<PAGE>
-------------------------------------------------------------
Lord Abbett CALIFORNIA TAX-FREE
INCOME FUND
-------------------------------------------------------------
1995 Annual Report
A mutual fund
with the objective
of providing you
with a high level [Photo - Grandfathers teaching
of interest income grandson how to hit a baseball]
exempt from both
federal and state
income taxes.
<PAGE>
- --------------------------------------------------------------------------------
REPORT TO SHAREHOLDERS For the Fiscal Year Ended August 31, 1995
[PHOTO - Ronald P. Lynch]
- ------------------------------
Ronald P. Lynch, Chairman
September 13, 1995
Lord Abbett California Tax-Free Income Fund completed fiscal 1995 on August 31
with net assets of $296.3 million and a net asset value of $10.41 per share
versus $10.45 one year ago. At the close of the fiscal year, the Fund's
distribution rate was 5.48%, based on the August 31 net asset value of $10.41
and 5.22%, based on that same day's maximum offering price of $10.93. These
rates are based on the current monthly dividend of $.0475 per share, annualized.
The Fund's total return (the percent change in net asset value assuming the
reinvestment of all distributions) was 5.6% for the year.
Since the beginning of 1994, the Federal Reserve (the "Fed") raised short-
term interest rates a total of six times in an attempt to slow economic
activity. Throughout most of 1994, the fixed-income markets reacted negatively
to this less accommodative monetary policy. However, by early 1995, as evidence
of the economic slowdown surfaced, inflationary pressures began to recede. On
July 6, the Fed lowered the Federal Funds Rate for the first time in almost
three years from 6% to 5.75%; the fixed-income markets responded with a strong
rally.
The effects of last year's interest-rate hikes are still working through
the economy. Economic indicators remain mixed; retail sales and unit labor costs
are trending down, while housing starts and consumer confidence remain strong.
We believe the municipal bond market offers value as economic growth continues
to be modest with well-contained inflation.
Tax reform and the flat tax proposal are receiving much attention and
causing uncertainty in the municipal market. Concerns about possible tax reform
have caused tax-exempt securities to cheapen relative to other securities.
Currently, municipal bonds are yielding in excess of 90% of the yield on the 30-
year Treasury, indicating how attractive the tax-exempt sector has become. The
Fund continues to emphasize its investments in long maturities of municipals as
it did during the past fiscal year.
- --------------------------------------------------------------------------------
"We believe the municipal bond market offers value as economic growth continues
to be modest with well-contained inflation."
- --------------------------------------------------------------------------------
For fiscal 1995, high-quality, long-term municipals were an important part
of our strategy for the Fund (see below) and will continue to be. The high
quality of these securities should enhance portfolio value as credit quality and
liquidity concerns remain in the marketplace.
In June, Orange County voters rejected a plan to raise the county sales tax
0.5%. This plan, tax proponents said, would have produced revenues to help the
County's debt crisis. The uncertainty surrounding Orange County's financial
state has led to an increased focus on quality issues within California.
We anticipate more stable interest rates and, while net asset values may
fluctuate in the interim, we believe modest economic growth and low inflation
should provide a positive environment for investors in the months ahead.
================================================================================
Professional Management at Work
- --------------------------------------------------------------------------------
COMMITMENT TO QUALITY IS CENTRAL TO THE FUND'S INVESTMENT STRATEGY
- --------------------------------------------------------------------------------
The Fund's investment policy restricts investments to municipal bonds rated
investment grade or equivalent at the time of purchase. The portfolio is
monitored on an ongoing basis. Lord Abbett attempts to identify credit strengths
and weaknesses of issues and focuses on economic trends within municipal market
sectors in an effort to anticipate credit upgrades and downgrades.
