Lord Abbett Family of Funds and Lord, Abbett & Co. LLC; Notice of Application, 44395-44400 [2016-16038]
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Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Notices
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 13 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
srobinson on DSK5SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form https://www.sec.gov/
rules/sro.shtml); or
• Send an Email to rule-comments@
sec.gov. Please include File No. SR–ISE
Gemini–2016–06 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–ISE Gemini–2016–06. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of ISE Gemini. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
13 15
submissions should refer to File
Number SR–ISE Gemini–2016–06 and
should be submitted by July 28, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–16028 Filed 7–6–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE., Washington, DC
20549–2736.
Extension:
Rule 6a–3, SEC File No. 270–0015, OMB
Control No. 3235–0021.
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) a request for extension of the
previously approved collection of
information provided for in Rule 6a–3
(17 CFR 240.6a–3) under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.) (‘‘Act’’).
Section 6 of the Act sets out a
framework for the registration and
regulation of national securities
exchanges. Under Rule 6a–3, one of the
rules that implements Section 6, a
national securities exchange (or an
exchange exempted from registration
based on limited trading volume) must
provide certain supplemental
information to the Commission,
including any material (including
notices, circulars, bulletins, lists, and
periodicals) issued or made generally
available to members of, or participants
or subscribers to, the exchange. Rule 6a–
3 also requires the exchanges to file
monthly reports that set forth the
volume and aggregate dollar amount of
certain securities sold on the exchange
each month. The information required
to be filed with the Commission
pursuant to Rule 6a–3 is designed to
enable the Commission to carry out its
statutorily mandated oversight functions
and to ensure that registered and
exempt exchanges continue to be in
compliance with the Act.
The Commission estimates that each
respondent makes approximately 12
U.S.C. 78s(b)(2)(B).
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44395
such filings on an annual basis at an
average cost of approximately $20 per
response. Currently, 19 respondents (19
national securities exchanges) are
subject to the collection of information
requirements of Rule 6a–3. The
Commission estimates that the total
burden for all respondents is 114 hours
and $4,560 per year.
Compliance with Rule 6a–3 is
mandatory for registered and exempt
exchanges. Information received in
response to Rule 6a–3 shall not be kept
confidential; the information collected
is public information. As set forth in
Rule 17a–1 (17 CFR 240.17a–1) under
the Act, a national securities exchange
is required to retain records of the
collection of information for at least five
years.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
The public may view background
documentation for this information
collection at the following Web site:
www.reginfo.gov. Comments should be
directed to: (i) Desk Officer for the
Securities and Exchange Commission,
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10102, New Executive
Office Building, Washington, DC 20503,
or by sending an email to: Shagufta_
Ahmed@omb.eop.gov; and (ii) Pamela
Dyson, Director/Chief Information
Officer, Securities and Exchange
Commission, c/o Remi Pavlik-Simon,
100 F Street NE., Washington, DC
20549, or by sending an email to: PRA_
Mailbox@sec.gov. Comments must be
submitted to OMB within 30 days of
this notice.
Dated: June 30, 2016.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–16036 Filed 7–6–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
32167; File No. 812–14502]
Lord Abbett Family of Funds and Lord,
Abbett & Co. LLC; Notice of
Application
June 29, 2016.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order pursuant to (a) section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) granting an exemption from
AGENCY:
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sections 18(f) and 21(b) of the Act; (b)
section 12(d)(1)(J) of the Act granting an
exemption from section 12(d)(1) of the
Act; (c) sections 6(c) and 17(b) of the
Act granting an exemption from sections
17(a)(1), 17(a)(2) and 17(a)(3) of the Act;
and (d) section 17(d) of the Act and rule
17d–1 under the Act to permit certain
joint arrangements.
Summary of the Application:
Applicants request an order that would
permit certain registered open-end
management investment companies to
participate in a joint lending and
borrowing facility.
Applicants: Lord Abbett Affiliated
Fund, Inc., Lord Abbett Bond-Debenture
Fund, Inc., Lord Abbett Developing
Growth Fund, Inc., Lord Abbett Equity
Trust, Lord Abbett Global Fund, Inc.,
Lord Abbett Investment Trust, Lord
Abbett Mid Cap Stock Fund, Inc., Lord
Abbett Municipal Income Fund, Inc.,
Lord Abbett Research Fund, Inc., Lord
Abbett Securities Trust, Lord Abbett
Series Fund, Inc., and Lord Abbett U.S.
Government & Government Sponsored
Enterprises Money Market Fund, Inc.
(collectively, the ‘‘Funds’’), and Lord,
Abbett & Co. LLC (‘‘Lord Abbett’’).
srobinson on DSK5SPTVN1PROD with NOTICES
SUMMARY:
(Division of Investment Management,
Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. Each Fund is organized as a
Maryland corporation or Delaware
statutory trust. Each Fund is registered
under the Act as an open-end
management investment company.
Certain of the Funds consist of multiple
series and all may offer additional series
in the future (such series thereof, each
also a ‘‘Fund’’). Certain of the Funds
either are, or may be, money market
funds that comply with Rule 2a–7 under
the Act (collectively, ‘‘Money Market
Funds’’). Lord Abbett is a Delaware
limited liability company and serves as
the investment adviser to the Funds.1
Lord Abbett and every investment
adviser to the Funds will be registered
as an investment adviser under the
DATES: Filing Dates: The application was Investment Advisers Act of 1940
filed on June 30, 2015, and amended on (‘‘Advisers Act’’).
2. At any particular time, while some
October 9, 2015, June 16, 2016 and June
Funds are lending money to banks or
22, 2016.
Hearing or Notification of Hearing: An other entities by entering into
repurchase agreements, or purchasing
order granting the requested relief will
be issued unless the Commission orders other short-term instruments, other
Funds may need to borrow money from
a hearing. Interested persons may
the same or similar banks for temporary
request a hearing by writing to the
purposes to satisfy redemption requests,
Commission’s Secretary and serving
to cover unanticipated cash shortfalls
applicants with a copy of the request,
such as a trade ‘‘fail’’ in which cash
personally or by mail. Hearing requests
payment for a security sold by a Fund
should be received by the Commission
has been delayed, or for other temporary
by 5:30 p.m. on July 25, 2016, and
purposes. Certain Funds currently have
should be accompanied by proof of
service on the applicants, in the form of a $500 million committed line of credit
with State Street Bank & Trust Company
an affidavit or, for lawyers, a certificate
(‘‘Committed Credit Facility’’) for shortof service. Pursuant to rule 0–5 under
term temporary or emergency purposes,
the Act, hearing requests should state
the nature of the writer’s interest, any
1 Applicants request that the relief apply to any
facts bearing upon the desirability of a
existing and future series of the Funds and any
hearing on the matter, the reason for the other registered open-end management investment
request, and the issues contested.
company or its series that (i) is advised by Lord
Abbett, any successor thereto or any investment
Persons who wish to be notified of a
adviser controlling, controlled by, or under
hearing may request notification by
common control (within the meaning of Section
writing to the Commission’s Secretary.
2(a)(9) of the Act) with Lord Abbett or any
successor thereto (such entities included in the
ADDRESSES: Secretary, U.S. Securities
term ‘‘Lord Abbett’’), and (ii) is part of the same
and Exchange Commission, 100 F Street ‘‘group of investment companies,’’ as defined in
NE., Washington, DC 20549–1090;
Section 12(d)(1)(G)(ii) of the Act, as the Funds (each
also included in the term ‘‘Fund’’). The term
Applicants, c/o Brooke A. Fapohunda,
Esq., Lord, Abbett & Co. LLC, 90 Hudson ‘‘successor’’ is limited to entities that result from a
reorganization into another jurisdiction or a change
Street, Jersey City, NJ 07302.
in the type of business organization. All entities
that currently intend to rely on the requested relief
FOR FURTHER INFORMATION CONTACT:
are named as applicants. Any other entity that
Kaitlin C. Bottock, Senior Counsel, at
subsequently relies on the order will comply with
(202) 551–8658 or Daniele Marchesani,
the terms and conditions set forth in the
application.
