1933 Act File No. 33-58846
1940 Act File No. 811-7538
SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 9 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [X]
AMENDMENT NO. 10 [X]
LORD ABBETT SECURITIES TRUST
Exact Name of Registrant as Specified in Charter
767 Fifth Avenue, New York, N.Y. 10153
Address of Principal Executive Office
Registrant's Telephone Number (212) 848-1800
Kenneth B. Cutler, Vice President & Secretary
767 Fifth Avenue, New York, N.Y. 10153
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
immediately on filing pursuant to paragraph (b) of Rule 485
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X on June 15, 1995 pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a) of Rule 485
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on (date) pursuant to paragraph (a) (i) of Rule 485
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75 days after filing pursuant to paragraph (a) (ii) of Rule 485
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on (date) pursuant to paragraph (a) (ii) of Rule 485
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If appropriate, check the following box:
this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
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<PAGE>
LORD ABBETT SECURITIES TRUST
N-1A
Cross Reference Sheet
Pursuant to Rule 481(a)
Form N-1A Location In Prospectus or
Item No. Statement of Additional Information
1 Cover Page
2 Fee Table
3 N/A
4 (a) (i) Cover Page
4 (a) (ii)I Investment Objectives
4 (b) (c) How We Invest
5 (a) (b) (c) Our Management; Last Page
5 (d) N/A
5 (e) Our Management
5 (f) N/A
5 (g) Purchases
6 (a) Cover Page
6 (b) (c) (d) N/A
6 (e) Cover Page; Purchases
6 (f) (g) Dividends, Capital Gains
Distributions and Taxes
7 (a) Back Cover Page
7 (b) (c) (d) Purchases
8 (a) (b) (c) (d) Redemptions
Purchases, Redemptions and Shareholder
Services
9 N/A
10 Cover Page
11 Cover Page -- Table of Contents
12 N/A
13 (a) (b) (c) (d) Investment Objectives and Policies
14 Trustees and Officers
15 (a) (b) (c) Trustees and Officers
16 (a) (i) Investment Advisory and Other
Services
16 (a) (ii) Trustees and Officers
16 (a) (iii) Investment Advisory and Other
Services
16 (b) Investment Advisory and Other Services
16 (c) (d) (e) (g) N/A
16 (f) Purchases, Redemptions and Shareholder
Services
16 (h) Investment Advisory and Other Services
16 (i) N/A
17 (a) Portfolio Transactions
17 (b) N/A
17 (c) Portfolio Transactions
17 (d) (e) N/A
18 (a) Cover Page
18 (b) N/A
<PAGE>
Form N-1A Location in Prospectus or
Item No. Statement of Additional Information
19 (a) (b) Purchases; Redemptions and Shareholder
Services; Notes to Financial Statements
19 (c) N/A
20 Taxes
21 (a) Purchases, Redemptions and Shareholder
Services
21 (b) (c) N/A
22 N/A
22 (b) Past Performance
23 Financial Statements; Supplementary
<PAGE>
LORD ABBETT SECURITIES TRUST
THE GENERAL MOTORS BUILDING
767 FIFTH AVENUE
NEW YORK, NY 10153-0203
800-426-1130
LORD ABBETT SECURITIES TRUST (THE "TRUST") IS AN OPEN-END MANAGEMENT INVESTMENT
COMPANY CURRENTLY, CONSISTING OF TEN SEPARATE SERIES THE U.S. GOVERNMENT
SECURITIES TRUST, THE NATIONAL TAX-FREE INCOME TRUST, THE CALIFORNIA TAX-FREE
INCOME TRUST, THE NEW YORK TAX-FREE INCOME TRUST, THE FLORIDA TAX-FREE INCOME
TRUST, THE GROWTH & INCOME TRUST, THE BOND-DEBENTURE TRUST, THE GLOBAL INCOME
TRUST, THE LIMITED DURATION U.S. GOVERNMENT SECURITIES TRUST AND A NEW SERIES
EFFECTIVE IMMEDIATELY -- THE BALANCED TRUST; (SOMETIMES REFERRED TO AS "WE" OR
THE "SERIES" INDIVIDUALLY OR COLLECTIVELY; THE NATIONAL, CALIFORNIA, NEW YORK
AND FLORIDA TRUSTS ARE COLLECTIVELY REFERRED TO AS THE "TAX-FREE TRUSTS"). SEE
"INVESTMENT OBJECTIVES" FOR A DESCRIPTION OF EACH SERIES' INVESTMENT OBJECTIVE.
UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE "1940 ACT"), EACH SERIES IS
DIVERSIFIED, EXCEPT FOR THE CALIFORNIA, NEW YORK, FLORIDA AND GLOBAL INCOME
TRUSTS WHICH ARE NONDIVERSIFIED. ALL THE SERIES INTEND TO MEET THE
DIVERSIFICATION RULES UNDER SUBCHAPTER M OF THE INTERNAL REVENUE CODE.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE TRUST AND
EACH SERIES THAT A PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. ADDITIONAL
INFORMATION ABOUT THE TRUST AND EACH SERIES HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. THE STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED
BY REFERENCE INTO THIS PROSPECTUS AND MAY BE OBTAINED, WITHOUT CHARGE, BY
WRITING TO THE TRUST OR BY CALLING THE TRUST AT 800-874-3733. ASK FOR "PART B OF
THE PROSPECTUS THE STATEMENT OF ADDITIONAL INFORMATION".
THE DATE OF THIS PROSPECTUS, AND THE DATE OF THE STATEMENT OF ADDITIONAL
INFORMATION, IS DECEMBER 27, 1994.
PROSPECTUS
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS. SHAREHOLDER INQUIRIES SHOULD
BE MADE IN WRITING TO THE TRUST OR BY CALLING 800-821-5129. YOU CAN ALSO MAKE
INQUIRIES THROUGH YOUR BROKER-DEALER.
SHARES OF EACH SERIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
AN INVESTMENT IN EACH SERIES INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
CONTENTS PAGE
1 Investment Objectives 2
2 Fee Table 2
3 Financial Highlights 4
4 How We Invest 6
5 Purchases 18
6 Shareholder Services 19
7 Our Management 20
8 Dividends, Capital Gains
Distributions and Taxes 21
9 Redemptions 23
10 Performance 24
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
1 INVESTMENT OBJECTIVE
The investment objective of the GOVERNMENT TRUST is to seek high current income
with relatively low risk of price decline. The Government Trust seeks to attain
its objective by investing in U.S. Government securities.
Government Trust shares can fluctuate in value more than short-duration
U.S. Government securities and consistent with intermediate-duration U.S.
Government securities it normally holds. The shares of each Tax-Free Trust
mentioned below also can fluctuate more than short-term municipal bond
securities and consistent with intermediate and long-term municipal bonds like
those we hold in each such Trust. For example, assuming a portfolio duration of
eight years, an increase of interest rates of 1%, a parallel shift in the yield
curve and no change in the spread relationships among securities of the kind
held by the Government or a Tax-Free Trust, the value of the portfolio would
decline 8%. Using the same assumptions, if interest rates decrease 1%, the value
of the Government or a Tax-Free Trust portfolio would increase 8%. This
volatility, while not eliminated, is managed by the policy of Lord, Abbett & Co.
("Lord Abbett") to maintain the average duration of securities held by the
Government Trust at between three and eight years and normally to maintain the
average weighted stated maturity of each Tax-Free Trust at between ten and
thirty-five years. "Duration" and "stated maturity" are defined in the first
paragraph under "How We Invest".
The investment objective of each TAX-FREE TRUST is to seek as high a level
of interest income exempt from federal income tax as is consistent with
preservation of capital. The Tax-Free Trusts invest in intermediate and
long-term municipal bonds which can fluctuate as interest rates change. Except
for the National and Florida Trusts, each Tax-Free Trust also seeks as high a
level of interest income exempt from its respective state's personal income tax
and, in the case of the New York Trust, from New York City personal income tax,
as is consistent with preservation of capital. At present, Florida does not
impose a personal income tax. Under normal conditions, shares of the Florida
Trust will not be subject to the Florida intangible personal property tax. See
"Dividends, Capital Gains Distributions and Taxes" for further details.
The investment objective of the GROWTH & INCOME TRUST is long-term growth
of capital and income without excessive fluctuations in market value. It
normally invests in common stocks of large, seasoned companies in sound
financial condition which are expected to show above-average price appreciation.
The investment objective of the BOND-DEBENTURE TRUST is high current income
and the opportunity for capital appreciation to produce a high total return. It
normally invests in a portfolio consisting primarily of convertible and discount
debt securities, many of which may be lower-rated. These lower-rated debt
securities entail greater risks than investments in higher-rated debt securities
and, therefore, the former are referred to as junk bonds. Investors should
carefully consider these risks set forth under "High-Yield Bonds" in the "How We
Invest" section before investing.
The investment objective of the GLOBAL INCOME TRUST is high current income
consistent with reasonable risk. Capital appreciation is a secondary
consideration. It normally invests in a portfolio of globally-diversified
securities selected to take advantage of high current income with capital
appreciation which may be prevalent, from time to time, in particular countries
throughout the world.
The investment objective of the LIMITED DURATION GOVERNMENT TRUST is to
seek a high level of income from a portfolio consisting primarily of limited
duration U.S. Government securities. It invests primarily in short- and
intermediate-duration securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
The investment objective of the BALANCED TRUST is to seek current income
and capital growth. It will seek this objective by investing in a diversified
portfolio of equity and fixed income securities.
There can be no assurance that any Series will achieve its objective. None
of the Series will change its objective without first obtaining shareholder
approval.
2 FEE TABLE
A summary of each Series expenses are set forth in the table below. The example
is not a representation of past or future expenses. Actual expenses may be
greater or less than those shown.
<TABLE>
<CAPTION>
GOVERNMENT NATIONAL CALIFORNIA NEW YORK FLORIDA
TRUST TRUST TRUST TRUST TRUST
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(AS A PERCENTAGE OF OFFERING PRICE)
Maximum Sales Load(1) on Purchases
(See "Purchases") None None None None None
Deferred Sales Load (See "Purchases") 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
- -------------------------------------------------------------------------------------------------------------------
ANNUAL SERIES OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER
MANAGEMENT FEE WAIVERS AND EXPENSE SUBSIDIES)
Management Fee (See "Our Management") .50%(3) .00%(3) .00%(3) .00%(3) .00%(3)
12b-1 Fee (See "Purchases") .97%(4) .91%(4) .99%(4) .84%(4) .89%(4)
Other Expenses (See "Our Management") .17%(3) .00%(3) .00%(3) .00%(3) .00%(3)
- -------------------------------------------------------------------------------------------------------------------
Total Operating 1.64%(3) .91%(3) .99%(3) .84%(3) .89%(3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROWTH & INCOME BOND-DEBENTURE GLOBAL INCOME LIMITED DURATION BALANCED
TRUST TRUST TRUST GOVERNMENT TRUST TRUST
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(AS A PERCENTAGE OF OFFERING PRICE)
Maximum Sales Load(1) on Purchases
(See "Purchases") None None None None None
Deferred Sales Load (See "Purchases") 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
- ----------------------------------------------------------------------------------------------------------------------------------
ANNUAL SERIES OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER
MANAGEMENT FEE WAIVERS AND EXPENSE SUBSIDIES)
Management Fee (See "Our Management") .02%(3)* .21%(3)* .10%(3)* .21%(3)* .75%(3)
12b-1 Fees (See "Purchases") .57%(4)* .80%(4)* .81%(4)* .76%(4)* 1.00%(4)
Other Expenses (See "Our Management") .02%(3)* .22%(3)* .18%(3)* .34%(3)* .25%(3)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses .61%(3)* 1.23%(3)* 1.09%(3)* 1.31%(3)* 2.00%(3)
<FN>
* Not Annualized
Example: Assume each Series annual return is 5% and there is no change in the
level of expenses described above. For every $1,000 invested, with reinvestment
of all distributions, you would pay the following total expenses if you closed
your account after the number of years indicated.
1 year 3 years 5 years 10 years
------ ------- ------- --------
Government $17 $52 $89 $195
National $9 $29 $50 $112
California $10 $32 $55 $121
New York $9 $27 $47 $104
Florida $9 $28 $49 $110
Growth & Income $6 $20 $34 $76
Bond-Debenture $13 $39 $68 $149
Global Income $11 $35 $60 $133
Limited Duration
Government $13 $42 $72 $158
Balanced $20 $63
(1) Sales load is referred to as sales charge and deferred sales load is
referred to as contingent deferred reimbursement charge throughout this
Prospectus.
(2) Redemptions of shares are subject to a 1% contingent deferred reimbursement
charge if the redemption occurs before the first anniversary of the share
purchase. See Purchases -- Rule 12b-1 Plans.
(3) Although not obligated to, Lord Abbett may waive its management fee and/or
subsidize other expenses with respect to the Series. It has waived the
management fee with respect to the National, California, New York, Florida,
Growth & Income, Bond-Debenture, Global Income and Limited Duration Trusts
during the past year (and continues to do so). Lord Abbett may waive its
management fee with respect to the Balanced Trust. The management fee would
have been .50%, .50%, .50%, .50%, .75%, .50%, .50% and .50%, respectively,
for each Trust, absent such waiver. These figures also reflect a subsidy of
other expenses for the National, California, New York, Florida, Growth &
Income and Global Income Trust. Without such subsidy, total operating
expenses would have been 1.65%, 1.79%, 1.79%, 1.88%, 1.94% and 1.69%,
respectively. Subsequently, Lord Abbett may charge these fees and not
subsidize these expenses on a partial or complete basis.
(4) Although each Series does not charge a front-end sales charge, investors
should be aware that long-term shareholders may pay, under each Series Rule
12b-1 Plan (which pays dealers .25% service and .75% distribution fees),
more than the economic equivalent of the maximum front- end sales charge as
permitted by certain rules of the National Association of Securities
Dealers, Inc.
The foregoing is provided to give investors a better understanding of the
expenses that are incurred by an investment in each Series.
</FN>
</TABLE>
<PAGE>
3 FINANCIAL HIGHLIGHTS
The following tables have been audited by Deloitte & Touche LLP, independent
accountants, in connection with their annual audits of the Series Financial
Statements, whose report thereon is incorporated by reference into the Statement
of Additional Information and may be obtained on request, and have been included
herein in reliance upon their authority as experts in auditing and accounting.
<TABLE>
<CAPTION>
GOVERNMENT TRUST NATIONAL TRUST
-------------------------------------- ------------------------------------
GOVERNMENT TRUST FOR THE PERIOD FOR THE PERIOD
NATIONAL TRUST JUNE 1, 1993 OCTOBER 1, 1993
(COMMENCEMENT (COMMENCEMENT
PER SHARE OPERATING YEAR ENDED OF OPERATIONS) TO YEAR ENDED OF OPERATIONS) TO
PERFORMANCE: OCTOBER 31, 1994 OCTOBER 31, 1993 OCTOBER 31, 1994 OCTOBER 31, 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.08 $5.00 $4.99 $5.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .364 .149 .253 .017
Net realized and unrealized
gain (loss) on securities (.6731) .082 (.6903) (.0061)
TOTAL FROM INVESTMENT OPERATIONS (.3091) .231 (.4373) .0109
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from net investment income (.3609) (.151) (.2527) (.0209)
NET ASSET VALUE, END OF PERIOD $4.41 $5.08 $4.30 $4.99
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (6.25 )% 4.65% (9.02)% .35%
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $343,544 $267,740 $39,200 $8,460
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver* - - .91% .05%
Expenses, excluding waiver 1.64% .71% 1.65% .35%
Net investment income 7.68% 2.68% 5.28% .14%
PORTFOLIO TURNOVER RATE 995.50% 141.97% 381.17% .00%
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA TRUST CALIFORNIA TRUST NEW YORK TRUST FLORIDA TRUST
NEW YORK TRUST --------------------------------- -------------------------------- ----------------------------
FLORIDA TRUST FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
OCTOBER 1, 1993 OCTOBER 1, 1993 OCTOBER 1, 1993
(COMMENCEMENT OF (COMMENCEMENT OF (COMMENCEMENT OF
PER SHARE OPERATING YEAR ENDED OPERATIONS) TO YEAR ENDED OPERATIONS) TO YEAR ENDED OPERATIONS) TO
PERFORMANCE: OCT. 31, 1994 OCT. 31, 1993 OCT. 31, 1994 OCT. 31, 1993 OCT. 31, 1994 OCT. 31, 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $4.97 $5.00 $5.00 $5.00 $4.99 $5.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .273 .018** .246 .018** .246 .017**
Net realized and unrealized
gain (loss) on securities (.7603) (.0271) (.6933) .0029 (.7045) (.0061)
TOTAL FROM INVESTMENT OPERATIONS (.4873) (.0091) (.4473) .0209 (.4585) .0109
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from net
investment income (.2527) (.0209) (.2527) (.0209) (.2515) (.0209)
NET ASSET VALUE, END OF PERIOD $4.23 $4.97 $4.30 $5.00 $4.28 $4.99
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (10.07)% 0.08%** (9.19)% .55%** (9.44)% .22%**
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $19,553 $3,721 $8,369 $2,488 $11,346 $2,427
Ratios to Average Net Assets:
Expenses, including waiver* .99% .04%** .84% .05%** .89% .04%**
Expenses, excluding waiver 1.79% .60%** 1.79% .81%** 1.88% .82%**
Net investment income 5.07% .16%** 5.16% .18%** 5.07% .13%**
PORTFOLIO TURNOVER RATE 159.44% .00% 200.13% .00% 224.59% .00%
===================================================================================================================================
<FN>
* Each Series is contingently obligated to repay its expenses voluntarily
assumed by Lord, Abbett & Co. At October 31, 1994 such expense subsidies
totalled $97,968 for the National Trust, $61,997 for the California Trust,
$46,094 for the New York Trust and $59,981 for the Florida Trust. Such
contingent obligations are not included in expenses. See Our Management for
the terms of such contingent obligations.
** Not annualized.
See Notes to Financial Statements. On October 31, 1994 the Balanced Trust had
not commenced operations.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROWTH & INCOME TRUST BOND DEBENTURE TRUST
--------------------- --------------------
GROWTH & INCOME TRUST FOR THE PERIOD FOR THE PERIOD
BOND-DEBENTURE TRUST JANUARY 3, 1994 JANUARY 3, 1994
(COMMENCEMENT (COMMENCEMENT
PER SHARE OPERATING OF OPERATIONS) TO OF OPERATIONS) TO
PERFORMANCE: OCTOBER 31, 1994 OCTOBER 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.00 $5.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .089% .294%
Net realized and nrealized
gain (loss) on securities .041 (.364)
TOTAL FROM INVESTMENT OPERATIONS .13 (.070)
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from net investment income (.06) (.28)
Net asset value, end of period $5.07 $4.65
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 2.62% (1.38)%
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $9,160 $58,743
RATIOS TO AVERAGE NET ASSETS:
Expenses, including waiver* .61% 1.23%
Expenses, excluding waiver 1.94% 1.43%
Net investment income 2.03% 6.70%
PORTFOLIO TURNOVER RATE 31.95% 52.34%
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
GLOBAL INCOME TRUST LIMITED DURATION GOVERNMENT TRUST
-------------------- ------------------------------------
GLOBAL INCOME TRUST FOR THE PERIOD FOR THE PERIOD
LIMITED DURATION GOVERNMENT TRUST JANUARY 3, 1994 JANUARY 3, 1994
(COMMENCEMENT (COMMENCEMENT
PER SHARE OPERATING OF OPERATIONS) TO OF OPERATIONS) TO
PERFORMANCE: OCTOBER 31, 1994 OCTOBER 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.00 $5.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .276** .210**
Net realized and unrealized
gain (loss) on securities (.3763) (.3613)
TOTAL FROM INVESTMENT OPERATIONS (.1003) (.1513)
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from net investment income (.2997) (.2087)
NET ASSET VALUE, END OF PERIOD $4.60 $4.64
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (1.90)%** (3.04)%**
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $6,710 $14,666
Ratios to Average Net Assets:
Expenses, including waiver* 1.09%** 1.31%**
Expenses, excluding waiver 1.69%** 1.52%**
Net investment income 5.58%** 4.33%**
PORTFOLIO TURNOVER RATE 1,348.68% 630.52%
===================================================================================================================================
<FN>
* Each Series is contingently obligated to repay its expenses voluntarily
assumed by Lord, Abbett & Co. At October 31, 1994, such expense subsidies
totalled $33,620 for the Growth & Income Trust and $16,211 for the Global
Income Trust. Such contingent obligations are not included in expenses. See
"Our Management" for the terms of such contingent obligations.
** Not annualized.
See Notes to Financial Statements. On October 31, 1994 the Balanced Trust had
not commenced operations.
</FN>
</TABLE>
<PAGE>
4 HOW WE INVEST
LORD ABBETT U.S. GOVERNMENT SECURITIES TRUST. The Government Trust seeks high
current income with relatively low risk of price decline. To achieve this goal,
the Government Trust invests in U.S. Government securities. U.S. Government
securities include: (1) obligations issued by the U.S. Treasury, differing only
in their interest rates, maturities and time of issuance and including Treasury
bills maturing in one year or less, Treasury notes maturing in one to ten years
and Treasury bonds with maturities of over ten years and (2) obligations issued
or guaranteed by U.S. Government agencies and instrumentalities which are
supported by any of the following: (a) the full faith and credit of the United
States (such as GNMA certificates), (b) the right of the issuer to borrow from
the U.S. Treasury or (c) the credit of the agency or instrumentality. Agencies
and instrumentalities include the Federal Home Loan Banks, Federal Home Loan
Mortgage Association, Federal National Mortgage Association, Federal Farm Credit
Banks, Student Loan Marketing Association, Tennessee Valley Authority, Financing
Corporation and Resolution Funding Corporation. Obligations issued by the U.S.
Treasury and by U.S. Government agencies and instrumentalities include those so
issued in a form separated into their component parts of principal and coupon
payments, i.e., component securities. A security backed by the U.S. Treasury or
a U.S. Government agency, although providing substantial protection against
credit risk, is guaranteed only as to the timely payment of interest and
principal when held to maturity. The market prices for such securities are not
guaranteed and will fluctuate and, accordingly, such securities will not protect
investors against price changes due to changing interest rates. Longer maturity
U.S. Government securities may exhibit greater price volatility in response to
changes in interest rates than shorter maturity securities. In addition, such
securities may show even greater volatility if, for example, the interest
payment component has been removed, as with zero coupon bonds. Duration
generally is the weighted average time to receipt of all cash flows due by
maturity from an obligation. Duration differs from stated maturity which is the
stated time to final principal payment of an obligation without regard to any
prepayments of principal. The value of our shares will change as the general
levels of interest rates fluctuate. When interest rates decline, share value can
be expected to rise. Conversely, when interest rates rise, share value can be
expected to decline.
Investments in GNMA certificates, which are pools of home mortgages, are
subject to prepayment of principal as mortgages in the pool are prepaid. The
Government Trust must reinvest these prepayments at prevailing rates, which may
be lower than the yield of the GNMA certificate. These prepayments will result
in a reduction in principal if the GNMA certificate is trading over par.
Mortgage prepayments generally increase in a falling interest-rate environment,
and accordingly often result in a reduction of principal. In a rising interest
rate environment, prepayments tend to decline which increases the duration and
volatility of such GNMA certificates.
The Government Trust may invest in liquid interest-only and principal-only
mortgage-backed securities backed by fixed-rate mortgages under guidelines
established by the Trustees to assure that they may be sold promptly in the
ordinary course of business at a value reasonably close to that used in
calculating our net asset value per share.
Although the longer maturity U.S. Government securities, zero coupon bonds,
GNMA certificates and other mortgage-backed securities mentioned above may be
volatile, this volatility, while not eliminated, is managed by the
above-mentioned policy of Lord Abbett to maintain the average duration of
securities held by the Government Trust at between three and eight years.
While growth of capital is not a Government Trust objective, capital
appreciation may result from efforts to secure high current income. Under normal
circumstances, the Government Trust will invest all of its net assets in U.S.
Government securities. Although the Government Trust has no present intention of
doing so, it reserves the right to invest in debt securities fully
collateralized by U.S. Government securities (U.S. Government related
securities). If the Government Trust determines to invest in U.S. Government
related securities, it will disclose that determination in the Prospectus prior
to doing so. In the event the Government Trust invests in U.S. Government
related securities, not less than 65% of its net assets will continue to be
invested in U.S. Government securities under normal circumstances.
LORD ABBETT NATIONAL TAX-FREE INCOME TRUST, LORD ABBETT CALIFORNIA TAX-FREE
INCOME TRUST, LORD ABBETT NEW YORK TAX-FREE INCOME TRUST, LORD ABBETT FLORIDA
TAX-FREE INCOME TRUST. Each Tax-Free Trust invests primarily in a portfolio of
intermediate-term (5-10 years) to long-term (over 10 years) municipal bonds, the
interest on which is exempt from federal income tax in the opinion of bond
counsel to the issuer. Except for the National and Florida Trusts, the interest
on the municipal bonds in which each Tax-Free Trust primarily invests also is
exempt from its states personal income tax and, in the case of the New York
Trust, from New York City personal income tax, in the opinion of bond counsel to
the issuer. At present Florida does not impose a personal income tax. The value
of a Tax-Free Trusts shares will change as the general levels of interest rates
fluctuate. When interest rates decline, share values can be expected to rise.
Conversely, when interest rates rise, share values can be expected to decline.
"Municipal bonds" as used herein, and as more fully described in the
Statement of Additional Information, are debt obligations issued by or on behalf
of states, territories and possessions of the United States, including the
District of Columbia, Puerto Rico, the Virgin Islands and Guam, and their
political subdivisions, agencies and instrumentalities.
Each Tax-Free Trust invests primarily in investment-grade municipal
bondsbonds rated (rated bonds) at the time of purchase within the four highest
grades assigned by Moody's Investors Service, Inc. ("Moody's" Aaa, Aa, A, Baa),
Standard & Poors Corporation ("S&P" AAA, AA, A, BBB) or Fitch Investors Service
("Fitch" AAA, AA, A, BBB). Each Tax-Free Trust also may invest in unrated
municipal bonds, exempt from federal income tax and its states personal income
tax, determined by Lord Abbett to be of comparable quality to rated bonds in
which such Tax-Free Trust may invest. At least 70% of the municipal bonds in
each portfolio must be rated within, or equivalent to, at the time of purchase,
the three highest grades. As much as 30% of the municipal bonds in each Tax-Free
Trusts portfolio may be rated within, or equivalent to, at the time of purchase,
the fourth highest grade. This grade, while regarded as having an adequate
capacity to pay interest and repay principal, is considered to be of medium
grade and has speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade bonds. After
a Tax-Free Trust purchases a municipal bond, the issuer may cease to be rated,
or its rating may be reduced below the minimum required for purchase, which
could have an adverse effect on the market value of the issue. Neither event
will require the elimination of the issue from a Tax-Free Trusts portfolio.