Portfolio Composition
as of 8/31/95
[PIE CHART -- Representing data in table below]
<TABLE>
<CAPTION>
<S> <C>
AAA 64.8%
AA 21.8%
A 13.4%
</TABLE>
<PAGE>
================================================================================
Fund Performance
- --------------------------------------------------------------------------------
THE FUND HAS PROVIDED A HIGH LEVEL OF TAX-FREE DIVIDENDS
AND REWARDING TOTAL RETURNS
-----------------------------------------------------------------------
<TABLE>
<S> <C>
Information About the Following Investment/(1)/
=======================================================================
Investment Period: 9/3/85 to 8/31/95
-----------------------------------------------------------------------
Amount Invested: $100,000
-----------------------------------------------------------------------
Sales Charge: 3.75% (for investments of $100,000)
-----------------------------------------------------------------------
Distributions: Dividends and capital gains reinvested
-----------------------------------------------------------------------
</TABLE>
Conservative investors
use tax-free invest-
ments not only to
avoid taxes, but to
build their nest eggs [GRAPH OF COMPOUNDED TAX-FREE DIVIDENDS APPEARS HERE]
Initial Investment
Total Value Plus Growth
8-31-86 $115,543 $106,667
8-31-87 117,429 100,817
8-31-88 125,549 100,210
8-31-89 140,195 104,465
8-31-90 148,142 113,249
8-31-91 167,267 109,228
8-31-92 186,979 115,588
8-31-93 213,953 126,804
8-31-94 206,815 118,122
8-31-95 218,354 117,670
Fiscal Year-end August 31.
<TABLE>
<CAPTION>
SEC Tax-equivalent
Yield (for the 42.40%
combined federal
SEC-Required Uniformly Computed Average Annual Rates of Total Return at the maximum and California
sales charge of 4.75% for the periods ended 9/30/95 were: SEC Yield effective tax rate)
=================================================================================== =======================================
10 Years
10 Years 5 Years 1 Year (at net asset value) 30 days ended 9/30/95
- ----------------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
+8.40% +7.08% +3.50% +8.93% 4.99% 8.66%
</TABLE>
The results quoted above represent past performance which is no
indication of future results. The investment return and principal value
of a Fund investment will fluctuate so that shares, on any given day or
when redeemed, may be worth more or less than their original cost.
MONTHLY TAX-FREE INCOME: $.0475 PER SHARE, PER MONTH
=======================================================================
The Fund provided a tax-free dividend distribution rate of 5.22%/(2)/
on 8/31/95. This is based on the maximum offering price of $10.93 per
share and the current monthly dividend of $.0475, annualized. The
dividend distribution rate, based on this dividend and the net asset
value of $10.41, was 5.48%.
- --------------------------------------------------------------------------------
/(1)/Performance does not reflect applicable taxes on capital gains. /(2)/The
Fund's distribution rate reflects the current monthly dividend, annualized, and
the maximum offering price on 8/31/95. The alternative minimum tax, personal
exemptions, the phase-out of the tax benefits of exemptions and the partial
disallowance of deductions are not reflected. Fund dividends derived from
interest on private activity bonds will increase the alternative minimum tax
liability only for shareholders subject to that tax. In the event the Fund does
not invest entirely in municipal bonds, federal and California personal income
tax may be applicable to interest income of the Fund. If interest rates rise,
the value of bonds held by the Fund would decrease, causing a decrease in the
Fund's share value. The Fund may invest up to 20% of its net assets in residual
interest bonds ("RIBs"). A RIB, sometimes referred to as an inverse floater, is
a debt instrument with a floating or variable interest rate that moves in the
opposite direction of the interest rate on another security or the value of an
index. Changes in the interest rate on the other security or index inversely
affect the residual interest paid on the RIB, with the result that when interest
rates rise, RIBs give lower interest payments and their values fall faster than
other similar fixed-rate bonds. But when interest rates fall, not only do RIBs
give higher interest payments, their values also rise faster than other similar
fixed-rate bonds. The market for RIBs is relatively new. As of 8/31/95, the
California Fund had less than 6% of its assets invested in such bonds. See the
prospectus for a history of fees waived and expense subsidies. If used as sales
material after 12/31/95, this report must be accompanied by Lord Abbett's
Performance Quarterly for the most recently completed calendar quarter.
