<PAGE>
-------------------------------------------------------------
Lord Abbett EQUITY FUND
-------------------------------------------------------------
1995 Annual Report
A mutual fund with the objective of
long-term growth of capital and
income without excessive fluctuations
in market value. The original offering [Photo - Father and daughter
price per share is guaranteed against sitting at tea]
loss on May 31, 2000 if the shares are
held until that date and all dividends
and distributions are reinvested.
<PAGE>
--------------------------------------------------------------------------------
REPORT TO SHAREHOLDERS For the Fiscal Year Ended May 31, 1995
[PHOTO - Ronald P. Lynch]
-----------------------------
Ronald P. Lynch, Chairman
June 19, 1995
Lord Abbett Equity Fund ended its fifth fiscal year on May 31, 1995. The Fund's
net asset value rose to $16.40 per share from $14.04 one year ago. The Fund has
produced a total return (the percent change in net asset value, assuming the
reinvestment of all distributions) of 73.6% since inception and 16.8% for the
past year. To place this performance in perspective, the S&P 500, an unmanaged
index of common stocks, produced a total return of 70.8% and 20.2%,
respectively, for the same periods.
On December 28, 1994, the Board of Trustees declared a dividend of $.34 per
share, a short-term capital gain distribution of $.16 per share and a long-term
capital gain distribution of $1.09 per share. These distributions were
reinvested on December 28, 1994 on behalf of shareholders of record on
December 28, 1994.
The Fund will declare and pay a dividend from its net investment income in
late December 1995. A distribution of net capital gains realized from the sale
of portfolio securities during the year also will be declared and paid at that
time. As described in the prospectus, all such distributions will be reinvested
in additional shares of the Fund (unless otherwise instructed) and then a
"reverse split" will be effected, thus retaining the same number of shares
outstanding and the same total value of the shares that existed prior to the
payment of the distributions, enabling shareholders to see the Fund's
performance on a per-share basis. If you do NOT want to reinvest your
distributions, notify DST Systems, Inc. at P. O. Box 419100, Kansas City,
Missouri 64141 by November 30, 1995. The Fund encourages shareholders not to
elect cash distributions because it reduces the amount of insurance on your
original investment.
The Fund's 1995 fiscal year was characterized by two decidedly different
halves. During the first half, the Federal Reserve's efforts to slow economic
growth by raising interest rates led to the fear of recession. Consequently, the
stock market's performance remained relatively flat over this six-month period.
However, during the second half of the Fund's fiscal year, the Fed's efforts
began to take hold and the economy in turn began to slow; the bond market (which
had been weak throughout most of 1994) rebounded sharply. The resultant
drop in interest rates boded well for the stock market, as investors were
encouraged to pay more for a given level of dividends. Two other factors
supported the stock market's performance. First, corporate earnings, which had
been rising since 1992, continued to show strong increases. And, secondly, U.S.
investors developed a greater
--------------------------------------------------------------------------------
"The long-term prospects for the stock market and, in turn, your Fund, remain
bright. We expect the rate of inflation will remain low, which is beneficial
for the financial markets."
--------------------------------------------------------------------------------
preference for domestic securities in the wake of a steep decline in the dollar
(which made some foreign investments more expensive), the uninspiring
performance of a number of foreign markets and the sudden collapse of the
Mexican market.
Stock prices likely will continue to be supported by these same factors in
the months ahead. Our projected earnings for 1995, however, have been generously
appraised by the stock market's advance year-to-date. We remain watchful of
factors that could negatively impact the equity market's performance.
Against this backdrop, the Fund's portfolio is conservatively structured.
Holdings sensitive to the economy have been reduced considerably over the past
year. Relatively defensive consumer non-cyclical issues have been added, as well
as certain interest-sensitive securities. Additionally, the distinctive
insurance feature of the Fund provides a level of comfort, regardless of market
volatility.
The long-term prospects for the stock market and, in turn, your Fund,
remain bright. We expect the rate of inflation will remain low, which is
beneficial for the financial markets. Meanwhile, continuing worldwide economic
expansion and the burgeoning of technological advances should provide many
investment opportunities in the years ahead. We will endeavor to exploit them
through our unwavering focus on value.
