<PAGE>
LORD ABBETT CALIFORNIA TAX-FREE
INCOME FUND
SEMI-ANNUAL REPORT FOR THE SIX MONTHS ENDED FEBRUARY 29, 1996
Picture - California State Tax Return
A portfolio designed
to provide you with
interest income exempt
from federal and state
income taxes
[LOGO]
<PAGE>
Report to Shareholders
For the Six Months Ended February 29, 1996
[PHOTO]
RONALD P. LYNCH
Chairman
[PHOTO]
ROBERT S. DOW
President
March 12, 1996
Lord Abbett California Tax-Free Income Fund completed the first half of its
fiscal year on February 29, 1996 with net assets of over $296 million. At the
close of the period, the Fund's distribution rate was 5.36% based on the
February 29th net asset value of $10.64 and 5.10% based on that same day's
maximum offering price of $11.17. The Fund's total return (the percent change in
net asset value assuming the reinvestment of all distributions) was 4.98% over
the period.
As we mentioned in our last report to you, on July 6, 1995, the Federal Reserve
Bank lowered the Federal Funds Rate for the first time in nearly three years
from 6% to 53/4%. Since that time, economic growth remained at a modest annual
rate of 21/2%, while inflation averaged just under 3%. The combination of these
factors enabled the Federal Reserve to gradually lower rates in a series of
one-quarter point increments, to the current 51/4% level. This environment has
proved beneficial to the financial markets; bond prices (which are inversely
related to yields) rose in this environment.
Major influences on the municipal bond market continue to be budget negotiations
and talk of tax reform. Although investors have reacted to the uncertain impact
of tax reform on the market, these concerns have actually increased the
attractiveness (cheapness) of municipal bonds relative to other securities. At
present, municipal bonds yield in excess of 90% of the taxable yield on the
30-year Treasury (historically, 83%-85% is typical in the current federal tax
structure). Supply remains another factor impacting the municipal market. The
supply of municipal bonds has decreased steadily; new issuance in 1995 was down
5% from 1994's level, and it is anticipated that 1996's level will be 5% lower
than 1995's. The outstanding supply of municipal bonds also continues to
decline, as the heavy supply of bonds issued between 1982 and 1986 are called
away from the market or prerefunded.
Given this environment, your Fund continues to emphasize high-quality, long-term
municipal bonds with good call protection. Call protection (assurance by the
issuer that a bond will not be redeemed before a specific date) has become
increasingly important given the continued decrease in the supply of municipal
bonds coupled with the declining interest-rate environment. Essential service
revenue bonds still are significantly represented in your Fund because they
finance services that tend to remain in constant demand regardless of the
economic climate, such as: sewers, water and pollution control.
"...WE BELIEVE THE OVERALL OUTLOOK FOR THE FIXED-INCOME MARKETS IS QUITE
POSITIVE."
Going forward, if Gross Domestic Product grows at an annual rate of about 2%,
and inflation remains just below 3% (as we forecast) we believe the Federal
Reserve Bank may lower rates towards 41/2% by mid-year. Moderate growth and
contained inflation, combined with a lower interest-rate environment should bode
well for the financial markets. However, volatility along the way is likely to
come from several sources, namely the Presidential election; budget
negotiations; the possibility of tax reform; and the decreasing supply of bonds.
While net asset values may fluctuate along the way, we believe the overall
outlook for the fixed-income markets is quite positive.
We are pleased to announce that the Fund's Board of Directors elected Robert S.
Dow as President of the Fund. Mr. Dow, who has been a partner of Lord, Abbett &
Co. for nine years, serves as the Firm's Chief Investment Officer.
Thank you for your continued confidence in Lord Abbett California Tax-Free
Income Fund. We look forward to helping you achieve your financial goals in 1996
and beyond.
<PAGE>
Fund Performance
The Fund Has Provided a High Level of Tax-Free Dividends and Rewarding Total
Returns
Growth of a $100,000 Investment(1): 9/3/85-2/29/96
[The following table was represented by a line chart in the printed matter.]
