1933 Act File No. 2-88912
1940 Act File No. 811-3942
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 22 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT [X]
OF 1940
AMENDMENT No. 23 [X]
LORD ABBETT TAX-FREE INCOME FUND, INC.
Exact Name of Registrant as Specified in Charter
767 Fifth Avenue, New York, N.Y. 10153
Address of Principal Executive Office
Registrant's Telephone Number (212) 848-1800
Kenneth B. Cutler, Vice President & Secretary
767 Fifth Avenue, New York, N.Y. 10153
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
- --- immediately on filing pursuant to paragraph (b) of Rule 485
X on June 15, 1995 pursuant to paragraph (b) of Rule 485
- ---
- --- 60 days after filing pursuant to paragraph (a) (i) of Rule 485
- --- on (date) pursuant to paragraph (a) (i) of Rule 485
- --- 75 days after filing pursuant to paragraph (a) (ii) of Rule 485
- --- on (date) pursuant to paragraph (a) (ii) of Rule 485
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
- ----
<PAGE>
LORD ABBETT TAX-FREE INCOME FUND, INC.
FORM N-1A
Cross Reference Sheet
Pursuant to Rule 481(b)
Form N-1A Location in Prospectus or
Item No. Statement of Additional Information
1 Cover Page
2 Fee Table
3 Supplementary Financial Information
4 (a) (i) Cover Page
4 (a) (ii) Investment Objectives; How We Invest
4 (b) N/A
4 (c) How We Invest
5 (a) (b) Our Management; Back Cover Page
5 (c) Our Management
5 (d) N/A
5 (e) Back Cover Page
5 (f) Our Management; Supplementary
Financial
Information
5 (g) (i) N/A
5 (g) (ii) Purchases
5 A Performance
6 (a) Cover Page
6 (b) (c) (d) N/A
6 (e) Cover Page
6 (f) (g) Dividends, Capital Gains
Distributions and Taxes
7 (a) Back Cover Page
7 (b) (c) (d) (e) (f) Purchases
8 (a) (b) (c) (d) Redemptions
9 N/A
10 Cover Page
11 Cover Page -- Table of Contents
12 N/A
13 (a) (b) (c) (d) Investment Objectives and Policies
14 Directors and Officers
15 (a) (b) N/A
15 (c) Directors and Officers
16 Directors and Officers
16 (a) (i) Investment Advisory and Other
Services
16 (a) (ii) Directors and Officers
16 (a) (iii) Investment Advisory and Other
Services
16 (b) Investment Advisory and Other
Services
16 (c) (d) (e) (g) N/A
16 (f) Purchases, Redemptions
and Shareholder Services
16 (h) Investment Advisory and Other
Services
<PAGE>
Form N-1A Location in Prospectus or
Item No. Statement of Additional Information
16 (i) N/A
17 (a) Portfolio Transactions
17 (b) N/A
17 (c) Portfolio Transactions
17 (d) (e) N/A
18 (a) Cover Page
18 (b) N/A
19 (a) (b) Purchases, Redemptions
and Shareholder Services; Notes
to Financial Statements
19 (c) N/A
20 Taxes
21 (a) Purchases, Redemptions
and Shareholder Services;
21 (b) (c) N/A
22 (a) N/A
22 (b) Past Performance
23 N/A
<PAGE>
LORD ABBETT
TAX-FREE INCOME FUND, INC.
THE GENERAL MOTORS BUILDING
767 FIFTH AVENUE
NEW YORK, NY 10153-0203
800-426-1130
OUR FUND, LORD ABBETT TAX-FREE INCOME FUND, INC., IS AN OPEN-END MANAGEMENT
INVESTMENT COMPANY CURRENTLY CONSISTING OF NINE SEPARATE SERIES -- THE NATIONAL
SERIES, THE CONNECTICUT SERIES, THE HAWAII SERIES, THE MINNESOTA SERIES (A NEW
SERIES EFFECTIVE IMMEDIATELY), THE MISSOURI SERIES, THE NEW JERSEY SERIES, THE
NEW YORK SERIES, THE TEXAS SERIES AND THE WASHINGTON SERIES. UNDER THE
INVESTMENT COMPANY ACT OF 1940 (THE "1940 ACT"), THE NATIONAL SERIES IS
DIVERSIFIED; EACH OF THE OTHER SERIES IS NONDIVERSIFIED. HOWEVER, ALL THE SERIES
INTEND TO MEET THE DIVERSIFICATION RULES UNDER SUBCHAPTER M OF THE INTERNAL
REVENUE CODE.
EACH SERIES SEEKS AS HIGH A LEVEL OF INTEREST INCOME EXEMPT FROM FEDERAL
INCOME TAX AS IS CONSISTENT WITH PRESERVATION OF CAPITAL. EACH SERIES INVESTS IN
INTERMEDIATE AND LONG-TERM MUNICIPAL BONDS WHICH CAN FLUCTUATE IN VALUE AS
INTEREST RATES CHANGE. EXCEPT FOR THE NATIONAL, TEXAS AND WASHINGTON SERIES,
EACH SERIES ALSO SEEKS AS HIGH A LEVEL OF INTEREST INCOME EXEMPT FROM ITS
RESPECTIVE STATE'S PERSONAL INCOME TAX AND, IN THE CASE OF THE NEW YORK SERIES,
FROM NEW YORK CITY PERSONAL INCOME TAX, AS IS CONSISTENT WITH PRESERVATION OF
CAPITAL. AT PRESENT, NEITHER TEXAS NOR WASHINGTON IMPOSES A PERSONAL INCOME TAX.
THERE CAN BE NO ASSURANCE THAT EACH SERIES WILL ATTAIN ITS OBJECTIVE.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND THAT A
PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. ADDITIONAL INFORMATION ABOUT
THE FUND HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS
AVAILABLE UPON REQUEST WITHOUT CHARGE. THE STATEMENT OF ADDITIONAL INFORMATION
IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND MAY BE OBTAINED, WITHOUT
CHARGE, BY WRITING TO THE FUND OR BY CALLING 800-874-3733 -- ASK FOR "PART B OF
THE PROSPECTUS -- THE STATEMENT OF ADDITIONAL INFORMATION."
THE DATE OF THIS PROSPECTUS, AND THE DATE OF THE STATEMENT OF ADDITIONAL
INFORMATION, IS DECEMBER 27, 1994.
PROSPECTUS
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS. SHAREHOLDER INQUIRIES SHOULD
BE MADE IN WRITING TO THE FUND OR BY CALLING 800-821-5129. YOU ALSO CAN MAKE
INQUIRIES THROUGH YOUR BROKER-DEALER.
SHARES OF THE SERIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
AN INVESTMENT IN THE SERIES INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
CONTENTS PAGE
1 Investment Objective 2
2 Fee Table 2
3 Financial Highlights 3
4 How We Invest 6
5 Purchases 10
6 Shareholder Services 12
7 Our Management 13
8 Dividends, Capital Gains
Distributions and Taxes 14
9 Redemptions 16
10 Performance 16
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
1 INVESTMENT OBJECTIVE
Our investment objective for each Series is to seek as high a level of interest
income exempt from federal income tax as is consistent with preservation of
capital. Each Series invests in intermediate and long-term municipal bonds
(initially investment-grade or equivalent) and, therefore, each Series' shares
can fluctuate in value as interest rates change more than shares of a short-term
municipal bond fund, but consistent with an investment-grade, longer term
municipal bond fund. Under normal circumstances, we intend to maintain the
average weighted stated maturity of each Series at between ten and thirty-five
years. Except for the National, Texas and Washington Series, each Series also
seeks as high a level of interest income exempt from its state's personal income
tax and, in the case of the New York Series, from New York City personal income
tax, as is consistent with preservation of capital. At present, neither Texas
nor Washington imposes a personal income tax.
2 FEE TABLE
A summary of each Series' expenses is set forth in the table below. The example
should not be considered a representation of past or future expenses. Actual
expenses may be greater or less than those shown.
<TABLE>
<CAPTION>
NATIONAL CONNECTICUT HAWAII MINNESOTA MISSOURI NEW JERSEY NEW YORK TEXAS WASHINGTON
-------- ----------- ------ --------- -------- ---------- -------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(AS A PERCENTAGE OF OFFERING PRICE)
Maximum Sales Load(1) on Purchases
(See "Purchases") 4.75% 4.75% 4.75% 4.75% 4.75% 4.75% 4.75% 4.75% 4.75%
Deferred Sales Load
(See "Purchases") None(2) None(2) None(2) None(2) None(2) None(2) None(2) None(2) None(2)
- -----------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS AFTER MANAGEMENT
FEE WAIVERS AND EXPENSE SUBSIDIES)
Management Fees
(See "Our Management") 0.50% 0.13%(3) 0.04%(3) 0.50% 0.19%(3) 0.17%(3) 0.50% 0.13%(3) 0.11%(3)
12b-1 Fees (See "Purchases") 0.26% 0.24 % 0.25% 0.00%(4) 0.25% 0.22% 0.22% 0.26% 0.00%(4)
Other Expenses
(See "Our Management") 0.10% 0.12% 0.12% 0.40%(3) 0.16% 0.12% 0.11% 0.11% 0.18%
Total Operating Expenses 0.86% 0.49% 0.41% 0.90%(3) 0.60% 0.51% 0.83% 0.50% 0.29%
<FN>
EXAMPLE:
Assume each Series' annual return is 5% and there is no change in the level of
expenses described above. For every $1,000 invested with reinvestment of all
dividends and distributions you would pay the following total expenses if you
closed your account after the number of years indicated:
1 year(5) 3 years(5) 5 years(5) 10 years(5)
--------- ---------- ---------- -----------
National Series $56 $74 $93 $149
Connecticut Series $53 $62 $74 $106
Hawaii Series $51 $60 $69 $97
Minnesota Series $56 $75 --- ---
Missouri Series $53 $66 $79 $119
New Jersey Series $53 $63 $75 $109
New York Series $56 $73 $91 $145
Texas Series $52 $63 $74 $107
Washington Series $50 $56 $63 $83
(1) Sales "load" is referred to as sales "charge" and "deferred sales load" is
referred to as "contingent deferred reimbursement charge" throughout the
Prospectus.
(2) Redemptions of shares on which a Series' 1% Rule 12b-1 sales distributions
fee for purchases of $1 million or more has been paid are subject to a 1%
contingent deferred reimbursement charge, if the redemption occurs within
24 months after the month of purchase.
(3) Although not obligated to, Lord, Abbett & Co. ("Lord Abbett") may waive a
portion of its management fee and assume other expenses with respect to the
Series. It has waived portions of the management fee with respect to the
Connecticut, Hawaii, Missouri, New Jersey, Texas and Washington Series
during the past year (and continues to do so). The management fee would
have been .50% for each Series. Without such management fee waiver, these
expenses would have been .86%, .87%, .91%, .83%, .87% and .67%,
respectively. Lord Abbett may waive its management fee and subsidize theses
expenses with respect to Minnesota Series. Subsequently, Lord Abbett may
charge these fees and not subsidize these expenses on a partial or complete
basis.
(4) For the Minnesota and Washington Series, these figures omit the Rule 12b-1
fees because the Fund cannot predict when the net assets of each Series
will reach the required level for effectiveness of its Plan. The Rule 12b-1
fees are (1) for service (a) with respect to the National, Hawaii,
Minnesota, New Jersey, New York, Texas and Washington Series, equal to .15%
of the average daily net asset value of each Series' shares sold by dealers
prior to the effective date of each Series' Plan and .25% of the average
daily net asset value of such shares sold on or after that date or (b) with
respect to the Connecticut and Missouri Series, .25% of the average daily
net asset value of shares sold by dealers from commencement of each Series'
public offering (and payable beginning after the effective date of each
Series' Plan) and (2) a one-time 1% sales distribution fee at the time of
sale on such shares sold at net asset value of $1 million or more.
(5) Based on total operating expenses shown in the table above.
The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in each Series.
</FN>
</TABLE>
3 FINANCIAL HIGHLIGHTS
The following tables have been audited by Deloitte & Touche LLP, independent
accountants, in connection with their annual audits of the Fund's Financial
Statements, whose report thereon is incorporated by reference in the Statement
of Additional Information and may be obtained on request, and have been included
herein in reliance upon their authority as experts in auditing and accounting.
<TABLE>
<CAPTION>
NATIONAL SERIES FOR THE PERIOD
APRIL 2, 1984
YEAR ENDED SIX MONTHS (COMMENCEMENT OF
PER SHARE OPERATING SEPTEMBER 30, ENDED YEAR ENDED MARCH 31, OPERATIONS) TO
------------------ SEPT. ----------------------------------------- MAR. 31,
PERFORMANCE: 1994 1993 1992 30, 1991** 1991 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.37 $11.72 $11.31 $11.05 $10.86 $10.66 $10.47 $11.32 $10.92 $9.54 $9.53
INCOME FROM INVESTMENT OPERATIONS
Net investment income .657 .695 .700 .359+ .743 .769 .772 .781 .811 .861 .888
Net realized and unrealized
gain (loss) on securities (1.3124) .9255 .4795 .293 .2255 .206 .172 (.692) .493 1.511 .01
Total from investment operations (.6554) 1.6205 1.1795 .652 .9655 .975 .944 .081 1.304 2.372 .898
Distributions
Dividends from net investment income (.6596) (.693) (.717) (.362) (.738) (.775) (.754) (.784) (.834) (.862) (.888)
Distributions from net realized gain (.435) (.2775) (.0525) (.03) (.0375) .-- .-- (.155) (.07) (.13) .--
NET ASSET VALUE, END OF PERIOD $10.62 $12.37 $11.72 $11.31 $11.05 $10.86 $10.66 $10.47 $11.32 $10.92 $9.54
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* (5.64)% 14.57% 10.78% 6.01%+ 9.21% 9.30% 9.27% 1.30% 12.58% 26.31% 10.05%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $662,380 $709,413 $546,768 $396,221 $340,476 $317,660 $286,195 $263,689 $266,604 $112,087$34,540
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver 0.86% 0.87% 0.83% 0.43%+ 0.75% 0.61% 0.66% 0.62% 0.60% 0.66% 0.59%
Expenses, excluding waiver .-- .-- .-- .-- .-- .-- .-- .-- .-- .-- 0.79%
Net investment income 5.76% 5.79% 6.00% 3.20%+ 6.79% 7.00% 7.26% 7.51% 7.10% 8.20% 8.96%
PORTFOLIO TURNOVER RATE 184.07% 138.06% 87.56% 18.77% 57.71% 42.60% 81.39% 93.15% 46.56% 124.00% 292.23%
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NEW YORK SERIES FOR THE PERIOD
APRIL 2, 1984
YEAR ENDED SIX MONTHS (COMMENCEMENT OF
PER SHARE OPERATING SEPTEMBER 30, ENDED YEAR ENDED MARCH 31, OPERATIONS) TO
------------------ SEPT. ----------------------------------------- MAR. 31,
PERFORMANCE: 1994 1993 1992 30, 1991** 1991 1990 1989 1988 1987 1986 1985
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.27 $11.60 $11.26 $10.89 $10.78 $10.71 $10.53 $11.38 $11.07 $9.63 $9.53
INCOME FROM INVESTMENT OPERATIONS
Net investment income .649 .682 .691 .366+ .741 .777 .785 .787 .814 .849 .884
Net realized and unrealized
gain (loss) on securities (1.3665) .874 .458 .407 .179 .18 .161 (.755) .419 1.477 .10
Total from investment operations (.7175) 1.556 1.149 .773 .92 .957 .946 .032 1.233 2.326 .984
Distributions
Dividends from net investment income (.6475) (.681) (.709) (.368) (.750) (.787) (.766) (.792) (.818) (.851) (.884)
Distributions from net realized gain (.365) (.205) (.10) (.035) (.06) (.10) .-- (.09) (.105) (.035) .--
NET ASSET VALUE, END OF PERIOD $10.54 $12.27 $11.60 $11.26 $10.89 $10.78 $10.71 $10.53 $11.38 $11.07 $9.63
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* (6.21)% 13.95% 10.69% 7.24%+ 8.87% 9.08% 9.22% .67% 11.74% 25.24% 10.88%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $338,539 $376,456 $306,447 $230,014 $201,132 $176,280 $145,541 $122,553 $119,046 $75,918 $30,233
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver 0.83% 0.85% 0.81% 0.37%+ 0.76% 0.60% 0.64% 0.66% 0.64% 0.74% 0.59%
Expenses, excluding waiver .-- .-- .-- .-- .-- .-- .-- .-- .-- .-- 0.82%
Net investment income 5.72% 5.72% 5.98% 3.29%+ 6.83% 7.04% 7.29% 7.45% 7.22% 7.98% 8.75%
PORTFOLIO TURNOVER RATE 149.13% 101.59% 146.68% 51.79% 39.84% 27.55% 51.58% 34.64% 31.60% 56.74% 141.43%
===================================================================================================================================
<FN>
**The Financial Statements cover a short year (six months) because the fiscal year-end was changed from March 31 to September 30.
+ Not annualized.
See Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS SERIES FOR THE PERIOD
JANUARY 20, 1987
YEAR ENDED SIX MONTHS COMMENCEMENT OF
PER SHARE OPERATING SEPTEMBER 30, ENDED YEAR ENDED MARCH 31, OPERATIONS) TO
--------------------------- SEPT. ----------------------------------- MAR. 31,
PERFORMANCE: 1994 1993 1992 30, 1991** 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.82 $10.28 $9.94 $9.64 $9.41 $9.16 $8.99 $9.58 $9.53
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .604 .624 .611 .317+ .658 .678 .688 .7012 .136+
Net realized and unrealized
gain (loss) on securities (1.0802) .7135 .4155 .309 .227 .251 .163 (.588) .061
TOTAL FROM INVESTMENT OPERATIONS (.4762) 1.3375 1.0265 .626 .885 .929 .851 .1132 .197
----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from net investment income (.6038) (.615) (.629) (.326) (.655) (.679) (.681) (.703) (.147)
Distributions from net realized gain (.15) (.1825) (.0575) .-- .-- .-- .-- .-- .--
Net asset value, end of period $9.59 $10.82 $10.28 $9.94 $9.64 $9.41 $9.16 $8.99 $9.58
----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* (4.60) %13.64% 10.68% 6.59%+ 9.74% 10.53% 9.74% 1.55% 2.06%+
----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $103,836 $109,232 $90,205 $66,746 $30,529 $25,886 $22,298 $17,836 $8,631
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver 0.50% 0.57% 0.60% 0.25%+ 0.40% 0.27% 0.22% 0.015% 0.00%+
Expenses, excluding waiver 0.87% 0.97% 1.00% 0.45%+ 0.84% 0.76% 0.76% 0.87% 0.12%+
Net investment income 5.97% 5.96% 5.96% 3.09%+ 6.91% 7.18% 7.48% 7.65% 0.92%+
PORTFOLIO TURNOVER RATE 96.79% 58.10% 123.33% 50.19% 50.52% 25.52% 46.86% 36.22% 23.76%
==================================================================================================================================
<FN>
* Total return does not consider the effects of sales loads.
** The Financial Statements cover a short year (six months) because the fiscal year-end was changed from March 31 to September 30.
+ Not annualized.
See Notes to Financial Statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
NEW JERSEY SERIES FOR THE PERIOD
JANUANRY 2, 1991
YEAR ENDED SIX MONTHS (COMMENCEMENT OF
PER SHARE OPERATING SEPTEMBER 30, ENDED OPERATIONS) TO
--------------------------- SEPT. MAR. 31,
PERFORMANCE: 1994 1993 1992 30, 1991** 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.55 $5.14 $4.97 $4.81 $4.76
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .300 .318 .320 .167+ .083+
Net realized and unrealized
gain (loss) on securities (.507) .439 .185 .165 .051
TOTAL FROM INVESTMENT OPERATIONS (.207) .757 .505 .332 .134
----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from net investment income (.303) (.307) (.325) (.172) (.084)
Distributions from net realized gain (.09) (.04) (.01) .-- .--
Net asset value, end of period $4.95 $5.55 $5.14 $4.97 $4.81
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* (3.91)% 15.26% 10.51% 7.01%+ 2.77%+
---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $184,230 $178,767 $118,386 $59,463 $23,203
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver 0.51% 0.35% 0.19% 0.00%+ 0.00%+
Expenses, excluding waiver 0.83% 0.83% 0.73% 0.38%+ 0.28%+
Net investment income 5.76% 5.88% 6.09% 3.23%+ 1.42%+
PORTFOLIO TURNOVER RATE 75.62% 88.29% 54.63% 49.33% 6.51%
===================================================================================================================================
<FN>
* Total return does not consider the effects of sales loads.
** The Financial Statements cover a short year (six months) because the fiscal year-end was changed from March 31 to September 30.
+ Not annualized.
See Notes to Financial Statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MISSOURI SERIES CONNECTICUT SERIES
------------------------------------------- -----------------------------------------
MISSOURI SERIES FOR THE PERIOD FOR THE PERIOD
CONNECTICUT SERIES MAY 31, 1991 APRIL 1, 1991
YEAR ENDED (COMMENCEMENT OF YEAR ENDED (COMMENCEMENT OF
SEPTEMBER 30, OPERATIONS) TO SEPTEMBER 30, OPERATIONS) TO
PER SHARE OPERATING -------------------------- SEPT. 30, ----------------------- SEPTEMBER 30,
PERFORMANCE: 1994 1993 1992 1991 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.51 $5.14 $4.91 $4.762 $11.01 $10.16 $9.86 $9.525
Income from investment operations
Net investment income .2926 .305 .310 .106+ .585 .612 .617 .313+
Net realized and unrealized
gain (loss) on securities (.5681) .381 .236 .150 (1.1287) .906 .311 .335
TOTAL FROM INVESTMENT OPERATIONS (.2755) .686 .546 .256 (.5437) 1.518 .928 .648
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from net investment income (.297) (.301) (.316) (.108) (.6038) (.608) (.628) (.313)
Distributions from net realized gain (.0575) (.015) .-- .-- (.1525) (.06) .-- .--
Net asset value, end of period $4.88 $5.51 $5.14 $4.910 $9.71 $11.014 $10.16 $9.860
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* (5.22)% 13.80% 11.47% 5.46%+ (5.13)% 15.48% 9.69% 6.91%+
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $119,690 $107,478 $65,812 $24,230 $101,619 $93,020 $58,880 $21,895
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver 0.60% 0.48% 0.26% 0.00%+ 0.49% 0.44% 0.20% 0.00%+
Expenses, excluding waiver 0.91% 0.92% 0.79% 0.37%+ 0.86% 0.91% 0.74% 0.40%+
Net investment income 5.60% 5.66% 5.94% 1.81%+ 5.67% 5.60% 5.96% 3.00%+
PORTFOLIO TURNOVER RATE 50.59% 56.20% 44.19% 0.00% 97.42% 45.81% 54.90% 2.15%
==================================================================================================================================
<FN>
* Total return does not consider the effects of sales loads.
+ Not annualized.
