several industries. | |
** | Represents percent of total investments. |
6
December 31, 2019
Fair | ||||||||
Value | ||||||||
Investments | Shares | (000) | ||||||
COMMON STOCKS 98.85% | ||||||||
Aerospace & Defense 5.06% | ||||||||
CAE, Inc. (Canada)(a) | 50,228 | $ | 1,329 | |||||
L3Harris Technologies, Inc. | 10,999 | 2,176 | ||||||
TransDigm Group, Inc. | 5,019 | 2,811 | ||||||
Total | 6,316 | |||||||
Air Freight & Logistics 0.60% | ||||||||
Expeditors International of Washington, Inc. | 9,646 | 753 | ||||||
Banks 0.79% | ||||||||
First Republic Bank | 8,395 | 986 | ||||||
Beverages 1.39% | ||||||||
Brown-Forman Corp. Class B | 25,639 | 1,733 | ||||||
Biotechnology 3.28% | ||||||||
Amarin Corp. plc ADR* | 29,140 | 625 | ||||||
BioMarin Pharmaceutical, Inc.* | 10,658 | 901 | ||||||
Myovant Sciences Ltd. (United Kingdom)*(a) | 20,393 | 316 | ||||||
Natera, Inc.* | 18,275 | 616 | ||||||
Neurocrine Biosciences, Inc.* | 10,218 | 1,098 | ||||||
Sarepta Therapeutics, Inc.* | 4,184 | 540 | ||||||
Total | 4,096 | |||||||
Building Products 1.15% | ||||||||
Allegion plc (Ireland)(a) | 11,536 | 1,437 | ||||||
Capital Markets 2.66% | ||||||||
MarketAxess Holdings, Inc. | 3,253 | 1,233 | ||||||
Moody’s Corp. | 3,220 | 765 | ||||||
MSCI, Inc. | 5,120 | 1,322 | ||||||
Total | 3,320 | |||||||
Chemicals 0.48% | ||||||||
FMC Corp. | 6,056 | 604 | ||||||
Commercial Services & Supplies 1.06% | ||||||||
Cintas Corp. | 2,313 | 622 | ||||||
Healthcare Services Group, Inc. | 28,990 | 705 | ||||||
Total | 1,327 |
Fair | ||||||||
Value | ||||||||
Investments | Shares | (000) | ||||||
Construction Materials 1.45% | ||||||||
Vulcan Materials Co. | 12,542 | $ | 1,806 | |||||
Consumer Finance 0.66% | ||||||||
SLM Corp. | 92,687 | 826 | ||||||
Containers & Packaging 1.34% | ||||||||
Avery Dennison Corp. | 9,520 | 1,245 | ||||||
Ball Corp. | 6,564 | 425 | ||||||
Total | 1,670 | |||||||
Diversified Consumer Services 0.98% | ||||||||
Service Corp. International | 26,675 | 1,228 | ||||||
Electrical Equipment 2.89% | ||||||||
AMETEK, Inc. | 20,345 | 2,029 | ||||||
Hubbell, Inc. | 10,680 | 1,579 | ||||||
Total | 3,608 | |||||||
Electronic Equipment, Instruments & Components 1.73% | ||||||||
Keysight Technologies, Inc.* | 11,905 | 1,222 | ||||||
Trimble, Inc.* | 22,486 | 937 | ||||||
Total | 2,159 | |||||||
Equity Real Estate Investment Trusts 1.99% | ||||||||
SBA Communications Corp. | 10,317 | 2,486 | ||||||
Health Care Equipment & Supplies 4.95% | ||||||||
ABIOMED, Inc.* | 3,899 | 665 | ||||||
Align Technology, Inc.* | 6,259 | 1,746 | ||||||
DexCom, Inc.* | 3,953 | 865 | ||||||
Edwards Lifesciences Corp.* | 1,792 | 418 | ||||||
Insulet Corp.* | 4,136 | 708 | ||||||
Teleflex, Inc. | 4,742 | 1,785 | ||||||
Total | 6,187 | |||||||
Health Care Providers & Services 2.44% | ||||||||
Centene Corp.* | 38,291 | 2,407 | ||||||
Guardant Health, Inc.* | 8,259 | 646 | ||||||
Total | 3,053 |
See Notes to Financial Statements. | 7 |
Schedule of Investments (continued)
December 31, 2019
Fair | ||||||||
Value | ||||||||
Investments | Shares | (000) | ||||||
Hotels, Restaurants & Leisure 4.68% | ||||||||
Aramark | 50,378 | $ | 2,186 | |||||
Chipotle Mexican Grill, Inc.* | 1,725 | 1,444 | ||||||
Norwegian Cruise Line Holdings Ltd.* | 18,912 | 1,105 | ||||||
Vail Resorts, Inc. | 4,649 | 1,115 | ||||||
Total | 5,850 | |||||||
Household Products 1.30% | ||||||||
Church & Dwight Co., Inc. | 23,116 | 1,626 | ||||||
Industrial Conglomerates 1.06% | ||||||||
Roper Technologies, Inc. | 3,736 | 1,323 | ||||||
Information Technology Services 13.03% | ||||||||
Euronet Worldwide, Inc.* | 9,031 | 1,423 | ||||||
Fidelity National Information Services, Inc. | 30,164 | 4,196 | ||||||
FleetCor Technologies, Inc.* | 7,434 | 2,139 | ||||||
Genpact Ltd. | 40,005 | 1,687 | ||||||
Global Payments, Inc. | 26,300 | 4,801 | ||||||
Square, Inc. Class A* | 3,576 | 224 | ||||||
Twilio, Inc. Class A* | 7,329 | 720 | ||||||
Wix.com Ltd. (Israel)*(a) | 8,882 | 1,087 | ||||||
Total | 16,277 | |||||||
Insurance 2.69% | ||||||||
Axis Capital Holdings Ltd. | 12,857 | 764 | ||||||
Goosehead Insurance, Inc. Class A | 25,815 | 1,094 | ||||||
RenaissanceRe Holdings Ltd. | 7,651 | 1,500 | ||||||
Total | 3,358 | |||||||
Interactive Media & Services 2.35% | ||||||||
IAC/InterActiveCorp.* | 8,529 | 2,125 | ||||||
Twitter, Inc.* | 25,342 | 812 | ||||||
Total | 2,937 | |||||||
Internet & Direct Marketing Retail 0.03% | ||||||||
RealReal, Inc. (The)* | 1,729 | 33 |
Fair | ||||||||
Value | ||||||||
Investments | Shares | (000) | ||||||
Life Sciences Tools & Services 3.62% | ||||||||
10X Genomics, Inc. Class A* | 4,040 | $ | 308 | |||||
Agilent Technologies, Inc. | 13,601 | 1,160 | ||||||
Charles River Laboratories International, Inc.* | 10,107 | 1,544 | ||||||
Illumina, Inc.* | 1,769 | 587 | ||||||
Mettler-Toledo International, Inc.* | 1,165 | 924 | ||||||
Total | 4,523 | |||||||
Machinery 2.33% | ||||||||
Fortive Corp. | 18,637 | 1,424 | ||||||
Stanley Black & Decker, Inc. | 9,012 | 1,493 | ||||||
Total | 2,917 | |||||||
Multi-Line Retail 3.49% | ||||||||
Dollar General Corp. | 18,227 | 2,843 | ||||||
Dollar Tree, Inc.* | 16,104 | 1,515 | ||||||
Total | 4,358 | |||||||
Oil, Gas & Consumable Fuels 1.11% | ||||||||
Cimarex Energy Co. | 14,157 | 743 | ||||||
Parsley Energy, Inc. Class A | 33,818 | 640 | ||||||
Total | 1,383 | |||||||
Personal Products 0.66% | ||||||||
Shiseido Co., Ltd.(b) | JPY | 11,531 | 819 | |||||
Pharmaceuticals 1.96% | ||||||||
Elanco Animal Health, Inc.* | 18,815 | 554 | ||||||
Zoetis, Inc. | 14,326 | 1,896 | ||||||
Total | 2,450 | |||||||
Professional Services 1.65% | ||||||||
CoStar Group, Inc.* | 3,439 | 2,058 | ||||||
Road & Rail 2.40% | ||||||||
J.B. Hunt Transport Services, Inc. | 11,737 | 1,371 | ||||||
Lyft, Inc. Class A* | 2,641 | 113 | ||||||
Old Dominion Freight Line, Inc. | 5,463 | 1,037 | ||||||
Saia, Inc.* | 5,173 | 482 | ||||||
Total | 3,003 |
8 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Fair | ||||||||
Value | ||||||||
Investments | Shares | (000) | ||||||
Semiconductors & Semiconductor Equipment 5.73% | ||||||||
Advanced Micro Devices, Inc.* | 36,832 | $ | 1,689 | |||||
Analog Devices, Inc. | 13,936 | 1,656 | ||||||
Lam Research Corp. | 7,233 | 2,115 | ||||||
Xilinx, Inc. | 17,426 | 1,704 | ||||||
Total | 7,164 | |||||||
Software 9.26% | ||||||||
Anaplan, Inc.* | 12,503 | 655 | ||||||
New Relic, Inc.* | 12,211 | 802 | ||||||
Palo Alto Networks, Inc.* | 7,793 | 1,802 | ||||||
RingCentral, Inc. Class A* | 17,587 | 2,967 | ||||||
ServiceNow, Inc.* | 6,324 | 1,785 | ||||||
Slack Technologies, Inc.Class A* | 17,581 | 395 | ||||||
Splunk, Inc.* | 15,545 | 2,328 | ||||||
Zendesk, Inc.* | 10,918 | 837 | ||||||
Total | 11,571 | |||||||
Specialty Retail 5.58% | ||||||||
Burlington Stores, Inc.* | 11,632 | 2,652 | ||||||
O’Reilly Automotive, Inc.* | 6,731 | 2,950 | ||||||
Tractor Supply Co. | 14,711 | 1,375 | ||||||
Total | 6,977 | |||||||
Textiles, Apparel & Luxury Goods 1.02% | ||||||||
Carter’s, Inc. | 11,699 | 1,279 | ||||||
Total Common Stocks (cost $98,741,297) | 123,501 |
Principal | Fair | |||||||
Amount | Value | |||||||
Investments | (000) | (000) | ||||||
SHORT-TERM INVESTMENT 1.22% | ||||||||
Repurchase Agreement | ||||||||
Repurchase Agreement dated 12/31/2019, 0.85% due 1/2/2020 with Fixed Income Clearing Corp. collateralized by $1,555,000 of U.S. Treasury Note at 1.500% due 8/31/2021; value: $1,560,007; proceeds: $1,526,834 (cost $1,526,762) | $1,527 | $ | 1,527 | |||||
Total Investments in Securities 100.07% (cost $100,268,059) | 125,028 | |||||||
Liabilities in Excess of Cash and Other Assets (0.07)% | (83 | ) | ||||||
Net Assets 100.00% | $ | 124,945 |
JPY | Japanese yen. | |
ADR | American Depositary Receipt. | |
* | Non-income producing security. | |
(a) | Foreign security traded in U.S. dollars. | |
(b) | Investment in non-U.S. dollar denominated securities. |
See Notes to Financial Statements. | 9 |
Schedule of Investments (concluded)
December 31, 2019
The following is a summary of the inputs used as of December 31, 2019 in valuing the Fund’s investments carried at fair value(1):
Investment Type(2) | Level 1 (000) | Level 2 (000) | Level 3 (000) | Total (000) | ||||||||||||
Common Stocks | ||||||||||||||||
Personal Products | $ | – | $ | 819 | $ | – | $ | 819 | ||||||||
Remaining Industries | 122,682 | – | – | 122,682 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | – | 1,527 | – | 1,527 | ||||||||||||
Total | $ | 122,682 | $ | 2,346 | $ | – | $ | 125,028 |
(1) | Refer to Note 2(h) for a description of fair value measurements and the three-tier hierarchy of inputs. | |
(2) | See Schedule of Investments for fair values in each industry and identification of foreign issuers and/or geography. |
10 | See Notes to Financial Statements. |
Statement of Assets and Liabilities
December 31, 2019
ASSETS: | ||||
Investments in securities, at fair value (cost $100,268,059) | $ | 125,028,136 | ||
Cash | 3,624 | |||
Receivables: | ||||
Interest and dividends | 197,373 | |||
Investment securities sold | 9,544 | |||
Capital shares sold | 530 | |||
Prepaid expenses and other assets | 66 | |||
Total assets | 125,239,273 | |||
LIABILITIES: | ||||
Payables: | ||||
Management fee | 78,860 | |||
Capital shares reacquired | 33,732 | |||
Directors’ fees | 15,193 | |||
Fund administration | 4,206 | |||
Accrued expenses | 162,451 | |||
Total liabilities | 294,442 | |||
Commitments and contingent liabilities | ||||
NET ASSETS | $ | 124,944,831 | ||
COMPOSITION OF NET ASSETS: | ||||
Paid-in capital | $ | 100,813,685 | ||
Total distributable earnings (loss) | 24,131,146 | |||
Net Assets | $ | 124,944,831 | ||
Outstanding shares (110 million shares of common stock authorized, $.001 par value) | 9,593,953 | |||
Net asset value, offering and redemption price per share (Net assets divided by outstanding shares) | $13.02 |
See Notes to Financial Statements. | 11 |
For the Year Ended December 31, 2019
Investment income: | ||||
Dividends (net of foreign withholding taxes of $1,675) | $ | 1,082,896 | ||
Interest | 28,703 | |||
Total investment income | 1,111,599 | |||
Expenses: | ||||
Management fee | 891,151 | |||
Non 12b-1 service fees | 291,936 | |||
Shareholder servicing | 123,079 | |||
Fund administration | 46,625 | |||
Professional | 44,490 | |||
Reports to shareholders | 30,332 | |||
Custody | 20,901 | |||
Directors’ fees | 3,313 | |||
Other | 25,486 | |||
Gross expenses | 1,477,313 | |||
Expense reductions (See Note 8) | (3,807 | ) | ||
Fees waived and expenses reimbursed (See Note 3) | (50,036 | ) | ||
Net expenses | 1,423,470 | |||
Net investment loss | (311,871 | ) | ||
Net realized and unrealized gain/(loss): | ||||
Net realized gain on investments | 9,405,187 | |||
Net realized loss on foreign currency related transactions | (25 | ) | ||
Net change in unrealized appreciation/depreciation on investments | 21,821,758 | |||
Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies | 22 | |||
Net realized and unrealized gain | 31,226,942 | |||
Net Increase in Net Assets Resulting From Operations | $ | 30,915,071 |
12 | See Notes to Financial Statements. |
Statements of Changes in Net Assets
INCREASE (DECREASE) IN NET ASSETS | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | ||||||
Operations: | ||||||||
Net investment loss | $ | (311,871 | ) | $ | (546,740 | ) | ||
Net realized gain on investments and foreign currency related transactions | 9,405,162 | 18,773,381 | ||||||
Net change in unrealized appreciation/depreciation on investments and translation of assets and liabilities denominated in foreign currencies | 21,821,780 | (18,439,611 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 30,915,071 | (212,970 | ) | |||||
Distributions to shareholders: | (11,365,461 | ) | (17,386,671 | ) | ||||
Capital share transactions (See Note 14): | ||||||||
Proceeds from sales of shares | 68,968,670 | 28,497,917 | ||||||
Reinvestment of distributions | 11,365,461 | 17,386,647 | ||||||
Cost of shares reacquired | (41,430,866 | ) | (95,994,025 | ) | ||||
Net increase (decrease) in net assets resulting from capital share transactions | 38,903,265 | (50,109,461 | ) | |||||
Net increase (decrease) in net assets | 58,452,875 | (67,709,102 | ) | |||||
NET ASSETS: | ||||||||
Beginning of year | $ | 66,491,956 | $ | 134,201,058 | ||||
End of year | $ | 124,944,831 | $ | 66,491,956 |
See Notes to Financial Statements. | 13 |
Per Share Operating Performance: | ||||||||||||||||||||||||||
Investment Operations: | Distributions to shareholders from: | |||||||||||||||||||||||||
Net asset | Net | Net | Net asset | |||||||||||||||||||||||
value, | investment | realized and | Total from | Net | value, | |||||||||||||||||||||
beginning | income | unrealized | investment | realized | end of | |||||||||||||||||||||
of period | (loss)(a) | gain (loss) | operations | gain | period | |||||||||||||||||||||
12/31/2019 | $ | 10.48 | $ | (0.03 | ) | $ | 3.82 | $ | 3.79 | $ | (1.25 | ) | $ | 13.02 | ||||||||||||
12/31/2018 | 14.20 | (0.07 | ) | (0.42 | ) | (0.49 | ) | (3.23 | ) | 10.48 | ||||||||||||||||
12/31/2017 | 11.96 | (0.04 | ) | 2.77 | 2.73 | (0.49 | ) | 14.20 | ||||||||||||||||||
12/31/2016 | 11.88 | (0.03 | ) | 0.18 | 0.15 | (0.07 | ) | 11.96 | ||||||||||||||||||
12/31/2015 | 12.91 | (0.06 | ) | 0.41 | 0.35 | (1.38 | ) | 11.88 | ||||||||||||||||||
(a) | Calculated using average shares outstanding during the period. | |
(b) | Total return does not consider the effects of sales charges or other expenses imposed by an insurance company and assumes the reinvestment of all distributions. |
14 | See Notes to Financial Statements. |
Ratios to Average Net Assets: | Supplemental Data: | |||||||||||||||||||||
Total | ||||||||||||||||||||||
expenses after | Net | |||||||||||||||||||||
waivers and/or | investment | Net assets, | Portfolio | |||||||||||||||||||
Total | reimburse- | Total | income | end of | turnover | |||||||||||||||||
return | ments | expenses | (loss) | period | rate | |||||||||||||||||
(%)(b) | (%) | (%) | (%) | (000) | (%) | |||||||||||||||||
36.37 | 1.22 | 1.27 | (0.27 | ) | $ | 124,945 | 45 | |||||||||||||||
(2.89 | ) | 1.13 | 1.29 | (0.45 | ) | 66,492 | 39 | |||||||||||||||
22.91 | 1.10 | 1.27 | (0.29 | ) | 134,201 | 69 | ||||||||||||||||
1.23 | 1.13 | 1.33 | (0.25 | ) | 123,735 | 155 | ||||||||||||||||
2.72 | 1.20 | 1.31 | (0.42 | ) | 91,977 | 125 | ||||||||||||||||
See Notes to Financial Statements. | 15 |
1. | ORGANIZATION |
Lord Abbett Series Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (“the Act”), as a diversified, open-end management investment company and was incorporated under Maryland law in 1989. The Company consists of nine separate portfolios. This report covers Growth Opportunities Portfolio (the “Fund”).
The Fund’s investment objective is capital appreciation. The Fund has Variable Contract class shares (“Class VC Shares”), which are currently issued and redeemed only in connection with investments in, and payments under, variable annuity contracts and variable life insurance policies issued by life insurance and insurance-related companies.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies.
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Investment Valuation–Under procedures approved by the Fund’s Board of Directors (the “Board”), Lord, Abbett & Co. LLC (“Lord Abbett”), the Fund’s investment manager, has formed a Pricing Committee to administer the pricing and valuation of portfolio investments and to ensure that prices utilized reasonably reflect fair value. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value. |
Securities actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to reflect their fair value as of the close of regular trading on the New York Stock Exchange. The Fund may utilize an independent fair valuation service in adjusting the valuations of foreign securities. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices. | |
Securities for which prices are not readily available are valued at fair value as determined by the Pricing Committee. The Pricing Committee considers a number of factors, including observable and unobservable inputs, when arriving at fair value. The Pricing Committee may use related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant information to determine the fair value of portfolio investments. The Board or a designated committee thereof regularly reviews fair value determinations made by the Pricing Committee and may employ techniques such as reviewing related market activity, reviewing inputs and assumptions, and retrospectively comparing prices of subsequent purchases and sales transactions to fair value determinations made by the Pricing Committee. | |
Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates fair value. |
16
Notes to Financial Statements (continued)
(b) | Security Transactions–Security transactions are recorded as of the date that the securities are purchased or sold (trade date). Realized gains and losses on sales of portfolio securities are calculated using the identified-cost method. |
(c) | Investment Income–Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis as earned. Discounts are accreted and premiums are amortized using the effective interest method and are included in Interest on the Statement of Operations. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates. |
(d) | Income Taxes–It is the policy of the Fund to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income and capital gains to its shareholders. Therefore, no income tax provision is required. |
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s filed U.S. federal tax returns remains open for the fiscal years ended December 31, 2016 through December 31, 2019. The statutes of limitations on the Company’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. | |
(e) | Expenses–Expenses incurred by the Company that do not specifically relate to an individual fund are generally allocated to the funds within the Company on a pro rata basis by relative net assets. |
(f) | Foreign Transactions–The books and records of the Fund are maintained in U.S. dollars and transactions denominated in foreign currencies are recorded in the Fund’s records at the rate prevailing when earned or recorded. Asset and liability accounts that are denominated in foreign currencies are adjusted daily to reflect current exchange rates and any unrealized gain (loss), if applicable, is included in Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies in the Fund’s Statement of Operations. The resultant exchange gains and losses upon settlement of such transactions are included in Net realized gain (loss), if applicable, on foreign currency related transactions in the Fund’s Statement of Operations. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in market prices of the securities. |
The Fund uses foreign currency exchange contracts to facilitate transactions in foreign denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms. | |
(g) | Repurchase Agreements–The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which a fund acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. The Fund requires at all times that the repurchase agreement be collateralized by cash, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). If the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the fair value of these securities has declined, the Fund may incur a loss upon disposition of the securities. |
17
Notes to Financial Statements (continued)
(h) | Fair Value Measurements–Fair value is defined as the price that the Fund would receive upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk–for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy classification is determined based on the lowest level of inputs that is significant to the fair value measurement, and is summarized in the three broad Levels listed below: |
• | Level 1 – | unadjusted quoted prices in active markets for identical investments; |
• | Level 2 – | other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and |
• | Level 3 – | significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
A summary of inputs used in valuing the Fund’s investments as of December 31, 2019 and, if applicable, Level 3 rollforwards for the fiscal year then ended is included in the Fund’s Schedule of Investments. | |
Changes in valuation techniques may result in transfers into or out of an assigned level within the three-tier hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. |
3. | MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES |
Management Fee
The Company has a management agreement with Lord Abbett, pursuant to which Lord Abbett supplies the Fund with investment management services and executive and other personnel, provides office space and pays for ordinary and necessary office and clerical expenses relating to research and statistical work and supervision of the Fund’s investment portfolio.
Effective May 1, 2019, the management fee is based on the Fund’s average daily net assets at the following annual rate:
First $1 billion | .75% |
Next $1 billion | .65% |
Next $1 billion | .60% |
Over $3 billion | .58% |
18
Notes to Financial Statements (continued)
Prior to May 1, 2019, the management fee was based on the Fund’s average daily net assets at the following annual rate:
First $1 billion | .80% |
Next $1 billion | .75% |
Next $1 billion | .70% |
Over $3 billion | .65% |
For the fiscal year ended December 31, 2019, the effective management fee, net of waivers, was at an annualized rate of 0.72% of the Fund’s average daily net assets.
In addition, Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement in return for a fee at an annual rate of .04% of the Fund’s average daily net assets.
Prior to May 1, 2019, Lord Abbett contractually agreed to waive its fees and reimburse expenses to the extent necessary to limit total net annual operating expenses to an annual rate of 1.15%. Effective May 1, 2019, this agreement was discontinued.
The Company, on behalf of the Fund, has entered into services arrangements with certain insurance companies. Under these arrangements, certain insurance companies will be compensated up to ..25% of the average daily NAV of the Fund’s Class VC Shares held in the insurance company’s separate account to service and maintain the Variable Contract owners’ accounts. This amount is included in Non 12b-1 service fees on the Statement of Operations. The Fund may also compensate certain insurance companies, third-party administrators and other entities for providing recordkeeping, sub-transfer agency and other administrative services to the Fund. This amount is included in Shareholder servicing on the Statement of Operations.
One Director and certain of the Company’s officers have an interest in Lord Abbett.
4. | DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS |
Dividends from net investment income, if any, are declared and paid at least semi-annually. Taxable net realized gains from investment transactions, reduced by allowable capital loss carryforwards, if any, are declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, is available to offset future net capital gains. Dividends and distributions to shareholders are recorded on the ex-dividend date. The amounts of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions that exceed earnings and profits for tax purposes are reported as a tax return of capital.
The tax character of distributions paid during the fiscal years ended December 31, 2019 and December 31, 2018 was as follows:
Year Ended 12/31/2019 | Year Ended 12/31/2018 | |||||||||
Distributions paid from: | ||||||||||
Ordinary income | $ | 97,816 | $ | 1,416,794 | ||||||
Net long-term capital gains | 11,267,645 | 15,969,877 | ||||||||
Total distributions paid | $ | 11,365,461 | $ | 17,386,671 |
19
Notes to Financial Statements (continued)
As of December 31, 2019, the components of accumulated gains (losses) on a tax-basis were as follows:
Undistributed ordinary income – net | $ | 150,307 | ||
Undistributed long-term capital gains | 334,141 | |||
Total undistributed earnings | 484,448 | |||
Temporary differences | (15,193 | ) | ||
Unrealized gains – net | 23,661,891 | |||
Total accumulated gains – net | $ | 24,131,146 |
As of December 31, 2019, the aggregate unrealized security gains (losses) on investments and other financial instruments, if any, based on cost for U.S. federal income tax purposes were as follows:
Tax cost | $ | 101,366,267 | ||
Gross unrealized gain | 27,219,127 | |||
Gross unrealized loss | (3,557,258 | ) | ||
Net unrealized security gain | $ | 23,661,869 |
The difference between book-basis and tax basis unrealized gains (losses) is attributable to the tax treatment of wash sales.
5. | PORTFOLIO SECURITIES TRANSACTIONS |
Purchases and sales of investment securities (excluding short-term investments) for the fiscal year ended December 31, 2019 were as follows:
Purchases | Sales | |
$74,130,456 | $50,680,696 |
There were no purchases or sales of U.S. Government securities for the fiscal year ended December 31, 2019.
The Fund is permitted to purchase and sell securities (“cross-trade”) from and to other Lord Abbett funds or client accounts pursuant to procedures approved by the Board in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at a fair market price in compliance with provisions of the Rule. For the fiscal year period ended December 31, 2019, the Fund engaged in cross-trades purchases of $17,033,843, and sales of $180,012 which resulted in net realized gains of $131,398.
6. | DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES |
The Financial Accounting Standards Board (“FASB”) requires disclosures intended to help better assess the effect or potential effect of offsetting arrangements on a fund’s financial position. The following tables illustrate gross and net information about recognized assets and liabilities eligible for offset in the Statement of Assets and Liabilities; and disclose such amounts subject to an enforceable master netting agreement or similar agreement, by counterparty. A master netting agreement is an agreement between a fund and a counterparty which provides for the net settlement of amounts owed under all contracts traded under that agreement, as well as cash collateral, through a single payment by one party to the other in the event of default on or termination of any one contract. The Fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the master netting agreement does not result in an offset of reported amounts of
20
Notes to Financial Statements (continued)
financial assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty:
Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Assets Presented in the Statement of Assets and Liabilities | |||||||||
Repurchase Agreement | $1,526,762 | $ | – | $ | 1,526,762 | |||||||
Total | $1,526,762 | $ | – | $ | 1,526,762 |
Net Amounts of Assets Presented in | Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Received(a) | Securities Collateral Received(a) | Net Amount(b) | |||||||||||||||
Fixed Income Clearing Corp. | $ | 1,526,762 | $ | – | $ | – | $ | (1,526,762 | ) | $ | – | |||||||||
Total | $ | 1,526,762 | $ | – | $ | – | $ | (1,526,762 | ) | $ | – |
(a) | Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets (liabilities) presented in the Statement of Assets and Liabilities, for each respective counterparty. |
(b) | Net amount represents the amount owed to the Fund by the counterparty as of December 31, 2019. |
7. | DIRECTORS’ REMUNERATION |
The Company’s officers and one Director, who are associated with Lord Abbett, do not receive any compensation from the Company for serving in such capacities. Independent Directors’ fees are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all Independent Directors under which Independent Directors must defer receipt of a portion of, and may elect to defer receipt of an additional portion of Directors’ fees. The deferred amounts are treated as though equivalent dollar amounts had been invested in the funds. Such amounts and earnings accrued thereon are included in Directors’ fees on the Statement of Operations and in Directors’ fees payable on the Statement of Assets and Liabilities and are not deductible for U.S. federal income tax purposes until such amounts are paid.
8. | EXPENSE REDUCTIONS |
The Company has entered into an arrangement with its transfer agent and custodian, whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s expenses.
9. | LINE OF CREDIT |
For the period ended August 7, 2019, the Fund and certain other funds managed by Lord Abbett (collectively, the “Participating Funds”) entered into a Syndicated Facility with various lenders for $1.1 billion whereas State Street Bank and Trust Company (“SSB”) participated as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if Fund net assets are less than $750 million), $250 million, $300 million, $350 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
Effective August 8, 2019, the Participating Funds entered into a Syndicated Facility with various lenders for $1.17 billion whereas SSB participates as a lender and as agent for the lenders. The
21
Notes to Financial Statements (continued)
Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, $500 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
For the period ended August 7, 2019, the Participating Funds entered into an additional line of credit facility with SSB for $250 million (the “Bilateral Facility” and together with the Syndicated Facility, the “Facilities”). Under the Bilateral Facility, each Participating Fund may borrow up to the lesser of $250 million or one-third of Fund net assets.
Effective August 8, 2019, the Participating Funds entered into a Bilateral Facility with SSB for $330 million ($250 million committed and $80 million uncommitted). Under the Bilateral Facility, the Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, or $330 million, based on past borrowings and likelihood of future borrowings, among other factors.
The Facilities are to be used for temporary or emergency purposes as an additional source of liquidity to satisfy redemptions.
For the fiscal year ended December 31, 2019, the Fund did not utilize the Facilities.
10. | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission (“SEC exemptive order”), certain registered open-end management investment companies managed by Lord Abbett, including the Fund, participate in a joint lending and borrowing program (the “Interfund Lending Program”). The SEC exemptive order allows the Funds to borrow money from and lend money to each other for temporary or emergency purposes subject to the limitations and conditions.
For the fiscal year ended December 31, 2019, the Fund did not participate as a borrower or lender in the Interfund Lending Program.
11. | CUSTODIAN AND ACCOUNTING AGENT |
SSB is the Company’s custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund’s NAV.
12. | SECURITIES LENDING AGREEMENT |
The Fund has established a securities lending agreement with Citibank N.A. for the lending of securities to qualified brokers in exchange for securities or cash collateral equal to at least the market value of securities loaned, plus interest, if applicable. Cash collateral is invested in an approved money market fund. In accordance with the Fund’s securities lending agreement, the market value of securities on loan is determined each day at the close of business and any additional collateral required to cover the value of securities on loan is delivered to the Fund on the next business day. As with other extensions of credit, the Fund may experience a delay in the recovery of their securities or incur a loss should the borrower of the securities breach its agreement with the Fund or become insolvent at a time when the collateral is insufficient to cover the cost of repurchasing securities on loan. Any income earned from lending securities will be noted on the Statement of Operations.
For the fiscal year ended December 31, 2019, the Fund did not loan any securities.
22
Notes to Financial Statements (concluded)
13. | INVESTMENT RISKS |
The Fund is subject to the general risks and considerations associated with equity investing. The value of an investment will fluctuate in response to movements in the equity securities markets in general, the changing prospects of individual companies in which the Fund invests, or an individual company’s financial condition. The Fund has particular risks associated with growth stocks. Growth companies may grow faster than other companies, which may result in more volatility in their stock prices. Growth stocks are often more sensitive to market fluctuations than other securities because their market prices are highly sensitive to future earnings expectations. In addition, if the Fund’s assessment of a company’s potential for growth or market conditions is wrong, it could suffer losses or produce poor performance relative to other funds, even in a favorable market. The Fund invests largely in mid-sized company stocks, which may be less able to weather economic shifts or other adverse developments than those of larger, more established companies. Although investing in mid-sized companies offers the potential for above average returns, these companies may not succeed and the value of their stock could decline significantly. Mid-sized companies also may fall out of favor relative to larger companies in certain market cycles, causing the Fund to incur losses or under perform.
Due to the Fund’s investment exposure to foreign companies and American Depositary Receipts, the Fund may experience increased market, industry and sector, liquidity, currency, political, information, and other risks. The securities of foreign companies also may be subject to inadequate exchange control regulations, the imposition of economic sanctions or other government restrictions, higher transaction and other costs, and delays in settlement to the extent they are traded on non-U.S. exchanges or markets.
These factors can affect the Fund’s performance.
14. | SUMMARY OF CAPITAL TRANSACTIONS |
Transactions in shares of capital stock were as follows:
Year Ended December 31, 2019 | Year Ended December 31, 2018 | |||||||
Shares sold | 5,842,901 | 2,019,933 | ||||||
Reinvestment of distributions | 868,963 | 1,664,823 | ||||||
Shares reacquired | (3,463,128 | ) | (6,791,466 | ) | ||||
Increase (decrease) | 3,248,736 | (3,106,710 | ) |
23
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Lord Abbett Series Fund, Inc.
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Growth Opportunities Portfolio, one of the funds constituting Lord Abbett Series Fund, Inc. (the “Fund”), as of December 31, 2019, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Growth Opportunities Portfolio of the Fund as of December 31, 2019, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
New York, New York
February 14, 2020
We have served as the auditor of one or more Lord Abbett Family of Funds’ investment companies since 1932.
24
Supplemental Proxy Information (unaudited)
A joint special meeting of shareholders of the Fund was held on August 26, 2019. The joint special meeting was held for the purpose of electing members of the Fund’s Board of Directors. Shareholders elected the following ten (10) Directors at the joint special meeting:
• | Eric C. Fast |
• | Evelyn E. Guernsey |
• | Julie A. Hill |
• | Kathleen M. Lutito |
• | James M. McTaggart |
• | Charles O. Prince |
• | Karla M. Rabusch |
• | Mark A. Schmid |
• | Douglas B. Sieg |
• | James L.L. Tullis |
The results of the proxy solicitation on the preceding matter were as follows:
Lord Abbett Series Fund, Inc.
Nominee Votes | Votes For | Votes Withheld |
Eric C. Fast | 186,329,820.614 | 7,776,255.685 |
Evelyn E. Guernsey | 186,718,826.419 | 7,387,249.880 |
Julie A. Hill | 186,486,240.620 | 7,619,835.679 |
Kathleen M. Lutito | 187,082,042.409 | 7,024,033.890 |
James M. McTaggart | 186,269,131.867 | 7,836,944.422 |
Charles O. Prince | 186,103,251.100 | 8,002,825.199 |
Karla M. Rabusch | 186,796,719.683 | 7,309,356.626 |
Mark A. Schmid | 186,825,573.395 | 7,280,502.894 |
Douglas B. Sieg | 186,702,410.889 | 7,403,665.410 |
James L.L. Tullis | 186,229,277.817 | 7,876,798.472 |
25
Basic Information About Management
The Board is responsible for the management of the business and affairs of the Company in accordance with the laws of the State of Maryland. The Board elects officers who are responsible for the day-to-day operations of the Fund and who execute policies authorized by the Board. The Board also approves an investment adviser to the Fund and continues to monitor the cost and quality of the services the investment adviser provides, and annually considers whether to renew the contract with the investment adviser. Generally, each Director holds office until his/her successor is elected and qualified or until his/her earlier resignation or removal, as provided in the Company’s organizational documents.
Lord Abbett, a Delaware limited liability company, is the Fund’s investment adviser. Designated Lord Abbett personnel are responsible for the day-to-day management of the Fund.
Interested Directors
Mr. Sieg is affiliated with Lord Abbett and is an “interested person” of the Company as defined in the Act. Mr. Sieg is director/trustee of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios. Mr. Sieg is an officer of the Lord Abbett Family of Funds.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Douglas B. Sieg | Director since 2016; | Principal Occupation: Managing Partner (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. Other Directorships: None. |
Independent Directors
The following Independent Directors also are directors/trustees of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Evelyn E. Guernsey | Director since 2011 | Principal Occupation: None. | ||
Julie A. Hill Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1946) | Director since 2004 | Principal Occupation: Owner and CEO of The Hill Company, a business consulting firm (since 1998). Other Directorships: Currently serves as director of Anthem, Inc., a health benefits company (since 1994). | ||
Kathleen M. Lutito Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1963) | Director since 2017 | Principal Occupation: President and Chief Investment Officer of CenturyLink Investment Management Company (since 2006). Other Directorships: None. |
26
Basic Information About Management (continued)
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
James M. McTaggart Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2012 | Principal Occupation: Independent management advisor and consultant (since 2012). Other Directorships: Blyth, Inc., a home products company (2004–2015). | ||
Charles O. Prince Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1950) | Director since 2019 | Principal Occupation: None. Formerly Chairman and Chief Executive Officer, Citigroup, Inc. Other Directorships: Currently serves as director of Johnson & Johnson (2006–Present). Previously served as director of Xerox Corporation (2008–2018). | ||
Karla M. Rabusch Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2017 | Principal Occupation: President and Director of Wells Fargo Funds Management, LLC (2003–2017); President of Wells Fargo Funds (2003–2016). Other Directorships:None. | ||
Mark A. Schmid Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2016 | Principal Occupation: Vice President and Chief Investment Officer of the University of Chicago (since 2009). Other Directorships: None. | ||
James L.L. Tullis Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2006; Chairman since 2017 | Principal Occupation: Chairman of Tullis Health Investors - FL LLC (since 2018); CEO of Tullis–Dickerson and Co. Inc., a venture capital management firm (1990–2016). Other Directorships: Currently serves as director of Crane Co. (since 1998), Alphatec Spine, Inc. (since 2018), and electroCore, Inc. (since 2018). |
Officers
None of the officers listed below have received compensation from the Company. All of the officers of the Company also may be officers of the other Lord Abbett Funds and maintain offices at 90 Hudson Street, Jersey City, NJ 07302. Unless otherwise indicated, the position(s) and title(s) listed under the “Principal Occupation During the Past Five Years” column indicate each officer’s position(s) and title(s) with Lord Abbett. Each officer serves for an indefinite term (i.e., until his or her death, resignation, retirement, or removal).
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Douglas B. Sieg (1969) | President and Chief Executive Officer | Elected as President and Chief Executive Officer in 2018 | Managing Partner of Lord Abbett (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. |
27
Basic Information About Management (concluded)
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Jackson C. Chan (1964) | AML Compliance Officer | Elected in 2018 | Deputy Chief Compliance Officer and Director of Regulatory Affairs, joined Lord Abbett in 2014. | |||
Pamela P. Chen (1978) | Vice President, Assistant Secretary and Privacy Officer | Elected as Vice President and Assistant Secretary in 2018 and Privacy Officer in 2019 | Associate General Counsel, joined Lord Abbett in 2017 and was formerly Special Counsel at Schulte, Roth & Zabel LLP (2005–2017). | |||
John T. Fitzgerald (1975) | Vice President and Assistant Secretary | Elected in 2018 | Deputy General Counsel, joined Lord Abbett in 2018 and was formerly Deputy Head of U.S. Funds Legal, Executive Director and Assistant General Counsel at JPMorgan Chase (2005-2018). | |||
Vito A. Fronda (1969) | Treasurer | Elected in 2018 | Partner and Director of Fund Treasury and Tax, joined Lord Abbett in 2003. | |||
Bernard J. Grzelak (1971) | Chief Financial Officer and Vice President | Elected in 2017 | Partner and Chief Operating Officer, Global Funds and Risk, joined Lord Abbett in 2003. | |||
Linda Y. Kim (1980) | Vice President and Assistant Secretary | Elected in 2016 | Counsel, joined Lord Abbett in 2015. | |||
Joseph M. McGill (1962) | Chief Compliance Officer | Elected in 2014 | Partner and Chief Compliance Officer, joined Lord Abbett in 2014. | |||
Amanda S. Ryan (1978) | Vice President and Assistant Secretary | Elected in 2018 | Counsel, joined Lord Abbett in 2016 and was formerly a Director and Corporate Counsel at PGIM Investments (2012–2016). | |||
Lawrence B. Stoller (1963) | Vice President, Secretary and Chief Legal Officer | Elected as Vice President and Secretary in 2007 and Chief Legal Officer in 2019 | Partner and General Counsel, joined Lord Abbett in 2007. |
Please call 888-522-2388 for a copy of the statement of additional information, which contains further information about the Company’s Directors. It is available free upon request.
28
Approval of Advisory Contract
The Board, including all of the Directors who are not “interested persons” of the Company or of Lord Abbett, as defined in the Investment Company Act of 1940, as amended (the “Independent Directors”), annually considers whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett (the “Agreement”). In connection with its most recent approval, the Board reviewed materials relating specifically to the Agreement, as well as numerous materials received throughout the course of the year, including information about the Fund’s investment performance compared to the performance of its benchmarks. Before making its decision as to the Fund, the Board had the opportunity to ask questions and request further information, taking into account its knowledge of Lord Abbett gained through its meetings and discussions. These meetings and discussions included reviews of Fund performance conducted by members of the Contract Committee, the deliberations of the Contract Committee, and discussions between the Contract Committee and Lord Abbett’s management. The Independent Directors also met with their independent legal counsel in various private sessions at which no representatives of management were present.
The materials received by the Board included, but were not limited to: (1) information provided by Broadridge Financial Solutions (“Broadridge”) regarding the investment performance of the Fund compared to the investment performance of certain funds with similar investment styles as determined by Broadridge, based, in part, on the Fund’s Morningstar category (the “performance peer group”), and the investment performance of two appropriate benchmarks; (2) information provided by Broadridge regarding the expense ratios, contractual and actual management fee rates, and other expense components for the Fund and certain funds in the same Morningstar category, with generally the same or similar share classes and operational characteristics, including asset size (the “expense peer group”); (3) certain supplemental investment performance information provided by Lord Abbett; (4) information provided by Lord Abbett on the expense ratios, management fee rates, and other expense components for the Fund; (5) sales and redemption information for the Fund; (6) information regarding Lord Abbett’s financial condition; (7) an analysis of the relative profitability of the Agreement to Lord Abbett; and (8) [1]information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
Investment Management and Related Services Generally.The Board considered the services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading, and Lord Abbett’s commitment to compliance with all applicable legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest that may result from being engaged in other lines of business. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to the Fund and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other. After reviewing these and related factors, the Board concluded that the Fund was likely to continue to benefit from the nature, extent and quality of the investment services provided by Lord Abbett under the Agreement.
Investment Performance.The Board reviewed the Fund’s investment performance in relation to that of the performance peer group and two appropriate benchmarks as of various periods ended June 30, 2019. The Board observed that the Fund’s investment performance was above the median of the performance peer group for the one-year period and below the median of the performance peer group for the three-, five-, and ten-year periods. The Board took into account actions taken by Lord Abbett to attempt to improve equity fund performance. The Board further considered Lord Abbett’s performance and reputation generally, the performance of other Lord Abbett-managed
29
Approval of Advisory Contract (continued)
funds overseen by the Board, and the willingness of Lord Abbett to take steps intended to improve performance when appropriate. After reviewing these and related factors, the Board concluded that the Fund’s Agreement should be continued.
Lord Abbett’s Personnel and Methods.The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of its investment objective and discipline, and other services provided to the Fund by Lord Abbett. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining personnel.
Nature and Quality of Other Services.The Board considered the nature, quality, and extent of compliance, administrative, and other services performed by Lord Abbett and the nature and extent of Lord Abbett’s supervision of third party service providers, including the Fund’s transfer agent and custodian.
Expenses.The Board considered the expense level of the Fund, including the contractual and actual management fee rates, and the expense levels of the Fund’s expense peer group. It also considered how the expense level of the Fund related to those of the expense peer group and the amount and nature of the fees paid by shareholders. The Board observed that, although the net total expense ratio of the Fund was above the median of the expense peer group, its advisory fee was below the median of the expense peer group. The Board further considered that the Fund’s management fee was reduced, effective May 1, 2019. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that the management fees paid by, and expense level of, the Fund were reasonable in light of all of the factors it considered and supported the continuation of the Agreement.
Profitability.The Board considered the level of Lord Abbett’s operating margin in managing the Fund, including a review of Lord Abbett’s methodology for allocating its costs to its management of the Fund. It considered whether the Fund was profitable to Lord Abbett in connection with the Fund’s operation, including the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the profits realized from other business segments of Lord Abbett, which may benefit from or be related to the Fund’s business. The Board considered Lord Abbett’s profit margins excluding Lord Abbett’s marketing and distribution expenses. The Board also considered Lord Abbett’s profit margins, without those exclusions, in comparison with available industry data and how those profit margins could affect Lord Abbett’s ability to recruit and retain personnel. The Board recognized that Lord Abbett’s overall profitability was a factor in enabling it to attract and retain qualified personnel to provide services to the Fund. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that Lord Abbett’s profitability with respect to the Fund was not excessive.
Economies of Scale.The Board considered the extent to which there had been economies of scale in managing the Fund, whether the Fund’s shareholders had appropriately benefited from such economies of scale, and whether there was potential for realization of any further economies of scale. The Board concluded that the existing management fee schedule, with its breakpoints in the level of the management fee, adequately addressed any economies of scale in managing the Fund.
Other Benefits to Lord Abbett.The Board considered the amount and nature of the fees paid by the Fund and the Fund’s shareholders to Lord Abbett for services other than investment advisory services, such as the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the revenues and profitability of Lord Abbett’s
30
Approval of Advisory Contract (concluded)
investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that the Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees it receives, and receives a portion of the sales charges on sales and redemptions of some classes of shares of the Lord Abbett Funds. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectus of the Fund, has entered into revenue sharing arrangements with certain entities that distribute shares of the Lord Abbett Funds. The Board also took into consideration the investment research that Lord Abbett receives as a result of client brokerage transactions.
Alternative Arrangements.The Board considered whether, instead of approving continuation of the Agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms. After considering all of the relevant factors, the Board unanimously found that continuation of the Agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve the continuation of the Agreement. In considering whether to approve the continuation of the Agreement, the Board did not identify any single factor as paramount or controlling. Individual Directors may have evaluated the information presented differently from one another, giving different weights to various factors. This summary does not discuss in detail all matters considered.
31
Householding
The Company has adopted a policy that allows it to send only one copy of the Fund’s prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same “household.” This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.
Proxy Voting Policies, Procedures and Records
A description of the policies and procedures that Lord Abbett uses to vote proxies related to the Fund’s portfolio securities, and information on how Lord Abbett voted the Fund’s proxies during the 12-month period ended December 31 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett’s Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission’s (“SEC”) Website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters as an attachment to Form N-PORT. Copies of the filings are available without charge, upon request on the SEC’s Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388.
Tax Information
For corporate shareholders, 100% of the Fund’s ordinary income distributions qualified for the dividends received deduction.
Additionally, of the distributions paid to the shareholders during the fiscal year ended December 31, 2019, $97,816 and $11,267,645, respectively, represent short-term capital gains and long-term capital gains.
32
This report, when not used for the general information of shareholders of the Fund, is to be distributed only if preceded or accompanied by a current fund prospectus. | |||
Lord Abbett mutual fund shares are distributed by LORD ABBETT DISTRIBUTOR LLC. | Lord Abbett Series Fund, Inc. Growth Opportunities Portfolio | LASFGO-3 (02/20) |
LORD ABBETT
ANNUAL REPORT
Lord Abbett
Series Fund—Mid Cap Stock Portfolio
For the fiscal year ended December 31, 2019
Table of Contents
Lord Abbett Series Fund — Mid Cap Stock Portfolio
Annual Report
For the fiscal year ended December 31, 2019
From left to right: James L.L. Tullis, Independent Chairman of the Lord Abbett Funds and Douglas B. Sieg, Director, President, and Chief Executive Officer of the Lord Abbett Funds.
Dear Shareholders:We are pleased to provide you with this overview of the performance of Lord Abbett Series Fund – Mid Cap Stock Portfolio for the fiscal year ended December 31, 2019. On this page and the following pages, we discuss the major factors that influenced fiscal year performance. For additional information about the Fund, please visit our website at www.lordabbett.com, where you also can access quarterly commentaries that provide updates on the Fund’s performance and other portfolio related updates.
Thank you for investing in Lord Abbett mutual funds. We value the trust that you place in us and look forward to serving your investment needs in the years to come.
Best regards,
Douglas B. Sieg
Director, President, and Chief Executive Officer
For the fiscal year ended December 31, 2019, the Fund returned 22.64%, reflecting performance at the net asset value (NAV) of Class VC shares with all distributions reinvested, compared to its benchmark, the Russell MidCap® Value Index1, which returned 27.06% over the same period.
Domestic equity returns were positive over the past year, with large cap stocks, as represented by the S&P 500® Index,2 rising 31.49% during the period, while small cap stocks, as represented by the Russell 2000® Index,3 were up 25.52%. Following a tumultuous fourth quarter of 2018, where
trade tensions and monetary policy uncertainty sent many investors toward safety, the market staged a strong recovery. After the worst December since 1931, the S&P 500 posted its best January performance since 1987. Trade tensions continued to dominate headlines, as trade negotiations between the U.S. and China remained volatile throughout the period. Since the beginning of 2019, both the U.S. and China have imposed tariffs of roughly $550 billion and $185 billion on each country’s products, respectively. One of the more notable shifts over the year was the
1
U.S. Federal Reserve’s (the “Fed”) transition to a more dovish policy stance, with Chairman Jerome Powell stating that the Fed would act appropriately to sustain economic growth. Given an uncertain market outlook and muted inflation pressures, the Fed announced its decision to cut interest rates by 25 basis points on July 31, 2019 to a range of 2.00 – 2.25%. This was the first time that the Fed had cut interest rates since December 2008. The Fed followed that decision with two more 25 basis point rate cuts in September and October, citing “implications of global developments for the economic outlook as well as muted inflation pressures”. After the October rate cut, Fed Chairman Powell signaled a likely pause on future rate cuts. The combination of a dovish Fed, trade pressures, and slowing economic growth resulted in falling rates across the U.S. Treasury yield curve. In fact, in July, the yield on the 10-year U.S. Treasury fell to its lowest level since 2016. Bond yields continued to fall, and in August, the spread between the U.S. 10-year Treasury and the 2-year Treasury temporarily inverted. In September, a large rotation from growth stocks into value took place and continued through November. Geopolitics also contributed to market volatility. Following a coordinated drone strike on Saudi Arabia in the third quarter, Brent crude oil prices increased 20% in one trading session. Despite the record increase, oil prices retracted their gains within weeks. Investor sentiment was buoyed in November as the market grew optimistic about the possibility of a “Phase One” trade deal
between the U.S. and China, which was ultimately reached in December. The agreement included structural reforms to China’s trade regime in areas such as intellectual property and agriculture, as well as a commitment from China to make additional purchases of U.S. goods and services moving forward. In return, the U.S. would not proceed with tariffs that were scheduled to go into effect in December on nearly $160 billion worth of Chinese goods and would cut the tariff rate imposed on September 1, 2019 on $120 billion worth of Chinese goods from 15% to 7.5%.
Over the period, the Fund’s holding of Conduent, Inc., a business process services provider, was the largest detractor from relative performance. The firm’s stock price dropped precipitously after CEO Ashok Vemuri announced his intention to step down. The announcement came after litigation issues with the state of Texas. Foot Locker, Inc., an athletic shoes and apparel retailer, also detracted from relative performance. Shares of Foot Locker traded down 16% following the company’s first quarter earnings release. Both revenue and earnings came in lower than the market expected and management lowered fiscal year guidance. PG&E Corp., an electricity and natural gas company, also detracted from relative performance. PG&E’s stock price fell as the company prepared to file for bankruptcy in an attempt to dismiss the liability charges stemming from wildfires in 2017 and 2018.
Over the period, the Fund’s holding of Oneok, Inc., a company that processes, transports, and stores natural gas,
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contributed most to relative performance. Shares of Oneok rose after the company announced the completion of the Elk Creek Pipeline project, which investors anticipate will strengthen the company’s position in the high production Montana to Kansas region. Graphic Packaging Holding Corp., a paper-based packaging solutions provider, also contributed to relative performance. Shares of Graphic Packaging increased as the firm continued to exhibit strong execution on productivity and cost strategies throughout the year. More specifically, the firm reported third quarter earnings per share that topped market
expectations. The Western Union Company also contributed to relative performance. Shares of the payment services company increased following a positive Investors’ Day, where the company announced a three-year outlook as well as a new platform strategy, which investors anticipate will increase the company’s total addressable market.
The Fund’s portfolio is actively managed and, therefore, its holdings and the weightings of a particular issuer or particular sector as a percentage of portfolio assets are subject to change. Sectors may include many industries.
1 The Russell Midcap® Value Index measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000® Value index.
2 The S&P 500® Index is widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries.
3 The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index.
Unless otherwise specified, indexes reflect total return, with all dividends reinvested. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Important Performance and Other Information
Performance data quoted in the following pages reflect past performance and are no guarantee of future results. Current performance may be higher or lower than the performance quoted. The investment return and principal value of an investment in the Funds will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. You
can obtain performance data current to the most recent month end by calling Lord Abbett at 888-522-2388 or referring to www.lordabbett.com.
The annual commentary above discusses the views of the Fund’s management and various portfolio holdings of the Fund as of December 31, 2019. These views and portfolio holdings may have changed after this date. Information provided in the commentary is not a recommendation to buy or sell securities. Because the Fund’s portfolio is actively managed and may change significantly, the Fund may no longer own the securities described above or may have otherwise changed their positions in the securities. For more recent information about the Fund’s portfolio holdings, please visit www.lordabbett.com.
A Note about Risk:See Notes to Financial Statements for a discussion of investment risks. For a more detailed discussion of the risks associated with each Fund, please see the Fund’s prospectus.
Mutual funds are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, banks, and are subject to investment risks including possible loss of principal amount invested.
The Fund serves as an underlying investment vehicle for variable annuity contracts and variable life insurance policies.
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Below is a comparison of a $10,000 investment in Class VC shares with the same investment in both the Russell Midcap® Value Index and the S&P MidCap 400® Value Index assuming reinvestment of all dividends and distributions. The Fund’s shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. This line graph comparison does not reflect the sales charges or other expenses of these contracts. If those sales charges and expenses were reflected, returns would be lower. The graph and performance table below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.Past performance is no guarantee of future results.
Average Annual Total Returns for the
Periods Ended December 31, 2019
1 Year | 5 Years | 10 Years | ||||
Class VC | 22.64% | 4.51% | 9.59% |
1 Performance for each unmanaged index does not reflect any fees or expenses. The performance of each index is not necessarily representative of the Fund’s performance.
4
As a shareholder of the Fund, you incur ongoing costs, including management fees; expenses related to the Fund’s services arrangements with certain insurance companies; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2019 through December 31, 2019).
The Example reflects only expenses that are deducted from the assets of the Fund. Fees and expenses, including sales charges applicable to the various insurance products that invest in the Fund, are not reflected in this Example. If such fees and expenses were reflected in the Example, the total expenses shown would be higher. Fees and expenses regarding such variable insurance products are separately described in the prospectus related to those products.
