Lord Abbett Developing
Growth Fund
SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED JULY 31, 1996
PHOTO OF BEAKER
A portfolio of small
companies with big
growth potential
[LOGO]
<PAGE>
[PHOTO of Robert S. Dow]
/s/ Robert S. Dow
- -----------------------
ROBERT S. DOW
CHAIRMAN
AUGUST 12, 1996
We would like to thank all shareholders who voted their proxy ballots. We are
pleased to announce that, on June 19, 1996, shareholders approved all the
proposals recommended by your Board of Directors.
Report to Shareholders
For the Six Months Ended July 31, 1996
Lord Abbett Developing Growth Fund completed the first half of its fiscal year
on July 31, 1996, with a net asset value of $12.04 versus $11.33 six months ago
(the latter figure has been adjusted for the $.16 capital gains distribution
paid on February 21, 1996). During the period, the Fund produced a total return
(the percent change in net asset value assuming the reinvestment of all
distributions) of 6.4%.
The first half of your Fund's fiscal year had two distinct parts: early in the
period the equity markets rose sharply; by mid-June, however, the market
corrected significantly. This kind of market correction can be discouraging to
the inexperienced investor in small companies. Therefore, investors should
remain focused on the key benefit of owning a diversified portfolio of small
companies: enormous long-term growth potential. Our investment process, which
cannot completely insulate investors from short-term volatility, utilizes
extensive fundamental research and is designed to capture price appreciation by
uncovering those companies with excellent long-term business prospects.
Your Fund's continued focus on niche and service-based companies enabled it to
perform well during the first three months of the period. Indeed, the strong
gains recorded from February to April helped to offset the effects of the
market's mid-June correction. Diversification also helped to reduce the negative
effects of market volatility: your portfolio currently includes over 120
companies covering 17 different industries.
Our outlook for the stock market and, in particular, small company stocks is
broadly positive. We believe the economy will slow later in the year and in
early 1997 to a sustainable growth rate of about 2 1/4%, with inflation
remaining close to 3%. This environment would allow for a decline in long-term
interest rates, which would act to calm the equity markets. As we mentioned in
our last report, your Fund invests in smaller companies that target specific,
faster growing markets and tend to be less vulnerable to a slowing economy.
Additionally, there are two important factors that specifically benefit small
companies: there are little or no credit pressures on these companies and the
environment for productivity gains is good.
In selecting stocks for your Fund's portfolio, we continue to look for
attractive companies with superior prospects for earnings growth that are
reasonably priced. We are confident that our disciplined investment approach and
our commitment to researching companies will enable us to uncover many rewarding
investment opportunities.
We regret to inform you that Ronald P. Lynch, Chairman of your Fund, passed away
on June 27, 1996. Mr. Lynch had been with the Firm since 1965. He will be sorely
missed. The Board of Directors has elected Robert S. Dow as the new Chairman of
your Fund.
We are pleased that Lord Abbett Developing Growth Fund is a part of your
investment portfolio and thank you for the confidence and trust you have placed
in us.
<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: 2/1/76-7/31/96
[The following table was represented as a line graph in the printed material.]
Date The Fund Inflation (Consumer Price Index)
---- -------- --------------------------------
1-31-76 96,260 100,000
1-31-77 94,814 105,216
1-31-78 109,167 112,410
1-31-79 164,846 122,842
1-31-80 207,782 139,928
1-31-81 262,571 156,475
1-31-82 273,640 169,604
1-31-83 400,337 175,899
1-31-84 426,964 183,273
1-31-85 409,877 189,748
1-31-86 421,386 197,122
1-31-87 464,425 200,000
1-31-88 405,744 208,094
1-31-89 448,816 217,806
1-31-90 447,121 229,137
1-31-91 512,647 242,086
1-31-92 725,542 248,381
1-31-93 708,807 256,475
1-31-94 825,093 262,950
1-31-95 802,453 270,324
1-31-96 1,205,459 277,698
7-31-96 1,282,271 282,374
The Fund's results reflect the reduced sales charge of 3.75% applicable to Class
A share 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 Class A share maximum sales charge
of 5.75% for the periods ended 6/30/96 were:
1 year: +27.30%
5 years: +18.74%
10 years: +11.06%
Past performance is 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. The Fund
issues additional classes of shares (Class B and C) with distinct pricing
options. For a full discussion of the differences in pricing alternatives,
please call 800-874-3733 and ask for the Fund's July 15, 1996 prospectus. If
used as sales material after 9/30/96, this report must be accompanied by Lord
Abbett's Performance Quarterly for the most recently completed calendar quarter.
1
<PAGE>
Fund in Focus
The Fund Versus the Benchmarks
As shown in the charts below, over the last 1-, 3- and 5-year periods ended
7/31/96, Lord Abbett Developing Growth Fund has consistently outperformed the
Lipper Small Company Growth Fund Index (a benchmark consisting of the largest
mutual funds within the small company growth category). Furthermore, over the
long term, the Fund has outpaced large company stocks (as measured by the
unmanaged S&P 500), which illustrates the importance of a long-term investment
strategy. 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
[The following table was represented as a bar graph in the printed material.]
