Draft -- February 23, 1996
1940 Act File No. 811-3942
1933 Act File No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. __
[ ] Post-Effective Amendment No. __
LORD ABBETT TAX-FREE INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
The General Motors Building, 767 Fifth Avenue
New York, New York 10153
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: 800-426-1130
Kenneth B. Cutler
Vice President and Secretary
Lord Abbett Tax-Free Income Fund, Inc.
The General Motors Building
767 Fifth Avenue
New York, New York 10153
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the registration statement.
NO FILING FEE IS REQUIRED BECAUSE AN INDEFINITE NUMBER OF SHARES ARE BEING
REGISTERED PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON
MARCH , 1996 PURSUANT TO RULE 488.
<PAGE>
<TABLE>
<CAPTION>
LORD ABBETT TAX-FREE INCOME FUND, INC.
============================================================================================
CROSS-REFERENCE SHEET
ITEMS REQUIRED BY FORM N-14
- - --------------------------------------------------------------------------------------------
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- - ---------------------- ------------------
<S> <C>
1. Beginning of Registration Statement and Outside Cover Page of Registration Statement;
Front Cover Page of Prospectus Cover Page of Proxy Statement and
Prospectus
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Fee Table, Synopsis and Risk Factors Fee Table; Summary of Proposal
4. Information about the Transaction Summary of Proposal; Information
About the Reorganization
5. Information about the Registrant Summary of Proposal; Comparative
Information about the Acquiring Fund
and the Acquired Fund; Additional
Information; Prospectus of Lord
Abbett Tax-Free Income Fund, Inc.
dated February 1, 1996
6. Information about the Company Being Acquired Summary of Proposal; Comparative
Information about the Acquiring Fund
and the Acquired Fund
7. Voting Information Special Meeting of Shareholders of
the Acquired Fund; Notice of Special
Meeting of Shareholders; Summary of
Proposal
8. Interest of Certain Persons and Experts Additional Information
9. Additional Information Required for Reoffering Not Applicable
by Persons Deemed to be Underwriters
</TABLE>
<PAGE>
<TABLE>
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PART B STATEMENT OF ADDITIONAL
ITEM NO. ITEM CAPTION INFORMATION CAPTION
- - ---------------------- -------------------
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information about the Registrant Cover Page of Proxy Statement and
Prospectus; Acquiring Fund State-
ment of Additional Information
incorporated by reference.
13. Additional Information about the Company Being Cover Page of Proxy Statement and
Acquired Prospectus; Acquired Fund Statement
of Additional Information incor-
porated by reference.
14. Financial Statements Pro-forma Financial Statements
PART C
ITEM NO. PART C CAPTION
- - -------- --------------
15. Indemnification Indemnification
16. Exhibits Exhibits
17. Undertakings Undertakings
Signatures
</TABLE>
<PAGE>
[Letterhead of Lord Abbett Securities Trust - Lord Abbett National Tax-Free
Income Trust]
FROM THE CHAIRMAN OF THE BOARD
- - ------------------------------
Dear Shareholder,
Lord, Abbett & Co. is the investment manager for two funds with
substantially similar investment objectives and policies: your Fund and the
National Series, a series of Lord Abbett Tax-Free Income Fund, Inc. (the
"Acquiring Fund"). To eliminate the offering of substantially identical funds
and to take advantage of potential economies of scale, the Board of Trustees of
your Fund has recommended that your Fund combine with the Acquiring Fund.
If approved and consummated, this proposed combination of your Fund and
the Acquiring Fund will be a tax-free reorganization for Federal income tax
purposes.
You are also being asked to ratify the selection of Deloitte & Touche LLP
as your Fund's independent accountants. A shareholder vote is required on this
matter in case the proposed combination is not consummated.
The proposal is subject to the approval of shareholders of your Fund at a
meeting to be held in New York on June 19, 1996 at 10:00 a.m.
YOUR VOTE ON THESE ISSUES IS CRITICAL. TO ENSURE THAT YOUR VOTE IS
COUNTED, IT IS IMPORTANT THAT YOU:
1. REVIEW THE ENCLOSED PROXY STATEMENT AND PROSPECTUS;
2. COMPLETE AND SIGN THE ENCLOSED PROXY CARD; AND
3. RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE.
Your prompt response will help save your Fund the expense of additional
solicitations.
We encourage you to review the enclosed materials. Because we believe
this combination of funds is in the best interests of shareholders, we encourage
you to vote in favor of this proposal.
Sincerely,
Ronald P. Lynch
Chairman of the Board
April 17, 1996
<PAGE>
LORD ABBETT SECURITIES TRUST -
LORD ABBETT NATIONAL TAX-FREE INCOME TRUST
767 Fifth Avenue
New York, New York 10153
Telephone No. (800) 426-1130
Notice of a Special Meeting of Shareholders
to be held on June 19, 1996 April 17, 1996
Notice is given hereby of a special meeting of the shareholders of Lord Abbett
Securities Trust. The meeting will be held in the offices of Lord, Abbett &
Co., on the 11th floor of The General Motors Building, 767 Fifth Avenue, New
York, New York on June 19, 1996, at 10:00 a.m. for the following purposes and to
transact such other business as may properly come before the meeting and any
adjournments thereof.
ITEM 1. To consider and act upon an Agreement and Plan of Reorganization
between Lord Abbett National Tax-Free Income Trust (the "Acquired
Fund"), a series of Lord Abbett Securities Trust, and the National
Series, a series of Lord Abbett Tax-Free Income Fund, Inc. (the
"Acquiring Fund") providing for (a) the transfer of all of the assets
of the Acquired Fund to the Acquiring Fund in exchange for shares of a
new class of the Acquiring Fund (to be designated "Class C Shares") and
the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund, (b) the distribution of such Class C Shares to the
shareholders of the Acquired Fund and (c) the subsequent termination of
the Acquired Fund. A vote in favor of this Item 1 will be deemed to be
a vote to authorize the Acquired Fund, as the sole shareholder of Class
C Shares prior to this reorganization, to approve a proposed
distribution plan pursuant to Section 12 of the Investment Company Act
of 1940, as amended, and Rule 12b-1 thereunder applicable to that
class.
ITEM 2. To ratify the selection of Deloitte & Touche LLP as the independent
auditors of the Lord Abbett Securities Trust for the current fiscal
year.
By order of the Board of Trustees
Kenneth B. Cutler
Vice President and Secretary
The Board of Trustees has fixed the close of business on March 22, 1996 as the
record date for determination of shareholders of the Acquired Fund entitled to
notice of and to vote at the meeting. Shareholders are entitled to one vote for
each share held. As of March 22, there were ____ shares of the Acquired Fund
issued and outstanding.
<PAGE>
________________________________________________________________________________
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD.
SIGN, DATE AND RETURN IT IN THE ENVELOPE PROVIDED.
TO SAVE THE COST OF ADDITIONAL SOLICITATIONS, PLEASE MAIL YOUR PROXY PROMPTLY.
________________________________________________________________________________
<PAGE>
PROXY STATEMENT AND PROSPECTUS DATED MARCH , 1996
ACQUISITION OF THE ASSETS OF
Lord Abbett National Tax-Free Income Trust, a series of
Lord Abbett Securities Trust
The General Motors Building, 767 Fifth Avenue
New York, NY 10153
(800) 426-1130
BY AND IN EXCHANGE FOR CLASS C SHARES OF
National Series, A SERIES OF
Lord Abbett Tax-Free Income Fund, Inc.
The General Motors Building, 767 Fifth Avenue
New York, NY 10153
(800) 426-1130
This Proxy Statement and Prospectus relates to Class C shares (the "Class
C shares") of the National Series (the "Acquiring Fund"), a series of Lord
Abbett Tax-Free Income Fund, Inc. (the "Income Fund") to be issued to, and in
exchange for all the assets of, Lord Abbett National Tax-Free Income Trust (the
"Acquired Fund" and, together with the Acquiring Fund, the "Funds"), a series of
Lord Abbett Securities Trust (the "Trust"). In exchange for such assets, the
Acquiring Fund will also assume all of the liabilities of the Acquired Fund.
Following receipt of the Acquiring Fund Class C shares, the Acquired Fund will
be terminated and the Class C shares will be distributed to the shareholders of
the Acquired Fund. The shareholders of the Acquired Fund are being asked to
vote to approve or disapprove these proposed transactions (the
"Reorganization"), which are more fully described in this Proxy Statement and
Prospectus.
The Income Fund and the Trust are open-end diversified investment
management companies. The Acquired Fund seeks as high a level of interest income
exempt from federal income tax as is consistent with preservation of capital.
The Acquiring Fund currently has the same investment objective but is seeking
shareholder approval of the following amended objective: to seek as high a
level of interest income exempt from federal income tax as is consistent with
reasonable risk. Lord, Abbett & Co. ("Lord Abbett") serves as investment
manager to both Funds.
The Class C shares of the Acquiring Fund will be a newly-created class of
shares that will share pro-rata with the existing class of Acquiring Fund shares
(the "Class A shares") in the portfolio, income and expenses of the Acquiring
Fund, except that each class will bear the expense of its own distribution and
shareholder servicing arrangements and certain other expenses. See "Information
About the Reorganization -- Shares of the Acquiring Fund." The distribution and
shareholder servicing arrangements for the Class C shares will be substantially
the same as the arrangements currently applicable to the Acquired Fund shares.
The trustees of the Trust believe that the proposed transaction will enable the
shareholders of the Acquired Fund to benefit from economies of scale while
continuing to invest in a portfolio of securities managed by Lord Abbett under
an investment objective substantially
<PAGE>
similar to that of the Acquired Fund. See "Information About the Reorganization
- - -- Reasons for the Reorganization."
This Proxy Statement and Prospectus sets forth concisely the information
about the Acquiring Fund that a shareholder of the Acquired Fund should know
before voting on the Reorganization. It should be read and retained for future
reference. Attached as Exhibit A to this Proxy Statement and Prospectus is a
copy of the Agreement and Plan of Reorganization (the "Plan") for the
Reorganization. This Proxy Statement and Prospectus is accompanied by the
Prospectus of the Acquiring Fund dated February 1, 1996 (the "Acquiring Fund
Prospectus"), which Prospectus is incorporated by reference herein. Also
incorporated herein by reference are (a) the Statement of Additional Information
dated the date hereof relating to this Proxy Statement and Prospectus, including
the Statement of Additional Information of the Trust dated December 27, 1994 and
the Statement of Additional Information of the Acquiring Fund dated February 1,
1996, and (b) the Prospectus of the Trust dated December 27, 1994 (the
"Acquired Fund Prospectus") [a pre-effective amendment is to be filed to
incorporate by reference the Prospectus and Statement of Additional Information
of Lord Abbett Securities Trust to be dated March 1, 1996]. Such Statements of
Additional Information and the Acquired Fund Prospectus are available, upon oral
or written request, and at no charge, from the Acquiring Fund, at its above-
noted telephone number and address.
TABLE OF CONTENTS
SPECIAL MEETING OF SHAREHOLDERS OF THE ACQUIRED FUND .....................2
FEE TABLE ................................................................4
ITEM 1. - APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION ...........5
SUMMARY OF PROPOSAL .................................................5
INFORMATION ABOUT THE REORGANIZATION ................................7
COMPARATIVE INFORMATION ABOUT THE
ACQUIRING FUND AND THE ACQUIRED FUND ............................11
ITEM 2. - RATIFICATION OR REJECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS .....................................14
ADDITIONAL INFORMATION ..................................................14
Exhibit A - Agreement and Plan of Reorganization
Exhibit B - Comparison of Current and Proposed Investment Policies and
Restrictions
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>
SPECIAL MEETING OF SHAREHOLDERS OF THE ACQUIRED FUND
This Prospectus and Proxy Statement is furnished in connection with the
solicitation of proxies by and on behalf of the Board of Trustees of the Trust
on behalf of the Acquired Fund to be used at a Special Meeting of Shareholders
of the Trust to be held at 10:00 a.m. on June 19, 1996, at the offices of Lord
Abbett on the 11th floor of the General Motors Building, 767 Fifth Avenue, New
York, New York 10153, and at any adjournments thereof. This Prospectus and
Proxy Statement and the enclosed proxy card are first being mailed to
shareholders of the Acquired Fund on or about April 17, 1996.
At the close of business on March 22, 1996 (the "Record Date"), there were
issued and outstanding ____ shares of the Acquired Fund. Only shareholders of
record as of the close of business on the Record Date will be entitled to notice
of, and to vote at, the meeting or any adjournment thereof. Shareholders of the
Acquired Fund are entitled to one vote for each share. Under Delaware law,
shares owned by two or more persons (whether as joint tenants, co-fiduciaries or
otherwise) will be voted as follows, unless a written instrument or court order
providing to the contrary has been filed with the Secretary of the Acquired
Fund: (1) if only one votes, that vote binds all; (2) if more than one votes,
the vote of the majority binds all; and (3) if more than one votes and the vote
is evenly divided, the vote will be cast proportionately.
Approval of the Plan and the Reorganization will require the affirmative
vote of a majority of the shares of the Acquired Fund voted on the matter. One-
third of the aggregate number of shares of the Acquired Fund shall be necessary
to constitute a quorum for approval of the Plan and the Reorganization. Shares
with respect to which there is an abstention or broker non-vote shall be counted
for quorum purposes and shall not be treated as "voted" for purposes of
determining whether the proposal has passed. If the enclosed form of proxy is
properly executed and returned in time to be voted at the meeting, the proxies
named therein will vote the shares represented by the proxy in accordance with
the instructions marked thereon. A proxy may be revoked by the signer at any
time at or before the meeting by written notice to the Acquired Fund, by
execution of a later-dated proxy or by voting in person at the meeting. Unless
revoked, all valid proxies will be voted in accordance with the specifications
thereon or, in the absence of such specifications, FOR approval of the Plan and
the Reorganization, FOR ratification of the selection of Deloitte & Touche as
the Acquired Fund's independent auditors and on any other matters as deemed
appropriate.
Proxies will be solicited by mail. Additional solicitations may be made
by telephone, facsimile or personal contact by officers or employees of Lord
Abbett and its affiliates. The Acquired Fund may also request brokerage houses,
custodians, nominees, and fiduciaries who are shareholders of record to forward
proxy material to the beneficial owners. D. F. King & Co. has been retained to
assist in the solicitation of proxies at an estimated cost of $_______. The
cost of the solicitation will be borne by ______________.
In the event that sufficient votes to approve the Plan are not received by
the meeting date, the persons named as proxies may propose one or more
adjournments of the meeting to permit further solicitation of proxies. In
determining whether to adjourn the meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast and the nature of any further solicitation and any
information to be provided to shareholders with respect to such
2
<PAGE>
a solicitation. Any such adjournment will require an affirmative vote of a
majority of the shares present in person or by proxy and entitled to vote at the
meeting. The persons named as proxies will vote upon such adjournment after
consideration of the best interests of all shareholders.
If the Plan is not approved by the shareholders of the Acquired Fund, or
if the Reorganization is not consummated for any other reason, the Acquired Fund
will continue to engage in business as a series of the Trust.
3
<PAGE>
FEE TABLE
Set forth below is a summary comparison of the expenses of (a) the shares
of the Acquiring Fund (currently, the only class of Acquiring Fund shares, to be
designated "Class A"), (b) the shares of the Acquired Fund and (c) on a pro-
forma basis after giving effect to the Reorganization, the Class C shares of the
Acquiring Fund (to be issued in the Reorganization in exchange for the shares of
the Acquired Fund). The annual operating expenses shown in the summary
comparison for the Acquiring Fund shares and the Acquired Fund shares are the
actual expenses for the fiscal years ending September 30, 1995 and October 31,
1995, respectively, and those shown on a pro-forma basis for the Class C shares
of the Acquiring Fund are the estimated expenses of such shares for the
subsequent year had the Reorganization occurred on November 1, 1994. The
example set forth below is not a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION
EXPENSES ACQUIRING FUND SHARES
(AS A PERCENTAGE OF (TO BE DESIGNATED ACQUIRING FUND
OFFERING PRICE) CLASS A) ACQUIRED FUND SHARES CLASS C SHARES (PRO-FORMA)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Load on 4.75%/(2)/ None/(3)/ None/(3)/
Purchases/(1)/
- - ------------------------------------------------------------------------------------------------------------------------------------
Deferred Sales Load /(1)/ None/(2)/ 1.00%/(4)/ 1.00%/(4)/
- - ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
- - ------------------------------------------------------------------------------------------------------------------------------------
Management Fee 0.49% 0.00%/(6)/ 0.50%/(5)/
- - ------------------------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Fees 0.24% /(2)/ 0.93%/(3)/ 0.93%/(3)(5)/
- - ------------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.09% 0.40% 0.09%/(5)/
- - ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 0.82% 1.33% 1.52%/(5)/
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Example: Assume each Fund's 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 distributions, you would pay the following total expenses if you closed
your account after the number of years indicated.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
ACQUIRING FUND CLASS A SHARES /(7)/ $55 $72 $91 $144
ACQUIRED FUND SHARES /(7)/ $14 $42 $73 $160
ACQUIRING FUND CLASS C SHARES $16 $49 $84 $183
(PRO-FORMA)/(7)/
/(1)/ Sales "load" is referred to as sales "charge" and "deferred sales load"
is referred to as "contingent deferred reimbursement charge" throughout
this Proxy Statement and Prospectus.
/(2)/ See "Purchases" in the Acquiring Fund Prospectus accompanying this Proxy
Statement and Prospectus for descriptions of the front-end sales charges,
the 1% contingent deferred reimbursement charges payable on sales and
certain redemptions of these shares and the Rule 12b-1 plan applicable to
the shares of the Acquiring Fund.
/(3)/ Although the Acquired Fund does not, and the Acquiring Fund will not with
respect to the Class C shares, charge a front-end sales charge, investors
should be aware that long-term shareholders may pay, under the Rule 12b-1
plan of the Acquired Fund and under the Rule 12b-1 plan to be applicable
to the Class C shares of the Acquiring Fund (which pays and will pay
annual 0.25% service and 0.75% distribution fees), more than the economic
equivalent of the maximum front-end sales charge as permitted by certain
rules of the National Association of Securities Dealers, Inc.
/(4)/ Redemptions of the Acquired Fund shares are, and redemptions of the Class
C shares will be, subject to a 1% contingent deferred reimbursement
charge if the redemption occurs before the first anniversary of the share
purchase. For this purpose, Class C shares received in the Reorganization
will be deemed to have been purchased on the date the holders purchased
or were deemed to purchase the shares of the Acquired Fund exchanged for
such Class C shares. See "12b-1 Plans" under "Information About
Reorganization."
/(5)/ The expenses of the Acquiring Fund Class C Shares are estimated.
Currently, Lord Abbett does not intend to waive its management fee for
the years subsequent to the Reorganization with respect to Class C shares
of the Acquiring Fund.
/(6)/ Lord Abbett waived its management fee with respect to the Acquired Fund
during the past year (and continues to do so). The management fee would
have been 0.50% absent such waiver.
/(7)/ Based on total operating expenses or estimated operating expenses shown
in the table above.
The foregoing is provided to assist shareholders of the Acquired Fund in
understanding the various expenses the holders of the shares of the Acquiring
Fund and the holders of shares of the Acquired Fund have incurred and that
holders of the shares of the Acquired Fund might incur as holders of the Class C
shares following the Reorganization.
4
<PAGE>
ITEM 1. - APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION
SUMMARY OF PROPOSAL
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Proxy Statement and Prospectus and is
qualified in its entirety by reference to such information.
OVERVIEW OF PROPOSED REORGANIZATION. The Plan provides for the transfer to the
Acquiring Fund of all of the assets of the Acquired Fund in exchange for Class C
shares and the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund. The Class C shares will then be distributed to the Acquired Fund
shareholders and the Acquired Fund will be terminated. As a result of the Reor
ganization, each shareholder of the Acquired Fund will become the owner of that
number of full and fractional Class C shares having an aggregate net asset value
equal to the aggregate net asset value of their shares of the Acquired Fund, as
of the close of business on the date the Acquired Fund assets are transferred to
the Acquiring Fund. Consummation of the Reorganization is subject to the
approval of the Acquired Fund's shareholders and other conditions, including
Acquiring Fund shareholder approval of an amendment to the Income Fund's
Articles of Incorporation authorizing the creation of the Class C shares.
To avoid a need to call an Acquiring Fund shareholders' meeting after the
Reorganization, shareholders of the Acquired Fund are being asked to authorize
the Acquired Fund, as the sole Class C shareholder of the Acquiring Fund before
the Reorganization, to approve the proposed distribution plan for the Class C
shares. A vote in favor of the Reorganization will be deemed also to be a vote
to authorize the Acquired Fund to take such action.
The trustees of the Acquired Fund believe that the proposed Reorganization
will enable the shareholders of the Acquired Fund to benefit on a long-term
basis from economies of scale while continuing to invest in a portfolio of
securities managed by Lord Abbett under the same investment objective as that of
the Acquired Fund. See "Information About the Reorganization -- Reasons for
Reorganization" for additional information about the reasons for the
Reorganization.
BUSINESSES OF THE ACQUIRED AND ACQUIRING FUNDS. The Acquired Fund is a
diversified series of the Trust, an open-end management investment company
organized as a Delaware business trust under an Agreement and Declaration of
Trust dated February 26, 1993. The Trust offers ten series, one of which is the
Acquired Fund, each consisting of one class of shares. The Acquired Fund
commenced investment operations on October 31, 1993. As of December 31, 1995,
the Acquired Fund's net assets were approximately $44 million.
The Acquiring Fund is a diversified series of the Income Fund, an open-end
management investment company incorporated under Maryland law on December 27,
1983. To date, the Acquiring Fund offers ten series, one of which is the
Acquiring Fund, each consisting of one class of shares. As of December 31,
1995, the Acquiring Fund's net assets were approximately $668 million.
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE ACQUIRED FUND AND THE ACQUIRING FUND.
The Acquired Fund and Acquiring Fund have identical investment objectives. The
Acquired Fund seeks as high a level of interest income exempt from federal
income tax as is consistent with preservation of capital. The Acquiring Fund
currently has the same investment objective but is seeking shareholder approval
of the following amended objective: to seek as high a level of interest income
exempt from federal income tax as is consistent with reasonable risk. The two
Funds also have generally similar investment policies and restrictions. The
Acquiring Fund is seeking to revise and reclassify certain of its investment
policies and restrictions in order to provide greater flexibility in managing
the investment portfolio of the Acquiring Fund. Most importantly, a number of
the investment policies and restrictions that are classified as fundamental for
the Acquired Fund are to be re-classified as non-fundamental for the Acquiring
Fund. See "Comparative Information About the Acquiring Fund and the Acquired
Fund -- Investment Objectives, Policies and Restrictions."
The portfolio of the Acquired Fund is expected to be suitable for the
Acquiring Fund, and so no significant realignment of that portfolio is expected
in connection with the Reorganization.
PURCHASES AND EXCHANGES. Shares of the Acquired Fund are, and Class C shares
will be, available through certain authorized dealers at the public offering
price, which is the net asset value per share. See "Information About the
Reorganization -- Shares of the Acquiring Fund." Shareholders of the Acquired
Fund may now exchange their shares for shares of the other nine series of the
Trust and for the shares of Lord Abbett U.S. Government Securities Money Market
Fund, Inc. It is expected that holders of Class C shares will be able to
exchange their shares for Class C shares of up to 13 other funds and series
managed by Lord Abbett. Each exchange represents a sale of shares for which a
shareholder may have to recognize a gain or loss under Federal income tax
provisions.
RULE 12b-1 PLAN. The Acquired Fund has adopted a plan pursuant to Section 12(b)
of the Investment Company Act of 1940 (the "1940 Act") and Rule 12b-1 thereunder
(a "Rule 12b-1 Plan"), under which it pays service and distribution fees at the
time shares are sold not to exceed 1% of the net asset value of such shares and
at each quarter-end after the first anniversary of the sale of shares at an
annual rate not to exceed 1% of the net asset value of such shares then
outstanding. As part of the Reorganization, the Acquiring Fund will adopt a
Rule 12b-1 Plan applicable to the Class C shares that will be substantially the
same as the Acquired Fund's Rule 12b-1 Plan, except as noted below under
"Information About the Reorganization -- Rule 12b-1 Plan".
DIVIDEND POLICIES AND OPTIONS. The Acquired Fund distributes net investment
income monthly as a dividend. It may also pay supplemental dividends and
capital gains distributions in December or January. The Acquiring Fund has a
similar dividend and distribution policy. The shareholders of each Fund may
reinvest such dividends and distributions in additional shares at net asset
value or take such amounts in cash.
REDEMPTION PROCEDURES. The redemption procedures of the Acquired Fund and the
Acquiring Fund are substantially the same. See the Acquiring Fund Prospectus
under "Redemptions."
6
<PAGE>
TAX CONSIDERATIONS. The consummation of the Reorganization is subject to
receipt of an opinion of counsel, substantially to the effect that, among other
things, the Reorganization will not cause a gain or loss to be recognized by the
Acquired Fund or its shareholders for federal income tax purposes. See
"Information about the Reorganization--Federal Income Tax Considerations."
RISK FACTORS. Because of the similarities in the investment objectives of the
Funds, Lord Abbett believes that the relative risks involved in investing in the
Funds can be considered similar. However, the investment policies and
restrictions of the Acquiring Fund have been made less restrictive compared to
those of the Acquired Fund in order to provide greater flexibility in the future
management of the investment portfolio of the Acquiring Fund. If the Acquiring
Fund were to take to any significant extent the actions permitted by these less
restrictive policies and restrictions, a result not now anticipated, the risks
of investing in the Acquiring Fund could be greater than those involved in
investing in the Acquired Fund. See "Comparative Information About the
Acquiring Fund and the Acquired Fund -- Investment Objectives, Policies and
Restrictions" below.
INFORMATION ABOUT THE REORGANIZATION
THE PLAN. On July 12, 1996, assuming the conditions referred to below are
satisfied, the Acquired Fund will transfer all its assets to the Acquiring Fund
(the date of such transfer is referred to herein as the "Closing Date") in
exchange for (i) Class C shares of the Acquiring Fund having an aggregate net
asset value equal to the aggregate value of the assets, less liabilities, of the
Acquired Fund and (ii) the assumption by the Acquiring Fund of all the
liabilities of the Acquired Fund. The Acquired Fund will distribute as of the
Closing Date such Class C shares pro-rata to its shareholders of record,
determined as of the close of business on the Closing Date, in exchange for
their shares of the Acquired Fund. The net asset value of Class C shares and
the value of the Acquired Fund's assets and the amount of its liabilities will
be determined as of the Closing Date in accordance with the valuation procedures
set forth in the Income Fund's Articles of Incorporation (see "Purchases" in the
Acquiring Fund Prospectus). The valuation procedures used by the Acquiring Fund
are the same as those used by the Acquired Fund.
