<PAGE>
LORD ABBETT
DEVELOPING
GROWTH FUND
1996 ANNUAL REPORT
[GRAPHIC - Beeker and Helix]
A portfolio of small
companies with big
growth potential
<PAGE>
REPORT TO SHAREHOLDERS
For the Fiscal Year Ended January 31, 1996
Lord Abbett Developing Growth Fund ended fiscal 1996 on
[PHOTO Ronald P. Lynch] January 31, with a per-share net asset value of $11.49
versus $6.715 one year ago. The latter figure has been
/s/ Ronald P. Lynch adjusted for capital gains distributions totaling $2.865
per share paid over the Fund's fiscal year. The Board of
Ronald P. Lynch Directors subsequently declared a capital gains
Chairman distribution of $.16 per share which was paid on
February 21 to shareholders of record on February 14,
1996. Your Fund's total return over its fiscal year was
[PHOTO Robert S. Dow] 50.2%.
/s/ Robert S. Dow 1995 was a superior year for small company growth
stocks; and Lord Abbett Developing Growth Fund performed
Robert S. Dow exceptionally well. We mentioned in our last letter to
President you that we intended to increase the number of holdings
in your portfolio. Indeed, we achieved our goal by
February 22, 1996 adding over 25 companies to the Fund's portfolio, with
particular emphasis on small and highly specialized,
niche companies. This strategy benefited the Fund's
performance, as did our holdings in technology stocks
(despite the correction that occurred in this sector
late in the year). In the second half of the year, we
were net sellers of technology and captured many of the
profits made from this sector. As technology stock
prices corrected in December, we used this opportunity
to purchase more niche companies at attractive prices.
Although we forecast slower domestic economic growth in
1996 relative to 1995, we believe small companies (which
tend to target more specific, faster growing markets)
have the potential for higher growth rates than large
companies. We see no credit pressures that might disturb
small companies and we foresee a good environment for
innovation and productivity gains. Further, we believe
that valuations are attractive, especially given that
performance of small company stocks has lagged that of
their larger counterparts lately. (Your Fund, however,
produced returns superior to large company stocks. See
chart on page 2.) Given this, we envision a relatively
favorable outlook for small company stocks in 1996.
We think service-related companies will perform well and
we are increasing our holdings in this sector. Service
companies are likely to have less exposure to the
slowing U.S. economy than manufacturers of durable
goods. Additionally, we continue to look for energy
companies that feature greater production and increased
reserves rather than relying mainly on favorable energy
prices.
"...WE ENVISION A RELATIVELY FAVORABLE OUTLOOK
FOR SMALL COMPANY STOCKS IN 1996."
Fundamental research drives the Fund's stock selection.
Primarily, the Fund looks for companies which we believe
have the potential to grow at a rate twice that of the
economy over the next five years. Companies with a
foothold in unique new markets (niche companies) also
offer exciting prospects; as do companies with a strong
proprietary position that, as a result of having
undervalued assets, may be overlooked by the market.
We are pleased to announce that the Fund's Board of
Directors elected Robert S. Dow as President of your
Fund. Mr. Dow has been a partner of Lord, Abbett & Co.
for nine years and serves as the Firm's Chief Investment
Officer. Also, we are pleased to announce that Stephen
J. McGruder was named as portfolio manager of your Fund
in May 1995. Mr. McGruder has over 25 years of
experience investing in growth companies.
Thank you for making Lord Abbett Developing Growth Fund
a part of your investment portfolio. We remain committed
to finding the best values in small growth companies and
look forward to helping you meet your long-term
objective of capital appreciation.
<PAGE>
PERFORMANCE RECORD
THE BENEFITS OF LONG-TERM INVESTING
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.