Thank you for your continued trust and confidence.
<PAGE>
================================================================================
Fund Facts
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A Reminder of LORD ABBETT EQUITY FUND: THE INSURED INVESTMENT THAT DOES
Your Guarantee: NOT SACRIFICE CAPITAL GROWTH POTENTIAL/(1)/
Participate in -------------------------------------------------------------
the stock
market's While investments in both Lord Abbett Equity Fund and a CD
potential are insured, Fund shareholders participate in the growth
rewards without potential of equities. During the period shown below, Lord
risking the loss Abbett Equity Fund provided impressive total returns relative
of your original to the CD.
investment in
the initial
offering, if COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
held until May LORD ABBETT EQUITY FUND/(2)/ AND SIX-MONTH CDs/(3)/
31, 2000 with -------------------------------------------------------------
all dividends
and
distributions
reinvested
The Six-Month
Fund (2) CDs (3)
6/1/90 $ 9,450 $10,000
5/31/91 10,620 10,842
5/31/92 11,610 11,436
5/31/93 13,260 11,887
5/31/94 14,040 12,292
5/31/95 16,400 13,002
Past performance is no guarantee of future results.
It is important to remember that the interest rate on a
certificate of deposit ("CD"), unlike the Fund, is fixed and
this rate and the principal, if held until maturity, are
guaranteed. The Federal Deposit Insurance Corporation
("FDIC") insures CDs up to $100,000. The guarantee applicable
to shares of the Fund is issued by Financial Security
Assurance Inc., a private company, rated Aaa/AAA by Moody's
and Standard & Poor's.
<TABLE>
<CAPTION>
SEC-REQUIRED AVERAGE ANNUAL RATES OF TOTAL RETURN AT THE
MAXIMUM SALES CHARGE OF 5.5% FOR THE PERIODS ENDED 6/30/95 WERE:
-----------------------------------------------------------------------------------------------
Life of Fund (inception: 6/1/90) 1 Year 5 Years Life of Fund (at net asset value)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
+10.50% +13.60% +10.67% +11.73%
</TABLE>
The results quoted herein represent past performance based on
the maximum sales charge of 5.5% and reflect appropriate Rule
12b-1 Plan expenses. Tax consequences are not reflected. The
investment return and principal value of a Fund investment
will fluctuate so that shares, on any given day or when
redeemed on a day other than May 31, 2000, may be worth more
or less than their original cost.
THE FUND OFFERS THE GROWTH POTENTIAL OF STOCKS
WITH THE SECURITY OF INSURANCE
-------------------------------------------------------------
The Fund is well
positioned to At 5/31/95, Lord Abbett Equity Fund was invested in a
benefit from a diversified portfolio of 51 equity securities.
slowing economic
environment
<TABLE>
<CAPTION>
Lord Abbett Equity Fund's Top Five Equity Holdings Percent of Net Assets
------------------------------------------------------------------------------------
<S> <C>
Exxon Corp. 2.74%
------------------------------------------------------------------------------------
Genuine Parts Company 2.73%
------------------------------------------------------------------------------------
Chevron Corp. 2.60%
------------------------------------------------------------------------------------
AMP Incorporated 2.26%
------------------------------------------------------------------------------------
Cigna Corp. 2.05%
Data as of 5/31/95.
</TABLE>
/(1)/ The Fund's insurance policy guarantees
unconditionally and irrevocably that the net asset value
of each initially purchased share will not be less than
$10 on May 31, 2000, provided all dividends and
distributions attributable to that share are reinvested.
/(2)/Data reflects the deduction of the maximum sales
charge of 5.5%. /(3)/Six-month CDs were rolled over at
prevailing rates. Source: Salomon Brothers.