The obligations of the Acquiring Fund and the Acquired Fund to consummate
the Reor ganization are subject to the satisfaction of certain conditions
precedent, including (a) approval and authorization of the Reorganization by the
vote of a majority of the shares of the Acquired Fund voted on the matter if a
quorum is present, (b) receipt of a favorable ruling from the Internal Revenue
Service to the effect that the issuance of various classes of shares by the
Acquiring Fund will not result in dividends or distributions of the Acquiring
Fund constituting "preferential dividends" under the Internal Revenue Code of
1986, as amended (the "Code"), (c) a favorable opinion of legal counsel as to
the federal income tax consequences of the proposed transaction as described
below under "Federal Income Tax Considerations", and (d) approval by the
shareholders of the Acquiring Fund of an amendment to its Articles of
Incorporation authorizing the creation of additional classes of shares.
The foregoing summary of the Plan does not purport to be complete, and is
subject in all respects to the provisions of, and is qualified in its entirety
by reference to, the Plan, a copy of which is attached as Exhibit A.
7
<PAGE>
REASONS FOR THE REORGANIZATION. The Board of Trustees of the Trust and the
Board of Directors of the Income Fund, including in each case a majority who are
not "interested persons" (as defined in the 1940 Act) of either Fund or of Lord
Abbett, approved the Plan and the Reorganization on March 14, 1996, and in this
connection determined that participation in the proposed Reorganization is in
the best interests of the shareholders of each of the Funds and that the
interests of existing shareholders of the Funds will not be diluted as a result
of the Reorganization. In doing so, the boards of the two Funds considered
several factors, including that (a) the shareholders of the Acquired Fund are
expected to benefit from economies of scale as shareholders of the larger
Acquiring Fund, while continuing to invest in a portfolio of securities managed
by Lord Abbett under a substantially similar investment objective, and (b)
implementation of a multi-class fund structure for the Acquiring Fund is
expected to (i) enable investors in the Acquiring Fund to choose the
distribution option that best suits their individual situations, (ii) facilitate
distribution of the Acquiring Fund's shares, and (iii) maintain the competitive
position of the Acquiring Fund in relation to other funds that have implemented
or are seeking to implement similar distribution arrangements.
The trustees of the Trust and the directors of the Income Fund are the
same individuals, except that E. Wayne Nordberg is a director of the Income Fund
but not a trustee of the Trust.
SHARES OF THE ACQUIRING FUND. On or before the Closing Date, the Acquiring Fund
will have two classes of shares, Class A shares (the existing class of the
Acquiring Fund) and Class C shares (to be received by the shareholders of the
Acquired Fund in the Reorganization). Each share of the Acquiring Fund,
regardless of class, will share pro-rata (based on net asset value) in the
portfolio and income of the Acquiring Fund and in the Acquiring Fund's expenses,
except for differences in expenses resulting from different Rule 12b-1 Plans for
the classes and certain other class specific expenses. See "Rule 12b-1 Plans"
below. After the Reorganization, Class C shares will be offered at net asset
value without an initial sales charge but if redeemed for cash before the first
anniversary of purchase, will be subject to a contingent deferred reimbursement
charge (a "CDRC") equal to 1% of the lower of their cost or then net asset
value. Holding periods for shares purchased prior to the Reorganization will
carry over for the purpose of determining the applicability of the CDRC.
After the Closing Date, the Acquiring Fund may create and issue one or
more classes of shares in addition to the Class A and C shares. Lord Abbett has
advised the Board of Directors of the Income Fund that it intends to propose to
the board in the near future that the board authorize the Acquiring Fund to
issue a third class of shares, to be designated the "Class B shares". If
authorized, the Class B shares are expected to be sold without an initial sales
charge and otherwise to be similar to the Class C shares except that (i) they
will be subject to a contingent deferred sales charge ("CDSC") that is payable
to the distributor of such shares, rather than subject to a contingent deferred
reimbursement charge payable to the Acquiring Fund, as is the case with the
Class C shares, (ii) the B share CDSC will be substantially larger than the 1%
CDRC charged on early redemptions of Class C shares, (iii) the B share CDSC will
apply over a period of time substantially longer than the 12 months applicable
to the C share CDRC, and will scale down to zero over that longer period, and
(iv) the Class B shares will convert automatically into A shares at net asset
value after a period of time.
Shares of all classes of the Acquiring Fund will vote together on all
matters affecting the Acquiring Fund, except for matters, such as approval of a
Rule 12b-1 Plan, affecting only a particular
8
<PAGE>
class or classes. All shares voting on a matter will have identical voting
rights. All issued shares of the Acquiring Fund are fully paid and non-
assessable, and shareholders have no preemptive or other right to subscribe to
any additional shares. All shares within a series will have the same rights and
be subject to the same limitations with respect to dividends, redemptions and
liquidation except for differences resulting from class-specific Rule 12b-1
plans and related service plans and certain other class-specific expenses.
RULE 12b-1 PLANS. The Acquiring Fund is adopting a Rule 12b-1 Plan for the
Class C shares (the "Class C 12b-1 Plan") substantially the same as the plan
currently in effect for the Acquired Fund. The Acquired Fund's plan provides
for payments to dealers through Lord Abbett of distribution and service fees (a)
at the time shares are sold, not to exceed 0.75% and 0.25%, respectively, of the
net asset value of the shares sold and (b) at the end of the quarter following
the first anniversary of the sale of shares, and quarterly thereafter, at an
annual rate not to exceed 0.75% and 0.25%, respectively, of the net asset value
of such shares, including any shares issued for reinvested dividends and
distributions after such first anniversary, so long as such shares remain
outstanding. Lord Abbett may retain from the quarterly distribution fee, for
the payment of distribution expenses incurred directly by it, an amount not to
exceed 0.10% of the average annual net asset value of such shares outstanding.
See the Acquired Fund Prospectus under "Purchases" for additional information
concerning the Rule 12b-1 Plan of the Acquired Fund.
There are two substantive changes in the Class C 12b-1 Plan: First,
-----
payments under the plan may be made to all institutions and persons permitted by
applicable law and/or rules to receive such payments ("Authorized
Institutions"), rather than just to dealers, as is the case under the Acquired
Fund's Rule 12b-1 Plan; and Second, the other party to the Class C 12b-1 Plan is
------
to be Lord Abbett Distributor, LLC, a New York limited liability company, to be
formed as a subsidiary of Lord Abbett ("Lord Abbett Distributor"), rather than
Lord Abbett itself. Lord Abbett Distributor will take on all the underwriting
functions currently performed directly by Lord Abbett.
The Acquiring Fund will pay smaller Rule 12b-1 distribution and service
fees in connection with the Class A shares. However, the Acquiring Fund will
sell those shares subject to an initial sales charge (see the Acquiring Fund
Prospectus under "Purchases"). The Acquired Fund does not impose, and the
Acquiring Fund will not impose with respect to the Class C shares, an initial
sales charge.
The Class C 12b-1 Plan was approved on March 14, 1996, by the directors of
the Income Fund, including a majority of the directors who are not "interested
persons" of the Income Fund or the Acquiring Fund within the meaning of the 1940
Act and who will have no direct or indirect financial interest in the operations
of such plan or in any agreements related thereto. Prior to the Reorganization,
the Acquired Fund will purchase one Class C share, and as sole shareholder, will
approve the Class C 12b-1 Plan prior to that class being issued to the Acquired
Fund in the Reorganization. A vote in favor of the Reorganization will be
deemed also to be a vote to authorize the Acquired Fund to take such action.
FEDERAL INCOME TAX CONSIDERATIONS. The consummation of the Reorganization is
conditioned upon the receipt of an opinion of Debevoise & Plimpton, legal
counsel to the Acquiring Fund and the Acquired Fund, substantially to the effect
that, for Federal income tax purposes:
9
<PAGE>
(a) no gain or loss will be recognized by the Acquired Fund upon the transfer
of the Acquired Fund's assets to the Acquiring Fund in exchange for Class C
shares and the assumption by the Acquiring Fund of the liabilities of the
Acquired Fund or upon the distribution of the Class C shares to the Acquired
Fund's shareholders;
(b) no gain or loss will be recognized by the Acquiring Fund upon the receipt
of the assets of the Acquired Fund in exchange for Class C shares and the
assumption by the Acquiring Fund of the liabilities of the Acquired Fund;
(c) no gain or loss will be recognized by shareholders of the Acquired Fund
upon the exchange of their Acquired Fund shares for Class C shares;
(d) the aggregate tax basis of the Class C shares received by any Acquired
Fund shareholder pursuant to the Reorganization will be the same as the
aggregate tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the Reorganization, and the holding period for the Class C
shares to be received by any Acquired Fund shareholder will include the period
during which the Acquired Fund shares exchanged therefor were held by such
shareholder (provided that the Acquired Fund shares were held as capital assets
on the date of the Reorganization); and
(e) the tax basis of the Acquired Fund's assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Acquired Fund
immediately prior to the Reorganization, and the holding period of the assets of
the Acquired Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Acquired Fund.
The Funds have not sought a tax ruling from the Internal Revenue Service
with respect to the tax consequences of the Reorganization, but will act in
reliance upon the opinion of counsel. Such opinion is not binding on the
Internal Revenue Service. Since the foregoing discussion relates only to the
general Federal income tax consequences of the Reorganization, shareholders
should also consult their tax advisors as to any state or local tax consequences
of the Reorganization to them and any special circumstances that may apply in
their individual circumstances.
EXPENSES OF THE REORGANIZATION. Expenses of the Reorganization, including legal
and accounting expense, the costs of proxy solicitation and the preparation of
this Prospectus and Proxy Statement, will be borne by __________. If the
Reorganization is consummated, the expenses of the Acquired Fund, to the extent
not paid prior to the Closing Date, will be assumed by the Acquiring Fund and
taken into account in determining the net assets of the Acquired Fund for the
purpose of calculating the number of Class C shares to be issued to the Acquired
Fund.
CAPITALIZATION. The following table sets forth the capitalization of the
Acquiring Fund and the Acquired Fund as of December 31, 1995, and the pro-forma
capitalization of the Acquiring Fund as if the Reorganization had occurred on
that date:
10
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS C
ACQUIRING ACQUIRING
FUND FUND
ACQUIRING FUND ACQUIRED FUND (PRO-FORMA - (PRO-FORMA -
(UNAUDITED) (UNAUDITED) UNAUDITED) UNAUDITED)
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
(In thousands, except per share values)
- - -----------------------------------------------------------------------------------------
Net Assets $668,078 $44,110 $668,078 $44,110
- - -----------------------------------------------------------------------------------------
Net Asset Value per Share $ 11.36 $ 4.48 $ 11.36 $ 11.36
- - -----------------------------------------------------------------------------------------
Shares Outstanding: 58,810 9,043 58,810 3,885
- - -----------------------------------------------------------------------------------------
</TABLE>
The foregoing table reflects a pro-forma exchange ratio of approximately
0.4 Class C shares for each Acquired Fund share. If the Reorganization is
consummated, the actual exchange ratio may vary from this ratio due to changes
in the market value of the portfolio securities of both the Acquiring Fund and
the Acquired Fund between December 31, 1995 and the Closing Date, and changes in
the amounts of undistributed net investment income and accrued liabilities of
the Acquiring Fund and the Acquired Fund during that period.
COMPARATIVE INFORMATION ABOUT THE
ACQUIRING FUND AND THE ACQUIRED FUND
FEES AND EXPENSES. Both the Acquiring Fund and the Acquired Fund employ Lord
Abbett as their investment manager. Under the management agreement between the
Income Fund and Lord Abbett, the Income Fund, on behalf of the Acquiring Fund,
pays a monthly fee, based on average daily net assets for each month, at the
annual rate of .5 of 1%. For the fiscal year ended September 30, 1995, the
Acquiring Fund paid Lord Abbett a management fee at an annual rate of 0.49 of 1%
of average daily net assets. This management agreement will continue in effect
following the Reorganization.
Under the management agreement between the Trust and Lord Abbett, the
Trust, on behalf of the Acquired Fund, is obligated to pay a monthly fee at the
annual rate of 0.5 of 1% of average daily net assets. For the fiscal year
ended October 31, 1995, the Acquired Fund paid Lord Abbett no effective
management fee. This fee rate reflects a waiver of management fees. The
management fee would have been 0.50 of 1% of average daily net assets absent
such waiver. The management agreement provides for the Acquired Fund to repay
Lord Abbett without interest for any expenses of the Acquired Fund paid or
reimbursed by Lord Abbett, as follows: if the Acquired Fund's annual expense
ratio (determined before taking into account any fee waiver or expense payment
or reimbursement by Lord Abbett) is less than 1.95% after the first day of the
calendar quarter after the net assets of the Acquired Fund first reach $50
million (the "commencement date"), the Acquired Fund will repay Lord Abbett an
amount sufficient to increase the expense ratio to 1.95%. The Acquired Fund is
not 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 contingent obligation to repay such expenses, which
totaled $109,915 as of December 31, 1995, will be extinguished upon the
consummation of the Reorganization.
11
<PAGE>
As shown above under "Fee Table," the pro-forma expense ratio for the
Class C shares for the year ended October 31, 1995, calculated as if the
Reorganization had occurred at the beginning of such year, was 1.52%, compared
to an expense ratio of 1.33% for the Acquired Fund for such year. If Lord Abbett
had not waived its management fee for the Acquired Fund, the Acquired Fund's
expense ratio for such year would have been 1.83%.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The Acquired Fund and
Acquiring Fund have identical investment objectives. The Acquired Fund seeks as
high a level of interest income exempt from federal income tax as is consistent
with preservation of capital. The Acquiring Fund currently has the same
investment objective but is seeking shareholder approval of the following
amended objective: to seek as high a level of interest income exempt from
federal income tax as is consistent with reasonable risk.
The Acquired Fund and the Acquiring Fund have substantially the same
investment policies and restrictions. However, the Acquiring Fund is seeking
approval of its shareholders to simplify and make less restrictive its
investment policies and restrictions in order to provide greater flexibility in
managing its investment portfolio. A number of the investment policies and
restrictions that are classified as fundamental for the Acquired Fund are to be
re-classified as non-fundamental for the Acquiring Fund. In other instances,
certain fundamental restrictions of the Acquired Fund are to be modified or
eliminated in the case of the Acquiring Fund. Fundamental investment
restrictions may not be changed without approval of the shareholders of a fund
and the costs of shareholder meetings for these purposes generally are borne by
the fund and its shareholders. The board may amend a non-fundamental
restriction as it deems appropriate and in the best interest of the fund and its
shareholders, without incurring the costs of seeking a shareholder vote. The
fundamental restrictions of the Acquiring Fund would permit the following
actions, among others, that are not permitted by the fundamental restrictions of
the Acquired Fund: (i) short sales of securities and purchases of securities on
-
margin to the extent permitted by applicable law; (ii) borrowings from banks in
--
amounts up to one-third of total assets and such short-term credits as may be
necessary for the clearance of purchases and sales of portfolio securities;
(iii) purchases and sales of commodities and commodity contracts in accordance
---
with applicable law so long as registration would not be required as a commodity
pool operator under the Commodity Exchange Act; (iv) pledges to secure
--
borrowings or in connection with hedging transactions and other investment
strategies; (v) investments in the securities of other investment companies; and
-
(vi) purchases and sales of puts and calls. Currently, the Acquiring Fund does
--
not intend to take all such action, but the Board of Directors of the Income
Fund believes it would be desirable for the Acquiring Fund to have the ability
to do so in the future without further shareholder approval if such action was
deemed desirable as an appropriate means of seeking the Acquiring Fund's
investment objective.
A summary comparison of the current investment policies and restrictions
of the Acquired Fund and the Acquiring Fund and of the investment policies of
the Acquiring Fund as proposed to be amended is set forth in Exhibit B to this
Proxy Statement and Prospectus.
For a full discussion and statement of the Acquiring Fund's investment
objectives, policies and restrictions, see "Investment Objective" and "How We
Invest" in the Acquiring Fund Prospectus and "Investment Objective and
Policies" in the Acquiring Fund Statement of Additional Information. For a full
discussion and statement of the Acquired Fund investment objectives, policies
and restrictions, see
12
<PAGE>
"Investment Objective" and "How We Invest" in the Acquired Fund Prospectus and
"Investment Objective and Policies" in the Acquired Fund Statement of Additional
Information. The summary comparison set forth in Exhibit B does not purport to
be complete, and is subject in all respects to, and is qualified in its entirety
by reference to, such statements of such policies and restrictions.
SHAREHOLDERS' RIGHTS. The rights of the Acquired Fund shareholders will not
change in an adverse way as a result of the Reorganization. After the
Reorganization, the rights of the former shareholders of the Acquired Fund
(Class C shareholders of the Acquiring Fund) will be governed by the Income
Fund's Articles of Incorporation, By-Laws and applicable Maryland law rather
than by the Trust's Declaration of Trust and By-Laws and applicable Delaware
law. The operations of the Acquiring Fund will continue to be subject to the
provisions of the 1940 Act and the rules and regulations of the Commission
thereunder.
The current Board of Directors of the Income Fund is comprised of the same
individuals as the current Board of Trustees of the Trust, except that E. Wayne
Nordberg is a director of the Income Fund but not a trustee of the Trust. The
responsibilities, powers and fiduciary duties of the directors of the Income
Fund are substantially the same as those of the trustees of the Trust. The
Income Fund's By-Laws provide for indemnification of the directors for actual or
threatened liabilities arising out of the directors' service in their capacity
as directors of the Income Fund, subject only to the conditions and limitations
of applicable law. The Trust's Declaration of Trust provides for
indemnification of the trustees against certain liabilities and expenses, except
with respect to (i) any matter as to which any trustee has been adjudicated to
have not acted in good faith in the reasonable belief that his or her action was
in the best interest of the Acquired Fund, or (ii) any liability by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
duties. Trust shareholders may remove a trustee by a vote of two thirds of the
eligible shares. Income Fund shareholders may remove a director by the vote of
a majority of eligible shares.
Neither the Acquired Fund nor the Acquiring Fund regularly holds
shareholder meetings. The By-laws of both Funds provide that a meeting of
shareholders will be held upon the written request of holders of at least 25% of
votes entitled to be cast.
The foregoing is only a summary of certain rights of the shareholders of
the Acquired Fund and of the rights these shareholders will have following the
Reorganization as holders of Class C shares of the Acquiring Fund. It is not a
complete description of the Declaration of Trust of the Trust, the Articles of
Incorporation of the Income Fund, the By-Laws of either Fund or the applicable
Delaware or Maryland law. Shareholders desiring additional information about
those documents and provisions of law should refer to such Declaration of Trust,
Articles of Incorporation, By-Laws and provisions.
The Board of Trustees of the Trust recommends that shareholders vote FOR
the approval of the proposed Agreement and Plan of Reorganization and the
Reorganization.
13
<PAGE>
ITEM 2. - RATIFICATION OR REJECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Trustees of the Trust has selected Deloitte & Touche LLP as
the independent public accountants for the Trust for the fiscal year ending
October 31, 1996. The Act requires that such selection be submitted for
ratification or rejection at the next annual meeting of shareholders if such
meeting be held. Deloitte & Touche LLP (or a predecessor firm) acted as the
Acquired Fund's independent auditors for the year ended October 31, 1995, and
for a number of years prior thereto. Based on information in the possession of
the Trust, and information furnished by Deloitte & Touche LLP, the firm has no
direct financial interest and no material indirect financial interest in the
Trust. A representative of Deloitte & Touche LLP is expected to attend the
annual meeting and will be provided with an opportunity to make a statement and
answer appropriate questions.
The Board of Trustees of the Trust recommends that shareholders vote to
ratify the selection of Deloitte & Touche LLP as the Trust's independent public
accountants for the fiscal year ending October 31, 1996.
ADDITIONAL INFORMATION
To the knowledge of the Acquiring Fund and the Trust, as of March 22,
1996, no person owned of record or beneficially 5% or more of the outstanding
shares of the Income Trust, the Acquiring Fund, the Acquired Fund or the Trust.
As of December 31, 1995, the directors and officers of the Income Fund, as a
group, and the trustees and officers of the Trust, as a group, owned less than
1% of the outstanding shares of each of the Acquiring Fund, the Acquired Fund
and the Trust.
The Income Fund and the Trust (of which the Acquired Fund is a series) are
subject to the informational requirements of the Securities Exchange Act of 1934
and in accordance therewith file reports, proxy statements and other information
with the Securities and Exchange Commission. Such reports, proxy statements and
other information filed by such entities can be inspected and copied at the
public reference facilities of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C., and at the Northeast Regional Office in New York, 7
World Trade Center, 13th Floor, New York, New York. Copies of such material can
also be obtained by mail from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549 at prescribed rates.
14
<PAGE>
Draft-February 22, 1996
Exhibit A
---------
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this day of , 1996, by and between the Lord Abbett Tax-Free Income
Fund, Inc. (the "Income Fund"), a Maryland corporation, on behalf of its series
the National Series (the "Acquiring Fund") and Lord Abbett Securities Trust (the
"Trust"), a Delaware business trust, on behalf of its series Lord Abbett
National Tax-Free Income Trust (the "Acquired Fund").
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the reorganization (the "Reorganization") will consist of the
transfer of all of the assets of the Acquired Fund in exchange for Class C
shares of capital stock of the Acquiring Fund (the "Acquiring Fund Class C
Shares" and each an "Acquiring Fund Class C Share") and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund and the
distribution, after the Closing Date herein referred to, of Acquiring Fund Class
C Shares to the shareholders of the Acquired Fund in termination of the Acquired
Fund, all upon the terms and conditions hereinafter set forth in this Agreement;
WHEREAS, the Trust and the Income Fund are open-end, registered investment
companies of the management type;
WHEREAS, the Acquiring Fund is a series of the Income Fund;
WHEREAS, the Acquired Fund is a series of the Trust and the Acquired Fund
owns securities that generally are of the character in which the Acquiring Fund
is permitted to invest;
WHEREAS, the Acquiring Fund is authorized to issue and currently has
outstanding a single class of shares (the "Acquiring Fund Class A Shares"), and
prior to the consummation of the Reorganization, will seek to amend its Articles
of Incorporation to provide for the authorization and issuance of shares of
additional classes of capital stock, including Acquiring Fund Class C Shares,
which will share pro rata with each other class in the portfolio, income and
expenses of the Acquiring Fund, except that each class will bear the expense of
its own distribution and shareholder servicing arrangements and certain other
expenses;
<PAGE>
WHEREAS, after the multiple class share structure is authorized by the
Acquiring Fund but before the Acquiring Fund Class C Shares are issued to the
Acquired Fund pursuant to the Reorganization, the Acquired Fund is to purchase
one Acquiring Fund Class C share and as sole shareholder approve a plan pursuant
to Section 12(b) of the Investment Company Act of 1940 (the "1940 Act") and Rule
12b-1 thereunder (a "Rule 12b-1 Plan") applicable to the Acquiring Fund Class C
Shares;
WHEREAS, the Board of Trustees, including a majority of the Trustees who
are not "interested persons" (as defined under the 1940 Act ), of the Trust has
determined that the Reorganization is in the best interests of the Acquired
Fund's shareholders and that the interests of the existing shareholders of the
Acquired Fund will not be diluted as a result of this transaction; and
WHEREAS, the Board of Directors, including a majority of the Directors who
are not "interested persons" (as defined under the 1940 Act) of the Income Fund,
has determined that the Reorganization is in the best interests of the Acquiring
Fund's shareholders and that the interests of the existing shareholders of the
Acquiring Fund will not be diluted as a result of this transaction;
NOW THEREFORE, in consideration of the premises and of the agreements
hereinafter set forth, the parties hereto agree as follows:
1. REORGANIZATION.
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Trust will transfer
assets of the Acquired Fund as set forth in paragraph 1.2 to the Acquiring Fund,
and the Acquiring Fund will in exchange therefor, (i) deliver to the Acquired
-
Fund the number of Acquiring Fund Class C Shares, including fractional Acquiring
Fund Class C Shares, determined by dividing the net value of the Acquired Fund's
assets so transferred computed in the manner and as of the time and date set
forth in para graph 2.1, by the net asset value of one Acquiring Fund Class A
Share, computed in the manner and as of the time and date set forth in paragraph
2.2; and (ii) to assume all of the liabilities of the Acquired Fund. Such
transactions shall take place at the closing provided for in paragraph 3.1 (the
"Closing").
1.2. (a) The assets of the Acquired Fund to be acquired by the Acquiring
Fund shall consist of all of its property, including, without limitation, all
cash, securities and dividends or interest receivables and any deferred or
prepaid expenses shown as an asset on the books of the Acquired Fund on the
closing date provided in paragraph 3.1 (the "Closing Date").
2
<PAGE>
(b) The Acquiring Fund has a list of all of the Acquired Fund's assets as
of the date of execution of this Agreement. The Acquired Fund has a statement
of the Acquiring Fund's investment objectives, policies and restrictions. The
Acquired Fund reserves the right to sell any of its securities but will not,
without the prior approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest. The Acquiring Fund will, within a reasonable time prior to
the Closing Date, furnish the Acquired Fund with a list of the securities, if
any, on the Acquired Fund's list referred to in the first sentence of this
paragraph which do not conform to the Acquiring Fund's investment objectives,
policies and restrictions. In the event that the Acquired Fund holds any
investments which the Acquiring Fund may not hold, the Acquired Fund will
dispose of such securities prior to the Closing Date. In addition, if it is
determined that the portfolios of the Acquired Fund and the Acquiring Fund, when
aggregated, would contain investments exceeding certain percentage limitations
imposed upon the Acquiring Fund with respect to such investments, the Acquired
Fund, if requested by the Acquiring Fund, will dispose of and/or reinvest a
sufficient amount of such in vestments as may be necessary to avoid violating
such limitations as of the Closing Date.
1.3. As provided in paragraph 3.4, as soon after the Closing Date as is
conveniently practicable, the Acquired Fund will distribute pro rata to the
Acquired Fund's shareholders of record determined as of the close of business on
the Closing Date, the Acquiring Fund Class C Shares it receives pursuant to
paragraph 1.1. Such distribution will be accomplished by establishing Acquiring
Fund shareholder accounts in the names of each Acquired Fund shareholder,
representing the respective pro rata number of full and fractional Acquiring
Fund Class C Shares due each shareholder. All issued and outstanding shares of
the Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.4. Any transfer taxes payable upon issuance of Acquiring Fund Class C
Shares in a name other than the registered holder of the shares of the Acquired
Fund on the books of the Acquired Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Acquiring Fund
Class C Shares are to be issued and transferred.
