1933 Act File No. 33-43017
1940 Act File No. 811-6418
SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 12 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT [X]
OF 1940
AMENDMENT No. 11 [X]
LORD ABBETT TAX-FREE INCOME TRUST
---------------------------------
Exact Name of Registrant as Specified in Charter
767 Fifth Avenue, New York, N.Y. 10153
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Address of Principal Executive Office
Registrant's Telephone Number (212) 848-1800
--------------------------------------------
Kenneth B. Cutler, Vice President & Secretary
767 Fifth Avenue, New York, N.Y. 10153
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box)
immediately on filing pursuant to paragraph (b) of Rule 485
X on July 15, 1996 pursuant to paragraph (b) of Rule 485
- ---
60 days after filing pursuant to paragraph (a) (i) of Rule 485
on (date)pursuant to paragraph (a) (i)of Rule 485
75 days after filing pursuant to paragraph (a) (ii) of Rule 485
___ on (date) pursuant to paragraph (a) (ii) of Rule 485
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant's other Series have registered an indefinite amount of securities
under the Securities Act of 1933 pursuant to Rule 24f-2(a) (1) and a Rule 24f-2
Notice for these series for the most recent fiscal year was filed with the
commission on December 28, 1995.
This filing has pages.
<PAGE>
LORD ABBETT TAX-FREE INCOME TRUST
FORM N-1A
Cross Reference Sheet
Post-Effective Amendment No. 12
Pursuant to Rule 481(a)
Form N-1A Location in Prospectus or
Item No. Statement of Additional Information
- --------- -----------------------------------
1 Cover Page
2 Fee Table
3 Financial Highlights; Performance
4 (a) (i) Cover Page, Our Management
4 (a) (ii) Investment Objectives; How We Invest
4 (b) (c) How We Invest
5 (a) (b) (c) Our Management; Back Cover Page
5 (d) N/A
5 (e) Back Cover Page
5 (f) N/A
5 A Performance
6 (a) Cover Page
6 (b) (c) (d) N/A
6 (e) Cover Page
6 (f) (g) Dividends, Capital Gains
Distributions and Taxes
7 (a) Back Cover Page
7(b) (c) (d) (e) (f) Purchases
8 (a) (b) (c) (d) Redemptions and Repurchases
9 N/A
10 Cover Page
11 Cover Page -- Table of Contents
12 N/A
13 (a) (b) (c) (d) Investment Objectives and Policies
14 Trustees and Officers
15 (a) (b) (c) Trustees and Officers
16 (a) (i) Investment Advisory and Other Services
16 (a) (ii) Trustees and Officers
16 (a) (iii) Investment Advisory and Other Services
16 (b) Investment Advisory and Other Services
16 (c) (d) (e) (g) N/A
16 (f) Purchases, Redemptions, Repurchases
and Shareholder Services
16 (h) Investment Advisory and Other Services
16 (i) N/A
17 (a) Portfolio Transactions
17 (b) N/A
17 (c) Portfolio Transactions
17 (d) (e) N/A
18 (a) Cover Page
18 (b) N/A
19 (a) (b) Purchases, Redemptions, Repurchases
and Shareholder Services; Notes
to Financial Statements
19 (c) N/A
2
<PAGE>
Form N-1A Location in Prospectus or
Item No. Statement of Additional Information
- --------- -----------------------------------
20 Taxes
21 (a) Purchases, Redemptions, Repurchases
and Shareholder Services;
21 (b) (c) N/A
22 (a) N/A
22 (b) Past Performance
23 Financial Statements
3
<PAGE>
LORD ABBETT TAX-FREE INCOME TRUST
THE GENERAL MOTORS BUILDING 767 FIFTH AVENUE
NEW YORK, NY 10153-0203
800-426-1130
LORD ABBETT TAX-FREE INCOME TRUST ("WE" OR THE "FUND") IS AN OPEN-END,
NON-DIVERSIFIED MANAGEMENT INVESTMENT COMPANY ORGANIZED AS A MASSACHUSETTS
BUSINESS TRUST ON SEPTEMBER 11, 1991, CURRENTLY CONSISTING OF FOUR SEPARATE
SERIES - THE FLORIDA SERIES, THE GEORGIA SERIES, THE MICHIGAN SERIES AND THE
PENNSYLVANIA SERIES. THE FLORIDA SERIES OFFERS TWO CLASSES OF SHARES: CLASS A
SHARES AND CLASS C SHARES. ALL OTHER SERIES OF THE FUND OFFER A SINGLE CLASS OF
SHARES ONLY: CLASS A SHARES. THE EXISTENCE OF A MULTI-CLASS STRUCTURE IN THE
FLORIDA SERIES PROVIDES INVESTORS WITH DIFFERENT INVESTMENT OPTIONS IN
PURCHASING SHARES OF A SERIES. SEE "INVESTMENT IN THE FLORIDA SERIES" UNDER
"PURCHASES" FOR A DESCRIPTION OF THESE CHOICES.
EACH SERIES SEEKS AS HIGH A LEVEL OF INTEREST INCOME EXEMPT FROM FEDERAL
INCOME TAX AND ITS RESPECTIVE STATE'S PERSONAL INCOME TAX, IF ANY, AS IS
CONSISTENT WITH REASONABLE RISK. EACH SERIES INVESTS IN INTERMEDIATE- AND
LONG-TERM MUNICIPAL BONDS WHICH CAN FLUCTUATE IN VALUE AS INTEREST RATES CHANGE.
AT PRESENT, FLORIDA IMPOSES NO INCOME TAX ON INDIVIDUALS. THERE CAN BE NO
ASSURANCE THAT EACH SERIES WILL ATTAIN ITS OBJECTIVE. THIS PROSPECTUS SETS FORTH
CONCISELY THE INFORMATION ABOUT THE FUND THAT A PROSPECTIVE INVESTOR SHOULD KNOW
BEFORE INVESTING. ADDITIONAL INFORMATION ABOUT THE FUND HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS AVAILABLE UPON REQUEST WITHOUT CHARGE.
THE STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS AND MAY BE OBTAINED, WITHOUT CHARGE, BY WRITING TO THE FUND OR BY
CALLING 800-874-3733 - ASK FOR "PART B OF THE PROSPECTUS -- THE STATEMENT OF
ADDITIONAL INFORMATION".
THE DATE OF THIS PROSPECTUS AND OF THE STATEMENT OF ADDITIONAL INFORMATION, IS
JULY 15, 1996.
PROSPECTUS
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS. SHAREHOLDER INQUIRIES SHOULD
BE MADE IN WRITING TO THE FUND OR BY CALLING 800-821-5129. YOU CAN ALSO MAKE
INQUIRIES THROUGH YOUR BROKER-DEALER.
SHARES OF THE SERIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
AN INVESTMENT IN THE SERIES INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
1 Investment Objective 2
2 Fee Table 2
3 Financial Highlights 3
4 How We Invest 4
5 Purchases 8
6 Shareholder Services 14
7 Our Management 15
8 Dividends, Capital Gains
Distributions and Taxes 16
9 Redemptions 19
10 Performance 19
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. Each Series may be sold in the following jurisdictions:
District of Columbia, Florida, Georgia, Hawaii, Indiana, New Jersey, New York
and Pennsylvania. The Michigan Series may also be sold in Michigan and Ohio.
<PAGE>
1 INVESTMENT OBJECTIVES
Our investment objective for each Series is to seek as high a level of interest
income exempt from federal income tax and its state's personal income tax, if
any, as is consistent with reasonable risk. For this purpose, "reasonable risk"
means that each Series over time will have a volatility approximating the Lehman
Brothers Current Coupon Long Index. Each Series invests in intermediate and
long-term municipal bonds (initially investment-grade or equivalent) and,
therefore, each Series' shares can fluctuate in value more than shares of a
short-term municipal bond fund, as interest rates change, but such fluctuation
ought to be consistent with an investment-grade, longer-term municipal bond
fund. Under normal circumstances, we intend to maintain the average dollar
weighted stated maturity of each Series at between ten and thirty-five years.
2 FEE TABLE
A summary of each Series' expenses is set forth in the table below. The example
is not a representation of past or future expenses. Actual expenses may be
greater or less than those shown.
<TABLE>
<CAPTION>
Florida Georgia Michigan Pennsylvania
Class A Class C Class A Class A Class A
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
(as a percentage of offering price)
Maximum Sales Load(1)
on Purchases (See "Purchases") 4.75%(2)(3) 4.75%(2) 4.75%(2) 4.75%(2) 4.75%(2)
Deferred Sales Load(1) (See
"Purchases") None(2) 1% if shares are None(2) None(2) None(2)
redeemed before 1st
anniversary of purchase.(2)(3)
Annual Fund Operating Expenses(4)
(after management fee waivers and
other expense subsidies)
Management Fee (See "Our Management") 0.50%(5) 0.50%(5) .00%(5) .00%(5) .36%(5)
12b-1 Fees (See "Purchases") 0.29%(2)(3) 0.91%(2)(6) .00%(2)(6) .00%(2)(6) .00%(2)(6)
Other Expenses (See "Our Management") 0.12% 0.12%(5) .00%(5) .25%(5) .14%(5)
Total Operating Expenses 0.91% 1.53% .00%(5) .25% .50%
<FN>
(1)Sales "load" is referred to as sales "charge" and "deferred sales load" is
referred to as "contingent deferred sales charge" (or "CDSC") and "12b-1 fees"
which consist of a "service fee" and a "distribution fee" are referred to by
either or both of these terms where appropriate with respect to Class A and
Class C shares throughout this Prospectus.
(2)See "Purchases" for descriptions of the Class A front-end sales charge, the
CDSC payable on certain redemptions of Class A shares and Class C shares
(offered by the Florida Series only) and separate Rule 12b-1 plans applicable to
Class A shares of each Series and Class C shares of the Florida Series.
(3)Although the Florida Series does not charge a front-end sales charge with
respect to its Class C shares, investors should be aware that long-term Class C
shareholders may pay, under the Rule 12b-1 plan applicable to the Class C shares
(which pays annual 0.25% service and 0.75% distribution fees), more than the
economic equivalent of the maximum front-end sales charge as permitted by
certain rules of the National Association of Securities Dealers, Inc. Likewise,
with respect to Class A shares of all Series, investors should be aware that,
long term, such maximum may be exceeded due to the Rule 12b-1 plan applicable to
the Class A shares which permits each Series to pay up to 0.50% in total annual
fees, half for service and the other half for distribution. The 12b-1 fee for
the Class A shares of the Florida Series has been restated to reflect the
estimated current fees under the recently amended Class A 12b-1 plan; the actual
12b-1 fees for such shares for the fiscal year ended October 31, 1995 were
0.26%.
(4)The annual operating expenses shown in the summary are the actual expenses
for the fiscal year ended October 31, 1995 except for the substitution of
estimated 12b-1 fees for Class A and Class C shares as explained in notes 2 and
3, and restatement of management fees of the Florida Series as explained in note
5.
(5)Although not obligated to, Lord, Abbett & Co. ("Lord Abbett") may waive a
portion of its management fee and assume other expenses with respect to the
Class A shares of the Series. It has waived all or a portion of its management
fee with respect to each of the Florida, Michigan and Pennsylvania Series during
the past year (and continues to do so for all but the Florida Series). The
management fee for the Florida Series has been restated to reflect current fees
as a result of the discontinuation of the fee waiver by Lord Abbett with respect
to such Series. Lord Abbett also subsidized expenses with respect to the Georgia
Series. The management fee would have been 0.50% for each Series, absent such
waiver. Without such waiver and subsidy, these expenses would have been .75%,
.64% and .91% (not annualized) for Michigan, Pennsylvania and Georgia,
respectively. Subsequently, Lord Abbett may charge these fees and not subsidize
these expenses on a partial or complete basis. Other expenses of the Michigan
Series include reimbursement of certain expenses previously subsidized by Lord
Abbett. See "Our Management".
(6)These figures omit Rule 12b-1 fees for the Georgia, Michigan and Pennsylvania
Series because the Fund cannot predict when the net assets of these Series will
reach the required level for effectiveness of each Series' Class A 12b-1 Plan.
The Plans will go into effect on the first day of the calendar quarter
subsequent to each Series' net assets reaching $100 million.
(7)Based on total operating expenses shown in the table above.
The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in each Series.
</FN>
</TABLE>
<PAGE>
3 FINANCIAL HIGHLIGHTS
The following tables have been audited by Deloitte & Touche llp, independent
public accountants, in connection with their annual audits of the Fund's
Financial Statements, whose report thereon is incorporated by reference in the
Statement of Additional Information and may be obtained on request, and have
been included herein in reliance upon their authority as experts in auditing and
accounting.
<TABLE>
<CAPTION>
Florida Series For the Period
September 25, 1991
(Commencement
Per Class A Share+ Operating Year Ended October 31, of Operations) to
Performance: 1995 1994 1993 1992 October 31, 1991
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $4.49 $5.28 $4.75 $4.76 $4.76
Income from investment operations
Net investment income .271 .291 .297 .308 .027++
Net realized and unrealized
gain on securities .352 (.695) .549 .002 .000
Total from investment operations .623 (.404) .846 .310 .027
Distributions
Dividends from net investment income (.2630) (.2835) (.301) (.320) (.027)
Distributions from net realized gain -- (.1025) (.015) .-- .--
Net asset value, end of period $4.85 $4.49 $5.28 $4.75 $4.76
Total Return* 14.22% (8.03)% 18.24% 6.65% .57%++
Ratios/Supplemental Data:
Net assets, end of period (000) $173,242 $174,844 $191,463 $121,408 $108,550
Ratios to Average Net Assets:
Expenses, including waiver .74% .32% .38% .29% .00%++
Expenses, excluding waiver .88% .82% .88% .78% 5.10%++
Net investment income 5.81% 5.98% 5.71% 5.84% .55%++
Portfolio turnover rate 142.04% 122.92% 89.32% 94.90% 100.00%
<FN>
* Total return does not consider the effects of sales loads.
+ The Series had only one class of shares prior to June 12, 1996.
That class of shares is now designated Class A shares.
++ Not annualized. See Notes to Financial Statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania Series For the Period
February 3, 1992
(Commencement
Per Class A Share+ Operating Year Ended October 31, of Operations) to
Performance: 1995 1994 1993 October 31, 1992
<S> <C> <C> <C> <C>
Net asset value, beginning of period $4.62 $5.33 $4.75 $4.76
Income from investment operations
Net investment income .282 .300 .299 .228++
Net realized and unrealized
gain (loss) on securities .395 (.6975) .582 (.006)
Total from investment operations .677 (.3975) .881 .222
Distributions
Dividends from net investment income (.2870) (.2925) (.301) (.232)
Distributions from net realized gain -- (.02) .-- .--
Net asset value, end of period $5.01 $4.62 $5.33 $4.75
Total Return* 15.02% (7.73)% 18.95% 4.68%++
Ratios/Supplemental Data:
Net assets, end of period (000) $93,494 $81,258 $82,113 $41,207
Ratios to Average Net Assets:
Expenses, including waiver .50% .33% .31% .00%++
Expenses, excluding waiver .65% .68% .81% .61%++
Net investment income 5.83% 5.98% 5.70% 4.42%++
Portfolio turnover rate 126.11% 137.22% 7.71% 32.66%
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Georgia Series Michigan Series
Michigan Series ---------------- -----------------------------------------------------------
Georgia Series For the Period For the Period
December 27, 1994 December 1, 1992
(Commencement of Year Ended (Commencement
Per Class A Share+ Operating Operations) to October 31, of Operations) to
Performance: October 31, 1995 1995 1994 October 31, 1993
<S> <C> <C> <C> <C>
Net asset value, beginning of period $4.76 $4.53 $5.23 $4.76
Income from investment operations
Net investment income .245++ .284 .286 .266++
Net realized and unrealized
gain on securities .370 .395 (.651) .480
Total from investment operations .615 .679 (.365) .746
Distributions
Dividends from net investment income (.255) (.279) (.2925) (.276)
Distributions from net realized gain -- -- (.0425) --
Net asset value, end of period $5.12 $4.93 $4.53 $5.23
Total Return* 13.15%++ 15.39% (7.29)% 16.01%++
Ratios/Supplemental Data:
Net assets, end of period (000) $5,203 $54,186 $45,603 $34,957
Ratios to Average Net Assets:
Expenses, including waiver .00%++ .25% .34% .00%++
Expenses, excluding waiver .91%++ .75% .84% .75%++
Net investment income 4.61%++ 5.95% 5.69% 4.75%++
Portfolio turnover rate 142.69% 98.89% 137.31% 68.10%
<FN>
*Total return does not consider the effects of sales loads.