Conservative
investors use tax-
free investments
not only to avoid
taxes, but to
build their nest eggs
Initial Investment
Plus Growth Total Value
9/3/85 $ 9623 $ 96263
8/86 106667 115543
8/87 100817 117429
8/88 100210 125549
8/89 104465 140195
8/90 103249 148142
8/91 109228 167267
8/92 115588 186979
8/93 126804 213953
9/94 118122 206815
8/95 117670 218354
2/29/96 120269 229211
Fiscal Year-end August 31
<TABLE>
<CAPTION>
SEC-Required Uniformly Computed Average Annual Rates of Total SEC Tax-
Return at the maximum sales charge of 4.75% for the periods Equivalent
ended 3/31/96 were: SEC Yield Yield(2)
10 Years
10 Years 5 Years 1 Year (at net asset value) 30 days ended 3/31/96
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
+6.93% +6.26% +1.80% +7.46% 4.47% 7.85%
</TABLE>
The results quoted above represent past performance which is no indication of
future results. The investment return and principal value of a Fund investment
will fluctuate so that shares, on any given day or when redeemed, may be worth
more or less than their original cost.
Monthly Tax-Free Income: $.0475 Per Share, Per Month
The Fund provided a tax-free dividend distribution rate of 5.10%(3) on 2/29/96.
This is based on the maximum offering price of $11.17 per share and the current
monthly dividend of $.0475, annualized. The dividend distribution rate, based on
this dividend and the net asset value of $10.64, was 5.36%.
(1) Performance reflects the deduction of the reduced 3.75% sales charge
applicable to investments of $100,000 and does not reflect applicable taxes
on capital gains.
(2) Assumes a 43.04% combined federal and California effective tax rate.
(3) The Fund's distribution rate reflects the current monthly dividend,
annualized, and the maximum offering price on 2/29/96. The alternative
minimum tax, personal exemptions, the phase-out of the tax benefits of
exemptions and the partial disallowance of deductions are not reflected.
Fund dividends derived from interest on private activity bonds will
increase the alternative minimum tax liability only for shareholders
subject to that tax. In the event the Fund does not invest entirely in
municipal bonds, federal and California personal income tax may be
applicable to interest income of the Fund. If interest rates rise, the
value of bonds held by the Fund would decrease, causing a decrease in the
Fund's share value. As of 2/29/96, the California Fund had less than 8% of
its assets invested in residual interest bonds ("RIBs"). The Fund may
invest up to 20% of its net assets in such securities. A RIB, sometimes
referred to as an inverse floater, is a debt instrument with a floating or
variable interest rate that moves in the opposite direction of the interest
rate on another security or the value of an index. Changes in the interest
rate on the other security or index inversely affect the residual interest
paid on the RIB, with the result that when interest rates rise, RIBs give
lower interest payments and their values fall faster than other similar
fixed-rate bonds. But when interest rates fall, not only do RIBs give
higher interest payments, their values also rise faster than other similar
fixed-rate bonds. The market for RIBs is relatively new. See the prospectus
for a history of fees waived and expense subsidies. If used as sales
material after 6/30/96, this report must be accompanied by Lord Abbett's
Performance Quarterly for the most recently completed calendar quarter.
1
<PAGE>
PROFESSIONAL MANAGEMENT AT WORK
Commitment to Quality is Central to the Fund's Investment Strategy
The Fund's investment policy restricts investments to municipal bonds rated
investment grade or equivalent at the time of purchase. The portfolio is
monitored on an ongoing basis. Lord Abbett attempts to identify credit strengths
and weaknesses of issues and focuses on economic trends within municipal market
sectors in an effort to anticipate credit upgrades and downgrades.
Portfolio Composition as of 2/29/96
[The following figures were represented as a pie chart in the printed matter.]