1.5. The Acquired Fund shall, following the Closing Date and the making of
all distributions pursuant to paragraph 1.3, be terminated by a majority of the
Trust's Trustees' executing an instrument pursuant to Section 5.4 of the
Declaration and Agreement of Trust of the Trust abolishing the Acquired Fund.
Any reporting responsibility of the Trust with respect to the Acquired Fund is
and shall
3
<PAGE>
remain the responsibility of the Trust up to and including the Closing Date and
following the termination of the Acquired Fund.
2. VALUATION
2.1. The net value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets, less the Acquired
Fund's liabilities assumed by the Acquiring Fund, computed as of the close of
regular trading on New York Stock Exchange, Inc. (the "NYSE") on the Closing
Date (such time and date being hereinafter called the "Valuation Date"), using
the valuation procedures set forth in the Income Fund's Articles of
Incorporation.
2.2. The net asset value of one Acquiring Fund Class A Share shall be the
net asset value per share computed as of the close of regular trading on the
NYSE on the Valuation Date, using the valuation procedures set forth in the
Income Fund's Articles of Incorporation.
2.3. All computations of value shall be made by the Acquiring Fund and the
Acquired Fund in accordance with the regular practice of the Acquiring Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be July 12, 1996, or such other date as the
parties may agree to in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held as of 5:00 p.m. at
the offices of [specify location in New Jersey], or at such other time and/or
place as the parties may agree.
3.2. In the event that on the Valuation Date (a) the NYSE or another
primary trading market for portfolio securities of the Acquiring Fund or the
Acquired Fund shall be closed to trading or trading thereon shall be restricted
or (b) trading or the reporting of trading on the NYSE or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed and reporting shall have been restored.
3.3. At the Closing, the Acquired Fund shall direct its custodian to
deliver to the custodian of the Acquiring Fund, for the Acquiring Fund's
account, all of its portfolio securities and other assets held by such custodian
for the Acquired
4
<PAGE>
Fund's account, duly endorsed in proper form for transfer as appropriate, in
such condition as to constitute good delivery thereof in accordance with the
custom of the Acquiring Fund's custodian, and shall be accompanied by all
necessary federal and state stock transfer stamps or a check for the appropriate
purchase price thereof.
3.4. The Acquired Fund shall direct its transfer agent to deliver to the
transfer agent of the Acquiring Fund on the Closing Date a list of the names and
addresses of the Acquired Fund's shareholders and the number of outstanding
shares owned by each such shareholder immediately prior to the Closing. The
Acquiring Fund shall direct its transfer agent to issue and deliver a
confirmation evidencing the Acquiring Fund Class C Shares to be credited to the
Acquired Fund's account on the Closing Date to the transfer agent of the
Acquired Fund, or provide evidence satisfactory to the Acquired Fund that such
Acquiring Fund Class C Shares have been credited to the Acquired Fund's account
on the books of the Acquiring Fund. At the Closing, each party shall deliver to
the other such bills of sale, checks, assignments, share certificates, if any,
receipts, assumption agreements or other documents as such other party or its
counsel may reasonably request.
4. REPRESENTATION AND WARRANTIES
4.1. With respect to the Acquired Fund, the Trust represents and warrants
to the Acquiring Fund as follows:
(a) The Trust is a registered investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment company
under the 1940 Act is in full force and effect.
(b) The Acquired Fund is a series of the Trust. The Trust is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the power to own all of its properties and assets and to carry
out this Agreement.
(c) The current prospectus and statement of additional information of the
Trust conform (and any prospectus or statement of additional information of the
Trust issued prior to the Closing Date will conform) in all material respects to
the applicable requirements of the Securities Act of 1933 Act, as amended (the
"1933 Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not (and will not) include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
5
<PAGE>
circumstances under which they were (and will be) made, not materially
misleading.
(d) The Trust is not, and the execution, delivery and performance of this
Agreement will not result in, a material violation of its Declaration and
Agreement of Trust or By-laws or of any agreement, instrument, contract or other
undertaking to which the Trust is a party or by which it is bound.
(e) The Trust has no material contracts or other commitments which will be
terminated with liability to the Trust on, prior to or after the Closing Date.
(f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation or administrative proceeding or investigation
before any court or governmental body is presently pending or to its knowledge
threatened against the Trust or any of the Acquired Fund's properties or assets,
which if adversely determined would materially and adversely affect the
financial condition of the Acquired Fund or the conduct of the Acquired Fund's
business. The Trust knows of no facts which might form the basis of the
institution of such a proceeding and is not party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects the business of the Acquired Fund or the
ability of the Trust to consummate the transactions contemplated herein.
(g) True and correct copies of the Acquired Fund's (i) Statement of Net
-
Assets as at October 31, 1995 and (ii) Statements of Operations and Changes in
--
Net Assets for the 12-month period then ended, including the accompanying notes,
have been furnished to the Acquiring Fund. Such Statement of Net Assets and
such Statements of Operations and Changes in Net Assets (and the accompanying
notes) have been audited by Deloitte & Touche LLP, independent certified public
accountants. Such statements have been prepared in accordance with generally
accepted accounting principles consistently applied, and such statements fairly
reflect the financial condition and the operations and changes in net assets of
the Acquired Fund as of such date and for such period, respectively. There are
no known contingent liabilities of the Acquired Fund as of such date required to
be reflected or disclosed in such Statement of Net Assets or notes in
accordance with generally accepted accounting principles that are not so
reflected or disclosed.
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<PAGE>
(h) Since October 31, 1995, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund.
(i) The Trust will file the final federal and other tax returns of the
Acquired Fund for the period ending on the Closing Date in accordance with the
Code. At the Closing Date, all federal and other tax returns and reports of the
Acquired Fund required by law to have been filed prior to the Closing Date shall
have been filed, and all federal and other taxes shown as due on such returns
shall have been paid, or provision shall have been made for the payment thereof,
and to the best of the Trust's knowledge, no such return is currently under
audit and no assessment has been asserted with respect to such returns.
(j) For the most recent fiscal year of its operation, the Acquired Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company.
(k) All issued and outstanding shares of the Acquired Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. All of the issued and outstanding shares of the Acquired Fund
will, at the time of Closing, be held of record by the persons and in the
amounts set forth in the records of the transfer agent as provided in paragraph
3.4. The Acquired Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any shares of the Acquired Fund, nor is
there outstanding any security convertible into any shares of the Acquired Fund.
(l) At the Closing Date, the Acquired Fund will have good and marketable
title to its assets to be transferred to the Acquiring Fund pursuant to
paragraph 1.1 and full right, power and authority to sell, assign, transfer and
deliver such assets hereunder and, upon delivery and payment for such assets,
the Acquiring Fund will acquire good and marketable title thereto, subject to no
restrictions on the full transfer thereof, including such restrictions as might
arise under the 1933 Act, other than as disclosed to the Acquiring Fund prior to
the date hereof.
7
<PAGE>
(m) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of Trust's Trustees, and
subject to the due approval of the Acquired Fund's shareholders, this Agreement,
assuming due authorization, execution and delivery by the Acquiring Fund,
constitutes a valid and binding obligation of the Trust on behalf of the
Acquired Fund, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity principles.
The Trust's Board of Trustees has called a meeting of the Trust's shareholders
at which the shareholders of the Acquired Fund are to consider and act upon this
Agreement.
(n) The information furnished and to be furnished by the Trust on behalf
of the Acquired Fund for use in registration statements, proxy materials and
other documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete in all material respects and
shall comply in all material respects with federal securities and other laws and
regulations thereunder applicable thereto.
(o) The combined prospectus and proxy statement (the "N-14 prospectus and
proxy statement") and the related statement of additional information included
in the Registration Statement on Form N-14 of the Acquiring Fund (the "N-14
Registration Statement") did not on the effective date of the N-14 Registration
Statement contain any untrue statement of a material fact relating to the
Acquired Fund or the meeting of the Trust shareholders referred to therein or
omit to state a material fact required to be stated therein or necessary to make
the statements therein relating to the Acquired Fund or such special meeting, in
light of the circumstances under which such statements were made, not materially
misleading.
(p) The Acquiring Fund Class C Shares to be issued to the Acquired Fund
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
4.2. With respect to the Acquiring Fund, the Income Fund represents and
warrants to the Acquired Fund as follows:
(a) The Income Fund is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
8
<PAGE>
(b) The Acquiring Fund is a series of the Income Fund. The Income Fund is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Maryland and has the power to own all of its properties and
assets and to carry out this Agreement.
(c) The current prospectus and statement of additional information of the
Income Fund conform (and any prospectus or statement of additional information
of the Income Fund issued prior to the Closing Date will conform) in all
material respects to the applicable requirements of the 1933 Act and the 1940
Act and the rules and regulations of the Commission thereunder and do not (and
will not) include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were (or will be) made,
not materially misleading.
(d) The Income Fund is not, and the execution, delivery and performance of
this Agreement will not result in, a material violation of its Articles of
Incorporation or By-laws or of any agreement, instrument, contract or other
undertaking to which the Income Fund is a party or by which it is bound.
(e) The Income Fund has no material contracts or other commitments which
will be terminated with liability to the Income Fund on, prior to or after the
Closing Date.
(f) Except as otherwise disclosed in writing to and accepted by the
Acquired Fund, no litigation or administrative proceeding or investigation
before any court or governmental body is presently pending or to its knowledge
threatened against the Income Fund or any of the Acquiring Fund's properties or
assets, which, if adversely determined, would materially and adversely affect
its financial condition or the conduct of its business. The Income Fund knows
of no facts which might form the basis of the institution of such a proceeding
and is not party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely
affects its business or its ability to consummate the transactions contemplated
herein.
(g) True and correct copies of the Acquiring Fund's (i) Statement of Net
-
Assets as at December 31, 1995, and (ii) Statements of Operation and Changes in
--
Net Assets for the 12-month period then ended, including the accompanying notes,
have been furnished to the Trust. Such Statement of Net
9
<PAGE>
Assets and such Statements of Operations and Changes in Net Assets (and the
accompanying notes) have been audited by Deloitte & Touche LLP, independent
certified public accountants. Such statements have been prepared in accordance
with generally accepted accounting principles consistently applied, and such
statements fairly reflect the financial condition and the operations and changes
in net assets of the Acquiring Fund as of such date and for such period,
respectively. There are no known contingent liabilities of the Acquiring Fund
as of such date required to be reflected or disclosed in such Statements of Net
Assets or notes in accordance with generally accepted accounting principles that
are not so reflected or disclosed.
(h) Since December 31, 1995, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquired Fund.
(i) At the Closing Date, all federal and other tax returns and reports of
the Income Fund required by law to have been filed prior to the Closing Date
shall have been filed, and all federal and other taxes shown as due on such
returns and reports shall have been paid, or provision shall have been made for
the payment thereof, and to the best of the Acquiring Fund's knowledge, no such
return is currently under audit and no assessment has been asserted with respect
to such returns.
(j) For the most recent fiscal year of its operation, the Acquiring Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and the Acquiring Fund intends to do
so in the future.
(k) All issued and outstanding shares of the Acquiring Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable, with no personal liability attaching to the ownership
thereof. The Acquiring Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any shares of the Acquiring Fund, nor
is there outstanding any security convertible into shares of the Acquiring Fund.
(l) At the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets.
10
<PAGE>
(m) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of the Income Fund's Board
of Directors, and assuming due authorization, execution and delivery by the
Acquired Fund, this Agreement constitutes a valid and binding obligation of the
Income Fund on behalf of the Acquiring Fund, enforceable in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles.
(n) The N-14 Registration Statement (except insofar as it relates to the
Acquired Fund or the special meeting of its shareholders referred to therein)
did not on the effective date of the N-14 Registration Statement contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially misleading.
(o) The Acquiring Fund Class C Shares to be issued and delivered to the
Acquired Fund pursuant to the terms of this Agreement have been duly authorized
by the Board of Directors of the Income Fund, and, when issued and delivered at
the Closing in accordance with this Agreement, will be duly and validly issued
Acquiring Fund Class C Shares and will be fully paid and non-assessable with no
personal liability attaching to the ownership thereof.
(p) The Board of Directors of the Income Fund has duly adopted a
resolution (a copy of which has been furnished to the Trust) authorizing the
creation and issuance of Acquiring Fund Class C Shares.
5. COVENANTS
5.1. The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date.
It is understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions and any other
dividends and distributions deemed advisable.
5.2. After the amendment to the Income Fund's Articles of Incorporation
referred to in clause (i) of paragraph 4.2(p) has been duly approved by the
shareholders of the Income Fund, the Income Fund will duly file with the State
Department of Assessments and Taxation of Maryland (i) articles of amendment
-
setting forth such amendment and otherwise complying with applicable Maryland
11
<PAGE>
requirements and (ii) the articles supplementary referred to in clause (iii) of
-- ---
paragraph 4.2(p).
5.3. At or after the Closing, the Trust will deliver or otherwise make
available to the Income Fund a statement of the Acquired Fund's assets and
liabilities, together with a list of the Acquired Fund's portfolio securities
showing the tax costs of such securities to it and the holding periods of such
securities, as of the Closing Date.
5.4. The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund's shares.
5.5. Subject to the provisions of this Agreement, the Acquired Fund and
the Acquiring Fund each will take, or cause to be taken, all action, and do or
cause to be done all things, reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.6. Prior to the Closing Date, the Board of Trustees of the Trust will
declare such dividends and distributions, payable no later than [90] days after
the Closing Date, to shareholders of record of the Acquired Fund as of the
Closing Date, which, together with all such previous dividends and
distributions, shall have the effect of distributing to the shareholders of the
Acquired Fund all of the investment company taxable income and exempt-interest
income of the Acquired Fund for all taxable years ending on or prior to the
Closing Date. The dividends and distributions declared by the Acquired Fund
shall also include all of the Acquired Fund's net capital gain realized in all
taxable years ending on or prior to the Closing Date (after reduction for any
capital loss carry forward). Such dividends and distributions declared prior to
the Closing Date shall be paid by the Acquiring Fund no later than [90] days
after the Closing Date.
5.7. As promptly as practicable, but in any case within sixty days after
the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such
form as is reasonably satisfactory to the Acquiring Fund, a statement of the
earnings and profits of the Acquired Fund for federal income tax purposes which
will be carried over to the Acquiring Fund as a result of Section 381 of the
Code.
5.8. The Acquired Fund will provide the Acquiring Fund with any additional
information reasonably necessary for any revision of the N-14 Prospectus and
Proxy Statement referred to in paragraph 4.1(o), all to be included in any
amendment to the N-14 Registration Statement, in compliance with the 1933 Act,
the
12
<PAGE>
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act in connection
with the meeting of the Acquired Fund's shareholders to consider approval of
this Agreement and the Reorganization.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST
The obligations of the Trust, on behalf of the Acquired Fund, to consummate
the transactions provided for herein shall be subject, at its election, to the
performance by the Income Fund in all material respects of all of the
obligations to be performed by it hereunder on or before the Closing Date and,
in addition thereto, the following further conditions:
6.1. All representations and warranties of the Income Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its Chairman, President or a Vice President
and its Treasurer or an Assistant Treasurer, in form reasonably satisfactory to
the Acquired Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Income Fund made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Income Fund, on behalf of the Acquiring Fund, to
consummate the transactions provided for herein shall be subject, at its
election, to the performance by the Trust in all material respects of all the
obligations to be performed by it hereunder on or before the Closing Date and,
in addition thereto, the following further conditions:
7.1. All representations and warranties of the Trust contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
13
<PAGE>
7.2. The Trust shall have delivered to the Acquiring Fund on the Closing
Date a certificate executed in its name by its Chairman, President or a Vice
President and its Treasurer or an Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Trust made in this
Agreement are true and correct at and as of the Closing Date, except as they may
be affected by the trans actions contemplated by this Agreement.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE INCOME FUND
If any of the conditions set forth below do not exist on the Closing Date
with respect to the Acquiring Fund or the Acquired Fund, either party to this
Agreement shall, at its option, not be required to consummate the transactions
contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of the Trust's Declaration
and Agreement of Trust and By-laws. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this paragraph 8.1.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.3. All consents of other parties and all other consents, orders, rulings
and permits of federal, state and local regulatory authorities (including those
of the Commission, the Internal Revenue Service and state Blue Sky and
securities authorities) deemed necessary by the Acquiring Fund or the Acquired
Fund to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, ruling or permit would not involve a risk of a material
adverse effect on the assets or properties of the Acquiring Fund or the Acquired
Fund.
8.4. The N-14 Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
14
<PAGE>
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5. The parties shall have received a favorable opinion of Debevoise &
Plimpton, addressed to the Income Fund and the Trust and satisfactory to the
Secretary of each such party, substantially to the effect that for federal
income tax purposes:
(a) the acquisition by the Acquiring Fund of all of the assets of the
Acquired Fund solely in exchange for the issuance of Acquiring Fund Class C
Shares to the Acquired Fund and the assumption of all of the Acquired Fund
liabilities by the Acquiring Fund, followed by the distribution by the Acquired
Fund, in complete liquidation, of the Acquiring Fund Class C Shares to the
Acquired Fund shareholders in exchange for their Acquired Fund shares, will be
treated as a "reorganization" within the meaning of Section 368(a) of the Code,
and the Acquiring Fund and the Acquired Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for the Acquiring Fund
Shares and the assumption by the Acquiring Fund of liabilities of the Acquired
Fund;
(c) no gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of liabilities of
the Acquired Fund or upon the distribution of the Acquiring Fund Shares to the
Acquired Fund's shareholders;
(d) no gain or loss will be recognized by shareholders of the Acquired
Fund upon the exchange of their Acquired Fund shares for the Acquiring Fund
Shares;
(e) the aggregate tax basis for the Acquiring Fund Shares received by each
of the Acquired Fund's shareholders pursuant to the Reorganization will be the
same as the aggregate tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Acquired Fund shareholder will
include the period during which the Acquired Fund shares exchanged therefor were
held by such shareholder (provided that the Acquired Fund shares were held as
capital assets on the date of the Reorganization); and
15
<PAGE>
(f) the tax basis of the Acquired Fund's assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Acquired Fund
immediately prior to the Reorganization, and the holding period of the assets of
the Acquired Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Acquired Fund.
Notwithstanding anything herein to the contrary, neither the Income Fund
nor the Trust may waive the conditions set forth in this paragraph 8.5.
8.6. The Acquiring Fund shall have duly adopted a Rule 12b-1 Plan for the
Acquiring Fund Class C Shares acceptable to the Trust.
9. BROKERAGE FEES AND EXPENSES
9.1. The Income Fund represents and warrants to the Acquired Fund, and the
Trust represents and warrants to the Acquiring Fund, that there are no brok ers
or finders entitled to receive any payments in connection with the transactions
provided for herein.
9.2. Except as may be otherwise provided herein, the Acquiring Fund and
the Acquired Fund each shall pay, or provide for the payment of, the expenses
incurred by it in connection with entering into and carrying out the provisions
of this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. The parties hereto agree that no party has made any representation,
warranty or covenant not set forth herein and that this Agreement constitutes
the entire agreement between the parties.
10.2. None of the representations and warranties included or provided for
herein shall survive the consummation of the transactions contemplated hereby.
11. TERMINATION
11.1. This Agreement may be terminated at any time prior to the Closing
Date: (1) by the mutual agreement of the Trust and the Income Fund; (2) by the
Trust in the event that the Income Fund shall, or by the Income Fund in the
event that the Trust shall, materially breach any representation or warranty
contained herein or any agreement contained herein and to be performed at or
prior to the Closing
16
<PAGE>
Date; or (3) by either party if a condition herein expressed to be precedent to
the obligations of the terminating party has not been met and it reasonably
appears that it will not or cannot be met.
11.2. In the event of any such termination, there shall be no liability
for damages on the part of either the Trust, the Income Fund, the Acquired Fund
or the Acquiring Fund or their respective Trustees, Directors or officers to the
other party, but the Acquiring Fund and the Acquired Fund shall each bear, or
provide for the payment of, the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as provided in paragraph 9.2.
12. AMENDMENTS; WAIVERS
12.1. This Agreement may be amended, modified or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Trust and the Income Fund; provided, however, that following the approval of
the Acquired Fund shareholders referred to in paragraph 8.1, no such amendment
may have the effect of changing the provisions for determining the number of the
Acquiring Fund Class C Shares to be issued to the Acquired Fund's shareholders
under this Agreement to the detriment of such shareholders without their further
approval.
12.2. At or at any time prior to the Closing either party hereto may by
written instrument signed by it (i) waive any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the covenants or conditions made for its benefit
contained herein.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by personal
delivery addressed to the Acquired Fund, 767 Fifth Avenue, New York, New York,
10153, Attention: Office of the Secretary; or to the Acquiring Fund, 767 Fifth
Avenue, New York, New York, 10153, Attention: Office of the Secretary.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1. The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
17
<PAGE>
14.2. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
14.3. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
14.4. (a) This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, corporation or other entity, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
(b) The Acquiring Fund is hereby expressly put on notice of the limitation
of liability as set forth in Article IV of the Declaration and Agreement of
Trust of the Trust and agrees that the obligations assumed by the Trust pursuant
to this Agreement shall be limited in any case to the Acquired Fund and its
assets and the Income Fund shall not seek satisfaction of any such obligation
from the
18
<PAGE>
shareholders of the Trust, the trustees, officers, employees or agents of the
Trust or any of them or from any other assets of the Trust.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its Chairman of the Board, President or Vice President and
attested by its Secretary or Assistant Secretary.
Attest: LORD ABBETT SECURITIES TRUST
on behalf of Lord Abbett National Tax-Free
Income Trust
By: _______________________________
Name: _____________ Name:
Title: Secretary Title:
Attest: LORD ABBETT TAX-FREE INCOME FUND,
INC. on behalf of the National Series
By: _______________________________
Name: _____________ Name:
Title: Secretary Title:
19
<PAGE>
EXHIBIT B
---------
COMPARISON OF CURRENT AND PROPOSED INVESTMENT POLICIES AND RESTRICTIONS
Comparison of certain investment policies and restrictions of Lord Abbett
National Tax-Free Income Trust (the "Acquired Fund"), a series of Lord Abbett
Securities Trust, and Lord Abbett Tax-Free Income Fund, Inc. (the "Acquiring
Fund") and proposed revised investment policies and restrictions of the
Acquiring Fund.
<TABLE>
<CAPTION>
POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF THE PROPOSED POLICY/RESTRICTION OF
ACQUIRED FUND ACQUIRING FUND THE ACQUIRING FUND
- - -------------------------------------------- ------------------------------------------ ------------------------------------------
<S> <C> <C>
SHORT SALES/MARGIN.
NON-FUNDAMENTAL FUNDAMENTAL NON-FUNDAMENTAL
Subject to certain exceptions, the Fund may The Fund may not sell short or buy on The Fund may not make short sales of
not sell short or buy on margin. margin, although it may obtain short-term securities or maintain a short position
credit necessary for the clearance of the except to the extent permitted by
Purchase of Securities. applicable law.
FUNDAMENTAL
The Fund may purchase securities on
margin to the extent permitted by
applicable law.
- - ------------------------------------------------------------------------------------------------------------------------------------
BORROWING.
FUNDAMENTAL FUNDAMENTAL FUNDAMENTAL
The Fund may not borrow money, unless such Subject to certain exceptions, the Fund The Fund may not borrow money, except
borrowing does not exceed the asset may not borrow money except as a that (i) the Fund may borrow from banks
coverage requirements of Section 18(f) of temporary measure for extraordinary or (as defined in the 1940 Act) in amounts
the Act and unless such borrowing on emergency purposes and then not in excess up to 33 1/3% of its total assets
behalf of the Fund shall be a liability of of 5% of gross assets (at cost or market (including the amount bor rowed), (ii)
the Fund, as the case may be. value, whichever is lower) at the time of the Fund may borrow up to an additional
borrowing. 5% of its total assets for temporary
purposes, and (iii) the Fund may obtain
such short-term credit as may be
necessary for the clearance of purchases
and sales of portfolio securities.
- - ------------------------------------------------------------------------------------------------------------------------------------
UNDERWRITING. FUNDAMENTAL
FUNDAMENTAL FUNDAMENTAL The Fund may not engage in the
The Fund may not engage in the underwriting The Fund may not engage in the underwriting of securities, except,
of securities, except pursuant to a merger underwriting of securities unless it pursuant to a merger or acquisition or to
or acquisition or to the extent that, in deemed to be one in selling a portfolio the extent that, in connection with the
connection with the disposition of its security requiring registration under disposition of its portfolio secur ities,
portfolio secu rities, it may be deemed to federal securities laws. it may be deemed to be an underwriter
be an underwriter under federal securities under federal securities laws.
laws.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE>
<TABLE>
POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF THE PROPOSED POLICY/RESTRICTION OF
ACQUIRED FUND ACQUIRING FUND THE ACQUIRING FUND
- - -------------------------------------------- ------------------------------------------ ------------------------------------------
<S> <C> <C>
LENDING.
FUNDAMENTAL FUNDAMENTAL FUNDAMENTAL
The Fund may not lend money or securities The Fund may not make loans, except for The Fund may not make loans to other
to any person, except that it may lend the purchase of debt securities in which persons, except that the acqui sition of
money for the purchase debt securities in it may invest consistent with its bonds, debentures or other corporate debt
which it may invest consistent with its investment objective and policies. securities and invest ment in government
investment objectives and policies. obligations, com mercial paper,
pass-through instru ments, certificates
of deposit, bankers acceptances,
repurchase agreements or any similar
instruments shall not be subject to this
limitation, and except further that the
Fund may lend its portfolio securities,
provided that the lending of portfolio
securities may be made only in accordance
with appli cable law and the guidelines
set forth in the Fund's Prospectus and
State ment of Additional Information, as
they may be amended from time to time.
- - ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE/COMMODITIES.
FUNDAMENTAL FUNDAMENTAL FUNDAMENTAL
The Fund may not deal in real estate, The Fund may not deal in oil, gas or The Fund may not buy or sell real estate
commodities or commodity contracts, mineral leases, real estate, com modities (except that the Fund may in vest in
excluding the securities of companies or commodity contracts except that the securities directly or indirectly secured
which deal in or hold real estate or Fund may invest in securities issued by by real estate or interests therein or
commodities. companies which invest in real estate or issued by companies which invest in real
interests therein). estate or interests therein), commodity
or commodity contracts (except to the
extent the Fund may do so in accordance
with applicable law and without
registering as a commodity pool operator
under the Commodity Exchange Act as, for
example, with futures contracts).
