MAY 20, 1997
As revised, October 23, 1997
PROSPECTUS
LAZARD RETIREMENT
SERIES, INC.
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Lazard Retirement Small Cap Portfolio
Lazard Retirement Emerging Markets Portfolio
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30 Rockefeller Plaza
New York, New York 10112
(800) 823-6300
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
This Prospectus sets forth concisely information about the Fund and the
Portfolios that a prospective investor should know before investing in a
Portfolio. A Statement of Additional Information dated May 20, 1997, which may
be revised from time to time, containing additional and more detailed
information about the Portfolios, has been filed with the Securities and
Exchange Commission and is incorporated by reference into this Prospectus. The
Securities and Exchange Commission maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information, material incorporated by
reference, and other information regarding the Fund. The Statement of Additional
Information is available without charge and can be obtained by writing or
calling the Fund at the address and telephone number printed above.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Lazard Retirement Series, Inc. (the "Fund") is a no-load, open-end management
investment company, known as a mutual fund. By this Prospectus, the Fund is
offering shares of two portfolios (each, a "Portfolio"), WHICH ARE OFFERED ONLY
TO QUALIFIED PENSION AND RETIREMENT PLANS AND VARIABLE ANNUITY AND VARIABLE LIFE
INSURANCE SEPARATE ACCOUNTS ESTABLISHED BY INSURANCE COMPANIES TO FUND VARIABLE
ANNUITY CONTRACTS AND VARIABLE LIFE INSURANCE POLICIES. Shares of the Portfolios
bear certain costs pursuant to a Distribution and Servicing Plan adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "1940 Act"). For offers to separate accounts, this Prospectus should be
read in conjunction with the prospectus of the separate accounts of the specific
insurance product which should precede or accompany this Prospectus.
Lazard Asset Management (the "Investment Manager"), a division of Lazard Freres
& Co. LLC ("Lazard Freres"), professionally manages each Portfolio.
The names and investment objectives of the Portfolios are as follows:
LAZARD RETIREMENT SMALL CAP PORTFOLIO seeks capital appreciation. This Portfolio
invests primarily in equity securities of companies with market capitalizations
under $1 billion that the Investment Manager considers inexpensively priced
relative to the return on total capital or equity.
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO seeks capital appreciation. This
Portfolio invests primarily in equity securities of non-United States issuers
located, or doing significant business, in emerging market countries that the
Investment Manager considers inexpensively priced relative to the return on
total capital or equity.
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TABLE OF CONTENTS
Page
Annual Operating Expenses................................................. 4
Description of the Portfolios............................................. 5
General................................................................ 5
Investment Objectives and Policies..................................... 5
Investment Considerations and Risks.................................... 8
Management of the Fund and the Portfolios................................. 10
Purchase of Shares........................................................ 12
Redemption of Shares...................................................... 13
Distribution and Servicing Plan........................................... 13
Dividends and Distributions............................................... 14
Taxation.................................................................. 14
Organization and Description of Capital Stock............................. 15
Performance Information................................................... 16
Appendix A................................................................ 17
Appendix B................................................................ 22
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ANNUAL OPERATING EXPENSES
(as a percentage of average daily net assets)
Total
Portfolio
Management 12b-1 Other Operating
Fees Fees Expenses Expenses
------------ -------- --------- ------------
SMALL CAP PORTFOLIO .75% .25% .50% 1.50%
EMERGING MARKETS PORTFOLIO 1.00% .25% .55% 1.80%
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming a
5% annual return (cumulatively through the end of each time period):
1 Year 3 Years
----- -------
SMALL CAP PORTFOLIO $15 $47
EMERGING MARKETS PORTFOLIO $18 $57
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIVE OF
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED.
MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH PORTFOLIO'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN
5%.
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The purpose of the foregoing table is to assist investors in understanding the
costs and expenses borne by each Portfolio, the payment of which will reduce
investors' annual return. The expenses noted above are based on estimated
amounts for the current fiscal year. The information in the foregoing table does
not reflect deduction of account fees and charges to separate accounts or
related insurance policies that may be imposed by participating insurance
companies. For a further description of the various costs and expenses incurred
in the operation of the Portfolios, see "Management of the Fund and the
Portfolios" and "Distribution and Servicing Plan."
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DESCRIPTION OF THE PORTFOLIOS
GENERAL
Shares of the Portfolios are offered only to variable annuity and variable life
insurance separate accounts established by affiliated and unaffiliated life
insurance companies ("Participating Insurance Companies") to fund variable
annuity contracts ("VA contracts") and variable life insurance policies ("VLI
policies" and, together with VA contracts, "Policies"). The Policies are
described in the separate prospectuses and statements of additional information
issued by the Participating Insurance Companies over which the Fund assumes no
responsibility. Portfolio shares also are offered to qualified pension and
retirement plans and accounts permitting accumulation of assets on a
tax-deferred basis ("Eligible Plans" or "Plans").
Differences in tax treatment or other considerations may cause the interests of
Policy owners and Eligible Plan participants to conflict, although the Fund
currently does not foresee any disadvantages to Policy owners or Eligible Plan
participants arising therefrom. Nevertheless, the Fund's Board of Directors
intends to monitor events to identify any material conflicts which may arise and
to determine what action, if any, should be taken in response thereto.
Resolution of an irreconcilable conflict might result in the withdrawal of a
substantial amount of a Portfolio's assets which could adversely affect the
Portfolio's net asset value per share.
INVESTMENT OBJECTIVES AND POLICIES
Each Portfolio has a different investment objective which it pursues through
separate investment policies as described herein. The differences in objectives
and policies among the Portfolios determine the types of portfolio securities in
which each Portfolio invests, and can be expected to affect the degree of risk
to which each Portfolio is subject and its yield or return. The following
investment objectives and related policies and activities of each of the
Portfolios, except as otherwise indicated, are not fundamental and may be
changed by the Board of Directors of the Fund without the approval of the
shareholders. There can be no assurance that any of the Portfolios will achieve
its respective investment objective. The types of portfolio securities in which
each Portfolio may invest are described in greater detail below and under
"Appendix A--Certain Portfolio Securities."