The two principal classifications of municipal bonds are "general
obligation" and limited obligation or "revenue" bonds. General obligation bonds
are secured by the pledge of faith, credit and taxing power of the issuer. 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. Industrial development bonds are in most cases revenue bonds and do not
generally constitute the pledge of the faith, credit or taxing power of the
issuer. The credit quality of industrial revenue 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.
Each Tax-Free Trust 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
Tax-Free Trust are each fixed on the purchase date. During the period between
purchase and settlement, Tax-Free Trust assets consisting of cash and/or
high-grade marketable securities, marked to market daily, of a dollar amount
sufficient to make payment at settlement will be segregated at our custodian.
There is a risk that market yields available at settlement may be higher than
yields obtained on the purchase date, which could result in depreciation of
value of the when-issued security. While the Tax-Free Trusts may sell
when-issued securities prior to settlement, they intend to actually acquire such
securities unless a sale appears desirable for investment reasons.
Under normal market conditions, each Tax-Free Trust will attempt to invest
100% and, as a matter of fundamental policy, will invest at least 80% of its net
assets in municipal bonds, the interest on which is exempt from federal income
tax. Except for the National and Florida Trusts, under normal market conditions,
each Tax-Free Trust also will attempt to invest 100% and, as a matter of
fundamental policy, will invest at least 80% of its net assets in municipal
bonds, the interest on which is exempt from its states personal income tax. At
present Florida does not impose a personal income tax. However, the Florida
Trust also will attempt to invest 100% and, as a matter of fundamental policy,
will invest at least 80% of its net assets in municipal bonds which are exempt
for purposes of the Florida intangible personal property tax. Under normal
market conditions, the New York Trust also will attempt to invest 100% and, as a
matter of fundamental policy, will invest at least 80% of its net assets in
municipal bonds, the interest on which is exempt from New York State and City
personal income taxes.
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Although normally each Tax-Free Trust intends to be fully invested in
intermediate to long-term municipal bonds, a Tax-Free Trust may temporarily
invest in short-term tax-exempt securities meeting the above-described quality
standards and, additionally, may temporarily put up to 20% of its assets in
cash, in commercial paper of comparable investment quality or in short-term U.S.
Government securities, in order to improve liquidity or to create reserve
purchasing power. Because interest earned from commercial paper or U.S.
Government securities is taxable for federal income tax purposes, we intend to
minimize temporary investments in such short-term securities.
Each Tax-Free Trust may invest up to 20% of its net assets (less any amount
invested in the temporary taxable investments described above) in "private
activity bonds". Tax-Free Trust dividends derived from interest on such bonds
would be considered a preference item for purposes of the computation of the
alternative minimum tax. Tax-Free Trust dividends derived from interest may
increase the alternative minimum tax liability of corporate shareholders who are
subject to that tax based on the excess of their adjusted current earnings over
their taxable income. No Tax-Free Trust intends to invest more than 25% of its
total assets in any industry, except that each Tax-Free Trust may invest
(consistent with the 20% tests in the preceding two paragraphs) 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 Tax-Free Trust in the event of an economic downturn in that industry, which
may result generally in a lowered ability of such users to make payments on
their obligations. Electric utility and health care are typical, but not all
inclusive of, the industries in which this 25% may be exceeded. The former is
relatively stable but subject to rate regulation vagaries. The latter suffers
from two main problems affordability and access. Tax-exempt securities issued by
governments or political subdivisions of governments are not considered part of
any "industry".
Each of the Tax-Free Trusts may invest up to 15% of its respective net
assets in illiquid securities. Bonds determined to be liquid pursuant to
Securities and Exchange Commission Rule 144A ("Rule 144A") will not be subject
to this limit, except to the extent necessary to comply with applicable state
requirements. Under Rule 144A, a qualified unregistered security may be resold
to a qualified institutional buyer without registration and without regard to
whether the seller originally purchased the security for investment.
Each Tax-Free Trust may invest up to 20% of its net assets in residual
interest bonds ("RIBs") to enhance income and increase portfolio duration. None
of the Tax-Free Trusts invested more than 14.1% of its net assets in RIBs at any
time during the fiscal year ended October 31, 1994. A RIB, sometimes referred to
as an inverse floater, is a debt instrument with a floating or variable interest
rate that moves in the opposite direction of the interest rate on another
security or the value of an index. Changes in the interest rate on the other
security or index inversely affect the residual interest rate paid on the RIB,
with the result that when interest rates rise, RIBs give lower interest payments
and their value falls faster than other similar fixed-rate bonds. But when
interest rates fall, not only do RIBs give higher interest payments, their
values also rise faster than other similar fixed-rate bonds. The market for RIBs
is relatively new.
The Tax-Free Trusts will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then not in excess of 5% of each
Tax-Free Trusts gross assets (at cost or market value, whichever is lower) at
the time of borrowing.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. Each Tax-Free Trust may deal in
options on securities and securities indices, which options may be listed for
trading on a national securities exchange. Each Tax-Free Trust 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.
A Tax-Free Trust may engage in financial futures transactions including
options on financial futures. Financial futures contracts are commodity
contracts that obligate the long or short holder to take or make delivery of a
specified quantity of a financial instrument, such as a security, or the cash
value of a securities index during a specified future period at a specified
price. The Statement of Additional Information contains further information
about the characteristics, risks and possible benefits of options and futures
transactions under "Options and Financial Futures Transactions". None of the
Tax-Free Trusts are currently employing any of the options and financial futures
transactions described above, nor is there any present intention to do so.
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TAX-FREE TRUSTS RISK FACTORS. Securities in which we may invest are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors and laws which may be enacted extending the time of
payment of principal and interest, or both. There is also the possibility that,
as a result of litigation or other conditions, the power or ability of issuers
to meet their obligations for payment of principal and interest may be
materially affected or their obligations may be found to be invalid or
unenforceable.
NEW YORK BONDS- RISK FACTORS. New York State has experienced cash-basis
operating deficits in four of the last five fiscal years, due in part to a
significant slowdown in the New York and regional economy commencing in
mid-1990. While the State budget for fiscal 1994-95 calls for a balanced budget,
gaps between actual revenues and expenditures may arise in the current year and
in the future fiscal years. Because the State, New York City, the State's other
political subdivisions and the State Authorities, all of which borrow money, are
or are perceived in the marketplace to be financially interdependent, and
financial difficulty experienced by one can adversely affect the market value
and marketability of obligations issued by others. The State's credit is
presently involved with the indebtedness of the Authorities because of the
State's guarantee or other support. This indebtedness is substantial in amount.
The Authorities are likely to require further financial assistance from the
State. During the last several fiscal years, New York City experienced
significant shortfalls in almost all of its major tax sources and increases in
social services costs, and has been required to take actions to close
substantial budget gaps in order to maintain balanced budgets. Similar
shortfalls and budget gaps have been predicted for future years and will require
further action by the City's government.
CALIFORNIA BONDS- RISK FACTORS. As disclosed by the State of California in
connection with recent bond issues, various constitutional and statutory
provisions may affect the ability of issuers of California municipal bonds to
meet their financial obligations. Decreases in State and local revenues as a
consequence of such provisions may result in reductions in the ability of
California issuers to pay their obligations. In addition, California has
recently faced the worst economic, fiscal and budget conditions since the 1930s.
The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget, and
a reduction of available internal borrowable funds, have combined to
significantly deplete the State's cash resources to pay its ongoing expenses. In
order to meet its cash needs, the State has to rely for several years on a
series of external borrowings, including borrowings past the end of a fiscal
year. To meet its cash flow needs in the 1994-95 fiscal year, the State issued,
in July and August, 1994, $4 billion of revenue anticipation warrants which
mature on April 25, 1996, and $3 billion of revenue anticipation notes maturing
on June 28, 1995. The 1994-95 Budget Act is projected to have $41.9 billion of
general fund revenues and transfers and $40.9 billion of budgeted expenditures.
In addition, the 1994-95 Budget Act anticipates differing retirement of about $1
billion of the accumulated budget deficit to the 1995-96 fiscal year, when it is
intended to be fully retired by June 30, 1996. California's Orange County filed
for bankruptcy protection on December 6, 1994, the largest such municipal filing
ever, following reports that the value of its leveraged investment fund dropped
by an amount now estimated to exceed $2 billion in a rising interest rate
environment. While the California Trust owns no securities issued by Orange
County, the Trust is unable to predict the effects of the bankruptcy filing at
this time.
FLORIDA BONDS- RISK FACTORS. Florida, in terms of population, is one of the
largest states in the United States. The State has grown dramatically since
1980. Its population includes a large proportion of senior citizens who have
moved to the State after retirement. Recently, the share of the State's working
age population (18-59) to total State population was approximately 53%. That
share is not expected to change appreciably into the twenty-first century.
Because Florida has a proportionally greater retirement age population than the
rest of the nation and the southeast, property income (dividends, interest and
rent) and transfer payments (Social Security and pension benefits, among other
sources of income) are a relatively more important source of income.
Through the 1980s, Florida's unemployment rate was below that of the rest
of the nation. Since 1989, however, it has been higher than the national
average. Florida's dependency on the highly cyclical construction and
construction-related manufacturing sectors has declined. Tourism is now one of
Florida's most important industries. Over the years, this industry has become
more sophisticated, attracting visitors year-round, thus, to a degree, reducing
its seasonality.
Hurricane Andrew passed through the southern part of Florida on August 24,
1992, leaving many areas devastated. Post-hurricane cleanup and rebuilding has
had a significant impact on the State's economy, contributing to a significant
growth in construction expenditures. Florida's Constitution permits issuance of
State bonds pledging the full faith and credit of the State, with the vote of
the electors, to finance or refinance fixed-capital outlay projects. Revenue
Bonds may be issued by the State or its agencies without a vote of Florida's
electors only to finance or refinance the cost of State fixed-capital outlay
projects which shall be payable solely from funds derived directly from sources
other than State tax revenues.
<PAGE>
PUERTO RICO- RISK FACTORS. Each Tax-Free Trust may have significant investments
in bonds issued by the Commonwealth of Puerto Rico and its instrumentalities.
The economy of Puerto Rico is dominated by diversified manufacturing and service
sectors. It is closely integrated, through extensive trade, with that of the
mainland United States, and its economic health is closely tied to the price of
oil and the state of the U.S. economy. Puerto Rico has a rate of unemployment
exceeding the U.S. average.
Puerto Rico's economy has experienced significant growth since fiscal 1989.
Continued growth in fiscal 1994 and 1995 will depend on several factors,
including the state of the U.S. economy, the relative stability of the price of
oil and borrowing costs.
LORD ABBETT GROWTH & INCOME TRUST. The Growth & Income Trust is intended for
long-term investors who purchase and redeem shares to meet their own financial
requirements rather than to take advantage of price fluctuations.The needs of
such investors will be best served by an investment whose growth is
characterized by low fluctuations in market value. For this reason, the Growth &
Income Trust tries to keep its assets invested in securities which are selling
at reasonable prices in relation to value and, thus, is willing to forgo some
opportunities for gains when, in the judgment of Trust management (hereinafter
meaning the officers of the Trust on a day-to-day basis subject to the overall
direction of the Trust's Board of Trustees with the advice of Lord Abbett), they
carry excessive risk. Trust management tries to anticipate major changes in the
economy and select stocks which it believes will benefit most from these
changes.
The Growth & Income Trust normally invests in common stocks (including
securities convertible into common stocks) of large, seasoned companies which
are expected to show above-average growth in value and which are in sound
financial condition. Although the prices of common stocks fluctuate and their
dividends vary, historically, common stocks have appreciated in value and their
dividends have increased when the companies they represent have prospered and
grown. The Growth & Income Trust is constantly balancing the opportunity for
profit against the risk of loss. In the past, very few industries have
continuously provided the best investment opportunities. Trust management
believes it is important to take a flexible approach and adjust the portfolio to
reflect changes in the opportunities for sound investments relative to the risks
assumed; therefore, it sells securities that it judges to be overpriced and
reinvests the proceeds in other securities which it believes offer better
values.
The Growth & Income Trust may invest up to 10% of its net assets (at the
time of investment) in each of the following: (a) writing covered call options
traded on a national securities exchange for portfolio securities and (b)
foreign securities. The Growth & Income Trust also may invest in straight bonds
and other debt securities, including lower-rated, high-yield bonds, sometimes
referred to as "junk bonds" with a limit of 5% of its net assets (at the time of
investment) in such lower rated (BB/Ba or lower), high-yield bonds. These
foreign securities will be the kind described herein for the Series domestic
investment. It is the present intention of Trust management that these
securities be primarily traded in the United Kingdom, Western Europe, Australia,
Canada, the Far East, Latin America, and other developed countries as may be
determined from time to time.
The Growth & Income Trust does not purchase securities for trading
purposes. To create reserve purchasing power and also for temporary defensive
purposes, it may invest in short-term debt and other high-quality, fixed-income
securities.
LORD ABBETT BOND-DEBENTURE TRUST. The Bond-Debenture Trust seeks to achieve a
high total return (current income and capital appreciation) from an
actively-managed, diversified debt-security portfolio. Under normal
circumstances, the Bond-Debenture Trust invests at least 65% of its total assets
in bonds and/or debentures. The Bond-Debenture Trust seeks unusual values,
particularly in lower-rated debt securities, sometimes referred to as "junk
bonds", some of which are convertible into common stocks or have warrants to
purchase common stocks.
Higher yield on debt securities can occur during periods of inflation when
the demand for borrowed funds is high. Also, buying lower rated bonds when the
credit risk is
<PAGE>
above average, but in the opinion of Trust management likely to decrease, can
generate higher yields.
Capital appreciation potential is an important consideration in the
selection of portfolio securities. Capital appreciation may be obtained by (1)
investing in debt securities when the trend of interest rates is expected to be
down; (2) investing in convertible-debt securities or debt securities with
warrants attached entitling the holder to purchase common stocks and (3)
investing in debt securities of issuers in financial difficulties when, in the
opinion of Trust management, the problems giving rise to those difficulties can
be successfully resolved, with a consequent improvement in the credit standing
of the issuers (such investments involve corresponding risks that interest and
principal payments may not be made if those difficulties are not resolved). In
no event will the Bond-Debenture Trust invest more than 10% of its gross assets
(at the time of investment) in debt securities which are in default as to
payment of interest or principal.
The Bond-Debenture Trust normally invests in long-term debt securities when
Trust management believes that interest rates over the long run will decline and
prices of such securities generally will be higher. When Trust management
believes that long-term interest rates will rise, it will endeavor to shift the
Bond-Debenture Trust into short- term debt securities whose prices might not be
affected as much by an increase in interest rates. The value of the
Bond-Debenture Trusts shares will change as the general levels of interest rates
fluctuate. When interest rates decline, share values, to the extent that they
are backed by straight debt securities, can be expected to rise. Conversely,
when interest rates rise, share values so backed can be expected to decline.
However, due to the ability of the Bond-Debenture Trust to invest in
equity-related securities and straight-preferred stocks, any capital
appreciation or depreciation obtained may enhance or reduce such share value
changes.
The following policies of the Bond-Debenture Trust are subject to change
without shareholder approval: (a) it must keep at least 20% of the value of its
total assets in (1) debt securities which, at the time of purchase, are rated
within one of the four highest grades determined either by Moody's or S&P, (2)
debt securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government securities"), (3) cash or cash equivalents
(short-term obligations of banks, corporations or the U.S. Government) or (4) a
combination of any of the foregoing; (b) it may invest up to 10% of its gross
assets, at market value at the time of investment, in debt securities issued by
foreign governments or corporations incorporated in foreign countries such
foreign debt securities normally will be limited to issues denominated in U.S.
dollars where there does not appear to be substantial risk of nationalization,
exchange controls, confiscation or other government restrictions; (c) subject to
the requirement, described above, to be invested at least 65% in bonds and/or
debentures under normal circumstances, it may purchase common and preferred
stocks; (d) it may hold or sell any property or securities which it may obtain
through the exercise of conversion rights or warrants, or as a result of any
reorganization, recapitalization or liquidation proceeding for any issuer of
securities of which it is an owner, (a purchase or acquisition will not be
considered "voluntary" if made in order to avoid loss in value of a conversion
or other premium); and (e) it does not purchase securities for short-term
trading, nor does it purchase securities for the purpose of exercising control
of management.
LORD ABBETT GLOBAL INCOME TRUST. Under normal market conditions, the Global
Income Trust will be invested primarily in a portfolio of (i) high-quality debt
securities issued or guaranteed by U.S. and foreign governments or their
agencies, instrumentalities or political subdivisions; (ii) high-quality debt
securities issued or guaranteed by supranational organizations, such as the
World Bank; (iii) high-quality U.S. and foreign corporate debt securities
including commercial paper; and (iv) debt obligations of banks and bank holding
companies. The high-quality debt securities described above will consist of
those rated within one of the two highest grades assigned by S&P or Moody's or,
if unrated, judged by Trust management to be of comparable quality. Up to 35% of
the Global Income Trust's total assets may be invested in equity securities and
in debt securities rated below S&P's and Moody's two highest grades but rated
BBB or better by S&P or Baa or better by Moody's or, if unrated, judged by Trust
management to be of comparable quality. If any high-quality debt securities are
downgraded after purchase they will be kept in the portfolio if they are judged
not to have an adverse effect on shareholders. Bonds rated Baa by Moody's or BBB
by S&P are considered medium-grade, have speculative characteristics and are
more sensitive to economic change than higher rated bonds. A description of
S&P's and Moody's ratings is included in the Appendix to the Statement of
Additional Information. Fundamental economic strength, credit quality and
currency exchange and interest-rate trends will be the principal determinants of
the various country and
<PAGE>
geographic and industry sector weightings within the Global Income Trust's
portfolio. The Global Income Trust will invest in countries and in currency
denominations where the combination of fixed-income market returns, price
appreciation of fixed-income obligations, equity securities and currency
exchange rate movements appear to present opportunities for an attractive total
return consistent with the Global Income Trust's investment objective.
Pursuant to the quality and percentage requirements mentioned herein, the
other debt securities in which the Global Income Trust may invest include, but
are not limited to, domestic and foreign, fixed- and floating-rate notes, bonds,
debentures, convertibles, certificates, warrants, commercial paper, and
principal and interest pass-throughs issued by governments, authorities,
partnerships, corporations, trust companies, banks and bank holding companies,
and bankers acceptances, certificates of deposit, time deposits and deposit
notes issued by domestic and foreign banks. Principal and interest pass-throughs
include mortgage-backed and asset-backed securities. Asset-backed securities may
be backed by car loans or credit card receivables, for example. Interest-only
and principal-only fixed mortgage-backed securities are considered liquid and,
along with any other liquid investments, will be subject to a limit of 15% of
the Global Income Trust's net assets unless such securities are issued by the
U.S. Government, in which case they will not be subject to this limit if
determined to be liquid under the standards established by the Board of
Trustees.
Under normal circumstances, the Global Income Trust will invest its total
assets in domestic and foreign securities with at least 65% of such assets
invested in long-term debt securities primarily traded in at least three
countries, including the United States. However, this guideline may not be
followed during temporary defensive periods when Trust management believes that
the Global Income Trust will have better opportunities for high current income
and capital appreciation by investing entirely in short-term domestic debt
securities or in such domestic securities and in short-term debt securities
primarily traded in one foreign country or in short-term debt securities to a
greater extent than 35% of the total assets of the Global Income Trust. The
market prices of long-term debt securities tend to be more volatile than those
of short-term debt securities when interest rates change.
COUNTRY DIVERSIFICATION AND DEFENSIVE POSITION. Global Income Trust
management presently intends to invest its assets in securities which are
primarily traded in the United Kingdom, Western Europe (Austria, Germany, the
Netherlands, France, Switzerland, Italy, Belgium, Norway, Sweden, Denmark and
Spain), Australia, Canada, the Far East (Japan, Hong Kong, Korea, Singapore,
Taiwan and Thailand), Latin America (Argentina, Brazil, Mexico and Venezuela)
and the United States. However, investments may be made from time to time in
securities which are primarily traded in other developed countries. Except for
the guidelines described above with respect to investing in at least three
countries, including the United States, there are no limitations on how much of
the Global Income Trust's assets can be invested in securities primarily traded
in any one country.
When Trust management believes that the Global Income Trust should assume a
temporary defensive position because of unfavorable investment conditions, the
Global Income Trust may temporarily hold its assets in cash and high quality
short-term money market instruments.
FOREIGN CURRENCY HEDGING TECHNIQUES. The Global Income Trust may utilize one or
more various foreign currency hedging techniques described below.
A forward foreign currency contract involves an obligation to purchase or
sell a specific amount of a currency at a set price on a future date. The Global
Income Trust may enter into forward foreign currency contracts (but not in
excess of the amount it has invested in non-U.S. dollar-denominated securities
at the time any such contract is entered into) primarily in two circumstances.
First, when the Global Income Trust enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security. By entering into a forward contract for
the purchase or sale of the amount of foreign currency involved in the
underlying security transaction, the Global Income Trust will be able to protect
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date the security is purchased or sold and the date on which payment
is made or received.
Second, when Trust management believes that the currency of a particular foreign
country may suffer a decline against the U.S. dollar, the Global Income Trust
may enter into a forward contract to sell the amount of foreign currency
approximating the value of some or all of its portfolio securities denominated
in such foreign currency or, in the alternative, it may use a
cross-currency-hedging technique
<PAGE>
whereby it enters into such a forward contract to sell another currency
(obtained in exchange for the currency in which the portfolio securities are
denominated if such securities are sold) which it expects to decline in a
similar manner but which has a lower transaction cost. Precise matching of the
forward contract and the value of the securities involved generally will not be
possible since the future value of such securities denominated in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date the contract matures. Trust management intends to enter the Global Income
Trust into such forward contracts under this second circumstance periodically.
The Global Income Trust also may purchase foreign currency put options on
U.S. exchanges or U.S. over-the-counter markets. A put option gives the Global
Income Trust, upon payment of a premium, the right to sell a currency at the
exercise price until the expiration of the option and serves to insure against
adverse currency price movements in the underlying portfolio assets denominated
in that currency. The premiums paid for such foreign-currency put options will
not exceed 15% of the net assets of the Global Income Trust.
Exchange-listed options markets in the United States include several major
currencies and trading may be thin and liquid. A number of major investment
firms trade unlisted options which are more flexible than exchange-listed
options with respect to strike price and maturity date. These unlisted options
generally are available on a wider range of currencies, including those of most
of the developed countries mentioned above. Unlisted foreign-currency options
generally are less liquid than listed options and involve the credit risk
associated with the individual issuer. Unlisted options together with other
liquid securities are subject to a limit of 15% of the Global Income Trust's net
assets.
A call option written by the Global Income Trust gives the purchaser, upon
payment of a premium, the right to purchase from the Global Income Trust a
currency at the exercise price until the expiration of the option. The Global
Income Trust may write a call option on a foreign currency only in conjunction
with a purchase of a put option on that currency. Such a strategy is designed to
reduce the cost of downside currency protection by limiting currency
appreciation potential. The face value of such writing or cross hedging
(described above) may not exceed 90% of the value of the securities denominated
in such currency (a) invested in by the Global Income Trust to cover such call
writing or (b) to be crossed.
Limitations imposed by the Internal Revenue Code on regulated investment
companies may restrict the Global Income Trusts ability to engage in
transactions in options, forward contracts and cross hedges.
The Global Income Trusts custodian will segregate cash or liquid high-grade
debt securities belonging to the Global Income Trust in an amount not less than
that required by Securities and Exchange Commission Release 10666 with respect
to the Global Income Trusts assets committed to (a) writing options, (b) forward
foreign currency contracts and (c) cross hedges entered into by the Global
Income Trust. If the value of the securities segregated declines, additional
cash or debt securities will be added on a daily basis (i.e., marked to market),
so that the segregated amount will not be less than the amount of the Global
Income Trusts commitments with respect to such written options, forward
foreign-currency contracts and cross hedges.
OTHER INVESTMENT TECHNIQUES. The Global Income Trust intends to utilize,
from time to time, one or more of the investment techniques identified below. It
is currently intended that no more than 5% of its net assets will be at risk in
the use of any one of such investment techniques. While some of these techniques
involve risk when utilized independently, Trust management intends to use them
to reduce risk and volatility in the portfolio, although this result cannot be
assured.
COVERED CALL OPTIONS. The Global Income Trust may write call options on
securities it owns. A call option on stock gives the purchaser of the option,
upon payment of a premium to the writer of the option, the right to call upon
the writer to deliver a specified number of shares of a stock on or before a
fixed date at a predetermined price.
RIGHTS AND WARRANTS. The Global Income Trust may invest in rights and
warrants to purchase securities. Included within these purchases, but not
exceeding 2% of the value of the Global Income Trust's net assets, may be
warrants which are not listed on the New York Stock Exchange or American Stock
Exchange.
LORD ABBETT LIMITED DURATION U.S. GOVERNMENT SECURITIES TRUST. Under normal
circumstances, the Limited Duration Government Trust invests at least 65% of its
total assets in a portfolio of short- and intermediate-duration U.S. Government
<PAGE>
securities, which securities include those so issued in a form separated into
their component parts of principal and coupon payments, i.e., "component
securities", and mortgage-backed securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Treasury STRIPS are direct
obligations of the U.S. Government and are examples of component securities
whereby Treasury bonds and notes are separated on the books of the Federal
Reserve into their component parts of principal and coupon payments or principal
and coupon strips. The maximum dollar-weighted effective average maturity (not
stated maturity) of the portfolio will be seven years. This effective average
maturity measures the average time principal is outstanding and (a) is different
from duration because it does not measure all cash flows and (b) includes
securities that prepay principal, thus shortening their dollar-weighted
effective average maturity. The Limited Duration Government Trust may invest up
to 35% of its total assets in (1) corporate notes and bonds rated A or above,
(2) certificates of deposit and obligations of U.S. banks if they have assets of
at least one billion dollars, (3) commercial paper rated P-1 by Moody's and/or
A-1 by S&P, (4) certain asset-backed securities rated Aaa by Moody's or AAA by
S&P and (5) mortgage-backed securities issued by certain private, non-government
corporations, such as financial institutions which are investment grade, i.e.,
rated Baa by Moody's or BBB by S&P or higher.