Branch Chief, at (202) 551–6821
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including the funding of shareholder
redemptions and trade settlements.
3. When a Fund borrows money
under the Committed Credit Facility, it
would pay interest on the borrowed
cash at a rate that would be higher than
the rate that would be earned by other
(non-borrowing) Funds on investments
in repurchase agreements and other
short-term instruments of the same
maturity as the bank loan. Applicants
assert that this differential represents
the profit earned by the lender on loans
and is not attributable to any material
difference in the credit quality or risk of
such transactions.
4. The Funds seek to enter into master
interfund lending agreements
(‘‘Interfund Lending Agreements’’) with
each other that would permit each Fund
to lend money directly to and borrow
money directly from other Funds
through an interfund facility (‘‘Facility’’)
for temporary purposes (‘‘Interfund
Loan’’). The Money Market Funds
typically will not participate as
borrowers. It is anticipated that, in order
to comply with Rule 2a–7 under the
Act, the Money Market Funds will lend
through the Facility only if the requisite
determinations contemplated by that
Rule have been made by Lord Abbett.
Applicants state that the Facility would
both reduce the Funds’ potential
borrowing costs and enhance the ability
of the lending Funds to earn higher rates
of interest on their short-term loans.
Although the Facility would reduce the
Funds’ need to borrow from banks, the
Funds would be free to establish
committed lines of credit or other
borrowing arrangements with
unaffiliated banks.
5. Applicants anticipate that the
Facility would provide a borrowing
Fund with significant savings at times
when the cash position of the borrowing
Fund is insufficient to meet temporary
cash requirements. This situation could
arise when shareholder redemptions
exceed anticipated volumes and certain
Funds have insufficient cash on hand to
satisfy such redemptions. When the
Funds liquidate portfolio securities to
meet redemption requests, they often do
not receive payment in settlement for up
to three days (or longer for certain
transactions). However, redemption
requests normally are effected
immediately. The Facility would
provide a source of immediate, shortterm liquidity pending settlement of the
sale of portfolio securities.
6. Applicants also anticipate that a
Fund could use the Facility when a sale
of securities ‘‘fails,’’ for example, due to
a delay in the delivery of cash to the
Fund’s custodian or improper delivery
instructions by the broker effecting the
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transaction. ‘‘Sales fails’’ may present a
cash shortfall if the Fund has
undertaken to purchase a security using
the proceeds from securities sold.
Alternatively, the Fund could: (i) ‘‘Fail’’
on its intended purchase due to lack of
funds from the previous sale, resulting
in additional cost to the Fund; or (ii) sell
a security on a same-day settlement
basis, possibly earning a lower return on
the investment. Use of the Facility
under these circumstances would
enable the Fund to have access to
immediate short-term liquidity.
7. While bank borrowings generally
could supply needed cash to cover
unanticipated redemptions and sales
fails, under the Facility, a borrowing
Fund would pay lower interest rates
than the rate that would be available to
the Fund under short-term loans offered
by banks. In addition, Funds making
short-term cash loans directly to other
Funds would earn interest at a rate
higher than they otherwise could obtain
from investing their cash in repurchase
agreements. Thus, applicants assert that
the Facility would benefit both
borrowing and lending Funds.
8. The interest rate to be charged to
the Funds on any Interfund Loan (the
‘‘Interfund Loan Rate’’) would be the
average of the ‘‘Repo Rate’’ and the
‘‘Bank Loan Rate,’’ both as defined
below. The Repo Rate for any day would
be the highest rate available to a lending
Fund from investment in overnight
repurchase agreements with
counterparties approved by the Fund or
Lord Abbett. The Bank Loan Rate for
any day would be calculated by the
Interfund Lending Committee (as
defined below) each day an Interfund
Loan is made according to a formula
established by each Fund’s board of
directors or trustees (‘‘Fund Board’’ and
each such director or trustee, a
‘‘Director’’) that is intended to
approximate the lowest interest rate at
which short-term bank loans would be
available to the Funds. The formula
would be based upon a publicly
available rate (e.g., federal funds plus
100 basis points) or another appropriate
rate reflective of short-term bank loan
rates that could be available to the
Funds and would vary with this rate so
as to reflect changing bank loan rates.
The initial formula and any subsequent
modifications to the formula would be
subject to the approval of each Fund
Board. In addition, each Fund Board
periodically would review the
continuing appropriateness of using the
formula to determine the Bank Loan
Rate, as well as the relationship between
the Bank Loan Rate and current bank
loan rates that would be available to the
Funds.
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9. Certain members of Lord Abbett’s
Operations, Legal and Compliance
Departments would administer the
Facility (‘‘Interfund Lending
Committee’’). No portfolio manager of
any Fund will serve as a member of the
Interfund Lending Committee. The
Facility would be available to any Fund.
On any day on which a Fund intends to
borrow money, the Interfund Lending
Committee would make an Interfund
Loan from a lending Fund to a
borrowing Fund only if the Interfund
Loan Rate is: (i) More favorable to the
lending Fund than the Repo Rate; and
(ii) more favorable to the borrowing
Fund than the Bank Loan Rate. Under
the Facility, the portfolio manager(s) for
each participating Fund could provide
standing instructions to participate
daily as a borrower or lender. The
Interfund Lending Committee on each
business day would collect data on the
uninvested cash and borrowing
requirements of all participating Funds
from the Funds’ custodian. The
Interfund Lending Committee would
allocate loans among borrowing Funds
without any further communication
from a Fund’s portfolio manager(s).
Applicants anticipate that there
typically will be far more available
uninvested cash each day than
borrowing demand. Therefore, after the
Interfund Lending Committee has
allocated cash for Interfund Loans, the
Interfund Lending Committee will
invest any remaining cash in accordance
with the standing instructions of the
portfolio manager(s) or such remaining
amounts will be invested directly by the
Fund’s portfolio manager(s).
10. The Interfund Lending Committee
would allocate borrowing demand and
cash available for lending among the
Funds on what the Interfund Lending
Committee believes to be an equitable
basis, subject to certain administrative
procedures applicable to all Funds, such
as the time of filing requests to
participate, minimum loan lot sizes, and
the need to minimize the number of
transactions and associated
administrative costs. To reduce
transaction costs, each InterFund Loan
normally would be allocated in a
manner intended to minimize the
number of participants necessary to
complete the loan transaction. The
method of allocation and related
administrative procedures would be
approved by each Fund Board,
including a majority of the Directors
who are not ‘‘interested persons’’ of the
Fund, as that term is defined in section
2(a)(19) of the Act (‘‘Independent Fund
Board Members’’), to ensure that both
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44397
borrowing and lending Funds
participate on an equitable basis.
11. The Interfund Lending Committee
would: (i) Monitor the Interfund Loan
Rate and the other terms and conditions
of the loans; (ii) limit the borrowings
and loans entered into by each Fund to
ensure that they comply with the Fund’s
investment policies and limitations; (iii)
ensure equitable treatment of each
Fund; and (iv) make quarterly reports to
each Fund Board concerning any
transactions by the Fund under the
Facility and the Interfund Loan Rate
charged.
12. Lord Abbett, through the Interfund
Lending Committee, would administer
the Facility as a disinterested fiduciary
as part of its duties under the
investment management contract with
each Fund and as part of its duties
under the administrative services
agreement with the Funds, and would
receive no additional fee as
compensation for its services in
connection with the administration of
the Facility. No Fund will pay any
additional fees in connection with the
administration of the Facility (i.e., the
Funds will not pay standard pricing,
record keeping, bookkeeping or
accounting fees in connection with the
Facility).
13. No Fund may participate in the
Facility unless: (i) The Fund has
obtained shareholder approval for its
participation, if such approval is
required by law; (ii) the Fund has fully
disclosed all material information
concerning the Facility in its prospectus
and/or statement of additional
information (‘‘SAI’’); and (iii) the Fund’s
participation in the Facility is consistent
with its investment objectives,
investment limitations and
organizational documents.