The Portfolios will invest principally in equity securities. The Portfolios will
engage in a value-oriented search for equity securities before they have
attracted wide investor interest. The Investment Manager attempts to identify
inexpensive securities through traditional measures of value, including low
price to earnings ratio, high yield, unrecognized assets, potential for
management change and/or the potential to improve profitability. The Investment
Manager focuses on individual stock selection (a "bottom-up" approach) rather
than on forecasting stock market trends ( a "top-down" approach). Risk is
tempered by diversification of investments.
SMALL CAP PORTFOLIO
The Small Cap Portfolio is a non-diversified portfolio the investment objective
of which is to seek capital appreciation. The Portfolio invests primarily in
equity securities of United States companies with market capitalizations under
$1 billion that the Investment Manager considers inexpensively priced relative
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to the return on total capital or equity. Market capitalization of a company's
stock is its market price per share times the number of shares outstanding. The
equity securities in which the Portfolio may invest include common stocks,
preferred stocks, securities convertible into or exchangeable for common stocks,
rights and warrants and American and Global Depositary Receipts.
Investments generally are made in equity securities of companies which in the
Investment Manager's opinion have one or more of the following characteristics
(the "Small Cap Factors"): (i) are undervalued relative to their earnings power,
cash flow, and/or asset values; (ii) have an attractive price/value relationship
(i.e., have high returns on equity and/or assets with correspondingly low
price-to-book and/or price-to-asset value as compared to the market generally or
the companies' industry groups in particular), with expectations that some
catalyst will cause the perception of value to change within a 24-month time
horizon; (iii) have experienced significant relative under performance and are
out of favor due to a set of circumstances which are unlikely to harm a
company's franchise or earnings power over the longer term; (iv) have low
projected price-to-earnings or price-to-cash-flow multiples relative to their
industry peer group and/or the market in general; (v) have the prospect, or the
industry in which the company operates has the prospect, to allow it to be
become a larger factor in the business and receive a higher valuation as such;
(vi) have significant financial leverage but have high levels of free cash flow
used to reduce leverage and enhance shareholder value; and (vii) have a
relatively short corporate history with the expectation that the business may
grow to generate meaningful cash flow and earnings over a reasonable investment
horizon.
Under normal conditions, the Portfolio will invest at least 65% of the value of
its total assets in the small capitalization equity securities described above.
Assets not invested in such small capitalization equity securities generally
will be invested in large capitalization equity securities or debt securities,
including cash equivalents. The Portfolio also may invest up to 15% of its total
assets in foreign equity or debt securities. See "Investment Considerations and
Risks--Foreign Securities."
The Investment Manager believes that the issuers of small capitalization stocks
often have sales and earnings growth rates which exceed those of larger
companies, and that such growth rates, in turn, may be reflected in more rapid
share price appreciation. However, investing in smaller capitalization stocks
can involve greater risk than is customarily associated with larger, more
established companies. See "Investment Considerations and Risks--Equity
Securities."
When, in the Investment Manager's judgment, business or financial conditions
warrant, the Portfolio may assume a temporary defensive position and invest
without limitation in large capitalization companies or short-term money market
instruments of the types described in "Appendix A--Money Market Instruments" or
hold its assets in cash.
In addition, the Portfolio may engage in various investment techniques, such as
options and futures transactions and lending portfolio securities. For a
discussion of the investment techniques and their related risks,
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see "Investment Considerations and Risks" and "Appendix A--Investment
Techniques" below and "Investment Objectives and Management Policies--Management
Policies" in the Statement of Additional Information.
EMERGING MARKETS PORTFOLIO
The Emerging Markets Portfolio is a non-diversified portfolio the investment
objective of which is to seek long-term capital appreciation. The Portfolio will
invest primarily in securities of issuers which are located, or doing
significant business, in emerging market countries. Emerging markets include
countries where political and economic trends have produced or are producing a
more stable economic environment, developed or developing financial markets and
investment liquidity. Factors affecting a determination of an emerging market
include a legitimate program to reduce government spending and deficits and
reduce excessive regulation of commercial activity, including reducing
confiscatory tax rates, control of inflation, lower trade barriers, stability of
currency exchange rates, increasing foreign and domestic investment,
privatization of state-owned companies and expansion of developed financial
product exchanges.
Under normal market conditions, the Portfolio will invest at least 65% of the
value of its total assets in securities of companies in not less than three
different countries (not including the United States). The remaining portion of
the assets of the Portfolio may be invested in the same or different countries.
The percentage of the Portfolio's assets invested in particular emerging markets
may shift from time to time in accordance with the Investment Manager's
judgment. Emerging market countries generally will include any countries (i)
having an "emerging stock market" as defined by the International Finance
Corporation; (ii) with low- to middle-income economies according to the World
Bank; or (iii) listed in World Bank publications as developing. Currently, the
countries not included in these categories are Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands,
New Zealand, Norway, Spain, Sweden, Switzerland, the United Kingdom and the
United States. For a description of the risks associated with investing in
emerging markets, see "Investment Considerations and Risks--Foreign Securities."
The Portfolio invests primarily in equity securities of issuers located, or
doing significant business, in emerging markets including: issuers organized
under the laws of the emerging market country or for which the principal trading
market for such securities is located in the emerging market country or issuers,
wherever organized, when the issuer's principal activities are in the emerging
market country. The Portfolio may invest in closed-end investment companies
investing in emerging market securities. The Portfolio also may invest in
American and Global Depositary Receipts with respect to emerging market
securities.
Although the Portfolio expects to invest principally in equity securities of
emerging markets issuers, there is no requirement that the Portfolio invest
exclusively in equity securities. When, in the Investment Manager's judgment,
business or financial conditions warrant, the Portfolio may invest in
fixed-income securities or assume a temporary defensive position and invest
without limit in the equity securities of U.S. companies or short-term money
market instruments of the types described in "Appendix A--Money Market
Instruments" or hold its assets in cash.