See Notes to Financial Statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
HAWAII SERIES WASHINGTON SERIES
---------------------------------- -----------------------------------------
HAWAII SERIES FOR THE PERIOD FOR THE PERIOD
WASHINGTON SERIES OCTOBER 28, 1991 APRIL 15, 1992
YEAR ENDED (COMMENCEMENT OF YEAR ENDED (COMMENCEMENT OF
SEPTEMBER 30, OPERATIONS) TO SEPTEMBER 30, OPERATIONS) TO
PER SHARE OPERATING --------------- SEPT. 30, ----------------------- SEPTEMBER 30,
PERFORMANCE: 1994 1993 1992 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.34 $4.89 $4.76 $5.35 $4.92 $4.76
Income from investment operations
Net investment income .2918 .297 .281+ .2976 .304 .140+
Net realized and unrealized
gain (loss) on securities (.578) .454 .138 (.5895) .427 .165
TOTAL FROM INVESTMENT OPERATIONS (.2862) .751 .419 (.2919) .731 .305
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from net investment income (.2888) (.301) (.289) (.2931) (.301) (.145)
Distributions from net realized gain (.045) .--- .--- (.045) .--- .---
Net asset value, end of period $4.72 $5.34 $4.89 $4.72 $5.35 $4.92
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* (5.54)% 15.85% 9.06%+ (5.65)% 15.32% 6.47%+
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $92,972 $92,883 $47,031 $78,854 $77,324 $42,627
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver 0.41% 0.40% 0.00%+ 0.29% 0.30% 0.00%+
Expenses, excluding waiver 0.87% 0.90% 0.74%+ 0.67% 0.80% 0.38%+
Net investment income 5.80% 5.62% 5.96%+ 5.93% 5.86% 2.58%+
PORTFOLIO TURNOVER RATE 66.04% 34.49% 53.24% 137.74% 85.45% 37.23%
===================================================================================================================================
<FN>
* Total return does not consider the effects of sales loads.
+ Not annualized.
See Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
4 HOW WE INVEST
Each Series invests primarily in a portfolio of intermediate-term (5-10 years)
to long-term (over 10 years) municipal bonds, the interest on which is exempt
from federal income tax in the opinion of bond counsel to the issuer. Except for
the National, Texas and Washington Series, the interest on the municipal bonds
in which each Series primarily invests also is exempt from its state's personal
income tax and, in the case of the New York Series, from New York City personal
income tax, in the opinion of bond counsel to the issuer. At present neither
Texas nor Washington imposes a personal income tax. The per share net asset
value of each Series can be expected to fluctuate inversely as interest rates
change. When interest rates rise, the value of securities in the portfolios, as
well as the share values, generally will fall. Conversely, when interest rates
fall, the value of securities in the portfolios and the share values generally
will rise.
"Municipal bonds" as used herein, and as more fully described in the
Statement of Additional Information, are debt obligations issued by or on behalf
of states, territories and possessions of the United States, including the
District of Columbia, Puerto Rico, the Virgin Islands and Guam, and their
political subdivisions, agencies and instrumentalities.
Each Series invests primarily in investment-grade municipal bonds rated
("rated bonds") at the time of purchase within the four highest grades assigned
by Moody's Investors Service, Inc. ("Moody's" -- Aaa, Aa, A, Baa), Standard &
Poor's Corporation ("S&P" -- AAA, AA, A, BBB) or Fitch Investors Service
("Fitch" ---- AAA, AA, A, BBB). Each Series also may invest in unrated municipal
bonds, exempt from federal income tax and its state's personal income tax,
determined by Lord Abbett to be of comparable quality to the rated bonds in
which such Series may invest. At least 70% of the municipal bonds in each
portfolio must be rated within, or, if unrated, equivalent to, at the time of
purchase, the three highest such grades. As much as 30% of the municipal bonds
in each Series' portfolio may be rated within, or, if unrated, equivalent to, at
the time of purchase, the fourth highest grade. This grade, while regarded as
having an adequate capacity to pay interest and repay principal, is considered
to be of medium grade and has speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds. After a Series purchases a municipal bond, the issuer may cease to be
rated, or its rating may be reduced below the minimum required for purchase,
which could have an adverse effect on the market value of the issue. Neither
event will require the elimination of the issue from a Series' portfolio.
The Fund's internal policy restricts investments to municipal bonds which are
initially investment-grade, i.e., among the four highest grades mentioned above
or their equivalent, and it is our objective to provide above-average tax-free
income relative to comparable investment-grade, longer term municipal bond
funds. In view of this internal policy and because we manage the maturities of
our investments in accordance with our interest-rate expectations, we anticipate
(i) a higher level of tax-free income than a short-term, tax-free municipal bond
fund and (ii) a share value tending to fluctuate more than such a short-term
fund, but consistent with an investment-grade, longer term municipal bond fund.
The two principal classifications of municipal bonds are "general obligation"
and limited obligation or "revenue" bonds. General obligation bonds are secured
by the pledge of faith, credit and taxing power of the municipality. The taxes
or special assessments that can be levied for the payment of debt service may be
limited or unlimited as to rate or amount. Revenue bonds are payable only from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise or other specific revenue
source. Industrial development bonds are in most cases revenue bonds and do not
generally constitute the pledge of the faith, credit or taxing power of the
municipality. The credit quality of such municipal bonds usually is directly
related to the credit standing of the user of the facilities. There are
variations in the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous factors.
Each Series may purchase new issues of municipal bonds, which are generally
offered on a when-issued basis, with delivery and payment ("settlement")
normally taking place approximately one month after the purchase date. However,
the payment obligation and the interest rate to be received by the Fund are each
fixed on the purchase date. During the period between purchase and settlement,
Fund assets consisting of cash and/or high-grade marketable debt securities,
marked to market daily, of a dollar amount sufficient to make payment at
settlement will be segregated at our custodian. There is a risk that market
yields available at settlement may be higher than yields obtained on the
purchase date, which could result in depreciation of value. While we may sell
when-issued securities prior to settlement, we intend to actually acquire such
securities unless a sale appears desirable for investment reasons. Under normal
market conditions, each Series will attempt to invest 100% and, as a matter of
fundamental policy, will invest at least 80% of its net assets in municipal
bonds, the interest on which is exempt from federal income tax. Except for the
National Series, under normal market conditions, each Series also will attempt
to invest 100% and, as a matter of fundamental policy, will invest at least 80%
of its net assets in municipal bonds, the interest on which is exempt from its
state's personal income tax. At present neither Texas nor Washington imposes a
personal income tax. Under normal market conditions, the New York Series also
will attempt to invest 100% and, as a matter of fundamental policy, will invest
<PAGE>
at least 80% of its net assets in such municipal bonds, the interest on which is
exempt from New York State and New York City personal income taxes. See
"Dividends, Capital Gains Distributions and Taxes --- Minnesota Taxes" for
investment policies applicable to the Minnesota Series relating to Minnesota tax
laws.
Although normally each Series intends to be fully invested in intermediate to
long-term municipal bonds, a Series may temporarily invest in short-term
tax-exempt securities meeting the above-described quality standards and,
additionally, may temporarily put up to 20% of its assets in cash, in commercial
paper of comparable investment quality or in short-term obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government securities"), in order to improve liquidity or to create reserve
purchasing power. Because interest earned from commercial paper or U.S.
Government securities is taxable for federal income tax purposes, we intend to
minimize temporary investments in such short-term securities.
Each Series may invest up to 20% of its net assets (less any amount invested
in the temporary taxable investments described above) in "private activity
bonds." Series dividends derived from interest on such bonds would be considered
a preference item for purposes of the computation of the alternative minimum
tax. Series dividends derived from such interest may increase the alternative
minimum tax liability of corporate shareholders who are subject to that tax
based on the excess of their adjusted current earnings over their taxable
income.
Each Series intends to meet the diversification rules under Subchapter M of
the Internal Revenue Code. Generally, this requires, at the end of each quarter
of the taxable year, that (a) not more than 25% of each Series' total assets be
invested in any one issuer and (b) with respect to 50% of each Series' total
assets, no more than 5% of each Series' total assets be invested in any one
issuer except U.S. Government securities. Since under these rules each of the
Series, except for the National Series, may invest its assets in the securities
of a limited number of issuers, the value of such Series' investments may be
more affected by any single adverse economic, political or regulatory occurrence
than in the case of a "diversified" investment company under the 1940 Act, such
as the National Series. The National Series, as a "diversified" investment
company, is prohibited, with respect to 75% of the value of its total assets,
from investing more than 5% of its total assets in securities of any one issuer
other than U.S. Government securities. For diversification purposes, the
identification of an "issuer" will be determined on the basis of the source of
assets and revenues committed to meeting interest and principal payments of the
securities. When the assets and revenues of a state's political subdivision are
separate from those of the state government creating the subdivision, and the
security is backed only by the assets and revenues of the subdivision, then the
subdivision would be considered the sole issuer. Similarly, if a revenue bond is
backed only by the assets and revenues of a nongovernmental user, then such user
would be considered the sole issuer.
No Series intends to invest more than 25% of its total assets in any
industry, except that each Series may, subject to the limits referred to in the
preceding three paragraphs, invest more than 25% of such assets in a combination
of U.S. Government securities and in tax-exempt securities, including tax-exempt
revenue bonds whether or not the users of any facilities financed by such bonds
are in the same industry. Where nongovernmental users are in the same industry,
there may be additional risk to a Series in the event of an economic downturn in
such industry, which may result generally in a lowered ability of such users to
make payments on their obligations. Electric utility and health care are
typical, but not all inclusive of, the industries in which this 25% may be
exceeded. The former is relatively stable but subject to rate regulation
vagaries. The latter suffers from two main problems -affordability and access.
Tax-exempt securities issued by governments or political subdivisions of
governments are not considered part of any "industry".
Each of the Series may invest up to 10% of its respective net assets in
illiquid securities. Bonds determined by the Directors to be liquid pursuant to
Securities and Exchange Commission Rule 144A will not be subject to this limit,
except to the extent necessary to comply with applicable state requirements.
Investments by a Series in Rule 144A securities initially determined to be
liquid could have the effect of diminishing the level of a Series' liquidity
during periods of decreased market interest in such securities. Under the Rule,
a qualifying unregistered security may be resold to a qualified institutional
buyer without registration and without regard to whether the seller originally
purchased the security for investment.
<PAGE>
Each Series may invest up to 20% of its net assets in residual interest bonds
("RIBs") to enhance and increase portfolio duration. None of the Series invested
more than 14.9% of its net assets in RIBs at any time during the fiscal year
ended September 30, 1994. A RIB, sometimes referred to as an inverse floater,is
a debt instrument with a floating or variable interest rate that moves in the
opposite direction of the interest rate on another security or the value of an
index. Changes in the interest rate on the other security or index inversely
affect the residual interest rate paid on the RIB, with the result that when
interest rates rise, RIBs interest payments are lowered and their value falls
faster than other similar fixed-rate bonds. In an effort to mitigate this risk
that RIB values may fall farther, management of the Fund purchases other
fixed-rate bonds which are less volatile. When interest rates fall, not only do
RIBs give higher interest payments, their values also rise faster than other
similar fixed-rate bonds. The market for RIBs is relatively new.
No Series will borrow money except as a temporary measure for extraordinary
or emergency purposes and then not in excess of 5% of such Series' gross assets
(at cost or market value, whichever is lower) at the time of borrowing.
PORTFOLIO TURNOVER. The portfolio turnover rates for the National, New York,
Texas and Connecticut Series were 184.07%, 149.13%, 96.79% and 97.42%,
respectively for the year ended September 30, 1994, versus 138.06%, 101.59%,
58.10% and 45.81%, respectively, for the prior fiscal year, primarily due to
security purchases and sales relating to purchases and redemptions of Series
shares and some portfolio restructuring. It is estimated that the portfolio
turnover rate for the Minnesota Series will be less than 100%.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. Each Series may deal in options on
securities, and securities indexes, and financial futures transactions,
including options on financial futures. Each Series may write (sell) covered
call options and secured put options on up to 25% of its net assets and may
purchase put and call options provided that no more than 5% of its net assets
(at the time of purchase) may be invested in premiums on such options.
None of the Series are currently employing any of the options and financial
futures transactions described above.
FUTURE CONVERSION. In the future, upon shareholder approval, each Series may
seek to achieve its investment objective by investing all of its assets in
another investment company (or series or class thereof) having the same
investment objective. Shareholders will be notified thirty days in advance of
such conversion. Shareholders of each Series will be able to exchange Series
shares for shares of the other funds, series or classes in the Lord Abbett
family having an exchange privilege with the Fund.
RISK FACTORS. Securities in which we may invest are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors and laws which may be enacted extending the time of payment of
principal and interest, or both. There is also the possibility that, as a result
of litigation or other conditions, the power or ability of issuers to meet their
obligations for payment of principal and interest may be materially affected or
their obligations may be found to be invalid or unenforceable.
The ability of any Series to achieve its objective is based on the
expectation that the issuers of the municipal bonds in a Series' portfolio will
continue to meet their obligations for the payment of principal and interest.
The following are brief summaries of certain factors affecting the Connecticut,
Hawaii, Minnesota, Missouri, New Jersey, New York, Texas and Washington Series.
These summaries do not purport to be complete and are based on information
derived from publicly available documents related to each state involved, which
information has not been independently verified by the Fund. For more detailed
discussions of the risks applicable to these Series, see the Statement of
Additional Information.
CONNECTICUT BONDS - RISK FACTORS. Connecticut's economy, while traditionally
concentrated in the manufacturing sector, has broadened in recent years with
strong relative growth in service, finance and real estate sectors. Fiscal
stress is reflected in the State's economic and revenue forecasts, the recent
bankruptcy proceedings concerning the City of Bridgeport, a rising debt burden
that reflects a significant increase in bond activity since fiscal 1987-88 and
general fund deficits through fiscal 1990 and 1991, which have been funded
through the issuance of general obligation economic recovery notes and operating
surpluses incurred in fiscal 1992 and fiscal 1993.
HAWAII BONDS - RISK FACTORS. The marketability and market value of Hawaii
obligations may be affected from time to time by constitutional provisions,
legislative measures, executive orders, administrative regulations and voter
incentives. Hawaii's economy is concentrated in retail trade and tourism and
also includes, construction, agriculture and military operations. Tourism is a
major factor in the economy, with tourists coming from a variety of nations,
which may cushion the effect of any adverse economic conditions in a single
country. Agriculture, dominated by pineapple and sugar production, has
<PAGE>
experienced increased foreign competition and the State's economy has in recent
years reflected the effects of general economic recession. Economic
diversification projects are under way, including expansion of containerized
port facilities, aquaculture and other agricultural products, but these projects
have not yet had any significant positive effects on the State's overall
economy.
Most government activities, including activities administered in other states
on a municipal or county level, such as public education, are the responsibility
of the State. This concentration contributes to the high level of State debt
obligations. Revenue is derived primarily from the general excise taxes and
individual and corporate income tax.
Hawaii's county governments (the only units of local government in the State)
may issue government obligation bonds, which obligations have further increased,
and may continue to increase in the future, the State's high level of overall
municipal debt.
MINNESOTA BONDS - RISK FACTORS. Minnesota's economy is diverse, with employment
spread over ten major sectors distributed in approximately the same proportions
as national employment, including manufacturing of industrial machinery,
fabricated metal and instruments, food, paper and allied industries and other
agricultural industries. Minnesota's significant public debt includes the
state's general obligation debt as well as university and other agency debt
which is not an obligation of the State.
MISSOURI BONDS - RISK FACTORS. Missouri has a diversified economy which includes
manufacturing, commerce, trade, services, agriculture, tourism and mining.
Economic reversals in either the Kansas City or St. Louis metropolitan areas,
whose Missouri portions together contain a significant portion of the State's
population, would have a major impact on the State's overall economic condition.
Missouri's unemployment levels have approached and, at times, exceeded the
national average in recent years, and adverse changes in military
appropriations, which play an important role in the State's economy, could
contribute to a continuation of this pattern. As discussed in the Statement of
Additional Information, payment on Missouri municipal bonds could be adversely
affected by certain provisions of the Constitution of Missouri.
NEW JERSEY BONDS - RISK FACTORS. The State of New Jersey has a diversified
economic base consisting of, among others, commerce and service industries,
selective commercial agriculture, construction, insurance, tourism, petroleum
refining and manufacturing. The State's economy has been adversely affected by
the recent recession as reflected in recent actual and projected shortfalls in
State revenues. A slow economic recovery commenced in 1993 as shown by
employment gains and growth in other economic activity. New Jersey is a major
recipient of federal assistance. Hence, a decrease in federal financial
assistance may adversely affect New Jersey's financial condition. In an attempt
to ensure that local governmental entities remain on a sound financial basis,
State law restricts total appropriations increases to 5% annually for such
entities. Statutory or legislative restrictions of such character may adversely
affect a municipality's or any other bond-issuing authority's ability to repay
its obligations.
NEW YORK BONDS - RISK FACTORS. New York State has experienced cash-basis
operating deficits in four of the last five fiscal years, due in part to a
significant slowdown in the New York and regional economy commencing in
mid-1990. While the State budget for fiscal 1994-95 calls for a balanced budget,
gaps between actual revenues and expenditures may arise in the current year and
in future fiscal years. Because the State, New York City, the State's other
political subdivisions and the State Authorities, all of which borrow money, are
or are perceived in the marketplace to be financially interdependent, and
financial difficulty experienced by one can adversely affect the market value
and marketability of obligations issued by others. The State's credit is
presently involved with the indebtedness of the Authorities because of the
State's guarantee or other support. This indebtedness is substantial in amount.
The Authorities are likely to require further financial assistance from the
State. During the last several fiscal years, New York City experienced
significant shortfalls in almost all of its major tax sources and increases in
social services costs, and has been required to take actions to close
substantial budget gaps in order to maintain balanced budgets. Similar
shortfalls and budget gaps have been predicted for future years and will require
further action by the City's government.
TEXAS BONDS - RISK FACTORS. Texas' economy recovered from the recession that
began in the mid-1980s after a collapse in oil prices. The economy has become
more stable due to increased diversification, with the oil and gas industry
diminishing in relative importance while service-producing sectors produce the
major source of job growth. The 1994-95 biennial all funds budget for the State
did not require increasing state taxes, based on the implementation of certain
cost-cutting measures and an expected increase in receipt of federal funds.
Although we anticipate that most of the bonds in the Texas Series will be
revenue obligations
<PAGE>
or general obligations of local governments or authorities, rather than general
obligations of the State of Texas itself, any circumstances that affect the the
State's credit standing may also affect the market value of these other bonds
held by the Texas Series, either directly or indirectly, as a result of a
dependency of local governments and other authorities upon State aid and
reimbursement programs.
WASHINGTON BONDS - RISK FACTORS. The State of Washington's economy includes
manufacturing and service industries as well as agricultural and timber
production. The State's leading export industries are aerospace, forest
products, agriculture and food processing. The Boeing Company, one of the
world's largest aerospace firms, has a significant impact in terms of
production, employment, and labor earnings, on the State's economy. Boeing
announced significant production and work force reductions in 1993 and 1994.
Continued declines in the forest products industry are expected in the future
and a decrease in employment in this area is also expected.
State law requires a balanced budget. The Governor has a statutory
responsibility to reduce expenditures across the board to avoid any cash deficit
at the end of a biennium. In addition, State law prohibits State tax revenue
growth from exceeding the growth of State personal income. To date, Washington
State tax revenue increases have remained substantially below the applicable
limit.
PUERTO RICO - RISK FACTORS. Series of the Fund may have significant investments
in bonds issued by the Commonwealth of Puerto Rico and its instrumentalities.
The economy of Puerto Rico is dominated by diversified manufacturing and service
sectors. It is closely integrated, through extensive trade, with that of the
mainland United States, and its economic health is closely tied to the price of
oil and the state of the U.S. economy. Puerto Rico has a rate of unemployment
exceeding the U.S. average.
Puerto Rico's economy has experienced significant growth since fiscal 1989.
Continued growth in fiscal 1994 and 1995 will depend on several factors,
including the state of the U.S. economy, the relative stability of the price of
oil and borrowing costs.
5 PURCHASES
You may buy our shares through any independent securities dealer having a sales
agreement with Lord, Abbett & Co. ("Lord Abbett") our exclusive selling agent.
Place your order with your investment dealer or send it to Lord Abbett Tax-Free
Income Fund, Inc. (P.O. Box 419100, Kansas City, Missouri 64141). The minimum
initial investment is $1,000 except for Invest-A-Matic and Div-Move ($250
initial and $50 monthly minimum). Subsequent investments may be made in any
amount. (See "Shareholder Services".)
The net asset values of our shares are calculated every business day as of
the close of the New York Stock Exchange ("NYSE") by dividing net assets by the
number of shares outstanding. Securities are valued at their market value as
more fully described in the Statement of Additional Information.
Orders for shares received by the Fund prior to the close of the NYSE, or
received by dealers prior to such close and received by Lord Abbett in proper
form prior to the close of its business day, will be confirmed at the applicable
public offering price effective at such NYSE close. Orders received by dealers
after the NYSE closes and received by Lord Abbett prior to the close of its next
business day are executed at the applicable public offering price effective as
of the close of the NYSE on that next business day. The dealer is responsible
for the timely transmission of orders to Lord Abbett. A business day is a day on
which the NYSE is open for trading.
For information regarding proper form of a purchase or redemption order, call
the Fund at 800-821-5129. This offering may be suspended, changed or withdrawn.
Lord Abbett reserves the right to reject any order.
For each Series, the offering price is based on the per share net asset value
calculated as of the times described above, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A DEALER'S
PERCENTAGE OF: CONCESSION
AS A TO COMPUTE
NET PERCENTAGE OFFERING
OFFERING AMOUNT OF OFFERING PRICE, DIVIDE
SIZE OF INVESTMENT PRICE INVESTED PRICE* NAV BY
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.00% .9525
$50,000 to $99,999 4.75% 4.99% 4.25% .9525
$100,000 to $249,999 3.75% 3.90% 3.25% .9625
$250,000 to $499,999 2.75% 2.83% 2.50% .9725
$500,000 to $999,999 2.00% 2.04% 1.75% .9800
$1,000,000 or more No sales charge 1.00% 1.0000
-----------------------------------------------------------------------------
THE FOLLOWING $1 MILLION CATEGORY IS FOR EACH OF THE WASHINGTON AND MINNESOTA
SERIES ONLY UNTIL SUCH SERIES' RULE 12B-1 PLAN BECOMES EFFECTIVE, AT WHICH
TIME THE SALES CHARGE TABLE ABOVE WILL APPLY TO SUCH SERIES.
-----------------------------------------------------------------------------
$1,000,000 or more 1.00% 1.01% 1.00% .9900
<FN>
* Lord Abbett may, for specified periods, allow dealers to retain the full
sales charge for sales of shares during such period, or pay an additional
concession to a dealer who, during a specified period, sells a minimum
dollar amount of our shares and/or shares of other Lord Abbett-sponsored
funds. In some instances, such additional concessions will be offered only
to certain dealers expected to sell significant amounts of shares. Lord
Abbett may from time to time implement promotions under which Lord Abbett
will pay a fee to dealers with respect to certain purchases not involving
imposition of a sales charge. Additional payments may be paid from Lord
Abbett's own resources and will be made in the form of cash or non-cash
payments. The non-cash payments will include business seminars at resorts
or other locations, including meals and entertainment, or the receipt of
merchandise. The cash payments will include payment of various business
expenses of the dealer.
</FN>
</TABLE>
<PAGE>
In selecting dealers to execute portfolio transactions, if two or more
dealers are considered capable of providing best execution, we may prefer the
dealer who has sold our shares and/or shares of other Lord Abbett-sponsored
funds.
VOLUME DISCOUNTS. There are several ways to qualify for a lower sales charge if
you inform the Fund that you are eligible at the time of purchase: (1) Increase
the initial investment to reach a higher discount level. The above schedule
applies to purchases by any "purchaser" of our shares, alone or in combination
with other Lord Abbett-sponsored funds (other than shares of Lord Abbett Equity
Fund ("LAEF"), Lord Abbett Series Fund ("LASF"), Lord Abbett Research Fund
("LARF"), Lord Abbett Counsel Group and Lord Abbett U.S. Government Securities
Money Market Fund ("GSMMF")). The term "purchaser" includes (i) an individual
and (ii) an individual, and his or her spouse and children under the age of 21.