AAA 74.8%
AA 17.3%
A 7.9%
<PAGE>
Statement of Net Assets February 29, 1996
<TABLE>
<CAPTION>
Rating: S&P Principal Market Value
Security or Moody's Amount (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Prerefunded California Health Fac Auth Rev/Mercy Sr Hsg CA MTGE* 7.85% 12/1/2018 AAA $ 500M $ 560,625
22.60% Concord CA Redev Agy 3rd Ser MBIA+ 8% 7/1/2018 AAA 1,715M 1,905,794
East Bay CA Muni Util Dist Wtr Sys Rev AMBAC+ 61/2% 6/1/2017 AAA 10,000M 11,500,000
Local Govt Fin/Anaheim Redev 8.20% 9/1/2015 AAA 1,500M 1,680,000
Los Angeles CA Civic Ctr Ctfs 8% 6/1/2010 AAA 3,000M 3,318,750
Los Angeles CA Convention Ctfs Ser A 73/8% 8/15/2018 AAA 3,600M 4,041,000
Los Angeles Trans Comm Sales Tax Rev Ser A 8% 7/1/2018 AAA 1,575M 1,750,219
Metropolitan Wtr Dist So CA Wtrwks Rev 6% 7/1/2021 AAA 2,250M 2,424,375
Northern CA Transmission Ser A MBIA+ 7% 5/1/2024 AAA 4,000M 4,481,560
Orange Co CA Ctfs 81/4% 12/1/2018 AAA 1,250M 1,370,313
Puerto Rico Commonwealth 7.70% 7/1/2020 AAA 2,000M 2,320,000
Puerto Rico Commonwealth Aqu & Sewer Auth Rev Ser A 77/8% 7/1/2017 AAA 3,000M 3,333,750
Puerto Rico Commonwealth Hwy Auth Rev Ser Q 73/4% 7/1/2016 AAA 2,250M 2,615,625
Puerto Rico Commonwealth Hwy Auth Rev Ser Q 8% 7/1/2018 AAA 3,500M 4,095,000
Puerto Rico Elec Pwr Auth Rev Ser M 8% 7/1/2008 AAA 5,125M 5,707,969
Puerto Rico Elec Pwr Auth Rev Ser P 7% 7/1/2021 AAA 4,800M 5,526,000
Puerto Rico Pub Bldg Auth Rev Ser H 77/8% 7/1/2016 AAA 1,000M 1,077,500
Sacramento CA Muni Util Dist Elec Rev Ser V 77/8% 8/15/2016 AAA 6,280M 6,994,350
Santa Clara CA Redev FGIC+ 73/4% 6/1/2014 AAA 2,000M 2,207,500
Total 66,910,330
- ----------------------------------------------------------------------------------------------------------------------------------
General Obligation Arcadia CA Unified Sch Dist Ser B FGIC+ 61/2% 7/1/2015 AAA 1,785M 1,976,887
Local Beverly Hills CA Unified Sch Dist Ser A MBIA+ 53/4% 5/1/2020 AAA 1,500M 1,511,250
3.77% Fremont CA Unified Sch Dist/Alameda Co Ser E FGIC+ 51/2% 9/1/2019 AAA 2,085M 2,058,938
Fresno CA Unified Sch Dist Ser A MBIA+ 61/4% 8/1/2019 AAA 2,000M 2,132,500
Simi Valley CA Unified Sch Dist FGIC+ 5% 8/1/2015 AAA 3,685M 3,468,505
Total 11,148,080
- ----------------------------------------------------------------------------------------------------------------------------------
Education California Ed Fac Auth Rev/Loyola Marymount Univ Ser B 6.60% 10/1/2022 A 1,900M 2,044,875
4.47% California Ed Fac Auth Rev/Stanford Univ Ser I 6% 1/1/2018 AAA 4,000M 4,135,000
California St Univ & Colleges Students Union Rev Ser
B MBIA+ 61/8% 11/1/2024 AAA 2,265M 2,389,575
University CA Revs Ser C AMBAC+ 5% 9/1/2013 AAA 4,925M 4,678,750
Total 13,248,200
- ----------------------------------------------------------------------------------------------------------------------------------
Health and Hospital California Health Fac Auth Rev/Cedarknoll CA MTGE* 71/2% 8/1/2020 A 1,000M 1,085,000
3.69% California Health Fac Auth Rev/Kaiser Permanente Ser A 61/2% 12/1/2020 AA 1,400M 1,503,250
California Health Fac Auth Rev/Robert F Kennedy Med Ctr
