Lord Abbett Developing
Growth Fund
SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED June 31, 1998
[GRAPHIC OMITTED]
A portfolio of small companies
with big growth potential
[LOGO(R)]
<PAGE>
Lord Abbett Developing Growth Fund
A Tradition of
Performance
"Lord Abbett Developing Growth Fund's transformation can be considered a
success. Manager Stephen McGruder...has transformed it into one of the best
funds in the small-cap growth category. The fund is an aggressive small-cap
vehicle delivering the kind of performance investors should expect."
Morningstar Mutual Funds, April 7, 1998
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Do Small-Cap Stocks Have Just as there are different types of
a Place in Your Portfolio? investors--with unique goals, strategies and
time horizons--there are different types of
securities to help them pursue their
objectives. Look at equities: stocks of
large-cap companies (market capitalizations
in excess of $5 billion) behave differently
than stocks of small-cap companies (market
capitalizations of $1 billion or less).
Year-to-year volatility is higher for
small-cap stocks, but, as the chart below
illustrates, small company stocks have
provided double-digit average annual returns
during each of the last six decades.
Average Annual Returns During Each Decade(1)
[The following table was depicted as a bar graph in the printed material]
Small-cap stocks Large-cap stocks
---------------- ----------------
1940's 20.7% 9.2%
1950's 16.9% 19.4%
1960's 15.5% 7.8%
1970's 11.5% 5.9%
1980's 15.8% 17.6%
1990's* 16.5% 16.6%
*1990-1997
Lord Abbett Developing Growth Fund invests
in stocks of small, developing companies.
These stocks offer unusual growth potential
and, not surprisingly, entail more investor
risk. However, when used as part of a
diversified portfolio, small-cap stocks may
provide investors with added growth
potential to help them achieve their goals.
- --------------------------------------------------------------------------------
Average Annual The average annual rates of total return,
Total Returns computed using the SEC-required formula and
reflecting the deduction of the Class A
share maximum sales charge of 5.75% for the
periods ended 6/30/98 were:
[The following table was depicted as a bar graph in the printed material]
1 year 16.70%
5 years 23.11%
10 years 15.62%
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.
(1) Used with permission. (C) 1998 Ibbotson
Associates, Inc. All rights reserved.
(Certain portions of this work were derived
from copyrighted works of Roger G. Ibbotson
and Rex Sinquefield.) This chart does not
represent past or future performance of Lord
Abbett Developing Growth Fund.
<PAGE>
Report to Shareholders
For the Six Months Ended July 31, 1998
[PHOTO OMITTED]
/s/ Robert S. Dow
- -----------------------
ROBERT S. DOW
CHAIRMAN
AUGUST 12, 1998
"Our belief is that the current environment is a normal phase of the investment
cycle...and one that creates a particularly attractive opportunity for small-cap
stocks."
Lord Abbett Developing Growth Fund completed the first half of its fiscal year
on July 31, 1998, with net assets of $944 million. Below is an overview of
class-specific data for the period.
<TABLE>
<CAPTION>
Six Months Ended 7/31/98
------------------------------------------------------
Class A Class B Class C Class P Class Y
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value $14.43 $14.24 $14.26 $14.40 $14.45
Capital gains $ 0.05 $ 0.03 $ 0.03 $ 0.05 $ 0.05
Total return* +1.4% +1.0% +1.1% +1.3% +1.6%
</TABLE>
Small-cap investors saw positive returns early in the period erased by a
downturn. This downturn was caused in part by a "flight to quality" due to
international monetary and economic crises as well as political problems that
led investors to seek more liquid investments, such as larger company stocks and
higher-quality bonds, than are generally found in the small-cap arena. In
August, after the close of the first half of the Fund's fiscal year, stocks in
general, and small-cap stocks in particular, suffered further price declines.
Our belief is that the current environment is a normal phase of the investment
cycle that has been exacerbated by the confluence of the above problems, and one
that creates a particularly attractive opportunity for small-cap stocks. In this
environment, your Fund's management team continued to focus on individual stock
selection with an emphasis on fundamental research.
Our focus on bottom-up stock selection allowed the Fund to overcome
industry-specific difficulties. For example, our slight overweighting in
software companies helped us reduce technology shortfalls that resulted when
earnings expectations were not met, predominantly by hardware companies. Our
strategy and philosophy remain constant as we concentrate on selecting those
companies that we believe will offer our investors superior long-term stock
price appreciation regardless of industry-specific problems or large-scale
economic trends.
We believe small-cap stocks will benefit from the economy's continued, albeit
slower, growth amid a moderate inflation environment. Given recent concerns over
the Far East and Russian economies, we regard the Fund's focus on companies
primarily involved in domestic commerce as a positive factor going forward. In
keeping with historical trends, we expect small-cap stocks to outperform large
caps over the long term.
Thank you for your continued confidence in Lord Abbett Developing Growth Fund.
We look forward to maintaining our relationship with you in the coming years and
helping you achieve your financial goals.
Mutual funds are not insured by the FDIC, are not deposits or other obligations
of, or guaranteed by banks, and are subject to investment risks, including
possible loss of principal amount invested.
* Not annualized. Total return is the percent change in net asset value,
assuming the reinvestment of all distributions.
1
<PAGE>
Focus on. . .Performance
The Benefits of Long-Term Investing
Lord Abbett Developing Growth Fund has enabled investors to participate in the
growth potential of small company stocks. During the past 10 years, the Fund has
performed well relative to its benchmark, the Russell 2000 Index.(1)
Growth of a $100,000 Fund Investment: 7/31/88-7/31/98
Russell 2000 Fund
7/31/88 $100,000 $100,000
1/31/89 $103,840 $101,841
1/31/90 $105,470 $101,457
1/31/91 $101,473 $116,326
1/31/92 $146,913 $164,633
1/31/93 $166,364 $160,836
1/31/94 $197,291 $187,223
1/31/95 $185,434 $182,086
1/31/96 $240,971 $273,532
1/31/97 $286,635 $351,069
1/31/98 $338,430 $436,692
7/31/98 $331,594 $442,986
The Fund's results reflect a Class A share investment of $100,000 at net asset
value with dividends and capital gains reinvested. The Fund's results do not
include the effect of sales charges.
(1) The Russell 2000 Index measures small company stock market performance,
does not reflect the deduction of fees or expenses, is unmanaged and is
not available for direct investment.
The Fund Versus the Benchmarks
As shown in the charts below, over the last 3- and 5-year periods ended 7/31/98,
Lord Abbett Developing Growth Fund consistently outperformed the Lipper Average
of Small Cap Funds (a benchmark consisting of funds that invest primarily in
companies with market capitalizations less than $1 billion).(2) Furthermore,
over these periods, the Fund outpaced the Russell 2000 Index, an unmanaged index
that measures small company stock market performance.(3) While historically
long-term investors in small company stocks have been rewarded with strong
returns (see charts on inside front cover), there is no assurance of the Fund's
future performance or that this pattern will continue.
Impressive Total Returns
[The following table was depicted as a bar chart in the printed material.]
3 Years 5 Years
------- -------
The Fund 19.2% 22.8%
Lipper Average of Small Cap Funds 14.1% 14.9%
Russell 2000 Index(3) 13.4% 13.8%
The Fund's total returns represent the percent change in net asset value for
Class A shares over the 3- and 5-year periods ended 7/31/98 and reflect the
reinvestment of all distributions. The Fund's results do not include the effect
of sales charges. For performance at the Class A share maximum sales charge, see
the inside front cover.
(2) Lipper Analytical Services, Inc. tracks and reports the performance of
mutual funds based on total returns (i.e., changes in net asset value,
including reinvestment of distributions).
(3) The Russell 2000 Index does not reflect the deduction of fees or expenses
and is not available for direct investment.
2
<PAGE>
Focus on. . .Small, Growing Companies
The Fund seeks to invest in companies that have passed through their initial,
formative years and are now in the "developing growth" phase, as illustrated in
the graph below. These companies have not yet matured, nor have they settled
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 may offer better opportunity for appreciation over the long
term. However, the stock prices of these companies can fluctuate sharply. That's
why Lord Abbett Developing Growth Fund makes sense for investors who want to
participate in the aggressive growth potential of a diversified, actively
managed small company stock portfolio.
