1933 Act File No. 33-43017
1940 Act File No. 811-6418
SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 10 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [X]
AMENDMENT No. 10 [X]
LORD ABBETT TAX-FREE INCOME TRUST
Exact Name of Registrant as Specified in Charter
767 Fifth Avenue, New York, N.Y. 10153
Address of Principal Executive Office
Registrant's Telephone Number (212) 848-1800
Kenneth B. Cutler, Vice President & Secretary
767 Fifth Avenue, New York, N.Y. 10153
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box)
immediately on filing pursuant to paragraph (b) of Rule 485
- ----
X on June 15, 1995 pursuant to paragraph (b) of Rule 485
- ----
60 days after filing pursuant to paragraph (a) (i) of Rule 485
- ----
on (date)pursuant to paragraph (a) (i)of Rule 485
- ----
75 days after filing pursuant to paragraph (a) (ii) of Rule 485
- ----
on (date) pursuant to paragraph (a) (ii) of Rule 485
- ----
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- ----
<PAGE>
LORD ABBETT TAX-FREE INCOME TRUST
FORM N-1A
Cross Reference Sheet
Pursuant to Rule 481(a)
Form N-1A Location in Prospectus or
Item No. Statement of Additional Information
1 Cover Page
2 Fee Table
3 Financial Highlights; Performance
4 (a) (i) Cover Page, Our Management
4 (a) (ii) Investment Objectives; How We Invest
4 (b) (c) How We Invest
5 (a) (b) (c) Our Management; Back Cover Page
5 (d) N/A
5 (e) Back Cover Page
5 (f) N/A
5 A Performance
6 (a) Cover Page
6 (b) (c) (d) N/A
6 (e) Cover Page
6 (f) (g) Dividends, Capital Gains
Distributions and Taxes
7 (a) Back Cover Page
7(b) (c) (d) (e) (f) Purchases
8 (a) (b) (c) (d) Redemptions and Repurchases
9 N/A
10 Cover Page
11 Cover Page -- Table of Contents
12 N/A
13 (a) (b) (c) (d) Investment Objectives and Policies
14 Trustees and Officers
15 (a) (b) (c) Trustees and Officers
16 (a) (i) Investment Advisory and Other
Services
16 (a) (ii) Trustees and Officers
16 (a) (iii) Investment Advisory and Other
Services
16 (b) Investment Advisory and Other
Services
16 (c) (d) (e) (g) N/A
16 (f) Purchases, Redemptions, Repurchases
and Shareholder Services
16 (h) Investment Advisory and Other
Services
16 (i) N/A
17 (a) Portfolio Transactions
17 (b) N/A
17 (c) Portfolio Transactions
17 (d) (e) N/A
18 (a) Cover Page
18 (b) N/A
19 (a) (b) Purchases, Redemptions, Repurchases
and Shareholder Services; Notes
to Financial Statements
19 (c) N/A
20 Taxes
21 (a) Purchases, Redemptions, Repurchases
and Shareholder Services;
21 (b) (c) N/A
22 (a) N/A
22 (b) Past Performance
23 Financial Statements
<PAGE>
LORD ABBETT
TAX-FREE INCOME TRUST
THE GENERAL MOTORS BUILDING
767 FIFTH AVENUE
NEW YORK, NY 10153-0203
800-426-1130
LORD ABBETT TAX-FREE INCOME TRUST ("WE" OR THE "FUND") IS AN OPEN-END,
NON-DIVERSIFIED MANAGEMENT INVESTMENT COMPANY CURRENTLY CONSISTING OF FOUR
SEPARATE SERIES - THE FLORIDA SERIES, THE GEORGIA SERIES (A NEW SERIES EFFECTIVE
IMMEDIATELY), THE MICHIGAN SERIES AND THE PENNSYLVANIA SERIES.
EACH SERIES SEEKS AS HIGH A LEVEL OF INTEREST INCOME EXEMPT FROM FEDERAL
INCOME TAX AND ITS RESPECTIVE STATE'S PERSONAL INCOME TAX, IF ANY, AS IS
CONSISTENT WITH PRESERVATION OF CAPITAL. EACH SERIES INVESTS IN INTERMEDIATE AND
LONG-TERM MUNICIPAL BONDS WHICH CAN FLUCTUATE IN VALUE AS INTEREST RATES CHANGE.
AT PRESENT, FLORIDA IMPOSES NO INCOME TAX ON INDIVIDUALS. THERE CAN BE NO
ASSURANCE THAT EACH SERIES WILL ATTAIN ITS OBJECTIVE.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUND THAT A
PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. ADDITIONAL INFORMATION ABOUT
THE FUND HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS
AVAILABLE UPON REQUEST WITHOUT CHARGE. THE STATEMENT OF ADDITIONAL INFORMATION
IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND MAY BE OBTAINED, WITHOUT
CHARGE, BY WRITING TO THE FUND OR BY CALLING 800-874-3733. - ASK FOR "PART B OF
THE PROSPECTUS THE STATEMENT OF ADDITIONAL INFORMATION".
THE DATE OF THIS PROSPECTUS AND OF THE STATEMENT OF ADDITIONAL INFORMATION,
IS DECEMBER 27, 1994.
PROSPECTUS
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS. SHAREHOLDER INQUIRIES SHOULD
BE MADE IN WRITING TO THE FUND OR BY CALLING 800-821-5129. YOU CAN ALSO MAKE
INQUIRIES THROUGH YOUR BROKER-DEALER.
SHARES OF THE SERIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
AN INVESTMENT IN THE SERIES INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
CONTENTS PAGE
1 Investment Objective 2
2 Fee Table 2
3 Financial Highlights 3
4 How We Invest 4
5 Purchases 8
6 Shareholder Services 10
7 Our Management 11
8 Dividends, Capital Gains
Distributions and Taxes 11
9 Redemptions 13
10 Performance 14
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Each Series may be sold in the following jurisdictions: District of Columbia,
Florida, Georgia, Hawaii, Indiana, New Jersey, New York, and Pennsylvania. The
Michigan Series may also be sold in Michigan and Ohio.
<PAGE>
1 INVESTMENT OBJECTIVE
Our investment objective for each Series is to seek as high a level of interest
income exempt from federal income tax and its state's personal income tax, if
any, as is consistent with preservation of capital. Each Series invests in
intermediate and long-term municipal bonds (initially investment-grade or
equivalent) and, therefore, each Series' shares can fluctuate in value as
interest rates change more than shares of a short-term municipal bond fund, but
consistent with an investment-grade, longer term municipal bond fund. Under
normal circumstances, we intend to maintain the average weighted stated maturity
of each Trust at between ten and thirty-five years.
2 FEE TABLE
A summary of each Series' expenses is set forth in the table below. The example
is not a representation of past or future expenses. Actual expenses may be
greater or less than those shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(AS A PERCENTAGE OF OFFERING PRICE) FLORIDA GEORGIA MICHIGAN PENNSYLVANIA
------- ------- -------- ------------
<S> <C> <C> <C> <C>
Maximum Sales Load(1) on Purchases
(See "Purchases") 4.75% 4.75% 4.75% 4.75%
Deferred Sales Load (See "Purchases") None(2) None(2) None(2) None(2)
- -------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(AFTER MANAGEMENT FEE WAIVERS AND
OTHER EXPENSE SUBSIDIES)
Management Fee (See "Our Management") .00%(3) .50%(3) .00%(3) .15%(3)
12b-1 Fees (See "Purchases") .21% .00%(4) .00%(4) .00%(4)
Other Expenses (See "Our Management") .11% .40%(3) .34% .18%
Total Operating Expnses .32% .90%(3) .34% .33%
<FN>
Example: Assume each Series annual return is 5% and there is no change in the
level of expenses described above. For every $1,000 invested with reinvestment
of all dividends and distributions you would pay the following total expenses if
you closed your account after the number of years indicated.
1 year(5) 3 years(5) 5 years(5) 10 years(5)
--------- ---------- ---------- -----------
Florida Series $51 $57 $65 $86
Georgia Series $56 $75 $-- $--
Michigan Series $51 $58 $66 $89
Pennsylvania Series $51 $58 $65 $87
(1) Sales "load" is referred to as sales "charge" and "deferred sales load" is
referred to as "contingent deferred reimbursement charge" throughout this
Prospectus.
(2) Redemptions of shares on which a Series' 1% Rule 12b-1 sales-distribution
fee for purchases of $1 million or more has been paid, are subject to a 1%
contingent deferred reimbursement charge, if the redemption occurs within
24 months after the month of purchase.
(3) Although not obligated to, Lord, Abbett & Co. ("Lord Abbett") may waive a
portion of its management fee and assume other expenses with respect to the
Series. It has waived its management fee (or a portion thereof) with
respect to each of the Florida, Michigan and Pennsylvania Series during the
past year (and continues to do so). Lord Abbett may waive its management
fee and subsidize expenses with respect to the Georgia Series. The
management fee would have been 0.50% for each Series, absent such waiver.
Without such waiver, these expenses would have been 0.82%, 0.84% and 0.68%
for Florida, Michigan, and Pennsylvania, respectively. Subsequently, Lord
Abbett may charge these fees and not subsidize these expenses on a partial
or complete basis. Other expenses of the Michigan Series include
reimbursement of certain expenses previously subsidized by Lord Abbett. See
"Our Management".
(4) These figures omit Rule 12b-1 fees for the Georgia, Michigan and
Pennsylvania Series because the Fund cannot predict when the net assets of
these Series will reach the required level for effectiveness of each
Series' Plan. The Plans will go into effect on the first day of the
calendar quarter subsequent to each Series' net assets reaching $100
million. The Rule 12b-1 fees are (1) an annual service fee (payable
quarterly) equal to .15% of the average daily net asset value of each
Series' shares sold by dealers prior to the effective date for each Series'
Plan and .25% of the average daily net asset value of such shares sold on
or after that date and (2) a one-time 1% sales distribution fee, at the
time of sale, on such shares sold at net asset value of $1 million or more.
(5) Based on total operating expenses shown in the table above.
The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in each Series.
</FN>
</TABLE>
<PAGE>
3 FINANCIAL HIGHLIGHTS
The following tables have been audited by Deloitte & Touche LLP, independent
accountants, in connection with their annual audits of the Fund's Financial
Statements, whose report thereon is incorporated by reference in the Statement
of Additional Information and may be obtained on request, and have been included
herein in reliance upon their authority as experts in auditing and accounting.
<TABLE>
<CAPTION>
FLORIDA SERIES FOR THE PERIOD
SEPTEMBER 25, 1991
(COMMENCEMENT OF
PER SHARE OPERATING YEAR ENDED OCTOBER 31, OPERATIONS) TO
--------------------------------------- OCTOBER 31,
PERFORMANCE: 1994 1993 1992 1991
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.28 $4.75 $4.76 $4.76
Income from investment operations
Net investment income .291 .297 .308 .027+
Net realized and unrealized
gain on securities (.695) .549 .002 .000
TOTAL FROM INVESTMENT OPERATIONS (.404) .846 .310 .027
---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from net investment income (.2835) (.301) (.320) (.027)
Distribution from net realized gain (.1025) (.015) -- --
Net asset value, end of period $4.49 $5.28 $4.75 $4.76
---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* (8.03)% 18.24% 6.05% .57%+
---------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $174,844 $191,463 $121,408 $108,550
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver .32% .38% .29% .00%+
Expenses, excluding waiver .82% .88% .78% 5.10%+
Net investment income 5.98% 5.71% 5.84% .55%+
PORTFOLIO TURNOVER RATE 122.92% 89.32% 94.90% 100.00%
<FN>
* Total return does not consider the effects of sales loads.
+ Not annualized. See Notes to Financial Statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA SERIES FOR THE PERIOD
FEBRUARY 3, 1992
(COMMENCEMENT OF
PER SHARE OPERATING YEAR ENDED OCTOBER 31, OPERATIONS) TO
----------------------- OCTOBER 31,
PERFORMANCE: 1994 1993 1992
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.33 $4.75 $4.76
Income from investment operations
Net investment income .300 .299 .228+
Net realized and unrealized
gain (loss) on securities (.6975) .582 (.006)
TOTAL FROM INVESTMENT OPERATIONS (.3975) .881 .222
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from net investment income (.2925) (.301) (.232)
Distributions from net realized gain (.02) .-- .--
Net asset value, end of period $4.62 $5.33 $4.75
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN* (7.73)% 18.95% 4.68%+
- ------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $81,258 $82,113 $41,207
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver .33% .31% .00%+
Expenses, excluding waiver .68% .81% .61%+
Net investment income 5.98% 5.70% 4.42%+
PORTFOLIO TURNOVER RATE 137.22% 7.71% 32.66%
<FN>
* Total return does not consider the effects of sales loads.
+ Not annualized. See Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN SERIES FOR THE PERIOD
DECEMBER 1, 1992
YEAR ENDED (COMMENCEMENT OF
PER SHARE OPERATING OCTOBER 31, OPERATIONS) TO
---------- OCTOBER 31,
PERFORMANCE: 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.23 $4.76
Income from investment operations
Net investment income .286 .266+
Net realized and unrealized
gain on securities (.651) .480
TOTAL FROM INVESTMENT OPERATIONS (.365) .746
- ---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from net investment income (.2925) (.276)
Distribution from net realized gain (.0425) --
Net asset value, end of period $4.53 $5.23
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* (7.29)% 16.01%+
- ---------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $45,603 $34,957
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver .34% .00%+
Expenses, excluding waiver .84% .75%+
Net investment income 5.69% 4.75%+
PORTFOLIO TURNOVER RATE 137.31% 68.10%
<FN>
* Total return does not consider the effects of sales loads.
+ Not annualized.
See Notes to Financial Statements.
</FN>
</TABLE>
4 HOW WE INVEST
Each Series invests primarily in a portfolio of intermediate-term (5-10 years)
to long-term (over 10 years) municipal bonds, the interest on which is exempt
from federal income tax in the opinion of bond counsel to the issuer. Except for
the Florida Series, the interest on the municipal bonds in which each Series
primarily invests also is exempt from its state's personal income tax, if any,
in the opinion of bond counsel to the issuer. At present, Florida imposes no
income tax on individuals. The per-share net asset value of each Series can be
expected to fluctuate inversely as interest rates change. When interest rates
rise, the value of securities in the portfolios, as well as the share values,
generally will fall. Conversely, when interest rates fall, the value of
securities in the portfolios and the share values generally will rise.
"Municipal bonds" used herein, and as more fully described in the Statement
of Additional Information, are debt obligations issued by or on behalf of
states, territories and possessions of the United States, including the District
of Columbia, Puerto Rico, the Virgin Islands and Guam, and their political
subdivisions, agencies and instrumentalities.
Each Series invests primarily in investment-grade municipal bonds rated
("rated bonds") at the time of purchase within the four highest grades assigned
by Moody's Investors Service, Inc. ("Moody's"--Aaa, Aa, A, Baa), Standard &
Poor's Corporation ("S&P"--AAA, AA, A, BBB) or Fitch Investors Service ("Fitch"
- - AAA, AA, A, BBB). Each Series also may invest in unrated municipal bonds
exempt from federal income tax and its respective state's personal income tax,
if any, which are determined by Lord Abbett to be of comparable quality to the
rated bonds in which such Series may invest. At least 70% of the municipal bonds
in each portfolio must be rated within or, if unrated, equivalent to, at the
time of purchase, the three highest such grades. As much as 30% of the municipal
bonds in each Series' portfolio may be rated within, or, if unrated, equivalent
to, at the time of purchase, the fourth highest grade. This grade, while
regarded as having an adequate capacity to pay interest and repay principal, is
considered to be of medium grade and has speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds. After a Series purchases a municipal bond, the issuer may cease to
be rated, or its rating may be reduced below the minimum required for purchase,
which could have an adverse effect on the market value of the issue. Neither
event will require the elimination of the issue from a Series' portfolio.
<PAGE>
The Fund's internal policy restricts investments to municipal bonds which are
initially investment-grade, i.e., among the four highest grades mentioned above
or their equivalent, and it is our objective to provide above-average tax-free
income relative to comparable investment-grade, longer term municipal bond
funds. In view of this internal policy and because we manage the maturities of
our investments in accordance with our interest-rate expectations, we anticipate
(i) a higher level of tax-free income than a short-term, tax-free municipal bond
fund and (ii) a share value tending to fluctuate more than such a short-term
fund, but consistent with an investment-grade, longer term municipal bond fund.
The two principal classifications of municipal bonds are "general obligation"
and limited obligation or "revenue" bonds. General obligation bonds are secured
by the pledge of faith, credit and taxing power of the municipality. The taxes
or special assessments that can be levied for the payment of debt service may be
limited or unlimited as to the rate or amount. Revenue bonds are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise or other specific revenue
source. Industrial development bonds are in most cases revenue bonds and do not
generally constitute the pledge of the faith, credit or taxing power of the
municipality. The credit quality of such municipal bonds is usually directly
related to the credit standing of the user of the facilities. There are
variations in the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous factors.
Each Series may purchase new issues of municipal bonds which are generally
offered on a when-issued basis, with delivery and payment ("settlement")
normally taking place approximately one month after the purchase date. However,
the payment obligation and the interest rate to be received by the Fund are each
fixed on the purchase date. During the period between purchase and settlement,
Fund assets consisting of cash and/or high-grade marketable securities, marked
to market daily, of a dollar amount sufficient to make payment at settlement
will be segregated at our custodian. There is a risk that market yields
available at settlement may be higher than yields obtained on the purchase date,
which could result in depreciation of value. While we may sell when-issued
securities prior to settlement, we intend to actually acquire such securities
unless a sale appears desirable for investment reasons.