Lipper Small Company
The Fund Growth Fund Index Unmanaged S&P 500
-------- ----------------- -----------------
1 Year 11.1% 9.3% 16.6%
3 Years 22.4% 14.6% 15.6%
5 Years 16.1% 15.2% 13.6%
Returns represent the percent change in value for Class A shares over the 1-, 3-
and 5-year periods ended 7/31/96 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
1. Formative Phase
- --------------------------------------------------------------------------------
Companies are in their infancy, a high-risk period.
2. Developing Growth Phase
- --------------------------------------------------------------------------------
An evolving period, often characterized by a dramatic rate of growth; not
without risk.
3. Established Growth Phase
- --------------------------------------------------------------------------------
Competitive forces and regulations tend to slow companies' progress.
4. Maturity Phase
- --------------------------------------------------------------------------------
Companies' growth patterns tend to resemble the Gross Domestic Product.
2
<PAGE>
Statement of Net Assets July 31, 1996
<TABLE>
<CAPTION>
Number of Market Value
Security Shares (Note 1a)
====================================================================================================================================
<C> <S> <C> <C>
INVESTMENTS IN COMMON STOCKS AND CONVERTIBLE DEBENTURES 99.16%
====================================================================================================================================
Business General Binding Corp., Northbrook, IL-The leading vendor of office binding and
Equipment laminating systems and related supplies 70,000 $ 1,452,500
and Supplies .59%
- -----------------------------------------------------------------------------------------------------------------------=============
Business Services *Amerihost Properties, Inc., Des Plaines, IL-A hotel operations and development company
12.71% that builds, buys and manages mid-market hotels 118,700 830,900
*ATC Communications Group, Dallas, TX-Provides inbound and outbound contract
telemarketing services to a variety of companies in various industries 524,900 7,479,825
*Butler International Inc., Montvale, NJ-Provides skilled engineers and
technical personnel on a contract basis in various industries 308,000 2,695,000
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 120,000 1,215,000
Computer Task Group Inc., Buffalo, NY-Provides computer-related professional services
to commercial clients, including systems analysis, programming and design projects 60,000 1,687,500
G & K Services, Inc., Minneapolis, MN-A lessor of work garments and related textile
products 145,000 3,896,875
*Interim Services, Fort Lauderdale, FL-Provides temporary personnel to the business and
health care industries 35,000 1,295,000
M/A/R/C Inc., Irving, TX-Offers market research, database marketing and counseling
services for companies in the pharmaceutical, retailing, telecommunications and
financial services markets 90,000 1,800,000
*McGrath Rent Corp., San Leandro, CA-A lessor of relocatable modular offices and
electronic test equipment 275,000 6,325,000
*NFO Research Inc., Greenwich, CT-A leading provider of custom market research
services that uses a proprietary panel of consumer households 61,875 1,407,656
*Rush Enterprises Inc., San Antonio, TX-Operates a regional network of truck centers
offering the retail sale of "Peterbilt" and used heavy-duty trucks, after-market parts,
service and body-shop facilities 120,000 1,485,000
*SPS Transaction Services Inc., Riverwoods, IL-A provider of transaction processing
services and credit card programs 40,000 605,000
*Triad Systems Corp., Livermore, CA-Designs, develops, manufactures, markets and
supports computer systems that serve the automotive parts after-market and retail
hardware dealers 160,000 666,250
Total 31,389,006
- -----------------------------------------------------------------------------------------------------------------------=============
Capital Equipment *Advanced Energy Industries, Inc., Fort Collins, CO-A leading manufacturer of power
6.90% conversion devices for systems used to manufacture semiconductors, data storage,
media and other products using thin film technology 124,000 728,500
*Applied Materials, Inc., Santa Clara, CA-A major semiconductor capital equipment
supplier 312,000 7,449,000
Aseco Corp., Marlboro, MA-Designs, manufactures and markets test handlers used by
semiconductor manufacturers to automate the testing of integrated circuits 48,300 470,925
Fluke Corp., Everett, WA-Designs and sells electronic test and measurement
instruments and systems 74,100 2,593,500
*LeCroy Corp., Chestnut Ridge, NY-Develops, manufactures and markets principally
high-performance digital oscilloscopes and related products 118,000 2,655,000
*Photon Dynamics Inc., Milpitas, CA-A leading worldwide supplier of test, inspection
and repair systems for the flat panel display industry 237,900 1,813,988
*Semitool Inc., Kalispell, MT-Designs, manufactures, markets and services equipment
used in the fabrication of semiconductors 35,000 402,500
*Ultratech Stepper Inc., Santa Clara, CA-A manufacturer of photolithography equipment
that reduces the production cost of integrated circuits 55,000 935,000
Total 17,048,413
- -----------------------------------------------------------------------------------------------------------------------=============
Communications *IWERKS Entertainment Inc., Burbank, CA-A creator of interactive "virtual reality"
