Draft--February 23, 1996
1940 Act File No. 811-3942
1933 Act File No.
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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.
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<PAGE>
LORD ABBETT TAX-FREE INCOME FUND, INC.
CROSS-REFERENCE SHEET
ITEMS REQUIRED BY FORM N-14
<TABLE>
<CAPTION>
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- - -------- ------------ ------------------
<S> <C> <C>
1. Beginning of Registration Statement Cover Page of Registration Statement;
and Outside Front Cover Page of Cover Page of Proxy Statement and
Prospectus Prospectus
2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus
3. Fee Table, Synopsis and Risk Factors Fee Tables; Summary of Proposals
4. Information about the Transaction Summary of Proposals; Information
About the Reorganizations
5. Information about the Registrant Summary of Proposals; Comparative
Information about the Funds;
Additional Information; Prospectus of
Acquiring Fund dated March __, 1996
6. Information about the Company Summary of Proposals; Comparative
Being Acquired Information about the Funds
7. Voting Information Meetings of Shareholders of the Re
organized Fund and the Securities
Trust; Notice of Special Meeting of
Shareholders; Notice of Annual
Meeting of Shareholders; Summary
of Proposals
8. Interest of Certain Persons and Additional Information
Experts
9. Additional Information Required Not Applicable
for Reoffering by Persons Deemed
to be Underwriters
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL
ITEM NO. ITEM CAPTION INFORMATION CAPTION
- - -------- ------------ -----------------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information about Cover Page of Proxy Statement and
the Registrant Prospectus; Acquiring Fund Statement
of Additional Information dated March
__, 1996 incorporated by reference.
13. Additional Information about Cover Page of Proxy Statement and
the Company Being Acquired Prospectus; Reorganized Fund and
Securities Trust Statements of the
Company Additional Information
incorporated by reference dated
January 1, 1996 and December 27, 1994,
respectively.
14. Financial Statements Not Applicable
PART C
ITEM NO. PART C CAPTION
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15. Indemnification Indemnification
16. Exhibits Exhibits
17. Undertakings Undertakings
Signatures
</TABLE>
<PAGE>
[Letterhead of Lord Abbett California Tax-Free Income Fund, Inc.]
FROM THE CHAIRMAN OF THE BOARD
- - ------------------------------
Dear Shareholder,
Your Board of Directors has determined that it will be advantageous
for your Fund to reorganize itself into a new series of Lord Abbett Tax-Free
Income Fund, Inc. to benefit from the administration efficiencies that should
flow from being a series of a larger investment company. This new fund (the
"Acquiring Fund") is to be called the California Series of Lord Abbett Tax-Free
Income Fund, Inc.
If approved and consummated, this proposed reorganization of your Fund
will be a tax-free reorganization for Federal income tax purposes.
As part of the reorganization, the Acquiring Fund will enter into an
investment management agreement with Lord, Abbett & Co. that will be
substantially the same as the current management agreement between Lord, Abbett
& Co. and your Fund. The Acquiring Fund will be operated in the same manner as
your Fund except for several changes which are intended to maintain its
competitive position and to provide more flexibility in managing its investment
portfolio. Under these changes, the Acquiring Fund will implement a multi-class
structure intended to enable investors to choose a distribution option that
suits their individual situations. The 12b-1 Plan and Distribution Agreement of
the Acquiring Fund will differ in several respects from the 12b-1 Plan of your
Fund. These differences, and their estimated effect on expenses, are described
in the enclosed materials. Finally, the investment objective of the Acquiring
Fund has been slightly modified from that of your Fund and the investment
policies and restrictions have been simplified to provide greater flexibility.
You are also being asked to vote on the election of directors of your
Fund and to ratify the selection of Deloitte & Touche LLP as your Fund's
independent accountants. A shareholder vote is required on these two matters in
the event that the proposed reorganization will not be consummated.
Shareholders of another investment company, California Tax-Free Income
Trust (the "Acquired Trust"), a series of Lord Abbett Securities Trust, are also
being asked to vote on a proposed acquisition by the Acquiring Fund of that
trust. The Acquired Trust, which is much smaller than your Fund, has investment
objectives identical to those of your Fund and has similar investment policies.
If the shareholders of the Acquired Trust approve that transaction, it will
occur immediately after the proposed reorganization of your Fund. The
shareholders of the Acquired Trust are to receive a class of shares different
from the class to be held by the shareholders of your Fund. The Board of
Directors of your Fund has determined that this proposed acquisition of the
Acquired Trust is in the best interest of your Fund and its shareholders. If
the proposed reorganization of your Fund is approved, and all other conditions
to the consummation of the proposed reorganization are satisfied, it will occur
regardless of whether that other transaction is approved or consummated.
<PAGE>
The various matters requiring your vote will be voted upon at a
meeting of shareholders of your Fund 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 proposed reorganization of your Fund 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 CALIFORNIA TAX-FREE INCOME FUND, INC.
767 Fifth Avenue
New York, New York 10153
Telephone No. (800) 426-1130
Notice of Annual Meeting of Shareholders
to be held on June 19, 1996 April 17, 1996
Notice is given hereby of an annual meeting of the shareholders of Lord Abbett
California Tax-Free Income Fund, Inc. (the "Reorganized Fund"). 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 Wednesday, 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 the California Series (the "Acquiring Fund"), a series of Lord
Abbett Tax-Free Income Fund, Inc., and the Reorganized Fund providing
for (a) a reorganization of the Reorganized Fund into the Acquiring
Fund (the "Reorganization") by means of the transfer of all of the
assets of the Reorganized Fund to the Acquiring Fund in exchange for
shares of the Acquiring Fund (to be designated "Class A Shares") and
the assumption by the Acquiring Fund of all of the liabilities of the
Reorganized Fund, (b) the distribution of such Class A Shares to the
shareholders of the Reorganized Fund and (c) the subsequent termination
of the Reorganized Fund. A vote in favor of this Item 1 will be deemed
to be a vote to authorize the Reorganized Fund, as the sole shareholder
of Class A Shares of the Acquiring Fund prior to the Reorganization, to
(i) 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; and (ii) approve the proposed investment
management agreement between the Acquiring Fund and Lord, Abbett & Co.
ITEM 2. In the event the Reorganization is not consummated for any reason:
(A) To elect directors to serve as members of the Board of Directors of
the Reorganized Fund; and
(B) To ratify the selection of Deloitte & Touche LLP as the independent
public accountants of the Reorganized Fund for the current fiscal
year.
By order of the Board of Directors
Kenneth B. Cutler
Vice President and Secretary
<PAGE>
The Board of Directors has fixed the close of business on March 22, 1996 as the
record date for determination of shareholders of the Reorganized 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 Reorganized
Fund issued and outstanding.
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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>
[Letterhead of Lord Abbett Securities Trust-California Tax-Free Income Trust]
FROM THE CHAIRMAN OF THE BOARD
- - ------------------------------
Dear Shareholder,
Lord, Abbett & Co. is the investment manager for two U.S. Government
securities funds with identical investment objectives and similar policies: your
Fund and Lord Abbett California Tax-Free Income Fund, Inc. The Board of
Directors has recommended that both funds be reorganized into a new series of
Lord Abbett Tax-Free Income Fund, Inc., called the California Series (the
"Acquiring Fund") having a substantially similar objective and similar policies.
To eliminate the offering of substantially similar 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.
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.
<PAGE>
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--CALIFORNIA 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, NY 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 California Tax-Free Income Trust (the "Acquired Trust"), a
series of Lord Abbett Securities Trust, and the California Series (the
"Acquiring Fund"), a series of Lord Abbett Tax-Free Income Fund, Inc.,
providing for (a) the transfer of all of the assets of the Acquired
Trust 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 Trust, (b) the distribution of such Class C Shares to the
shareholders of the Acquired Trust and (c) the subsequent termination
of the Acquired Trust. A vote in favor of this Item 1 will be deemed to
be a vote to authorize the Acquired Trust, 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 Lord Abbett Securities Trust for the current fiscal year.
By order of the Board of Directors
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 Trust 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 Trust
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 California Tax-Free Income Fund, Inc. and
California 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 A AND CLASS C SHARES, RESPECTIVELY, OF
California 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 A shares (the
"Class A shares") and Class C shares (the "Class C shares") of the California
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, respectively, Lord Abbett California Tax-Free Income Fund, Inc. (the
"Reorganized Fund") and California Tax-Free Income Trust (the "Acquired Trust"
and, together with the Reorganized Fund and the Acquiring Fund, the "Funds"), a
series of Lord Abbett Securities Trust (the "Securities Trust"). In exchange for
such assets, the Acquiring Fund will also assume all of the liabilities of the
Reorganized Fund and the Acquired Trust. Following receipt of the Class A shares
and the Class C shares, the Reorganized Fund and the Acquired Trust will be
terminated and the Class A shares and Class C shares will be distributed to the
respective shareholders of those Funds. The shareholders of the Reorganized Fund
and the Acquired Trust are being asked to vote to approve or disapprove these
proposed transactions (with respect to the Reorganized Fund, the "Fund
Reorganization," and with respect to the Acquired Trust, the "Trust
Reorganization," and collectively, the "Reorganizations"), which are more fully
described in this Proxy Statement and Prospectus.
The Reorganized Fund and the Securities Trust are open-end diversified
investment management companies. The Reorganized Fund and the Acquired Trust
seek as high a level of interest income exempt from federal and California
personal income tax as is consistent with preservation of capital. The Income
Fund is also an open-end diversified investment management company. It consists
of nine tax-free income series in addition to the Acquiring Fund. The Acquiring
Fund is a new series of Income Fund that will seek as high a level of interest
income exempt from federal and California personal income tax as is consistent
with reasonable risk. Lord Abbett serves as investment manager to the
Reorganized Fund and the Acquired Trust and will serve as investment manager of
the Acquiring Fund under an investment management agreement substantially the
same as the current investment management agreement of the Reorganized Fund (see
"Comparative Information about the Funds -- Management Agreements").
<PAGE>
The Class A shares and the Class C shares will share pro-rata 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
Reorganizations -- Shares of the Acquiring Fund." The directors of the
Reorganized Fund believe that the proposed Fund Reorganization will enable
shareholders of the Reorganized Fund to benefit from administrative efficiencies
resulting from its being a series of a larger investment company. The trustees
of the Acquired Trust believe that the proposed Trust Reorganization will enable
the shareholders of the Acquired Trust to benefit from economies of scale while
continuing to invest in a portfolio of securities managed by Lord Abbett under
an investment objective that is substantially similar to that of the Acquired
Trust. See "Information About the Reorganizations -- Reasons for the
Reorganizations."
This Proxy Statement and Prospectus sets forth concisely the
information about the Acquiring Fund that shareholders of the Reorganized Fund
and Acquired Trust should know before voting on the Reorganizations. It should
be read and retained for future reference. Attached as Exhibits A(1) and (2) to
this Proxy Statement and Prospectus are copies of the Agreements and Plans of
Reorganization (the "Fund Plan" with respect to the Reorganized Fund and the
"Trust Plan" with respect to the Acquired Trust, and collectively, the "Plans")
for the respective Reorganizations of the Reorganized Fund and the Acquired
Trust. This Proxy Statement and Prospectus is accompanied by the Prospectus of
the Acquiring Fund dated March , 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 Reorganized Fund dated January 1, 1996, the
Statement of Additional Information of the Lord Abbett Securities Trust dated
December 27, 1994 and the Statement of Additional Information of the Acquiring
Fund dated March , 1996, and (b) the Prospectus of the Reorganized Fund dated
January 1, 1996 (the "Reorganized Fund Prospectus") and the Prospectus of the
Securities Trust dated December 27, 1994 (the "Acquired Trust Prospectus") [a
pre-effective amendment is to be filed to incorporate by reference the final
Prospectus and Statement of Additional Information of the Income Fund and the
Prospectus and Statement of Additional Information of Lord Abbett Securities
Trust to be dated March 1, 1996]. Such Statements of Additional Information and
such Prospectuses are available, upon oral or written request, and at no charge,
from the Acquiring Fund, at its above-noted telephone number and address.
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<S> <C>
MEETINGS OF SHAREHOLDERS OF THE REORGANIZED FUND AND
SECURITIES TRUST......................................................... 2
FEE TABLES.................................................................. 4
ITEM 1. APPROVAL OF THE AGREEMENTS
AND PLANS OF REORGANIZATION
SUMMARY OF PROPOSALS............................................... 6
INFORMATION ABOUT THE REORGANIZATIONS.............................. 9
COMPARATIVE INFORMATION ABOUT THE FUNDS........................... 17
ITEM 2. FOR REORGANIZED FUND SHAREHOLDERS ONLY --
A. Election of Directors of the Reorganized Fund.................. 20
B. Ratification or Rejection of Independent Public Accountants.... 26
ITEM 3. FOR ACQUIRED TRUST SHAREHOLDERS ONLY --
Ratification or Rejection of Independent Public Accountants....... 26
ADDITIONAL INFORMATION..................................................... 27
Exhibit A(1) - Agreement and Plan of Reorganization with respect to the
Reorganized Fund
(2) - Agreement and Plan of Reorganization with respect to the
Acquired Trust
Exhibit B - Proposed Class A 12b-1 Plan
Exhibit C - Comparison of Investment Policies and Restrictions
</TABLE>
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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>
MEETINGS OF SHAREHOLDERS OF THE REORGANIZED FUND
AND SECURITIES TRUST
This Prospectus and Proxy Statement is furnished in connection with
the solicitation of proxies by and on behalf of the Board of Directors of the
Reorganized Fund and the Board of Trustees of Securities Trust to be used at an
Annual Meeting of Shareholders of the Reorganized Fund and a Special Meeting of
Shareholders of Securities Trust and any adjournments thereof. Such meetings are
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, NY 10153.
This Prospectus and Proxy Statement and the enclosed proxy card are first being
mailed to shareholders of the Reorganized Fund and the Acquired Trust on or
about April 17, 1996.