CA MTGE* 73/4% 3/1/2014 A 1,000M 1,066,250
California Health Fac Auth Rev/San Diego Hosp Assn MBIA+ 6.95% 10/1/2021 AAA 2,250M 2,500,312
</TABLE>
2
<PAGE>
Statement of Net Assets February 29, 1996
<TABLE>
<CAPTION>
Rating: S&P Principal Market Value
Security or Moody's Amount (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Loma Linda CA Hosp Rev Ref/Loma Linda Univ Med Ctr Ser C
MBIA+ 53/8% 12/1/2022 AAA $ 4,950M $ 4,764,375
Total 10,919,187
- ----------------------------------------------------------------------------------------------------------------------------------
Housing California Hsg Fin Agy Rev Home Mtge Rev Ser A 73/8% 8/1/2017 Aa 8,890M 9,445,625
6.30% California Hsg Fin Agy Rev Home Mtge Rev Ser B MBIA+ 5.65% 2/1/2016 AAA 2,405M 2,405,000
California Hsg Fin Agy Rev Home Mtge Rev Ser G 71/4% 8/1/2017 Aa 6,400M 6,800,000
San Diego CA Sing Fam Mtge Rev 9.20% 7/15/2016 Aa 5M 5,163
Total 18,655,788
- ----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Concord CA Redev Agy 3rd Ser MBIA+ 8% 7/1/2018 AAA 35M 38,500
.50% Santa Clara CA Ctfs 7.80% 11/1/2013 A 1,295M 1,448,780
Total 1,487,280
- ----------------------------------------------------------------------------------------------------------------------------------
Pollution Control California Poll Ctrl Rev/Pacific Gas & Elec MBIA+ AMT+++ 87/8% 1/1/2010 AAA 9,600M 10,560,000
Revenue 8.49% California Poll Ctrl Rev/So CA Edison MBIA+ AMT+++ 6.90% 12/1/2017 AAA 3,800M 4,175,250
California Poll Ctrl Rev/So CA Edison AMBAC+ AMT+++ 6.40% 12/1/2024 AAA 9,725M 10,393,593
Total 25,128,843
- ----------------------------------------------------------------------------------------------------------------------------------
Power Kings River CA Consv Dist Pine Flat Pwr Rev Ser D 6% 1/1/2017 AA 2,745M 2,823,919
11.85% Northern CA Transmission Rev MBIA+ 61/2% 5/1/2016 AAA 2,000M 2,187,500
Northern CA Transmission Rev MBIA+ 51/4% 5/1/2020 AAA 7,200M 6,822,000
Northern CA Transmission Rev RIBS MBIA+ 6.77% 4/29/2024++ AAA 7,750M 7,401,250
Palo Alto CA Util Rev Ser A 61/4% 6/1/2020 AA 2,860M 3,053,050
Riverside CA Elec Rev 6% 10/1/2015 Aa 1,200M 1,237,500
Sacramento CA Muni Util Dist Elec Rev RIBS FGIC+ 9.021% 8/15/2018++ AAA 6,000M 6,660,000
Santa Clara CA Elec Rev Ser A MBIA+ 61/4% 7/1/2019 AAA 1,000M 1,053,750
Santa Clara CA Elec Rev Ser A MBIA+ 53/4% 7/1/2024 AAA 3,800M 3,842,750
Total 35,081,719
- ----------------------------------------------------------------------------------------------------------------------------------
Solid Waste California Poll Ctrl Fin Auth Solid Waste Rev/Browning Ferris
.90% AMT+++ 63/4% 9/1/2019 A 2,500M 2,675,000
- ----------------------------------------------------------------------------------------------------------------------------------
Transportation Long Beach CA Harbor Rev Ser A AMT+++ 71/4% 5/15/2019 Aa 3,400M 3,659,250
11.30% Long Beach CA Harbor Rev Ser A MBIA+ AMT+++ 71/4% 5/15/2019 AAA 4,000M 4,320,000
Los Angeles CA Harbor Rev Ser A 61/2% 8/1/2025 AA 2,000M 2,150,000
Puerto Rico Commonwealth Hwy Auth Rev Ser Q 6% 7/1/2020 A 8,675M 8,870,188