14. As part of each Fund Board’s
review of the continuing
appropriateness of a Fund’s
participation in the Facility as required
by condition 14, the Directors of the
Fund, including a majority of the
Independent Fund Board Members, also
will review the process in place to
assess: (i) If the Fund participates as a
lender, any effect its participation may
have on the Fund’s liquidity; and (ii) if
the Fund participates as a borrower,
whether the Fund’s portfolio liquidity is
sufficient to satisfy its obligations under
the Facility along with its other
liquidity needs.
15. In connection with the Facility,
applicants request an order pursuant to
section 6(c) of the Act exempting them
from the provisions of sections 18(f) and
21(b) of the Act; pursuant to section
12(d)(1)(J) of the Act exempting them
from section 12(d)(1) of the Act;
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srobinson on DSK5SPTVN1PROD with NOTICES
pursuant to sections 6(c) and 17(b) of
the Act exempting them from sections
17(a)(1), 17(a)(2), and 17(a)(3) of the Act;
and pursuant to section 17(d) of the Act
and rule 17d–1 under the Act to permit
certain joint arrangements.
Applicants’ Legal Analysis
1. Section 17(a)(3) of the Act generally
prohibits any affiliated person of a
registered investment company, or any
affiliated person of such a person, from
borrowing money or other property from
the registered investment company.
Section 21(b) of the Act generally
prohibits any registered management
company from lending money or other
property to any person, directly or
indirectly, if that person controls or is
under common control with that
company. Section 2(a)(3)(C) of the Act
defines an ‘‘affiliated person’’ of another
person, in part, to be any person directly
or indirectly controlling, controlled by,
or under common control with, such
other person. Section 2(a)(9) of the Act
defines ‘‘control’’ as the ‘‘power to
exercise a controlling influence over the
management or policies of a company,’’
but excludes circumstances in which
‘‘such power is solely the result of an
official position with such company.’’
Applicants state that the Funds may be
under common control by virtue of
having Lord Abbett as their common
investment adviser and/or by having
common officers, directors and/or
trustees.
2. Section 6(c) of the Act provides that
an exemptive order may be granted
where an exemption is necessary or
appropriate in the public interest and
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act. Section 17(b) of the Act
authorizes the Commission to grant an
order exempting a proposed transaction
from section 17(a) provided that: (i) The
terms of the transaction, including the
consideration to be paid or received, are
fair and reasonable and do not involve
overreaching on the part of any person
concerned; (ii) the transaction is
consistent with the policy of the
investment company as recited in its
registration statement and reports filed
under the Act; and (iii) the transaction
is consistent with the general purposes
of the Act. Applicants believe that the
proposed arrangements satisfy these
standards for the reasons discussed
below.
3. Applicants assert that sections
17(a)(3) and 21(b) of the Act were
intended to prevent a party with strong
potential adverse interests to, and some
influence over the investment decisions
of, a registered investment company
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from causing or inducing the investment
company to engage in lending
transactions that unfairly inure to the
benefit of such party and that are
detrimental to the best interests of the
investment company and its
shareholders. Applicants assert that the
Facility transactions do not raise these
concerns because: (i) Lord Abbett,
through the Interfund Lending
Committee, would administer the
program as a disinterested fiduciary as
part of its duties under the investment
management contract with each Fund
and as part of its duties under the
administrative services agreement with
the Funds; (ii) all Interfund Loans
would consist only of uninvested cash
reserves that the lending Fund
otherwise would invest in short-term
repurchase agreements or other shortterm instruments; (iii) the Interfund
Loans would not involve a significantly
greater risk than other such investments;
(iv) the lending Fund would earn
interest at a rate higher than it could
otherwise obtain through such other
investments; and (v) the borrowing
Fund would pay interest at a rate lower
than otherwise available to it under its
bank loan agreements. Moreover,
applicants assert that the other terms
and conditions that applicants propose
also would effectively preclude the
possibility of any Fund obtaining an
undue advantage over any other Fund.
4. Section 17(a)(1) of the Act generally
prohibits any affiliated person of a
registered investment company, or any
affiliated person of such a person, from
selling securities or other property to
the investment company. Section
17(a)(2) of the Act generally prohibits
any affiliated person of a registered
investment company, or any affiliated
person of such a person, from
purchasing securities or other property
from the investment company. Section
12(d)(1) of the Act generally prohibits
any registered investment company
from purchasing or otherwise acquiring
any security issued by any other
investment company except in
accordance with the limitations set forth
in that section.
5. Applicants state that the obligation
of a borrowing Fund to repay an
Interfund Loan could be deemed to
constitute a security for the purposes of
sections 17(a)(1) and 12(d)(1) of the Act.
Applicants also state that a pledge of
assets in connection with an Interfund
Loan could be construed as a purchase
of the borrowing Fund’s securities or
other property for purposes of section
17(a)(2) of the Act. Section 12(d)(1)(J) of
the Act provides that the Commission
may exempt persons or transactions
from any provision of section 12(d)(1) if
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and to the extent that such exemption
is consistent with the public interest
and the protection of investors.
Applicants contend that the standards
under sections 6(c), 17(b), and
12(d)(1)(J) are satisfied for all the
reasons set forth above in support of
their request for relief from sections
17(a)(3) and 21(b) and for the reasons
discussed below. Applicants also state
that the requested relief from section
17(a)(2) of the Act meets the standards
of section 6(c) and 17(b) because any
collateral pledged to secure an Interfund
Loan would be subject to the same
conditions imposed by any other lender
to a Fund that imposes conditions on
the quality of or access to collateral for
a borrowing (if the lender is another
Fund) or the same or better conditions
(in any other circumstance).
6. Applicants state that section
12(d)(1) was intended to prevent the
pyramiding of investment companies in
order to avoid imposing on investors
additional and duplicative costs and
fees attendant upon multiple layers of
investments. Applicants submit that the
Facility does not involve these abuses.
Applicants note that there will be no
duplicative costs or fees to the Funds or
their shareholders, and that Lord Abbett
will receive no additional compensation
for its services in administering the
Facility. Applicants also note that the
purpose of the Facility is to provide
economic benefits for all the
participating Funds and their
shareholders.
7. Section 18(f)(1) of the Act prohibits
any open-end investment company from
issuing any senior security except that
any such company is permitted to
borrow from any bank, provided, that
immediately after the borrowing, there
is asset coverage of at least 300 per
centum for all borrowings of the
company. Under section 18(g) of the
Act, the term ‘‘senior security’’ generally
includes any bond, debenture, note or
similar obligation or instrument
constituting a security and evidencing
indebtedness. Applicants request
exemptive relief under section 6(c) from
section 18(f)(1) to the limited extent
necessary to permit a Fund to borrow
directly from other Funds.
8. Applicants believe that granting
relief under section 6(c) is appropriate
because the Funds would remain
subject to the requirement of section
18(f)(1) that all borrowings of a Fund,
including combined interfund and bank
borrowings, have at least 300% asset
coverage. Based on the conditions and
safeguards described in the application,
applicants also submit that to allow the
Funds to borrow from other Funds
pursuant to the Facility is consistent
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with the purposes and policies of
section 18(f)(1).
9. Section 17(d) of the Act and rule
17d-1 under the Act generally prohibit
any affiliated person of a registered
investment company, or any affiliated
person of such a person, when acting as
principal, from effecting any transaction
in which the investment company is a
joint or joint and several participant,
unless, upon application, the
transaction has been approved by the
Commission. Rule 17d-1(b) under the
Act provides that in passing upon an
application filed under the rule, the
Commission will consider whether the
participation of the registered
investment company in a joint
enterprise, joint arrangement, or profitsharing plan on the basis proposed is
consistent with the provisions, 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 the other participants.
10. Applicants assert that the purpose
of section 17(d) is to avoid overreaching
by and unfair advantage to insiders.