NON-FUNDAMENTAL
The Fund may not invest in real estate
limited partnership interests or
interests in oil, gas or other mineral
leases, or exploration or other
development programs, except that the
Fund may invest in securities issued by
companies that engage in oil, gas or
other mineral exploration or development
activities.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE>
<TABLE>
POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF THE PROPOSED POLICY/RESTRICTION OF
ACQUIRED FUND ACQUIRING FUND THE ACQUIRING FUND
- - -------------------------------------------- ------------------------------------------ ------------------------------------------
<S> <C> <C>
DIVERSIFICATION.
FUNDAMENTAL FUNDAMENTAL FUNDAMENTAL
The Fund may not buy securities of one With respect to 75% of its gross assets,
None issuer representing (i) more than 5% of the Fund may not buy securi ties of one
its gross assets of market value on time issuer representing more than (i) 5% of
of purchase except securities issued or its gross assets, except securities
guaranteed by the U.S. Government, its issued or guaranteed by the U.S.
agencies or instrumentalities or (ii) 10% Government, its agencies or in
of the voting securities of such issuer. strumentalities, or (ii) 10% of the
voting securities of such issuer.
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT IN A SINGLE INDUSTRY.
FUNDAMENTAL
The Fund may not concentrate its FUNDAMENTAL FUNDAMENTAL
investments in any single industry, The Fund may not invest more than 25% of The Fund may not invest more than 25% of
excluding U.S. Government securities, its assets in any one industry, except its assets, taken at market value, in the
except that the Fund may invest more than with regard to investments in tax-exempt securities of issuers in any particular
25% of its gross assets taken at market securities. industry (excluding (i) tax-exempt
value in tax-exempt securities. securities, such as those financing
facilities in the same industry or issued
by non-governmental users and (ii) the
securities of the U.S. Government, its
agencies or instrumentalities).
- - ------------------------------------------------------------------------------------------------------------------------------------
RESTRICTED/ILLIQUID SECURITIES.
NON-FUNDAMENTAL
The Fund may not invest more than 15% of NON-FUNDAMENTAL NON-FUNDAMENTAL
its total assets in restricted or illiquid The Fund may not invest more than 10% of The Fund may not invest, knowingly, more
securities, except, subject to state law, its total assets in illiquid securities, than 15% of its net assets (at the time
for securities qualifying for resale under except, subject to state law, for of investment) in illiquid securities,
Rule 144A of the Securities Act of 1933, securities qualifying for resale under except for securities qualifying for
deemed to be liquid by the Board of Rule 144A of the Securities Act of 1933, resale under Rule 144A of the Securities
Trustees. deemed to be liquid by the Board of Act of 1933, deemed to be liquid by the
Directors. Board of Directors.
- - ------------------------------------------------------------------------------------------------------------------------------------
MORTGAGING AND PLEDGING OF ASSETS.
NON-FUNDAMENTAL
The Fund may not, with certain exceptions, FUNDAMENTAL FUNDAMENTAL
pledge, mortgage or hypothecate its assets. The Fund may not, with certain The Fund may not pledge its assets (other
exemptions, pledge, mortgage or than to secure borrowings, or to the
hypothecate its assets. extent permitted by the Fund's investment
policies, in connection with hedging
transactions, short sales, when-issued
and forward commitment transactions and
similar investment strategies).
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-3
<PAGE>
<TABLE>
POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF THE PROPOSED POLICY/RESTRICTION OF
ACQUIRED FUND ACQUIRING FUND THE ACQUIRING FUND
- - -------------------------------------------- ------------------------------------------ ------------------------------------------
<S> <C> <C>
INVESTMENTS IN SECURITIES OF OTHER
INVESTMENT COM PANIES.
NON-FUNDAMENTAL
The Fund may, with certain exceptions, not
invest in the securities of other FUNDAMENTAL NON-FUNDAMENTAL
investment companies. The Fund may not invest in the securities The Fund may not invest in the securities
of other investment companies, except of other investment companies, except as
pursuant to a consolidating, merger of permitted by applicable law.
consolidation.
- - ------------------------------------------------------------------------------------------------------------------------------------
OPTIONS.
NON-FUNDAMENTAL FUNDAMENTAL NON-FUNDAMENTAL
The Fund may not buy or sell puts or calls, The Fund may not buy or sell put, call, None stated.
straddle or spread options although the straddle or spread options, except that
Fund may buy, hold or sell options and the Fund may buy, hold or sell options
financial futures, and buy or sell oil, and financial futures.
gas and mineral leases.
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES OF ISSUERS IN
OPERATION FOR LESS THAN THREE YEARS.
None. NON-FUNDAMENTAL
None. The Fund may not invest in securities of
issuers which, with their predecessors,
have a record of less than three years
continuous operations, except if more
than 5% of the Fund's total assets would
be invested in such securities (this
restriction shall not apply to
mortgage-backed securities, asset-backed
securities or obligations issued or
guaranteed by the U.S. Government, its
agencies or instrumentalities).
- - ------------------------------------------------------------------------------------------------------------------------------------
OWNERSHIP OF PORTFOLIO SECURITIES BY
OFFICERS AND DIRECTORS.
NON-FUNDAMENTAL
The Fund may not hold securities of any FUNDAMENTAL NON-FUNDAMENTAL
issuer if more than 1/2 of 1% of the The Fund may not hold securities of any The Fund may not hold securities of any
securities of such issuer are owned issuer if more than 1/2 of 1% of the issuer if more than 1/2 of 1% of the
beneficially by one or more officer or securities of such issuer are owned securities of such issuer are owned
Trustee or by one or more partners of the beneficially by one or more officer or beneficially by one or more officers or
underwriter of investment advisor if director or by one or more partners of Directors or by one or more members or
together they own more than 5% of the the investment adviser if together they partners of the underwriter or investment
securities of such issuer. own more than 5% of the securities of advisor if together they own more than 5%
such issuer. of the securities of such issuer.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-4
<PAGE>
<TABLE>
POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF THE PROPOSED POLICY/RESTRICTION OF
ACQUIRED FUND ACQUIRING FUND THE ACQUIRING FUND
- - -------------------------------------------- ------------------------------------------ ------------------------------------------
<S> <C> <C>
TRANSACTIONS WITH CERTAIN PERSONS.
The Fund, subject to certain exceptions, FUNDAMENTAL
may not engage in securities transactions The Fund, subject to certain excep tions, None stated (but certain restrictions may
with its officers or directors, investment may not engage in securities transactions exist under applicable law).
adviser or with its partners and employees with its officers, directors and
other than capital stock of the Fund. employees, investment adviser or with its
partners and employees other than capital
stock of the Fund.
- - ------------------------------------------------------------------------------------------------------------------------------------
SENIOR SECURITIES.
FUNDAMENTAL FUNDAMENTAL FUNDAMENTAL
The Fund may not issue senior securities
The Fund may not issue senior securities. The Fund may not issue senior securities. to the extent such issuance would violate
applicable law.
- - ------------------------------------------------------------------------------------------------------------------------------------
PURCHASE OF WARRANTS.
NON-FUNDAMENTAL NON-FUNDAMENTAL
None. Pursuant to state regulations, the Fund The Fund may not invest in warrants if,
will not invest more than 5% of its net at the time of the acquisition, its
assets in warrants or more than 2% in investment in warrants, valued at the
warrants not listed on the New York or lower of cost or market, would exceed 5%
American Stock Exchanges, except when of the Fund's total assets (included
they form a unit with other securities. within such limitation, but not to exceed
As a matter of operating policy, the Fund 2% of the Fund's total assets, are
will not invest more than 5% of its net warrants which are not listed on the New
assets in rights. York or American Stock Exchange or a
major foreign exchange).
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-5
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH __, 1996
ACQUISITION OF THE ASSETS OF
Lord Abbett National Tax-Free Income Trust, A SERIES OF
Lord Abbett Securities Trust
The General Motors Building, 767 Fifth Avenue
New York, NY 10153
(800) 426-1130
BY AND IN EXCHANGE FOR CLASS C SHARES OF
National Series, A SERIES OF
Lord Abbett Tax-Free Income Fund, Inc.
The General Motors Building, 767 Fifth Avenue
New York, NY 10153
(800) 426-1130
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets of Lord Abbett National Tax-Free Income Trust
(the "Acquired Fund"), a series of Lord Abbett Securities Trust (the "Trust"),
to the National Series (the "Acquiring Fund"), a series of Lord Abbett Tax-Free
Income Fund, Inc. (the "Income Fund") in exchange for Class C shares of the
Acquiring Fund and the assumption by the Acquiring Fund of the liabilities of
the Acquired Fund, consists of (i) this cover page and (ii) the following
- --
described documents, each of which accompanies this Statement of Additional
Information and is incorporated herein by reference:
1. Statement of Additional Information of the Income Fund dated February
1, 1996.
2. Statement of Additional Information of the Trust dated March 1, 1996,
insofar as it relates to the Acquired Fund./*/
3. The financial statements of the Acquiring Fund for the fiscal year
ended September 30, 1995, and the report thereon of Deloitte & Touche LLP,
independent auditors, contained in the 1995 Annual Report of the Acquiring Fund.
4. The financial statements of the Acquired Fund for the fiscal year
ended October 31, 1995, and the report thereon of Deloitte & Touche LLP,
independent public accountants, contained in the 1995 Annual Report of the
Acquired Fund.
The financial statements referred to above are incorporated herein in
reliance upon the authority of Deloitte & Touche LLP as experts in auditing and
accounting. This Statement of Additional Information is not a prospectus. A
Proxy Statement and Prospectus dated the date hereof relating to the
- - --------------------
/*/ A pre-effective amendment is to be filed to incorporate by reference these
documents.
B-1
<PAGE>
above-referenced matter may be obtained without charge by calling or writing the
Acquiring Fund at the telephone number or address set forth above. This
Statement of Additional Information should be read in conjunction with such
Proxy Statement and Prospectus.
B-2
<PAGE>
PART C
ITEM 15. 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 the
directors and officers. Since Registrant has its executive offices in the State
of New York, and is qualified as a foreign corporation doing business in such
State, the persons covered by the foregoing statute may also be entitled to and
subject to the limitations of the indemnification provisions of Section 721-726
of the New York Business Corporation Law.
The general effect of these statutes is to protect officers, directors and
employees of Registrant against legal liability and expenses incurred by reason
of their positions with the Registrant. The statutes provide for
indemnification for liability for proceedings not brought on behalf of the
corporation and for those brought on behalf of the corporation, and in each case
place conditions under which indemnification will be permitted, including
requirements that the officer, director or employee acted in good faith. Under
certain conditions, payment of expenses in advance of final disposition may be
permitted. The By-Laws of Registrant, without limiting the authority of
Registrant to indemnify any of its officers, employees or agents to the extent
consistent with applicable law, make the indemnification of its directors
mandatory subject only to the conditions and limitations imposed by the above-
mentioned Section 2-418 of Maryland Law and by the provisions of Section 17(h)
of the Investment Company Act of 1940 as interpreted and required to be
implemented by SEC Release No. IC-11330 of September 4, 1980.
In referring in its By-Laws to, and making indemnification of directors
subject to the conditions and limitations of, both Section 2-418 of the Maryland
Law and Section 17(h) of the Investment Company Act of 1940, Registrant intends
that conditions and limitations on the extent of the indemnification of
directors imposed by the provisions of either Section 2-418 or Section 17(h)
shall apply and that any inconsistency between the two will be resolved by
applying the provisions of said Section 17(h) if the condition or limitation
imposed by Section 17(h) is the more stringent. In referring in its By-Laws to
SEC Release No. IC-11330 as the source for interpretation and implementation of
said Section 17(h), Registrant understands that it would be required under its
By-Laws to use reasonable and fair means in determining whether indemnification
of a director should be made and undertakes to use either (1) a final decision
on the merits by a court or other body before whom the proceeding was brought
that the person to be indemnified ("indemnitee") was not liable to Registrant or
to its security holders by reason of willful malfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office ("disabling conduct") or (2) in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that the indemnitee
was not liable by reason of such disabling conduct, by (a) the vote of a
majority of a quorum of directors who are neither "interested persons" (as
defined in the 1940 Act) of Registrant nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion. Also, Registrant will make
advances of attorneys' fees or other expenses incurred by a director in his
defense only if (in addition to his undertaking to repay the advance if he is
not ultimately entitled to indemnification) (1) the indemnitee provides a
security for his undertaking, (2) Registrant shall be insured against losses
arising by reason of any lawful advances, or (3) a majority of a quorum of the
non-interested, non-party directors of Registrant, or an independent legal
counsel in a written opinion, shall
C-1
<PAGE>
determine, based on a review of readily available facts, that there is reason to
believe that the indemnitee ultimately will be found entitled to
indemnification.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expense incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
In addition, Registrant maintains a directors' and officers errors and
omissions liability insurance policy protecting directors and officers against
liability for breach of duty, negligent act, error or omission committed in
their capacity as directors or officers. The policy contains certain
exclusions, among which is exclusion from coverage for active or deliberate
dishonest or fraudulent acts and exclusion for fines or penalties imposed by law
or other matters deemed uninsurable.
ITEM 16. EXHIBITS
1. (a) Articles of Incorporation of the Registrant. (1)
(b) Amendment to Articles of Incorporation. (2)
(c) Amendment to Articles of Incorporation. (3)
(d) Amendment to Articles of Incorporation. (4)
(e) Amendment to Articles of Incorporation. (5)
(f) Form of Amendment authorizing multiple class structure; filed
herewith.
(g) Form of Amendment designating Class A shares; filed herewith.
(h) Form of Articles Supplementary classifying the Class C shares; filed
herewith.
2. By-Laws of the Registrant. (1)
3. Not Applicable.
4. Form of Agreement and Plan of Reorganization between Registrant and
Lord Abbett Securities Trust-Lord Abbett National Tax-Free Income
Trust; filed herewith as Exhibit A contained in Part A of this
Registration Statement.
5. Not Applicable.
6. (a) Investment Management Agreement between the Registrant and Lord,
Abbett & Co. dated August 16, 1985.(6)
C-2
<PAGE>
7. (a) Form of Rule 12b-1 Plan for Registrant's Class C shares; filed
herewith.
(c) Distribution Agreement, dated January 1, 1985 between Registrant and
Lord, Abbett & Co.(7)
(d) Amendment to Distribution Agreement. (8)
8. (a) Deferred Compensation Plan. (9)
(b) Retirement Plan. (9)
9. (a) Custody Agreement. (7)
(b) Form of Assignment and Assumption Agreement between Morgan Guaranty
Trust Company of New York and Bank of New York; filed herewith.
10. (a) See Item 7(a) above.
(b) Form of Rule 18f-3 Plan; filed herewith.
11. Form of opinion and Consent of Debevoise & Plimpton as to the legality
of securities being issued; filed herewith.
12. Form of opinion and Consent of Debevoise & Plimpton as to Tax Matters;
filed herewith.
13. Not Applicable.
14. (a) Consent of Deloitte & Touche LLP regarding financial statements of
Registrant and Lord Abbett Securities Trust; filed herewith.
(b) Ruling application submitted to the Internal Revenue Service, dated
October 19, 1995, supplemental application, dated January 26, 1996,
and Ruling, dated February 5, 1996; filed herewith.
15. Not Applicable.
16. Not Applicable.
17. (a) Form of Proxy Card; filed herewith.
(b) Prospectus and Statement of Additional Information of the Registrant
dated February 1, 1996 (10).
(c) The financial statements of the Registrant for the fiscal year ended
September 30, 1995, and the report thereon of Deloitte & Touche LLP,
independent public accountants, contained in the 1995 Annual Report of
the Acquiring Fund (11).
(d) The financial statements of the Acquired Trust for the fiscal year
ended October 31, 1995, and the report thereon of Deloitte & Touche
LLP, independent public accountants, contained in the 1995 Annual
Report of Lord Abbett Securities Trust. (12).
(e) Notice to Brokers
(f) Letter to Shareholders re: Proxy
- - ----------------
C-3
<PAGE>
(1) Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A (File Nos. 2-88912 and 811-3942) filed on or about December 27,
1983.
(2) Incorporated herein by reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (File Nos. 2-88912 and
811-3942) filed on or about July 1, 1991.
(3) Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (File Nos. 2-88912 and
811-3942) filed on or about October 28, 1991.
(4) Incorporated herein by reference to Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A (File Nos. 2-88912 and
811-3942) filed on or about February 14, 1992.
(5) Incorporated herein by reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A (File Nos. 2-88912 and
811-3942) filed on or about December 15, 1995.
(6) Incorporated herein by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A (File Nos. 2-88912 and
811-3942) filed on or about January 1, 1985.
(7) Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File Nos. 2-88912 and
811-3942) filed on or about January 1, 1985.
(8) Incorporated herein by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A (File Nos. 2-88912 and
811-3942) filed on or about May 29, 1987.
(9) Incorporated herein by reference to Post-Effective Amendment No. 7 to Lord
Abbett Securities Trust's Registration Statement on Form N-1A (File Nos.
33-58846 and 811-7538) filed on or about October 7, 1994.
(10) Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A (File Nos. 2-88912 and
811-3942) filed on or about January 31, 1996.
(11) 1995 Annual Report of the Registrant filed on or about December 5, 1995.
(12) 1995 Annual Report of Lord Abbett Securities Trust filed on or about
January 10, 1996.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that, prior to any public reoffering of
the securities registered through the use of a prospectus which is a part
of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act [17
CFR (S) 230.145c] the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration statement
for the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of them.
C-4
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant in the City of New York and State of New
York on the 29th day of February 1996.
LORD ABBETT TAX-FREE INCOME FUND, INC.
By:/s/ Ronald P. Lynch
Ronald P. Lynch, Chairman
of the Board
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities indicated and on the
dates indicated.
SIGNATURE TITLE DATE
- - --------- ----- ----
/s/ Ronald P. Lynch Chairman of the Board 2/29/96
- - ------------------------- and Director -----------
Ronald P. Lynch
2/29/96
/s/ Robert S. Dow President and Director -----------
- - -------------------------
Robert S. Dow
/s/ John J. Gargana, Jr. Vice President and 2/29/96
- - ------------------------- Chief Financial Officer -----------
John J. Gargana, Jr.
/s/ E. THayer Bigelow 2/29/96
- - ------------------------- Director -----------
E. Thayer Bigelow
- - ------------------------- Director -----------
Stewart S. Dixon
- - ------------------------- Director -----------
John C. Jansing
/s/ C. Alan MacDonald 2/29/96
- - ------------------------- Director -----------
C. Alan MacDonald
- - ------------------------- Director -----------
Hansel B. Millican, Jr.
/s/ Thomas J. Neff 2/29/96
- - ------------------------- Director -----------
Thomas J. Neff
/s/ E. Wayne Nordberg 2/29/96
- - ------------------------- Director -----------
E. Wayne Nordberg
C-5
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as a part of this Registration Statement
pursuant to General Instruction G of Form N-14.
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- - --------- ----------- ------
(1)(f) Form of Amendment authorizing multiple class structure
(g) Form of Amendment designating Class A shares
(h) Form of Articles Supplementary classifying Class C shares
(4) Form of Agreement and Plan of Reorganization between the Registrant
and Lord Abbett Securities Trust - National Tax-Free Income Trust
(7)(a) Form of Rule 12b-1 Plan for Registrant Class C shares
(9)(b) Form of Assignment and Assumption Agreement, between Morgan Guaranty
Trust Company of New York and Bank of New York; filed herewith
(10)(b) Form of Rule 18f-3 Plan
(11) Form of Opinion and Consent of Debevoise & Plimpton as to legality
of securities being issued
(12) Form of Opinion and Consent of Debevoise & Plimpton as to Tax
Matters
(14)(a) Consent of Deloitte & Touche LLP regarding financial statements of
both Registrant and Lord Abbett Securities Trust.
(b) Ruling application submitted to the Internal Revenue Service, dated
October 19, 1995, supplemental application, dated January 26, 1996,
and Ruling, dated February 5, 1996.
(17)(a) Form of Proxy Card
(17)(e) Notice to Brokers
(17)(f) Letter to Shareholders re: Proxy
C-6
Exhibit 1(f)
------------
LORD ABBETT TAX-FREE INCOME FUND, INC.
ARTICLES OF AMENDMENT
LORD ABBETT TAX-FREE INCOME FUND, INC., a Maryland corporation
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland, that:
FIRST: The Articles of Incorporation of the Corporation (hereinafter
called the "Articles"), as heretofore amended, are hereby further amended by:
(a) Striking out Section 1 of ARTICLE V and inserting in lieu thereof:
"SECTION 1. The total number of shares which the Corporation has authority
to issue is 1,000,000,000 shares of capital stock of the par value of $.001 each
(the "Shares"), having an aggregate par value of $1,000,000. The Board of
Directors of the Corporation shall have full power and authority, from time to
time, to classify or reclassify any unissued Shares, including, without
limitation, the power to classify or reclassify unissued shares into series, and
to classify or reclassify a series into one or more classes of stock that may be
invested together in the common investment portfolio in which the series is
invested, by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications, or
terms or conditions of redemption of such shares of stock. All Shares of a
series shall represent the same interest in the Corporation and have the same
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as the other Shares of that series, except to the extent that the
Board of Directors provides for differing preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of Shares of classes of
such series as determined pursuant to Articles Supplementary filed for record
with the State Department of Assessments and Taxation of Maryland, as otherwise
determined pursuant to these Articles or by the Board of Directors in accordance
with law. The Shares shall initially be classified into nine series designated
initially as the "National Series", consisting of 80,000,000 Shares, the
"Connecticut Series", consisting of 40,000,000 Shares, the "Hawaii Series",
consisting of 40,000,000
<PAGE>
Shares, the "Minnesota Series", consisting of 40,000,000 Shares, the "Missouri
Series", consisting of 40,000,000 Shares, the "New Jersey Series", consisting of
80,000,000 Shares, the "New York Series", consisting of 80,000,000 Shares, the
"Texas Series", consisting of 40,000,000 Shares and the "Washington Series",
consisting of 40,000,000 Shares. Prior to the first classification of a series
into additional classes, all outstanding Shares of such series shall be of a
single class. Notwithstanding any other provision of these Articles, upon the
classification of unissued Shares into additional series, the Board of Directors
shall specify a legal name for the new series in appropriate charter documents
filed for record with the State Department of Assessments and Taxation of
Maryland providing for such name change and classification, and upon the first
classification of a series into additional classes, the Board of Directors shall
specify a legal name for the outstanding class, as well as for the new class or
classes, in appropriate charter documents filed for record with the State
Department of Assessments and Taxation of Maryland providing for such name
change and classification."
(b) Striking out Section 2 of ARTICLE V and inserting in lieu
thereof:
"SECTION 2. A description of the relative preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of all series and classes
of series of Shares is as follows, unless otherwise set forth in Articles
Supplementary filed for record with the State Department of Assessments and
Taxation of Maryland or otherwise determined pursuant to these Articles:
(a) Assets Belonging to Series. All consideration received or
--------------------------
receivable by the Corporation for the issue or sale of Shares of a
particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings,
profits and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to that
series for all purposes, subject only to the rights of creditors,
and shall be so recorded upon the books of account of the
Corporation. Such consideration, assets,
2
<PAGE>
income, earnings, profits and proceeds, including any proceeds
derived from the sale, exchange or liquidation of such assets, and
any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, together with any
unallocated items (as hereinafter defined) relating to that series
as provided in the following sentence, are herein referred to as
"assets belonging to" that series. In the event that there are any
assets, income, earnings, profits or proceeds thereof, funds or
payments which are not readily identifiable as belonging to any
particular series (collectively "Unallocated Items"), the Board of
Directors shall allocate such Unallocated Items to and among any
one or more of the series created from time to time in such manner
and on such basis as it, in its sole discretion, deems fair and
equitable; and any Unallocated Items so allocated to a particular
series shall belong to that series. Each such allocation by the
Board of Directors shall be conclusive and binding upon the
stockholders of all series for all purposes.
(b) Liabilities Belonging to Series. The assets belonging to each
-------------------------------
particular series shall be charged with the liabilities of the
Corporation in respect of that series, including any class
thereof, and with all expenses, costs, charges and reserves
attributable to that series, including any such class, and shall
be so recorded upon the books of account of the Corporation. Such
liabilities, expenses, costs, charges and reserves, together with
any unallocated items (as hereinafter defined) relating to that
series, including any class thereof, as provided in the following
sentence, so charged to that series, are herein referred to as
"liabilities belonging to" that series. In the event there are any
unallocated liabilities, expenses, costs, charges or reserves of
the Corporation which are not readily identifiable as belonging to
any particular series (collectively "Unallocated Items"), the
Board of Directors shall allocate and charge such Unallocated
Items to and among any one or more of the series created from time
to time in such manner and on such basis as the Board of Directors
in its sole discretion
3
<PAGE>
deems fair and equitable; and any Unallocated Items so allocated
and charged to a particular series shall belong to that series.
Each such allocation by the Board of Directors shall be conclusive
and binding upon the stock holders of all series for all purposes.
To the extent determined by the Board of Directors, liabilities
and expenses relating solely to a particular class (including,
without limitation, distribution expenses under a Rule 12b-1 plan
and administrative expenses under an administration or service
agreement, plan or other arrangement, however designated, which
may be adopted for such class) shall be allocated to and borne by
such class and shall be appropriately reflected (in the manner
determined by the Board of Directors) in the net asset value,
dividends and distributions and liquidation rights of the shares
of such class.
(c) Dividends. Dividends and distributions on Shares of a particular
---------
series may be paid to the holders of Shares of that series at such
times, in such manner and from such of the income and capital
gains, accrued or realized, from the assets belonging to that
series, after providing for actual and accrued liabilities
belonging to that series, as the Board of Directors may determine.
Such dividends and distributions may vary between or among classes
of a series to reflect differing allocations of liabilities and
expenses of such series between or among such classes to such
extent as may be provided in or determined pursuant to Articles
Supplementary filed for record with the State Department of
Assessments and Taxation of Maryland or as may otherwise be
determined by the Board of Directors.
(d) Liquidation. In the event of the liquidation or dissolution of
-----------
the Corporation, the stockholders of each series shall be entitled
to receive, as a series, when and as declared by the Board of
Directors, the excess of the assets belonging to that series over
the liabilities belonging to that series. The assets so
distributable to the stockholders of one or more classes of a
series shall be distributed among such stockholders in proportion
to the
4
<PAGE>
respective aggregate net asset values of the shares of such series
held by them and recorded on the books of the Corporation.