San Francisco CA Bay Area Rapid Trans Dist Sales Tax Rev
FGIC+ 6.60% 7/1/2012 AAA 1,300M 1,428,375
San Francisco CA City & Co Arpt Rev Ser I AMBAC+ AMT+++ 61/2% 5/1/2018 AAA 4,300M 4,649,375
San Francisco CA City & Co Arpt Rev Ser 9B FGIC+ 51/4% 5/1/2015 AAA 3,495M 3,390,150
San Francisco CA City & Co Arpt Rev 2nd Ser MBIA+ 63/4% 5/1/2020 AAA 4,500M 4,989,375
Total 33,456,713
- ----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer Burbank CA Wastewtr Treatment Rev Ser A FGIC+ 51/2% 6/1/2015 AAA 1,500M 1,483,125
25.86% Burbank CA Wastewtr Treatment Rev Ser A FGIC+ 51/2% 6/1/2025 AAA 1,000M 978,750
Central Coast Wtr Auth CA Rev St Wtr Prjt Regl
Facs AMBAC+ 6.60% 10/1/2022 AAA 3,250M 3,583,125
Contra Costa CA Wtr Dist Wtr Rev Ser G MBIA+ 51/2% 10/1/2019 AAA 5,100M 5,036,250
East Bay CA Muni Util Dist Wastewtr Treatment Sys Rev
RIBS AMBAC+ 7.12% 6/1/2020++ AAA 1,500M 1,456,875
East Bay CA Muni Util Dist Wastewtr Treatment Sys Rev FGIC+ 5% 6/1/2026 AAA 3,750M 3,473,438
East Bay CA Muni Util Dist Wtr Sys Rev FGIC+ 5% 6/1/2016 AAA 7,100M 6,709,500
Fresno CA Sewer Rev Ser A MBIA+ 5% 9/1/2023 AAA 10,950M 10,183,500
Los Angeles CA Wastewtr Rev Ser C 7.10% 6/1/2018 A 5,500M 6,050,000
Metropolitan Wtr Dist So CA Wtrwks Rev RIBS 8.075% 8/5/2022++ AA 6,950M 7,314,875
Metropolitan Wtr Dist So CA Wtrwks Rev Ser B MBIA+ 5% 7/1/2013 AAA 3,000M 2,883,750
Metropolitan Wtr Dist So CA Wtrwks Rev Ser B MBIA+ 5% 7/1/2014 AAA 2,680M 2,569,450
Riverside CA Wtr Rev 6% 10/1/2015 AA 1,475M 1,515,563
San Diego CA Pub Facs Fin Auth Sewer Rev FGIC+ 5% 5/15/2015 AAA 1,500M 1,411,875
San Diego CA Sewer Rev Ser A AMBAC+ 51/4% 5/15/2020 AAA 1,750M 1,658,125
</TABLE>
3
<PAGE>
Statement of Net Assets February 29, 1996
<TABLE>
<CAPTION>
Rating: S&P Principal Market Value
Security or Moody's Amount (Note 1a)
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
San Francisco CA City & Co Wtr Rev Ser A 61/2% 11/1/2017 AA $ 10,500M $ 11,431,875
Santa Rosa CA Wastewtr Rev FGIC+ 5.15% 9/1/2017 AAA 2,300M 2,219,500
Vallejo CA Rev Wtr Imp FGIC+ 61/2% 11/1/2014 AAA 6,000M 6,592,500
Total 76,552,076
- ------------------------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds 99.73% (Cost $284,138,232) $295,263,216
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES .27%
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Contra Costa Co CA Tax & Rev Anticipation Notes 41/2% 7/3/1996
Securities (Cost $351,586) MIG 1 350M 351,159
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Receivables, Net of Liabilities 451,467
----------------------------------------------------------------------------------------------------------------
Total Other Assets, Less Liabilities 802,626
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets (equivalent to $10.64 a share on 27,830,275 shares of $.001 par value capital stock
100.00% outstanding; authorized, 1,000,000,000 shares) $296,065,842
----------------------------------------------------------------------------------------------------------------
* Insured by the California Health Facility Construction Loan Program.