Approval of the Fund Plan and the Fund Reorganization will require the
affirmative vote of a majority of the outstanding shares of the Reorganized
Fund, and approval of the Trust Plan and the Trust Reorganization will acquire
the affirmative vote of a majority of the shares of the Acquired Trust voted on
the matter. One-third of the aggregate number of shares of the Acquired Trust
shall be necessary to constitute a quorum for approval of the Trust Plan and the
Trust Reorganization. To avoid a need to call an Acquiring Fund shareholders'
meeting after the Reorganizations, the shareholders of the Reorganized Fund are
being asked, as part of their vote on the Fund Plan, to authorize the
Reorganized Fund, as the sole shareholder of the Acquiring Fund before the Fund
Reorganization, to (a) approve a proposed distribution plan pursuant to Section
12 of the Investment Company Act of 1940, as amended (the "1940 Act"), and Rule
12b-1 thereunder applicable to the Class A shares, and (b) approve a proposed
investment management agreement between the Acquiring Fund and Lord, Abbett &
Co. ("Lord Abbett") that will be substantially the same as the current
investment management agreement of the Reorganized Fund. For the same reason,
the shareholders of the Acquired Trust are being asked, as part of their vote on
the Trust Plan, to authorize the Acquired Trust, as the sole Class C shareholder
of the Acquiring Fund before the Trust Reorganization, to approve a proposed
distribution plan that is substantially the same as the current distribution
plan of the Acquired Trust. A vote in favor of a Reorganization will be deemed
also to be a vote to authorize the Reorganized Fund or the Acquired Trust, as
the case may be, to take such action.
At the close of business on March 22, 1996 (the "Record Date"), there
were issued and outstanding ____ shares of the Reorganized Fund and ____ shares
of the Acquired Trust. 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 meetings
or any adjournment thereof. Shareholders of the Reorganized Fund and the
Acquired Trust are entitled to one vote for each share. The Reorganized Fund is
a Maryland corporation and the Acquired Trust is a series of a Delaware business
trust. Under Maryland and 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 Reorganized Fund or the Acquired Trust,
as the case may be: (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.
The effect of an abstention or broker non-vote by a shareholder of the
Reorganized Fund is the same as a vote against the Fund Plan and the Fund
Reorganization. Shares of the Acquired Trust with respect to which there is an
abstention or broker non-vote shall be counted for quorum purposes and
2
<PAGE>
shall not be treated as "voted" for purposes of determining whether the Trust
Plan and the Trust Reorganization has been approved. If the enclosed form of
proxy is properly executed and returned in time to be voted at the applicable
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 applicable meeting by written notice to
the Reorganized Fund or the Acquired Trust, as the case may be, 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 applicable Plan and
Reorganization, FOR the other matter or matters specified in the notice of such
meeting 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 Reorganized Fund and the Acquired Trust may
also request brokerage houses, custodians, nominees, and fiduciaries who are
stockholders of record to forward proxy materials to the beneficial owners. D.F.
King & Co. has been retained to assist in the solicitation of proxies at an
estimated cost of $_______ for the Reorganized Fund and $_______ for the
Acquired Trust. The cost of the solicitations will be borne by ______________.
In the event that sufficient votes to approve a Plan are not received
by the meeting date, the persons named as proxies may propose one or more
adjournments of the applicable meeting to permit further solicitation of
proxies. In determining whether to adjourn a 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 a solicitation.
Any such adjournment will require an affirmative vote by 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 Fund Plan is not approved by the shareholders of the
Reorganized Fund, or if the Fund Reorganization is not consummated for any other
reason, the Reorganized Fund will continue to engage in business as Lord Abbett
California Tax-Free Income Fund, Inc. If the Trust Plan is not approved by the
shareholders of the Acquired Trust, or if the Trust Reorganization is not
consummated for any other reason, the Acquired Trust will continue to engage in
business as California Tax-Free Income Trust, a series of Lord Abbett Securities
Trust. If the Fund Plan is approved by the shareholders of the Reorganized Fund,
and all other conditions to consummation of the Fund Reorganization are
satisfied, the Fund Reorganization will occur regardless of whether the Trust
Plan is approved or the Trust Reorganization is consummated.
3
<PAGE>
FEE TABLES
FEE TABLE WITH RESPECT TO FUND REORGANIZATION. Set forth below is a summary
comparison of the expenses of (a) the shares of the Reorganized Fund and (b) on
a pro-forma basis after giving effect to the Fund Reorganization, the Class A
Shares of the Acquiring Fund (to be issued in the Fund Reorganization in
exchange for the shares of the Reorganized Fund). The annual operating expenses
shown in the summary comparison for the shares of the Reorganized Fund are the
actual expenses for the fiscal year ending August 31, 1995, and those shown on a
pro-forma basis for the Class A shares of the Acquiring Fund are such actual
expenses of the Reorganized Fund adjusted for estimated changes in the
management fee and the Rule 12b-1 plan expenses. 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>
- - ----------------------------------------------------------------------------------------------------------------------------------
ACQUIRING FUND
SHAREHOLDER TRANSACTION EXPENSES REORGANIZED FUND CLASS A SHARES
(AS A PERCENTAGE OF OFFERING PRICE) SHARES (PRO-FORMA)
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Load on Purchases/(1)/........................ 4.75% 4.75%
- - ----------------------------------------------------------------------------------------------------------------------------------
Deferred Sales Load /(1)/................................... None/(2)/ None/(2)/
- - ----------------------------------------------------------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- - ----------------------------------------------------------------------------------------------------------------------------------
Management Fee.......................................... 0.40% 0.50%/(3)/
- - ----------------------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Fees......................................... 0.26% 0.27%/(3)/
- - ----------------------------------------------------------------------------------------------------------------------------------
Other Expenses.......................................... 0.10% 0.10%/(3)/
- - ----------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES....................................... 0.76% 0.87%/(3)/
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Example: Assume 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.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
REORGANIZED FUND SHARES/(4)/ $55 $71 $88 $137
ACQUIRING FUND CLASS A SHARES $56 $74 $93 $150
(PRO-FORMA)/(4)/
</TABLE>
/(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)/ With respect to shares on which the Reorganized Fund's Rule 12b-1
distribution fee for purchases of $1 million or more has been paid, and
Class A shares on which the Acquiring Fund's Rule 12b-1 distribution
fee will be paid, certain redemptions are subject to a contingent
deferred reimbursement charge of up to 1% if the redemption occurs
within 24 months after the month of purchase. Holding periods for
shares purchased prior to the Fund Reorganization will carry over for
the purpose of determining the applicability of the CDRC to Class A
shares. See "12b-1 Plans" under "Information About the Reorganizations"
for a description of the proposed 12b-1 Plan for the A shares.
/(3)/ The expenses of the Acquiring Fund Class A shares are estimated. The
proposed Rule 12b-1 Plan for the A shares provides for annual service
fee payments equal to 0.25%, and, if approved by the Board of Trustees,
distribution fee payments not to exceed in any year 0.25%, of the
average value of the net assets of the Fund attributable to the Class A
shares. The board has not authorized the Acquiring Fund to make
distribution fee payments at this level. The estimated Rule 12b-1 fees
for the Acquiring Fund Class A shares are based on the distribution fee
payments authorized by the board. See "12b-1 Plans" under "Information
About the Reorganizations". Currently, Lord Abbett does not intend to
waive its management fee for the years subsequent to the Fund
Reorganization with respect to Class A shares of the Acquiring Fund.
/(4)/ Based on total operating expenses or estimated operating expenses shown
in the table above.
The foregoing is provided to assist shareholders of the Reorganized Fund in
understanding the various expenses the holders of shares of the Reorganized Fund
have incurred and that such holders might incur as holders of the Class A shares
following the Fund Reorganization.
- - --------------------------------------------------------------------------------
4
<PAGE>
FEE TABLE WITH RESPECT TO TRUST REORGANIZATION. Set forth below is a summary
comparison of the expenses of (a) the shares of the Acquired Trust and (b) on a
pro-forma basis after giving effect to the Trust Reorganization, the Class C
shares of the Acquiring Fund (to be issued in the Trust Reorganization in
exchange for the shares of the Acquired Trust). The annual operating expenses
shown in the summary comparison for the shares of the Acquired Trust are the
actual expenses for the fiscal year ending October 31, 1995, 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 Trust 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>
ACQUIRING FUND
SHAREHOLDER TRANSACTION EXPENSES CLASS C SHARES
(AS A PERCENTAGE OF OFFERING PRICE) ACQUIRED TRUST SHARES (PRO-FORMA)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Load on Purchases/(1)/ ........................ None/(2)/ None/(2)/
- - ------------------------------------------------------------------------------------------------------------------------------------
Deferred Sales Load /(1)/.................................... 1.00%/(3)/ 1.00%/(3)/
- - ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- - ------------------------------------------------------------------------------------------------------------------------------------
Management Fee......................................... 0.00%/(5)/ 0.50%/(4)/
- - ------------------------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Fees........................................ 0.93%/(2)/ 0.93%/(2)(4)/
- - ------------------------------------------------------------------------------------------------------------------------------------
Other Expenses......................................... 0.00%/(5)/ 0.10%/(4)/
- - ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES....................................... 0.93%/(5)/ 1.53%/(4)/
- - ------------------------------------------------------------------------------------------------------------------------------------
</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.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
ACQUIRED TRUST SHARES/(6)/ $9 $30 $51 $114
ACQUIRING FUND CLASS C SHARES $16 $48 $83 $183
(PRO-FORMA)/(6)/
</TABLE>
/(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)/ Although the Acquired Trust 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 Trust 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 National Association of Securities
Dealers, Inc.
/(3)/ Redemptions of the Acquired Trust 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. Holding periods for shares purchased
prior to the Trust Reorganization will carry over for the purpose of
determining the applicability of the CDRC to Class C shares. See "12b-1
Plans" under "Information About Reorganizations".
/(4)/ The expenses of the Acquiring Fund Class C shares are estimated. Lord
Abbett intends to neither waive its management fee nor subsidize
expenses for the years subsequent to the Trust Reorganization with
respect to Class C shares of the Acquiring Fund.
/(5)/ Lord Abbett has waived part of its management fee and subsidized
expenses with respect to the Acquired Trust during the past year (and
continues to do so). The management fee and other expenses would have
been 0.50% and 0.24%, respectively, absent such waiver and subsidy.
/(6)/ Based on total operating expenses or estimated operating expenses shown
in the table above.
The foregoing is provided to assist shareholders of the Acquired Trust in
understanding the various expenses the holders of shares of the Acquired Trust
have incurred and that such holders might incur as holders of the Class C shares
following the Trust Reorganization.
- - --------------------------------------------------------------------------------
5
<PAGE>
ITEM 1. - APPROVAL OF THE AGREEMENTS AND
PLANS OF REORGANIZATION
SUMMARY OF PROPOSALS
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 REORGANIZATIONS. The Plans provide for the transfer to the
Acquiring Fund of all of the assets of the Reorganized Fund and the Acquired
Trust in exchange for Class A shares and Class C shares, respectively, and the
assumption by the Acquiring Fund of all of the liabilities of those respective
Funds. The Class A shares and Class C shares will then be distributed to the
respective shareholders of the Reorganized Fund and the Acquired Trust and those
Funds will be liquidated. As a result of the Reorganizations, each shareholder
of the Reorganized Fund and each shareholder of the Acquired Trust will become
an owner of that number of full and fractional Class A shares or Class C shares,
as the case may be, having an aggregate net asset value equal to the aggregate
net asset value of their shares of the Reorganized Fund or the Acquired Trust,
as of the close of business on the date of the Reorganizations. Consummation of
the Fund Reorganization is subject to the approval of the Reorganized Fund's
shareholders and other conditions. It is not subject to the consummation of the
Trust Reorganization. Consummation of the Trust Reorganization is subject to
the approval of the Acquired Trust's shareholders, the prior consummation of the
Fund Reorganization and other conditions.
To avoid a need to call an Acquiring Fund shareholders' meeting after
the Reorganizations, shareholders of the Reorganized Fund are being asked to
authorize the Reorganized Fund, as the sole Class A shareholder of the Acquiring
Fund before the Fund Reorganization, to (a) approve the proposed distribution
plan for the Class A shares, and (b) approve the investment advisory agreement
for the Acquiring Fund, and shareholders of the Acquired Trust are being asked
to authorize the Acquired Trust, as the sole Class C shareholder of the
Acquiring Fund prior to the Trust Reorganization, to approve the proposed
distribution plan for the Class C shares. A vote in favor of a Reorganization
will be deemed also to be a vote to authorize the Reorganized Fund or the
Acquired Trust, as the case may be, to take such action.
The directors of the Reorganized Fund believe that it will be
advantageous for the Reorganized Fund to reorganize itself into a series of the
Income Fund rather than to continue as a separate corporation. The directors
believe that this will enable the Reorganized Fund to benefit from
administrative efficiencies resulting from its being a series of a larger
investment company. The trustees of the Acquired Trust believe that the proposed
Trust Reorganization will enable the shareholders of the Acquired Trust 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 a substantially
similar investment objective. See "Information About the Reorganizations --
Reasons for Reorganizations" for additional information about the reasons for
the Reorganizations.
BUSINESSES OF THE FUNDS. The Reorganized Fund is a diversified, open-end
management investment company incorporated under the laws of Maryland on May 21,
1985. It has a single class of shares with
6
<PAGE>
equal rights as to voting, dividends, assets and liquidation. As of December
31, 1995, the Reorganized Fund's net assets were approximately $302 million.
The Acquired Trust is a non-diversified series of the Securities
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 Securities Trust offers ten series, one of which is the Acquired
Trust, each consisting of one class of shares. The Acquired Trust commenced
investment operations on October 1, 1993. As of December 31, 1995, the Acquired
Trust's net assets were approximately $17 million.
The Acquiring Fund is a non-diversified series of the Income Fund, an
open-end management investment company incorporated under the laws of Maryland
on December 27, 1983. Currently, the Income Fund consists of ten series, one of
which is the Acquiring Fund, each consisting of one class of shares. The
Acquiring Fund will hold no assets and will conduct no investment operations
prior to the consummation of the Fund Reorganization.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS. The Reorganized Fund and the
Acquired Trust have identical investment objectives: to seek as high a level of
interest income exempt from federal and California personal income tax as is
consistent with preservation of capital. The objective of the Acquiring Fund is
substantially similar: to seek as high a level of interest income exempt from
federal and California personal income tax as is consistent with reasonable
risk.
