Lord Abbett Developing
Growth Fund
1998 Annual Report
[GRAPHIC: Three Blocks, A, B and C]
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 can't seem to do any wrong these days...It
has become a superstar in its category...[and is] one of the best offerings in
the small-growth category... Resilience, combined with the fund's high returns,
makes it an outstanding small-growth choice."
Morningstar Mutual Funds, November 21, 1997
- --------------------------------------------------------------------------------
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: "large-cap" stocks (companies with
market capitalizations in excess of $5 billion)
behave differently than "small-cap" stocks
(companies with market capitalizations of $750
million or less). Year-to-year volatility is
higher for small-cap stocks, but, as the chart
below illustrates, small stocks have provided
double-digit average annual returns each of the
last six decades.
Average Annual Returns During Each Decade(1)
[The following table was depicted as a bar chart in the printed material.]
Small-cap stocks Large-cap stocks
---------------- ----------------
1940s 20.7% 9.2%
1950s 16.9% 19.4%
1960s 15.5% 7.8*
1970s 11.5% 5.9*
1980s 15.8% 17.6*
1990s* 16.5% 16.6*
*1990-1997
Lord Abbett Developing Growth Fund invests in
stocks of small, developing companies. These
securities offer unusual growth potential and,
not surprisingly, entail more investor risk.
However, when used as part of a diversified
portfolio of securities, these 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 12/31/97 were:
[The following table was depicted as a bar chart in the printed material.]
1 year 23.30%
5 years 21.26%
10 years 15.95%
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) Source: (C) Computed using data from Stocks,
Bonds, Bills, & Inflation 1998 Yearbook(TM),
Ibbotson Associates, Chicago (annually
updates work by Roger G. Ibbotson and Rex
Sinquefield). Used with permission. All
rights reserved. This chart does not
represent past or future performance of Lord
Abbett Developing Growth Fund.
<PAGE>
Report to Shareholders
For the Fiscal Year Ended January 31, 1998
[PHOTO: Robert S. Dow]
/s/ Robert S. Dow
- ---------------------------
Robert S. Dow
Chairman
February 5, 1998
"Our criteria...during the period remained focused on reasonably priced stocks
of companies with long-term potential..."
Lord Abbett Developing Growth Fund completed its
fiscal year on January 31, 1998, with net assets
of $553 million. Below is an overview of
class-specific data for the period.
Fiscal Year Ended 1/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C Class P Class Y
(1/5/98 (12/30/97
to 1/31/98)* to 1/31/98)*
- --------------------------------------------------------------------------------
Net asset value $14.27 $14.12 $14.13 $14.26 $14.27
Capital gains $ 1.59 $ 1.57 $ 1.57 $ - $ -
Total return** +24.4% +23.5% +23.6% -0.8%+ +1.1%+
Throughout the period, your Fund continued its
strategy of identifying and investing in unique
companies that we believe offer good long-term
earnings prospects. Our emphasis on fundamental
research proved most beneficial, as the financial
markets have demonstrated little tolerance for
earnings shortfalls. Furthermore, the market's
overfocus on these short-term earnings
disappointments provided buying opportunities for
your Fund's management team.
While the sector allocation of your portfolio
continues to be well diversified, there was a
slight overweighting in the energy and software
sectors, where we found many of our strongest
performers. Our criteria for stock-picking during
the period remained focused on reasonably priced
stocks of companies with long-term potential, and
away from the high-multiple momentum stocks of
very fast-growing companies. While these
fast-growing companies frequently made headlines
during the past year, they did not always offer
the long-term stock price appreciation potential
our management team seeks.
Our outlook for 1998 is for economic growth to
slow to 2%-21/2%, with inflation likely to remain
moderate. We are encouraged by the belief that
many of our holdings will continue to experience
growth, albeit in a slowing economy, due to the
unique nature of the products and services they
provide. Furthermore, we believe that changes in
tax laws lowering capital gains tax rates are
encouraging to the growth arena in general, and
particularly, the small-cap marketplace.
Our long-term outlook for the Fund remains
positive given our economic forecasts, and the
fact that the portfolio is largely composed of
proven businesses with outstanding opportunities
to grow.
Thank you for your continued confidence in Lord
Abbett Developing Growth Fund. We look forward to
maintaining our relationship in the coming years
and helping you achieve your financial goals.
* Commencement of offering respective Class shares.
** Total return shown is the percent change in net
asset value, assuming the reinvestment of all
distributions.
+ Not annualized.
1
<PAGE>
Focus on...Performance
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:
2/1/78-1/31/98
[GRAPHIC OMITTED]
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.
The Fund Versus the Benchmarks
As shown in the charts below, over the last 3-
and 5-year periods ended 1/31/98, 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).*
Furthermore, over these periods, the Fund
outpaced large company stocks (as measured by the
unmanaged S&P 500 Index). 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 stocks have been rewarded with strong
returns (see charts on inside front cover).
Impressive Total Returns
[The following table was depicted as a bar chart in the printed material.]
Lipper Average of Unmanaged S&P
The Fund Small Cap funds 500 Index
-------- --------------- ---------
3 Years 33.9% 22.7% 30.5%
5 Years 21.1% 15.8% 20.3%
Returns represent the percent change in net asset
value for Class A shares over the 3- and 5-year
periods ended 1/31/98 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.
* Lipper Analytical Services, Inc. tracks and
reports on the performance of mutual funds based
on total returns (i.e., changes in net asset
value, including reinvestment of distributions).