2.85% systems and attractions 270,000 2,126,250
*Lancit Media Productions Ltd., New York, NY-Acquires, develops and produces movies and
television programs for children and family audiences 270,000 3,307,500
*Movie Gallery Inc., Dothan, AL-Owns, operates, franchises and licenses video
specialty stores 40,000 720,000
*West Coast Entertainment Corp., Philadelphia, PA-Owns, operates and franchises video
specialty stores 90,000 888,750
Total 7,042,500
- -----------------------------------------------------------------------------------------------------------------------=============
Computer Software *ABR Information Services, Inc., Palm Harbor, FL-Provides healthcare benefits
and Services administration information and compliance services 22,500 1,141,875
7.56%
*Alphanet Solutions, Inc., Cedar Knolls, NJ-Provides information technology
products, services and support 178,000 1,602,000
</TABLE>
3
<PAGE>
Statement of Net Assets July 31, 1996
<TABLE>
<CAPTION>
Number of Shares Market Value
Security or Principal Amount (Note 1a)
====================================================================================================================================
<C> <S> <C> <C>
America Online, Inc., Vienna, VA-A leading independent provider of on-line
computer services to consumers 33,000 $ 1,006,500
*Arbor Software Corp., Sunnyvale, CA-Develops and markets client-server software for
business planning, analysis and management reporting 2,200 83,600
*Brock International, Inc., Atlanta, GA-The leading provider of integrated sales
performance solutions, which provides a total business solution for customer management 110,000 742,500
*BTG Inc., Vienna, VA-An information technology company which provides systems
solutions 195,000 2,510,625
*Cheyenne Software, Inc., Roslyn Heights, NY-Leading international developer of
software services for Local Area Networks 130,000 2,307,500
*Computer Learning Centers, Inc., Fairfax, VA-Provides education and training for
computers and information technology 150,000 3,712,500
*Comshare Inc., Ann Arbor, MI-Develops and markets computer software and services
designed to improve managerial productivity 75,000 1,303,125
*Cybercash Inc., Reston, VA-Provides secure financial transaction services over the
Internet; the company provides payment services to consumers, merchants and banks 1,000 32,000
*GSE Systems, Inc., Columbia, MD-A designer, developer and supplier of high-fidelity,
real time simulation software and services 31,000 341,000
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 181,000 1,651,625
Mentor Graphics, Wilsonville, OR-Designs, manufactures, markets and services
electronic design automation systems for use in the electrical engineering industry 60,000 750,000
*Synopsys, Inc., Mountain View, CA-A supplier of software for designers of integrated
circuits and electronic systems 40,000 1,490,000
Total 18,674,850
- -----------------------------------------------------------------------------------------------------------------------=============
Consumer Products *Advanced Lighting Technologies, Inc., Twinsburg, OH-Designs, markets and manufactures
5.83% metal halide lighting products, including lamps, lamp components and lamp production
equipment 110,000 1,540,000
*Blyth Industries, Inc., Greenwich, CT-The largest manufacturer and marketer of candles,
fragrance products and related accessories 60,000 2,707,500
*CIDCO Inc., Moran Hill, CA-World's leading supplier of caller ID#-based subscriber
telephone equipment 59,000 929,250
Excel Industries Inc., Elkhart, IN-Manufactures and designs window systems for the
automobile, light truck/van, bus, heavy truck and recreational vehicle industries 30,000 461,250
Matthews International Corp., Pittsburgh, PA-A leading designer, manufacturer and
marketer of custom-made identification products 175,000 4,856,250
Northland Cranberries Class A, Wisconsin Rapids, WI-Grows cranberries through its
properties in central and northern Wisconsin and Massachusetts; the company also
manufactures and markets a branded line of juice products 34,000 952,000
*Security First Network Bank, Atlanta, GA-An FDIC-insured financial institution that
executes traditional banking services over the Internet; the company's software,
"Virtual Bank Manager", allows customers remote access to all aspects of their balance
sheets via the Internet 111,000 2,969,250
Total 14,415,500
- -----------------------------------------------------------------------------------------------------------------------=============
Data Processing *Ampex Corp., Redwood City, CA-A leading innovator in the fields of magnetic recording
Equipment and image processing and high-performance digital storage 425,000 2,868,750
Components
3.94% *EMC Corp., Hopkinton, MA-A supplier of high-performance storage devices and
related services 163,265 3,163,259
*HMT Technology Corporation, Fremont, CA-Supplies high-performance thin film disks for
high-end, high capacity hard disk drives 191,000 2,674,000
*Summa Four Inc., Manchester, NH-A leading provider of open, programmable switching
platforms 80,000 1,020,000
Total 9,726,009
- -----------------------------------------------------------------------------------------------------------------------=============
Drugs/ Elan International Finance, Ltd. Zero Coupon Conv. Sub. Deb. due 2012, Athlone, Ireland-
Pharmaceuticals A leader in drug delivery and reformulation technology 3,000M 1,931,718
.78%
- -----------------------------------------------------------------------------------------------------------------------=============
