<PAGE>
----------------------
Lord Abbett DEVELOPING GROWTH FUND
----------------------
1995 Annual Report
A mutual fund
seeking to
provide you with
long-term
price appreciation
through a
portfolio of small
companies.
[P1]
<PAGE>
[P2]
- -------------------------
RONALD P. LYNCH, Chairman
February 24, 1995
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REPORT TO SHAREHOLDERS For the Fiscal Year Ended January 31, 1995
Lord Abbett Developing Growth Fund completed fiscal 1995 on January 31 with a
net asset value of $9.58 per share, versus $9.84 one year ago (the latter figure
has been adjusted for capital gains distributions totaling $.8075 paid during
the fiscal year). The Board of Directors subsequently declared a capital gain
distribution of $.125 which was paid on February 22 to shareholders of record
February 15, 1995. Your Fund's total return (the percent change in net asset
value assuming the reinvestment of capital gains distributions) for the fiscal
year was down 2.7%, while the unmanaged NASDAQ Composite Index was down 5.7%.
The Fund's negative return for the fiscal year was due in large part to a weak
January 1995 contrasted against a strong January 1994. Your Fund's 1994 calendar
year return was an impressive +6.2%, versus -3.2% for the NASDAQ. (See page 1
for SEC-required total returns.)
1994 was a volatile year for the stock and bond markets, due to the abrupt
reversal in the direction of interest rates that began in February. While the
Dow Jones and S&P 500 eked out narrow gains for 1994, the two best known indices
for small stocks, the NASDAQ Composite Index and the Russell 2000, both
declined. Small capitalization stocks tend to be more volatile than larger
company stocks, particularly in periods of rapidly changing interest rates. 1994
followed such a pattern and, consequently, your Fund enjoyed a strong first
quarter, a weak mid-year and a strong finish to the calendar year. These swings
mirrored investor sentiment. Early in 1994 small company earnings and investor
enthusiasm were strong. By mid-year, however, many investors were concerned that
the Federal Reserve's increase in interest rates would dampen growth. As 1994
drew to a close, investors were encouraged by the strong fourth-quarter and
full-year results reported by many small and medium sized companies.
For calendar 1994, the average weighted earnings growth for companies in your
portfolio was approximately 45%, compared to 20% for S&P corporate profit
growth. The narrow market returns for 1994 coupled with strong earnings growth
resulted in a continued compression in price/earnings ratios for small
companies. The combination of these factors should benefit small capitalization
investors in 1995. Indeed, investor enthusiasm for small company mutual funds
continues unabated, as evidenced by the continued inflow of monies into
aggressive growth mutual funds in 1994 (according to Investment Company
Institute, the national trade association for the mutual fund industry).
We believe the economy is in the later stages of its growth cycle, that GDP
growth will slow by one-third in 1995 and that growth in total corporate
earnings will slow throughout 1995 and 1996. (Accordingly, we have trimmed the
pro-cyclical bias in our portfolios.) As this pattern unfolds, and if interest
rates remain more stable than last year, we believe investors will remain
attracted to the strong relative growth of small capitalization companies.
Further interest should arise if the proposed reduction in the capital gains tax
materializes. Historically, reductions in the capital gains tax have benefitted
investors in small capitalization growth stocks.
We continue to focus our investment attention on a dominant theme in our
society -- the information revolution. Indeed, it was our technology investments
that drove your Fund's positive performance during most of 1994. Our research
uncovered 15 new companies which were added to the Fund's portfolio, in fields
as diverse as digital offset color printing, renal disease treatment, clinical
information software, asynchronous transfer networking and superstores offering
consumer products and office products.
We remain committed to our belief that small company stocks present long-term
investors with excellent opportunities to achieve capital appreciation. We
are pleased the Fund is a part of your investment portfolio.
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"We continue to focus our investment attention on a dominant theme in our
society -- the information revolution."
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<PAGE>
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Performance Record
- --------------------------------------------------------------------------------
THE POWER OF REINVESTING
- --------------------------------------------------------------------------------
For over 20 years, Lord Abbett Developing Growth Fund has enabled investors to
participate in the growth potential of small company stocks. During this period,
Developing Growth Fund shareholders realized returns well above inflation.
Information About the Following Investment
- ------------------------------------------
Investment Period: 2/1/75 to 1/31/95
- ------------------------------------------
Amount Invested: $100,000
- ------------------------------------------
[G1]
The Fund's results do not include the effect of a reduced sales charge of 3.75%
applicable to investments of $100,000. For both Fund investments, capital gains
were reinvested. The Fund's fiscal year-end is 1/31. For performance at the
maximum sales charge see SEC and Other Important Information.