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In addition, the Portfolio may engage in various investment techniques, such as
foreign currency transactions, options and futures transactions and lending
portfolio securities. For a discussion of the investment techniques and their
related risks, see "Investment Considerations and Risks" and "Appendix
A--Investment Techniques" below and "Investment Objectives and Management
Policies--Management Policies" in the Statement of Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL--Since each Portfolio will pursue different types of investments, the
risks of investing will vary depending on the Portfolio selected for investment.
Before investing in a Portfolio, each investor should assess the risks
associated with the types of investments made by the Portfolio. The net asset
value per share of each Portfolio should be expected to fluctuate. Investors
should consider each Portfolio as part of an overall investment program and
should invest only if they are willing to undertake the risks involved. See
"Investment Objectives and Management Policies--Management Policies" in the
Statement of Additional Information for a further discussion of certain risks.
EQUITY SECURITIES--Equity securities fluctuate in value, often based on factors
unrelated to the value of the issuer of the securities, and such fluctuations
can be pronounced. Changes in the value of a Portfolio's investments will result
in changes in the value of its shares and thus the Portfolio's total return to
investors.
The securities of the smaller companies in which each Portfolio may invest may
be subject to more abrupt or erratic market movements than larger, more
established companies, because these securities typically are traded in lower
volume and the issuers typically are more subject to changes in earnings and
prospects. Smaller capitalization companies often have limited product lines,
markets or financial resources. They may be dependent for management on one or a
few key persons, and can be more susceptible to losses and risks of bankruptcy.
In addition, securities in the small capitalization sector may be thinly traded
(and therefore have to be sold at a discount from current market prices or sold
in small lots over an extended period of time), may be followed by fewer
investment research analysts and may be subject to wider price swings and thus
may create a greater chance of loss than investing in securities of larger
capitalization companies.
FIXED-INCOME SECURITIES--Even though interest-bearing securities are investments
which promise a stable stream of income, the prices of such securities generally
are inversely affected by changes in interest rates and, therefore, are subject
to the risk of market price fluctuations. Certain portfolio securities, such as
those with interest rates that fluctuate directly or indirectly based on
multiples of a stated index, are designed to be highly sensitive to changes in
interest rates and can subject the holders thereof to extreme reductions of
yield and possibly loss of principal.
The values of fixed-income securities also may be affected by changes in the
credit rating or financial condition of the issuer. Certain portfolio
securities, such as those rated below investment grade by Standard & Poor's
Rating Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") (together,
the "Rating Agencies"), may be subject to such risk with respect to the issuing
entity and to greater market fluctuations than certain lower yielding, higher
rated fixed-income securities. Once
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the rating of a portfolio security has been changed, the Portfolio will consider
all circumstances deemed relevant in determining whether to continue to hold the
security. See "Appendix A--Certain Portfolio Securities--Ratings" below and
"Appendix" in the Statement of Additional Information.
FOREIGN SECURITIES--Foreign securities markets generally are not as developed or
efficient as those in the United States. Securities of some foreign issuers are
less liquid and more volatile than securities of comparable U.S. issuers.
Similarly, volume and liquidity in most foreign securities markets are less than
in the United States and, at times, volatility of price can be greater than in
the United States.
Because evidences of ownership of such securities usually are held outside the
United States, the Portfolios will be subject to additional risks which include
possible adverse political and economic developments, seizure or nationalization
of foreign deposits and adoption of governmental restrictions which might
adversely affect the payment of principal and interest on the foreign securities
or restrict the payment of principal and interest to investors located outside
the country of the issuer, whether from currency blockage or otherwise.
With respect to the Emerging Markets Portfolio, emerging market countries have
economic structures that generally are less diverse and mature, and political
systems that are less stable, than those of developed countries. Emerging
markets may be more volatile than the markets of more mature economies; however,
such markets may provide higher rates of return to investors. Many emerging
market countries providing investment opportunities for the Portfolio have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have adverse effects on the economies and securities markets of
certain of these countries.
Since foreign securities often are purchased with and payable in currencies of
foreign countries, the value of these assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations.
FOREIGN CURRENCY TRANSACTIONS--(Emerging Markets Portfolio only) Currency
exchange rates may fluctuate significantly over short periods of time. They
generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries,
actual or perceived changes in interest rates and other complex factors, as seen
from an international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central banks,
or the failure to intervene, or by currency controls or political developments
in the United States or abroad. See "Appendix A--Investment Techniques--Foreign
Currency Transactions."
USE OF DERIVATIVES--Each Portfolio may invest in derivatives ("Derivatives").
These are financial instruments which derive their performance, at least in
part, from the performance of an underlying asset, index or interest rate. The
Derivatives each Portfolio may use include options and futures. While
Derivatives can be used effectively in furtherance of the Portfolio's investment
objective, under certain market conditions, they can increase the volatility of
the Portfolio's net asset value, can decrease the
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liquidity of the Portfolio's securities, and make more difficult the accurate
pricing of the Portfolio's securities. See "Appendix A--Investment
Techniques--Use of Derivatives" below, and "Investment Objectives and Management
Policies--Management Policies--Derivatives" in the Statement of Additional
Information.
PORTFOLIO TURNOVER--Neither Portfolio will consider portfolio turnover to be a
limiting factor in making investment decisions. The Investment Manager
anticipates that, under normal market conditions, the portfolio turnover rate of
each Portfolio will not exceed 100%. A higher rate of portfolio turnover
involves correspondingly greater transaction expenses than a lower rate, which
expenses are borne by the Portfolio and its shareholders and may result in the
realization of substantial net short-term capital gains.
NON-DIVERSIFIED PORTFOLIOS--Each Portfolio is classified as a "non-diversified"
investment company, which means that the proportion of the Portfolio's assets
that may be invested in the securities of a single issuer is not limited by the
1940 Act. A "diversified" investment company is required by the 1940 Act
generally, with respect to 75% of its total assets, to invest not more than 5%
of such assets in the securities of a single issuer. Since a relatively high
percentage of each Portfolio's assets may be invested in the securities of a
limited number of issuers, some of which may be within the same industry, the
Portfolio's securities may be more sensitive to changes in the market value of a
single issuer or industry. However, to meet Federal tax requirements, at the
close of each quarter neither Portfolio may have more than 25% of its total
assets invested in any one issuer and, with respect to 50% of its total assets,
more than 5% of its total assets invested in any one issuer. These limitations
do not apply to U.S. Government securities.
