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. 23 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT [X]
OF 1940
AMENDMENT No. 24 [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
on (date) 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
X 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
In accordance with Rule 24f-2 under the Investment Company Act of 1940, an
indefinite amount of Registrant's shares of California Series are being
registered by this registration statement under the Securities Act of 1933.
Amount of Registration Fee: $500 for Securities Act of 1933 Registration.
Registrant's other series have registered an indefinite amount of securities
under the Securities Act of 1933 pursuant to Rule 24f-2(a) (1) and a Rule 24f-2
Notice for these series for the most recent fiscal year was filed with the
Commission on November 28, 1995.
<PAGE>
LORD ABBETT TAX-FREE INCOME FUND, INC.
FORM N-1A
Cross Reference Sheet
Pursuant to Rule 481(b)
EXPLANATORY NOTE
This Post-Effective Amendment No. 23(the "Amendment") to the Registrant's
Registration Statement relates to the California Series of Lord Abbett Tax-Free
Income Fund, Inc., a new series of shares of the Registrant.
The other series of shares of the Registrant are listed below and are
offered by the Prospectus in Part A of the Post-Effective Amendment to the
Registrant's Registration Statement as identified. The following are separate
series of shares of the Registrant. This Amendment does not relate to, amend or
otherwise affect the Prospectus contained in the prior Post-Effective Amendment,
and pursuant to Rule 485(d) under the Securities Act of 1933, does not affect
the effectiveness of such Post-Effective Amendment.
Post-Effective
Amendment No.
National, Connecticut, Hawaii, 20
Minnesota, Missouri, New Jersey,
New York, Texas and Washington
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
<PAGE>
Form N-1A Location in Prospectus or
Item No. Statement of Additional Information
- ---------- -----------------------------------
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
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 TEN SEPARATE SERIES. ONLY SHARES OF
THE CALIFORNIA SERIES (A NEW SERIES EFFECTIVE IMMEDIATELY AND REFERRED TO HEREIN
AS "WE" OR THE "SERIES") ARE BEING OFFERED IN THIS PROSPECTUS. UNDER THE
INVESTMENT COMPANY ACT OF 1940 (THE "1940 ACT"), THE SERIES IS NON-DIVERSIFIED.
HOWEVER, THE SERIES INTENDS TO MEET THE DIVERSIFICATION RULES UNDER SUBCHAPTER M
OF THE INTERNAL REVENUE CODE.
THE SERIES SEEKS AS HIGH A LEVEL OF INTEREST INCOME EXEMPT FROM BOTH FEDERAL
INCOME TAX AND CALIFORNIA PERSONAL INCOME TAX. THE SERIES INVESTS IN
INTERMEDIATE AND LONG-TERM MUNICIPAL BONDS WHICH CAN FLUCTUATE IN VALUE AS
INTEREST RATES CHANGE. THE SERIES ALSO SEEKS AS HIGH A LEVEL OF INTEREST INCOME
EXEMPT FROM CALIFORNIA PERSONAL INCOME TAX. THERE CAN BE NO ASSURANCE THAT THE
SERIES WILL ATTAIN ITS OBJECTIVE.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND AND THE
SERIES THAT A PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. ADDITIONAL
INFORMATION ABOUT THE FUND AND THE SERIES 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 MARCH , 1996.
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 How We Invest 2
4 Purchases 6
5 Shareholder Services 8
6 Our Management 9
7 Dividends, Capital Gains
Distributions and Taxes 9
8 Redemptions 11
9 Performance 11
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 is to seek as high a level of interest income exempt
from both federal income tax and California personal income tax. The Series
invests in intermediate and long-term municipal bonds and its shares can
fluctuate in value as interest rates change. Under normal circumstances, we
intend to maintain the average weighted stated maturity of municipal bonds held
by the Series at between ten and thirty-five years.
2 FEE TABLE
A summary of the 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>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price) CALIFORNIA SERIES
Maximum Sales Load(1) on purchases
(See "Purchases") 4.75%
Deferred Sales Load (See "Purchases") 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%
12B-1 FEES (SEE "PURCHASES") NONE(4)
Other Expenses (See "Our Management") 0.10%
--------------------------------------------------------------------
Total Operating Expenses 0.86%
====================================================================
<FN>
EXAMPLE:
-------
Assume the 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 3 YEARS
------ -------
CALIFORNIA SERIES $ (5) $ (5)
(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) THESE FIGURES OMIT THE CONTINGENT DEFERRED REIMBURSEMENT CHARGE BECAUSE THE
FUND CANNOT PREDICT WHEN THE NET ASSETS OF THE SERIES WILL REACH THE
REQUIRED LEVEL FOR EFFECTIVENESS OF ITS PLAN. HOWEVER, AFTER THE PLAN'S
PAYMENT PROVISIONS HAVE BEEN IN EFFECT FOR A YEAR OR MORE, REDEMPTIONS OF
SERIES SHARES PURCHASED BY EXCHANGE FROM ANOTHER LORD ABBETT-SPONSORED FUND
ON WHICH A 1% RULE 12B-1 SALES DISTRIBUTIONS FEE FOR PURCHASES OF $1
MILLION OR MORE HAS BEEN PAID BY THE OTHER LORD ABBETT-SPONSORED FUND 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. SUBSEQUENTLY, LORD ABBETT MAY CHARGE THESE FEES AND NOT SUBSIDIZE
THESE EXPENSES ON A PARTIAL OR COMPLETE BASIS.
(4) THE RULE 12B-1 FEES, UPON EFFECTIVENESS, WILL BE (1) FOR SERVICE, .25% OF
THE AVERAGE DAILY NET ASSET VALUE OF SHARES SOLD BY DEALERS FROM
COMMENCEMENT OF THE SERIES' PUBLIC OFFERING (AND PAYABLE BEGINNING AFTER
THE EFFECTIVE DATE OF THE 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 THE SERIES.
</FN>
</TABLE>
3 HOW WE INVEST
We invest primarily in a diversified portfolio of intermediate-term (5-10 years)
to long-term (over 10 years) municipal bonds, the interest on which is exempt
from both federal income tax and California personal income tax in the opinion
of bond counsel to the issuer. The market prices for such securities are not
guaranteed and, as with other bond investments, will rise and fall in value as
interest rates change. Accordingly, the value of our shares will change as the
general levels of interest rates fluctuate. When interest rates decline, values
of securities in the portfolio as well as share values generally will rise.