GROWTH OF A $100,000 FUND INVESTMENT: 2/1/76--1/31/96
[CHART APPEARS HERE]
The Fund
2/1/76 96260
1/31/77 94814
1/31/78 109167
1/31/79 164846
1/31/80 207782
1/31/81 262571
1/31/82 273640
1/31/83 400337
1/31/84 426964
1/31/85 409877
1/31/86 421386
1/31/87 464425
1/31/88 405744
1/31/89 448816
1/31/90 447121
1/31/91 512647
1/31/92 725542
1/31/93 708807
1/31/94 825093
1/31/95 802453
1/31/96 1205459
Inflation
2/1/76 100000
1/31/77 105216
1/31/78 112410
1/31/79 122842
1/31/80 139928
1/31/81 156475
1/31/82 169604
1/13/83 175899
1/31/84 183273
1/31/85 189748
1/31/86 197122
1/31/87 200000
1/31/88 208094
1/31/89 217806
1/31/90 229137
1/31/91 242086
1/31/92 248381
1/31/93 256475
1/31/94 262950
1/31/95 270324
276079
The Fund's results reflect the reduced sales charge of 3.75% applicable to
investments of $100,000. For the Fund investment, both dividends and capital
gains were reinvested.
IMPORTANT INFORMATION
Average annual rates of total return at the maximum sales charge of 5.75%
for the periods ended 12/31/95 were:
1 year: +37.30%
5 years: +20.00%
10 years: +10.77%
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 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 3/31/96, this report must be accompanied by Lord Abbett's
Performance Quarterly for the most recently completed calendar quarter.
<PAGE>
FUND IN FOCUS
THE FUND VERSUS THE BENCHMARKS
As illustrated in the charts below, over the last 1-, 3- and 5-year periods
ended 1/31/96, Lord Abbett Developing Growth Fund outperformed large company
stocks (as measured by the unmanaged S&P 500) as well as the Lipper Small
Company Growth Fund Index (a benchmark consisting of the largest mutual funds
within the small company growth category). 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, historically, long-term investors in small company stock
portfolios have been rewarded with strong returns.
IMPRESSIVE TOTAL RETURNS
[CHART APPEARS HERE]
1 Year 3 Years 5 Years
------ ------- -------
The Fund 50.2% 19.4% 18.7%
Lipper Small Company 32.4% 14.2% 18.5%
Growth Fund Index
Unmanaged S&P 500 38.7% 16.3% 16.4%
Returns represent the percent change in value over the 1-, 3- and 5-year
periods ended 1/31/96 and 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 Important Information on page 1.
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. 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. The illustration below is not a representation of the
performance of the stocks in which the Fund invests.
FOUR PHASES OF BUSINESS GROWTH
<TABLE>
<CAPTION>
1. FORMATIVE PHASE 2. DEVELOPING GROWTH PHASE 3. ESTABLISHED GROWTH PHASE 4. MATURITY PHASE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Companies are in their An evolving period, often Competitive forces and Companies' growth patterns
infancy, a high-risk period. characteriezed by a dra- regulations tend to slow tend to resemble the Gross
matic rate of growth; not companies' progress. Domestic Product.
without risk.
</TABLE>
<PAGE>
Statement of Net Assets January 31, 1996
<TABLE>
<CAPTION> Number of Market Value
Security Shares (Note 1a)
- --------------------------------------------------------------------------------------------------------------
INVESTMENTS IN COMMON STOCKS AND CONVERTIBLE DEBENTURES 98.27%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Equipment General Binding Corp., Northbrook, IL-The leading vendor
and Supplies .81% of office binding and laminating systems and related
supplies 70,000 $1,592,500
- --------------------------------------------------------------------------------------------------------------
Business Services APAC TeleServices, Inc., Deerfield, IL-Provides outsourced
8.76% telephone-based customer service and sales solutions to
major corporatins nationwide 20,000 915,000
ATC Communications Group, Dallas,TX-Provides inbound
and outbound contract telemarketing services to a variety of
companies in various industries 614,900 3,766,263
Computer Language Research, Inc., Carrollton, TX-Provides
tax and accounting information software and services to
accounting firms, banks, corporations and partnerships
under the trade name Fast Tax 100,000 1,550,000
G & K Services, Inc., Minneapolis, MN-A lessor of work
garments and related textile products 145,000 3,625,000
McGrath Rent Corp., San Leandro, CA-A lessor of
relocatable modular offices and electronic test equipment 275,000 5,087,500
* NFO Research Inc., Greenwich, CT-A leading provider of
custom market research services using a proprietary
panel of consumer households 41,250 1,144,687
* SPS Transaction Services Inc., Riverwoods, IL-A provider
of transaction processing services and credit card
programs 40,000 1,225,000
Total 17,313,450
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Capital Equipment Advanced Energy Industries, Inc., Fort Collins, CO-A leading
8.42% manufacturer of power conversion devices for systems used
to manufacture semiconductors, data storage, media and
