1933 Act File No. 33-43017
1940 Act File No. 811-6418
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 16 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT |X|
OF 1940
Amendment No. 16 |X|
LORD ABBETT TAX-FREE INCOME TRUST
---------------------------------
Exact Name of Registrant as Specified in Charter
767 FIFTH AVENUE, NEW YORK, N. Y. 10153-0203
--------------------------------------------
Address of Principal Executive Office
Registrant's Telephone Number (212) 848-1800
--------------------------------------------
Paul A. Hilstad, Vice President & Secretary
767 FIFTH AVENUE, NEW YORK, N. Y. 10153
---------------------------------------
Name and Address of Agent for Service
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|_| on (date) pursuant to paragraph (b)
|X| 60 days after filing pursuant to paragraph (a) (1)
|_| on (date) pursuant to paragraph (a) (1)
|_| 75 days after filing pursuant to paragraph (a) (2)
|_| on (date) pursuant to paragraph (a) (2) of rule 485
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
-------------------------------
Prospectus | March 1, 1999
-------------------------------
Lord Abbett
Tax-Free Income Trust
Florida Fund
Georgia Fund
Michigan Fund
Pennsylvania Fund
First Draft
[LOGO](R) LORD, ABBETT & CO.
Investment Management
A Tradition of Performance Through Disciplined Investing
As with all mutual funds, the Securities and Exchange Commission
does not guarantee that the information in this Prospectus is
accurate or complete, and it has not judged these funds for
investment merit. It is a criminal offense to state otherwise.
<PAGE>
Table of Contents
The Funds Page
Information about past Goal / Approach 2
performance, expenses, finan- Main Risks 2
acial highlights of each fund and Portfolio Management 3
single-state fund risks Recent Performance 3
Florida 4
Georgia 7
Michigan 10
Pennsylvania 13
Your Investment
Information for managing Purchases 16
your fund account Opening Your Account 17
Redemptions 18
Distributions and Taxes 18
Management 20
Services For Fund Investors 20
Sales Charges and Service Fees 21
For More Information
How to learn more about Glossary of Shaded Terms 23
the funds and other Back Cover
Lord Abbett funds
<PAGE>
===================
Florida Fund
Georgia Fund
Michigan Fund
Pennsylvania Fund
The Funds
GOAL / APPROACH
Each fund seeks the maximum amount of interest income exempt from federal income
tax and from its state's personal income tax as is consistent with reasonable
risk. At present, Florida does not impose a personal income tax.
To pursue its goal, each fund invests in municipal bonds which are investment
grade. Under normal market conditions, each fund attempts to be substantially
invested in municipal bonds, the interest on which is exempt from federal and
its state's personal income tax. Under normal circumstances, we intend to
maintain the average weighted stated maturity of each fund at between ten and
thirty-five years.
In selecting bonds, we focus on:
o Credit Quality - an issuer's ability to pay principal and interest.
o Call Protection - assurance by an issuer that a bond will not be paid off
earlier.
o Income Tax Exemption - the bond issuer's ability to pay interest free from
federal, state and/or local personal income taxes.
o Total Return Potential - the return possibilities for an investment over a
period of time, including appreciation and interest.
Information on recent market conditions and the funds' strategies can be found
under "Recent Performance" and in the current annual/semiannual report (see back
cover). Each report also has the funds' holdings information.
MAIN RISKS
Although municipal bonds are generally designed to provide a stable and steady
flow of in-come, their prices move inversely with changes in interest rates.
This means the value of your investment could increase or decrease which means
that you could lose money. Additional risks that could reduce each fund's income
level and share price include the following.
o Credit risk - the possibility that an issuer of bonds fails to make timely
payments of principal or interest.
o Call risk - as interest rates decline, a bond issuer may pay off its loan
early by buying back the bond.
o Governmental risk - government actions could have an adverse risk on
municipal bond prices and could cause prices to fall.
While typically fully invested, at times we may take a temporary position in:
(i) short-term tax-exempt securities and (ii) cash, investment grade commercial
paper and short-term U.S. Government Securities (limited to 20% of our assets).
This could reduce tax-exempt personal income.
See the terms: Borrowing, Concentration, Diversification, Illiquid Securities,
Investment Grade, Options and Financial Futures Transactions, Private Activity
Bonds, Residual Interest Bonds, U.S. Government Securities, and When-Issued
Municipal Bonds under "For More Information" to learn about our other investment
strategies and their risks.
WE OR THE FUNDS refers to any one or more of the four portfolios of Lord Abbett
Tax-Free Income Trust (the "company") which operates through its officers under
the supervision of its Board of Trustees with the advice of Lord, Abbett & Co.
("Lord Abbett").
Reasonable risk is the volatility each fund has over time which we believe will
approximate the Lehman Brothers Current Coupon Long Index.
MUNICIPAL BONDS ("bonds") are debt securities issued by or on behalf of states,
territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities which provide income free from
federal, state and/or local personal income taxes. Municipal bonds are generally
divided into two types:
GENERAL OBLIGATION BONDS are secured by the full faith and credit of the issuer
and its taxing power.
REVENUE BONDS are payable from revenue derived from a particular facility or
service, such as toll bridges, sewer services and industrial development bonds
are revenue bonds.
2 The Funds
<PAGE>
===================
Florida Fund
Georgia Fund
Michigan Fund
Pennsylvania Fund
The Funds
PORTFOLIO MANAGEMENT
Zane E. Brown, Partner and Director of Fixed Income of Lord Abbett and
Portfolio Manager of the Company, is primarily responsible for the
day-to-day management of each fund. Mr. Brown has been with Lord Abbett
since 1992 and has over 21 years of investment experience. Mr. Brown is
assisted by, and may delegate management duties to, other Lord Abbett
employees.
RECENT PERFORMANCE
During the past fiscal year, economic and political uncertainties abroad
created concern regarding the domestic economy and investors moved from
lower-rated fixed income investments into higher-quality bonds. Because of
our continued focus on high-quality municipal issues, the funds' net asset
values increased.
Throughout the fiscal year, the funds held some prerefunded bonds. In an
environment of falling rates, many issuers prerefunded existing,
higher-coupon bonds. When an issuer prerefunds bonds, the proceeds from
newly issued lower-yielding bonds are used to buy Treasury securities.
These Treasury securities are held to pay interest and principal on the
older, higher-coupon bonds on the first call date (The call date is a date
upon which an issuer may redeem a bond). When a bond becomes a strong
prerefunding candidate, it trades off its lower yield-to-call rather than
its higher yield-to-maturity. As a result, it appreciates in price due to
the closer maturity date (the call date) and the increase in the
underlying credit quality (through the use of the Treasury securities).
In the spring, Long Island Power Authority ("LIPA") brought to market the
largest municipal bond issue ($3 billion) in history. Before this
offering, many portfolio managers raised cash by selling bonds to raise
the cash needed to invest in the LIPA issue. We correctly anticipated that
managers would need to liquidate some of their high quality bonds to make
room for LIPA, and purchased several issues at prices which we believe
were below their true value.
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 the 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. Although its unemployment rate has
steadily declined in recent years, Puerto Rico's rate continues to exceed
the U.S. average.
YEAR 2000 ISSUES. Each fund could be adversely affected if the computers used by
each fund and state and their service providers do not properly process and
calculate date-related information from and after January 1, 2000.
While year 2000-related computer problems could have a negative effect on each
fund, Lord Abbett is working to avoid such problems and has assurances from each
fund's service providers that they are taking similar steps. However, because
the problem is unprecedented, we don't know whether these efforts will be
successful. Accordingly, each fund may be adversely affected.
The Funds 3
<PAGE>
==========================
Florida Fund Symbols: Class A - LAFLX
Class C - FLLAX
PAST PERFORMANCE - Florida
The chart and table below show how the fund's class A share calendar year
total returns fluctuate, without a sales charge. This assumes reinvestment
of dividends and distributions. With a sales charge, returns would be less
than those shown.
AWAITING DATA
================================================================================
Comparison of class A shares' average annual total return at maximum sales
charge to that of the Lehman Municipal Bond Index which has no sales
charge. Assumes reinvestment of dividends and distributions. All periods
end on December 31, 1998.
Class 1 Year 5 Years 10 Years Inception(i)
A .% .% .% .%
- --------------------------------------------------------------------------------
C .% -- -- .%
- --------------------------------------------------------------------------------
Lehman Municipal
Bond Index(ii) .% .% .% .%
- --------------------------------------------------------------------------------
ABOUT THE FUND. The fund is a professionally managed portfolio primarily holding
municipal bonds purchased with the pooled money of investors. It strives to
reach its stated goal, although as with all funds, it cannot guarantee results
and its past performance is not a prediction of future results.
An investment in the fund is not a bank deposit. It is not FDIC-insured or
government-endorsed. It is not a complete investment program. You could lose
money in this fund, but you also have the potential to make money.
- ----------
(i) The dates of inception for each class are as follows: A -9/25/91; and C
-7/15/96.
(ii) Performance for the unmanaged Lehman Municipal Bond Index does not reflect
transaction costs or management fees. This index is composed of municipal
bonds from many different states and, therefore, it may not be valid to
compare to a single-state municipal bond portfolio, such as this Fund.
EXPENSES - Florida
As an investor, you pay certain fees and expenses in connection with the
fund, which are described in the fee table below. Shareholder transaction
fees are paid from your account. Annual fund operating expenses are paid
out of fund assets, so they reduce the fund's share price.
================================================================================
Fee table
================================================================================
Class A Class C
Shareholder Transaction Fees
- --------------------------------------------------------------------------------
Maximum Sales Charge on Purchases
- --------------------------------------------------------------------------------
(as a % of offering price) 4.75% none
- --------------------------------------------------------------------------------
Deferred Sales Charge (See "Purchases") none 1.00%(1)
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fees (See "Management") 0.50% 0.50%
- --------------------------------------------------------------------------------
12b-1 Fees(2) 0.35% 1.00%
- --------------------------------------------------------------------------------
Other Expenses (See "Management") 0.13% 0.13%
- --------------------------------------------------------------------------------
Total Operating Expenses 0.98% 1.63%
- --------------------------------------------------------------------------------
================================================================================
Expense example
================================================================================
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment at maximum sales charge, if any, 5% total return each year and no
changes in expenses. You pay the following expenses over the course of each
period shown if you sell your shares at the end of the period. The expenses
include any applicable contingent deferred sales charges.
Share class 1 Year 3 Years 5 Years 10 Years
Class A shares $570 $772 $991 $1,622
- --------------------------------------------------------------------------------
Class C shares $166 $514 $886 $1,935
- --------------------------------------------------------------------------------
You would pay the following expenses on the same investment, assuming you kept
your shares
Class A shares $570 $772 $991 $1,622
- --------------------------------------------------------------------------------
Class C shares $166 $514 $886 $1,935
- --------------------------------------------------------------------------------
This example is for comparison and is not a representation of the fund's actual
expenses or returns, either past or present.
MANAGEMENT FEE: The fee payable to Lord Abbett for the fund's investment
management.
12B-1 FEES: 12b-1 refers to the federal securities regulation that permits funds
to pay distribution fees for any activity which is primarily intended to result
in the sale of fund shares and service fees for shareholder account service and
maintenance.
OTHER EXPENSES: Fees paid by the fund for miscellaneous items such as transfer
agency, custody, accounting, legal and share registration fees.
- ----------
(1) 1.00% if shares are redeemed before 1st anniversary of purchase.
(2) Because 12b-1 distribution fees (up to: 0.25%- class A; and 0.75%- class
C) are paid out of the fund's assets on an on-going basis, over time these
fees will increase the cost of your investment and may cost you more than
paying other types of sales charges. Service fees under each class's 12b-1
Plan equal up to 0.25%.
4 The Funds
<PAGE>
Florida Fund
FINANCIAL HIGHLIGHTS - Florida
This table describes the fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in the fund would
have increased (or decreased) during each period, if you had reinvested
all dividends and distributions. These Financial Highlights have been
audited by Deloitte & Touche LLP, the fund's independent auditors, in
conjunction with their annual audits of the fund's financial statements.
Financial statements for the fiscal year ended October 31, 1998 and the
Independent Auditors' Report thereon appear in the Annual Report to
Shareholders for that fiscal year and are incorporated by reference into
the Statement of Additional Information.
<TABLE>
<CAPTION>
=========================================================================================================
Class A Shares
---------------------------------------------------------------
Year Ended October 31,
Per Share Operating Performance: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 4.87 $ 4.79 $ 4.85 $ 4.49 $ 5.28
- ---------------------------------------------------------------------------------------------------------
Income from investment operations
- ---------------------------------------------------------------------------------------------------------
Net investment income 0.235 0.240 0.248 0.271 0.291
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized
- ---------------------------------------------------------------------------------------------------------
gain (loss) on investments 0.113 0.092 (0.056) 0.352 (0.695)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 0.00 0.332 0.192 0.623 (0.404)
- ---------------------------------------------------------------------------------------------------------
Distributions
- ---------------------------------------------------------------------------------------------------------
Dividends from net investment income 0.238 (0.252) (0.252) (0.263) (0.2835)
- ---------------------------------------------------------------------------------------------------------
Distributions from net realized gain -- -- -- -- (0.1025)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 4.98 $ 4.87 $ 4.79 $ 4.85 $ 4.49
- ---------------------------------------------------------------------------------------------------------
Total Return(a) 7.30% 7.12% 4.09% 14.22% (8.03%)
- ---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ---------------------------------------------------------------------------------------------------------
Expenses, including waiver 0.89% 0.86% 0.80% 0.74% 0.32%
Expenses, excluding waiver 0.00% 0.86% 0.82% 0.88% 0.32%
- ---------------------------------------------------------------------------------------------------------
Net investment income 4.79% 5.03% 5.19% 5.81% 5.98%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
Class C Shares
--------------------------------------
Year Ended October 31,
Per Share Operating Performance: 1998 1997 1996(b)
Net asset value, beginning of period $ 4.87 $ 4.79 $ 4.70
- --------------------------------------------------------------------------------
Income from investment operations
- --------------------------------------------------------------------------------
Net investment income 0.200 0.202 0.064
- --------------------------------------------------------------------------------
Net realized and unrealized
- --------------------------------------------------------------------------------
gain on securities 0.112 0.093 0.093
- --------------------------------------------------------------------------------
Total from investment operations 0.312 0.295 0.157
- --------------------------------------------------------------------------------
Distributions
- --------------------------------------------------------------------------------
Dividends from net investment income 0.202 (0.215) (0.067)
- --------------------------------------------------------------------------------
Net asset value, end of period $ 4.98 $ 4.87 $ 4.79
- --------------------------------------------------------------------------------
Total Return(a) 6.52% 6.33% 3.35%(c)
- --------------------------------------------------------------------------------
Ratios to average net assets:
- --------------------------------------------------------------------------------
Expenses 1.58% 1.57% 0.44%(c)
- --------------------------------------------------------------------------------
Net investment income 4.09% 4.29% 1.37%(c)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=========================================================================================================================
Year Ended October 31,
-------------------------------------------------------------------------------
Supplemental Data For All Classes: 1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net Assets, end of year (000) $134,567 $144,748 $162,070 $173,242 $174,844 $191,463
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 140.61% 106.32% 167.95% 142.04% 122.36% 89.32%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(b) From July 15, 1996 commencement of operations.
(c) Not annualized.
See Notes to Financial Statements.
The Funds 5
<PAGE>
Florida Fund
LINE GRAPH COMPARISON - Florida
Immediately below is a comparison of a $10,000 investment in class A
shares to the same investment in both Lipper's average of Florida tax-free
funds and the Lehman Municipal Bond Index, assuming reinvestment of all
dividends and distributions.
[The following table was depicted as a line graph in the printed material.]
Past performance is no guarantee of future results.
Fiscal Year-end 10/31
<TABLE>
<CAPTION>
9/25/91 1991 1992 1993 1994 1995 1996 1997
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The fund (Class A shares)
at net asset value $10,000 $10,057 $10,726 $12,682 $11,664 $13,323 $13,869 $14,856
- -----------------------------------------------------------------------------------------------------------------------------
The fund (Class A shares)
at maximum offering price(1) 9,520 9,575 10,211 12,073 11,103 12,684 13,203 14,143
- -----------------------------------------------------------------------------------------------------------------------------
Lipper's Average of Florida tax-free funds(2) 10,000 10,886 10,934 12,475 11,869 13,316 13,984 15,050
- -----------------------------------------------------------------------------------------------------------------------------
Lehman Municipal Bond Index(3) 10,000 10,090 10,937 12,476 12,043 14,817 15,697 17,300
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
Fund's Average Annual Total Return at Maximum Applicable
Sales Charge for the Periods Ending October 31, 1998
1 Year 5 Years 10 Years (or Life)
================================================================================
Class A(4) 2.00% 5.69% 8.86%
- --------------------------------------------------------------------------------
Class C(5) 6.33% -- 7.55%
- --------------------------------------------------------------------------------
FLORIDA - Risk Factors
Florida's economic expansion has been strong, as employment rates continue
to grow steadily. Because Florida has a proportionately 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 tax revenues.
The State of Florida is not authorized by law to issue obligations to fund
governmental operations. 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.
- ----------
(1) Reflects the deduction of the maximum initial sales charge of 4.75%
(2) Source: Lipper Analytical Services.
(3) Performance for the unmanaged Lehman Municipal Bond Index does not reflect
transaction costs, management fees or sales charges. This index is
composed of municipal bonds from many different states and, therefore, it
may not be valid to compare to a single-state municipal bond portfolio,
such as this fund.
(4) This shows total return which 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, 1998 using the SEC-required uniform method to
compute total return. The class A shares inception date is 9/25/91.
(5) The class C shares were first offered on 7/15/96. Performance is at net
asset value.
