[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