The Reorganized Fund and the Acquired Trust also have substantially
similar investment policies and restrictions. The investment policies and
restrictions of the Acquiring Fund have been simplified and made less
restrictive compared to those of the Reorganized Fund and the Acquired Trust 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 Reorganized Fund and the
Acquired Trust are classified as non-fundamental for the Acquiring Fund or made
significantly less restrictive. See "Comparative Information About the Funds --
Investment Objectives, Policies and Restrictions."
The portfolios of the Reorganized Fund and the Acquired Trust are
expected to be suitable for the Acquiring Fund, and so no significant
realignment of those portfolios is expected in connection with the
Reorganizations.
PURCHASES AND EXCHANGES. Shares of the Reorganized Fund and the Acquired Trust
are, and Class A and C Shares will be, available through certain authorized
dealers at the public offering price, which is the net asset value per share
plus, in the case of Class A shares, a one-time sales charge. Shares of the
Acquired Trust are, and Class C shares will be, subject to a contingent deferred
reimbursement charge equal to 1% of the lower of their cost or the net asset
value if redeemed for cash before the first anniversary of their purchase. See
"Information About the Reorganizations -- Shares of the Acquiring Fund."
Shareholders of the Reorganized Fund may now exchange their shares for shares of
up to 24 other funds and series in the Lord Abbett family of funds, and
shareholders of the Acquired Trust may now exchange their shares for shares of
the nine other series of the Securities Trust and for shares of Lord Abbett U.S.
Government Securities Money Market Fund, Inc. It is expected that holders of
Class A shares will be able to exchange their shares for Class A shares of up to
25 other funds and series managed by Lord Abbett and that holders of Class C
shares will be able to exchange their shares for
7
<PAGE>
Class C shares of up to 13 of such funds and series. 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 PLANS. The Reorganized Fund has adopted a plan pursuant to Section
12(b) of the 1940 Act and Rule 12b-1 thereunder (a "Rule 12b-1 Plan"), under
which it pays Lord Abbett (1) an annual service fee (payable quarterly) of 0.25%
of the average daily net asset value of shares sold, or attributable to shares
sold, by dealers and (2) a one-time 1% distribution fee, at the time of sale, on
all shares sold at the $1 million level by dealers, including sales qualifying
at such level under the rights of accumulation and statement of intention
privileges described in the Fund's prospectus in effect at such time, subject to
a contingent deferred reimbursement charge for up to 24 months. Lord Abbett is
required to pay these service and distribution fees to dealers to provide
additional incentives for the dealers (a) to provide continuing information and
investment services to their shareholder accounts and otherwise to encourage
their accounts to remain invested in the Reorganized Fund and (b) to sell its
shares.
As part of the Fund Reorganization, the Acquiring Fund is adopting a
new Rule 12b-1 Plan applicable to the Class A shares that will be similar to the
Reorganized Fund's Rule 12b-1 Plan. The principal change is that under the
proposed new Rule 12b-1 Plan for the Class A shares the Board of Directors will
be able to increase the amount of the total distribution fee up to 0.25% of the
Fund's average annual net assets. For a fuller description of the current Rule
12b-1 Plan of the Reorganized Fund and of the proposed new Rule 12b-1 Plan for
the A shares of the Acquiring Fund, see "Information About the Reorganizations
- - --Rule 12b-1 Plans."
The Acquired Trust has adopted 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 Trust
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 Trust's
Rule 12b-1 Plan, except as noted below under "Information About the
Reorganizations -- Rule 12b-1 Plans."
DIVIDEND POLICIES AND OPTIONS. The Reorganized Fund and the Acquired Trust
distribute net investment income monthly as dividends. They also may pay
supplemental dividends and capital gains distributions in December or January.
The Reorganized Fund also pays capital gains distributions in September. The
shareholders of each such Fund may reinvest such dividends and distributions in
additional shares at net asset value or take such amounts in cash. The
Acquiring Fund intends to continue these same practices, except that it does not
expect to pay any capital gains distributions in September or January.
REDEMPTION PROCEDURES. The redemption procedures of the Reorganized Fund and
the Acquired Trust are substantially the same. The Acquiring Fund will follow
the redemption procedures of the Reorganized Fund, which are described in the
Acquiring Fund Prospectus under "Redemptions."
TAX CONSIDERATIONS. The consummation of each Reorganization is subject to
receipt of an opinion of counsel substantially to the effect that, among other
things, such Reorganization will not cause a gain or loss to be recognized by
the Reorganized Fund or the Acquired Trust, as the case may be, or its
shareholders for federal income tax purposes. See "Information about the
Reorganizations--Federal Income Tax Considerations."
8
<PAGE>
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 Reorganized Fund and the Acquired Trust 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 Reorganized Fund and the
Acquired Trust. See "Comparative Information About the Funds -- Investment
Objectives, Policies and Restrictions" below.
INFORMATION ABOUT THE REORGANIZATIONS
THE PLANS. On July 12, 1996, assuming the conditions referred to below are
satisfied, the Reorganized Fund will transfer all of its assets to the Acquiring
Fund (the date of such transfer is referred to herein as the "Closing Date") in
exchange for (i) Class A shares of the Acquiring Fund having an aggregate net
asset value equal to the aggregate value of the assets, less liabilities, of the
Reorganized Fund and (ii) the assumption by the Acquiring Fund of all the
liabilities of the Reorganized Fund. The Reorganized Fund will distribute as of
the Closing Date such Class A 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 Reorganized Fund. Approval and consummation of the Trust
Reorganization are not conditions to the consummation of the Fund
Reorganization. Assuming the other conditions referred to below are satisfied,
the Fund Reorganization will occur regardless of whether the Trust
Reorganization is expected to occur.
Upon the consummation of the Fund Reorganization and on the Closing
Date, assuming the other conditions referred to below are satisfied, the
Acquired Trust will transfer all of its assets to the Acquiring Fund 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
Trust and (ii) the assumption by the Acquiring Fund of all the liabilities of
the Acquired Trust. The Acquired Trust 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 Trust.
The net asset values of the Class A shares and Class C shares and the
values of the assets and the amounts of the liabilities of the Reorganized Fund
and the Acquired Trust will be determined as of the Closing Date in accordance
with the valuation procedures set forth in the Acquiring 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
Reorganized Fund and the Acquired Trust.
The obligations of each of the Reorganized Fund and the Acquired Trust
to consummate the Reorganization to which it is to be a party are subject to the
satisfaction of certain conditions precedent, including (a) approval and
authorization of each Reorganization by the vote of not less than a majority of
the shares of the Reorganized Fund, outstanding and entitled to vote, or the
vote of a majority of the shares of the Acquired Trust voted in the matter if a
quorum is present, as the case may be, (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"),
9
<PAGE>
(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) approved by the shareholders of the Income
Fund of an amendment to its Articles of Incorporation authorizing the creation
of additional classes of shares.
The foregoing summary of the Plans 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 Plans, copies of which are attached as Exhibits
A(1) and (2).
REASONS FOR THE REORGANIZATIONS. The Board of Directors of the Reorganized Fund
and the Board of Trustees of the Securities Trust, as well as 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 any of the Funds or of Lord
Abbett, approved the respective Plans and Reorganizations on March 14, 1996. In
this connection, the boards determined that participation in the proposed
Reorganizations is in the best interests of the shareholders of the respective
Funds and that the interests of existing shareholders of the Funds will not be
diluted as a result of their respective Reorganizations. In doing so, the board
of the Reorganized Fund considered the administrative efficiencies that should
flow to the Reorganized Fund as a result of its being a series of a larger
investment company. In addition, the boards of the Funds considered several
factors, including that (a) the shareholders of the Acquired Trust are expected
to benefit on a long-term basis from economies of scale as shareholders of the
larger Acquiring Fund following the Reorganizations, 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 imple mented or are seeking to implement
similar distribution arrangements.
The directors of the Income Fund, the trustees of the Securities Trust
and the directors of the Reorganized Fund are the same individuals.
SHARES OF THE ACQUIRING FUND. On or before the Closing Date, the Acquiring Fund
will have two classes of shares, Class A shares (to be received by the
shareholders of the Reorganized Fund in the Fund Reorganization) and Class C
shares (to be received by the shareholders of the Acquired Trust in the Trust
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 various classes and
certain other class specific expenses. See "Rule 12b-1 Plans" below.
After the Fund Reorganization, Class A shares will be offered to the
public at net asset value subject to an initial sales charge identical to the
sales charge currently imposed on sales of the Reorganized Fund shares, as
follows:
10
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE AS A DEALER'S CON TO COMPUTE
PERCENTAGE OF: CESSION AS A OFFERING
-------------------------------
PERCENTAGE OF PRICE, DIVIDE
NET AMOUNT OFFERING NAV BY
SIZE OF INVESTMENT OFFERING PRICE INVESTED PRICE*
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.00% .9525
- - ----------------------------------------------------------------------------------------------------
$50,000 to $99,999 4.75% 4.99% 4.25% .9525
- - ----------------------------------------------------------------------------------------------------
$100,000 to $249,999 3.75% 3.90% 3.25% .9625
- - ----------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.75% 2.83% 2.50% .9725
- - ----------------------------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75% .9800
- - ----------------------------------------------------------------------------------------------------
$1,000,000 or more No Sales Charge** 1.00% 1.0000
- - ----------------------------------------------------------------------------------------------------
</TABLE>
* Lord Abbett may, for specified periods, allow dealers to retain the
full sales charge for sales of shares during such periods, or pay an
additional concession to a dealer who, during a specified period,
sells a minimum dollar amount of our shares and/or shares of other
Lord Abbett-sponsored funds. In some instances, such additional
concessions will be offered only to certain dealers expected to sell
significant amounts of shares. Lord Abbett may, from time to time,
implement promotions under which Lord Abbett will pay a fee to dealers
with respect to certain purchases not involving the imposition of a
sales charge. Additional payments may be paid from Lord Abbett's own
resources and will be made in the form of cash or, if permitted, non-
cash payments. The non-cash payments will include business seminars at
resorts or other locations, including meals and entertainment, or the
receipt of merchandise. The cash payments will include payment of
various business expenses of the dealer.
** As disclosed in the Acquiring Fund Prospectus, other sales in certain
categories are made at net asset without a sales charge.
Subject to some exceptions, Class A shares sold without any sales
charge will be subject to a contingent deferred reimbursement charge (a "CDRC")
of up to 1% of the lower of their cost or their net asset value if they are
redeemed from the Lord Abbett-sponsored family of funds within 24 months after
the month of purchase. See "12b-1 Plans" below. Holding periods for shares
purchased prior to the Fund Reorganization will carry over for the purpose of
determining the applicability of the CDRC to Class A shares.
After the Trust 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 their purchase, will be subject to a CDRC equal to 1% of
the lower of their cost or then net asset value. Holding periods for shares
purchased prior to the Trust Reorganization will carry over for the purpose of
determining the applicability of the CDRC to Class C shares.
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.
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
11
<PAGE>
class or classes. Shares of the Acquiring Fund will vote together with shares
of other series of Income Fund on all matters affecting the Income Fund, except
for matters, such as approval of an investment management agreement, affecting
only one or more particular series. All shares voting on a matter will have
identical voting rights. All issued shares of the Acquiring Fund will be fully
paid and non-assessable, and shareholders will have no preemptive or other right
to subscribe to any additional shares. Shares of all classes of the Acquiring
Fund 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. Class A Rule 12b-1 Plan. As part of the Fund Reorganization,
the Acquiring Fund is adopting a Rule 12b-1 plan applicable to the Class A
shares (the "Class A 12b-1 Plan") that will be similar to the plan currently in
effect for the Reorganized Fund. A copy of the Class A 12b-1 Plan is attached
as Exhibit B to this Proxy Statement and Prospectus. Under the Reorganized
Fund's current plan (except as to certain accounts for which tracking data is
not available), the Fund pays dealers through Lord Abbett (1) an annual service
fee (payable quarterly) of 0.25% of the average daily net asset value of shares
sold, or attributable to shares sold, by dealers and (2) a one-time 1%
distribution fee, at the time of sale, on all shares sold at the $1 million
level by dealers, including sales qualifying at such level under the rights of
accumulation and statement of intention privileges described in the Reorganized
Fund's prospectus in effect at such time. These service and distribution fees
provide additional incentives paid to dealers (a) to provide continuing
information and investment services to their shareholder accounts and otherwise
to encourage their accounts to remain invested in the Reorganized Fund and (b)
to sell shares of the Reorganized Fund.
Under the current plan of the Reorganized Fund, holders of shares on
which the 1% distribution fee has been paid are required to pay to the
Reorganized Fund a CDRC, or contingent deferred reimbursement charge, of 1% of
the original cost or the then net asset value, whichever is less, of such shares
if they are redeemed out of the Lord Abbett-sponsored family of funds on or
before the end of the twenty-fourth month after the month in which the purchase
occurred. (An exception is made for certain redemptions by tax-qualified plans
under Section 401 of the Internal Revenue Code due to plan loans, hardship
withdrawals, death, retirement or separation from service with respect to plan
participants.) If the shares are 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 is collected for the Reorganized Fund by the
other fund. The Reorganized Fund collects such a charge for other Lord Abbett-
sponsored funds in a similar situation.
Set forth below is a description of the principal changes to be
effected under the proposed Class A 12b-1 Plan:
(a) Distribution Fees. The Board of Directors of the Income Fund will
-----------------
be authorized under the Class A 12b-1 Plan, without further shareholder vote, to
increase the amount of distribution fees up to 0.25% of the average annual net
assets attributable to the Class A shares. This increased spending limit is
intended primarily to permit the trustees to increase the amount to be spent for
distribution to meet changing sales competition. The directors believe it is
desirable to be able to make these changes without further shareholder approval
because additional shareholder meetings would be costly to the Acquiring Fund
and its shareholders and the time required for such meetings could delay the
implementation of advantageous changes. The Board of Directors will approve
additional charges under
12
<PAGE>
this increased authority only if a majority of the directors who are not
"interested persons" of the Income Fund within the meaning of the 1940 Act and
who will have no direct or indirect financial interest in the operations of the
Class A 12b-1 Plan or in any agreements related thereto conclude in their
business judgment that there is a reasonable likelihood that the increase will
benefit the Acquiring Fund and its shareholders.