2
<PAGE>
Focus on...Small, Growing Companies
The Fund seeks to invest in companies that have
passed through the initial, formative years and
are in the "developing growth" phase. 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. 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
[GRAPHIC OMITTED]
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 first 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.
To keep pace with the rapidly changing world
around us, Lord Abbett Developing Growth 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 offer choices to
fit all our different lifestyles and needs.
Investing in Lord Abbett Developing Growth Fund
is investing in the future. Invest in the future,
today.
Portfolio
Manager
Profile
[PHOTO: Stephen J. McGruder]
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.
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 large-cap companies and
their securities.
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 S&P 500 is an unmanaged index
consisting of the common stocks of the 500
domestically-traded companies with the largest
market capitalizations and is widely followed by
the investment community. Performance figures for
the unmanaged S&P 500 do not reflect deduction of
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 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 3/31/98, this report must be
accompanied by Lord Abbett's Performance
Quarterly for the most recently completed
calendar quarter.
Statement of Net Assets
January 31, 1998
<TABLE>
<CAPTION>
Investments Shares Market Value
===================================================================================================================================
Investments in Common Stocks 95.43%
===================================================================================================================================
<S> <C> <C>
Business Equipment
and Supplies .41%
General Binding Corp., Northbrook, IL-The leading vendor of office binding and laminating
systems and related supplies 73,000 $ 2,258,438
- ------------------------------------------------------------------------------------------------------------------------===========
Business Services 8.67%
*ATC Communications Group, Inc., Dallas, TX-Provides inbound and outbound contract
telemarketing services to a variety of companies in various industries 1,014,900 1,807,791
*Butler International Inc., Montvale, NJ-Provides skilled engineers and technical personnel
on a contract basis in various industries 308,000 5,390,000
Computer Task Group Inc., Buffalo, NY-Provides computer-related professional services to
commercial clients, including systems analysis, programming and design projects 120,000 4,500,000
*Employee Solutions Inc., Phoenix, AZ-A leading provider of employee payroll,
human resources and benefits outsourcing services 200,000 987,500
G & K Services, Inc., Class A, Minneapolis, MN-A lessor of work garments and related
textile products 145,000 6,126,250
*Labor Ready, Inc., Tacoma, WA-Provides temporary workers to the light industrial, construction
and small business markets in 40 states and Canada 100,000 2,012,500
M/A/R/C Inc., Irving, TX-Offers market research, database marketing and counseling services
to companies in the pharmaceutical, retailing, telecommunications and financial services markets 190,500 3,405,187
McGrath Rent Corp., San Leandro, CA-A lessor of relocatable modular offices and electronic
test equipment 550,000 11,618,750
*Precision Response Corp., Miami, FL-A full-service provider of telephone-based customer
service and marketing solutions on an outsourced basis 250,000 2,437,500
*Professional Staff plc Sponsored ADS, London, UK-An international staffing company specializing
in high-level medical placement 148,500 2,654,437
*SOS Staffing Services, Inc., Salt Lake City, UT-Offers a full range of staffing services through its
87 offices nationwide 175,000 3,106,250
*TeleTech Holdings, Inc., Denver, CO-Provides customer care management solutions to
Fortune 500 and international companies 150,000 1,425,000
*Trident International, Inc., Brookfields, CT-Designs, manufactures and markets a proprietary
impulse inkjet technology to industrial OEMS worldwide 169,000 2,429,375
Total 47,900,540
- ------------------------------------------------------------------------------------------------------------------------===========
Capital Equipment 1.22%
IFR Systems, Inc., Wichita, KS-A designer, manufacturer and marketer of electronic test instruments 175,000 2,821,875
*LeCroy Corp., Chestnut Ridge, NY-Develops, manufactures and markets principally
high-performance digital oscilloscopes and related products 95,500 2,292,000
*Ultratech Stepper Inc., Santa Clara, CA-A manufacturer of photolithography equipment that
reduces the production cost of integrated circuits 80,000 1,640,000
Total 6,753,875
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</TABLE>
4
<PAGE>
Statement of Net Assets
January 31, 1998
<TABLE>
<CAPTION>
Investments Shares Market Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Communications 3.74%
*Active Voice Corp., Seattle, WA-Develops PC-based call processing systems and computer
telephone integration products 130,000 $ 1,511,250
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 133,000 665,000
*IWERKS Entertainment Inc., Burbank, CA-A creator of interactive "virtual reality" systems
and attractions 510,000 1,338,750
*Lancit Media Entertainment Ltd., New York, NY-Acquires, develops and produces movies and
television programs for children and family audiences 290,000 362,500
*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 16,824,500
Total 20,702,000
- ------------------------------------------------------------------------------------------------------------------------===========
Computer Software
and Services 18.46%