STATE INSURANCE REGULATION--The Fund is intended to be a funding vehicle for VA
contracts and VLI policies to be offered by Participating Insurance Companies
and will seek to be offered in as many jurisdictions as possible. Certain states
may have regulations concerning concentration of investments and purchase and
sale of futures contracts, among other techniques. If applied to the Fund, each
Portfolio may be limited in its ability to engage in such techniques and to
manage its portfolio with the flexibility provided herein. It is the Fund's
intention that each Portfolio operate in material compliance with current
insurance laws and regulations, as applied, in each jurisdiction in which the
Portfolio is offered.
SIMULTANEOUS INVESTMENT BY OTHER PORTFOLIOS OR FUNDS--Investment decisions for
each Portfolio are made independently from those of the other portfolios and
accounts managed by the Investment Manager. If, however, such other portfolios
or accounts desire to invest in, or dispose of, the same securities as the
Portfolio, available investments or opportunities for sales will be allocated
equitably to each. In some cases, this procedure may adversely affect the size
of the position obtained for or disposed of by a Portfolio or the price paid or
received by a Portfolio.
MANAGEMENT OF THE FUND AND THE PORTFOLIOS
DIRECTORS
The Board of Directors, under applicable laws of the State of Maryland, in
addition to supervising the actions of the Investment Manager, as set forth
below, decides upon matters of general policy.
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INVESTMENT MANAGER AND INVESTMENT MANAGEMENT AGREEMENT
Lazard Asset Management, 30 Rockefeller Plaza, New York, New York 10112, has
entered into an investment management agreement (the "Management Agreement")
with the Fund on behalf of each of the Portfolios. Pursuant to the Management
Agreement, the Investment Manager regularly will provide the Portfolios with
investment research, advice and supervision and continuously furnish an
investment program for each Portfolio consistent with its investment objectives
and policies, including the purchase, retention and disposition of securities.
The Investment Manager also is responsible for the selection of brokers and
dealers to effect securities transactions and the negotiation of brokerage
commissions, if any. Purchases and sales of securities on a securities exchange
are effected through brokers who charge a negotiated commission for their
services. Brokerage commissions may be paid to Lazard Freres for executing
securities transactions if the use of Lazard Freres is likely to result in price
and execution at least as favorable as those of other qualified brokers or
dealers. The allocation of brokerage transactions also may take into account a
broker's sales of Portfolio shares. See "Portfolio Transactions" in the
Statement of Additional Information.
The Investment Manager is a division of Lazard Freres, a New York limited
liability company, which is registered as an investment adviser with the
Securities and Exchange Commission (the "Commission") and is a member of the New
York, American and Midwest Stock Exchanges. Lazard Freres provides its clients
with a wide variety of investment banking, brokerage and related services. The
Investment Manager provides investment management services to the Fund's other
portfolios and client discretionary accounts with assets totaling approximately
$38.1 billion as of December 31, 1996. Its clients are both individuals and
institutions, some of whose accounts have investment policies similar to those
of the Portfolios.
The Fund has agreed to pay the Investment Manager an investment management fee
at the annual rate set forth below as a percentage of the average daily value of
the net assets of the relevant Portfolio:
Investment Management
Name of Portfolio Fee Payable
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Small Cap Portfolio .75%
Emerging Markets Portfolio 1.00%
The investment management fees are accrued daily and paid monthly.
Each Portfolio will bear all expenses not specifically assumed by the Investment
Manager, including, among others, the fee payable to the Investment Manager, the
fees of the Directors who are not "affiliated persons" of the Investment
Manager, the expenses of all Directors, the fees and out-of-pocket expenses of
the Fund's custodian and the transfer and dividend disbursing agent and the fee
payable under the Distribution and Servicing Plan. See "Distribution and
Servicing Plan." Expenses attributable to a particular Portfolio are charged
against the assets of that Portfolio; other expenses of the Fund are allocated
among the Portfolios on the basis determined by the Board of Directors,
including, but not limited to, proportionately in relation to the net assets of
each Portfolio. For a more detailed description of the expenses to be borne by
the Portfolios, see "Management" and "Distribution and Servicing Plan" in the
Statement of Additional Information.
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PRINCIPAL PORTFOLIO MANAGERS
The names of the principal persons employed by or associated with the Investment
Manager who are primarily responsible for the day-to-day management of the
assets of each of the Portfolios are as follows:
SMALL CAP PORTFOLIO--Eileen Alexanderson, Herbert W. Gullquist, Bradley J.
Purcell, Michael S. Rome and Leonard M. Wilson
EMERGING MARKETS PORTFOLIO--Herbert W. Gullquist and John R. Reinsberg
BIOGRAPHICAL INFORMATION OF PRINCIPAL PORTFOLIO MANAGERS
EILEEN ALEXANDERSON. Ms. Alexanderson is a Managing Director of the Investment
Manager where she has been employed since 1979.
HERBERT W. GULLQUIST. Mr. Gullquist is a Managing Director of the Investment
Manager and has been with the Investment Manager since 1982.
BRADLEY J. PURCELL. Mr. Purcell is a Vice President of the Investment Manager
and has been with the Investment Manager since 1991.
JOHN R. REINSBERG. Mr. Reinsberg is a Managing Director of the Investment
Manager and has been with the Investment Manager since 1992.
MICHAEL S. ROME. Mr. Rome is a Managing Director of the Investment Manager and
has been with the Investment Manager since 1991.
LEONARD M. WILSON. Mr. Wilson has been a Senior Vice President of the Investment
Manager since 1988.