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
Companies are in their infancy, a high-risk period.
2. Developing Growth
An evolving period, often characterized by a dramatic rate of growth; not
without risk.
3. Established Growth
Competitive forces and regulations tend to slow companies' progress.
4. Maturity
Companies' growth patterns tend to resemble the Gross Domestic Product.
Invest in the Future. . .Today
One hundred years ago, if you wanted to go from San Francisco to Paris, you
would have had to travel by train to New York, then board a ship to France, and
then another train to Paris. This could take up to two weeks.
Today, you could jet directly from San Francisco to Paris in 10 hours, or travel
faster than the speed of sound aboard an SST. Of course, you could also take a
train, hop a bus or take a scenic drive cross-country before boarding a
transatlantic flight--or cruise ship--to any major European destination.
Times have changed. We all have more choices than ever before. This applies to
transportation, as well as technology, education, medical and health care,
communications, retail purchasing, entertainment and business.
The Fund attempts to invest in companies that are leaders in their fields,
innovators, choice-makers. These small, growing companies often are creating
products and services that will fit many different lifestyles and needs.
Investing in Lord Abbett Developing Growth Fund is investing in the future.
Invest in the future, today.
A Note About Year 2000 Matters
As you probably know, the Fund depends on the proper functioning of computer
systems for most, if not all, aspects of its operations. Many computer systems
now in use cannot distinguish between the year 2000 (Y2K) and the year 1900, an
inability that could disrupt the services provided to the Fund.
Lord Abbett, Lord Abbett Distributor, the Fund's transfer agent and the Fund's
custodian all have advised the Fund that they have been actively working on
changes to their computer systems to prepare for the Year 2000 and expect that
their systems, and those of their outside service providers, will be adapted in
time. Although the Y2K issue is unprecedented and we have not yet completed our
evaluation of Y2K preparedness, we presently believe that there will be no
material effect on the Fund and its financial statements.
3
<PAGE>
Important Information
Investments in common stocks are subject to market fluctuations, providing the
potential for gain and the risk of loss. Lord Abbett Developing Growth Fund
invests in the securities of small-cap companies. Small-cap companies typically
have a higher risk of failure, and such companies' securities historically have
experienced a greater degree of illiquidity and market volatility than
securities of large-cap companies.
Results quoted on the previous pages 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 Russell 2000 Index is an unmanaged index that
measures small company stock market performance. Performance figures for the
unmanaged Russell 2000 Index do not reflect deduction of transaction costs or
management fees. An investor cannot invest directly in an index, such as the
Russell 2000 Index. The Fund issues additional classes of shares 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 current
prospectus. If used as sales material after 9/30/98, this report must be
accompanied by Lord Abbett's Performance Quarterly for the most recently
completed calendar quarter.
Statement of Net Assets
July 31, 1998
<TABLE>
<CAPTION>
Investments Shares Market Value
================================================================================================================
Investments in Common Stocks 93.14%
================================================================================================================
<C> <S> <C> <C>
Aerospace 1.46% * 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 506,000 $ 13,788,500
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Business Equipment General Binding Corp., Northbrook, IL-The leading
and Supplies .28% vendor of office binding and laminating systems
and related supplies 73,000 2,623,438
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Business Services 9.91% Aegis Communications Group Inc., Dallas,
telemarketing services TX-Provides inbound and
outbound contract 1,355,100 3,387,750
* Butler International Inc., Montvale, NJ-Provides
skilled engineers and technical personnel on a
contract basis in various industries 308,000 7,084,000
Caribiner International Inc., New York,
NY-International producer of meetings, events and
training programs 580,000 8,482,500
Championship Auto Racing, Troy, MI-Owns, operates,
and sanctions the open-wheel motorsports series in
North America 118,100 2,362,000
Computer Task Group Inc., Buffalo, NY-Provides
computer-related professional services to
commercial clients, including systems analysis,
programming and design projects 120,000 3,900,000
G & K Services, Inc., Minneapolis, MN-A lessor of
work garments and related textile products 145,000 7,213,750
Iron Mountain, Boston, MA-Records management
company 240,000 10,200,000
++* Labor Ready Inc., Tacoma, WA-Provides
temporary workers to the light industrial,
construction, and small business markets 200,000 6,375,000
+ 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 413,200 6,352,950
McGrath Rent Corp., San Leandro, CA-A lessor of
relocatable modular offices and electronic test
equipment 518,100 10,038,187
Norrell Corp., Atlanta, GA-Provides staffing,
outsourcing and professional services 400,000 7,675,000
* Precision Response Corp., Miami, FL-A
full-service provider of telephone-based customer
service and marketing solutions on an outsourced
basis 250,000 1,562,500
*+ Professional Staff plc, London, UK-An
international staffing company specializing in
high-level medical placement 340,000 4,760,000
++ Strategic Distribution Inc., Bensalem,
PA-Provides proprietary industrial supply
procurement solutions to industrial sites,
primarily through its In-Plant Store program 557,500 2,787,500
* SOS Staffing Services, Inc., Salt Lake City,
UT-Offers a full range of staffing services
through its 87 offices nationwide 175,000 3,609,375
++* TeleTech Holdings, Inc., Denver, CO-Provides
customer care management solutions to Fortune 500
and international companies 550,000 5,603,125
</TABLE>
4
<PAGE>
Statement of Net Assets
July 31, 1998
<TABLE>
<CAPTION>
Investments Shares Market Value
================================================================================================================
<C> <S> <C> <C>
The Marquee Group Inc., New York, NY-Provides
comprehensive management, marketing, sales,
consulting and production services to sports and
entertainment-related businesses, events,
athletes, broadcasters, journalists and executives 400,000 $ 2,125,000
Total 93,518,637
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Capital Goods 1.91% * Dionex Corp., Sunnyvale, CA-A manufacturer of
analytical instruments 80,000 1,775,000
* Flow International Corp., Kent, WA-Designs,
manufactures and sells ultra-high-pressure
waterjets for cutting metallic and non-metallic
materials 540,000 5,940,000
JLG Industries, Inc., McConnellsburg, PA-A leading
manufacturer of self-propelled aerial work
platforms 255,000 3,952,500
* Park-Ohio Holdings Corp., Cleveland,
OH-Manufactures plastic containers for food
products and industrial products for the airline,
automotive, rail and trucking industries 280,000 5,267,500
* Utilx Corporation, Kent, WA-Installs, replaces
and renovates underground utilities with
"Flowmole," "Revalt" and "CableCure" services 250,000 1,093,750
Total 18,028,750
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Chemicals .78% OM Group Inc., Cleveland, OH-Produces metal
carboxylates, and metal salts and powders 200,000 7,412,500
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Communications .77% * Active Voice Corp., Seattle, WA-Develops PC-based
call processing systems and computer telephone
integration products 130,000 1,153,750
Educational Development Corp., Tulsa, OK-A
marketer of non-fiction, instructional children's
books for retail trade outlets, home party plans,
and public and school libraries 133,000 465,500
IFR Systems, Wichita, KS-A designer, manufacturer
and marketer of electronic test instruments 175,000 3,106,250
* IWERKS Entertainment Inc., Burbank, CA-A creator
of interactive "virtual reality" systems and
attractions 511,251 990,548
++ Transcrypt International Inc., Lincoln,
NE-Designs and manufactures information security
products and wireless communications products and
systems 400,000 1,600,000
Total 7,316,048
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Computer Software and ++* Accelr8 Technology Corp., Denver, CO-A provider
Services 15.23% of tools and services for Year 2000 compliance and
for the conversion of Digital VAX/VMS legacy
systems to client/server environments 300,000 1,500,000
++ Activision Inc., Santa Monica, CA-Publishes and
distributes CD-based and cartridge-based
entertainment software 500,000 6,312,500
