Lord Abbett Developing Growth Fund
SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED JULY 31, 1999
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A portfolio of small companies with large growth potential
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Lord Abbett Developing Growth Fund
A TRADITION OF
PERFORMANCE
"Lord Abbett Developing Growth Fund is more constant and more compelling than
most of its peers . . . it has suffered less volatility than most of its peers
over the past three years, thanks in large part to McGruder's value
consciousness."
Morningstar, July 21, 1999
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Do Small-Cap Stocks Have
a Place in Your Portfolio?
Just as there are different types of 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)
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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.
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Average Annual
Total Returns
The average annual rates of total return, 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 6/30/99, were:
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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) 1999 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.
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Report to Shareholders
For the Six Months Ended July 31, 1999
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Robert S. Dow
Chairman
August 13, 1999
"We continue to concentrate on careful bottom-up stock selection, based on
fundamental research, selecting companies that we believe will offer our
investors superior, long-term performance regardless of industry-specific
problems or economic trends."
Lord Abbett Developing Growth Fund completed the first half of its fiscal year
on July 31, 1999, with net assets of $2. 0 billion. Below is an overview of
class-specific data for the period.
Six Months Ended 7/31/99
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Class A Class B Class C Class P Class Y
Net asset value $16.96 $16. 62 $16.63 $16.88 $17.04
Capital gains $0.32 $0. 32 $0.32 $0.32 $0.32
Total return* 6.60% 6.27% 6.20% 6.50% 6.77%
The first half of 1999 was a challenge for most small-cap investors. Early in
the year small-cap stocks came under pressure as a number of companies in the
sector posted earnings shortfalls. These disappointments negatively affected
investor sentiment toward small-caps and, despite fundamental strength on the
part of specific companies, stock prices generally remained undervalued for the
small-cap segment of the market. This environment, however, created an
opportunity for the Fund to purchase select companies at what we believed to be
very attractive prices.
Increased merger and acquisition activity later in the period also benefited the
Fund. Many larger companies sought to capture the fundamental value available in
smaller out-of-favor companies, contributing to a bounce back of small-cap
stocks. The technology and healthcare sectors, where we hold a number of
positions, were particularly affected by M&A activity and this helped the
portfolio to perform well.
Despite the recent uncertainty affecting the small-cap market, our strategy and
philosophy remain constant. We continue to concentrate on careful bottom-up
stock selection, based on fundamental research, selecting companies that we
believe will offer our investors superior, long-term performance regardless of
industry-specific problems or economic trends.
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
to helping you achieve your financial goals.
IMPORTANT NOTE: In order to maintain the integrity of our investment strategy,
the Developing Growth Fund will close to new investors on 9/30/99. However,
existing shareholders of Class A, B and C shares may continue to invest in the
Fund.
No investor may place an order for more than $10 million dollars. Please see
prospectus supplement for more information.
* Total return, which is not annualized, is the percent change in net asset
value, assuming the reinvestment of all distributions.
1
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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
significantly outperformed its benchmark, the Russell 2000 Index, (1) and the
Russell 2000 Growth Index. (2)
Growth of a $10,000 Fund Investment: 7/31/89-7/31/99
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The Fund's results reflect a Class A share investment of $10, 000 at net asset
value with dividends and capital gains reinvested. 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.
(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.
(2) The Russell 2000 Growth Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values, and 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 below, over the last 3-and 5-year periods ended 7/31/99, 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) . (3) Furthermore, over these
periods, the Fund outpaced the Russell 2000 Index, an unmanaged index that
measures small company stock market performance. (4) 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
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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 7/31/99 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.
(3) Lipper, Inc. tracks and reports the performance of mutual funds based on
total returns (i.e., changes in net asset value, including reinvestment of
distributions).
(4) The Russell 2000 Index does not reflect the deduction of fees or expenses
and is not available for direct investment.
(5) The Russell 2000 Growth Index does not reflect the deduction of fees or
expenses and is not available for direct investment.
2
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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
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A PROGRAM OF REGULAR INVESTMENT CAN
HELP PROMOTE SMALL-CAP PEACE OF MIND
Investing even a small amount of money on a regular basis can help you build a
substantial portfolio over the long term. While, historically, investment in
small companies has provided investors with strong returns, you may be
uncomfortable day-to-day with the higher level of price volatility associated
with the small-cap market and, consequently, with professionally managed
small-cap stock portfolios such as Lord Abbett Developing Growth Fund.
One solution: a systematic investment plan. Dollar cost averaging may help you
better tolerate the ups and downs of the small-cap stock prices. In fact, dollar
cost averaging may actually make market volatility work to your benefit. Using a
systematic investment plan that involves a fixed-dollar amount each month, you
buy more shares when the price is low and fewer shares when the price is high,
thereby reducing the average share price over time as compared with a single
purchase at the higher price.
Periodic investment plans do not always return a profit and do not protect
against losses in a declining market. In addition, since periodic investment
plans involve continuous investment in securities regardless of fluctuating
price levels, investors should consider their financial ability to continue
their purchases through periods of low price levels. For additional information
regarding the benefits of a regular investment plan in Lord Abbett Developing
Growth Fund, please contact the Lord Abbett Literature Department at
800-874-3733 and request item number LADG-6-1298 (3/99) .
Important Note: Lord Abbett Developing Growth Fund will close to new investors
on 9/30/99 in order to protect the integrity of its investment strategy.
A Note About
Year 2000
Matters
As you may know, there has been extensive media coverage about possible problems
that may arise as a result of uncertainties about the ability of computers to
understand dates using the year 2000. Potentially, these problems could disrupt
the services and systems that the Fund relies on in its daily operations.
As a general matter, we believe the financial industry has taken a leadership
role addressing year 2000 (Y2K) issues and this should help to inspire
confidence among concerned investors. More specifically, Lord Abbett, Lord
Abbett Distributor LLC and the Fund's transfer agent, custodian and other
providers of services critical to the Fund have been actively working on
reviewing and replacing or updating computer systems and computer-to-computer
interfaces, as needed. Each has completed or is in the process of testing new or
revised systems and interfaces and generally expects that their systems, as well
as those of their key external service providers, will be ready to handle Y2K
without significant problems. Furthermore, the Fund has been routinely taking
companies'Y2K preparations into account when considering or reviewing
investments.
In summary, while the Y2K problem is unprecedented and we cannot completely
eliminate the possibility that the Fund could be affected in some way, we are
confident that all parties involved are taking appropriate steps to resolve Y2K
concerns.
3
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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 Russell 2000 is an unmanaged index that
measures small company stock market performance and is widely followed by
the investment community. Performance figures for the unmanaged Russell
2000 do not reflect deduction of transaction costs or management fees. An
investor cannot invest directly in an index, such as the Russell 2000. 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 9/30/99, this report must be accompanied by Lord Abbett's
Performance Quarterly for the most recently completed calendar quarter.