+These shares of the Series are now designated Class A.
++Not annualized.
See Notes to Financial Statements.
</FN>
</TABLE>
4 HOW WE INVEST
Each Series invests primarily in a portfolio of intermediate-term (5-10 years)
to long-term (over 10 years) municipal bonds, the interest on which is exempt
from federal income tax in the opinion of bond counsel to the issuer. Except for
the Florida Series, the interest on the municipal bonds in which each Series
primarily invests also is exempt from its state's personal income tax, if any,
in the opinion of bond counsel to the issuer. At present, Florida imposes no
income tax on individuals. The per-share net asset value of each Series can be
expected to fluctuate inversely as interest rates change. When interest rates
rise, the value of securities in the portfolios, as well as the share values,
generally will fall. Conversely, when interest rates fall, the value of
securities in the portfolios and the share values generally will rise.
"Municipal bonds" used herein, and as more fully described in the Statement of
Additional Information, are debt obligations issued by or on behalf of states,
territories and possessions of the United States, including the District of
Columbia, Puerto Rico, the Virgin Islands and Guam, and their political
subdivisions, agencies and instrumentalities.
Each Series invests primarily in investment-grade municipal bonds rated at the
time of purchase within the four highest grades assigned by Moody's Investors
Service, Inc. ("Moody's"--Aaa, Aa, A, Baa), Standard & Poor's Ratings Services,
Inc. ("S&P"--AAA, AA, A, BBB) or Fitch Investors Service ("Fitch" - AAA, AA, A,
BBB). Each Series also may invest in unrated municipal bonds exempt from federal
income tax and its respective state's personal income tax, if any, which are
determined by Lord Abbett to be of comparable quality to the rated bonds in
which such Series may invest. At least 70% of the municipal bonds in each
portfolio must be rated within or, if unrated, equivalent to, at the time of
purchase, the three highest such grades. As much as 30% of the municipal bonds
in each Series' portfolio may be rated within, or, if unrated, equivalent to, at
the time of purchase, the fourth highest grade. Bonds of this grade, while
regarded as having an adequate capacity to pay interest and repay principal, are
considered to be of medium grade and have speculative characteristics. Changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade bonds. After a Series purchases a municipal bond, the issuer may
cease to be rated, or its rating may be reduced below the minimum required for
purchase, which could have an adverse effect on the market value of the issue.
Neither event will require the elimination of the issue from a Series'
portfolio.
<PAGE>
The Fund's internal policy restricts investments to municipal bonds which are
initially investment-grade, i.e., among the four highest grades mentioned above
or their equivalent, and we aim to provide above-average tax-free income
relative to comparable investment-grade, longer term municipal bond funds. In
view of this internal policy and because we manage the maturities of our
investments in accordance with our interest-rate expectations, we anticipate (i)
a higher level of tax-free income than a short-term, tax-free municipal bond
fund and (ii) a share value tending to fluctuate more than such a short-term
fund, but consistent with an investment-grade, longer term municipal bond fund.
The two principal classifications of municipal bonds are "general obligation"
and limited obligation or "revenue" bonds. General obligation bonds are secured
by the pledge of faith, credit and taxing power of the municipality. The taxes
or special assessments that can be levied for the payment of debt service may be
limited or unlimited as to the rate or amount. Revenue bonds are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise or other specific revenue
source. Industrial development bonds are in most cases revenue bonds and do not
generally constitute the pledge of the faith, credit or taxing power of the
municipality. The credit quality of such municipal bonds is usually directly
related to the credit standing of the user of the facilities. There are
variations in the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous factors.
Each Series may purchase new issues of municipal bonds which are generally
offered on a when-issued basis, with delivery and payment ("settlement")
normally taking place approximately one month after the purchase date. However,
the payment obligation and the interest rate to be received by the Series are
each fixed on the purchase date. During the period between purchase and
settlement, Series assets consisting of cash and/or high-grade marketable
securities, marked to market daily, of a dollar amount sufficient to make
payment at settlement will be segregated at our custodian. There is a risk that
market yields available at settlement may be higher than yields obtained on the
purchase date, which could result in depreciation of value. While we may sell
when-issued securities prior to settlement, we intend to actually acquire such
securities unless a sale appears desirable for investment reasons.
Under normal market conditions, each Series will attempt to invest 100% and, as
a matter of fundamental policy, will invest at least 80% of its net assets in
municipal bonds, the interest on which is exempt from federal income tax. Under
normal market conditions, each Series also will attempt to invest 100% and, as a
matter of fundamental policy, will invest at least 80% of its net assets in
municipal bonds, the interest on which is exempt from its state's personal
income taxes. At present, Florida does not impose a personal income tax. See
"Dividends, Capital Gains Distributions and Taxes".
Although normally each Series intends to be fully invested in intermediate to
long-term municipal bonds, a Series may temporarily invest in short-term
tax-exempt securities meeting the above-described quality standards and,
additionally, may temporarily put up to 20% of its assets in cash, in commercial
paper of comparable investment quality or in short-term obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government securities"), in order to improve liquidity or to create reserve
purchasing power. Because interest earned from commercial paper or U.S.
Government securities is taxable for federal income tax purposes, we intend to
minimize temporary investments in such short-term securities.
<PAGE>
Each Series may invest up to 20% of its net assets (less any amount invested in
the temporary taxable investments described above) in "private activity bonds."
Series dividends derived from interest on such bonds would be considered a
preference item for purposes of the computation of the alternative minimum tax.
Series dividends derived from such interest may increase the alternative minimum
tax liability of corporate shareholders who are subject to that tax based on the
excess of their adjusted current earnings over their taxable income.
Each Series intends to meet the diversification rules under Subchapter M of the
Internal Revenue Code. Generally, this requires, at the end of each quarter of
the taxable year, that (a) not more than 25% of each Series' total assets be
invested in any one issuer and (b) with respect to 50% of each Series' total
assets, not more than 5% of each Series' total assets be invested in any one
issuer except U. S. Government securities. Since under these rules each Series
may invest its assets in the securities of a limited number of issuers, the
value of each Series' investments may be more affected by any single adverse
economic, political or regulatory occurrence than in the case of a diversified
investment company under the Investment Company Act of 1940, as amended (the
"Act"). The identification of an "issuer" will be determined on the basis of the
source of assets and revenues committed to meeting interest and principal
payments of the securities. When the assets and revenues of a state's political
subdivision are separate from those of the state government creating the
subdivision, and the security is backed only by the assets and revenues of the
subdivision, then the subdivision would be considered the sole issuer.
Similarly, if a revenue bond is backed only by the assets and revenues of a
nongovernmental user, then such user would be considered the sole issuer.
No Series intends to invest more than 25% of its total assets in any industry,
except that each Series may, subject to the limits referred to in the preceding
three paragraphs, invest more than 25% of such assets in a combination of U.S
Government securities and in tax-exempt securities, including tax-exempt revenue
bonds whether or not the users of any facilities financed by such bonds are in
the same industry. Where nongovernmental users are in the same industry, there
may be additional risk to that Series in the event of an economic downturn in
such industry, which may result generally in a lowered ability of such users to
make payments on their obligations. Electric utility and health care are typical
but not all inclusive of the industries in which this 25% may be exceeded. The
former is relatively stable but subject to rate regulation vagaries. The latter
suffers from two main problems -- affordability and access. Tax-exempt
securities issued by governments or political subdivisions of governments are
not considered part of any "industry."
Each Series may invest up to 20% of its net assets in residual interest bonds
("RIBs") to enhance and increase portfolio duration. None of the Series invested
more than 15% of its net assets in RIBs at any time during the fiscal year ended
October 31, 1995. A RIB, sometimes referred to as an inverse floater, is a debt
instrument with a floating or variable interest rate that moves in the opposite
direction of the interest rate on another security. Changes in the interest rate
on the other security inversely affect the residual interest rate paid on the
RIB, with the result that when interest rates rise, RIBs' interest payments are
lowered and their value falls faster than other similar fixed-rate bonds. In an
effort to mitigate this risk, the Fund purchases other fixed-rate bonds which
are less volatile. When interest rates fall, not only do RIBs provide interest
<PAGE>
payments that are higher than other similar fixed-rate bonds, but their values
also rise faster than other similar fixed-rate bonds.
Each Series may invest up to 15% of its net assets in illiquid securities. Bonds
determined by the Trustees to be liquid pursuant to Securities and Exchange
Commission Rule 144A ("Rule 144A") will not be subject to this limit.
Investments by a Series in Rule 144A securities initially determined to be
liquid could have the effect of diminishing the level of such Series' liquidity
during periods of decreased market interest in such securities. Under Rule 144A,
a qualifying security may be resold to a qualified institutional buyer without
registration and without regard to whether the seller originally purchased the
security for investment.
No Series may borrow money, except that (i) each Series may borrow from banks
(as defined in the Act) in amounts up to 33 1/3% of its total assets (including
the amount borrowed), (ii) each Series may borrow up to an additional 5% of its
total assets for temporary purposes, and (iii) each Series may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities.
Portfolio Turnover. Portfolio turnover rates for the fiscal year ended October
31, 1995 for the Florida, Michigan and Pennsylvania Series were 142.04%, 98.89%
and 126.11%, respectively, compared to 122.36%, 137.31% and 137.22% for the
prior fiscal year. Turnover rates changed due to increases or decreases in
purchases and sales of portfolio securities relating to purchases and
redemptions of our shares and some portfolio restructuring. The portfolio
turnover rate for the Georgia Series for the period December 27, 1994 to October
31, 1995 was 142.69%.
Options and Financial Futures Transactions. Each Series may deal in options on
securities, securities indexes and financial futures transactions, including
options on financial futures. The Series may write (sell) covered call options
and secured put options on up to 25% of its net assets and may purchase put and
call options provided that no more than 5% of its net assets may be invested in
premiums on such options.
None of the Series is currently employing any of the options and financial
futures transactions described above.
Risk Factors. Securities in which we may invest are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors and laws which may be enacted extending the time of payment of
principal and interest, or both. There is also the possibility that, as a result
of litigation or other conditions, the power or ability of issuers to meet their
obligations for payment of principal and interest may be materially affected or
their obligations may be found to be invalid or unenforceable.
The ability of each Series to achieve its objective is based on the expectation
that the issuers of the municipal bonds in each Series' portfolio will continue
to meet their obligations for the payment of principal and interest. The
following are brief summaries of certain factors affecting the Florida, Georgia,
Michigan and Pennsylvania Series. Also, there follows a brief summary regarding
Puerto Rico bonds which may be purchased by each Series. These summaries do not
purport to be complete and are based upon information derived from
publicly-available documents relating to each state involved, which information
has not been independently verified by the Fund. For more detailed discussions
of the risks applicable to each Series, see the Statement of Additional
Information.
Florida Bonds-Risk Factors. Florida, in terms of population, is one of the
largest states in the United States. The State has grown dramatically since
1980. Its population includes a large proportion of senior citizens who have
moved to the State after retirement. Recently, the share of the State's working
age population (18-59) to total State population was approximately 54%. That
share is not expected to change appreciably into the twenty-first century.
Because Florida has a proportionally greater retirement age population than the
rest of the nation and the southeast, property income (dividends, interest and
rent) and transfer payments (Social Security and pension benefits, among other
sources of income) are a relatively more important source of income. Through the
1980s, Florida's unemployment rate was below that of the rest of the nation.
Since 1989, however, it has been higher than the national average. Florida's
dependency on the highly cyclical construction and construction-related
manufacturing sectors has declined. Tourism is now one of Florida's most
important industries. Over the years, this industry has become more
sophisticated, attracting visitors year-round, thus, to a degree, reducing its
seasonality. Florida's Constitution permits issuance of State bonds pledging the
full faith and credit of the State, with the vote of the electors, to finance or
refinance fixed-capital outlay projects. Revenue Bonds may be issued by the
State or its agencies without a vote of Florida's electors only to finance or
refinance the cost of State fixed-capital outlay projects which shall be payable
solely from funds derived directly from sources other than State tax revenues.
<PAGE>
Georgia Bonds-Risk Factors. The largest sources of employment in Georgia, in
descending order, are wholesale and retail trade; services; manufacturing;
government; transportation and other public utilities contract construction;
finance; insurance and real estate; and mining. The largest sources of
government revenues are the State's personal income tax and general sales and
use tax.
Michigan Bonds-Risk Factors. Michigan's economy remains heavily concentrated in
the manufacturing sector, although the relative percentage of total employment
accounted for by manufacturing has declined in recent years. Despite the
contraction of the automobile industry in the State, it has remained the most
significant portion of the State's manufacturing sector. The State's per capita
income stands slightly below the national level and the State's unemployment
rate stands at the national average.
The State has had deficits carried forward during recent fiscal years,
but showed a surplus in fiscal 1993.
Pennsylvania Bonds-Risk Factors. The Commonwealth of Pennsylvania is one of the
most populous states, ranking fifth behind California, New York, Texas, and
Florida. Pennsylvania is an established, yet growing, state with a diversified
economy. It is headquarters for 60 major corporations and the home for more than
272,764 businesses. Pennsylvania has been historically identified as a
heavy-industry state, although that reputation has recently changed as the
industrial composition of Pennsylvania diversified when the coal, steel and
railroad industries began to decline. The major new sources of growth are in the
service sector, including trade, medical and health services, education and
financial institutions. Pennsylvania is highly urbanized, with approximately 79%
of the Commonwealth's total population contained in the metropolitan areas which
include the cities of Philadelphia and Pittsburgh.
Pennsylvania's natural resources include major deposits of coal, oil, gas and
limestone. Its workforce is more than 5.9 million, ranking as the sixth largest
labor pool in the nation.
After experiencing operating deficits in fiscal 1990 and 1991, for fiscal 1992,
1993 and 1994 the Commonwealth's General Fund recorded an operating surplus. As
a result of that surplus, the fund balance has increased and the
unreserved-undesignated fund deficit that existed in 1992 has been eliminated.
Puerto Rico-Risk Factors. The Fund may have significant investments in bonds
issued by the Commonwealth of Puerto Rico and its instrumentalities. The economy
of Puerto Rico is dominated by diversified manufacturing and service sectors. It
is closely integrated, through extensive trade, with that of the mainland United
States, and its economic health is closely tied to the price of oil and the
state of the U.S. economy. Puerto Rico has a rate of unemployment exceeding the
U.S. average.
5 PURCHASES
GENERAL
How Much Must You Invest? You may buy our shares through any independent
securities dealer having a sales agreement with Lord Abbett Distributor LLC
("Lord Abbett Distributor"), our exclusive selling agent. Place your order with
your investment dealer or send it to Lord Abbett Tax-Free Income Trust (P.O. Box
419100, Kansas City, Missouri 64141). The minimum initial investment is $1,000
except for Invest-A-Matic and Div-Move ($250 initial and $50 monthly minimum)
and Retirement Plans ($250 minimum). See "Shareholder Services". For information
regarding proper form of a purchase or redemption order, call the Fund at
800-821-5129. This offering may be suspended, changed or withdrawn. Lord Abbett
Distributor reserves the right to reject any order.
