1933 Act File No. 2-98163
1940 Act File No. 811-4313
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 13 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT [X]
OF 1940 [X]
Amendment No. 14
LORD ABBETT CALIFORNIA TAX-FREE INCOME FUND, INC.
Exact Name of Registrant as Specified in Charter
767 Fifth Avenue, New York, N.Y. 10153
Address of Principal Executive Office
Registrant's Telephone Number (212) 848-1800
Kenneth B. Cutler, Vice President & Secretary
767 Fifth Avenue, New York, N. Y. 10153
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
immediately on filing pursuant to paragraph (b) of Rule 485
X on January 1, 1996 pursuant to paragraph (b) of Rule 485
- ----
____ 60 days after filing pursuant to paragraph (a) (1) of Rule 485
____ on (date) pursuant to paragraph (a) (1) of rule 485
____ 75 days after filing pursuant to paragraph (a) (2) of rule 485
on (date) pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:
____ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2(a) (1) and a Rule 24f-2 Notice for
Registrant's most recent fiscal year was filed with the Commission on October
30, 1995.
<PAGE>
LORD ABBETT CALIFORNIA TAX-FREE INCOME FUND, INC.
FORM N-1A
Cross Reference Sheet
Post-Effective Amendment No. 13
Pursuant to Rule 481(a)
Form N-1A Location In Prospectus or
Item No. Statement of Additional Information
- ---------- -----------------------------------
1 Cover Page
2 Fee Table
3 Financial Highlights; Performance
4 (a) (i) Front Cover Page
4 (a) (ii) Front Cover Page; How We Invest;
Investment Objective
4 (b) N/A
4 (c) How We Invest
5 (a) (b) (c) Our Management
5 (d) N/A
5 (e) Back Cover Page
5 (f) Our Management; Financial Highlights
5 (g) Purchases
5 A Performance
5 A (c) N/A
6 (a) Front Cover Page
6 (b) (c) (d) N/A
6 (e) Front Cover Page
6 (f) (g) Dividends, Capital Gains,
Distributions and Taxes
6 (h) N/A
7 (a) Purchases; Back Cover Page
7 (b) (c) (d) (f) Purchases
7 (e) N/A
8 (a) (b) (c) (d) Redemptions
9 N/A
10 Cover Page
11 Cover Page - Table of Contents
12 N/A
13 (a) (b) (c) Investment Objective and Policies
13 (d) N/A
14 Directors and Officers
15 N/A
16 (a) (i) Investment Advisory and Other
Services
16 (a) (ii) Directors and Officers
16 (a) (iii) Investment Advisory and Other
Services
16 (b) Investment Advisory and Other
Services
16 (c) (d) (e) N/A
16 (f) Investment Advisory and Other
Services; Purchases, Redemptions
and Shareholder Services
16 (g) N/A
16 (h) Investment Advisory and Other
Services
16 (i) N/A
<PAGE>
Form N-1A Location In Prospectus or
Item No. Statement of Additional Information
- ---------- ------------------------------------
17 (a) Portfolio Transactions
17 (b) N/A
17 (c) Portfolio Transactions
17 (d) (e) N/A
18 (a) Cover Page
18 (b) N/A
19 (a) (b) Purchases, Redemptions and
Shareholder Services; Financial
Statements
19 (c) N/A
20 Taxes
21 (a) (b) Purchases, Redemptions and
Shareholder Services
21 (c) N/A
22 (a) N/A
22 (b) Past Performance
23 Financial Statements
<PAGE>
LORD ABBETT CALIFORNIA
TAX-FREE INCOME FUND, INC.
THE GENERAL MOTORS BUILDING
767 FIFTH AVENUE
NEW YORK, NY 10153-0203
800-426-1130
OUR FUND, LORD ABBETT CALIFORNIA TAX-FREE INCOME FUND, INC. (WE OR THE FUND) IS
A DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY INCORPORATED UNDER MARYLAND
LAW ON MAY 21, 1985. WE HAVE A SINGLE CLASS OF SHARES WITH EQUAL RIGHTS AS TO
VOTING, DIVIDENDS, ASSETS AND LIQUIDATION.
OUR INVESTMENT OBJECTIVE IS 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. THE FUND INVESTS IN INTERMEDIATE AND LONG-TERM
MUNICIPAL BONDS WHICH CAN FLUCTUATE IN VALUE AS INTEREST RATES CHANGE. WE WILL
SEEK TO ATTAIN OUR OBJECTIVE BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO
OF CALIFORNIA MUNICIPAL BONDS. SEE HOW WE INVEST FOR MORE INFORMATION ABOUT OUR
OBJECTIVE. THERE CAN BE NO ASSURANCE THAT THE FUND WILL ATTAIN ITS OBJECTIVE.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND THAT A
PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. ADDITIONAL INFORMATION ABOUT
THE FUND HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS
AVAILABLE UPON REQUEST WITHOUT CHARGE. THE STATEMENT OF ADDITIONAL INFORMATION
IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND MAY BE OBTAINED WITHOUT
CHARGE BY WRITING TO THE FUND OR BY CALLING 800-874-3733. ASK FOR PART B OF THE
PROSPECTUS THE STATEMENT OF ADDITIONAL INFORMATION.
THE DATE OF THIS PROSPECTUS, AND THE DATE OF THE STATEMENT OF ADDITIONAL
INFORMATION, IS JANUARY 1, 1996.
PROSPECTUS
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
SHAREHOLDER INQUIRIES SHOULD BE MADE IN WRITING DIRECTLY TO THE FUND OR BY
CALLING 800-821-5129. YOU ALSO CAN MAKE INQUIRIES THROUGH YOUR BROKER-DEALER.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. AN
INVESTMENT IN THE FUND INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
CONTENTS PAGE
1 Investment Objective 2
2 Fee Table 2
3 Financial Highlights 2
4 How We Invest 3
5 Purchases 5
6 Shareholder Services 7
7 Our Management 8
8 Dividends, Capital Gains
Distributions and Taxes 8
9 Redemptions 9
10 Performance 10
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.
THE FUND IS ONLY OFFERED TO RESIDENTS OF ARIZONA, CALIFORNIA, COLORADO, DISTRICT
OF COLUMBIA, HAWAII, NEVADA AND NEW JERSEY.
<PAGE>
1 INVESTMENT OBJECTIVE
Our investment objective is to seek as high a level of interest income exempt
from both federal income tax and California personal income tax as is consistent
with preservation of capital. The Fund invests in intermediate and long-term
municipal bonds and its shares can fluctuate in value as interest rates change.
Under normal circumstances, we intend to maintain the average weighted stated
maturity of municipal bonds held by the Fund at between ten and thirty-five
years.
2 FEE TABLE
A summary of the Funds expenses is set forth in the table below. The example is
not a representation of past or future expenses. Actual expenses may be greater
or less than those shown.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
(AS A PERCENTAGE OF OFFERING PRICE)
Maximum Sales Load(1) on Purchases
(See Purchases) 4.75%
Deferred Sales Load(1) (See Purchases) None(2)
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS
AFTER MANAGEMENT FEE WAIVER)
Management Fee (See Our Management) .40%(3)
12b-1 Fees (See Purchases) .26%(2)
Other Expenses (See Our Management) .10%
Total Operating Expenses .76%(3)
<FN>
Example: Assume an annual return of 5% and no change in the level of expenses
described above. For every $1,000 invested, with reinvestment of all
distributions you would pay the following total expenses if you closed your
account after the number of years indicated:
1 year 3 years 5 years 10 years
$55(4) $71(4) $88(4) $137(4)
(1) Sales load is referred to as sales charge and deferred sales load is
referred to as contingent deferred reimbursement charge throughout this
Prospectus.
(2) Redemptions of shares on which the Funds 1% Rule 12b-1 sales distribution
fee for purchases of $1 million or more has been paid are subject to a 1%
contingent deferred reimbursement charge, if the redemption occurs within
24 months after the month of purchase, subject to certain exceptions
described herein.
(3) Although not obligated to, Lord, Abbett & Co. (Lord Abbett) may waive a
portion of its management fee and assume other expenses with respect to the
Fund. It waived a portion of its management fee. The management fees would
have been .50% and total operating expenses would have been .86% had Lord
Abbett not waived a portion of its management fee. Subsequently, Lord
Abbett may change this fee on a partial or complete basis.
(4) Based on total operating expenses described above.
The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in the Fund.
3 FINANCIAL HIGHLIGHTS
The following table has been audited by Deloitte & Touche LLP, independent
accountants, in connection with their annual audit of the Funds Financial
Statements, whose report thereon is incorporated by reference in the Statement
of Additional Information and may be obtained on request, and has been included
herein in reliance upon their authority as experts in accounting and auditing.
</TABLE>
<TABLE>
<CAPTION>
September 3, 1985
(Commencement
Per Share Operating Year Ended August 31, of Operations) to
Performance: 1995 1994 1993 1992 1991 1990 1989 1988 1987 August 31, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.45 $11.79 $11.21 $10.78 $10.19 $10.31 $9.89 $9.95 $10.56 $9.53
INCOME FROM INVESTMENT OPERATIONS
Net investment income .588 .623 .656 .663 .684 .685 .712 .713 .734 .786
Net realized and unrealized
gain (loss) on investments (.038) (.989) .872 .5615 .592 (.112) .413 (.060) (.559) 1.041
TOTAL FROM INVESTMENT OPERATIONS .550 (.366) 1.528 1.2245 1.276 .573 1.125 .653 .175 1.827
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.590) (.624) (.658) (.672) (.686) (.693) (.705) (.713) (.755) (.797)
Distributions from net realized gain -- (.350) (.290) (.1225) -- -- -- -- (.030) --
NET ASSET VALUE, END OF PERIOD $10.41 $10.45 $11.79 $11.21 $10.78 $10.19 $10.31 $9.89 $9.95 $10.56
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 5.58% (3.33)% 14.43% 11.79% 12.90% 5.67% 11.67% 6.91% 1.63% 20.03%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $296,274 $329,474 $336,291 $224,505 $138,808 $105,238 $100,378 $82,592 $73,652 $44,984
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver 0.76% 0.67% 0.68% 0.67% 0.75% 0.61% 0.55% 0.54% 0.40% 0.27%
Expenses, excluding waiver 0.86% 0.87% 0.88% 0.87% 0.95% 0.94% 0.92% 0.98% 0.94% 1.09%
Net investment income 5.84% 5.63% 5.68% 5.87% 6.44% 6.75% 6.90% 7.23% 6.85% 7.02%
PORTFOLIO TURNOVER RATE 100.20% 86.05% 81.34% 152.79% 117.39% 38.43% 61.01% 72.06% 43.12% 35.03%
<FN>
*Total return does not consider the effects of sales charges.
See Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
4 HOW WE INVEST
We invest primarily in a diversified portfolio of intermediate-term (5-10 years)
to long-term (over 10 years) municipal bonds, the interest on which is exempt
from both federal income tax and California personal income tax in the opinion
of bond counsel to the issuer. The market prices for such securities are not
guaranteed and, as with other bond investments, will rise and fall in value as
interest rates change. Accordingly, the value of our shares will change as the
general levels of interest rates fluctuate. When interest rates decline, values
of securities in the portfolio as well as share values generally will rise.
Conversely, when interest rates rise, values of securities in the portfolio as
well as share values generally will decline. Municipal bonds as used herein and
as more fully described in the Statement of Additional Information are debt
obligations issued by the State of California, its political subdivisions,
agencies and instrumentalities or by territories and possessions of the United
States, such as Puerto Rico, if the interest on such obligations is exempt from
California personal income tax.
We invest primarily in investment-grade municipal bonds rated at the time of
purchase within the four highest grades assigned by Moodys Investors Service,
Inc. (Moodys) (Aaa, Aa, A, Baa), Standard & Poors Ratings Services (S&P) (AAA,
AA, A, BBB) or Fitch Investors Service (Fitch) (AAA, AA, A, BBB). We also may
invest in municipal bonds that are not rated but which are determined by Lord
Abbett to be of comparable quality to the rated California municipal bonds in
which we may invest. At least 70% of the municipal bonds in our portfolio must
be rated, at the time of purchase, within or equivalent to, the three highest
such grades. As much as 30% of the municipal bonds in our portfolio may be
rated, at the time of purchase, in the fourth highest grade. This grade, while
regarded as having an adequate capacity to pay interest and repay principal, is
considered a medium grade and has speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds. After we purchase a municipal bond, the issuer may cease to be
rated, or its rating or quality may be reduced below the minimum required for
purchase, which could have an adverse effect on the market value of the issue,
but which will not require the elimination of the issue from our portfolio. We
may invest up to 10% of our net assets in municipal bonds that are not readily
marketable or that are restricted as to resale and which we might not be able to
sell on a timely basis or at favorable prices.
The Fund's internal policy restricts investments to municipal bonds which are
initially investment grade, i.e., among the four highest grades mentioned above
or their equivalent, and we hope to provide above-average tax-free income
relative to comparable investment-grade, longer term California municipal bond
funds. In view of this internal policy and because we manage the maturities of
our investments in accordance with our interest rate expectations, we anticipate
(i) a higher level of tax-free income than a short-term California tax-free
municipal bond fund and (ii) a share value tending to fluctuate more than such a
short-term fund, but consistent with an investment-grade, longer term California
municipal bond fund.