6 The Funds
<PAGE>
==========================
Georgia Fund Symbols: Class A - LAGAX
PAST PERFORMANCE - Georgia
The chart and table below show how the fund's class A share calendar year
total returns fluctuate, without a sales charge. This assumes reinvestment
of dividends and distributions. With a sales charge, returns would be less
than those shown.
AWAITING DATA
================================================================================
Comparison of class A shares' average annual total return at maximum sales
charge to that of the Lehman Municipal Bond Index which has no sales
charge. Assumes reinvestment of dividends and distributions. All periods
end on December 31, 1998.
Class 1 Year 5 Years 10 Years Inception(i)
A .% .% .% .%
- --------------------------------------------------------------------------------
Lehman Municipal
Bond Index(ii) .% .% .% .%
- --------------------------------------------------------------------------------
EXPENSES - Georgia
As an investor, you pay certain fees and expenses in connection with the
fund, which are described in the fee table below. Shareholder transaction
fees are paid from your account. Annual fund operating expenses are paid
out of fund assets, so they reduce the fund's share price.
================================================================================
Fee table
================================================================================
Class A
Shareholder Transaction Fees
- --------------------------------------------------------------------------------
Maximum Sales Charge on Purchases
- --------------------------------------------------------------------------------
(as a % of offering price) 4.75%
- --------------------------------------------------------------------------------
Deferred Sales Charge (See "Purchases") none
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fees (See "Management") 0.50%
- --------------------------------------------------------------------------------
12b-1 Fees(1) 0.35%
- --------------------------------------------------------------------------------
Other Expenses (See "Management") 0.13%
- --------------------------------------------------------------------------------
Total Operating Expenses 0.98%
- --------------------------------------------------------------------------------
================================================================================
Expense example
- --------------------------------------------------------------------------------
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment at maximum sales charge, if any, 5% total return each year and no
changes in expenses. You pay the following expenses over the course of each
period shown if you sell your shares at the end of the period. The expenses
include any applicable contingent deferred sales charges.
Share class 1 Year 3 Years 5 Years 10 Years
Class A shares $570 $772 $991 $1,622
- --------------------------------------------------------------------------------
You would pay the following expenses on the same investment, assuming you kept
your shares.
Class A shares $570 $772 $991 $1,622
- --------------------------------------------------------------------------------
This example is for comparison and is not a representation of the fund's actual
expenses or returns, either past or present.
ABOUT THE FUND. The fund is a professionally managed portfolio primarily holding
municipal bonds purchased with the pooled money of investors. It strives to
reach its stated goal, although as with all funds, it cannot guarantee results
and its past performance is not a prediction of future results.
An investment in the fund is not a bank deposit. It is not FDIC-insured or
government-endorsed. It is not a complete investment program. You could lose
money in this fund, but you also have the potential to make money.
- ----------
(i) The date of inception for the class is as follows: A -12/27/94.
(ii) Performance for the unmanaged Lehman Municipal Bond Index does not reflect
transaction costs or management fees.
MANAGEMENT FEE: The fee payable to Lord Abbett for the fund's investment
management. Lord Abbett expects to waive the management fee for the current
fiscal year.
12B-1 FEES: 12b-1 refers to the federal securities regulation that permits funds
to pay distribution fees for any activity which is primarily intended to result
in the sale of fund shares and service fees for shareholder account service and
maintenance.
OTHER EXPENSES: Fees paid by the fund for miscellaneous items such as transfer
agency, custody, accounting, legal and share registration fees. Lord Abbett
subsidizes ___ of the fund's other expenses.
- ----------
(1) Because 12b-1 distribution fees (up to: 0.25%- class A, are paid out of
the fund's assets on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than paying other types
of sales charges. Service fee under the class's 12b-1 Plan equals up to
0.25%.
The Funds 7
<PAGE>
Georgia Fund
FINANCIAL HIGHLIGHTS - Georgia
This table describes the fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in the fund would
have increased (or decreased) during each period, if you had reinvested
all dividends and distributions. These Financial Highlights have been
audited by Deloitte & Touche LLP, the fund's independent auditors, in
conjunction with their annual audits of the fund's financial statements.
Financial statements for the fiscal year ended October 31, 1998 and the
Independent Auditors' Report thereon appear in the Annual Report to
Shareholders for that fiscal year and are incorporated by reference into
the Statement of Additional Information.
<TABLE>
<CAPTION>
=========================================================================================
Class A Shares
-----------------------------------------------
Year Ended October 31,
Per Share Operating Performance: 1998 1997 1996 1995(b)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $5.31 $5.14 $5.12 $4.76
- -----------------------------------------------------------------------------------------
Income from investment operations
- -----------------------------------------------------------------------------------------
Net investment income 0.276 0.275 0.290 0.245
- -----------------------------------------------------------------------------------------
Net realized and unrealized
- -----------------------------------------------------------------------------------------
gain (loss) on investments 0.187 0.187 0.0397 0.370
- -----------------------------------------------------------------------------------------
Total from investment operations 0.00 0.462 0.3297 0.615
- -----------------------------------------------------------------------------------------
Distributions
- -----------------------------------------------------------------------------------------
Dividends from net investment income 0.268 (0.282) (0.2872) (0.255)
- -----------------------------------------------------------------------------------------
Distributions from net realized gain -- (0.01) (0.0225) --
- -----------------------------------------------------------------------------------------
Net asset value, end of period $5.43 $5.31 $5.14 $5.12
- -----------------------------------------------------------------------------------------
Total Return(a) 9.00% 9.27% 6.69% 13.15%(c)
- -----------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -----------------------------------------------------------------------------------------
Expenses, including waiver 0.00% 0.38% 0.03% 0.00%(c)
Expenses, excluding waiver 0.74% 0.88% 0.83% 1.08%(c)
- -----------------------------------------------------------------------------------------
Net investment income 5.07% 5.23% 5.55% 5.44%(c)
- -----------------------------------------------------------------------------------------
</TABLE>
================================================================================
Year Ended October 31,
-------------------------------------------------
Supplemental Data: 1998 1997 1996 1995(b)
Net Assets, end of year(000) $19,764 $13,897 $10,688 $5,203
- --------------------------------------------------------------------------------
Portfolio turnover rate 126.52% 90.40% 72.53% 142.69%
- --------------------------------------------------------------------------------
(a) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(b) From December 27, 1994 commencement of operations.
(c) Not annualized.
See Notes to Financial Statements.
8 The Funds
<PAGE>
Georgia Fund
LINE GRAPH COMPARISON - Georgia
Immediately below is a comparison of a $10,000 investment in class A
shares to the same investment in both Lipper's average of Georgia tax-free
funds and the Lehman Municipal Bond Index, assuming reinvestment of all
dividends and distributions.
[The following table was depicted as a line graph in the printed material.]
================================================================================
Past performance is no guarantee of future results.
Fiscal Year-end 10/31
<TABLE>
<CAPTION>
12/27/94 1995 1996 1998
=====================================================================================
<S> <C> <C> <C> <C>
The fund (Class A shares)
at net asset value $10,000 $11,315 $12,071 $13,189
- -------------------------------------------------------------------------------------
The fund (Class A shares)
at maximum offering price(1) 9,520 10,772 11,492 12,556
- -------------------------------------------------------------------------------------
Lipper's Average of Florida tax-free funds(2) 10,000 11,391 11,996 12,972
- -------------------------------------------------------------------------------------
Lehman Municipal Bond Index(3) 10,000 11,445 12,125 13,363
- -------------------------------------------------------------------------------------
</TABLE>
================================================================================
Fund's Average Annual Total Return at Maximum Applicable
Sales Charge for the Periods Ending October 31, 1998
1 Year 5 Years 10 Years (or Life)
- --------------------------------------------------------------------------------
Class A(4) 4.40% 4.60% 7.65%
- --------------------------------------------------------------------------------
GEORGIA - Risk Factors
Georgia Bonds-Risk Factors. Georgia has been one of the fastest-growing
states in terms of population, and has benefited from steady economic
growth due to the State's low cost of living, extensive transportation
infrastructure and low unemployment rates. As with the rest of the nation,
growth in the services sector has aided the State's overall employment
growth. Georgia also has experienced strong growth in the construction
industry.
- ----------
(1) Reflects the deduction of the maximum initial sales charge of 4.75%
(2) Source: Lipper Analytical Services.
(3) Performance for the unmanaged Lehman Municipal Bond Index does not reflect
transaction costs, management fees or sales charges.
(4) This shows total return which 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, 1998 using the SEC-required uniform method to
compute total return. The class A share inception date is 12/27/94.
The Funds 9
<PAGE>
==========================
Michigan Fund Symbols: Class A - LAMIX
PAST PERFORMANCE - Michigan
The chart and table below show how the fund's class A share calendar year
total returns fluctuate, without a sales charge. This assumes reinvestment
of dividends and distributions. With a sales charge, returns would be less
than those shown.
AWAITING DATA
================================================================================
Comparison of class A shares' average annual total return at maximum sales
charge to that of the Lehman Municipal Bond Index which has no sales
charge. Assumes reinvestment of dividends and distributions. All periods
end on December 31, 1998.
Class 1 Year 5 Years 10 Years Inception(i)
A .% .% .% .%
- --------------------------------------------------------------------------------
C .% -- -- .%
- --------------------------------------------------------------------------------
Lehman Municipal
Bond Index(ii) .% .% .% .%
- --------------------------------------------------------------------------------
EXPENSES - Michigan
As an investor, you pay certain fees and expenses in connection with the
fund, which are described in the fee table below. Shareholder transaction
fees are paid from your account. Annual fund operating expenses are paid
out of fund assets, so they reduce the fund's share price.
================================================================================
Fee table
================================================================================
Class A
Shareholder Transaction Fees
- --------------------------------------------------------------------------------
Maximum Sales Charge on Purchases
- --------------------------------------------------------------------------------
(as a % of offering price) 4.75%
- --------------------------------------------------------------------------------
Deferred Sales Charge (See "Purchases") none
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fees (See "Management") 0.50%
- --------------------------------------------------------------------------------
12b-1 Fees(1) 0.00%
- --------------------------------------------------------------------------------
Other Expenses (See "Management") 0.19%
- --------------------------------------------------------------------------------
Total Operating Expenses 0.69%
- --------------------------------------------------------------------------------
================================================================================
Expense example
- --------------------------------------------------------------------------------
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment at maximum sales charge, if any, 5% total return each year and no
changes in expenses. You pay the following expenses over the course of each
period shown if you sell your shares at the end of the period. The expenses
include any applicable contingent deferred sales charges.
Share class 1 Year 3 Years 5 Years 10 Years
Class A shares $542 $685 $841 $1,295
- --------------------------------------------------------------------------------
You would pay the following expenses on the same investment, assuming you kept
your shares.
Class A shares $542 $685 $841 $1,295
- --------------------------------------------------------------------------------
This example is for comparison and is not a representation of the fund's actual
expenses or returns, either past or present.
ABOUT THE FUND. The fund is a professionally managed portfolio primarily holding
municipal bonds purchased with the pooled money of investors. It strives to
reach its stated goal, although as with all funds, it cannot guarantee results
and its past performance is not a prediction of future results.
An investment in the fund is not a bank deposit. It is not FDIC-insured or
government-endorsed. It is not a complete investment program. You could lose
money in this fund, but you also have the potential to make money.
- ----------
(i) The dates of inception for each class are as follows: A -12/1/92.
(ii) Performance for the unmanaged Lehman Municipal Bond Index does not reflect
transaction costs or management fees. This index is composed of municipal
bonds from many different states and, therefore, it may not be valid to
compare to a single-state municipal bond portfolio, such as this Fund.
MANAGEMENT FEE: The fee payable to Lord Abbett for the fund's investment
management.
12B-1 FEES: 12b-1 refers to the federal securities regulation that permits funds
to pay distribution fees for any activity which is primarily intended to result
in the sale of fund shares and service fees for shareholder account service and
maintenance.
OTHER EXPENSES: Fees paid by the fund for miscellaneous items such as transfer
agency, custody, accounting, legal and share registration fees.
- ----------
(1) 1.00% if shares are redeemed before 1st anniversary of purchase.
(2) Because 12b-1 distribution fees (up to: 0.25%- class A) are paid out of
the fund's assets on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than paying other types
of sales charges. Service fees under each class's 12b-1 Plan equals up to
0.25%.
10 The Funds
<PAGE>
Michigan Fund
FINANCIAL HIGHLIGHTS - Michigan
This table describes the fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in the fund would
have increased (or decreased) during each period, if you had reinvested
all dividends and distributions. These Financial Highlights have been
audited by Deloitte & Touche LLP, the fund's independent auditors, in
conjunction with their annual audits of the fund's financial statements.
Financial statements for the fiscal year ended October 31, 1998 and the
Independent Auditors' Report thereon appear in the Annual Report to
Shareholders for that fiscal year and are incorporated by reference into
the Statement of Additional Information.
<TABLE>
<CAPTION>
===============================================================================================
Class A Shares
-----------------------------------------------------
Year Ended October 31,
Per Share Operating Performance: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $5.06 $4.93 $4.93 $4.53 $5.23
- -----------------------------------------------------------------------------------------------
Income from investment operations
- -----------------------------------------------------------------------------------------------
Net investment income 0.255 0.267 0.274 0.284 0.286
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
- -----------------------------------------------------------------------------------------------
gain (loss) on investments 0.121 0.128 (0.010) 0.395 (0.651)
- -----------------------------------------------------------------------------------------------
Total from investment operations 0.376 0.395 0.264 0.679 (0.365)
- -----------------------------------------------------------------------------------------------
Distributions
- -----------------------------------------------------------------------------------------------
Dividends from net investment income (0.256) (0.265) (0.264) (0.279) (0.293)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gain -- -- -- -- (0.042)
- -----------------------------------------------------------------------------------------------
Net asset value, end of year $5.18 $5.06 $4.93 $4.93 $4.53
- -----------------------------------------------------------------------------------------------
Total Return(a) 7.59% 8.24% 5.53% 15.39% (7.29%)
- -----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -----------------------------------------------------------------------------------------------
Expenses, including waiver 0.69% 0.60% 0.44% 0.25% 0.34%
Expenses, excluding waiver 0.00% 0.68% 0.73% 0.75% 0.84%
- -----------------------------------------------------------------------------------------------
Net investment income 4.98% 5.37% 5.59% 5.95% 5.69%
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================
Year Ended October 31,
--------------------------------------------------------------
Supplemental Data: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, end of year(000) $53,139 $52,630 $52,975 $54,186 $45,603
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate 82.33% 68.50% 85.26% 98.89% 137.31%
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
See Notes to Financial Statements.
The Funds 11
<PAGE>
Michigan Fund
LINE GRAPH COMPARISON - Michigan
Immediately below is a comparison of a $10,000 investment in class A
shares to the same investment in both Lipper's average of Michigan
tax-free funds and the Lehman Municipal Bond Index, assuming reinvestment
of all dividends and distributions.
[The following table was depicted as a line graph in the printed material.]
================================================================================
<TABLE>
<CAPTION>
12/1/92 1993 1994 1995 1996 1997
=========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
The fund (Class A shares)
at net asset value $10,000 $11,600 $10,754 $12,409 $13,095 $14,173
- ---------------------------------------------------------------------------------------------------------
The fund (Class A shares)
at maximum offering price(1) 9,520 11,044 10,238 11,814 12,467 13,492
- ---------------------------------------------------------------------------------------------------------
Lipper's Average of Florida tax-free funds(2) 10,000 11,207 12,016 14,796 15,675 17,275
- ---------------------------------------------------------------------------------------------------------
Lehman Municipal Bond Index(3) 10,000 11,190 10,812 12,638 13,265 14,268
- ---------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
Fund's Average Annual Total Return at Maximum Applicable
Sales Charge for the Periods Ending October 31, 1998
1 Year 5 Years 10 Years (or Life)
- --------------------------------------------------------------------------------
Class A(4) 3.20% 4.45% 8.03%
- --------------------------------------------------------------------------------
MICHIGAN - Risk Factors
Michigan Bonds-Risk Factors. Michigan's economic forecast for calendar
years 1998 and 1999 projects healthy growth. Michigan's economy remains
heavily concentrated in the manufacturing sector. The State's automobile
industry remains an important component of this sector. Accordingly, the
State's economy is potentially more volatile than those of other states
with more diverse economies and may be more likely to be adversely
affected by recent global economic problems. Renewed state economic growth
has caused the Michigan unemployment rate to remain slightly below the
U.S. unemployment rate for six consecutive years, running counter to a
historical trend of Michigan having a higher unemployment rate than the
national average.
- ----------
(1) Reflects the deduction of the maximum initial sales charge of 4.75%
(2) Performance for the unmanaged Lehman Municipal Bond Index does not reflect
transaction costs, management fees or sales charges. This index is
composed of municipal bonds from many different states and, therefore, it
may not be valid to compare to a single-state municipal bond portfolio,
such as this Fund.
(3) Source: Lipper Analytical Services.
(4) This shows total return which 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, 1998 using the SEC-required uniform method to
compute total return. The class A shares inception date is 12/1/92.
12 The Funds
<PAGE>
=========================
Pennsylvania Fund Symbol: Class A - LAPAX
PAST PERFORMANCE - Pennsylvania
The chart and table below show how the fund's class A share calendar year
total returns fluctuate, without a sales charge. This assumes reinvestment of
dividends and distributions. With a sales charge, returns would be less than
those shown.
AWAITING DATA
================================================================================
Comparison of class A shares' average annual total return at maximum sales
charge to that of the Lehman Municipal Bond Index which has no sales
charge. Assumes reinvestment of dividends and distributions. All periods
end on December 31, 1998.
Class 1 Year 5 Years 10 Years Inception(i)
A .% .% .% .%
- --------------------------------------------------------------------------------
Lehman Municipal
Bond Index(ii) .% .% .% .%
- --------------------------------------------------------------------------------
EXPENSES - Pennsylvania
As an investor, you pay certain fees and expenses in connection with the
fund, which are described in the fee table below. Shareholder transaction
fees are paid from your account. Annual fund operating expenses are paid
out of fund assets, so they reduce the fund's share price.
