LORD ABBETT TAX FREE INCOME TRUST
497, 1995-06-21
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<PAGE>

      SUPPLEMENT DATED JUNE 3, 1995 TO THE CURRENT STATEMENT OF ADDITIONAL
                   INFORMATION FOR LORD ABBETT TAX-FREE INCOME TRUST

<PAGE>

                             LORD ABBETT MUNICIPAL

                                BOND PORTFOLIOS



            -------------------------------------------------------

            [P1]                 [P2]                 [P3]

            -------------------------------------------------------



                             Would You Like To Pay

                               Less Income Tax?



                                    [LOGO]
                          A Tradition of Performance
                         Through Disciplined Investing

<PAGE>

                 Talk To Your Investment Professional About...

                      The Lord Abbett Tax-Free Advantage

[P4]

[P5]

Q.  "It's important for me to know that my money is buying high-quality
securities. Any fund I invest in has to be as concerned with quality as I am.
Does Lord Abbett fit the bill?"

A.  "Yes. Lord Abbett's municipal portfolios are among the highest quality
in the industry. Only investment-grade (AAA, AA, A, BBB) municipal bonds (or
their equivalent) can be purchased by Lord Abbett's portfolio managers."

Q.   "I know Lord Abbett uses a team approach to managing fixed-income
portfolios. Is professional management really that important?"

A.  "Yes. The Lord Abbett team looks to act, not react. They constantly evaluate
the market and adjust their portfolios based on the anticipation of interest-
rate and economic changes. Since the portfolios invest in intermediate- and
long-term municipal bonds, share prices will fluctuate as interest rates
change."

Q.  "Right now, I don't need a monthly dividend check. But, later on, I probably
will. I need a fund that works for me now and in the future. Can Lord Abbett
respond to my changing needs?"

A.  "Yes. Lord Abbett's municipal bond funds pay monthly dividends which can be
received by investors in cash or can be reinvested at net asset value. And, you
can add to your investment at any time in any amount."


COMPOUND THE BENEFITS OF TAX-FREE INVESTING
- --------------------------------------------------------------------------------

This hypothetical graph illustrates the results of two investors:

 . Both investors began with $100,000.
 . Both saw their investment return an average of 6% per year during each
  period.
 . Both were subject to a tax rate of 33%.

Yet, after 25 years, the value of Shareholder B's portfolio is worth $173,765
more than Shareholder A's.

Why?

Shareholder B's investment compounded tax free, while Shareholder A's did not.

[G1]

In this illustration, dividends compound monthly and there is no fluctuation in
the value of the principal. The 6% return used in this illustration is not
representative of future returns for any Lord Abbett-sponsored fund.

<PAGE>

QUESTIONS AND ANSWERS
- ---------------------

Q.  If you could find an investment that allowed you to support local
communities and earned you income free of taxes, would you buy it?

A.  If the answer is yes, you should consider purchasing municipal bonds.

Municipal bonds are issued by state and local governments to finance many
projects, including bridge, tunnel and road construction, building airports and
public schools and paying for water treatment plants. The purchasers of these
bonds are, in effect, lending money to the government to complete these
projects. The interest paid on these "loans" is tax free to the investor.

Q.  Do you want diversification among many holdings, active management and
access to a large pool of municipal issues?

A.  If the answer is yes, invest in a professionally managed municipal bond
fund.


THE ADVANTAGES OF INVESTING IN A PROFESSIONALLY MANAGED MUNICIPAL BOND FUND:
- --------------------------------------------------------------------------------

Diversification/Managed Risk:

A mutual fund is an investment that represents partial ownership of a wide
number of holdings. By providing greater diversification than most investors can
achieve on their own, a mutual fund can reduce risk.

Time Savings/Expertise/Economy:

Overseeing your investments is a full-time job requiring expertise in many
areas. Portfolio managers continually monitor the financial markets in an
attempt to maximize returns and minimize risk. Most people lack the time, the
knowledge or the confidence to buy individual bonds. Also, adding to a portfolio
of individual bonds can be expensive; individual municipal bonds typically trade
in amounts of $5,000. There is no minimum dollar amount required for subsequent
investments in Lord Abbett's municipal bond funds.

Access to the Bond Market:

Institutional investors, such as municipal bond funds, utilize many dealers,
each with inventories of bonds. As a result, municipal bond funds can buy and
sell bonds more efficiently than an individual can. This access to large
reserves of bonds provides the potential for better returns.

Ability to Compound Your Earnings:

Because reinvesting mutual fund dividends is relatively easy (compared to
reinvesting the semi-annual interest of an individual municipal bond), a mutual
fund can be a very efficient way to keep all of your money working for you.
Reinvesting distributions is a simple way to add to your account and accumulate
shares:  Each time a distribution is reinvested, the number of shares you own
increases.