++* Allin Communications Corp., Pittsburgh,
PA-Provides customized interactive television
digital imaging and other communications and media
services 131,500 591,750
*+ Alphanet Solutions, Inc., Cedar Knolls,
NJ-Provides information technology products,
services and support 455,000 3,355,625
* Best Software Inc., Reston, VA-A leading provider
of asset, human resources and payroll management
software solutions for middle-market businesses 100,100 2,102,100
*+ Brightstar Information Technology Group Inc.,
Houston, TX-Provides implementation of enterprise
resource planning (ERP) software systems and
enterprise-wide business and technology solutions
to Fortune 1000 companies and other large
organizations 650,000 6,743,750
* Caere Corp., Los Gatos, CA-A world leader in
optical character recognition technology and a
leading developer of desktop forms-processing and
document-management products 600,000 8,737,500
* Cognicase Inc., Montreal, Canada-Provides
automated software maintenance solutions that
enable organizations to convert their computer
systems; developed "Congi-2000," a Year 2000
conversion software product 505,000 7,448,750
Computer Management Sciences Inc., Jacksonville,
FL-Provides information technology consulting and
custom software development services to large
corporations, state and local governments, and
other large organizations throughout the United
States 42,500 1,030,625
* CACI International Inc., Arlington, VA-Provides
information technology products and services
including the development and integration of
systems, software, and simulation products 270,000 5,332,500
++* CMG Information Services Inc., Andover,
MA-Invests in and integrates Internet, interactive
media and database technologies 136,700 9,312,687
Giga Information Group, Inc., Norwell, MA-Provides
information, analysis, and advice about the
information technology industry 225,000 2,840,625
Infinium Software Inc., Hyannis, MA-Offers
financial, human resources, materials management,
and process manufacturing business applications 227,400 3,297,300
* Information Management Resources Inc.,
Clearwater, FL-A leading provider of application
software outsourcing and Year 2000 services
worldwide 591,000 15,661,500
* INTERSOLV Inc., 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 220,000 3,712,500
</TABLE>
5
<PAGE>
Statement of Net Assets
July 31, 1998
<TABLE>
<CAPTION>
Investments Shares Market Value
================================================================================================================
<C> <S> <C> <C>
*+ Landmark Systems Corp., Vienna, VA-Manufactures
software products which allow corporate customers
to improve the performance of their computer
systems and keep critical business applications
working at peak efficiencies 833,000 $ 8,017,625
* Mastech Corporation, Oakdale, PA-Provides
information technology services worldwide 250,000 5,968,750
* Mercury Interactive Corp., Sunnyvale, CA-A
developer and marketer of client/server testing
and quality assurance software 110,000 4,551,250
Neomedia Technologies Inc., Fort Myers,
FL-Specializes in Year 2000 conversion and
intelligent document software solutions 147,500 428,672
++* Phoenix Tech Ltd., San Jose, CA-The world's
largest supplier of standards-based compatibility
software to the personal computer industry 375,000 4,171,875
*+ Radisys Corp., Hillsboro, OR-Designs and
produces embedded computer solutions 525,000 8,531,250
Smallworldwide plc, ADS, Cambridge, UK-Develops,
markets and supports client/server software for
the spatial design, engineering and management of
complex physical networks 234,800 3,742,125
Starbase Corp., Irvine, CA-Develops, markets and
supports StarTeam, an integrated suite of
application development tools 230,000 337,812
* SCB Computer Technology Inc., Memphis,
TN-Provides information technology management and
technical services 543,500 5,061,344
Tava Technologies Inc., Denver, CO-A systems
integrator that provides software applications,
system design and configuration in the
manufacturing process control industry 680,000 4,441,250
++* The Learning Company, Inc., Cambridge, MA-A
leading provider of consumer software 400,000 10,650,000
++ USWeb Corporation, Santa Clara, CA-Provides
Intranet, Extranet, and Web site solutions and
services to medium-sized and large companies 300,000 6,037,500
Viasoft Inc., Phoenix, AZ-Provides business
solutions, consisting of integrated technology and
specialized professional consulting services 60,000 772,500
Viasat Inc., Carlsbad, CA-Designs, produces, and
markets digital satellite telecommunications and
wireless signal processing equipment 175,000 3,062,500
Total 143,754,165
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Computer Systems and Micro Touch Systems Inc., Methuen, MA-Manufactures
Peripherals 1.18% touch- and pen-sensitive input screens known as
touchscreens 342,300 5,327,043
Sequent Computer Systems, Beaverton, OR-Provides
scalable, data-center-ready open systems solutions
for large organizations spanning diverse
industries 510,000 5,817,187
Total 11,144,230
- ----------------------------------------------------------------------------------------------------============
Consumer Products 4.69% * Dreyer's Grand Ice Cream Inc., Oakland, CA-Ice
cream manufacturer and distributor 200,000 3,406,250
Horizon Organic Holding Corp., Longmont,
CO-Produces, processes, and markets a line of
organic dairy products 10,000 156,250
Lumen Technologies Inc., Rye, NY-Develops,
manufactures and markets specialty light sources
and related products to markets requiring advanced
optical technologies 120,000 1,020,000
Matthews International Corp., Pittsburgh, PA-A
leading designer, manufacturer and marketer of
custom-made identification products 450,000 9,900,000
++* Northland Cranberries Inc., Class A, Wisconsin
Rapids, WI-Grows cranberries on its properties in
central and northern Wisconsin and Massachusetts,
and manufactures and markets a branded line of
juice products 573,000 7,019,250
* Polymer Group Inc., North Charleston, SC-Major
global manufacturer of non-woven materials 71,800 816,725
* Rock of Ages Corp., Graniteville, VT-An
integrated granite quarrier, manufacturer, and
distributor 100,000 1,337,500
*+ Security First Network Bank, Atlanta,
GA-Develops integrated, brandable Internet
applications that enable financial institutions to
offer products, services and transactions over the
Internet 475,000 11,043,750
The York Group, Inc., Houston, TX-Manufactures
metal and hardwood caskets and casket components 225,000 3,768,750
Wild Oats Markets Inc., Boulder, CO-A natural
foods supermarket chain 220,000 5,775,000
Total 44,243,475
- ----------------------------------------------------------------------------------------------------============
Data Processing ++* Advanced Digital Info Corp., Redmond, WA-A
Equipment and leading provider of automated data libraries for
Components 1.58% computer network and workstation markets and
microelectronic components for aerospace and
medical applications 128,800 1,304,100
* Ampex Corp., Redwood City, CA-A leading innovator
in the fields of magnetic recording image (MRI)
processing and high-performance digital storage 1,270,000 2,143,125
++* Micros Systems Inc., Beltsville, MD-Designs,
manufactures and markets point-of-sale electronic
information systems and related peripheral
equipment and software 305,000 11,437,500
Total 14,884,725
----------------------------------------------------------------------============
</TABLE>
6
<PAGE>
Statement of Net Assets
July 31, 1998
<TABLE>
<CAPTION>
Investments Shares Market Value
================================================================================================================
<C> <S> <C> <C>
Drugs/Pharmaceuticals ++* KOS Pharmaceuticals Inc., Miami, FL-Develops
1.28% prescription pharmaceutical products primarily for
the treatment of chronic cardiovascular and
respiratory diseases 390,000 $ 4,241,250
Pharmerica Inc., Tampa, FL-Provides institutional
pharmacy services to the elderly, chronically ill,
and disabled 1,200,000 7,837,500
Total 12,078,750
- ----------------------------------------------------------------------------------------------------============
Electronic Components * AdFlex Solutions, Inc., Chandler, AZ-A leading
6.05% supplier of flexible circuits 425,000 2,735,938
* Altron Corp., Wilmington, MA-A manufacturer of
electronic interconnect products employing printed
circuit technology 169,500 2,055,188
American Xtal Technology Inc., Fremont, CA-Uses a
proprietary crystal growth technique to produce
semiconductor substrates for a variety of
electronic and opto-electronic applications 150,000 1,818,750
Analogic Corp., Peabody, MA-A leading manufacturer
of high precision medical and industrial
diagnostic and measurement instruments and
equipment 150,000 6,112,500
Artesyn Technologies Inc., Boca Raton, FL-A
manufacturer of power supplies and measurement
control systems for industrial equipment 905,000 15,102,188
Ault Inc., Minneapolis, MN-The largest independent