Actual Expenses
The first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled “Expenses Paid During Period 7/1/19 – 12/31/19” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
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Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value | Ending Account Value | Expenses Paid During Period† | |||||
7/1/19 | 12/31/19 | 7/1/19 - 12/31/19 | |||||
Class VC | |||||||
Actual | $1,000.00 | $1,067.80 | $6.10 | ||||
Hypothetical (5% Return Before Expenses) | $1,000.00 | $1,019.31 | $5.96 |
† | Net expenses are equal to the Fund’s annualized expense ratio of 1.17% multiplied by the average account value over the period, multiplied by 184/365 (to reflect one-half year period). |
Portfolio Holdings Presented by Sector
December 31, 2019
Sector* | %** | |||
Communication Services | 2.02 | % | ||
Consumer Discretionary | 9.85 | % | ||
Consumer Staples | 4.01 | % | ||
Energy | 6.34 | % | ||
Financials | 18.22 | % | ||
Health Care | 8.04 | % | ||
Industrials | 13.87 | % | ||
Information Technology | 9.14 | % | ||
Materials | 6.94 | % | ||
Real Estate | 9.84 | % | ||
Utilities | 11.23 | % | ||
Repurchase Agreement | 0.50 | % | ||
Total | 100.00 | % |
* | A sector may comprise several industries. | |
** | Represents percent of total investments. |
6 | See Notes to Financial Statements. |
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
LONG-TERM INVESTMENTS 99.62% | ||||||||
COMMON STOCKS 98.64% | ||||||||
Auto Components 1.57% | ||||||||
Lear Corp. | 31,000 | $ | 4,253 | |||||
Banks 6.57% | ||||||||
BankUnited, Inc. | 109,701 | 4,011 | ||||||
CIT Group, Inc. | 65,254 | 2,977 | ||||||
Citizens Financial Group, Inc. | 91,600 | 3,720 | ||||||
East West Bancorp, Inc. | 76,500 | 3,725 | ||||||
Sterling Bancorp | 159,762 | 3,368 | ||||||
Total | 17,801 | |||||||
Building Products 1.54% | ||||||||
A.O. Smith Corp. | 87,628 | 4,175 | ||||||
Capital Markets 3.66% | ||||||||
Ares Capital Corp. | 205,400 | 3,831 | ||||||
Brightsphere Investment Group, Inc.* | 124,230 | 1,270 | ||||||
E*TRADE Financial Corp. | 106,000 | 4,809 | ||||||
Total | 9,910 | |||||||
Chemicals 3.17% | ||||||||
Axalta Coating Systems Ltd.* | 66,352 | 2,017 | ||||||
Corteva, Inc.* | 130,541 | 3,859 | ||||||
PPG Industries, Inc. | 20,375 | 2,720 | ||||||
Total | 8,596 | |||||||
Communications Equipment 0.74% | ||||||||
F5 Networks, Inc.* | 14,317 | 1,999 | ||||||
Construction & Engineering 1.46% | ||||||||
EMCOR Group, Inc. | 45,782 | 3,951 | ||||||
Containers & Packaging 1.56% | ||||||||
Graphic Packaging Holding Co. | 254,636 | 4,240 | ||||||
Electric: Utilities 7.12% | ||||||||
Edison International | 55,600 | 4,193 | ||||||
Entergy Corp. | 31,852 | 3,816 | ||||||
Evergy, Inc. | 72,244 | 4,702 |
Investments | Shares | Fair Value (000) | ||||||
FirstEnergy Corp. | 96,955 | $ | 4,712 | |||||
Portland General Electric Co. | 33,816 | 1,887 | ||||||
Total | 19,310 | |||||||
Electrical Equipment 2.75% | ||||||||
Acuity Brands, Inc. | 24,836 | 3,427 | ||||||
Hubbell, Inc. | 27,175 | 4,017 | ||||||
Total | 7,444 | |||||||
Electronic Equipment, Instruments & Components 1.51% | ||||||||
Avnet, Inc. | 96,217 | 4,083 | ||||||
Energy Equipment & Services 1.14% | ||||||||
National Oilwell Varco, Inc. | 123,000 | 3,081 | ||||||
Equity Real Estate Investment Trusts 9.85% | ||||||||
Alexandria Real Estate Equities, Inc. | 29,906 | 4,832 | ||||||
Camden Property Trust | 37,300 | 3,958 | ||||||
Duke Realty Corp. | 131,601 | 4,563 | ||||||
Healthcare Trust of America, Inc. Class A | 117,840 | 3,568 | ||||||
Highwoods Properties, Inc. | 58,500 | 2,861 | ||||||
UDR, Inc. | 85,514 | 3,994 | ||||||
Weingarten Realty Investors | 94,157 | 2,941 | ||||||
Total | 26,717 | |||||||
Food & Staples Retailing 1.00% | ||||||||
Sprouts Farmers Market, Inc.* | 139,900 | 2,707 | ||||||
Food Products 2.04% | ||||||||
General Mills, Inc. | 59,071 | 3,164 | ||||||
J.M. Smucker Co. (The) | 22,806 | 2,375 | ||||||
Total | 5,539 | |||||||
Health Care Equipment & Supplies 1.31% | ||||||||
Zimmer Biomet Holdings, Inc. | 23,800 | 3,562 | ||||||
Health Care Providers & Services 6.73% | ||||||||
AmerisourceBergen Corp. | 30,805 | 2,619 | ||||||
Centene Corp.* | 74,932 | 4,711 | ||||||
Humana, Inc. | 6,942 | 2,545 |
See Notes to Financial Statements. | 7 |
Schedule of Investments (continued)
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
Health Care Providers & Services (continued) | ||||||||
Laboratory Corp. of America Holdings* | 11,670 | $ | 1,974 | |||||
Quest Diagnostics, Inc. | 19,021 | 2,031 | ||||||
Universal Health Services, Inc. Class B | 30,461 | 4,370 | ||||||
Total | 18,250 | |||||||
Household Products 0.97% | ||||||||
Clorox Co. (The) | 17,200 | 2,641 | ||||||
Industrial Conglomerates 1.26% | ||||||||
Carlisle Cos., Inc. | 21,115 | 3,417 | ||||||
Information Technology Services 2.68% | ||||||||
Amdocs Ltd. | 38,129 | 2,753 | ||||||
Western Union Co. (The) | 168,272 | 4,506 | ||||||
Total | 7,259 | |||||||
Insurance 8.02% | ||||||||
Argo Group International Holdings Ltd. | 38,032 | 2,500 | ||||||
Axis Capital Holdings Ltd. | 67,400 | 4,006 | ||||||
Everest Re Group Ltd. | 12,226 | 3,385 | ||||||
Hanover Insurance Group, Inc. (The) | 18,848 | 2,576 | ||||||
Hartford Financial Services Group, Inc. (The) | 85,071 | 5,170 | ||||||
RenaissanceRe Holdings Ltd. | 20,997 | 4,116 | ||||||
Total | 21,753 | |||||||
Internet & Direct Marketing Retail 1.52% | ||||||||
eBay, Inc. | 114,100 | 4,120 | ||||||
Leisure Products 1.49% | ||||||||
Brunswick Corp. | 67,400 | 4,043 | ||||||
Machinery 5.16% | ||||||||
Cummins, Inc. | 25,500 | 4,563 | ||||||
Stanley Black & Decker, Inc. | 30,270 | 5,017 | ||||||
Westinghouse Air Brake Technologies Corp. | 56,621 | 4,405 | ||||||
Total | 13,985 |
Investments | Shares | Fair Value (000) | ||||||
Media 2.02% | ||||||||
Interpublic Group of Cos., Inc. (The) | 61,323 | $ | 1,417 | |||||
Nexstar Media Group, Inc. Class A | 13,340 | 1,564 | ||||||
Omnicom Group, Inc. | 30,800 | 2,495 | ||||||
Total | 5,476 | |||||||
Metals & Mining 2.21% | ||||||||
Lundin Mining Corp.(a) | CAD | 657,139 | 3,927 | |||||
Nucor Corp. | 36,900 | 2,077 | ||||||
Total | 6,004 | |||||||
Multi-Utilities 3.15% | ||||||||
CMS Energy Corp. | 75,425 | 4,740 | ||||||
Consolidated Edison, Inc. | 41,888 | 3,789 | ||||||
Total | 8,529 | |||||||
Oil, Gas & Consumable Fuels 5.21% | ||||||||
Marathon Petroleum Corp. | 40,178 | 2,421 | ||||||
Noble Energy, Inc. | 189,544 | 4,708 | ||||||
ONEOK, Inc. | 47,946 | 3,628 | ||||||
Parsley Energy, Inc. Class A | 178,600 | 3,377 | ||||||
Total | 14,134 | |||||||
Road & Rail 1.72% | ||||||||
Landstar System, Inc. | 41,000 | 4,669 | ||||||
Semiconductors & Semiconductor Equipment 2.76% | ||||||||
Marvell Technology Group Ltd. | 99,648 | 2,647 | ||||||
Teradyne, Inc. | 70,883 | 4,833 | ||||||
Total | 7,480 | |||||||
Software 1.47% | ||||||||
Cadence Design Systems, Inc.* | 19,586 | 1,359 | ||||||
Synopsys, Inc.* | 18,789 | 2,615 | ||||||
Total | 3,974 |
8 | See Notes to Financial Statements. |
Schedule of Investments (concluded)
December 31, 2019
Investments | Shares | Fair Value (000) | ||||||
Specialty Retail 3.69% | ||||||||
Foot Locker, Inc. | 91,525 | $ | 3,569 | |||||
Ross Stores, Inc. | 34,611 | 4,029 | ||||||
Urban Outfitters, Inc.* | 86,841 | 2,412 | ||||||
Total | 10,010 | |||||||
Textiles, Apparel & Luxury Goods 1.59% | ||||||||
Columbia Sportswear Co. | 43,100 | 4,318 | ||||||
Total Common Stocks (cost $240,896,392) | 267,430 | |||||||
Principal Amount (000) | ||||||||
CORPORATE BONDS 0.98% | ||||||||
Electric: Utilities | ||||||||
Pacific Gas & Electric Co.(b)(c) (cost $2,748,935) | $2,527 | 2,652 | ||||||
Total Long-Term Investments (cost $243,645,327) | 270,082 |
Investments | Principal Amount (000) | Fair Value (000) | ||||||
SHORT-TERM INVESTMENT 0.50% | ||||||||
Repurchase Agreement | ||||||||
Repurchase Agreement dated 12/31/2019, 0.85% due 1/2/2020 with Fixed Income Clearing Corp. collateralized by $1,350,000 of U.S. Treasury Note at 2.75% due 8/15/2021; value: $1,388,479; proceeds: $1,356,805 (cost $1,356,741) | $1,357 | $ | 1,357 | |||||
Total Investments in Securities 100.12% (cost $245,002,068) | 271,439 | |||||||
Liabilities in Excess of Cash and Other Assets (0.12)% | (319 | ) | ||||||
Net Assets 100.00% | $ | 271,120 |
CAD | Canadian dollar. | |
* | Non-income producing security. | |
(a) | Investment in non-U.S. dollar denominated securities. | |
(b) | Defaulted (non-income producing security). | |
(c) | The security has an interest rate 6.05% with a maturity of 03/01/2034. |
The following is a summary of the inputs used as of December 31, 2019 in valuing the Fund’s investments carried at fair value(1):
Investment Type(2) | Level 1 (000) | Level 2 (000) | Level 3 (000) | Total (000) | |||||||||||
Long-Term Investments | |||||||||||||||
Common Stocks | $ | 267,430 | $ | – | $ | – | $ | 267,430 | |||||||
Corporate Bonds | – | 2,652 | – | 2,652 | |||||||||||
Short-term Investment | |||||||||||||||
Repurchase Agreement | – | 1,357 | – | 1,357 | |||||||||||
Total | $ | 267,430 | $ | 4,009 | $ | – | $ | 271,439 |
(1) | Refer to Note 2(h) for a description of fair value measurements and the three-tier hierarchy of inputs. | |
(2) | See Schedule of Investments for fair values in each industry and identification of foreign issuers and/or geography. |
See Notes to Financial Statements. | 9 |
Statement of Assets and Liabilities
December 31, 2019
ASSETS: | ||||
Investments in securities, at fair value (cost $245,002,068) | $ | 271,438,673 | ||
Cash | 5 | |||
Receivables: | ||||
Investment securities sold | 366,576 | |||
Interest and dividends | 279,512 | |||
Capital shares sold | 51,717 | |||
Prepaid expenses | 1,304 | |||
Total assets | 272,137,787 | |||
LIABILITIES: | ||||
Payables: | ||||
Management fee | 164,829 | |||
Investment securities purchased | 133,603 | |||
Directors’ fees | 72,018 | |||
Capital shares reacquired | 24,584 | |||
Fund administration | 9,098 | |||
Accrued expenses | 613,703 | |||
Total liabilities | 1,017,835 | |||
Commitments and contingent liabilities | ||||
NET ASSETS | $ | 271,119,952 | ||
COMPOSITION OF NET ASSETS: | ||||
Paid-in capital | $ | 245,724,780 | ||
Total distributable earnings (loss) | 25,395,172 | |||
Net Assets | $ | 271,119,952 | ||
Outstanding shares (200 million shares of common stock authorized, $.001 par value) | 11,419,660 | |||
Net asset value, offering and redemption price per share (Net assets divided by outstanding shares) | $23.74 |
10 | See Notes to Financial Statements. |
For the Year Ended December 31, 2019
Investment income: | ||||
Dividends (net of foreign withholding taxes of $15,856) | $ | 5,459,790 | ||
Interest | 47,061 | |||
Total investment income | 5,506,851 | |||
Expenses: | ||||
Management fee | 1,935,771 | |||
Non 12b-1 service fees | 659,778 | |||
Shareholder servicing | 199,806 | |||
Fund administration | 105,472 | |||
Professional | 62,326 | |||
Reports to shareholders | 57,028 | |||
Custody | 8,838 | |||
Directors’ fees | 7,681 | |||
Other | 65,078 | |||
Gross expenses | 3,101,778 | |||
Expense reductions (See Note 8) | (8,600 | ) | ||
Net expenses | 3,093,178 | |||
Net investment income | 2,413,673 | |||
Net realized and unrealized gain (loss): | ||||
Net realized gain on investments | 7,087,366 | |||
Net realized loss on foreign currency related transactions | (12 | ) | ||
Net change in unrealized appreciation/depreciation on investments | 42,550,917 | |||
Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies | 17 | |||
Net realized and unrealized gain | 49,638,288 | |||
Net Increase in Net Assets Resulting From Operations | $ | 52,051,961 |
See Notes to Financial Statements. | 11 |
Statements of Changes in Net Assets
INCREASE (DECREASE) IN NET ASSETS | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | ||||||
Operations: | ||||||||
Net investment income | $ | 2,413,673 | $ | 1,945,197 | ||||
Net realized gain on investments and foreign currency related transactions | 7,087,354 | 7,796,601 | ||||||
Net change in unrealized appreciation/depreciation on investments and translation of assets and liabilities denominated in foreign currencies | 42,550,934 | (53,111,586 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 52,051,961 | (43,369,788 | ) | |||||
Distributions to shareholders: | (6,874,851 | ) | (11,050,110 | ) | ||||
Capital share transactions (See Note 14): | ||||||||
Proceeds from sales of shares | 33,801,297 | 25,115,342 | ||||||
Reinvestment of distributions | 6,874,851 | 11,050,110 | ||||||
Cost of shares reacquired | (55,704,547 | ) | (72,162,141 | ) | ||||
Net decrease in net assets resulting from capital share transactions | (15,028,399 | ) | (35,996,689 | ) | ||||
Net increase (decrease) in net assets | 30,148,711 | (90,416,587 | ) | |||||
NET ASSETS: | ||||||||
Beginning of year | $ | 240,971,241 | $ | 331,387,828 | ||||
End of year | $ | 271,119,952 | $ | 240,971,241 |
12 | See Notes to Financial Statements. |
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Per Share Operating Performance: | ||||||||||||||||||||||||||||
Investment Operations: | Distributions to shareholders from: | |||||||||||||||||||||||||||
Net asset value, beginning of period | Net invest- ment income(a) | Net realized and unrealized gain (loss) | Total from invest- ment opera- tions | Net investment income | Net realized gain | Total distri- butions | ||||||||||||||||||||||
12/31/2019 | $ | 19.87 | $0.21 | $ | 4.27 | $ | 4.48 | $ | (0.21 | ) | $(0.40 | ) | $(0.61 | ) | ||||||||||||||
12/31/2018 | 24.51 | 0.15 | (3.83 | ) | (3.68 | ) | (0.17 | ) | (0.79 | ) | (0.96 | ) | ||||||||||||||||
12/31/2017 | 25.52 | 0.14 | 1.58 | 1.72 | (0.16 | ) | (2.57 | ) | (2.73 | ) | ||||||||||||||||||
12/31/2016 | 23.28 | 0.13 | 3.69 | 3.82 | (0.13 | ) | (1.45 | ) | (1.58 | ) | ||||||||||||||||||
12/31/2015 | 26.02 | 0.15 | (1.16 | ) | (1.01 | ) | (0.15 | ) | (1.58 | ) | (1.73 | ) |
(a) | Calculated using average shares outstanding during the period. |
(b) | Total return does not consider the effects of sales charges or other expenses imposed by an insurance company and assumes the reinvestment of all distributions. |
14 | See Notes to Financial Statements. |
Ratios to Average Net Assets: | Supplemental Data: | |||||||||||||||||||||
Net asset value, end of period | Total return(b) (%) | Total expenses (%) | Net investment income (%) | Net assets, end of period (000) | Portfolio turnover rate (%) | |||||||||||||||||
$ | 23.74 | 22.64 | 1.17 | 0.91 | $ | 271,120 | 79 | |||||||||||||||
19.87 | (15.04 | ) | 1.17 | 0.64 | 240,971 | 50 | ||||||||||||||||
24.51 | 6.83 | 1.16 | 0.55 | 331,388 | 70 | |||||||||||||||||
25.52 | 16.39 | 1.17 | 0.52 | 356,563 | 67 | |||||||||||||||||
23.28 | (3.79 | ) | 1.18 | 0.56 | 347,526 | 61 |
See Notes to Financial Statements. | 15 |
1. | ORGANIZATION |
Lord Abbett Series Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified, open-end management investment company and was incorporated under Maryland law in 1989. The Company consists of nine separate portfolios. This report covers Mid Cap Stock Portfolio (the “Fund”).
The Fund’s investment objective is to seek capital appreciation through investments, primarily in equity securities, which are believed to be undervalued in the marketplace. The Fund has Variable Contract class shares (“Class VC Shares”), which are currently issued and redeemed only in connection with investments in, and payments under, variable annuity contracts and variable life insurance policies issued by life insurance and insurance-related companies.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies.
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Investment Valuation–Under procedures approved by the Fund’s Board of Directors (the “Board”), Lord, Abbett & Co. LLC (“Lord Abbett”), the Fund’s investment manager, has formed a Pricing Committee to administer the pricing and valuation of portfolio investments and to ensure that prices utilized reasonably reflect fair value. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value. |
Securities actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to reflect their fair value as of the close of regular trading on the New York Stock Exchange. The Fund may utilize an independent fair valuation service in adjusting the valuations of foreign securities. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices. | |
Securities for which prices are not readily available are valued at fair value as determined by the Pricing Committee. The Pricing Committee considers a number of factors, including observable and unobservable inputs, when arriving at fair value. The Pricing Committee may use related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant information to determine the fair value of portfolio investments. The Board or a designated committee thereof regularly reviews fair value determinations made by the Pricing Committee and may employ techniques such as reviewing related market activity, reviewing inputs and assumptions, and retrospectively comparing prices of subsequent purchases and sales transactions to fair value determinations made by the Pricing Committee. | |
Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates fair value. |
16
Notes to Financial Statements (continued)
(b) | Security Transactions–Security transactions are recorded as of the date that the securities are purchased or sold (trade date). Realized gains and losses on sales of portfolio securities are calculated using the identified-cost method. |
(c) | Investment Income–Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis as earned. Discounts are accreted and premiums are amortized using the effective interest method and are included in Interest on the Statement of Operations. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates. |
(d) | Income Taxes–It is the policy of the Fund to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income and capital gains to its shareholders. Therefore, no income tax provision is required. |
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s filed U.S. federal tax returns remains open for the fiscal years ended December 31, 2016 through December 31, 2019. The statutes of limitations on the Company’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. | |
(e) | Expenses–Expenses incurred by the Company that do not specifically relate to an individual fund are generally allocated to the funds within the Company on a pro rata basis by relative net assets. |
(f) | Foreign Transactions–The books and records of the Fund are maintained in U.S. dollars and transactions denominated in foreign currencies are recorded in the Fund’s records at the rate prevailing when earned or recorded. Asset and liability accounts that are denominated in foreign currencies are adjusted daily to reflect current exchange rates and any unrealized gain (loss), if applicable, is included in Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies in the Fund’s Statement of Operations. The resultant exchange gains and losses upon settlement of such transactions are included in Net realized gain (loss), if applicable, on foreign currency related transactions in the Fund’s Statement of Operations. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in market prices of the securities. |
The Fund use foreign currency exchange contracts to facilitate transactions in foreign denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms. | |
(g) | Repurchase Agreements–The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which a fund acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. The Fund requires at all times that the repurchase agreement be collateralized by cash, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). If the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the fair value of these securities has declined, the Fund may incur a loss upon disposition of the securities. |
17
Notes to Financial Statements (continued)
(h) | Fair Value Measurements–Fair value is defined as the price that the Fund would receive upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk – for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy classification is determined based on the lowest level of inputs that is significant to the fair value measurement, and is summarized in the three broad Levels listed below: |
• | Level 1 – | unadjusted quoted prices in active markets for identical investments; |
• | Level 2 – | other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and |
• | Level 3 – | significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
A summary of inputs used in valuing the Fund’s investments as of December 31, 2019 and, if applicable, Level 3 rollforwards for the fiscal year then ended is included in the Fund’s Schedule of Investments. | |
Changes in valuation techniques may result in transfers into or out of an assigned level within the three-tier hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. |
3. | MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES |
Management Fee
The Company has a management agreement with Lord Abbett, pursuant to which Lord Abbett supplies the Fund with investment management services and executive and other personnel, provides office space and pays for ordinary and necessary office and clerical expenses relating to research and statistical work and supervision of the Fund’s investment portfolio.
Effective May 1, 2019, the management fee is based on the Fund’s average daily net assets at the following annual rate:
First $200 million | .75% |
Next $300 million | .65% |
Over $500 million | .50% |
Prior to May 1, 2019, the management fee was based on the Fund’s average daily net assets at the following annual rate:
First $1 billion | .75% |
Next $1 billion | .70% |
Over $2 billion | .65% |
18
Notes to Financial Statements (continued)
For the fiscal year ended December 31, 2019, the effective management fee was at an annualized rate of .73% of the Fund’s average daily net assets.
In addition, Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement in return for a fee at an annual rate of .04% of the Fund’s average daily net assets.
The Company, on behalf of the Fund, has entered into services arrangements with certain insurance companies. Under these arrangements, certain insurance companies will be compensated up to ..25% of the average daily NAV of the Fund’s Class VC Shares held in the insurance company’s separate account to service and maintain the Variable Contract owners’ accounts. This amount is included in Non 12b-1 service fees on the Statement of Operations. The Fund may also compensate certain insurance companies, third-party administrators and other entities for providing recordkeeping, sub-transfer agency and other administrative services to the Fund. This amount is included in Shareholder servicing on the Statement of Operations.
One Director and certain of the Company’s officers have an interest in Lord Abbett.
4. | DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS |
Dividends from net investment income, if any, are declared and paid at least semi-annually. Taxable net realized gains from investment transactions, reduced by allowable capital loss carryforwards, if any, are declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, is available to offset future net capital gains. Dividends and distributions to shareholders are recorded on the ex-dividend date. The amounts of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions that exceed earnings and profits for tax purposes are reported as a tax return of capital.
The tax character of distributions paid during the fiscal years ended December 31, 2019 and December 31, 2018 was as follows:
Year Ended 12/31/2019 | Year Ended 12/31/2018 | |||||||||
Distributions paid from: | ||||||||||
Ordinary income | $ | 2,394,211 | $ | 1,912,376 | ||||||
Net long-term capital gains | 4,480,640 | 9,137,734 | ||||||||
Total distributions paid | $ | 6,874,851 | $ | 11,050,110 |
As of December 31, 2019, the components of accumulated gains (losses) on a tax-basis were as follows:
Undistributed ordinary income – net | $ | 21,137 | ||
Total undistributed earnings | 21,137 | |||
Temporary differences | (155,257 | ) | ||
Unrealized gains – net | 25,529,292 | |||
Total accumulated gains – net | $ | 25,395,172 |
19
Notes to Financial Statements (continued)
At the Fund’s election, certain losses incurred within the taxable year (Qualified Late-Year Losses) are deemed to arise on the first business day of the Fund’s next taxable year. The Fund incurred and will elect to defer post-October capital losses of $83,239 during fiscal year 2019.
As of December 31, 2019, the aggregate unrealized security gains and losses on investments and other financial instruments, if any, based on cost for U.S. federal income tax purposes were as follows:
Tax cost | $ | 245,909,381 | ||
Gross unrealized gain | 29,755,390 | |||
Gross unrealized loss | (4,226,098 | ) | ||
Net unrealized security gain | $ | 25,529,292 |
The difference between book-basis and tax-basis unrealized gains (losses) is attributable to the tax treatment of wash sales.
5. | PORTFOLIO SECURITIES TRANSACTIONS |
Purchases and sales of investment securities (excluding short-term investments) for the fiscal year ended December 31, 2019 were as follows:
Purchases | Sales | |
$206,137,339 | $221,975,437 |
There were no purchases or sales of U.S. Government securities for the fiscal year ended December 31, 2019.
The Fund is permitted to purchase and sell securities (“cross-trade”) from and to other Lord Abbett funds or client accounts pursuant to procedures approved by the Board in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at a fair market price in compliance with provisions of the Rule. For the fiscal year ended December 31, 2019, the Fund engaged in cross-trades purchases of $586,387, and sales of $153,196, which resulted in net realized gains of $47,882.
6. | DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES |
The Financial Accounting Standards Board (“FASB”) requires disclosures intended to help better assess the effect or potential effect of offsetting arrangements on a fund’s financial position. The following tables illustrate gross and net information about recognized assets and liabilities eligible for offset in the Statement of Assets and Liabilities; and disclose such amounts subject to an enforceable master netting agreement or similar agreement, by counterparty. A master netting agreement is an agreement between a fund and a counterparty which provides for the net settlement of amounts owed under all contracts traded under that agreement, as well as cash collateral, through a single payment by one party to the other in the event of default on or termination of any one contract. The Fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the master netting agreement does not result in an offset of reported amounts of financial assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty:
20
Notes to Financial Statements (continued)
Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Assets Presented in the Statement of Assets and Liabilities | |||||||||
Repurchase Agreement | $ | 1,356,741 | $ | – | $ | 1,356,741 | ||||||
Total | $ | 1,356,741 | $ | – | $ | 1,356,741 |
Net Amounts of Assets Presented in | Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Received(a) | Securities Collateral Received(a) | Net Amount(b) | |||||||||||||||
Fixed Income Clearing Corp. | $ | 1,356,741 | $ | – | $ | – | $ | (1,356,741 | ) | $ | – | |||||||||
Total | $ | 1,356,741 | $ | – | $ | – | $ | (1,356,741 | ) | $ | – |
(a) | Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets (liabilities) presented in the Statement of Assets and Liabilities, for each respective counterparty. |
(b) | Net amount represents the amount owed to the Fund by the counterparty as of December 31, 2019. |
7. | DIRECTORS’ REMUNERATION |
The Company’s officers and one Director, who are associated with Lord Abbett, do not receive any compensation from the Company for serving in such capacities. Independent Directors’ fees are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all Independent Directors under which Independent Directors must defer receipt of a portion of, and may elect to defer receipt of an additional portion of Directors’ fees. The deferred amounts are treated as though equivalent dollar amounts had been invested in the funds. Such amounts and earnings accrued thereon are included in Directors’ fees on the Statement of Operations and in Directors’ fees payable on the Statement of Assets and Liabilities and are not deductible for U.S. federal income tax purposes until such amounts are paid.
8. | EXPENSE REDUCTIONS |
The Company has entered into an arrangement with its transfer agent and custodian, whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s expenses.
9. | LINE OF CREDIT |
For the period ended August 7, 2019, the Fund and certain other funds managed by Lord Abbett (collectively, the “Participating Funds”) entered into a Syndicated Facility with various lenders for $1.1 billion whereas State Street Bank and Trust Company (“SSB”) participated as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if Fund net assets are less than $750 million), $250 million, $300 million, $350 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
Effective August 8, 2019, the Participating Funds entered into a Syndicated Facility with various lenders for $1.17 billion whereas SSB participates as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, $500 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
21
Notes to Financial Statements (continued)
For the period ended August 7, 2019, the Participating Funds entered into an additional line of credit facility with SSB for $250 million (the “Bilateral Facility” and together with the Syndicated Facility, the “Facilities”). Under the Bilateral Facility, each Participating Fund may borrow up to the lesser of $250 million or one-third of Fund net assets.
Effective August 8, 2019, the Participating Funds entered into a Bilateral Facility with SSB for $330 million ($250 million committed and $80 million uncommitted). Under the Bilateral Facility, the Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, or $330 million, based on past borrowings and likelihood of future borrowings, among other factors.
The Facilities are to be used for temporary or emergency purposes as an additional source of liquidity to satisfy redemptions.
For the fiscal year ended December 31, 2019, the Fund did not utilize the Facilities.
10. | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission (“SEC exemptive order”), certain registered open-end management investment companies managed by Lord Abbett, including the Fund, participate in a joint lending and borrowing program (the “Interfund Lending Program”). The SEC exemptive order allows the Funds to borrow money from and lend money to each other for temporary or emergency purposes subject to the limitations and conditions.
For the fiscal year ended December 31, 2019, the Fund did not participate as a borrower or lender in the Interfund Lending Program.
11. | CUSTODIAN AND ACCOUNTING AGENT |
SSB is the Company’s custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund’s NAV.
12. | SECURITIES LENDING AGREEMENT |
The Fund has established a securities lending agreement with Citibank, N.A. for the lending of securities to qualified brokers in exchange for securities or cash collateral equal to at least the market value of securities loaned, plus interest, if applicable. Cash collateral is invested in an approved money market fund. In accordance with the Fund’s securities lending agreement, the market value of securities on loan is determined each day at the close of business and any additional collateral required to cover the value of securities on loan is delivered to the Fund on the next business day. As with other extensions of credit, the Fund may experience a delay in the recovery of their securities or incur a loss should the borrower of the securities breach its agreement with the Fund or become insolvent at a time when the collateral is insufficient to cover the cost of repurchasing securities on loan. Any income earned from lending securities will be noted on the Statement of Operations.
For the fiscal year ended December 31, 2019, the Fund did not loan any securities.
13. | INVESTMENT RISKS |
The Fund is subject to the general risks and considerations associated with equity investing, as well as the particular risks associated with value and mid-sized company stocks. The value of an investment will fluctuate in response to movements in the equity securities market in general and
22
Notes to Financial Statements (concluded)
to the changing prospects of individual companies in which the Fund invests. The market may fail to recognize for a long time the intrinsic value of particular value stocks the Fund may hold. Value investing also is subject to the risk that a company judged to be undervalued may actually be appropriately priced or even overpriced. The mid-sized company stocks in which the Fund invests may be less able to weather economic shifts or other adverse developments than those of larger, more established companies. Although investing in mid-sized companies offers the potential for above average returns, these companies may not succeed and the value of their stock could decline significantly. Mid-sized companies also may fall out of favor relative to larger companies in certain market cycles, causing the Fund to incur losses or under perform. In addition, if the Fund’s assessment of a company’s value or prospects for exceeding earnings expectations or market conditions is wrong, the Fund could suffer losses or produce poor performance relative to other funds, even in a rising market.
Due to the Fund’s investment exposure to foreign companies and American Depositary Receipts, the Fund may experience increased market, industry and sector liquidity, currency, political, information, and other risks. The securities of foreign companies also may be subject to inadequate exchange control regulations, the imposition of economic sanctions or other government restrictions, higher transaction and other costs, and delays in settlement to the extent they are traded on non-U.S. exchanges or markets.
These factors can affect the Fund’s performance
14. | SUMMARY OF CAPITAL TRANSACTIONS |
Transactions in shares of capital stock were as follows:
Year Ended December 31, 2019 | Year Ended December 31, 2018 | |||||||
Shares sold | 1,487,614 | 1,051,803 | ||||||
Reinvestment of distributions | 289,623 | 561,489 | ||||||
Shares reacquired | (2,487,867 | ) | (3,005,419 | ) | ||||
Decrease | (710,630 | ) | (1,392,127 | ) |
23
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Lord Abbett Series Fund, Inc.
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Mid Cap Stock Portfolio, one of the funds constituting Lord Abbett Series Fund, Inc. (the “Fund”), as of December 31, 2019, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Mid Cap Stock Portfolio of the Fund as of December 31, 2019, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
New York, New York
February 14, 2020
We have served as the auditor of one or more Lord Abbett Family of Funds’ investment companies since 1932.
24
Supplemental Proxy Information (unaudited)
A joint special meeting of shareholders of the Fund was held on August 26, 2019. The joint special meeting was held for the purpose of electing members of the Fund’s Board of Directors. Shareholders elected the following ten (10) Directors at the joint special meeting:
• | Eric C. Fast |
• | Evelyn E. Guernsey |
• | Julie A. Hill |
• | Kathleen M. Lutito |
• | James M. McTaggart |
• | Charles O. Prince |
• | Karla M. Rabusch |
• | Mark A. Schmid |
• | Douglas B. Sieg |
• | James L.L. Tullis |
The results of the proxy solicitation on the preceding matter were as follows:
Lord Abbett Series Fund, Inc.
Nominee Votes | Votes For | Votes Withheld |
Eric C. Fast | 186,329,820.614 | 7,776,255.685 |
Evelyn E. Guernsey | 186,718,826.419 | 7,387,249.880 |
Julie A. Hill | 186,486,240.620 | 7,619,835.679 |
Kathleen M. Lutito | 187,082,042.409 | 7,024,033.890 |
James M. McTaggart | 186,269,131.867 | 7,836,944.422 |
Charles O. Prince | 186,103,251.100 | 8,002,825.199 |
Karla M. Rabusch | 186,796,719.683 | 7,309,356.626 |
Mark A. Schmid | 186,825,573.395 | 7,280,502.894 |
Douglas B. Sieg | 186,702,410.889 | 7,403,665.410 |
James L.L. Tullis | 186,229,277.817 | 7,876,798.472 |
25
Basic Information About Management
The Board is responsible for the management of the business and affairs of the Company in accordance with the laws of the State of Maryland. The Board elects officers who are responsible for the day-to-day operations of the Fund and who execute policies authorized by the Board. The Board also approves an investment adviser to the Fund and continues to monitor the cost and quality of the services the investment adviser provides, and annually considers whether to renew the contract with the investment adviser. Generally, each Director holds office until his/her successor is elected and qualified or until his/her earlier resignation or removal, as provided in the Company’s organizational documents.
Lord Abbett, a Delaware limited liability company, is the Fund’s investment adviser. Designated Lord Abbett personnel are responsible for the day-to-day management of the Fund.
Interested Directors
Mr. Sieg is affiliated with Lord Abbett and is an “interested person” of the Company as defined in the Act. Mr. Sieg is director/trustee of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios. Mr. Sieg is an officer of the Lord Abbett Family of Funds.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Douglas B. Sieg Lord, Abbett & Co. LLC 90 Hudson Street Jersey City, NJ 07302 (1969) | Director since 2016; President and Chief Executive Officer since 2018 | Principal Occupation: Managing Partner (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. Other Directorships: None. |
Independent Directors
The following Independent Directors also are directors/trustees of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Evelyn E. Guernsey Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1955) | Director since 2011 | Principal Occupation: None. Other Directorships: None. | ||
Julie A. Hill Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1946) | Director since 2004 | Principal Occupation: Owner and CEO of The Hill Company, a business consulting firm (since 1998). Other Directorships: Currently serves as director of Anthem, Inc., a health benefits company (since 1994). | ||
Kathleen M. Lutito Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1963) | Director since 2017 | Principal Occupation: President and Chief Investment Officer of CenturyLink Investment Management Company (since 2006). Other Directorships: None. |
26
Basic Information About Management (continued)
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
James M. McTaggart Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2012 | Principal Occupation: Independent management advisor and consultant (since 2012). Other Directorships: Blyth, Inc., a home products company (2004–2015). | ||
Charles O. Prince Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1950) | Director since 2019 | Principal Occupation: None. Formerly Chairman and Chief Executive Officer, Citigroup, Inc. Other Directorships: Currently serves as director of Johnson & Johnson (2006–Present). Previously served as director of Xerox Corporation (2008–2018). | ||
Karla M. Rabusch Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2017 | Principal Occupation: President and Director of Wells Fargo Funds Management, LLC (2003–2017); President of Wells Fargo Funds (2003–2016). Other Directorships:None. | ||
Mark A. Schmid Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2016 | Principal Occupation: Vice President and Chief Investment Officer of the University of Chicago (since 2009). Other Directorships: None. | ||
James L.L. Tullis Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2006; Chairman since 2017 | Principal Occupation: Chairman of Tullis Health Investors - FL LLC (since 2018); CEO of Tullis–Dickerson and Co. Inc., a venture capital management firm (1990–2016). Other Directorships: Currently serves as director of Crane Co. (since 1998), Alphatec Spine, Inc. (since 2018), and electroCore, Inc. (since 2018). |
Officers
None of the officers listed below have received compensation from the Company. All of the officers of the Company also may be officers of the other Lord Abbett Funds and maintain offices at 90 Hudson Street, Jersey City, NJ 07302. Unless otherwise indicated, the position(s) and title(s) listed under the “Principal Occupation During the Past Five Years” column indicate each officer’s position(s) and title(s) with Lord Abbett. Each officer serves for an indefinite term (i.e., until his or her death, resignation, retirement, or removal).
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Douglas B. Sieg (1969) | President and Chief Executive Officer | Elected as President and Chief Executive Officer in 2018 | Managing Partner of Lord Abbett (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. |
27
Basic Information About Management (concluded)
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Jackson C. Chan (1964) | AML Compliance Officer | Elected in 2018 | Deputy Chief Compliance Officer and Director of Regulatory Affairs, joined Lord Abbett in 2014. | |||
Pamela P. Chen (1978) | Vice President, Assistant Secretary and Privacy Officer | Elected as Vice President and Assistant Secretary in 2018 and Privacy Officer in 2019 | Associate General Counsel, joined Lord Abbett in 2017 and was formerly Special Counsel at Schulte, Roth & Zabel LLP (2005–2017). | |||
John T. Fitzgerald (1975) | Vice President and Assistant Secretary | Elected in 2018 | Deputy General Counsel, joined Lord Abbett in 2018 and was formerly Deputy Head of U.S. Funds Legal, Executive Director and Assistant General Counsel at JPMorgan Chase (2005-2018). | |||
Vito A. Fronda (1969) | Treasurer | Elected in 2018 | Partner and Director of Fund Treasury and Tax, joined Lord Abbett in 2003. | |||
Bernard J. Grzelak (1971) | Chief Financial Officer and Vice President | Elected in 2017 | Partner and Chief Operating Officer, Global Funds and Risk, joined Lord Abbett in 2003. | |||
Linda Y. Kim (1980) | Vice President and Assistant Secretary | Elected in 2016 | Counsel, joined Lord Abbett in 2015. | |||
Joseph M. McGill (1962) | Chief Compliance Officer | Elected in 2014 | Partner and Chief Compliance Officer, joined Lord Abbett in 2014. | |||
Amanda S. Ryan (1978) | Vice President and Assistant Secretary | Elected in 2018 | Counsel, joined Lord Abbett in 2016 and was formerly a Director and Corporate Counsel at PGIM Investments (2012–2016). | |||
Lawrence B. Stoller (1963) | Vice President, Secretary and Chief Legal Officer | Elected as Vice President and Secretary in 2007 and Chief Legal Officer in 2019 | Partner and General Counsel, joined Lord Abbett in 2007. |
Please call 888-522-2388 for a copy of the statement of additional information, which contains further information about the Company’s Directors. It is available free upon request.
28
Approval of Advisory Contract
The Board, including all of the Directors who are not “interested persons” of the Company or of Lord Abbett, as defined in the Investment Company Act of 1940, as amended (the “Independent Directors”), annually considers whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett (the “Agreement”). In connection with its most recent approval, the Board reviewed materials relating specifically to the Agreement, as well as numerous materials received throughout the course of the year, including information about the Fund’s investment performance compared to the performance of its benchmarks. Before making its decision as to the Fund, the Board had the opportunity to ask questions and request further information, taking into account its knowledge of Lord Abbett gained through its meetings and discussions. These meetings and discussions included reviews of Fund performance conducted by members of the Contract Committee, the deliberations of the Contract Committee, and discussions between the Contract Committee and Lord Abbett’s management. The Independent Directors also met with their independent legal counsel in various private sessions at which no representatives of management were present.
The materials received by the Board included, but were not limited to: (1) information provided by Broadridge Financial Solutions (“Broadridge”) regarding the investment performance of the Fund compared to the investment performance of certain funds with similar investment styles as determined by Broadridge, based, in part, on the Fund’s Morningstar category (the “performance peer group”), and the investment performance of two appropriate benchmarks; (2) information provided by Broadridge regarding the expense ratios, contractual and actual management fee rates, and other expense components for the Fund and certain funds in the same Morningstar category, with generally the same or similar share classes and operational characteristics, including asset size (the “expense peer group”); (3) certain supplemental investment performance information provided by Lord Abbett; (4) information provided by Lord Abbett on the expense ratios, management fee rates, and other expense components for the Fund; (5) sales and redemption information for the Fund; (6) information regarding Lord Abbett’s financial condition; (7) an analysis of the relative profitability of the Agreement to Lord Abbett; and (8) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
Investment Management and Related Services Generally.The Board considered the services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading, and Lord Abbett’s commitment to compliance with all applicable legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest that may result from being engaged in other lines of business. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to the Fund and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other. After reviewing these and related factors, the Board concluded that the Fund was likely to continue to benefit from the nature, extent and quality of the investment services provided by Lord Abbett under the Agreement.
Investment Performance.The Board reviewed the Fund’s investment performance in relation to that of the performance peer group and two appropriate benchmarks as of various periods ended June 30, 2019. The Board observed that the Fund’s investment performance was below the median of the performance peer group for the one-, three-, five-, and ten-year periods and took into account actions taken by Lord Abbett to attempt to improve equity fund performance. The Board further considered Lord Abbett’s performance and reputation generally, the performance of other
29
Approval of Advisory Contract (continued)
Lord Abbett-managed funds overseen by the Board, and the willingness of Lord Abbett to take steps intended to improve performance when appropriate. After reviewing these and related factors, the Board concluded that the Fund’s Agreement should be continued.
Lord Abbett’s Personnel and Methods.The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of its investment objective and discipline, and other services provided to the Fund by Lord Abbett. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining personnel.
Nature and Quality of Other Services.The Board considered the nature, quality, and extent of compliance, administrative, and other services performed by Lord Abbett and the nature and extent of Lord Abbett’s supervision of third party service providers, including the Fund’s transfer agent and custodian.
Expenses.The Board considered the expense level of the Fund, including the contractual and actual management fee rates, and the expense levels of the Fund’s expense peer group. It also considered how the expense level of the Fund related to those of the expense peer group and the amount and nature of the fees paid by shareholders. The Board observed that although the Fund’s net total expense ratio was above the median of the expense peer group, the Fund’s advisory fee rate was below the median of the expense peer group. The Board further considered that the Fund’s management fee was reduced, effective May 1, 2019. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that the management fees paid by, and expense level of, the Fund were reasonable in light of all of the factors it considered and supported the continuation of the Agreement.
Profitability.The Board considered the level of Lord Abbett’s operating margin in managing the Fund, including a review of Lord Abbett’s methodology for allocating its costs to its management of the Fund. It considered whether the Fund was profitable to Lord Abbett in connection with the Fund’s operation, including the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the profits realized from other business segments of Lord Abbett, which may benefit from or be related to the Fund’s business. The Board considered Lord Abbett’s profit margins excluding Lord Abbett’s marketing and distribution expenses. The Board also considered Lord Abbett’s profit margins, without those exclusions, in comparison with available industry data and how those profit margins could affect Lord Abbett’s ability to recruit and retain personnel. The Board recognized that Lord Abbett’s overall profitability was a factor in enabling it to attract and retain qualified personnel to provide services to the Fund. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that Lord Abbett’s profitability with respect to the Fund was not excessive.
Economies of Scale.The Board considered the extent to which there had been economies of scale in managing the Fund, whether the Fund’s shareholders had appropriately benefited from such economies of scale, and whether there was potential for realization of any further economies of scale. The Board concluded that the existing management fee schedule, with its breakpoints in the level of the management fee, adequately addressed any economies of scale in managing the Fund.
Other Benefits to Lord Abbett.The Board considered the amount and nature of the fees paid by the Fund and the Fund’s shareholders to Lord Abbett for services other than investment advisory services, such as the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the revenues and profitability of Lord Abbett’s
30
Approval of Advisory Contract (concluded)
investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that the Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees it receives, and receives a portion of the sales charges on sales and redemptions of some classes of shares of the Lord Abbett Funds. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectus of the Fund, has entered into revenue sharing arrangements with certain entities that distribute shares of the Lord Abbett Funds. The Board also took into consideration the investment research that Lord Abbett receives as a result of client brokerage transactions.
Alternative Arrangements.The Board considered whether, instead of approving continuation of the Agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms. After considering all of the relevant factors, the Board unanimously found that continuation of the Agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve the continuation of the Agreement. In considering whether to approve the continuation of the Agreement, the Board did not identify any single factor as paramount or controlling. Individual Directors may have evaluated the information presented differently from one another, giving different weights to various factors. This summary does not discuss in detail all matters considered.
31
Householding
The Company has adopted a policy that allows it to send only one copy of the Fund’s prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same “household.” This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.
Proxy Voting Policies, Procedures and Records
A description of the policies and procedures that Lord Abbett uses to vote proxies related to the Fund’s portfolio securities, and information on how Lord Abbett voted the Fund’s proxies during the 12-month period ended December 31 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett’s Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission’s (“SEC”) Website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters as an attachment to Form N-PORT. Copies of the filings are available without charge, upon request on the SEC’s Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388.
Tax Information
For corporate shareholders, 100% of the Fund’s ordinary income distributions qualified for the dividends received deduction.
Additionally, of the distributions paid to the shareholders during the fiscal year ended December 31, 2019, $4,480,640 represent long-term capital gains.
32
This report, when not used for the general information of shareholders of the Fund, is to be distributed only if preceded or accompanied by a current fund prospectus. | |||
Lord Abbett mutual fund shares are distributed by LORD ABBETT DISTRIBUTOR LLC. | Lord Abbett Series Fund, Inc.
Mid Cap Stock Portfolio | LASFMCV-3 (02/20) |
LORD ABBETT
ANNUAL REPORT
Lord Abbett
Series Fund—Short Duration Income Portfolio
For the fiscal year ended December 31, 2019
Table of Contents
Lord Abbett Series Fund – Short Duration Income Portfolio Annual Report
For the fiscal year ended December 31, 2019
From left to right: James L.L. Tullis, Independent Chairman of the Lord Abbett Funds and Douglas B. Sieg, Director, President, and Chief Executive Officer of the Lord Abbett Funds.
Dear Shareholders:We are pleased to provide you with this overview of the performance of Lord Abbett Series Fund – Short Duration Income Portfolio for the fiscal year ended December 31, 2019. On this page and the following pages, we discuss the major factors that influenced fiscal year performance. For additional information about the Fund, please visit our website at www.lordabbett.com, where you also can access quarterly commentaries that provide updates on the Fund’s performance and other portfolio related updates.
Thank you for investing in Lord Abbett mutual funds. We value the trust that you place in us and look forward to serving your investment needs in the years to come.
Best regards,
Douglas B. Sieg
Director, President, and Chief Executive Officer
For the fiscal year ended December 31, 2019, the Fund returned 5.06%, reflecting performance at the net asset value (NAV) of Class VC shares with all distributions reinvested, compared to its benchmark, the ICE BofA Merrill Lynch 1-3 Year U.S. Corporate Credit Index,1which returned 5.43%.
The trailing 12-month period was characterized by several market-moving events. Following a tumultuous fourth quarter of 2018, where trade tensions and monetary policy uncertainty sent many
investors toward safety, the market staged a strong recovery. After the worst December since 1931, the S&P 500® Index2posted its best January performance since 1987. Trade tensions continued to dominate headlines, as trade negotiations between the U.S. and China remained volatile throughout the period. One of the more notable shifts over the year was the U.S. Federal Reserve’s (the “Fed”) transition to a more dovish policy stance, with Chairman Jerome Powell stating that the Fed would act appropriately to sustain economic growth.
1
Given the uncertain market outlook and the muted inflation pressure, the Fed announced its decision to cut interest rates by 25 basis points on July 31, 2019 to a range of 2.00-2.25%. This was the first time that the Fed had cut interest rates since December 2008. The Fed followed that decision with two more 25 basis point rate cuts in September and October, citing “implications of global developments for the economic outlook as well as muted inflation pressures”. Chairman Powell signaled a likely pause on future rate cuts, resulting in the market-based probability of a fourth rate cut dipping below 25%. The combination of a dovish Fed, trade pressures, and slowing economic growth resulted in falling rates across the U.S. Treasury yield curve and further increased the partial curve inversion (Lord Abbett Opinion). In fact, the yield on the 10-year U.S. Treasury fell below 1.5% in September to its lowest level since 2016. In August, spreads between the U.S. 10-year Treasury and the 2-year Treasury inverted for the first time in over a decade. After several months of concern, the yield curve steepened in November following a sharp shift in sentiment, with all maturities moving out of inversion territory.
Geopolitics also contributed to market volatility. Following a coordinated drone strike on Saudi Arabia in the third quarter, Brent crude oil prices increased 20% in one trading session. Despite the record increase, oil prices retracted their gains within weeks. Investor sentiment was buoyed in November as the market grew
optimistic about the possibility of a “Phase One” trade deal between the U.S. and China, which was ultimately reached in December. The agreement included structural reforms to China’s trade regime in areas such as intellectual property and agriculture, as well as a commitment from China to make additional purchases of U.S. goods and services moving forward. In return, the U.S. would not proceed with tariffs that were scheduled to go into effect in December on nearly $160 billion worth of Chinese goods and would cut the tariff rate imposed on September 1, 2019 on $120 billion worth of Chinese goods from 15% to 7.5%.
Despite bouts of volatility, risk assets generally rallied during the trailing 12-months ended December 31, 2019, primarily due to the dovish comments from central banks around the globe, culminating in the longest U.S. economic expansion on record. The U.S. equity market produced strong returns, with the S&P 500® Index2returning 31.49% over the period. Credit sectors also performed exceptionally well, with investment grade bonds benefiting from a sizeable decline in spreads along with a sharp downward shift in the yield curve. High yield bonds also produced positive returns with significant spread compression. High yield performance was characterized by a sharp up-in-quality bias, as the “CCC” segment underperformed. The energy sector dragged on high yield performance, which we believe was largely due to idiosyncratic issues within select industries.
2
Consistent with the Fund’s strategic design, the Fund maintained exposure to a variety of bond market sectors beyond the investment grade corporate bonds represented in the benchmark. This design provides portfolio diversification and allows for the flexibility to pursue relative value opportunities across sectors. In our view, these sector weightings were important factors affecting performance during the period.
The Fund’s allocation to high quality commercial mortgage-backed securities (“CMBS”) contributed to relative performance. On a risk-adjusted basis, CMBS exhibited resilient performance during periods of market volatility in the 12-months ended December 31, 2019. Additionally, CMBS delinquency rates remained benign and the low interest rate and competitive lending environment provided a tailwind for CMBS performance. While high yield corporate bonds experienced some volatility during the year due to U.S.-China trade tensions, mixed messaging from the Fed, and the inverted
yield curve, high yield credit spreads notably compressed, which also aided the Fund’s relative performance during the period.
The Fund’s duration positioning within its investment grade corporate bond allocation weighed on relative performance. In the second half of the period, we reduced the Fund’s corporate duration positioning, maintaining a slightly shorter duration relative to the benchmark. This created a drag on relative performance, given the significant rally in rates at the end of the second quarter and in the third quarter of 2019. Additionally, the Fund’s minor allocation to Argentinian sovereign securities detracted from relative performance, as Argentinian sovereign bonds sold-off in August following the unexpected defeat of President Mauricio Macri by Albert Fernandez during Argentina’s primary vote.
The Fund’s portfolio is actively managed and, therefore, its holdings and the weightings of a particular issuer or particular sector as a percentage of portfolio assets are subject to change. Sectors may include many industries.
1 The ICE BofA Merrill Lynch 1-3 Year U.S. Corporate Credit Index is an unmanaged index comprised of U.S. dollar-denominated investment grade corporate debt securities publicly issued in the U.S. domestic market with between one and three years remaining to final maturity.
2 The S&P 500®Index is widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries.
Unless otherwise specified, indexes reflect total return, with all dividends reinvested. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Important Performance and Other Information
Performance data quoted in the following pages reflect past performance and are no guarantee of future results. Current performance may be higher or lower than the performance quoted. The investment return and principal value of an investment in the Funds will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. You can obtain performance data current to the most recent month end by calling Lord Abbett at 888-522-2388 or referring to www.lordabbett.com.
During certain periods shown, expense waivers and reimbursements were in place. Without such expense
3
waivers and reimbursements, the Fund’s returns would have been lower.
The annual commentary above discusses the views of the Fund’s management and various portfolio holdings of the Fund as of December 31, 2019. These views and portfolio holdings may have changed after this date. Information provided in the commentary is not a recommendation to buy or sell securities. Because the Fund’s portfolio is actively managed and may change significantly, the Fund may no longer own the securities described above or may have otherwise changed its position in the securities. For more recent information about the Fund’s portfolio holdings, please visit www.lordabbett.com.
A Note about Risk:See Notes to Financial Statements for a discussion of investment risks. For a more detailed discussion of the risks associated with the Fund, please see the Fund’s prospectus.
Mutual funds are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, banks, and are subject to investment risks including possible loss of principal amount invested.
The Fund serves as an underlying investment vehicle for variable annuity contracts and variable life insurance policies.
4
Below is a comparison of a $10,000 investment in Class VC shares with the same investment in the ICE BofA Merrill Lynch 1-3 Year U.S. Corporate® Index, assuming reinvestment of all dividends and distributions. The Fund’s shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. This line graph comparison does not reflect the sales charges or other expenses of these contracts. If those sales charges and expenses were reflected, returns would be lower. The graph and performance table below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. During the period, expenses of the Fund were waived or reimbursed by Lord Abbett; without such waiver or reimbursement of expenses, the Fund’s returns would have been lower.Past performance is no guarantee of future results.
Average Annual Total Returns for the
Periods Ended December 31, 2019
1 Year | 5 Year | Life of Class | |||||
Class VC2 | 5.06% | 2.48% | 2.20% |
1 Performance for the unmanaged index does not reflect any fees or expenses. The performance of the index is not necessarily representative of the Fund’s performance. Performance for the index began on April 14, 2014.
2 The Class VC shares commenced operations on April 4, 2014. Performance for the Class began on April 14, 2014.
5
As a shareholder of the Fund, you incur ongoing costs, including management fees; expenses related to the Fund’s services arrangements with certain insurance companies; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2019 through December 31, 2019).
The Example reflects only expenses that are deducted from the assets of the Fund. Fees and expenses, including sales charges applicable to the various insurance products that invest in the Fund, are not reflected in this Example. If such fees and expenses were reflected in the Example, the total expenses shown would be higher. Fees and expenses regarding such variable insurance products are separately described in the prospectus related to those products.
