Lord Abbett Developing Growth Fund
1999 ANNUAL REPORT
[GRAPHIC OMITTED]
A portfolio of small companies
with large growth potential
[LOGO](R)
<PAGE>
Lord Abbett Developing Growth Fund
A Tradition of
Performance
"McGruder's three-plus-year tenure as manager has been nothing less than
fantastic ... Prospective investors in search of capital appreciation should
consider the offering."
Value Line, February 2, 1999
- --------------------------------------------------------------------------------
Do Small-Cap Stocks Have Just as there are different types of
a Place in Your Portfolio? investors -- with unique goals, strategies
and time horizons -- there are different
types of securities to help them pursue
their objectives. Look at equities: stocks
of large-cap companies (market
capitalizations in excess of $5 billion)
behave differently than stocks of small-cap
companies (market capitalizations of $1
billion or less). Year-to-year volatility is
higher for small-cap stocks, but, as the
chart below illustrates, small company
stocks have provided double-digit average
annual returns during each of the last six
decades.
Average Annual Returns During Each Decade(1)
[The following table was depicted as a bar graph in the printed material.]
1940s 1950s 1960s 1970s 1980s 1990s*
- --------------------------------------------------------------------------------
Small-cap stocks 20.7% 16.9% 15.5% 11.5% 15.8% 12.6%
Large-cap stocks 9.2% 19.4% 7.8% 5.9% 17.6% 17.9%
*1990-1998
Lord Abbett Developing Growth Fund invests
in stocks of small, developing companies.
These stocks offer unusual growth potential
and, not surprisingly, entail more investor
risk. However, when used as part of a
diversified portfolio, small-cap stocks may
provide investors with added growth
potential to help them achieve their goals.
- --------------------------------------------------------------------------------
Average Annual The average annual rates of total return,
Total Returns computed using the SEC-required formula and
reflecting the deduction of the Class A
share maximum sales charge of 5.75% for the
periods ended 1/31/99, were:
[The following table was depicted as a bar graph in the printed material.]
1 year 7.60%
5 years 20.22%
10 years 16.53%
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.
<PAGE>
Report to Shareholders
For the Fiscal Year Ended January 31, 1999
[PHOTO OMITTED]
/s/ Robert S. Dow
- -------------------------------------
ROBERT S. DOW
CHAIRMAN
FEBRUARY 16, 1999
"Our belief is that the current environment is a normal phase of the investment
cycle ... and one that creates a particularly attractive opportunity for
small-cap stocks."
Lord Abbett Developing Growth Fund completed its fiscal year on January 31,
1999, with net assets of $1.3 billion. We believe that the soundness of the
Fund's investment strategy is demonstrated by the returns it provided to
shareholders during a particularly challenging year. Below is an overview of
class-specific data for the period.
Fiscal Year Ended 1/31/99
---------------------------------------------------
Class A Class B Class C Class P Class Y
- -------------------------------------------------------------------------------
Net asset value $16.25 $15.98 $16.00 $16.19 $16.30
Capital gains $0.05 $0.03 $0.03 $0.05 $0.05
Total return* 14.2% 13.4% 13.4% 13.9% 14.6%
Small-cap investors saw positive returns early on in the Fund's fiscal year
erased by a sharp third-quarter downturn. This downturn was caused in part by a
"flight to quality" stemming from international monetary and economic crises as
well as political problems that led investors to seek more liquid investments,
such as larger-company stocks and higher-quality bonds. While all major asset
classes of the U.S. equity market experienced weakness during the third quarter
of 1998, small-cap equities had the lowest returns.
The month of October, however, saw some price recovery for small-cap stocks
after August's severe declines. The October upswing turned out to be a harbinger
of extremely strong performance during the entire fourth quarter as economic and
political uncertainties that had previously affected investor confidence
subsided and a more optimistic outlook emerged. Key to this turnaround was the
Federal Reserve Board's decisive move to lower U.S. interest rates through a
series of autumn rate cuts.
Most sectors of the U.S. equity market participated in the fourth quarter
upswing. However, as the market reached its previous highs, certain sectors,
such as technology and consumer-non cyclicals, that had provided price
leadership earlier on, once again moved ahead of the broad market. In addition,
large-cap stocks continued to outperform mid- and small-cap investments.
Our focus on bottom-up stock selection allowed the Fund to overcome
industry-specific difficulties throughout most of the period under review. Our
strategy and philosophy remain constant. We concentrate on selecting those
companies that we believe will offer our investors superior long-term stock
price appreciation regardless of industry-specific problems or large-scale
economic trends.
In our view, the current backdrop of growth in the economy, low levels of
inflation and interest rates, paired with adequate liquidity supported by
Federal Reserve policy, should enable the U.S. equity market to show progress in
the next year. However, a slowing U.S. economy could spur small-cap price
volatility due to lower corporate earnings and employment growth. We believe our
focus on identifying financially strong companies that can be purchased at
attractive prices will help the Fund to uncover exciting investment
opportunities even during a slowing economy. Since small-cap stocks remain
significantly undervalued with respect to relative earnings versus large-caps,
we also expect that a period of strong relative performance by small-caps is
likely during 1999.
Thank you for your continued confidence in Lord Abbett Developing Growth Fund.
We look forward to helping you achieve your financial goals in the years ahead.
* Total return is the percent change in net asset value, assuming the
reinvestment of all distributions.
1
<PAGE>
Focus on ... Performance
The Benefits of Long-Term Investing
Lord Abbett Developing Growth Fund has enabled investors to participate in the
growth potential of small company stocks. During the past 10 years, the Fund has
significantly outperformed its benchmark, the Russell 2000 Index.(1)
Growth of a $10,000 Fund Investment: 1/31/89-1/31/99
DEVELOPING RUSSELL
GROWTH 2000
1/31/89 10,000 10,000
1/31/90 9,962 10,157
1/31/91 11,422 9,772
1/31/92 16,165 14,148
1/31/93 15,793 16,021
1/31/94 18,383 18,999
1/31/95 17,879 17,858
1/31/96 26,859 23,206
1/31/97 34,472 27,604
1/31/98 42,880 32,591
1/31/99 48,984 32,699
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.
(1) The Russell 2000 Index measures small company stock market performance,
does not reflect the deduction of fees or expenses, is unmanaged and is
not available for direct investment.
The Fund Versus the Benchmarks
As shown in the charts below, over the last 3- and 5-year periods ended 1/31/99,
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).(2) Furthermore,
over these periods, the Fund outpaced the Russell 2000 Index, an unmanaged index
that measures small company stock market performance.(3) While historically
long-term investors in small company stocks have been rewarded with strong
returns (see charts on inside front cover), there is no assurance of the Fund's
future performance or that this pattern will continue.
Impressive Total Returns
[The following table was depicted as a bar graph in the printed material.]
3 Years 5 Years
The Fund 22.2% 21.7%
Lipper Average of Small Cap Funds(2) 13.0% 12.4%
Russell 2000 Index(3) 12.1% 11.5%
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 1/31/99 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.
(2) Lipper Analytical Services, Inc. tracks and reports the performance of
mutual funds based on total returns (i.e., changes in net asset value,
including reinvestment of distributions).