- --------------------------------------------------------------------------------
SEC and Other Important Information
- --------------------------------------------------------------------------------
SEC-REQUIRED AVERAGE ANNUAL RATES OF TOTAL RETURN AT THE
MAXIMUM SALES CHARGE OF 5.75% FOR THE PERIODS ENDED 12/31/94 WERE:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year: 5 Years: 10 Years:
- --------- ---------- ---------
<S> <C> <C>
+0.10% +9.83% +8.18%
</TABLE>
Past results are not an indication of future results. The investment return and
principal value of an investment will fluctuate so that shares, on any given day
or when redeemed, may be worth more or less than their original cost. Results
quoted herein represent past performance and reflect appropriate Rule 12b-1 Plan
expenses from commencement of the Plan. Tax consequences are not reflected. The
Fund's current sales charge structure has changed from the past. The NASDAQ
Composite is not a total return indicator; results would have been slightly
higher had dividends been reinvested. The S&P 500 is an unmanaged index
consisting of the common stocks of 500 companies widely followed by the
investment community. Performance figures for the unmanaged S&P 500 do not
reflect transaction costs or management fees. An investor cannot invest directly
in an index, such as the S&P 500. If used as sales material after 3/31/95, this
report must be accompanied by Lord Abbett's Performance Quarterly for the most
recently completed calendar quarter.
1
<PAGE>
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Fund in Focus
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ARE SMALL COMPANY STOCKS MAKING A COMEBACK?
- --------------------------------------------------------------------------------
As illustrated in the chart below, over the last five years, small company
stocks have outperformed large company stocks (as measured by the unmanaged S&P
500). Over the five-year period ended 1/31/95, the Fund provided competitive
returns relative to the NASDAQ Composite. Historically, small companies have
experienced wider swings in earnings and stock prices than large companies.
While there is no assurance of the Fund's future performance or that this
pattern will continue in the future, historically, long-term investors in small
company stocks have been rewarded with strong returns.
[G2]
Returns represent the percent change in value over the five-year period ended
1/31/95 and, for the S&P 500, reflect the reinvestment of all distributions.
The Fund's results do not include the effect of sales charges. For performance
at the maximum sales charge see SEC and Other Important Information on page 1.
The NASDAQ Composite is not a total return indicator; results would have been
slightly higher had dividends been reinvested.
- --------------------------------------------------------------------------------
Lord Abbett Developing Growth Fund: Focus on Small, Growing Companies
- --------------------------------------------------------------------------------
The Fund invests in companies that have passed through the initial, formative
years and are in the "developing growth" phase. These companies have not yet
matured, settling into the slower growth rate of more established businesses.
Because it is arithmetically easier to grow from a small base than a large one,
developing growth companies can offer better opportunity for appreciation over
the long term. The stock prices of these companies can fluctuate sharply, which
is why owning an actively-managed portfolio, such as Lord Abbett Developing
Growth Fund, makes sense for investors who want to participate in the aggressive
growth potential of small companies with the benefits of diversification and
experienced management.
Four Phases of Business Growth
[G3]
The actual growth of a company cannot be foreseen, and it may be difficult to
determine in which phase a company is presently situated. There is no fixed
correlation between the business growth of a company and the market value of its
stock. This illustration is not a representation of the performance of the
stocks in which the Fund invests.