manufacturer of external power conversion products 49,500 194,906
Dallas Semiconductor Corp., Dallas, TX-Develops,
manufactures and markets complementary metal oxide
silicon integrated circuits and
semiconductor-based subsystems 66,200 2,126,675
Harbinger Corp., Atlanta, GA-A worldwide provider
of electronic commerce software and services 700,000 6,059,375
++* Merix Corp., Forest Grove, OR-Manufacturer of
interconnect solutions for use in sophisticated
electronic equipment 265,000 1,590,000
Motive Power Inds., Inc., Pittsburgh,
PA-Manufactures products for rail and other
power-related industries 160,000 4,690,000
++ SLI Inc., Canton, MA-Manufactures and
distributes a variety of miniature lighting
products 135,600 3,084,900
Technitrol Inc., Trevose, PA-A worldwide
manufacturer of electronic components, electrical
contacts and assemblies, thermostatic and
clad-metal materials and components and related
items 375,000 8,859,375
* Trident International, Inc., Brookfields,
CT-Designs, manufactures and markets a proprietary
impulse inkjet technology to industrial OEMs
worldwide 169,000 2,640,625
Total 57,070,420
- ----------------------------------------------------------------------------------------------------============
Electronics 5.24% * Plantronics, Inc., Santa Cruz, CA-Leading
supplier of communication headset products and
services to users and providers worldwide 728,400 44,523,450
Theragenics Corp., Norcross, GA-Produces and sells
implantable radiation devices used in the
treatment of prostate cancer 300,000 4,912,500
Total 49,435,950
- ----------------------------------------------------------------------------------------------------============
Energy 10.30% Ceanic Corp., Houston, TX-Provides sub-sea
services and related products to the oil and gas
industries 255,000 5,036,250
* Core Laboratories N.V., Amsterdam, The
Netherlands-A provider of petroleum reservoir
analysis and environmental testing 528,000 11,055,000
* Dailey International Inc., Conroe, TX-Provides
directional drilling services and designs,
manufactures and rents technologically advanced
downhole tools for oil and gas drilling and
workover applications 275,000 1,203,125
* Dawson Geophysical Co., Midland, TX-A provider of
seismic data services to oil and gas drillers 185,000 3,121,875
* Dawson Production Services, Inc., San Antonio,
TX-Provides a range of workover, liquid and
production services for oil and gas wells in Texas
and Louisiana 377,600 5,168,400
*+ Edge Petroleum Corp., Houston, TX-An oil and gas
exploration company 590,000 5,383,750
Evergreen Res Inc., Denver, CO-Explores, develops,
operates, and acquires oil and gas properties 260,000 4,972,500
* EXCO Resources Rights, Dallas, TX-An independent
energy company that acquires, explores, and
develops natural gas properties 482,500 60,313
* Gulf Island Fabrication Inc., Houma, LA-Designs
offshore drilling and production platforms used in
the development and production of offshore oil and
gas reserves 410,000 7,380,000
++* Harken Energy Corp., Irving, TX-An oil and gas
exploration and production company that conducts
activities in the southwestern United States and
in Colombia 2,000,000 7,500,000
++ Independent Energy Holdings, plc, Solihull,
UK-Generates and markets electricity in the United
Kingdom 150,000 1,143,750
* OYO Geospace, Houston, TX-Designs and
manufactures instruments and equipment used in the
acquisition and processing of seismic data 52,000 1,059,500
* Seitel Inc., Houston, TX-An operator of a seismic
database and a provider of corollary geophysical
services to the petroleum industry 610,000 8,311,250
</TABLE>
7
<PAGE>
Statement of Net Assets
July 31, 1998
<TABLE>
<CAPTION>
Investments Shares Market Value
================================================================================================================
<C> <S> <C> <C>
Stillwater Mining Co., Denver, CO-Explores for,
develops, extracts, processes, and refines
platinum, palladium, and associated metals from
J-M Reef located in Stillwater and Sweet Grass
Counties, Montana 210,000 $ 5,748,750
++* 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 330,300 9,372,263
* Superior Energy Services, Inc., Belle, Chasse,
LA-Provider of oil field products and services in
the Gulf of Mexico 685,000 2,911,250
Transmontaigne Oil Co., Denver, CO-A holding
company which operates through its subsidiaries
primarily in the mid-continent and Rocky Mountain
regions of the United States 508,400 7,308,250
* Veritas dgc Inc., Houston, TX-Provides seismic
data acquisition and processing services on a
worldwide basis to the petroleum industry 46,000 1,529,500
Vintage Petroleum Inc., Tulsa, OK-Independent
energy company engaged in the exploitation and
development of oil and gas properties 622,000 8,902,375
Total 97,168,101
- ----------------------------------------------------------------------------------------------------============
Entertainment .20% + Harvey Entertainment Co., Los Angeles,
CA-Develops animation and licensing opportunities
based on the Harvey Classic Characters 235,000 1,894,688
- ----------------------------------------------------------------------------------------------------============
Environmental Services ECO Soil Systems Inc., San Diego, CA-Develops,
and Equipment .79% markets, and sells proprietary biological and
traditional chemical products that provide
solutions for a variety of turf and crop problems
in the golf and agricultural industries 600,000 5,850,000
Met-Pro Corp., Harleysville, PA-A manufacturer of
environmental treatment systems, specialty pumps
and filtration equipment 128,340 1,652,378
Total 7,502,378
- ----------------------------------------------------------------------------------------------------============
Financial 2.56% Dain Rauscher Corp., Minneapolis, MN-A provider of
investment advice and services to investors,
primarily in the western United States 140,000 7,560,000
++ Healthcare Realty Trust Inc., Toledo,
OH-Healthcare facility real estate investment
trust 320,000 9,040,000
++ Net Bank Inc., Atlanta, GA-Provider of banking
services over the Internet 235,000 6,697,500
++ Telebank Financial Corp., Arlington, VA-Provider
of banking services over the Internet 40,000 830,000
Total 24,127,500
- ----------------------------------------------------------------------------------------------------============
Healthcare .79% *+ Health Care Service Group, Inc., Huntingdon
Valley, PA-Provides operational services to
nursing home and retirement complexes 438,900 7,488,730
- ----------------------------------------------------------------------------------------------------============
Leisure 1.05% ++ Family Golf Centers Inc., Melville,
NY-Consolidates and operates golf centers 259,600 6,425,100
Steiner Leisure, Nassau, Bahamas-Provides spa
services aboard cruise ships worldwide 112,500 3,487,500
Total 9,912,600
- ----------------------------------------------------------------------------------------------------============
Measurement and ++* Identix Inc., Sunnyvale, CA-A leading designer,
Control Systems 2.33% developer, manufacturer and marketer of products
for the capture and comparison of fingerprints for
security, anti-fraud, law enforcement and other
applications 486,600 3,801,563
* In Focus Systems, Wilsonville, OR-Manufactures
and markets liquid crystal displays that allow
personal computer information to be displayed on
overhead projections 560,000 3,220,000
* LTX Corp., Westwood, MA-A supplier of linear,
digital, mixed-signal and discrete semiconductor
test equipment 688,000 2,666,000
++*+ LeCroy Corp., Chestnut Ridge, NY-Develops,
manufactures and markets principally
high-performance digital oscilloscopes and related
products 465,500 9,019,062
Microvision Inc., Seattle, WA-Develops,
manufactures and markets virtual retinal display
(VRD) technology, which projects images directly
onto eye's retina 100,000 975,000
* Thermedics Detection Inc., Chelmsford,
MA-Develops, manufactures and markets high-speed
systems used for product quality assurance in a
variety of industrial processes 258,900 2,297,738
Total 21,979,363
- ----------------------------------------------------------------------------------------------------============
Medical 9.12% ++ Advanced Tissue Sciences Inc., La Jolla,
CA-Develops technology relating to the replication
of bone marrow cells, skin cells, and other organs 230,000 675,625
Arrow International, Inc., Reading, PA-Supplies
disposable catheters and related clinical products 188,800 5,050,400
* ATS Medical Inc., Minneapolis, MN-Manufactures
and markets a pyrolytic carbon bileaflet
mechanical heart valve 500,000 3,562,500
++ Columbia Laboratories Inc., Miami, FL-An
international pharmaceutical company 400,000 3,575,000
* Counsel Corp., Toronto, Canada-A management and
business development company that operates within
the health and real estate sectors 350,000 2,821,875
Express Scripts Inc., Maryland Heights,
MD-Provides pharmacy benefit management to health
maintenance organizations 130,000 9,559,062
</TABLE>
8
<PAGE>
Statement of Net Assets
July 31, 1998
<TABLE>
<CAPTION>