The net asset values of our shares are calculated every business day as of the
close of the New York Stock Exchange ("NYSE") by dividing net assets by the
number of shares outstanding. Securities are valued at their market value, as
more fully described in the Statement of Additional Information.
<PAGE>
Buying Shares Through Your Dealer. Orders for shares received by the Fund prior
to the close of the NYSE, or received by dealers prior to such close and
received by Lord Abbett Distributor in proper form prior to the close of its
business day, will be confirmed at the applicable public offering price
effective at such NYSE close. Orders received by dealers after the NYSE closes
and received by Lord Abbett Distributor prior to the close of its next business
day are executed at the applicable public offering price effective as of the
close of the NYSE on that next business day. The dealer is responsible for the
timely transmission of orders to Lord Abbett. A business day is a day on which
the NYSE is open for trading.
Lord Abbett Distributor may, for specified periods, allow dealers to retain the
full sales charge for sales of shares during such period, or pay an additional
concession to a dealer who, during a specified period, sells a minimum dollar
amount of our shares and/or shares of other Lord Abbett-sponsored funds. In some
instances, such additional concessions will be offered only to certain dealers
expected to sell significant amounts of shares. Lord Abbett Distributor may from
time to time implement promotions under which Lord Abbett Distributor will pay a
fee to dealers with respect to certain purchases not involving imposition of a
sales charge. Additional payments may be paid from Lord Abbett Distributor's own
resources and will be made in the form of cash or, if permitted, non-cash
payments. The non-cash payments will include business seminars at resorts or
other locations, including meals and entertainment, or the receipt of
merchandise. The cash payments will include payment of various business expenses
of the dealer.
In selecting dealers to execute portfolio transactions, if two or more dealers
are considered capable of providing best execution, we may prefer the dealer who
has sold our shares and/or shares of other Lord Abbett-sponsored funds.
Florida Series. The Florida Series offers investors Class A and Class C shares.
The different classes of shares represent investments in the same portfolio of
securities but are subject to different expenses and will be likely to have
different share prices. Investors considering an investment in the Florida
Series should pay particular attention to the sections below headed "Investment
in the Florida Series", "Buying Class A shares" and "Buying Class C shares".
Georgia, Michigan and Pennsylvania Series. Each of the above Series is a
single-class series, offering Class A shares only. Investors considering an
investment in any of the above Series should read the section below headed
"Buying Class A shares" carefully.
Investment in the Florida Series. Investors in the Florida Series should read
this section carefully to determine which class represents the best investment
option for their particular situation.
Class A Shares. If you buy Class A shares of any Series, you pay an initial
sales charge on investments of less than $1 million (or on investments for
employer-sponsored retirement plans under the Internal Revenue Code (hereinafter
referred to as "Retirement Plans") with less than 100 eligible employees). If
you purchase Class A shares of the Florida Series as part of an investment of at
least $1 million (or for Retirement Plans with at least 100 eligible employees)
in shares of one or more Lord Abbett-sponsored funds, you will not pay an
initial sales charge, but if you redeem any of those shares within 24 months
after the month in which you buy them, you may pay to the Florida Series a
contingent deferred sales charge ("CDSC") of 1%. The Florida Series Class A
shares are subject to service and distribution fees that are currently estimated
to total annually approximately 0.29 of 1% of the annual net asset value of the
Class A shares. Until the Rule 12b-1 Plans of the Georgia, Michigan and
Pennsylvania Series becomes operative, all purchases (including those over $1
million) are subject to an initial sales charge but not to service and
distribution fees.
<PAGE>
The initial sales charge rates, the CDSC and the Rule 12b-1 Plans applicable to
the Class A shares are described in "Buying Class A Shares" below.
Class C Shares. If you buy Class C shares (offered only by the Florida Series),
you pay no sales charge at the time of purchase, but if you redeem your shares
before the first anniversary of buying them, you will normally pay the Florida
Series a CDSC of 1%. Class C shares are subject to service and distribution fees
at an annual rate of 1% of the annual net asset value of the Class C shares. The
CDSC and the Rule 12b-1 Plan applicable to the C shares are described in "Buying
Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Florida Series
is an appropriate investment for you, the decision as to which class of shares
is better suited to your needs depends on a number of factors which you should
discuss with your financial adviser. The Series' class-specific expenses and the
effect of the different types of sales charges on your investment will affect
your investment results over time. The most important factors are how much you
plan to invest and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional shares, you
should re-evaluate those factors to see if you should consider another class of
shares.
In the following discussion, to help provide you and your financial adviser with
a framework in which to choose a class, we have made some assumptions using a
hypothetical investment in the Series. We used the sales charge rates that apply
to Class A and Class C, and considered the effect of the higher distribution fee
on Class C expenses (which will affect your investment return). Of course, the
actual performance of your investment cannot be predicted and will vary, based
on the Series' actual investment returns, the operating expenses borne by each
class of shares, and the class of shares you purchase. The factors briefly
discussed below are not intended to be investment advice, guidelines or
recommendations, because each investor's financial considerations are different.
The discussion below of the factors to consider in purchasing a particular class
of shares assumes that you will purchase only one class of shares and not a
combination of shares of different classes.
How Long Do You Expect to Hold Your Investment? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold your
investment will assist you in selecting the appropriate class of shares. For
example, over time, the reduced sales charges available for larger purchases of
Class A shares may offset the effect of paying an initial sales charge on your
investment, compared to the effect over time of higher class-specific expenses
on Class B or Class C shares for which no initial sales charge is paid. Because
of the effect of class-based expenses, your choice should also depend on how
much you plan to invest.
Investing for the Short Term. If you have a short-term investment horizon (that
is, you plan to hold your shares for not more than six years), Class C shares
might be the appropriate choice (especially for investments of less than
$100,000), because there is no initial sales charge on Class C shares, and the
CDSC does not apply to amounts you redeem after holding them one year.
However, if you plan to invest more than $100,000 for the short term, then the
more you invest and the more your investment horizon increases toward six years,
the more attractive the Class A share option may become. This is because the
annual distribution fee on Class C shares will have a greater impact on your
account over the longer term than the reduced front-end sales charge available
for larger purchases of Class A shares. For example, Class A might be more
appropriate than Class C for investments of more than $100,000 expected to be
held for 5 or 6 years (or more). For investments over $250,000 expected to be
held 4 to 6 years (or more), Class A shares may become more appropriate than
Class C. Although we believe you ought to have a long-term investment horizon,
if you are investing $500,000 or more, Class A may become more desirable as your
investment horizon approaches 3 years or more.
For most investors who invest $1 million or more or for Retirement Plans with at
least 100 eligible employees, in most cases Class A shares will be the most
advantageous choice, no matter how long you intend to hold your shares. For that
reason, Lord Abbett Distributor normally will not
<PAGE>
accept purchase orders for Class C shares from a single investor (i) for
$500,000 or more or (ii) for Retirement Plans with at least 100 eligible
employees.
Investing for the Longer Term. If you plan to invest more than $100,000 in the
Florida Series over the long term, Class A shares will likely be more
advantageous than Class C shares, as discussed above, because of the effect of
the expected lower expenses for Class A shares and the reduced initial sales
charges available for larger investments in Class A shares under the Fund's
Rights of Accumulation. Of course, these examples are based on approximations of
the effect of current sales charges and expenses on a hypothetical investment
over time, and should not be relied on as rigid guidelines.
Are There Differences in Account Features That Matter to You? Some account
features are available in whole or in part to Class A and Class C shareholders.
Other features (such as Systematic Withdrawal Plans) might not be advisable for
Class C shareholders during the first year of share ownership (due to the CDSC
on withdrawals during that year). You should carefully review how you plan to
use your investment account before deciding which class of shares you buy. For
example, the dividends payable to Class C shareholders will be reduced by the
expenses borne solely by that class, such as the higher distribution fee to
which Class C shares are subject, as described below.
How Does It Affect Payments to My Broker? A salesperson, such as a broker, or
any other person who is entitled to receive compensation for selling Fund shares
may receive different compensation for selling one class than for selling
another class. As discussed in more detail below, such compensation is primarily
paid at the time of sale in the case of Class A shares and is paid over time, so
long as shares remain outstanding, in the case of Class C shares. It is
important that investors understand that the primary purpose of the CDSC and
distribution fee for Class C shares is the same as the primary purpose of the
front-end sales charge on sales of Class A shares: to compensate brokers and
other persons selling such shares. The CDSC, if payable, reduces the Class C
distribution fee expenses for the Fund and Class C shareholders.
BUYING CLASS A SHARES (ALL SERIES).
For each Series, the offering price of Class A shares is based on the per-share
net asset value next computed after your order is accepted, plus a sales charge
as follows.
<TABLE>
<CAPTION>
Sales Charge as a Dealer's
Percentage of: Concession
as a To Compute
Net Percentage Offering
Offering Amount of Offering Price, Divide
Size of Investment Price Invested Price NAV by
<S> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.00% .9525
$50,000 to $99,999 4.75% 4.99% 4.25% .9525
$100,000 to $249,999 3.75% 3.90% 3.25% .9625
$250,000 to $499,999 2.75% 2.83% 2.50% .9725
$500,000 to $999,999 2.00% 2.04% 1.75% .9800
$1,000,000 or more No Sales Charge 1.00%+ .9900
<FN>
+Authorized institutions receive concessions on purchases made by a $1 million
or more purchaser or a Retirement Plan with at least 100 eligible employees
within a 12-month period (beginning with the first net asset value purchase) as
follows: 1.00% on purchases of $5 million, 0.55% of the next $5 million, 0.50%
of the next $40 million and 0.25% on purchases over $50 million. See "Class A
Rule 12b-1 Plan" below. </FN> </TABLE>
<PAGE>
Class A Share Volume Discounts. This section describes several ways to qualify
for a lower sales charge when purchasing Class A shares if you inform Lord
Abbett or the Fund that you are eligible at the time of purchase.
(1) Any purchaser (as described below) may aggregate a Class A share purchase in
the Fund with share purchases of any other eligible Lord Abbett-sponsored fund,
together with the current value at maximum offering price of any shares in the
Fund and in any eligible Lord Abbett-sponsored funds held by the purchaser.
(Holdings in the following funds are not eligible for the above rights of
accumulation: Lord Abbett Equity Fund ("LAEF"), Lord Abbett Series Fund
("LASF"), the other series of the Lord Abbett Research Fund if not offered to
the general public ("LARF") and Lord Abbett U.S. Government Securities Money
Market Fund ("GSMMF"), except for existing holdings in GSMMF which are
attributable to shares exchanged from a Lord Abbett-sponsored fund.) (2) A
purchaser may sign a non-binding 13-month statement of intention to invest
$100,000 or more in the Fund or in any of the above eligible funds. If the
intended purchases are completed during the period, each purchase will be at the
sales charge, if any, applicable to the aggregate of such purchaser's intended
purchases. If not completed, each purchase will be at the sales charge for the
aggregate of the actual purchases. Shares issued upon reinvestment of dividends
or distributions are not included in the statement of intention. The term
"purchaser" includes (i) an individual, (ii) an individual and his or her spouse
and children under the age of 21 and (iii) a trustee or other fiduciary
purchasing shares for a single trust estate or single fiduciary account
(including a pension, profit-sharing, or other employee benefit trust qualified
under Section 401 of the Internal Revenue Code -- more than one qualified
employee benefit trust of a single employer, including its consolidated
subsidiaries, may be considered a single trust, as may qualified plans of
multiple employers registered in the name of a single bank trustee as one
account), although more than one beneficiary is involved.
Class A Share Net Asset Value Purchases. Each Series' Class A 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 Distributor who consents to
such purchases or by the trustee or custodian under any pension or
profit-sharing plan or Payroll Deduction IRA established for the benefit of such
persons or for the benefit of any national securities trade organization to
which Lord Abbett or Lord Abbett Distributor belongs or any company with an
account(s) in excess of $10 million managed by Lord Abbett on a
private-advisory-account basis. For purposes of this paragraph, the terms
"trustees" and "employees" include a trustees' or employees' 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, (b) with dividends and distributions from other Lord
Abbett-sponsored funds, except for dividends and distributions on shares of
LARF, LAEF and LASF, (c) under the loan feature of the Lord Abbett-sponsored
prototype 403(b) plan for share purchases representing the repayment of
principal and interest, (d) by certain authorized brokers, dealers, registered
investment advisers or other financial institutions who have entered into an
agreement with Lord Abbett Distributor in accordance with certain standards
approved by Lord Abbett Distributor, 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, (e) by employees, partners and owners of unaffiliated consultants
and advisers to Lord Abbett, Lord Abbett Distributor or Lord Abbett-sponsored
funds who consent to such purchase if such persons provide services to Lord
Abbett or Lord Abbett Distributor on such funds on a continuing basis and are
familiar with such funds, (f) through retirement plans with at least 100
eligible employees and (g) 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 or Lord Abbett Distributor
(other than a money market fund), if such redemptions have occurred no more than
60 days prior to the purchase of our shares, the Redeemed Shares were held for
at least six months prior to redemption and the proceeds of redemption were
maintained in cash or a money market fund prior to purchase. Purchasers should
consider the impact, if any, of contingent deferred sales charges in determining
whether to redeem shares for subsequent investment in our shares. Lord Abbett
Distributor may suspend or terminate the purchase option referred to in (g)
above at any time. Our Class A shares may be issued at net asset value in
exchange for the assets, subject to possible tax adjustments, of a personal
holding company or an investment company.
<PAGE>
Class A Rule 12b-1 Plan. Each Series has adopted a Class A share Rule 12b-1 Plan
(the "A Plans", each an "A Plan") which authorizes Lord Abbett to pay fees to
authorized institutions in order to provide additional incentives for them (a)
to provide continuing information and investment services to those shareholder
accounts and otherwise to encourage their accounts to remain invested in the
Series and (b) to sell Class A shares of the Series. The A Plan fees indicated
below will become operative on the first day (the "operative date") of the
calendar quarter subsequent to a Series' net assets reaching $100 million. The
Fund cannot estimate when the net assets will reach the required level for the A
Plans of the Georgia, Michigan and Pennsylvania Series. Under the A Plans, in
order to save on the expense of shareholders meetings and to provide flexibility
to the Board of Trustees, the Board, including a majority of the outside
trustees who are not "interested persons" of the Fund as defined in the
Investment Company Act of 1940, is authorized to approve annual fee payments
from our Class A assets of up to 0.50 of 1% of the average net asset value of
such assets consisting of distribution and service fees, each at a maximum
annual rate not exceeding 0.25 of 1% (the "Fee Ceiling").
Under the A Plans, the Board has approved payments (after the operative date of
a plan) by the Fund to Lord Abbett Distributor which uses or passes on to
authorized institutions (1) an annual service fee (payable quarterly) of .25% of
the average daily net asset value of the Class A shares serviced by authorized
institutions; and (2) a one-time distribution fee of up to 1% (reduced according
to the following schedule: 1% of the first $5 million, .55% of the next $5
million, .50% of the next $40 million and .25% over $50 million), payable at the
time of sale on all Class A shares sold during any 12-month period starting from
the day of the first net asset value sale (i) at the $1 million level by
authorized institutions, including sales qualifying at such level under the
rights of accumulation and statement of intention privileges; or (ii) through
Retirement Plans with at least 100 eligible employees. In addition, the Board
has approved for those authorized institutions which qualify, a supplemental
annual distribution fee equal to 0.10% of the average daily net asset value of
the Class A shares serviced by authorized institutions which have a satisfactory
program for the promotion of such shares comprising a significant percentage of
the Class A assets, with a lower than average redemption rate. Institutions and
persons permitted by law to receive such fees are "authorized institutions".