(e) Voting. On each matter submitted to vote of the stockholders,
------
each holder of a Share shall be entitled to one vote for each such
Share standing in his name on the books of the Corporation
irrespective of the series or class thereof and all shares of all
series and classes shall vote as a single class ("Single Class
Voting"); provided, however, that (i) as to any matter with
-
respect to which a separate vote of any series or class is
required by the Investment Company Act of 1940, as amended from
time to time, applicable rules and regulations thereunder, or the
Maryland General Corporation Law, such requirement as to a
separate vote of that series or class shall apply in lieu of
Single Class Voting as described above; (ii) in the event that the
--
separate vote requirements referred to in (i) above apply with
respect to one or more (but less than all) series or classes,
then, subject to (iii) below, the shares of all other series and
classes shall vote as a single class; and (iii) as to any
---
matter which does not affect the interest of a particular series
or class, only the holders of shares of the one or more affected
series or classes shall be entitled to vote.
(f) Conversion. At such times (which times may vary among shares of a
----------
class) as may be determined by the Board of Directors, Shares of a
particular class of a series may be automatically converted into
Shares of another class of such series based on the relative net
asset values of such classes at the time of conversion, subject,
however, to any conditions of conversion that may be imposed by
the Board of Directors.
(g) Equality. All Shares of each particular series shall represent an
--------
equal proportionate interest in the assets belonging to that
series (subject to the liabilities belonging to that series), but
the provisions of this sentence or any other provision of these
Articles shall not restrict any distinctions that may exist with
respect to
5
<PAGE>
stockholder elections to receive dividends or distributions in
cash or Shares or that may otherwise exist with respect to
dividends and distributions on Shares of the same series."
(c) Striking out the phrase "of any Class" or "and of any Class", as the
case may be (including any punctuation with respect thereto), from the preamble
and subsections (a), (b) and (c) of Section 3 of Article V and Sections 1(c) and
2 of Article VII.
(d) Striking out the last sentence of Section 3(a) of Article V and
inserting in lieu thereof:
"Each holder of the Shares, upon request to the Corporation accompanied by
surrender (to the Corporation, or an agent designated by it) of the
appropriate stock certificate or certificates, if any, in proper form for
transfer, and such other instruments as the Board of Directors may require,
shall be entitled to require the Corporation to redeem all or any part of
the Shares outstanding in the name of such holder on the books of the
Corporation, at a redemption price equal to the net asset value of such
Shares determined as hereinafter set forth. Notwithstanding the foregoing,
the Corporation may deduct from the proceeds otherwise due to any
stockholder requiring the Corporation to redeem Shares a redemption charge
not to exceed one percent (1%) of such net asset value or a reimbursement
charge, a deferred sales charge or other charge that is integral to the
Corporation's distribution program (which charges may vary within and among
series and classes) as may be established from time to time by the Board of
Directors."
(e) Striking out the words "Class" or "Class or Classes", as the case may
be, from subsections (b) and (d) of Section 1 of Article VII and inserting the
word "series" in lieu thereof.
(f) Striking out the last sentence of Section 1(g) of Article VII and
inserting in lieu thereof:
"Any agreement entered into pursuant to said sections (e) or (f) shall be
consistent with and subject to the requirements of the Investment Company
Act of 1940, as amended from time to time, applicable rules and regulations
thereunder, or any other applicable Act of Congress hereafter enacted, and
no amendment to any agreement entered into
6
<PAGE>
pursuant to said section (e) (other than an amendment reducing the
compensation of the other party thereto) shall be effective unless assented
to by the affirmative vote of a majority of the outstanding voting
securities of the Corporation (as such phrase is defined in the Investment
Company Act of 1940, as amended from time to time) entitled to vote on the
matter."
(g) Striking out Section 3 of Article VII and inserting in lieu thereof:
"SECTION 3. For the purposes referred to in these Articles of
Incorporation, the net asset value of shares of the capital stock of the
Corporation of each series and class as of any particular time (a "determination
time") shall be determined by or pursuant to the direction of the Board of
Directors as follows:
(a) At times when a series is not classified into multiple classes,
the net asset value of each share of stock of a series, as of a
determination time, shall be the quotient, carried out to not less
than two decimal points, obtained by dividing the net value of the
assets of the Corporation belonging to that series (determined as
hereinafter provided) as of such determination time by the total
number of shares of that series then outstanding, including all
shares of that series which the Corporation has agreed to sell for
which the price has been determined, and excluding shares of that
series which the Corporation has agreed to purchase or which are
subject to redemption for which the price has been determined.
The net value of the assets of the Corporation of a series as of a
determination time shall be determined in accordance with sound
accounting practice by deducting from the gross value of the
assets of the Corporation belonging to that series (determined as
hereinafter provided), the amount of all liabilities belonging to
that series (as such terms are defined in subsection (b) of
Section 2 of Article V), in each case as of such determination
time.
The gross value of the assets of the Corporation belonging to a
series as of such determination time shall
7
<PAGE>
be an amount equal to all cash, receivables, the market value of
all securities for which market quotations are readily available
and the fair value of other assets of the Corporation belonging to
that series (as such terms are defined in subsection (a) of
Section 2 of Article V) at such determination time, all determined
in accordance with sound accounting practice. Securities held
shall be valued pursuant to methods approved by the Board of
Directors and in accordance with applicable statutes and
regulations. The determination of the market value of securities
hereunder may be determined by reference to any recognized source
of quotations or to a valuation service approved by the Board of
Directors.
(h) Adding a new subsection (b) to Section 3 of Article VII, as follows:
"(b) At times when a series is classified into multiple classes, the
net asset value of each share of stock of a class of such series
shall be determined in accordance with the foregoing subsection
(a) with appropriate adjustments to reflect differing allocations
of liabilities and expenses of such series between or among such
classes to such extent as may be provided in or determined
pursuant to Articles Supplementary filed for record with the State
Department of Assessments and Taxation of Maryland or as may
otherwise be determined by the Board of Directors."
(i) Striking out Section 4 of Article VII and inserting in lieu
thereof:
"SECTION 4. The presence in person or by proxy of the holders of one-
third of the Shares issued and outstanding and entitled to vote thereat shall
constitute a quorum for the transaction of any business at all meetings of the
shareholders, except as otherwise provided by law or in these Articles of
Incorporation and except that where the holders of Shares of any series or class
are entitled to a separate vote as such series or class (each such series or
class, a "Separate Class") or where the holders of Shares of two or more (but
not all) series or classes are required to vote as a single series or class
(each such single series or class, a "Combined Class"), the presence in person
or by proxy of the holders of one-third of the Shares of that
8
<PAGE>
Separate Class or Combined Class, as the case may be, issued and outstanding and
entitled to vote thereat shall constitute a quorum for such vote. If, however,
a quorum with respect to all series, including all classes thereof, a Separate
Class or a Combined Class, as the case may be, shall not be present or
represented at any meeting of the shareholders, the holders of a majority of the
Shares of all series, such Separate Class or such Combined Class, as the case
may be, present in person or by proxy and entitled to vote shall have power to
adjourn the meeting from time to time as to all series, such Separate Class or
such Combined Class, as the case may be, without notice other than announcement
at the meeting, until the requisite number of Shares entitled to vote at such
meeting shall be present. At such adjourned meeting at which the requisite
number of Shares entitled to vote thereat shall be represented any business may
be transacted which might have been transacted at the meeting as originally
notified. The absence from any meeting of stockholders of the number of Shares
in excess of one-third of the Shares of all series or classes, or of the
affected series or classes, as the case may be, which may be required by the
laws of the State of Maryland, the Investment Company Act of 1940 of any other
applicable law, or by these Articles of Incorporation, for action upon any given
matter shall not prevent action at such meeting upon any other matter or matters
which may properly come before the meeting, if there shall be present thereat,
in person or by proxy, holders of the number of Shares required for action in
respect of such other matter or matters."
(j) Striking out Section 5 of Article VII and inserting in lieu thereof:
"SECTION 5. Any determination as to any of the following matters made
by or pursuant to the direction of the Board of Directors consistent with these
Articles of Incorporation and in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of duties, shall be final and conclusive
and shall be binding upon the Corporation and every holder of the Shares, of any
series or class, namely, the amount of the assets, obligations, liabilities and
expenses of the Corporation or belonging to any series or with respect to any
class; the amount of the net income of the Corporation from dividends and
interest for any period and the amount of assets at any time legally available
for the payment of dividends with respect to any series or class; the amount of
paid-in surplus, other surplus, annual or other net profits, or net assets in
excess of capital, undivided profits, or excess of
9
<PAGE>
profits over losses on sales of securities belonging to the Corporation or any
series or class; the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged) with respect to the
Corporation or any series or class; the market value, or any sale, bid or asked
price to be applied in determining the market value, of any security owned or
held by the Corporation; the fair value of any asset owned by the Corporation;
the number of Shares of the Corporation of any series or class issued or
issuable; the existence of conditions permitting the postponement of payment of
the repurchase price of Shares of any series or class or the suspension of the
right of redemption as provided by law; any matter relating to the acquisition,
holding and disposition of securities and other assets by the Corporation; any
question as to whether any transaction constitutes a purchase of securities on
margin, a short sale of securities, or an underwriting of the sale of, or
participation in any underwriting or selling group in connection with the public
distribution of any securities; and any matter relating to the issue, sale,
repurchase and/or other acquisition or disposition of Shares of any series or
class."
(k) Striking out the words "of all Classes or of the affected Classes, as
the case may be," from Article VIII.
SECOND: The Board of Directors of the Corporation on ________, 1996,
duly adopted resolutions in which was set forth the foregoing amendments to the
Articles, declaring that the said amendments of the Articles as proposed were
advisable and directing that they be submitted for action thereon by the
stockholders of the Corporation at a meeting to be held on ___________, 1996.
THIRD: Notice setting forth said amendments of the Articles and
stating that a purpose of the meeting of the stockholders would be to take
action thereon, was given, as required by law, to all stockholders entitled to
vote thereon. The amendments of the Articles as hereinabove set forth were
approved by the stockholders of the Corporation at said meeting by the
affirmative vote of a majority of all the votes entitled to be cast thereon, as
required by the Articles.
FOURTH: The amendments of the Articles hereinabove set forth have
been duly advised by the Board of Directors and approved by the stockholders of
the Corporation.
10
<PAGE>
FIFTH: This amendment does not increase the number of shares which
the Corporation has authority to issue or decrease the par value of the shares
of capital stock of the Corporation.
11
<PAGE>
IN WITNESS WHEREOF, Lord Abbett Tax-Free Income Fund, Inc. has caused
these presents to be signed in its name and on its behalf by its President and
witnessed by its Secretary on ____________, 1996.
LORD ABBETT TAX-FREE INCOME FUND, INC.
By:__________________________________
, President
WITNESS:
______________________________
, Secretary
12
<PAGE>
THE UNDERSIGNED, President of Lord Abbett Tax-Free Income Fund, Inc., who
executed on behalf of the Corporation the foregoing Articles of Amendment, of
which this Certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles of Amendment to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
______________________________
, President
13
Exhibit 1(g)
------------
Draft--February 22, 1996
LORD ABBETT TAX-FREE INCOME FUND, INC.
ARTICLES OF AMENDMENT
LORD ABBETT TAX-FREE INCOME FUND, INC., a Maryland corporation
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland, that:
FIRST: The Articles of Incorporation of the Corporation (hereinafter
called the "Articles"), as heretofore amended, are hereby further amended by
specifying the legal name for the existing class of capital stock of each Series
of the Corporation, both outstanding shares and unissued shares, as Class A
shares of such Series.
SECOND: A majority of the entire Board of Directors of the
Corporation on [_______], 1996, duly adopted resolutions approving the foregoing
amendment to the Articles.
THIRD: The amendment of the Articles hereinabove set forth has been
duly approved by the Board of Directors of the Corporation and is limited to a
change expressly permitted by (S) 2-605 of the General Corporation Law of the
State of Maryland to be made without action of the stockholders.
FOURTH: The Corporation is registered as an open-end company under
the Investment Company Act of 1940, as amended from time to time.
<PAGE>
IN WITNESS WHEREOF, Lord Abbett Tax-Free Income Fund, Inc. has caused
these presents to be signed in its name and on its behalf by its President and
witnessed by its Secretary on ____________, 1996.
LORD ABBETT TAX-FREE INCOME
FUND, INC.
By: _____________________
, President
WITNESS:
______________________________
, Secretary
2
<PAGE>
THE UNDERSIGNED, President of Lord Abbett Tax-Free Income Fund, Inc., who
executed on behalf of the Corporation the foregoing Articles of Amendment, of
which this Certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles of Amendment to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
______________________________
, President
3
Exhibit 1(h)
------------
Draft--February 20, 1996
LORD ABBETT TAX-FREE INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
Lord Abbett Tax-Free Income Fund, Inc., a Maryland corporation,
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Corporation presently has authority to issue 80,000,000 shares
of capital stock of the National Series, 40,000,000 shares of capital stock of
the Connecticut Series, 40,000,000 shares of capital stock of the Hawaii Series,
40,000,000 shares of capital stock of the Minnesota Series, 40,000,000 shares of
capital stock of the Missouri Series, 80,000,000 shares of capital stock of the
New Jersey Series, 80,000,000 shares of capital stock of the New York Series,
40,000,000 shares of capital stock of the Texas Series and 40,000,000 shares of
capital stock of the Washington Series, of the par value $.001 each, previously
classified and designated by the Board of Directors as Class A shares of each
such Series.
SECOND: Pursuant to the authority of the Board of Directors to classify
and reclassify unissued shares of stock of the Corporation and to classify a
series into one or more classes of such series, the Board of Directors hereby
further classifies the capital stock of the Corporation by (i) creating a new
-
series of stock to be called the "California Series," consisting of 80,000,000
Class A shares and 40,000,000 Class C shares, (ii) classifying and reclassifying
--
an additional 40,000,000 authorized but unissued shares of capital stock of the
Corporation as the "National Series" and (iii) classifying and reclassifying
---
30,000,000 authorized but unissued Class A shares of the National Series as
Class C shares of the National Series, and 20,000,000 authorized but unissued
Class A shares of the New York Series as Class C shares of the New York Series.
THIRD: Subject to the power of the Board of Directors to classify and
reclassify unissued shares, all shares of the Corporation's Class C stock of the
California Series, the National Series and the New York Series shall be invested
in the same investment portfolio of the Corporation as the Class A stock of the
California Series, the National Series and the New York Series, respectively,
and shall have the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption set forth in Article V of the Articles of Incorporation
of the Corporation (hereafter called the "Articles") and shall be subject to all
other provisions of the Articles relating to stock of the Corporation generally.
FOURTH: The Class C shares aforesaid have been duly classified by the
Board of Directors under the authority contained in the Articles.
<PAGE>
IN WITNESS WHEREOF, Lord Abbett Tax-Free Income Fund, Inc., has caused
these presents to be signed in its name and on its behalf by its President and
witnessed by its Secretary on _____________, 1996.
LORD ABBETT TAX-FREE INCOME
FUND, INC.
By: _______________________
, President
WITNESS:
______________________________
, Secretary
2
<PAGE>
THE UNDERSIGNED, President of Lord Abbett Tax-Free Income Fund, Inc., who
executed on behalf of the Corporation the foregoing Articles Supplementary, of
which this Certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles Supplementary to be the
corporate act of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
_______________________________
, President
3
Exhibit 7(a)
------------
Draft--February 22, 1996
Rule 12b-1 Distribution Plan and Agreement
Lord Abbett Tax-Free Income Fund, Inc. -- National Series -- Class C Shares
---------------------------------------------------------------------------
RULE 12b-1 DISTRIBUTION PLAN AND AGREEMENT dated as of July 12, 1996 by and
between LORD ABBETT TAX-FREE INCOME FUND, INC., a Maryland corporation (the
"Fund"), on behalf of its NATIONAL SERIES (the "Series"), and LORD ABBETT
DISTRIBUTOR LLC, a New York limited liability company (the "Distributor").
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "Act"); and the
Distributor is the exclusive selling agent of the Fund's shares of capital
stock, including the Series' Class C shares (the "Shares") pursuant to the
Distribution Agreement between the Fund and the Distributor, dated as of the
date hereof, and
WHEREAS, the Fund 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 institutions and persons permitted by applicable law
and/or rules to receive such payments ("Authorized Institutions") in connection
with sales of Shares and for use by the Distributor as provided in paragraph 3
of this Plan, and
WHEREAS, the Fund's Board of Directors has determined that there is a
reasonable likelihood that the Plan will benefit the Series and the holders of
the Shares.
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 Fund hereby authorizes the Distributor to enter into agreements
with Authorized Institutions (the "Agreements") which may provide for the
payment to such Authorized Institutions of distribution and service fees which
the Distributor receives from the Series in order to provide incentives to such
Authorized Institutions (i) to sell Shares and (ii) to provide continuing
information and investment services to their accounts holding Shares and
otherwise to encourage their accounts to remain invested in the Shares. The
Distributor may, from time to time, waive or defer payment of some fees payable
at the time of the sale of Shares provided for under paragraph 2 hereof.
<PAGE>
2. Subject to possible reduction as provided below in this paragraph 2,
the Series shall pay to the Distributor fees (i) at the time of sale of Shares
(a) for services, not to exceed .25 of 1% of the net asset value of the Shares
sold and (b) for distribution, not to exceed .75 of 1% of the net asset value of
the Shares sold; and (ii) at each quarter-end after the first anniversary of the
sale of Shares (a) for services, at an annual rate not to exceed .25 of 1% of
the average annual net asset value of Shares outstanding for one year or more
and (b) for distribution, at an annual rate not to exceed .75 of 1% of the
average annual net asset value of Shares outstanding for one year or more. For
purposes of clause (ii) above, (A) Shares issued pursuant to an exchange for
Class C shares of another series of the Fund or another Lord Abbett-sponsored
fund (or for shares of a fund acquired by the Fund) will be credited with the
time held from the initial purchase of such other shares when determining how
long Shares mentioned in clause (ii) have been outstanding and (B) payments will
be based on Shares outstanding during any such quarter. Sales in clause (i)
above exclude Shares issued for reinvested dividends and distributions, and
Shares outstanding in clause (ii) above include Shares issued for reinvested
dividends and distributions which have been outstanding for one year or more.
The Board of Directors of the Fund shall from time to time determine the
amounts, within the foregoing maximum amounts, that the Series may pay the
Distributor hereunder. Such determinations by the Board of Directors shall be
made by votes of the kind referred to in paragraph 10 of this Plan. The service
fees men tioned in this paragraph are for the purposes mentioned in clause (ii)
of paragraph 1 of this Plan and the distribution fees mentioned in this
paragraph are for the purposes mentioned in clause (i) of paragraph 1 and the
second sentence of paragraph 3 of this Plan. The Distributor will monitor the
payments hereunder and shall reduce such payments or take such other steps as
may be necessary to assure that (x) the payments pursuant to this Plan shall be
consistent with Article III, Section 26, subparagraphs (d)(2) and (5) of the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
with respect to investment companies with asset-based sales charges and service
fees as the same may be in effect from time to time and (y) the Series shall not
pay with respect to any Authorized Institution service fees equal to more than
..25 of 1% of the average annual net asset value of Shares sold by (or
attributable to shares sold by) such Authorized Institution and held in an
account covered by an Agreement.
3. The Distributor may use amounts received as distribution fees hereunder
from the Series to finance any activity which is primarily intended to result in
the sale of Shares including, but not limited to, commissions or other payments
relating to selling or servicing efforts. Without limiting the generality of
the foregoing, the Distributor may apply up to 10 of the total basis points
authorized by the Fund's Board of Directors designated as the distribution fee
referred to in clause (ii)(b) of paragraph 2 to expenses incurred by the
Distributor if such expenses are
2
<PAGE>
primarily intended to result in the sale of Shares. The Fund's Board of
Directors (in the manner contemplated in paragraph 10 of this Plan) shall
approve the timing, categories and calculation of any payments under this
paragraph 3 other than those referred to in the foregoing sentence.
4. The net asset value of the Shares shall be determined as provided in
the Articles of Incorporation of the Fund. 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.
5. The Secretary of the Fund, 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 Fund's Board of
Directors, and the Board of 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.
6. 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, shareholders, or other
representatives of the Fund 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 Fund, except as otherwise may be provided
in the Act.
7. The Distributor shall give the Fund 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 Fund, the Series or any of the shareholders,
creditors, directors or officers of the Fund; provided however, that nothing
herein shall be deemed to protect the Distributor against any liability to the
Fund or the Series' shareholders 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 obligations and duties hereunder.
8. This Plan shall become effective on the date hereof, 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
3
<PAGE>
Directors of the Fund, including the vote of a majority of the directors who are
not "interested persons" of the Fund and who have no direct or indirect
financial interest in the operation of this Plan or in any agreement related to
this Plan, cast in person at a meeting called for the purpose of voting on such
renewal.
9. 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 Fund, including the vote of a majority of the
directors who are not "interested persons" of the Fund and who have no direct or
indirect financial interest in the operation of this Plan or in any agreement
related to this Plan, cast in person at a meeting called for the purpose of
voting on such amendment.
10. Amendments to this Plan other than material amendments of the kind
referred to in the foregoing paragraph 9 of this Plan may be adopted by a vote
of the Board of Directors of the Fund, including the vote of a majority of the
directors who are not "interested persons" of the Fund 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 Fund may, by such a vote,
interpret this Plan and make all determinations necessary or advisable for its
administration.
11. 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 Fund who are not
"interested persons" of the Fund and have no direct or indirect financial
interest in the operation of this Plan or in any agreement related to this Plan,
or (b) by a shareholder vote in compliance with Rule 12b-1 and Rule 18f-3 under
the Act as in effect at such time. This Plan shall automatically terminate in
the event of its assignment.
12. So long as this Plan shall remain in effect, the selection and
nomination of those directors of the Fund who are not "interested persons" of
the Fund are committed to the discretion of such disinterested directors. 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.
4
<PAGE>
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:__________________________
President
ATTEST:
_____________________
Assistant Secretary
LORD ABBETT DISTRIBUTOR LLC
By:________________________
5
EXHIBIT 9(b)
MORGAN GUARANTY
Letterhead
February 9, 1996
Lord Abbett Tax-Free Income Fund, Inc.
767 Fifth Avenue
New York, N.Y. 10153
Attention: Mr. Kenneth B. Cutler
Vice President
Dear Sirs:
Pursuant to Section 15 of the Global Custody Agreement, dated October 20,
1993, between Lord Abbett Tax-Free Income Fund (hereinafter called the
"Corporation") and Morgan GuarantyTrust Company of New York (hereinafter called
"Morgan"), Morgan hereby assigns to The Bank of New York (hereinafter called
"successor custodian"), as of January 1, 1996, all its rights and obligations
under such Agreement, and successor custodian hereby agrees with you to be bound
by such Agreement in accordance with its terms.
Sincerely,
____________________ Consented to:
Vice President LORD ABBETT TAX-FREE INCOME FUND
Mutual Funds Division
Agreed and Confirmed By:___________________________
THE BANK OF NEW YORK Vice President
By:________________________
Vice President
EXHIBIT 10(b)
-------------
Draft--February 27, 1996
Plans Pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940
Rule 18f-3 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act"), requires that the Board of Directors or Trustees of an
investment company desiring to offer multiple classes pursuant to the Rule adopt
a plan setting forth the separate arrangement and expense allocation of each
class, and any related conversion features or exchange privileges. This
document constitutes such a plan (individually, a "Plan" and collectively, the
"Plans") of each of the investment companies, or series thereof, listed on
Schedule A attached hereto (each, a "Fund"). The Plan of any Fund is subject to
amendment by action of the Board of Directors or Trustees (the "Board") of such
Fund and without the approval of shareholders of any class, to the extent
permitted by law and by the governing documents of such Fund.
The Board, including a majority of the non-in terested Board members, has
determined that the following separate arrangement and expense allocation, and
the related exchange privileges, of each class of each Fund are in the best
interest of each class of each Fund individually and each Fund as a whole:
<PAGE>
1. Class Designation. Fund shares shall initially be divided into Class A
-----------------
shares and Class C shares.
2. Sales Charges and Distribution and Service Fees.
-----------------------------------------------
(a) Initial Sales Charge. Class A shares will be traditional front-end
--------------------
sales charge shares, offered at their net asset value ("NAV") plus a sales
charge in the case of each Fund as described in such Fund's Prospectus as from
time to time in effect.
Class C shares will be offered at their NAV with out an initial sales
charge.
(b) Service and Distribution Fees. In respect of the Class A shares and
-----------------------------
Class C shares, each Fund will pay service and distribution fees under plans
adopted for such classes pursuant to Rule 12b-1 under the 1940 Act (each a "12b-
1 Plan").
Pursuant to a 12b-1 Plan with respect to the Class A shares, if effective,
each Fund will pay (i) at the time such shares are sold, a one-time distribution
-
fee of up to 1% of the NAV of the shares sold in the amount of $1 million or
more, including sales qualifying at such level under the rights of accumulation
and statement of intention privileges, or to retirement plans with 100 or more
eligible employees, as described in the Fund's Prospectus as from time to time
in effect, (ii) a continuing distribution fee
--
2
<PAGE>
at an annual rate of 0.10% of the average daily NAV of the Class A share
accounts of dealers who meet certain sales and redemption criteria, and (iii) a
---
continuing service fee at an annual rate not to exceed 0.25% of the average
daily NAV of the Class A shares. The Board will have the authority to increase
the distribution fees payable under such 12b-1 Plan by a vote of the Board,
including a majority of the in dependent directors thereof, up to an annual rate
of 0.50% of the average daily NAV of the Class A shares. The effective dates of
various of the 12b-1 Plans for the Class A shares are based on achievement by
the Funds of specified total NAV's for the Class A shares of each Fund.
Pursuant to a 12b-1 Plan with respect to the Class C shares, each Fund will
pay a one-time service and distribution fee at the time such shares are sold of
up to 1% of their NAV and a continuing annual fee, commencing 12 months after
the first anniversary of such sale, of up to 1% of the average annual NAV of
such shares then outstanding (each fee comprised of .25% in service fees and
..75% in distribution fees).
(c) Contingent Deferred Reimbursement Charges ("CDRC"). Subject to some
--------------------------------------------------
exceptions, Class A shares subject to the one-time sales distribution fee of up
to 1% under the Rule 12b-1 Plan for the Class A shares will be subject to a CDRC
equal to 1% of the lower of the cost or then NAV of such shares if the shares
are redeemed for cash
3
<PAGE>
on or before the end of the twenty-fourth month after the month in which the
shares were purchased.