2
<PAGE>
- --------------------------------------------------------------------------------
Statement of Net Assets January 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Shares or Market Value
Security Principal Amount (Note 1a)
-------- ------------------- ------------
<S> <C> <C> <C>
INVESTMENTS IN COMMON STOCKS, CONVERTIBLE-PREFERRED STOCKS AND CONVERTIBLE DEBENTURES 90.29%
Business Equipment General Binding Corp., Northbrook, IL - The leading vendor of
and Supplies office binding and laminating systems and related supplies 70,000 $ 1,277,500
1.68% *Indigo N.V., Eindhoven, Netherlands - A manufacturer and marketer
of "digital offset color" printing system used in the production
of on-demand, short-run color printed products 40,000 860,000
------- ------------
Total 2,137,500
============
Business Services *Catalina Marketing Corp., Anaheim, CA - A supplier of in-store
7.66% electronic marketing services, primarily for supermarkets 20,000 1,002,500
G & K Services, Inc., Class A Minneapolis, MN - A lessor of work
garments and related textile products 150,000 2,362,500
McGrath Rent Corp., San Leandro, CA - A lessor of relocatable
modular offices and electronic test equipment 275,000 4,606,250
*NFO Research Inc., Greenwich, CT - A leading provider of custom
market research services using a proprietary panel of consumer
households 41,250 629,062
*SPS Transaction Services Inc., Riverwoods, IL - A provider of
transaction processing services and credit card programs 40,000 1,175,000
------- ------------
Total 9,775,312
============
Communications *Bay Networks Inc., Billerica, MA - A supplier of devices for
5.56% interconnections of discrete local area networks 45,000 1,321,875
*Macromedia Inc., San Francisco, CA - Develops, markets and supports
a family of software authoring tools used to create interactive
multi-media applications for communication, education and entertainment 80,000 1,960,000
*Novell, Inc., Provo, UT - A leading developer and marketer of network
communications software 215,052 3,817,172
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Total 7,099,047
============
Computer Software *America Online, Inc., Vienna, VA - A leading independent provider of
and Services on-line computer services to consumers 35,000 1,907,500
8.86% *Fore Systems Inc., Warrendale, PA - A leader in the design, development,
manufacture and sale of high-performance networking products based on
asynchronous transfer mode ("ATM") technology 10,000 640,000
*General DataComm Industries Inc., Middlebury, CT - A worldwide provider
of wide area networking and telecommunications products 40,000 955,000
*Informix Corp., Menlo Park, CA - A producer of computer software systems
that perform general purpose data management functions using relational
databases 95,000 3,063,750
*Lotus Development Corp., Cambridge, MA - A major producer of software for
personal computers 35,000 1,561,875
Medicus Systems Corp., Evanston, IL - A leading developer of software
products that enable hospitals to manage clinical and financial information 50,000 787,500
*Powersoft Corp., Burlington, MA - A provider of software development tools
for the writing of business applications in the client/server environment 15,000 1,035,938
*Synopsys, Inc., Mountain View, CA - A supplier of software for designers of
integrated circuits and electronic systems 30,000 1,357,500
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Total 11,309,063
============
Computer Systems EMC Corp. 61/4% Conv. Sub. Deb. due 4/1/2002, Hopkinton, MA - A supplier of
and Peripherals 2.40% high-performance storage devices and related services 500M 3,065,000
============
Consumer Products *Blyth Industries Inc., Greenwich, CT - The largest manufacturer and marketer
2.71% of candles, fragrance products and related accessories 51,000 1,434,375
*Scholastic Corp., New York, NY - A leading publisher of children's books and
educational materials 40,000 2,020,000
------- ------------
Total 3,454,375
============
Drugs *Amylin Pharmaceuticals, Inc., San Diego, CA - A biotechnology company
1.63% focused on amylin, a new hormone that is expected to be used to treat
diabetes and obesity 40,000 220,000
============
</TABLE>
3
<PAGE>
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Statement of Net Assets January 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Shares or Market Value
Security Principal Amount (Note 1a)
-------- ------------------- ------------
<S> <C> <C> <C>
Elan International Finance, Ltd. Zero Coupon Exchangeable Sub. Notes
due 10/16/2012, Athlone, Ireland - A leader in drug delivery and
reformulation technology $3,000M $ 1,222,500
The Liposome Company Inc. Series A $1.9375 Conv. Pfd., Princeton, NJ -
A biotechnology company that is developing proprietary liposome and
lipid-complex based pharmaceuticals 25,000 637,500
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Total 2,080,000
============
Electronic Components *Altera Corp., San Jose, CA - A designer and marketer of programmable
23.01% logic devices and related software tools 30,000 1,335,000
*Altron Inc., Wilmington, MA - A manufacturer of electronic interconnect
products employing printed circuit technology 100,000 2,225,000
*Applied Materials Inc., Santa Clara, CA - A major semiconductor capital
equipment supplier 170,000 6,545,000
*Lam Research Corp., Fremont, CA - A leading supplier of processing
equipment used in the primary stages of semiconductor manufacturing 50,000 1,875,000
*Maxim Integrated Products, Inc., Sunnyvale, CA - A designer, manufacturer
and marketer of precision analog and mixed-signal integrated circuits 245,000 7,105,000
Molex, Inc., Lisle, IL - A manufacturer of terminals and connectors
for the electrical and electronics industries 56,250 1,828,125
Molex, Inc. Class A 125,000 3,812,500
*Ultratech Stepper Inc., Santa Clara, CA - A manufacturer of photolithography