================================================================================
Fee table
================================================================================
Class A
Shareholder Transaction Fees
- --------------------------------------------------------------------------------
Maximum Sales Charge on Purchases
- --------------------------------------------------------------------------------
(as a % of offering price) 4.75%
- --------------------------------------------------------------------------------
Deferred Sales Charge (See "Purchases") none
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management Fees (See "Management") 0.50%
- --------------------------------------------------------------------------------
12b-1 Fees(1) 0.35%
- --------------------------------------------------------------------------------
Other Expenses (See "Management") 0.10%
- --------------------------------------------------------------------------------
Total Operating Expenses 0.95%
- --------------------------------------------------------------------------------
================================================================================
Expense example
- --------------------------------------------------------------------------------
This example, like that in other funds' prospectuses, assumes a $10,000 initial
investment at maximum sales charge, if any, 5% total return each year and no
changes in expenses. You pay the following expenses over the course of each
period shown if you sell your shares at the end of the period. The expenses
include any applicable contingent deferred sales charges.
Share class 1 Year 3 Years 5 Years 10 Years
Class A shares $567 $763 $976 $1,588
- --------------------------------------------------------------------------------
You would pay the following expenses on the same investment, assuming you kept
your shares.
ABOUT THE FUND. The fund is a professionally managed portfolio primarily holding
municipal bonds purchased with the pooled money of investors. It strives to
reach its stated goal, although as with all funds, it cannot guarantee results
and its past performance is not a prediction of future results.
An investment in the fund is not a bank deposit. It is not FDIC-insured or
government-endorsed. It is not a complete investment program. You could lose
money in this fund, but you also have the potential to make money.
- ----------
(i) The date of inception for class A shares is 2/3/92.
(ii) Performance for the unmanaged Lehman Municipal Bond Index does not reflect
transaction costs or management fees. This index is composed of municipal
bonds from many different states and, therefore, it may not be valid to
compare to a single-state municipal bond portfolio, such as this Fund.
MANAGEMENT FEE: The fee payable to Lord Abbett for the fund's investment
management.
12b-1 fees: 12b-1 refers to the federal securities regulation that permits funds
to pay distribution fees for any activity which is primarily intended to result
in the sale of fund shares and service fees for shareholder account service and
maintenance.
OTHER EXPENSES: Fees paid by the fund for miscellaneous items such as transfer
agency, custody, accounting, legal and share registration fees.
- ----------
(1) Because 12b-1 distribution fees (up to: 0.25%- class A) are paid out of
the fund's assets on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than paying other types
of sales charges. Service fees under each class's 12b-1 Plan equals up to
0.25%.
The Funds 13
<PAGE>
Pennsylvania Fund
FINANCIAL HIGHLIGHTS - Pennsylvania
This table describes the fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in the fund would
have increased (or decreased) during each period, if you had reinvested
all dividends and distributions. These Financial Highlights have been
audited by Deloitte & Touche LLP, the fund's independent auditors, in
conjunction with their annual audits of the fund's financial statements.
Financial statements for the fiscal year ended October 31, 1998 and the
Independent Auditors' Report thereon appear in the Annual Report to
Shareholders for that fiscal year and are incorporated by reference into
the Statement of Additional Information.
<TABLE>
<CAPTION>
====================================================================================================
Class A Shares
---------------------------------------------------------
Year Ended October 31,
Per Share Operating Performance: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $5.14 $5.01 $5.01 $4.62 $5.33
- ----------------------------------------------------------------------------------------------------
Income from investment operations
- ----------------------------------------------------------------------------------------------------
Net investment income 0.264 0.276 0.2772 0.282 0.300
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized
- ----------------------------------------------------------------------------------------------------
gain (loss) on investments 0.144 0.131 (0.0011) 0.395 (0.6975)
- ----------------------------------------------------------------------------------------------------
Total from investment operations 0.408 0.407 0.2761 0.677 (0.3975)
- ----------------------------------------------------------------------------------------------------
Distributions
- ----------------------------------------------------------------------------------------------------
Dividends from net investment income 0.268 (0.277) (0.2761) (0.2870) (0.2925)
- ----------------------------------------------------------------------------------------------------
Distributions from net realized gain -- -- -- -- (0.02)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of year $5.28 $5.14 $5.01 $5.01 $4.62
- ----------------------------------------------------------------------------------------------------
Total Return(a) 8.12% 8.37% 5.68% 15.02% (7.73%)
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ----------------------------------------------------------------------------------------------------
Expenses, including waiver 0.72% 0.61% 0.62% 0.50% 0.33%
Expenses, excluding waiver 0.00% 0.65% 0.69% 0.65% 0.68%
- --------------------------------------------------------------------------------------------------
Net investment income 5.05% 5.47% 5.55% 5.83% 5.98%
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================
Year Ended October 31,
---------------------------------------------------------------
Supplemental Data: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, end of year(000) $102,907 $94,237 $92,605 $93,494 $81,258
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate 65.20% 70.99% 78.30% 126.11% 137.22%
- --------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
See Notes to Financial Statements.
14 The Funds
<PAGE>
Pennsylvania Fund
LINE GRAPH COMPARISON - Pennsylvania
Immediately below is a comparison of a $10,000 investment in class A
shares to the same investment in both Lipper's average of Pennsylvania
tax-free funds and the Lehman Municipal Bond Index, assuming reinvestment
of all dividends and distributions.
[The following table was depicted as a line graph in the printed material.]
================================================================================
Past performance is no guarantee of future results.
Fiscal Year-end 10/31
<TABLE>
<CAPTION>
2/3/92 1992 1993 1994 1995 1996 1997
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
The fund (Class A shares)
at net asset value $10,000 $10,468 $12,452 $11,489 $13,215 $13,966 $15,136
- -------------------------------------------------------------------------------------------------------------------
The fund (Class A shares)
at maximum offering price(1) 9,520 9,966 11,855 10,937 12,581 13,296 14,409
- -------------------------------------------------------------------------------------------------------------------
Lipper's Average of Florida tax-free funds(2) 10,000 10,680 11,967 11,509 12,864 13,542 14,616
- -------------------------------------------------------------------------------------------------------------------
Lehman Municipal Bond Index(3) 10,000 10,558 12,044 12,165 15,938 16,885 18,609
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
Fund's Average Annual Total Return at Maximum Applicable
Sales Charge for the Periods Ending October 31, 1998
1 Year 5 Years 10 Years (or Life)
- --------------------------------------------------------------------------------
Class A(4) 3.30% 5.76% 7.00%
- --------------------------------------------------------------------------------
PENNSYLVANIA - Risk Factors
Pennsylvania Bonds-Risk Factors. Pennsylvania is a growing state with a
diversified economy. It is headquarters for many major corporations and
many small businesses. Pennsylvania has been historically identified as a
heavy-industry state, although that reputation has changed over the last
30 years as the industrial composition of Pennsylvania diversified with
the decline of the coal, steel and railroad industries. The major new
sources of growth are in the service sector, including trade, medical and
health services, education and financial institutions. Agriculture also
remains an important part of the State's economy. Pennsylvania's
unemployment rate has declined steadily since its peak in 1992. In 1997
this rate was just slightly above the national average. However,
employment growth continues to lag behind the national average.
After experiencing operating deficits in fiscal 1990 and 1991, in each of
fiscal 1992 through 1997, the Commonwealth's General Fund recorded an
operating surplus. As a result, the Fund balance has increased and in
fiscal 1997 the largest unreserved-undesignated Fund balance since fiscal
1987 was recorded.
- ----------
(1) Reflects the deduction of the maximum initial sales charge of 4.75%
(2) Source: Lipper Analytical Services.
(3) Performance for the unmanaged Lehman Municipal Bond Index does not reflect
transaction costs, management fees or sales charges. This index is
composed of municipal bonds from many different states and, therefore, it
may not be valid to compare to a single-state municipal bond portfolio,
such as this Fund.
(4) This shows total return which 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, 1998 using the SEC-required uniform method to
compute total return. The class A share inception date is 2/3/92.
The Funds 15
<PAGE>
Your Investment
PURCHASES
This Prospectus offers two classes of shares for the Florida fund: class A
and C. One class of shares is offered for the other funds: class A.
Although a fund may have more than one class of shares, these different
classes of shares represent investments in the same portfolio of
securities but are subject to different expenses. Our shares are
continuously offered. The offering price is based on the Net Asset Value
("NAV") per share next determined after we accept your purchase order
submitted in proper form. A front-end sales charge is added to the NAV, in
the case of the class A shares. There is no front-end sales charge, in the
case of the class C shares, as described below.
You should read this section carefully to determine which class of shares
represents the best investment option for your particular situation. For
larger purchases or at certain dollar amounts it may not be suitable for
you to place a purchase order for class C shares of $1,000,000 or more.
You should discuss pricing options with your investment professional.
For more information, see "Alternative Sales Arrangements" in the
Statement of Additional Information.
We reserve the right to withdraw all or any part of the offering made by
this Prospectus or to reject any purchase order. We also reserve the right
to waive or change minimum investment requirements. All purchase orders
are subject to our acceptance and are not binding until confirmed or
accepted in writing.
================================================================================
Class A Shares (All funds)
- --------------------------------------------------------------------------------
Front-end sales charges are as follows:
To Compute
As a % of As a % of Offering Price
Your Investment Offering Price Your Investment Divide NAV by
================================================================================
Less than $50,000 4.75% 4.99% .9525
- --------------------------------------------------------------------------------
$50,000 to $99,999 4.75% 4.99% .9525
- --------------------------------------------------------------------------------
$100,000 to $249,999 3.75% 3.90% .9625
- --------------------------------------------------------------------------------
$250,000 to $499,999 2.75% 2.83% .9725
- --------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% .9800
- --------------------------------------------------------------------------------
$1,000,000 and over No Sales Charge 1.0000
- --------------------------------------------------------------------------------
The following $1 million category is for the Georgia and Michigan funds
until each fund's Rule 12b-1 Plan becomes effective, at which time the
sales charge table above will apply to such fund.
REDUCING YOUR CLASS A FRONT-END SALES CHARGES. There are several ways you
can qualify for a discount when purchasing class A shares if you inform
the fund that you are eligible at the time of purchase.
o RIGHTS OF ACCUMULATION -- a Purchaser can add the share value (at
public offering price) of any Eligible Fund already owned to the
amount of the next purchase of class A shares for purposes of
calculating the sales charge.
o STATEMENT OF INTENTION -- a Purchaser can purchase class A shares of
any Eligible Fund over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. Shares purchased
through reinvestment of distributions are
NET ASSET VALUE. NAV per share for each class of fund shares is calculated each
business day at the close of regular trading on the New York Stock Exchange
("NYSE"). The fund is open on those business days when the NYSE is open.
Purchases and sales of fund shares are executed at the NAV next determined after
your order is accepted. In connection with the calculation of NAV, portfolio
securities for which quotations are not available are valued at fair value under
procedures approved by the fund's Board Members.
Share classes
Class A (All funds)
o Normally offered with a front-end sales charge.
Class C (Florida fund only)
o No front-end sales charge.
o Higher annual expenses than class A shares.
o A contingent deferred sales charge is applied to shares sold prior to the
first anniversary of purchase.
16 Your Investment
<PAGE>
not included. A statement of intention can be backdated 90 days. Current
holding under rights of accumulation can be included in a statement of
intention.
For more information on eligibility for these privileges, read the
applicable sections in the attached application.
CLASS A SHARE PURCHASES WITHOUT A FRONT-END SALES CHARGE. Class A shares
may be purchased without a front-end sales charge under the following
circumstances.
1. Purchases of $1 million or more. *
2. Purchases by Retirement Plans with at least 100 eligible employees.
*
3. Purchases under a Special Retirement Wrap Program. *
4. Purchases made with dividends and distributions on class A shares of
another Eligible Fund.
5. Purchases representing repayment under the loan feature of the Lord
Abbett-sponsored prototype 403(b) plan for class A shares.
6. Employees of any consenting securities dealer having a sales
agreement with Lord Abbett Distributor LLC.
7. Purchases under a Mutual Fund Wrap-Fee Program.
8. Trustees or custodians of any pension or profit sharing plan, or
payroll deduction IRA for the persons mentioned in 6 above.
See the Statement of Additional Information for a listing of other
categories of purchasers who qualify for class A share purchases without a
front-end sales charge.
CLASS A SHARE CDSC (ALL FUNDS). If you buy class A shares under one of the
starred (*) categories listed above and you redeem any of the class A
shares within 24 months after the month in which you initially purchased
such shares, the fund normally will collect a CDSC of 1%.
The class A share CDSC generally will be waived for the following.
o Benefit payments such as Retirement Plan loans, hardship
withdrawals, death, disability, retirement, separation from service
or any excess distribution under Retirement Plans (documentation may
be required).
o Redemptions continuing as investments in another fund participating
in a Special Retirement Wrap Program.
See "Systematic Withdrawal Plan" under "Services For Fund Investors" below
for more information on CDSCs with respect to class C shares.
CLASS C SHARE CDSC (FLORIDA FUND ONLY). The 1% CDSC for class C shares
normally applies if you redeem your shares before the first anniversary of
your original purchase.
OPENING YOUR ACCOUNT
Minimum initial investment
o Regular account $1,000
o Individual Retirement Accounts and
403(b) plans under the Internal
Revenue Code $250
o Uniform Gift to Minor Account $250
* May be subject to a Contingent Deferred Sales Charge ("CDSC").
RETIREMENT PLANS. Employer-sponsored retirement plans under the Internal Revenue
Code, excluding Individual Retirement Accounts.
LORD ABBETT DISTRIBUTOR LLC. Lord Abbett Distributor acts as agent for the funds
to work with investment professionals that buy and/or sell shares of the funds
on behalf of their clients. Generally, Lord Abbett Distributor does not sell
fund shares directly to investors.
CONTINGENT DEFERRED SALES CHARGES. The CDSC, regardless of class, is not charged
on shares acquired through reinvestment of dividends or capital gains
distributions and is charged on the original purchase cost or the current market
value of the shares at the time they are being sold, which-ever is lower. In
addition, repayment of loans under Retirement Plans and 403(b) plans will be new
sales for purposes of assessing the CDSC.
To determine if a CDSC applies to a redemption, the fund redeems shares in the
following order.
1. Shares acquired by reinvestment of dividends and capital gains.
2. Shares held for two years or more after the month of purchase (class A) or
one year or more (class C).
3. Shares held the longest before the second anniversary after the month of
purchase (class A) or before the first anniversary of their purchase (class C).
BENEFIT PAYMENT DOCUMENTATION.
(Class A shares only)
o under $50,000 - no documentation necessary
o over $50,000 - reason for benefit payment must be received in writing. Use
the address indicated under opening your account.
Your Investment 17
<PAGE>
For Retirement Plans and Mutual Fund Wrap Programs, no minimum investment
is required, regardless of share class.
You may purchase shares through any independent securities dealer who has
a sales agreement with Lord Abbett Distributor or you can fill out the
attached application and send it to the fund you select at the address
stated below. You should carefully read the paragraph below entitled
"Proper Form" before placing your order.
NAME OF FUND YOU SELECT.
P.O. Box 419100
Kansas City, MO 64141
PROPER FORM. An order submitted directly to the fund must contain (1) a
completed application, and (2) payment by check. For more information
regarding proper form of a purchase order, call the fund at 800-821-5129.
Payment must be credited in U.S. dollars to our custodian bank's account.
BY EXCHANGE. Telephone the fund at 800-821-5129 to request an exchange
from any eligible Lord Abbett-sponsored fund.
IMPORTANT INFORMATION. If you do not provide a correct taxpayer identification
number (Social Security number for individuals) or make certain required
certifications, you may be subject to a $50 penalty under the Internal Revenue
Code. Also we may be required to withhold from your account and pay to the U.S.
Treasury 31% of any redemption proceeds and of any dividend or distribution from
your account.
REDEMPTIONS
BY BROKER. Call your investment professional for directions on how to
redeem your shares.
BY TELEPHONE. To obtain the proceeds ($50,000 or less) of a redemption to
the name and address in which your account is registered, you or your
investment professional can call the fund at 800-821-5129.
BY MAIL. Submit a written redemption request indicating, the name(s) in
which the account is registered, the fund's name, the class of shares,
your account number, and the dollar value or number of shares you wish to
sell.
Include all necessary signatures. If the signer has any Legal Capacity,
the signature and capacity must be guaranteed by an Eligible Guarantor.
Certain other legal documentation may be required. For more information
regarding proper documentation, call 800-821-5129.
We will verify that the shares being redeemed (if purchased by check) were
purchased at least 15 days earlier. Your account balance must be
sufficient to cover the amount being redeemed or your redemption order
will not be processed.
Normally a check will be mailed to the name and address in which the
account is registered (or otherwise according to your instruction) within
three business days after we receive your redemption request.
To determine if a CDSC applies, see "Class A share CDSC" or "Class C share
CDSC" above.
DISTRIBUTIONS AND TAXES
Each fund pays its shareholders dividends from its net investment income,
and distributes net capital gains that it has realized. Each fund expects
to pay dividends to shareholders monthly. Each fund expects to pay any
capital gain distribution once a year in December. Your distributions will
be reinvested in your fund unless you instruct the fund to pay them to you
in cash. There are no sales charges on reinvestments.