- --------------------------------------------------------------------------------

Q.  Would you also like this actively-managed portfolio to consist of high-
quality municipal bonds, and emphasize call protection and total return
potential?

A. If the answer is yes...

<PAGE>

LORD ABBETT'S TAX-FREE PORTFOLIOS
- --------------------------------------------------------------------------------

Lord Abbett has been investing money for clients since 1929 and currently
manages over $2 billion in tax-free portfolios. We offer the following municipal
bond funds:

         National, California, Connecticut, Florida, Georgia, Hawaii,
      Michigan, Minnesota, Missouri, New Jersey, New York, Pennsylvania,
                             Texas and Washington

A portion of income derived from these portfolios may be subject to the
alternative minimum tax. For each portfolio, any capital gains realized would be
subject to the usual taxes.

                             [P6]

A current prospectus containing more complete information about any of the
portfolios listed above (including charges, expenses and any fees waived and/or
expenses assumed by Lord, Abbett & Co.), may be obtained by calling your
financial adviser or Lord, Abbett & Co. at 800-874-3733. An investor should read
the prospectus carefully before investing.


                              LORD, ABBETT & CO.
                             Investment Management

                                The GM Building
                767 Fifth Avenue . New York, NY 10153-0203
                                 800-426-1130


<PAGE>

                       Lord Abbett Tax-Free Income Trust

                                Florida Series

FLORIDA
RESIDENTS

    WOULD YOU LIKE TO
    PAY LESS
    INCOME TAX?

 . To pay their share of 1995 federal, state and local taxes, the average Florida
  resident will work from January 1st until May 2nd... for the government (1).

- --------------------------------------------------------------------------------

THE LORD ABBETT TAX-FREE
ADVANTAGE

     High-Quality Bond Portfolio
     (as of 3/31/95)

     [G2]

     The Florida Series' investment policy restricts investments to municipal
     bonds which are investment grade or equivalent at the time of purchase.


THE FLORIDA SERIES PROVIDED
REWARDING TOTAL RETURNS

     Account Value Assuming the
     Reinvestment of All Distributions

     [G3]

     Total return assumes the reinvestment of all dividends and capital gains.
     Capital gains distributions and any capital gains realized from liquidation
     of shares would be subject to the usual taxes. Performance does not reflect
     applicable capital gains taxes. The Series investment reflects the reduced
     sales charge of 3.75% applicable to investments of $100,000. Past
     performance is no indication of future results.

SEC-REQUIRED AVERAGE ANNUAL RATES
OF TOTAL RETURN at the maximum sales charge of
4.75% for the periods ended 3/31/95 were:

<TABLE>
<CAPTION>
     Life of Fund     1 Year       Life of Fund
                               (at net asset value)
     <S>              <C>      <C>
        +5.27%        +0.70%          +6.75%
</TABLE>

     The investment return and principal value of an investment in the Series
     will fluctuate so that shares, on any given day or when redeemed, may be
     worth more or less than their original cost. The results quoted herein
     represent past performance which is no indication of future results.

- --------------------------------------------------------------------------------
(1) Includes direct and indirect taxes.  Source: Tax Foundation.

<PAGE>

THE TAX-FREE ADVANTAGE

Lord, Abbett & Co.'s objective is to provide Florida Series shareholders an
investment free from federal income tax, with shares free from Florida
intangible personal property tax. Taxpayers in a 36% tax bracket would have to
earn 8.59% on a taxable investment to keep the same after-tax earnings provided
by a 5.50% tax-free investment. The Series' yield may be obtained by calling
Lord, Abbett & Co. at 800-426-1130 or your Registered Representative.

These Yields Are Hypothetical and Are Not Representative of Actual or Future
Florida Series Yields.

[G4]

- --------------------------------------------------------------------------------
IMPORTANT INFORMATION

A current prospectus containing more complete information about the Fund, or any
Lord Abbett-managed portfolio (including charges, expenses and any fees waived
and/or expenses assumed by Lord, Abbett & Co.), may be obtained by calling your
financial adviser or Lord, Abbett & Co. at 800-874-3733. An investor should read
the prospectus(es) carefully before investing.

Interest income derived from private activity bonds in the portfolio will
increase the alternative minimum tax liability only for shareholders subject to
that tax. In the event the portfolio does not invest entirely in municipal
bonds, federal and local taxes may be applicable to interest income and/or
shares of the portfolio. Any capital gains realized would be subject to the
usual taxes.