(2) Add to your investment so that the current maximum offering price value of
the purchaser's combined holdings in all Lord Abbett-sponsored funds reaches a
higher discount level. Shares of LAEF, LASF, LARF, Lord Abbett Counsel Group and
GSMMF are not eligible for this privilege, unless holdings in GSMMF are
attributable to shares exchanged from a Lord Abbett-sponsored fund offered with
a sales charge. (3) Sign a nonbinding 13-month statement of intention to invest
$100,000 or more. If the purchases are completed during the period, each
purchase will be at the sales charge applicable to the aggregate of your
intended purchases; if not completed, each purchase will be at the sales charge
applicable to the aggregate of your actual purchases. Dividends or distributions
reinvested are not included in completion of the statement of intention.
Our shares may be purchased at net asset value by our directors, employees of
Lord Abbett, employees of our shareholder servicing agent and employees of any
securities dealer having a sales agreement with Lord Abbett who consents to such
purchases. For purposes of this paragraph, the terms "directors" and "employees"
include a director's or employee's spouse (including the surviving spouse of a
deceased director or employee). The terms "directors" and "employees of Lord
Abbett" also include other family members and retired directors and employees.
Each Series' shares also may be purchased at net asset value (a) at $1
million or more after the commencement of such Series' Rule 12b-1 Plans, (b)
with dividends and distributions from other Lord Abbett-sponsored funds, except
for dividends and distributions on shares of LARF, LAEF, LASF, and Lord Abbett
Counsel Group, (c) by certain authorized brokers, dealers, registered investment
advisers or other financial institutions who have entered into an agreement with
Lord Abbett in accordance with certain standards approved by Lord Abbett,
providing specifically for the use of our shares in particular investment
products made available for a fee to clients of such brokers, dealers,
registered investment advisers and other financial institutions, (d) by
employees, partners and owners of unaffiliated consultants and advisors to Lord
Abbett or Lord Abbett-sponsored funds who consent to such purchase if such
persons provide service to Lord Abbett or such funds on a continuing basis and
are familiar with such funds, and (e) subject to appropriate documentation,
through a securities dealer where the amount invested represents redemption
proceeds from shares ("Redeemed Shares") of a registered open-end management
investment company not distributed or managed by Lord Abbett (other than a money
market fund), if such redemptions have occurred no more than 60 days prior to
the purchase of our shares, the Redeemed Shares were held for at least six
months prior to redemption and the proceeds of redemption were maintained in
cash or a money market fund prior to purchase. Purchasers should consider the
impact, if any, of redemption charges or contingent deferred sales charges in
determining whether to redeem shares for subsequent investment in our shares.
Lord Abbett may suspend, change, or terminate the purchase option referred to in
(e) above, at any time.
Our shares may be issued at net asset value in exchange for the assets,
subject to possible tax adjustment, of a personal holding company or an
investment company.
NATIONAL, NEW YORK AND TEXAS RULE 12B-1 PLANS. The National, New York and Texas
Series have each adopted a Rule 12b-1 Plan ("Plan") whereby (except as to
certain accounts for which tracking data is not available) each Series pays Lord
Abbett, who passes on to dealers (1) an annual service fee (payable quarterly)
of .15% of the average daily net asset value of the Series' shares sold by
dealers prior to June 1, 1990 and .25% of the average daily net asset value of
such shares sold by dealers on or after that date and (2) a one-time 1% sales
distribution fee, at the time of sale, on all shares at the $1 million level,
sold by dealers, including sales qualifying at such level under the rights of
accumulation and statement of intention privileges.
<PAGE>
CONNECTICUT, HAWAII, MINNESOTA, MISSOURI, NEW JERSEY AND WASHINGTON RULE 12B-1
PLANS. Separate Rule 12b-1 Plans have been adopted by the Connecticut, Hawaii,
Minnesota, Missouri, New Jersey and Washington Series. Each of these Plans is
identical to the Plans for the National, New York and Texas Series, except as
discussed below. Each Plan has become effective except for the Washington and
Minnesota Series which will go into effect on the first day (the "effective
date") of the quarter subsequent to its net assets reaching $100 million. The
Fund cannot estimate when the net assets of the Washington or Minnesota Series
will reach the level required for effectiveness of that Series' Plan. Under each
Plan (except as to certain accounts for which tracking data is not available)
the Series pays Lord Abbett, who passes on to dealers (1) an annual service fee
(payable quarterly) of (a) in the case of the Connecticut and Missouri Series,
.25% of the average daily net asset value of shares sold by dealers from
commencement of the Series' public offering and (b) in the case of the Hawaii,
Minnesota, New Jersey and Washington Series, .15% of the average daily net asset
value of such shares sold prior to its effective date and .25% of the average
daily net asset value of such shares sold on or after that date and (2) a
one-time 1% sales distribution fee, at the time of sale, on all shares at the $1
million level sold by dealers on or after the Series' effective date, including
sales qualifying at such level under the rights of accumulation and statement of
intention privileges.
ALL SERIES - Shareholders of a Series who do not pay a sales charge on
investments of $1 million or more and whose dealer receives the one-time 1%
sales distribution fee will be required to pay to the Series a contingent
deferred reimbursement charge of 1% of the original cost or the then net asset
value, whichever is less, of all shares of each Series so purchased which are
redeemed out of the Lord Abbett-sponsored family of funds on or before the end
of the twenty-fourth month after the month in which the purchase occurred. If
shares have been exchanged into another Series or Lord Abbett fund and are
thereafter redeemed out of the Lord Abbett family on or before the end of such
twenty-fourth month, the charge will be collected for the Series by the other
Series or fund. Each Series will collect such a charge for other Series and
other such funds in a similar situation. Shares of a fund or series on which the
1% sales distribution fee has been paid may not be exchanged into a Series or
fund with a Rule 12b-1 Plan for which the payment provisions have not been in
effect for at least one year.
The Series' Rule 12b-1 Plans authorize the payment of the fees to dealers in
order to provide additional incentives for them (a) to provide continuing
information and investment services to their shareholders' accounts and
otherwise to encourage their accounts to remain invested in the Fund and (b) to
sell shares of the Fund.
JURISDICTIONS - The New York Series is sold only to residents of California,
Colorado, Connecticut, District of Columbia, Florida, Georgia, Hawaii, Illinois,
Indiana, Kentucky, Louisiana, Minnesota, Missouri, New Jersey, New York, North
Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Utah, Vermont,
Virginia, West Virginia and Wyoming. The New Jersey Series may be sold in the
same jurisdictions except for Rhode Island and Vermont. The Texas Series may be
sold in the same jurisdictions as the New Jersey Series plus New Mexico and
Texas. The Connecticut Series, with the addition of Massachusetts, may be sold
in the same jurisdictions as the New York Series except for Indiana and Vermont.
The Hawaii and Missouri Series may be sold in the same jurisdictions as the New
York Series except for Indiana, Rhode Island and Vermont and, in the case of the
Hawaii Series, except in California. The Washington Series, with the addition of
Alaska and Washington, may be sold in the same jurisdictions as the Missouri
Series. The Minnesota Series may be sold in the same jurisdictions as the New
York Series, except for Rhode Island, Vermont and West Virginia.
6 SHAREHOLDER SERVICES
We offer the following shareholder services:
TELEPHONE EXCHANGE PRIVILEGE: Shares of any Series may be exchanged, without a
service charge, for those of any other Series or any other Lord Abbett-sponsored
fund except for (i) LAEF, LASF, LARF and Lord Abbett Counsel Group and (ii)
certain tax-free single-state series where the exchanging shareholder is a
resident of a state in which such series are not offered for sale (together,
"Eligible Funds").
You or YOUR REPRESENTATIVE WITH PROPER IDENTIFICATION can instruct the Fund
to exchange uncertificated shares by telephone. Shareholders have this privilege
unless they refuse it in writing. The Fund will not be liable for following
instructions communicated by telephone that it reasonably believes to be genuine
and will employ reasonable procedures to confirm that instructions received are
genuine, including requesting proper identification, and recording all telephone
exchanges. Instructions must be received by the Fund in Kansas City
(800-821-5129) prior to the close of the NYSE to obtain each Series' net asset
value per share on that day. Expedited exchanges by telephone may be difficult
to implement in times of drastic economic or market change. The exchange
privilege should not be used to take advantage of short-term swings in the
market. The Fund reserves the right to terminate or limit the privilege of any
shareholder who makes frequent exchanges.
<PAGE>
The Fund can revoke the privilege for all shareholders upon 60 days' prior
written notice. A prospectus for the other Lord Abbett-sponsored fund selected
by you should be obtained and read before an exchange. Exercise of the Exchange
Privilege will be treated as a sale for federal income tax purposes and,
depending on the circumstances, a capital gain or loss may be recognized.
SYSTEMATIC WITHDRAWAL PLAN: If the maximum offering price value of your
uncertificated shares is at least $10,000, you may have periodic cash
withdrawals automatically paid to you in either fixed or variable amounts.
DIV-MOVE: You can invest the dividends paid on your account ($50 minimum
monthly investment) into an existing account in any other Eligible Fund. The
account must be either your account, a joint account for you and your spouse, a
single account for your spouse, or a custodial account for your minor child
under the age of 21. You should read the prospectus of the other fund before
investing.
INVEST-A-MATIC: You can make fixed, periodic investments ($50 minimum monthly
investment) into the Fund and/or any Eligible Fund by means of automatic money
transfers from your bank checking account. You should read the prospectus of the
other fund before investing.
All correspondence should be directed to Lord Abbett Tax-Free Income Fund,
Inc. (P.O. Box 419100, Kansas City, Missouri 64141).
7 OUR MANAGEMENT
Our business is managed by our officers on a day-to-day basis under the overall
direction of our Board of Directors. We employ Lord Abbett as investment manager
for each Series, pursuant to Management Agreements applicable to one or more
specific Series of the Fund ("Management Agreements"). These Management
Agreements are identical except that the Management Agreements for the Hawaii,
Minnesota and Washington Series provide for the repayment, under certain
circumstances, of management fees waived and certain expenses assumed by Lord
Abbett, as described below. Lord Abbett has been an investment manager for over
60 years and currently manages approximately $16 billion in a family of mutual
funds and advisory accounts. Under the Management Agreements, Lord Abbett
provides us with investment management services and personnel, pays the
remuneration of our officers and of our directors affiliated with Lord Abbett,
provides us with office space and pays for ordinary and necessary office and
clerical expenses relating to research, statistical work and supervision of our
portfolios and certain other costs. Lord Abbett provides similar services to
fifteen other funds having various investment objectives and also advises other
investment clients. Robert S. Dow,Lord Abbett Partner in charge of Fixed Income
for over five years, is primarily responsible for the day-to-day management of
the Series and has acted in this capacity since each Series' inception. He is
assisted by, and may delegate management duties to, other Lord Abbett employees
who may be Fund officers.
Under the Management Agreements, we are obligated to pay Lord Abbett a
monthly fee at the annual rate of .50 of 1% of the average daily net assets of
each Series for each month. For the fiscal year ended September 30, 1994, with
respect to the Texas, New Jersey, Connecticut, Missouri, Hawaii and Washington
Series, Lord Abbett waived $400,148, $615,642, $381,757, $364,906, $433,616 and
$313,394, respectively, in management fees. In addition, we pay all expenses not
expressly assumed by Lord Abbett. Our ratios of expenses, including management
fee expenses, to average net assets for the year ended September 30, 1994 were
.86%, .83%, .50%, .51%, .49%, .60%, .41% and .29% for the National, New York,
Texas, New Jersey, Connecticut, Missouri, Hawaii and Washington Series,
respectively. The Texas, New Jersey, Connecticut, Missouri, Hawaii and
Washington Series' expense ratios would have been .87%, .83%, .86%, .91%, .87%
and .67%, respectively, had Lord Abbett not waived all or a portion of its
management fees.
The Management Agreement relating to the Minnesota Series provides for the
Series to repay Lord Abbett without interest for any expenses assumed by Lord
Abbett on and after the first day of the calendar quarter after the net assets
of such Series first reach $50 million ("commencement date"), to the extent that
the expense ratio of such Series (determined before taking into account any fee
waiver or expense assumption) is less than .85%. Commencing with the first day
of the calendar quarter after the net assets of the Minnesota Series first reach
$100 million, such repayments shall be made to the extent that such expense
ratio so determined is less than 1.05%. The Minnesota Series shall not be
obligated to repay any such expenses after the earlier of the termination of the
Management Agreement or the end of five full fiscal years after the commencement
date. The Minnesota Series will not record as obligations in its financial
statements any expenses which may possibly be repaid to Lord Abbett under this
repayment formula, unless such repayment is probable at the time. If such
repayment is not probable, the Series will disclose in a note to its financial
statements that such repayments are possible.
<PAGE>
We will not hold annual meetings of shareholders unless required to do so by
the 1940 Act, the Board of Directors or the shareholders with one-quarter of the
outstanding stock entitled to vote. See the Statement of Additional Information
for more details.
The Fund was incorporated under Maryland law on December 27, 1983. Each
outstanding share of a Series has one vote on all matters voted upon by that
Series and an equal right to dividends and distributions of that Series. All
shares have noncumulative voting rights for the election of directors.
8 DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Dividends from net investment income are declared daily and paid monthly. They
may be taken in cash or additional shares at net asset value (without a sales
charge). You begin earning dividends on the business day on which payment for
the purchase of your shares is received.
A long-term capital gains distribution is made when we have net profits
during the year from sales of securities which we have held more than one year.
If we realize net short-term capital gains, they also will be distributed. It is
anticipated that capital gains distributions, if any, will be declared and paid
in December. You may take them in cash or additional shares at net asset value
without a sales charge.
Supplemental dividends from taxable net investment income may be paid in
December or January. Dividends and distributions declared in October, November
or December of any year to shareholders of record as of a date in such a month
will be treated for federal income tax purposes as having been received by
shareholders in that year if they are paid before February 1 of the following
year.
We intend to continue to meet the requirements of Subchapter M of the
Internal Revenue Code. We intend to take all other action required to insure
that we will pay no federal income tax and that each of the Series may pay
"exempt-interest dividends." Dividends derived from interest income on
obligations exempt from federal income tax, when designated by the Fund as
"exempt-interest dividends," will be exempt from federal income tax when
received by shareholders. Dividends derived from income on our other
investments, or from any net realized short-term capital gains, will be taxable
to shareholders as ordinary income, whether received in cash or shares.
Dividends derived from net long-term capital gains which are designated by the
Fund as "capital gains dividends" will be taxable to shareholders as long-term
capital gains, whether received in cash or shares, regardless of how long a
shareholder has held the shares. Under current law, net long-term capital gains
are taxed at the rates applicable to ordinary income, except that the maximum
rate for long-term capital gains for individuals is 28%.
You may be subject to a $50.00 penalty under the Internal Revenue Code and we
may be required to withhold and remit to the U.S. Treasury a portion (31%) of
any redemption proceeds (including the value of shares exchanged into another
Lord Abbett-sponsored fund), and of any dividend or distribution on any account
where the payee failed to provide a correct taxpayer identification number or to
make certain required certifications.
Shareholders receiving Social Security benefits and certain railroad
retirement benefits may be subject to federal income tax on up to 85% of such
benefits as a result of receiving investment income, including tax-exempt income
(such as exempt-interest dividends) and other distributions paid by the Fund.
The tax will be imposed on up to one-half of such benefits only when the sum of
the recipient's adjusted gross income (plus miscellaneous adjustments),
tax-exempt income and one-half of Social Security income exceeds $25,000
($32,000 for individuals filing a joint return). The tax will be imposed on up
to 85% only when such sum exceeds $34,000 for individuals ($44,000 for
individuals filing a joint return). Shareholders receiving such benefits should
consult their tax advisers.
NEW YORK TAXES - In the opinion of Debevoise & Plimpton, counsel to the Fund,
dividends paid by the New York Series will not be subject to New York State and
New York City personal income taxes to the extent that they are derived from
interest on obligations of the State of New York and its political subdivisions
which are exempt from federal income tax. In addition, dividends derived from
interest on debt obligations issued by certain other governmental entities (for
example, U.S. territories) will be similarly exempt.
For New York State and City personal income tax purposes, distributions,
whether received in cash or additional shares, paid from the Fund's other
investment income and from any net realized short-term capital gains, are
taxable as ordinary income and distributions from net realized long-term capital
gains are treated as long-term capital gains, regardless of how long a
shareholder has held the shares.
Distributions from investment income and capital gains, including
exempt-interest dividends, may be subject to New York State franchise taxes and
to the New York City General Corporation Tax, if received by a corporation
subject to those taxes, to state taxes in states other than New York and to
local taxes in cities other than New York City.
CONNECTICUT TAXES - Dividends paid by the Connecticut Series will not be subject
<PAGE>
to the Connecticut personal income tax to the extent that they are derived from
interest on obligations of the State of Connecticut or any of its political
subdivisions which are exempt from federal income tax or derived from interest
on debt obligations issued by certain other government entities (for example,
U.S. territories). Dividends and distributions, whether received in cash or
additional shares, derived from the Connecticut Series' other investment income
and capital gains are subject to these taxes.
Distributions from investment income and capital gains, including
exempt-interest dividends derived from interest that is exempt from Connecticut
personal income tax and federal income tax, may be subject to the Connecticut
Corporation Business Tax if received by a corporation subject to such tax, to
state taxes in states other than Connecticut and to local taxes.
HAWAII TAXES - Dividends paid by the Hawaii Series generally will be exempt from
Hawaii income tax to the extent that they are derived from interest on
obligations of the State of Hawaii or any of its political subdivisions or
authorities or obligations issued by certain other government authorities (for
example, U.S. territories). Dividends and distributions derived from the Series'
other investment income and short-term capital gains will be subject to Hawaii
income tax as ordinary income and distributed and undistributed net realized
long-term capital gains will be subject to Hawaii income tax as capital gains.
Dividends and distributions paid by the Series, including dividends that are
exempt from Hawaii income tax as described above, will be subject to the Hawaii
franchise tax if received by a corporation subject to such taxes and may be
subject to state taxes in states other than Hawaii or to local taxes.
MINNESOTA TAXES - Shareholders of the Minnesota Series who are individuals,
estates, or trusts and who are subject to regular Minnesota personal income tax
will not be subject to such regular Minnesota tax on Minnesota Series dividends
to the extent that such distributions qualify as exempt-interest dividends of a
regulated investment company under Section 842 (b) (5) of the Internal Revenue
Code which are derived from interest on tax-exempt obligations of the State of
Minnesota, or its political or governmental subdivisions, municipalities,
governmental agencies or instrumentalities. The foregoing will apply, however,
only if the portion of the exempt-interest dividends from such Minnesota sources
that is paid to all shareholders represents 95% or more of the exempt-interest
dividends that are paid by the Minnesota Series. If the 95% test is not met, all
exempt- interest dividends paid by the Minnesota Series will be subject to the
regular Minnesota personal income tax. Even if the 95% test is met, to the
extent that exempt-interest dividends that are paid by the Minnesota Series are
not derived from the Minnesota sources described in the first sentence of this
paragraph, such dividends will be subject to the regular Minnesota personal
income tax. Other distributions of the Minnesota Series, including distributions
from net short-term and long-term capital gains, are generally not exempt from
the regular Minnesota personal income tax.
Subject to certain limitations that are set forth in recently adopted
Minnesota rules, Minnesota Series dividends, if any, that are derived from
interest on certain United States obligations are not subject to the regular
Minnesota personal income tax or the Minnesota alternative minimum tax, in the
case of shareholders of the Minnesota Series who are individuals, estates, or
trusts.
Minnesota Series distributions, including exempt-interest dividends, are not
excluded in determining the Minnesota franchise tax on corporations that is
measured by taxable income and alternative minimum taxable income. Minnesota
Series distributions may also be taken into account in certain cases in
determining the minimum fee that is imposed on corporations, S corporations, and
partnerships.
Except during temporary defensive periods or when acceptable investments are
unavailable to the Minnesota Series, at least 80% of the value of the net assets
of the Minnesota Series will be maintained in debt obligations which are exempt
from federal income tax and Minnesota personal income tax. The Series intends to
invest so that the 95% test described in the paragraphs above is met.
MISSOURI TAXES - Dividends paid by the Missouri Series generally will be exempt
from Missouri personal and corporate income tax to the extent that they are
derived from interest on obligations of the State of Missouri or any of its
political subdivisions or authorities or obligations issued by certain other
government authorities (for example, U.S. territories). The portion of the
Series' dividends received by a shareholder that is exempt from Missouri
personal or corporate income tax each year may be reduced by interest or other
expenses in excess of $500 paid or incurred to purchase or carry shares of the
Series or other investments producing income that is exempt from Missouri income
tax.
Dividends and distributions derived from the Series' other investment income
and its capital gains will be subject to Missouri personal and corporate income
tax. Dividends and distributions paid by the Series, including dividends that
are exempt from Missouri personal income tax as described above, may be subject
to state taxes in states other than Missouri or to local taxes.
<PAGE>
NEW JERSEY TAXES - Dividends and distributions paid by the New Jersey Series
will be exempt from New Jersey Gross Income Tax to the extent that they are
derived from interest on obligations of the State of New Jersey or its political
subdivisions or authorities or on obligations issued by certain other government
authorities (for example, U.S. territories) or from capital gains derived from
the disposition of such obligations, as long as at least 80% of the Series'
interest-bearing and discount obligations are such obligations, the Series has
no investments other than interest-bearing obligations, obligations issued at a
discount, options, futures, forward contracts and similar financial instruments
related to interest-bearing obligations and obligations issued at a discount and
cash and cash items and the Series meets certain filing requirements necessary
to establish and maintain its status as a "Qualified Investment Fund" in New
Jersey. We intend to meet those requirements. As long as we meet those
requirements, net gains or income derived from the disposition of shares of the
New Jersey Series will not be subject to New Jersey Gross Income Tax. Dividends
and distributions derived from the Series' other investment income and capital
gains will be subject to New Jersey Gross Income Tax.
Dividends and distributions from the New Jersey Series (including
exempt-interest dividends and all distributions derived from capital gains) will
be subject to the New Jersey corporation business (franchise) tax and the New
Jersey corporation income tax if received by a corporation subject to such taxes
and may be subject to state taxes in states other than New Jersey and to local
taxes.
ANNUAL INFORMATION - Information concerning the tax treatment of dividends and
other distributions will be mailed annually to shareholders. Each Series will
also provide annually to its shareholders information regarding the source of
dividends and distributions of capital gains paid by that Series. You should
consult your tax adviser regarding the treatment of those distributions and
state and local taxes generally and any proposed changes thereto as well as the
tax consequences of gains or losses from the redemption, or exchange of our
shares.
9 REDEMPTIONS
To obtain the proceeds of an expedited redemption of $50,000 or less, you or
your representative with proper identification can telephone the Fund. The Fund
will not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine and will employ reasonable procedures to
confirm that instructions received are genuine, including requesting proper
identification, recording all telephone redemptions and mailing the proceeds
only to the named shareholder at the address appearing on the account
registration.
If you do not qualify for the expedited procedures described above to redeem
shares directly, send your request to Lord Abbett Tax-Free Income Fund, Inc.
(P.O. Box 419100, Kansas City, Missouri 64141) with signature(s) and any legal
capacity of the signer(s) guaranteed by an eligible guarantor, accompanied by
any certificates for shares to be redeemed and other required documentation.
Within seven days after acceptance, we will make payment of the net asset value
of the shares on the date the redemption order was received in proper form.
However, if you have purchased Fund shares by check and subsequently submit a
redemption request, redemption proceeds will be paid upon clearance of your
purchase check, which may take up to 15 days. To avoid delays you may arrange
for the bank upon which a check was drawn to communicate to the Fund that the
check has cleared.
Shares also may be redeemed by the Fund at net asset value through your
securities dealer who, as an unaffiliated dealer, may charge you a fee. If your
dealer receives your order prior to the close of the NYSE and communicates it to
Lord Abbett, as our agent, prior to the close of Lord Abbett's business day, you
will receive the net asset value that day. If the dealer does not communicate
such an order to Lord Abbett until the next business day, you will receive the
net asset value as of the close of the NYSE on that next business day.