The two principal classifications of municipal bonds are general obligation and
limited obligation or revenue bonds. General obligation bonds are secured by the
pledge of the faith, credit and taxing power of the municipality. The taxes or
special assessments that can be levied for the payment of debt service may be
limited or unlimited as to rate or amount. Revenue bonds are payable only from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise or other specific revenue
source. Industrial development bonds are in most cases revenue bonds and
generally do not constitute the pledge of the faith, credit or taxing power of
the municipality. The credit quality of such municipal bonds usually is directly
related to the credit standing of the user of the facilities. There are
variations in the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous factors.
We may purchase new issues of municipal bonds, which are generally offered on a
when-issued basis, with delivery and payment (settlement) for the securities
normally taking place approximately one month after the purchase date. However,
the payment obligation and the interest rate to be received by the Fund are each
fixed on the purchase date. During the period between purchase and settlement,
assets consisting of cash and/or high-grade marketable securities, marked to
market daily, of an amount sufficient to make payment at settlement will be
segregated at our custodian. There is a risk that yields available at settlement
may be higher than yields obtained on the purchase date, which could result in
depreciation of value. While we may sell when-issued securities before
settlement, normally we intend to actually acquire such securities unless a sale
appears desirable for investment reasons.
Under normal market conditions, we will attempt to invest 100% and, as a matter
of fundamental policy which cannot be changed without the approval of
shareholders, we will invest at least 80% of the value of our net assets in
municipal bonds issued by the State of California and its
<PAGE>
political subdivisions, agencies and instrumentalities, the interest on which is
exempt from California personal income tax as well as federal income tax.
Although normally we intend to be fully invested in municipal bonds, we may
temporarily invest up to 20% of our net assets in cash, in short-term tax-exempt
securities meeting the above-described quality standards, in commercial paper of
comparable investment quality or in obligations of the U.S. Government, its
agencies or instrumentalities in order to improve liquidity or to create reserve
purchasing power pending other investments. Because interest earned from
commercial paper or U.S. Government obligations is taxable for federal income
tax purposes, we intend to minimize temporary investments in such short-term
securities.
The Fund may invest up to 20% of its net assets (less any amount invested in the
temporary taxable investments described above) in private activity bonds, the
interest on which would be considered a preference item for purposes of the
computation of the federal alternative minimum tax applicable to individuals and
corporations. Fund dividends derived from interest may increase the alternative
minimum tax liability of corporate shareholders who are subject to that tax
based on the excess of their adjusted current earnings over their taxable
income.
We are a "diversified" investment company under the Investment Company Act of
1940. This means that with respect to 75% of our total assets, we may not invest
more than 5% of such total assets in the securities of any one issuer (except
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities). As much as 25% of the Funds total assets not subject to the
limitation described above could be invested in the securities of a single
issuer, resulting in an increased risk of loss to the Fund if the issuer is
unable to make interest or principal payments or if the market value of such
securities declines. The identification of the issuer will be determined on the
basis of the source of assets and revenues committed to meeting interest and
principal payments of the securities. While generally the State of California
and its political subdivisions are not considered issuers, when the assets and
revenues of a political subdivision are separate from those of the state
government creating the subdivision, and the security is backed only by the
assets and revenues of the subdivision, then the subdivision would be considered
the sole issuer. Similarly, if a revenue bond is backed only by the assets and
revenues of a nongovernmental user, then such user would be considered the sole
issuer.
We do not intend to invest more than 25% of our total assets in any industry,
except that we may, subject to the limits referred to in the preceding three
paragraphs, invest more than 25% of our assets in a combination of securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and in tax-exempt securities, including tax-exempt revenue bonds whether or not
the users of any facilities financed by such bonds are in the same industry.
Where nongovernmental users are in the same industry, there may be additional
risk to us in the event of an economic downturn in such industry, which may
result generally in a lowered ability of such users to make payments on their
obligations. Electric utility and health care are typical, but not all inclusive
of, the industries in which this 25% may be exceeded. The former is relatively
stable but subject to rate regulation vagaries. The latter suffers from two main
problems affordability and access. Securities issued by governments or their
subdivisions are not considered part of any industry.
The Fund may invest up to 20% of its net assets in residual interest bonds
(RIBs) to enhance income and increase portfolio duration. The Fund did not
invest more than 15% of its net assets in RIBs at any time during the fiscal
year ended August 31, 1995. A RIB, sometimes referred to as an inverse floater,
is a debt instrument with a floating or variable interest rate that moves in the
opposite direction of the interest rate on another security or the value of an
index. Changes in the interest rate on the other security or index inversely
affect the residual interest rate paid on the RIB, with the result that when
interest rates rise, RIBs give lower interest payments and their values fall
faster than other similar fixed-rate bonds. In an effort to mitigate this risk
that RIB values may fall farther, the Fund purchases other fixed-rate bonds
which are less volatile. When interest rates fall, not only do RIBs give higher
interest payments, their values also rise faster than other similar fixed-rate
bonds. The market for RIBs is relatively new.
The Fund may invest up to 20% of its net assets in obligations of certain
government authorities other than California, such as Puerto Rico, the interest
on which is exempt from California personal income tax.
The Fund will not borrow money except as a temporary measure for extraordinary
or emergency purposes and then not in excess of 5% of the Funds gross assets (at
cost or market value, whichever is lower) at the time of borrowing.
RISK FACTORS. Securities in which we may invest are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors and laws which may be enacted extending the time of payment of
principal and interest, or both. There is also the possibility that, as a result
of litigation or other conditions, the power or ability of issuers to meet their
obligations for payment of principal and interest may be materially affected or
their obligations may be found to be invalid or unenforceable.
<PAGE>
The ability of the Fund to achieve its objective is based on the expectation
that the issuers of the municipal bonds in the Funds portfolio will continue to
meet their obligations for the payment of principal and interest. The following
is a brief summary of certain factors affecting the Fund. This summary does not
purport to be complete and is based on information derived from publicly
available documents related to California, which information has not been
independently verified by the Fund. For a more detailed discussion of the risks
applicable to the Fund, see the Statement of Additional Information.
CALIFORNIA BONDS -- RISK FACTORS. As disclosed by the State of California in
connection with recent bond issues, various constitutional and statutory
provisions may affect the ability of issuers of California municipal bonds to
meet their financial obligations. Decreases in State and local revenues as a
consequence of such provisions may result in reductions in the ability of
California issuers to pay their obligations. In addition, starting in 1990,
California entered a sustained economic recession, the most severe in the State
since the 1930s. Although a steady recovery has been underway since 1994,
accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget, and
a reduction of available internal borrowable funds, have combined to
significantly deplete the States cash resources to pay its ongoing expenses. In
order to meet its cash needs, the State has had to rely for several years on a
series of external borrowings, including borrowings past the end of a fiscal
year. A full payment of $4 billion of revenue anticipation warrants will be made
on April 25, 1996. However, the State expects not to borrow over the end of the
1995-96 fiscal year, and expects to have significant available internal
borrowable cash resources and budget reserves at June 30, 1996. As a result of
the deterioration in the States budget and cash situation, the States credit
rating was reduced in July 1994 by the rating agencies.
The 1995-96 Budget Act is projected to have $44.1 billion of general fund
revenues and transfers and $43.4 billion of budgeted expenditures. In addition,
the 1995-96 Budget Act anticipates the retirement of the accumulated budget
deficit by June 30, 1996.
On December 6, 1994, Orange County, California (the County), together with its
pooled investment funds (the Pools) filed for protection under Chapter 9 of the
Federal Bankruptcy Code, after reports that the Pools had suffered significant
market losses in their investments, causing a liquidity crisis for the Pools and
the County. The County has reported the Pools loss at about $1.69 billion, or
about 23 percent of their initial deposits of approximately $7.5 billion. Many
of the entities which deposited moneys in the Pools, including the County, faced
interim and /or extended cash flow difficulties because of the bankruptcy filing
and may be required to reduce programs or capital projects.
As of December 20, 1995, none of the Funds net assets were invested in
securities issued by Orange County.
PUERTO RICO -- RISK FACTORS. The Fund may have significant investments in bonds
issued by the Commonwealth of Puerto Rico and its instrumentalities. The economy
of Puerto Rico is dominated by diversified manufacturing and service sectors. It
is closely integrated, through extensive trade, with that of the mainland United
States, and its economic health is closely tied to the price of oil and the
state of the U.S. economy. Puerto Rico has a rate of unemployment exceeding the
U.S. average.
Puerto Ricos economy has experienced significant growth since fiscal 1989.
Continued growth in fiscal 1995 and 1996 will depend on several factors,
including the state of the U.S. economy, the relative stability of the price of
oil and borrowing costs.
We will not change our investment objective without shareholder approval. If we
determine that our objective can best be achieved by a change in investment
policy or strategy, we may make such change without shareholder approval by
disclosing it in our prospectus.
5 PURCHASES
You may buy our shares through any independent securities dealer having a sales
agreement with Lord, Abbett & Co. ("Lord Abbett"), our exclusive selling agent.
Place your order with your investment dealer or send it to Lord Abbett
California Tax-Free Income Fund, Inc. (P.O. Box 419100, Kansas City, Missouri
64141). The minimum initial investment is $1,000, except for Invest-A-Matic and
Div-Move ($250 initial and $50 monthly minimum) and Retirement Plans ($250
minimum). Subsequent investments may be made in any amount. See "Shareholder
Services".
The net asset value of our shares is calculated every business day as of the
close of the New York Stock Exchange (NYSE) by dividing our net assets by the
number of shares outstanding. Securities are valued at market value as more
fully described in the Statement of Additional Information.
Orders for shares received by the Fund prior to the close of the NYSE, or
<PAGE>
received by dealers prior to such close and received by Lord Abbett prior to the
close of its business day, will be confirmed at the applicable public offering
price effective at such NYSE close. Orders received by dealers after the NYSE
closes and received by Lord Abbett in proper form prior to the close of its next
business day are executed at the applicable public offering price effective as
of the close of the NYSE on that next business day. The dealer is responsible
for the timely transmission of orders to Lord Abbett. A business day is a day on
which the NYSE is open for trading.
For information regarding the proper form of a purchase or redemption order,
call the Fund at 800-821-5129. This offering may be suspended, changed or
withdrawn. Lord Abbett reserves the right to reject any order.
The offering price is based on the per-share net asset value calculated as of
the times described above plus a sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge as a Dealer's
Percentage of: Concession
as a To Compute
Net Percentage Offering
Offering Amount of Offering Price, Divide
Size of Investment Price Invested Price* NAV by
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.00% .9525
$50,000 to $99,999 4.75% 4.99% 4.25% .9525
$100,000 to $249,999 3.75% 3.90% 3.25% .9625
$250,000 to $499,999 2.75% 2.83% 2.50% .9725
$500,000 to $999,999 2.00% 2.04% 1.75% .9800
$1,000,000 or more No Sales Charge 1.00% 1.0000
<FN>
* Lord Abbett may, for specified periods, allow dealers to retain the full
sales charge for sales of shares during such period, or pay an additional
concession to a dealer who, during a specified period, sells a minimum
dollar amount of our shares and/or shares of other Lord Abbett-sponsored
funds. In some instances, such additional concessions will be offered only
to certain dealers expected to sell significant amounts of shares. Lord
Abbett may, from time to time, implement promotions under which Lord Abbett
will pay a fee to dealers with respect to certain purchases not involving
imposition of a sales charge. Additional payments may be paid from Lord
Abbetts 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.
<FN>
</TABLE>
In selecting dealers to execute portfolio transactions, if two or more dealers
are considered capable of providing best execution, we may prefer the dealer who
has sold our shares and/or shares of other Lord Abbett-sponsored funds.
VOLUME DISCOUNTS. This section describes several ways to qualify for a lower
sales charge if you inform Lord Abbett or the Fund that you are eligible at the
time of purchase.
(1) Any purchaser (as described below) may aggregate a purchase in the Fund with
purchases of any other eligible Lord Abbett-sponsored fund, together with the
current value at maximum offering price of any shares in the Fund and in any
eligible Lord Abbett-sponsored funds held by the purchaser. (Holdings in the
following funds are not eligible for the above rights of accumulation: Lord
Abbett Equity Fund (LAEF), Lord Abbett Series Fund (LASF), Lord Abbett Research
Fund if not offered to the general public (LARF) and Lord Abbett U.S. Government
Securities Money Market Fund (GSMMF), except for existing holdings in GSMMF
which are attributable to shares exchanged from a Lord Abbett-sponsored fund
offered with a front-end sales charge or from a fund in the Lord Abbett Counsel
Group.) (2) A purchaser may sign a non-binding 13-month statement of intention
to invest $50,000 or more in the Fund or in any of the above eligible funds. If
the intended purchases are completed during the period, each purchase will be at
the sales charge, if any, applicable to the aggregate of such purchasers
intended purchases. If not completed, each purchase will be at the sales charge
for the aggregate of the actual purchases. Shares issued upon reinvestment of
dividends or distributions are not included in the statement of intention. The
term purchaser includes (i) an individual, (ii) an individual and his or her
spouse and children under the age of 21 and (iii) a trustee or other fiduciary
purchasing shares for a single trust estate or single fiduciary account
(including a pension, profit-sharing, or other employee benefit trust qualified
under Section 401 of the Internal Revenue Code more than one qualified employee
benefit trust of a single employer, including its consolidated subsidiaries, may
be considered a single trust, as may qualified plans of multiple employers
registered in the name of a single bank trustee as one account), although more
than one beneficiary is involved.