The tax status of distributions are the same for all shareholders
regardless of how long
18 Your Investment
<PAGE>
they have been in the fund or whether distributions are reinvested or paid
in cash. In general, distributions are taxable as follows:
================================================================================
Federal Taxability of distributions
Type of Tax rate for Tax rate for
distribution 15% bracket 28% bracket or above
- --------------------------------------------------------------------------------
Income Generally Generally
dividends tax exempt tax exempt
- --------------------------------------------------------------------------------
Short-term Ordinary
capital gains 15% income rate
- --------------------------------------------------------------------------------
Long-term
capital gains 10% 20%
- --------------------------------------------------------------------------------
ANNUAL INFORMATION - Information concerning the tax treatment of dividends
and other distributions will be mailed annually to shareholders. Each fund
will also provide annually to its shareholders information regarding the
source of dividends and distributions of capital gains paid by that fund.
Because everyone's tax situation is unique, you should consult your tax
adviser regarding the treatment of those distributions under the federal,
state and local tax rules that apply to you as well as the tax
consequences of gains or losses from the redemption or exchange of your
shares.
SINGLE-STATE TAXABILITY OF DISTRIBUTIONS
FOR ALL FUNDS - With respect to any particular state fund, exempt-interest
dividends derived from interest income on obligations of that state or its
political subdivisions, agencies or instrumentalities and on obligations
of the federal government or certain other government authorities, such as
U.S. territories ("state exempt investments") paid to individual
shareholders will, in most cases, be exempt from tax in that state.
However, special rules, described below, may apply. Exempt-interest
dividends may be subject to that state's franchise or other corporate
taxes if received by a corporation subject to such taxes and to state and
local taxes in states other than that state. Generally, dividends and
distributions, whether received in cash or additional shares, derived from
a state fund's other investment income and capital gains will be subject
to state income tax.
In addition, Florida intangible personal property tax will be imposed on
shares of the Florida fund owned by Florida residents and Pennsylvania
county personal property tax will be imposed on shares of the Pennsylvania
fund unless the relevant fund's portfolio includes only state exempt
investments on the annual statutory assessment date. If the fund holds
other assets, including assets attributable to options and financial
futures transactions in which the fund may engage, then a portion (which
might be a significant portion) of the value of the fund's shares would be
subject to personal property tax.
FLORIDA TAXES - Florida imposes no state personal income tax.
MICHIGAN TAXES - Capital gains from the sale by the Michigan fund of
obligations of the federal government or certain other government
authorities will be exempt from Michigan income tax. In addition,
dividends paid by the fund that are derived from interest on state exempt
investments will not be subject to the Michigan Single Business Tax. The
portion of the fund's dividends and distributions received by a
shareholder that is exempt from the Michigan 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 fund.
PENNSYLVANIA TAXES - Dividends paid by the Pennsylvania fund that are
derived from
SMALL ACCOUNTS. Our Board of Trustees may authorize closing any account in which
there are fewer than 25 shares if it is in a fund's best economic interest to do
so.
TAXES ON TRANSACTIONS. Except in tax-advantaged accounts, any sale or exchange
of fund shares may be a taxable event.
The table at left also can provide a "rule of thumb" guide for your potential
U.S. federal tax liability when selling or exchanging fund shares. The second
row, "Short-term capital gains," applies to fund shares sold within 12 months of
purchase. The third row, "Long-term capital gains," applies to shares held for
more than 12 months.
Starting January 1, 2001, sales of securities held for more than five years will
be taxed at special lower rates.
Shareholders receiving social security benefits and certain railroad re-tirement
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 each 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
interest income and one-half of social security income exceeds $25,000 for
individuals ($32,000 for individuals filing a joint return). The tax will be
imposed on up to 85% of such benefits only when such sum exceeds $34,000 for
individuals ($44,000 for individuals filing a joint return).
Your Investment 19
<PAGE>
interest on state exempt investments will not be subject to the
Pennsylvania corporate net income tax. Dividends paid to residents of
Philadelphia by the fund that are not derived from interest on state
exempt investments will be subject to Philadelphia School District
investment income tax in addition to the Pennsylvania personal income and
corporate net income taxes.
MANAGEMENT
The funds' investment adviser is Lord, Abbett & Co., 767 Fifth Avenue, New
York, NY 10153-0203. Founded in 1929, Lord Abbett manages one of the
nation's oldest mutual fund complexes, with approximately $28 billion in
more than 35 mutual fund portfolios and other advisory accounts. For more
information about the services Lord Abbett provides to the fund, see the
Statement of Additional Information.
The fund pays Lord Abbett a monthly fee based on average daily net assets
for each month. For the fiscal year ended October 31, 1998, the fee paid
to Lord Abbett was at an annual rate of .00 of 1%. In addition, the fund
pays all expenses not expressly assumed by Lord Abbett.
SERVICES FOR FUND INVESTORS
AUTOMATIC SERVICES
Buying or selling shares automatically is easy with the services described
below. With each service, you select a schedule and amount, subject to
certain restrictions. You can set up most of these services with your
application or by calling 800-821-5129.
================================================================================
For investing
Invest-A-Matic You can make fixed, periodic investments ($50 minimum) into
(Dollar-cost your fund account by means of automatic money transfers from
averaging) you bank checking account. See the attached application for
instructions.
Div-Move For automatically reinvesting the dividends and distributions
from your account into another account in any Eligible Fund.
($50 minimum)
For selling shares
Systematic For making regular withdrawals from most Lord Abbett funds.
Withdrawal You can have automatic cash withdrawals paid to you from your
Plan ("SWP") account in fixed or variable amounts. To establish a plan, the
value of your shares must be at least $10,000, except for
Retirement Plans for which there is no minimum.
Your shares must be in non-certificate form.
Class C shares Redemption proceeds due to a SWP for class C shares will be
redeemed in the order described under "Contingent Deferred
Sales Charges" under "Purchases" above.
================================================================================
OTHER SERVICES
TELEPHONE INVESTING. After we have received the telephone investing
portion of the attached application (section 7), you can instruct us by
phone to have money transferred from your bank account to purchase shares
of the fund for an existing account. The fund will purchase the requested
shares when it receives the money from your bank.
TELEPHONE EXCHANGES. You or your investment professional, with proper
identification, can instruct your fund by telephone to exchange shares of
any class for the same class of any Eligible Fund by calling 800-821-5129.
The fund must receive instructions for
Lord Abbett offers a variety of Retirement Plans.
Call 800-842-0828 for information about:
o Traditional, Rollover, Roth and Education IRAs.
o Simple IRA's, SEP-IRAs, 401(k) and 403(b) accounts.
o Defined Contribution Plans.
TELEPHONE TRANSACTIONS. You have this privilege unless you refuse it in writing.
For your security, telephone transaction requests are recorded. We will take
measures to verify the identity of the caller, such as asking for your name,
account number, social security or taxpayer identification number and other
relevant information. Each fund will not be liable for following instructions
communicated by telephone that it reasonably believes to be genuine.
Transactions by telephone may be difficult to implement in times of drastic
economic or market change.
Exchanges by telephone should not be used to take advantage of short-term swings
in the market. Each fund reserves the right to limit or terminate this privilege
for any shareholder making frequent exchanges or abusing the privilege and may
revoke the privilege for all shareholders upon 60 days' written notice.
20 Your Investment
<PAGE>
the exchange before to the close of the New York Exchange on the day of
your call. If you do this, you will get the NAV per share of the Eligible
Fund determined on that day. Exchanges will be treated as a sale for
federal tax purposes. Be sure to read the current prospectus for any fund
into which you are exchanging.
REINVESTMENT PRIVILEGE. If you sell shares of a fund, you have a one time
right to reinvest some or all of the proceeds in the same class of any
Eligible Fund within 60 days without a sales charge. If you paid a CDSC
when you sold your shares, you will be credited with the amount of the
CDSC. All accounts involved must have the same registration.
ACCOUNT STATEMENTS. Generally, every Lord Abbett investor automatically
receives quarterly account statements.
HOUSEHOLDING. Generally, shareholders with the same last name and address
will receive a single copy of a prospectus and an annual or semi-annual
report, unless additional reports are specifically requested in writing to
a fund.
ACCOUNT CHANGES. For any changes you need to make to your account, consult
your investment professional or call a fund at 800-821-5129.
SYSTEMATIC EXCHANGE. You or your investment professional can establish a
schedule of exchanges between the same classes of any eligible fund.
12B-1 FEES PAYABLE REGARDLESS OF EXPENSES. The amounts payable by a fund need
not be directly related to expenses. If Lord Abbett Distributor's actual
expenses exceed the fee payable to it, the fund will not have to pay more than
that fee. If Lord Abbett Distributor's expenses are less than the fee it
receives, Lord Abbett Distributor will keep the full amount of the fee.
SALES CHARGES AND SERVICE FEES
SALES AND SERVICE COMPENSATION. As part of its plan for distributing
shares, each fund and Lord Abbett Distributor pay sales and service
compensation to Authorized Institutions that sell fund shares and service
shareholders.
Sales compensation originates from two sources: sales charges and 12b-1
distribution fees that are paid out of each fund's assets. Service
compensation originates from 12b-1 service fees. The 12b-1 fee rates vary
by share class, according to the Rule 12b-1 plan adopted by each fund. The
sales charges and 12b-1 fees paid by investors are shown in the
class-by-class information under "Expenses" and "Purchases". The portion
of these expenses that is paid as sales and service compensation to
Authorized Institutions, such as your dealer, is shown in the chart on the
next page. The portion of such sales and service compensation paid to Lord
Abbett Distributor is discussed under "Sales Activities" and "Service
Activities" below. Sometimes we do not pay sales and service compensation
where tracking data is not available for certain accounts or where the
Authorized Institution waives part of the compensation. We may pay
Additional Concessions to Authorized Institutions from time to time.
SALES ACTIVITIES. We may use 12b-1 distribution fees to pay Authorized
Institutions to finance any activity that is primarily intended to result
in the sale of shares. Lord Abbett Distributor uses its portion of the
distribution fees attributable to a fund's class A and class C shares for
activities that are primarily intended to result in the sale of such
shares. These activities include, but are not limited to, printing of
prospectuses and statements of additional information and reports for
other than existing shareholders, preparation and distribution of
advertising and sales material, expenses of organizing and conducting
sales seminars, Additional Concessions to Authorized Institutions, the
cost necessary to provide distribution-related services or personnel,
travel, office expenses, equipment and other allocable overhead.
SERVICE ACTIVITIES. We may pay 12b-1 service fees to Authorized
Institutions for any activity that is primarily intended to result in
personal service and/or the maintenance of shareholder accounts. Any
portion of the service fees paid to Lord Abbett Distributor will be used
to service and maintain shareholder accounts.
Your Investment 21
<PAGE>
Compensation for your dealer
================================================================================
First Year Compensation
<TABLE>
<CAPTION>
Class A investments Front-end
sales charge Dealer's
paid by investors concession Service fee(1) Total compensation(2)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
====================================================================================================================================
<S> <C> <C> <C> <C>
Less than $50,000 4.75% 4.00% 0.25% 4.24%
- ------------------------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.75% 4.25% 0.25% 4.49%
- ------------------------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 3.75% 3.25% 0.25% 3.49%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.75% 2.50% 0.25% 2.74%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 1.75% 0.25% 2.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$1 million or more(3) or Retirement Plan - 100 or more
eligible employees(3) or Special Retirement Wrap Program(3)
- ------------------------------------------------------------------------------------------------------------------------------------
First $5 million no front-end sales charge 1.00% 0.25% 1.25%
- ------------------------------------------------------------------------------------------------------------------------------------
Next $5 million above that no front-end sales charge 0.55% 0.25% 0.80%
- ------------------------------------------------------------------------------------------------------------------------------------
Next $40 million above that no front-end sales charge 0.50% 0.25% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Over $50 million no front-end sales charge 0.25% 0.25% 0.50%
====================================================================================================================================
Class C investments
- ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.75% 0.25% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
Annual Compensation After first Year
<TABLE>
<S> <C> <C> <C> <C>
Class A investments
- ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge none 0.25% 0.25%
====================================================================================================================================
Class C investments
- ------------------------------------------------------------------------------------------------------------------------------------
All amounts no front-end sales charge 0.65% 0.25% 0.90%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The service fee for class A shares is paid quarterly and for class A
shares may not exceed 0.15% for shares sold prior to: September 25, 1991
for the Florida fund; the first day of the calendar quarter subsequent to
the Georgia fund's net asset reaching $100 million; December 1, 1992 for
the Michigan fund; and February 3, 1992 for the Pennsylvania fund. The
first year's service fee on C shares is paid at the time of sale.
(2) Reallowance/concession percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition. Additional
Concessions may be paid to Authorized Institutions, such as your dealer,
from time to time.
(3) Concessions are paid 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. With respect to (a) class A share purchases at $1 million or more,
sales qualifying at such level under rights of accumulation and statement
of intention privileges are included and (b) for Special Retirement Wrap
Programs, only new sales are eligible and exchanges into the fund are
excluded.
(4) With respect to class C shares, 0.90% of the average annual net asset
value of such shares outstanding during the quarter (including
distribution reinvestment shares after the first anniversary of their
issuance) is paid to Authorized Institutions, such as your dealer. These
fees are paid quarterly in arrears.
22 Your Investment
<PAGE>
For More Information
GLOSSARY OF SHADED TERMS
ADDITIONAL CONCESSIONS. Lord Abbett Distributor may, for specified
periods, allow dealers to retain the full sales charge for sales of shares
or may pay an additional concession to a dealer who 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. Additional
payments may be paid from Lord Abbett Distributor's own resources or from
distribution fees received from a fund and will be made in the form of
cash or, if permitted, non-cash payments. The non-cash payments will
include business seminars at Lord Abbett's headquarters or other
locations, including meals and entertainment, or the receipt of
merchandise. The cash payments may include payment of various business
expenses of the dealer.
In selecting dealers to execute portfolio transactions for a fund's
portfolio, if two or more dealers are considered capable of obtaining best
execution, we may prefer the dealer who has sold our shares and/or shares
of other Lord Abbett-sponsored funds.
AUTHORIZED INSTITUTIONS. Institutions and persons permitted by law to
receive service and/or distribution fees under a Rule 12b-1 plan are
"authorized institutions." Lord Abbett Distributor is an Authorized
Institution.
BORROWING. Each fund may borrow money. The interest paid on borrowed money
may reduce a fund's return. Each fund may not borrow more than 331/3% of
total assets (including the amount borrowed), and then only as a temporary
measure for extraordinary or emergency purposes. Each fund may borrow an
additional 5% of total assets are available for temporary purposes. Each
fund may obtain such short-term credit to purchases and sales of portfolio
securities.
CONCENTRATION. No fund intends to invest more than 25% of its total assets
in any industry, except that each fund may, subject to the limits referred
to in Diversification, Private Activity Bonds and with respect to
temporary taxable investments under "Main Risks," 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 a fund 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."
ELIGIBLE FUND. An Eligible Fund is any Lord Abbett-sponsored fund except
for certain tax-free, single-state funds where the exchanging shareholder
is a resident of a state in which such a fund is not offered for sale;
Lord Abbett Equity Fund; Lord Abbett Series Fund; Lord Abbett U.S.
Government Securities Money Market Fund ("GSMMF") (except for holdings in
GSMMF which are attributable to any shares exchanged from the Lord Abbett
family of funds). An Eligible Fund also is any Authorized Institution's
affiliated money market fund satisfying Lord Abbett Distributor as to
certain omnibus account and other criteria.
Your Investment 23
<PAGE>
ELIGIBLE GUARANTOR. Any broker or bank that is a member of the medallion
stamp program. Most major securities firms and banks are members of this
program. A notary public is not an eligible guarantor.
ILLIQUID SECURITIES. Securities not traded on the open market. Certain
securities may be difficult or impossible to sell at the time and price
the fund would like. Each fund may invest up to 15% of its assets in
illiquid securities. Securities determined by the Board Members to be
liquid are not subject to this limit, such as those purchased under
Securities and Exchange Commission Rule 144A.
INVESTMENT GRADE. Each fund invests in investment-grade municipal bonds
which are those rated, or equivalent to, at the time of purchase one of
the four highest grades assigned by Moody's Investors Service, Inc.
("Moody's") (Aaa, Aa, A, Baa), Standard & Poor's Ratings Services ("S&P")
(AAA, AA, A, BBB) or Fitch Investors Service ("Fitch") (AAA, AA, A, BBB).
Each fund also may invest in municipal bonds that are not rated and that
are exempt from federal income tax and its state's personal income tax,
determined by Lord Abbett to be of comparable quality to the rated bonds
in which a fund may invest. At least 70% of each fund's net assets are
invested in rated municipal bonds that, at the time of purchase, are
within, or equivalent to, the three highest grades assigned by Moody's S&P
Fitch and each fund may invest up to 30% of its net assets in municipal
bonds that are in, or equivalent to, the fourth highest grade.
LEGAL CAPACITY. With respect to a redemption request, if (for example) the
request is on behalf of the estate of a deceased shareholder, John W. Doe,
by a person (Robert A. Doe) who has the legal capacity to act for the
estate of the deceased shareholder because he is the executor of the
estate, then the request must be executed as follows: Robert A. Doe,
Executor of the Estate of John W. Doe. That signature using that capacity
must be guaranteed by an Eligible Guarantor.
Similarly, if (for example) the redemption request is on behalf of the ABC
Corporation by a person (Mary B. Doe) that has the legal capacity to act
on behalf of this corporation, because she is the President of the
corporation, then the request must be executed as follows: ABC Corporation
by Mary B. Doe, President. That signature using that capacity must be
guaranteed by an Eligible Guarantor.
MUTUAL FUND WRAP-FEE PROGRAM. Certain unaffiliated 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 (and sometimes providing
for acceptance of orders for such shares on our behalf) in particular
investment products made available for a fee to clients of such brokers,
dealers, registered investment advisers and other financial institutions.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. Each fund may deal in options
on securities, and securities indices, and financial futures transactions,
including options on financial futures. Each fund 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 (at the time of purchase) may be invested in premiums on such
options.