Class C shares will be subject to a CDRC equal to 1% of the lower of the
cost or then NAV of the shares if the shares are redeemed for cash before the
first anniversary of their purchase.
3. Liability and Expense Allocation. The following expenses and
--------------------------------
liabilities therefor shall be allocated, to the extent such expenses can
reasonably be identified as relating to a particular class, on a class-specific
basis: (a) fees under a 12b-1 Plan applicable to a specific class (net of any
CDRC paid with respect to shares of such class and retained by the Fund) and any
other costs relating to implementing or amending such Plan, including obtaining
shareholder approval of such Plan or any amendment thereto; (b) transfer and
shareholder servicing agent fees and shareholder servicing costs identifiable as
being attrib utable to the particular provisions of a specific class; (c)
stationery, printing, postage and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxy
statements to current shareholders of a specific class; (d) Blue Sky reg
istration fees incurred by a specific class; (e) Securities and Exchange
Commission registration fees incurred by a specific class; (f) Board fees or
expenses identifiable as
4
<PAGE>
being attributable to a specific class; (g) auditor's fees and expense relating
solely to a specific class; (h) litigation expenses and legal fees and expense
relating solely to a specific class; (i) expenses incurred in connection with
shareholders meetings as a result of issues relating solely to a specific class
and (j) other expenses relating solely to a specific class. All such
liabilities and expenses incurred by a class of shares will be charged directly
to the net assets of the particular class and thus will be borne on a pro rata
basis by the outstanding shares of such class.
4. Dividends. Dividends paid by a Fund as to each class of its shares, to
---------
the extent any dividends are paid, will be calculated in the same manner, will
be paid at the same time, and will be in the same amount, except that any
liabilities and expenses allocated to a class as pro vided above will be borne
exclusively by that class.
5. Net Asset Values. The NAV of each share of a class of a Fund shall be
----------------
determined in accordance with the Articles of Incorporation or Declaration of
Trust of such Fund with appropriate adjustments to reflect the differing
allocations of liabilities and expenses of such Fund between its classes as
provided above. [Attached hereto as Exhibit
5
<PAGE>
A is a sample calculation of the NAV's of a Class A share and a Class C share.]
6. Conversion Features. Subject to amendment by the Board, no class of
-------------------
shares shall be subject to any automatic conversion feature at this time.
7. Exchange Privileges. Except as set forth in the Fund's prospectus,
-------------------
shares of any class of a Fund may be exchanged, at the holder's option, for
shares of the same class of another Fund, or other Lord Abbett-sponsored fund or
series thereof, without the imposition of any sales charge, fee or other charge.
Each Plan is qualified by and subject to the terms of the then current
prospectus for the applicable Fund; provided, however, that none of the terms
set forth in any such prospectus shall be inconsistent with the terms con tained
herein. The prospectus for each Fund contains addi tional information about
that Fund's classes and its multiple-class structure.
Each Plan is being adopted for a Fund with the approval of, and all
material amendments thereto must be approved by, a majority of the Board of such
Fund, including a majority of the Board who are not interested persons of the
Fund.
6
<PAGE>
Schedule A
----------
The Lord Abbett - Sponsored Funds
Establishing Multi-Class Structures
-----------------------------------
Lord Abbett Affiliated Fund, Inc.
Lord Abbett Bond-Debenture Fund, Inc.
Lord Abbett Developing Growth Fund, Inc.
Lord Abbett Global Fund, Inc.
Equity Series
Income Series
Lord Abbett Investment Trust
Lord Abbett Balanced Series
Lord Abbett Limited Duration U.S. Government Securities Series
Lord Abbett U.S. Government Securities Series
Lord Abbett Securities Trust
Lord Abbett Growth & Income Trust
Lord Abbett Tax-Free Income Fund, Inc.
California Series
National Series
New York Series
Lord Abbett Tax-Free Income Trust
Florida Series
Lord Abbett U.S. Government Securities Money Market Fund, Inc.
Exhibit 11
----------
Draft--February 27, 1996
Lord Abbett Tax-Free Income Fund, Inc.
The General Motors Building
767 Fifth Avenue
New York, New York 10153
Lord Abbett Tax-Free Income Fund, Inc.
Registration Statement on Form N-14
--------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Lord Abbett Tax-Free Income Fund, Inc. (the
"Registrant"), a Maryland corporation trust, in connection with the preparation
and filing with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, of a Registration Statement on Form N-14 (File No. 811-
3942)(the "Registration Statement"), relating to the issuance of shares of the
capital stock of the National Series (the "Acquiring Fund"), a series of the
Registrant.
Such shares are to be established and designated as the Class C shares (the
"Class C shares"). The Class C shares are to be issued to Lord Abbett National
Tax-Free Income Trust (the "Acquired Trust"), a series of Lord Abbett Securities
Trust (the "Securities Trust"), a Delaware
<PAGE>
Lord Abbett Tax-Free Income Fund, Inc.
Page 2
business trust, pursuant to an Agreement and Plan of Reorganization (the
"Acquired Trust Plan") between the Registrant, on behalf of the Acquiring Fund,
and the Securities Trust, on behalf of the Acquired Trust, substantially in the
form of Exhibit A included in Part A of the Registration Statement. Such
issuance of the Class C shares is to be made in connection with the acquisition
by the Acquiring Fund of the assets of, and the assumption by the Acquiring Fund
of the liabilities of, the Acquired Trust.
In so acting, we have examined and relied upon the originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
records, certificates and other instruments and have made such other investi
gations as in our judgment are necessary or appropriate to enable us to render
the opinion expressed below. We have not, however, undertaken any independent
investigation of any factual matter set forth in any of the foregoing.
Based on the foregoing, we are of the following opinion:
Assuming that the Acquired Trust and the Acquiring Fund duly execute and
deliver the Acquired Trust Plan, that the Acquired Trust Plan and the
reorganization provided for thereby are duly approved by the shareholders
of the Acquired Trust, that the transactions contemplated by the Acquired
Trust Plan are duly consummated and that the charter documents
substantially in the forms of Exhibits 1(f), 1(g) and 1(h) to the
Registration Statement are duly approved and filed with the State
Department of Assessments and Taxation of Maryland, the Class C shares
issued pursuant to the Acquired Trust Plan will be legally issued, fully
paid and non-assessable.
This opinion is limited solely to the federal law of the United States and
the Maryland General Corporation Law as in effect on the date hereof and the
relevant facts that exist as of the date hereof. Without limiting the
generality of the foregoing, we express no opinion concerning other laws of the
State of Maryland, including the securities laws of such state, or the laws of
any other jurisdiction other than the United States. No assurance can be given
that the law or facts will not change, and we have not undertaken to advise you
or any other person with respect to any event subsequent to the date hereof.
<PAGE>
Lord Abbett Tax-Free Income Fund, Inc.
Page 3
We are delivering this opinion to you and, without our prior written
consent, no other persons are entitled to rely on this opinion. We consent to
the filing of this opinion as an Exhibit to the Registration Statement. In
giving such consent, we do not thereby concede that we are within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933 or the Rules and Regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
EXHIBIT 12
[Debevoise & Plimpton Letterhead]
[Dated as of the Closing Date]
Lord Abbett Tax-Free
Income Fund, Inc.
The General Motors Building
767 Fifth Avenue
New York, New York 10153
Lord Abbett Securities Trust
The General Motors Building
767 Fifth Avenue
New York, New York 10153
Agreement and Plan of Reorganization
dated as of _______ __, 1996
by and between
Lord Abbett Tax-Free Income Fund, Inc.,
on behalf of its series,
Lord Abbett National Series,
and Lord Abbett Securities Trust,
on behalf of its series,
Lord Abbett National Tax-Free Income Trust
------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Lord Abbett Tax-Free Income Fund, Inc., a
Maryland corporation ("Tax-Free Fund"), acting on behalf of its series, Lord
Abbett National Series
<PAGE>
Lord Abbett Tax-Free
Income Fund, Inc.
Lord Abbett Securities Trust
2 [Date of the Closing]
("Acquiring Fund"), and Lord Abbett Securities Trust, a Delaware business trust
("Securities Trust"), acting on behalf of its series, Lord Abbett National Tax-
Free Income Trust ("Acquired Fund"), in connection with the proposed acquisition
(the "Reorganization") of all of the assets of Acquired Fund by Acquiring Fund
pursuant to the Agreement and Plan of Reorganization dated as of _______ __,
1996, by and between Tax-Free Fund, on behalf of Acquiring Fund, and Securities
Trust, on behalf of Acquired Fund (the "Reorganization Agreement").
In so acting, we have participated in the preparation of the Reorganization
Agreement and the preparation and filing by Acquiring Fund with the Securities
and Exchange Commission on _______ __, 1996 of a Registration Statement on Form
N-14, containing a Proxy Statement and Prospectus relating to the proposed
Reorganization and to the shares of common stock of Acquiring Fund to be issued
to Acquired Fund shareholders in the Reorganization pursuant to the
Reorganization Agreement.
As required by Section 8.5 of the Reorganization Agreement, you have
requested that we render the opinion set forth below. In rendering such
opinion, we have examined and relied upon the accuracy as of the date hereof of
the representations and warranties as to factual matters set forth in the
documents referred to above and the Letters of Representation, dated as of the
date hereof, that you have provided to us, copies of which are attached hereto.
We have also examined the originals, or copies certified or otherwise identified
to our satisfaction, of such records, documents, certificates or other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinions set forth below. We have not, however, undertaken any
independent investigation of any factual matter set forth in any of the
foregoing.
Subject to the foregoing and to the qualifications and limitations set
forth herein, and assuming that the Reorganization is consummated in accordance
with the Reorganization Agreement and as described in the Registration
Statement, we are of the opinion that for United States federal income tax
purposes:
<PAGE>
Lord Abbett Tax-Free
Income Fund, Inc.
Lord Abbett Securities Trust
3 [Date of the Closing]
1. The acquisition by Acquiring Fund of all of the assets of Acquired
Fund solely in exchange for the issuance of Acquiring Fund shares to
Acquired Fund and the assumption of all of the Acquired Fund liabilities by
Acquiring Fund, followed by the distribution by Acquired Fund, in complete
liquidation, of the Acquiring Fund shares to Acquired Fund shareholders in
exchange for their Acquired Fund shares, will be treated as a
"reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Acquiring Fund and Acquired Fund will each be "a party to the
reorganization" within the meaning of Section 368(b) of the Code.
3. No gain or loss will be recognized by Acquired Fund upon the
transfer of Acquired Fund's assets to Acquiring Fund in exchange for
Acquiring Fund shares and the assumption by Acquiring Fund of the
liabilities of Acquired Fund or upon the distribution of Acquiring Fund
shares to Acquired Fund's shareholders.
4. No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Acquired Fund in exchange for Acquiring Fund
shares and the assumption by Acquiring Fund of the liabilities of Acquired
Fund.
5. No gain or loss will be recognized by shareholders of Acquired Fund
upon the exchange of their Acquired Fund shares for Acquiring Fund shares.
6. The aggregate tax basis of the Acquiring Fund shares received by
any Acquired Fund shareholder pursuant to the Reorganization will be the
same as the aggregate tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period
for the Acquiring Fund shares to be received by any Acquired Fund
shareholder will include the period during which the Acquired Fund shares
exchanged therefor were held
<PAGE>
Lord Abbett Tax-Free
Income Fund, Inc.
Lord Abbett Securities Trust
4 [Date of the Closing]
by such shareholder (provided that the Acquired Fund shares are held as
capital assets on the date of the Reorganization).
7. The tax basis of Acquired Fund's assets acquired by Acquiring Fund
will be the same as the tax basis of such assets to Acquired Fund
immediately prior to the Reorganization, and the holding period of the
assets of Acquired Fund in the hands of Acquiring Fund will include the
period during which those assets were held by Acquired Fund.
This opinion is limited solely to the federal law of the United States
as in effect on the date hereof and the relevant facts that exist as of the date
hereof. No assurance can be given that the law or facts will not change, and we
have not undertaken to advise you or any other person with respect to any event
subsequent to the date hereof.
We are delivering this opinion to you and, without our prior written
consent, no other persons are entitled to rely on this opinion.
Very truly yours,
<PAGE>
[LETTERHEAD OF DEBEVOISE & PLIMPTON]
February 29, 1996
Lord Abbett Tax-Free Income Fund, Inc.
The General Motors Building
767 Fifth Avenue
New York, New York 10153
Lord Abbett Securitites Trust
The General Motors Building
767 Fifth Avenue
New York, New York 10153
Ladies and Gentlemen:
We hereby consent to the filing of the draft opinion attached hereto as an
exhibit to the Registration Statement on Form N-14, to be filed by Lord Abbett
Tax-Free Income Fund, Inc., a Maryland corporation ("Tax-Free Fund"), with the
Securities and Exchange Commission, containing a Proxy Statement and Prospectus
relating to (i) the proposed acquisition (the "Reorganization") of all of the
-
assets of Lord Abbett National Tax-Free Income Trust ("Acquired Fund"), a series
of Lord Abbett Securities Trust, a Delaware business trust ("Securities Trust")
by Lord Abbett National Series ("Acquiring Fund"), a series of Tax-Free Fund,
pursuant to an Agreement and Plan of Reorganization to be entered into by and
between Tax-Free Fund, on behalf of Acquiring Fund, and Securities Trust, on
behalf of Acquired Fund and (ii) the shares of common stock of Acquiring Fund to
--
be issued to Acquired Fund shareholders in the Reorganization. We also hereby
consent to the use of our name under the caption "Information About the
Reorganization -- Federal Income Tax Consequences" in the Registration
Statement. In giving such consent, we do not thereby concede that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the Rules and Regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/S/ DEBEVOISE & PLIMPTON
EXHIBIT 14(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement on Form N-14 of Lord Abbett
Tax- Free Income Fund, Inc. of our reports on the financial statements of the
Lord Abbett Tax-Free Income Fund. Inc. - National Series dated November 6, 1995
and Lord Abbett Securities Trust - National Tax-Free Income Trust dated December
8, 1995, which are contained in the respective 1995 Annual Reports and are
incorporated by reference in such Registration Statement. We also consent to the
references to us under the headings "Financial Highlights" in the Prospectus and
to the references to us under the headings of "Investment Advisory and Other
Services" and "Financial Statements" in the Statement of Additional Information
of Lord Abbett Tax-Free Income Fund, Inc. - National Series dated February 1,
1996 and Lord Abbett Securities Trust - National Tax-Free Income Trust dated
December 27, 1994, which are incorporated by reference in such Registration
Statement.
DELOITTE & TOUCHE LLP
New York, New York
February 28, 1996
EXHIBIT 14(b)
-------------
January 26, 1996
BY HAND DELIVERY
- - ----------------
Internal Revenue Service
Associate Chief Counsel (Domestic)
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Attention: CC:DOM:FIP2
- - --------- Susan Baker
Room 4316
Re: TR-31-2400-95
Request for Rulings Under
Sections 562 and 852(b)(2)(D)
-----------------------------
Dear Associate Chief Counsel (Domestic):
By letter dated October 19, 1995 (the "Original Request"), the Lord Abbett
funds listed on Schedule A thereto requested that the Internal Revenue Service
issue rulings (1) that the dividends paid on each class of shares issued by them
-
will be eligible for the dividends-paid deduction under sections 561 and
852(b)(2)(D) of the Internal Revenue Code and (2) that the creation of multiple
-
classes of shares will not affect the classification of any such fund as a
regulated investment company under section 851(a) and (h) of the Code.
<PAGE>
Internal Revenue Service 2 January 26, 1995
We now wish to request that you issue similar rulings with respect to two
additional funds, Growth and Income Trust of Lord Abbett Securities Trust and
the Small-Cap Series of Lord Abbett Research Fund, Inc. All defined terms in
this request have the meanings set forth in the Original Request.
Growth and Income Trust
-----------------------
Growth and Income Trust (TIN 13-3731505) is a series of Lord Abbett
Securities Trust ("Securities Trust"), an open-end management investment company
organized as a Delaware business trust on February 26, 1993. Securities Trust
is registered as an open-end management investment company under the 1940 Act.
A copy of Securities Trust's most recent Post-Effective Amendment to its
Registration Statement on Form N-1A, dated June 15, 1995, is attached as Exhibit
N.
Growth and Income Trust is diversified and has met and intends to continue
to meet the diversification rules under Subchapter M of the Internal Revenue
Code. Its taxable year ends on October 31. The investment objective of Growth
and Income Trust is long-term growth of capital and income without excessive
fluctuations in market value. It normally invests in common stocks of large,
seasoned companies in sound financial condition which are expected to show
above-average price appreciation.
Growth and Income Trust currently has outstanding only a single class of
shares. All shares have equal voting rights and equal rights with respect to
dividends, assets, and liquidation. They are fully paid and non-assessable when
issued and have no preemptive or conversion rights. There are no restrictions
on transfer.
Growth and Income Trust has adopted a Rule 12b-1 Plan. Under the 12b-1
Plan, Growth and Income Trust pays Lord Abbett (1) a service fee and a
-
distribution fee, at the time shares are sold, not to exceed .25% and .75%,
respectively, of the net asset value of such shares and (2) at each quarter-end
-
after the first anniversary of the sale of shares, fees for services and
distribution at annual rates not to exceed .25% and .75%, respectively, of the
average annual net asset value of such shares outstanding (payments with respect
to shares
<PAGE>
Internal Revenue Service 3 January 26, 1995
not outstanding during the full quarter are prorated). Sales in clause (1)
exclude shares issued for reinvested dividends and distributions and shares
outstanding in clause (2) include shares issued for reinvested dividends and
distributions after the first anniversary of their issuance. Lord Abbett may
retain from the quarterly distribution fee, for the payment of distribution
expenses incurred directly by it, an amount not to exceed .10% of the average
annual net asset value of such shares outstanding. No dealer shall receive for
service more than .25% of the average annual net asset value of shares sold by
the dealer. Lord Abbett is required to pay the sales distribution fee to
dealers as compensation for selling Growth and Income Trust's shares.
If shares of Growth and Income Trust are redeemed for cash before the first
anniversary of their purchase, the redeeming shareholder will be required to pay
a contingent deferred reimbursement charge of 1% of the lower of cost or the
then net asset value of the shares redeemed. If the shares are exchanged into
another series of Securities Trust or Lord Abbett U.S. Government Securities
Money Market Fund ("GSMMF") and subsequently redeemed before the first
anniversary of their original purchase, the charge will be collected by the
other series or GSMMF for Growth and Income Trust.
The Small-Cap Series
--------------------
The Small-Cap Series (TIN 13-3862601) is a newly-organized series of
Research Fund, which is described at page 9 of the Original Request. It plans
to begin offering its shares on or after February 20, 1996. The Small-Cap
Series intends to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code. The Small Cap Series' taxable year ends on
November 30. The investment objective of the Small-Cap Series is to seek long-
term capital appreciation through investments primarily in equity securities
which are believed to be undervalued in the marketplace. A copy of Research
Fund's most recent amendment to its Form N-1A describing the Small-Cap Series,
which was filed with the Securities and Exchange Commission on December 7, 1995,
is attached as Exhibit O.
The Small-Cap Series currently has outstanding only a single class of
shares, $.001 par value. All shares have
<PAGE>
Internal Revenue Service 4 January 26, 1995
equal voting rights and equal rights with respect to dividends, assets, and
liquidation. They are fully paid and nonassessable when issued and have no
preemptive or conversion rights. There are no restrictions on transfer.
As stated in the Original Request, Research Fund has not adopted a Rule
12b-1 Plan.
The Statement of Facts, Rulings Requested, Dis cussion and Procedural
Statements with respect to Growth and Income Trust and the Small-Cap Series are
otherwise as set forth in the Original Request, except that "Revenue Procedure
96-1" is substituted for "Revenue Procedure 95-1" and the check for the user fee
specified in section 14.02 and Appendix A of Revenue Procedure 96-1 is endorsed
in the amount of $300.
Respectfully submitted,
Seth L. Rosen
<PAGE>
October 19, 1995
BY HAND DELIVERY
- - ----------------
Internal Revenue Service
Associate Chief Counsel (Domestic)
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Attention: CC:DOM:FI&P
- - ---------
Request for Rulings Under
Sections 562 and 852(b)(2)(D)
-----------------------------
The Lord Abbett funds listed on Schedule A (collectively, the "Lord Abbett
Funds" or the "Funds") hereby request that the Internal Revenue Service (the
"Service") issue rulings (1) that the dividends paid on each class of shares
-
issued by them will be eligible for the dividends-paid deduction under sections
561 and 852(b)(2)(D) of the Internal Revenue Code (the "Code") and (2) that the
-
creation of multiple classes of shares will not affect the classification of any
Fund as a regulated investment company under section 851(a) and (h) of the Code.
<PAGE>
Internal Revenue Service 2 October 19, 1995
STATEMENT OF FACTS
------------------
THE FUNDS
- - ---------
The principal office of each of the Lord Abbett Funds is located at
The General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203
(telephone number (212) 848-1800). Each of the Lord Abbett Funds files its tax
returns with the Internal Revenue Service Center in Holtsville, New York and is
subject to the audit jurisdiction of the District Director, Manhattan District,
New York, New York.
The Investment Manager for each of the Lord Abbett Funds is Lord,
Abbett & Co. ("Lord Abbett"), a partnership organized under the laws of New
York, located at The General Motors Building, 767 Fifth Avenue, New York, New
York 10153-0203 (Taxpayer ID No. 13-5620131). Pursuant to a Distribution
Agreement for each Fund, Lord Abbett also acts as the distributor of the shares
for each of the Funds (other than Lord Abbett Research Fund Inc.).
AFFILIATED FUND, INC. (TIN 13-6020600) ("Affiliated Fund") is a
diversified, open-end management investment company re-organized in 1934 and
incorporated under the laws of Maryland on November 26, 1975. The fund is
registered as a diversified, open-end management investment company under the
Investment Company Act of 1940, 15 U.S.C. (S) 80a-1 et seq. (the "1940 Act"). A
copy of Affiliated Fund's most recent Post-Effective Amendment to its
Registration Statement on Form N-1A, dated March 1, 1995 containing the fund's
Prospectus and Statement of Additional Information, is attached as Exhibit A.
Affiliated Fund currently has a single class of shares, $1.25 par
value, with equal rights as to voting, dividends, assets and liquidation. There
are no conversion or preemptive rights, and no restrictions on transfer.
Affiliated Fund qualifies as a regulated investment company under Subchapter M
of the Internal Revenue Code. Its taxable year ends on October 31. The
investment objective of Affiliated Fund is long-term growth of capital and
income without excessive fluctuations in market value.
<PAGE>
Internal Revenue Service 3 October 19, 1995
Affiliated Fund has adopted a distribution plan pursuant to Rule 12b-
1, 17 C.F.R. 270.12b-1, promulgated pursuant to Section 12(b) of the 1940 Act (a
"12b-1 Plan"). Under its 12b-1 Plan, Affiliated Fund pays Lord Abbett (1) an
-
annual service fee (payable quarterly) of .15% of the average daily net asset
value of Affiliated Fund's shares sold by dealers prior to June 1, 1990 and .25%
of the average daily net asset value of shares sold by dealers on or after that
date and (2) a one-time 1% sales distribution fee, at the time of sale, on all
-
sales of over $1 million by dealers, including sales qualifying at such level
under the rights of accumulation and statement of intention privileges./1/
Lord Abbett is required to pay the sales distribution fee to dealers as
compensation for selling Affiliated Fund's shares.
LORD ABBETT BOND-DEBENTURE FUND, INC. (TIN 13-2669319) ("Bond Fund")
is a diversified, open-end management investment company incorporated under the
laws of Maryland on January 23, 1976. Bond Fund is registered as a diversified,
open-end management investment company under the 1940 Act. A copy of the fund's
most recent Post-
- - ---------------------
/1/. For each of the Funds, each holder of Fund shares on which the 1% sales
distribution fee has been paid is required to pay to the Fund 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 Funds on or before the end of the twenty-fourth month after the
month in which the purchase occurred (subject to certain exceptions, including
certain redemptions by tax-qualified plans under Section 401 of the Internal
Revenue Code). If the shares have been exchanged into another Lord Abbett Fund
and are thereafter redeemed out of the Lord Abbett family on or before the end
of such twenty-fourth month, the charge will be collected for the initial Fund
by the other Fund. Each Fund also collects such a charge for other Lord Abbett
Funds in similar situations. 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.
<PAGE>
Internal Revenue Service 4 October 19, 1995
Effective Amendment to its Registration Statement on Form N-1A,
dated May 1, 1995, is attached as Exhibit B.
Bond Fund currently has outstanding a single class of shares, $1.00
par value, with equal rights as to voting, dividends, assets and liquidation.
The shares are fully paid and nonassessable when issued and have no preemptive
or conversion rights. There are no restrictions on transfer. Bond Fund
qualifies as a regulated investment company under Subchapter M of the Internal
Revenue Code. Its taxable year ends on December 31. The investment objective
of Bond Fund is high current income and the opportunity for capital appreciation
to produce a high total return through a professionally-managed portfolio
consisting primarily of convertible and discount debt securities, many of which
are lower-rated.
Bond Fund has adopted a Rule 12b-1 Plan. Under its Rule 12b-1 Plan,
Bond Fund pays Lord Abbett (1) an annual service fee (payable quarterly) of .25%
-
of the average daily net asset value of Bond Fund's shares sold by dealers on or
after June 1, 1990 and .15% of the average daily net asset value of shares sold
by dealers prior to that date and (2) a one-time 1% sales distribution fee, at
-
the time of sale, on all sales over $1 million by dealers, including sales
qualifying at such level under the rights of accumulation and statement of
intention privileges. Lord Abbett is required to pay the sales distribution fee
to dealers as compensation for selling Bond Fund shares.
LORD ABBETT CALIFORNIA TAX-FREE INCOME FUND, INC. (TIN 13-3271131)
("California Fund") is a diversified, open-end management investment company
incorporated under the laws of Maryland on May 21, 1985. California Fund is
registered as a diversified, open-end management investment company under the
1940 Act. A copy of the fund's most recent Post-Effective Amendment to its
Registration Statement on Form N-1A, dated January 1, 1995, is attached as
Exhibit C.
California Fund has a single class of shares, $.001 par value, with
equal rights as to voting, dividends, assets and liquidation. They are fully
paid and nonassessable when paid for and issued and have no preemptive or
conversion rights. There are no restrictions
<PAGE>
Internal Revenue Service 5 October 19, 1995
on transfer. California Fund qualifies as a regulated investment company under
Subchapter M of the Internal Revenue Code. Its taxable year ends on August 31.