Applicants assert that the Facility is
consistent with the provisions, policies
and purposes of the Act in that it offers
both reduced borrowing costs and
enhanced returns on loaned funds to all
participating Funds and their
shareholders. Applicants note that each
Fund would have an equal opportunity
to borrow and lend on equal terms
consistent with its investment policies
and limitations. Applicants assert that
each Fund’s participation in the Facility
would be on terms that are no different
from or less advantageous than that of
other participating Funds.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. The Interfund Loan Rate will be the
average of the Repo Rate and the Bank
Loan Rate.
2. On each business day, the Interfund
Lending Committee will compare the
Bank Loan Rate with the Repo Rate and
will make cash available for Interfund
Loans only if the Interfund Loan Rate is:
(i) More favorable to the lending Fund
than the Repo Rate and (ii) more
favorable to the borrowing Fund than
the Bank Loan Rate.
3. If a Fund has outstanding bank
borrowings, any Interfund Loans to the
Fund: (i) Will be at an interest rate equal
to or lower than the interest rate of any
outstanding bank loan; (ii) will be
secured at least on an equal priority
basis with at least an equivalent
percentage of collateral to loan value as
any outstanding bank loan that requires
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17:23 Jul 06, 2016
Jkt 238001
collateral; (iii) will have a maturity no
longer than any outstanding bank loan
(and in any event not over seven days);
and (iv) will provide that, if an event of
default by the Fund occurs under any
agreement evidencing an outstanding
bank loan to the Fund, that event of
default will automatically (without need
for action or notice by the lending Fund)
constitute an immediate event of default
under the Interfund Lending Agreement
entitling the lending Fund to call the
Interfund Loan (and exercise all rights
with respect to any collateral) and that
such call will be made if the lending
bank exercises its right to call its loan
under its agreement with the borrowing
Fund.
4. A Fund may make an unsecured
borrowing through the Facility if its
outstanding borrowings from all sources
immediately after the interfund
borrowing total 10% or less of its total
assets, provided that if the Fund has a
secured loan outstanding from any other
lender, including but not limited to
another Fund, the Fund’s interfund
borrowing will be secured on at least an
equal priority basis with at least an
equivalent percentage of collateral to
loan value as any outstanding loan that
requires collateral. If a Fund’s total
outstanding borrowings immediately
after an interfund borrowing would be
greater than 10% of its total assets, the
Fund may borrow through the Facility
only on a secured basis. A Fund may
not borrow through the Facility or from
any other source if its total outstanding
borrowings immediately after such
borrowing would be more than 33 1/3%
of its total assets.
5. Before any Fund that has
outstanding interfund borrowings may,
through additional borrowings, cause its
outstanding borrowings from all sources
to exceed 10% of its total assets, the
Fund must first secure each outstanding
Interfund Loan by the pledge of
segregated collateral with a market
value at least equal to 102% of the
outstanding principal value of the loan.
If the total outstanding borrowings of a
Fund with outstanding Interfund Loans
exceed 10% of its total assets for any
other reason (such as a decline in net
asset value or because of shareholder
redemptions), the Fund will within one
business day thereafter: (i) Repay all its
outstanding Interfund Loans; (ii) reduce
its outstanding indebtedness to 10% or
less of its total assets; or (iii) secure each
outstanding Interfund Loan by the
pledge of segregated collateral with a
market value at least equal to 102% of
the outstanding principal value of the
loan until the Fund’s total outstanding
borrowings cease to exceed 10% of its
total assets, at which time the collateral
PO 00000
Frm 00142
Fmt 4703
Sfmt 4703
44399
called for by this condition (5) shall no
longer be required. Until each Interfund
Loan that is outstanding at any time that
a Fund’s total outstanding borrowings
exceed 10% is repaid or the Fund’s total
outstanding borrowings cease to exceed
10% of its total assets, the Fund will
mark the value of the collateral to
market each day and will pledge such
additional collateral as is necessary to
maintain the market value of the
collateral that secures each outstanding
Interfund Loan at least equal to 102% of
the outstanding principal value of the
Interfund Loan.
6. No Fund may lend to another Fund
through the Facility if the loan would
cause its aggregate outstanding loans
through the Facility to exceed 15% of
the lending Fund’s current net assets at
the time of the loan.
7. A Fund’s Interfund Loans to any
one Fund shall not exceed 5% of the
lending Fund’s net assets.
8. The duration of Interfund Loans
will be limited to the time required to
receive payment for securities sold, but
in no event more than seven days. Loans
effected within seven days of each other
will be treated as separate loan
transactions for purposes of this
condition.
9. A Fund’s borrowings through the
Facility, as measured on the day when
the most recent loan was made, will not
exceed the greater of 125% of the
Fund’s total net cash redemptions for
the preceding seven calendar days or
102% of the Fund’s sales fails for the
preceding seven calendar days.
10. Each Interfund Loan may be called
on one business day’s notice by a
lending Fund and may be repaid on any
day by a borrowing Fund.
11. A Fund’s participation in the
Facility must be consistent with its
investment objectives, investment
limitations, and organizational
documents.
12. The Interfund Lending Committee
will calculate total Fund borrowing and
lending demand through the Facility,
and allocate loans on an equitable basis
among the Funds, without the
intervention of a Fund’s portfolio
manager(s). The Interfund Lending
Committee will not solicit cash for the
Facility from any Fund or prospectively
publish or disseminate loan demand
data to any portfolio manager. The
Interfund Lending Committee will
invest any amounts remaining after
satisfaction of borrowing demand in
accordance with the standing
instructions of the portfolio manager(s)
or such remaining amounts will be
invested directly by the Fund’s portfolio
manager(s).
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Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Notices
13. The Interfund Lending Committee
will monitor the Interfund Loan Rates
charged and the other terms and
conditions of the Interfund Loans and
will make a quarterly report to each
Fund Board concerning the
participation of the Funds in the
Facility and the terms and other
conditions of any extensions of credit
under the Facility.
14. Each Fund Board, including a
majority of the Independent Fund Board
Members, will:
(a) review, no less frequently than
quarterly, the relevant Fund’s
participation in the Facility during the
preceding quarter for compliance with
the conditions of any order permitting
such transactions;
(b) establish the Bank Loan Rate
formula used to determine the interest
rate on Interfund Loans and review, no
less frequently than annually, the
continuing appropriateness of the Bank
Loan Rate formula; and
(c) review, no less frequently than
annually, the continuing
appropriateness of the relevant Fund’s
participation in the Facility.
15. In the event an Interfund Loan is
not paid according to its terms and such
default is not cured within two business
days from its maturity or from the time
the lending Fund makes a demand for
payment under the provisions of the
Interfund Lending Agreement, Lord
Abbett promptly will refer such loan for
arbitration to an independent arbitrator
selected by each Fund Board involved
in the loan who will serve as arbitrator
of disputes concerning Interfund
Loans.2 The arbitrator will resolve any
problem promptly, and the arbitrator’s
decision will be binding on both Funds.
The arbitrator will submit, at least
annually, a written report to each Fund
Board setting forth a description of the
nature of any dispute and the actions
taken by the Funds involved to resolve
the dispute.
16. Each Fund will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any transaction by it under the
Facility occurred, the first two years in
an easily accessible place, written
records of all such transactions setting
forth a description of the terms of the
transactions, including the amount, the
maturity, and the Interfund Loan Rate,
the rate of interest available at the time
the Interfund Loan is made on overnight
repurchase agreements and bank
borrowings, and such other information
2 If the dispute involves Funds with different
Fund Boards, the respective Fund Boards will select
an independent arbitrator that is satisfactory to each
Fund.
VerDate Sep<11>2014
17:23 Jul 06, 2016
Jkt 238001
presented to the Fund Board in
connection with the review required by
conditions (13) and (14).