Statement of Net Assets
July 31, 1999
<TABLE>
<CAPTION>
Investments Shares Value
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<S> <C> <C>
Investments in Common Stocks 95.79%
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Aerospace 1.73% *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 1,320,350 $ 33,833,969
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Apparel and Textile 3.61% *Cutter & Buck Inc., Seattle, WA-Designs and markets
upscale sportswear and outerwear 480,800 8,083,450
*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 936,720 23,300,910
#*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 20,625
+*Skechers USA Inc. Class A, Manhattan Beach, CA-Designs and markets
branded contemporary casual, active, rugged, and lifestyle footwear
for men, women and children 1,000,000 6,812,500
+#*Tarrant Apparel Group, Los Angeles, CA-Designs,
merchandises and manufactures casual apparel 820,040 12,095,590
#*Tropical Sportswear International Corp., Tampa, FL-Produces
high quality casual and dress men's apparel 740,000 12,857,500
*Vans Inc., Santa Fe Springs, CA-Designs, manufactures and
distributes casual and active casual footwear and apparel,
performance footwear and snowboard boots and snowboarding outerwear 660,000 7,631,250
Total 70,801,825
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Business Services 9.13% *-Aegis Communications Group, Dallas, TX-Provides inbound
and outbound contract telemarketing services
to a variety of companies in various industries 2,014,900 2,329,627
*Butler International Inc., Montvale, NJ-Provides skilled engineers
and technical personnel on a contract basis in various industries 462,000 5,890,500
+*Caribiner International Inc., New York, NY-International producer
of meetings, events and training programs 1,095,000 6,296,250
+*CheckFree Holdings Corp., Norcross, GA-Provides electronic
commerce services, financial application software and related products 238,200 7,041,787
G&K Services, Inc., Class A, Minneapolis, MN-A lessor of work
garments and related textile products 145,780 7,740,000
*GIGA Information Group, Norwell, MA-Provides information,
analysis, and advice about the information technology industry 260,000 1,300,000
+*Interliant Inc., Cambridge, MA-Manages web sites and provides
Internet services for businesses 100,000 1,925,000
*Iron Mountain Inc., Boston, MA-Records management company 492,590 15,855,241
*Labor Ready, Inc., Tacoma, WA-Provides temporary workers to
the light industrial, construction, and small business markets 507,900 8,729,533
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4
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Statement of Net Assets
July 31, 1999
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Investments Shares Value
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#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 419,540 $ 6,083,330
*Navigant Consulting, Inc., Chicago, IL-A global management consulting
company serving energy-based and other regulated industries 560,200 23,555,950
*Nielsen Media Research Inc., New York, NY-Provides television
audience measurement and related services in the U.S. and Canada 800,000 26,000,000
*NFO Worldwide Inc., Greenwich, CT-Provides custom and
syndicated marketing information services 774,500 11,617,500
*Pegasus Systems Inc., Dallas, TX-Provides global electronic
commerce and transaction processing solutions 501,310 16,919,212
+#*Professional Staff plc ADR, London, U.K.-An international
staffing company specializing in high-level medical placement 340,000 2,061,250
*Strategic Distribution Inc., Bensalem, PA-Provides proprietary
industrial supply procurement solutions
to industrial sites, primarily through its In-Plant Store program 1,348,500 2,865,562
*SOS Staffing Services Inc., Salt Lake City, UT-Offers a full
range of staffing services through its 87 offices nationwide 192,670 1,047,643
*Sykes Enterprises Inc., Tampa, FL-Provides information
technology outsourcing services 300,000 8,418,750
*TeleTech Holdings Inc., Denver, CO-Provides customer
care management solutions to Fortune 500 and international companies 1,689,000 20,373,562
+*Workflow Management Inc., Palm Beach, FL-Provides documents,
envelopes, and commercial printing to businesses 200,000 2,862,500
Total 178,913,197
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Capital Goods 1.11% *Coherent Inc., Santa Clara, CA-Designs, manufactures,
and sells lasers, laser systems, precision optics and related accessories 33,700 612,919
*Dionex Corp., Sunnyvale, CA-A manufacturer of analytical instruments 80,000 3,455,000
*Flow International Corp., Kent, WA-Designs, manufactures and
sells ultra-high-pressure waterjets for cutting metallic and non-metallic
materials 598,070 6,092,838
Helix Technology Corp., Mansfield, MA-Designs, manufactures
and services products based on cryogenic (ultra-low temperatures)
and vacuum technologies 100,000 2,675,000
JLG Industries, Inc., McConnellsburg, PA-A leading manufacturer
of self-propelled aerial work platforms 307,120 6,123,205
*Park-Ohio Holdings Corp., Cleveland, OH-Manufactures plastic
containers for food products and industrial products for the airline,
automotive, rail and trucking industries 172,400 2,866,150
Total 21,825,112
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Communication Services 4.10% *Boston Communications Group Inc., Woburn, MA-Develops,
markets, and provides specialized roaming services, teleservices,
and prepaid wireless services to the wireless telephone industry 805,500 7,450,875
*Clearnet Communications Inc., Scarborough, Canada-A wireless
communications company 527,400 9,097,650
*GST Telecommunications Inc., Vancouver, WA-Offers long distance,
Internet, data transmission, private line, and local dial tone services 800,000 12,000,000
*Medialink Worldwide Inc., New York, NY-Provides video
and audio production and satellite distribution services 125,000 1,890,625
+*Salem Communications Corp. Class A, Camarillo, CA-A radio
broadcasting company 26,000 728,000
*SBA Communications Corp., Boca Raton, FL-Owns and operates wireless
communications infrastructure 950,000 10,568,750
+TALK.com Inc., Reston, VA-A nationwide provider of telecommunications
services to more than 215,000 small- and medium-sized
businesses in the U.S. 1,164,600 12,373,875
+*World Access Inc., Atlanta, GA-Provides wholesale international
long distance services 650,000 10,359,375
*Xircom Inc., Thousand Oaks, CA-Develops, manufactures,
sells and supports communications solutions 502,230 16,039,971
Total 80,509,121
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Computer Services 7.17% +*AnswerThink Consulting Group Inc., Miami, FL-Provides
integrated consulting and technology enabled solutions 278,500 5,517,781
*AlphaNet Solutions, Inc., Cedar Knolls, NJ-Provides
information technology products, services and support 124,500 513,563
#*BrightStar Information Technology Group Inc.,
Pleasanton, CA-Provides implementation of enterprise
resource planning (ERP) software systems and enterprise-wide
business and technology solutions to
Fortune 1000 companies and other large organizations 770,000 3,224,375
</TABLE>
5
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Statement of Net Assets
July 31, 1999
<TABLE>
Investments Shares Value
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*Cambridge Technology Partners Inc., Cambridge, MA-Provides
management consulting and systems integration 900,000 $ 15,412,500
+*Ciber Inc., Englewood, CO-Provides management
consulting for business solutions 600,000 10,500,000
*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 305,000 4,536,875
*Computer Horizons Corp., Mountain Lakes, NJ-A leading
provider of information technology solutions 500,000 6,343,750
*Diamond Technology Partners, Inc., Chicago, IL-Develops digital
strategies which leverage information technology 315,700 7,892,500
*IMRglobal Corp., Clearwater, FL-A leading provider of
application software outsourcing and Year 2000 services worldwide 1,455,070 24,918,073
