N-CSRS 1 c87771_ncsrs.htm CERTIFIED SEMI-ANNUAL SHAREHOLDER REPORT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act File Number: 811-02871

 

lord abbett developing growth fund, inc.
(Exact name of Registrant as specified in charter)

 

90 Hudson Street, Jersey City, NJ 07302

(Address of principal executive offices) (Zip code)

 

Brooke A. Fapohunda, Esq., Vice President & Assistant Secretary
90 Hudson Street, Jersey City, NJ 07302
(Name and address of agent for service)

 

Registrant’s telephone number, including area code: (800) 201-6984

 

Date of fiscal year end: 7/31

 

Date of reporting period: 1/31/2017

 
Item 1: Report(s) to Shareholders.
 

 

LORD ABBETT
SEMIANNUAL REPORT

 

Lord Abbett
Developing Growth Fund

 

 

For the six-month period ended January 31, 2017

 
Table of Contents
 
1   A Letter to Shareholders
     
2   Information About Your Fund’s Expenses and Holdings Presented by Sector
     
5   Schedule of Investments
     
8   Statement of Assets and Liabilities
     
10   Statement of Operations
     
11   Statements of Changes in Net Assets
     
12   Financial Highlights
     
16   Notes to Financial Statements
     
25   Supplemental Information to Shareholders
 

 

 

Lord Abbett Developing Growth Fund

Semiannual Report

For the six-month period ended January 31, 2017

 

 

From left to right: James L.L. Tullis, Chairman of the Lord Abbett Funds and Daria L. Foster Director, President, and Chief Executive Officer of the Lord Abbett Funds.

 

Dear Shareholders: We are pleased to provide you with this semiannual report for Lord Abbett Developing Growth Fund for the six-month period ended January 31, 2017. For additional information about the Fund, please visit our website at www.lordabbett.com, where you can access the quarterly commentaries by the Fund’s portfolio managers. General information about Lord Abbett mutual funds, as well as in-depth discussions of market trends and investment strategies, is also provided in Lord Abbett Insights, a quarterly newsletter available on our website.

Thank you for investing in Lord Abbett mutual funds. We value the trust that you place in us and look forward to serving your investment needs in the years to come.

 

Best regards,

 

 

 

Daria L. Foster

Director, President and Chief Executive Officer


 

1

 

 

 

Expense Example

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments (these charges vary among the share classes); and (2) ongoing costs, including management fees; distribution and service (12b-1) fees (these charges vary among the share classes); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (August 1, 2016 through January 31, 2017).

 

Actual Expenses

 

For each class of the Fund, the first line of the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period 8/1/16 – 1/31/17” to estimate the expenses you paid on your account during this period.

 

Hypothetical Example for Comparison Purposes

 

For each class of the Fund, the second line of the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

 

2

 

 

 

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

   Beginning  Ending  Expenses  
   Account  Account  Paid During  
   Value  Value  Period†  
         8/1/16 -  
   8/1/16  1/31/17  1/31/17  
Class A           
Actual  $1,000.00  $1,023.00  $5.05  
Hypothetical (5% Return Before Expenses)  $1,000.00  $1,020.21  $5.04  
Class B           
Actual  $1,000.00  $1,019.80  $8.91  
Hypothetical (5% Return Before Expenses)  $1,000.00  $1,016.38  $8.89  
Class C           
Actual  $1,000.00  $1,019.50  $8.86  
Hypothetical (5% Return Before Expenses)  $1,000.00  $1,016.43  $8.84  
Class F           
Actual  $1,000.00  $1,023.90  $4.29  
Hypothetical (5% Return Before Expenses)  $1,000.00  $1,020.97  $4.28  
Class I           
Actual  $1,000.00  $1,024.50  $3.78  
Hypothetical (5% Return Before Expenses)  $1,000.00  $1,021.48  $3.77  
Class P           
Actual  $1,000.00  $1,023.70  $5.05  
Hypothetical (5% Return Before Expenses)  $1,000.00  $1,020.21  $5.04  
Class R2           
Actual  $1,000.00  $1,021.60  $6.88  
Hypothetical (5% Return Before Expenses)  $1,000.00  $1,018.40  $6.87  
Class R3           
Actual  $1,000.00  $1,021.90  $6.37  
Hypothetical (5% Return Before Expenses)  $1,000.00  $1,018.90  $6.36  
Class R4           
Actual  $1,000.00  $1,023.60  $5.05  
Hypothetical (5% Return Before Expenses)  $1,000.00  $1,020.21  $5.04  
Class R5           
Actual  $1,000.00  $1,024.50  $3.78  
Hypothetical (5% Return Before Expenses)  $1,000.00  $1,021.48  $3.77  
Class R6           
Actual  $1,000.00  $1,024.90  $3.01  
Hypothetical (5% Return Before Expenses)  $1,000.00  $1,022.23  $3.01  

 

† For each class of the Fund, net expenses are equal to the annualized expense ratio for such class (0.99% for Class A, 1.75% for Class B, 1.74% for Class C, 0.84% for Class F, 0.74% for Class I, 0.99% for Class P, 1.35% for Class R2, 1.24% for Class R3, 0.99% for Class R4, 0.74% for Class R5 and 0.59% for Class R6) multiplied by the average account value over the period, multiplied by 184/365.

 

3

 

 

 

Portfolio Holdings Presented by Sector

January 31, 2017

 

Sector* %**
Consumer Discretionary 13.86%
Energy 4.45%
Financials 14.60%
Health Care 15.17%
Industrials 19.70%
Information Technology 25.55%
Materials 6.67%
Total 100.00%

 

*   A sector may comprise several industries.
**   Represents percent of total investments.

 

4

 

Schedule of Investments (unaudited)

January 31, 2017

 

       Fair 
       Value 
Investments  Shares   (000) 
COMMON STOCKS 99.83%          
           
Aerospace & Defense 2.53%          
DigitalGlobe, Inc.*   1,253,513   $35,161 
TASER International, Inc.*   775,184    19,364 
Total        54,525 
           
Air Freight & Logistics 0.93%          
XPO Logistics, Inc.*   448,753    20,077 
           
Airlines 1.23%          
Spirit Airlines, Inc.*   489,912    26,475 
           
Auto Components 1.02%          
Tenneco, Inc.*   325,914    21,983 
           
Banks 11.13%          
BNC Bancorp   136,459    4,810 
CenterState Banks, Inc.   265,464    6,475 
Chemical Financial Corp.   301,617    14,909 
Columbia Banking System, Inc.   309,369    12,301 
Glacier Bancorp, Inc.   157,023    5,579 
IBERIABANK Corp.   203,761    16,739 
LegacyTexas Financial Group, Inc.   271,880    11,234 
MB Financial, Inc.   359,949    16,029 
Pinnacle Financial Partners, Inc.   271,038    18,119 
South State Corp.   130,247    11,644 
Texas Capital Bancshares, Inc.*   266,563    21,991 
Webster Financial Corp.   570,686    29,972 
Western Alliance Bancorp*   874,482    43,182 
Wintrust Financial Corp.   374,739    26,831 
Total        239,815 
           
Biotechnology 7.10%          
ACADIA Pharmaceuticals, Inc.*   198,523    6,867 
Agios Pharmaceuticals, Inc.*   113,496    4,884 
Blueprint Medicines Corp.*   508,308    17,323 
       Fair 
       Value 
Investments  Shares   (000) 
Exact Sciences Corp.*   867,915   $16,447 
Exelixis, Inc.*   2,023,610    36,668 
Sage Therapeutics, Inc.*   327,636    15,720 
Spark Therapeutics, Inc.*   313,367    19,761 
TESARO, Inc.*   217,096    35,352 
Total        153,022 
           
Building Products 1.62%          
Apogee Enterprises, Inc.   354,242    20,220 
Builders FirstSource, Inc.*   1,375,378    14,799 
Total        35,019 
           
Capital Markets 2.93%          
Evercore Partners, Inc. Class A   420,200    32,544 
Moelis & Co. Class A   360,406    12,290 
WisdomTree Investments, Inc.   1,774,271    18,275 
Total        63,109 
           