(3) The Russell 2000 Index does not reflect the deduction of fees or expenses
and is not available for direct investment.
2
<PAGE>
Focus on ... Small, Growing Companies
The Fund seeks to invest in companies that have passed through their initial,
formative years and are now in the "developing growth" phase, as illustrated in
the graph below. These companies have not yet matured, nor have they settled
into the slower growth rate of more established businesses. Because it is
arithmetically easier to grow from a small base than a large one, developing
growth companies may offer better opportunity for appreciation over the long
term. However, the stock prices of these companies can fluctuate sharply. That's
why Lord Abbett Developing Growth Fund makes sense for investors who want to
participate in the aggressive growth potential of a diversified, actively
managed small company stock portfolio.
The actual growth of a company cannot be foreseen, and it may be difficult to
determine in which phase a company is presently situated. There is no fixed
correlation between the business growth of a company and the market value of its
stock. The illustration below is not a representation of the performance of the
stocks in which the Fund invests.
Four Phases of Business Growth
1. Formative
Companies are in their infancy, a high-risk period.
2. Developing Growth
An evolving period, often characterized by a dramatic rate of growth; not
without risk.
3. Established Growth
Competative forces and regulations tend to slow companies' progress.
4. Maturity
Companies' growth patterns tend to resemble the Gross Domestic Product.
[GRAPHIC OMITTED]
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 can 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.
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).
A Note About Year 2000 Matters
As you probably know, the Fund depends on the proper functioning of computer
systems for most, if not all, aspects of its operations. Many computer systems
now in use cannot distinguish between the year 2000 (Y2K) and the year 1900, an
inability that could disrupt the services provided to the Fund.
Lord Abbett, Lord Abbett Distributor LLC, the Fund's transfer agent, the Fund's
custodian and other providers of services critical to the Fund all have advised
the Fund that they have been actively working on changes to their computer
systems to prepare for the Year 2000 and expect that their systems, and those of
their external service providers, will be adapted in time. Although the Y2K
issue is unprecedented and the process of Y2K preparedness evaluation and
systems remediation is an ongoing one, we presently believe that there will be
no material effect on the Fund and its financial statements.
3
<PAGE>
Important Information
Investments in common stocks are subject to market fluctuations, providing the
potential for gain and the risk of loss. Lord Abbett Developing Growth Fund
invests in the securities of small-cap companies. Small-cap companies typically
have a higher risk of failure, and such companies' securities historically have
experienced a greater degree of illiquidity and market volatility, than
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 3/31/99, this report must be accompanied by Lord Abbett's
Performance Quarterly for the most recently completed calendar quarter.
Statement of Net Assets
January 31, 1999
<TABLE>
<CAPTION>
Investments Shares Market Value
==================================================================================================================================
Investments in Common Stocks 93.20%
==================================================================================================================================
<S> <C> <C> <C>
Aerospace 3.63% *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 1,216,000 $ 48,792,000
- ----------------------------------------------------------------------------------------------------------------------============
Business Equipment and General Binding Corp., Northbrook, IL-The leading vendor of office
Supplies .11% binding and laminating systems and related supplies 48,000 1,486,512
- ----------------------------------------------------------------------------------------------------------------------============
Business Services 8.84% Abacus Direct Corp., Westminster, CO-Provides information products and
marketing research services 125,000 6,312,500
*Aegis Communications Group, Dallas, TX-Provides inbound and outbound
contract telemarketing services to a variety of companies in various
industries 2,014,900 2,581,490
*Butler International Inc., Montvale, NJ-Provides skilled engineers and
technical personnel on a contract basis in various industries 308,000 6,930,000
++*Caribiner International Inc., New York, NY-International producer of
meetings, events and training programs 910,000 8,360,625
*Checkfree Holdings Corp.-Provides electronic commerce services,
financial application software and related products 388,200 15,722,100
G & K Services Inc. Class A, Minneapolis, MN-A lessor of work garments
and related textile products 145,000 7,938,750
*GIGA Information Group, Norwell, MA-Provides information, analysis and
advice about the information technology industry 260,000 1,430,000
*Iron Mountain Inc., Boston, MA-Records management company 390,000 12,699,375
*Labor Ready Inc., Tacoma, WA-Provides temporary workers to the light
industrial, construction and small business markets 336,500 7,739,500
+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 416,900 4,794,350
McGrath Rent Corp., San Leandro, CA-A lessor of relocatable modular
offices and electronic test equipment 425,600 8,219,400
*Mobius Management Sys. Inc., Rye, NY-Provides enterprise software
products designed to optimize the storage, retrieval and presentation
of large volumes of transactional information 250,000 4,531,250
Norrell Corp., Atlanta, GA-Provides staffing, outsourcing and
professional services in both temporary and long-term assignments 220,000 3,795,000
NFO Worldwide Inc., Greenwich, CT-Provides custom and syndicated
marketing information services 500,000 6,093,750
*Professional Staff, plc ADR, London, UK-An international staffing
company specializing in high-level medical placement 340,000 2,465,000
*SOS Staffing Services Inc., Salt Lake City, UT-Offers a full range of
staffing services through its 87 offices nationwide 175,000 1,903,125
</TABLE>
4
<PAGE>
Statement of Net Assets
January 31, 1999
<TABLE>
<CAPTION>
Investments Shares Market Value
==================================================================================================================================
<S> <C> <C> <C>
*Strategic Distribution Inc., Bensalem, PA-Provides proprietary
industrial supply procurement solutions to industrial sites, primarily
through its In-Plant Store program 1,348,500 $ 3,286,969
++*TeleTech Holdings Inc., Denver, CO-Provides customer care management
solutions to Fortune 500 and international companies 1,036,700 12,181,225
*The Marquee Group Inc., New York, NY-Provides comprehensive management,
marketing, sales, consulting and production services to sports and
entertainment-related businesses, events, athletes, broadcasters,
journalists and executives 400,000 1,800,000
Total 118,784,409
- ----------------------------------------------------------------------------------------------------------------------============
Capital Equipment .93% +*LeCroy Corp., Chestnut Ridge, NY-Develops, manufactures and markets
principally high-performance digital oscilloscopes and related products 520,500 12,492,000
- ----------------------------------------------------------------------------------------------------------------------============
Capital Goods 1.38% *Dionex Corp., Sunnyvale, CA-A manufacturer of analytical instruments 80,000 3,090,000
*Flow International Corp., Kent, WA-Designs, manufactures and sells
ultra-high-pressure waterjets for cutting metallic and non-metallic
materials 593,000 6,152,375
JLG Industries Inc., McConnellsburg, PA-A leading manufacturer of
self-propelled aerial work platforms 255,000 4,016,250
*Park-Ohio Holdings Corp., Cleveland, OH-Manufactures plastic
containers for food products and industrial products for the airline,
automotive, rail and trucking industries 280,000 4,620,000
*Utilx Corp., Kent, WA-Installs, replaces and renovates underground
utilities with "Flowmole," "Revalt" and "CableCure" services 237,500 682,813
Total 18,561,438