+*IXL Enterprises Inc., Atlanta, GA-Provides Internet
strategy consulting and solutions 150,000 4,462,500
*Mastech Corporation, Oakdale, PA-Provides information technology
services worldwide 538,410 9,085,669
*National Information Consortium, Inc., Overland Park,
KS-Provides Internet-based electronic government solutions 200,000 3,275,000
*Proxicom Inc., Reston, VA-Provides Internet
solutions to Global 1000 companies 225,000 7,818,750
+*Rare Medium Group Inc., New York, NY-Provides Internet
and e-commerce business solutions 200,000 2,062,500
*Renaissance Worldwide Inc., Newton, MA-Provides integrated
business and technology consulting services 900,000 5,962,500
*SCB Computer Technology Inc., Memphis, TN-Provides
information technology management and technical services 841,460 4,312,482
+*USWeb Corp., Santa Clara, CA-Provides Intranet,
Extranet, and Web site solutions and services to medium-sized
and large companies 750,940 15,722,806
*Viant Corp., Boston, MA-Designs and develops Internet strategy solutions 45,000 1,470,938
+*Xceed Inc., New York, NY-An integrated marketing and communications company 400,000 7,525,000
Total 140,557,562
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Computer Software 8.49% *@plan.Inc., Stamford, CT-Provides market research decision
support and planning system 40,000 620,000
+*Activision Inc., Santa Monica, CA-Publishes and distributes
CD-based and cartridge-based entertainment software 675,550 9,246,591
*Best Software Inc., Reston, VA-A leading provider of asset,
human resources and payroll management
software solutions for middle-market businesses 572,100 9,475,406
#*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 750,000 7,500,000
*Dendrite International Inc., Morristown, NJ-Supplies
sales force software products 300,000 11,400,000
*Exchange Applications Inc., Boston, MA-Provides customer
optimization software and solutions 210,000 7,415,625
*Genesys Telecommunications Laboratories, Inc., San Francisco,
CA-Provides telecom- munications framework and a suite of applications 290,000 7,975,000
*Kronos Inc., Waltham, MA-Designs, develops, manufactures
and markets hardware and software systems 126,000 6,095,250
#*Landmark Systems Corp., Vienna, VA-Manufactures
software products which allow corporate customers
to improve the performance of their computer
system and keep critical business applications working at peak efficiencies 995,000 7,835,625
*Mercury Interactive Corp., Sunnyvale, CA-A developer
and marketer of client/server testing and quality assurance software 121,600 5,608,800
*Mobius Management Systems Inc., Rye, NY-Provides enterprise
software products designed to optimize the
storage, retrieval and presentation of large volumes of
transactional information 300,000 1,725,000
National Computer System Inc., Eden Prairie, MN-Provides
software, services, and systems 304,000 10,412,000
*Phoenix Technologies Ltd., San Jose, CA-The world's
largest supplier of standards-based compatibilty
software to the personal computer industry 734,000 9,083,250
*Primus Knowledge Solutions Inc., Seattle, WA-Provides web-based
problem resolution software for customer support 225,000 5,414,062
+*RAVISENT Technologies Inc., Malvern, PA-Designs,
develops, licenses, and markets modular software solutions 260,000 3,932,500
*Security First Technologies Corp., Atlanta, GA-An FDIC-insured
financial institution that executes traditional banking services
over the Internet 743,540 25,930,957
+*Smallworldwide plc ADR, Cambridge, U.K.-Develops, markets
and supports client/server software for the spatial design,
engineering and management of complex physical networks 264,000 1,881,000
</TABLE>
6
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<TABLE>
Statement of Net Assets
July 31, 1999
Investments Shares Value
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<S> <C> <C>
*Take-Two Interactive Software, Inc., New York, NY-Develops,
markets, distributes and publishes interactive entertainment software games 300,000 $ 2,381,250
+*THQ Inc., Calabasas, CA-Develops, publishes and distributes
interactive entertainment software 440,000 12,347,500
*Transaction Systems Architects, Inc., Omaha, NE-Develops,
markets, and supports software products for
global electronics funds transfer market 400,000 12,250,000
*Visio Corp., Seattle, WA-Supplies enterprise-wide business
diagramming and technical drawing software 230,000 7,877,500
Total 166,407,316
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Consumer Products 2.93% *Dreyer's Grand Ice Cream Inc., Oakland, CA-Ice cream
manufacturer and distributor 232,400 4,401,075
*Horizon Organic Holding Corp., Longmont, CO-Produces,
processes, and markets a line of organic dairy products 428,520 5,302,935
Matthews International Corp., Class A, Pittsburgh, PA-A
leading designer, manufacturer and marketer of
custom-made identification products 450,000 13,725,000
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 4,816,753
+*Rexall Sundown Inc., Boca Raton, FL-Develops, markets and
sells vitamins, nutritional supplements and
consumer health products 150,000 1,865,625
*Smithfield Foods Inc., Norfolk, VA-A leading hog producer,
pork processor and fresh pork and processed meats marketer 370,000 11,146,250
*Twinlab Corp., Hauppauge, NY-A leading manufacturer of
brand name nutritional supplements 670,000 5,736,875
*United Natural Foods Inc., Dayville, CT-Distributes
natural foods and related products 426,700 8,000,625
*USA Floral Products, Inc., Washington, DC-Imports and
distributes perishable floral products 598,870 2,507,768
Total 57,502,906
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Data Processing Equipment & *Advanced Digital Information Corp., Redmond, WA-A leading provider
5.80% of automated data Components libraries or computer network and
workstation markets and microelectronic components for aerospace
and medical applications 348,800 14,824,000
*Ampex Corp., Class A, Redwood City, CA-A leading innovator in
the fields of MRI processing and
high-performance digital storage 1,270,000 5,556,250
Analogic Corp., Peabody, MA-A leading manufacturer of high
precision medical and industrial diagnostic
and measurement instruments and equipment 355,915 12,190,089
*Evans & Sutherland Computer Corp., Salt Lake City, UT-Developer
of computer graphics software systems 56,700 765,450
*In Focus Systems Inc., Wilsonville, OR-Manufactures
and markets liquid crystal displays that allow
personal computer information to be displayed on overhead projections 534,880 8,658,370
*Maxwell Technologies Inc., San Diego, CA-Develops,
manufactures and markets products and services 25,400 660,400
*Micros Systems Inc., Beltsville, MD-Designs, manufactures
and markets point-of-sale electronic
information systems and related peripheral equipment and software 666,620 22,790,071
#*MicroTouch Systems Inc., Methuen, MA-Manufacturer of touch- and
pen-sensitive input screens known as touchscreens 559,990 8,749,844
#*Radisys Corp., Hillsboro, OR-Designs and produces
embedded computer solutions 605,000 24,880,625
*Sequent Computer Systems Inc., Beaverton, OR-Provides
scalable, data-center-ready open systems
solutions for large organizations spanning diverse industries 810,000 13,871,250
*Texas Micro Inc., Houston, TX-Supplies highly specialized
"Intel" microprocessor-based computers 100,000 800,000
Total 113,746,349
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Electronic Components 5.42% *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 505,640 15,548,430
*Artesyn Technologies, Inc., Boca Raton, FL-A manufacturer of
power supplies and measurement control
systems for industrial equipment 607,410 15,033,397
+*Microvision Inc., Seattle, WA-Develops, manufactures,
and markets virtual retinal display (VRD)
technology, which projects images directly onto eye's retina 100,000 1,987,500
+*Sawtek Inc., Apopka, FL-Supplies electronic signal processing components 430,000 27,520,000
*SLI, Inc., Canton, MA-Manufactures and distributes a variety of