Chemicals 2.60%          
Huntsman Corp.   1,344,246    27,409 
Minerals Technologies, Inc.   356,768    28,595 
Total        56,004 
           
Commercial Services & Supplies 0.05%      
Tetra Tech, Inc.   22,457    981 
           
Communications Equipment 0.46%          
Acacia Communications, Inc.*    169,853    9,880 
           
Construction & Engineering 3.25%          
Granite Construction, Inc.   185,022    10,385 
MasTec, Inc.*   714,113    26,601 
Quanta Services, Inc.*   921,510    33,073 
Total        70,059 
           
Construction Materials 1.10%          
Eagle Materials, Inc.   226,172    23,653 
           
Distributors 0.87%          
Pool Corp.   177,893    18,778 


 

  See Notes to Financial Statements. 5
 

Schedule of Investments (unaudited)(continued)

January 31, 2017

 

       Fair 
       Value 
Investments  Shares   (000) 
Electronic Equipment, Instruments & Components 5.27%      
Belden, Inc.   275,551   $21,071 
Cognex Corp.   498,344    33,668 
Coherent, Inc.*   147,417    23,252 
IPG Photonics Corp.*   216,442    24,889 
Universal Display Corp.*   160,288    10,579 
Total        113,459 
           
Energy Equipment & Services 1.90%          
Patterson-UTI Energy, Inc.   594,216    16,662 
U.S. Silica Holdings, Inc.   410,692    24,288 
Total        40,950 
           
Health Care Equipment & Supplies 5.35%      
Glaukos Corp.*   550,615    22,696 
Insulet Corp.*   499,156    20,765 
Nevro Corp.*   196,585    17,107 
Penumbra, Inc.*   245,235    17,547 
Zeltiq Aesthetics, Inc.*   837,152    37,119 
Total        115,234 
           
Health Care Providers & Services 1.11%      
HealthEquity, Inc.*   519,553    24,029 
           
Health Care Technology 1.58%          
Cotiviti Holdings, Inc.*   530,873    17,975 
Veeva Systems, Inc. Class A*   379,653    16,071 
Total        34,046 
           
Hotels, Restaurants & Leisure 4.34%          
Dave & Buster’s Entertainment, Inc.*   716,104    38,999 
Extended Stay America, Inc. Unit   1,284,069    20,815 
Planet Fitness, Inc. Class A   1,598,172    33,625 
Total        93,439 
           
Household Durables 1.72%          
iRobot Corp.*   451,767    27,359 
Universal Electronics, Inc.*   162,346    9,660 
Total        37,019 
       Fair 
       Value 
Investments  Shares   (000) 
Information Technology Services 1.79%      
Cardtronics plc Class A*(a)   512,459   $27,970 
CSRA, Inc.   339,383    10,528 
Total        38,498 
           
Internet & Direct Marketing Retail 1.00%      
Etsy, Inc.*   1,704,890    21,499 
           
Internet Software & Services 8.09%          
2U, Inc.*   496,621    16,905 
Five9, Inc.*   1,301,623    20,123 
GrubHub, Inc.*   411,193    17,085 
Match Group, Inc.*   148,731    2,583 
Nutanix, Inc. Class A*   356,832    10,801 
Shopify, Inc. Class A (Canada)*(a)   572,596    29,099 
Stamps.com, Inc.*   205,248    24,948 
Twilio, Inc. Class A*   358,465    10,335 
Wix.com Ltd. (Israel)*(a)   596,586    31,351 
Yelp, Inc.*   265,219    11,081 
Total        174,311 
           
Machinery 3.31%          
Allison Transmission Holdings, Inc.   629,363    22,015 
Kornit Digital Ltd. (Israel)*(a)   892,112    14,809 
Nordson Corp.   304,244    34,541 
Total        71,365 
           
Media 2.61%          
IMAX Corp. (Canada)*(a)   678,731    22,127 
Live Nation Entertainment, Inc.*   1,192,287    34,123 
Total        56,250 
           
Metals & Mining 2.96%          
AK Steel Holding Corp.*   3,572,010    28,862 
United States Steel Corp.   1,068,516    34,951 
Total        63,813 
           
Multi-Line Retail 0.48%          
Ollie’s Bargain Outlet Holdings, Inc.*   336,672    10,285 


 

6 See Notes to Financial Statements.  
 

Schedule of Investments (unaudited)(concluded)

January 31, 2017

 

       Fair 
       Value 
Investments  Shares   (000) 
Oil, Gas & Consumable Fuels 2.54%          
Callon Petroleum Co.*   876,539   $13,394 
GasLog Ltd. (Monaco)(a)   2,024,416    33,808 
WildHorse Resource Development Corp.*   517,169    7,514 
Total        54,716 
           
Professional Services 1.46%          
WageWorks, Inc.*   436,378    31,485 
           
Semiconductors & Semiconductor Equipment 6.32%      
Cavium, Inc.*   343,521    22,745 
CEVA, Inc.*   296,928    10,496 
Cirrus Logic, Inc.*   394,114    23,773 
Inphi Corp.*   539,144    24,704 
MACOM Technology Solutions Holdings, Inc.*   503,943    23,962 
Monolithic Power Systems, Inc.   349,928    30,528 
Total        136,208 
           
Software 3.06%          
8x8, Inc.*   1,087,178    17,232 
Blackline, Inc.*   170,945    4,647 
BroadSoft, Inc.*   249,291    10,470 
HubSpot, Inc.*   209,322    10,738 
Materialise NV ADR*   640,900    5,300 
Proofpoint, Inc.*   217,800    17,459 
Total        65,846 
       Fair 
       Value 
Investments  Shares   (000) 
Specialty Retail 1.80%          
Burlington Stores, Inc.*   277,522   $23,228 
Five Below, Inc.*   388,976    15,501 
Total        38,729 
           
Technology Hardware, Storage & Peripherals 0.53%      
Electronics for Imaging, Inc.*   253,689    11,401 
           
Thrifts & Mortgage Finance 0.51%          
WSFS Financial Corp.   243,913    11,049 
           
Trading Companies & Distributors 5.28%      
Air Lease Corp.   900,292    32,753 
Beacon Roofing Supply, Inc.*   721,672    31,588 
MRC Global, Inc.*   1,313,367    26,990 
MSC Industrial Direct Co., Inc. Class A   219,956    22,468 
Total        113,799 
Total Investments in Common Stock 99.83%
(cost $1,802,351,500)		        2,150,810 
Other Assets in Excess of Liabilities 0.17%        3,612 
Net Assets 100.00%       $2,154,422 

 

ADR   American Depositary Receipt.  
Unit   More than one class of securities traded together.
*   Non-income producing security.  
(a)   Foreign security traded in U.S. dollars.  


 

The following is a summary of the inputs used as of January 31, 2017 in valuing the Fund’s investments carried at fair value(1):

 

   Level 1   Level 2   Level 3   Total 
Investment Type(2)(3)  (000)   (000)   (000)   (000) 
Common Stocks  $2,150,810   $–   $–   $2,150,810 
Total  $2,150,810   $–   $–   $2,150,810 

 

(1) Refer to Note 2(g) for a description of fair value measurements and the three-tier hierarchy of inputs.
(2) See Schedule of Investments for fair values in each industry and identification of foreign issuers and/or geography.
(3) There were no Level 1/Level 2 transfers during the six months ended January 31, 2017.

