File Nos. 33-40682
811-632
As filed with the Securities and Exchange Commission on October 13, 1995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No.
Post-Effective Amendment No. 8 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 10 |X|
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THE LAZARD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
30 Rockefeller Plaza, New York, New York 10020
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 632-6000
William G. Butterly, III
Lazard Freres & Co. LLC
30 Rockefeller Plaza, New York, New York 10020
(Name and address of agent for service)
It is proposed that this filing will become effective (check appropriate box)
_______immediately upon filing pursuant to paragraph (b)
_______on May 1, 1995 pursuant to paragraph (b)
_______60 days after filing pursuant to paragraph (a)(i)
_______on (date) pursuant to paragraph (a)(i)
_______75 days after filing pursuant to paragraph (a)(ii)
|X| on December 30, 1995 pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
_______ this post-effective amendment designates a new effective date for a
previously filed post effective amenedment.
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Registrant has registered an indefinite number of shares pursuant to
Rule 24f-2 under the Investment Company Act of 1940. On February 21, 1995,
Registrant filed the notice required by such Rule for its fiscal year completed
on December 31, 1994.
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<PAGE>
THE LAZARD FUNDS, INC.
CROSS REFERENCE SHEET
(as required by Rule 404(c))
TABLE OF CONTENTS
<TABLE>
N-1A Item No. ................................................................Location in Prospectus (Caption)
<S> <C> <C>
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table; Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Summary; Investment Objectives and Policies:
Investment Restrictions
Item 5. Management of the Fund Management; Account Services; Fee Table
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Taxation; Organization and Description of
Capital Stock
Item 7. Purchase of Securities Being Offered Purchase of Shares; Determination of Net Asset
Value
Item 8. Redemption of Repurchase Redemption of Shares
Item 9. Pending Legal Proceedings Not Applicable
Location in Statement of Additional Information (Caption)
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Additional Permitted Investment Activities;
Investment Restrictions
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Holders of Organization and Description of Capital Stock
Securities
Item 16. Investment Advisory and Other Services Management
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Organization and Description of Capital Stock
Item 19. Purchase, Redemption and Pricing of Determination of Net Asset Value; Redemption of
Securities Being Offered Shares
Item 20. Tax Status Taxation
Item 21. Underwriters Not Applicable
Item 22. Calculation of Performance Date Yield and Total Return Quotations
Item 23. Financial Statements Financial Statements
</TABLE>
<PAGE>
THE LAZARD FUNDS, INC.
======================
PROSPECTUS
DECEMBER 30, 1995
LAZARD FRERES & CO. LLC
30 Rockefeller Plaza, New York, New York 10020
(212) 632-6400
(800) 228-0203
<PAGE>
DECEMBER 30, 1995
PROSPECTUS
THE LAZARD FUNDS, INC.
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Lazard Equity Portfolio
Lazard International Equity Portfolio
Lazard International Fixed-Income Portfolio
Lazard Bond Portfolio
Lazard Strategic Yield Portfolio
Lazard Small Cap Portfolio
Lazard International Small Cap Portfolio
Lazard Special Equity Portfolio
Lazard Emerging Markets Portfolio
Lazard Global Equity Portfolio
Lazard Bantam Value Portfolio
Lazard Emerging World Funds Portfolio
30 Rockefeller Plaza, New York, New York 10020
(212) 632-6400 (New York State)
(800) 228-0203 (other continental states)
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INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND
RETAIN IT FOR FUTURE REFERENCE.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the portfolios. A Statement of Additional
Information dated December 30, 1995, 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. It 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.
The Lazard Funds, Inc. is a no-load, open-end management investment company that
currently has twelve separate investment portfolios. The portfolios are
professionally managed by Lazard Freres Asset Management, a division of Lazard
Freres & Co. LLC
LAZARD EQUITY PORTFOLIO seeks capital appreciation through investing primarily
in equity securities of companies with relatively large capitalizations that
appear to the investment manager to be inexpensively priced relative to the
return on total capital or equity.
LAZARD INTERNATIONAL EQUITY PORTFOLIO seeks capital appreciation through
investing primarily in the equity securities of non-United States companies. The
companies selected are those that the investment manager believes are
inexpensively priced relative to the return on total capital or equity.
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO seeks high total return from a
combination of current income and capital appreciation, consistent with what the
investment manager considers to be prudent investment risk, through investing
primarily in foreign fixed-income securities of varying maturities.
LAZARD BOND PORTFOLIO seeks to build and preserve capital through investing in a
range of bonds, including obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, mortgage-backed securities,
asset-backed securities, municipal securities and corporate fixed-income
securities.
LAZARD STRATEGIC YIELD PORTFOLIO seeks to obtain a total return on its assets by
placing approximately equal emphasis on capital appreciation and current income
through investing principally in high-yielding fixed-income securities. The
Lazard Strategic Yield Portfolio may invest up to 50% of its total assets in
non-U.S. dollar denominated securities of foreign issuers. Many of the
high-yielding securities in which the Lazard Strategic Yield Portfolio invests
are rated in the lower rating categories (i.e., below investment grade) by the
nationally recognized securities rating services. These securities, which are
often referred to as "junk bonds," are subject to greater risk of loss of
principal and interest than higher rated securities and are considered to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal.
<PAGE>
LAZARD SMALL CAP PORTFOLIO seeks capital appreciation through investing
primarily in equity securities of companies with market capitalizations under $1
billion that are believed by the investment manager to be inexpensively priced
relative to the return on total capital or equity.
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO seeks capital appreciation through
investing primarily in equity securities of non-United States companies with
market capitalizations under $1 billion that are believed by the investment
manager to be inexpensively priced relative to the return on total capital or
equity. The Lazard International Small Cap Portfolio operates similarly to the
Lazard Small Cap Portfolio, except that this Portfolio will invest primarily in
the equity securities of non-United States issuers and, therefore, investment
determinations include, among other items, the effect of currency fluctuations
and the political and economic factors of other jurisdictions.
LAZARD SPECIAL EQUITY PORTFOLIO seeks capital appreciation through investing
primarily in equity securities of companies that are believed by the investment
manager to be undervalued in the marketplace in relation to factors such as the
respective companies' assets, earnings, earnings power or growth potential.
LAZARD EMERGING MARKETS PORTFOLIO seeks capital appreciation through investing
primarily in equity securities of non-United States issuers who are located, or
doing significant business, in emerging market countries. Emerging market
countries include countries where political and economic trends have produced
recently, or are producing, a more stable economy, or countries that have
developed recently, or are developing, financial markets and investment
liquidity. The Lazard Emerging Markets Portfolio seeks securities of issuers
whose potential is significantly enhanced by their relationship to the emerging
markets country and are believed to be inexpensively priced relative to the
productivity of their equity or assets.
LAZARD GLOBAL EQUITY PORTFOLIO seeks capital appreciation through investing
primarily in equity securities of companies with relatively large
capitalizations that are located anywhere in the world which the investment
manager believes to be inexpensively priced relative to the return on total
capital or equity. In addition to security specific factors, investment
determinations include, among other items, analysis of U.S. and non-U.S.
markets.
LAZARD BANTAM VALUE PORTFOLIO seeks capital appreciation through investing
primarily in equity securities of companies with market capitalizations under
$500 million that are believed by the investment manager to be inexpensively
priced relative to the return on total capital or equity and which are likely to
increase market capitalization as a result of growth or are likely to be the
subject of acquisitions or other events.
LAZARD EMERGING WORLD FUNDS PORTFOLIO seeks capital appreciation through
investing primarily in securities of closed-end funds, generally at discounts to
net asset value, which in turn invest in emerging market securities. The
securities in which the Portfolio will invest will be principally listed on
recognized international exchanges or traded in recognized international
markets.
<PAGE>
TABLE OF CONTENTS
Fee Table ................................................................. 3
Summary ................................................................... 4
Financial Highlights ...................................................... 5
Investment Objectives and Policies ........................................ 8
Additional Permitted Investment Activities ................................ 26
Investment Restrictions ................................................... 34
Management ................................................................ 35
Determination of Net Asset Value .......................................... 39
Purchase of Shares ........................................................ 40
Redemption of Shares ...................................................... 41
Exchange Privilege ........................................................ 43
Dividends and Distributions ............................................... 43
Taxation .................................................................. 44
Account Services .......................................................... 45
Shareholder Services ...................................................... 45
Organization and Description of Capital Stock ............................. 45
Custodian; Transfer and Dividend Disbursing Agent ......................... 46
Reports To Shareholders ................................................... 46
Performance Information ................................................... 46
Appendix (Bond and Commercial Paper Ratings) .............................. 47
<PAGE>
Page 3
FEE TABLE
<TABLE>
<CAPTION>
Lazard Lazard
Lazard Inter- Lazard Inter- Lazard
Inter- national Stra- Lazard national Lazard Lazard Lazard Lazard Emerging
Lazard national Fixed- Lazard tegic Small Small Special Emerging Global Bantam World
Equity Equity Income Bond Yield Cap Cap Equity Markets Equity Value Funds
Port- Port- Port- Port- Port- Port- Port- Port- Port- Port- Port- Port-
folio folio folio folio folio folio folio folio folio folio folio folio
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SHAREHOLDER
TRANSACTION EXPENSES None None None None None None None None None None None None
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ANNUAL FUND
OPERATING EXPENSES
(as a percentage
of average
net assets)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .75% .75% .75% .50% .75% .75% .75% 1.50%+ 1.00% .75% .75% .75%
Other Expenses
(after expense
reimbursement)* .30% .19% .30% .30% .30% .10% .30% .21%++ .30% .30% .30% .30%
Total Portfolio
Operating
Expenses(after
expense
reimbursement)* 1.05% .94% 1.05% .80% 1.05% .85% 1.05% 1.71%++ 1.30% 1.05% 1.05% 1.05%
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EXAMPLE
You 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 $ 11 $ 10 $ 11 $ 8 $ 11 $ 9 $ 11 $ 17 $ 13 $11 $11 $11
3 years $ 33 $ 30 $ 33 $26 $ 33 $ 27 $ 33 $ 54 $ 41 $33 $33 $33
5 years $ 58 $ 52 $ 58 $44 $ 58 $ 47 $ 58 $ 93 $ 71
10 years $128 $115 $128 $99 $128 $105 $128 $202 $157
THESE EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES WHICH MAY BE
MORE OR LESS THAN THOSE SHOWN. MOREOVER,
WHILE THESE EXAMPLES ASSUME A 5% ANNUAL
RETURN, A PORTFOLIO'S ACTUAL PERFORMANCE
WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
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</TABLE>
*The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in a Portfolio will bear directly
or indirectly. "Other Expenses" and "Total Portfolio Operating Expenses"
reflect the undertaking of Lazard Freres Asset Management to bear (i) with
respect to each of the Equity Portfolio, International Fixed-Income
Portfolio, Strategic Yield Portfolio, International Small Cap Portfolio,
Global Equity Portfolio, Bantam Value Portfolio and Emerging World Funds
Portfolio total operating expenses in excess of 1.05% of each such
Portfolio's average net assets, (ii) with respect to the Bond Portfolio total
operating expenses in excess of .80% of that Portfolio's average net assets,
and (iii) with respect to the Emerging Markets Portfolio total operating
expenses in excess of 1.30% of that Portfolio's average net assets, until the
earlier of December 31, 1994 (1996 in the case of the International
Fixed-Income Portfolio, Bond Portfolio, Emerging Markets Portfolio, Global
Equity Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio)
or such time as the respective Portfolio reaches total net assets of $100
million. Had Lazard Freres Asset Management not undertaken to bear such
expenses, total portfolio operating expenses for the fiscal year ended
December 31, 1994 would have been 1.51% for the International Fixed-Income
Portfolio, 1.23% for the Bond Portfolio, 1.15% for the Strategic Yield
Portfolio, 1.26% for the International Small Cap Portfolio and 2.31% for the
Emerging Markets Portfolio. Effective May 1, 1995, the Fund has engaged State
Street Bank and Trust Company to provide certain administrative services.
Each Portfolio, other than the Special Equity Portfolio, will bear the cost
of such administrative expenses at the annual rate of $37,500 plus .02% of
such Portfolio's average daily net assets. State Street has agreed to waive
the $37,500 fee for one year for the Bond and International Fixed Income
Portfolios. Administrative expenses for the Special Equity Portfolio are paid
for by Lazard Freres Asset Management. "Other Expenses" with respect to the
Global Equity Portfolio, Bantam Value Portfolio and Emerging World Funds
Portfolio are based on estimated amounts for the current fiscal year.
+The management fee payable by the Special Equity Portfolio is substantially
higher than that of most other registered investment companies.
++ For the period commencing May 1, 1995 and terminating upon the earlier to
occur of (i) October 31, 1996 and (ii) the net assets of the Special Equity
Portfolio equaling or exceeding $90 million, Lazard Freres Asset Management
has agreed to bear total operating expenses (exclusive of extraordinary
expenses) of the Special Equity Portfolio in excess of 1.50%.
<PAGE>
SUMMARY
The Lazard Funds, Inc. (the "Fund") is a Maryland corporation incorporated on
May 17, 1991. The Fund is a no-load, open-end management investment company,
known as a "series fund," that currently offers shares in the following twelve
separate series referred to as portfolios (individually, a "Portfolio" and
collectively, the "Portfolios"): Lazard Equity Portfolio (the "Equity
Portfolio"), Lazard International Equity Portfolio (the "International Equity
Portfolio"), Lazard International Fixed-Income Portfolio (the "International
Fixed-Income Portfolio"), Lazard Bond Portfolio (the "Bond Portfolio"), Lazard
Strategic Yield Portfolio (the "Strategic Yield Portfolio"), Lazard Small Cap
Portfolio (the "Small Cap Portfolio"), Lazard International Small Cap Portfolio
(the "International Small Cap Portfolio"), Lazard Special Equity Portfolio (the
"Special Equity Portfolio"), Lazard Emerging Markets Portfolio (the "Emerging
Markets Portfolio"), Lazard Global Equity Portfolio (the "Global Equity
Portfolio"), Lazard Bantam Value Portfolio (the "Bantam Value Portfolio") and
Lazard Emerging World Funds Portfolio (the "Emerging World Funds Portfolio").
The Equity Portfolio and Special Equity Portfolio are operated as "diversified"
portfolios as that term is defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The remaining Portfolios are
"non-diversified." Non-diversified portfolios typically invest in a smaller
number of securities than diversified portfolios and, therefore, may present a
slightly greater degree of risk than diversified portfolios. See "Additional
Permitted Investment Activities -- Diversification."
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 his 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." The Fund is empowered to establish, without shareholder approval,
additional portfolios which may have different investment objectives, policies
or restrictions.
Lazard Freres Asset Management, a division of Lazard Freres & Co. LLC ("Lazard
Freres"), serves as the investment manager (the "Investment Manager") to each of
the Portfolios. For a description of the Investment Manager, the services it
provides and the management fees, see "Management."
The Equity Portfolio seeks capital appreciation through investing primarily in
equity securities of companies with relatively large capitalizations that appear
to the Investment Manager to be inexpensively priced relative to the return on
total capital or equity.
The International Equity Portfolio seeks capital appreciation through investing
primarily in the equity securities of non-United States companies. The companies
selected are those that the investment manager believes are inexpensively priced
relative to the return on total capital or equity.
The International Fixed-Income Portfolio seeks high total return from a
combination of current income and capital appreciation, consistent with what the
Investment Manager considers to be prudent investment risk, through investing
primarily in foreign fixed-income securities of varying maturities.
The Bond Portfolio seeks to build and preserve capital through investing in a
range of bonds including obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, mortgage-backed securities,
asset-backed securities, municipal securities and corporate fixed-income
securities.
The Strategic Yield Portfolio seeks to obtain a total return on its assets by
placing approximately equal emphasis on capital appreciation and current income
through investing principally in high-yielding fixed-income securities. The
Strategic Yield Portfolio may invest up to 50% of its total assets in non-U.S.
dollar denominated securities of foreign issuers. The Portfolio may invest
without limitation in U.S. dollar denominated fixed-income securities of foreign
issuers. The types of securities in which the Strategic Yield Portfolio invests,
which are often referred to as "junk bonds," are subject to greater risk of loss
of principal and interest than higher rated securities and are considered to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal.
The Small Cap Portfolio seeks capital appreciation through investing primarily
in equity securities of companies with market capitalizations under $1 billion
that are believed by the Investment Manager to be inexpensively priced relative
to the return on total capital or equity. Investing in small capitalization
stocks can involve greater risk than is customarily associated with larger, more
established companies.
The International Small Cap Portfolio seeks capital appreciation through
investing primarily in equity securities of non-United States companies with
market capitalizations under $1 billion that are believed by the Investment
Manager to be inexpensively priced relative to the return on total capital or
equity. Investing in small capitalization stocks can involve greater risk than
is customarily associated with larger, more established companies. Investing in
non-United States issuers involves risks associated with currency fluctuation
and other political or economic risks in other countries.
The Special Equity Portfolio seeks capital appreciation through investing
primarily in equity securities of companies that are believed by the Investment
Manager to be undervalued in the marketplace in relation to factors such as the
respective companies' assets, earnings, earnings power or growth potential. This
investment policy is speculative and no assurance can be given that the
objective of the Special Equity Portfolio will be achieved.
<PAGE>
Page 5
The Emerging Markets Portfolio seeks capital appreciation through investing
primarily in equity securities of non-United States issuers located, or doing
significant business, in emerging market countries. Investing in emerging
markets involves greater risk than in developed markets due to uncertain
political and economic factors.
The Global Equity Portfolio seeks capital appreciation through investing
primarily in equity securities of companies with relatively large
capitalizations that are located anywhere in the world which the Investment
Manager believes to be inexpensively priced relative to the return on total
capital or equity. In addition to security specific factors, investment
determinations include, among other items, analysis of U.S. and non-U.S.
markets.
The Bantam Value Portfolio seeks capital appreciation through investing
primarily in equity securities of companies with market capitalizations under
$500 million that are believed by the Investment Manager to be inexpensively
priced relative to the return on total capital or equity and which are likely to
increase market capitalization as a result of growth or are likely to be the
subject of acquisitions or other events.
The Emerging World Funds Portfolio seeks capital appreciation through investing
primarily in securities of closed-end funds, generally at discounts to net asset
value, which in turn invest in emerging market securities. The securities in
which the Portfolio will invest will be principally listed on recognized
international exchanges or traded in recognized international markets.
An investment in any one or more of the Portfolios is not intended to constitute
a complete investment program. Each of the Portfolios has separate investment
objectives and policies and, accordingly, there may be different risks
associated with an investment in each of the Portfolios. For a description of
each Portfolio's investment objectives and policies and certain risks attendant
to investing in each Portfolio, see "Investment Objectives and Policies" and
"Additional Permitted Investment Activities."
Except as noted below, the Fund's policy with respect to turnover of securities
held in the Portfolios is to purchase securities for investment purposes and not
for the purpose of realizing short-term trading profits. Although a Portfolio
cannot accurately predict its annual portfolio turnover rate, the Investment
Manager anticipates that the annual portfolio turnover rate of the Equity
Portfolio, International Equity Portfolio, Small Cap Portfolio, Special Equity
Portfolio, Emerging Markets Portfolio, International Small Cap Portfolio, Global
Equity Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio will
not exceed 100%. The annual turnover of the Bond Portfolio may exceed 100% and,
in the case of the Strategic Yield Portfolio and International Fixed-Income
Portfolio, may be in excess of 200% (but is not expected to exceed 300%). A 200%
turnover rate is greater than that of most other investment companies. A high
rate of portfolio turnover involves correspondingly greater transaction expenses
than a lower rate, which expenses are borne by the Portfolio and its
shareholders and also may result in the realization of substantial net
short-term capital gains. See "Additional Permitted Investment
Activities--Portfolio Turnover" and "Taxation."
Shares of any Portfolio may be purchased and redeemed through Scudder Service
Corporation, the Fund's transfer agent (the "Transfer Agent") or through a
brokerage account with Lazard Freres or through certain other agents. The
minimum initial investment in each Portfolio is $50,000. The minimum subsequent
investment is $5,000 in each Portfolio. For more information, see "Purchase of
Shares" and "Redemption of Shares."
Dividends on shares of the International Fixed-Income Portfolio, Bond Portfolio
and Strategic Yield Portfolio, are declared daily and paid monthly. Dividends on
shares of the Equity Portfolio are declared and paid quarterly. Dividends on
shares of the International Equity Portfolio, Small Cap Portfolio, Special
Equity Portfolio, Emerging Markets Portfolio, International Small Cap Portfolio,
Global Equity Portfolio, Bantam Value Portfolio and Emerging World Funds
Portfolio are generally declared and paid annually but may be declared and paid
twice annually. Capital gain distributions for each Portfolio, if any, generally
will be declared and paid annually but may be declared and paid twice annually.
See "Dividends and Distributions."
FINANCIAL HIGHLIGHTS
The financial highlights set forth below for the periods ending December 31,
1994, December 31, 1993 and December 31, 1992 with respect to each Portfolio
that has commenced operations and for the period from October 1, 1991
(commencement of operations) to December 31, 1991 with respect to the
International Equity Portfolio, International Fixed-Income Portfolio, Bond
Portfolio, Strategic Yield Portfolio and the Small Cap Portfolio have been
audited by ABA Seymour Schneidman Financial Services Group, a division of
Anchin, Bloch & Anchin LLP, Independent Accountants. The financial highlights
for the period ending June 30, 1995 are unaudited. The financial highlights set
forth below for earlier years were audited by other independent public
accountants. This information should be read in conjunction with the financial
statements and notes thereto with respect to each of the Portfolios that appear
in the Statement of Additional Information. The Emerging Markets Portfolio
commenced operations on July 15, 1994. The Global Equity Portfolio, the Bantam
Value Portfolio and the Emerging World Funds Portfolio had not commenced
operations as of the date of the financials and, therefore, no financial
highlights data is provided for such Portfolios.
<PAGE>
Page 6
<TABLE>
<CAPTION>
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THE LAZARD FUNDS, INC. -- FINANCIAL HIGHLIGHTS
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Income from Investment Operations
---------------------------------
Net Gains (Losses)
Net Asset Value, on Securities (both Total from
Beginning Investment Realized and Investment
Period of Period IncomeNet Unrealized)Net Operations
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LAZARD EQUITY PORTFOLIO
Six months ended 6/30/95 $13.75 $0.104 $2.704 $2.808
Year ended 12/31/94 13.89 0.141 0.441 0.582
Year ended 12/31/93 12.74 0.158 2.172 2.330
Year ended 12/31/92 12.34 0.123 0.518 0.641
Year ended 12/31/91 11.53 0.107 3.051 3.158
Year ended 12/31/90 12.34 0.191 (0.778) (0.587)
Year ended 12/31/89 10.32 0.204 2.231 2.435
Year ended 12/31/88 8.73 0.181 1.597 1.778
6/1/87* to 12/31/87 10.00 0.110 (1.280) (1.170)
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LAZARD INTERNATIONAL EQUITY PORTFOLIO
Six months ended 6/30/95 11.23 0.136 0.294 0.430
Year ended 12/31/94 12.32 0.078 (0.049) 0.029
Year ended 12/31/93 9.48 0.021 2.919 2.940
Year ended 12/31/92 10.30 0.097 (0.779) (0.682)
10/29/91* to 12/31/91 10.00 0.020 0.300 0.320
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LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Six months ended 6/30/95 10.23 0.370 1.630 2.000
Year ended 12/31/94 10.51 0.592 (0.161) 0.431
Year ended 12/31/93 9.79 0.571 0.912 1.483
Year ended 12/31/92 10.28 0.614 (0.403) 0.211
11/8/91* to 12/31/91 10.00 0.110 0.280 0.390
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LAZARD BOND PORTFOLIO
Six months ended 6/30/95 9.24 0.304 0.670 0.974
Year ended 12/31/94 10.28 0.584 (1.010) (0.426)
Year ended 12/31/93 10.21 0.551 0.302 0.853
Year ended 12/31/92 10.25 0.577 (0.004) 0.573
11/12/91* to 12/31/91 10.00 0.140 0.250 0.390
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LAZARD STRATEGIC YIELD PORTFOLIO
Six months ended 6/30/95 9.10 0.421 0.170 0.591
Year ended 12/31/94 10.13 0.762 (0.990) (0.228)
Year ended 12/31/93 9.50 0.644 0.738 1.382
Year ended 12/31/92 9.97 1.049 (0.450) 0.599
10/1/91* to 12/31/91 10.00 0.250 (0.030) 0.220
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LAZARD SMALL CAP PORTFOLIO
Six months ended 6/30/95 14.35 0.060 2.350 2.410
Year ended 12/31/94 15.26 0.070 0.220 0.290
Year ended 12/31/93 12.98 0.019 3.830 3.849
Year ended 12/31/92 10.42 0.019 2.560 2.579
10/30/91* to 12/31/91 10.00 0.030 0.420 0.450
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LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Six months ended 6/30/95 10.38 0.089 (0.109) (0.020)
Year ended 12/31/94 10.86 0.072 (0.548) (0.476)
12/1/93* to 12/31/93 10.00 0.004 0.859 0.863
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Six months ended 6/30/95 11.89 0.085 1.005 1.090
Year ended 12/31/94 15.73 0.156 (0.557) (0.401)
Year ended 12/31/93 16.90 0.157 1.478 1.635
Year ended 12/31/92 15.14 0.161 2.181 2.342
Year ended 12/31/91 11.54 0.230 4.160 4.390
Year ended 12/31/90 13.72 0.714 (2.155) (1.441)
Year ended 12/31/89 13.13 0.260 1.874 2.134
Year ended 12/31/88 10.64 0.224 2.761 2.985
Year ended 12/31/87 11.66 0.112 (0.291) (0.179)
1/16/86* to 12/31/86 10.00 0.075 1.585 1.660
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Six months ended 6/30/95 9.86 0.059 (0.779) (0.720)
7/15/94* to 12/31/94 10.00 0.010 (0.154) (0.144)
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Less:
------------------------------------
Dividends from
and in Excess Distributions Net Asset
of Investment from Capital Value, End Total
Period Income-Net Gains of Period Return
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
<S> <C> <C> <C> <C>
Six months ended 6/30/95 $(0.048) -- $16.51 20.4%++
Year ended 12/31/94 (0.152) $ (0.574) 13.75 4.2%
Year ended 12/31/93 (0.165) (1.015) 13.89 18.6
Year ended 12/31/92 (0.132) (0.109) 12.74 5.3
Year ended 12/31/91 (0.082) (2.266) 12.34 27.5
Year ended 12/31/90 (0.223)(b) -- 11.53 (4.7)
Year ended 12/31/89 (0.214) (0.201) 12.34 23.6
Year ended 12/31/88 (0.188) -- 10.32 20.4
6/1/87* to 12/31/87 (0.100) -- 8.73 (11.7)++
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Six months ended 6/30/95 -- -- 11.66 3.8++
Year ended 12/31/94 -- (1.123) 11.23 0.2
Year ended 12/31/93 (0.021) (0.079) 12.32 31.0
Year ended 12/31/92 (0.138) -- 9.48 (6.6)
10/29/91* to 12/31/91 (0.020) -- 10.30 3.2++
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Six months ended 6/30/95 (0.370) -- 11.86 19.8++
Year ended 12/31/94 (0.593) (0.116) 10.23 4.2
Year ended 12/31/93 (0.570) (0.193) 10.51 15.7
Year ended 12/31/92 (0.614) (0.087) 9.79 2.0
11/8/91* to 12/31/91 (0.110) -- 10.28 3.9++
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Six months ended 6/30/95 (0.304) -- 9.91 10.7++
Year ended 12/31/94 (0.584) (0.029) 9.24 (4.2)
Year ended 12/31/93 (0.551) (0.232) 10.28 8.6
Year ended 12/31/92 (0.577) (0.036) 10.21 5.7
11/12/91* to 12/31/91 (0.140) -- 10.25 3.9++
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Six months ended 6/30/95 (0.421) -- 9.27 6.7++
Year ended 12/31/94 (0.761) (0.039) 9.10 (2.3)
Year ended 12/31/93 (0.633) (0.119) 10.13 15.6
Year ended 12/31/92 (1.049) (0.020) 9.50 6.0
10/1/91* to 12/31/91 (0.250) -- 9.97 2.1++
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Six months ended 6/30/95 -- -- 16.76 16.8++
Year ended 12/31/94 (0.042) (1.158) 14.35 2.0
Year ended 12/31/93 (0.020) (1.549) 15.26 30.1
Year ended 12/31/92 (0.019) -- 12.98 24.8
10/30/91* to 12/31/91 (0.030) -- 10.42 4.5++
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Six months ended 6/30/95 -- -- 10.36 (0.2)++
Year ended 12/31/94 -- -- 10.38 (4.5)
12/1/93* to 12/31/93 (0.003) -- 10.86 8.7++
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Six months ended 6/30/95 -- -- 12.98 9.2++
Year ended 12/31/94 (0.155) (3.279) 11.89 (2.6)
Year ended 12/31/93 (0.157) (2.648) 15.73 10.2
Year ended 12/31/92 (0.160) (0.422) 16.90 15.5
Year ended 12/31/91 (0.227) (0.563) 15.14 38.2
Year ended 12/31/90 (0.739) -- 11.54 (10.5)
Year ended 12/31/89 (0.264) (1.280) 13.72 16.2
Year ended 12/31/88 (0.245) (0.250) 13.13 28.0
Year ended 12/31/87 (0.105) (0.736) 10.64 (1.9)
1/16/86* to 12/31/86 -- -- 11.66 16.6++
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Six months ended 6/30/95 -- -- 9.14 (7.3)++
7/15/94* to 12/31/94 -- -- 9.86 (1.4)++
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Net Assets,
Portfolio End of
Investment Turnover Period
Period Expenses Income-Net Rate (ooo's)
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
Six months ended 6/30/95 0.93% 1.47% 35.85% $132,777
Year ended 12/31/94 1.05% 1.15% 66.52% 89,105
Year ended 12/31/93 1.05(e) 1.31 63.92 47,123
Year ended 12/31/92 1.05(d) 1.19 174.45 24,646
Year ended 12/31/91 1.93 0.84 90.00 14,821
Year ended 12/31/90 1.77 1.62 70.00 14,397
Year ended 12/31/89 1.78 1.71 78.00 16,239
Year ended 12/31/88 1.84 1.86 111.00 12,336
6/1/87* to 12/31/87 1.68+ 1.93+ 97.00 10,186
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Six months ended 6/30/95 0.93 2.62 40.45 1,044,661
Year ended 12/31/94 0.94 0.75 106.15 831,877
Year ended 12/31/93 0.99 1.13 86.95 603,642
Year ended 12/31/92 1.05(d) 2.13 60.37 176,005
10/29/91* to 12/31/91 1.05+,(c) 2.19+ 0.18 4,967
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Six months ended 6/30/95 1.05(g) 6.70 83.07 44,802
Year ended 12/31/94 1.05 (f) 5.68 65.90 35,803
Year ended 12/31/93 1.05 (e) 5.50 115.84 13,546
Year ended 12/31/92 1.05 (d) 6.08 256.20 8,183
11/8/91* to 12/31/91 1.05+,(c) 4.82+ 6.43 1,427
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Six months ended 6/30/95 0.80(g) 6.37 59.32 33,077
Year ended 12/31/94 0.80 (f) 6.11 120.51 24,494
Year ended 12/31/93 0.80 (e) 5.22 174.63 13,562
Year ended 12/31/92 0.80 (d) 5.59 131.38 8,532
11/12/91* to 12/31/91 0.80+,(c) 5.50+ 10.46 3,256
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Six months ended 6/30/95 1.06 9.32 94.71 73,434
Year ended 12/31/94 1.05 (f) 8.03 195.18 62,328
Year ended 12/31/93 1.05 (e) 6.36 215.60 34,943
Year ended 12/31/92 1.05 (d) 10.57 122.88 9,641
10/1/91* to 12/31/91 1.05+,(c) 9.52+ 11.26 4,256
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Six months ended 6/30/95 0.83 0.86 37.63 547,622
Year ended 12/31/94 0.85 0.51 70.11 429,673
Year ended 12/31/93 0.88 0.16 98.47 350,952
Year ended 12/31/92 1.05 (d) 0.29 106.91 168,171
10/30/91* to 12/31/91 1.05 +,(c) 2.47+ 5.50 2,512
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Six months ended 6/30/95 1.15 1.97 70.83 98,352
Year ended 12/31/94 1.05 (f) 0.95 112.92 83,432
12/1/93* to 12/31/93 1.05+,(e) 1.76+ 0.84 13,522
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Six months ended 6/30/95 1.67(g) 1.33 7.00 61,156
Year ended 12/31/94 1.71 0.87 11.29 61,498
Year ended 12/31/93 1.67 0.74 26.31 118,129
Year ended 12/31/92 1.70 1.04 10.93 150,488
Year ended 12/31/91 1.77 1.63 19.48 111,395
Year ended 12/31/90 1.78 4.70(a) 27.18 76,972
Year ended 12/31/89 1.78 1.82 40.67 101,522
Year ended 12/31/88 1.96 1.87 64.90 74,695
Year ended 12/31/87 1.81 0.82 90.86 53,942
1/16/86* to 12/31/86 2.23+ 0.71+ 73.12 51,403
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Six months ended 6/30/95 1.30(g) 1.63 58.16 22,798
7/15/94* to 12/31/94 1.30+,(f) 0.31+ 30.68 17,025
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
+ Annualized.
++ Not annualized.
(a) The Portfolio received a special distribution from one of its portfolio
investments. Had the Portfolio not received this distribution, the ratio
would have been 2.20%.
(b) Includes $.032 per share of distributions from paid-in capital, none of
which is a return of capital for tax purposes. (c) If the Investment
Manager had not waived management fees and reimbursed certain expenses the
ratio of expenses to average net assets would have been 10.84%+ ($0.056)
for the International Equity Portfolio, 20.71%+ ($0.293) for the
International Fixed-Income Portfolio, 7.80%+ ($0.114) for the Bond
Portfolio, 6.22%+ ($0.075) for the Strategic Yield Portfolio, and 11.05%+
($0.085) for the Small Cap Portfolio.
(d) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets would have been
1.53% ($0.050) for the Equity Portfolio, 1.37% ($0.014) for the
International Equity Portfolio, 2.80% ($0.176) for the International
Fixed-Income Portfolio, 3.23% ($0.251) for the Bond Portfolio, 2.99%
($0.192) for the Strategic Yield Portfolio, and 1.14% ($0.006) for the Small
Cap Portfolio.
(e) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets would have been
1.18% ($0.020) for the Equity Portfolio, 2.87%+ ($0.010) for the
International Small Cap Portfolio, 2.08% ($0.119) for the International
Fixed-Income Portfolio, 1.76% ($0.101) for the Bond Portfolio, and 1.63%
($0.058) for the Strategic Yield Portfolio.
(f) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets would have been
1.26% ($0.016) for the International Small Cap Portfolio, 1.51% ($0.048) for
the International Fixed-Income Portfolio, 1.23% ($0.041) for the Bond
Portfolio, 1.15% ($0.009) for the Strategic Yield Portfolio and 2.31%+
($0.034) for the Emerging Markets Portfolio.
(g) If the Investment Manager had not waived certain expenses the ratio of
expenses to average net assets (and net investment income per share) would
have been 1.25% ($0.360) for the International Fixed-Income Portfolio, 1.03%
($0.295) for the Bond Portfolio, 1.75% ($0.080) for the Special Equity
Portfolio and 1.98% ($0.034) for the Emerging Markets Portfolio.
Further information about each such Portfolio's performance is contained in the
Fund's annual report for the fiscal year ended December 31, 1994 and the Fund's
semi-annual report for the period ended June 30, 1995, which may be obtained
without charge by writing to the address or calling the appropriate number set
forth on the cover page of this Prospectus.
<PAGE>
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. With the exception
of the Special Equity Portfolio, 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. If there is a change in the
investment objective of any of these Portfolios, shareholders should consider
whether that Portfolio remains an appropriate investment in light of their
then-current financial position and needs. The investment objective and related
policies of the Special Equity Portfolio are fundamental and may be changed only
when permitted by law and approved by the holders of a majority of the Special
Equity Portfolio's outstanding voting securities as defined in the Investment
Company Act and as described under "Organization and Description of Capital
Stock" in the Statement of Additional Information. The types of portfolio
securities in which each Portfolio may invest are described in greater detail
below. There can be no assurance, of course, that any of the Portfolios will
achieve its respective investment objective.
Equity Portfolio
The investment objective of the Equity Portfolio is to seek capital appreciation
through investing primarily in equity securities of companies with relatively
large capitalizations that appear to the Investment Manager to be inexpensively
priced relative to the return on total capital or equity. The Equity Portfolio
follows a value-oriented search for equity securities before they have attracted
wide investor interest. The Investment Manager attempts to ascertain 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.
Under normal market conditions, the Equity Portfolio will invest at least 65% of
its total assets in equity securities, including, in addition to common stocks,
preferred stocks and securities convertible into or exchangeable for common
stocks. In addition, at times judged by the Investment Manager to be
appropriate, the Equity Portfolio may hold up to 20% of its total assets in U.S.
Government Securities (as described below in "Bond Portfolio") and debt
obligations of domestic corporations rated BBB or better by Standard & Poor's
Corporation ("S&P"), or Baa or better by Moody's Investors Service, Inc.
("Moody's"). Obligations rated BBB by S&P or Baa by Moody's are considered
investment grade obligations that may have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade bonds. See the Appendix attached hereto for a description of
the ratings of S&P and Moody's.
The Equity Portfolio may also invest without limitation in short-term money
market instruments of the types described in "Additional Permitted Investment
Activities--Short-Term Money Market Instruments," including non-convertible
corporate debt securities such as notes, bonds and debentures that have
remaining maturities of not more than 12 months and are rated AA or better by
S&P or Aa or better by Moody's. The Equity Portfolio may also invest up to 10%
of its total assets in foreign equity or debt securities. For a description of
the risks associated with investing in foreign securities, see "Additional
Permitted Investment Activities--Investment in Foreign Securities."
The Equity Portfolio may borrow up to one-half of the market value of its
assets, less liabilities, in order to increase its investment in portfolio
securities, but has no present intention to do so. Any such borrowing will be
made only from banks, and will be made only to the extent that the value of the
Equity Portfolio's assets less its liabilities other than borrowings, is equal
to at least 300% of all borrowings. See "Additional Permitted Investment
Activities--Borrowing for Investment" in the Statement of Additional
Information.
Securities owned by the Equity Portfolio are kept under continuing supervision,
and changes may be made whenever such securities no longer seem to meet the
Equity Portfolio's objective. Changes in the securities owned by the Portfolio
also may be made to increase or decrease investments in anticipation of changes
in security prices in general or to provide funds required for redemptions,
distributions to shareholders or other corporate purposes.
<PAGE>
Page 9
International Equity Portfolio
The investment objective of the International Equity Portfolio is to seek
capital appreciation through investing primarily in the equity securities of
non-United States companies (e.g., incorporated or organized outside the United
States). The International Equity Portfolio expects to invest its assets
principally in common stocks of non-United States companies, although the
International Equity Portfolio may have substantial investments in American
Depositary Receipts and Global Depositary Receipts and in convertible bonds and
other convertible securities. There is no requirement, however, that the
International Equity Portfolio invest exclusively in common stocks or other
equity securities, and, if deemed advisable, the International Equity Portfolio
may invest up to 20% of the value of its total assets in fixed-income securities
and short-term money market instruments. See "Additional Permitted Investment
Activities--Short-Term Money Market Instruments." The Portfolio will not invest
in fixed-income securities rated lower than investment grade.