The Limited Duration Government Trust is not a money market fund. A money
market fund is designed for stability of principal; consequently, its level of
income fluctuates. Historically, a limited duration U.S. Government securities
fund, due to the nature of its portfolio securities, generally has a steadier
and higher level of income than a money market fund. However, the Limited
Duration Government Trusts share value will fluctuate more than a money market
funds over time. Historically, a portfolio with a duration averaging between one
and four years, such as the Limited Duration Government Trust's portfolio, tends
to have steadier and higher income over the course of the business cycle than a
short-term money market fund portfolio. In such a business cycle, the Limited
Duration Government Trust's portfolio can lock in rates over a longer period,
allowing its income to continue over that period at that level which adjusts
less often in response to changing interest rates, thereby softening the impact
of interest rate changes which a money market fund portfolio is exposed to more
often because it can only lock in rates for a shorter period. Of course, past
performance is no guarantee of future results.
Unlike a money market fund, the Limited Duration Government Trust does not
seek to maintain a stable net asset value and may not be able to return
dollar-for-dollar the money invested. The level of income will vary depending on
interest rates and the portfolio. In general, because the Limited Duration
Government Trust invests in longer-term securities than a money market fund, the
value of its shares will fluctuate more than a money market fund, but less than,
for example, a long-term U.S. Government securities fund. When interest rates
rise, the value of securities in the portfolio, as well as the share value,
generally will fall. Conversely, when rates fall, the value of securities in the
portfolio and the share value generally will rise. Component securities in which
the Limited Duration Government Trust may invest may show greater price
volatility in response to interest rate changes than will other debt securities
in which the Limited Duration Government Trust may invest. The value of
principal-only component securities will be reduced in a rising interest rate
environment or as the expected amount of principal prepayments declines. The
value of interest-only component securities will be reduced in a falling
interest-rate environment or in expectation that the amount of principal
prepayments will increase. Although the U.S. Government securities in which the
Limited Duration Government Trust may invest are guaranteed as to timely payment
of interest and principal, the market prices for such securities are not
guaranteed and, as with other bond investments, will rise and fall in value as
interest rates change.
The Limited Duration Government Trust seeks to reduce the effects of
interest rate volatility on principal by limiting the average duration to a
range of one to four years. If in the judgment of Trust management rates are
low, it will tend to shorten the average duration to one year or less.
Conversely, if in its judgment rates are high, it will tend to extend the
average duration to four years or less. Two principal types of mortgage-backed
securities are collateralized mortgage obligations (CMOs) and real estate
mortgage investment conduits (REMICs). CMOs and REMICs issued by private
entities are not government securities and are not directly guaranteed by any
government agency. They are secured by the underlying collateral of the private
issuer. The Limited Duration Government Trust intends to invest in
privately-issued CMOs and REMICs only if they are rated at the time of purchase
in the three highest grades by a nationally-recognized rating agency.
As noted and subject to the limitations set forth above, the Limited
Duration Government Trust also may invest in
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securities which are backed by assets such as receivables on home equity and
credit card loans and receivables regarding automobile, mobile home and
recreational vehicle loans, wholesale dealer floor plans and leases. All such
securities must be rated in the highest rating category by a reputable credit
rating agency (e.g., AAA by S&P or Aaa by Moody's). Such receivables are
securitized in either a pass-through or a pay-through structure. Pass-through
securities provide investors with an income stream consisting of both principal
and interest payments in respect of the receivables in the underlying pool.
Pay-through asset-backed securities are debt obligations usually issued by a
special purpose entity, which are collateralized by the various receivables and
in which the payments on the underlying receivables provide the funds to pay the
debt service on the debt obligations issued. The Limited Duration Government
Trust may invest in these and other types of asset-backed securities that may be
developed in the future after Prospectus disclosure is revised to cover these
securities. It is the Limited Duration Government Trust's current policy to
limit asset-backed investments to those represented by interests in credit card
receivables, wholesale dealer floor plans, home equity loans, automobile loans
and leases.
Due to the shorter maturity of the collateral backing such securities,
there is less of a risk of substantial prepayment than with mortgage-backed
securities. Such asset-backed securities do, however, involve certain risks not
associated with mortgage-backed securities, including the risk that security
interests cannot be established adequately or, in many cases, ever. In addition,
with respect to credit card receivables, a number of state and federal consumer
credit laws give debtors the right to setoff certain amounts owed on the credit
cards, thereby reducing the outstanding balance. In the case of automobile
receivables, there is a risk that the holders may not have either a proper or
first security interest in all of the obligations backing such receivables due
to the large number of vehicles involved in a typical issuance and technical
requirements under state laws. Therefore, recoveries on repossessed collateral
may not always be available to support payments on the securities.
BALANCED TRUST. Trust management believes that of all the various kinds of
investments, equity securities generally afford the best opportunity for
investors' capital to grow and for their income to increase. The prices of
equity securities fluctuate and the dividends earned on equity securities vary.
But if the companies they represent prosper and grow, equity securities should
appreciate in value and the income distributed in the form of dividends should
increase.
However, the market risk is generally greater in equity securities than in
fixed-income securities. Therefore the Balanced Trust at all times maintains at
least 25 per cent of its net assets in fixed-income senior securities, such as
high-grade bonds or notes and U.S. Government securities. It also may invest in
lower-grade preferred stocks or lower-grade bonds, but for capital appreciation
and income and not for capital stability.
The Balanced Trust changes the proportions of its assets invested in fixed
income securities and in equity securities and the individual securities within
those classifications. The Balanced Trust is guided by an investment philosophy
that identifies undervalued areas of the equity and fixed-income markets in an
effort to generate above-average returns. The equity investment process
integrates the results of quantitative and qualitative valuation analysis with a
macro-economic outlook. Fundamental economic and business factors taken into
consideration include government, fiscal and monetary policies, employment
levels, demographics, retail sales and market share when determining future
earnings and market valuation for stocks. In order to have maximum flexibility
in effectuating this equity investment process, the Balanced Trust will invest
in small, middle-sized and/or large companies based on their market
capitalization (i.e. the market value of a company's outstanding stocks). For
the fixed-income component, a duration target between 3.5 and 7.5 years is
established within the context of broad economic and interest rate trends
identified by Trust management. The fixed-income management strategies are
driven by the shape of the yield curve, yield spread analysis and the effects on
value of time.
The Balanced Trust may invest up to 10% of its net assets (at the time of
investment) in each of the following: (a) writing covered call options traded on
a national securities exchange for portfolio securities, (b) foreign securities
and (c) lower-rated, high-yield bonds, sometimes referred to as "junk bonds".
These foreign securities will be the kind described herein for the Series
domestic investment. It is the present intention of Trust management that these
securities be primarily traded in the United Kingdom, Western Europe, Australia,
<PAGE>
Canada, the Far East, Latin America, and other developed countries as may be
determined from time to time.
To create reserve purchasing power and also for temporary defensive
purposes, the Balanced Trust may invest in high quality short-term debt
securities, such as those of banks, corporations and the U. S. Government.
GOVERNMENT, BOND-DEBENTURE, GLOBAL INCOME, LIMITED DURATION GOVERNMENT AND
BALANCED TRUSTS OTHER INVESTMENT POLICIES The Government, Bond-Debenture, Global
Income, Limited Duration Government and Balanced Trusts may purchase U.S.
Government securities on a when-issued basis and, while awaiting delivery and
before paying for them ("settlement"), normally may invest in short-term U.S.
Government securities without amortizing any premiums. The Government,
Bond-Debenture, Global Income and Limited Duration Government Trusts and the
fixed-income portion of the Balanced Trust do not start earning interest on
these when-issued securities until settlement and often they are sold prior to
settlement. While this investment strategy may contribute significantly to a
portfolio turnover rate in excess of 100%, it will have little or no transaction
cost or adverse tax consequences for such Series. Transaction costs normally do
not involve brokerage because our fixed-income portfolio transactions usually
are on a principal basis and any markups charged normally will be more than
offset by the beneficial economic consequences anticipated at the time of
purchase. During the period between purchase and settlement, the value of the
securities will fluctuate and assets consisting of cash and/or marketable
securities marked to market daily in an amount sufficient to make payment at
settlement will be segregated at our custodian in order to pay for the
commitment. 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.
Each Series may engage in the lending of its portfolio securities. These
loans, if and when made, may not exceed 30% of the value of a Series' total
assets. In such an arrangement a Series would loan securities from its portfolio
to registered broker-dealers. Such loans are continuously collateralized by an
amount at least equal to 100% of the market value of the securities loaned. Cash
collateral is invested in short-term obligations issued or guaranteed by the U.
S. Government or its agencies, commercial paper or bond obligations rated AA or
A-1/P-1 by S&P or Moody's, respectively, or repurchase agreements with respect
to the foregoing. As with other extensions of credit, there are risks of delay
in recovery and market loss should the borrowers of the portfolio securities
fail financially.
The U.S. Government securities in which a Series may invest include direct
obligations of the United States Treasury (such as Treasury bills, notes and
bonds) and obligations issued by United States Government agencies and
instrumentalities, including securities that are supported by the full faith and
credit of the United States (such as Government National Mortgage Association
certificates), securities that are supported by the right of the issuer to
borrow from the United States Treasury (such as securities of the Federal Home
Loan Banks) and securities supported solely by the creditworthiness of the
issuer (such as Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation securities).
No Series will borrow money except as a temporary measure for extraordinary
or emergency purposes and then not in excess of 5% of its gross assets (at cost
or market value, whichever is lower) at the time of borrowing.
Each Series may invest up to 15% of its net assets in illiquid securities.
Securities determined by the Trustees to be liquid pursuant to Securities and
Exchange Commission Rule 144A ("Rule 144A securities") are not subject to this
limit, except to the extent necessary to comply with applicable state
requirements. Under Rule 144A, a qualified unregistered security may be resold
to a qualified institutional buyer without registration and without regard to
whether the seller originally purchased the security for investment.
Except for the Government Trust, each Series may enter into repurchase
agreements with respect to a security. A repurchase agreement is a transaction
by which a Series acquires a security and simultaneously commits to resell that
security to the seller (a bank or securities dealer) at an agreed upon price on
an agreed upon date. Such repurchase agreement must, at all times, be
collateralized by cash or U.S. Government securities having a value equal to, or
in excess of, the value of the repurchase agreement.
Except for the Government Trust, each Series may invest in closed-end
investment companies if bought in the primary or secondary market with a fee or
commission no greater than the customary brokers commission in compliance with
the Investment Company Act of 1940. Shares of such investment companies
sometimes trade at a discount or premium in relation to their net asset value
and there may be duplication of fees, for example, to the extent that the Series
and the closed-end investment company both charge a management fee.
GROWTH & INCOME, BOND-DEBENTURE, GLOBAL INCOME AND BALANCED TRUSTS RISK FACTORS
FOREIGN INVESTMENTS. Securities markets of foreign countries are not subject to
the same degree of regulation as the U.S. markets and may be more volatile and
less liquid than the major U.S. markets. There may be less publicly-available
information on publicly-traded companies, banks and governments in foreign
countries than is generally the case for such entities in the United States. The
lack of uniform accounting standards and practices among countries impairs the
validity of direct comparisons of valuation measures (such as price/earnings
ratios) for securities in different countries. Other considerations include
political and social instability, expropriation, higher transaction costs,
currency fluctuations, withholding taxes that cannot be passed through as a tax
credit or deduction to shareholders and different securities settlement
practices. Foreign securities may be traded on days that we do not value our
portfolio securities, and, accordingly, our net asset value may be significantly
affected on days when shareholders do not have access to a Series.
HIGH-YIELD BONDS. The Growth & Income and the Balanced Trusts each may invest up
to 5% and 10%, respectively, of its net assets (at the time of investment), and
the Bond-Debenture Trust may invest substantially, in lower-rated bonds for
their higher yields. In general, the market for lower-rated bonds is more
limited than that for higher rated bonds and, therefore, may be less liquid;
market prices of such lower-rated bonds may fluctuate more than those of higher
rated bonds, particularly in times of economic change and stress. In addition,
because the market for lower-rated corporate debt securities in past years has
experienced wide fluctuations in the values of certain of these securities, past
experience may not provide an accurate indication of the future performance of
that market or of the frequency of default, especially during periods of
recession. Objective pricing data for lower-rated bonds may be more limited and
valuation of such securities may be more difficult and require greater reliance
upon judgment when compared to higher rated bonds.
While the market for lower-rated bonds may be less sensitive to interest
rate changes than higher rated bonds, the market prices of these lower-rated
bonds structured as zero coupon or pay-in-kind securities may be affected to a
greater extent by such interest rate changes and thus may be more volatile than
prices of lower-rated securities periodically paying interest in cash. When
compared to higher rated bonds, lower-rated bonds that include redemption prior
to maturity or call provisions may be more susceptible to refunding during
periods of falling interest rates, requiring replacement by lower yielding
securities.
Since the risk of default generally is higher among lower-rated bonds, the
research and analysis of Lord Abbett are especially important in the selection
of such bonds which, if rated BB/Ba or lower, are often described as "high-yield
bonds" because of their generally higher yields and referred to as "junk bonds"
because of their greater risks. In selecting lower-rated bonds for our
investment, Lord Abbett does not rely upon ratings which, in any event, evaluate
only the safety of principal and interest, not market value risk and which,
furthermore, may not accurately reflect an issuers current financial condition.
There is no minimum rating criteria for investments in these bonds and some may
default as to principal and/or interest payments subsequent to their purchase.
Through portfolio diversification, credit analysis and attention to current
developments and trends in interest rates and economic conditions, investment
risk can be reduced, although there is no assurance that losses will not occur.
SMALL CAPITALIZED COMPANIES. These generally consist of companies in either
the formative or developing growth phase of business growth. The formative phase
has high risk. The perils of infancy take a high toll during these years. Skill
of management and growth of revenues and earnings permit some of these formative
companies to survive and advance into the growth stage. The developing growth
phase is a period of swift development, when growth occurs at a rate rarely
equalled by established companies in their mature years. Of course, the actual
growth of a company can not be foreseen, and it can be difficult to determine in
which phase a company is presently situated. Small capitalized companies are
usually young and their shares are generally traded over the counter.
PORTFOLIO TURNOVER. The annual portfolio turnover rate for the Government Trust
for the period June 1, 1993 (commencement of operations) to October 31, 1993 was
141.97% and for the year ended October 31, 1994 995.50%. The annual portfolio
turnover rates for each of the Tax-Free Trusts for the period October 1, 1993
(commencement of operations) to October 31, 1993 was zero and for the year ended
October 31, 1994 were 381.17% (National), 159.44% (California), 200.13% (New
York) and 224.59% (Florida). The annual portfolio turnover rates for the
Bond-Debenture, Global Income, Limited Duration Government and Growth & Income
Trusts for the period January 3, 1994 to October
<PAGE>
31, 1994 were 52.34%, 1,348.68%, 630.52% and 31.95%, respectively. The equity
portfolio turnover rate for the Balanced Trust is not expected to exceed 100%.
The high portfolio turnover rates for the Government, Global Income and Limited
Duration Government Trusts for the year ended October 31, 1994 relate to
substantial trading of U.S. and U.S. Agency mortgage-backed securities to take
advantage of value changes among different agencies, coupons and maturities. See
"Government, Bond-Debenture, Global Income, Limited Duration Government and
Balanced Trust's Other Investment Policies" above for more details.
ALL SERIES DIVERSIFICATION. Each Series met the diversification rules under
Subchapter M of the Internal Revenue Code for its year or period ended October
31, 1994, and intends to continue to do so, as does the new series, Balanced
Trust. Generally, this requires, at the end of each quarter of the taxable year,
that (a) not more than 25% of each Series' total assets be invested in any one
issuer and (b) with respect to 50% of each Series total assets, no more than 5%
of each Series total assets be invested in any one issuer (except U.S.
Government securities). The Government, National, Growth & Income,
Bond-Debenture, Limited Duration Government and Balanced Trusts, as
"diversified" investment companies under the 1940 Act, are prohibited, with
respect to 75% of the value of their respective total assets, from investing
more than 5% of their respective total assets in securities of any one issuer
other than U.S. Government securities. Since the California, New York, Florida
and Global Income Trusts are not "diversified" investment companies under the
1940 Act, and may each invest its assets in the securities of a limited number
of issuers under Subchapter M, the value of their investments may be more
affected by any single adverse economic, political or regulatory occurrence than
in the case of a "diversified" investment company under the 1940 Act, such as
the Trust's other Series. For fixed-income diversification purposes under
Subchapter M, the identification of an "issuer" will be determined on the basis
of the source of assets and revenues committed to meeting interest and principal
payments of the securities. With respect to government obligations, when the
assets and revenues of a political subdivision are separate from those of the
government creating the subdivision, and the security is backed only by the
assets and revenues of the subdivision, then the subdivision would be considered
the sole issuer. Similarly, if a bond is backed only by the assets and revenues
of a nongovernmental entity, then such entity would be considered the sole
issuer.
ALL SERIES FUTURE CONVERSION. In the future, upon shareholder approval, each
Series may seek to achieve its investment objective by investing all of its
assets in another investment company (or series or class thereof) having the
same investment objective. Shareholders will be notified thirty days in advance
of such conversion. Shareholders of each Series will be able to exchange Series
shares for shares of the other Trust Series and/or Series classes.
ALL SERIES CHANGE OF INVESTMENT OBJECTIVES AND POLICIES. None of the Series will
change its investment objective without shareholder approval. If a Series
determines that its objective can best be achieved by a change in investment
policy or strategy, it may make such change without shareholder approval by
disclosing it in its prospectus.
5 PURCHASES
You may buy our shares through any independent securities dealer having a sales
agreement with Lord Abbett, our exclusive selling agent. Place your order with
your investment dealer or send it to Lord Abbett Securities Trust (P.O. Box
419100, Kansas City, Missouri 64141). The minimum initial investment is $1,000
except for Invest-A-Matic, Div-Move and Retirement Plans ($250 initial and $50
monthly minimum). Subsequent investments may be made in any amount.
The net asset value of a Series' shares is calculated every business day as
of the close of the New York Stock Exchange ("NYSE") by dividing a Series' net
assets by the number of shares of a Series outstanding. Securities are valued at
their market value, as more fully described in the Statement of Additional
Information.
Orders for shares received by the Trust prior to the close of the NYSE, or
received by dealers prior to such close and received by Lord Abbett in proper
form prior to the close of its business day, will be confirmed at the applicable
public offering price effective at such NYSE close. Orders received by dealers
after the NYSE closes and received by Lord Abbett prior to the close of its next
business day are executed at the applicable public offering price effective as
of the close of the NYSE on that next business day. The dealer is responsible
for the timely transmission of orders to Lord Abbett. A business day is a day on
which the NYSE is open for trading. For information regarding proper form of a
purchase or redemption order, call the Trust at 800-821-5129. This offering may
be suspended, changed or withdrawn at any time. Lord Abbett reserves the right
to reject any offer.
<PAGE>
In selecting dealers to execute portfolio transactions, 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.
RULE 12B-1 PLANS. Each Series has adopted a Rule 12b-1 Plan (the "Plan") which
authorizes the payment of fees to dealers in order to provide additional
incentives for them (a) to maintain Series shareholder accounts and/or to
provide Series shareholders with personal services, including shareholder
liaison services, such as responding to customer inquiries and providing
information on their investments and (b) to sell shares of the Series. Under the
Plans (except as to certain accounts for which tracking data is not available)
each Series pays dealers through Lord Abbett (1) a service fee and a
distribution fee, at the time shares are sold, not to exceed .25% and .75%,
respectively, of the net asset value of such shares and (2) at each quarter-end
after the first anniversary of the sale of shares, fees for services and
distribution at annual rates not to exceed .25% and .75%, respectively, of the
average annual net asset value of such shares outstanding (payments with respect
to shares not outstanding during the full quarter to be prorated). Sales in
clause (1) exclude shares issued for reinvested dividends and distributions and
shares outstanding in clause (2) include shares issued for reinvested dividends
and distributions after the first anniversary of their issuance. Lord Abbett may
retain from the quarterly distribution fee, for the payment of distribution
expenses incurred directly by it, an amount not to exceed .10% of the average
annual net asset value of such shares outstanding. No dealer shall receive from
a Series for service more than .25% of the average annual net asset value of
shares sold by the dealer. Lord Abbett will monitor payments under the Plans and
will reduce such payments or take such other steps as may be necessary,
including payments from its own resources, to assure that Plan payments will be
consistent with the applicable rules of the National Association of Securities
Dealers, Inc.
If shares of any Series are redeemed for cash before the first anniversary
of their purchase, the redeeming shareholder will be required to pay to a Series
a contingent deferred reimbursement charge of 1% of the lower of cost or the
then net asset value of the shares redeemed. If the shares are exchanged into
another Trust Series or Lord Abbett U.S. Government Securities Money Market Fund
("GSMMF") and subsequently redeemed before the first anniversary of their
original purchase, the charge will be collected by the other Trust Series or
GSMMF for the first Series.
In addition, from time to time, Lord Abbett may pay an additional
concession, from its own resources, to dealers who, during a specified period,
sell a minimum dollar amount of a Series' shares and/or shares of other Lord
Abbett-underwritten funds. In some instances, such additional concessions may be
offered only to certain dealers expected to sell significant amounts of shares.
JURISDICTIONS. The New York Trust may be sold only to residents of California,
Colorado, Connecticut, District of Columbia, Florida, Georgia, Hawaii, Illinois,
Indiana, Kentucky, Louisiana, Minnesota, Missouri, New Jersey, New York, North
Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Utah, Vermont,
Virginia, West Virginia and Wyoming. The California Trust, with the addition of
Nevada, may only be sold in these same jurisdictions, except for Rhode Island
and Vermont. The Florida Trust may be sold in the same jurisdictions as the New
York Trust, except for Rhode Island and Vermont.
6 SHAREHOLDER SERVICES
We offer the following shareholder services:
TELEPHONE EXCHANGE PRIVILEGE: Shares of any Trust Series may be exchanged
without a service charge, for those of any other Trust Series or GSMMF, provided
the exchanging shareholder is a resident of a state in which such Series may be
sold in the case of an exchange into a single-state tax-free series. See
"Jurisdictions" above.
You or YOUR REPRESENTATIVE WITH PROPER IDENTIFICATION can instruct the
Trust to exchange uncertificated shares by telephone. Shareholders have this
privilege unless they refuse it in writing. The Trust will not be liable for
following instructions communicated by telephone that it reasonably believes to
be genuine and will employ reasonable procedures to confirm that instructions
received are genuine, including requesting proper identification and recording
all telephone exchanges. Instructions must be received by the Trust in Kansas
City (800-821-5129) prior to the close of the NYSE to obtain each Series net
asset value per share on that day. Expedited exchanges by telephone may be
difficult to implement in times of drastic economic or market changes. The
exchange privilege should not be used to take advantage of short-term swings in
the market. The Trust reserves the right to terminate or limit the privilege of
any shareholder who makes frequent exchanges. The Trust can revoke the privilege
for all shareholders upon 60 days' prior written notice. A prospectus for GSMMF
or the Trust Series selected by you should be obtained and read before an
exchange. 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. See the back of the Trusts application for more details.
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN: Except for retirement plans, for which there is no
such minimum, if the maximum offering price value of your non-certificated
shares is at least $10,000, you may have periodic cash withdrawals automatically
paid to you in either fixed or variable amounts.
DIV-MOVE: You can invest the dividends paid on your account ($50 minimum monthly
investment) into an existing account in any other Trust Series or GSMMF. 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 current prospectus of the other Trust Series
or GSMMF before investing.
INVEST-A-MATIC: Invest-A-Matic allows fixed, periodic investments ($50 minimum
monthly investment) into a Series by means of automatic money transfers from
your bank checking account. You should read the current prospectus of the Trust
with respect to such Series before investing.
RETIREMENT PLANS: Shares may be purchased by tax-deferred retirement plans. Lord
Abbett makes available the retirement plan forms and custodial agreements for
IRAs (Individual Retirement Accounts including Simplified Employee Pensions),
403(b) plans, pension and profit-sharing plans.
All correspondence should be directed to Lord Abbett Securities Trust (P.O. Box
419100, Kansas City, Missouri 64141; 800-821-5129).
7 OUR MANAGEMENT
Our business is managed by our officers on a day-to-day basis under the overall
direction of our Board of Trustees. We employ Lord Abbett as investment manager
pursuant to a Management Agreement. Lord Abbett has been an investment manager
for over 60 years and currently manages approximately $16 billion in a family of
mutual funds and other advisory accounts. Under the Management Agreement, Lord
Abbett provides us with investment management services and personnel, pays the
remuneration of our officers and of our Trustees affiliated with Lord Abbett,
provides us with office space and pays for ordinary and necessary office and
clerical expenses relating to research, statistical work and supervision of our
portfolios and certain other costs. Lord Abbett provides similar services to
fifteen other Lord Abbett-sponsored funds having various investment objectives
and also advises other investment clients. Robert S. Dow, Lord Abbett Partner in
charge of Fixed Income for over five years, is primarily responsible for the
day-to-day management of the Government, National, California, New York, Florida
and Limited Duration Government Trusts and the fixed income portion of the
Balanced Trust. Mr. Dow is assisted by, and may delegate management duties to,
other Lord Abbett employees who may be Trust officers. W. Thomas Hudson, Jr.,
Executive Vice President, serves as portfolio manager for the Growth & Income
Trust. Mr. Hudson has been with Lord Abbett twelve years and has over twenty
years of investment experience. Christopher J. Towle, Executive Vice President,
serves as portfolio manager for the Bond-Debenture Trust. Mr. Towle has been
with Lord Abbett seven years and has eleven years of investment experience. Zane
E. Brown, Executive Vice President, serves as portfolio manager for the Global
Income Trust. Mr. Brown is also portfolio manager of Lord Abbett Global Funds
Income Series and director of Lord Abbetts fixed-income area. Prior to joining
Lord Abbett in 1992, Mr. Brown was Executive Vice President, Equitable Capital
Management Corp. E. Wayne Nordberg, Lord Abbett Partner for over five years, is
primarily responsible for the day-to-day management of the equity security
portion of the Balanced Trust. Mr. Nordberg is assisted by and may delegate
duties to, other Lord Abbett employees who may be Trust officers. Messrs. Dow,
Hudson, Towle, Brown and Nordberg have acted in their respective capacities with
respect to the respective Series since inception.