+ Insured or guaranteed by the indicated municipal bond insurance
corporation.
++ The interest rate is subject to change periodically and inversely to the
prevailing market rate.
The interest rate shown is the rate in effect at February 29, 1996. See
page 1 for additional information.
+++ Income from these securities may be subject to the alternative minimum tax.
See Notes to Financial Statements.
</TABLE>
Statement of Operations For the Six Months Ended February 29, 1996
<TABLE>
<CAPTION>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income Interest $ 9,353,798
- ------------------------------------------------------------------------------------------------ ------------------ ----------------
Expenses Management fee (Note 3) $ 744,550
-------------------------------------------------------------------------------- ------------------ ----------------
Management fee waived (Note 3) (199,176)
-------------------------------------------------------------------------------- ------------------ ----------------
12b-1 distribution plan (Note 3) 366,555
-------------------------------------------------------------------------------- ------------------ ----------------
Shareholder servicing 60,000
-------------------------------------------------------------------------------- ------------------ ----------------
Legal and audit 47,000
-------------------------------------------------------------------------------- ------------------ ----------------
Registration fee 18,000
-------------------------------------------------------------------------------- ------------------ ----------------
Reports to shareholders 15,500
-------------------------------------------------------------------------------- ------------------ ----------------
Other 34,554
-------------------------------------------------------------------------------- ------------------ ----------------
Total expenses 1,086,983
-------------------------------------------------------------------------------- ------------------ ----------------
Net investment income 8,266,815
-------------------------------------------------------------------------------- ------------------ ----------------
Realized and Unrealized Gain on Investments (Note 5)
- ------------------------------------------------------------------------------------------------ ------------------ ----------------
Realized gain from security transactions
-------------------------------------------------------------------------------- ------------------ ----------------
Proceeds from sales 175,696,958
-------------------------------------------------------------------------------- ------------------ ----------------
Cost of securities sold 170,695,327
-------------------------------------------------------------------------------- ------------------ ----------------
Net realized gain 5,001,631
- ------------------------------------------------------------------------------------------------ ------------------ ----------------
Unrealized appreciation of investments
-------------------------------------------------------------------------------- ------------------ ----------------
Beginning of period 9,939,141
-------------------------------------------------------------------------------- ------------------ ----------------
End of period 11,124,557
-------------------------------------------------------------------------------- ------------------ ----------------
Net unrealized appreciation 1,185,416
-------------------------------------------------------------------------------- ------------------ ----------------
Net realized and unrealized gain on investments 6,187,047
-------------------------------------------------------------------------------- ------------------ ----------------
Net Increase in Net Assets Resulting from Operations $14,453,862
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
February 29, August 31,
Increase (Decrease) in Net Assets 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations Net investment income $ 8,266,815 $ 17,806,695
--------------------------------------------------------------------------------------- ------------ ---------------
Net realized gain (loss) from securities transactions 5,001,631 (10,205,412)
--------------------------------------------------------------------------------------- ------------ ---------------
Net unrealized appreciation of investments 1,185,416 7,769,337
--------------------------------------------------------------------------------------- ------------ ---------------
Net increase in net assets resulting from operations 14,453,862 15,370,620
- ------------------------------------------------------------------------------------------------------- ------------ ---------------
Distributions to shareholders from net investment income (8,047,304) (17,785,423)
- ------------------------------------------------------------------------------------------------------- ------------ ---------------
Capital share transactions
--------------------------------------------------------------------------------------- ------------ ---------------
Net proceeds from sales of 1,097,054 and 2,319,204 shares, respectively 11,662,653 23,388,320
--------------------------------------------------------------------------------------- ------------ ---------------
Net asset value of 325,824 and 734,943 shares, respectively, issued to shareholders in
reinvestment of net investment income 3,465,860 7,446,359
--------------------------------------------------------------------------------------- ------------ ---------------
Total 15,128,513 30,834,679
--------------------------------------------------------------------------------------- ------------ ---------------
Cost of 2,045,592 and 6,116,277 shares reacquired, respectively (21,743,171) (61,619,627)
--------------------------------------------------------------------------------------- ------------ ---------------
Decrease in net assets derived from capital share transactions