 

  See Notes to Financial Statements. 7
 

Statements of Assets and Liabilities (unaudited)

January 31, 2017

 

ASSETS:     
Investments in securities, at fair value (cost $1,802,351,500)  $2,150,809,999 
Receivables:     
Investment securities sold   45,846,656 
Capital shares sold   1,631,130 
Dividends   50,115 
Prepaid expenses and other assets   79,360 
Total assets   2,198,417,260 
LIABILITIES:     
Payables:     
Investment securities purchased   18,618,747 
Capital shares reacquired   15,797,527 
To bank   6,144,439 
Management fee   957,342 
12b-1 distribution plan   796,148 
Directors’ fees   616,557 
Fund administration   74,889 
To affiliate (See Note 3)   22,198 
Accrued expenses   967,263 
Total liabilities   43,995,110 
NET ASSETS  $2,154,422,150 
COMPOSITION OF NET ASSETS:     
Paid-in capital  $2,133,959,903 
Accumulated net investment loss   (10,561,958)
Accumulated net realized loss on investments   (317,434,294)
Net unrealized appreciation on investments   348,458,499 
Net Assets  $2,154,422,150 

 

8 See Notes to Financial Statements.  
 

Statements of Assets and Liabilities (unaudited)(concluded)

January 31, 2017

 

Net assets by class:     
Class A Shares  $682,665,210 
Class B Shares  $1,773,106 
Class C Shares  $53,251,280 
Class F Shares  $98,828,217 
Class I Shares  $922,360,965 
Class P Shares  $23,223,434 
Class R2 Shares  $6,515,238 
Class R3 Shares  $163,966,680 
Class R4 Shares  $2,680,830 
Class R5 Shares  $2,203,413 
Class R6 Shares  $196,953,777 
Outstanding shares by class:     
Class A Shares (875 million shares of common stock authorized, $.001 par value)   36,542,996 
Class B Shares (40 million shares of common stock authorized, $.001 par value)   127,307 
Class C Shares (35 million shares of common stock authorized, $.001 par value)   3,779,628 
Class F Shares (40 million shares of common stock authorized, $.001 par value)   5,116,892 
Class I Shares (200 million shares of common stock authorized, $.001 par value)   43,259,912 
Class P Shares (30 million shares of common stock authorized, $.001 par value)   1,281,871 
Class R2 Shares (30 million shares of common stock authorized, $.001 par value)   362,920 
Class R3 Shares (50 million shares of common stock authorized, $.001 par value)   8,997,957 
Class R4 Shares (30 million shares of common stock authorized, $.001 par value)   143,537 
Class R5 Shares (30 million shares of common stock authorized, $.001 par value)   103,344 
Class R6 Shares (50 million shares of common stock authorized, $.001 par value)   9,214,468 
Net asset value, offering and redemption price per share
(Net assets divided by outstanding shares):		     
Class A Shares-Net asset value   $18.68 
Class A Shares-Maximum offering price
(Net asset value plus sales charge of 5.75%)		   $19.82 
Class B Shares-Net asset value   $13.93 
Class C Shares-Net asset value   $14.09 
Class F Shares-Net asset value   $19.31 
Class I Shares-Net asset value   $21.32 
Class P Shares-Net asset value   $18.12 
Class R2 Shares-Net asset value   $17.95 
Class R3 Shares-Net asset value   $18.22 
Class R4 Shares-Net asset value   $18.68 
Class R5 Shares-Net asset value   $21.32 
Class R6 Shares-Net asset value   $21.37 

 

  See Notes to Financial Statements. 9
 

Statements of Operations (unaudited)

For the Six Months Ended January 31, 2017

 

Investment income:     
Dividends  $7,909,833 
Interest and other   2,592 
Interest earned from Interfund Lending (See Note 10)   556 
Total investment income   7,912,981 
Expenses:     
Management fee   6,216,746 
12b-1 distribution plan-Class A   960,956 
12b-1 distribution plan-Class B   11,428 
12b-1 distribution plan-Class C   295,133 
12b-1 distribution plan-Class F   55,268 
12b-1 distribution plan-Class P   30,614 
12b-1 distribution plan-Class R2   25,918 
12b-1 distribution plan-Class R3   457,552 
12b-1 distribution plan-Class R4   1,516 
Shareholder servicing   1,703,070 
Fund administration   487,257 
Subsidy (See Note 3)   169,820 
Registration   78,611 
Reports to shareholders   84,989 
Directors’ fees   28,767 
Professional   35,180 
Custody   31,442 
Interest paid from Interfund Lending (See Note 10)   11,606 
Other   64,074 
Gross expenses   10,749,947 
Expense reductions (See Note 8)   (4,545)
Net expenses   10,745,402 
Net investment loss   (2,832,421)
Net realized and unrealized gain (loss):     
Net realized gain on investments   221,823,820 
Net change in unrealized appreciation/depreciation on investments   (165,205,978)
Net realized and unrealized gain   56,617,842 
Net Increase in Net Assets Resulting From Operations  $53,785,421 

 

10 See Notes to Financial Statements.  
 

Statements of Changes in Net Assets

 

   For the Six Months     
   Ended January 31, 2017   For the Year Ended 
DECREASE IN NET ASSETS  (unaudited)   July 31, 2016 
Operations:          
Net investment loss  $(2,832,421)  $(15,612,666)
Net realized gain (loss) on investments   221,823,820    (500,047,568)
Net change in unrealized appreciation/depreciation on investments   (165,205,978)   (164,269,307)
Net increase (decrease) in net assets resulting from operations   53,785,421    (679,929,541)
Distributions to shareholders from:          
Net realized gain          
Class A   –    (89,976,636)
Class B   –    (593,498)
Class C   –    (9,955,313)
Class F   –    (17,883,908)
Class I   –    (110,967,169)
Class P   –    (2,680,817)
Class R2   –    (1,148,328)
Class R3   –    (22,229,420)
Class R4   –    (4,167)
Class R5   –    (675)
Class R6   –    (3,551,031)
Total distributions to shareholders   –    (258,990,962)
Capital share transactions (Net of share conversions) (See Note 13):          
Net proceeds from sales of shares   172,077,341    687,154,648 
Reinvestment of distributions   –    243,956,992 
Cost of shares reacquired   (709,529,778)   (1,006,073,186)
Net decrease in net assets resulting from capital share transactions   (537,452,437)   (74,961,546)
Net decrease in net assets   (483,667,016)   (1,013,882,049)
NET ASSETS:          
Beginning of period  $2,638,089,166   $3,651,971,215 
End of period  $2,154,422,150   $2,638,089,166 
Accumulated net investment loss  $(10,561,958)  $(7,729,537)

 

  See Notes to Financial Statements. 11
 

Financial Highlights

 

        Per Share Operating Performance:
        Investment operations:  Distributions
to
shareholders
from:		  
   Net asset
value,
beginning
of period		  Net
investment
income
(loss)(a)		  Net
realized and
unrealized
gain (loss)		  Total from
investment
operations		  Net
realized
gain		  
Class A                           
1/31/2017(c)  $18.26   $(0.03)  $0.45   $0.42   $–   
7/31/2016   24.45    (0.12)   (4.22)   (4.34)   (1.85)  
7/31/2015   24.37    (0.16)   4.54    4.38    (4.30)  
7/31/2014   26.80    (0.23)   3.16    2.93    (5.36)  
7/31/2013   21.24    (0.17)   7.44    7.27    (1.71)  
7/31/2012   23.11    (0.20)   (0.41)   (0.61)   (1.26)  
Class B                           
1/31/2017(c)   13.66    (0.08)   0.35    0.27    –   
7/31/2016   18.97    (0.21)   (3.25)   (3.46)   (1.85)  
7/31/2015   19.94    (0.26)   3.59    3.33    (4.30)  
7/31/2014   22.92    (0.34)   2.72    2.38    (5.36)  
7/31/2013   18.52    (0.26)   6.37    6.11    (1.71)  
7/31/2012   20.46    (0.29)   (0.39)   (0.68)   (1.26)  
Class C                           
1/31/2017(c)   13.82    (0.08)   0.35    0.27    –   
7/31/2016   19.17    (0.20)   (3.30)   (3.50)   (1.85)  
7/31/2015   20.10    (0.26)   3.63    3.37    (4.30)  
7/31/2014   23.06    (0.34)   2.74    2.40    (5.36)  
7/31/2013   18.63    (0.27)   6.41    6.14    (1.71)  
7/31/2012   20.58    (0.29)   (0.40)   (0.69)   (1.26)  
Class F                           
1/31/2017(c)   18.86    (0.02)   0.47    0.45    –   
7/31/2016   25.16    (0.10)   (4.35)   (4.45)   (1.85)  
7/31/2015   24.92    (0.12)   4.66    4.54    (4.30)  
7/31/2014   27.23    (0.17)   3.22    3.05    (5.36)  
7/31/2013   21.50    (0.11)   7.55    7.44    (1.71)  
7/31/2012   23.33    (0.15)   (0.42)   (0.57)   (1.26)  
Class I                           
1/31/2017(c)   20.81    (0.01)   0.52    0.51    –   
7/31/2016   27.51    (0.08)   (4.77)   (4.85)   (1.85)  
7/31/2015   26.85    (0.10)   5.06    4.96    (4.30)  
7/31/2014   28.95    (0.15)   3.41    3.26    (5.36)  
7/31/2013   22.73    (0.10)   8.03    7.93    (1.71)  
7/31/2012   24.55    (0.14)   (0.42)   (0.56)   (1.26)  
Class P                           
1/31/2017(c)   17.71    (0.03)   0.44    0.41    –   
7/31/2016   23.78    (0.12)   (4.10)   (4.22)   (1.85)  
7/31/2015   23.81    (0.16)   4.43    4.27    (4.30)  
7/31/2014   26.27    (0.20)   3.10    2.90    (5.36)  
7/31/2013   20.85    (0.16)   7.29    7.13    (1.71)  
7/31/2012   22.71    (0.19)   (0.41)   (0.60)   (1.26)  