The investment objective of California Fund is to seek as high a level of
interest income exempt from both federal income tax and California personal
income tax as is consistent with preservation of capital by investing primarily
in a diversified portfolio of California municipal bonds.
California Fund has adopted a Rule 12b-1 Plan whereby California Fund
pays Lord Abbett (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 sales over $1 million by
dealers, including sales qualifying at such level under the rights of
accumulation and statement of intention privileges. Lord Abbett is required to
pay the sales distribution fee to dealers as compensation for selling California
Fund's shares.
LORD ABBETT DEVELOPING GROWTH FUND, INC. (TIN 13-2755091) ("Growth
Fund") is a diversified, open-end management investment company incorporated
under the laws of Maryland on August 21, 1978 and its predecessor corporation
was organized on July 11, 1973. Growth Fund is registered as a diversified,
open-end management investment company under the 1940 Act. A copy of Growth
Fund's most recent Post-Effective Amendment to its Registration Statement on
Form N-1A, dated June 1, 1995, is attached as Exhibit D.
Growth Fund has a single class of shares, $1.00 par value, with equal
rights to voting, dividends, assets, and liquidation. There are no conversion
or preemptive rights and no restrictions on transfer. Growth Fund qualifies as
a regulated investment company under Subchapter M of the Internal Revenue Code.
Its taxable year ends on January 31. The investment objective of Growth Fund is
long-term growth of capital through a diversified and actively-managed portfolio
consisting of developing growth companies, many of which are traded over the
counter.
Growth Fund has adopted a Rule 12b-1 Plan. Under the 12b-1 Plan,
Growth Fund pays Lord Abbett (1) an annual service fee (payable quarterly) of
-
..25% of the average daily net asset value of Growth Fund's shares sold by
dealers on
<PAGE>
Internal Revenue Service 6 October 19, 1995
or after June 1, 1990 and .15% of the average daily net asset value of shares
sold by dealers prior to that date and (2) a one-time 1% sales distribution fee,
-
at the time of sale, on all sales over $1 million by dealers, including sales
qualifying at such level under the rights of accumulation and statement of
intention privileges. Lord Abbett is required to pay the sales distribution fee
to dealers as compensation for selling Growth Fund's shares.
LORD ABBETT FUNDAMENTAL VALUE FUND, INC. (TIN 13-3342841)
("Fundamental Value Fund") is a diversified, open-end management investment
company incorporated under the laws of Maryland on March 26, 1986. Fundamental
Value Fund is registered as a diversified, open-end management investment
company under the 1940 Act. A copy of the fund's most recent Post-Effective
Amendment to its Registration Statement on Form N-1A, dated November 1, 1994, is
attached as Exhibit E.
All of Fundamental Value Fund's shares are of a single class and each
has a par value of $.10. All shares have equal noncumulative voting rights and
equal rights with respect to dividends, assets and liquidation. There are no
conversion or preemptive rights, and no restrictions on transfer. Fundamental
Value Fund qualifies as a regulated investment company under Subchapter M of the
Internal Revenue Code. Its taxable year ends on June 30. The investment
objectives of Fundamental Value Fund are growth of capital and growth of income
consistent with reasonable risk. Production of current income is a secondary
consideration.
Fundamental Value Fund has adopted a Rule 12b-1 Plan. The 12b-1 Plan
provides for the payment to Lord Abbett of (1) an annual service fee (payable
-
quarterly) of .25% of the average daily net asset value of Fundamental Value
Fund shares sold by dealers, and (2) a one-time 1% sales distribution fee, at
-
the time of sale, on all sales over $1 million by dealers, including sales
qualifying at such level under the rights of accumulation and statement of
intention privileges. Lord Abbett is required to pay the full amount of the
sales distribution fees to dealers as compensation for selling Fundamental Value
Fund's shares.
<PAGE>
Internal Revenue Service 7 October 19, 1995
LORD ABBETT GLOBAL FUND, INC. ("Global Fund") is a diversified, open-
end management investment company incorporated under the laws of Maryland on
February 23, 1988. The fund is registered as a diversified, open-end management
investment company under the 1940 Act. A copy of the fund's most recent Post-
Effective Amendment to its Registration Statement on Form N-1A, dated May 1,
1995, is attached as Exhibit F.
Global Fund is organized as a series fund, currently comprised of two
separate portfolios, EQUITY SERIES (TIN 13-3460109) and INCOME SERIES (TIN 13-
3460111). Each series qualifies as a regulated investment company under
Subchapter M of the Internal Revenue Code. Each series' taxable year ends on
December 31. The investment objective of Equity Series is long-term growth of
capital and income consistent with reasonable risk. The production of current
income is a secondary consideration for Equity Series. The investment objective
of Income Series is high current income consistent with reasonable risk.
Capital appreciation is a secondary consideration for Income Series.
Lord Abbett has entered into an agreement with Dunedin Fund Managers
Limited, under which it provides Lord Abbett with advice with respect to that
portion of Global Fund's assets invested in foreign countries.
Each series currently has outstanding only a single class of shares
and each share has a par value of $.001. Within each series, all shares have
equal rights as to voting, dividends, assets and liquidation. There are no
conversion or preemptive rights, and no restrictions on transfer.
Global Fund has adopted a Rule 12b-1 Plan. Under the 12b-1 Plan,
Global Fund pays to Lord Abbett (1) an annual service fee (payable quarterly) of
-
..25% of the average daily net asset value of Global Fund's shares sold by
dealers and (2) a one-time 1% sales distribution fee, at the time of sale, on
-
all sales over $1 million by dealers on or after June 1, 1990, including sales
qualifying at that level under the rights of accumulation and statement of
intention privileges. Lord Abbett is required to pay the full amount of the
sales distribution fees to dealers as compensation for selling Global Fund's
shares.
<PAGE>
Internal Revenue Service 8 October 19, 1995
LORD ABBETT INVESTMENT TRUST ("Investment Trust"), is a diversified,
open-end management investment company organized as a Delaware business trust on
August 16, 1993. Investment Trust is registered as a diversified, open-end
management investment company under the 1940 Act. A copy of the fund's most
recent Post-Effective Amendment to its Registration Statement on Form N-1A,
dated June 15, 1995, is attached as Exhibit G.
Investment Trust is organized as a series fund, currently comprised of
two separate portfolios, LIMITED DURATION U.S. GOVERNMENT SECURITIES SERIES (TIN
13-3731507) and BALANCED SERIES (TIN 13-3799450). Each series qualifies as a
regulated investment company under Subchapter M of the Internal Revenue Code.
Each series' taxable year ends on October 31. The investment objective of
Limited Duration U.S. Government Securities Series is to seek a high income from
a portfolio consisting primarily of limited duration U.S. government securities.
The investment objective of Balanced Series is to seek current income and
capital growth.
Each series currently has outstanding only a single class of shares.
Each share has no par value. Within each series, all shares have equal rights as
to voting, dividends, assets and liquidation. There are no conversion or
preemptive rights, and no restrictions on transfer.
Investment Trust has adopted a Rule 12b-1 Plan. Under the 12b-1 Plan,
Investment Trust pays Lord Abbett (1) an annual service fee (payable quarterly)
-
of .25% of the average daily net asset value of the series' shares sold by
dealers from the commencement of the series' public offering and (2) with
-
respect to sales at the breakpoint of $1 million or more, a one-time 1%, .50% or
..25% distribution fee, with respect to sales at the time of sale, on shares sold
at net asset value of $1 million but less than $3 million, $3 million but less
than $10 million or $10 million or more, respectively. Sales qualifying at such
levels in clause (2) under rights of accumulation and statement of intention
privileges are included. Lord Abbett is required to pay the sales distribution
fee to dealers as compensation for selling Investment Trust's shares.
<PAGE>
Internal Revenue Service 9 October 19, 1995
LORD ABBETT RESEARCH FUND, INC. ("Research Fund") is a diversified,
open-end management investment company incorporated under the laws of Maryland
on April 6, 1992. Research Fund is registered as a diversified, open-end
management investment company under the 1940 Act. A copy of Research Fund's
most recent Post-Effective Amendment to Registration Statement on Form N-1A,
dated April 1, 1995, is attached as Exhibit H.
Research Fund is organized as a series fund, currently comprised of
two separate portfolios, SERIES 1 (TIN 13-6995863), and LORD ABBETT MID CAP
RESEARCH FUND (TIN 13-3842507). Each series qualifies as a regulated investment
company under Subchapter M of the Internal Revenue Code. Each series' taxable
year ends on November 30. The investment objective of Series 1 is growth of
capital and growth of income consistent with reasonable risk. Production of
current income is a secondary consideration. The investment objective of Lord
Abbett Mid Cap Research Fund is to seek capital appreciation through investments
primarily in equity securities which are believed to be undervalued in the
marketplace.
Each series currently has outstanding only a single class of shares,
$.001 par value. Within each series, all shares have equal voting rights and
equal rights with respect to dividends, assets, and liquidation. They are fully
paid and nonassessable when issued and have no preemptive or conversion rights.
There are no restrictions on transfer.
Research Fund has not adopted a Rule 12b-1 Plan.
LORD ABBETT TAX-FREE INCOME FUND, INC. (the "Tax-Free Fund") is an
open-end management investment company incorporated under the laws of Maryland
on December 27, 1983. Tax-Free Fund is registered as an open-end management
investment company under the 1940 Act. A copy of the fund's most recent Post-
Effective Amendment to its Registration Statement on Form N-1A, dated June 15,
1995, is attached as Exhibit I.
Tax-Free Fund is organized as a series fund, currently comprised of
nine separate portfolios, NATIONAL SERIES (TIN 13-3397836), CONNECTICUT SERIES
(TIN 13-
<PAGE>
Internal Revenue Service 10 October 19, 1995
3608057), HAWAII SERIES (TIN 13-3635800), MINNESOTA SERIES (TIN 13-
3799448), MISSOURI SERIES (TIN 13-3616715), NEW JERSEY SERIES (TIN 13-3603812),
NEW YORK SERIES (TIN 13-3386492), TEXAS SERIES (TIN 13-3386494) and WASHINGTON
SERIES (TIN 13-3664187). National Series is diversified under the 1940 Act;
each of the other series is nondiversified. All of the series have met and
intend to continue to meet the diversification rules under Subchapter M of the
Internal Revenue Code. Each series' taxable year ends on September 30. The
investment objective for each series is to seek as high a level of interest
income exempt from federal income tax as is consistent with preservation of
capital by investing in municipal bonds. Except for National, Texas and
Washington Series, each series also seeks as high a level of interest income
exempt from its state's personal income tax and, in the case of New York Series,
from New York City personal income tax, as is consistent with preservation of
capital.
Each series currently has outstanding only a single class of shares.
Each share has a par value of $.001 and has one vote. There are no liquidation,
conversion or preemptive rights, and no restrictions on transfer.
Each series has adopted a Rule 12b-1 Plan. National, New York and
Texas Series have each adopted a 12b-1 Plan under which each series pays Lord
Abbett (1) an annual fee for services (payable quarterly) of .15% of the average
-
daily net asset value of each series' shares sold by dealers prior to June 1,
1990 and .25% of the average daily net asset value of shares sold by dealers on
or after that date, and (2) a one-time 1% sales distribution fee, at the time of
-
sale, on all sales over $1 million by dealers, including sales qualifying at
such level under the rights of accumulation and statement of intention
privileges. Lord Abbett is required to pay the sales distribution fee to
dealers as compensation for selling Tax-Free Fund's shares.
Separate 12b-1 Plans have been adopted by each of Connecticut, Hawaii,
Minnesota, Missouri, New Jersey and Washington Series. Each 12b-1 Plan has
become effective except for Washington and Minnesota Series which will go into
effect on the first day of the quarter subsequent to its net assets reaching
$100 million. Each 12b-1 Plan provides for the payment of the series to Lord
Abbett of
<PAGE>
Internal Revenue Service 11 October 19, 1995
(1) an annual service fee (payable quarterly) of .25% of the average daily net
-
asset value of shares sold by dealers from commencement of the series' public
offering (in the case of Hawaii, Minnesota, New Jersey and Washington Series,
..15% of the average daily net asset value of such shares sold prior to its
effective date and .25% of the average daily net asset value of such shares sold
on or after that date), and (2) a one-time 1% sales distribution fee, at the
-
time of sale, on all sales over $1 million by dealers on or after the series'
effective date, including sales qualifying at such level under the rights of
accumulation and statement of intention privileges.
LORD ABBETT TAX-FREE INCOME TRUST ("Tax-Free Trust") is an open-end
non-diversified management investment company organized as a Massachusetts
business trust on September 11, 1991. Tax-Free Trust is registered as an open-
end management investment company under the 1940 Act. A copy of Tax-Free Trust's
most recent Post-Effective Amendment to its Registration Statement on Form N-1A,
dated June 15, 1995, is attached as Exhibit J.
Tax-Free Trust is organized as a series fund, currently comprised of
four separate portfolios, FLORIDA SERIES (TIN 13-3633027), GEORGIA SERIES (TIN
13-3799446), PENNSYLVANIA SERIES (TIN 13-3646755) and MICHIGAN SERIES (TIN 13-
3692073). Each of the four series, although non diversified under the 1940 Act,
meets the diversification rules of and qualifies as a regulated investment
company under Subchapter M of the Internal Revenue Code. Each series' taxable
year ends on October 31. The investment objective of each series is to seek as
high a level of interest income exempt from federal income tax and its
respective state's personal income tax, if any, as is consistent with
preservation of capital by investing primarily in a diversified portfolio of
municipal bonds.
Each series currently has outstanding only a single class of shares.
Each share has no par value. Within each series, all shares have equal voting
rights and equal rights with respect to dividends, assets, and liquidation.
There are no conversion or preemptive rights, and no restrictions on transfer.
<PAGE>
Internal Revenue Service 12 October 19, 1995
Each series has adopted a Rule 12b-1 Plan. The 12b-1 Plan fees
indicated below will go into effect on the first day of the calendar quarter
subsequent to the series' net assets reaching $100 million. Under the 12b-1
Plan the series will pay Lord Abbett (1) an annual service fee (payable
-
quarterly) of .25% of the average daily net asset value of the series' shares
sold by dealers on or after the 12b-1 Plans' effective date and .15% of the
average daily net asset value of shares sold by dealers prior to that date and
(2) a one-time 1% sales distribution fee, at the time of sale, on all sales over
- - --
$1 million by dealers, on or after the series' effective date, including sales
qualifying at such level under the rights of accumulation and statement of
intention privileges. Lord Abbett is required to pay the sales distribution fee
to dealers as compensation for selling Tax-Free Trust's shares.
LORD ABBETT U.S. GOVERNMENT SECURITIES FUND, INC. (TIN 13-6020601)
("Government Fund") is a diversified, open-end management investment company
organized in 1932 and re-incorporated under the laws of Maryland on July 9,
1975. The fund is registered as a diversified, open-end management investment
company under the 1940 Act. A copy of the fund's most recent Post-Effective
Amendment to its Registration Statement on Form N-1A, dated April 1, 1995, is
attached as Exhibit K.
Government Fund has a single class of shares, $1.00 par value, with
equal rights as to voting, dividends, assets and liquidation. There are no
conversion or preemptive rights, and no restrictions on transfer. Its taxable
year ends on November 30. The investment objective of Government Fund is high
current income with relatively low risk of price decline. This objective is
sought by investing primarily in U.S. government securities.
Government Fund has adopted a Rule 12b-1 Plan. Under the 12b-1 Plan,
Government Fund pays Lord Abbett (1) an annual service fee (payable quarterly)
-
of .25% of the average daily net asset value of Government Fund's shares
attributable to sales by dealers on or after September 1, 1985 and .15% of the
average daily net asset value of shares sold by dealers prior to that date and
(2) a one-time 1% sales distribution fee, at the time of sale, on all sales over
- - --
$1 million by dealers, including sales qualifying at
<PAGE>
Internal Revenue Service 13 October 19, 1995
such level under the rights of accumulation and statement of intention
privileges. Lord Abbett is required to pay the sales distribution fee to
dealers as compensation for selling Government Fund's shares.
LORD ABBETT U.S. GOVERNMENT SECURITIES MONEY MARKET FUND, INC. (TIN
13-2986729) ("Money Market Fund") is a diversified, open-end management
investment company incorporated under the laws of Maryland on May 9, 1979. Money
Market Fund is registered as a diversified, open-end management investment
company under the 1940 Act. A copy of Money Market Fund's most recent
Registration Statement on Form N-1A, dated November 1, 1994, is attached as
Exhibit L.
Money Market Fund has a single class of shares, $.001 par value, with
equal rights as to voting, dividends, assets and liquidation. There are no
conversion or preemptive rights, and no restrictions on transfer. Money Market
Fund qualifies as a regulated investment company under Subchapter M of the
Internal Revenue Code. Its taxable year ends on June 30. The investment
objective of Money Market Fund is to provide high current income and
preservation of capital through investments in high-quality, short-term liquid
securities. The Money Market Fund seeks to obtain its objective by investing at
least 65% of its total assets in obligations issued or backed by the U.S.
Government or its agencies or instrumentalities.
Money Market Fund has adopted a Rule 12b-1 Plan. However, payment of
the 12b-1 Plan fees has been waived since July 1, 1992. Under the 12b-1 Plan,
Money Market Fund would pay Lord Abbett, which would pass on to dealers, an
annual service fee (payable quarterly) of .15% of the average daily net asset
value of Money Market Fund's shares sold by dealers.
LORD ABBETT VALUE APPRECIATION FUND, INC. (TIN 13-3166900) ("Value
Fund"), is a diversified, open-end management investment company incorporated
under the laws of Maryland on March 14, 1983. Value Fund is registered as a
diversified, open-end management investment company under the 1940 Act. A copy
of Value Fund's most recent Post-Effective Amendment to its Registration
Statement on Form N-1A, dated May 1, 1995, is attached as Exhibit M.
<PAGE>
Internal Revenue Service 14 October 19, 1995
Value Fund has a single class of shares, $.10 par value, with equal
rights as to voting, dividends, assets and liquidation. They are fully paid and
nonassessable when issued and have no preemptive or conversion rights. There
are no restrictions on transfer. Value Fund qualifies as a regulated investment
company under Subchapter M of the Internal Revenue Code. Its taxable year ends
on December 31. The investment objective of Value Fund is to seek capital
appreciation through investments, primarily in equity securities, which are
believed to be undervalued in the marketplace.
Value Fund has adopted a Rule 12b-1 Plan. Under the 12b-1 Plan, Value
Fund pays to Lord Abbett, which passes on to dealers, (1) an annual service fee
(payable quarterly) of .25% of the average daily net asset value of Value Fund's
shares attributable to sales by dealers on or after June 1, 1990 and .15% of the
average daily net asset value of shares sold by dealers prior to that date and
(2) a one-time 1% sales distribution fee, at the time of sale, on all sales over
$1 million by dealers, including sales qualifying at such level under the rights
of accumulation and statement of intention privileges. Lord Abbett is required
to pay the full amount of the sales distribution fees to dealers as compensation
for selling Value Fund's shares.
<PAGE>
Internal Revenue Service 15 October 19, 1995
PROPOSED TRANSACTIONS
- - ---------------------
Management of the Lord Abbett Funds/2/ has proposed that the Articles
of Incorporation or Declaration of Trust of each Fund be amended to permit each
to issue additional, separate classes of shares with characteristics designed
for particular markets. A draft of the proxy materials soliciting the approval
of each Fund's shareholders for the amendment to the Articles of Incorporation
or Declaration of Trust permitting the issuance of separate classes (including
the text of the proposed amendment), will be submitted when it is filed with the
Securities and Exchange Commission./3/
Subject to the shareholders' approval of the amendments, the Board of
Directors of each Fund will redesignate its currently outstanding shares as a
separate class and will authorize the issuance of additional separate classes of
shares of each series ("Additional Classes").
The precise terms of each Additional Class will be determined by the
Board of Directors of each Fund at the time of issuance. However, each Fund
represents that, although the Additional Classes may be sold under different
sales arrangements, the shares of the Additional Classes offered by each Fund
will otherwise be identical to the currently outstanding shares of that Fund,
with the following exceptions:
(i) A 12b-1 Fee equal to a percentage of average daily net asset
-
value may or may not be charged under a 12b-1 Plan to each of the Additional
Classes, and the level of 12b-1 Fees may vary from class to class. The
- - --------------------
/2/. As used herein, the term "Fund" refers to each taxpayer designated on
Schedule A, regardless of whether the entity is structured as a separate
corporation or trust or as a series of a corporation or trust.
/3/. No shareholder vote is required for Tax-Free Trust. A copy of its proposed
amendment will be submitted with the other amendments. No amendment is
required for Investment Trust.
<PAGE>
Internal Revenue Service 16 October 19, 1995
Additional Classes may bear different service and distribution fees under 12b-1
Plans, may bear different costs relating to shareholder or director (trustee)
approval of or amendments to 12b-1 Plans or may have front end loads or other
sales charges or non-12b-1 shareholder service plan fees (collectively, "Plan
Payments"). Services provided pursuant to 12b-1 Plans or non-12b-1 shareholder
service plans may include (1) preparing, producing, and delivering printed
materials to shareholders, including reports, prospectuses and proxies, (2)
advertising, and (3) promoting and selling shares. Such services may also
include certain administrative services associated with (1) maintaining and
processing customer accounts and records, such as data maintenance and
communication, and systems servicing; (2) handling shareholder inquiries and
communications, including postage and shipping charges; (3) recordkeeping and
shareholder accounting, including related storage and shipping; (4) shareholder
servicing; and (5) processing dividend payments on behalf of customers.
(ii) Each class will bear different "Specially Allocated Expenses,"
--
which are Fund expenses and fees (other than Plan Payments) allocated to that
class and not allocated on a pro rata basis across different classes. These may
include registration fees under state Blue Sky laws; SEC registration fees;
accounting expenses; auditors fees, litigation expenses and legal fees and
expenses relating to a class; and expenses incurred in connection with
shareholder or director (trustee) meetings as a result of issues relating to a
class.
Specially Allocated Expenses may also include other expenses related
solely to a particular class of shareholders and administrative expenses
required to support shareholders of that class, to the extent that such expenses
are incidental to the class expenses specifically enumerated in the paragraph
above.
The taxpayer represents that the only expenses allocated to the
classes disproportionately will be Specially Allocated Expenses and Plan
Payments. The Specially Allocated Expenses allocated to each share of
<PAGE>
Internal Revenue Service 17 October 19, 1995
a class during a year will differ from the Specially Allocated Expenses
allocated to each share of any other class of the same Fund by less than 50
basis points of the average daily net asset value of the class of shares of such
Fund with the smallest average net asset value.
Any distribution on shares of a class will differ from the
distribution on shares of other classes of the same Fund only as a result of the
allocation of Specially Allocated Expenses and Plan Payments and the effects of
such allocation.
(iii) The designation of each class of shares of a Fund will be
---
different.
(iv) The effect of the sales charges for each class will differ.
--
(v) Voting rights on matters affecting only one class will vary in
-
accordance with the procedures set forth in Rule 12b-1 and Rule 18f-3.
(vi) Different classes of shares may have different conversion
--
features.
(vii) Each class may have different privileges of reinvestment with a
---
reduced sales load after redemption, as will be specified from time to time in
the relevant prospectus disclosure.
(viii) Different classes of shares may have different exchange
privileges.
Dividends paid by each Fund with respect to various classes of shares
will be calculated in the same manner and at the same time on the same day.
Amounts payable as dividends, however, will vary because of the differing
amounts of Specially Allocated Expenses and Plan Payments borne exclusively by a
particular class.
The net asset value per share and net income per share of a particular
class will also vary owing to the differing amounts of Specially Allocated
Expenses and Plan Payments. Because gross income and other expenses would be
<PAGE>
Internal Revenue Service 18 October 19, 1995
allocated daily to a class based on its net asset value, more income would be
allocated per share to classes with lower per share class expenses than to
classes with higher per share expenses. Further, this net income differential
would tend to increase during the course of the dividend period until the
accumulated income is declared as a dividend at the close of the period.
On each day that it determines net asset value per share each Fund
will first allocate its gross investment income less expenses other than
Specially Allocated Expenses or Plan Payments among all shares of that Fund
regardless of class in accordance with net asset values determined as of the
preceding day. Specially Allocated Expenses and Plan Payments allocated to a
particular class will then be subtracted from the amounts otherwise allocable to
that class, to determine the net asset value of the shares of each class.
RULINGS REQUESTED
-----------------
We respectfully request that you rule that:
1. The adoption of the proposed multiple class system will not cause
dividends declared and paid by any of the Funds to be preferential
dividends within the meaning of section 562(c) of the Code and each Fund
will therefore be eligible for the dividends paid deduction under sections
561 and 852 of the Code, provided that each Fund otherwise continues to
meet the criteria of those two sections.
2. The creation of multiple classes of shares within each Fund will not
affect the classification of each Fund as a regulated investment company under
section 851(a) or (h).
3. There will be no federal income tax consequences to the holders of
currently outstanding shares of any Fund as a result of the reclassification of
the shares held by such holders as a separate class of each Fund.
<PAGE>
Internal Revenue Service 19 October 19, 1995
DISCUSSION
----------
Each share of each Additional Class that will be offered by each Fund
will represent an equal interest in the same portfolio of investments and
(except as specified in paragraphs (i) through (viii) above) will have voting,
dividend, and liquidation rights that are identical to those of the currently
outstanding shares of that Fund. Each class of new shares may be subject to its
own 12b-1 Fees, non-12b-1 shareholder service plan fees or other Plan Payments
and some of the classes may be subject to different levels of Plan Payments.
Although Specially Allocated Expenses will be allocated differently between the
classes, each Fund has represented that the Specially Allocated Expenses
allocated to each share of a class during a year will differ from Specially
Allocated Expenses allocated to each share of any other class of the same Fund
by less than 0.50% of the average net asset value per share of the class with
the smallest net asset value per share.
The facts and representations presented above are similar to those
described in Private Letter Ruling 9522045 (March 7, 1995), Private Letter
Ruling 9422026 (March 1, 1994) and numerous other rulings.
In those rulings, the Service has stated that for purposes of section
562(c) of the Code, sales loads, 12b-1 Fees and other Plan Payments are
essentially treated as direct and indirect shareholder expenses that should not
be taken into account in determining whether distributions are preferential.
Cf., Treas. Reg. (S) 1.67-2T(k), Examples 3 and 4. As a result, amounts
- - --
distributed with respect to different classes of shares of each Fund will
effectively differ only as a result of the Specially Allocated Expenses, which
will be limited as described in paragraph (ii) above. As noted in the prior
rulings, section 562(c) treats as pro rata those distributions that differ by a
de minimis amount because of the allocation of fund expenses. H.R. Rep. No.