It is the present intention of the Investment Manager to invest the
International Equity Portfolio's assets in companies based in Continental
Europe, the United Kingdom, the Pacific Basin and in such other areas and
countries as the Investment Manager may determine from time to time. Under
normal market conditions, the Portfolio will invest at least 80% of the value of
its total assets in the equity securities of companies within not less than
three different countries (not including the United States). The percentage of
the International Equity Portfolio's assets invested in particular geographic
sectors may shift from time to time in accordance with the judgment of the
Investment Manager. For a description of the risks associated with investing in
foreign securities see "Additional Permitted Investment Activities--Investment
in Foreign Securities."
In selecting investments for the International Equity Portfolio, the Investment
Manager attempts to ascertain inexpensive markets world-wide 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. In addition, the Investment Manager seeks to identify
companies that it believes are financially productive and undervalued in those
markets. The Investment Manager focuses on individual stock selection (a
"bottom-up" approach) rather than on forecasting stock market trends (a
"top-down" approach).
The Investment Manager recognizes that some of the best opportunities are in
securities not generally followed by investment professionals. Thus, the
Investment Manager relies on its research capability and also maintains a
dialogue with foreign brokers and with the management of foreign companies in an
effort to gather the type of "local knowledge" that it believes is critical to
successful investment abroad. To this end, the Investment Manager communicates
with its affiliates, Lazard Freres & Cie. in Paris, Lazard Brothers & Co. Ltd.
in London and Lazard Freres K.K. in Japan, for information concerning current
business trends, as well as for a better understanding of the management of
local businesses. The information supplied by these affiliates of the Investment
Manager will be limited to statistical and factual information, advice regarding
economic factors and trends or advice as to occasional transactions in specific
securities.
The International Equity Portfolio may enter into foreign currency forward
exchange contracts in order to protect against anticipated changes in foreign
currency exchange rates. See "Additional Permitted Investment
Activities--Foreign Currency Forward Exchange Contracts."
When, in the judgment of the Investment Manager, business or financial
conditions warrant, the International Equity Portfolio may assume a temporary
defensive position and invest without limit in the equity securities of U.S.
companies or short-term money market instruments or hold its assets in cash. See
"Additional Permitted Investment Activities--Short-Term Money Market
Instruments."
International Fixed-Income Portfolio
The investment objective of the International Fixed-Income Portfolio is to seek
high total return from a combination of current income and capital appreciation,
consistent with what the Investment Manager considers to be prudent investment
risk, through investing primarily in foreign fixed-income securities of varying
maturities. The Portfolio seeks high current yields by investing in a portfolio
of fixed-income securities denominated in a range of foreign currencies and in
the U.S. Dollar. Under normal market conditions, the Portfolio will invest at
least 65% of the value of its total assets in the fixed-income securities of
companies within, or governments, political subdivisions, authorities, agencies
or instrumentalities of, not less than three different countries (not including
the United States). The Portfolio has the flexibility to invest in any region of
<PAGE>
Page 10
the world. It is the present intention of the Investment Manager, however, to
invest the International Fixed-Income Portfolio's assets principally in
fixed-income securities of companies within, or governments of, Continental
Europe, the United Kingdom, Canada, the Pacific Basin and in such other areas
and countries as the Investment Manager may determine from time to time,
including countries that are considered emerging market countries at the time of
investment. For a description of the risks associated with investing in foreign
securities, see "Additional Permitted Investment Activities-- Investment in
Foreign Securities."
In pursuing its investment objective, the International Fixed-Income Portfolio
invests in a broad range of fixed-income securities. Under normal market
conditions, the Investment Manager anticipates that the Portfolio will be
invested principally in fixed-income securities with maturities of greater than
one year. A longer average maturity is generally associated with a higher level
of volatility in the market value of a fixed-income security. The maturity of a
security measures only the time until final payment is due; it takes no account
of the pattern of the security's cash flows over time, including how cash flow
is affected by prepayments and by changes in interest rates. Since the
International Fixed-Income Portfolio's objective is to seek total return, the
Portfolio will invest in fixed-income obligations with an emphasis on return
rather than stability of the Portfolio's net asset value, and the average
"duration" of the Portfolio will vary depending on anticipated market
conditions. The Portfolio's average "duration" is a measure of the price
sensitivity of its investment portfolio, including expected cash flow,
redemptions and mortgage prepayments under a wide range of interest rate
conditions. In computing the duration of the Portfolio's investment portfolio,
the Investment Manager will estimate the duration of obligations that are
subject to prepayment or redemption by the issuer taking into account the
influence of interest rates. The Portfolio's average duration generally will be
shorter than the Portfolio's average maturity. Under normal market conditions,
the Investment Manager anticipates that the average weighted duration of the
Portfolio will be in the range of two to eight years.
In order to reduce the International Fixed-Income Portfolio's exposure to
foreign currency fluctuations versus the U.S. Dollar, the Portfolio may utilize
the following investment strategies: the purchase and sale of foreign currency
forward exchange contracts, options on foreign currencies and options on foreign
currency futures. The Portfolio may also utilize options and futures contracts
to enhance income and reduce market risk. See "Additional Permitted Investment
Activities-- Foreign Currency Forward Exchange Contracts; Options on Foreign
Currencies; Futures Contracts and Options on Futures Contracts."
The Portfolio's investments consist of: (i) obligations issued or guaranteed by
foreign governments or any of their political subdivisions, authorities,
agencies, or instrumentalities, or by supranational entities; (ii) corporate
fixed-income securities issued by foreign or U.S. companies; (iii) certificates
of deposit and bankers' acceptances issued or guaranteed by, or time deposits
maintained at, banks (including foreign branches of U.S. banks or U.S. or
foreign branches of foreign banks) having total assets of more than $500
million; (iv) commercial paper issued by foreign or U.S. companies; and (v) U.S.
Government Securities (as defined below in "Bond Portfolio"). At least 85% of
the International Fixed-Income Portfolio's assets will be invested in (i)
fixed-income securities rated BBB or better by S&P or Baa or better by Moody's;
(ii) commercial paper issued by foreign or U.S. companies rated A or better by
S&P or Prime-2 or better by Moody's; or, (iii) fixed-income securities or
commercial paper that, if unrated, is determined by the Investment Manager to be
of comparable quality. Up to 15% of the value of the Portfolio's assets may be
invested in high yield, high risk fixed-income securities that are rated below
BBB by S&P and below Baa by Moody's (i.e., below investment grade) or, if
unrated, are determined by the Investment Manager to be of comparable quality.
Fixed-income securities rated below investment grade are considered to be
predominantly speculative as regards the issuer's capacity to pay interest and
repay principal which may, in any case, decline during sustained periods of
deteriorating economic conditions or rising interest rates. The Portfolio has no
current intention of investing more than 5% of its total assets in securities
that are in default. See the Appendix attached hereto for a description of the
ratings of fixed-income securities and commercial paper. For a description of
the special risks associated with investing in fixed-income securities rated
below investment grade, see "Strategic Yield Portfolio--Special Risk
Considerations."
The International Fixed-Income Portfolio may also invest in the fixed-income
securities in which the Bond Portfolio may invest, including mortgage-backed
securities and asset-backed securities, as described below.
<PAGE>
Page 11
When, in the judgment of the Investment Manager, business or financial
conditions warrant, the International Fixed-Income Portfolio may assume a
temporary defensive position and invest without limit in high quality short-term
debt securities or hold its assets in cash. See "Additional Permitted Investment
Activities--Short-Term Money Market Instruments."
Bond Portfolio
The investment objective of the Bond Portfolio is to build and preserve capital
through investing in a range of bonds and fixed-income securities. It is
expected that the Portfolio will invest in the following sectors of the bond and
fixed-income market (i) U.S. Government Securities and repurchase agreements
pertaining to U.S. Government Securities, and (ii) other fixed-income
securities, including mortgage-backed securities, asset-backed securities,
municipal securities and corporate fixed-income securities, including preferred
stock of corporate issuers. The percentage of the Portfolio's assets invested in
a particular fixed-income sector may shift from time to time in accordance with
the judgment of the Investment Manager.
Under normal market conditions, the Portfolio will invest at least 65% of the
value of its total assets in bonds or other debt instruments with maturities of
greater than one year. The Portfolio believes that its investment objective and
policies may best be implemented by investing the major portion of the
Portfolio's assets in bonds and fixed-income securities rated at least BBB by
S&P or Baa by Moody's. The Portfolio may also invest up to 10% of the value of
its total assets in bonds and fixed-income securities rated BB or lower by S&P
and Ba or lower by Moody's or non-rated bonds and fixed-income securities.
Securities in the lower rating categories are subject to greater risk of loss of
principal and interest than higher-rated securities and are considered to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal, which may in any case decline during sustained periods of
deteriorating economic conditions. For a description of the risks associated
with investing in securities in the lower rating categories, see "Strategic
Yield Portfolio--Special Risk Considerations." The Portfolio may invest in
fixed-income securities that have not received a rating but are determined by
the Investment Manager to be of comparable quality to the other securities in
which the Bond Portfolio may invest.
When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Bond Portfolio may assume a temporary defensive position
and invest without limit in short-term money market instruments or hold its
assets in cash. See "Additional Permitted Investment Activities--Short-Term
Money Market Instruments."
It is anticipated that under normal market conditions, the average duration of
the Bond Portfolio's securities will vary from between two to seven years.
However, there may be times when, in the Investment Manager's judgment, the
average duration of the Portfolio may extend beyond this range, because of
extreme economic conditions or extreme undervaluation or overvaluation in the
fixed-income markets. See "International Fixed-Income Portfolio" above for a
discussion of duration.
The Investment Manager analyzes sectors of the fixed-income market based on
yield spread premiums relative to the U.S. Treasury obligations market. Using a
variety of valuation techniques, the Investment Manager establishes a yield
spread it believes represents the fair value compensation or yield spread
premium required to justify the risk of investing in a given sector. Sectors of
the fixed-income market which offer compensation in excess of the fair value
yield spread will be emphasized by the Portfolio.
The Investment Manager selects individual securities based on maturity, duration
and sector characteristics, including yield spread premium relative to risk
characteristics. In determining the risk characteristics of a particular
security, the Investment Manager analyzes credit quality, event risk, call
features and diversification as well as the terms of the bond indenture pursuant
to which the security is issued.
Once securities are purchased, performance will be evaluated by the Investment
Manager on an on-going basis and a security may be sold if: (i) its yield spread
premium as compared to U.S. Treasury obligation yields declines to a level the
Investment Manager believes no longer reflects value; (ii) the investment
expectations underlying that security are no longer valid; or (iii) the
Investment Manager believes another security offers better value.
The Investment Manager's research capability is an important aspect of its
program for managing the Bond Portfolio's securities. In addition to the
qualitative analysis of sectors and securities, the Investment Manager applies
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quantitative valuation models to search for value across the entire fixed-
income market for securities that meet the Portfolio's investment criteria.
Special attention is paid to the valuation of call features and other options.
The Bond Portfolio may utilize options and futures contracts to enhance income
and reduce market risk. See "Additional Permitted Investment Activities--Futures
Contracts and Options on Futures Contracts."
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include: (i) the
following U.S. Treasury obligations: U.S. Treasury bills (initial maturities of
one year or less), U.S. Treasury notes (initial maturities of one to 10 years),
and U.S. Treasury bonds (generally initial maturities of greater than 10 years),
all of which are backed by the full faith and credit of the United States; and
(ii) obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, including government guaranteed mortgage-related securities,
some of which are backed by the full faith and credit of the U.S. Treasury,
e.g., direct pass-through certificates of the Government National Mortgage
Association; some of which are supported by the right of the issuer to borrow
from the U.S. Government, e.g., obligations of Federal Home Loan Banks; and some
of which are backed only by the credit of the issuer itself, e.g., obligations
of the Student Loan Marketing Association. Although U.S. Government Securities
are backed by the full faith and credit of the U.S. Government or guaranteed by
the issuing agency or instrumentality and, therefore, there is generally
considered to be no risk as to the issuer's capacity to pay interest and repay
principal, due to fluctuations in interest rates there is no guarantee as to the
market value of U.S. Government Securities. See "Additional Permitted Investment
Activities" in, and Appendix A to, the Statement of Additional Information for a
further description of obligations issued or guaranteed by U.S.
Government agencies or instrumentalities.
CORPORATE FIXED-INCOME SECURITIES. The Bond Portfolio may invest in corporate
fixed-income securities, including preferred stocks of corporate issuers.
MUNICIPAL SECURITIES. In circumstances where the Investment Manager determines
that investment in municipal obligations would facilitate the Bond Portfolio's
ability to accomplish its investment objective, it may invest its assets in such
obligations, including municipal bonds issued at a discount. Dividends on shares
attributable to interest on municipal securities held by the Portfolio will not
be exempt from Federal income taxes. Municipal securities are susceptible to
risks arising from the financial condition of the states, public bodies or
municipalities issuing the securities. To the extent that state or local
governmental entities are unable to meet their financial obligations, the income
derived by the Portfolio from municipal securities could be impaired.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Bond Portfolio may invest
without limitation in mortgage- backed and asset-backed securities.
Mortgage-backed and asset-backed securities arise through the grouping by
governmental, government-related and private organizations of loans, receivables
and other assets originated by various lenders. Interests in pools of these
assets differ from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal paid at maturity or
specified call dates. Instead, these securities provide periodic payments which
generally consist of both interest and principal payments. The estimated life of
a mortgage-backed or asset-backed security and the average maturity of a
portfolio including such securities varies with the prepayment experience with
respect to the underlying debt instruments. Mortgage-backed and asset-backed
securities are each a form of derivative security.
MORTGAGE-BACKED SECURITIES--GENERAL. Mortgage-backed securities are securities
that directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans secured by real property. There are currently three
basic types of mortgage-backed securities: (i) those issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities, such as the
Government National Mortgage Association ("Ginnie Mae" or "GNMA"), the Federal
National Mortgage Association ("Fannie Mae" or "FNMA") and the Federal Home Loan
Mortgage Corporation ("Freddie Mac" or "FHLMC"); (ii) those issued by private
issuers that represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the U.S. Government or one of its
instrumentalities; and (iii) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or mortgage-backed
securities without a government guarantee by usually having some form of private
credit enhancement. An issuer of mortgage-backed securities meeting certain
conditions may elect to be treated as a Real Estate Mortgage Investment Conduit
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(a "REMIC") under the Internal Revenue Code of 1986, as amended (the "Code").
See "Taxation."
Ginnie Maes are pass-through interests in pools of mortgage loans insured by the
Federal Housing Administration or by the Farmer's Home Administration or
guaranteed by the Veterans Administration. GNMA is a U.S. Government corporation
within the Department of Housing and Urban Development. Ginnie Maes are backed
by the full faith and credit of the United States, which means that the U.S.
Government guarantees that interest and principal will be paid when due. Fannie
Mae is a U.S. Government-sponsored corporation owned entirely by private
stockholders. Pass-through securities issued by Fannie Mae are guaranteed as to
timely payment of principal and interest by Fannie Mae. FHLMC issues
mortgage-related securities representing interests in residential mortgage loans
pooled by it. FHLMC is a corporate instrumentality of the U.S. Government. FHLMC
guarantees the timely payment of interest and ultimate collection of principal.
Fannie Maes and Freddie Macs are not backed by the full faith and credit of the
United States.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates,
but also may be collateralized by whole loans or private mortgage pass-through
securities (such collateral will be collectively referred to herein as "Mortgage
Assets"). Multiclass pass-through securities are equity interests in a trust
composed of Mortgage Assets. Unless the context indicates otherwise, all
references herein to CMOs include multiclass pass-through securities. Payments
of principal of and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass- through securities. CMOs may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis. The principal of and interest on the Mortgage Assets may be
allocated among the several classes of a series of a CMO in a number of
different ways. In a common structure, the purpose of the allocation of the cash
flow of a CMO to the various classes is to obtain a more predictable cash flow
to the separate tranches than exists with the underlying collateral of the CMO.
Generally, the more predictable the cash flow is on a CMO tranche, the lower the
anticipated yield will be on that tranche at the time of issuance relative to
prevailing market yields on mortgage-backed securities.
The Bond Portfolio may also invest in, among others, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC" Bonds). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds are parallel pay
CMOs with the required principal on such securities having the highest priority
after interest has been paid to all classes.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities
("SMBS") are derivative multiclass mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks, and special purpose
subsidiaries of the foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of Mortgage Assets. A
common type of SMBS will have one class (the principal-only or "PO" class)
receiving some of the interest and most of the principal from the Mortgage
Assets, while the other class (the interest-only or "IO" class) will receive
most of the interest and the remainder of the principal. In the most extreme
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case, the IO class will receive all of the interest, while the PO class will
receive all of the principal. The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying Mortgage Assets, and a rapid rate of principal payments in
excess of that considered in pricing the securities will have a material adverse
effect on an IO security's yield to maturity. If the underlying Mortgage Assets
experience greater than anticipated prepayments of principal, the Portfolio may
fail to fully recoup its initial investment in IO securities. Due to their
structure and underlying cash flows, SMBS may be more volatile than
mortgage-backed securities that are not stripped. The staff of the Securities
and Exchange Commission (the "Commission") currently considers certain SMBS to
be illiquid securities. See "Additional Permitted Investment
Activities--Illiquid Securities" and "Investment Restrictions" below.
CMO RESIDUALS. CMO Residuals are derivative mortgage securities issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.
The cash flow generated by the Mortgage Assets underlying series of CMOs is
applied first to make required payments of principal of and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO Residual represents dividend or
interest income and/or a return of capital. The amount of residual cash flow
resulting from a CMO will depend on, among other things, the characteristics of
the Mortgage Assets, the coupon rate of each class of CMOs, prevailing interest
rates, the amount of administrative expenses and the prepayment experience on
the Mortgage Assets. In particular, the yield to maturity on CMO Residuals is
extremely sensitive to prepayments on the related underlying Mortgage Assets in
the same manner as an IO class of SMBS. See "Stripped Mortgage-Backed
Securities," above. In addition, if a series of a CMO includes a class that
bears interest at an adjustable rate, the yield to maturity on the related CMO
residual will also be extremely sensitive to the level of the index upon which
interest rate adjustments are based. As described above with respect to SMBS, in
certain circumstances, the Portfolio may fail to fully recoup its initial
investment in a CMO Residual.
CMO Residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. CMO
Residuals may not have the liquidity of other more established securities
trading in other markets. Transactions in CMO Residuals are generally completed
only after careful review of the characteristics of the securities in question.
In addition, CMO Residuals may or, pursuant to an exemption therefrom, may not
have been registered under the Securities Act of 1933 (the "Securities Act").
CMO Residuals, whether or not registered under the Securities Act, may be
subject to certain restrictions on transferability. Ownership of certain CMO
Residuals imposes liability for certain of the expenses of the related CMO
issuer on the purchaser. The Investment Manager will not purchase any CMO
Residual that imposes such liability on the Portfolio.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES. Private mortgage pass-through
securities ("Private Pass-Throughs") are structured similarly to the Ginnie Mae,
Fannie Mae and Freddie Mac mortgage pass-through securities described above and
are issued by originators of and investors in mortgage loans, including savings
and loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. Private Pass-Throughs are usually
backed by a pool of conventional fixed rate or adjustable rate mortgage loans.
The estimated life of Private Pass-Throughs varies with the rate of prepayment
on the underlying mortgage loans. See "Special Risk Considerations" below. Since
Private Pass-Throughs typically are not guaranteed by an entity having the
credit status of Ginnie Mae, Fannie Mae or Freddie Mac, such securities
generally are structured with one or more types of credit enhancement. See
"Types of Credit Support" below.
TYPES OF CREDIT SUPPORT. Mortgage-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two categories--(i) liquidity protection and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
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on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures ultimate payment of the obligations on
at least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Portfolio will not
pay any additional fees for such credit support, although the existence of
credit support may increase the price of a security.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information regarding
the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that anticipated could adversely affect the return on an
investment in such a security.
ASSET-BACKED SECURITIES. The Bond Portfolio also may invest in asset-backed
securities including interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. These securities
may be in the form of pass-through instruments or asset-backed bonds. The
securities, all of which are issued by non-governmental entities and carry no
direct or indirect government guarantee, are structurally similar to the
collateralized mortgage obligations and mortgage pass-through securities
described above. As with mortgage-backed securities, asset-backed securities are
often backed by a pool of assets representing the obligations of a number of
different parties and use similar credit enhancement techniques.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most organizations that issue asset-backed securities
relating to motor vehicle installment purchase obligations perfect their
interests in their respective obligations only by filing a financing statement
and by having the servicer of the obligations, which is usually the originator,
take custody thereof. In such circumstances, if the servicer were to sell the
same obligations to another party, in violation of its duty not to so do, there
is a risk that such party could acquire an interest in the obligations superior
to that of the holders of the securities. Also, although most such obligations
grant a security interest in the motor vehicle being financed, in most states
the security interest in a motor vehicle must be noted on the certificate of
title to perfect such security interest against competing claims of other
parties. Due to the large number of vehicles involved, however, the certificate
of title to each vehicle financed, pursuant to the obligations underlying the
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the securities. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on those securities. In addition,
various state and federal laws give the motor vehicle owner the right to assert
against the holder of the owner's obligation certain defenses such owner would
have against the seller of the motor vehicle. The assertion of such defenses
could reduce payments on the related securities.
SPECIAL RISK CONSIDERATIONS. The yield characteristics of mortgage-backed and
asset-backed securities differ from traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if the Bond Portfolio purchases such a security at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if the Portfolio purchases
these securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity.
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Prepayments on a pool of mortgage loans are influenced by a variety of economic,
geographic, social and other factors, including changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgage
properties and servicing decisions. An acceleration in prepayments in response
to sharply falling interest rates will shorten the security's average maturity
and limit the potential appreciation in the security's value relative to a
conventional debt security. As a result, mortgage-backed securities are not as
effective in locking in high long-term yields. Conversely, in periods of sharply
rising rates, prepayments generally slow, increasing the security's average life
and its potential for price depreciation. Amounts available for reinvestment by
the Portfolio are therefore likely to be greater during a period of declining
interest rates and, as a result, likely to be reinvested at lower interest rates
than during a period of rising interest rates. Generally, asset-backed
securities are less likely to experience substantial prepayments than are
mortgage-backed securities, primarily because the collateral supporting
asset-backed securities is of shorter maturity than mortgage loans; however,
certain of the factors that affect the rate of prepayments on mortgage-backed
securities (e.g., fluctuations in interest rates and unemployment), affect
asset-backed securities, but to a lesser degree.
The Bond Portfolio's return will also be affected by the yields on instruments
in which the Portfolio is able to reinvest the proceeds of payments and
prepayments. Accelerated prepayments on securities purchased by the Portfolio at
a premium also impose a risk of loss of principal because the premium may not
have been fully amortized at the time the principal is repaid in full.
New types of mortgage-backed securities and asset-backed securities are
developed and marketed from time to time. Consistent with its investment
limitations, the Bond Portfolio expects to invest in those new types of
instruments that the Investment Manager believes may assist the Portfolio in
achieving its investment objective and to supplement this prospectus to
appropriately describe such instruments.
YANKEE SECURITIES. The Bond Portfolio may invest without limitation in so-called
"Yankee Securities" which are securities issued by non-U.S. issuers which are
denominated in U.S. dollars and which trade and are capable of settlement in
U.S. markets. Issuers of Yankee Securities may be corporate or government
entities.
Non-rated securities may be considered for investment by the Portfolio when the
Investment Manager believes that the financial condition of the issuers of the
securities, or the protection afforded by the terms of the securities
themselves, limits the risk to the Portfolio to a degree comparable to that of
rated securities which are consistent with the Portfolio's objective and
policies.
Strategic Yield Portfolio
The investment objective of the Strategic Yield Portfolio is to seek to obtain a
total return on its assets by placing approximately equal emphasis on capital
appreciation and current income through investing principally in high-yielding
fixed-income securities. Capital appreciation may result, for example, from an
improvement in the credit standing of an issuer whose securities are held by the
Portfolio or from a general decline in interest rates or both. Conversely,
capital depreciation may result, for example, from a lowered credit standing or
a general rise in interest rates, or a combination of both.
The Strategic Yield Portfolio will seek to achieve its objective through
investing, under normal market conditions, at least 65% of the value of its
total assets in fixed-income securities, such as bonds, debentures, notes,
convertible debt obligations, convertible preferred stocks and the types of
mortgage-backed and asset-backed securities in which the Bond Portfolio may
invest. The issuers of these obligations include governments, their political
subdivisions, agencies or municipalities, and corporations. At least 95% of
these obligations when purchased by the Portfolio will have a rating of at least
CCC by S&P or Caa by Moody's or, if not rated, will be of comparable quality as
determined by the Investment Manager. The Strategic Yield Portfolio may invest
up to 50% of its total assets in non-U.S. dollar denominated fixed-income
securities of the types described above of foreign issuers. The Strategic Yield
Portfolio may invest without limitation in U.S. dollar denominated fixed-income
securities of foreign issuers. See "Additional Permitted Investment
Activities--Investment in Foreign Securities."
During the year ended December 31, 1994 the percentages of the Portfolio's
assets invested in securities (other than U.S. Treasury obligations or
obligations of foreign governments or U.S. or foreign government agencies) rated
in particular rating categories by Moody's were, on a weighted average basis, as
follows:
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Percentage of
Moody's Ratings Total Investments
--------------- ----------------
Aaa 44.17%
A1 5.18%
A3 0.76%
Baa1 6.29%
Baa2 0.97%
Baa3 6.63%
Ba1 6.65%
Ba2 6.21%
Ba3 12.42%
B1 3.45%
B2 2.81%
B3 0.69%
Caa 3.76%
The Strategic Yield Portfolio invests in lower-rated fixed-income securities
that are commonly referred to as "high-yield securities" or "junk bonds." The
Investment Manager believes these securities offer the potential for attractive
returns because the yields they afford are generally higher than those of
investment grade fixed-income securities. The Investment Manager expects most of
the Portfolio's investment securities will pay cash income. In a limited number
of cases, however, "zero coupon" or "payment-in-kind" high-yield securities may
be purchased when, in the opinion of the Investment Manager, they offer
exceptional value relative to their risk. See, "Zero Coupon, `Pay-in-Kind' and
`Stripped' U.S. Treasury Securities," below.
The Investment Manager will attempt to minimize the risk inherent in the
high-yield market through investing in a broad range of high-yielding
fixed-income securities. In structuring its portfolio of investment securities,
the Investment Manager will take into consideration several factors including
the issuer, industry, credit rating, currency, country and, in certain cases,
the terms of a security's indenture. Security selection techniques used by the
Investment Manager will focus on individual issues with appropriate maturity,
duration, currency and sector characteristics. Individual securities will be
selected by the Investment Manager based on their yield relative to their risk
characteristics. In determining the risk characteristics of a particular
security, the Investment Manager will analyze the creditworthiness of the issuer
as well as the terms of the indenture pursuant to which the security is issued.
Performance of the Portfolio's investments will be continually evaluated by the
Investment Manager and a security may be sold if: (i) its yield spread premium
as compared to U.S. Treasury obligation yields declines to a level the
Investment Manager believes no longer reflects value; (ii) the investment
expectations underlying that security are no longer valid; or (iii) the
Investment Manager believes another security offers better value.
The Strategic Yield Portfolio may invest up to 5% of the value of its total
assets in the purchase of the time value of call and put options on the types of
securities in which the Portfolio may invest. The time value of an option is the
option premium less the intrinsic value of the option at the time of purchase.
The Portfolio may write covered call and put options contracts to the extent
that the time value of the call or put options does not exceed 10% of the value
of the covered assets. The Strategic Yield Portfolio may purchase and sell call
and put options on equity securities and stock indices, to the same extent as it
is permitted to purchase and sell call and put options on the types of
securities in which it may invest. See "Additional Permitted Investment
Activities--Stock or Bond Options."
The Strategic Yield Portfolio may engage in foreign exchange transactions either
on a spot basis (for settlement in two business days) at the prevailing rate in
the inter bank foreign exchange market or through entering into foreign currency
forward exchange contracts. A foreign currency forward exchange contract
involves the obligation to purchase an amount of a specific currency in return
for delivering a different amount of another currency on the specified
settlement date. These contracts are entered into in the inter bank market
conducted directly between currency traders (typically commercial banks or other
financial institutions) and their customers.
When used for hedging purposes, foreign currency forward exchange contracts will
tend to minimize the Portfolio's risk of loss on its foreign securities holdings
due to a decline in the value of the underlying currency. However, at the same
time, foreign currency forward exchange contracts will tend to limit any
potential gain which might result should the value of the underlying currency
increase during the contract period. See "Additional Permitted Investment
Activities--Foreign Currency Forward Exchange Contracts."
The Strategic Yield Portfolio may also purchase and sell call and put options on
foreign currencies.
ZERO COUPON, "PAY-IN-KIND" AND "STRIPPED" U.S. TREASURY SECURITIES. The
Strategic Yield Portfolio may invest in "zero coupon" securities. A zero coupon
security pays no interest to its holder during its life. An investor acquires a
zero coupon security at a price which is generally an amount based upon its
present value, and which, depending upon the time remaining until maturity, may
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be significantly less than its face value (sometimes referred to as a "deep
discount" price). Upon maturity of the zero coupon security, the investor
receives the face value of the security. The Strategic Yield Portfolio may also
invest in "pay-in-kind" securities (i.e., debt obligations the interest on which
may be paid in the form of additional obligations of the same type rather than
cash) which have characteristics similar to zero coupon securities.
As noted above, zero coupon securities do not entitle the holder to any periodic
payments of interest prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value. Zero coupon securities
and "pay-in-kind" securities may be more speculative and subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make periodic distributions of
interest. On the other hand, because there are no periodic interest payments to
be reinvested prior to maturity, zero coupon securities eliminate the
reinvestment risk and lock in a rate of return to maturity.
Federal tax law requires that a holder (such as the Strategic Yield Portfolio)
of a zero coupon security accrue a portion of the discount at which the security
was purchased (or, in the case of a "pay-in-kind" security, the difference
between the issue price and the sum of all the amounts payable on redemption) as
income each year even though the Strategic Yield Portfolio receives no interest
payment in cash on the security during the year. As a regulated investment
company, the Strategic Yield Portfolio must pay out substantially all of its net
investment income each year. Accordingly, in any year the Portfolio may be
required to pay out as an income distribution an amount which is greater than
the total amount of cash interest the Portfolio actually received. Such
distributions would be made from the cash assets of the Portfolio or by
liquidation of portfolio securities, if necessary. If a distribution of cash
necessitates the liquidation of portfolio securities, the Investment Manager
will select which securities to sell. The Portfolio may realize a gain or loss
from such sales. In the event the Portfolio realized net capital gains from such
transactions, its shareholders might receive a larger capital gain distribution,
and incur a potentially greater tax liability, than they would in the absence of
such transactions.
The Strategic Yield Portfolio may invest in "stripped" U.S. Treasury securities,
which are U.S. Treasury bills issued without interest coupons, U.S. Treasury
notes and bonds which have been stripped of their unmatured interest coupons,
and receipts or certificates representing interests in such stripped debt
obligations and coupons. Currently, the only U.S. Treasury security issued
without coupons is the Treasury bill. Although the U.S. Treasury does not itself
issue Treasury notes and bonds without coupons, under the U.S. Treasury STRIPS
program, interest and principal payments on certain long-term Treasury
securities may be maintained separately in the Federal Reserve book entry system
and may be separately traded and owned. In addition, in the last few years a
number of banks and brokerage firms have stripped the principal portions from
the coupon portions of U.S. Treasury bonds and notes and sold them separately in
the form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account). The staff of the Commission has indicated that, in its view,
these receipts or certificates should be considered as securities issued by the
bank or brokerage firm involved and, therefore, should not be included in the
Strategic Yield Portfolio's categorization of U.S. Government Securities.
RESTRICTED SECURITIES. The Strategic Yield Portfolio may invest in restricted
securities and in other assets having no ready market if such purchases at the
time thereof would not cause more than 10% of the value of the Portfolio's net
assets to be invested in all such restricted or not readily marketable (or other
illiquid) assets. See "Additional Permitted Investment Activities--Illiquid
Securities" and "Investment Restrictions" below.
SPECIAL RISK CONSIDERATIONS. Securities in the lower rating categories are
subject to greater risk of loss of principal and interest than higher-rated
securities and are considered to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal, which may in any case
decline during sustained periods of deteriorating economic conditions or rising
interest rates. There has been unprecedented growth in the size of the market
for lower-rated securities over the past several years, although most recently
that market has declined in size. This growth occurred during a period of
general economic expansion. Lower-rated securities are generally considered to
be subject to greater market risk than higher-rated securities in times of
deteriorating economic conditions. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic and competitive industry
conditions than investment grade securities.
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The market for lower-rated securities may be thinner and less active than that
for higher-quality securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, the Investment Manager may
experience difficulty in valuing such securities and, in turn, the Portfolio's
assets. In addition, adverse publicity and investor perceptions about
lower-rated securities, whether or not based on fundamental analysis, may tend
to decrease the market value and liquidity of such lower-rated securities.
Finally, it is noted that the transaction costs with respect to lower-rated
securities may be higher, and in some cases information less available, than is
the case with investment grade securities.
The use of credit ratings as a method for evaluating lower-rated securities
involves certain risks. The ratings of fixed-income securities by S&P and
Moody's are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be varying
degrees of difference in credit risk of securities within each rating category.
Non-rated securities may be considered for investment by the Strategic Yield
Portfolio when the Investment Manager believes that the financial condition of
the issuers of the securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Portfolio to a degree comparable
to that of rated securities which are consistent with the Portfolio's objectives
and policies.
When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Strategic Yield Portfolio may assume a temporary
defensive position and invest without limit in investment grade debt securities
or hold its assets in cash. See "Additional Permitted Investment
Activities--Short-Term Money Market Instruments."
Small Cap Portfolio
The investment objective of the Small Cap Portfolio is to seek capital
appreciation through investing primarily in equity securities of United States
companies with market capitalizations under $1 billion that are believed by the
Investment Manager to be inexpensively priced relative to the return on total
capital or equity. The equity securities in which the Small Cap Portfolio may
invest include, common stocks, preferred stocks, securities convertible into or
exchangeable for common stocks, rights and warrants listed on national or
regional securities exchanges or traded over-the-counter. Investments are
generally 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 underperformance 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 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 market conditions, the Small Cap Portfolio will invest at least 80%
of the value of its total assets in the small capitalization equity securities
described above.
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 may in turn 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. For example, smaller capitalization companies often have
limited product lines, markets or financial resources. They may be dependent for
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management on one or a few key persons, and can be more susceptible to losses
and risks of bankruptcy. Also, 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.
The Investment Manager continually evaluates the securities owned by the Small
Cap Portfolio, and changes may be made whenever the Investment Manager
determines such securities no longer meet the Small Cap Portfolio's objective.
Portfolio changes also may be made to increase or decrease investments in
anticipation of changes in security prices in general or to provide funds
required for redemptions, distributions to shareholders or other corporate
purposes.
When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Small Cap Portfolio may assume a temporary defensive
position and invest without limitation in large capitalization companies or
short-term money market instruments or hold its assets in cash. See "Additional
Permitted Investment Activities--Short-Term Money Market Instruments."
International Small Cap Portfolio
The investment objective of the International Small Cap Portfolio is to seek
capital appreciation. The Portfolio will invest primarily in equity securities
of non-United States companies with market capitalizations under $1 billion that
are believed by the Investment Manager to be inexpensively priced relative to
the return on total capital or equity. The Portfolio will invest in equity
securities listed on national or regional securities exchanges or traded
over-the-counter of companies based in Continental Europe, the United Kingdom,
the Pacific Basin, Latin America, Canada and such other areas as the Investment
Manager may determine from time to time. The International Small Cap Portfolio
may also invest in American Depositary Receipts and Global Depositary Receipts
and in convertible bonds and other convertible securities. In selecting
investments for the International Small Cap Portfolio, the Investment Manager
will attempt to ascertain inexpensive markets world-wide through traditional
measures of value, including low price-to-earnings ratio, low price-to-book
ratio and/or low price-to-cash flow ratio and high yield. The Investment
Manager, following a bottom-up approach, seeks to identify securities within
such undervalued markets which in the Investment Manager's opinion have one or
more of the characteristics listed in the Small Cap Factors. Under normal market
conditions, the International Small Cap Portfolio will invest at least 80% of
the value of its total assets in the small capitalization equity securities
described above. Assets not invested in such small capitalization equity
securities would generally be invested in large capitalization equity securities
or debt securities, including cash equivalents. For a description of the risks
associated with investing in small capitalization equity securities see "Small
Cap Portfolio" above.
Under normal market conditions, the Portfolio will invest at least 65% of the
value of its total assets in the equity securities of companies within 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 International Small Cap Portfolio's assets in a
particular geographic sector may shift from time to time in accordance with the
judgment of the Investment Manager. For a description of the risks associated
with investing in foreign securities see "Additional Permitted Investment
Activities--Investment in Foreign Securities."
The International Small Cap Portfolio may enter into futures contracts, options
on futures contracts, and foreign currency forward exchange contracts in order
to protect against anticipated changes in foreign currency exchange rates. See
"Additional Permitted Investment Activities--Futures Contracts and Options on
Futures Contracts, Foreign Currency Forward Exchange Contracts."
When, in the judgment of the Investment Manager, business or financial
conditions warrant, the International Small Cap Portfolio may assume a temporary
defensive position and invest without limit in the equity securities of U.S.
companies or short-term money market instruments or hold its assets in cash. See
"Additional Permitted Investment Activities--Short-Term Money Market
Instruments."
Special Equity Portfolio
The investment objective of the Special Equity Portfolio is to seek capital
appreciation through a policy of investing primarily in the equity securities of
companies that are believed by the Investment Manager to be undervalued in the
marketplace in relation to factors such as the respective companies' assets,
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Page 21
earnings, earnings power and growth potential. The Portfolio invests in equity
securities listed on national, regional or foreign exchanges or traded
over-the-counter. The Portfolio will purchase equity securities only of
companies with total market capitalizations in excess of $10 million. Since the
commencement of operations of the Lazard Special Equity Fund, Inc., the
predecessor of the Special Equity Portfolio, the Portfolio has purchased equity
securities primarily of companies with total market capitalizations of less than
$500 million. Investments will generally be made in equity securities of
companies which in the Investment Manager's opinion have one or more of the
following characteristics (i) have assets whose value is unrecognized or
underrecognized by the market; (ii) may be currently earning a low return on
equity or assets employed but have the potential to earn a higher return by
either improving the profitability of these assets or disposing of them; (iii)
have shown an ability to operate effectively in an adverse environment; (iv)
have been burdened by an unprofitable subsidiary or business segment which may
be reduced or eliminated; (v) have recently experienced a change in management
or control (including through recent mergers or acquisitions) and have a
potential for a "turnaround" in earnings; (vi) have profitability or financial
characteristics that make their securities undervalued when compared to the
market in general or a specified industry; (vii) have current assets which, less
all liabilities, compare favorably to the aggregate market value of the
company's securities; (viii) have a substantial and/or growing cash flow; or
(ix) have a management whose members, due to their own stockholdings or
otherwise, are committed to managing the company in a way which increases stock
values and enhances stockholder wealth.