The one-time 1% distribution fee, payable at the time of certain sales
as described above, is to be charged against the 0.25% permitted annual
distribution fee. During the Reorganized Fund's last fiscal year, payments of
the one-time 1% distribution fee under that Fund's Rule 12b-1 plan totaled 0.__%
of the Reorganized Fund's average net assets. Subject to approval of the Fund
Reorganization by the shareholders of the Reorganized Fund, the Board of
Directors of the Income Fund has authorized the Acquiring Fund to pay this one-
time distribution fee with respect to sales of Class A shares, subject to three
changes: First, the payments will be made in connection with sales to
-----
retirement plans with 100 or more eligible employees, in addition to sales at
the $1 million level as under the Reorganized Fund's 12b-1 plan; Second, the
------
payments will be reduced as follows: 1.0% of the first $5 million, 0.55% of the
next $5 million, 0.50% of the next $40 million and 0.25% over $50 million of
shares sold to a retirement plan or other qualifying purchaser within a 12-month
period (beginning when the first purchase is made at net asset value); and
Third, the payments will be made to 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 Reorganized
Fund's Rule 12b-1 plan.
Subject to such approval of the Fund Reorganization, the Income Fund's
Board of Directors has authorized the Acquiring Fund to pay, as an additional
distribution fee, a modest supplemental payment to dealers who have accounts
comprising a significant percentage of the Acquiring Fund's Class A share
assets, having a lower than average redemption rate and who have a satisfactory
program for the promotion of Class A shares. Any such payments will be 0.10%
per annum of the average assets of the Acquiring Fund represented by the Class A
share accounts of qualifying dealers. This supplemental payment is intended by
the Board of Directors to enhance the Acquiring Fund's relationships with those
dealers most likely to have a significant impact on the growth of the Class A
shares.
(b) Service Fees. Service fee payments, which are to be continued
------------
under the proposed Class A 12b-1 Plan at an annual rate of 0.25% of the average
daily net asset value of the Class A shares could be made to all Authorized
Institutions (institutions and persons permitted by applicable law and/or rules
to receive such payments), rather than just to dealers as is the case under the
Reorganized Fund's plan.
(c) Use of Payments by Lord Abbett. Lord Abbett will be permitted to
------------------------------
use payments received under the Class A 12b-1 Plan to provide continuing
services to shareholder accounts not serviced by Authorized Institutions and,
with board approval, to finance any activity which is primarily intended to
result in the sale of Class A shares. Any such payments to finance activities
primarily intended to result in the sale of Class A shares would be subject to
the overall ceiling of 0.25% for annual distribution fees.
(d) CDRC. The Board of Directors of the Income Fund has approved a
----
CDRC applicable to the Class A 12b-1 shares substantially similar to the CDRC
payable under the Rule 12b-1 Plan of the Reorganized Fund, except that no CDRC
would be payable in connection with redemptions by retirement plans (not just
those qualified under Section 401 of the Internal Revenue Code) attributable to
any benefit
13
<PAGE>
payment or distribution of any excess contribution thereunder (not just those
described above in connection with such exception under the Reorganized Fund's
plan). Because CDRC payments will be made directly to the Acquiring Fund, they
will have the effect of reducing the amount of the distribution fees paid by the
Acquiring Fund for the purpose of complying with the overall ceiling of 0.25%
for annual distribution fees. As in the case of the specific distribution fees
authorized by the Board of Directors of the Income Fund, the CDRC authorized
from time to time by the board for the Class A shares will be described in the
then current prospectus of the Income Fund.
If the supplemental payment to dealers, the revised one-time
distribution fee and the other changes described above had been in effect for
the Reorganized Fund's last fiscal year, it is estimated that, in the aggregate,
they would have increased the expense ratio of the Reorganized Fund from 0.__%
to approximately 0.__%, a difference of 0.__%.
(e) Lord Abbett Distributor. The other party to the Class A 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. Lord Abbett Distributor is to take on all the underwriting
functions currently performed directly by Lord Abbett.
The Class A 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 within the meaning of the 1940 Act and
who will have no direct or indirect financial interest in the operations of the
Class A 12b-1 Plan or in any agreements related thereto. In considering whether
to approve the Class A 12b-1 Plan, the directors considered, among other things,
the factors set forth below:
(i) Flexibility in Adapting Distribution Fees to Meet Industry-Wide
---------------------------------------------------------------
Changes. During the last several years, there has been significantly
-------
increased competition and pricing experimentation in the mutual fund
industry. As the pace of change increases, the Board of Directors believes
it will be useful to be able to respond more quickly to marketplace
pressures, and to change in appropriate cases the amount of the
Class A 12b-1 distribution fees to be paid, without unnecessarily burdening
the shareholders with the costs of additional proxy solicitations. The
directors believe that the increased distribution fees described above are
good examples of the desirability of this flexibility. Based on advice
received from Lord Abbett, the decision by the board to approve the payment
of distribution fees in connection with sales to retirement plans with 100
or more eligible employees will enable the Class A shares to compete more
effectively in this growing and important market. The 0.10% per annum
supplemental payments to dealers who meet certain criteria will permit the
Acquiring Fund to enhance relationships with those dealers most likely to
have a significant impact on the growth of the Class A shares.
(ii) Expanding Categories of Persons Eligible to Receive Payments. The
------------------------------------------------------------
current Rule 12b-1 Plan of the Reorganized Fund limits payments thereunder
to dealers selling fund shares. Since that plan was adopted, different
methods of distribution, using different entities, have developed in the
industry. The Board of Directors sees no reason to limit arbitrarily the
categories of persons eligible to receive payments under the proposed plan,
and believes that the availability of payments under the plan will induce
such other entities to invest in Class A shares.
14
<PAGE>
(iii) Flexibility in Distributor's Use of Payments. Lord Abbett has
--------------------------------------------
advised the Board of Directors that allowing Lord Abbett Distributor to
retain fees received from the Fund to (i) provide continuing information
and investment services to shareholder accounts and (ii) finance, with
board approval, any activity which is primarily intended to result in the
sale of Class A shares will provide useful flexibility and will be in line
with common practice in the industry.
Prior to the Fund Reorganization, the Reorganized Fund will purchase
one Class A share, and as sole shareholder of the Acquiring Fund, will approve
the Class A 12b-1 Plan prior to the class being issued to the Reorganized Fund
in the Fund Reorganization. A vote in favor of the Fund Reorganization will be
deemed also to be a vote to authorize the Reorganized Fund to take such action.
Class C Rule 12b-1 Plan. 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 Trust. The Acquired Trust'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 Trust Prospectus under "Purchases" for additional
information concerning the Rule 12b-1 Plan of the Acquired Trust.
There are two substantive changes in the Class C 12b-1 Plan: First,
-----
payment under the plan may be made to all Authorized Institutions (institutions
and persons permitted by applicable law and/or rules to receive such payments),
rather than just to dealers, as is the case under the Acquired Trust's Rule 12b-
1 plan; and Second, the other party to the Class C 12b-1 Plan is to be Lord
------
Abbett Distributor (a New York limited liability company to be formed as a
subsidiary of Lord Abbett), rather than Lord Abbett itself. Lord Abbett
Distributor will take on all the underwriting functions currently performed
directly by Lord Abbett.
The Class C 12b-1 Plan was approved on March 14, 1996 by the directors
of the Income Fund, including a majority of the trustees who are not "interested
persons" of the Income 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 Trust Reorganization, the Acquired
Trust 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 Trust in the
Trust Reorganization. A vote in favor of the Trust Reorganization will be deemed
also to be a vote to authorize the Acquiring Trust to take such action.
FEDERAL INCOME TAX CONSIDERATIONS. The consummation of each Reorganization is
conditioned upon the receipt of an opinion of Debevoise & Plimpton, legal
counsel to the Funds, regarding the Federal income tax consequences of that
Reorganization substantially to the effect that, for Federal income tax
purposes:
15
<PAGE>
(a) no gain or loss will be recognized by the Reorganized Fund or the
Acquired Trust, as the case may be, upon the transfer of its assets to the
Acquiring Fund in exchange for Class A shares or Class C shares, as the
case may be, and the assumption by the Acquiring Fund of its liabilities or
upon the distribution of the Class A shares or the Class C shares, as the
case may be, to its shareholders;
(b) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Reorganized Fund or the Acquired Trust, as the
case may be, in exchange for Class A shares or Class C shares, as the case
may be, and the assumption by the Acquiring Fund of the liabilities of the
Reorganized Fund or the Acquired Trust, as the case may be;
(c) no gain or loss will be recognized by shareholders of the
Reorganized Fund or the Acquired Trust, as the case may be, upon the
exchange of their shares for Class A shares or Class C shares;
(d) the aggregate tax basis of the Class A shares received by any
Reorganized Fund shareholder or of the Class C shares received by any
Acquired Trust shareholder pursuant to the Reorganizations will be the same
as the aggregate tax basis of the Reorganized Fund or Acquired Trust shares
held by such shareholder immediately prior to the Reorganizations, and the
holding period for the Class A shares or Class C shares to be received by
any such shareholder will include the period during which the shares
exchanged therefor were held by such shareholder (provided that such shares
are held as capital assets on the date of the Reorganizations); and
(e) the tax basis of the assets of the Reorganized Fund or the
Acquired Trust acquired by the Acquiring Fund will be the same as the tax
basis of such assets to the Reorganized Fund or the Acquired Trust, as the
case may be, immediately prior to the Reorganizations, and the holding
period of such assets in the hands of the Acquiring Fund will include the
period during which those assets were held by the Reorganized Fund or the
Acquired Trust, as the case may be.
The Funds have not sought a tax ruling from the Internal Revenue
Service with respect to the tax consequences of the Reorganizations, 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 Reorganizations, shareholders
should also consult their tax advisors as to any state or local tax consequences
of the Reorganizations to them and any special considerations that may apply in
their individual circumstances.
EXPENSES OF THE REORGANIZATIONS. Expenses of the Reorganizations, 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 Reorganizations are consummated, the respective expenses of the
Reorganized Fund and the Acquired Trust, 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 those Funds for the purpose of calculating the
numbers of Class A and Class C shares to be issued in the Reorganizations.
CAPITALIZATION. The following table sets forth the capitalization of the
Reorganized Fund and the Acquired Trust as of December 31, 1995, and the pro-
forma capitalization of the Acquiring Fund as if the Reorganizations had
occurred on that date:
16
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------
CLASS A
ACQUIRING CLASS C
REORGANIZED FUND ACQUIRING FUND
FUND ACQUIRED TRUST (PRO-FORMA - (PRO-FORMA -
(UNAUDITED) (UNAUDITED) UNAUDITED) UNAUDITED)
----------- ----------- ----------- ----------
- - ---------------------------------------------------------------------------------------------
(In thousands, except per share values)
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Assets.................. $ 301,747 $ 16,943 $ 301,747 $ 16,943
- - ---------------------------------------------------------------------------------------------
Net Asset Value per Share... 10.75 4.61 10.75 10.75
- - ---------------------------------------------------------------------------------------------
Shares Outstanding 28,058 3,764 28,058 1,575
- - ---------------------------------------------------------------------------------------------
</TABLE>
The exchange ratio of Class A shares for Reorganized Fund shares is to
be one for one. The foregoing table reflects a pro-forma exchange ratio of
approximately 0.4 Class C shares for each Acquired Trust share. If the Trust
Reorganization is consummated, the actual exchange ratio of Class C and Acquired
Trust shares may vary from this pro-forma ratio due to changes in the market
value of the portfolio securities of both the Reorganized Fund and the Acquired
Trust between December 31, 1995 and the Closing Date, and changes in the amounts
of undistributed net investment income and accrued liabilities of the
Reorganized Fund and the Acquired Trust during that period.
COMPARATIVE INFORMATION ABOUT THE FUNDS
MANAGEMENT AGREEMENTS. Upon consummation of the Reorganizations, an investment
management agreement between the Acquiring Fund and Lord Abbett will become
effective with terms that are substantially the same as those currently in
effect between the Reorganized Fund and Lord Abbett and between the Acquired
Fund and Lord Abbett. The Reorganized Fund's ratio of management fee expenses
to average net assets for the year ended August 31, 1995 was 0.40%. The
Acquired Trust's ratio of management fee expenses to average net assets for the
year ended October 31, 1995 was 0.0%. This fee rate reflects a waiver of
management fees. The management agreement provides for the Acquired Trust to
repay Lord Abbett without interest for any expenses of the Acquired Trust paid
or reimbursed by Lord Abbett, as follows: if the Acquired Trust'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 Trust first reach $50
million (the "commencement date"), the Acquired Trust will repay Lord Abbett an
amount sufficient to increase the expense ratio to 1.95%. The Acquired Trust 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 commence
ment date. The contingent obligation to repay such expenses, which totaled
$88,271 as of December 31, 1995, will be extinguished upon the consummation of
the Reorganization. A vote in favor of the Fund Reorganization by a shareholder
of the Reorganized Fund will be deemed also to be a vote to authorize the
Reorganized Fund to approve the new investment management agreement between the
Acquiring Fund and Lord Abbett. (See "Meetings of Shareholders of the
Reorganized Fund and the Securities Trust.")
FEES AND EXPENSES. As shown above under "Fee Tables," the pro-forma expense
ratios of the Class C Shares for the year ended October 31, 1995, calculated as
if the Reorganizations had occurred at the beginning of such year, was 1.53%,
compared to 0.93% for the Acquired Trust. If Lord Abbett had not waived its
management fee and subsidized expenses for the Acquired Trust, the Acquired
Trust's expense
17
<PAGE>
ratio for such year would have been 1.67%. The pro forma expense ratio of the
Class A shares for the year ended August 31, 1995, calculated as if the
Reorganizations had occurred at the beginning of such year, was 0.87%, compared
to 0.76% for the Reorganized Fund.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The Reorganized Fund and the
Acquired Trust have identical investment objectives: to seek as high a level of
interest income exempt from federal and California personal 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 and California personal income tax as is consistent with reasonable
risk. The Reorganized Fund and the Acquired Fund seek their objectives by
investing primarily in intermediate- and long-term municipal bonds. See the
Acquiring Fund Prospectus under "How We Invest" for a description of U.S.
Government securities.