ADMINISTRATOR
State Street Bank and Trust Company ("State Street"), located at 225 Franklin
Street, Boston, Massachusetts 02110, serves as each Portfolio's administrator
pursuant to an Administration Agreement with the Fund.
DISTRIBUTOR
Under the terms of a distribution agreement with the Fund, Lazard Freres acts as
distributor for the Portfolios.
CUSTODIAN; TRANSFER AND DIVIDEND DISBURSING AGENT
State Street has been retained to act as Custodian of the Portfolios'
investments. Boston Financial Data Services Inc., an affiliate of State Street,
serves as the Fund's Transfer and Dividend Disbursing Agent. Neither the
Custodian nor the Transfer Agent has any part in deciding either Portfolio's
investment policies or which securities are to be purchased or sold for either
Portfolio. Subject to the supervision of the Fund's Board of Directors, the
Custodian may enter into subcustodial arrangements on behalf of either Portfolio
for the holding of foreign securities.
PURCHASE OF SHARES
INDIVIDUALS MAY NOT PLACE PURCHASE ORDERS DIRECTLY WITH THE FUND. INDIVIDUALS
SHOULD CONSULT A PARTICIPATING INSURANCE COMPANY, THE ADMINISTRATOR OF AN
ELIGIBLE PLAN OR A FINANCIAL INTERMEDIARY FOR INFORMATION ON THE PURCHASE OF
PORTFOLIO SHARES. THE FUND DOES NOT ISSUE SHARE CERTIFICATES.
Purchase orders received by the participating insurance company or eligible plan
on a given business day will be effected
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at the net asset value of the applicable Portfolio determined on such business
day if the orders are received by the Fund on the next business day in
accordance with applicable requirements. It is each Participating Insurance
Company's or Eligible Plan administrator's or trustee's responsibility to
transmit purchase orders in accordance with applicable requirements.
Fund shares are sold on a continuous basis. Net asset value ordinarily is
determined as of 4:00 p.m. (New York Time) on each day during which the New York
Stock Exchange is open for trading. For purposes of determining net asset value,
options and futures contracts will be valued 15 minutes after the close of
trading on the floor of the New York Stock Exchange. Net asset value per share
is computed by dividing the value of the net assets of each Portfolio (i.e., the
value of its assets less liabilities) by the total number of shares outstanding.
Equity securities typically are valued based on market value, or where market
quotations are not readily available, based on fair value as determined in good
faith by the Board. Debt securities having remaining maturities of 60 days or
less are valued on an amortized cost basis unless the Board determines that such
method does not represent fair value. Other debt securities are valued using
available market quotations or at fair value which may be determined by one or
more pricing services. For further information regarding the methods employed in
valuing each Portfolio's investments, see "Determination of Net Asset Value" in
the Statement of Additional Information.
REDEMPTION OF SHARES
Portfolio shares may be redeemed at any time by the separate accounts of the
Participating Insurance Companies or by Eligible Plans. INDIVIDUALS MAY NOT
PLACE REDEMPTION ORDERS DIRECTLY WITH THE FUND. Redemption requests received by
the Participating Insurance Company or Eligible Plan on a given business day
will be effected at the net asset value of the applicable Portfolio determined
on such business day if the requests are received by the Fund in proper form and
in accordance with applicable requirements on the next business day. It is each
Participating Insurance Company's or Eligible Plan administrator's or trustee's
responsibility to properly transmit redemption requests in accordance with
applicable requirements. The value of the shares redeemed may be more or less
than their original cost, depending on the Portfolio's then-current net asset
value.
The Fund ordinarily will make payment for all shares redeemed within seven days
after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Commission.
DISTRIBUTION AND SERVICING PLAN
Shares of the Portfolios are subject to a Distribution and Servicing Plan,
adopted pursuant to Rule 12b-1 under the 1940 Act. Under the Distribution and
Servicing Plan, each Portfolio pays Lazard Freres for advertising, marketing and
distributing the Portfolio's shares and for the provision of certain services to
the holders of Portfolio shares at an annual rate of .25 of 1% of the
Portfolio's average daily net assets. Lazard Freres may make payments to
Participating Insurance Companies for providing these services to Policy owners
or to certain financial institutions, securities dealers and other industry
professionals (collectively, "Service Agents") for providing these services to
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<PAGE>
Eligible Plan participants. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and services
related to the maintenance of shareholder accounts. The fee payable for such
services is intended to be a "service fee" as defined in the NASD Conduct Rules.
Depending on a Participating Insurance Company's corporate structure and
applicable state law, Lazard Freres may make payments to the Participating
Insurance Company's affiliated broker-dealer or other affiliated company rather
than the Participating Insurance Company itself.
From time to time, Lazard Freres may defer or waive receipt of fees under the
Distribution and Servicing Plan while retaining the ability to be paid by the
Fund under the Distribution and Servicing Plan thereafter. The fees payable to
Lazard Freres under the Distribution and Servicing Plan for advertising,
marketing and distributing Portfolio shares and for payments to Participating
Insurance Companies and Service Agents are payable without regard to actual
expenses incurred.
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio declares and pays dividends from net investment income annually.
Net realized capital gains, if any, generally will be distributed once a year,
but each Portfolio may make distributions on a more frequent basis to comply
with the distribution requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), in all events in a manner consistent with the provisions
of the 1940 Act. Neither Portfolio will make distributions from net realized
capital gains unless capital loss carryovers, if any, have been utilized or have
expired. Shares begin accruing dividends on the day the purchase order is
received in proper form by the Transfer Agent. Dividends and distributions will
be invested in additional shares of the same Portfolio at net asset value and
credited to the shareholder's account on the payment date or, at the
shareholder's election, paid in cash.
TAXATION
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Code. Each Portfolio will be treated as a separate entity
for tax purposes and thus the provisions of the Code applicable to regulated
investment companies generally will be applied to each Portfolio separately,
rather than to the Fund as a whole. In addition, net capital gains, net
investment income, and operating expenses will be determined separately for each
Portfolio. By qualifying as a regulated investment company under the Code, a
Portfolio will not be subject to Federal income taxes with respect to net
investment income and net capital gains distributed to its shareholders.