Under normal market conditions, each Series will attempt to invest 100% and,
as a matter of fundamental policy, will invest at least 80% of its net assets in
municipal bonds, the interest on which is exempt from federal income tax. Under
normal market conditions, each Series also will attempt to invest 100% and, as a
matter of fundamental policy, will invest at least 80% of its net assets in
municipal bonds, the interest on which is exempt from its state's personal
income taxes. At present, Florida does not impose a personal income tax. See
"Dividends, Capital Gains Distributions and Taxes".
Although normally each Series intends to be fully invested in intermediate to
long-term municipal bonds, a Series may temporarily invest in short-term
tax-exempt securities meeting the above-described quality standards and,
additionally, may temporarily put up to 20% of its assets in cash, in commercial
paper of comparable investment quality or in short-term obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government securities"), in order to improve liquidity or to create reserve
purchasing power. Because interest earned from commercial paper or U.S.
Government securities is taxable for federal income tax purposes, we intend to
minimize temporary investments in such short-term securities.
Each Series may invest up to 20% of its net assets (less any amount invested
in the temporary taxable investments described above) in "private activity
bonds." Series dividends derived from interest on such bonds would be considered
a preference item for purposes of the computation of the alternative minimum
tax. Series dividends derived from such interest may increase the alternative
minimum tax liability of corporate shareholders who are subject to that tax
based on the excess of their adjusted current earnings over their taxable
income.
Each Series intends to meet the diversification rules under Subchapter M of
the Internal Revenue Code. Generally, this requires, at the end of each quarter
of the taxable year, that (a) not more than 25% of each Series' total assets be
invested in any one issuer and (b) with respect to 50% of each Series' total
assets, not more than 5% of each Series' total assets be invested in any one
issuer except U. S. Government securities.
<PAGE>
Since under these rules each Series may invest its assets in the securities of a
limited number of issuers, the value of each Series' investments may be more
affected by any single adverse economic, political or regulatory occurrence than
in the case of a diversified investment company under the Investment Company Act
of 1940 (the "1940 Act"). The identification of an "issuer" will be determined
on the basis of the source of assets and revenues committed to meeting interest
and principal payments of the securities. When the assets and revenues of a
state's political subdivision are separate from those of the state government
creating the subdivision, and the security is backed only by the assets and
revenues of the subdivision, then the subdivision would be considered the sole
issuer. Similarly, if a revenue bond is backed only by the assets and revenues
of a nongovernmental user, then such user would be considered the sole issuer.
No Series intends to invest more than 25% of its total assets in any industry,
except that each Series may, subject to the limits referred to in the preceding
three paragraphs, invest more than 25% of such assets in a combination of U.S
Government securities and in tax-exempt securities, including tax-exempt revenue
bonds whether or not the users of any facilities financed by such bonds are in
the same industry. Where nongovernmental users are in the same industry, there
may be additional risk to that Series in the event of an economic downturn in
such industry, which may result generally in a lowered ability of such users to
make payments on their obligations. Electric utility and health care are typical
but not all inclusive of the industries in which this 25% may be exceeded. The
former is relatively stable but subject to rate regulation vagaries. The latter
suffers from two main problems -- affordability and access. Tax-exempt
securities issued by governments or political subdivisions of governments are
not considered part of any "industry." Each Series may invest up to 20% of its
net assets in residual interest bonds ("RIBs") to enhance income and increase
portfolio duration. None of the Series invested more than 12.7% of its net
assets in RIBs at any time during the fiscal year ended October 31, 1994. A RIB,
sometimes referred to as an inverse floateris a debt instrument with a floating
or variable interest rate that moves in the opposite direction of the interest
rate on another security or the value of an index. Changes in the interest rate
on the other security or index inversely affect the residual interest rate paid
on the RIB, with the result that when interest rates rise, RIBs give lower
interest payments and their value falls faster than other similar fixed-rate
bonds. In an effort to mitigate the risk that RIB values may fall faster,
management of the Fund purchases other fixed-rate bonds which are less volatile.
When interest rates fall, not only do RIBs give higher interest payments, their
values also rise faster than other similar fixed-rate bonds. The market for RIBs
is relatively new. Each Series may invest up to 10% of its respective net assets
in illiquid securities. Bonds determined by the Trustees to be liquid pursuant
to Securities and Exchange Commission Rule 144A ("Rule 144A") will not be
subject to this limit, except to the extent necessary to comply with applicable
state requirements. Investments by the Series in Rule 144A securities initially
determined to be liquid could have the effect of diminishing the level of the
Series' liquidity during periods of decreased market interest in such
securities. Under Rule 144A, a qualifying security may be resold to a qualified
institutional buyer without registration and without regard to whether the
seller originally purchased the security for investment. No Series will borrow
money unless such borrowing does not exceed the asset coverage requirements of
the 1940 Act with respect to such Series.
PORTFOLIO TURNOVER. Portfolio turnover rates for the fiscal year ended October
31, 1994 for the Florida, Michigan and Pennsylvania Series were 122.92%, 137.31%
and 137.22, respectively, compared to 89.32%, 68.10% and 7.71% for the period
ended October 31, 1994. Turnover rates increased due to purchases and sales of
securities relating to purchases and redemptions of our shares and some
portfolio restructuring. It is estimated that the portfolio turnover rate for
the Georgia Series will be less than 100%.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. The Series may deal in options on
securities, securities indexes and financial futures transactions, including
options on financial futures. The Series may write (sell) covered call options
and secured put options on up to 25% of its net assets and may purchase put and
call options provided that no more than 5% of its net assets may be invested in
premiums on such options. The Series is not currently employing any of the
options and financial futures transactions described above.
FUTURE CONVERSION. In the future, upon shareholder approval, each Series
may seek to achieve its investment objective by investing all of its assets
in another investment company (or series or class thereof) having the same
investment objective. Shareholders will
<PAGE>
be notified thirty days in advance of such conversion. Shareholders of each
Series will be able to exchange Series shares for shares of the other funds,
series or classes in the Lord Abbett family having an exchange privilege with
the Fund.
RISK FACTORS. Securities in which we may invest are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors and laws which may be enacted extending the time of payment of
principal and interest, or both. There is also the possibility that, as a result
of litigation or other conditions, the power or ability of issuers to meet their
obligations for payment of principal and interest may be materially affected or
their obligations may be found to be invalid or unenforceable.
The ability of each series to achieve its objective is based on the
expectation that the issuers of the municipal bonds in each Series' portfolio
will continue to meet their obligations for the payment of principal and
interest. The following are brief summaries of certain factors affecting the
Florida, Georgia, Michigan and Pennsylvania Series. Also, there follows a brief
summary regarding Puerto Rico bonds which may be purchased by the Series. These
summaries do not purport to be complete and are based upon information derived
from publicly-available documents relating to each state involved, which
information has not been independently verified by the Fund. For more detailed
discussions of the risks applicable to those Series, see the Statement of
Additional Information.
FLORIDA BONDS - RISK FACTORS. Florida, in terms of population, is one of the
largest states in the United States. The State has grown dramatically since
1980. Its population includes a large proportion of senior citizens who have
moved to the State after retirement. Recently, the share of the State's working
age population (18-59) to total State population was approximately 54%. That
share is not expected to change appreciably into the twenty-first century.
Because Florida has a proportionally greater retirement age population than the
rest of the nation and the southeast, property income (dividends, interest and
rent) and transfer payments (Social Security and pension benefits, among other
sources of income) are a relatively more important source of income.
Through the 1980s, Florida's unemployment rate was below that of the rest of
the nation. Since 1989, however, it has been higher than the national average.
Florida's dependency on the highly cyclical construction and
construction-related manufacturing sectors has declined. Tourism is now one of
Florida's most important industries. Over the years, this industry has become
more sophisticated, attracting visitors year-round, thus, to a degree, reducing
its seasonality.
Hurricane Andrew passed through the southern part of Florida on August 24,
1992, leaving many areas devastated. Post-hurricane cleanup and rebuilding has
had a significant impact on the State's economy, contributing to a significant
growth in construction expenditures.
Florida's Constitution permits issuance of State bonds pledging the full
faith and credit of the State, with the vote of the electors, to finance or
refinance fixed-capital outlay projects. Revenue Bonds may be issued by the
State or its agencies without a vote of Florida's electors only to finance or
refinance the cost of State fixed-capital outlay projects which shall be payable
solely from funds derived directly from sources other than State tax revenues.
GEORGIA BONDS-RISK FACTORS. The largest sources of employment in Georgia, in
descending order, are wholesale and retail trade; services; manufacturing;
government; transportation and other public utilities; finance, insurance and
real estate; and contract construction. The largest sources of government
revenues are the State's personal income tax and general sales and use tax.
Georgia experienced severe flooding as a result of tropical storm Alberto. The
long-term economic impact is unknown.
MICHIGAN BONDS-RISK FACTORS. Michigan's economy remains heavily concentrated in
the manufacturing sector, although the relative percentage of total employment
accounted for by manufacturing has declined in recent years. Despite the
contraction of the automobile industry in the State, it has remained the most
significant portion of the State's manufacturing sector. The State's per capita
income stands slightly below the national level and the State's unemployment
rate stands at the national average. The State has had deficits carried forward
during recent fiscal years, but showed a surplus in fiscal 1993.
PENNSYLVANIA BONDS-RISK FACTORS. The Commonwealth of Pennsylvania is one of the
most populous states, ranking fifth behind California, New York, Texas, and
Florida. Pennsylvania is an established, yet growing, state with a diversified
economy. It is
<PAGE>
headquarters for 60 major corporations and the home for more than 244,600
businesses. Pennsylvania has been historically identified as a heavy-industry
state, although that reputation has recently changed as the industrial
composition of Pennsylvania diversified when the coal, steel and railroad
industries began to decline. The major new sources of growth are in the service
sector, including trade, medical and health services, education and financial
institutions. Pennsylvania is highly urbanized, with approximately 50% of the
Commonwealth's total population contained in the metropolitan areas which
include the cities of Philadelphia and Pittsburgh.
Pennsylvania's natural resources include major deposits of coal, oil, gas and
limestone. Its workforce is more than 5.9 million, ranking as sixth largest
labor pool in the nation.
After experiencing operating deficits in fiscal 1990 and 1991, for fiscal
1992 and 1993 the Commonwealth's General Fund recorded an operating surplus. As
a result of that surplus, the fund balance has increased and the
unreserved-undesignated fund deficit that existed in 1992 has been eliminated.
PUERTO RICO-RISK FACTORS. The economy of Puerto Rico is dominated by diversified
manufacturing and service sectors. It is closely integrated, through extensive
trade, with that of the mainland United States, and its economic health is
closely tied to the price of oil and the state of the U.S. economy. Puerto Rico
has a rate of unemployment exceeding the U.S. average.
Puerto Rico's economy has experienced significant growth since fiscal 1989.
Continued growth in fiscal 1994 and 1995 will depend on several factors,
including the state of the U.S. economy, the relative stability of the price of
oil and borrowing costs.
5 PURCHASES
You may buy our shares through any independent securities dealer having a sales
agreement with Lord Abbett, our exclusive selling agent. Place your order with
your investment dealer or send it to Lord Abbett Tax-Free Income Trust (P.O. Box
419100, Kansas City, Missouri 64141). The minimum initial investment is $1,000
except for Invest-A-Matic and Div-Move ($250 initial and $50 monthly minimum).
Subsequent investments may be made in any amount.
The net asset values of our shares are calculated every business day as of
the close of the New York Stock Exchange ("NYSE") by dividing net assets by the
number of shares outstanding. Securities are valued at their market value, as
more fully described in the Statement of Additional Information.
Orders for shares received by the Fund prior to the close of the NYSE, or
received by dealers prior to such close and received by Lord Abbett in proper
form prior to the close of its business day, will be confirmed at the applicable
public offering price effective at such NYSE close. Orders received by dealers
after the NYSE closes and received by Lord Abbett prior to the close of its next
business day are executed at the applicable public offering price effective as
of the close of the NYSE on that next business day. The dealer is responsible
for the timely transmission of orders to Lord Abbett. A business day is a day on
which the NYSE is open for trading. For information regarding proper form of a
purchase or redemption order, call the Fund at 800-821-5129. This offering may
be suspended, changed or withdrawn. Lord Abbett reserves the right to reject any
order.
For each Series, the offering price is based on the per-share net asset value
calculated as of the times described above, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A DEALER'S
PERCENTAGE OF: CONCESSION
AS A TO COMPUTE
NET PERCENTAGE OFFERING
OFFERING AMOUNT OF OFFERING PRICE, DIVIDE
SIZE OF INVESTMENT PRICE INVESTED PRICE* NAV BY
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.00% .9525
$50,000 to $99,999 4.75% 4.99% 4.25% .9525
$100,000 to $249,999 3.75% 3.90% 3.25% .9625
$250,000 to $499,999 2.75% 2.83% 2.50% .9725
$500,000 to $999,999 2.00% 2.04% 1.75% .9800
$1,000,000 or more No Sales Charge 1.00% 1.0000
-----------------------------------------------------------------------------
The following $1 million category is for each of the Georgia, Michigan and
Pennsylvania Series only until such Series' Rule 12b-1 Plan becomes effective,
at which time the sales charge table above will apply to such Series.
$1,000,000 or more 1.00% 1.01% 1.00% .9900
<FN>
* Lord Abbett may, for specified periods, allow dealers to retain the full
sales charge for sales of shares during such period, or pay an additional
concession to a dealer who, during a specified period, sells a minimum
dollar amount of our shares and/or shares of other Lord Abbett-sponsored
funds. In some instances, such additional concessions will be offered only
to certain dealers expected to sell significant amounts of shares. Lord
Abbett may from time to time implement promotions under which Lord Abbett
will pay a fee to dealers with respect to certain purchases not involving
imposition of a sales charge. Additional payments may be paid from Lord
Abbett's own resources and will be made in the form of cash or non-cash
payments. The non-cash payments will include business seminars at resorts
or other locations, including meals and entertainment, or the receipt of
merchandise. The cash payments will include payment of various business
expenses of the dealer.
</FN>
</TABLE>
<PAGE>
In selecting dealers to execute portfolio transactions, if two or more
dealers are considered capable of providing best execution, we may prefer the
dealer who has sold our shares and/or shares of other Lord Abbett-sponsored
funds.
VOLUME DISCOUNTS. There are several ways to qualify for a lower sales charge if
you inform the Fund that you are eligible at the time of purchase: (1) Increase
the initial investment to reach a higher discount level. The above schedule
applies to purchases by any "purchaser" of our shares, alone or in combination
with other Lord Abbett-sponsored funds (other than shares of Lord Abbett Equity
Fund ("LAEF"), Lord Abbett Series Fund ("LASF"), Lord Abbett Research Fund
("LARF"), Lord Abbett Counsel Group and Lord Abbett U.S. Government Securities
Money Market Fund ("GSMMF")). The term "purchaser" includes (i) an individual
and (ii) an individual, and his or her spouse and children under the age of 21.
(2) Add to the investment so that the current maximum offering price value of
the purchaser's combined holdings in all Lord Abbett-sponsored funds reaches a
higher discount level. Shares of LAEF, LASF, LARF, Lord Abbett Counsel Group and
GSMMF are not eligible for this privilege, unless holdings in GSMMF are
attributable to shares exchanged from a Lord Abbett-sponsored fund offered with
a sales charge. (3) Sign a nonbinding 13-month statement of intention to invest
$100,000 or more. If the purchases are completed during the period, each
purchase will be at the sales charge applicable to the aggregate of your
intended purchases; if not completed, each purchase will be at the sales charge
applicable to the aggregate of your actual purchases. Dividends or distributions
reinvested without a sales charge are not included in completion of the
statement of intention.
Our shares may be purchased at net asset value by our trustees, employees of
Lord Abbett, employees of our shareholder servicing agent, employees of any
securities dealer having a sales agreement with Lord Abbett who consents to such
purchases. For purposes of this paragraph, the terms "trustees" and "employees"
include a trustee's or employee's spouse (including the surviving spouse of a
deceased trustee or employee). The terms "trustees" and "employees of Lord
Abbett" also include other family members and retired trustees and employees.
Each Series' shares also may be purchased at net asset value (a) at $1
million or more after the commencement of such Series' Rule 12b-1 Plan, (b) with
dividends and distributions from other Lord Abbett-sponsored funds, except for
dividends and distributions on shares of LAEF, LASF, LARF and Lord Abbett
Counsel Group, and (c) by certain authorized brokers, dealers, registered
investment advisers or other financial institutions who have entered into an
agreement with Lord Abbett in accordance with certain standards approved by Lord
Abbett, providing specifically for the use of our shares in particular
investment products made available for a fee to clients of such brokers,
dealers, registered investment advisers and other financial institutions, (d) by
employees, partners and owners of unaffiliated consultants and advisors to Lord
Abbett or Lord Abbett-sponsored funds who consent to such purchase if such
persons provide service to Lord Abbett or such funds on a continuing basis and
are familiar with such funds and, (e) subject to appropriate documentation,
through a securities dealer where the amount invested represents redemption
proceeds from shares ("Redeemed Shares") of a registered open-end management
investment company not distributed or managed by Lord Abbett (other than a money
market fund), if such redemptions have occurred no more than 60 days prior to
the purchase of our shares, the Redeemed Shares were held for at least six
months prior to redemption and the proceeds of redemption were maintained in
cash or a money market fund prior to purchase. Purchasers should consider the
impact, if any, of redemption charges or contingent deferred sales charges in
determining whether to redeem shares for subsequent investment in our shares.
Lord Abbett may suspend, change, or terminate the purchase option referred to in
(e) above, at any time.
Our shares may be issued at net asset value in exchange for the assets,
subject to possible tax adjustments, of a personal holding company or an
investment company.
RULE 12B-1 PLAN. Each Series has adopted a Rule 12b-1 Plan (the "Plans") which
authorizes Lord Abbett to pay fees to dealers in order to provide additional
incentives for them (a) to provide continuing information and investment
services to their shareholder accounts and otherwise to encourage their accounts
to remain invested in the Fund and (b) to sell shares of the Fund. The Plan fees
indicated
<PAGE>
below will go into effect on the first day (the "effective date") of the
calendar quarter subsequent to a Series' net assets reaching $100 million. The
Fund cannot estimate when the net assets will reach the required level for
effectiveness of the Plans for the Georgia, Michigan and Pennsylvania Series.