Our shares may be purchased at net asset value by our directors, employees of
Lord Abbett, employees of our shareholder servicing agent and employees of any
securities dealer having a sales agreement with Lord Abbett who consents to such
purchases or by the trustee or custodian under any pension or profit-sharing
plan or Payroll Deduction IRA established for the benefit of such persons or for
the benefit of any national securities trade organization to which Lord Abbett
belongs or any company with an account(s) in excess of $10 million managed by
Lord Abbett on a
<PAGE>
private-advisory-account basis. For purposes of this paragraph, the terms
directors and employees include a directors or employees spouse (including the
surviving spouse of a deceased director or employee). The terms directors and
employees of Lord Abbett also include other family members and retired directors
and employees. Our shares also may be purchased at net asset value (a) at $1
million or more, (b) with dividends and distributions from other Lord
Abbett-sponsored funds, except for dividends and distributions on shares of
LARF, LAEF, LASF and Lord Abbett Counsel Group, (c) under the loan feature of
the Lord Abbett-sponsored prototype 403(b) plan for share purchases representing
the repayment of principal and interest, (d) by certain authorized brokers,
dealers, registered investment advisers or other financial institutions who have
entered into an agreement with Lord Abbett in accordance with certain standards
approved by Lord Abbett, providing specifically for the use of our shares in
particular investment products made available for a fee to clients of such
brokers, dealers, registered investment advisers and other financial
institutions, (e) by employees, partners and owners of unaffiliated consultants
and advisers to Lord Abbett or Lord Abbett-sponsored funds who consent to such
purchase if such persons provide services to Lord Abbett or such funds on a
continuing basis and are familiar with such funds and (f) subject to appropriate
documentation, through a securities dealer where the amount invested represents
redemption proceeds from shares (Redeemed Shares) of a registered open-end
management investment company not distributed or managed by Lord Abbett (other
than a money market fund), if such redemptions have occurred no more than 60
days prior to the purchase of our shares, the Redeemed Shares were held for at
least six months prior to redemption and the proceeds of redemption were
maintained in cash or a money market fund prior to purchase. Purchasers should
consider the impact, if any, of contingent deferred sales charges in determining
whether to redeem shares for subsequent investment in our shares. Lord Abbett
may suspend or terminate the purchase option referred to in (f) above at any
time.
Our shares may be issued at net asset value in exchange for the assets, subject
to possible tax adjustment, of a personal holding company or an investment
company.
RULE 12B-1 PLAN. We have adopted a Rule 12b-1 Plan (the Plan) which authorizes
the payment of distribution fees to dealers (except as to certain accounts for
which tracking data is not available) in order to provide additional incentives
for them (a) to provide continuing information and investment services to their
shareholder accounts and otherwise to encourage their accounts to remain
invested in the Fund and (b) to sell shares of the Fund. Under the Plan, the
Fund pays Lord Abbett, who passes on to dealers, (1) an annual fee for services
(payable quarterly) of .25% of the average daily net asset value of shares sold
by dealers and (2) a one-time 1% sales distribution fee, at the time of sale, on
all shares at the $1 million level sold by dealers, including sales qualifying
at such level under the rights of accumulation and statement of intention
privileges.
Holders of shares on which the 1% sales distribution fee has been paid will be
required to pay to the 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-sponsored family of funds
on or before the end of the twenty-fourth month after the month in which the
purchase occurred. (An exception is made for redemptions by tax-qualified plans
under Section 401 of the Internal Revenue Code due to plan loan, hardship
withdrawals, death, retirement or separation from service with respect to plan
participants.) If the shares have been exchanged into another Lord
Abbett-sponsored fund and are thereafter redeemed out of the Lord Abbett family
on or before the end of such twenty-fourth month, the charge will be collected
for the Fund by the other fund. The Fund will collect such a charge for other
Lord Abbett-sponsored funds in a similar situation. Shares of a fund or series
on which the 1% sales distribution fee has been paid may not be exchanged into a
fund or series with a Rule 12b-1 Plan for which the payment provisions have not
been in effect for at least one year.
6 SHAREHOLDER SERVICES
We offer the following shareholder services:
Telephone Exchange Privilege: Shares may be exchanged, without a service charge,
for those of any other Lord Abbett-sponsored fund except for (i) LAEF, LARF,
LASF and Lord Abbett Counsel Group and (ii) certain tax-free single-state series
where the exchanging shareholder is a resident of a state in which such series
is not offered for sale (together, Eligible Funds).
You or your representative with proper identification can instruct the Fund to
exchange uncertificated shares (held by the transfer agent) by telephone.
Shareholders have this privilege unless they refuse it in writing. The Fund will
not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine and will employ reasonable procedures to
confirm that instructions received are genuine, including requesting proper
identification and recording all telephone exchanges. Instructions must be
received by the Fund in Kansas City (800-521-5315) prior to the close of the
NYSE to obtain each funds net asset value per share on that day. Expedited
exchanges by telephone may be difficult to implement in times of drastic
economic or market change. The exchange privilege should not be used to take
advantage of short-term swings in the market. The Fund reserves the right to
terminate or limit the privilege of any shareholder who makes frequent
exchanges. The Fund can revoke the privilege for all shareholders upon 60 days
prior written notice. A prospectus for the other Lord Abbett-sponsored fund
selected by you should be obtained and read before an exchange. Exercise of the
Exchange Privilege will be treated as a sale for federal income tax purposes
and, depending on the circumstances, a capital gain or loss may be recognized.
SYSTEMATIC WITHDRAWAL PLAN: Except for retirement plans for which there is no
such minimum, if the maximum offering price value of your uncertificated shares
is at least $10,000, you may have periodic cash withdrawals automatically paid
to you in either fixed or variable amounts.
DIV-MOVE: You can invest the dividends paid on your account ($50 minimum
investment) into an existing account in any other Eligible Fund. The account
must be either your account, a joint account for you and your spouse, a single
account for your spouse, or a custodial account for your minor child under the
age of 21. You should read the prospectus of the other fund before investing.
INVEST-A-MATIC: You can make fixed, periodic investments ($50 minimum
investment) into the Fund and/or any Eligible Fund by means of automatic money
transfers from your bank checking account. You should read the prospectus of the
other fund before investing.
RETIREMENT PLANS: Lord Abbett makes available the retirement plan forms and
custodial agreements for IRAs (Individual Retirement Accounts including
Simplified Employee Pensions), 403(b) plans and pension and profit-sharing
plans, including 401(k) plans.
All correspondence should be directed to Lord Abbett California Tax-Free Income
Fund, Inc. (P.O. Box 419100, Kansas City, Missouri 64141).
7 OUR MANAGEMENT
Our business is managed by our officers on a day-to-day basis under the overall
direction of our Board of Directors. We employ Lord Abbett as investment manager
pursuant to a Management Agreement. Lord Abbett has been an investment manager
for over 65 years and currently manages approximately $18 billion in a family of
mutual funds and advisory accounts. Under the Management Agreement, Lord Abbett
provides us with investment management services and personnel, pays the
remuneration of our officers and our directors affiliated with Lord Abbett,
provides us with office space and pays for ordinary and necessary office and
clerical expenses relating to research, statistical work and supervision of our
portfolio and certain other costs. Lord Abbett provides similar services to
fifteen other funds having various investment objectives and also advises other
investment clients. Barbara A. Grummel serves as portfolio manager of the Fund
and has acted in this capacity since 1990. Prior to joining Lord Abbett, Ms.
Grummel was a Vice President of Merrill Lynch Asset Management.
Under the Management Agreement, we are obligated to pay Lord Abbett a monthly
fee based on average daily net assets for each month. For the fiscal year ended
August 31, 1995, the effective fee paid to Lord Abbett as a percentage of
average daily net assets was at the rate of .30% for such year. In addition, we
pay all expenses not expressly assumed by Lord Abbett. Our ratio of expenses,
including management fee expenses, to average net assets for the year ended
August 31, 1995 was .76%.
8 DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Dividends from net investment income may be taken in cash or reinvested in
additional shares at net asset value without a sales charge. If you elect a cash
payment (i) a check will be mailed to you as soon as possible after the monthly
reinvestment date or (ii) if you arrange for direct deposit, your payment will
be wired directly to your bank account within one day after the payable date.
A long-term capital gains distribution is made when we have net profits during
the year from sales of securities which we have held more than one year. If we
realize net short-term capital gains, they also will be distributed. Any capital
gains distribution will be made annually in September. You may take it in cash
or reinvest it in additional shares at net asset value without a sales charge.
Dividends and distributions may be paid in December or January. Dividends and
distributions declared in October, November or December of any year to
shareholders of record as of a date in such a month will be treated for federal
income tax purposes as having been received by shareholders in that year if they
are paid before February 1 of the following year.
<PAGE>
We intend to continue to meet the requirements of Subchapter M of the Internal
Revenue Code. We will try to distribute to shareholders all our net investment
income and net realized capital gains, so as to avoid the necessity of the Fund
paying federal income tax. Distributions derived from net long-term capital
gains which are designated by the Fund as capital gains dividends will be
taxable to shareholders as long-term capital gains, whether received in cash or
shares, regardless of how long a taxpayer has held the shares. Under current
law, net long-term capital gains are taxed at the rates applicable to ordinary
income, except that the maximum rate for long-term capital gains for individuals
is 28%. Legislation is pending in Congress as of the date of this Prospectus
which would have the effect of reducing the federal income tax rate on capital
gains.
Dividends derived from our interest income on obligations exempt from federal
income tax, when designated by the Fund as exempt-interest dividends, will be
exempt from federal income tax when received by shareholders. Exempt-interest
dividends derived from interest income on municipal bonds issued by the State of
California and its political subdivisions, agencies and instrumentalities and on
obligations of the federal government or certain other government authorities
(for example, Puerto Rico) paid to individual shareholders will be exempt from
California personal income tax. Such dividends may be subject to California
franchise taxes and corporate income taxes if received by a corporation subject
to such taxes and to state and local taxes in states other than California.
Shareholders may be subject to a $50 penalty under the Internal Revenue Code and
we may be required to withhold and remit to the U.S. Treasury for federal income
taxes a portion (31%) of any redemption proceeds (including the value of shares
exchanged into another Lord Abbett-sponsored fund) and of any taxable dividend
or distribution on any account where the payee failed to provide a correct
taxpayer identification number or to make certain required certifications.
Shareholders receiving Social Security benefits and certain railroad retirement
benefits may be subject to federal income tax on up to 85% of such benefits as a
result of receiving investment income, including tax-exempt income (such as
exempt-interest dividends) and other distributions paid by the Fund. The tax
will be imposed on up to one-half of such benefits only when the sum of the
recipients adjusted gross income (plus miscellaneous adjustments), tax-exempt
interest income and one-half of Social Security income exceed $25,000 for
individuals ($32,000 for individuals filing a joint return). The tax will be
imposed on up to 85% of such benefits only when such sum exceeds $34,000 for
individuals ($44,000 for individuals filing a joint return). Shareholders
receiving such benefits should consult their tax advisers.
Information concerning the tax treatment of dividends and other distributions
will be mailed to shareholders annually. You should consult your tax adviser on
state, local and alternative minimum taxes as well as on the tax consequences of
gains or losses from the redemption or exchange of our shares.
9 REDEMPTIONS
To obtain the proceeds of an expedited redemption of $50,000 or less, you or
your representative with proper identification can telephone the Fund. The Fund
will not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine and will employ reasonable procedures to
confirm that instructions received are genuine, including requesting proper
identification, recording all telephone redemptions and mailing the proceeds
only to the named shareholder at the address appearing on the account
registration.
If you do not qualify for the expedited procedures described above to redeem
shares directly, send your request to Lord Abbett California Tax-Free Income
Fund, Inc. (P.O. Box 419100, Kansas City, Missouri 64141) with signature(s) and
any legal capacity of the signer(s) guaranteed by an eligible guarantor,
accompanied by any certificates for shares to be redeemed and other required
documentation. We will make payment of the net asset value of the shares on the
date the redemption order was received in proper form. Payment will be made
within three business days. The Fund may suspend the right to redeem shares for
not more than three days (or longer under unusual circumstances as permitted by
Federal law). If you have purchased Fund shares by check and subsequently submit
a redemption request, redemption proceeds will be paid upon clearance of your
purchase check, which may take up to 15 days. To avoid delays you may arrange
for the bank upon which a check was drawn to communicate to the Fund that the
check has cleared. Shares also may be redeemed by the Fund at net asset value
through your securities dealer who, as an unaffiliated dealer, may charge you a
fee. If your dealer receives your order prior to the close of the NYSE and
communicates it to Lord Abbett, as our agent, prior to the close of Lord Abbetts
business day, you will receive the net asset value of the shares being redeemed
as of the close of the NYSE on that day.
<PAGE>
If the dealer does not communicate such an order to Lord Abbett until the next
business day, you will receive the net asset value as of the close of the NYSE
on that next business day.
Shareholders who have redeemed their shares have a one-time right to reinvest
into another account having the identical registration in any of the Eligible
Funds, at the then applicable net asset value of the shares being purchased,
without the payment of a sales charge. Such reinvestment must be made within 60
days of the redemption and is limited to no more than the amount of the
redemption proceeds.
Under certain circumstances and subject to prior written notice, our Board of
Directors may authorize redemption of all of the shares in any account in which
there are fewer than 25 shares.
TAX-QUALIFIED PLANS: For redemptions of $50,000 or less, follow normal
redemption procedures. Redemptions over $50,000 must be received by the Fund
prior to, or concurrent with, the redemption request.
