[Federal Register Volume 63, Number 64 (Friday, April 3, 1998)]
[Notices]
[Pages 16598-16601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8720]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23088; 812-10712]


Lord Abbett Investment Trust, et al.; Notice of Application

March 27, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application under section 12(d)(1)(J) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 12(d)(1)(G)(i)(II) of the Act and pursuant to section 17(d) of 
the Act and rule 17d-1 under the Act.

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Summary of Application

    The order would permit a fund of funds relying on section 
12(d)(1)(G) to make investments in equity and debt securities and would 
permit applicants to enter into certain expense sharing arrangements.

Applicants

    Lord Abbett Investment Trust (``Investment Trust''), Lord Abbett 
Affiliated Fund, Inc. (``Affiliated Fund''), Lord Abbett Bond-Debenture

[[Page 16599]]

Fund, Inc. (``Bond-Debenture Fund''), Lord Abbett Developing Growth 
Fund, Inc. (``Developing Growth Fund''), Lord Abbett Equity Fund, Lord 
Abbett Mid-Cap Value Fund, Inc., Lord Abbett Global Fund, Inc., Lord 
Abbett Securities Trust, Lord Abbett Research Fund, Inc., Lord Abbett 
Tax-Free Income Fund, Inc., Lord Abbett Tax-Free Income Trust, Lord 
Abbett U.S. Government Securities Money Market Fund, Inc. 
(collectively, ``Lord Abbett Funds''), any registered open-end 
management investment company organized in the future, including any 
series thereof, that is part of the same ``group of investment 
companies,'' as defined in section 12(d)(1)(G)(ii) of the Act, as the 
Lord Abbett Funds and is advised by Lord Abbett & Co. (``Lord 
Abbett''), and Lord Abbett.

Filing Dates

    The application was filed on July 1, 1997, and amended on February 
27, 1998. Applicants have agreed to file an amendment during the notice 
period, the substance of which is included in this notice.

Hearing or Notification of Hearing

    An order granting the application will be issued unless the SEC 
orders a hearing. Interested persons may request a hearing by writing 
to the SEC's Secretary and serving the applicants with a copy of the 
request, personally or by mail. Hearing requests should be received by 
the SEC by 5:30 p.m. on April 20, 1998, and should be accompanied by 
proof of service on the applicants, in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the writers' request, the reason for the request, and the 
issues contested. Persons may request notification of a hearing by 
writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, 767 Fifth Avenue, New York, NY 10153.

FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Branch Chief, 
at (202) 942-0564 (Office of Investment Company Regulation, Division of 
Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, 
D.C. 20549 (tel. (202) 942-8090).