Actual Expenses
The first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled “Expenses Paid During Period 7/1/19 – 12/31/19” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
6
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value | Ending Account Value | Expenses Paid During Period† | |||||
7/1/19 | 12/31/19 | 7/1/19 - 12/31/19 | |||||
Class VC | |||||||
Actual | $1,000.00 | $1,014.50 | $4.57 | ||||
Hypothetical (5% Return Before Expenses) | $1,000.00 | $1,020.67 | $4.58 |
† | Net expenses are equal to the Fund’s annualized expense ratio of 0.90%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect one-half year period). |
Portfolio Holdings Presented by Sector
December 31, 2019
Sector* | %** | |
Auto | 2.39 | % |
Basic Industry | 0.37 | % |
Capital Goods | 0.90 | % |
Consumer Cyclical | 1.82 | % |
Consumer Discretionary | 0.97 | % |
Consumer Services | 0.87 | % |
Consumer Staples | 1.29 | % |
Energy | 8.36 | % |
Financial Services | 58.38 | % |
Foreign Government | 0.63 | % |
Health Care | 3.31 | % |
Integrated Oils | 0.40 | % |
Materials & Processing | 3.45 | % |
Municipal | 0.14 | % |
Other | 0.01 | % |
Producer Durables | 1.78 | % |
Technology | 3.11 | % |
Telecommunications | 0.54 | % |
Transportation | 0.97 | % |
U.S. Government | 2.49 | % |
Utilities | 3.65 | % |
Repurchase Agreement | 4.17 | % |
Total | 100.00 | % |
* | A sector may comprise several industries. | |
** | Represents percent of total investments. |
7
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
LONG-TERM INVESTMENTS 92.83% | ||||||||||||
ASSET-BACKED SECURITIES 23.64% | ||||||||||||
Automobiles 7.70% | ||||||||||||
ACC Trust 2018-1 A† | 3.70% | 12/21/2020 | $ | 3 | $ | 3,237 | ||||||
AmeriCredit Automobile Receivables Trust 2016-1 D | 3.59% | 2/8/2022 | 56 | 56,466 | ||||||||
AmeriCredit Automobile Receivables Trust 2016-3 B | 1.80% | 10/8/2021 | 9 | 8,861 | ||||||||
AmeriCredit Automobile Receivables Trust 2017-2 B | 2.40% | 5/18/2022 | 43 | 43,065 | ||||||||
AmeriCredit Automobile Receivables Trust 2017-2 C | 2.97% | 3/20/2023 | 64 | 64,650 | ||||||||
AmeriCredit Automobile Receivables Trust 2017-3 B | 2.24% | 6/19/2023 | 29 | 29,047 | ||||||||
AmeriCredit Automobile Receivables Trust 2017-4 A3 | 2.04% | 7/18/2022 | 58 | 58,410 | ||||||||
AmeriCredit Automobile Receivables Trust 2017-4 B | 2.36% | 12/19/2022 | 42 | 42,105 | ||||||||
Bank of The West Auto Trust 2017-1 A3† | 2.11% | 1/15/2023 | 75 | 75,025 | ||||||||
Bank of The West Auto Trust 2017-1 A4† | 2.33% | 9/15/2023 | 100 | 99,948 | ||||||||
California Republic Auto Receivables Trust 2015-3 A4 | 2.13% | 5/17/2021 | — | (a) | 726 | |||||||
California Republic Auto Receivables Trust 2015-4 A4† | 2.58% | 6/15/2021 | 17 | 17,461 | ||||||||
California Republic Auto Receivables Trust 2015-4 B† | 3.73% | 11/15/2021 | 12 | 12,036 | ||||||||
California Republic Auto Receivables Trust 2016-1 A4 | 2.24% | 10/15/2021 | 13 | 12,954 | ||||||||
California Republic Auto Receivables Trust 2016-2 A4 | 1.83% | 12/15/2021 | 5 | 4,624 | ||||||||
California Republic Auto Receivables Trust 2018-1 A3 | 3.14% | 8/15/2022 | 90 | 90,223 | ||||||||
Capital Auto Receivables Asset Trust 2016-2 B | 2.11% | 3/22/2021 | — | (a) | 718 | |||||||
Capital Auto Receivables Asset Trust 2017-1 A3† | 2.02% | 8/20/2021 | 8 | 7,987 | ||||||||
Capital Auto Receivables Asset Trust 2017-1 A4† | 2.22% | 3/21/2022 | 17 | 17,018 | ||||||||
Capital Auto Receivables Asset Trust 2018-2 A2† | 3.02% | 2/22/2021 | 56 | 55,724 | ||||||||
Capital Auto Receivables Asset Trust 2018-2 A3† | 3.27% | 6/20/2023 | 80 | 80,607 | ||||||||
CarMax Auto Owner Trust 2016-3 A3 | 1.39% | 5/17/2021 | 3 | 3,004 | ||||||||
CarMax Auto Owner Trust 2016-3 A4 | 1.60% | 1/18/2022 | 15 | 14,967 | ||||||||
CarMax Auto Owner Trust 2016-4 A3 | 1.40% | 8/15/2021 | 6 | 6,300 | ||||||||
8 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Automobiles (continued) | ||||||||||||
CarMax Auto Owner Trust 2016-4 A4 | 1.60% | 6/15/2022 | $ | 21 | $ | 20,939 | ||||||
CarMax Auto Owner Trust 2017-3 A4 | 2.22% | 11/15/2022 | 33 | 33,079 | ||||||||
CarMax Auto Owner Trust 2017-4 A3 | 2.11% | 10/17/2022 | 105 | 105,022 | ||||||||
CarMax Auto Owner Trust 2019-3 A2A | 2.21% | 12/15/2022 | 226 | 226,529 | ||||||||
Carvana Auto Receivables Trust 2019-2A C† | 3.00% | 6/17/2024 | 43 | 43,108 | ||||||||
Chesapeake Funding II LLC 2017-2A A1† | 1.99% | 5/15/2029 | 34 | 34,001 | ||||||||
Chesapeake Funding II LLC 2017-3A A1† | 1.91% | 8/15/2029 | 79 | 78,796 | ||||||||
Chesapeake Funding II LLC 2017-4A A1† | 2.12% | 11/15/2029 | 111 | 110,566 | ||||||||
CPS Auto Receivables Trust 2018-B A† | 2.72% | 9/15/2021 | 3 | 3,256 | ||||||||
CPS Auto Receivables Trust 2018-B B† | 3.23% | 7/15/2022 | 100 | 100,314 | ||||||||
CPS Auto Receivables Trust 2018-B C† | 3.58% | 3/15/2023 | 100 | 101,092 | ||||||||
CPS Auto Receivables Trust 2019-A C† | 3.89% | 12/16/2024 | 100 | 102,348 | ||||||||
CPS Auto Receivables Trust 2019-C† | 2.84% | 6/16/2025 | 100 | 100,481 | ||||||||
CPS Auto Receivables Trust 2019-C D† | 3.17% | 6/16/2025 | 100 | 100,619 | ||||||||
CPS Auto Receivables Trust 2019-D B† | 2.35% | 11/15/2023 | 100 | 99,724 | ||||||||
CPS Auto Receivables Trust 2019-D C† | 2.54% | 8/15/2024 | 100 | 99,547 | ||||||||
Drive Auto Receivables Trust 2015-DA D† | 4.59% | 1/17/2023 | 12 | 12,447 | ||||||||
Drive Auto Receivables Trust 2016-BA D† | 4.53% | 8/15/2023 | 28 | 28,619 | ||||||||
Drive Auto Receivables Trust 2016-CA D† | 4.18% | 3/15/2024 | 26 | 25,878 | ||||||||
Drive Auto Receivables Trust 2017-2 C | 2.75% | 9/15/2023 | 3 | 3,184 | ||||||||
Drive Auto Receivables Trust 2017-2 D | 3.49% | 9/15/2023 | 180 | 181,387 | ||||||||
Drive Auto Receivables Trust 2017-BA D† | 3.72% | 10/17/2022 | 109 | 109,252 | ||||||||
Drive Auto Receivables Trust 2018-3 B | 3.37% | 9/15/2022 | 19 | 18,668 | ||||||||
Drive Auto Receivables Trust 2018-3 C | 3.72% | 9/16/2024 | 118 | 119,018 | ||||||||
Drive Auto Receivables Trust 2018-4 B | 3.36% | 10/17/2022 | 37 | 37,235 | ||||||||
Drive Auto Receivables Trust 2018-4 C | 3.66% | 11/15/2024 | 113 | 114,069 | ||||||||
Drive Auto Receivables Trust 2018-4 D | 4.09% | 1/15/2026 | 34 | 34,953 | ||||||||
Drive Auto Receivables Trust 2018-5 C | 3.99% | 1/15/2025 | 84 | 85,605 | ||||||||
Drive Auto Receivables Trust 2019-2 B | 3.17% | 11/15/2023 | 39 | 39,401 | ||||||||
Drive Auto Receivables Trust 2019-2 C | 3.42% | 6/16/2025 | 76 | 77,280 | ||||||||
Drive Auto Receivables Trust 2019-2 D | 3.69% | 8/17/2026 | 44 | 45,055 | ||||||||
Drive Auto Receivables Trust 2019-3 A2A | 2.63% | 9/15/2022 | 113 | 112,959 | ||||||||
Drive Auto Receivables Trust 2019-4 C | 2.51% | 11/17/2025 | 107 | 107,125 | ||||||||
Drive Auto Receivables Trust 2019-4 D | 2.70% | 2/16/2027 | 90 | 89,386 | ||||||||
Exeter Automobile Receivables Trust 2017-3A B† | 2.81% | 9/15/2022 | 45 | 45,261 | ||||||||
Exeter Automobile Receivables Trust 2019-4A B† | 2.30% | 12/15/2023 | 75 | 74,800 | ||||||||
Fifth Third Auto Trust 2019-1 A2A | 2.66% | 5/16/2022 | 171 | 171,508 | ||||||||
Fifth Third Auto Trust 2019-1 A3 | 2.64% | 12/15/2023 | 153 | 154,561 |
See Notes to Financial Statements. | 9 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Automobiles (continued) | ||||||||||||
Fifth Third Auto Trust 2019-1 A4 | 2.69% | 11/16/2026 | $ | 50 | $ | 50,637 | ||||||
First Investors Auto Owner Trust 2018-1A B† | 3.51% | 5/15/2023 | 100 | 101,059 | ||||||||
First Investors Auto Owner Trust 2018-2A C† | 4.03% | 1/15/2025 | 16 | 16,479 | ||||||||
First Investors Auto Owner Trust 2018-2A D† | 4.28% | 1/15/2025 | 10 | 10,336 | ||||||||
Flagship Credit Auto Trust 2017-3 A† | 1.88% | 10/15/2021 | 2 | 2,245 | ||||||||
Flagship Credit Auto Trust 2017-3 B† | 2.59% | 7/15/2022 | 30 | 30,029 | ||||||||
Flagship Credit Auto Trust 2017-4 A† | 2.07% | 4/15/2022 | 13 | 12,698 | ||||||||
Flagship Credit Auto Trust 2018-3 A† | 3.07% | 2/15/2023 | 138 | 138,282 | ||||||||
Flagship Credit Auto Trust 2019-1 A† | 3.11% | 8/15/2023 | 64 | 64,543 | ||||||||
Ford Credit Auto Owner Trust 2015-1 A† | 2.12% | 7/15/2026 | 394 | 393,980 | ||||||||
Ford Credit Auto Owner Trust 2016-2 A† | 2.03% | 12/15/2027 | 300 | 300,092 | ||||||||
Ford Credit Auto Owner Trust 2017-2 A† | 2.36% | 3/15/2029 | 100 | 100,658 | ||||||||
Ford Credit Auto Owner Trust 2018-2 A† | 3.47% | 1/15/2030 | 200 | 208,963 | ||||||||
Ford Credit Auto Owner Trust 2019-C A2A | 1.88% | 7/15/2022 | 151 | 150,908 | ||||||||
Ford Credit Auto Owner Trust 2019-REV1 A† | 3.52% | 7/15/2030 | 100 | 105,017 | ||||||||
GM Financial Automobile Leasing Trust 2017 2 B | 2.43% | 6/21/2021 | 18 | 18,007 | ||||||||
GM Financial Automobile Leasing Trust 2019-2 A2A | 2.67% | 6/21/2021 | 137 | 137,245 | ||||||||
GM Financial Automobile Leasing Trust 2019-2 A3 | 2.67% | 3/21/2022 | 81 | 81,621 | ||||||||
GM Financial Consumer Automobile Receivables Trust 2019-1 B | 3.37% | 8/16/2024 | 26 | 26,776 | ||||||||
Hyundai Auto Receivables Trust 2016-B C | 2.19% | 11/15/2022 | 72 | 72,155 | ||||||||
Hyundai Auto Receivables Trust 2019-B A2 | 1.93% | 7/15/2022 | 81 | 81,101 | ||||||||
Nissan Auto Receivables Owner Trust 2016-B A3 | 1.32% | 1/15/2021 | — | (a) | 467 | |||||||
Prestige Auto Receivables Trust 2019-1A D† | 3.01% | 8/15/2025 | 18 | 18,133 | ||||||||
Santander Drive Auto Receivables Trust 2015-5 D | 3.65% | 12/15/2021 | 12 | 11,839 | ||||||||
Santander Drive Auto Receivables Trust 2016-1 D | 4.02% | 4/15/2022 | 264 | 265,650 | ||||||||
Santander Drive Auto Receivables Trust 2017-1 D | 3.17% | 4/17/2023 | 14 | 14,121 | ||||||||
Santander Drive Auto Receivables Trust 2017-2 D | 3.49% | 7/17/2023 | 88 | 88,995 | ||||||||
Santander Drive Auto Receivables Trust 2017-3 C | 2.76% | 12/15/2022 | 20 | 20,064 | ||||||||
Santander Drive Auto Receivables Trust 2018-3 A3 | 3.03% | 2/15/2022 | — | (a) | 785 | |||||||
Santander Drive Auto Receivables Trust 2018-3 B | 3.29% | 10/17/2022 | 98 | 98,186 | ||||||||
Santander Drive Auto Receivables Trust 2018-4 C | 3.56% | 7/15/2024 | 54 | 54,735 | ||||||||
Santander Drive Auto Receivables Trust 2018-5 B | 3.52% | 12/15/2022 | 84 | 84,458 | ||||||||
Santander Drive Auto Receivables Trust 2018-5 C | 3.81% | 12/16/2024 | 78 | 79,177 | ||||||||
Santander Drive Auto Receivables Trust 2019-3 C | 2.49% | 10/15/2025 | 121 | 121,502 | ||||||||
Santander Retail Auto Lease Trust 2019-B D† | 3.31% | 6/20/2024 | 75 | 75,229 | ||||||||
TCF Auto Receivables Owner Trust 2015-2A B† | 3.00% | 9/15/2021 | 2 | 2,484 | ||||||||
TCF Auto Receivables Owner Trust 2015-2A C† | 3.75% | 12/15/2021 | 4 | 4,002 | ||||||||
TCF Auto Receivables Owner Trust 2016-1A A4† | 2.03% | 2/15/2022 | 26 | 26,421 |
10 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Automobiles (continued) | ||||||||||||
TCF Auto Receivables Owner Trust 2016-1A B† | 2.32% | 6/15/2022 | $ | 33 | $ | 32,982 | ||||||
TCF Auto Receivables Owner Trust 2016-PT1A A† | 1.93% | 6/15/2022 | 14 | 13,665 | ||||||||
Westlake Automobile Receivables Trust 2018-3A A2A† | 2.98% | 1/18/2022 | 63 | 63,568 | ||||||||
Westlake Automobile Receivables Trust 2019-2A A2A† | 2.57% | 2/15/2023 | 199 | 199,559 | ||||||||
Westlake Automobile Receivables Trust 2019-2A D† | 3.20% | 11/15/2024 | 86 | 87,070 | ||||||||
Westlake Automobile Receivables Trust 2019-3A B† | 2.41% | 10/15/2024 | 97 | 97,135 | ||||||||
Westlake Automobile Receivables Trust 2019-3A C† | 2.49% | 10/15/2024 | 94 | 94,057 | ||||||||
World Omni Auto Receivables Trust 2018-D A4 | 3.44% | 12/16/2024 | 39 | 40,510 | ||||||||
World Omni Automobile Lease Securitization Trust 2017-A B | 2.48% | 8/15/2022 | 7 | 7,000 | ||||||||
World Omni Select Auto Trust 2018-1A B† | 3.68% | 7/15/2023 | 17 | 17,238 | ||||||||
World Omni Select Auto Trust 2018-1A D† | 4.13% | 1/15/2025 | 60 | 61,521 | ||||||||
World Omni Select Auto Trust 2019-A C | 2.38% | 12/15/2025 | 24 | 23,822 | ||||||||
World Omni Select Auto Trust 2019-A D | 2.59% | 12/15/2025 | 53 | 52,580 | ||||||||
Total | 7,712,021 | |||||||||||
Credit Cards 4.61% | ||||||||||||
American Express Credit Account Master Trust 2017-3 A | 1.77% | 11/15/2022 | 100 | 99,966 | ||||||||
American Express Credit Account Master Trust 2017-6 A | 2.04% | 5/15/2023 | 167 | 167,264 | ||||||||
American Express Credit Account Master Trust 2019-1 A | 2.87% | 10/15/2024 | 100 | 102,262 | ||||||||
BA Credit Card Trust 2017-A2 | 1.84% | 1/17/2023 | 140 | 139,994 | ||||||||
Barclays Dryrock Issuance Trust 2017-1 A | 2.07% (1 Mo. LIBOR + .33% | )# | 3/15/2023 | 320 | 320,217 | |||||||
Barclays Dryrock Issuance Trust 2017-2 A | 2.04% (1 Mo. LIBOR + .30% | )# | 5/15/2023 | 221 | 221,201 | |||||||
Barclays Dryrock Issuance Trust 2018-1 A | 2.07% (1 Mo. LIBOR + .33% | )# | 7/15/2024 | 100 | 100,158 | |||||||
Capital One Multi-Asset Execution Trust 2015-A3 | 2.14% (1 Mo. LIBOR + .40% | )# | 3/15/2023 | 50 | 50,059 | |||||||
Capital One Multi-Asset Execution Trust 2017-A1 | 2.00% | 1/17/2023 | 114 | 114,016 | ||||||||
Capital One Multi-Asset Execution Trust 2017-A4 | 1.99% | 7/17/2023 | 235 | 235,261 | ||||||||
Capital One Multi-Asset Execution Trust 2019-A1 | 2.84% | 12/15/2024 | 163 | 166,325 | ||||||||
Citibank Credit Card Issuance Trust 2014-A1 | 2.88% | 1/23/2023 | 135 | 136,395 | ||||||||
Citibank Credit Card Issuance Trust 2017-A3 | 1.92% | 4/7/2022 | 200 | 199,994 |
See Notes to Financial Statements. | 11 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Credit Cards (continued) | ||||||||||||
Citibank Credit Card Issuance Trust 2017-A8 | 1.86% | 8/8/2022 | $ | 178 | $ | 178,000 | ||||||
Discover Card Execution Note Trust 2015-A2 A | 1.90% | 10/17/2022 | 145 | 145,021 | ||||||||
Discover Card Execution Note Trust 2015-A4 | 2.19% | 4/17/2023 | 100 | 100,400 | ||||||||
Discover Card Execution Note Trust 2017-A6 | 1.88% | 2/15/2023 | 161 | 161,214 | ||||||||
Discover Card Execution Note Trust 2019-A3 A | 1.89% | 10/15/2024 | 125 | 124,862 | ||||||||
First National Master Note Trust 2017-2 A | 2.18% (1 Mo. LIBOR + .44% | )# | 10/16/2023 | 172 | 172,241 | |||||||
Golden Credit Card Trust 2018-1A A† | 2.62% | 1/15/2023 | 168 | 169,179 | ||||||||
Master Credit Card Trust 2019-1A B† | 3.57% | 7/21/2022 | 100 | 100,989 | ||||||||
Master Credit Card Trust II Series 2018-1A A† | 2.275% (1 Mo. LIBOR + .49% | )# | 7/21/2024 | 100 | 100,048 | |||||||
Synchrony Credit Card Master Note Trust 2015-1 A | 2.37% | 3/15/2023 | 24 | 24,019 | ||||||||
Synchrony Credit Card Master Note Trust 2016-2 A | 2.21% | 5/15/2024 | 179 | 179,754 | ||||||||
Synchrony Credit Card Master Note Trust 2016-2 B | 2.55% | 5/15/2024 | 100 | 100,443 | ||||||||
Synchrony Credit Card Master Note Trust 2017-1 A | 1.93% | 6/15/2023 | 99 | 98,986 | ||||||||
Synchrony Credit Card Master Note Trust 2017-1 B | 2.19% | 6/15/2023 | 202 | 201,898 | ||||||||
Synchrony Credit Card Master Note Trust 2017-2 B | 2.82% | 10/15/2025 | 100 | 101,064 | ||||||||
World Financial Network Credit Card Master Trust 2015-B A | 2.55% | 6/17/2024 | 49 | 49,156 | ||||||||
World Financial Network Credit Card Master Trust 2016-A | 2.03% | 4/15/2025 | 134 | 133,888 | ||||||||
World Financial Network Credit Card Master Trust 2017-A | 2.12% | 3/15/2024 | 150 | 149,986 | ||||||||
World Financial Network Credit Card Master Trust 2017-C A | 2.31% | 8/15/2024 | 56 | 56,116 | ||||||||
World Financial Network Credit Card Master Trust 2018-C A | 3.55% | 8/15/2025 | 173 | 177,339 | ||||||||
World Financial Network Credit Card Master Trust 2018-C M | 3.95% | 8/15/2025 | 36 | 36,925 | ||||||||
Total | 4,614,640 | |||||||||||
Other 11.33% | ||||||||||||
ACAM Ltd. 2019-FL1 A† | 3.20% (1 Mo. LIBOR + 1.40% | )# | 11/17/2034 | 168 | 168,303 | (b) | ||||||
Access Point Funding I LLC 2017-A† | 3.06% | 4/15/2029 | 4 | 3,648 | ||||||||
Ammc Clo Ltd. 2016-19A BR† | 3.801% (3 Mo. LIBOR + 1.80% | )# | 10/16/2028 | 250 | 250,315 | |||||||
Amur Equipment Finance Receivables VI LLC 2018-2A A2† | 3.89% | 7/20/2022 | 88 | 88,964 | ||||||||
Amur Equipment Finance Receivables VII LLC 2019-1A A2† | 2.63% | 6/20/2024 | 100 | 100,498 |
12 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Principal | ||||||||||||
Interest | Maturity | Amount | Fair | |||||||||
Investments | Rate | Date | (000) | Value | ||||||||
Other (continued) | ||||||||||||
Arbor Realty Collateralized Loan Obligation Ltd. 2017-FL3 A† | 2.73% (1 Mo. LIBOR + .99% | )# | 12/15/2027 | $ | 100 | $ | 99,977 | |||||
Arbor Realty Commercial Real Estate Notes Ltd. 2018-FL1 A† | 2.89% (1 Mo. LIBOR + 1.15% | )# | 6/15/2028 | 100 | 100,017 | |||||||
Arbor Realty Commercial Real Estate Notes Ltd. 2019-FL1 A† | 2.89% (1 Mo. LIBOR + 1.15% | )# | 5/15/2037 | 136 | 136,068 | |||||||
Ares XLI Clo Ltd. 2016-41A AR† | 3.201% (3 Mo. LIBOR + 1.20% | )# | 1/15/2029 | 250 | 249,987 | |||||||
Ascentium Equipment Receivables 2019-1A A2† | 2.84% | 6/10/2022 | 122 | 122,645 | ||||||||
Ascentium Equipment Receivables Trust 2017-1A A3† | 2.29% | 6/10/2021 | 9 | 8,832 | ||||||||
Avery Point V CLO Ltd. 2014-5A AR† | 2.982% (3 Mo. LIBOR + .98% | )# | 7/17/2026 | 152 | 151,870 | |||||||
BDS Ltd. 2019-FL3 A† | 3.137% (1 Mo. LIBOR + 1.40% | )# | 12/15/2035 | 100 | 100,110 | |||||||
Benefit Street Partners CLO IV Ltd. 2014-IVA A1RR† | 3.216% (3 Mo. LIBOR + 1.25% | )# | 1/20/2029 | 250 | 250,331 | |||||||
BlueMountain CLO Ltd. 2012-2A AR2† | 2.949% (3 Mo. LIBOR + 1.05% | )# | 11/20/2028 | 250 | 249,741 | |||||||
BSPRT Issuer, Ltd. 2019 FL5 A† | 2.915% (1 Mo. LIBOR + 1.15 | )# | 5/15/2029 | 100 | 100,045 | |||||||
Colony American Finance Ltd. 2018-1 A† | 3.804% | 6/15/2051 | 90 | 93,075 | ||||||||
Conn’s Receivables Funding LLC 2018-A† | 3.25% | 1/15/2023 | 17 | 17,462 | ||||||||
Conn’s Receivables Funding LLC 2019-B A† | 2.66% | 6/17/2024 | 112 | 112,414 | ||||||||
Diamond Resorts Owner Trust 2016-1 A† | 3.08% | 11/20/2028 | 18 | 17,894 | ||||||||
Diamond Resorts Owner Trust 2018-1 A† | 3.70% | 1/21/2031 | 64 | 65,148 | ||||||||
Diamond Resorts Owner Trust 2018-1 B† | 4.19% | 1/21/2031 | 52 | 52,924 | ||||||||
DLL LLC 2018-1 A3† | 3.10% | 4/18/2022 | 177 | 177,762 | ||||||||
DLL LLC 2018-1 A4† | 3.27% | 4/17/2026 | 109 | 111,300 | ||||||||
DLL Securitization Trust 2017-A A3† | 2.14% | 12/15/2021 | 71 | 70,580 | ||||||||
DLL Securitization Trust 2017-A A4† | 2.43% | 11/17/2025 | 100 | 100,385 | ||||||||
Dryden XXV Senior Loan Fund 2012-25A BRR† | 3.336% (3 Mo. LIBOR + 1.35% | )# | 10/15/2027 | 290 | 287,541 | |||||||
Elm CLO Ltd. 2014-1A BRR† | 3.752% (3 Mo. LIBOR + 1.75% | )# | 1/17/2029 | 200 | 200,062 | |||||||
Engs Commercial Finance Trust 2016-1A A2† | 2.63% | 2/22/2022 | 10 | 10,475 | ||||||||
Fairstone Financial Issuance Trust I 2019-1A A†(c) | 3.948% | 3/21/2033 | CAD | 150 | 116,078 | |||||||
Ford Credit Floorplan Master Owner Trust 2015-2 A1 | 1.98% | 1/15/2022 | $ | 23 | 22,998 | |||||||
Ford Credit Floorplan Master Owner Trust 2017-2 A1 | 2.16% | 9/15/2022 | 100 | 100,119 | ||||||||
Ford Credit Floorplan Master Owner Trust 2019-1 A | 2.84% | 3/15/2024 | 239 | 242,519 |
See Notes to Financial Statements. | 13 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Other (continued) | ||||||||||||
Ford Credit Floorplan Master Owner Trust 2019-2 A | 3.06% | 4/15/2026 | $ | 314 | $ | 324,442 | ||||||
FREED ABS TRUST 2018-2 A† | 3.99% | 10/20/2025 | 57 | 57,270 | ||||||||
Grand Avenue CRE 2019-FL1 A† | 2.86% (1 Mo. LIBOR + 1.12% | )# | 6/15/2037 | 216 | 216,065 | |||||||
Grand Avenue CRE 2019-FL1 AS† | 3.24% (1 Mo. LIBOR + 1.50% | )# | 6/15/2037 | 100 | 100,031 | |||||||
Greystone Commercial Real Estate Notes Ltd. 2018-HC1 A† | 3.315% (1 Mo. LIBOR + 1.55% | )# | 9/15/2028 | 124 | 123,694 | |||||||
Greystone Commercial Real Estate Notes Ltd. 2018-HC1 AS† | 3.915% (1 Mo. LIBOR + 2.15% | )# | 9/15/2028 | 38 | 37,885 | |||||||
Halcyon Loan Advisors Funding Ltd. 2015-2A AR† | 3.02% (3 Mo. LIBOR + 1.08% | )# | 7/25/2027 | 218 | 218,198 | |||||||
HPS Loan Management 10-2016 Ltd. A2R† | 3.716% (3 Mo. LIBOR +1.75% | )# | 1/20/2028 | 250 | 250,312 | |||||||
Hyundai Floorplan Master Owner Trust 2019-1 A† | 2.68% | 4/15/2024 | 180 | 182,197 | ||||||||
JFIN CLO Ltd. 2013-1A A1NR† | Zero Coupon | (d) | 1/20/2030 | 129 | 129,149 | (b) | ||||||
KREF Ltd. 2018-FL1 A† | 2.837% (1 Mo. LIBOR + 1.10% | )# | 6/15/2036 | 100 | 100,210 | |||||||
LCM XXIV Ltd. 24A A† | 3.276% (3 Mo. LIBOR + 1.31% | )# | 3/20/2030 | 250 | 250,876 | |||||||
LMREC, Inc. 2015-CRE1 AR† | 2.76% (1 Mo. LIBOR + .98% | )# | 2/22/2032 | 23 | 22,589 | |||||||
LMREC, Inc. 2015-CRE1 BR† | 4.03% (1 Mo. LIBOR + 2.25 | )# | 2/22/2032 | 100 | 99,986 | |||||||
LMREC, Inc. 2019-CRE3 A† | 3.18% (1 Mo. LIBOR + 1.40% | )# | 12/22/2035 | 183 | 183,449 | |||||||
LoanCore Issuer Ltd. 2019-CRE2 A† | 2.87% (1 Mo. LIBOR + 1.13% | )# | 5/15/2036 | 201 | 201,030 | |||||||
M360 LLC 2019-CRE2 A† | 3.14% (1 Mo. LIBOR + 1.40% | )# | 9/15/2034 | 155 | 155,276 | |||||||
Mercedes-Benz Master Owner Trust 2019-BA A† | 2.61% | 5/15/2024 | 147 | 148,922 | ||||||||
Mountain Hawk III CLO Ltd. 2014-3A AR† | 3.203% (3 Mo. LIBOR + 1.20% | )# | 4/18/2025 | 104 | 103,690 | |||||||
Mountain View CLO XIV Ltd. 2019-1A A1† | 3.441% (3 Mo. LIBOR + 1.44% | )# | 4/15/2029 | 250 | 250,511 | |||||||
MVW Owner Trust 2017-1A A† | 2.42% | 12/20/2034 | 45 | 44,697 | ||||||||
NextGear Floorplan Master Owner Trust 2017-1A A2† | 2.54% | 4/18/2022 | 100 | 100,084 | ||||||||
NextGear Floorplan Master Owner Trust 2018-2A A2† | 3.69% | 10/15/2023 | 374 | 383,847 | ||||||||
NextGear Floorplan Master Owner Trust 2018-2A B† | 4.01% | 10/15/2023 | 100 | 102,318 | ||||||||
Nissan Master Owner Trust Receivables 2017-B A | 2.17% (1 Mo. LIBOR + .43% | )# | 4/18/2022 | 78 | 78,041 | |||||||
Northwoods Capital Ltd. 2019-20A A1† | 3.221% (1 Mo. LIBOR + 1.32% | )# | 1/25/2030 | 250 | 250,167 | |||||||
OneMain Financial Issuance Trust 2018-2A A† | 3.57% | 3/14/2033 | 100 | 102,679 | ||||||||
OneMain Financial Issuance Trust 2019-1A A† | 3.48% | 2/14/2031 | 151 | 152,635 |
14 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Other (continued) | ||||||||||||
OneMain Financial Issuance Trust 2019-1A B† | 3.79% | 2/14/2031 | $ | 100 | $ | 102,349 | ||||||
Orange Lake Timeshare Trust 2019-A† | 3.06% | 4/9/2038 | 41 | 41,067 | ||||||||
Orec Ltd. 2018-CRE1 A† | 2.92% (1 Mo. LIBOR + 1.18% | )# | 6/15/2036 | 136 | 136,175 | |||||||
OZLM Funding III Ltd. 2013-3A A1RR† | 3.05% (3 Mo. LIBOR + 1.18% | )# | 1/22/2029 | 250 | 249,913 | |||||||
OZLM VIII Ltd. 2014-8A A1RR† | 3.172% (3 Mo. LIBOR + 1.17% | )# | 10/17/2029 | 250 | 249,097 | |||||||
Palmer Square Loan Funding Ltd. 2018-5A A1† | 2.816% (3 Mo. LIBOR + .85% | )# | 1/20/2027 | 201 | 200,504 | |||||||
PFS Financing Corp. 2018-B A† | 2.89% | 2/15/2023 | 122 | 122,960 | ||||||||
Planet Fitness Master Issuer LLC 2018-1A A2II† | 4.666% | 9/5/2048 | 99 | 102,924 | ||||||||
Ready Capital Mortgage Financing LLC 2018-FL2 A† | 2.642% (1 Mo. LIBOR + .85% | )# | 6/25/2035 | 29 | 28,984 | |||||||
Salem Fields CLO Ltd. 2016-2A A1R† | 3.09% (3 Mo. LIBOR + 1.15% | )# | 10/25/2028 | 250 | 248,746 | |||||||
SCF Equipment Leasing LLC 2017-2A A† | 3.41% | 12/20/2023 | 46 | 45,716 | ||||||||
SCF Equipment Leasing LLC 2018-1A A2† | 3.63% | 10/20/2024 | 88 | 89,548 | ||||||||
SCF Equipment Leasing LLC 2019-1A A1† | 3.04% | 3/20/2023 | 65 | 65,136 | ||||||||
SCF Equipment Leasing LLC 2019-1A A2† | 3.23% | 10/20/2024 | 121 | 121,857 | ||||||||
SCF Equipment Leasing LLC 2019-2A A1† | 2.22% | 6/20/2024 | 111 | 110,729 | ||||||||
SCF Equipment Leasing LLC 2019-2A A2† | 2.47% | 4/20/2026 | 177 | 176,839 | ||||||||
SLC Student Loan Trust 2008-1 A4A | 3.494% (3 Mo. LIBOR + 1.60% | )# | 12/15/2032 | 53 | 53,972 | |||||||
SoFi Professional Loan Program LLC 2017-E A2A† | 1.86% | 11/26/2040 | 28 | 28,248 | ||||||||
SoFi Professional Loan Program LLC 2017-F A1FX† | 2.05% | 1/25/2041 | 17 | 16,936 | ||||||||
TICP CLO VI Ltd. 2016 6A AR† | 3.201% (3 Mo. LIBOR + 1.12% | )# | 1/15/2029 | 250 | 250,166 | |||||||
Towd Point Asset Trust 2018-SL1 A† | 2.308% (1 Mo. LIBOR + .60% | )# | 1/25/2046 | 94 | 92,924 | |||||||
Towd Point Mortgage Trust 2019-HY2 A1† | 2.792% (1 Mo. LIBOR + 1.00% | )# | 5/25/2058 | 161 | 162,131 | |||||||
TPG Real Estate Finance Issuer Ltd. 2018-FL2 A† | 2.867% (1 Mo. LIBOR + 1.13% | )# | 11/15/2037 | 138 | 137,986 | |||||||
Wells Fargo Dealer Floorplan Master Note Trust 2015-2 A | 2.415% (1 Mo. LIBOR + .65% | )# | 1/20/2022 | 5 | 5,001 | |||||||
West CLO Ltd. 2014-2A A1AR† | 2.871% (3 Mo. LIBOR + .87% | )# | 1/16/2027 | 152 | 151,720 | |||||||
Total | 11,341,965 | |||||||||||
Total Asset-Backed Securities (cost $23,554,305) | 23,668,626 |
See Notes to Financial Statements. | 15 |
Schedule of Investments (continued)
December 31, 2019
Interest | Maturity | Shares | Fair | |||||||||
Investments | Rate | Date | (000) | Value | ||||||||
COMMON STOCK 0.00% | ||||||||||||
Oil | ||||||||||||
Templar Energy LLC Class A Units (cost $728) | - | (e) | $ | 6 | (b) | |||||||
Principal Amount (000) | ||||||||||||
CORPORATE BONDS 40.04% | ||||||||||||
Aerospace/Defense 0.26% | ||||||||||||
Arconic, Inc. | 5.40% | 4/15/2021 | $ | 22 | 22,688 | |||||||
Arconic, Inc. | 5.125% | 10/1/2024 | 51 | 55,626 | ||||||||
Bombardier, Inc. (Canada)†(f) | 6.125% | 1/15/2023 | 111 | 114,062 | ||||||||
Bombardier, Inc. (Canada)†(f) | 8.75% | 12/1/2021 | 42 | 46,111 | ||||||||
Embraer Overseas Ltd.† | 5.696% | 9/16/2023 | 18 | 19,808 | ||||||||
Total | 258,295 | |||||||||||
Air Transportation 0.21% | ||||||||||||
Air Canada 2015-1 Class B Pass-Through Trust (Canada)†(f) | 3.875% | 9/15/2024 | 14 | 14,156 | ||||||||
Air Canada 2015-2 Class B Pass-Through Trust (Canada)†(f) | 5.00% | 6/15/2025 | 7 | 7,709 | ||||||||
American Airlines 2013-2 Class B Pass-Through Trust† | 5.60% | 1/15/2022 | 78 | 79,665 | ||||||||
American Airlines 2014-1 Class B Pass-Through Trust | 4.375% | 4/1/2024 | 55 | 56,868 | ||||||||
Continental Airlines Pass-Through Trust 2012-1 Class B | 6.25% | 10/11/2021 | 2 | 1,720 | ||||||||
United Airlines 2014-1 Class B Pass-Through Trust | 4.75% | 10/11/2023 | 9 | 9,139 | ||||||||
US Airways 2012-2 Class B Pass-Through Trust | 6.75% | 12/3/2022 | 9 | 9,919 | ||||||||
US Airways 2013-1 Class B Pass-Through Trust | 5.375% | 5/15/2023 | 32 | 32,914 | ||||||||
Total | 212,090 | |||||||||||
Auto Parts: Original Equipment 0.54% | ||||||||||||
Nexteer Automotive Group Ltd.† | 5.875% | 11/15/2021 | 200 | 203,445 | ||||||||
Titan International, Inc. | 6.50% | 11/30/2023 | 24 | 20,590 | ||||||||
ZF North America Capital, Inc.† | 4.75% | 4/29/2025 | 300 | 315,603 | ||||||||
Total | 539,638 | |||||||||||
Automotive 1.85% | ||||||||||||
Ford Motor Credit Co. LLC | 2.865% (3 Mo. LIBOR + .93% | )# | 9/24/2020 | 57 | 57,088 | |||||||
Ford Motor Credit Co. LLC | 2.979% | 8/3/2022 | 300 | 300,415 |
16 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Principal | ||||||||||||
Interest | Maturity | Amount | Fair | |||||||||
Investments | Rate | Date | (000) | Value | ||||||||
Automotive (continued) | ||||||||||||
General Motors Financial Co., Inc. | 3.15% | 6/30/2022 | $ | 79 | $ | 80,512 | ||||||
General Motors Financial Co., Inc. | 3.70% | 5/9/2023 | 139 | 143,333 | ||||||||
General Motors Financial Co., Inc. | 3.95% | 4/13/2024 | 47 | 49,137 | ||||||||
General Motors Financial Co., Inc. | 4.20% | 3/1/2021 | 85 | 86,847 | ||||||||
General Motors Financial Co., Inc. | 4.25% | 5/15/2023 | 23 | 24,236 | ||||||||
General Motors Financial Co., Inc. | 5.10% | 1/17/2024 | 132 | 143,316 | ||||||||
Harley-Davidson Financial Services, Inc.† | 2.847% (3 Mo. LIBOR + .94% | )# | 3/2/2021 | 175 | 176,060 | |||||||
Hyundai Capital America† | 3.25% | 9/20/2022 | 31 | 31,593 | ||||||||
Nissan Motor Acceptance Corp.† | 2.651% (3 Mo. LIBOR + .69% | )# | 9/28/2022 | 50 | 49,910 | |||||||
Volkswagen Group of America Finance LLC† | 2.841% (3 Mo. LIBOR + .94% | )# | 11/12/2021 | 700 | 706,307 | |||||||
Total | 1,848,754 | |||||||||||
Banks: Regional 4.57% | ||||||||||||
ABN AMRO Bank NV (Netherlands)†(f) | 6.25% | 4/27/2022 | 400 | 432,281 | ||||||||
AIB Group plc (Ireland)†(f) | 4.263% (3 Mo. LIBOR + 1.87% | )# | 4/10/2025 | 200 | 211,806 | |||||||
Associated Bank NA | 3.50% | 8/13/2021 | 47 | 47,867 | ||||||||
Banco de Credito del Peru (Peru)†(f) | 2.70% | 1/11/2025 | 31 | 30,884 | ||||||||
Bank of America Corp. | 2.456% (3 Mo. LIBOR + .87% | )# | 10/22/2025 | 77 | 77,495 | |||||||
Bank of America Corp. | 4.00% | 1/22/2025 | 84 | 89,613 | ||||||||
Barclays Bank plc (United Kingdom)†(f) | 10.179% | 6/12/2021 | 160 | 177,858 | ||||||||
BBVA Bancomer SA† | 6.75% | 9/30/2022 | 150 | 163,581 | ||||||||
CIT Group, Inc. | 4.125% | 3/9/2021 | 28 | 28,579 | ||||||||
CIT Group, Inc. | 4.75% | 2/16/2024 | 49 | 52,369 | ||||||||
CIT Group, Inc. | 5.00% | 8/15/2022 | 5 | 5,312 | ||||||||
Citigroup, Inc. | 2.626% (3 Mo. LIBOR + .69% | )# | 10/27/2022 | 178 | 179,457 | |||||||
Citigroup, Inc. | 2.876% (3 Mo. LIBOR + .95% | )# | 7/24/2023 | 286 | 291,092 | |||||||
Citigroup, Inc. | 3.352% (3 Mo. LIBOR + .90% | )# | 4/24/2025 | 73 | 75,969 | |||||||
Danske Bank A/S (Denmark)†(f) | 3.001% (3 Mo. LIBOR + 1.25% | )# | 9/20/2022 | 200 | 201,593 | |||||||
Danske Bank A/S (Denmark)†(f) | 5.00% | 1/12/2022 | 200 | 209,987 | ||||||||
Danske Bank A/S (Denmark)†(f) | 5.375% | 1/12/2024 | 200 | 219,608 | ||||||||
Goldman Sachs Group, Inc. (The) | 2.707% (3 Mo. LIBOR + .78% | )# | 10/31/2022 | 52 | 52,370 | |||||||
Goldman Sachs Group, Inc. (The) | 2.908% (3 Mo. LIBOR + 1.05% | )# | 6/5/2023 | 67 | 68,111 | |||||||
Goldman Sachs Group, Inc. (The) | 3.046% (3 Mo. LIBOR + 1.11% | )# | 4/26/2022 | 72 | 72,736 |
See Notes to Financial Statements. | 17 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Banks: Regional (continued) | ||||||||||||
Goldman Sachs Group, Inc. (The) | 5.25% | 7/27/2021 | $ | 103 | $ | 108,098 | ||||||
Goldman Sachs Group, Inc. (The) | 5.75% | 1/24/2022 | 24 | 25,762 | ||||||||
JPMorgan Chase & Co. | 3.166% (3 Mo. LIBOR + 1.23% | )# | 10/24/2023 | 225 | 228,964 | |||||||
Lloyds Bank plc (United Kingdom)†(f) | 6.50% | 9/14/2020 | 100 | 102,761 | ||||||||
Macquarie Bank Ltd. (Australia)†(f) | 6.625% | 4/7/2021 | 95 | 100,038 | ||||||||
Macquarie Group Ltd. (Australia)†(f) | 3.189% (3 Mo. LIBOR + 1.02% | )# | 11/28/2023 | 12 | 12,283 | |||||||
Macquarie Group Ltd. (Australia)†(f) | 4.15% (3 Mo. LIBOR + 1.33% | )# | 3/27/2024 | 75 | 78,812 | |||||||
Morgan Stanley | 2.72% (SOFR + 1.15% | )# | 7/22/2025 | 48 | 48,612 | |||||||
Morgan Stanley | 3.146% (3 Mo. LIBOR + 1.18% | )# | 1/20/2022 | 59 | 59,547 | |||||||
Morgan Stanley | 4.875% | 11/1/2022 | 61 | 65,371 | ||||||||
Nordea Bank Abp (Finland)†(f) | 4.875% | 5/13/2021 | 200 | 207,382 | ||||||||
Popular, Inc. | 6.125% | 9/14/2023 | 23 | 24,821 | ||||||||
Royal Bank of Scotland Group plc (United Kingdom)(f) | 6.125% | 12/15/2022 | 22 | 24,082 | ||||||||
Synovus Financial Corp. | 3.125% | 11/1/2022 | 44 | 44,553 | ||||||||
Toronto-Dominion Bank (The) (Canada)(f) | 2.437% (3 Mo. LIBOR + .53% | )# | 12/1/2022 | 76 | 76,452 | |||||||
UBS AG | 7.625% | 8/17/2022 | 250 | 281,926 | ||||||||
Wells Fargo & Co. | 2.406% (3 Mo. LIBOR + .83% | )# | 10/30/2025 | 115 | 115,078 | |||||||
Wells Fargo & Co. | 2.961% (3 Mo. LIBOR + 1.03% | )# | 7/26/2021 | 225 | 227,676 | |||||||
Wells Fargo & Co. | 3.75% | 1/24/2024 | 49 | 51,785 | ||||||||
Total | 4,572,571 | |||||||||||
Beverages 0.47% | ||||||||||||
Constellation Brands, Inc. | 2.61% (3 Mo. LIBOR + .70% | )# | 11/15/2021 | 425 | 425,076 | |||||||
Keurig Dr Pepper, Inc. | 3.20% | 11/15/2021 | 46 | 46,737 | ||||||||
Total | 471,813 | |||||||||||
Building Materials 0.86% | ||||||||||||
Boral Finance Pty Ltd. (Australia)†(f) | 3.00% | 11/1/2022 | 22 | 22,087 | ||||||||
CPG Merger Sub LLC† | 8.00% | 10/1/2021 | 38 | 38,205 | ||||||||
Griffon Corp. | 5.25% | 3/1/2022 | 61 | 61,381 | ||||||||
Martin Marietta Materials, Inc. | 2.549% (3 Mo. LIBOR + .65% | )# | 5/22/2020 | 145 | 145,179 | |||||||
Owens Corning | 4.20% | 12/1/2024 | 77 | 81,234 | ||||||||
Vulcan Materials Co. | 2.494% (3 Mo. LIBOR + .60% | )# | 6/15/2020 | 110 | 110,121 | |||||||
Vulcan Materials Co. | 2.557% (3 Mo. LIBOR + .65% | )# | 3/1/2021 | 400 | 400,860 | |||||||
Total | 859,067 |
18 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Business Services 0.54% | ||||||||||||
Capitol Investment Merger Sub 2 LLC† | 10.00% | 8/1/2024 | $ | 15 | $ | 15,606 | ||||||
Equifax, Inc. | 2.78% (3 Mo. LIBOR + .87% | )# | 8/15/2021 | 450 | 451,753 | |||||||
IHS Markit Ltd. (United Kingdom)(f) | 3.625% | 5/1/2024 | 22 | 22,887 | ||||||||
Laureate Education, Inc.† | 8.25% | 5/1/2025 | 15 | 16,181 | ||||||||
Refinitiv US Holdings, Inc.† | 8.25% | 11/15/2026 | 30 | 33,843 | ||||||||
Total | 540,270 | |||||||||||
Chemicals 0.78% | ||||||||||||
Blue Cube Spinco LLC | 9.75% | 10/15/2023 | 10 | 10,778 | ||||||||
Celanese US Holdings LLC | 4.625% | 11/15/2022 | 160 | 169,497 | ||||||||
Celanese US Holdings LLC | 5.875% | 6/15/2021 | 86 | 90,287 | ||||||||
NOVA Chemicals Corp. (Canada)†(f) | 5.25% | 8/1/2023 | 36 | 36,856 | ||||||||
Nutrien Ltd. (Canada)(f) | 3.375% | 3/15/2025 | 65 | 67,336 | ||||||||
Syngenta Finance NV (Netherlands)†(f) | 3.698% | 4/24/2020 | 200 | 200,641 | ||||||||
Syngenta Finance NV (Netherlands)†(f) | 3.933% | 4/23/2021 | 200 | 203,417 | ||||||||
Total | 778,812 | |||||||||||
Computer Hardware 0.91% | ||||||||||||
Dell International LLC/EMC Corp.† | 4.00% | 7/15/2024 | 23 | 24,092 | ||||||||
Dell International LLC/EMC Corp.† | 5.45% | 6/15/2023 | 390 | 423,019 | ||||||||
Dell International LLC/EMC Corp.† | 5.875% | 6/15/2021 | 20 | 20,338 | ||||||||
Hewlett Packard Enterprise Co. | 2.567% (3 Mo. LIBOR + .68% | )# | 3/12/2021 | 96 | 96,374 | |||||||
Hewlett Packard Enterprise Co. | 2.763% (3 Mo. LIBOR + .72% | )# | 10/5/2021 | 350 | 350,048 | |||||||
Total | 913,871 | |||||||||||
Computer Software 0.57% | ||||||||||||
Genesys Telecommunications Laboratories, Inc./Greeneden Lux 3 Sarl/Greeneden US Ho† | 10.00% | 11/30/2024 | 125 | 135,417 | ||||||||
Infor US, Inc. | 6.50% | 5/15/2022 | 18 | 18,302 | ||||||||
RP Crown Parent LLC† | 7.375% | 10/15/2024 | 29 | 30,208 | ||||||||
Solera LLC/Solera Finance, Inc.† | 10.50% | 3/1/2024 | 135 | 143,525 | ||||||||
Sophia LP/Sophia Finance, Inc.† | 9.00% | 9/30/2023 | 108 | 111,285 | ||||||||
TIBCO Software, Inc.† | 11.375% | 12/1/2021 | 130 | 134,800 | ||||||||
Total | 573,537 | |||||||||||
Construction/Homebuilding 0.33% | ||||||||||||
D.R. Horton, Inc. | 2.50% | 10/15/2024 | 38 | 38,035 | ||||||||
D.R. Horton, Inc. | 4.75% | 2/15/2023 | 7 | 7,469 | ||||||||
D.R. Horton, Inc. | 5.75% | 8/15/2023 | 35 | 38,687 |
See Notes to Financial Statements. | 19 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Construction/Homebuilding (continued) | ||||||||||||
M/I Homes, Inc. | 6.75% | 1/15/2021 | $ | 103 | $ | 103,427 | ||||||
William Lyon Homes, Inc. | 7.00% | 8/15/2022 | 7 | 7,022 | ||||||||
Williams Scotsman International, Inc.† | 7.875% | 12/15/2022 | 125 | 130,664 | ||||||||
Total | 325,304 | |||||||||||
Containers 0.18% | ||||||||||||
Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer (Luxembourg) SA | 5.75% | 10/15/2020 | 177 | 177,790 | ||||||||
Drugs 1.85% | ||||||||||||
AbbVie, Inc.† | 2.60% | 11/21/2024 | 145 | 145,994 | ||||||||
AstraZeneca plc (United Kingdom)(f) | 2.511% (3 Mo. LIBOR + .62% | )# | 6/10/2022 | 175 | 175,560 | |||||||
Bayer US Finance II LLC† | 2.75% | 7/15/2021 | 32 | 32,192 | ||||||||
Bayer US Finance II LLC† | 2.904% (3 Mo. LIBOR + 1.01% | )# | 12/15/2023 | 225 | 226,488 | |||||||
Bayer US Finance II LLC† | 3.875% | 12/15/2023 | 250 | 262,410 | ||||||||
Becton Dickinson & Co. | 2.836% (3 Mo. LIBOR + .88% | )# | 12/29/2020 | 39 | 39,020 | |||||||
Becton Dickinson and Co. | 2.917% (3 Mo. LIBOR + 1.03% | )# | 6/6/2022 | 96 | 96,738 | |||||||
Cardinal Health, Inc. | 2.664% (3 Mo. LIBOR + .77% | )# | 6/15/2022 | 95 | 95,443 | |||||||
Cardinal Health, Inc. | 3.079% | 6/15/2024 | 135 | 138,887 | ||||||||
Cardinal Health, Inc. | 3.50% | 11/15/2024 | 129 | 134,741 | ||||||||
Cigna Corp. | 2.25% (3 Mo. LIBOR + .35% | )# | 3/17/2020 | 8 | 8,003 | |||||||
Cigna Corp. | 2.55% (3 Mo. LIBOR + .65% | )# | 9/17/2021 | 175 | 175,011 | |||||||
Cigna Corp. | 2.891% (3 Mo. LIBOR + .89% | )# | 7/15/2023 | 50 | 50,300 | |||||||
Elanco Animal Health, Inc. | 3.912% | 8/27/2021 | 19 | 19,492 | ||||||||
Elanco Animal Health, Inc. | 4.272% | 8/28/2023 | 22 | 23,236 | ||||||||
Express Scripts Holding Co. | 2.664% (3 Mo. LIBOR + .75% | )# | 11/30/2020 | 225 | 225,037 | |||||||
Total | 1,848,552 | |||||||||||
Electric: Power 3.03% | ||||||||||||
AES Corp. (The) | 4.875% | 5/15/2023 | 29 | 29,495 | ||||||||
Ausgrid Finance Pty Ltd. (Australia)†(f) | 3.85% | 5/1/2023 | 225 | 234,333 | ||||||||
CenterPoint Energy, Inc. | 2.50% | 9/1/2024 | 49 | 49,080 | ||||||||
Comision Federal de Electricidad (Mexico)†(f) | 4.875% | 1/15/2024 | 200 | 215,585 | ||||||||
Dominion Energy, Inc. | 3.071% | 8/15/2024 | 185 | 190,616 | ||||||||
Dominion Energy, Inc. | 4.104% | 4/1/2021 | 78 | 79,943 | ||||||||
DTE Energy Co. | 2.529% | 10/1/2024 | 143 | 143,721 | ||||||||
Duquesne Light Holdings, Inc.† | 5.90% | 12/1/2021 | 19 | 20,195 | ||||||||
Duquesne Light Holdings, Inc.† | 6.40% | 9/15/2020 | 199 | 204,787 | ||||||||
Enel Finance International NV (Netherlands)†(f) | 2.875% | 5/25/2022 | 200 | 202,555 |
20 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Electric: Power (continued) | ||||||||||||
Evergy, Inc. | 2.45% | 9/15/2024 | $ | 31 | $ | 31,191 | ||||||
Florida Power & Light Co. | 2.308% (3 Mo. LIBOR + .40% | )# | 5/6/2022 | 73 | 73,003 | |||||||
Jersey Central Power & Light Co.† | 4.70% | 4/1/2024 | 86 | 93,766 | ||||||||
NextEra Energy Capital Holdings, Inc. | 2.63% (3 Mo. LIBOR + .72% | )# | 2/25/2022 | 475 | 479,122 | |||||||
NRG Energy, Inc.† | 3.75% | 6/15/2024 | 72 | 74,449 | ||||||||
Origin Energy Finance Ltd. (Australia)†(f) | 5.45% | 10/14/2021 | 110 | 115,689 | ||||||||
PNM Resources, Inc. | 3.25% | 3/9/2021 | 28 | 28,329 | ||||||||
PPL Capital Funding, Inc. | 3.50% | 12/1/2022 | 29 | 30,004 | ||||||||
PPL Capital Funding, Inc. | 3.95% | 3/15/2024 | 15 | 15,795 | ||||||||
PPL WEM Ltd./Western Power Distribution Ltd. (United Kingdom)†(f) | 5.375% | 5/1/2021 | 86 | 88,537 | ||||||||
San Diego Gas & Electric Co. | 1.914% | 2/1/2022 | 11 | 10,676 | ||||||||
SCANA Corp. | 4.125% | 2/1/2022 | 33 | 33,911 | ||||||||
SCANA Corp. | 4.75% | 5/15/2021 | 53 | 54,191 | ||||||||
SCANA Corp. | 6.25% | 4/1/2020 | 62 | 62,474 | ||||||||
Sempra Energy | 2.501% (3 Mo. LIBOR + .50% | )# | 1/15/2021 | 37 | 37,007 | |||||||
Southern Power Co.† | 2.458% (3 Mo. LIBOR + .55% | )# | 12/20/2020 | 200 | 200,052 | |||||||
TransAlta Corp. (Canada)(f) | 4.50% | 11/15/2022 | 32 | 33,200 | ||||||||
Vistra Operations Co. LLC† | 3.55% | 7/15/2024 | 203 | 205,678 | ||||||||
Total | 3,037,384 | |||||||||||
Electrical Equipment 0.84% | ||||||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | 2.65% | 1/15/2023 | 20 | 20,115 | ||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | 3.00% | 1/15/2022 | 70 | 71,030 | ||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | 3.625% | 1/15/2024 | 61 | 63,213 | ||||||||
Broadcom, Inc.† | 3.125% | 10/15/2022 | 115 | 117,138 | ||||||||
Broadcom, Inc.† | 3.625% | 10/15/2024 | 300 | 311,996 | ||||||||
NXP BV/NXP Funding LLC (Netherlands)†(f) | 3.875% | 9/1/2022 | 225 | 233,476 | ||||||||
NXP BV/NXP Funding LLC (Netherlands)†(f) | 4.875% | 3/1/2024 | 20 | 21,817 | ||||||||
Total | 838,785 | |||||||||||
Electronics 0.07% | ||||||||||||
Trimble, Inc. | 4.15% | 6/15/2023 | 53 | 55,859 | ||||||||
Trimble, Inc. | 4.75% | 12/1/2024 | 16 | 17,280 | ||||||||
Total | 73,139 |
See Notes to Financial Statements. | 21 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Entertainment 0.09% | ||||||||||||
Eldorado Resorts, Inc. | 7.00% | 8/1/2023 | $ | 11 | $ | 11,513 | ||||||
Enterprise Development Authority (The)† | 12.00% | 7/15/2024 | 38 | 43,621 | ||||||||
Scientific Games International, Inc. | 6.625% | 5/15/2021 | 36 | 36,599 | ||||||||
Total | 91,733 | |||||||||||
Financial Services 2.76% | ||||||||||||
AerCap Ireland Capital DAC/AerCap Global Aviation Trust (Ireland)(f) | 5.00% | 10/1/2021 | 150 | 157,277 | ||||||||
Air Lease Corp. | 4.25% | 2/1/2024 | 33 | 35,399 | ||||||||
Aircastle Ltd. | 4.40% | 9/25/2023 | 184 | 194,535 | ||||||||
Aircastle Ltd. | 5.00% | 4/1/2023 | 98 | 104,815 | ||||||||
Aircastle Ltd. | 5.50% | 2/15/2022 | 133 | 141,477 | ||||||||
Aircastle Ltd. | 7.625% | 4/15/2020 | 71 | 72,054 | ||||||||
Ally Financial, Inc. | 3.875% | 5/21/2024 | 29 | 30,438 | ||||||||
Avolon Holdings Funding Ltd. (Ireland)†(f) | 5.125% | 10/1/2023 | 68 | 73,494 | ||||||||
Avolon Holdings Funding Ltd. (Ireland)†(f) | 5.25% | 5/15/2024 | 152 | 166,363 | ||||||||
Discover Financial Services | 5.20% | 4/27/2022 | 144 | 153,525 | ||||||||
E*TRADE Financial Corp. | 2.95% | 8/24/2022 | 36 | 36,669 | ||||||||
Global Aircraft Leasing Co. Ltd. PIK 7.25%† | 6.50% | 9/15/2024 | 47 | 49,160 | ||||||||
International Lease Finance Corp. | 8.25% | 12/15/2020 | 303 | 320,376 | ||||||||
International Lease Finance Corp. | 8.625% | 1/15/2022 | 83 | 93,384 | ||||||||
Invesco Finance plc (United Kingdom)(f) | 3.125% | 11/30/2022 | 30 | 30,846 | ||||||||
Jefferies Financial Group, Inc. | 5.50% | 10/18/2023 | 206 | 223,992 | ||||||||
Jefferies Group LLC | 6.875% | 4/15/2021 | 32 | 33,859 | ||||||||
Muthoot Finance Ltd. (India)†(f) | 6.125% | 10/31/2022 | 200 | 207,989 | ||||||||
Nationstar Mortgage Holdings, Inc.† | 8.125% | 7/15/2023 | 112 | 118,788 | ||||||||
Navient Corp. | 5.00% | 10/26/2020 | 112 | 113,775 | ||||||||
Navient Corp. | 5.875% | 3/25/2021 | 32 | 33,128 | ||||||||
Navient Corp. | 6.625% | 7/26/2021 | 89 | 94,318 | ||||||||
Park Aerospace Holdings Ltd. (Ireland)†(f) | 3.625% | 3/15/2021 | 22 | 22,326 | ||||||||
Park Aerospace Holdings Ltd. (Ireland)†(f) | 4.50% | 3/15/2023 | 145 | 152,238 | ||||||||
Park Aerospace Holdings Ltd. (Ireland)†(f) | 5.25% | 8/15/2022 | 16 | 17,091 | ||||||||
Park Aerospace Holdings Ltd. (Ireland)†(f) | 5.50% | 2/15/2024 | 77 | 84,635 | ||||||||
Total | 2,761,951 |
22 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Food 0.56% | ||||||||||||
General Mills, Inc. | 3.012% (3 Mo. LIBOR + 1.01% | )# | 10/17/2023 | $ | 31 | $ | 31,492 | |||||
Ingles Markets, Inc. | 5.75% | 6/15/2023 | 36 | 36,765 | ||||||||
JBS USA LUX SA/JBS USA Finance, Inc.† | 5.875% | 7/15/2024 | 34 | 35,028 | ||||||||
Kraft Heinz Foods Co. | 2.471% (3 Mo. LIBOR + .57% | )# | 2/10/2021 | 450 | 450,743 | |||||||
Smithfield Foods, Inc.† | 3.35% | 2/1/2022 | 10 | 10,030 | ||||||||
Total | 564,058 | |||||||||||
Health Care Products 0.16% | ||||||||||||
Kinetic Concepts, Inc./KCI USA, Inc.† | 12.50% | 11/1/2021 | 6 | 6,190 | ||||||||
Zimmer Biomet Holdings, Inc. | 2.653% (3 Mo. LIBOR + .75% | )# | 3/19/2021 | 155 | 155,016 | |||||||
Total | 161,206 | |||||||||||
Health Care Services 1.15% | ||||||||||||
Acadia Healthcare Co., Inc. | 5.125% | 7/1/2022 | 127 | 128,310 | ||||||||
Acadia Healthcare Co., Inc. | 5.625% | 2/15/2023 | 8 | 8,147 | ||||||||
Acadia Healthcare Co., Inc. | 6.125% | 3/15/2021 | 168 | 168,420 | ||||||||
CommonSpirit Health | 2.76% | 10/1/2024 | 51 | 51,481 | ||||||||
Eagle Holding Co. II LLC PIK 8.375%† | 7.625% | 5/15/2022 | 24 | 24,438 | ||||||||
Fresenius Medical Care US Finance II, Inc.† | 4.125% | 10/15/2020 | 7 | 7,070 | ||||||||
Fresenius Medical Care US Finance II, Inc.† | 4.75% | 10/15/2024 | 24 | 25,936 | ||||||||
Fresenius Medical Care US Finance II, Inc.† | 5.875% | 1/31/2022 | 194 | 207,578 | ||||||||
Fresenius Medical Care US Finance, Inc.† | 5.75% | 2/15/2021 | 45 | 46,682 | ||||||||
HCA, Inc. | 5.00% | 3/15/2024 | 89 | 97,307 | ||||||||
Select Medical Corp.† | 6.25% | 8/15/2026 | 36 | 39,037 | ||||||||
Universal Health Services, Inc.† | 4.75% | 8/1/2022 | 342 | 346,273 | ||||||||
Total | 1,150,679 | |||||||||||
Household Equipment/Products 0.60% | ||||||||||||
Newell Brands, Inc. | 3.85% | 4/1/2023 | 333 | 346,049 | ||||||||
Newell Brands, Inc. | 4.70% | 8/15/2020 | 8 | 8,119 | ||||||||
Reckitt Benckiser Treasury Services plc (United Kingdom)†(f) | 2.495% (3 Mo. LIBOR + .56% | )# | 6/24/2022 | 250 | 250,644 | |||||||
Total | 604,812 | |||||||||||
Insurance 0.12% | ||||||||||||
Assurant, Inc. | 4.20% | 9/27/2023 | 45 | 46,976 | ||||||||
AXA Equitable Holdings, Inc. | 3.90% | 4/20/2023 | 23 | 24,102 | ||||||||
CNO Financial Group, Inc. | 5.25% | 5/30/2025 | 24 | 26,650 | ||||||||
MGIC Investment Corp. | 5.75% | 8/15/2023 | 19 | 21,051 | ||||||||
Total | 118,779 |
See Notes to Financial Statements. | 23 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Leasing 0.33% | ||||||||||||
Aviation Capital Group LLC† | 2.875% | 1/20/2022 | $ | 16 | $ | 16,114 | ||||||
Aviation Capital Group LLC† | 3.875% | 5/1/2023 | 92 | 95,060 | ||||||||
DAE Funding LLC (United Arab Emirates)†(f) | 4.00% | 8/1/2020 | 18 | 18,165 | ||||||||
GATX Corp. | 4.35% | 2/15/2024 | 36 | 38,492 | ||||||||
Penske Truck Leasing Co., LP/PTL Finance Corp.† | 2.70% | 11/1/2024 | 57 | 57,419 | ||||||||
Penske Truck Leasing Co., LP/PTL Finance Corp.† | 3.45% | 7/1/2024 | 93 | 96,596 | ||||||||
Penske Truck Leasing Co., LP/PTL Finance Corp.† | 3.90% | 2/1/2024 | 9 | 9,454 | ||||||||
Total | 331,300 | |||||||||||
Leisure 0.35% | ||||||||||||
LTF Merger Sub, Inc.† | 8.50% | 6/15/2023 | 164 | 167,758 | ||||||||
Royal Caribbean Cruises Ltd. | 5.25% | 11/15/2022 | 120 | 129,944 | ||||||||
Silversea Cruise Finance Ltd.† | 7.25% | 2/1/2025 | 52 | 55,142 | ||||||||
Total | 352,844 | |||||||||||
Lodging 0.25% | ||||||||||||
Las Vegas Sands Corp. | 2.90% | 6/25/2025 | 53 | 53,665 | ||||||||
Las Vegas Sands Corp. | 3.20% | 8/8/2024 | 174 | 179,621 | ||||||||
Wyndham Destinations, Inc. | 5.625% | 3/1/2021 | 20 | 20,708 | ||||||||
Total | 253,994 | |||||||||||
Machinery: Agricultural 0.63% | ||||||||||||
Altria Group, Inc. | 4.00% | 1/31/2024 | 21 | 22,278 | ||||||||
BAT Capital Corp. | 2.789% | 9/6/2024 | 54 | 54,453 | ||||||||
BAT Capital Corp. | 3.222% | 8/15/2024 | 206 | 210,667 | ||||||||
Imperial Brands Finance plc (United Kingdom)†(f) | 3.125% | 7/26/2024 | 200 | 202,141 | ||||||||
Reynolds American, Inc. | 4.85% | 9/15/2023 | 46 | 49,871 | ||||||||
Viterra, Inc. (Canada)†(f) | 5.95% | 8/1/2020 | 92 | 93,930 | ||||||||
Total | 633,340 | |||||||||||
Machinery: Industrial/Specialty 0.93% | ||||||||||||
CNH Industrial Capital LLC | 4.20% | 1/15/2024 | 83 | 87,927 | ||||||||
CNH Industrial Capital LLC | 4.375% | 11/6/2020 | 14 | 14,245 | ||||||||
CNH Industrial Capital LLC | 4.375% | 4/5/2022 | 79 | 82,693 | ||||||||
CNH Industrial Capital LLC | 4.875% | 4/1/2021 | 60 | 62,124 | ||||||||
CNH Industrial NV (United Kingdom)(f) | 4.50% | 8/15/2023 | 150 | 160,564 | ||||||||
Flowserve Corp. | 4.00% | 11/15/2023 | 191 | 197,219 | ||||||||
Nvent Finance Sarl (Luxembourg)(f) | 3.95% | 4/15/2023 | 169 | 171,654 | ||||||||
