Lord Abbett
Equity
Fund
1997 ANNUAL REPORT
An insured investment
designed to help you
capture capital growth
over the long term
[GRAPHIC: a jar of pickles
a jar of mushrooms
a jar of peaches ]
[LOGO](R)
<PAGE>
Report to Shareholders
For the Fiscal Year Ended May 31, 1997
[PHOTO: Robert S. Dow]
/s/ Robert S. Dow
- -----------------
ROBERT S. DOW
CHAIRMAN
JUNE 18, 1997
"...we believe our disciplined investment process will continue to uncover
company-specific investment values that provide good opportunity for price
appreciation and less-than-market risk."
Lord Abbett Equity Fund completed its fiscal year on May 31, 1997. The Fund's
net asset value was $22.54 per share versus $19.05 per share one year ago. For
the past year, the Fund produced a total return of 18.3%. (Total return is the
percent change in net asset value, including the reinvestment of all
distributions.) During the year, your Board of Trustees declared dividends
totaling $.47 per share and capital gains totaling $2.18 per share.
The Fund will declare and pay a dividend from its net investment income in
December 1997. 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 are reinvested in
additional shares of the Fund (unless otherwise instructed) and then a "reverse
split" is effected, thus retaining the same number of shares outstanding and the
same total value of the shares that existed prior to the distributions. This
enables 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, MO 64141 by November 30, 1997. The Fund encourages
shareholders to reinvest all distributions because it maintains the amount of
insurance on your original investment.
Over the year, the stock market continued to move sharply ahead, making it
increasingly difficult to locate absolute value in the market. As a result, the
Fund relied heavily on stocks which provided relative value (the best value
available in relation to other companies in a particular industry) in order to
maintain its value investment discipline. During the year, the financial,
technology and health care holdings continued to benefit the Fund's performance.
We increased our exposure to financials and utilities, including natural gas and
telephones, and decreased economic sensitivity through a reduction in the Fund's
consumer cyclical holdings, such as retail, restaurants and waste management
companies.
Going forward, while the economy has remained stronger than expected, we
anticipate a measurable slowing of growth later in the year, due primarily to
probable increases in short-term interest rates by the Federal Reserve Board.
This should slow economic growth towards 2.0%-2.5%, (possibly lower) by the end
of the year, and bring the yield on the 30-year U.S. Treasury bond down toward
the area of 6.25%. We will maintain our concentration in interest-sensitive
holdings for the near term, emphasizing companies with strong fundamentals and
favorable earnings prospects, particularly financials. Consumer noncyclicals
should remain strong in a slowing economy and we will continue to emphasize them
in the Fund as well, although valuations are higher and some holdings have been
sold. We remain cautious regarding the cyclical sector, in anticipation of a
possible lowering of earnings expectations. Despite the possibility of reduced
upside potential ahead for the stock market, we believe our disciplined
investment process will continue to uncover company-specific investment values
that provide good opportunity for price appreciation and less-than-market risk.
We are pleased that the Fund is a part of your investment portfolio and thank
you for the trust and confidence you have placed in us.
<PAGE>
Fund Facts
Lord Abbett Equity Fund: The Insured Investment That Does Not Sacrifice Capital
Growth Potential(1)
While investments in both Lord Abbett Equity Fund and a Certificate of Deposit
("CD") are insured, Fund shareholders participate in the growth potential of
equities. During the period shown below, Lord Abbett Equity Fund provided
impressive total returns relative to the CD.
Comparison Of Change In Value Of A $10,000 Investment In Lord Abbett Equity
Fund(2) And Six-Month CDs(3)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL]
Date The Fund CD's
6/1/90 9,450 10,000
5/31/91 10,620 10,761
5/31/92 11,610 11,312
5/31/93 13,260 11,708
5/31/94 14,040 12,120
5/31/95 16,400 12,822
5/31/96 19,050 13,540
5/31/97 22,540 14,301
It is important to remember that the interest rate on a 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 by Moody's and AAA by Standard &
Poor's.
A Reminder of Your Guarantee:
Participate in the stock market's
potential rewards without risking the
loss of your original investment in the
initial offering, if held until May 31,
2000 with all dividends and
distributions reinvested
SEC-Required Average Annual Rates of Total Return at the Maximum Sales Charge of
5.5% for the Periods Ended 6/30/97 Were:
<TABLE>
<CAPTION>
Life of Fund (inception: 6/1/90) 1 Year 5 Years Life of Fund (at net asset value)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
+12.77% +18.20% +13.78% +13.68%
</TABLE>
Unless otherwise stated, the results quoted above 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 is well positioned to benefit
from a slowing economic environment
The Fund Offers The Growth Potential Of Stocks With The Security Of Insurance
At 5/31/97, Lord Abbett Equity Fund was invested in a diversified portfolio of
60 equity securities.