- ----------------------------------------------------------------------------------------------------------------------============
Computer Service 6.82% +*Alphanet Solutions Inc., Cedar Knolls, NJ-Provides information
technology products, services and support 194,500 863,094
+*Brightstar Information Technology Group Inc., Houston, TX-Provides
implementation of enterprise resource planning (ERP) software systems
and enterprise-wide business and technology solutions to Fortune 1000
companies and other large organizations 770,000 7,507,500
Cambridge Technology Partners Inc., Cambridge, MA-Provides management
consulting and systems integration 100,000 2,962,500
Ciber Inc., Englewood, CO-Provides management consulting for business
solutions 300,000 8,250,000
*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 6,824,375
*Computer Horizons Corp., Mountain Lakes, NJ-A leading provider of
information technology solutions 220,000 4,413,859
*Computer Management Science, Jacksonville, FL-Provides information
technology consulting and custom software development services to
large corporations, state and local governments, and other large
organizations throughout the United States 400,000 6,225,200
*IMRglobal Corp., Clearwater, FL-A leading provider of application
software outsourcing and year 2000 services worldwide 761,000 19,215,250
*Mastech Corporation, Oakdale, PA-Provides information technology
services worldwide 250,000 6,078,125
Renaissance Worldwide Inc., Newton, MA-Provides integrated business
and technology consulting services 400,000 2,487,480
*SCB Computer Technology Inc., Memphis, TN-Provides information
technology management and technical services 827,800 8,122,787
*Tava Technologies Inc., Denver, CO-A systems integrator that provides
software applications, system design and configuration in the
manufacturing process control industry 705,000 5,023,125
++*USWEB Corp., Santa Clara, CA-Provides Intranet, Extranet and Web site
solutions and services to medium-sized and large companies 450,000 13,725,000
Total 91,698,295
- ----------------------------------------------------------------------------------------------------------------------============
Computer Software 6.09% *Activision Inc., Santa Monica, CA-Publishes and distributes CD-based
and cartridge-based entertainment software 650,000 8,125,000
*Best Software Inc., Reston, VA-A leading provider of asset, human
resources and payroll management software solutions for middle-market
businesses 251,100 4,927,837
+*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 650,000 11,131,250
*Infinium Software Inc., Hyannis, MA-Offers financial, human resources,
materials management and process manufacturing business applications 155,600 836,350
+*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 945,000 12,639,374
</TABLE>
5
<PAGE>
Statement of Net Assets
January 31, 1999
<TABLE>
<CAPTION>
Investments Shares Market Value
==================================================================================================================================
<S> <C> <C> <C>
*Mercury Interactive Corp., Sunnyvale, CA-A developer and marketer of
client/server testing and quality assurance software 60,000 $ 3,817,500
+*Radisys Corp., Hillsboro, OR-Designs and produces embedded computer
solutions 585,000 17,696,250
*Smallworldwide plc-ADR, Cambridge, UK-Develops, markets and supports
client/server software for the spatial design, engineering and
management of complex physical networks 285,000 5,272,500
++The Learning Company, Cambridge, MA-A leading provider of consumer
software 450,000 10,912,500
++T-HQ Inc., Calabasas, CA-Develops, publishes and distributes
interactive entertainment software 190,000 4,726,250
*Viasat Inc., Carlsbad, CA-Designs, produces and markets digital
satellite telecommunications and wireless signal processing equipment 175,000 1,853,898
Total 81,938,709
- ----------------------------------------------------------------------------------------------------------------------============
Computer Systems +*Microtouch Systems Inc., Methuen, MA-Manufacturer of touch- and
and Peripherals 1.30% pen-sensitive input screens known as touchscreens 420,000 6,562,500
*Phoenix Tech Ltd., San Jose, CA-The world's largest supplier of
standards-based compatibilty software to the personal computer industry 375,000 3,257,813
*Sequent Computer Systems Inc., Beaverton, OR-Provides scalable,
data-center-ready open systems solutions for large organizations
spanning diverse industries 610,000 7,625,000
Total 17,445,313
- ----------------------------------------------------------------------------------------------------------------------============
Consumer Products 4.36% *Dreyer's Grand Ice Cream Inc., Oakland, CA-Ice cream manufacturer and
distributor 265,300 3,183,600
++*Horizon Organic Holding Corp., Longmont, CO-Produces, processes and
markets a line of organic dairy products 426,000 6,709,500
*Matthews International Corp. Class A, Pittsburgh, PA-A leading
designer, manufacturer and marketer of custom-made identification
products 450,000 12,600,000
*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 4,906,313
*Polymer Group Inc., North Charleston, SC-Major global manufacturer of
non-woven materials 71,800 740,438
*Smithfield Foods Inc., Norfolk, VA-A leading hog producer, pork
processor and fresh pork and processed meats marketer 370,000 10,545,000
The York Group Inc., Houston, TX-Manufactures metal and hardwood
caskets and casket components 211,000 2,123,293
Twinlab Corp.,Hauppauge, NY-A leading manufacturer of brand name
nutritional supplements 500,000 6,281,250
United Natural Foods Inc., Dayville, CT-Distributes natural foods and
related products 130,000 3,591,250
USA Floral Product Inc.,Washington, DC-Imports and distributes
perishable floral products 520,000 7,995,000
Total 58,675,644
- ----------------------------------------------------------------------------------------------------------------------============
Data Processing Equipment & *Advanced Digital Information Corp., Redmond, WA-A leading provider of
Components 2.09% automated data libraries or computer network and workstation markets
and microelectronic components for aerospace and medical applications 148,800 2,752,800
*Ampex Corp. Class A, Redwood City, CA-A leading innovator in the
fields of magnetic recording image mri processing and high-performance
digital storage 1,270,000 5,556,250
++*Micros Systems Inc., Beltsville, MD-Designs, manufactures and markets
point-of-sale electronic information systems and related peripheral
equipment and software 617,400 19,756,800
Total 28,065,850
- ----------------------------------------------------------------------------------------------------------------------============
Electronic Components 4.60% *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 380,000 6,008,750
*Analogic Corp., Peabody, MA-A leading manufacturer of high precision
medical and industrial diagnostic and measurement instruments and
equipment 237,500 9,143,750
Artesyn Technologies Inc., Boca Raton, FL-A manufacturer of power
supplies and measurement control systems for industrial equipment 605,000 9,755,625
*Harbinger Corp., Atlanta, GA-Markets and supports software products 200,000 1,112,600
Helix Technology Corp., Mansfield, MA-Designs, manufactures and
services products based on cryogenic (ultra-low temperatures) and
vacuum technologies 100,000 2,062,500
Motivepower Industries, Pittsburgh, PA-Manufactures products for rail
and other power-related industries 420,000 13,151,250
++*SLI Inc., Canton, MA -Manufactures and distributes a variety of
miniature lighting products 325,600 8,954,000
Technitrol Inc., Trevose, PA-A worldwide manufacturer of electronic
components, electrical contacts and assemblies, thermostatic and
clad-metal materials and components and related items 475,000 11,637,500
Total 61,825,975
---------------------------------------------------------------------------------------============
</TABLE>
6
<PAGE>
Statement of Net Assets
January 31, 1999
<TABLE>
<CAPTION>
Investments Shares Market Value
==================================================================================================================================
<S> <C> <C> <C>
Energy 5.83% ++*Core Laboratories N.V., Amsterdam, Netherlands-A provider of petroleum
reser analysis and environmental testing 838,000 $ 16,760,000
*Dawson Geophysical Co., Midland, TX-A provider of seismic data
services to oil and gas drillers 185,000 1,225,625