PRIVATE ACTIVITY BONDS. Each fund may invest up to 20% of its net assets
(less any amount invested in the temporary taxable investments described
under "Main Risks") in private activity bonds. A fund's dividends derived
from interest on such bonds would be considered a preference item for
purposes of the computation of the alternative minimum tax. A fund's
dividends derived from such interest may increase the alternative
Guaranteed signature. An acceptable form of guarantee would be as follows:
o In the case of the estate -
Robert A. Doe
Executor of the Estate of
John W. Doe
[Date]
SIGNATURE GUARANTEED
MEDALLION GUARANTEED
NAME OF GUARANTOR
/s/ [ILLEGIBLE]
---------------------
AUTHORIZED SIGNATURE
(960) X9803470
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM (TM)
SR
o In the case of the corporation -
ABC Corporation
Mary B. Doe
By Mary B. Doe, President
[Date]
SIGNATURE GUARANTEED
MEDALLION GUARANTEED
NAME OF GUARANTOR
/s/ [ILLEGIBLE]
---------------------
AUTHORIZED SIGNATURE
(960) X9803470
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM (TM)
SR
24 Your Investment
<PAGE>
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.
PURCHASER. 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.
RESIDUAL BONDS. Each fund may invest up to 20% of its net assets in
residual interest bonds ("RIBS") to enhance and increase portfolio
duration. None of the funds invested more than 15% of its net assets in
RIBs at any time during the fiscal year ended October 31, 1998. 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 specific fixed-rate security ("specific
fixed-rate security"). Changes in the interest rate on the specific
fixed-rate 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 securities similar
to the specific fixed-rate security. In an effort to mitigate this risk,
each fund purchases fixed-rate bonds which are less volatile. When
interest rates fall, not only do RIBs provide interest payments that are
higher than securities similar to the specific fixed-rate security, but
their values also rise faster than securities similar to the specific
fixed-rate security.
SPECIAL RETIREMENT WRAP PROGRAM. A program sponsored by an authorized
institution showing one or more characteristics distinguishing it, in the
opinion of Lord Abbett Distributor from a mutual fund wrap-fee program.
Such characteristics include, among other things, the fact that an
authorized institution does not charge its clients any fee of a consulting
or advisory nature that is economically equivalent to the distribution fee
under the class A 12b-1 Plan and the fact that the program relates to
participant-directed Retirement Plans.
U.S. GOVERNMENT SECURITIES. These are short-term obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
WHEN-ISSUED MUNICIPAL BONDS. Each fund 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 a fund are each fixed on the purchase
date. During the period between purchase and settlement, each fund's
assets consisting of cash and/or high-grade marketable debt securities,
marked to market daily, of an 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.
Your Investment 25
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
26 Your Investment
<PAGE>
For more Information
More information on these funds is available free upon request, including
the following:
ANNUAL/SEMI-ANNUAL REPORT
Describes the funds, lists portfolio holdings and contains a letter from
the funds' manager.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
Provides more details about the funds and their policies. A current SAI is
on file with the Securities and Exchange Commission ("SEC") and is
incorporated by reference (is legally considered part of this Prospectus).
To obtain information:
By telephone. Call the funds at
800-426-1130
By mail. Write to:
The Lord Abbett Family of Funds
767 Fifth Avenue
New York, NY 10153-0203
Via the Internet. Text only
versions of fund documents
can be viewed online or
downloaded from:
Lord, Abbett & Co.
http://www.lordabbett.com
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 800-SEC-0330) or by sending your request and a duplicating
fee to the SEC's Public Reference Section, Washington, DC 20549-6009.
Florida Fund
Georgia Fund
Michigan Fund
Pennsylvania Fund
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
---------------------------
SEC file number: 811-3942
================================================================================
---------------
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 2405
NEW YORK, N.Y.
---------------
<PAGE>
================================================================================
Statement of Additional Information March 1, 1999
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 Distributor LLC
("Lord Abbett Distributor"), 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 March 1, 1999.
Lord Abbett Tax-Free Income Trust (the "Company") was organized as a
Massachusetts Business Trust on September 11, 1991. The Company's Board of
Trustees has authority to create separate series of shares of beneficial
interest, without further action by shareholders. To date, the Company has four
series: the Florida Fund, the Georgia Fund, the Michigan Fund and the
Pennsylvania Fund (each a "Fund"). The Florida Fund consists of two classes of
shares: Class A and Class C. The other Funds consist of a single class of shares
only: Class A. Although no present plans exist, further funds and/or classes may
be added in the future.
Rule 18f-2 under The Investment Company Act of 1940, as amended (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 Company shall not be deemed to
have been effectively acted upon unless approved by the holders of a majority of
the outstanding shares of each class or funds affected by such matter. Rule
18f-2 further provides that a class or fund shall be deemed to be affected by a
matter unless the interests of each class or funds in the matter are
substantially identical or the matter does not affect any interest of such class
or fund. However, the Rule exempts the selection of independent public
accountants, the approval of principal distribution contracts and the election
of trustees from the separate voting requirements of the Rule.
Shareholder inquiries should be made by writing directly to the Company or by
calling 800-821-5129. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS Page
1. Investment Policies 2
2. Trustees and Officers 9
3. Investment Advisory and Other Services 12
4. Portfolio Transactions 13
5. Purchases, Redemptions
and Shareholder Services 15
6. Taxes 21
7. Risk Factors Regarding Investments in Florida, Georgia
Michigan, Pennsylvania and Puerto Rico Municipal Bonds 22
8. Past Performance 26
9. Information About the Comany 27
10. Financial Statements 28
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1.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS. The Company's investment objective and
policies are described in the Prospectus under "Goal/Approach." In addition to
those policies described in the Prospectus, the Company is subject to the
following fundamental investment restrictions which cannot be changed for the
Company without the approval of the holders of a majority of the Company's
shares. The Company may not: (1) borrow money (except that (i) the Fund 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 Company may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) the Company may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities and (iv) the Company 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 Funds'
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 Fund 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 Fund 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 Company
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. The Company may
not: (1) borrow in excess of 33 1/3% of its total assets (including the amount
borrowed), 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 Fund's 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 Company's officers or trustees or by
one or more partners of the Company'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 Fund's
total assets (included within such limitation, but not to exceed 2% of such
Fund's 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 Fund 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 Company'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 Fund of the Company.
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With respect to each Fund, there is no fundamental policy or restriction with
respect to diversification, but each Fund will be required to meet the
diversification rules under Subchapter M of the Internal Revenue Code.
While each of the Funds may take short-term gains if deemed appropriate,
normally, the Funds 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, 1998 the portfolio turnover rates for the Florida, Georgia, Michigan and
Pennsylvania Funds were 140.61%, 126.52%, 82.33% and 65.20%, respectively. 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).
Investment Techniques
Municipal Bonds
In general, municipal bonds are debt obligations issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and Puerto Rico 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 sewerage or solid
waste disposal. Under the Tax Reform Act of 1986, as amended, substantial
limitations have been imposed on new issues of municipal bonds to finance
privately-operated facilities. The interest on municipal bonds generally is
excludable from gross income for federal income tax purposes of most investors.
The two principal classifications of municipal bonds are "general obligation"
and limited obligation or "revenue bonds." General obligation bonds are secured
by the pledge of the faith, credit and taxing power of the municipality for the
payment of principal and interest. The taxes or special assessments that can be
levied for the payment of debt service may be limited or unlimited as to rate or
amount. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source. "Private activity" bonds,
including industrial development bonds are, in most cases, revenue bonds and
generally do not 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 on a variety of factors, including
general 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 Ratings Services ("Standard &
Poor's") and Fitch Investors Service ("Fitch") 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:
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Aaa 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.
Aa 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.
A 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.
Baa 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 An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions are changing circumstances are more likely to lead
to a weakened capacity of the obligor to meet its financial commitment on the
obligation."
Fitch describes its four highest ratings for municipal bonds as follows:
AAA Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. 'A' ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings.
BBB Good credit quality. 'BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category."
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Options And Financial Futures Transactions
GENERAL. Each Fund may engage in futures and options transactions in accordance
with its investment objective and policies. Each Fund intends to engage in such
transactions if it appears advantageous to the Funds 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 Fund 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 Fund 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 Fund 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 Fund and futures contracts subject to outstanding options
written by each Fund would exceed 50% of the total assets of each Fund. 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 Fund will incur
brokerage fees when it purchases or sells contracts and will be required to
maintain margin deposits. At the time each Fund enters into a futures contract,
it is required to deposit with its custodian, on behalf of the broker, a
specified amount of cash or eligible securities, called "initial margin." The
initial margin required for a futures contract is set by the exchange on which
the contract is traded. Subsequent payments, called "variation margin," to and
from the broker are made on a daily basis as the market price of the futures
contract fluctuates. The costs incurred in connection with futures transactions
could reduce a Funds' return. Futures contracts entail risks. If the investment
adviser's judgment about the general direction of interest rates or markets is
wrong, the Funds' 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, frequently there are 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
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these events should occur, a Fund could lose money on the financial futures
contracts and also on the value of its portfolio securities.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. Each Fund 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 Fund 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 Fund may expire worthless, in which case that Fund would lose the
premium paid therefor.
OPTIONS ON SECURITIES. Each Fund 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 Fund 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 Fund 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 Fund to protect capital gains in
an appreciated security it owns, without being required to actually sell that
security. At times a Fund might like to establish a position in securities upon
which call options are available. By purchasing a call option, a Fund is able to
fix the cost of acquiring the security, this being the cost of the call plus the
exercise price of the option. This procedure also provides some protection from
an unexpected downturn in the market because the Fund 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 Fund 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 each Fund may experience material losses. However, in
writing options the premium is paid in advance by the dealer. OTC options are
available for a greater variety of securities and a wider range of expiration
dates and exercise prices, than are exchange- traded options. Since there is no
exchange, normally pricing is done by reference to information from market
makers, which information is carefully monitored by the Company's investment
adviser and verified in appropriate cases.
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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 Fund 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 Fund 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 Fund 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 Company 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 Company 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 Funds'
portfolio. A description of such procedures is set forth below.
Each Fund will only engage in OTC options transactions with dealers that have
been specifically approved by the trustees of the Company. The Fund and their
investment adviser believe that such dealers present minimal credit risks to the
Fund and, therefore, should be able to enter into closing transactions, if
necessary. The Fund will not engage in OTC options transactions if the amount
invested by a Fund in OTC options, plus a "liquidity charge" related to OTC
options written by such Fund, plus the amount invested by such Fund in illiquid
securities, would exceed 10% of the Fund' net assets. The "liquidity charge"
referred to above is computed as described below.
The Company anticipates entering into agreements with dealers to which the Fund
sell OTC options. Under these agreements, a Fund 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 Fund to repurchase a specific OTC option written by the Fund, the
"liquidity charge" will be the current market value of the assets serving as
"cover" for such OTC option.
OPTIONS ON SECURITIES INDICES. Each Fund 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 Fund owns or intends to
purchase, and not for speculation. Through the writing or purchase of index
options, a Fund 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 Fund owns or
intends to purchase will probably not correlate perfectly with movements in the
level of an index and, therefore, the Fund bears the risk that a loss on an
index option would not be completely offset by movements in the price of such
securities.
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When a Fund 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 Fund writes a call
option on a securities index at a time when the contract value exceeds the
exercise price, the Fund 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 Fund may expire worthless, in which case the Fund
would lose the premium paid therefor.
DELAYED DELIVERY TRANSACTIONS. Each Fund 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 Fund 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 Fund at
the time of entering into the transaction. When a Fund 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
Fund 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 Fund 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 Fund, generally, has the ability to close out a purchase obligation
on or before the settlement date, rather than take delivery of the security.
To the extent a Fund 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 Fund 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 Fund 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 Fund 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 Fund will enter into a futures
contract or purchase an option thereon if immediately thereafter the initial
margin deposits for futures contracts held by the Fund plus premiums paid by it
for open options on futures would exceed 5% of that Funds' total assets. No Fund
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 Fund 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.
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2.
TRUSTEES AND OFFICERS
The following trustee is a partner of Lord, Abbett & Co. ("Lord Abbett"), The
General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. He has
been associated with Lord Abbett for over five years and is also officer,
director or trustee of the other Lord Abbett-sponsored funds. He is an
"interested person" as defined in the Act, and as such, may be considered to
have an indirect financial interest in the Rule 12b-1 Plans described in the
Prospectus.
Robert S. Dow, age 54, Chairman and President
The following outside trustees are also directors or trustees of some or all of
the other Lord Abbett-sponsored funds referred to above.
E. Thayer Bigelow, Senior Adviser
Time Warner Inc.
1271 Avenue of the Americas
New York, New York
Senior Adviser, Time Warner, Inc. Formerly, Acting Chief Executive Officer of
Courtroom Television Network (1997-1998). Formerly, President and Chief
Executive Officer of Time Warner Cable Programming, Inc. (1991-1997). Prior to
that, President and Chief Operating Officer of Home Box Office, Inc. Age 57.
William H.T. Bush
Bush-O'Donnell & Co., Inc.
101 South Hanley Road, Suite 1025
St. Louis, Missouri
Co-founder and Chairman of the Board of financial advisory firm of
Bush-O'Donnell & Company. Age 60.
Robert B. Calhoun, Jr.
Monitor Clipper Partners
650 Madison Avenue, 9th Floor
New York, New York
Managing Director of Monitor Clipper Partners and President of the Clipper Group
L.P., both private equity investment funds. Age 56.
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 68.
John C. Jansing
162 S. Beach Road
Hobe Sound, Florida
Retired. Former Chairman of Independent Election Corporation of America, a proxy
tabulating firm. Age 73.
C. Alan MacDonald
Directorship Inc.
8 Sound Shore Drive
Greenwich, Connecticut
9
<PAGE>
Managing Director of Directorship Inc., a consultancy in board management and
corporate governance. Formerly General Partner of The Marketing Partnership,
Inc., a full service marketing consulting firm (1994 - 1997). Prior to that,
Chairman and Chief Executive Officer of Lincoln Snacks, Inc., manufacturer of
branded snack foods (1992 - 1994). His career spans 36 years at Stouffers and
Nestle with 18 of the years as Chief Executive Officer. Currently serves as
Director of DenAmerica Corp., J.B. Williams Company, Inc., Fountainhead Water
Company and Exigent Diagnostics. Age 65.
Hansel B. Millican, Jr.
Rochester Button Company
1328 Broadway (Suite 816)
New York, New York
President and Chief Executive Officer of Rochester Button Company. Age 70.
Thomas J. Neff
Spencer Stuart
277 Park Avenue
New York, New York
Chairman of Spencer Stuart, an executive search consulting firm. Currently
serves as Director of Ace, Ltd. (NYSE). Age 61.
The second column of the following table sets forth the compensation accrued for
the Company'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
Company associated with Lord Abbett and no officer of the Company received any
compensation from the Company for acting as a trustee or officer.
For the Fiscal Year Ended October 31, 1998
------------------------------------------
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Pension or For Year Ended
Retirement Benefits December 31, 1998
Accrued by the Total Compensation
Aggregate Company and Accrued by the Company and
Compensation Twelve Other Lord Twelve Other Lord
Accrued by Abbett-sponsored Abbett-sponsored
Name of Trustee the Company(1) Companys(2) Companys(3)
- --------------- -------------- ------------------- --------------------------
<S> <C> <C> <C>
E. Thayer Bigelow $ $ $
William H. T. Bush* $ $ $
Robert B. Calhoun, Jr.** $ $ $
Stewart S. Dixon $ $ $
John C. Jansing $ $ $
C. Alan MacDonald $ $ $
Hansel B. Millican, Jr. $ $ $
Thomas J. Neff $ $ $
</TABLE>
* Elected as of August 13, 1998.
** Elected as of June 17, 1998.
1. Outside trustees fees, including attendance fees for board and committee
meetings, are allocated among all Lord Abbett-sponsored funds based on the
net assets of each fund. A portion of the fees payable by the Company to
its
10
<PAGE>
outside directors is being deferred under a plan that deems the deferred
amounts to be invested in shares of the Company for later distribution to
the directors.
2. The amounts in Column 3 were accrued by the Lord Abbett-Sponsored Funds
for the 12 months ended October 31, 1998 with respect to the equity based
plans established for independent directors in 1996. This plan supersedes
a previously approved retirement plan for all future directors. Current
directors had the option to covert their accrued benefits under the
retirement plan. All of the outside directors except one made such an
election. Each plan also provides for a pre-retirement death benefit and
actuarially reduced joint-and-survivor spousal benefits.
3. This column shows aggregate compensation, including trustees 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, 1998. The amounts of the aggregate compensation
payable by the Company as of October 31, 1998 deemed invested in Company
shares, including dividends reinvested and changes in net asset value
applicable to such deemed investments, were: Mr. Bigelow, $; Mr. Dixon, $;
Mr. Jansing, $; Mr. MacDonald, $; Mr. Millican, $, and Mr. Neff, $. If the
amounts deemed invested in Company shares were added to each trustees
actual holdings of Company shares as of October 31, 1998, each would own
the following: Mr. Bigelow, shares; Mr. Dixon, shares; Mr. Ginseng,
shares; Mr. McDonald, shares; Mr. Millican, shares; and Mr. Neff, shares.
4. Mr. Jansing chose to continue to receive benefits under the retirement
plan which provides that outside directors (Trustees) may receive annual
retirement benefits for life equal to their final annual retainer
following retirement at or after age 72 with at least ten years of
service. This, if Mr. Jansing were to retire and the annual retainer
payable by the funds were the same as it is today, he would receive annual
retirement benefits of $50,000.
Except where indicated, the following executive officers of the Company have
been associated with Lord Abbett for over five years. Of the following, Messrs.
Brown, Carper, Messrs. Hilstad, and Morris are partners of Lord Abbett; the
others are employees:
Executive Vice President
Zane Brown, age 47
Vice Presidents
Paul A. Hilstad, age 56, Vice President and Secretary (with Lord Abbett since
1995; formerly Senior Vice President and General Counsel of American Capital
Management & Research, Inc.)