equipment that reduces the production cost of integrated circuits 52,500 1,929,375
*Valence Technology Inc., San Jose, CA - A producer of rechargeable batteries
based on lithium and polymer technologies 160,000 390,000
*Xilinx, Inc., San Jose, CA - A designer and marketer of field programmable
gate arrays and related software tools 40,000 2,310,000
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Total 29,355,000
============
Energy Production Operators Corp., Houston, TX - A provider of contract natural
2.02% gas handling and enhanced oil recovery services; an oil and gas producer 50,000 1,125,000
*Tejas Gas Corp., Houston, TX - A major intrastate natural gas
pipeline company 22,500 939,375
Tejas Gas Corp. $2.625 Conv. Pfd. 12,500 509,375
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Total 2,573,750
============
Environmental Services Met-Pro Corp., Harleysville, PA - A manufacturer of environmental treatment
and Equipment systems, specialty pumps and filtration equipment 50,040 888,210
1.50% Safety-Kleen Corp., Elgin, IL - A leading supplier of parts cleaning and
waste fluid recycling services 65,000 1,023,750
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Total 1,911,960
============
Hotel/Leisure *Bally Gaming International, Inc., Las Vegas, NV - A designer, manufacturer
.52% and distributor of coin-operated electronic "slot" and video gaming
machines 85,000 658,750
============
Industrial and *Dionex Corp., Sunnyvale, CA - A manufacturer of analytical instruments 100,000 3,937,500
Capital Goods *Durakon Industries, Inc., Flint, MI - A leading manufacturer of pickup
10.95% truckbed liners 135,000 2,126,250
JLG Industries, Inc., McConnellsburg, PA - A leading manufacturer of
self-propelled aerial work platforms 90,000 3,420,000
RPM, Inc. Zero Coupon Conv. Sub. Notes due 9/30/2012, Medina, OH - A
leading manufacturer and marketer of specialty chemicals 2,000M 777,500
Stewart & Stevenson Services, Inc., Houston, TX - A supplier of power
and generating systems 65,000 2,015,000
X-Rite, Inc., Grandville, MI - A developer, manufacturer and marketer
of instruments for color measurement and control 100,000 1,700,000
------- ------------
Total 13,976,250
============
Medical *Fresenius USA Inc., Walnut Creek, CA - A leading manufacturer and distributor
13.31% of equipment and disposables for treatment of renal disease 50,000 487,500
*Healthsouth Rehab Corp., Birmingham, AL - A developer and
operator of inpatient and outpatient rehabilitation centers 50,000 1,900,000
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
Statement of Net Assets January 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Shares or Market Value
Security Principal Amount (Note 1a)
-------- ------------------- ------------
<S> <C> <C> <C>
Life Technologies, Inc., Gaithersburg, MD - A supplier of products for
life science research and biotechnology manufacturing 90,000 $1,732,500
*Nellcor Inc., Hayward, CA - A designer, manufacturer and marketer of
critical-care monitoring equipment and sensors 40,000 1,355,000
*Pyxis Corp., San Diego, CA - A manufacturer of ATM-like machines that
automate the distribution, management and control of drugs,
medications and supplies in hospitals 60,000 1,155,000
*Quantum Health Resources, Inc., Orange, CA - A provider of home
therapies and support services for people with certain chronic disorders 25,000 759,375
*Salick Health Care, Inc., Los Angeles, CA - An operator of outpatient
cancer-care centers 150,000 5,231,250
*Sofamor/Danek Group, Inc., Memphis, TN - A provider of spinal surgery
implant devices 40,000 645,000
St. Jude Medical Inc., St. Paul, MN - A leading manufacturer of
artificial heart valves 50,000 1,900,000
*Vivra Inc., Burlingame, CA - Leading provider of end-stage renal dialysis
treatment 60,000 1,815,000
------- ------------
Total 16,980,625
============
Railroad and *ABC Rail Products Corp., Chicago, IL - Supplier of specialty products for
Equipment .77% major freight railroads in the U.S. 45,000 978,750
============
Restaurant *Boston Chicken, Inc., Golden, CO - An operator and franchiser of take-out
.48% restaurants that specialize in rotisserie-roasted chicken 40,000 617,500
============
Retail *Autozone, Inc., Memphis, TN - A regional retailer of automobile replacement
5.34% parts 60,000 1,582,500
*Burlington Coat Factory Warehouse Corp., Burlington, NJ - A retail discount
chain specializing in outerwear 120,000 1,065,000
*Gymboree Corp., Burlingame, CA - A retailer of children's apparel and
accessories 26,000 624,000
*MacFrugal's Bargains Close-Outs Inc., Dominquez, CA - A retail chain
specializing in the sale of discontinued merchandise 70,000 1,146,250
Talbots Inc., Hingham, MA - Women's apparel retailer 32,500 987,188
*The Sports Authority Inc., Ft. Lauderdale, FL - Specialty retailer of
sporting goods 80,000 1,410,000
------- ------------
Total 6,814,938
============
Transportation 1.18% Intertrans Corp., Irving, TX - An international ocean freight and air
freight forwarder 110,000 1,498,750
============
Other .71% 905,000
============
Total Investments in Common Stocks, Convertible-Preferred Stocks and
Convertible Debentures (Cost $52,409,998) 115,191,570
============
OTHER ASSETS, LESS LIABILITIES 9.71%
Short-Term American Express Credit Corp. 5.39% due 2/2/1995 3,700M 3,700,000
Investment, Commercial Credit Co. 5.35% due 2/1/1995 4,200M 4,195,631
at Cost Federal National Mortgage Association 5.86% due 2/14/1995 4,700M 4,689,289
------- ------------
Total 12,584,920
============
Cash and Receivables, Net of Liabilities (197,085)
============
Total Other Assets, Less Liabilities 12,387,835
============
Net Assets (equivalent to $9.58 a share on 13,311,027 shares of $1.00 par value
100.0% capital stock outstanding; authorized, 75,000,000 shares) $127,579,405
============
*-Non-income producing.