Conversely, when interest rates rise, values of securities in the portfolio as
well as share values decline.
"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.
The 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). The Series also may invest in unrated municipal
bonds, exempt from federal income tax and California 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 the
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 the 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 the 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 the Series' portfolio.
<PAGE>
The Series' 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.
The 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 Series are
each fixed on the purchase date. During the period between purchase and
settlement, Series 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, the 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 and California's
personal income tax.
Although normally the Series intends to be fully invested in intermediate to
long-term municipal bonds, the 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.
The Series may invest up to 20% of its net assets (less any amount invested
<PAGE>
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.
The Series intends to meet the diversification rules under Subchapter M of
the Internal Revenue Code. Generally, this requires, at the end of the quarter
of the taxable year, that (a) not more than 25% of the Series' total assets be
invested in any one issuer and (b) with respect to 50% of the Series' total
assets, no more than 5% of the Series' total assets be invested in any one
issuer except U.S. Government securities. Since under these rules the Series,
may invest its assets in the securities of a limited number of issuers, the
value of the 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. 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 California'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.
The Series intends to invest more than 25% of its total assets in any
industry, except that the 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 the 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".
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 the Series in Rule 144A securities initially determined to be
liquid could have the effect of diminishing the level of the 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.
The Series may invest up to 20% of its net assets in residual interest bonds
("RIBs") to enhance and increase portfolio duration. 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.
<PAGE>
The Series will not 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.
PORTFOLIO TURNOVER. It is estimated that the portfolio turnover rate for the
California Series will be less than 100%.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. The Series may deal in options on
securities, and securities indexes, and financial futures transactions,
including options on financial futures. The 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.
The Series currently is not employing any of the options and financial
futures transactions described above.
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 the Series to achieve its objective is based on the
expectation that the issuers of the municipal bonds in the Series' portfolio
will continue to meet their obligations for the payment of principal and
interest. The following is a brief summary of certain factors affecting the
Series. This summary does not purport to be complete and are based on
information derived from publicly available documents related to each
jurisdiction involved, which information has not been independently verified by
the Fund. For more detailed discussions of the risks applicable to the Series,
see the Statement of Additional Information.
CALIFORNIA BONDS -- RISK FACTORS. As disclosed by the State of California in
connection with recent bond issues, various constitutional and statutory
provisions may affect the ability of issuers of California municipal bonds to
meet their financial obligations. Decreases in State and local revenues as a
consequence of such provisions may result in reductions in the ability of
California issuers to pay their obligations. In addition, starting in 1990,
California entered a sustained economic recession, the most severe in the State
since the 1930s. Although a steady recovery has been underway since 1994,
accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget, and
a reduction of available internal borrowable funds, have combined to
significantly deplete the State's cash resources to pay its ongoing expenses. In
order to meet its cash needs, the State has had to rely for several years on a
series of external borrowings, including borrowings past the end of a fiscal
year. A full payment of $4 billion of revenue anticipation warrants will be made
on April 25, 1996. However, the State expects not to borrow over the end of the
1995-96 fiscal year, and expects to have significant available internal
borrowable cash resources and budget reserves at June 30, 1996. As a result of
the deterioration in the State's budget and cash situation, the State's credit
rating was reduced in July 1994 by the rating agencies.
The 1995-96 Budget Act is projected to have $44.1 billion of general fund
revenues and transfers and $43.4 billion of budgeted expenditures. In addition,
the 1995-96 Budget Act anticipates the retirement of the accumulated budget
deficit by June 30, 1996.
On December 6, 1994, Orange County, California (the "County"), together with
its pooled investment funds (the "Pools") filed for protection under Chapter 9
of the federal Bankruptcy Code, after reports that the Pools had suffered
significant market losses in their investments, causing a liquidity crisis for
the Pools and the County. The County has reported the Pools' loss at about $1.69
billion, or about 23 percent of their initial deposits of approximately $7.5
billion. Many of the entities which deposited moneys in the Pools, including the
County, faced interim and /or extended cash flow difficulties because of the
bankruptcy filing and may be required to reduce programs or capital projects.
<PAGE>
As of March 6, 1996, none of the Series' net assets were invested in
securities issued by Orange County.
PUERTO RICO -- RISK FACTORS. 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 1995 and 1996 will depend on several factors,
including the state of the U.S. economy, the relative stability of the price of
oil and borrowing costs.
We will not change our investment objective without shareholder approval. If
we determine that our objective can best be achieved by a change in investment
policy or strategy, we may make such change without shareholder approval by
disclosing it in our prospectus.
4 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 value of our shares is 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 the 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
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THE FOLLOWING $1 MILLION CATEGORY IS FOR THE CALIFORNIA 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
<PAGE>
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>
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 if
not sold to the general public ("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, the purchase will be at the sales charge applicable
to the aggregate of your intended purchases; if not completed, the 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.
The Series' shares also may be purchased at net asset value (a) at $1 million
or more after the commencement of the Series' Rule 12b-1 Plan, (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
<PAGE>
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.
RULE 12B-1 PLAN. We have adopted a Rule 12b-1 Plan (the "Plan") which goes into
effect on the first day of the calendar quarter following the Series' net assets
first reaching $100 million. The Plan authorizes the payment of distribution
fees to dealers (except as to certain accounts for which tracking data is not
available) in order to provide additional incentives for them (a) to provide
continuing information and investment services to their shareholder accounts and
otherwise to encourage their accounts to remain invested in the Series and (b)
to sell shares of the Series. Under the Plan, the Series pays Lord Abbett, who
passes on to dealers, (1) an annual fee for services (payable quarterly) of .25%
of the average daily net asset value of shares sold by dealers 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. Holders of
shares on which the 1% sales distribution fee has been paid 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 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. (An exception is made for redemptions by tax-qualified plans
under Section 401 of the Internal Revenue Code due to plan loan, hardship
withdrawals, death, retirement or separation from service wit respect to plan
participants.) If the shares have been exchanged into another Lord
Abbett-sponsored 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 fund. The Series will collect such a charge for
other Lord Abbett-sponsored 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 fund or series with a Rule 12b-1 Plan for which the payment provisions
have not been in effect for at least one year.
5 SHAREHOLDER SERVICES
We offer the following shareholder services:
Telephone Exchange Privilege: Shares of the Series may be exchanged, without a
service charge, for those of any other Fund 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 the 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. 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.
<PAGE>
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 Series 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).