Daniel E. Carper, age 47
Philip Fang, age 33
Lawrence H. Kaplan, age 42 (with Lord Abbett since 1997 - formerly Vice
President and Chief Counsel of Salomon Brothers Asset Management Inc from 1995
to 1997, prior thereto Senior Vice President, Director and General Counsel of
Kidder Peabody Asset Management, Inc.)
Thomas F. Konop, age 56
Robert G. Morris, age 54
John R. Mouseeau, age 42
A. Edward Oberhaus, III, age 39
Keith F. O'Connor, age 43
Treasurer
Donna M. McManus, age 38 (with Lord Abbett since 1996, formerly a Senior Manager
at Deloitte & Touche LLP).
11
<PAGE>
The Company does not hold annual meetings of shareholders unless one or more
matters are required to be acted on by shareholders under the Act. Under the
Company's Declaration of Trust, shareholder meetings may be called at any time
by certain officers of the Company or by a majority of the trustees (i) for the
purpose of taking action upon any matter requiring the vote or authority of the
Company'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 Company outstanding and entitled to vote at the meeting.
As of February , 1999 our officers and trustees as a group owned less than %
of our outstanding shares. The following entity is known by the Fund to be the
holder of record of 5% or more of the Company's outstanding shares on ,
1999: (%)
3.
INVESTMENT ADVISORY AND OTHER SERVICES
As described under "Our Management" in the Prospectus, Lord Abbett is the
Company's investment manager. Of the general partners of Lord Abbett, those of
whom are officers and/or trustees of the Company, are: Zane E. Brown, Daniel E.
Carper, Robert S. Dow, Paul A. Hilstad and Robert G. Morris. The address of each
partner is The General Motors Building, 767 Fifth Avenue, New York, New York
10153-0203. The other general partners of Lord Abbett who are neither officers
nor directors of the Company are Stephen I. Allen, John E. Erard, Robert P.
Fetch, Robert I. Gerber, Daria L. Foster, Thomas W. Hudson, Stephen J.
McGruder, Michael B. McLaughlin, Robert J. Noelke, Robert M. Pennington,
Christopher J. Towle and John J. Walsh.
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 Fund for each
month, at the annual rate of .5 of 1%. For the Florida Fund, this fee is
allocated among the Class A and Class C shares based on the class' proportionate
share of the average daily net assets of the Fund. In addition, we pay all
expenses not expressly assumed by Lord Abbett, including without limitation
12b-1 expenses; outside trustees' fees and expenses; association membership
dues; legal and auditing fees; taxes; transfer and dividend disbursing agent
fees; shareholder servicing costs; expenses relating to shareholder meetings;
expenses of preparing, printing and mailing share certificates and shareholder
reports; expenses of registering our shares under federal and state securities
laws; expenses of preparing, printing and mailing prospectuses to existing
shareholders; insurance premiums and brokerage and other expenses connected with
executing portfolio transactions.
Although not obligated to do so, Lord Abbett may waive all or part of its
management fees and may assume other expenses of the Company. Subsequently, Lord
Abbett may charge these fees and/or omit these subsidies on a partial or
complete basis.
The Company's Management Agreement provides for each Fund 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 Fund first reaches $50 million (the
"commencement date") and until the net assets reach $100 million, provided the
ratio of operating expenses of the Fund (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 Fund first reach $100 million, the repayment of expenses shall be
measured by the difference between the expenses included in the determination of
each Fund expense ratio and those at an expense ratio of 1.05%. A Fund 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.
As of October 31, 1998, other expenses reimbursed by Lord Abbett and not repaid
by the Georgia Fund amount to $40,765.
Gross management fees, management fees waived and net management fees for each
Fund for the years ended October 31, 1998, 1997 and 1996 respectively, were as
follows:
12
<PAGE>
FUND 1998
- ---- ----
Gross Management Net
Management Fees Management
Fees Waived Fees
---- ------ ----
Georgia $84,279 $84,279 $0
FUND 1997
- ---- ----
Gross Management Net
Management Fees Management
Fees Waived Fees
---- ------ ----
Florida $760,504 -- $760,504
Pennsylvania $464,836 $34,734 $430,102
Michigan $261,943 $45,360 $216,583
Georgia $59,788 $59,788 --
FUND 1996
- ---- ----
Gross Management Net
Management Fees Management
Fees Waived Fees
---- ------ ----
Florida $835,177 $28,910 $806,267
Pennsylvania $465,181 $62,240 $402,941
Michigan $268,578 $152,438 $116,140
Georgia $40,660 $40,660 --
Expenses for 1998 of the Georgia Fund assumed by Lord Abbett for each of the
years ended October 31, 1998, 1997 and 1996 were $0, $24,665 and $16,100,
respectively.
Lord Abbett has given the Company the right to use the identifying name "Lord
Abbett" and this right may be withdrawn if Lord Abbett ceases to be the
Company's investment manager.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281, are
the independent auditors of the Company and must be approved at least annually
by our Board of Trustees to continue in such capacity. Deloitte & Touche LLP
perform audit services for the Company including the audit of financial
statements included in our annual report to shareholders.
The Bank of New York, 48 Wall Street, New York, New York 10286, serves as the
Company's custodian.
United Missouri Bank of Kansas City, N.A., Tenth and Grand, Kansas City,
Missouri 64141, acts as the Transfer Agent and Dividend Disbursing Agent for
each Fund.
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 Company 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,
13
<PAGE>
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 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 Company 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 best
execution.
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
Company; 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 Company, 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 Company 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, 1998, 1997 and 1996, we paid no
commissions to independent brokers.
14
<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, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas
Day.
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 Company'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 Fund 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 Fund will be sold at net
asset value.
The maximum offering prices of our Class A shares on October 31, 1998 were
computed as follows:
Florida Pennsylvania Georgia Michigan
Fund Fund Fund Fund
Net asset value per share (net assets
divided by shares outstanding) .........$4.98 $5.28 $5.31 $5.18
Maximum offering price per share (net
asset value divided by .9525) ..........$5.23 $5.54 $5.57 $5.44
The offering prices of our Class C shares on October 31, 1998 were computed as
follows:
Florida Fund
Net asset value per share (net assets
divided by shares outstanding) ...............$5.12
The Company has entered into a distribution agreement with Lord Abbett
Distributor LLC, a New York limited liability company ("Lord Abbett
Distributor") and subsidiary of Lord Abbett under which Lord Abbett Distributor
is blighted to use its best efforts to find purchasers for the shares of the
Company, and to make reasonable efforts to sell Company 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:
15
<PAGE>
Year Ended Year Ended Year Ended
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1998
------------- ------------- -------------
Gross sales charge $870,073 $970,316 $904,104
Amount allowed
to dealers $769,150 $848,058 $797,281
-------- -------- --------
Net commissions received
by Lord Abbett $100,923 $122,258 $106,823
======== ======== ========
ALTERNATIVE SALES ARRANGEMENTS
CLASSES OF SHARES. This Prospectus offers two classes of shares designated as
Class A and C (which may differ for each Fund). The different classes of shares
represent investments in the same portfolio of securities but are subject to
different expenses and will likely have different share prices. Investors 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, 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 or on investments that
do not qualify to be under a "special retirement wrap program" as a program
sponsored by an authorized institution showing one or more characteristics
distinguishing it, in the opinion of Lord Abbett Distributor from a mutual fund
wrap fee program). If you purchase Class A shares as part of an investment of at
least $1 million (or for Retirement Plans with at least 100 eligible employees
or under a special retirement wrap program) 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 Fund a contingent deferred sales charge ("CDSC") of 1%
except for redemptions under a special retirement wrap program. Class A shares
are subject to service and distribution fees that are currently estimated to
total annually approximately 0.23 of 1% of the annual net asset value of the
Class A shares. The initial sales charge rates, the CDSC and the Rule 12b-1 plan
applicable to the Class A shares are described in "Buying Class A Shares" below.
CLASS C SHARES. If you buy Class C shares, 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 Fund 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 Fund 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 Fund's 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 Fund. We used the sales charge rates that apply
to Class A and Class C, and considered the effect of the higher distribution
fees 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 Fund's actual investment returns, the operating expenses borne by
each class
16
<PAGE>
of shares, and the class of shares you purchase. The factors briefly discussed
below are not intended to be 0investment 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 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.
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. 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 or for investments pursuant to a special retirement
wrap program, 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, it may not
be suitable for you to place a purchase order for Class C shares of $1,000,000
or more. In addition, it may not be suitable for you to place an order for C
shares for a Retirement Plan with at least 100 eligible employees or for a
special retirement wrap program. You should discuss this with your financial
advisor.
INVESTING FOR THE LONGER TERM. If you are investing for the longer term (for
example, to provide for future college expenses for your child) and do not
expect to need access to your money for seven years or more and you plan to
invest more than $100,000, 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 in
non-Retirement Plan accounts for Class C shareholders during the first year of
share ownership (due to the CDSC on withdrawals during that year). See
"Systematic Withdrawal Plan" under "Shareholder Services" in the Prospectus for
more information about the 12% annual waiver of the CDSC. 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 this 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 the
distribution fee for Class C shares is the same as the 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.
17
<PAGE>
CLASS A AND CLASS C RULE 12B-1 PLANS. As described in the Prospectus, each Fund
has adopted a Distribution Plan and Agreement pursuant to Rule 12b-1 under the
Act for the Class A shares (all Fund) and the Class C shares (Florida Fund
only): the "A Plans" and the "C" Plan," respectively. The A Plans each become
effective when the required level of net assets for each Fund is reached. The
Florida Funds' A Plan became effective October 1, 1992. The Pennsylvania Fund A
Plan became effective on April 1, 1998. In adopting a Plan for each class of
each Fund 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 Company paid $ and $ through Lord
Abbett to dealers pursuant to the Florida Funds' A Plan and C Plan,
respectively. The A Plans for the Georgia and Michigan Fund are not yet
effective. Lord Abbett uses amounts received under the Florida Funds' A and C
Plans as described in the Prospectus and for payments to dealers for (i)
providing continuous services to the Florida Fund' shareholders, such as
answering shareholder inquiries, maintaining records, and assisting shareholders
in making redemptions, transfers, additional purchases and exchanges and (ii)
their assistance in distributing shares of the Fund, respectively.
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 Company 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 Fund 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 Fund 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 share 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 ClassA shares of another Lord Abbett-sponsored fund or
Fund acquired through exchange of such shares) on which a Fund 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 Fund only.) As stated in the Prospectus, if Class C
shares of the Florida Fund are redeemed for cash before the first anniversary of
their purchase, the redeeming shareholder will be required to pay to the Florida
Fund 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 Fund' 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, 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 Fund and is intended
to reimburse all or a portion of the amount paid by the Fund if the shares are
redeemed before the Fund has had an opportunity to realize the anticipated
benefits of having a long-term shareholder account in the Fund.
The other funds and Fund which participate in the Telephone Exchange Privilege
(except (a) Lord Abbett U.S. Government Securities Money Market Fund, Inc.
("GSMMF"), (b) certain Fund of Lord Abbett Tax-Free Income Fund
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and the Company for which a Rule12b-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 CDSC 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 Fund 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 Company 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
Company). Exercise of the exchange privilege will be treated as a sale for
federal income tax purposes, and, depending on the circumstances, a gain or loss
may be recognized. In the case of an exchange of shares that have been held for
90 days or less where no sales charge is payable on the exchange, the original
sales charge incurred with respect to the exchanged shares will be taken into
account in determining gain or loss on the exchange only to the extent such
charge exceeds the sales charge that would have been payable on the acquired
shares had they been acquired for cash rather than by exchange. The portion of
the original sales charge not so taken into account will increase the basis of
the acquired shares.
Shareholders have the exchange privilege unless they refuse it in writing. You
should not view the exchange privilege as a means for taking advantage of
short-term swings in the market, and we reserve the right to terminate or limit
the privilege of any shareholder who makes frequent exchanges. We can revoke or
modify the privilege for all shareholders upon 60 days' prior notice. "Eligible
Companies" are AMMF and other Lord Abbett-sponsored funds which are eligible for
the exchange privilege, except Lord Abbett Fund Fund ("LASF") which offers its
shares only in connection with certain variable annuity contracts, Lord Abbett
Equity Fund ("LAEF") which is not issuing shares.
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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, 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 Company 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, ("mutual fund wrap fee program"), (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, and (f) through Retirement Plans with at least 100 eligible employees.
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 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 Company 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.
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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 funds before investing.
INVEST-A-MATIC. The Invest-A-Matic method of investing in the Company 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 Roth and Simple IRAs and 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.
6.
TAXES
Each Fund will be treated as a separate entity for federal income tax purposes.
As a result, the status of each Fund as a regulated investment company is
determined separately by the Internal Revenue Service.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of the Company may not be deductible, in whole or in part, for federal, state or
local 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 Company 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 Company.
Certain financial institutions may be denied a federal income tax deduction for
the amount of interest expense allocable to an investment in the Company. 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 Company.
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The value of any shares redeemed by the Company or repurchased or otherwise sold
may be more or less than your tax basis at the time of disposition. Any gain
generally will be taxable for federal income tax purposes. Any loss realized on
the disposition of Company shares held for six months or less will be treated
for tax purposes as a long-term capital loss to the extent of any distribution
designated by the Company as a "capital gains distribution" 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
Company 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 shares
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 shares
that are substantially identical.
Each Fund will be subject to a 4% nondeductible excise tax on certain amounts
not distributed treated as having been distributed on a timely basis in
accordance with a calendar year. The Company intends to distribute to
shareholders each year an amount adequate to avoid the imposition of such excise
tax.
Limitations imposed by the Internal Revenue Code on regulated investment
companies may restrict the Company'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 and Pennsylvania, each Fund may be required
to refrain from engaging in transactions, techniques or practices it is
otherwise permitted to engage in or to dispose of investments attributable to
such transactions each year before the relevant "statutory assessment dates."
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
Fund, 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.
Except as otherwise discussed in the Prospectus, the receipt of dividends and
distributions from the Company may be subject to state and local taxes. You
should consult your tax adviser on state and local tax matters.
7.
RISK FACTORS REGARDING INVESTMENTS
IN FLORIDA, GEORGIA, MICHIGAN, PENNSYLVANIA
AND PUERTO RICO MUNICIPAL BONDS
The following information is a summary of special risks affecting the states and
territory indicated, each of which could affect the bonds purchased by the
Company. 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 Company has not verified any of this data.
FLORIDA BONDS
Florida's economy has performed well in recent years, largely due to rapid
population growth. The State's total personal income has grown at a strong case
and outperformed the U.S. and other southeastern states. The increase in
personal income directly reflects the population increase. Per capita income has
closely tracked the national average for many years. Florida's unemployment rate
has been below or about the same as the national average since 1995. The
increase in population has placed increased pressure on the State's
transportation infrastructure and other facilities.
Florida's economy is gradually becoming less dependent on employment related to
construction, agriculture and manufacturing and more dependent on services and
trade-related employment. The decline in importance of construction and
construction-related industries expected to continue, as Florida's economy
diversifies.
Tourism continues to be one of Florida's most important industries. The State
has worked to diversify its tourist attractions, in this diversification has
helped to reduce, to a degree, the seasonal character of the industry and to
stabilize
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tourist-related employment.
GEORGIA BONDS
Georgia's unemployment rate has declined steadily since 1992, and remains below
the national average. The State's per capita income, while it has grown
strongly, is 94% of the national average. Personal income levels also have shown
steady increases, as have State revenues.
The State had an undesignated, unreserved General Fund balance of $776 million
in fiscal year 1996-97. In addition, Georgia's Revenue Shortfall Reserve Fund,
which was drawn down to zero in the early 1990s, had a balance of $334 million
at the end of the 1996-97 fiscal year.
The Georgia Constitution provides that the State may incur general obligation
debt and guaranteed revenue debt for public purposes.
MICHIGAN BONDS
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 Constitution provides that the total amount of general ad valorem taxes
imposed on taxable property in any year cannot exceed certain millage
limitations set by the Constitution, statute or charter. The Constitution
prohibits local units of government from levying any tax not authorized by law
or charter, or from increasing the rate of an existing tax above the rate
authorized by law or charter, without the approval of the electors of the local
unit voting on the question. Local units of government and local authorities are
authorized to issue bonds and other evidences of indebtedness in a variety of
situations without the approval of electors, but the ability of the obligor to
levy taxes for the payment of such obligations is subject to the foregoing
limitations unless the obligations were authorized before December 23, 1978 or
approved by the electors. The Constitution also contains millage reduction
provisions. Under such provisions, should the value of taxable property
(exclusive of construction and improvements) increase at a percentage greater
than the percentage increase in the Consumer Price Index, the maximum authorized
tax rate would be reduced by a factor which would result in the same maximum
potential tax revenues to the local taxing unit as if the valuation of taxable
property (less new construction and improvements) had grown only at the Consumer
Price Index rate instead of at the higher actual growth rate. Thus, if taxable
property values rise faster than consumer prices, the maximum authorized tax
rate would be reduced accordingly.
During the fiscal year ended September 30, 1997, the state's level of general
obligation debt decreased to $655.2 million, and total special obligation debt
increased to $2,490.4 million. A state-related revenue debt increased to
$2,274.4 million during 1996-97 fiscal year.
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. The revenue limit does not apply to taxes
imposed for the payment of principal of and interest on bonds of the State, if
the bonds are approved by voters and authorized by a vote of two-thirds of the
members of each House of the Legislature. The Constitution also provides that
the proportion of State spending paid to all local units of government to total
State spending may not be reduced below the proportion in effect in the 1978-79
fiscal year.
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The State is a party to various legal proceedings seeking damages or injunctive
or other relief. In addition to routine litigation, certain of these proceedings
could, if unfavorably resolved from the point of view of the State,
substantially affect State programs or finances.