1
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Statement of Net Assets August 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Rating*: Market
S&P or Principal Value
Security Moody's Amount (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Prerefunded California Health Fac Auth Rev/Mercy Sr Hsg
21.30% CA MTGE** 7.85% 12/1/2018 AAA $ 500M $ 564,375
-------------------------------------------------------------------------------------------------------------
California Health Fac Auth Rev/Sutter Health Ser B 8% 1/1/2016 AAA 2,880M 3,085,200
-------------------------------------------------------------------------------------------------------------
Concord CA Redev Agy 3rd Ser MBIA+ 8% 7/1/2018 AAA 1,715M 1,922,944
-------------------------------------------------------------------------------------------------------------
Grossmont Hosp CA Rev MBIA+ 8% 11/15/2017 AAA 2,260M 2,488,825
-------------------------------------------------------------------------------------------------------------
Local Govt Fin/Anaheim Redev 8.20% 9/1/2015 AAA 1,500M 1,696,875
-------------------------------------------------------------------------------------------------------------
Los Angeles CA Convention 7 3/8% 8/15/2018 AAA 3,600M 4,059,000
-------------------------------------------------------------------------------------------------------------
Los Angeles CA Ctfs Civic Ctr 8% 6/1/2010 AAA 3,000M 3,352,500
-------------------------------------------------------------------------------------------------------------
Los Angeles CA Harbor Rev 7.60% 10/1/2018 AAA 3,000M 3,296,250
-------------------------------------------------------------------------------------------------------------
Los Angeles Co CA Flood 7 7/8% 7/15/2017 AAA 4,000M 4,355,000
-------------------------------------------------------------------------------------------------------------
Los Angeles Trans Comm Sales Tax Rev 8% 7/1/2018 AAA 1,575M 1,765,969
-------------------------------------------------------------------------------------------------------------
Oakland Redev Museum Ctfs AMBAC+ 8 1/8% 4/1/2012 AAA 1,085M 1,174,513
-------------------------------------------------------------------------------------------------------------
Orange Co CA Ctfs 8 1/4% 12/1/2018 AAA 1,250M 1,385,938
-------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth 7.30% 7/1/2020 AAA 3,500M 4,007,500
-------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth 7.70% 7/1/2020 AAA 2,000M 2,325,000
-------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Hwy Auth Rev 7 3/4% 7/1/2016 AAA 1,250M 1,456,250
-------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Hwy Auth Rev 8% 7/1/2018 AAA 3,500M 4,108,125
-------------------------------------------------------------------------------------------------------------
Puerto Rico Elec Pwr Auth Rev 8% 7/1/2008 AAA 3,125M 3,503,906
-------------------------------------------------------------------------------------------------------------
Puerto Rico Elec Pwr Auth Rev 8.40% 7/1/2015 AAA 2,000M 2,192,500
-------------------------------------------------------------------------------------------------------------
Puerto Rico Pub Bldg Auth Rev 7 7/8% 7/1/2016 AAA 3,000M 3,262,500
-------------------------------------------------------------------------------------------------------------
Sacramento CA Muni Util Dist Elec Rev 7 7/8% 8/15/2016 AAA 6,280M 7,049,300
-------------------------------------------------------------------------------------------------------------
Santa Clara CA Redev FGIC+ 7 3/4% 6/1/2014 AAA 2,000M 2,225,000
-------------------------------------------------------------------------------------------------------------
University of California Rev 7 3/4% 11/1/2012 AAA 1,000M 1,063,750
-------------------------------------------------------------------------------------------------------------
University of California Rev AMBAC+ 6 3/4% 9/1/2023 AAA 2,500M 2,775,000
-------------------------------------------------------------------------------------------------------------
Total 63,116,220
- -----------------------------------------------------------------------------------------------------------------------------------
General Obligation Arcadia CA Unified Sch Dist Ser B FGIC+ 6 1/2% 7/1/2015 AAA 1,785M 1,878,712
Local -------------------------------------------------------------------------------------------------------------
2.69% Benica CA Unified Sch Dist Ser C MBIA+ 6.45% 6/1/2019 AAA 3,870M 4,044,150
-------------------------------------------------------------------------------------------------------------
Fresno CA Unified Sch Dist MBIA+ 6 1/4% 8/1/2019 AAA 2,000M 2,055,000
-------------------------------------------------------------------------------------------------------------
Total 7,977,862
- -----------------------------------------------------------------------------------------------------------------------------------
Education California Ed Fac Auth Rev/Loyola Marymount Univ-Ser B
3.80% 6.60% 10/1/2022 A 1,900M 1,978,375
-------------------------------------------------------------------------------------------------------------
California Ed Fac Auth Rev/Stanford Univ Ser I 6% 1/1/2018 AAA 4,000M 4,030,000
-------------------------------------------------------------------------------------------------------------
California St Univ & Colleges Students Union Rev Ser B
MBIA+ 6 1/8% 11/1/2024 AAA 2,265M 2,301,805