miniature lighting products 1,173,550 29,485,444
Technitrol Inc., Trevose, PA-A worldwide manufacturer of
electronic components, electrical contacts and
assemblies, thermostatic and clad-metal materials and
components and related items 476,550 16,649,466
Total 106,224,237
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7
<PAGE>
Statement of Net Assets
July 31, 1999
Investments Shares Value
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Energy 5.60% *Core Laboratories N.V., Amsterdam, Netherlands-A provider
of petroleum reserve analysis and environmental testing 1,226,710 $ 23,614,168
*Dawson Geophysical Co., Midland, TX-A provider of
seismic data services to oil and gas drillers 40,000 432,500
#*Edge Petroleum Corp., Houston, TX-An oil and gas exploration company 645,200 3,871,200
*Evergreen Resources Inc., Denver, CO-Explores,
develops, operates, and acquires oil and gas properties 552,580 14,436,152
#*EXCO Resources Inc., Dallas, TX-An independent energy
company that acquires, explores, and develops
natural gas properties 650,000 4,793,750
+*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 2,200,000 4,125,000
*Independent Energy Holding plc ADR, Solihull,
U.K.-Generates and markets electricity in the
United Kingdom 610,000 8,463,750
+*Seitel Inc., Houston, TX-An operator of a seismic database and a
provider of corollary geophysical services to the petroleum
industry 791,860 10,393,162
*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 310,300 14,021,681
*Superior Energy Services Inc., Belle Chasse, LA-Provider of
oil field products and services in the Gulf of Mexico 812,510 4,671,932
+*TransMontaigne Inc., Denver, CO-A holding company which operates
through its subsidiaries primarily in the Mid-continent and
Rocky Mountain regions of the United States 550,000 5,843,750
Vintage Petroleum Inc., Tulsa, OK-Independent energy company
engaged in the exploitation and development
of oil and gas properties 1,268,560 15,064,151
Total 109,731,196
- -----------------------------------------------------------------------------------------------------------------------=============
Financial 2.91% *-Catellus Development Corp., San Francisco, CA-An
owner, developer and manager of real estate assets 300,000 4,762,500
*Crossman Communities Inc., Indianapolis, IN-Single-family ]
home builders in the Midwest 559,280 17,617,320
*Federal Agricultural Mortgage Corp., Class C, Washington, DC-A federally
chartered instrumentality of the U.S. 162,500 10,907,812
*First Sierra Financial Corp., Houston, TX-Acquires,
originates, sells, and services equipment leases 225,000 4,485,937
Healthcare Realty Trust Inc., Nashville, TN-Healthcare
facility real estate investment trust 320,000 6,720,000
McGrath Rent Corp., San Leandro, CA-A lessor of relocatable
modular offices and electronic test equipment 419,020 7,751,870
+*Net.B@nk, Inc., Atlanta, GA-Provider of banking services over the Internet 227,270 4,886,305
Total 57,131,744
- -----------------------------------------------------------------------------------------------------------------------=============
Leisure 2.66% *American Classic Voyages Co., Chicago, IL-Owns and
operates United States-flag cruise lines 485,000 11,397,500
*Championship Auto Racing Team Inc., Troy, MI-Owns,
operates, and sanctions the open-wheel motorsports
series in North America 463,330 15,289,890
*Cinar Corp., Montreal, Canada-An integrated entertainment
and education company 400,000 11,350,000
*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 133,000 349,125
+*Family Golf Centers, Melville, NY-Consolidates and operates golf centers 912,930 6,333,452
*Harvey Entertainment Co., Los Angeles, CA-Develops animation and
licensing opportunities based on the
Harvey Classic Characters 182,400 718,200
*Iwerks Entertainment Inc., Burbank, CA-A creator of
interactive "virtual reality" systems and attractions 511,251 511,251
*Steiner Leisure Ltd., Nassau, Bahamas-Provides spa
services aboard cruise ships worldwide 198,990 6,168,690
Total 52,118,108
- -----------------------------------------------------------------------------------------------------------------------=============
Measurement and *Identix Inc., Sunnyvale, CA-A leading designer, developer,
Control manufacturer and marketer of
Systems 1.52% products for the capture and comparison of fingerprints for
security, anti-fraud, law enforcement and other applications 790,000 6,270,625
#*LeCroy Corp., Chestnut Ridge, NY-Develops, manufactures and
markets principally high- performance
digital oscilloscopes and related products 520,500 9,629,250
*National Instruments Corp., Austin, TX-Supplies computer-based
instrumentation hardware and software products 250,000 11,187,500
*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 2,669,906
Total 29,757,281
----------------------------------------------------------------------------------------=============
8
<PAGE>
Statement of Net Assets
July 31, 1999
Investments Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Medical Services 5.73% *Apria Healthcare Group Inc., Costa Mesa, CA-Provides
comprehensive home healthcare services 324,200 $ 5,187,200
+#*CareMatrix Corp., Needham, MA-Provides assisted living
and other long-term care services 1,153,560 12,544,965
*Counsel Corp., Toronto, Canada-A management and business
development company that operates within the
health and real estate sectors 558,910 2,375,367
*Express Scripts Inc., Class A, Maryland Heights, MO-Provides
pharmacy benefit management to health
maintenance organizations 160,000 11,140,001
*Hanger Orthopedic Group Inc., Bethesda, MD-A professional
practice management company 933,000 10,962,750
#*Health Care Service Group Inc., Huntingdon Valley, PA-Provides
operational services to nursing home and retirement complexes 848,350 7,953,281
Hooper Holmes Inc., Basking Ridge, NJ-Provider of
health information to the insurance industry 928,180 18,331,555
*Matria Healthcare Inc., Marietta, GA-Provides
obstetrical home healthcare services that assist
physicians in the management of high risk pregnancies 1,816,000 11,066,159
+*Sunrise Assisted Living Inc., Fairfax, VA-Provides
assisted living for seniors 820,000 24,753,750
*US Oncology, Inc., Houston, TX-Provides
comprehensive management services 675,000 8,015,625
Total 112,330,653
- -----------------------------------------------------------------------------------------------------------------------=============
Medical/Healthcare 4.94% *Albany Molecular Research, Inc., Albany, NY-Offers a
variety of chemistry research and development services 240,000 8,160,000
Arrow International Inc., Reading, PA-Supplies
disposable catheters and related clinical products 305,710 8,292,384
#*ATS Medical Inc., Minneapolis, MN-Manufactures and markets
a pyrolytic carbon bileaflet mechanical heart valve 1,214,610 11,918,361
*Biopure Corp., Cambridge, MA-Develops, manufactures
and markets oxygen therapeutics 300,000 3,600,000
+*Closure Medical Corp., Raleigh, NC-Develops, manufactures,
and commercializes medical cohesive products 166,300 2,827,100
*Columbia Laboratories Inc., Miami, FL-Is an
international pharmaceutical company 402,150 2,890,453
+*Corixa Corp., Seattle, WA-Conducts biotechnological research 300,000 4,087,500
+*ICOS Corp., Bothell, WA-A bio-pharmaceutical
company that develops medications for the treatment of
chronic inflammatory diseases 318,500 11,903,938
+*KOS Pharmaceuticals Inc., Miami, FL-Develops
prescription pharmaceutical products primarily for the
treatment of chronic cardiovascular and respiratory diseases 349,680 2,010,660
*Maxxim Medical Inc., Clearwater, FL-Develops, manufactures
and distributes physical therapy equipment
and disposable hospital products 522,500 12,213,437
*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 314,680 4,641,530
+*PathoGenesis Corp., Seattle, WA-Develops drugs to treat
chronic infectious diseases, primarily lung infections 303,600 4,212,450
*SonoSite Inc., Bothell, WA-Designs and develops miniaturized