1
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Statement of Net Assets May 31, 1995
--------------------------------------------------------------------------------
Market
Number Value
Security of Shares (Note 1a)
--------------------------------------------------------------------------------
<C> <S> <C> <C>
INVESTMENTS IN SECURITIES 96.15%
--------------------------------------------------------------------------------
COMMON STOCKS 70.34%
--------------------------------------------------------------------------------
Aerospace 1.94% Boeing Co. 18,000 $ 1,059,750
--------------------------------------------------------------------------------
Auto Parts Genuine Parts Company 38,000 1,491,500
4.17% ---------------------------------------------------------
TRW Inc. 10,000 788,750
---------------------------------------------------------
Total 2,280,250
--------------------------------------------------------------------------------
Automobiles
1.75% General Motors Corp. 20,000 960,000
--------------------------------------------------------------------------------
Banks:
Money Center
1.01% Chemical Banking Corp. 12,000 553,500
--------------------------------------------------------------------------------
Banks:
Regional
1.15% BankAmerica Corp. 12,000 627,000
--------------------------------------------------------------------------------
Beverages Anheuser-Busch
.54% Companies Inc. 5,000 295,625
--------------------------------------------------------------------------------
Chemicals Dow Chemical Co. 14,000 1,027,250
3.32% ---------------------------------------------------------
Union Carbide Corp. 27,000 789,750
---------------------------------------------------------
Total 1,817,000
--------------------------------------------------------------------------------
Data Processing
Equipment
1.21% Hewlett-Packard Co. 10,000 661,250
--------------------------------------------------------------------------------
Data Processing H & R Block Inc. 12,000 433,500
Services ---------------------------------------------------------
2.19% General Motors Corp.
Class E (Electronic
Data Systems) 18,000 765,000
---------------------------------------------------------
Total 1,198,500
--------------------------------------------------------------------------------
Drugs/Health Baxter International Inc. 20,000 697,500
Care Products ---------------------------------------------------------
3.16% Lilly, Eli & Co. 2,100 156,713
---------------------------------------------------------
Merck & Co., Inc. 18,500 871,813
---------------------------------------------------------
Total 1,726,026
--------------------------------------------------------------------------------
Electric Power Baltimore Gas &
2.91% Electric Co. 15,000 390,000
---------------------------------------------------------
CINergy Corp. 25,000 665,625
---------------------------------------------------------
Public Service Enterprises
Group Inc. 18,000 535,500
---------------------------------------------------------
Total 1,591,125
--------------------------------------------------------------------------------
Electrical
Equipment
1.99% Emerson Electric Co. 15,800 1,086,250
--------------------------------------------------------------------------------
Electronics:
Communications
.24% Harris Corp. 2,500 132,812
--------------------------------------------------------------------------------
Electronics:
Components
2.26% AMP Incorporated 29,000 1,236,125
--------------------------------------------------------------------------------
Financial: American Express
Miscellaneous Company 14,000 498,750
1.80% ---------------------------------------------------------
Transamerica Corp. 8,100 483,975
---------------------------------------------------------
Total 982,725
--------------------------------------------------------------------------------
Food Archer-Daniels-
7.28% Midland Co. 54,000 999,000
---------------------------------------------------------
Conagra Inc. 18,000 600,750
---------------------------------------------------------
Dean Foods Co. 30,000 $ 840,000
---------------------------------------------------------
Hershey Foods Corp. 17,000 877,625
---------------------------------------------------------
Supervalu Inc. 23,500 666,812
---------------------------------------------------------
Total 3,984,187
--------------------------------------------------------------------------------
Insurance Aetna Life and Casualty
5.04% Company 16,400 977,850
---------------------------------------------------------
Chubb Corp. 8,000 659,000
---------------------------------------------------------
Cigna Corp. 15,000 1,121,250
---------------------------------------------------------
Total 2,758,100
--------------------------------------------------------------------------------
Machinery:
Diversified
1.50% Deere & Co. 9,500 821,750
--------------------------------------------------------------------------------
Miscellaneous Minnesota Mining &
1.64% Mfg. Co. 15,000 898,125