-------------------------------------------------------------------------------------------------------------
University of California Revs MBIA+ 6 3/8% 9/1/2019 AAA 2,875M 2,932,500
-------------------------------------------------------------------------------------------------------------
Total 11,242,680
- -----------------------------------------------------------------------------------------------------------------------------------
Health and Hospital California Health Fac Auth Rev/Cedarknoll CA MTGE** 7 1/2% 8/1/2020 A 1,000M 1,070,000
3.11% -------------------------------------------------------------------------------------------------------------
California Health Fac Auth Rev/Hosp Of The Good Samaritan
7% 9/1/2021 A 2,500M 2,587,500
-------------------------------------------------------------------------------------------------------------
California Health Fac Auth Rev/Kaiser Permanente 9 1/8% 10/1/2015 AA 350M 357,875
-------------------------------------------------------------------------------------------------------------
California Health Fac Auth Rev/Kaiser Permanente Ser A
6 1/2% 12/1/2020 AA 1,650M 1,676,812
-------------------------------------------------------------------------------------------------------------
California Health Fac Auth Rev/Robert F Kennedy Med Ctr
CA MTGE** 7 3/4% 3/1/2014 A 1,000M 1,066,250
-------------------------------------------------------------------------------------------------------------
California Health Fac Auth Rev/San Diego Hosp Assn
MBIA+ 6.95% 10/1/2021 AAA 2,250M 2,452,500
-------------------------------------------------------------------------------------------------------------
Total 9,210,937
- -----------------------------------------------------------------------------------------------------------------------------------
Housing California Hsg Fin Agy Home Mtge Rev Ser A 7 3/8% 8/1/2017 Aa 9,485M 10,113,380
5.75% -------------------------------------------------------------------------------------------------------------
California Hsg Fin Agy Home Mtge Rev Ser G 7 1/4% 8/1/2017 AA 6,400M 6,912,000
-------------------------------------------------------------------------------------------------------------
San Diego CA Sing Fam Mtge Rev 9.20% 7/15/2016 Aa 5M 5,275
-------------------------------------------------------------------------------------------------------------
Total 17,030,655
-------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Statement of Net Assets August 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Rating*: Market
S&P or Principal Value
Security Moody's Amount (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Industrial Revenue
Bonds .57% San Diego CA Ind Dev Rev Gas & Elec Rev AMBAC+ 6.40% 9/1/2018 AAA $ 1,650M $ 1,697,438
- -----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Concord CA Redev Agy 3rd Ser MBIA+ 8% 7/1/2018 AAA 35M 38,631
.50% -------------------------------------------------------------------------------------------------------------
Santa Clara CA Ctfs 7.80% 11/1/2013 A 1,295M 1,439,069
-------------------------------------------------------------------------------------------------------------
Total 1,477,700
- -----------------------------------------------------------------------------------------------------------------------------------
Pollution Control California Poll Ctrl Rev Pacific Gas & Elec Rev
Revenue MBIA+ AMT+++ 8 7/8% 1/1/2010 AAA 9,600M 10,680,000
9.35% -------------------------------------------------------------------------------------------------------------
California Poll Ctrl Rev Pacific Gas & Elec Rev Ser B
AMT+++ 8 7/8% 1/1/2010 A 2,800M 3,087,000
-------------------------------------------------------------------------------------------------------------
California Poll Ctrl Rev So CA Edison MBIA+ AMT+++ 6.90% 12/1/2017 AAA 3,800M 4,070,750
-------------------------------------------------------------------------------------------------------------
California Poll Ctrl Rev So CA Edison
AMBAC+ AMT+++ 6.40% 12/1/2024 AAA 9,725M 9,870,875
-------------------------------------------------------------------------------------------------------------
Total 27,708,625
- -----------------------------------------------------------------------------------------------------------------------------------
Power Northern CA Transmission Rev MBIA+ 6 1/2% 5/1/2016 AAA 2,000M 2,090,000
14.45% -------------------------------------------------------------------------------------------------------------
Northern CA Transmission Rev RIBS MBIA+ 6.06% 4/29/2024++ AAA 7,900M 6,853,250
-------------------------------------------------------------------------------------------------------------
Palo Alto CA Util Rev 6 1/4% 6/1/2020 AA 2,860M 2,913,625
-------------------------------------------------------------------------------------------------------------
Puerto Rico Elec Pwr Auth Rev 6 1/8% 7/1/2021 A 2,250M 2,255,625
-------------------------------------------------------------------------------------------------------------
Puerto Rico Elec Pwr Auth Rev 7% 7/1/2021 A 7,500M 8,287,500
-------------------------------------------------------------------------------------------------------------
Puerto Rico Elec Pwr Auth Rev 6 3/8% 7/1/2024 A 1,720M 1,750,100
-------------------------------------------------------------------------------------------------------------