Under normal market conditions, the Special Equity Portfolio will invest at
least 65% of the value of its total assets in equity securities, including
common stocks, preferred stocks, convertible securities, rights, options,
options on stock indices and warrants in proportions that will vary from time to
time. The Portfolio may purchase foreign equity and debt securities provided
that they are listed on a domestic or foreign securities exchange or represented
by American Depositary Receipts listed on a domestic securities exchange or
traded in the U.S. over-the-counter market. For a description of the risks
associated with investing in foreign securities see "Additional Permitted
Investment Activities--Investment in Foreign Securities." The Portfolio may also
invest in real estate investment trusts ("REITS"), although the Portfolio
currently intends to limit investments in REITS to no more than 5% of the value
of the Portfolio's net assets. See "Additional Permitted Investment
Activities--REITS" in the Statement of Additional Information for a description
of REITS.
The Special Equity Portfolio may invest no more than 35% of the value of its
total assets in U.S. Government Securities and corporate bonds, notes and
debentures rated B or higher by S&P and Moody's. The Portfolio has no current
intention, however, of investing more than 5% of the value of its net assets in
corporate bonds, notes and debentures rated below BBB by S&P and Baa by Moody's.
For a description of the risks associated with investing in bonds rated below
BBB by S&P and Baa by Moody's, see "Strategic Yield Portfolio--Special Risk
Considerations."
The Special Equity Portfolio may from time to time invest a substantial portion
of its assets in securities traded over-the-counter. The Portfolio may purchase
the securities of any closed-end investment company in an amount of up to 5% of
the value of the Portfolio's total assets and may purchase in the aggregate
securities of closed-end investment companies in an amount up to 10% of the
value of the Portfolio's total assets. Closed-end investment companies typically
pay asset management and other fees. Shareholders of the Portfolio may, in
effect, pay two fees with respect to the assets of the Portfolio invested in
such closed-end investment companies.
To the extent that the Portfolio invests in securities of limited marketability
(such as over-the-counter securities, securities of unseasoned companies and
securities of companies with small market capitalizations), such securities may
be difficult to sell and a considerable time period may elapse between a
decision to sell such securities and the time the securities are actually sold.
See "Additional Permitted Investment Activities--Investment in Unseasoned
Companies." Furthermore, with respect to positions in securities with limited
marketability, the activities of the Portfolio itself, as well as those of other
investors, could have an adverse effect upon the marketability of such
securities and the Portfolio might not be able to dispose of its holdings at the
then current market prices. The Portfolio may not acquire securities for which
there are no readily available current market quotations or bids, if as a
result, more than 10% of the market value of the Portfolio's total assets would
be invested in such securities together with repurchase agreements with a
maturity of more than seven days. See "Additional Permitted Investment
Activities--Illiquid Securities."
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When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Special Equity Portfolio may assume a temporary
defensive position and invest without limitation in short-term money market
instruments or hold its assets in cash. The Portfolio may also invest in
short-term money market instruments or hold assets in cash to meet redemptions
and pending investment or reinvestment of new funds or proceeds from sales of
portfolio securities. See "Additional Permitted Investment
Activities--Short-Term Money Market Instruments."
Emerging Markets Portfolio
The investment objective of the Emerging Markets Portfolio is to seek long-term
capital appreciation. The Portfolio will invest primarily in securities of
issuers who 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.
Although the Emerging Markets Portfolio may invest in any issuer in an emerging
market, the Emerging Markets Portfolio is likely to focus on, but not be limited
to, Latin America, the Pacific Basin and Europe.
Under normal market conditions, the Emerging Markets Portfolio will invest at
least 65% of its total assets in securities of companies within not less than
three different countries (not including the United States). The remaining
portion of the assets of the Emerging Markets Portfolio may be invested in the
same or different countries. The percentage of the Emerging Markets Portfolio's
assets invested in particular emerging markets may shift from time to time in
accordance with the judgment of the Investment Manager. Emerging market
countries are generally countries that are not developed countries. Developed
countries include Canada, United Kingdom, France, Germany, Australia, New
Zealand, Austria, Belgium, Denmark, Finland, Ireland, Italy, Japan, Netherlands,
Norway, Spain, Sweden, Switzerland and United States. For a description of the
risks associated with investing in emerging markets see "Additional Permitted
Investment Activities--Investment in 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 at least 50% of the issuer's non-current assets,
capitalization, gross revenue or profit in any one of the two most recent fiscal
years represents (directly or indirectly through subsidiaries) assets or
activities located in the emerging market country. The Portfolio will also
invest in closed-end investment companies investing in emerging market
securities. The Emerging Markets Portfolio may also invest in American
Depositary Receipts and Global Depositary Receipts with respect to emerging
market securities.
Although the Emerging Markets Portfolio expects to invest principally in equity
securities of emerging markets issuers, there is no requirement that the
Emerging Markets Portfolio invest exclusively in equity securities. If deemed
advisable, the Emerging Markets Portfolio may invest in fixed-income securities
and short-term money market instruments. See "Additional Permitted Investment
Activities -- Short-Term Money Market Instruments."
Following a bottom-up approach, the Investment Manager focuses on individual
stock selection rather than on forecasting stock market trends. In selecting a
specific stock for the Emerging Markets Portfolio, the Investment Manager relies
on its own research capability as well as information obtained from brokers
located in the emerging market country and information from affiliates of the
Investment Manager.
The Emerging Markets Portfolio may enter into futures contracts, options on
futures contracts and foreign currency forward exchange contracts to protect
against anticipated changes in foreign currency exchange rates. See "Additional
Permitted Investment Activities--Futures Contracts and Options on Futures
Contracts, Foreign Currency Forward Exchange Contracts."
When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Emerging Markets Portfolio may assume a temporary
defensive position and invest in the equity securities of U.S. companies or
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Page 23
short-term money market instruments or hold its assets in cash. See "Additional
Permitted Investment Activities--Short-Term Money Market Instruments."
Global Equity Portfolio
The investment objective of the Global Equity Portfolio is to seek capital
appreciation. The Portfolio will invest primarily in equity securities of
companies, both U.S. and non-U.S., that the Investment Manager believes are
inexpensively priced relative to the return on total capital or equity. The
Global Equity Portfolio follows a value-oriented search for equity securities of
issuers located anywhere in the world. In selecting investments for the Global
Equity Portfolio, the Investment Manager attempts to ascertain inexpensive
markets worldwide, including the U.S., through traditional measures of value,
including low price to earnings ratio, high yield, unrecognized assets,
potential for management change and/or potential to improve profitability. In
addition, the Investment Manager seeks to identify companies that it believes
are financially productive and undervalued in those markets.
At least 80% of the assets of the Global Equity Portfolio are expected to be
invested in the equity securities of companies within not less than four
countries, including the United States. The percentage of the Global Equity
Portfolio's assets invested in particular geographic sectors may shift from time
to time in accordance with the judgment of the Investment Manager. With a focus
on stock picking, the country allocation decision is an outgrowth of stock
selection and is used as an overlay and risk control mechanism to enhance
diversification. Nonetheless, it is the current intention of the Investment
Manager that not less than 25% of the assets of the Portfolio be invested in
securities of U.S. issuers. For a description of the risks associated with
investing in foreign securities see "Additional Permitted Investment
Activities--Investment in Foreign Securities. "
The assets of the Global Equity Portfolio are expected to be invested
principally in equity securities, including American Depository Receipts and
Global Depository Receipts and in convertible bonds and other convertible
securities. There is no requirement, however, that the Global Equity Portfolio
invest exclusively in equity securities, and, if deemed advisable, the Global
Equity Portfolio may invest up to 20% of the value of its total assets in
fixed-income securities and short-term money market instruments. See "Additional
Permitted Investment Activities--Short-Term Money Market Instruments." The
Global Equity Portfolio will not invest in fixed-income securities rated lower
than investment grade.
The Global Equity Portfolio may enter into foreign currency forward exchange
contracts, options and futures contracts in order to protect against anticipated
changes in foreign currency exchange rates. See "Additional Permitted Investment
Activities--Foreign Currency Forward Exchange Contracts."
When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Global Equity Portfolio may assume a temporary defensive
position and invest without limit in the equity securities of U.S. companies or
short-term money market instruments or hold its assets in cash. See "Additional
Permitted Investment Activities--Short-Term Money Market Instruments."
Bantam Value Portfolio
The investment objective of the Bantam Value Portfolio is to seek capital
appreciation. The Portfolio will invest primarily in equity securities of
companies with market capitalizations under $500 million that are believed by
the Investment Manager to be inexpensively priced relative to the return on
total capital or equity. The equity securities in which the Bantam Value
Portfolio may invest include common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks, rights and warrants and
American Depository Receipts and Global Depository Receipts. Investments are
generally made in equity securities of companies which, in the Investment
Manager's opinion, have one or more of the characteristics listed in the Small
Cap Factors, as well as a potential catalyst for increasing recognition, market
capitalization and value. See "Small Cap Portfolio" above.
Under normal market conditions, the Bantam Value Portfolio will invest at least
80% of the value of its total assets in the small capitalization equity
securities described above. Assets not invested in such small capitalization
equity securities would generally be invested in large capitalization equity
securities or debt securities, including cash equivalents. For a description of
the risks associated with investing in small capitalization equity securities,
see "Small Cap Portfolio" above.
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When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Bantam Value Portfolio may assume a temporary defensive
position and invest without limit in larger capitalization companies or
short-term money market instruments or hold its assets in cash. See "Additional
Permitted Investment Activities--Short-Term Money Market Instruments."
Emerging World Funds Portfolio
The investment objective of the Emerging World Funds Portfolio is to seek
capital appreciation. The Portfolio will invest primarily in equity securities
of investment funds ("Emerging Markets Funds") that will largely invest in
equity securities of companies in one or more emerging markets countries.
The securities of the Emerging Market Funds in which the Portfolio will invest
generally will be listed on internationally recognized stock exchanges or trade
in international markets, and will generally be trading at a discount to net
asset value. The Portfolio may, however, invest directly in equity securities of
emerging market companies when the shares of Emerging Market Funds are selling
at a premium, or when a particular emerging market country is not represented in
a suitable Emerging Market Fund. The Portfolio may also invest in warrants or
options on, and securities convertible into, equity securities of Emerging
Market Funds.
The Emerging World Funds Portfolio combines a "top-down" approach to country or
market valuation with a "bottom-up" approach to Emerging Market Fund security
selection. An emerging market for this purpose is described under "Emerging
Markets Portfolio" above. The Investment Managers will concentrate on countries
and regions that appear to be fundamentally undervalued using traditional
measures of value, which include low price earnings ratios, high yield and low
price to cash flow and price to book value. The Investment Manager will focus on
those Emerging Market Funds that are trading at discount to net asset value
where the discount has the prospect for being narrowed or eliminated due to
improved performance of the securities held by such fund and/or structural
changes to the Emerging Markets Fund such as conversion to an open end fund.
The assets of the Emerging World Funds Portfolio are expected to be invested
principally in equity securities. There is no requirement, however, that the
Emerging World Funds Portfolio invest exclusively in equity securities, and, if
deemed advisable, the Emerging World Funds Portfolio may invest up to 20% of the
value of its total assets in fixed-income securities and short-term money market
instruments. See "Additional Permitted Investment Activities--Short-Term Money
Market Instruments." The Emerging World Funds Portfolio will not invest in
fixed-income securities rated lower than investment grade.
The Emerging World Funds Portfolio, together with any "affiliated person" (as
defined in the Investment Company Act) may purchase only up to 3% of the total
outstanding stock of any Emerging Market Fund. Consequently, when affiliated
persons of the Portfolio hold shares of an Emerging Market Fund, the Portfolio's
ability to invest fully in shares of such Emerging Market Fund is restricted,
and the Investment Manager must then select, in some instances, alternative
investments that would not have been its first preference. Investment decisions
by the investment advisers of the Emerging Market Funds are made independently
of the Emerging World Funds Portfolio and the Investment Manager. The investment
adviser of one Emerging Market Fund may be purchasing securities of the same
issuer the securities of which are being sold by the investment adviser of
another Emerging Market Fund. The result of this would be an indirect expense to
the Portfolio without accomplishing any investment purpose. In addition,
Emerging Market Funds typically pay asset management and other fees.
Shareholders of the Emerging World Funds Portfolio may pay, in effect, two fees
with respect to the assets of the Portfolio invested in such Emerging Market
Funds.
The Emerging World Funds Portfolio may enter into foreign currency forward
exchange contracts, options and futures contracts in order to protect against
anticipated changes in foreign currency exchange rates. See "Additional
Permitted Investment Activities--Foreign Currency Forward Exchange Contracts."
When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Emerging World Funds Portfolio may assume a temporary
defensive position and invest without limit in the equity securities of U.S.
companies or short-term money market instruments or hold its assets in cash. See
"Additional Permitted Investment Activities--Short-Term Money Market
Instruments."
* * * *
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References to maximum or minimum investment limitations with respect to dollar
amounts or percentages of each Portfolio's assets mean that such limitations are
followed at the time of an investment purchase and that subsequent changes in
such dollar amounts or percentages resulting in such maximum or minimum
investment limitations being exceeded are not considered violations of such
limitations.
Each Portfolio may purchase obligations that are not rated if, in the opinion of
the Investment Manager, the obligations are of investment quality comparable to
other rated investments that are permitted by each such Portfolio. After
purchase by any of the Portfolios, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Portfolio.
Neither event will require a sale of such security by a Portfolio. To the extent
the ratings given by S&P or Moody's may change as a result of changes in such
organizations or their rating systems, each Portfolio will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in this Prospectus and in the Statement of
Additional Information. The ratings of S&P and Moody's are more fully described
in the Appendix attached hereto.
<PAGE>
Additional Permitted Investment Activities
Except as otherwise noted below, the following description of additional
permitted investment activities is applicable to all of the Portfolios.
Short-Term Money Market Instruments
Each Portfolio may at any time invest funds awaiting investment or held as
reserves for the purposes of satisfying redemption requests, payment of
dividends or making other distributions to shareholders, in cash and short-term
money market instruments; provided, however, that, with the exception of the
Equity Portfolio and Special Equity Portfolio, such investments will not
ordinarily exceed 5% of the total assets of any Portfolio. Short-term money
market instruments in which each Portfolio except the Equity Portfolio may
invest include (i) short-term U.S. Government Securities and, in the case of the
International Equity Portfolio, International Fixed-Income Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Strategic Yield
Portfolio, Global Equity Portfolio and Emerging World Funds Portfolio,
short-term obligations of foreign sovereign governments and their agencies and
instrumentalities, (ii) interest bearing savings deposits on, and certificates
of deposit and bankers' acceptances of, United States and foreign banks, (iii)
commercial paper of U.S. or, in the case of the International Equity Portfolio,
International Fixed-Income Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Strategic Yield Portfolio, Global Equity Portfolio
and Emerging World Funds Portfolio, of foreign issuers rated A-1 or higher by
S&P or Prime-1 by Moody's, issued by companies which have an outstanding debt
issue rated AA or higher by S&P or Aa or higher by Moody's or, if not rated,
determined by the Investment Manager to be of comparable quality to those rated
obligations which may be purchased by the Portfolio and (iv) repurchase
agreements relating to the foregoing.
Short-term money market instruments in which the Equity Portfolio may invest
have remaining maturities of not more than 12 months and include bank
obligations, corporate commercial paper subject to the same quality restrictions
as that purchased by the other Portfolios, non-convertible corporate debt
securities such as notes, bonds and debentures that are rated AA or better by
S&P or Aa or better by Moody's and variable amount master demand notes. For this
purpose, bank obligations include negotiable certificates of deposit, bankers'
acceptances, fixed time deposits and other short-term bank obligations. The
Equity Portfolio limits its investments in United States bank obligations to
obligations of United States banks (including foreign branches and thrift
institutions, the obligations of which are guaranteed by the U.S. parent) that
have more than $1 billion in total assets at the time of investment and are
members of the Federal Reserve System or are examined by the Comptroller of the
Currency or whose deposits are insured by the Federal Deposit Insurance
Corporation ("United States banks"). The Equity Portfolio limits its investments
in foreign bank obligations to United States dollar denominated obligations of
foreign banks (including United States branches), which banks at the time of
investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) are among the 100 largest banks in the world,
as determined on the basis of assets; and (iii) have branches or agencies in the
United States; and which obligations, in the opinion of the Investment Manager,
are of an investment quality comparable to obligations of United States banks
that may be purchased by the Portfolio. For a description of variable amount
master demand notes, see "Additional Permitted Investment Activities--Variable
Amount Master Demand Notes" in the Statement of Additional Information.
Temporary Bank Borrowing
Each Portfolio may borrow from banks for temporary purposes, including the
meeting of redemption requests which might require the untimely disposition of
securities.
With respect to the International Equity Portfolio, International Fixed-Income
Portfolio, Bond Portfolio, Strategic Yield Portfolio, International Small Cap
Portfolio, Emerging Markets Portfolio, Small Cap Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio, temporary
or emergency borrowing in the aggregate may not exceed 15%, and borrowing for
purposes other than meeting redemptions may not exceed 5%, of the value of the
relevant Portfolio's total assets (including the amount borrowed) less
liabilities (including the amount borrowed) at the time the borrowing is made.
Securities may not be purchased by any of these Portfolios while borrowings in
excess of 5% of the value of such Portfolio's total assets are outstanding.
For temporary purposes only in order to meet redemptions, the Equity Portfolio
may borrow from banks up to 10% of the current value of its total net assets.
Such borrowings may be secured by the pledge of not more than 10% of the value
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of the Portfolio's total net assets and investments may not be purchased by the
Equity Portfolio while any such borrowing exists. For temporary or emergency
purposes the Special Equity Portfolio may borrow up to 5% of its total assets
(not including the amount borrowed). In connection with such borrowings, the
Special Equity Portfolio may mortgage, pledge or hypothecate up to 5% of its
total assets (excluding the amount borrowed). Temporary borrowing by the Special
Equity Portfolio or Equity Portfolio will be included in calculating each
Portfolio's required 300% coverage described in "Additional Permitted Investment
Activities--Borrowing for Investment" in the Statement of Additional
Information.
Floating and Variable Rate Instruments
Certain of the obligations that the Portfolios may purchase have a floating or
variable rate of interest. Such obligations bear interest at rates that are not
fixed, but vary with changes in specified market rates or indices, such as the
Prime Rate, and at specified intervals. Certain of these obligations may carry a
demand feature that would permit the holder to tender them back to the issuer at
par value prior to maturity. Each Portfolio limits its purchases of floating and
variable rate obligations to those of the same quality as it otherwise is
allowed to purchase. The Investment Manager monitors on an ongoing basis the
ability of an issuer of a demand instrument to pay principal and interest on
demand. A Portfolio's right to obtain payment at par on a demand instrument can
be affected by events occurring between the date such Portfolio elects to demand
payment and the date payment is due that may affect the ability of the issuer of
the instrument to make payment when due, except when such demand instruments
permit same-day settlement. To facilitate settlement, these same-day demand
instruments may be held in book entry form at a bank other than the Fund's
custodian, subject to a subcustodian agreement approved by the Fund between that
bank and the Fund's custodian.
The floating and variable rate obligations that the Portfolios may purchase
include certificates of participation in obligations purchased from banks. A
certificate of participation gives the Portfolio an undivided interest in the
underlying obligations in the proportion that such Portfolio's interest bears to
the total principal amount of such obligations. Certain of such certificates of
participation may carry a demand feature that would permit the holder to tender
them back to the issuer prior to maturity.
To the extent that floating and variable rate instruments without demand
features are not readily marketable, they will be subject to the investment
restriction that no Portfolio may invest an amount equal to 10% or more of the
current value of its net assets in illiquid securities. See "Illiquid
Securities" and "Investment Restrictions" below.
Letters of Credit
Municipal obligations, certificates of participation therein, commercial paper
and other short-term obligations, may be backed by irrevocable letters of credit
issued by banks which assume the obligation for payment of principal and
interest in the event of default by an issuer. Only banks the securities of
which, in the opinion of the Investment Manager, are of investment quality
comparable to other permitted investments of the Portfolios may be used for
letter of credit-backed investments.
Loans of Portfolio Securities
In order to increase income, each Portfolio may lend securities from its
portfolio to brokers, dealers and financial institutions if cash or cash
equivalent collateral, including letters of credit, marked-to-market daily and
equal to at least 100% of the current market value of the securities loaned
(including accrued interest and dividends thereon) plus the interest payable to
the Portfolio with respect to the loan is maintained by the borrower with the
Portfolio in a segregated account. In determining whether to lend a security to
a particular broker, dealer or financial institution, the Investment Manager
will consider all relevant facts and circumstances, including the
creditworthiness of the broker, dealer or financial institution. No Portfolio
will enter into any portfolio security lending arrangement having a duration of
longer than one year. Any securities that a Portfolio may receive as collateral
will not become part of such Portfolio's investment portfolio at the time of the
loan and, in the event of a default by the borrower, the Portfolio will, if
permitted by law, dispose of such collateral except for such part thereof that
is a security in which such Portfolio is permitted to invest. During the time
securities are on loan, the borrower will pay the Portfolio any accrued income
on those securities, and the Portfolio may invest the cash collateral and earn
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Page 28
additional income or receive an agreed upon fee from a borrower that has
delivered cash equivalent collateral. No Portfolio will lend securities having a
value that exceeds 10% (331/3% in the case of the International Small Cap
Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value
Portfolio and Emerging World Funds Portfolio) of the current value of its total
assets. Loans of securities by a Portfolio will be subject to termination at the
Portfolio's or the borrower's option. Each Portfolio may pay reasonable
administrative and custodial fees in connection with a securities loan and may
pay a negotiated portion of the interest or fee earned with respect to the
collateral to the borrower or the placing broker. Borrowers and placing brokers
may not be affiliated, directly or indirectly, with the Fund or the Investment
Manager.
In addition to the above requirements and restrictions, it is a fundamental
investment policy of the Special Equity Portfolio that the Portfolio may not
lend securities from its portfolio unless (a) such loans are secured
continuously by collateral in cash maintained on a daily basis, or secured by a
letter of credit in favor of the Portfolio, in an amount at least equal at all
times to the market value of the securities loaned, or (b) such loans are
pursuant to repurchase agreements. The Special Equity Portfolio must maintain
the right to call such loans and to obtain the securities loaned at any time on
five days' notice.
Neither the Equity Portfolio nor Special Equity Portfolio has any present
intention to enter into loans of portfolio securities.
Repurchase Agreements
Each Portfolio may enter into repurchase agreements in order to permit the
Portfolio to keep all of its assets at work while retaining "overnight" or
short-term flexibility in pursuit of investments of a longer-term nature. A
repurchase agreement arises when the seller of a security to the Portfolio
agrees to repurchase that security from the Portfolio at a mutually agreed upon
time and price. The period of maturity is usually quite short, often overnight
or a few days, although it may extend over a number of months. A Portfolio may
enter into repurchase agreements only with respect to obligations that could
otherwise be purchased by that Portfolio. If the seller defaults and the value
of the underlying securities has declined, the Portfolio may incur a loss. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, the Portfolio's disposition of the security may be delayed or
limited.
A Portfolio may not enter into a repurchase agreement if, as a result, more than
10% of the value of that Portfolio's net assets would be invested in repurchase
agreements with a maturity of more than seven days and other illiquid
securities. See "Illiquid Securities" and "Investment Restrictions" below. The
Portfolios will enter into repurchase agreements only with broker-dealers and
commercial banks that meet guidelines established by the Board of Directors.
When-Issued Securities
Each Portfolio except the Special Equity Portfolio may purchase securities on a
when-issued basis, in which case delivery and payment normally take place within
45 days after the date of the commitment to purchase. A Portfolio will make
commitments to purchase securities on a when-issued basis only with the
intention of actually acquiring the securities but may sell them before the
settlement date if it is deemed advisable. When-issued securities are subject to
market fluctuations and no income accrues to the purchaser prior to issuance.
The purchase price and the interest rate that will be received on debt
securities are fixed at the time the purchaser enters into the commitment.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed upon purchase price,
in which case there could be an unrealized loss at the time of delivery.
Each Portfolio which may purchase securities on a when-issued basis will
establish a segregated account in which it will maintain liquid assets in an
amount at least equal in value to the Portfolio's commitments to purchase
when-issued securities. If the value of these assets declines, the Portfolio
will place additional liquid assets in the account on a daily basis so that the
value of the assets in the account remains equal to the amount of such
commitments.
Illiquid Securities
Each Portfolio may invest up to 10% of the value of its net assets in illiquid
securities. For this purpose illiquid securities include, among others, (i)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (ii) with respect to the
International Fixed-Income Portfolio, Bond Portfolio and Strategic Yield
Portfolio, options purchased by each of these Portfolios over-the-counter and
the cover for options written by each of these Portfolios over-the-counter,
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Page 29
and (iii) repurchase agreements not terminable within seven days. Securities
eligible for resale under Rule 144A under the Securities Act that have legal or
contractual restrictions on resale but have a readily available market are not
deemed illiquid securities for this purpose. The Special Equity Portfolio may
not purchase securities which must be registered under the Securities Act before
they may be offered or sold to the public and the Equity Portfolio may only
invest up to 5% of the value of its assets, taken at cost, in such securities.
The Investment Manager will monitor the liquidity of such restricted securities
with respect to each Portfolio under the supervision of the Fund's Board of
Directors. See the Statement of Additional Information for further discussion of
illiquid securities.
Investment in Unseasoned Companies
Assets of each Portfolio may be invested in securities of companies that have
operated for less than three years, including the operations of predecessors
("Unseasoned Companies"). Each Portfolio has undertaken that it will not make
investments that will result in more than 5% (10% in the case of the Small Cap
Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global
Equity Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio) of
its total assets being invested in the securities of Unseasoned Companies and
equity securities that are not readily marketable. See "Illiquid Securities"
above. Investing in securities of Unseasoned Companies may, under certain
circumstances, involve greater risk than is customarily associated with
investment in more established companies.
Investment in Foreign Securities
The International Equity Portfolio, International Fixed-Income Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Special Equity
Portfolio, Global Equity Portfolio and Emerging World Funds Portfolio may invest
without limitation in foreign securities. The Special Equity Portfolio, however,
is restricted to purchasing foreign equity and debt securities that are listed
on a domestic or foreign securities exchange or represented by American
Depositary Receipts listed on a domestic or foreign securities exchange or
traded in the United States over-the-counter market. The Strategic Yield
Portfolio may invest up to 50% of its total assets in non-U.S. dollar
denominated and may invest without limitation in U.S. dollar denominated
fixed-income securities of foreign issuers. The Equity Portfolio and Bantam
Value Portfolio may each invest up to 10% of its total assets in foreign equity
and debt securities provided that they are trading in U.S. markets or are listed
on a domestic securities exchange or represented by American Depositary Receipts
or Global Depositary Receipts.
Investing in securities issued by foreign governments and corporations or
entities involves considerations and possible risks not typically associated
with investing in obligations issued by the U.S. government and domestic
corporations. The values of foreign investments are affected by changes in
currency rates or exchange control regulations, application of foreign tax laws,
including withholding taxes, changes in governmental administration or economic
or monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States. Investments in foreign countries could be affected by
other factors not present in the United States, including expropriation,
confiscatory taxation, lack of uniform accounting and auditing standards and
potential difficulties in enforcing contractual obligations, and could be
subject to extended settlement periods.
In addition, many emerging market countries 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.
In an attempt to control inflation, wage and price controls have been imposed in
certain countries. In many cases, emerging market countries are among the
world's largest debtors to commercial banks, foreign governments, international
financial organizations and other financial institutions. In recent years, the
governments of some of these countries have encountered difficulties in
servicing their external debt obligations, which led to defaults on certain
obligations and the restructuring of certain indebtedness.
<PAGE>
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Foreign Currency Forward Exchange Contracts
Each of the International Equity Portfolio, International Fixed-Income
Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio,
Strategic Yield Portfolio, Global Equity Portfolio and Emerging World Funds
Portfolio may purchase or sell foreign currency forward exchange contracts
("forward contracts") consistent with such Portfolio's investment objective or
to attempt to minimize the risk from adverse changes in the relationship between
the U.S. Dollar and foreign currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date which
is individually negotiated and privately traded by currency traders and their
customers. Each Portfolio may enter into a forward contract, for example, when
it enters into a contract for the purchase or sale of a security denominated in
a foreign currency in order to "lock in" the U.S. Dollar price of the security
("transaction hedge"). Additionally, when the Portfolio believes that a foreign
currency may suffer a substantial decline against the U.S. Dollar, it may, for
example, enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Portfolio's investment
securities denominated in such foreign currency, or when the Portfolio believes
that the U.S. Dollar may suffer a substantial decline against a foreign
currency, it may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this situation the
Portfolio may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. Dollar amount where the Portfolio
believes that the U.S. Dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. Dollar value
of the currency in which portfolio securities of the Portfolio are denominated
("cross-hedge").
Under certain conditions, Commission guidelines require investment companies to
set aside cash, U.S. Government Securities or other liquid high quality debt
securities in a segregated custodial account to cover forward contracts. As
required by Commission guidelines, the Portfolios will segregate assets to cover
forward contracts, if any, whose purpose is essentially speculative. The
Portfolios will not segregate assets to cover forward contracts entered into for
hedging purposes.
Futures Contracts and Options on Futures Contracts
The International Fixed-Income Portfolio, Bond Portfolio, International Small
Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and Emerging
World Funds Portfolio may enter into contracts for the purchase or sale for
future delivery of fixed-income securities or contracts based on financial
indices including any index of U.S. Government Securities or corporate debt
securities ("futures contracts") and may purchase and write "covered" put and
call options to buy or sell futures contracts ("options on futures contracts").
The International Fixed-Income Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Global Equity Portfolio and Emerging World Funds
Portfolio may also enter into contracts for the purchase or sale for future
delivery of foreign currencies. A "sale" of a futures contract means the
acquisition of a contractual obligation to deliver the securities or foreign
currencies, called for by the contract at a specified price on a specified date.
A "purchase" of a futures contract means the incurring of a contractual
obligation to acquire the securities or foreign currencies, called for by the
contract at a specified price on a specified date. The purchaser of a futures
contract on an index agrees to take or make delivery of an amount of cash equal
to the difference between a specified dollar multiple of the value of the index
on the expiration date of the contract ("current contract value") and the price
at which the contract was originally struck. No physical delivery of the
fixed-income securities underlying the index is made. Options on futures
contracts to be written or purchased by the Bond Portfolio will be traded on
U.S. exchanges or over-the-counter. At the time a futures contract is purchased
or sold, the Portfolio must allocate cash or securities as a deposit payment
based on a percentage of a contract's face value. The futures contract is valued
daily thereafter and the Portfolio may be required to contribute additional cash
or securities that reflects any decline in the contract's value. These
investment techniques will be used only to hedge against anticipated future
changes in interest rates which otherwise might either adversely affect the
value of the portfolio securities of the Portfolio or adversely affect the
prices of securities or foreign currencies, which the Portfolio intends to
purchase at a later date. Futures and options transactions involve so-called
"derivative securities." See "Additional Permitted Investment Activities" in the
Statement of Additional Information for further discussion of the use, risks and
costs of futures contracts and options on futures contracts.
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Warrants
Each of the Equity Portfolio, Strategic Yield Portfolio, International Small Cap
Portfolio, Small Cap Portfolio, Emerging Markets Portfolio, Special Equity
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio may invest not more than 5% of its total assets at the time of
purchase in warrants (other than those that have been acquired in units or
attached to other securities). In addition, not more than 2% of the assets of
any of these Portfolios may, at the time of purchase, be invested in warrants
that are not listed on an exchange. Warrants represent rights to repurchase
equity securities and debt securities at a specific price valid for a specific
period of time. The prices of warrants do not necessarily correlate with the
prices of the underlying securities. The Equity Portfolio may only purchase
warrants on securities in which it may invest directly.
Stock or Bond Options
The Equity Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio may for hedging purposes purchase put and call options and write
covered put and call options on securities in which it may invest directly and
that, in the case of the Equity Portfolio are traded on registered domestic
securities exchanges. The Strategic Yield Portfolio may invest up to 5% of its
total assets in the purchase of the time value of call and put options on the
types of securities in which the Portfolio may invest. The time value of an
option is the option premium less the intrinsic value of the option at the time
of purchase. The Strategic Yield Portfolio may also write covered call and put
options contracts to the extent that the time value of the call or put options
does not exceed 10% of the value of the covered assets. The Strategic Yield
Portfolio may purchase and sell call and put options on equity securities and
stock indices, to the same extent as it is permitted to purchase and sell call
and put options on the types of securities in which it may invest. The Special
Equity Portfolio may purchase put and call options and write covered put and
call options on stocks that are traded on domestic securities exchanges,
although it has no present intention to do so. The writer of a call option, who
receives a premium, has the obligation, upon exercise of the option, to deliver
the underlying security against payment of the exercise price during the option
period. The writer of a put option, who receives a premium, has the obligation
to buy the underlying security, upon exercise, at the exercise price during the
option period.
Each of the Equity Portfolio, Strategic Yield Portfolio, Special Equity
Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global
Equity Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio may
write put and call options only if they are "covered," and such options must
remain "covered" as long as the Portfolio is obligated as a writer. A call
option is "covered" if the Portfolio owns the underlying security covered by the
call or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration if held in a
segregated account by the Fund's custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Portfolio
holds on a share-for-share or equal principal amount basis a call on the same
security as the call written where the exercise price of the call held is equal
to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained by the
Portfolio in cash, treasury bills or other high-grade short-term obligations in
a segregated account with the Fund's custodian. A put option is "covered" if the
Portfolio maintains cash, treasury bills or other high-grade short-term
obligations with a value equal to the exercise price in a segregated account
with the Fund's custodian, or else owns on a share-for-share or equal principal
amount basis a put on the same security as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written.
The principal reason for writing call options is to attempt to realize, through
the receipt of premiums, a greater current return than would be realized on the
underlying securities alone. In return for the premium, the Portfolio would give
up the opportunity for profit from a price increase in the underlying security
above the exercise price so long as the option remains open, but retains the
risk of loss should the price of the security decline. Upon exercise of a call
option when the market value of the security exceeds the exercise price, the
Portfolio would incur a loss equal to the difference between the exercise price
and the market value, less the premium received for writing the option.
The principal reason for purchasing put options is to protect the value of a
security owned against an anticipated decline in market value. Exercise of a put
option will generally be profitable only if the market price of the underlying
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Page 32
security declines sufficiently below the exercise price to offset the premium
paid and the transaction costs. If the market price of the underlying security
increases, the Portfolio's profit upon the sale of the security will be reduced
by the premium paid for the put option less any amount for which the put is
sold.
The Equity Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Special Equity Portfolio, Global Equity Portfolio, Bantam Value
Portfolio and Emerging World Funds Portfolio may purchase and sell put and call
options on stock indices traded on national, domestic or foreign, securities
exchanges, although the Equity Portfolio currently intends to limit investments
in options on stock indices to no more than 5% of its total assets. See
"Additional Permitted Investment Activities--Investment in Options on Stock
Indices" for a description of options on stock indices.
Options on Foreign Currencies
The International Fixed-Income Portfolio, Strategic Yield Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio and Emerging World Funds Portfolio may purchase and write put and call
options on foreign currencies for the purpose of protecting against declines in
the U.S. Dollar value of foreign currency denominated portfolio securities and
against increases in the U.S. Dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the
premium received, and the Portfolios could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to a Portfolio's position, it may forfeit the entire amount of
the premium plus related transaction costs. Options on foreign currencies to be
written or purchased by a Portfolio are traded on U.S. and foreign exchanges or
over-the-counter. There is no specific percentage limitation on either
Portfolio's investments in options on foreign currencies, although the
International Fixed-Income Portfolio will limit its investments in options
traded on the over-the-counter market to no more than 10% of the market value of
the Portfolio's net assets. See the Statement of Additional Information for
further discussion of the use, risks and costs of options on foreign currencies.
Diversification
The Equity Portfolio and the Special Equity Portfolio are operated as
"diversified" portfolios as that term is defined in the Investment Company Act.
As such, each of these Portfolios has at least 75% of the value of its total
assets invested in cash and cash items (including receivables), U.S. Government
Securities, securities of other investment companies and "other securities." For
these purposes, "other securities" are securities limited in respect of any one
issuer to an amount not greater in value than 5% of the value of the total
assets of the Portfolio and to not more than 10% of the outstanding voting
securities of such issuer.
The International Equity Portfolio, International Fixed-Income Portfolio, Bond
Portfolio, Strategic Yield Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Small Cap Portfolio, Global Equity Portfolio, Bantam
Value Portfolio and Emerging World Funds Portfolio are "non-diversified," which
means that none of the Portfolios is limited in the proportion of its assets
that may be invested in the securities of a single issuer. Because these
Portfolios are non-diversified and each may invest in a smaller number of
individual issuers than a diversified investment company, an investment in any
of these Portfolios may, under certain circumstances, present greater risk to an
investor than an investment in a diversified company.
Each of the Portfolios intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Code, which will relieve the
Portfolio of any liability for Federal income tax to the extent its earnings are
distributed to shareholders. To so qualify, among other requirements, each
Portfolio will limit its investments so that, at the close of each quarter of
the taxable year, (i) not more than 25% of the market value of the Portfolio's
total assets will be invested in the securities of a single issuer, and (ii)
with respect to 50% of the market value of its total assets, not more than 5% of
the market value of its total assets will be invested in the securities of a
single issuer and the Portfolio will not own more than 10% of the outstanding
voting securities of a single issuer. A Portfolio's investments in U.S.
Government Securities are not subject to these limitations.
<PAGE>
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Portfolio Turnover
Except as noted below, the Fund's policy with respect to turnover of securities
held in the Portfolios is to purchase securities for investment purposes and not
for the purpose of realizing short-term trading profits. When circumstances
warrant, however, securities may be sold without regard to the length of time
held.
Although a Portfolio cannot accurately predict its annual portfolio turnover
rate, the Investment Manager does not expect the annual portfolio turnover of
the Equity Portfolio, Small Cap Portfolio, International Equity Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Special Equity
Portfolio, Global Equity Portfolio, Bantam Value Portfolio or Emerging World
Funds Portfolio to exceed 100%. However the annual portfolio turnover of the
Bond Portfolio and Strategic Yield Portfolio may exceed 100%. A 100% annual
portfolio turnover rate would occur, for example, if all of the stocks in a
portfolio were replaced in a period of one year. A 100% turnover rate is greater
than that of many other investment companies, including those which emphasize
capital appreciation as a basic policy, and may result in correspondingly
greater brokerage commissions being paid by the Portfolio.
The International Fixed-Income Portfolio and Strategic Yield Portfolio will
actively use trading to benefit from yield disparities among different issues of
fixed-income securities or otherwise to achieve its investment objective and
policies. The Investment Manager anticipates that the annual turnover in the
International Fixed-Income Portfolio and Strategic Yield Portfolio may be in
excess of 200% in future years (but is not expected to exceed 300%). A 200%
turnover rate is greater than that of most other investment companies. A high
rate of portfolio turnover involves correspondingly greater transaction expenses
than a lower rate, which expenses are borne by the Portfolio and its
shareholders. High portfolio turnover also may result in the realization of
substantial net short-term capital gains. However, in order for each Portfolio
to continue to qualify as a regulated investment company for Federal tax
purposes, less than 30% of the annual gross income of each Portfolio must be
derived from the sale of securities held by the Portfolio for less than three
months. See "Taxation."
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With the exception of the Special Equity Portfolio, the foregoing investment
objectives and related policies and activities of each of the Portfolios, except
as indicated above, are not fundamental and may be changed by the Board of
Directors of the Fund without the approval of the shareholders.