(net decrease of 622,714 and 3,062,130 shares, respectively) (6,614,658) (30,784,948)
- ------------------------------------------------------------------------------------------------------- ------------ ---------------
Decrease in net assets (208,100) (33,199,751)
- ------------------------------------------------------------------------------------------------------- ------------ ---------------
Net Assets
- ------------------------------------------------------------------------------------------------------- ------------ ---------------
Beginning of period 296,273,942 329,473,693
--------------------------------------------------------------------------------------- ------------ ---------------
End of period (including overdistributed net investment income of $723,301
and $942,812, respectively) $296,065,842 $296,273,942
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Financial Highlights
<TABLE>
<CAPTION>
Six Months
Ended
February 29, Year Ended August 31,
Per Share Operating Performance: 1996 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.41 $ 10.45 $11.79 $11.21 $10.78 $10.19
----------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from investment operations
--------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net investment income .292+ .588 .623 .656 .663 .684
--------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain (loss)
on investments .223 (.038) (.989) .872 .5615 .592
--------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations .515 .550 (.366) 1.528 1.2245 1.276
----------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Distributions
--------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Dividends from net investment income (.285) (.590) (.624) (.658) (.672) (.686)
--------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Distributions from net realized gain - - (.350) (.290) (.1225) -
- ------------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 10.64 $ 10.41 $10.45 $11.79 $ 11.21 $ 10.78
- ------------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total Return* 4.98%+ 5.58% (3.33)% 14.43% 11.79% 12.90%
- ------------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Ratios/Supplemental Data:
- ------------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net assets, end of period (000) $296,066 $296,274 $329,474 $336,291 $224,505 $138,808
--------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Ratios to Average Net Assets:
----------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses, including waiver 0.36%+ 0.76% 0.67% 0.68% 0.67% 0.75%
--------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses, excluding waiver 0.43%+ 0.86% 0.87% 0.88% 0.87% 0.95%
--------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net investment income 2.76%+ 5.84% 5.63% 5.68% 5.87% 6.44%
----------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Portfolio turnover rate 58.06% 100.20% 86.05% 81.34% 152.79% 117.39%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return does not consider the effects of sales loads.
+Not annualized.
See Notes to Financial Statements.
5
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies The Company is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The following is a summary of significant accounting policies
consistently followed by the Company. The policies are in conformity with
generally accepted accounting principles. (a) Market value is determined as
follows: Securities are valued at latest prices on the basis of current
quotations from bond dealers or from valuations furnished by an independent
pricing service. Securities for which market quotations are not available are
valued at fair value under procedures approved by the Board of Directors. (b) It
is the policy of the Company to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all net income and net gains realized. Therefore, there is no
provision for federal income tax. (c) Security transactions are accounted for on
the date that the securities are purchased or sold (trade date). Interest income
is recorded on the accrual basis. 2. Distributions Dividends from net investment
income are declared daily and paid monthly. Taxable net realized gains from
security transactions, if any, are declared in September and December. The
accumulated net realized loss at February 29, 1996 for financial reporting
purposes, which is substantially the same as for federal income tax purposes,
aggregated $18,165,120. The Company had a capital loss carryforward as of August
31, 1995 of approximately $23,200,000 of which $13,000,000 expires in 2003 and
$10,200,000 expires in 2004. Accordingly, no capital gain distribution is
expected to be paid to shareholders until net gains have been realized in excess
of such amounts. Income and capital gains distributions are determined in
accord-ance with income tax regulations which may differ from methods used to
determine the corresponding income and capital gains amounts in accordance with
generally accepted accounting principles. These differences are primarily caused
by differences in the timing of recognition of certain components of income,
expenses, or capital gains and losses. Where such differences are permanent in
nature, they are reclassified based upon their ultimate characterization for
federal income tax purposes. Any such reclassifications will have no effect on
net assets, results of operations or net asset value of the fund. 3. Management
Fee and Other Transactions with Affiliates Lord, Abbett & Co. received a
management fee of $545,374 for which it supplied the Company with investment
management services and executive and other personnel, paid the remuneration of
officers, provided office space and paid for ordinary and necessary office and
clerical expenses relating to research, statistical work and the supervision of
the Company's investment portfolio. The management fee is based on average daily
net assets for each month at the annual rate of 1/2 of 1%. Lord, Abbett & Co.