Electronic *AdFlex Solutions, Inc., Chandler, AZ-Designs and manufactures flexible circuit-based
Components interconnects which contain integrated circuits, connectors, stiffeners, resistors
11.38% and/or capacitors and are used to facilitate the miniaturization of electronic products 160,000 1,560,000
*Altron Corp., Wilmington, MA-A manufacturer of electronic interconnect products
employing printed circuit technology 169,500 2,669,625
*Chicago Miniature Lamp, Inc., Canton, MA-Manufactures and distributes a variety of
miniature lighting products 45,000 1,620,000
Computer Products, Inc., Boca Raton, FL-A manufacturer of power supplies and measurement
control systems for industrial equipment 480,000 7,740,000
</TABLE>
4
<PAGE>
Statement of Net Assets July 31, 1996
<TABLE>
<CAPTION>
Number of Market Value
Security Shares (Note 1a)
====================================================================================================================================
<C> <S> <C> <C>
Dallas Semiconductor Corporation, Dallas, TX-Develops, manufactures and markets
complementary metal oxide silicon integrated circuits and semiconductor-based subsystems 65,000 $ 1,145,625
*ElectroStar, Inc., Logan, UT-Manufactures complex rigid printed circuit boards used in
sophisticated electronic equipment 90,000 945,000
*Interpoint Corp., Redmond, WA-Designs and manufactures standard high density AC-DC
converters for use in aviation, medical and military markets 14,800 172,050
*Lattice Semiconductor, Hillsboro, OR-Designs, develops and markets high-speed
programmable logic devices (PLDs) 40,000 1,035,000
Molex, Inc. Class A, Lisle, IL-Designs, manufactures and distributes electrical and
electronic devices 146,250 4,241,250
*Sierra Semiconductor Corporation, San Jose, CA-Supplies integrated circuits for the
PC and communications markets 50,000 493,750
Technitrol Inc., Trevose, PA-A worldwide manufacturer of electronic components,
electrical contacts and assemblies, thermostatic and clad-metal materials and
components and related items 115,000 3,866,875
*Valence Technology Inc., San Jose, CA-A producer of rechargeable batteries based on
lithium and polymer technologies 160,000 700,000
*Xetel Corp., Austin, TX-Provides design and prototype services, manufactures
surface mount assemblies and supplies turnkey solutions 97,500 548,438
*Zilog Inc., Campbell, CA-Develops, designs and manufactures application-specific
standard products (ASSPs) for the data communications, intelligent peripheral
controllers and consumer product controllers markets 60,000 1,380,000
Total 28,117,613
- -----------------------------------------------------------------------------------------------------------------------=============
Energy Core Laboratories N.V., Amsterdam, The Netherlands-A provider of petroleum reservoir
8.14% analysis and environmental testing 134,000 1,892,750
*Dawson Geophysical Co., Midland, TX-A provider of seismic data services to oil and
gas drillers 120,000 1,155,000
*Digicon Inc., Houston, TX-Provides seismic data acquistion and processing services on a
worldwide basis to the petroleum industry 20,000 230,000
*Falcon Drilling Inc., Houston, TX-Provides drilling and workover services for the
domestic and international oil and gas industry 50,000 1,037,500
*Global Industries Ltd., Lafayette, LA-Provides pipeline construction, derrick and diving
services to the offshore oil and gas industry 30,000 862,500
*Harken Energy Corp., Irving, TX-An oil and gas exploration and production company which
explores for and conducts production activities in the Four Corners area of the Southwest 230,000 546,250
Production Operators Corp., Houston, TX-A provider of contract natural gas handling and
enhanced oil recovery services; an oil and gas producer 55,000 1,718,750
Seitel Inc., Houston, TX-An operator of a seismic database and a provider of corollary
geophysical services to the petroleum industry 100,000 3,050,000
*Stone Energy Corp., Lafayette, LA-An independent oil and gas company; the company
acquires and exploits oil and gas producing properties located primarily in the
Gulf Coast Basin 110,000 2,406,250
*TPC Corp., Houston, TX-A company engaged in the gathering, high-deliverability storage
and marketing of natural gas 270,300 1,790,738
*Trico Marine Services Inc., Houma, LA-Provides a broad range of marine support services
to companies in the oil and gas industry conducting offshore exploration, production and
construction operations 5,000 106,875
*Tuboscope Vetco International Corp., Houston, TX-Provides oilfield tubular coating and
inspection services, oilfield solids control services and coiled tubing equipment to the
international petroleum industry 70,000 735,000
Vintage Petroleum Inc., Tulsa, OK-Independent energy company engaged in the
exploitation and development of oil and gas properties 197,700 4,571,812
Total 20,103,425
- -----------------------------------------------------------------------------------------------------------------------=============
Environmental Met-Pro Corp., Harleysville, PA-A manufacturer of environmental treatment systems,
Services specialty pumps and filtration equipment 128,340 1,556,123
and Equipment .63%
- -----------------------------------------------------------------------------------------------------------------------=============
Industrial and *Dionex Corp., Sunnyvale, CA-A manufacturer of analytical instruments 60,000 2,085,000
Capital Goods
12.36% *Durakon Industries, Inc., Flint, MI-A leading manufacturer of pick-up truckbed liners 135,000 1,822,500