 

12 See Notes to Financial Statements.
 
      Ratios to
Average Net Assets:		  Supplemental Data:  
                  
Net asset
value,
end of
period		  Total
return(b)
(%)		  Total
expenses
(%)		  Net
investment
income (loss)
(%)		  Net assets,
end of
period
(000)		  Portfolio
turnover
rate
(%)		  
                  
$18.68    2.30(d)   0.50(d)   (0.17)(d)  $682,665    86.36(d)  
 18.26    (18.13)   1.01    (0.65)   831,225    204.35   
 24.45    20.25    1.00    (0.66)   1,218,062    185.77   
 24.37    10.49    1.08    (0.87)   1,205,395    242.06   
 26.80    37.40    1.11    (0.75)   1,188,182    201.80   
 21.24    (2.03)   1.12    (0.96)   983,120    195.11   
   
 13.93    1.98(d)   0.88(d)   (0.55)(d)   1,773    86.36(d)  
 13.66    (18.78)   1.77    (1.43)   2,677    204.35   
 18.97    19.36    1.73    (1.39)   8,036    185.77   
 19.94    9.81    1.73    (1.53)   9,914    242.06   
 22.92    36.44    1.76    (1.39)   13,286    201.80   
 18.52    (2.61)   1.76    (1.59)   14,273    195.11   
   
 14.09    1.95(d)   0.88(d)   (0.55)(d)   53,251    86.36(d)  
 13.82    (18.79)   1.76    (1.41)   64,562    204.35   
 19.17    19.40    1.73    (1.39)   111,443    185.77   
 20.10    9.79    1.73    (1.53)   112,399    242.06   
 23.06    36.44    1.76    (1.39)   115,966    201.80   
 18.63    (2.60)   1.77    (1.60)   107,011    195.11   
   
 19.31    2.39(d)   0.43(d)   (0.10)(d)   98,828    86.36(d)  
 18.86    (18.05)   0.86    (0.52)   121,768    204.35   
 25.16    20.47    0.83    (0.47)   258,617    185.77   
 24.92    10.80    0.83    (0.63)   158,298    242.06   
 27.23    37.69    0.86    (0.50)   160,601    201.80   
 21.50    (1.74)   0.87    (0.71)   141,616    195.11   
   
 21.32    2.45(d)   0.38(d)   (0.05)(d)   922,361    86.36(d)  
 20.81    (17.96)   0.76    (0.41)   1,182,207    204.35   
 27.51    20.57    0.73    (0.39)   1,703,530    185.77   
 26.85    10.93    0.74    (0.53)   1,463,636    242.06   
 28.95    37.83    0.76    (0.41)   1,225,883    201.80   
 22.73    (1.69)   0.77    (0.61)   830,601    195.11   
   
 18.12    2.37(d)   0.50(d)   (0.18)(d)   23,223    86.36(d)  
 17.71    (18.18)   1.01    (0.66)   25,784    204.35   
 23.78    20.26    0.99    (0.68)   36,331    185.77   
 23.81    10.64    0.98    (0.78)   90,665    242.06   
 26.27    37.37    1.09    (0.74)   110,917    201.80   
 20.85    (2.02)   1.12    (0.95)   85,649    195.11   

 

  See Notes to Financial Statements. 13
 

Financial Highlights (concluded)

 

      Per Share Operating Performance:
      Investment operations:  Distributions
to
shareholders
 from:		  
   Net asset
value,
beginning
of period		  Net
investment
income
(loss)(a)		  Net
realized and
unrealized
gain (loss)		  Total from
investment
operations		  Net
realized
gain		  
Class R2                           
1/31/2017(c)  $17.58   $(0.06)  $0.43   $0.37   $–   
7/31/2016   23.70    (0.18)   (4.09)   (4.27)   (1.85)  
7/31/2015   23.81    (0.23)   4.42    4.19    (4.30)  
7/31/2014   26.35    (0.29)   3.11    2.82    (5.36)  
7/31/2013   20.96    (0.22)   7.32    7.10    (1.71)  
7/31/2012   22.89    (0.25)   (0.42)   (0.67)   (1.26)  
Class R3                           
1/31/2017(c)   17.83    (0.05)   0.44    0.39    –   
7/31/2016   23.99    (0.16)   (4.15)   (4.31)   (1.85)  
7/31/2015   24.03    (0.21)   4.47    4.26    (4.30)  
7/31/2014   26.53    (0.27)   3.13    2.86    (5.36)  
7/31/2013   21.07    (0.20)   7.37    7.17    (1.71)  
7/31/2012   22.97    (0.23)   (0.41)   (0.64)   (1.26)  
Class R4                           
1/31/2017(c)   18.25    (0.02)   0.45    0.43    –   
7/31/2016   24.45    (0.10)   (4.25)   (4.35)   (1.85)  
6/30/2015 to 7/31/2015(e)   24.40    (0.02)   0.07    0.05    –   
Class R5                           
1/31/2017(c)   20.81    –(g)   0.51    0.51    –   
7/31/2016   27.50    (0.07)   (4.77)   (4.84)   (1.85)  
6/30/2015 to 7/31/2015(e)   27.44    (0.01)   0.07    0.06    –   
Class R6                           
1/31/2017(c)   20.85    –(g)   0.52    0.52    –   
7/31/2016   27.51    (0.04)   (4.77)   (4.81)   (1.85)  
6/30/2015 to 7/31/2015(e)   27.44    (0.01)   0.08    0.07    –   

 

(a) Calculated using average shares outstanding during the period.
(b) Total return for classes A, B and C does not consider the effects of sales loads and assumes the reinvestment of all distributions. Total return for all other classes assumes the reinvestment of all distributions.
(c) Unaudited.
(d) Not annualized.
(e) Commenced on June 30, 2015.
(f) Annualized.
(g) Amount less than $0.01.

 

14 See Notes to Financial Statements.
 
      Ratios to
Average Net Assets:		  Supplemental Data:  
            
Net asset        Net  Net assets,  Portfolio  
value,  Total  Total  investment  end of  turnover  
end of  return(b)  expenses  income (loss)  period  rate  
period  (%)  (%)  (%)  (000)  (%)  
                  
$17.95    2.16(d)   0.68(d)   (0.36)(d)  $6,515    86.36(d)  
 17.58    (18.47)   1.36    (1.00)   10,212    204.35   
 23.70    19.88    1.33    (0.99)   13,747    185.77   
 23.81    10.22    1.33    (1.13)   14,855    242.06   
 26.35    37.00    1.36    (1.00)   14,740    201.80   
 20.96    (2.23)   1.37    (1.21)   12,522    195.11   
   
 18.22    2.19(d)   0.63(d)   (0.30)(d)   163,967    86.36(d)  
 17.83    (18.37)   1.26    (0.91)   197,382    204.35   
 23.99    19.95    1.23    (0.89)   302,163    185.77   
 24.03    10.40    1.23    (1.02)   293,384    242.06   
 26.53    37.09    1.26    (0.90)   285,000    201.80   
 21.07    (2.13)   1.27    (1.12)   224,641    195.11   
   
 18.68    2.36(d)   0.50(d)   (0.10)(d)   2,681    86.36(d)  
 18.25    (18.18)   0.97    (0.62)   626    204.35   
 24.45    0.20(d)   0.92(f)   (0.82)(f)   22    185.77   
   
 21.32    2.45(d)   0.38(d)   (0.01)(d)   2,203    86.36(d)  
 20.81    (17.93)   0.70    (0.34)   1,006    204.35   
 27.50    0.22(d)   0.71(f)   (0.59)(f)   10    185.77   
   
 21.37    2.49(d)   0.30(d)   0.02(d)   196,954    86.36(d)  
 20.85    (17.80)   0.60    (0.19)   200,641    204.35   
 27.51    0.26(d)   0.59(f)   (0.47)(f)   10    185.77   

 

  See Notes to Financial Statements. 15
 

Notes to Financial Statements (unaudited)

 

1. ORGANIZATION  

 

Lord Abbett Developing Growth Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified, open-end management investment company. The Fund was incorporated under Maryland law on August 21, 1978. The Fund’s predecessor corporation was organized on July 11, 1973.