Under the Plans (except as to certain accounts for which tracking data is not
available) the Series pay Lord Abbett, who passes on to dealers (1) an annual
service fee (payable quarterly) of .25% of the average daily net asset value of
the Series' shares sold by dealers on or after the Plans' effective date and
.15% of the average daily net asset value of shares sold by dealers prior to
that date and (2) a one-time 1% sales distribution fee, at the time of sale, on
all shares at or above the $1 million level sold by dealers on or after the
Series' effective date, including sales qualifying at such level under the
rights of accumulation and statement of intention privileges.
Holders of shares on which the 1% sales distribution fee has been paid will
be required to pay to the Series a contingent deferred reimbursement charge of
1% of the original cost or the then net asset value, whichever is less, of all
shares so purchased which are redeemed out of the Lord Abbett-sponsored family
of funds on or before the end of the twenty-fourth month after the month in
which the purchase occurred. If the shares have been exchanged into another Lord
Abbett Series or fund and are thereafter redeemed out of the Lord Abbett family
on or before the end of such twenty-fourth month, the charge will be collected
for the Series by the other Series or fund. Each Series will collect such a
charge for other Series and other Lord Abbett-sponsored funds in a similar
situation. Shares of a fund or series on which the 1% sales distribution fee has
been paid may not be exchanged into a fund or series with a Rule 12b-1 Plan for
which the payment provisions have not been in effect for at least one year.
6 SHAREHOLDER SERVICES
We offer the following shareholder services:
TELEPHONE EXCHANGE PRIVILEGE: Shares of any Series may be exchanged, without
a service charge, for those of any other Series or any available Lord
Abbett-sponsored fund, except for (i) LAEF, LASF, LARF, and Lord Abbett Counsel
Group and (ii) certain tax-free, single-state series where the exchanging
shareholder is a resident of a state where such shares are not offered for sale
(together "Eligible Funds").
You or YOUR REPRESENTATIVE WITH PROPER IDENTIFICATION can instruct the Fund
to exchange uncertificated shares by telephone. Shareholders have this privilege
unless they refuse it in writing. The Fund will not be liable for following
instructions communicated by telephone that it reasonably believes to be genuine
and will employ reasonable procedures to confirm that instructions received are
genuine, including requesting proper identification and recording all telephone
exchanges. Instructions must be received by the Fund in Kansas City
(800-821-5129) prior to the close of the NYSE to obtain each fund's net asset
value per share on that day. Expedited exchanges by telephone may be difficult
to implement in times of drastic economic or market changes. The exchange
privilege should not be used to take advantage of short-term swings in the
market. The Fund reserves the right to terminate or limit the privilege of any
shareholder who makes frequent exchanges. The Fund can revoke the privilege for
all shareholders upon 60 days' prior written notice. A prospectus for the other
Lord Abbett-sponsored fund selected by you should be obtained and read before an
exchange. Exercises of the Exchange Privilege will be treated as a sales for
Federal income tax purposes and, depending on the circumstances, a capital gain
or loss may be recognized.
SYSTEMATIC WITHDRAWAL PLAN: If the maximum offering price value of your
non-certificated shares is at least $10,000, you may have periodic cash
withdrawals automatically paid to you in either fixed or variable amounts.
DIV-MOVE: You can invest the dividends paid on your account ($50 minimum
monthly investment) into an existing account in any other Eligible Fund. The
account must be either your account, a joint account for you and your spouse, a
single account for your spouse or a custodial account for your minor child under
the age of 21. You should read the prospectus of the other fund before
investing.
INVEST-A-MATIC: Invest-A-Matic allows fixed, periodic investments ($50
minimum monthly investment) into the Fund and/or any Eligible Fund by means of
automatic money transfers from your bank checking account. You should read the
prospectus of the other fund before investing.
All correspondence should be directed to Lord Abbett Tax-Free Income Trust
(P.O. Box 419100, Kansas City, Missouri 64141).
<PAGE>
7 OUR MANAGEMENT
Our business is managed by our officers on a day-to-day basis under the overall
direction of our Trustees. We employ Lord Abbett as investment manager for each
Series, pursuant to a Management Agreement. Lord Abbett has been an investment
manager for over 60 years and currently manages approximately $16 billion in a
family of mutual funds and advisory accounts. Under the Management Agreement,
Lord Abbett provides us with investment management services and personnel, pays
the remuneration of our officers and of our Trustees affiliated with Lord
Abbett, provides us with office space and pays for ordinary and necessary office
and clerical expenses relating to research, statistical work and supervision of
our portfolios and certain other costs. Lord Abbett provides similar services to
fifteen other funds having various investment objectives and also advises other
investment clients. Robert S. Dow,Lord Abbett Partner in charge of Fixed Income
for over five years, is primarily responsible for the day-to-day management of
the Series and has acted in this capacity since each Series' inception. He is
assisted by, and may delegate management duties to, other Lord Abbett employees
who may be Fund officers.
Under the Management Agreement, we are obligated to pay Lord Abbett a monthly
fee at the annual rate of .50 of 1% of average daily net assets of each Series
for each month. For the fiscal year ended October 31, 1994 Lord Abbett waived
$954,176, $299,609 and $215,421 in management fees for the Florida, Pennsylvania
and Michigan Series, respectively. In addition, we pay all expenses not
expressly assumed by Lord Abbett. The ratios of expenses, including management
fee expenses, to average net assets for the fiscal year ended October 31, 1994
were .32%, .33% and .34% for the Florida, Pennsylvania and Michigan Series,
respectively. The expense ratios for these Series would have been .82%, .68% and
.84%, respectively, had Lord Abbett not waived all or a portion of its
management fee.
The Agreement provides for each of the Michigan and Georgia Series to repay
Lord Abbett without interest for any expenses assumed by Lord Abbett on and
after the first day of the calendar quarter after the net assets of each such
Series first reach $50 million ("commencement date"), to the extent that the
expense ratio of each Series (determined before taking into account any fee
waiver or expense assumption) is less than .85%. Commencing with the first day
of the calendar quarter after the net assets of the Series first reach $100
million, such repayments shall be made to the extent that such expense ratio so
determined is less than 1.05%. The Series shall not be obligated to repay any
such expenses after the earlier of the termination of the Agreement or the end
of five full fiscal years after the commencement date. The Series will not
record as obligations in their financial statements any expenses which may be
repaid to Lord Abbett under this repayment formula unless such repayment is
probable at the time. If such repayment is not probable, the Series will
disclose in a note to their financial statements that such repayments are
possible.
The Fund does not hold regular annual meetings and expects to hold meetings
of shareholders only when necessary under applicable law or the terms of the
Fund's Declaration of Trust. Under the Declaration of Trust, a shareholders'
meeting may be called at the request of the holders of one-quarter of the
outstanding stock entitled to vote. See the Statement of Additional Information
for more details.
The Fund was organized as a Massachusetts business trust on September 11,
1991. Each outstanding share of a Series has one vote on all matters voted upon
by that Series and an equal right to dividends and distributions of that Series.
All shares have noncumulative voting rights for the election of Trustees.
8 DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Dividends from net investment income are declared daily and paid monthly. They
may be taken in cash or additional shares at net asset value (without a sales
charge). You begin earning dividends on the business day on which payment for
the purchase of your shares is received.
A long-term capital gains distribution is made when we have net profits
during the year from sales of securities which we have held more than one year.
If we realize net short-term capital gains, they also will be distributed. It is
anticipated that any capital gains will be distributed in November. You may take
them in cash or additional shares at net asset value without a sales charge.
Supplemental dividends and distributions may be paid in December or January.
Dividends and distributions declared in October, November or December of any
year to shareholders of record as of a date in such a month will be treated for
federal income tax purposes as having been received by shareholders in that year
if they are paid before February 1 of the following year.
<PAGE>
We intend to continue to meet the requirements of Subchapter M of the
Internal Revenue Code and to take any other action necessary to insure that we
will pay no federal income tax and that each of the Series may pay
"exempt-interest dividends." Dividends derived from our interest income on
obligations exempt from federal income tax, when designated by the Fund as
"exempt-interest dividends," will be exempt from federal income tax when
received by shareholders. Dividends derived from income on our other investments
or from any net realized short-term capital gains, will be taxable to
shareholders as ordinary income, whether received in cash or shares. Dividends
derived from net long-term capital gains which are designated by the Fund as
"capital gains dividends" will be taxable to shareholders as long-term capital
gains, whether received in cash or shares, regardless of how long a shareholder
has held the shares. Under current law, net long-term capital gains are taxed at
the rates applicable to ordinary income, except that the maximum rate for
long-term capital gains for individuals is 28%.
You may be subject to a $50 penalty under the Internal Revenue Code and we
may be required to withhold and remit to the U.S. Treasury a portion (31%) of
any redemption proceeds (including the value of shares exchanged into another
Lord Abbett-sponsored funds) and of any taxable dividend or distribution on any
account where the payee failed to provide a correct taxpayer identification
number or to make certain required certifications.
Shareholders receiving Social Security benefits and certain railroad
retirement benefits may be subject to federal income tax on up to 85% of such
benefits as a result of receiving investment income, including tax-exempt income
(such as exempt-interest dividends) and other distributions paid by the Fund.
The tax will be imposed on up to one-half of such benefits only when the sum of
the recipient's adjusted gross income (plus miscellaneous adjustments),
tax-exempt income and one-half of Social Security income exceed $25,000 ($32,000
for individuals filing a joint return). The tax will be imposed on up to 85%
only when such sum exceeds $34,000 for individuals ($44,000 for individuals
filing a joint return). Shareholders receiving such benefits should consult
their tax advisers.
FLORIDA TAXES -- Florida imposes no state personal income tax. However,
Florida imposes an intangible personal property tax on shares of the Series
owned by a Florida resident on January 1 of each year unless such shares qualify
for an exemption from that tax. Shares of the Florida Series owned by a Florida
resident will be exempt from the Florida intangible personal property tax
provided that on January 1, the annual statutory assessment date, the Florida
Series' portfolio includes only obligations of the State of Florida or a
political subdivision thereof or obligations issued by the U.S. Government or
certain other government authorities, for example, U.S. territories,("U.S.
Government obligations" and collectively "Florida exempt investments"). If, in
any year on the statutory assessment date, the Florida Series were to hold
assets other than Florida exempt investments including assets attributable to
options and financial futures transactions in which the Florida Series may
engage (see "How We Invest"), then a portion (which might be a significant
portion) of the value of the Florida Series' shares would be subject to the
Florida intangible personal property tax.
GEORGIA TAXES -- Dividends paid by the Georgia Series will be exempt from
Georgia income tax to the extent they are derived from interest on obligations
of the State of Georgia or U.S. Government obligations. Dividends, if any,
derived from capital gains or other sources generally will be taxable to
shareholders of the Georgia Series for Georgia income tax purposes. For purposes
of the Georgia intangibles tax, shares of the Georgia Series are taxable to
shareholders who are otherwise subject to the Georgia intangibles tax.
MICHIGAN TAXES -- Dividends paid by the Michigan Series to a Michigan resident
will not be subject to the Michigan State Income Tax to the extent such
dividends are derived from interest paid on obligations of the State of Michigan
or a political subdivision thereof ("Michigan exempt investments"). Dividends
and distributions derived from interest paid on, and any capital gains from the
sale by the Michigan Series of, U.S. Government obligations, also will be exempt
from the Michigan state Income Tax.
Shares of the Michigan Series are exempt from the Michigan Intangible
Personal Property Tax to the extent that the portfolio of the Michigan Series
consists of Michigan exempt investments or U.S. Government obligations as
described above. Additionally, in determining yield for Intangible Personal
Property Tax purposes, dividends and distributions derived from such
obligations, and all capital gains distributions to the extent reinvested in
shares of the Michigan Series, will be excluded from the yield calculation.
<PAGE>
Dividends paid by the Michigan Series will not be subject to the Michigan
Single Business Tax to the extent such dividends are derived from interest on
Michigan exempt investments or U.S. Government obligations, as discussed above.
Other distributions, including those derived from capital gains from the sale by
the Michigan Series of Michigan exempt investments or U.S. Government
obligations, may be subject to the Michigan Single Business Tax if received by a
business subject to such tax.
The portion of the Series' dividends and distributions received by a
shareholder that is exempt from the Michigan state Income Tax or Michigan Single
Business Tax may be reduced by interest or other expenses paid or incurred to
purchase or carry shares of the Series.
PENNSYLVANIA TAXES -- Dividends paid by the Pennsylvania Series will not be
subject to the Pennsylvania personal income tax or corporate net income tax to
the extent that such dividends are attributable to interest derived from
obligations of the Commonwealth of Pennsylvania or a political subdivision
thereof or U.S. Government obligations (collectively, "Pennsylvania exempt
investments"). Capital gains distributions paid by the Pennsylvania Series will
be subject to the Pennsylvania personal income tax and corporate net income tax.
Dividends paid by the Pennsylvania Series to a Pennsylvania resident that are
not derived from Pennsylvania exempt investments will be subject to the
Pennsylvania personal income tax, corporation net income tax and (for residents
of Philadelphia) to the Philadelphia school district investment income tax.
Shares of the Pennsylvania Series are exempt from Pennsylvania county
personal property taxes and (as to residents of Pittsburgh) from personal
property taxes imposed by the City of Pittsburgh and the School District of
Pittsburgh to the extent that the portfolio of the Pennsylvania Series consists
of Pennsylvania exempt investments. This exemption, however, will not apply to
the extent that on the annual statutory assessment date, which may fall between
January 1 and January 15, the Pennsylvania Series' portfolio consists of
securities not exempt from personal property taxes in Pennsylvania, including
assets attributable to options and financial futures transactions in which the
Pennsylvania Series may engage (see "How We Invest").
ANNUAL INFORMATION -- Information concerning the tax treatment of dividends and
other distributions will be mailed annually to shareholders. Each Series will
also provide annually to its shareholders information regarding the source of
dividends and distributions of capital gains paid by that Series. You should
consult your tax adviser regarding the treatment of those distributions and
state and local taxes generally and any proposed changes thereto as well as the
tax consequences of gains or losses from the redemption, or exchange of our
shares.
9 REDEMPTIONS
To obtain the proceeds of an expedited redemption of $50,000 or less, YOU OR
YOUR REPRESENTATIVE WITH PROPER IDENTIFICATION can telephone the Fund. The Fund
will not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine and will employ reasonable procedures to
confirm that instructions received are genuine, including requesting proper
identification, recording all telephone redemptions and mailing the proceeds
only to the named shareholder at the address appearing on the account
registration.
If you do not qualify for the procedures described above, send your written
redemption request to Lord Abbett Tax-Free Income Trust (P.O. Box 419100, Kansas
City, Missouri 64141) with signature(s) and any legal capacity of the signer(s)
guaranteed by an eligible guarantor, accompanied by any certificates for shares
to be redeemed and other required documentation. Within seven days after
acceptance, we will make payment of the net asset value of the shares on the
date the redemption order was received in proper form. However, if you have
purchased Fund shares by check and subsequently submit a redemption request,
redemption proceeds will be paid upon clearance of your purchase check, which
may take up to 15 days. To avoid delays, you may arrange for the bank upon which
the check was drawn to communicate to the Fund that the check has cleared.
Shares also may be redeemed by the Fund at net asset value through your
securities dealer who, as an unaffiliated dealer, may charge you a fee. If your
dealer receives your order prior to the close of the NYSE and communicates it to
Lord Abbett, as our agent, prior to the close of Lord Abbett's business day, you
will receive the net asset value calculated that day. If the dealer does not
communicate such an order to Lord Abbett until the next business day, you will
receive the net asset value as of the close of the NYSE on that next business
day.
<PAGE>
Shareholders, who have redeemed their shares have a one-time right to
reinvest, into another account having the identical registration, in any of the
Eligible Funds at net asset value without the payment of a sales charge. Such
investment must be made within 60 days of the redemption and is limited to no
more than the amount of the redemption proceeds.
Under certain circumstances and subject to prior written notice, our
Trustees, from time to time, may authorize redemption of all of the shares in
any account in which there are fewer than 25 shares.
10 PERFORMANCE
Lord Abbett Tax-Free Income Trust completed fiscal 1994 on October 31 with net
assets totaling $301.7 million, down from $308.5 million one year ago.
Each Series seeks to provide shareholders with high current tax-free income
from a portfolio of high-quality municipal bonds. Following are some of the
factors that were relevant to the Series' performance over the past year,
including market conditions and investment strategies pursued by the Trust's
management.
The past year has been one of extreme volatility in interest rates. The
Federal Reserve implemented a policy of short-term rate increases in February
with the intent of slowing the economy's growth rate and tempering fears of
inflation. Increases in both long and short-term rates adversely affected the
Series' net asset values and total returns over the period as the market value
of portfolio securities with longer duration characteristics, including RIBs,
decreased. See "How We Invest."
Lord Abbett continues its commitment to value investing, a management style
which has helped the portfolio's returns in past years. The recent increase in
yields has afforded an opportunity to obtain call protection for municipal bond
rates not seen in two years. We remain committed to high quality issues with a
focus on those rated AAA and AA. We continue to manage portfolio risk from a
total return perspective. We continue to invest in securities with long duration
characteristics in an effort to provide high current tax free income and may
make distributions in excess of net investment income to provide more stable
dividends. Such distributions could cause slight decreases in net asset values
over time, but historically have not resulted in a return of capital for tax
purposes.
Yield, tax-equivalent yield and total return data may from time to time be
included in advertisements about the Series. "Yield" is calculated by dividing
each Series' annualized net investment income per share during a recent 30-day
period by the maximum offering price per share on the last day of that period.