*Flow International Corp., Kent, WA-Designs, manufactures and sells ultra-high pressure
waterjets for cutting metallic and non-metallic materials 160,000 1,280,000
JLG Industries, Inc., McConnellsburg, PA-A leading manufacturer of self-propelled
aerial work platforms 695,800 12,872,300
*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 130,000 2,161,250
</TABLE>
5
<PAGE>
Statement of Net Assets July 31, 1996
<TABLE>
<CAPTION>
Number of Market Value
Security Shares (Note 1a)
====================================================================================================================================
<C> <S> <C> <C>
Park-Ohio Industries, Cleveland, OH-Manufactures plastic containers for food products
and industrial products for the airline, automotive, rail and trucking industries 280,000 $ 4,690,000
*Spacehab Inc., Arlington, VA-Develops and operates habitable modules for space-based
research and cargo services aboard the U.S. Space Shuttle system 182,800 1,690,900
*Superior Services Inc., West Allis, WI-Provides solid waste collection, transfer,
recycling and disposal to customers primarily in Wisconsin and parts of
Minnesota, Illinois and Michigan 30,000 427,500
*Utilx Corporation, Kent, WA-Installs, replaces and renovates underground utilities
with "Flowmole", "Revalt", and "CableCure" services 250,000 859,375
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 1,408,750
X-Rite, Inc., Grandville, MI-A developer, manufacturer and marketer of instruments
for color measurement and control 82,500 1,227,188
Total 30,524,763
- -----------------------------------------------------------------------------------------------------------------------=============
Measurement and *LTX Corp., Westwood, MA-Supplier of linear, digital, mixed-signal and discrete
Control Systems semiconductor test equipment 488,000 2,196,000
.89%
- -----------------------------------------------------------------------------------------------------------------------=============
Medical Services Health Care Service Group, Inc., Huntingdon Valley, PA-Provides operational services to
4.09% 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. 105,000 2,310,000
*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 300,000 5,137,500
Total 10,119,375
- -----------------------------------------------------------------------------------------------------------------------=============
Medical/Health *Arterial Vascular Engineer, Santa Rosa, CA-Designs, develops, manufactures and markets
Care 7.66% a variety of stent systems and balloon angioplasty catheters for the treatment of
coronary artery disease 15,000 290,625
*ATS Medical Inc., Minneapolis, MN-Manufactures and markets a pyrolytic carbon
bileaflet mechanical heart valve 140,000 1,172,500
Fresenius USA, Inc., Walnut Creek, CA-A leading manufacturer and distributor of
equipment and disposables for treatment of renal disease 40,000 785,000
*Haemonetics Corp., Braintree, MA-Major manufacturer of blood collection systems 25,000 481,250
*Healthsouth Corp., Birmingham, AL-A developer and operator of inpatient and outpatient
rehabilitation centers 30,000 911,250
Life Technologies, Inc., Gaithersburg, MD-A supplier of products for life science
research and biotechnology manufacturing 90,000 2,812,500
*Maxxim Medical Inc., Sugarland, TX-Develops, manufactures and distributes physical
therapy equipment and disposable hospital products 124,700 2,135,487
Orthofix International N.V., 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 2,739,750
*Ostex International Inc., Seattle, WA-Develops products used in the diagnosis of
osteoporosis, osteoarthritis and other skeletal diseases which are caused by the
breakdown of bone, cartilage and other connective tissue 165,000 1,361,250
*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 50,000 812,500
*Protocol Systems Inc., Beaverton, OR-Designs, manufactures and markets patient
monitoring instruments and systems 80,000 1,390,000
*Research Medical Inc., Midvale, UT-Develops, manufactures and distributes a diversified
line of healthcare products including specialized cardiovascular surgical supplies and
specialty pharmaceuticals 20,000 390,000
*Resound Corporation, Redwood City, CA-Designs, develops, manufactures and markets
hearing devices throughout the world for the hearing impaired 105,000 971,250
*Thermedics Inc., Waltham, MA-Develops, manufactures and markets explosives and
drug-detection devices, product quality assurance systems and other biomedical products 65,000 1,690,000
*Vivra Inc., Burlingame, CA-Leading provider of end-stage renal dialysis treatment 33,750 982,969
Total 18,926,331
- -----------------------------------------------------------------------------------------------------------------------=============
Miscellaneous *Catellus Development Corp., San Francisco, CA-An owner, developer and manager of
2.53% real estate assets 300,000 2,625,000
</TABLE>
6
<PAGE>
Statement of Net Assets July 31, 1996
<TABLE>
<CAPTION>
Number of Shares Market Value
Security or Principal Amount (Note 1a)
====================================================================================================================================
<C> <S> <C> <C>
*Pacific Graystone Corp., Los Angeles, CA-A regional builder of single family homes
primarily targeted to first-time and move-up homebuyers in markets located
throughout Northern and Southern California 100,000 $ 1,075,000
Patriot American Hospitality, Inc., Dallas, TX-Hotel real estate investment trust 90,000 2,553,750