 

The Fund’s investment objective is long-term growth of capital through a diversified and actively managed portfolio consisting of developing growth companies, many of which are traded over the counter. The Fund has eleven classes of shares: Class A, B, C, F, I, P, R2, R3, R4, R5 and R6, each with different expenses and dividends. A front-end sales charge is normally added to the net asset value (“NAV”) for Class A shares. There is no front-end sales charge in the case of Class B, C, F, I, P, R2, R3, R4, R5 and R6 shares, although there may be a contingent deferred sales charge (“CDSC”) in certain cases as follows: Class A shares purchased without a sales charge and redeemed before the first day of the month in which the one-year anniversary of the purchase falls (subject to certain exceptions as set forth in the Fund’s prospectus); Class B shares redeemed before the sixth anniversary of purchase; and Class C shares redeemed before the first anniversary of purchase. Class B shares will automatically convert to Class A shares on the 25th day of the month (or, if the 25th day is not a business day, the next business day thereafter) following the eighth anniversary of the day on which the purchase order was accepted. The Fund is not available for purchase by new investors other than certain new investors described in the Fund’s prospectus. The Fund no longer issues Class B shares for purchase. The Fund’s Class P shares are closed to substantially all investors, with certain exceptions as set forth in the Fund’s prospectus.

 

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies.

 

2. SIGNIFICANT ACCOUNTING POLICIES  

 

(a)Investment Valuation–Under procedures approved by the Fund’s Board of Directors (the “Board”), Lord, Abbett & Co. LLC (“Lord Abbett”), the Fund’s investment manager, has formed a Pricing Committee to administer the pricing and valuation of portfolio investments and to ensure that prices utilized reasonably reflect fair value. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
  
 

Securities actively traded on any recognized U.S. or non-U.S. exchange or on The NASDAQ Stock Market LLC are valued at the last sale price or official closing price on the exchange or system on which they are principally traded. Events occurring after the close of trading on non-U.S. exchanges may result in adjustments to the valuation of foreign securities to reflect their fair value as of the close of regular trading on the New York Stock Exchange. The Fund may utilize an independent fair valuation service in adjusting the valuations of foreign securities. Unlisted equity securities are valued at the last quoted sale price or, if no sale price is available, at the mean between the most recently quoted bid and asked prices.

 

16

 

Notes to Financial Statements (unaudited)(continued)

 

 

Securities for which prices are not readily available are valued at fair value as determined by the Pricing Committee. The Pricing Committee considers a number of factors, including observable and unobservable inputs, when arriving at fair value. The Pricing Committee may use related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant information to determine the fair value of portfolio investments. The Board or a designated committee thereof regularly reviews fair value determinations made by the Pricing Committee and employs techniques such as reviewing related market activity, reviewing inputs and assumptions, and retrospectively comparing prices of subsequent purchases and sales transactions to fair value determinations made by the Pricing Committee.

 

Short-term securities with 60 days or less remaining to maturity are valued using the amortized cost method, which approximates fair value.

  
(b)Security Transactions–Security transactions are recorded as of the date that the securities are purchased or sold (trade date). Realized gains and losses on sales of portfolio securities are calculated using the identified-cost method. Realized and unrealized gains (losses) are allocated to each class of shares based upon the relative proportion of net assets at the beginning of the day.

 

(c)Investment Income–Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis as earned. Discounts are accreted and premiums are amortized using the effective interest method and are included in Interest and other income on the Statement of Operations. Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates. Investment income is allocated to each class of shares based upon the relative proportion of net assets at the beginning of the day.

 

(d)Income Taxes–It is the policy of the Fund to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income and capital gains to its shareholders. Therefore, no income tax provision is required.
  
 

The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s filed U.S. federal tax returns remains open for the fiscal years ended July 31, 2013 through July 31, 2016. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.

 

(e)Expenses–Expenses, excluding class-specific expenses, are allocated to each class of shares based upon the relative proportion of net assets at the beginning of the day. Class A, B, C, F, P, R2, R3 and R4 shares bear their class-specific share of all expenses and fees relating to the Fund’s 12b-1 Distribution Plan.

 

(f)Repurchase Agreements–The Fund may enter into repurchase agreements with respect to securities. A repurchase agreement is a transaction in which a fund acquires a security and simultaneously commits to resell that security to the seller (a bank or securities dealer) at an agreed-upon price on an agreed-upon date. The Fund requires at all times that the repurchase agreement be collateralized by cash, or by securities of the U.S. Government, its agencies, its instrumentalities, or U.S. Government sponsored enterprises having a value equal to, or in excess of, the value of the repurchase agreement (including accrued interest). If the seller of the agreement defaults on its obligation to repurchase the underlying securities at a time when the fair value of these securities has declined, the Fund may incur a loss upon disposition of the securities.

 

17

 

Notes to Financial Statements (unaudited)(continued)

 

(g)Fair Value Measurements–Fair value is defined as the price that the Fund would receive upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk – for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy classification is determined based on the lowest level of inputs that is significant to the fair value measurement, and is summarized in the three broad Levels listed below:

 

  • Level 1 – unadjusted quoted prices in active markets for identical investments;
       
  • Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.); and
       
  • Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).

 

  A summary of inputs used in valuing the Fund’s investments as of January 31, 2017 and, if applicable, Level 1/Level 2 transfers and Level 3 rollforwards for the six months then ended is included in the Fund’s Schedule of Investments.

 

  Changes in valuation techniques may result in transfers into or out of an assigned level within the three-tier hierarchy. All transfers between different levels within the three-tier hierarchy are deemed to have occurred as of the beginning of the reporting period. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

 

3. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES  

 

Management Fee

The Fund has a management agreement with Lord Abbett, pursuant to which Lord Abbett supplies the Fund with investment management services and executive and other personnel, provides office space and pays for ordinary and necessary office and clerical expenses relating to research and statistical work and supervision of the Fund’s investment portfolio.

 

The management fee is based on the Fund’s average daily net assets at the following annual rate:

 

First $100 million .75%
Over $100 million .50%

 

For the six months ended January 31, 2017, the effective management fee was at an annualized rate of .51% of the Fund’s average daily net assets.

 

18

 

Notes to Financial Statements (unaudited)(continued)

 

In addition, Lord Abbett provides certain administrative services to the Fund pursuant to an Administrative Services Agreement in return for a fee at an annual rate of .04% of the Fund’s average daily net assets.

 

The Fund, along with certain other funds managed by Lord Abbett (collectively, the “Underlying Funds”), has entered into a Servicing Arrangement with certain “Fund of Funds” managed by Lord Abbett, pursuant to which each Underlying Fund pays a portion of the expenses (excluding management fees, fund administration fees and distribution and service fees) of each Fund of Funds in proportion to the average daily value of the Underlying Fund shares owned by each Fund of Funds. Amounts paid pursuant to the Servicing Arrangement, if applicable, are included in Subsidy expense on the Fund’s Statement of Operations and Payable to affiliates on the Fund’s Statement of Assets and Liabilities. Effective January 1, 2017, the Board approved the discontinuation of the Servicing Arrangement with the Fund of Funds managed by Lord Abbett. As a result, each Fund of Funds will bear its expenses fully, and each of the Underlying Funds will no longer pay a portion of Fund of Funds expenses.