<PAGE>
Investment Restrictions
The following investment restrictions and, except as otherwise noted, those
specifically so described in the Statement of Additional Information, are
fundamental policies of each of the Portfolios that may be changed only when
permitted by law and approved by the holders of a majority of such Portfolio's
outstanding voting securities, as defined in the Investment Company Act and as
described under "Organization and Description of Capital Stock" in the Statement
of Additional Information. The Fund is empowered to establish, without
shareholder approval, additional portfolios which may have different fundamental
investment restrictions.
In addition to the fundamental investment restrictions listed in the Statement
of Additional Information, no Portfolio may:
(i) issue senior securities, borrow money or pledge or mortgage its assets,
except that (A) each Portfolio may borrow from banks for temporary purposes,
including the meeting of redemption requests which might require the untimely
disposition of securities, as described above in "Additional Permitted
Investment Activities--Temporary Bank Borrowing", (B) the International Small
Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value
Portfolio or Emerging World Funds Portfolio also may borrow money to the extent
permitted under the Investment Company Act and, as a non-fundamental policy, may
pledge, hypothecate, mortgage or otherwise encumber its assets to secure
permitted borrowings; provided, however, that the International Small Cap
Portfolio, the Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value
Portfolio or Emerging World Funds Portfolio will not make new investments to the
extent borrowings exceed 5% of the total assets of the Portfolio, except for
borrowings that are covered within the interpretations of Section 18(f) of the
Investment Company Act and (C) the Equity Portfolio and the Special Equity
Portfolio may additionally utilize leverage as described in "Additional
Permitted Investment Activities-- Borrowing for Investment" in the Statement of
Additional Information. For purposes of this investment restriction, a
Portfolio's entry into options, forward contracts, futures contracts, including
those related to indexes shall not constitute borrowing;
(ii) make loans, except loans of portfolio securities not having a value in
excess of 10% (331/3% in the case of the International Small Cap Portfolio,
Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value Portfolio or
Emerging World Funds Portfolio) of a Portfolio's total assets and except that
each Portfolio may purchase debt obligations in accordance with its investment
objectives and policies;
(iii) with the exception of Special Equity Portfolio, invest in illiquid
securities as defined in "Additional Permitted Investment Activities--Illiquid
Securities" if immediately after such investment more than 10% of the value of
the Portfolio's net assets, or, in the case of the Equity Portfolio, more than
10% of the value of that Portfolio's total assets, taken at market value, would
be invested in such securities (this restriction is not a fundamental policy of
the Global Equity Portfolio, Bantam Value Portfolio and Emerging World Funds
Portfolio); or
(iv) purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization; provided, however,
that, this restriction is not a fundamental policy of the International Small
Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value
Portfolio or Emerging World Funds Portfolio and provided, further, that (A) the
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio may
purchase securities of other investment companies to the extent permitted under
the Investment Company Act (this restriction is not a fundamental policy of
these Portfolios) and (B) the Equity Portfolio, International Equity Portfolio,
Small Cap Portfolio and Special Equity Portfolio may purchase securities in an
amount up to 5% of the value of the Portfolio's total assets in any one
closed-end fund and may purchase in the aggregate securities of closed-end funds
in an amount of up to 10% of the value of the Portfolio's total assets.
In addition to the investment policies noted above applicable to all the
Portfolios, the Special Equity Portfolio has adopted the following fundamental
investment policies. The Special Equity Portfolio may not:
(i) Deviate from the percentage restrictions set forth under "Additional
Permitted Investment Activities--Temporary Bank Borrowing; Warrants; and
Repurchase Agreements" in this Prospectus or under "Additional Permitted
Investment Activities--Borrowing for Investment" in the Statement of Additional
Information;
(ii) Deviate from the percentage restrictions set forth under "Additional
Permitted Investment Activities--Investment in Unseasoned Companies" with
respect to investment in unseasoned companies;
<PAGE>
(iii) Make loans, except that the Special Equity Portfolio may purchase a
portion of an issue of publicly distributed debt obligations and may also engage
in the practice of lending its securities subject to the restrictions set forth
in subparagraph (v) below;
(iv) Mortgage, pledge or hypothecate any assets, except in connection with
temporary or emergency borrowings in amounts not exceeding 5% of the Special
Equity Portfolio's total assets (not including the amount borrowed);
(v) Lend its portfolio securities unless such loans are secured continuously by
collateral in cash maintained on a daily basis, or secured by a letter of credit
in favor of the Special Equity Portfolio, in an amount at least equal at all
times to the market value of the securities loaned, or such loans are pursuant
to repurchase agreements; the Special Equity Portfolio must maintain the right
to call such loans and to obtain the securities loaned at any time on five days'
notice; during the existence of a loan, the Special Equity Portfolio continues
to receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned and also has the right to receive the interest on investment
of the cash collateral in short-term money market instruments; if the Investment
Manager determines to make securities loans, the value of the securities loaned
(not including repurchase agreements) may not exceed 10% of the value of the
Special Equity Portfolio's total assets; or
(vi) Purchase securities which must be registered under the Securities Act of
1933 before they may be offered or sold to the public.
MANAGEMENT
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.
Investment Manager and Investment Management Agreements
Lazard Freres Asset Management, 30 Rockefeller Plaza, New York, New York 10020,
has entered into investment management agreements with the Fund on behalf of
each of the Portfolios. The investment management agreements entered into by
Lazard Freres Asset Management will collectively be referred to herein as the
"Management Agreements" and, where appropriate, individually as the "Management
Agreement." Pursuant to the Management Agreements, Lazard Freres Asset
Management will regularly provide the Portfolios with investment research,
advice and supervision and furnish continuously an investment program for each
Portfolio consistent with its investment objectives and policies, including the
purchase, retention and disposition of securities.
The Investment Manager is also 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. Orders may be directed to any broker including, to the extent and in
the manner permitted by applicable law, Lazard Freres. The Investment Manager
has selected Lazard Freres as a broker for certain portfolio securities
transactions with respect to the Portfolios. Lazard Freres performs such
brokerage services in conformity with Rule 17e-1 under the Investment Company
Act and procedures adopted by the Fund's Board of Directors. In addition, the
Investment Manager may allocate brokerage transactions to brokers who direct to
the Investment Manager persons who purchase Fund shares.
Lazard Freres Asset Management is a division of Lazard Freres, a New York
limited liability company, which is registered as an investment adviser with 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. Lazard Freres Asset Management provides
<PAGE>
Page 36
investment management services to client discretionary accounts with assets
totalling approximately $27 billion as of June 30, 1995. Its clients are both
individuals and institutions, some of whose accounts have investment policies
similar to those of several of the Portfolios.
Under the terms of each Management Agreement, the Investment Manager will pay
the compensation of all personnel of the Fund except the fees of Directors of
the Fund who are not affiliated with the Investment Manager or its affiliates.
The Investment Manager will make available to the Portfolios such of the
Investment Manager's members, directors, officers and employees as are
reasonably necessary for the operations of each Portfolio, or as may be duly
elected officers or directors of the Fund. Under the Management Agreements, the
Investment Manager also pays each Portfolio's office rent and provides
investment advisory research and statistical facilities and all clerical
services relating to research, statistical and investment work. The Investment
Manager, including its employees who serve the Portfolios, may render investment
advice, management and other services to others.
Each of the Portfolios pays 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: Equity Portfolio, .75%; International
Equity Portfolio, .75%; International Fixed-Income Portfolio, .75%; Bond
Portfolio, .50%; Strategic Yield Portfolio, .75%; Small Cap Portfolio, .75%;
International Small Cap Portfolio, .75%; Emerging Markets Portfolio, 1.00%;
Special Equity Portfolio, 1.50%; Global Equity Portfolio, .75%; Bantam Value
Portfolio, .75%; and Emerging World Funds Portfolio, .75%. The investment
management fees are accrued daily and paid monthly with the exception of those
paid by the Special Equity Portfolio, which are paid quarterly. Investment
management fees at an annual rate of .75% or greater are higher than those paid
by most registered investment companies. The investment management fee payable
by the Special Equity Portfolio is substantially higher than that of most other
registered investment companies.
Each Portfolio will bear all expenses not specifically assumed by the Investment
Manager, including, among others, the fee payable to the Portfolio's Investment
Manager, the fees of the Directors who are not "affiliated persons" of the
Investment Manager, the expenses of all Directors and the fees and out-of-pocket
expenses of the Fund's custodian and the transfer and dividend disbursing agent.
For a more detailed description of the expenses to be borne by the Portfolios,
see "Management" in the Statement of Additional Information.
Each of the Management Agreements provides that the Investment Manager will
reimburse each Portfolio for the Portfolio's expenses (exclusive of interest,
taxes, brokerage, distribution expenditures and extraordinary expenses, all to
the extent permitted by applicable state securities law and regulations) which
in any year exceed the limits prescribed by any state in which the Portfolio's
shares are qualified for sale. The Fund may not qualify the shares of each
Portfolio for sale in every state. The Fund believes that presently the most
restrictive expense ratio limitation imposed by any state is 2.5% of the first
$30 million of the Portfolio's average net assets, 2.0% of the next $70 million
of its average net assets and 1.5% of its average net assets in excess of $100
million. The Investment Manager has undertaken to bear (i) with respect to each
of the Equity Portfolio, International Fixed-Income Portfolio, Strategic Yield
Portfolio, International Small Cap Portfolio, Global Equity Portfolio, Bantam
Value Portfolio and Emerging World Funds Portfolio, total operating expenses in
excess of 1.05% of each such Portfolio's average net assets, (ii) with respect
to the Bond Portfolio, total operating expenses in excess of .80% of that
Portfolio's average net assets, and (iii) with respect to the Emerging Markets
Portfolio, total operating expenses in excess of 1.30% of that Portfolio's
average net assets, each until the earlier of December 31, 1994 (1996 in the
case of the Bond Portfolio International Fixed-Income Portfolio, Emerging
Markets Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging
World Funds Portfolio) or such time as the respective Portfolio reaches total
net assets of $100 million. In addition, for the period commencing May 1, 1995
and terminating upon the earlier to occur of (i) October 31, 1996 and (ii) the
net assets of the Special Equity Portfolio equaling or exceeding $90 million,
the Investment Manager has agreed to bear total operating expenses (exclusive of
extraordinary expenses) of the Special Equity Portfolio in excess of 1.50% of
the Special Equity Portfolio's average net assets. Pursuant to the same
undertaking for each of those Portfolios for the fiscal year ended December 31,
1994, total operating expenses, as a percentage of the Portfolio's average net
assets, were as follows: Equity Portfolio, 1.05%; International Fixed-Income
Portfolio, 1.05%; Strategic Yield Portfolio, 1.05%; International Small Cap
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Page 37
Portfolio, 1.05%; Bond Portfolio, .80%; and Emerging Markets Portfolio, 1.30%.
For the fiscal year ended December 31, 1994, total operating expenses, as a
percentage of average net assets, were 1.71% for the Special Equity Portfolio;
.94% for the International Equity Portfolio and .85% for the Small Cap
Portfolio.
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. Under the Administration
Agreement, State Street receives from each Portfolio, except the Special Equity
Portfolio, an annual fee of $37,500 plus .02% of the value of such Portfolio's
average daily net assets. Administrative expenses for the Special Equity
Portfolio are paid for by the Investment Manager.
Distributor
Under the terms of a distribution agreement with the Fund, Lazard Freres acts as
distributor for the Portfolios and bears the cost of printing and mailing
prospectuses to potential investors and of any advertising expenses incurred by
it in connection with the distribution of shares.
Principal Managers
The name and title of each 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:
Equity Portfolio: HERBERT W. GULLQUIST. (Since inception). Mr. Gullquist is a
Managing Director of the Investment Manager and has been with the Investment
Manager since 1982.
MICHAEL S. ROME. (Since 1991). Mr. Rome is a Managing Director of the Investment
Manager and has been with the Investment Manager since 1991. From 1989 through
1990, he was a Senior Vice President with Mark Partners and, from 1982 through
1989, he was a Vice President with Goldman, Sachs.
Special Equity Portfolio: CHARLES DREIFUS. (Since inception). Mr. Dreifus is a
Managing Director of the Investment Manager and has been with the Investment
Manager since 1982.
Small Cap Portfolio: HERBERT W. GULLQUIST. (Since inception). Mr. Gullquist's
biographical information is described under "Equity Portfolio".
MICHAEL S. ROME. (Since January 1, 1995). Mr. Rome's biographical information is
described under "Equity Portfolio".
EILEEN ALEXANDERSON. (Since inception). Ms. Alexanderson is a Senior Vice
President of the Investment Manager where she has been employed since 1979.
LEONARD M. WILSON. (Since inception). Mr. Wilson has been a Senior Vice
President of the Investment Manager since 1988.
BRADLEY J. PURCELL. (Since inception). Mr. Purcell is a Vice President of the
Investment Manager and has been with the Investment Manager since 1991. Prior
thereto, he served as vice president/portfolio manager with the Gabelli Value
Fund. Previous to that, he was associated with Market Guide, Inc. where he
served as director of research.
International Equity Portfolio: HERBERT W. GULLQUIST. (Since inception). Mr.
Gullquist's biographical information is described under "Equity Portfolio".
JOHN R. REINSBERG. (Since January 1992). Mr. Reinsberg is a Managing Director of
the Investment Manager and has been with the Investment Manager since 1992.
Prior thereto, he was Executive Vice President of General Electric Investment
Company.
International Fixed-Income Portfolio: THOMAS F. DUNN. (Since January 1, 1995).
Mr. Dunn is a Managing Director of the Investment Manager and has been with the
Investment Manager since January 1, 1995. Prior thereto, he was a Senior Vice
President of Goldman Sachs Asset Management.
IRA O. HANDLER. (Since 1992). Mr. Handler is a Senior Vice President of the
Investment Manager and has been a Global & Emerging Fixed-Income Portfolio
Manager of the Investment Manager since 1992. From 1990 to 1992, he was a
foreign exchange manager with Timber Hill, Inc. and, from 1987 to 1990, a Vice
President with Goldman, Sachs.
Bond Portfolio: THOMAS F. DUNN. (Since January 1, 1995). Mr. Dunn's biographical
information is described under "International Fixed-Income Portfolio".
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Page 38
Strategic Yield Portfolio: THOMAS F. DUNN. (Since January 1, 1995). Mr. Dunn's
biographical information is described under "International Fixed-Income
Portfolio".
IRA O. HANDLER. (Since 1993). Mr. Handler's biographical information is
described under "International Fixed-Income Portfolio".
International Small Cap Portfolio: HERBERT W. GULLQUIST. (Since inception). Mr.
Gullquist's biographical information is described under "Equity Portfolio".
JOHN R. REINSBERG. (Since inception). Mr. Reinsberg's biographical information
is described under "International Equity Portfolio".
Emerging Markets Portfolio: HERBERT W. GULLQUIST. (Since inception). Mr.
Gullquist's biographical information is described under "Equity Portfolio".
JOHN R. REINSBERG. (Since inception). Mr. Reinsberg's biographical information
is described under "International Equity Portfolio".
Global Equity Portfolio: HERBERT W. GULLQUIST. (Since inception). Mr.
Gullquist's biographical information is described under "Equity Portfolio."
JOHN R. REINSBERG. (Since inception). Mr. Reinsberg's biographical information
is described under "International Equity Portfolio".
MICHAEL S. ROME. (Since inception). Mr. Rome's biographical information is
described under "Equity Portfolio".
Bantam Value Portfolio: HERBERT W. GULLQUIST. (Since inception). Mr. Gullquist's
biographical information is described under "Equity Portfolio."
MICHAEL S. ROME. (Since inception). Mr. Rome's biographical information is
described under "Equity Portfolio".
EILEEN ALEXANDERSON. (Since inception). Ms. Alexanderson's biographical
information is described under "Small Cap Portfolio".
LEONARD M. WILSON. (Since inception). Mr. Wilson's biographical information is
described under "Small Cap Portfolio".
BRADLEY J. PURCELL. (Since inception). Mr. Purcell's biographical information is
described under "Small Cap Portfolio".
Emerging World Funds Portfolio: ALEXANDER E. ZAGOREOS. (Since inception). Mr.
Zagoreos is a Managing Director of the Investment Manager and has been with the
Investment Manager since 1977.
<PAGE>
Page 39
Determination of Net Asset Value
Net asset value per share for each Portfolio is determined by the Fund's
custodian, State Street Bank and Trust Company (the "Custodian"), on each day
the New York Stock Exchange is open for trading. The net asset value per share
of each Portfolio is computed by dividing the value of the total assets of the
Portfolio, less all liabilities, by the total number of outstanding shares of
the Portfolio.
The value of securities, other than options listed on national securities
exchanges and debt securities maturing in 60 days or less, is determined as of
the close of regular trading on the New York Stock Exchange. Options on stocks
and stock indices traded on national securities exchanges are valued as of the
close of options trading on such exchanges (which is currently 4:10 p.m. New
York time). Debt securities maturing in 60 days or less are valued at amortized
cost. Each security for which the primary market is on a national securities
exchange is valued at the last sale price on the principal exchange on which it
is traded, or, if no sales are reported on such exchange on that day, at the
closing bid price.
Any security held by any Portfolio, except the Special Equity Portfolio for
which the primary market is the National Association of Securities Dealers
Automated Quotations National Market System, is valued at the last sale price as
quoted by such system or, in the absence of any sale on the valuation date, at
the closing bid price. Any other unlisted security for which current
over-the-counter market quotations or bids are readily available is valued at
its last quoted bid price or, for each of these Portfolios except the Equity
Portfolio, if available, the mean of two such prices.
Any security held by the Special Equity Portfolio that is not listed on a
national securities exchange but that is quoted on the National Association of
Securities Dealers Automated Quotations System is valued at the last bid price
as quoted by such system. Any other security held by the Special Equity
Portfolio for which current over-the-counter market quotations or bids are
readily available is valued at its last quoted bid price or, if available, the
mean of two such prices.
All other securities and other assets for which current market quotations are
not readily available are valued at fair value as determined in good faith by
the Fund's Board of Directors and in accordance with procedures adopted by the
Board of Directors. The portfolio securities of any of the Portfolios may also
be valued on the basis of prices provided by a pricing service when such prices
are believed by the Investment Manager to reflect the fair market value of such
securities.
The Small Cap Portfolio, International Small Cap Portfolio, Special Equity
Portfolio and Bantam Value Portfolio invest primarily in equity securities of
companies with relatively small market capitalizations. Because of the
difference between the bid and asked prices of over-the-counter securities,
there may be an immediate reduction in the net asset value of the shares of the
Small Cap Portfolio, International Small Cap Portfolio, Special Equity Portfolio
or Bantam Value Portfolio after such Portfolio has completed a purchase of
securities that will be valued by the relevant Portfolio at their bid price,
since those securities usually will have been purchased at or near the asked
price.
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Page 40
Purchase of Shares
The minimum initial investment is $50,000 for each Portfolio. Investments made
by directors, members and employees of Lazard Freres and affiliated companies
and their relatives or by the trustees of benefit plans covering those
individuals are subject to a $5,000 minimum initial investment requirement for
each Portfolio. All minimums may, however, be waived in the sole discretion of
the Fund. The minimum subsequent investment for all investors is $5,000. The
minimum investment requirements may be waived or lowered for investments
effected through banks and other institutions that have entered into special
arrangements with the Fund or the Distributor and for investments effected on a
group basis by certain other entities and their employees, such as pursuant to a
payroll deduction plan.
Shares of any Portfolio may be purchased in exchange for securities which are
permissible investments of that Portfolio, subject to the Investment Manager's
determination that the securities are acceptable. Securities accepted in
exchange will be valued at the mean between their bid and asked quotations. In
addition, securities accepted in exchange are required to be liquid securities
that are not restricted as to transfer and have a value that is readily
ascertainable (and not established only by evaluation procedures) as evidenced
by a listing on the American Stock Exchange, the New York Stock Exchange,
NASDAQ, recognized non-U.S. exchanges or non NASDAQ with at least two market
makers. The Fund and Lazard Freres reserve the right to reject any purchase
order. All funds will be invested in full and fractional shares.
Purchases through the Transfer Agent
Orders for shares of all of the Portfolios will become effective at the net
asset value per share next determined after receipt by the Transfer Agent or
other agent of a check drawn on any member of the Federal Reserve System or
after receipt by the Custodian or other agent of a bank wire or Federal Reserve
Wire. Checks must be payable in United States dollars and will be accepted
subject to collection at full face value. See "Determination of Net Asset
Value."
By investing in a Portfolio, a shareholder appoints the Transfer Agent, as
agent, to establish an open account to which all shares purchased will be
credited, together with any dividends and capital gain distributions that are
paid in additional shares. See "Dividends and Distributions." Although most
shareholders elect not to receive stock certificates, certificates for full
shares can be obtained on specific written request to the Transfer Agent. No
certificates are issued for fractional shares. It is more complicated to redeem
shares held in certificate form.
Initial Purchase by Wire
1. Telephone toll free from any continental state: (800) 854-8525. Give the
Portfolio(s) to be invested in, name(s) in which shares are to be registered,
address, social security or tax identification number (where applicable),
dividend payment election, amount to be wired, name of the wiring bank and name
and telephone number of the person to be contacted in connection with the order.
An account number will be assigned.
2. Instruct the wiring bank to transmit the specified amount in federal funds
($50,000 or more), giving the wiring bank the account name(s) and assigned
account number, to the Custodian:
ABA #: 011000028 State Street Bank and Trust Company Boston, Massachusetts
Custody and Shareholder Services Division
DDA 9902-8102
Attention: (Name of Portfolio)
The Lazard Funds, Inc.
Shareholder's Name and Account Number
3. Complete a Purchase Application. Indicate the services to be used. Mail the
Purchase Application to the Transfer Agent:
Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02106
Attention: (Name of Portfolio)
The Lazard Funds, Inc.
<PAGE>
Additional Purchases by Wire
Instruct the wiring bank to transmit the specified amount ($5,000 or more) in
federal funds to State Street Bank and Trust Company as instructed in Item 2
above.
Initial Purchase by Mail
1. Complete a Purchase Application. Indicate the services to be used.
2. Mail the Purchase Application and a check for $50,000 or more, payable to the
Portfolio whose shares are to be purchased, to Scudder Service Corporation at
the address set forth in Item 3 above.
Additional Purchases by Mail
1. Make a check ($5,000 or more) payable to the Portfolio whose shares are to be
purchased. Write the shareholder's account number on the check.
2. Mail the check and the detachable stub from the
Statement of Account (or a letter providing the account number) to Scudder
Service Corporation at the address set forth in Item 3 above.
Purchases through a Lazard Freres Brokerage Account
Shares of all of the Portfolios are sold by Lazard Freres only to customers of
Lazard Freres, without a sales charge, on a continuing basis at the net asset
value of the Portfolio next determined after receipt of a purchase order by
Lazard Freres. Payments must be made to Lazard Freres within three business days
of the order. Because Lazard Freres does not forward investors' funds until the
business day on which the order is settled, it may benefit from temporary use of
these funds. See "Management" in the Statement of Additional Information.
Redemption of Shares
Upon receipt by the Transfer Agent, Lazard Freres or other agent of a
redemption request in proper form, shares of any Portfolio will be redeemed at
their next determined net asset value. See "Determination of Net Asset Value."
For the shareholder's convenience, the Fund has established several different
redemption procedures.
Redemptions through the Transfer Agent
SHAREHOLDERS OF A PORTFOLIO WHO DO NOT HAVE A BROKERAGE ACCOUNT WITH LAZARD
FRERES SHOULD SUBMIT THEIR REDEMPTION REQUESTS TO THE TRANSFER AGENT BY MAIL
(SEE ITEMS 1-4 BELOW). Redemption requests should be mailed to the Transfer
Agent at the address set forth in Item 5 below. Upon receipt by the Transfer
Agent of a redemption request in proper form, shares of a Portfolio will be
redeemed at their next determined net asset value. See "Determination of Net
Asset Value." Shares held in securities accounts at Lazard Freres may be
redeemed through Lazard Freres. See "Redemptions through a Lazard Freres
Brokerage Account."
1. Write a letter of instruction to the Fund. Indicate the dollar amount or
number of shares to be redeemed. Refer to the shareholder's Portfolio account
number and set forth social security or taxpayer identification number (where
applicable).
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $50,000 or more, the signature(s)
must be guaranteed by a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System, broker-dealer,
registered securities association or clearing agency, or other participant in a
signature guarantee program. Signature guarantees by notaries public are not
acceptable. Further documentation, such as copies of corporate resolutions and
instruments of authority, may be requested from corporations, administrators,
executors, personal representatives, trustees or custodians to evidence the
authority of the person or entity making the redemption request.
4. If shares to be redeemed are held in certificate form, enclose the
certificates with the letter. Do not sign the certificates and for protection
use registered mail.
<PAGE>
Page 42
5. Mail the letter to the Transfer Agent at the following address:
Scudder Service Corporation
P.O. Box 2038
Boston, Massachusetts 02106
Attention: (Name of Portfolio)
The Lazard Funds, Inc.
Checks for redemption proceeds normally will be mailed within seven days, but
will not be mailed until all checks in payment for the purchase of the shares to
be redeemed have been collected, which may take up to 7 business days. Unless
other instructions are given in proper form, a check for the proceeds of a
redemption will be sent to the shareholder's address of record. The Custodian
may benefit from the use of redemption proceeds until the check issued to a
redeeming shareholder for such proceeds has cleared.
When proceeds of a redemption are to be paid to someone other than the
shareholder, either by wire or check, the signature(s) on the letter of
instruction must be guaranteed regardless of the amount of the redemption.
Redemptions through a Lazard Freres Brokerage Account
Redemption requests for shares of a Portfolio submitted to and received by
Lazard Freres are effected at the net asset value of the Portfolio next
determined after redemption instructions are received from a customer by Lazard
Freres.
Lazard Freres may benefit from the use of the redemption proceeds prior to the
clearance of a check issued to a redeeming shareholder for such proceeds or
prior to disbursement or reinvestment of such proceeds on behalf of the
shareholder.
- --------------------------------------------------------------------------------
Payment of redemption proceeds may be made in securities, subject to regulation
by some state securities commissions. The Fund may suspend the right of
redemption during any period when (i) trading on the New York Stock Exchange is
restricted or that Exchange is closed, other than customary weekend and holiday
closings, (ii) the Commission has by order permitted such suspension or (iii) an
emergency, as defined by rules of the Commission, exists making disposal of
portfolio securities or determination of the value of the net assets of the
Portfolios not reasonably practicable.
The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal income tax
purposes.
The Fund reserves the right to redeem upon not less than 30 days' written notice
the shares in an account that through redemption has a value of $5,000 or less.
However, any shareholder affected by the exercise of this right will be allowed
to make additional investments prior to the date fixed for redemption to avoid
liquidation of the account.
<PAGE>
Exchange Privilege
Shares of any of the Portfolios that have been held for seven days or more may
be exchanged for shares of one of the other Portfolios in an identically
registered account. All exchanges are subject to the minimum initial and minimum
subsequent investment requirements.
A shareholder may exchange shares by writing or, if the shareholder has so
elected, by calling the Transfer Agent. To elect to initiate exchanges by
telephone the shareholder must have properly completed either a Purchase
Application authorizing such exchanges or a Telephone Exchange Authorization
Form and submitted either to the Transfer Agent in advance of the first such
exchange. The Transfer Agent's toll-free number for exchanges is (800) 854-8525.
In order to confirm that telephone instructions for exchanges are genuine, the
Fund has established reasonable procedures to be employed by the Fund and the
Transfer Agent, including the requirement that a form of personal identification
be provided. If the Fund or the Transfer Agent fail to follow these procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
instructions. None of the Portfolios, Lazard Freres nor the Transfer Agent will
be liable, however, for any loss, liability, cost or expense for acting upon
telephone instructions for exchanges reasonably believed to be genuine, and the
investor accordingly bears the risk of unauthorized telephone requests for
exchanges in these circumstances.
Procedures applicable to redemption of a Portfolio's shares are also applicable
to exchanging shares. The exchange privilege with respect to the shares of any
of the Portfolios is available only in states in which shares of that Portfolio
may be legally sold. The Fund reserves the right to limit the number of times
shares may be exchanged between Portfolios, to reject any telephone exchange
order or otherwise to modify or discontinue exchange privileges at any time. A
capital gain or loss for tax purposes will be realized upon an exchange,
depending upon the cost or other basis of shares redeemed.
Dividends and Distributions
Dividends from net investment income on shares of the International Fixed-Income
Portfolio, Bond Portfolio and Strategic Yield Portfolio will be declared daily
and paid monthly. Dividends from net investment income on shares of the Equity
Portfolio will be declared and paid quarterly. Dividends from net investment
income on shares of the International Equity Portfolio, Small Cap Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Special Equity
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio will be generally declared and paid annually but may be declared
and paid twice annually. Investment income for a Portfolio includes, among other
things, interest income, accretion of market and original issue discount and
amortization of premium and, in the case of the Equity Portfolio, International
Equity Portfolio, Small Cap Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Special Equity Portfolio, Global Equity Portfolio,
Bantam Value Portfolio and Emerging World Funds Portfolio would also include
dividends. Net realized capital gains from each of the Portfolios, if any,
generally will be distributed annually but may be distributed twice annually.
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. Dividend checks
and Statements of Account will be mailed approximately two business days after
the payment date. Each Portfolio forwards to the Custodian the monies for
dividends to be paid in cash on the payment date.
<PAGE>
Taxation
U.S. Federal Income Taxes
It is intended that each Portfolio will 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. In
order to qualify as a regulated investment company for any taxable year, each
Portfolio must, among other things, (i) derive at least 90% of its gross income
from dividends, interest, certain payments with respect to securities loans and
gains from the sale or other disposition of stock or securities or foreign
currencies or other income (including, but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies and (ii) derive less than 30% of its
gross income from the sale or other disposition of stock or securities held for
less than three months.
Dividends from net investment income (including net short-term capital gains)
will be taxable to the shareholders as ordinary income, whether received in cash
or reinvested in additional shares. Distributions of net long-term capital
gains, if any, will be taxable to the shareholders as long-term capital gains,
whether received in cash or reinvested in additional shares, regardless of how
long the shareholder has held the shares.
Any dividend or distribution received by a shareholder on shares of a Portfolio
shortly after the purchase of such shares by him will have the effect of
reducing the net asset value of such shares by the amount of such dividend or
distribution. Such dividend or distribution, although in effect a return of
capital, is subject to applicable taxes to the extent that the investor is
subject to such taxes. If a shareholder holds shares less than six months and
during that period receives a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such shares during such
six-month period would be a long-term loss to the extent of such gain.
Corporate shareholders of the Equity Portfolio, Small Cap Portfolio, Special
Equity Portfolio, Global Equity Portfolio and Bantam Value Portfolio will be
eligible for the dividends-received deduction on the dividends (excluding the
net capital gain dividends) paid by the Portfolio, to the extent that the
Portfolio's income is derived from certain dividends received from domestic
corporations. A corporation's dividends-received deduction will be disallowed
unless the corporation holds shares in the Portfolio at least 46 days.
Furthermore, a corporation's dividends-received deduction will be disallowed to
the extent a corporation's investment in shares of the Portfolio is financed
with indebtedness. It is anticipated that distributions from Portfolios other
than the Equity Portfolio, Small Cap Portfolio, Special Equity Portfolio, Global
Equity Portfolio and Bantam Value Portfolio will not qualify for the
dividends-received deduction. Each year the Fund will notify shareholders of the
federal income tax status of distributions.
The International Fixed-Income Portfolio and the Bond Portfolio may invest in
REMICs. Interests in REMICs are classified as either "regular" interests or
"residual" interests. Under the Code, special rules apply with respect to the
treatment of a portion of the Portfolio's income from REMIC residual interests.
(Such portion is referred to herein as "Excess Inclusion Income"). Excess
Inclusion Income generally cannot be offset by net operating losses and, in
addition, constitutes unrelated business taxable income to entities which are
subject to the unrelated business income tax. The Code provides that a portion
of Excess Inclusion Income attributable to REMIC residual interests held by
regulated investment companies such as the Portfolios shall, pursuant to
regulations, be allocated to the shareholders of such regulated investment
company in proportion to the dividends received by such shareholders.
Accordingly, shareholders of the International Fixed-Income Portfolio and the
Bond Portfolio generally will not be able to use net operating losses to offset
such Excess Inclusion Income. In addition, if a shareholder of one of the
Portfolios is an entity subject to the unrelated business income tax (including
a qualified pension plan, an IRA, a 401(k) plan, a Keogh plan, or another
tax-exempt entity) and is allocated any amount of Excess Inclusion Income, such
a shareholder may be required to file a return and pay a tax on such Excess
Inclusion Income even though a shareholder might not have been required to pay
such tax or file such return absent the receipt of such Excess Inclusion Income.
It is anticipated that only a small portion, if any, of the assets of the
International Fixed-Income Portfolio and the Bond Portfolio will be invested in
REMIC residual interests. Accordingly, the amount of Excess Inclusion Income, if
any, received by the Portfolios and allocated to their shareholders should be
<PAGE>
quite small. Shareholders that are subject to the unrelated business income tax
should consult their own tax advisor regarding the treatment of their income
derived from the Portfolios.
Except as discussed above with respect to Excess Inclusion Income, a dividend or
capital gains distribution with respect to shares held by a tax-deferred or
qualified plan, such as an IRA, 403(b)(7) retirement plan or corporate pension
or profit sharing plan, will not be taxable to the plan. Distributions from such
plans will be taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the qualified plan.
Dividends and distributions paid by a Portfolio may be subject to state and
local taxes. Prior to investing in shares of a Portfolio a prospective
shareholder should consult his tax adviser concerning the federal, state and
local tax consequences of such an investment.
The foregoing discussion relates only to U.S. federal income tax law as it
affects shareholders who are U.S. citizens or residents or U.S. corporations or
trusts. The effects of federal income tax law on shareholders who are
non-resident aliens or foreign corporations or trusts may be substantially
different. Foreign investors should consult their counsel for further
information as to the U.S. tax consequences of receipt of income from a
Portfolio.
Foreign Income Taxes
Investment income received by a Portfolio from sources within foreign countries
may be subject to foreign income taxes withheld at the source. It is anticipated
that the International Equity Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Global Equity Portfolio and Emerging World Funds
Portfolio will be operated so as to meet the requirements of the Code to "pass
through" to such Portfolio's shareholders credits for foreign income taxes paid,
but there can be no assurance that it will qualify. It is possible that the
credit for foreign taxes will pass through to shareholders of the International
Fixed-Income Portfolio and the Strategic Yield Portfolio.
Account Services
Shareholders will be sent a Statement of Account from the Distributor, as agent
of the Fund, whenever a share transaction is effected in the accounts.
Shareholders can write or call the Fund at the address and telephone number on
the cover of this Prospectus with any questions relating to their investment
shares of any of the Portfolios.
Shareholders Services
A special service is available to banks, brokers, investment advisers, trust
companies and others who have a number of accounts in one or more of the
Portfolios. A monthly summary of accounts can be provided, showing for each
account the account number, the month-end share balance and the dividends and
distributions paid during the month.
Organization and Description of Capital Stock
The authorized capital stock of the Fund consists of 1,000,000,000 shares of
common stock, $.001 par value, designated as thirteen separate classes of
capital stock. The Fund's Board of Directors has authorized the issuance of
twelve classes of shares, representing shares of the following twelve
portfolios: Equity Portfolio, International Equity Portfolio, International
Fixed-Income Portfolio, Bond Portfolio, Strategic Yield Portfolio, Small Cap
Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio,
Special Equity Portfolio, Global Equity Portfolio, Bantam Value Portfolio and
Emerging World Funds Portfolio. The Fund's Board of Directors may, in the
future, designate and authorize the issuance of other classes of capital stock
in addition to the ten classes of capital stock that currently exist,
representing shares of additional portfolios. All shares of the Fund have equal
voting rights and will be voted in the aggregate, and not by class, except where
voting by class is required by law or where the matter involved affects only one
class. A more complete statement of the voting rights of shareholders is
contained in the Statement of Additional Information. All shares of the Fund,
when issued, will be fully paid and non-assessable. As of October 1, 1995, the
Investment Manager had the power to vote a sufficient number of the outstanding
shares of the Fund so that the Investment Manager would be deemed to be a
controlling person of the Fund.
<PAGE>
Page 46
On January 1, 1992, the Fund on behalf of the Equity Portfolio acquired the
assets and liabilities of Lazard Equity Fund, formerly a portfolio of Scudder
Fund, Inc. ("Scudder Fund") an open-end, diversified management investment
company, and the Fund on behalf of the Special Equity Portfolio acquired the
assets and liabilities of Lazard Special Equity Fund, Inc. ("Lazard Special
Equity Fund"), formerly a single portfolio open-end, diversified management
investment company.
Lazard Freres has agreed to indemnify Scudder Fund and its directors and Lazard
Special Equity Fund and its directors from any and all claims arising out of the
transfer of assets to the maximum extent that Scudder Fund or Lazard Special
Equity Fund, as the case may be, would be so permitted by the Maryland General
Corporation Law, subject to the limitations of the Investment Company Act. In
addition, the Fund has agreed to indemnify, with respect to the Equity
Portfolio, the Scudder Fund and its directors and officers and Lazard Special
Equity Fund and its directors and officers from claims arising out of acts or
omissions occurring prior to the transfer to the same extent that such
individuals could have been indemnified by Scudder Fund or Lazard Special Equity
Fund, as the case may be. If, however, the Fund (or the Equity Portfolio or
Special Equity Portfolio, as the case may be) ceases to exist, Lazard Freres has
agreed, in lieu of the Fund, to indemnify the directors and officers of Scudder
Fund or the directors and officers of Lazard Special Equity Fund as set forth in
the next preceding sentence.
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 10% 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.
Custodian; Transfer
and Dividend Disbursing Agent
State Street has been retained to act as Custodian of the Portfolios'
investments. Scudder Service Corporation serves as the Fund's Transfer and
Dividend Disbursing Agent. Neither the Custodian nor the Transfer Agent has any
part in deciding any of the Portfolio's investment policies or which securities
are to be purchased or sold for any Portfolios. Subject to the supervision of
the Fund's Board of Directors, the Custodian may enter into subcustodial
arrangements on behalf of any of the Portfolios for the holding of foreign
securities.
Reports to Shareholders
The fiscal year of the Fund ends on December 31 of each year. The Fund sends to
the shareholders of each Portfolio, at least semi-annually, reports showing the
investments in each of the Portfolios and other information (including unaudited
financial statements) pertaining to each Portfolio. An annual report, containing
financial statements audited by the Fund's independent accountants, is sent to
shareholders each year.
Performance Information
From time to time the Portfolios may advertise their "average annual total
return" and their "actual total return." THESE FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. These total
returns show what the investment results of the Portfolio would have been over a
specified period of time (such as one, five, or ten years, or the period of time
since commencement of operations, if shorter) assuming that all distributions
and dividends by the Portfolio were reinvested on their reinvestment dates
during the period less all recurring fees. 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 "actual 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.
<PAGE>
Page 47
APPENDIX
Bond and Commercial Paper Ratings
Standard & Poor's Bond Ratings
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt rated
AAA has the highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree. Debt rated A has a strong capacity to
pay interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt of
a higher rated category. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
to repay principal for debt in this category than for higher rated categories.
Debt rated BB, B, CCC or CC is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. The rating C
is reserved for income bonds on which no interest is being paid. Debt rated D is
in default and payments of interest and/or repayment of principal is in arrears.