6 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 the Series, pursuant to a Management Agreement ("Management Agreement").
This Management Agreement provides 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 $18 billion in a family of mutual
funds and advisory accounts. Under the Management Agreement, 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
portfolio and certain other costs. Lord Abbett provides similar services to the
other series of the Fund and 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
the 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
the Series for the month. In addition, we pay all expenses not expressly assumed
by Lord Abbett.
The Management Agreement relating to the 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 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 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 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.
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 the Series has one vote on all matters voted upon by the
Series and an equal right to dividends and distributions of the Series.
<PAGE>
All shares have noncumulative voting rights for the election of directors.
7 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 the 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. Exempt-interest dividends derived from interest income
on municipal bonds issued by the State of California and its political
subdivisions, agencies and instrumentalities and on obligations of the federal
government or certain other government authorities (for example, Puerto Rico)
paid to individual shareholders will be exempt from California personal income
tax. Such dividends may be subject to California franchise taxes and corporate
income taxes if received by a corporation subject to such taxes and to state and
local taxes in states other than California.
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.
ANNUAL INFORMATION - Information concerning the tax treatment of dividends and
other distributions will be mailed annually to shareholders. The Series will
also provide annually to its shareholders information regarding the source of
dividends and distributions of capital gains paid by the Series. You should
<PAGE>
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.
8 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.
9 PERFORMANCE
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
the 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 the 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 the Series' yield that
is not tax exempt. The 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 the 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>
LORD ABBETT
Statement of Additional Information March __, 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 March
__, 1996.
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 California, 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. Only California Series (sometimes referred to as the
"Series" or "we") is described in this Statement of Additional Information.
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 8
3. Investment Advisory and Other Services11
4. Portfolio Transactions 12
5. Purchases, Redemptions
and Shareholder Services 13
6. Taxes 17
7. Risk Factors Relating to California
Municipal and Puerto Rico Bonds 18
8. Past Performance 21
9. Further Information About the Fund 21
<PAGE>
1.
Investment Objective and Policies
The Series' 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, the Series is subject
to the following investment restrictions which cannot be changed without
approval of a majority of the outstanding shares of the Series. The 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) buy voting securities if the purchase would then cause it to own
more than 10% of the outstanding voting stock of any one issuer; (12) 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;
(13) invest more than 25% of its gross assets taken at market value in any one
industry (except that the Series may invest more than 25% of such gross assets
in tax-exempt securities); (14) 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 (15) issue
senior securities as defined in the Act (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, 11 and 13 above, in the future, upon
shareholder approval, 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 the Series will be able to exchange
Series shares for shares of the other Fund series and/or Series classes.
While 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 California personal income tax.
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
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)
To the extent that the Series is sold in the State of California, the 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
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. The Series may engage in options and financial futures transactions in
accordance with its investment objective and policies. Although of the Series is
not currently employing such options and financial futures transactions, and has
no current intention of doing so, it 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. The 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 the 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. The
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 the 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 the 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, the Series
could lose money on the financial futures contracts and also on the value of its
portfolio securities.
Options on Financial Futures Contracts. The 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. The 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 the
Series may expire worthless, in which case the Series would lose the premium
paid therefor.
Options on Securities. The 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 the 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. The 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 the Series to protect capital gains
in an appreciated security it owns, without being required to actually sell that
security. At times the 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, the 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, the 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 the 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 the Series' portfolio.
A brief description of such procedures is set forth below.
The Series only will engage in OTC options its transactions with dealers that
have been specifically approved by the Board of Directors of the Fund. The
Series and its 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 Series, plus the amount
invested by the Series in illiquid securities, would exceed 10% of the Series'
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
sells OTC options. Under these agreements the 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 the 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. The 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, the 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 the 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 the 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 the 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.
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 the Series may expire worthless, in which case the
Series would lose the premium paid therefor.
Delayed Delivery Transactions. The 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 the 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, has 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 engages in when-issued or delayed delivery purchases,
it 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 reserves 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, the 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, the Series
will not 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. The 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 Mr. Nordberg, who is not a director 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, age 60, Chairman Robert S. Dow, age 50, President E. Wayne Nordberg, age
59, Vice President
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. Age 54.
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. Age 65.
John C. Jansing
162 South Beach Road
Hobe Sound, Florida
Retired. Formerly Chairman of Independent Election Corporation of America, a
proxy tabulating firm. Age 70.
C. Alan MacDonald
The Noel Group
Two Greenwich Plaza, Suite 100
Greenwich, Connecticut
General Partner, The Marketing Partnership, Inc., a full service marketing
consulting firm that specializes in strategic planning and customer-specific
marketing. Formerly Acquisition Consultant, The Noel Group, a private consulting
firm (1994). Formerly Chairman and Chief Executive Officer of Lincoln Foods,
Inc., manufacturer of branded snack foods (1992-1994). Formerly President and
Chief Executive Officer of Nestle Foods Corporation, a subsidiary of Nestle S.A.
(Switzerland). Age 62.
Hansel B. Millican, Jr.
Rochester Button Company
1100 Noblin Avenue
South Boston, Virginia
President and Chief Executive Officer of Rochester Button Company. Age 67.
Thomas J. Neff
55 East 52nd Street
New York, New York
President of Spencer Stuart & Associates, an executive search consulting firm.
Age 58.
No compensation was accrued for the Fund's outside directors by the Series for
the fiscal year ended September 30, 1995. The third and fourth columns set forth
information with respect to the retirement plan for outside directors maintained
by the Lord Abbett-sponsored funds except for the Series. The fifth column sets
forth the total compensation payable by such funds to the outside directors. No
director of the Fund associated with Lord Abbett and no officer of the Fund
received any compensation from the Fund for acting as a director or officer.