digital ultrasound imaging devices 175,500 3,169,969
*Surmodics Inc., Eden Prairie, MN-Provides surface modification
solutions to the medical device industry 70,000 1,181,250
*Theragenics Corp., Norcross, GA-Produces and sells implantable
radiation devices used in the treatment of prostate cancer 703,540 7,563,055
*Thermedics Inc., Waltham, MA-Develops, manufactures
and markets explosives and drug-detection devices,
product quality assurance systems and other biomedical products 101,000 902,688
+*Ventana Medical Systems Inc., Tucson, AZ-Develops,
manufactures and markets instrument/reagent systems 350,000 7,306,250
Total 96,881,025
- -----------------------------------------------------------------------------------------------------------------------=============
New Media 1.01% *CyberSource Corp., San Jose, CA-Develops and provides
real-time e-commerce transaction services 80,000 2,065,000
+*iTurf Inc., Class A, New York, NY-Provides
Internet community and commerce services 10,000 137,500
*MediaConsult.com Inc., Hamilton, Bermuda-Provides
patient-oriented healthcare information and services 100,000 962,500
*Quokka Sports Inc., San Francisco, CA-Offers global sports programming 250,000 2,609,375
*Stamps. com Inc., Santa Monica, CA-Provides a service
for purchasing and printing postage over the Internet 166,000 5,602,500
*Student Advantage Inc., Boston, MA-Serves college students
through its rational fee-based membership
program and web site 620,000 8,447,500
Total 19,824,375
----------------------------------------------------------------------------------------=============
9
<PAGE>
Statement of Net Assets
July 31, 1999
Investments Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Restaurant .56% +*Buca Inc., Minneapolis, MN-Owns and operates "BUCA di DEPPO" restaurants 230,000 $ 3,967,500
*P.F. Chang's China Bistro Inc., Phoenix, AZ-Owns and
operates 28 full-service Chinese restaurants 300,000 6,975,000
Total 10,942,500
- -----------------------------------------------------------------------------------------------------------------------=============
Retail 9.55% *Ames Department Stores Inc., Rocky Hill, CT-The nation's
fifth largest discount department store
chain, with 303 stores in 14 Northeastern states 510,000 20,910,000
+*Beyond.com Corp., San Jose, CA-An online reseller of commercial
off-the-shelf computer software to the
consumer, small business, and large enterprise markets 195,000 4,606,875
*CellStar Corp., Carrollton, TX-An integrated wholesale
distributor and retailer of cellular telephones
and related products 1,805,000 11,958,125
+*Cost Plus Inc., Oakland, CA-Operates 70 retail stores
specializing in the sale of casual home living
and entertainment products 352,230 15,498,120
+*Delia's Inc., New York, NY-Provides direct marketing of casual apparel 300,000 2,981,250
*Gerald Stevens Inc., Fort Lauderdale, FL-Retails and
markets flowers and floral-related merchandise and gifts 250,000 2,671,875
+*Insight Enterprises Inc., Tempe, AZ-A direct marketer
of microcomputers, peripherals and software 301,980 8,757,420
*Kenneth Cole Productions, Inc., Class A, New York, NY-Develops
sources and markets a broad range of
footwear, handbags and accessories 433,130 15,159,550
*Pacific Sunwear of California, Inc., Anaheim, CA-Operates
a nationwide mall-based specialty retail
chain of stores specializing in casual apparel,
footwear and related accessories catering to
teenagers and young adults 1,420,850 35,521,250
#*Shoe Carnival Inc., Evansville, IN-A retailer of family
footwear operating primarily in the Midwestern
and Midsouthern regions of the United States 753,540 10,078,597
*Stage Stores Inc., Houston, TX-Owns and operates apparel
stores primarily in the central region of the U.S. 1,302,930 8,387,612
*Timberland Company Class A, Stratham, NH-Designs, develops,
manufactures and markets boots, shoes,
apparel and accessories 340,000 27,646,250
+*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 2,035,000
*Tuesday Morning Corp., Addison, TX-A closeout retailer of
upscale house furnishings, gifts and related items 250,000 5,781,250
+*Wild Oats Markets Inc., Boulder, CO-A natural foods supermarket chain 286,690 10,428,349
+*Zany Brainy Inc., Wynnewood, PA-Retails toys, games,
books, and multimedia products for children 610,000 4,803,750
Total 187,225,273
- -----------------------------------------------------------------------------------------------------------------------=============
Security Services 2.19% #*-Armor Holdings Inc., Jacksonville, FL-Worldwide
manufacturer and distributor of products and services
for the law enforcement, military and security markets 1,150,000 11,500,000
#*Cornell Corrections Inc., Houston, TX-Provides
privatized correctional, detention, and prerelease
services in the United States 712,980 10,516,455
+#*Kroll-O'Gara Co., Fairfield, OH-A leading provider
of vehicle armoring systems for military
commercial and governmental clients worldwide 1,060,020 21,001,646
Total 43,018,101
- -----------------------------------------------------------------------------------------------------------------------=============
Specialty Chemicals 2.68% *Eco Soil Systems Inc., San Diego, CA-Develops, 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 700,000 5,468,750
OM Group Inc., Cleveland, OH-Produces metal carboxylates, salts and powders 614,720 23,013,580
*Polymer Group Inc., North Charleston, SC-Major
global manufacturer of non-woven materials 71,800 834,675
*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 1,024,300 23,174,788
Total 52,491,793
- -----------------------------------------------------------------------------------------------------------------------=============
Telecommunication Equipment +*Active Voice Corp., Seattle, WA-Develops PC-based call
processing systems and computer telephone integration products 136,800 1,915,200
4.75%
*Cable Design Technologies Corp., Pittsburgh, PA-Designs
and manufactures specialty electronic data
transmission cables and network structured wiring systems 450,000 8,156,250
10
<PAGE>
Statement of Net Assets
July 31, 1999
Investments Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
#*EMS Technologies Inc., Norcross, GA-Produces microwave
components and subsystems for application in space 450,000 $ 6,131,250
*FVC.com Inc., Santa Clara, CA-Provides high quality,
cost-effective Internet video networking solutions 650,000 4,468,750
+*MGC Communications Inc., Las Vegas, NV-Diversified
telecommunications company 396,000 9,207,000
Pairgain Technologies Inc., Tustin, CA-Designs, manufactures,
markets and supports products that allow
telecommunications carriers and private networks to run efficiently 932,400 8,799,525
Plantronics, Inc., Santa Cruz, CA-Leading supplier
of communication headset products and services to
users and providers worldwide 731,100 51,725,325
*Viasat Inc., Carlsbad, CA-Designs, produces, and markets
digital satellite telecommunications and
wireless signal processing equipment 175,000 2,800,000
Total 93,203,300
- -----------------------------------------------------------------------------------------------------------------------=============
Transportation 1.49% +*Frontier Airlines Inc., Denver, CO-A low-fare,
full-service commercial airline 590,000 9,329,375
*MotivePower Industries Inc., Pittsburgh, PA-Manufactures
products for rail and other power- related industries 896,330 15,853,837
Railworks Corp., Baltimore, MD-Provides integrated rail system services 440,000 4,097,500
Total 29,280,712
- -----------------------------------------------------------------------------------------------------------------------=============
Waste Management .71% US Liquids Inc., Houston, TX-Provides
liquid waste management services 675,000 13,837,500
- -----------------------------------------------------------------------------------------------------------------------=============
Total Investments in Common Stocks (Cost $1,642,515,199) 1,878,095,155