Shareholders who have redeemed their shares have a one-time right to
reinvest, into another account having the identical registration, in any of the
Eligible Funds at the then applicable net asset value without the payment of a
sales charge. Such reinvestment must be made within 60 days of the redemption
and is limited to no more than the amount of the redemption proceeds.
Under certain circumstances and subject to prior written notice, our Board of
Directors may authorize redemption of all of the shares in any account in which
there are fewer than 25 shares.
10 PERFORMANCE
Lord Abbett Tax-Free Income Fund completed fiscal 1994 on September 30 with net
assets totaling $1.68 billion, down from $1.74 billion one year ago.
<PAGE>
Each Series seeks to provide shareholders with high current tax-free income
from a portfolio of high-quality municipal bonds. Following are some of the
factors that were relevant to the Series' performance over the past year,
including market conditions and investment strategies pursued by the Fund's
management.
The past year has been one of extreme volatility in interest rates. The
Federal Reserve implemented a policy of short-term rate increases in February
with the intent of slowing the economy's growth rate and tempering fears of
inflation. Increases in both long-term and short-term rates adversely affected
the Series' net asset values and total returns over the period as the market
value of portfolio securities with longer duration characteristics, including
RIBs, decreased. See "How We Invest".
Lord Abbett continues its commitment to value investing, a management style
which has helped the portfolios' returns in past years. The recent increase in
yields has afforded an opportunity to obtain call protection for municipal bond
rates not seen in two years. We remain committed to high-quality issues with a
focus on those rated AAA and AA. We continue to manage portfolio risk from a
total return perspective. We continue to invest in securities with long duration
characteristics in an effort to provide high current tax-free income and may
make distributions in excess of net investment income to provide more stable
dividends. Such distributions could cause slight decreases in net asset values
over time, but historically have not resulted in a return of capital for tax
purposes.
Yield, tax-equivalent yield and total return data may from time to time be
included in advertisements about the Series. "Yield" is calculated by dividing
each Series' annualized net investment income per share during a recent 30-day
period by the maximum offering price per share on the last day of that period.
"Tax-equivalent yield" is calculated by dividing that portion of each Series'
yield (as determined above) which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of each Series' yield that
is not tax exempt. A Series' yield and tax equivalent yield reflect the
deduction of the maximum initial sales charge and reinvestment of all income
dividends and capital gains distributions. "Total return" for the one-, five-
and ten-year periods represents the average annual compounded rate of return on
an investment of $1,000 in each Series at the maximum public offering price.
Total return also may be presented for other periods or based on investment at
reduced sales charge levels or net asset value. Any quotation of total return
not reflecting the maximum initial sales charge would be reduced if such sales
charge were used. Quotations of yield or total return for any period when an
expense limitation is in effect will be greater than if the limitation had not
been in effect. See "Past Performance" in the Statement of Additional
Information for a more detailed discussion.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFER IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER.
NO PERSON IS AUTHORIZED TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR IN SUPPLEMENTAL
LITERATURE AUTHORIZED BY THE FUND, AND NO PERSON IS ENTITLED TO RELY UPON ANY
INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN OR THEREIN.
<PAGE>
Comparison of change in value of a $10,000 investment in Lord Abbett Tax-Free
Income Fund -- National Series, assuming reinvestment of all dividends and
distributions, Lipper's Average of National tax-free funds and the Lehman
Municipal Bond Index.
THE FUND THE FUND LIPPER'S LEHMAN
AT MAXIMUM AT NET AVERAGE OF MUNICIPAL
OFFERING ASSET NATIONAL BOND
DATE PRICE (2) VALUE TAX-FREE FUNDS (3) INDEX (4)
- ---- ---------- --------- -------------- ----------
4/2/84 $ 9,520 $10,000 $10,000 $10,000
1984 9,543 10,023 10,251 10,281
1985 11,183 11,748 12,106 11,951
1986 13,833 14,531 14,871 14,897
1987 13,727 14,419 14,602 14,974
1988 15,944 16,748 16,590 16,918
1989 17,409 18,287 18,021 18,387
1990 18,465 19,395 18,979 19,637
1991 20,870 21,921 21,412 22,226
1992 23,118 24,284 23,604 24,549
1993 26,488 27,821 26,696 27,677
1994 24,992 26,251 25,670 27,010
FISCAL YEAR END 9/30
AVERAGE ANNUAL TOTAL RETURN (1)
1 YEAR 5 YEARS 10 YEARS
-10.10% 6.47% 9.58%
Comparison of change in value of a $10,000 investment in Lord Abbett Tax-Free
Income Fund -- NEW YORK SERIES, assuming reinvestment of all dividends and
distributions, Lipper's Average of New York tax-free funds and the Lehman
Municipal Bond Index
THE FUND THE FUND LIPPER'S LEHMAN
AT MAXIMUM AT NET AVERAGE OF MUNICIPAL
OFFERING ASSET NEW YORK BOND
DATE PRICE (2) VALUE TAX-FREE FUNDS (3) INDEX (4)
- ---- ---------- --------- -------------- ----------
4/2/84 $ 9,520 $10,000 $10,000 $10,000
1984 9,794 10,288 10,274 10,281
1985 11,307 11,877 12,055 11,951
1986 13,693 14,383 14,664 14,897
1987 13,720 14,410 14,171 14,974
1988 15,772 16,567 16,068 16,918
1989 17,214 18,080 17,430 18,387
1990 18,129 19,042 18,198 19,637
1991 20,686 21,728 20,402 22,226
1992 22,897 24,052 22,587 24,549
1993 26,091 27,406 25,686 27,677
1994 24,472 25,705 24,570 27,010
FISCAL YEAR END 9/30
AVERAGE ANNUAL TOTAL RETURN (1)
1 YEAR 5 YEARS 10 YEARS
-10.60% 6.23% 9.05%
Comparison of change in value of a $10,000 investment in Lord Abbett Tax-Free
Income Fund -- Texas Series, assuming reinvestment of all dividends and
distributions, Lipper's Average of the Texas tax-free funds and the Lehman
Municipal Bond Index
THE FUND THE FUND LIPPER'S LEHMAN
AT MAXIMUM AT NET AVERAGE OF MUNICIPAL
OFFERING ASSET TEXAS BOND
DATE PRICE (2) VALUE TAX-FREE FUNDS (3) INDEX (4)
- ---- ---------- --------- -------------- ----------
1/20/1987 $ 9,520 $10,000 $10,000 $10,000
1987 9,018 9,473 9,216 9,432
1988 10,475 11,002 10,570 10,657
1989 11,480 12,059 11,468 11,582
1990 12,237 12,853 12,124 12,370
1991 14,000 14,705 13,728 14,400
1992 15,495 16,276 15,328 15,463
1993 17,608 18,496 17,329 17,434
1994 16,799 17,645 16,648 17,013
FISCAL YEAR END 9/30
AVERAGE ANNUAL TOTAL RETURN (1)
1 YEAR 5 YEARS 10 YEARS
-9.20% 6.87% 6.97%
Comparison of change in value of a $10,000 investment in Lord Abbett Tax-Free
Income Fund -- NEW JERSEY SERIES, assuming reinvestment of all dividends and
distributions, Lipper's Average of New Jersey tax-free funds and the Lehman
Municipal Bond Index
THE FUND THE FUND LIPPER'S LEHMAN
AT MAXIMUM AT NET AVERAGE OF MUNICIPAL
OFFERING ASSET NEW JERSEY BOND
DATE PRICE (2) VALUE TAX-FREE FUNDS (3) INDEX (4)
- ---- ---------- --------- -------------- ----------
1/2/1991 $ 9,524 $10,000 $10,000 $10,000
1991 10,474 10,998 10,877 10,850
1992 11,575 12,154 11,970 11,984
1993 13,342 14,009 13,596 13,511
1994 12,821 13,461 13,055 13,186
FISCAL YEAR END 9/30
AVERAGE ANNUAL TOTAL RETURN (1)
1 YEAR LIFE OF FUND
-8.60% 6.85%
<PAGE>
Comparison of change in value of a $10,000 investment in Lord Abbett Tax-Free
Income Fund -- Connecticut Series, assuming reinvestment of all dividends and
distributions, Lipper's Average of Connecticut tax-free funds and the Lehman
Municipal Bond Index
THE FUND THE FUND LIPPER'S LEHMAN
AT MAXIMUM AT NET AVERAGE OF MUNICIPAL
OFFERING ASSET CONNECTICUT BOND
DATE PRICE (2) VALUE TAX-FREE FUNDS (3) INDEX (4)
- ---- ---------- --------- -------------- ----------
1/2/1991 $ 9,525 $10,000 $10,000 $10,000
1991 10,183 10,692 10,542 10,610
1992 11,170 11,728 11,581 11,719
1993 12,899 13,542 13,172 13,212
1994 12,236 12,847 12,609 12,894
FISCAL YEAR END 9/30
AVERAGE ANNUAL TOTAL RETURN (1)
1 YEAR LIFE OF FUND
-9.70% 5.94%
Comparison of change in value of a $10,000 investment in Lord Abbett Tax-Free
Income Fund -- MISSOURI SERIES, assuming reinvestment of all dividends and
distributions, Lipper's Average of Missouri tax-free funds and the Lehman
Municipal Bond Index
THE FUND THE FUND LIPPER'S LEHMAN
AT MAXIMUM AT NET AVERAGE OF MUNICIPAL
OFFERING ASSET MISSOURI BOND
DATE PRICE (2) VALUE TAX-FREE FUNDS (3) INDEX (4)
- ---- ---------- --------- -------------- ----------
5/31/1991 $ 9,524 $10,000 $10,000 $10,000
1991 10,044 10,546 10,359 10,378
1992 11,196 11,756 11,384 11,463
1993 12,741 13,378 12,948 12,923
1994 12,075 12,679 12,397 12,612
FISCAL YEAR END 9/30
AVERAGE ANNUAL TOTAL RETURN (1)
1 YEAR LIFE OF FUND
-9.70% 5.80%
Comparison of change in value of a $10,000 investment in Lord Abbett Tax-Free
Income Fund -- Hawaii Series, assuming reinvestment of all dividends and
distributions, Lipper's Average of Hawaii tax-free funds and the Lehman
Municipal Bond Index
THE FUND THE FUND LIPPER'S LEHMAN
AT MAXIMUM AT NET AVERAGE OF MUNICIPAL
OFFERING ASSET HAWAII BOND
DATE PRICE (2) VALUE TAX-FREE FUNDS (3) INDEX (4)
- ---- ---------- --------- -------------- ----------
10/28/1991 $ 9,520 $10,000 $10,000 $10,000
1992 10,382 10,905 10,830 10,947
1993 12,028 12,634 12,189 12,341
1994 11,360 11,934 11,791 12,044
FISCAL YEAR END 9/30
AVERAGE ANNUAL TOTAL RETURN (1)
1 YEAR LIFE OF FUND
-10.20% 4.45%
Comparison of change in value of a $10,000 investment in Lord Abbett Tax-Free
Income Fund -- WASHINGTON SERIES, assuming reinvestment of all dividends and
distributions, Lipper's Average of Washington tax-free funds and the Lehman
Municipal Bond Index
THE FUND THE FUND LIPPER'S LEHMAN
AT MAXIMUM AT NET AVERAGE OF MUNICIPAL
OFFERING ASSET WASHINGTON BOND
DATE PRICE (2) VALUE TAX-FREE FUNDS (3) INDEX (4)
- ---- ---------- --------- -------------- ----------
4/15/1992 $ 9,520 $10,000 $10,000 $10,000
1992 10,136 10,647 10,546 10,608
1993 11,689 12,278 11,926 11,959
1994 11,028 11,584 11,372 11,671
FISCAL YEAR END 9/30
AVERAGE ANNUAL TOTAL RETURN (1)
1 YEAR LIFE OF FUND
-10.20% 4.06
[FN]
(1) Total return is the percent change in value, after deduction of the maximum
sales charge of 4.75%, with all dividends and distributions reinvested for
the periods shown ending September 30, 1994 using the SEC-required uniform
method to compute such return. A portion of the management fee has been
waived.
(2) Data reflects the deduction of the maximum sales charge of 4.75%.
(3) Source: Lipper Analytical Services.
(4) Performance numbers for the Lehman Municipal Bond Index do not reflect
transaction costs or management fees. An investor cannot invest directly in
the Index. This Index is composed of municipal bonds from many different
states and, therefore, it may not be valid to compare to a single-state
municipal bond portfolio, such as those of the single-state Series.
[/FN]
<PAGE>
UNDERWRITER AND INVESTMENT MANAGER
Lord, Abbett & Co.
The General Motors Building
767 Fifth Avenue
New York, New York 10153-0203
212-848-1800
CUSTODIAN
Morgan Guaranty Trust Company of New York
60 Wall Street, New York, New York 10005
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
United Missouri Bank of Kansas City, N.A.
Tenth and Grand
Kansas City, Missouri 64141
SHAREHOLDER SERVICING AGENT
DST Systems, Inc.
P.O. Box 419100
Kansas City, Missouri 64141
800-821-5129
AUDITORS
Deloitte & Touche LLP
COUNSEL
Debevoise & Plimpton
<PAGE>
LORD ABBETT
TAX-FREE INCOME FUND
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
LORD ABBETT PROSPECTUS
DECEMBER 27 '94
INTENDED FOR USE UNTIL FEBRUARY 1, 1996.
TAX-FREE INCOME FUND
NATIONAL SERIES
CONNECTICUT SERIES
HAWAII SERIES
MINNESOTA SERIES
MISSOURI SERIES
NEW JERSEY SERIES
NEW YORK SERIES
TEXAS SERIES
WASHINGTON SERIES
A MUTUAL FUND SEEKING HIGH
TAX-FREE INCOME AND PRESERVATION
OF CAPITAL.
<PAGE>
LORD ABBETT
STATEMENT OF ADDITIONAL INFORMATION DECEMBER 27, 1994
INTENDED FOR USE
UNTIL FEBRUARY 1, 1996
LORD ABBETT TAX-FREE INCOME FUND, INC.
This Statement of Additional Information is not a Prospectus. A Prospectus may
be obtained from your securities dealer or from Lord, Abbett & Co., The General
Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. This Statement
relates to, and should be read in conjunction with, the Prospectus dated
December 27, 1994.
Our Board of Directors has authority to create and classify shares of common
stock in separate series, without further action by shareholders. To date,
40,000,000 shares of each of the Connecticut, Hawaii, Minnesota, Missouri, New
Jersey, New York, Texas and Washington Series and 80,000,000 shares of the
National Series have been authorized. Although no present plans exist, further
series may be added in the future. The Investment Company Act of 1940 (the
"Act") requires that where more than one series exists, each series must be
preferred over all other series in respect of assets specifically allocated to
such series.
Rule 18f-2 under the Act provides that any matter required to be submitted, by
the provisions of the Act or applicable state law, or otherwise, to the holders
of the outstanding voting securities of an investment company such as the Fund
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each series affected by such
matter. Rule 18f-2 further provides that a series shall be deemed to be affected
by a matter unless the interests of each series in the matter are substantially
identical or the matter does not affect any interest of such series. However,
the Rule exempts the selection of independent public accountants, the approval
of principal distributing contracts and the election of directors from the
separate voting requirements of the Rule.
Shareholder inquiries should be made by writing directly to the Fund or by
calling 800-821-5129. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS Page
1. Investment Objective and Policies 2
2. Directors and Officers 9
3. Investment Advisory and Other Services 11
4. Portfolio Transactions 12
5. Purchases, Redemptions
and Shareholder Services 13
6. Taxes 18
7. Risk Factors Regarding Investments
in Connecticut, Hawaii, Minnesota, Missouri,
New Jersey, New York, Texas,
Washington and Puerto Rico Municipal Bonds 19
8. Past Performance 29
9. Further Information About the Fund 30
10. Financial Statements 30
<PAGE>
1.
Investment Objective and Policies
The Fund's investment objective and policies are described in the Prospectus on
the cover page and under "How We Invest."
In addition to those policies described in the Prospectus, each Series is
subject to the following investment restrictions which cannot be changed without
approval of a majority of the outstanding shares of the Series. Each Series may
not: (1) sell short or buy on margin (good faith deposits made in connection
with entering into options and financial futures transactions are not deemed to
be margin), although we may obtain short-term credit necessary for the clearance
of purchases of securities; (2) buy or sell put, call, straddle or spread
options, although we may buy, hold or sell options and financial futures; (3)
borrow money except as a temporary measure for extraordinary or emergency
purposes and then not in excess of 5% of its gross assets (at cost or market
value, whichever is lower) at the time of borrowing; (4) invest knowingly more
than 10% of its net assets in illiquid securities (securities qualifying for
resale under Rule 144A that are determined by the Board of Directors, or by Lord
Abbett under the Board's delegation, to be liquid are considered liquid
securities); (5) act as underwriter of securities issued by others, except to
the extent that in connection with the disposition of its portfolio securities
it may be deemed to be an underwriter under federal securities laws; (6) make
loans, except for the purchase of debt securities in which it may invest
consistent with its investment objective and policies; (7) pledge, mortgage or
hypothecate our assets except to secure permitted borrowings described in (3)
above (neither a deposit required to enter into or to maintain municipal bond
index futures contracts nor an allocation or segregation of portfolio assets to
collateralize a position in such options or futures contracts is deemed to be a
pledge, mortgage or hypothecation); (8) buy or sell real estate, including real
estate mortgages in the ordinary course of its business, except that it may
invest in marketable securities secured by real estate or interests therein; (9)
buy securities issued by any other open-end investment company except pursuant
to a merger, acquisition or consolidation; (10) buy or sell oil, gas, or other
mineral leases, commodities or commodity contracts (for this purpose options and
financial futures contracts are not deemed to be commodities or commodity
contracts; (11) with respect to the National Series, buy securities if the
purchase would cause the Series to have more than 5% of its gross assets, at
market value at the time of purchase, invested in securities of any one issuer,
except securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"); (12) buy voting securities if
the purchase would then cause it to own more than 10% of the outstanding voting
stock of any one issuer; (13) own securities of an issuer if, to our knowledge,
our officers and directors or partners of our investment adviser, who
beneficially own more than 1/2 of 1% of the securities of that issuer, together
own more than 5% of such securities; (14) invest more than 25% of its gross
assets taken at market value in any one industry (except that each Series may
invest more than 25% of such gross assets in tax-exempt securities); (15) buy
securities from or sell them to our officers, directors, or employees, or to our
investment adviser or to its partners and employees, other than capital stock of
the Series or (16) issue senior securities as defined in the Act of (neither a
purchase or sale of options nor a collateral arrangement with respect to either
financial futures or the writing of options, all as discussed in the Prospectus
and below, particularly under "Regulatory Restrictions" which refers to the
asset coverage requirements of the Securities and Exchange Commission's Release
No. IC-10666 is deemed to be the issuance of a senior security).
Notwithstanding restrictions 5, 9, 12 and 14 above, in the future, upon
shareholder approval, each of the Series may seek to achieve its investment
objective by investing all of its assets in another investment company (or
series or class thereof) having the same investment objective. Shareholders will
be notified thirty days in advance of such conversion. In the event the Fund
creates other series or Series classes, shareholders of each Series will be able
to exchange Series shares for shares of the other Fund series and/or Series
classes.
While each of the Series may take short-term gains if deemed appropriate,
normally the Series will hold securities in order to realize interest income
exempt from federal income tax and, where applicable, its state's personal
income tax, consistent with preservation of capital. For the year ended
September 30, 1994, the portfolio turnover rates for the National, New York,
Texas, New Jersey, Connecticut, Missouri, Hawaii and Washington Series were
184.07%, 149.13%, 96.79%, 75.62%, 97.42%, 50.59%, 66.04% and 137.74%,
respectively. For the year ended September 30, 1993, the portfolio turnover
rates for the National, New York, Texas, New Jersey, Connecticut, Missouri,
Hawaii and Washington Series were 138.06%, 101.59%, 58.10%, 88.29%, 45.81%,
56.20%, 34.49% and 85.45%, respectively.
The liquidity of a Rule 144A security will be a determination of fact for which
the Board of Directors is ultimately responsible. However, the Directors may
delegate the day-to-day function of such determinations to Lord Abbett, subject
<PAGE>
to the Directors' oversight. Examples of factors which the Directors may take
into account with respect to a Rule 144A security include the frequency of
trades and quotes for the security, the number of dealers willing to purchase or
sell the security and the number of other potential purchasers, dealer
undertakings to make a market in the security and the nature of the security and
the nature of the marketplace (e.g., the time period needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer). Rule
144A securities may be considered illiquid in certain circumstances to the
extent necessary to comply with applicable state law requirements.
OTHER INVESTMENT RESTRICTIONS(WHICH CAN BE CHANGED WITHOUT SHAREHOLDER APPROVAL)
- --------------------------------------------------------------------------------
Pursuant to Texas regulations, no Series will invest more than 5% of its net
assets in warrants or more than 2% in warrants not listed on the New York or
American Stock Exchanges, except when they form a unit with other securities. As
a matter of operating policy, no Series will invest more than 5% of its net
assets in rights.
To the extent that any of the Series are sold in the State of California, such
Series will conform to the requirements set forth in Rule 260.140.85(b) of the
California Code of Regulations with respect to futures and options transactions.
MUNICIPAL BONDS
- ---------------
In general, municipal bonds are debt obligations issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and Puerto Rico and by their political subdivisions, agencies and
instrumentalities. Municipal bonds are issued to obtain funds for various public
purposes, including the construction of bridges, highways, housing, hospitals,
mass transportation, schools, streets and water and sewer works. They may be
used to refund outstanding obligations, to obtain funds for general operating
expenses, or to obtain funds to lend to other public institutions and facilities
and in anticipation of the receipt of revenue or the issuance of other
obligations. In addition, the term "municipal bonds" includes certain types of
"private activity" bonds including industrial development bonds issued by public
authorities to obtain funds to provide privately-operated housing facilities,
sports facilities, convention or trade show facilities, airport, mass transit,
port or parking facilities, air or water pollution control facilities and
certain facilities for water supply, gas, electricity, or sewerage or solid
waste disposal. Under the Tax Reform Act of 1986, as amended, substantial
limitations have been imposed on new issues of municipal bonds to finance
privately-operated facilities. The interest on municipal bonds generally is
excludable from gross income for federal income tax purposes of most investors.
The two principal classifications of municipal bonds are "general obligation"
and limited obligation or "revenue bonds." General obligation bonds are secured
by the pledge of the faith, credit and taxing power of the municipality for the
payment of principal and interest. The taxes or special assessments that can be
levied for the payment of debt service may be limited or unlimited as to rate or
amount. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source. "Private activity" bonds,
including industrial development bonds are, in most cases, revenue bonds and
generally do not constitute the pledge of the faith, credit or taxing power of
the municipality. The credit quality of such municipal bonds usually is directly
related to the credit standing of the user of the facilities. There are
variations in the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous factors.
The yields on municipal bonds are dependent on a variety of factors, including
general money market conditions, supply and demand, general conditions of the
municipal bond market, size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation ("Standard &
Poor's") and Fitch Investors Service ("Fitch") represent their opinions as to
the quality of the municipal bonds which they undertake to rate. It should be
emphasized, however, that such ratings are general and are not absolute
standards of quality. Consequently, municipal bonds with the same maturity,
coupon and rating may have different yields when purchased in the open market,
while municipal bonds of the same maturity and coupon with different ratings may
have the same yield.
DESCRIPTION OF FOUR HIGHEST MUNICIPAL BOND RATINGS
- --------------------------------------------------
Moody's describes its four highest ratings for municipal bonds as follows:
"Bonds that are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
<PAGE>
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities. Bonds which are
rated A possess many favorable investment attributes and are to be considered as
upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
Bonds that are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well."