Welbilt, Inc. | 9.50% | 2/15/2024 | 29 | 30,825 | ||||||||
Westinghouse Air Brake Technologies Corp. | 3.194% (3 Mo. LIBOR + 1.30% | )# | 9/15/2021 | 22 | 22,003 | |||||||
Westinghouse Air Brake Technologies Corp. | 4.40% | 3/15/2024 | 92 | 97,734 | ||||||||
Total | 926,988 |
24 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Machinery: Oil Well Equipment & Services 0.48% | ||||||||||||
Caterpillar Financial Services Corp. | 2.42% (3 Mo. LIBOR + .51% | )# | 5/15/2023 | $ | 475 | $ | 476,478 | |||||
Manufacturing 0.22% | ||||||||||||
General Electric Co. | 3.10% | 1/9/2023 | 18 | 18,391 | ||||||||
General Electric Co. | 3.375% | 3/11/2024 | 9 | 9,323 | ||||||||
General Electric Co. | 3.45% | 5/15/2024 | 60 | 62,289 | ||||||||
General Electric Co. | 4.65% | 10/17/2021 | 127 | 132,408 | ||||||||
Total | 222,411 | |||||||||||
Media 0.35% | ||||||||||||
Charter Communications Operating LLC/Charter Communications Operating Capital | 3.559% (3 Mo. LIBOR + 1.65% | )# | 2/1/2024 | 41 | 42,202 | |||||||
Cox Communications, Inc.† | 2.95% | 6/30/2023 | 69 | 70,300 | ||||||||
Cox Communications, Inc.† | 3.15% | 8/15/2024 | 15 | 15,421 | ||||||||
Cox Communications, Inc.† | 3.25% | 12/15/2022 | 15 | 15,431 | ||||||||
NBCUniversal Enterprise, Inc.† | 5.25% | — | (g) | 200 | 206,570 | |||||||
Total | 349,924 | |||||||||||
Metal Fabricating 0.01% | ||||||||||||
Zekelman Industries, Inc.† | 9.875% | 6/15/2023 | 11 | 11,571 | ||||||||
Metals & Minerals: Miscellaneous 1.19% | ||||||||||||
Anglo American Capital plc (United Kingdom)†(f) | 3.625% | 9/11/2024 | 200 | 207,438 | ||||||||
Anglo American Capital plc (United Kingdom)†(f) | 4.125% | 9/27/2022 | 200 | 208,016 | ||||||||
Century Aluminum Co.† | 7.50% | 6/1/2021 | 9 | 8,846 | ||||||||
Freeport-McMoRan, Inc. | 3.875% | 3/15/2023 | 21 | 21,426 | ||||||||
Freeport-McMoRan, Inc. | 4.55% | 11/14/2024 | 54 | 57,195 | ||||||||
Glencore Finance Canada Ltd. (Canada)†(f) | 4.25% | 10/25/2022 | 142 | 148,725 | ||||||||
Glencore Funding LLC† | 3.00% | 10/27/2022 | 11 | 11,093 | ||||||||
Glencore Funding LLC† | 4.125% | 5/30/2023 | 211 | 220,017 | ||||||||
Glencore Funding LLC† | 4.125% | 3/12/2024 | 57 | 59,692 | ||||||||
Glencore Funding LLC† | 4.625% | 4/29/2024 | 28 | 29,761 | ||||||||
Hecla Mining Co. | 6.875% | 5/1/2021 | 73 | 72,927 | ||||||||
Joseph T Ryerson & Son, Inc.† | 11.00% | 5/15/2022 | 44 | 46,530 | ||||||||
Kinross Gold Corp. (Canada)(f) | 5.125% | 9/1/2021 | 17 | 17,718 | ||||||||
Kinross Gold Corp. (Canada)(f) | 5.95% | 3/15/2024 | 57 | 63,436 | ||||||||
Novelis Corp.† | 6.25% | 8/15/2024 | 20 | 21,025 | ||||||||
Total | 1,193,845 |
See Notes to Financial Statements. | 25 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Natural Gas 0.34% | ||||||||||||
National Fuel Gas Co. | 3.75% | 3/1/2023 | $ | 25 | $ | 25,807 | ||||||
National Fuel Gas Co. | 4.90% | 12/1/2021 | 90 | 93,691 | ||||||||
National Fuel Gas Co. | 7.395% | 3/30/2023 | 25 | 28,580 | ||||||||
ONEOK, Inc. | 7.50% | 9/1/2023 | 62 | 72,366 | ||||||||
Southern Star Central Corp.† | 5.125% | 7/15/2022 | 97 | 98,243 | ||||||||
WGL Holdings, Inc. | 2.437% (3 Mo. LIBOR + .55% | )# | 3/12/2020 | 18 | 17,993 | |||||||
Total | 336,680 | |||||||||||
Oil 4.49% | ||||||||||||
American Energy- Permian Basin LLC† | 12.00% | 10/1/2024 | 11 | 7,645 | ||||||||
Antero Resources Corp. | 5.125% | 12/1/2022 | 132 | 118,045 | ||||||||
BP Capital Markets America, Inc. | 2.553% (3 Mo. LIBOR + .65% | )# | 9/19/2022 | 225 | 226,203 | |||||||
Callon Petroleum Co. | 6.125% | 10/1/2024 | 100 | 102,144 | ||||||||
Carrizo Oil & Gas, Inc. | 6.25% | 4/15/2023 | 146 | 148,532 | ||||||||
Chaparral Energy, Inc.† | 8.75% | 7/15/2023 | 82 | 36,634 | ||||||||
Cimarex Energy Co. | 4.375% | 6/1/2024 | 81 | 85,549 | ||||||||
Concho Resources, Inc. | 4.375% | 1/15/2025 | 77 | 79,535 | ||||||||
Continental Resources, Inc. | 3.80% | 6/1/2024 | 75 | 77,584 | ||||||||
Continental Resources, Inc. | 4.50% | 4/15/2023 | 128 | 133,756 | ||||||||
Continental Resources, Inc. | 5.00% | 9/15/2022 | 321 | 323,341 | ||||||||
Diamondback Energy, Inc. | 5.375% | 5/31/2025 | 169 | 177,440 | ||||||||
Energen Corp. | 4.625% | 9/1/2021 | 31 | 31,818 | ||||||||
Eni SpA (Italy)†(f) | 4.15% | 10/1/2020 | 100 | 101,459 | ||||||||
EQT Corp. | 2.679% (3 Mo. LIBOR + .77% | )# | 10/1/2020 | 196 | 195,484 | |||||||
Gazprom PJSC Via Gaz Capital SA (Luxembourg)†(f) | 6.51% | 3/7/2022 | 100 | 108,719 | ||||||||
Gulfport Energy Corp. | 6.625% | 5/1/2023 | 33 | 27,895 | ||||||||
Helmerich & Payne, Inc. | 4.65% | 3/15/2025 | 101 | 110,349 | ||||||||
Hess Corp. | 3.50% | 7/15/2024 | 93 | 95,065 | ||||||||
HighPoint Operating Corp. | 7.00% | 10/15/2022 | 65 | 61,933 | ||||||||
Hilcorp Energy I LP/Hilcorp Finance Co.† | 5.00% | 12/1/2024 | 110 | 106,687 | ||||||||
Husky Energy, Inc. (Canada)(f) | 4.00% | 4/15/2024 | 60 | 63,339 | ||||||||
Laredo Petroleum, Inc. | 5.625% | 1/15/2022 | 90 | 87,553 | ||||||||
Magnolia Oil & Gas Operating LLC/Magnolia Oil & Gas Finance Corp.† | 6.00% | 8/1/2026 | 33 | 33,919 | ||||||||
Marathon Petroleum Corp. | 5.375% | 10/1/2022 | 143 | 144,437 | ||||||||
Matador Resources Co. | 5.875% | 9/15/2026 | 149 | 149,749 | ||||||||
Montage Resources Corp. | 8.875% | 7/15/2023 | 31 | 28,675 | ||||||||
Motiva Enterprises LLC† | 5.75% | 1/15/2020 | 94 | 94,096 | ||||||||
Murphy Oil Corp. | 6.875% | 8/15/2024 | 17 | 17,970 |
26 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Oil (continued) | ||||||||||||
Oasis Petroleum, Inc. | 6.875% | 3/15/2022 | $ | 205 | $ | 197,825 | ||||||
Occidental Petroleum Corp. | 2.70% | 8/15/2022 | 18 | 18,190 | ||||||||
Occidental Petroleum Corp. | 2.90% | 8/15/2024 | 85 | 86,404 | ||||||||
Occidental Petroleum Corp. | 3.36% (3 Mo. LIBOR + 1.45% | )# | 8/15/2022 | 104 | 104,565 | |||||||
Occidental Petroleum Corp. | 6.95% | 7/1/2024 | 149 | 175,592 | ||||||||
Parsley Energy LLC/Parsley Finance Corp.† | 6.25% | 6/1/2024 | 122 | 127,236 | ||||||||
Petroleos Mexicanos(f) | 4.25% | 1/15/2025 | 20 | 20,388 | ||||||||
Phillips 66 | 2.517% (3 Mo. LIBOR + .60% | )# | 2/26/2021 | 97 | 97,006 | |||||||
QEP Resources, Inc. | 6.875% | 3/1/2021 | 106 | 110,017 | ||||||||
Range Resources Corp. | 5.00% | 8/15/2022 | 109 | 107,092 | ||||||||
Range Resources Corp. | 5.00% | 3/15/2023 | 31 | 28,592 | ||||||||
Range Resources Corp. | 5.75% | 6/1/2021 | 45 | 45,018 | ||||||||
Range Resources Corp. | 5.875% | 7/1/2022 | 21 | 20,902 | ||||||||
Seven Generations Energy Ltd. (Canada)†(f) | 6.75% | 5/1/2023 | 86 | 88,401 | ||||||||
Seven Generations Energy Ltd. (Canada)†(f) | 6.875% | 6/30/2023 | 108 | 111,420 | ||||||||
SM Energy Co. | 6.125% | 11/15/2022 | 60 | 60,769 | ||||||||
Suncor Energy Ventures Corp. (Canada)†(f) | 9.40% | 9/1/2021 | 63 | 69,491 | ||||||||
Transocean Sentry Ltd.† | 5.375% | 5/15/2023 | 28 | 28,560 | ||||||||
WPX Energy, Inc. | 5.25% | 9/15/2024 | 15 | 15,975 | ||||||||
Total | 4,488,998 | |||||||||||
Oil: Crude Producers 2.92% | ||||||||||||
Cheniere Corpus Christi Holdings LLC | 5.875% | 3/31/2025 | 85 | 95,756 | ||||||||
Cheniere Corpus Christi Holdings LLC | 7.00% | 6/30/2024 | 325 | 375,204 | ||||||||
Colonial Pipeline Co.† | 3.50% | 10/15/2020 | 40 | 40,272 | ||||||||
Enable Oklahoma Intrastate Transmission LLC† | 6.25% | 3/15/2020 | 79 | 79,576 | ||||||||
Energy Transfer Operating LP | 4.25% | 3/15/2023 | 99 | 103,419 | ||||||||
Energy Transfer Operating LP | 5.875% | 1/15/2024 | 242 | 267,916 | ||||||||
Kinder Morgan Inc/DE | 3.281% (3 Mo. LIBOR + 1.28% | )# | 1/15/2023 | 110 | 111,612 | |||||||
Midwest Connector Capital Co. LLC† | 3.625% | 4/1/2022 | 53 | 54,340 | ||||||||
Midwest Connector Capital Co. LLC† | 3.90% | 4/1/2024 | 47 | 49,377 | ||||||||
Mplx LP | 2.985% (3 Mo. LIBOR + 1.10% | )# | 9/9/2022 | 320 | 321,311 | |||||||
Mplx LP† | 5.25% | 1/15/2025 | 171 | 179,498 | ||||||||
Mplx LP† | 6.25% | 10/15/2022 | 28 | 28,554 | ||||||||
Mplx LP† | 6.375% | 5/1/2024 | 149 | 155,941 | ||||||||
NGPL PipeCo LLC† | 4.375% | 8/15/2022 | 139 | 144,392 | ||||||||
Regency Energy Partners LP/Regency Energy Finance Corp. | 4.50% | 11/1/2023 | 14 | 14,831 | ||||||||
Sabine Pass Liquefaction LLC | 5.625% | 4/15/2023 | 500 | 544,182 |
See Notes to Financial Statements. | 27 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Oil: Crude Producers (continued) | ||||||||||||
Sabine Pass Liquefaction LLC | 5.75% | 5/15/2024 | $ | 250 | $ | 278,865 | ||||||
Spectra Energy Partners LP | 4.60% | 6/15/2021 | 5 | 5,150 | ||||||||
Texas Eastern Transmission LP† | 2.80% | 10/15/2022 | 14 | 14,137 | ||||||||
Texas Eastern Transmission LP† | 4.125% | 12/1/2020 | 5 | 5,071 | ||||||||
Texas Gas Transmission LLC† | 4.50% | 2/1/2021 | 25 | 25,428 | ||||||||
Williams Cos, Inc. (The) | 4.50% | 11/15/2023 | 19 | 20,345 | ||||||||
Williams Cos., Inc. (The) | 7.875% | 9/1/2021 | 9 | 9,815 | ||||||||
Total | 2,924,992 | |||||||||||
Oil: Integrated Domestic 0.40% | ||||||||||||
National Oilwell Varco, Inc. | 2.60% | 12/1/2022 | 71 | 71,684 | ||||||||
Oceaneering International, Inc. | 4.65% | 11/15/2024 | 38 | 37,335 | ||||||||
Schlumberger Holdings Corp.† | 3.75% | 5/1/2024 | 193 | 203,358 | ||||||||
SESI LLC | 7.125% | 12/15/2021 | 76 | 65,010 | ||||||||
TechnipFMC plc (United Kingdom)(f) | 3.45% | 10/1/2022 | 26 | 26,532 | ||||||||
Total | 403,919 | |||||||||||
Real Estate Investment Trusts 1.95% | ||||||||||||
AvalonBay Communities, Inc. | 2.431% (3 Mo. LIBOR + .43% | )# | 1/15/2021 | 400 | 399,958 | |||||||
Brandywine Operating Partnership LP | 4.10% | 10/1/2024 | 6 | 6,357 | ||||||||
Brixmor Operating Partnership LP | 3.25% | 9/15/2023 | 49 | 50,436 | ||||||||
Brixmor Operating Partnership LP | 3.65% | 6/15/2024 | 113 | 118,178 | ||||||||
China Overseas Finance Cayman V Ltd.† | 3.95% | 11/15/2022 | 200 | 206,543 | ||||||||
Corporate Office Properties LP | 3.70% | 6/15/2021 | 84 | 85,391 | ||||||||
CyrusOne LP/CyrusOne Finance Corp. | 2.90% | 11/15/2024 | 23 | 23,136 | ||||||||
EPR Properties | 5.25% | 7/15/2023 | 9 | 9,652 | ||||||||
Equinix, Inc. | 5.375% | 5/15/2027 | 251 | 273,058 | ||||||||
Equinix, Inc. | 5.875% | 1/15/2026 | 129 | 137,141 | ||||||||
Highwoods Realty LP | 3.20% | 6/15/2021 | 8 | 8,103 | ||||||||
Highwoods Realty LP | 3.625% | 1/15/2023 | 91 | 94,002 | ||||||||
SITE Centers Corp. | 4.625% | 7/15/2022 | 11 | 11,472 | ||||||||
SL Green Operating Partnership LP | 3.25% | 10/15/2022 | 89 | 91,179 | ||||||||
SL Green Realty Corp. | 4.50% | 12/1/2022 | 95 | 100,139 | ||||||||
Vereit Operating Partnership LP | 4.60% | 2/6/2024 | 261 | 281,960 | ||||||||
VEREIT Operating Partnership LP | 4.625% | 11/1/2025 | 45 | 49,264 | ||||||||
Welltower, Inc. | 4.50% | 1/15/2024 | 6 | 6,479 | ||||||||
Total | 1,952,448 | |||||||||||
Retail 0.22% | ||||||||||||
Asbury Automotive Group, Inc. | 6.00% | 12/15/2024 | 45 | 46,556 | ||||||||
Dollar Tree, Inc. | 3.70% | 5/15/2023 | 18 | 18,750 |
28 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Retail (continued) | ||||||||||||
Dollar Tree, Inc. | 4.00% | 5/15/2025 | $ | 23 | $ | 24,602 | ||||||
DriveTime Automotive Group, Inc./Bridgecrest Acceptance Corp.† | 8.00% | 6/1/2021 | 73 | 74,323 | ||||||||
Walgreens Boots Alliance, Inc. | 3.80% | 11/18/2024 | 52 | 54,088 | ||||||||
Total | 218,319 | |||||||||||
Savings & Loan 0.11% | ||||||||||||
People’s United Financial, Inc. | 3.65% | 12/6/2022 | 102 | 105,952 | ||||||||
Steel 0.29% | ||||||||||||
Steel Dynamics, Inc. | 4.125% | 9/15/2025 | 186 | 191,168 | ||||||||
Steel Dynamics, Inc. | 5.50% | 10/1/2024 | 91 | 93,740 | ||||||||
Total | 284,908 | |||||||||||
Technology 0.63% | ||||||||||||
Baidu, Inc. (China)(f) | 3.875% | 9/29/2023 | 200 | 208,674 | ||||||||
Baidu, Inc. (China)(f) | 4.375% | 5/14/2024 | 200 | 213,404 | ||||||||
Prosus NV (Netherlands)†(f) | 6.00% | 7/18/2020 | 200 | 203,734 | ||||||||
VeriSign, Inc. | 4.625% | 5/1/2023 | 8 | 8,145 | ||||||||
Total | 633,957 | |||||||||||
Telecommunications 0.46% | ||||||||||||
AT&T, Inc. | 3.067% (3 Mo. LIBOR + 1.18% | )# | 6/12/2024 | 433 | 440,796 | |||||||
CommScope, Inc.† | 5.50% | 3/1/2024 | 21 | 21,937 | ||||||||
Total | 462,733 | |||||||||||
Transportation: Miscellaneous 0.15% | ||||||||||||
Canadian Pacific Railway Co. (Canada)(f) | 9.45% | 8/1/2021 | 91 | 101,137 | ||||||||
Watco Cos. LLC/Watco Finance Corp.† | 6.375% | 4/1/2023 | 25 | 25,448 | ||||||||
XPO Logistics, Inc.† | 6.50% | 6/15/2022 | 27 | 27,561 | ||||||||
Total | 154,146 | |||||||||||
Wholesale 0.04% | ||||||||||||
H&E Equipment Services, Inc. | 5.625% | 9/1/2025 | 38 | 39,916 | ||||||||
Total Corporate Bonds (cost $39,465,874) | 40,082,553 | |||||||||||
FLOATING RATE LOANS(h)2.06% | ||||||||||||
Aerospace/Defense 0.12% | ||||||||||||
TransDigm, Inc. 2018 Term Loan F | 4.299% (3 Mo. LIBOR + 2.50% | ) | 6/9/2023 | 122 | 122,347 |
See Notes to Financial Statements. | 29 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Air Transportation 0.27% | ||||||||||||
American Airlines, Inc. 2017 Incremental Term Loan | 3.74% (1 Mo. LIBOR + 2.00% | ) | 12/14/2023 | $ | 19 | $ | 18,609 | |||||
American Airlines, Inc. New 2017 Replacement Term Loan | 3.715% (1 Mo. LIBOR + 2.00% | ) | 10/12/2021 | 155 | 156,002 | |||||||
American Airlines, Inc. Repriced TL B due 2023 | 3.805% (1 Mo. LIBOR + 2.00% | ) | 4/28/2023 | 94 | 93,904 | |||||||
Total | 268,515 | |||||||||||
Computer Software 0.01% | ||||||||||||
Sophia, L.P. 2017 Term Loan B | 5.195% (3 Mo. LIBOR + 3.25% | ) | 9/30/2022 | 7 | 6,617 | |||||||
Drugs 0.15% | ||||||||||||
NVA Holdings, Inc. Term Loan B3 | 6.50% (3 Mo. PRIME + 1.75% | ) | 2/2/2025 | 149 | 149,007 | |||||||
Electric: Power 0.17% | ||||||||||||
AES Corporation 2018 Term Loan B | 3.659% (3 Mo. LIBOR + 1.75% | ) | 5/31/2022 | 5 | 5,339 | |||||||
FirstEnergy Corp. Term Loan | 2.253% (1 Wk. LIBOR + .65% | ) | 9/11/2021 | 108 | 107,557 | (i) | ||||||
Pacific Gas & Electric Company DIP Delayed Draw Term Loan | – | 12/31/2020 | 15 | 15,075 | (i) | |||||||
Pacific Gas & Electric Company DIP Term Loan | 3.97% (1 Mo. LIBOR + 2.25% | ) | 12/31/2020 | 44 | 44,220 | (i) | ||||||
Total | 172,191 | |||||||||||
Electrical Equipment 0.06% | ||||||||||||
Marvell Technology Group Ltd 2018 Term Loan A | 3.095% (3 Mo. LIBOR + 1.38% | ) | 6/7/2021 | 64 | 64,364 | (i) | ||||||
Entertainment 0.24% | ||||||||||||
Caesars Entertainment Operating Company Exit Term Loan | 3.799% (3 Mo. LIBOR + 2.00% | ) | 10/7/2024 | 65 | 65,371 | |||||||
GLP Financing, LLC Incremental Term Loan A | 3.28% (1 Mo. LIBOR + 1.50% | ) | 4/28/2021 | 21 | 21,303 | (i) | ||||||
Seminole Tribe of Florida 2018 Term Loan B | 3.549% (1 Mo. LIBOR + 1.75% | ) | 7/8/2024 | 39 | 39,138 | |||||||
Stars Group Holdings B.V. (The) 2018 USD Incremental Term Loan (Netherlands)(f) | 5.445% (3 Mo. LIBOR + 3.50% | ) | 7/10/2025 | 109 | 110,500 | |||||||
Total | 236,312 |
30 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Financial Services 0.10% | ||||||||||||
Delos Finance SARL 2018 Term Loan B (Luxembourg)(f) | 3.695% (3 Mo. LIBOR + 1.75% | ) | 10/6/2023 | $ | 26 | $ | 25,766 | |||||
Flying Fortress Inc. 2018 Term Loan B | 3.695% (3 Mo. LIBOR + 1.75% | ) | 10/30/2022 | 73 | 73,352 | |||||||
Total | 99,118 | |||||||||||
Insurance 0.00% | ||||||||||||
FHC Health Systems, Inc. 2014 Term Loan | 5.945% (3 Mo. LIBOR + 4.00% | ) | 12/23/2021 | 5 | 4,995 | |||||||
Investment Management Companies 0.03% | ||||||||||||
RPI Finance Trust Term Loan A4 | 3.299% (1 Mo. LIBOR + 1.50% | ) | 5/4/2022 | 28 | 27,693 | |||||||
Leisure 0.11% | ||||||||||||
Life Time Fitness Inc 2017 Term Loan B | 4.659% (3 Mo. LIBOR + 2.75% | ) | 6/10/2022 | 107 | 107,533 | |||||||
Media 0.28% | ||||||||||||
AP NMT Acquisition BV USD 1st Lien Term Loan (Netherlands)(f) | 7.835% (3 Mo. LIBOR + 5.75% | ) | 8/13/2021 | 77 | 77,471 | |||||||
AP NMT Acquisition BV USD 2nd Lien Term Loan (Netherlands)(f) | 11.089% (3 Mo. LIBOR + 9.00% | ) | 8/13/2022 | 51 | 51,497 | |||||||
Charter Communications Operating, LLC 2017 Term Loan A2 | 3.30% (3 Mo. LIBOR + 1.50% | ) | 3/31/2023 | 146 | 146,395 | |||||||
Total | 275,363 | |||||||||||
Metal Fabricating 0.00% | ||||||||||||
Doncasters Finance US LLC 2nd Lien Term Loan | 10.195% (3 Mo. LIBOR + 8.25% | ) | 10/9/2020 | 8 | 953 | |||||||
Miscellaneous 0.01% | ||||||||||||
UTEX Industries Inc. 1st Lien Term loan 2014 | 5.799% (1 Mo. LIBOR + 4.00% | ) | 5/22/2021 | 14 | 10,058 | |||||||
UTEX Industries Inc. 2nd Lien Term Loan 2014 | 9.049% (1 Mo. LIBOR + 7.25% | ) | 5/22/2022 | 6 | 3,125 | |||||||
Total | 13,183 | |||||||||||
Oil: Crude Producers 0.10% | ||||||||||||
ONEOK Partners, L.P. Term Loan A | 2.749% (3 Mo. LIBOR + 1.13% | ) | 11/19/2021 | 95 | 95,179 | (i) |
See Notes to Financial Statements. | 31 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Real Estate Investment Trusts 0.10% | ||||||||||||
Invitation Homes Operating Partnership LP Term Loan A | 3.492% (1 Mo. LIBOR + 1.70% | ) | 2/6/2022 | $ | 106 | $ | 104,576 | |||||
Retail 0.15% | ||||||||||||
Comfort Holding, LLC 1st Lien Term Loan | 6.549% (1 Mo. LIBOR + 4.75% | ) | 2/5/2024 | 20 | 19,553 | |||||||
Panera Bread Co. Term Loan A | 3.563% (1 Mo. LIBOR + 1.75% | ) | 7/18/2022 | 136 | 132,787 | |||||||
Total | 152,340 | |||||||||||
Technology 0.04% | ||||||||||||
Uber Technologies, Inc. 2018 Incremental Term Loan | 5.299% (1 Mo. LIBOR + 3.50% | ) | 7/13/2023 | 37 | 37,525 | |||||||
Telecommunications 0.08% | ||||||||||||
CenturyLink, Inc. 2017 Term Loan A | 4.549% (1 Mo. LIBOR + 2.75% | ) | 11/1/2022 | 81 | 81,157 | |||||||
Wholesale 0.04% | ||||||||||||
Core & Main LP 2017 Term Loan B | 4.51% (3 Mo. LIBOR + 2.75%) - 4.663% | 8/1/2024 | 40 | 39,933 | ||||||||
Total Floating Rate Loans (cost $2,066,392) | 2,058,901 | |||||||||||
FOREIGN GOVERNMENT OBLIGATIONS 0.51% | ||||||||||||
Bahamas 0.21% | ||||||||||||
Commonwealth of Bahamas†(f) | 5.75% | 1/16/2024 | 200 | 216,750 | ||||||||
Bermuda 0.22% | ||||||||||||
Government of Bermuda† | 4.854% | 2/6/2024 | 200 | 218,335 | ||||||||
Romania 0.08% | ||||||||||||
Republic of Romania†(f) | 4.875% | 1/22/2024 | 70 | 76,958 | ||||||||
Total Foreign Government Obligations (cost $502,405) | 512,043 | |||||||||||
GOVERNMENT SPONSORED ENTERPRISES COLLATERALIZED MORTGAGE OBLIGATIONS 1.25% | ||||||||||||
Government National Mortgage Assoc. 2014-109 A | 2.325% | 1/16/2046 | 9 | 9,075 | ||||||||
Government National Mortgage Assoc. 2014-112 A | 3.00% | #(j) | 1/16/2048 | 5 | 5,367 | |||||||
Government National Mortgage Assoc. 2014-135 AS | 2.30% | 2/16/2047 | 12 | 11,904 | ||||||||
Government National Mortgage Assoc. 2014-64 A | 2.20% | 2/16/2045 | 11 | 11,127 | ||||||||
Government National Mortgage Assoc. 2014-64 IO | 1.04% | #(j) | 12/16/2054 | 179 | 8,181 | |||||||
Government National Mortgage Assoc. 2014-78 A | 2.20% | 4/16/2047 | — | (a) | 292 | |||||||
Government National Mortgage Assoc. 2014-78 IO | 0.389% | #(j) | 3/16/2056 | 43 | 957 | |||||||
Government National Mortgage Assoc. 2015-48 AS | 2.90% | #(j) | 2/16/2049 | 23 | 23,388 |
32 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
GOVERNMENT SPONSORED ENTERPRISES COLLATERALIZED MORTGAGE OBLIGATIONS (continued) | ||||||||||||
Government National Mortgage Assoc. 2015-73 AC | 2.90% | #(j) | 2/16/2053 | $ | 31 | $ | 31,325 | |||||
Government National Mortgage Assoc. 2017 20 AS | 2.50% | 2/16/2057 | 54 | 53,637 | ||||||||
Government National Mortgage Assoc. 2017 23 AB | 2.60% | 12/16/2057 | 36 | 35,551 | ||||||||
Government National Mortgage Assoc. 2017-100 AS | 2.75% | 2/16/2058 | 47 | 46,964 | ||||||||
Government National Mortgage Assoc. 2017-168 AS | 2.70% | 8/16/2058 | 166 | 166,541 | ||||||||
Government National Mortgage Assoc. 2017-22 GA | 2.60% | #(j) | 8/16/2051 | 24 | 24,489 | |||||||
Government National Mortgage Assoc. 2017-28 AB | 2.50% | 10/16/2051 | 64 | 63,257 | ||||||||
Government National Mortgage Assoc. 2017-44 AD | 2.65% | 11/17/2048 | 56 | 56,086 | ||||||||
Government National Mortgage Assoc. 2017-51 AS | 2.75% | 4/16/2058 | 86 | 86,944 | ||||||||
Government National Mortgage Assoc. 2017-53 B | 2.75% | 3/16/2050 | 85 | 85,139 | ||||||||
Government National Mortgage Assoc. 2017-54 AD | 2.75% | 1/16/2057 | 80 | 80,774 | ||||||||
Government National Mortgage Assoc. 2017-61 A | 2.60% | 8/16/2058 | 58 | 57,635 | ||||||||
Government National Mortgage Assoc. 2017-69 AS | 2.75% | 2/16/2058 | 71 | 71,566 | ||||||||
Government National Mortgage Assoc. 2017-71 AS | 2.70% | 4/16/2057 | 47 | 47,224 | ||||||||
Government National Mortgage Assoc. 2017-72 AM | 2.60% | 9/16/2051 | 28 | 28,485 | ||||||||
Government National Mortgage Assoc. 2017-74 AS | 2.60% | 10/16/2057 | 29 | 28,754 | ||||||||
Government National Mortgage Assoc. 2017-76 AS | 2.65% | 11/16/2050 | 58 | 58,341 | ||||||||
Government National Mortgage Assoc. 2017-89 AB | 2.60% | 7/16/2058 | 46 | 46,168 | ||||||||
Government National Mortgage Assoc. 2017-90 AS | 2.70% | 7/16/2057 | 63 | 63,373 | ||||||||
Government National Mortgage Assoc. 2017-92 AS | 2.75% | 6/16/2058 | 52 | 52,523 | ||||||||
Total Government Sponsored Enterprises Collateralized Mortgage Obligations (cost $1,253,528) | 1,255,067 | |||||||||||
GOVERNMENT SPONSORED ENTERPRISES PASS-THROUGHS 0.15% | ||||||||||||
Federal Home Loan Mortgage Corp. | 4.069% (12 Mo. LIBOR + 1.90% | )# | 12/1/2040 | 10 | 10,132 | |||||||
Federal Home Loan Mortgage Corp. | 4.287% (12 Mo. LIBOR + 1.80% | )# | 6/1/2041 | 8 | 7,949 | |||||||
Federal Home Loan Mortgage Corp. | 4.742% (12 Mo. LIBOR + 1.84% | )# | 6/1/2042 | 4 | 4,345 | |||||||
Federal National Mortgage Assoc. | 2.657% (12 Mo. LIBOR + 1.60% | )# | 12/1/2045 | 6 | 6,053 | |||||||
Federal National Mortgage Assoc. | 2.71% (12 Mo. LIBOR + 1.60% | )# | 12/1/2045 | 23 | 23,146 | |||||||
Federal National Mortgage Assoc. | 2.819% (12 Mo. LIBOR + 1.60% | )# | 10/1/2045 | 7 | 7,010 | |||||||
Federal National Mortgage Assoc. | 2.925% (12 Mo. LIBOR + 1.72% | )# | 6/1/2042 | 14 | 14,494 | |||||||
Federal National Mortgage Assoc. | 3.68% (12 Mo. LIBOR + 1.82% | )# | 1/1/2042 | 23 | 23,688 |
See Notes to Financial Statements. | 33 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
GOVERNMENT SPONSORED ENTERPRISES PASS-THROUGHS (continued) | ||||||||||||
Federal National Mortgage Assoc. | 4.035% (12 Mo. LIBOR + 1.81% | )# | 12/1/2040 | $ | — | (a) | $ | 958 | ||||
Federal National Mortgage Assoc. | 4.122% (12 Mo. LIBOR + 1.80% | )# | 10/1/2040 | — | (a) | 387 | ||||||
Federal National Mortgage Assoc. | 4.127% (12 Mo. LIBOR + 1.81% | )# | 12/1/2040 | 2 | 1,743 | |||||||
Federal National Mortgage Assoc. | 4.349% (12 Mo. LIBOR + 1.79% | )# | 3/1/2042 | 7 | 7,469 | |||||||
Federal National Mortgage Assoc. | 4.521% (12 Mo. LIBOR + 1.78% | )# | 10/1/2036 | 22 | 23,022 | |||||||
Federal National Mortgage Assoc. | 4.642% (12 Mo. LIBOR + 1.82% | )# | 4/1/2040 | 15 | 15,691 | |||||||
Total Government Sponsored Enterprises Pass-Throughs (cost $146,923) | 146,087 | |||||||||||
MUNICIPAL BONDS 0.14% | ||||||||||||
Miscellaneous | ||||||||||||
State of Illinois | 4.95% | 6/1/2023 | 72 | 74,698 | ||||||||
State of Illinois | 6.125% | 7/1/2021 | 65 | 67,211 | ||||||||
Total Municipal Bonds (cost $141,064) | 141,909 | |||||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES 22.74% | ||||||||||||
Americold LLC 2010-ARTA A1† | 3.847% | 1/14/2029 | 13 | 13,464 | ||||||||
AOA Mortgage Trust 2015-1177 A† | 2.957% | 12/13/2029 | 100 | 100,402 | ||||||||
AREIT Trust 2018-CRE2 A† | 2.72% (1 Mo. LIBOR + .98% | )# | 11/14/2035 | 145 | 144,773 | |||||||
Atrium Hotel Portfolio Trust 2017-ATRM A† | 2.67% (1 Mo. LIBOR + .93% | )# | 12/15/2036 | 100 | 99,834 | |||||||
Atrium Hotel Portfolio Trust 2018-ATRM A† | 2.69% (1 Mo. LIBOR + .95% | )# | 6/15/2035 | 100 | 99,931 | |||||||
Atrium Hotel Portfolio Trust 2018-ATRM B† | 3.17% (1 Mo. LIBOR + 1.43% | )# | 6/15/2035 | 100 | 99,996 | |||||||
Atrium Hotel Portfolio Trust 2018-ATRM C† | 3.39% (1 Mo. LIBOR + 1.65% | )# | 6/15/2035 | 100 | 100,068 | |||||||
Aventura Mall Trust 2013-AVM C† | 3.743% | #(j) | 12/5/2032 | 100 | 100,686 | |||||||
BAMLL Trust 2011-FSHN A† | 4.42% | 7/11/2033 | 100 | 102,191 | ||||||||
Bancorp Commercial Mortgage Trust (The) 2018-CR3 A† | 2.59% (1 Mo. LIBOR + .85% | )# | 1/15/2033 | 36 | 35,827 | |||||||
Bancorp Commercial Mortgage Trust 2019-CRE5 A† | 2.74% (1 Mo. LIBOR + 1.00% | )# | 3/15/2036 | 93 | 92,845 | |||||||
BB-UBS Trust 2012-TFT A† | 2.892% | 6/5/2030 | 200 | 199,999 | ||||||||
BB-UBS Trust 2012-TFT B† | 3.468% | #(j) | 6/5/2030 | 100 | 99,533 | |||||||
BB-UBS Trust 2012-TFT C† | 3.468% | #(j) | 6/5/2030 | 100 | 99,420 | |||||||
34 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||||||
BBCMS Mortgage Trust 2018-TALL A† | 2.462% (1 Mo. LIBOR + .72% | )# | 3/15/2037 | $ | 200 | $ | 199,274 | |||||
BBCMS Mortgage Trust 2018-TALL E† | 4.177% (1 Mo. LIBOR + 2.44% | )# | 3/15/2037 | 132 | 132,297 | |||||||
BBCMS Trust 2015-STP A† | 3.323% | 9/10/2028 | 55 | 55,145 | ||||||||
BBCMS Trust 2018-BXH A† | 2.74% (1 Mo. LIBOR + 1.00% | )# | 10/15/2037 | 68 | 68,205 | |||||||
BDS 2018-FL1 A† | 2.587% (1 Mo. LIBOR + .85% | )# | 1/15/2035 | 22 | 22,192 | |||||||
BDS 2018-FL2 A† | 2.687% (1 Mo. LIBOR+ .95% | )# | 8/15/2035 | 92 | 92,194 | |||||||
Benchmark Mortgage Trust 2019-B12 TCA† | 3.44% | #(j) | 8/15/2052 | 203 | 207,082 | (b) | ||||||
Benchmark Mortgage Trust 2019-B12 TCB† | 3.44% | #(j) | 8/15/2052 | 225 | 224,829 | (b) | ||||||
BX Commercial Mortgage Trust 2018-BIOA A† | 2.411% (1 Mo. LIBOR + .67% | )# | 3/15/2037 | 209 | 208,718 | |||||||
BX Commercial Mortgage Trust 2019-XL A† | 2.66% (1 Mo. LIBOR + .92% | )# | 10/15/2036 | 500 | 501,009 | |||||||
BX Commercial Mortgage Trust 2019-XL B† | 2.82% (1 Mo. LIBOR + 1.08% | )# | 10/15/2036 | 100 | 100,247 | |||||||
BX Commercial Mortgage Trust 2019-XL C† | 2.99% (1 Mo. LIBOR + 1.25% | )# | 10/15/2036 | 100 | 100,249 | |||||||
BX Commercial Mortgage Trust 2019-XL D† | 3.19% (1 Mo. LIBOR + 1.45% | )# | 10/15/2036 | 100 | 100,252 | |||||||
BX Commercial Mortgage Trust 2019-XL E† | 3.54% (1 Mo. LIBOR + 1.80% | )# | 10/15/2036 | 100 | 100,226 | |||||||
BX Commercial Mortgage Trust 2019-XL F† | 3.74% (1 Mo. LIBOR + 2.00% | )# | 10/15/2036 | 100 | 100,198 | |||||||
BX Trust 2017-SLCT D† | 3.79% (1 Mo. LIBOR + 2.05% | )# | 7/15/2034 | 62 | 62,090 | |||||||
BX Trust 2017-SLCT E† | 4.89% (1 Mo. LIBOR + 3.15% | )# | 7/15/2034 | 51 | 51,200 | |||||||
BX Trust 2018-BILT A† | 2.54% (1 Mo. LIBOR + .80% | )# | 5/15/2030 | 46 | 45,924 | |||||||
BX Trust 2018-BILT D† | 3.51% (1 Mo. LIBOR + 1.77% | )# | 5/15/2030 | 19 | 18,958 | |||||||
BX Trust 2018-GW A† | 2.54% (1 Mo. LIBOR + .80% | )# | 5/15/2035 | 29 | 28,952 | |||||||
BX Trust 2018-GW D† | 3.51% (1 Mo. LIBOR + 1.77% | )# | 5/15/2035 | 15 | 15,041 | |||||||
BXP Trust 2017-CQHP A† | 2.59% (1 Mo. LIBOR + .85% | )# | 11/15/2034 | 43 | 42,894 | |||||||
Cantor Commercial Real Estate Lending 2019-CF1 65C† | 4.123% | #(j) | 5/15/2052 | 176 | 176,300 | |||||||
CCRESG Commercial Mortgage Trust 2016-HEAT B† | 4.114% | 4/10/2029 | 29 | 29,327 | ||||||||
CCRESG Commercial Mortgage Trust 2016-HEAT B IO | 0.736% | #(j) | 12/10/2054 | 187 | 8,051 | |||||||
CCRESG Commercial Mortgage Trust 2016-HEAT C† | 4.919% | 4/10/2029 | 29 | 29,490 | ||||||||
CFCRE Commercial Mortgage Trust 2016-C6 XA IO | 1.163% | #(j) | 11/10/2049 | 190 | 12,015 |
See Notes to Financial Statements. | 35 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||||||
CFCRE Commercial Mortgage Trust 2018-TAN A† | 4.236% | 2/15/2033 | $ | 134 | $ | 141,227 | ||||||
Chesapeake Funding LLC CF 2019 CF1 65B† | 4.14% | #(j) | 5/15/2052 | 102 | 104,390 | |||||||
CHT Mortgage Trust 2017-CSMO A† | 2.67% (1 Mo. LIBOR + 0.93% | )# | 11/15/2036 | 789 | 790,320 | |||||||
CHT Mortgage Trust 2017-CSMO B† | 3.14% (1 Mo. LIBOR + 1.40% | )# | 11/15/2036 | 100 | 100,201 | |||||||
CHT Mortgage Trust 2017-CSMO D† | 3.99% (1 Mo. LIBOR + 2.25% | )# | 11/15/2036 | 100 | 100,292 | |||||||
Citigroup Commercial Mortgage Trust 2012-GC8 A4 | 3.024% | 9/10/2045 | 220 | 224,208 | ||||||||
Citigroup Commercial Mortgage Trust 2013-375P A† | 3.251% | 5/10/2035 | 100 | 102,792 | ||||||||
Citigroup Commercial Mortgage Trust 2013-375P A IO | 0.373% | #(j) | 6/10/2048 | 948 | 17,092 | |||||||
Citigroup Commercial Mortgage Trust 2013-375P B† | 3.518% | #(j) | 5/10/2035 | 110 | 112,963 | |||||||
Citigroup Commercial Mortgage Trust 2015-GC27 AAB | 2.944% | 2/10/2048 | 10 | 10,172 | ||||||||
Commercial Mortgage Pass-Through Certificates 2012-CR3 B† | 3.922% | 10/15/2045 | 200 | 203,506 | ||||||||
Commercial Mortgage Pass-Through Certificates 2012-LTRT A2† | 3.40% | 10/5/2030 | 100 | 101,181 | ||||||||
Commercial Mortgage Pass-Through Certificates 2013-CR12 A3 | 3.765% | 10/10/2046 | 47 | 49,067 | ||||||||
Commercial Mortgage Pass-Through Certificates 2013-CR6 A4 | 3.101% | 3/10/2046 | 10 | 10,247 | ||||||||
Commercial Mortgage Pass-Through Certificates 2013-CR7 A4 | 3.213% | 3/10/2046 | 74 | 76,149 | ||||||||
Commercial Mortgage Pass-Through Certificates 2013-CR8 A5 | 3.612% | #(j) | 6/10/2046 | 28 | 29,173 | |||||||
Commercial Mortgage Pass-Through Certificates 2013-SFS A1† | 1.873% | 4/12/2035 | 74 | 73,179 | ||||||||
Commercial Mortgage Pass-Through Certificates 2014-CR18 A5 | 3.828% | 7/15/2047 | 170 | 180,128 | ||||||||
Commercial Mortgage Pass-Through Certificates 2014-CR19 A4 | 3.532% | 8/10/2047 | 33 | 34,527 | ||||||||
Commercial Mortgage Pass-Through Certificates 2014-CR19 A4 IO† | 0.098% | #(j) | 9/10/2047 | 2,000 | 14,027 | |||||||
Commercial Mortgage Pass-Through Certificates 2014-LC15 A3 | 3.727% | 4/10/2047 | 100 | 104,735 | ||||||||
Commercial Mortgage Pass-Through Certificates 2014-LC15 A3 IO† | 0.669% | #(j) | 7/10/2050 | 91 | 2,306 |
36 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||||||
Commercial Mortgage Pass-Through Certificates 2014-UBS3 A4 | 3.819% | 6/10/2047 | $ | 13 | $ | 13,776 | ||||||
Commercial Mortgage Pass-Through Certificates 2016-GCT C† | 3.461% | #(j) | 8/10/2029 | 319 | 321,502 | |||||||
Commercial Mortgage Pass-Through Certificates 2016-GCT C IO | 1.409% | #(j) | 8/10/2049 | 55 | 3,945 | |||||||
Commercial Mortgage Pass-Through Certificates 2016-GCT D† | 3.461% | #(j) | 8/10/2029 | 100 | 100,444 | |||||||
Commercial Mortgage Pass-Through Certificates 2016-GCT XA IO† | 0.784% | 8/10/2029 | 4,000 | 37,500 | ||||||||
Credit Suisse Commercial Mortgage Securities Corp. 2019-SKLZ A† | 2.99% (1 Mo. LIBOR + 1.25% | )# | 1/15/2034 | 50 | 50,113 | |||||||
Credit Suisse Commercial Mortgage Securities Corp. 2019-SKLZ A IO† | 0.552% | #(j) | 9/15/2037 | 1,000 | 26,197 | |||||||
Credit Suisse Mortgage Capital Certificates 2017-HD A† | 2.69% (1 Mo. LIBOR + .95% | )# | 2/15/2031 | 50 | 49,982 | |||||||
Credit Suisse Mortgage Capital Certificates 2017-HD D† | 4.24% (1 Mo. LIBOR + 2.50% | )# | 2/15/2031 | 50 | 49,890 | |||||||
Credit Suisse Mortgage Capital Certificates 2017-LSTK A† | 2.761% | 4/5/2033 | 364 | 364,577 | ||||||||
Credit Suisse Mortgage Capital Certificates 2017-LSTK B† | 3.03% | 4/5/2033 | 50 | 50,104 | ||||||||
Credit Suisse Mortgage Capital Certificates 2017-LSTK C† | 3.229% | 4/5/2033 | 50 | 49,964 | ||||||||
Credit Suisse Mortgage Capital Certificates 2017-LSTK D† | 3.331% | #(j) | 4/5/2033 | 50 | 49,932 | |||||||
Credit Suisse Mortgage Capital Certificates 2017-MOON A† | 3.197% | 7/10/2034 | 60 | 61,360 | ||||||||
Credit Suisse Mortgage Capital Certificates 2017-MOON B† | 3.197% | #(j) | 7/10/2034 | 50 | 50,793 | |||||||
Credit Suisse Mortgage Capital Certificates 2017-MOON B IO† | Zero Coupon | #(j) | 7/10/2034 | 28,675 | 23,069 | |||||||
Credit Suisse Mortgage Capital Certificates 2017-MOON C† | 3.197% | #(j) | 7/10/2034 | 109 | 109,989 | |||||||
Credit Suisse Mortgage Capital Certificates 2017-MOON D† | 3.197% | #(j) | 7/10/2034 | 50 | 50,142 | |||||||
Credit Suisse Mortgage Capital Certificates 2019-ICE4 A† | 2.72% (1 Mo. LIBOR + .98% | )# | 5/15/2036 | 434 | 435,365 | |||||||
Credit Suisse Mortgage Capital Certificates 2019-ICE4 B† | 2.97% (1 Mo. LIBOR + 1.23% | )# | 5/15/2036 | 178 | 178,305 | |||||||
Credit Suisse Mortgage Capital Certificates 2019-ICE4 C† | 3.17% (1 Mo. LIBOR + 1.43% | )# | 5/15/2036 | 190 | 190,332 |
See Notes to Financial Statements. | 37 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||||||
Credit Suisse Mortgage Capital Certificates 2019-ICE4 C IO | 1.898% | #(j) | 1/15/2049 | $ | 757 | $ | 64,616 | |||||
Credit Suisse Mortgage Capital Certificates Trust 2017-PFHP A† | 2.69% (1 Mo. LIBOR + .95% | )# | 12/15/2030 | 50 | 49,984 | |||||||
CSAIL Commercial Mortgage Trust 2015-C4 A2 | 3.157% | 11/15/2048 | 10 | 10,023 | ||||||||
CSAIL Commercial Mortgage Trust 2015-C4 A2 IO | 1.486% | #(j) | 8/10/2049 | 194 | 15,402 | |||||||
DBGS Mortgage Trust 2018-BIOD A† | 2.543% (1 Mo. LIBOR + .80% | )# | 5/15/2035 | 93 | 92,657 | |||||||
DBUBS Mortgage Trust 2011-LC2A A4† | 4.537% | 7/10/2044 | 100 | 102,038 | ||||||||
DBWF Mortgage Trust 2015-LCM A1† | 2.998% | 6/10/2034 | 16 | 15,988 | ||||||||
DBWF Mortgage Trust 2016-85T XA IO† | 0.014% | #(j) | 12/10/2036 | 3,140 | 10,519 | |||||||
DBWF Mortgage Trust 2018-AMXP A† | 3.747% | #(j) | 5/5/2035 | 325 | 335,356 | |||||||
DBWF Mortgage Trust 2018-AMXP B† | 3.996% | #(j) | 5/5/2035 | 100 | 103,456 | |||||||
DBWF Mortgage Trust 2018-AMXP C† | 3.83% | #(j) | 5/5/2035 | 100 | 101,357 | |||||||
DBWF Mortgage Trust 2018-GLKS A† | 2.794% (1 Mo. LIBOR + 1.03% | )# | 11/19/2035 | 134 | 134,163 | |||||||
DBWF Mortgage Trust 2018-GLKS B† | 3.114% (1 Mo. LIBOR + 1.35% | )# | 11/19/2035 | 100 | 100,115 | |||||||
DBWF Mortgage Trust 2018-GLKS C† | 3.514% (1 Mo. LIBOR + 1.75% | )# | 11/19/2035 | 100 | 100,180 | |||||||
DBWF Mortgage Trust 2018-GLKS D† | 4.164% (1 Mo. LIBOR + 2.40% | )# | 11/19/2035 | 100 | 100,391 | |||||||
Fontainebleau Miami Beach Trust 2019-FBLU A† | 3.144% | 12/10/2036 | 100 | 102,443 | ||||||||
Fontainebleau Miami Beach Trust 2019-FBLU B† | 3.447% | 12/10/2036 | 100 | 102,449 | ||||||||
GRACE Mortgage Trust 2014-GRCE A† | 3.369% | 6/10/2028 | 100 | 101,088 | ||||||||
Great Wolf Trust 2019-WOLF A† | 2.756% (1 Mo. LIBOR + 1.03% | )# | 12/15/2036 | 245 | 244,311 | |||||||
Great Wolf Trust 2019-WOLF B† | 3.056% (1 Mo. LIBOR + 1.33% | )# | 12/15/2036 | 88 | 87,950 | |||||||
Great Wolf Trust 2019-WOLF C† | 3.355% (1 Mo. LIBOR + 1.63% | )# | 12/15/2036 | 124 | 123,972 | |||||||
Great Wolf Trust 2019-WOLF D† | 3.655% (1 Mo. LIBOR + 1.93% | )# | 12/15/2036 | 124 | 123,978 | |||||||
Great Wolf Trust 2019-WOLF E† | 4.454% (1 Mo. LIBOR + 2.73% | )# | 12/15/2036 | 95 | 95,090 | |||||||
GS Mortgage Securities Corp. II 2012-BWTR A† | 2.954% | 11/5/2034 | 214 | 216,860 | ||||||||
GS Mortgage Securities Corp. II 2012-BWTR A IO† | 0.111% | #(j) | 2/10/2037 | 1,590 | 16,186 | |||||||
GS Mortgage Securities Corp. II 2012-TMSQ A† | 3.007% | 12/10/2030 | 100 | 101,435 | ||||||||
GS Mortgage Securities Corp. Trust 2016-RENT C† | 4.067% | #(j) | 2/10/2029 | 100 | 100,915 |
38 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||||||
GS Mortgage Securities Corp. Trust 2017-GPTX A† | 2.856% | 5/10/2034 | $ | 100 | $ | 99,730 | ||||||
GS Mortgage Securities Corp. Trust 2017-STAY A† | 2.59% (1 Mo. LIBOR + .85% | )# | 7/15/2032 | 100 | 99,998 | |||||||
GS Mortgage Securities Corp. Trust 2018-RIVR A† | 2.69% (1 Mo. LIBOR + .95% | )# | 7/15/2035 | 100 | 100,245 | |||||||
GS Mortgage Securities Corp. Trust 2019-70P A† | 2.74% (1 Mo. LIBOR + 1.00% | )# | 10/15/2036 | 253 | 253,222 | |||||||
GS Mortgage Securities Corp. Trust 2019-70P B† | 3.06% (1 Mo. LIBOR + 1.32% | )# | 10/15/2036 | 56 | 55,751 | |||||||
GS Mortgage Securities Corp. Trust 2019-BOCA A† | 2.94% (1 Mo. LIBOR + 1.20% | )# | 6/15/2038 | 174 | 174,280 | |||||||
GS Mortgage Securities Corp. Trust 2019-BOCA A IO† | 1.934% | #(j) | 1/10/2045 | 285 | 7,966 | |||||||
GS Mortgage Securities Corp. Trust 2019-BOCA B† | 3.24% (1 Mo. LIBOR + 1.50% | )# | 6/15/2038 | 100 | 99,943 | |||||||
GS Mortgage Securities Corp. Trust 2019-SMP B† | 3.24% (1 Mo. LIBOR + 1.50% | )# | 8/15/2032 | 500 | 501,556 | |||||||
GS Mortgage Securities Trust 2011-GC5 B† | 5.39% | #(j) | 8/10/2044 | 107 | 110,667 | |||||||
GS Mortgage Securities Trust 2012-GCJ7 B | 4.74% | 5/10/2045 | 20 | 20,775 | ||||||||
GS Mortgage Securities Trust 2013-G1 A2† | 3.557% | #(j) | 4/10/2031 | 100 | 101,594 | |||||||
GS Mortgage Securities Trust 2013-G1 A2 IO | 0.182% | #(j) | 11/10/2048 | 1,082 | 13,395 | |||||||
GS Mortgage Securities Trust 2013-GC14 A5 | 4.243% | 8/10/2046 | 100 | 106,504 | ||||||||
GS Mortgage Securities Trust 2014-GC18 A4 | 4.074% | 1/10/2047 | 151 | 160,495 | ||||||||
GS Mortgage Securities Trust 2016-GS4 225A† | 2.636% | 11/10/2029 | 15 | 15,080 | (b) | |||||||
GS Mortgage Securities Trust 2016-GS4 225C† | 3.778% | 11/10/2029 | 26 | 26,802 | (b) | |||||||
GS Mortgage Securities Trust 2016-GS4 225D† | 4.766% | 11/10/2029 | 35 | 36,447 | (b) | |||||||
Hawaii Hotel Trust 2019-MAUI A† | 2.89% (1 Mo. LIBOR + 1.15% | )# | 5/15/2038 | 190 | 190,131 | |||||||
Hawaii Hotel Trust 2019-MAUI B† | 3.19% (1 Mo. LIBOR + 1.45% | )# | 5/15/2038 | 100 | 100,071 | |||||||
Hilton Orlando Trust 2018-ORL A† | 2.51% (1 Mo. LIBOR + .77% | )# | 12/15/2034 | 41 | 41,046 | |||||||
Hilton Orlando Trust 2018-ORL D† | 3.44% (1 Mo. LIBOR + 1.70% | )# | 12/15/2034 | 34 | 34,041 | |||||||
HMH Trust 2017-NSS A† | 3.062% | 7/5/2031 | 100 | 101,097 | ||||||||
HMH Trust 2017-NSS B† | 3.343% | 7/5/2031 | 100 | 101,563 | ||||||||
HMH Trust 2017-NSS C† | 3.787% | 7/5/2031 | 100 | 100,949 | ||||||||
HMH Trust 2017-NSS D† | 4.723% | 7/5/2031 | 100 | 101,924 | ||||||||
HMH Trust 2017-NSS D IO† | 1.245% | #(j) | 8/5/2034 | 1,000 | 30,360 |
See Notes to Financial Statements. | 39 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||||||
Hudsons Bay Simon JV Trust 2015-HB7 A7† | 3.914% | 8/5/2034 | $ | 100 | $ | 101,716 | ||||||
Hudsons Bay Simon JV Trust 2015-HB7 B7† | 4.666% | 8/5/2034 | 179 | 180,110 | ||||||||
Irvine Core Office Trust 2013-IRV A1† | 2.068% | 5/15/2048 | 19 | 18,588 | ||||||||
Irvine Core Office Trust 2013-IRV A2† | 3.173% | #(j) | 5/15/2048 | 27 | 27,745 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2012-C6 B | 4.819% | #(j) | 5/15/2045 | 11 | 11,477 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2012-WLDN A† | 3.905% | 5/5/2030 | 181 | 185,394 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2013-C14 A4 | 4.133% | #(j) | 8/15/2046 | 32 | 34,011 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2013-C14 A4 IO | 0.966% | #(j) | 1/15/2048 | 766 | 29,267 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2014-C19 A2 | 3.046% | 4/15/2047 | – | (a) | 227 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2014-C19 A4 | 3.997% | 4/15/2047 | 76 | 80,986 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2014-DSTY A† | 3.429% | 6/10/2027 | 200 | 200,588 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2015-C28 A2 | 2.773% | 10/15/2048 | 19 | 19,429 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2015-C28 A2 IO | 0.734% | #(j) | 12/15/2049 | 955 | 30,049 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2015-C30 XA IO | 0.523% | #(j) | 7/15/2048 | 853 | 20,992 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2015-C32 ASB | 3.358% | 11/15/2048 | 33 | 34,055 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2016-WIKI A† | 2.798% | 10/5/2031 | 225 | 226,519 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2016-WIKI B† | 3.201% | 10/5/2031 | 25 | 25,204 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2016-WIKI C† | 3.554% | 10/5/2031 | 20 | 20,195 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2016-WIKI C IO† | 0.657% | #(j) | 10/5/2031 | 1,000 | 8,800 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2016-WIKI D† | 4.009% | #(j) | 10/5/2031 | 35 | 35,534 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2016-WIKI D IO | 1.072% | #(j) | 9/15/2050 | 987 | 58,396 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2016-WIKI E† | 4.009% | #(j) | 10/5/2031 | 12 | 12,102 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2017-MARK A† | 3.392% | 6/5/2032 | 67 | 68,132 |
40 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2017-MARK B† | 3.795% | 6/5/2032 | $ | 27 | $ | 27,458 | ||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2017-MARK C† | 4.036% | #(j) | 6/5/2032 | 20 | 20,320 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-BCON A† | 3.735% | 1/5/2031 | 243 | 252,134 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-LAQ A† | 2.74% (1 Mo. LIBOR + 1.00% | )# | 6/15/2032 | 15 | 15,289 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-LAQ B† | 3.04% (1 Mo. LIBOR + 1.30% | )# | 6/15/2032 | 61 | 61,196 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-LAQ B IO† | 1.285% | #(j) | 6/15/2032 | 20,156 | 202 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-LAQ C† | 3.34% (1 Mo. LIBOR + 1.60% | )# | 6/15/2032 | 47 | 46,798 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-LAQ E† | 4.74% (1 Mo. LIBOR + 3.00% | )# | 6/15/2035 | 9 | 9,032 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-PTC A† | 2.94% (1 Mo. LIBOR + 1.20% | )# | 4/15/2031 | 90 | 90,202 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-PTC B† | 3.64% (1 Mo. LIBOR + 1.90% | )# | 4/15/2031 | 24 | 24,049 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-PTC C† | 4.04% (1 Mo. LIBOR + 2.30% | )# | 4/15/2031 | 18 | 18,052 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-PTC D† | 4.86% (1 Mo. LIBOR + 3.12% | )# | 4/15/2031 | 10 | 10,036 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-WPT AFL† | 2.654% (1 Mo. LIBOR + .95% | )# | 7/5/2033 | 45 | 45,038 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-WPT AFX† | 4.248% | 7/5/2033 | 138 | 146,834 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-WPT BFX† | 4.549% | 7/5/2033 | 41 | 43,629 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-WPT CFL† | 3.354% (1 Mo. LIBOR + 1.65% | )# | 7/5/2033 | 16 | 16,025 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-WPT CFX† | 4.95% | 7/5/2033 | 54 | 57,595 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-WPT DFL† | 3.954% (1 Mo. LIBOR + 2.25% | )# | 7/5/2033 | 16 | 16,041 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-WPT DFX† | 5.35% | 7/5/2033 | 62 | 66,111 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2019-ICON A† | 3.884% | 1/5/2034 | 84 | 88,692 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2019-ICON B† | 4.235% | 1/5/2034 | 24 | 25,316 |
See Notes to Financial Statements. | 41 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2019-ICON C† | 4.536% | 1/5/2034 | $ | 22 | $ | 23,210 | ||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2019-ICON C IO† | 1.336% | #(j) | 1/5/2034 | 3,332 | 160,197 | |||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2019-ICON D† | 5.038% | 1/5/2034 | 23 | 24,230 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2019-ICON UES B† | 4.142% | 5/5/2032 | 105 | 110,757 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2019-ICON XA IO† | 1.844% | #(j) | 3/10/2049 | 864 | 51,132 | |||||||
LoanCore Issuer Ltd. 2019-CRE3 A† | 2.79% (1 Mo. LIBOR + 1.05% | )# | 4/15/2034 | 210 | 209,913 | |||||||
LoanCore Issuer Ltd. 2019-CRE3 AS† | 3.11% (1 Mo. LIBOR + 1.37% | )# | 4/15/2034 | 44 | 44,022 | |||||||
LSTAR Commercial Mortgage Trust 2017-5 A1† | 2.417% | 3/10/2050 | 26 | 26,186 | ||||||||
LSTAR Commercial Mortgage Trust 2017-5 A2† | 2.776% | 3/10/2050 | 100 | 100,522 | ||||||||
LSTAR Commercial Mortgage Trust 2017-5 A3† | 4.50% | 3/10/2050 | 100 | 105,488 | ||||||||
Morgan Stanley Bank of America Merrill Lynch Trust 2012-CKSV A1† | 2.117% | 10/15/2030 | 32 | 31,417 | ||||||||
Morgan Stanley Bank of America Merrill Lynch Trust 2012-CKSV A2† | 3.277% | 10/15/2030 | 100 | 100,784 | ||||||||
Morgan Stanley Bank of America Merrill Lynch Trust 2012-CKSV A2 IO | 0.657% | #(j) | 7/15/2050 | 468 | 10,428 | |||||||
Morgan Stanley Bank of America Merrill Lynch Trust 2013-C11 A4 | 4.154% | #(j) | 8/15/2046 | 139 | 147,535 | |||||||
Morgan Stanley Bank of America Merrill Lynch Trust 2013-C7 A4 | 2.918% | 2/15/2046 | 10 | 10,184 | ||||||||
Morgan Stanley Bank of America Merrill Lynch Trust 2013-C7 A4 IO | 1.411% | #(j) | 11/15/2049 | 961 | 67,267 | |||||||
Morgan Stanley Bank of America Merrill Lynch Trust 2015-C24 ASB | 3.479% | 5/15/2048 | 21 | 21,693 | ||||||||
Morgan Stanley Capital Barclays Bank Trust 2016-MART B† | 2.48% | 9/13/2031 | 50 | 49,874 | ||||||||
Morgan Stanley Capital Barclays Bank Trust 2016-MART C† | 2.817% | 9/13/2031 | 100 | 99,773 | ||||||||
Morgan Stanley Capital Barclays Bank Trust 2016-MART XCP IO† | Zero Coupon | #(j) | 9/13/2031 | 9,863 | 99 | |||||||
Morgan Stanley Capital I Trust 2014-CPT A† | 3.35% | 7/13/2029 | 140 | 142,061 | ||||||||
Morgan Stanley Capital I Trust 2014-CPT A IO | 0.992% | #(j) | 8/15/2049 | 1,000 | 58,009 | |||||||
Morgan Stanley Capital I Trust 2014-MP A† | 3.469% | 8/11/2033 | 100 | 101,882 | ||||||||
Morgan Stanley Capital I Trust 2015-UBS8 ASB | 3.626% | 12/15/2048 | 12 | 12,515 |
42 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||||||
Motel 6 Trust 2017-MTL6 E† | 4.99% (1 Mo. LIBOR + 3.25% | )# | 8/15/2034 | $ | 173 | $ | 173,600 | |||||
Motel 6 Trust 2017-MTL6 F† | 5.99% (1 Mo. LIBOR + 4.25% | )# | 8/15/2034 | 53 | 53,384 | |||||||
MSCG Trust 2015-ALDR A1† | 2.612% | 6/7/2035 | 15 | 14,787 | ||||||||
MSCG Trust 2016-SNR A† | 3.348% | #(j) | 11/15/2034 | 6 | 5,890 | |||||||
MSCG Trust 2016-SNR B† | 4.181% | 11/15/2034 | 28 | 28,369 | ||||||||
MSCG Trust 2016-SNR C† | 5.205% | 11/15/2034 | 21 | 21,681 | ||||||||
Natixis Commercial Mortgage Securities Trust 2018-285M A† | 3.79% | #(j) | 11/15/2032 | 98 | 101,329 | |||||||
Natixis Commercial Mortgage Securities Trust 2018-285M B† | 3.79% | #(j) | 11/15/2032 | 24 | 24,748 | |||||||
New Orleans Hotel Trust 2019-HNLA A† | 2.729% (1 Mo. LIBOR + .99% | )# | 4/15/2032 | 150 | 149,875 | |||||||
New Orleans Hotel Trust 2019-HNLA D† | 3.779% (1 Mo. LIBOR + 2.04% | )# | 4/15/2032 | 100 | 100,002 | |||||||
Palisades Center Trust 2016-PLSD A† | 2.713% | 4/13/2033 | 10 | 9,952 | ||||||||
Palisades Center Trust 2016-PLSD D† | 4.737% | 4/13/2033 | 77 | 74,602 | ||||||||
PFP Ltd. 2019-6 A† | 2.964% (1 Mo. LIBOR + 1.05% | )# | 4/14/2037 | 114 | 114,034 | |||||||
Prima Capital CRE Securitization 2015-5A C† | 4.50% | 12/24/2050 | 97 | 96,631 | ||||||||
RBS Commercial Funding, Inc. Trust 2013-SMV A† | 3.26% | 3/11/2031 | 100 | 102,106 | ||||||||
Ready Capital Mortgage Financing LLC 2019-FL3 A† | 2.792% (1 Mo. LIBOR + 1.00% | )# | 3/25/2034 | 124 | 124,087 | |||||||
ReadyCap Commercial Mortgage Trust 2015-2 A† | 3.804% | 6/25/2055 | 8 | 7,687 | ||||||||
ReadyCap Commercial Mortgage Trust 2018-4 A† | 3.39% | 2/27/2051 | 76 | 76,761 | ||||||||
ReadyCap Commercial Mortgage Trust 2019-6 A† | 2.832% | 10/25/2052 | 88 | 88,014 | ||||||||
ReadyCap Mortgage Trust 2016-3 A IO† | 0.305% | #(j) | 2/15/2041 | 4,149 | 115,558 | |||||||