--------------------------------------------------------------------------------
Natural Gas
Distribution
1.86% Eastern Enterprises 34,000 1,020,000
--------------------------------------------------------------------------------
Natural Gas
Transmission
1.38% Coastal Corp. 24,000 753,000
--------------------------------------------------------------------------------
Oil: Chevron Corp. 29,000 1,424,625
International ---------------------------------------------------------
5.34% Exxon Corp. 21,000 1,498,875
---------------------------------------------------------
Total 2,923,500
--------------------------------------------------------------------------------
Paper and Federal Paper
Forest Products Board Co. Inc. 33,500 1,088,750
3.12% ---------------------------------------------------------
International Paper Co. 7,000 550,375
---------------------------------------------------------
Westvaco Corp. 1,600 68,400
---------------------------------------------------------
Total 1,707,525
--------------------------------------------------------------------------------
Printing and Donnelley, R.R. &
Publishing 2.00% Sons Co. 30,000 1,095,000
--------------------------------------------------------------------------------
Retail Dayton Hudson Corp. 8,000 567,000
2.07% ---------------------------------------------------------
Sears, Roebuck & Co. 10,000 563,750
---------------------------------------------------------
Total 1,130,750
--------------------------------------------------------------------------------
Savings and Ahmanson, H.F. & Co. 24,000 546,000
Loan 3.00% ---------------------------------------------------------
Great Western
Financial Corp. 50,000 1,093,750
---------------------------------------------------------
Total 1,639,750
--------------------------------------------------------------------------------
Telecommun- MCI Communications
ications 1.33% Corp. 36,000 729,000
--------------------------------------------------------------------------------
Textiles: Apparel
1.26% V.F. Corp. 13,000 692,250
--------------------------------------------------------------------------------
Tire and Rubber Cooper Tire &
Goods .89% Rubber Co. 20,000 485,000
--------------------------------------------------------------------------------
Tobacco .44% American Brands Inc. 6,000 242,250
--------------------------------------------------------------------------------
Waste Disposal Browning Ferris
2.55% Industries Inc. 27,000 961,875
---------------------------------------------------------
WMX Technologies Inc. 16,000 436,000
---------------------------------------------------------
Total 1,397,875
---------------------------------------------------------
Total Investments in Common
Stocks (Cost $32,205,224) 38,486,000
---------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Statement of Net Assets May 31, 1995
--------------------------------------------------------------------------------
Market
Principal Value
Security Amount (Note 1a)
--------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS 25.81%
--------------------------------------------------------------------------------
U.S. Treasury Bond
Strips due 5/15/2000
(Cost $12,379,137) $18,900M $14,121,844
---------------------------------------------------------
Total Investments in Securities
(Cost $44,584,361) 52,607,844
--------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES 3.85%
--------------------------------------------------------------------------------
Short-Term General Electric Co.
Investments, 5.95% due 6/6/1995 1,400M 1,400,000
at Cost ---------------------------------------------------------
Prudential Funding Corp.
5.95% due 6/7/1995 $500M $ 500,000
---------------------------------------------------------
Total 1,900,000
--------------------------------------------------------------------------------
Cash and Receivables, Net of Liabilities 208,998
---------------------------------------------------------
Total Other Assets, Less Liabilities 2,108,998
--------------------------------------------------------------------------------
Net Assets (equivalent to $16.40 a share on
100.00% 3,336,916 shares of beneficial
interest outstanding) $54,716,842
---------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
================================================================================
Portfolio Changes
--------------------------------------------------------------------------------
Issues added to or Additions Baltimore Gas & Electric Co.
eliminated from H & R Block Inc.
the portfolio Coastal Corp.
(exclusive of U.S. Cooper Tire & Rubber Co.
Government Hershey Foods Corp.
obligations and Lilly, Eli & Co.
short-term invest- MCI Communications Corp.
ments) during the Public Service Enterprises Group Inc.
six months ended Supervalu Inc.
May 31, 1995 Transamerica Corp.
WMX Technologies Inc.
Westvaco Corp.
---------------------------------------------------------
Eliminations CSX Corp.
Champion International Corp.
Eastman Kodak Co.
Fleet Financial Group, Inc.
General Electric Company
Kmart Corporation
Xerox Corp.