The Reorganized Fund and the Acquired Trust also have substantially
the same investment policies and restrictions. The investment policies and
restrictions of the Acquiring Fund, compared to those of the Reorganized Fund
and the Acquired Trust, have been simplified and made less restrictive in order
to provide greater flexibility in managing the investment portfolio of the
Acquiring Fund. A number of the investment policies and restrictions that are
classified as fundamental for the Reorganized Fund and the Acquired Trust are
classified as non-fundamental for the Acquiring Fund. In other instances,
certain fundamental restrictions of the Reorganized Fund and the Acquired Trust
have been modified or eliminated in the case of the Acquiring Fund. Fundamental
investment restrictions may not be changed without approval of the stockholders
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
stockholders, 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
either or both of the Reorganized Fund and the Acquired Trust: (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, borrowings of an additional 5% of total assets for temporary purposes
and such short-term credits as may be necessary for the clearance of purchases
and sales of portfolio securities; (iii) loans of portfolio securities in
accordance with applicable law; (iv) 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; (v) investments of more than 10% (up to 15%) of assets in restricted
securities; (vi) pledges to secure borrowings or in connection with hedging
transactions and other investment strategies; (vii) investments in the
securities of other investment companies; and (viii) purchases and sales of put,
call, straddle or spread options. 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 investment policies and restrictions of
the Acquiring Fund, the Reorganized Fund and the Acquired Trust is set forth in
Exhibit C to this Proxy Statement and Prospectus. For a full discussion 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
18
<PAGE>
full discussion of the investment objectives, policies and restrictions of the
Reorganized Fund and the Acquired Trust, see "Investment Objective" and "How We
Invest" in the Reorganized Fund Prospectus and the Acquired Trust Prospectus,
respectively, and "Investment Objective and Policies" in the Reorganized Fund
Statement of Additional Information and Acquired Trust Statement of Additional
Information, respectively. The summary comparison set forth in Exhibit C 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 shareholders of the Reorganized Fund
and the Acquired Trust will not change in an adverse way as a result of the
Reorganizations. After the Reorganizations, the rights of the former
shareholders of the Reorganized Trust and the Acquired Trust will be governed by
the Income Fund's Articles of Incorporation, By-Laws and applicable Maryland
law. Prior to the Fund Reorganization, the rights of the shareholders of the
Reorganized Fund are governed by the Articles of Incorporation and By-Laws of
the Reorganized Fund and applicable Maryland law. Prior to the Trust
Reorganization, the rights of the shareholders of the Acquired Trust are
governed by the Declaration of Trust and By-Laws of the Securities Trust 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 Reorganized Fund and Board of
Trustees of the Acquired Trust are comprised of the same individuals as the
current Board of Directors of the Income Fund. The responsibilities and
fiduciary duties of the directors of the Acquiring Fund are substantially the
same as those of the directors of the Reorganized Fund and the trustees of the
Acquired Trust. The Acquiring Fund's and the Reorganized Fund's By-Laws provide
for indemnification of the directors for actual liabilities arising out of their
service in their capacity as directors, subject only to the conditions and
limitations of applicable law. The Securities 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 not to have acted in good faith in the reasonable belief that his or
her action was in the best interest of such Trust, (ii) any liability by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of
duties or (iii) any matter disposed of by settlement, compromise or consent
decree, unless it is in the best interests of such trust or if said trustee
acted in good faith in the reasonable belief that such act was in the best
interests of the trust. Income Fund and Reorganized Fund shareholders may
remove, with or without cause, any director by the affirmative vote of a
majority of the votes cast. Securities Trust shareholders may remove a trustee
by the vote of shareholders of record of not less than two-thirds.
Neither the Reorganized Fund, the Acquired Trust nor the Income Fund
regularly holds shareholder meetings. The By-laws of each of the 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 Reorganized Fund and the Acquired Trust and of the rights these
shareholders will have following the Reorganizations as holders of Class A
shares and Class C shares of the Acquiring Fund. It is not a complete
description of the Articles of Incorporation of the Income Fund and the
Reorganized Fund, the Declaration of Trust of the Acquired Trust, the By-Laws of
any of the Funds or the applicable Maryland or Delaware law.
19
<PAGE>
Shareholders desiring additional information about those documents and
provisions of law should refer to such Articles of Incorporation, Declaration of
Trust, By-Laws and provisions.
The Board of Directors of the Reorganized Fund recommends that
shareholders of the Reorganized Fund vote FOR approval of the Fund Plan and the
Fund Reorganization, and the Board of Trustees of the Securities Trust
recommends that shareholders of the Acquired Trust vote FOR approval of the
Trust Plan and the Trust Reorganization.
ITEM 2. - FOR REORGANIZED FUND SHAREHOLDERS ONLY
The Board of Directors of the Reorganized Fund believes that it is
important to ensure continuity of operation of the Reorganized Fund in the event
that the Fund Reorganization is not consummated. Accordingly, the Board has
determined that: (i) the persons who currently constitute the Board of Directors
of the Reorganized Fund should stand for re-election, for a term of office to
extend until their successors are elected and qualified, and (ii) the selection
of Deloitte & Touche LLP as the independent public accountants of the
Reorganized Fund should be submitted to shareholders for ratification, as
required by the 1940 Act if the Reorganized Fund continues to engage in business
as an investment company.
A. ELECTION OF DIRECTORS OF THE REORGANIZED FUND
The nominees for election as directors of the Reorganized Fund are
Ronald P. Lynch, Robert S. Dow, E. Thayer Bigelow, Stewart S. Dixon, John C.
Jansing, C. Alan MacDonald, Hansel B. Millican, Jr. and Thomas J. Neff, who have
been nominated by the Board of Directors to succeed themselves. The individuals
named as proxies intend to vote the proxies, unless otherwise directed, in favor
of the election of such nominees, each of whom has agreed to continue to serve
as a director of the Reorganized Fund. Management of the Reorganized Fund has no
reason to believe that any nominee will be unable to serve as a director. If any
nominee should be unable to serve as a director, it is the intention of the
individuals named as proxies to vote for the election of such person or persons
as the Board of Directors may, in its discretion, recommend.
Information about each person nominated for election as a director is
set forth in the following table. Except where indicated, each of the persons
listed in the table has held the principal occupation listed opposite his name
for the past five years.
<TABLE>
<CAPTION>
Names and Ages of Director of the
Directors of the Fund Principal Occupation and Directorships Fund Since
------------------------ ------------------------------------------ -------------------
<S> <C> <C>
Ronald P. Lynch (1)(2) Chairman of the Board of the Reorganized 1985
60 Fund.
Partner of Lord Abbett.
Robert S. Dow (1)(2) President of the Reorganized Fund. 1985
50 Partner of Lord Abbett.
</TABLE>
20
<PAGE>
<TABLE>
Names and Ages of Director of the
Directors of the Fund Principal Occupation and Directorships Fund Since
------------------------ ------------------------------------------ -------------------
<S> <C> <C>
E. Thayer Bigelow President and Chief Executive Officer of 1994
(2) 54 Time Warner Cable Programming, Inc.,
formerly President and Chief Operating
Officer of Home Box Office, Inc.
Stewart S. Dixon (2) Partner in the law firm of Wildman, 1985
65 Harrold, Allen & Dixon.
John C. Jansing (2) Retired. Former Chairman of Independent 1985
70 Election Corporation of America, a proxy
tabulating firm.
C. Alan MacDonald (2) General Partner, The Marketing Partner- 1988
62 ship, Inc., a full service marketing
consulting firm. Formerly Chairman and
Chief Executive Officer of Lincoln Snacks,
Inc., manufacturer of branded snack foods
(1992-1994). Formerly President & CEO
of Nestle Foods Corp., and prior to that,
President & CEO of Stouffer Foods Corp.,
both subsidiaries of Nestle SA,
Switzerland. Currently serves as
Director of Den West Restaurant Co., J.
B. Williams, and Fountainhead Water
Company.
Hansel B. Millican, Jr. (2) President and Chief Executive Officer of 1988
66 Rochester Button Company.
Thomas J. Neff (2) President, Spencer Stuart & Associates, an 1985
58 executive search consulting firm.
</TABLE>
____________________________
(1) "Interested person" of the Reorganized Fund and Lord Abbett, within the
meaning of the Investment Company Act of 1940, as amended, because of his
association with Lord Abbett.
(2) Also a director or trustee of the other Lord Abbett-sponsored funds except
for Lord Abbett Research Fund, Inc., of which only Messrs. Lynch, Dow,
Millican and Neff are directors.
Listed below is the number of shares of the Reorganized Fund's
outstanding capital stock owned beneficially by each director as of December 31,
1995, together with the number of "phantom" shares credited to the account of
each director under a plan (the "Deferred Plan") permitting independent
directors to defer their directors' fees and to have the deferred amounts deemed
invested in shares of the capital stock of the Reorganized Fund for later
payment. Also shown is the number of shares owned beneficially by the directors
and officers as a group, together with such "phantom" shares credited to the
accounts of directors and officers as a group. In each case, the amounts shown
are less than 1% of the Reorganized Fund's outstanding capital stock.
21
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Beneficially
Name Owned and Phantom Shares/(1)/
--------------------------- -------------------------------------
<S> <C>
Ronald P. Lynch --
Robert S. Dow --
E. Thayer Bigelow 94
Stewart S. Dixon 2,047
John C. Jansing 2,101
C. Alan MacDonald 928
Hansel B. Millican, Jr. 2,099
Thomas J. Neff 2,154
Directors and Officers as a
group 40,591
</TABLE>
___________________
(1) Of the shares listed in the foregoing table, the following constitute
"phantom" shares credited to directors under the Deferred Plan: Mr.
Bigelow, 94 shares; Mr. Dixon, 2,047 shares; Mr. Jansing, 2,101 shares; Mr.
MacDonald, 928 shares; Mr. Millican, 2,099 shares; Mr. Neff, 2,154 shares;
and directors and officers as a group: 9,423.
The board of the Reorganized Fund has only one standing committee, an
Audit Committee, consisting of Messrs. Bigelow, MacDonald and Millican. The
functions performed by the Audit Committee include recommendation of the
selection of independent public accountants for the Reorganized Fund to the
Board for approval, review of the scope and results of audit and non-audit
services, the adequacy of internal controls and material changes in accounting
principles and practices and other matters when requested from time to time by
the directors who are not "interested persons" of the Reorganized Fund within
the meaning of the 1940 Act. The Audit Committee held four meetings during the
fiscal year of the Reorganized Fund ended August 31, 1995.
The Board of Directors of the Reorganized Fund met [eleven] times
during the fiscal year ended August 31, 1995, and each director attended at
least 75% of the total number of meetings of the Board and, if he was a member
of the Audit Committee, of such committee.
The second column of the following table sets forth the compensation
accrued by the Reorganized Fund for the Directors not associated with Lord
Abbett. The third and fourth columns set forth information with respect to the
retirement plan for the directors not associated with Lord Abbett maintained by
the Reorganized Fund and the other Lord Abbett-sponsored funds. The fifth
column sets forth the total compensation accrued by the Reorganized Fund and
such other funds for such directors. The second, third and fourth columns give
information for the Reorganized Fund's most recent fiscal year; the fifth column
gives information for the calendar year ended December 31, 1995. No director
22
<PAGE>
associated with Lord Abbett and no officer of the Reorganized Fund received any
compensation from the Reorganized Fund for acting as a director or officer.
<TABLE>
<CAPTION>
For Year Ended
For the Fiscal Year Ended August 31, 1995 December 31, 1995
-------------------------------------------------------------- ---------------------
(I) (II) (III) (IV) (V)
- - --------------------------- -------------------- -------------------- ------------------ ---------------------
Pension or Estimated Annual
Retirement Benefits Benefits Upon
Accrued by Retirement Proposed Total Compensation
Reorganized to be Paid by the Accrued by the
Aggregate Com- Fund and Fifteen Reorganized Fund Reorganized Fund and
pensation Ac- Other Lord and Fifteen Other Fifteen Other Lord
crued by the Re- Abbett-sponsored Lord Abbett- Abbett-sponsored
Name of Director organized Fund/1/ Funds/2/ sponsored Funds/2/ Funds/3/
- - --------------------------- -------------------- -------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
E. Thayer Bigelow/4/ $ 830 $ 9,772 $ 33,600 $ 41,700
Thomas F. Creamer/5/ $ --- $ 26,084 $ 33,600 $ 29,650
Stewart S. Dixon $ 1,085 $ 22,472 $ 33,600 $ 42,000
John C. Jansing $ 1,085 $ 28,480 $ 33,600 $ 42,960
C. Alan MacDonald $ 1,060 $ 27,435 $ 33,600 $ 42,750
Hansel B. Millican, Jr. $ 1,073 $ 24,707 $ 33,600 $ 43,000
Thomas J. Neff $ 1,053 $ 16,126 $ 33,600 $ 42,000
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Fees for directors not associated with Lord Abbett, including attendance
fees for board and committee meetings, are allocated among all Lord Abbett-
sponsored funds based on net assets of each fund. Fees payable by the
Reorganized Fund to such directors are being deferred under a plan that
deems the deferred amounts to be invested in shares of the Reorganized Fund
for later payment to the directors. The total amount accrued under the plan
for each such director since the beginning of his tenure with the
Reorganized Fund, including dividends reinvested and changes in net asset
value applicable to such deemed investments, were as follows as of August
31, 1995: Mr. Bigelow, $876; Mr. Dixon, $20,872; Mr. Jansing, $21,669; Mr.
MacDonald, $9,464; Mr. Millican, $21,645; and Mr. Neff, $20,872.
(2) Each Lord Abbett-sponsored fund has a retirement plan providing that
Directors not associated with Lord Abbett will receive annual retirement
benefits for life equal to 80% of their final annual retainers following
retirement at or after age 72 with at least 10 years of service. Each plan
also provides for a reduced benefit upon early retirement under certain
circumstances, a pre-retirement death benefit and actuarially reduced
joint-and-survivor spousal benefits. The amounts stated in column (IV)
would be payable annually under such retirement plans if the director were
to retire at age 72 and the annual retainers payable by such funds were the
same as they are today. The amounts set forth in column (III) were
23
<PAGE>
accrued by the Lord Abbett-sponsored funds during the fiscal year ended
August 31, 1995 with respect to the retirement benefits set forth in column
(IV).