Lord Abbett has entered into an agreement with Dunedin Fund Managers
Limited (the Sub-Adviser), under which it provides Lord Abbett with advice with
respect to that portion of the Global Income Trusts assets invested in countries
other than the United States (the foreign assets). The Sub-Adviser is controlled
by the Bank of Scotland which indirectly owns 50.5% of the outstanding voting
stock of the Sub-Adviser. The Sub-Adviser and its predecessors date back 121
years to 1873 and it manages about $5.3 billion which is invested globally. The
Sub-Adviser furnishes Lord Abbett with advice and recommendations with respect
to the foreign assets, including advice on the allocation of investments among
foreign securities markets and
<PAGE>
foreign equity and debt securities, and, subject to consultation with Lord
Abbett, advice as to which foreign assets should be purchased, held, disposed of
or held in cash. The Sub-Adviser also gives advice with respect to foreign
currency matters.
Subject to the direction of the Board of Trustees, Lord Abbett, in
consultation with the Sub-Adviser, will determine at least quarterly, and more
frequently as Lord Abbett determines, the percentage of the assets of the Global
Income Trust that shall be allocated (the "Asset Allocation") for investment in
the United States and in foreign markets, respectively.
Under the Management Agreement, we are obligated to pay Lord Abbett a
monthly fee at the annual rate of .5 of 1% of average daily net assets of each
Series for each of the Government, National, California, New York, Florida,
Bond-Debenture, Global Income and Limited Duration Government Trusts and at the
annual rate of .75 of 1% for the Growth & Income and Balanced Trusts. This
latter rate is higher than that paid by most investment companies. Lord Abbett
will pay the Sub-Adviser a monthly fee equal to one-half of the fee paid to Lord
Abbett by the Global Income Trust. For the year ended October 31, 1994, Lord
Abbett had waived $173,889, $85,571, $39,568 and $50,822, in management fees,
for the National, California, New York and Florida Trusts, respectively. For the
period January 3, 1994 (commencement of operations) to October 31, 1994, Lord
Abbett waived $71,590, $25,208, $27,498 and $15,383 in management fees for
Bond-Debenture, Limited Duration Government, Growth & Income and Global Income
Trusts. For the same periods, the ratios of expenses, including management fees,
to average net assets were as follows: Government 1.64%, National .91%,
California .99%, New York .84%, Florida .89%, Bond-Debenture 1.23%, Limited
Duration Government 1.31%, Growth & Income .61% and Global Income 1.09%,
respectively. For the same periods and Series, except for Government which had
no such fee waiver or expense subsidy, had Lord Abbett not waived its management
fee and assumed certain expenses, the expense ratios would have been 1.65%,
1.79%, 1.79%, 1.88%, 1.43%, 1.52%, 1.94% and 1.69%, respectively.
The Management Agreement provides for each Series to repay Lord Abbett
without interest for any expenses assumed by Lord Abbett on and after the first
day of the calendar quarter after the net assets of each Series first reach $50
million ("commencement date"), to the extent that the expense ratio (determined
before taking into account any fee waiver or expense assumption) is less than
1.70% for the Government, National, California, New York, Florida,
Bond-Debenture and Limited Duration Government Trusts, less than 1.95% for the
Growth & Income and Balanced Trusts, and less than 1.75% for the Global Income
Trust. The Series shall not be obligated to repay any such expenses after the
earlier of the termination of the Management Agreement or the end of five full
fiscal years after the commencement date. The Series will not record as
obligations in its financial statements any expenses which may possibly be
repaid to Lord Abbett under this repayment formula unless such repayment is
probable at the time. If such repayment is not probable, the Series disclose in
notes to their financials that such repayments are possible. As of October 31,
1994, such contingent obligations of the National, California, New York,
Florida, Growth & Income and Global Income Trusts totaled $97,968, $61,997,
$46,094 $59,981, $33,620, and $16,211, respectively.
We will not hold annual meetings and expect to hold meetings of
shareholders only when necessary under applicable law or the terms of the
Trust's Declaration of Trust. Under the Declaration of Trust, a shareholder's
meeting may be called at the request of the holders of one-quarter of the
outstanding shares entitled to vote. See the Statement of Additional Information
for more details.
The Trust was organized as a Delaware business trust on February 26, 1993.
Each outstanding share of a Series has one vote on all matters voted upon by
that Series and an equal right to dividends and distributions, including any
liquidating distributions, payable by that Series. All shares have noncumulative
voting rights for the election of Trustees when shareholder meetings are held
for that purpose.
8 DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
With respect to the Growth & Income Trust, dividends from net investment income
are paid to shareholders in March, June, September and December. With respect to
the Government, National, California, New York, Florida, Bond-Debenture, Global
Income, Limited Duration Government and Balanced Trusts, dividends from net
investment income are paid on the 15th of each month, or if the 15th is not a
business day, on the first business day after the 15th. Supplemental dividends
by a Series may be paid in December
<PAGE>
or January. Dividends may be taken in cash or additional shares at net asset
value. Checks representing dividends paid in cash will be mailed to shareholders
as soon as practicable after the payment date. With respect to the Global Income
Trust, distributions (taxed as ordinary income) from gains attributable to
changes in exchange rates of foreign currencies will automatically be reinvested
in additional Global Income Trust shares at net asset value unless a shareholder
elects to take capital gains distributions in cash.
A long-term capital gains distribution is made by a Series when it has net
profits during the year from sales of securities which it has held more than one
year. If a Series realizes net short-term capital gains, they also will be
distributed. It is anticipated that capital gains will be distributed in
December or January. You may take them in cash or additional shares without a
sales charge.
Dividends declared in October, November or December of any year to
shareholders of record as of a date in such a month will be treated for federal
income tax purposes as having been received by shareholders in that year if they
are paid before February 1 of the following year.
We intend to continue to meet the requirements of Subchapter M of the
Internal Revenue Code and to take any action necessary to insure that we will
pay no federal income tax. However, except as described below with respect to
the Tax-Free Trusts, shareholders, must report dividends and capital gains
distributions as taxable income. Distributions derived from net long-term
capital gains which are designated by a Series as "capital gains distributions"
will be taxable to shareholders as long-term capital gains, whether received in
cash or shares, regardless of how long a taxpayer has held the shares. Under
current law, net long-term capital gains are taxed at the rates applicable to
ordinary income, except that the maximum rate for long-term capital gains for
individuals is 28%.
See "Performance" for a description of the purchase by the Global Income,
Government, Limited Duration Government, Bond-Debenture and Balanced Trusts of
high coupon securities at a premium and the distribution to shareholders as
ordinary income of all income on those securities.
The Growth & Income, Bond-Debenture, Global Income and Balanced Trusts may
be subject to foreign withholding taxes which would reduce the yield on their
investments. Tax treaties between certain countries and the United States may
reduce or eliminate such taxes. Shareholders of the Global Income Trust who are
subject to United States federal income tax may be entitled, subject to certain
rules and limitations, to claim a federal income tax credit or deduction for
foreign income taxes paid by that Series. See the Statement of Additional
Information for additional details.
Shareholders may be subject to a $50 penalty under the Internal Revenue
Code and we may be required to withhold and remit to the U.S. Treasury a portion
(31%) of any redemption or repurchase proceeds (including the value of shares
exchanged into another Trust Series or GSMMF) and of any taxable dividend or
distribution on any account where the payee failed to provide a correct taxpayer
identification number or to make certain required certifications.
TAX-FREE TRUSTS. Dividends paid by the Tax-Free Trusts derived from interest
income on obligations exempt from federal income tax, when designated by such
Trust as "exempt-interest dividends", will be exempt from federal income tax
when received by shareholders. Dividends derived from income on other
investments or from any net realized short-term capital gains, will be taxable
to shareholders as ordinary income, whether received in cash or shares.
Dividends derived from net long-term capital gains which are designated by such
Trust as "capital gains dividends" will be taxable to shareholders as long-term
capital gains, whether received in cash or shares, regardless of how long a
shareholder has held the shares.
Shareholders receiving Social Security benefits and certain railroad
retirement benefits may be subject to federal income tax on up to 85% of such
benefits as a result of receiving investment income, including tax-exempt income
(such as exempt-interest dividends) and other distributions paid by a Series.
The tax will be imposed on up to one-half of such benefits only when the sum of
the recipients adjusted gross income (plus miscellaneous adjustments),
tax-exempt 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 married individuals filing joint returns). Shareholders
receiving such benefits should consult their tax advisers.
NEW YORK TAXES In the opinion of Debevoise & Plimpton, counsel to the Trust,
dividends paid by the New York Trust will not be subject to New York State and
New York City personal income taxes to the extent that they are derived from
interest on obligations of the State of New York and its political subdivisions
which are exempt from federal income tax. In addition, dividends derived from
interest on debt obligations issued by certain other governmental entities (for
example, U.S. territories) will be similarly exempt.
<PAGE>
For New York State and City personal income tax purposes, distributions,
whether received in cash or additional shares, paid from the Series other
investment income and from any net realized short-term capital gains, are
taxable as ordinary income, and distributions from net realized long-term
capital gains are treated as long-term capital gains, regardless of how long a
shareholder has held the shares.
Distributions from investment income and capital gains, including
exempt-interest dividends, may be subject to New York State franchise taxes and
to the New York City General Corporation Tax, if received by a corporation
subject to those taxes, to state taxes in states other than New York and to
local taxes in cities other than New York City.
CALIFORNIA TAXES Exempt-interest dividends paid by the California Trust derived
from interest on California municipal bonds and dividends derived from interest
income on obligations of the federal government or certain other government
authorities (for example, Puerto Rico), if any, paid to individual shareholders
will be exempt from California personal income tax. Such dividends may be
subject to California franchise taxes and corporate income taxes if received by
a corporation subject to such taxes and to state and local taxes in states other
than California.
FLORIDA TAXES Florida imposes no state personal income tax. However, Florida
imposes an intangible personal property tax on shares of the Series owned by a
Florida resident on January 1 of each year unless such shares qualify for an
exemption from that tax.
Shares of the Florida Trust owned by a Florida resident will be exempt from
the Florida intangible personal property tax provided that on January 1, the
annual statutory assessment date, the Florida Trusts portfolio includes only
obligations of the State of Florida or a political subdivision thereof or
obligations issued by certain other government authorities (for example, U.S.
territories) (U.S. Government obligations and, collectively, Florida exempt
investments). If, in any year on the statutory assessment date, the Florida
Trust were to hold assets other than Florida exempt investments, including
assets attributable to options and financial futures transactions in which the
Florida Trust may engage (see How We Invest), then a portion (which might be a
significant portion) of the value of the Florida Trusts shares would be subject
to the Florida intangible personal property tax.
ANNUAL INFORMATION. Information concerning the tax treatment of dividends and
other distributions will be mailed annually to shareholders. Each Tax-Free Trust
will also provide annually to its shareholders information regarding the source
of dividends and distributions of capital gains paid by that Tax-Free Trust.
Dividends and distributions of capital gains paid by a Tax-Free Trust may be
exempt from personal income tax in your state to the extent that they are
attributable to interest and capital gains derived from obligations paying
interest that is exempt from personal income tax in your state. Such dividends
and distributions may be subject to corporate income and franchise taxes if
received by a corporation otherwise subject to such taxes and to state and local
taxes in states other than those described above.
You should consult your tax adviser regarding the treatment of those
distributions and state and local taxes generally and any proposed changes
thereto as well as the tax consequences of gains or losses from the redemption
of our shares.
9 REDEMPTIONS
To obtain the proceeds of an expedited redemption of $50,000 or less, YOU OR
YOUR REPRESENTATIVE WITH PROPER IDENTIFICATION can telephone the Trust. The
Trust will not be liable for following instructions communicated by telephone
that it reasonably believes to be genuine and will employ reasonable procedures
to confirm that instructions received are genuine, including requesting proper
identification, recording all telephone redemptions and mailing the proceeds
only to the named shareholder at the address appearing on the account
registration.
If you do not qualify for the procedure above, send your written redemption
request to Lord Abbett Securities Trust (P.O. Box 419100, Kansas City, Missouri
64141) with signature(s) and any legal capacity of the signer(s) guaranteed by
an eligible guarantor accompanied by any certificates for shares to be redeemed
and other required documentation. Within seven days after acceptance, we make
payment of the net asset value of the shares on the date the redemption order
was received in proper form. However, if you have purchased Series shares by
check and subsequently submit a redemption request, redemption proceeds will be
paid upon clearance of your purchase check, which may take up to 15 days. To
avoid delays, you may arrange for the bank upon which the check was drawn to
communicate to the Trust that the check has cleared.
Shares also may be redeemed by the Series at net asset value through your
securities dealer who, as an unaffiliated
<PAGE>
dealer, may charge you a fee. If your dealer receives your order prior to the
close of the NYSE and communicates it to Lord Abbett, as our agent, prior to the
close of Lord Abbetts business day, you will receive the net asset value
calculated that day.
If the dealer does not communicate such an order to Lord Abbett until the next
business day, you will receive an amount based on the net asset value calculated
as of the close of the NYSE on that next business day.
Under certain circumstances and subject to prior written notice, our
Trustees, from time to time, may authorize redemption of all of the shares in
any account in which there are fewer than 50 shares.
10 PERFORMANCE
Following are some of the factors that were relevant to the Series' performance
over the past year, including market conditions and investment strategies
pursued by the Trust's management.
GENERAL. During 1994, the U.S. economy marked the completion of its third year
of growth and the Federal Reserve's previously accommodative monetary policy
gave way to a more neutral one. By raising short-term interest rates five times
in the first ten months of this year, the Federal Reserve has made clear its
resolve to control inflationary pressures before they become problematic (and
require an even more stringent course of action). Renewed inflation concerns,
forced sales by "hedge" funds, as well as losses attributable to derivative
securities, also led to a rise in long-term interest rates. Pressures on
commodity prices also added to investor uncertainty and helped to push bond
yields higher. Rising interest rates had a negative impact on stock market
prices notwithstanding strengthening in the U.S. economy and improvements in
corporate earnings, especially in the producer sector (capital goods, basic
industry and technology).
FIXED INCOME SERIES. Increases in both long and short-term rates adversely
affected the net asset values and total returns of our taxable and tax-free
fixed income portfolios as the market value of debt securities, particularly
those with longer duration characteristics, including residual interest bonds in
our tax-free portfolios, decreased. See "How We Invest". We continue our
commitment to value investing. The Federal Reserve Banks actions should moderate
the unsustainable growth of the last few quarters, setting the stage for a more
positive bond market environment. In the meantime, we believe U.S. bonds now
offer good value and we are positioning our portfolios to take advantage of the
new higher yields.
The recent increase in yields has afforded an opportunity to obtain call
protection for municipal bond rates not seen in two years. We remain committed
to high-quality issues with a focus on those rated AAA and AA and continue to
manage our municipal bond portfolio risk from a total return perspective. We
continue to invest in tax-free securities with long duration characteristics in
an effort to provide high current tax-free income.
In the Global Income Trust, we continue to focus on developed countries
offering both higher interest rates and lower inflation than the U.S. In Europe,
interest rates have begun to rise in response to economic growth. Japan's
current monetary stimulus measures and intended fiscal program bode well for the
future, though the country's economy is still in a bottoming phase.
In our taxable and tax-free fixed income Series, we may make distributions
in excess of net investment income from time to time to provide more stable
dividends. Such distributions could cause a slight decrease in net asset values
over time, but historically have not resulted in a return of capital for tax
purposes.
GROWTH & INCOME TRUST. As economic expansion matures and as prices of some
cyclical issues have risen to where we consider them fully valued, we have begun
to trim our emphasis on economically-sensitive stocks and increase our holdings
of some relatively defensive, and modestly valued, consumer goods issues. The
U.S. stock market may be subject to further setbacks in the months to come, but
we continue to be optimistic about its long -term prospects.
PERFORMANCE INFORMATION. Yield, tax-equivalent yield (for the Tax-Free Trusts)
and total return data may from time to time be included in advertisements about
the Series. Yield is calculated by dividing each Series annualized net
investment income per share during a recent 30-day period by the net asset value
per share on the last day of that period. "Tax-equivalent yield" is calculated
by dividing that portion of each Series' yield (as determined above) which is
tax-exempt by one minus a stated income tax rate and adding the product to that
portion, if any, of each Series' yield that is not tax-exempt. The Trusts' yield
and tax-equivalent yield reflect reinvestment of all income dividends and
capital gains distribution, but do not reflect the deduction of a CDRC. "Total
return" for the one-, five- and ten-year periods represents the average annual
compounded rate of return on an investment of $1,000 in each Series at the net
asset value and the deduction of the CDRC for periods of
<PAGE>
less than one year. Total return also may be presented for other periods and
without deduction of a CDRC. Any quotation of total return not reflecting the
deduction of a CDRC would be reduced if such CDRC were deducted. Quotations of
yield, tax-equivalent yield or total return for any period when an expense
limitation is in effect will be greater than if the limitation had not been in
effect.
Each Series' dividend distribution rate is calculated by annualizing its
current dividend distribution per share and dividing it by the applicable net
asset value per share at the end of the specified period without deduction of a
CDRC.
The Global Income, Government, Limited Duration Government, Bond-Debenture
and Balanced Trusts' dividend distribution rates differ from their yields
primarily because these Series may purchase short- and intermediate-term high
coupon securities at a premium and, consistent with applicable tax regulations,
distribute to shareholders all of the interest income on these securities
without amortizing the premiums. This practice also is used by these Series for
financial statement purposes and is in accordance with generally accepted
accounting principles. In other words, these Series may pay more than face value
for a security that pays a greater-than-market rate of interest and then
distribute all such interest as dividends. The principle payable on the security
at maturity will equal face value, and so the market value of the security will
gradually decrease to face value, assuming no changes in the market rate of
interest or in the credit quality of the issuer. Shareholders should recognize
that such dividends will therefore tend to decrease the net asset value of these
Series. Dividends paid from this interest income are taxable to shareholders at
ordinary income rates.
The distribution rates of such Series may also reflect income from
currency, futures and options transactions.
See "Performance" in the Statement of Additional Information for a more detailed
discussion.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFER IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER.
NO PERSON IS AUTHORIZED TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS OR IN SUPPLEMENTAL LITERATURE AUTHORIZED BY THE
SERIES, AND NO PERSON IS ENTITLED TO RELY UPON ANY INFORMATION OR REPRESENTATION
NOT CONTAINED HEREIN OR THEREIN.
<PAGE>
Comparison of change in value of a $10,000 investment in Lord Abbett Securities
Trust Florida Trust, assuming reinvestment of all dividends and distributions,
Lippers Average of Florida tax-free funds and the Shearson Lehman Municipal Bond
Index
Fund at Shearson Lehman
Net Asset Lipper's Municipal Bond
Date Value Average (2) Index (3)
- ---- --------- -------- ---------------
10/1/93 $10,000 $10,000 $10,000
10/31/94 9,076 9,301 9,585
Average Annual Total Return (1)
1 Year Life of Fund
------ ------------
-9.44% -8.56%
Comparison of change in value of a $10,000 investment in Lord Abbett Securities
Trust Bond-Debenture Trust, assuming reinvestment of all dividends and
distributions, Salomon Brothers Broad Investment High-Grade Index, First Boston
High Yield Index and Value Line Convertible Index
<TABLE>
<CAPTION>
Fund at Salomon Brothers First Boston First Boston
Net Asset Broad Investment High-Yield Convertible
Date Value High-Grade Index (4) Index (4) Index (4)
- ---- --------- -------------------- ------------- -------------
<S> <C> <C> <C> <C>
1/3/94 $10,000 $10,000 $10,000 $10,000
10/31/94 9,862 9,668 9,914 9,813
Average Annual Total Return (1)
Life of Fund
------------
-2.37
<FN>
(1) Total return is the percent change in value with all dividends and
distributions reinvested for the periods shown ending October 31, 1994
using the SEC-required uniform method to compute such return.
(2) Source: Lipper Analytical Services.
(3) Performance numbers for the Lehman Municipal Bond Index do not reflect
transaction costs or management fees. An investor cannot invest directly in
the Index. This Index is composed of municipal bonds from many different
states and, therefore, it may not be valid to compare it to a single-state
municipal bond portfolio, such as those of the single-state Series.
(4) Performance numbers for Standard & Poors 500, Salomon Brothers Broad
Investment High Grade, First Boston High Yield and Convertible, J.P. Morgan
Global Government Bond, Lehman Government Bond and Lehman Intermediate
Government Indices, all of which are unmanaged, do not reflect transaction
costs or management fees. An investor cannot invest directly in these
indices.
</FN>
</TABLE>
<PAGE>
Comparison of change in value of a $10,000 investment in Lord Abbett Securities
Trust Growth & Income Trust, assuming reinvestment of all dividends and
distributions, and the Standard & Poor's 500
Fund at Standard &
Net Asset Poor's
Date Value 500 (4)
- ---- --------- --------
1/3/94 $10,000 $10,000
10/31/94 10,262 10,360
Average Annual Total Return (1)
Life of Fund
------------
1.59%
Comparison of change in value of a $10,000 investment in Lord Abbett Securities
Trust Global Income Trust, assuming reinvestment of all dividends and
distributions, and J. P. Morgan Global Government Bond Index
Fund at J.P. Morgan
Net Asset Global Government
Date Value Bond Index (4)
- ---- --------- ------------------
1/3/94 $10,000 $10,000
10/31/94 9,712 10,232
Average Annual Total Return (1)
Life of Fund
------------
-2.88%
Comparison of change in value of a $10,000 investment in Lord Abbett Securities
Trust U.S. Government Trust, assuming reinvestment of all dividends and
distributions, Lippers Average of U.S. Government bond funds and the Shearson
Lehman Government Bond Index
Fund at Lipper's Average Shearson Lehman
Net Asset of U.S. Government Municipal Bond
Date Value Bonds Index (2) Index (3)
- ---- --------- ------------------ ---------------
6/1/93 $10,000 $10,000 $10,000
10/31/93 10,465 10,494 10,594
10/31/94 9,811 9,881 10,120
Average Annual Total Return (1)
1 Year Life of Fund
------ ------------
-6.25% -1.34%
Comparison of change in value of a $10,000 investment in Lord Abbett Securities
Trust California Trust, assuming reinvestment of all dividends and
distributions, Lippers Average of California tax-free funds and the Shearson
Lehman Municipal Bond Index
Fund at Lipper's Average Shearson Lehman
Net Asset of California Municipal Bond
Date Value Tax-Free Funds (2) Index (3)
- ---- --------- ------------------ ---------------
10/31/93 $10,000 $10,000 $10,000
10/31/94 9,000 9,388 9,585
Average Annual Total Return (1)
1 Year Life of Fund
------ ------------
-10.07% -9.27%
(1) Total return is the percent change in value with all dividends and
distributions reinvested for the periods shown ending October 31, 1994
using the SEC-required uniform method to compute such return.
(2) Source: Lipper Analytical Services.
(3) Performance numbers for the Lehman Municipal Bond Index do not reflect
transaction costs or management fees. An investor cannot invest directly in
the Index. This Index is composed of municipal bonds from many different
states and, therefore, it may not be valid to compare it to a single-state
municipal bond portfolio, such as those of the single-state Series.
(4) Performance numbers for Standard & Poors 500, Salomon Brothers Broad
Investment High Grade, First Boston High Yield and Convertible, J.P. Morgan
Global Government Bond, Lehman Government Bond and Lehman Intermediate
Government Indices, all of which are unmanaged, do not reflect transaction
costs or management fees. An investor cannot invest directly in these
indices.
<PAGE>
Comparison of change in value of a $10,000 investment in Lord Abbett Securities
Trust National Trust, assuming reinvestment of all dividends and distributions,
Lippers Average of National tax-free funds and the Shearson Lehman Municipal
Bond Index
Fund at Lipper's Average Shearson Lehman
Net Asset of National Municipal Bond
Date Value Tax-Free Funds (2) Index (3)
- ---- --------- ------------------ ---------------
10/31/93 $10,000 $10,000 $10,000
10/31/94 9,130 9,433 9,585
Average Annual Total Return (1)
1 Year Life of Fund
------ ------------
-9.02% -8.06%
Comparison of change in value of a $10,000 investment in Lord Abbett Securities
Trust New York Trust, assuming reinvestment of all dividends and distributions,
Lippers Average of New York tax-free funds and the Shearson Lehman Municipal
Bond Index
Fund at Lipper's Average Shearson Lehman
Net Asset of New York Municipal Bond
Date Value Tax-Free Funds (2) Index (3)
- ---- --------- ------------------ ---------------
10/31/93 $10,000 $10,000 $10,000
10/31/94 9,131 9,360 9,585
Average Annual Total Return (1)
1 Year Life of Fund
------ ------------
-9.19% -8.05%
Comparison of change in value of a $10,000 investment in Lord Abbett Securities
Trust --- Limited Duration Government Trust, assuming reinvestment of all
dividends and distributions, Lippers Average of limited duration funds and the
Index.
<TABLE>
<CAPTION>
Fund at Lipper's Average Lipper's Average Lehman Intermediate
Net Asset Short U.S. Government Intermediate U.S. Government
Date Value Funds (2) Government Funds (2) Index (4)
- ---- --------- ------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
1/3/93 $10,000 $10,000 $10,000 $10,000
10/31/94 9,696 9,866 9,612 9,837
Average Annual Total Return (1)
1 Year Life of Fund
------ ------------
-9.02% -8.06%
<FN>
(1) Total return is the percent change in value with all dividends and
distributions reinvested for the periods shown ending October 31, 1994
using the SEC-required uniform method to compute such return.
(2) Source: Lipper Analytical Services.
(3) Performance numbers for the Lehman Municipal Bond Index do not reflect
transaction costs or management fees. An investor cannot invest directly in
the Index. This Index is composed of municipal bonds from many different
states and, therefore, it may not be valid to compare it to a single-state
municipal bond portfolio, such as those of the single-state Series.
(4) Performance numbers for Standard & Poors 500, Salomon Brothers Broad
Investment High Grade, First Boston High Yield and Convertible, J.P. Morgan
Global Government Bond, Lehman Government Bond and Lehman Intermediate
Government Indices, all of which are unmanaged, do not reflect transaction
costs or management fees. An investor cannot invest directly in these
indices.
</FN>
</TABLE>
<PAGE>
UNDERWRITER AND INVESTMENT MANAGER
Lord, Abbett & Co.
The General Motors Building
767 Fifth Avenue
New York, New York 10153-0203
212-848-1800
SUB-ADVISER
Dunedin Fund Managers Limited
Dunedin House
25 Ravelston Terrace
Edinburgh EH4 3EX
Scotland
CUSTODIAN
Morgan Guaranty Trust Company of New York
60 Wall Street, New York, New York 10005
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
United Missouri Bank of Kansas City, N.A.