---------------------------------------------------------
<TABLE>
<CAPTION>
=================================================================================================================================
Statement of Operations For the Year Ended May 31, 1995
---------------------------------------------------------------------------------------------------------------------------------
Investment Income
------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Income Dividends $ 1,186,836
-----------------------------------------------------------------------------------------------------
Interest 1,042,636
-----------------------------------------------------------------------------------------------------
Total income $ 2,229,472
------------------------------------------------------------------------------------------------------------------
Expenses Management fee (Note 5) 339,267
-----------------------------------------------------------------------------------------------------
Management fee waived (7,318)
-----------------------------------------------------------------------------------------------------
Insurance (Note 6) 178,062
-----------------------------------------------------------------------------------------------------
Organization 173,570
-----------------------------------------------------------------------------------------------------
12b-1 distribution plan (Note 5) 122,161
-----------------------------------------------------------------------------------------------------
Shareholder servicing 82,000
-----------------------------------------------------------------------------------------------------
Audit and tax 39,642
-----------------------------------------------------------------------------------------------------
Reports to shareholders 3,001
-----------------------------------------------------------------------------------------------------
Other 6,703
-----------------------------------------------------------------------------------------------------
Net expenses 937,088
-----------------------------------------------------------------------------------------------------
Net investment income 1,292,384
-----------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments (Note 4)
------------------------------------------------------------------------------------------------------------------
Net realized gain from security transactions
-----------------------------------------------------------------------------------------------------
Proceeds from sales 24,102,354
-----------------------------------------------------------------------------------------------------
Cost of securities sold 20,773,664
-----------------------------------------------------------------------------------------------------
Net realized gain 3,328,690
------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
-----------------------------------------------------------------------------------------------------
Beginning of year 4,505,241
-----------------------------------------------------------------------------------------------------
End of year 8,023,483
-----------------------------------------------------------------------------------------------------
Net increase in unrealized appreciation 3,518,242
-----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 6,846,932
-----------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 8,139,316
------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
Statements of Changes in Net Assets
----------------------------------------------------------------------------------------------------------------------------------
Year Ended May 31,
Net Increase (Decrease) in Net Assets 1995 1994
------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Operations Net investment income $ 1,292,384 $ 1,220,447
-----------------------------------------------------------------------------------------------------------------
Net realized gain from security transactions 3,328,690 4,668,351
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in unrealized appreciation of investments 3,518,242 (2,646,408)
-----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 8,139,316 3,242,390
------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income included in price of shares reacquired (Note 1d) (71,747) (73,039)
------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from
-----------------------------------------------------------------------------------------------------------------
Net investment income (1,195,266) (1,111,386)
-----------------------------------------------------------------------------------------------------------------
Net realized gain from security transactions (4,394,361) (4,683,696)
-----------------------------------------------------------------------------------------------------------------
Total (5,589,627) (5,795,082)
------------------------------------------------------------------------------------------------------------------------------
Share transactions
Net asset value of 436,349 and 457,747 shares issued to shareholders in
reinvestment of net investment income and realized gain from security transactions 5,589,627 5,795,082
-----------------------------------------------------------------------------------------------------------------
Cost of 438,620 and 531,366 shares reacquired, respectively (6,364,760) (7,277,174)
-----------------------------------------------------------------------------------------------------------------
Reverse share split of 436,349 and 457,747 shares (Note 2) - -
-----------------------------------------------------------------------------------------------------------------
Decrease in net assets derived from share transactions (net decrease
of 438,620 and 531,366 shares, respectively) (775,133) (1,482,092)
------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 1,702,809 (4,107,823)
------------------------------------------------------------------------------------------------------------------------------
Net Assets
------------------------------------------------------------------------------------------------------------------------------