Applicant's Representations

    1. Each of the applicants other than Lord Abbett is an open-end 
management investment company registered under the Act. Some of the 
applicants are organized as series companies. Investment Trust 
currently has five series, including the Balanced Series (``Balanced 
Series''). Lord Abbett Securities Trust currently has four series, 
including the Alpha Series (``Alpha Series'') and the International 
Series (``International Series''). The Lord Abbett Research Fund, Inc. 
currently has three series, including the Small-Cap Series (``Small-Cap 
Series'').
    2. Lord Abbett, an investment adviser registered under the 
Investment Advisers Act of 1940, is the investment adviser for each of 
the applicants.
    3. The investment objective of the Balanced Series is to seek 
current income and capital growth. The Balanced Series invests in a 
combination of equity and fixed-income securities. The investment 
objective of the Affiliated Fund is long-term growth of capital and 
income without excessive fluctuations in market value. Normally, the 
Affiliated Fund invests in equity securities of large companies 
(including securities convertible into common stocks), which are 
expected to perform above average with respect to earnings and 
appreciation. The investment objective of the Bond-Debenture Fund is 
high current income by investing primarily in convertible and discount 
debt securities.
    4. To date, the Balanced Series has attempted to achieve its 
investment objective by investing directly in equity and debt 
securities. The Balanced Series now believes it may be preferable to 
achieve its investment objective by investing in the Affiliated Fund 
and the Bond-Debenture Fund. For tax reasons, the Balanced Series 
believes it would be preferable to shift its investments into those 
Funds gradually. Accordingly, any assets that are not invested in the 
Affiliated Fund or the Bond-Debenture Fund will continue to be invested 
directly in portfolio securities.\1\ The Balanced Series expects that 
within the next year, it will be entirely invested in the types of 
securities specified in section 12(d)(1)(G) and thus no longer will 
need to rely on the exemption from section12(d)(1)(G) sought in the 
application.
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    \1\ The Balanced Series will invest in investment companies only 
to the extent contemplated by the requested relief.
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    5. The Alpha Series seeks long-term capital appreciation. 
Currently, the Alpha Series invests in the Developing Growth Fund, the 
International Series, and the Small-Cap Series in reliance on section 
12(d)(1)(G).
    6. Applicants anticipate that in the future one or more registered 
open-end management investment companies that are part of the same 
group of investment companies, as defined in section 12(d)(1)(G)(i)(II) 
of the Act, as the Lord Abbett Funds and are advised by Lord Abbett may 
operate as a fund of funds in reliance on section 12(d)(1)(G). As used 
herein, the term ``Top Fund'' refers to the Balanced Series, the Alpha 
Series, and any other applicant that operates as a fund of funds in 
reliance on section 12(d)(1)(G). The term ``Underlying Fund'' refers to 
the Affiliated Fund, the Bond-Debenture Fund, the Developing Growth 
Fund, the International Series, the Small-Cap Series, and any other 
applicant in which a Top Fund invests. Applicants currently anticipate 
that the existing investment company applicants, other than the 
Balanced Series and the Alpha Series, would be Underlying Funds, rather 
than Top Funds, although applicants cannot foreclose the possibility 
that one or more of the existing investment company applicants other 
than the Balanced Series and the Alpha Series would be Top Funds.
    7. Lord Abbett may charge an advisory fee to the Balanced Series 
with respect to that portion of the assets of the Balanced Series 
invested directly in stocks, bonds and other instruments. With respect 
to the portion of the assets of the Balanced Series invested in the 
Affiliated Fund or the Bond-Debenture Fund (and thus during the period 
the Balanced Series is relying on the relief from section 12(d)(1)), 
Lord Abbett will not charge any advisory fee to the Balanced Series 
except subject to the determination required by condition 2 to the 
application that the fee is based upon services under an investment 
advisory contract that are additional to, rather than duplicative of, 
services provided pursuant to the advisory contracts of the Affiliated 
Fund and the Bond-Debenture Fund.
    8. Both the Affiliated Fund and the Bond-Debenture fund currently 
have five classes of shares, Class A, B, and C shares, and two new 
classes of shares, Class P and Y shares. It is anticipated that the 
Balanced Series will purchase Class Y shares of the Affiliated Fund and 
the Bond-Debenture Fund. Currently, Class Y shares are not subject to 
sales loads (front-end or deferred) or distribution or shareholder 
servicing fees under a rule 12b-1 plan. The Affiliated Fund and the 
Bond-Debenture Fund each anticipate that, under their rule 18f-3 plans, 
only fees under a 12b-1 plan applicable to a specific class (net of any 
contingent deferred sales charge (``CDSC'') paid with respect to shares 
of

[[Page 16600]]