*Accelr8 Technology Corp., Denver, CO-A provider of tools and services for year 2000 compliance
and for the conversion of Digital VAX/VMS legacy systems to client/server environments 250,000 5,812,500
*Allin Communications Corp., Pittsburgh, PA-Provides customized interactive television digital
imaging and other communications and media services 250,000 1,187,500
*+Alphanet Solutions, Inc., Cedar Knolls, NJ-Provides information technology products, services
and support 455,000 6,370,000
*Alydaar Software Corp., Charlotte, NC-A software re-engineering company specializing in
year 2000 services 165,000 3,031,875
*Best Software Inc., Reston, VA-A leading provider of asset, human resources and payroll
management software solutions for middle market businesses 75,100 1,004,463
*CACI International Inc., Class A, Arlington, VA-Provides information technology products and
services including the development and integration of systems, software and simulation products 120,000 2,550,000
*CMG Information Services, Inc., Andover, MA-Invests in and integrates Internet, interactive
media and database technologies 80,000 2,900,000
*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 300,000 3,000,000
*Claremont Technology Group, Inc., Beaverton, OR-Provides custom and pre-packaged business
solutions to benefits services, communications, financial services, manufacturing and utilities 208,000 2,392,000
*Cognicase Inc., Montreal, Canada-Provides automated software maintenance solutions that
enable organizations to convert their computer systems; developed "Cogni-2000," a year 2000
conversion software product 349,400 4,323,825
*Complete Business Solutions, Inc., Farmington Hills, MI-A leading provider of information
technology services to large and mid-size organizations 80,000 3,695,000
*Computer Learning Centers, Inc., Fairfax, VA-Provides education and training for computers
and information technology 338,000 11,513,125
*GSE Systems, Inc., Columbia, MD-A designer, developer and supplier of high-fidelity, real-time
simulation software and services 41,000 92,250
*Information Management Resources, Inc., Clearwater, FL-A leading provider of application
software outsourcing and year 2000 services worldwide 500,000 18,250,000
*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 3,932,500
*Landmark Systems Corp., Vienna, VA-Recognized leader in performance management
software for both mainframe and client/server computing environments 530,000 4,968,750
*Mastech Corporation, Oakdale, PA-Provides information technology services worldwide 125,000 4,664,063
*Mercury Interactive Corp., Sunnyvale, CA-A developer and marketer of client/server testing
and quality assurance software 110,000 3,217,500
*Micro Focus Group plc ADS, Newbury Berkshire, UK-Develops and markets software tools 40,000 1,820,000
*Phoenix Tech Ltd., San Jose, CA-The world's largest supplier of standards-based compatibility
software to the PC industry 185,000 2,220,000
*Radisys Corp., Hillsboro, OR-Designs and produces embedded computer solutions used by OEMs
in various automation equipment industries 85,000 2,975,000
*SCB Computer Technology Inc., Memphis, TN-Provides information technology management
technical services, including systems consulting services, outsourcing, professional staffing services,
telecommunications consulting and year 2000 consulting 15,400 257,950
*Smallworldwide plc ADS, Cambridge, UK-Develops, markets and supports client/server
software for the spatial design, engineering and management of complex physical networks 85,000 2,018,750
*The Learning Company, Inc., Cambridge, MA-A leading provider of consumer software 400,000 6,200,000
*Topro, Inc., Denver, CO-A systems integrator that provides software applications,
system design and configuration in the manufacturing process control industry 315,000 1,890,000
</TABLE>
5
<PAGE>
Statement of Net Assets
January 31, 1998
<TABLE>
<CAPTION>
Investments Shares Market Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Viasoft Inc., Phoenix, AZ-Provides business solutions, consisting of integrated technology and
specialized professional consulting services 60,000 $ 1,811,250
Total 102,098,301
- ------------------------------------------------------------------------------------------------------------------------===========
Consumer Products 7.65%
*Advanced Lighting Technologies, Inc., Twinsburg, OH-Designs, markets and manufactures metal
halide lighting products, including lamps, lamp components and lamp production equipment 150,000 3,506,250
*Armor Holdings, Inc., Jacksonville, FL-Worldwide manufacturer and distributor of products and
services for the law enforcement, military and security markets 385,000 4,138,750
*Beringer Wine Estates Holdings, Inc., Class B, St. Helena, CA-Produces California varietal
table wines 40,000 1,615,000
*Dreyer's Grand Ice Cream, Inc., Oakland, CA-Ice cream manufacturer and distributor 200,000 4,600,000
*+Kroll-O'Gara Company, Fairfield, OH-A leading provider of vehicle armoring systems for
military, commercial and governmental clients worldwide 385,000 6,569,062
Matthews International Corp., Class A, Pittsburgh, PA-A leading designer, manufacturer and
marketer of custom-made identification products 175,000 7,492,187
*Net.Bank Inc., Atlanta, GA-Provider of banking services over the Internet 65,000 966,875
*Northland Cranberries Inc. Class A, Wisconsin Rapids, WI-Grows cranberries through its properties
in central and northern Wisconsin and Massachusetts, and manufactures and markets a branded
line of juice products 108,000 1,458,000
*Polymer Group Inc., North Charleston, SC-Major global manufacturer of non-woven materials 71,800 713,513
*Robert Mondavi Corp. Class A, Oakdale, CA-Provides and markets wines 60,000 2,171,250
*Rock of Ages Corp., Graniteville, VT-An integrated granite quarrier, manufacturer and distributor 31,000 488,250