Total 6,253,750
- -----------------------------------------------------------------------------------------------------------------------=============
Retail *CellStar Corp., Carrollton, TX-An integrated wholesale distributor and retailer
4.83% of cellular telephones and related products 350,000 2,756,250
*Designer Holdings Ltd., New York, NY-Develops, sources and markets designer
sportswear lines for men, juniors, women and petites under the "Calvin Klein Jeans",
"CK/Calvin Klein Jeans" and "CK/Calvin Klein Jeans Khakis" labels 50,400 926,100
*Insight Enterprises, Inc., Tempe, AZ-A direct marketer of microcomputers, peripherals
and software 40,000 950,000
*Marisa Christina, Inc., New York, NY-Designs, manufactures, sources and markets
a broad line of high-quality better clothing for women and children 80,000 810,000
*Norwood Promotional Products, Inc., San Antonio, TX-Supplies custom-imprinted
promotional products to distributors nationwide 40,000 810,000
*Pacific Sunwear of California Inc., Anaheim, CA-Operates a nationwide mall-based
specialty retail chain of stores specializing in casual apparel, footwear and
related accessories catering to teenagers and young adults 89,000 1,691,000
*Quicksilver, Inc., Costa Mesa, CA-Designs, arranges, manufactures and distributes
casualwear, snow-boardwear and swimwear for young men, boys and juniors under the
"Quiksilver" label, and juniors' swimwear and sportswear under the "Raisin Company"
label 60,000 1,653,750
*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 205,000 486,875
Tiffany & Co., New York, NY-Internationally renowned jeweler and specialty retailer 56,000 1,841,000
Total 11,924,975
- -----------------------------------------------------------------------------------------------------------------------=============
Telecommuni- *Boca Research, Inc., Boca Raton, FL-Designs, manufactures and markets board-level
cations and enhancement products which expand the capabilities and performance of IBM and
Telephone 5.49% IBM-compatible PCs 180,000 2,745,000
*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 14,000 383,250
*Plantronics, Inc., Santa Cruz, CA-Leading supplier of communication headset products
and services to users and providers worldwide 202,000 7,575,000
*Precision Systems, Inc., St. Petersburg, FL-Develops, sells and supports network-based
software for the telecommunications industry used to create carrier differentiation 10,000 66,250
*Premiere Technologies, Inc., Atlanta, GA-Provides information and telecommunications
services to a wide range of users 15,000 330,000
*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. 67,500 1,620,000
*TranSwitch Corporation, Shelton, CT-Designs, develops, markets and supports integrated
digital and mixed-signal semiconductor solutions for the telecommunications and data
communications markets 60,000 480,000
*Voice Control Systems, Inc., Dallas, TX-Researches, develops and commercializes speech
recognition and related technologies 45,000 365,625
Total 13,565,125
----------------------------------------------------------------------------------------------------=============
Total Investments in Common Stocks and Convertible Debentures (Cost $186,386,294) 244,967,976
====================================================================================================================================
OTHER ASSETS, LESS LIABILITIES .84%
====================================================================================================================================
Corporate American Express Credit Corp. 5.30% due 8/2/1996 250M 250,000
Obligations,
at Cost General Electric Capital Corp. 5.20% due 8/11/1996 2,650M 2,650,000
General Electric Capital Corp. 5.35% due 8/15/1996 4,300M 4,300,000
Total Corporate Obligations 7,200,000
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Receivables, Net of Liabilities (5,113,287)
------------------------------------------------------------------------------------------------------------------
Total Other Assets, Less Liabilities 2,086,713
====================================================================================================================================
Net Assets (equivalent to $12.04 a share on 20,493,609 shares of $.001 par value capital stock
100.00% outstanding; authorized, 75,000,000 shares) $247,054,689
==================================================================================================================
*Non-income producing.
See Notes to Financial Statements.
</TABLE>
7
<PAGE>
Portfolio Changes
Issues added to or
eliminated from the
portfolio (exclusive
of short-term invest-
ments) during the
six months ended
July 31, 1996
Additions+ ADFlex Solutions, Inc.
Advanced Lighting Technologies, Inc.
Alphanet Solutions, Inc.
Amerihost Properties, Inc.
Arterial Vascular Engineer
ATS Medical Inc.
Boca Research, Inc.
Butler International Inc.
BTG Inc.
Cadmus Communications Corp.
Cheyenne Software, Inc.
Computer Task Group Inc.
Comshare Inc.
Cybercash Inc.
Dallas Semiconductor Corporation
Designer Holdings Ltd.
Digicon Inc.
ElectroStar, Inc.
Excel Industries Inc.
Falcon Drilling Inc.
Flow International Corp.
Fluke Corp.
Geoscience Corporation
Global Industries Ltd.
Harken Energy Corp.
HMT Technology Corporation
Interim Services
Interpoint Corp.
IWERKS Entertainment Inc.
Lattice Semiconductor
M/A/R/C Inc.
Mentor Graphics
Movie Gallery Inc.
Nimbus CD International, Inc.
Northland Cranberries Class A
Ostex International Inc.
Pacific Graystone Corp.