Lord Abbett Equity Fund's Top Five Equity Holdings Percent of
Net Assets
- -------------------------------------------------------------------------------
Mobil Corp. 2.85%
Corning Inc. 2.34%
Kimberly Clark Corp. 2.21%
Emerson Electric Co. 2.20%
CPC International Inc. 2.11%
- -------------------------------------------------------------------------------
Total 11.71%
- -------------------------------------------------------------------------------
Data as of 5/31/97.
(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 and The Federal Reserve Bank.
1
<PAGE>
Statement of Net Assets
May 31, 1997
Investments Shares Market Value
================================================================================
Investments 97.27%
================================================================================
Common Stocks 78.92%
================================================================================
Aerospace 1.37% Boeing Co. 8,000 $ 842,000
- ------------------------------------------------------------------==============
Apparel 1.28% VF Corp. 10,000 781,250
- ------------------------------------------------------------------==============
Auto Parts 2.13% Genuine Parts Company 27,000 904,500
Snap-on, Inc. 10,000 398,750
Total 1,303,250
- ------------------------------------------------------------------==============
Automobiles .93% General Motors Corp. 10,000 572,500
- ------------------------------------------------------------------==============
Banks: Money Chase Manhattan Corp. 8,000 756,000
Center 2.01% First Chicago NBD 8,000 474,000
Total 1,230,000
- ------------------------------------------------------------------==============
Banks: Regional BankAmerica Corp. 4,000 467,500
4.13% First Union Corp. 7,500 644,062
KeyCorp 10,000 543,750
Mellon Bank Corp. 10,000 875,000
Total 2,530,312
- ------------------------------------------------------------------==============
Brokers 1.35% Morgan Stanley,
Dean Witter,
Discover & Co. 20,000 825,000
- ------------------------------------------------------------------==============
Chemicals 5.19% Air Products &
Chemicals Inc. 16,500 1,282,875
Morton International Inc. 20,000 645,000
Rohm & Haas Co. 8,000 690,000
Union Carbide Corp. 12,000 561,000
Total 3,178,875
- ------------------------------------------------------------------==============
Communications
Equipment 2.34% Corning Inc. 28,500 1,435,688
- ------------------------------------------------------------------==============
Containers 1.43% Sonoco Products Co. 30,000 873,750
- ------------------------------------------------------------------==============
Data Processing Hewlett-Packard Co. 5,000 257,500
Equipment 1.83% International Business
Machines Corp. 10,000 865,000
Total 1,122,500
- ------------------------------------------------------------------==============
Drugs/Health Care American Home
Products Products Corp. 8,000 610,000
5.56% Baxter International Inc. 9,000 474,750
Bristol-Myers Squibb
Company 10,000 733,750
Humana Inc. 30,000 678,750
Warner-Lambert Co. 9,000 906,750
Total 3,404,000
- ------------------------------------------------------------------==============
Electric Power Baltimore Gas &
3.22% Electric Co. 20,000 525,000
CINergy Corp. 20,000 700,000
SCANA Corp. 30,000 750,000
Total 1,975,000
- ------------------------------------------------------------------==============
Electrical Equipment
2.20% Emerson Electric Co. 25,000 1,350,000
- ------------------------------------------------------------------==============
Food 3.86% CPC International Inc. 15,000 1,290,000
Heinz H.J. Co. 25,000 1,075,000
Total 2,365,000
- ------------------------------------------------------------------==============
Furniture and
Appliances .81% Whirlpool Corp. 10,000 498,750
- ------------------------------------------------------------------==============
Household Products James River Corp. 25,000 878,125
3.64% Kimberly Clark Corp. 27,000 1,353,375
Total 2,231,500
- ------------------------------------------------------------------==============
Insurance 10.56% Chubb Corp. 18,000 1,098,000
Cincinnati Financial Corp. 15,000 1,173,750
Jefferson-Pilot Corp. 18,000 1,145,250
SAFECO Corp. 25,000 1,087,500
The Progressive
Corporation 11,000 870,375
Transamerica Corp. 12,000 1,090,500
Total 6,465,375
- ------------------------------------------------------------------==============
Machinery:
Diversified 1.75% Deere & Co. 21,000 1,073,625
- ------------------------------------------------------------------==============
Miscellaneous Jostens Inc. 33,000 812,625
2.90% Minnesota Mining
& Mfg. Co. 10,500 963,375
Total 1,776,000
- ------------------------------------------------------------------==============
Natural Gas Columbia Gas Systems Inc. 12,000 772,500
Distribution 3.48% Consolidated Natural
Gas Co. 10,000 531,250
Nicor Inc. 24,000 825,000
Total 2,128,750
- ------------------------------------------------------------------==============
Natural Gas Sonat Inc. 4,000 230,000
Diversified 1.77% The Coastal Corporation 17,000 852,125
Total 1,082,125
- ------------------------------------------------------------------==============
Oil: Domestic 1.90% Amoco Corp. 13,000 1,161,875
- ------------------------------------------------------------------==============
Oil: International
2.85% Mobil Corp. 12,500 1,748,438
- ------------------------------------------------------------------==============
Paper and Forest
Products 1.10% International Paper Co. 14,000 672,000
- ------------------------------------------------------------------==============
Retail .76% Toys R Us Inc. 15,000 466,875