RETL 2019-RVP A† | 2.89% (1 Mo. LIBOR + 1.15% | )# | 3/15/2036 | 66 | 66,170 | |||||||
RETL 2019-RVP C† | 3.84% (1 Mo. LIBOR + 2.10% | )# | 3/15/2036 | 50 | 50,189 | |||||||
Shelter Growth CRE Issuer Ltd. 2018-FL1 A† | 2.74% (1 Mo. LIBOR + 1.00% | )# | 1/15/2035 | 16 | 15,581 | |||||||
Shelter Growth CRE Issuer Ltd. 2018-FL1 A IO† | 0.203% | #(j) | 7/5/2036 | 1,000 | 14,000 | |||||||
Shelter Growth CRE Issuer Ltd. 2019-FL2 A† | 2.84% (1 Mo. LIBOR + 1.10% | )# | 5/15/2036 | 131 | 131,032 | |||||||
Shelter Growth CRE Issuer Ltd. 2019-FL2 AS† | 3.19% (1 Mo. LIBOR + 1.45% | )# | 5/15/2036 | 41 | 41,009 | |||||||
SLIDE 2018-FUN A† | 2.64% (1 Mo. LIBOR + .90% | )# | 6/15/2031 | 68 | 67,687 | |||||||
SLIDE 2018-FUN B† | 2.99% (1 Mo. LIBOR + 1.25% | )# | 6/15/2031 | 14 | 14,505 | |||||||
SLIDE 2018-FUN B IO† | 0.976% | #(j) | 12/15/2020 | 1,603 | 14,768 | (b) |
See Notes to Financial Statements. | 43 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||||||
SLIDE 2018-FUN C† | 3.29% (1 Mo. LIBOR + 1.55% | )# | 6/15/2031 | $ | 13 | $ | 12,575 | |||||
SLIDE 2018-FUN D† | 3.59% (1 Mo. LIBOR + 1.85% | )# | 6/15/2031 | 19 | 19,365 | |||||||
Stonemont Portfolio Trust 2017-MONT D† | 3.815% (1 Mo. LIBOR + 2.05% | )# | 8/20/2030 | 87 | 87,207 | |||||||
Stonemont Portfolio Trust 2017-MONT E† | 4.515% (1 Mo. LIBOR + 2.75% | )# | 8/20/2030 | 130 | 130,107 | |||||||
Stonemont Portfolio Trust 2017-MONT F† | 5.365% (1 Mo. LIBOR + 3.60% | )# | 8/20/2030 | 84 | 83,922 | |||||||
Stonemont Portfolio Trust 2017-MONT XCP IO† | Zero Coupon | #(j) | 8/20/2030 | 14,750 | 295 | |||||||
UBS-BAMLL Trust 2012-WRM D† | 4.238% | #(j) | 6/10/2030 | 100 | 98,361 | |||||||
UBS-Barclays Commercial Mortgage Trust 2012-C2 A4 | 3.525% | 5/10/2063 | 34 | 34,901 | ||||||||
UBS-Barclays Commercial Mortgage Trust 2012-C3 A4 | 3.091% | 8/10/2049 | 30 | 30,603 | ||||||||
UBS-Barclays Commercial Mortgage Trust 2012-C3 A4 IO† | 0.952% | #(j) | 3/10/2046 | 795 | 18,786 | |||||||
UBS-Barclays Commercial Mortgage Trust 2012-C4 A5 | 2.85% | 12/10/2045 | 200 | 203,317 | ||||||||
UBS-Barclays Commercial Mortgage Trust 2013-C5 A4 | 3.185% | 3/10/2046 | 77 | 78,999 | ||||||||
UBS-Citigroup Commercial Mortgage Trust 2011-C1 A3 | 3.595% | 1/10/2045 | 82 | 82,980 | ||||||||
VNDO Mortgage Trust 2012-6AVE A† | 2.996% | 11/15/2030 | 300 | 305,392 | ||||||||
Waikiki Beach Hotel Trust 2019-WBM A† | 2.79% (1 Mo. LIBOR + 1.05% | )# | 12/15/2033 | 48 | 48,024 | |||||||
Wells Fargo Commercial Mortgage Trust 2010-C1 C† | 5.632% | #(j) | 11/15/2043 | 100 | 101,659 | |||||||
Wells Fargo Commercial Mortgage Trust 2010-C1 C IO | 0.017% | #(j) | 6/15/2048 | 2,000 | 4,923 | |||||||
Wells Fargo Commercial Mortgage Trust 2015-C26 ASB | 2.991% | 2/15/2048 | 21 | 21,410 | ||||||||
Wells Fargo Commercial Mortgage Trust 2015-C29 ASB | 3.40% | 6/15/2048 | 10 | 10,331 | ||||||||
Wells Fargo Commercial Mortgage Trust 2015-NXS4 A2A | 3.075% | 12/15/2048 | 10 | 10,039 | ||||||||
Wells Fargo Commercial Mortgage Trust 2015-NXS4 A2A IO | 1.764% | #(j) | 8/15/2049 | 964 | 89,597 | |||||||
Wells Fargo Commercial Mortgage Trust 2015-NXS4 A2B | 4.597% | #(j) | 12/15/2048 | 36 | 36,661 | |||||||
Wells Fargo Commercial Mortgage Trust 2015-SG1 XA IO | 0.706% | #(j) | 9/15/2048 | 927 | 30,004 |
44 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||||||
Wells Fargo Commercial Mortgage Trust 2018-C44 A2 | 4.178% | 5/15/2051 | $ | 35 | $ | 36,969 | ||||||
West Town Mall Trust 2017-KNOX A† | 3.823% | 7/5/2030 | 74 | 75,579 | ||||||||
West Town Mall Trust 2017-KNOX B† | 4.322% | 7/5/2030 | 31 | 31,818 | ||||||||
West Town Mall Trust 2017-KNOX B IO† | 0.376% | #(j) | 7/5/2030 | 1,604 | 13,365 | |||||||
West Town Mall Trust 2017-KNOX C† | 4.346% | #(j) | 7/5/2030 | 25 | 25,511 | |||||||
West Town Mall Trust 2017-KNOX D† | 4.346% | #(j) | 7/5/2030 | 25 | 25,336 | |||||||
WF-RBS Commercial Mortgage Trust 2011-C2 A4† | 4.869% | #(j) | 2/15/2044 | 23 | 23,732 | |||||||
WF-RBS Commercial Mortgage Trust 2011-C2 A4 IO† | 1.345% | #(j) | 6/15/2045 | 72 | 1,742 | |||||||
WF-RBS Commercial Mortgage Trust 2012-C7 A2 | 3.431% | 6/15/2045 | 50 | 51,278 | ||||||||
WF-RBS Commercial Mortgage Trust 2012-C7 A2 IO† | 1.811% | #(j) | 8/15/2045 | 326 | 11,805 | |||||||
WF-RBS Commercial Mortgage Trust 2012-C7 B | 4.748% | #(j) | 6/15/2045 | 25 | 25,976 | |||||||
WF-RBS Commercial Mortgage Trust 2012-C9 A3 | 2.87% | 11/15/2045 | 273 | 277,485 | ||||||||
Total Non-Agency Commercial Mortgage-Backed Securities (cost $22,646,993) | 22,765,880 | |||||||||||
Shares (000) | ||||||||||||
PREFERRED STOCK 0.00% | ||||||||||||
Oil | ||||||||||||
Templar Energy LLC (cost $11,819) | 1 | – | (b) | |||||||||
Principal Amount (000) | ||||||||||||
U.S. TREASURY OBLIGATIONS 2.30% | ||||||||||||
U.S. Treasury Note | 1.50% | 11/30/2024 | $ | 62 | 61,448 | |||||||
U.S. Treasury Note | 1.625% | 12/31/2021 | 1,196 | 1,197,207 | ||||||||
U.S. Treasury Note | 1.75% | 12/31/2024 | 102 | 102,231 | ||||||||
U.S. Treasury Note | 2.50% | 1/31/2021 | 933 | 941,568 | ||||||||
Total U.S. Treasury Obligations (cost $2,292,408) | 2,302,454 | |||||||||||
Total Long-Term Investments (cost $92,082,439) | 92,933,526 | |||||||||||
SHORT-TERM INVESTMENTS 7.15% | ||||||||||||
COMMERCIAL PAPER 2.44% | ||||||||||||
Aerospace/Defense 0.25% | ||||||||||||
Boeing Co. | 2.333% | 10/29/2020 | 250 | 245,381 |
See Notes to Financial Statements. | 45 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
Business Services 0.25% | ||||||||||||
Cintas Executive | 1.856% | 1/2/2020 | $ | 250 | $ | 250,000 | ||||||
Containers 0.19% | ||||||||||||
Sonoco Products Co. | 1.775% | 1/2/2020 | 192 | 192,000 | ||||||||
Electric: Power 0.50% | ||||||||||||
Evergy Kansas | 1.856% | 1/2/2020 | 250 | 250,000 | ||||||||
So. Calif Edison | 2.028% | 1/2/2020 | 250 | 250,000 | ||||||||
Total | 500,000 | |||||||||||
Electronics 0.25% | ||||||||||||
Jabil, Inc. | 2.436% | 1/2/2020 | 250 | 250,000 | ||||||||
Food 0.25% | ||||||||||||
Kroger Co. | 1.805% | 1/6/2020 | 250 | 249,951 | ||||||||
Leisure 0.25% | ||||||||||||
Royal Caribbean Cruise | 1.977% | 1/3/2020 | 250 | 249,986 | ||||||||
Media 0.25% | ||||||||||||
Relx Investments plc | 1.866% | 1/6/2020 | 250 | 249,949 | ||||||||
Retail 0.25% | ||||||||||||
Canadian Tire | 1.856% | 1/2/2020 | 126 | 126,000 | ||||||||
Canadian Tire | 1.856% | 1/2/2020 | 125 | 125,000 | ||||||||
Total | 251,000 | |||||||||||
Total Commercial Paper (cost $2,438,064) | 2,438,267 | |||||||||||
CORPORATE BONDS 0.43% | ||||||||||||
Investment Management Companies 0.20% | ||||||||||||
Huarong Finance II Co. Ltd. (Hong Kong)†(f) | 4.50% | 1/16/2020 | 200 | 200,124 | ||||||||
Retail 0.23% | ||||||||||||
Dollar Tree, Inc. | 2.702% (3 Mo. LIBOR + .70% | )# | 4/17/2020 | 230 | 230,044 | |||||||
Total Corporate Bonds (cost $430,117) | 430,168 | |||||||||||
FOREIGN GOVERNMENT OBLIGATION 0.12% | ||||||||||||
Hungary | ||||||||||||
Hungary Government Bond(f) (cost $119,324) | 6.25% | 1/29/2020 | 119 | 119,538 |
46 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | ||||||||
REPURCHASE AGREEMENT 4.16% | ||||||||||||
Repurchase Agreement dated 12/31/2019, 0.85% due 1/2/2020 with Fixed Income Clearing Corp. collateralized by $4,240,000 of U.S. Treasury Note at 1.500% due 8/31/2021; value: $4,253,653; proceeds: $4,168,601 (cost $4,168,404) | $ | 4,168 | $ | 4,168,404 | ||||||||
Total Short-Term Investments(cost $7,155,909) | 7,156,377 | |||||||||||
Total Investments in Securities 99.98% (cost $99,238,348) | 100,089,903 | |||||||||||
Less Unfunded Loan Commitments (0.02)% (cost $15,000) | (15,075 | ) | ||||||||||
Net Investments 99.97% (cost $99,223,348) | 100,074,828 | |||||||||||
Foreign Cash and Other Assets in Excess of Liabilities(k)0.03% | 32,188 | |||||||||||
Net Assets 100.00% | $ | 100,107,016 |
CAD | Canadian dollar. | |
IO | Interest Only. | |
LIBOR | London Interbank Offered Rate. | |
PIK | Payment-in-kind. | |
SOFR | Secured Over Night Financing Rate. | |
Units | More than one class of securities traded together. | |
† | Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and, unless registered under such Act or exempted from registration, may only be resold to qualified institutional buyers. At December 31, 2019, the total value of Rule 144A securities was $50,662,695, which represents 50.61% of net assets. | |
# | Variable rate security. The interest rate represents the rate in effect at December 31, 2019. | |
(a) | Amount is less than $1,000. | |
(b) | Level 3 Investment as described in Note 2(l) in the Notes to Financials. Security valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information could result in a significantly lower or higher value of such Level 3 investments. | |
(c) | Investment in non-U.S. dollar denominated securities. | |
(d) | Variable Rate is Fixed to Float: Rate remains fixed until designated future date. | |
(e) | Amount represents less than 1,000 shares. | |
(f) | Foreign security traded in U.S. dollars. | |
(g) | Security is perpetual in nature and has no stated maturity. | |
(h) | Floating Rate Loans in which the Fund invests generally pay interest at rates which are periodically re-determined at a margin above the London Interbank Offered Rate (“LIBOR”) or the prime rate offered by major U.S. banks. The rate(s) shown is the rate(s) in effect at December 31, 2019. | |
(i) | Level 3 Investment as described in Note 2(l) in the Notes to Financials. Floating Rate Loans categorized as Level 3 are valued based on a single quotation obtained from a dealer. Accounting principles generally accepted in the United States of America do not require the Fund to create quantitative unobservable inputs that were not developed by the Fund. Therefore, the Fund does not have access to unobservable inputs and cannot disclose such inputs in the valuation. | |
(j) | Interest rate is based on the weighted average interest rates of the underlying mortgages within the mortgage pool. | |
(k) | Foreign Cash and Other Assets in Excess of Liabilities include net unrealized appreciation/depreciation on forward foreign currency exchange contracts and futures contracts as follows: |
See Notes to Financial Statements. | 47 |
Schedule of Investments (continued)
December 31, 2019
Open Forward Foreign Currency Exchange Contracts at December 31, 2019:
Forward Foreign Currency Exchange Contracts | Transaction Type | Counterparty | Expiration Date | Foreign Currency | U.S. $ Cost on Origination Date | U.S. $ Current Value | Unrealized Depreciation | |||||||||||||||
Canadian dollar | Sell | Morgan Stanley | 3/13/2020 | 155,000 | $117,605 | $119,394 | $(1,789) |
Open Futures Contracts at December 31, 2019:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation | ||||||||||||||
U.S. 5-Year Treasury Note | March 2020 | 3 | Short | $(356,284) | $(355,829) | $455 | ||||||||||||||
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||
U.S. 2-Year Treasury Note | March 2020 | 119 | Long | $25,649,876 | $25,644,500 | $(5,376) |
48 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
The following is a summary of the inputs used as of December 31, 2019 in valuing the Fund’s investments carried at fair value(1):
Investment Type(2) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Long-Term Investments | ||||||||||||||||
Asset-Backed Securities | ||||||||||||||||
Other | $ | – | $ | 11,044,513 | $ | 297,452 | $ | 11,341,965 | ||||||||
Remaining Industries | – | 12,326,661 | – | 12,326,661 | ||||||||||||
Common Stock | – | – | 6 | 6 | ||||||||||||
Corporate Bonds | – | 40,082,553 | – | 40,082,553 | ||||||||||||
Floating Rate Loans | ||||||||||||||||
Electric: Power | – | 5,339 | 166,852 | 172,191 | ||||||||||||
Electrical Equipment | – | – | 64,364 | 64,364 | ||||||||||||
Entertainment | – | 215,009 | 21,303 | 236,312 | ||||||||||||
Oil: Crude Producers | – | – | 95,179 | 95,179 | ||||||||||||
Remaining Industries | – | 1,490,855 | – | 1,490,855 | ||||||||||||
Unfunded Commitments | – | – | (15,075 | ) | (15,075 | ) | ||||||||||
Foreign Government Obligations | – | 512,043 | – | 512,043 | ||||||||||||
Government Sponsored Enterprises Collateralized Mortgage Obligations | – | 1,255,067 | – | 1,255,067 | ||||||||||||
Government Sponsored Enterprises Pass-Throughs | – | 146,087 | – | 146,087 | ||||||||||||
Municipal Bonds | – | 141,909 | – | 141,909 | ||||||||||||
Non-Agency Commercial Mortgage-Backed Securities | – | 22,240,872 | 525,008 | 22,765,880 | ||||||||||||
Preferred Stock | – | – | – | – | ||||||||||||
U.S. Treasury Obligations | – | 2,302,454 | – | 2,302,454 | ||||||||||||
Short-Term Investments | ||||||||||||||||
Commercial Paper | – | 2,438,267 | – | 2,438,267 | ||||||||||||
Corporate Bonds | – | 430,168 | – | 430,168 | ||||||||||||
Foreign Government Obligation | – | 119,538 | – | 119,538 | ||||||||||||
Repurchase Agreement | – | 4,168,404 | – | 4,168,404 | ||||||||||||
Total | $ | – | $ | 98,919,739 | $ | 1,155,089 | $ | 100,074,828 | ||||||||
Other Financial Instruments | ||||||||||||||||
Forward Foreign Currency Exchange Contracts | ||||||||||||||||
Assets | $ | – | $ | – | $ | – | $ | – | ||||||||
Liabilities | – | (1,789 | ) | – | (1,789 | ) | ||||||||||
Futures Contracts | ||||||||||||||||
Assets | 455 | – | – | 455 | ||||||||||||
Liabilities | (5,376 | ) | – | – | (5,376 | ) | ||||||||||
Total | $ | (4,921 | ) | $ | (1,789 | ) | $ | – | $ | (6,710 | ) |
(1) | Refer to Note 2(l) for a description of fair value measurements and the three-tier hierarchy of inputs. | |
(2) | See Schedule of Investments for fair values in each industry and identification of foreign issuers and/or geography. The table above is presented by Investment Type. Industries are presented within an Investment Type should such Investment Type include securities classified as two or more levels within the three-tier fair value hierarchy. Each Level 3 security is identified on the Schedule of Investments along with the valuation technique utilized. |
See Notes to Financial Statements. | 49 |
Schedule of Investments (concluded)
December 31, 2019
The following is a reconciliation of investments with unobservable inputs (Level 3) there were used in determining fair value:
Investment Type | Asset- Backed Securities | Common Stock | Floating Rate Loans | Non-Agency Commercial Mortgage- Backed Securities | Preferred Stock | |||||||||||||||
Balance as of January 1, 2019 | $ | – | $ | – | $ | 202,202 | $ | 123,384 | $ | – | ||||||||||
Accrued Discounts (Premiums) | – | – | 271 | (14,987 | ) | – | ||||||||||||||
Realized Gain (Loss) | – | – | 84 | – | – | |||||||||||||||
Change in Unrealized Appreciation (Depreciation) | 303 | (40 | ) | 426 | 5,103 | (3,761 | ) | |||||||||||||
Purchases | 297,149 | – | 274,657 | 430,198 | 289 | |||||||||||||||
Sales | – | – | (161,677 | ) | – | – | ||||||||||||||
Transfers into Level 3 | – | 46 | 118,950 | – | 3,472 | |||||||||||||||
Transfers out of Level 3 | – | – | (102,290 | ) | (18,690 | ) | – | |||||||||||||
Balance as of December 31, 2019 | $ | 297,452 | $ | 6 | $ | 332,623 | $ | 525,008 | $ | – | ||||||||||
Change in unrealized appreciation/depreciation for the year ended December 31, 2019, related to Level 3 investments held at December 31, 2019 | $ | 303 | $ | (40 | ) | $ | 310 | $ | 5,103 | $ | (3,761 | ) |
50 | See Notes to Financial Statements. |
Statement of Assets and Liabilities
December 31, 2019
ASSETS: | ||||
Investments in securities, at fair value (cost $99,223,348) | $ | 100,074,828 | ||
Deposits with brokers for futures collateral | 63,003 | |||
Foreign cash, at value (cost $375) | 380 | |||
Receivables: | ||||
Interest and dividends | 586,018 | |||
Capital shares sold | 96,257 | |||
Investment securities sold | 66,008 | |||
Unrealized appreciation on unfunded commitments | 75 | |||
Prepaid expenses | 333 | |||
Total assets | 100,886,902 | |||
LIABILITIES: | ||||
Payables: | ||||
Investment securities purchased | 391,719 | |||
Capital shares reacquired | 190,665 | |||
Management fee | 29,040 | |||
Variation margin on futures contracts | 17,184 | |||
To bank | 4,266 | |||
Directors’ fees | 3,800 | |||
Fund administration | 3,319 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 1,789 | |||
Accrued expenses | 138,104 | |||
Total liabilities | 779,886 | |||
Commitments and contingent liabilities | ||||
NET ASSETS | $ | 100,107,016 | ||
COMPOSITION OF NET ASSETS: | ||||
Paid-in capital | $ | 103,024,499 | ||
Total distributable earnings (loss) | (2,917,483 | ) | ||
Net Assets | $ | 100,107,016 | ||
Outstanding shares (200 million shares of common stock authorized, $.001 par value) | 7,013,927 | |||
Net asset value, offering and redemption price per share (Net assets divided by outstanding shares) | $14.27 |
See Notes to Financial Statements. | 51 |
For the Year Ended December 31, 2019
Investment income: | ||||
Dividends | $ | 289 | ||
Interest | 3,113,488 | |||
Total investment income | 3,113,777 | |||
Expenses: | ||||
Management fee | 307,858 | |||
Non 12b-1 service fees | 220,100 | |||
Shareholder servicing | 101,900 | |||
Professional | 49,005 | |||
Fund administration | 35,184 | |||
Reports to shareholders | 28,846 | |||
Custody | 20,418 | |||
Directors’ fees | 2,389 | |||
Other | 24,435 | |||
Gross expenses | 790,135 | |||
Expense reductions (See Note 9) | (2,829 | ) | ||
Fees waived and expenses reimbursed (See Note 3) | (11,323 | ) | ||
Net expenses | 775,983 | |||
Net investment income | 2,337,794 | |||
Net realized and unrealized gain(loss): | ||||
Net realized gain on investments | 192,301 | |||
Net realized gain on futures contracts | 106,295 | |||
Net realized loss on forward foreign currency exchange contracts | (1,890 | ) | ||
Net realized gain on foreign currency related transactions | 1,099 | |||
Net change in unrealized appreciation/depreciation on investments | 1,666,920 | |||
Net change in unrealized appreciation/depreciation on futures contracts | (78,660 | ) | ||
Net change in unrealized appreciation/depreciation on forward foreign currency exchange contracts | (2,014 | ) | ||
Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies | 8 | |||
Net change in unrealized appreciation/depreciation on unfunded commitments | 75 | |||
Net realized and unrealized gain | 1,884,134 | |||
Net Increase in Net Assets Resulting From Operations | $ | 4,221,928 |
52 | See Notes to Financial Statements. |
Statements of Changes in Net Assets
INCREASE IN NET ASSETS | For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | ||||||
Operations: | ||||||||
Net investment income | $ | 2,337,794 | $ | 1,704,058 | ||||
Net realized gain (loss) on investments, futures contracts, forward foreign currency exchange contracts and foreign currency related transactions | 297,805 | (198,029 | ) | |||||
Net change in unrealized appreciation/depreciation on investments, futures contracts, forward foreign currency exchange contracts, unfunded commitments and translation of assets and liabilities denominated in foreign currencies | 1,586,329 | (622,381 | ) | |||||
Net increase in net assets resulting from operations | 4,221,928 | 883,648 | ||||||
Distributions to shareholders: | (3,238,432 | ) | (2,584,971 | ) | ||||
Capital share transactions (See Note 15): | ||||||||
Proceeds from sales of shares | 39,716,107 | 40,985,837 | ||||||
Reinvestment of distributions | 3,238,432 | 2,584,971 | ||||||
Cost of shares reacquired | (23,028,334 | ) | (22,560,074 | ) | ||||
Net increase in net assets resulting from capital share transactions | 19,926,205 | 21,010,734 | ||||||
Net increase in net assets | 20,909,701 | 19,309,411 | ||||||
NET ASSETS: | ||||||||
Beginning of period | $ | 79,197,315 | $ | 59,887,904 | ||||
End of period | $ | 100,107,016 | $ | 79,197,315 |
See Notes to Financial Statements. | 53 |
Per Share Operating Performance: | ||||||||||||||||||||||||
Investment operations: | Distributions to shareholders from: | |||||||||||||||||||||||
Net asset value, beginning of period | Net investment income(a) | Net realized and unrealized gain (loss) | Total from investment operations | Net investment income | Return of capital | |||||||||||||||||||
12/31/2019 | $14.05 | $0.38 | $ 0.33 | $0.71 | $(0.49 | ) | $ | – | ||||||||||||||||
12/31/2018 | 14.38 | 0.36 | (0.20 | ) | 0.16 | (0.49 | ) | – | ||||||||||||||||
12/31/2017 | 14.57 | 0.30 | 0.02 | 0.32 | (0.51 | ) | – | |||||||||||||||||
12/31/2016 | 14.43 | 0.33 | 0.19 | 0.52 | (0.38 | ) | – | |||||||||||||||||
12/31/2015 | 14.72 | 0.27 | (0.21 | ) | 0.06 | (0.34 | ) | (0.01 | ) |
(a) | Calculated using average shares outstanding during the period. | |
(b) | Total return does not consider the effects of sales charges or other expenses imposed by an insurance company and assumes the reinvestment of all distributions. |
54 | See Notes to Financial Statements. |
Ratios to Average Net Assets: | Supplemental Data: | |||||||||||||||||||||||||||||
Total distri- butions | Net asset value, end of period | Total return(b) (%) | Total expenses after waivers and/or reimbursements (%) | Total expenses (%) | Net investment income (%) | Net assets, end of period (000) | Portfolio turnover rate (%) | |||||||||||||||||||||||
$(0.49 | ) | $ | 14.27 | 5.06 | 0.88 | 0.90 | 2.66 | $100,107 | 56 | |||||||||||||||||||||
(0.49 | ) | 14.05 | 1.15 | 0.83 | 0.92 | 2.48 | 79,197 | 65 | ||||||||||||||||||||||
(0.51 | ) | 14.38 | 2.19 | 0.80 | 0.94 | 2.05 | 59,888 | 75 | ||||||||||||||||||||||
(0.38 | ) | 14.57 | 3.47 | 0.80 | 1.04 | 2.21 | 47,219 | 69 | ||||||||||||||||||||||
(0.35 | ) | 14.43 | 0.58 | 0.80 | 1.45 | 1.79 | 21,803 | 61 |
See Notes to Financial Statements. | 55 |
1. | ORGANIZATION |
Lord Abbett Series Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified, open-end management investment company and was incorporated under Maryland law in 1989. The Company consists of nine separate portfolios. This report covers Short Duration Income Portfolio (the “Fund”).
The Fund’s investment objective is to seek a high level of income consistent with preservation of capital. The Fund has Variable Contract class shares (“Class VC Shares”), which are currently issued and redeemed only in connection with investments in, and payments under, variable annuity contracts and variable life insurance policies issued by life insurance and insurance-related companies.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies.
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Investment Valuation–Under procedures approved by the Fund’s Board of Directors (the “Board”), Lord, Abbett & Co. LLC (“Lord Abbett”), the Fund’s investment manager, has formed a Pricing Committee to administer the pricing and valuation of portfolio investments and to ensure that prices utilized reasonably reflect fair value. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value. |
Securities actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to reflect their fair value as of the close of regular trading on the New York Stock Exchange. The Fund may utilize an independent fair valuation service in adjusting the valuations of foreign securities. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices. Fixed income securities are valued based on evaluated prices supplied by independent pricing services, which reflect broker/dealer supplied valuations and the independent pricing services’ own electronic data processing techniques. Exchange traded options and futures contracts are valued at the last quoted sale price in the market where they are principally traded. If no sale has occurred, the mean between the most recently quoted bid and asked prices is used. Floating rate loans are valued at the average of bid and ask quotations obtained from dealers in loans on the basis of prices supplied by independent pricing services. Forward foreign currency exchange contracts are valued using daily forward exchange rates. | |
Securities for which prices are not readily available are valued at fair value as determined by the Pricing Committee. The Pricing Committee considers a number of factors, including |
56
Notes to Financial Statements (continued)
observable and unobservable inputs, when arriving at fair value. The Pricing Committee may use related or comparable assets or liabilities, recent transactions, market multiples, book values, yield curves, broker quotes, observable trading activity, option adjusted spread models and other relevant information to determine the fair value of portfolio investments. The Board or a designated committee thereof regularly reviews fair value determinations made by the Pricing Committee and employs techniques such as reviewing related market activity, reviewing inputs and assumptions, and retrospectively comparing prices of subsequent purchases and sales transactions to fair value determinations made by the Pricing Committee. | |
Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates fair value. | |
(b) | Security Transactions–Security transactions are recorded as of the date that the securities are purchased or sold (trade date). Realized gains and losses on sales of portfolio securities are calculated using the identified-cost method. |
(c) | Investment Income–Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis as earned. Discounts are accreted and premiums are amortized using the effective interest method and are included in Interest on the Statement of Operations. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates. |
(d) | Income Taxes–It is the policy of the Fund to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income and capital gains to its shareholders. Therefore, no income tax provision is required. |
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s filed U.S. federal tax returns remains open for the fiscal years ended December 31, 2016 through December 31, 2019. The statutes of limitations on the Company’s state and local tax returns may remain open for an additional year depending on jurisdiction. | |
(e) | Expenses–Expenses incurred by the Company that do not specifically relate to an individual fund are generally allocated to the funds within the Company on a pro rata basis by relative net assets. |
(f) | Foreign Transactions–The books and records of the Fund are maintained in U.S. dollars and transactions denominated in foreign currencies are recorded in the Fund’s records at the rate prevailing when earned or recorded. Asset and liability accounts that are denominated in foreign currencies are adjusted daily to reflect current exchange rates and any unrealized gain (loss), if applicable, is included in Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies on the Fund’s Statement of Operations. The resultant exchange gains and losses upon settlement of such transactions are included in Net realized gain (loss), if applicable, on foreign currency related transactions in the Fund’s Statement of Operations. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in market prices of the securities. |
The Fund uses foreign currency exchange contracts to facilitate transactions in foreign denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms. |
57
Notes to Financial Statements (continued)
(g) | Forward Foreign Currency Exchange Contracts–The Fund may enter into forward foreign currency exchange contracts in order to reduce exposure to changes in foreign currency exchange rates on foreign portfolio holdings, or gain or reduce exposure to foreign currency solely for investment purposes. A forward foreign currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated rate. The contracts are valued daily at forward exchange rates and any unrealized gain (loss) is included in Net change in unrealized appreciation/depreciation on forward foreign currency exchange contracts on the Fund’s Statement of Operations. The gain (loss) arising from the difference between the U.S. dollar cost of the original contract and the value of the foreign currency in U.S. dollars upon closing of such contracts is included in Net realized gain (loss) on forward foreign currency exchange contracts on the Fund’s Statement of Operations. |
(h) | Futures Contracts–The Fund may purchase and sell futures contracts to enhance returns, to attempt to economically hedge some of its investment risk, or as a substitute position in lieu of holding the underlying asset on which the instrument is based. At the time of entering into a futures transaction, an investor is required to deposit and maintain a specified amount of cash or eligible securities called “initial margin.” Subsequent payments made or received by the Fund called “variation margin” are made on a daily basis as the market price of the futures contract fluctuates. The Fund will record an unrealized gain (loss) based on the amount of variation margin. When a contract is closed, a realized gain (loss) is recorded equal to the difference between the opening and closing value of the contract. |
(i) | When-Issued, Forward Transactions or To-Be-Announced (“TBA”) Transactions–The Fund may purchase portfolio securities on a when-issued or forward basis. When-issued, forward transactions or TBA transactions involve a commitment by a fund to purchase securities, with payment and delivery (“settlement”) to take place in the future, in order to secure what is considered to be an advantageous price or yield at the time of entering into the transaction. During the period between purchase and settlement, the fair value of the securities will fluctuate and assets consisting of cash and/or marketable securities (normally short-term U.S. Government or U.S. Government sponsored enterprise securities) marked to market daily in an amount sufficient to make payment at settlement will be segregated at the Fund’s custodian in order to pay for the commitment. At the time the Fund makes the commitment to purchase a security on a when-issued basis, it will record the transaction and reflect the liability for the purchase and fair value of the security in determining its net asset value (“NAV”). The Fund, generally, has the ability to close out a purchase obligation on or before the settlement date rather than take delivery of the security. Under no circumstances will settlement for such securities take place more than 120 days after the purchase date. |
(j) | Repurchase Agreements–The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which a fund acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. The Fund requires at all times that the repurchase agreement be collateralized by cash, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). If the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the fair value of these securities has declined, the Fund may incur a loss upon disposition of the securities. |
58
Notes to Financial Statements (continued)
(k) | Floating Rate Loans–The Fund may invest in floating rate loans, which usually take the form of loan participations and assignments. Loan participations and assignments are agreements to make money available to U.S. or foreign corporations, partnerships or other business entities (the “Borrower”) in a specified amount, at a specified rate and within a specified time. A loan is typically originated, negotiated and structured by a U.S. or foreign bank, insurance company or other financial institution (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 and may hold any collateral on behalf of the Loan Investors. Such loan participations and assignments are typically senior, secured and collateralized in nature. The Fund records an investment when the Borrower withdraws money and records interest as earned. These loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or London InterBank Offered Rate (“LIBOR”). |
The loans in which the Fund invests may be subject to some restrictions on resale. For example, the Fund may be contractually obligated to receive approval from the Agent and/or Borrower prior to the sale of these investments. The Fund generally has no right to enforce compliance with the terms of the loan agreement with the Borrower. As a result, the Fund assumes the credit risk of the Borrower, the selling participant and any other persons interpositioned between the Fund and the Borrower (“Intermediate Participants”). In the event that the Borrower, selling participant or Intermediate Participants become insolvent or enter into bankruptcy, the Fund may incur certain costs and delays in realizing payment or may suffer a loss of principal and/or interest. | |
Unfunded commitments represent the remaining obligation of the Fund to the Borrower. At any point in time, up to the maturity date of the issue, the Borrower may demand the unfunded portion. Until demanded by the Borrower, unfunded commitments are not recognized as an asset on the Statement of Assets and Liabilities. Unrealized appreciation/depreciation on unfunded commitments presented on the Statement of Assets and Liabilities represents mark to market of the unfunded portion of the Fund’s floating rate notes. As of December 31, 2019, the Fund had the following unfunded loan commitments: | |
Pacific Gas and Electric Company DIP Delayed Draw Term Loan $ 15,000 | |
(l) | Fair Value Measurements–Fair value is defined as the price that the Fund would receive upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk — for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy |
59
Notes to Financial Statements (continued)
classification is determined based on the lowest level of inputs that is significant to the fair value measurement, and is summarized in the three broad Levels listed below: | |||
• | Level 1 – | unadjusted quoted prices in active markets for identical investments; | |
• | Level 2 – | other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and | |
• | Level 3 – | significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). | |
A summary of inputs used in valuing the Fund’s investments and other financial instruments as of December 31, 2019 and, if applicable, Level 3 rollforwards for the fiscal year then ended is included in the Fund’s Schedule of Investments. | |||
Changes in valuation techniques may result in transfers into or out of an assigned level within the three-tier hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. |
3. | MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES |
Management Fee
The Company has a management agreement with Lord Abbett, pursuant to which Lord Abbett supplies the Fund with investment management services and executive and other personnel, provides office space and pays for ordinary and necessary office and clerical expenses relating to research and statistical work and supervision of the Fund’s investment portfolio.
The management fee is based on the Fund’s average daily net assets at the following annual rate:
First $1 billion | .35% | |
Next $1 billion | .30% | |
Over $2 billion | .25% |
For the fiscal year ended December 31, 2019, the effective management fee, net of waivers, was at an annualized rate of 0.34% of the Fund’s average daily net assets.
In addition, Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement in return for a fee at an annual rate of .04% of the Fund’s average daily net assets.
Prior to May 1, 2019, Lord Abbett contractually agreed to waive its fees and reimburse expenses to the extent necessary to limit total net annual operating expenses to an annual rate of .85%. Effective May 1, 2019 this agreement was discontinued.
The Company, on behalf of the Fund, has entered into services arrangements with certain insurance companies. Under these arrangements, certain insurance companies will be compensated up to .25% of the average daily NAV of the Fund’s Class VC Shares held in the insurance company’s separate account to service and maintain the Variable Contract owners’ accounts. This amount is included in Non 12b-1 service fees on the Statement of Operations. The Fund may also compensate certain insurance companies, third-party administrators and other entities for providing recordkeeping, sub-transfer agency and other administrative services to the Fund. This amount is included in Shareholder servicing on the Statement of Operations.
One Director and certain of the Company’s officers have an interest in Lord Abbett.
60
Notes to Financial Statements (continued)
4. | DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS |
Dividends from net investment income, if any, are declared and paid at least semi-annually. Taxable net realized gains from investment transactions, reduced by allowable capital loss carryforwards, if any, are declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, is available to offset future net capital gains. Dividends and distributions to shareholders are recorded on the ex-dividend date. The amounts of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions that exceed earnings and profits for tax purposes are reported as a tax return of capital.
The tax character of distributions paid during the fiscal years ended December 31, 2019 and December 31, 2018 was as follows:
Year Ended 12/31/2019 | Year Ended 12/31/2018 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $3,238,432 | $2,584,971 | ||||||
Total distributions paid | $3,238,432 | $2,584,971 |
As of December 31, 2019, the components of accumulated gains (losses) on a tax-basis were as follows:
Capital loss carryforwards* | $ | (2,064,811 | ) | |
Temporary differences | (3,859 | ) | ||
Unrealized losses – net | (848,813 | ) | ||
Total accumulated losses – net | $ | (2,917,483 | ) |
* | The capital losses will carry forward indefinitely. |
At the Fund’s election, certain losses incurred within the taxable year (Qualified Late-Year Losses) are deemed to arise on the first business day of the Fund’s next taxable year. The Fund incurred and will elect to defer late-year ordinary losses of $59 during fiscal year 2019.
As of December 31, 2019, the aggregate unrealized security gains (losses) on investments and other financial instruments, if any, based on cost for U.S. federal income tax purposes were as follows:
Tax cost | $ | 100,917,013 | ||
Gross unrealized gain | – | |||
Gross unrealized loss | (848,820 | ) | ||
Net unrealized security loss | $(848,820 | ) |
The difference between book-basis unrealized gains (losses) is primarily attributable to the tax treatment of other financial instruments, amortization of premium and wash sales.
Permanent items identified during the fiscal year ended December 31, 2019 have been reclassified among the components of net assets based on their tax basis treatment as follows:
Total Distributable Earnings (Loss) | Paid-in Capital | |
$(181,380) | $181,380 |
The permanent differences are primarily attributable to the tax treatment of certain distributions.
61
Notes to Financial Statements (continued)
5. | PORTFOLIO SECURITIES TRANSACTIONS |
Purchases and sales of investment securities (excluding short-term investments) for the fiscal year ended December 31, 2019 were as follows:
U.S. Government Purchases | * | Non-U.S. Government Purchases | U.S. Government Sales | * | Non-U.S. Government Sales | |
$6,547,132 | $59,173,493 | $5,462,291 | $41,479,844 |
* | Includes U.S. Government sponsored enterprises securities. |
The Fund is permitted to purchase and sell securities (“cross-trade”) from and to other Lord Abbett funds or client accounts pursuant to procedures approved by the Board in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at a fair market price in compliance with provisions of the Rule. For the fiscal year ended December 31, 2019, the Fund engaged in cross-trades purchases of $571,458, and sales of $2,038 which resulted in net realized gains of $38.
6. | DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
The Fund entered into forward foreign currency exchange contracts for the fiscal year ended December 31, 2019 (as described in note 2(g)). A forward foreign currency exchange contract reduces the Fund’s exposure to changes in the value of the currency it will deliver (or settle in cash) and increases its exposure to changes in the value of the currency it will receive (or settle in cash) for the duration of the contract. The Fund’s use of forward foreign currency exchange contracts involves the risk that Lord Abbett will not accurately predict currency movements, and the Fund’s returns could be reduced as a result. Forward foreign currency exchange contracts are subject to the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedged positions, that the U.S. dollar will decline relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time. The Fund’s risk of loss from counterparty credit risk is the unrealized appreciation on forward foreign currency exchange contracts and deposits with brokers as collateral.
The Fund entered into U.S. Treasury futures contracts for the fiscal year ended December 31, 2019 (as described in note 2(h)) to hedge against changes in interest rates. The Fund bears the risk of interest rates moving unexpectedly, in which case the Fund may not achieve the anticipated benefits of the futures contracts and realize a loss. There is minimal counterparty credit risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees futures against default.
As of December 31, 2019, the Fund had the following derivatives at fair value, grouped into appropriate risk categories that illustrate the Funds use of derivative instruments:
Asset Derivatives | Interest Rate Contracts | Foreign Currency Contracts | ||||||
Futures Contracts(1) | $ | 455 | – | |||||
Liability Derivatives | ||||||||
Forward Foreign Currency Exchange Contracts(2) | – | $ | 1,789 | |||||
Futures Contracts(1) | $ | 5,376 | – |
(1) | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/depreciation on futures contracts are reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
(2) | Statement of Assets and Liabilities location: Unrealized depreciation on forward foreign currency exchange contracts. |
62
Notes to Financial Statements (continued)
Transactions in derivative instruments for the year ended December 31, 2019, were as follows:
Interest Rate Contracts | Foreign Currency Contracts | |||||||
Net Realized Gain (Loss) | ||||||||
Forward Foreign Currency Exchange Contracts(1) | – | $ | (1,890 | ) | ||||
Futures Contracts(2) | $ | 106,295 | – | |||||
Net Change in Unrealized Appreciation/Depreciation | ||||||||
Forward Foreign Currency Exchange Contracts(3) | – | $ | (2,014 | ) | ||||
Futures Contracts(4) | $ | (78,660 | ) | – | ||||
Average Number of Contracts/Notional Amounts* | ||||||||
Forward Foreign Currency Exchange Contracts(5) | – | $ | 89,332 | |||||
Futures Contracts(6) | 76 | – |
* | Calculated based on the number of contracts or notional amounts for the fiscal year ended December 31, 2019. |
(1) | Statement of Operations location: Net realized loss on forward foreign currency exchange contracts. |
(2) | Statement of Operations location: Net realized gain on futures contracts. |
(3) | Statement of Operations location: Net change in unrealized appreciation/depreciation on forward foreign currency exchange contracts. |
(4) | Statement of Operations location: Net change in unrealized appreciation/depreciation on futures contracts. |
(5) | Amount represents notional amounts in U.S. dollars. |
(6) | Amount represents number of contracts. |
7. | DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES |
The Financial Accounting Standards Board (“FASB”) requires disclosures intended to help better assess the effect or potential effect of offsetting arrangements on a fund’s financial position. The following tables illustrate gross and net information about recognized assets and liabilities eligible for offset in the Statement of Assets and Liabilities; and disclose such amounts subject to an enforceable master netting agreement or similar agreement, by counterparty. A master netting agreement is an agreement between a fund and a counterparty which provides for the net settlement of amounts owed under all contracts traded under that agreement, as well as cash collateral, through a single payment by one party to the other in the event of default on or termination of any one contract. The Fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the master netting agreement does not result in an offset of reported amounts of financial assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty:
Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Assets Presented in the Statement of Assets and Liabilities | ||
Repurchase Agreement | $4,168,404 | $ – | $4,168,404 | ||
Total | $4,168,404 | $ – | $4,168,404 |
63
Notes to Financial Statements (continued)
Net Amounts of Assets Presented in | Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||
Counterparty | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Received(a) | Securities Collateral Received(a) | Net Amount(b) | ||||||||||||||
Fixed Income Clearing Corp. | $4,168,404 | $ | – | $ | – | $(4,168,404 | ) | $ | – | ||||||||||
Total | $4,168,404 | $ | – | $ | – | $(4,168,404 | ) | $ | – |
Description | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Liabilities Presented in the Statement of Assets and Liabilities | ||
Forward Foreign Currency Exchange Contracts | $1,789 | $ – | $1,789 | ||
Total | $1,789 | $ – | $1,789 |
Net Amounts of Liabilities Presented in | Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||
Counterparty | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Pledged(a) | Securities Collateral Pledged(a) | Net Amount(c) | ||||||||||||||
Morgan Stanley | $1,789 | $ | – | $ | – | $ | – | $ | 1,789 | ||||||||||
Total | $1,789 | $ | – | $ | – | $ | – | $ | 1,789 |
(a) | Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets (liabilities) presented in the Statement of Assets and Liabilities, for each respective counterparty. |
(b) | Net amount represents the amount owed to the Fund by the counterparty as of December 31, 2019. |
(c) | Net amount represents the amount owed by the Fund to the counterparty as of December 31, 2019. |
8. | DIRECTORS’ REMUNERATION |
The Company’s officers and one Director, who are associated with Lord Abbett, do not receive any compensation from the Company for serving in such capacities. Independent Directors’ fees are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all Independent Directors under which Independent Directors must defer receipt of a portion of, and may elect to defer receipt of an additional portion of Directors’ fees. The deferred amounts are treated as though equivalent dollar amounts had been invested in the funds. Such amounts and earnings accrued thereon are included in Directors’ fees on the Statement of Operations and in Directors’ fees payable on the Statement of Assets and Liabilities and are not deductible for U.S. federal income tax purposes until such amounts are paid.