"Tax-equivalent yield" is calculated by dividing that portion of each Series'
yield (as determined above) which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of each Series' yield that
is not tax-exempt. The Fund's yield and tax-equivalent yield reflect the
deduction of the maximum initial sales charge and reinvestment of all income
dividends and capital gains distributions. "Total return" for the one-, five-
and ten-year periods represents the average annual compounded rate of return on
an investment of $1,000 in the Fund at the maximum public offering price. Total
return also may be presented for other periods or based on investment at reduced
sales charge levels or net asset value. Any quotation of total return not
reflecting the maximum initial sales charge would be reduced if such sales
charge were used. Quotations of yield, tax-equivalent yield or total return for
any period when an expense limitation is in effect will be greater than if the
limitation had not been in effect. See "Past Performance" in the Statement of
Additional Information for a more detailed discussion.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFER IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
OR, IN SUPPLEMENTAL LITERATURE AUTHORIZED BY THE FUND, AND NO PERSON IS ENTITLED
TO RELY UPON ANY INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN OR THEREIN.
<PAGE>
Comparison of changes in value of a $10,000 investment in Lord Abbett Tax-Free
Income Trust -- Florida Series, assuming reinvestment of all dividends and
distributions, Lipper's Average of Florida tax-free funds and the Lehman
Municipal Bond Index
THE FUND THE FUND LIPPER'S LEHMAN
AT MAXIMUM AT NET AVERAGE OF MUNICIPAL
OFFERING ASSET FLORIDA BOND
DATE PRICE (2) VALUE TAX-FREE FUNDS (3) INDEX (4)
- ---- ---------- --------- -------------- ----------
9/25/1991 $ 9,520 $10,000 $10,000 $10,000
1992 10,211 10,726 10,934 10,937
1993 12,073 12,682 12,475 12,476
1994 11,103 11,664 11,869 12,936
FISCAL YEAR END 10/31
AVERAGE ANNUAL TOTAL RETURN (1)
1 YEAR LIFE OF FUND
-12.10% 3.43%
Comparison of changes in value of a $10,000 investment in Lord Abbett Tax-Free
Income Trust --Pennsylvania Series, assuming reinvestment of all dividends and
distributions, Lipper's Average of Pennsylvania tax-free funds and the Lehman
Municipal Bond Index
THE FUND THE FUND LIPPER'S LEHMAN
AT MAXIMUM AT NET AVERAGE OF MUNICIPAL
OFFERING ASSET PENNSYLVANIA BOND
DATE PRICE (2) VALUE TAX-FREE FUNDS (3) INDEX (4)
- ---- ---------- --------- -------------- ----------
2/3/1992 $ 9,520 $10,000 $10,000 $10,000
1992 9,966 10,468 10,680 10,558
1993 11,855 12,452 11,967 12,044
1994 10,937 11,489 11,509 11,523
FISCAL YEAR END 10/31
AVERAGE ANNUAL TOTAL RETURN (1)
1 YEAR LIFE OF FUND
-12.10% 3.32%
Comparison of changes in value of a $10,000 investment in Lord Abbett Tax-Free
Income Trust --Michigan Series, assuming reinvestment of all dividends and
distributions, Lipper's Average of Michigan tax-free funds and the Lehman
Municipal Bond Index
THE FUND THE FUND LIPPER'S LEHMAN
AT MAXIMUM AT NET AVERAGE OF MUNICIPAL
OFFERING ASSET MICHIGAN BOND
DATE PRICE (2) VALUE TAX-FREE FUNDS (3) INDEX (4)
- ---- ---------- --------- -------------- ----------
12/1/1992 $ 9,520 $10,000 $10,000 $10,000
1993 11,044 11,600 11,190 11,207
1994 10,238 10,754 10,812 10,722
FISCAL YEAR END 10/31
AVERAGE ANNUAL TOTAL RETURN (1)
1 YEAR LIFE OF FUND
-11.50% 1.23%
(1) Total return is the percent change in value, after deduction of the maximum
sales charge of 4.75%, with all dividends and distributions reinvested for
the periods shown ending October 31, 1994 using the SEC-required uniform
method to compute such return. A portion of each Series' management fee has
been waived.
(2) Data reflects the deduction of the maximum sales charge of 4.75%.
(3) Source: Lipper Analytical Services
(4) Performance numbers for the Lehman Municipal Bond Index do not reflect
transaction costs or management fees. An investor cannot invest directly in
the Index. This Index is composed of municipal bonds from many different
states and, therefore, it may not be a valid comparison to a single-state
municipal bond portfolio, such as each Series.
<PAGE>
UNDERWRITER AND INVESTMENT MANAGER
Lord, Abbett & Co.
The General Motors Building
767 Fifth Avenue
New York, New York 10153-0203
212-848-1800
CUSTODIAN
Morgan Guaranty Trust Company of New York
60 Wall Street, New York, New York 10005
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
United Missouri Bank of Kansas City, N.A.
Tenth and Grand
Kansas City, Missouri 64141
SHAREHOLDER SERVICING AGENT
DST Systems, Inc.
P.O. Box 419100
Kansas City, Missouri 64141
800-821-5129
AUDITORS
Deloitte & Touche LLP
COUNSEL
Debevoise & Plimpton
LORD ABBETT
TAX-FREE INCOME TRUST
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
LORD ABBETT PROSPECTUS
DECEMBER 27 '94
INTENDED FOR USE UNTIL MARCH 1, 1996.
TAX-FREE INCOME TRUST
FLORIDA SERIES
GEORGIA SERIES
MICHIGAN SERIES
PENNSYLVANIA SERIES
A MUTUAL FUND SEEKING HIGH
TAX-FREE INCOME AND PRESERVATION
OF CAPITAL.
<PAGE>
LORD ABBETT
Statement of Additional Information December 27, 1994
INTENDED FOR USE
UNTIL MARCH 1, 1996
Lord Abbett
Tax-Free
Income Trust
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a Prospectus. A Prospectus may
be obtained from your securities dealer or from Lord, Abbett & Co., The General
Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. This Statement
relates to, and should be read in conjunction with, the Prospectus dated
December 27, 1994.
Lord Abbett Tax-Free Income Trust (the "Fund") was organized as a Massachusetts
business trust on September 11, 1991. The Fund's Trustees have authority to
create separate series of shares of beneficial interest, without further action
by shareholders. To date, the Fund has only four series of shares: the Florida
Series, the Georgia Series, the Michigan Series and the Pennsylvania Series.
Although no present plans exist, further series may be added in the future. The
Investment Company Act of 1940 (the "Act") requires that where more than one
series exists, each series must be preferred over all other series in respect of
assets specifically allocated to such series.
Rule 18f-2 under the Act provides that, any matter required to be submitted, by
the provisions of the Act or applicable state law or otherwise, to the holders
of the outstanding voting securities of an investment company such as the Fund,
shall not be deemed to have been effectively acted upon unless approved by the
holders of a majority of the outstanding shares of each series affected by such
matter. Rule 18f-2 further provides that, a series shall be deemed to be
affected by a matter unless the interests of each series in the matter are
substantially identical or the matter does not affect any interest of such
series. However, the Rule exempts the selection of independent public
accountants, the approval of principal distributing contracts and the election
of Trustees from the separate voting requirements of the Rule.
Shareholder inquiries should be made by writing directly to the Fund or by
calling 800-821-5129. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS PAGE
1. Investment Objective and Policies 2
2. Trustees and Officers 9
3. Investment Advisory and Other Services 11
4. Portfolio Transactions 12
5. Purchases, Redemptions
and Shareholder Services 13
6. Taxes 17
7. Risk Factors Regarding Investments in Florida, Georgia
Michigan, Pennsylvania and Puerto R18o Municipal Bonds 18
8. Past Performance 23
9. Further Information About the Trust 24
10. Financial Statements 25
<PAGE>
1.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective and policies are described in the Prospectus on
the cover page and under "How We Invest."
In addition to those policies described in the Prospectus, each Series is
subject to the following investment restrictions which cannot be changed without
the approval of a majority of the outstanding shares of each Series. Each Series
may not: (1) sell short or buy on margin (good faith deposits made in connection
with entering into options and financial futures transactions, as discussed in
the Prospectus and herein, are not deemed to be margin), although we may obtain
short-term credit necessary for the clearance of purchases of securities; (2)
buy or sell put, call, straddle or spread options, although we may buy, hold or
sell options and financial futures, as discussed in the Prospectus and herein;
(3) borrow money unless such borrowing does not exceed the asset coverage
requirement of Section 18 (f) of the Investment Company Act, as amended, from
time to time, and unless any such borrowing on behalf of a Series, or a class of
that Series, shall be a liability only of such Series or class, as the case may
be; (4) invest knowingly more than 10% of its net assets in illiquid securities
(securities qualifying for resale under Rule 144A that are determined by the
Trustees, or by Lord Abbett pursuant to delegated authority, to be liquid are
considered liquid securities); (5) act as underwriter of securities issued by
others, except to the extent that in connection with the disposition of its
portfolio securities it may be deemed to be an underwriter under federal
securities laws; (6) make loans, except for the purchase of debt securities in
which it may invest consistent with its investment objective and policies; (7)
pledge, mortgage or hypothecate our assets, except to secure permitted
borrowings described in (3) above (neither a deposit required to enter into or
maintain options and financial futures, as discussed in the Prospectus and
herein, nor an allocation or segregation of portfolio assets to collateralize a
position in such options and futures, is deemed to be a pledge, mortgage or
hypothecation); (8) buy or sell real estate, including real estate mortgages in
the ordinary course of its business, except that it may invest in marketable
securities secured by real estate or interests therein; (9) buy securities
issued by any other open-end investment company, except pursuant to a merger,
acquisition or consolidation; (10) buy or sell oil, gas, or other mineral
leases, commodities or commodity contracts (for this purpose options and
financial futures, as discussed in the Prospectus and herein, are not deemed to
be commodities or commodity contracts); (11) buy voting securities if the
purchase would then cause it to own more than 10% of the outstanding voting
stock of any one issuer; (12) own securities of an issuer if, to our knowledge,
our officers and Trustees or partners of our investment adviser, who
beneficially own more than 1/2 of 1% of the securities of that issuer, together
own more than 5% of such securities; (13) invest more than 25% of its gross
assets taken at market value in any one industry (except that each Series may
invest more than 25% of such gross assets in tax-exempt securities); (14) buy
securities from or sell them to our officers, Trustees, employees, or to our
investment adviser or to its partners and employees, other than shares of the
Series; or (15) issue senior securities as defined in the Act (neither the
purchase or sale of options, nor collateral arrangements with respect to either
financial futures transactions or the writing of options, all as discussed in
the Prospectus and below, particularly under "Regulatory Restrictions" which
refers to the asset coverage requirements of the Securities and Exchange
Commission's Release No. IC-10666, are deemed to be the issuance of a senior
security).
Notwithstanding restrictions 5, 9, 11 and 13 above, in the future, upon
shareholder approval, each of the Series may seek to achieve its investment
objective by investing all of its assets in another investment company (or
series or class thereof) having the same investment objective. Shareholders will
be notified thirty days in advance of such conversion. In the event the Fund
creates other series or Series classes, shareholders of each Series will be able
to exchange Series shares for shares of the other Fund series and/or Series
classes.
While each of the Series may take short-term gains if deemed appropriate,
normally, the Series will hold securities in order to realize interest income
exempt from federal income tax and, where applicable, its state's personal
income tax, consistent with preservation of capital. For the period ended
October 31, 1994 the portfolio turnover rates for the Florida and Pennsylvania
Series were 122.36% and 137.22%, respectively, versus 89.32% and 7.71%,
respectively for the prior year. The portfolio turnover rate for the Michigan
Series was 137.31% versus 68.10% for the prior period December 1, 1992
(inception) to October 31, 1993.
<PAGE>
The liquidity of a Rule 144A security will be a determination of fact for which
the Trustees are ultimately responsible. However, the Trustees may delegate the
day-to-day function of such determinations to Lord Abbett, subject to the
Trustees' oversight. Examples of factors which the Trustees may take into
account with respect to a Rule 144A security include the frequency of trades and
quotes for the security, the number of dealers willing to purchase or sell the
security and the number of other potential purchasers, dealer undertakings to
make a market in the security and the nature of the security and the nature of
the marketplace (e.g., the time period needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). Rule 144A securities
may be considered illiquid in certain circumstances to the extent necessary to
comply with applicable state law requirements.
OTHER INVESTMENT RESTRICTIONS (WHICH CAN
- ----------------------------------------
BE CHANGED WITHOUT SHAREHOLDER APPROVAL)
- ----------------------------------------
MICHIGAN SERIES
- ---------------
As a condition of its registration in Ohio, the Michigan Series has agreed not
to invest more than 15% of its assets in the securities of issuers which,
together with any predecessors, have a record of less than three years
continuous operation or securities of issuers which are restricted as to
disposition.
MUNICIPAL BONDS
- ---------------
In general, municipal bonds are debt obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia, Puerto Rico and Guam and by their political subdivisions, agencies and
instrumentalities. Municipal bonds are issued to obtain funds for various public
purposes, including the construction of bridges, highways, housing, hospitals,
mass transportation, schools, streets and water and sewer works. They may be
used to refund outstanding obligations, to obtain funds for general operating
expenses or to obtain funds to lend to other public institutions and facilities
and in anticipation of the receipt of revenue or the issuance of other
obligations. In addition, the term "municipal bonds" includes certain types of
"private activity" bonds, including industrial development bonds issued by
public authorities to obtain funds to provide privately-operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, port or parking facilities, air or water pollution control
facilities and certain facilities for water supply, gas, electricity, or sewage
or solid waste disposal. Under the Tax Reform Act of 1986, substantial
limitations have been imposed on new issues of municipal bonds to finance
privately-operated facilities. The interest on municipal bonds generally is
excludable from gross income for federal income tax purposes of most investors.
The two principal classifications of municipal bonds are "general obligation"
and limited obligation or "revenue bonds". General obligation bonds are secured
by the pledge of the faith, credit and taxing power of the municipality for the
payment of principal and interest. The taxes or special assessments that can be
levied for the payment of debt service may be limited or unlimited as to rate or
amount. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source. "Private activity" bonds,
including industrial development bonds, are, in most cases, revenue bonds and do
not generally constitute the pledge of the faith, credit or taxing power of the
municipality. The credit quality of such municipal bonds usually is directly
related to the credit standing of the user of the facilities. There are
variations in the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous factors.
The yields on municipal bonds are dependent upon a variety of factors, including
general money market conditions, supply and demand, general conditions of the
municipal bond market, size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation ("Standard &
Poor's") and Fitch Investors Services, Inc. ("Fitch's") represent their opinions
as to the quality of the municipal bonds which they undertake to rate. It should
be emphasized, however, that such ratings are general and are not absolute
standards of quality. Consequently, municipal bonds with the same maturity,
coupon and rating may have different yields when purchased in the open market,
while municipal bonds of the same maturity and coupon with different ratings may
have the same yield.
<PAGE>
DESCRIPTION OF FOUR HIGHEST MUNICIPAL BOND RATINGS
- --------------------------------------------------
Moody's describes its four highest ratings for municipal bonds as follows:
"Bonds that are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities. Bonds which are
rated A possess many favorable investment attributes and are to be considered as
upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
Bonds that are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well."
Standard & Poor's describes its four highest ratings for municipal bonds as
follows:
"AAA: Debt rated 'AAA' has the highest rating assigned by S & P. Capacity to and
---
pay interest and repay principal is --- extremely strong.
AA: Debt rated ' AA' has a very strong capacity to pay interest and repay
- --
principals and differs from the highest rated issues only in small degree.
A: Debt rated 'A' has a strong capacity to pay interest and repay principal
- -
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
- ---
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Fitch's describes its four highest ratings for municipal bonds as follows:
AAA: Bonds considered to be investment grade and of the highest credit quality.
- ---
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
- --
obligor's ability to pay interest and -- repay principal is very strong,
although not quite as strong as bonds rated 'AAA'. Because bonds rated
in the 'AAA' and 'AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt to these issuers is generally
rated 'F-1+'.
A: Bonds considered to be investment grade and of high credit quality. The
- -
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
<PAGE>
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
- ---
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payments. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS
- ------------------------------------------
GENERAL. Each Series may engage in futures and options transactions in
- -------
accordance with its investment objective and policies. Although no Series is
currently employing such hedging techniques, each Series intends to engage in
such transactions if it appears advantageous to the Series to do so, in order to
pursue its investment objective, to hedge against the effects of fluctuating
interest rates and to stabilize the value of its assets. The use of futures and
options and possible benefits and attendant risks, are discussed below, along
with information concerning certain other investment policies and techniques.
FINANCIAL FUTURES CONTRACTS. Each Series may enter into financial futures
- -----------------------------
contracts for the future delivery of a financial instrument, such as a security
or the cash value of a securities index. This investment technique is designed
primarily to hedge (i.e., protect) against anticipated future changes in
interest rates or market conditions which otherwise might adversely affect the
value of securities which the Series holds or intends to purchase. A "sale" of a
futures contract means the undertaking of a contractual obligation to deliver
the securities or the cash value of an index called for by the contract at a
specified price during a specified delivery period. A "purchase" of a futures
contract means the undertaking of a contractual obligation to acquire the
securities or cash value of an index at a specified price during a specified
delivery period. At the time of delivery in the case of fixed-income securities
pursuant to the contract, adjustments are made which reflect differences in
value arising from the delivery of securities with a different interest rate
than that specified in the contract. In some cases, securities called for by a
futures contract may not have been issued at the time the contract was written.
Each Series will not enter into any futures contracts or options on futures
contracts if the aggregate of the market value of the outstanding futures
contracts of each Series and futures contracts subject to outstanding options
written by each Series would exceed 50% of the total assets of each Series.