The ratings from AA to B may be modified by the addition of a plus or minus sign
to show relative standing within the major rating categories.
Moody's Bond Ratings
Excerpts from Moody's description of its corporate bond ratings are as follows:
Aaa--judged to be the best quality, carry the smallest degree of investment
risk; Aa--judged to be of high quality by all standards; A--possess many
favorable investment attributes and are to be considered as higher medium grade
obligations; Baa--considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured and have speculative characteristics as
well; Ba, B, Caa, Ca, C--protection of interest and principal payments is
questionable; Ba indicates some speculative elements while Ca represents a high
degree of speculation and C represents the lowest rated class of bonds; Caa, Ca
and C bonds may be in default. Moody's applies the numerical modifiers 1, 2, and
3 in each generic rating classification from Aa to B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks at the lower end of
its generic rating category.
Standard & Poor's Commercial Paper Ratings
A is the highest commercial paper rating category utilized by Standard & Poor's,
which uses the numbers 1+, l, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by Standard & Poor's have the
following characteristics: liquidity ratios are better than industry average,
long-term debt rating is A or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow are in an upward
trend. Typically, the issuer is a strong company in a well-established industry
and has superior management. Issues rated B are regarded as having only an
adequate capacity for timely payment. However, such capacity may be damaged by
changing conditions or short-term adversities. The rating C is assigned to
short-term debt obligations with a doubtful capacity for repayment. An issue
rated D is either in default or is expected to be in default upon maturity.
Moody's Commercial Paper Ratings
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity normally will be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This normally will
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
<PAGE>
Page 48
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
The rating category Not Prime encompasses all other rated commercial paper
issuers.
COMMERCIAL PAPER RATINGS OF FITCH INVESTORS SERVICE, INC. AND DUFF & PHELPS
CREDIT RATING CO.
Commercial paper rated Fitch-1 is considered to be the highest grade paper and
is regarded as having the strongest degree of assurance for timely payment.
Fitch-2 is considered very good grade paper and reflects an assurance of timely
payment only slightly less in degree than the strongest issue. Commercial paper
carrying the Fitch-3 rating is considered to be good grade paper having a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as the two higher categories. Fitch-4 is considered poor grade
paper having characteristics suggesting that the degree of assurance for timely
payment is minimal and is susceptible to near-term adverse change due to less
favorable financial or economic conditions.
Commercial paper issues rated Duff 1 by Duff & Phelps Credit Rating Co. have the
following characteristics: very high certainty of timely payment, excellent
liquidity factors supported by good fundamental protection factors, and risk
factors which are minor. Issues rated Duff 2 have a good certainty of timely
payment, sound liquidity factors and company fundamentals, small risk factors,
and good access to capital markets. Commercial paper issues rated Duff 3 have
satisfactory liquidity and other protection factors which qualify them as
investment grade issue. Although the risk factors associated with these issues
are larger and subject to more variation, timely payment is expected. Issues
rated Duff 4 are considered to be non-investment grade and have speculative
investment characteristics, liquidity insufficient to insure against disruption
in debt service, and operating factors and market access subject to a high
degree of variation. Issuers of commercial paper issues rated Duff 5 are
considered to be in default and have failed to meet scheduled principal and/or
interest payments.
<PAGE>
THE LAZARD FUNDS, INC.
30 Rockefeller Plaza
New York, New York 10020
Telephones: (212) 632-6400 (New York State);
(800) 228-0203 (other continental states)
INVESTMENT MANAGER
Lazard Freres Asset Management
30 Rockefeller Plaza
New York, New York 10020
Telephone: (212) 632-6400
DISTRIBUTOR
Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, New York 10020
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02205
INDEPENDENT PUBLIC ACCOUNTANTS
ABA Seymour Schneidman Financial Services
Group, a division of Anchin, Bloch & Anchin LLP
400 Park Avenue
New York, New York 10022
LEGAL COUNSEL
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
No Sales or Redemption Charges
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND INFORMATION OR
REPRESENTATIONS NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OF ANY SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE
UNLAWFUL.
<PAGE>
THE LAZARD FUNDS, INC.
30 Rockefeller Plaza
New York, New York 10020
(212) 632-6400 (New York State)
(800) 228-0203 (other continental states)
STATEMENT OF ADDITIONAL INFORMATION
The Lazard Funds, Inc. (the "Fund") is a no-load, open-end management
investment company that currently offers shares in the following investment
portfolios (collectively, the "Portfolios"): Lazard Equity Portfolio (the
"Equity Portfolio"); Lazard International Equity Portfolio (the "International
Equity Portfolio"); Lazard International Fixed-Income Portfolio (the
"International Fixed-Income Portfolio"); Lazard Bond Portfolio (the "Bond
Portfolio"); Lazard Strategic Yield Portfolio (the "Strategic Yield Portfolio");
Lazard Small Cap Portfolio (the "Small Cap Portfolio"); Lazard International
Small Cap Portfolio (the "International Small Cap Portfolio"); Lazard Special
Equity Portfolio (the "Special Equity Portfolio"); Lazard Emerging Markets
Portfolio (the "Emerging Markets Portfolio"); Lazard Global Equity Portfolio
(the "Global Equity Portfolio"); Lazard Bantam Value Portfolio (the "Bantam
Value Portfolio"); and Lazard Emerging World Funds Portfolio (the "Emerging
World Funds Portfolio"). Lazard Freres Asset Management, a division of Lazard
Freres & Co. LLC ("Lazard Freres"), serves as the investment manager (the
"Investment Manager") to each of the Portfolios.
This Statement of Additional Information is not a prospectus and is
authorized for distribution only when preceded or accompanied by the Fund's
Prospectus dated December 30, 1995. This Statement of Additional Information
contains additional and more detailed information than that set forth in the
Prospectus and should be read in conjunction with the Prospectus, additional
copies of which may be obtained without charge by writing or calling the Fund at
the address and telephone number given above.
December 30, 1995
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS...........................................................PAGE
- --------------------------------------------------------------------------------
Additional Permitted Investment Activities.....................................3
Investment Restrictions.......................................................15
Management....................................................................18
Determination of Net Asset Value..............................................23
Portfolio Transactions........................................................24
Redemption of Shares..........................................................26
Dividends and Distributions...................................................26
Taxation......................................................................27
Shareholder Services..........................................................29
Organization and Description of Capital Stock.................................29
Other.........................................................................31
Custodian.....................................................................31
Counsel and Independent Accountants...........................................31
Yield and Total Return Quotations.............................................32
Appendices
Financial Statements
- 2 -
<PAGE>
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
The following supplements, and should be read in conjunction with, the
information regarding the investment objectives and policies of each Portfolio
set forth in the Prospectus. Except as noted below, the investment policies
described below are not designated "fundamental policies" within the meaning of
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
and may be changed by the Board of Directors of the Fund without the approval of
the shareholders of the affected Portfolio or Portfolios; however, shareholders
will be notified prior to a material change in such policies.
U.S. GOVERNMENT SECURITIES
Each Portfolio may invest in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities ("U.S. Government Securities").
For a description of obligations issued or guaranteed by U.S. Government
agencies or instrumentalities, see Appendix A hereto.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES
Each Portfolio may invest in certificates of deposit and bankers'
acceptances which are considered to be short-term money market instruments.
Certificates of deposit are receipts issued by a depository institution in
exchange for the deposit of funds. The issuer agrees to pay the amount deposited
plus interest to the bearer of the receipt on the date specified on the
certificate. The certificate usually can be traded in the secondary market prior
to maturity. Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity.
COMMERCIAL PAPER
Each Portfolio may purchase commercial paper. Commercial paper consists of
short-term unsecured promissory notes issued by corporations in order to finance
their current operations. For a description of commercial paper ratings, see the
Appendix to the Prospectus.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Portfolio, except the Special Equity Portfolio, may purchase
securities offered on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. When such transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. Normally, the settlement date occurs within two months after the
transaction, but delayed settlements beyond two months may be negotiated. During
the period between a commitment by the Portfolio and settlement, no payment is
made for the securities purchased by the purchaser and, thus, no interest
accrues to the purchaser from the transaction.
- 3 -
<PAGE>
The use of when-issued transactions and forward commitments enables a
Portfolio to hedge against anticipated changes in interest rates and prices. For
instance, in anticipation of rising interest rates and falling market prices,
the Portfolio might sell securities in its portfolio on a forward commitment
basis to limit its exposure to falling prices. In periods of falling interest
rates and rising market prices, the Portfolio might sell a security it owns and
purchase the same or a similar security on a when-issued basis, thereby
obtaining the benefit of currently higher cash yields. In either instance, if
the Investment Manager's expectation were to prove incorrect, the Portfolio
could in some cases be obliged to purchase or sell securities at prices inferior
to current market prices.
When-issued securities and forward commitments may be sold prior to the
settlement date, but these Portfolios enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. To facilitate such transactions, the Fund's
custodian will maintain, in a separate account, cash, U.S. Government or other
appropriate high-grade debt obligations held by the Portfolio having value equal
to, or greater than, any commitments to purchase securities on a when-issued or
forward commitment basis and, with respect to forward commitments to sell
portfolio securities of the Portfolio, the portfolio securities themselves.
If a Portfolio chooses to dispose of the right to acquire a when-issued
security prior to its acquisition or dispose of its right to deliver or receive
against a forward commitment, it can incur a gain or loss. At the time the
Portfolio makes the commitment to purchase or sell a security on a when-issued
or forward commitment basis, it records the transaction and reflects the value
of the security purchased or, if a sale, the proceeds to be received, in
determining its net asset value.
Each Portfolio, except the Special Equity Portfolio, may purchase
securities on a "when, as and if issued" basis under which the issuance of the
security depends upon the occurrence of a subsequent event, such as approval of
a merger, corporate reorganization or debt restructuring. The commitment for the
purchase of any such security will not be recognized in a Portfolio until the
Investment Manager determines that issuance of the security is probable. At such
time, the Portfolio will record the transaction and, in determining its net
asset value, will reflect the value of the security daily. At such time, the
Portfolio will also establish a segregated account with the Fund's custodian
bank in which it will maintain cash or cash equivalents or other high-grade debt
portfolio securities equal in value to recognized commitments for such
securities. The value of the Portfolio's commitments to purchase the securities
of any one issuer, together with the value of all securities of such issuer
owned by the Portfolio, may not exceed 5% of the value of the Portfolio's total
assets at the time the initial commitment to purchase such securities is made.
Subject to the foregoing restrictions, these Portfolios may purchase securities
on such basis without limit. An increase in the percentage of the Portfolio's
assets committed to the purchase of securities on a "when, as and if issued"
basis may increase the volatility of its net asset value. The Investment Manager
and the Directors of the Fund do not believe that the net asset value of any
Portfolio will be adversely affected by its purchase of securities on such
basis.
ILLIQUID SECURITIES
Each Portfolio will not invest in illiquid securities if immediately
after such investment more than 10% of the value of the Portfolio's net assets
(or at 5% cost with respect the Equity Portfolio) would be invested in such
securities. For this purpose, illiquid securities include, among others,
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securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not deemed illiquid for purposes of this limitation. However, as a
fundamental investment policy, the Special Equity Portfolio may not purchase
securities which must be registered under the Securities Act of 1933, as amended
(the "Securities Act"), before they may be offered or sold to the public.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act and securities which are otherwise not
readily marketable. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and may be purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
The Securities and Exchange Commission (the "Commission") has adopted
Rule 144A which allows a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act of resales of certain securities to qualified institutional buyers.
The Investment Manager will monitor the liquidity of restricted
securities in the Portfolios under the supervision of the Board of Directors.
BORROWING FOR INVESTMENT
Each of the Equity Portfolio, Special Equity Portfolio, International
Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam
Value Portfolio and Emerging World Funds Portfolio may from time to time
increase its ownership of securities above the amounts otherwise possible by
borrowing from banks on an unsecured basis and investing the borrowed funds,
although none of the Portfolios has any present intention to do so. Any such
borrowing will be made only from banks, and will only be made to the extent that
the value of the Portfolio's assets, less its liabilities other than borrowings,
is equal to at least 300% of all borrowings including the proposed borrowing and
any emergency borrowings as described under "Additional Permitted Investment
Activities -- Temporary Bank Borrowing" in the Prospectus. If the value of the
Portfolio's assets computed as provided above should fail to meet the 300%
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coverage described above, the Portfolio, within three days, is required to
reduce its bank debt to the extent necessary to meet such asset coverage and may
have to sell a portion of its investments at a time when independent investment
judgment would not dictate such action.
Interest on money borrowed by any of the Equity Portfolio, the Special
Equity Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio,
Global Equity Portfolio, Bantam Value Portfolio and Emerging World Funds
Portfolio is an expense of that Portfolio which it would not otherwise incur so
that the Portfolio may have little or no net investment income during periods
when its borrowings are substantial.
Borrowing for investment increases both investment opportunity and
investment risk. Since substantially all of each Portfolio's assets fluctuate in
value, whereas the obligation resulting from the borrowing is a fixed one, the
net asset value per share of the Portfolio will tend to increase more when the
portfolio assets increase in value, and decrease more when the portfolio assets
decrease in value than would otherwise be the case. This is the speculative
factor known as leverage. Such borrowings will be used only for the purchase of
securities.
INVESTMENT IN WARRANTS
The Equity Portfolio, Strategic Yield Portfolio, Small Cap Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Special Equity
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio may invest in warrants, although the Special Equity Portfolio
has no present intention to do so. None of these Portfolios may invest more than
5% of its total assets at the time of purchase in warrants (other than those
that have been acquired in units or attached to other securities). In addition,
not more than 2% of the assets of any of these Portfolios may, at the time of
purchase, be invested in warrants that are not listed on an exchange. Warrants
represent rights to purchase equity securities at a specific price valid for a
specific period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities. It is a fundamental investment
policy of the Special Equity Portfolio that the Portfolio may not exceed these
percentage limitations. The Equity Portfolio may only purchase warrants on
securities in which it may invest directly.
INVESTMENT IN OPTIONS
The Equity Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio may purchase for hedging purposes put and call options and write
"covered" put and call options on stocks and bonds in which it may invest
directly and that are traded on registered domestic securities exchanges and/or
recognized international stock exchanges, in the case of the International Small
Cap Portfolio, the Emerging Markets Portfolio, Global Equity Portfolio, and
Emerging World Funds Portfolio. The Strategic Yield Portfolio may invest up to
5% of its total assets in the purchase of the time value of call and put options
on the types of securities in which the Portfolio may invest. The time value of
an option is the option premium less the intrinsic value of the option at the
time of purchase. The Strategic Yield Portfolio may also write covered call and
put options contracts to the extent that the time value of the call or put
options does not exceed 10% of the value of the covered assets. The Special
Equity Portfolio may purchase put and call options and write covered put and
call options on stocks that are traded on domestic securities exchanges,
although it has no present intention to do so. The writer of a call option, who
receives a premium, has the obligation, upon exercise of the option, to deliver
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the underlying security against payment of the exercise price during the option
period. The writer of a put option, who receives a premium, has the obligation
to buy the underlying security, upon exercise, at the exercise price during the
option period.
The Equity Portfolio, Strategic Yield Portfolio, International Small Cap
Portfolio, Emerging Markets Portfolio, Special Equity Portfolio, Global Equity
Portfolio, Bantam Value Portfolio, and Emerging World Funds Portfolio may write
put and call options only if they are covered, and such options must remain
covered so long as the Portfolio is obligated as a writer. A call option is
"covered" if the Portfolio owns the underlying security covered by the call or
has an absolute and immediate right to acquire that security without additional
cash consideration (or for additional cash consideration held in a segregated
account by the Fund's custodian) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Portfolio holds on a
share-for-share basis a call on the same security as the call written where the
exercise price of the call held is equal to or less that the exercise price of
the call written or greater than the exercise price of the call written if the
difference is maintained by the Portfolio in cash, Treasury bills or other high
grade short-term obligations in a segregated account with the Fund's custodian.
A put option is "covered" if the Portfolio maintains cash, Treasury bills or
other high grade short-term obligations with a value equal to the exercise price
in a segregated account with the Fund's custodian, or else owns on a
share-for-share basis a put on the same security as the put written where the
exercise price of the put held is equal to or greater than the exercise of the
put written.
The principal reason for writing call options is to attempt to realize,
through the receipt of premiums, a greater current return than would be realized
on the underlying securities alone. In return for the premium, the Portfolio
would give up the opportunity for profit from a price increase in the underlying
security above the exercise price so long as the option remains open, but
retains the risk of loss should the price of the security decline. Upon exercise
of a call option when the market value of the security exceeds the exercise
price, the Portfolio would incur a loss equal to the difference between the
exercise price and the market value, less the premium received for writing the
option.
The principal reason for purchasing put options is to protect the value of
a security owned against an anticipated decline in market value. Exercise of a
put option will generally be profitable only if the market price of the
underlying security declines sufficiently below the exercise price to offset the
premium paid and the transaction costs. If the market price of the underlying
security increases, the Portfolio's profit upon the sale of the security will be
reduced by the premium paid for the put option less any amount for which the put
is sold.
Writing of options involves the risk that there will be no market in which
to effect a closing transaction. An exchange-traded option may be closed out
only on an exchange that provides a secondary market for an option of the same
series. Over-the-counter options are not generally terminable at the option of
the writer and may be closed out only by negotiation with the holder. There is
currently no secondary market for over-the-counter options. There is also no
assurance that a liquid secondary market on an exchange will exist.
INVESTMENT IN OPTIONS ON STOCK INDICES
The Equity Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Special Equity Portfolio, Global Equity Portfolio, Bantam Value
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Portfolio and Emerging World Funds Portfolio may purchase and sell for hedging
purposes put and call options on stock indices traded on national domestic or
foreign securities exchanges, although the Special Equity Portfolio has no
present intention to do so. The Strategic Yield Portfolio may purchase and sell
put and call options on equity securities and stock indices, to the same extent
as it is permitted to purchase and sell put and call options on the types of
securities in which it may invest. The Equity Portfolio intends to limit
investments in options on stock indices to no more than 5% of the Portfolio's
total assets. Options on stock indices are similar to options on stock except
that, rather than the right to take or make delivery of stock at a specified
price, an option on a stock index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the stock
index upon which the option is based is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. This amount
of cash is equal to such difference between the closing price of the index and
the exercise price of the option expressed in dollars times a specified multiple
(the "multiplier"). The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Unlike stock options, all
settlements are in cash and gain or loss depends on price movements in the stock
market generally (or in a particular industry or segment of the market) rather
than price movements in individual stocks.
The Equity Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Strategic Yield Portfolio, Special Equity Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio will write
put options on indices only if they are covered by segregating with the Fund's
custodian an amount of cash, Treasury bills or other high grade short-term
obligations equal to the aggregate exercise price of the puts.
Except as described below, each of the Equity Portfolio, International
Small Cap Portfolio, Emerging Markets Portfolio, Special Equity Portfolio,
Global Equity Portfolio, Bantam Value Portfolio and Emerging World Funds
Portfolio will write call options on indices only if on such date the Portfolio
holds a portfolio of stocks at least equal to the value of the index times the
multiplier times the number of contracts. When one of the Portfolios writes a
call option on a broadly based stock market index, it will segregate or put into
escrow with the Fund's custodian, or pledge to a broker as collateral for the
option, at least ten "qualified securities" with a market value at the time the
option is written of not less than 100% of the current index value times the
multiplier times the number of contracts. If one of the Portfolios has written
an option on an industry or market segment index, it will so segregate, escrow,
or pledge at least five "qualified securities," all of which are stocks of
issuers in such industry or market segment, with a market value at the time the
option is written of not less than 100% of the current index value times the
multiplier times the number of contracts. Such stocks will include stocks which
represent at least 50% of the weighting of the industry or market segment index
and will represent at least 50% of the Portfolio's holdings in that industry or
market segment. No individual security will represent more than 15% of the
amount so segregated, escrowed or pledged, in the case of broadly based stock
market index options, or 25% of such amount, in the case of industry or market
segment index options. If at the close of business on any day the market value
of such qualified securities so segregated, escrowed or pledged falls below 100%
of the current index value times the multiplier times the number of contracts,
the Portfolio will so segregate, escrow or pledge an amount in cash, Treasury
bills or other high grade short-term obligations equal in value to the
difference. In addition, when one of the Portfolios writes a call on an index
which is in-the-money at the time the call is written, the Portfolio will
segregate with the Fund's custodian or pledge to the broker as collateral cash,
Treasury bills or other high grade short-term obligations equal in value to the
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amount by which the call is in-the-money times the multiplier times the number
of contracts. Any amount segregated pursuant to the foregoing sentence may be
applied to the Portfolio's obligation to segregate additional amounts in the
event that the market value of the qualified securities falls below 100% of the
current index value times the multiplier times the number of contracts. A
"qualified security" is an equity security which is listed on a national
domestic or foreign securities exchange or quoted on the National Association of
Securities Dealers Automated Quotations System against which the Portfolio has
not written a stock call option; however, if the Portfolio owns a call on the
same index as the call written where the exercise price of the call owned is
equal to or less than the exercise price of the call written, or greater than
the call written if the difference is maintained by the Portfolio in cash,
Treasury bills or other high grade short-term obligations in a segregated
account with the Fund's custodian, it will not be subject to the requirements
described in this paragraph.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS
The International Equity Portfolio, International Fixed-Income Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Strategic Yield
Portfolio, Global Equity Portfolio, and Emerging World Funds Portfolio may
purchase or sell foreign currency forward exchange contracts. While the purchase
of these contracts is not presently regulated by the Commodity Futures Trading
Commission (the "CFTC") except for certain requirements as to the qualification
of the investor, the CFTC may in the future assert authority to regulate more
broadly the trading of foreign currency pursuant to forward contracts. In such
event, a Portfolio's ability to utilize forward contracts in the manner set
forth in the Prospectus may be restricted. Forward contracts reduce the
potential gain from a positive change in the relationship between the U.S.
dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for the Portfolio if it had not entered
into such contracts. The use of foreign currency forward exchange contracts will
not eliminate fluctuations in the underlying U.S. dollar equivalent value of the
prices of or rates of return on the Portfolio's foreign currency denominated
portfolio securities, and the use of such techniques will subject the Portfolio
to certain risks.
The matching of the increase in value of a forward contract and the decline
in the U.S. dollar equivalent value of the foreign currency denominated asset
that is the subject of the hedge generally will not be precise. In addition, a
Portfolio may not always be able to enter into foreign currency forward exchange
contracts at attractive prices and this will limit a Portfolio's ability to use
these contracts to hedge or cross-hedge its assets. Also, with regard to a
Portfolio's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying the
Portfolio's cross-hedges and the movements in the exchange rates of the foreign
currencies in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The International Fixed-Income Portfolio, Bond Portfolio, International
Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam
Value Portfolio and Emerging World Funds Portfolio may enter into contracts for
the purchase or sale for future delivery of fixed-income securities or contracts
based on financial indices including any index of U.S. Government Securities or
corporate debt securities and may purchase and write put and call options to buy
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or sell futures contracts. The successful use of futures contracts and options
on futures contracts draws upon the Investment Manager's special skills and
experience with respect to such instruments and usually depends on the
Investment Manager's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, the Portfolio may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize losses and thus
will be in a worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of futures contracts or
options on futures and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
The Board of Directors has adopted the requirement that futures contracts
and options on futures contracts be used by the Bond Portfolio or the
International Fixed-Income Portfolio solely as a hedge and not for speculation.
In addition to this requirement, the Board of Directors has also adopted two
percentage restrictions on the use of futures contracts. The first restriction
is that the Bond Portfolio and the International Fixed-Income Portfolio will not
enter into any futures contracts or options on futures contracts if immediately
thereafter the amount of margin deposits on all the futures contracts of the
Portfolio and premiums paid on options on futures contracts would exceed 5% of
the market value of the total assets of the Portfolio. The second restriction is
that the aggregate market value of the outstanding futures contracts purchased
by either the Bond Portfolio or International Fixed-Income Portfolio not exceed
50% of the market value of the total assets of Portfolio. Neither of these
restrictions will be changed by the Fund's Board of Directors without
considering the policies and concerns of the various applicable federal and
state regulatory agencies. Similar restrictions have not been adopted for the
International Small Cap Portfolio and Emerging Markets Portfolio.
For additional information on the use, risks and costs of futures contracts
and options on futures contracts, see Appendix B hereto.
OPTIONS ON FOREIGN CURRENCIES
The International Fixed-Income Portfolio, Strategic Yield Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio and Emerging World Funds Portfolio may purchase and write options on
foreign currencies for hedging purposes. For additional information on the use,
risks and costs of options on foreign currencies, see Appendix B hereto.
SPECIAL RISKS OF INVESTMENT IN HIGH-YIELD SECURITIES
As discussed in the Prospectus, the Strategic Yield Portfolio invests
principally in high-yield fixed-income securities. The Special Equity Portfolio
has, as a general policy, the ability to invest up to 35% of its total assets in
U.S. Government Securities and corporate bonds, notes and debentures rated as
low as B by Standard & Poor's Corporation ("S&P") and Moody's Investors Service,
Inc. ("Moody's"), although it has no current intention of investing more than 5%
of its net assets in corporate bonds, notes and debentures which are rated below
BBB by S&P and Baa by Moody's. The International Fixed-Income Portfolio may
invest up to 15% of its total assets in fixed-income securities that are rated
below BBB by S&P and Baa by Moody's. Bonds rated below BBB by S&P and Baa by
Moody's are generally regarded as speculative and range from having speculative
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characteristics to lacking characteristics of a desirable investment and are
commonly called "junk bonds." As a result, investment in such bonds will
generally entail greater speculative risks than those associated with investment
in high-grade bonds (i.e., bonds rated AAA, AA or A by S&P or Aaa, Aa or A by
Moody's).
The ratings of fixed-income securities by S&P and Moody's are a generally
accepted barometer of credit risk. They are, however, subject to certain
limitations from an investor's standpoint. Such limitations include the
following: the rating of an issuer is heavily weighted by past developments and
does not necessarily reflect probable future conditions; there is frequently a
lag between the time a rating is assigned and the time it is updated; and there
may be varying degrees of difference in credit risk of securities in each rating
category.
While ratings provide a generally useful guide to credit risks, they do
not, nor do they purport to, offer any criteria for evaluating interest rate
risk. Changes in the general level of interest rates cause fluctuations in the
prices of fixed-income securities already outstanding and will therefore result
in fluctuations in the net asset value of a Portfolio's shares. The extent of
the fluctuation is determined by a complex interaction of a number of factors.
The Investment Manager will evaluate those factors it considers relevant and
will make portfolio changes when it deems it appropriate in seeking to reduce
the risk of depreciation in the value of the relevant Portfolio.
MORTGAGE-BACKED SECURITIES
GOVERNMENT GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. The International
Fixed-Income Portfolio, Bond Portfolio and Strategic Yield Portfolio may invest
in mortgage pass-through securities representing participation interests in
pools of residential mortgage loans originated by United States governmental or
private lenders and guaranteed, to the extent provided in such securities, by
the U.S. Government or one of its agencies or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semiannually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which the Portfolios may
invest include those issued or guaranteed by the Government National Mortgage
Association ("Ginnie Mae" or "GNMA"), the Federal National Mortgage Association
("Fannie Mae" or "FNMA") and the Federal Home Loan Mortgage Corporation
("Freddie Mac" or "FHLMC").
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934, as amended (the "Housing Act"),
authorizes Ginnie Mae to guarantee the timely payment of the principal of and
interest on certificates that are based on and backed by a pool of mortgage
loans insured by the Federal Housing Administration under the Housing Act or
Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed by the Veterans'
Administration under the Servicemen's Readjustment Act of 1944, as amended ("VA
Loans"), or by pools of other eligible mortgage loans. The Housing Act provides
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that the full faith and credit of the U.S. Government is pledged to the payment
of all amounts that may be required to be paid under any guarantee. In order to
meet its obligations under such guarantee, Ginnie Mae is authorized to borrow
from the U.S. Treasury with no limitations as to amount.
The Ginnie Mae Certificates will represent a pro rata interest in one
or more pools of the following types of mortgage loans: (i) fixed rate level
payment mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii)
fixed rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured
by manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans), (viii) mortgage loans that provide for
adjustments in payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (ix) mortgage-backed serial notes. All
of these mortgage loans will be FHA Loans or VA Loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on one to
four-family housing units.
FANNIE MAE CERTIFICATES. Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act. Fannie Mae was originally established in 1939 as a U.S.
Government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder owned and privately managed corporation by
legislation enacted in 1968. Fannie Mae provides funds to the mortgage market
primarily by purchasing home mortgage loans from local lenders, thereby
replenishing their funds for additional lending. Fannie Mae acquires funds to
purchase home mortgage loans from many capital market investors that may not
ordinarily invest in mortgage loans directly, thereby expanding the total amount
of funds available for housing.
Each Fannie Mae Certificate will entitle the registered holder thereof to
receive amounts representing such holder's pro rata interest in scheduled
principal payments and interest payments (at such Fannie Mae Certificate's
pass-through rate, which is net of any servicing and guarantee fees on the
underlying mortgage loans), and any principal prepayments, on the mortgage loans
in the pool represented by such Fannie Mae Certificate and such holder's
proportionate interest in the full principal amount of any foreclosed or
otherwise finally liquidated mortgage loan. The full and timely payment of
principal of and interest on each Fannie Mae Certificate will be guaranteed by
Fannie Mae, which guarantee is not backed by the full faith and credit of the
U.S. Government.
Each Fannie Mae Certificate will represent pro rata interests in one or
more pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans, that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate mortgage loans secured by multifamily
projects.
FREDDIE MAC CERTIFICATES. Freddie Mac is a corporate instrumentality of the
United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act"). Freddie Mac was established primarily for the purpose
of increasing the availability of mortgage credit for the financing of needed
housing. The principal activity of Freddie Mac currently consists of the
purchase of first lien, conventional, residential mortgage loans and
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participation interests in such mortgage loans and the resale of the mortgage
loans so purchased in the form of mortgage securities, primarily Freddie Mac
Certificates.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate, whether or not received. Freddie Mac also guarantees to
each registered holder of a Freddie Mac Certificate ultimate collection of all
principal of the related mortgage loans, without any offset or deduction, but
does not, generally, guarantee the timely payment of scheduled principal.
Freddie Mac may remit the amount due on account of its guarantee of collection
of principal at any time after default on an underlying mortgage loan, but not
later than 30 days following (i) foreclosure sale, (ii) payment of a claim by
any mortgage insurer, or (iii) the expiration of any right of redemption,
whichever occurs later, but in any event no later than one year after demand has
been made upon the mortgagor for accelerated payment of principal. The
obligations of Freddie Mac under its guarantee are obligations solely of Freddie
Mac and are not backed by the full faith and credit of the U.S. Government.
Freddie Mac Certificates represent pro rata interests in a group of
mortgage loans (a "Freddie Mac Certificate group") purchased by Freddie Mac. The
mortgage loans underlying the Freddie Mac Certificates will consist of fixed
rate or adjustable rate mortgage loans with original terms to maturity of
between ten and thirty years, substantially all of which are secured by first
liens on one to four-family residential properties or multi-family projects.
Each mortgage loan must meet the applicable standards set forth in the FHLMC
Act. A Freddie Mac Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.
VARIABLE AMOUNT MASTER DEMAND NOTES
The Equity Portfolio may invest in variable amount master demand notes. A
variable amount master demand note is a type of commercial paper that differs
from ordinary commercial paper in that it is issued pursuant to a written
agreement between the issuer and the holder. Its amount may from time to time be
increased by the holder (subject to an agreed maximum) or decreased by the
holder or the issuer, it is payable on demand and the rate of interest varies
pursuant to an agreed-upon formula. Generally, master demand notes are not rated
by a rating agency. However, the Equity Portfolio may invest in a master demand
note if, in the opinion of the Investment Manager, it is of investment quality
comparable to rated securities in which the Equity Portfolio may invest. The
Investment Manager monitors the issuers of such master demand notes on a daily
basis. Because transfer of such notes is usually restricted by the issuer, and
there is no secondary trading market for such notes, the Equity Portfolio may
not invest in a master demand note if, as a result, more than 10% of the value
of the Portfolio's net assets would be invested in such notes or other illiquid
securities. See "Illiquid Securities" above.
SECURITIES WITH PUT RIGHTS
The Equity Portfolio may enter into put transactions with respect to
obligations held in its portfolio with broker-dealers and with commercial banks.
The right of the Equity Portfolio to exercise a put is unconditional and
unqualified. A put is not transferable by the Portfolio, although the Portfolio
may sell the underlying securities to a third party at any time. If necessary
- 13 -
<PAGE>
and advisable, the Portfolio may pay for certain puts either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a put (thus reducing the yield to maturity otherwise available for the
same securities). The Portfolio expects, however, that puts generally will be
available without the payment of any direct or indirect consideration.
The Equity Portfolio may enter into puts only with banks or broker-dealers
which, in the opinion of the Investment Manager, present minimal credit risks.
The ability of the Portfolio to exercise a put will depend on the ability of the
bank or broker-dealer to pay for the underlying securities at the time the put
is exercised. In the event that a bank or broker-dealer should default on its
obligation to repurchase an underlying security, the Portfolio might be unable
to recover all or a portion of any loss sustained from having to sell the
securities elsewhere.
The Equity Portfolio intends to enter into puts solely to maintain
liquidity and it does not intend to exercise its rights thereunder for trading
purposes. The puts will be only for periods substantially less than the life of
the underlying securities. The acquisition of a put will not affect the
valuation by the Portfolio of the underlying security. Where the Equity
Portfolio pays directly or indirectly for a put, its cost will be reflected as
an unrealized loss for the period during which the put is held by the Portfolio
and will be reflected in realized gain or loss when the put is exercised or
expires. If the value of the underlying security increases, the potential for
unrealized or realized gain is reduced by the cost of the put.
REITS
The Special Equity Portfolio, Small Cap Portfolio, Equity Portfolio, Global
Equity Portfolio and Bantam Value Portfolio may invest an unlimited amount of
its assets in Real Estate Investment Trusts ("REITS"), although it currently
intends to limit its investments in REITS to no more than 5% of its net assets.
Each of the Portfolios intends to invest in listed equity REITS, which own
properties, and listed mortgage REITS, which make short-term construction and
development mortgage loans or which invest in long-term mortgages or mortgage
pools. Accordingly, a prospective investor should realize that the Portfolio may
be subject to the considerations associated with the direct ownership of real
estate because of the Portfolio's ability to invest in the securities of
companies that own, construct, manage or sell residential, commercial or
industrial real estate. These include declines in the value of real estate,
factors related to general and local economic conditions, overbuilding and
increased competition, increases in property taxes and operating expenses,
changes in zoning laws, casualty or condemnation losses, limitations on rents,
changes in neighborhood values, the appeal of properties to tenants, and
increases in interest rates. The value of securities of companies that service
the real estate industry also may be affected by such risks.
In addition, equity REITS may be affected by any changes in the value of
the underlying property owned by the trusts, while mortgage REITS may be
affected by the quality of any credit extended. Further, equity and mortgage
REITS are dependent upon management skill, are not diversified and are therefore
subject to the risk of financing single or a limited number of projects. REITS
are also subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation and the possibility of failing to qualify for tax free
pass-through of income under the Internal Revenue Code of 1986, as amended (the
"Code"), and to maintain exemption under the Investment Company Act.
- 14 -
<PAGE>
SUPRANATIONAL ORGANIZATIONS
The International Fixed-Income Portfolio may invest up to 25% of the value
of its total assets in debt securities issued by supranational organizations
such as the World Bank, which finances development projects in member countries
and the European Community, which is a multi-nation organization engaged in
cooperative economic activities.
-------------------------------
Except as noted, the foregoing policies and activities of the Portfolios
are not fundamental and may be changed by the Board of Directors of the Fund
without the approval of shareholders of the affected Portfolio or Portfolios;
however, shareholders will be notified prior to a material change in such
policies.
INVESTMENT RESTRICTIONS
The following investment restrictions, which supplement those set forth in
the Fund's Prospectus, are, except where noted, fundamental policies of each of
the Portfolios and may be changed, as to a Portfolio, only when permitted by law
and approved by the holders of a majority of such Portfolio's outstanding voting
securities, as described under "Organization and Description of Capital Stock."
The Fund is empowered to establish, without shareholder approval, additional
portfolios which may have different fundamental investment policies.
None of the Portfolios may:
(i) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the
purchase and as a result thereof, the value of any Portfolio's
investments in that industry would exceed 25% of the current value of
such Portfolio's total assets, provided that there is no limitation
with respect to investments in obligations of the U.S. Government, its
agencies or instrumentalities;
(ii) (a) purchase or sell real estate or real estate limited
partnerships, except that a Portfolio may purchase and sell securities
of companies which deal in real estate or interests therein and the
International Small Cap Portfolio, Emerging Markets Portfolio, Global
Equity Portfolio, Bantam Value Portfolio and Emerging World Funds
Portfolio also may purchase and sell securities that are secured by
real estate; provided, however, that this clause (a) is not a
fundamental policy of the Equity Portfolio; (b) purchase or sell
commodities or commodity contracts (except that the International Small
Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio,
Bantam Value Portfolio and Emerging World Funds Portfolio may purchase
and sell, swaps, options, forward contracts, futures contracts,
including those relating to indices, and options on futures contracts
or indices, the International Equity Portfolio, International
Fixed-Income Portfolio and Strategic Yield Portfolio may purchase or
sell foreign currency forward exchange contracts, the International
Fixed-Income Portfolio and Bond Portfolio may enter into futures
contracts and options on futures contracts, the International
Fixed-Income Portfolio may enter into futures contracts on foreign
- 15 -
<PAGE>
currencies and the International Fixed-Income Portfolio and Strategic
Yield Portfolio may purchase and write put and call options on foreign
currencies); and (c) invest in interests in or leases relating to oil,
gas, or other mineral exploration or development programs; provided,
however, that this clause (c) is not a fundamental policy of the Equity
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging
World Funds Portfolio;
(iii) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of
securities, provided, however, that this prohibition on short sales is
not a fundamental policy of Global Equity Portfolio, Bantam Value
Portfolio and Emerging World Funds Portfolio;
(iv) underwrite securities of other issuers, except to the extent that
the purchase of municipal obligations or other permitted investments
directly from the issuer thereof or from an underwriter for an issuer
and the later disposition of such securities in accordance with any
Portfolio's investment program may be deemed to be an underwriting; or
(v) make investments for the purpose of exercising control or
management; provided, however, that this restriction is not a
fundamental policy of the International Small Cap Portfolio, Emerging
Markets Portfolio, Global Equity Portfolio, Bantam Value Portfolio and
Emerging World Funds Portfolio.
In addition to the restrictions noted above applicable to all the
Portfolios, the Equity Portfolio has adopted the following fundamental
investment policies:
The Equity Portfolio may not:
(i) purchase restricted securities, which are securities that must be
registered under the Securities Act before they may be offered or sold
to the public, except that the Equity Portfolio may invest up to 5% of
the value of its total assets, taken at cost, in such securities;
(ii) invest more than 5% of the current value of its total assets in
the securities of any one issuer, other than obligations of the United
States Government, its agencies or instrumentalities or securities
which are backed by the full faith and credit of the United States; or
(iii) purchase securities of an issuer if, as a result, as to 75% of
the Portfolio's total assets, the Portfolio would own more than 10% of
the voting securities of such issuer.