such class and retained by the Fund) will be allocated on a class-
specific basis.
    9. The Balanced Series currently has two classes of shares, Class A 
and C shares. Class A shares are subject to a front-end sales load and 
a plan of distribution under rule 12b-1, but the plan of distribution 
is not currently operative. Class C shares currently are subject to a 
CDSC of 1% for shares redeemed within one year and a plan of 
distribution under rule 12b-1 that authorizes payments to authorized 
institutions of (a) a service fee and a distribution fee, at the time 
shares are sold, not to exceed 0.25 and 0.75 of 1%, respectively, of 
the net asset value of the shares, and (b) at each quarter-end after 
the first anniversary of the sale of the shares, fees for services and 
distribution at annual rates not to exceed 0.25 and 0.75 of 1%, 
respectively, of the average annual net asset value of the shares 
outstanding. Applicants reserve the right to add, delete or change any 
of these sales loads, charges and fees in the future, subject to 
condition 1 to the requested relief and any other provisions or 
limitations of applicable law. Most of the remaining applicants are 
multiple class funds in reliance on rule 18f-3 under the Act.
    10. The Top Funds and the Underlying Funds intent to enter into one 
or more servicing arrangements (each a ``Servicing Arrangement''). The 
Arrangement would provide that each Underlying Fund would bear the 
expenses of the Top Fund (in proportion to the average daily value of 
the Underlying Fund's shares owned by the Top Fund), excluding any 
advisory fees and distribution expenses, provided that the aggregate 
value of the Top Fund expenses borne is less than the value of benefits 
expected to flow to that Underlying Fund as a result of the Top Fund's 
investment therein. The expenses of a Top Fund paid or assumed by an 
Underlying Fund will not be treated as a class-based expense by the 
Underlying Fund. To the extent that applicants enter into a Servicing 
Arrangement, they will do so only in accordance with condition 3 to the 
application.

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
if such securities represent more than 3% of the acquired company's 
outstanding voting stock, more than 5% of the acquiring company's total 
assets, or if such securities, together with the securities of other 
investment companies, represent more than 10% of the acquiring 
company's total assets. Section 12(d)(1)(B) of the Act provides that no 
registered open-end investment company may sell its securities to 
another investment company if the sale will cause the acquiring company 
to own more than 3% of the acquired company's voting stock, or if the 
sale will cause more than 10% of the acquired company's voting stock to 
be owned by investment companies.
    2. Section 12(d)(1)(G) of the Act provides that section 12(d)(1) 
will not apply to securities of an acquired company purchased by an 
acquiring company if: (a) the acquiring company and the acquired 
company are part of the same group of investment companies; (b) the 
acquiring company holds only securities of acquired companies that are 
part of the same group of investment companies, government securities, 
and short-term paper; (c) the aggregate sales loads and distribution-
related fees of the acquiring company and the acquired company are 
limited; and (d) the acquired company has a policy that prohibits it 
from acquiring securities of registered open-end investment companies 
or registered unit investment trusts in reliance on section 13(d)(1)(F) 
or (G).
    3. Applicants request relief from section 12(d)(1)(G)(i)(II) to the 
extent necessary to permit the Balanced Series, the Affiliated Fund, 
and the Bond-Debenture Fund to operate as fund of funds within each 
requirement of section 12(d)(1)(G) of the Act, with the exception of 
the requirement that the Balanced Series limit its investments in 
individual securities to Government securities and short-term paper.
    4. Section 12(d)(1)(J) of the Act provides that the SEC may exempt 
persons or transactions from any provision of section 12(d)(1) if and 
to the extent that the exemption is consistent with the public interest 
and the protection of investors.
    5. Applicants state that the proposed arrangement would comply with 
section 12(d)(1)(G), but for the fact that the Balanced Series, in 
addition to investing in the Underlying Funds, wishes to retain the 
flexibility to invest directly in stocks, bonds and other instruments 
until it has eliminated all unrecognized capital gains in its existing 
portfolio. Applicants expect that the Balanced Series eventually will 
invest only in instruments permitted by section 12(d)(1)(G)(i)(II). 
Applicants submit that the Balanced Series' proposed direct investments 
in securities and other instruments as described in the application do 
not raise any of the concerns that section 12(d)(1) was designed to 
address.
    6. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company, acting as 
principal, from participating in any joint arrangement with the 
investment company unless the SEC has issued an order authorizing the 
arrangement. Applicants state that each of the investment company 
applicants would be deemed to be an affiliated person of each other 
applicant, by virtue of having a common adviser and common officers and 
directors. Consequently, the Servicing Arrangements under which one or 
more of the applicants may pay a portion of the administrative expenses 
of another applicant could be viewed as joint transactions, enterprises 
or arrangements within the meaning of section 17(d) and rule 17d-1.
    7. In determining whether to grant an exemption under rule 17d-1, 
the SEC considers whether the investment company's participation in the 
joint enterprise is consistent with the provision, policies, and 
purposes of the Act, and the extent to which such participation is on a 
basis different from or less advantageous than that of other 
participants.
    8. Applicants state that a Top Fund, by investing its assets in an 
Underlying Fund, enables the Underlying Fund to spread the Underlying 
Fund's expenses over a larger asset base. Applicants further submit 
that the Top Funds are expected to generate benefits or savings for the 
Underlying Funds due to the reduced shareholder servicing expenses that 
result from the reduction in the number of shareholder accounts.
    9. Applicants believe that any Servicing Arrangement would be 
advantageous to each applicant and that the participation of the 
investment companies would not be on a basis less advantageous or 
different from that of any other participants. In particular, 
applicants note that each Underlying Fund would pay a Top Fund's 
expenses only in direct proportion to the average daily value of the 
Underlying Fund's shares owned by the Top Fund to ensure that expenses 
of the Top Fund would be borne proportionately and fairly. In addition, 
applicants state that, prior to an Underlying Fund's entering into a 
Servicing Arrangement, and at least annually thereafter, the board of 
directors of the Underlying Fund, including a majority of directors who 
are not interested persons of the Underlying Fund (the ``Board''), must 
determine that the Servicing Arrangement will result in quantifiable 
benefits to each class of shareholders of