The descriptions and locations of the companies shown in the portfolio, which were obtained from
published reports and other sources believed to be reliable, are supplemental and are not covered by
the Independent Auditors' Report.
See Notes to Financial Statements.
</TABLE>
5
<PAGE>
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Portfolio Changes
- --------------------------------------------------------------------------------
Issues added to or eliminated from the portfolio (exclusive of short-term
investments) during the six months ended January 31, 1995.
<TABLE>
<S> <C> <C> <C>
Purchases+ ABC Rail Products Corp. General DataComm Industries Inc. The Sports Authority Inc.
Baby Superstore Inc.
Sales+ AER Energy Resources, Inc. Evergreen Media Corp. Micro Warehouse Inc.
Amway Asia Pacific Ltd. $3.00 Conv. Pfd. MTI Technology Corp.
Baby Superstore Inc. Food Lion Inc. Norand Corporation
Boston Chicken, Inc. Gaylord Entertainment Co. Snapple Beverage Corp.
41/2% Conv. Sub. Deb. due 2004 The Harper Group Synercom Technology, Inc.
Compuware Corp. Level One Communications Inc. Western Gas Resources, Inc.
Evergreen Media Corp.
+Includes securities previously classified under "Other".
</TABLE>
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Statement of Operations For the Year Ended January 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Investment Income
Income Interest $ 696,267
Dividends 506,376
------------
Total income $ 1,202,643
-----------
Expenses Management fee (Note 3) 897,585
Shareholder servicing 330,228
12b-1 distribution plan (Note 3) 263,652
Reports to shareholders 84,372
Audit and legal 53,994
Registration 24,328
Other 47,925
------------
Total expenses 1,702,084
-----------
Net investment loss (499,441)
-----------
Realized and Unrealized Gain (Loss) on Investments (Note 2)
Realized gain from security transactions (excluding short-term securities)
Proceeds from sales 35,806,036
Cost of securities sold 26,702,234
Net realized gain 9,103,802
Unrealized appreciation of investments
Beginning of year 75,663,772
End of year 62,781,572
Net decrease in unrealized appreciation (12,882,200)
------------
Net realized and unrealized loss on investments (3,778,398)
-----------
Net Decrease in Net Assets Resulting from Operations $(4,277,839)
===========
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended January 31,
Increase (Decrease) in Net Assets 1995 1994
------------ ------------
<S> <C> <C> <C>
Operations Net investment loss $ (499,441) $ (695,025)
Net realized gain from security transactions 9,103,802 13,821,982
Net increase (decrease) in unrealized appreciation of investments (12,882,200) 7,361,620
Net increase (decrease) in net assets resulting from operations (4,277,839) 20,488,577
Distributions to shareholders from net realized gain from investment transactions (10,389,338) (13,199,831)
Capital share transactions
Net proceeds from sales of 1,358,150 and 1,116,707 shares, respectively 13,547,594 11,145,210
Net asset value of 973,652 and 1,251,127 shares, respectively, issued to
shareholders in reinvestment of net investment income and realized gain
from investment transactions 9,846,169 12,421,494
Total 23,393,763 23,566,704
Cost of 2,508,798 and 3,823,905 shares reacquired, respectively (24,840,511) (38,230,484)
Decrease in net assets derived from capital share transactions (net
decrease of 176,996 and 1,456,071 shares, respectively) (1,446,748) (14,663,780)
Decrease in net assets (16,113,925) (7,375,034)
Net Assets
Beginning of year 143,693,330 151,068,364
End of year (net of overdistributed net investment income of $96,315
and $118,684, respectively) $127,579,405 $143,693,330
See Notes to Financial Statements.