10 PERFORMANCE
Lord Abbett California Tax-Free Income Fund completed fiscal 1995 on August 31
with net assets totaling $296.3 million and a net asset value of $10.41 per
share versus $10.45 one year earlier. Dividends totaling $.590 per share were
paid over this period. The Funds total return (the percentage change in net
asset value assuming the reinvestment of all distributions) was 5.6% for the
year.
Throughout most of 1994 the fixed-income markets reacted negatively to the
Federal Reserve (the Fed) raising short-term interest rates a total of six times
in an attempt to slow economic activity. However, by early 1995, as evidence of
an 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.
For fiscal 1995, high-quality, long-term municipals were an important part of
our strategy for the Fund 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.
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.
YIELD AND TOTAL RETURN. Yield, tax-equivalent yield and total return data may,
from time to time, be included in advertisements about the Fund. Yield is
calculated by dividing the Funds annualized net investment income per share
during a recent 30-day period by the maximum offering price per share on the
last day of that period. Tax-equivalent yield is calculated by dividing that
portion of the Funds yield (as determined above) which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the Funds yield that is not tax exempt. The Funds yield and tax-equivalent
yield reflect the deduction of the maximum initial sales charge and reinvestment
of all income dividends and capital gains distributions. Total return for the
one-, five- and ten-year periods represents the average annual compounded rate
of return on an investment of $1,000 in the Fund at the maximum public offering
price. Total return also may be presented for other periods or based on
investment at reduced sales charge levels or net asset value. Any quotation of
total return not reflecting the maximum initial sales charge would be reduced if
such sales charge were used. Quotations of yield or total return for any period
when an expense limitation is in effect will be greater than if the limitation
had not been in effect. See Past Performance in the Statement of Additional
Information for a more detailed discussion.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFER IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS OR IN SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY
THE FUND AND NO PERSON IS ENTITLED TO RELY UPON ANY INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN OR THEREIN.
<PAGE>
Comparison of a change in value of a $10,000 investment in the Fund, assuming
reinvestment of all dividends and distributions, Lippers Average of California
tax-free funds and the Lehman Brothers Municipal Bond Index.
<TABLE>
<CAPTION>
The Fund The Fund Lippers Average Lehman Brothers
at Net Asset at Maximum of California Municipal Bond
Date Value Offering Price tax-free funds Index
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8/31/85 $10,000 $ 9,520 $10,000 $10,000
8/31/86 12,003 11,427 12,019 12,309
8/31/87 12,199 11,614 12,258 12,879
8/31/88 13,042 12,417 13,040 13,765
8/31/89 14,564 13,866 14,514 15,277
8/31/90 15,390 14,652 15,245 16,258
8/31/91 17,376 16,542 16,988 18,175
8/31/92 19,424 18,493 18,777 20,203
8/31/93 22,225 21,160 21,159 22,668
8/31/94 21,484 20,455 20,867 22,708
8/31/95 22,682 21,596 22,318 24,722
Average Annual Total Return (4)
1 Year 5 Years Life of Fund
+0.60% +7.01% +8.01%
<FN>
(1) Performance numbers for the Lehman Brothers Municipal Bond Index do not
reflect transaction costs or management fees. An investor cannot invest
directly in this Index. This Index is unmanaged and composed of municipal
bonds from many different states and, therefore, it may not be valid to
compare it to a California municipal bond portfolio, such as the Funds.
(2) Source: Lipper Analytical Services.
(3) Data reflects the deduction of the maximum sales charge of 4.75%.
(4) Total return is the percent change in value, after deduction of the maximum
sales charge of 4.75%, with all dividends and distributions reinvested for
the periods shown ending August 31, 1995 using the SEC-required uniform
method to compute such return. A portion of the Funds management fee has
been waived.
</FN>
</TABLE>
<PAGE>
UNDERWRITER AND INVESTMENT MANAGER
Lord, Abbett & Co.
The General Motors Building
767 Fifth Avenue
New York, New York 10153-0203
212-848-1800
CUSTODIAN
The Bank of New York
48 Wall Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
United Missouri Bank of Kansas City, N.A.
Tenth and Grand
Kansas City, Missouri 64141
SHAREHOLDER SERVICING AGENT
DST Systems, Inc.
P.O. Box 419100
Kansas City, Missouri 64141 800-821-5129
AUDITORS
Deloitte & Touche LLP
COUNSEL
Debevoise & Plimpton
LORD ABBETT
PROSPECTUS '96
JANUARY 1, 1996
APPLICATION INSIDE
LORD ABBETT CALIFORNIA TAX-FREE INCOME FUND
A MUTUAL FUND SEEKING 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.
LORD ABBETT & CO.
INVESTMENT MANAGEMENT
A TRADITION OF PERFORMANCE THROUGH DISCIPLINED INVESTING
<PAGE>
LORD ABBETT
STATEMENT OF ADDITIONAL INFORMATION JANUARY 1, 1996
LORD ABBETT
CALIFORNIA TAX-FREE INCOME FUND
This Statement of Additional Information is not a prospectus. A prospectus may
be obtained from your securities dealer or from Lord, Abbett & Co. ("Lord
Abbett") at The General Motors Building, 767 Fifth Avenue, New York, New York
10153-0203. This Statement relates to, and should be read in conjunction with,
the Prospectus dated January 1, 1996.
The Fund was incorporated under Maryland law on May 21, 1985. Our authorized
capital stock consists of a single class of 1,000,000,000 shares, $.001 par
value. All shares have equal noncumulative voting rights and equal rights with
respect to dividends, assets and liquidations. They are fully paid and
nonassessable when paid for and issued and have no preemptive or conversion
rights.
Shareholder inquiries should be made by writing directly to the Fund or by
calling 800-821-5129. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS Page
1. Investment Objective and Policies 2
2. Directors and Officers 4
3. Investment Advisory and Other Services 6
4. Portfolio Transactions 7
5. Purchases, Redemptions and Shareholder Services 8
6. Taxes 12
7. Risk Factors Relating to California and Puerto Rico
Municipal Bonds 13
8. Past Performance 16
9. Information About the Fund 17
10. Financial Statements 17
<PAGE>
1.
Investment Objective and Policies
The Fund's investment objective and policies are described in the Prospectus on
the cover page and under "How We Invest", respectively. In addition to those
policies described in the Prospectus, we are subject to the following investment
restrictions which cannot be changed without approval of a majority of our
outstanding shares. We may not: (1) sell short or buy on margin, although we may
obtain short-term credit necessary for the clearance of purchases of securities;
(2) buy or sell put, call, straddle or spread options; (3) borrow money except
as a temporary measure for extraordinary or emergency purposes, and then not in
excess of 5% of our gross assets (at cost or market value, whichever is lower)
at the time of borrowing; (4) invest knowingly more than 10% of our gross
assets, taken at market value at the time of purchase, in securities or other
assets not readily marketable or subject to legal or contractual restrictions on
resale; (5) act as underwriter of securities issued by others, except to the
extent that in connection with the disposition of our portfolio securities we
may be deemed to be an underwriter under federal securities laws; (6) make
loans, except for the purchase of debt securities in which we may invest,
consistent with our investment objective and policies; (7) buy or sell real
estate, including real estate mortgages, in the ordinary course of our business,
except that we may invest in marketable securities secured by real estate or
interests therein; (8) buy securities issued by any other open-end investment
company except pursuant to a merger, acquisition or consolidation; (9) buy or
sell commodities or commodities contracts (for this purpose, financial futures
contracts are not deemed to be commodities or commodities contracts); (10) with
respect to 75% of our gross assets, buy securities if the purchase would then
cause us to have more than 5% of our gross assets, at market value at the time
of purchase, invested in securities of any one issuer, except securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities (for
purposes of this restriction, the identification of the "issuer" will be
determined on the basis of the source of assets and revenues committed to
meeting interest and principal payments of the security but, generally, the
State of California and its political subdivisions are not considered "issuers")
or (11) invest more than 25% of our gross assets taken at market value at the
time of purchase in any one industry (tax-exempt securities and securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
are not considered securities of an "industry" for purposes of this
restriction).
We have no present intent to invest in financial futures contracts. Any
investments in such contracts will be made only after information concerning
such investments has been disclosed in our Prospectus.
For the year ended August 31, 1995, our portfolio turnover rate was 100.20%
versus 86.05% for the prior year.
CALIFORNIA MUNICIPAL BONDS
In general, California Municipal Bonds are debt obligations issued by or on
behalf of California and its political subdivisions, agencies and
instrumentalities and which meet the requirements of Section 103 of the Internal
Revenue Code of 1986, as amended, in the opinion of bond counsel to the issuer.
California Municipal Bonds are issued to obtain funds for various public
purposes, including the construction of bridges, highways, housing, hospitals,
mass transportation, schools, streets and water and sewer works. They may be
used to refund outstanding obligations, to obtain funds for general operating
expenses, or to obtain funds to loan to other public institutions and facilities
and in anticipation of the receipt of revenue or the issuance of other
obligations. In addition, the term "California Municipal Bonds" includes certain
types of industrial development bonds issued by public authorities to obtain
funds to provide privately-operated housing facilities, sports facilities,
convention or trade show facilities, airport, mass transit, port or parking
facilities, air or water pollution control facilities, and certain facilities
for water supply, gas, electricity or sewage or solid waste disposal. The
interest on California Municipal Bonds is exempt from federal income tax and
California personal income tax in the hands of investors.
The two principal classifications of California Municipal Bonds are "general
obligation" and limited obligation or "revenue" bonds. General obligation bonds
are secured by the pledge of the faith, credit, and taxing power of the
municipality for the payment of principal and interest. The taxes or special
assessments that can be levied for the payment of debt service may be limited or
unlimited as to the rate or amount. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue source.
Industrial development bonds are in most cases revenue bonds and generally do
not constitute the pledge of the credit or taxing power of the municipality. The
credit quality of such municipal bonds usually is directly related to the credit
standing of the user of the facilities. There are variations in the security of
California Municipal Bonds, both within a particular classification and between
classifications, depending on numerous factors.
The yields on California Municipal Bonds are dependent on a variety of factors,
including general money market conditions, supply and demand, general conditions
of the municipal bond market, the size of a particular offering, the maturity of
the obligation and the rating of the issue. The ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Services ("S&P") and
Fitch Investors Service ("Fitch") represent their opinions as to the quality of
the municipal bonds which they undertake to rate. It should be emphasized,
however, that such ratings are general and are not absolute standards of
quality. Consequently, municipal bonds with the same maturity, coupon and rating
may have different yields when purchased in the open market, while municipal
bonds of the same maturity and coupon with different ratings may have the same
yield.
DESCRIPTION OF FOUR HIGHEST MUNICIPAL BOND RATINGS
Moody's describes its four highest ratings for municipal bonds as follows:
"Bonds that are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
Bonds that are rated A possess many favorable investment attributes and are to
be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Bonds that are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well."
S&P describes its four highest ratings for municipal bonds as follows:
"AAA: Debt rated 'AAA' has the highest rating assigned by S & P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated ' AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Fitch describes its four highest ratings for municipal bonds as follows:
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated `AAA'. Because bonds rated in the `AAA' and
`AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt to these issuers is generally rated `F-1+'.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payments. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
2.
Directors and Officers
The following directors are partners of Lord Abbett, The General Motors
Building, 767 Fifth Avenue, New York, New York 10153-0203. They have been
associated with Lord Abbett for over five years and are also officers and/or
directors or trustees of the fifteen other Lord Abbett-sponsored funds. They are
"interested persons" as defined in the Investment Company Act of 1940, as
amended, (the "Act") and as such , may be considered to have an indirect
financial interest in the Rule 12b-1 Plan described in the Prospectus.
Ronald P. Lynch, age 60, Chairman
Robert S. Dow, age 50, President
The following outside directors are also directors or trustees of the fifteen
other Lord Abbett-sponsored funds referred to above except for Lord Abbett
Research Fund, Inc., of which only Messrs. Millican and Neff are directors.
E. Thayer Bigelow
Time Warner Cable
300 First Stamford Place
Stamford, Connecticut
President and Chief Executive Officer of Time Warner Cable Programming, Inc.
Formerly President and Chief Operating Officer of Home Box Office, Inc. Age 54.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon. Age 65.
John C. Jansing
162 S. Beach Road
Hobe Sound, Florida
Retired. Former Chairman of Independent Election Corporation of America, a proxy
tabulating firm. Age 70.
C. Alan MacDonald
The Marketing Partnership, Inc.
27 Signal Road
Stamford, Connecticut
General Partner, The Marketing Partnership, Inc., a full service marketing
consulting firm that specializes in strategic planning and customer-specific
marketing. Formerly Acquisition Consultant, The Noel Group, a private consulting
firm (1994). Formerly Chairman and Chief Executive Officer of Lincoln Foods,
Inc., manufacturer of branded snack foods (1992-1994). Formerly President and
Chief Executive Officer of Nestle Foods Corporation, a subsidiary of Nestle S.A.
(Switzerland). Age 62.
Hansel B. Millican, Jr.
Rochester Button Company
1100 Noblin Avenue
South Boston, Virginia
President and Chief Executive Officer of Rochester Button Company. Age 67.
Thomas J. Neff
Spencer Stuart & Associates
277 Park Avenue
New York, New York
President of Spencer Stuart & Associates, an executive search consulting firm.
Age 58.