Under the A Plans, Lord Abbett Distributor is permitted to use payments received
to provide continuing services to Class A shareholder accounts not serviced by
authorized institutions and, with Board approval, to finance any activity which
is primarily intended to result in the sale of Class A shares. Any such payments
are subject to the Fee Ceiling. Any payments under the A Plan not used by Lord
Abbett Distributor in this manner are passed on to authorized institutions.
Holders of shares on which the 1% sales distribution fee has been paid
may be required to pay to the Series, on behalf of its Class A shares, a CDSC of
1% of the original cost or the then net asset value, whichever is less, of all
Class A shares so purchased which are redeemed out of the Lord Abbett-sponsored
family of funds on or before the end of the twenty-fourth month after the month
in which the purchase occurred. (An exception is made for redemptions by
Retirement Plans due to any benefit payment such as Plan loans, hardship
withdrawals, death, retirement or separation from service with respect to plan
participants or the distribution of any excess contributions.) If the Class A
shares have been exchanged into another Lord Abbett series or fund and are
thereafter redeemed out of the Lord Abbett family on or before the end of such
twenty-fourth month, the charge will be collected for the Series by the other
Series or fund. Each Series will collect such a charge for other Series and
other Lord Abbett-sponsored funds in a similar situation. Shares of a fund or
series on which the 1% sales distribution fee has been paid may not be exchanged
into a fund or series with a Rule 12b-1 Plan for which the payment provisions
have not been in effect for at least one year.
<PAGE>
Buying Class C Shares (Florida Series Only) Class C shares are sold at net asset
value per share without an initial sales charge. However, if Class C shares are
redeemed for cash before the first anniversary of their purchase, a CDSC of 1%
may be deducted from the redemption proceeds. The charge will be assessed on the
lesser of the net asset value of the shares at the time of redemption or the
original purchase price. The CDSC is not imposed on the amount of your account
value represented by the increase in net asset value over the initial purchase
price (including increases due to the reinvestment of dividends and capital
gains distributions). The Class C CDSC is paid to the Florida Series to
reimburse it, in whole or in part, for the service and distribution fee payment
made by the Florida Series at the time such shares were sold, as described
below.
To determine whether the CDSC applies to a redemption, the Florida Series
redeems shares in the following order: (1) shares acquired by reinvestment of
dividends and capital gains distributions, (2) shares held for one year or more,
and (3) shares held the longest before the first anniversary of their purchase.
If Class C shares are exchanged into the same class of another Lord
Abbett-sponsored fund and subsequently redeemed before the first anniversary of
their original purchase, the charge will be collected by the other fund on
behalf of the Florida Series' Class C shares. The Series will collect such a
charge for other Lord Abbett-sponsored funds in a similar situation.
Class C Rule 12b-1 Plan. The Florida Series has adopted a Class C share Rule
12b-1 Plan (the "C Plan") under which (except as to certain accounts for which
tracking data is not available) the Florida Series pays authorized institutions
through Lord Abbett Distributor (1) a service fee and a distribution fee, at the
time shares are sold, not to exceed 0.25 and 0.75 of 1%, respectively, of the
net asset value of such shares and (2) at each quarter-end after the first
anniversary of the sale of shares, fees for services and distribution at annual
rates not to exceed 0.25 and 0.75 of 1%, respectively, of the average annual net
asset value of such shares outstanding (payments with respect to shares not
outstanding during the full quarter to be prorated). These service and
distribution fees are for purposes similar to those mentioned above with respect
to the A Plans. Sales in clause (1) exclude shares issued for reinvested
dividends and distributions and shares outstanding in clause (2) include shares
issued for reinvested dividends and distributions after the first anniversary of
their issuance. Lord Abbett Distributor may retain from the quarterly
distribution fee, for the payment of distribution expenses incurred directly by
it, an amount not to exceed .10% of the average annual net asset value of such
shares outstanding.
6 SHAREHOLDER SERVICES
We offer the following shareholder services:
Telephone Exchange Privilege: Shares of any Series may be exchanged, without a
service charge, (a) for those of any other Series or any available Lord
Abbett-sponsored fund, except for (i) LAEF, LASF and LARF and (ii) certain
tax-free, single-state series where the exchanging shareholder is a resident of
a state where such shares are not offered for sale and (b) for shares of any
authorized institution's affiliated money market fund satisfying Lord Abbett
Distributor as to certain omnibus account and other criteria (together,
"Eligible Funds").
<PAGE>
You or your representative with proper identification can instruct the Fund to
exchange uncertificated shares by telephone. Shareholders have this privilege
unless they refuse it in writing. The Fund will not be liable for following
instructions communicated by telephone that it reasonably believes to be genuine
and will employ reasonable procedures to confirm that instructions received are
genuine, including requesting proper identification and recording all telephone
exchanges. Instructions must be received by the Fund in Kansas City
(800-821-5129) prior to the close of the NYSE to obtain each fund's net asset
value per share on that day. Expedited exchanges by telephone may be difficult
to implement in times of drastic economic or market changes. The exchange
privilege should not be used to take advantage of short-term swings in the
market. The Fund reserves the right to terminate or limit the privilege of any
shareholder who makes frequent exchanges. The Fund can revoke the privilege for
all shareholders upon 60 days' prior written notice. A prospectus for the other
Lord Abbett-sponsored fund selected by you should be obtained and read before an
exchange. Exercises of the Exchange Privilege will be treated as sales for
federal income tax purposes and, depending on the circumstances, a capital gain
or loss may be recognized.
Systematic Withdrawal Plan ("SWP"): If the maximum offering price value of your
non-certificated shares is at least $10,000, you may have periodic cash
withdrawals automatically paid to you in either fixed or variable amounts. For
Class C shares (Florida series only), redemption proceeds due to a SWP will be
derived from the following sources in the order listed: (1) shares acquired by
reinvestment of dividends and capital gains; (2) shares held for one year or
more; and (3) shares held the longest before the first anniversary of their
purchase.
Div-Move: You can invest the dividends paid on your account ($50 minimum monthly
investment) into an existing account in any other Eligible Fund. The account
must be either your account, a joint account for you and your spouse, a single
account for your spouse or a custodial account for your minor child under the
age of 21. Such dividends are not subject to a CDSC. You should read the
prospectus of the other fund before investing.
Invest-A-Matic: Invest-A-Matic allows fixed, periodic investments ($50 minimum
investment) into the Fund and/or any Eligible Fund by means of automatic money
transfers from your bank checking account. You should read the prospectus of the
other fund before investing.
Householding: A single copy of an annual or semi-annual report will be sent to
an address to which more than one registered shareholder of the Fund with the
same last name has indicated mail is to be delivered, unless additional reports
are specifically requested in writing or by telephone.
All correspondence should be directed to Lord Abbett Tax-Free Income Trust (P.O.
Box 419100, Kansas City, Missouri 64141).
7 OUR MANAGEMENT
Our business is managed by our officers on a day-to-day basis under the overall
direction of our Board of Trustees with the advice of Lord Abbett. We employ
Lord Abbett as investment manager for each Series, pursuant to a Management
Agreement. Lord Abbett has been an investment manager for over 65 years and
currently manages approximately $19 billion in a family of mutual funds and
advisory accounts. Under the Management Agreement, Lord Abbett provides us with
investment management services and personnel, pays the remuneration of our
officers and of our Trustees affiliated with Lord Abbett, provides us with
office space and pays for ordinary and necessary office and clerical expenses
relating to research, statistical work and supervision of our portfolios and
certain other costs. Lord Abbett provides similar services to fifteen other
funds having various investment objectives and also advises other investment
clients. Zane E. Brown, Lord Abbett Director in charge of Fixed Income is
primarily responsible for the day-to-day management of the Series. Prior
<PAGE>
to Mr. Brown, Robert S. Dow, Lord Abbett
Partner in charge of Fixed Income, had such primary responsibility and had acted
in this capacity since each Series' inception. Mr. Brown is assisted by (as was
Mr. Dow), and may delegate management duties to, other Lord Abbett employees who
may be Fund officers. Prior to joining Lord Abbett in 1992, Mr. Brown was
Executive Vice President in charge of fixed income at Equitable Capital
Management Co.
Under the Management Agreement, we are obligated to pay Lord Abbett a monthly
fee at the annual rate of .50 of 1% of average daily net assets of each Series
for each month. For the fiscal year ended October 31, 1995 Lord Abbett waived
$248,100, $126,160 and $249,286 in management fees for the Florida, Pennsylvania
and Michigan Series, respectively. For the period December 27, 1994 to October
31, 1995 Lord Abbett waived $13,900 in management fees for the Georgia Series.
As of July 12, 1996, Lord Abbett will discontinue this fee waiver with respect
to the Florida Series, and the full annual fee of .50 of 1% will be charged to
such Series. In addition, we pay all expenses not expressly assumed by Lord
Abbett. Our Class A share ratios of expenses, including management fee expenses,
to average net assets for the fiscal year ended October 31, 1995 were .74%, .50%
and .25% for the Florida, Pennsylvania and Michigan Series, respectively. The
Class A share expense ratios for these Series would have been .88%, .64% and
.75%, respectively, had Lord Abbett not waived all or a portion of its
management fee. Our Class A share ratios of expenses, including management fee
expenses, to average net assets for the period December 27, 1994 to October 31,
1995 was .00% for the Georgia Series. Lord Abbett waived management fees and
subsidized expenses with respect to the Georgia Series. Without such subsidy the
Class A share expense ratio would have been .91% (not annualized).
The Agreement provides for each Series to repay Lord Abbett without interest for
any expenses assumed by Lord Abbett on and after the first day of the calendar
quarter after the net assets of each such Series first reach $50 million
("commencement date"), to the extent that the expense ratio of each Series
(determined before taking into account any fee waiver or expense assumption) is
less than .85%. Commencing with the first day of the calendar quarter after the
net assets of the Series first reach $100 million, such repayments shall be made
to the extent that such expense ratio so determined is less than 1.05%. The
Series shall not be obligated to repay any such expenses after the earlier of
the termination of the Agreement or the end of five full fiscal years after the
commencement date. The Series will not record as obligations in their financial
statements any expenses which may be repaid to Lord Abbett under this repayment
formula unless such repayment is probable at the time. If such repayment is not
probable, the Series will disclose in a note to their financial statements that
such repayments are possible.
The Fund does not hold regular annual meetings and expects to hold meetings of
shareholders only when necessary under applicable law or the terms of the Fund's
Declaration of Trust. Under the Declaration of Trust, a shareholders' meeting
may be called at the request of the holders of one-quarter of the outstanding
stock entitled to vote. See the Statement of Additional Information for more
details.
The Fund. The Fund was organized as a Massachusetts business trust on September
11, 1991. Each outstanding share of a Series has one vote on all matters voted
upon by that Series and an equal right to dividends and distributions of that
Series. All shares have noncumulative voting rights for the election of
trustees, and shares of each class have equal rights as to voting, dividends,
assets and liquidation, except for differences resulting from class-specific
expenses.
8 DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Dividends from net investment income may be taken in cash or reinvested in
additional shares at net asset value without a sales charge. If you elect a cash
payment (i) a check will be mailed to you as soon as possible after the monthly
reinvestment date or (ii) if you arrange for direct deposit, your payment will
be wired directly to your bank account within one day after the payable date.
You begin earning dividends on the business day on which payment for the
purchase of your shares is received.
<PAGE>
A long-term capital gains distribution is made when we have net profits during
the year from sales of securities which we have held more than one year. If we
realize net short-term capital gains, they also will be distributed. It is
anticipated that any capital gains will be distributed in November. You may take
them in cash or additional shares at net asset value without a sales charge.
Supplemental dividends and distributions may be paid in December or January.
Dividends and distributions declared in October, November or December of any
year to shareholders of record as of a date in such a month will be treated for
federal income tax purposes as having been received by shareholders in that year
if they are paid before February 1 of the following year.
We intend to continue to meet the requirements of Subchapter M of the Internal
Revenue Code and to take any other action necessary to insure that we will pay
no federal income tax and that each of the Series may pay "exempt-interest
dividends." Dividends derived from our interest income on obligations exempt
from federal income tax, when designated by the Fund as "exempt-interest
dividends," will be exempt from federal income tax when received by
shareholders. Dividends derived from income on our other investments or from any
net realized short-term capital gains, will be taxable to shareholders as
ordinary income, whether received in cash or shares. Dividends derived from net
long-term capital gains which are designated by the Fund as "capital gains
dividends" will be taxable to shareholders as long-term capital gains, whether
received in cash or shares, regardless of how long a shareholder has held the
shares. Under current law, net long-term capital gains are taxed at the rates
applicable to ordinary income, except that the maximum rate for long-term
capital gains for individuals is 28%. Legislation is pending in Congress as of
the date of this Prospectus which would have the effect of reducing the federal
income tax rate on capital gains.
You may be subject to a $50 penalty under the Internal Revenue Code and we may
be required to withhold and remit to the U.S. Treasury a portion (31%) of any
redemption proceeds (including the value of shares exchanged into another Lord
Abbett-sponsored funds) and of any taxable dividend or distribution on any
account where the payee failed to provide a correct taxpayer identification
number or to make certain required certifications.
Shareholders receiving Social Security benefits and certain railroad retirement
benefits may be subject to federal income tax on up to 85% of such benefits as a
result of receiving investment income, including tax-exempt income (such as
exempt-interest dividends) and other distributions paid by the Fund. The tax
will be imposed on up to one-half of such benefits only when the sum of the
recipient's adjusted gross income (plus miscellaneous adjustments), tax-exempt
income and one-half of Social Security income exceed $25,000 ($32,000 for
individuals filing a joint return). The tax will be imposed on up to 85% only
when such sum exceeds $34,000 for individuals ($44,000 for individuals filing a
joint return). Shareholders receiving such benefits should consult their tax
advisers.
Florida Taxes -- Florida imposes no state personal income tax. However, Florida
imposes an intangible personal property tax on shares of the Series owned by a
Florida resident on January 1 of each year unless such shares qualify for an
exemption from that tax. Shares of the Florida Series owned by a Florida
resident will be exempt from the Florida intangible personal property tax
provided that on January 1, the annual statutory assessment date, the Florida
Series' portfolio includes only obligations of the State of Florida or a
political subdivision thereof or obligations issued by the U.S. Government or
certain other government authorities, for example, U.S. territories, ("U.S.
Government obligations" and collectively "Florida exempt investments"). If, in
any year on the statutory assessment date, the Florida Series were to hold
assets other than Florida exempt investments including assets attributable to
options and financial futures transactions in which the Florida Series may
engage (see "How We Invest"), then a portion (which might be a significant
portion) of the value of the Florida Series' shares would be subject to the
Florida intangible personal property tax.
<PAGE>
Georgia Taxes -- Dividends paid by the Georgia Series will be exempt from
Georgia income tax to the extent they are derived from interest on obligations
of the State of Georgia or U.S. Government obligations. Dividends, if any,
derived from capital gains or other sources generally will be taxable to
shareholders of the Georgia Series for Georgia income tax purposes. For purposes
of the Georgia intangibles tax, shares of the Georgia Series are taxable to
shareholders who are otherwise subject to the Georgia intangibles tax.
Michigan Taxes -- Dividends paid by the Michigan Series to a Michigan resident
will not be subject to the Michigan State Income Tax to the extent such
dividends are derived from interest paid on obligations of the State of Michigan
or a political subdivision thereof ("Michigan exempt investments"). Dividends
and distributions derived from interest paid on, and any capital gains from the
sale by the Michigan Series of, U.S. Government obligations, also will be exempt
from the Michigan state Income Tax. Shares of the Michigan Series are exempt
from the Michigan Intangible Personal Property Tax to the extent that the
portfolio of the Michigan Series consists of Michigan exempt investments or U.S.