- ------------------------------------------------------------------==============
Telephone 4.55% Alltel Corp. 15,000 493,125
Bell Atlantic Corp. 7,500 525,000
BellSouth Corp. 5,000 226,875
MCI Communications Corp . 25,000 959,375
SBC Communication Inc. 10,000 585,000
Total 2,789,375
- ------------------------------------------------------------------==============
Tire and Rubber Goodyear Tire &
Goods 1.15% Rubber Co. 12,000 702,000
- ------------------------------------------------------------------==============
Tobacco 2.87% American Brands Inc. 17,000 833,000
Philip Morris Inc. 21,000 924,000
Total 1,757,000
- ------------------------------------------------------------------==============
Total Investments in
Common Stocks
(Cost $38,295,428) 48,342,813
----------------------------------------------==============
2
<PAGE>
Statement of Net Assets
May 31, 1997
Principal
Investments Amount Market Value
================================================================================
U.S. Government Obligations 18.35%
================================================================================
U.S. Treasury Bonds
Strips due 5/15/2000
(Cost $10,539,139) $13,500M $11,240,859
- ------------------------------------------------------------------==============
Total Investments
in Securities
(Cost $48,834,567) 59,583,672
================================================================================
Other Assets, Less Liabilities 2.73%
================================================================================
Short-Term Ford Motor Credit Co.
Investments, 5.52% due 6/2/1997 1,400M 1,400,000
at Cost
General Electric
Capital Corp.
5.40% due 6/3/1997 250M 250,000
Total 1,650,000
- ------------------------------------------------------------------==============
Market Value
================================================================================
Cash and Receivables, Net of Liabilities $ 20,208
- ------------------------------------------------------------------==============
Total Other Assets,
Less Liabilities 1,670,208
================================================================================
Net Assets 100.00% (equivalent to $22.54 a share
on 2,717,385 shares of
beneficial interest outstanding) $61,253,880
================================================================================
See Notes to Financial Statements.
Statement of Operations
Investment Income Year Ended May 31, 1997
================================================================================
Income Dividends $ 977,695
Interest 1,387,344
Total income $2,365,039
------------------------------------------------------------------
Expenses Management fee 374,988
Insurance 135,000
12b-1 distribution plan 144,226
Shareholder servicing 106,207
Professional 42,000
Reports to shareholders 18,000
Other 14,053
Total expenses 834,474
------------------------------------------------------------------
Net investment income 1,530,565
------------------------------------------------------------------
Realized and Unrealized Gain on Investments
================================================================================
Realized gain from investment transactions
Proceeds from sales 33,690,651
Cost of investments sold 28,896,981
Net realized gain 4,793,670
------------------------------------------------------------------
Unrealized appreciation of investments 3,510,311
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments 8,303,981
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $9,834,546
================================================================================
See Notes to Financial Statements.
3
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended May 31,
Increase (Decrease) in Net Assets 1997 1996
====================================================================================================================================
<S> <C> <C> <C>
Operations Net investment income $ 1,530,565 $ 1,506,055
Net realized gain from investment transactions 4,793,670 7,816,528
Net unrealized appreciation (depreciation) of investments 3,510,311 (784,689)
Net increase in net assets resulting from operations 9,834,546 8,537,894
----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income included in price of share transactions (131,347) (96,646)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (1,342,238) (700,109)
Net realized gain from investment transactions (6,225,701) (5,123,521)
Total distributions (7,567,939) (5,823,630)
- ------------------------------------------------------------------------------------------------------------------------------------
Share transactions:
Net asset value of 418,118 and 351,669 shares issued to shareholders in
reinvestment of net investment income
and realized gain from investment transactions 7,567,939 5,823,630
Cost of 293,704 and 325,827 shares reacquired, respectively (5,800,201) (5,807,208)
Reverse share split of 418,118 and 351,669 shares, respectively -- --
Increase in net assets derived from share transactions
(net decrease of 293,704 and 325,827 shares, respectively) 1,767,738 16,422
----------------------------------------------------------------------------------------------------------------------
Increase in net assets 3,902,998 2,634,040
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets
Beginning of year 57,350,882 54,716,842
----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $1,288,254
and $1,231,274, respectively) $ 61,253,880 $ 57,350,882
======================================================================================================================
</TABLE>
See Notes to Financial Statements.