The State is currently on schedule for achieving its objectives for Year 2000
compliance, but it may not complete the objectives on time. There can also be no
assurance that any other organization or governmental agency with which the
State electronically interacts, including State vendors and the federal
government, will be Year 2000 compliant. The failure of the State or such other
parties to be Year 2000 compliant may materially harm the State's revenue
operations.
PENNSYLVANIA BONDS
The Pennsylvania Constitution mandates that the total operating budget
appropriations made by Commonwealth's General Assembly may not exceed the sum of
(a) the actual and estimated revenues in any given year, and (b) the surplus of
the preceding year. The fiscal years 1993 through 1997 were characterized by
steady, modest economic growth and low inflation rates. These economic
conditions, combined with several years of tax reductions following the various
tax rate increases and tax base expansions enacted in fiscal 1991 for the
General Fund, produced tax revenues gains averaging 4.1% per year during the
period. Total revenues increased during this period at a 4.7% average rate.
Expenditures and other uses during the fiscal 1993 through fiscal 1997 period
rose at a 3.8% annual rate. The General Fund had a balance of $1,364.9 million
at June 30, 1997, a substantial increase from the previous fiscal year that
includes a return of an unreserved-undesignated balance of $187.3 million. The
last such balance was recorded at the end of fiscal 1994. At the close of fiscal
1997, the fund balance for the governmental fund types totaled $2,900.9 million,
any increase of $914.6 million.
For fiscal 1997, higher than expected tax revenues and the end of paragraph
expenditures that were slightly lower than budgeted helped strengthen the
Commonwealth's financial position. The Commonwealth had an operating surplus of
$433 million at the end of fiscal 1997.
Per capita income in Pennsylvania has continued to grow and remains above the
national average.
The Pennsylvania Constitution permits 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.
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. Tax anticipation notes 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.
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.
Certain Commonwealth-created agencies have statutory authorization to incur debt
for which Commonwealth appropriations to pay debt service thereon are not
required. The debt of these agencies is supported by assets of or revenues
derived from the various projects financed; it is not a moral or statutory
obligation of the Commonwealth. Some of these agencies, however, indirectly
depend on Commonwealth appropriations. Obligations of Commonwealth-created
agencies in Pennsylvania which do bear a moral obligation to the Commonwealth or
those issued by the (i) Pennsylvania Housing Finance Agency, a state-created
agency, and (ii) the Hospitals and Higher Education Facilities Authority of
Philadelphia, a municipal authority organized by the City of Philadelphia.
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The Commonwealth, through several of its departments and agencies, has entered
into various agreements to lease as lessee certain real property and equipment,
and to make lease payments for the use of such property and equipment. Some of
those leases and their respective lease payments are pledged as security for
debt obligations issued by certain public authorities for other entities within
the State. All lease payments due from Commonwealth departments and agencies are
subject to and depend on an annual spending authorization approved through the
Commonwealth's annual budget process. The Commonwealth is not required by law to
appropriate or otherwise provide monies from which the lease payments are to be
paid. The obligations to be paid from such lease payments are not bonded debt of
the Commonwealth.
The Commonwealth established the Pennsylvania Intergovernmental Cooperation
Authority ("PICA") in 1991 to assist Philadelphia in remedying fiscal
emergencies. Philadelphia is currently operating under a five-year fiscal plan
approved by PICA on May 20, 1997. The audited General Fund balance of the city
as of June 30, 1997 showed a surplus of approximately $128.8 million.
PUERTO RICO BONDS
Puerto Rico's manufacturing sector has become more diversified as industrial
development has become more capital intensive and more dependent on skilled
labor. 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. Growth in construction and tourism
also contributed to contributed increased economic activity in fiscal 1997.
Much of the development of the manufacturing sector in Puerto Rico to date can
be attributed to various federal and Commonwealth tax incentives, most notably
Section 936 of the Internal Revenue Code (the "Code"), 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 and the
Commonwealth's Industrial Incentives Program. However, in 1996 amendments were
passed that phase out Section 936 tax credits over ten years for existing
claimants and eliminate it for corporations without established operations after
October 1995. The long-term effects on the Puerto Rico economy of the repeal of
section 936 cannot yet be determined, although the repeal is not expected to
have material adverse effects on the Commonwealth's economy in the short- or
medium-term. The Commonwealth also needs to address its substantial unfunded
pension liabilities to its two main public pension systems, which together total
approximately $6 billion.
Puerto Rico's economy has continued to expand for over a decade, with almost
every sector participating and resulting in record levels of employment
(although Puerto Rico's unemployment rate has continued to exceed the average
for the United States). Factors behind this expansion included
Commonwealth-sponsored economic development programs, periodic declines in the
exchange value of the United States dollar, increases in the level of federal
transfers and the relatively low cost of borrowing. Personal income, both
aggregate and per capita, has increased consistently each year since 1985, but
per capita income remains lower than in the United States.
The Commonwealth's general fund has had a positive cash balance in recent years,
and was forecast to have a balance of $38 million at the end of fiscal 1998. The
balance at the end of fiscal 1997 was $127.5 million.
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.
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
25
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Treasury of Puerto Rico (principally income taxes, property taxes and excise
taxes) in the two fiscal years preceding the then current fiscal year.
The Commonwealth has historically maintained a fiscal policy providing for a
prudent relationship between the growth of public sector debt and the growth of
the economic base required to service that debt. However, in recent years there
have been higher levels of public sector debt compared to the growth in nominal
gross product. These higher levels are due to the increase during fiscal 1996
and 1997 in the amount of debt incurred to finance infrastructure projects. This
trend is expected to continue during the next few fiscal years as the level of
public sector capital investment remains high.
The failure of the Commonwealth or other organizations or governmental agencies
with which the Commonwealth electronically interacts, including Commonwealth
vendors and the federal government, to be Year 2000 compliant may materially
affect the Commonwealth's revenue and operations.
8.
PAST PERFORMANCE
Each Fund 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 Fund' 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.
The total returns for the one-year ended October 31, 1998 for Class A shares of
the Florida, Georgia, Michigan and Pennsylvania Fund were: %, %, % and
%, respectively. The average annual compounded rates of total return for the
five year period ended October 31, 1998 for the Florida Fund and the life of the
Florida Fund (commencing on September 25, 1991 to October 31, 1998), the life of
the Georgia Fund (commencing on December 27, 1994 to October 31, 1998), the life
of the Pennsylvania Fund (commencing on February 3, 1992 to October 31, 1998)
and the life of the Michigan Fund (commencing on December 1, 1992 to October 31,
1998), were as follows: %, %, %, % and %, respectively.
The total return for the Class C shares of the Florida Fund for the one year
ended October 31, 1998 and the life of the class (commencing July 15, 1996 to
October 31, 1998) was % and %, respectively.
Our yield quotation for each class is based on a 30-day period ended on a
specified date, computed by dividing the net investment income per share earned
during the period by the maximum offering price per share of such class on the
last day of the period. This is determined by finding the following quotient:
take the dividends and interest earned during the period for a class minus its
expenses accrued for the period and divide by the product of (i) the average
daily number of Class shares outstanding during the period that were entitled to
receive dividends and (ii) the maximum offering price per share of such class 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 Class A net asset value per share. Yield for C shares does
not reflect the deduction of the CDSC. For the 30-day period ended
26
<PAGE>
October 31, 1998 the yields for Class A shares of the Florida, Georgia,
Pennsylvania and Michigan Fund were %, %, % and %, respectively. The
yield for Class C shares of the Florida Fund for such 30 day period was %.
Each Funds' tax-equivalent yield for each Class is computed by dividing that
portion of the appropriate Class' yield (as determined above) which is tax
exempt by one minus a stated income tax rate (Florida - .3600%; Pennsylvania
- -.3779%, Michigan - .3882% and Georgia - .3984%) and adding the product to that
portion, if any, of the appropriate Class' yield that is not tax exempt. For the
30-day period ended on October 31, 1998, the tax-equivalent yields for Class A
shares of the Florida, Georgia, Pennsylvania and Michigan Fund were %, %,
%, and %, respectively. The tax-equivalent yield for Class C shares of the
Florida Fund for such 30 day period was %.
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
Fund 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.
INFORMATION ABOUT THE COMPANY
The Company was established on September 11, 1991 as a Massachusetts business
trust by a Declaration of Trust. As a Trust, the Company does not hold regular
meetings of shareholders, although special meetings may be called for a specific
Fund or for the Company as a whole, for purposes such as electing or removing
trustees, changing fundamental policies or approving an advisory contract. The
Company 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 Company's outstanding shares, 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
Company shares, 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 Company's mailing their request.
Under the Declaration of Trust, the trustees may provide for additional funds
and classes from time to time. Any additional fund and class would have rights
separate from the other funds and classes. Within each fund and class, 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 Company. However, the Declaration of
Trust disclaims shareholder liability for acts, obligations or affairs of the
Company and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Company or the
Trustees. The Declaration of Trust also provides for indemnification out of a
Funds' property for all losses and expenses of any shareholder of the Fund 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 Fund itself would be unable to meet its
obligations. The Company 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 Company'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.
27
<PAGE>
10.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended October 31, 1998 and the
report of Deloitte & Touche LLP, independent auditors, on such financial
statements in the 1998 Annual Report to Shareholders of Lord Abbett Tax-Free
Income Trust, are incorporated herein by reference to such financial statements
and report in reliance upon the authority of Deloitte & Touche LLP as experts in
auditing and accounting.
28
<PAGE>
PART C OTHER INFORMATION
Item 23 Exhibits
(a) Declaration of Trust. Incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement on Form N-1A filed on
March 1, 1998.
(b) By-Laws.
(c) Instruments Defining Rights of Security Holders. Incorporated by
reference
(d) Investment Advisory Contracts. Incorporated by reference.
(e) Underwriting Contracts. Incorporated by reference.
(f) Bonus or Profit Sharing Contracts. Incorporated by reference to Post
Effective Amendment No. 15 to the Registration Statement on Form
N-1A filed on March 1, 1998.
(g) Custodian Agreement. Incorporated by reference.
(h) Other Material Contracts. Incorporated by reference.
(i) Legal Opinion. Incorporated by reference.
(j) Other Opinion. Consent of Independent Auditors.
(k) Omitted Financial Statements. Incorporated by reference.
(l) Initial Capital Agreements. Incorporated by reference.
(m) Rule 12b-1 Plan. Incorporated by reference.
(n) Financial Data Schedule. Incorporated by reference to Post Effective
Amendment No. 15 to the Registration Statement on Form N-1A filed on
March 1, 1998.
(o) Rule 18f-3 Plan. Incorporated by reference.
Item 24 Persons Controlled by or Under Common Control with the Fund
None.
Item 25 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.
1
<PAGE>
Item 26 Business and Other Connections of Investment Adviser
Lord, Abbett & Co. acts as investment adviser for twelve other investment
companies (of which it is principal underwriter for thirteen) and as
investment adviser to approximately 8,300 private accounts as of September
30, 1998. Other than acting as trustees, directors and/or officers of
open-end investment companies managed by Lord, Abbett & Co., none of Lord,
Abbett & Co.'s partners has, in the past two fiscal years, engaged in any
other business, profession, vocation or employment of a substantial nature
for his own account or in the capacity of director, officer, employee,
partner or Trustee of any entity.
Item 27 Principal Underwriters
(a) 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 Global Fund, Inc.
Lord Abbett Series Fund, Inc.
Lord Abbett U.S. Government Money Market Fund, Inc.
Lord Abbett Equity Fund
Lord Abbett Tax-Free Income Trust
Lord Abbett Securities Trust
Lord Abbett Investment Trust
Lord Abbett Research Fund, Inc.
Investment Advisor
American Skandia Trust (Lord Abbett Growth & 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
Paul A. Hilstad Vice President & Secretary
Zane E. Brown Vice President
Daniel E. Carper Vice President
Robert G. Morris Vice President
The other general partners of Lord Abbett & Co. who are neither
officers nor directors of the Registrant are Stephen I. Allen, John
E. Erard, Robert P. Fetch, Daria L. Foster, Robert I. Gerber, Thomas
W. Hudson, Jr., Stephen J. McGruder, Michael McLaughlin, Robert J.
Noelke, R. Mark Pennington. Christopher Towle and John J. Walsh.
Each of the above has a principal business address:
767 Fifth Avenue, New York, NY 10153
(c) Not applicable
2
<PAGE>
Item 28 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 Rules 31a -
1(f) and 31a - 2(e) at its main office.
Certain records such as cancelled 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 29 Management Services
None
Item 30 Undertakings
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.
The registrant 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 director or directors and to assist in
communications with other shareholders as required by Section 16(c)
of the Investment Company Act of 1940, as amended.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant 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
24th day of December, 1998.
LORD ABBETT TAX-FREE INCOME TRUST
By /s/Robert S. Dow
----------------------------------
Robert S. Dow,
Chairman of the Board
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.
Chairman, President
/s/Robert S. Dow and Trustee December 24, 1998
- ---------------------------- ----------------------------- -----------------
Robert S. Dow (Title) (Date)
/s/ E. Thayer Bigelow Trustee December 24, 1998
- ---------------------------- ----------------------------- -----------------
E. Thayer Bigelow (Title) (Date)
/s/ William H. T. Bush Trustee December 24, 1998
- ---------------------------- ----------------------------- -----------------
William H. T. Bush (Title) (Date)
/s/ Robert B. Calhoun Trustee December 24, 1998
- ---------------------------- ----------------------------- -----------------
Robert B. Calhoun (Title) (Date)
/s/ Stewart S. Dixon Trustee December 24, 1998
- ---------------------------- ----------------------------- -----------------
Stewart S. Dixon (Title) (Date)
/s/ John C. Jansing Trustee December 24, 1998
- ---------------------------- ----------------------------- -----------------
John C. Jansing (Title) (Date)
/s/ C. Alan MacDonald Trustee December 24, 1998
- ---------------------------- ----------------------------- -----------------
C. Alan MacDonald (Title) (Date)
/s/ Hansel B. Millican, Jr. Trustee December 24, 1998
- ---------------------------- ----------------------------- -----------------
Hansel B. Millican, Jr. (Title) (Date)
/s/ Thomas J. Neff Trustee December 24, 1998
- ---------------------------- ----------------------------- -----------------
Thomas J. Neff (Title) (Date)
Vice President and
/s/ Keith F. O'Connor Chief Financial Officer December 24, 1998
- ---------------------------- ----------------------------- -----------------
Keith F. O'Connor (Title) (Date)
================================================================================
BY-LAWS
OF
LORD ABBETT TAX-FREE INCOME TRUST
As adopted on September 11, 1991
================================================================================
<PAGE>
Table of Contents
Page
----
ARTICLE I Definitions.................................................1
ARTICLE II Offices and Seal............................................1
Section 2.1. Principal Office............................................1
Section 2.2. Other Offices...............................................1
Section 2.3. Seal........................................................1
ARTICLE III Shareholders................................................2
Section 3.1. Meetings....................................................2
Section 3.2. Place of Meeting............................................2
Section 3.3. Notice of Meetings..........................................2
Section 3.4. Shareholders Entitled to Vote...............................2
Section 3.5. Quorum......................................................3
Section 3.6. Adjournment.................................................3
Section 3.7. Proxies.....................................................3
Section 3.8. Inspection of Records.......................................3
Section 3.9. Record Dates................................................3
ARTICLE IV Meetings of Trustees........................................4
Section 4.1. Regular Meetings............................................4
Section 4.2. Special Meetings............................................4
Section 4.3. Notice......................................................4
Section 4.4. Waiver of Notice............................................4
Section 4.5. Adjournment and Voting......................................4
Section 4.6. Compensation................................................4
ARTICLE V Executive Committee and Committees..........................5
Section 5.1. How Constituted.............................................5
Section 5.2. Powers of the Executive Committee...........................5
Section 5.3. Other Committees of Trustees................................5
Section 5.4. Proceedings, Quorum and Manner of Acting....................5
Section 5.5. Other Committees............................................5
ARTICLE VI Officers....................................................6
Section 6.1. General.....................................................6
Section 6.2. Election, Term of Office and Qualifications.................6
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Section 6.3. Resignations and Removals...................................6
Section 6.4. Vacancies and Newly Created Offices.........................6
Section 6.5. Chairman of the Board.......................................7
Section 6.6. President...................................................7
Section 6.7. Vice President..............................................7
Section 6.8. Chief Financial Officer, Treasurer and Assistant
Treasurers .................................................7
Section 6.9. Secretary and Assistant Secretaries.........................8
Section 6.10. Subordinate Officers .......................................8
Section 6.11. Remuneration ...............................................8
Section 6.12. Surety Bonds ...............................................8
ARTICLE VII Execution of Instruments; Voting of Securities..............9
Section 7.1. Execution of Instruments....................................9
Section 7.2. Voting of Securities........................................9
ARTICLE VIII Fiscal Year; Accountants....................................9
Section 8.1. Fiscal Year.................................................9
Section 8.2. Accountants.................................................9
ARTICLE IX Amendments; Compliance with Investment Company Act.........10
Section 9.1. Amendments.................................................10
Section 9.2. Compliance with Investment Company Act.....................10
ii
<PAGE>
BY-LAWS
OF
LORD ABBETT TAX-FREE INCOME TRUST
ARTICLE I
Definitions
The terms "Affiliated Person", "Commission", "Declaration", "Interested
Person", "Investment Adviser", "Majority Shareholder Vote", "1940 Act",
"Principal Underwriter", "Series", "Series Majority Shareholder Vote",
"Shareholder", "Shares", "Trust", "Trust Property" and "Trustees" have the
meanings given them in the Declaration of Trust (the "Declaration") of Lord
Abbett Tax-Free Income Trust dated September 11, 1991, as amended from time to
time.
ARTICLE II
Offices and Seal
Section 2.1. Principal Office. The principal office of the Trust shall be
located in the City of New York, the State of New York.