Tenth and Grand
Kansas City, Missouri 64141
SHAREHOLDER SERVICING AGENT
DST Systems, Inc.
P.O. Box 419100
Kansas City, Missouri 64141
800-821-5129
AUDITORS
Deloitte & Touche LLP
COUNSEL
Debevoise & Plimpton
LORD ABBETT
COUNSEL GROUP
PROSPECTUS 94'
INTENDED FOR USE UNTIL MARCH 1, 1996
LORD ABBETT
SECURITIES TRUST
U.S. Government Securities Trust
Limited Duration U.S. Government Securities Trust
National Tax-Free Income Trust
California Tax-Free Income Trust
New York Tax-Free Income Trust
Florida Tax-Free Income Trust
Global Income Trust
Bond-Debenture Trust
Growth & Income Trust
Balanced Trust
<PAGE>
LORD ABBETT
STATEMENT OF ADDITIONAL INFORMATION DECEMBER 27, 1994
INTENDED FOR USE
UNTIL MARCH 1, 1996
LORD ABBETT SECURITIES TRUST
- -------------------------------------------------------------------------------
This Statement of Additional Information is not a Prospectus. A Prospectus may
be obtained from your securities dealer or from Lord, Abbett & Co. at The
General Motors Building, 767 Fifth Avenue, New York, New York 10153-0203. This
Statement relates to, and should be read in conjunction with, the Prospectus
dated December 27, 1994.
Lord Abbett Securities Trust (referred to as the "Trust") was organized as a
Delaware business trust on February 26, 1993. The Trust's Trustees have
authority to create separate classes and series of shares of beneficial
interest, without further action by shareholders. To date, the Trust has ten
series each consisting of one class of shares - Lord Abbett U.S. Government
Securities Trust, Lord Abbett National Tax-Free Trust, Lord Abbett California
Tax-Free Trust, Lord Abbett New York Tax-Free Trust, Lord Abbett Florida
Tax-Free Trust, Lord Abbett Growth & Income Trust, Lord Abbett Bond- Debenture
Trust, Lord Abbett Global Income Trust, Lord Abbett Limited Duration U.S.
Government Securities Trust and Lord Abbett Balanced Trust (collectively "we" or
the "Series" and individually, "Government", "National", "California", "New
York", "Florida", "Growth & Income", "Bond-Debenture", "Global Income", "Limited
Duration Government" and "Balanced" Trusts; collectively the National,
California, New York and Florida Trusts are referred to as the "Tax-Free
Trusts"). Further classes or series may be added in the future. The Investment
Company Act of 1940, as amended (the "Act") requires that where more than one
class or series exists, each class or series must be preferred over all other
classes or series in respect of assets specifically allocated to such class or
series.
Rule 18f-2 under the Act provides that any matter required to be submitted, by
the provisions of the Act or applicable state law or otherwise, to the holders
of the outstanding voting securities of an investment company such as the Trust
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 series affected
by such matter. Rule 18f-2 further provides that a class or series shall be
deemed to be affected by a matter unless the interests of each class or series
in the matter are substantially identical or the matter does not affect any
interest of such class or series. However, the Rule exempts the selection of
independent public accountants, the approval of principal distributing contracts
and the election of Trustees from its separate voting requirements.
Shareholder inquiries should be made by writing directly to the Trust or by
calling 800-821-5129. In addition, you can make inquiries through your dealer.
TABLE OF CONTENTS Page
1. Investment jectives and Policies - Government, National
California, New York and Florida Trusts 2
2. Investment Objectives and Policies - Growth & Income,
Bond-Debenture, Global Income, Limited Duration
Government and Balanced Trusts 10
3. Trustees and Officers 16
4. Investment Advisory and Other Services 18
5. Portfolio Transactions 19
6. Purchases, Redemptions and Shareholder Services 21
7. Taxes 24
8. Risk Factors Regarding Investments in California,
New York, lorida and Pue Rico Municipal Bonds 26
9. Past Performance 33
10. Information About the Trust 34
11. Financial Statements 35
<PAGE>
1.
Investment Objectives and Policies
Government, National, California, New York and Florida Trusts
Our investment objectives and policies are described in the Prospectus under
"How We Invest". In addition to those policies described in the Prospectus, we
are subject to the following investment restrictions which cannot be changed
without shareholder approval. We may not: (1) sell short or buy on margin (with
respect to the Tax-Free Trusts, good faith deposits made in connection with
entering into options and financial futures transactions are not deemed to be
margin, and they may obtain short-term credit necessary for the clearance of
purchases of securities); (2) borrow securities (Government Trust only); (3)
borrow money, unless such borrowing does not exceed the asset coverage
requirements of Section 18(f) of the Act and unless any such borrowing on behalf
of a class or series shall be a liability only of such class or series, as the
case may be; (4) engage in the underwriting of securities except pursuant to a
merger or acquisition or as indicated below and, with respect to the Tax-Free
Trusts, except to the extent that in connection with the disposition of each
Tax-Free Trust's portfolio securities it may be deemed to be an underwriter
under federal securities laws; (5) lend money or securities to any person except
(i) with respect to the Government Trust, through entering into short-term
repurchase agreements with sellers of securities the Government Trust has
purchased and by lending the Government Trust's portfolio securities to
registered broker-dealers where the loan is 100% secured by cash or its
equivalent as long as the Government Trust complies with regulatory requirements
and except (ii) with respect to the Tax-Free Trusts, for the purchase of debt
securities in which they may invest consistent with their investment objectives
and policies; (6) pledge, mortgage, or hypothecate our assets (the Tax-Free
Trusts may do so, to secure permitted borrowings described in (3) above; neither
a deposit required to enter into or to maintain municipal bond index futures
contracts nor an allocation or segregation of portfolio assets to collateralize
a position in such options or futures contracts is deemed to be a pledge,
mortgage or hypothecation); (7) deal in real estate, commodities, or commodity
contracts (with respect to the Tax-Free Trusts, (i) marketable securities
secured by real estate or interests therein may be purchased and (ii) options
and financial futures contracts are not deemed to be commodities or commodities
contracts); (8) invest in securities issued by other investment companies as
defined in the Act, except as indicated below; (9) with respect to the
Government Trust, except as indicated below, buy securities if the purchase
would then cause the Government Trust to (i) have more than 5% of its gross
assets, at market value at the time of investment, invested in the securities of
any one issuer except securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities or (ii) own more than 10% of the voting
securities of any issuer; (10) hold securities of any issuer when more than 1/2
of 1% of its securities are owned beneficially by one or more of our officers or
Trustees or by one or more partners of our underwriter or investment manager if
these owners in the aggregate own beneficially more than 5% of such securities;
(11) engage in security transactions with our underwriter or investment manager,
our officers or Trustees, or firms (acting as principals) with which any of the
foregoing are associated -- however, this provision does not apply to our
shares, or to securities we may become entitled to by reason of our ownership of
securities already held, or to transactions on a securities exchange when only
the regular exchange commissions and charges are imposed (we have not had, nor
do we intend to have, any such transactions on an exchange) or to transactions
in accordance with the Act and Rule 17a-7; (12) except as indicated below,
concentrate our investments in any one industry, excluding U.S. Government
securities, including obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities, supported by any of the following: (i) the
full faith and credit of the United States, (ii) the right of the issuer to
borrow from the U.S. Treasury or (iii) the credit of the issuer; (13) with
respect to the Tax-Free Trusts, concentrate our investments in any one industry,
except that each of the Tax-Free Trusts may invest more than 25% of its gross
assets, taken at market value, in tax-exempt securities; (14) issue senior
securities (with respect to the Tax-Free Trusts, neither a purchase or sale of
options nor a collateral arrangement with respect to either financial futures or
the writing of options, all as discussed in the Tax-Free Trust Prospectus and
below, particularly under "Regulatory Restrictions" which refers to the asset
coverage requirements of Securities and Exchange Commission Release No. IC 10666
is deemed to be the issuance of a senior security) or (15) with respect to the
Tax-Free Trusts (i) buy or sell put, call, straddle or spread options although
they may buy, hold or sell options and financial futures and (ii) buy or sell
oil, gas, or other mineral leases.
<PAGE>
Notwithstanding restrictions (4), (8), (9) and (12) above, in the future, upon
shareholder approval, each of the Series may seek to achieve its investment
objective by investing all of its assets in another investment company (or
series or class thereof) having the same investment objective. Shareholders will
be notified thirty days in advance of such conversion. Shareholders of each
Series will be able to exchange Series shares for shares of the other Trust
series and/or Series classes.
While each Tax-Free Trust may take short-term gains if deemed appropriate,
normally the Series will hold securities in order to realize interest income
exempt from federal income tax and, where applicable, its state's personal
income tax, consistent with preservation of capital.
Investments which are not readily marketable are limited to 15% of average net
assets at the time of purchase. Included in this category are "restricted"
securities, and any other assets for which an active and substantial market does
not exist at the time of purchase or subsequent valuation. Restricted securities
for purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A of the Securities Act of 1933 which have been determined
to be liquid by the Board of Trustees based upon the trading markets for the
securities, except to the extent necessary to comply with applicable state
requirements. Rule 144A does not affect U.S. Government securities and,
therefore, the Government Trust has no current intention of investing in such
Rule 144A securities. Nevertheless, Rule 144A may affect the portfolio
securities of other Trust series, including, the Tax-Free Trusts and future
Trust series and/or Trust classes.
The liquidity of a Rule 144A security will be a determination of fact for which
the Board of Trustees is 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 marketplace (e.g., the time
period needed to dispose of the security, the method of soliciting offers, and
the mechanics of transfer).
If the Government Trust enters into repurchase agreements as provided in clause
(5) above, it will do so only with those primary reporting dealers that report
to the Federal Reserve Bank of New York and with the 100 largest United States
commercial banks and the underlying securities purchased under the agreements
will consist only of those securities in which the Trust otherwise may invest.
Portfolio Turnover -The portfolio turnover rate for the Government Trust from
June 1, 1993 (commencement of operations) to October 31, 1993 was 141.97%. Due
to the short life of the Tax-Free Trusts (October 1, 1993, commencement of
operations, to October 31, 1993) each of the Tax-Free Trusts had zero portfolio
turnover. For the year ended October 31, 1994 the portfolio turnover rates for
the following Trust Series were 995.50% (Government), 381.17% (National),
159.44% (California), 200.13% (New York) and 224.59% (Florida).
GOVERNMENT TRUST ONLY
WHEN-ISSUED TRANSACTIONS
As stated in the prospectus, the Government Trust may purchase portfolio
securities on a when-issued basis. When-issued transactions involve a commitment
by the Government Trust to purchase 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 Government Trust at the time of entering into
the transaction. When the Government Trust enters into when-issued purchases, 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 the Government Trust makes
the commitment to purchase a security on a when-issued 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. The Government Trust, generally,
has the ability to close out a purchase obligation on or before the settlement
date, rather than take delivery of the security. Under no circumstance will
delivery and payment ("settlement") for such securities take place more than 120
days after the purchase date.
LENDING PORTFOLIO SECURITIES
The Government Trust may lend portfolio securities to registered broker-dealers.
These loans, if and when made, may not exceed 30% of the Government Trust's
total assets. The Government Trust's loans of securities will be collateralized
by cash or marketable securities issued or guaranteed by the U.S. Government or
its agencies ("U.S. Government securities") or other permissible means at least
equal to the market value of the loaned securities. From time to time, the
Government Trust may pay a part of the interest received with respect to the
investment of collateral to a borrower and/or a third party that is not
affiliated with the Government Trust and is acting as a "placing broker". No fee
will be paid to affiliated persons of the Government Trust.
By lending portfolio securities, the Government Trust can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in permissible investments, such as U.S.
Government securities, or obtaining yield in the form of interest paid by the
borrower when such U.S. Government securities or other forms of non-cash
collateral are received. The Government Trust will comply with the following
conditions whenever it loans securities: (i) the Government Trust must receive
at least 100% collateral from the borrower; (ii) the borrower must increase the
collateral whenever the market value of the securities loaned rises above the
level of the collateral; (iii) the Government Trust must be able to terminate
the loan at any time; (iv) the Government Trust must receive reasonable
compensation for the loan, as well as any dividends, interest or other
distributions on the loaned securities; (v) the Government Trust may pay only
reasonable fees in connection with the loan and (vi) voting rights on the loaned
securities may pass to the borrower except that, if a material event adversely
affecting the investment in the loaned securities occurs, the Trustees must
terminate the loan and regain the right to vote the securities.
TAX-FREE TRUSTS ONLY
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 of most investors for federal income tax purposes. 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 the rate or
amount. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source. "Private activity" bonds,
including industrial development bonds, are, in most cases, revenue bonds and
generally do not constitute the pledge of the 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 money market conditions, supply and demand, general conditions of the
municipal bond market, size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Corporation ("Standard & Poor's")
and Fitch Investors Services, Inc. ("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.
"Bonds that are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Bonds that are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well."
Standard & Poor's describes its four highest ratings for municipal bonds as
follows.
"AAA: Debt rated 'AAA' has the highest rating assigned by S & P. Capacity to and
pay interest and repay principal is extremely strong
AA: Debt rated ' AA' has a very strong capacity to pay interest and repay
principals and differs from the highest rated issues only in small degree.
A: Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Fitch describes its four highest ratings for municipal bonds as follows.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and
'AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt to these issuers is generally rated 'F-1+'.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payments. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS
GENERAL. Each Tax-Free Trust may engage in options and financial futures
- -------
transactions in accordance with its investment objective and policies. Although
none of the Tax-Free Trusts are currently employing such options and financial
futures transactions, and have no current intention of doing so, each may engage
in such transactions in the future if it appears advantageous to the Tax-Free
Trusts to do so, in order to hedge against the effects of fluctuating interest
rates and other market conditions or to stabilize the value of the Tax-Free
Trusts' assets. The use of options and financial futures, and possible benefits
and attendant risks, are discussed below, along with information concerning
certain other investment policies and techniques.
FINANCIAL FUTURES CONTRACTS. Each Tax-Free Trust 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 a Tax-Free Trust holds or intends to purchase. A
<PAGE>
"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 to recognize
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. A Tax-Free Trust 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 the Tax-Free Trust and futures contracts
subject to the outstanding options written by the Tax-Free Trust would exceed
50% of the total assets of the Tax-Free Trust.
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. The Tax-Free Trusts will
incur brokerage fees when they purchase or sell contracts and will be required
to maintain margin deposits. At the time a Tax-Free Trust 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 Tax-Free Trust's return. Futures contracts entail risks. If the
investment adviser's judgment about the general direction of interest rates or
markets is wrong, the 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 the interest
rates on municipal bonds, there are frequently differences in the rate of such
movements and temporary dislocations. Accordingly, the use of a financial
futures contract on a taxable security or a taxable securities index may involve
a greater risk of an imperfect correlation between the price movements of the
futures contract and of the municipal bond being hedged than when using a
financial futures contract on a municipal bond or a municipal bond index. In
addition, the market prices of futures contracts may be affected by certain
factors. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin requirements,
distortions in the normal relationship could result. Price distortions also
could result if investors in futures contracts decide to make or take delivery
of underlying securities rather than engage in closing transactions because of
the resultant reduction in the liquidity of the futures market. In addition,
because, from the point of view of speculators, margin requirements in the
futures market are less onerous than margin requirements in the cash market,
increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of market trends by the investment adviser still may not result in a
successful hedging transaction. If any of these events should occur, a Tax-Free
Trust could lose money on the financial futures contracts and also on the value
of its portfolio securities.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. Each Tax-Free Trust 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. A Tax-Free
Trust 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 Tax-Free Trust may expire worthless, in which case such
Tax- Free Trust would lose the premium paid therefor.
OPTIONS ON SECURITIES. Each Tax-Free Trust 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 Tax-Free Trust 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. A Tax-Free Trust 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 a Tax-Free Trust to protect capital
gains in an appreciated security it owns, without being required to actually
sell that security. At times a Tax-Free Trust may like to establish a position
in securities upon which call options are available. By purchasing a call
option, a Tax-Free Trust 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
a Tax-Free Trust 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.
OPTIONS ON SECURITIES INDICES. Each Tax-Free Trust also may purchase and write
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call and put options on securities indices in an attempt to hedge against market
conditions affecting the value of securities that a Tax-Free Trust owns or
intends to purchase, and not for speculation. Through the writing or purchase of
index options, a Tax-Free Trust 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 Tax-Free Trust owns or intends to purchase probably will not
correlate perfectly with movements in the level of an index and, therefore, a
Tax-Free Trust bears the risk that a loss on an index option would not be
completely offset by movements in the price of such securities.
When a Tax-Free Trust 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 Tax-Free Trust
writes a call option on a securities index at a time when the contract value
exceeds the exercise price, the Tax-Free Trust will segregate and
mark-to-market, until the option expires or is closed out, cash or cash
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 Tax-Free Trust may expire worthless, in which
case the Tax-Free Trust would lose the premium paid therefor.
DELAYED DELIVERY TRANSACTIONS. Each Tax-Free Trust may purchase or sell
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portfolio securities on a when-issued or delayed delivery basis. When-issued or
delayed delivery transactions involve a commitment by a Tax-Free Trust 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 Tax-Free Trust at the time of entering into the transaction. When a
Tax-Free Trust 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 Tax-Free Trust 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 Tax- Free
Trust 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. The
Tax-Free Trusts generally have the ability to close out a purchase obligation on
or before the settlement date, rather than take delivery of the security.
To the extent the Tax-Free Trusts engage in when-issued or delayed delivery
purchases, they will do so for the purpose of acquiring portfolio securities
consistent with the Tax-Free Trusts' investment objectives and policies and not
for investment leverage or to speculate in interest rate changes. The Tax-Free
Trusts will only make commitments to purchase securities on a when-issued or
delayed delivery basis with the intention of actually acquiring the securities,
but the Tax- Free Trusts reserve the right to sell these securities before the
settlement date if deemed advisable.
REGULATORY RESTRICTIONS. To the extent required to comply with Securities and
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Exchange Commission Release 10666, when purchasing a futures contract, writing a
put option or entering into a delayed delivery purchase, each Tax-Free Trust
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 Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid "commodity pool operator" status, no Tax-Free
Trust will enter into a futures contract or purchase an option thereon if
immediately thereafter the initial margin deposits for futures contracts held by
a Tax-Free Trust plus premiums paid by it for open options on futures would
exceed 5% of a Tax-Free Trust's total assets. A Tax-Free Trust will not 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 a Tax-Free Trust holds or intends to
purchase. When futures contracts or options thereon are purchased to protect
against a price increase on securities intended to be purchased later, it is
anticipated that at least 75% of such intended purchases will be completed. When
other futures contracts or options thereon are purchased, the underlying value
of such contracts will at all times not exceed the sum of: (1) accrued profit on
such contracts held by the broker; (2) cash or high-quality money market
instruments set aside in an identifiable manner and (3) cash proceeds from
investments due in 30 days.
2.
Investment Objectives and Policies
Growth & Income, Bond-Debenture, Global Income,
Limited Duration Government and Balanced Trusts
Each of the Series' investment objectives and policies are described in the
Prospectus under "How We Invest". In addition to those policies described in the
Prospectus, we are subject to the following investment restrictions which cannot
be changed for any Series without the approval of the holders of a majority of
the Series' respective shares. Each Series (except as indicated below in (6))
may not: (1) borrow money except (i) as a temporary measure for extraordinary or
emergency purposes, and then not in excess of 5% of a Series' gross assets (at
cost or market value, which ever is lower) at the time of borrowing, (ii) unless
such borrowing does not exceed the asset coverage requirements of Section 18(f)
of the Act and (iii) unless such borrowing on behalf of a class or series shall
be a liability only of such class or series, as the case may be; (2) 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, or as
indicated below; (3) lend money or securities to any person except through
entering into short-term repurchase agreements with sellers of securities we
have purchased and by lending our portfolio securities to registered
broker-dealers where the loan is 100% secured by cash or its equivalent as long
as we comply with regulatory requirements (investment in repurchase agreements
exceeding seven days and in other illiquid investments are subject to the
maximum of 15% of each Series' net assets described below) and except for time
or demand deposits with banks and purchases of commercial paper or
publicly-offered debt securities at original issue or otherwise; (4) buy or sell
real estate (including limited partnerships therein but excluding securities of
companies, such as real estate investment trusts, which deal in real estate or
interests therein), oil, gas or other mineral leases or in commodities or
commodity contracts in the ordinary course of its business, except such
interests and other property acquired as a result of owning other securities,
though securities will not be purchased in order to acquire any of these
interests; (5) with respect to 75% of the gross assets of each of the Growth &
Income, Bond-Debenture, Limited Duration Government and Balanced Trusts, and
except as indicated below, buy securities if the purchase would then cause it to
(i) have more than 5% of its gross assets, at market value at the time of
investment, invested in the securities of any one issuer except securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
or (ii) own more than 10% of the voting securities of any issuer; (6)
concentrate its investments in any particular industry except (i) as indicated
below and (ii) excluding U.S. Government securities; or (7) issue senior
securities.
Notwithstanding restrictions (2), (5) and (6) above and investment policy (4)
below, in the future, upon shareholder approval, each of the Series may seek to
achieve its investment objective by investing all of its assets in another
investment company (or series or class thereof) having the same investment
objective. Shareholders will be notified thirty days in advance of such
conversion. In the event the Series creates other series or Series classes,
shareholders of each Series will be able to exchange the Series shares for
shares of the other Trust series and/or Series classes.
If a Series enters into repurchase agreements as provided in clause (3) above,
it will do so only with those primary reporting dealers that report to the
Federal Reserve Bank of New York and with the 100 largest United States
commercial banks and the underlying securities purchased under the agreements
will consist only of those securities in which each of the Series otherwise may
invest.
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.
In addition to those policies described in the Prospectus and the investment
restrictions above which cannot be changed without shareholder approval, we also
are subject to the following investment policies which may be changed by the
Board of Trustees without shareholder approval. Each Series may not: (1) sell
short securities or buy securities on margin although each Series may obtain
short-term credit necessary for the clearance of purchases of securities; (2)
invest knowingly more than 15% of its net assets (at the time of investment) in
illiquid securities (subject to applicable state law, securities qualifying for
resale under Rule 144A of the Securities Act of 1933 ("Rule 144A") that are
determined by the Trustees, or by Lord Abbett pursuant to delegated authority,
to be liquid are considered liquid securities); (3) pledge, mortgage, or
hypothecate its assets; however, this provision does not apply to permitted
borrowing mentioned above or to the grant of escrow receipts or the entry into
other similar escrow arrangements arising out of the writing of covered call
options; (4) invest in securities issued by other investment companies as
defined in the Act except as permitted by the Act and except as indicated above;
(5) with respect to the Growth & Income, Bond-Debenture, Global Income and
Limited Duration Government Trusts, buy or sell put or call options although the
Bond-Debenture and Global Income Trusts may buy, hold or sell rights or
warrants, the Global Income Trust may utilize various foreign currency hedging
techniques, and the Growth & Income and Global Income Trusts may write covered
call options and enter into closing purchase transactions as discussed below;
(6) purchase securities of any issuer unless it or its predecessor has a record
of three years' continuous operation, except that a Series may purchase
securities of such issuers through subscription offers or other rights it
receives as a security holder of companies offering such subscriptions or
rights, and such purchases will then be limited in the aggregate to 5% of each
Series' net assets at the time of investment; (7) 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 Trust's officers or trustees or by one or more partners of
the Trust's underwriter or investment adviser if these owners in the aggregate
own beneficially more than 5% of such securities; (8) with respect to the
Balanced Series, engage in short-term trading under normal circumstances; or (9)
with respect to the Balanced Series, invest in warrants, valued at the lower of
cost or market, to exceed 5% of the Series' net assets, including warrants not
listed on the New York or American Stock Exchange which may not exceed 2% of
such net assets.
With respect to the Growth & Income, Bond-Debenture, Global Income, Limited
Duration Government and Balanced Trusts and investment policy (2), current Ohio
requirements include Rule 144A securities within this 15% limit. As long as any
Series is sold in Ohio and those requirements remain unchanged, that Series will
comply with this 15% limit if it purchases Rule 144A securities.
With respect to the Growth & Income and Global Income Trusts only, investment
policy (3) does not apply to the grant of escrow receipts or the entry into
other similar escrow arrangements arising out of the writing of covered call
options.
Investments which are not readily marketable are limited to 15% of average net
assets at the time of purchase. Included in this category are "restricted"
securities and any other assets for which an active and substantial market does
not exist at the time of purchase or subsequent valuation. Restricted securities
for purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A which have been determined by the Board of Trustees to be
liquid based upon the trading markets for such securities. However, current Ohio
requirements include Rule 144A securities within this 15% limit. As long as any
Series is sold in Ohio and those requirements remain unchanged, that Series will
comply with this 15% limit if it purchases Rule 144A securities.
LENDING PORTFOLIO SECURITIES
Each of the Series may lend portfolio securities to registered broker-dealers.
These loans, if and when made, may not exceed 30% of each Series' total assets.
Each Series' loan of securities will be collateralized by cash or marketable
securities issued or guaranteed by the U.S. Government or its agencies ("U.S.
Government securities") or other permissible means at least equal to the market
value of the loaned securities. From time to time, each Series may pay a part of
the interest received with respect to the investment of collateral to a borrower
and/or a third party that is not affiliated with a Series and is acting as a
"placing broker". No fee will be paid to affiliated persons of the Series.
By lending portfolio securities, each Series can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in permissible investments, such as U.S.
Government securities or obtaining yield in the form of interest paid by the
borrower when U.S. Government securities or other forms of non-cash collateral
are received. Each Series will comply with the following conditions whenever
they loan securities: (i) each Series must receive at least 100% collateral from
the borrower; (ii) the borrower must increase the collateral whenever the market
value of the securities loaned rises above the level of the collateral; (iii)
each Series must be able to terminate the loan at any time; (iv) each Series
must receive reasonable compensation for the loan, as well as any dividends,
interest or other distributions on the loaned securities; (v) each Series may
pay only reasonable fees in connection with the loan and (vi) voting rights on
the loaned securities may pass to the borrower except that, if a material event
adversely affecting the investment in the loaned securities occurs, the Trustees
must terminate the loan and regain the right to vote the securities.