+*Edge Petroleum Corp., Houston, TX-An oil and gas exploration company 640,000 3,000,000
*Evergreen Resources Inc., Denver, CO-Explores, develops, operates and
acquires oil and gas properties 350,000 5,425,000
+*EXCO Resources Inc., Dallas, TX-An independent energy company that
acquires, explores and develops natural gas properties 650,000 4,712,500
*Gulf Island Fabrication Inc., Houma, LA-Designs offshore drilling and
production platforms used in the development and production of
offshore oil and gas reserves 350,000 2,493,750
++*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 2,100,000 4,200,000
*Independent Energy Holdings plc-ADR, Solihull, UK-Generates and
markets electricity in the United Kingdom 410,000 4,945,829
Seitel Inc., Houston, TX-An operator of a seismic database and a
provider of corollary geophysical services to the petroleum industry 660,000 8,456,250
*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 360,300 10,493,738
*Superior Energy Services Inc., Belle Chasse, LA-Provider of oilfield
products and services in the Gulf of Mexico 805,000 2,012,500
*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 7,631,250
Vintage Petroleum Inc., Tulsa, OK-Independent energy company engaged
in the exploitation and development of oil and gas properties 962,000 6,974,500
Total 78,330,942
- ----------------------------------------------------------------------------------------------------------------------============
Environmental Services and *Eco Soil Systems Inc., San Diego, CA-Develops, markets and sells
Equipment .44% 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 5,381,250
Met Pro Corp., Harleysville, PA-A manufacturer of environmental
treatment systems, specialty pumps and filtration equipment 42,600 496,030
Total 5,877,280
- ----------------------------------------------------------------------------------------------------------------------============
Financial 3.36% Dain Rauscher Corp., Minneapolis, MN-Provides investment advice and
services to investors primarily in the western United States 137,000 4,229,875
Healthcare Realty Trust Inc., Toledo, OH-Healthcare facility real
estate investment trust 320,000 7,280,000
++*Net.B@nk Inc., Atlanta, GA-Provider of banking services over the
internet 305,000 16,851,250
*Telebanc Financial Corp., Arlington, VA-Holding company for Telbank
and TelBanc Capital Markets, Inc. 425,000 16,840,625
Total 45,201,750
- ----------------------------------------------------------------------------------------------------------------------============
Leisure 2.31% Championship Auto Racing Team Inc., Troy, MI-Owns, operates and
sanctions the open-wheel motorsports series in North America 460,000 12,420,000
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 133,000 357,438
++*Family Golf Centers Inc., Melville, NY-Consolidates and operates golf
centers 564,700 9,246,963
+Harvey Entertainment Co., Los Angeles, CA-Develops animation and
licensing opportunities based on the Harvey Classic Characters 235,000 1,740,457
Iwerks Entertainment Inc., Burbank, CA-A creator of interactive
"virtual reality" systems and attractions 511,251 511,251
*Iwerks Entertainment Inc.-Warrants expiring 7/2/99 2,500 --
Steiner Leisure Ltd., Nassau, Bahamas-Provides spa services aboard
cruise ships worldwide 197,500 6,715,000
Total 30,991,109
- ----------------------------------------------------------------------------------------------------------------------============
Measurement and ++*Identix Inc., Sunnyvale, CA-A leading designer, developer,
Control Systems .93% manufacturer and marketer of products for the capture and comparison
of fingerprints for security, anti-fraud, law enforcement and other
applications 790,000 5,826,250
*In Focus Systems Inc., Wilsonville, OR-Manufactures and markets liquid
crystal displays that allow personal computer information to be
displayed on overhead projections 460,000 4,600,000
</TABLE>
7
<PAGE>
Statement of Net Assets
January 31, 1999
<TABLE>
<CAPTION>
Investments Shares Market Value
==================================================================================================================================
<S> <C> <C> <C>
*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 $ 2,168,288
Total 12,594,538
- ----------------------------------------------------------------------------------------------------------------------============
Medical Services 6.25% *Counsel Corp., Toronto, Canada-A management and business development
company that operates within the health and real estate sectors 550,000 4,606,250
++*Express Scripts Inc. Class A, Maryland Heights, MD-Provides pharmacy
benefit management to health maintenance organizations 260,000 17,062,500
+Healthcare Service Group Inc., Huntingdon Valley, PA-Provides
operational services to nursing home and retirement complexes 708,350 8,057,481
Hooper Holmes Inc., Basking Ridge, NJ-Provider of health information
to the insurance industry 460,000 13,138,750
*Horizon Health Corp., Denton, TX-A manager of mental health programs
for general acute care hospitals in the U.S. 312,500 2,080,000
*Icos Corp., Bothell, VA-A bio-pharmaceutical company that develops
medications for the treatment of chronic inflammatory diseases 468,500 12,444,531
++KOS Pharmaceuticals Inc., Miami, FL-Develops prescription
pharmaceutical products primarily for the treatment of chronic
cardiovascular and respiratory diseases 340,000 2,061,250
*Matria Healthcare Inc., Marietta, GA-Provides obstetrical home
healthcare services that assists physicans in the management of high
risk pregnancies 1,200,000 4,200,000
Pharmerica Inc., Tampa, FL-Provides institutional pharmacy services
to the elderly, chronically ill and disabled 2,800,000 20,300,000
Total 83,950,762
- ----------------------------------------------------------------------------------------------------------------------============
Medical/Healthcare 2.89% Arrow International Inc., Reading, PA-Supplies disposable catheters
and related clinical products 270,000 7,560,000
ATS Medical Inc., Minneapolis, MN-Manufactures and markets a pyrolytic
carbon bileaflet mechanical heart valve 750,000 5,953,125
++Columbia Laboratories Inc., Miami, FL-Is an international
pharmaceutical company 400,000 2,050,000
Maxxim Medical Inc., Sugarland, TX-Develops, manufactures and
distributes physical therapy equipment and disposable hospital products 419,000 11,365,375
*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 292,200 4,574,741
*Surmodics Inc., Eden Prairie, MN-Provides surface modification
solutions to the medical device industry 70,000 840,000
Theragenics Corp., Norcross, GA-Produces and sells implantable
radiation devices used in the treatment of prostate cancer 700,000 4,681,250
*Thermedics Inc., Waltham, MA-Develops, manufactures and markets
explosives and drug-detection devices, product quality assurance
systems and other biomedical products 201,000 1,809,000
Total 38,833,491
- ----------------------------------------------------------------------------------------------------------------------============
Miscellaneous 1.05% *Catellus Development Corp., San Francisco, CA-An owner, developer and
manager of real estate assets 300,000 4,612,500
*Crossmann Communities Inc., Indianapolis, IN-Single-family home
builders in the Midwest 356,000 9,523,000
Total 14,135,500
- ----------------------------------------------------------------------------------------------------------------------============
New Media 4.08% ++*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 245,000 6,875,313
++*Cybershop Intl Inc., New York, NY-Retails products through its online
stores on the Internet and America Online, Inc. 277,500 2,566,875
++*CMGI Inc., Andover, MA-Invests in and integrates Internet, interactive
media and database technologies 133,400 16,308,150
FVC.com Inc., Santa Clara, CA-Provides a high quality, cost-effective
internet video networking solutions 300,000 4,162,500
*Microvision Inc., Seattle, WA-Develops, manufactures and markets
virtual retinal display (VRD) technology, which projects images
directly onto eye's retina 100,000 1,343,750
Onhealth Network Co., Seattle, WA-Provides information on health and
wellness issues over the Internet 100,000 1,450,000
+Security First Technologies Corp., Atlanta, GA-An FDIC-insured
financial institution that executes traditional banking services over
the Internet 670,000 22,110,000
Total 54,816,588