Investments Shares Market Value
================================================================================================================
<C> <S> <C> <C>
++* Hologic Inc., Waltham, MA-Manufacturer of X-ray
systems 425,000 $ 7,039,062
Hooper Holmes Inc., Basking Ridge, NJ-Provider of
health information to the insurance industry 460,000 9,200,000
* Horizon Health Corp., Denton, TX-A manager of
mental health programs for general acute care
hospitals in the U.S. 357,500 4,558,125
++ Humascan Inc., Cranford, NJ-Manufactures and
markets the Breast Alert Differential Temperature
Sensor 100,000 175,000
++* Icos Corp., Bothell, VA-A bio-pharmaceutical
company that develops medications for the
treatment of chronic inflammatory diseases 493,500 11,597,250
Life Technologies, Inc., Gaithersburg, MD-A
supplier of products for life science research and
biotechnology manufacturing 85,000 3,214,063
* Matria Healthcare Inc., Marietta, GA-Provides
obstetrical home healthcare services that assist
physicians in the management of high-risk
pregnancies 1,000,000 3,312,500
* Maxxim Medical Inc., Sugarland, TX-Develops,
manufactures and distributes physical therapy
equipment and disposable hospital products 259,000 6,572,125
* 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 267,200 3,473,600
* Ostex International Inc., Seattle, WA-Develops
products used in the diagnosis of osteoporosis,
osteoarthritis and other skeletal diseases caused
by the breakdown of bone, cartilage and other
connective tissue 310,000 426,250
* Ovid Technologies Inc., New York, NY-Provides
electronic information retrieval services to the
biomedical, healthcare and academic markets 8,500 190,188
* Physio-Control International Corp., Redmond,
WA-Designs, manufactures, markets and services an
integrated line of non-invasive emergency cardiac
defibrillator and vital sign assessment devices
and disposable electrodes 291,300 7,792,275
Surmodics Inc., Eden Prairie, MN-Provides surface
modification solutions to the medical device
industry 70,000 831,250
++ Thermedics Inc., Waltham, MA-Develops,
manufactures and markets explosives and
drug-detection devices, product quality assurance
systems and other biomedical products 201,000 2,462,250
Total 86,088,400
- ----------------------------------------------------------------------------------------------------============
Miscellaneous 1.23% * Catellus Development Corp., San Francisco, CA-An
owner, developer and manager of real estate assets 300,000 4,893,750
Crossmann Communities Inc., Indianapolis, IN-A
single-family home builder in the Midwest 216,000 6,696,000
Total 11,589,750
- ----------------------------------------------------------------------------------------------------============
Retail 11.09% * Ames Dept Stores Inc., Rocky Hill, CT-The nation's
fifth largest discount department store chain,
with 303 stores in 14 northeastern states 400,000 8,550,000
++* CellStar Corp., Carrollton, TX-An integrated
wholesale distributor and retailer of cellular
telephones and related products 1,010,000 14,140,000
++ Cybershop Intl Inc., New York, NY-Retails
products through its online stores on the Internet
and America Online, Inc. 330,000 3,403,125
++ Eagle Hardware & Garden, Inc., Renton,
WA-Operates warehouse home improvement centers in
Washington, Utah, Alaska, Colorado, Hawaii, Oregon
and Montana 520,000 11,180,000
* Kenneth Cole Productions Inc., New York,
NY-Develops sources and markets a broad range of
footwear, handbags and accessories 230,000 4,729,375
Krause's Furniture Inc., Brea, CA-Manufactures and
sells made-to-order upholstered furniture and
accessories 600,000 1,012,500
* Meadowcraft Inc., Birmingham, AL-Produces casual
outdoor furniture and wrought iron consumer
products 456,700 5,737,294
* New West Eyeworks, Inc., Tempe, AZ-A specialty
retailer of eyewear 140,000 1,697,500
* Play by Play Toy & Novelties, Inc., San Antonio,
TX-Develops, markets and distributes stuffed toys
and sculpted toy pillows based upon its licenses
for children's entertainment characters and
corporate trademarks, and non-licensed stuffed
toys 200,000 2,000,000
* Quiksilver, Inc., Costa Mesa, CA-Designs,
arranges manufacture, and distributes casualwear,
snowboardwear and swimwear for young men, boys and
juniors under the Quiksilver label, and juniors'
swimwear and sportswear under the "Raisin" label 400,000 8,982,188
Shoe Carnival Inc., Evansville,IN-A retailer of
family footwear operating primarily in the
midwestern and mid-southern regions of the United
States 400,000 4,250,000
*+ 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 330,000 2,062,500
</TABLE>
9
<PAGE>
Statement of Net Assets
July 31, 1998
<TABLE>
<CAPTION>
Shares or
Investments Principal Amount Market Value
================================================================================================================
<C> <S> <C> <C>
Software Net Corp., San Jose, CA-An online
reseller of commercial off-the-shelf computer
software to the consumer, small business, and
large enterprise markets 25,000 $ 356,250
St. John Knits Inc., Irvine, CA-Designs,
manufactures, and markets women's clothing and
accessories 300,000 10,237,500
* Stage Stores Inc., Houston, TX-Owns and operates
apparel stores primarily in the central region of
the U.S. 130,000 3,306,875
* Tarrant Apparel Group, Los Angeles, CA-Designs,
merchandises and manufactures casual apparel 607,000 13,961,000
++* Toymax International Inc., Plainview,
NY-Creates, designs, develops and markets
children's activity and action toys, including
"Creepy Crawlers," "Talking Tina" and "Laser
Challenge" 370,000 2,728,750
Vans Inc., Santa Fe Springs, CA-Designs,
manufactures and distributes casual and active
casual footwear and apparel, performance footwear
and snowboardboots and snowboarding outerwear 660,000 6,352,500
Total 104,687,357
- ----------------------------------------------------------------------------------------------------============
Security Services 3.15% * Armor Holdings Inc., Jacksonville, FL-Worldwide
manufacturer and distributor of products and
services for the law enforcement, military and
security markets 800,000 7,950,000
Cornell Corrections, Houston, TX-Provides
privatized correctional, detention, and
pre-release services in the United States 350,000 5,381,250
Kroll-O'Gara Co., Fairfield, OH-A leading provider
of vehicle armoring systems for military,
commercial and governmental clients worldwide 855,500 16,361,437
Total 29,692,687
- ----------------------------------------------------------------------------------------------------============
Telecommunications .17% Boston Communications Group, Woburn, MA-Develops,
markets and provides specialized roaming services,
teleservices and prepaid wireless services to the
wireless telephone industry 200,000 1,600,000
----------------------------------------------------------------------============
Total Investments in Common Stocks (Cost $786,482,324) 879,031,142
================================================================================================================
Other Assets, Less Liabilities 6.86%
================================================================================================================
Short-Term Investments American Express Credit Corp. 5.63% due 8/3/1998 50,000M 50,000,000
Anheuser Busch Co. 5.63% due 8/3/1998 3,320M 3,318,442
Bank One Corp. 5.63% due 8/3/1998 22,823M 22,812,293
Federal Home Loan Mortgage 5.63% due 8/3/1998 13,407M 13,400,788
Other (See Note 5) 89,251,920
Total Short-Term Investments (Cost $178,783,443) 178,783,443
- ----------------------------------------------------------------------------------------------------============
Cash 832,411
- ----------------------------------------------------------------------------------------------------============
Receivable for: Capital stock sold 8,892,798
Securities sold 659,003
Other 92,972
Total Other Assets 189,260,627
- ----------------------------------------------------------------------------------------------------============
Payable for: Cash collateral on securities 89,251,920
Securities purchased 33,645,209
Capital stock reacquired 1,519,938
Other 101,852
Total Liabilities 124,518,919
- ----------------------------------------------------------------------------------------------------============
Total Other Assets, Less Liabilities 64,741,708
================================================================================================================
Net Assets 100.00% $943,772,850
================================================================================================================
Class A Shares-Net asset value ($677,637,844 /
46,973,261 shares outstanding) $14.43
Class B Shares-Net asset value ($131,889,643 /
9,260,597 shares outstanding) $14.24
Class C Shares-Net asset value ($83,902,287 /
5,885,361 shares outstanding) $14.26
Class P Shares-Net asset value ($16,095,191 /
1,117,814 shares outstanding) $14.40
Class Y Shares-Net asset value ($34,247,885 /
2,370,453 shares outstanding) $14.45
</TABLE>
* Non-income producing.
