[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