17. The Interfund Lending Committee
will prepare and submit to each Fund
Board for review an initial report
describing the operations of the Facility
and the procedures to be implemented
to ensure that all Funds are treated
fairly. After the commencement of the
Facility, the Interfund Lending
Committee will provide quarterly
reports on the operations of the Facility
to each Fund Board. Each Fund’s chief
compliance officer, as defined in Rule
38a-1(a)(4) under the Act (a ‘‘Fund
CCO’’), shall prepare an annual report
for its Fund Board for each year that the
Fund participates in the Facility, which
report evaluates the Fund’s compliance
with the terms and conditions of the
application and the procedures
established to achieve such compliance.
Additionally, each Fund CCO will
also annually file a certification
pursuant to Item 77Q3 of Form N–SAR,
as such Form may be revised, amended,
or superseded from time to time (‘‘N–
SAR’’), for each year that the Fund
participates in the Facility, that certifies
that the Fund and Lord Abbett have
established procedures reasonably
designed to achieve compliance with
the terms and conditions of the order. In
particular, the certification will address
procedures designed to achieve the
following objectives:
(a) That the Interfund Loan Rate will
be higher than the Repo Rate, but lower
than the Bank Loan Rate;
(b) compliance with the collateral
requirements as set forth in the
application;
(c) compliance with the percentage
limitations on interfund borrowing and
lending;
(d) allocation of interfund borrowing
and lending demand in an equitable
manner and in accordance with
procedures established by the Fund
Board; and
(e) that the interest rate on any
Interfund Loan does not exceed the
interest rate on any third-party
borrowings of a borrowing Fund at the
time of the Interfund Loan.
Additionally, each Fund’s
independent registered public
accountants, in connection with their
audit examination of the Fund, will
review the operation of the Facility for
compliance with the conditions of the
application and their review will form
the basis, in part, of the auditor’s report
on internal accounting controls in Form
N–SAR.
18. No Fund will participate in the
Facility upon receipt of the requisite
regulatory and shareholder approval
PO 00000
Frm 00143
Fmt 4703
Sfmt 4703
unless it has fully disclosed in its
prospectus and/or SAI all material facts
about its intended participation.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–16038 Filed 7–6–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78223; File No. SR–
NASDAQ–2016–013]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Amendment No. 2 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment No. 2, To Require Listed
Companies to Publicly Disclose
Compensation or Other Payments by
Third Parties to Board of Director’s
Members or Nominees
July 1, 2016.
I. Introduction
On March 15, 2016, The Nasdaq Stock
Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’ or
‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
require listed companies to publicly
disclose compensation or other
payments by third parties to board of
director’s members or nominees for
director. The proposed rule change was
published for comment in the Federal
Register on April 5, 2016.3 On May 18,
2016, Nasdaq filed Amendment No. 1 to
the proposal.4 On May 20, 2016, the
Commission extended the time period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 On June 30,
2016, Nasdaq withdrew Amendment
No. 1 and filed Amendment No. 2 to the
proposal, which replaced and
superseded the original proposal in its
1 15
U.S.C.78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 77481
(Mar. 30, 2016), 81 FR 19678 (‘‘Notice’’).
4 See Letter to Brent J. Fields, Secretary,
Commission, from David Strandberg, Associate Vice
President, Nasdaq dated May 18, 2016.
5 See Securities Exchange Act Release No. 77879
(May 20, 2016), 81 FR 33571 (May 26, 2016).
2 17
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Agencies
[Federal Register Volume 81, Number 130 (Thursday, July 7, 2016)]
[Notices]
[Pages 44395-44400]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16038]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 32167; File No. 812-14502]
Lord Abbett Family of Funds and Lord, Abbett & Co. LLC; Notice of
Application
June 29, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order pursuant to (a) section
6(c) of the Investment Company Act of 1940 (``Act'') granting an
exemption from
[[Page 44396]]
sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act
granting an exemption from section 12(d)(1) of the Act; (c) sections
6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1),
17(a)(2) and 17(a)(3) of the Act; and (d) section 17(d) of the Act and
rule 17d-1 under the Act to permit certain joint arrangements.
-----------------------------------------------------------------------
SUMMARY: Summary of the Application: Applicants request an order that
would permit certain registered open-end management investment
companies to participate in a joint lending and borrowing facility.
Applicants: Lord Abbett Affiliated Fund, Inc., Lord Abbett Bond-
Debenture Fund, Inc., Lord Abbett Developing Growth Fund, Inc., Lord
Abbett Equity Trust, Lord Abbett Global Fund, Inc., Lord Abbett
Investment Trust, Lord Abbett Mid Cap Stock Fund, Inc., Lord Abbett
Municipal Income Fund, Inc., Lord Abbett Research Fund, Inc., Lord
Abbett Securities Trust, Lord Abbett Series Fund, Inc., and Lord Abbett
U.S. Government & Government Sponsored Enterprises Money Market Fund,
Inc. (collectively, the ``Funds''), and Lord, Abbett & Co. LLC (``Lord
Abbett'').
DATES: Filing Dates: The application was filed on June 30, 2015, and
amended on October 9, 2015, June 16, 2016 and June 22, 2016.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on July 25, 2016, and should be accompanied by proof of
service on the applicants, in the form of an affidavit or, for lawyers,
a certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090; Applicants, c/o Brooke A.
Fapohunda, Esq., Lord, Abbett & Co. LLC, 90 Hudson Street, Jersey City,
NJ 07302.
FOR FURTHER INFORMATION CONTACT: Kaitlin C. Bottock, Senior Counsel, at
(202) 551-8658 or Daniele Marchesani, Branch Chief, at (202) 551-6821
(Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Applicants' Representations
1. Each Fund is organized as a Maryland corporation or Delaware
statutory trust. Each Fund is registered under the Act as an open-end
management investment company. Certain of the Funds consist of multiple
series and all may offer additional series in the future (such series
thereof, each also a ``Fund''). Certain of the Funds either are, or may
be, money market funds that comply with Rule 2a-7 under the Act
(collectively, ``Money Market Funds''). Lord Abbett is a Delaware
limited liability company and serves as the investment adviser to the
Funds.\1\ Lord Abbett and every investment adviser to the Funds will be
registered as an investment adviser under the Investment Advisers Act
of 1940 (``Advisers Act'').
---------------------------------------------------------------------------
\1\ Applicants request that the relief apply to any existing and
future series of the Funds and any other registered open-end
management investment company or its series that (i) is advised by
Lord Abbett, any successor thereto or any investment adviser
controlling, controlled by, or under common control (within the
meaning of Section 2(a)(9) of the Act) with Lord Abbett or any
successor thereto (such entities included in the term ``Lord
Abbett''), and (ii) is part of the same ``group of investment
companies,'' as defined in Section 12(d)(1)(G)(ii) of the Act, as
the Funds (each also included in the term ``Fund''). The term
``successor'' is limited to entities that result from a
reorganization into another jurisdiction or a change in the type of
business organization. All entities that currently intend to rely on
the requested relief are named as applicants. Any other entity that
subsequently relies on the order will comply with the terms and
conditions set forth in the application.
---------------------------------------------------------------------------
2. At any particular time, while some Funds are lending money to
banks or other entities by entering into repurchase agreements, or
purchasing other short-term instruments, other Funds may need to borrow
money from the same or similar banks for temporary purposes to satisfy
redemption requests, to cover unanticipated cash shortfalls such as a
trade ``fail'' in which cash payment for a security sold by a Fund has
been delayed, or for other temporary purposes. Certain Funds currently
have a $500 million committed line of credit with State Street Bank &
Trust Company (``Committed Credit Facility'') for short-term temporary
or emergency purposes, including the funding of shareholder redemptions
and trade settlements.
3. When a Fund borrows money under the Committed Credit Facility,
it would pay interest on the borrowed cash at a rate that would be
higher than the rate that would be earned by other (non-borrowing)
Funds on investments in repurchase agreements and other short-term
instruments of the same maturity as the bank loan. Applicants assert
that this differential represents the profit earned by the lender on
loans and is not attributable to any material difference in the credit
quality or risk of such transactions.