+ Affiliated company. See Note 6.
++ Security on loan. See Note 5.
See Notes to Financial Statements.
10
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Investment Income Six Months Ended July 31, 1998
========================================================================================================================
<S> <C> <C> <C>
Income Interest $ 1,714,360
Dividends 621,674
Total income $ 2,336,034
----------------------------------------------------------------------------------------------------------
Expenses Management fee 2,050,882
12b-1 distribution plan-Class A 755,786
12b-1 distribution plan-Class B 518,936
12b-1 distribution plan-Class C 315,154
12b-1 distribution plan-Class P 10,434
Shareholder servicing 419,313
Reports to shareholders 72,332
Directors 7,220
Registration 32,517
Professional 26,388
Other 5,501
Total expenses 4,214,463
----------------------------------------------------------------------------------------------------------
Net investment loss (1,878,429)
----------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments
========================================================================================================================
Realized gain from investment transactions
Proceeds from sales 100,787,506
Cost of investments sold 68,574,905
----------------------------------------------------------------------------------------------------------
Net realized gain 32,212,601
----------------------------------------------------------------------------------------------------------
Unrealized depreciation of investments (53,129,373)
========================================================================================================================
Net realized and unrealized loss on investments (20,916,772)
- ------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations $(22,795,201)
========================================================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended Year Ended
July 31, January 31,
Increase (Decrease) in Net Assets 1998 1998
========================================================================================================================
<S> <C> <C> <C>
Operations Net investment loss $(1,878,429) $(3,251,003)
Net realized gain from investment transactions 32,212,601 48,514,192
Net realized appreciation (depreciation) of investments (53,129,373) 36,271,007
Net increase (decrease) in net assets resulting from operations (22,795,201) 81,534,196
----------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain from investment transactions:
Class A (1,560,146) (43,360,087)
Class B (118,251) (3,522,191)
Class C (65,140) (2,197,511)
Class P (2,871) --
Class Y (11) --
Total (1,746,419) (49,079,789)
----------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sales of shares 471,692,002 242,730,868
Net asset value of shares issued in reinvestment of net investment
income and realized gain from investment transactions 1,677,861 46,570,050
Total 473,369,863 289,300,918
----------------------------------------------------------------------------------------------------------
Cost of shares reacquired (58,141,679) (99,027,207)
----------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions 415,228,184 190,273,711
----------------------------------------------------------------------------------------------------------
Increase in net assets 390,686,564 222,728,118
- ------------------------------------------------------------------------------------------------------------------------
Net Assets
Beginning of period 553,086,286 330,358,168
----------------------------------------------------------------------------------------------------------
End of period (including net investment loss of $1,941,235 and
$62,806, respectively) $943,772,850 $553,086,286
==========================================================================================================
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares
----------------------------------------------------------------------------
Six Months Ended Year Ended January 31,
Per Share Operating Performance: 7/31/98 1998 1997 1996 1995 1994
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.27 $12.80 $11.49 $9.58 $10.65 $10.11
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations
Net investment loss (.03)(a) (.10)(a) (.03) (.02) (.04) (.05)
Net realized and unrealized gain (loss) on investments .24 3.16 3.12 4.80 (.22) 1.62
Total from investment operations .21 3.06 3.09 4.78 (.26) 1.57
---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain (.05) (1.59) (1.78) (2.87) (.81) (1.03)
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.43 $14.27 $12.80 $11.49 $9.58 $10.65
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return(b) 1.44%(c) 24.38%(c) 28.35% 50.22% (2.74)% 16.41%
=================================================================================================================================
Ratios to Average Net Assets:
Expenses .46%(c) 1.06%(c) 1.10% 1.03% 1.31% 1.34%
Net investment loss (.17)%(c) (.72)%(c) (.67)% (.52)% (.38)% (.51)%
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Class C Shares
----------------------------------------- -------------------------------------
Six Year August 1, Six Year August 1,
Months Ended 1996(d) to Months Ended to 1996(d)
Ended January January Ended January January
Per Share Operating Performance: 7/31/98 31, 1998 31, 1997 7/31/98 31, 1998 31, 1997
============================================================================================ =====================================
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.12 $12.75 $12.14 $14.13 $12.75 $12.14
- -------------------------------------------------------------------------------------------- -------------------------------------
Income (loss) from investment operations
Net investment loss (.08)(a) (.20)(a) (.05) (.08)(a) (.19)(a) (.05)
Net realized and unrealized gain on investments .23 3.14 2.28 .24 3.14 2.28
Total from investment operations .15 2.94 2.23 .16 2.95 2.23
-------------------------------------------------------------------------------------- -------------------------------------
Distributions from net realized gain (.03) (1.57) (1.62) (.03) (1.57) (1.62)
-------------------------------------------------------------------------------------- -------------------------------------
Net asset value, end of period $14.24 $14.12 $12.75 $14.26 $14.13 $12.75
- -------------------------------------------------------------------------------------------- -------------------------------------
Total Return(b) 1.02%(c) 23.48%(c) 19.43%(c) 1.09%(c) 23.55%(c) 19.43%(c)
===================================================================================================================================
Ratios to Average Net Assets:
Expenses .83%(c) 1.76% .93%(c) .83%(c) 1.71%(c) .93%(c)
Net investment loss (.52)%(c) (1.39)%(c) (.73)%(c) (.52)%(c) (1.34)%(c) (.73)%(c)
=============================================================================================================================
</TABLE>
13
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class P Shares Class Y Shares
-------------------------- ----------------------------
Six January 5, Six December 30,
Months 1998(d) to Months 1997(d) to
Ended January 31, Ended January 31,
Per Share Operating Performance: 7/31/98 1998 7/31/98 1998
=========================================================================================== ============================
<S> <C> <C> <C> <C>
Net asset value, beginning of period $14.26 $14.38 $14.27 $14.12
- ------------------------------------------------------------------------------------------- ----------------------------
Income (loss) from investment operations
Net investment income (loss) (.03)(a) (.01)(a) .01(a) --(a)(e)
Net realized and unrealized gain (loss) on investments .22 (.11) .22 .15
Total from investment operations .19 (.12) .23 .15
------------------------------------------------------------------------------------- ----------------------------
Distributions from net realized gain (.05) -- (.05) --
------------------------------------------------------------------------------------- ----------------------------
Net asset value, end of period $14.40 $14.26 $14.45 $14.27
- ------------------------------------------------------------------------------------------- ----------------------------
Total Return(c) 1.30% (.83)% 1.58% 1.06%
=========================================================================================================================
Ratios to Average Net Assets(c):
Expenses .53% .08% .31% .06%
Net investment loss (.18)% (.05)% .03% (.02)%
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended Year Ended January 31,
Supplemental Data for All Classes: 7/31/98 1998 1997 1996 1995 1994
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net assets, end of period (000) $943,773 $553,086 $330,358 $197,602 $127,579 $143,693
Portfolio turnover rate 14.06% 33.60% 42.35% 50.12% 17.57% 16.29%
==================================================================================================================
</TABLE>
(a) Calculated using average shares outstanding during the period.