Financial Highlights
<TABLE>
<CAPTION>
Year Ended May 31,
Per Share Operating Performance: 1997 1996 1995 1994 1993
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 19.05 $ 16.40 $ 14.04 $ 13.26 $ 11.61
Income from investment operations
Net investment income .54 .47 .36 .31 .32
Net realized and unrealized gain on investments 2.95 2.18 2.00 .47 1.33
Total from investment operations 3.49 2.65 2.36 .78 1.65
-------------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from net investment income (.47) (.22) (.34) (.28) (.34)
Distributions from capital gains (2.18) (1.61) (1.25) (1.18) (.78)
Total distributions (2.65) (1.83) (1.59) (1.46) (1.12)
Reverse share split 2.65 1.83 1.59 1.46 1.12
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 22.54 $ 19.05 $ 16.40 $ 14.04 $ 13.26
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 18.32% 16.16% 16.81% 5.88% 14.21%
====================================================================================================================================
Ratios/Supplemental Data:
Net assets, end of year (000) $ 61,254 $ 57,351 $ 54,717 $ 53,014 $ 57,122
-------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses, including waiver 1.45% 1.50% 1.80% 1.80% 1.80%
Expenses, excluding waiver 1.45% 1.50% 1.81% 1.96% 2.25%
Net investment income 2.66% 2.63% 2.48% 2.19% 2.57%
Portfolio turnover rate 51.68% 66.48% 35.12% 50.77% 52.29%
Average commissions per share paid on equity
transactions $ .066 $ .065 $ .067 n/a n/a
===============================================================================================================================
</TABLE>
(a) Total return does not consider the effects of sales loads.
See Notes to Financial Statements.
4
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Lord Abbett Equity Fund (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 financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make certain
estimates and assumptions at the date of the financial statements. The following
is a summary of significant accounting policies of the Company. (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) Investment transactions are accounted for on the date
that the investments are purchased or sold (trade date). Realized gains and
losses from investment transactions are calculated on the identified cost basis.
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) Discounts on U.S. Treasury Bond Strips are accrued to
maturity. The constant yield method is used. (f) 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. Management Fee and Other Transactions with Affiliates
The Company has a management agreement with Lord, Abbett & Co. ("Lord Abbett")
pursuant to which Lord Abbett supplies the Company with investment management,
research, statistical and advisory services and pays officers' remuneration and
certain other expenses of the Company. The management fee paid is based on
average daily net assets at the rate of .65% per annum. Certain of the Company's
officers and trustees have an interest in Lord Abbett. 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.
3. Paid In Capital
At May 31, 1997, paid in capital aggregated $45,973,715.
4. Purchases and Sales of Securities
Purchases and sales of investment securities (other than U.S. Government
obligations and short-term securities) aggregated $28,495,639 and $29,232,857,
respectively. As of May 31, 1997, net unrealized appreciation for federal income
tax purposes aggregated $10,749,105 of which $11,002,656 related to appreciated
securities and $253,551 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. Distributions
Distributions from net investment income and net realized gains from investment
transactions are declared annually. Accumulated undistributed net realized gain
at May 31, 1997 for financial reporting purposes, aggregated $3,242,806. 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.
The Trustees of the Company declared the following reverse share splits:
Declaration Date Rate
- --------------------------------------------------------------------------------
12/29/92 .909750201
12/28/93 .896600567
12/28/94 .889583333
12/27/95 .900489396
12/27/96 .872289157
- --------------------------------------------------------------------------------
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 .50% of the total amount
guaranteed.
7. Trustees' Remuneration
The Trustees of the Trust associated with Lord Abbett and all officers of the
Trust receive no compensation from the Trust for acting as such. Outside
Trustees' fees and retirement costs are allocated among all funds in the Lord
Abbett group based on net assets of each fund. Trustees' fees payable at May 31,
1997, under a deferred compensation plan, were $26,445.
<PAGE>
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, 1997, 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,
1997 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, 1997, 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.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
June 25, 1997
Numbers to Keep Handy
For Shareholder Account
or Statement Inquiries: 800-821-5129
For Literature: 800-874-3733
For More Information: 800-426-1130
Visit Our Web Site:
http://www.lordabbett.com
Copyright (C) 1997 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. There is no guarantee that the forecasts contained
within this publication will come to pass.
All rights reserved. Printed in the U.S.A.
[LOGO](R) LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
LORD ABBETT DISTRIBUTOR LLC
- ------------------------------------------------------------ LAEF-2-597
The GM Building o 767 Fifth Avenue o New York, NY 10153-0203 (7/97)