====================================================================================================================================
Other Assets, Less Liabilities 4.21%
====================================================================================================================================
Short-Term Investments AT&T Corp. 5.1% due 8/2/1999 $30,380 30,371,391
Dow Chemical Co. 5.1% due 8/2/1999 87,960 87,935,074
Total Short-Term Investments (Cost $118,306,465) 118,306,465
- -----------------------------------------------------------------------------------------------------------------------=============
Other (See Note 5) 140,898,365
- -----------------------------------------------------------------------------------------------------------------------=============
Cash 7,920,000
- -----------------------------------------------------------------------------------------------------------------------=============
Receivable for: Securities sold 129,364,640
Capital stock sold 15,762,464
Dividends 443,952
Other 313,772
Total Other Assets 413,009,658
- -----------------------------------------------------------------------------------------------------------------------=============
Payable for: Collateral on securities loaned 140,898,365
Securities purchased 186,921,246
Capital stock reacquired 2,744,440
Total Liabilities 330,564,051
- -----------------------------------------------------------------------------------------------------------------------=============
Total Other Assets, Less Liabilities 82,445,607
- -----------------------------------------------------------------------------------------------------------------------=============
Net Assets 100.00% $1,960,540,762
====================================================================================================================================
</TABLE>
<TABLE>
<S> <C>
Class A Shares-Net asset value ($1,230,781,207 / 72,580,981 shares outstanding) $16.96
Maximum offering price (net asset value plus sales charge of 5.75% of the offering price) $17.99
Class B Shares-Net asset value ($273,658,118/16,469,813 shares outstanding) $16.62
Class C Shares-Net asset value ($216,252,566/13,002,512 shares outstanding) $16.63
Class P Shares-Net asset value ($88,098,924/5,218,316 shares outstanding) $16.88
Class Y Shares-Net asset value ($151,749,947/8,907,765 shares outstanding) $17.04
*Non-income producing security.
+Securities (or a portion of securities) on loan. See Note 5.
#Affiliated issuer (holdings represent 5% or more of the
outstanding voting securities of underlying investments).
Affiliated issuers have a total cost of $211,823,564 and total value of $195,247,519.
See Notes to Financial Statements.
11
</TABLE>
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Investment Income Six Months Ended July 31, 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Income Interest $ 3,395,892
Dividends 1,855,779
Securities lending 400,117
- ----------------------------------------------------------------------------------------------------------
Total income $ 5,651,788
- ----------------------------------------------------------------------------------------------------------
Expenses Management fee 4,097,846
12 b-1 Distribution plan-Class A 1,331,285
12 b-1 Distribution plan-Class B 1,117,878
12 b-1 Distribution plan-Class C 819,231
12 b-1 Distribution plan-Class P 154,194
Shareholder Servicing 992,675
Reports to Shareholders 93,643
Registration 89,753
Professional 40,666
Other 75,347
----------
Total expenses before reductions 8,812,518
Expense reductions (33,363)
----------
Net expenses 8,779,155
--------------------------------------------------------------------------------------------
Net investment loss (3,127,367)
--------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
==========================================================================================================
Realized gain from investment transactions 141,466,387
==========================================================================================================
Net change in unrealized appreciation of investments (30,602,160)
==========================================================================================================
Net realized and unrealized gain on investments 110,864,227
- ----------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $107,736,860
==========================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended Year Ended
July 31, January 31,
Increase in Net Assets 1999 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations Net Investment loss $ (3,127,367) $ (5,550,872)
Net realized gain from investment transactions 141,466,387 26,327,061
Net change in unrealized appreciation of investments (30,602,160) 120,503,925
Net increase in net assets resulting from operations 107,736,860 141,280,114
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain from investment
transactions:
Class A (17,593,638) (1,560,147)
Class B (4,003,130) (118,251)
Class C (2,759,909) (65,140)
Class P (1,129,243) (2,871)
Class Y (1,496,429) (11)
Total (26,982,349) (1,746,420)
---------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sales of shares 810,474,295 891,051,508
Net asset value of shares issued to shareholders in reinvestment of distributions 26,018,315 1,677,672
Total 836,492,610 892,729,180
---------------------------------------------------------------------------------------------------------------------
Cost of shares reacquired (300,909,388) (241,146,131)
---------------------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions 535,583,222 651,583,049
--------------------------------------------------------------------------------------------------------------------
Increase in net assets 616,337,733 791,116,743
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets
Beginning of period 1,344,203,029 553,086,286
- -----------------------------------------------------------------------------------------------------------------------------------
End of period (including accumulated net investment loss of $3,438,456
and $311,089, respectively) $1,960,540,762 $1,344,203,029
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares
-----------------------------------------------------------------------------------
Six Months
Ended Year Ended January 31,
Per Share Operating Performance: July 31, 1999 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.25 $14.27 $12.80 $11.49 $ 9.58 $10.65
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations
Net investment loss (.02)(a) (.07)(a) (.10)(a) (.03) (.02) (.04)
Net realized and unrealized gain 1.05 2.10 3.16 3.12 4.80 (.22)
(loss)on investments
Total from investment operations 1.03 2.03 3.06 3.09 4.78 (.26)
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain (.32) (.05) (1.59) (1.78) (2.87)
(.81)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.96 $16.25 $14.27 $12.80 $11.49 $ 9.58
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(b) 6.60%(c) 14.24% 24.38% 28.35% 50.22% (2.74)%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses .47%(c)(f) .98%(f) 1.06% 1.10% 1.03% 1.31%
Net investment loss (.11)%(c) (.46)% (.72)% (.67)% (.52)% (.38)%
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Class C Shares
----------------------------------------------------------------------------------------------
Six Months
Six Months Year Ended 8/1/96(d) Ended, Year Ended 8/1/96(d)
Ended January 31, to July 31, January 31, to
Per Share Operating Performance: July 31, 1999 1999 1998 1/31/97 1999 1999 1998 1/31/97
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.98 $14.12 $12.75 $12.14 $16.00 $14.13 $12.75 $12.14
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations
Net investment loss (.08)(a) (.17)(a) (.20)(a) (.05) (.08)(a) (.17)(a) (.19)(a) (.05)
Net realized and unrealized 1.04 2.06 3.14 2.28 1.03 2.07 3.14 2.28
gain on investments
Total from investment operations .96 1.89 2.94 2.23 .95 1.90 2.95 2.23