Government obligations as described above. Additionally, in determining yield
for Intangible Personal Property Tax purposes, dividends and distributions
derived from such obligations, and all capital gains distributions to the extent
reinvested in shares of the Michigan Series, will be excluded from the yield
calculation. The Michigan Intangible Personal Property Tax is repealed effective
January 1, 1998.
Dividends paid by the Michigan Series will not be subject to the Michigan Single
Business Tax to the extent such dividends are derived from interest on Michigan
exempt investments or U.S. Government obligations, as discussed above. Other
distributions, including those derived from capital gains from the sale by the
Michigan Series of Michigan exempt investments or U.S. Government obligations,
may be subject to the Michigan Single Business Tax if received by a business
subject to such tax. The portion of the Series' dividends and distributions
received by a shareholder that is exempt from the Michigan state Income Tax or
Michigan Single Business Tax may be reduced by interest or other expenses paid
or incurred to purchase or carry shares of the Series.
Pennsylvania Taxes -- Dividends paid by the Pennsylvania Series will not be
subject to the Pennsylvania personal income tax or corporate net income tax to
the extent that such dividends are attributable to interest derived from
obligations of the Commonwealth of Pennsylvania or a political subdivision
thereof or U.S. Government obligations (collectively, "Pennsylvania exempt
investments"). Capital gains distributions out of the earnings of the
Pennsylvania Series will be subject to the Pennsylvania personal income tax and
corporate net income tax. Dividends paid by the Pennsylvania Series to a
Pennsylvania resident that are not derived from Pennsylvania exempt investments
will be subject to the Pennsylvania personal income tax, corporation net income
tax and (for residents of Philadelphia) to the Philadelphia school district
investment income tax. Shares of the Pennsylvania Series are exempt from
Pennsylvania county personal property taxes and (as to residents of Pittsburgh)
from personal property taxes imposed by the City of Pittsburgh and the School
District of Pittsburgh to the extent that the portfolio of the Pennsylvania
Series consists of Pennsylvania exempt investments. This exemption, however,
will not apply to the extent that on the annual statutory assessment date, which
may fall between January 1 and January 15, the Pennsylvania Series' portfolio
consists of securities not exempt from personal property taxes in Pennsylvania,
including assets attributable to options and financial futures transactions in
which the Pennsylvania Series may engage (see "How We Invest").
Annual Information ---- Information concerning the tax treatment of dividends
and other distributions will be mailed annually to shareholders. Each Series
will also provide annually to its shareholders information regarding the source
of dividends and distributions of capital gains paid by that Series. You should
consult your tax adviser regarding the treatment of those distributions and
state and local taxes generally and any proposed changes thereto as well as the
tax consequences of gains or losses from the redemption, or exchange of our
shares.
<PAGE>
9 REDEMPTION
To obtain the proceeds of an expedited redemption of $50,000 or less, you or
your representative with proper identification can telephone the Fund. The Fund
will not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine and will employ reasonable procedures to
confirm that instructions received are genuine, including requesting proper
identification, recording all telephone redemptions and mailing the proceeds
only to the named shareholder at the address appearing on the account
registration.
If you do not qualify for the procedures described above, send your written
redemption request to Lord Abbett Tax-Free Income Trust (P.O. Box 419100, Kansas
City, Missouri 64141) with signature(s) and any legal capacity of the signer(s)
guaranteed by an eligible guarantor, accompanied by any certificates for shares
to be redeemed and other required documentation. We will make payment of the net
asset value of the shares on the date the redemption order was received in
proper form. Payment will be made within three business days. However, if you
have purchased Fund shares by check and subsequently submit a redemption
request, redemption proceeds will be paid upon clearance of your purchase check,
which may take up to 15 days. To avoid delays, you may arrange for the bank upon
which the check was drawn to communicate to the Fund that the check has cleared.
Shares also may be redeemed by the Fund at net asset value through your
securities dealer who, as an unaffiliated dealer, may charge you a fee. If your
dealer receives your order prior to the close of the NYSE and communicates it to
Lord Abbett, as our agent, prior to the close of Lord Abbett's business day, you
will receive the net asset value calculated that day. If the dealer does not
communicate such an order to Lord Abbett until the next business day, you will
receive the net asset value as of the close of the NYSE on that next business
day.
Shareholders who have redeemed their shares have a one-time right to reinvest,
into another account having the identical registration, in any of the Eligible
Funds at net asset value (i) without the payment of a front-end sales charge or
(ii) with reimbursement for the payment of any CDSC. Such investment must be
made within 60 days of the redemption and is limited to no more than the amount
of the redemption proceeds.
Under certain circumstances and subject to prior written notice, our trustees,
from time to time, may authorize redemption of all of the shares in any account
in which there are fewer than 25 shares.
10 PERFORMANCE
Lord Abbett Tax-Free Income Trust completed fiscal 1995 on October 31 with net
assets totaling $326.1 million up from $301.7 million one year ago. Each Series
seeks to provide shareholders with high current tax-free income from a portfolio
of high-quality municipal bonds. Following are some of the factors that were
relevant to the Series' performance over the past year, including market
conditions and investment strategies pursued by the Trust's management.
The past year has been one of extreme volatility in the fixed-income markets and
particularly in the markets for municipal bonds. The Bond Buyer 40 Index, which
measures yields on long-term municipal bonds, stood at 5.99% on October 31,
1995, after having been as high as 7.4% in November of 1994. While talk of tax
reform has heightened investor concerns, the end result has been beneficial:
tax-exempt securities have become less expensive relative to other securities.
Presently, municipal bonds have an average yield that is more than 90% of the
30-year Treasury bond yield, indicating how attractive we believe the tax-exempt
sector has become.
Lord Abbett continues to manage the portfolios' risk from a total return
perspective and believes that investors will benefit from our well-diversified,
high-quality portfolios.
Yield. Tax-equivalent yield and total return data may from time to time be
included in advertisements about a Series. Each class calculates its yield by
dividing the annualized net investment income per share during a recent 30-day
period by the maximum offering price per share on the last day of that period.
"Tax-equivalent yield" is calculated by dividing that portion of each class'
yield (as determined above) which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of such class' yield that
is not tax-exempt. The yield and tax-equivalent yield of each class will differ
because of the different expenses (including actual 12b-1 fees) of each class of
shares. The yield data represents a hypothetical investment return on the
portfolio, and does not measure an investment return based on dividends actually
paid to shareholders. To show that return, a dividend distribution rate may be
calculated. Dividend distribution rate is calculated by dividing the dividends
of a class derived from net investment income during a stated period by the
maximum offering price on the last day of the period. Yields,
<PAGE>
dividend distribution rate and tax-exempt yield for Class A shares reflect the
deduction of the maximum sales charge, but may also be shown based on the Fund's
net asset value per share. Yields for Class C shares do not reflect the
deduction of the CDSC. "Total return" for the one-, five- and ten-year periods
represents the average annual compounded rate of return on an investment of
$1,000 in a Series at the maximum public offering price. When total return is
quoted for Class A shares, it includes the payment of the maximum initial sales
charge. When total return is shown for Class C shares, it reflects the effect of
the applicable CDSC. Total return also may be presented for other periods or
based on investment at reduced sales charge levels or net asset value. Any
quotation of total (front-end, back-end or level) return not reflecting the
maximum sales charge would be reduced if such sales charge were used. Quotations
of yield, tax-equivalent yield or total return for any period when an expense
limitation is in effect will be greater than if the limitation had not been in
effect. See "Past Performance" in the Statement of Additional Information for a
more detailed discussion.
This Prospectus does not constitute an offering in any jurisdiction in which
such offer is not authorized or in which the person making such offer is not
qualified to do so or to anyone to whom it is unlawful to make such offer.
No person is authorized to give any information or to make any representations
not contained or incorporated by reference in this Prospectus or, in
supplemental literature authorized by the Fund, and no person is entitled to
rely upon any information or representation not contained herein or therein.
<PAGE>
Comparison of changes in value of a $10,000 investment in Class A shares of
Florida Series, assuming reinvestment of all dividends and distributions,
Lipper's Average of Florida tax-free funds and the Lehman Municipal Bond Index
<TABLE>
<CAPTION>
The Series The Series Lipper's Average Lehman
at Net at Maximum Florida tax- Municipal Bond
Date Asset Value Offering Price free funds Index
<S> <C> <C> <C> <C>
9/25/91 $10000 $9520 $10000 $10000
10/31/91 10057 9575 10886 10090
10/31/92 10726 10211 10934 10937
10/31/93 12682 12073 12475 12476
10/31/94 11664 11103 11869 12043
10/31/95 13323 12684 13316 14817
</TABLE>
Comparison of changes in value of a $10,000 investment in Class A shares of
Pennsylvania Series, assuming reinvestment of all dividends and distributions,
Lipper's Average of Pennsylvania tax-free funds and the Lehman Municipal Bond
Index <TABLE>
<CAPTION>
The Series The Series Lipper's Average Lehman
at Net at Maximum Georgia tax- Municipal Bond
Date Asset Value Offering Price free funds Index
<S> <C> <C> <C> <C>
12/27/94 $10000 $9520 $10000 $10000
10/31/95 11315 10772 11391 11445
</TABLE>
Comparison of changes in value of a $10,000 investment in Class A shares of
Michigan Series, assuming reinvestment of all dividends and distributions,
Lipper's Average of Michigan tax-free funds and the Lehman Municipal Bond Index
<TABLE>
<CAPTION>
The Series The Series Lipper's Average Lehman
at Net at Maximum Michigan Municipal Bond
Date Asset Value Offering Price free funds Index
<S> <C> <C> <C> <C>
12/1/92 $10000 $9520 $10000 $10000
10/31/93 11600 11044 11190 11207
10/31/94 10754 10238 10812 12016
10/31/95 12409 11814 12638 14796
</TABLE>
Comparison of changes in value of a $10,000 investment in Class A shares of
Georgia Series, assuming reinvestment of all dividends and distributions,
Lipper's Average of Georgia tax-free funds and the Lehman Municipal Bond Index
<TABLE>
<CAPTION>
The Series The Series Lipper's Average Lehman
at Net at Maximum Florida tax- Municipal Bond
Date Asset Value Offering Price free funds Index
<S> <C> <C> <C> <C>
2/35/92 $10000 $9520 $10000 $10000
10/31/92 10468 9966 10680 10558
10/31/93 12452 11855 11967 12044
10/31/94 11489 10937 11509 12165
10/31/95 13215 12581 12864 15938
(1) Total return is the percent change in value, after deduction of the maximum
initial sales charge of 4.75%, applicable to Class A shares with all dividends
and distributions reinvested for the periods shown ending October 31, 1995 using
the SEC-required uniform method to compute such return. A portion of each
Series' management fee has been waived. (2)Data reflects the deduction of the
maximum initial sales charge of 4.75%, applicable to Class A shares. (3)Source:
Lipper Analytical Services. (4) Performance numbers for the unmanaged Lehman
Municipal Bond Index do not reflect transaction costs or management fees. An
investor cannot invest directly in the Index. This Index is composed of
municipal bonds from many different states and, therefore, it may not be a valid
comparison to a single-state municipal bond portfolio, such as each Series.
<PAGE>
LORD ABBETT
Statement of Additional Information July 15, 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 July
15, 1996.
Lord Abbett Tax-Free Income Trust (the "Fund") was organized as a Massachusetts
business trust on September 11, 1991. The Fund's Board of Trustees has authority
to create separate series of shares of beneficial interest, without further
action by shareholders. To date, the Fund has four series of shares: the Florida
Series, the Georgia Series, the Michigan Series and the Pennsylvania Series
(each a "Series"). The Florida Series consists of two classes of shares: Class A
and Class C. The other Series consist of a single class of shares only: Class A.
Although no present plans exist, further series may be added in the future. The
Investment Company Act of 1940, as amended (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 12
4. Portfolio Transactions 13
5. Purchases, Redemptions
and Shareholder Services 14
6. Taxes 19
7. Risk Factors Regarding Investments in Florida, Georgia
Michigan, Pennsylvania and Puerto Rico Municipal Bonds 20
8. Past Performance 25
9. Further Information About the Trust 26
10. Financial Statements 27
<PAGE>
1.
Investment Objective and Policies
Fundamental Investment Restrictions
- -----------------------------------
Each Series may not: (1) borrow money (except that (i) the Series may borrow
from banks (as defined in the Act) in amounts up to 33 1/3% of its total assets
(including the amount borrowed), (ii) the Fund may borrow up to an additional 5%
of its total assets for temporary purposes, (iii) the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities and (iv) the Fund may purchase securities on margin to
the extent permitted by applicable law); (2) pledge its assets (other than to
secure borrowings or to the extent permitted by the Series' investment policies
as permitted by applicable law; (3) engage in the underwriting of securities
except pursuant to a merger or acquisition or 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; (4) make loans to other persons,
except that the acquisition of bonds, debentures or other corporate debt
securities and investment in government obligations, commercial paper,
pass-through instruments, certificates of deposit, bankers acceptances,
repurchase agreements or any similar instruments shall not be subject to this
limitation, and except further that each Series may lend its portfolio
securities, provided that the lending of portfolio securities may be made only
in accordance with applicable law; (5) buy or sell real estate (except that each
Series may invest in securities directly or indirectly secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein), commodities or commodity contracts (except to the extent the
Fund may do so in accordance with applicable law and without registering as a
commodity pool operator under the Commodity Exchange Act as, for example, with
futures contracts); (6) invest more than 25% of its assets, taken at market
value, in the securities of issuers in any particular industry (excluding
tax-exempt securities financing facilities in the same industry or issued by
nongovernmental users and securities of the U.S. Government, its agencies and
instrumentalities); or (7) issue senior securities to the extent such issuance
would violate applicable law.
With respect to the restrictions mentioned herein, compliance therewith will not
be affected by change in the market value of portfolio securities but will be
determined at the time of purchase or sale of such securities.
Non-Fundamental Investment Restrictions. In addition to the investment
- -------------------------------------------
restrictions above which cannot be changed without shareholder approval, we also
are subject to the following non-fundamental investment policies which may be
changed by the Board of Trustees without shareholder approval. Each Series may
not: (1) borrow in excess of 5% of its gross assets taken at cost or market
value, whichever is lower at the time of borrowing, and then only as a temporary
measure for extraordinary or emergency purposes; (2) make short sales of
securities or maintain a short position except to the extent permitted by
applicable law; (3) invest knowingly more than 15% of its net assets (at the
time of investment) in illiquid securities, except for securities qualifying for
resale under Rule 144A of the Securities Act of 1933 deemed to be liquid by the
Board of Trustees; (4) invest in securities of other investment companies,
except as permitted by applicable law; (5) invest in securities of issuers
which, with their predecessors, have a record of less than three years of
continuous operation, if more than 5% of such Series' total assets would be
invested in such securities (this restriction shall not apply to
mortgaged-backed securities, asset-backed securities or obligations issued or
guaranteed by the U. S. government, its agencies or instrumentalities); (6) hold
securities of any issuer when more than 1/2 of 1% of the issuer's securities are
owned beneficially by one or more of the Series' officers or trustees or by one
or more partners of the Fund's underwriter or investment adviser if these owners
in the aggregate own beneficially more than 5% of the securities of such issuer;
(7) invest in warrants if, at the time of acquisition, its investment in
warrants, valued at the lower of cost or market, would exceed 5% of such Series'
total assets (included within such limitation, but not to exceed 2% of such
Series' total assets, are warrants which are not listed on the New York or
American Stock Exchange or a major foreign exchange; (8) invest in real estate
limited partnership interests or interests in oil, gas or other mineral leases,
or exploration or development programs, except that such Series may invest in
securities issued by companies that engage in oil, gas or other mineral
exploration or development activities; (9) write, purchase or sell puts, calls,
straddles, spreads or combinations thereof, except to the extent permitted in
the Fund's prospectus and statement of additional information, as they may be
amended from time to time; or (10) buy from or sell to any of its officers,
trustees, employees, or its investment adviser or any of its officers, trustees,
partners or employees, any securities other than shares of beneficial interest
in a Series of the Fund.