- ----------------------------------------------------------------------------------------------------------------------============
Restaurant .07% *P.F. Chang's China Bistro Inc., Phoenix, AZ-Owns and operates 28
full-service chinese restaurants 45,000 911,250
---------------------------------------------------------------------------------------============
</TABLE>
8
<PAGE>
Statement of Net Assets
January 31, 1999
<TABLE>
<CAPTION>
Investments Shares Market Value
==================================================================================================================================
<S> <C> <C> <C>
Retail 13.71% *Ames Department Stores, Rocky Hill, CT-The nation's fifth largest
discount department store chain with 303 stores in 14 northeastern
states 700,000 $ 21,525,000
*CellStar Corp., Carrollton, TX-An integrated wholesale distributor and
retailer of cellular telephones and related products 1,605,000 19,059,375
*Cost Plus Inc., Oakland, CA-Operates 70 retail stores specializing in
the sale of casual home living and entertainment products 300,000 10,650,000
*Eagle Hardware & Garden Inc., Renton, WA-Operates 30 warehouse home
improvement centers in Washington, Utah, Alaska, Colorado, Hawaii,
Oregon and Montana 249,600 9,048,000
+*Kenneth Cole Productions Inc. Class A, New York, NY-Develops sources
and markets a broad range of footwear, handbags and accessories 430,000 9,728,750
*Meadowcraft Inc., Birmingham, AL-Produces casual outdoor furniture and
wrought iron consumer products 502,500 5,401,875
*Pacific Sunwear of California Inc., Anaheim, CA-Operates a nation-wide
mall-based specialty retail chain of stores specializing in casual
apparel, footwear and related accessories catering to teenagers and
young adults 943,900 23,892,468
*Play by Play Toys & Novelties Inc., San Antonio, TX-Develops, markets
and distributes stuffed toys and sculpted toy pillows based upon its
licenses for children's entertainment characters and corporate
trademarks, and non-licensed stuffed toys 200,000 1,425,000
*Quicksilver 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 502,500 16,896,563
*Shoe Carnival Inc., Evansville, IN-A retailer of family footwear
operating primarily in the mid-western and mid-southern regions of the
United States 450,000 4,246,875
+*Sirena Apparel Group Inc., South El Monte, CA-Designs, manufactures
and markets branded and private label swimwear and resortwear for each
principal segment of the women's market 330,000 2,268,750
St. Johns Knits Inc., Irvine, CA-Designs, manufactures and markets
women's clothing and accessories 209,200 5,543,800
++*Stage Stores Inc., Houston, TX-Owns and operates apparel stores
primarily in the central region of the U.S. 1,100,000 8,800,000
*Tarrant Apparel, Los Angeles, CA-Designs, merchandises and
manufactures casual apparel 507,000 21,294,000
*Timberland Co. Class A, Stratham, NH-Designs, develops, manufactures
and markets boots, shoes, apparel and accessories 220,000 9,900,000
++*Toymax International Inc., Plainview, NY-Creates, designs, develops
and markets children's activity and action toys, including "Creepy
Crawlers," "Talking Tina" and "Laser Challenge" 370,000 2,451,250
Tropical Sportswear International Corp., Tampa, FL-Produces high
quality casual and dress men's apparel 32,500 1,100,938
*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 4,166,250
++*Wild Oats Markets Inc., Boulder, CO-A natural foods supermarket chain 285,000 6,857,813
Total 184,256,707
- ----------------------------------------------------------------------------------------------------------------------============
Security Services 4.44% +*Armor Holdings Inc., Jacksonville, FL-Worldwide manufacturer and
distributor of products and services for the law enforcement, military
and security markets 1,150,000 15,381,250
*Cornell Corrections Inc., Houston, TX-Provides privatized correctional,
detention and prerelease services in the United States 422,800 8,297,450
+*Kroll-O'Gara Co., Fairfield, OH-A leading provider of vehicle armoring
systems for military, commercial and governmental clients worldwide 905,000 36,030,313
Total 59,709,013
- ----------------------------------------------------------------------------------------------------------------------============
Specialty Chemicals 1.86% OM Group Inc., Cleveland, OH-Produces metal carbonxylates, salts and
powders 300,000 9,450,000
++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 594,300 15,600,375
Total 25,050,375
- ----------------------------------------------------------------------------------------------------------------------============
Telecommunications 5.83% ++Active Voice Corp., Seattle, WA-Develops pc-based call processing
systems and computer telephone integration products 130,000 1,153,750
*Boston Communications Group Inc., Woburn, MA-Develops, markets and
provides specialized roaming services, teleservices, and prepaid
wireless services to the wireless telephone industry 300,000 2,962,500
Electromagnetic Science Inc., Norcross, GA-Produces microwave
components and subsystems for application in space 63,800 957,000
</TABLE>
9
<PAGE>
Statement of Net Assets
January 31, 1999
<TABLE>
<CAPTION>
Shares or
Principal Amount
Investments (000's) Market Value
==================================================================================================================================
<S> <C> <C> <C>
*Pairgain Technologies Inc., Tustin, CA-Designs, manufactures, markets
and supports products that allow telecommunications carriers and
private networks to run efficiently 1,177,900 $ 12,588,623
Plantronics Inc., Santa Cruz, CA-Leading supplier of communication
headset products and services to users and providers worldwide 728,400 58,772,775
++Transcrypt International Inc., Lincoln, NE-Designs and manufactures
information security products and wireless communications products and
systems 400,000 1,900,000
Total 78,334,648
-------------------------------------------------------------------------------------==============
Total Investments in Common Stocks (Cost $986,577,982) 1,252,760,098
==================================================================================================================================
Other Assets, Less Liabilities 6.80%
==================================================================================================================================
Short-Term Investments Baker Hughes Inc. 4.82% due 2/1/1999 $65,000 64,982,592
Federal Home Loan Bank Discount Corp. 4.68% due 2/1/1999 37,000 36,990,502
Total Short-Term Investments (Cost $101,973,094) 101,973,094
- --------------------------------------------------------------------------------------------------------------------==============
Other (See Note 5) 96,009,655
- --------------------------------------------------------------------------------------------------------------------==============
Cash 945,395
- --------------------------------------------------------------------------------------------------------------------==============
Receivable for: Capital stock sold 7,787,899
Securities sold 6,073,626
Other 52,725
Total Other Assets 212,842,394
- --------------------------------------------------------------------------------------------------------------------==============
Payable for: Collateral on securities loaned 96,009,655
Capital stock reacquired 4,413,956
Securities purchased 20,667,429
Other 308,423
Total Liabilities 121,399,463
- --------------------------------------------------------------------------------------------------------------------==============
Total Other Assets, Less Liabilities 91,442,931
==================================================================================================================================
Net Assets 100.00% $1,344,203,029
==================================================================================================================================
Class A Shares-Net asset value ($884,245,506 / 54,423,204 shares
outstanding) $16.25
Maximum offering price (Class A shares-net asset value plus sales
charge of 5.75% of the offering price) $17.24
Class B Shares-Net asset value ($197,028,176 / 12,329,866 shares
outstanding) $15.98
Class C Shares-Net asset value ($131,827,939 / 8,238,938 shares
outstanding) $16.00
Class P Shares-Net asset value ($55,649,568 / 3,437,591 shares
outstanding) $16.19
Class Y Shares-Net asset value ($75,451,840 / 4,629,039 shares
outstanding) $16.30
</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 security.