<TABLE>
<CAPTION>
For the Fiscal Year Ended September 30, 1995
--------------------------------------------
(1) (2) (3) (4) (5)
Estimated Annual For Year Ended
Pension or Benefits Upon December 31, 1995
Retirement Benefits Retirement Proposed Total Compensation
Accrued by the other to be Paid by the Accrued by the other
Aggregate series of Fund and other series of Fund series of Fund and
Compensation Fifteen Other Lord and Fifteen Other Fifteen Other Lord
Accrued by Abbett-sponsored Lord Abbett- Abbett-sponsored
Name of Director the Series1 Funds sponsored Funds2 Funds3
- ---------------- ----------- ------------------- -------------------- -------------------
<S> <C> <C> <C>
E. Thayer Bigelow4 none $33,600 $8,400
Stewart S. Dixon none $33,600 $4,300
John C. Jansing none $33,600 $42,500
C. Alan MacDonald none $33,600 $41,500
Hansel B. Millican, Jr. none $33,600 $41,750
Thomas J. Neff none $33,600 $41,200
<FN>
1. Outside directors' fees, including attendance fees for board and committee
meetings, are allocated among all Lord Abbett-sponsored funds based on net
assets of each fund. Fees payable by the other series of Fund (and payable in
the future by the Series) to its outside directors are being deferred under a
plan that deems the deferred amounts to be invested in shares of the Fund for
later distribution to the directors. The amounts of the aggregate
compensation payable by the other series of Fund for the fiscal year ended
September 30, 1995 deemed invested in Fund shares, including dividends
reinvested and changes in net asset value applicable to such deemed
investments through the end of such year, were as follows: Mr. Bigelow, $__ ;
Mr. Dixon, $______; Mr. Jansing, $1_____; Mr. MacDonald, $_____; Mr.
Millican, $______ and Mr. Neff, $______.
2. Each Lord Abbett-sponsored fund has a retirement plan providing that outside
directors will receive annual retirement benefits for life equal to 80% of
their final annual retainers following retirement at or after age 72 with at
least 10 years of service. Each plan also provides for a reduced benefit upon
early retirement under certain circumstances, a pre-retirement death benefit
and actuarially reduced joint-and-survivor spousal benefits. The amounts
stated would be payable annually under such retirement plans if the director
were to retire at age 72 and the annual retainers payable by such funds were
the same as they are today. The amounts accrued in column 3 were accrued by
the Lord Abbett-sponsored funds (excluding the Series) during the fiscal year
ended September 30, 1995 with respect to the retirement benefits in column 4.
3. This column shows aggregate compensation, including director's fees and
attendance fees for board and committee meetings, of a nature referred to in
footnote one, accrued by the Lord Abbett-sponsored funds (excluding the
Series) during the year ended December 31, 1995.
4. Mr. Bigelow was elected a director of the Fund on October 19, 1994.
</FN>
</TABLE>
Except where indicated, the following executive officers of the Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Allen, Carper, Cutler, Henderson, Morris, Nordberg and Walsh are partners of
Lord Abbett; the others are employees: William T. Hudson, age 53, Executive Vice
President; Kenneth B. Cutler, age 63, Vice President and Secretary; Stephen I.
Allen, age 41; Daniel E. Carper, age 43; Robert S. Dow, age 50; Thomas S.
Henderson, age 63; Robert G. Morris, age 51, E. Wayne Nordberg, age 59; John J.
Gargana, Jr., age 64; Paul A. Hilstad, age 53 (with Lord Abbett since 1995 -
formerly Senior Vice President and General Counsel of American Capital
Management & Research, Inc.); Thomas F. Konop, age 53; Victor W. Pizzolato, age
63; John J. Walsh, age 58, Vice Presidents; and Keith F. O'Connor, age 40,
Treasurer.
The Fund's By-Laws provide that the Fund shall not hold an annual meeting of its
stockholders in any year unless one or more matters are required to be acted on
by stockholders under the Investment Company Act of 1940, as amended (the
"Act"), or unless called by a majority of the Board of Directors or by
stockholders holding at least one quarter of the stock of the Fund outstanding
and entitled to vote at the meeting. When any such annual meeting is held, the
stockholders will elect directors and vote on the approval of the independent
auditors of the Fund.
As of September 30, 1995, our officers and directors as a group owned less than
1% of our outstanding shares.
3.
Investment Advisory and Other Services
As described under "Our Management" in the Prospectus, Lord Abbett is the Fund's
investment manager. The nine 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, Robert
G. Morris, 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 the Management Agreement described in the Prospectus, we
are obligated to pay Lord Abbett a monthly fee, based on average daily net
assets of the 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.
Although not obligated to do so, Lord Abbett may waive, all or part of its
management fees or may assume, other expenses of the California 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 the 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 of the Fund 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.
The Bank of New York, 40 Wall Street, New York, New York 10286, serves as the
Fund's custodian.
4.
Portfolio Transactions
Our policy is to obtain best execution on all our portfolio transactions, which
means that we seek 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 and taking into account
the full range and quality of the brokers' services. Consistent with obtaining
best execution, we pay a commission rate determined to attract the services we
require, as described below. That rate may be higher or lower than other brokers
might charge on the same transactions. Our policy with respect to best execution
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.
Broker-dealers are selected on the basis of their professional capability and
the value and quality of their brokerage and research services. Normally, the
selection is made by traders who are officers of the Fund and also are employees
of Lord Abbett. These traders do the trading as well for other accounts --
investment companies (of which they are also officers) and other investment
clients -- managed by Lord Abbett. They are responsible for obtaining best
execution.
We pay a commission rate that we believe is appropriate to give maximum
assurance that our brokers will provide us, on a continuing basis, the highest
level of brokerage services available. While we do not always seek the lowest
possible commissions on particular trades, we believe that our commission rates
are in line with the rates that many other institutions pay. Our traders are
authorized to pay brokerage commissions in excess of those that other brokers
might accept on the same transactions in recognition of the value of the
services performed by the executing brokers, viewed in terms of either the
particular transaction or the overall responsibilities of Lord Abbett with
respect to us and the other accounts they manage. Such services include showing
us trading opportunities in a timely manner, including blocks, a 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 and reliability.
Some of these brokers also provide research services at least some of which are
useful to Lord Abbett in their overall responsibilities with respect to us and
the other accounts they manage. Research includes the furnishing of analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts and trading equipment and
computer software packages, acquired from third-party suppliers, that enable
Lord Abbett to access various information bases. Such services may be used by
Lord Abbett in servicing all their accounts, and not all of such services will
necessarily be used by Lord Abbett in connection with their management of the
Fund; conversely, such services furnished in connection with brokerage on other
accounts managed by Lord Abbett may be used in connection with their management
of the Fund, and not all of such services will necessarily be used by Lord
Abbett in connection with their advisory services to such other accounts. We
have been advised by Lord Abbett that research services received from brokers
cannot be allocated to any particular account, are not a substitute for Lord
Abbett's services but are supplemental to their own research effort and when
utilized, are subject to internal analysis before being incorporated by Lord
Abbett into their investment process. As a practical matter, it would not be
possible for Lord Abbett to generate all of the information presently provided
by brokers. While receipt of research services from brokerage firms has not
reduced Lord Abbett's normal research activities, the expenses of Lord Abbett
could be materially increased if it attempted to generate such additional
information through its own staff and purchased such equipment and software
packages directly from the suppliers.