4. The Funds seek to enter into master interfund lending agreements
(``Interfund Lending Agreements'') with each other that would permit
each Fund to lend money directly to and borrow money directly from
other Funds through an interfund facility (``Facility'') for temporary
purposes (``Interfund Loan''). The Money Market Funds typically will
not participate as borrowers. It is anticipated that, in order to
comply with Rule 2a-7 under the Act, the Money Market Funds will lend
through the Facility only if the requisite determinations contemplated
by that Rule have been made by Lord Abbett. Applicants state that the
Facility would both reduce the Funds' potential borrowing costs and
enhance the ability of the lending Funds to earn higher rates of
interest on their short-term loans. Although the Facility would reduce
the Funds' need to borrow from banks, the Funds would be free to
establish committed lines of credit or other borrowing arrangements
with unaffiliated banks.
5. Applicants anticipate that the Facility would provide a
borrowing Fund with significant savings at times when the cash position
of the borrowing Fund is insufficient to meet temporary cash
requirements. This situation could arise when shareholder redemptions
exceed anticipated volumes and certain Funds have insufficient cash on
hand to satisfy such redemptions. When the Funds liquidate portfolio
securities to meet redemption requests, they often do not receive
payment in settlement for up to three days (or longer for certain
transactions). However, redemption requests normally are effected
immediately. The Facility would provide a source of immediate, short-
term liquidity pending settlement of the sale of portfolio securities.
6. Applicants also anticipate that a Fund could use the Facility
when a sale of securities ``fails,'' for example, due to a delay in the
delivery of cash to the Fund's custodian or improper delivery
instructions by the broker effecting the
[[Page 44397]]
transaction. ``Sales fails'' may present a cash shortfall if the Fund
has undertaken to purchase a security using the proceeds from
securities sold. Alternatively, the Fund could: (i) ``Fail'' on its
intended purchase due to lack of funds from the previous sale,
resulting in additional cost to the Fund; or (ii) sell a security on a
same-day settlement basis, possibly earning a lower return on the
investment. Use of the Facility under these circumstances would enable
the Fund to have access to immediate short-term liquidity.
7. While bank borrowings generally could supply needed cash to
cover unanticipated redemptions and sales fails, under the Facility, a
borrowing Fund would pay lower interest rates than the rate that would
be available to the Fund under short-term loans offered by banks. In
addition, Funds making short-term cash loans directly to other Funds
would earn interest at a rate higher than they otherwise could obtain
from investing their cash in repurchase agreements. Thus, applicants
assert that the Facility would benefit both borrowing and lending
Funds.
8. The interest rate to be charged to the Funds on any Interfund
Loan (the ``Interfund Loan Rate'') would be the average of the ``Repo
Rate'' and the ``Bank Loan Rate,'' both as defined below. The Repo Rate
for any day would be the highest rate available to a lending Fund from
investment in overnight repurchase agreements with counterparties
approved by the Fund or Lord Abbett. The Bank Loan Rate for any day
would be calculated by the Interfund Lending Committee (as defined
below) each day an Interfund Loan is made according to a formula
established by each Fund's board of directors or trustees (``Fund
Board'' and each such director or trustee, a ``Director'') that is
intended to approximate the lowest interest rate at which short-term
bank loans would be available to the Funds. The formula would be based
upon a publicly available rate (e.g., federal funds plus 100 basis
points) or another appropriate rate reflective of short-term bank loan
rates that could be available to the Funds and would vary with this
rate so as to reflect changing bank loan rates. The initial formula and
any subsequent modifications to the formula would be subject to the
approval of each Fund Board. In addition, each Fund Board periodically
would review the continuing appropriateness of using the formula to
determine the Bank Loan Rate, as well as the relationship between the
Bank Loan Rate and current bank loan rates that would be available to
the Funds.
9. Certain members of Lord Abbett's Operations, Legal and
Compliance Departments would administer the Facility (``Interfund
Lending Committee''). No portfolio manager of any Fund will serve as a
member of the Interfund Lending Committee. The Facility would be
available to any Fund. On any day on which a Fund intends to borrow
money, the Interfund Lending Committee would make an Interfund Loan
from a lending Fund to a borrowing Fund only if the Interfund Loan Rate
is: (i) More favorable to the lending Fund than the Repo Rate; and (ii)
more favorable to the borrowing Fund than the Bank Loan Rate. Under the
Facility, the portfolio manager(s) for each participating Fund could
provide standing instructions to participate daily as a borrower or
lender. The Interfund Lending Committee on each business day would
collect data on the uninvested cash and borrowing requirements of all
participating Funds from the Funds' custodian. The Interfund Lending
Committee would allocate loans among borrowing Funds without any
further communication from a Fund's portfolio manager(s). Applicants
anticipate that there typically will be far more available uninvested
cash each day than borrowing demand. Therefore, after the Interfund
Lending Committee has allocated cash for Interfund Loans, the Interfund
Lending Committee will invest any remaining cash in accordance with the
standing instructions of the portfolio manager(s) or such remaining
amounts will be invested directly by the Fund's portfolio manager(s).
10. The Interfund Lending Committee would allocate borrowing demand
and cash available for lending among the Funds on what the Interfund
Lending Committee believes to be an equitable basis, subject to certain
administrative procedures applicable to all Funds, such as the time of
filing requests to participate, minimum loan lot sizes, and the need to
minimize the number of transactions and associated administrative
costs. To reduce transaction costs, each InterFund Loan normally would
be allocated in a manner intended to minimize the number of
participants necessary to complete the loan transaction. The method of
allocation and related administrative procedures would be approved by
each Fund Board, including a majority of the Directors who are not
``interested persons'' of the Fund, as that term is defined in section
2(a)(19) of the Act (``Independent Fund Board Members''), to ensure
that both borrowing and lending Funds participate on an equitable
basis.
11. The Interfund Lending Committee would: (i) Monitor the
Interfund Loan Rate and the other terms and conditions of the loans;
(ii) limit the borrowings and loans entered into by each Fund to ensure
that they comply with the Fund's investment policies and limitations;
(iii) ensure equitable treatment of each Fund; and (iv) make quarterly
reports to each Fund Board concerning any transactions by the Fund
under the Facility and the Interfund Loan Rate charged.
12. Lord Abbett, through the Interfund Lending Committee, would
administer the Facility as a disinterested fiduciary as part of its
duties under the investment management contract with each Fund and as
part of its duties under the administrative services agreement with the
Funds, and would receive no additional fee as compensation for its
services in connection with the administration of the Facility. No Fund
will pay any additional fees in connection with the administration of
the Facility (i.e., the Funds will not pay standard pricing, record
keeping, bookkeeping or accounting fees in connection with the
Facility).
13. No Fund may participate in the Facility unless: (i) The Fund
has obtained shareholder approval for its participation, if such
approval is required by law; (ii) the Fund has fully disclosed all
material information concerning the Facility in its prospectus and/or
statement of additional information (``SAI''); and (iii) the Fund's
participation in the Facility is consistent with its investment
objectives, investment limitations and organizational documents.
14. As part of each Fund Board's review of the continuing
appropriateness of a Fund's participation in the Facility as required
by condition 14, the Directors of the Fund, including a majority of the
Independent Fund Board Members, also will review the process in place
to assess: (i) If the Fund participates as a lender, any effect its
participation may have on the Fund's liquidity; and (ii) if the Fund
participates as a borrower, whether the Fund's portfolio liquidity is
sufficient to satisfy its obligations under the Facility along with its
other liquidity needs.
15. In connection with the Facility, applicants request an order
pursuant to section 6(c) of the Act exempting them from the provisions
of sections 18(f) and 21(b) of the Act; pursuant to section 12(d)(1)(J)
of the Act exempting them from section 12(d)(1) of the Act;
[[Page 44398]]
pursuant to sections 6(c) and 17(b) of the Act exempting them from
sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Act; and pursuant to
section 17(d) of the Act and rule 17d-1 under the Act to permit certain
joint arrangements.