*Security First Network Bank, Atlanta, GA-An FDIC-insured financial institution that executes
traditional banking services over the Internet 365,000 3,672,813
*Steiner Leisure, Ltd., Nassau, Bahamas-Provides spa services aboard criuse ships worldwide 75,000 2,343,750
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 200,000 887,500
The York Group, Inc., Houston, TX-Manufactures metal and hardwood caskets and casket
components 75,000 1,706,250
Total 42,329,450
- ------------------------------------------------------------------------------------------------------------------------===========
Data Processing Equipment
and Components 1.46%
*Advanced Digital Information Corp., Redmond, WA-A leading provider of automated data
libraries for computer network and workstation markets 68,800 1,191,100
*Ampex Corp., Class A, Redwood City, CA-A leading innovator in the fields of magnetic
recording image processing and high-performance digital storage 870,000 2,664,375
*Micros Systems Inc., Beltsville, MD-Designs, manufactures and markets point-of-sale electronic
information systems and related peripheral equipment and software 70,000 3,683,750
Storage Computer Corp., Nashua, NH-A leading worldwide provider of high-performance
storage systems 65,000 520,000
Total 8,059,225
- ------------------------------------------------------------------------------------------------------------------------===========
Drugs/Pharmaceuticals 1.21%
*ICOS Corporation, Bothell, VA-A bio-pharmaceutical company that develops medications for the
treatment of chronic inflammatory diseases 123,500 1,983,719
*Kos Pharmaceuticals, Inc., Miami, FL-Develops prescription pharmaceutical products for the
treatment of certain chronic cardiovascular and respiratory diseases 390,000 4,728,750
Total 6,712,469
- ------------------------------------------------------------------------------------------------------------------------===========
Electronic Components 7.94%
*ADFlex Solutions, Inc., Chandler, AZ-A leading supplier of flexible circuits 165,000 2,722,500
*Altron Inc., Wilmington, MA-A manufacturer of electronic interconnect products employing
printed circuit technology 169,500 2,341,219
Analogic Corp., Peabody, MA-A leading manufacturer of high precision medical and industrial,
diagnostic and measurement instruments and equipment 60,000 2,160,000
*Ault Inc., Minneapolis, MN-The largest independent manufacturer of external power
conversion products 180,000 1,023,750
*Chicago Miniature Lamp, Inc., Canton, MA-Manufactures and distributes a variety
of miniature lighting products 90,400 3,435,200
*Computer Products, Inc., Boca Raton, FL-A manufacturer of power supplies and
measurement control systems for industrial equipment 380,000 9,167,500
Dallas Semiconductor Corporation, Dallas, TX-Develops, manufactures and markets
complementary metal oxide silicon integrated circuits and semiconductor-based subsystems 66,200 3,127,950
*Merix Corp., Forest Grove, OR-Manufacturer of interconnect solutions for use in sophisticated
electronic equipment 65,000 893,750
</TABLE>
6
<PAGE>
Statement of Net Assets
January 31, 1998
<TABLE>
<CAPTION>
Investments Shares Market Value
===================================================================================================================================
<S> <C> <C>
Molex, Inc. Class A, Lisle, IL-Designs, manufactures and distributes electrical and electronic devices 200,390 $ 5,285,286
*PMC-Sierra Inc., San Jose, CA-Supplies integrated circuits for the PC and communications markets 50,000 1,700,000
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 12,070,312
Total 43,927,467
- ------------------------------------------------------------------------------------------------------------------------===========
Electronics 3.78%
*Plantronics, Inc., Santa Cruz, CA-Leading supplier of communication headset products and
services to users and providers worldwide 524,000 20,894,500
- ------------------------------------------------------------------------------------------------------------------------===========
Energy 11.74%
*American Oilfield Divers Inc., Houston, TX-Provides subsea services and related products to the
oil and gas industries 255,000 2,868,750
*Core Laboratories N.V., Amsterdam, The Netherlands-A provider of petroleum reservoir
analysis and environmental testing 328,000 6,478,000
*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 2,182,812
*Dawson Geophysical Co., Midland, TX-A provider of seismic data services to oil and gas drillers 170,000 2,677,500
*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 5,003,200
*+Edge Petroleum Corp., Houston, TX-An oil and gas exploration company 530,700 5,804,531
*Friede Goldman International Inc., Jackson, MS-An oilfield services provider primarily to
offshore contractors that drill for oil and gas companies throughout the world 110,000 3,018,125
*Gulf Island Fabrication Inc., Houma, LA-Designs offshore drilling and production platforms
used in the development and production of offshore oil and gas reserves 110,000 2,303,125
*Harken Energy Corp., Irving, TX-An oil and gas exploration and production company that
explores for and conducts production activities in the Four Corners area of the southwest 1,122,200 7,574,850
*Mallon Resources Corp., Denver, CO-A Denver-based oil and gas exploration and
production company with operations primarily in the Delaware and San Juan Basins of New Mexico 100,000 787,500
*Nuevo Energy Co., Houston, TX-An independent oil and gas company, engaged primarily in
the acquistion, development, production and exploration of oil and gas properties 40,000 1,465,000
*OYO Geospace Corporation, Houston, TX-Designs, manufactures and markets on a worldwide
basis instruments and equipment used by the oil and gas industry in the acquisition and
processing of seismic data 52,000 929,500