The second column of the following table sets forth the compensation accrued for
the Fund's outside directors. The third and fourth columns set forth information
with respect to the retirement plan for outside directors maintained by the Lord
Abbett-sponsored funds. The fifth column sets forth the total compensation
payable by such funds to the outside directors. No director of the Fund
associated with Lord Abbett and no officer of the Fund received any compensation
from the Fund for acting as a director or officer.
<TABLE>
<CAPTION>
For the Fiscal Year Ended August 31, 1995
-----------------------------------------
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Pension or Estimated Annual For Year Ended
Retirement Benefits Benefits Upon December 31, 1994
Accrued by the Retirement Proposed Total Compensation
Aggregate Fund and to be Paid by the Accrued by the Fund and
Compensation Fifteen Other Lord Fund and Fifteen Fifteen Other Lord
Accrued by Abbett-sponsored Other Lord Abbett- Abbett-sponsored
Name of Director the Fund1 Fund sonsored Funds2 Funds3
- ---------------- ------------ ------------------- ------------------- ------------------------
E. Thayer Bigelow4 $ 830 $ 9,772 $33,600 $ 8,400
Thomas F. Creamer5 $ -- $26,084 $33,600 $29,650
Stewart S. Dixon $1,085 $22,472 $33,600 $ 4,300
John C. Jansing $1,085 $28,480 $33,600 $42,500
C. Alan MacDonald $1,060 $27,435 $33,600 $41,500
Hansel B. Millican, Jr. $1,073 $24,707 $33,600 $41,750
Thomas J. Neff $1,053 $16,126 $33,600 $41,200
<FN>
1. Outside directors' fees, including attendance fees for board and committee
meetings, are allocated among all Lord Abbett-sponsored funds based on net
assets of each fund. Fees payable by the Fund to its outside directors are
being deferred under a plan that deems the deferred amounts to be invested
in shares of the Fund for later distribution to the directors. The amounts
of the aggregate compensation payable by the Fund for the fiscal year ended
August 31, 1995 deemed invested in Fund shares, including dividends
reinvested and changes in net asset value applicable to such deemed
investments through the end of such year, were as follows: Mr. Bigelow,
$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
outside directors will receive annual retirement benefits for life equal to
80% of their final annual retainers following retirement at or after age 72
with at least 10 years of service. Each plan also provides for a reduced
benefit upon early retirement under certain circumstances, a pre-retirement
death benefit and actuarially reduced joint-and-survivor spousal benefits.
The amounts stated, except in the case of Mr. Creamer, would be payable
annually under such retirement plans if the director were to retire at age
72 and the annual retainers payable by such funds were the same as they are
today. The amounts accrued in column 3 were accrued by the Lord
Abbett-sponsored funds during the fiscal year ended August 31, 1995 with
respect to the retirement benefits in column 4.
3. This column shows aggregate compensation, including director's fees and
attendance fees for board and committee meetings, of a nature referred to
in footnote one, accrued by the Lord Abbett-sponsored funds during the year
ended December 31, 1994.
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 4) is the annual amount
payable to him by the Lord Abbett-sponsored funds before reduction for a
joint-and-survivor spousal benefit.
</FN>
</TABLE>
Except where indicated, the following executive officers of the Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Allen, Carper, Cutler, Dow, Henderson, Morris, Nordberg and Walsh are partners
of Lord Abbett; the others are employees: Barbara A. Grummel (with Lord Abbett
since 1990 - formerly Vice President, Merrill Lynch Asset Management), Executive
Vice President; Kenneth B. Cutler, age 63, Vice President and Secretary; Stephen
I. Allen, age 42; Daniel E. Carper, age 43; Robert S. Dow, age 50; Thomas S.
Henderson, age 63; Robert G. Morris, age 51, E. Wayne Nordberg, age 59; John J.
Gargana, Jr., age 64; Paul A. Hilstad, age 53 (with Lord Abbett since 1995 -
formerly Senior Vice President and General Counsel of American Capital
Management & Research, Inc.); Thomas F. Konop, age 53; Victor W. Pizzolato, age
63; John J. Walsh, age 58, Vice Presidents; and Keith F. O'Connor, age 40,
Treasurer.
The Fund's By-Laws provide that the Fund shall not hold an annual meeting of its
stockholders in any year unless one or more matters are required to be acted on
by stockholders under the Act, or unless called by a majority of the Board of
Directors or by stockholders holding at least one quarter of the stock of the
Fund outstanding and entitled to vote at the meeting. When any such annual
meeting is held, the stockholders will elect directors and vote on the approval
of the independent auditors of the Fund.
As of November 30, 1995, our officers and directors as a group owned less than
1% of our outstanding shares.
3.
Investment Advisory and Other Services
As described under "Our Management" in the Prospectus, Lord Abbett is the Fund's
investment manager. The nine general partners of Lord Abbett, all of whom are
officers and/or directors of the Fund, are: Stephen I. Allen, Daniel E. Carper,
Kenneth B. Cutler, Robert S. Dow, Thomas S. Henderson, Ronald P. Lynch, Robert
G. Morris, E. Wayne Nordberg and John J. Walsh. The address of each partner is
The General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203.
The services performed by Lord Abbett are described under "Our Management" in
the Prospectus. Under the Management Agreement described in the Prospectus, we
are obligated to pay Lord Abbett a monthly fee, based on average daily net
assets of the Fund for each month, at the annual rate of .5 of 1%. In addition,
we pay all expenses not expressly assumed by Lord Abbett, including, without
limitation, 12b-1 plan expenses; outside directors' fees and expenses;
association membership dues; legal and auditing fees; taxes; transfer and
dividend disbursing agent fees; shareholder servicing costs; expenses relating
to shareholder meetings; expenses of preparing, printing and mailing stock
certificates and shareholder reports; expenses of registration of our shares
under federal, state and foreign securities laws; expenses of preparing,
printing and mailing prospectuses to existing shareholders; insurance premiums;
brokerage; and other expenses connected with executing portfolio transactions.
Although its not obligated to do so, Lord Abbett may waive all or a portion of
its management fee and has assumed or may assume certain other expenses of the
Fund. For the fiscal years ended August 31, 1993, 1994, and 1995 Lord Abbett
waived $550,402, $700,551 and $306,758, respectively, and received $824,063,
$1,038,045 and $1,217,777, respectively, of its management fee.
Pursuant to California securities regulations, we limit operating expenses
(including management fees but excluding taxes, interest, extraordinary expenses
and brokerage commissions) to a certain percentage of average net assets with
excess expenses to be reimbursed each year by Lord Abbett to the extent of its
management fee. Lord Abbett will reimburse us for any such excess expenses by
reducing its management fee prior to each scheduled monthly payment of such fee.
The expense limitation is currently 2 1/2% of average annual net assets up to
$30,000,000, 2% of the next $70,000,000 of such assets and 1 1/2% of such assets
in excess of $100,000,000. The expense limitation is a condition of the
registration of investment company shares for sale in California and may be
changed or removed.
Lord Abbett serves as the Fund's principal underwriter.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281, are
the independent auditors of the Fund and must be approved at least annually by
our Board of Directors to continue in such capacity. They perform audit services
for the Fund including the audit of financial statements included in our annual
report to shareholders.
The Bank of New York ("BNY"), 48 Wall St., New York, New York 10286, serves as
the Fund's custodian. BNY succeeded to the custodial business of the Fund's
former custodian, Morgan Guaranty Trust Company of New York.
4.
Portfolio Transactions
Purchases and sales or portfolio securities usually will be principal
transactions and normally such securities will be purchased directly from the
issuer or from an underwriter or purchased from or sold to a market maker for
the securities. Therefore, the Fund usually will pay no brokerage commissions on
such transaction. Purchases from underwriters of portfolio securities will
include a commission or concession paid by the issuer to the underwriter and
purchases from or sales to dealers serving as market makers will include a
dealer's markup or markdown. Principal transactions, including riskless
principal transactions, are not afforded the protection of the safe harbor in
Section 28 (e) of the Securities Exchange Act of 1934.
Our policy is to obtain best execution on all our portfolio transactions, which
means that we seek to have purchases and sales of portfolio securities executed
at the most favorable prices, considering all costs of the transaction including
dealer markups and markdowns and any brokerage commissions. This policy governs
the selection of brokers or dealers and the market in which the transaction is
executed. To the extent permitted by law, we may, if considered advantageous,
make a purchase from or sale to another Lord Abbett-sponsored fund without the
intervention of any broker-dealer.
Broker-dealers are selected on the basis of their professional capability and
the value and quality of their brokerage and research services. Normally, the
selection is made by traders who are officers of the Fund and also are employees
of Lord Abbett. These traders do the trading as well for other accounts --
investment companies (of which they are also officers) and other investment
clients -- managed by Lord Abbett. They are responsible for the negotiation of
prices and any commissions.
We may pay a brokerage commission on the purchase or sale of a security that
could be purchased from or sold to a market maker if our net cost of the
purchase or the net proceeds to us of the sale are at least as favorable as we
could obtain on a direct purchase or sale. Brokers who receive such commissions
may also provide research services at least some of which are useful to Lord
Abbett in their overall responsibilities with respect to us and the other
accounts they manage. Research includes trading equipment and computer software
packages, acquired from third-party suppliers, that enable Lord Abbett to access
various information bases and may include the furnishing of analyses and reports
<PAGE>
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. Such services may be used by
Lord Abbett in servicing all their accounts, and not all of such services will
necessarily be used by Lord Abbett in connection with their management of the
Fund; conversely, such services furnished in connection with brokerage on other
accounts managed by Lord Abbett may be used in connection with their management
of the Fund, and not all of such services will necessarily be used by Lord
Abbett in connection with their advisory services to such other accounts. We
have been advised by Lord Abbett that research services received from brokers
cannot be allocated to any particular account, are not a substitute for Lord
Abbett's services but are supplemental to their own research effort and, when
utilized, are subject to internal analysis before being incorporated by Lord
Abbett into their investment process. As a practical matter, it would not be
possible for Lord Abbett to generate all of the information presently provided
by brokers. While receipt of research services from brokerage firms has not
reduced Lord Abbett's normal research activities, the expenses of Lord Abbett
could be materially increased if it attempted to generate such additional
information through its own staff and purchased such equipment and software
packages directly from the suppliers.
No commitments are made regarding the allocation of brokerage business to or
among brokers, and trades are executed only when they are dictated by investment
decisions of the Fund to purchase or sell portfolio securities.
If two or more broker-dealers are considered capable of offering the equivalent
likelihood of best execution, the broker-dealer who has sold our shares and/or
shares of other Lord Abbett-sponsored funds may be preferred.
If other clients of Lord Abbett buy or sell the same security at the same time
as we do, transactions will, to the extent practicable, be allocated among all
participating accounts in proportion to the amount of each order and will be
executed daily until filled so that each account shares the average price and
commission cost of each day. Other clients who direct that their brokerage
business be placed with specific brokers or who invest through wrap accounts
introduced to Lord Abbett by certain brokers may not participate with us in the
buying and selling of the same securities as described above. If these clients
wish to buy or sell the same security as we do, they may have their transactions
executed at times different from our transactions and thus may not receive the
same price or incur the same commission cost as we do.
We will not seek "reciprocal" dealer business (for the purpose of applying
commissions in whole or in part for our benefit or otherwise) from dealers as
consideration for the direction to them of portfolio business.
5.
Purchases, Redemptions and Shareholder Services
The Fund values its portfolio securities at market value as of the close of the
NYSE. Market value will be determined as follows: securities listed or admitted
to trading privileges on the New York or American Stock Exchange or on the
NASDAQ National Market System are valued at the last sales price, or, if there
is no sale on that day, at the mean between the last bid and asked prices, or,
in the case of bonds, in the over-the-counter market if, in the judgment of the
Fund's officers, that market more accurately reflects the market value of the
bonds. Over-the-counter securities not traded on the NASDAQ National Market
System are valued at the mean between the last bid and asked prices. Securities
for which market quotations are not available are valued at fair market value
under procedures approved by the Board of Directors.
Information concerning how we value our shares for the purchase and redemption
of our shares is described in the Prospectus under "Purchases" and
"Redemptions", respectively.
As disclosed in the Prospectus, we calculate our net asset value and are
otherwise open for business on each day that the NYSE is open for trading. The
NYSE is closed on Saturdays and Sundays and the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
The maximum offering price of our shares on August 31, 1995 was computed as
follows:
Net asset value per share (net assets
divided by shares outstanding).........................................$10.41
<PAGE>
Maximum offering price per share (net
asset value divided by .9525)..........................................$10.92
The Fund has entered into a distribution agreement with Lord Abbett under which
Lord Abbett is obligated to use its best efforts to find purchasers for the
shares of the Fund and to make reasonable efforts to sell Fund shares so long
as, in Lord Abbett's judgment, a substantial distribution can be obtained by
reasonable efforts.
For the fiscal years ended August 31, 1995, 1994 and 1993, Lord Abbett as our
principal underwriter received net commissions after allowance of a portion of
the sales charge to independent dealers as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------
<S> <C> <C> <C>
1995 1994 1993
---- ---- ----
Gross sales charge $561,169 $ 2,172,440 $3,305,871
Amount allowed to dealers $488,132 1,888,949 2,869,584
---------- ----------
Net commissions received by
Lord Abbett $73,037 $ 283,491 $ 436,287
======= ========= ==========
</TABLE>
As described in the Prospectus, the Fund has adopted a Distribution Plan and
Agreement (the "Plan") pursuant to Rule 12b-1 of the Act. In adopting the Plan
and in approving its continuance, the Board of Directors has concluded that
there is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The expected benefits include greater sales and lower redemptions
of Fund shares, which should allow the Fund to maintain a consistent cash flow,
and a higher quality of service to shareholders by dealers than would otherwise
be the case. During the last fiscal year, the Fund accrued or paid through Lord
Abbett to dealers $790,656 under the Plan. Lord Abbett uses all amounts received
under the Plan for payments to dealers for (i) providing continuous services to
the Fund's shareholders, such as answering shareholder inquiries, maintaining
records, and assisting shareholders in making redemptions, transfers, additional
purchases and exchanges and (ii) their assistance in distributing shares of the
Fund.