No commitments are made regarding the allocation of brokerage business to or
among brokers, and trades are executed only when they are dictated by investment
decisions of the Fund to purchase or sell portfolio securities.
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
as 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. Other clients who direct that their brokerage
business be placed with specific brokers or who invest through wrap accounts
introduced to Lord Abbett by certain brokers may not participate with us in the
buying and selling of the same securities as described above. If these clients
wish to buy or sell the same security as we do, they may have their transactions
executed at times different from our transactions and thus may not receive the
same price or incur the same commission cost as we do.
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 therm of portfolio business.
If we tender portfolio securities pursuant to a cash tender offer, we will seek
to recapture any fees or commissions involved by designating Lord Abbett our
agent so that the fees may be passed back to us. As other legally permissible
opportunities come to our attention for the direct or indirect recapture by us
of brokerage commissions or similar fees paid on portfolio transactions, our
directors will determine whether we should or should not seek such recapture.
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. The maximum offering prices of our
shares on March 6, 1996 were computed as follows:
<TABLE>
<CAPTION>
California
Series
-----------
<S> <C>
Net asset value per
share (net assets divided by shares outstanding)......................................$4.76
Maximum offering
price per share (net asset value divided by .9525)....................................$5.00
</TABLE>
The California Series intends to commence operations on March 6, 1996. 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 Series, and to make reasonable efforts to sell Series shares so
long as, in Lord Abbett's judgment, a substantial distribution can be obtained
by reasonable efforts.
As described in the Prospectus, the 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 Plan, as described in the Prospectus, the
Plan must reach a specific asset level before becoming effective. In adopting
the Plan for the 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 the Plan will benefit the 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 the 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 Plan are described in the Prospectus. The 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. The 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. The
Plan may not be amended to increase materially the amount spent for distribution
expenses without approval by a majority of the outstanding voting securities of
the Series and the approval of a majority of the directors, including a majority
of the outside directors. The 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 the 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 the
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 the Series and is intended to reimburse all or a portion of the
amount paid by the Series if the shares are redeemed before the Series has had
an opportunity to realize the anticipated benefits of having a large, long-term
account in the 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 Fund mentioned above whose plans has not yet become effective
collectively, the "participating funds") 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 the 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 participating funds 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 if not offered to
the general public ("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 also may 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
The Series will be treated as a separate entity for federal income tax purposes.
As a result, the status of the Series as a regulated investment company is
determined separately by the Internal Revenue Service.
Moreover, dividends derived from interest on California municipal bonds or
obligations of the Federal government or certain other government authorities
(for example, Puerto Rico) will be exempt from California personal income tax
only if at least 50% of the Series' total assets are invested in any combination
of such obligations at the end of each fiscal quarter.
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 Series 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 Series.
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 Series 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 Series.
Shareholders will not be allowed to recognize for tax purposes any loss realized
on the redemption or repurchase of Series shares which they have held for six
months or less to the extent of any tax-exempt distributions received on the
shares.
<PAGE>
The value of any shares redeemed by the Series 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 Series
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 Series 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.
The 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 Series' 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, the 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
the Series' ability to engage in 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 Relating to
California Municipal and Puerto Rico Bonds
CALIFORNIA BONDS
Since the California Trust invests primarily in California municipal bonds, it
is affected by any political, economic or regulatory developments affecting the
ability of California issuers to pay interest or repay principal. Certain
provisions of the California Constitution and State statutes which limit the
taxing and spending authority of California governmental entities may impair the
ability of California issuers to maintain debt service on their obligations.
Based on certain recent official statements describing California municipal
bonds and other official statements of the State of California, the following is
a very brief summary of some of the above-mentioned developments.
General -
- -------
Recently, California has faced its worst economic, fiscal and budget
conditions since the 1930s. Construction, manufacturing (especially aerospace),
exports and financial services, among others, have all been severely affected;
agriculture has been hurt by weather conditions. Job losses have been the worst
of any post-war recession and continued through the end of 1993. The Department
of Finance now projects that non-farm employment levels will be stable in 1994
and show modest growth in 1995 but that pre-recession job levels will not be
reached for several more years. Unemployment is expected to remain well above
the National average through 1994. The Department of Finance foresees slow
recovery from the recession in California beginning in 1994. Both the California
and national economic recoveries are much weaker than in previous business
cycles, and could be harmed by several factors, including rising interest rates.
The recession seriously affected State tax revenues, which basically mirror
economic conditions. It also caused increased expenditures for health and
welfare programs. The State also is facing a structural imbalance in its budget
with the largest programs supported by the General Fund -- K-12 schools and
community colleges, health, welfare and corrections -- growing at rates higher
than the growth rates for the principal revenue sources of the General Fund. As
a result, the State experienced recurring budget deficits, with expenditures
exceeding revenues for four of the five fiscal years ending with 1991-92, and
were essentially equal in 1992-93. By June 30, 1994, the State's General Fund
had an accumulated deficit, on a budget basis, of approximately $2 billion.
<PAGE>
The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget, and
reduction of available internal borrowable funds, have combined to significantly
deplete the State's cash resources to pay its on going expenses. In order to
meet its cash needs, the State has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. To meet
its cash flow needs in the 1994-95 fiscal year, the State issued, in July and
August, 1994, $4 billion of revenue anticipation warrants which mature on April
25, 1996, and $3 billion of revenue anticipation notes maturing on June 28,
1995.
The 1994-95 Budget Act is projected to have $41.9 billion of General Fund
revenues and transfers and $40.9 billion of budgeted expenditures. In addition,
the 1994-95 Budget Act anticipates deferring retirement of about $1 billion of
the accumulated budget deficit to the 1995-96 fiscal year when it is intended to
be fully retired by June 30, 1996.
On July 15, 1994, all three of the rating agencies rating the State's long-term
debt lowered their ratings of the State's general obligation bonds. Moody's
Investors Service lowered its rating from "Aa" to "A1", Standard & Poor's
Ratings Group lowered its rating from "A+" to "A" and termed its outlook as
"stable", and Fitch Investors Service lowered its rating from "AA" to "A".