voluntarily waived a portion of its management fee under an arrangement which
can be terminated at any time. For the six months ended February 29, 1996, Lord,
Abbett & Co. waived $199,176 in management fees. The Company has a Rule 12b-1
Plan providing for the payment to dealers of (a) .25% of the average daily net
asset value of shares sold and (b) a one-time 1% distribution fee at the time of
sale on such shares sold at net asset value of $1 million or more. Lord, Abbett
& Co. received $29,815 representing payment of commissions on sales of capital
stock of the Company after deducting $202,616 allowed to authorized distributors
as concessions. Certain of the Company's officers and directors have an interest
in Lord, Abbett & Co. 4. Capital Paid In At February 29, 1996, capital paid in
aggregated $303,829,706. 5. Purchases and Sales of Securities Purchases and
sales of investment securities (other than short-term investments) aggregated
$171,316,058 and $175,696,958, respectively. Security gains and losses are
computed on the identified cost basis. As of February 29, 1996, unrealized
appreciation of investments for federal income tax purposes aggregated
$11,124,557 of which $13,450,741 related to appreciated securities and
$2,326,184 related to depreciated securities. For federal income tax purposes,
the identified cost of investments owned at February 29, 1996 was substantially
the same as the cost for financial reporting purposes. 6. Directors'
Remuneration The Directors of the Company associated with Lord, Abbett & Co. and
all officers of the Company receive no compensation from the Company for acting
as such. Outside Directors' fees, including attendance fees for board and
committee meetings, and outside Directors' retirement costs, are allocated among
all funds in the Lord Abbett group based on net assets of each fund. The direct
remuneration accrued during the period for outside Directors of the Company as a
group was $2,723 (exclusive of expenses), a portion of which has been deemed
invested in shares of the Company under a deferred compensation plan
contemplating future payment of the value of those shares. As of February 29,
1996, the aggregate amount in Directors' accounts maintained under the plan was
$124,898. Retirement costs accrued during the period amounted to $1,650.
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This report to shareholders inaugurates a new procedure whereby a single copy
of the report is sent to an address to which more than one registered
shareholder of the Fund with the same last name has indicated mail is to be
delivered, unless additional reports are specifically requested in writing or
by telephone.
- --------------------------------------------------------------------------------
Copyright (C) 1996 by Lord Abbett California Tax-Free Income Fund, Inc.,
767 Fifth Avenue, New York, NY 10153-0203
This publication, when not used for the general information of shareholders of
Lord Abbett California Tax-Free Income Fund, Inc., is to be distributed only if
preceded or accompanied by a current prospectus which includes information
concerning the Fund's investment objective and policies, sales charges and other
matters. There is no guarantee that the forecasts contained within this
publication will come to pass.
All rights reserved. Printed in the U.S.A.
6
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[LOGO] LORD, ABBETT & Co.
Investment Management
A Tradition of Performance through Disciplined Investing
The GM Building o767 Fifth Avenue o New York, NY 10153-296
LACTF-3-296
(4/96)