Riverside CA Elec Rev 6% 10/1/2015 Aa 1,200M 1,197,000
-------------------------------------------------------------------------------------------------------------
Sacramento CA Muni Util Dist Elec Rev MBIA+ 6 3/8% 8/15/2022 AAA 4,025M 4,145,750
-------------------------------------------------------------------------------------------------------------
Sacramento CA Muni Util Dist Elec Rev Linked Pars & Inflos
FGIC+ 6.30% 8/15/2018 AAA 12,000M 12,300,000
-------------------------------------------------------------------------------------------------------------
Santa Clara CA Elec Rev MBIA+ 6 1/4% 7/1/2019 AAA 1,000M 1,020,000
-------------------------------------------------------------------------------------------------------------
Total 42,812,850
- -----------------------------------------------------------------------------------------------------------------------------------
Solid Waste California Poll Ctrl Fin Auth Solid Waste Rev Browning Ferris
.88% AMT+++ 6 3/4% 9/1/2019 A 2,500M 2,606,250
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation Long Beach CA Harbor Rev Ser A AMT+++ 7 1/4% 5/15/2019 Aa 3,400M 3,667,750
11.38% -------------------------------------------------------------------------------------------------------------
Long Beach CA Harbor Rev Ser A MBIA+ AMT+++ 7 1/4% 5/15/2019 AAA 2,000M 2,165,000
-------------------------------------------------------------------------------------------------------------
Los Angeles CA Harbor Rev 6 1/2% 8/1/2025 AA 2,700M 2,814,750
-------------------------------------------------------------------------------------------------------------
Los Angeles CA Harbor Rev AMT+++ 6 5/8% 8/1/2025 AA 3,000M 3,120,000
-------------------------------------------------------------------------------------------------------------
Port Oakland CA Port Rev MBIA+ AMT+++ 6 1/2% 11/1/2016 AAA 3,000M 3,097,500
-------------------------------------------------------------------------------------------------------------
Port Oakland CA Port Rev MBIA+ 7 1/4% 11/1/2016 AAA 3,400M 3,608,250
-------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Hwy Rev 6% 7/1/2020 A 1,510M 1,494,900
-------------------------------------------------------------------------------------------------------------
San Francisco CA Bay Area Rapid Trans Dist Sales Tax Rev
FGIC+ 6.60% 7/1/2012 AAA 1,300M 1,387,750
-------------------------------------------------------------------------------------------------------------
San Francisco CA City & Co Arpt Rev 2nd Ser
AMBAC+ 6 1/2% 5/1/2013 AAA 2,000M 2,097,500
-------------------------------------------------------------------------------------------------------------
San Francisco CA City & Co Arpt Rev 2nd Ser
AMBAC+ AMT+++ 6 1/2% 5/1/2018 AAA 5,200M 5,388,500
-------------------------------------------------------------------------------------------------------------
San Francisco CA City & Co Arpt Rev 2nd Ser
MBIA+ 6 3/4% 5/1/2020 AAA 4,500M 4,854,375
-------------------------------------------------------------------------------------------------------------
Total 33,696,275
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer Central Coast Wtr Auth CA Rev St Wtr Prjt Regl Facs
24.84% AMBAC+ 6.60% 10/1/2022 AAA 3,250M 3,424,688
-------------------------------------------------------------------------------------------------------------
Culver City CA Wastewtr Rev FGIC+ 6 3/4% 9/1/2016 AAA 2,150M 2,300,500
-------------------------------------------------------------------------------------------------------------
East Bay CA Muni Util Dist Wastewtr Rev AMBAC+ 6 3/8% 6/1/2021 AAA 5,750M 5,915,313
-------------------------------------------------------------------------------------------------------------
East Bay CA Muni Util Dist Wtr Sys Rev AMBAC+ 6 1/2% 6/1/2017 AAA 10,000M 10,575,000
-------------------------------------------------------------------------------------------------------------
Long Beach CA Wtr Rev 6 1/8% 5/1/2019 AA 1,850M 1,861,563
-------------------------------------------------------------------------------------------------------------
Long Beach CA Wtr Rev 6 1/4% 5/1/2024 AA 5,285M 5,364,275
-------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Statement of Net Assets August 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Rating*: Market
S&P or Principal Value
Security Moody's Amount (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Los Angeles CA Dept Wtr & Pwr Rev 2nd Issue
FGIC+ 6.40% 11/1/2031 AAA $ 2,500M $ 2,568,750
-------------------------------------------------------------------------------------------------------------
Los Angeles CA Wastewtr Rev 7.10% 6/1/2018 A 5,500M 6,029,375
-------------------------------------------------------------------------------------------------------------
Metropolitan Wtr Dist So CA Wtrwks Rev 6% 7/1/2021 AA 2,250M 2,252,812
-------------------------------------------------------------------------------------------------------------
Metropolitan Wtr Dist So CA Wtrwks Rev RIBS 7.559% 8/5/2022++ AA 8,950M 8,972,375
-------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Aqu & Sewer Auth Rev 7 7/8% 7/1/2017 A 5,000M 5,550,000
-------------------------------------------------------------------------------------------------------------
Riverside CA Wtr Rev 6% 10/1/2015 Aa 1,475M 1,476,844
-------------------------------------------------------------------------------------------------------------