Although some financial futures contracts by their terms call for the actual
delivery or acquisition of securities, in most cases a party will close out the
contractual commitment before delivery without having to make or take delivery
of the security by purchasing (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, if effected through a member of an exchange, cancels the
obligation to make or take delivery of the securities. All transactions in the
futures market are made, offset or fulfilled through a clearing house associated
with the exchange on which the contracts are traded. Each Series will incur
brokerage fees when it purchases or sells contracts and will be required to
maintain margin deposits. At the time each Series enters into a futures
contract, it is required to deposit with its custodian, on behalf of the broker,
a specified amount of cash or eligible securities, called "initial margin". The
initial margin required for a futures contract is set by the exchange on which
the contract is traded. Subsequent payments, called "variation margin", to and
from the broker are made on a daily basis as the market price of the futures
contract fluctuates. The costs incurred in connection with futures transactions
could reduce a Series' return. Futures contracts entail risks. If the investment
adviser's judgment about the general direction of interest rates or markets is
wrong, the Series overall performance may be poorer than if no such contracts
had been entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio securities being hedged. The degree of difference in
price movements between futures contracts and the securities being hedged
depends upon such things as variations in speculative market demand for futures
contracts and debt securities and differences between the securities being
hedged and the securities underlying the futures contracts, e.g., interest
rates, tax status, maturities and creditworthiness of issuers. While interest
rates on taxable securities generally move in the same direction as interest
rates on municipal bonds, there are frequently differences in the rate of such
movements and temporary dislocations. Accordingly, the use of a financial
futures contract on a taxable security or a taxable securities index may involve
a greater risk of an imperfect correlation between the price movements of the
futures contract and of the municipal bond being hedged than when using a
financial futures contract on a municipal bond or a municipal bond index. In
addition, the market prices of futures contracts may be affected by certain
factors. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin requirements,
distortions in the normal relationship between the debt securities and futures
markets could result. Price distortions also could result if investors in
futures contracts decide to make or take delivery of underlying securities
rather than engage in closing transactions because of the resultant reduction in
the liquidity of the futures market. In addition, because, from the point of
view of speculators, margin requirements in the futures market are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions. Due
to the possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment adviser still may not result in a successful hedging
transaction. If any of these events should occur, a Series could lose money on
the financial futures contracts and also on the value of its portfolio
securities.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. Each Series may purchase and write call
- --------------------------------------
and put options on financial futures contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. Each Series would be
required to deposit with its custodian initial margin and maintenance margin
with respect to put and call options on futures contracts written by it. Options
on futures contracts involve risks similar to those risks relating to
transactions in financial futures contracts described above. Also, an option
purchased by a Series may expire worthless, in which case that Series would lose
the premium paid therefor.
OPTIONS ON SECURITIES. Each Series may write (sell) covered call options on
- ----------------------
securities so long as it owns securities which are acceptable for escrow
purposes and may write secured put options on securities, which means that, so
long as a Series is obligated as a writer of a put option, it will invest an
amount not less than the exercise price of the put option in eligible
securities. A call option gives the purchaser the right to buy, and the writer
the obligation to sell, the underlying security at the exercise price during the
option period. A put option gives the purchaser the right to sell, and the
writer has the obligation to buy, the underlying security at the exercise price
during the option period. The premium received for writing an option will
reflect, among other things, the current market price of the underlying
security, the relationship of the exercise price to such market price, the price
volatility of the underlying security, the option period, supply and demand and
interest rates. Each Series may write or purchase spread options, which are
options for which the exercise price may be a fixed-dollar spread or yield
spread between the security underlying the option and another security it does
not own, but that is used as a benchmark. The exercise price of an option may be
below, equal to or above, the current market value of the underlying security at
the time the option is written. The buyer of a put who also owns the related
security is protected by ownership of a put option against any decline in that
security's price below the exercise price less the amount paid for the option.
The ability to purchase put options allows each Series to protect capital gains
in an appreciated security it owns, without being required to actually sell that
security. At times a Series might like to establish a position in securities
upon which call options are available. By purchasing a call option, a Series is
able to fix the cost of acquiring the security, this being the cost of the call
plus the exercise price of the option. This procedure also provides some
protection from an unexpected downturn in the market because the Series is only
at risk for the amount of the premium paid for the call option which it can, if
it chooses, permit to expire.
During the option period, the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away". For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain and the buyer a loss in the amount of
the premium. If the covered call option writer has to sell the underlying
security because of the exercise of the call option, it realizes a gain or loss
from the sale of the underlying security, with the proceeds being increased by
the amount of the premium.
If a secured put option expires unexercised, the writer realizes a gain and the
buyer a loss in the amount of the premium.
If the secured put writer has to buy the underlying security because of the
exercise of the put option, the secured put writer incurs an unrealized loss to
the extent that the current market value of the underlying security is less than
the exercise price of the put option, minus the premium received.
OVER-THE-COUNTER OPTIONS. As indicated in the Prospectus, each Series may deal
- -------------------------
in over-the-counter traded options ("OTC options"). OTC options differ from
exchange-traded options in several respects. They are transacted directly with
dealers and not with a clearing corporation and there is a risk of
nonperformance by the dealer, as a result of the insolvency of such dealer or
otherwise, in which event the Fund may experience material losses. However, in
writing options the premium is paid in advance by the dealer. OTC options are
available for a greater variety of securities and a wider range of expiration
dates and exercise prices, than are exchange- traded options. Since there is no
exchange, normally pricing is done by reference to information from market
makers, which information is carefully monitored by the Series' investment
adviser and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there can be
no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, each Series may be able to
realize the value of an OTC option it has purchased only by exercising it or
entering into a closing sale transaction with the dealer that issued it.
Similarly, when each Series writes an OTC option, generally it can close out
that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Series originally wrote it. If a
covered call option writer cannot effect a closing transaction, it cannot sell
the underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes, while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
also might find it difficult to terminate its position on a timely basis in the
absence of a secondary market.
The Fund understands the position of the staff of the Securities and Exchange
Commission ("SEC") to be that purchased OTC options and the assets used as
"cover" for written OTC options are illiquid securities. The Fund and its
investment adviser disagree with this position and believe that dealers with
which they intend to engage in OTC options transactions are, generally,
agreeable to and capable of entering into closing transactions. The Fund has
adopted procedures for engaging in OTC options for the purpose of reducing any
potential adverse effect of such transactions upon the liquidity of each Series'
portfolio. A brief description of such procedures is set forth below.
Each Series will only engage in OTC options transactions with dealers that have
been specifically approved by the Trustees of the Fund. The Series and their
investment adviser believe that such dealers present minimal credit risks to the
Series and, therefore, should be able to enter into closing transactions, if
necessary. The Series, currently, will not engage in OTC options transactions if
the amount invested by the Series in OTC options, plus a "liquidity charge"
related to OTC options written by the Series, plus the amount invested by the
Series in illiquid securities, would exceed 10% of the Series' net assets. The
"liquidity charge" referred to above is computed as described below.
The Fund anticipates entering into agreements with dealers to which the Series
sell OTC options. Under these agreements, a Series would have the absolute right
to repurchase the OTC options from the dealer at any time at a price no greater
than a price established under the agreements (the "Repurchase Price"). The
"liquidity charge" referred to above for a specific OTC option transaction will
be the Repurchase Price related to the OTC option less the intrinsic value of
the OTC option. The intrinsic value of an OTC call option, for such purposes,
will be the amount by which the current market value of the underlying security
exceeds the exercise price. In the case of an OTC put option, intrinsic value
will be the amount by which the exercise price exceeds the current market value
of the underlying security. If there is no such agreement requiring a dealer to
allow a Series to repurchase a specific OTC option written by the Series, the
"liquidity charge" will be the current market value of the assets serving as
"cover" for such OTC option.
OPTIONS ON SECURITIES INDICES. Each Series also may purchase and write call and
- -----------------------------
put options on securities indices in an attempt to hedge against market
conditions affecting the value of securities that the Series owns or intends to
purchase, and not for speculation. Through the writing or purchase of index
options, a Series can achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike security options, all settlements are in cash
and gain or loss depends upon price movements in the market generally (or in a
particular industry or segment of the market), rather than upon price movements
in individual securities. Price movements in securities which a Series owns or
intends to purchase will probably not correlate perfectly with movements in the
level of an index and, therefore, the Series bears the risk that a loss on an
index option would not be completely offset by movements in the price of such
securities.
When a Series writes an option on a securities index, it will be required to
deposit with its custodian, and mark-to-market eligible securities equal in
value to at least 100% of the exercise price in the case of a put, or the
contract value in the case of a call. In addition, where a Series writes a call
option on a securities index at a time when the contract value exceeds the
exercise price, the Series will segregate and mark-to-market until the option
expires or is closed out, cash or equivalents equal in value to such excess.
Options on futures contracts and index options involve risks similar to those
risks relating to transactions in financial futures contracts described above.
Also, an option purchased by a Series may expire worthless, in which case the
Series would lose the premium paid therefor.
DELAYED DELIVERY TRANSACTIONS. Each Series may purchase or sell portfolio
- -------------------------------
securities on a when-issued or delayed delivery basis. When-issued or delayed
delivery transactions involve a commitment by a Series to purchase or sell
securities, with payment and delivery to take place in the future, in order to
secure what is considered to be an advantageous price or yield to the Series at
the time of entering into the transaction. When a Series enters into a delayed
delivery purchase, it becomes obligated to purchase securities and it has all
the rights and risks attendant to ownership of a security, although delivery and
payment occur at a later date. The value of fixed-income securities to be
delivered in the future will fluctuate as interest rates vary. At the time a
Series makes the commitment to purchase a security on a when-issued or delayed
delivery basis, it will record the transaction and reflect the liability for the
purchase and the value of the security in determining its net asset value.
Likewise, at the time a Series makes the commitment to sell a security on a
delayed delivery basis, it will record the transaction and include the proceeds
to be received in determining its net asset value; accordingly, any fluctuations
in the value of the security sold pursuant to a delayed delivery commitment are
ignored in calculating net asset value so long as the commitment remains in
effect. Each Series, generally, has the ability to close out a purchase
obligation on or before the settlement date, rather than take delivery of the
security.
To the extent a Series engages in when-issued or delayed delivery purchases, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies and not for investment leverage or to
speculate in interest rate changes. A Series will only make commitments to
purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities, but each Series reserves the
right to sell these securities before the settlement date if deemed advisable.
REGULATORY RESTRICTIONS. To the extent required to comply with Securities and
- ------------------------
Exchange Commission Release No. IC-10666, when purchasing a futures contract,
writing a put option or entering into a delayed delivery purchase, each Series
will maintain in a segregated account cash or liquid high-grade securities equal
to the value of such contracts.
To the extent required to comply with Commodities Futures Trading Commission
Regulation 4.5 and thereby avoid "commodity pool operator" status, no Series
will enter into a futures contract or purchase an option thereon if immediately
thereafter the initial margin deposits for futures contracts held by the Series
plus premiums paid by it for open options on futures would exceed 5% of that
Series' total assets. No Series will engage in transactions in financial futures
contracts or options thereon for speculation, but only to attempt to hedge
against changes in market conditions affecting the values of securities which
the Series holds or intends to purchase. When futures contracts or options
thereon are purchased to protect against a price increase on securities intended
to be purchased later, it is anticipated that at least 75% of such intended
purchases will be completed. When other futures contracts or options thereon are
purchased, the underlying value of such contracts will at all times not exceed
the sum of: (1) accrued profit on such contracts held by the broker; (2) cash or
high-quality money market instruments set aside in an identifiable manner and
(3) cash proceeds from investments due in 30 days.
2.
TRUSTEES AND OFFICERS
The following Trustees are partners of Lord, Abbett & Co. ("Lord Abbett"), The
General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. They
have been associated with Lord Abbett for over five years and are also officers
and/or directors or trustees of the fifteen other Lord Abbett-sponsored funds
(except for Messrs. Dow and Nordberg, who are not directors of Lord Abbett
Research Fund, Inc.) including those described under "Purchases, Redemptions and
Shareholder Services." They are "interested persons" as defined in the
Investment Company Act of 1940.
Ronald P. Lynch, Chairman and President
Robert S. Dow, Vice President
E. Wayne Nordberg, Vice President
The following outside Trustees are also directors or trustees of the fifteen
other Lord Abbett-sponsored funds referred to above (except for Lord Abbett
Research Fund, Inc., of which only Messrs. Millican and Neff are directors).
E. Thayer Bigelow
Time Warner Cable
300 First Stamford Place
Stamford, CT 06902
President and Chief Executive Officer of Time Warner Cable Programming, Inc.
Formerly President and Chief Operating Officer of Home Box Office, Inc.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon.
John C. Jansing
162 South Beach Road
Hobe Sound, Florida
Retired. Formerly Chairman of Independent Election Corporation of America, a
proxy tabulating firm.
C. Alan MacDonald
The Noel Group
Two Greenwich Plaza
Greenwich, Connecticut
Acquisition Consultant, The Noel Group, a private consulting firm. Formerly
Chairman and Chief Executive Officer of Lincoln Foods, Inc., manufacturer of
branded snack foods. Formerly President and Chief Executive Officer of Nestle
Foods Corporation, a subsidiary of Nestle S.A. (Switzerland).
Hansel B. Millican, Jr.
Rochester Button Company
1100 Noblin Avenue
South Boston, Virginia
President and Chief Executive Officer of Rochester Button Company. Formerly
Senior Vice President, Springs Industries, Inc., a textile company, (1986-1989).
Thomas J. Neff
55 East 52nd Street
New York, New York
President of Spencer Stuart & Associates, an executive search consulting firm.
Effective September 21, 1994, Thomas F. Creamer retired as a trustee of the
Fund.
For the fiscal year ended October 31, 1994, the Fund accrued for all outside
trustees as a group, trustees' fees totaling $7,404 (exclusive of expenses).
This amount has been deemed invested in shares of the Fund under a deferred
compensation arrangements for later distribution to the outside trustees. The
Fund has adopted a retirement plan under which the outside trustees will receive
an annual retirement benefit equal to 80% of their final annual retainer
following retirement at or after age 72 with at least 10 years of service. This
plan also provides for a reduced benefit upon early retirement under certain
circumstances and a pre-retirement death benefit. For the year ended October 31,
1994, the Fund had accrued $3,280 for the payment of benefits under this plan.
Except where indicated, the following executive officers have been associated
with Lord Abbett for over five years. Of these officers, Messrs. Allen, Carper,
Cutler, Henderson, and Walsh are partners; the others are employees: Barbara A.
Grummel, Executive Vice President (with Lord Abbett since 1990-formerly Vice
President, Merrill Lynch Asset Management); John Mousseau, Executive Vice
President (with Lord Abbett since 1993-formerly First Vice President, Shearson
Lehman Brothers); Philip Fang, Executive Vice President (with Lord Abbett since
1991-formerly Municipal Evaluator Muller & Co.) Daniel E. Carper, Vice
President; Kenneth B. Cutler, Vice President and Secretary; Stephen I. Allen,
Thomas S. Henderson, John J. Walsh, John J. Gargana, Jeffery H. Boyd (with Lord
Abbett since 1994 - formerly partner in law firm of Robinson & Cole), Thomas F.
Konop, E. Wayne Nordberg and Victor W. Pizzolato, Vice Presidents; and Keith F.
O'Connor, Treasurer.
The Fund does not hold regular annual meetings of shareholders. Under the Fund's
Declaration of Trust, shareholder meetings may be called at any time by certain
officers of the Fund or by a majority of the Trustees (i) for the purpose of
taking action upon any matter requiring the vote or authority of the Fund's
shareholders or upon other matters deemed to be necessary or desirable or (ii)
upon the written request of the holders of at least one-quarter of the shares of
the Fund outstanding and entitled to vote at the meeting.
As of October 31, 1994 our officers and trustees as a group owned less than 1%
of our outstanding shares.
3.
INVESTMENT ADVISORY AND OTHER SERVICES
As described under "Our Management" in the Prospectus, Lord Abbett is the Fund's
investment manager. The eight general partners of Lord Abbett, all of whom are
officers and/or Trustees of the Fund, are: Stephen I. Allen, Daniel E. Carper,
Kenneth B. Cutler, Robert S. Dow, Thomas S. Henderson, Ronald P. Lynch, E. Wayne
Nordberg and John J. Walsh. The address of each partner is The General Motors
Building, 767 Fifth Avenue, New York, New York 10153- 0203.
The services performed by Lord Abbett are described under "Our Management" in
the Prospectus. Under the Management Agreement, we are obligated to pay Lord
Abbett a monthly fee, based on average daily net assets of each Series for each
month, at the annual rate of .5 of 1%. In addition, we pay all expenses not
expressly assumed by Lord Abbett, including without limitation 12b-1 expenses;
outside Trustees' fees and expenses; association membership dues; legal and
auditing fees; taxes; transfer and dividend disbursing agent fees; shareholder
servicing costs; expenses relating to shareholder meetings; expenses of
preparing, printing and mailing share certificates and shareholder reports;
expenses of registering our shares under federal and state securities laws;
expenses of preparing, printing and mailing prospectuses to existing
shareholders; insurance premiums and brokerage and other expenses connected with
executing portfolio transactions.
Although not obligated to do so, Lord Abbett may waive all or part of its
management fees and may assume other expenses of the Series. Subsequently, Lord
Abbett may charge these fees and/or omit these subsidies on a partial or
complete basis.