Standard & Poor's describes its four highest ratings for municipal bonds as
follows:
"AAA: Debt rated 'AAA' has the highest rating assigned by S & P. Capacity to and
pay interest and repay principal is extremely strong
AA: Debt rated 'AA' has a very strong capacity to pay interest and repay
principals and differs from the highest rated issues only in small degree.
A: Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Fitch's describes its four highest ratings for municipal bonds as follows:
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and
'AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt to these issuers is generally rated 'F-1+'.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payments. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS
- ------------------------------------------
GENERAL. Each Series may engage in options and financial futures transactions
- -------
in accordance with its investment objective and policies. Although none of the
Series are currently employing such options and financial futures transactions,
<PAGE>
and have no current intention of doing so, each may engage in such transactions
in the future if it appears advantageous to the Series to do so, in order to
hedge against the effects of fluctuating interest rates and other market
conditions or to stabilize the value of the Series' assets. The use of options
and financial futures, and possible benefits and attendant risks, are discussed
below, along with information concerning certain other investment policies and
techniques.
FINANCIAL FUTURES CONTRACTS. Each Series may enter into financial futures
- -----------------------------
contracts for the future delivery of a financial instrument, such as a security
or the cash value of a securities index. This investment technique is designed
primarily to hedge (i.e., protect) against anticipated future changes in
interest rates or market conditions which otherwise might adversely affect the
value of securities which a Series holds or intends to purchase. A "sale" of a
futures contract means the undertaking of a contractual obligation to deliver
the securities or the cash value of an index called for by the contract at a
specified price during a specified delivery period. A "purchase" of a futures
contract means the undertaking of a contractual obligation to acquire the
securities or cash value of an index at a specified price during a specified
delivery period. At the time of delivery in the case of fixed- income securities
pursuant to the contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest rate than that
specified in the contract. In some cases, securities called for by a futures
contract may not have been issued at the time the contract was written. A Series
will not enter into any futures contracts or options on futures contracts if the
aggregate of the market value of the outstanding futures contracts of the Series
and futures contracts subject to the outstanding options written by the Series
would exceed 50% of the total assets of the Series.
Although some financial futures contracts by their terms call for the actual
delivery or acquisition of securities, in most cases, a party will close out the
contractual commitment before delivery without having to make or take delivery
of the security by purchasing (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, if effected through a member of an exchange, cancels the
obligation to make or take delivery of the securities. All transactions in the
futures market are made, offset or fulfilled through a clearing house associated
with the exchange on which the contracts are traded. The Series will incur
brokerage fees when they purchase or sell contracts and will be required to
maintain margin deposits. At the time a Series enters into a futures contract,
it is required to deposit with its custodian, on behalf of the broker, a
specified amount of cash or eligible securities called "initial margin." The
initial margin required for a futures contract is set by the exchange on which
the contract is traded. Subsequent payments, called "variation margin," to and
from the broker are made on a daily basis as the market price of the futures
contract fluctuates. The costs incurred in connection with futures transactions
could reduce a Series' return. Futures contracts entail risks. If the investment
adviser's judgment about the general direction of interest rates or markets is
wrong, the overall performance may be poorer than if no such contracts had been
entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio securities being hedged. The degree of difference in
price movements between futures contracts and the securities being hedged
depends upon such things as variations in speculative market demand for futures
contracts and debt securities and differences between the securities being
hedged and the securities underlying the futures contracts, e.g., interest
rates, tax status, maturities and creditworthiness of issuers. While interest
rates on taxable securities generally move in the same direction as the interest
rates on municipal bonds, there are frequently differences in the rate of such
movements and temporary dislocations. Accordingly, the use of a financial
futures contract on a taxable security or a taxable securities index may involve
a greater risk of an imperfect correlation between the price movements of the
futures contract and of the municipal bond being hedged than when using a
financial futures contract on a municipal bond or a municipal bond index. In
addition, the market prices of futures contracts may be affected by certain
factors. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin requirements,
distortions in the normal relationship could result. Price distortions also
could result if investors in futures contracts decide to make or take delivery
of underlying securities rather than engage in closing transactions because of
the resultant reduction in the liquidity of the futures market. In addition,
because, from the point of view of speculators, margin requirements in the
futures market are less onerous than margin requirements in the cash market,
increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of market trends by the investment adviser still may not result in a
successful hedging transaction. If any of these events should occur, a Series
could lose money on the financial futures contracts and also on the value of its
portfolio securities.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. Each Series may purchase and write call
- --------------------------------------
and put options on financial futures contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. A Series would be required
to deposit with its custodian initial margin and maintenance margin with respect
to put and call options on futures contracts written by it. Options on futures
contracts involve risks similar to the risks relating to transactions in
financial futures contracts described above. Also, an option purchased by a
Series may expire worthless, in which case the Series would lose the premium
paid therefor.
OPTIONS ON SECURITIES. Each Series may write (sell) covered call options on
- ----------------------
securities so long as it owns securities which are acceptable for escrow
purposes and may write secured put options on securities, which means that, so
long as a Series is obligated as a writer of a put option, it will invest an
amount not less than the exercise price of the put option in eligible
securities. A call option gives the purchaser the right to buy, and the writer
the obligation to sell, the underlying security at the exercise price during the
option period. A put option gives the purchaser the right to sell, and the
writer has the obligation to buy, the underlying security at the exercise price
during the option period. The premium received for writing an option will
reflect, among other things, the current market price of the underlying
security, the relationship of the exercise price to such market price, the price
volatility of the underlying security, the option period, supply and demand and
interest rates. A Series may write or purchase spread options which are options
for which the exercise price may be a fixed- dollar spread or yield spread
between the security underlying the option and another security it does not own,
but which is used as a benchmark. The exercise price of an option may be below,
equal to, or above the current market value of the underlying security at the
time the option is written. The buyer of a put who also owns the related
security is protected by ownership of a put option against any decline in that
security's price below the exercise price less the amount paid for the option.
The ability to purchase put options allows a Series to protect capital gains in
an appreciated security it owns, without being required to actually sell that
security. At times a Series might like to establish a position in securities
upon which call options are available. By purchasing a call option, the Series
is able to fix the cost of acquiring the security, this being the cost of the
call plus the exercise price of the option. This procedure also provides some
protection from an unexpected downturn in the market because the Series is only
at risk for the amount of the premium paid for the call option which it can, if
it chooses, permit to expire.
During the option period, the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain and the buyer a loss in the amount of
the premium. If the covered call option writer has to sell the underlying
security because of the exercise of the call option, the writer realizes a gain
or loss from the sale of the underlying security, with the proceeds being
increased by the amount of the premium.
If a secured put option expires unexercised, the writer realizes a gain and the
buyer a loss in the amount of the premium. If the secured put writer has to buy
the underlying security because of the exercise of the put option, the secured
put writer incurs an unrealized loss to the extent that the current market value
of the underlying security is less than the exercise price of the put option,
minus the premium received.
OVER-THE-COUNTER OPTIONS. As indicated in the Prospectus, each Series may deal
- -------------------------
in over-the-counter traded options ("OTC options"). OTC options differ from
exchange-traded options in several respects. They are transacted directly with
dealers and not with a clearing corporation and there is a risk of
nonperformance by the dealer as a result of the insolvency of such dealer or
otherwise, in which event, the Series may experience material losses. However,
in writing options, the premium is paid in advance by the dealer. OTC options
are available for a greater variety of securities, and a wider range of
expiration dates and exercise prices, than are exchange-traded options. Since
there is no exchange, pricing normally is done by reference to information from
market makers, which information is carefully monitored by the Series'
investment adviser and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there can be
no assurance that a continuous liquid secondary market will exist for any
particular option at any given time. Consequently, a Series may be able to
realize the value of an OTC option it has purchased only by exercising it or
entering into a closing sale transaction with the dealer that issued it.
Similarly, when a Series writes an OTC option, generally it can close out that
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Series originally wrote it. If a
covered call option writer cannot effect a closing transaction, it cannot sell
the underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
also might find it difficult to terminate its position on a timely basis in the
absence of a secondary market.
The Fund understands the position of the staff of the Securities and Exchange
Commission ("SEC") to be that purchased OTC options and the assets used as
"cover" for written OTC options are illiquid securities. The Fund and its
investment adviser disagree with this position and believe that the dealers with
which they intend to engage in OTC options transactions generally are agreeable
to and capable of entering into closing transactions. The Fund has adopted
procedures for engaging in OTC options for the purpose of reducing any potential
adverse effect of such transactions upon the liquidity of a Series' portfolio. A
brief description of such procedures is set forth below.
The Series only will engage in OTC options transactions with dealers that have
been specifically approved by the Board of Directors of the Fund. The Series and
their investment adviser believe that such dealers present minimal credit risks
to the Series and, therefore, should be able to enter into closing transactions
if necessary. The Series currently will not engage in OTC options transactions
if the amount invested by the Series in OTC options plus a "liquidity charge"
related to OTC options written by the Fund, plus the amount invested by the Fund
in illiquid securities, would exceed 10% of the Fund's net assets. The
"liquidity charge" referred to above is computed as described below.
The Fund anticipates entering into agreements with dealers to which the Series
sell OTC options. Under these agreements a Series would have the absolute right
to repurchase the OTC options from the dealer at any time at a price no greater
than a price established under the agreements (the "Repurchase Price"). The
"liquidity charge" referred to above for a specific OTC option transaction will
be the Repurchase Price related to the OTC option less the intrinsic value of
the OTC option. The intrinsic value of an OTC call option for such purposes will
be the amount by which the current market value of the underlying security
exceeds the exercise price. In the case of an OTC put option, intrinsic value
will be the amount by which the exercise price exceeds the current market value
of the underlying security. If there is no such agreement requiring a dealer to
allow a Series to repurchase a specific OTC option written by the Series, the
"liquidity charge" will be the current market value of the assets serving as
"cover" for such OTC option.
OPTIONS ON SECURITIES INDICES. Each Series also may purchase and write call and
- -----------------------------
put options on securities indices in an attempt to hedge against market
conditions affecting the value of securities that the Series owns or intends to
purchase, and not for speculation. Through the writing or purchase of index
options, a Series can achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash, if the closing level of the securities index upon which the option is
based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
option. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Unlike security options, all
settlements are in cash and gain or loss depends upon price movements in the
market generally (or in a particular industry or segment of the market), rather
than upon price movements in individual securities. Price movements in
securities which a Series owns or intends to purchase probably will not
correlate perfectly with movements in the level of an index and, therefore, the
Series bears the risk that a loss on an index option would not be completely
offset by movements in the price of such securities.
When a Series writes an option on a securities index, it will be required to
deposit with its custodian and mark-to-market eligible securities equal in value
to at least 100% of the exercise price in the case of a put or the contract
value in the case of a call. In addition, where a Series writes a call option on
a securities index at a time when the contract value exceeds the exercise price,
the Series will segregate and mark-to-market until the option expires or is
closed out, cash or cash equivalents equal in value to such excess.
<PAGE>
Options on futures contracts and index options involve risks similar to those
risks relating to transactions in financial futures contracts described above.
Also, an option purchased by a Series may expire worthless, in which case the
Series would lose the premium paid therefor.
DELAYED DELIVERY TRANSACTIONS. Each Series may purchase or sell portfolio
- -------------------------------
securities on a when-issued or delayed delivery basis. When-issued or delayed
delivery transactions involve a commitment by the Series to purchase or sell
securities with payment and delivery to take place in the future in order to
secure what is considered to be an advantageous price or yield to the Series at
the time of entering into the transaction. When a Series enters into a delayed
delivery purchase, it becomes obligated to purchase securities and it has all
the rights and risks attendant to ownership of a security, although delivery and
payment occur at a later date. The value of fixed- income securities to be
delivered in the future will fluctuate as interest rates vary. At the time the
Series makes the commitment to purchase a security on a when-issued or delayed
delivery basis, it will record the transaction and reflect the liability for the
purchase and the value of the security in determining its net asset value.
Likewise, at the time the Series makes the commitment to sell a security on a
delayed delivery basis, it will record the transaction and include the proceeds
to be received in determining its net asset value; accordingly, any fluctuations
in the value of the security sold pursuant to a delayed delivery commitment are
ignored in calculating net asset value so long as the commitment remains in
effect. The Series, generally, have the ability to close out a purchase
obligation on or before the settlement date rather than take delivery of the
security.
To the extent the Series engage in when-issued or delayed delivery purchases,
they will do so for the purpose of acquiring portfolio securities consistent
with the Series' investment objectives and policies and not for investment
leverage or to speculate in interest rate changes. The Series only will make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Series reserve
the right to sell these securities before the settlement date if deemed
advisable.
REGULATORY RESTRICTIONS. To the extent required to comply with Securities and
- ------------------------
Exchange Commission Release No. IC-10666, when purchasing a futures contract,
writing a put option or entering into a delayed delivery purchase, each Series
will maintain, in a segregated account, cash or liquid high-grade debt
securities equal to the value of such contracts.
To the extent required to comply with Commodities Futures Trading Commission
Regulation 4.5 and thereby avoid "commodity pool operator" status, no Series
will enter into a futures contract or purchase an option thereon if immediately
thereafter the initial margin deposits for futures contracts held by the Series
plus premiums paid by it for open options on futures would exceed 5% of the
Series' total assets. A Series will not engage in transactions in financial
futures contracts or options thereon for speculation, but only to attempt to
hedge against changes in market conditions affecting the values of securities
which the Series holds or intends to purchase. When futures contracts or options
thereon are purchased to protect against a price increase on securities intended
to be purchased later, it is anticipated that at least 75% of such intended
purchases will be completed. When other futures contracts or options thereon are
purchased, the underlying value of such contracts at all times will not exceed
the sum of: (1) accrued profits on such contracts held by the broker; (2) cash
or high-quality money market instruments set aside in an identifiable manner and
(3) cash proceeds from investments due in 30 days.
2.
Directors and Officers
The following directors are partners of Lord, Abbett & Co. ("Lord Abbett"), The
General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. They
have been associated with Lord Abbett for over five years and also are officers
and/or directors or trustees of the fifteen other Lord Abbett-sponsored funds
(except for Messrs. Dow and Nordberg, who are not directors of Lord Abbett
Research Fund, Inc.) including those described under "Purchases, Redemptions and
Shareholder Services." They are "interested persons" as defined in the
Investment Company Act of 1940, as amended, and as such, may be considered to
have an indirect financial interest in the Rule 12b-1 Plan described in the
Prospectus.
Ronald P. Lynch, Chairman and President
Robert S. Dow, Vice President
E. Wayne Nordberg, Vice President
<PAGE>
The following outside directors are also directors or trustees of the fifteen
other Lord Abbett-sponsored funds referred to above except for Lord Abbett
Research Fund, Inc. of which only Messrs. Millican and Neff are directors.
E. Thayer Bigelow
Time Warner Cable
300 First Stamford Place
Stamford, CT 06902
President and Chief Executive Officer of Time Warner Cable Programming, Inc.
Formerly President and Chief Operating Officer of Home Box Office, Inc.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon.
John C. Jansing
162 South Beach Road
Hobe Sound, Florida
Retired. Formerly Chairman of Independent Election Corporation of America, a
proxy tabulating firm.
C. Alan MacDonald
The Noel Group
Two Greenwich Plaza, Suite 100
Greenwich, Connecticut
Acquisition Consultant, The Noel Group, a private consulting firm. Formerly
Chairman and Chief Executive Officer of Lincoln Foods, Inc., manufacturer of
branded snack foods. Formerly President and Chief Executive Officer of Nestle
Foods Corporation, a subsidiary of Nestle S.A. (Switzerland).
Hansel B. Millican, Jr.
Rochester Button Company
1100 Noblin Avenue
South Boston, Virginia
President and Chief Executive Officer of Rochester Button Company. Formerly
Senior Vice President, Springs Industries, Inc., a textile company, (1986-1989).
Thomas J. Neff
55 East 52nd Street
New York, New York
President of Spencer Stuart & Associates, an executive search consulting firm.
Effective September 21, 1994, Thomas F. Creamer retired as a director of the
Fund.
For the fiscal year ended September 30, 1994, the Fund accrued for all outside
directors as a group, directors' fees totaling $63,370 (exclusive of expenses).
This amount has been deemed invested in shares of the Fund under a deferred
compensation plan for later distribution to the outside directors. The Fund has
adopted a retirement plan under which the outside directors receive an annual
retirement benefit equal to 80% of their final annual retainer following
retirement at or after age 72 with at least 10 years of service. This plan also
provides for a reduced benefit upon early retirement under certain circumstances
and a preretirement death benefit. For the year ended September 30, 1994, the
Fund accrued $18,556 for the payment of benefits under this plan.
Except where indicated, the following executive officers have been associated
with Lord Abbett for over five years. Of these officers, Messrs. Allen, Carper,
Cutler, Henderson and Walsh are partners and the others are employees: Barbara
A. Grummel (with Lord Abbett since 1990 - formerly Vice President, Merrill Lynch
Asset Management); John Mousseau (with Lord Abbett since 1993 - formerly First
Vice President, Shearson Lehman Brothers), Executive Vice Presidents; Philip
Fang (with Lord Abbett since 1991 - formerly Municipal Evaluator for Muller &
Co.), Executive Vice President; Stephen I. Allen, Daniel E. Carper, Vice
President; Kenneth B. Cutler, Vice President and Secretary; Thomas S. Henderson,
John J. Walsh, John J. Gargana, Jr., Jeffery H. Boyd (with Lord Abbett since
1994 - formerly partner in the law firm of Robinson & Cole), Thomas F. Konop, E.
Wayne Nordberg and Victor W. Pizzolato, Vice Presidents; and Keith F. O'Connor,
Treasurer.
The Fund does not hold regular annual meetings of shareholders. Under the Fund's
By-laws shareholder meetings may be called at any time by certain officers of
the Fund or by a majority of the Board of Directors (i) for the purpose of
taking action upon any matter requiring the vote or authority of the Fund's
shareholders or upon other matters deemed to be necessary or desirable or (ii)
upon the written request of the holders of at least one-quarter of the shares of
the Fund outstanding and entitled to vote at the meeting. When any such annual
meeting is held, the shareholders will elect directors and select independent
auditors of the Fund.
As of October 31, 1994, our officers and directors as a group owned less than 1%
of our outstanding shares.
Investment Advisory and Other Services
As described under "Our Management" in the Prospectus, Lord Abbett is the Fund's
investment manager. The eight general partners of Lord Abbett, all of whom are
officers and/or directors of the Fund, are: Stephen I. Allen, Daniel E. Carper,
Kenneth B. Cutler, Robert S. Dow, Thomas S. Henderson, Ronald P. Lynch, E. Wayne
Nordberg and John J. Walsh. The address of each partner is The General Motors
Building, 767 Fifth Avenue, New York, New York 10153- 0203.
The services performed by Lord Abbett are described under "Our Management" in
the Prospectus. Under both Management Agreements described in the Prospectus, we
are obligated to pay Lord Abbett a monthly fee, based on average daily net
assets of each Series for each month, at the annual rate of .5 of 1%. In
addition, we pay all expenses not expressly assumed by Lord Abbett, including
without limitation, 12b-1 expenses; outside directors' fees and expenses;
association membership dues; legal and auditing fees; taxes; transfer and
dividend disbursing agent fees; shareholder servicing costs; expenses relating
to shareholder meetings; expenses of preparing, printing and mailing stock
certificates and shareholder reports; expenses of registering our shares under
federal and state securities laws; expenses of preparing, printing and mailing
prospectuses to existing shareholders; insurance premiums and brokerage and
other expenses connected with executing portfolio transactions.
For the fiscal years ended September 30, 1992 ,1993 and 1994, the management
fees paid to Lord Abbett for the National Series amounted to $2,356,769,
$3,127,152 and $3,480,257, respectively, and for the New York Series $1,314,982,
$1,718,608 and $1,831,676, respectively.
Although not obligated to do so, Lord Abbett has waived or may waive, all or
part of its management fees and has assumed or may assume, other expenses of the
Connecticut, Hawaii, Minnesota, Missouri, New Jersey, Texas and Washington
Series. For the fiscal years ended September 30, 1992 , 1993 and 1994, Lord
Abbett waived $456,314, $699,078 and $615,642 in New Jersey Series management
fees and assumed $36,253 of other expenses for the fiscal year 1992. For the
fiscal years September 30, 1992, 1993 and 1994, Lord Abbett waived $334,460,
$385,097 and $400,148, of the Texas Series' management fees, respectively. For
the fiscal years ended September 30, 1992 and 1993, the management fees paid to
Lord Abbett by the Texas Series amounted to $81,166 and $98,172 respectively.
With respect to the Connecticut Series, for the fiscal years ended September 30,
1992, 1993 and 1994, Lord Abbett waived $198,594, $362,661 and $381,757,
respectively, in management fees and assumed $16,836 of other expenses for the
fiscal year 1992. With respect to the Missouri Series, for the fiscal years
ended September 30, 1992, 1993 and 1994, Lord Abbett waived $226,481, $374,551
and $364,906, respectively, in management fees and assumed $14,904 of other
expenses for the fiscal year 1992.
For the fiscal year ended September 30, 1994 the management fees paid to Lord
Abbett by the Series indicated were $324,732 (New Jersey), $137,767 (Texas),
$131,324 (Connecticut), $218,967 (Missouri), $38,975 (Hawaii) and $94,261
(Washington).
For the period October 28, 1991 (commencement of operations) to September 30,
1992 and for the fiscal years ended September 30, 1993 and 1994, Lord Abbett
waived $116,404, $348,988 and $433,616, respectively, in Hawaii Series'
management fees and assumed $55,146 of other expenses for the fiscal year 1992.
Lord Abbett may pay or reimburse the Hawaii Series for certain of its other
expenses. Any such expenses have been repaid to Lord Abbett by the Hawaii Series
pursuant to a formula based on the expense ratio of the Hawaii Series. From
April 15, 1992 (commencement of operations) to September 30, 1992 and for the
fiscal year ended September 30, 1993 and 1994, Lord Abbett waived $63,031,
$298,656 and $313,694, respectively, in Washington Series' management fees and
assumed $39,597, $0 and $0 respectively, of other expenses. Lord Abbett may pay
or reimburse the Washington Series for certain of its other expenses. Any such
expenses have been repaid to Lord Abbett by the Washington Series pursuant to a
formula based on the expense ratio of the Washington Series.
Lord Abbett has given the Fund the right to use the identifying name "Lord
Abbett" and this right may be withdrawn if Lord Abbett ceases to be the Fund's
investment manager.
Lord Abbett serves as the principal underwriter for each Series.
The State of California limits our operating expenses (including management fees
but excluding taxes, interest, extraordinary expenses and brokerage commissions)
to 2 1/2% of average annual net assets up to $30,000,000, 2% of the next
$70,000,000 of such assets and 1 1/2% of such assets in excess of $100,000,000.
The expense limitation is a condition of the registration of investment company
shares for sale in the State, and applies so long as our shares are registered
for sale in that state. Lord Abbett's management fee will be allocated to each
Series based on average daily net assets, and any expense reimbursement will be
credited to the Series whose expenses exceeded the limitation.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281, are
the independent auditors of the Fund and must be approved at least annually by
our Board of Directors to continue in such capacity. They perform audit services
for the Fund including the audit of financial statements included in our annual
report to shareholders.
Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York
10005, serves as the Fund's custodian.
4.
Portfolio Transactions
Our policy is to have purchases and sales of portfolio securities executed at
the most favorable prices, considering all costs of the transaction, including
brokerage commissions and dealer markups and markdowns, consistent with
obtaining best execution except to the extent we may pay a higher commission as
described below. This policy governs the selection of brokers or dealers and the
market in which the transaction is executed. To the extent permitted by law, we
may, if considered advantageous, make a purchase from or sale to another Lord
Abbett-sponsored fund without the intervention of any broker-dealer.