9. | EXPENSE REDUCTIONS |
The Company has entered into an arrangement with its transfer agent and custodian, whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s expenses.
10. | LINE OF CREDIT |
For the period ended August 7, 2019, the Fund and certain other funds managed by Lord Abbett (collectively, the “Participating Funds”) entered into a Syndicated Facility with various lenders for $1.1 billion whereas State Street Bank and Trust Company (“SSB”) participated as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-
64
Notes to Financial Statements (continued)
third of Fund net assets (if Fund net assets are less than $750 million), $250 million, $300 million, $350 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
Effective August 8, 2019, the Participating Funds entered into a Syndicated Facility with various lenders for $1.17 billion whereas SSB participates as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, $500 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
For the period ended August 7, 2019, the Participating Funds entered into an additional line of credit facility with SSB for $250 million (the “Bilateral Facility” and together with the Syndicated Facility, the “Facilities”). Under the Bilateral Facility, each Participating Fund may borrow up to the lesser of $250 million or one-third of Fund net assets.
Effective August 8, 2019, the Participating Funds entered into a Bilateral Facility with SSB for $330 million ($250 million committed and $80 million uncommitted). Under the Bilateral Facility, the Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, or $330 million, based on past borrowings and likelihood of future borrowings, among other factors.
The Facilities are to be used for temporary or emergency purposes as an additional source of liquidity to satisfy redemptions.
For the fiscal year ended December 31, 2019, the Fund did not utilize the Facilities.
11. | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission (“SEC exemptive order”), certain registered open-end management investment companies managed by Lord Abbett, including the Fund, participate in a joint lending and borrowing program (the “Interfund Lending Program”). The SEC exemptive order allows the Funds to borrow money from and lend money to each other for temporary or emergency purposes subject to the limitations and conditions.
For the fiscal year ended December 31, 2019, the Fund did not participate as a borrower or lender in the Interfund Lending Program.
12. | CUSTODIAN AND ACCOUNTING AGENT |
SSB is the Company’s custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund’s NAV.
13. | SECURITIES LENDING AGREEMENT |
The Fund has established a securities lending agreement with Citibank N.A. for the lending of securities to qualified brokers in exchange for securities or cash collateral equal to at least the market value of securities loaned, plus interest, if applicable. Cash collateral is invested in an approved money market fund. In accordance with the Fund’s securities lending agreement, the market value of securities on loan is determined each day at the close of business and any additional collateral required to cover the value of securities on loan is delivered to the Fund on the next business day. As with other extensions of credit, the Fund may experience a delay in the recovery of their securities or incur a loss should the borrower of the securities breach its
65
Notes to Financial Statements (continued)
agreement with the Fund or become insolvent at a time when the collateral is insufficient to cover the cost of repurchasing securities on loan. Any income earned from lending securities will be noted on the Statement of Operations.
For the fiscal year ended December 31, 2019, the Fund did not loan any securities.
14. | INVESTMENT RISKS |
The Fund is subject to the general risks and considerations associated with investing in fixed income securities, including the risk that issuers will fail to make timely payments of principal or interest or default altogether. The value of an investment will change as interest rates fluctuate and in response to market movements. When interest rates rise, the prices of fixed income securities are likely to decline; when interest rates fall, such prices tend to rise. Longer-term securities are usually more sensitive to interest rate changes. There is also the risk that an issuer of a fixed income security will fail to make timely payments of principal and/or interest to the Fund, a risk that is greater with high-yield bonds (sometimes called “junk bonds”) in which the Fund may substantially invest. Some issuers, particularly of high-yield bonds, may default as to principal and/or interest payments after the Fund purchases its securities. A default, or concerns in the market about an increase in risk of default, may result in losses to the Fund. High-yield bonds are subject to greater price fluctuations, as well as additional risks. The market for below investment grade securities may be less liquid, which may make such securities more difficult to sell at an acceptable price, especially during periods of financial distress, increased market volatility, or significant market decline.
The Fund is subject to the general risks and considerations associated with investing in convertible securities, which have both equity and fixed income risk characteristics, including market, credit, liquidity, and interest rate risks. Generally, convertible securities offer lower interest or dividend yields than non-convertible securities of similar quality and less potential for gains or capital appreciation in a rising equity securities market than equity securities. They tend to be more volatile than other fixed income securities, and the markets for convertible securities may be less liquid than markets for stocks or bonds. A significant portion of convertible securities have below investment grade credit ratings and are subject to increased credit and liquidity risks.
The Fund’s investment exposure to foreign (which may include emerging market) companies presents increased market, liquidity, currency, political, information and other risks. As compared with companies organized and operated in the U.S., these companies may be more vulnerable to economic, political and social instability and subject to less government supervision, lack of transparency, inadequate regulatory and accounting standards, and foreign taxes. The securities of foreign companies also may be subject to inadequate exchange control regulations, the imposition of economic sanctions or other government restrictions, higher transaction and other costs, and delays in settlement to the extent they are traded on non-U.S. exchanges or markets. The cost of the Fund’s potential use of forward foreign currency exchange contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions prevailing.
The Fund is subject to the risks associated with derivatives, which may be different from and greater than the risks associated with directly investing in securities. Derivatives may be subject to risks such as liquidity risk, leveraging risk, interest rate risk, market risk, and credit risk. Illiquid securities may lower the Fund’s returns since the Fund may be unable to sell these securities at their desired time or price. Derivatives also may involve the risk of mispricing or improper valuation and the risk that changes in the value of the derivative may not correlate perfectly with the value
66
Notes to Financial Statements (continued)
of the underlying asset, rate or index. Whether the Fund’s use of derivatives is successful will depend on, among other things, the Fund’s ability to correctly forecast market movements, changes in foreign exchange and interest rates, and other factors. If the Fund incorrectly forecasts these and other factors, its performance could suffer. The Fund’s use of derivatives could result in a loss exceeding the amount of the Fund’s investment in these instruments.
The Fund may invest in swap contracts. Swap contracts are bi-lateral agreements between a fund and its counterparty. Each party is exposed to the risk of default by the other. In addition, they may involve a small investment of cash compared to the risk assumed with the result that small changes may produce disproportionate and substantial gains or losses to the Fund.
The Fund may invest in credit default swap contracts. The risks associated with the Fund’s investment in credit default swaps are greater than if the Fund invested directly in the reference obligation because they are subject to illiquidity risk, counterparty risk, and credit risk at both the counterparty and underlying issuer levels.
The Fund may invest in floating rate or adjustable rate senior loans, which are subject to increased credit and liquidity risks. Senior loans are business loans made to borrowers that may be U.S. or foreign corporations, partnerships, or other business entities. The senior loans in which the Fund may invest may consist primarily of senior loans that are rated below investment grade or, if unrated, deemed by Lord Abbett to be equivalent to below investment grade securities. Below investment grade senior loans, as in the case of high-yield debt securities, or junk bonds, are usually more credit sensitive than interest rate sensitive, although the value of these instruments may be impacted by broader interest rate swings in the overall fixed income market. In addition, senior loans may be subject to structural subordination.
The Fund is subject to the risk of investing a significant portion of its assets in securities issued or guaranteed by the U.S. Government or its agencies and instrumentalities (such as the Government National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”), or the Federal Home Loan Mortgage Corporation (“Freddie Mac”)). Unlike Ginnie Mae securities, securities issued or guaranteed by U.S. Government-related organizations such as Fannie Mae and Freddie Mac are not backed by the full faith and credit of the U.S. Government and no assurance can be given that the U.S. Government would provide financial support to its agencies and instrumentalities if not required to do so by law. Consequently, the Fund may be required to look principally to the agency issuing or guaranteeing the obligation. In addition, the Fund may invest in non-agency backed and mortgage related securities, which are issued by the private institutions, not by the government-sponsored enterprises. Such securities may be particularly sensitive to changes in economic conditions, including delinquencies and/or defaults, and changes in prevailing interest rates. These changes can affect the value, income and/or liquidity of such positions. When interest rates are declining, the value of these securities with prepayment features may not increase as much as other fixed income securities. Early principal repayment may deprive the Fund of income payments above current markets rates. The prepayment rate also will affect the price and volatility of a mortgage-related security. In addition, securities of government sponsored enterprises are guaranteed with respect to the timely payment of interest and principal by the particular enterprise involved, not by the U.S. Government.
These factors can affect the Fund’s performance.
67
Notes to Financial Statements (concluded)
15. | SUMMARY OF CAPITAL TRANSACTIONS |
Transactions in shares of capital stock were as follows:
Year Ended December 31, 2019 | Year Ended December 31, 2018 | |||||||
Shares sold | 2,752,920 | 2,853,571 | ||||||
Reinvestment of distributions | 227,258 | 184,481 | ||||||
Shares reacquired | (1,603,166 | ) | (1,567,064 | ) | ||||
Increase | 1,377,012 | 1,470,988 |
68
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Lord Abbett Series Fund, Inc.
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Short Duration Income Portfolio, one of the funds constituting Lord Abbett Series Fund, Inc. (the “Fund”), as of December 31, 2019, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Short Duration Income Portfolio of the Fund as of December 31, 2019, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the custodian, brokers and selling or agent banks; when replies were not received from brokers and selling or agent banks, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
New York, New York
February 14, 2020
We have served as the auditor of one or more Lord Abbett Family of Funds’ investment companies since 1932.
69
Supplemental Proxy Information (unaudited)
A joint special meeting of shareholders of the Fund was held on August 26, 2019. The joint special meeting was held for the purpose of electing members of the Fund’s Board of Directors. Shareholders elected the following ten (10) Directors at the joint special meeting:
• | Eric C. Fast |
• | Evelyn E. Guernsey |
• | Julie A. Hill |
• | Kathleen M. Lutito |
• | James M. McTaggart |
• | Charles O. Prince |
• | Karla M. Rabusch |
• | Mark A. Schmid |
• | Douglas B. Sieg |
• | James L.L. Tullis |
The results of the proxy solicitation on the preceding matter were as follows:
Lord Abbett Series Fund, Inc.
Nominee Votes | Votes For | Votes Withheld |
Eric C. Fast | 186,329,820.614 | 7,776,255.685 |
Evelyn E. Guernsey | 186,718,826.419 | 7,387,249.880 |
Julie A. Hill | 186,486,240.620 | 7,619,835.679 |
Kathleen M. Lutito | 187,082,042.409 | 7,024,033.890 |
James M. McTaggart | 186,269,131.867 | 7,836,944.422 |
Charles O. Prince | 186,103,251.100 | 8,002,825.199 |
Karla M. Rabusch | 186,796,719.683 | 7,309,356.626 |
Mark A. Schmid | 186,825,573.395 | 7,280,502.894 |
Douglas B. Sieg | 186,702,410.889 | 7,403,665.410 |
James L.L. Tullis | 186,229,277.817 | 7,876,798.472 |
70
Basic Information About Management
The Board is responsible for the management of the business and affairs of the Company in accordance with the laws of the State of Maryland. The Board elects officers who are responsible for the day-to-day operations of the Fund and who execute policies authorized by the Board. The Board also approves an investment adviser to the Fund and continues to monitor the cost and quality of the services the investment adviser provides, and annually considers whether to renew the contract with the investment adviser. Generally, each Director holds office until his/her successor is elected and qualified or until his/her earlier resignation or removal, as provided in the Company’s organizational documents.
Lord Abbett, a Delaware limited liability company, is the Fund’s investment adviser. Designated Lord Abbett personnel are responsible for the day-to-day management of the Fund.
Interested Directors
Mr. Sieg is affiliated with Lord Abbett and is an “interested person” of the Company as defined in the Act. Mr. Sieg is director/trustee of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios. Mr. Sieg is an officer of the Lord Abbett Family of Funds.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Douglas B. Sieg Lord, Abbett & Co. LLC 90 Hudson Street Jersey City, NJ 07302 (1969) | Director since 2016; President and Chief Executive Officer since 2018 | Principal Occupation: Managing Partner (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. Other Directorships: None. |
Independent Directors
The following Independent Directors also are directors/trustees of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Evelyn E. Guernsey Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1955) | Director since 2011 | Principal Occupation: None. Other Directorships:None. | ||
Julie A. Hill Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1946) | Director since 2004 | Principal Occupation: Owner and CEO of The Hill Company, a business consulting firm (since 1998). Other Directorships: Currently serves as director of Anthem, Inc., a health benefits company (since 1994). | ||
Kathleen M. Lutito Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1963) | Director since 2017 | Principal Occupation: President and Chief Investment Officer of CenturyLink Investment Management Company (since 2006). Other Directorships: None. |
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Basic Information About Management (continued)
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
James M. McTaggart Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2012 | Principal Occupation: Independent management advisor and consultant (since 2012). Other Directorships: Blyth, Inc., a home products company (2004–2015). | ||
Charles O. Prince Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1950) | Director since 2019 | Principal Occupation: None. Formerly Chairman and Chief Executive Officer, Citigroup, Inc. Other Directorships: Currently serves as director of Johnson & Johnson (2006–Present). Previously served as director of Xerox Corporation (2008–2018). | ||
Karla M. Rabusch Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2017 | Principal Occupation: President and Director of Wells Fargo Funds Management, LLC (2003–2017); President of Wells Fargo Funds (2003–2016). Other Directorships:None. | ||
Mark A. Schmid Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2016 | Principal Occupation: Vice President and Chief Investment Officer of the University of Chicago (since 2009). Other Directorships: None. | ||
James L.L. Tullis Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2006; Chairman since 2017 | Principal Occupation: Chairman of Tullis Health Investors - FL LLC (since 2018); CEO of Tullis–Dickerson and Co. Inc., a venture capital management firm (1990–2016). Other Directorships: Currently serves as director of Crane Co. (since 1998), Alphatec Spine, Inc. (since 2018), and electroCore, Inc. (since 2018). |
Officers
None of the officers listed below have received compensation from the Company. All of the officers of the Company also may be officers of the other Lord Abbett Funds and maintain offices at 90 Hudson Street, Jersey City, NJ 07302. Unless otherwise indicated, the position(s) and title(s) listed under the “Principal Occupation During the Past Five Years” column indicate each officer’s position(s) and title(s) with Lord Abbett. Each officer serves for an indefinite term (i.e., until his or her death, resignation, retirement, or removal).
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Douglas B. Sieg (1969) | President and Chief Executive Officer | Elected as President and Chief Executive Officer in 2018 | Managing Partner of Lord Abbett (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. |
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Basic Information About Management (concluded)
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Jackson C. Chan (1964) | AML Compliance Officer | Elected in 2018 | Deputy Chief Compliance Officer and Director of Regulatory Affairs, joined Lord Abbett in 2014. | |||
Pamela P. Chen (1978) | Vice President, Assistant Secretary and Privacy Officer | Elected as Vice President and Assistant Secretary in 2018 and Privacy Officer in 2019 | Associate General Counsel, joined Lord Abbett in 2017 and was formerly Special Counsel at Schulte, Roth & Zabel LLP (2005–2017). | |||
John T. Fitzgerald (1975) | Vice President and Assistant Secretary | Elected in 2018 | Deputy General Counsel, joined Lord Abbett in 2018 and was formerly Deputy Head of U.S. Funds Legal, Executive Director and Assistant General Counsel at JPMorgan Chase (2005-2018). | |||
Vito A. Fronda (1969) | Treasurer | Elected in 2018 | Partner and Director of Fund Treasury and Tax, joined Lord Abbett in 2003. | |||
Bernard J. Grzelak (1971) | Chief Financial Officer and Vice President | Elected in 2017 | Partner and Chief Operating Officer, Global Funds and Risk, joined Lord Abbett in 2003. | |||
Linda Y. Kim (1980) | Vice President and Assistant Secretary | Elected in 2016 | Counsel, joined Lord Abbett in 2015. | |||
Joseph M. McGill (1962) | Chief Compliance Officer | Elected in 2014 | Partner and Chief Compliance Officer, joined Lord Abbett in 2014. | |||
Amanda S. Ryan (1978) | Vice President and Assistant Secretary | Elected in 2018 | Counsel, joined Lord Abbett in 2016 and was formerly a Director and Corporate Counsel at PGIM Investments (2012–2016). | |||
Lawrence B. Stoller (1963) | Vice President, Secretary and Chief Legal Officer | Elected as Vice President and Secretary in 2007 and Chief Legal Officer in 2019 | Partner and General Counsel, joined Lord Abbett in 2007. |
Please call 888-522-2388 for a copy of the statement of additional information, which contains further information about the Company’s Directors. It is available free upon request.
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Approval of Advisory Contract
The Board, including all of the Directors who are not “interested persons” of the Company or of Lord Abbett, as defined in the Investment Company Act of 1940, as amended (the “Independent Directors”), annually considers whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett (the “Agreement”). In connection with its most recent approval, the Board reviewed materials relating specifically to the Agreement, as well as numerous materials received throughout the course of the year, including information about the Fund’s investment performance compared to the performance of its benchmark. Before making its decision as to the Fund, the Board had the opportunity to ask questions and request further information, taking into account its knowledge of Lord Abbett gained through its meetings and discussions. These meetings and discussions included reviews of Fund performance conducted by members of the Contract Committee, the deliberations of the Contract Committee, and discussions between the Contract Committee and Lord Abbett’s management. The Independent Directors also met with their independent legal counsel in various private sessions at which no representatives of management were present.
The materials received by the Board included, but were not limited to: (1) information provided by Broadridge Financial Solutions (“Broadridge”) regarding the investment performance of the Fund compared to the investment performance of certain funds with similar investment styles as determined by Broadridge, based, in part, on the Fund’s Morningstar category (the “performance peer group”), and the investment performance of the Fund’s benchmark; (2) information provided by Broadridge regarding the expense ratios, contractual and actual management fee rates, and other expense components for the Fund and certain funds in the same Morningstar category, with generally the same or similar share classes and operational characteristics, including asset size (the “expense peer group”); (3) certain supplemental investment performance information provided by Lord Abbett; (4) information provided by Lord Abbett on the expense ratios, management fee rates, and other expense components for the Fund; (5) sales and redemption information for the Fund; (6) information regarding Lord Abbett’s financial condition; (7) an analysis of the relative profitability of the Agreement to Lord Abbett; (8) information provided by Lord Abbett regarding the investment management fee schedules for Lord Abbett’s other advisory clients maintaining accounts with a similar investment strategy as the Fund; and (9) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
Investment Management and Related Services Generally. The Board considered the services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading, and Lord Abbett’s commitment to compliance with all applicable legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest that may result from being engaged in other lines of business. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to the Fund and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other. After reviewing these and related factors, the Board concluded that the Fund was likely to continue to benefit from the nature, extent and quality of the investment services provided by Lord Abbett under the Agreement.
Investment Performance.The Board reviewed the Fund’s investment performance in relation to that of the performance peer group and the Fund’s benchmark as of various periods ended June 30, 2019. The Board observed that the Fund’s investment performance was above the median of the performance peer group for the one-, three-, and five-year periods. The Board further
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Approval of Advisory Contract (continued)
considered Lord Abbett’s performance and reputation generally, the performance of other Lord Abbett-managed funds overseen by the Board, and the willingness of Lord Abbett to take steps intended to improve performance when appropriate. After reviewing these and related factors, the Board concluded that the Fund’s Agreement should be continued.
Lord Abbett’s Personnel and Methods.The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of its investment objective and discipline, and other services provided to the Fund by Lord Abbett. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining personnel.
Nature and Quality of Other Services.The Board considered the nature, quality, and extent of compliance, administrative, and other services performed by Lord Abbett and the nature and extent of Lord Abbett’s supervision of third party service providers, including the Fund’s transfer agent and custodian.
Expenses.The Board considered the expense level of the Fund, including the contractual and actual management fee rates, and the expense levels of the Fund’s expense peer group. It also considered how the expense level of the Fund related to those of the expense peer group and the amount and nature of the fees paid by shareholders. The Board observed that, while the Fund’s net total expense ratio was above the median of the expense peer group, the Fund’s advisory fee rate was below the median of the expense peer group. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that the management fees paid by, and expense level of, the Fund were reasonable in light of all of the factors it considered and supported the continuation of the Agreement.
Profitability.The Board considered the level of Lord Abbett’s operating margin in managing the Fund, including a review of Lord Abbett’s methodology for allocating its costs to its management of the Fund. It considered whether the Fund was profitable to Lord Abbett in connection with the Fund’s operation, including the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the profits realized from other business segments of Lord Abbett, which may benefit from or be related to the Fund’s business. The Board considered Lord Abbett’s profit margins excluding Lord Abbett’s marketing and distribution expenses. The Board also considered Lord Abbett’s profit margins, without those exclusions, in comparison with available industry data and how those profit margins could affect Lord Abbett’s ability to recruit and retain personnel. The Board recognized that Lord Abbett’s overall profitability was a factor in enabling it to attract and retain qualified personnel to provide services to the Fund. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that Lord Abbett’s profitability with respect to the Fund was not excessive.
Economies of Scale.The Board considered the extent to which there had been economies of scale in managing the Fund, whether the Fund’s shareholders had appropriately benefited from such economies of scale, and whether there was potential for realization of any further economies of scale. The Board concluded that the existing management fee schedule, with its breakpoints in the level of the management fee, adequately addressed any economies of scale in managing the Fund.
Other Benefits to Lord Abbett.The Board considered the amount and nature of the fees paid by the Fund and the Fund’s shareholders to Lord Abbett for services other than investment advisory
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Approval of Advisory Contract (concluded)
services, such as the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the revenues and profitability of Lord Abbett’s investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that the Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees it receives, and receives a portion of the sales charges on sales and redemptions of some classes of shares of the Lord Abbett Funds. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectus of the Fund, has entered into revenue sharing arrangements with certain entities that distribute shares of the Lord Abbett Funds. The Board also took into consideration the investment research that Lord Abbett receives as a result of client brokerage transactions.
Alternative Arrangements.The Board considered whether, instead of approving continuation of the Agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms. After considering all of the relevant factors, the Board unanimously found that continuation of the Agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve the continuation of the Agreement. In considering whether to approve the continuation of the Agreement, the Board did not identify any single factor as paramount or controlling. Individual Directors may have evaluated the information presented differently from one another, giving different weights to various factors. This summary does not discuss in detail all matters considered.
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Householding
The Company has adopted a policy that allows it to send only one copy of the Fund’s prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same “household.” This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.
Proxy Voting Policies, Procedures and Records
A description of the policies and procedures that Lord Abbett uses to vote proxies related to the Fund’s portfolio securities, and information on how Lord Abbett voted the Fund’s proxies during the 12-month period ended December 31 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett’s Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission’s (“SEC”) Website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters as an attachment to Form N-PORT. Copies of the filings are available without charge, upon request on the SEC’s Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388.
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This report, when not used for the general information of shareholders of the Fund, is to be distributed only if preceded or accompanied by a current fund prospectus. | |||
Lord Abbett mutual fund shares are distributed by LORD ABBETT DISTRIBUTOR LLC. | Lord Abbett Series Fund, Inc.
Short Duration Income Portfolio | SFSDI-PORT-3 (02/20) |
LORD ABBETT
ANNUAL REPORT
Lord Abbett
Series Fund—Total Return Portfolio
For the fiscal year ended December 31, 2019
Table of Contents
Lord Abbett Series Fund — Total Return Portfolio
Annual Report
For the fiscal year ended December 31, 2019
From left to right: James L.L. Tullis, Independent Chairman of the Lord Abbett Funds and Douglas B. Sieg, Director, President, and Chief Executive Officer of the Lord Abbett Funds. | Dear Shareholders:We are pleased to provide you with this overview of the performance of Lord Abbett Series Fund – Total Return Portfolio for the fiscal year ended December 31, 2019. On this page and the following pages, we discuss the major factors that influenced fiscal year performance. For additional information about the Fund, please visit our website at www.lordabbett.com, where you also can access quarterly commentaries that provide updates on the Fund’s performance and other portfolio related updates. Thank you for investing in Lord Abbett mutual funds. We value the trust that you place in us and look forward to serving your investment needs in the years to come.
Best regards,
Douglas B. Sieg Director, President, and Chief Executive Officer |
For the fiscal year ended December 31, 2019, the Fund returned 8.41%, reflecting performance at the net asset value (NAV) of Class VC shares with all distributions reinvested, compared to its benchmark, the Bloomberg Barclays U.S. Universal® Index,1which returned 9.29% over the same period.
The trailing 12-month period was characterized by several market-moving events. Following a tumultuous fourth quarter of 2018, when uncertainty about trade policy and monetary policy sent many investors toward safety, the market staged a strong recovery. Trade tensions continued to dominate headlines, as
negotiations between the U.S. and China remained volatile throughout the period. One of the more notable shifts over the year was the U.S. Federal Reserve’s (the “Fed”) transition to a more dovish policy stance, with Chairman Jerome Powell stating that the Fed would act appropriately to sustain economic growth. The combination of a dovish Fed, trade pressures, and slowing economic growth resulted in a downward shift in the U.S. Treasury yield curve.
Despite bouts of volatility, risk assets rallied during the trailing 12-months ended December 31, 2019, primarily due to
1
the dovish comments from central banks around the globe, culminating in the longest U.S. economic expansion on record. Credit sectors performed exceptionally well, with investment grade bonds benefiting from a sizeable decline in spreads along with a sharp downward shift in the yield curve. Additionally, high yield bonds produced strong returns. High yield performance was characterized by a sharp up-in-quality bias, as the CCC segment sharply underperformed. The CCC tier was adversely affected by idiosyncratic weakness in select industries along with overall investor hesitation to enter the space given late cycle concerns and a strong preference for perceived quality and liquidity. The energy sector dragged on high yield performance, which we believe was due largely to idiosyncratic issues within select industries.
For the 12-month period ended December 2019, security selection within sovereign bonds was the largest detractor to relative performance. Also detracting from performance during the period was
an overweight to asset-backed securities (ABS). The asset class underperformed the benchmark during the period, as corporate debt outperformed consumer-backed ABS.
Security selection within mortgage-backed securities (MBS) was the largest contributor to the Fund’s relative performance during 2019. Within MBS, selection within down-in-coupon MBS versus the benchmark helped drive positive relative performance. The Fund’s security selection within investment grade corporate bonds also contributed to relative performance, specifically within financials. We remain attracted to select securities within the Financials sector due to strict regulations, strong balance sheets, more conservative management teams, and improved quality relative to the precrisis period.
The Fund’s portfolio is actively managed and, therefore, its holdings and the weightings of a particular issuer or particular sector as a percentage of portfolio assets are subject to change. Sectors may include many industries.
2
1 The Bloomberg Barclays U.S. Universal® Index represents the union of the U.S. Aggregate Index, the U.S High Yield Corporate Index, the 144A Index, the Eurodollar Index, the Emerging Markets Index, and the non-ERISA portion of the CMBS Index. Municipal debt, private placements, and non-dollar-denominated issues are excluded from the Universal Index. The only constituent of the Index that includes floating-rate debt is the Emerging Markets Index.
Unless otherwise specified, indexes reflect total return, with all dividends reinvested. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Important Performance and Other Information
Performance data quoted in the following pages reflect past performance and are no guarantee of future results. Current performance may be higher or lower than the performance quoted. The investment return and principal value of an investment in the Funds will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. You can obtain performance data current to the most recent month end by calling Lord Abbett at 888-522-2388 or referring to www.lordabbett.com.
During certain periods shown, expense waivers and reimbursements were in place. Without such expense waivers and reimbursements, the Fund’s returns would have been lower.
The annual commentary above discusses the views of the Fund’s management and various portfolio holdings of the Fund as of December 31, 2019. These views and portfolio holdings may have changed after this date. Information provided in the commentary is not a recommendation to buy or sell securities. Because the Fund’s portfolio is actively managed and may change significantly, the Fund may no longer own the securities described above or may have otherwise changed their positions in the securities. For more recent information about the Fund’s portfolio holdings, please visit www.lordabbett.com.
A Note about Risk:See Notes to Financial Statements for a discussion of investment risks. For a more detailed discussion of the risks associated with the Fund, please see the Fund’s prospectus.
Mutual funds are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, banks, and are subject to investment risks including possible loss of principal amount invested.
The Fund serves as an underlying investment vehicle for variable annuity contracts and variable life insurance policies.
3
Below is a comparison of a $10,000 investment in Class VC shares with the same investment in both the Bloomberg Barclays U.S. Aggregate Bond® Index and the Bloomberg Barclays U.S. Universal® Index, assuming reinvestment of all dividends and distributions. The Fund’s shares are sold only to insurance company separate accounts that fund certain variable annuity and variable life contracts. The line graph comparison does not reflect the sales charges or other expenses of these contracts. If those sales charges and expenses were reflected, returns would be lower. The graph and performance table below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. During the period, expenses of the Fund were waived or reimbursed by Lord Abbett; without such waiver or reimbursement of expenses, the Fund’s returns would have been lower.Past performance is no guarantee of future results.
Average Annual Total Returns for the
Periods Ended December 31, 2019
1 Year | 5 Years | Life of Class | ||||
Class VC2 | 8.41% | 2.91% | 4.11% |
1 Performance for each unmanaged index does not reflect any fees or expenses. The performance of each index is not necessarily representative of the Fund’s performance. Performance for each index began on May 1, 2010.
2 The Class VC shares commenced operations on April 16, 2010. Performance for the Class began on May 1, 2010.
4
As a shareholder of the Fund, you incur ongoing costs, including management fees; expenses related to the Fund’s services arrangements with certain insurance companies; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2019 through December 31, 2019).
The Example reflects only expenses that are deducted from the assets of the Fund. Fees and expenses, including sales charges applicable to the various insurance products that invest in the Fund, are not reflected in this Example. If such fees and expenses were reflected in the Example, the total expenses shown would be higher. Fees and expenses regarding such variable insurance products are separately described in the prospectus related to those products.
Actual Expenses
The first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled “Expenses Paid During Period 7/1/19 – 12/31/19” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
5
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value | Ending Account Value | Expenses Paid During Period† | |||||
7/1/19 | 12/31/19 | 7/1/19 - 12/31/19 | |||||
Class VC | |||||||
Actual | $1,000.00 | $1,019.00 | $3.71 | ||||
Hypothetical (5% Return Before Expenses) | $1,000.00 | $1,021.53 | $3.72 |
† | Net expenses are equal to the Fund’s annualized expense ratio of 0.73%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect one-half year period). |
Portfolio Holdings Presented by Sector
December 31, 2019
Sector* | %** | |||
Auto | 0.72 | % | ||
Basic Industry | 0.14 | % | ||
Capital Goods | 0.33 | % | ||
Consumer Cyclical | 0.69 | % | ||
Consumer Discretionary | 0.24 | % | ||
Consumer Services | 0.75 | % | ||
Consumer Staples | 0.65 | % | ||
Energy | 2.64 | % | ||
Financial Services | 25.32 | % | ||
Foreign Government | 9.84 | % | ||
Health Care | 1.13 | % | ||
Integrated Oils | 0.26 | % | ||
Materials & Processing | 1.77 | % | ||
Municipal | 0.65 | % | ||
Producer Durables | 0.96 | % | ||
Technology | 1.26 | % | ||
Telecommunications | 0.50 | % | ||
Transportation | 0.05 | % | ||
U.S. Government | 48.62 | % | ||
Utilities | 1.67 | % | ||
Repurchase Agreement | 1.81 | % | ||
Total | 100.00 | % |
* | A sector may comprise several industries. | |
** | Represents percent of total investments. |
6 | See Notes to Financial Statements. |
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
LONG-TERM INVESTMENTS 106.54% | |||||||||||
ASSET-BACKED SECURITIES 18.24% | |||||||||||
Automobiles 6.44% | |||||||||||
ACC Trust 2018-1 B† | 4.82% | 5/20/2021 | $ | 289 | $ | 290,370 | |||||
ACC Trust 2019-1 B† | 4.47% | 10/20/2022 | 469 | 476,497 | |||||||
ACC Trust 2019-1 C† | 6.41% | 2/20/2024 | 500 | 510,849 | |||||||
Ally Auto Receivables Trust 2019-4 A2 | 1.93% | 10/17/2022 | 1,613 | 1,612,685 | |||||||
American Credit Acceptance Receivables Trust 2016-2 C† | 6.09% | 5/12/2022 | 107 | 107,343 | |||||||
American Credit Acceptance Receivables Trust 2018-4 A† | 3.38% | 12/13/2021 | 278 | 278,249 | |||||||
American Credit Acceptance Receivables Trust 2019-2 B† | 3.05% | 5/12/2023 | 1,089 | 1,096,854 | |||||||
AmeriCredit Automobile Receivables Trust 2016-2 C | 2.87% | 11/8/2021 | 1,803 | 1,806,819 | |||||||
AmeriCredit Automobile Receivables Trust 2018-2 A2A | 2.86% | 11/18/2021 | 839 | 840,133 | |||||||
AmeriCredit Automobile Receivables Trust 2018-3 A2A | 3.11% | 1/18/2022 | 324 | 324,631 | |||||||
AmeriCredit Automobile Receivables Trust 2018-3 A2B | 1.995% (1 Mo. LIBOR + .25% | )# | 1/18/2022 | 324 | 323,826 | ||||||
AmeriCredit Automobile Receivables Trust 2019-1 A2A | 2.93% | 6/20/2022 | 616 | 617,702 | |||||||
AmeriCredit Automobile Receivables Trust 2019-1 A2B | 2.005% (1 Mo. LIBOR + .26% | )# | 6/20/2022 | 681 | 680,638 | ||||||
Avid Automobile Receivables Trust 2019-1 A† | 2.62% | 2/15/2024 | 906 | 905,478 | |||||||
Avid Automobile Receivables Trust 2019-1 B† | 2.82% | 7/15/2026 | 500 | 499,024 | |||||||
Avid Automobile Receivables Trust 2019-1 C† | 3.14% | 7/15/2026 | 500 | 498,382 | |||||||
BMW Vehicle Lease Trust 2019-1 A2 | 2.79% | 3/22/2021 | 858 | 859,877 | |||||||
California Republic Auto Receivables Trust 2015-3 B | 2.70% | 9/15/2021 | 120 | 120,027 | |||||||
Capital Auto Receivables Asset Trust 2018-1 A3† | 2.79% | 1/20/2022 | 1,266 | 1,268,671 | |||||||
CarMax Auto Owner Trust 2016-3 A3 | 1.39% | 5/17/2021 | 52 | 51,911 | |||||||
CarMax Auto Owner Trust 2018-3 A2A | 2.88% | 10/15/2021 | 297 | 297,117 | |||||||
Carmax Auto Owner Trust 2019-4 C | 2.60% | 9/15/2025 | 355 | 354,216 | |||||||
Carvana Auto Receivables Trust 2019-1A E† | 5.64% | 1/15/2026 | 500 | 515,231 | |||||||
Chesapeake Funding II LLC 2017-2A A1† | 1.99% | 5/15/2029 | 274 | 274,047 | |||||||
Chesapeake Funding II LLC 2017-3A A1† | 1.91% | 8/15/2029 | 635 | 634,554 | |||||||
Chrysler Capital Auto Receivables Trust 2016-AA C† | 3.25% | 6/15/2022 | 50 | 49,708 | |||||||
CPS Auto Receivables Trust 2016-B D† | 6.58% | 3/15/2022 | 150 | 154,785 |
See Notes to Financial Statements. | 7 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Automobiles (continued) | |||||||||||
CPS Auto Receivables Trust 2018-A B† | 2.77% | 4/18/2022 | $ | 215 | $ | 215,073 | |||||
CPS Auto Receivables Trust 2018-A C† | 3.05% | 12/15/2023 | 260 | 261,439 | |||||||
CPS Auto Receivables Trust 2018-B D† | 4.26% | 3/15/2024 | 417 | 429,020 | |||||||
CPS Auto Trust 2018-C A† | 2.87% | 9/15/2021 | 120 | 119,865 | |||||||
CPS Auto Trust 2018-C B† | 3.43% | 7/15/2022 | 331 | 332,630 | |||||||
Credit Acceptance Auto Loan Trust 2019-3A B† | 2.86% | 1/16/2029 | 1,845 | 1,843,735 | |||||||
Drive Auto Receivables Trust 2015-DA D† | 4.59% | 1/17/2023 | 343 | 343,420 | |||||||
Drive Auto Receivables Trust 2016-BA D† | 4.53% | 8/15/2023 | 676 | 683,376 | |||||||
Drive Auto Receivables Trust 2016-CA D† | 4.18% | 3/15/2024 | 241 | 243,446 | |||||||
Drive Auto Receivables Trust 2017-3 C | 2.80% | 7/15/2022 | 289 | 289,528 | |||||||
Drive Auto Receivables Trust 2017-AA D† | 4.16% | 5/15/2024 | 447 | 453,157 | |||||||
Drive Auto Receivables Trust 2017-BA E† | 5.30% | 7/15/2024 | 2,100 | 2,160,328 | |||||||
Drive Auto Receivables Trust 2018-3 B | 3.37% | 9/15/2022 | 158 | 157,729 | |||||||
Drive Auto Receivables Trust 2019-2 A2A | 2.93% | 3/15/2022 | 449 | 449,856 | |||||||
Drive Auto Receivables Trust 2019-3 A2A | 2.63% | 9/15/2022 | 759 | 760,715 | |||||||
Enterprise Fleet Financing LLC 2017-1 A2† | 2.13% | 7/20/2022 | 49 | 48,892 | |||||||
Enterprise Fleet Financing LLC 2018-1 A2† | 2.87% | 10/20/2023 | 278 | 278,910 | |||||||
First Investors Auto Owner Trust 2017-3A A2† | 2.41% | 12/15/2022 | 488 | 488,253 | |||||||
First Investors Auto Owner Trust 2018-2A A1† | 3.23% | 12/15/2022 | 345 | 346,540 | |||||||
First Investors Auto Owner Trust 2019-2A C† | 2.71% | 12/15/2025 | 709 | 707,725 | |||||||
Flagship Credit Auto Trust 2017-3 A† | 1.88% | 10/15/2021 | 21 | 21,067 | |||||||
Flagship Credit Auto Trust 2017-3 B† | 2.59% | 7/15/2022 | 300 | 300,292 | |||||||
Flagship Credit Auto Trust 2017-4 A† | 2.07% | 4/15/2022 | 116 | 116,274 | |||||||
Flagship Credit Auto Trust 2018-1 A† | 2.59% | 6/15/2022 | 235 | 234,718 | |||||||
Flagship Credit Auto Trust 2018-3 A† | 3.07% | 2/15/2023 | 1,117 | 1,122,496 | |||||||
Flagship Credit Auto Trust 2018-3 B† | 3.59% | 12/16/2024 | 725 | 736,666 | |||||||
Ford Credit Auto Owner Trust 2015-1 A† | 2.12% | 7/15/2026 | 3,161 | 3,160,840 | |||||||
Ford Credit Auto Owner Trust 2017-B A3 | 1.69% | 11/15/2021 | 1,171 | 1,169,479 | |||||||
Foursight Capital Automobile Receivables Trust2016-1 A2† | 2.87% | 10/15/2021 | 31 | 30,813 | |||||||
Foursight Capital Automobile Receivables Trust2018-1 A3† | 3.24% | 9/15/2022 | 728 | 730,906 | |||||||
Foursight Capital Automobile Receivables Trust2018-1 B† | 3.53% | 4/17/2023 | 412 | 415,876 | |||||||
Foursight Capital Automobile Receivables Trust2018-1 C† | 3.68% | 8/15/2023 | 194 | 196,730 | |||||||
Honda Auto Receivables Owner Trust 2019-1 A2 | 2.75% | 9/20/2021 | 1,901 | 1,908,336 | |||||||
Hyundai Auto Lease Securitization Trust 2017-C A3† | 2.12% | 2/16/2021 | 305 | 305,141 | |||||||
Mercedes-Benz Auto Lease Trust 2018-B A2 | 3.04% | 12/15/2020 | 928 | 929,367 |
8 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Automobiles (continued) | |||||||||||
Mercedes-Benz Auto Receivables Trust 2016-1 A3 | 1.26% | 2/16/2021 | $ | 14 | $ | 13,612 | |||||
Nissan Auto Receivables Owner Trust 2016-A A4 | 1.59% | 7/15/2022 | 1,206 | 1,204,305 | |||||||
Santander Drive Auto Receivables Trust 2017-3 C | 2.76% | 12/15/2022 | 192 | 192,618 | |||||||
TCF Auto Receivables Owner Trust 2016-PT1A B† | 2.92% | 10/17/2022 | 598 | 601,117 | |||||||
Westlake Automobile Receivables Trust 2018-1A B† | 2.67% | 5/17/2021 | 232 | 231,775 | |||||||
Westlake Automobile Receivables Trust 2019-2A D† | 3.20% | 11/15/2024 | 575 | 582,157 | |||||||
Wheels SPV 2 LLC 2018-1A A2† | 3.06% | 4/20/2027 | 331 | 332,358 | |||||||
World Omni Auto Receivables Trust 2018-D A2A | 3.01% | 4/15/2022 | 911 | 914,050 | |||||||
World Omni Select Auto Trust 2018-1A A2† | 3.24% | 4/15/2022 | 397 | 397,605 | |||||||
Total | 41,911,859 | ||||||||||
Credit Cards 3.56% | |||||||||||
American Express Credit Account Master Trust 2017-1 A | 1.93% | 9/15/2022 | 1,415 | 1,414,954 | |||||||
American Express Credit Account Master Trust 2017-3 A | 1.77% | 11/15/2022 | 4,167 | 4,165,564 | |||||||
American Express Credit Account Master Trust 2018-6 A | 3.06% | 2/15/2024 | 5,294 | 5,390,597 | |||||||
American Express Credit Account Master Trust 2019-3 B | 2.20% | 4/15/2025 | 3,068 | 3,075,068 | |||||||
Citibank Credit Card Issuance Trust 2017-A8 | 1.86% | 8/8/2022 | 5,304 | 5,304,005 | |||||||
Synchrony Credit Card Master Note Trust 2015-1 A | 2.37% | 3/15/2023 | 2,890 | 2,892,310 | |||||||
World Financial Network Credit Card Master Trust 2017-C M | 2.66% | 8/15/2024 | 946 | 944,815 | |||||||
Total | 23,187,313 | ||||||||||
Home Equity 0.00% | |||||||||||
Meritage Mortgage Loan Trust 2004-2 M3 | 2.767% (1 Mo. LIBOR + .98% | )# | 1/25/2035 | 2 | 1,839 | ||||||
New Century Home Equity Loan Trust 2005-A A6 | 4.671% | 8/25/2035 | 14 | 14,223 | |||||||
Total | 16,062 | ||||||||||
Other 8.24% | |||||||||||
Access Point Funding I LLC 2017-A† | 3.06% | 4/15/2029 | 8 | 7,515 | |||||||
ALM VII Ltd. 2012-7A A2R2† | 3.851% (3 Mo. LIBOR +1.85% | )# | 7/15/2029 | 1,468 | 1,467,669 | ||||||
Apidos CLO XVI 2013-16A CR† | 4.966% (3 Mo. LIBOR + 3.00% | )# | 1/19/2025 | 250 | 250,434 | ||||||
Ares XLI Clo Ltd. 2016-41A AR† | 3.201% (3 Mo. LIBOR + 1.20% | )# | 1/15/2029 | 2,400 | 2,399,875 | ||||||
Ares XLI CLO Ltd. 2016-41A B† | 3.801% (3 Mo. LIBOR + 1.80% | )# | 1/15/2029 | 600 | 601,505 | ||||||
See Notes to Financial Statements. | 9 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Other (continued) | |||||||||||
Ascentium Equipment Receivables Trust 2016-2A B† | 2.50% | 9/12/2022 | $ | 51 | $ | 50,982 | |||||
Ascentium Equipment Receivables Trust 2017-1A A3† | 2.29% | 6/10/2021 | 81 | 80,817 | |||||||
Avery Point IV CLO Ltd. 2014-1A BR† | 3.54% (3 Mo. LIBOR + 1.60% | )# | 4/25/2026 | 322 | 322,179 | ||||||
Avery Point VII CLO Ltd. 2015-7A CR† | 4.451% (3 Mo. LIBOR + 2.45% | )# | 1/15/2028 | 400 | 400,358 | ||||||
Benefit Street Partners CLO XI 2017-11A A2A† | 3.751% (3 Mo. LIBOR + 1.75% | )# | 4/15/2029 | 933 | 931,151 | ||||||
BSPRT Issuer Ltd. 2018-FL4 A† | 2.79% (1 Mo. LIBOR + 1.05% | )# | 9/15/2035 | 930 | 929,114 | ||||||
Cedar Funding VI CLO Ltd. 2016-6A BR† | 3.566% (3 Mo. LIBOR + 1.60% | )# | 10/20/2028 | 650 | 645,417 | ||||||
Cent CLO Ltd. 2013-19A A1A† | 3.258% (3 Mo. LIBOR + 1.33% | )# | 10/29/2025 | 416 | 417,149 | ||||||
CIFC Funding 2019-VI Ltd. 2019-6A D† | Zero Coupon | #(a) | 1/16/2033 | 250 | 250,096 | ||||||
Clear Creek CLO 2015-1A DR† | 4.313% (3 Mo. LIBOR + 2.95% | )# | 10/20/2030 | 347 | 327,535 | ||||||
Conn’s Receivables Funding LLC 2017-B C† | 5.95% | 11/15/2022 | 916 | 921,276 | |||||||
Diamond Resorts Owner Trust 2016-1 A† | 3.08% | 11/20/2028 | 40 | 40,619 | |||||||
Diamond Resorts Owner Trust 2017-1A B† | 4.11% | 10/22/2029 | 283 | 288,133 | |||||||
DLL LLC 2018-ST2 A2† | 3.14% | 10/20/2020 | 343 | 342,848 | |||||||
DRB Prime Student Loan Trust 2015-D A2† | 3.20% | 1/25/2040 | 527 | 531,124 | |||||||
Fairstone Financial Issuance Trust I 2019-1A B†(b) | 5.084% | 3/21/2033 | CAD | 500 | 386,770 | (c) | |||||
Ford Credit Floorplan Master Owner Trust 2015-5 A1 | 2.42% | 8/15/2022 | $ | 1,261 | 1,263,998 | ||||||
Halcyon Loan Advisors Funding Ltd. 2015-2A CR† | 4.09% (3 Mo. LIBOR + 2.15% | )# | 7/25/2027 | 250 | 250,064 | ||||||
Hardee’s Funding LLC 2018-1A A23† | 5.71% | 6/20/2048 | 743 | 781,871 | |||||||
Hardee’s Funding LLC 2018-1A A2II† | 4.959% | 6/20/2048 | 1,155 | 1,184,109 | |||||||
ICG US CLO Ltd. 2015-2A AR† | 2.851% (3 Mo. LIBOR + .85% | )# | 1/16/2028 | 1,231 | 1,226,832 | ||||||
Jamestown CLO IX Ltd. 2016-9A BR† | 4.616% (3 Mo. LIBOR + 2.65% | )# | 10/20/2028 | 750 | 751,788 | ||||||
Jamestown CLO VII Ltd. 2015-7A CR† | 4.54% (3 Mo. LIBOR + 2.60% | )# | 7/25/2027 | 611 | 603,563 | ||||||
KKR CLO Ltd.18 B† | 3.703% (3 Mo. LIBOR + 1.70% | )# | 7/18/2030 | 920 | 906,612 | ||||||
KVK CLO Ltd. 2016-1A B† | 4.251% (3 Mo. LIBOR + 2.25% | )# | 1/15/2029 | 2,756 | 2,757,112 | ||||||
LCM XXIV Ltd. 24A A† | 3.276% (3 Mo. LIBOR + 1.31% | )# | 3/20/2030 | 679 | 681,378 | ||||||
Longtrain Leasing III LLC 2015-1A A2† | 4.06% | 1/15/2045 | 753 | 775,449 |
10 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Other (continued) | |||||||||||
Madison Park Funding XXXVI Ltd. 2019-36A C† | 2.60% (3 Mo. LIBOR + 2.60% | )# | 1/15/2033 | $ | 504 | $ | 503,866 | ||||
Madison Park Funding XXXVI Ltd. 2019-36A D† | 3.75% (3 Mo. LIBOR + 3.75% | )# | 1/15/2033 | 849 | 849,402 | ||||||
Massachusetts Educational Financing Authority 2008-1 A1 | 2.89% (3 Mo. LIBOR + .95% | )# | 4/25/2038 | 467 | 465,660 | ||||||
ME Funding LLC 2019-1 A2† | 6.448% | 7/30/2049 | 760 | 786,949 | |||||||
Mountain Hawk III CLO Ltd. 2014-3A AR† | 3.203% (3 Mo. LIBOR + 1.20% | )# | 4/18/2025 | 974 | 974,685 | ||||||
Mountain View CLO X Ltd. 2015-10A BR† | 3.351% (3 Mo. LIBOR + 1.35% | )# | 10/13/2027 | 623 | 617,755 | ||||||
Mountain View CLO XIV Ltd. 2019-1A A1† | 3.441% (3 Mo. LIBOR + 1.44% | )# | 4/15/2029 | 1,422 | 1,424,455 | ||||||
Navient Private Education Refi Loan Trust 2018-DA A2A† | 4.00% | 12/15/2059 | 570 | 588,669 | |||||||
Northwoods Capital 20 Ltd. 2019-20A C† | 4.701% (3 Mo. LIBOR + 2.80% | )# | 1/25/2030 | 603 | 604,222 | ||||||
Northwoods Capital 20 Ltd. 2019-20A D† | 6.151% (3 Mo. LIBOR + 4.25% | )# | 1/25/2030 | 698 | 700,292 | ||||||
OHA Loan Funding Ltd. 2015-1A CR2† | 4.501% (3 Mo. LIBOR + 2.65% | )# | 11/15/2032 | 333 | 332,898 | ||||||
OHA Loan Funding Ltd. 2016-1A B1† | 3.766% (3 Mo. LIBOR + 1.80% | )# | 1/20/2028 | 1,574 | 1,574,783 | ||||||
OneMain Financial Issuance Trust 2016-1A A† | 3.66% | 2/20/2029 | 48 | 47,952 | |||||||
Orec Ltd. 2018-CRE1 A† | 2.92% (1 Mo. LIBOR + 1.18% | )# | 6/15/2036 | 1,030 | 1,031,324 | ||||||
Palmer Square Loan Funding Ltd. 2018-1A A1† | 2.601% (3 Mo. LIBOR + .60% | )# | 4/15/2026 | 795 | 792,684 | ||||||
Palmer Square Loan Funding Ltd. 2018-1A A2† | 3.051% (3 Mo. LIBOR + 1.05% | )# | 4/15/2026 | 414 | 413,282 | ||||||
Palmer Square Loan Funding Ltd. 2018-1A B† | 3.401% (3 Mo. LIBOR + 1.40% | )# | 4/15/2026 | 314 | 312,246 | ||||||