Section 817(h) of the Code and regulations thereunder set standards for
diversification of the investments underlying Policies in order for the Policies
to be treated as life insurance. These requirements, which are in addition to
diversification requirements applicable to the Portfolios under Subchapter M of
the Code, may affect the composition of a Portfolio's investments. Since the
shares of the Portfolios currently are sold to segregated asset accounts
underlying such Policies, each Portfolio intends to comply with the
diversification requirements as set forth in the regulations.
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<PAGE>
By meeting these and other requirements, the Participating Insurance Companies,
rather than the Policy owners, should be subject to tax on distributions
received with respect to Portfolio shares. The tax treatment on distributions
made to a Participating Insurance Company will depend on the Participating
Insurance Company's tax status.
Dividends and distributions made by the Portfolios to Eligible Plans are not
taxable to the Plans or to the participants thereunder. The Portfolios will be
managed without regard to tax ramifications.
Since the Fund's shareholders are the Participating Insurance Companies, their
separate accounts and Eligible Plans, no discussion is included herein as to the
Federal income tax consequences to Policy owners and Eligible Plan participants.
For information concerning the Federal income tax consequences, Policy owners
should consult the applicable prospectus of the separate account of the
Participating Insurance Company and Eligible Plan participants should consult
the Plan's administrator or trustee.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Fund consists of five hundred million shares
of common stock, $.001 par value. To date, the Fund's Board of Directors has
authorized a total of ten Portfolios. Each Portfolio is a separate pool of
assets constituting, in effect, a separate fund with its own investment
objectives and policies. A shareholder in a Portfolio will be entitled to its
pro rata share of all dividends and distributions arising from that Portfolio's
assets and, upon redeeming shares of that Portfolio, will receive the
then-current net asset value of that Portfolio represented by the redeemed
shares. See "Purchase of Shares" and "Redemption of Shares." By this Prospectus,
shares of the Small Cap Portfolio and Emerging Markets Portfolio are being
offered. The Fund's other portfolios are sold pursuant to other offering
documents. The Fund is empowered to establish, without shareholder approval,
additional portfolios which may have different investment objectives, policies
or restrictions. All shares of the Fund will be validly issued, fully paid and
non-assessable. Each share has one vote.
In accordance with current law, the Fund anticipates that a Participating
Insurance Company issuing a VA contract or VLI policy or an Eligible Plan that
participates in the Fund will request voting actions from Policy holders or Plan
participants and will vote shares in proportion to the voting instructions
received. For further information on voting rights, Policy holders should refer
to the prospectus for their Policies and Plan participants should consult the
Plan's administrator or trustee.
Maryland law does not require annual meetings of shareholders except under
certain specified circumstances and it is anticipated that shareholder meetings
will be held only when required by Federal or Maryland law. A meeting of
shareholders will be called, however, for the purpose of voting upon the
question of removal of a director of the Fund, upon the written request of
holders of not less than ten percent of all votes entitled to be cast at the
meeting. The Fund will assist shareholders in communications concerning the
removal of any director of the Fund.
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<PAGE>
PERFORMANCE INFORMATION
From time to time, the Portfolios may advertise their "average annual total
return" and their "total return." THESE FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. These total returns show
the investment results of the Portfolio over a specified period of time (such as
one, five or ten years, or the period of time since commencement of operations,
if shorter) and assume the reinvestment of all distributions and dividends. Both
types of total return are computed in the same manner, except that the "average
annual total return" requires the additional step of determining the annual rate
of return required for the initial investment to equal the "total return" at the
end of the relevant period.
In addition, from time to time, the Fund may advertise "yield" and "actual
distribution rate" quotations for one or more Portfolios. A Portfolio's "yield"
for any 30-day period is computed by dividing the net investment income per
share earned during such period by the maximum public offering price per share
on the last day of the period, and then annualizing such 30-day yield in
accordance with a formula prescribed by the Commission which provides for
compounding on a semi-annual basis. A Portfolio's "actual distribution rate" is
computed in the same manner as yield except that actual income dividends
declared per share during the period in question is substituted for net
investment income per share.
Performance will vary from time to time and past results are not necessarily
representative of future results. Investors should remember that performance is
a function of portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses. Performance
information, such as that described above, may not provide a basis for
comparison with other investments or other investment companies using a
different method of calculating performance. Performance information of a
Portfolio should not be compared with other funds that offer their shares
directly to the public since the figures provided do not reflect charges imposed
by Participating Insurance Companies under their VA contracts or VLI policies.
The yield and total return for a Portfolio should be distinguished from the rate
of return of a corresponding sub-account or investment division of a separate
account of a Participating Insurance Company, which rate will reflect the
deduction of additional charges, including mortality and expense risk charges,
and therefore will be lower. Variable annuity contract holders and variable life
insurance policy holders should consult the prospectus for their contract or
policy.
Although the Fund is newly-organized and the Portfolios do not yet have their
own performance records, each Portfolio has the same investment objectives and
follows substantially the same investment policies as a corresponding publicly
offered series of The Lazard Funds, Inc., which is an open-end investment
company. These Lazard public funds have the same portfolio managers as the
corresponding Portfolios offered in this Prospectus. Historical performance
information for the corresponding Lazard public funds for various periods ended
December 31, 1996 is set forth on "Appendix B."
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<PAGE>
APPENDIX A
INVESTMENT TECHNIQUES
FOREIGN CURRENCY TRANSACTIONS--(Emerging Markets Portfolio only) Foreign
currency transactions may be entered into a variety of purposes, including: to
fix in U.S. dollars, between trade and settlement date, the value of a security
the Portfolio has agreed to buy or sell; to hedge the U.S. dollar value of
securities the Portfolio already owns, particularly if it expects a decrease in
the value of the currency in which the foreign security is denominated; or to
gain exposure to the foreign currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Portfolio's purchase
of foreign currencies for U.S. dollars or the maintenance of short positions in
foreign currencies, which would involve the Portfolio agreeing to exchange an
amount of a currency it did not currently own for another currency at a future
date in anticipation of a decline in the value of the currency sold relative to
the currency the Portfolio contracted to receive in the exchange. The
Portfolio's success in these transactions will depend principally on the
Investment Manager's ability to predict accurately the future exchange rates
between foreign currencies and the U.S. dollar.