other products using thin film technology 100,000 875,000
Applied Materials, Inc., Santa Clara, CA-A major semi-
conductor capital equipment supplier 312,000 11,544,000
Aseco Corp., Marlboro, MA-Designs, manufactures and
markets test handlers used by semiconductor manufact-
urers to automate the testing of integrated circuits 48,300 676,200
LeCroy Corp., Chestnut Ridge, NY-Develops, manufact-
ures and markets principally high-performance digital
oscilloscopes and related products 73,000 1,241,000
Photon Dynamics Inc., Milpitas, CA-A leading worldwide
supplier of test, inspection and repair systems for
the flat panel display industry 127,900 975,238
Semitool Inc., Kalispell, MT-Designs, manufacturers,
markets and services equipment used in the fabrication
of semiconductors 20,000 280,000
* Ultratech Stepper Inc., Santa Clara, CA-A manufacturer
of photolithography equipment that reduces the production
cost of integrated circuits 35,000 1,028,125
Total 16,619,563
----------
- ----------------------------------------------------------------------------------------------------------------
Communications Lancit Media Productions, Ltd., New York, NY-Acquires,
1.34% develops and produces movies and television programs for
children and family audiences 250,000 2,656,250
- ----------------------------------------------------------------------------------------------------------------
Computer Software ABR Information Services, Inc., Palm Harbor, FL-Provides
and Services healthcare benefits administration information and
9.70% compliance services 69,000 3,312,000
* America Online,Inc., Vienna, VA-A leading independent
provider of on-line computer services to consumers 118,000 5,280,500
Arbor Software Corp., Sunnyvale CA-Develops and markets
client-server software for business planning, analysis and
management reporting 2,200 90,200
Brock Control Systems, Inc., Atlanta, GA-The leading
provider of Integrated Sales Performance Solutions, which
provides customers with a total business solution for
customer management 110,000 1,045,000
Computer Learning Centers, Inc., Fairfax, VA-Provides
education and training for computers and information
technology 120,000 1,050,000
FTP Software,Inc., Andover, MA-The leading independent
supplier of Internet software solutions that enable millions
of PC users worldwide to access resources across local
area networks, enterprise networks and the global Internet 50,000 575,000
GSE Systems, Inc., Columbia, MD-A designer, developer
and supplier of high-fidelity, real time simulation software
and services 31,000 434,000
* Informix Corp., Menlo Park, CA-A producer of computer
software systems that perform general purpose data
management functions using relational databases 150,000 5,006,250
INTERSOLV, Rockville, MD-A leading provider of open
client/server software solutions available for object-oriented
development, enterprise client/server development, software
configuration management and data warehousing 81,000 840,375
* Macromedia, Inc., San Francisco, CA-Develops, markets
and supports a family of software authoring tools used to
create interactive multi-media applications for communi-
cation, education and entertainment 9,000 360,000
* Synopsys,Inc., Mountian View, CA-A supplier of software
for designers of integrated circuits and electronic systems 40,000 1,170,000
Total 19,163,325
----------
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</TABLE>
3
<PAGE>
Statement of Net Assets January 31, 1996
<TABLE>
<CAPTION>
Number of Shares Market Value
Security or Principal Amount (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer Products * Blyth Industries,Inc., Greenwich, CT-The largest
3.25% manufacturer and marketer of candles, fragrance products
and related accessories 60,000 1,680,000
CIDCO Inc., Moran Hill, CA-World's leading supplier of
caller ID-based subscriber telephone equipment 44,000 1,320,000
Mathews International Corp., Pittsburgh, PA-A leading
designer, manufacturer and marketer of custom-made
identification products 125,000 2,687,500
* Scholastic Corp., New York, NY-A leading publisher of
children's books and educational materials 10,000 730,000
Total 6,417,500
----------
- -----------------------------------------------------------------------------------------------------
Data Processing Ampex Corp., Redwood City, CA-A leading innovator in the
Equipment and fields of magnetic recording image processing and high-
Components performance digital storage 425,000 1,593,750
2.83%
EMC Corp., Hopkinton, MA-A supplier of high-performance
storage devices and related services 163,265 3,122,443
Summa Four Inc., Manchester, NH-A leading provider of
open, programmable switching platforms 80,000 880,000
Total 5,596,193
---------
- -----------------------------------------------------------------------------------------------------
Drugs/Pharma- Elan International Finance,Ltd. Zero Coupon Conv. Sub. Deb.