+ Affiliated issuer (holdings represent 5% or more of the outstanding
voting securities of underlying investments). Affiliated issuers
have a total cost of $127,153,180 and total value of $166,987,069.
++ Security on loan. See Note 5.
See Notes to Financial Statements.
10
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Investment Income Year Ended January 31, 1999
===================================================================================
<S> <C> <C> <C>
Income Interest $ 2,648,511
Dividends 1,537,729
Securities lending 467,257
---------------------------------------------------------------------
Total income $ 4,653,497
---------------------------------------------------------------------
Expenses Management fee 4,444,605
12 b-1 Distribution plan-Class A 1,646,061
12 b-1 Distribution plan-Class B 1,229,213
12 b-1 Distribution plan-Class C 773,358
12 b-1 Distribution plan-Class P 74,034
Shareholder Servicing 1,601,163
Reports to Shareholders 184,713
Directors 14,427
Registration 189,025
Professional 62,770
Other 50,102
------------
Total expenses before reductions 10,269,471
Expense reductions (65,102)
Total expenses 10,204,369
---------------------------------------------------------------------
Net investment loss (5,550,872)
---------------------------------------------------------------------
Realized and Unrealized Gain on Investments
===================================================================================
Realized gain from investment transactions
Proceeds from sales 261,867,919
Cost of investments sold 235,540,858
---------------------------------------------------------------------
Net realized gain 26,327,061
---------------------------------------------------------------------
Unrealized appreciation of investments 120,503,925
===================================================================================
Net realized and unrealized gain on investments 146,830,986
- -----------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $141,280,114
===================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended January 31,
Increase (Decrease) in Net Assets 1999 1998
======================================================================================================================
<S> <C> <C> <C>
Operations Net Investment loss $ (5,550,872) $ (3,251,003)
Net realized gain from investment transactions 26,327,061 48,514,192
Net unrealized appreciation of investments 120,503,925 36,271,007
Net increase in net assets resulting from operations 141,280,114 81,534,196
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain from investment transactions:
Class A (1,560,147) (43,360,087)
Class B (118,251) (3,522,191)
Class C (65,140) (2,197,511)
Class P (2,871) --
Class Y (11) --
Total (1,746,420) (49,079,789)
--------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sales of shares 891,051,508 242,730,868
Net asset value of shares issued to shareholders in reinvestment
of net realized gain from investment transactions 1,677,672 46,570,050
Total 892,729,180 289,300,918
--------------------------------------------------------------------------------------------------------
Cost of shares reacquired (241,146,131) (99,027,207)
--------------------------------------------------------------------------------------------------------
Increase in net assets derived from capital share transactions 651,583,049 190,273,711
--------------------------------------------------------------------------------------------------------
Increase in net assets 791,116,743 222,728,118
- ----------------------------------------------------------------------------------------------------------------------
Net Assets
Beginning of Year 553,086,286 330,358,168
--------------------------------------------------------------------------------------------------------
End of Year (including accumulated net investment loss of $311,089
and $62,806, respectively) $1,344,203,029 $ 553,086,286
========================================================================================================
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares
------------------------------------------------------------------
Year Ended January 31,
Per Share Operating Performance: 1999 1998 1997 1996 1995
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 14.27 $ 12.80 $ 11.49 $ 9.58 $ 10.65
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations
Net investment loss (.07)(a) (.10)(a) (.03) (.02) (.04)
Net realized and unrealized gain (loss) on investments 2.10 3.16 3.12 4.80 (.22)
Total from investment operations 2.03 3.06 3.09 4.78 (.26)
----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain (.05) (1.59) (1.78) (2.87) (.81)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 16.25 $ 14.27 $ 12.80 $ 11.49 $ 9.58
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(b) 14.24% 24.38%(c) 28.35% 50.22% (2.74)%
==================================================================================================================================
Ratios to Average Net Assets:
Expenses 0.98%(f) 1.06% 1.10% 1.03% 1.31%
Net investment loss (.46)% (.72)% (.67)% (.52)% (.38)%
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Class C Shares
------------------------------------------- -------------------------------------------
August 1, 1996(d) August 1, 1996(d)
Year Ended January 31, to January 31, Year Ended January 31, to January 31,
Per Share Operating Performance: 1999 1998 1997 1999 1998 1997
======================================================================================= ===========================================
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.12 $12.75 $12.14 $14.13 $12.75 $12.14
- --------------------------------------------------------------------------------------- -------------------------------------------
Income (loss) from investment
operations
Net investment loss (.17)(a) (.20)(a) (.05) (.17)(a) (.19)(a) (.05)
Net realized and unrealized gain on
investments 2.06 3.14 2.28 2.07 3.14 2.28
Total from investment operations 1.89 2.94 2.23 1.90 2.95 2.23
--------------------------------------------------------------------------------- -------------------------------------------
Distributions from net realized gain (.03) (1.57) (1.62) (.03) (1.57) (1.62)
--------------------------------------------------------------------------------- -------------------------------------------
Net asset value, end of period $15.98 $14.12 $12.75 $16.00 $14.13 $12.75
- --------------------------------------------------------------------------------------- -------------------------------------------
Total Return(b) 13.37% 23.48% 19.43%(c) 13.43% 23.55% 19.43%(c)
====================================================================================================================================
Ratios to Average Net Assets:
Expenses 1.72%(f) 1.76% .93%(c) 1.72%(f) 1.71% .93%(c)
Net investment loss (1.19)% (1.39)% (.73)%(c) (1.20)% (1.34)% (.73)%(c)
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class P Shares Class Y Shares
----------------------------------- ------------------------------------------
Year Ended January 5, 1998(d) Year Ended December 30, 1997(d)
January 31, to January 31, January 31, to January 31,
Per Share Operating Performance: 1999 1998 1999 1998
====================================================================================================================================
<S> <C> <C> <C> <C>
Net asset value, beginning of period $14.26 $14.38 $14.27 $14.12
- ---------------------------------------------------------------------------------------- ------------------------------------------
Income (loss) from investment operations
Net investment loss (.10)(a) (.01)(a) (.03)(a) --(a)(e)
Net realized and unrealized gain (loss) on
investments 2.08 (.11) 2.11 .15
Total from investment operations 1.98 (.12) 2.08 .15
---------------------------------------------------------------------------------- ------------------------------------------
Distributions from net realized gain (.05) -- (.05) --
---------------------------------------------------------------------------------- ------------------------------------------
Net asset value, end of period $16.19 $14.26 $16.30 $14.27
- ---------------------------------------------------------------------------------------- ------------------------------------------
Total Return(b) 13.89% (.83)%(c) 14.59% 1.06%(c)
======================================================================================== ==========================================
Ratios to Average Net Assets:
Expenses 1.17% .08%(c) 0.72%(f) .06%(c)
Net investment loss (.70)% (.05)%(c) (.22)% (.02)%(c)
================================================================================== ==========================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 31,
Supplemental Data for All Classes: 1999 1998 1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net assets, end of year (000) $1,344,203 $553,086 $330,358 $197,602 $127,579
Portfolio turnover rate 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.