San Francisco CA City & Co Wtr Rev 6 1/2% 11/1/2017 AA 10,500M 11,025,000
-------------------------------------------------------------------------------------------------------------
Vallejo CA Rev Wtr Imp FGIC+ 6 1/2% 11/1/2014 AAA 6,000M 6,285,000
-------------------------------------------------------------------------------------------------------------
Total 73,601,495
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS 98.62% (Cost $282,239,846) 292,178,987
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES 1.38%
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and Receivables, Net of Liabilities 4,094,955
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets (equivalent to $10.41 a share on 28,452,989 shares of $.001 par
100.00% value capital stock outstanding; authorized, 1,000,000,000 shares) $296,273,942
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Ratings have not been audited by Deloitte & Touche LLP.
** Insured by the California Health Facility Construction Loan Program.
+ Insured or guaranteed by the indicated municipal bond insurance corporation.
++ The interest rate is subject to change periodically and inversely to the
prevailing market rate. The interest rate shown is the rate in effect at
August 31, 1995.
See page 1 for additional information.
+++ Income from these securities may be subject to the alternative minimum tax.
See Notes to Financial Statements.
<TABLE>
<CAPTION>
===========================================================================================================================
Statement of Operations For the Year Ended August 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income
----------------------------------------------------------------------------------------------------------------------
Income Interest $20,111,337
----------------------------------------------------------------------------------------------------------------------
Expenses Management fee (Note 3) $ 1,524,535
-----------------------------------------------------------------------------------------------------
Management fee waived (Note 3) (306,758)
-----------------------------------------------------------------------------------------------------
12b-1 distribution plan (Note 3) 790,656
-----------------------------------------------------------------------------------------------------
Shareholder servicing 149,000
-----------------------------------------------------------------------------------------------------
Audit and legal 47,200
-----------------------------------------------------------------------------------------------------
Reports to shareholders 18,000
-----------------------------------------------------------------------------------------------------
Other 82,009
-----------------------------------------------------------------------------------------------------
Net expenses 2,304,642
-----------------------------------------------------------------------------------------------------
Net investment income 17,806,695
-----------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) on Investments (Note 5)
----------------------------------------------------------------------------------------------------------------------
Net realized loss from security transactions
-----------------------------------------------------------------------------------------------------
Proceeds from sales 400,439,693
-----------------------------------------------------------------------------------------------------
Cost of securities sold 410,645,105
-----------------------------------------------------------------------------------------------------
Net realized loss (10,205,412)
----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
-----------------------------------------------------------------------------------------------------
Beginning of year 2,169,804
-----------------------------------------------------------------------------------------------------
End of year 9,939,141
-----------------------------------------------------------------------------------------------------
Net increase in unrealized appreciation 7,769,337
-----------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments (2,436,075)
-----------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $15,370,620
----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
Statements of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended August 31,
----------------------------
Increase (Decrease) in Net Assets 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations Net investment income $ 17,806,695 $ 19,431,509
---------------------------------------------------------------------------------------------------------------------
Net realized loss from security transactions (10,205,412) (12,944,145)
---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in unrealized appreciation of investments 7,769,337 (18,821,436)
---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 15,370,620 (12,334,072)
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from
---------------------------------------------------------------------------------------------------------------------
Net investment income (17,785,423) (19,556,197)
---------------------------------------------------------------------------------------------------------------------
Net realized gain from investment transactions -- (9,985,949)