Section 2.2. Other Offices. The Trust may establish and maintain such
other offices and places of business within or without the State of New York as
the Trustees may from time to time determine.
Section 2.3. Seal. The seal of the Trust shall be circular in form and
shall bear the name of the Trust, the year of its organization, and the words
"Common Seal" and "A Massachusetts Voluntary Association". The form of the seal
shall be subject to alteration by the Trustees and the seal may be used by
causing it or a facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or Trustee of the Trust shall have authority to affix
the seal of the Trust to any document requiring the same but, unless otherwise
required by the Trustees, the seal shall not be necessary to be placed on, and
its absence shall not impair the validity of, any document, instrument or other
paper executed and delivered by or on behalf of the Trust.
<PAGE>
ARTICLE III
Shareholders
Section 3.1. Meetings. A Shareholders' meeting for the election of
Trustees and the transaction of other proper business shall be held when
authorized or required by the Declaration.
Section 3.2. Place of Meeting. All Shareholders' meetings shall be held at
such place within or without the State of New York as the Trustees shall
designate.
Section 3.3. Notice of Meetings. Notice of all Shareholders' meetings,
stating the time, place and purpose of the meeting, shall be given by the
Secretary or an Assistant Secretary of the Trust by mail to each Shareholder
entitled to notice of and to vote at such meeting at his address as recorded on
the register of the Trust. Such notice shall be mailed at least 10 days and not
more than 90 days before the meeting. Such notice shall be deemed to be given
when deposited in the United States mail, with postage thereon prepaid. Any
adjourned meeting may be held as adjourned without further notice. No notice
need be given (a) to any Shareholder if a written waiver of notice, executed
before or after the meeting by such Shareholder or his attorney thereunto duly
authorized, is filed with the records of the meeting, or (b) to any Shareholder
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. A waiver of notice need not specify the purposes of
the meeting.
Section 3.4. Shareholders Entitled to Vote. If, pursuant to Section 3.9
hereof, a record date has been fixed for the determination of Shareholders
entitled to notice of and to vote at any Shareholders' meeting, each Shareholder
of the Trust shall be entitled to vote, in accordance with the applicable
provisions of the Declaration, in person or by proxy, each Share or fraction
thereof standing in his name on the register of the Trust at the time of
determining net asset value on such record date. If the Declaration or the 1940
Act requires that Shares be voted by Series, each Shareholder shall only be
entitled to vote, in person or by proxy, each Share or fraction thereof of such
Series standing in his name on the register of the Trust at the time of
determining net asset value on such record date. If no record date has been
fixed for the determination of Shareholders so entitled, the record date for the
determination of Shareholders entitled to notice of and to vote at a
Shareholders' meeting shall be at the close of business on the day on which
notice of the meeting is mailed or, if notice is waived by all Shareholders, at
the close of business on the tenth day next preceding the day on which the
meeting is held.
2
<PAGE>
Section 3.5. Quorum. The presence at any Shareholders' meeting, in person
or by proxy, of Shareholders entitled to cast a majority of the votes thereat
shall be a quorum for the transaction of business.
Section 3.6. Adjournment. The holders of a majority of the Shares entitled
to vote at the meeting and present thereat, in person or by proxy, whether or
not constituting a quorum, or, if no Shareholder entitled to vote is present
thereat, in person or by proxy, any Trustee or officer present thereat entitled
to preside or act as Secretary of such meeting, may adjourn the meeting sine die
or from time to time. Any business that might have been transacted at the
meeting originally called may be transacted at any such adjourned meeting at
which a quorum is present.
Section 3.7. Proxies. Shares may be voted in person or by proxy. When any
Share is held jointly by several persons, any one of them may vote at any
meeting, in person or by proxy, in respect of such Share unless at or prior to
exercise of the vote the Trustees receive a specific written notice to the
contrary from any one of them. If more than one such joint owners shall be
present at such meeting, in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote cast, such vote shall not be received
in respect of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger.
Section 3.8. Inspection of Records. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted shareholders of
a Massachusetts business corporation.
Section 3.9. Record Dates. The Trustees may fix in advance a date as a
record date for the purpose of determining the Shareholders who are entitled to
notice of and to vote at any meeting or any adjournment thereof, or to express
consent in writing without a meeting to any action of the Trustees, or who shall
receive payment of any dividend or of any other distribution, or for the purpose
of any other lawful action, provided that such record date shall be not more
than 90 days before the date on which the particular action requiring such
determination of Shareholders is to be taken. In such case, subject to the
provisions of Section 3.4, each eligible Shareholder of record on such record
date shall be entitled to notice of, and to vote at, such meeting or
adjournment, or to express such consent, or to receive payment of such dividend
or distribution or to take such other action, as the case may be,
notwithstanding any transfer of Shares on the register of the Trust after the
record date.
3
<PAGE>
ARTICLE IV
Meetings of Trustees
Section 4.1. Regular Meetings. The Trustees from time to time shall
provide by resolution for the holding of regular meetings for the election of
officers and the transaction of other proper business and shall fix the place
and time for such meetings to be held within or without the State of New York.
Section 4.2. Special Meetings. Special meetings of the Trustees shall be
held whenever called by the Chairman of the Board, the President (or, in the
absence or disability of the President, by any Vice President), the Chief
Financial Officer, the Secretary or two or more Trustees, at the time and place
within or without the State of New York specified in the respective notices or
waivers of notice of such meetings.
Section 4.3. Notice. No notice of regular meetings of the Trustees shall
be required except as required by the Investment Company Act of 1940, as
amended. Notice of each special meeting shall be mailed to each Trustee, at his
residence or usual place of business, at least two days before the day of the
meeting, or shall be directed to him at such place by telegraph, telecopy or
cable, or be delivered to him personally not later than the day before the day
of the meeting. Every such notice shall state the time and place of the meeting
but need not state the purposes thereof, except as otherwise expressly provided
by these By-Laws or by statute. No notice of adjournment of a meeting of the
Trustees to another time or place need be given if such time and place are
announced at such meeting.
Section 4.4. Waiver of Notice. Notice of a meeting need not be given to
any Trustee if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any Trustee who attends
the meeting without protesting prior thereto or at its commencement the lack of
notice to him. A waiver of notice need not specify the purposes of the meeting.
Section 4.5. Adjournment and Voting. At all meetings of the Trustees, a
majority of the Trustees present, whether or not constituting a quorum, may
adjourn the meeting, from time to time. The action of a majority of the Trustees
present at a meeting at which a quorum is present shall be the action of the
Trustees unless the concurrence of a greater proportion is required for such
action by law, by the Declaration or by these By-Laws.
Section 4.6. Compensation. Each Trustee may receive such remuneration for
his services as such as shall be fixed from time to time by resolution of the
Trustees.
4
<PAGE>
ARTICLE V
Executive Committee and Committees
Section 5.1. How Constituted. The Trustees may, by resolution, designate
one or more committees, including an Executive Committee, an Audit Committee and
a Committee on Administration, each consisting of at least two Trustees. The
Trustees may, by resolution, designate one or more alternate members of any
committee to serve in the absence of any member or other alternate member of
such committee. Each member and alternate member of a committee shall be a
Trustee and shall hold office at the pleasure of the Trustees. The Chairman of
the Board and the President shall be members of the Executive Committee.
Section 5.2. Powers of the Executive Committee. Unless otherwise provided
by resolution of the Trustees, the Executive Committee shall have and may
exercise all of the power and authority of the Trustees, provided that the power
and authority of the Executive Committee shall be subject to the limitations
contained in the Declaration.
Section 5.3. Other Committees of Trustees. To the extent provided by
resolution of the Trustees, other committees shall have and may exercise any of
the power and authority that may lawfully be granted to the Executive committee.
Section 5.4. Proceedings, Quorum and Manner of Acting. In the absence of
appropriate resolution of the Trustees, each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable, provided that the quorum shall not be less than two
Trustees. In the absence of any member or alternate member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a Trustee to act in the place of such absent
member or alternate member.
Section 5.5. The Trustees may appoint other committees, each consisting of
one or more persons who need not be Trustees. Each such committee shall have
such powers and perform such duties as may be assigned to it from time to time
by the Trustees, but shall not exercise any power which may lawfully be
exercised only by the Trustees or a committee thereof.
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ARTICLE VI
Officers
Section 6.1. General. The officers of the Trust shall be a Chairman of the
Board, a President, a Secretary, and a Chief Financial Officer, and may include
one or more Vice Presidents, one or more Assistant Secretaries, one or more
Treasurers or Assistant Treasurers, and such other officers as may be appointed
in accordance with the provisions of Section 6.10 of this Article VI.
Section 6.2. Election, Term of Office and Qualifications. The officers of
the Trust and any Series thereof (except those appointed pursuant to Section
6.10) shall be elected by the Trustees at their first meeting. If any officer or
officers are not elected at any such meeting, such officer or officers may be
elected at any subsequent regular or special meeting of the Trustees. Except as
provided in Sections 6.3 and 6.4 of this Article VI, each officer elected by the
Trustees shall hold office until his successor shall have been chosen and
qualified. Any two offices, except those of the President and a Vice President,
may be held by the same person, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity if such instrument be required
by law, the Declaration or these By-Laws to be executed, acknowledged or
verified by any two or more officers. The Chairman of the Board and the
President shall be selected from among the Trustees and may hold such offices
only so long as they continue to be Trustees. Any Trustee or officer may be but
need not be a Shareholder of the Trust.
Section 6.3. Resignations and Removals. Any officer may resign his office
at any time by delivering a written resignation to the Trustees, the President,
the Secretary or any Assistant Secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery. Any officer may be removed
from office with or without cause by the vote of a majority of the Trustees at
any regular meeting or any special meeting. Except to the extent expressly
provided in a written agreement with the Trust, no officer resigning and no
officer removed shall have any right to any compensation for any period
following his resignation or removal or any right to damages on account of such
removal.
Section 6.4. Vacancies and Newly Created Offices. If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Trustees at any regular or special meeting
or, in the case of any office created pursuant to Section 6.10 of this Article
VI, by any officer upon whom such power shall have been conferred by the
Trustees.
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Section 6.5. Chairman of the Board. The Chairman of the Board shall be the
chief executive officer of the Trust and each Series thereof, shall preside at
all Shareholders' meetings and at all meetings of the Trustees and shall be ex
officio a member of all committees of the Trustees and each Series thereof,
except the Audit Committee. Subject to the supervision of the Trustees, he shall
have general charge of the business of the Trust and each Series thereof, the
Trust Property and the officers, employees and agents of the Trust and each
Series thereof. He shall have such other powers and perform such other duties as
may be assigned to him from time to time by the Trustees.
Section 6.6. President. The President shall be the chief operating officer
of the Trust and each Series thereof and, at the request of or in the absence or
disability of the Chairman of the Board, he shall preside at all Shareholders'
meetings and at all meetings of the Trustees and shall in general exercise the
powers and perform the duties of the Chairman of the Board. Subject to the
supervision of the Trustees and such direction and control as the Chairman of
the Board may exercise, he shall have general charge of the operations of the
Trust and each Series thereof and its officers, employees and agents. He shall
exercise such other powers and perform such other duties as from time to time
may be assigned to him by the Trustees.
Section 6.7. Vice President. The Trustees may, from time to time,
designate and elect one or more Vice Presidents who shall have such powers and
perform such duties as from time to time may be assigned to them by the Trustees
or the President. At the request or in the absence or disability of the
President, the Executive Vice President (or, in the absence of both the
President and the Executive Vice President, if there are two or more Senior Vice
Presidents, then the senior in length of time in office of the Senior Vice
Presidents present and able to act) may perform all the duties of the President
and, when so acting, shall have all the powers of and be subject to all the
restrictions upon the President.
Section 6.8. Chief Financial Officer, Treasurer and Assistant Treasurers.
The Chief Financial Officer shall be the principal financial and accounting
officer of the Trust and each Series thereof and shall have general charge of
the finances and books of account of the Trust and each Series thereof. Except
as otherwise provided by the Trustees, he shall have general supervision of the
funds and property of the Trust and each Series thereof and of the performance
by the custodian appointed pursuant to Section 2.1 (paragraph 5) of the
Declaration of its duties with respect thereto. The Chief Financial Officer
shall render a statement of condition of the finances of the Trust and each
Series thereof to the Trustees as often as they shall require the same and he
shall in general perform all the duties incident to the office of the Chief
Financial Officer and such other duties as from time to time may be assigned to
him by the Trustees.
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The Treasurer or any Assistant Treasurer may perform such duties of the
Chief Financial Officer as the Chief Financial Officer or the Trustees may
assign. In the absence of the Chief Financial Officer, the Treasurer may perform
all duties of the Chief Financial Officer. In the absence of the Chief Financial
Officer and the Treasurer, any Assistant Treasurer may perform all duties of the
Chief Financial Officer.
Section 6.9. Secretary and Assistant Secretaries. The Secretary shall
attend to the giving and serving of all notices of the Trust and each Series
thereof and shall record all proceedings of the meetings of the Shareholders and
Trustees in one or more books to be kept for that purpose. He shall keep in safe
custody the seal of the Trust, and shall have charge of the records of the Trust
and each Series thereof, including the register of shares and such other books
and papers as the Trustees may direct and such books, reports, certificates and
other documents required by law to be kept, all of which shall at all reasonable
times be open to inspection by any Trustee. He shall perform such other duties
as appertain to his office or as may be required by the Trustees.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary or the Trustees may assign, and, in the absence of the Secretary, he
may perform all the duties of the Secretary.
Section 6.10. Subordinate Officers. The Trustees from time to time may
appoint such other subordinate officers or agents as they may deem advisable,
each of whom shall have such title, hold office for such period, have such
authority and perform such duties as the Trustees may determine. The Trustees
from time to time may delegate to one or more officers or agents the power to
appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 6.11. Remuneration. The salaries or other compensation of the
officers of the Trust and any Series thereof shall be fixed from time to time by
resolution of the Trustees, except that the Trustees may by resolution delegate
to any person or group of persons the power to fix the salaries or other
compensation of any subordinate officers or agents appointed in accordance with
the provisions of Section 6.10 hereof.
Section 6.12. Surety Bonds. The Trustees may require any officer or agent
of the Trust and any Series thereof to execute a bond (including, without
limitation, any bond required by the 1940 Act and the rules and regulations of
the Commission) to the Trustees in such sum and with such surety or sureties as
the Trustees may determine, conditioned upon the faithful performance of his
duties to the Trust, including responsibility for negligence and for the
accounting of any of the Trust Property that may come into his hands. In any
such case, a new bond of like character shall be given at least every six years,
so
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that the date of the new bond shall not be more than six years subsequent to the
date of the bond immediately preceding.
ARTICLE VII
Execution of Instruments; Voting of Securities
Section 7.1. Execution of Instruments. All deeds, documents, transfers,
contracts, agreements, requisitions, orders, promissory notes, assignments,
endorsements, checks and drafts for the payment of money by the Trust or any
Series thereof, and any other instruments requiring execution either in the name
of the Trust or the names of the Trustees or otherwise may be signed by the
Chairman, the President, a Vice President or the Secretary and by the Chief
Financial Officer, Treasurer or an Assistant Treasurer, or as the Trustees may
otherwise, from time to time, authorize, provided that instructions in
connection with the execution of portfolio securities transactions may be signed
by one such officer. Any such authorization may be general or confined to
specific instances.
Section 7.2. Voting of Securities. Unless otherwise ordered by the
Trustees, the Chairman, the President or any Vice President shall have full
power and authority on behalf of the Trustees to attend and to act and to vote,
or in the name of the Trustees to execute proxies to vote, at any meeting of
stockholders of any company in which the Trust may hold stock. At any such
meeting such officer shall possess and may exercise (in person or by proxy) any
and all rights, powers and privileges incident to the ownership of such stock.
The Trustees may by resolution from time to time confer like powers upon any
other person or persons.
ARTICLE VIII
Fiscal Year; Accountants
Section 8.1. Fiscal Year. The fiscal year of the Trust and any Series
thereof shall be established by resolution of the Trustees.
Section 8.2. Accountants. (a) The Trustees shall employ a public
accountant or a firm of independent public accountants as their accountant to
examine the accounts of the Trust and each Series thereof and to sign and
certify at least annually financial statements filed by the Trust. The
accountant's certificates and reports shall be addressed both to the Trustees
and to the Shareholders.
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(b) A majority of the Trustees who are not Interested Persons of the Trust
shall select the accountant at any meeting held before the initial registration
statement of the Trust becomes effective, and thereafter shall select the
accountant annually by votes, cast in person, at a meeting held within 90 days
before or after the beginning of the fiscal year of the Trust.
(c) Any vacancy occurring due to the death or resignation of the
accountant may be filled at a meeting called for the purpose by the vote, cast
in person, of a majority of those Trustees who are not Interested Persons of the
Trust.
ARTICLE IX
Amendments; Compliance with Investment Company Act
Section 9.1. Amendments. These By-Laws may be amended or repealed, in
whole or in part, by a majority of the Trustees then in office at any meeting of
the Trustees, or by one or more writings signed by such a majority.
Section 9.2. Compliance with Investment Company Act. No provision of these
By-Laws shall be given effect to the extent inconsistent with the requirements
of the Investment Company Act of 1940, as amended.
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CONSENT OF INDEPENDENT AUDITORS
Lord Abbett Tax-Free Income Trust:
We consent to the incorporation by reference in Post-Effective Amendment No. 16
to Registration Statement No. 33-43017 of our report dated December 11, 1998
appearing in the Annual Report to Shareholders for the year ended October 31,
1998, and to the references to us under the captions "Financial Highlights" in
the Prospectus and under the captions "Investment Advisory and Other Services"
and "Financial Statements" appearing in the Statement of Additional Information,
both of which are part of such Registration Statement.
DELOITTE & TOUCHE LLP
New York, New York
December 22, 1998