Pacific Sunwear of California Inc.
Park-Ohio Industries
Pia Merchandising Services
Precision Systems, Inc.
Premiere Technologies, Inc.
Pronet, Inc.
Protocol Systems Inc.
Quicksilver, Inc.
Research Medical Inc.
Resound Corporation
Rush Enterprises Inc.
Security First Network Bank
Stone Energy Corp.
Superior Services Inc.
Telxon Corp.
TranSwitch Corporation
Triad Systems Corp.
Trico Marine Services Inc.
Tuboscope Vetco International Corp.
Utilx Corporation
Voice Control Systems, Inc.
West Coast Entertainment Corp.
Xetel Corp.
Zilog Inc.
- --------------------------------------------------------------------------------
Eliminations+ A+ Network, Inc.
ABC Rail Products Corp.
APAC TeleServices, Inc.
Arrow International, Inc.
Authentic Fitness Corp.
Bay Networks, Inc.
Cadmus Communications Corp.
Fritz Company, Inc.
FTP Software, Inc.
Geoscience Corporation
Grancare, Inc.
Informix Corp.
MacFrugal's Bargains Close-Outs, Inc.
Macromedia, Inc.
Maxim Integrated Products, Inc.
MediSense, Inc.
Molex, Inc.
Nellcor Puritan Bennett, Inc.
Nimbus CD International, Inc.
Nuevo Energy Co.
Pia Merchandising Services
Pronet, Inc.
Pyxis Corp.
Safety-Kleen Corp.
St. Jude Medical, Inc.
Scholastic Corp.
Sofamor Danek Group, Inc.
Tejas Gas Corp.
Telxon Corp.
Xilinx, Inc.
+ Includes securities previously classified in the Investment Portfolio under
"Other".
Statement of Operations For the Six Months Ended July 31, 1996
<TABLE>
<CAPTION>
Investment Income
==============================================================================================================
<S> <C> <C> <C>
Income Interest $ 163,918
----------------------------------------------------------------- ------------ -------------
Dividends 425,545
----------------------------------------------------------------- ------------ -------------
Total income $ 589,463
- --------------------------------------------------------------------------------- ------------ -------------
Expenses Management fee (Note 5) 746,552
----------------------------------------------------------------- ------------ -------------
12b-1 distribution plan (Note 3) 322,267
----------------------------------------------------------------- ------------ -------------
Shareholder servicing 138,000
----------------------------------------------------------------- ------------ -------------
Reports to shareholders 60,000
----------------------------------------------------------------- ------------ -------------
Directors' fees 49,000
----------------------------------------------------------------- ------------ -------------
Registration 30,000
----------------------------------------------------------------- ------------ -------------
Audit 24,000
----------------------------------------------------------------- ------------ -------------
Other 22,201
----------------------------------------------------------------- ------------ -------------
Total expenses 1,392,020
----------------------------------------------------------------- ------------ -------------
Net investment loss (802,557)
----------------------------------------------------------------- ------------ -------------
Realized and Unrealized Gain (Loss) on Investments (Note 4)
==============================================================================================================
Realized gain from securities transactions (excluding short-term securities)
----------------------------------------------------------------- ------------ -------------
Proceeds from sales 67,869,899
----------------------------------------------------------------- ------------ -------------
Cost of securities sold 30,544,188
----------------------------------------------------------------- ------------ -------------
Net realized gain 37,325,711
- --------------------------------------------------------------------------------- ------------ -------------
Unrealized appreciation (depreciation) of investments
----------------------------------------------------------------- ------------ -------------
Beginning of period 86,551,707
----------------------------------------------------------------- ------------ -------------
End of period 58,581,682
----------------------------------------------------------------- ------------ -------------
Net unrealized depreciation (27,970,025)
----------------------------------------------------------------- ------------ -------------
Net realized and unrealized gain on investments 9,355,686
----------------------------------------------------------------- ------------ -------------
Net Increase in Net Assets Resulting from Operations $ 8,553,129
==============================================================================================================
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Year Ended
Ended July 31, January 31,
Increase (Decrease) in Net Assets 1996 1996
===================================================================================== ============= ============
<S> <C> <C>
Operations Net investment loss $ (802,557) $ (879,659)
- ------------------------------------------------------------------------------------- ------------- ------------
Net realized gain from securities transactions 37,325,711 40,442,030
- ------------------------------------------------------------------------------------- ------------- ------------
Net unrealized (depreciation) appreciation of investments (27,970,025) 23,770,135
- ------------------------------------------------------------------------------------- ------------- ------------
Net increase in net assets resulting from operations 8,553,129 63,332,506
- ------------------------------------------------------------------------------------- ------------- ------------
Distributions to shareholders from net realized gain from securities transactions (2,778,353) (39,371,296)
- ------------------------------------------------------------------------------------- ------------- ------------
Capital share transactions
- ------------------------------------------------------------------------------------- ------------- ------------
Net proceeds from sales of 4,687,074 and 3,597,429 shares, respectively 61,836,144 46,602,110
- ------------------------------------------------------------------------------------- ------------- ------------
Net asset value of 223,658 and 3,264,100 shares, respectively, issued to
shareholders in reinvestment of realized gain from securities transactions 2,661,528 37,420,047
- ------------------------------------------------------------------------------------- ------------- ------------
Total 64,497,672 84,022,157
- ------------------------------------------------------------------------------------- ------------- ------------
Cost of 1,611,192 and 2,978,218 shares reacquired, respectively (20,819,712) (37,960,819)
- ------------------------------------------------------------------------------------- ------------- ------------
Increase in net assets derived from capital share transactions
(net increase of 3,299,540 and 3,883,311 shares, respectively) 43,677,960 46,061,338
- ------------------------------------------------------------------------------------- ------------- ------------
Increase in net assets 49,452,736 70,022,548
- ------------------------------------------------------------------------------------- ------------- ------------
Net Assets
===================================================================================== ============= ============
Beginning of period 197,601,953 127,579,405
- ------------------------------------------------------------------------------------- ------------- ------------
End of period (including overdistributed net investment income of
$2,300,341 and $1,497,784, respectively) $247,054,689 $197,601,953
===================================================================================== ============= ============
</TABLE>
See Notes to Financial Statements.