The Fund's Management Agreement provides for each Series to repay Lord Abbett
without interest for subsidized expenses on and after the first day of the
calendar quarter after the net assets of a Series first reaches $50 million (the
"commencement date") and until the net assets reach $100 million, provided the
ratio of operating expenses of the Series (determined before taking into account
any fee waiver or expense assumption) to average net assets is less than .85%
and the amount repaid is equal in dollars to the difference between the expenses
included in the determination of such expense ratio and those at an expense
ratio of .85%. Beginning on the first day of the calendar quarter after the net
assets of a Series first reach $100 million, the repayment of expenses shall be
measured by the difference between the expenses included in the determination of
each Series expense ratio and those at an expense ratio of 1.05%. A Series shall
not be obligated to repay any such expenses after the earlier of the termination
of the Management Agreement or the end of five full fiscal years after the
commencement date. A Series will not record as obligations in its financial
statements any expenses which may possibly be repaid to Lord Abbett under this
repayment formula, but it will disclose in a note to its financials that such
expenses are possible. However, if such expenses become probable, they will be
recorded as obligations of the Series at that time. The Trustees, upon the
recommendation of the Audit Committee, will determine when such expenses become
probable.
For the fiscal years ended October 31, 1992,1993 and 1994, Lord Abbett waived
$349,373, $794,366 and $954,176, respectively, of Florida Series' management
fees. For the period February 3, 1992 (commencement of operations) through
October 31, 1992 and for the fiscal years ended October 31, 1993 and 1994, Lord
Abbett waived $87,073, $307,168 and $299,609, respectively, in Pennsylvania
Series' management fees and received $129,375 in management fees. For the period
December 1, 1992 (commencement of operations) to October 31, 1993 and for the
fund year ended October 31, 1994, Lord Abbett waived $299,609, $127,327 and
$215,421, respectively, in Michigan Series' management fees. All expenses to be
repaid to Lord Abbett for the Michigan Series have been accrued for by the Fund.
Lord Abbett has given the Fund the right to use the identifying name "Lord
Abbett" and this right may be withdrawn if Lord Abbett ceases to be the Fund's
investment manager.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281, are
the independent auditors of the Fund and must be approved at least annually by
our Trustees to continue in such capacity. They perform audit services for the
Fund including the audit of financial statements included in our annual report
to shareholders.
Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York,
serves as the Fund's custodian.
<PAGE>
4.
PORTFOLIO TRANSACTIONS
Our policy is to have purchases and sales of portfolio securities executed at
the most favorable prices, considering all costs of the transaction, including
brokerage commissions and dealer markups and markdowns, consistent with
obtaining the best execution, except to the extent we may pay a higher
commission as described below. This policy governs the selection of brokers or
dealers and the market in which the transaction is executed. To the extent
permitted by law, we may, if considered advantageous, make a purchase from or
sale to another Lord Abbett-sponsored fund without the intervention of any
broker-dealer.
We expect that most purchases and sales of portfolio securities will be
principal transactions. Portfolio securities normally will be purchased directly
from the issuer or from an underwriter or marketmaker for the securities. We
usually will pay no brokerage commissions for such purchases. Purchases from
underwriters of portfolio securities will be at a fixed price which will include
fees paid to the underwriter and purchases from dealers serving as marketmakers
will include a dealer's markup.
We select broker-dealers on the basis of their professional capability and the
value and quality of their brokerage and research services. Normally, the
selection is made by our traders, who are officers of the Fund and also
employees of Lord Abbett. Our traders do the trading as well for other accounts
- -- investment companies (of which they are also officers) and other clients --
managed by Lord Abbett. They also are responsible for the negotiation of prices
and commissions.
A broker may receive a commission for portfolio transactions exceeding the
amount another broker-dealer would have charged for the same transaction if Lord
Abbett determines that such amount of commission is reasonable in relation to
the value of the brokerage and research services performed by the executing
broker viewed either in terms of the particular transaction or its overall
responsibilities with respect to us and other accounts managed by Lord Abbett.
Brokerage services may include such factors as showing us trading opportunities
including blocks, willingness and ability to take positions in securities,
knowledge of a particular security or market, proven ability to handle a
particular type of trade, confidential treatment, promptness, reliability and
quotation and pricing services. Research may include the furnishing of analyses
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts. Such research may be
used by Lord Abbett in servicing all their accounts, and not all of such
research will necessarily be used by Lord Abbett in connection with their
services to us; conversely, research furnished in connection with brokerage of
other accounts managed by Lord Abbett may be used by Lord Abbett in connection
with their services to us, and not all of such research will necessarily be used
by Lord Abbett in connection with their services to such other accounts. We have
been advised by Lord Abbett that, although such research is often useful, no
dollar value can be ascribed to it nor can it be accurately ascribed or
allocated to any account and it is not a substitute for services provided by
them to us; nor does it materially reduce or otherwise affect the expenses
incurred by Lord Abbett in the performance of such services. We make no
commitments regarding the allocation of brokerage business to or among dealers.
If two or more broker-dealers are considered capable of offering the equivalent
likelihood of best execution, the broker-dealer who has sold our shares and/or
shares of other Lord Abbett-sponsored funds may be preferred.
If other clients of Lord Abbett buy or sell the same security at the same time
we do, transactions will, to the extent practicable, be allocated among all
participating accounts in proportion to the amount of each order and will be
executed daily until filled so that each account shares the average price and
commission cost of each day.
We will not seek"reciprocal" dealer business (for the purpose of applying
commissions in whole or in part for our benefit or otherwise) from dealers as
consideration for the direction to them of portfolio business.
During the fiscal years ended October 31, 1994, 1993 and 1992, we paid no
commissions to independent brokers.
<PAGE>
5.
PURCHASES, REDEMPTIONS AND SHAREHOLDER SERVICES
Information concerning how we value our shares for the purchase and redemption
or repurchase of our shares is contained in the Prospectus under "Purchases" and
"Redemptions", respectively.
As disclosed in the Prospectus, we calculate net asset value and are otherwise
open for business on each day that the New York Stock Exchange ("NYSE") is open
for trading. The NYSE is closed on Saturdays and Sundays and the following
holidays -- New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
Securities in our portfolio are valued at their market value as of the close of
the NYSE. Market value will be determined as follows: securities listed or
admitted to trading privileges on the New York or American Stock Exchange or on
the NASDAQ National Market System are valued at the last sales price, or, if
there is no sale on that day, at the mean between the last bid and asked prices,
or , in the case of bonds, in the over-the-counter market if, in the judgment of
the Fund's officers, that market more accurately reflects the market value of
the bonds. Over-the-counter securities not traded on the NASDAQ National Market
System market are valued at the mean between the last bid and asked prices.
Securities for which market quotations are not available are valued at fair
market value under procedures approved by the Trustees.
Although our shares are continuously offered, we are under no obligation to
maintain the offering or its terms, and the offering may be suspended, changed
or withdrawn. The sales agreements between Lord Abbett and independent
securities dealers provide that all orders are subject to acceptance in New York
and that the right is reserved to reject any order.
The maximum offering prices of our shares on October 31, 1993 were computed as
follows:
<TABLE>
<CAPTION>
FLORIDA PENNSYLVANIA GEORGIA MICHIGAN
SERIES SERIES SERIES SERIES
------- ------------ ------- --------
<S> <C> <C> <C> <C>
Net asset value per share (net assets
divided by shares outstanding) ..............$4.49 $4.62 $4.762 $4.53
Maximum offering price per share (net
asset value divided by .9525) ...............$4.739 $4.85 $5.00 $4.76
</TABLE>
The Georgia Series expects to commence operations on December 27, 1994. Net
asset value and maximum offering price per share shown for this series are
estimated as of such date.
The Fund has entered into a distribution agreement with Lord Abbett under which
Lord Abbett is obligated to use its best efforts to find purchasers for the
shares of the Fund and to make reasonable efforts to sell Fund shares so long
as, in Lord Abbett's judgment, a substantial distribution can be obtained by
reasonable efforts.
For our last three fiscal years, Lord Abbett as our principal underwriter
received net commissions after allowance of a portion of the sales charge to
independent dealers as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
SEPT. 30, 1994 SEPT. 30, 1993 SEPT. 30, 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Gross sales charge $3,037,207 $5,183,953 $7,104,326
Amount allowed
to dealers $2,635,856 $4,616,423 $6,567,009
Net commissions received
by Lord Abbett $401,351 $ 567,530 $ 537,317
======== ========== ==========
</TABLE>
As described in the Prospectus, each Series has adopted a Distribution Plan and
Agreement (a "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended, subject to going effective when the required level of net
assets for each Series is reached. The Florida Series' Plan became effective
October 1, 1992. In adopting a Plan for each Series and in approving its
continuance, the Trustees have concluded that, based on information provided to
Lord Abbett, there is a reasonable likelihood that each Plan will benefit each
Series and its shareholders. The expected benefits include greater sales, lower
redemptions of Series shares and a higher quality of service to shareholders by
dealers than would otherwise would be the case. During the last fiscal year, the
Fund paid $406,443 through Lord Abbett to dealers. The Plans for the Georgia,
Pennsylvania and Michigan Series are not yet effective. Lord Abbett is required
to use all amounts received under each Plan for payments to dealers for (i)
providing continuous services to Series' shareholders, such as answering
shareholder inquiries, maintaining records, and assisting shareholders in making
redemptions, transfers, additional purchases and exchanges and (ii) their
assistance in distributing shares of the Series.
Each Plan requires the Trustees to review, on a quarterly basis, written reports
of all amounts expended pursuant to the Plan and the purposes for which such
expenditures were made. Each Plan shall continue in effect only if its
continuance is specifically approved at least annually by vote of the Trustees
and of the Trustees who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("outside Trustees"), cast in person at a meeting
called for the purpose of voting on the Plan. No Plan may be amended to increase
materially the amount spent for distribution expenses without approval by a
majority of the outstanding voting securities of the Plan's Series and the
approval of a majority of the Trustees, including a majority of the outside
Trustees. Each Plan may be terminated at any time by vote of a majority of the
outside Trustees or by vote of a majority of the outstanding voting securities
of that Plan's Series.
As stated in the Prospectus, a 1% "contingent deferred reimbursement charge"
("CDRC") will be imposed with respect to those shares (or shares in another Lord
Abbett-sponsored fund or series acquired through exchange of such shares) on
which a Series has paid the one-time 1% 12b-1 sales distribution fee if such
shares are redeemed out of the Lord Abbett family of funds within a period 24
months from the end of the month in which the original sale occurred. The CDRC
will be received by a Series and is intended to reimburse all or a portion of
the amount paid by the Series if the shares are redeemed before a Series has had
an opportunity to realize the anticipated benefits of having a large, long-term
account in a Series. Shares of a Fund or series on which such 1% sales
distribution fee has been paid may not be exchanged into a fund or series with a
Rule 12b-1 plan for which the payment provisions have not been in effect for at
least one year.
The other Lord Abbett-sponsored funds and series which participate in the
Telephone Exchange Privilege (except Lord Abbett U.S. Government Securities
Money Market Fund ("GSMMF") as well as certain tax-free single-state series for
which a Rule 12b-1 plan is not yet in effect) have instituted a CDRC on the same
terms and conditions. No CDRC will be charged on an exchange of shares between
Lord Abbett funds or series. Upon redemption out of the Lord Abbett family of
funds the CDRC will be charged on behalf of and paid to the Lord Abbett fund or
series in which the original purchase occurred. Thus, if shares of a Lord Abbett
fund or series are exchanged for shares of another fund or series and the shares
tendered ("Exchanged Shares") are subject to a CDRC, the CDRC will carry over to
the shares being acquired, including shares of the Series and GSMMF ("Acquired
Shares"). Any CDRC that is carried over to Acquired Shares is calculated as if
the holder of Acquired Shares had held those shares from the date on which he or
she became the holder of Exchanged Shares. Although GSMMF and the Series will
not pay a 1% sales distribution fee on $1 million purchases of their own shares
and, therefore, will not impose their own CDRC, they will collect the CDRC on
behalf of other Lord Abbett funds and series. Acquired shares held in GSMMF and
the Series which are subject to a CDRC will be credited with the time such
shares are held in that fund.
In no event will the amount of a CDRC exceed 1% of the lesser of (a) the net
asset value of the shares redeemed or (b)
<PAGE>
the original cost of such shares (or of the Exchanged Shares for which such
shares were acquired). No CDRC will be imposed when the investor redeems (i)
amounts derived from increases in the value of the account above the total cost
of shares being redeemed due to increases in net asset value, (ii) shares with
respect to which no Lord Abbett fund or series paid a 1% sales distribution fee
on issuance (including shares acquired through reinvestment of dividend income
and capital gains distributions) or (iii) shares which, together with Exchanged
Shares, have been held continuously for 24 months from the end of the month in
which the original sale occurred. In determining whether a CDRC is payable, (a)
shares not subject to a CDRC will be deemed redeemable before shares subject to
a CDRC and (b) shares subject to a CDRC and held the longest will be the first
to be redeemed.
Under the terms of a Statement of Intention to invest $100,000 or more over a
13-month period, as described in the Prospectus, shares of all Lord
Abbett-sponsored funds (other than shares of Lord Abbett Equity Fund ("LAEF"),
Lord Abbett Series Fund ("LASF"), Lord Abbett Research Fund ("LARF"), Lord
Abbett Counsel Group and GSMMF, unless holdings in GSMMF are attributable to
shares exchanged from a Lord Abbett-sponsored fund offered with a sales charge)
currently owned by you are credited as purchases (at their current offering
prices on the date the Statement is signed) toward achieving the stated
investment. Shares valued at 5% of the amount of intended purchases are escrowed
and may be redeemed to cover the additional sales charge payable if the
Statement is not completed. The Statement of Intention is neither a binding
obligation on you to buy, nor on the Fund to sell, the full amount indicated.
As stated in the Prospectus, purchasers (as defined in the Prospectus) may
accumulate their investment in Lord Abbett- sponsored funds (other than LAEF,
LARF, LASF, Lord Abbett Counsel Group and GSMMF, unless holdings in GSMMF are
attributable to shares exchanged from a Lord Abbett-sponsored fund offered with
a sales charge) so that a current investment, plus the purchaser's holdings
valued at the current maximum offering price, reach a level eligible for a
discounted sales charge.
As stated in the Prospectus, our shares may be purchased at net asset value by
our Trustees, employees of Lord Abbett, employees of our shareholder servicing
agent and employees of any securities dealer having a sales agreement with Lord
Abbett who consents to such purchases. For purposes of this paragraph, the terms
"Trustees" and employees" include a Trustee's or employee's spouse (including
the surviving spouse of a deceased Trustee or employee). The terms "Trustees"
and "employees of Lord Abbett" also include other family members and retired
Trustees and employees.
Our shares also may be purchased at net asset value (a) at $1 million or more
(subsequent to the effective date of the Rule 12b-1 Plan for any such Series),
(b) with dividends and distributions from other Lord Abbett-sponsored funds,
except for dividends and distributions on shares of LARF, LAEF, LASF and Lord
Abbett Counsel Group, (c) by certain authorized brokers, dealers, registered
investment advisers or other financial institutions who have entered into an
agreement with Lord Abbett in accordance with certain standards approved by Lord
Abbett, providing specifically for the use of our shares in particular
investment products made available for a fee to clients of such brokers,
dealers, registered investment advisers and other financial institutions, and
(d) by employees, partners and owners of unaffiliated consultants and advisors
to Lord Abbett or Lord Abbett-sponsored funds who consent to such purchase if
such persons provide service to Lord Abbett or such funds on a continuing basis
and are familiar with such funds. Shares are offered at net asset value to these
investors for the purpose of promoting goodwill with employees and others with
whom Lord Abbett and/or the Fund have business relationships.
Our shares may be purchased at net asset value, subject to appropriate
documentation, through a securities dealer where the amount invested represents
redemption proceeds from shares ("Redeemed Shares") of a registered open-end
management investment company not distributed or managed by Lord Abbett (other
than a money market fund), if such redemption has occurred no more than 60 days
prior to the purchase of our shares, the Redeemed Shares were held for at least
six months prior to redemption and the proceeds of redemption were maintained in
cash or a money market fund prior to purchase. Lord Abbett may suspend, change,
or terminate this option at any time.
Our shares may be issued at net asset value in exchange for the assets, subject
to possible tax adjustment, of a personal holding company or an investment
company. There are economies of selling efforts and sales related expenses with
respect to offers to these investors and those referred to above.
Our shares also may be issued at net asset value plus the applicable sales
charge in exchange for securities for which market quotations are readily
available and which are desired for our portfolios and which have a market value
not less than the net asset value of our shares issued in exchange.
The Prospectus briefly describes the Telephone Exchange Privilege. You may
exchange some or all of your shares for those of Lord Abbett-sponsored funds
currently offered to the public with a sales charge and GSMMF, to the extent
offers and sales may be made in your state. You should read the prospectus of
the other fund before exchanging. In establishing a new account by exchange,
shares of the Fund being exchanged must have a value equal to at least the
minimum initial investment required for the fund into which the exchange is
made.
Shareholders in such other funds have the same right to exchange their shares
for the Fund's shares. Exchanges are base on relative net asset values on the
day instructions are received by the Fund in Kansas City if the instructions are
received prior to the close of the NYSE in proper form. No sales charges are
imposed except in the case of exchanges out of GSMMF (unless a sales charge was
paid on the initial investment). Exercise of the exchange privilege will be
treated as a sale for federal income tax purposes, and, depending on the
circumstances, a gain or loss may be recognized. In the case of an exchange of
shares that have been held for 90 days or less where no sales charge is payable
on the exchange, the original sales charge incurred with respect to the
exchanged shares will be taken into account in determining gain or loss on the
exchange only to the extent such charge exceeds the sales charge that would have
been payable on the acquired shares had they been acquired for cash rather than
by exchange. The portion of the original sales charge not so taken into account
will increase the basis of the acquired shares.
Shareholders have the exchange privilege unless they refuse it in writing. You
should not view the exchange privilege as a means for taking advantage of
short-term swings in the market, and we reserve the right to terminate or limit
the privilege of any shareholder who makes frequent exchanges. We can revoke or
modify the privilege for all shareholders upon 60 days' prior notice. Other Lord
Abbett-sponsored funds are eligible for the exchange privilege , except LASF
which offers its shares only in connection with certain variable annuity
contracts, LAEF which is not issuing shares, LARF and Lord Abbett Counsel Group
(together, "Eligible Funds").