[[Page 16601]]

the Underlying Fund and to the Underlying Fund as a whole that will 
exceed the costs of the Servicing Arrangement borne by each class of 
shareholders of the Underlying Fund and by the Underlying Fund as a 
whole (``Net Benefits''). In making the annual determination, one of 
the factors the Board must consider is the amount of Net Benefits 
actually experienced by each class of shareholders of the Underlying 
Fund and the Underlying Fund as a whole during the preceding year. For 
these reasons, applicants believe that the requested relief meets the 
standards of section 17(d) and rule 17d-1.

Applicants' Conditions

    The applicants agree that any order granting the requested relief 
will be subject to the following conditions:
    1. The Balanced Series, the Affiliated Fund, and the Bond-Debenture 
Fund will comply with section 12(d)(1)(G) of the Act, except for the 
requirement set forth in section 12(d)(1)(G)(i)(II) to the extent that 
the Balanced Series invests in securities as described in the 
application.
    2. Before approving any advisory contract under section 15 of the 
Act, the directors of the Investment Trust, including a majority of the 
directors who are not ``interested persons,'' shall find that the 
advisory fees, if any, charged under such contract are based on 
services provided that are in addition to, rather than duplicative of, 
services provided pursuant to the advisory contracts of the Affiliated 
Fund and the Bond-Debenture Fund. Such finding, and the basis upon 
which the finding was made, will be recorded fully in the minute books 
of the Investment Trust.
    3. Prior to an Underlying Fund's entering into a Servicing 
Arrangement, and at least annually thereafter, the board of directors 
of the Underlying Fund, including a majority of directors who are not 
interested persons of the Underlying Fund (the ``Board''), must 
determine that the Servicing Arrangement will result in quantifiable 
benefits to each class of shareholders of the Underlying Fund and to 
the Underlying Fund as a whole that will exceed the costs of the 
Servicing Arrangement borne by each class of shareholders of the 
Underlying Fund and by the Underlying Fund as a whole (``Net 
Benefits''). In making the annual determination, one of the factors the 
Board must consider is the amount of Net Benefits actually experienced 
by each class of shareholders of the Underlying Fund and the Underlying 
Fund as a whole during the preceding year. The Underlying Fund will 
preserve for a period of not less than six years from the date of a 
Board determination, the first two years in an easily accessible place, 
a record of the determination and the basis and information upon which 
the determination was made. This record will be subject to examination 
by the SEC and its staff.
    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-8720 Filed 4-2-98; 8:45 am]
BILLING CODE 8010-01-M