ceuticals due 2012, Athlone, Ireland-A leader in drug delivery and
0.97% reformulation technology 3,000M 1,910,156
---------
- -----------------------------------------------------------------------------------------------------
Electronic * Altron Corp., Wilmington, MA-A manufacturer of electronic
Component interconnect products employing printed circuit technology 113,000 3,390,000
12.09%
Chicago Miniature Lamp, Inc., Canton, MA-Manufactures
and distributes a variety of miniature lighting products 45,000 1,226,250
Computer Products, Inc., Boca Raton, FL-A maufacturer of
power supplies and measurement control systems for
industrial equipment 305,000 3,698,125
* Maxim Integrated Products,Inc., Sunnyvale, CA-A designer,
manufacturer and marketer of precision analog and mixed-
signal integrated circuits 136,000 4,828,000
Molex, Inc., Lisle, IL-A manufacturer of terminals and
connectors for the electrical and electronics industires 70,312 2,267,562
Molex, Inc. Class A 156,250 4,843,750
Sierra Semiconductor Corporation, San Jose, CA-Supplies
integrated circuits for the PC and communications markets 50,000 837,500
Technitrol, Inc., Trevose, PA-A worldwide manufacturer of
electronic components, electrical contacts and assemblies,
thermostatic and clad-metal materials and components and
related items 35,000 910,000
* Valence Technology Inc., San Jose, CA-A producer of
rechargeable batteries based on lithium and polymer
technologies 160,000 740,000
* Xilinx Inc., San Jose, CA-A designer and marketer of field
programmable gate arrays and related software tools 30,000 1,158,750
Total 23,899,937
----------
- -----------------------------------------------------------------------------------------------------
Energy Coda Energy Inc., Dallas, TX-Explores for and produces oil
7.26% and gas in Texas, Oklahoma and New Mexico 90,000 680,625
Core Laboratores N.V., Amsterdam, The Netherlands-A
provider of petroleum reservoir analysis and environmental
testing 60,000 682,500
Dawson Geophysical Co., Midland, TX-A provider of seismic
data services to oil and gas drillers 110,000 907,500
Nuevo Energy Co., Houston, TX-An independent oil and gas
company, engaged primarily in the acquistion, development,
production and exploration of oil and gas properties 65,000 1,560,000
Production Operators Corp., Houston, TX-A provider of
contract natural gas handling and enhanced oil recovery
services; an oil and gas producer 55,000 1,876,875
Seitel Inc., Houston, TX-An operator of a seismic database
and a provider of corollary geophysical services to the
petroleum industry 100,000 2,612,500
*Tejas Gas Corp., Houston, TX-A major intrastate natural
gas pipeline company 24,750 1,163,250
Tejas Power Corp., Houston, TX-A company engaged in the
gathering, high-deliverability storage and marketing of
natural gas 78,000 682,500
Vintage Petroleum Inc., Tulsa, OK-Independent energy
company engaged in the exploitation and development of
oil and gas properties 191,000 4,178,125
Total 14,343,875
----------
- -----------------------------------------------------------------------------------------------------
Environmental Met-Pro Corp., Harleysville, PA-A manufacturer of environ-
Services mental treatment systems, specialty pumps and filtration
and Equipment equipment 85,560 1,294,095
1.02%
Safety-Kleen Corp., Elgin, IL-A leading supplier of parts
cleaning and waste fluid recycling services 48,600 729,000
Total 2,023,095
----------
- -----------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
Statement of Net Assets January 31, 1996
<TABLE>
<CAPTION>
Number of Market Value
Security Shares (Note 1a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Industrial and *Dionex Corp., Sunnyvale, CA-A manufacturer of analytical
Capital Goods instruments 200,000 $7,500,000
12.20%
*Durakon Industries, Inc., Flint, MI-A leding manufacturer
of pick-up truckbed liners 135,000 1,620,000
JLG Industries, Inc., McConnellsburg, PA-A leading
manufacturer of self-propelled aerial work platforms 360,000 9,585,000
Orbital Sciences Corp., Dulles, VA-A space and information
systems company that designs, manufactures, operates and
markets a broad range of affordable space-technology
products and satellite-based services 50,000 781,250