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain (.32) (.03) (1.57) (1.62) (.32) (.03) (1.57) (1.62)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.62 $15.98 $14.12 $12.75 $16.63 $16.00 $14.13 $12.75
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return(b) 6.27%(c) 13.37% 23.48% 19.43%(c) 6.20%(c) 13.43% 23.55% 19.43%(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses .84%(c)(f) 1.72%(f)1.76% .93%(c) .83%(c)(f)1.72%(f) 1.71% .93%(c)
Net investment loss (.48)%(c) (1.19)% (1.39)% (.73)%(c) (.48)%(c) (1.20)% (1.34)% (.73)%(c)
</TABLE>
<TABLE>
<CAPTION>
Class P Shares Class Y Shares
------------------------------------------------------------------------------------
Six Months Year Ended Six Months Year Ended
Ended January 31, 1/5/98(d) to Ended January 31, 12/30/97(d)
Per Share Operating Performance: July 31, 1999 1999 1/31/98 July 31, 1999 1999 to 1/31/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.19 $14.26 $14.38 $16.30 $14.27 $14.12
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations
Net investment loss (.03)(a) (.10)(a) (.01)(a) --(a)(e) (.03)(a) --(a)(e)
Net realized and unrealized gain
(loss) on investments 1.04 2.08 (.11) 1.06 2.11 .15
Total from investment operations 1.01 1.98 (.12) 1.06 2.08 .15
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain (.32) (.05) -- (.32) (.05) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.88 $16.19 $14.26 $17.04 $16.30 $14.27
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(b) 6.50%(c) 13.89% (.83)%(c) 6.77%(c) 14.59% 1.06%(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses .56%(c)(f) 1.17%(f) .08%(c) .34%(c)(f) 0.72%(f) .06%(c)
Net investment income (loss) (.20)%(c) (.70)% (.05)%(c) .02%(c) (.22)% (.02)%(c)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended January 31,
Supplemental Data for AllClasses: July 31, 1999 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets, end of period (000) $1,960,541 $1,344,203 $553,086 $330,358 $197,602 $127,579
Portfolio turnover rate 22.66% 30.89% 33.60% 42.35% 50.12% 17.57%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated using average shares outstanding during the period.
(b) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(c) Not annualized.
(d) Commencement of offering respective class shares.
(e) Amount less than $.01. (f) The ratios for 1999 include expenses paid
through an expense offset arrangement.
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) Security valuation is
determined as follows: Portfolio 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 last 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 approx i mates 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 dis tribute 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.
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) an
annual distribution fee of 0.10% of the average daily net asset value of 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 $385,902 representing payment of commissions on sales of
Class A shares after deducting $2,492,362 allowed to authorized dealers 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, 1999 for financial reporting purposes aggregated $140,524,640. 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 gain 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 $1,587,874,622 at July 31,
1999. Transactions in shares of capital stock were as follows:
Six Months Ended Year Ended
July 31, 1999 January 31, 1999
-------------------------------------------------------------
Class A Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Sales of shares 29,933,704 $481,541,914 34,439,805 $502,454,274
Shares issued to
shareholders in
reinvestment of
distributions 1,142,641 17,082,485 98,898 1,500,289
Total 31,076,345 498,624,399 34,538,703 503,954,563
- --------------------------------------------------------------------------------
Shares reacquired (12,918,568) (206,777,077) (12,116,669) (170,758,960)
Increase 18,157,777 $291,847,322 22,422,034 $ 333,195,603
- --------------------------------------------------------------------------------
Six Months Ended Year Ended
July 31, 1999 January 31, 1999
-------------------------------------------------------------
Class B Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Sales of shares 5,344,525 $ 85,121,624 9,442,316 $137,537,607
Shares issued to
shareholders in
reinvestment of
distributions 254,874 3,746,643 7,448 111,870
Total 5,599,399 88,908,267 9,449,764 137,649,477
- --------------------------------------------------------------------------------
Shares reacquired (1,459,452) (22,673,533) (1,517,765) (21,142,892)
Increase 4,139,947 $ 66,234,734 7,931,999 $116,506,585
- --------------------------------------------------------------------------------
Six Months Ended Year Ended
July 31, 1999 January 31, 1999
-------------------------------------------------------------
Class C Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Sales of shares 6,523,103 $104,100,576 8,526,748 $122,721,386
Shares issued to
shareholders in
reinvestment of
distributions 174,210 2,562,623 4,177 62,820
Total 6,697,313 106,663,199 8,530,925 122,784,206
- --------------------------------------------------------------------------------
Shares reacquired (1,933,739) (30,468,353) (2,670,719) (36,314,213)
Increase 4,763,574 $ 76,194,846 5,860,206 $ 86,469,993
- --------------------------------------------------------------------------------
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Six Months Ended Year Ended
July 31, 1999 January 31, 1999
---------------------------------------------------------
Class P Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Sales of shares 2,855,510 $ 45,872,616 3,997,976 $57,451,548
Shares issued to
shareholders in
reinvestment
of distributions 75,848 1,130,137 190 2,682
Total 2,931,358 47,002,753 3,998,166 57,454,230
- --------------------------------------------------------------------------------
Shares reacquired (1,150,633) (18,150,229) (606,014) (8,760,737)
Increase 1,780,725 $ 28,852,524 3,392,152 $48,693,493
- --------------------------------------------------------------------------------
Six Months Ended Year Ended
July 31, 1999 January 31, 1999
--------------------------------------------------------------
Class Y Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Sales of shares 5,614,147 $ 93,797,565 4,894,745 $70,886,693
Shares issued to
shareholders in
reinvestment
of distributions 99,762 1,496,427 1 11
Total 5,713,909 95,293,992 4,894,746 70,886,704
- --------------------------------------------------------------------------------
Shares reacquired (1,435,183) (22,840,196) (265,936) (4,169,329)
Increase 4,278,726 $ 72,453,796 4,628,810 $66,717,375
- --------------------------------------------------------------------------------
5. PORTFOLIO SECURITIES The Company may lend its securities to member banks of
the Federal Reserve System and to registered broker-dealers approved by the
Company. The loans are collateralized at all times by cash and/or U.S. Treasury
securities in an amount of at least equal to the market value of the securities
loaned. As of July 31, 1999, the value of securities loaned was $136,188,393.
These loans were collateralized by cash of $140,856,175. Income from securities
lending of$400,117 is accounted for in the same manner as other dividend and
interest income on the Statement of Operations. Purchases and sales of
investment securities (other than short-term investments) aggregated
$847,531,172 and $332,385,108, respectively. As of July 31, 1999, net unrealized
appreciation for federal income tax purposes aggregated $235,579,956, of which
$411,764,986 related to appreciated securities and $176,185,030 related to
depreciated securities. For federal income tax purposes, the identified cost of
investments owned at July 31, 1999 was substantially the same as the cost for
financial reporting purposes.
6. EXPENSE REDUCTION The Company has entered into an arrangement with its
transfer agent whereby credits realized as a result of uninvested cash balances
were used to reduce a portion of the Fund's expenses.