In addition to the restrictions noted above applicable to all the
Portfolios, it is a fundamental investment policy of the Special Equity
Portfolio that the Portfolio may not purchase the securities of any one issuer
if more than 5% of the value of the Portfolio's total assets would be invested
in the securities of such issuer; provided, however, that this limitation does
not apply to investments in obligations of the U.S. Government, its agencies or
instrumentalities. In addition, the Lazard Special Equity Fund, Inc., the
predecessor to the Special Equity Portfolio, had given an undertaking to the
- 16 -
<PAGE>
State of Wisconsin Office of the Commissioner of Securities that the Fund would
not invest more than 5% of its total assets in securities of companies that have
operated less than three years, including the operation of predecessors.
Whenever any investment policy or restriction states a minimum or maximum
percentage of a Portfolio's assets which may be invested in any security or
other asset, it is intended that such minimum or maximum percentage limitation
be determined immediately after and as a result of the Portfolio's acquisition
of such security or other asset. Accordingly, any later increase or decrease in
percentage beyond the specified limitations resulting from a change in values or
net assets will not be considered a violation.
In connection with the qualification or registration for sale under the
securities laws of certain states of the shares of the International Equity
Portfolio, International Fixed-Income Portfolio, Bond Portfolio and Small Cap
Portfolio, the Fund has agreed that, in addition to the foregoing investment
restrictions applicable to these Portfolios, none of them may (i) purchase any
security of any issuer if as a result the Portfolio would own more than 10% of
the outstanding voting securities of that issuer; (ii) invest in warrants; (iii)
invest more than 10% of its total assets in puts, calls, straddles, spreads or
any combination thereof; (iv) purchase or retain securities of any issuer if the
Directors or officers of the Fund or the Investment Manager who own beneficially
more than 1/2 of 1% of the securities of an issuer together own beneficially
more than 5% of such issuer. The investment restrictions set forth in (i), (iii)
and (iv) of the preceding sentence are additionally applicable to the Strategic
Yield Portfolio and the investment restrictions set forth in (i) and (iv) of the
preceding sentence are additionally applicable to the Equity Portfolio and
Special Equity Portfolio. The investment restrictions set forth in this
paragraph are not designated fundamental policies of these Portfolios within the
meaning of the Investment Company Act and may be changed by the Board of
Directors of the Fund without the approval of the shareholders of the affected
Portfolio or Portfolios.
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<PAGE>
MANAGEMENT
The Directors and officers of the Fund and their principal occupations
during the past five years are set forth below. Unless otherwise specified, the
address of each of the following persons is 30 Rockefeller Plaza, New York, New
York 10020.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
---------------- ------------------------ ----------------------------------------
<S> <C> <C>
Norman Eig* (54) Chairman of the Board, Managing Director (formerly General Partner),
Director Lazard Freres
Herbert W. Gullquist* (57) President, Director Managing Director (formerly General Partner),
Lazard Freres
John J. Burke (66) Director Vice Chairman, Director, Montana Power Company;
50 Burning Tree Lane
Butte, MT 59701
Kenneth S. Davidson (50) Director Managing Partner, Davidson Weil Associates;
Davidson Weil Associates Blackthorn Fund N.V., Director; Ottertail
767 Fifth Avenue, 43rd Floor Valley Railroad, Director.
New York, NY 10153
Lester Z. Lieberman (64) Director Private Investor, Member of the Board of
25 Vreeland Road Directors of Dowel Associates, Chairman of the
Florham Park, NJ 07932 Boards of Trustees of Newark Beth Israel
Medical Center and Irvington General Hospital,
member of the New Jersey State Investment
Council, prior to 1994 was Member of the Boards
of Directors of United Jersey Bank, N.A. and
Clarkson University.
Richard Reiss, Jr. (51) Director Managing Partner, Cumberland Associates, an
1114 Avenue of the Americas investment manager
New York, NY 10036
John Rutledge (47) Director President, Rutledge & Company, an economics and
Rutledge & Company investment advisory firm, Chairman, Claremont
One Greenwich Office Park Economics Institute
51 Weaver Street
Greenwich, CT 06831
William G. Butterly, III (35) Vice President, Vice President, Legal Affairs of the Investment
Secretary Manager, prior to May, 1993, attorney with
Shearman & Sterling
- --------
* An "interested person" of the Fund as defined in the Investment Company Act
and a member of the Executive Committee of the Fund, which meets with the
officers of the Fund in accordance with the Fund's procedures for the valuation
of illiquid securities and for other appropriate purposes.
- 18 -
<PAGE>
Gus Coutsouros (32) Treasurer Certified Public Accountant, Vice President and
Assistant Controller of the Investment Manager,
prior to June 1992, Manager, National
Securities and Research Corp., prior to June
1991, Senior Accountant, Price Waterhouse.
Thomas W. Joseph (55) Vice President and Principal, Scudder, Stevens & Clark
175 Federal Street Assistant Secretary
Boston, MA 02110
Thomas F. McDonough (48) Vice President and Principal, Scudder, Stevens & Clark
175 Federal Street Assistant Secretary
Boston, MA 02110
</TABLE>
Compensation received from the Fund during 1994 by the Directors who are
not "interested persons" is set forth in the following table.
<TABLE>
<CAPTION>
Compensation Table
PENSION OR TOTAL
AGGREGATE RETIREMENT COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM REGISTRANT
COMPENSATION FROM AS PART OF FUND BENEFITS UPON AND FUND COMPLEX
NAME OF PERSON REGISTRANT EXPENSES RETIREMENT PAID TO DIRECTORS
- -------------- ---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
John J. Burke $24,000 0 0 $24,000
Lester Z. Lieberman $24,000 0 0 $24,000
Richard Reiss, Jr. $24,000 0 0 $24,000
John Rutledge $24,000 0 0 $24,000
</TABLE>
The Fund does not compensate officers or interested Directors. As of
October 2, 1995, the officers and Directors of the Fund, as a group, owned less
than 1% of the shares of each Portfolio except the Strategic Yield Portfolio. As
of that date, the officers and Directors of the Fund, as a group, owned 1.28% of
the shares of the Strategic Yield Portfolio.
INVESTMENT MANAGER AND INVESTMENT MANAGEMENT AGREEMENTS
Lazard Freres Asset Management, 30 Rockefeller Plaza, New York, New York
10020, has entered into an investment management agreement with the Fund on
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<PAGE>
behalf of each of the Portfolios. The investment management agreements entered
into by Lazard Freres Asset Management are collectively referred to herein as
the "Management Agreements" and, where appropriate, individually as the
"Management Agreement." Pursuant to each Management Agreement, Lazard Freres
Asset Management regularly provides each Portfolio with investment research,
advice and supervision and furnishes continuously an investment program for each
Portfolio consistent with its investment objectives and policies, including the
purchase, retention and disposition of securities.
Lazard Freres Asset Management is a division of Lazard Freres, a New York
limited liability company, which is registered as an investment adviser with 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 and related services, including investment management. It is a major
underwriter of corporate securities, conducts a broad range of trading and
brokerage activities in corporate and governmental bonds and stocks and acts as
a financial adviser to municipal authorities and utilities and as an underwriter
and trader in municipal securities. Lazard Freres Asset Management provides
investment management services to client discretionary accounts with assets as
of June 30, 1995 totaling approximately $26.5 billion. Its clients are both
individuals and institutions, some of whose accounts have investment policies
similar to those of several of the Portfolios. As of October 1, 1995, Lazard
Freres Asset Management held voting and dispositive power with respect to a
sufficient number of shares of each Portfolio held by client accounts as to be
considered a controlling person of such Portfolio.
Subject to policies established by the Fund's Board of Directors, which has
overall responsibility for the business and affairs of each Portfolio, the
Investment Manager manages the operations of the Portfolios. In addition to
providing advisory services, the Investment Manager furnishes the Portfolios
with office space and certain facilities and personnel required for conducting
the business of the Portfolios and pays the compensation of the Fund's officers,
directors and employees affiliated with the Investment Manager or its
affiliates. The Management Agreement entered into by Lazard Freres Asset
Management with the Fund on behalf of the Special Equity Portfolio additionally
provides that Lazard Freres Asset Management is also responsible for
administering the Portfolio's corporate affairs subject to the supervision of
the Board of Directors.
As compensation for its services, each of the Portfolios has agreed to pay
the Investment Manager an investment management fee at the annual rates set
forth below as a percentage of the average daily value of the net assets of the
relevant Portfolio: Equity Portfolio, .75%; International Equity Portfolio,
.75%; International Fixed-Income Portfolio, .75%; Bond Portfolio, .50%;
Strategic Yield Portfolio, .75%; Small Cap Portfolio, .75%; International Small
Cap Portfolio, .75%; Emerging Markets Portfolio, 1.00%; Special Equity
Portfolio, 1.50%; Global Equity Portfolio, .75%; Bantam Value Portfolio, .75%;
and Emerging World Funds Portfolio, .75%. The management fees are accrued daily
and paid monthly except that the fee paid by the Special Equity Portfolio is
paid quarterly.
The Investment Manager has undertaken to bear (i) with respect to each of
the International Fixed-Income Portfolio, Global Equity Portfolio, Bantam Value
Portfolio and Emerging World Funds Portfolio, total operating expenses in excess
of 1.05%, (ii) with respect to the Emerging Markets Portfolio, total operating
expenses in excess of 1.30%, and (iii) with respect to the Bond Portfolio, total
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<PAGE>
operating expenses in excess of .80%, of such Portfolio's average net assets,
until the earlier of December 31, 1996 (or such time as the respective Portfolio
reaches total net assets of $100 million. For the period commencing May 1, 1995
and terminating upon the earlier to occur of (i) October 31, 1996 and (ii) the
net assets of the Special Equity Portfolio equaling or exceeding $90 million,
Lazard Freres Asset Management has agreed to bear total operating expenses
(exclusive of extraordinary expenses ) of the Special Equity Portfolio in excess
of 1.50%. Pursuant to the terms of the Management Agreements and these
arrangements, for the fiscal year ended December 31, 1994, the Investment
Manager received management fees equal to $504,424 for the Equity Portfolio,
$5,782,629 for the International Equity Portfolio, $2,974,688 for the Small Cap
Portfolio, $330,620 for the Strategic Yield Portfolio, $1,321,860 for the
Special Equity Portfolio, $62,918 for the International Fixed Income Portfolio,
$13,790 for the Bond Portfolio, and $335,900 for the International Small Cap
Portfolio. For the fiscal ended December 31, 1994, the Investment Manager
received no management fee for the Emerging Markets Portfolio. For the fiscal
year ended December 31, 1993, the Investment Manager received management fees
equal to $217,301 for the Equity Portfolio, $2,701,856 for the International
Equity Portfolio, $1,948,153 for the Small Cap Portfolio, $29,038 for the
Strategic Yield Portfolio and $2,282,006 for the Special Equity Portfolio. For
the fiscal year ended December 31, 1993, the Investment Manager received no
management fees for the International Fixed-Income Portfolio, Bond Portfolio, or
Strategic Yield Portfolio, nor from the International Small Cap Portfolio or
Emerging Markets Portfolio which were first established on July 20, 1993. For
the fiscal year ended December 31, 1992, the Investment Manager received
management fees equal to $65,464 for the Equity Portfolio, $356,683 for the
International Equity Portfolio, $561,975 for the Small Cap Portfolio and
$1,995,921 for the Special Equity Portfolio. For the fiscal year ended December
31, 1992, the Investment Manager received no management fees from the
International Fixed-Income Portfolio, Bond Portfolio or Strategic Yield
Portfolio.
Each of the Management Agreements provides that the relevant Portfolio pays
all of its expenses that are not specifically assumed by the Investment Manager.
(Expenses attributable to each Portfolio will be charged against the assets of
that Portfolio, other expenses of the Fund will be allocated among the
Portfolios in a manner which may, but need not, be proportionate in relation to
the net assets of each Portfolio.) Expenses payable by each of the Portfolios
include, but are not limited to, clerical salaries; brokerage and other expenses
of executing portfolio transactions; legal, auditing or accounting expenses;
trade association dues; taxes or governmental fees; the fees and expenses of any
person providing administrative services to the Fund (with the exception of the
Special Equity Portfolio); the fees and expenses of the custodian and transfer
agent of the Fund; the cost of preparing share certificates or any other
expenses, including clerical expenses of issue, redemption or repurchase of
shares of the Portfolio; the expenses and fees for registering and qualifying
securities for sale; the fees of Directors of the Fund who are not employees or
affiliates of the Investment Manager or its affiliates; travel expenses of all
Directors, officers and employees; insurance premiums; and the cost of preparing
and distributing reports and notices to shareholders. In addition, the
organizational expenses of the Fund are being amortized and allocated among the
International Equity Portfolio, International Fixed-Income Portfolio, Bond
Portfolio, Strategic Yield Portfolio and Small Cap Portfolio. Furthermore, the
Investment Manager will reimburse each Portfolio for its expenses (exclusive of
interest, taxes, brokerage, distribution expenditures and extraordinary
expenses, all to the extent permitted by applicable state securities law and
regulations) which in any year exceed the limits prescribed by any state in
which the Portfolio's shares are qualified for sale. The Fund may not qualify
the shares of each Portfolio for sale in every state. The Fund believes that
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<PAGE>
presently the most restrictive expense ratio limitation imposed by any state is
2.5% of the first $30 million of the Portfolio's average net assets, 2.0% of the
next $70 million of its average net assets and 1.5% of its average net assets in
excess of $100 million.
Prior to September 15, 1992, Lazard International Investment Management
Limited, an affiliate of Lazard Freres, served as the sub-investment manager to
the International Fixed-Income Portfolio (the "Sub-Investment Manager"). Under
the terms of the sub-investment management agreement between the Investment
Manager and the Sub-Investment Manager, which was terminated by the Investment
Manager as of September 15, 1992, the Sub-Investment Manager was to receive a
fee from the Investment Manager, accrued daily and paid monthly, at the annual
rate of .75% of the average daily value of the net assets of the International
Fixed-Income Portfolio; however, for the entire period during which the
sub-investment management agreement was in effect, the Sub-Investment Manager
waived receipt of its fees.
Each Management Agreement other than with respect to the International
Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam
Value Portfolio and Emerging World Funds Portfolio was approved on September 11,
1991 (and amended and restated on October 19, 1993) by the Fund's Board of
Directors, including a majority of the Directors of the Fund who are not parties
to such Management Agreement or interested persons (as defined in the Investment
Company Act) of any such party (the "Disinterested Directors"), and by a
majority of the outstanding voting securities of the respective Portfolio at the
Fund's Initial Meeting of Stockholders held on December 16, 1992. Each of the
Management Agreements for the International Small Cap Portfolio and Emerging
Markets Portfolio was approved by the Fund's Board of Directors, including a
majority of the Disinterested Directors, at the meeting of the Board held on
July 20, 1993 and the sole shareholder of each such Portfolio on August 25,
1993. Each Management Agreement (other than the Management Agreements for the
Global Equity Portfolio, Bantam Value Portfolio and Emerging World Funds
Portfolio) was renewed by approval of the Fund's Board of Directors including a
majority of the Directors who are not interested persons, on October 16, 1995.
The Management Agreements for the Global Equity Portfolio, Bantam Value
Portfolio and Emerging World Funds Portfolio were approved by the Fund's Board
of Directors on October 16, 1995. Each such Management Agreement will continue
in effect, provided that such continuance is approved annually by a vote of a
majority of the respective Portfolio's outstanding voting securities or by the
Fund's Board of Directors and, in either case, by a majority of the
Disinterested Directors.
Each Management Agreement is terminable without penalty by the Fund on 60
days' written notice when authorized either by majority vote of the outstanding
voting securities of the particular Portfolio or by a vote of a majority of the
Fund's Directors, or by the Investment Manager on 60 days' written notice, and
will automatically terminate in the event of its assignment. Each Management
Agreement provides that in the absence of willful misfeasance, bad faith or
gross negligence on the part of the Investment Manager, or of reckless disregard
of its obligations thereunder, the Investment Manager shall not be liable for
any action or failure to act in accordance with its duties thereunder.
ADMINISTRATION
Effective May 1, 1995, the Fund engaged State Street Bank and Trust Company
("State Street") to provide certain administrative services to the Portfolios.
Each Portfolio, other than the Special Equity Portfolio, will bear the cost of
such administrative expenses at the annual rate of $37,500 plus .02% of the
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<PAGE>
average daily net assets of such Portfolios. State Street has agreed to waive
the $37,500 fee for one year for the Bond and International Fixed Income
Portfolios. Administrative expenses for the Special Equity Portfolio are paid
for by the Investment Manager. From January 1, 1992 to October 31, 1992, Scudder
Investor Services, Inc. ("Scudder") served as the Fund's administrator. Under
the terms of an administration agreement between the Fund and Scudder and a
sub-administration agreement between the Investment Manager and Scudder (whereby
the Investment Manager subcontracted to Scudder all of the administrative duties
that it owed to the Special Equity Portfolio), Scudder was to receive a monthly
administration fee calculated at an annual rate equal to (i) .08% of the average
daily value of the net assets of each Portfolio that invested solely in
securities issued by U.S. entities, and (ii) .10% of the average daily value of
the net assets of each Portfolio that invested in securities issued by U.S.
and/or foreign entities, with a minimum fee for each Portfolio of $50,000 per
annum. For the period from January 1, 1992 to October 31, 1992, Scudder received
fees equal to $41,667 from the Fund on behalf of the Equity Portfolio,
International Fixed-Income Portfolio, Bond Portfolio and Strategic Yield
Portfolio, $54,383 from the Fund on behalf of the International Equity
Portfolio, $48,173 from the Fund on behalf of the Small Cap Portfolio and
$87,046 from the Investment Manager on behalf of the Special Equity Portfolio.
DISTRIBUTOR
Lazard Freres serves as the distributor of shares of each of the Fund's
Portfolios and conducts a continuous offering pursuant to a "best efforts"
arrangement requiring it to take and pay for only such securities as may be sold
to the public. As the distributor, it accepts purchase and redemption orders for
shares of the Portfolios. In addition, the distribution agreement obligates
Lazard Freres to pay certain expenses in connection with the offering of the
shares of the Portfolios. After the prospectuses and periodic reports have been
prepared, set in type and mailed to shareholders, Lazard Freres will pay for the
printing and distribution of copies thereof used in connection with the offering
to prospective investors. Lazard Freres will also pay for other supplementary
sales literature and advertising costs.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each Portfolio is determined by the Fund
on each day the New York Stock Exchange is open for trading. The New York Stock
Exchange is normally closed on the following national holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per share is determined by
dividing the value of the total assets of the Portfolio, less all liabilities,
by the total number of shares outstanding.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the New York Stock
Exchange is open). In addition, European or Far Eastern securities trading
generally or in a particular country or countries may not take place on all
business days in New York. Furthermore, trading takes place in Japanese markets
on certain Saturdays and in various foreign markets on days which are not
business days in New York and on which the Portfolio's net asset value is not
calculated. Each Portfolio calculates net asset value per share, and therefore
effects sales, redemptions and repurchases of its shares, as of the close of
regular trading on the New York Stock Exchange once on each day on which the New
York Stock Exchange is open. Such calculation may not take place
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<PAGE>
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. If events materially affecting
the value of such securities occur between the time when their price is
determined and the time when the Portfolio's net asset value is calculated, such
securities will be valued at fair value as determined in good faith by the Board
of Directors.
PORTFOLIO TRANSACTIONS
Subject to the supervision of the Board of Directors, the Investment
Manager is primarily responsible for the investment decisions and the placing of
portfolio transactions for each Portfolio. In placing orders, it is the policy
of the Investment Manager to obtain the most favorable net results, taking into
account such factors as price, size of order, difficulty of execution and skill
required of the executing broker. While the Investment Manager will generally
seek reasonably competitive spreads or commissions, the Portfolios will not
necessarily be paying the lowest spread or commission available.
Purchases and sales of portfolio securities on a securities exchange for
the Portfolios are effected by the Investment Manager through brokers who charge
a negotiated commission for their services based on the quality and quantity of
execution services provided by the broker in the light of generally prevailing
rates. Orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Lazard Freres. In the over-the-counter
market, securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
Subject to the above considerations, Lazard Freres may act as a main broker
for the Portfolios. For Lazard Freres to effect any portfolio transactions for
the Portfolios, the commissions, fees or other remuneration received by Lazard
Freres must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange
during a comparable period of time. This standard allows Lazard Freres to
receive no more than the remuneration that would be expected to be received by
an unaffiliated broker in a commensurate arm's-length transaction. Furthermore,
the Board of Directors of the Fund, including a majority of the Disinterested
Directors, have adopted procedures that are reasonably designed to provide that
any commissions, fees or other remuneration paid to Lazard Freres are consistent
with the foregoing standard. Brokerage transactions with Lazard Freres are also
subject to such fiduciary standards as may be imposed upon Lazard Freres by
applicable law.
For the fiscal year ended December 31, 1994, the total brokerage
commissions paid by the Equity Portfolio, International Equity Portfolio, Small
Cap Portfolio, International Small Cap Portfolio, Special Equity Portfolio and
Emerging Markets Portfolio were $160,325, $4,374,986, $997,227, $563,176,
$94,523 and $80,889, respectively. Of those amounts, $1,655, $0, $14,125, $0,
$10,402, and $0, respectively, were paid to Lazard Freres. For the fiscal year
ended December 31, 1994, Lazard Freres received 1.0%, 0%, 1.4%, 0%, 11.0%, and
0%, respectively, of the total brokerage commissions paid by those Portfolios
and the total transactions effected through Lazard Freres represented 0.6%, 0%,
0.4%, 0%, 0.9% and 0%, respectively, of the total dollar amount of transactions
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on which brokerage transactions were paid by those Portfolios. For the fiscal
year ended December 31, 1994, no brokerage commissions were paid by the
International Fixed-Income Portfolio, Bond Portfolio or Strategic Yield
Portfolio.
For the fiscal year ended December 31, 1993, the total brokerage
commissions paid by the Equity Portfolio, International Equity Portfolio, Small
Cap Portfolio, International Small Cap Portfolio and Special Equity Portfolio
were $75,705, $1,819,457, $908,261, $1,012,320 and $183,006, respectively. Of
those amounts, $17,679, $19,285, $40,435, $0 and $31,405, respectively, were
paid to Lazard Freres. For the fiscal year ended December 31, 1993, Lazard
Freres received 23.4%, 1.1%, 4.5%, 0% and 16.8%, respectively, of the total
brokerage commissions paid by those Portfolios and the total transactions
effected through Lazard Freres represented 23.0%, 1.2%, 3.7%, 0% and 15.7%,
respectively, of the total dollar amount of transactions on which brokerage
transactions were paid by those Portfolios. For the fiscal year ended December
31, 1993, no brokerage commissions were paid by the International Fixed-Income
Portfolio, Bond Portfolio, Strategic Yield Portfolio or Emerging Markets
Portfolio.
For the fiscal year ended December 31, 1992, the total brokerage
commissions paid by the Equity Portfolio, International Equity Portfolio, Small
Cap Portfolio and Special Equity Portfolio were $110,253, $485,427, $431,428 and
$96,281, respectively. Of those amounts $55,189, $21,692, $110,259 and $59,710,
respectively, were paid to Lazard Freres. For the fiscal year ended December 31,
1992, no brokerage commissions were paid by the International Fixed-Income
Portfolio, Bond Portfolio or Strategic Yield Portfolio.
Purchase and sale orders for securities held by a Portfolio may be combined
with those for other Portfolios in the interest of the most favorable net
results for all. When the Investment Manager determines that a particular
security should be bought for or sold by more than one Portfolio, the Investment
Manager undertakes to allocate those transactions between the participants
equitably.
RESEARCH AND STATISTICAL INFORMATION
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the practice of the Investment Manager to place
orders with brokers and dealers who supply market quotations to the Fund's
custodian for valuation purposes, or who supply research, market and statistical
information to the Investment Manager. Although research, market and statistical
information is useful to the Investment Manager, it is its opinion that such
information is only supplementary to the Investment Manager's own research
efforts, since the information must still be analyzed, weighed and reviewed by
the Investment Manager's staff. Information so received will be in addition to,
and not in lieu of, the services required to be performed by the Investment
Manager under the Management Agreements with the Fund on behalf of the
Portfolios. This information may be useful to the Investment Manager in
providing services to clients other than the Portfolios, and not all of this
information is used by the Investment Manager in connection with the Portfolios.
The total dollar amount of transactions pursuant to which brokerage was directed
in consideration of research services provided during the year ending December
31, 1994 was $220,576,262.57 and the related commissions were $678,940.69. In
addition, when it can be done consistently with the above stated policy, the
Investment Manager may place orders with brokers and dealers (i) who refer
persons to the Investment Manager for the purpose of purchasing shares of the
Portfolios or (ii) who provide services to the Fund at no fee or for a reduced
fee.
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REDEMPTION OF SHARES
Payment of the redemption price for shares redeemed may be made either in
cash or in portfolio securities (selected in the discretion of the Board of
Directors of the Fund and taken at their value used in determining each
Portfolio's net asset value per share as described in the Prospectus under
"Determination of Net Asset Value"), or partly in cash and partly in portfolio
securities; however, payments will be made wholly in cash unless the Board of
Directors believes that economic conditions exist which would make such a
practice detrimental to the best interests of the relevant Portfolio. If payment
for shares redeemed is made wholly or partly in portfolio securities, brokerage
costs may be incurred by the investor in converting the securities to cash. A
Portfolio will not distribute in kind portfolio securities that are not readily
marketable. The Fund has filed a formal election with the Commission pursuant to
which the Fund will only effect a redemption in portfolio securities where the
particular stockholder of record is redeeming more than $250,000 or 1% of a
Portfolio's total net assets, whichever is less, during any 90-day period. In
the opinion of the Investment Manager, however, the amount of a redemption
request would have to be significantly greater than $250,000 or 1% of total net
assets before a redemption wholly or partly in portfolio securities was made.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to declare as a dividend on the outstanding shares of each
of the International Fixed-Income Portfolio, the Bond Portfolio and the
Strategic Yield Portfolio substantially all of each Portfolio's net investment
income at the close of each business day to shareholders of record at 4:00 p.m.
(New York time). Purchased shares of the International Fixed-Income Portfolio,
the Bond Portfolio and the Strategic Yield Portfolio will begin earning
dividends on the business day following the day the purchase order is accepted
and settled and redeemed shares of any of these Portfolios will earn a dividend
on the day the redemption order is executed. Net investment income for a
Saturday, Sunday or holiday will be included in the dividend declared on the
previous business day. Dividends declared on the shares of the International
Fixed-Income Portfolio, Bond Portfolio and Strategic Yield Portfolio will be
paid five business days prior to the end of each month. Shareholders who redeem
all their shares of any of these Portfolios prior to a dividend payment date
will receive, in addition to the redemption proceeds, any dividends that are
declared but unpaid. Shareholders of any of these Portfolios who redeem only a
portion of their shares will be entitled to all dividends that are declared but
unpaid on the redeemed shares on the next dividend payment date.
Dividends from net investment income on the Equity Portfolio will be
declared and paid quarterly. Dividends from net investment income on the
International Equity Portfolio, Small Cap Portfolio, International Small Cap
Portfolio, Emerging Markets Portfolio, Special Equity Portfolio, Global Equity
Portfolio, Bantam generallyValue Portfolio and Emerging World Funds Portfolio
generally will be declared and paid at least annually and may be declared and
paid twice annually.
Investment income for a Portfolio includes, among other things, interest
income, accretion of market and original issue discount and amortization of
premium and, in the case of the Equity Portfolio, International Equity
Portfolio, Small Cap Portfolio, International Small Cap Portfolio, Emerging
Markets Portfolio, Special Equity Portfolio, Global Equity Portfolio, Bantam
Value Portfolio and Emerging World Funds Portfolio would also include dividends.
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With respect to all of the Portfolios, net realized capital gains from each
of the Portfolios, if any, will be distributed at least annually and may be
declared and paid twice annually. Dividends and distributions on shares of a
Portfolio 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. Dividend checks and Statements of
Account will be mailed approximately two business days after the payment date.
Each Portfolio forwards to the Fund's custodian the monies for dividends to be
paid in cash on the payment date
TAXATION
The Prospectus describes generally the tax treatment of distributions by
the Fund. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
It is intended that each Portfolio will declare and distribute dividends in
the amounts and at the times necessary to avoid the application of the 4%
federal excise tax imposed on certain undistributed income of regulated
investment companies. Each Portfolio will be required to pay the 4% excise tax
to the extent it does not distribute to its shareholders during any calendar
year at least 98% of its ordinary income for the calendar year plus 98% of its
capital gain net income for the twelve months ended October 31, or December 31
if elected by the Portfolio, of such year. Certain distributions of a Portfolio
which are paid in January of a given year but are declared in the prior October,
November or December to shareholders of record as of a specified date during
such a month may be treated as having been distributed in December and will be
taxable to shareholders as if received in December.
Except as described below with respect to straddles, gains or losses on
sales of securities by a Portfolio will be long-term capital gains or losses if
the securities have been held by the Portfolio for more than one year and other
gains or losses on sales of securities will be short-term capital gains or
losses.
Certain listed options, futures contracts and forward foreign currency
contracts are considered "section 1256 contracts" for U.S. federal income tax
purposes. In general, gain or loss realized by a Portfolio on section 1256
contracts will be considered 60% long-term and 40% short-term capital gain or
loss. Also, section 1256 contracts held by a Portfolio at the end of each
taxable year will be "marked to market," that is, treated for federal income tax
purposes as though sold for fair market value on the last business day of such
taxable year. A Portfolio can elect to exempt its section 1256 contracts which
are part of a "mixed straddle" (as described below) from the application of
section 1256.
With respect to over-the-counter put and call options, gain or loss
realized by a Portfolio upon the lapse or sale of such options held by the
Portfolio will be either long-term or short-term capital gain or loss depending
upon the Portfolio's holding period with respect to such option. However, gain
or loss realized upon the lapse or closing out of such options that are written
by a Portfolio will be treated as short-term capital gain or loss. In general,
if a Portfolio exercises an option, or an option that the Portfolio has written
is exercised, gain or loss on the option will not be separately recognized but
the premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.
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<PAGE>
Any security, option, futures contract, forward foreign currency contract,
forward commitment, or other position entered into or held by a Portfolio which
acts as a hedge with respect to any other position held by the Portfolio may
constitute a "straddle" for federal income tax purposes. A straddle of at least
one, but not all, the positions of which are section 1256 contracts will
constitute a "mixed straddle." In general, straddles are subject to certain
rules that may affect the character and timing of a Portfolio's gains and losses
with respect to straddle positions by requiring, among other things, that loss
realized on disposition of one position of a straddle not be recognized until
the other position in such straddle is disposed of; that the Portfolio's holding
period in straddle positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather than long-term
capital gain); and that losses recognized with respect to certain straddle
positions, which would otherwise constitute short-term capital losses, be
treated as long-term capital losses. Different elections are available to the
Portfolios which may mitigate the effects of the straddle rules, particularly
with respect to mixed straddles.
Under section 988 of the Code, foreign currency gain or loss realized with
respect to foreign currency denominated debt instruments and other foreign
currency denominated positions held or entered into by a Portfolio, except for
futures contracts or options that are marked to market under Code section 1256,
will be ordinary income or loss. In addition, foreign currency gain or loss
realized with respect to certain foreign currency "hedging" transactions will be
treated as ordinary income or loss, regardless of whether they would otherwise
be marked to market, under Code section 1256.
Income received by a Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of each Portfolio's assets to be
invested in various countries is not known.
If more than 50% of the value of a Portfolio's total assets at the close of
its taxable year consists of the stock or securities of foreign corporations,
the Portfolio may elect to "pass through" to its shareholders the amount of
foreign income taxes paid by the Portfolio. Pursuant to such election,
shareholders would be required: (i) to include in gross income, even though not
actually received, their respective pro rata shares of the foreign taxes paid by
the Portfolio; (ii) treat their income from the Portfolio as being from foreign
sources to the extent that the Portfolio's income is from foreign sources; and
(iii) either to deduct their pro rata share of foreign taxes in computing their
taxable income, or to use it as a foreign tax credit against federal income (but
not both). No deduction for foreign taxes could be claimed by a shareholder who
does not itemize deductions.
It is anticipated that the International Equity Portfolio, International
Fixed-Income Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio will be operated so as to meet the requirements of the Code to
"pass through" to shareholders of the Portfolios credits for foreign taxes paid,
although there can be no assurance that these requirements will be met. Each
shareholder will be notified within 45 days after the close of each taxable year
of the Portfolio whether the foreign taxes paid by the Portfolio will "pass
through" for that year, and, if so, the amount of each shareholder's pro rata
share of (i) the foreign taxes paid, and (ii) the Portfolio's gross income from
foreign sources. Of course, shareholders who are not liable for federal income
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<PAGE>
taxes, such as retirement plans qualified under section 401 of the Code, will
not be affected by any such "pass through" of foreign tax credits.
Any gain or loss realized upon a sale or redemption of shares of a
Portfolio by a shareholder who is not a dealer in securities is treated as
long-term capital gain or loss if the shares have been held for more than one
year and otherwise as short-term capital gain or loss; however, any loss
realized by a shareholder upon the sale or redemption of shares of a Portfolio
held for six months or less is treated as long-term capital loss to the extent
of any long-term capital gain distribution received by the shareholder.
Any loss realized on a sale or exchange of shares of a Portfolio will be
disallowed to the extent shares of such Portfolio are reacquired within the
61-day period beginning 30 days before and ending 30 days after the shares are
disposed of.
If a Portfolio invests in an entity that is classified as a "passive
foreign investment company" ("PFIC") for federal income tax purposes, the
operation of certain provisions of the Code applying to PFICs could result in
the imposition of certain federal income taxes on the Portfolio. In addition,
gain realized from the sale or other disposition of PFIC securities may be
treated as ordinary income under Section 1291 of the Code.
SHAREHOLDER SERVICES
A special service is available to banks, brokers, investment advisers,
trust companies and others who have a number of accounts in any Portfolio. In
addition to the copy of the regular Statement of Account furnished to the
registered holder after each transaction, a monthly summary of accounts can be
provided. The monthly summary will show for each account the account number, the
month-end share balance and the dividends and distributions paid during the
month. All costs of this service will be borne by the Portfolio. For information
on the special monthly summary of accounts, contact the Fund.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
The Fund was incorporated in Maryland on May 17, 1991 as a series
investment company. The authorized capital stock of the Fund consists of
1,000,000,000 shares of common stock, $.001 par value, designated as thirteen
separate classes of capital stock. The Fund's Board of Directors has authorized
the issuance of tenthirteen classes of shares, twelve of which have been
designated for the following portfolios: Equity Portfolio; International Equity
Portfolio; International Fixed-Income Portfolio; Bond Portfolio; Strategic Yield
Portfolio; Small Cap Portfolio; International Small Cap Portfolio; Emerging
Markets Portfolio; Special Equity Portfolio; Global Equity Portfolio; Bantam
Value Portfolio; and Emerging World Funds Portfolio. The Fund's Articles of
Incorporation authorize the Board of Directors to classify or reclassify any
unissued shares of capital stock. The Board of Directors may, in the future,
designate and authorize the issuance of other classes of capital stock in
addition to the classes of capital stock that currently exist, representing
shares of additional portfolios.
On January 1, 1992, the Fund, on behalf of the Equity Portfolio, acquired
the assets and liabilities of Lazard Equity Fund, formerly a portfolio of
Scudder Fund, an open-end, diversified management investment company, and the
Fund, on behalf of the Special Equity Portfolio, acquired the assets and
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<PAGE>
liabilities of Lazard Special Equity Fund, formerly a single portfolio,
open-end, diversified management investment company.
Lazard Freres has agreed to indemnify Scudder Fund and its directors and
Lazard Special Equity Fund and its directors from any and all claims arising out
of the transfer of assets to the maximum extent that Scudder Fund or Lazard
Special Equity Fund, as the case may be, would be so permitted by the Maryland
General Corporation Law, subject to the limitations of the Investment Company
Act. In addition, the Fund has agreed to indemnify Scudder Fund and its
directors and officers and Lazard Special Equity Fund and its directors and
officers from claims arising out of acts or omissions occurring prior to the
transfer to the same extent that such individuals could have been indemnified by
Scudder Fund or Lazard Special Equity Fund, as the case may be. If, however, the
Fund (or the Equity Portfolio or Special Equity Portfolio, as the case may be)
ceases to exist, Lazard Freres has agreed, in lieu of the Fund, to indemnify the
directors and officers of Scudder Fund or the directors and officers of Lazard
Special Equity Fund as set forth in the next preceding sentence.
Following for each Portfolio is the name, address and percentage of
ownership of each person who owns of record or is known by the Fund as of
October 1, 1995 to own of record or beneficially 5% or more of the voting
securities of that Portfolio: Equity Portfolio: Lazard Freres Asset Management,
30 Rockefeller Plaza, New York, NY 10020, 33.01%; International Equity
Portfolio: Lazard Freres Asset Management, 30 Rockefeller Plaza, New York, NY
10020, 67.00%; International Fixed-Income Portfolio: Lazard Freres Asset
Management, 30 Rockefeller Plaza, New York, NY 10020, 12.78%; Graphic
Communications International Union Supplemental Retirement & Disability Fund,
1900 L Street NW, Washington, DC 20036-5002, 19.93%; Bond Portfolio: Lazard
Freres Asset Management, 30 Rockefeller Plaza, New York, NY 10020, 41.70%;
Strategic Yield Portfolio: Lazard Freres Asset Management, 30 Rockefeller Plaza,
New York, NY 10020, 58.57%; Mellon Bank, N.A., Mutual Funds, P.O. Box 320,
Pittsburgh, PA 15230-0320, 28.69%; Small Cap Portfolio: Lazard Freres Asset
Management, 30 Rockefeller Plaza, New York, NY 10020, 75.12%; International
Small Cap Portfolio: Lazard Freres Asset Management, 30 Rockefeller Plaza, New
York, NY 10020, 71.92%; Special Equity Portfolio: Lazard Freres Asset
Management, 30 Rockefelller Plaza, New York, NY 10020, 8.17%; Kenneth S.
Davidson Partners, Davidson Weil Associates, 767 5th Avenue, New York, NY 10153,
6.41%; Booz Allen & Hamilton Inc., Employees Retirement Income Trust, 25 Hanover
Road, Florham Park, NJ 07932-1495, 18.76%; Central National Gottesman, Inc., 3
Manhattenville Road, Purchase, NY 10577-2110, 5.90%; and Emerging Markets
Portfolio: Lazard Freres Asset Management, 30 Rockefeller Plaza, New York, NY
10020, 65.60%. A shareholder who beneficially owns, directly or indirectly, more
than 25% of a Portfolio's voting securities may be deemed a "control person" (as
defined in the Investment Company Act) of the Portfolios.
Certain of the stockholders of the Portfolios are investment management
clients of the Investment Manager that have entered into agreements with the
Investment Manager pursuant to which the Investment Manager has investment
discretion and voting power over any assets held in the clients' accounts,
including any shares of the Portfolios. Accordingly, for purposes of the list
above, the Fund considered the Investment Manager to be a beneficial owner of
any shares of the Portfolios held in management accounts on behalf of its
investment management clients.
Generally, all shares of the Fund have equal voting rights and will be
voted in the aggregate, and not by class, except where voting by class is
required by law or where the matter involved affects only one class. As used in
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the Prospectus and in this Statement of Additional Information, the vote of a
majority of the Fund's outstanding voting securities means the vote of the
lesser of (i) 67% of the Fund's shares represented at a meeting if the holders
of more than 50% of the outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Fund's outstanding shares and the vote of a majority
of a Portfolio's outstanding voting securities means the vote of the lesser of
(i) 67% of the shares of the Portfolio represented at a meeting if the holders
of more than 50% of the outstanding shares of the Portfolio are present in
person or by proxy, or (ii) more than 50% of the outstanding shares of the
Portfolio. Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held.