Beginning of year 53,014,033 57,121,856
-----------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $1,143,394
and $163,072, respectively) $54,716,842 $53,014,033
------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================================================
Financial Highlights
----------------------------------------------------------------------------------------------------------------------------------
Year Ended May 31,
Per Share Operating Performance: 1995 1994 1993 1992 1991
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 14.04 $ 13.26 $ 11.61 $ 10.62 $ 9.45
-------------------------------------------------------------------------------------------------------------------
Income from investment operations
-----------------------------------------------------------------------------------------------------------
Net investment income* .36 .31 .32 .34 .38
-----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 2.00 .47 1.33 .65 .79
-----------------------------------------------------------------------------------------------------------
Total from investment operations 2.36 .78 1.65 .99 1.17
-------------------------------------------------------------------------------------------------------------------
Distributions
-----------------------------------------------------------------------------------------------------------
Dividends from net investment income (.34) (.28) (.34) (.34) (.25)
-----------------------------------------------------------------------------------------------------------
Distributions from capital gains (1.25) (1.18) (.78) (.215) -
-----------------------------------------------------------------------------------------------------------
Total distributions (1.59) (1.46) (1.12) (.555) (.25)
-----------------------------------------------------------------------------------------------------------
Reverse share split (Note 2) 1.59 1.46 1.12 .555 .25
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 16.40 $ 14.04 $ 13.26 $ 11.61 $ 10.62
----------------------------------------------------------------------------------------------------------------------------
Total Return+ 16.81% 5.88% 14.21% 9.32% 12.38%
----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
----------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $54,717 $53,014 $57,122 $58,358 $72,120
-----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
-------------------------------------------------------------------------------------------------------------------
Expenses, including waiver 1.80% 1.80% 1.80% 1.80% 1.80%
-----------------------------------------------------------------------------------------------------------
Expenses, excluding waiver 1.81% 1.96% 2.25% 2.12% 1.97%
-----------------------------------------------------------------------------------------------------------
Net investment income 2.48% 2.19% 2.57% 3.09% 4.02%
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 35.12% 50.77% 52.29% 24.43% 42.06%
----------------------------------------------------------------------------------------------------------------------------
*Net of management fee waiver.
+Total return does not consider the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
--------------------------------------------------------------------------------
Copyright (C) 1995 by Lord Abbett Equity Fund, 767 Fifth Avenue, New York,
NY 10153-0203. This publication is intended for the general information of
shareholders of Lord Abbett Equity Fund only. All rights reserved. Printed in
the U.S.A.
--------------------------------------------------------------------------------
4
<PAGE>
================================================================================
Notes to Financial Statements
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES The Company was organized as a Massachusetts
business trust on January 19, 1990 and 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
listed or admitted to trading privileges on any national securities exchange are
valued at the last sales price on the principal securities exchange on which
such securities are traded, or, if there is no sale, at the mean between the
last bid and asked prices on such exchange. Securities traded in the over-the-
counter market are valued at the mean between the last bid and asked prices in
such market, except that securities admitted to trading on the NASDAQ National
Market System are valued at the last sales price if it is determined that such
price more accurately reflects the value of such securities. Securities for
which market quotations are not available are valued at fair value under
procedures approved by the Board of Trustees. (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 all of its taxable income in
taxable distributions. Therefore, no federal income tax provision is required.
(c) Security transactions are accounted for on the date that the securities are
purchased or sold (trade date). Dividend income and distributions to
shareholders are recorded on the ex-dividend date. (d) A portion of the cost of
repurchases of shares of beneficial interest, equivalent to the amount of
distributable net investment income on the date of the transaction, is credited
or charged to undistributed income. Undistributed net investment income per
share thus is unaffected by repurchases of shares. (e) The organization expenses
of the Company were amortized evenly over a period of five years ended May 31,
1995. (f) Discounts on U.S. Treasury Bond Strips are accrued to maturity. The
constant yield method is used. (g) Reverse Share Splits-The Trustees may
authorize reverse share splits immediately after, and of a size so as to exactly
offset, the payment of dividends and distributions. After taking into account
the reverse share split, a shareholder reinvesting dividends and distributions
will hold exactly the same number of shares as owned prior to the distribution
and reverse share split. A shareholder electing to receive dividends and
distributions in cash will have fewer shares than previously owned.