SPACEHAB Inc., Arlington, VA-Develops and operates
habitable modules for space-based research and cargo
services aboard the U.S. Space Shuttle system 70,000 848,750
Whittaker Corp., Los Angeles, CA-Developer of specialized
electronics and aerospace technologies to create products
for defense, telecommunications aircraft and industrial
markets worldwide 98,000 2,462,250
X-Rite, Inc., Grandville, MI-A developer, manufacturer and
marketer of instruments for color measurement and control 102,500 1,319,688
Total 24,116,938
----------
- --------------------------------------------------------------------------------------------------------
Measurement and LTX Corp., Westwood, MA-Supplier of linear, digital, mixed-
Control Systems signal and discrete semiconductor test equipment 315,000 2,677,500
1.35%
- --------------------------------------------------------------------------------------------------------
Medical/ Arrow International, Inc., Reading, PA-Develops, manufact-
Health Care ures and markets a broad range of clinically advanced, dis-
11.19% posable catheters and related products 19,000 845,500
*Fresenius USA, Inc., Walnut Creek, CA--A leading manufacturer
and distributor of equipment and disposables for treatment
of renal disease 40,000 870,000
Haemonetics Corp., Braintree, MA-Major manufacturer of
blood collection systems 25,000 434,375
*HEALTHSOUTH Corp., Birmingham, AL-A developer and
operator of inpatient and outpatient rehabilitation centers 30,000 967,500
Life Technologies,Inc., Gaithersburg, MD-A supplier of
products for life science research and biotechnology
manufacturing 90,000 2,317,500
Maxxim Medical Inc., Sugarland, TX-Develops, manufactures
and distributes physical therapy equipment and disposal
hospital products 80,000 1,620,000
MediSense Inc., Waltham, MA-A worldwide developer,
manufacturer and marketer of home blood glucose
monitoring systems that enable diabetics to manage their
disease more effectively 45,000 1,198,125
*Nellcor Puritan Bennett, Inc., Pleasanton, CA-A designer,
manufacturer and marketer of critical-care monitoring
equipment and sensors 40,000 2,480,000
Orthofix International NV, New York, NY-International
corporation which develops innovative products in the
medical device market; a leading producer of external
fixation devices, limb lengthening and bone reconstruction
equipment 281,000 2,248,000
Physio-Control International Corporation, Redmond, WA-
Designs, manufactures, markets and services an integrated
line of non-invasive emergency cardiac defibrillator and vital
sign assessment devices, disposable electrodes and data
management software 50,000 1,025,000
*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 91,000 1,365,000
*Sofamor Danek Group, Inc., Memphis, TN-A provider of
spinal surgery implant devices 40,000 1,090,000
St. Jude Medical, Inc., St. Paul, MN-A leading manufac-
turer of artifical heart valves 45,000 1,985,625
Thermedics, Inc., Waltham, MA-Develops, manufactures
and markets explosives and drug-detection devices,
product quality assurance systems and other biomedical
products 50,000 1,293,750
*Vivra, Inc., Burlingame, CA-Leading provider of end-stage
renal dialysis treatment 93,750 2,367,187
Total 22,107,562
----------
- --------------------------------------------------------------------------------------------------------
Medical Services GRANCARE Inc., Atlanta, GA-Leading provider of
3.55% specialty medical services and long-term care 65,000 910,000
Health Care Service Group,Inc., Huntingdon Valley, PA-
Provides operational services to nursing home and
retirement complexes 285,000 2,671,875
Horizon Mental Health Management Inc., Denton, TX-A
Manager of mental health programs for general acute care
hospitals in the U.S. 80,000 1,340,000
TheraTx Inc., Atlanta, GA-Manages subacute rehabilitation
and respiratory care programs and operates owned or
leased inpatient facilities that provide a broad range of
subacute, specialty and long-term care services 229,000 2,089,625
Total 7,011,500
----------
- --------------------------------------------------------------------------------------------------------
Miscellaneous Catellus Development Corp., San Francisco, CA-An owner,
2.35% developer and manager of real estate assets 300,000 2,175,000