Applicants' Legal Analysis
1. Section 17(a)(3) of the Act generally prohibits any affiliated
person of a registered investment company, or any affiliated person of
such a person, from borrowing money or other property from the
registered investment company. Section 21(b) of the Act generally
prohibits any registered management company from lending money or other
property to any person, directly or indirectly, if that person controls
or is under common control with that company. Section 2(a)(3)(C) of the
Act defines an ``affiliated person'' of another person, in part, to be
any person directly or indirectly controlling, controlled by, or under
common control with, such other person. Section 2(a)(9) of the Act
defines ``control'' as the ``power to exercise a controlling influence
over the management or policies of a company,'' but excludes
circumstances in which ``such power is solely the result of an official
position with such company.'' Applicants state that the Funds may be
under common control by virtue of having Lord Abbett as their common
investment adviser and/or by having common officers, directors and/or
trustees.
2. Section 6(c) of the Act provides that an exemptive order may be
granted where an exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to grant an order
exempting a proposed transaction from section 17(a) provided that: (i)
The terms of the transaction, including the consideration to be paid or
received, are fair and reasonable and do not involve overreaching on
the part of any person concerned; (ii) the transaction is consistent
with the policy of the investment company as recited in its
registration statement and reports filed under the Act; and (iii) the
transaction is consistent with the general purposes of the Act.
Applicants believe that the proposed arrangements satisfy these
standards for the reasons discussed below.
3. Applicants assert that sections 17(a)(3) and 21(b) of the Act
were intended to prevent a party with strong potential adverse
interests to, and some influence over the investment decisions of, a
registered investment company from causing or inducing the investment
company to engage in lending transactions that unfairly inure to the
benefit of such party and that are detrimental to the best interests of
the investment company and its shareholders. Applicants assert that the
Facility transactions do not raise these concerns because: (i) Lord
Abbett, through the Interfund Lending Committee, would administer the
program as a disinterested fiduciary as part of its duties under the
investment management contract with each Fund and as part of its duties
under the administrative services agreement with the Funds; (ii) all
Interfund Loans would consist only of uninvested cash reserves that the
lending Fund otherwise would invest in short-term repurchase agreements
or other short-term instruments; (iii) the Interfund Loans would not
involve a significantly greater risk than other such investments; (iv)
the lending Fund would earn interest at a rate higher than it could
otherwise obtain through such other investments; and (v) the borrowing
Fund would pay interest at a rate lower than otherwise available to it
under its bank loan agreements. Moreover, applicants assert that the
other terms and conditions that applicants propose also would
effectively preclude the possibility of any Fund obtaining an undue
advantage over any other Fund.
4. Section 17(a)(1) of the Act generally prohibits any affiliated
person of a registered investment company, or any affiliated person of
such a person, from selling securities or other property to the
investment company. Section 17(a)(2) of the Act generally prohibits any
affiliated person of a registered investment company, or any affiliated
person of such a person, from purchasing securities or other property
from the investment company. Section 12(d)(1) of the Act generally
prohibits any registered investment company from purchasing or
otherwise acquiring any security issued by any other investment company
except in accordance with the limitations set forth in that section.
5. Applicants state that the obligation of a borrowing Fund to
repay an Interfund Loan could be deemed to constitute a security for
the purposes of sections 17(a)(1) and 12(d)(1) of the Act. Applicants
also state that a pledge of assets in connection with an Interfund Loan
could be construed as a purchase of the borrowing Fund's securities or
other property for purposes of section 17(a)(2) of the Act. Section
12(d)(1)(J) of the Act provides that the Commission may exempt persons
or transactions from any provision of section 12(d)(1) if and to the
extent that such exemption is consistent with the public interest and
the protection of investors. Applicants contend that the standards
under sections 6(c), 17(b), and 12(d)(1)(J) are satisfied for all the
reasons set forth above in support of their request for relief from
sections 17(a)(3) and 21(b) and for the reasons discussed below.
Applicants also state that the requested relief from section 17(a)(2)
of the Act meets the standards of section 6(c) and 17(b) because any
collateral pledged to secure an Interfund Loan would be subject to the
same conditions imposed by any other lender to a Fund that imposes
conditions on the quality of or access to collateral for a borrowing
(if the lender is another Fund) or the same or better conditions (in
any other circumstance).
6. Applicants state that section 12(d)(1) was intended to prevent
the pyramiding of investment companies in order to avoid imposing on
investors additional and duplicative costs and fees attendant upon
multiple layers of investments. Applicants submit that the Facility
does not involve these abuses. Applicants note that there will be no
duplicative costs or fees to the Funds or their shareholders, and that
Lord Abbett will receive no additional compensation for its services in
administering the Facility. Applicants also note that the purpose of
the Facility is to provide economic benefits for all the participating
Funds and their shareholders.
7. Section 18(f)(1) of the Act prohibits any open-end investment
company from issuing any senior security except that any such company
is permitted to borrow from any bank, provided, that immediately after
the borrowing, there is asset coverage of at least 300 per centum for
all borrowings of the company. Under section 18(g) of the Act, the term
``senior security'' generally includes any bond, debenture, note or
similar obligation or instrument constituting a security and evidencing
indebtedness. Applicants request exemptive relief under section 6(c)
from section 18(f)(1) to the limited extent necessary to permit a Fund
to borrow directly from other Funds.
8. Applicants believe that granting relief under section 6(c) is
appropriate because the Funds would remain subject to the requirement
of section 18(f)(1) that all borrowings of a Fund, including combined
interfund and bank borrowings, have at least 300% asset coverage. Based
on the conditions and safeguards described in the application,
applicants also submit that to allow the Funds to borrow from other
Funds pursuant to the Facility is consistent
[[Page 44399]]
with the purposes and policies of section 18(f)(1).
9. Section 17(d) of the Act and rule 17d-1 under the Act generally
prohibit any affiliated person of a registered investment company, or
any affiliated person of such a person, when acting as principal, from
effecting any transaction in which the investment company is a joint or
joint and several participant, unless, upon application, the
transaction has been approved by the Commission. Rule 17d-1(b) under
the Act provides that in passing upon an application filed under the
rule, the Commission will consider whether the participation of the
registered investment company in a joint enterprise, joint arrangement,
or profit-sharing plan on the basis proposed is consistent with the
provisions, 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 the other participants.
10. Applicants assert that the purpose of section 17(d) is to avoid
overreaching by and unfair advantage to insiders. Applicants assert
that the Facility is consistent with the provisions, policies and
purposes of the Act in that it offers both reduced borrowing costs and
enhanced returns on loaned funds to all participating Funds and their
shareholders. Applicants note that each Fund would have an equal
opportunity to borrow and lend on equal terms consistent with its
investment policies and limitations. Applicants assert that each Fund's
participation in the Facility would be on terms that are no different
from or less advantageous than that of other participating Funds.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The Interfund Loan Rate will be the average of the Repo Rate and
the Bank Loan Rate.
2. On each business day, the Interfund Lending Committee will
compare the Bank Loan Rate with the Repo Rate and will make cash
available for Interfund Loans only if the Interfund Loan Rate is: (i)
More favorable to the lending Fund than the Repo Rate and (ii) more
favorable to the borrowing Fund than the Bank Loan Rate.
3. If a Fund has outstanding bank borrowings, any Interfund Loans
to the Fund: (i) Will be at an interest rate equal to or lower than the
interest rate of any outstanding bank loan; (ii) will be secured at
least on an equal priority basis with at least an equivalent percentage
of collateral to loan value as any outstanding bank loan that requires
collateral; (iii) will have a maturity no longer than any outstanding
bank loan (and in any event not over seven days); and (iv) will provide
that, if an event of default by the Fund occurs under any agreement
evidencing an outstanding bank loan to the Fund, that event of default
will automatically (without need for action or notice by the lending
Fund) constitute an immediate event of default under the Interfund
Lending Agreement entitling the lending Fund to call the Interfund Loan
(and exercise all rights with respect to any collateral) and that such
call will be made if the lending bank exercises its right to call its
loan under its agreement with the borrowing Fund.