We expect that most purchases and sales of portfolio securities will be
principal transactions. Portfolio securities normally will be purchased directly
from the issuer or from an underwriter or marketmaker for the securities. We
usually will pay no brokerage commissions for such purchases. Purchases from
underwriters of portfolio securities will be at a fixed price which will include
fees paid to the underwriter, and purchases from dealers serving as marketmakers
will include a dealer's markup.
We select broker-dealers on the basis of their professional capability and the
value and quality of their brokerage and research services. Normally, the
selection is made by our traders, who are officers of the Fund and also
employees of Lord Abbett. Our traders do the trading as well for other accounts
- -- investment companies (of which they are also officers) and other clients --
managed by Lord Abbett. They are responsible for the negotiation of prices and
commissions.
<PAGE>
A broker may receive a commission for portfolio transactions exceeding the
amount another broker would have charged for the same transaction if Lord Abbett
determines that such amount of commission is reasonable in relation to the value
of the brokerage and research services performed by the executing broker viewed
either in terms of the particular transaction or its overall responsibilities
with respect to us and other accounts managed by Lord Abbett. Brokerage services
may include such factors as showing us trading opportunities including blocks,
willingness and ability to take positions in securities, knowledge of a
particular security or market, proven ability to handle a particular type of
trade, confidential treatment, promptness, reliability and quotation and pricing
services. Research may include the furnishing of analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. Such research may be used by Lord Abbett in
servicing all their accounts and not all of such research will necessarily be
used by Lord Abbett in connection with their services to us; conversely,
research furnished in connection with brokerage of other accounts managed by
Lord Abbett may be used in connection with their services to us and not all of
such research will necessarily be used by Lord Abbett in connection with their
services to such other accounts. We have been advised by Lord Abbett that,
although such research is often useful, no dollar value can be ascribed to it
nor can it be accurately ascribed or allocated to any account and it is not a
substitute for services provided by them to us; nor does it materially reduce or
otherwise affect the expenses incurred by Lord Abbett in the performance of such
services. We make no commitments regarding the allocation of brokerage business
to or among dealers.
If two or more broker-dealers are considered capable of offering the equivalent
likelihood of best execution, the broker-dealer who has sold our shares and/or
shares of other Lord Abbett-sponsored funds may be preferred.
If other clients of Lord Abbett buy or sell the same security at the same time
we do, transactions will, to the extent practicable, be allocated among all
participating accounts in proportion to the amount of each order and will be
executed daily until filled so that each account shares the average price and
commission cost of each day.
We will not seek "reciprocal" dealer business (for the purpose of applying
commissions in whole or in part for our benefit or otherwise) from dealers as
consideration for the direction to them of portfolio business.
During the fiscal years ending September 30, 1994, 1993 and 1992, we paid no
commissions to independent dealers.
5.
Purchases, Redemptions
and Shareholder Services
Information concerning how we value our shares for the purchase and redemption
or repurchase of our shares is contained in the Prospectus under "Purchases" and
"Redemptions" respectively.
As disclosed in the Prospectus, we calculate our net asset value and are
otherwise open for business on each day that the New York Stock Exchange
("NYSE") is open for trading. The NYSE is closed on Saturdays and Sundays and
the following holidays -- New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
Securities in our portfolio are valued at their market value as of the close of
the NYSE. Market value will be determined as follows: securities listed or
admitted to trading privileges on the New York or American Stock Exchange or on
the NASDAQ National Market System are valued at the last sales price, or, if
there is no sale on that day, at the mean between the last bid and asked prices,
or, in the case of bonds, in the over-the-counter market if, in the judgment of
the Funds's officers, that market more accurately reflects the market value of
the bonds. Over-the-counter securities not traded on the NADAQ National Market
System market are valued at he mean between the last bid and asked prices.
Securities for which market quotations are not available are valued at fair
market value under procedures approved by the Trustees.
Although our shares are continuously offered, we are under no obligation to
maintain the offering or its terms and the offering may be suspended, changed or
withdrawn. The sales agreements between Lord Abbett and independent securities
dealers provide that all orders are subject to acceptance in New York and that
the right is reserved to reject any order.
<PAGE>
The maximum offering prices of our shares on September 30, 1994 were computed as
follows:
<TABLE>
<CAPTION>
National New York Texas Connecticut
SERIES SERIES SERIES SERIES
------ -------- ------ ------------
<S> <C> <C> <C> <C>
Net asset value per
share (net assets
divided by shares
outstanding) $10.62 $10.54 $9.59 $9.71
Maximum offering
price per share
(net asset value
divided by .9525) $11.15 $11.07 $10.07 $10.19
Missouri Minnesota New Jersey Hawaii Washington
SERIES SERIES SERIES SERIES SERIES
-------- --------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Net asset value per
share (net assets
divided by shares
outstanding) $4.88 $4.762 $4.95 $4.72 $4.72
Maximum offering
price per share
(net asset value
divided by .9525) $5.12 $5.00 $5.20 $4.96 $4.96
</TABLE>
The Minnesota Series intends to commence operations on December 27, 1994. Net
asset value and maximum offering price per share are shown for this series
estimated as of such date.
The Fund has entered into a distribution agreement with Lord Abbett under which
Lord Abbett is obligated to use its best efforts to find purchasers for the
shares of the Fund, and to make reasonable efforts to sell Fund shares so long
as, in Lord Abbett's judgment, a substantial distribution can be obtained by
reasonable efforts.
For our last three fiscal years, Lord Abbett as our principal underwriter
received net commissions after allowance of a portion of the sales charge to
independent dealers as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
SEPT. 30, 1994 SEPT. 30, 1993 SEPT. 30, 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Gross sale $9,325,629 $15,646,506 $18,902,867
Amount allowed
to dealers $8,113,864 13,527,446 16,657,963
Net Commissions received
by Lord Abbett $1,211,765 $ 2,119,060 $ 2,244,904
========== ============ ===========
</TABLE>
As described in the Prospectus, each Series has adopted a Distribution Plan and
Agreement (a "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended. With respect to the Washington and Minnesota Plan, as
described in the Prospectus, the Plan must reach a specific asset level before
becoming effective. In adopting a Plan for each Series and in approving its
continuance, the Board of Directors has concluded that, based on information
provided by Lord Abbett, there is a reasonable likelihood that each Plan will
benefit each Series and its shareholders. The expected benefits include greater
sales, lower redemptions of Series shares and a higher quality of service to
shareholders by dealers than otherwise would be the case. Lord Abbett is
required to use all amounts received under each Plan for payments to dealers for
(i) providing continuous services to the Series' shareholders, such as answering
shareholder inquiries, maintaining records and assisting shareholders in making
redemptions, transfers, additional purchases and exchanges and (ii) their
assistance in distributing shares of the Series.
The fees payable under the Plans are described in the Prospectus. For the fiscal
year ended September 30, 1994 fees paid to dealers were as follows: National
Series - $1,778,410; New York Series - $810,546; Texas Series - $284,625; New
Jersey Series - $401,469; Connecticut Series - $251,770; Missouri Series -
$299,677 and Hawaii Series - $230,344. Each Plan requires the Board of Directors
to review, on a quarterly basis, written reports of all amounts expended
pursuant to the Plan and the purposes for which such expenditures were made.
Each Plan shall continue in effect only if its continuance is specifically
approved at least annually by vote of the Board of Directors and of the
directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related to the Plan ("outside directors"), cast in person at a meeting called
for the purpose of voting on the Plan and Agreements. No Plan may be amended to
increase materially the amount spent for distribution expenses without approval
by a majority of the outstanding voting securities of the Plan's Series and the
approval of a majority of the directors, including a majority of the outside
directors. Each Plan may be terminated at any time by vote of a majority of the
outside directors or by vote of the holders of a majority of the outstanding
voting securities of that Plan's Series.
As stated in the Prospectus, a 1% "contingent deferred reimbursement charge"
("CDRC") will be imposed with respect to those shares (or shares in another Lord
Abbett fund or series acquired through exchange of such shares) on which a
Series has paid the one-time 1% 12b-1 sales distribution fee if such shares are
redeemed out of the Lord Abbett family of funds within a period 24 months from
the end of the month in which the original sale occurred. The CDRC will be
received by a Series and is intended to reimburse all or a portion of the amount
paid by a Series if the shares are redeemed before a Series has had an
opportunity to realize the anticipated benefits of having a large, long-term
account in a Series. Shares of a Fund or Series on which such 1% sales
distribution fee has been paid may not be exchanged into a fund or series with a
Rule 12b-1 Plan for which the payment provisions have not been in effect for at
least one year.
The other Lord Abbett-sponsored funds which participate in the Telephone
Exchange Privilege (except Lord Abbett U.S. Government Securities Money Market
Fund ("GSMMF"), as well as certain series of Lord Abbett Tax-Free Income Trust
and the Washington and Minnesota Series mentioned above whose plans has not yet
become effective collectively, the "Series") have instituted a CDRC on the same
terms and conditions. No CDRC will be charged on an exchange of shares between
Lord Abbett funds. Upon redemption out of the Lord Abbett family of funds the
CDRC will be charged on behalf of and paid to the Lord Abbett fund in which the
original purchase (subject to a CDRC) occurred. Thus, if shares of a Lord Abbett
fund are exchanged for shares of another such fund and the shares tendered
("Exchanged Shares") are subject to a CDRC, the CDRC will carry over to the
shares being acquired, including shares of each Series and GSMMF ("Acquired
Shares"). Any CDRC that is carried over to Acquired Shares is calculated as if
the holder of Acquired Shares had held those shares from the date on which he or
she became the holder of Exchanged Shares. Although GSMMF and the Series will
not pay a 1% sales distribution fee on $1 million purchases of their own shares
and, therefore, will not impose their own CDRC, they will collect the CDRC on
behalf of other Lord Abbett funds or series. Acquired shares held in GSMMF and
the Series which are subject to a CDRC will be credited with the time such
shares are held in that fund.
In no event will the amount of the CDRC exceed 1% of the lesser of (a) the net
asset value of the shares redeemed or (b) the original cost of such shares (or
if the Exchanged Shares for which such shares were acquired). No CDRC will be
imposed when the investor redeems (i) amounts derived from increases in the
value of the account above the total cost of shares being redeemed due to
increases in net asset value, (ii) shares with respect to which no Lord Abbett
fund paid a 1% sales distribution fee on issuance (including shares acquired
through reinvestment of dividend income and capital gains distributions) or
(iii) shares which, together with Exchanged Shares, have been held continuously
for 24 months from the end of the month in which the original sale occurred. In
determining whether a CDRC is payable, (a) shares not subject to a CDRC will be
deemed redeemed before shares subject to a CDRC and (b) shares subject to a CDRC
and held the longest will be deemed the first to be redeemed.
Under terms of a Statement of Intention to invest $100,000 or more over a
13-month period, as described in the Prospectus, shares of all Lord
Abbett-sponsored funds (other than shares of Lord Abbett Equity Fund ("LAEF"),
Lord Abbett Series Fund ("LASF"), Lord Abbett Research Fund ("LARF"), Lord
Abbett Counsel Group and GSMMF, unless holdings in GSMMF are attributable to
shares exchanged from a Lord Abbett-sponsored fund offered with a sales charge)
currently owned by you are credited as purchases (at their current offering
prices on the date the Statement is signed) toward achieving the stated
investment. Shares valued at 5% of the amount of intended purchases are escrowed
and may be redeemed to cover the additional sales charge payable if the
Statement is not completed. The Statement of Intention is neither a binding
obligation on you to buy, nor on the Fund to sell, the full amount indicated.
As stated in the Prospectus, purchasers (as defined in the Prospectus) may
accumulate their investment in Lord Abbett- sponsored funds (other than LAEF,
LARF, LASF, Lord Abbett Counsel Group and GSMMF, unless holdings in GSMMF are
attributable to shares exchanged from a Lord Abbett-sponsored fund offered with
a sales charge) so that a current investment, plus the purchaser's holdings
valued at the current maximum offering price, reach a level eligible for a
discounted sales charge.
As stated in the Prospectus, our shares may be purchased at net asset value by
our directors, employees of Lord Abbett, employees of our shareholder servicing
agent and employees of any securities dealer having a sales agreement with Lord
Abbett who consents to such purchases. For purposes of this paragraph, the terms
"directors" and " employees" include a director's or employee's spouse
(including the surviving spouse of a deceased director or employee). The terms
"directors" and "employees of Lord Abbett" also include other family members and
retired directors and employees.
Our shares also may be purchased at net asset value (a) at $1 million or more
(subsequent to the effective date of the Rule 12b-1 Plan for any such series),
(b) with dividends and distributions from other Lord Abbett-sponsored funds,
except for dividends and distributions on shares of LARF, LAEF, LASF and Lord
Abbett Counsel Group, (c) by certain authorized brokers, dealers, registered
investment advisers or other financial institutions who have entered into an
agreement with Lord Abbett in accordance with certain standards approved by Lord
Abbett, providing specifically for the use of our shares in particular
investment products made available for a fee to clients of such brokers,
dealers, registered investment advisers and other financial institutions, and
(d) by employees, partners and owners of unaffiliated consultants and advisors
to Lord Abbett or Lord Abbett-sponsored funds who consent to such purchase if
such persons provide service to Lord Abbett or such funds on a continuing basis
and are familiar with such funds. Shares are offered at net asset value to these
investors for the purpose of promoting goodwill with employees and others with
whom Lord Abbett and/or the Fund have business relationships.
Our shares may also be purchased, subject to appropriate documentation, through
a securities dealer where the amount invested represents redemption proceeds
from shares ("Redeemed Shares") of a registered open-ended management investment
company not distributed or managed by Lord Abbett (other than a money market
fund), if such redemption has occurred no more than 60 days prior to the
purchase of our shares, the Redeemed Shares were held for at least six months
prior to redemption and the proceeds of redemption were maintained in cash or a
money market fund prior to purchase. Lord Abbett may suspend, change, or
terminate this option at any time.
Our shares may be issued at net asset value in exchange for the assets, subject
to possible tax adjustment, of a personal holding company or and investment
company. There are economies of selling efforts and sales related expenses with
respect to offers to these investors and those referred to above.
Our shares also may be issued at net asset value plus the applicable sales
charge in exchange for securities for which market quotations are readily
available and which are desired for our portfolios and which have a market value
not less than the net asset value of our shares issued in exchange.
The Prospectus briefly describes the Telephone Exchange Privilege. You may
exchange some or all of your shares for those of Lord Abbett-sponsored funds
currently offered to the public with a sales charge and GSMMF, to the extent
offers and sales may be made in your state. You should read the prospectus of
the other fund before exchanging. In establishing a new account by exchange,
shares of the Fund being exchanged must have a value equal to at least the
minimum initial investment required for the fund into which the exchange is
made.
Shareholders in such other funds have the same right to exchange their shares
for the Fund's shares. Exchanges are base on relative net asset values on the
day instructions are received by the Fund in Kansas City if the instructions are
received prior to the close of the NYSE in proper form. No sales charges are
imposed except in the case of exchanges out of GSMMF (unless a sales charge was
paid on the initial investment). Exercise of the exchange privilege will be
treated as a sale for federal income tax purposes, and, depending on the
circumstances, a gain or loss may be recognized. In the case of an exchange of
shares that have been held for 90 days or less where no sales charge is payable
on the exchange, the original sales charge incurred with respect to the
exchanged shares will be taken into account in determining gain or loss on the
exchange only to the extent such charge exceeds the sales charge that would have
been payable on the acquired shares had they been acquired for cash rather than
by exchange. The portion of the original sales charge not so taken into account
will increase the basis of the acquired shares.
Shareholders have the exchange privilege unless they refuse it in writing. You
should not view the exchange privilege as a means for taking advantage of
short-term swings in the market, and we reserve the right to terminate or limit
the privilege of any shareholder who makes frequent exchanges. We can revoke or
modify the privilege for all shareholders upon 60 days' prior notice. Other Lord
Abbett-sponsored funds are eligible for the exchange privilege , except LASF
which offers its shares only in connection with certain variable annuity
contracts, LAEF which is not issuing shares, LARF and Lord Abbett Counsel Group
(together "Eligible Funds").
A redemption order is in proper form when it contains all of the information and
documentation required by the order form or supplementally by Lord Abbett or the
Fund to carry out the order. The signature(s) and any legal capacity of the
signer(s) must be guaranteed by any eligible guarantor. See the Prospectus for
expedited redemption procedures.
The right to redeem and receive payment, as described in the prospectus, may be
suspended if the NYSE is closed (except for weekends or customary holidays),
trading on the NYSE is restricted or the Securities and Exchange Commission
deems an emergency to exist.
Our Board of Directors may authorize redemption of all shares in any account in
which there are fewer than 25 shares. Before authorizing such redemption, the
Board must determine that it is in our economic best interest or necessary to
reduce disproportionately burdensome expenses in servicing shareholder accounts.
At least 60 days' prior written notice will be given before any such redemption,
during which time shareholders may avoid redemption by bringing their accounts
up to the minimum set by the Board.
Under the Div-Move service described in the Prospectus, you can invest the
dividends paid on your account into an existing account in any Eligible Fund.
The account must be either your account, a joint account for you or your spouse,
a single account for your spouse, or a custodial account for your minor child
under the age of 21. You should read the prospectus of the other fund before
investing.
The Invest-A-Matic method of investing in the Fund and/or any other Lord
Abbett-sponsored fund is described in the Prospectus. To avail yourself of this
method, you must complete the Fund portion of the form, selecting the time and
amount of your bank checking account withdrawals and the Lord Abbett funds for
investment, include a voided, unsigned check and complete the bank
authorization.
The Systematic Withdrawal Plan also is described in the Prospectus. You may
establish a systematic withdrawal plan if you own or purchase uncertificated
shares having a current offering price value of at least $10,000. The Plan
involves the planned redemption of shares on a systematic basis by receiving
either fixed or variable amounts at periodic intervals. Since the value of
shares redeemed may be more or less than their cost, gain or loss may have to be
recognized for income tax purposes on each periodic payment. Normally, you may
not make regular investments at the same time you are receiving systematic
withdrawal payments because it is not in your interest to pay a sales charge on
new investments when in effect a portion of that new investment is soon
withdrawn. The minimum investment accepted while a withdrawal plan is in effect
is $1,000. The systematic withdrawal plan may be terminated by you or by us at
any time by written notice.
6.
Taxes
Each Series will be treated as a separate entity for federal income tax
purposes. As a result, the status of each Series as a regulated investment
company is determined separately by the Internal Revenue Service.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of the Fund may not be deductible, in whole or in part, for federal, or for
state or personal income tax purposes. Pursuant to published guidelines, the
Internal Revenue Service may deem indebtedness to have been incurred for the
purpose of acquiring or carrying shares of the Fund even though the borrowed
funds may not be directly traceable to the purchase of shares.
Our shares may not be an appropriate investment for "substantial users" of
facilities financed by industrial development bonds or persons related to such
"substantial users." Such persons should consult their tax advisers before
investing in shares of the Fund.
<PAGE>
Certain financial institutions, like other taxpayers, may be denied a federal
income tax deduction for the amount of interest expense allocable to an
investment in the Fund and the deduction for loss reserves available to property
and casualty insurance companies may be reduced by a specified percentage as a
result of their investment in the Fund. Shareholders will not be allowed to
recognize for tax purposes any loss realized on the redemption or repurchase of
Fund shares which they have held for six months or less to the extent of any
tax-exempt distributions received on the shares.
The value of any shares redeemed by the Fund or repurchased or otherwise sold
may be more or less than your tax basis at the time the redemption, repurchase
or sale is made. Any gain or loss generally will be taxable for federal income
tax purposes. Any loss realized on the sale, redemption or repurchase of Fund
shares held for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any capital gains distribution received
with respect to such shares. Moreover, shareholders will not be allowed to
recognize for tax purposes any capital loss realized on the redemption or
repurchase of Fund shares which they have held for six months or less to the
extent of any tax-exempt distributions received on the shares. Losses on the
sale of stock or securities are not deductible if, within a period beginning 30
days before the date of the sale and ending 30 days after the date of the sale,
the taxpayer acquires stock or securities that are substantially identical.
Each Series will be subject to a 4% nondeductible excise tax on certain amounts
not distributed (and not treated as having been distributed) on a timely basis
in accordance with a calendar year distribution requirement. The Fund intends to
distribute to shareholders each year an amount adequate to avoid the imposition
of such excise taxes.
Limitations imposed by the Internal Revenue Code of 1986, as amended, on
regulated investment companies may restrict the Fund's ability to engage in the
options and financial futures transactions discussed above or in other
investment techniques and practices. Moreover, in order to continue to qualify
as a regulated investment company for federal income tax purposes, each Series
may be required in some circumstances to defer closing out options or futures
contracts that might otherwise be desirable to close out. State law may restrict
a Series' ability to engage in the options and financial futures transactions
discussed above. A current interpretation of New Jersey law issued by the New
Jersey Department of the Treasury would preclude the New Jersey Series from
engaging in some or all of the options and financial futures transactions
discussed above. Each Series may engage in such transactions to the extent they
currently are or become permissible under applicable state law.
Except as discussed in the Prospectus, the receipt of dividends from the Series
may be subject to tax under laws of state or local tax authorities. You should
consult your tax adviser on state and local tax matters.
7.
Risk Factors Regarding Investments
in Connecticut, Hawaii, Minnesota, Missouri, New Jersey, New York,
Texas, Washington and Puerto Rico Municipal Bonds
The following information is a summary of special factors affecting the states
and territory indicated. It does not purport to be complete or current and is
based upon information and judgments derived from public documents relating to
such states and territory and other sources. The Fund has not verified any of
this data.
CONNECTICUT BONDS
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Connecticut is a mature and highly developed State located in proximity to
significant centers of consumer and industrial activity. During the 1980s and
until 1993, unemployment rates generally have stayed at or below the national
figures. Personal income has exceeded regional and national levels. However,
while the State has a high level of personal income, large gaps exist between
the low figure for its largest cities and the remainder of the State.
Connecticut's economy is diverse, with manufacturing, services and trade
accounting for approximately 70% of total nonagricultural employment.
Manufacturing employment has been on a downward trend since 1984 while non-
manufacturing employment has risen significantly. Rapid relative growth in the
non-manufacturing sector as compared to the manufacturing sector is a trend that
is in evidence nationwide and reflects the increased importance of the service
industry. From 1970 to 1993, manufacturing employment in the State declined
33.5%, while non-manufacturing employment rose 63.3%, particularly in the
services, trade and finance sectors, resulting in an increase of 27.6% in total
growth in non-agricultural establishment sectors. The State's manufacturing
sector is diversified, with transportation equipment (primarily aircraft
engines, helicopters and submarines) the dominant industry, followed by
non-electrical machinery, fabricated metal products and electrical machinery.
Because of the important role of defense-related businesses in the State,
changes in military appropriations enacted by the United States Congress will
disproportionately affect the State's economy.
Connecticut has no constitutional or other organic limit on its power to issue
obligations or incur indebtedness other than that it may only borrow for public
purposes. In 1991, legislation was enacted providing that no indebtedness
payable from General Fund tax receipts of the State shall be authorized by the
General Assembly, except as shall not cause the aggregate amount of (1) the
total amount of indebtedness payable from General Fund tax receipts authorized
by the General Assembly but which have not been issued and (2) the total amount
of such indebtedness which has been issued and remains outstanding (with certain
exceptions), to exceed 1.6 times the total estimated General Fund tax receipts
of the State for the fiscal year in which any such authorization will become
effective, as estimated for such fiscal year by the joint standing committee of
the General Assembly having cognizance of finance, revenue and bonding.