Patriot American Hospitality, Inc., Dallas, TX-Hotel real
estate investment trust 90,000 2,475,000
Total 4,650,000
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</TABLE>
5
<PAGE>
Statement of Net Assets January 31, 1996
<TABLE>
<CAPTION>
Number of Shares Market Value
Security or Principal Amount (Note 1a)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail Authentic Fitness, Corp., City of Commerce, CA-Designs
4.64% and markets swimwear, swim accessories, skiwear and
fitness apparel under various brand names 35,000 $ 844,375
CellStar Corp., Carrollton, TX-An integrated wholesale
distributor and retailer of cellular telephones and related
products 12,000 2,653,500
Insight Enterprises, Inc., Tempe, AZ-A direct marketer of
microcomputers, peripherals and software 20,000 255,000
Mac Frugal's Bargains Close-Outs, Inc., Dominquez, CA-A
retail chain specializing in the sale of discontinued
merchandise 55,000 763,125
Marisa Christina, Inc., New York, NY-Designs, manufac-
tures, sources and markets a broad line of high-quality
better clothing for women and children 80,000 1,240,000
Norwood Promotional Products, Inc., San Antonio, TX-
Supplies custom-imprinted promotional products to
distributors nationwide 40,000 800,000
Sirena Apparel Group,Inc., South El Monte, CA-Designs,
manufactures and markets branded and private label
swimwear and resortwear for each principal segment of the
women's market 180,000 1,057,500
Tiffany & Co., New York, NY-Internationally renowned
jeweler and specialty retailer 28,000 1,550,500
Total 9,164,000
---------
- -----------------------------------------------------------------------------------------------------------------
Telecommunications A+ Network, Inc., Nashville, TN-Provides paging services,
and Telephone voicemail, cellular telephone, telemessaging and related
4.97% communication services 30,000 318,750
* By Networks Inc., Santa Clara, CA-A supplier of devices
for interconnections of discrete local area networks 37,500 1,593,750
* FORE Systems, Inc., Warrendale, PA-A leader in the
design, development, manufacture and sale of high-perfor-
mance networking products based on asynchronous
transfer mode ("ATM") technology 17,000 930,750
Plantronics, Inc., Santa Cruz, CA-Leading supplier of
communication headset products and services to users
and providers worldwide 167,000 5,719,750
Tel-Save Holdings, Inc., New Hope, PA-A nationwide
provider of telecommunications services to more than
215,000 small- and medium-sized businesses in the U.S. 75,000 1,256,250
Total 9,819,250
---------
- -----------------------------------------------------------------------------------------------------------------
Transportation ABC Rail Products Corp., Chicago, IL-Supplier of specialty
1.57% products for major freight railroads in the U.S. 20,000 420,000
Fritz Companies, Inc., San Francisco, CA-An international
ocean freight and air freight forwarder 76,650 2,687,541
Total 3,107,541
----------
---------------------------------------------------------------------------------------------
Total Investments in Common Stocks and Convertible
Debentures (Cost $107,638,428) 194,190,135
- -----------------------------------------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES 1.73%
- -----------------------------------------------------------------------------------------------------------------
Short-term
Investments,
at Cost General Electric Capital Corp. 5.35% due 2/6/1996 2,925M 2,925,000
----------
- -----------------------------------------------------------------------------------------------------------------
Cash and Receivables, Net of Liabilities 486,818
- -----------------------------------------------------------------------------------------------------------------
Total Other Assets, Less Liabilities 3,411,818
- -----------------------------------------------------------------------------------------------------------------
Net Assets (equivalent to $11.49 a share on 17,194,069 shares of $1.00
100.00% par value capital stock outstanding; authorized, 75,000,000
shares) 197,601,953
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The descriptions 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.