13
<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 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.
2. Management Fee and Other Transactions with Affiliates The Company has a
management agreement with Lord, Abbett & Co. ("Lord Abbett") pursuant to which
Lord Abbett supplies the Company with investment management services and
executive and other personnel, pays the remuneration of officers, provides
office space and pays for ordinary and necessary office and clerical expenses
relating to research, statistical work and the supervision of the Company's
investment portfolio. The management fee is based on average daily net assets
for each month at the annual rate of 0.75% of the Company's first $100 million
of average daily net assets and 0.50% of such assets over $100 million.
The Company has Rule 12b-1 plans and agreements (the "Class A, Class B, Class C
and Class P Plans") with Lord Abbett Distributor LLC ("Distributor"), an
affiliate of Lord Abbett. The Company makes payments to Distributor which uses
or passes on such payments to authorized institutions. Pursuant to the Class A
Plan, the Company pays Distributor (1) an annual service fee of 0.15% of the
average daily net asset value of shares sold prior to June 1, 1990 and 0.25% of
the average daily net asset value of shares sold on or after that date, (2) a
one-time distribution fee of up to 1% on certain qualifying purchases and (3) a
supplemental annual distribution fee of 0.10% of the average daily net asset
value of Class A shares serviced by certain qualifying institutions. Pursuant to
the Class B Plan, the Company pays Distributor an annual service and
distribution fee of 0.25% and 0.75%, respectively, of the average daily net
asset value of the Class B shares. Pursuant to the Class C Plan, the Company
pays Distributor (1) a service fee and a distribution fee, at the time such
shares are sold, not to exceed 0.25% and 0.75%, respectively, of the net asset
value of such shares sold and (2) at each quarter-end after the first
anniversary of the sale of such shares, a service fee and a distribution fee at
an annual rate not to exceed 0.25% and 0.75%, respectively, of the average
annual net asset value of such shares outstanding. Pursuant to the Class P Plan,
the Company pays Distributor an annual service and distribution fee of 0.20% and
0.25%, respectively, of the average daily net asset value of the Class P shares.
Class Y does not have a Plan.
Distributor received $770,239 representing payment of commissions on sales of
Class A shares after deducting $4,920,536 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 January
31, 1999 for financial reporting purposes aggregated $26,040,602.
Distributions from net realized gains declared on February 11, 1999 and paid on
February 19, 1999 to shareholders of record on February 11, 1999 were as
follows:
Rate per Aggregate
Class Share Amount
- --------------------------------------------------------------------------------
A $0.32 $17,595,222
B $0.32 $ 4,003,158
C $0.32 $ 2,713,512
P $0.32 $ 1,130,139
Y $0.32 $ 1,496,429
- --------------------------------------------------------------------------------
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 $1,052,291,400 at January 31,
1999. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
January 31, 1999 January 31, 1998
------------------------------ ---------------------------
Class A Shares Amount Shares Amount
- ----------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Sales of shares 34,439,805 $ 502,454,274 10,892,536 $154,647,991
Shares issued to
shareholders in
reinvestment of
net realized gain
from investment
transactions 98,898 1,500,289 2,945,604 41,100,136
Total 34,538,703 503,954,563 13,838,140 195,748,127
- ----------------------------------------------------------- ---------------------------
Shares reacquired (12,116,669) (170,758,960) (6,740,126) (91,616,719)
Increase 22,422,034 $ 333,195,603) 7,098,014 $104,131,408
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
January 31, 1999 January 31, 1998
------------------------------ ---------------------------
Class B Shares Amount Shares Amount
- ----------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Sales of shares 9,442,316 $137,537,607 3,871,210 $56,300,946
Shares issued to
shareholders in
reinvestment of
net realized gain
from investment
transactions 7,448 111,870 239,708 3,352,716
Total 9,449,764 137,649,477 4,110,918 59,653,662
- ----------------------------------------------------------- ---------------------------
Shares reacquired (1,517,765) (21,142,892) (274,101) (3,816,832)
Increase 7,931,999 $116,506,585) 3,836,817 $55,836,830
- ------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Notes to Financial Statements
<TABLE>
<CAPTION>
Year Ended Year Ended
January 31, 1999 January 31, 1998
------------------------------ ---------------------------
Class C Shares Amount Shares Amount
- ----------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Sales of shares 8,526,748 $122,721,386 2,131,700 $31,125,282
Shares issued to
shareholders in
reinvestment of
net realized gain
from investment
transactions 4,177 62,820 151,286 2,117,198
Total 8,530,925 122,784,206 2,282,986 33,242,480
- ----------------------------------------------------------- ---------------------------
Shares reacquired (2,670,719) (36,314,213) (252,520) (3,593,656)
Increase 5,860,206 $ 86,469,993) 2,030,466 $29,648,824
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
January 5, 1998
(Commencement of
Year Ended offering Class P shares)
January 31, 1999 to January 31, 1998
------------------------------ ---------------------------
Class P Shares Amount Shares Amount
- ----------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Sales of shares 3,997,976 $57,451,548 45,439 $653,411
Shares issued to share-
holders in reinvestment
of net realized gain from
investment transactions 190 2,682 -- --
Total 3,998,166 57,454,230 -- --
- ----------------------------------------------------------- ---------------------------
Shares reacquired (606,014) (8,760,737) -- --
Increase 3,392,152 $48,693,493) 45,439 $653,411
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 30, 1997
(Commencement of
Year Ended offering Class Y shares)
January 31, 1999 to January 31, 1998
------------------------------ ---------------------------
Class Y Shares Amount Shares Amount
- ----------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Sales of shares 4,894,745 $70,886,693 229 $3,238
Shares issued to share-
holders in reinvestment
of net realized gain from
investment transactions 1 11 -- --
Total 4,894,746 70,886,704 -- --
- ----------------------------------------------------------- ---------------------------
Shares reacquired (265,936) (4,169,329) -- --
Increase 4,628,810 $66,717,375) 229 $3,238
- ------------------------------------------------------------------------------------------
</TABLE>
5. Portfolio Securities The Company loans its portfolio securities to brokers to
generate additional revenue. As of January 31, 1999, the market value of the
securities on loan to brokers was $96,544,326 for which the Company has obtained
collateral aggregating $96,544,351 consisting of cash and U.S. Treasury
securities. Purchases and sales of investment securities (other than short-term
investments) aggregated $836,255,771 and $261,867,919, respectively. As of