7. 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 year with companies which are
affiliates are as follows:
Balance of
Shares Held Gross Gross
Affiliates Jan. 31, 1999 Purchases Sales
- --------------------------------------------------------------------------------
ATS Medical Inc. 750,000 464,610 -
Armor Holdings Inc. 1,150,000 - -
BrightStar Information Technology Group Inc. 770,000 - -
Caere Corp. 650,000 100,000 -
CareMatrix Corp. - 1,153,560 -
Cornell Corrections 422,800 290,180 -
Edge Petroleum Corp. 640,000 5,200 -
EMSTechnologies Inc. 63,800 386,200 -
EXCO Resources Inc. 650,000 - -
Healthcare Service Group Inc. 708,350 140,000 -
Kroll-O'Gara Co. 905,000 155,020 -
Landmark Systems Corp. 945,000 50,000 -
LeCroy Corp. 520,500 - -
M/A/R/C Inc. 416,900 2,640 -
MicroTouch Systems Inc. 420,000 139,990 -
Professional Staff plc ADR 340,000 - -
Radisys Corp. 585,000 20,000 -
Sirena Apparel Group Inc. 330,000 - -
ShoeCarnival Inc. 450,000 303,540 -
Tarrant Apparel Group 507,000 413,040 (100,000)
Tropical Sportswear International Corp. 32,500 707,500 -
- --------------------------------------------------------------------------------
Realized Gain Dividend
Balance of Feb. 1, 1999 to Income
Shares Held Value to Jul. 31, Feb. 1, 1999 to
Affiliates Jul. 31,1999 Jul. 31, 1999 1999 Jul. 31, 1999
- --------------------------------------------------------------------------------
ATS Medical Inc. 1,214,610 $11,918,361 - -
Armor Holdings Inc. 1,150,000 11,500,000 - -
BrightStar Information
Technology Group Inc. 770,000 3,224,375 - -
Caere Corp. 750,000 7,500,000 - -
CareMatrix Corp. 1,153,560 12,544,965 - -
Cornell Corrections 712,980 10,516,455 - -
Edge Petroleum Corp. 645,200 3,871,200 - -
EMSTechnologies Inc. 450,000 6,131,250 - -
EXCO Resources Inc. 650,000 4,793,750 - -
Healthcare Service
Group Inc. 848,350 7,953,281 - -
Kroll-O'Gara Co. 1,060,020 21,001,646 - -
Landmark Systems Corp. 995,000 7,835,625 - -
LeCroy Corp. 520,500 9,629,250 - -
M/A/R/C Inc. 419,540 6,083,330 - $94,001
MicroTouch Systems Inc. 559,990 8,749,844 - -
Professional Staff
plc ADR 340,000 2,061,250 - -
Radisys Corp. 605,000 24,880,625 - -
Sirena Apparel
Group Inc. 330,000 20,625 - -
ShoeCarnival Inc. 753,540 10,078,597 - -
Tarrant Apparel Group 820,040 12,095,590 $3,317,294 -
Tropical Sportswear
International Corp. 740,000 12,857,500 - -
- --------------------------------------------------------------------------------
8. DIRECTORS' REMUNERATION The Directors of theCompany 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, 1999, under a deferred compensation plan,
were $380,985.
9. LINE OF CREDIT The Company, along with certain other funds managed by Lord
Abbett, has available a $200,000,000 unsecured revolving credit facility
("Facility"), from a consortium of banks, to be used for temporary or emer gency
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 0.06% per annum.
There were no loans outstanding pursuant to this Facility at July 31, 1999, nor
was the Facility utilized at any time during the period.
16
<PAGE>
Lord, Abbett & Co.
PORTFOLIO
MANAGER
TEAM
[PHOTO]
Partner and Investment Team Leader Stephen J. McGruder (standing). Equity
Analysts Lesley-Jane Dixon (seated left) and Rayna N. Lesser (seated right).
Stephen J. McGruder, Partner and Investment Team Leader, has more than 30 years
of experience in the investment industry. He joined Lord Abbett from Wafra
Investment Advisory Group where he was Vice President and Portfolio Manager. A
CFA charterholder, Mr. McGruder earned a BS in Chemistry from Stanford
University and a BA in Business Economics from Claremont McKenna College.
Lesley-Jane Dixon, Equity Analyst, joined Lord Abbett from Wafra Investment
Advisory Group, where she concentrated primarily on small-capitalization stocks.
Earlier, she worked at Shearson Lehman Brothers and the American Stock Exchange.
Ms. Dixon earned a BS in Business/Finance from Wake Forest University. She has
been in the investment business since 1986 and is a CFA charterholder.
Rayna N. Lesser, Equity Analyst, joined Lord Abbett from Barnard College where
she earned a BA in Economics. She is a CFA Level II candidate.
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,
William Bush.
William H. T. Bush
Director Lord Abbett
Developing Growth Fund
[PHOTO]
Mr. Bush received his B. A. degree from Yale University in 1960. He
co-founded the financial advisory firm of Bush-O'Donnell &Company which
provides investment management and financial advisory services to
corporations and individuals throughout the United States and abroad.
Mr. Bush serves as a member of the Board of Directors of Right Choice Managed
Care Inc., Maritz Inc., Mississippi Valley Bancshares, Inc. and INTRAV, Inc.,
all of St. Louis, and DT Industries Inc. of Springfield, Missouri. He was named
an independent director for all of Lord Abbett's funds in 1998.
<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 Research Fund - Research Fund - Balanced World Bond- National U. S. Government
Growth Fund* Small-Cap Value Large-Cap Series*** Debenture Series California Securities Money
Series Series Global Fund - Connecticut Market Fund ++
Alpha Series** Growth & Income Series Florida
International Income Series High Yield Fund Georgia
Series Affiliated Fund Bond-Debenture Hawaii
Mid-Cap Fund Michigan
Value Fund Limited Duration Minnesota
Growth U. S. Government Missouri
Opportunities Securities Series+ New Jersey
Fund U. S. Government) New York
Global Fund - Securities Series+ Pennsylvania
Equity Series Texas
Washington
</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 the fund(s) covered by this
report.
For more complete information about any Lord Abbett fund, including risks,
charges and ongoing expenses, call your investment professional or Lord Abbett
Distributor LLC at 800-874-3733 for a prospectus. Read it carefully before
investing.
The Lord Abbett Family of Funds lets you access more than 30 portfolios designed
to meet a variety of investment needs.
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.
You may reallocate assets among our funds at any time. Speak with your
investment 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
24-Hour Automated Shareholder
Service Line: 800-865-7582
Visit Our Web Site:
http://www.lordabbett.com
*** Lord Abbett Developing Growth Fund Class A, B and C will close to new
investors on 9/30/99.
*** Lord Abbett Securities Trust - Alpha Series is a fund of funds investing in
shares of Lord Abbett Developing Growth Fund, Lord Abbett Research Fund -
Small-Cap Value Series and Lord Abbett Securities Trust International
Series.
*** Lord Abbett Balanced Series is a fund of funds investing in shares of
certain other Lord Abbett funds.
+ An investment in this Fund is neither insured nor guaranteed by the U. S.
Government.
++ An investment in this 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]
Lord Abbett mutual fund shares are distributed by:
LORD ABBETT DISTRIBUTOR LLC
LADG-3-699
(9/99)