2. DISTRIBUTIONS Net realized gain from security transactions, if any, is
declared and distributed in December to shareholders. Accumulated undistributed
net realized gain at May 31, 1995 for financial reporting purposes, which is
substantially the same as for federal income tax purposes, aggregated
$1,327,300. Income and capital gains distributions are determined in accordance
with income tax regulations which may differ from methods used to determine the
corresponding income and capital gains amounts in accordance with generally
accepted accounting principles. On December 26, 1990 the Trustees of the Company
declared a reverse share split, on the basis of .973628692 of a new share for
each existing share held, to shareholders of record on December 27, 1990. On
December 26, 1991 the Trustees of the Company declared a reverse share split, on
the basis of .949909748 of a new share for each existing share held, to
shareholders of record on December 26, 1991. On December 29, 1992 the Trustees
of the Company declared a reverse share split, on the basis of .909750201 of a
new share for each existing share held, to shareholders of record on December
29, 1992. On December 28, 1993 the Trustees of the Company declared a reverse
share split, on the basis of .896600567 of a new share for each existing share
held, to shareholders of record on December 28, 1993. On December 28, 1994 the
Trustees of the Company declared a reverse share split, on the basis of
.889583333 of a new share for each existing share held, to shareholders of
record on December 28, 1994.
3. CAPITAL PAID IN At May 31, 1995, capital paid in aggregated $44,222,665.
4. PURCHASES AND SALES OF SECURITIES Purchases and sales of investment
securities (other than U.S. Government obligations and short-term securities)
aggregated $16,143,571 and $24,102,354, respectively. As of May 31, 1995, net
unrealized appreciation for federal income tax purposes aggregated $8,023,483 of
which $8,191,987 related to appreciated securities and $168,504 related to
depreciated securities. The cost of investments for federal income tax purposes
is substantially the same as that used for financial reporting purposes.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES Lord, Abbett & Co.
received a management fee of $331,949 for which it supplied investment
management, research, statistical and advisory services and paid officers'
remuneration and certain other expenses of the Company. Lord, Abbett & Co. has
agreed to waive a portion of its management fee. For the year ended May 31,
1995, Lord, Abbett & Co. waived $7,318 in management fees. The management fee
paid to Lord, Abbett & Co. is based on average daily net assets at the rate of
.65 of 1% per annum. Certain of the Company's officers and trustees have an
interest in Lord, Abbett & Co. The Company adopted a Rule 12b-1 Plan which
provides for the payment of .25% of the average daily net asset value of shares
of the Company.
6. INSURANCE The Company has entered into an agreement with Financial Security
Assurance Inc. ("Financial Security"), pursuant to which Financial Security has
guaranteed unconditionally and irrevocably to the Company that the net asset
value of each initially purchased share will not be less than $10 on May 31,
2000, provided that all dividends and distributions attributable to that share
are reinvested. Insurance expense includes an annual premium equal to 1/2 of 1%
of the total amount guaranteed.
<PAGE>
================================================================================
Notes to Financial Statements
--------------------------------------------------------------------------------
7. TRUSTEES' REMUNERATION The Trustees 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 Trustees' fees, including attendance fees
for board and committee meetings, and outside Trustees' 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 Trustees of
the Company as a group was $1,082 (exclusive of expenses), which has been deemed
invested in shares of other funds in the Lord Abbett group under a deferred
compensation plan contemplating future payment of the value of those shares. As
of May 31, 1995, the aggregate amount in Trustees' accounts maintained under the
plan was $21,064. Retirement costs accrued during the period amounted to $660.
================================================================================
Independent Auditors' Report
--------------------------------------------------------------------------------
The Board of Trustees and Shareholders,
Lord Abbett Equity Fund:
We have audited the accompanying statement of net assets of Lord Abbett Equity
Fund as of May 31, 1995, the related statements of operations for the year then
ended and of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at May 31,
1995 by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Lord Abbett Equity
Fund at May 31, 1995, the results of its operations, the changes in its net
assets and the financial highlights for the above-stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
July 7, 1995
================================================================================
[LOGO APPEARS HERE] Lord, Abbett & Co.
Investment Management
A Tradition of Performance Through Disciplined Investing
The GM Building * 767 Fifth Avenue * New York, NY 10153-0203 LAEF-2-595