---------------------------------------------------------------------------------------------------------------------
Total distributions (17,785,423) (29,542,146)
- ----------------------------------------------------------------------------------------------------------------------------------
Capital share transactions
---------------------------------------------------------------------------------------------------------------------
Net proceeds from sales of 2,319,204 and 6,799,751 shares, respectively 23,388,320 76,292,807
---------------------------------------------------------------------------------------------------------------------
Net asset value of 734,943 and 1,167,084 shares, respectively, issued to shareholders in
reinvestment of net investment income and realized gain from investment transactions 7,446,359 13,103,530
---------------------------------------------------------------------------------------------------------------------
Total 30,834,679 89,396,337
---------------------------------------------------------------------------------------------------------------------
Cost of 6,116,277 and 4,984,309 shares reacquired, respectively (61,619,627) (54,337,856)
---------------------------------------------------------------------------------------------------------------------
(Decrease) increase in net assets derived from capital share transactions (net
(decrease) increase of (3,062,130) and 2,982,526 shares, respectively) (30,784,948) 35,058,481
- ----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets (33,199,751) (6,817,737)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Beginning of year 329,473,693 336,291,430
---------------------------------------------------------------------------------------------------------------------
End of year (including overdistributed net investment income of $942,812
and $964,084, respectively) $296,273,942 $329,473,693
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
=================================================================================================================================
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended August 31,
--------------------------------------------------------------
Per Share Operating Performance: 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.45 $ 11.79 $ 11.21 $ 10.78 $ 10.19
---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations
---------------------------------------------------------------------------------------------------------------
Net investment income .588 .623 .656 .663 .684
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (.038) (.989) .872 .5615 .592
---------------------------------------------------------------------------------------------------------------
Total from investment operations .550 (.366) 1.528 1.2245 1.276
---------------------------------------------------------------------------------------------------------------------
Distributions
---------------------------------------------------------------------------------------------------------------
Dividends from net investment income (.590) (.624) (.658) (.672) (.686)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gain -- (.350) (.290) (.1225) --
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 10.41 $ 10.45 $ 11.79 $ 11.21 $ 10.78
------------------------------------------------------------------------------------------------------------------------------
Total Return* 5.58%+ (3.33)% 14.43% 11.79% 12.90%
------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $296,274 $329,474 $336,291 $224,505 $138,808
---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
---------------------------------------------------------------------------------------------------------------------
Expenses, including waiver 0.76% 0.67% 0.68% 0.67% 0.75%
---------------------------------------------------------------------------------------------------------------
Expenses, excluding waiver 0.86% 0.87% 0.88% 0.87% 0.95%
---------------------------------------------------------------------------------------------------------------
Net investment income 5.84% 5.63% 5.68% 5.87% 6.44%
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 100.20% 86.05% 81.34% 152.79% 117.39%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return does not consider the effects of sales loads.
See Notes to Financial Statements.
================================================================================
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies The Company is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The following is a summary of significant accounting policies
consistently followed by the Company. The policies are in conformity with
generally accepted accounting principles. (a) Market value is determined as
follows: Securities are valued at latest prices on the basis of current
quotations from bond dealers or from valuations furnished by an independent
pricing service. Securities for which market quotations are not available are
valued at fair value under procedures approved by the Board of Directors.
(b) It is the policy of the Company to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all net income and net gains realized. Therefore, there is no
provision for federal income tax. (c) Security transactions are accounted for on
the date that the securities are purchased or sold (trade date). Interest income
is recorded on the accrual basis.