*Seitel Inc., Houston, TX-An operator of a seismic database and a provider of corollary
geophysical services to the petroleum industry 200,000 2,787,500
*Stone Energy Corp., Lafayette, LA-An independent oil and gas company that acquires
and exploits oil and gas producing properties located primarily in the Gulf Coast Basin 120,000 3,885,000
*Superior Energy Services, Inc., Belle Chasse, LA-Provider of oilfield products and services in
the Gulf of Mexico 385,000 3,080,000
*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 235,000 3,906,875
*Veritas DGC Inc., Houston, TX-Provides seismic data acquistion and processing services on a
worldwide basis to the petroleum industry 46,000 1,699,125
Vintage Petroleum Inc., Tulsa, OK-Independent energy company engaged in the exploitation
and development of oil and gas properties 482,000 8,495,250
Total 64,946,643
- ------------------------------------------------------------------------------------------------------------------------===========
Environmental Services
and Equipment .36%
Met-Pro Corp., Harleysville, PA-A manufacturer of environmental treatment systems, specialty
pumps and filtration equipment 128,340 1,989,270
- ------------------------------------------------------------------------------------------------------------------------===========
Industrial and
Capital Goods 2.65%
*Flow International Corp., Kent, WA-Designs, manufactures and sells ultra-high pressure
waterjets for cutting metallic and non-metallic materials 160,000 1,560,000
JLG Industries, Inc., McConnellsburg, PA-A leading manufacturer of self-propelled aerial
work platforms 255,000 3,426,563
Kuhlman Corp., Savannah, GA-Manufactures electrical and industrial products 60,000 2,392,500
*Park-Ohio Industries, Inc., Cleveland, OH-Manufactures plastic containers for food products and
industrial products for the airline, automotive, rail and trucking industries 280,000 4,830,000
*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 30,000 798,750
*UTILX Corporation, Kent, WA-Installs, replaces and renovates underground utilities with
"Flowmole," "Revalt" and "CableCure" services 250,000 1,671,875
Total 14,679,688
------------------------------------------------------------------------------------------------------------------===========
</TABLE>
7
<PAGE>
Statement of Net Assets
January 31, 1998
<TABLE>
<CAPTION>
Investments Shares Market Value
===================================================================================================================================
<S> <C> <C>
Measurement and
Control Systems 3.79%
*Dionex Corp., Sunnyvale, CA-A manufacturer of analytical instruments 40,000 $2,200,000
Fluke Corp., Everett, WA-Designs and sells electronic test and measurement instruments
and systems 148,200 3,445,650
*Identix Inc., Sunnyvale, CA-A leading designer, developer, manufacturer and marketer of products
for the capture and comparison of fingerprints for security, anti-fraud, law enforcement and
other applications 200,000 1,962,500
*In Focus Systems, Inc., Wilsonville, OR-Manufactures and markets liquid crystal displays that
allow personal computer information to be displayed on overhead projections 250,000 8,312,500
*LTX Corp., Westwood, MA-A supplier of linear, digital, mixed-signal and discrete semiconductor
test equipment 563,000 2,920,563
*Thermedics Detection Inc., Chelmsford, MA-Develops, manufactures and markets high-speed
systems used for product quality assurance in a variety of industrial processes 98,900 853,012
X-Rite, Inc., Grandville, MI-A developer, manufacturer and marketer of instruments for color
measurement and control 82,500 1,278,750
Total 20,972,975
- ------------------------------------------------------------------------------------------------------------------------===========
Medical/Health Care 6.54%
Arrow International, Inc., Reading, PA-Supplies disposable catheters and related clinical products 120,000 4,560,000
*ATS Medical Inc., Minneapolis, MN-Manufactures and markets a pyrolytic carbon bileaflet
mechanical heart valve 300,000 1,856,250
*Hologic, Inc., Waltham, MA-Manufacturer of x-ray systems 415,000 8,040,625
Life Technologies, Inc., Gaithersburg, MD-A supplier of products for life science research and
biotechnology manufacturing 135,000 4,387,500
*Maxxim Medical Inc., Sugarland, TX-Develops, manufactures and distributes physical therapy
equipment and disposable hospital products 259,000 5,892,250
*Orthofix International N.V., New York, NY-International corporation that develops innovative
products in the medical device market; a leading producer of external fixation devices, limb
lengthening and bone reconstruction equipment 267,200 3,273,200
*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 310,000 799,219
*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 210,000 3,701,250
*Protocol Systems Inc., Beaverton, OR-Designs, manufactures and markets patient monitoring
instruments and systems 307,400 2,651,325
*Thermedics Inc., Waltham, MA-Develops, manufactures and markets explosive and
drug-detection devices, product quality assurance systems and other biomedical products 65,000 991,250
Total 36,152,869
- ------------------------------------------------------------------------------------------------------------------------===========
Medical Services 4.47%
*Counsel Corp., Toronto, Canada-A management and business development company that
operates within the health and real estate sectors 350,000 4,878,125
*+Health Care Service Group, Inc., Huntingdon Valley, PA-Provides operational services to
nursing home and retirement complexes 418,900 5,864,600
Hooper Holmes, Inc., Basking Ridge, NJ-Provider of health information to the insurance industry 460,000 6,670,000
*Horizon Health Corp., Denton, TX-A manager of mental health programs for general acute
care hospitals in the U.S. 255,000 5,418,750