2
<PAGE>
With respect to each Series, there is no fundamental policy or restriction with
respect to diversification, but each Series will be required to meet the
diversification rules under Subchapter M of the Internal Revenue Code.
Notwithstanding restrictions 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 reasonable risks. For the fiscal year ended October
31, 1995 the portfolio turnover rates for the Florida, Michigan and Pennsylvania
Series were 142.04%, 98.89% and 126.11% , respectively, versus 122.36%, 137.31%
and 137.22%, respectively for the prior year. The portfolio turnover rate for
the Georgia Series was 142.69% for the period December 27, 1994 to October 31,
1995.
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).
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,
3
<PAGE>
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 Investors Services ("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.
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 Standard & Poor's.
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:
4
PAGE>
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.
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
5
<PAGE>
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. For example, 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
6
<PAGE>
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 Series 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 a 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 will not engage in OTC options transactions if the amount
invested by a Series in OTC options, plus a "liquidity charge" related to OTC
options written by such Series, plus the amount invested by such Series in
illiquid securities, would exceed 10% of the Series' net assets. The "liquidity
charge" referred to above is computed as described below.
7
<PAGE>
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.
8
<PAGE>
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 applicable
- ------------------------
Securities and Exchange Commission requirements, 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
(in the case of Mr. Nordberg) and/or directors or trustees (in the case of
Messrs. Lynch and Dow) of the twelve other Lord Abbett-sponsored funds including
those described under "Purchases, Redemptions and Shareholder Services." They
are "interested persons" as defined in the Act.
Robert S. Dow, age 50, Chairman and President
E. Wayne Nordberg, age 59 Vice President
The following outside trustees are also directors or trustees of the twelve
other Lord Abbett-sponsored funds referred to above.
E. Thayer Bigelow
Time Warner Cable
300 First Stamford Place
Stamford, Connecticut
President and Chief Executive Officer of Time Warner Cable Programming, Inc.
Formerly President and Chief Operating Officer of Home Box Office, Inc. Age 54.
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. Age 65.
9
<PAGE>
John C. Jansing 162 S. Beach Road Hobe Sound, Florida Retired. Former Chairman
of Independent Election Corporation of America, a proxy tabulating firm. Age 70.
C. Alan MacDonald
The Marketing Partnership, Inc.
27 Signal Road
Stamford, Connecticut
General Partner, The Marketing Partnership, Inc., a full service marketing
consulting firm. Formerly Chairman and Chief Executive Officer of Lincoln
Snacks, Inc., manufacturer of branded snack foods (1992-1994). Formerly
President & CEO of Nestle Foods Corp, and prior to that, President & CEO of
Stouffer Foods Corp., both subsidiaries of Nestle SA, Switzerland. Currently
serves as Director of Den West Restaurant Co., J. B. Williams, and Fountainhead
Water Company. Age 62.
Hansel B. Millican, Jr.
Rochester Button Company
1100 Noblin Avenue
South Boston, Virginia
President and Chief Executive Officer of Rochester Button Company. Age 67.
Thomas J. Neff
Spencer Stuart & Associates
277 Park Avenue
New York, New York
President of Spencer Stuart & Associates, an executive search consulting firm.
Age 58.
The second column of the following table sets forth the compensation accrued for
the Fund's outside trustees. The third and fourth columns set forth information
with respect to the retirement plan for outside trustees maintained by the Lord
Abbett-sponsored funds. The fifth column sets forth the total compensation
payable by such funds to the outside trustees. No trustee of the Fund associated
with Lord Abbett and no officer of the Fund received any compensation from the
Fund for acting as a trustee or officer.
</TABLE>
<TABLE>
<CAPTION>
For the Fiscal Year Ended October 31, 1995
------------------------------------------
(1) (2) (3) (4) (5)
Pension or Estimated Annual For Year Ended
Retirement Benefits Benefits Upon December 31, 1995
Accrued by the Retirement Proposed Total Compensation
Aggregate Fund and to be Paid by the Accrued by the Fund and
Compensation Twelve Other Lord Fund and Twelve Twelve Other Lord
Accrued by Abbett-sponsored Other Lord Abbett- Abbett-sponsored
Name of Director the Fund1 Funds sponsored Funds2 Funds3
- ---------------- ------------ -------------------- ------------------- ------------------------
<S> <C> <C> <C> <C>
E. Thayer Bigelow $1,014 $9,772 $33,600 $41,700
Stewart S. Dixon $1,032 $22,472 $33,600 $42,000
John C. Jansing $1,044 $28,480 $33,600 $42,960
C. Alan MacDonald $1,021 $27,435 $33,600 $42,750
Hansel B. Millican, Jr. $1,045 $24,707 $33,600 $43,000
Thomas J. Neff $1,021 $16,126 $33,600 $42,000
10
<PAGE>
<FN>
1. Outside trustees' fees, including attendance fees for board and committee
meetings, are allocated among all Lord Abbett-sponsored funds based on net
assets of each fund. A portion of the fees payable by the Fund to its outside
trustees are being deferred under a plan that deems the deferred amounts to
be invested in shares of the Fund for later distribution to the trustees. The
total amount accrued under the plan for each outside trustee since the
beginning of his tenure with the Trust, including dividends reinvested and
changes in net asset value applicable to such deemed investments as of
October 31, 1995 were as follows: Mr. Bigelow, $1,081; Mr. Dixon, $2,038; Mr.
Jansing, $3,141; Mr. MacDonald, $2,231; Mr. Millican, $3,122 and Mr. Neff,
$3,659.
2. Each Lord Abbett-sponsored fund has a retirement plan providing that outside
trustees and directors will receive annual retirement benefits for life equal
to 80% of their final annual retainers following retirement at or after age
72 with at least 10 years of service. Each plan also provides for a reduced
benefit upon early retirement under certain circumstances, a pre-retirement
death benefit and actuarially reduced joint-and-survivor spousal benefits.
The amounts stated would be payable annually under such retirement plans if
the trustee were to retire at age 72 and the annual retainers payable by such
funds were the same as they are today. The amounts accrued in column 3 were
accrued by the Lord Abbett-sponsored funds during the fiscal year ended
October 31, 1995 with respect to the retirement benefits in column 4.
3. This column shows aggregate compensation, including director's fees and
attendance fees for board and committee meetings, of a nature referred to in
footnote one, accrued by the Lord Abbett-sponsored funds during the year
ended December 31, 1995.
<FN>
</TABLE>
Except where indicated, the following executive officers of the Fund have been
associated with Lord Abbett for over five years. Of the following, Messrs.
Allen, Carper, Cutler, Dow, Henderson, Morris, Nordberg and Walsh are partners
of Lord Abbett; the others are employees: Zane Brown, age 45; Barbara A.
Grummel, age 39; John Mousseau, age 40 (with Lord Abbett since 1993 - formerly
First Vice President, Shearson Lehman Brothers); Philip Fang, age 30 (with Lord
Abbett since 1993 - formerly Municipal Evaluator for Muller & Co.), Executive
Vice Presidents; Kenneth B. Cutler, age 63, Vice President and Secretary;
Stephen I. Allen, age 42; Daniel E. Carper, age 44; Robert S. Dow, age 50;
Thomas S. Henderson, age 64 Robert G. Morris, age 51, E. Wayne Nordberg, age 59;
John J. Gargana, Jr., age 64; Paul A. Hilstad, age 53 (with Lord Abbett since
1995 - formerly Senior Vice President and General Counsel of American Capital
Management & Research, Inc.); Thomas F. Konop, age 53; Victor W. Pizzolato, age
63; John J. Walsh, age 58, Vice Presidents; and Keith F. O'Connor, age 40,
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, 1995 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, Robert G. Morris, 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%. For the Florida Series, this is allocated
among the Class A and Class C shares based on the class' proportionate share of
the average daily net assets of the Series. 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.
11
<PAGE>
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, 1993, 1994 and 1995, Lord Abbett waived
$794,366, $954,176 and $248,100, respectively, of Florida Series' management
fees. For the fiscal years ended October 31, 1993, 1994 and 1995, Lord Abbett
waived $307,168, $299,609 and $126,160, respectively, of Pennsylvania Series'
management fees. For the year ended October 31, 1993, 1994, and 1995 Lord Abbett
waived $127,327, $215,421 and $249,286, respectively, of Michigan Series'
management fees. All expenses to be repaid to Lord Abbett for the Florida,
Pennsylvania and Michigan Series have been paid of by the Fund. For the period
December 27, 1994 to October 31, 1995 Lord Abbett waived $13,900 in Georgia
Series' management fees and assumed $16,100 in other expenses. These fees and
waivers are attributable to the Class A shares of the above Series only.
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 public accountants 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.
Bank of New York, 48 Wall Street, New York, New York 10286, serves as the Fund's
custodian.
4.
PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities usually will be principal
transactions and normally such securities will be purchased directly from the
issuer or from an underwriter or purchased from or sold to a market maker for
the securities. Therefore, the Fund usually will pay no brokerage commissions on
such transaction. Purchases from underwriters of portfolio securities will
include a commission or concession paid by the issuer to the underwriter and
purchases from or sales to dealers serving as market makers will include a
dealer's markup or markdown. Principal transactions, including riskless
principal transactions, are not afforded the protection of the safe harbor in
Section 28 (e) of the Securities Exchange Act of 1934.
Our policy is to obtain best execution on all our portfolio transactions, which
means that we seek to have purchases and sales of portfolio securities executed
at the most favorable prices, considering all costs of the transaction including
dealer markups and markdowns and any brokerage commissions. This policy governs
the selection of brokers or
12
<PAGE>
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.
Broker-dealers are selected on the basis of their professional capability and
the value and quality of their brokerage and research services. Normally, the
selection is made by traders who are officers of the Fund and also are employees
of Lord Abbett. These traders do the trading as well for other accounts --
investment companies (of which they are also officers) and other investment
clients -- managed by Lord Abbett. They are responsible for negotiation of
prices and any commissions.
We may pay a brokerage commission on the purchase or sale of a security that
could be purchased from or sold to a market maker if our net cost of the
purchase or the net proceeds to us of the sale are at least as favorable as we
could obtain on a direct purchase or sale. Brokers who receive such commissions
may also provide research services at least some of which are useful to Lord
Abbett in their overall responsibilities with respect to us and the other
accounts they manage. Research includes trading equipment and computer software
packages, acquired from third-party suppliers, that enable Lord Abbett to access
various information bases and may include the furnishing of analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. Such services may be used by
Lord Abbett in servicing all their accounts, and not all of such services will
necessarily be used by Lord Abbett in connection with their management of the
Fund; conversely, such services furnished in connection with brokerage on other
accounts managed by Lord Abbett may be used in connection with their management
of the Fund, and not all of such services will necessarily be used by Lord
Abbett in connection with their advisory services to such other accounts. We
have been advised by Lord Abbett that research services received from brokers
cannot be allocated to any particular account, are not a substitute for Lord
Abbett's services but are supplemental to their own research effort and, when
utilized, are subject to internal analysis before being incorporated by Lord
Abbett into their investment process. As a practical matter, it would not be
possible for Lord Abbett to generate all of the information presently provided
by brokers. While receipt of research services from brokerage firms has not
reduced Lord Abbett's normal research activities, the expenses of Lord Abbett
could be materially increased if it attempted to generate such additional
information through its own staff and purchased such equipment and software
packages directly from the suppliers.
No commitments are made regarding the allocation of brokerage business to or
among brokers, and trades are executed only when they are dictated by investment
decisions of the Fund to purchase or sell portfolio securities.
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
as 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. Other clients who direct that their brokerage
business be placed with specific brokers or who invest through wrap accounts
introduced to Lord Abbett by certain brokers may not participate with us in the
buying and selling of the same securities as described above. If these clients
wish to buy or sell the same security as we do, they may have their transactions
executed at times different from our transactions and thus may not receive the
same price or incur the same commission cost as we do.
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, 1995, 1994 and 1993, we paid no
commissions to independent brokers.
13
<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 net asset value per share for the Class C shares of the Florida Series will
be determined in the same manner as for the Class A shares (net assets divided
by outstanding shares). The Class C shares of the Florida Series will be sold at
net asset value.
The maximum offering prices of our Class A shares on October 31, 1995 were
computed as follows:
<TABLE>
<CAPTION>
PENNSYLVANIA GEORGIA MICHIGAN FLORIDA
SERIES SERIES SERIES SERIES
<S> <C> <C> <C> <C>
Net asset value per share (net assets
divided by shares outstanding) .................$5.01 $5.12 $4.93 $4.85
Maximum offering price per share (net
asset value divided by .9525) ..................$5.26 $5.38 $5.18 $5.09
</TABLE>
The Fund has entered into a distribution agreement with Lord Abbett Distributor
LLC ("Lord Abbett Distributor") under which Lord Abbett Distributor 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
Distributor'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 with respect to Class A shares as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Oct. 31, 1995 Oct. 31, 1994 Oct. 31, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Gross sales charge $1,438,904 $3,019,207 $5,183,953
14
<PAGE>
Amount allowed
to dealers $1,265,847 $2,617,856 $4,616,423
Net commissions received
by Lord Abbett $ 173,057 $ 401,351 $ 567,530
========== =========== ===========
</TABLE>
CLASS A AND CLASS C RULE 12B-1 PLANS. As described in the Prospectus, each
Series has adopted a Distribution Plan and Agreement pursuant to Rule 12b-1
under the Act for the Class A shares (all Series) and the Class C shares
(Florida Series only): the "A Plans" and the "C Plan", respectively, each to
become effective when the required level of net assets for each Series is
reached. The Florida Series' A Plan became effective October 1, 1992. In
adopting a Plan for each class of 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 its respective
class and each class' shareholders. The expected benefits include greater sales,
lower redemptions of Class shares, which should allow each class to maintain a
consistent cash flow 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 $452,235 through Lord Abbett to dealers pursuant to the Florida Series' A
Plan. The A Plans for the Georgia, Pennsylvania and Michigan Series are not yet
effective. The C Plan was adopted by the Florida Series subsequent to its last
fiscal year. Lord Abbett used all amounts received under the Florida Series' A
Plan for payments to dealers for (i) providing continuous services to the
Florida 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 Class A 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 relevant class of the Series in
question 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 the relevant class of the Series in question.
CONTINGENT DEFERRED SALES CHARGES. A Contingent Deferred Sales Charge ("CDSC")
applies upon early redemption of shares, regardless of class and (i) will be
assessed on the lesser of the net asset value of the shares at the time of
redemption or the original purchase price and (ii) is not imposed on the amount
of your account value represented by the increase in net asset value over the
initial purchase price (including increases due to the reinvestment of dividends
and capital gains distributions).
CLASS A SHARES. As stated in the Prospectus, a CDSC is imposed with respect to
those Class A shares (or Class A shares of 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-sponsored family of funds within a period of 24 months from the end
of the month in which the original sale occurred.
CLASS C SHARES. (Florida Series only) As stated in the Prospectus, if Class C
shares of the Florida Series are redeemed for cash before the first anniversary
of their purchase, the redeeming shareholder will be required to pay to the
Florida Series on behalf of Class C shares a CDSC of 1% of the lower of cost or
the then net asset value of Class C shares redeemed. If such shares are
exchanged into the same class of another Lord Abbett-sponsored fund and
subsequently redeemed before the first anniversary of their original purchase,
the charge will be collected by the other fund on behalf of the Florida Series'
Class C shares.
