January 28, 2000
Jonathan G. Katz
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Role of Independent Directors of Investment Companies (File No. S7-23-99)
Dear Mr. Katz:
The independent directors and trustees of the Lord Abbett Funds appreciate this opportunity to comment on the Securities and Exchange Commission's proposed rule and form amendments regarding the independence of investment company directors. We commend the Commission for its timely efforts to strengthen investment company governance.
We generally support the thrust and the substance of the Commission proposals, particularly to the extent that they would enhance director independence and effectiveness. Although we also support the intent of the Commission's proposals regarding disclosure of director independence, we are concerned that those proposals go too far in that they would elicit little additional meaningful information while imposing significant compliance burdens. Our specific comments are set forth below.
Substantive Independence Requirements. Our perspective on the Commission's proposals derives largely from our experience as directors of the Lord Abbett Funds. For many years, the boards of the Lord Abbett Funds have been composed so that they would meet a super-majority requirement. (Currently, thirteen of the fourteen Funds have eight directors who are independent and one director who is associated with the Funds' investment adviser and principal underwriter. The remaining Fund has six directors who are independent and one director who is associated with the investment adviser and principal underwriter.) In addition, the nomination and selection of additional independent directors resides with the incumbent independent directors. Since 1976, the Funds and their boards have had their own independent legal counsel. Finally, each Fund has an audit committee composed entirely of independent directors. (Each Fund's board also meets all of the other recommendations of the Advisory Group on Best Practices for Fund Directors, including the lead director recommendation.)
In our view, all of these measures -- a supermajority, self-nomination and selection, independent legal counsel and audit committees composed solely of independent directors -- greatly enhance the effectiveness of investment company boards of directors. We believe that all registered investment companies should comply with these measures.
Disclosure Proposals. We believe that the intent of the Commission's disclosure proposals -- to increase the amount and accessibility of information about fund directors that is
available to shareholders -- is laudable. Thus, we support these proposals to the extent that they would increase the amount of relevant information about directors and about the directors' holdings of shares in the funds for which they serve as directors.
We are concerned, however, that the Commission may not fully appreciate the onerous compliance burden that would be created by the proposed new disclosure requirements about positions, interests, transactions, and relationships of directors and their "immediate family members". Directors already must complete lengthy questionnaires to ensure that the funds for which they serve satisfy existing disclosure requirements. The Commission's extremely broad definition of immediate family members would necessitate the use of lengthier questionnaires, and require directors to make inquiries of remote family members with whom they may well have little or no regular contact or influence. We believe that in order for the SEC's proposal to be workable, it should greatly narrow the definition of immediate family members. (We note that, as a practical matter, because the investment adviser to the Lord Abbett Funds is a privately-held partnership, the burden imposed on us would not be as substantial as for most directors.)
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We are grateful for your consideration of our comments. If you have any questions or would like further information, please contact Thomas J. Neff at (212) 336-0202, or Matthew A. Chambers of Wilmer, Cutler & Pickering, counsel to the Funds, at (202) 663-6591.
The Independent Directors and Trustees of the Lord Abbett Funds
By: /s/ Thomas J. Neff
Thomas J. Neff, Lead Director