On January 17, 1994, an earthquake of the magnitude of an estimated 6.8 on the
Richter Scale struck Los Angeles causing significant damage to public and
private structures and facilities. Although some individuals and businesses
suffered losses totaling in the billions of dollars, the overall effect of the
earthquake on the regional and State economy is not expected to be serious.
Article XIII B of the California Constitution.
- ------------------------------------------------
In 1979, California voters
adopted Article XIII B to the California Constitution, imposing an
appropriations limit (the "Appropriations Limit") on the spending authority of
the State. Article XIII B was modified substantially by Propositions 98 and 111
in 1988 and 1990, respectively. (See "Proposition 98" below.)
Article XIII B prohibits the State from spending "appropriations subject to
limitation" in excess of the Appropriations Limit. "Appropriations subject to
limitation," with respect to the State, are authorizations to spend "proceeds of
taxes," which consist of tax revenues, and certain other funds, including
proceeds from regulatory licenses, user charges or other fees, to the extent
that such proceeds exceed "the cost reasonably borne by that entity in providing
the regulation, product or service," but "proceeds of taxes" exclude most State
subventions to local governments, tax refunds and some benefit payments such as
unemployment insurance. No limit is imposed on appropriations of funds which are
not "proceeds of taxes," such as reasonable user charges or fees and certain
other non-tax funds.
Not included in the Appropriations Limit are appropriations for the debt service
costs of bonds existing or authorized by January 1, 1979 or subsequently
authorized by the voters, appropriations required to comply with mandates of
courts or the federal government and, pursuant to Proposition 111,
appropriations for qualified capital outlay projects and appropriations of
revenues derived from any increase in gasoline taxes and motor vehicle weight
fees above January 1, 1990 levels. In addition, a number of recent initiatives
were structured to create new tax revenues dedicated to certain specific uses,
with such new taxes expressly exempted from the Article XIII B limits (e.g.,
increased cigarette and tobacco taxes enacted by Proposition 98 in 1988). The
Appropriations Limit also may be exceeded in cases of emergency. However, unless
the emergency arises from civil disturbance or natural disaster declared by the
Governor, and the appropriations are approved by two-thirds of the Legislature,
the Appropriations Limit for the succeeding three years must be reduced by the
amount of the excess.
Proposition 98.
- ---------------
On November 8, 1988, voters of the State approved Proposition
98, a combined initiative constitutional amendment and statute called the
"Classroom Instructional Improvement and Accountability Act." Proposition 98
changed State funding of public education below the university level and the
operation of the State Appropriations Limit, primarily by guaranteeing K-14
schools a minimum share of General Fund revenues.
Proposition 98 permits the Legislature, by two-thirds vote of both Houses with
the Governor's concurrence, to suspend the K-14 schools' minimum funding formula
for a one-year period. In the fall of 1989, the Legislature and the Governor
utilized this provision to avoid having 40.3% of revenues generated by a special
supplemental sales tax enacted for earthquake relief go to K-14 schools.
Proposition 98 also contains provisions transferring certain State tax revenues
in excess of the Article XIII B limit to K-14 schools.
The effect of these various constitutional and statutory amendments upon the
ability of California issuers to pay interest and principal on their obligations
remains unclear and in any event may depend upon whether a particular California
Municipal Bond is a general or limited obligation bond (limited obligation bonds
generally being less affected by such changes) and on the type of security, if
any, provided for the bond. It is possible that other measures affecting the
taxing or spending authority of the State of California or its political
subdivisions may be approved or enacted in the future.
PUERTO RICO BONDS
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 and paralleling 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.
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 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 (principally income
taxes, property taxes and excise taxes) 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.
8.
Past Performance
The 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 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.
The 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 (California - __%) and adding the product to that portion, if
any, of the Series' yield that is not tax exempt.
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 the
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.
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(b) Exhibits -
99.B1 Form of Articles Supplementary to Articles of
Incorporation******
99.B2 By-Laws*
99.B4 Form of Specimen Share Certificate******
99.B5 Management Agreement between Registrant and Lord,
Abbett & Co.*
99.B6 Form of Distribution Agreement*
99.B7 Retirement Plan for Non-interested Person
Directors and Trustees of Lord Abbett Funds.****
99.B8 Global Custody Agreement***
99.B9 Agreement between Registrant and Transfer Agent***
99.B10 Opinion and Consent of Counsel**
99.B14 Lord Abbett Prototype Retirements Plans*****
(1) 401(k)
(2) IRA
(3) 403(b)
(4) Profit-Sharing, and
(5) Money Purchases
99.B15 Form of Rule 12b-1 Plan (California Series)******
If an exhibit is not mentioned it is not applicable.
* Previously filed.
** To be filed.
*** Incorporated by reference to Post-Effective Amendment No.
4 to the Registrant's Registration Statement (on Form N-1A)
(File No. 811-6650).
**** 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).
****** Filed herewith.
Item 25. Person Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Record Holders of Securities
None
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 721-727 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, makes 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.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Lord, Abbett & Co. acts as investment advisor for seventeen, other open-end
investment companies (of which it is principal underwriter for fifteen),
and as investment adviser to approximately 5,100 private accounts. Other
than acting as 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 in
the capacity of director, officer, employee, partner or trustee of any
entity except as follows:
John J. Walsh
Trustee
The Brooklyn Hospital Center
100 Parkside Avenue
Brooklyn, N.Y.
<PAGE>
Item 29. Principal Underwriter
(a) Affiliated Fund, Inc.
Lord Abbett U. S. Government Securities Fund, Inc.
Lord Abbett Bond-Debenture Fund, Inc.
Lord Abbett Value Appreciation Fund, Inc.
Lord Abbett Developing Growth Fund, Inc.
Lord Abbett Tax-Free Income Fund, Inc.
Lord Abbett California Tax-Free Income Fund, Inc.
Lord Abbett Fundamental Value Fund, Inc.
Lord Abbett Global Fund, Inc.
Lord Abbett U. S. Government Securities Money Market Fund, Inc.
Lord Abbett Series Fund, Inc.
Lord Abbett Equity Fund
Lord Abbett Tax-Free Income Trust
Lord Abbett Securities Trust
Lord Abbett Investment Trust
Investment Advisor
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 and Director
Robert S. Dow President and Director
Thomas S. Henderson Vice President
Kenneth B. Cutler Vice President & Secretary
Stephen I. Allen Vice President
Daniel E. Carper Vice President
Robert G. Morris Vice President
E. Wayne Nordberg Vice President and Director
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 31a - 1(f) and
31a - 2(e) at its main office.