GENERAL. With respect to Class A shares, no CDSC is payable on redemptions by
participants or beneficiaries from employer-sponsored retirement plans under the
Internal Revenue Code for benefit payments due to plan loans,
15
<PAGE>
hardship withdrawals, death, retirement or separation from service and for
returns of excess contributions to retirement plan sponsors. In the case of both
Class A and Class C shares, the CDSC is received by the applicable Series and is
intended to reimburse all or a portion of the amount paid by the Series if the
shares are redeemed before the Series has had an opportunity to realize the
anticipated benefits of having a long-term shareholder account in the Series.
The other funds and series which participate in the Telephone Exchange Privilege
(except (a) Lord Abbett U.S. Government Securities Money Market Fund, Inc.
("GSMMF"), (b) certain series of Lord Abbett Tax-Free Income Fund and the Fund
for which a Rule 12b-1 Plan is not yet in effect, and (c) any authorized
institution's affiliated money market fund satisfying Lord Abbett Distributor as
to certain omnibus account and other criteria, hereinafter referred to as an
"authorized money market fund" or "AMMF" (collectively, the "Non-12b-1 Funds"))
have instituted a CDSC for each class on the same terms and conditions. No CDSC
will be charged on an exchange of shares of the same class between Lord Abbett
funds or between such funds and AMMF. Upon redemption of shares out of the Lord
Abbett family of funds or out of AMMF, the CDSC will be charged on behalf of and
paid to the fund in which the original purchase (subject to a CDSC) occurred.
Thus, if shares of a Lord Abbett fund are exchanged for shares of the same class
of another such fund and the shares of the same class tendered ("Exchanged
Shares") are subject to a CDSC, the CDSC will carry over to the shares of the
same class being acquired, including GSMMF and AMMF ("Acquired Shares"). Any
CDSC that is carried over to Acquired Shares is calculated as if the holder of
the Acquired Shares had held those shares from the date on which he or she
became the holder of the Exchanged Shares. Although the Non-12b-1 Funds will not
pay a distribution fee on their own shares, and will, therefore, not impose
their own CDSC, the Non-12b-1 Funds will collect the CDSC on behalf of other
Lord Abbett funds. Acquired Shares held in GSMMF and AMMF which are subject to a
CDSC will be credited with the time such shares are held in GSMMF but will not
be credited with the time such shares are held in AMMF. Therefore, if your
Acquired Shares held in AMMF qualified for no CDSC or a lower Applicable
Percentage at the time of exchange into AMMF, that Applicable Percentage will
apply to redemptions for cash from AMMF, regardless of the time you have held
Acquired Shares in AMMF.
In no event will the amount of the CDSC exceed 1% of the lesser of (i) the net
asset value of the shares redeemed or (ii) the original cost of such shares (or
of the Exchanged Shares for which such shares were acquired). No CDSC 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 12b-1 fee (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 the case of Class A
shares) or for one year or more (in the case of Class C shares). In determining
whether a CDSC is payable, (a) shares not subject to the CDSC will be redeemed
before shares subject to the CDSC and (b) of the shares subject to a CDSC, those
held the longest will be the first to be redeemed.
EXCHANGES. The Prospectus briefly describes the Telephone Exchange Privilege.
You may exchange some or all of your shares of any class for those in the same
class of: (i) Lord Abbett-sponsored funds currently offered to the public with a
sales charge (front-end, back-end or level ), (ii) GSMMF or (iii) AMMF, 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 other fund into which the
exchange is made.
Shareholders in other Lord Abbett-sponsored funds and AMMF have the same right
to exchange their shares for the corresponding class of the Fund's shares.
Exchanges are based 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 or AMMF (unless a sales charge (front-end,
back-end or level) was paid on the initial investment in a Lord Abbett-sponsored
fund). 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
16
<PAGE>
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. "Eligible
Funds" are AMMF and other Lord Abbett-sponsored funds which are eligible for the
exchange privilege, except Lord Abbett Series Fund ("LASF") which offers its
shares only in connection with certain variable annuity contracts, Lord Abbett
Equity Fund ("LAEF") which is not issuing shares, and series of Lord Abbett
Research Fund not offered to the general public ("LARF").
STATEMENT OF INTENTION. Under the terms of the Statement of Intention to invest
$100,000 or more over a 13-month period as described in the Prospectus, in
shares of a Lord Abbett-sponsored fund (other than shares of LAEF, LASF, LARF
and GSMMF, unless holdings in GSMMF are attributable to shares exchanged from a
Lord Abbett-sponsored fund offered with a front-end, back-end or level 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 and reduced initial sales charge for Class A shares. Class A 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.
RIGHTS OF ACCUMULATION. 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, GSMMF, and AMMF unless holdings in GSMMF or AMMF
are attributable to shares exchanged from a Lord Abbett-sponsored fund offered
with a front-end, back-end or level 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 for Class A shares.
NET ASSET VALUE PURCHASES OF CLASS A SHARES. As stated in the Prospectus, our
Class A 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 or by the trustee or custodian under any pension or profit-sharing
plan or Payroll Deduction IRA established for the benefit of such persons or for
the benefit of employees of any national securities trade organization to which
Lord Abbett belongs or any company with an account(s) in excess of $10 million
managed by Lord Abbett on a private-advisory-account basis. 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 "our trustees" and "employees of Lord Abbett" also include
other family members and retired trustees and employees.
Our Class A shares also may be purchased at net asset value (a) at $1 million or
more, (b) with dividends and distributions from Class A shares of other Lord
Abbett-sponsored funds, except for LARF, LAEF and LASF, (c) under the loan
feature of the Lord Abbett-sponsored prototype 403(b) plan for share purchases
representing the repayment of principal and interest, (d) by certain authorized
brokers, dealers, registered investment advisers or other financial institutions
who have entered into an agreement with Lord Abbett Distributor in accordance
with certain standards approved by Lord Abbett Distributor, 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 (e) by employees, partners and
owners of unaffiliated consultants and advisors to Lord Abbett, Lord Abbett
Distributor or Lord Abbett-sponsored funds who consent to such purchase if such
persons provide service to Lord Abbett, Lord Abbett Distributor 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 Distributor and/or the Fund has
business relationships.
Our Class A shares also 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
17
<PAGE>
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. Purchasers should consider the impact, if
any, of contingent deferred sales charges in determining whether to redeem
shares for subsequent investment in our Class A shares. Lord Abbett may suspend,
change or terminate this purchase option at any time.
Our Class A 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.
REDEMPTIONS. 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 Distributor 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 Board of 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 Board must determine that it is in our economic best interest or
necessary to reduce disproportionately burdensome expenses in servicing
shareholder accounts. At least 30 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 Board.
DIV-MOVE. 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.
INVEST-A-MATIC. The Invest-A-Matic method of investing in the Fund and/or any
other Eligible Fund is described in the Prospectus. To avail yourself of this
method you must complete the application form, selecting the time and amount of
your bank checking account withdrawals and the funds for investment, include a
voided, unsigned check and complete the bank authorization.
SYSTEMATIC WITHDRAWAL PLANS. The Systematic Withdrawal Plan (the "SWP") also is
described in the Prospectus. You may establish a SWP if you own or purchase
uncertificated shares having a current offering price value of at least $10,000.
Lord Abbett prototype retirement plans have no such minimum. With respect to
Class C shares, the CDSC will be waived on and after the first anniversary of
their purchase. The SWP 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 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 SWP may be terminated by you or by us at any time by
written notice.
RETIREMENT PLANS. The Prospectus indicates the types of retirement plans for
which Lord Abbett provides forms and explanations. Lord Abbett makes available
the retirement plan forms and custodial agreements for IRAs (Individual
Retirement Accounts including Simplified Employee Pensions), 403(b) plans and
qualified pension and profit-sharing plans, including 401(k) plans. The forms
name Investors Fiduciary Trust Company as custodian and contain specific
information about the plans. Explanations of the eligibility requirements,
annual custodial fees and allowable tax advantages and penalties are set forth
in the relevant plan documents. Adoption of any of these plans should be on the
advice of your legal counsel or qualified tax adviser.
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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, in order to continue to qualify as a regulated investment company for
federal income tax purposes as described in the Prospectus, 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.
The foregoing discussion relates solely to U. S. federal income tax law as
applicable to United States persons (United States citizens or residents and
United States domestic corporations, partnerships, trusts and estates). Each
shareholder who is not a United States person should consult his tax adviser
regarding the U. S. and foreign tax consequences of the ownership of shares of a
Series, including a 30% (or lower treaty rate) United States withholding tax on
dividends representing ordinary income and net short-term capital gains, and the
applicability of United States gift and estate taxes to non-United States
persons who own Series shares.
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.
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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 population includes a large proportion of senior citizens who have
moved to the State after retirement. In 1995, 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.
An important element of Florida's economic outlook is the construction sector.
Total construction expenditures are forecasted to increase 4.0% in 1996 and to
increase 5.3% next year.
Real personal income in Florida is estimated to increase 4.6% in 1995-96 and
3.8% in 1996-97. Florida's unemployment rate is forecast to be 5.6% in 1995-96
and 5.7% in 1996-97.
As of December 1995, estimated fiscal year 1995-96 General Revenue plus Working
Capital and Budget Stabilization funds available total $15.149.1 million, a
2.21% increase over 1994-95. The $14,456.7 million Estimated Revenues represent
an increase of 5.9% over the previous year's Estimated Revenues. With combined
Revenue, Working Capital and Budget Stabilization Fund appropriations at $14,824
million, unencumbered reserves at the end of the fiscal year are estimated at
$325.1 million.
In fiscal year 1996-97 estimated General Revenue plus Working Capital and Budget
Stabilization funds available total $15,717 8 million, a 3.8% increase over
1995-96 The $15,262.3 million in Estimated Revenue represent a 5.6% increase
over the analogous figure in 1995-96.
Financial operations of the State of Florida, covering all receipts and
expenditures, are maintained through the use of four fund types the General
Revenue Fund, the Trust Funds, and the Working Capital Fund, and beginning in
fiscal year 1994-95, the Budget Stabilization 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 Revenue Fund which are in
excess of the amount needed to meet appropriations may be transferred to the
Working Capital Fund. Pursuant to a constitutional amendment which was ratified
by the voters on November 8, 1994, the rate of growth in state
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revenues in a given fiscal year is limited to no more than the average annual
growth in Florida personal income over the previous five years. Revenues
collected in excess of the limitation are to be deposited into the Budget
Stabilization Fund unless 2/3 of the members of both houses of the state
legislature vote to raise the limit. 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.
GEORGIA BONDS
The largest sources of employment by industry group within the State, in
descending order, are wholesale and retail trade; manufacturing; services;
government; transportation and other public utilities; contract construction;
finance, insurance and real estate; and mining. The unemployment rate of the
civilian labor force in the State as of May 1995 was 4.4.3%. Per capita income
during 1994 was $20,251 in Georgia (as compared with $21,809 in the United
States).
State Treasury receipts for the year ending June 30, 1995 was $9.998 billion
(estimated), representing a 6.25% 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 44% 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 July 31, 1995, the outstanding principal amount of indebtedness of the
State was $4.693 billion, and the total debt per capita was equal to $665.15,
representing 3.28% 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 Michigan unemployment rate
has remained in step with the U.S. unemployment rate, declining to 5.9% for 1994
from 7.0% for 1993.
As a result of legislative action in 1993, and a statewide referendum in 1994,
the State has made 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 $310.3 million at September 30, 1990 and $169.4 million at September
30, 1991 and exactly zero at September 30, 1992. By statute,
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any ending unreserved fund balance of the General Fund, is to be deposited to
the Budget Stabilization Fund, so $460.2 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, 1994 the State's level of general
obligation debt decreased by $4.0 million to $382.2 million, and total special
obligation debt increased by $194.5 million to $2,411.2 million. Other
state-related revenue debt decreased $64,535 million to $1,976.5 million during
the 1993-94 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.
During the period from fiscal 1990 through fiscal 1994, public health and
welfare costs rose by an average annual rate of 9.4 percent while tax revenues
were growing at an average annual rate of 5.8 percent. Consequently, spending on
other budget programs was restrained to a growth rate of 4.7 percent and sources
of revenues other than taxes became larger components of General fund revenues.
Among those sources were transfers from other funds and hospital and nursing
home pooling of contributions to use as federal matching funds.
Tax revenues declined in fiscal 1991 as a result of the recession in the
economy. A $2.7 billion tax increase, including one-time revenues from several
retroactive measures, enacted for fiscal 1992 brought financial stability to the
General Fund. the absence of those one-time revenues and a reduction in the
personal income tax rate in fiscal 1993 contributed to a decline in tax revenues
for fiscal 1993. Fiscal 1994 tax revenues increased by 4.1 percent, but a
decline in other revenues caused by the end of medical assistance pooled
financing in fiscal 1993 held total revenues to a 1.8 percent gain. Expenditures
for fiscal 1994 rose by 4.3 percent.
The General Fund balance increased $194.0 million in fiscal 1994 due largely to
an increased reserve for encumbrances and an increase in other designated funds.
The unreserved-undesignated balance increased by $14.8
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million to $79.2 million. Revenues and other sources increased by 1.8 percent
over the prior fiscal year while expenditures and other uses increased by 4.3
percent. consequently, the operating surplus declined to $179.4 million for
fiscal 1994 from $686.3 million for fiscal 1993.
The Commonwealth maintained an operating balance on a budgetary basis for fiscal
1994 producing a fiscal year-end unappropriated surplus of $335.8 million. by
state statute, ten percent ($33.6 million) of that surplus was transferred to
the Tax Stabilization Reserve Fund and the remaining balance was carried over
into the fiscal 1995 fiscal year.
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 $5,045.4 million on June 30, 1995 a
decrease of $3.4 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 $500.0 million of tax anticipation
notes for the account of the General Fund in fiscal 1996.
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 June 30, 1995
include the Delaware River Joint Toll Bridge Commission ($56.3 million), the
Delaware River Port Authority ($185.5 million), the Pennsylvania Economic
Development Financing Authority ($1,015.8 million), the Pennsylvania Energy
Development Authority ($123.1 million), the Pennsylvania Higher Education
Assistance Agency ($1,283.8 million), the Pennsylvania Higher Education
Facilities Authority ($2,102.9 million), the State Public School Building
Authority ($316.2 million), the Pennsylvania Turnpike Commission ($1,252.6
million) and the Pennsylvania Industrial Development Authority ($350.0 million).
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
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is not required by law to appropriate or otherwise provide moneys from which the
lease payments are to be paid. The principal amount outstanding as of June 30,
1995 on such obligations equalled approximately $1.637 billion.
LOCAL GOVERNMENT DEBT. The Commonwealth established the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") in 1991 to assist Philadelphia,
in remedying fiscal emergencies by issuing debt and by making factual findings
and recommendations on budgetary and fiscal affairs. At this time, Philadelphia
is operating under a five year fiscal plan approved by pica on April 17, 1995.
PICA has issued $1,418,680,000 of its Special Tax Revenue Bonds.
This financial assistance has included the refunding of certain city general
obligation bonds, funding of capital projects and the liquidation of the
Cumulative General Fund balance deficit as of June 30, 1992, of $244.9 million.
The audited General Fund balance of the city as of June 30, 1994 showed a
surplus of approximately $15.4 million, up from approximately $3 million as of
June 30, 1993. City preliminary unaudited General Fund financial statements at
June 30, 1995 project a surplus approximating $59.6 million.
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, scientific instruments, computers, microprocessors,
medical products and electrical products and certain high technology machinery
and equipment. The service sector, including wholesale and retail trade,
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 and
paralleling the expansion of the manufacturing sector.
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.
Legislation is currently pending in Congress which, if passed, would repeal
section 936, which allows companies with operations in Puerto Rico and other
U.S. territories to receive a credit to be used against U.S. tax on certain
income from operations.
Puerto Rico's economy is closely integrated with that of mainland United States.