January 31, 1999, net unrealized appreciation for federal income tax purposes
aggregated $266,182,116, of which $392,019,011 related to appreciated securities
and $125,836,895 related to depreciated securities. For federal income tax
purposes, the identified cost of investments owned at January 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:
<TABLE>
<CAPTION>
Balance of
Shares Held Gross Gross
Affiliates Jan. 31, 1998 Purchases Sales
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alphanet Solutions Inc. 455,000 -- 260,500
Armor Holdings Inc. 385,000 765,000 --
Brightstar Information Technology
Group Inc. -- 770,000 --
Caere Corp. 300,000 350,000 --
Edge Petroleum Corp. 530,700 109,300 --
EXCO Resources Inc. -- 650,000 --
Harvey Entertainment Co. -- 235,000 --
Healthcare Service Group Inc. 418,900 289,450* --
Kroll-O'Gara Co. 385,000 520,000 --
Landmark Systems Corp. 530,000 415,000 --
LeCroy Corp. 95,500 425,000 --
M/A/R/C Inc. 190,500 226,400 --
Microtouch Systems Inc. -- 420,000 --
Radisys Corp. 85,000 500,000 --
Security First Technologies Corp. 365,000 305,000 --
Sirena Apparel Group Inc. 230,000 100,000 --
- ------------------------------------------------------------------------------------------
<CAPTION>
Realized Dividend
Balance of Market Gain (Loss) Income
Shares Held Value Feb. 1, 1998 to Feb. 1, 1998 to
Affiliates Jan. 31,1999 Jan. 31, 1999 Jan. 31, 1999 Jan. 31, 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alphanet Solutions Inc. 194,500 $ 863,094 $(2,016,538)
Armor Holdings Inc. 1,150,000 15,381,250 -- --
Brightstar Information
Technology Group Inc. 770,000 7,507,500 -- --
Caere Corp. 650,000 11,131,250 -- --
Edge Petroleum Corp. 640,000 3,000,000 -- --
EXCO Resources Inc. 650,000 4,712,500 -- --
Harvey Entertainment Co. 235,000 1,740,457 -- --
Healthcare Service
Group, Inc. 708,350 8,057,481 -- --
Kroll-O'Gara Co. 905,000 36,030,313 -- --
Landmark Systems Corp. 945,000 12,639,374 -- --
LeCroy Corp. 520,500 12,492,000 -- --
M/A/R/C Inc. 416,900 4,794,350 -- $97,957
Microtouch Systems Inc. 420,000 6,562,500 -- --
Radisys Corp. 585,000 17,696,250 -- --
Security First
Technologies Corp. 670,000 22,110,000 -- --
Sirena Apparel Group Inc. 330,000 2,268,750 -- --
- ------------------------------------------------------------------------------------------
</TABLE>
*Includes stock split.
8. 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, 1999, under a deferred compensation plan,
were $334,787.
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 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 0.06% per annum.
There were no loans outstanding pursuant to this Facility at January 31, 1999,
nor was the Facility utilized at any time during the year.
15
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders,
Lord Abbett Developing Growth Fund, Inc.:
We have audited the accompanying statement of net assets of Lord Abbett
Developing Growth Fund, Inc. as of January 31, 1999, the related statements of
operations for the year then ended and of changes in net assets for each of the
years in the two-year period then ended and the financial highlights for each of
the 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, 1999 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, 1999, 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
March 12, 1999
Our Management
Board of Directors
Robert S. Dow
William H. T. Bush*+
Robert B. Calhoun, Jr.*
E. Thayer Bigelow*+
Stewart S. Dixon*+
John C. Jansing*+
C. Alan MacDonald*
Hansel B. Millican, Jr.*
Thomas J. Neff*+
* Outside Director
+ Audit Committee
Investment Manager and
Underwriter
Lord, Abbett & Co. and
Lord Abbett Distributor LLC
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
212-848-1800
Sub-Adviser
Fuji-Lord Abbett International, Ltd.
7-11 Finsbury Circus
London EC2M7HJ England
Custodian
The Bank of New York
New York, NY
Transfer Agent
United Missouri Bank of
Kansas City, N.A.
Shareholder Servicing Agent
DST Systems, Inc.
P.O. Box 419100
Kansas City, MO 64141
800-821-5129
Auditors
Deloitte & Touche LLP
New York, NY
Counsel
Debevoise & Plimpton
New York, NY
Copyright (C) 1999 by Lord Abbett Developing Growth Fund, Inc.
767 Fifth Avenue, New York, NY 10153-0203
This publication, when not used for the general information of shareholders of
Lord Abbett Developing Growth Fund, Inc., is to be distributed only if preceded
or accompanied by a current prospectus which includes information concerning the
Fund's investment objective and policies, sales charges and other matters. There
is no guarantee that the forecasts contained within this publication will come
to pass.
All rights reserved. Printed in the U.S.A.
16
<PAGE>
Lord, Abbett & Co.
Portfolio
Manager
Team
[PHOTO OMITTED]
Partner and Senior Portfolio Manager Stephen J. McGruder (standing). Equity
Analysts Lesley-Jane Dixon (seated left) and Rayna N. Lesser (seated right).
Stephen J. McGruder, Partner and Senior Portfolio Manager 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 charter holder, 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 charter holder.
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, Robert B. Calhoun, Jr.
Robert B. Calhoun, Jr.
Director--Lord Abbett
Developing Growth Fund
[PHOTO OMITTED]
Mr. Calhoun is a graduate of Princeton University with over 35 years of Wall
Street experience. He is a Managing Partner and co-founder of Monitor Clipper
Partners and The Clipper Group, both private equity investment firms.
Previously, Mr. Calhoun spent over 25 years in Credit Suisse First Boston's
Investment Banking Department.
Mr. Calhoun became a director of Lord Abbett's funds in 1998. He also currently
serves on the boards of David's Bridal, Interstate Bakeries, Hvide Marine,
TravelCenters of America and Long John Silver's Inc.
<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 Market
Growth Fund Income Funds Income Funds Fund
Developing Alpha Fund Affiliated Fund Balanced Fund High Yield Fund o National U.S. Government
Growth Fund o California Securities
Global Equity Growth & Bond-Debenture o Connecticut Money Market
Fund Income Fund Fund o Florida Fund**+
o Georgia
Growth Large-Cap Global Income o Hawaii
Opportunities Research Fund Fund o Michigan
Fund o Minnesota
Limited Duration o Missouri
International U.S. Government o New Jersey
Fund Securities Fund** o New York
o Pennsylvania
Mid-Cap U.S. Government o Texas
Value Fund Securities Fund** o Washington
Small-Cap World Bond-
Value Fund* Debenture Fund
</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.
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 more than
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 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
* The Lord Abbett Small-Cap Value Fund Classes A, B and C are closed to new
investors.
** An investment in this Fund is neither insured nor guaranteed by the U.S.
Government.
+ An investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Fund. This Fund is managed
to maintain, and has maintained its stable $1.00 price per share.
[LOGO](R) LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
Lord Abbett mutual funds are distributed by:
LORD ABBETT DISTRIBUTOR LLC
- ------------------------------------------------------------ LADG-2-199
The GM Building o 767 Fifth Avenue o New York, NY 10153-0203 (3/99)