REPURCHASE AGREEMENTS
Each Series may enter into repurchase agreements with respect to a security. A
repurchase agreement is a transaction by which a Series acquires a security and
simultaneously commits to resell that security to the seller (a bank or
securities dealer) at an agreed upon price on an agreed upon date. The resale
price reflects the purchase price plus an agreed upon market rate of interest
which is unrelated to the coupon rate or date of maturity of the purchased
security. In this type of transaction, the securities purchased by a Series have
a total value in excess of the value of the repurchase agreement. Each Series
requires at all times that the repurchase agreement be collateralized by cash or
U.S. Government securities having a value equal to, or in excess of, the value
of the repurchase agreement. Such agreements permit each Series to keep all of
its assets at work while retaining flexibility in pursuit of investments of a
longer term nature.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreement defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, a Series
may incur a loss upon disposition of them. If the seller of the agreement
becomes insolvent and subject to liquidation or reorganization under the
Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of a Series and are
therefore subject to sale by the trustee in bankruptcy. Even though the
repurchase agreements may have maturities of seven days or less, they may lack
liquidity, especially if the issuer encounters financial difficulties. While
Trust management acknowledges these risks, it is expected that they can be
controlled through stringent selection criteria and careful monitoring
procedures. Trust management intends to limit repurchase agreements for each
Series to transactions with dealers and financial institutions believed by Trust
management to present minimal credit risks. Trust management will monitor
creditworthiness of the repurchase agreement sellers on an ongoing basis.
Each Series will enter into repurchase agreements only with those primary
reporting dealers that report to the Federal Reserve Bank of New York and with
the 100 largest United States commercial banks and the underlying securities
purchased under the agreements will consist only of those securities in which
the Series otherwise may invest.
PORTFOLIO TURNOVER
For the period December 31, 1993 to October 31, 1994, the portfolio turnover
rates for the following Trust Series were 31.95% (Growth & Income), 52.34%
(Bond-Debenture), 1,348.68% (Global) and 630.52% (Limited Duration Government).
Although the Series cannot accurately predict their respective annual portfolio
turnover rates, a rate substantially in excess of 100% but not exceeding 600% is
expected for the fixed-income portion of the Balanced Trust, and a rate not to
exceed 100% is expected for the equity portion of the Balanced Trust. The
Bond-Debenture Trust is expected to have a relatively high portfolio turnover
rate due primarily to the use of GNMA forwards and investments in convertible
securities. The Global Income Trust also uses GNMA forwards and moves portfolio
investments from one or more countries to another country or countries based on
the perception of better market conditions in the latter. The Limited Duration
Government Trust and the fixed-income portion of the Balanced Trust may purchase
U.S. Government securities on a when-issued basis with delivery and payment
("settlement") for the securities taking place 30 days or more after the
purchase date. While awaiting settlement, the Limited Duration Government Trust
and the fixed-income portion of the Balanced Trust normally will invest in
short-term U.S. Government securities without amortizing any premiums. While
this investment technique is likely to contribute significantly to a portfolio
turnover rate substantially in excess of 100% but not exceeding 600%, (i) it has
little or no brokerage consequence because portfolio transactions for the
Limited Duration Government Trust and the fixed-income portion of the Balanced
Trust usually will be on a principal basis and (ii) short-term losses on the
short-term U.S. Government securities and short-term gains on the when-issued
U.S. Government securities tend to offset each other although, from time to
time, the gains may tend to exceed the losses as interest rates fall and, as
interest rates rise, the losses may tend to exceed the gains. However, a high
portfolio turnover rate, combined with a low interest-rate environment may
result in more short-term gains. During the period between purchase and
settlement, the value of the securities will fluctuate and assets consisting of
cash and/or marketable securities marked-to-market daily in an amount sufficient
to make payment at settlement will be segregated at our custodian in order to
pay for the commitment. 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.
BOND-DEBENTURE AND GLOBAL INCOME TRUSTS ONLY
RIGHTS AND WARRANTS
The Bond-Debenture and Global Income Trusts may invest in rights and warrants to
purchase securities, including warrants which are not listed on the New York
Stock Exchange ("NYSE") or American Stock Exchange, in an amount not to exceed
2% of the value of their respective net assets (at the time of investment).
Rights represent a privilege offered to holders of record of issued securities
to subscribe (usually on a pro-rata basis) for additional securities of the same
class, of a different class, or of a different issuer, as the case may be.
Warrants represent the privilege to purchase securities at a stipulated price
and usually are valid for several years. Rights and warrants generally do not
entitle a holder to dividends or voting rights with respect to the underlying
securities nor do they represent any rights in the assets of the issuing
company.
Also, the value of a right or warrant may not necessarily change with the value
of the underlying securities and rights and warrants cease to have value if they
are not exercised prior to their expiration date.
GROWTH & INCOME AND GLOBAL INCOME TRUSTS ONLY
COVERED CALL OPTIONS
As stated in the Prospectus, each of the Growth & Income and Global Income
Trusts may write covered call options which are traded on a national securities
exchange with respect to securities in its portfolio in an attempt to increase
its income and to provide greater flexibility in the disposition of its
portfolio securities. A "call option" is a contract sold for a price (the
"premium") giving its holder the right to buy a specific number of shares of
stock at a specific price prior to a specified date. A "covered call option" is
a call option issued on securities already owned by the writer of the call
option for delivery to the holder upon the exercise of the option. During the
period of the option, the Growth & Income and Global Income Trusts forgo the
opportunity to profit from any increase in the market price of the underlying
security above the exercise price of the option (to the extent that the increase
exceeds its net premium). Each of the Growth & Income and Global Income Trusts
may enter into "closing purchase transactions" in order to terminate its
obligation to deliver the underlying security (this may result in a short-term
gain or loss). A closing purchase transaction is the purchase of a call option
(at a cost which may be more or less than the premium received for writing the
original call option) on the same security, with the same exercise price and
call period as the option previously written. If the Growth & Income and Global
Income Trusts are unable to enter into a closing purchase transaction, they may
be required to hold a security that they might otherwise have sold to protect
against depreciation. The Growth & Income and Global Income Trusts do not intend
to write covered call options with respect to securities with an aggregate
market value of more than 5% of their respective gross assets at the time an
option is written. This percentage limitation will not be increased without
prior disclosure in the current Prospectus.
The Series' custodian will segregate cash or liquid high-grade debt securities
in an amount not less than that required by Securities Exchange Commission
("SEC") Release 10666 with respect to the Series' assets committed to written
covered call options. If the value of the segregated securities declines,
additional cash or debt securities will be added on a daily basis (i.e.,
marked-to-market) so that the segregated amount will not be less than the amount
of the Series' commitments with respect to such written options.
LIMITED DURATION GOVERNMENT AND BALANCED TRUSTS ONLY
WHEN-ISSUED TRANSACTIONS
As stated in the Prospectus, the Limited Duration Government and Balanced Trusts
may purchase portfolio securities on a when-issued basis. When-issued
transactions involve a commitment to purchase 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 at the time of entering into the transaction.
When the Limited Duration Government and Balanced Trusts enter into a
when-issued purchase, each becomes obligated to purchase securities and it
assumes 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
each of the Limited Duration Government and Balanced Trusts makes the commitment
to purchase a security on a when-issued 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. Each of the Limited Duration Government and
Balanced Trusts, generally, has the ability to close out a purchase obligation
on or before the settlement date, rather than take delivery of the security.
Under no circumstance will delivery and payment ("settlement") for such
securities take place more than 120 days after the purchase date.
AVERAGE DURATION
The Limited Duration Government Trust and the fixed-income portion of the
Balanced Trust limit their average dollar-weighted portfolio duration to a range
of one to four years and three and a half to seven and a half years,
respectively. However, many of the securities in which the Limited Duration
Government and Balanced Trusts invest will have remaining durations in excess of
four and seven and a half years, respectively.
Some of the securities in the Limited Duration Government Trust portfolio may
have periodic interest-rate adjustments based upon an index such as the 91-day
Treasury Bill rate. This periodic interest-rate adjustment tends to lessen the
volatility of the security's price. With respect to securities with an
interest-rate adjustment period of one year or less, the Limited Duration
Government Trust will, when determining average weighted duration, treat such a
security's maturity as the amount of time remaining until the next interest-rate
adjustment.
Instruments such as GNMA, FNMA, FHLMC securities and similar securities backed
by amortizing loans generally have shorter effective maturities than their
stated maturities. This is due to changes in amortization caused by demographic
and economic forces such as interest-rate movements. These effective maturities
are calculated based upon historical payment patterns and therefore have shorter
duration than would be implied by their stated final maturity. For purposes of
determining the Limited Duration Government Trust's and the Balanced Trust's
average maturity, the maturities of such securities will be calculated based
upon the issuing agency's payment factors using industry-accepted valuation
models.
MORTGAGE-BACKED SECURITIES
In addition to mortgage-backed securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, the Limited Duration Government
Trust also may invest up to 35% of its assets in securities issued by certain
private, nongovernment corporations, such as financial institutions. Two
principal types of mortgage-backed securities are collateralized mortgage
obligations (CMOs) and real estate mortgage investment conduits (REMICs).
CMOs are debt securities issued by U.S. Government agencies or by other
nongovernment financial institutions and other mortgage lenders and
collateralized by a pool of mortgages held under an indenture. CMOs and REMICs
which are issued by private entities are not government securities and are not
directly guaranteed by any government agency. They are secured by the underlying
collateral of the private issuer. The Limited Duration Government Trust intends
to invest in privately-issued CMOs and REMICs only if they are rated at the time
of purchase in the three highest grades by a nationally-recognized rating
agency. CMOs are issued in a number of classes or series with different
maturities. The classes or series are retired in sequence as the underlying
mortgages are repaid. Prepayment may shorten the stated maturity of the
obligation and can result in a loss of premium, if any has been paid. Certain of
these securities may have variable or floating interest rates and others may be
stripped (securities which provide only the principal or interest feature of the
underlying security). Interest-only and principal-only fixed mortgage-backed
securities are considered illiquid and, together with other illiquid
investments, will be subject to a limit of 15% of the Limited Duration Trust's
net assets, unless such securities are issued by the U.S. Government and are
determined to be liquid under guidelines and standards established by the Board
of Trustees, in which case, they will not be subject to this limit.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
ASSET-BACKED SECURITIES
The Limited Duration Government Trust may invest a portion of its assets in
asset-backed securities. The rate of principal payments on asset-backed
securities generally depends on the rate of principal payments received on the
underlying assets. Such rate of payments may be affected by economic and various
other factors such as changes in interest rates. Therefore, the yield may be
difficult to predict and actual yield to maturity may be more or less than the
anticipated yield to maturity. The credit quality of most asset-backed
securities primarily depends on the credit quality of the assets underlying such
securities, how well the entities issuing the securities are insulated from the
credit risk of the originator or affiliated entities and the amount of credit
support provided to the securities.
Asset-backed securities often are backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, such securities may contain
elements of credit support. Such credit support falls into two categories: (i)
liquidity protection and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments due on the underlying pool is
timely. Protection against losses resulting from ultimate default enhances the
likelihood of payments of the obligations on at least some of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Limited Duration Government Trust will not pay any additional
fees for such credit support, although the existence of credit support may
increase the price of a security.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple-class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "overcollateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed that required to make payments of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue, generally is based on historical information respecting
the level of credit information respecting the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in such issue.
CORPORATE DEBT
The Limited Duration Government Trust may invest in corporate notes and bonds
rated A or above. See the Appendix for a description of these ratings.
COMMERCIAL PAPER
The Limited Duration Government Trust may invest in short-term promissory notes
issued by corporations which at the time of purchase are rated P-1 and/or A-1.
Commercial paper ratings of P-1 by Moody's Investors Service and A-1 by Standard
& Poor's Corporation are the highest investment-grade category.
BANK OBLIGATIONS
The Limited Duration Government Trust may invest in certificates of deposit,
banker's acceptances and other short-term obligations of U.S. commercial banks
and their overseas branches of comparable quality, provided each such bank
combined with its branches has total assets of at least one billion dollars.
3.
Trustees and Officers
The following Trustees are partners of Lord, Abbett & Co., The General Motors
Building, 767 Fifth Avenue, New York, New York 10153-0203 ("Lord Abbett"). They
have been associated with Lord Abbett for over five years and are also officers
and/or directors or Trustees of the fifteen other Lord Abbett-sponsored funds
described under "Purchases, Redemptions and Shareholder Services" (except for
Messrs. Dow and Henderson who are not directors of Lord Abbett Research Fund,
Inc.). They are "interested persons" of the Trust as defined in the Act.
<PAGE>
Ronald P. Lynch, Chairman and President
Robert S. Dow, Executive Vice President
The following outside Trustees are also directors or Trustees of the fifteen
other Lord Abbett-sponsored funds referred to above (except for Lord Abbett
Research Fund, Inc., of which only Messrs. Millican and Neff are directors).
E. Thayer Bigelow
Time Warner Cable
300 First Stamford Place
Stamford, CT 06902
President and Chief Executive Officer of Time Warner Cable. Formerly President
and Chief Operating Officer of Home Box Office, Inc.
Stewart S. Dixon
Wildman, Harrold, Allen & Dixon
225 W. Wacker Drive (Suite 2800)
Chicago, Illinois
Partner in the law firm of Wildman, Harrold, Allen & Dixon.
John C. Jansing
162 South Beach Road
Hobe Sound, Florida
Retired. Formerly Chairman of Independent Election Corporation of America, a
proxy tabulating firm.
C. Alan MacDonald
The Noel Group
Two Greenwich Plaza, Suite 1001
Greenwich, Connecticut
Acquisition Consultant, The Noel Group, a private consulting firm. Formerly
Chairman and Chief Executive Officer of Lincoln Snacks, Inc., manufacturer of
branded snack foods (1992-1994). Formerly President and Chief Executive Officer
of Nestle Foods Corporation, a subsidiary of Nestle S.A.
(Switzerland).
Hansel B. Millican, Jr.
Rochester Button Company
1100 Noblin Avenue
South Boston, Virginia
President and Chief Executive Officer of Rochester Button Company. Formerly
Senior Vice President of Springs Industries, Inc., a textile company
(1986-1989).
Thomas J. Neff
55 East 52nd Street
New York, New York
President of Spencer Stuart & Associates, an executive search consulting firm.
For the fiscal year ended October 31, 1994, the Trust accrued for all outside
trustees as a group, trustees' fees totalling $5,681 (exclusive of expenses).
The Board of Trustees has adopted a retirement plan under which the outside
Trustees will receive an annual retirement benefit equal to 80% of their final
annual retainer following retirement at or after age 72 with at least 10 years
of service. This plan also provides for a reduced benefit upon early retirement
under certain circumstances and a pre-retirement death benefit. For the year
ended October 31, 1994, the Trust accrued $3,657 for the payment of benefits
under this plan.
The following executive officers of the Trust have been associated with Lord
Abbett for over five years. Of the following, Messrs. Allen, Carper, Cutler,
Nordberg and Walsh are partners of Lord Abbett and the others are employees:
Zane E. Brown (with Lord Abbett since 1992 - formerly, Executive Vice President,
Equitable Capital Management Corp.), W. Thomas Hudson, Jr. and Christopher J.
Towle, Executive Vice Presidents; Kenneth B. Cutler, Vice President and
Secretary; Jeffery H. Boyd (with Lord Abbett since 1994 - formerly partner in
the law firm of Robinson & Cole), Daniel E. Carper, E. Wayne Nordberg , John J.
Walsh, John J. Gargana, Jr., Thomas F. Konop, Victor W. Pizzolato, Vice
Presidents and Keith F. O'Connor, Treasurer.
The Trust 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
Trust's Declaration of Trust, shareholder meetings may be called at any time by
certain officers of the Trust or by a majority of the Trustees (i) for the
purpose of taking action upon any matter requiring the vote or authority of the
Trust'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 Trust outstanding and entitled to vote at the meeting.
As of October 31, 1994, our Trustees and officers, as a group, did not own any
of our outstanding shares.
4.
Investment Advisory and Other Services
As described under "Our Management" in the Prospectus, Lord Abbett is the
investment manager for each Series. The eight general partners of Lord Abbett,
all of whom are officers and/or Trustees of the Trust, are: Stephen I. Allen,
Daniel E. Carper, Kenneth B. Cutler, Robert S. Dow, Thomas S. Henderson, Ronald
P. Lynch, E. Wayne Nordberg and John J. Walsh. The address of each partner is
The General Motors Building, 767 Fifth Avenue, New York, New York 10153- 0203.
The services performed by Lord Abbett are described under "Our Management" in
the Prospectus. Under the Management Agreement, we are obligated to pay Lord
Abbett a monthly fee, based on average daily net assets for each month, at the
annual rate of .50 of 1% for each of the Government, National, California, New
York, Florida, Bond- Debenture, Global Income and Limited Duration Government
Trusts and at the annual rate of .75 of 1% for the Growth & Income and Balanced
Trusts. In addition, each Series pays all of its expenses not expressly assumed
by Lord Abbett, including, without limitation, 12b-1 expenses, outside Trustees'
fees and expenses, association membership dues, legal and audit 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.
For the period June 1, 1993 (commencement of operations) to October 31, 1993,
the management fees paid to Lord Abbett by the Government Trust amounted to
$290,423 and for the year ended October 31, 1994 such fees amounted to
$1,787,966. For the period December 31, 1993 (commencement of operations) to
October 31, 1994 such fees amounted to $982 (Growth & Income), $71,589
(Bond-Debenture), $6,322 (Global) and $24,946 (Limited Duration Government).
Although not obligated to do so, Lord Abbett has waived or may waive, all or
part of its management fees and has assumed or may assume, other expenses of the
Series. From October 1, 1993 (commencement of operations) to October 31, 1993,
Lord Abbett waived $2,084, $863, $620 and $604 in management fees and assumed
$12,603, $10,656, $10,652 and $10,652 of other expenses of the National,
California, New York and Florida Trusts, respectively. For the year ended
October 31, 1994, Lord Abbett waived $173,889, $85,571, $39,568 and $50,822, for
National, California, New York and Florida Trusts in management fees and assumed
$85,365, $51,341, $35,442 and $49,329, respectively, of other expenses. For the
period December 31, 1993 (commencement of operations) to October 31, 1994 Lord
Abbett waived $27,498 and $15,383 for Growth & Income and Global Income Trusts,
respectively, in management fees and assumed $33,620 and $16,211, respectively,
of other expenses. For the same period Lord Abbett waived $71,590 and $25,208
for Bond- Debenture and Limited Duration Government Trusts, respectively, in
management fees. As discussed in the Prospectus under "Our Management," the
National, California, New York, Florida, Growth & Income and Global Income
Trusts are contingently obligated to repay to Lord Abbett the amounts of such
assumed other expenses.
Each of the Series has agreed with the State of California to limit operating
expenses (including management fees but excluding taxes, interest, extraordinary
expenses and brokerage commissions) to 2 1/2% of average annual net assets up to
$30,000,000, 2% of the next $70,000,000 of such assets and 1 1/2% of such assets
in excess of $100,000,000. However, as described in the Prospectuses, the Trust
has adopted a Plan for each of the Series pursuant to Rule 12b-1 of the Act.
Annual Plan distribution expenses up to 1% of each Series' average net assets
during its fiscal year may be excluded from this expense limitation. The expense
limitation is a condition on the registration of investment company shares for
sale in the State and applies so long as our shares are registered for sale in
that State.
Lord Abbett has entered into an agreement with Dunedin Fund Managers Limited,
under which, as the Sub-Adviser, Dunedin provides Lord Abbett with advice with
respect to that portion of the Global Income Trust's assets invested in
countries other than the United States as more particularly described in the
Prospectus.
The Sub-Adviser, with offices located at Dunedin House, 25 Ravelston Terrace,
Edinburgh EH4 3EX Scotland, and predecessors date back 121 years to 1873. The
Sub-Adviser is controlled by the Bank of Scotland which indirectly owns a
majority of the Sub-Adviser's outstanding voting stock. The Sub-Adviser provides
international investment research and advisory services to private and
institutional clients, investment trusts, pension clients and unit trusts both
in the United Kingdom and overseas. The Sub-Adviser currently manages about $5.3
billion, and its investment and administrative staffs have substantial global
investment management experience.
Securities held by the Series also may be held by other funds or investment
advisory clients for which Lord Abbett or the Sub-Adviser or their affiliates
provide investment advice. Because of different investment objectives or other
factors, a particular security may be bought for one or more funds or clients
when one or more are selling the same security. If opportunities for the
purchase or sale of securities by Lord Abbett or the Sub-Adviser for the Series
or for other funds or clients for which they render investment advice arise for
consideration at or about the same time, transactions in such securities will be
made insofar as feasible for the respective funds or clients in a manner deemed
equitable to all of them. To the extent that transactions on behalf of more than
one client of Lord Abbett, the Sub-Adviser or their affiliates may increase the
demand for securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10128, are
the independent auditors of the Trust and must be approved at least annually by
our Trustees to continue in such capacity. Deloitte & Touche LLP perform audit
services for the Trust including the examination of financial statements
included in our annual report to shareholders.
Morgan Guaranty Trust Company of New York ("Morgan"), 60 Wall Street, New York,
New York 10005, is the Trust's custodian. In accordance with the requirements of
Rule 17f-5 under the Investment Company Act of 1940, the Trust's Trustees have
approved arrangements permitting the Trust's foreign assets not held by Morgan
or its foreign branches to be held by certain qualified foreign banks and
depositories.
5.
Portfolio Transactions
With respect to the Government, National, California, New York, Florida, Global
Income and Limited Duration Government Trusts and the fixed-income portion of
the Balanced Trust, 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 market maker for the securities.
Therefore, the Government, National, California, New York, Florida, Global
Income and Limited Duration Government Trusts and the fixed-income portion of
the Balanced Trust usually will pay no brokerage commissions for such purchases.
Purchases from underwriters of portfolio securities will include a commission or
concession paid by the issuer to the underwriter and purchases from dealers
serving as market makers will include a dealer's markup. Principal transactions,
including riskless principal transactions, are not afforded the protection of
the safe harbor in Section 28 (e) of the Securities Exchange Act of 1934.
Each Series' policy is to have purchases and sales of portfolio securities
executed at most favorable prices, considering all costs of the transaction
including brokerage commissions and dealer markups and markdowns, consistent
with obtaining best execution, except to the extent that we may pay a higher
commission as described below. This policy governs the selection of brokers or
dealers and the market in which the transaction is executed. To the extent
permitted by law, we may, if considered advantageous, make a purchase from or
sale to another Lord Abbett-sponsored fund without the intervention of any
dealer.
We select brokers on the basis of their professional capability and the value
and quality of their brokerage and research services. Normally, the selection is
made by our traders who are officers of the Trust and also are employees of Lord
Abbett. For foreign assets, the selection is made by the Sub-Adviser. Our
traders do the trading as well for other accounts -- investment companies (of
which they also are officers) and other investment clients -- managed by Lord
Abbett. They are responsible for the negotiation of prices and commissions.
In transactions on stock exchanges in the United States commissions are
negotiated, whereas on many foreign stock exchanges commissions are fixed. In
the case of securities traded in foreign and domestic over-the-counter markets,
there generally is no stated commission, but usually the price includes an
undisclosed commission or markup. Purchases from underwriters of newly-issued
securities for inclusion in the Trust's portfolios usually will include a
concession paid to the underwriter by the issuer and purchases from dealers
serving as market makers will include the spread between the bid and asked
prices. A broker may receive a commission for portfolio transactions exceeding
the amount another broker would have charged for the same transaction if Lord
Abbett determines that such amount of commission is reasonable in relation to
the value of the brokerage and research services performed by the executing
broker viewed in terms of either the particular transaction or the broker's
overall responsibilities with respect to us and other accounts managed by Lord
Abbett. Brokerage services may include such factors as showing us trading
opportunities including blocks, willingness and ability to take positions in
securities, knowledge of a particular security or market, proven ability to
handle a particular type of trade, confidential treatment, promptness,
reliability and quotation and pricing services. Research may include the
furnishing of analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
Such research may be used by Lord Abbett in servicing all their accounts, and
not all of such research will necessarily be used by Lord Abbett in connection
with their services to us; conversely, research furnished in connection with
brokerage of other accounts managed by Lord Abbett may be used in connection
with their services to us, and not all of such research will necessarily be used
by Lord Abbett in connection with their services to such other accounts. We have
been advised by Lord Abbett that, although such research is often useful, no
dollar value can be ascribed to it nor can it be accurately ascribed or
allocated to any account and it is not a substitute for services provided by
them to us; nor does it materially reduce or otherwise affect the expenses
incurred by Lord Abbett in the performance of such services. We make no
commitments regarding the allocation of brokerage business to or among brokers.
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.
We will not seek "reciprocal" broker business (for the purpose of applying
commissions in whole or in part for our benefit or otherwise) from
broker-dealers as consideration for the direction to them of portfolio business.
None of the Series has paid any commissions to independent brokers through the
fiscal year ending October 31, 1994, except for the Growth & Income Trust and
the Bond-Debenture Trust, which have paid such commissions in the amount of
$15,489 and $204,575, respectively, during the ten-month period ending October
31, 1994.
6.
Purchases, Redemptions
and Shareholder Services
Securities in the Trust's portfolios are valued at their market values as of the
close of the NYSE. Market value will be determined as follows: securities listed
or admitted to trading privileges on any national or foreign securities exchange
are valued at the last sales price on the principal securities exchange on which
such securities are traded, or, if there is no sale, at the mean between the
last bid and asked prices on such exchange, or, in the case of bonds, in the
over-the-counter market if, in the judgment of the Trust's officers, that market
more accurately reflects the market value of the bonds. Securities traded only
in the over-the-counter market are valued at the mean between the bid and asked
prices, except that securities admitted to trading on the NASDAQ National Market
System are valued at the last sales price. Securities for which market
quotations are not available are valued at fair value under procedures approved
by the Board of Trustees.
All assets and liabilities expressed in foreign currencies will be converted
into United States dollars at the mean between the buying and selling rates of
such currencies against United States dollars last quoted by any major bank. If
such quotations are not available, the rate of exchange will be determined in
accordance with policies established by the Trust's Board of Trustees. The Board
of Trustees will monitor, on an ongoing basis, the Trust's method of valuation.
As disclosed in the Prospectus, we calculate our net asset values and are
otherwise open for business on each day that the NYSE is open for trading. The
NYSE is closed on Saturdays and Sundays and the following holidays -- New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets normally is completed well before the close of business
on each business day in New York (i.e., a day on which the NYSE is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not business days in New York and on which the Series' net asset values are
not calculated. Accordingly, calculation of the value of European and Far
Eastern securities does not take place contemporaneously with the determination
of the prices of the other portfolio securities used in calculation of net asset
value. Events affecting the values of portfolio securities that occur between
the time their prices are determined and the close of the NYSE will not be
reflected in the Trust's calculation of net asset values unless the Trust's
Trustees determine that the particular event would materially affect net asset
value, in which case an adjustment will be made.