The Plan requires the Board of Directors to review, on a quarterly basis,
written reports of all amounts expended pursuant to the Plan and the purpose for
which such expenditures were made. The Plan shall continue in effect only if its
continuance is specifically approved at least annually by vote of the Fund's
Board of Directors and of the Fund's directors who are not interested persons of
the Fund within the meaning of the Act and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements related to
the Plan ("outside directors"), cast in person at a meeting called for the
purpose of voting on such Plan and agreements. The Plan may not be amended to
increase materially the amount spent for distribution expenses without approval
by a majority of the Fund's outstanding voting securities and the approval of a
majority of the Fund's directors, including a majority of the outside directors.
The Plan may be terminated at any time by vote of a majority of the Fund's
outside directors or by vote of a majority of the Fund's outstanding voting
securities.
As stated in the Prospectus, a 1% contingent deferred reimbursement charge
("CDRC") is imposed with respect to those shares (or shares of another Lord
Abbett-sponsored fund or series acquired through exchange of such shares) on
which the Fund has paid the one-time 1% 12b-1 sales distribution fee if such
shares are redeemed out of the Lord Abbett-sponsored family of funds within a
period of 24 months from the end of the month in which the original sale
occurred.
No CDRC is payable on redemptions by tax qualified plans under section 401 of
the Internal Revenue Code for benefit payments due to plan loans, hardship
withdrawals, death, retirement or separation from service with respect to plan
participants. The CDRC is received by the Fund and is intended to reimburse all
or a portion of the amount paid by the Fund if the shares are redeemed before
the Fund has had an opportunity to realize the anticipated benefits of having a
large, long-term shareholder account in the Fund. Shares of a fund or series on
which such 1% sales distribution fee has been paid may not be exchanged into a
fund or series with a Rule 12b-1 plan for which the payment provisions have not
been in effect for at least one year.
<PAGE>
The other Lord Abbett-sponsored funds and series which participate in the
Telephone Exchange Privilege (except Lord Abbett U.S. Government Securities
Money Market Fund, Inc. ("GSMMF") and certain series of Lord Abbett Tax-Free
Income Fund, Inc. and Lord Abbett Tax-Free Income Trust for which a Rule 12b-1
Plan is not yet in effect (collectively, the "Series")) have instituted a CDRC
on the same terms and conditions. No CDRC will be charged on an exchange of
shares between Lord Abbett funds. Upon redemption of shares out of the Lord
Abbett family of funds, the CDRC will be charged on behalf of and paid to the
fund in which the original purchase (subject to a CDRC) occurred. Thus, if
shares of a Lord Abbett fund are exchanged for shares of another such fund and
the shares tendered ("Exchanged Shares") are subject to a CDRC, the CDRC will
carry over to the shares being acquired, including GSMMF ("Acquired Shares").
Any CDRC that is carried over to Acquired Shares is calculated as if the holder
of the Acquired Shares had held those shares from the date on which he or she
became the holder of the Exchanged Shares. Although GSMMF and the Series will
not pay a 1% sales distribution fee on $1 million purchases of their own shares,
and will therefore not impose their own CDRC, GSMMF will collect the CDRC on
behalf of other Lord Abbett funds. Acquired shares held in GSMMF which are
subject to a CDRC will be credited with the time such shares are held in that
fund.
In no event will the amount of the CDRC exceed 1% of the lesser of (i) the net
asset value of the shares redeemed or (ii) the original cost of such shares (or
of the Exchanged Shares for which such shares were acquired). No CDRC will be
imposed when the investor redeems (i) amounts derived from increases in the
value of the account above the total cost of shares being redeemed due to
increases in net asset value, (ii) shares with respect to which no Lord Abbett
fund paid a 1% sales distribution fee on issuance (including shares acquired
through reinvestment of dividend income and capital gains distributions) or
(iii) shares which, together with Exchanged Shares, have been held continuously
for 24 months from the end of the month in which the original sale occurred. In
determining whether a CDRC is payable, (a) shares not subject to the CDRC will
be redeemed before shares subject to the CDRC and (b) of shares subject to a
CDRC, those held the longest will be the first to be redeemed.
Under the terms of the Statement of Intention to invest $50,000 or more over a
13-month period as described in the Prospectus, shares of Lord Abbett-sponsored
funds (other than shares of Lord Abbett Equity Fund ("LAEF"), Lord Abbett Series
Fund ("LASF"), Lord Abbett Research Fund if not offered to the general public
("LARF"), and GSMMF, unless holdings in GSMMF are attributable to shares
exchanged from a Lord Abbett-sponsored fund offered with a sales charge or from
a fund in the Lord Abbett Counsel Group) currently owned by you are credited as
purchases (at their current offering prices on the date the Statement is signed)
toward achieving the stated investment. Shares valued at 5% of the amount of
intended purchases are escrowed and may be redeemed to cover the additional
sales charge payable if the Statement is not completed. The Statement of
Intention is neither a binding obligation on you to buy, nor on the Fund to
sell, the full amount indicated.
As stated in the Prospectus, purchasers (as defined in the Prospectus) may
accumulate their investment in Lord Abbett-sponsored funds (other than LAEF,
LARF, LASF, and GSMMF, unless holdings in GSMMF are attributable to shares
exchanged from a Lord Abbett-sponsored fund offered with a front-end sales
charge or from Lord Abbett Counsel Group) so that a current investment, plus the
purchaser's holdings valued at the current maximum offering price, reach a level
eligible for a discounted sales charge.
As stated in the Prospectus, our shares may be purchased at net asset value by
our directors, employees of Lord Abbett, employees of our shareholder servicing
agent and employees of any securities dealer having a sales agreement with Lord
Abbett who consents to such purchases or by the trustee or custodian under any
pension or profit-sharing plan or Payroll Deduction IRA established for the
benefit of such persons or for the benefit of employees of any national
securities trade organization to which Lord Abbett belongs or any company with
an account(s) in excess of $10 million managed by Lord Abbett on a
private-advisory-account basis. For purposes of this paragraph, the terms
"directors" and "employees" include a director's or employee's spouse (including
the surviving spouse of a deceased director or employee). The terms " directors"
and "employees of Lord Abbett" also include other family members and retired
directors and employees.
Our shares also may be purchased at net asset value (a) at $1 million or more,
(b) with dividends and distributions from other Lord Abbett-sponsored funds,
except for LARF, LAEF, LASF and Lord Abbett Counsel Group, (c) under the loan
feature of the Lord Abbett-sponsored prototype 403(b) plan for share purchases
representing the repayment of principal and interest, (d) by certain authorized
<PAGE>
brokers, dealers, registered investment advisers or other financial institutions
who have entered into an agreement with Lord Abbett in accordance with certain
standards approved by Lord Abbett, providing specifically for the use of our
shares in particular investment products made available for a fee to clients of
such brokers, dealers, registered investment advisers and other financial
institutions, and (e) by employees, partners and owners of unaffiliated
consultants and advisors to Lord Abbett or Lord Abbett-sponsored funds who
consent to such purchase if such persons provide service to Lord Abbett or such
funds on a continuing basis and are familiar with such funds. Shares are offered
at net asset value to these investors for the purpose of promoting goodwill with
employees and others with whom Lord Abbett and/or the Fund has business
relationships.
Our shares also may be purchased at net asset value, subject to appropriate
documentation, through a securities dealer where the amount invested represents
redemption proceeds from shares ("Redeemed Shares") of a registered open-end
management investment company not distributed or managed by Lord Abbett (other
than a money market fund), if such redemption has occurred no more than 60 days
prior to the purchase of our shares, the Redeemed Shares were held for at least
six months prior to redemption and the proceeds of redemption were maintained in
cash or a money market fund prior to purchase. Purchasers should consider the
impact, if any, of contingent deferred sales charges in determining whether to
redeem shares for subsequent investment in our shares. Lord Abbett may suspend,
change or terminate this purchase option at any time.
Our shares may be issued at net asset value in exchange for the assets, subject
to possible tax adjustment, of a personal holding company or an investment
company. There are economies of selling efforts and sales-related expenses with
respect to offers to these investors and those referred to above.
The Prospectus briefly describes the Telephone Exchange Privilege. You may
exchange some or all of your shares for those of Lord Abbett-sponsored funds
currently offered to the public with a sales charge and GSMMF, to the extent
offers and sales may be made in your state. You should read the prospectus of
the other fund before exchanging. In establishing a new account by exchange,
shares of the Fund being exchanged must have a value equal to at least the
minimum initial investment required for the fund into which the exchange is
made.
Shareholders in such other funds have the same right to exchange their shares
for the Fund's shares. Exchanges are based on relative net asset values on the
day instructions are received by the Fund in Kansas City if the instructions are
received prior to the close of the NYSE in proper form. No sales charges are
imposed except in the case of exchanges out of GSMMF (unless a sales charge was
paid on the initial investment). Exercise of the exchange privilege will be
treated as a sale for federal income tax purposes, and, depending on the
circumstances, a gain or loss may be recognized. In the case of an exchange of
shares that have been held for 90 days or less where no sales charge is payable
on the exchange, the original sales charge incurred with respect to the
exchanged shares will be taken into account in determining gain or loss on the
exchange only to the extent such charge exceeds the sales charge that would have
been payable on the acquired shares had they been acquired for cash rather than
by exchange. The portion of the original sales charge not so taken into account
will increase the basis of the acquired shares.
Shareholders have the exchange privilege unless they refuse it in writing. You
should not view the exchange privilege as a means for taking advantage of
short-term swings in the market, and we reserve the right to terminate or limit
the privilege of any shareholder who makes frequent exchanges. We can revoke or
modify the privilege for all shareholders upon 60 days' prior notice. "Eligible
Funds" are other Lord Abbett-sponsored funds which are eligible for the exchange
privilege, except LASF which offers its shares only in connection with certain
variable annuity contracts, LAEF which is not issuing shares, LARF and Lord
Abbett Counsel Group.
A redemption order is in proper form when it contains all of the information and
documentation required by the order form or supplementally by Lord Abbett or the
Fund to carry out the order. The signature(s) and any legal capacity of the
signer(s) must be guaranteed by an eligible guarantor. See the Prospectus for
expedited redemption procedures.
The right to redeem and receive payment, as described in the Prospectus, may be
suspended if the NYSE is closed (except for weekends or customary holidays),
trading on the NYSE is restricted or the Securities and Exchange Commission
deems an emergency to exist.
<PAGE>
Our Board of Directors may authorize redemption of all of the shares in any
account in which there are fewer than 25 shares. Before authorizing such
redemption, the Board must determine that it is in our economic best interest or
necessary to reduce disproportionately burdensome expenses in servicing
shareholder accounts. At least 30 days' prior written notice will be given
before any such redemption, during which time shareholders may avoid redemption
by bringing their accounts up to the minimum set by the Board.
Under the Div-Move service described in the Prospectus, you can invest the
dividends paid on your account into an existing account in any other Eligible
Fund. The account must be either your account, a joint account for you and your
spouse, a single account for your spouse, or a custodial account for your minor
child under the age of 21. You should read the prospectus of the other fund
before investing.
The Invest-A-Matic method of investing in the Fund and/or any other Eligible
Fund is described in the Prospectus. To avail yourself of this method you must
complete the application form, selecting the time and amount of your bank
checking account withdrawals and the funds for investment, include a voided,
unsigned check and complete the bank authorization.
The Systematic Withdrawal Plan (the "SWP") also is described in the Prospectus.
You may establish a SWP if you own or purchase uncertificated shares having a
current offering price value of at least $10,000. Lord Abbett prototype
retirement plans have no such minimum. The SWP involves the planned redemption
of shares on a periodic basis by receiving either fixed or variable amounts at
periodic intervals. Since the value of shares redeemed may be more or less than
their cost, gain or loss may be recognized for income tax purposes on each
periodic payment. Normally, you may not make regular investments at the same
time you are receiving systematic withdrawal payments because it is not in your
interest to pay a sales charge on new investments when in effect a portion of
that new investment is soon withdrawn. The minimum investment accepted while a
withdrawal plan is in effect is $1,000. The SWP may be terminated by you or by
us at any time by written notice.
The Prospectus indicates the types of retirement plans for which Lord Abbett
provides forms and explanations. Lord Abbett makes available the retirement plan
forms and custodial agreements for IRAs (Individual Retirement Accounts
including Simplified Employee Pensions), 403(b) plans and qualified pension and
profit-sharing plans, including 401(k) plans. The forms name Investors Fiduciary
Trust Company as custodian and contain specific information about the plans.
Explanations of the eligibility requirements, annual custodial fees and
allowable tax advantages and penalties are set forth in the relevant plan
documents. Adoption of any of these plans should be on the advice of your legal
counsel or qualified tax adviser.
Shareholders in the other Lord Abbett funds listed above who are residents of
California, Arizona, Colorado, District of Columbia, Nevada, Wyoming, Hawaii or
New Jersey (other than shareholders of GSMMF unless a sales charge was paid on
the initial investment) have the same right to exchange their shares for the
Fund's shares.