(3) This column shows aggregate fees of directors who are not "interested
persons" of the Reorganized Fund within the meaning of the 1940 Act,
including attendance fees for board and committee meetings, of a nature
referred to in the first sentence of footnote (1), accrued by the Lord
Abbett-sponsored funds during the year ended December 31, 1995.
(4) Mr. Bigelow was elected a director of the Fund on October 19, 1994.
(5) Mr. Creamer retired as a director of the Fund effective September 21, 1994.
The stated amount of his retirement income (column iv) is the annual amount
payable to him by the Lord Abbett-sponsored funds before reduction for a
joint-and-survivor spousal benefit.
Listed below are the executive officers of the Reorganized Fund, other
than Messrs. Lynch and Dow who are listed above in the table of nominees. Each
executive officer has been associated with Lord Abbett for over five years,
except as indicated. Messrs. Allen, Carper, Cutler, Henderson, Morris, Nordberg
and Walsh are partners of Lord Abbett; the others listed below are employees.
Stephen I. Allen, age 42, Vice President since 1994.
Daniel E. Carper, age 44, Vice President since 1986.
Kenneth B. Cutler, age 63, Vice President and Secretary since 1985.
John J. Gargana, Jr., age 64, Vice President since 1985.
Thomas S. Henderson, age 64, Vice President since 1985.
Paul A. Hilstad, age 53, Vice President since 1995 (with Lord Abbett since 1995
- - - formerly Senior Vice President and General Counsel of American Capital
Management & Research, Inc.).
Thomas F. Konop, age 53, Vice President since 1987.
E. Wayne Nordberg, age 59, Vice President since 1988.
Robert G. Morris, age 51, Vice President since 1995.
Keith F. O'Connor, age 40, Treasurer since 1987.
Barbara A. Grummel, age 39, Executive Vice President since 1994.
Victor W. Pizzolato, age 63, Vice President since 1985.
John J. Walsh, age 59, Vice President since 1985.
24
<PAGE>
The Board of Directors of the Reorganized Fund recommends that the
shareholders vote FOR the election of each of the nominees as directors of the
Reorganized Fund.
25
<PAGE>
B. RATIFICATION OR REJECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Reorganized Fund has selected Deloitte &
Touche LLP as the independent public accountants of the Reorganized Fund for the
fiscal year ending August 31, 1996. The 1940 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 Reorganized Fund's independent public accountants for the
year ended August 31, 1995, and for a number of years prior thereto. Based on
information in the possession of the Reorganized Fund, and information furnished
by Deloitte & Touche LLP, such firm has no direct financial interest and no
material indirect financial interest in the Reorganized Fund. A representative
of Deloitte & Touche LLP is expected to attend the meeting and will be provided
with an opportunity to make a statement and answer appropriate questions. The
Board of Directors' recommendation of Deloitte & Touche LLP has been made so
that such firm may continue to serve as the independent public accountants of
the Reorganized Fund in the event that the Fund Reorganization does not occur
for any reason.
The Board of Directors of the Reorganized Fund recommends that
shareholders vote to ratify the selection of Deloitte & Touche LLP as the
Reorganized Fund's independent public accountants for the fiscal year ending
August 31, 1996.
ITEM 3. - FOR ACQUIRED TRUST SHAREHOLDERS ONLY
RATIFICATION OR REJECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Trustees of the Securities Trust has selected Deloitte &
Touche LLP as the independent public accountants of the Securities Trust for the
fiscal year ending October 31, 1996. The 1940 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 Securities Trust's independent public accountants for the
year ended October 31, 1995, and for a number of years prior thereto. Based on
information in the possession of the Securities Trust, and information furnished
by Deloitte & Touche LLP, such firm has no direct financial interest and no
material indirect financial interest in the Securities Trust. A representative
of Deloitte & Touche LLP is expected to attend the meeting and will be provided
with an opportunity to make a statement and answer appropriate questions.
The Board of Trustees of the Securities Trust recommends that
shareholders vote to ratify the selection of Deloitte & Touche LLP as the
Securities Trust's independent public accountants for the fiscal year ending
October 31, 1996.
26
<PAGE>
ADDITIONAL INFORMATION
Following the Fund Reorganization, the Acquiring Fund will adopt the
August 31 fiscal year of the Reorganized Fund and then, following the close of
the August 31, 1996 fiscal year, and adopt the September 30 fiscal year of the
Income Fund.
To the knowledge of the Funds, as of March 22, 1996, no person owned
of record or beneficially 5% or more of the outstanding shares of any of the
Funds. As of December 31, 1995, the directors or trustees and officers of each
of the Reorganized Fund, the Securities Trust and the Income Fund, as separate
groups, owned less than 1% of the outstanding shares of each of the Funds, of
Securities Trust and of the Income Fund.
The Reorganized Fund, the Securities Trust and the Income Fund 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.
27
<PAGE>
Draft--February 19, 1996
Exhibit A-1
-----------
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this day of , 1996, by and between Lord Abbett California Tax-Free
Income Fund, Inc. (the "Acquired Fund"), a Maryland corporation, and Lord
Abbett Tax-Free Income Fund, Inc. (the "Income Fund"), a Maryland corporation,
on behalf of its series California Series (the "Acquiring 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) and
(F) 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 shares of
beneficial ownership of the Acquiring Fund (to be designated as Class A Shares,
the "Acquiring Fund Class A Shares" and each an "Acquiring Fund Class A 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 A Shares to the shareholders of the Acquired Fund in
liquidation of the Acquired Fund, all upon the terms and conditions hereinafter
set forth in this Agreement;
WHEREAS, the Income Fund and the Acquired Fund are open-end,
registered investment companies of the management type;
WHEREAS, 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 a single class of
shares (the "Acquiring Fund Class A Shares");
WHEREAS, after the multiple class share structure is authorized by the
Acquiring Fund but before the Acquiring Fund Class A Shares are issued to the
Acquired Fund, the Acquired Fund is to purchase one Acquiring Fund Class A share
and as sole shareholder (i) 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 A Shares and (ii)
--
approve the proposed investment management agreement between the Acquiring Fund
and Lord, Abbett & Co. ("Lord Abbett");
<PAGE>
WHEREAS, the Board of Directors, including a majority of the directors
who are not "interested persons" (as defined under the 1940 Act) of the Acquired
Fund, 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;
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; and
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 Acquired Fund will
transfer its assets 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 A Shares, including fractional Acquiring Fund
Class A Shares, equal to the number of the shares of capital stock of the
Acquired Fund as of the close of regular trading on the New York Stock Exchange
(the "NYSE") on the Closing Date (such time and date being hereinafter called
the "Valuation Date"); and (ii) to assume 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").
(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
2
<PAGE>
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 investments 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 A 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 same number of full and fractional Acquiring Fund Class A
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 A
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 A 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 liquidated pursuant to the law
of Maryland. Any reporting responsibility of the Acquired Fund is and shall
remain the responsibility of the Acquired Fund up to and including the Closing
Date and following the liquidation 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
3
<PAGE>
on the Valuation Date, using the valuation procedures set forth in the Articles
of Incorporation of the Income Fund.
2.2. All computations of value shall be made by the Acquiring Fund and the
Acquired Fund in accordance with the regular practice of the Acquired 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 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 A 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 A Shares have been credited to the Acquired Fund's account
on the books of the Acquiring Fund. At the Closing, each
4
<PAGE>
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. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Fund represents and warrants to the Income Fund as
follows:
(a) The Acquired Fund 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 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 Acquired Fund conform (and any prospectus or statement of additional
information of the Acquired Fund 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 circumstances under which they were
(and will be) made, not materially misleading.
(d) The Acquired 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 Acquired Fund is a party or by
which it is bound.
(e) The Acquired Fund has no material contracts or other
commitments which will be terminated with liability to the Acquired Fund
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
5
<PAGE>
before any court or governmental body is presently pending or to its
knowledge threatened against the Acquired Fund 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 Acquired 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 the business of the Acquired Fund or the ability of the Acquired
Fund to consummate the transactions contemplated herein.
(g) True and correct copies of the Acquired Fund's (i) Statement of
-
Net Assets as at August 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.
(h) Since August 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) 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 Acquired Fund's
knowledge, no such return is currently under audit and no assessment has
been asserted with respect to such returns.
6
<PAGE>
(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.
(m) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action on the part of the Acquired
Fund's Board of Directors, 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 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 Acquired Fund's Board of Directors has
called a meeting of the Acquired Fund shareholders to consider and act upon
this Agreement.
(n) The information furnished and to be furnished by 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.
7
<PAGE>
(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 its
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 A 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 Trust 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.
(b) The Acquiring Fund is a series of the Income Fund. The Trust is
duly 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 relating to the Acquiring Fund conform (and any
prospectus or statement of additional information of the Income Fund
Relating to the Acquiring 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 (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 of
8
<PAGE>
Trust 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 Trust 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 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 its business or its ability to consummate
the transactions contemplated herein.
(g) True and correct copies of the Income Fund's (i) Statement of
-
Net Assets as at September 30, 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 Acquired 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 Income Fund
as of such date and for such period, respectively. There are no known
contingent liabilities of the Income 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 September 30, 1995, there has not been any material
adverse change in the Income Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary course
of business, or any incurrence by the Income Fund's 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.
9
<PAGE>
(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 Income
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 Income
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) At the Closing Date, all issued and outstanding shares of the
Acquiring Fund 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) 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.
(m) 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.
(n) The Acquiring Fund Class A Shares to be issued and delivered to
the Acquired Fund pursuant to the terms of this Agreement have been duly
authorized by the Income Fund's Board of Directors on behalf of the
Acquiring Fund, and when issued and delivered at the Closing in accordance
with
10
<PAGE>
this Agreement, will be duly and validly issued Acquiring Fund Class A
Shares and will be fully paid and non-assessable with no personal liability
attaching to the ownership thereof.
(o) The Board of the Income Fund has duly adopted a resolution (a
copy of which has been furnished to the Acquired Fund) authorizing the
creation and issuance of the Acquiring Fund Class C Shares.
5. COVENANTS
5.1. The Acquiring Fund will conduct no investment operations prior to the
Closing Date. The Acquired Fund 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. At or after the Closing, the Acquired Fund will deliver or otherwise
make available to the Acquiring 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.
5.3. 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.
5.4. 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.
5.5. 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 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.
11
<PAGE>
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Income Fund, on behalf of the Acquiring 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 Trust 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 INCOME 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 Acquired Fund 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 Acquired 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.
7.2. The Acquired Fund 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
12
<PAGE>
representations and warranties of the Acquired 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.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INCOME FUND AND THE
ACQUIRED 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. 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
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 Acquired Fund and the Income Fund and satisfactory to
the Secretary of each such party, substantially to the effect that for federal
income tax purposes:
13
<PAGE>
(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 Acquiring 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
(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.
14
<PAGE>
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Income Fund may waive the conditions set forth in this paragraph
8.5.
8.6. The Trust shall have duly adopted a Rule 12b-1 Plan for the Acquiring
Fund Class A Shares acceptable to the Acquired Fund.
9. BROKERAGE FEES AND EXPENSES
9.1. The Trust, on behalf of the Acquiring Fund, represents and warrants
to the Acquired Fund, and the Acquired Fund represents and warrants to the
Income Fund, that there are no brokers 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 Income Fund and the Acquired Fund; (2)
- -
by the Acquired Fund in the event that the Income Fund shall, or by the Income
Fund in the event that the Acquired Fund shall, materially breach any
representation or warranty contained herein or any agreement contained herein
and to be performed at or prior to the Closing 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 Income Fund, the Acquired Fund or the
Acquiring Fund or their respective Directors or officers to the other party, but
the Acquiring
15
<PAGE>
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 Income Fund and the Acquired 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 A 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.
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.
16
<PAGE>
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.
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 TAX-FREE INCOME FUND,
INC. on behalf of California Series
By: _______________________________
Name: _____________ Name:
Title: Secretary Title:
Attest: LORD ABBETT CALIFORNIA TAX-FREE
INCOME FUND, INC.
By: _______________________________
Name: _____________ Name:
Title: Secretary Title:
17
<PAGE>
Draft--February 20, 1996
Exhibit A-2
-----------
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this day of , 1996, by and between Lord Abbett Tax-Free Income
Fund, Inc. (the "Income Fund"), a Maryland corporation, on behalf of its series
California Series (the "Acquiring Fund"), and Lord Abbett Securities Trust (the
"Securities Trust"), a Delaware business trust, on behalf of its series
California Tax-Free 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) and
(F) 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 Securities Trust and the Income Fund are open-end,
registered investment companies of the management type;
WHEREAS, the Acquired Fund is a series of the Securities 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 a new series of the Income Fund that
has no investment portfolio or other assets but plans to acquire the assets, and
to assume the liabilities, of Lord Abbett California Tax-Free Income Fund, Inc.
("LAUSGSF") immediately prior to the Reorganization;
WHEREAS, the Acquiring Fund is authorized to issue a single class of
shares (the "Acquiring Fund Class A Shares"), and prior to the consummation of
the Reorganization, will 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
<PAGE>
bear the expense of its own distribution and shareholder servicing arrangements
and certain other expenses;
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
Securities 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 Securities
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 paragraph 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
2
<PAGE>
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").
(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 investments 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.
3
<PAGE>
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 Securities Trust's Trustees' executing an instrument pursuant to
Section 5.4 of the Declaration and Agreement of Trust of the Securities Trust
abolishing the Acquired Fund. Any reporting responsibility of the Securities
Trust with respect to the Acquired Fund is and shall remain the responsibility
of the Securities 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 LAUSGSF.
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
4
<PAGE>
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 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 Securities Trust
represents and warrants to the Income Fund as follows:
(a) The Securities 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 Securities Trust. The
Securities 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 Securities Trust conform (and any prospectus or statement of additional
5
<PAGE>
information of the Securities 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 circumstances under which they were (or
will be) made, not materially misleading.
(d) The Securities 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 Securities Trust
is a party or by which it is bound.
(e) The Securities Trust has no material contracts or other
commitments which will be terminated with liability to the Securities Trust
on, prior to or after the Closing Date.
(f) Except as otherwise disclosed in writing to and accepted by the
Income Fund, no litigation or administrative proceeding or investigation
before any court or governmental body is presently pending or to its
knowledge threatened against the Securities 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 Securities 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 Securities
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
6
<PAGE>
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.