 

As of January 31, 2017, the percentages of the Fund’s outstanding shares owned by Lord Abbett Alpha Strategy Fund and Lord Abbett Diversified Equity Strategy Fund were 9.76% and 0.52%, respectively.

 

12b-1 Distribution Plan

The Fund has adopted a distribution plan with respect to Class A, B, C, F, P, R2, R3 and R4 shares pursuant to Rule 12b-1 under the Act, which provides for the payment of ongoing distribution and service fees to Lord Abbett Distributor LLC (the “Distributor”), an affiliate of Lord Abbett. The following annual rates have been authorized by the Board pursuant to the plan:

 

Fees*  Class A  Class B  Class C  Class F(1)  Class P  Class R2  Class R3  Class R4
Service  .25%(2)  .25%  .25%  –  .25%  .25%  .25%  .25%
Distribution  –  .75%  .75%  .10%  .20%  .35%  .25%  –

 

*The Fund may designate a portion of the aggregate fee as attributable to service activities for purposes of calculating Financial Industry Regulatory Authority, Inc. (“FINRA”) sales charge limitations.
(1)The Class F Share Rule 12b-1 fee may be designated as a service fee in limited circumstances as described in the Fund’s prospectus.
(2)Annual Service fee on shares sold prior to June 1, 1990 is .15% of the average daily net assets attributable to Class A shares.

 

Class I, Class R5 and Class R6 shares do not have a distribution plan.

 

Commissions

Distributor received the following commissions on sales of shares of the Fund, after concessions were paid to authorized dealers, for the six months ended January 31, 2017:

 

Distributor Dealers’
Commissions Concessions
$4,751 $27,713

 

Distributor received CDSCs of $422 and $798 for Class A and Class C shares, respectively, for the six months ended January 31, 2017.

 

Two Directors and certain of the Fund’s officers have an interest in Lord Abbett.

 

19

 

Notes to Financial Statements (unaudited)(continued)

 

4. DISTRIBUTIONS AND CAPITAL LOSS CARRYFORWARDS  

 

Dividends from net investment income, if any, are declared and paid at least annually. Taxable net realized gains from investment transactions, reduced by allowable capital loss carryforwards, if any, are declared and distributed to shareholders at least annually. The capital loss carryforward amount, if any, is available to offset future net capital gains. Dividends and distributions to shareholders are recorded on the ex-dividend date. The amounts of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These book/tax differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the components of net assets based on their federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions that exceed earnings and profits for tax purposes are reported as a tax return of capital.

 

The tax character of distributions paid during the six months ended January 31, 2017 and fiscal year ended July 31, 2016 was as follows:

 

 Six Months Ended     
   1/31/2017   Year Ended 
   (unaudited)   7/31/2016 
Distributions paid from:          
Ordinary income  $–   $26,398,528 
Net long-term capital gains   –    232,592,434 
Total distributions paid  $–   $258,990,962 

 

As of July 31, 2016, the Fund had a capital losses of $54,575,938 that will carryforward indefinitely.

 

As of January 31, 2017, the aggregate unrealized security gains and losses based on cost for U.S. federal income tax purposes were as follows:

 

Tax cost  $1,840,188,893 
Gross unrealized gain   328,430,601 
Gross unrealized loss   (17,809,495)
Net unrealized security gain  $310,621,106 

 

The difference between book-basis and tax basis unrealized gains (losses) is attributable to wash sales.

 

5. PORTFOLIO SECURITIES TRANSACTIONS  

 

Purchases and sales of investment securities (excluding short-term investments) for the six months ended January 31, 2017 were as follows:

 

Purchases Sales
$2,051,713,721 $2,586,894,677

 

There were no purchases or sales of U.S. Government securities for the six months ended January 31, 2017.

 

20

 

Notes to Financial Statements (unaudited)(continued)

 

6. DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES  

 

The Financial Accounting Standards Board (“FASB”) requires disclosures intended to help better assess the effect or potential effect of offsetting arrangements on a fund’s financial position. The following tables illustrate gross and net information about recognized assets and liabilities eligible for offset in the statement of assets and liabilities; and disclose such amounts subject to an enforceable master netting agreement or similar agreement, by counterparty. A master netting agreement is an agreement between the Fund and a counterparty which provides for the net settlement of amounts owed under all contracts traded under that agreement, as well as cash collateral, through a single payment by one party to the other in the event of default on or termination of any one contract. The Fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the master netting agreement does not result in an offset of reported amounts of financial assets and liabilities in the statement of assets and liabilities across transactions between the Fund and the applicable counterparty. As of January 31, 2017, the Fund did not have assets or liabilities subject to the FASB disclosure requirements.

 

7. DIRECTORS’ REMUNERATION  

 

The Fund’s officers and two Directors, who are associated with Lord Abbett, do not receive any compensation from the Fund for serving in such capacities. Independent Directors’ fees are allocated among all Lord Abbett-sponsored funds based on the net assets of each fund. There is an equity-based plan available to all Independent Directors under which Independent Directors must defer receipt of a portion of, and may elect to defer receipt of an additional portion of Directors’ fees. The deferred amounts are treated as though equivalent dollar amounts had been invested in the funds. Such amounts and earnings accrued thereon are included in Directors’ fees on the Statement of Operations and in Directors’ fees payable on the Statement of Assets and Liabilities and are not deductible for U.S. federal income tax purposes until such amounts are paid.

 

8. EXPENSE REDUCTIONS  

 

The Fund has entered into an arrangement with its transfer agent and custodian, whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund’s expenses.

 

9. LINE OF CREDIT  

 

The Fund and certain other funds managed by Lord Abbett (collectively, the “Participating Funds”) entered into a syndicated line of credit facility with various lenders for $550 million (the “Facility”), whereas State Street Bank and Trust Company (“SSB”) participates as a lender and as agent for the lenders. The Facility is to be used for temporary or emergency purposes as an additional source of liquidity to satisfy redemptions. The Participating Funds are subject to graduated borrowing limits of one-third of Fund assets (if Fund assets are less than $750 million), $250 million, $300 million, or $350 million, based on past borrowings and likelihood of future borrowings. The Facility will continue through August 28, 2017.

 

During the six months ended January 31, 2017, the Fund did not utilize the Facility.

 

21

 

Notes to Financial Statements (unaudited)(continued)

 

10. INTERFUND LENDING PROGRAM  

 

Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission (“SEC exemptive order”), certain registered open-end management investment companies managed by Lord Abbett, including the Fund, participate in a joint lending and borrowing program (the “Interfund Lending Program”). The SEC exemptive order allows the funds to borrow money from and lend money to each other for temporary or emergency purposes subject to limitations and conditions.

 

During the six months ended January 31, 2017, the Fund participated as a borrower and lender in the Interfund Lending Program. The average amount loaned and interest rate were $27,974,006 and 0.725%, respectively. The Fund earned interest of $556, which is included in the Statement of Operations. The average amount borrowed and interest rate were $33,516,578 and 0.804% respectively. The Fund paid interest of $11,606, which is included in the Statement of Operations. There were no interfund loans outstanding as of January 31, 2017.

 

11. CUSTODIAN AND ACCOUNTING AGENT  

 

SSB is the Fund’s custodian and accounting agent. SSB performs custodial, accounting and recordkeeping functions relating to portfolio transactions and calculating the Fund’s NAV.

 

12. INVESTMENT RISKS  

 

The Fund is subject to the general risks and considerations associated with equity investing. The value of an investment will fluctuate in response to movements in the equity securities market in general, and to the changing prospects of individual companies in which the Fund invests.