The offering price of the Series' shares on October 31, 1994 was computed as
follows:
<TABLE>
<CAPTION>
GOVERNMENT NATIONAL
---------- ---------
<S> <C> <C>
Net asset value per share (net assets divided by
shares outstanding) $4.41 $4.30
CALIFORNIA NEW YORK
---------- ---------
Net asset value per share (net assets divided by
shares outstanding) $4.23 $4.30
FLORIDA BOND-DEBENTURE
-------- --------------
Net asset value per share (net assets divided by
shares outstanding) $4.28 $4.65
GROWTH & INCOME LIMITED DURATION
--------------- ----------------
Net asset value per share (net assets divided by
shares outstanding) $5.07 $4.64
GLOBAL INCOME BALANCED*
------------- ---------
Net asset value per share (net assets divided by
shares outstanding) $4.60 $10.00
<FN>
*The Balanced Trust expects to commence operations on December 27, 1994. Net
asset value and maximum offering price per share shown for this Series are
estimated as of such date.
</FN>
</TABLE>
The Trust has entered into a distribution agreement with Lord Abbett under which
Lord Abbett is obligated to use its best efforts to find purchasers for the
shares of the Trust and to make reasonable efforts to sell Trust shares so long
as, in Lord Abbett's judgment, a substantial distribution can be obtained by
reasonable efforts.
As described in the Prospectus, the Trust has adopted Plans pursuant to Rule
12b-1 of the Act for each Series. In adopting each Plan, the Trustees have
concluded that, based on information provided by Lord Abbett, there is a
reasonable likelihood that the Plans will benefit the Series and their
shareholders. The expected benefits include the promotion of the sale of shares
and the maintenance of dealers' accounts in the Series and providing the Series
with a consistent cash flow to enable them to meet redemptions and to take
advantage of buying opportunities without having to make unwarranted
liquidations of portfolio securities, as well as the benefit to shareholders of
services provided to them by dealers. Except for the amount retained by Lord
Abbett for distribution expenses (an annual fee, payable at each quarter-end,
not to exceed .10% of the average daily net asset value of shares held by
dealers' clients on and after the first anniversary of the initial sale of such
shares), Lord Abbett uses all amounts received under each Plan for payments to
dealers for (i) maintaining Series shareholder accounts and/or providing Series
shareholders with personal services, including shareholder liaison services,
such as responding to customer inquiries and providing information on their
investments and (ii) their assistance in distributing shares of the respective
Series.
The fees payable under the Plans are described in the Prospectus. For the fiscal
year ended October 31, 1994 fees paid to dealers were as follows: Government
Trust - $3,399,388; National Trust - $315,190; California Trust - $169,120; New
York Trust - $66,722; and Florida Trust - $98,775.
Each Plan requires Lord Abbett to prepare and submit to the Board of Trustees,
on a quarterly basis, written reports of all amounts expended pursuant to the
Plan and the purpose 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 Trust's Board of Trustees and of the Trust's Trustees
who are not interested persons of the Trust and who have no direct or indirect
financial interest in 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 such Plan and agreements. Each Plan may not be amended to materially
increase the amount spent for distribution expenses without approval by a
majority of a Series' outstanding voting securities and the approval of a
majority of the Trustees, including a majority of the Trust's outside Trustees.
Each Plan may be terminated at any time by vote of a majority of the Trust's
outside Trustees or by vote of a majority of a Series' outstanding voting
securities.
With respect to arranging for payments to dealers under a Plan, shares of a
Series cannot be registered in a street name omnibus account unless the dealer
has the ability to track the account in a manner satisfactory to the Trust on
behalf of a Series. If accounts that cannot be tracked become registered in
street name through automated transactions, the dealer will not be entitled to
receive Plan payments from a Series, and any payments from a Series must be
returned to that Series. If a street name account is to be established by the
dealer because the dealer has the ability to track the account to accommodate
the 1% contingent deferred reimbursement charge ("CDRC"), the dealer should
contact Mr. Thomas J. Iandolo at 800-426-1130 to review and approve the dealer's
method of tracking accounts before placing the trade. To the extent the Trust is
required by Rules 31a-1 and 31a-2 under the Act to maintain and preserve records
with respect to such tracking, the tracking dealer agrees (pursuant to its
Distributor's Agreement with Lord Abbett) that such records it develops for this
tracking, or copies thereof, are the property of the Trust and the dealer will
surrender the records promptly to the Trust upon request.
As stated in the Prospectus, a 1% CDRC is imposed with respect to those shares
(or Series shares acquired through exchange with any other Trust Series or with
the Lord Abbett U.S. Government Securities Money Market Fund, Inc., as used
herein, the "Lord Abbett Counsel Group") on which a Series has paid, at the time
of purchase, a service fee of .25% and a distribution fee of .75%, if such
shares are redeemed out of the Lord Abbett Counsel Group before the first
anniversary of their original purchase. The CDRC is received by a Series and is
intended to reimburse all or a portion of the amount paid by a Series if the
shares are redeemed before that Series has had an opportunity to realize the
anticipated benefits of having a long-term account in the Series.
No CDRC will be charged on an exchange of shares between the Trust's Series,
although it will be charged on behalf of and paid to the Series in which the
original purchase occurred, if shares subject to the CDRC are redeemed out of
the Trust before the first anniversary of their original purchase. Thus, if
shares of a participating Trust Series are acquired as a result of an exchange
of its shares for those of another such Trust Series and the shares tendered
("Exchanged Shares") will be subject to a CDRC, the CDRC will carry over to the
shares being acquired ("Acquired Shares"). Any CDRC 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 Exchanged
Shares.
In no event will the amount of the CDRC 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 Exchanged Shares for which such shares were acquired). No CDRC will be
imposed when the investor redeems (i) shares with respect to which no Trust
Series paid the .75% distribution and .25% service fees (including shares
acquired through reinvestment of dividend income and capital gains
distributions) or (ii) shares which, together with Exchanged Shares, have been
held continuously until the first anniversary of their original purchase. In
determining whether a CDRC is payable (a) shares not subject to a CDRC will be
redeemed before shares subject to a CDRC and (b) shares subject to a CDRC and
held the longest will be the first to be redeemed.
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 SEC deems an emergency to exist.
Our Board of Trustees may authorize redemption of all of the shares in any
account in which there are fewer than 50 shares. Before authorizing such
redemption, the Trustees will determine that it is in our economic best interest
or necessary to reduce disproportionately burdensome expenses in servicing
shareholder accounts. At least 60 days' prior written notice will be given
before any such redemption, during which time shareholders may avoid redemption
by bringing their accounts up to the minimum set by the Board.
The systematic withdrawal plan also is described in the Prospectus. You may
establish a systematic withdrawal plan if you own or purchase uncertificated
shares having a current net asset value of at least $10,000. The systematic
withdrawal plan involves the planned redemption of shares on a systematic basis
by receiving either fixed or variable amounts at periodic intervals. Withdrawals
before the first anniversary of original share purchase will be subjected to the
1% CDRC described above. Since the value of shares redeemed may be more or less
than their cost, gain or loss may have to be recognized for income tax purposes
on each periodic payment. The systematic withdrawal plan may be terminated by
you or by us at any time by written notice.
Lord Abbett makes available the retirement plan forms and custodial agreements
for IRAs (Individual Retirement Accounts including Simplified Employee
Pensions), 403(b) plans and qualified pension and profit-sharing plans. The
forms name Investors Fiduciary Trust Company as Custodian and contain specific
information about the plans. Explanations of the eligibility requirements,
annual custodial fees, allowable tax advantages and penalties are available from
Lord Abbett. Adoption of any of these plans should be on the advice of your
legal counsel or qualified tax adviser.
The Invest-A-Matic method of investing in the Trust and/or any other Lord
Abbett-sponsored fund is described in the Prospectus. To avail yourself of this
method you must complete the Trust portion of the form, selecting the time and
amount of your bank checking account withdrawals, and the Lord Abbett funds for
investment; include a voided, unsigned check and complete the bank
authorization.
7.
Taxes
The value of any shares redeemed, repurchased or otherwise sold may be more or
less than your tax basis in the shares at the time the redemption, repurchase or
sale is made. Generally, any gain or loss will be taxable for federal income tax
purposes. Any loss realized on the sale, redemption or repurchase of Series
shares which you have held for six months or less will be treated for federal
income tax purposes as a long-term capital loss to the extent of any capital
gains distributions which you received with respect to such shares. Losses on
the sale of Series 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 stock or securities that are substantially identical.
Each Series will be subject to a 4% nondeductible excise tax on certain amounts
not distributed (and not treated as having been distributed) on a timely basis
in accordance with a calendar-year distribution requirement. The Series intend
to distribute to shareholders each year an amount adequate to avoid the
imposition of such excise tax. Dividends paid by the Series will qualify for the
dividends-received deduction for corporations to the extent that they are
derived from dividends paid by domestic corporations.
Gains and losses realized by a Series on certain transactions, including sales
of foreign debt securities, and by the Global Income Trust on certain
transactions involving foreign currency as described above under "Investment
Objectives and Policies", will be treated as ordinary income or loss for federal
income tax purposes to the extent, if any, that such gains or losses are
attributable to changes in exchange rates for foreign currencies. Accordingly,
distributions taxable as ordinary income will include the net amount, if any, of
such foreign exchange gains and will be reduced by the net amount, if any, of
such foreign exchange losses.
Certain of the investment techniques and practices which each Series may
utilize, as described above under "Investment Objectives and Policies," may
create "straddles" for United States federal income tax purposes and may affect
the character and timing of the recognition of gains and losses by a Series.
Such transactions may increase the amount of short-term capital gains realized
by a Series, which is treated as ordinary income when distributed to
shareholders. In particular, a Series will be required for federal income tax
purposes to recognize its investment gains and losses each year-end on certain
futures contracts, options thereon, index options and listed options on debt
securities. Any gain or loss so recognized, generally, is considered to be 60%
long-term and 40% short-term without regard to the holding period. Limitations
imposed by the Internal Revenue Code on regulated investment companies may
restrict a Series' ability to engage in transactions in options and forward
contracts.
TAX-FREE TRUSTS ONLY
- --------------------
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of a Tax-Free Trust may not be deductible, in whole or in part, for federal,
state or city personal income tax purposes. Pursuant to published guidelines,
the Internal Revenue Service may deem indebtedness to have been incurred for the
purpose of acquiring or carrying shares of a Tax- Free Trust even though the
borrowed funds may not be directly traceable to the purchase of Tax-Free Trust
shares. Any loss realized on the sale, redemption or repurchase of Tax-Free
Trust shares which you have held for six months or less will be disallowed for
federal income tax purposes to the extent of any tax-exempt distributions which
you have received on such 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 a Tax-Free Trust.
Certain financial institutions, like other taxpayers, may be denied a federal
income tax deduction for the amount of interest expense allocable to an
investment in a Tax-Free Trust and the deduction for loss reserves available to
property and casualty insurance companies may be reduced by a specified
percentage as a result of their investment in a Tax-Free Trust.
In order to qualify for exemption from state and local personal property taxes
in Florida, the Florida Trust 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." Moreover, as described in the Prospectus,
in order to continue to qualify as a regulated investment company for federal
income tax purposes, each Tax-Free Trust may be required, in some circumstances,
to defer closing out options or futures contracts that it might otherwise be
desirable to close out.
Except as discussed in the Prospectus, the receipt of dividends from the Series
may be subject to tax under laws of state or local tax authorities. You should
consult your tax adviser on state and local tax matters.
GROWTH & INCOME, BOND-DEBENTURE, GLOBAL INCOME AND BALANCED TRUSTS ONLY
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As described in the Prospectus under "Risk Factors", the Growth & Income,
Bond-Debenture, Global Income and Balanced Trusts may be subject to foreign
withholding and other taxes which would reduce the yield on its investments. Tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. If, at the close of any fiscal year, more than 50% of the assets of
such Series consists of stock or securities of foreign corporations, that Series
may elect to treat foreign income taxes paid by it as having been paid directly
by its shareholders. It is expected that the Growth & Income, Bond-Debenture and
Balanced Trusts will not be eligible to make such election. If the Global Income
Trust qualifies for and makes such an election, its shareholders will be
required to (i) include in ordinary gross income (in addition to taxable
dividends actually received) their pro-rata share of foreign income taxes paid
by the Global Income Trust and (ii) treat such pro-rata share as foreign income
taxes paid by them. Such shareholders may then use such pro-rata portion of
foreign income taxes as foreign tax credits, subject to applicable limitations,
or, alternatively, deduct them in computing their taxable income. Shareholders
who do not itemize deductions for federal income tax purposes will not be
entitled to deduct their pro-rata portion of foreign taxes paid by the Global
Income Trust, although such shareholders will be required to include their share
of such taxes in gross income. Shareholders who claim a foreign tax credit for
foreign taxes paid by the Global Income Trust may be required to treat a portion
of dividends received from the Global Income Trust as separate category income
for purposes of computing the limitations on the foreign tax credit. Tax-exempt
shareholders will ordinarily not benefit from this election. Each year that the
Global Income Trust qualifies for and makes the election described above, its
shareholders will be notified of the amount of (i) each shareholder's pro-rata
share of foreign income taxes paid by the Global Income Trust and (ii) the
portion of dividends which represents income from each foreign country.
If Growth & Income, Bond-Debenture, Global Income or Balanced Trusts purchase
shares in certain foreign investment entities, called "passive foreign
investment companies", it may be subject to United States federal income tax on
a portion of any "excess distribution" or gain from the disposition of such
shares, even if such income is distributed as a taxable dividend to its
shareholders. Additional charges in the nature of interest may be imposed on
either Series or its shareholders in respect to deferred taxes arising from such
distributions or gains. If these Series were to invest in a passive foreign
investment company with respect to which any Series elected to make a "qualified
electing fund" election, in lieu of the foregoing requirements, such Series
might be required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing fund, even if such
amount were not distributed to such Series.
ALL SERIES
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to United States persons (United States citizens or residents and
United States domestic corporations, partnerships, trusts and estates). Each
shareholder who is not a United States person should consult his tax adviser
regarding the U.S. and foreign tax consequences of the ownership of shares of a
Series, including a 30% (or lower treaty rate) United States withholding tax on
dividends representing ordinary income and net short-term capital gains, and the
applicability of United States gift and estate taxes to non-United States
persons who own Series shares. Except as discussed in the Prospectus, the
receipt of dividends from a Series may be subject to tax under laws of state or
local authorities. You should consult your tax advisor on state and local tax
matters.
8.
Risk Factors Regarding Investments
in California, New York, Florida and Puerto Rico Municipal Bonds
The following information is a summary of special factors affecting the
jurisdictions listed. It does not purport to be complete and is based upon
information and judgments derived from public documents relating to such
jurisdictions and other historically reliable sources. The Trust has not
verified any of this data.
CALIFORNIA BONDS
Since the California Trust invests primarily in California municipal bonds, it
is affected by any political, economic or regulatory developments affecting the
ability of California issuers to pay interest or repay principal. Certain
provisions of the California Constitution and State statutes which limit the
taxing and spending authority of California governmental entities may impair the
ability of California issuers to maintain debt service on their obligations.
Based on certain recent official statements describing California municipal
bonds and other official statements of the State of California, the following is
a very brief summary of some of the above-mentioned developments.
GENERAL - Recently, California has faced its worst economic, fiscal and budget
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conditions since the 1930s. Construction, manufacturing (especially aerospace),
exports and financial services, among others, have all been severely affected;
agriculture has been hurt by weather conditions. Job losses have been the worst
of any post-war recession and continued through the end of 1993. The Department
of Finance now projects that non-farm employment levels will be stable in 1994
and show modest growth in 1995 but that pre-recession job levels will not be
reached for several more years. Unemployment is expected to remain well above
the National average through 1994. The Department of Finance foresees slow
recovery from the recession in California beginning in 1994. Both the California
and national economic recoveries are much weaker than in previous business
cycles, and could be harmed by several factors, including rising interest rates.
The recession seriously affected State tax revenues, which basically mirror
economic conditions. It also caused increased expenditures for health and
welfare programs. The State also is facing a structural imbalance in its budget
with the largest programs supported by the General Fund -- K-12 schools and
community colleges, health, welfare and corrections -- growing at rates higher
than the growth rates for the principal revenue sources of the General Fund. As
a result, the State experienced recurring budget deficits, with expenditures
exceeding revenues for four of the five fiscal years ending with 1991-92, and
were essentially equal in 1992-93. By June 30, 1994, the State's General Fund
had an accumulated deficit, on a budget basis, of approximately $2 billion.
The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget, and
reduction of available internal borrowable funds, have combined to significantly
deplete the State's cash resources to pay its on going expenses. In order to
meet its cash needs, the State has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. To meet
its cash flow needs in the 1994-95 fiscal year, the State issued, in July and
August, 1994, $4 billion of revenue anticipation warrants which mature on April
25, 1996, and $3 billion of revenue anticipation notes maturing on June 28,
1995.
The 1994-95 Budget Act is projected to have $41.9 billion of General Fund
revenues and transfers and $40.9 billion of budgeted expenditures. In addition,
the 1994-95 Budget Act anticipates deferring retirement of about $1 billion of
the accumulated budget deficit to the 1995-96 fiscal year when it is intended to
be fully retired by June 30, 1996.
On July 15, 1994, all three of the rating agencies rating the State's long-term
debt lowered their ratings of the State's general obligation bonds. Moody's
Investors Service lowered its rating from "Aa" to "A1", Standard & Poor's
Ratings Group lowered its rating from "A+" to "A" and termed its outlook as
"stable", and Fitch Investors Service lowered its rating from "AA" to "A".
On January 17, 1994, an earthquake of the magnitude of an estimated 6.8 on the
Richter Scale struck Los Angeles causing significant damage to public and
private structures and facilities. Although some individuals and businesses
suffered losses totaling in the billions of dollars, the overall effect of the
earthquake on the regional and State economy is not expected to be serious.
ARTICLE XIII B OF THE CALIFORNIA CONSTITUTION. In 1979, California voters
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adopted Article XIII B to the California Constitution, imposing an
appropriations limit (the "Appropriations Limit") on the spending authority of
the State. Article XIII B was modified substantially by Propositions 98 and 111
in 1988 and 1990, respectively. (See "Proposition 98" below.)
Article XIII B prohibits the State from spending "appropriations subject to
limitation" in excess of the Appropriations Limit. "Appropriations subject to
limitation," with respect to the State, are authorizations to spend "proceeds of
taxes," which consist of tax revenues, and certain other funds, including
proceeds from regulatory licenses, user charges or other fees, to the extent
that such proceeds exceed "the cost reasonably borne by that entity in providing
the regulation, product or service," but "proceeds of taxes" exclude most State
subventions to local governments, tax refunds and some benefit payments such as
unemployment insurance. No limit is imposed on appropriations of funds which are
not "proceeds of taxes," such as reasonable user charges or fees and certain
other non-tax funds.
Not included in the Appropriations Limit are appropriations for the debt service
costs of bonds existing or authorized by January 1, 1979 or subsequently
authorized by the voters, appropriations required to comply with mandates of
courts or the federal government and, pursuant to Proposition 111,
appropriations for qualified capital outlay projects and appropriations of
revenues derived from any increase in gasoline taxes and motor vehicle weight
fees above January 1, 1990 levels. In addition, a number of recent initiatives
were structured to create new tax revenues dedicated to certain specific uses,
with such new taxes expressly exempted from the Article XIII B limits (e.g.,
increased cigarette and tobacco taxes enacted by Proposition 98 in 1988). The
Appropriations Limit also may be exceeded in cases of emergency. However, unless
the emergency arises from civil disturbance or natural disaster declared by the
Governor, and the appropriations are approved by two-thirds of the Legislature,
the Appropriations Limit for the succeeding three years must be reduced by the
amount of the excess.
PROPOSITION 98. On November 8, 1988, voters of the State approved Proposition
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98, a combined initiative constitutional amendment and statute called the
"Classroom Instructional Improvement and Accountability Act." Proposition 98
changed State funding of public education below the university level and the
operation of the State Appropriations Limit, primarily by guaranteeing K-14
schools a minimum share of General Fund revenues.
Proposition 98 permits the Legislature, by two-thirds vote of both Houses with
the Governor's concurrence, to suspend the K-14 schools' minimum funding formula
for a one-year period. In the fall of 1989, the Legislature and the Governor
utilized this provision to avoid having 40.3% of revenues generated by a special
supplemental sales tax enacted for earthquake relief go to K-14 schools.
Proposition 98 also contains provisions transferring certain State tax revenues
in excess of the Article XIII B limit to K-14 schools.
The effect of these various constitutional and statutory amendments upon the
ability of California issuers to pay interest and principal on their obligations
remains unclear and in any event may depend upon whether a particular California
Municipal Bond is a general or limited obligation bond (limited obligation bonds
generally being less affected by such changes) and on the type of security, if
any, provided for the bond. It is possible that other measures affecting the
taxing or spending authority of the State of California or its political
subdivisions may be approved or enacted in the future.
NEW YORK BONDS
Circumstances adversely affecting the State's credit rating may directly or
indirectly affect the market value of bonds issued by the State's political
subdivisions and its Authorities to the extent that those entities depend, or
are perceived to depend, upon State financial assistance. Conversely, the fiscal
stability of the State is related to the fiscal stability of New York City and
of the Authorities. The State's experience has been that if New York City or any
of the Authorities suffers serious financial difficulty, the ability of the
State, New York City, the State's political subdivisions and the Authorities to
obtain financing in the public credit markets is adversely affected. This
results, in part, from the expectation that to the extent that any Authority or
local government experiences financial difficulty, it will seek and receive
State financial assistance. Moreover, New York City accounts for a substantial
portion of the State's population and tax receipts, so New York City's financial
integrity affects the State directly. Accordingly, if there should be a default
by New York City or any of the Authorities, the market value and marketability
of all New York State tax-exempt bonds could be adversely affected. This would
have an adverse effect on the net asset value and liquidity of the Series, even
though securities of the defaulting entity may not be held by the Series.
NEW YORK STATE. New York State has experienced a slowdown in the regional and
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State economy in recent years and a severe economic downturn during the national
recession that commenced in mid-1990. The State economy remained in recession
until 1993, when employment growth resumed. Employment growth has been hindered
in recent years by cutbacks in the computer and instrument manufacturing,
utility and defense industries. The State completed its 1992-93 fiscal year with
a balance of $671 million in the tax refund reserve account, and $67 million in
the Tax Stabilization Reserve Fund.
The 1994-95 State Financial Plan, which is based upon the enacted State budget,
projects a balanced General Fund. However, in the September 1994 GAAP-basis
update, the Division of the Budget projected a General fund operating deficit of
$690 million for the 1994-95 fiscal year. However, there can be no assurance
that the State's projections for tax and other receipts for the 1994-95 fiscal
year are not overstated and will not be revised downward, or that disbursements
will not be in excess of the amounts projected. In addition, projections of
State disbursements for future fiscal years may be affected by uncertain factors
relating to the economy of the Nation and the State and the financial condition
of the Authorities, New York City and other localities. In the event that these
factors affect, or are perceived to affect, the State's ability to meet its
financial obligations, the market value and marketability of its bonds also may
be adversely affected.
AUTHORITIES. New York State's Authorities generally are responsible for
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financing, constructing and operating revenue-producing public benefit
facilities. As of September 30, 1993, there were outstanding approximately $63.5
billion aggregate principal amount of bonds and bond anticipation notes issued
by 18 Authorities which either were guaranteed by the State or supported by the
State through lease-purchase or contractual-obligation financing arrangements or
through moral obligation provisions. While principal and interest payments on
outstanding Authority obligations normally are paid from revenues generated by
projects of the Authorities, in the past the State has had to appropriate large
amounts to enable certain Authorities (in particular, the New York State Urban
Development Corporation and the New York State Housing Finance Agency) to meet
their financial obligations. Further assistance to these Authorities may be
required in the future.
The Metropolitan Transportation Authority (the "MTA") oversees the operation of
New York City's bus and subway systems by its affiliates, the New York City
Transit Authority and the Manhattan and Bronx Surface Transit Operating
Authority (collectively, the "TA") and, through subsidiaries, operates certain
commuter rail and bus lines and a rapid transit line on Staten Island. Through
its affiliated agency, the Triborough Bridge and Tunnel Authority (the "TBTA"),
the MTA operates certain intrastate toll bridges and tunnels. The MTA has
depended and will continue to depend upon Federal, State, local government and
TBTA support to operate the mass transit portion of these operations because
fare revenues are insufficient. For the 1994-1995 State fiscal year, total State
assistance to the MTA is estimated at approximately $1.3 billion.
In 1993, State legislation authorized the funding of a $9.56 billion MTA capital
plan for the five-year period, 1992 through 1996 (the "1992-96 Capital
Program"). This is the third five-year plan since the Legislature authorized
procedures for the adoption, approval and amendment of a five year plan in 1981
for a capital program designed to upgrade the performance of the MTA's
transportation systems and to supplement, replace and rehabilitate facilities
and equipment. The MTA, the TBTA and the TA are collectively authorized to issue
an aggregate of $3.1 billion of bonds (net of certain statutory exclusions) to
finance a portion of the 1992-96 Capital Program. The 1992-96 Capital Program is
expected to be financed in significant part through dedication of State
petroleum business taxes referred to above.
There can be no assurance that all necessary governmental actions for the
Capital Program will be taken, that funding sources currently identified will
not be decreased or eliminated, or that the 1992-96 Capital Program, or parts
thereof, will not be delayed or reduced. Furthermore, the power of the MTA to
issue certain bonds expected to be supported by the appropriation of State
petroleum business taxes is currently the subject of a court challenge. If the
Capital Program is delayed or reduced, ridership and fare revenues may decline,
which could, among other things, impair the MTA's ability to meet its operating
expenses without additional State assistance.
THE CITY OF NEW YORK. The fiscal health of the State is closely related to the
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fiscal health of its localities, particularly the City of New York (the "City"),
which has required and continues to require significant financial assistance
from the State.
In response to the City's fiscal crisis in 1975, the State took a number of
steps to assist the City in returning to fiscal stability. Among these actions,
the State created the Municipal Assistance Corporation for the City of New York
("MAC") to provide financing assistance to the City. The State also enacted the
New York State Financial Emergency Act for the City of New York (the "Financial
Emergency Act") which, among other things, established the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs. The State also established the Office of the State Deputy Comptroller
for New York City ("OSDC") in the Office of the State Comptroller to assist the
Control Board in exercising its powers and responsibilities.
