[Federal Register Volume 61, Number 151 (Monday, August 5, 1996)]
[Notices]
[Pages 40682-40683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19839]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22110; 812-10108]
The Lazard Funds, Inc., et al; Notice of Application
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: The Lazard Funds, Inc. (the ``Fund''), and Lazard Freres
Asset Management (``Lazard'').
RELEVANT ACT SECTION: Order requested under section 17(d) of the Act
and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order to permit certain
investment companies to deposit their uninvested cash balances in a
single joint account to be used to enter into short-term investments.
FILING DATES: The application was filed on April 26, 1996, and amended
on July 15, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on August 26, 1996,
and should be accompanied by proof of service on applicants in the form
of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, 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 SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicants, 30 Rockefeller Plaza, New York, N.Y. 10020.
FOR FURTHER INFORMATION CONTACT:
Christine Y. Greenlees, Senior Counsel, at (202) 942-0581, or Robert A.
Robertson, Branch Chief, (202) 942-0564 (Office of Investment Company
Regulation, Division of Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Fund, a Maryland corporation, is a registered, open-end
management investment company currently consisting of twelve portfolios
(the ``Portfolios''). Lazard, a division of Lazard Freres & Co. LLC,
serves as investment adviser to each Portfolio. Applicants request that
any relief granted also apply to any future portfolios of the Fund and
any future investment companies or portfolios thereof for which Lazard
or any entity under common control or controlled by Lazard subsequently
serves as investment adviser.
2. State Street Bank and Trust Company (``State Street'') provides
administrative services to each Portfolio and serves as each
Portfolio's custodian.
3. Lazard has discretion to purchase and sell securities for the
Portfolios in accordance with each Portfolio's investment objectives,
management policies and investment restrictions. All Portfolios
currently are authorized by their investment policies and limitations
to invest at least a portion of their uninvested cash balances in
short-term liquid investments, including short term money market
instruments with overnight, over-the-weekend or over-the-holiday
maturities (``Short Term Money Market Instruments'') \1\ and repurchase
agreements.
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\1\ Such instruments may include Treasury bills, United States
government agency certificates, Euro CDs, overnight commercial
paper, term bank deposits, certificates of deposit and bankers'
acceptances of United States banks.
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4. Applicants expect that at the end of each trading day, some or
all of the Portfolios will have uninvested cash balances in their
custodian accounts that otherwise would not be invested in portfolio
securities by Lazard. Generally, such cash balances are invested
separately on behalf of each Portfolio in individual repurchase
agreements. The Portfolios' uninvested cash balances typically are not
invested in Short Term Money Market Instruments because such
investments ordinarily cannot be made on a cost-efficient basis given
the relatively small size of each Portfolio's cash balance.
5. Applicants propose to deposit some or all of the Portfolios'
uninvested cash balances remaining at the end of each trading day into
a single joint account, the daily balance of which would be invested
in: (a) repurchase agreements ``collateralized fully,'' as defined in
rule 2a-7 under the Act; and (b) Short Term Money Market Instruments
which constitute ``Eligible Securities'' within the meaning of rule 2a-
7 under the Act. The Portfolios that are eligible to participate in the
joint account and that elect to participate in such account are
collectively referred to as ``Participants.''
6. Applicants propose that Lazard be responsible for negotiating
the terms of these transactions in accordance with the investment
objectives, management policies and investment restrictions of each
Participant. Except insofar as it is an ``affiliated person'' (as
defined in section 2(a)(3) of the Act) of the Participants, Lazard will
have no monetary participation in the joint account, but will be
responsible for investing assets in the joint account, establishing
accounting and control procedures, and ensuring the equal treatment of
each Participant.
7. Each Portfolio has established certain systems and standards
relating to repurchase agreements. These standards include quality
standards for issuers of repurchase agreements and requirements that
the repurchase agreements will be fully collateralized at all times.
Any joint repurchase agreement transaction will be effected in
accordance with Investment Company Act Release No. 13005 (February 2,
1983) and with any other existing and future positions taken by the
SEC. In the event that the SEC sets forth guidelines with respect to
any type of Short Term Money Market Instrument, all such investments
made through the joint account will comply with those guidelines.
8. A Participant's decision to invest in the joint account will be
solely at its option; a Participant will not be required either to
invest a minimum amount or to maintain a minimum balance in the joint
account.
Applicants' Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 thereunder prohibit an
affiliated person of a registered investment company from participating
in any joint enterprise or arrangement in which such investment company
is a participant, without an SEC order.
2. The Participants, by participating in the proposed joint
account, and Lazard, by managing the proposed joint account, could be
deemed to be ``joint participants'' in a transaction within the meaning
of section 17(d). In addition, the proposed joint account could be
deemed to be a ``joint enterprise or other joint arrangement'' within
the meaning of rule 17d-1.
3. Although Lazard might gain some benefit through administrative
convenience and some possible reduction in clerical costs, the
[[Page 40683]]
participating Portfolios and their shareholders will be the primary
beneficiaries of the joint account because the joint account may earn
higher returns and result in lower transaction costs for the
Portfolios, and would be a more efficient means of administering the
Portfolios' daily investment transactions.