BORROWING MONEY--Each Portfolio is permitted to borrow to the extent permitted
under the 1940 Act, which permits an investment company to borrow in an amount
up to 33-1/3% of the value of its total assets. Each Portfolio currently intends
to borrow money only from banks for temporary or emergency (not leveraging)
purposes, in an amount up to 15% of the value of its total assets (including the
amount borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of a Portfolio's total assets, the Portfolio will not make
any additional investments.
USE OF DERIVATIVES--Each Portfolio may invest in the types of Derivatives
enumerated under "Investment Consideration and Risks--Use of Derivatives." These
instruments and certain related risks are described more specifically under
"Investment Objectives and Management Policies--Management
Policies--Derivatives" in the Statement of Additional Information.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
Portfolio as a whole. Derivatives permit the Portfolio to increase or decrease
the level of risk, or change the character of the risk, of its portfolio by
making investments in specific securities.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in Derivatives could have a large
potential impact on the Portfolio's performance.
If the Portfolio invests in Derivatives at inappropriate times or judges market
conditions incorrectly, such investments may lower the Portfolio's return or
result in a loss. The Portfolio also could experience losses if its Derivatives
were poorly correlated with its other investments or if the Portfolio were
unable to liquidate its position because of an illiquid secondary market. The
market for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
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<PAGE>
Although neither the Fund nor any Portfolio will be a commodity pool, certain
Derivatives subject the Portfolio to the rules of the Commodity Futures Trading
Commission which limit the extent to which the Portfolio can invest in such
Derivatives. The Portfolio may invest in futures contracts and options with
respect thereto for hedging purposes without limit. However, the Portfolio may
not invest in such contracts and options for other purposes if the sum of the
amount of initial margin deposits and premiums paid for unexpired options with
respect to such contracts, other than for bona fide hedging purposes, exceeds 5%
of the liquidation value of the Portfolio's assets, after taking into account
unrealized profits and unrealized losses on such contracts and options;
provided, however, that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
Each Portfolio may invest up to 5% of its assets, represented by the premium
paid, in the purchase of call and put options. Each Portfolio may write (i.e.,
sell) covered call and put options contracts to the extent of 20% of the value
of its net assets at the time such option contracts are written. When required
by the Commission, a Portfolio will set aside permissible liquid assets in a
segregated account to cover its obligations relating to its transactions in
Derivatives. To maintain this required cover, the Portfolio may have to sell
portfolio securities at disadvantageous prices or times since it may not be
possible to liquidate a Derivative position at a reasonable price.
LENDING PORTFOLIO SECURITIES--Each Portfolio may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. The Portfolio continues to be
entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Portfolio an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 33-1/3% of
the value of the Portfolio's total assets, and the Portfolio will receive
collateral consisting of cash, U.S. Government securities or irrevocable letters
of credit which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Such loans are
terminable by the Portfolio at any time upon specified notice. The Portfolio
might experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Portfolio.
FORWARD COMMITMENTS--Each Portfolio may purchase securities on a forward
commitment or when-issued basis, which means that delivery and payment take
place a number of days after the date of the commitment to purchase. The payment
obligation and the interest rate receivable on a forward commitment or
when-issued security are fixed when the Portfolio enters into the commitment,
but the Portfolio does not make payment until it receives delivery from the
counterparty. The Portfolio will commit to purchase such securities only with
the intention of actually acquiring the securities, but the Portfolio may sell
these securities before the settlement date if it is deemed advisable. When
required by the Commission, a Portfolio may have to set aside permissible liquid
assets in a segregated account to cover its commitments.
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CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES--Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock. Convertible
securities have characteristics similar to both fixed-income and equity
securities. Convertible securities generally are subordinated to other similar
but non-convertible securities of the same issuer, although convertible bonds,
as corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible securities.
DEPOSITARY RECEIPTS--Each Portfolio may invest in the securities of foreign
issuers in the form of American Depositary Receipts ("ADRs") and Global
Depositary Receipts ("GDRs"). These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. GDRs are receipts issued outside the United States, typically by
non-United States banks and trust companies that evidence ownership of either
foreign or domestic securities. Generally, ADRs in registered form are designed
for use in the United States securities markets and GDRs in bearer form are
designed for use outside the United States.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES--Each
Portfolio may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Investment Manager to be of
comparable quality to the other obligations in which the Portfolio may invest.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.
WARRANTS--A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specified amount of the corporation's capital
stock at a set price for a specified period of time. Each Portfolio may invest
up to 5% of its total assets in warrants, except that this limitation does not
apply to warrants purchased by the Portfolio that are sold in units with, or
attached to, other securities.
INVESTMENT COMPANIES--Each Portfolio may invest, to the extent permitted under
the 1940 Act, in securities issued by investment companies which principally
invest in securities of the type in which the Portfolio invests. Investments in
the securities of investment companies may involve duplication of advisory fees
and certain other expenses.
MONEY MARKET INSTRUMENTS--Each Portfolio, unless otherwise provided, may invest
in the following types of Money Market Instruments.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the
U.S. Government or
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its agencies or instrumentalities include U.S. Treasury securities that differ
in their interest rates, maturities and times of issuance. Some obligations
issued or guaranteed by U.S. Government agencies and instrumentalities are
supported by the full faith and credit of the U.S. Treasury; others by the right
of the issuer to borrow from the Treasury; others by discretionary authority of
the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest. While the
U.S. Government provides financial support to such U.S. Government-sponsored
agencies and instrumentalities, no assurance can be given that it will always do
so since it is not so obligated by law.
FOREIGN GOVERNMENT SECURITIES. Securities issued or guaranteed by a
foreign government or its agencies or instrumentalities.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio
buys, and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the seller's
obligation to repurchase is secured by the value of the underlying security.