4. A Fund may make an unsecured borrowing through the Facility if
its outstanding borrowings from all sources immediately after the
interfund borrowing total 10% or less of its total assets, provided
that if the Fund has a secured loan outstanding from any other lender,
including but not limited to another Fund, the Fund's interfund
borrowing will be secured on at least an equal priority basis with at
least an equivalent percentage of collateral to loan value as any
outstanding loan that requires collateral. If a Fund's total
outstanding borrowings immediately after an interfund borrowing would
be greater than 10% of its total assets, the Fund may borrow through
the Facility only on a secured basis. A Fund may not borrow through the
Facility or from any other source if its total outstanding borrowings
immediately after such borrowing would be more than 33 1/3% of its
total assets.
5. Before any Fund that has outstanding interfund borrowings may,
through additional borrowings, cause its outstanding borrowings from
all sources to exceed 10% of its total assets, the Fund must first
secure each outstanding Interfund Loan by the pledge of segregated
collateral with a market value at least equal to 102% of the
outstanding principal value of the loan. If the total outstanding
borrowings of a Fund with outstanding Interfund Loans exceed 10% of its
total assets for any other reason (such as a decline in net asset value
or because of shareholder redemptions), the Fund will within one
business day thereafter: (i) Repay all its outstanding Interfund Loans;
(ii) reduce its outstanding indebtedness to 10% or less of its total
assets; or (iii) secure each outstanding Interfund Loan by the pledge
of segregated collateral with a market value at least equal to 102% of
the outstanding principal value of the loan until the Fund's total
outstanding borrowings cease to exceed 10% of its total assets, at
which time the collateral called for by this condition (5) shall no
longer be required. Until each Interfund Loan that is outstanding at
any time that a Fund's total outstanding borrowings exceed 10% is
repaid or the Fund's total outstanding borrowings cease to exceed 10%
of its total assets, the Fund will mark the value of the collateral to
market each day and will pledge such additional collateral as is
necessary to maintain the market value of the collateral that secures
each outstanding Interfund Loan at least equal to 102% of the
outstanding principal value of the Interfund Loan.
6. No Fund may lend to another Fund through the Facility if the
loan would cause its aggregate outstanding loans through the Facility
to exceed 15% of the lending Fund's current net assets at the time of
the loan.
7. A Fund's Interfund Loans to any one Fund shall not exceed 5% of
the lending Fund's net assets.
8. The duration of Interfund Loans will be limited to the time
required to receive payment for securities sold, but in no event more
than seven days. Loans effected within seven days of each other will be
treated as separate loan transactions for purposes of this condition.
9. A Fund's borrowings through the Facility, as measured on the day
when the most recent loan was made, will not exceed the greater of 125%
of the Fund's total net cash redemptions for the preceding seven
calendar days or 102% of the Fund's sales fails for the preceding seven
calendar days.
10. Each Interfund Loan may be called on one business day's notice
by a lending Fund and may be repaid on any day by a borrowing Fund.
11. A Fund's participation in the Facility must be consistent with
its investment objectives, investment limitations, and organizational
documents.
12. The Interfund Lending Committee will calculate total Fund
borrowing and lending demand through the Facility, and allocate loans
on an equitable basis among the Funds, without the intervention of a
Fund's portfolio manager(s). The Interfund Lending Committee will not
solicit cash for the Facility from any Fund or prospectively publish or
disseminate loan demand data to any portfolio manager. The Interfund
Lending Committee will invest any amounts remaining after satisfaction
of borrowing demand in accordance with the standing instructions of the
portfolio manager(s) or such remaining amounts will be invested
directly by the Fund's portfolio manager(s).
[[Page 44400]]
13. The Interfund Lending Committee will monitor the Interfund Loan
Rates charged and the other terms and conditions of the Interfund Loans
and will make a quarterly report to each Fund Board concerning the
participation of the Funds in the Facility and the terms and other
conditions of any extensions of credit under the Facility.
14. Each Fund Board, including a majority of the Independent Fund
Board Members, will:
(a) review, no less frequently than quarterly, the relevant Fund's
participation in the Facility during the preceding quarter for
compliance with the conditions of any order permitting such
transactions;
(b) establish the Bank Loan Rate formula used to determine the
interest rate on Interfund Loans and review, no less frequently than
annually, the continuing appropriateness of the Bank Loan Rate formula;
and
(c) review, no less frequently than annually, the continuing
appropriateness of the relevant Fund's participation in the Facility.
15. In the event an Interfund Loan is not paid according to its
terms and such default is not cured within two business days from its
maturity or from the time the lending Fund makes a demand for payment
under the provisions of the Interfund Lending Agreement, Lord Abbett
promptly will refer such loan for arbitration to an independent
arbitrator selected by each Fund Board involved in the loan who will
serve as arbitrator of disputes concerning Interfund Loans.\2\ The
arbitrator will resolve any problem promptly, and the arbitrator's
decision will be binding on both Funds. The arbitrator will submit, at
least annually, a written report to each Fund Board setting forth a
description of the nature of any dispute and the actions taken by the
Funds involved to resolve the dispute.
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\2\ If the dispute involves Funds with different Fund Boards,
the respective Fund Boards will select an independent arbitrator
that is satisfactory to each Fund.
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16. Each Fund will maintain and preserve for a period of not less
than six years from the end of the fiscal year in which any transaction
by it under the Facility occurred, the first two years in an easily
accessible place, written records of all such transactions setting
forth a description of the terms of the transactions, including the
amount, the maturity, and the Interfund Loan Rate, the rate of interest
available at the time the Interfund Loan is made on overnight
repurchase agreements and bank borrowings, and such other information
presented to the Fund Board in connection with the review required by
conditions (13) and (14).
17. The Interfund Lending Committee will prepare and submit to each
Fund Board for review an initial report describing the operations of
the Facility and the procedures to be implemented to ensure that all
Funds are treated fairly. After the commencement of the Facility, the
Interfund Lending Committee will provide quarterly reports on the
operations of the Facility to each Fund Board. Each Fund's chief
compliance officer, as defined in Rule 38a-1(a)(4) under the Act (a
``Fund CCO''), shall prepare an annual report for its Fund Board for
each year that the Fund participates in the Facility, which report
evaluates the Fund's compliance with the terms and conditions of the
application and the procedures established to achieve such compliance.
Additionally, each Fund CCO will also annually file a certification
pursuant to Item 77Q3 of Form N-SAR, as such Form may be revised,
amended, or superseded from time to time (``N-SAR''), for each year
that the Fund participates in the Facility, that certifies that the
Fund and Lord Abbett have established procedures reasonably designed to
achieve compliance with the terms and conditions of the order. In
particular, the certification will address procedures designed to
achieve the following objectives:
(a) That the Interfund Loan Rate will be higher than the Repo Rate,
but lower than the Bank Loan Rate;
(b) compliance with the collateral requirements as set forth in the
application;
(c) compliance with the percentage limitations on interfund
borrowing and lending;
(d) allocation of interfund borrowing and lending demand in an
equitable manner and in accordance with procedures established by the
Fund Board; and
(e) that the interest rate on any Interfund Loan does not exceed
the interest rate on any third-party borrowings of a borrowing Fund at
the time of the Interfund Loan.
Additionally, each Fund's independent registered public
accountants, in connection with their audit examination of the Fund,
will review the operation of the Facility for compliance with the
conditions of the application and their review will form the basis, in
part, of the auditor's report on internal accounting controls in Form
N-SAR.
18. No Fund will participate in the Facility upon receipt of the
requisite regulatory and shareholder approval unless it has fully
disclosed in its prospectus and/or SAI all material facts about its
intended participation.
For the Commission, by the Division of Investment Management,
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-16038 Filed 7-6-16; 8:45 am]
BILLING CODE 8011-01-P