A redemption order is in proper form when it contains all of the information and
documentation required by the order form or supplementally by Lord Abbett or the
Fund to carry out the order. The signature(s) and any legal capacity of the
signer(s) must be guaranteed by an eligible guarantor. See the Prospectus for
expedited redemption procedures.
The right to redeem and receive payment, as described in the Prospectus, may be
suspended if the NYSE is closed (except for weekends or customary holidays),
trading on the NYSE is restricted or the Securities and Exchange Commission
deems an emergency to exist.
Our Trustees may authorize redemption of all of the shares in any account in
which there are fewer than 25 shares. Before authorizing such redemption, the
Trustees must determine that it is in our economic best interest or necessary to
reduce disproportionately burdensome expenses in servicing shareholder accounts.
At least 60 days' prior written notice will be given before any such redemption,
during which time shareholders may avoid redemption by bringing their accounts
up to the minimum set by the Trustees.
Under the Div-Move service described in the Prospectus, you can invest the
dividends paid on your account into an existing account in any other Eligible
Fund. The account must be either your account, a joint account for you and your
spouse, a single account for your spouse, or a custodial account for your minor
child under the age of 21. You should read the prospectus of the other fund
before investing.
The Systematic Withdrawal Plan also is described in the Prospectus. You may
establish a systematic withdrawal plan if you own or purchase uncertificated
shares having a current offering price value of at least $10,000. A Plan
involves the planned redemption of shares on a periodic basis by receiving
either fixed or variable amounts at periodic intervals. Since the value of
shares redeemed may be more or less than their cost, gain or loss may have to be
recognized for income tax purposes on each periodic payment. Normally, you may
not make regular investments at the same time you are receiving systematic
withdrawal payments because it is not in your interest to pay a sales charge on
new investments when in effect a portion of that new investment is soon
withdrawn. The minimum investment accepted while a withdrawal plan is in effect
is $1,000. The systematic withdrawal plan may be terminated by you or by us at
any time by written notice.
The Invest-A-Matic method of investing in the Fund and/or any other Lord
Abbett-sponsored fund is described in the Prospectus. To avail yourself of this
method, you must complete the Fund portion of the form, selecting the time and
amount of your bank checking account withdrawals and the Lord Abbett funds for
investment, include a voided, unsigned check and complete the bank
authorization.
6.
TAXES
Each Series will be treated as a separate entity for federal income tax
purposes. As a result, the status of each Series as a regulated investment
company is determined separately by the Internal Revenue Service.
Limitations imposed by the Internal Revenue Code of 1986, as amended, on
regulated investment companies may restrict the Fund's ability to engage in the
writing of call options, in financial futures transactions or in other
investment techniques and practices. In addition, in order to qualify for
exemption from state and local personal property taxes in Florida, Michigan and
Pennsylvania, each Series may be required to refrain from engaging in
transactions, techniques or practices it is otherwise permitted to engage in or,
in the case of Florida and Pennsylvania, to dispose of investments attributable
to such transactions each year before the relevant "statutory assessment dates".
Moreover, as described in the Prospectus, in order to continue to qualify as a
regulated investment company for federal income tax purposes, each Series may be
required, in some circumstances, to defer closing out options or futures
contracts that it might otherwise be desirable to close out.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of the Fund may not be deductible, in whole or in part, for federal or for state
or local personal income tax purposes. Pursuant to published guidelines, the
Internal Revenue Service may deem indebtedness to have been incurred for the
purpose of acquiring or carrying shares of the Fund even though the borrowed
funds may not be directly traceable to the purchase of shares.
Our shares may not be an appropriate investment for "substantial users" of
facilities financed by industrial development bonds, or persons related to such
"substantial users." Such persons should consult their tax advisers before
investing in shares of the Fund.
Certain financial institutions, like other taxpayers, may be denied a federal
income tax deduction for the amount of interest expense allocable to an
investment in the Fund and the deduction for loss reserves available to property
and casualty insurance companies may be reduced by a specified percentage as a
result of their investment in the Fund.
The value of any shares redeemed by the Fund or repurchased or otherwise sold
may be more or less than your tax basis at the time the redemption, repurchase
or sale is made. Any gain or loss generally will be taxable for federal income
tax purposes. Any loss realized on the sale, redemption or repurchase of Fund
shares held for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any capital gains distributions received
with respect to such shares. Moreover, shareholders will not be allowed to
recognize for tax purposes any capital loss realized on the redemption or
repurchase of Fund shares which they have held for six months or less to the
extent of any tax-exempt distributions received on the shares. Losses on the
sale of stock or securities are not deductible if, within a period beginning 30
days before the date of the sale and ending 30 days after the date of the sale,
the taxpayer acquires stock or securities that are substantially identical.
Each Series will be subject to a 4% nondeductible excise tax on certain amounts
not distributed (and not treated as having been distributed) on a timely basis
in accordance with a calendar year distribution requirement. The Fund intends to
distribute to shareholders each year an amount adequate to avoid the imposition
of such excise taxes.
Except as otherwise discussed in the Prospectus, the receipt of dividends and
distributions from the Fund may be subject to tax under the laws of state or
local tax authorities. You should consult your tax adviser on state and local
tax matters.
7.
RISK FACTORS REGARDING INVESTMENTS IN
FLORIDA, GEORGIA, MICHIGAN, PENNSYLVANIA AND PUERTO RICO MUNICIPAL BONDS
The following information is a summary of special factors affecting the states
and territory indicated. It does not purport to be complete or current and is
based upon information and judgments derived from public documents relating to
such states and territory and other sources. The Trust has not verified any of
this data.
FLORIDA BONDS
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The State of Florida is, in terms of population, one of the largest states in
the United States. The State is the fastest growing of the eleven largest
states. Its continuing rapid population growth has increased demand for services
such as education, criminal justice and transportation at the same time that
federally mandated social-service costs have increased. Its population includes
a large proportion of senior citizens who have moved to the State after
retirement. Recently, the share of the State's working age population (18-59) to
total State population was approximately 54%. That share is not expected to
change appreciably into the twenty-first century. Because Florida has a
proportionally greater retirement-age population than the rest of the nation and
the southeast, property income (dividends, interest and rent) and transfer
payments (Social Security and pension benefits, among other sources of income)
are, relatively, a more important source of income.
The services sector is Florida's largest employer. While structurally the
southeast and the nation are endowed with a greater proportion of manufacturing
jobs, which tend to pay higher wages, services jobs have tended to be less
sensitive to business cycle swings. Florida has a concentration of manufacturing
jobs in high-tech and high value-added sectors, such as electrical and
electronic equipment, as well as printing and publishing. These kinds of jobs
have tended to be less cyclical than other forms of manufacturing employment.
Recently, Florida's dependence on the highly cyclical construction and
construction-related manufacturing sectors has declined. This trend is expected
to continue as the State's economy continues to diversify. In addition, tourism
is one of Florida's most important industries. The State's tourism industry over
the years has become more sophisticated, attracting visitors year-round, thus,
to a degree, reducing its seasonality. Moreover, the dollar's depreciation has
helped attract foreign visitors to Florida.
An important element of Florida's economic outlook is the construction sector,
which was severely affected by Hurricane Andrew. Total construction expenditures
are forecasted to increase 15.6% in 1994 and to increase 13.3% next year.
Real personal income in Florida is estimated to increase 5.5% in 1993-94 and
4.7% in 1994-95. Florida's unemployment rate is forecast to be 6.7% in 1993-94
and 6.1% in 1994-95.
As of May 1994, estimated fiscal year 1993-94 General Revenue plus Working
Capital funds available total $13.583 billion, an 8.4% increase over 1992-93.
This amount reflects a transfer of $190.0 million, out of an estimated $220.0
million in non-recurring revenue due to Hurricane Andrew, to a hurricane relief
trust fund. The $12.944 billion Estimated Revenues (excluding the Hurricane
Andrew impacts) represent an increase of 7.3% over the previous year's Estimated
Revenues. With effective General Revenue plus Working Capital Fund
appropriations at $13.277 billion, unencumbered reserves at the end of the
fiscal year are estimated at $305.8 million.
In fiscal year 1994-95 estimated General Revenue plus Working Capital funds
available total $14.294 billion, a 5.2% increase over 1993-94. This amount
reflects a transfer of $159.0 million in non-recurring revenue due to Hurricane
Andrew, to a hurricane relief trust fund. The $13.877 billion in Estimated
Revenue (excluding the Hurricane Andrew impacts) represent a 7.2% increase over
the analogous figure in 1993-94.
Financial operations of the State of Florida, covering all receipts and
expenditures, are maintained through the use of three funds-the General
Revenue Fund, the Trust Funds and the Working Capital Fund. The General Revenue
Fund receives the majority of State tax revenues. Florida's Constitution does
not permit a personal income tax so the State must rely on a sales tax, a more
volatile and unreliable revenue source. The Trust Funds consist of monies
received by the State which under law or a trust agreement are segregated for a
purpose authorized by law. Revenues in the General Reserve Fund which are in
excess of the amount needed to meet appropriations may be transferred to the
Working Capital Fund. The Florida Constitution and Statutes mandate that the
State budget as a whole, and each separate fund within the State budget, be kept
in balance from currently available revenues each State fiscal year.
<PAGE>
GEORGIA BONDS
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The largest sources of employment by industry group within the State, in
descending order, are wholesale and retail trade; services; manufacturing;
government; transportation and other public utilities; finance, insurance and
real estate; and contract construction. The unemployment rate of the civilian
labor force in the State as of April 1994 was 6.3%. Per capita income during
1993 was $19,278 in Georgia (as compared with $20,817 in the United States).
State Treasury receipts for the year ending June 30, 1994 was $9.132 billion
(estimated), representing a 9.41% increase over receipts collected during the
prior year. The State's personal income tax, which has a graduated scale of 1%
to 6%, accounted for 46% of the State's total revenue collections. The State's
general sales and use tax accounted for 36% of such revenue collections.
The Georgia Constitution provides that the State may incur public debt of two
types for public purposes: (1) general obligation debt and (2) guaranteed
revenue debt. General obligation debt may be incurred (i) to acquire, construct,
develop, extend , enlarge or improve land, waters, property, highways,
buildings, structures, equipment or facilities of the State, its agencies,
departments, institutions and certain State Authorities; (ii) to provide
educational facilities for county and independent school systems; (iii) to
provide public library facilities for county and independent school systems,
counties, municipalities, and boards of trustees of public libraries or boards
of trustees of public library systems; (iv) to make loans to counties, municipal
corporations, political subdivisions, local authorities and other local
governmental entities for water or sewage facilities or systems; and (v) to make
loans to local governmental entities for regional or multi-jurisdictional solid
waste recycling or solid waste facilities or systems. Guaranteed revenue debt
may be incurred by guaranteeing the payment of certain revenue obligations
issued by an instrumentality of the State.
As of June 30, 1994, the outstanding principal amount of indebtedness of the
State was $4.138 billion, and the total debt per capita was equal to $598.26,
representing 3.32% of personal income.
MICHIGAN BONDS
- --------------
Michigan's economy remains heavily concentrated in the manufacturing sector,
although the relative percentage of total employment accounted for by
manufacturing has declined in recent years. Despite the continuing contraction
of the automobile industry in the State, it has remained the most significant
portion of the State's manufacturing sector. The State's per capita income
stands somewhat below the national level. Despite the recent national recession,
the State's economic forecast projects for calendar 1995 modest growth in real
GNP and total wage and salary employment, as well as increased car sales.
As a result of renewed state economic growth , the state administration projects
that the Michigan unemployment rate will remain in step with the U.S.
unemployment rate, declining to 6.6% for both 1994 and 1995.
As a result of legislative action in 1993, and a statewide referendum in 1994,
the State is making major changes in the financing of local public schools. Most
local property taxes, which had been the primary source of school financing,
have been repealed. They have been replaced by other revenues with the principal
replacement revenue being an increased sales tax. These additional revenues will
be included within the State's constitutional revenue limitations and may have
an impact on the State's ability to raise additional revenues in the future.
The unreserved General Fund balance was $26.0 million at 1993 year-end. The
deficit was $310.4 million at September 30, 1990 and $169.4 million at September
30, 1991 and exactly zero at September 30, 1992. By statute, any ending
unreserved fund balance in excess of $26.0 million, is to be deposited to the
Budget Stabilization Fund, so $282.6 million was transferred. During the year,
executive orders were used to avoid a projected deficit and spending was again
closely controlled to avoid overexpenditures. A stated objective of the current
state administration has been to improve financial management and eliminate
chronic overspending. In fiscal year 1992-93, no department had net budget
overexpenditures, the first such performance by the State in 15 years.
During the fiscal year ended September 30, 1993, the State's level of general
obligation debt decreased by $4.9 million to $386.2 million, and total special
obligation debt decreased by $54.4 million to $2,216.7 million. Other
state-related revenue debt decreased $486.2 million to $2,041.0 million during
the 1992-93 fiscal year.
The State maintains a risk management division, whose activities include
analysis of and control over insurance coverage and risk exposure and the
planning and implementing of a statewide safety and health policy and program.
All types of risk and insurance coverage are currently under review and State
practices will likely change in the future. Currently, however, the State is
self-insured for many types of general liability and property losses.
In 1978, the Michigan Constitution was amended to limit the amount of total
State revenues raised from taxes and other sources. State revenues (excluding
federal aid and revenues for payment of principal and interest on general
obligation bonds) in any fiscal year are limited to a fixed percentage of State
personal income in the prior calendar year or the average of the prior three
calendar years, whichever is greater. The percentage is fixed by the amendment
to equal the ratio of the 1978-79 fiscal year revenues to total 1977 State
personal income. The State may, however, raise taxes in excess of the limit for
emergencies, when deemed necessary by the Governor and two-thirds of the members
of each House of the Legislature.
PENNSYLVANIA BONDS
- ------------------
GENERAL. Historically, Pennsylvania has been identified as a heavy industry
- -------
state, although that reputation has changed with the decline of the coal, steel
and railroad industries and the resulting diversification of Pennsylvania's
industrial composition. The major new sources of growth are in the services
sectors, including trade, medical and health services, education and financial
institutions.
REVENUES AND EXPENDITURES. Pennsylvania utilizes the fund method of accounting.
- -------------------------
The General Fund, the Commonwealth's largest and principal operating fund,
receives all tax receipts, non-tax revenues, Federal grants and entitlements
that are not specified by law to be deposited elsewhere. Debt service on all
bond obligations, except those issued for highway purposes or for the benefit of
other special revenue funds, is payable from the General Fund. The Pennsylvania
Constitution mandates that total operating budget appropriations made by the
Commonwealth's General Assembly may not exceed the sum of (a) the actual and
estimated revenues in a given year, and (b) the surplus of the preceding year.
The General Fund experienced an $861.2 million operating deficit resulting in a
fund balance deficit of $980.9 million at June 30, 1991. The operating deficit
was a consequence of the effect of a national recession that restrained budget
revenues and pushed expenditures above budgeted levels. At June 30, 1991, a
negative unreserved-undesignated balance of $1,146.2 million was reported.
During fiscal 1991, the balance in the Tax Stabilization Reserve Fund was used
to maintain vital state spending. Higher than budgeted expenditures and lower
than estimated revenues during the fiscal year resulted in a $453.6 million
budget deficit at fiscal year-end.
During fiscal 1992, the General Fund recorded a $1.1 billion operating surplus.
This surplus was achieved through legislated tax rate increases and tax base
broadening measures and by controlling expenditures through numerous cost
reduction measures. As a result of the fiscal 1992 operating surplus, the fund
balance has increased to $87.5 million and the unreserved-undesignated deficit
has dropped to $138.6 million from its fiscal 1991 level. As of the beginning of
1993, the adopted fiscal 1993 budget was balanced within the official revenue
estimate and a planned drawdown of a $8.8 million beginning budgetary basis
surplus carried forward from fiscal 1992.
During fiscal 1993, the fund balance of the General Fund increased by $611.4
million, led by an increase in the unreserved balance of $576.8 million over the
prior fiscal year balance. At June 30, 1993, the fund balance totaled $698.9 and
the unreserved-undesignated balance totaled $64.4 million. A continuing recovery
of the Commonwealth's financial condition from the effects of the national
economic recession of 1990 and 1991 is demonstrated by this increase in the
balance and a return to a positive unreserved-undesignated balance.
COMMONWEALTH DEBT. The current Constitutional provisions pertaining to
- ------------------
Pennsylvania debt permit the issuance of the following types of debt: (i) debt
to suppress insurrection or rehabilitate areas affected by disaster, (ii)
electorate-approved debt, (iii) debt for capital projects, subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years and (iv) tax anticipation notes payable in the
fiscal year of issuance. All debt except tax anticipation notes must be
amortized in substantial and regular amounts.
Outstanding general obligation debt totaled $5,038.8 million on June 30, 1993,
an increase of $163.7 million from June 30, 1992. In its current debt financing
plans, Pennsylvania is emphasizing infrastructure investment to improve and
rehabilitate existing capital facilities, such as water supply systems, and to
construct new facilities, such as roads, prisons and public buildings. Beginning
in early 1987, a limited return to the issuance of long-term bonds was required
to finance immediately needed repairs to highways and bridges.
Pennsylvania engages in short-term borrowing to fund expenses within a fiscal
year through the sale of tax anticipation notes, for the account of the General
Fund or the Motor License Fund or both such funds, which must mature within the
fiscal year of issuance. The principal amount issued, when added to that
outstanding, may not exceed, in the aggregate, 20% of the revenues estimated to
accrue to the appropriate fund or both funds in the fiscal year. The
Commonwealth is not permitted to fund deficits between fiscal years with any
form of debt. All year-end deficit balances must be funded within the succeeding
fiscal year's budget. Pennsylvania issued $400.0 million of tax anticipation
notes for the account of the General Fund in fiscal 1994.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation notes,
subject to the applicable statutory and Constitutional limitations generally
imposed on bonds. The term of such borrowings may not exceed three years.