Certain records such as canceled 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
The Registrant undertakes to file a post-effective amendment to the
registration statement, using financial statements with respect to the
California Series which need not be certified, within four to six months
after the effective date of the registration statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant 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
20th day of December 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 Director December 20, 1995
/s/ John J. Gargana, Jr. Vice President & December 20, 1995
Chief Financial Officer
E. Thayer Bigelow Director
/s/ Stewart S. Dixon Director December 20, 1995
/s/ Robert S. Dow Director & President December 20, 1995
/s/ John C. Jansing Director December 20, 1995
/s/ C. Alan MacDonald Director December 20, 1995
/s/ Hansel B. Millican, Jr. Director December 20, 1995
Thomas J. Neff Director
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
99.B1 Form of Articles Supplementary to Articles of Incorporation
99.B4 Form of Specimen Share Certificate
99.B15 Form of Rule 12b-1 Plan (California Series)
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
LORD ABBETT TAX-FREE INCOME FUND, INC.
LORD ABBETT TAX-FREE INCOME FUND, INC., a Maryland Corporation, having
its principal office c/o The Prentice-Hall Corporation System, Maryland, 11 East
Chase Street, Baltimore, Maryland 21202 (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of
Maryland, that:
FIRST: The Corporation filed its original Articles of Incorporation with
the State Department of Assessments and Taxation on December 27, 1983.
SECOND: The capital stock of the Corporation has been further classified by
creating a new class of stock to be called the "California Series", consisting
of 40,000,000 shares.
THIRD: The capital stock of the Corporation has been classified by the
Board of Directors under the authority contained in Section 1 of Article V of
the Articles of Incorporation of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed
in its name and on its behalf by its Vice President and attested by its
Assistant Secretary on December , 1995.
LORD ABBETT TAX-FREE INCOME FUND, INC.
By
Kenneth B. Cutler
Vice President
ATTEST:
Thomas F. Konop
Assistant Secretary
<PAGE>
THE UNDERSIGNED, Vice President of LORD ABBETT TAX-FREE INCOME FUND,
INC., who executed on behalf of said Corporation the foregoing Articles
Supplementary to Articles of Incorporation, of which this certificate is made a
part, hereby acknowledges, in the name and on behalf of said Corporation, the
foregoing Articles Supplementary to Articles of Incorporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the approval thereof, are
true in all material respects, under the penalties of perjury.
Kenneth B. Cutler
Vice President
EXHIBIT 99.B4
LORD ABBETT TAX-FREE FUND, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
CALIFORNIA TAX-EXEMPT CLASS
CERTIFICATE NO. DATE SHARES ACCOUNT NO.
THIS IS TO CERTIFY THAT CUSIP NO.
is the registered holder of fully paid and non-assessable Shares, par
value $.001 per share, California Tax-Exempt class, of the capital stock of LORD
ABBETT TAX-FREE INCOME FUND, INC. (hereinafter called the "Corporation")
transferable on the books of the Corporation by the holder in person, or by duly
authorized attorney, upon surrender of this Certificate properly endorsed. This
Cerificate is not valid until couttersigned by a Transfer Agent and Registrar.
WITNESS the seal of the Corporation and the signatures of its duly
authorized officers.
Dated:
/s/ John J. Gargana, Jr. Ronald P. Lynch
Treasurer Chairman of the Board
Countersigned:
UNITED MISSOURI BANK OF KANSAS CITY,
National Association Transfer Agent and Registrar
By: DST Systems, Inc. SERVICE AGENT
(Kansas City, Missouri)
AUTHORIZED SIGNATURE
LORD ABBETT TAX-FREE INCOME FUND, INC.
CORPORATE SEAL
1983
MARYLAND
Rule 12b-1 Distribution Plan and Agreement
RULE 12b-1 DISTRIBUTION PLAN AND AGREEMENT dated as of the ____th day of
December, 1995 by and between LORD ABBETT TAX-FREE INCOME FUND, INC., a Maryland
corporation (the "Corporation") on behalf of its CALIFORNIA SERIES (the
"Series"), and LORD, ABBETT & CO., a New York partnership (the "Distributor").
WHEREAS, the Corporation is an open-end management investment company
and is registered as such under the Investment Company Act of 1940, as amended
(the "Act"); and the Distributor acts as the Corporation's distributor pursuant
to the Distribution Agreement between the Corporation and the Distributor, dated
the 29th day of February, 1984, as amended.
WHEREAS, the Corporation desires to adopt a Distribution Plan and
Agreement (the "Plan") for the Series with the Distributor, as permitted by Rule
12b-1 under the Act, pursuant to which the Series may make certain payments to
the Distributor for payment to broker-dealers with respect to the distribution
of shares of the Series.
WHEREAS, the Corporation's Board of Directors has determined that there
is a reasonable likelihood that the Plan will benefit the Series and its
shareholders.
NOW, THEREFORE, in consideration of the mutual covenants and of other
good and valuable consideration, receipt of which is hereby acknowledged, it is
agreed as follows:
1. The Corporation hereby authorizes the Distributor to enter into
distributor's agreements (the "Distributor's Agreements") with independent
broker-dealers appointed by the Distributor providing for the payment to such
broker-dealers of distribution fees which the Distributor receives from the
Series in order to provide additional incentives to the broker-dealers (i) to
sell shares of the Series and (ii) to provide continuing personal, information
and investment services to their shareholder accounts and otherwise to encourage
their accounts to remain invested in the Series. The provisions of sections 1
and 2 of the Plan go into effect (the "effective date") on the first day of the
calendar quarter subsequent to the Series' net assets reaching $100 million with
respect to accounts existing at the time and covered by Distributor's
Agreements, except with respect to certain accounts for which tracking data is
not available, such as street name accounts.