*Non-income producing.
See Notes to Financial Statements.
6
<PAGE>
Portfolio Changes
Issues added to or eliminated from the portfolio (exclusive of short-term
investments) during the six months ended January 31, 1996
Additions+ A+ Network, Inc.
Advanced Energy Industries, Inc.
Allied Healthcare Products
Ampex Corp.
APAC TeleServices, Inc.
Arbor Software Corp.
Authentic Fitness Corp.
Brock Control Systems, Inc.
Catellus Development Corp.
Citrix Systems Inc.
Computer Language Research, Inc.
Core Laboratories N.V.
Dawson Geophysical Co.
FTP Software, Inc.
Gandalf Technologies
Insight Enterprises, Inc.
INTERSOLV
LeCroy Corp.
Marisa Christina, Inc.
Maxxim Medical Inc.
MOOVIES Inc.
Netscape Communications Corp.
Norwood Promotional Products, Inc.
Nuevo Energy Co.
Oakley Inc.
Orbital Sciences Corp.
Patriot American Hospitality, Inc.
Photon Dynamics Inc.
Physio-Control International Corporation
Pixar Inc.
Ride Inc.
Semitool Inc.
Sirena Apparel Group, Inc.
SPACEHAB Inc.
Summa Four Inc.
Summit Care Corp.
Technitrol, Inc.
Tejas Power Corp.
Tel-Save Holdings, Inc.
Thermedics, Inc.
Tiffany & Co.
- --------------------------------------------------------------------------------
Eliminations+ Advance Ross Inc.
Allied Healthcare Products
Altera Corp.
Business Resources Group
California Microwave Inc.
5.25% Conv. Sub. Deb. due 2003
Catalina Marketing Corp.
Citrix Systems Inc.
Gandalf Technologies
Gymboree Corp.
Horace Mann Educators Corp.
6.50% Conv. Sub. Deb. due 1999
Indigo N.V. ADR
The Liposome Company Inc.
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+ Includes securities previously classified in the Investment Portfolio under
"Other".
Statement Of Operations For the Year Ended January 31, 1996
<TABLE>
<S> <C> <C> <C>
Investment Income
Income Interest $ 496,401
Dividends 380,389
Total income $ 876,790
Expenses Management fee (Note 3) 1,098,965
12b-1 distribution plan (Note 3) 304,960
Shareholder servicing 200,000
Reports to shareholders 65,508
Audit 42,612
Registration 23,924
Directors' fees 13,820
Other 6,660
Total expenses 1,756,449
Net investment loss (879,659)
Realized and Unrealized Gain on Investments (Note 2)
Realized gain from security transactions (excluding short-term securities)
Proceeds from sales 82,034,144
Cost of securities sold 41,592,114
Net realized gain 40,442,030
Unrealized appreciation of investments
Beginning of year 62,781,572
End of year 86,551,707
Net unrealized appreciation 23,770,135
Net realized and unrealized gain
on investments 64,212,165
Net Increase in Net Assets Resulting from Operations $ 63,332,506
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Year Ended January 31,
Increase (Decrease) in Net Assets 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations Net investment loss $ (879,659) $ (499,441)
Net realized gain from securities transactions 40,442,030 9,103,802
Net unrealized appreciation (depreciation) of investments 23,770,135 (12,882,200)
Net increase (decrease) in net assets resulting from operations 63,332,506 (4,277,839)
Distributions to shareholders
from net realized gain from
investment transactions (39,371,296) (10,389,338)
Capital share transactions
Net proceeds from sales of 3,597,160 and 1,358,150 shares,
respectively 46,602,110 13,547,594
Net asset value of 3,264,100 and 973,652 shares,
respectively, issued to shareholders in reinvestment of
net investment income and realized gain from security
transactions 37,420,047 9,846,169
Total 84,022,157 23,393,763
Cost of 2,978,218 and 2,508,798 shares reacquired,
respectively (37,960,819) (24,840,511)
Increase (decrease) in net assets derived from capital
share transactions
(net increase of 3,883,042 and decrease of 176,996 shares,
respectively) 46,061,338 (1,446,748)
Increase (decrease) in net
assets 70,022,548 (16,113,925)
Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
Beginning of year 127,579,405 143,693,330
End of year (net of overdistributed net investment income
of $212,267 and $96,315, respectively) $197,601,953 $127,579,405
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
Financial Highlights
Year Ended January 31,