 

The Fund has particular risks associated with growth stocks. Different types of stocks shift in and out of favor depending on market and economic conditions. Growth stocks tend to be more volatile than other stocks. In addition, if the Fund’s assessment of a company’s potential for growth or market conditions is wrong, it could suffer losses or produce poor performance relative to other funds, even in a rising market. The Fund invests primarily in small-cap growth company stocks, which tend to be more volatile and can be less liquid than other types of stocks. Small-cap companies may also have more limited product lines, markets or financial resources, and typically experience a higher risk of failure than large-cap companies. Because the Fund may invest a portion of its assets in foreign securities and American Depositary Receipts, it may experience increased market, liquidity, currency, political, information and other risks.

 

These factors can affect the Fund’s performance.

 

13. SUMMARY OF CAPITAL TRANSACTIONS  

 

Transactions in shares of beneficial interest were as follows:

 

   Six Months Ended         
   January 31, 2017       Year Ended 
       (unaudited)       July 31, 2016 
Class A Shares   Shares    Amount    Shares    Amount 
Shares sold   1,995,290   $36,514,231    6,881,672   $127,498,998 
Converted from Class B*   31,484    583,866    94,035    1,681,613 
Reinvestment of distributions   –    –    4,259,390    81,950,663 
Shares reacquired   (11,012,063)   (201,063,237)   (15,516,473)   (277,267,096)
Decrease   (8,985,289)  $(163,965,140)   (4,281,376)  $(66,135,822)

 

22

 

Notes to Financial Statements (unaudited)(continued)

 

   Six Months Ended         
   January 31, 2017       Year Ended 
       (unaudited)       July 31, 2016 
Class B Shares  Shares   Amount   Shares   Amount 
Shares sold   6,819   $93,638    8,276   $125,475 
Reinvestment of distributions   –    –    39,559    572,427 
Shares reacquired   (43,930)   (455,679)   (151,181)   (2,181,047)
Converted to Class A*   (31,484)   (583,866)   (124,317)   (1,681,613)
Decrease   (68,595)  $(945,907)   (227,663)  $(3,164,758)
                     
Class C Shares                    
Shares sold   71,073   $974,429    249,644   $3,480,938 
Reinvestment of distributions   –    –    550,064    8,052,791 
Shares reacquired   (962,424)   (13,311,880)   (1,943,231)   (26,966,026)
Decrease   (891,351)  $(12,337,451)   (1,143,523)  $(15,432,297)
                     
Class F Shares                    
Shares sold   486,468   $9,228,352    943,964   $17,555,865 
Reinvestment of distributions   –    –    826,560    16,415,497 
Shares reacquired   (1,825,385)   (34,488,768)   (5,595,168)   (101,074,019)
Decrease   (1,338,917)  $(25,260,416)   (3,824,644)  $(67,102,657)
                     
Class I Shares                    
Shares sold   1,768,811   $36,868,217    12,072,023   $249,197,582 
Reinvestment of distributions   –    –    4,917,092    107,635,144 
Shares reacquired   (15,314,562)   (322,261,925)   (22,110,798)   (458,986,352)
Decrease   (13,545,751)  $(285,393,708)   (5,121,683)  $(102,153,626)
                     
Class P Shares                    
Shares sold   43,303   $768,085    210,178   $3,662,443 
Reinvestment of distributions   –    –    142,577    2,660,495 
Shares reacquired   (217,663)   (3,829,479)   (424,378)   (7,548,602)
Decrease   (174,360)  $(3,061,394)   (71,623)  $(1,225,664)
                     
Class R2 Shares                    
Shares sold   38,406   $679,647    219,820   $4,093,804 
Reinvestment of distributions   –    –    47,818    887,974 
Shares reacquired   (256,507)   (4,524,436)   (266,716)   (4,740,352)
Increase (decrease)   (218,101)  $(3,844,789)   922   $241,426 
                     
Class R3 Shares                    
Shares sold   670,274   $11,931,621    2,043,029   $37,283,929 
Reinvestment of distributions   –    –    1,180,979    22,226,129 
Shares reacquired   (2,741,458)   (48,963,837)   (4,749,975)   (84,360,533)
Decrease   (2,071,184)  $(37,032,216)   (1,525,967)  $(24,850,475)
                     
Class R4 Shares                    
Shares sold   131,973   $2,391,290    35,743   $626,823 
Reinvestment of distributions   –    –    216.11    4,167 
Shares reacquired   (22,702)   (424,106)   (2,600)   (43,728)
Increase   109,271   $1,967,184    33,359.11   $587,262 

 

23

 

Notes to Financial Statements (unaudited)(concluded)

 

   Six Months Ended         
   January 31, 2017       Year Ended 
       (unaudited)       July 31, 2016 
Class R5 Shares  Shares   Amount   Shares   Amount 
Shares sold   98,934   $2,065,569    48,164   $928,856 
Reinvestment of distributions   –    –    30.57    675 
Shares reacquired   (43,953.00)   (919,760)   (196)   (3,432)
Increase   54,981   $1,145,809    47,998.57   $926,099 
                     
Class R6 Shares                    
Shares sold   3,359,064   $70,562,262    11,719,610   $242,699,935 
Reinvestment of distributions   –    –    162,147.57    3,551,030 
Shares reacquired   (3,769,381)   (79,286,671)   (2,257,337)   (42,901,999)
Increase (decrease)   (410,317)  $(8,724,409)   9,624,420.57   $203,348,966 

 

*Automatic conversion of Class B shares occurs on the 25th day of the month (or, if the 25th day is not a business day, the next business day thereafter) following the eighth anniversary of the day on which the purchase order was accepted.

 

24

 

Approval of Advisory Contract

 

The Board, including all of the Directors who are not interested persons of the Fund or of Lord Abbett (the “Independent Board Members”), annually considers whether to approve the continuation of the existing management agreement between the Fund and Lord Abbett (the “Agreement”). In connection with its most recent approval, the Board reviewed materials relating specifically to the Agreement, as well as numerous materials received throughout the course of the year, including information about the Fund’s investment performance compared to the performance of its benchmark. Before making its decision as to the Fund, the Board had the opportunity to ask questions and request further information, taking into account its familiarity with Lord Abbett gained through its meetings and discussions. These meetings and discussions included the review of the portfolio management team conducted by members of the Contract Committee, the deliberations of the Contract Committee, and discussions between the Contract Committee and Lord Abbett’s management. The Independent Board Members also met with their independent legal counsel in a private session at which no representatives of management were present.

 

The materials received by the Board included, but were not limited to: (1) information provided by Morningstar Associates, LLC (“Morningstar”) regarding the investment performance of the Fund compared to the investment performance of certain funds with similar investment styles as determined by Morningstar, based, in part, on the Fund’s Morningstar category (the “performance peer group”), and the investment performance of the Fund’s benchmark; (2) information provided by Morningstar regarding the expense ratios, contractual and effective management fee rates, and other expense components for the Fund and certain funds in the same Morningstar category, with generally the same or similar share classes and operational characteristics, including asset size (the “expense peer group”); (3) certain supplemental investment performance information provided by Lord Abbett; (4) information provided by Lord Abbett on the expense ratios, management fee rates, and other expense components for the Fund; (5) sales and redemption information for the Fund; (6) information regarding Lord Abbett’s financial condition; (7) an analysis of the relative profitability of the Agreement to Lord Abbett; (8) information provided by Lord Abbett regarding the investment management fee schedules for Lord Abbett’s other advisory clients maintaining accounts with a similar investment strategy as the Fund; and (9) information regarding the personnel and other resources devoted by Lord Abbett to managing the Fund.

 

Investment Management Services Generally. The Board considered the investment management services provided by Lord Abbett to the Fund, including investment research, portfolio management, and trading, and Lord Abbett’s commitment to compliance with all applicable legal requirements. The Board also observed that Lord Abbett was solely engaged in the investment management business and accordingly did not experience the conflicts of interest that may result from being engaged in other lines of business. The Board considered the investment advisory services provided by Lord Abbett to other clients, the fees charged for the services, and the differences in the nature of the services provided to the Fund and other Lord Abbett Funds, on the one hand, and the services provided to other clients, on the other. After reviewing these and related factors, the Board concluded that the Fund was likely to continue to benefit from the nature, extent and quality of the investment services provided by Lord Abbett under the Agreement.