All such shareholders have this privilege unless they refuse it in writing.
6.
Taxes
In order for the Fund to qualify to pay dividends which are exempt from federal
income tax, at the end of each fiscal quarter at least 50% of the Fund's total
assets must be invested in obligations exempt from federal income tax.
Moreover, dividends derived from interest on California Municipal Bonds or
obligations of the Federal government or certain other government authorities
(for example, Puerto Rico) will be exempt from California personal income tax
only if at least 50% of the Fund's total assets are invested in any combination
of such obligations at the end of each fiscal quarter.
The value of any shares redeemed by the Fund or repurchased through dealers may
be more or less than your tax basis in the shares at the time the redemption or
repurchase is made. Any gain (or loss) realized generally will be taxable (or
deductible) for federal and California tax purposes. However, if you have shares
redeemed which you have held for 6 months or less, any capital loss realized on
such a redemption will be disallowed for federal income tax and California
<PAGE>
personal income tax purposes to the extent of any tax-exempt distributions which
you have received on the shares. Any loss realized on the sale of Fund shares
which you have held for six months or less will be treated for federal income
tax and California personal income tax purposes as a long-term capital loss to
the extent of any capital gains distribution which you received with respect to
the shares.
Taxable distributions paid by the Fund will not qualify for the federal
dividends-received deduction for corporations.
Our shares may not be an appropriate investment for "substantial users" of
facilities financed by industrial development bonds, or persons related to such
"substantial users." Such persons should consult their tax advisers before
investing in shares of the Fund.
The Fund will be subject to a 4 percent nondeductible federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with a calendar-year distribution requirement. The
Fund intends to distribute to shareholders each year an amount adequate to avoid
the imposition of such excise tax.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of the Fund may not be deductible in whole or in part for federal or California
personal income tax purposes. Pursuant to published guidelines, the Internal
Revenue Service may deem indebtedness to have been incurred for the purpose of
acquiring or carrying shares of the Fund even though the borrowed funds may not
be directly traceable to the purchase of shares.
Certain financial institutions and property and casualty insurance companies may
be subject to special rules not discussed above and should consult their tax
adviser prior to purchasing shares of the fund.
Except as discussed in the Prospectus with respect to California personal income
taxes, the receipt of dividends from the Fund may be subject to tax under laws
of states or localities. You should consult your tax adviser on state and local
tax matters.
7.
Risk Factors Relating to
California Municipal and Puerto Rico Bonds
CALIFORNIA BONDS
Since the California Trust invests primarily in California municipal bonds, it
is affected by any political, economic or regulatory developments affecting the
ability of California issuers to pay interest or repay principal. Certain
provisions of the California Constitution and State statutes which limit the
taxing and spending authority of California governmental entities may impair the
ability of California issuers to maintain debt service on their obligations.
Based on certain recent official statements describing California municipal
bonds and other official statements of the State of California, the following is
a very brief summary of some of the above-mentioned developments.
General -- Starting in mid-1990, the State entered a sustained economic
recession, somewhat later than the rest of the nation. It was the most severe
recession in the State since the 1930's, with job losses estimated at over
800,000 particularly in the manufacturing (predominately aerospace), services
and construction sectors. The greatest effects were felt in Southern California.
A significant portion of these losses were linked to post-Cold War cuts in the
federal defense budget and military base closures. The trough of the recession
is estimated to have occurred in late 1993, again later than for the nation as a
whole. Although a steady recovery has been underway since 1994, pre-recession
employment levels are not expected to be reached until later in the decade.
The recession seriously affected State General Fund revenues, and increased
expenditures for health and welfare programs. The State in recent years has
faced a structural imbalance in its budget with the largest programs supported
by the General Fund -- K-14 education, health, welfare and corrections --
growing at rates higher than the growth rates for the principal revenue sources
of the General Fund. As a result, the State experienced recurring budget
deficits, with expenditures exceeding revenues for four of the five fiscal years
ending with 1991-92. By June 30, 1994, the State's General Fund had an
accumulated deficit, on a budget basis, of approximately $2 billion. By June 30,
1995, however, with economic recovery well underway in the State, the budget
deficit had decreased to an estimated $630 million.
<PAGE>
The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget, and
reduction of available internal borrowable funds, combined to significantly
deplete the State's cash resources to pay its on going expenses. In order to
meet its cash needs, the State has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. The
Department of finance projected cash flow borrowings in the 1995-96 fiscal year
would be the smallest in many years, comprising about $2 billion of notes to be
issued, in April, 1996, and maturing by June 30, 1996. With full payment of $4
billion of revenue anticipation warrants on April 25, 1996, the Department saw
no further need for borrowing over the end of the fiscal year. The available
internal borrowable cash resources of the General Fund at June 30, 1996 were
projected at almost $2 billion.
The Legislature has placed a $2 billion general obligation bond measure for
seismic safety projects on the March, 1996 statewide ballot.
On December 6, 1994, Orange county, California (the "County") together with its
pooled investment funds (the "Pools") filed for protection under Chapter 9 of
the federal Bankruptcy Code, after reports that the Pools had suffered
significant market losses in their investments, causing a liquidity crisis for
the Pools and the County. More than 180 other public entities, most of which,
but not all, are located in the County, were also depositors in the Pools. The
County has reported the Pools' loss at about $1.69 billion, or about 23 percent
of their initial deposits of approximately $7.5 billion. Many of the entities
which deposited moneys in the Pools, including the County, faced interim and/or
extended cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects.
The State has no existing obligation with respect to any outstanding obligations
or securities of the County or any of the other participating entities.
On July 15, 1994, all three of the rating agencies rating the State's long-term
debt lowered their ratings of the State's general obligation bonds. Moody's
lowered its rating from "Aa" to "A1", S&P lowered its rating from "A+" to "A"
and termed its outlook as "stable", and Fitch lowered its rating from "AA" to
"A".
The 1995-96 Budget Act is projected to have $44.1 billion of General Fund
revenues and transfers and $43.4 billion of budgeted expenditures. In addition,
the 1995-96 Budget Act anticipates the retirement of, the accumulated budget
deficit by June 30, 1996, and the budget reserve, the "Special Fund for Economic
Uncertainties", was projected to have a positive balance of $28 million at that
date, after repaying the last of the carryover budget deficit.
On January 17, 1994, an earthquake of the magnitude of an estimated 6.8 on the
Richter Scale struck Los Angeles causing significant damage to public and
private structures and facilities. Although some individuals and businesses
suffered losses totaling in the billions of dollars, the overall effect of the
earthquake on the regional and State economy is not expected to be serious.
Article XIII B of the California Constitution. In 1979, California voters
- -------------------------------------------------
adopted Article XIII B to the California Constitution, imposing an
appropriations limit (the "Appropriations Limit") on the spending authority of
the State. Article XIII B was modified substantially by Propositions 98 and 111
in 1988 and 1990, respectively. (See "Proposition 98" below.)
Article XIII B prohibits the State from spending "appropriations subject to
limitation" in excess of the Appropriations Limit. "Appropriations subject to
limitation," with respect to the State, are authorizations to spend "proceeds of
taxes," which consist of tax revenues, and certain other funds, including
proceeds from regulatory licenses, user charges or other fees, to the extent
that such proceeds exceed "the cost reasonably borne by that entity in providing
the regulation, product or service," but "proceeds of taxes" exclude most State
subventions to local governments, tax refunds and some benefit payments such as
unemployment insurance. No limit is imposed on appropriations of funds which are
not "proceeds of taxes," such as reasonable user charges or fees and certain
other non-tax funds.
Not included in the Appropriations Limit are appropriations for the debt service
costs of bonds existing or authorized by January 1, 1979 or subsequently
authorized by the voters, appropriations required to comply with mandates of
courts or the federal government and, pursuant to Proposition 111,
appropriations for qualified capital outlay projects and appropriations of
revenues derived from any increase in gasoline taxes and motor vehicle weight
<PAGE>
fees above January 1, 1990 levels. In addition, a number of recent initiatives
were structured to create new tax revenues dedicated to certain specific uses,
with such new taxes expressly exempted from the Article XIII B limits (e.g.,
increased cigarette and tobacco taxes enacted by Proposition 98 in 1988). The
Appropriations Limit also may be exceeded in cases of emergency. However, unless
the emergency arises from civil disturbance or natural disaster declared by the
Governor, and the appropriations are approved by two-thirds of the Legislature,
the Appropriations Limit for the succeeding three years must be reduced by the
amount of the excess.
Proposition 98. On November 8, 1988, voters of the State approved Proposition
- ----------------
98, a combined initiative constitutional amendment and statute called the
"Classroom Instructional Improvement and Accountability Act." Proposition 98
changed State funding of public education below the university level and the
operation of the State Appropriations Limit, primarily by guaranteeing K-14
schools a minimum share of General Fund revenues.
Proposition 98 permits the Legislature, by two-thirds vote of both Houses with
the Governor's concurrence, to suspend the K-14 schools' minimum funding formula
for a one-year period. Proposition 98 also contains provisions transferring
certain State tax revenues in excess of the Article XIII B limit to K-14
schools.
The effect of these various constitutional and statutory amendments upon the
ability of California issuers to pay interest and principal on their obligations
remains unclear and in any event may depend upon whether a particular California
Municipal Bond is a general or limited obligation bond (limited obligation bonds
generally being less affected by such changes) and on the type of security, if
any, provided for the bond. It is possible that other measures affecting the
taxing or spending authority of the State of California or its political
subdivisions may be approved or enacted in the future.
PUERTO RICO BONDS
The economy of Puerto Rico is dominated by the manufacturing and service
sectors. The manufacturing sector has experienced a basic change over the years
as a result of increased emphasis on higher wage, high technology industries
such as pharmaceuticals, scientific instruments, computers, microprocessors,
medical products and electrical products and certain high technology machinery
and equipment. The service sector, including wholesale and retail trade,
finance, insurance and real estate, also plays a major role in the economy. The
service sector ranks second only to manufacturing in contribution to the gross
domestic product and leads all sectors in providing employment. In recent years,
the service sector has experienced significant growth in response to and
paralleling the expansion of the manufacturing sector.
Much of the development of the manufacturing sector in Puerto Rico can be
attributed to various federal and Commonwealth tax incentives, most notably
Section 936 of the Internal Revenue Code and the Commonwealth's Industrial
Incentives Program.
Legislation is currently pending in Congress which, if passed, would repeal
section 936, which allows companies with operations in Puerto Rico and other
U.S. territories to receive a credit to be used against U.S. tax on certain
income from operations.
Puerto Rico's economy is closely integrated with that of mainland United States.
During fiscal 1994, approximately 87% of Puerto Rico's exports were to the
United States mainland, which also was the source of approximately 67% of Puerto
Rico's imports. In fiscal 1994, Puerto Rico experienced a $4.3 billion positive
adjusted merchandise trade balance.
Puerto Rico's more than decade-long economic expansion continued throughout the
five-year period from fiscal 1990 through fiscal 1994, and affected almost every
sector of its economy and resulted in record levels of employment (although
Puerto Rico's unemployment rate has chronically exceeded the average for the
United States). Factors behind this expansion included Commonwealth-sponsored
economic development programs, the relatively stable prices of oil imports,
periodic declines in the exchange value of the United States dollar, the level
of federal transfers and the relatively low cost of borrowing during the period.
<PAGE>
Growth in fiscal 1996 will depend on several factors, including the state of the
United States economy and relative stability of the price of oil imports
increases in visitors to the island and in exports, the exchange value of the
U.S. dollar, the level of federal transfers and the cost of borrowing.
The Constitution of Puerto Rico provides that public debt of the Commonwealth
will constitute a first claim on available Commonwealth revenues. Public debt
includes general obligation bonds and notes of the Commonwealth and any payments
required to be made by the Commonwealth under its guarantees of bonds and notes
issued by its public instrumentalities.
The Constitution of Puerto Rico also provides that direct obligations of the
Commonwealth evidenced by full faith and credit bonds or notes shall not be
issued if the amount of the principal of and interest on such bonds and notes
and on all such bonds and notes theretofore issued which is payable in any
fiscal year, together with any amount paid by the Commonwealth in the preceding
fiscal year on account of bonds or notes guaranteed by the Commonwealth, exceeds
15% of the average annual revenues raised under the provisions of Commonwealth
legislation and covered into the Treasury of Puerto Rico (principally income
taxes, property taxes and excise taxes) in the two fiscal years preceding the
then current fiscal year.
With the approval of the North American Free Trade Agreement by the United
States Congress which is intended to eliminate certain restrictions on trade
between Canada, the United States and Mexico, certain of Puerto Rico's
industries, including those that are lower salaried and labor intensive, may
face increased competition from Mexico. However, Puerto Rico's favorable
investment environment, skilled work force, infrastructure development and tax
structure (especially Section 936) would tend to create expanded trade
opportunities for Puerto Rico in sectors such as pharmaceuticals and
high-technology manufacturing.
8.
Past Performance
The Fund computes the average annual compounded rate of total return during
specified periods that would equate the initial amount invested to the ending
redeemable value of such investment by adding one to the computed average annual
total return, raising the sum to a power equal to the number of years covered by
the computation and multiplying the result by one thousand dollars, which
represents a hypothetical initial investment. The calculation assumes deduction
of the maximum sales charge from the initial amount invested and reinvestment of
all income dividends and capital gains distributions on the reinvestment dates
at prices calculated as stated in the Prospectus. The ending redeemable value is
determined by assuming a complete redemption at the end of the period(s) covered
by the average annual total return computation.