Each share of a Portfolio of the Fund is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Portfolio
as are declared in the discretion of the Fund's Board of Directors. In the event
of the liquidation or dissolution of the Fund, shares of a Portfolio are
entitled to receive the assets attributable to that Portfolio that are available
for distribution, and a proportionate distribution, based upon the relative net
assets of the Portfolio, of any general assets not attributable to a Portfolio
that are available for distribution.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Fund.
OTHER
The Registration Statement, including the Prospectus, the Statement of
Additional Information and the exhibits filed therewith, may be examined at the
office of the Commission in Washington, D.C. Statements contained in the
Prospectus or the Statement of Additional Information as to the contents of any
contract or other document referred to herein or in the Prospectus are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
CUSTODIAN
As the Fund's custodian, State Street Bank, among other things, maintains a
custody account or accounts in the name of each Portfolio; receives and delivers
all assets for each Portfolio upon purchase and upon sale or maturity; collects
and receives all income and other payments and distributions on account of the
assets of each Portfolio and disburses the Portfolio's assets in payment of its
expenses. The custodian does not determine the investment policies of any
Portfolio or decide which securities any Portfolio will buy or sell.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Legal matters in connection with the issuance of the shares of the Fund
offered hereby will be passed upon by Stroock & Stroock & Lavan, Seven Hanover
Square, New York, New York 10004-2696.
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ABA Seymour Schneidman Financial Services Group, a division of Anchin,
Block & Anchin LLP, has been selected as the independent accountants for the
Fund.
YIELD AND TOTAL RETURN QUOTATIONS
From time to time, the Fund may advertise "yield," "actual distribution
rate" and "total return" quotations for one or more of the 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. Advertisements of a Portfolio's "total
return" disclose a Portfolio's average annual compounded total return for its
most recently completed one-, five- and ten-year periods (or the period since
the Portfolio's inception). A Portfolio's total return for each such period is
computed by finding, through the use of a formula prescribed by the Commission,
the average annual compounded rate of return over the period that would equate
an assumed initial amount invested to the value of such investment at the end of
the period. For purposes of computing total return, income dividends and capital
gains distributions paid on shares of a Portfolio are assumed to have been
reinvested when received.
The yields for the 30-day period ended September 30, 1995 for the
International Fixed-Income Portfolio, Bond Portfolio and Strategic Yield
Portfolio were 5.4%, 6.0% and 7.5%, respectively. The actual distribution rates
for such period for the International Fixed-Income Portfolio, Bond Portfolio and
Strategic Yield Portfolio were .046%, .048% and .046%, respectively. For the
one-year period ending September 30, 1995 the Portfolios had total returns as
follows: Equity Portfolio, 29.5%; International Equity Portfolio, 3.9%;
International Fixed-Income Portfolio, 16.8%; Bond Portfolio, 12.8%; Strategic
Yield Portfolio, 9.0%; Small Cap Portfolio, 18.6%; International Small Cap
Portfolio, -0.4%; Special Equity Portfolio, 13.0%; and Emerging Markets
Portfolio -18.8%. For the period from commencement of operations to September
30, 1995, the International Equity Portfolio, International Fixed-Income
Portfolio, Bond Portfolio, Strategic Yield Portfolio, Small Cap Portfolio and
International Small Cap Portfolio had total returns as follows: International
Equity Portfolio, 40.3%; International Fixed-Income Portfolio, 48.9%; Bond
Portfolio, 28.4%; Strategic Yield Portfolio, 34.0%; Small Cap Portfolio, 112.7%
and International Small Cap Portfolio, 9.6% and Emerging Markets Portfolio,
- -5.4%. For the five-year period ended September 30, 1995 and for the period from
their respective commencement of operations to September 30, 1995, the Equity
Portfolio and Special Equity Portfolio had average annual returns equal to 19.1%
and 15.9%, and 12.8% and 12.0%, respectively.
A Portfolio's yield, actual distribution rate and total return are not
fixed and will fluctuate in response to prevailing market conditions or as a
function of the type and quality of the securities held by such Portfolio, its
average portfolio maturity and its expenses. Yield, actual distribution rate and
total return information is useful in reviewing a Portfolio's performance and
such information may provide a basis for comparison with other investments but
such information may not provide a basis for comparison with certificates of
deposit, which pay a fixed rate of return, or money market funds, which seek a
stable net asset value. Investment return and principal value of an investment
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in a Portfolio will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
No performance data is provided for the Global Equity Portfolio, Bantam
Value Portfolio or Emerging World Funds Portfolio which had not commenced
operations as of the date hereof.
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APPENDIX A
DESCRIPTION OF OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES
FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS--are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
These bonds are not guaranteed by the U.S. Government.
MARITIME ADMINISTRATION BONDS--are bonds issued and provided by the
Department of Transportation of the U.S. Government and are guaranteed by the
U.S. Government.
FHA DEBENTURES--are debentures issued by the Federal Housing Administration
of the U.S. Government and are guaranteed by the U.S. Government.
GNMA CERTIFICATES--are mortgage-backed securities which represent a partial
ownership interest in a pool of mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration.
FHLMC BONDS--are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation.
FNMA BONDS--are bonds issued and guaranteed by the Federal National
Mortgage Association.
FEDERAL HOME LOAN BANK NOTES AND BONDS--are notes and bonds issued by the
Federal Home Loan Bank System and are not guaranteed by the U.S. Government.
STUDENT LOAN MARKETING ASSOCIATION ("SALLIE MAE") NOTES AND
BONDS--are notes and bonds issued by the Student Loan Marketing
Association.
Although this list includes a description of the primary types of U.S.
Government agency or instrumentality obligations in which the Portfolios intend
to invest, each Portfolio may invest in obligations of U.S. Government agencies
or instrumentalities other than those listed above.
- 34 -
<PAGE>
APPENDIX B
FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS AND FOREIGN CURRENCIES
FUTURES CONTRACTS
Each of the International Fixed-Income Portfolio, Bond Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio may enter
into contracts for the purchase or sale for future delivery of fixed-income
securities or contracts based on financial indices including any index of U.S.
Government Securities or corporate debt securities. In addition, the
International Fixed-Income Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Global Equity Portfolio and Emerging World Funds
Portfolio may enter into contracts for the purchase or sale for future delivery
of foreign currencies. U.S. futures contracts have been designed by exchanges
which have been designated "contracts markets" by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures commission merchant,
or brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the contracts as between
the clearing members of the exchange. Each of the International Fixed-Income
Portfolio, Bond Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S. Government,
such as long-term U.S. Treasury Bonds, Treasury Notes, Government National
Mortgage Association modified pass-through mortgage-backed securities and
three-month U.S. Treasury Bills. The International Fixed-Income Portfolio, Bond
Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global
Equity Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio may
also enter into futures contracts which are based on bonds issued by entities
other than the U.S. government.
At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1-1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" would be required if there has been a decline in
the contract's value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some cases, securities called for by a futures contract may not
have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
- 35 -
<PAGE>
on which the contracts are traded, the International Fixed-Income Portfolio and
the Bond Portfolio will incur brokerage fees when they purchase or sell futures
contracts.
The purpose of the acquisition or sale of a futures contract in the case of
a Portfolio, which holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities or
foreign currency. For example, if interest rates were expected to increase, the
Portfolio might enter into futures contracts for the sale of debt securities.
Such a sale would have much the same effect as selling an equivalent value of
the debt securities owned by the Portfolio. If interest rates did increase, the
value of the debt securities in the Portfolio would decline, but the value of
the futures contracts to the Portfolio would increase at approximately the same
rate, thereby keeping the net asset value of the Portfolio from declining as
much as it otherwise would have. The Portfolio could accomplish similar results
by selling debt securities and investing in bonds with short maturities when
interest rates are expected to increase; however, since the futures market is
more liquid than the cash market, the use of futures contracts as an investment
technique allows the Portfolio to maintain a defensive position without having
to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the Portfolio could
take advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market. To the extent a Portfolio enters into futures contracts for
this purpose, the assets in the segregated asset account maintained to cover the
Portfolio's obligations with respect to such futures contracts will consist of
cash, U.S. Government Securities, cash equivalents or high quality liquid debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial and variation margin payments made by the Portfolio with respect to
such futures contracts.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Investment Manager may
still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Fund believes
that use of such contracts will benefit the Portfolio, if the Investment
Manager's investment judgment about the general direction of interest rates is
incorrect, the overall performance of the Portfolio would be poorer than if it
- 36 -
<PAGE>
had not entered into any such contracts. For example, if the Portfolio has
hedged against the possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its portfolio and interest
rates decrease instead, the Portfolio will lose part or all of the benefit of
the increased value of its debt securities which it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell debt
securities from its portfolio to meet daily variation margin requirements. Such
sales of bonds may be, but will not necessarily be, at increased prices which
reflect the rising market. The Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS
Each of the International Fixed-Income Portfolio, Bond Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio may
purchase and write options on futures contracts for hedging purposes. The
purchase of a call option on a futures contract is similar in some respects to
the purchase of a call option on an individual security. Depending on the
pricing of the option compared to either the price of the futures contract upon
which it is based or the price of the underlying debt securities, it may or may
not be less risky than ownership of the futures contract or underlying debt
securities. As with the purchase of futures contracts, when the Portfolio is not
fully invested it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's investment portfolio holdings.
The writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option that a Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions, a
Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of its portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, one of the Portfolios may purchase a put option on a futures contract
to hedge the Portfolio's investment portfolio against the risk of rising
interest rates.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
- 37 -
<PAGE>
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
OPTIONS ON FOREIGN CURRENCIES
Each of the International Fixed-Income Portfolio, Strategic Yield
Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global
Equity Portfolio and Emerging World Funds Portfolio may purchase and write
options on foreign currencies in a manner similar to that in which futures
contracts on foreign currencies, or forward contracts, will be utilized. For
example, a decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order to protect
against such diminutions in the value of portfolio securities, these Portfolios
may purchase put options on the foreign currency. If the value of the currency
does decline, the Portfolio will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the adverse effects
of such movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
The International Fixed-Income Portfolio, Strategic Yield Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio and Emerging World Funds Portfolio may write options on foreign
currencies for the same types of hedging purposes. For example, where one of
these Portfolios anticipates a decline in the dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates it could,
instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, these Portfolios also may be
required to forego all or a portion of the benefits which might otherwise have
been obtained from favorable movements in exchange rates.
The International Fixed-Income Portfolio, Strategic Yield Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio and Emerging World Funds Portfolio may write covered call options on
- 38 -
<PAGE>
foreign currencies. A call option written on a foreign currency is "covered" if
the Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by the Fund's Custodian) upon conversion or exchange of other foreign
currency held in its portfolio. A call option is also "covered" if the Portfolio
has a call on the same foreign currency and in the same principal amount as the
call written where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater than the exercise
price of the call written if the difference is maintained by the Portfolio in
cash, U.S. Government Securities and other high quality liquid debt securities
in a segregated account with the Fund's Custodian.
The International Fixed-Income Portfolio, Strategic Yield Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio and Emerging World Funds Portfolio also may write call options on
foreign currencies that are not covered for cross-hedging purposes. A call
option on a foreign currency is for cross-hedging purposes if it is not covered,
but is designed to provide a hedge against a decline in the U.S. dollar value of
a security which the Portfolio owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse change in
the exchange rate. In such circumstances, the Portfolio collateralizes the
option by maintaining in a segregated account with the Fund's Custodian, cash,
U.S. Government Securities or other high quality liquid debt securities in an
amount not less than the value of the underlying foreign currency in U.S.
dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS
AND OPTIONS ON FOREIGN CURRENCIES
Unlike transactions in futures contracts, options on foreign currencies and
forward contracts are not traded on contract markets regulated by the CFTC or
(with the exception of certain foreign currency options) by the Securities and
Exchange Commission (the "Commission"). To the contrary, such instruments are
traded through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to regulation by the Commission. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the Commission, as are other securities traded on
such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default. Further,
a liquid secondary market in options traded on a national securities exchange
may be more readily available than in the over-the-counter market, potentially
- 39 -
<PAGE>
permitting the Portfolio to liquidate open positions at a profit prior to
exercise or expiration, or to limit losses in the event of adverse market
movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
- 40 -
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard Equity Portfolio
Portfolio of Investments--December 31, 1994
- --------------------------------------------------------------------------------
Number
Description of Shares Value
- --------------------------------------------------------------------------------
Common Stocks--90.7%
Aerospace & Defense--2.9%
Boeing Co. 19,400 $ 906,950
McDonnell Douglas Corp. 12,100 1,718,200
------------
2,625,150
------------
Automotive--4.9%
Fiat S P A (a),(b) 56,700 659,138
Chrysler Corp. 27,000 1,323,000
General Motors Corp. 27,200 1,149,200
Goodyear Tire & Rubber Co. 15,900 534,637
Navistar International Corp. (a) 44,600 674,575
------------
4,340,550
------------
Broadcasting--2.8%
Capital Cities ABC Inc. 20,000 1,705,000
Comcast Corp. Class A (a) 49,450 775,747
------------
2,480,747
------------
Chemicals & Plastics--3.8%
EI du Pont de Nemours & Co. 20,800 1,170,000
Hercules Inc. 19,300 2,226,737
------------
3,396,737
------------
Communications--5.4%
TeleDanmark Class B (a),(b) 53,300 1,359,150
Airtouch Communications (a) 49,800 1,450,425
U.S. West Inc. 57,400 2,044,875
------------
4,854,450
------------
Communication Services--5.3%
AT&T Corp. 36,400 1,829,100
Bay Networks Inc. (a) 67,900 2,003,050
TeleCommunications Inc. (New) Class A (a) 38,900 846,075
------------
4,678,225
------------
Conglomerates--1.5%
ITT Corp. 15,200 1,347,100
------------
Cosmetics & Toiletries--2.9%
Colgate Palmolive Co. 12,200 773,175
McKesson Corp. (New) 55,000 1,794,375
------------
2,567,550
------------
Drugs & Health Care--4.0%
Bausch & Lomb Inc. 42,100 1,426,137
Columbia/HCA Healthcare Corp. 35,725 1,303,963
Schering Plough Corp. 11,300 836,200
------------
3,566,300
------------
Electrical Equipment--1.5%
Philips Electronics NV (b) 45,300 1,330,688
------------
Energy--6.5%
Amoco Corp. 20,500 1,212,062
Halliburton Co. 29,000 960,625
Kerr Mcgee Corp. 19,200 883,200
Noble Affiliates Inc. 21,500 532,125
Royal Dutch Petroleum Co. (b) 11,000 1,182,500
Unocal Corp. 38,800 1,057,300
------------
5,827,812
------------
Financial Services--9.0%
Nacional Financiero SNC Prides 1998 Conv 27,500 1,113,750
Chemical Banking Corp. 22,600 810,775
Dean Witter Discover & Co. 38,342 1,298,835
First Interstate Bancorp 12,900 872,363
Firstar Corp. (New) 24,400 655,750
Fleet Financial Group Inc. 22,000 715,000
Shawmut National Corp. 49,200 805,650
Travelers Inc. 52,600 1,709,500
------------
7,981,623
------------
Food & Beverage--3.5%
CPC International Inc. 21,700 1,155,525
Dr Pepper/Seven Up Cos. Inc. (a) 30,000 768,750
PepsiCo Inc. 33,900 1,228,875
------------
3,153,150
------------
Gas Exploration--1.2%
Apache Corp. 41,500 1,037,500
------------
Industrial & Machinery--3.1%
Allied Signal Inc. 52,000 1,768,000
Sundstrand Corp. 22,400 1,019,200
------------
2,787,200
------------
Insurance--1.4%
Unitrin Inc. 28,700 1,234,100
------------
Metals--2.1%
Inco Ltd. 27,000 772,875
USX U.S. Steel Group 30,600 1,086,300
------------
1,859,175
------------
Office Equipment--1.5%
Xerox Corp. 13,300 1,316,700
------------
Paper Products--5.6%
Georgia Pacific Corp. 21,700 1,551,550
Scott Paper Co. 32,000 2,212,000
Willamette Industries Inc. 26,000 1,235,000
------------
4,998,550
------------
Restaurants, Lodging & Entertainment--2.5%
Brinker International Inc. (a) 36,700 665,187
Host Marriott Corp. 81,600 785,400
Mirage Resorts Inc. (a) 36,500 748,250
------------
2,198,837
------------
Retailing--5.8%
Circuit City Stores Inc. 30,400 676,400
Gap Inc. 54,300 1,656,150
J C Penney Inc. 26,000 1,160,250
Sears Roebuck & Co. 36,200 1,665,200
------------
5,158,000
------------
Technology--5.9%
Intel Corp. 29,300 1,871,537
Novell Inc. (a) 96,500 1,652,563
Sun Microsystems Inc. (a) 49,700 1,764,350
------------
5,288,450
------------
Textiles, Shoes and Apparel--2.0%
Reebok International Ltd. 44,600 1,761,700
------------
Tobacco--3.5%
Philip Morris Cos Inc. 54,200 3,116,500
------------
F-1
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard Equity Portfolio
Portfolio of Investments--December 31, 1994 (continued)
- --------------------------------------------------------------------------------
Number
Description of Shares Value
- --------------------------------------------------------------------------------
Utilities--2.1%
Southern Electric Plc (b) 46,700 $ 1,179,176
Houston Industries Inc. 19,600 698,250
------------
1,877,426
------------
Total Common Stocks
(Identified cost $76,527,086) 80,784,220
------------
Preferred Stocks--0.9%
Communications--0.3%
Cellular Communications Inc.
Pfd CV (a) 5,500 294,250
------------
Tobacco--0.6%
RJR Nabisco Holdings CV Prf
Class C 93,100 558,600
------------
Total Preferred Stocks
(Identified cost $792,414) 852,850
------------
Principal
Amount
-----------
Short Term Investments--5.3%
Federal Agencies--4.9%
Federal National Mortgage Association
Discount Note, 5.76%, 1/3/95 $4,335,000 4,333,612
------------
U.S. Government Obligations--0.4%
United States Treasury Bills,
4.60%, 2/9/95 310,000 308,455
United States Treasury Bills,
5.20%, 2/2/95 75,000 74,654
------------
383,109
------------
Total Short Term Investments
(Identified cost $4,716,721) 4,716,721
------------
Total Investments
(Identified cost $82,036,221) (c) 96.9% 86,353,791
Cash and Other Assets in Excess of Liabilities 3.1 2,751,427
----- ------------
Net Assets 100.0% $ 89,105,218
===== ============
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $82,036,221 aggregate
gross unrealized appreciation is $7,206,360 and the aggregate gross
unrealized depreciation is $2,888,790, resulting in net unrealized
appreciation of $4,317,570.
The accompanying notes are an integral part of these
financial statements.
F-2
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard International Equity Portfolio
Portfolio of Investments--December 31, 1994
- --------------------------------------------------------------------------------
Number
Description of Shares Value
- --------------------------------------------------------------------------------
Common Stocks--89.9%
Argentina--0.9%
YPF Sociedad Anonima Class D (a), (b) 355,100 $ 7,590,262
------------
Australia--3.7%
MIM Holdings Ltd. 4,439,999 7,402,294
Pioneer International Ltd. 9,152,300 22,710,422
Westpac Bank Corporation 268,000 901,923
------------
Total Australia 31,014,639
------------
Canada--6.9%
Dofasco Inc. 633,400 8,522,544
Falconbridge Limited (a) 322,500 5,632,485
Inco Ltd. 435,800 12,474,775
Sceptre Resources Ltd. (a) 908,800 5,911,605
Videotron Group Ltd. 2,435,700 23,006,149
Wascana Energy Inc. (a) 219,200 1,562,589
------------
Total Canada 57,110,147
------------
Denmark--2.0%
Unidanmark Class A 430,700 16,565,385
------------
Finland--2.0%
Kymmene Corp. 605,700 16,491,199
------------
France--3.8%
Accor 68,000 7,384,385
Banque Nationale de Paris 148,722 6,836,033
Generale des Eaux 92 8,940
Michelin Class B (a) 300,000 10,913,687
Roussel Uclaf (b) 1,000 119,640
Roussel Uclaf 144A (b) 105,600 6,321,997
------------
Total France 31,584,682
------------
Germany--6.8%
Deutsche Bank AG 690 320,578
Hoechst AG 67,400 14,656,901
Mannesmann AG (b) 90,805 24,725,732
Veba AG 48,028 16,735,575
------------
Total Germany 56,438,786
------------
Hong Kong--2.3%
Cheung Kong Holdings 2,059,000 8,355,748
Peregrine Investment 3,718,000 4,372,705
Swire Pacific 986,500 6,145,686
------------
Total Hong Kong 18,874,139
------------
Indonesia--0.5%
Hanjaya Mandala Sampoerna 863,250 4,241,629
------------
Italy--3.2%
Fiat SPA (a) 5,151,500 11,852,025
Telecom Italia SPA 7,424,600 14,814,853
------------
Total Italy 26,666,878
------------
Japan--11.4%
Dai Nippon Printing 352,000 6,008,032
DDI Corp. 1,821 15,723,494
Hitachi 1,484,000 14,735,703
Mazda Motor Corp. (a) 2,593,000 14,527,048
Mitsubishi Heavy Ind. 898,000 6,852,209
NEC Corp. 1,449,000 16,584,940
Promise Company 106,700 5,452,841
Sony Corp. 254,000 14,408,635
------------
Total Japan 94,292,902
------------
Malaysia--0.1%
Technology Resources Industries 250,000 797,924
------------
Mexico--2.1%
GPO Financiero Banamex 2,530,800 7,477,942
Grupo Industrial Alfa SA 508,500 4,906,130
Nacional Financiero SNC Prides 1998 Conv 128,470 5,203,035
------------
Total Mexico 17,587,107
------------
Netherlands--12.1%
Akzo NV 129,000 14,892,332
Heineken NV 117,800 17,766,023
Hoogovens & Staalf (a) 559,000 25,375,425
Nedlloyd Group NV (a) 544,800 17,857,665
Philips Electronics NV 520,500 15,412,005
Philips N V (b) 53,900 1,583,313
Royal Dutch Petroleum Co. (b) 71,000 7,632,500
------------
Total Netherlands 100,519,263
------------
New Zealand--2.9%
Fletcher Challenge 4,637,900 10,896,289
Lion Nathan Ltd. 6,993,200 13,340,846
------------
Total New Zealand 24,237,135
------------
Norway--2.9%
Aker AS Class A 401,700 4,781,789
Aker AS Class B 376,000 4,448,059
Bergesen DY A.S. Class A 107,000 2,610,721
Bergesen DY A.S. Class B 511,100 12,394,884
------------
Total Norway 24,235,453
------------
South Korea--3.0%
Samsung Electronics Ltd. 144A (a),(b) 56,200 2,753,800
Samsung Electronics Ltd. (a), (b) 14,094 845,640
Samsung Electronics Ltd.
144A Non-Voting (a), (b) 440,800 21,599,200
------------
Total South Korea 25,198,640
------------
Spain--1.4%
Banco Bilbao Vizcaya 298,800 7,411,829
Repsol S A 144,900 3,948,525
------------
Total Spain 11,360,354
------------
Sweden--4.6%
Asea AB 120,700 8,739,079
Astra AB 698,500 17,813,602
Volvo AB 633,900 11,943,315
------------
Total Sweden 38,495,996
------------
Switzerland--4.8%
Baloise Holdings Wts. 3,745 32,901
Baloise Holdings 3,610 6,563,636
Nestle SA 18,400 17,528,495
SGS Holding 11,621 16,068,763
------------
Total Switzerland 40,193,795
------------
Thailand--2.4%
Bangkok Bank 1,881,300 20,083,187
------------
F-3
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard International Equity Portfolio
Portfolio of Investments--December 31, 1994 (continued)
- --------------------------------------------------------------------------------
Number
Description of Shares Value
- --------------------------------------------------------------------------------
United Kingdom--10.1%
Barclays Bank Plc 1,375,300 $ 13,148,307
British Aerospace 2,229,222 14,928,916
Ladbroke Group 2,118,000 5,633,860
Midlands Electric 1,615,000 20,594,977
Mirror Group Plc 3,596,600 7,315,882
Rank Organisation 1,160,600 7,590,843
Royal Bank of Scotland 2,425,300 14,951,779
Warburg Group 2,500 27,069
Willis Corroon Group 34,400 74,818
------------
Total United Kingdom 84,266,451
------------
Total Common Stocks
(Identified cost $722,985,904) 747,845,953
------------
Principal
Amount
---------
Convertible Bonds--0.9%
Malaysia--0.9%
Technology Resources Industries
Berhad Conv, 2.75%, 11/28/04 $ 7,500,000 7,162,500
------------
Total Convertible Bonds
(Identified cost $7,500,000) 7,162,500
------------
Short Term Investments--7.4%
Commercial Paper--0.1%
Ford Motor Credit Corp., 5.875%, 1/3/95 910,000 909,703
------------
Federal Agencies--4.4%
Federal Home Loan Bank Consolidated
Discount Note, 5.77%, 1/6/95 15,470,000 15,457,602
Federal Home Loan Mortgage Discount
Notes, 5.90%, 1/3/95 2,875,000 2,874,058
Federal National Mortgage Association
Discount Note, 5.77%, 1/3/95 18,110,000 18,104,195
------------
36,435,855
------------
U.S. Government Obligations--2.9%
United States Treasury Bills, 4.96%,
2/2/95 24,644,000 24,520,136
------------
Total Short Term Investments
(Identified cost $61,865,694) 61,865,694
------------
Total Investments
(Identified cost $792,351,598) (c) 98.2% 816,874,147
Cash and Other Assets in Excess of Liabilities 1.8 15,002,835
----- ------------
Net Assets 100.0% $831,876,982
===== ============
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $792,351,598
aggregate gross unrealized appreciation is $62,709,950 and the aggregate
gross unrealized depreciation is $38,187,401, resulting in net unrealized
appreciation of $24,522,549.
* Percentage of common stocks are presented in the Portfolio by country.
Percentages by industry are as follows: Aerospace & Defense 1.8%,
Automotive 5.9%, Banks 10.4%, Building & Housing 2.7%, Chemicals & Plastics
3.6%, Communications 0.1%, Computers & Business Equipment 2.0%, Consumer
Goods 2.4%, Domestic Oil 1.1%, Drugs & Health Care 2.9%, Electrical
Equipment 3.5%, Electronics 5.8%, Energy 1.8%, Entertainment 1.6%,
Financial Services 0.8%, Food & Beverage 6.4%, Government 0.5%, Industrial
& Machinery 1.0%, Insurance 0.8%, International Oil 0.9%, Machinery 3.8%,
Manufacturing 0.2%, Metals 1.6%, Mining 1.5%, Paper Products 3.3%,
Publishing 0.9%, Real Estate 1.0%, Services 3.5%, Steel 4.7%, Telephone
4.3%, Transportation 0.7%, Transportation & Freight Services 3.9%,
Utilities 4.5%.
Forward Foreign Currency Contracts open at December 31, 1994:
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
--------- ----------- -------- ------------
DEM 66,005,016 $42,020,000 3/6/95 ($ 656,117)
PTS 1,112,520 $ 8,404,000 3/6/95 (12,971)
FRF 135,972,098 $25,212,000 3/6/95 (256,472)
DFI 73,967,806 $42,020,000 3/6/95 (670,811)
SKR 63,265,312 $ 8,404,000 3/6/95 (84,114)
Net depreciation on foreign currency
contracts to settle open trades (2,232)
-----------
($1,682,717)
===========
The accompanying notes are an integral part of these
financial statements.
F-4
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard International Fixed-Income Portfolio
Portfolio of Investments--December 31, 1994
- --------------------------------------------------------------------------------
Principal
Description Amount Value
- --------------------------------------------------------------------------------
Currency Denominated Bonds*--95.5%
Australian Dollar--3.8%
Government Obligation
Commonwealth of Australia,
7.00%, 8/15/98 AUD 200,000 $ 140,886
Commonwealth of Australia,
7.50%, 7/15/05 250,000 162,424
Commonwealth of Australia,
12.50%, 9/15/97 1,300,000 1,063,528
------------
Total Australian Dollar 1,366,838
------------
Belgian Franc--1.4%
Government Obligation
Kingdom of Belgium,
9.00%, 7/30/98 BEL 15,000,000 489,799
------------
British Pound--6.6%
Government Obligation
United Kingdom Treasury,
7.25%, 3/30/98 GBP 350,000 527,451
United Kingdom Treasury,
8.00%, 6/10/03 300,000 447,406
United Kingdom Treasury,
8.50%, 7/16/07 200,000 308,442
United Kingdom Treasury,
12.50%, 11/21/05 150,000 283,333
United KingdomTreasury,
8.50%, 12/7/05 250,000 384,941
Corporate Bonds
Tokyo Electric Power,
11.00%, 6/5/01 250,000 422,469
------------
Total British Pound 2,374,042
------------
Canadian Dollar--3.2%
Government Obligation
Government of Canada,
6.25%, 2/1/98 CAD 300,000 198,668
Government of Canada,
7.75%, 9/1/99 275,000 186,842
Government of Canada Real Return,
4.25%, 12/1/21 700,000 461,961
Corporate Bonds
Quebec Housing,
8.95%, 5/13/13 423,000 279,829
------------
Total Canadian Dollar 1,127,300
------------
Czech Koruna--0.5%
Ceskoslovenska Obchodni Bank,
11.125%, 8/26/97 CZK 5,000,000 176,271
------------
Danish Krone--6.4%
Government Obligation
Kingdom of Denmark,
8.00%, 5/15/03 DKR 1,000,000 154,421
Kingdom of Denmark,
9.00%, 11/15/95 3,000,000 501,233
Corporate Bonds
Kreditforeningen,
10.20%, 4/15/04 (a) 5,000,000 805,392
Nykredit,
9.00%, 10/1/26 5,493,000 827,471
------------
Total Danish Krone 2,288,517
------------
Dutch Guilder--5.8%
Government Obligation
Government of Netherlands,
6.25%, 1/15/95 DFL 200,000 115,179
Government of Netherlands,
6.75%, 2/15/99 3,150,000 1,776,514
Government of Netherlands,
8.75%, 1/15/07 300,000 184,659
------------
Total Dutch Guilder 2,076,352
------------
Finnish Markka--2.5%
Government Obligation
Republic of Finland,
11.00%, 1/15/99 FIM 4,000,000 886,855
------------
French Franc--5.0%
Government Obligation
Government of France,
8.50%, 3/28/00 FRF 5,000,000 956,469
Government of France,
8.50%, 10/25/19 4,600,000 848,343
------------
Total French Franc 1,804,812
------------
German Mark--11.3%
Government Obligation
Federal Republic of Germany,
6.00%, 2/20/98 DEM 500,000 313,125
Federal Republic of Germany,
6.00%, 6/20/16 800,000 411,692
Federal Republic of Germany,
8.00%, 1/21/02 1,100,000 721,314
Federal Republic of Germany,
8.25%, 9/20/01 3,900,000 2,589,598
------------
Total German Mark 4,035,729
------------
Irish Pound--3.1%
Government Obligation
Republic of Ireland,
6.25%, 4/1/99 IEP 800,000 1,122,373
------------
Italian Lira--9.8%
Government Obligation
Republic of Italy,
8.50%, 8/1/99 ITL 5,200,000,000 2,816,420
Republic of Italy,
12.00%, 1/1/97 200,000,000 124,521
Republic of Italy,
12.00%, 5/1/97 500,000,000 310,871
Republic of Italy,
12.00%, 1/1/02 400,000,000 246,106
------------
Total Italian Lira 3,497,918
------------
Japanese Yen--31.0%
Government Obligation
Credit Local De France,
6.00%, 10/31/01 JPY 80,000,000 869,478
Government of Japan,
3.60%, 12/22/03 35,000,000 327,088
Japan Development Bank,
6.50%, 9/20/01 60,000,000 671,310
Republic of Austria,
4.50%, 9/28/05 80,000,000 786,145
F-5
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard International Fixed-Income Portfolio
Portfolio of Investments--December 31, 1994 (continued)
- --------------------------------------------------------------------------------
Principal
Description Amount Value
- --------------------------------------------------------------------------------
Japanese Yen (continued)
Republic of Austria,
6.25%, 10/16/03 JPY 30,000,000 $ 335,467
Republic of Finland,
5.25%, 4/16/98 170,000,000 1,779,367
Republic of Italy,
3.50%, 6/20/01 100,000,000 938,128
SNCF,
6.75%, 3/1/00 50,000,000 559,111
Corporate Bonds
Baden Wurttemberg Finance NV,
3.75%, 6/21/99 70,000,000 688,755
European Investment Bank,
6.625%, 3/15/00 60,000,000 669,428
Export Import Bank,
4.375%, 10/1/03 240,000,000 2,355,422
Intermediate American Development
Bank, 4.50%, 12/15/97 25,000,000 256,651
International Bank for
Reconstruction and Development,
6.75%, 3/15/00 30,000,000 336,220
KFW International Finance,
6.00%, 11/29/99 50,000,000 542,796
------------
Total Japanese Yen 11,115,366
------------
Spanish Peseta--3.0%
Government Obligation
Government of Spain,
8.30%, 12/15/98 PTS 160,000,000 1,089,459
------------
United States Dollar--2.1%
Corporate Bonds
Banca Cremi,
8.375%, 6/29/95 USD $800,000 760,000
------------
Total Currency Denominated Bonds*
(Identified cost $34,348,316) 34,211,631
------------
Short Term Investments--1.3%
Federal Agencies--1.3%
Federal National Mortgage
Association, 5.77%, 1/3/95 450,000 449,856
------------
Total Short Term Investments
(Identified cost $449,856) 449,856
------------
Total Investments
(Identified cost $34,798,172) (b) 96.8% 34,661,487
Cash and Other Assets in Excess of Liabilities 3.2 1,141,267
----- ------------
Net Assets 100.0% $35,802,754
===== ============
(a) Variable rate security. Interest shown is the current rate.
(b) The aggregate cost for federal income tax purposes is $34,798,172 aggregate
gross unrealized appreciation is $467,099 and the aggregate gross
unrealized depreciation is $603,784, resulting in net unrealized
depreciation of $136,685.
* Percentages of holdings are presented in the portfolio by currency
denomination. Percentages by country are as follows: Austria 3.1%,
Australia 3.8%, Belgium 1.4%, Canada 3.2%, Czech Republic 0.5%, Denmark
6.4%, Finland 7.4%, France 7.5%, Germany 11.3%, Ireland 3.1%, Italy 12.4%,
Japan 12.1%, Mexico 2.1%, Netherlands 7.7%, Spain 3.0%, United Kingdom
5.5%, United States 1.5%, Other 3.5%.
Forward Foreign Currency Contracts open at December 31, 1994:
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ------------- ------------- -------- --------------
AUD 544,102 $ 417,000 3/7/95 ($5,720)
$ 500,322 CAD 700,000 3/7/95 (1,596)
$ 94,629 DKR 584,345 3/7/95 1,440
DKR 584,345 $ 95,000 3/7/95 (1,069)
$ 205,881 DEM 320,815 3/7/95 1,554
$ 405,962 FRF 2,210,551 3/7/95 8,092
FRF 2,210,551 $ 410,000 3/7/95 (4,054)
$ 174,000 DFL 306,031 3/7/95 2,634
DFL 306,031 $ 173,536 3/7/95 (3,098)
-------
($1,817)
=======
The accompanying notes are an integral part of these
financial statements.
F-6
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard Bond Portfolio
Portfolio of Investments--December 31, 1994
- --------------------------------------------------------------------------------
Principal
Description Amount Value
- --------------------------------------------------------------------------------
Asset-Backed Securities--9.8%
American Financial Home Equity
Loan, 8.00%, 7/25/06 $ 99,451 $ 96,405
Bridgestone Firestone, 6.25%, 12/1/99 200,000 197,938
D.R. Structure Finance Corp.,
9.35%, 8/15/19 600,000 572,700
Fical Home Equity Loan Trust,
8.90%, 11/15/97 5,761 5,765
G E Capital Mortgage Services Inc.,
7.20%, 8/30/11 68,621 66,326
Green Tree Financial Corporation,
7.25%, 10/15/19 300,000 291,750
Green Tree Financial Corporation,
6.60%, 6/15/19 443,874 431,667
Olympic Automobile Receivable,
6.85%, 6/15/01 700,000 682,500
Security Pacific Home Equity Loan,
7.85%, 5/15/98 56,362 56,344
------------
Total Asset-Backed Securities
(Identified cost $2,464,742) 2,401,395
------------
Collaterized Mortgage Obligations--10.4%
Capstead Mortgage Securities Corp. III,
6.40%, 2/24/25 100,000 96,125
Country Wide MBS Inc., 6.50%, 2/25/24 500,000 484,375
DLJ Mortgage Acceptance Corporation,
6.50%, 6/25/10 425,000 402,422
Federal Home Loan Mortgage
PC Guaranteed, 7.00%, 3/15/18 225,000 206,227
Federal National Mortgage Association,
6.75%, 9/25/18 150,000 139,264
Federal National Mortgage Association,
7.00%, 7/25/19 175,000 157,281
Federal National Mortgage Association,
6.00%, 5/25/12 325,000 304,586
Prudential Home Mortgage Secs Company,
7.50%, 8/25/24 500,000 481,875
Resolution Trust Corp., 8.80%, 8/25/23 120,391 119,939
Resolution Trust Corp., 7.75%, 7/25/30 152,218 146,747
------------
Total Collaterized Mortgage Obligations
(Identified cost $2,670,668) 2,538,841
------------
Corporate Bonds--8.3%
Credit & Finance--4.4%
Ford Motor Credit Company, 8.00%,
12/1/97 400,000 397,544
General Mtrs Acceptance Corp.,
5.625%, 2/1/99 750,000 672,893
------------
1,070,437
------------
Entertainment--0.8%
Time Warner Entertainment Co. L.P.,
8.375%, 7/15/33 250,000 203,885
------------
Industrial & Machinery--1.0%
Sequa Corp., 9.625%, 10/15/99 250,000 237,500
------------
Steel--1.8%
USX Marathon Group, 8.50%, 3/1/23 500,000 443,715
------------
Utilities--0.3%
Texas New Mexico Power Company,
9.25%, 9/15/00 80,000 75,549
------------
Total Corporate Bonds
(Identified cost $2,192,767) 2,031,086
------------
Mortgage Pass-Through Securities--9.9%
Federal National Mortgage Association,
6.00%, 8/1/01 974,926 894,495
Government National Mortgage Association,
7.50%, 3/15/07 345,423 330,311
Housing Security Incorporated,
6.50%, 8/25/09 972,890 880,161
Residential Funding Mortgage Secs I In,
6.50%, 6/25/09 364,871 329,866
------------
Total Mortgage Pass-Through Securities
(Identified cost $2,530,000) 2,434,833
------------
U.S. Government Agency Obligations--2.1%
Federal Home Loan Mortgage Corporation,
4.875%, 6/23/98 550,000 510,641
------------
Total U.S. Government Agency Obligations
(Identified cost $513,344) 510,641
------------
U.S. Government Obligations--50.4%
United States Treasury Bonds,
8.875%, 2/15/19 5,190,000 5,666,805
United States Treasury Notes,
4.625%, 2/15/96 1,220,000 1,183,205
United States Treasury Notes,
5.625%, 8/31/97 2,385,000 2,262,029
United States Treasury Notes,
5.125%, 12/31/98 3,550,000 3,223,826
------------
Total U.S. Government Securities
(Identified cost $12,691,853) 12,335,865
------------
Yankee Bonds--4.7%
Banco Central de Costa Rica,
6.75%, 5/21/05 (a),(b) 389,200 323,036
Norsk Hydro AS, 7.75%, 6/15/23 (a) 500,000 438,090
Republic of Italy, 6.875%, 9/27/23 (a) 500,000 393,860
------------
Total Yankee Bonds
(Identified cost $1,263,046) 1,154,986
------------
Short Term Investments--2.5%
Federal Agencies--1.5%
Federal Home Loan Bank Consolidated
Discount Note, 5.77%, 1/6/95 125,000 124,900
Federal National Mortgage Association
Discount Note, 5.77%, 1/3/95 240,000 239,923
------------
364,823
------------
U.S. Government Obligations--1.0%
United States Treasury Bills, 4.60%,
2/9/95 259,000 257,709
------------
Total Short Term Investments
(Identified cost $622,532) 622,532
------------
Total Investments
(Identified cost $24,948,952) (c) 98.1% 24,030,179
Cash and Other Assets in Excess of Liabilities 1.9 463,355
----- ------------
Net Assets 100.0% $24,493,534
===== ============
(a) United States dollar denominated security.