1860, 75th Cong., 3d Sess. 23 (1938). Accordingly, dividends paid by each Fund
after the adoption of the multiple class system will not be preferential within
the meaning of section 562(c) of the Code.
Moreover, the Service has found in the prior rulings that differences
in class-designations, voting
<PAGE>
Internal Revenue Service 20 October 19, 1995
rights, sales charges and class-specific expenses, like those described above,
are insufficient to cause the shares to be classified as different classes for
purposes of the Code. As a result, the designation of outstanding shares as
belonging to a particular class should have no tax effect.
As a result, the adoption of the multiple class system as described
above should have no effect on the qualification of each Fund as a regulated
investment company under sections 851 and 852 of the Code.
PROCEDURAL STATEMENTS
---------------------
To the best of the knowledge of each Fund and its representative,
issues identical to those involved in this ruling request are not raised in an
earlier return of any Fund (or in a return for any year of a related taxpayer
within the meaning of section 267 of the Code, or of a member of an affiliated
group of which any Fund is also a member within the meaning of section 1504).
To the best of the knowledge of each Fund and its representative, the
Service has not previously ruled on issues identical or similar to those raised
in this ruling request for any Fund (or a related taxpayer within the meaning of
section 267 of the Code, or a member of an affiliated group within the meaning
of section 1504) or a predecessor, nor has any Fund, a related taxpayer, a
predecessor, or their representatives previously submitted the same or similar
issues to the Service but withdrawn them before a letter ruling or determination
letter was issued.
To the best of the knowledge of each Fund and its representative, the
taxpayer, a related taxpayer, or a predecessor has not previously submitted a
request involving the same or a similar issue that is currently pending with the
Service, nor is the taxpayer or a related taxpayer presently submitting another
request involving the same or similar issues to the Service at the same time as
this request.
Each Fund believes that the law in connection with this ruling request
is unclear and that the issues raised herein are not adequately addressed by the
relevant authorities.
<PAGE>
Internal Revenue Service 21 October 19, 1995
No Fund is aware of any pending legislation which may affect the
proposed transactions nor is any Fund aware of any authorities contrary to the
positions advanced herein.
The declarations required by section 601.201(e)(1) of the Regulations,
signed by an officer of each Fund on behalf of that Fund, who has personal
knowledge of the material facts, is enclosed.
If any additional information is desired, please call Seth L. Rosen of
Debevoise & Plimpton ((212) 909-6373). Enclosed herewith are powers of attorney
authorizing Mr. Rosen and Jonathan A. Small of this firm to represent each Fund
in this matter. If for any reason the rulings request ed cannot be issued on
the basis of the information con tained herein, together with any additional
information, we hereby request a conference.
Your ruling letter should be addressed to each
Fund, with a copy to the undersigned.
We request that an advance copy of the letter ruling be issued by
facsimile pursuant to section 8.02(5) of Revenue Procedure 95-1, 1995-1 I.R.B.
9. The facsimile copy should be sent to Seth L. Rosen, c/o Debevoise &
Plimpton, at (212) 909-6836. The Funds hereby waive any disclosure violations
which may result from the facsimile transmission, but ask that you take certain
precautions to protect confidential information in accordance with section
8.02(5) of Revenue Procedure 95-1.
A check in the amount of $7475 is enclosed as the user fee specified
in section 14.02 and Appendix A of Reve nue Procedure 95-1.
Respectfully submitted,
Seth L. Rosen
Enclosures
<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
Fund T.I.N.
- - ---- ----------
<S> <C>
Affiliated Fund, Inc. 13-6020600
Lord Abbett Bond-Debenture Fund, Inc. 13-2669319
Lord Abbett California Tax-Free
Income Fund, Inc. 13-3271131
Lord Abbett Developing Growth Fund, Inc. 13-2755091
Lord Abbett Fundamental Value Fund, Inc. 13-3342841
Lord Abbett Global Fund, Inc.
-- Equity Series 13-3460109
-- Income Series 13-3460111
Lord Abbett Investment Trust
-- Limited Duration U.S. Government
Securities Series 13-3731507
-- Balanced Series 13-3799450
Lord Abbett Research Fund, Inc.
-- Series 1 13-6995863
-- Lord Abbett Mid Cap Research Fund 13-3842507
Lord Abbett Tax-Free Income Fund, Inc.
-- National Series 13-3397836
-- Connecticut Series 13-3608057
-- Hawaii Series 13-3635800
-- Minnesota Series 13-3799448
-- Missouri Series 13-3616715
-- New Jersey Series 13-3603812
-- New York Series 13-3386492
-- Texas Series 13-3386494
-- Washington Series 13-3664187
Lord Abbett Tax-Free Income Trust
-- Florida Series 13-3633027
-- Georgia Series 13-3799446
-- Pennsylvania Series 13-3646755
-- Michigan Series 13-3692073
Lord Abbett U.S. Government Securities
Fund, Inc. 13-6020601
Lord Abbett U.S. Government Securities
Money Market Fund, Inc. 13-2986729
Lord Abbett Value Appreciation Fund, Inc. 13-3166900
</TABLE>
<PAGE>
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
WASHINGTON, DC 20024
U.I.L. Nos.: 0561.05-00, 0562.03-02
0851.00-00, 0852.00-01
Seth Rosen
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Person to Contact:
Susan T. Baker
Telephone Number:
(202) 622-3940
Refer Reply to:
CC:DOM:FI&P:2 TR-31-2399-95
Date:
Legend:
State A = Maryland
State B = Delaware
State C = Massachusetts
Investment Manager and Distributor = Lord, Abbett & Company
Fund 1 = Affiliated Fund, Inc.
EIN: 13-6020600
Fund 2 = Lord Abbett Bond-Debenture Fund, Inc.
EIN: 13-2669319
TR-31-2400-95
Fund 3 = Lord Abbett California Tax-Free Income Fund, Inc.
EIN: 13-3271131
TR-31-2401-95
Fund 4 = Lord Abbett Developing Growth Fund, Inc.
EIN: 13-2755091
TR-31-2402-95
Fund 5 = Lord Abbett Fundamental Value Fund, Inc.
EIN: 13-3342841
TR-31-2403-95
<PAGE>
Fund 6 = Lord Abbett Global Fund, Inc.--Equity Series
EIN: 13-3460109
TR-31-2404-95
Fund 7 = Lord Abbett Global Fund, Inc.--Income Series
EIN: 13-3460111
TR-31-2405-95
Fund 8 = Lord Abbett Investment Trust--Limited Duration U.S. Government
Securities Series
EIN: 13-3731507
TR-31-2406-95
Fund 9 = Lord Abbett Investment Trust--Balanced Series
EIN: 13-3799450
TR-31-2410-95
Fund 10 = Lord Abbett Research Fund, Inc.--Series I
EIN: 13-6995863
TR-31-2411-95
Fund 11 = Lord Abbett Research Fund, Inc.--Lord Abbett Mid Cap Research Fund
EIN: 13-3842507
TR-31-2412-95
Fund 12 = Lord Abbett Tax-Free Income Fund, Inc.--National Series
EIN: 13-3397836
TR-31-2415-95
Fund 13 = Lord Abbett Tax-Free Income Fund, Inc.--Connecticut Series
EIN: 13-3608057
TR-31-2417-95
Fund 14 = Lord Abbett Tax-Free Income Fund, Inc.--Hawaii Series
EIN: 13-3635800
TR-31-2419-95
Fund 15 = Lord Abbett Tax-Free Income Fund, Inc.--Minnesota Series
EIN: 13-3799448
TR-31-2420-95
2
<PAGE>
Fund 16 = Lord Abbett Tax-Free Income Fund, Inc.--Missouri Series
EIN: 13-3616715
TR-31-2425-95
Fund 17 = Lord Abbett Tax-Free Income Fund,.Inc.--New Jersey Series
EIN: 13-3603812
TR-31-2426-95
Fund 18 = Lord Abbett Tax-Free Income Fund, Inc.--New York Series
EIN: 13-3386492
TR-31-2427-95
Fund 19 = Lord Abbett Tax-Free Income Fund, Inc.--Texas Series
EIN: 13-3386494
TR-31-2428-95
Fund 20 = Lord Abbett Tax-Free Income Fund, Inc.--Washington Series
EIN: 13-3664187
TR-31-2429-95
Fund 21 = Lord Abbett Tax-Free Income Trust--Florida Series
EIN: 13-3633027
TR-31-2430-95
Fund 22 = Lord Abbett Tax-Free Income Trust--Georgia Series
EIN: 13-3799446
TR-31-2431-95
Fund 23 = Lord Abbett Tax-Free Income Trust--Pennsylvania Series
EIN: 13-3646755
TR-31-2432-95
Fund 24 = Lord Abbett Tax-Free Income Trust--Michigan Series
EIN: 13-3692073
TR-31-2433-95
Fund 25 = Lord Abbett U.S. Government Securities Money Market Fund, Inc.
EIN: 13-2986729
TR-31-2435-95
3
<PAGE>
Fund 26 = Lord Abbett U.S. Government Securities Fund, Inc.
EIN: 13-6020601
TR-31-2435-95
Fund 27 = Lord Abbett Value Appreciation Fund, Inc.
EIN: 13-3166900
TR-31-2436-95
Fund 28 = Lord Abbett Securities Trust--Growth and Income Trust
EIN: 13-3731505
TR-31-268-96
Fund 29 = Lord Abbett Research Fund, Inc.--Small-Cap Series
EIN: 13-3862601
TR-31-269-96
a = .50
- - -
Dear Mr. Rosen:
This ruling replies to your letters dated October 19, 1995, and January
26, 1996, submitted an behalf of Funds I through 29, in which you request that
the Internal Revenue Service rule as follows:
(1) that the adoption of the proposed multiple class system will not cause
dividends paid on each class of shares issued by the funds to be preferential
dividends under section 562(c) of the Code, and there fore that each fund will
be eligible for the dividends-paid deduction under sections 561 and 852(b)(2)(D)
of the Code;
(2) that the creation of multiple classes of shares will not affect the
classification of the Funds as regulated investment companies (RICs) under
section 851 of the Code; and
(3) that the redesignation of currently out standing shares of each fund as a
separate class of shares pursuant to the proposed multiple class system will not
result in gain or loss or in other Federal income tax consequences to the
holders of currently outstanding shares.
4
<PAGE>
FACTS
Funds are open-end management investment companies registered under the
Investment Company Act of 1940, 15 U.S.C. 80a-1 et seq., as amended (the 1940
-- ---
Act) , and are
structured as corporations, as trusts, or as series of corporations or trusts.
Each qualified as a regulated investment company (RIC) under Subchapter M, part
1, of the Code. Funds 1 through 7, 10 through 20, and 25 through 27 are
incorporated under the laws of State A. Funds 6 and 7, Funds 10, 11, and 29,
and Funds 12 through 20 are organized as series funds under the laws of State A.
Funds 8 and 9 are organized as business trusts under the laws of State B. Funds
21 through 24 are organized as a series fund under the laws of State C. Fund 28
is organized as a series fund under the laws of State B.
Investment Advisor and Distributor provides in vestment advice for each
of the funds. The shares of the funds, with the exception of shares of Funds 10
and 11, are marketed pursuant to distribution agreement with Investment Advisor
and Distributor.
Shares of the funds are sold subject to differing sales arrangements.
Under Rule 12b-1 plans adopted by certain of the funds, an annual service fee
equal to a percentage of the average daily net asset value of shares of the fund
is payable to Investment Advisor and Distributor. The level of the annual
service fee varies from fund to fund. Also payable to Investment Advisor and
Distributor under the Rule 12b-1 plans are one-time sales distribution fees,
payable at the time of sale, on sales of greater than certain specified amounts.
Investment Advisor and Dis tributor is required to pay the sales distribution
fees to dealers as compensation for selling shares of the funds.
Funds each have outstanding only a single class of shares. Funds have
proposed that the articles of in corporation or declaration of trust of each
fund be amended to permit each to issue additional, separate classes of shares
with characteristics designed for particular markets.
The precise terms of each additional class will be determined by the
Board of Directors of each fund at the time of issuance. Each fund represents,
however, that although the additional classes may be sold under differing sales
arrangements the shares of the additional classes offered by each fund will
otherwise be identical to out standing shares of that fund, with the following
exceptions:
5
<PAGE>
(1) The designation of each class of shares will be different.
(2) Different classes of shares may have dif ferent conversion features.
(3) Different classes may have different exchange privileges.
(4) Each class may have different privileges of reinvestment with a reduced
sales load after re demption.
(5) The additional classes may adopt Rule 12b-1 plans which bear different
service and distribution fees or different costs relating to approval of or
amendments to the Rule 12b-1 plans. The level of Rule 12b-1 plan fees may vary
from class to class. Voting rights on matters affecting only one class will
vary in accordance with the procedures set forth in Rule 12b-1 and Rule 18f-3.
(6) The additional classes may be sold subject to asset-based sales charges
and the effect of the sales charges for each class will differ.
(7) The additional classes may be sold subject to non-Rule 12b-1 plan
shareholder services plan fees.
(8) Each class will bear different specially allocated expenses. To the
extent the following classes of expenses can reasonably be identified as
relating to a particular class, they will be allocated to that class and, if so
allocated, will be referred to as Class Expenses:
(a) registration fees under state Blue Sky laws;
(b) SEC registration fees;
(c) accounting expenses, including auditors' fees;
(d) legal fees, including expenses of liti gation;
(e) expenses incurred in connection with shareholder, director, or trustee
meetings; and
(f) administrative expenses required to support shareholders of a
particular class, to the
6
<PAGE>
extent incidental to the expenses enumerated in (a) through (e).
The funds represent that the only expenses allo cated to the classes
disproportionately are Class Expenses, Rule 12b-1 plan fees and shareholder
services plan fees. The Class Expenses allocated to each share of a class during
a year will differ from the Class Expenses allocated to each share of any other
class of the same fund by less than a% of the average daily net asset value of
-
the class of shares with the smallest average net asset value.
Any distribution on shares of a class will differ from the distribution
on shares of other classes of the same fund only as a result of the allocation
of Class Expenses, Rule 12b-1 plan fees and shareholder services plan fees and
the effects of such allocation.
Investment Advisor and Distributor may waive a Rule 12b-1 plan fee in
whole or in part.
Dividends paid by each fund with respect to various classes of shares
will be calculated in the same manner and at the same time on the same day.
Amounts pay able as dividends, however, will vary because of the differing
amounts of Class Expenses, Rule 12b-1 plan fees, and shareholder services plan
fees borne exclusively by a particular class.
LAW
Section 851(a) defines a RIC, in part, as a domes tic corporation
registered under the 1940 Act as a manage ment company.
Section 851 (b) limits the definition of a RIC to a corporation meeting
certain election, gross income, and diversification requirements.
Section 851(h) of the Code provides a special rule for a RIC having more
than one fund. This provision treats each fund as a separate corporation for
all purposes of the Code, other than the definitional requirement of section
851(a).
A corporation that is a RIC within the meaning of section 851 and that is
taxable under Subchapter M, part I, pays tax on its investment company taxable
income under section 852(b)(2) and on the excess, if any, of its net
7
<PAGE>
capital gain over its deduction for dividends paid, deter mined with reference
to capital gains dividends only under section 852(b)(3).
Section 852 provides that a RIC is not taxable under Subchapter M, part
I, unless its deduction for divi dends paid (as that term is defined in section
561(a) with certain modifications) for the taxable year equals or ex ceeds a
specified portion of its taxable income (with cer tain adjustments) and its net
tax-exempt interest income.
Section 561(a) defines the deduction for dividends paid, for purposes of
section 852, to include dividends paid during the taxable year.
Section 562(a) states that the term "dividend", except as otherwise
provided, includes only dividends de scribed in section 316, which provides a
definition of dividends for purposes of corporate distributions.
Section 316(a) defines the term "dividend" as any distribution of
property made by a corporation to its shareholders (1) out of its earnings and
-
profits (E & P) accumulated after February 28, 1913, or (2) out of its E & P of
-
the taxable year (computed as of the close of the taxable year without
diminution by reason of any distributions made during the taxable year), without
regard to the amount of the E & P at the time the distribution was made.
Section 562(c) provides that the amount of any distribution shall not be
considered as a dividend for purposes of the dividends paid deduction under
section 561 unless the distribution is pro rata, does not prefer any shares of
stock of a class over other shares of stock of that same class, and does not
prefer one class of stock over another class except to the extent the former
class is entitled (without reference to waivers of their rights by shareholders)
to be preferred.
The legislative history and regulations show that each shareholder within
a class, as that term is used in section 562(c), has certain inherent rights.
The Revenue Act of 1936: Hearings on H.R. 12395 Before the Senate Comm. on
- - --------------------------------------------------------------------------
Finance, 74th Cong., 2d Sess. 62 (1936); H.R. Rep. No. 1860, 75th Cong., 3d
- - -------
Sess. 23 (1938); section 1.562-2 of the Income Tax Regulations. Each
shareholder within a class has the right to receive the same distribution an
each of his shares belonging to the class as every other shareholder within the
class. In addition, the class has the right not
8
<PAGE>
to receive less than that to which it is entitled when compared to other
classes.
A class for purposes of section 562(c), therefore, is a group of
shareholders whose rights are so closely aligned and so different from other
shareholders' rights as to warrant a conclusion that members of the group should
all be treated the same and should be protected against the infringement of
shareholders outside the group with respect to distributions. For example,
section 1.562-2(b), Example (3) of the income Tax Regulations indicates that
cumulative preferred and common stock may form two classes for these purposes.
Among the characteristics that cause cumulative preferred shareholders to be
viewed as a unit separate from common shareholders is their right to certain
preferences on distributions, on redemption, and on liquidation, and their right
to vote to protect those preferences.
ANALYSIS
In this case, shares proposed under the multiple class distribution
system represent an equal interest in the same fund of investments and will be
identical in all ways, except as follows:
1. Each class of shares will have a different designation.
2. The amount and type of asset-based sales load, if any, may differ on each
class of shares.
3. The amounts assessed to a class as a result of a shareholder servicing
plan may differ.
4. The Class Expanses enumerated above will be allocated separately to the
class of shares to which they are attributable.
5. Certain classes may adopt Rule 12b-1 plans which bear different service
and distribution fees or different costs relating to approval of or amendments
to the Rule 12b-1 plans. The level of Rule 12b-1 plan fees may vary from class
to class. Voting rights on matters affecting only one class will vary in ac
cordance with the procedures act forth in Rule 12b-1 and Rule l8f-3.
6. Different classes of shares may have different conversion features.
9
<PAGE>
7. Different classes may have different privi leges of reinvestment with a
reduced sales load after redemption.
8. Different classes of shares may have different exchange privileges.
These differences alone are insufficient to cause the shares proposed
under the multiple class distribution system to be treated as different classes
of shares under section 562(c).
The Rule 12b-1 fee is a fund expense for purposes of computing investment
company taxable income because it is paid by a fund from fund assets, unlike a
front-end sales load, which is viewed as a shareholder cost. See United States
--- -------------
v. Cartwright, 411 U.S. 546 (1973), aff'q 457 F.2d 567 (1972), in which the
- - ------------- -----
Supreme Court describes a front-end sales load as a type of brokerage commission
that is a shareholder cost. Nonetheless, fees paid pursuant to Rule 12b-1 plans
are akin to front-end sales loads because both amounts are primarily for
distribution expenses. The Securities and Exchange Commission has described
Rule 12b-1 plan fees as substitutes for front-end sales loads. See Exemptions
--- ----------
for Certain Registered Open-End Management Investment Companies to Impose
- - ------------------------------------------ ------------------------------
Deferred Sales Loads, Investment Company Act Release No. 16,619, 53 FR 45,275 at
- - --------------------
45,277-78 (Nov. 9, 1988) and Payment of Asset-Based Sales Loads by Registered
--- ------------------------------------------------
Open-End Management Investment Companies, Investment Company Act Release No.
- - ----------------------------------------
16,431, 53 FR 23,258 at 23,270 (June 21, 1988). Thus, it appears that fees paid
pursuant to a Rule 12b-1 plan indirectly are shareholder expenses. A fund is
never out-of-pocket for amounts paid under the Rule 12b-1 plan; it is reimbursed
for these outlays by shareholders participating in the plan.
Under this analysis, a Rule 12b-1 fee can be considered an indirect
shareholder expense in determining whether distributions are preferential under
section 562(c) of the Code. Payments made pursuant to shareholder servicing
agreements also must be considered in determining whether a fund's distributions
are preferential.
When the Rule 12b-1 plan fees and fees payable under shareholder
servicing agreements are taken into ac count, the amounts distributed on the
shares of a fund differ by less than a%, which is de mininis. Section 562(c) of
-
the Code treats as pro rata those distributions that
10
<PAGE>
differ by a de minimis amount. H.R. Rep. No. 1860, 75th Cong., 3d Sess. 23
(1938).
We conclude from this analysis that each fund has only a single class of
stock. The differences specified above are insufficient to cause the shares to
be classified as different classes under section 562(c) of the Code. The rights
of all shareholders are so closely aligned and simi lar as to mandate that all
shareholders, who will have the benefit of the same economic distributions,
should be treated as a single class and that the conversion of shares within
that single class will have no tax affect.
HOLDINGS
Based on the facts as represented by the funds, and provided that each
fund otherwise meets the criteria of sections 561(a) and 852, we rule as
follows:
(1) that the adoption of the proposed multiple class system will not cause
dividends paid on each class of shares issued by the funds to be preferential
dividends under section 562(c) of the Code, and there fore that each fund will
be eligible for the dividends-paid deduction under sections 561 and 852(b)(2)(D)
of the Code,
(2) that the creation of multiple classes of shares will not affect the
classification of the Funds as regulated investment companies (RICs) under
section 851 of the Code,
and
(3) that the redesignation of currently out standing shares of each fund as a
separate class of shares pursuant to the proposed multiple class system will not
result in gain or loss or in other Federal income tax consequences to the
holders of currently outstanding shares.
Except as specifically ruled upon above, no opin ion is expressed or
implied regarding the Federal tax as pects of this transaction. We express no
opinion as to whether each fund will qualify as a RIC that is taxable under
Subchapter M, part 1, if expenses other than the Rule 12b-1 fees, fees paid
pursuant to shareholder servicing plans, and the Class Expenses described in
this letter are allocated to the shareholders disproportionately.
11
<PAGE>
This ruling is directed only to the funds. Sec tion 6110(j)(3) of the
Code provides that it may not be used or cited as precedent.
A copy Of this letter Should be attached to the Federal income tax return
of each fund for each taxable year in which the fund has outstanding classes of
shares de scribed above.
Sincerely yours,
Assistant Chief Counsel
(Financial Institutions & Products)
By_________________________
William E. Coppersmith
Chief, Branch 2
Enclosure:
6110 copy
12
EXHIBIT 17(a)
Draft--February 22, 1996
LORD ABBETT SECURITIES TRUST-LORD ABBETT NATIONAL TAX-FREE INCOME TRUST
The undersigned hereby appoints KENNETH B. CUTLER, ROBERT S. DOW and RONALD
P. LYNCH and each of them proxies, with full power of substitution, to vote
(according to the number of votes which the undersigned would be entitled to
cast if then personally present) at the special meeting of shareholders of LORD
ABBETT SECURITIES on June 19, 1996, including all adjournments, as specified
below, and in their discretion upon such other business as may properly be
brought before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES WHO RECOMMEND THAT
YOU AUTHORIZE THE PROXIES TO VOTE FOR THE MATTERS SPECIFIED BELOW.
UNMARKED PROXIES WILL BE VOTED IN FAVOR OF EACH OF THE MATTERS SPECIFIED BELOW.
1. For [ ] or against [ ] or abstain from [ ] the approval of the Agreement
and Plan of Reorganization and the reorganization provided for therein, as
described in the proxy statement and prospectus.
2. For [ ] or against [ ] or abstain from [ ] the ratification of the
selection of Deloitte & Touche LLP as independent public accountants of Lord
Abbett Securities Trust for the fiscal year ending October 31, 1996.
ACCOUNT NUMBER SHARES PROXY NUMBER
LORD ABBETT SECURITIES TRUST-
LORD ABBETT NATIONAL TAX-FREE INCOME TRUST
PLEASE FILL IN, DATE AND SIGN
PROXY AND RETURN IN THE
ENCLOSED ENVELOPE.
<PAGE>
For information as to the voting of stock registered in more than one name, see
page 2 of the proxy statement and prospectus. When signing the proxy as
attorney, executor, administrator, trustee or guardian, please indicate the
capacity in which you are acting. Only authorized officers should sign for
corporations.
Date:......................................................
Signature(s) of Shareholder(s) as shown at left
..............................................................
..............................................................
(Please read other side)
2
IMPORTANT NEWS FROM LORD, ABBETT & CO.
We want to give you advance notice of some changes we will be proposing to
shareholders. As you know, Lord Abbett currently offers front-end load and level
load funds through two separate groups: the Lord Abbett Family of Funds and Lord
Abbett Counsel Group, respectively. In general, we are proposing a consolidation
of the second group into the first group, which would be achieved by the
issuance of Class A shares to represent the Family of Funds and the issuance of
Class C shares to represent the former Counsel Group. Additionally, we intend to
offer B shares in the near future. Many of you have asked for more pricing
alternatives and this proxy should enable us to respond to your needs. In
addition to offering more pricing options, we are recommending other changes
that will allow for more flexibility in our funds' management and in the
distribution of our funds' shares.
Shareholders will receive proxy materials describing these proposed changes in
April. We ask that you encourage your clients to vote their proxies promptly, as
additional solicitations are costly to their funds. The shareholder meeting is
scheduled for June 19, 1996. Soon thereafter, we will notify you of all approved
changes.
We believe these changes will enhance our funds' competitive positioning. We
appreciate any efforts you can make in helping us secure a quorum and thank you
for your continued support.
LETTER TO SHAREHOLDERS RE: PROXY
(To go on Fund letterhead)
March __, 1996
Dear Shareholder:
In April, you will receive a proxy statement and ballot, requesting your vote on
several important proposals. These proposed changes are designed to maintain
your Fund's competitive position and to provide more management and distribution
flexibility. The proxy materials will describe all of the proposed changes.
We ask that you please vote your proxy/proxies promptly, as additional
solicitations are costly to your Fund. The shareholder meeting is scheduled for
June 19, 1996. Soon thereafter, we will notify you of all approved changes.
We appreciate your cooperation in promptly returning your proxy card and we look
forward to continuing helping you meet your financial goals.
Sincerely,
Ronald P. Lynch
Chairman