(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 Securities 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 Securities
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
7
<PAGE>
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.
(m) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action on the part of Securities
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 Securities 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
Securities Trust's Board of Trustees has called a meeting of the Securities
Trust 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 Securities
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 Securities 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 Securities Trust as follows:
8
<PAGE>
(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.
(b) The Acquiring Fund is a series of the Income Fund. The Income
Fund is 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 relating to the Acquiring Fund conform (and any prospectus
or statement of additional information of the Income Fund relating to the
Acquiring 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 (and 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
9
<PAGE>
and adversely affects its business or its ability to consummate the
transactions contemplated herein.
(g) True and correct copies of the Income Fund's (i) Statement of Net
-
Assets as at September 30, 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 Securities Trust. 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 Income Fund
as of such date and for such period, respectively. There are no known
contingent liabilities of the Income 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 September 30, 1995, there has not been any material adverse
change in the Income Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Income 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 Income
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 Income 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) At the Closing Date, all issued and outstanding shares of the
Acquiring Fund will be, duly and validly issued and outstanding, fully paid
and non-assessable, with no personal liability attaching to the ownership
10
<PAGE>
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) 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.
(m) 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.
(n) 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.
(o) The Board of Directors of the Income Fund has duly adopted a
resolution (a copy of which has been furnished to the Securities Trust)
authorizing the creation and issuance of the Acquiring Fund Class C
Shares.
5. COVENANTS
5.1. The Acquiring Fund will conduct no investment operations prior
to the Closing Date. The Acquired Fund 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.
11
<PAGE>
5.2. At or after the Closing, the Securities Trust will deliver or
otherwise make available to the Acquiring 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.
5.3. 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.
5.4. 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.
5.5. Prior to the Closing Date, the Board of Trustees of the
Securities 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.
5.6. 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.
5.7. 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 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.
12
<PAGE>
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SECURITIES TRUST
The obligations of the Securities 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, on behalf of the Acquiring
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 INCOME 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 Securities 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 Securities 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.
7.2. The Securities 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
13
<PAGE>
the representations and warranties of the Securities Trust 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.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SECURITIES 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. The reorganization pursuant to the Agreement and Plan of
Reorganization between the Income Fund on behalf of the Acquiring Fund and
LAUSGSF of even date shall have been consummated.
8.2. 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 Securities
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 8.2.
8.3. 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.
8.4. 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.
8.5. 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.
8.6. The parties shall have received a favorable opinion of Debevoise
& Plimpton, addressed to the Income Fund and the Securities 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 Acquiring
Fund nor the Securities Trust may waive the conditions set forth in this
paragraph 8.6.
8.7. The Acquiring Fund shall have duly adopted a Rule 12b-1 Plan for
the Acquiring Fund Class C Shares acceptable to the Securities Trust.
9. BROKERAGE FEES AND EXPENSES
9.1. The Income Fund represents and warrants to the Acquired Fund,
and the Securities Trust represents and warrants to the Acquiring Fund, that
there are no brokers 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 Securities Trust and the
-
Income Fund; (2) by the Securities Trust in the event that the Income Fund
-
shall, or by the Income Fund in the event that the Securities Trust shall,
materially breach any representation or warranty contained herein or any
agreement contained herein and to
16
<PAGE>
be performed at or prior to the Closing 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 Securities 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 Securities Trust and the Income Fund; provided, however, that following the
approval of the Acquired Fund shareholders referred to in paragraph 8.2, 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.
17
<PAGE>
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.
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 Income 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 Securities Trust and agrees that the obligations
assumed by the Securities 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 any
18
<PAGE>
shareholders of the Securities Trust, the trustees, officers, employees or
agents of the Securities Trust or any of them or from any other assets of the
Securities 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 California Tax-Free Trust
By: _______________________________
Name: _______________ Name:
Title: Secretary Title:
Attest: LORD ABBETT TAX-FREE INCOME FUND,
INC. on behalf of California Series
By: _______________________________
Name: _______________ Name:
Title: Secretary Title:
19
<PAGE>
Draft--February 16, 1996
EXHIBIT B
Rule 12b-1 Distribution Plan and Agreement
Lord Abbett Tax-Free Income Fund, Inc. -- California Series -- Class A 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 CALIFORNIA 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 A shares (the "Shares") pursuant to the
Distribution Agreement between the Fund and the Distributor, dated as of the
date hereof (the "Distribution Agreement").
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 to be used by the Distributor or paid to institutions and persons
permitted by applicable law and/or rules to receive such payments ("Authorized
Institutions") in connection with sales of Shares and/or servicing of accounts
of shareholders holding Shares.
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 additional
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.
2. The Fund also hereby authorizes the Distributor to use payments
received hereunder from the Series in order to (a) finance any activity which is
-
primarily intended to result in the sale of Shares and (b) provide continuing
-
information and investment services to shareholder accounts not serviced by
Authorized Institutions receiving a service fee from the Distributor hereunder
and otherwise to
<PAGE>
encourage such accounts to remain invested in the Shares; provided that (i) any
-------- -
payments referred to in the foregoing clause (a) shall not exceed the
distribution fee permitted to be paid at the time under paragraph 3 of this Plan
and shall be authorized by the Board of Directors of the Fund by a vote of the
kind referred to in paragraph 10 of this Plan and (ii) any payments referred to
--
in clause (b) shall not exceed the service fee permitted to be paid at the time
under paragraph 3 of this Plan.
3. The Series is authorized to pay the Distributor hereunder for
remittance to Authorized Institutions and/or use by the Distributor pursuant to
this Plan (a) service fees and (b) distribution fees, each at an annual rate not
- -
to exceed .25 of 1% of the average annual net asset value of Shares outstanding.
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. Any such fees (which may be waived by the Authorized
Institutions in whole or in part) may be calculated and paid quarterly or more
frequently if approved by the Board of Directors of the Fund. Such
determinations and approvals by the Board of Directors shall be made and given
by votes of the kind referred to in paragraph 10 of this Plan. Payments by
holders of Shares to the Series of contingent deferred reimbursement charges
relating to distribution fees paid by the Series hereunder shall reduce the
amount of distribution fees for purposes of the annual 0.25% distribution fee
limit. The Distributor will monitor the payments hereunder and shall reduce such
payments or take such other steps as may be necessary to assure that (i) 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 (ii) 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 or shares
sold by) such Authorized Institution and held in an account covered by an
Agreement.
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 the 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 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.
2
<PAGE>
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 may otherwise 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 upon the date hereof, and shall
continue in effect for a period of more than one year from that date only so
long as such continuance is specifically approved at least annually 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 renewal.
9. This Plan may not be amended to increase materially the amount to
be spent by the Series hereunder above the maximum amounts referred to in
paragraph 3 of this Plan without a shareholder vote in compliance with Rule 12b-
1 and Rule 18f-3 under the Act as in effect at such time, 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.
Amendments to this Plan which do not increase materially the amount to be spent
by the Series hereunder above the maximum amounts referred to in paragraph 3 of
this Plan may be made pursuant to paragraph 10 of this Plan.
10. Amendments to this Plan other than material amendments of the
kind referred to in the forgoing paragraph 9 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
3
<PAGE>
"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 (a) by 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 the 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 meanings as those terms are
defined in the Act.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and on its behalf by its duly authorized representative
as of the date first above written.
LORD ABBETT TAX-FREE INCOME FUND, INC.
By:_____________________________
President
ATTEST:
_____________________
Assistant Secretary
LORD ABBETT DISTRIBUTOR LLC
By:_____________________________
4
<PAGE>
EXHIBIT C
---------
COMPARISON OF INVESTMENT POLICIES AND RESTRICTIONS
Comparison of certain investment policies and restrictions of Lord
Abbett California Tax-Free Income Fund, Inc. (the "Reorganized Fund"),
California Tax-Free Income Trust (the "Acquired Trust"), a series of Lord Abbett
Securities Trust, and the California Series (the "Acquiring Fund"), a series of
Lord Abbett Tax-Free Income Fund, Inc.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF
REORGANIZED FUND ACQUIRED TRUST THE ACQUIRING FUND
---------------- -------------- ------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT SALES/MARGIN.
FUNDAMENTAL FUNDAMENTAL NON-FUNDAMENTAL
The Fund may not sell short or The Fund may not sell short or The Fund may not make short sales of
buy on margin, although it may buy on margin. securities or maintain a short position
obtain short-term credit to clear except to the extent permitted by
securities purchases. 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 securities. The Fund may not borrow securities. The Fund may not borrow money,
Subject to certain exceptions, Subject to certain exceptions, except that (i) the Fund may borrow
the Fund may not borrow money. the Fund may not borrow from banks (as defined in the 1940
money. Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed),
(ii) the Fund may borrow up
to an additional 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 The Fund may not engage in the
underwriting of securities, except underwriting of securities, underwriting of securities, except,
to the extent that, in connection except, pursuant to a merger or pursuant to a merger or acquisition or
with the disposition of its portfolio acquisition. to the extent that, in connection with
securities, it may be deemed to be the disposition of its portfolio securities,
an underwriter under federal it may be deemed to be an underwriter
securities laws. under federal securities laws.
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF
REORGANIZED FUND ACQUIRED TRUST THE ACQUIRING FUND
---------------- -------------- ------------------
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LENDING.
FUNDAMENTAL FUNDAMENTAL FUNDAMENTAL
The Fund may not lend money or The Fund may not lend money or The Fund may not make loans to
securities, except for the purchase securities, except for the purchase other persons, except that the acquisition
of certain debt securities. of certain debt securities. of bonds, debentures or other
corporate debt securities and investment
in government obligations, commercial
paper, pass-through instruments,
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 applicable
law and the guidelines set forth
in the Fund's Prospectus and Statement
of Additional Information, as
they may be amended from time to
time.
- - --------------------------------------------------------------------------------------------------------------------------
REAL ESTATE/ COM-
MODITIES. FUNDAMENTAL FUNDAMENTAL
FUNDAMENTAL The Fund may not deal in real The Fund may not buy or sell real
The Fund may not deal in real estate, commodities or commodity estate (except that the Fund may invest
estate, commodities or commodity contracts. in securities directly or indirectly
contracts. secured by real estate or interests
therein or issued by companies which
invest in real 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>
2
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF
REORGANIZED FUND ACQUIRED TRUST THE ACQUIRING FUND
---------------- -------------- ------------------
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIVERSIFICATION.
FUNDAMENTAL None stated. FUNDAMENTAL
With respect to 75% of its gross None stated (but the Fund will be
assets, the Fund may not buy required to meet the diversification
securities if the purchase would then rules under Subchapter M of the
cause it to have more than 5% of Internal Revenue Code).
its gross assets, at market value at
the time of investment, invested in
the securities of any one issuer,
except securities issued or
guaranteed by the U.S. Government,
its agencies or instrumentalities.
- - --------------------------------------------------------------------------------------------------------------------------
INVESTMENT IN A SINGLE
INDUSTRY.
FUNDAMENTAL FUNDAMENTAL FUNDAMENTAL
The Acquiring Company may not The Fund may not concentrate The Fund may not invest more than
invest more than 25% of its gross investments in any one industry, 25% of its assets, taken at market
assets in any one industry. except that it may invest more value, in the securities of issuers in
than 25% of gross assets in tax- any particular industry (excluding (i)
exempt securities. tax-exempt 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.
FUNDAMENTAL None stated. NON-FUNDAMENTAL
The Fund may not invest more The Fund may not invest, knowingly,
than 10% of gross assets in more than 15% of its net assets (at the
restricted securities. time of investment) in illiquid
securities, except for securities
qualifying for resale under Rule 144A
of the Securities Act of 1933, deemed
to be liquid by the Board of Trustees.
- - --------------------------------------------------------------------------------------------------------------------------
MORTGAGING AND
PLEDGING OF ASSETS.
None stated. NON-FUNDAMENTAL FUNDAMENTAL
The Fund may not pledge, The Fund may not pledge its assets
mortgage or hypothecate its (other than to secure borrowings, or to
assets. the 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>
3
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF
REORGANIZED FUND ACQUIRED TRUST THE ACQUIRING FUND
---------------- -------------- ------------------
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS IN
SECURITIES OF OTHER
INVESTMENT COMPANIES.
FUNDAMENTAL FUNDAMENTAL NON-FUNDAMENTAL
The Fund may not invest in the The Fund may not invest in the The Fund may not invest in the
securities of other investment securities of other investment securities of other investment
companies, except pursuant to a companies, excluding U.S. companies, except as permitted by
merger, acquisition or other Government securities. applicable law.
consolidation.
- - --------------------------------------------------------------------------------------------------------------------------
OPTIONS.
FUNDAMENTAL FUNDAMENTAL NON-FUNDAMENTAL
The Fund may not buy or sell put, The Fund may not buy or sell None stated.
call, straddle or spread options. put, call, straddle or spread
options, except that the Fund may
buy, hold or sell options and
financial futures.
- - --------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN
SECURITIES OF ISSUERS IN
OPERATION FOR LESS THAN
THREE YEARS.
None stated. None stated. NON-FUNDAMENTAL
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.
None stated. FUNDAMENTAL NON-FUNDAMENTAL
The Fund may not hold securities The Fund may not hold securities of
of any issuer if more than 1/2 of any issuer if more than 1/2 of 1% of
1% of the securities of such the securities of such issuer are owned
issuer are owned beneficially by beneficially by one or more officers or
one or more officers or Trustees Directors or by one or more members
or by one or more partners of the or partners of the underwriter or
underwriter of investment advisor investment advisor if together they
if together they own more than own more than 5% of the securities of
5% of the securities of such such issuer.
issuer.
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF THE POLICY/RESTRICTION OF
REORGANIZED FUND ACQUIRED TRUST THE ACQUIRING FUND
---------------- -------------- ------------------
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSACTIONS WITH
CERTAIN PERSONS.
None stated. FUNDAMENTAL
The Fund, subject to certain None stated (but certain restrictions
exceptions, may not engage in may exist under applicable law).
securities transactions with its
underwriter or investment
manager or with officers, trustees
or firms (acting as principals)
with which any of the foregoing
are associated.
- - --------------------------------------------------------------------------------------------------------------------------
SENIOR SECURITIES.