During fiscal 1994, approximately 87% of Puerto Rico's exports were to the
United States mainland, which also was the source of approximately 67% of Puerto
Rico's imports. In fiscal 1994, Puerto Rico experienced a $4.3 billion positive
adjusted merchandise trade balance.
Puerto Rico's more than decade-long economic expansion continued throughout the
five-year period from fiscal 1990 through fiscal 1994, and affected almost every
sector of its economy and resulted 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, the level
of federal transfers and the relatively low cost of borrowing during the period.
Growth in fiscal 1996 will depend on several factors, including the state of the
United States economy and relative stability of the price of oil imports
increases in visitors to the island and in exports, the exchange value of the
U.S. dollar, the level of federal transfers and the cost of borrowing.
The Constitution of Puerto Rico provides that public debt of the Commonwealth
will constitute a first claim on available Commonwealth revenues. Public debt
includes general obligation bonds and notes of the Commonwealth and any payments
required to be made by the Commonwealth under its guarantees of bonds and notes
issued by its public instrumentalities.
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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 amount 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.
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 the average annual compounded rate of total return for each
class 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 (as described in the next paragraph) 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.
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment (unless the return is shown at net asset value). For Class C
shares, the 1.0% CDSC is applied to the Florida Series' investment result for
that class for the time period shown prior to the first anniversary of purchase
(unless the total return is shown at net asset value). Total returns also assume
that all dividends and capital gains distributions during the period are
reinvested at net asset value per share, and that the investment is redeemed at
the end of the period. Although prior to July 12, 1996, each Series had only one
class of shares, which class is now designated Class A, for purposes of
computing average annual compounded rates of total return for the Florida
Series' Class C shares prior to that date, the applicable Series' investment
result for Class A shares is used, applying the 1% CDSC unless total return is
shown at net asset value.
The total returns for the one-year period ended October 31, 1995 for Class A
shares of the Florida, Michigan and Pennsylvania Series were 8.90%, 9.80% and
9.60%, respectively.The average annual compounded rates of total return for the
life of the Florida Series (commencing on September 25, 1991 to October 31,
1995), the life of the Georgia Series (commencing on December 27, 1994 to
October 31, 1995), the life of the Pennsylvania Series (commencing on February
3, 1992 to October 31, 1995) and the life of the Michigan Series (commencing on
December 1, 1992 to October 31, 1995), were as follows: 5.98%, 7.70%, 5.90% and
6.32%, respectively.
Each Series' yield quotation for each class 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. Yield
for the Class A shares reflects the deduction of the maximum initial sales
charge, but may also be shown based on the Fund's net asset value per share.
Yields for Class C shares do not
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reflect the deduction of the CDSC. For the 30-day period ended October 31, 1995
the yields for each class of the Florida, Georgia, Pennsylvania and Michigan
Series were 4.80%, 4.86%,4.98%and 5.13%, 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% , Michigan - 38.86% and
Georgia 39.84%) 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, 1995,
the tax-equivalent yields for each Class of the Florida, Georgia, Pennsylvania
and Michigan Series were 7.50%, 8.28%, 7.81%, and 8.28%, 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
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 Trust'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.
26
<PAGE>
10.
FINANCIAL STATEMENTS
The financial statements for the fiscal half year and fiscal year ended October
31, 1995 and opinion of Deloitte & Touche LLP, independent public accountants,
included in the 1995 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. Prior
to July 12, 1996 the Trust had only one class of shares, which class is now
designated Class A.
27
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
Part A - Financial Highlights for years ended
October 31, 1993 and 1994 and 1995, the
period September 25, 1991 (commencement
of operations - Florida Series) to
October 31, 1991, the period February 3,
1992 (commencement of operations -
Pennsylvania Series) to October 31, 1992
and the period December 1, 1992
(commencement of operations - Michigan
Series) to October 31, 1993.
Part B - Statement of Net Assets at October
31, 1994. Statement of Operations for the
year ended October 31, 1994.
Statement of Changes in Net Assets for
the year ended October 31, 1994.
(b)Exhibits -
99.B1 Amendment to Declaration of Trust*
99.B6 Form of Distribution Agreement**
99.B11 Consent of Deloitte & Touche*
99.B15a Forms of Rule 12b-1 Plans for
Class A and Class C shares**
99.B15b Form of Rule 12b-1 Plan for Class B
shares**
99.B18 Form of Plan entered into by
Registrant pursuant to Rule 18f-3.***
* Filed herewith.
** The form of this document is
incorporated by Reference to Post-
Effective Amendment
No. 41 to the Registration Statement on
Form N-1A of Lord Abbett Bond-Debenture
Fund, Inc. (File No. 811-2145). The
Lord Abbett Bond-Debenture Fund document
is substantially identical to that form
used for the Registrant except for the
name of the Registrant and/or its
Series and perhaps minor differences.
*** Incorporated by Reference to Post-
Effective Amendment No. 40 to the
Registration Statement on Form N-1A of
Lord Abbett Bond-Debenture Fund,
Inc. (File No. 811-2145)
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
None.
1
<PAGE>
Item 26. Number of Record Holders of Securities
--------------------------------------
(As of June 28, 1996)
Pennsylvania Series 2,632
Florida Series 3,084
Michigan Series 1,892
Georgia 323
Item 27. Indemnification
---------------
All Trustees, officers, employees and agents of Registrant are
to be indemnified as set forth in Section 4.3 of Registrant's
Declaration of Trust.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expense incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee,
officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by
it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
In addition, Registrant maintains a Trustees' and officers'
errors and omissions liability insurance policy protecting
Trustees and officers against liability for breach of duty,
negligent act, error or omission committed in their capacity
as Trustees or officers. The policy contains certain
exclusions, among which is exclusion from coverage for active
or deliberate dishonest or fraudulent acts and exclusion for
fines or penalties imposed by law or other matters deemed
uninsurable.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Lord, Abbett & Co. acts as investment adviser for twelve other
open-end investment companies (of which it is principal
underwriter for thirteen), and as investment adviser to
approximately 5,100 private accounts. Other than acting as
Trustees, directors and/or officers of open-end investment
companies sponsored by Lord, Abbett & Co., none of Lord,
Abbett & Co.'s partners has, in the past two fiscal years,
engaged in any other business, profession, vocation or
2
<PAGE>
employment of a substantial nature for his own account or the
capacity of director, officer, employee, partner or Trustee of
any entity except as follows:
John J. Walsh
Trustee
Brooklyn Hospital
Parkside Avenue
Brooklyn, N.Y.
Item 29. Principal Underwriter
---------------------
(a) Lord Abbett Affiliated Fund, Inc.
Lord Abbett Mid-Cap Value Fund, Inc.
Lord Abbett Bond-Debenture Fund, Inc.
Lord Abbett Developing Growth Fund, Inc.
Lord Abbett Tax-Free Income Fund, Inc.
Lord Abbett U.S. Government Securities Fund, Inc.
Lord Abbett Global Fund, Inc.
Lord Abbett U.S. Government Securities Money Market Fund,
Inc.
Lord Abbett Series Fund, Inc.
Lord Abbett Equity Fund
Lord Abbett Securities Trust
Lord Abbett Investment Trust
Investment Advisors
-------------------
American Skandia Trust (Lord Abbett Growth and Income
Portfolio)
(b) The partners of Lord, Abbett & Co. are:
Name and Principal Positions and Offices
Business Address (1 with Registrant
------------------- ---------------------
Robert S. Dow Chairman and President
Kenneth B. Cutler Vice President & Secretary
Daniel E. Carper Vice President
Stephen I. Allen Vice President
Thomas S. Henderson Vice President
Robert G. Morris Vice President
E. Wayne Nordberg Vice President
John J. Walsh Vice President
(1) Each of the above has a principal business address:
767 Fifth Avenue, New York, NY 10153
(c) Not applicable
3
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
Registrant maintains the records, required by Rules 31a -
1(a) and (b), and 31a - 2(a) at its main office.
Lord, Abbett & Co. maintains the records required by Rule
31a - 1(f) and 31a - 2(e) at its main office.
Certain records such as canceled stock certificates and
correspondence may be physically maintained at the main
office of the Registrant's Transfer Agent, Custodian, or
Shareholder Servicing Agent within the requirements of Rule
31a-3.
Item 31. Management Services
-------------------
None.
Item 32. Undertakings
------------
(a) N/A
(c) The Registrant undertakes to furnish each person
to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to
shareholders, upon request and without charge.
(d) Registrant hereby undertakes, if requested to do
so by the holders of at least 10% of the
Registrant's outstanding shares, to call a
meeting of shareholders for the purpose of voting
upon the question of removal of a Trustee or
Trustees and to assist in communications with
other shareholders as required by Section 16(c)
of the Investment Company Act of 1940, as
amended.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all the requirements
for effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Registration Statement
and/or any amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on the
12th day of July, 1996
LORD ABBETT TAX-FREE INCOME TRUST
By /S/ ROBERT S. DOW
Robert S. Dow, Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
NAME TITLE DATE
- ----- ----- ----
Chairman, President
/s/ Robert S. Dow Trustee July 12, 1996
/s/ John J. Gargana, Jr. Vice President & July 12, 1996
Chief Financial Officer
E. Thayer Bigelow Trustee
/s/ Stewart S. Dixon Trustee July 12, 1996
/s/ John C. Jansing Trustee July 12, 1996
/s/ C. Alan MacDonald Trustee July 12, 1996
/s/ Hansel B. Millican, Jr. Trustee July 12, 1996
Thomas J. Neff Trustee
<PAGE>
LORD ABBETT TAX-FREE INCOME TRUST
---------------------------------
AMENDMENT TO
DECLARATION OF TRUST
--------------------
The undersigned, being at least a majority of the Trustees of Lord Abbett
Tax-Free Income Trust, a Massachusetts business trust (the "Trust"), organized
pursuant to a Declaration of Trust dated September 11, 1991 (the "Declaration"),
do hereby establish, pursuant to Section 5.3 of the Declaration, a new class of
shares for the Florida Series of the Trust, to be designated the Class C shares
of such Series. The initial class of shares of each Series of the Trust shall
be designated the Class A shares of each such Series.
Any variations between such classes as to purchase price, determination of
net asset value, the price, terms and manner of redemption, special and relative
rights as to dividends and on liquidation, and conditions under which such
classes shall have separate voting rights, shall be as set forth in the
Declaration or as elsewhere determined by the Board of Trustees of the Trust.
This instrument shall constitute an amendment to the Declaration.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument this 19th
day of June, 1996.
/s/Ronald P. Lynch
-----------------------
Ronald P. Lynch
/s/Robert S. Dow
-----------------------
Robert S. Dow
/s/E. Thayer Bigelow
-----------------------
E. Thayer Bigelow
/s/Stewart S. Dixon
-----------------------
Stewart S. Dixon
/s/John C. Jansing
-----------------------
John C. Jansing
/s/C. Alan MacDonald
-----------------------
C. Alan MacDonald
/s/Hansel B. Millican, Jr.
-----------------------
Hansel B. Millican, Jr.
/s/Thomas J. Neff
-----------------------
Thomas J. Neff
2
<PAGE>
State of New York )
) ss.
Count of New York )
On June 19, 1996, there personally appeared before me the above-named
individuals who severally acknowledged the foregoing instrument to be their free
act and deed.
Before me
-------------------------------
Notary Public
My commission expires
- -----------------------
3
<PAGE>
LORD ABBETT TAX-FREE INCOME TRUST
---------------------------------
AMENDMENT TO DECLARATION OF TRUST
---------------------------------
Pursuant to Section 8.2 of the Declaration of Trust of Lord Abbett Tax
Free Income Trust, a Massachusetts business trust (the "Trust"), the undersigned
officer of the Trust certifies as follows:
(a) The shareholders of the Trust have duly adopted by a Majority
Shareholder Vote (as defined in the Declaration of Trust of the Trust) the
following amendments to the Declaration of Trust of the Trust:
(i) Section 5.3 is hereby deleted in its entirety and the following
inserted in lieu thereof:
"Section 5.3. Additional Series; Classes. The Trustees may, without
--------------------------
Shareholder approval, from time to time authorize additional Series with
separate investment objectives and policies and distinct investment
purposes and one or more separate classes of any Series. The Trustees
shall have full power and authority in their sole discretion, and
without obtaining any prior authorization or vote of the Shareholders of
any Series or class of the Trust, to establish and designate and to
change in any manner any such Series, or any classes thereof, to fix
such preferences, voting powers, rights and privileges of such Series,
or classes thereof, as the Trustees may from time to time determine, and
to classify or reclassify any issued Shares of any Series, or classes
thereof, into one or more Series or classes. The establishment and
designation of any Series additional to the initial Series of Shares or
the establishment and designation of any class of a Series additional to
the initial class shall be effective upon the execution by a majority of
the Trustees of an instrument setting forth the establishment and
designation of such Series or class thereof (which instrument shall have
the status of an amendment to this Declaration). Such instrument shall
also set forth any rights and preferences of such Series or class which
are in addition to the rights and preferences of Shares set forth in
this Declaration. Each reference to "Shares" in this Declaration shall
be deemed to be a reference to Shares of any Series or class or all
Series and classes, as the context may require. All Shares of any Series
or any classes thereof shall have equal voting, distribution,
redemption, liquidation and other rights and shall be entitled to a
preference over Shares of other Series or any classes
<PAGE>
thereof with respect to the assets of or allocated (pursuant to
subsection 5.4.2) to such Series or any classes thereof. Notwithstanding
the foregoing, the Trustees may establish variations between different
Series, and classes of any Series, as to purchase price, determination
of net asset value, the price, terms and manner of redemption, special
and relative rights as to dividends and on liquidation, conditions under
which the several Series (and classes of any Series) shall have separate
voting rights and such other matters as the Trustees may determine. The
Trustees may from time to time divide or combine the Shares of any
Series or class thereof into a greater or lesser number of Shares of
such Series or class thereof without thereby changing the proportionate
beneficial interests of holders of Shares in such Series or class
thereof. The number of Shares of each Series and each class that may be
issued shall be unlimited."
(ii) The third sentence of Section 5.11 is hereby deleted and the
following inserted in lieu thereof:
"With respect to such matters, the Shareholders of
each affected Series shall have the power to vote as a separate Series
or as a class of a separate Series, as determined by the Trustees, and
other shareholders shall not be entitled to vote."
(iii) The following is inserted as the second paragraph of Section
7.3.1:
"If any Series is divided into classes, the net asset value of
Shares of each class of such Series may be otherwise determined in any
manner, to the extent permitted by applicable law, determined by the
Trustees and disclosed in a prospectus relating to such class."
(b) The execution of this certificate by the undersigned was duly
authorized by the vote of a majority of the Trustees of the Trust and the
foregoing amendments have been duly adopted.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this _____
day of ____________, 1996.
/s/ ROBERT S. DOW
--------------------------
Robert S. Dow, President
3
CONSENT OF INDEPENDENT AUDITORS
Lord Abbett Tax-Free Income Trust:
We consent to the incorporation by reference in Post-Effective Amendment No. 12
to Registration Statement No. 33-43017 of our report dated December 8,1995
appearing in the annual report to shareholders and to the reference to us under
the captions "Financial Highlights" in the Prospectus and "Investment Advisory
and Other Services" and "Financial Statements" in the Statement of Additional
Information, both of which are part of such Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
July 11, 1996
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<NET-CHANGE-IN-ASSETS> 12236075
<ACCUMULATED-NII-PRIOR> 30997
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<AVG-DEBT-PER-SHARE> 0
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<INVESTMENTS-AT-VALUE> 54636394
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 374839
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<PER-SHARE-NII> .284
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.93
<EXPENSE-RATIO> .25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<SERIES>
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<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> DEC-27-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 4921116
<INVESTMENTS-AT-VALUE> 5082225
<RECEIVABLES> 93841
<ASSETS-OTHER> 151659
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5327725
<PAYABLE-FOR-SECURITIES> 97331
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