During the period from 1989 through 1993, the State's gross direct debt and net
direct debt more than doubled. In addition, the State has a significant amount
of authorized but unissued direct general obligation indebtedness and has
limited or contingent liability on substantial additional amounts. Operating
deficits aggregating approximately $1,068 million were incurred in the fiscal
years ended June 30, 1990 and 1991, which were financed primarily by Economic
Recovery Notes. Operating surpluses aggregating approximately $223 million were
incurred in the fiscal years ended June 30, 1992 and 1993. These surpluses have
been used for debt services, including retirement of Economic Recovery Notes.
On November 3, 1992, Connecticut voters approved a constitutional amendment
which requires a balanced budget for each year and imposes a cap on the growth
of expenditures. The General Assembly is required by the constitutional
amendment to adopt by three-fifths vote certain spending cap definitions, which
has not yet occurred. Accordingly, the 1994-95 budget complies with the current
statutory spending cap definitions enacted in 1991. The statutory spending cap
limits the growth of expenditures to either (1) the average of the annual
increase in personal income in the State for each of the preceding five years or
(2) the increase in the consumer price index for urban consumers during the
preceding twelve-month period, whichever is greater. Expenditures for the
payment of bonds, notes and other evidences of indebtedness are excluded from
the constitutional and statutory definitions of general budget expenditures.
Several tax reduction measures were adopted during the 1993 legislative session.
HAWAII BONDS
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The Constitution of the State of Hawaii empowers the issuance of four types of
bonds. They are:
1. General obligation bonds (all bonds for the payment of the principal
and interest for which the full faith and credit of the State or a political
subdivision are pledged and, unless otherwise indicated, including reimbursable
general obligation bonds);
2. Bonds issued under special improvements statutes;
3. Revenue bonds (all bonds payable from revenues, or user taxes, or any
combination of both, of a public undertaking, improvement, system or loan
program); and
4. Special purpose revenue bonds (all bonds payable from rental or
other payments made or any issuer by a person pursuant to contract). Such bonds
shall only be authorized or issued to finance manufacturing, processing or
industrial enterprise facilities, utilities serving the general public, health
care facilities provided to the general public by not-for-profit corporations or
low and moderate income governmental housing programs.
<PAGE>
All bonds other than special purpose revenue bonds may be authorized by a
majority vote of the members of each House of the Hawaii Legislature. Special
purpose revenue bonds may be authorized by two-thirds vote of the members of
each House of the Hawaii Legislature.
The Hawaii Constitution contains a limitation on issuance of State general
obligation bonds which is the amount of bonds outstanding that would cause the
debt service (principal and interest) payable on such bonds (either the higher
of the current or projected debt service), to exceed 18 1/2% of the average of
the general fund revenues of Hawaii in the three fiscal years immediately
preceding such issuance (general fund revenue excludes grants from the federal
government and receipts in reimbursement of any indebtedness excluded in
computing the total State debt). This limitation on the power of the State to
incur indebtedness applies only to the issuance of general obligation bonds, is
computed at the time of issuance and includes only issued, outstanding and
proposed to be issued general obligation bonds.
GENERAL INFORMATION. Through 1992, total personal income in Hawaii has continued
- -------------------
to grow, as has per capita personal income although the rate of growth for both
has slowed in recent years. Unemployment, although increased, remains low
compared to the national average. In general, the State's economy has remained
stable with increases in retail sales but decreases in diversified agriculture,
construction and tourism. Hurricane Iniki passed directly over the island of
Kauai on September 11, 1992, causing damage estimated at over $1.7 billion.
Through mid-1993 the State had not experienced any materially adverse economic
or financial impact as a result of the hurricane, but could not make any
predictions as to what the ultimate economic and financial impact may be.
MINNESOTA BONDS
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Diversity and a significant natural resource base are two important
characteristics of Minnesota's economy. When viewed in 1993 at a highly
aggregative level of detail, the structure of the State's economy parallels the
structure of the United States economy as a whole. State employment in 10 major
sectors was distributed in approximately the same proportions as national
employment. Some unique characteristics in the State's economy were apparent in
employment concentrations in industries that comprise the durable goods
manufacturing categories. In the durable goods industries, the State's
employment in 1993 was highly concentrated in the industrial machinery,
fabricated metals, instrument and miscellaneous categories. Of particular
importance is the industrial machinery category in which 32.6% of the State's
durable goods employment was concentrated in 1993, as compared to 18.9% for the
United States as a whole. The emphasis is partly explained by the location in
the state of Ceridian, Unisys, IBM, Cray Research, and other computer equipment
manufacturers which are included in the machinery classification.
The importance of the State's rich resource base for overall employment is
apparent in the employment mix in the non-durable goods industries. In 1993,
29.4% of the State's non-durable goods employment was concentrated in food and
kindred industries, and 19.1% in paper and allied industries. This compares to
21.4% and 8.8%, respectively for comparable sectors in the national economy.
Both of these rely heavily on renewable resources in the State. Over half of the
State's acreage is devoted to agricultural purposes, and nearly one-third to
forestry. Printing and publishing is also relatively more important in the State
than in the U.S.
The State's per capita income, which is computed by dividing personal income by
total resident population, has generally remained above the national average in
spite of early 1980's recessions and some difficult years in agriculture. In
1992, Minnesota per capita personal income was 101.0% of its U.S. counterpart.
During 1992 and 1993, the State's monthly unemployment rate was generally less
than the national unemployment rate, averaging 5.1% in 1993, as compared to the
national average of 7.4%.
The Minnesota Constitution authorizes public debt to be incurred (i) for the
acquisition and betterment of public land, buildings, and other improvements of
a capital nature or appropriation or loans to State agencies or political
subdivisions for such purposes and (ii) to finance the development of
agricultural resources of the State by extending credit on real estate security.
All such debt must be evidenced by the issuance of State bonds maturing within
20 years of their date of issue, for which the full faith and credit and taxing
powers of the State are irrevocably pledged. The Constitution places no
limitation on the amount which may be authorized for these purposes. As of April
1, 1994, the outstanding principal amount of general obligation bonds of the
State was $1.768 billion.
The University of Minnesota, established as a separate entity by the Minnesota
Constitution, and various State agencies or instrumentalities established by the
Legislature, are authorized by law to issue various forms of obligations. These
obligations may be supported by the full faith and credit of the University and
the other issuers, or by various revenue pledges, or both. However, such
obligations are not debts of the State and the State is not required to provide
monies for their repayment. As of April 1, 1994, such issuers (and principal
amount of obligations outstanding) include: Minnesota Housing Finance Agency
($1.837 billion), University of Minnesota ($317 million), Minnesota Higher
Education Coordinating Board ($91 million), Minnesota State University Board
($67 million), Minnesota Higher Education Facilities Authority ($221 million),
and Minnesota Public Facilities Authority ($235 million).
MISSOURI BONDS
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Article X, Sections 16-24 of the Constitution of Missouri (the "Tax Limitation
Amendment"), imposes limitations on the amount of State taxes which may be
collected by the State of Missouri in any fiscal year. The limit is tied to
total State revenues for fiscal year 1980-81, as defined in the Tax Limitation
Amendment, adjusted annually, in accordance with the formula set forth in the
Amendment, which adjusts the limit based on increases in the average personal
income of Missouri for certain designated periods. The details of the Amendment
are complex and clarification from subsequent legislation and further judicial
decisions may be necessary. If total State revenues exceed the State revenue
limit by more than one percent, the State is required to refund the excess. The
revenue limit can only be exceeded if the General Assembly approves by a
two-thirds vote of each House an emergency declaration by the Governor.
To the extent that the payment of general obligation bonds issued by the State
of Missouri or a unit of local government in the Series' portfolio is dependent
on revenues from the levy of taxes and such obligations have been issued
subsequent to the date of the Tax Limitation Amendment's adoption, November 4,
1980, the ability of the State of Missouri or the appropriate local unit to levy
sufficient taxes to pay the debt service on such bonds may be affected.
Debt obligations of certain State and local agencies and authorities are not, by
the terms of their respective authorizing statutes, obligations of the State or
any political subdivision, public instrumentality or authority, county,
municipality or other state or local unit of government. The debt obligations of
such issuers are payable only from the revenues generated by the project or
program financed from the proceeds of the debt obligations they issue.
Missouri has a diverse economy with a distribution of earnings and employment
among manufacturing, trade, service and other sectors closely approximating the
average national distribution. Since 1980, Missouri unemployment levels
generally have approximated, and at times have been higher than, the national
average.
The Missouri portions of the St. Louis and Kansas City metropolitan areas
together contain a significant portion of Missouri's population. Economic
reversals in either of these two areas would have a major impact on the overall
economic condition of the State of Missouri. Additionally, the State of Missouri
has a significant agricultural sector which may experience problems comparable
to those which are occurring in other states. To the extent that any such
problems intensify, there could possibly be an adverse impact on the overall
economic condition of the State.
Defense-related business plays an important role in Missouri's economy. In
addition to the large number of civilians employed at the various military
installations and training bases in the State, aircraft and related businesses
in Missouri are the recipients of substantial annual dollar volumes of defense
contract awards. Since 1980, Missouri's rank among the top states in total
military contract awards has been significantly higher than its population
ranking. Recent changes in the levels of military appropriations may
significantly affect McDonnell Douglas Corporation, the State's largest
employer. To the extent that changes in military appropriations are enacted by
the United States Congress, Missouri could be disproportionately affected.
NEW JERSEY BONDS
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New Jersey's economic base is diversified, consisting of a variety of
manufacturing construction and service industries, supplemented by selective
commercial agriculture. After a period of strong growth in the mid-1980s, New
Jersey as well as the rest of the Northeast slipped into a slow-down well before
the onset of the national recession which officially began in July 1990. The
onset of recession caused an acceleration of New Jersey's job losses in
construction and manufacturing, as well as an employment downturn in such
previously growing sectors as wholesale trade, retail trade, finance, utilities,
trucking and warehousing. The net effect was a decline in the State's total
nonfarm wage and salary employment from a peak of 3,706,400 in March 1989 to a
low of 3,445,000 in March 1992. This loss has been followed by an employment
gain of 118,700 from March 1992 to September 1994.
Evidence of the State's improving economy can be found in increased homebuilding
and other areas of construction activity, rising consumer spending for new cars
and light trucks, substantial new job creation and the decline in the
unemployment rate.
The New Jersey Constitution provides, in part, that no money shall be drawn from
the State treasury except for appropriations made by law and that no law
appropriating money for any State purpose shall be enacted if the appropriations
contained therein, together with all prior appropriations made for the same
fiscal period, shall exceed the total amount of the revenue on hand and
anticipated to be available to meet such appropriations during such fiscal
period, as certified by the Governor.
New Jersey's Local Budget Law imposes specific budgetary procedures upon
counties and municipalities ("local units"). Every local unit must adopt an
operating budget which is balanced on a cash basis, and items of revenue and
appropriation must be examined by the Director of the Division of Local
Government Services in the State Department of Community Affairs (the
"Director").
The Local Government Cap Law (the "Cap Law") generally limits the year-to-year
increase of the total appropriations of any municipality and the tax levy of any
county to either five percent or an index rate determined annually by the
Director, whichever is less. However, where the index percentage rate exceeds
five percent, the Cap Law permits the governing body of any municipality or
county to approve the use of a higher percentage rate up to the index rate.
Further, where the index percentage rate is less than five percent, the Cap Law
also permits the governing body of any municipality or county to approve the use
of a higher percentage rate up to five percent. Regardless of the rate utilized,
certain exceptions exist to the Cap Law's limitation on increases in
appropriations. The principal exceptions to this limitation are municipal and
county appropriations to pay debt service requirements; to comply with certain
other State or federal mandates; amounts approved by referendum; and, in the
case of municipalities only, to fund the preceding year's cash deficit or to
reserve for shortfalls in tax collections.
State law also regulates the issuance of debt by local units. The Local Budget
Law limits the amount of tax anticipation notes that may be issued by local
units and requires the repayment of such notes within 120 days of the end of the
fiscal year (six months in the case of the counties) in which issued. With
certain exceptions, no local unit is permitted to issue bonds for the payment of
current expenses. Local units may not issue bonds to pay outstanding bonds,
except for refunding purposes, and then only with the approval of the Local
Finance Board. Local units may issue bond anticipation notes for temporary
periods not exceeding in the aggregate approximately ten years from the date of
first issue. The debt that any local unit may authorize is limited to a
percentage of its equalized valuation basis, which is the average of the
equalized value of all taxable real property and improvements within the
geographic boundaries of the local unit, as annually determined by the Director
of the Division of Taxation, for each of the three most recent years.
NEW YORK BONDS
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Circumstances adversely affecting the State's credit rating may directly or
indirectly affect the market value of bonds issued by the State's political
subdivisions and its Authorities to the extent that those entities depend, or
are perceived to depend, upon State financial assistance. Conversely, the fiscal
stability of the State is related to the fiscal stability of New York City and
of the Authorities. The State's experience has been that if New York City or any
of the Authorities suffers serious financial difficulty, the ability of the
State, New York City, the State's political subdivisions and the Authorities to
obtain financing in the public credit markets is adversely affected. This
results, in part, from the expectation that to the extent that any Authority or
local government experiences financial difficulty, it will seek and receive
State financial assistance. Moreover, New York City accounts for a substantial
portion of the State's population and tax receipts, so New York City's financial
integrity affects the State directly. Accordingly, if there should be a default
by New York City or any of the Authorities, the market value and marketability
of all New York State tax-exempt bonds could be adversely affected. This would
have an adverse effect on the net asset value and liquidity of the Series, even
though securities of the defaulting entity may not be held by the Series.
<PAGE>
NEW YORK STATE. New York State has experienced a slowdown in the regional and
- --------------
State economy in recent years and a severe economic downturn during the national
recession that commenced in mid-1990. The State economy remained in recession
until 1993, when employment growth resumed. Employment growth has been hindered
in recent years by cutbacks in the computer and instrument manufacturing,
utility and defense industries. The State completed its 1992-93 fiscal year with
a balance of $671 million in the tax refund reserve account, and $67 million in
the Tax Stabilization Reserve Fund.
The 1994-95 State Financial Plan, which is based upon the enacted State budget,
projects a balanced General Fund. However, in the September 1994 GAAP-basis
update, the Division of the Budget projected a General fund operating deficit of
$690 million for the 1994-95 fiscal year. However, there can be no assurance
that the State's projections for tax and other receipts for the 1994-95 fiscal
year are not overstated and will not be revised downward, or that disbursements
will not be in excess of the amounts projected. In addition, projections of
State disbursements for future fiscal years may be affected by uncertain factors
relating to the economy of the Nation and the State and the financial condition
of the Authorities, New York City and other localities. In the event that these
factors affect, or are perceived to affect, the State's ability to meet its
financial obligations, the market value and marketability of its bonds also may
be adversely affected.
AUTHORITIES. New York State's Authorities generally are responsible for
- -----------
financing, constructing and operating revenue-producing public benefit
facilities. As of September 30, 1993, there were outstanding approximately $63.5
billion aggregate principal amount of bonds and bond anticipation notes issued
by 18 Authorities which either were guaranteed by the State or supported by the
State through lease-purchase or contractual-obligation financing arrangements or
through moral obligation provisions. While principal and interest payments on
outstanding Authority obligations normally are paid from revenues generated by
projects of the Authorities, in the past the State has had to appropriate large
amounts to enable certain Authorities (in particular, the New York State Urban
Development Corporation and the New York State Housing Finance Agency) to meet
their financial obligations. Further assistance to these Authorities may be
required in the future.
The Metropolitan Transportation Authority (the "MTA") oversees the operation of
New York City's bus and subway systems by its affiliates, the New York City
Transit Authority and the Manhattan and Bronx Surface Transit Operating
Authority (collectively, the "TA") and, through subsidiaries, operates certain
commuter rail and bus lines and a rapid transit line on Staten Island. Through
its affiliated agency, the Triborough Bridge and Tunnel Authority (the "TBTA"),
the MTA operates certain intrastate toll bridges and tunnels. The MTA has
depended and will continue to depend upon Federal, State, local government and
TBTA support to operate the mass transit portion of these operations because
fare revenues are insufficient. For the 1994-1995 State fiscal year, total State
assistance to the MTA is estimated at approximately $1.3 billion.
In 1993, State legislation authorized the funding of a $9.56 billion MTA capital
plan for the five-year period, 1992 through 1996 (the "1992-96 Capital
Program"). This is the third five-year plan since the Legislature authorized
procedures for the adoption, approval and amendment of a five year plan in 1981
for a capital program designed to upgrade the performance of the MTA's
transportation systems and to supplement, replace and rehabilitate facilities
and equipment. The MTA, the TBTA and the TA are collectively authorized to issue
an aggregate of $3.1 billion of bonds (net of certain statutory exclusions) to
finance a portion of the 1992-96 Capital Program. The 1992-96 Capital Program is
expected to be financed in significant part through dedication of State
petroleum business taxes.
There can be no assurance that all necessary governmental actions for the
Capital Program will be taken, that funding sources currently identified will
not be decreased or eliminated, or that the 1992-96 Capital Program, or parts
thereof, will not be delayed or reduced. Furthermore, the power of the MTA to
issue certain bonds expected to be supported by the appropriation of State
petroleum business taxes is currently the subject of a court challenge. If the
Capital Program is delayed or reduced, ridership and fare revenues may decline,
which could, among other things, impair the MTA's ability to meet its operating
expenses without additional State assistance.
THE CITY OF NEW YORK. The fiscal health of the State is closely related to the
- --------------------
fiscal health of its localities, particularly the City of New York (the "City"),
which has required and continues to require significant financial assistance
from the State.
<PAGE>
In response to the City's fiscal crisis in 1975, the State took a number of
steps to assist the City in returning to fiscal stability. Among these actions,
the State created the Municipal Assistance Corporation for the City of New York
("MAC") to provide financing assistance to the City. The State also enacted the
New York State Financial Emergency Act for the City of New York (the "Financial
Emergency Act") which, among other things, established the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs. The State also established the Office of the State Deputy Comptroller
for New York City ("OSDC") in the Office of the State Comptroller to assist the
Control Board in exercising its powers and responsibilities.
The City operates under a four-year Financial Plan which is prepared annually
and is periodically updated. In 1986, the Control Board's powers of approval
over the City's Financial Plan were suspended when certain statutory conditions
were met. However, the Control Board, MAC and OSDC continue to exercise various
monitoring functions relating to the City's financial position and upon the
occurrence of certain events, including, but not limited to, a City operating
budget deficit of more than $100 million, the Control Board is required by law
to impose a Control Period. The City submits its financial plans as well as
periodic updates to the Control Board for its review.
The City requires significant amounts of financing for seasonal and capital
purposes. The City issued $1.75 billion of notes for seasonal financing purposes
during its fiscal year ending June 30, 1994. The City's capital financing
program projects long-term financing requirements of approximately $17 billion
for the City's fiscal years 1995 through 1998. The major capital requirements
include expenditures for the City's water supply and sewage disposal systems,
roads, bridges, mass transit, schools, hospitals and housing.
The City achieved balanced operating results for the 1994 fiscal year.
On October 25, 1994, the City published the Financial Plan for the 1995-1998
fiscal years, which is a proposed modification to a Financial Plan submitted to
the Control Board on July 8, 1994 and which relates to the City, the Board of
Education and the City University of New York.
The City's July 8, 1994 Financial Plan set forth proposed actions for the 1995
fiscal year to close a previously projected gap of approximately $2.3 billion
for the 1995 fiscal year.
The 1995-1998 Financial Plan published on October 25, 1994 reflects actual
receipts and expenditures and changes in forecast revenues and expenditures
since the July Financial Plan and projects revenues and expenditures for the
1995 fiscal year balanced in accordance with GAAP. For the 1995 fiscal year, the
Financial Plan includes actions to offset an additional potential $1.1 billion
budget gap, resulting in part from a $104 million decrease in the $171 million
projected surplus from the 1994 fiscal year to be transferred to the 1995 fiscal
year.
The gap closing measures for the 1995 fiscal year include additional proposed
agency actions aggregating $851 million, which , together with the $1.1 billion
of agency actions proposed in the July Financial Plan, are substantial and may
be difficult to implement.
The Financial Plan also sets forth projections for the 1996 through 1998 fiscal
years and outlines a proposed gap-closing program to close projected gaps of
$1.0 billion, $1.5 billion and $2.0 billion for the 1996 through 1998 fiscal
years, respectively, after successful implementation of the $1.1 billion
gap-closing program for the 1995 fiscal year.
The City's capital plan for fiscal years 1995 through 1998 contemplates the
issuance of $11.3 billion of general obligation bonds to make capital
investments.
The City's financial plans have been the subject of extensive public comment and
criticism. On October 14, 1994, the City Comptroller issued a report concluding
that the budget gap for the 1995 fiscal year had increased to $1.4 billion, due,
in part, to continuing shortfalls in tax revenues. The City Council and the
Mayor currently disagree as to the steps to take to close the budget gap and the
disagreement is now a subject of litigation.
Although the City has balanced its budget since 1981, estimates of the City's
revenues and expenditures are based on numerous assumptions and are subject to
various uncertainties. If expected Federal or State aid is not forthcoming, if
unforeseen developments in the economy significantly reduce revenues derived
from economically sensitive taxes or necessitate increased expenditures for
public assistance, if the City should negotiate wage increases for its employees
greater than the amounts provided for in the City's Financial Plan or if other
uncertainties materialize that reduce expected revenues or increase projected
expenditures, then, to avoid operating deficits, the City may be required to
implement additional actions, including increases in taxes and reductions in
essential City services. The City also might seek additional assistance from the
State.
OTHER LOCALITIES. Certain localities in addition to the City could have
- -----------------
financial problems leading to requests for additional State assistance during
the State's 1994-95 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1994-95 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted in
the creation of the Financial Control Board of the City of Yonkers (the "Yonkers
Board") by the State in 1984. The Yonkers Board is charged with overseeing
fiscal affairs of Yonkers. Future actions taken by the Governor or the State
Legislature to assist Yonkers could result in allocation of State resources in
amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term and
long-term borrowing. In 1992, the total indebtedness of all localities in the
State other than the City was approximately $15.7 billion; a small portion
(approximately $71.6 million) of this indebtedness represented borrowing to
finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than the City authorized by State law to finance deficits during the period that
such deficit financing is outstanding. Seventeen localities had outstanding
indebtedness for deficit financing at the close of their fiscal years ending
1992.
From time to time, proposed Federal expenditure reductions would reduce, or in
some cases eliminate, Federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within the State could be adversely affected. Localities also face anticipated
and potential problems resulting from certain pending litigation, judicial
decisions and long-range economic trends. The longer range problems of declining
city populations, increasing expenditures, and other economic trends could
adversely affect localities and require increasing State assistance in the
future.
LITIGATION. Certain litigation pending or determined against the State or its
- ----------
officers or employees could have a substantial or long-term adverse effect on
State finances. Among the more significant of these cases are those that
involve: challenges to the State's finance policies, claims challenging
different aspects of the State's social welfare programs, claims of racial
segregation, real property claims, contract and tort claims, and challenges to
funding methods of various retirement systems. In its audited financial
statements for 1992-93 the State estimated its liability for awarded and
anticipated unfavorable judgments at $721 million.
PUERTO RICO BONDS
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The economy of Puerto Rico is dominated by the manufacturing and service
sectors. The manufacturing sector has experienced a basic change over the years
as a result of increased emphasis on higher wage, high technology industries
such as pharmaceuticals, electronics, computers, microprocessors, professional
and scientific instruments and certain high technology machinery and equipment.