*Matria Healthcare Inc., Marietta, GA-Provides obstetrical homecare and maternity management
services to HMOs, indemnity carriers and employers 200,000 975,000
*Ovid Technologies Inc., New York, NY-Provides electronic information retrieval services to the
biomedical, healthcare and academic markets 8,500 88,187
*Physician Computer Network, Inc., Morris Plains, NJ-Develops and markets highly functional
practice management and clerical information software products for physician practices 200,000 825,000
Total 24,719,662
- ------------------------------------------------------------------------------------------------------------------------===========
Miscellaneous 1.35%
*Catellus Development Corp., San Francisco, CA-An owner, developer and manager of real
estate assets 300,000 5,681,250
Crossmann Communities Inc., Indianapolis, MN-Single-family home builders in the midwest 76,000 1,786,000
Total 7,467,250
------------------------------------------------------------------------------------------------------------------===========
</TABLE>
8
<PAGE>
Statement of Net Assets
January 31, 1998
<TABLE>
<CAPTION>
Shares or
Investments Principal Amount Market Value
====================================================================================================================================
<S> <C> <C>
Retail 9.99%
*Amazon.Com, Inc., Seattle, WA-Retails books over the Internet 30,000 $1,770,000
*Ames Department Stores, Inc., Rocky Hill, CT-The nation's fifth largest discount department
store chain, with 303 stores in 14 northeastern states 650,000 9,343,750
*CellStar Corp., Carrollton, TX-An integrated wholesale distributor and retailer of cellular
telephones and related products 475,000 9,440,625
*Kenneth Cole Productions, Inc., New York, NY-Develops, sources and markets a broad range
of footware, handbags and accessories 230,000 3,910,000
*Meadowcraft Inc., Birmingham, IL-Produces and markets casual outdoor furniture and
wrought iron consumer products under the brand names "Plantation Patterns" and "Salterini" 150,000 1,593,750
*New West Eyeworks, Inc., Tempe, AZ-A specialty retailer of eyeware 140,000 1,120,000
*Play by Play Toys & Novelties, Inc., San Antonio, TX-Designs, develops, markets and distributes
stuffed toys and sculpted toy pillows based upon its licenses for children's entertainment characters,
corporate trademarks and non-licensed stuffed toys, including "Play*Faces" toy pillows based on
Walt Disney, Time Warner's "LOONEY TUNES" and Marvel Entertainment characters 200,000 3,800,000
*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 junior swimwear and sportswear under the "Raisin" label 140,000 4,375,000
*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 230,000 862,500
*Stage Stores, Inc., Houston, TX-Owns and operates apparel stores primarily in the
central region of the U.S. 220,000 8,531,875
*Tarrant Apparel Group, Los Angeles, CA-Designs, merchandises and manufactures casual,
moderately-priced apparel 303,500 4,931,875
*Timberland Company, Stratham, NH-Designs, engineers, markets and sells footwear and apparel 60,000 3,495,000
*Toymax International Inc., Plainview, NY-Creates, designs, develops and markets children's
activity and action toys, including "Creepy Crawlers," "Talking Tina" and "Laser Challenge" 237,200 2,045,850
Total 55,220,225
------------------------------------------------------------------------------------------------------------------===========
Total Investments in Common Stocks (Cost $382,106,656) 527,784,847
===================================================================================================================================
Other Assets, Less Liabilities 4.57%
===================================================================================================================================
Short-Term Investments
American Express Credit Corp. 5.58% due 2/2/1998 24,000M 24,000,000
Ford Motor Credit Co. 5.46% due 2/2/1998 2,000M 2,000,000
Total Short-Term Investments (Cost $26,000,000) 26,000,000
- ------------------------------------------------------------------------------------------------------------------------===========
Cash 1,258,945
- ------------------------------------------------------------------------------------------------------------------------===========
Receivable for:
Capital stock sold 7,629,891
Securities sold 905,559
Dividends 34,225
Interest 8,050
Other 3,989
Total Other Assets 35,840,659
- ------------------------------------------------------------------------------------------------------------------------===========
Payable for:
Capital stock reacquired 565,098
Securities purchased 9,412,670
Other 561,452
Total Liabilities 10,539,220
- ------------------------------------------------------------------------------------------------------------------------===========
Total Other Assets, Less Liabilities 25,301,439
===================================================================================================================================
Net Assets 100.00% $553,086,286
===================================================================================================================================
Class A Shares-Net asset value ($456,716,309 / 32,001,170 shares outstanding) $14.27
Class B Shares-Net asset value ($62,096,754 / 4,397,867 shares outstanding) $14.12
Class C Shares-Net asset value ($33,622,079 / 2,378,732 shares outstanding) $14.13
Class P Shares-Net asset value ($647,876 / 45,439 shares outstanding) $14.26
Class Y Shares-Net asset value ($3,268 / 229 shares outstanding) $14.27
</TABLE>
The descriptions of the companies shown in the portfolio, which were
obtained from published reports and other sources believed to be reliable,
are supplemental and are unaudited.
*Non-income producing.
+Affiliated company.
See Notes to Financial Statements.