Palmer Square Loan Funding Ltd. 2018-5A A2† | 3.366% (3 Mo. LIBOR + 1.40% | )# | 1/20/2027 | 255 | 254,424 | ||||||
Pennsylvania Higher Education Assistance Agency 2006-1 B | 2.21% (3 Mo. LIBOR + .27% | )# | 4/25/2038 | 255 | 237,289 | ||||||
PFS Financing Corp. 2018-B† | 3.08% | 2/15/2023 | 469 | 470,558 | |||||||
Planet Fitness Master Issuer LLC 2019-1A A2† | 3.858% | 12/5/2049 | 616 | 607,995 | |||||||
Regatta VI Funding Ltd. 2016-1A CR† | 4.016% (3 Mo. LIBOR + 2.05% | )# | 7/20/2028 | 485 | 478,177 | ||||||
Regatta XVI Funding Ltd. 2019-2A C† | 4.603% (3 Mo. LIBOR + 2.70% | )# | 1/15/2033 | 290 | 290,403 |
See Notes to Financial Statements. | 11 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Other (continued) | |||||||||||
Regatta XVI Funding Ltd. 2019-2A D† | 5.803% (3 Mo. LIBOR+ 3.90% | )# | 1/15/2033 | $ | 316 | $ | 315,908 | ||||
SCF Equipment Leasing LLC 2017-2A A† | 3.41% | 12/20/2023 | 212 | 212,121 | |||||||
SCF Equipment Leasing LLC 2018-1A A2† | 3.63% | 10/20/2024 | 730 | 738,629 | |||||||
SCF Equipment Leasing LLC 2019-1A C† | 3.92% | 11/20/2026 | 2,132 | 2,145,736 | |||||||
SCF Equipment Leasing LLC 2019-2A B† | 2.76% | 8/20/2026 | 1,442 | 1,436,436 | |||||||
SCF Equipment Leasing LLC 2019-2A C† | 3.11% | 6/21/2027 | 1,046 | 1,045,444 | |||||||
Shackleton CLO Ltd. 2016-9A B† | 3.866% (3 Mo. LIBOR + 1.90% | )# | 10/20/2028 | 499 | 498,590 | ||||||
Shackleton CLO Ltd. 2019-14A A2† | 4.178% (3 Mo. LIBOR + 1.90% | )# | 7/20/2030 | 1,687 | 1,670,878 | ||||||
SLC Student Loan Trust 2008-1 A4A | 3.494% (3 Mo. LIBOR + 1.60% | )# | 12/15/2032 | 1,131 | 1,146,913 | ||||||
SLM Student Loan Trust 2011-1 A1 | 2.312% (1 Mo. LIBOR + .52% | )# | 3/25/2026 | 3 | 3,175 | ||||||
Sound Point CLO XI Ltd. 2016-1A AR† | 3.066% (3 Mo. LIBOR + 1.10% | )# | 7/20/2028 | 591 | 591,477 | ||||||
Sound Point CLO XV Ltd. 2017-1A C† | 4.434% (3 Mo. LIBOR + 2.50% | )# | 1/23/2029 | 570 | 570,390 | ||||||
Sound Point CLO XVII 2017-3A A2† | 3.566% (3 Mo. LIBOR + 1.60% | )# | 10/20/2030 | 1,779 | 1,740,295 | ||||||
Textainer Marine Containers VII Ltd. 2019-1A A† | 3.96% | 4/20/2044 | 618 | 622,987 | |||||||
Towd Point Asset Trust 2018-SL1 A† | 2.308% (1 Mo. LIBOR + .60% | )# | 1/25/2046 | 762 | 750,298 | ||||||
Towd Point Mortgage Trust 2019-HY2 A1† | 2.792% (1 Mo. LIBOR + 1.00% | )# | 5/25/2058 | 686 | 690,333 | ||||||
TPG Real Estate Finance Issuer Ltd. 2018-FL2 A† | 2.867% (1 Mo. LIBOR + 1.13% | )# | 11/15/2037 | 1,050 | 1,049,896 | ||||||
Voya CLO Ltd. 2019-1A D† | 5.301% (3 Mo. LIBOR + 3.30% | )# | 4/15/2029 | 163 | 163,499 | ||||||
Westgate Resorts LLC 2018-1A A† | 3.38% | 12/20/2031 | 299 | 302,344 | |||||||
Wingstop Funding LLC 2018-1 A2† | 4.97% | 12/5/2048 | 844 | 869,432 | |||||||
Total | 53,700,093 | ||||||||||
Total Asset-Backed Securities (cost $118,499,010) | 118,815,327 | ||||||||||
CORPORATE BONDS 27.69% | |||||||||||
Aerospace/Defense 0.34% | |||||||||||
Kratos Defense & Security Solutions, Inc.† | 6.50% | 11/30/2025 | 277 | 297,198 | |||||||
Signature Aviation US Holdings, Inc.† | 4.00% | 3/1/2028 | 963 | 951,588 | |||||||
TransDigm, Inc. | 6.375% | 6/15/2026 | 891 | 946,652 | |||||||
Total | 2,195,438 | ||||||||||
12 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Principal | |||||||||||
Interest | Maturity | Amount | Fair | ||||||||
Investments | Rate | Date | (000) | Value | |||||||
Apparel 0.10% | |||||||||||
PVH Corp. | 7.75% | 11/15/2023 | $ | 561 | $ | 659,688 | |||||
Auto Parts: Original Equipment 0.18% | |||||||||||
Panther BF Aggregator 2 LP/Panther Finance Co., Inc.† | 8.50% | 5/15/2027 | 597 | 635,417 | |||||||
ZF North America Capital, Inc.† | 4.75% | 4/29/2025 | 517 | 543,889 | |||||||
Total | 1,179,306 | ||||||||||
Automotive 0.76% | |||||||||||
Aston Martin Capital Holdings Ltd. (Jersey)†(d) | 6.50% | 4/15/2022 | 200 | 190,770 | |||||||
Ford Motor Co. | 7.45% | 7/16/2031 | 1,597 | 1,895,916 | |||||||
General Motors Co. | 6.60% | 4/1/2036 | 1,574 | 1,856,971 | |||||||
Tesla, Inc.† | 5.30% | 8/15/2025 | 1,062 | 1,032,784 | |||||||
Total | 4,976,441 | ||||||||||
Banks: Regional 5.86% | |||||||||||
Akbank T.A.S. (Turkey)†(d) | 5.00% | 10/24/2022 | 385 | 388,130 | |||||||
Banco de Credito e Inversiones SA (Chile)†(d) | 3.50% | 10/12/2027 | 535 | 547,211 | |||||||
Bank of America Corp. | 3.593% (3 Mo. LIBOR + 1.37% | )# | 7/21/2028 | 4,438 | 4,702,863 | ||||||
Bank of America Corp. | 3.95% | 4/21/2025 | 250 | 266,753 | |||||||
Bank of America Corp. | 4.00% | 1/22/2025 | 728 | 776,648 | |||||||
Bank of America Corp. | 4.45% | 3/3/2026 | 315 | 345,950 | |||||||
Citigroup, Inc. | 3.887% (3 Mo. LIBOR + 1.56% | )# | 1/10/2028 | 3,151 | 3,394,308 | ||||||
Citigroup, Inc. | 3.98% (3 Mo. LIBOR + 1.34% | )# | 3/20/2030 | 1,294 | 1,415,664 | ||||||
Citigroup, Inc. | 4.45% | 9/29/2027 | 552 | 607,962 | |||||||
Goldman Sachs Group, Inc. (The) | 6.25% | 2/1/2041 | 588 | 822,455 | |||||||
JPMorgan Chase & Co. | 3.54% (3 Mo. LIBOR + 1.38% | )# | 5/1/2028 | 553 | 587,348 | ||||||
JPMorgan Chase & Co. | 3.782% (3 Mo. LIBOR + 1.34% | )# | 2/1/2028 | 4,159 | 4,483,344 | ||||||
Macquarie Group Ltd. (Australia)†(d) | 4.654% (3 Mo. LIBOR + 1.73% | )# | 3/27/2029 | 1,431 | 1,576,574 | ||||||
Morgan Stanley | 3.625% | 1/20/2027 | 1,405 | 1,495,661 | |||||||
Morgan Stanley | 3.875% | 1/27/2026 | 1,525 | 1,637,844 | |||||||
Morgan Stanley | 4.00% | 7/23/2025 | 1,779 | 1,925,025 | |||||||
Morgan Stanley | 7.25% | 4/1/2032 | 84 | 120,094 | |||||||
Popular, Inc. | 6.125% | 9/14/2023 | 107 | 115,471 | |||||||
Santander UK plc (United Kingdom)(d) | 7.95% | 10/26/2029 | 902 | 1,169,899 | |||||||
Toronto-Dominion Bank (The) (Canada)(d) | 3.625% (5 Yr. Swap rate + 2.21% | )# | 9/15/2031 | 3,463 | 3,620,803 | ||||||
Turkiye Garanti Bankasi AS (Turkey)†(d) | 5.875% | 3/16/2023 | 700 | 721,424 | |||||||
UBS AG | 7.625% | 8/17/2022 | 1,234 | 1,391,588 |
See Notes to Financial Statements. | 13 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Banks: Regional (continued) | |||||||||||
UBS AG (Switzerland)(d) | 5.125% | 5/15/2024 | $ | 1,399 | $ | 1,510,920 | |||||
Wachovia Corp. | 7.574% | 8/1/2026 | 596 | 754,058 | |||||||
Wells Fargo Bank NA | 5.85% | 2/1/2037 | 2,380 | 3,150,426 | |||||||
Wells Fargo Bank NA | 6.60% | 1/15/2038 | 437 | 633,541 | |||||||
Total | 38,161,964 | ||||||||||
Beverages 0.44% | |||||||||||
Anheuser-Busch Cos. LLC/Anheuser-Busch InBev Worldwide, Inc. | 4.70% | 2/1/2036 | 1,902 | 2,197,044 | |||||||
Becle SAB de CV (Mexico)†(d) | 3.75% | 5/13/2025 | 350 | 359,313 | |||||||
Fomento Economico Mexicano SAB de CV(Mexico)(d) | 4.375% | 5/10/2043 | 300 | 332,275 | |||||||
Total | 2,888,632 | ||||||||||
Business Services 0.38% | |||||||||||
Adani Ports & Special Economic Zone Ltd. (India)†(d) | 4.00% | 7/30/2027 | 275 | 277,419 | |||||||
Ahern Rentals, Inc.† | 7.375% | 5/15/2023 | 618 | 491,567 | |||||||
Ashtead Capital, Inc.† | 4.25% | 11/1/2029 | 459 | 469,901 | |||||||
PayPal Holdings, Inc. | 2.85% | 10/1/2029 | 633 | 637,495 | |||||||
United Rentals North America, Inc. | 4.875% | 1/15/2028 | 592 | 617,503 | |||||||
Total | 2,493,885 | ||||||||||
Chemicals 0.76% | |||||||||||
Ashland LLC | 6.875% | 5/15/2043 | 272 | 312,374 | |||||||
CF Industries, Inc. | 4.95% | 6/1/2043 | 619 | 646,917 | |||||||
CNAC HK Finbridge Co. Ltd. (Hong Kong)(d) | 3.50% | 7/19/2022 | 580 | 589,926 | |||||||
CNAC HK Finbridge Co. Ltd. (Hong Kong)(d) | 4.125% | 7/19/2027 | 1,300 | 1,366,107 | |||||||
Orbia Advance Corp. SAB de CV (Mexico)†(d) | 4.875% | 9/19/2022 | 205 | 216,341 | |||||||
Phosagro OAO Via Phosagro Bond FundingDAC (Ireland)†(d) | 3.949% | 4/24/2023 | 960 | 990,768 | |||||||
Tronox, Inc.† | 6.50% | 4/15/2026 | 823 | 849,933 | |||||||
Total | 4,972,366 | ||||||||||
Coal 0.19% | |||||||||||
Indika Energy Capital III Pte Ltd. (Singapore)†(d) | 5.875% | 11/9/2024 | 640 | 616,919 | |||||||
Warrior Met Coal, Inc.† | 8.00% | 11/1/2024 | 586 | 595,156 | |||||||
Total | 1,212,075 | ||||||||||
Computer Hardware 0.37% | |||||||||||
Dell International LLC/EMC Corp.† | 5.45% | 6/15/2023 | 251 | 272,251 | |||||||
Dell International LLC/EMC Corp.† | 6.02% | 6/15/2026 | 158 | 181,853 |
14 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Computer Hardware (continued) | |||||||||||
Dell International LLC/EMC Corp.† | 8.35% | 7/15/2046 | $ | 1,189 | $ | 1,636,647 | |||||
Diebold Nixdorf, Inc. | 8.50% | 4/15/2024 | 328 | 317,476 | |||||||
Total | 2,408,227 | ||||||||||
Computer Software 0.20% | |||||||||||
Oracle Corp. | 6.125% | 7/8/2039 | 902 | 1,271,484 | |||||||
Construction/Homebuilding 0.28% | |||||||||||
Century Communities, Inc.† | 6.75% | 6/1/2027 | 576 | 618,925 | |||||||
Toll Brothers Finance Corp. | 4.35% | 2/15/2028 | 588 | 614,664 | |||||||
TRI Pointe Group, Inc. | 5.25% | 6/1/2027 | 310 | 324,833 | |||||||
Williams Scotsman International, Inc.† | 6.875% | 8/15/2023 | 281 | 296,572 | |||||||
Total | 1,854,994 | ||||||||||
Containers 0.10% | |||||||||||
Mauser Packaging Solutions Holding Co.† | 7.25% | 4/15/2025 | 628 | 621,714 | |||||||
Drugs 0.46% | |||||||||||
AbbVie, Inc.† | 4.25% | 11/21/2049 | 368 | 388,953 | |||||||
Bausch Health Americas, Inc.† | 9.25% | 4/1/2026 | 526 | 605,137 | |||||||
Bausch Health Cos., Inc.† | 5.00% | 1/30/2028 | 324 | 333,360 | |||||||
Bayer Corp.† | 6.65% | 2/15/2028 | 271 | 333,284 | |||||||
CVS Health Corp. | 5.05% | 3/25/2048 | 1,110 | 1,313,534 | |||||||
Total | 2,974,268 | ||||||||||
Electric: Integrated 0.05% | |||||||||||
Empresas Publicas de Medellin ESP (Colombia)†(d) | 4.25% | 7/18/2029 | 280 | 291,775 | |||||||
Electric: Power 1.94% | |||||||||||
Ausgrid Finance Pty Ltd. (Australia)†(d) | 4.35% | 8/1/2028 | 1,000 | 1,089,203 | |||||||
Berkshire Hathaway Energy Co. | 3.80% | 7/15/2048 | 1,272 | 1,366,713 | |||||||
Calpine Corp. | 5.75% | 1/15/2025 | 297 | 305,539 | |||||||
Cleco Corporate Holdings LLC† | 3.375% | 9/15/2029 | 480 | 482,342 | |||||||
Cleco Corporate Holdings LLC | 4.973% | 5/1/2046 | 419 | 464,369 | |||||||
Dominion Energy South Carolina, Inc. | 6.05% | 1/15/2038 | 510 | 693,980 | |||||||
Dominion Energy South Carolina, Inc. | 6.625% | 2/1/2032 | 246 | 333,399 | |||||||
Electricite de France SA (France)†(d) | 5.00% | 9/21/2048 | 762 | 907,533 | |||||||
Emirates Semb Corp., Water & Power Co. PJSC(United Arab Emirates)†(d) | 4.45% | 8/1/2035 | 275 | 301,681 | |||||||
Entergy Arkansas LLC | 4.20% | 4/1/2049 | 729 | 851,160 | |||||||
Entergy Louisiana LLC | 4.00% | 3/15/2033 | 1,201 | 1,357,744 | |||||||
Exelon Generation Co. LLC | 5.60% | 6/15/2042 | 462 | 528,921 |
�� | ||
See Notes to Financial Statements. | 15 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Electric: Power (continued) | |||||||||||
Exelon Generation Co. LLC | 5.75% | 10/1/2041 | $ | 591 | $ | 683,381 | |||||
FirstEnergy Transmission LLC† | 4.55% | 4/1/2049 | 817 | 935,085 | |||||||
Massachusetts Electric Co.† | 4.004% | 8/15/2046 | 501 | 533,287 | |||||||
Minejesa Capital BV (Netherlands)†(d) | 4.625% | 8/10/2030 | 250 | 259,360 | |||||||
Pennsylvania Electric Co.† | 3.60% | 6/1/2029 | 597 | 629,207 | |||||||
PSEG Power LLC | 8.625% | 4/15/2031 | 347 | 484,499 | |||||||
Vistra Operations Co. LLC† | 4.30% | 7/15/2029 | 442 | 450,826 | |||||||
Total | 12,658,229 | ||||||||||
Electrical Equipment 0.43% | |||||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | 3.625% | 1/15/2024 | 244 | 252,853 | |||||||
Broadcom, Inc.† | 3.625% | 10/15/2024 | 2,475 | 2,573,968 | |||||||
Total | 2,826,821 | ||||||||||
Electronics 0.15% | |||||||||||
PerkinElmer, Inc. | 3.30% | 9/15/2029 | 942 | 962,825 | |||||||
Trimble, Inc. | 4.90% | 6/15/2028 | 11 | 12,012 | |||||||
Total | 974,837 | ||||||||||
Energy Equipment & Services 0.10% | |||||||||||
Enviva Partners LP/Enviva Partners Finance Corp.† | 6.50% | 1/15/2026 | 585 | 627,781 | |||||||
Engineering & Contracting Services 0.24% | |||||||||||
Brand Industrial Services, Inc.† | 8.50% | 7/15/2025 | 620 | 637,044 | |||||||
China Railway Resources Huitung Ltd. (Hong Kong)(d) | 3.85% | 2/5/2023 | 900 | 932,278 | |||||||
Total | 1,569,322 | ||||||||||
Entertainment 0.15% | |||||||||||
Penn National Gaming, Inc.† | 5.625% | 1/15/2027 | 608 | 644,269 | |||||||
Stars Group Holdings BV/Stars Group | |||||||||||
US Co-Borrower LLC (Netherlands)†(d) | 7.00% | 7/15/2026 | 287 | 311,567 | |||||||
Total | 955,836 | ||||||||||
Financial Services 1.33% | |||||||||||
AerCap Ireland Capital DAC/AerCap GlobalAviation Trust (Ireland)(d) | 3.50% | 1/15/2025 | 1,388 | 1,430,666 | |||||||
AerCap Ireland Capital DAC/AerCap GlobalAviation Trust (Ireland)(d) | 3.875% | 1/23/2028 | 916 | 951,078 | |||||||
AerCap Ireland Capital DAC/AerCap GlobalAviation Trust (Ireland)(d) | 4.875% | 1/16/2024 | 523 | 566,889 | |||||||
Affiliated Managers Group, Inc. | 3.50% | 8/1/2025 | 125 | 130,635 | |||||||
Affiliated Managers Group, Inc. | 4.25% | 2/15/2024 | 248 | 265,580 |
16 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Financial Services (continued) | |||||||||||
Ally Financial, Inc. | 8.00% | 11/1/2031 | $ | 231 | $ | 321,078 | |||||
Brightsphere Investment Group, Inc. | 4.80% | 7/27/2026 | 489 | 509,137 | |||||||
Global Aircraft Leasing Co. Ltd. PIK 7.25%† | 6.50% | 9/15/2024 | 950 | 993,653 | |||||||
International Lease Finance Corp. | 5.875% | 8/15/2022 | 156 | 169,932 | |||||||
Navient Corp. | 6.75% | 6/25/2025 | 1,150 | 1,272,475 | |||||||
Neuberger Berman Group LLC/Neuberger BermanFinance Corp.† | 4.50% | 3/15/2027 | 541 | 576,862 | |||||||
Neuberger Berman Group LLC/Neuberger BermanFinance Corp.† | 4.875% | 4/15/2045 | 677 | 695,565 | |||||||
SURA Asset Management SA (Colombia)†(d) | 4.375% | 4/11/2027 | 700 | 751,000 | |||||||
Total | 8,634,550 | ||||||||||
Food 0.41% | |||||||||||
Arcor SAIC (Argentina)†(d) | 6.00% | 7/6/2023 | 297 | 287,573 | |||||||
Chobani LLC/Chobani Finance Corp., Inc.† | 7.50% | 4/15/2025 | 638 | 642,779 | |||||||
JBS USA LUX SA/JBS USA Food Co./JBS USAFinance, Inc.† | 6.50% | 4/15/2029 | 1,093 | 1,216,651 | |||||||
Minerva Luxembourg SA (Luxembourg)†(d) | 5.875% | 1/19/2028 | 503 | 529,085 | |||||||
Total | 2,676,088 | ||||||||||
Foreign Government 0.11% | |||||||||||
CBB International Sukuk Co. 6 Spc (Bahrain)†(d) | 5.25% | 3/20/2025 | 680 | 734,488 | |||||||
Health Care Services 1.02% | |||||||||||
Acadia Healthcare Co., Inc. | 6.50% | 3/1/2024 | 550 | 571,541 | |||||||
Adventist Health System | 2.952% | 3/1/2029 | 360 | 356,064 | |||||||
Advocate Health & Hospitals Corp. | 3.387% | 10/15/2049 | 632 | 630,217 | |||||||
Centene Corp.† | 4.625% | 12/15/2029 | 1,256 | 1,325,959 | |||||||
CommonSpirit Health | 3.347% | 10/1/2029 | 1,975 | 1,988,248 | |||||||
HCA, Inc. | 5.25% | 6/15/2026 | 828 | 927,979 | |||||||
New York and Presbyterian Hospital (The)(e) | 3.954% | 8/1/2119 | 189 | 190,595 | |||||||
Surgery Center Holdings, Inc.† | 10.00% | 4/15/2027 | 318 | 349,911 | |||||||
Tenet Healthcare Corp.† | 6.25% | 2/1/2027 | 286 | 308,165 | |||||||
Total | 6,648,679 | ||||||||||
Household Equipment/Products 0.02% | |||||||||||
Kimberly-Clark de Mexico SAB de CV (Mexico)†(d) | 3.80% | 4/8/2024 | 100 | 102,250 | |||||||
Insurance 0.48% | |||||||||||
HUB International Ltd.† | 7.00% | 5/1/2026 | 598 | 633,895 | |||||||
Radian Group, Inc. | 4.875% | 3/15/2027 | 918 | 968,809 |
See Notes to Financial Statements. | 17 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Insurance (continued) | |||||||||||
Teachers Insurance & Annuity Association of America† | 4.90% | 9/15/2044 | $ | 1,250 | $ | 1,535,058 | |||||
Total | 3,137,762 | ||||||||||
Leisure 0.30% | |||||||||||
Carnival plc | 7.875% | 6/1/2027 | 277 | 362,221 | |||||||
Royal Caribbean Cruises Ltd. | 3.70% | 3/15/2028 | 1,539 | 1,583,140 | |||||||
Total | 1,945,361 | ||||||||||
Lodging 0.14% | |||||||||||
Wyndham Destinations, Inc. | 5.75% | 4/1/2027 | 866 | 942,076 | |||||||
Machinery: Agricultural 0.50% | |||||||||||
BAT Capital Corp. | 4.39% | 8/15/2037 | 2,161 | 2,187,550 | |||||||
MHP Lux SA (Luxembourg)†(d) | 6.25% | 9/19/2029 | 665 | 654,593 | |||||||
MHP Lux SA (Luxembourg)†(d) | 6.95% | 4/3/2026 | 370 | 388,892 | |||||||
Total | 3,231,035 | ||||||||||
Machinery: Industrial/Specialty 0.41% | |||||||||||
Kennametal, Inc. | 4.625% | 6/15/2028 | 553 | 586,330 | |||||||
nVent Finance Sarl (Luxembourg)(d) | 4.55% | 4/15/2028 | 2,038 | 2,114,829 | |||||||
Total | 2,701,159 | ||||||||||
Manufacturing 0.34% | |||||||||||
General Electric Co. | 2.271% (3 Mo. LIBOR + .38% | )# | 5/5/2026 | 717 | 681,481 | ||||||
General Electric Co. | 6.15% | 8/7/2037 | 1,250 | 1,549,649 | |||||||
Total | 2,231,130 | ||||||||||
Media 0.99% | |||||||||||
AMC Networks, Inc. | 4.75% | 8/1/2025 | 289 | 290,686 | |||||||
CCO Holdings LLC/CCO Holdings Capital Corp.† | 5.00% | 2/1/2028 | 596 | 626,497 | |||||||
Cox Communications, Inc.† | 4.50% | 6/30/2043 | 531 | 553,071 | |||||||
Cox Communications, Inc.† | 4.70% | 12/15/2042 | 455 | 492,988 | |||||||
Cox Communications, Inc.† | 8.375% | 3/1/2039 | 694 | 1,042,897 | |||||||
DISH DBS Corp. | 7.75% | 7/1/2026 | 600 | 636,744 | |||||||
Gray Television, Inc.† | 7.00% | 5/15/2027 | 280 | 311,668 | |||||||
Scripps Escrow, Inc.† | 5.875% | 7/15/2027 | 603 | 632,758 | |||||||
Time Warner Cable LLC | 7.30% | 7/1/2038 | 511 | 666,150 | |||||||
Time Warner Entertainment Co. LP | 8.375% | 7/15/2033 | 502 | 703,451 | |||||||
VTR Finance BV (Chile)†(d) | 6.875% | 1/15/2024 | 455 | 466,186 | |||||||
Total | 6,423,096 |
18 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Metals & Minerals: Miscellaneous 1.03% | |||||||||||
Anglo American Capital plc (United Kingdom)†(d) | 4.00% | 9/11/2027 | $ | 1,457 | $ | 1,526,372 | |||||
Anglo American Capital plc (United Kingdom)†(d) | 4.75% | 4/10/2027 | 1,530 | 1,673,190 | |||||||
Barrick North America Finance LLC | 7.50% | 9/15/2038 | 200 | 277,326 | |||||||
Corp. Nacional del Cobre de Chile (Chile)†(d) | 4.50% | 9/16/2025 | 700 | 756,984 | |||||||
Freeport-McMoRan, Inc. | 3.875% | 3/15/2023 | 310 | 316,298 | |||||||
Glencore Finance Canada Ltd. (Canada)†(d) | 5.55% | 10/25/2042 | 1,347 | 1,430,810 | |||||||
Kinross Gold Corp. (Canada)(d) | 5.95% | 3/15/2024 | 281 | 312,729 | |||||||
MMC Norilsk Nickel OJSC via MMC FinanceDAC (Ireland)†(d) | 4.10% | 4/11/2023 | 430 | 446,211 | |||||||
Total | 6,739,920 | ||||||||||
Natural Gas 0.29% | |||||||||||
Dominion Energy Gas Holdings LLC | 4.60% | 12/15/2044 | 1,704 | 1,899,405 | |||||||
Oil 2.46% | |||||||||||
Afren plc (United Kingdom)†(d)(f) | 6.625% | 12/9/2020 | 244 | 1,195 | |||||||
Berry Petroleum Co. LLC† | 7.00% | 2/15/2026 | 471 | 437,605 | |||||||
Centennial Resource Production LLC† | 6.875% | 4/1/2027 | 928 | 967,275 | |||||||
Ecopetrol SA (Colombia)(d) | 4.125% | 1/16/2025 | 1,420 | 1,495,153 | |||||||
Ecopetrol SA (Colombia)(d) | 5.875% | 5/28/2045 | 289 | 341,651 | |||||||
Eni SpA (Italy)†(d) | 5.70% | 10/1/2040 | 1,800 | 2,173,082 | |||||||
Equinor ASA (Norway)(d) | 7.15% | 11/15/2025 | 605 | 757,417 | |||||||
Gazprom PJSC Via Gaz Capital SA (Luxembourg)†(d) | 4.95% | 2/6/2028 | 200 | 223,434 | |||||||
MEG Energy Corp. (Canada)†(d) | 7.00% | 3/31/2024 | 993 | 1,001,277 | |||||||
Oasis Petroleum, Inc. | 6.875% | 3/15/2022 | 779 | 751,735 | |||||||
Pertamina Persero PT (Indonesia)†(d) | 4.70% | 7/30/2049 | 400 | 427,485 | |||||||
Petrobras Global Finance BV (Netherlands)†(d) | 5.093% | 1/15/2030 | 910 | 976,212 | |||||||
Petroleos Mexicanos (Mexico)(d) | 4.50% | 1/23/2026 | 956 | 954,707 | |||||||
Petroleos Mexicanos (Mexico)(d) | 5.35% | 2/12/2028 | 1,320 | 1,317,159 | |||||||
QEP Resources, Inc. | 5.625% | 3/1/2026 | 364 | 355,910 | |||||||
Saudi Arabian Oil Co. (Saudi Arabia)†(d) | 2.875% | 4/16/2024 | 1,050 | 1,065,650 | |||||||
Sinopec Group Overseas Development Ltd.† | 4.375% | 10/17/2023 | 364 | 389,920 | |||||||
SM Energy Co. | 6.75% | 9/15/2026 | 714 | 701,753 | |||||||
Transocean, Inc.† | 7.25% | 11/1/2025 | 289 | 283,940 | |||||||
Valero Energy Corp. | 10.50% | 3/15/2039 | 668 | 1,127,331 | |||||||
YPF SA (Argentina)†(d) | 8.50% | 7/28/2025 | 281 | 264,962 | |||||||
Total | 16,014,853 | ||||||||||
See Notes to Financial Statements. | 19 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Oil: Crude Producers 0.43% | |||||||||||
Abu Dhabi Crude Oil Pipeline LLC (United Arab Emirates)†(d) | 4.60% | 11/2/2047 | $ | 320 | $ | 370,600 | |||||
Buckeye Partners LP | 6.375% (3 Mo. LIBOR + 4.02% | )# | 1/22/2078 | 825 | 609,415 | ||||||
Cheniere Corpus Christi Holdings LLC† | 3.70% | 11/15/2029 | 384 | 392,060 | |||||||
Northern Natural Gas Co.† | 4.30% | 1/15/2049 | 371 | 417,751 | |||||||
Sabine Pass Liquefaction LLC | 5.875% | 6/30/2026 | 882 | 1,012,721 | |||||||
Total | 2,802,547 | ||||||||||
Oil: Integrated Domestic 0.35% | |||||||||||
Baker Hughes a GE Co. LLC/Baker | |||||||||||
Hughes Co-Obligor, Inc. | 4.08% | 12/15/2047 | 1,563 | 1,600,646 | |||||||
Nine Energy Service, Inc.† | 8.75% | 11/1/2023 | 804 | 653,853 | |||||||
Total | 2,254,499 | ||||||||||
Paper & Forest Products 0.09% | |||||||||||
Fibria Overseas Finance Ltd. (Brazil)(d) | 4.00% | 1/14/2025 | 552 | 571,969 | |||||||
Real Estate Investment Trusts 1.48% | |||||||||||
China Evergrande Group (China)(d) | 10.00% | 4/11/2023 | 1,000 | 949,883 | |||||||
Country Garden Holdings Co. Ltd. (China)(d) | 4.75% | 1/17/2023 | 226 | 228,233 | |||||||
Country Garden Holdings Co. Ltd. (China)(d) | 4.75% | 9/28/2023 | 374 | 376,285 | |||||||
EPR Properties | 4.95% | 4/15/2028 | 2,007 | 2,192,284 | |||||||
Healthcare Trust of America Holdings LP | 3.10% | 2/15/2030 | 895 | 888,654 | |||||||
Shimao Property Holdings Ltd. (Hong Kong)(d) | 4.75% | 7/3/2022 | 500 | 511,851 | |||||||
Spirit Realty LP | 3.40% | 1/15/2030 | 860 | 864,324 | |||||||
VEREIT Operating Partnership LP | 4.875% | 6/1/2026 | 2,378 | 2,633,812 | |||||||
WEA Finance LLC† | 3.50% | 6/15/2029 | 942 | 976,187 | |||||||
Total | 9,621,513 | ||||||||||
Retail 0.20% | |||||||||||
IRB Holding Corp.† | 6.75% | 2/15/2026 | 313 | 328,759 | |||||||
Lithia Motors, Inc.† | 4.625% | 12/15/2027 | 945 | 973,690 | |||||||
Total | 1,302,449 | ||||||||||
Retail: Specialty 0.16% | |||||||||||
Coty, Inc.† | 6.50% | 4/15/2026 | 980 | 1,033,924 | |||||||
Technology 0.59% | |||||||||||
Baidu, Inc. (China)(d) | 3.50% | 11/28/2022 | 433 | 445,395 | |||||||
Match Group, Inc.† | 5.625% | 2/15/2029 | 287 | 306,472 | |||||||
Netflix, Inc. | 6.375% | 5/15/2029 | 1,070 | 1,220,442 |
20 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Technology (continued) | |||||||||||
Prosus NV (Netherlands)†(d) | 5.50% | 7/21/2025 | $ | 770 | $ | 857,645 | |||||
Tencent Holdings Ltd. (China)†(d) | 3.595% | 1/19/2028 | 1,000 | 1,044,407 | |||||||
Total | 3,874,361 | ||||||||||
Telecommunications 0.66% | |||||||||||
AT&T, Inc. | 6.25% | 3/29/2041 | 1,346 | 1,754,380 | |||||||
Intelsat Jackson Holdings SA (Luxembourg)(d) | 5.50% | 8/1/2023 | 642 | 552,842 | |||||||
Ooredoo International Finance Ltd.† | 3.75% | 6/22/2026 | 300 | 316,970 | |||||||
Sprint Capital Corp. | 6.875% | 11/15/2028 | 534 | 576,373 | |||||||
Verizon Communications, Inc. | 3.01% (3 Mo. LIBOR + 1.10% | )# | 5/15/2025 | 475 | 486,260 | ||||||
ViaSat, Inc.† | 5.625% | 4/15/2027 | 579 | 620,601 | |||||||
Total | 4,307,426 | ||||||||||
Toys 0.15% | |||||||||||
Mattel, Inc.† | 6.75% | 12/31/2025 | 911 | 981,042 | |||||||
Transportation: Miscellaneous 0.07% | |||||||||||
Autoridad del Canal de Panama (Panama)†(d) | 4.95% | 7/29/2035 | 200 | 233,689 | |||||||
Pelabuhan Indonesia III Persero PT (Indonesia)†(d) | 4.50% | 5/2/2023 | 220 | 232,705 | |||||||
Total | 466,394 | ||||||||||
Utilities 0.20% | |||||||||||
Aegea Finance Sarl (Brazil)†(d) | 5.75% | 10/10/2024 | 574 | 605,814 | |||||||
Aqua America, Inc. | 3.566% | 5/1/2029 | 666 | 700,220 | |||||||
Total | 1,306,034 | ||||||||||
Total Corporate Bonds (cost $171,431,287) | 180,359,093 | ||||||||||
FOREIGN GOVERNMENT OBLIGATIONS 3.08% | |||||||||||
Angola 0.19% | |||||||||||
Republic of Angola†(d) | 8.25% | 5/9/2028 | 525 | 568,422 | |||||||
Republic of Angola†(d) | 9.50% | 11/12/2025 | 560 | 657,084 | |||||||
Total | 1,225,506 | ||||||||||
Argentina 0.05% | |||||||||||
Provincia de Mendoza†(d) | 8.375% | 5/19/2024 | 400 | 302,000 | |||||||
Bahamas 0.12% | |||||||||||
Commonwealth of Bahamas†(d) | 6.00% | 11/21/2028 | 370 | 413,604 | |||||||
Commonwealth of Bahamas†(d) | 6.95% | 11/20/2029 | 300 | 346,503 | |||||||
Total | 760,107 |
See Notes to Financial Statements. | 21 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Bermuda 0.07% | |||||||||||
Government of Bermuda† | 3.717% | 1/25/2027 | $ | 430 | $ | 452,729 | |||||
Dominican Republic 0.14% | |||||||||||
Dominican Republic†(d) | 6.40% | 6/5/2049 | 620 | 681,805 | |||||||
Dominican Republic†(d) | 6.50% | 2/15/2048 | 200 | 221,189 | |||||||
Total | 902,994 | ||||||||||
Egypt 0.19% | |||||||||||
Arab Republic of Egypt†(d) | 4.55% | 11/20/2023 | 200 | 204,629 | |||||||
Arab Republic of Egypt†(d) | 6.125% | 1/31/2022 | 220 | 229,460 | |||||||
Arab Republic of Egypt†(d) | 6.588% | 2/21/2028 | 575 | 601,099 | |||||||
Arab Republic of Egypt†(d) | 7.903% | 2/21/2048 | 200 | 210,458 | |||||||
Total | 1,245,646 | ||||||||||
Ghana 0.12% | |||||||||||
Republic of Ghana†(d) | 7.875% | 8/7/2023 | 225 | 247,666 | |||||||
Republic of Ghana†(d) | 8.125% | 3/26/2032 | 530 | 541,324 | |||||||
Total | 788,990 | ||||||||||
Indonesia 0.24% | |||||||||||
Republic of Indonesia(d) | 3.40% | 9/18/2029 | 1,500 | 1,566,555 | |||||||
Japan 0.90% | |||||||||||
Japan Bank for International Corp.(d) | 2.125% | 2/10/2025 | 3,236 | 3,242,978 | |||||||
Japan Bank for International Corp.(d) | 2.50% | 5/23/2024 | 2,564 | 2,615,983 | |||||||
Total | 5,858,961 | ||||||||||
Kenya 0.14% | |||||||||||
Republic of Kenya†(d) | 7.00% | 5/22/2027 | $ | 860 | 917,567 | ||||||
Latvia 0.04% | |||||||||||
Republic of Latvia†(d) | 5.25% | 6/16/2021 | 258 | 270,199 | |||||||
Lithuania 0.09% | |||||||||||
Republic of Lithuania†(d) | 7.375% | 2/11/2020 | 592 | 595,710 | |||||||
Mexico 0.23% | |||||||||||
United Mexican States(d) | 3.75% | 1/11/2028 | 600 | 624,450 | |||||||
United Mexican States(d) | 4.00% | 10/2/2023 | 834 | 878,882 | |||||||
Total | 1,503,332 |
22 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
Nigeria 0.04% | |||||||||||
Republic of Nigeria†(d) | 7.143% | 2/23/2030 | $ | 275 | $ | 280,893 | |||||
Qatar 0.19% | |||||||||||
State of Qatar†(d) | 3.25% | 6/2/2026 | 825 | 870,119 | |||||||
State of Qatar†(d) | 5.103% | 4/23/2048 | 310 | 398,985 | |||||||
Total | 1,269,104 | ||||||||||
Romania 0.01% | |||||||||||
Republic of Romania†(d) | 6.125% | 1/22/2044 | 49 | 63,643 | |||||||
Sri Lanka 0.06% | |||||||||||
Republic of Sri Lanka†(d) | 6.25% | 7/27/2021 | 200 | 203,600 | |||||||
Republic of Sri Lanka†(d) | 6.85% | 11/3/2025 | 200 | 200,984 | |||||||
Total | 404,584 | ||||||||||
Turkey 0.26% | |||||||||||
Export Credit Bank of Turkey†(d) | 8.25% | 1/24/2024 | 400 | 435,980 | |||||||
Republic of Turkey(d) | 3.25% | 3/23/2023 | 220 | 211,689 | |||||||
Republic of Turkey(d) | 5.625% | 3/30/2021 | 501 | 516,726 | |||||||
Republic of Turkey(d) | 5.75% | 3/22/2024 | 510 | 522,723 | |||||||
Total | 1,687,118 | ||||||||||
Total Foreign Government Obligations (cost $19,521,468) | 20,095,638 | ||||||||||
GOVERNMENT SPONSORED ENTERPRISES COLLATERALIZED MORTGAGE OBLIGATIONS 1.19% | |||||||||||
Federal Home Loan Mortgage Corp. Q001 XA IO | 2.227% | #(h) | 2/25/2032 | 2,746 | 359,890 | ||||||
Government National Mortgage Assoc. 2014-78 A | 2.20% | 4/16/2047 | 13 | 12,722 | |||||||
Government National Mortgage Assoc. 2015-47 AE | 2.90% | #(h) | 11/16/2055 | 1,026 | 1,034,693 | ||||||
Government National Mortgage Assoc. 2015-48 AS | 2.90% | #(h) | 2/16/2049 | 696 | 701,629 | ||||||
Government National Mortgage Assoc. 2015-73 AC | 2.90% | #(h) | 2/16/2053 | 226 | 227,820 | ||||||
Government National Mortgage Assoc. 2017-168 AS | 2.70% | 8/16/2058 | 1,563 | 1,569,554 | |||||||
Government National Mortgage Assoc. 2017-41 AS | 2.60% | 6/16/2057 | 1,246 | 1,246,759 | |||||||
Government National Mortgage Assoc. 2017-69 AS | 2.75% | 2/16/2058 | 646 | 649,818 | |||||||
Government National Mortgage Assoc. 2017-71 AS | 2.70% | 4/16/2057 | 427 | 428,791 | |||||||
Government National Mortgage Assoc. 2017-86 AS | 2.75% | 2/16/2058 | 495 | 497,633 | |||||||
Government National Mortgage Assoc. 2017-89 AB | 2.60% | 7/16/2058 | 418 | 418,394 | |||||||
Government National Mortgage Assoc. 2017-90 AS | 2.70% | 7/16/2057 | 574 | 576,514 | |||||||
Total Government Sponsored Enterprises Collateralized Mortgage Obligations (cost $7,678,630) | 7,724,217 | ||||||||||
GOVERNMENT SPONSORED ENTERPRISES PASS-THROUGHS 32.68% | |||||||||||
Federal Home Loan Mortgage Corp. | 4.00% | 10/1/2049 | 1,561 | 1,698,803 | |||||||
Federal National Mortgage Assoc.(g) | 3.00% | TBA | 36,200 | 36,693,412 |
See Notes to Financial Statements. | 23 |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
GOVERNMENT SPONSORED ENTERPRISES PASS-THROUGHS (continued) | |||||||||||
Federal National Mortgage Assoc.(g) | 3.50% | TBA | $ | 153,400 | $ | 157,730,275 | |||||
Federal National Mortgage Assoc. | 4.00% | 1/1/2048 | 1,923 | 2,102,929 | |||||||
Federal National Mortgage Assoc.(g) | 4.00% | TBA | 13,800 | 14,351,021 | |||||||
Federal National Mortgage Assoc. | 4.349% (12 Mo. LIBOR + 1.78% | )# | 3/1/2042 | 321 | 336,099 | ||||||
Total Government Sponsored Enterprises Pass-Throughs (cost $212,602,872) | 212,912,539 | ||||||||||
MUNICIPAL BONDS 0.80% | |||||||||||
California | 7.30% | 10/1/2039 | 235 | 359,254 | |||||||
California | 7.625% | 3/1/2040 | 350 | 561,092 | |||||||
California Health Facilities Financing Authority | 3.034% | 6/1/2034 | 350 | 347,410 | |||||||
Foothill-Eastern Transportation Corridor Agency | 4.094% | 1/15/2049 | 646 | 646,000 | |||||||
Massachusetts School Building Authority | 3.395% | 10/15/2040 | 895 | 895,573 | |||||||
Michigan Finance Authority | 3.084% | 12/1/2034 | 940 | 937,462 | |||||||
North Texas Tollway Authority | 8.91% | 2/1/2030 | 538 | 540,997 | |||||||
Pennsylvania | 5.35% | 5/1/2030 | 235 | 237,803 | |||||||
Permanent University Fund - Texas A&M University System | 3.66% | 7/1/2047 | 680 | 696,041 | |||||||
Total Municipal Bonds (cost $5,257,916) | 5,221,632 | ||||||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES 5.45% | |||||||||||
Atrium Hotel Portfolio Trust 2018-ATRM A† | 2.69% (1 Mo. LIBOR + .95% | )# | 6/15/2035 | 537 | 536,630 | ||||||
Bancorp Commercial Mortgage Trust (The) 2018-CR3 A† | 2.59% (1 Mo. LIBOR + .85% | )# | 1/15/2033 | 309 | 308,473 | ||||||
BBCMS Mortgage Trust 2019-BWAY A† | 2.696% (1 Mo. LIBOR + .96% | )# | 11/25/2034 | 655 | 652,542 | ||||||
BBCMS Mortgage Trust 2019-BWAY B† | 3.05% (1 Mo. LIBOR + 1.31% | )# | 11/25/2034 | 288 | 286,932 | ||||||
BX Trust 2018-GW A† | 2.54% (1 Mo. LIBOR + .80% | )# | 5/15/2035 | 1,467 | 1,464,581 | ||||||
BX Trust 2019-OC11 A† | 3.202% | 12/9/2041 | 1,251 | 1,289,854 | |||||||
CGBAM Commercial Mortgage Trust 2015-SMRT B† | 3.213% | 4/10/2028 | 212 | 211,882 | |||||||
CGBAM Commercial Mortgage Trust 2015-SMRT C† | 3.516% | 4/10/2028 | 159 | 158,911 | |||||||
Citigroup Commercial Mortgage Trust 2016-GC36 D† | 2.85% | 2/10/2049 | 1,250 | 1,084,074 | |||||||
COMM 2015-LC19 Mortgage Trust 2015-LC19 A4 | 3.183% | 2/10/2048 | 417 | 432,307 | |||||||
Commercial Mortgage Pass-Through Certificates 2014-CR17 A5 | 3.977% | 5/10/2047 | 1,000 | 1,064,401 | |||||||
Commercial Mortgage Pass-Through Certificates 2014-CR19 XA IO | 1.032% | #(h) | 8/10/2047 | 554 | 21,233 | ||||||
Commercial Mortgage Pass-Through Certificates 2015-PC1 AM | 4.29% | #(h) | 7/10/2050 | 510 | 547,741 |
24 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | |||||||||||
Commercial Mortgage Pass-Through Certificates 2015-PC1 B | 4.436% | #(h) | 7/10/2050 | $ | 178 | $ | 189,172 | ||||
Commercial Mortgage Pass-Through Certificates 2015-PC1 C | 4.436% | #(h) | 7/10/2050 | 410 | 425,288 | ||||||
Commercial Mortgage Pass-Through Certificates 2015-PC1 D | 4.436% | #(h) | 7/10/2050 | 574 | 541,644 | ||||||
Commercial Mortgage Pass-Through Certificates 2016-COR1 AM | 3.494% | 10/10/2049 | 299 | 309,881 | |||||||
CSAIL Commercial Mortgage Trust 2015-C2 C | 4.192% | #(h) | 6/15/2057 | 700 | 679,863 | ||||||
CSAIL Commercial Mortgage Trust 2019-C18 AS | 3.321% | 12/15/2052 | 709 | 718,320 | |||||||
CSMC Series 2019-UVIL A† | 3.16% | 12/15/2041 | 2,183 | 2,222,748 | |||||||
DBWF Mortgage Trust 2018-GLKS A† | 2.794% (1 Mo. LIBOR + 1.03% | )# | 11/19/2035 | 1,008 | 1,009,224 | ||||||
Great Wolf Trust 2019-WOLF A† | 2.756% (1 Mo. LIBOR + 1.03% | )# | 12/15/2029 | 3,216 | 3,206,952 | ||||||
Great Wolf Trust 2019-WOLF E† | 4.454% (1 Mo. LIBOR + 2.73% | )# | 12/15/2029 | 1,250 | 1,251,189 | ||||||
GS Mortgage Securities Corp. Trust 2018-RIVR A† | 2.69% (1 Mo. LIBOR + .95% | )# | 7/15/2035 | 683 | 684,674 | ||||||
GS Mortgage Securities Trust 2015-GC32 C | 4.41% | #(h) | 7/10/2048 | 195 | 205,738 | ||||||
Hudsons Bay Simon JV Trust 2015-HB7 B7† | 4.666% | 8/5/2034 | 668 | 672,141 | |||||||
Hudsons Bay Simon JV Trust 2015-HB7 D7† | 5.159% | #(h) | 8/5/2034 | 629 | 603,288 | ||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2015-C30 C | 4.268% | #(h) | 7/15/2048 | 374 | 384,957 | ||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2016-NINE A† | 2.854% | #(h) | 9/6/2038 | 100 | 101,652 | ||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-LAQ A† | 2.74% (1 Mo. LIBOR + 1.00% | )# | 6/15/2032 | 1,438 | 1,438,939 | ||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-LAQ B† | 3.04% (1 Mo. LIBOR + 1.30% | )# | 6/15/2032 | 1,118 | 1,119,518 | ||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-LAQ D† | 3.84% (1 Mo. LIBOR + 2.10% | )# | 6/15/2032 | 718 | 720,174 | ||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-MINN† | 2.786% (1 Mo. LIBOR + 1.27% | )# | 11/15/2035 | 542 | 543,130 | ||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-WPT AFL† | 2.654% (1 Mo. LIBOR + .95% | )# | 7/5/2033 | 377 | 377,317 | ||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-WPT BFL† | 2.954% (1 Mo. LIBOR + 1.25% | )# | 7/5/2033 | 1,130 | 1,131,002 | ||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-WPT BFX† | 4.549% | 7/5/2033 | 340 | 361,801 |
See Notes to Financial Statements. | 25 |
Schedule of Investments (continued)
December 31, 2019
Principal | |||||||||||
Interest | Maturity | Amount | Fair | ||||||||
Investments | Rate | Date | (000) | Value | |||||||
NON-AGENCY COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | |||||||||||
JPMorgan Chase Commercial Mortgage Securities Trust 2018-WPT CFX† | 4.95% | 7/5/2033 | $ | 453 | $ | 483,160 | |||||
Merrill Lynch Mortgage Investors Trust 2006-AF2 AF1 | 6.25% | 10/25/2036 | 13 | 10,614 | |||||||
Morgan Stanley Bank of America Merrill Lynch Trust 2012-CKSV A2 IO | 0.657% | #(h) | 7/15/2050 | 18,734 | 417,124 | ||||||
PFP Ltd. 2019-6 A† | 2.964% (1 Mo. LIBOR + 1.05% | )# | 4/14/2037 | 749 | 748,726 | ||||||
ReadyCap Commercial Mortgage Trust 2019-6 A† | 2.832% | 10/25/2052 | 578 | 578,195 | |||||||
SFAVE Commercial Mortgage Securities Trust 2015-5AVE A2B† | 4.144% | #(h) | 1/5/2043 | 250 | 259,663 | ||||||
Structured Asset Securities Corp. 2006-3H 1A2 | 5.75% | 12/25/2035 | 6 | 6,486 | |||||||
UBS-BAMLL Trust 2012-WRM E† | 4.238% | #(h) | 6/10/2030 | 595 | 577,215 | ||||||
UBS-Barclays Commercial Mortgage Trust 2012-C3 B† | 4.365% | #(h) | 8/10/2049 | 200 | 208,606 | ||||||
Wells Fargo Commercial Mortgage Trust 2013-LC12 D† | 4.284% | #(h) | 7/15/2046 | 364 | 324,000 | ||||||
Wells Fargo Commercial Mortgage Trust 2015-C28 D | 4.113% | #(h) | 5/15/2048 | 1,489 | 1,403,912 | ||||||
Wells Fargo Commercial Mortgage Trust 2016-C35 C | 4.176% | #(h) | 7/15/2048 | 213 | 218,546 | ||||||
Wells Fargo Commercial Mortgage Trust 2016-NXS5 E† | 4.875% | #(h) | 1/15/2059 | 434 | 432,411 | ||||||
Wells Fargo Commercial Mortgage Trust 2017-C41 AS | 3.785% | #(h) | 11/15/2050 | 1,630 | 1,729,638 | ||||||
WF-RBS Commercial Mortgage Trust 2014-C22 A4 | 3.488% | 9/15/2057 | 1,125 | 1,177,492 | |||||||
Total Non-Agency Commercial Mortgage-Backed Securities (cost $34,567,778) | 35,533,961 | ||||||||||
U.S. TREASURY OBLIGATIONS 17.41% | |||||||||||
U.S. Treasury Bond | 2.25% | 8/15/2049 | 7,673 | 7,436,952 | |||||||
U.S. Treasury Bond | 2.375% | 11/15/2049 | 6,215 | 6,188,762 | |||||||
U.S. Treasury Bond | 2.75% | 11/15/2047 | 12,501 | 13,394,295 | |||||||
U.S. Treasury Bond | 3.625% | 8/15/2043 | 9,223 | 11,300,862 | |||||||
U.S. Treasury Inflation Indexed Note(i) | 0.625% | 4/15/2023 | 27,729 | 28,161,293 | |||||||
U.S. Treasury Note | 1.50% | 11/30/2024 | 2,226 | 2,206,165 | |||||||
U.S. Treasury Note | 1.625% | 12/31/2021 | 5,758 | 5,763,810 | |||||||
U.S. Treasury Note | 1.75% | 12/31/2024 | 5,720 | 5,732,976 | |||||||
U.S. Treasury Note | 1.75% | 11/15/2029 | 6,173 | 6,075,822 | |||||||
U.S. Treasury Note | 1.875% | 12/15/2020 | 5,335 | 5,346,759 | |||||||
U.S. Treasury Note | 2.50% | 1/31/2021 | 20,915 | 21,107,079 | |||||||
U.S. Treasury Note | 2.875% | 10/31/2020 | 673 | 679,726 | |||||||
Total U.S. Treasury Obligations (cost $111,782,305) | 113,394,501 | ||||||||||
Total Long- Term Investments (cost $681,341,266) | 694,056,908 |
26 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Investments | Interest Rate | Maturity Date | Principal Amount (000) | Fair Value | |||||||
SHORT-TERM INVESTMENTS 24.63% | |||||||||||
FOREIGN GOVERNMENT OBLIGATION 9.75% | |||||||||||
Japan | |||||||||||
Japan Treasury Discount Bill(b) (cost $63,655,601) | Zero Coupon | 1/27/2020 | JPY | 6,900,000 | $ | 63,510,891 | |||||
REPURCHASE AGREEMENT 2.37% | |||||||||||
Repurchase Agreement dated 12/31/2019, 0.85% due 1/2/2020 with Fixed Income Clearing Corp. collateralized by $15,735,000 of U.S. Treasury Note at 1.50% due 8/31/2021; value: $15,785,667; proceeds: $15,472,610 (cost $15,471,879) | $ | 15,472 | 15,471,879 | ||||||||
U.S. TREASURY OBLIGATIONS 12.51% | |||||||||||
U.S. Treasury Bill | Zero Coupon | 1/30/2020 | 28,129 | 28,097,273 | |||||||
U.S. Treasury Bill | Zero Coupon | 3/26/2020 | 16,477 | 16,418,826 | |||||||
U.S. Treasury Bill | Zero Coupon | 5/7/2020 | 37,156 | 36,958,493 | |||||||
Total U.S. Treasury Obligations (cost $81,470,592) | 81,474,592 | ||||||||||
Total Short-Term Investments (cost $160,598,072) | 160,457,362 | ||||||||||
Total Investments in Securities131.17% (cost $841,939,338) | 854,514,270 | ||||||||||
Liabilities in Excess of Cash and Other Assets(j)(31.17%) | (203,044,945 | ) | |||||||||
Net Assets 100.00% | $ | 651,469,325 | |||||||||
CAD | Canadian dollar. | |
JPY | Japanese yen. | |
IO | Interest Only. | |
LIBOR | London Interbank Offered Rate. | |
PIK | Payment-in-kind. | |
† | Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and, unless registered under such Act or exempted from registration, may only be resold to qualified institutional buyers. At December 31, 2019, the total value of Rule 144A securities was $179,541,139, which represents 27.56% of net assets. | |
# | Variable rate security. The interest rate represents the rate in effect at December 31, 2019. | |
(a) | Variable Rate is Fixed to Float: Rate remains fixed until designated future date. | |
(b) | Investment in non-U.S. dollar denominated securities. | |
(c) | Level 3 Investment as described in Note 2(m) in the Notes to Financials. Security valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information could result in a significantly lower or higher value of such Level 3 investments. | |
(d) | Foreign security traded in U.S. dollars. | |
(e) | Securities purchased on a when-issued basis (See Note 2(j)). | |
(f) | Defaulted (non-income producing security). | |
(g) | To-be-announced (“TBA”). Security purchased on a forward commitment basis with an approximate principal and maturity date. Actual principal and maturity will be determined upon settlement when the specific mortgage pools are assigned. | |
(h) | Interest rate is based on the weighted average interest rates of the underlying mortgages within the mortgage pool. | |
(i) | Treasury Inflation Protected Security. A U.S. Treasury Note or Bond that offers protection from inflation by paying a fixed rate of interest on principal amount that is adjusted for inflation based on the Consumer Price Index. | |
(j) | Liabilities in Excess of Cash and Other Assets include net unrealized appreciation/depreciation on forward foreign currency exchange contracts, futures contracts and swaps as follows: |
See Notes to Financial Statements. | 27 |
Schedule of Investments (continued)
December 31, 2019
Centrally Cleared Interest Rate Swap Contracts at December 31, 2019:
Central Clearingparty * | Periodic Payments to be Made By The Fund (Quarterly) | Periodic Payments to be Received By The Fund (Quarterly) | Termination Date | Notional Amount | Notional Value | Unrealized Appreciation | |||||||||||||
Credit Suisse | 3-Month USD LIBOR Index | 1.8902% | 6/7/2021 | $ | 60,000,000 | $ | 60,142,821 | $ | 142,821 | ||||||||||
Credit Suisse | 3-Month USD LIBOR Index | 2.3497% | 4/1/2021 | 44,017,955 | 44,346,339 | 328,384 | |||||||||||||
Total | $ | 471,205 |
* | Central Clearinghouse: Chicago Mercantile Exchange (CME) | |
Central Clearingparty * | Periodic Payments to be Made By The Fund (Quarterly) | Periodic Payments to be Received By The Fund (Quarterly) | Termination Date | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||
Credit Suisse | 2.4045% | 3-Month USD LIBOR Index | 4/1/2029 | $ | 2,600,000 | $ | 2,481,087 | $ | (118,913 | ) |
* | Central Clearinghouse: Chicago Mercantile Exchange (CME) | |
Open Forward Foreign Currency Exchange Contracts at December 31, 2019:
Forward Foreign Currency Exchange Contracts | Transaction Type | Counterparty | Expiration Date | Foreign Currency | U.S. $ Cost on Origination Date | U.S. $ Current Value | Unrealized Appreciation | |||||||||||||
Japanese yen | Sell | J.P. Morgan | 1/27/2020 | 6,855,000,000 | $ | 63,612,405 | $ | 63,159,593 | $452,812 | |||||||||||
Forward Foreign Currency Exchange Contracts | Transaction Type | Counterparty | Expiration Date | Foreign Currency | U.S. $ Cost on Origination Date | U.S. $ Current Value | Unrealized Depreciation | |||||||||||||
Canadian dollar | Sell | Morgan Stanley | 3/13/2020 | 510,000 | $386,957 | $392,845 | $ | (5,888 | ) | |||||||||||
Japanese yen | Sell | State Street Bank and Trust | 1/27/2020 | 23,796,000 | 218,865 | 219,248 | (383 | ) | ||||||||||||
Japanese yen | Sell | UBS AG | 1/27/2020 | 21,204,000 | 194,047 | 195,366 | (1,319 | ) | ||||||||||||
Unrealized Depreciation on Forward Foreign Currency Exchange Contracts | $ | (7,590 | ) |
28 | See Notes to Financial Statements. |
Schedule of Investments (continued)
December 31, 2019
Open Futures Contracts at December 31, 2019:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation | ||||||||||||
U.S. 10-Year Treasury Note | March 2020 | 56 | Short | $ | (7,254,527 | ) | $ | (7,191,625 | ) | $ | 62,902 | |||||||
U.S. 10-Year Ultra Treasury Note | March 2020 | 114 | Short | (16,241,241 | ) | (16,040,156 | ) | 201,085 | ||||||||||
U.S. 2-Year Treasury Note | March 2020 | 18 | Short | (3,881,218 | ) | (3,879,000 | ) | 2,218 | ||||||||||
U.S. Ultra Treasury Bond | March 2020 | 14 | Short | (2,634,764 | ) | (2,543,187 | ) | 91,577 | ||||||||||
Total Unrealized Appreciation on Open Futures Contracts | $ | 357,782 | ||||||||||||||||
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||
U.S. 5-Year Treasury Note | March 2020 | 367 | Long | $ | 43,690,862 | $ | 43,529,641 | $ | (161,221 | ) | ||||||||
U.S. Long Bond | March 2020 | 226 | Long | 36,146,298 | 35,234,813 | (911,485 | ) | |||||||||||
Total Unrealized Depreciation on Open Futures Contracts | $ | (1,072,706 | ) |
See Notes to Financial Statements. | 29 |
Schedule of Investments (continued)
December 31, 2019
The following is a summary of the inputs used as of December 31, 2019 in valuing the Fund’s investments carried at fair value(1):
Investment Type(2) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Long-Term Investments | ||||||||||||||||
Asset-Backed Securities | ||||||||||||||||
Other | $ | – | $ | 53,313,323 | $ | 386,770 | $ | 53,700,093 | ||||||||
Remaining Industries | – | 65,115,234 | – | 65,115,234 | ||||||||||||
Corporate Bonds | – | 180,359,093 | – | 180,359,093 | ||||||||||||
Foreign Government Obligations | – | 20,095,638 | – | 20,095,638 | ||||||||||||
Government Sponsored Enterprises Collateralized Mortgage Obligations | – | 7,724,217 | – | 7,724,217 | ||||||||||||
Government Sponsored Enterprises Pass-Throughs | – | 212,912,539 | – | 212,912,539 | ||||||||||||
Municipal Bonds | – | 5,221,632 | – | 5,221,632 | ||||||||||||
Non-Agency Commercial Mortgage-Backed Securities | – | 35,533,961 | – | 35,533,961 | ||||||||||||
U.S. Treasury Obligations | – | 113,394,501 | – | 113,394,501 | ||||||||||||
Short-Term Investments | ||||||||||||||||
Foreign Government Obligation | 63,510,891 | 63,510,891 | ||||||||||||||
Repurchase Agreement | – | 15,471,879 | – | 15,471,879 | ||||||||||||
U.S. Treasury Obligations | – | 81,474,592 | – | 81,474,592 | ||||||||||||
Total | $ | – | $ | 854,127,500 | $ | 386,770 | $ | 854,514,270 | ||||||||
Other Financial Instruments | ||||||||||||||||
Centrally Cleared Interest Rate Swap Contracts | ||||||||||||||||
Assets | $ | – | $ | 471,205 | $ | – | $ | 471,205 | ||||||||
Liabilities | – | (118,913 | ) | – | (118,913 | ) | ||||||||||
Forward Foreign Currency Exchange Contracts | ||||||||||||||||
Assets | – | 452,812 | – | 452,812 | ||||||||||||
Liabilities | – | (7,590 | ) | – | (7,590 | ) | ||||||||||
Futures Contracts | ||||||||||||||||
Assets | 357,782 | – | – | 357,782 | ||||||||||||
Liabilities | (1,072,706 | ) | – | – | (1,072,706 | ) | ||||||||||
Total | $ | (714,924 | ) | $ | 797,514 | $ | – | $ | 82,590 |
(1) | Refer to Note 2(m) for a description of fair value measurements and the three-tier hierarchy of inputs. | |
(2) | See Schedule of Investments for fair values in each industry and identification of foreign issuers and/or geography. The table above is presented by Investment Type. Industries are presented within an Investment Type should such Investment Type include securities classified as two or more levels within the three-tier fair value hierarchy. Each Level 3 security is identified on the Schedule of Investments along with the valuation technique utilized. |
30 | See Notes to Financial Statements. |
Schedule of Investments (concluded)
December 31, 2019
The following is a reconciliation of investments with unobservable inputs (Level 3) that were used in determining fair value:
Investment Type | Asset-Backed Securities | Non-Agency Commercial Mortgage- Backed Securities | |||||||
Balance as of January 1, 2019 | $ | – | $ | 392,209 | |||||
Accrued Discounts (Premiums) | – | – | |||||||
Realized Gain (Loss) | – | – | |||||||
Change in Unrealized Appreciation (Depreciation) | 12,252 | – | |||||||
Purchases | 374,518 | – | |||||||
Sales | – | – | |||||||
Transfers into Level 3 | – | – | |||||||
Transfers out of Level 3 | – | (392,209 | ) | ||||||
Balance as of December 31, 2019 | $ | 386,770 | $ | – | |||||
Change in unrealized appreciation/depreciation for the year ended December 31, 2019, related to Level 3 investments held at December 31, 2019 | $ | 12,252 | $ | – |
See Notes to Financial Statements. | 31 |
Statement of Assets and Liabilities
December 31, 2019
ASSETS: | ||||
Investments in securities, at fair value (cost $841,939,338) | $ | 854,514,270 | ||
Cash | 366 | |||
Deposits with brokers for futures collateral | 651,138 | |||
Deposits with brokers for swaps collateral | 289,472 | |||
Receivables: | ||||
Capital shares sold | 4,064,726 | |||
Interest and dividends | 3,790,943 | |||
Variation margin for interest rate swaps | 10,734 | |||
Unrealized appreciation on forward foreign currency exchange contracts | 452,812 | |||
Prepaid expenses | 2,205 | |||
Total assets | 863,776,666 | |||
LIABILITIES: | ||||
Payables: | ||||
Investment securities purchased | 211,584,774 | |||
Management fee | 153,066 | |||
Variation margin on futures contracts | 44,562 | |||
Directors’ fees | 40,343 | |||
Fund administration | 21,867 | |||
Capital shares reacquired | 2,916 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 7,590 | |||
Foreign currency overdraft | 3,311 | |||
Accrued expenses | 448,912 | |||
Total liabilities | 212,307,341 | |||
Commitments and contingent liabilities | ||||
NET ASSETS | $ | 651,469,325 | ||
COMPOSITION OF NET ASSETS: | ||||
Paid-in capital | $ | 649,271,853 | ||
Total distributable earnings (loss) | 2,197,472 | |||
Net Assets | $ | 651,469,325 | ||
Outstanding shares (130 million shares of common stock authorized, $.001 par value) | 38,673,782 | |||
Net asset value, offering and redemption price per share (Net assets divided by outstanding shares) | $16.85 |
32 | See Notes to Financial Statements. |
For the Year Ended December 31, 2019
Investment income: | ||||
Interest | $ | 19,341,261 | ||
Total investment income | 19,341,261 | |||
Expenses: | ||||
Management fee | 1,997,625 | |||
Non 12b-1 service fees | 1,502,337 | |||
Shareholder servicing | 634,719 | |||
Fund administration | 240,293 | |||
Professional | 68,632 | |||
Reports to shareholders | 59,837 | |||
Custody | 17,901 | |||
Directors’ fees | 16,850 | |||
Other | 137,434 | |||
Gross expenses | 4,675,628 | |||
Expense reductions (See Note 9) | (19,419 | ) | ||
Fees waived and expenses reimbursed (See Note 3) | (362,205 | ) | ||
Net expenses | 4,294,004 | |||
Net investment income | 15,047,257 | |||
Net realized and unrealized gain (loss): | ||||
Net realized gain on investments | 9,443,593 | |||
Net realized gain on futures contracts | 6,031,375 | |||
Net realized loss on forward foreign currency exchange contracts | (6,553 | ) | ||
Net realized loss on swap contracts | (700,236 | ) | ||
Net realized gain on foreign currency related transactions | 31,373 | |||
Net change in unrealized appreciation/depreciation on investments | 18,050,406 | |||
Net change in unrealized appreciation/depreciation on futures contracts | (1,681,382 | ) | ||
Net change in unrealized appreciation/depreciation on forward foreign currency exchange contracts | 445,222 | |||
Net change in unrealized appreciation/depreciation on swap contracts | 352,292 | |||
Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies | 130 | |||
Net realized and unrealized gain | 31,966,220 | |||
Net Increase in Net Assets Resulting From Operations | $ | 47,013,477 |
See Notes to Financial Statements. | 33 |
Statements of Changes in Net Assets
For the Year Ended | For the Year Ended | |||||||
INCREASE IN NET ASSETS | December 31, 2019 | December 31, 2018 | ||||||
Operations: | ||||||||
Net investment income | $ | 15,047,257 | $ | 15,249,312 | ||||
Net realized gain (loss) on investments, futures contracts, forward foreign currency exchange contracts, swaps and foreign currency related transactions | 14,799,552 | (12,394,898 | ) | |||||
Net change in unrealized appreciation/depreciation on investments, futures contracts, forward foreign currency exchange contracts, swaps and translation of assets and liabilities denominated in foreign currencies | 17,166,668 | (8,065,194 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 47,013,477 | (5,210,780 | ) | |||||
Distributions to shareholders: | (16,860,320 | ) | (18,110,707 | ) | ||||
Capital share transactions (See Note 15): | ||||||||
Proceeds from sales of shares | 115,632,038 | 99,983,765 | ||||||
Reinvestment of distributions | 16,860,320 | 18,110,707 | ||||||
Cost of shares reacquired | (72,786,463 | ) | (87,540,643 | ) | ||||
Net increase in net assets resulting from capital share transactions | 59,705,895 | 30,553,829 | ||||||
Net increase in net assets | 89,859,052 | 7,232,342 | ||||||
NET ASSETS: | ||||||||
Beginning of year | $ | 561,610,273 | $ | 554,377,931 | ||||
End of year | $ | 651,469,325 | $ | 561,610,273 |
34 | See Notes to Financial Statements. |
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35
Per Share Operating Performance: | ||||||||||||||||||||||||||||
Investment Operations: | Distributions to shareholders from: | |||||||||||||||||||||||||||
Net asset value, beginning of period | Net |
Net | Total from invest- ment opera- tions | Net investment income | Net realized gain | Total distri- butions | ||||||||||||||||||||||
12/31/2019 | $ | 15.96 | $ | 0.42 | $ | 0.92 | $ | 1.34 | $ | (0.45 | ) | $ | – | $ | (0.45 | ) | ||||||||||||
12/31/2018 | 16.65 | 0.44 | (0.60 | ) | (0.16 | ) | (0.53 | ) | – | (0.53 | ) | |||||||||||||||||
12/31/2017 | 16.42 | 0.36 | 0.27 | 0.63 | (0.40 | ) | – | (0.40 | ) | |||||||||||||||||||
12/31/2016 | 16.25 | 0.36 | 0.31 | 0.67 | (0.44 | ) | (0.06 | ) | (0.50 | ) | ||||||||||||||||||
12/31/2015 | 16.85 | 0.36 | (0.47 | ) | (0.11 | ) | (0.47 | ) | (0.02 | ) | (0.49 | ) |
(a) | Calculated using average shares outstanding during the period. |
(b) | Total return does not consider the effects of sales charges or other expenses imposed by an insurance company and assumes the reinvestment of all distributions. |
36 | See Notes to Financial Statements. |
Ratios to Average Net Assets: | Supplemental Data: | |||||||||||||||||||||||||
Net asset value, end of period | Total return(b) (%) | Total expenses after waivers and/or reim- bursements (%) | Total expenses (%) | Net investment income (%) | Net assets, end of period (000) | Portfolio turnover rate (%) | ||||||||||||||||||||
$ | 16.85 | 8.41 | 0.71 | 0.78 | 2.50 | $ | 651,469 | 715 | ||||||||||||||||||
15.96 | (1.03 | ) | 0.67 | 0.89 | 2.70 | 561,610 | 611 | |||||||||||||||||||
16.65 | 3.86 | 0.64 | 0.88 | 2.16 | 554,378 | 452 | ||||||||||||||||||||
16.42 | 4.26 | 0.64 | 0.89 | 2.16 | 447,115 | 443 | ||||||||||||||||||||
16.25 | (0.66 | ) | 0.64 | 0.89 | 2.11 | 390,155 | 432 |
See Notes to Financial Statements. | 37 |
1. | ORGANIZATION |
Lord Abbett Series Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940, as amended (“the Act”), as a diversified, open-end management investment company and was incorporated under Maryland law in 1989. The Company consists of nine separate portfolios. This report covers Total Return Portfolio (the “Fund”).