Much of the development of the manufacturing sector in Puerto Rico can be
attributed to various federal and Commonwealth tax incentives, most notably
Section 936 of the Internal Revenue Code and the Commonwealth's Industrial
Incentives Program. The service sector, including finance, insurance and real
estate, also plays a major role in the economy. The service sector ranks second
only to manufacturing in contribution to the gross domestic product and leads
all sectors in providing employment. In recent years, the service sector has
experienced significant growth in response to the expansion of the manufacturing
sector.
Puerto Rico's economy is closely integrated with that of mainland United States.
During fiscal 1993, approximately 86% of Puerto Rico's exports were to the
United States mainland, which also was the source of approximately 69% of Puerto
Rico's imports. In fiscal 1993, Puerto Rico experienced a $2.5 billion positive
adjusted merchandise trade balance.
<PAGE>
Puerto Rico's decade-long economic expansion continued throughout the five-year
period from fiscal 1989 through fiscal 1993, and affected almost every sector of
its economy and resulted in record levels of employment (although Puerto Rico's
unemployment rate has chronically exceeded the average for the United States).
Factors behind this expansion included Commonwealth-sponsored economic
development programs, the relatively stable prices of oil imports, periodic
declines in the exchange value of the United States dollar and the relatively
low cost of borrowing during the period.
Growth in fiscal 1994 and 1995 will depend on several factors, including the
state of the United States economy and relative stability of the price of oil
imports, the exchange value of the U.S. dollar and the cost of borrowing.
The Constitution of Puerto Rico provides that public debt of the Commonwealth
will constitute a first claim on available Commonwealth revenues. Public debt
includes general obligation bonds and notes of the Commonwealth and any payments
required to be made by the Commonwealth under its guarantees of bonds and notes
issued by its public instrumentalities.
The Constitution of Puerto Rico also provides that direct obligations of the
Commonwealth evidenced by full faith and credit bonds or notes shall not be
issued if the amount of the principal of and interest on such bonds and notes
and on all such bonds and notes theretofore issued which is payable in any
fiscal year, together with any amount paid by the Commonwealth in the preceding
fiscal year on account of bonds or notes guaranteed by the Commonwealth, exceeds
15% of the average annual revenues raised under the provisions of Commonwealth
legislation and covered into the Treasury of Puerto Rico in the two fiscal years
preceding the then current fiscal year.
With the approval of the North American Free Trade Agreement by the United
States congress which is intended to eliminate certain restrictions on trade
between Canada, the United States and Mexico, certain of Puerto Rico's
industries, including those that are lower salaried and labor intensive, may
face increased competition from Mexico. However, Puerto Rico's favorable
investment environment, skilled work force, infrastructure development and tax
structure (especially Section 936) would tend to create expanded trade
opportunities for Puerto Rico in sectors such as pharmaceuticals and
high-technology manufacturing.
TEXAS BONDS
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The economy of Texas recovered from the recession that began in the mid-1980s
after a collapse in oil prices and although the State's economy was slowed by
the Nation's 1990-91 recession, the State Comptroller has predicted that the
overall State economy will slightly outpace national economic growth in the long
term. In 1981, drilling, production, refining, chemicals and energy-related
manufacturing accounted for 25% of the State's total output of goods and
services. By late 1993, these businesses accounted for 12% of the State's
economy. The service-producing sectors (which include transportation, public
utilities, finance, insurance, real estate, trade, services and government) are
the major sources of job growth in Texas.
During the 1993 regular legislative session, the State legislature passed a
1994-95 biennial all funds budget of approximately $70.1 billion without
increasing State taxes. This was accomplished by incorporating savings proposals
contained in the Governor's report, Working for Texas, the State Comptroller's
report, Against the Grain (approximately $3.8 billion in savings), cutting
spending in certain areas, and increasing Federal funding. The State also
anticipates receiving a record $19.8 billion in Federal funds, an increase of $4
billion over the 1992-93 budget level.
Due to the State's expansion in Medicaid spending and other Health and Human
Services programs requiring federal matching revenues, federal receipts became
the State's main revenue source, accounting for approximately 29.2% of State
revenues during fiscal year 1993. Sales taxes which had been the main source of
revenue for the previous 12 years, dropped to second, accounting for
approximately 27.0 of total revenues during fiscal year 1993. The remainder of
the State's revenues are derived primarily from interest and investment income,
licenses, fees and permits, the motor fuels tax and other excise taxes. The
State has no personal or corporate income tax, although the State does impose a
corporate franchise tax based on the amount of a corporation's capital and
"earned surplus", which includes corporate net income and officers' and
directors' compensation.
The State Constitution prohibits the State from levying AD VALOREM taxes on
property for general revenue purposes.
<PAGE>
The State Constitution also limits the rate of growth of appropriations from tax
revenues not dedicated by the Constitution during any biennium to the estimated
rate of growth for the State's economy. The Legislature may avoid the
constitutional limitation if it finds, by a majority vote of both Houses, that
an emergency exists. The State Constitution authorizes the Legislature to
provide by law for the implementation of this restriction, and the Legislature,
pursuant to such authorization, has defined the estimated rate of growth in the
State's economy to mean the estimated increase in State personal income.
WASHINGTON BONDS
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The economic base of the State of Washington includes manufacturing and services
industries as well as agriculture and timber production. A review of employment
within various segments of the economy indicates that recent growth in the
State's economy has been broadly based. Between 1987 and 1992, employment within
the State experienced growth in manufacturing as well as non-manufacturing
industries. Sectors of the State's employment base in which growth has exceeded
comparable figures reported for the United States include durable and
non-durable goods manufacturing, services and government.
The State's leading export industries are aerospace, forest products,
agriculture and food processing. On a combined basis, the aerospace, timber and
food processing industries employ about 9% of the State's non-farm workers. In
recent years, the non-manufacturing sector has played an increasingly
significant role in contributing to the State's economy.
The State's manufacturing base consists primarily of aircraft manufacture, which
comprised approximately 45% of total manufacturing in 1992. The aerospace
industry currently represents approximately 8% of all taxable business income
generated in the State. The Boeing Company, the State's largest employer, is
preeminent in aircraft manufacture. Boeing exerts a significant impact on
overall State production, employment and labor earnings. Boeing announced in
early 1993 that it would decrease commercial aircraft production by
approximately 35% over 18 months. Consistent with these projections, as of the
end of 1993 Boeing had reduced its work force in Washington by 11,289. In
January 1994 Boeing stated that it expected to eliminate a total of 7,000 jobs
in 1994.
Forest products rank second behind aerospace in value of total production. A
continued decline in overall production during the next few years is expected
due to federally imposed limitations on the harvest of old-growth timber and the
inability to maintain the recent record levels of production increases.
International trade plays an important role in the State's employment base, as
one in six jobs in the State is related to international trade. The State's
trade levels depend largely on national and world (rather than local) economic
conditions, including consumer demands.
The State ranks fourth among 12 leading states in the percentage of its work
force employed in technology-related industries and ranks third among the
largest software development centers.
The State operates on a July 1 to June 30 fiscal year and on a biennial budget
basis. Fiscal controls are exercised during the biennium through an allotment
process which requires each agency to submit a monthly expenditure plan. The
plan must be approved by the Governor's budget agency and provides the authority
for agencies to spend funds within statutory maximums specified in a
legislatively adopted budget. State law requires a balanced biennial budget.
Whenever it appears that disbursements will exceed the aggregate of estimated
receipts plus beginning cash surplus the Governor is required to reduce
allotments, thereby reducing expenditures of appropriated funds.
For the 1993-95 biennium, General Fund-State revenues are projected to be
$16.334 billion, an increase of 9.7% over the 1991-93 biennium, plus a
carry-forward of $234 million. This represents the smallest increase in biennial
revenue since the mid-1960s. Assuming current State program and service
requirements, these forecasted increases in revenues are below the expenditure
increases driven by caseload, enrollment and inflation.
The State Legislature passed a 1993-95 Operating Budget on May 6, 1993, and the
Governor signed the budget bill on May 28, 1993. This budget contains $650
million in general tax increases, $163 million in other revenues, $700 million
in program and administrative reductions, and $622 million in fund shifts (such
as to federal funding sources). The 1994 Supplemental Operating Budget passed
the State Legislature on March 24, 1994, and the Governor signed the
Supplemental budget bill on April 6, 1994. The budget includes $48 million in
tax cuts, an $11 million revenue increase from a variety of sources and $168
million in additional expenditures, many of which represent one-time
investments. No assurance can be given that changes in economic conditions will
not require significant changes to the budget as so passed and supplemented.
State law prohibits State tax revenue growth from exceeding an averaged growth
rate of State personal income. To date, State revenue increases have remained
substantially below the State revenue limit. In addition, the State may not
impose on local governments responsibility for new programs or increased levels
of service under existing programs without providing the financing to pay for
the added services.
Washington's Constitution, as interpreted by the State Supreme Court, prohibits
the imposition of net income taxes. For the fiscal year ending June 30, 1993,
approximately 77% of the State's tax revenues derived from general and selective
sales and gross receipts taxes.
With certain exceptions, the amount of State general obligation debt which may
be incurred is limited by constitutional and statutory restrictions. The
limitations in both cases are imposed by prohibiting the issuance of new debt if
the new debt would cause the maximum annual debt service on all thereafter
outstanding general obligation debt to exceed a specified percentage of the
arithmetic mean of general State revenues for the preceding three years. These
are limitations on the incurrence of new debt and are not limitations on the
amount of debt service which may be paid by the State in future years.
Initiative 601, which was voted into law in November 1993, limits increases in
General Fund-State government expenditures to the average rate of population and
inflation growth. Initiative 601 is to be fully effective by July 1, 1995. A
lawsuit has been filed challenging the constitutionality of Initiative 601 on
various grounds.
8.
Past Performance
Each Series computes its average annual compounded rate of total return during
specified periods that would equate the initial amount invested to the ending
redeemable value of such investment by adding one to the computed average annual
total return, raising the sum to a power equal to the number of years covered by
the computation and multiplying the result by $1,000 which represents a
hypothetical initial investment. The calculation assumes deduction of the
maximum sales charge from the initial amount invested and reinvestment of all
income dividends and capital gains distributions on the reinvestment dates at
prices calculated as stated in the Prospectus. The ending redeemable value is
determined by assuming a complete redemption at the end of the period(s) covered
by the average annual total return computation.
The total returns for the National, New York, Texas, New Jersey, Connecticut,
Missouri, Hawaii and Washington Series of the Fund using the computation method
described above for the one-year period ending on September 30, 1994 were as
follows: (10.10%), (10.60%), (9.20%), (8.60%), (9.70%), (9.70%), (10.20%), and
(10.20%), respectively. The average annual compounded rates of total return for
the first three Series for the five years ending on September 30, 1994 were as
follows: 6.47%, 6.23% and 6.87%, respectively.
Each Series' yield quotation is based on a 30-day period ended on a specified
date, computed by dividing the Series' net investment income per share earned
during the period by the Series' maximum offering price per share on the last
day of the period. This is determined by finding the following quotient: Take
the Series' dividends and interest earned during the period minus its expenses
accrued for the period (net of reimbursements) and divide by the product of (i)
the average daily number of Series shares outstanding during the period that
were entitled to receive dividends and (ii) the Series' maximum offering price
per share on the last day of the period. To this quotient add one. This sum is
multiplied by itself five times. Then, one is subtracted from the product of
this multiplication and the remainder is multiplied by two. For the 30-day
period ended September 30, 1994, the yields for the National, Connecticut,
Missouri, New Jersey, New York, Texas, Hawaii and Washington Series were 5.41%,
5.50%, 5.66%, 5.47%, 5.42%, 5.71%, 5.32% and 5.78%, respectively.
Each Series' tax-equivalent yield is computed by dividing that portion of the
Series' yield (as determined above) which is tax exempt by one minus a stated
income tax rate (National - .36%; New York - .4104%; Texas - .36%; New Jersey -
.4026%; Connecticut - .3888%; Missouri - .3850%; Hawaii - .4240; and Washington
- - .36%) and adding the product to that portion, if any, of the Series' yield
that is not tax exempt. For the 30-day period ended on September 30, 1994, the
<PAGE>
tax-equivalent yields for the National, Connecticut, Missouri, New Jersey, New
York, Texas, Hawaii and Washington Series were 8.45%, 9.00%, 9.20%, 9.16%,
9.19%, 8.92%, 9.24% and 9.03%, respectively.
It is important to remember that these figures represent past performance and an
investor should be aware that the investment return and principal value of a
Series investment will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Therefore, there is no
assurance that this performance will be repeated in the future.
9.
Further Information About the Fund
The directors, Trustees and officers of Lord Abbett-sponsored mutual funds,
together with the partners and employees of Lord Abbett, are permitted to
purchase and sell securities for their personal investment accounts. In engaging
in personal securities transactions, however, such persons are subject to
requirements and restrictions contained in the Fund's Code of Ethics which
complies, in substance, with each of the recommendations of the Investment
Company Institute's Advisory Group on Personal Investing. Among other things,
the Code requires that Lord Abbett partners and employees obtain advance
approval before buying or selling securities, submit confirmations and quarterly
transaction reports, and obtain approval before becoming a director of any
company; and it prohibits such persons from investing in a security 7 days
before or after any Lord Abbett-sponsored fund trades in such security,
prohibiting profiting on trades of the same security within 60 days and trading
on material and non-public information. The code imposes certain similar
requirements and restrictions on the independent directors and Trustees of each
Lord Abbett-sponsored mutual funds to the extent contemplated by the
recommendations of such Advisory Group.
10.
Financial Statements
The financial statements for the fiscal half year and the fiscal year ended
September 30, 1994 and the opinion thereon of Deloitte & Touche LLP, independent
auditors, included in the 1994 Annual Report to Shareholders of the Lord Abbett
Tax-Free Fund, Inc., are incorporated herein by reference in reliance upon the
authority of Deloitte & Touche LLP as experts in auditing and accounting.
<PAGE>
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Part A - Financial Highlights for the period April 2, 1984
(commencement of operations National and New York Series)to
March 31, 1985, the years ended March31, 1986, 1987, 1988,
1989, 1990, 1991, for the six months ended September 30, 1991,
and for the years ended September 30, 1992, 1993 and 1994; the
period January 20, 1987 (commencement of operations Texas
Series) to March 31, 1987, the years ended March 31, 1988,
1989, 1990 and 1991, for the six months ended September 30,
1991, and for the years ended September 30, 1992, 1993 and
1994; for the period January 2, 1991 (commencement of
operations - New Jersey Series) to March 31, 1991, for the six
months ended September 30, 1991 and for the years ended
September 30, 1992, 1993 and 1994; the period April 1, 1991
(commencement of operations - Connecticut Series) to September
30, 1991, the years ended September 30, 1992, 1993 and 1994;
the period May 31, 1991 (commencement of operations - Missouri
Series) to September 30, 1991, the years ended September 30,
1992, 1993 and 1994; the period October 28, 1991 (commencement
of operations - Hawaii Series) to September 30, 1992, the
years ended September 30, 1993 and 1994; and the period April
15, 1992 (commencement of operations - Washington Series) to
September 30, 1992, the years ended September 30, 1993 and
1994.
Part B - Statement of Net Assets at September 30, 1994.
Statement of Operations for the year ended September 30, 1994.
Statement of Changes in Net Assets for the years ended
September 30, 1993 and 1994.
(b) Exhibits -
(1) Articles Supplementary to Articles of
Incorporation. ***
(4) Form of Specimen Share Certificate. ***
(5) Form of Management Agreement.***
(7)(a) Retirement Plans for Non-interested
Person Directors and Trustees of Lord
Abbett Funds. ****
(7)(b) Lord Abbett Prototype Retirement Plans****
(1) 401(k)
(2) IRA
(3) 403(b)
(4) Profit-Sharing, and
(5) Money Purchase
(10) Opinion of Debevoise & Plimpton. **
(11)(a) Consent of Deloitte & Touche. ***
(11)(b) Consent of Debevoise & Plimpton
(included in Exhibit 10).**
(16) Total Return and Yield Computation***
(15) Form of Rule 12b-1 Distribution Plan and
Agreement pursuant to Rule 12b-1
under the 1940 Act.*****
** To be filed with Rule 24f-2 Notice.
*** Previously filed.
**** Incorporated by reference to Post-Effective
Amendment No. 7 to the
Registration Statement (on Form N1-A) of
Lord Abbett Equity Fund (File No. 811-6033)
***** Incorporated by reference to Post-Effective
Amendment No. 6 to the Registration
Statement (on Form N1-A) of Lord Abbett
Securities Trust (File No. 811-7538).
Reference is made to the exhibits previously filed in the Registration
Statement and amendments thereto on Form N-1A as modified by the
supplements to the Prospectus and Statement of Additional Information
herein for Lord Abbett Tax-Free Income Fund, Inc. (1933 Act File No.
2-88912 and 1940 Act File No. 811-3942).
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Record Holders of Securities
(As of December 2, 1994)
Aggregate - 42,439
National Series - 16,306
New York Series - 7,786
Texas Series - 2,631
New Jersey Series - 5,103
Connecticut Series - 2,001
Missouri Series - 3,955
Hawaii Series - 2,123
Washington Series - 2,534
Item 27. Indemnification
Registrant is incorporated under the laws of the State of
Maryland and is subject to Section 2-418 of the Corporations
and Associations Article of the Annotated Code of the State of
Maryland controlling the indemnification of directors and
officers. Since Registrant has its executive offices in the
State of New York, and is qualified as a foreign corporation
doing business in such State, the persons covered by the
foregoing statute may also be entitled to and subject to the
limitations of the indemnification provisions of Section
721-726 of the New York Business Corporation Law.
The general effect of these statutes is to protect officers,
directors and employees of Registrant against legal liability
and expenses incurred by reason of their positions with the
Registrant. The statutes provide for indemnification for
liability for proceedings not brought on behalf of the
corporation and for those brought on behalf of the
corporation, and in each case place conditions under which
indemnification will be permitted, including requirements that
the officer, director or employee acted in good faith. Under
certain conditions, payment of expenses in advance of final
disposition may be permitted. The By-laws of Registrant,
without limiting the authority of Registrant to indemnify any
of its officers, employees or agents to the extent consistent
with applicable law, make the indemnification of its directors
mandatory subject only to the conditions and limitations
imposed by the above-mentioned Section 2-418 of Maryland law
and by the provisions of Section 17(h) of the Investment
Company Act of 1940 as interpreted and required to be
implemented by SEC Release No. IC-11330 of September 4, 1980.
In referring in its By-laws to, and making indemnification of
directors subject to the conditions and limitations of, both
Section 2-418 of the Maryland law and Section 17(h) of the
Investment Company Act of 1940, Registrant intends that
conditions and limitations on the extent of the
indemnification of directors imposed by the provisions of
either Section 2-418 or Section 17(h) shall apply and that any
inconsistency between the two will be resolved by applying the
provisions of said Section 17(h) if the condition or
limitation imposed by Section 17(h) is the more stringent. In
referring in its By-laws to SEC Release No. IC-11330 as the
source for interpretation and implementation of said Section
17(h), Registrant understands that it would be required under
its By-laws to use reasonable and fair means in determining
whether indemnification of a director should be made and
undertakes to use either (1) a final decision on the merits by
a court or other body before whom the proceeding was brought
that the person to be indemnified ("indemnitee") was not
liable to Registrant or to its security holders by reason of
willful malfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office
("disabling conduct") or (2) in the absence of such a
decision, a reasonable determination, based upon a review of
the facts, that the indemnitee was not liable by reason of
such disabling conduct, by (a) the vote of a majority of a
quorum of directors who are neither "interested persons" (as
defined in the 1940 Act) of Registrant nor parties to the
proceeding, or (b) an independent legal counsel in a written
opinion. Also, Registrant will make advances of attorneys'
fees or other expenses incurred by a director in his defense
only if (in addition to his undertaking to repay the advance
if he is not ultimately entitled to indemnification) (1) the
indemnitee provides a security for his undertaking, (2)
Registrant shall be insured against losses arising by reason
of any lawful advances, or (3) a majority of a quorum of the
non-interested, non-party directors of Registrant, or an
independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts, that
there is reason to believe that the indemnitee ultimately will
be found entitled to indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expense incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
In addition, Registrant maintains a directors' and officers'
errors and omissions liability insurance policy protecting
directors and officers against liability for breach of duty,
negligent act, error or omission committed in their capacity
as directors or officers. The policy contains certain
exclusions, among which is exclusion from coverage for active
or deliberate dishonest or fraudulent acts and exclusion for
fines or penalties imposed by law or other matters deemed
uninsurable.
Item 28. Business and Other Connections of Investment Adviser
Lord, Abbett & Co. acts as investment manager for sixteen
other investment companies (of which it is principal
underwriter for fifteen), and as investment adviser to
approximately 7000 private accounts. Other than acting as
trustees, directors and/or officers of open-end investment
companies managed by Lord, Abbett & Co., none of Lord, Abbett
& Co.'s partners has, in the past two fiscal years, engaged in
any other business, profession, vocation or employment of a
substantial nature for his own account or the capacity of
director, officer, employee, or partner of any entity except
as follows:
John J. Walsh
Trustee
Brooklyn Hospital - Caledonian Hospital
Parkside Avenue and St. Pauls Place
Brooklyn, N.Y.
Item 29 Principal Underwriter
(a) Affiliated Fund, Inc.
Lord Abbett Value Appreciation Fund, Inc.
Lord Abbett Bond-Debenture Fund, Inc.
Lord Abbett Developing Growth Fund, Inc.
Lord Abbett California Tax-Free Income Fund, Inc.
Lord Abbett Fundamental Value Fund, Inc.
Lord Abbett U.S. Government Securities Fund, Inc.
Lord Abbett Global Fund, Inc.
Lord Abbett U.S. Government Money Market Fund, Inc.
Lord Abbett Series Fund, Inc.
Lord Abbett Equity Fund
Lord Abbett Tax-Free Income Trust
Lord Abbett Research Fund, Inc.
Lord Abbett Securities Trust
Lord Abbett Investment Trust
American Skandia Trust (Lord Abbett
Growth and Income Portfolio)
(b) The partners of Lord, Abbett & Co. are:
Name and Principal Positions and Offices
Business Address (1) with Registrant
Ronald P. Lynch Chairman & President
Kenneth B. Cutler Vice President & Secretary
Stephen I. Allen Vice President
Daniel E. Carper Vice President
Robert S. Dow Vice President
Thomas S. Henderson Vice President
E. Wayne Nordberg Vice President
John J. Walsh Vice President
(1) Each of the above has a principal business address: 767 Fifth Avenue,
New York, NY 10153
(c) Not applicable.
Item 30. Location of Accounts and Records
Registrant maintains the records, required by Rules 31a - 1(a) and
(b), and 31a - 2(a) at its main office.
Lord, Abbett & Co. maintains the records required by Rules 31 - 1(f)
and 31a - 2(e) at its main office. Certain records such as cancelled
stock certificates and correspondence may be physically maintained at
the main office of the Registrant's Transfer Agent, Custodian, or
Shareholder Servicing Agent within the requirements of Rule 31a-3.
Item 31. Management Services
None.
Item 32. Undertakings
(c) The Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all the requirements
for effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Registration Statement
and/or any amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on the
15th day of June 1995.
LORD ABBETT TAX-FREE INCOME FUND
By /S/ RONALD P. LYNCH
Ronald P. Lynch, Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
NAME TITLE DATE
- ----- ----- ----
Chairman,
/s/ Ronald P. Lynch President & Trustee June 15, 1995
/s/ John J. Gargana, Jr. Vice President & June 15, 1995
Chief Financial Officer
E. Thayer Bigelow Director
/s/ Stewart S. Dixon Director June 15, 1995
/s/ Robert S. Dow Director June 15, 1995
/s/ John C. Jansing Director June 15, 1995
/s/ C. Alan MacDonald Director June 15, 1995
/s/ Hansel B. Millican, Jr. Director June 15, 1995
/s/ Thomas J. Neff Director June 15, 1995