</TABLE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended January 31,
Per Share Operating Performance: 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.65 $ 10.11 $ 10.86 $ 7.98 $ 6.96
Income from investment operations
Net investment income (loss) (.04) (.05) (.02) .02 .01*
Net realized and unrealized gain (loss) on investments (.2225) 1.62 (.24) 3.28 1.01
---------- -------- -------- -------- --------
Total from investment operations (.2625) 1.57 (.26) 3.30 1.02
========== ======== ======== ======== ========
Distributions
Dividends from net investment income - - (.02) (.02) -
Distributions from net realized gain (.8075) (1.03) (.47) (.40) -
---------- -------- -------- -------- --------
Net asset value, end of year $ 9.58 $ 10.65 $ 10.11 $ 10.86 $ 7.98
========== ======== ======== ======== ========
Total Return** (2.74)% 16.41% (2.31)% 41.53% 14.66%
Ratios/Supplemental Data:
Net assets, end of year (000) $127,579 $143,693 $151,068 $156,932 $117,786
Ratios to Average Net Assets:
Expenses 1.31% 1.34% 1.31% 1.14% 1.24%
Net investment income (loss) (.38)% (.51)% (.25)% .26% .20%
Portfolio turnover rate 17.57% 16.29% 17.22% 12.62% 12.76%
</TABLE>
*Computed by dividing the respective dollar amounts per the Statement of
Operations by average shares outstanding.
**Total return does not consider the effects of sales loads.
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Company is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The following is a summary
of significant accounting policies consistently followed by the Company. The
policies are in conformity with generally accepted accounting principles.
(a) Securities traded only in the over-the-counter market are valued at the mean
between the last bid and asked prices in such market, except that securities
admitted to trading on the NASDAQ National Market System are valued at the last
sales price if it is determined that such price more accurately reflects the
value of such securities. Securities listed or admitted to trading privileges on
any national securities exchange are valued at the last sales price on the
principal securities exchange on which such securities are traded, or, if there
is no sale, at the mean between the last bid and asked prices on such exchange.
Securities for which market quotations are not available are valued at fair
value under procedures approved by the Board of Directors.
(b) It is the policy of the Company to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income in taxable distributions. Therefore, no federal income tax
provision is required.
(c) Security transactions are accounted for on the date that the securities are
purchased or sold (trade date). Interest income is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on the ex-
dividend date.
(d) A portion of the proceeds from sales and costs of repurchases of capital
shares, equivalent to the amount of distributable net investment income on the
date of the transaction, is credited or charged to undistributed income.
Undistributed net investment income per share thus is unaffected by sales or
repurchases of shares.
2. Purchases and Sales of Securities
Purchases and sales of investment securities (other than short-term investments)
aggregated $21,011,505 and $35,806,036, respectively. Security gains and losses
are computed on the identified cost basis. As of January 31, 1995, net
unrealized appreciation for federal income tax purposes aggregated $62,781,572
of which $64,138,283 related to appreciated securities and $1,356,711 related to
depreciated securities. For federal income tax purposes, the identified cost of
investments owned at January 31, 1995 was substantially the same as the cost for
financial reporting purposes.
3. Management Fee and Other Transactions with Affiliates
Lord, Abbett & Co. received a management fee of $897,585 for which it supplied
investment management, research, statistical and advisory services and paid
officers' remuneration and certain other expenses of the Company. Such fee is
based on average daily net assets for each month at the annual rate of 3/4 of 1%
of the Company's first $100 million of average daily net assets and 1/2 of 1% of
such assets over $100 million. Lord, Abbett & Co. received $16,869 representing
payment of commissions on sales of capital stock of the Company, after deducting
$92,501 allowed to authorized distributors as concessions. Certain of the
Company's officers and directors have an interest in Lord, Abbett & Co. The
Company has a Rule 12b-1 Plan providing for the payment to dealers of (a) .15%
of the average daily net asset value of the Company's shares sold prior to June
1, 1990 and .25% of the average daily net asset value of such shares sold on or
after June 1, 1990 and (b) a one-time 1% distribution fee, at the time of sale,
on shares sold at net asset value of $1 million or more.
4. Distributions
Taxable net realized gain from security transactions, if any, is declared in
December and February, and distributed to shareholders in December of the
current year or in March of the succeeding year. Accumulated net realized gain
at January 31, 1995 for financial reporting purposes, which is substantially the
same as for federal income tax purposes, aggregated $1,649,036.