9
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Investment Income Year Ended January 31, 1998
===================================================================================================================================
<S> <C> <C>
Income
Dividends $ 774,529
Interest 649,121
Total income $ 1,423,650
-----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee 2,325,894
12b-1 distribution plan-Class A 998,221
12b-1 distribution plan-Class B 244,235
12b-1 distribution plan-Class C 138,510
12b-1 distribution plan-Class P 203
Shareholder servicing 681,838
Reports to shareholders 138,545
Directors 15,340
Registration 59,839
Professional 63,181
Other 8,847
Total expenses 4,674,653
-----------------------------------------------------------------------------------------------------------------------------
Net investment loss (3,251,003)
-----------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments
===================================================================================================================================
Realized gain from investment transactions
Proceeds from sales 136,214,256
Cost of investments sold 87,700,064
-----------------------------------------------------------------------------------------------------------------------------
Net realized gain 48,514,192
-----------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investments 36,271,007
===================================================================================================================================
Net realized and unrealized gain on investments 84,785,199
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $81,534,196
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended January 31,
Increase (Decrease) in Net Assets 1998 1997
===================================================================================================================================
<S> <C> <C>
Operations
Net investment loss $ (3,251,003) $(1,805,761)
Net realized gain from investment transactions 48,514,192 41,698,179
Net unrealized appreciation of investments 36,271,007 22,855,477
Net increase in net assets resulting from operations 81,534,196 62,747,895
-----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain from investment transactions:
Class A (43,360,087) (37,450,454)
Class B (3,522,191) (528,216)
Class C (2,197,511) (352,262)
Total (49,079,789) (38,330,932)
-----------------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sales of shares 242,730,868 125,237,965
Net asset value of shares issued in reinvestment of net investment income and realized
gain from investment transactions 46,570,050 36,371,582
Total 289,300,918 161,609,547
-----------------------------------------------------------------------------------------------------------------------------
Cost of shares reacquired (99,027,207) (53,270,295)
-----------------------------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions 190,273,711 108,339,252
-----------------------------------------------------------------------------------------------------------------------------
Increase in net assets 222,728,118 132,756,215
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets
Beginning of period 330,358,168 197,601,953
-----------------------------------------------------------------------------------------------------------------------------
End of period (including net investment loss of $62,806 and $271,837, respectively) $553,086,286 $330,358,168
=============================================================================================================================
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares
-------------------------------------------------------------------
Year Ended January 31,
Per Share Operating Performance: 1998 1997 1996 1995 1994
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.80 $11.49 $ 9.58 $10.65 $10.11
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations
Net investment loss (.10)(a) (.03) (.02) (.04) (.05)
Net realized and unrealized gain (loss) on investments 3.16 3.12 4.80 (.22) 1.62
Total from investment operations 3.06 3.09 4.78 (.26) 1.57
-----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain (1.59) (1.78) (2.87) (.81) (1.03)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $14.27 $12.80 $11.49 $ 9.58 $10.65
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return(b) 24.38% 28.35% 50.22% (2.74)% 16.41%
===================================================================================================================================
Ratios to Average Net Assets:
Expenses 1.06% 1.10% 1.03% 1.31% 1.34%
Net investment loss (.72)% (.67)% (.52)% (.38)% (.51)%
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Class C Shares
----------------------------------- -------------------------------------
Year Ended August 1, 1996(d) Year Ended August 1, 1996(d)
January 31, to January 31, January 31, to January 31,
Per Share Operating Performance: 1998 1997 1998 1997
==================================================================================================================================
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.75 $12.14 $12.75 $12.14
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations
Net investment loss (.20)(a) (.05) (.19)(a) (.05)
Net realized and unrealized gain on investments 3.14 2.28 3.14 2.28
Total from investment operations 2.94 2.23 2.95 2.23
----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain (1.57) (1.62) (1.57) (1.62)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.12 $12.75 $14.13 $12.75
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(b) 23.48% 19.43%(c) 23.55% 19.43%(c)
==================================================================================================================================
Ratios to Average Net Assets:
Expenses 1.76% .93%(c) 1.71% .93%(c)
Net investment loss (1.39)% (.73)%(c) (1.34)% (.73)%(c)
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class P Shares Class Y Shares
------------------------ ----------------------------
January 5, 1998(d) December 30, 1997(d)
to January 31, to January 31,
Per Share Operating Performance: 1998 1998
==================================================================================================== ============================
<S> <C> <C>
Net asset value, beginning of period $14.38 $14.12
- ---------------------------------------------------------------------------------------------------- ----------------------------
Income (loss) from investment operations
Net investment loss (.01)(a) --(a)(e)
Net realized and unrealized gain (loss) on investments (.11) .15
Total from investment operations (.12) .15
---------------------------------------------------------------------------------------------- ----------------------------
Net asset value, end of period $14.26 $14.27
- ---------------------------------------------------------------------------------------------------- ----------------------------
Total Return(c) (.83)% 1.06%
===================================================================================================================================
Ratios to Average Net Assets(c):
Expenses .08% .06%
Net investment loss (.05)% (.02)%
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 31,
Supplemental Data for All Classes: 1998 1997 1996 1995 1994
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net assets, end of year (000) $553,086 $330,358 $197,602 $127,579 $143,693
Portfolio turnover rate 33.60% 42.35% 50.12% 17.57% 16.29%
Average commissions per share paid on equity transactions $ .049 $ .046 $ .053 $ .059 n/a
=============================================================================================================================
</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.
11
<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. The total
Class A Plan rate for the year was equivalent to an annual rate of 0.26% of the
average daily net asset value of the Class A shares. 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 $427,557 representing payment of commissions on sales of
Class A shares after deducting $2,768,167 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 January
31, 1998 for financial reporting purposes aggregated $1,405,805.