Financial Highlights
<TABLE>
<CAPTION>
Six Months
Ended
July 31, Year Ended January 31,
Per Share Operating Performance: 1996 1996 1995 1994 1993 1992
==================================================== ======== =======================================================
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.49 $ 9.58 $ 10.65 $ 10.11 $ 10.86 $ 7.98
- ---------------------------------------------------- -------- -------- -------- -------- -------- --------
Income from investment operations
----------------------------------- -------- -------- -------- -------- -------- --------
Net investment income (loss) (.02)+ (.02) (.04) (.05) (.02) .02
----------------------------------- -------- -------- -------- -------- -------- --------
Net realized and unrealized gain
(loss) on investments .73 4.795 (.2225) 1.62 (.24) 3.28
----------------------------------- -------- -------- -------- -------- -------- --------
Total from investment operations .71 4.775 (.2625) 1.57 (.26) 3.30
------------------------------------------- ======== ======== ======== ======== ======== ========
Distributions
Dividends from net investment income -- -- -- -- (.02) (.02)
----------------------------------- -------- -------- -------- -------- -------- --------
Distributions from net realized gain (.16) (2.865) (.8075) (1.03) (.47) (.40)
- ---------------------------------------------------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 12.04 $ 11.49 $ 9.58 $ 10.65 $ 10.11 $ 10.86
- ---------------------------------------------------- ======== ======== ======== ======== ======== ========
Total Return* 6.37%+ 50.22% (2.74)% 16.41% (2.31)% 41.53%
==================================================== ======== ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of period (000) $247,055 $197,602 $127,579 $143,693 $151,068 $156,932
----------------------------------- -------- -------- -------- -------- -------- --------
Ratios to Average Net Assets:
=========================================== ======== ======== ======== ======== ======== ========
Expenses .57%+ 1.03% 1.31% 1.34% 1.31% 1.14%
----------------------------------- -------- -------- -------- -------- -------- --------
Net investment income (loss) (.33)%+ (.52)% (.38)% (.51)% (.25)% .26%
----------------------------------- -------- -------- -------- -------- -------- --------
Portfolio turnover rate 28.50% 50.12% 17.57% 16.29% 17.22% 12.62%
==================================================== ======== ======== ======== ======== ======== ========
</TABLE>
* Total return does not consider the effects of sales loads.
+ Not annualized.
See Notes to Financial Statements.
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>
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; 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. (e) Certain amounts of the components of net assets in prior periods
have been reclassified to conform the presentation of such components to that
reported in the current period. (f) On June 19, 1996, the Fund's shareholders
approved the issuance of both Class B and Class C shares. There was no impact on
the net asset value of the Fund's previously issued shares, which will now be
designated as Class A shares.
2. Purchases and Sales of Securities Purchases and sales of investment
securities (other than short-term investments) aggregated $109,292,055 and
$67,869,899, respectively. Security gains and losses are computed on the
identified cost basis. As of July 31, 1996, net unrealized appreciation for
federal income tax purposes aggregated $58,581,682, of which $80,653,815 related
to appreciated securities and $22,072,133 related to depreciated securities. For
federal income tax purposes, the identified cost of investments owned at July
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 $746,552 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 $200,980 representing
payment of commissions on sales of capital stock of the Company, after deducting
$1,493,458 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 securities 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 July 31, 1996 for financial reporting purposes, which is
substantially the same as for federal income tax purposes, aggregated
$37,057,128.
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 July 31, 1996, capital paid in aggregated $153,716,220.
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 $1,774 (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 July 31,
1996, the aggregate amount in Directors' accounts maintained under the plan was
$238,111. Retirement costs accrued during the period amounted to $990.
- --------------------------------------------------------------------------------
[Logo] LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
LORD ABBETT DISTRIBUTOR LLC LADG-3-796
- ----------------------------------------------------------- (9/96)
The GM Building o 767 Fifth Avenue o New York, NY 10153-0203