A distribution of $.125 a share aggregating $1,665,518 was declared on February
15, 1995 from net realized gains from sales of securities. This distribution was
paid February 22, 1995 to shareholders of record on February 15, 1995 in shares
of the Company or in cash in accordance with the shareholder's election.
Income and capital gains distributions are determined in accordance with income
tax regulations which may differ from methods used to determine the
corresponding income and gain amounts under generally accepted accounting
principles. These differences are primarily caused by differences in the timing
of the recognition of certain components of income, expense, or capital gain.
Where such differences are permanent in nature, they are reclassified in the
Sources of Net Assets based upon their ultimate characterization for Federal
income tax purposes. Any such reclassifications will have no effect on net
assets, results of operations, or net asset value of the Fund.
5. Capital Paid In
At January 31, 1995, capital paid in aggregated $63,245,112.
6. Directors' Remuneration
The Directors of the Company associated with Lord, Abbett & Co. and all officers
of the Company receive no compensation from the Company for acting as such.
Outside Directors' fees, including attendance fees for board and committee
meetings, and outside Directors' retirement costs, are allocated among all funds
in the Lord Abbett group based on net assets of each fund. The direct
remuneration accrued during the period for outside Directors of the Company as a
group was $2,640 (exclusive of expenses), which has been deemed invested in
shares of the Company under a deferred compensation plan contemplating future
payment of the value of those shares. As of January 31, 1995, the aggregate
amount in Directors' accounts maintained under the plan was $141,793. Retirement
costs accrued during the period amounted to $1,833.
8
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders,
Lord Abbett Developing Growth Fund, Inc.:
We have audited the accompanying statement of net assets of Lord Abbett
Developing Growth Fund, Inc. as of January 31, 1995, the related statements of
operations for the year then ended and of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements and
the financial highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at January
31, 1995 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Lord Abbett
Developing Growth Fund, Inc. at January 31, 1995, the results of its operations,
the changes in its net assets and the financial highlights for the above-stated
periods, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
March 3, 1995
- --------------------------------------------------------------------------------
Our Managment
- --------------------------------------------------------------------------------
Board of Directors
Ronald P. Lynch
Robert S. Dow
E. Thayer Bigelow*
Stewart S. Dixon*
John C. Jansing*+
C. Alan MacDonald*+
Hansel B. Millican, Jr.*+
Thomas J. Neff*
*Outside Director
+Audit Committee
Investment Manager and Underwriter
Lord, Abbett & Co.
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
212-848-1800
Custodian
Morgan Guaranty Trust Company of New York
Transfer Agent
United Missouri Bank of Kansas City, N.A.
Shareholder Servicing Agent
DST Systems, Inc.
P.O. Box 419100
Kansas City, MO 64141
800-821-5129
Auditors
Deloitte & Touche LLP
New York, NY
Counsel
Debevoise & Plimpton
New York, NY
Copyright (C) 1995 by Lord Abbett Developing Growth Fund, Inc., 767 Fifth
Avenue, New York, NY 10153-0203
This publication, when not used for the general information of shareholders of
Lord Abbett Developing Growth Fund, Inc., is to be distributed only if preceded
or accompanied by a current prospectus which includes information concerning the
Fund's investment objective and policies, sales charges and other matters.
All rights reserved. Printed in the U.S.A.
<PAGE>
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THE LORD ABBETT FAMILY Meeting Investor Needs Since 1929
- --------------------------------------------------------------------------------
Lord, Abbett & Co. manages a spectrum of mutual funds to meet the investment
goals of its shareholders. Assets may be allocated or transferred among these
funds as described in the relevant prospectus. The exchange privilege may be
modified or terminated. For more information about a Lord Abbett fund, including
charges and expenses, please call us at 800-874-3733 for a prospectus. Please
read the prospectus carefully before investing.
- --------------------------------------------------------------------------------
Equity Portfolios
- --------------------------------------------------------------------------------
Affiliated Fund
Established 1934
Seeks long-term growth of capital and income without excessive fluctuations in
market value. Portfolio emphasis: The stocks of large, well-seasoned companies.
Lord Abbett Developing Growth Fund
Established 1973
Seeks aggressive, long-term capital appreciation. Price volatility is not
uncommon. Portfolio emphasis: The stocks of small growth companies mostly traded
over the counter.
Lord Abbett Fundamental Value Fund
Established 1986
Seeks growth of capital and growth of income consistent with reasonable risk.
Portfolio emphasis: The stocks of large and midsized companies with strong
underlying fundamentals.
Lord Abbett Global Fund
Equity Series
Established 1988
Seeks long-term growth of capital and, secondarily, production of current
income. Portfolio: A diversified portfolio of stocks from around the world.