Using the method described above to compute average annual compounded rates of
total return, the Fund's total annual returns for the last one-year, five-year
and life-of-Fund periods ended August 31, 1995 amounted to 0.60%, 7.01% and
8.01%, respectively.
The Fund's yield quotation is based on a 30-day period ended on a specified
date, computed by dividing the Fund's net investment income per share earned
during the period by the Fund's maximum offering price per share on the last day
of the period. This is determined by finding the following quotient: Take the
Fund's dividends and interest earned during the period minus its expenses
accrued for the period (net of reimbursements) and divide by the product of (i)
the average daily number of Fund shares outstanding during the period that were
entitled to receive dividends, multiplied by (ii) the Fund's maximum offering
price per share on the last day of the period. To this quotient add one. This
sum is multiplied by itself five times. Then, one is subtracted from the product
of this multiplication and the remainder is multiplied by two. For the 30-day
period ended August 31, 1995, the yield for the Fund was 5.07%.
The Fund's tax-equivalent yield is computed by dividing that portion of the
Fund's yield (as determined above) which is tax exempt by one minus a stated
income tax rate (43.04% in this case) and adding the product to that portion, if
any, of the Fund's yield that is not tax exempt. For the 30-day period ended on
August 31, 1995, the tax-equivalent yield for the Fund was 8.90%.
<PAGE>
It is important to remember that these figures represent past performance and an
investor should be aware that the investment return and principal value of a
Fund investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Therefore, there is no assurance
that this performance will be repeated in the future.
9.
Information About the Fund
The directors, trustees and officers of Lord Abbett-sponsored mutual funds,
together with the partners and employees of Lord Abbett, are permitted to
purchase and sell securities for their personal investment accounts. In engaging
in personal securities transactions, however, such persons are subject to
requirements and restrictions contained in the Fund's Code of Ethics which
complies, in substance, with each of the recommendations of the Investment
Company Institute's Advisory Group on Personal Investing. Among other things,
the Code requires that Lord Abbett partners and employees obtain advance
approval before buying or selling securities, submit confirmations and quarterly
transaction reports, and obtain approval before becoming a director of any
company; and it prohibits such persons from investing in a security 7 days
before or after any Lord Abbett-sponsored fund or Lord Abbett-managed account
considers a trade or trades in such security, from profiting on trades of the
same security within 60 days and from trading on material and non-public
information. The Code imposes certain similar requirements and restrictions on
the independent directors and trustees of each Lord Abbett-sponsored mutual fund
to the extent contemplated by the recommendations of the Advisory Group.
10.
Financial Statements
The financial statements for the fiscal year ended August 31, 1995 and the
report of Deloitte & Touche LLP, independent auditors, on such financial
statements contained in the 1995 Annual Report to Shareholders of Lord Abbett
California Tax-Free Income Fund, Inc. are incorporated herein by reference to
such financial statements and report in reliance upon the authority of Deloitte
& Touche LLP as experts in auditing and accounting.
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Part A - Supplementary Information for the five years ended
August 31, 1995.
Part B - Statement of Net Assets at August 31, 1995; Statement of
Operations for the Year Ended August 31, 1995;
Statements of Changes in Net Assets for the
years ended August 31, 1994 and August 31, 1995
(b) Exhibits -
(11) Consent of Deloitte & Touche, LLP*
(16) Total Return, Yield and Tax Equivalent Yield
Computations*
(27) Financial Data Schedule*
* Filed herewith
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Record Holders of Securities
At December 14, 1995 - 4,987
Item 27. Indemnification
Registrant is incorporated under the laws of the State of Maryland and
is subject to Section 2-418 of the Corporations and Associations
Article of the Annotated Code of the State of Maryland controlling the
indemnification of directors and officers. Since Registrant has its
executive offices in the State of New York, and is qualified as a
foreign corporation doing business in such State, the persons covered
by the foregoing statute may also be entitled to and subject to the
limitations of the indemnification provisions of Section 721-726 of the
New York Business Corporation Law.
The general effect of these statutes is to protect officers, directors
and employees of Registrant against legal liability and expenses
incurred by reason of their positions with the Registrant.
The statutes provide for indemnification for liability for proceedings
not brought on behalf of the corporation and for those brought on
behalf of the corporation, and in each case place conditions under
which indemnification will be permitted, including requirements that
the officer, director or employee acted in good faith. Under certain
conditions, payment of expenses in advance of final disposition may be
permitted. The By-Laws of Registrant, without limiting the authority of
Registrant to indemnify any of its officers, employees or agents to the
extent consistent with applicable law, makes the indemnification of its
directors mandatory subject only to the conditions and limitations
imposed by the above-mentioned Section 2-418 of Maryland Law and by the
provisions of Section 17(h) of the Investment Company Act of 1940 as
interpreted and required to be implemented by SEC Release No. IC-11330
of September 4, 1980.
In referring in its By-Laws to, and making indemnification of directors
subject to the conditions and limitations of, both Section 2-418 of the
Maryland Law and Section 17(h) of the Investment Company Act of 1940,
Registrant intends that conditions and limitations on the extent of the
indemnification of directors imposed by the provisions of either
Section 2-418 or Section 17(h) shall apply and that any inconsistency
between the two will be resolved by applying the provisions of said
Section 17(h) if the condition or limitation imposed by Section 17(h)
is the more stringent. In referring in its By-Laws to SEC Release No.
IC-11330 as the source for interpretation and implementation of said
Section 17(h), Registrant understands that it would be required under
its By-Laws to use reasonable and fair means in determining whether
indemnification of a director should be made and undertakes to use
either (1) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be
indemnified ("indemnitee") was not liable to Registrant or to its
security holders by reason of willful malfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct
of his office ("disabling conduct") or (2) in the absence of such a
decision, a reasonable determination, based upon a review of the facts,
that the indemnitee was not liable by reason of such disabling conduct,
by (a) the vote of a majority of a quorum of directors who are neither
"interested persons" (as defined in the 1940 Act) of Registrant nor
parties to the proceeding, or (b) an independent legal counsel in a
written opinion. Also, Registrant will make advances of attorneys' fees
or other expenses incurred by a director in his defense only if (in
addition to his undertaking to repay the advance if he is not
ultimately entitled to indemnification) (1) the indemnitee provides a
security for his undertaking, (2) Registrant shall be insured against
losses arising by reason of any lawful advances, or (3) a majority of a
quorum of the non-interested, non-party directors of Registrant, or an
independent legal counsel in a written opinion, shall determine, based
on a review of readily available facts, that there is reason to believe
that the indemnitee ultimately will be found entitled to
indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expense incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
In addition, Registrant maintains a directors' and officers' errors and
omission liability insurance policy protecting directors and officers
against liability for breach of duty, negligent act, error or omission
committed in their capacity as directors or officers. The policy
contains certain exclusions, among which is exclusion from coverage for
active or deliberate, dishonest or fraudulent acts and exclusion for
fines or penalties imposed by law or other matters deemed uninsurable.
Item 28. Business and Other Connections of Investment Adviser
Lord, Abbett & Co. acts as investment advisor for seventeen
other open-end investment companies (of which it is principal
underwriter for sixteen), and as investment adviser to
approximately 5,100 private accounts. Other than acting as
directors and/or officers of open-end investment companies
managed by Lord, Abbett & Co., none of Lord, Abbett & Co.'s
partners has, in the past two fiscal years, engaged in any
other business, profession, vocation or employment of a
substantial nature for his own account or in the capacity of
director, officer, employee, partner or trustee of any entity
except as follows:
John J. Walsh
Trustee
The Brooklyn Hospital Center
100 Parkside Avenue
Brooklyn, NY
<PAGE>
Item 29. Principal Underwriter
(a) Affiliated Fund, Inc.
Lord Abbett U.S. Government Securities Fund, Inc.
Lord Abbett Bond-Debenture Fund, Inc.
Lord Abbett Value Appreciation Fund, Inc.
Lord Abbett Developing Growth Fund, Inc.
Lord Abbett Tax-Free Income Fund, Inc.
Lord Abbett Tax-Free Income Trust
Lord Abbett Fundamental Value Fund, Inc.
Lord Abbett Global Fund, Inc.
Lord Abbett U.S. Government Securities Money Market Fund, Inc.
Lord Abbett Series Fund, Inc.
Lord Abbett Equity Fund
Lord Abbett Research Fund, Inc.
Lord Abbett Securities Trust
Lord Abbett Investment Trust
Investment Adviser
American Skandia Trust (Lord Abbett Growth and Income
Portfolio)
(b) The partners of Lord, Abbett & Co. are:
Name and Principal Positions and Offices
Business Address (1) with Registrant
Ronald P. Lynch Chairman and Director
Robert S. Dow President and Director
Stephen I. Allen Vice President
Daniel E. Carper Vice President
Kenneth B. Cutler Vice President & Secretary
Thomas S. Henderson Vice President
Robert G. Morris Vice President
E. Wayne Nordberg Vice President
John J. Walsh Vice President
(1) Each of the above has as a principal business address
The General Motors Building,
767 Fifth Avenue, New York, NY 10153.
(c) Not Applicable
Item 30. Location of Accounts and Records
Registrant maintains the records, required by Rules 31a - 1(a) and
(b), and 31a - 2(a) at its main office.
Lord, Abbett & Co. maintains the records required by Rules 31a - 1(f)
and 31a - 2(e) at its main office.
Certain records such as cancelled stock certificates and
correspondence may be physically maintained at the main office of the
Registrant's Transfer Agent, Custodian, or Shareholder Servicing Agent
within the requirements of Rule 31a-3.
Item 31. Management Services
None
Item 32. Undertakings
The Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant has duly caused this Registration Statement
and/or any amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on the
28th day of December 1995.
LORD ABBETT CALIFORNIA TAX-FREE INCOME FUND
By /S/ RONALD P. LYNCH
Ronald P. Lynch, Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
NAME TITLE DATE
- ----- ----- ----
Chairman,
/s/ Ronald P. Lynch Director December 28, 1995
/s/ John J. Gargana, Jr. Vice President & December 28, 1995
Chief Financial Officer
E. Thayer Bigelow Director December 28, 1995
/s/ Stewart S. Dixon Director December 28, 1995
/s/ Robert S. Dow Director & President December 28, 1995
/s/ John C. Jansing Director December 28, 1995
/s/ C. Alan MacDonald Director December 28, 1995
/s/ Hansel B. Millican, Jr. Director December 28, 1995
/s/ Thomas J. Neff Director December 28, 1995
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX 99.B11 CONSENT OF DELOITTE & TOUCHE LLP
EX 99.B16 COMPUTATION OF PERFORMANCE & YIELD
EX 27 FINANCIAL DATA SCHEDULE
CONSENT OF INDEPENDENT AUDITORS
Lord Abbett California Tax-Free Income Fund, Inc.:
We consent to the incorporation by reference in Post-Effective Amendment No. 13
to Registration Statement No. 2-98163 of our report dated October 6, 1995
appearing in the annual report to shareholders and to the reference to us under
the captions "Financial Highlights" in the Prospectus and "Investment Advisory
and Other Services" and "Financial Statements" in the Statements of Additional
Information both of which are part of such Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
December 28, 1995
EXHIBIT 16
Lord Abbett California Tax-Free Income Fund, Inc.
Post Effective Amendment No. 13 on Form N-1A
Results of a $1,000 investment reflecting the maximum sales charge and the
reinvestment of all distributions:
Periods Ending August 31, 1995
One Five Life of
Year Years Fund*
$1,006 $1,403 ERV $2,160 ERV
P = 1,000 P = 1,000 P = 1,000
N = 1 N = 5 N = 10.0
ERV = 1,006 ERV = 1,403 ERV = 2,160
T = Average annual total return
1000(1+T)1 = $1,006 1000(1+T)5 = $1,403 1000(1+T)10 = $2,160
(1 + T) = 1,006 (1+T)5 = 1,403 (1+T)10 = 2,160
----- ----- -----
1,000 1,000 1,000
1 + T = [1,006] (1+T) = [1,403].2 (1+T) = [2,160].10
----- ----- -------
[1,000] [1,000] [1,000]
T = [1,006]-1 T = [1,403].2-1 T = [2,160].10-1
----- ----- -----
[1,000] [1,000] [1,000]
T = 0.60% T = 7.01% T = 8.01%
* The Fund commenced operations on 9/3/85.
<PAGE>
Calculation of yield appearing in the Statement of Additional Information for
the Lord Abbett California Tax-Free Income Fund Post-Effective Amendment No. 13
on Form N-1A.
YIELD FORMULA
For the 30 Days
Ended August 31, 1995
YIELD = 2[(a-b + 1)6 -1] = 5.07%
---
cd
Where: a = Fund dividends and interest earned during the period in
the amount of $1,437,749.
b = Fund expenses accrued for the period (net of
reimbursements) in the amount of $128,999.
c = the average daily number of Fund shares outstanding
during the period that were entitled to receive
dividends were 28,663,341.
d = the maximum offering price per Fund share on the last
day of the period was $10.93.
TAX EQUIVALENT YIELD
Federal:
1 - .36 (tax rate used) = .64
5.07 divided by .64 = 7.92 Tax equivalent Yield
Federal and California:
1 - .4304 (tax rate used) = .5696
5.07 divided by .5696 = 8.90 Tax Equivalent Yield
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