The Fund’s investment objective is to seek income and capital appreciation to produce a high total return. The Fund has Variable Contract class shares (“Class VC Shares”), which are currently issued and redeemed only in connection with investments in, and payments under, variable annuity contracts and variable life insurance policies issued by life insurance and insurance-related companies.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies.
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Investment Valuation–Under procedures approved by the Fund’s Board of Directors (the “Board”), Lord, Abbett & Co. LLC (“Lord Abbett”), the Fund’s investment manager, has formed a Pricing Committee to administer the pricing and valuation of portfolio investments and to ensure that prices utilized reasonably reflect fair value. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value. |
Securities actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to reflect their fair value as of the close of regular trading on the New York Stock Exchange. The Fund may utilize an independent fair valuation service in adjusting the valuations of foreign securities. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices. Fixed income securities are valued based on evaluated prices supplied by independent pricing services, which reflect broker/dealer supplied valuations and the independent pricing services’ own electronic data processing techniques. Exchange traded options and futures contracts are valued at the last quoted sale price in the market where they are principally traded. If no sale has occurred, the mean between the most recently quoted bid and asked prices is used. Forward foreign currency exchange contracts are valued using daily forward exchange rates. Swaps are valued daily using independent pricing services or quotations from broker/dealers to the extent available. | |
Securities for which prices are not readily available are valued at fair value as determined by the Pricing Committee. The Pricing Committee considers a number of factors, including observable and unobservable inputs, when arriving at fair value. The Pricing Committee may use related or comparable assets or liabilities, recent transactions, market multiples, book |
38
Notes to Financial Statements (continued)
values, yield curves, broker quotes, observable trading activity, option adjusted spread models and other relevant information to determine the fair value of portfolio investments. The Board or a designated committee thereof regularly reviews fair value determinations made by the Pricing Committee and may employ techniques such as reviewing related market activity, reviewing inputs and assumptions, and retrospectively comparing prices of subsequent purchases and sales transactions to fair value determinations made by the Pricing Committee. | |
Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates fair value. | |
(b) | Security Transactions–Security transactions are recorded as of the date that the securities are purchased or sold (trade date). Realized gains and losses on sales of portfolio securities are calculated using the identified-cost method. |
(c) | Investment Income–Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis as earned. Discounts are accreted and premiums are amortized using the effective interest method and are included in Interest on the Statement of Operations. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates. |
(d) | Income Taxes–It is the policy of the Fund to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income and capital gains to its shareholders. Therefore, no income tax provision is required. |
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s filed U.S. federal tax returns remains open for the fiscal years ended December 31, 2016 through December 31, 2019. The statutes of limitations on the Company’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. | |
(e) | Expenses–Expenses incurred by the Company that do not specifically relate to an individual fund are generally allocated to the funds within the Company on a pro rata basis by relative net assets. |
(f) | Foreign Transactions–The books and records of the Fund are maintained in U.S. dollars and transactions denominated in foreign currencies are recorded in the Fund’s records at the rate prevailing when earned or recorded. Asset and liability accounts that are denominated in foreign currencies are adjusted daily to reflect current exchange rates and any unrealized gain (loss), if applicable, is included in Net change in unrealized appreciation/depreciation on translation of assets and liabilities denominated in foreign currencies in the Fund’s Statement of Operations. The resultant exchange gains and losses upon settlement of such transactions are included in Net realized gain (loss), if applicable, on foreign currency related transactions in the Fund’s Statement of Operations. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in market prices of the securities. |
The Fund uses foreign currency exchange contracts to facilitate transactions in foreign denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms. |
39
Notes to Financial Statements (continued)
(g) | Forward Foreign Currency Exchange Contracts–The Fund may enter into forward foreign currency exchange contracts in order to reduce exposure to changes in foreign currency exchange rates on foreign portfolio holdings, or gain or reduce exposure to foreign currency solely for investment purposes. A forward foreign currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated rate. The contracts are valued daily at forward exchange rates and any unrealized gain (loss) is included in Net change in unrealized appreciation/depreciation on forward foreign currency exchange contracts on the Fund’s Statement of Operations. The gain (loss) arising from the difference between the U.S. dollar cost of the original contract and the value of the foreign currency in U.S. dollars upon closing of such contracts is included in Net realized gain (loss) on forward foreign currency exchange contracts on the Fund’s Statement of Operations. |
(h) | Futures Contracts–The Fund may purchase and sell futures contracts to enhance returns, to attempt to economically hedge some of its investment risk, or as a substitute position in lieu of holding the underlying asset on which the instrument is based. At the time of entering into a futures transaction, an investor is required to deposit and maintain a specified amount of cash or eligible securities called “initial margin.” Subsequent payments made or received by the Fund called “variation margin” are made on a daily basis as the market price of the futures contract fluctuates. The Fund will record an unrealized gain (loss) based on the amount of variation margin. When a contract is closed, a realized gain (loss) is recorded equal to the difference between the opening and closing value of the contract. |
(i) | Repurchase Agreements–The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which a fund acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. The Fund requires at all times that the repurchase agreement be collateralized by cash, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). If the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the fair value of these securities has declined, the Fund may incur a loss upon disposition of the securities. |
(j) | When-Issued, Forward Transactions or To-Be-Announced (“TBA”) Transactions–The Fund may purchase portfolio securities on a when-issued or forward basis. When-issued, forward transactions or TBA transactions involve a commitment by a fund to purchase securities, with payment and delivery (“settlement”) to take place in the future, in order to secure what is considered to be an advantageous price or yield at the time of entering into the transaction. During the period between purchase and settlement, the fair value of the securities will fluctuate and assets consisting of cash and/or marketable securities (normally short-term U.S. Government or U.S. Government sponsored enterprise securities) marked to market daily in an amount sufficient to make payment at settlement will be segregated at the Fund’s custodian in order to pay for the commitment. At the time the Fund makes the commitment to purchase a security on a when-issued basis, it will record the transaction and reflect the liability for the purchase and fair value of the security in determining its net asset value (“NAV”). The Fund, generally, has the ability to close out a purchase obligation on or before the settlement date rather than take delivery of the security. Under no circumstances will settlement for such securities take place more than 120 days after the purchase date. |
40
Notes to Financial Statements (continued)
(k) | Mortgage Dollar Rolls–The Fund may enter into mortgage dollar rolls in which a fund sells mortgage-backed securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. During the roll period, the Fund loses the right to receive principal (including prepayments of principal) and interest paid on the securities sold. |
(l) | Interest Rate Swaps–The Fund may enter into interest rate swap agreements. Pursuant to interest rate swap agreements, the Fund either makes floating-rate payments to the counterparty (or Central counterparty clearing house (“CCP”) in the case of centrally cleared swaps) based on a benchmark interest rate in exchange for fixed-rate payments or the Fund makes fixed-rate payments to the counterparty (or CCP in the case of a centrally cleared swap) in exchange for payments on a floating benchmark interest rate. Payments received or made, including amortization of upfront payments/receipts, are recorded as realized gains or losses. During the term of the outstanding swap agreement, changes in the underlying value of the swap are recorded as unrealized gains or losses. For centrally cleared swaps, the daily change in valuation is recorded as a receivable or payable for variation margin and settled in cash with the CCP daily. The value of the swap is determined by changes in the relationship between two rates of interest. The Fund is exposed to credit loss in the event of non-performance by the swap counterparty. In the case of centrally cleared swaps, counterparty risk is minimal due to protections provided by the CCP. Risk may also arise from movements in interest rates. |
(m) | Fair Value Measurements–Fair value is defined as the price that the Fund would receive upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk - for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy classification is determined based on the lowest level of inputs that is significant to the fair value measurement, and is summarized in the three broad Levels listed below: |
• | Level 1 – | unadjusted quoted prices in active markets for identical investments; |
• | Level 2 – | other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and |
• | Level 3 – | significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
A summary of inputs used in valuing the Fund’s investments as of December 31, 2019 and, if applicable, Level 3 rollforwards for the fiscal year then ended is included in the Fund’s Schedule of Investments. |
41
Notes to Financial Statements (continued)
Changes in valuation techniques may result in transfers into or out of an assigned level within the three-tier hierarchy. All transfers between different levels within the three-tier hierarchy are deemed to have occurred as of the beginning of the reporting period. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. |
3. | MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES |
Management Fee
The Company has a management agreement with Lord Abbett, pursuant to which Lord Abbett supplies the Fund with investment management services and executive and other personnel, provides office space and pays for ordinary and necessary office and clerical expenses relating to research and statistical work and supervision of the Fund’s investment portfolio.
Effective May 1, 2019, the management fee is based on the Fund’s average daily net assets at the following annual rate:
First $4 billion | .28% |
Next $11 billion | .26% |
Over $15 billion | .25% |
Prior to May 1, 2019, the management fee was based on the Fund’s average daily net assets at the following annual rate:
First $1 billion | .45% |
Next $1 billion | .40% |
Over $2 billion | .35% |
For the fiscal year ended December 31, 2019, the effective management fee, net of waivers, was at an annualized rate of .27% of the Fund’s average daily net assets.
In addition, Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement in return for a fee at an annual rate of .04% of the Fund’s average daily net assets.
Prior to May 1, 2019, Lord Abbett contractually agreed to waive its fees and reimburse expenses to the extent necessary to limit total net annual operating expenses to an annual rate of .69%. Effective May 1, 2019, this agreement was discontinued.
The Company, on behalf of the Fund, has entered into services arrangements with certain insurance companies. Under these arrangements, certain insurance companies will be compensated up to .25% of the average daily net asset value (“NAV”) of the Fund’s Class VC Shares held in the insurance company’s separate account to service and maintain the Variable Contract owners’ accounts. This amount is included in Non 12b-1 service fees on the Statement of Operations. The Fund may also compensate certain insurance companies, third-party administrators and other entities for providing recordkeeping, sub-transfer agency and other administrative services to the Fund. This amount is included in Shareholder servicing on the Statement of Operations.
One Director and certain of the Company’s officers have an interest in Lord Abbett.
42
Notes to Financial Statements (continued)
4. | DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS |
Dividends from net investment income, if any, are declared and paid at least semi-annually. Taxable net realized gains from investment transactions, reduced by allowable capital loss carryforwards, if any, are declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, is available to offset future net capital gains. Dividends and distributions to shareholders are recorded on the ex-dividend date. The amounts of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions that exceed earnings and profits for tax purposes are reported as a tax return of capital.
The tax character of distributions paid during the fiscal years ended December 31, 2019 and December 31, 2018, was as follows:
Year Ended 12/31/2019 | Year Ended 12/31/2018 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 16,860,320 | $ | 18,110,707 | ||||
Total distributions paid | $ | 16,860,320 | $ | 18,110,707 |
As of December 31, 2019, the components of accumulated gains (losses) on a tax-basis were as follows:
Capital loss carryforwards* | $ | (6,278,809 | ) | |
Temporary differences | (40,343 | ) | ||
Unrealized gains - net | 8,516,624 | |||
Total accumulated gains - net | $ | 2,197,472 |
* | The capital losses will carry forward indefinitely. |
As of December 31, 2019, the aggregate unrealized security gains (losses) on investments and other financial instruments based on cost for U.S. federal income tax purposes were as follows:
Tax cost | $ | 846,080,295 | ||
Gross unrealized gain | 11,795,055 | |||
Gross unrealized loss | (3,278,490 | ) | ||
Net unrealized security gain | $ | 8,516,565 |
The difference between book-basis and tax-basis unrealized gains (losses) is attributable to the tax treatment of other financial instruments, premium amortization and wash sales.
Permanent items identified during the fiscal year ended December 31, 2019 have been reclassified among the components of net assets based on their tax basis treatment as follows:
Total Distributable Earnings (Loss | ) | Paid-in Capital |
$97,111 | $(97,111) |
The permanent differences are primarily attributable to the tax treatment of certain distributions and certain securities.
43
Notes to Financial Statements (continued)
5. | PORTFOLIO SECURITIES TRANSACTIONS |
Purchases and sales of investment securities (excluding short-term investments) for the fiscal year ended December 31, 2019 were as follows:
U.S. Government Purchases* | Non-U.S. Government Purchases | U.S. Government Sales* | Non-U.S. Government Sales | |||
$4,358,856,884 | $281,076,884 | $4,337,092,444 | $308,098,898 |
* | Includes U.S. Government sponsored enterprises securities. |
The Fund is permitted to purchase and sell securities (“cross-trade”) from and to other Lord Abbett funds or client accounts pursuant to procedures approved by the Board in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at a fair market price in compliance with provisions of the Rule. For the fiscal year ended December 31, 2019, the Fund engaged in cross-trades purchases of $327,608 and sales of $1,564,021, which resulted in net realized gains of $56,463.
6. | DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
The Fund entered into forward foreign currency exchange contracts for the fiscal year ended December 31, 2019 (as described in note 2(g)). A forward foreign currency exchange contract reduces the Fund’s exposure to changes in the value of the currency it will deliver (or settle in cash) and increases its exposure to changes in the value of the currency it will receive (or settle in cash) for the duration of the contract. The Fund’s use of forward foreign currency exchange contracts involves the risk that Lord Abbett will not accurately predict currency movements, and the Fund’s returns could be reduced as a result. Forward foreign currency exchange contracts are subject to the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedged positions, that the U.S. dollar will decline relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time. The Fund’s risk of loss from counterparty credit risk is the unrealized appreciation on forward foreign currency exchange contracts and deposits with brokers as collateral.
The Fund entered into U.S. Treasury futures contracts for the fiscal year ended December 31, 2019 (as described in note 2(h)) to economically hedge against changes in interest rates. The Fund bears the risk of interest rates moving unexpectedly, in which case the Fund may not achieve the anticipated benefits of the futures contracts and realize a loss. There is minimal counterparty credit risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees futures against default.
The Fund entered into interest rate swaps for the fiscal year ended December 31, 2019 (as described in note 2(l)) in order to enhance returns or hedge against interest rate risk. Interest rate swaps are agreements in which one party pays a stream of interest payments, either fixed or floating, for another party’s stream of interest payments, either fixed or floating, on the same notional amount for a specified period of time. The interest rate swap agreement will normally be entered into on a zero coupon basis, meaning that the floating rate will be based on the cumulative of the variable rate, and the fixed rate will compound until the swap’s maturity date, at which point the payments would be netted.
As of December 31, 2019, the Fund had the following derivatives at fair value, grouped into appropriate risk categories that illustrate the Fund’s use of derivative instruments:
44
Notes to Financial Statements (continued)
Asset Derivatives | Interest Rate Contracts | Foreign Currency Contracts | ||||||
Centrally Cleared Interest Rate Swap Contracts(1) | $ | 471,205 | – | |||||
Forward Foreign Currency Exchange Contracts(2) | $ | 452,812 | ||||||
Futures Contracts(3) | $ | 357,782 | – | |||||
Liability Derivatives | ||||||||
Centrally Cleared Interest Rate Swap Contracts(1) | $ | 118,913 | – | |||||
Forward Foreign Currency Exchange Contracts(2) | $ | 7,590 | ||||||
Futures Contracts(3) | $ | 1,072,706 | – |
(1) | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/depreciation of centrally cleared swap contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
(2) | Statement of Assets and Liabilities location: Unrealized appreciation/depreciation on forward foreign currency exchange contracts. |
(3) | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/depreciation on futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Transactions in derivatives instruments for the period ended December 31, 2019, were as follows:
Interest Rate Contracts | Foreign Currency Contracts | |||||||
Net Realized Gain (Loss) | ||||||||
Interest Rate Swaps Contracts(1) | $ | (700,236 | ) | – | ||||
Forward Foreign Currency Exchange Contracts(2) | – | $ | (6,553 | ) | ||||
Futures Contracts(3) | 6,031,375 | – | ||||||
Net Change in Unrealized Appreciation/Depreciation | ||||||||
Interest Rate Swap Contracts(4) | $ | 352,292 | – | |||||
Forward Foreign Currency Exchange Contracts(5) | – | $ | 445,222 | |||||
Futures Contracts(6) | (1,681,382 | ) | – | |||||
Average Number of Contracts/Notional Amounts* | ||||||||
Interest Rate Swaps(7) | $ | 71,244,581 | – | |||||
Forward Foreign Currency Exchange Contracts(7) | – | $ | 19,504,502 | |||||
Futures Contracts(8) | 881 | – |
* | Calculated based on the number of contracts or notional amounts for the fiscal year ended December 31, 2019. |
(1) | Statement of Operations location: Net realized loss on swap contracts. |
(2) | Statement of Operations location: Net realized loss on forward foreign currency exchange contracts. |
(3) | Statement of Operations location: Net realized gain on futures contracts. |
(4) | Statement of Operations location: Net change in unrealized appreciation/depreciation on swap contracts. |
(5) | Statement of Operations location: Net change in unrealized appreciation/depreciation on forward foreign currency exchange contracts. |
(6) | Statement of Operations location: Net change in unrealized appreciation/depreciation on futures contracts. |
(7) | Amount represents notional amounts in U.S. dollars. |
(8) | Amount represents number of contracts. |
45
Notes to Financial Statements (continued)
7. | DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES |
The Financial Accounting Standards Board (“FASB”) requires disclosures intended to help better assess the effect or potential effect of offsetting arrangements on a fund’s financial position. The following tables illustrate gross and net information about recognized assets and liabilities eligible for offset in the Statement of Assets and Liabilities; and disclose such amounts subject to an enforceable master netting agreement or similar agreement, by counterparty. A master netting agreement is an agreement between a fund and a counterparty which provides for the net settlement of amounts owed under all contracts traded under that agreement, as well as cash collateral, through a single payment by one party to the other in the event of default on or termination of any one contract. The Fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the master netting agreement does not result in an offset of reported amounts of financial assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty:
Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Assets Presented in the Statement of Assets and Liabilities | |||||||||
Repurchase Agreement | $ | 15,471,879 | $ | – | $ | 15,471,879 | ||||||
Forward Foreign Currency Exchange Contracts | 452,812 | – | 452,812 | |||||||||
Total | $ | 15,924,691 | $ | – | $ | 15,924,691 |
Net Amounts of Assets Presented in | Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Received(a) | Securities Collateral Received(a) | Net Amount(b) | |||||||||||||||
Fixed Income Clearing Corp. | $ | 15,471,879 | $ | – | $ | – | $ | (15,471,879 | ) | $ | – | |||||||||
J.P. Morgan | 452,812 | – | – | – | 452,812 | |||||||||||||||
Total | $ | 15,924,691 | $ | – | $ | – | $ | (15,471,879 | ) | $ | 452,812 |
Description | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts of Liabilities Presented in the Statement of Assets and Liabilities | |||||||||
Forward Foreign Currency Exchange Contracts | $ | 7,590 | $ | – | $ | 7,590 | ||||||
Total | $ | 7,590 | $ | – | $ | 7,590 |
46
Notes to Financial Statements (continued)
Net Amounts of Liabilities Presented in | Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||||||||||
Counterparty | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Pledged(a) | Securities Collateral Pledged(a) | Net Amount(c) | |||||||||||||||
Morgan Stanley | $ | 5,888 | $ | – | $ | – | $ | – | $ | 5,888 | ||||||||||
State Street Bank | 383 | – | – | – | 383 | |||||||||||||||
UBS AG | 1,319 | – | – | – | 1,319 | |||||||||||||||
Total | $ | 7,590 | $ | – | $ | – | $ | – | $ | 7,590 |
(a) | Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets (liabilities) presented in the Statement of Assets and Liabilities, for each respective counterparty. |
(b) | Net amount represents the amount owed to the Fund by the counterparty as of December 31, 2019. |
(c) | Net amount represents the amount owed by the Fund to the counterparty as of December 31, 2019. |
8. | DIRECTORS’ REMUNERATION |
The Company’s officers and one Director, who are associated with Lord Abbett, do not receive any compensation from the Company for serving in such capacities. Independent Directors’ fees are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all Independent Directors under which Independent Directors must defer receipt of a portion of, and may elect to defer receipt of an additional portion of Directors’ fees. The deferred amounts are treated as though equivalent dollar amounts had been invested in the funds. Such amounts and earnings accrued thereon are included in Directors’ fees on the Statement of Operations and in Directors’ fees payable on the Statement of Assets and Liabilities and are not deductible for U.S. federal income tax purposes until such amounts are paid.
9. | EXPENSE REDUCTIONS |
The Company has entered into an arrangement with its transfer agent and custodian, whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s expenses.
10. | LINE OF CREDIT |
For the period ended August 7, 2019, the Fund and certain other funds managed by Lord Abbett (collectively, the “Participating Funds”) entered into a Syndicated Facility with various lenders for $1.1 billion whereas State Street Bank and Trust Company (“SSB”) participated as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if Fund net assets are less than $750 million), $250 million, $300 million, $350 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
Effective August 8, 2019, the Participating Funds entered into a Syndicated Facility with various lenders for $1.17 billion whereas SSB participates as a lender and as agent for the lenders. The Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, $500 million, or $1 billion, based on past borrowings and likelihood of future borrowings, among other factors.
For the period ended August 7, 2019, the Participating Funds entered into an additional line of credit facility with SSB for $250 million (the “Bilateral Facility” and together with the Syndicated
47
Notes to Financial Statements (continued)
Facility, the “Facilities”). Under the Bilateral Facility, each Participating Fund may borrow up to the lesser of $250 million or one-third of Fund net assets.
Effective August 8, 2019, the Participating Funds entered into a Bilateral Facility with SSB for $330 million ($250 million committed and $80 million uncommitted). Under the Bilateral Facility, the Participating Funds are subject to graduated borrowing limits of one-third of Fund net assets (if net assets are less than $750 million), $250 million, $300 million, or $330 million, based on past borrowings and likelihood of future borrowings, among other factors.
The Facilities are to be used for temporary or emergency purposes as an additional source of liquidity to satisfy redemptions.
For the fiscal year ended December 31, 2019, the Fund did not utilize the Facilities.
11. | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission (“SEC exemptive order”), certain registered open-end management investment companies managed by Lord Abbett, including the Fund, participate in a joint lending and borrowing program (the “Interfund Lending Program”). The SEC exemptive order allows the Funds to borrow money from and lend money to each other for temporary or emergency purposes subject to the limitations and conditions.
For the fiscal year ended December 31, 2019, the Fund did not participate as a borrower or lender in the Interfund Lending Program.
12. | CUSTODIAN AND ACCOUNTING AGENT |
SSB is the Company’s custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund’s NAV.
13. | SECURITIES LENDING AGREEMENT |
The Fund has established a securities lending agreement with Citibank, N.A. for the lending of securities to qualified brokers in exchange for securities or cash collateral equal to at least the market value of securities loaned, plus interest, if applicable. Cash collateral is invested in an approved money market fund. In accordance with the Fund’s securities lending agreement, the market value of securities on loan is determined each day at the close of business and any additional collateral required to cover the value of securities on loan is delivered to the Fund on the next business day. As with other extensions of credit, the Fund may experience a delay in the recovery of their securities or incur a loss should the borrower of the securities breach its agreement with the Fund or become insolvent at a time when the collateral is insufficient to cover the cost of repurchasing securities on loan. Any income earned from lending securities will be noted on the Statement of Operations.
For the fiscal year ended December 31, 2019, the Fund did not loan any securities.
14. | INVESTMENT RISKS |
The Fund is subject to the general risks and considerations associated with investing in fixed income securities, including the risk that issuers will fail to make timely payments of principal or interest or default altogether. The value of an investment will change as interest rates fluctuate in response to market movements. When interest rates rise, the prices of fixed income securities are likely to decline; when interest rates fall, such prices tend to rise.
48
Notes to Financial Statements (continued)
The Fund is subject to the risk of investing a significant portion of its assets in securities issued or guaranteed by the U.S. Government or its agencies and instrumentalities (such as the Government National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”), or the Federal Home Loan Mortgage Corporation (“Freddie Mac”)). Unlike Ginnie Mae securities, securities issued or guaranteed by U.S. Government-related organizations such as Fannie Mae and Freddie Mac are not backed by the full faith and credit of the U.S. Government and no assurance can be given that the U.S. Government would provide financial support to its agencies and instrumentalities if not required to do so by law. Consequently, the Fund may be required to look principally to the agency issuing or guaranteeing the obligation. In addition, the Fund may invest in non-agency asset backed and mortgage related securities, which are issued by private institutions, not by government-sponsored enterprises. Such securities may be particularly sensitive to changes in economic conditions, including delinquencies and/or defaults, and changes in prevailing interest rates. These changes can affect the value, income and/or liquidity of such positions. When interest rates are declining, the value of these securities with prepayment features may not increase as much as other fixed income securities. Early principal repayment may deprive the Fund of income payments above current market rates. The prepayment rate also will affect the price and volatility of these securities. In addition, securities of government sponsored enterprises are guaranteed with respect to the timely payment of interest and principal by the particular enterprises involved, not by the U.S. Government.
The lower-rated or high-yield bonds (also known as “junk” bonds) in which the Fund may invest are subject to greater price fluctuations, as well as additional risks. The market for below investment grade securities may be less liquid, which may make such securities more difficult to sell at an acceptable price, especially during periods of financial distress, increased market volatility, or significant market decline.
The Fund is subject to the risks associated with derivatives, which may be different from and greater than the risks associated with directly investing in securities. Derivatives may be subject to risks such as liquidity risk, leveraging risk, interest rate risk, market risk, and credit risk. Illiquid securities may lower the Fund’s returns since the Fund may be unable to sell these securities at their desired time or price. Derivatives also may involve the risk of mispricing or improper valuation and the risk that changes in the value of the derivative may not correlate perfectly with the value of the underlying asset, rate or index. Whether the Fund’s use of derivatives is successful will depend on, among other things, the Fund’s ability to correctly forecast market movements, changes in foreign exchange and interest rates, and other factors. Losses may also arise from the failure of a derivative counterparty to meet its contractual obligations. If the Fund incorrectly forecasts these and other factors, its performance could suffer.
The Fund’s investment exposure to foreign (which may include emerging market) companies presents increased market, industry and sector, liquidity, currency, political, information and other risks. As compared with companies organized and operated in the U.S., these companies may be more vulnerable to economic, political and social instability and subject to less government supervision, lack of transparency, inadequate regulatory and accounting standards, and foreign taxes. The securities of foreign companies also may be subject to inadequate exchange control regulations, the imposition of economic sanctions or other government restrictions, higher transaction and other costs, and delays in settlement to the extent they are traded on non-U.S. exchanges or markets. The cost of the Fund’s use of forward foreign currency exchange contracts varies with factors such as the currencies involved, the length of the contract period and the market
49
Notes to Financial Statements (concluded)
conditions prevailing. The Fund’s exposure to inflation-linked investments, such as Treasury Inflation Protected Securities, may be vulnerable to changes in expectations of inflation or interest rates.
The Fund may invest in floating rate or adjustable rate senior loans, which are subject to increased credit and liquidity risks. Senior loans are business loans made to borrowers that may be U.S. or foreign corporations, partnerships or other business entities. The senior loans in which the Fund invests may consist primarily of senior loans that are rated below investment grade or, if unrated, deemed by Lord Abbett to be equivalent to below investment grade securities. Below investment grade senior loans, as in the case of high-yield debt securities, or junk bonds, are usually more credit sensitive than interest rate sensitive, although the value of these instruments may be impacted by broader interest rate swings in the overall fixed income market. In addition, senior loans may be subject to structural subordination.
These factors can affect the Fund’s performance.
15. | SUMMARY OF CAPITAL TRANSACTIONS |
Transactions in shares of capital stock were as follows:
Year Ended December 31, 2019 | Year Ended December 31, 2018 | |||||||
Shares sold | 6,856,024 | 6,114,426 | ||||||
Reinvestment of distributions | 1,001,194 | 1,139,038 | ||||||
Shares reacquired | (4,363,893 | ) | (5,360,418 | ) | ||||
Increase | 3,493,325 | 1,893,046 |
50
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Lord Abbett Series Fund, Inc.
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Total Return Portfolio, one of the funds constituting Lord Abbett Series Fund, Inc. (the “Fund”), as of December 31, 2019, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of Total Return Portfolio of the Fund as of December 31, 2019, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
New York, New York
February 14, 2020
We have served as the auditor of one or more Lord Abbett Family of Funds’ investment companies since 1932.
51
Supplemental Proxy Information (unaudited)
A joint special meeting of shareholders of the Fund was held on August 26, 2019. The joint special meeting was held for the purpose of electing members of the Fund’s Board of Directors. Shareholders elected the following ten (10) Directors at the joint special meeting:
• | Eric C. Fast |
• | Evelyn E. Guernsey |
• | Julie A. Hill |
• | Kathleen M. Lutito |
• | James M. McTaggart |
• | Charles O. Prince |
• | Karla M. Rabusch |
• | Mark A. Schmid |
• | Douglas B. Sieg |
• | James L.L. Tullis |
The results of the proxy solicitation on the preceding matter were as follows:
Lord Abbett Series Fund, Inc.
Nominee Votes | Votes For | Votes Withheld |
Eric C. Fast | 186,329,820.614 | 7,776,255.685 |
Evelyn E. Guernsey | 186,718,826.419 | 7,387,249.880 |
Julie A. Hill | 186,486,240.620 | 7,619,835.679 |
Kathleen M. Lutito | 187,082,042.409 | 7,024,033.890 |
James M. McTaggart | 186,269,131.867 | 7,836,944.422 |
Charles O. Prince | 186,103,251.100 | 8,002,825.199 |
Karla M. Rabusch | 186,796,719.683 | 7,309,356.626 |
Mark A. Schmid | 186,825,573.395 | 7,280,502.894 |
Douglas B. Sieg | 186,702,410.889 | 7,403,665.410 |
James L.L. Tullis | 186,229,277.817 | 7,876,798.472 |
52
Basic Information About Management
The Board is responsible for the management of the business and affairs of the Company in accordance with the laws of the State of Maryland. The Board elects officers who are responsible for the day-to-day operations of the Fund and who execute policies authorized by the Board. The Board also approves an investment adviser to the Fund and continues to monitor the cost and quality of the services the investment adviser provides, and annually considers whether to renew the contract with the investment adviser. Generally, each Director holds office until his/her successor is elected and qualified or until his/her earlier resignation or removal, as provided in the Company’s organizational documents.
Lord Abbett, a Delaware limited liability company, is the Fund’s investment adviser. Designated Lord Abbett personnel are responsible for the day-to-day management of the Fund.
Interested Directors
Mr. Sieg is affiliated with Lord Abbett and is an “interested person” of the Company as defined in the Act. Mr. Sieg is director/trustee of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios. Mr. Sieg is an officer of the Lord Abbett Family of Funds.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Douglas B. Sieg Lord, Abbett & Co. LLC 90 Hudson Street Jersey City, NJ 07302 (1969) | Director since 2016; President and Chief Executive Officer since 2018 | Principal Occupation:Managing Partner (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994.
Other Directorships:None. |
Independent Directors
The following Independent Directors also are directors/trustees of each of the 12 investment companies in the Lord Abbett Family of Funds, which consist of 57 investment portfolios.
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
Evelyn E. Guernsey Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1955) | Director since 2011 | Principal Occupation:None.
Other Directorships:None. | ||
Julie A. Hill Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1946) | Director since 2004 | Principal Occupation:Owner and CEO of The Hill Company, a business consulting firm (since 1998).
Other Directorships:Currently serves as director of Anthem, Inc., a health benefits company (since 1994). | ||
Kathleen M. Lutito Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1963) | Director since 2017 | Principal Occupation:President and Chief Investment Officer of CenturyLink Investment Management Company (since 2006). Other Directorships:None. |
53
Basic Information About Management (continued)
Name, Address and Year of Birth | Current Position and Length of Service with the Company | Principal Occupation and Other Directorships During the Past Five Years | ||
James M. McTaggart Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2012 | Principal Occupation:Independent management advisor and consultant (since 2012).
Other Directorships:Blyth, Inc., a home products company (2004–2015). | ||
Charles O. Prince Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1950) | Director since 2019 | Principal Occupation:None. Formerly Chairman and Chief Executive Officer, Citigroup, Inc.
Other Directorships:Currently serves as director of Johnson & Johnson (2006–Present). Previously served as director of Xerox Corporation (2008–2018). | ||
Karla M. Rabusch Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2017 | Principal Occupation:President and Director of Wells Fargo Funds Management, LLC (2003–2017); President of Wells Fargo Funds (2003–2016).
Other Directorships:None. | ||
Mark A. Schmid Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1959) | Director since 2016 | Principal Occupation:Vice President and Chief Investment Officer of the University of Chicago (since 2009).
Other Directorships:None. | ||
James L.L. Tullis Lord, Abbett & Co. LLC c/o Legal Dept. 90 Hudson Street Jersey City, NJ 07302 (1947) | Director since 2006; Chairman since 2017 | Principal Occupation:Chairman of Tullis Health Investors - FL LLC (since 2018); CEO of Tullis–Dickerson and Co. Inc., a venture capital management firm (1990–2016).
Other Directorships:Currently serves as director of Crane Co. (since 1998), Alphatec Spine, Inc. (since 2018), and electroCore, Inc. (since 2018). |
Officers
None of the officers listed below have received compensation from the Company. All of the officers of the Company also may be officers of the other Lord Abbett Funds and maintain offices at 90 Hudson Street, Jersey City, NJ 07302. Unless otherwise indicated, the position(s) and title(s) listed under the “Principal Occupation During the Past Five Years” column indicate each officer’s position(s) and title(s) with Lord Abbett. Each officer serves for an indefinite term (i.e., until his or her death, resignation, retirement, or removal).
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Douglas B. Sieg (1969) | President and Chief Executive Officer | Elected as President and Chief Executive Officer in 2018 | Managing Partner of Lord Abbett (since 2018) and was formerly Head of Client Services, joined Lord Abbett in 1994. |
54
Basic Information About Management (concluded)
Name and Year of Birth | Current Position with the Company | Length of Service of Current Position | Principal Occupation During the Past Five Years | |||
Jackson C. Chan (1964) | AML Compliance Officer | Elected in 2018 | Deputy Chief Compliance Officer and Director of Regulatory Affairs, joined Lord Abbett in 2014. | |||
Pamela P. Chen (1978) | Vice President, Assistant Secretary and Privacy Officer | Elected as Vice President and Assistant Secretary in 2018 and Privacy Officer in 2019 | Associate General Counsel, joined Lord Abbett in 2017 and was formerly Special Counsel at Schulte, Roth & Zabel LLP (2005–2017). | |||
John T. Fitzgerald (1975) | Vice President and Assistant Secretary | Elected in 2018 | Deputy General Counsel, joined Lord Abbett in 2018 and was formerly Deputy Head of U.S. Funds Legal, Executive Director and Assistant General Counsel at JPMorgan Chase (2005–2018). | |||
Vito A. Fronda (1969) | Treasurer | Elected in 2018 | Partner and Director of Fund Treasury and Tax, joined Lord Abbett in 2003. | |||
Bernard J. Grzelak (1971) | Chief Financial Officer and Vice President | Elected in 2017 | Partner and Chief Operating Officer, Global Funds and Risk, joined Lord Abbett in 2003. | |||
Linda Y. Kim (1980) | Vice President and Assistant Secretary | Elected in 2016 | Counsel, joined Lord Abbett in 2015. | |||
Joseph M. McGill (1962) | Chief Compliance Officer | Elected in 2014 | Partner and Chief Compliance Officer, joined Lord Abbett in 2014. | |||
Amanda S. Ryan (1978) | Vice President and Assistant Secretary | Elected in 2018 | Counsel, joined Lord Abbett in 2016 and was formerly a Director and Corporate Counsel at PGIM Investments (2012–2016). | |||
Lawrence B. Stoller (1963) | Vice President, Secretary and Chief Legal Officer | Elected as Vice President and Secretary in 2007 and Chief Legal Officer in 2019 | Partner and General Counsel, joined Lord Abbett in 2007. |
Please call 888-522-2388 for a copy of the statement of additional information, which contains further information about the Company’s Directors. It is available free upon request.
55
Approval of Advisory Contract
The Board, including all of the Directors who are not “interested persons” of the Company or of Lord Abbett, as defined in the Investment Company Act of 1940, as amended (the “Independent Directors”), annually considers whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett (the “Agreement”). In connection with its most recent approval, the Board reviewed materials relating specifically to the Agreement, as well as numerous materials received throughout the course of the year, including information about the Fund’s investment performance compared to the performance of its benchmarks. Before making its decision as to the Fund, the Board had the opportunity to ask questions and request further information, taking into account its knowledge of Lord Abbett gained through its meetings and discussions. These meetings and discussions included reviews of Fund performance conducted by members of the Contract Committee, the deliberations of the Contract Committee, and discussions between the Contract Committee and Lord Abbett’s management. The Independent Directors also met with their independent legal counsel in various private sessions at which no representatives of management were present.
The materials received by the Board included, but were not limited to: (1) information provided by Broadridge Financial Solutions (“Broadridge”) regarding the investment performance of the Fund compared to the investment performance of certain funds with similar investment styles as determined by Broadridge, based, in part, on the Fund’s Morningstar category (the “performance peer group”), and the investment performance of two appropriate benchmarks; (2) information provided by Broadridge regarding the expense ratios, contractual and actual management fee rates, and other expense components for the Fund and certain funds in the same Morningstar category, with generally the same or similar share classes and operational characteristics, including asset size (the “expense peer group”); (3) certain supplemental investment performance information provided by Lord Abbett; (4) information provided by Lord Abbett on the expense ratios, management fee rates, and other expense components for the Fund; (5) sales and redemption information for the Fund; (6) information regarding Lord Abbett’s financial condition; (7) an analysis of the relative profitability of the Agreement to Lord Abbett; (8) information provided by Lord Abbett regarding the investment management fee schedules for Lord Abbett’s other advisory clients maintaining accounts with a similar investment strategy as the Fund; and (9) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.
Investment Management and Related Services Generally.The Board considered the services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading, and Lord Abbett’s commitment to compliance with all applicable legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest that may result from being engaged in other lines of business. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to the Fund and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other. After reviewing these and related factors, the Board concluded that the Fund was likely to continue to benefit from the nature, extent and quality of the investment services provided by Lord Abbett under the Agreement.
Investment Performance.The Board reviewed the Fund’s investment performance in relation to that of the performance peer group and two appropriate benchmarks as of various periods ended June 30, 2019. The Board observed that although the Fund’s investment performance was below the median of the performance peer group for the one-, three-, and five-year periods, the Fund
56
Approval of Advisory Contract (continued)
outperformed both benchmarks for the three- and five-year periods. The Board considered Lord Abbett’s performance and reputation generally, the performance of other Lord Abbett-managed funds overseen by the Board, and the willingness of Lord Abbett to take steps intended to improve performance when appropriate. After reviewing these and related factors, the Board concluded that the Fund’s Agreement should be continued.
Lord Abbett’s Personnel and Methods.The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of its investment objective and discipline, and other services provided to the Fund by Lord Abbett. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining personnel.
Nature and Quality of Other Services.The Board considered the nature, quality, and extent of compliance, administrative, and other services performed by Lord Abbett and the nature and extent of Lord Abbett’s supervision of third party service providers, including the Fund’s transfer agent and custodian.
Expenses.The Board considered the expense level of the Fund, including the contractual and actual management fee rates, and the expense levels of the Fund’s expense peer group. It also considered how the expense level of the Fund related to those of the expense peer group and the amount and nature of the fees paid by shareholders. The Board observed that the net total expense ratio of the Fund was below the median of the expense peer group. The Board further considered that the Fund’s management fee was reduced, effective May 1, 2019. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that the management fees paid by, and expense level of, the Fund were reasonable in light of all of the factors it considered and supported the continuation of the Agreement.
Profitability.The Board considered the level of Lord Abbett’s operating margin in managing the Fund, including a review of Lord Abbett’s methodology for allocating its costs to its management of the Fund. It considered whether the Fund was profitable to Lord Abbett in connection with the Fund’s operation, including the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the profits realized from other business segments of Lord Abbett, which may benefit from or be related to the Fund’s business. The Board considered Lord Abbett’s profit margins excluding Lord Abbett’s marketing and distribution expenses. The Board also considered Lord Abbett’s profit margins, without those exclusions, in comparison with available industry data and how those profit margins could affect Lord Abbett’s ability to recruit and retain personnel. The Board recognized that Lord Abbett’s overall profitability was a factor in enabling it to attract and retain qualified personnel to provide services to the Fund. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that Lord Abbett’s profitability with respect to the Fund was not excessive.
Economies of Scale.The Board considered the extent to which there had been economies of scale in managing the Fund, whether the Fund’s shareholders had appropriately benefited from such economies of scale, and whether there was potential for realization of any further economies of scale. The Board concluded that the existing management fee schedule, with its breakpoints in the level of the management fee, adequately addressed any economies of scale in managing the Fund.
Other Benefits to Lord Abbett.The Board considered the amount and nature of the fees paid by the Fund and the Fund’s shareholders to Lord Abbett for services other than investment advisory services, such as the fee that Lord Abbett receives from the Fund for providing administrative
57
Approval of Advisory Contract (concluded)
services to the Fund. The Board also considered the revenues and profitability of Lord Abbett’s investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that the Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees it receives, and receives a portion of the sales charges on sales and redemptions of some classes of shares of the Lord Abbett Funds. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectus of the Fund, has entered into revenue sharing arrangements with certain entities that distribute shares of the Lord Abbett Funds. The Board also took into consideration the investment research that Lord Abbett receives as a result of client brokerage transactions.
Alternative Arrangements.The Board considered whether, instead of approving continuation of the Agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms. After considering all of the relevant factors, the Board unanimously found that continuation of the Agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve the continuation of the Agreement. In considering whether to approve the continuation of the Agreement, the Board did not identify any single factor as paramount or controlling. Individual Directors may have evaluated the information presented differently from one another, giving different weights to various factors. This summary does not discuss in detail all matters considered.
58
Householding
The Company has adopted a policy that allows it to send only one copy of the Fund’s prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same “household.” This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.
Proxy Voting Policies, Procedures and Records
A description of the policies and procedures that Lord Abbett uses to vote proxies related to the Fund’s portfolio securities, and information on how Lord Abbett voted the Fund’s proxies during the 12-month period ended December 31 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett’s Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission’s (“SEC”) Website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters as an attachment to Form N-PORT. Copies of the filings are available without charge, upon request on the SEC’s Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388.
59
This report, when not used for the general information of shareholders of the Fund, is to be distributed only if preceded or accompanied by a current fund prospectus. | |||
Lord Abbett mutual fund shares are distributed by | Lord Abbett Series Fund, Inc.
Total Return Portfolio | SFTR-PORT-3 (02/20) |
Item 2: | Code of Ethics. |
(a) | In accordance with applicable requirements, the Registrant adopted a Sarbanes-Oxley Code of Ethics on June 19, 2003 that applies to the principal executive officer and senior financial officers of the Registrant (“Code of Ethics”). The Code of Ethics was in effect during the fiscal year ended December 31, 2019 (the “Period”). |
(b) | Not applicable. |
(c) | The Registrant has not amended the Code of Ethics as described in Form N-CSR during the Period. |
(d) | The Registrant has not granted any waiver, including an implicit waiver, from a provision of the Code of Ethics as described in Form N-CSR during the Period. |
(e) | Not applicable. |
(f) | See Item 12(a)(1) concerning the filing of the Code of Ethics. |
Item 3: | Audit Committee Financial Expert. |
The Registrant’s board of directors has determined that each of the following independent directors who are members of the audit committee is an audit committee financial expert: Evelyn E. Guernsey, Karla M. Rabusch and Mark A. Schmid. Each of these persons is independent within the meaning of the Form N-CSR.
Item 4: | Principal Accountant Fees and Services. |
In response to sections (a), (b), (c) and (d) of Item 4, the aggregate fees billed to the Registrant for the fiscal years ended December 31, 2019 and 2018 by the Registrant’s principal accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, “Deloitte”) were as follows:
Fiscal year ended: | ||
2019 | 2018 | |
Audit Fees {a} | $367,300 | $464,200 |
Audit-Related Fees | - 0 - | - 0 - |
Total audit and audit-related fees | 367,300 | 464,200 |
Tax Fees {b} | 72,999 | 115,804 |
All Other Fees | - 0 - | - 0 - |
Total Fees | $440,299 | $580,004 |
{a} Consists of fees for audits of the Registrant’s annual financial statements.
{b} Fees for the fiscal year ended December 31, 2019 and 2018 consist of fees for preparing the U.S. Income Tax Return for Regulated Investment Companies, New Jersey Corporation Business Tax Return, New Jersey Annual Report Form, U.S. Return of Excise Tax on Undistributed Income of Investment Companies, IRS Forms 1099-MISC and 1096 Annual Summary and Transmittal of U.S. Information Returns.
(e) (1) Pursuant to Rule 2-01(c) (7) of Regulation S-X, the Registrant’s Audit Committee has adopted pre-approval policies and procedures. Such policies and procedures generally provide that the Audit Committee must pre-approve:
· | any audit, audit-related, tax, and other services to be provided to the Lord Abbett Funds, including the Registrant, and | |
· | any audit-related, tax, and other services to be provided to the Registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to one or more Funds comprising the Registrant if the engagement relates directly to operations and financial reporting of a Fund, by the independent auditor to assure that the provision of such services does not impair the auditor’s independence. |
The Audit Committee has delegated pre-approval authority to its Chairman, subject to a fee limit of $10,000 per event, and not to exceed $25,000 annually. The Chairman will report any pre-approval decisions to the Audit Committee at its next scheduled meeting. Unless a type of service to be provided by the independent auditor has received general pre-approval, it must be pre-approved by the Audit Committee. Any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee.
(e) (2) The Registrant’s Audit Committee has approved 100% of the services described in this Item 4 (b) through (d).
(f) Not applicable.
(g) The aggregate non-audit fees billed by Deloitte for services rendered to the Registrant are shown above in the response to Item 4 (a), (b), (c) and (d) as “All Other Fees”.
The aggregate non-audit fees billed by Deloitte for services rendered to the Registrant’s investment adviser, Lord, Abbett & Co. LLC (“Lord Abbett”), for the fiscal years ended December 31, 2019 and 2018 were:
Fiscal year ended: | ||
2019 | 2018 | |
All Other Fees {a} | $215,383 | 200,339 |
{a} Consist of fees for Independent Services Auditors’ Report on Controls Placed in Operation and Tests of Operating Effectiveness related to Lord Abbett’s Asset Management Services (“SOC-1 Report”).
The aggregate non-audit fees billed by Deloitte for services rendered to entities under the common control of Lord Abbett for the fiscal years ended December 31, 2019 and 2018 were:
Fiscal year ended: | ||
2019 | 2018 | |
All Other Fees | $ - 0 - | $ - 0- |
(h) The Registrant’s Audit Committee has considered the provision of non-audit services that were rendered to the Registrant’s investment adviser, and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant, that were not pre-approved pursuant to Rule 2-01 (c)(7)(ii) of Regulation S-X and has determined that the provision of such services is compatible with maintaining Deloitte’s independence.
Item 5: | Audit Committee of Listed Registrants. |
Not applicable. | |
Item 6: | Investments. |
Not applicable. | |
Item 7: | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable. |
Item 8: | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable. | |
Item 9: | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable. | |
Item 10: | Submission of Matters to a Vote of Security Holders. |
Not applicable. | |
Item 11: | Controls and Procedures. |
(a) | Based on their evaluation of the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) as of a date within 90 days prior to the filing date of this report, the Chief Executive Officer and Chief Financial Officer of the Registrant have concluded that such disclosure controls and procedures are reasonably designed and effective to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to them by others within those entities. |
(b) | There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
Item 12: | Exhibits. |
(a)(1) | The Lord Abbett Family of Funds Sarbanes Oxley Code of Ethics for the Principal Executive Officer and Senior Financial Officers is attached hereto as part of Ex-99. CODEETH. |
(a)(2) | Certification of each Principal Executive Officer and Principal Financial Officer of the Registrant as required by Rule 30a-2 under the Investment Company Act of 1940 is attached hereto as a part of EX-99.CERT. |
(b) | Certification of each Principal Executive Officer and Principal Financial Officer of the Registrant as required by Section 906 of the Sarbanes-Oxley Act of 2002 is provided as a part of EX-99.906CERT. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LORD ABBETT SERIES FUND, INC. | ||
By: | /s/ Douglas B. Sieg | |
Douglas B. Sieg | ||
President and Chief Executive Officer | ||
Date: February 14, 2020 | ||
By: | /s/ Bernard J. Grzelak | |
Bernard J. Grzelak | ||
Chief Financial Officer and Vice President | ||
Date: February 14, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Douglas B. Sieg | |
Douglas B. Sieg | ||
President and Chief Executive Officer | ||
Date: February 14, 2020 | ||
By: | /s/ Bernard J. Grzelak | |
Bernard J. Grzelak | ||
Chief Financial Officer and Vice President | ||
Date: February 14, 2020 |