Although the portfolio may invest up to 20% of its net assets in residual
interest bonds ("RIBs"), as of 3/31/95, the Florida Series had less than 5% of
its assets invested in such securities. A RIB, sometimes referred to as an
inverse floater, is a debt instrument with a floating or variable rate that
moves in the opposite direction of the interest rate on another security or the
value of an index. Changes in the interest rate on the other security or index
inversely affect the residual interest paid on the RIB, with the result that
when interest rates rise, RIBs give lower interest payments and their values
fall faster than other similar fixed-rate bonds. But when interest rates fall,
not only do RIBs give higher interest payments, their values also rise faster
than other similar fixed-rate bonds. The market for RIBs is relatively new.

If used after 6/30/95, this literature must be accompanied by Lord Abbett's
Performance Quarterly for the most recently completed calendar quarter.

- --------------------------------------------------------------------------------
(2) This illustration assumes a federal income tax rate of 36% for single/joint
    income between $115,000-$250,000 and $140,000-$250,000, respectively.


[LOGO] LORD, ABBETT & CO.
       Investment Management

A Tradition of Performance Through Disciplined Investing
- ----------------------------------------------------------------------------
The GM Building . 767 Fifth Avenue . New York, NY  10153-0203 . 800-426-1130
<PAGE>
<PAGE>

                       Lord Abbett Tax-Free Income Trust

                                Michigan Series

MICHIGAN
RESIDENTS

    WOULD YOU LIKE TO
    PAY LESS
    INCOME TAX?

 . To pay their share of 1995 federal, state and local taxes, the average
  Michigan resident will work from January 1st until May 2nd... for the
  government(1).

- --------------------------------------------------------------------------------

THE LORD ABBETT TAX-FREE
ADVANTAGE

     High-Quality Bond Portfolio
     (as of 3/31/95)

     [G5]

     The Michigan Series' investment policy restricts investments to municipal
     bonds which are investment grade or equivalent at the time of purchase.


THE MICHIGAN SERIES PROVIDED
REWARDING TOTAL RETURNS

     Account Value Assuming the
     Reinvestment of All Distributions

     [G6]

     Total return assumes the reinvestment of all dividends and capital gains.
     Capital gains distributions and any capital gains realized from liquidation
     of shares would be subject to the usual taxes. Performance does not reflect
     applicable capital gains taxes. The Series investment reflects the reduced
     sales charge of 3.75% applicable to investments of $100,000. Past
     performance is no indication of future results.

SEC-REQUIRED AVERAGE ANNUAL RATES
OF TOTAL RETURN at the maximum sales charge of
4.75% for the periods ended 3/31/95 were:

<TABLE>
<CAPTION>
     Life of Fund     1 Year       Life of Fund
                               (at net asset value)
     <S>              <C>      <C>
        +4.57%        +1.00%          +6.82%
</TABLE>

     The investment return and principal value of an investment in the Series
     will fluctuate so that shares, on any given day or when redeemed, may be
     worth more or less than their original cost. The results quoted herein
     represent past performance which is no indication of future results.

- --------------------------------------------------------------------------------
(1) Includes direct and indirect taxes.  Source: Tax Foundation.
(2) Includes holdings which are not rated by an independent ratings service but
    which are, in Lord Abbett's opinion, of comparable quality.

<PAGE>

THE TAX-FREE ADVANTAGE

Lord, Abbett & Co.'s objective is to provide Michigan Series shareholders an
investment free from federal and Michigan State income taxes, with shares free
from Michigan intangible personal property tax. Michigan taxpayers in a 38.94%
tax bracket would have to earn 9.01% on a taxable investment to keep the same
after-tax earnings provided by a 5.50% tax-free investment. The Series' yield
may be obtained by calling Lord, Abbett & Co. at 800-426-1130 or your Registered
Representative.

These Yields Are Hypothetical and Are Not Representative of Actual or Future
Michigan Series Yields.

[G7]

- --------------------------------------------------------------------------------
IMPORTANT INFORMATION

A current prospectus containing more complete information about the Fund, or any
Lord Abbett-managed portfolio (including charges, expenses and any fees waived
and/or expenses assumed by Lord, Abbett & Co.), may be obtained by calling your
financial adviser or Lord, Abbett & Co. at 800-874-3733. An investor should read
the prospectus(es) carefully before investing.

Interest income derived from private activity bonds in the portfolio will
increase the alternative minimum tax liability only for shareholders subject to
that tax. In the event the portfolio does not invest entirely in municipal
bonds, federal and local taxes may be applicable to interest income and/or
shares of the portfolio. Any capital gains realized would be subject to the
usual taxes.

Although the portfolio may invest up to 20% of its net assets in residual
interest bonds ("RIBs"), as of 3/31/95, the Michigan Series had less than 5% of
its assets invested in such securities. A RIB, sometimes referred to as an
inverse floater, is a debt instrument with a floating or variable rate that


<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
- -------------

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
- -------------

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.




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