4. Applicants believe that a Portfolio will never be in a less
favorable position than if the joint account were not in place. The
assets of a Participant held in the joint account will not be subject
to the claims of creditors of other Participants.
5. Participants may earn a higher rate of return on investments
through the joint account relative to the returns they could earn
individually. Under most market conditions, it is generally possible to
negotiate a rate of return on larger repurchase agreements and Short
Term Money Market Instruments that is higher than the rate available on
smaller repurchase agreements and Short Term Money Market Instruments.
The joint account also may increase the number of dealers willing to
enter into short-term investment transactions with the participating
Portfolios and may reduce the possibility that their cash balances
remain uninvested.
6. The joint account may result in certain administrative
efficiencies. In addition, by reducing the number of trade tickets
which would have to be written, transactions would be simplified, with
concomitant reduction of the potential for errors. For the reasons set
forth above, applicants believe that granting the requested order is
consistent with the provisions, policies, and purposes of the Act and
the intention of rule 17d-1.
Applicants' Conditions
Applicants will comply with the following as conditions to any
order granted by the SEC:
1. A separate custodial cash account will be established with the
State Street for the joint account into which each Portfolio will be
permitted to have deposited daily some or all of its uninvested net
cash balances after the conclusion of its daily trading activity. (If
in the future any Portfolio has a custodian other than State Street at
which the joint account will be maintained, such Portfolio will appoint
such other custodian as a sub-custodian for the limited purpose of
receiving cash for deposit into the joint account.) The joint account
will not be distinguishable from any other accounts maintained by any
Portfolio with State Street, except that monies of the Portfolios will
be deposited on a commingled basis. The joint account will not have a
separate existence and will not have any indicia of a separate legal
entity. The sole function of the joint account will be to provide a
convenient way of aggregating individual transactions which would
otherwise require daily management by each Portfolio of its uninvested
cash balances.
2. Cash in the joint account will be invested in one or more of the
following, as directed by Lazard: (a) repurchase agreements
``collateralized fully,'' as defined in rule 2a-7 under the Act; and
(b) Short Term Money Market Instruments which constitute ``Eligible
Securities'' within the meaning of rule 2a-7 under the Act.
3. Each Participant's funds in the joint account will be invested
consistent with that Participant's investment objective(s), management
policies and investment restrictions. Not every Participant in the
joint account necessarily will have its cash invested in every
repurchase agreement entered into and/or Short Term Money Market
Instrument purchased through the joint account. However, to the extent
a Participant's funds are applied to a particular investment made
through the joint account, the Participant will participate in and own
a proportionate share of such investment and the income earned or
accrued thereon, based upon the percentage of such investment purchased
with such Participant's funds.
4. Lazard and State Street will maintain records (in conformity
with section 31 of the Act and the rules and regulations thereunder)
documenting, for any given day, each Participant's aggregate investment
in the joint account and its pro rata share of each investment made
through the joint account.
5. The securities subject to the repurchase agreement will be
transferred to the custodial joint account. The securities will not be
held by the repurchase agreement counterparty or by an affiliated
person of that counterparty.
6. All investments held by the joint account will be valued on an
amortized cost basis.
7. To ensure that there will be no opportunity for one Participant,
no Portfolio will be allowed to create a negative balance in the joint
account for any reason, although it will be permitted to draw down its
entire balance at any time. Each Portfolio's decision to invest in the
joint account will be solely at its options, and no Portfolio will be
obligated either to invest in the joint account or to maintain any
minimum balance in the joint account. In addition, each Participant
will retain the sole rights of ownership to any of its assets invested
in the joint account, including interest payable on such assets
invested in the joint account.
8. Lazard will administer the investment of the cash balance in and
operation of the joint account as part of its duties under its existing
or any future investment management agreements with the Portfolios.
Lazard will not collect any additional or separate fee for managing the
joint account.
9. The administration of the joint account will be within the
fidelity bond coverage required by section 17(g) of the Act and rule
17g-1 thereunder.
10. The Fund's Board will adopt procedures for each of the
Portfolios pursuant to which the joint account will operate, which will
be reasonably designed to provide that the requirements of this
application will be met. The Fund's Board members will make and approve
changes they deem necessary to ensure that such procedures are
followed. In addition, the Fund's Board members will determine, no less
frequently than annually, that the joint account has been operated in
accordance with such procedures and will only permit a Portfolio to
continue to participate therein if it determines that there is a
reasonable likelihood that the Portfolio and its shareholders will
benefit from the Portfolio's continued participation.
11. Each Portfolio that values its assets in reliance upon rule 2a-
7 under the act will use the average maturity of the instrument(s) in
the joint account (determined on a dollar weighted basis) for the
purpose of computing that Portfolio's average Portfolio maturity with
respect to the portion of its assets held in the joint account on that
day.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-19839 Filed 8-2-96; 8:45 am]
BILLING CODE 8010-01-M