2. The Series shall pay to the Distributor pursuant to this Plan fees
(i) for services at an annual rate not to exceed .25 of 1% of the average daily
net asset value of the shares of the Series, sold on or after the effective
date, and held in each account covered by the Distributor's Agreements and .15
of 1% of the average daily net asset value of such shares, sold prior to the
effective date, and held in any such account; and (ii) in a one-time sales
distribution payment of 1% of the net asset value of such shares, sold on or
after the effective date, in the amount of $1 million or more. The fees
mentioned in (i) and (ii) of this paragraph are for the purposes mentioned in
(ii) and (i), respectively, of paragraph 1 of this Plan. In determining whether
a shareholder has made such an investment of $1 million or more, the investment
may be deemed to include the value of other shares of the Series and the value
of the shares of any other Lord Abbett sponsored fund or series that has a Rule
12b-1 plan deemed comparable to this Plan for this purpose by the Board of
Directors of the Corporation (a "Lord Abbett Rule 12b-1 Fund") which the
shareholder could include within the right of accumulation or statement of
intention privileges described in the Corporation's Prospectus as in effect at
such time. Such fees shall be calculated and paid quarterly, subject to change
by the Board of Directors of the Corporation in the manner contemplated in
paragraph 11 of this Plan.
3. If any shares subject to the 1% sales distribution fee described in
paragraph 2 are redeemed out of the family of funds sponsored by Lord Abbett on
or before the end of the twenty-fourth month after the month in which the shares
were purchased (the "twenty-fourth month end"), the shareholder will be required
to reimburse the Series by paying a contingent deferred reimbursement charge of
1% of the lesser of the cost or then net asset value of the shares; provided,
however, that such reimbursement charge shall not apply to redemptions by tax
qualified retirement plans under Section 401 of the Internal Revenue Code due to
plan loans, hardship withdrawals, death, retirement or separation from service
with respect to plan participants. If such shares in the Series are exchanged
for shares of another Lord Abbett Rule 12b-1 Fund and the shares of the other
fund are later redeemed out of the family before the twenty-fourth month end,
the 1% contingent deferred reimbursement charge will be collected by the other
Lord Abbett Rule 12b-1 Fund at the time of redemption and will be paid to the
Series. Effective the date hereof, the Series also will collect such a charge
for another Lord Abbett Rule 12b-1 Fund in a similar situation. Adoption of this
provision in similar Plans by the other Lord Abbett Rule 12b-1 Funds and their
shareholders represents the agreement of such funds to collect such charges from
their shareholders. The timing, categories and calculation of this charge may be
changed by the Corporation's Board of Directors in the manner contemplated in
paragraph 11 of this Plan.
4. Subject to the limits in paragraph 2, the Distributor may use such
amounts received from the Series to finance any activity which is primarily
intended to result in the sale of shares of the Series including, but not
limited to, commissions or other payments relating to selling or servicing
efforts, provided: (i) that the Corporation's Board of Directors (in the manner
contemplated in paragraph 11 of this Plan) shall have approved the timing,
categories and calculation of such payments, and (ii) the Distributor shall
neither retain any portion of such payments, nor use such payments for its
obligations under the above-mentioned Distribution Agreement.
5. The value of the net assets of the Series shall be determined as
provided in the Articles of Incorporation of the Corporation. If the Distributor
waives all or a portion of fees which are to be paid by the Series hereunder,
the Distributor shall not be deemed to have waived its rights under this
Agreement to have the Series pay such fees in the future.
<PAGE>
6. The Secretary of the Corporation, or in his absence the Chief
Financial Officer, is hereby authorized to direct the disposition of monies paid
or payable by the Series hereunder and shall provide to the Corporation's Board
of Directors, and the Directors shall review, at least quarterly, a written
report of the amounts so expended pursuant to this Plan and the purposes for
which such expenditures were made.
7. Neither this Plan nor any other transaction between the parties
hereto pursuant to this Plan shall be invalidated or in any way affected by the
fact that any or all of the directors, officers, stockholders, or other
representatives of the Corporation are or may be "interested persons" of the
Distributor, or any successor or assignee thereof, or that any or all of the
directors, officers, partners, or other representatives of the Distributor are
or may be "interested persons" of the Corporation, except as otherwise may be
provided in the Act.
8. The Distributor shall give the Corporation the benefit of the
Distributor's best judgment and good faith efforts in rendering services under
this Plan. Other than to abide by the provisions hereof and render the services
called for hereunder in good faith, the Distributor assumes no responsibility
under this Plan and, having so acted, the Distributor shall not be held liable
or held accountable for any mistake of law or fact, or for any loss or damage
arising or resulting therefrom suffered by the Corporation, the Series or any of
the stockholders, creditors, directors, or officers of the Corporation; provided
however, that nothing herein shall be deemed to protect the Distributor against
any liability to the Corporation or the Series' stockholders by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties hereunder, or by reason of the reckless disregard of its obligation and
duties hereunder.
9. This Agreement shall be effective upon the date hereof (subject to
the effective date provisions of section 1), and shall continue in effect for a
period of more than one year from such date only so long as such continuance is
specifically approved at least annually by a vote of the Board of Directors of
the Corporation, including the vote of a majority of the directors who are not
"interested persons" of the Corporation and who have no direct or indirect
financial interest in the operation of this Plan or in any agreement related to
the Plan, cast in person at a meeting called for the purpose of voting on such
renewal.
10. This Plan may not be amended to increase materially the amount to
be spent by the Series hereunder without the vote of a majority of its
outstanding voting securities and each material amendment must be approved by a
vote of the Board of Directors of the Corporation, including the vote of a
majority of the directors who are not "interested persons" of the Corporation
and who have no direct or indirect financial interest in the operation of this
Plan or in any agreement related to the Plan, cast in person at a meeting called
for the purpose of voting on such amendment .
11. Amendments to this Plan other than material amendments of the kind
referred to in the forgoing paragraph 10 may be adopted by a vote of the Board
of Directors of the Corporation, including the vote of a majority of the
directors who are not "interested persons" of the Corporation and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement related to this Plan. The Board of Directors of the Corporation may,
by such a vote, interpret this Plan and make all determinations necessary or
advisable for its administration.
12. This Plan may be terminated at any time without the payment of any
penalty by (a) the vote of a majority of the directors of the Corporation who
are not "interested persons" of the Corporation and have no direct or indirect
financial interest in the operation of this Plan or in any agreement related to
the Plan, or (b) by vote of a majority of the outstanding voting securities of
the Series. This Plan shall automatically terminate in the event of its
assignment. The terms "interested persons," "assignment" and "vote of a majority
of the outstanding voting securities" shall have the same meaning as those terms
are defined in the Act.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and on its behalf by its duly authorized representative
as of the date first above written.
LORD ABBETT TAX-FREE INCOME FUND, INC.
By:
Chairman of the Board
ATTEST:
Assistant Secretary
LORD, ABBETT & CO.
By:
Partner