(b) Total return does not consider the effects of sales loads.
(c) Not annualized.
(d) Commencement of offering respective class shares.
(e) Amount less than $.01.
See Notes to Financial Statements.
14
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies Lord Abbett Developing Growth Fund, Inc. (the
"Company") is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The financial statements
have been prepared in conformity with generally accepted accounting principles,
which require management to make certain estimates and assumptions at the date
of the financial statements. The following is a summary of the significant
accounting policies followed by the Company: (a) Market value is determined as
follows: 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, or, in
the case of bonds, in the over-the-counter market if, in the judgment of the
Company's officers, that market more accurately reflects the market value of the
bonds. Securities traded only in the over-the-counter market are valued at the
mean between the bid and asked prices, 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. Short-term securities are valued at amortized cost (which
approximates market value) if the maturity is 60 days or less at the time of
purchase, or market value if the maturity is greater than 60 days. Securities
for which market quotations are not available are valued at fair value under
procedures approved by the Board of Directors. (b) It is the policy of the
Company to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its taxable income.
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). Realized gains and losses from investment transactions are
calculated on the identified cost basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. Net investment income (other than distribution and service
fees) and realized and unrealized gains or losses are allocated to each class of
shares based upon the relative proportion of net assets at the beginning of the
day. (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. Management Fee and Other Transactions with Affiliates The Company has a
management agreement with Lord, Abbett & Co. ("Lord Abbett") pursuant to which
Lord Abbett supplies the Company with investment management services and
executive and other personnel, pays the remuneration of officers, provides
office space and pays for ordinary and necessary office and clerical expenses
relating to research, statistical work and the supervision of the Company's
investment portfolio. The management fee is based on average daily net assets
for each month at the annual rate of 0.75% of the Company's first $100 million
of average daily net assets and 0.50% of such assets over $100 million.
The Company has Rule 12b-1 plans and agreements (the "Class A, Class B, Class C
and Class P Plans") with Lord Abbett Distributor LLC ("Distributor"), an
affiliate of Lord Abbett. The Company makes payments to Distributor which uses
or passes on such payments to authorized institutions. Pursuant to the Class A
Plan, the Company pays Distributor (1) an annual service fee of 0.15% of the
average daily net asset value of shares sold prior to June 1, 1990 and 0.25% of
the average daily net asset value of shares sold on or after that date, (2) a
one-time distribution fee of up to 1% on certain qualifying purchases and (3) a
supplemental annual distribution fee of 0.10% of the average daily net asset
value of Class A shares serviced by certain qualifying institutions. Pursuant to
the Class B Plan, the Company pays Distributor an annual service and
distribution fee of 0.25% and 0.75%, respectively, of the average daily net
asset value of the Class B shares. Pursuant to the Class C Plan, the Company
pays Distributor (1) a service fee and a distribution fee, at the time such
shares are sold, not to exceed 0.25% and 0.75%, respectively, of the net asset
value of such shares sold and (2) at each quarter-end after the first
anniversary of the sale of such shares, a service fee and a distribution fee at
an annual rate not to exceed 0.25% and 0.75%, respectively, of the average
annual net asset value of such shares outstanding. Pursuant to the Class P Plan,
the Company pays Distributor an annual service and distribution fee of 0.20% and
0.25%, respectively, of the average daily net asset value of the Class P shares.
Class Y does not have a Plan.
Distributor received $505,598 representing payment of commissions on sales of
Class A shares after deducting $3,205,984 allowed to authorized distributors as
concessions. Certain of the Company's officers and directors have an interest in
Lord Abbett.
3. Distributions Net realized gain from investment transactions is distributed
to shareholders annually. Accumulated undistributed net realized gain at July
31, 1998 for financial reporting purposes aggregated $31,871,987.
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 capital gains amounts in accordance with generally
accepted accounting principles.
4. Capital The Company has authorized 1 billion shares of $.001 par value
capital stock designated as follows: Class A-895 million shares, Class B-20
million shares, Class C-25 million shares, Class P-30 million shares and Class
Y-30 million shares. Paid in capital amounted to $821,293,280 at July 31, 1998.
Transactions in shares of capital stock were as follows:
Six Months Ended Year Ended
July 31, 1998 January 31, 1998
-------------------------- --------------------------
Class A Shares Amount Shares Amount
- ------------------------------------------------- --------------------------
Sales of shares 17,653,603 $273,316,013 10,892,536 $154,647,991
Shares issued to
shareholders in
reinvestment of
realized gains
from investment
transactions 98,899 1,500,288 2,945,604 41,100,136
Total 17,752,502 274,816,301 13,838,140 195,748,127
- ------------------------------------------------- --------------------------
Shares reacquired (2,780,411) (43,227,078) (6,740,126) (91,616,719)
Increase in shares 14,972,091 $231,589,223 7,098,014 $104,131,408
- -------------------------------------------------------------------------------
Six Months Ended Year Ended
July 31, 1998 January 31, 1998
-------------------------- --------------------------
Class B Shares Amount Shares Amount
- ------------------------------------------------- --------------------------
Sales of shares 5,355,373 $82,700,325 3,871,210 $56,300,946
Shares issued to
shareholders in
reinvestment of
realized gains
from investment
transactions 7,448 111,870 239,708 3,352,716
Total 5,362,821 82,812,195 4,110,918 59,653,662
- ------------------------------------------------- --------------------------
Shares reacquired (500,091) (7,634,518) (274,101) (3,816,832)
Increase in shares 4,862,730 $75,177,677 3,836,817 $55,836,830
- -------------------------------------------------------------------------------
15
<PAGE>
Notes to Financial Statements
Six Months Ended Year Ended
July 31, 1998 January 31, 1998
-------------------------- --------------------------
Class C Shares Amount Shares Amount
- ------------------------------------------------- --------------------------
Sales of shares 3,933,342 $60,852,558 2,131,700 $31,125,282
Shares issued to
shareholders in
reinvestment of
realized gains
from investment
transactions 4,177 62,820 151,286 2,117,198
Total 3,937,519 60,915,378 2,282,986 33,242,480
- ------------------------------------------------- --------------------------
Shares reacquired (430,890) (6,593,113) (252,520) (3,593,656)
Increase in shares 3,506,629 $54,322,265 2,030,466 $29,648,824
- -------------------------------------------------------------------------------
January 5, 1998
(Commencement of
Six Months Ended offering Class P shares)
July 31, 1998 to January 31, 1998
-------------------------- --------------------------
Class P Shares Amount Shares Amount
- ------------------------------------------------- --------------------------
Sales of shares 1,116,666 $17,317,583 45,439 $653,411
Shares issued to
shareholders in
reinvestment of
realized gains
from investment
transactions 190 2,872 -- --
Total 1,116,856 17,320,455 45,439 653,411
- ------------------------------------------------- --------------------------
Shares reacquired (44,481) (686,970) -- --
Increase in shares 1,072,375 $16,633,485 45,439 $653,411
- -------------------------------------------------------------------------------
December 30, 1997
(Commencement of
Six Months Ended offering Class Y shares)
July 31, 1998 to January 31, 1998
-------------------------- --------------------------
Class Y Shares Amount Shares Amount
- ------------------------------------------------- --------------------------
Sales of shares 2,370,223 $37,505,523 229 $3,238
Shares issued to
shareholders in
reinvestment of
realized gains
from investment
transactions 1 11 -- --
Total 2,370,224 37,505,534 229 3,238
- ------------------------------------------------- --------------------------
Increase in shares 2,370,224 $37,505,534 229 $3,238
- -------------------------------------------------------------------------------
5. Purchases and Sales of Securities The Company loans its portfolio securities
to brokers. As of July 31, 1998, the market value of securities on loan to
brokers was $89,251,920 for which the Company has obtained collateral
aggregating $94,874,003 consisting of cash. Purchases and sales of investment
securities (other than short-term investments) aggregated $472,950,570 and
$100,787,506, respectively. As of July 31, 1998, net unrealized appreciation for
federal income tax purposes aggregated $92,548,818, of which $199,309,986
related to appreciated securities and $106,761,168 related to depreciated
securities. For federal income tax purposes, the identified cost of investments
owned at July 31, 1998 was substantially the same as the cost for financial
reporting purposes.