The City operates under a four-year Financial Plan which is prepared annually
and is periodically updated. In 1986, the Control Board's powers of approval
over the City's Financial Plan were suspended when certain statutory conditions
were met. However, the Control Board, MAC and OSDC continue to exercise various
monitoring functions relating to the City's financial position and upon the
occurrence of certain events, including, but not limited to, a City operating
budget deficit of more than $100 million, the Control Board is required by law
to impose a Control Period. The City submits its financial plans as well as
periodic updates to the Control Board for its review.
The City requires significant amounts of financing for seasonal and capital
purposes. The City issued $1.75 billion of notes for seasonal financing purposes
during its fiscal year ending June 30, 1994. The City's capital financing
program projects long-term financing requirements of approximately $17 billion
for the City's fiscal years 1995 through 1998. The major capital requirements
include expenditures for the City's water supply and sewage disposal systems,
roads, bridges, mass transit, schools, hospitals and housing.
The City achieved balanced operating results for the 1994 fiscal year.
On October 25, 1994, the City published the Financial Plan for the 1995-1998
fiscal years, which is a proposed modification to a Financial Plan submitted to
the Control Board on July 8, 1994 and which relates to the City, the Board of
Education and the City University of New York.
The City's July 8, 1994 Financial Plan set forth proposed actions for the 1995
fiscal year to close a previously projected gap of approximately $2.3 billion
for the 1995 fiscal year.
The 1995-1998 Financial Plan published on October 25, 1994 reflects actual
receipts and expenditures and changes in forecast revenues and expenditures
since the July Financial Plan and projects revenues and expenditures for the
1995 fiscal year balanced in accordance with GAAP. For the 1995 fiscal year, the
Financial Plan includes actions to offset an additional potential $1.1 billion
budget gap, resulting in part from a $104 million decrease in the $171 million
projected surplus from the 1994 fiscal year to be transferred to the 1995 fiscal
year.
The gap closing measures for the 1995 fiscal year include additional proposed
agency actions aggregating $851 million, which , together with the $1.1 billion
of agency actions proposed in the July Financial Plan, are substantial and may
be difficult to implement.
The Financial Plan also sets forth projections for the 1996 through 1998 fiscal
years and outlines a proposed gap-closing program to close projected gaps of $1
billion, $1.5 billion and $2 billion for the 1996 through 1998 fiscal years,
respectively, after successful implementation of the $1.1 billion gap-closing
program for the 1995 fiscal year.
The City's capital plan for fiscal years 1995 through 1998 contemplates the
issuance of $11.3 billion of general obligation bonds to make capital
investments.
The City's financial plans have been the subject of extensive public comment and
criticism. On October 14, 1994, the City Comptroller issued a report concluding
that the budget gap for the 1995 fiscal year had increased to $1.4 billion, due,
in part, to continuing shortfalls in tax revenues. The City Council and the
Mayor currently disagree as to the steps to take to close the budget gap and the
disagreement is now a subject of litigation.
Although the City has balanced its budget since 1981, estimates of the City's
revenues and expenditures are based on numerous assumptions and are subject to
various uncertainties. If expected Federal or State aid is not forthcoming, if
unforeseen developments in the economy significantly reduce revenues derived
from economically sensitive taxes or necessitate increased expenditures for
public assistance, if the City should negotiate wage increases for its employees
greater than the amounts provided for in the City's Financial Plan or if other
uncertainties materialize that reduce expected revenues or increase projected
expenditures, then, to avoid operating deficits, the City may be required to
implement additional actions, including increases in taxes and reductions in
essential City services. The City also might seek additional assistance from the
State.
OTHER LOCALITIES. Certain localities in addition to the City could have
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financial problems leading to requests for additional State assistance during
the State's 1994-95 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1994-95 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted in
the creation of the Financial Control Board of the City of Yonkers (the "Yonkers
Board") by the State in 1984. The Yonkers Board is charged with overseeing
fiscal affairs of Yonkers. Future actions taken by the Governor or the State
Legislature to assist Yonkers could result in allocation of State resources in
amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term and
long-term borrowing. In 1992, the total indebtedness of all localities in the
State other than the City was approximately $15.7 billion; a small portion
(approximately $71.6 million) of this indebtedness represented borrowing to
finance budgetary deficits and was issued
pursuant to enabling State legislation. State law requires the Comptroller to
review and make recommendations concerning the budgets of those local government
units other than the City authorized by State law to finance deficits during the
period that such deficit financing is outstanding. Seventeen localities had
outstanding indebtedness for deficit financing at the close of their fiscal
years ending 1992.
From time to time, proposed Federal expenditure reductions would reduce, or in
some cases eliminate, Federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within the State could be adversely affected. Localities also face anticipated
and potential problems resulting from certain pending litigation, judicial
decisions and long-range economic trends. The longer range problems of declining
city populations, increasing expenditures, and other economic trends could
adversely affect localities and require increasing State assistance in the
future.
LITIGATION. Certain litigation pending or determined against the State or its
- ----------
officers or employees could have a substantial or long-term adverse effect on
State finances. Among the more significant of these cases are those that
involve: challenges to the State's finance policies, claims challenging
different aspects of the State's social welfare programs, claims of racial
segregation, real property claims, contact and tort claims, and challenges to
funding methods of various retirement systems. In its audited financial
statements for 1992-93 the State estimated its liability for awarded and
anticipated unfavorable judgments at $721 million.
FLORIDA BONDS
The State of Florida is, in terms of population, one of the largest states in
the United States. The State is the fastest growing of the eleven largest
states. Its continuing rapid population growth has increased demand for services
such as education, criminal justice and transportation at the same time that
federally mandated social-service costs have increased. Its population includes
a large proportion of senior citizens who have moved to the State after
retirement. Recently, the share of the State's working age population (18-59) to
total State population was approximately 54%. That share is not expected to
change appreciably into the twenty-first century. Because Florida has a
proportionally greater retirement-age population than the rest of the nation and
the southeast, property income (dividends, interest and rent) and transfer
payments (Social Security and pension benefits, among other sources of income)
are, relatively, a more important source of income.
The services sector is Florida's largest employer. While structurally the
southeast and the nation are endowed with a greater proportion of manufacturing
jobs, which tend to pay higher wages, services jobs have tended to be less
sensitive to business cycle swings. Florida has a concentration of manufacturing
jobs in high-tech and high value-added sectors, such as electrical and
electronic equipment, as well as printing and publishing. These kinds of jobs
have tended to be less cyclical than other forms of manufacturing employment.
Recently, Florida's dependence on the highly cyclical construction and
construction-related manufacturing sectors has declined. This trend is expected
to continue as the State's economy continues to diversify. In addition, tourism
is one of Florida's most important industries. The State's tourism industry over
the years has become more sophisticated, attracting visitors year-round, thus,
to a degree, reducing its seasonality. Moreover, the dollar's depreciation has
helped attract foreign visitors to Florida.
An important element of Florida's economic outlook is the construction sector,
which was severely affected by Hurricane Andrew. Total construction expenditures
are forecasted to increase 15.6% in 1994 and to increase 13.3% next year.
Real personal income in Florida is estimated to increase 5.5% in 1993-94 and
4.7% in 1994-95. Florida's unemployment rate is forecast to be 6.7% in 1993-94
and 6.1% in 1994-95.
As of May 1994, estimated fiscal year 1993-94 General Revenue plus Working
Capital funds available total $13.583 billion, an 8.4% increase over 1992-93.
This amount reflects a transfer of $190 million, out of an estimated $220
million in non-recurring revenue due to Hurricane Andrew, to a hurricane relief
trust fund. The $12.944 billion Estimated Revenues (excluding the Hurricane
Andrew impacts) represent an increase of 7.3% over the previous year's Estimated
Revenues. With effective General Revenue plus Working Capital Fund
appropriations at $13.277 billion, unencumbered reserves at the end of the
fiscal year are estimated at $305.8 million.
In fiscal year 1994-95 estimated General Revenue plus Working Capital funds
available total $14.294 billion, a 5.2% increase over 1993-94. This amount
reflects a transfer of $159 million in non-recurring revenue due to Hurricane
Andrew, to a hurricane relief trust fund. The $13.877 billion in Estimated
Revenue (excluding the Hurricane Andrew impacts) represent a 7.2% increase over
the analogous figure in 1993-94.
Financial operations of the State of Florida, covering all receipts and
expenditures, are maintained through the use of three funds-the General Revenue
Fund, the Trust Funds and the Working Capital Fund. The General Revenue Fund
receives the majority of State tax revenues. Florida's Constitution does not
permit a personal income tax so the State must rely on a sales tax, a more
volatile and unreliable revenue source. The Trust Funds consist of monies
received by the State which under law or a trust agreement are segregated for a
purpose authorized by law. Revenues in the General Reserve Fund which are in
excess of the amount needed to meet appropriations may be transferred to the
Working Capital Fund. The Florida Constitution and Statutes mandate that the
State budget as a whole, and each separate fund within the State budget, be kept
in balance from currently available revenues each State fiscal year.
PUERTO RICO BONDS
The economy of Puerto Rico is dominated by the manufacturing and service
sectors. The manufacturing sector has experienced a basic change over the years
as a result of increased emphasis on higher wage, high technology industries
such as pharmaceuticals, electronics, computers, microprocessors, professional
and scientific instruments and certain high technology machinery and equipment.
Much of the development of the manufacturing sector in Puerto Rico can be
attributed to various federal and Commonwealth tax incentives, most notably
Section 936 of the Internal Revenue Code and the Commonwealth's Industrial
Incentives Program. The service sector, including finance, insurance and real
estate, also plays a major role in the economy. The service sector ranks second
only to manufacturing in contribution to the gross domestic product and leads
all sectors in providing employment. In recent years, the service sector has
experienced significant growth in response to and paralleling the expansion of
the manufacturing sector.
Puerto Rico's economy is closely integrated with that of mainland United States.
During fiscal 1993, approximately 86% of Puerto Rico's exports were to the
United States mainland, which also was the source of approximately 69% of Puerto
Rico's imports. In fiscal 1993, Puerto Rico experienced a $2.5 billion positive
adjusted merchandise trade balance.
Puerto Rico's decade-long economic expansion continued throughout the five-year
period from fiscal 1989 through fiscal 1993, and affected almost every sector of
its economy and resulted in record levels of employment (although Puerto Rico's
unemployment rate has chronically exceeded the average for the United States).
Factors behind this expansion included Commonwealth-sponsored economic
development programs, the relatively stable prices of oil imports, periodic
declines in the exchange value of the United States dollar and the relatively
low cost of borrowing during the period.
Growth in fiscal 1994 will depend on several factors, including the state of the
United States economy and relative stability of the price of oil imports, the
exchange value of the U.S. dollar and the cost of borrowing.
The Constitution of Puerto Rico provides that public debt of the Commonwealth
will constitute a first claim on available Commonwealth revenues. Public debt
includes general obligation bonds and notes of the Commonwealth and any payments
required to be made by the Commonwealth under its guarantees of bonds and notes
issued by its public instrumentalities.
The Constitution of Puerto Rico also provides that direct obligations of the
Commonwealth evidenced by full faith and credit bonds or notes shall not be
issued if the amount of the principal of and interest on such bonds and notes
and on all such bonds and notes theretofore issued which is payable in any
fiscal year, together with any amount paid by the Commonwealth in the preceding
fiscal year on account of bonds or notes guaranteed by the Commonwealth, exceeds
15% of the average annual revenues raised under the provisions of Commonwealth
legislation and covered into the Treasury of Puerto Rico (principally income
taxes, property taxes and excise taxes) in the two fiscal years preceding the
then current fiscal year.
With the approval of the North American Free Trade Agreement by the United
States Congress which is intended to eliminate certain restrictions on trade
between Canada, the United States and Mexico, certain of Puerto Rico's
industries, including those that are lower salaried and labor intensive, may
face increased competition from Mexico. However, Puerto Rico's favorable
investment environment, skilled work force, infrastructure development and tax
structure (especially Section 936) would tend to create expanded trade
opportunities for Puerto Rico in sectors such as pharmaceuticals and
high-technology manufacturing.
9.
Past Performance
Each Series computes its average annual compounded rate of total return during
specified periods that would equate the initial amount invested to the ending
redeemable value of such investment by adding one to the 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 any
applicable distribution or service fees paid or accrued from the initial amount
invested and reinvestment of all income dividends and capital gains
distributions on the reinvestment dates at net asset value. 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 and
deducting any applicable CDRC.
The average annual compounded rates of return for each indicated Series using
the computation method described above for the one year and the life (from
commencement of operations) of such Series, respectively, ending October 31,
1994, were as follows: Government Trust (6.25%) and (from June 1, 1993 - 1.34%),
National Trust (9.02%), and (from October 1, 1993 - 8.06%), California Trust
(10.07%) and (from October 1, 1993 - 9.27%), New York Trust (9.19%) and (from
October 1, 1993 - 8.06%), and Florida Trust (9.44%) and (from October 1, 1993 -
8.52%). The average annual compounded rates of return for each indicated Series
using the same method described above for the life of each Series ending October
31, 1994 (from commencement of operations on December 31, 1993) were as follows:
1.60% (Growth & Income Trust), (2.40%) (Bond-Debenture Trust), (2.90%) (Global
Income Trust), and (4.00%) (Limited Duration Government Trust.)
Each Series' yield quotation is based on a 30-day period ended on a specified
date, computed by dividing a Series' net investment income per share earned
during the period by its net asset value per share on the last day of the
period. This is determined by finding the following quotient: Take a Series'
dividends and interest earned during the period minus its expenses accrued for
the period and divide by the product of (i) the average daily number of Series
shares outstanding during the period that were entitled to receive dividends and
(ii) the Series' net asset value per share on the last day of the period. To
this quotient add one. This sum is multiplied by itself five times. Then one is
subtracted from the product of the multiplication and the remainder is
multiplied by two. For the 30-day period ended October 31, 1994, the yields at
maximum sales charge for the Government, National, California, New York,
Florida, Growth & Income, Bond-Debenture, Global Income, and Limited Duration
Government Trusts are as follows: 4.75%, 5.66%, 5.47%,6.88%, 6.27%.,3.01%,
8.57%, 6.27% and 5.68%, respectively.
The tax-equivalent yield for the National, California, New York and Florida
Trusts is computed by dividing that portion of the Series' yield (as determined
above) which is tax-exempt by one minus a stated income tax rate (National
36.0%; California 42.40%; New York 41.04%; and Florida 36.0%) and adding the
product to that portion, if any, of the Series' yield that is not tax-exempt.
For the 30-day period ended on October 31, 1994, the tax-equivalent yields for
the National, California, New York and Florida Trusts were 8.84%, 9.50% , 11.67%
and 9.80%, respectively.
It is important to remember that any figures developed using the formulas above
represent past performance and an investor should be aware that the investment
return and principal value of a Series investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Therefore, there is no assurance that this performance will be repeated in
the future.
10.
Information About the Trust
Shareholder Liability. Delaware law provides that Series shareholders shall be
entitled to the same limitations of personal liability extended to stockholders
of private corporations for profit. The courts of some states, however, may
decline to apply Delaware law on this point. The Trust's Declaration of Trust
contains an express disclaimer of shareholder liability for the acts,
obligations, or affairs of the Trust or any series and requires that a
disclaimer be given in each contract entered into or executed by the Trust. The
Declaration provides for indemnification out of the Trust's property of any
shareholder or former shareholder held personally liable for the obligations of
the Trust. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which Delaware law does
not apply, no contractual limitation of liability was in effect and the
portfolio is unable to meet its obligations. Lord Abbett believes that, in view
of the above, the risk of personal liability to shareholders is extremely
remote.
General. The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits, and proceeds thereof, subject
only to the rights of creditors, are especially allocated to each series, and
constitute the underlying assets of such series. The underlying assets of each
series are recorded on the books of account of the Trust, and are to be charged
with the liabilities with respect to such series and with a share of the general
expenses of the Trust. Expenses with respect to the Trust are to be allocated in
a manner and on a basis (generally in proportion to relative assets) deemed fair
and equitable by the Trustees. In the event of the dissolution or liquidation of
the Trust, the holders of the shares of each series are entitled to receive as a
class the underlying assets of such series available for distribution.
Under the Fund's Declaration of Trust, the Trustees may, without shareholder
vote, cause the Trust to merge or consolidate into, or sell and convey all or
substantially all of, the assets of the Trust or any series to one or more
trusts, partnerships or corporations, so long as the surviving entity is an
open-end management investment company that will succeed to or assume the
Trust's registration statement. In addition, the Trustees may, without
shareholder vote, cause the Trust to be incorporated under Delaware law.
Derivative actions on behalf of the Trust or any series may be brought only by
shareholders owning not less than 50% of the then outstanding shares of the
Trust or the series, as applicable.
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 account. In engaging
in personal securities transactions, however, such persons are subject to
requirements and restrictions contained in the Trust's Code of Ethics which
complies, in substance, with each of the recommendations of the Investment
Company Institute's Advisory Group on Personal Investing. Among other things,
the Code requires that Lord Abbett partners and employees obtain advance
approval before buying or selling securities, submit confirmations and quarterly
transaction reports, and obtain approval before becoming a director of any
company; and it prohibits such persons from investing in a security seven 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 similar requirements and
restrictions on the independent Trustees of the Trust to the extent contemplated
by the recommendations of such Advisory Group.
11.
Financial Statements
The financial statements for the fiscal half year and fiscal year ended October
31, 1994 and the report of Deloitte &
Touche LLP, independent auditors, on such annual financial statements contained
in the 1994 Annual Report to Shareholders of the Lord Abbett Securities 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.
Appendix
Corporate Bond Ratings
Moody's Investors Service, Inc.'s Corporate Bond Ratings
Aaa - Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. 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 which 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, fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which 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 sometime in the future.
Baa - Bonds which 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.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest-rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Standard & Poor's Corporation's Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and in the majority of instances they
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB-B-CCC-CC-C - Debt rated BB, B, CCC, CC and C is regarded as having
predominately speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation and
'CCC' the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
D - Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Part A - Financial Highlights for the period April 29, 1993
(commencement of operations - Government Trust) to October
31, 1993, the year ended October 31, 1994; the period
October 1, 1993 (commencement of operations - National,
California, New York and Florida Trusts) to October 31,
1993, the year ended October 31, 1994; and the period
December 31, 1993 (commencement of operations - Growth &
Income, Bond-Debenture, Global Income and Limited Duration
Government Trusts) to October 31, 1994.
Part B - Statement of Net Assets at October 31, 1994.
Statement of Operations for the year ended October 31, 1994.
(b) Exhibits -
(1) Form of Registrant's Declaration & Agreement of Trust.***
(2) By-Laws of Registrant.***
(4) Form of Specimen Share Certificate.***
(5) Form of Management Agreement between Registrant and Lord,
Abbett & Co.***
(7)(a) Retirement Plan for Non-interested Person Directors
and Trustees of Lord Abbett Funds.****
(7)(b) Lord Abbett Prototype Retirements Plans***
(1) 401(k)
(2) IRA
(3) 403(b)
(4) Profit-Sharing, and
(5) Money Purchases
(8) Form of Global Custody Agreement***
(10) Opinion of Debevoise & Plimpton.**
(11)(a) Consent of Deloitte & Touche.**
(11)(b) Consent of Debevoise & Plimpton (included in
Exhibit 10).**
(15) Form of Distribution Plan and Agreement pursuant
to Rule 12b-1 under the 1940 Act.***
(16) Total Return and Yield Computation.***
** To be filed with Rule 24f-2 Notice.
*** Previously filed.
**** Incorporated by reference to Post-Effective Amendment No. 7 to
the Registration Statement (on Form N1-A) of Lord Abbett Equity
Fund (File No. 811-6033).
Exhibit items not listed are not applicable.
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Record Holders of Securities
(as of December 2, 1994)
Aggregate -10,809
Government Trust - 6,735
National Trust - 850
California Trust - 225
New York Trust - 138
Florida Trust - 94
Growth & Income - 717
Bond-Debenture - 1,876
Global Income - 174
Limited Duration -
Item 27. Indemnification
The Registrant is a Delaware Business Trust established under
Chapter 38 of Title 12 of the Delaware Code. The Registrant's
Declaration and Instrument of Trust at Section 4.3 relating to
indemnification of Trustees, officers, etc. states the
following.
The Trust shall indemnify each of its Trustees, officers,
employees and agents (including any individual who serves at
its request as director, officer, partner, trustee or the like
of another organization in which it has any interest as a
shareholder, creditor or otherwise) against all liabilities
and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by him or her
in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before
any court or administrative or legislative body in which he or
she may be or may have been involved as a party or otherwise
or with which he or she may be or may have been threatened,
while acting as Trustee or as an officer, employee or agent of
the Trust or the Trustees, as the case may be, or thereafter,
by reason of his or her being or having been such a Trustee,
officer, employee or agent, except with respect to any matter
as to which he or she shall have been adjudicated not to have
acted in good faith in the reasonable belief that his or her
action was in the best interests of the Trust or any Series
thereof. Notwithstanding anything herein to the contrary, if
any matter which is the subject of indemnification hereunder
relates only to one Series (or to more than one but not all of
the Series of the Trust), then the indemnity shall be paid
only out of the assets of the affected Series. No individual
shall be indemnified hereunder against any liability to the
Trust or any Series thereof or the Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her
office. In addition, no such indemnity shall be provided with
respect to any matter disposed of by settlement or a
compromise payment by such Trustee, officer, employee or
agent, pursuant to a consent decree or otherwise, either for
said payment or for any other expenses unless there has been a
determination that such compromise is in the best interests of
the Trust or, if appropriate, of any affected Series thereof
and that such Person appears to have acted in good faith in
the reasonable belief that his or her action was in the best
interests of the Trust or, if appropriate, of any affected
Series thereof, and did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. All
determinations that the applicable standards of conduct have
been met for indemnification hereunder shall be made by (a) a
majority vote of a quorum consisting of disinterested Trustees
who are not parties to the proceeding relating to
indemnification, or (b) if such a quorum is not obtainable or,
even if obtainable, if a majority vote of such quorum so
<PAGE>
directs, by independent legal counsel in a written opinion, or
(c) a vote of Shareholders (excluding Shares owned of record
or beneficially by such individual). In addition, unless a
matter is disposed of with a court determination (i) on the
merits that such Trustee, officer, employee or agent was not
liable or (ii) that such Person was not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, no
indemnification shall be provided hereunder unless there has
been a determination by independent legal counsel in a written
opinion that such Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office.
The Trustees may make advance payments out of the assets of
the Trust or, if appropriate, of the affected Series in
connection with the expense of defending any action with
respect to which indemnification might be sought under this
Section 4.3. The indemnified Trustee, officer, employee or
agent shall give a written undertaking to reimburse the Trust
or the Series in the event it is subsequently determined that
he or she is not entitled to such indemnification and (a) the
indemnified Trustee, officer, employee or agent shall provide
security for his or her undertaking, (b) the Trust shall be
insured against losses arising by reason of lawful advances,
or (c) a majority of a quorum of disinterested Trustees or an
independent legal counsel in a written opinion shall
determine, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the indemnitee ultimately will be found entitled
to indemnification. The rights accruing to any Trustee,
officer, employee or agent under these provisions shall not
exclude any other right to which he or she may be lawfully
entitled and shall inure to the benefit of his or her heirs,
executors, administrators or other legal representatives.
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 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.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Lord, Abbett & Co. acts as investment manager and/or principal
underwriter for sixteen other Lord Abbett open-end investment
companies (of which it is principal underwriter for fifteen),
and as investment adviser to approximately 7,000 private
accounts. 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 except as follows:
John J. Walsh
Trustee
Brooklyn Hospital - Caledonian Hospital
Parkside Avenue and St. Pauls Place
Brooklyn, N.Y.
Item 29. Principal Underwriter
(a) Affiliated Fund, Inc.
Lord Abbett U. S. Government Securities Fund, Inc.
Lord Abbett Bond-Debenture Fund, Inc.
Lord Abbett Value Appreciation Fund, Inc.
Lord Abbett Developing Growth Fund, Inc.
Lord Abbett Tax-Free Income Fund, Inc.
Lord Abbett California Tax-Free Income Fund, Inc.
Lord Abbett Fundamental Value Fund, Inc.
Lord Abbett Government Securities Money Market Fund,
Inc.
Lord Abbett Tax-Free Income Trust
Lord Abbett Global Fund, Inc.
Lord Abbett Equity Fund
Lord Abbett Series Fund, Inc.
Lord Abbett Research Fund, Inc.
Lord Abbett Investment Trust
Investment Adviser
American Skandia Trust
(Lord Abbett Growth and Income Portfolio)
(b) The partners of Lord, Abbett & Co. are:
Name and Principal Positions and Offices
Business Address (1) with Registrant
Ronald P. Lynch Chairman, President and Trustee
Kenneth B. Cutler Vice President & Secretary
Stephen I. Allen Vice President
Daniel E. Carper Vice President
Robert S. Dow Vice President
Thomas S. Henderson Vice President
E. Wayne Nordberg Vice President
John J. Walsh Vice President
(1) Each of the above has a principal business address at 767 Fifth
Avenue, New York, NY 10153
(c) Not applicable
Item 30. Location of Accounts and Records
Registrant maintains the records, required by Rules 31a - 1(a)
and (b), and 31a - 2(a) at its main office.
Lord, Abbett & Co. maintains the records required by Rules 31a -
1(f) and 31a - 2(e) at its main office.
Certain records such as correspondence may be physically
maintained at the main office of the Registrant's Transfer Agent,
Custodian, or Shareholder Servicing Agent within the requirements
of Rule 31a-3.
Item 31. Management Services
None.
Item 32. Undertakings
(c) The Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all the requirements
for effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Registration Statement
and/or any amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on the
15th day of June 1995.
LORD ABBETT SECURITIES TRUST
By /S/ RONALD P. LYNCH
Ronald P. Lynch, Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
NAME TITLE DATE
- ----- ----- ----
Chairman,
/s/ Ronald P. Lynch President & Trustee June 15, 1995
/s/ John J. Gargana, Jr. Vice President & June 15, 1995
Chief Financial Officer
E. Thayer Bigelow Trustee June 15, 1995
/s/ Stewart S. Dixon Trustee June 15, 1995
/s/ Robert S. Dow Trustee June 15, 1995
/s/ John C. Jansing Trustee June 15, 1995
/s/ C. Alan MacDonald Trustee June 15, 1995
/s/ Hansel B. Millican, Jr. Trustee June 15, 1995
/s/ Thomas J. Neff Trustee June 15, 1995