 

Investment Performance. The Board reviewed the Fund’s investment performance in relation to that of the performance peer group and the Fund’s benchmark as of various periods ended August 31, 2016. The Board observed that the Fund’s investment performance was below the median of the performance peer group for the one-year, three-year and five-year periods and above the median of the performance peer group for the ten-year period. The Board noted a presentation on

 

25

 

Approval of Advisory Contract (continued)

 

investment performance by Lord Abbett, which, among other things, indicated the Fund’s “high growth” style may have impacted its relative ranking in the performance peer group. The Board also considered Lord Abbett’s performance and reputation generally, the performance of other Lord Abbett-managed funds overseen by the Board and the willingness of Lord Abbett to take steps intended to improve performance when necessary. After reviewing these and related factors, the Board concluded that the Fund’s investment performance was reasonable and supported the continuation of the Agreement.

 

Lord Abbett’s Personnel and Methods. The Board considered the qualifications of the personnel providing investment management services to the Fund, in light of its investment objective and discipline. Among other things, the Board considered the size, experience, and turnover of Lord Abbett’s investment management staff, Lord Abbett’s investment methodology and philosophy, and Lord Abbett’s approach to recruiting, training, and retaining investment management personnel.

 

Nature and Quality of Other Services. The Board considered the nature, quality, costs, and extent of compliance, administrative, and other services performed by Lord Abbett and the nature and extent of Lord Abbett’s supervision of third party service providers, including the Fund’s transfer agent and custodian.

 

Expenses. The Board considered the expense level of the Fund and the expense levels of the expense peer group as of the date of each fund’s most recent annual report. It also considered how the expense levels of the Fund related to those of the expense peer group and the amount and nature of the fees paid by shareholders. The Board observed that the overall expense level of the Fund was below the median of the expense peer group. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that the expense level of the Fund was reasonable and supported the continuation of the Agreement.

 

Profitability. The Board considered the level of Lord Abbett’s operating margin in managing the Fund, including a review of Lord Abbett’s methodology for allocating its costs to its management of the Fund. It considered whether the Fund was profitable to Lord Abbett in connection with the operation of the Fund, including the fee that Lord Abbett receives from the Fund for providing administrative services to the Fund. The Board also considered the profits realized from other business segments of Lord Abbett, which may benefit from or be related to the Fund’s business. The Board considered Lord Abbett’s profit margins in comparison with available industry data, both accounting for and excluding marketing and distribution expenses, and how those profit margins could affect Lord Abbett’s ability to recruit and retain investment personnel. The Board recognized that Lord Abbett’s overall profitability was a factor in enabling it to attract and retain qualified investment management personnel to provide services to the Fund. After reviewing these and related factors, the Board concluded, within the context of its overall approval of the Agreement, that Lord Abbett’s profitability with respect to the Fund was not excessive.

 

Economies of Scale. The Board considered the extent to which there had been economies of scale in managing the Fund, whether the Fund’s shareholders had appropriately benefited from such economies of scale, and whether there was potential for realization of any further economies of scale. The Board concluded that the existing management fee schedule, with its breakpoint in the level of the management fee, adequately addressed any economies of scale in managing the Fund.

 

Other Benefits to Lord Abbett. The Board considered the character and amount of fees paid by the Fund and the Fund’s shareholders to Lord Abbett and the Distributor for services other than investment advisory services. The Board also considered the revenues and profitability of Lord

 

26

 

Approval of Advisory Contract (concluded)

 

Abbett’s investment advisory business apart from its mutual fund business, and the intangible benefits enjoyed by Lord Abbett by virtue of its relationship with the Fund. The Board observed that the Distributor receives 12b-1 fees from certain of the Lord Abbett Funds as to shares held in accounts for which there is no other broker of record, may retain a portion of the 12b-1 fees it receives, and receives a portion of the sales charges on sales and redemptions of some classes of shares of the Lord Abbett Funds. In addition, the Board observed that Lord Abbett accrues certain benefits for its business of providing investment advice to clients other than the Lord Abbett Funds, but that business also benefits the Funds. The Board also noted that Lord Abbett, as disclosed in the prospectus of the Fund, has entered into revenue sharing arrangements with certain entities that distribute shares of the Fund. The Board also took into consideration the investment research that Lord Abbett receives as a result of Fund brokerage transactions.

 

Alternative Arrangements. The Board considered whether, instead of approving continuation of the Agreement, it might be in the best interests of the Fund to implement one or more alternative arrangements, such as continuing to employ Lord Abbett, but on different terms. After considering all of the relevant factors, the Board unanimously found that continuation of the Agreement was in the best interests of the Fund and its shareholders and voted unanimously to approve the continuation of the Agreement. In considering whether to approve the continuation of the Agreement, the Board did not identify any single factor as paramount or controlling. Individual Directors may have evaluated the information presented differently from one another, giving different weights to various factors. This summary does not discuss in detail all matters considered.

 

27

 

Householding

 

The Fund has adopted a policy that allows it to send only one copy of the Fund’s prospectus, proxy material, annual report and semiannual report to certain shareholders residing at the same “household.” This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call Lord Abbett at 888-522-2388 or send a written request with your name, the name of your fund or funds and your account number or numbers to Lord Abbett Family of Funds, P.O. Box 219336, Kansas City, MO 64121.

 

Proxy Voting Policies, Procedures and Records

 

A description of the policies and procedures that Lord Abbett uses to vote proxies related to the Fund’s portfolio securities, and information on how Lord Abbett voted the Fund’s proxies during the 12-month period ended June 30 are available without charge, upon request, (i) by calling 888-522-2388; (ii) on Lord Abbett’s Website at www.lordabbett.com; and (iii) on the Securities and Exchange Commission’s (“SEC”) Website at www.sec.gov.

 

Shareholder Reports and Quarterly Portfolio Disclosure

 

The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. Copies of the filings are available without charge, upon request on the SEC’s Website at www.sec.gov and may be available by calling Lord Abbett at 888-522-2388. You can also obtain copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330).

 

28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This report, when not used for the general information of shareholders of the Fund, is to be distributed only if preceded or accompanied by a current fund prospectus.

    
     
Lord Abbett mutual fund shares are distributed by
LORD ABBETT DISTRIBUTOR LLC.		 Lord Abbett Developing Growth Fund, Inc. LADG-3
(03/17)
 
Item 2: Code of Ethics.
  Not applicable.
   
Item 3: Audit Committee Financial Expert.
  Not applicable.
   
Item 4: Principal Accountant Fees and Services.
  Not applicable.
   
Item 5: Audit Committee of Listed Registrants.
  Not applicable.
   
Item 6: Investments.
  Not applicable.
   
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
  Not applicable.
   
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
  Not applicable.
   
Item 9: Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
  Not applicable.
   
Item 10: Submission of Matters to a Vote of Security Holders.
  Not applicable.
   
Item 11: Controls and Procedures.
   
  (a) Based on their evaluation of the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) as of a date within 90 days prior to the filing date of this report, the Chief Executive Officer and Chief Financial Officer of the Registrant have concluded that such disclosure controls and procedures are reasonably designed and effective to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to them by others within those entities.
     
  (b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
 
Item 12: Exhibits.
   
  (a)(1) Code of Ethics. Not applicable.
     
  (a)(2) Certification of each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2 under the Investment Company Act of 1940 is attached hereto as a part of EX-99.CERT.
     
  (b) Certification of each principal executive officer and principal financial officer of the Registrant as required by Section 906 of the Sarbanes-Oxley Act of 2002 is provided as a part of EX-99.906CERT.
 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  lORD aBBETT DEVELOPING GROWTH FUND, INC.
     
  By:  /s/Daria L. Foster
    Daria L. Foster
    President and Chief Executive Officer
     
Date: March 30, 2017    
     
  By:  /s/Joan A. Binstock
    Joan A. Binstock
    Chief Financial Officer and Vice President
     
Date: March 30, 2017    
 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

  By:  /s/Daria L. Foster
    Daria L. Foster
    President and Chief Executive Officer
     
Date: March 30, 2017    
     
  By:  /s/Joan A. Binstock
    Joan A. Binstock
    Chief Financial Officer and Vice President
     
Date: March 30, 2017