FUNDAMENTAL FUNDAMENTAL
None stated. The Fund may not issue senior The Fund may not issue senior
securities. securities to the extent such issuance
would violate applicable law.
- - --------------------------------------------------------------------------------------------------------------------------
PURCHASE OF WARRANTS.
None stated. NON-FUNDAMENTAL
None stated. The Fund may not invest in warrants
if, at the time of the acquisition, its
investment in warrants, valued at the
lower of cost or market, would exceed
5% of the Fund's total assets (included
within such limitation, but not to
exceed 2% of the Fund's total assets,
are warrants which are not listed on
the New York or American Stock
Exchange or a major foreign
exchange).
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH __, 1996
ACQUISITION OF THE ASSETS OF
Lord Abbett California Tax-Free Income Fund, Inc. and
Lord Abbett California 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 A SHARES AND CLASS C SHARES, RESPECTIVELY, OF
California 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 California Tax-Free Income Fund,
Inc. (the "Reorganized Fund") and California Tax-Free Income Trust (the
"Acquired Trust"), a series of Lord Abbett Securities Trust, to the California
Series (the "Acquiring Fund"), a series of Lord Abbett Tax-Free Income Fund,
Inc., in exchange for Class A shares and Class C shares, respectively, of the
Acquiring Fund and the assumption by the Acquiring Fund of the liabilities of
the Reorganized Fund and the Acquired Trust, consists of this cover page and 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 Reorganized Fund dated
January 1, 1996.
2. Statement of Additional Information of Lord Abbett Securities
Trust dated March 1, 1996, insofar as it relates to the Acquired Trust.*
3. Statement of Additional Information of Lord Abbett Tax-Free Income
Fund, Inc. dated March , 1996, insofar as it relates to the Acquiring Fund.*
4. The financial statements of Lord Abbett Tax-Free Income Fund, Inc.
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.
_________________________
* A pre-effective amendment is to be filed to incorporate by reference these
documents.
B-1
<PAGE>
5. The financial statements of the Reorganized Fund for the fiscal
year ended August 31, 1995, and the report thereon of Deloitte & Touche LLP,
independent public accountants, contained in the 1995 Annual Report of the
Reorganized Fund.
6. 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.
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 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
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 or 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
C-1
<PAGE>
majority of a quorum of the non-interested, non-party directors of Registrant,
or an independent legal counsel in a written opinion, shall determine, based on
a review of readily available facts, that there is reason to believe that the
indemnitee ultimately will be found entitled to indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expense
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
In addition, Registrant maintains a directors' and officers' errors
and omissions liability insurance policy protecting directors and officers
against liability for breach of duty, negligent act, error or omission committed
in their capacity as directors or officers. The policy contains certain
exclusions, among which is exclusion from coverage for active or deliberate
dishonest or fraudulent acts and exclusion for fines or penalties imposed by law
or other matters deemed uninsurable.
ITEM 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. (a) Form of Agreement and Plan of Reorganization between Registrant and
Lord Abbett California Tax-Free Income Fund, Inc.; filed herewith as
Exhibit A-1 contained in Part A of this Registration Statement.
(b) Form of Agreement and Plan of Reorganization between Registrant and
Lord Abbett Securities Trust-California Tax-Free Income Trust; filed
herewith as Exhibit A-2 contained in Part A of this Registration
Statement.
C-2
<PAGE>
5. Not Applicable.
6. (a) Investment Management Agreement between the Registrant and Lord,
Abbett & Co. dated August 16, 1985.(6)
7. (a) Form of Rule 12b-1 Plan for Registrant's Class A shares; filed
herewith as Exhibit B contained in Part A of this Registration
Statement.
(b) 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. Forms of opinions and Consents of Debevoise & Plimpton as to Tax
Matters; filed herewith.
13. Not Applicable.
14. (a) Consent of Deloitte & Touche LLP regarding financial statements of
Registrant, Lord Abbett California Tax-Free Income Fund, Inc. 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) Forms of Proxy Cards; filed herewith.
(b) Prospectus and Statement of Additional Information of Lord Abbett
California Tax-Free Income Fund, Inc. dated January 1, 1996 (10).
(c) The financial statements of Lord Abbett Tax-Free Income Fund, Inc.
for the fiscal year ended September 30, 1995, and the report thereon
of Deloitte & Touche LLP,
(d) Notice to Brokers
(e) Letter to Shareholders
C-3
<PAGE>
independent public accountants, contained in the 1995 Annual Report
of the Acquiring Fund (11).
(d) The financial statements of the Reorganized Fund for the fiscal year
ended August 31, 1995, and the report thereon of Deloitte & Touche
LLP, independent public accountants, contained in the 1995 Annual
Report of the Reorganized Fund. (12).
(e) 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. (13).
(f) Notice to Brokers
(g) Letter to Shareholders re: Proxy
_______________________
(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
Lord Abbett California Tax-Free Income Fund, Inc.'s Registration Statement
on Form N-1A (File Nos. 2-98163 and 811-4313) 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 the Lord Abbett California Tax-Free Income Fund,
Inc., filed on or about November 2, 1995.
(13) 1995 Annual Report of Lord Abbett Securities Trust filed on or about
January 10, 1996.
C-4
<PAGE>
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-5
<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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - --------- ----- ----
<S> <C> <C>
/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
</TABLE>
C-6
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as a part of this Registration
Statement pursuant to General Instruction G of Form N-14.
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<S> <C> <C>
1(f) Form of Amendment authorizing multiple class structure.
(g) Form of Amendment designating Class A shares.
(h) Form of Articles Supplementary classifying the Class C shares.
4(a) Form of Agreement and Plan of Reorganization between the
Registrant and Lord Abbett California Tax-Free Income Fund, Inc.
(b) Form of Agreement and Plan of Reorganization between the
Registrant and Lord Abbett Securities Trust-Lord Abbett
California Tax-Free Income Trust
7(a) Form of Rule 12b-1 Plan for the Registrant's Class A shares.
(b) Form of Rule 12b-1 Plan for the Registrant's Class C shares.
9(b) Form of Assignment and Assumption Agreement between Morgan
Guaranty Trust Company of New York and Bank of New York
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 Forms of opinions and Consents of Debevoise & Plimpton as to Tax
Matters
14(a) Consent of Deloitte & Touche LLP regarding financial statements
(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) Forms of Proxy Cards
(e) Notice to Brokers
(f) Letter to Shareholders re: Proxy
</TABLE>
Exhibit 1 (f)
-------------
Draft-February 27, 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:
(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 stock
------
holders, 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 20, 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(b)
------------
Draft--February 22, 1996
Rule 12b-1 Distribution Plan and Agreement
Lord Abbett Tax-Free Income Fund, Inc. -- California 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 CALIFORNIA 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 mentioned 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
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-interested 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 without 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 independent 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 attributable 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
registration 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 provided 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 contained
herein. The prospectus for each Fund contains additional 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
[Debevoise & Plimpton Letterhead]
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, 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 California Series (the "Acquiring Fund"), a series of the
Registrant.
Such shares are to be established and designated as the Class A shares
and the Class C shares (the "Class A shares" and the "Class C shares"). The
Class A shares are to be issued to Lord Abbett California Tax-Free Income Fund,
Inc., a Maryland corporation (the "Reorganized Fund"),
<PAGE>
Lord Abbett Tax-Free Income Fund, Inc.
Page 2
pursuant to an Agreement and Plan of Reorganization (the "Reorganized Fund
Plan") between the Registrant, on behalf of the Acquiring Fund, and the
Reorganized Fund substantially in the form of Exhibit A-1 included in Part A of
the Registration Statement. The Class C shares are to be issued to Lord Abbett
California Tax-Free Income Trust (the "Acquired Trust"), a series of Lord Abbett
Securities Trust (the "Securities Trust"), a Delaware 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-2 included
in Part A of the Registration Statement. Such issuances of the Class A and the
Class C shares are to be made in connection with the acquisitions by the
Acquiring Fund of the assets of, and the assumptions by the Acquiring Fund of
the liabilities of, the Reorganized Fund and the Acquired Trust, respectively.
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
investigations 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:
(a) Class A shares. Assuming that the Reorganized Fund and the
--------------
Acquiring Fund duly execute and deliver the Reorganized Fund Plan, that the
Reorganized Fund Plan and the reorganization provided for thereby are duly
approved by the shareholders of the Reorganized Fund, that the transactions
contemplated by the Reorganized Fund 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 A
shares issued pursuant to the Reorganized Fund Plan will be legally issued,
fully paid and non-assessable.
Exhibit 12
----------
[Debeviose & 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 California Series,
and Lord Abbett Securities Trust,
on behalf of its series,
Lord Abbett California Tax-Free 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 California Series ("Acquiring Fund"), and Lord Abbett Securities Trust,
<PAGE>
Lord Abbett Tax-Free
Income Fund, Inc.
Lord Abbett Securities Trust 2 [Date of the Closing]
a Delaware business trust ("Securities Trust"), acting on behalf of its series,
Lord Abbett California Tax-Free 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 February __, 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 by such shareholder (provided that the
Acquired Fund
<PAGE>
Lord Abbett Tax-Free
Income Fund, Inc.
Lord Abbett Securities Trust 4 [Date of the Closing]
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]
March 1, 1996
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
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 the Proxy Statement and
Prospectus relating to (i) the proposed acquisition (the "Reorganization") of
-
all of the assets of Lord Abbett California Tax-Free Income Trust ("Acquired
Fund"), a series of Lord Abbett Securities Trust, a Delaware business trust
("Securities Trust"), by Lord Abbett California 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
[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 California
Tax-Free Income Fund, Inc.
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 California Series,
and Lord Abbett California Tax-Free Income Fund, Inc.
-----------------------------------------------------
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 California Series ("Acquiring Fund"), and Lord Abbett California Tax-Free
Income Fund, Inc., a Maryland corporation ("Acquired
<PAGE>
Lord Abbett Tax-Free Income Fund, Inc.
Lord Abbett California Tax-Free
Income Fund, Inc. 2 [Date of the Closing]
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 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 February __, 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:
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
<PAGE>
Lord Abbett Tax-Free Income Fund, Inc.
Lord Abbett California Tax-Free
Income Fund, Inc. 3 [Date of the Closing]
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 by such shareholder (provided that the
Acquired Fund shares are held as capital assets on the date of the
Reorganization).
<PAGE>
Lord Abbett Tax-Free Income Fund, Inc.
Lord Abbett California Tax-Free
Income Fund, Inc. 4 [Date of the Closing]
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]
March 1, 1996
Lord Abbett Tax-Free Income Fund, Inc.
The General Motors Building
767 Fifth Avenue
New York, New York 10153
Lord Abbett California Tax-Free
Income Fund, Inc.
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 the Proxy Statement and
Prospectus relating to (i) the proposed acquisition (the "Reorganization") of
-
all of the assets of Lord Abbett California Tax-Free Income Fund, Inc., a
Maryland corporation ("Acquired Fund"), by Lord Abbett California 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 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
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. dated November 6, 1995, Lord Abbett
California Tax-Free Income Fund, Inc. dated October 6, 1995, and Lord Abbett
Securities Trust - California 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 California Tax-Free Income Fund, Inc. dated January 1, 1996 and Lord
Abbett Securities Trust - California 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 14B
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, 1996
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, 1996
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, 1996
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, Discussion 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 requested cannot be issued on
the basis of the information contained 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 Revenue 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
Person to Contact:
Susan T. Baker
Telephone Number:
Seth Rosen (202) 622-3940
Debevoise & Plimpton
875 Third Avenue Refer Reply to:
New York, NY 10022 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
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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 therefore
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 outstanding 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.
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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
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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 investment 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 Distributor 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 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.
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 outstanding shares of that fund, with the following
exceptions:
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(1) The designation of each class of shares will be different.
(2) Different classes of shares may have different 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 redemption.
(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 litigation;
(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
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extent incidental to the expenses enumerated in (a) through (e).
The funds represent that the only expenses allocated 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 payable 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 domestic corporation
registered under the 1940 Act as a management 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
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<PAGE>
capital gain over its deduction for dividends paid, determined 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 dividends paid (as that term is defined in
section 561(a) with certain modifications) for the taxable year equals or
exceeds a specified portion of its taxable income (with certain 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 described 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 accordance with the procedures act forth in Rule 12b-1 and
Rule l8f-3.
6. Different classes of shares may have different conversion
features.
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<PAGE>
7. Different classes may have different privileges 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
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for Certain Registered Open-End Management In vestment 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 account, 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 similar 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 therefore
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 outstanding 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 opinion is expressed or
implied regarding the Federal tax aspects 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. Section 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 described 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 20, 1996
LORD ABBETT CALIFORNIA TAX-FREE INCOME FUND, INC.
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 annual meeting of shareholders of
LORD ABBETT CALIFORNIA TAX-FREE INCOME FUND, INC. 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 DIRECTORS WHO RECOMMEND THAT
YOU AUTHORIZE THE PROXIES TO VOTE FOR THE ELECTION OF DIRECTORS AND FOR THE
OTHER MATTERS SPECIFIED BELOW.
UNMARKED PROXIES WILL BE VOTED IN FAVOR OF THE ELECTION OF DIRECTORS AND FOR
EACH OF THE OTHER 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. With [_] or without [_] authority to vote for the election of
directors. (NOTE: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL
NOMINEE, STRIKE OUT THE NOMINEE'S NAME BELOW.)
Ronald P. Lynch, Robert S. Dow, E. Thayer Bigelow, Stewart S. Dixon,
John C. Jansing, C. Alan MacDonald, Hansel B. Millican, Jr. and
Thomas J. Neff.
3. For [_] or against [_] or abstain from [_] the ratification of the
selection of Deloitte & Touche LLP as independent public accountants
of Lord Abbett California Tax-Free Income Fund, Inc. for the fiscal
year ending August 31, 1996.
ACCOUNT NUMBER SHARES PROXY NUMBER
LORD ABBETT CALIFORNIA TAX-FREE INCOME FUND, INC.
<PAGE>
PLEASE FILL IN, DATE AND SIGN
PROXY AND RETURN IN THE
ENCLOSED ENVELOPE.
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)
<PAGE>
Draft-- February 20, 1996
LORD ABBETT SECURITIES TRUST-LORD ABBETT CALIFORNIA 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 TRUST 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 CALIFORNIA 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)
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