Currently, there are no bond anticipation notes outstanding.
COMMONWEALTH-RELATED OBLIGATIONS. Certain Commonwealth-created agencies have
- ---------------------------------
statutory authorization to incur debt for which no legislation providing for
Commonwealth appropriations to pay debt service thereon is required. The debt of
these agencies is supported by assets of or revenues derived from the various
projects financed; it is not an obligation of the Commonwealth. Some of these
agencies, however, are indirectly dependent on Commonwealth appropriations.
Commonwealth-related agencies and their outstanding debt as of December 31, 1993
include the Delaware River Joint Toll Bridge Commission ($57.4 million), the
Delaware River Port Authority ($239.4 million), the Pennsylvania Economic
Development Financing Authority ($380.8 million), the Pennsylvania Energy
Development Authority ($163.7 million), the Pennsylvania Higher Education
Assistance Agency ($1,158.8 million), the Pennsylvania Higher Education
Facilities Authority ($1,805.9 million), the State Public School Building
Authority ($306.4 million), the Pennsylvania Turnpike Commission ($1,152.6
million) and the Pennsylvania Industrial Development Authority ($256.4 million).
<PAGE>
Obligations of Commonwealth-created agencies in Pennsylvania which bear a moral
obligation of the Commonwealth are those issued by the (i) Pennsylvania Housing
Finance Agency, a Commonwealth-created agency which provides housing for lower
and moderate income families in Pennsylvania and (ii) the Hospitals and Higher
Education Facilities Authority of Philadelphia.
The Commonwealth, through several of its departments and agencies, has entered
into various agreements to lease, or sublease, certain real property and
equipment, and to make lease payments for the use of such property and
equipment. All lease payments due from Commonwealth departments and agencies are
subject to and dependent upon an annual spending authorization approved through
the Commonwealth's annual budget process. The Commonwealth is not required by
law to appropriate or otherwise provide moneys from which the lease payments are
to be made. The principal amount outstanding as of June 30, 1993 on such
obligations equalled approximately $1.663 billion.
LOCAL GOVERNMENT DEBT. The City of Philadelphia ended fiscal 1992 with a
- -----------------------
cumulative general fund balance deficit of $224.9 million. The Commonwealth
established the Pennsylvania Intergovernmental Cooperation Authority ("PICA") to
assist "first class" cities, such as Philadelphia, in remedying fiscal
emergencies by issuing debt and by making factual findings and recommendations
on budgetary and fiscal affairs. In June 1992, PICA issued $474.6 million of
Special Tax Revenue Bonds to provide financial assistance to Philadelphia and to
liquidate the cumulative General Fund balance deficit and, in July 1993, PICA
issued $643.4 million of Special Tax Revenue Bonds to refund certain general
obligation bonds of the city and to fund additional capital projects.
PUERTO RICO BONDS
- -----------------
The economy of Puerto Rico is dominated by the manufacturing and service
sectors. The manufacturing sector has experienced a basic change over the years
as a result of increased emphasis on higher wage, high-technology industries
such as pharmaceuticals, electronics, computers, microprocessors, professional
and scientific instruments and certain high-technology machinery and equipment.
Much of the development of the manufacturing sector in Puerto Rico can be
attributed to various federal and Commonwealth tax incentives, most notably
Section 936 of the Internal Revenue Code and the Commonwealth's Industrial
Incentives Program. The service sector, including finance, insurance and real
estate, also plays a major role in the economy. The service sector ranks second
only to manufacturing in contribution to the gross domestic product and leads
all sectors in providing employment. In recent years, the service sector has
experienced significant growth in response to the expansion of the manufacturing
sector.
Puerto Rico's economy is closely integrated with that of mainland United States.
During fiscal 1993, approximately 86% of Puerto Rico's exports were to the
United States mainland, which also was the source of approximately 69% of Puerto
Rico's imports. In fiscal 1993, Puerto Rico experienced a $2.5 billion positive
adjusted merchandise trade balance.
Puerto Rico's decade-long economic expansion continued throughout the five-year
period from fiscal 1989 through fiscal 1993 affecting almost every sector of its
economy and resulting in record levels of employment (although Puerto Rico's
unemployment rate has chronically exceeded the average for the United States).
Factors behind this expansion included Commonwealth-sponsored economic
development programs, the relatively stable prices of oil imports, periodic
declines in the exchange value of the United States dollar and the relatively
low cost of borrowing during the period.
In the first ten months of fiscal 1993, the economy experienced its highest
growth rate for the same period since fiscal 1989. Growth in fiscal 1994 and
1995 will continue to depend on several factors, including the state of the
United States economy and the relative stability in the price of oil, the
exchange value of the U.S. dollar and the cost of borrowing.
The Constitution of Puerto Rico also provides that direct obligations of the
Commonwealth evidenced by full faith and credit bonds or notes shall not be
issued if the amount of the principal of and interest on such bonds and notes
and on all such bonds and notes theretofore issued which is payable in any
fiscal year, together with any amounts paid by the Commonwealth in the preceding
fiscal year on account of bonds or notes guaranteed by the Commonwealth, exceeds
15% of the average annual revenues raised under the provisions of Commonwealth
legislation and covered into the Treasury of Puerto Rico (principally income
taxes, property taxes and excise taxes) in the two fiscal years preceding the
then current fiscal year. During the five fiscal years ended June 30, 1993,
public sector debt increased 22.3% while gross product rose 25.3%.
<PAGE>
With the approval of the North American Free Trade Agreement by the United
States Congress which is intended to eliminate certain restrictions on trade
between Canada, the United States and Mexico, certain of Puerto Rico's
industries, including those that are lower salaried and labor intensive, may
face increased competition from Mexico. However, Puerto Rico's favorable
investment environment, skilled work force, infrastructure development and tax
structure (especially Section 936) would tend to create expanded trade
opportunities for Puerto Rico in sectors such as pharmaceuticals and
high-technology manufacturing.
8.
PAST PERFORMANCE
Each Series computes its average annual compounded rate of total return during
specified periods that would equate the initial amount invested to the ending
redeemable value of such investment by adding one to its computed average annual
total return, raising the sum to a power equal to the number of years covered by
the computation and multiplying the result by $1,000 which represents a
hypothetical initial investment. The calculation assumes deduction of the
maximum sales charge from the initial amount invested and reinvestment of all
income dividends and capital gains distributions on the reinvestment dates at
prices calculated as stated in the Prospectus. The ending redeemable value is
determined by assuming a complete redemption at the end of the period(s) covered
by the average annual total return computation.
The total returns for the one-year period ended October 31, 1994 for the
Florida, Michigan and Pennsylvania Series were (12.40%), (11.70%) and (12.20%),
respectively. The average annual compounded rates of total return for the life
of the Florida Series (commencing on September 25, 1991 and ending October 31,
1994), the life of the Pennsylvania Series (commencing on February 3, 1992 and
ending October 31, 1994) and the life of the Michigan Series (commencing on
December 1, 1992 and ending October 31, 1994), were as follows: 3.45%, 3.33%,
and 1.25%, respectively.
Each Series' yield quotation is based on a 30-day period ended on a specified
date, computed by dividing the Series' net investment income per share earned
during the period by the Series' maximum offering price per share on the last
day of the period. This is determined by finding the following quotient: Take a
Series' dividends and interest earned during the period minus its expenses
accrued for the period (net of reimbursements) and divide by the product of (i)
the average daily number of Series shares outstanding during the period that
were entitled to receive dividends and (ii) the Series' maximum offering price
per share on the last day of the period. To this quotient, add one. This sum is
multiplied by itself five times. Then one is subtracted from the product of this
multiplication and the remainder is multiplied by two. For the 30-day period
ended October 31, 1994 the yields for the Florida, Pennsylvania and Michigan
Series were 5.99%, 5.65%, and 5.83%, respectively.
Each Series' tax-equivalent yield is computed by dividing that portion of the
Series' yield (as determined above) which is tax exempt by one minus a stated
income tax rate (Florida - 36%; Pennsylvania - 37.79% and Michigan - 38.86%) and
adding the product to that portion, if any, of the Series' yield that is not tax
exempt. For the 30-day period ended on October 31, 1994, the tax-equivalent
yields for the Florida, Pennsylvania and Michigan Series were 9.36%, 9.08% and
9.54%, respectively.
It is important to remember that these figures represent past performance and an
investor should be aware that the investment return and principal value of a
Series investment will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Therefore, there is no
assurance that this performance will be repeated in the future.
9.
FURTHER INFORMATION ABOUT THE TRUST
Lord Abbett Tax-Free Income Trust(for purposes of this discussion, the "Trust")
was established on September 11, 1991 as a Massachusetts business trust by a
Declaration of Trust. A copy of the Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts. As a trust, the Trust does not
hold regular meetings of shareholders, although special meetings may be called
for a specific series or for the Trust as a whole, for purposes such as electing
or removing Trustees, changing fundamental policies or approving an advisory
contract. The Trust will promptly call a meeting of shareholders to vote on
whether to remove a Trustee(s) when requested to do so in writing by record
<PAGE>
holders of not less than 10% of the Trust's outstanding stock, and the Trustees,
within 5 business days of a written request by 10 or more shareholders who have
been of record for at least 6 months and who hold in the aggregate the lesser of
either shares having a net asset value of at least $25,000 or 1% of such
outstanding Trust stock, shall give such shareholders access to a list of the
names and addresses of all other shareholders or inform them of the number of
shareholders and the cost of the Trust's mailing their request.
Under the Declaration of Trust, the Trustees may provide for additional series
from time to time. Any additional series would have rights separate from the
other series. Within each series, all shares have equal voting rights and equal
rights with respect to dividends, assets and liquidation.
Under Massachusetts law, shareholders could, under certain circumstances, be
held liable for the obligations of the Trust. However, the Declaration of Trust
disclaims shareholder liability for acts, obligations or affairs of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Declaration of Trust also provides for indemnification out of a series'
property for all losses and expenses of any shareholder of the series held
liable on account of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the series itself would be unable to meet its
obligations. The Trust believes that, in view of the above, the risk of personal
shareholder liability is remote.
The directors, trustees and officers of Lord Abbett-sponsored mutual funds,
together with the partners and employees of Lord Abbett, are permitted to
purchase and sell securities for their personal investment accounts. In engaging
in personal securities transactions, however, such persons are subject to
requirements and restrictions contained in the Fund's Code of Ethics which
complies, in substance, with each of the recommendations of the Investment
Company Institute's Advisory Group on Personal Investing. Among other things,
the Code requires that Lord Abbett partners and employees obtain advance
approval before buying or selling securities, submit confirmations and quarterly
transaction reports, and obtain approval before becoming a director of any
company; and it prohibits such persons from investing in a security 7 days
before or after any Lord Abbett-sponsored fund trades in such security,
profiting from trades of the same security within 60 days and trading on
material non-public information. The Code imposes certain similar requirements
and restrictions on the independent directors and trustees of each of the Lord
Abbett-sponsored mutual funds to the extent contemplated by the recommendations
of such Advisory Group.
10.
FINANCIAL STATEMENTS
The financial statements for the fiscal half year and fiscal year ended October
31, 1994 and opinion of Deloitte & Touche LLP, independent auditors, included in
the 1994 Annual Report to Shareholders of Lord Abbett Tax-Free Income Trust, are
incorporated herein by reference in reliance upon the authority of Deloitte &
Touche LLP as experts in auditing and accounting.
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Part A - Financial Highlights for years ended October 31, 1992 and
1993 and 1994, the period September 25, 1991 (commencement of
operations - Florida Series) to October 31, 1991, the period
February 3, 1992 (commencement of operations - Pennsylvania
Series) to October 31, 1992 and the period December 1, 1992
(commencement of operations - Michigan Series) to October 31,
1993.
Part B - Statement of Net Assets at October 31, 1994. Statement of
Operations for the year ended October 31, 1994.
Statement of Changes in Net Assets for the year ended October 31,
1994.
(b) Exhibits -
(4) Form of Specimen Share Certificate.***
(5) Form of Management Agreement between Registrant
and Lord, Abbett & Co. ***
(7) Retirement Plan for Non-interested Person Directors
and Trustees of Lord Abbett Funds.****
(10) Opinion of Debevoise & Plimpton. **
(11)(a) Consent of Deloitte & Touche. ***
(11)(b) Consent of Debevoise & Plimpton (included in
Exhibit 10).**
(16) Total Return and Yield Computation***
(15) Form of Distribution Plan and Agreement pursuant to
Rule 12b-1 under the 1940 Act. *****
** To be filed with Rule 24f-2 Notice.
*** Previously filed.
**** Incorporated by reference to Post-Effective Amendment
No. 7 to the Registration Statement (on Form N1-A) of
Lord Abbett Equity Fund (File No. 811-6033).
***** Incorporated by reference to Post-Effective Amendment
No. 6 to the Registration Statement (on Form N1-A) of
Lord Abbett Securities Trust (File No. 811-7538).
Reference is made to the exhibits previously filed in the
Registration Statement and amendments thereto on Form N-1A
as modified by the supplements to the Prospectus and
Statement of Additional Information
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
<PAGE>
Item 26. Number of Record Holders of Securities
(As of December 2, 1994)
Aggregate 8,414
Pennsylvania Series 2,677
Florida Series 3,811
Michigan Series 1,926
Item 27. Indemnification
All Trustees, officers, employees and agents of Registrant are
to be indemnified as set forth in Section 4.3 of Registrant's
Declaration of Trust.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expense incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee,
officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by
it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
In addition, Registrant maintains a Trustees' and officers'
errors and omissions liability insurance policy protecting
Trustees and officers against liability for breach of duty,
negligent act, error or omission committed in their capacity
as Trustees or officers. The policy contains certain
exclusions, among which is exclusion from coverage for active
or deliberate dishonest or fraudulent acts and exclusion for
fines or penalties imposed by law or other matters deemed
uninsurable.
Item 28. Business and Other Connections of Investment Adviser
Lord, Abbett & Co. acts as investment adviser for seventeen
other open-end investment companies (of which it is principal
underwriter for fifteen), and as investment adviser to
approximately 6,000 private accounts. Other than acting as
Trustees, directors and/or officers of open-end investment
companies sponsored by Lord, Abbett & Co., none of Lord,
Abbett & Co.'s partners has, in the past two fiscal years,
engaged in any other business, profession, vocation or
employment of a substantial nature for his own account or the
capacity of director, officer, employee, partner or Trustee of
any entity except as follows:
John J. Walsh
Trustee
Brooklyn Hospital - Caledonian Hospital
Parkside Avenue and St. Pauls Place
Brooklyn, N.Y.
<PAGE>
Item 29. Principal Underwriter
(a) Affiliated Fund, Inc.
Lord Abbett Value Appreciation Fund, Inc.
Lord Abbett Bond-Debenture Fund, Inc.
Lord Abbett Developing Growth Fund, Inc.
Lord Abbett Tax-Free Income Fund, Inc.
Lord Abbett California Tax-Free Income Fund, Inc.
Lord Abbett Fundamental Value Fund, Inc.
Lord Abbett U.S. Government Securities Fund, Inc.
Lord Abbett Global Fund, Inc.
Lord Abbett U.S. Government Securities Money Market Fund,
Inc.
Lord Abbett Series Fund, Inc.
Lord Abbett Equity Fund
Lord Abbett Securities Trust
Lord Abbett Investment Trust
Investment Advisors
American Skandia Trust (Lord Abbett Growth and Income
Portfolio)
America's Utility Fund, Inc.
(b) The partners of Lord, Abbett & Co. are:
Name and Principal Positions and Offices
Business Address (1) with Registrant
Ronald P. Lynch Chairman, President
and Trustee
Kenneth B. Cutler Vice President & Secretary
Daniel E. Carper Vice President
Stephen I. Allen Vice President
Robert S. Dow Vice President
Thomas S. Henderson Vice President
E. Wayne Nordberg Vice President
John J. Walsh Vice President
(1) Each of the above has a principal business address: 767
Fifth Avenue, New York, NY 10153
(c) Not applicable
Item 30. Location of Accounts and Records
Registrant maintains the records, required by Rules 31a - 1(a)
and (b), and 31a - 2(a) at its main office.
Lord, Abbett & Co. maintains the records required by Rule 31a -
1(f) and 31a - 2(e) at its main office.
Certain records such as canceled stock certificates and
correspondence may be physically maintained at the main office of
the Registrant's Transfer Agent, Custodian, or Shareholder
Servicing Agent within the requirements of Rule 31a-3.
Item 31. Management Services
None.
Item 32. Undertakings
(a) N/A
(c) The Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
(d) Registrant hereby undertakes, if requested to do so by the
holders of at least 10% of the Registrant's outstanding shares,
to call a meeting of shareholders for the purpose of voting upon
the question of removal of a Trustee or Trustees and to assist in
communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940, as amended.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all the requirements
for effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Registration Statement
and/or any amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on the
15th day of June 1995.
LORD ABBETT TAX-FREE INCOME TRUST
By /S/ RONALD P. LYNCH
Ronald P. Lynch, Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
NAME TITLE DATE
- ----- ----- ----
Chairman,
/s/ Ronald P. Lynch President & Trustee June 15, 1995
/s/ John J. Gargana, Jr. Vice President & June 15, 1995
Chief Financial Officer
E. Thayer Bigelow Trustee
/s/ Stewart S. Dixon Trustee June 15, 1995
/s/ Robert S. Dow Trustee June 15, 1995
/s/ John C. Jansing Trustee June 15, 1995
/s/ C. Alan MacDonald Trustee June 15, 1995
/s/ Hansel B. Millican, Jr. Trustee June 15, 1995
/s/ Thomas J. Neff Trustee June 15, 1995