Repurchase agreements could involve risks in the event of a default or
insolvency of the other party to the agreement, including possible delays or
restrictions upon the Portfolio's ability to dispose of the underlying
securities. The Portfolio may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Portfolio may purchase certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations
issued by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Portfolio may be subject to
additional investment risks that are differing in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. See "Investment Considerations and Risks--Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the obligation of
a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time (in no event longer than seven days) at a stated
interest rate.
Banker's acceptances are credit instruments evidencing the obligation of a bank
to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial paper
of U.S. issuers or foreign issuers (in the case of the Emerging Markets
Portfolio) purchased by the Portfolio will consist only of direct
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<PAGE>
obligations which, at the time of their purchase, are (a) rated not lower than
Prime-1 by Moody's, A-1 by S&P, Fitch-1 by Fitch or Duff-1 by Duff, (b) issued
by companies having an outstanding debt issue currently rated at least Aa/AA by
one or more Rating Agencies, or (c) if unrated, determined by the Investment
Manager to be of comparable quality to those rated obligations which may be
purchased by the Portfolio.
PARTICIPATION INTERESTS. Each Portfolio may purchase from financial
institutions participation interests in securities in which the Portfolio may
invest. A participation interest gives the Portfolio an undivided interest in
the security in the proportion that the Portfolio's participation interest bears
to the total principal amount of the security. These instruments may have fixed,
floating or variable rates of interest with remaining maturities of 13 months or
less. If the participation interest is unrated, or has been given a rating below
that which is permissible for purchase by the Portfolio, the participation
interest will be collateralized by U.S. Government securities, or, in the case
of unrated participation interests, the Investment Manager must have determined
that the instrument is of comparable quality to those instruments in which the
Portfolio may invest.
ILLIQUID SECURITIES--Each Portfolio may invest up to 15% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Portfolio's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or contractual
restrictions on resale, repurchase agreements providing for settlement in more
than seven days after notice. As to these securities, the Portfolio is subject
to a risk that should the Portfolio desire to sell them when a ready buyer is
not available at a price the Portfolio deems representative of their value, the
value of the Portfolio's net assets could be adversely affected.
RATINGS--Each Portfolio may invest in debt securities rated Baa/BBB or bettter
by the Rating Agencies to the extent described above. Securities rated Baa by
Moody's are considered medium grade obligations; they are neither highly
protected nor poorly secured, and are considered by Moody's to have speculative
characteristics. Bonds rated BBB by S&P, Fitch and Duff are investment grade and
regarded as having adequate capacity to pay interest and repay principal;
however, adverse changes in economic conditions and circumstances are more
likely to have an adverse impact on these bonds and, therefore, impair timely
payment. See "Appendix" in the Statement of Additional Information for a general
description of securities ratings.
The Rating Agencies' ratings represent their opinions as to the quality of the
obligations which they undertake to rate. Ratings are relative and subjective
and, although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risks of such
obligations. Although these ratings may be an initial criterion for selection of
portfolio investments, the Investment Manager also will evaluate these
securities and the ability of the issuers of such securities to pay interest and
principal.
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APPENDIX B
Set forth below is total return and average annual total return information for
publicly offered series of The Lazard Funds, Inc., which correspond to the
Portfolios offered in this Prospectus, calculated as described under
"Performance Information," and for an appropriate securities index. Investors
should not consider this performance data as an indication of the future
performance of the Portfolios offered in this Prospectus. The performance
figures below reflect the deduction of the historical fees and expenses paid by
the Institutional Shares of the Lazard public funds, and not those to be paid by
the Portfolios. The figures also do not reflect the deduction of charges or
expenses attributable to VA contracts or VLI policies. Policy owners should
refer to the applicable insurance company disclosure documents for information
on such charges and expenses. Additionally, although it is anticipated that each
Portfolio and its corresponding Lazard public fund will hold similar securities,
their investment results are expected to differ. In particular, differences in
asset size and in cash flow resulting from purchases and redemptions of
Portfolio shares may result in different security selections, differences in the
relative weightings of securities or differences in the price paid for
particular portfolio holdings.
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The total return and average annual total return for the corresponding Lazard
public funds and securities indices for the indicated periods ended September
30, 1997 were:
<TABLE>
<CAPTION>
NAME OF PUBLIC FUND TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN
AND INDEX PERIOD ENDED SEPTEMBER 30, 1997 PERIOD ENDED SEPTEMBER 30, 1997
------------------- ------------------------------------- -----------------------------------
ONE THREE FIVE SINCE ONE THREE FIVE SINCE
YEAR YEARS YEARS INCEPTION* YEAR YEARS YEARS INCEPTION*
------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lazard Small Cap Portfolio 42.53% 90.27% 209.65% 241.09% 42.53% 23.91% 25.36% 23.03%
Russell 2000 Index** 33.19% 85.91% 154.16% 169.78% 33.19% 22.96% 20.51% 18.25%
Lazard Emerging Markets Portfolio 18.00% 13.03% -- 31.79% 18.00% 4.17% -- 8.97%
IFC Investable Total Return Index** 5.39% (12.00)% -- 5.20% 5.39% (4.17)% -- 1.59%
</TABLE>
- ----------
* Inception dates are: Lazard Small Cap Portfolio--October 31, 1991; and
Lazard Emerging Markets Portfolio--July 15, 1994.
** The performance data of the indices have been prepared from sources and data
that the Investment Manager believes to be reliable, but no representation
is made as to their accuracy. These indices are unmanaged and have no fees
or costs. The Russell 2000(R) Index is composed of 2,000 common stocks of
U.S. companies with market capitalizations ranging between $10 million and
$2.57 billion as of September 30, 1997. The IFC Investable Total Return
Index is a market capitalization-weighted index of emerging markets
securities that represent approximately 65% of all securities based on
market capitalization compiled by the International Finance Corporation.
The above returns reflect partial waivers of fees. Without such waivers, the
total returns and average annual total returns would have been lower.
* * *
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUND'S
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S SHARES,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
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