Per Share Operating Performance: 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 9.58 $ 10.65 $ 10.11 $ 10.86 $ 7.98
Income from investment
operations
Net investment income (loss) (.02) (.04) (.05) (.02) .02
Net realized and unrealized
gain (loss) on investments 4.795 (.2225) 1.62 (.24) 3.28
Total from investment operations 4.775 (.2625) 1.57 (.26) 3.30
Distributions
Dividends from net investment
income -- -- -- (.02) (.02)
Distributions from net realized
gain (2.865) (.8075) (1.03) (.47) (.40)
Net asset value, end of year $ 11.49 9.58 $ 10.65 $ 10.11 $ 10.86
Total Return* 50.22% (2.74)% 16.41% (2.31)% 41.53%
Ratios/Supplemental Data:
Net assets, end of year (000) $197,602 $ 127,579 $ 143,693 $151,068 $ 156,932
Ratios to Average Net Assets:
Expenses 1.03% 1.31% 1.34% 1.31% 1.14%
Net investment income (loss) (.52)% (.38)% (.51)% (.25)% .26%
Portfolio turnover rate 50.12% 17.57% 16.29% 17.22% 12.62%
*Total return does not consider
the effects of sales loads.
</TABLE>
See Notes to Financial Statements.
8
<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 follow-
ing 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; such procedures
require the use of estimates.
(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 $96,734,592 and $82,034,144, respectively. Security gains and losses
are computed on the identified cost basis. As of January 31, 1996, net
unrealized appreciation for federal income tax purposes aggregated $86,551,707,
of which $93,228,184 related to appreciated securities and $6,676,477 related to
depreciated securities. For federal income tax purposes, the identified cost of
investments owned at January 31, 1996 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 $1,098,965 for which it supplied
investment management, research, statistical and advisory services and paid
officerss 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 $68,682 representing
payment of commissions on sales of capital stock of the Company, after deducting
$679,143 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 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, 1996 for financial reporting purposes, which is substantially the
same as for federal income tax purposes, aggregated $2,723,928.
A distribution of $.16 a share aggregating $2,778,550 was declared on February
14, 1996 from net realized gains from sales of securities. This distribution was
paid February 21, 1996 to shareholders of record on February 14, 1996 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 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 char-acterization 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, 1996, capital paid in aggregated $108,538,585.
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 $2,907 (exclusive of expenses), a portion of 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,
1996, the aggregate amount in Directors' accounts maintained under the plan was
$212,267. Retirement costs accrued during the period amounted to $1,872.
This report to shareholders inaugurates a new procedure whereby a single copy of
the report is sent to an address to which more than one registered shareholder
of the Fund with the same last name has indicated mail is to be delivered,
unless additional reports are specifically requested in writing or by telephone.
Copyright (C) 1996 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. There
is no guarantee that the forecasts contained within this publication will come
to pass.
All rights reserved. Printed in the U.S.A.
<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, 1996, 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, 1996 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, 1996, 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.
/s/Deloitte & Touche llp
Deloitte & Touche llp
New York, New York
March 1, 1996
Our Management
Board of Directors
Ronald P. Lynch
Robert S. Dow
E. Wayne Nordberg
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
The Bank 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
[LOGO]LORD, ABBET & CO.
Investment Management
A Tradititon of Performance Through Disciplined Investing
The GM Building * 767 Fifth Avenue * New York, NY 10153-0203