6. Transactions with Affiliated Companies An affiliated company is a company in
which the Fund has ownership of at least 5% of the voting securities of the
underlying issuer. Transactions during the period with companies which are
affiliates are as follows:
Balance of
Shares Held Gross Gross
Affiliates Jan. 31, 1998 Purchases Sales
- --------------------------------------------------------------------------------
Alphanet Solutions, Inc. 455,000 -- --
Brightstar Information
Technology Group, Inc. -- 650,000 --
Edge Petroleum Corp. 530,700 59,300 --
Harvey Entertainment Co. -- 235,000 --
Health Care Service
Group, Inc. 418,900 20,000 --
Landmark System Corp. 530,000 303,000 --
LeCroy Corp. 95,500 370,000 --
M/A/R/C Inc. 190,500 222,700 --
Professional Staff plc 148,500 191,500 --
Radisys Corp. 85,000 440,000 --
Security First Network Bank 365,000 110,000 --
Sirena Apparel Group, Inc. 230,000 100,000 --
- --------------------------------------------------------------------------------
Balance of Dividend Income
Shares Held Value Feb. 1, 1998 to
Affiliates July 31, 1998 July 31, 1998 July 31, 1998
- --------------------------------------------------------------------------------
Alphanet Solutions, Inc. 455,000 $ 3,355,625 $ --
Brightstar Information
Technology Group, Inc. 650,000 6,743,750 --
Edge Petroleum Corp. 590,000 5,383,750 --
Harvey Entertainment Co. 235,000 1,894,688 --
Health Care Service
Group, Inc. 438,900 7,488,730 --
Landmark System Corp. 833,000 8,017,625 --
LeCroy Corp. 465,500 9,019,062 --
M/A/R/C Inc. 413,200 6,352,950 66,690
Professional Staff plc 340,000 4,760,000 --
Radisys Corp. 525,000 8,531,250 --
Security First Network Bank 475,000 11,043,750 --
Sirena Apparel Group, Inc. 330,000 2,062,500 --
- --------------------------------------------------------------------------------
$74,653,680 $66,690
----------------------------
7. Directors' Remuneration The Directors of the Company associated with Lord
Abbett and all officers of the Company receive no compensation from the Company
for acting as such. Outside Directors' fees and retirement costs are allocated
among all funds in the Lord Abbett group based on net assets of each fund.
Directors' fees payable at July 31, 1998, under a deferred compensation plan,
were $331,000.
8. Line of Credit The Company along with certain other funds managed by Lord
Abbett, have available a $200,000,000 unsecured revolving credit facility
("Facility"), from a consortium of banks, to be used for temporary or emergency
purposes as an additional source of liquidity to fund redemptions of investor
shares. Any borrowings under this Facility will bear interest at current market
rates as defined in the agreement. The fee for this Facility is 0.05% per annum.
There were no loans outstanding pursuant to this Facility at July 31, 1998, nor
was the Facility utilized at any time during the period.
Copyright (C) 1998 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.
16
<PAGE>
Lord Abbett & Co.
Portfolio Manager Profile
[PHOTO OMITTED]
Stephen J. McGruder
Senior Portfolio Manager
Lord Abbett Developing Growth Fund
Stephen J. McGruder, Senior Portfolio Manager and Executive Vice President of
Lord Abbett Developing Growth Fund, joined the Firm in 1995. His prior
experience includes: Vice President and Portfolio Manager of Wafra Investment
Advisory Group, Vice President and Portfolio Manager of The Portfolio Group
(Chemical Bank); Vice President and Portfolio Manager of Surveyor Fund with
Alliance Capital; which was the successor to F. Eberstadt & Co., where he was
also Vice President of Chemical Fund.
Mr. McGruder earned a BS in Chemistry from Stanford University and a BA in
Business Economics from Claremont McKenna College. He is a holder of a Chartered
Financial Analyst designation and has been in the investment business since
1969.
About Your Fund's Board of Directors
The Securities and Exchange Commission (SEC) views the role of the independent
Board of Directors as one of the most important components in overseeing a
mutual fund. The Board of Directors watches over your Fund's general operations
and represents your interests. Board members review and approve every contract
between your Fund and Lord, Abbett & Co. (the Fund's investment manager) and
Lord Abbett Distributor LLC (the Fund's underwriter). They meet regularly to
review a wide variety of information and issues regarding your Fund. Every
member of the Board possesses extensive business experience. Lord Abbett
Developing Growth Fund's shareholders are indeed fortunate to have a group of
independent directors with diverse backgrounds to provide a variety of
viewpoints in the oversight of their Fund. Below, we feature one of our
independent directors, E. Thayer Bigelow, Jr.
E. Thayer Bigelow, Jr.
Director--Lord Abbett
Developing Growth Fund
[PHOTO OMITTED]
Mr. Bigelow is a graduate of Trinity College and earned his MBA at the
University of Virginia's Darden Business School. He is currently the CEO of
Court Room Television Network, and previously served for five years as President
and CEO of Time Warner Cable Programming, Inc.
Mr. Bigelow serves as a member of the Board of Trustees for the Cate School. He
is also a member of the Board of Directors for the Visiting Nurse Service of New
York, Crane Co., Medusa Inc., and The Boys Club of New York. He has been an
independent director for all of Lord Abbett's funds since 1994. Lord, Abbett &
Co.
<PAGE>
Investing in the
Lord Abbett
Family of Funds
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Growth
- --------------------------------------------------------------------------------------------------------------------
Income
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Funds Growth & Balanced Fund Income Funds Tax-Free Money
Growth Fund Income Funds Income Funds Market Fund
Developing Alpha Series Affiliated Fund Balanced Series Bond-Debenture o National U.S. Government
Growth Fund Fund o California Securities
Global Fund- Growth & o Connecticut Money Market
Equity Series Income Series Global Fund- o Florida Fund**+
Income Series o Georgia
International Research Fund- o Hawaii
Series Large-Cap Limited Duration o Michigan
Series U.S. Government o Minnesota
Mid-Cap Securities Series** o Missouri
Value Fund o New Jersey
U.S. Government o New York
Research Fund- Securities Series** o Pennsylvania
Small-Cap o Texas
Series* World Bond- o Washington
Debenture Series
</TABLE>
Finding the right mutual fund can be confusing. At Lord, Abbett & Co., we
believe your investment professional provides value in helping you identify and
understand your investment objectives and, ultimately, offering fund
recommendations suitable for your individual needs.
This publication, when used as sales literature, is to be distributed only if
preceded or accompanied by a current prospectus for Lord Abbett Developing
Growth Fund.
For more complete information about any other Lord Abbett fund, including
charges and expenses, call your investment professional or Lord Abbett
Distributor LLC at 800-874-3733 for a prospectus. Read it carefully before
investing.
When you invest in a family of funds, you benefit from:
Diversification. You and your investment professional can diversify your
investments between equity and income funds.
Flexibility. As your investment goals change, your investment professional can
help you reallocate your portfolio.
As an investor in the Lord Abbett Family of Funds, you have access to 30
portfolios designed to meet a variety of investment needs. While you may
reallocate your assets among our funds at any time, we recommend speaking with
your invest-ment professional to help you customize your investment plan.
Numbers to Keep Handy
For Shareholder Account or Statement Inquiries: 800-821-5129
For Literature Only: 800-874-3733
For 24-Hour Automated Shareholder Service Line: 800-865-7582
Visit Our Web Site: http://www.lordabbett.com
* Lord Abbett Research Fund-Small-Cap Series is closed to new investors.
** An investment in this Fund is neither insured nor guaranteed by the U.S.
Government.
+ An investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Fund. This Fund is managed
to maintain, and has maintained its stable $1.00 price per share.
[LOGO(R)] LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
Lord Abbett mutual funds are distributed by:
LORD ABBETT DISTRIBUTOR LLC LADG-3-798
- ------------------------------------------------------------
The GM Building o 767 Fifth Avenue o New York, NY 10153-0203 (9/98)