Lord Abbett Value Appreciation Fund
Established 1983
Seeks capital appreciation. Portfolio emphasis: The stocks of midsized
companies.
- --------------------------------------------------------------------------------
Balanced Portfolio
- --------------------------------------------------------------------------------
Lord Abbett Balanced Series
Established 1994
Seeks current income and capital growth. Portfolio: A blend of stocks and fixed-
income securities.
- --------------------------------------------------------------------------------
Fixed-Income Portfolios
- --------------------------------------------------------------------------------
Lord Abbett Bond-Debenture Fund
Established 1971
Seeks high current income and capital growth to produce a high total return.
Portfolio emphasis: Convertible issues and lower rated debt.
Lord Abbett Global Fund
Income Series
Established 1988
Seeks high current income and, secondarily, capital appreciation. Portfolio:
High-quality international and U.S. debt.
Lord Abbett Limited Duration U.S. Government Securities Series
Established 1993
Seeks a high level of income, relative to money market instruments, with less
fluctuations in principal than long-term U.S. Government securities. Portfolio
emphasis: Limited duration fixed-income securities (primarily U.S. Government
securities).
Lord Abbett U.S. Government Securities Fund
Established 1932
Seeks high current income. Portfolio: Since 1985, U.S. Government securities
exclusively.
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Tax-Free Portfolios
- --------------------------------------------------------------------------------
Lord Abbett Tax-Free Income Funds
- --------------------------------------------------------------------------------
National and New York Series Established 1984
- --------------------------------------------------------------------------------
California Fund Established 1985
- --------------------------------------------------------------------------------
Texas Series Established 1987
- --------------------------------------------------------------------------------
New Jersey, Connecticut, Missouri, Hawaii, Florida and Pennsylvania Series
Established 1991
- --------------------------------------------------------------------------------
Washington and Michigan Series Established 1992
- --------------------------------------------------------------------------------
Georgia and Minnesota Series Established 1994
- --------------------------------------------------------------------------------
Seek high tax-free income. Portfolios' emphasis: High-quality municipal bonds.
- --------------------------------------------------------------------------------
Money Market Portfolio
- --------------------------------------------------------------------------------
Lord Abbett U.S. Government Securities
Money Market Fund
Established 1979
Seeks high current income and preservation of capital. Portfolio: U.S.
Government money market instruments.
An investment in this Fund is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that this Fund will be able to maintain
a stable net asset value of $1.00 per share. This Fund is managed to maintain,
and has maintained, its stable $1.00 per share price.
[P3]
The Lord Abbett Family of Funds
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
Lord, Abbett & Co. Investment Management
LADG-2-195
<PAGE>
GRAPHIC APPENDIX
LORD ABBETT DEVELOPING GROWTH FUND, INC.
1995 Annual Report
P1 Picture of a computer screen with a car on the highway
driving out through the screen.
P2 Picture of Lord Abbett & Co. Chairman, Ronald P. Lynch
G1 Chart depicting the information below in line graph format.
<TABLE>
<CAPTION>
Fund Investment Fund All Inflation
Dividends Distributions Unmanaged (Consumer Price
Date in Cash Reinvested NASDAQ Index)
------ --------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
2/1/75 100,000 100,000 100,000 100,000
1/76 137,883 138,620 124,749 106,718
1/77 135,332 136,538 136,916 112,284
1/78 154,974 157,207 144,511 119,962
1/79 232,875 237,386 180,310 131,094
1/80 291,809 299,217 231,800 149,328
1/81 364,046 378,116 283,477 166,987
1/82 375,342 394,058 269,977 180,998
1/83 543,904 576,509 355,904 187,716
1/84 580,078 614,852 384,680 195,585
1/85 553,432 590,247 399,398 202,495
1/86 567,605 606,820 481,184 210,365
1/87 625,581 668,800 561,852 213,436
1/88 546,536 584,295 493,924 222,073
1/89 604,553 646,320 575,093 232,438
1/90 599,768 643,880 595,887 244,530
1/91 687,665 738,242 593,580 258,349
1/92 970,928 1,044,823 888,808 265,067
1/93 946,754 1,020,722 997,908 273,704
1/94 1,102,078 1,188,181 1,147,134 280,614
1/95 1,071,837 1,155,578 1,082,259 288,484
</TABLE>
G2 Bar chart depicting the information provided below.
The Fund; All Distributions Reinvested 12.41%
The Fund; Dividends in Cash 12.31%
Unmanaged NASDAQ Composite 12.68%
Unmanaged S&P 500 10.75%
G3 A line curve graph that reflects the four phases of business
growth as described in the text above the graph.
P3 Picture of father, mother and child.