Distributions from net realized gains declared on February 9, 1998 were as
follows:
Rate per Aggregate
Class Share Amount
- --------------------------------------------------------------------------------
A $.048 $1,560,145
B $.026 $ 118,251
C $.026 $ 65,140
P $.048 $ 2,871
Y $.048 $ 11
- --------------------------------------------------------------------------------
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 $406,065,096 at January 31,
1998. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
January 31, 1998 January 31, 1997
------------------------------ ----------------------------
Class A Shares Amount Shares Amount
- --------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Sales of shares 10,892,536 $ 154,647,991 8,862,837 $ 114,151,161
Shares issued to
shareholders in
reinvestment of
realized gains
from investment
transactions 2,945,604 41,100,136 2,999,455 35,526,973
Total 13,838,140 195,748,127 11,862,292 149,678,134
- ----------------------------------------------------------------------------------------------
Shares reacquired (6,740,126) (91,616,719) (4,153,205) (52,746,393)
Increase in shares 7,098,014 $ 104,131,408 7,709,087 $ 96,931,741
- ----------------------------------------------------------------------------------------------
</TABLE>
August 1, 1996
(Commencement of
Year Ended offering Class B shares)
January 31, 1998 to January 31, 1997
------------------------- ------------------------
Class B Shares Amount Shares Amount
- ---------------------------------------------------- ------------------------
Sales of shares 3,871,210 $ 56,300,946 548,162 $ 6,897,730
Shares issued to
shareholders in
reinvestment of
realized gains
from investment
transactions 239,708 3,352,716 43,297 511,339
Total 4,110,918 59,653,662 591,459 7,409,069
- --------------------------------------------------------------------------------
Shares reacquired (274,101) (3,816,832) (30,409) (389,040)
Increase in shares 3,836,817 $ 55,836,830 561,050 $ 7,020,029
- --------------------------------------------------------------------------------
12
<PAGE>
Notes to Financial Statements
August 1, 1996
(Commencement of
Year Ended offering Class C shares)
January 31, 1998 to January 31, 1997
-------------------------- -------------------------
Class C Shares Amount Shares Amount
- ----------------------------------------------------- -------------------------
Sales of shares 2,131,700 $ 31,125,282 330,830 $ 4,189,074
Shares issued to
shareholders in
reinvestment of
realized gains
from investment
transactions 151,286 2,117,198 28,220 333,270
Total 2,282,986 33,242,480 359,050 4,522,344
- ----------------------------------------------------- -------------------------
Shares reacquired (252,520) (3,593,656) (10,784) (134,862)
Increase in shares 2,030,466 $ 29,648,824 348,266 $ 4,387,482
- ----------------------------------------------------- -------------------------
Class P Shares Class Y Shares
-------------------------- -------------------------
January 5, 1998 December 30, 1997
(Commencement of (Commencement of
offering Class P shares) offering Class Y shares)
to January 31, 1998 to January 31, 1998
-------------------------- -------------------------
Shares Amount Shares Amount
- ----------------------------------------------------- -------------------------
Sales of shares 45,439 $653,411 229 $3,238
Increase in shares 45,439 $653,411 229 $3,238
- ----------------------------------------------------- -------------------------
5. Purchases and Sales of Securities Purchases and sales of investment
securities (other than short-term investments) aggregated $253,798,249 and
$136,214,256, respectively. As of January 31, 1998, net unrealized appreciation
for federal income tax purposes aggregated $145,678,191, of which $180,185,196
related to appreciated securities and $34,507,005 related to depreciated
securities. For federal income tax purposes, the identified cost of investments
owned at January 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, 1997 Purchases Sales
- --------------------------------------------------------------------------------
Alphanet Solutions, Inc. 240,000 215,000 -
Edge Petroleum Corp. - 530,700 -
Health Care Service
Group, Inc. 288,900 130,000 -
Kroll-O'Gara Company 235,000 150,000 -
- --------------------------------------------------------------------------------
Balance of Dividend Income
Shares Held Value Feb. 1, 1997 to
Affiliates Jan. 31,1998 Jan. 31, 1998 Jan 31, 1998
- --------------------------------------------------------------------------------
Alphanet Solutions, Inc. 455,000 $ 6,370,000 -
Edge Petroleum Corp. 530,700 5,804,531 -
Health Care Service
Group, Inc. 418,900 5,864,600 -
Kroll-O'Gara Company 385,000 6,569,062 -
- --------------------------------------------------------------------------------
$24,608,193 -
------------------------------
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 January 31, 1998, under a deferred compensation plan,
were $341,000.
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 January 31, 1998,
nor was the Facility utilized at any time during the year.
Independent Auditors' Report
The Board of Directors and Shareholders,
Lord Abbett Developing Growth Fund, Inc.:
We have audited the accompanying statement of net assets of Lord Abbett
Developing Growth Fund, Inc. as of January 31, 1998, the related statements of
operations and of changes in net assets and the financial highlights for each of
the periods presented. These financial statements and the financial highlights
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at January
31, 1998 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Lord Abbett
Developing Growth Fund, Inc. at January 31, 1998, the results of its operations,
the changes in its net assets and the financial highlights for each of the
periods presented in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
February 25, 1998
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.
13
<PAGE>
Investing in the
Lord Abbett
Family of Funds
- --------------------------------------------------------------------------------
Growth
<TABLE>
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Income
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Aggressive Growth Funds Growth & Balanced Fund Income Funds Tax-Free Money
Growth Fund Income Funds Income Funds Market Fund
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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
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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: 800-874-3733
For More Information: 800-426-1130
Visit Our Web Site:
http://www.lordabbett.com
* Lord Abbett will close Lord Abbett Research Fund-Small-Cap Series to new
investors on April 9, 1998. For more information, call Lord Abbett Distributor
LLC at 800-426-1130.
**An investment in this Fund is neither insured nor guaranteed by the U.S.
Government.
+ There can be no assurance that this Fund will be able to maintain a stable net
asset value of $1.00 per share. This Fund is managed to maintain, and has
maintained, its stable $1.00 per share price.
[LOGO](R) LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
LORD ABBETT DISTRIBUTOR LLC
- ------------------------------------------------------------ LADG-2-198
The GM Building o 767 Fifth Avenue o New York, NY 10153-0203 (3/98)