5
<PAGE>
================================================================================
Notes to Financial Statements
- --------------------------------------------------------------------------------
2. Distributions Dividends from net investment income are declared daily and
paid monthly. Taxable net realized gains from security transactions, if any, are
declared in September and December. The accumulated net realized loss at August
31, 1995 for financial reporting purposes, which is substantially the same as
for federal income tax purposes, aggregated $23,166,754. The Company had a
capital loss carry-forward as of August 31, 1995 of approximately $23,200,000 of
which $13,000,000 expires in 2003 and $10,200,000 expires in 2004. Accordingly,
no capital gain distribution is expected to be paid to shareholders until net
gains have been realized in excess of such amounts. Income and capital gains
distributions are determined in accordance with income tax regulations which may
differ from methods used to determine the corresponding income and capital gains
amounts in accordance with generally accepted accounting principles. These
differences are primarily caused by differences in the timing of the recognition
of certain components of income, expenses, or capital gains and losses. Where
such differences are permanent in nature, they are reclassified based upon their
ultimate characterization for federal income tax purposes. Any such
reclassifications will have no effect on net assets, results of operations, or
net asset value of the fund. 3. Management Fee and Other Transactions with
Affiliates Lord, Abbett & Co. received a management fee of $1,217,777 for
which it supplied the Company with investment management services and executive
and other personnel, paid the remuneration of officers, provided office space
and paid for ordinary and necessary office and clerical expenses relating to
research, statistical work and the supervision of the Company's investment
portfolio. The management fee is based on average daily net assets for each
month at the annual rate of 1/2 of 1%. Lord, Abbett & Co. voluntarily waived a
portion of its management fee under an arrangement which can be terminated any
time. For the year ended August 31, 1995, Lord, Abbett & Co. waived $306,758 in
management fees. The Company has a Rule 12b-1 Plan providing for the payment to
dealers of (a) .25% of the average daily net asset value of shares sold and (b)
a one-time 1% distribution fee at the time of sale on such shares sold at net
asset value of $1 million or more. Lord, Abbett & Co. received $73,037
representing payment of commissions on sales of capital stock of the Company
after deducting $488,132 allowed to authorized distributors as concessions.
Certain of the Company's officers and directors have an interest in Lord, Abbett
& Co. 4. Capital Paid In At August 31, 1995, capital paid in aggregated
$310,444,367. 5. Purchases and Sales of Securities Purchases and sales of
investment securities (other than short-term investments) aggregated
$302,534,319 and $333,372,278, respectively. Security gains and losses are
computed on the identified cost basis. As of August 31, 1995, unrealized
appreciation of investments for federal income tax purposes aggregated
$9,939,141 of which $11,963,131 related to appreciated securities and $2,023,990
related to depreciated securities. For federal income tax purposes, the
identified cost of investments owned at August 31, 1995 was substantially the
same as the cost for financial reporting purposes. 6. Directors' Remuneration
The Directors of the Company associated with Lord, Abbett & Co. and all officers
of the Company receive no compensation from the Company for acting as such.
Outside Directors' fees, including attendance fees for board and committee
meetings, and outside Directors' retirement costs, are allocated among all funds
in the Lord Abbett group based on net assets of each fund. The direct
remuneration accrued during the period for outside Directors of the Company as a
group was $6,203 (exclusive of expenses), which has been deemed invested in
shares of the Company under a deferred compensation plan contemplating future
payment of the value of those shares. As of August 31, 1995, the aggregate
amount in Directors' accounts maintained under the plan was $112,108. Retirement
costs accrued during the period amounted to $3,699.
================================================================================
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders,
Lord Abbett California Tax-Free Income Fund, Inc.:
We have audited the accompanying statement of net assets of Lord Abbett
California Tax-Free Income Fund, Inc. as of August 31, 1995, the related
statements of operations for the year then ended and of changes in net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and the financial highlights are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at August
31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Lord Abbett
California Tax-Free Income Fund, Inc. at August 31, 1995, the results of its
operations, the changes in its net assets and the financial highlights for the
periods presented above in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
October 6, 1995
LACTF-2-895
(10/95)
- --------------------------------------------------------------------------------
Copyright (C) 1995 by Lord Abbett California Tax-Free Income Fund, Inc.,
767 Fifth Avenue, New York, NY 10153-0203
This publication, when not used for the general information of shareholders of
Lord Abbett California Tax-Free Income Fund, Inc., is to be distributed only if
preceded or accompanied by a current prospectus, which includes information
concerning the Fund's investment objective and policies, sales charges and other
matters.
All rights reserved. Printed in the U.S.A.