(b) Variable rate security. Interest shown is the current rate.
(c) The aggregate cost for federal income tax purposes is $24,948,952 aggregate
gross unrealized appreciation is $5,838 and the aggregate gross unrealized
depreciation is $924,611, resulting in net unrealized depreciation of
$918,773.
The accompanying notes are an integral part of these
financial statements.
F-7
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard Strategic Yield Portfolio
Portfolio of Investments--December 31, 1994
- --------------------------------------------------------------------------------
Principal
Description Amount Value
- --------------------------------------------------------------------------------
Currency Denominated Bonds*--87.8%
Australian Dollar--3.3%
Government Obligation
Commonwealth of Australia,
7.00%, 8/15/98 AUD 2,900,000 $ 2,042,840
------------
British Pound--1.0%
Government Obligation
United Kingdom Treasury,
1.00%,7/17/24 GBP 350,000 603,779
------------
Canadian Dollar--5.3%
Government Obligation
Quebec Housing,
8.95%, 5/13/13 CAD 397,000 262,629
Canada Trust (Conv.),
7.00%, 7/1/09 2,000,000 1,276,019
Government of Canada Real Return,
4.25%, 12/1/21 2,650,000 1,748,853
------------
Total Canadian Dollar 3,287,501
------------
Czech Koruna--4.8%
Corporate Bonds
Ceskoslovenska Obchodni Bank,
11.125%, 8/26/97 CZK 20,000,000 705,082
Ceskoslovenska Obchodni Bank,
14.00%, 1/27/95 25,000,000 894,775
Czech Electric Co.,
14.375%, 1/27/01 35,370,000 1,386,190
------------
Total Czech Koruna 2,986,047
------------
Danish Krone--4.1%
Corporate Bonds
Kreditforeningen,
10.20%, 4/15/04 DKK 9,000,000 1,449,704
Nykredit,
9.00%, 10/1/26 7,475,000 1,126,042
------------
Total Danish Krone 2,575,746
------------
Switzerland Franc--0.5%
Corporate Bonds
CPC International Inc.,
5.75%, 3/27/45 CHF 500,000 332,315
------------
Finnish Markka--2.5%
Government Obligation
Republic of Finland,
11.00%, 1/15/99 FIM 7,000,000 1,551,997
------------
Irish Pound--2.8%
Government Obligation
Republic of Ireland,
6.25%, 4/1/99 IEP 1,225,000 1,718,634
------------
Italian Lira--0.9%
Government Obligation
Republic of Italy,
8.50%, 8/1/99 ITL 1,100,000,000 595,781
------------
Spanish Peseta--2.8%
Government Obligation
Government of Spain,
8.30%, 12/15/98 ESP 260,000,000 1,770,370
------------
Norgwiegan Krone--2.2%
Corporate Bonds
Den Norske Bank,
12.15%, 1/14/01 NOK 9,000,000 $ 1,386,765
------------
United States Dollar--57.6%
Corporate Bonds--22.2%
American Medical Holdings,
6.50%, 5/30/97 USD 1,490,000 1,449,025
Canadaigua Wine Inc.,
8.75%, 12/15/03 950,000 864,500
Eletson Holdings Inc.,
9.25%, 11/15/03 700,000 623,875
First PV Funding Corp.,
10.15%, 1/15/16 1,285,000 1,207,900
Fort Howard Corp.,
8.25%, 2/1/02 785,000 702,575
Heileman Acquisition Corp.,
9.625%, 1/31/04 900,000 716,993
Long Island Lighting Co.,
6.25%, 7/15/01 875,000 778,348
Northwest Airlines Trust Class A,
11.30%, 6/21/14 700,000 696,281
Outboard Marine Corp.,
9.125%, 4/15/17 700,000 607,657
Plastic Specialty & Technology Inc.,
11.25%, 12/1/03 495,000 433,125
Purity Supreme Inc. Series B,
11.75%, 8/1/99 525,000 435,750
Rowan Cos Inc.,
11.875%, 12/1/01 820,000 844,600
Sequa Corp.,
9.625%, 10/15/99 1,055,000 1,002,250
US Trails Inc.,
12.00%, 7/15/98 1,705,000 1,150,875
USAir 1989 A Pass Through Trust,
9.82%, 1/1/13 465,000 362,700
Viacom Inc.,
8.00%, 7/7/06 900,000 771,750
Zapata Corp.,
10.25%, 3/15/97 1,206,000 1,209,015
------------
Total Corporate Bond 13,857,219
------------
U.S. Government Obligations--4.9%
United States Treasury Notes,
5.125%, 12/31/98 1,820,000 1,652,778
United States Treasury Notes,
5.625%, 8/31/97 1,465,000 1,389,465
------------
Total U.S. Government Obligations 3,042,243
------------
Foreign Government Obligations--12.4%
Argentina Bote II,
5.00%, 9/1/97 (b) 2,120,000 1,248,680
Argentina Bote X,
3.3125%, 4/1/00 (b) 1,100,000 814,000
Argentina Pensioner Bocon,
0.00%, 4/1/01 1,100,000 814,000
Banco Central de Costa Rica,
6.75%, 5/21/05 (a) 311,360 258,429
Central Bank of the Philippines,
7.8125%, 1/5/05 (a) 700,000 636,125
Government of Hungary,
28.25%, 10/6/95 (c) 600,000 550,500
Republic of Argentina,
4.9375%, 5/31/96 (b) 400,000 131,200
F-8
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard Strategic Yield Portfolio
Portfolio of Investments--December 31, 1994
- --------------------------------------------------------------------------------
Principal
Description Amount Value
- --------------------------------------------------------------------------------
Republic of Poland,
6.8125%, 10/27/24 (a) $ 2,000,000 $ 1,432,500
Republic of the Phillipines,
5.75%, 12/1/17 (a) 2,250,000 1,383,750
United Mexican States,
6.25%, 12/31/19 800,000 429,500
------------
Total Foreign Government Obligations 7,698,684
------------
Yankee Bonds--13.0%
Astra International,
9.75%, 4/29/01 1,600,000 1,464,000
Banca Cremi,
8.375%, 6/29/95 1,850,000 1,757,500
Banesto Del Inc.,
8.25%, 7/28/02 500,000 474,750
Compania Sub Americana,
7.375%, 12/8/03 750,000 614,063
Essar Gujarat Ltd.,
8.025%, 7/15/99 (a) 1,950,000 1,940,250
Export-Import Bank of Japan,
8.00%, 6/4/00 548,625 547,253
Kansallis Ojake Park,
6.74%, 9/22/43 (a) 400,000 403,500
Sparbankernas Bank,
7.5625%, 10/20/49 (a) 900,000 906,300
------------
Total Yankee Bonds 8,107,616
------------
Collateralized Mortgage Obligations--5.1%
Federal Home Loan Mortgage,
18.00%, 8/25/22 (a) 1,938,700 414,397
Federal Home Loan Mortgage,
1008.00%, 12/15/19 41,865 722
Federal National Mortgage Association,
6.082%, 6/1/23 (a) 1,607,966 1,585,354
Federal National Mortgage Association,
7.8125%, 1/1/24 (a) 529,039 511,184
Prudential Home Mortgage Securities Co.,
6.00%, 10/25/00 750,000 683,906
------------
Total Collateralized Mortgage Obligations 3,195,563
------------
Total United States Dollar 35,901,325
------------
Total Currency Denominated Bonds*
(Identified cost $56,739,326) 54,753,100
------------
Options Purchased--0.2%
Index Options
Russell 2000 Index Put March 1995 @
215.06, 13.00%, 3/18/95 1,800,000 135,729
------------
Total Options Purchased
(Identified cost $234,000) 135,729
------------
Short Term Investments--7.5%
Foreign Government Obligation--0.3%
Mexican Cetes,
0.00%, 11/9/95 MXP 1,022,800 173,847
------------
Federal Agencies--6.5%
Federal Home Loan Bank Consolidated
Discount Note,
5.77%, 1/6/95 2,295,000 2,293,161
Federal National Mortgage Association
Discount Note,
5.77%, 1/3/95 1,750,000 1,749,439
------------
Total Federal Agencies 4,042,600
------------
U.S. Government Obligations--0.7%
United States Treasury Bills,
4.80%, 2/9/95 435,000 432,720
------------
Total Short Term Investments
(Identified cost $4,750,167) 4,649,167
------------
Total Investments
(Identified cost $61,723,493) (d) 95.5% 59,537,996
Cash and Other Assets in Excess of Liabilities 4.5 2,790,335
----- ------------
Net Assets 100.0% $ 62,328,331
===== ============
(a) Variable rate security. Interest shown is the current rate.
(b) Variable rate security. Interest adjusted to reflect quarterly LIBOR.
(c) Interest is linked to the Hungarian Forint Index.
(d) The aggregate cost for federal income tax purposes is $61,723,493 aggregate
gross unrealized appreciation is $346,442 and the aggregate gross
unrealized depreciation is $2,531,939, resulting in net unrealized
depreciation of $2,185,497.
* Percentages of holdings are presented in the portfolio by currency
denomination. Percentages by country are as follows: Argentina 4.8%,
Australia 3.3%, Canada 5.3%, Costa Rica 0.4%, Czech Republic 4.8%, Denmark
4.1%, Finland 2.5%, Hungary 0.9%, India 3.1%, Indonesia 2.3%, Ireland 2.8%,
Italy 1.0%, Japan 0.9%, Mexico 3.5%, Norway 2.2%, Phillippines 3.2%, Poland
2.9%, Spain 4.3, Switzerland 0.5%, United Kingdom 1.0%, United States
33.0%, Other 1.0%. Percentages by industry are as follows: Aerospace &
Defense 1.6%, Capital Goods 1.0%, Chemical & Plastics 0.7%, Communication
Services 1.3%, Consumer Goods 1.0%, Credit & Finance 1.8%, Drugs & Health
Care 2.3%, Food & Beverage 2.6%, Paper Products 1.1%, Petroleum Services
3.3%, Supermarkets 0.7%, Transportation & Freight Services 1.7%, Utilities
3.1%, Collateralized Mortgage Obligations 5.1%, U.S. Government Obligations
4.9%, Foreign Government Obligations 31.0%, Foreign Corporate Bonds 11.6%,
Yankee Bonds 13.0%.
Forward Foreign Currency Contracts open at December 31, 1994:
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
------------- ------------ -------- --------------
AUD 2,108,560 $1,616,000 3/7/95 ($ 22,166)
CAD 4,304,950 $3,137,000 3/7/95 69,872
CHF 461,204 $ 349,000 3/7/95 (4,748)
DM 2,351,111 $1,498,000 3/7/95 (22,197)
DKK 17,811,874 $2,896,000 3/7/95 (32,365)
ESP 251,824,800 $1,902,000 3/7/95 (3,101)
FIM 7,774,030 $1,595,000 3/7/95 (47,540)
GBP 387,890 $ 606,000 3/7/95 (613)
IEP 1,163,810 $1,779,000 3/7/95 (19,192)
ITL 994,323,200 $ 608,000 3/7/95 (2,366)
NOK 10,255,199 $1,497,000 3/7/95 (20,713)
---------
($105,129)
=========
The accompanying notes are an integral part of these
financial statements.
F-9
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard Small Cap Portfolio
Portfolio of Investments--December 31, 1994
- --------------------------------------------------------------------------------
Number
Description of Shares Value
- --------------------------------------------------------------------------------
Common Stocks--95.6%
Auto Parts--5.2%
A.O. Smith-- Class B 192,000 $ 4,704,000
Automotive Industries Holding Inc. (a) 15,000 303,750
Durakon Industries Inc. (a) 250,000 4,312,500
Lear Seating Corp. (a) 248,300 4,934,962
Standard Motor Products Inc. 215,000 4,246,250
Superior Industries International Inc. 138,500 3,652,938
------------
22,154,400
------------
Broadcasting--2.1%
Evergreen Media (a) 252,000 4,410,000
Renaissance Communications Corp. (a) 172,500 4,786,875
------------
9,196,875
------------
Building & Construction--2.0%
Centex Construction Products Inc. (a) 288,400 3,568,950
Lamson & Sessions Company (a) 284,900 1,709,400
Redman Industries (a) 200,000 3,400,000
------------
8,678,350
------------
Chemicals & Plastics--1.8%
Fuller H B Co. 109,000 3,719,625
Mississippi Chemical Corp. (a) 220,000 3,822,500
------------
7,542,125
------------
Communications--5.2%
ACS Enterprises Inc. (a) 200,000 1,750,000
Associated Group Inc. Class A (a) 56,650 1,331,275
Associated Group Inc. Class B (a) 56,650 1,331,275
Cablevision Systems Corp. (a) 84,600 4,272,300
Cellular Communications Puerto Rico (a) 195,058 6,534,443
International Cabletel Inc. (a) 200,000 5,550,000
Preferred Entertainment Inc. (a) 158,100 1,739,100
------------
22,508,393
------------
Consumer Goods--1.2%
American Recreation Holdings Inc. (a) 281,000 1,896,750
Triarc Cos Inc. (a) 289,300 3,399,275
------------
5,296,025
------------
Cosmetics & Toiletries--0.2%
Maybelline Inc. 57,600 1,036,800
------------
Drugs & Health Care--2.9%
Pharma Patch Plc (a),(b),(c) 217,500 170,626
Trinity Biotech Plc (a),(c) 192,055 396,113
Sci Medical Life Systems Inc. (a) 93,200 4,706,600
Sun Healthcare Group Inc. (a) 289,552 7,347,382
------------
12,620,721
------------
Electrical Equipment--1.3%
Belden Inc. 252,900 5,627,025
------------
Energy--3.3%
Enterra Corp. (a) 212,000 4,028,000
Helmerich & Payne Inc. 241,500 6,188,438
Vintage Petroleum Inc. 245,000 4,134,375
------------
14,350,813
------------
Financial Services--7.9%
Albank Financial Corp. 169,000 3,929,250
Baybanks Inc. 61,900 3,265,225
Cullen Frost Bankers Inc. 74,000 2,284,750
Eaton Vance Corp. 130,000 3,640,000
Independent Bancorp of Arizona
Inc. (a),(c) 121,900 2,773,225
Michigan National Corp. 48,031 3,590,317
Rollins Truck Leasing Corp. 348,000 4,132,500
Signet Banking Corp. 221,000 6,326,125
West One Bancorp 156,800 4,155,200
------------
34,096,592
------------
Food & Beverage--0.9%
Dr Pepper/Seven Up Cos. Inc. (a) 147,400 3,777,125
------------
Household Appliances & Home Furnishings--1.1%
Ethan Allen Interiors Inc. (a) 188,000 4,559,000
------------
Industrial & Machinery--4.6%
Harnischfeger Industries Inc. 230,400 6,480,000
Mark IV Industries Inc. 361,395 7,137,551
Trinova Corp. 211,400 6,209,875
------------
19,827,426
------------
Insurance--4.3%
Alexander & Alexander Services 239,700 4,434,450
American Bankers Insurance Group Inc. 150,100 3,602,400
Continental Corp. 220,100 4,181,900
Gryphon Holdings Inc. (a) 150,000 2,006,250
John Alden Financial Corp. 140,000 4,025,000
------------
18,250,000
------------
Machinery--1.4%
Briggs & Stratton Corp. 186,400 6,104,600
------------
Manufacturing--9.8%
Allen Group Inc. 362,600 8,657,075
Alltrista Corp. (a) 311,400 6,150,150
Amtrol Inc. 175,000 2,975,000
Crane Co. 212,800 5,719,000
Pentair Inc. 139,500 5,893,875
Sudbury Inc. (a) 87,000 511,125
Varlen Corp. 204,500 5,317,000
Wabash National Corp. 179,850 7,014,150
------------
42,237,375
------------
Paper Products--0.8%
Chesapeake Corp. 98,100 3,237,300
------------
Publishing--1.5%
Houghton Mifflin Company 144,000 6,534,000
------------
Retailing--15.3%
Alexanders Inc. (a) 80,000 4,230,000
Carson Pirie Scott & Company Illinois (a) 335,600 6,376,400
Fingerhut Cos. Inc. 363,300 5,631,150
Hills Store Co. (a) 425,000 8,818,750
Home Shopping Network Inc. (a) 408,000 4,080,000
Jones Apparel Group Inc. (a) 171,400 4,413,550
Fred Meyer Inc. (a) 176,900 5,439,675
Penn Traffic Co. (a) 107,100 4,069,800
Revco Inc. (a) 390,962 9,236,477
The Good Guys Inc. (a) 480,000 5,700,000
United States Shoe Corp. 407,200 7,635,000
------------
65,630,802
------------
F-10
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard Small Cap Portfolio
Portfolio of Investments--December 31, 1994 (continued)
- --------------------------------------------------------------------------------
Number
Description of Shares Value
- --------------------------------------------------------------------------------
Real Estate--6.0%
Avalon Properties Inc. 146,100 $ 3,360,300
Bay Apartment Community Inc. 175,000 3,521,875
Centerpoint Properties Corp. 200,000 3,900,000
Crescent Real Estate Equities 143,400 3,889,725
Crown American Realty Trust 160,800 2,170,800
Felcor Suite Hotels Inc. 130,000 2,535,000
G L Reality Corp. 200,000 2,600,000
Liberty Property 196,500 3,856,312
------------
25,834,012
------------
Services--2.1%
Gtech Holdings Corp. (a) 434,800 8,859,050
------------
Steel--3.2%
Lukens Inc. 233,800 6,809,425
National Steel Corp. (a) 471,000 6,829,500
------------
13,638,925
------------
Technology--9.8%
Antec Corp. (a) 218,500 4,014,938
Cirrus Logic Inc. (a) 153,100 3,444,750
Exar Corp. (a) 171,300 4,196,850
Informix Corp. (a) 147,400 4,735,225
Integrated Device Technology 315,600 9,310,200
LSI Logic Corp. (a) 90,400 3,649,900
Tektronix Inc. 146,100 5,003,925
Verbex Voice Systems Inc. (a),(c) 867,786 1,180,501
Wang Labs Inc. (a) 643,100 6,511,387
------------
42,047,676
------------
Telephone--0.8%
Southwestern Bell Corp. 81,576 3,293,631
------------
Tires & Rubber--0.9%
TBC Corp. (a) 428,800 3,966,400
------------
Total Common Stocks
(Identified cost $379,074,120) 410,905,441
------------
Principal
Amount
-----------
Convertible Bonds--0.3%
Restaurants, Lodging & Entertainment--0.3%
Interactive Light Holdings 8%,
12/31/97 (c) (Identified cost
$1,000,000) $1,000,000 1,000,000
------------
Short Term Investments--3.5%
Federal Agencies--3.4%
Federal Home Loan Bank Consolidated
Discount Note, 5.77%, 1/6/95 2,090,000 2,088,325
Federal National Mortgage Association,
5.77%, 1/3/95 12,730,000 12,725,920
------------
14,814,245
------------
U.S. Government Obligations--0.1%
United States Treasury Bills,
4.65%, 2/2/95 485,000 482,995
------------
Total Short Term Investments
(Identified cost $15,297,240) 15,297,240
------------
Total Investments
(Identified cost $395,371,360)(d) 99.4% 427,202,681
Cash and Other Assets in Excess of Liabilities 0.6 2,469,942
----- ------------
Net Assets 100.0% $429,672,623
===== ============
(a) Non-income producing security.
(b) American Depository Receipts.
(c) Private placement (see note 6).
(d) The aggregate cost for federal income tax purposes is $395,371,360
aggregate gross unrealized appreciation is $53,562,747 and the aggregate
gross unrealized depreciation is $21,731,426, resulting in net unrealized
appreciation of $31,831,321.
The accompanying notes are an integral part of these
financial statements.
F-11
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard International Small Cap Portfolio
Portfolio of Investments--December 31, 1994
- --------------------------------------------------------------------------------
Number
Description of Shares Value
- --------------------------------------------------------------------------------
Common Stocks--90.2%
Austria--4.9%
AMS Austria Mikros 31,500 $ 2,373,871
BWT AG 11,100 1,704,561
------------
Total Austria 4,078,432
------------
Australia--3.8%
Pacific Mutual Ltd. 991,200 1,567,966
Shomega Ltd. 1,282,700 1,591,439
------------
Total Australia 3,159,405
------------
Belgium--2.4%
Tessenderlo Chemie Class B NPV 5,800 1,950,959
Tessenderlo Chemie New NPV 92 28,922
------------
Total Belgium 1,979,881
------------
Brazil--1.9%
Capco Automotive Products Corp. (a) 130,700 1,568,400
------------
Canada--1.0%
Sceptre Resources Ltd. (a) 130,400 848,232
------------
Denmark--3.2%
Danske Luftfartsel (a) 3,270 2,660,503
------------
Finland--5.1%
Huhtamaki Oy 84,800 2,809,962
Valmet 74,400 1,414,825
------------
Total Finland 4,224,787
------------
France--3.5%
GTM Entrepose 16,600 1,174,525
Unibail SA 19,400 1,772,552
------------
Total France 2,947,077
------------
Germany--2.0%
Dorries Scharmann 13,800 1,691,940
------------
Hong Kong--4.9%
Acme Landis Holdings 4,690,000 563,709
ASM Pacific Tech 2,109,000 1,253,816
Manhattan Card Company 4,026,000 1,534,953
Tungtex Holdings 6,597,000 767,341
------------
Total Hong Kong 4,119,819
------------
Indonesia--1.5%
Mulia Industrindo (a) 471,000 1,285,714
------------
Luxemborg--1.9%
Arbed SA 10,700 1,607,859
------------
Mexico--4.1%
Grupo Fernandez Editores Series B (a) 695,000 740,402
Grupo Posadas SA Series A (a) 1,064,600 830,281
Hylsamex SA de CV (a), (b) 75,000 1,275,000
Servicio Financieros Quadram
Class A (a), (b) 86,600 552,075
------------
Total Mexico 3,397,758
------------
Netherlands--1.7%
Van Ommeren 52,700 1,384,365
------------
Norway--9.6%
Elkem AS 187,700 2,428,650
Norske Skogsindust A 56,210 1,579,283
Trans Ocean Drilling (a) 279,000 2,310,388
Unitor AS 99,300 1,673,967
------------
Total Norway 7,992,288
------------
Pakistan--0.0%
Lever Brothers 540 15,356
Packages 750 4,022
------------
Total Pakistan 19,378
------------
Portugal--1.6%
Corticeira Amorim SA (a) 80,500 1,341,751
------------
Puerto Rico--1.0%
Cellular Communications
Puerto Rico (a), (b) 25,300 847,550
------------
South Africa--1.7%
Safmarine & Rennies 445,000 1,447,999
------------
South Korea--2.2%
Keumkang 14,900 1,408,744
Pacific Corp. 21,650 441,100
------------
Total South Korea 1,849,844
------------
Spain--3.8%
Asturiana De Zinc 127,000 1,379,753
Corporation Finance Reunida (a) 580,200 1,785,231
------------
Total Spain 3,164,984
------------
Sweden--12.2%
Arjo AB 133,400 2,441,579
Avesta Sheffield 176,100 1,741,898
Hoganas AG (a) 113,800 1,761,231
ICB Shipping Class B 208,500 1,936,116
Linjebuss 77,000 1,378,220
Munksjo AB 107,700 876,894
------------
Total Sweden 10,135,938
------------
Switzerland--6.6%
Bossard Holdings AG 600 815,890
Danzas Holding 6,800 1,194,805
Phoenix Meccano 2,160 701,299
Reiseburo Kuoni 1,270 1,639,648
Swisslog 4,990 1,124,561
------------
Total Switzerland 5,476,203
------------
Thailand--0.7%
Swedish Motors 97,200 600,120
------------
United Kingdom--8.9%
Bell Cablemedia PLC (a) 37,400 757,350
Greycoat 832,175 1,608,099
Powerscreen International 357,000 1,312,705
Seeboard 263,200 1,993,253
Smith Newcourt PLC 254,000 1,740,761
------------
Total United Kingdom 7,412,168
------------
Total Common Stocks
(Identified cost $78,138,268) 75,242,395
------------
F-12
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard International Small Cap Portfolio
Portfolio of Investments--December 31, 1994 (continued)
- --------------------------------------------------------------------------------
Number
Description of Shares Value
- --------------------------------------------------------------------------------
Preferred Stocks--3.5%
Germany--2.5%
Mobel Walther Prf AG 4,687 $ 2,123,169
------------
United Kingdom--1.0%
Signet Group PLC (a) (b) 16 800,000
------------
Total Preferred Stocks
(Identified cost $2,682,338) 2,923,169
------------
Principal
Amount
---------
Short Term Investments--6.6%
U.S. Government Obligations--6.6%
United States Treasury Bills,
4.64%, 2/2/95 $5,569,000 5,546,050
------------
Total Short Term Investments
(Identified cost $5,546,050) 5,546,050
------------
Total Investments
(Identified cost $86,366,656) (c) 100.3% 83,711,614
Liabilities in Excess of Cash and
Other Assets (0.3) (279,408)
----- ------------
Net Assets 100.0% $ 83,432,206
===== ============
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $86,366,656 aggregate
gross unrealized appreciation is $4,915,389 and the aggregate gross
unrealized depreciation is $7,570,431, resulting in net unrealized
depreciation of $2,655,042.
* Percentages of common and preferred stocks are presented in the portfolio
by country. Percentages by industry are as follows: Apparel & Textiles
0.9%, Automotive 2.6%, Building & Housing 3.8%, Chemicals & Plastics 2.9%,
Communication Services 2.9%, Conglomerates 3.9%, Construction Materials
1.7%, Electrical Equipment 3.7%, Energy 3.8%, Engineering & Construction
1.4%, Entertainment 1.0%, Financial Services 6.5%, Food & Beverage 3.4%,
Forest Products 2.9%, Healthcare 2.9%, Hotels & Restaurants 2.0%,
Industrial & Machinery 6.4%, Metals 6.5%, Paper Products 3.3%, Publishing
0.9%, Real Estate 4.1%, Retailing 3.5%, Steel 5.7%, Shipbuilding 2.3%,
Shipping Services 2.0%, Technology 1.5%, Telephone 0.9%, Transportation
1.6%, Transportation & Freight Services 6.3%, Utilities 2.4%.
Forward Foreign Currency Contracts open at December 31,1994:
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ---------------- ------------ ------ --------------
BFS 135,737,400 $4,205,000 3/8/95 ($ 70,570)
PTS 222,780,900 $1,682,000 3/8/95 (3,270)
FRF 22,712,467 $4,205,000 3/8/95 (49,264)
PTE 410,012,730 $2,523,000 3/8/95 (35,615)
SKR 63,473,612 $8,411,000 3/8/95 (104,281)
---------
($263,000)
=========
The accompanying notes are an integral part of these
financial statements.
F-13
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard Special Equity Portfolio
Portfolio of Investments--December 31, 1994
- --------------------------------------------------------------------------------
Number
Description of Shares Value
- --------------------------------------------------------------------------------
Common Stocks--96.4%
Aerospace & Defense--5.9%
Logicon Inc. 20,000 $ 597,500
Tech Sym Corp. (a) 130,000 3,055,000
------------
3,652,500
------------
Building & Housing--5.2%
Puerto Rican Cement Co, Inc. 112,500 3,164,063
------------
Business Services and Supplies--1.8%
Ennis Business Forms Inc. 90,000 1,125,000
------------
Chemicals & Plastics--6.5%
Aceto Corp. 190,000 2,565,000
MacDermid Inc. 38,400 1,401,600
------------
3,966,600
------------
Electronics--2.7%
Espey Manufacturing & Electronics
Corp. (b) 92,000 1,150,000
Keithley Instruments Inc. 50,000 500,000
------------
1,650,000
------------
Food & Beverage--2.9%
Farmer Brothers Co. 15,000 1,800,000
------------
Household Appliances & Home Furnishings--14.1%
Allen Organ Co. Class B 92,800 3,294,400
Boston Acoustics Inc. 60,000 1,035,000
National Presto Industries Inc. 78,500 3,257,750
Pulaski Furniture Corp. 17,000 272,000
Virco Manufacturing Co. 90,000 832,500
------------
8,691,650
------------
Industrial & Machinery--7.4%
Paul Mueller Co. 30,287 863,179
Robbins And Myers Inc. 90,000 1,530,000
Tecumseh Prods Co. 40,000 1,800,000
Tennant Company 7,400 344,100
------------
4,537,279
------------
Miscellaneous--8.5%
Deflecta Shield Corp. (a) 19,300 161,637
Tranzonic Companies Class A 80,000 1,360,000
Tranzonic Companies Class B 40,000 680,000
Versa Technologies Inc. 60,000 765,000
Wyle Labs 115,000 2,242,500
------------
5,209,137
------------
Multi-Industry--2.9%
American Filtrona Corp. 30,000 810,000
Eastern Co. 30,000 390,000
Latshaw Enterprises Inc. (a), (b) 38,400 316,800
Raven Industries Inc. 15,000 281,250
------------
1,798,050
------------
Restaurants, Lodging & Entertainment--3.7%
Bowl America Inc. Class A 40,000 640,000
International Dairy Queen Class A (a) 100,000 1,650,000
------------
2,290,000
------------
Retailing--9.0%
Arden Group Inc. Class A (a) 30,000 1,290,000
Blair Corp. 76,900 3,076,000
Claire's Stores Inc. 33,300 399,600
Crown Books Corp. (a) 3,000 46,500
Medicine Shoppe International 12,000 321,000
Strawbridge & Clothier Class A 17,000 380,375
------------
5,513,475
------------
Services--11.6%
AFA Protective Systems Inc. (a), (b) 15,100 1,434,500
Barra Inc. (a) 35,000 245,000
Ecology and Environment Inc. 115,395 1,024,131
Greiner Engineering Inc. 35,000 367,500
Grey Advertising Inc. 3,500 511,000
Hilb, Rogal & Hamilton Co. 20,000 242,500
Penn Engineering & Manufacturing Corp. 25,000 1,050,000
Value Line Inc. 78,000 2,262,000
------------
7,136,631
------------
Textiles, Shoes and Apparel--14.2%
Cone Mills Corp. (a) 45,000 534,375
Fab Industries Inc. 75,000 2,334,375
Garan Inc. 111,000 1,803,750
Superior Surgical Manufacturing Co. Inc. 150,000 1,875,000
Thomaston Mills Inc. Class A 120,000 1,680,000
Weyco Group Inc. 15,000 521,250
------------
8,748,750
------------
Total Common Stocks
(Identified cost $54,097,356) 59,283,135
------------
Principal
Amount
---------
Short Term Investments--11.2%
Commerical Paper--1.7%
Ford Motor Credit Corp.,
5.875%, 1/3/95 $ 720,000 719,765
Ford Motor Credit Corp.,
5.90%, 1/4/95 295,000 294,855
------------
1,014,620
------------
Federal Agencies--8.8%
Federal National Mortgage Association
Discount Note, 5.77%, 1/3/95 5,425,000 5,423,261
------------
U.S. Government Obligations--0.7%
United States Treasury Bills,
5.17%, 2/9/95 459,000 456,521
------------
Total Short Term Investments
(Identified cost $6,894,402) 6,894,402
------------
Total Investments
(Identified cost $60,991,758) (c) 107.6% 66,177,537
Liabilities in Excess of Cash and Other Assets (7.6) (4,679,932)
----- -----------
Net Assets 100.0% $61,497,605
===== ===========
(a) Non-income producing security.
(b) Affiliated issuer under the Investment Company Act of 1940 inasmuch as the
Portfolio owns more than 5% of the voting securities of the Company.
(c) The aggregate cost for federal income tax purposes is $60,991,758 aggregate
gross unrealized appreciation is $9,208,137 and the aggregate gross
unrealized depreciation is $4,022,358, resulting in net unrealized
appreciation of $5,185,779.
The accompanying notes are an integral part of these
financial statements.
F-14
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard Emerging Markets Portfolio
Portfolio of Investments--December 31, 1994
- --------------------------------------------------------------------------------
Number of
Description Shares Value
- --------------------------------------------------------------------------------
Common Stocks--90.9%
Argentina--4.8%
Banco Frances Rio Plata 53,100 $ 350,425
Corporation Cementera Argentina
Class B (a) 17,000 112,189
Juan Minetti 22,000 108,889
YPF Sociedad Anonima Class D (b) 11,400 243,664
------------
Total Argentina 815,167
------------
Brazil--10.5%
Banco Bradesco SA 34,000,000 285,006
Capco Automotive Products Corp. (a) 21,700 260,400
Ceval Alimentos SA 24,000,000 326,139
Dixie Lalekla SA (a) 467,000 468,654
Melpaper SA (a) 830,500 441,234
------------
Total Brazil 1,781,433
------------
Chile--3.0%
Compania De Telefonos Chile S (b) 4,200 330,750
Vina Concha Y Toro SA (b) 11,000 181,500
------------
Total Chile 512,250
------------
Colombia--4.7%
Cementos Paz Del Rio SA (a),(b) 18,300 356,850
Gran Cadena De Almacenes
Class B (a),(b) 28,000 441,000
------------
Total Colombia 797,850
------------
Czech Republic--1.6%
Central European Media
Entertainment Light Class A (a) 20,000 280,000
------------
Greece--1.9%
Ergo Bank 4,000 164,848
Titan Cement Co. 5,500 161,495
------------
Total Greece 326,343
------------
Hong Kong--4.9%
Harbin Power Equipment 1,248,000 419,360
Luoyang Glass Co. Class H (a) 530,000 202,068
Peregrine Investment 187,000 219,929
------------
Total Hong Kong 841,357
------------
Hungary--1.7%
Danubius Hotel 31,600 290,446
------------
India--3.0%
DCW Ltd. S (a) 14,000 217,000
Larsen & Toubro Ltd. (a),(b) 20,000 300,000
------------
Total India 517,000
------------
Indonesia--7.3%
Hanjaya Mandala Sampoerna 82,500 405,368
Indorama Synthetic 77,000 280,255
Kawasan Industries (a) 93,000 211,355
PT Indonesian Satellite (a),(b) 9,500 339,625
------------
Total Indonesia 1,236,603
------------
Malaysia--5.6%
Aokam Perdana Berhad 42,000 259,878
Genting Berhad 33,000 283,023
Technology Resources Industries
Berhad (a) 41,000 130,860
Technology Resources Industries
Berhad Conv 300,000 286,500
------------
Total Malaysia 960,261
------------
Mexico--16.2%
Empaques Ponderosa Series B 86,100 216,332
Grupo Fernandez Editores Series B (a) 190,000 202,412
Grupo Financiero Banorte Series B (a) 171,000 444,084
Grupo Posadas SA Series A (a) 333,800 260,330
Grupo Tribasa (a) 57,000 475,477
Hylsamex SA de CV (a),(b) 14,000 238,000
Nacional Financiero SNC Prides
1998 Conv 7,745 313,673
Pan American Beverage Class A (b) 13,200 417,450
Servicio Financieros Quadram
Class A (a),(b) 29,600 188,700
------------
Total Mexico 2,756,458
------------
Peru--5.5%
Backus & Johnston 116,339 262,083
Banco Wiese (a),(b) 21,200 397,500
Cementos Lima 14,000 268,910
------------
Total Peru 928,493
------------
Portugal--1.6%
Corticeira Amorim SA (a) 16,800 280,018
------------
Russia--2.1%
First NIS Regional Fund (a) 88,000 352,000
------------
South Africa--6.7%
Iscor 339,100 388,066
Murray & Roberts 10,100 270,359
Safmarine & Rennies 146,000 475,074
------------
Total South Africa 1,133,499
------------
South Korea--5.7%
Pacific Corp. 18,000 366,734
Pohang Iron & Steel 2,700 272,654
Samsung Electronics Ltd. 144A
Non-Voting (b) 6,700 328,300
------------
Total South Korea 967,688
------------
Sri Lanka--0.9%
Blue Diamond Jewel (a) 210,470 155,880
------------
Thailand--3.2%
Hua Thai Manufacturing Plc 49,400 123,720
Swedish Motors 40,000 246,963
Thai Airways 111,000 172,436
------------
Total Thailand 543,119
------------
Total Common Stocks
(Identified cost $16,982,865) 15,475,865
------------
F-15
<PAGE>
================================================================================
The Lazard Funds, Inc.
Lazard Emerging Markets Portfolio
Portfolio of Investments--December 31, 1994 (continued)
- --------------------------------------------------------------------------------
Principal
Description Amount Value
- --------------------------------------------------------------------------------
Bonds--2.6%
Argentina--2.6%
Argentina Pensioner Bocon, 1.00%,
4/1/01 (c) $600,000 $ 444,000
------------
Total Bonds
(Identified cost $470,400) 444,000
------------
Short Term Investments--4.0%
Federal Agencies--1.9%
Federal National Mortgage Association
Discount Note, 5.77%, 1/3/95 315,000 314,899
------------
U.S. Government Obligations--2.1%
United States Treasury Bills,
4.95%, 2/2/95 360,000 358,324
------------
Total Short Term Investments
(Identified cost $673,223) 673,223
------------
Total Investments
(Identified cost $18,126,488) (d) 97.5% 16,593,088
Cash and Other Assets in Excess of Liabilities 2.5 431,817
----- ------------
Net Assets 100.0% $17,024,905
===== ============
(a) Non-income producing security.
(b) American Depository Receipts.
(c) United States dollar denominated security.
(d) The aggregate cost for federal income tax purposes is $18,126,488 aggregate
gross unrealized appreciation is $627,012 and the aggregate gross
unrealized depreciation is $2,160,412, resulting in net unrealized
depreciation of $1,533,400.
* Percentage of common stocks are presented in the portfolio by currency
denomination. Percentages by industry are as follows: Apparel & Textiles
0.7%, Automotive 1.5%, Auto Parts 1.5%, Broadcasting 1.6%, Building &
Housing 6.1%, Chemicals & Plastics 4.0%, Communications 8.2%, Construction
Materials 7.1%, Consumer Goods 3.1%, Electrical Equipment 2.5%, Electronics
1.9%, Financial Services 12.0%, Food & Beverage 7.0%, Forest Products 3.2%,
International Oil 1.4%, Investment Companies 2.1%, Paper Products 3.9%,
Petrochemicals 1.7%, Publishing 1.2%, Restaurants, Lodging & Entertainment
4.9%, Retailing 2.6%, Real Estate 1.2%, Steel 5.3%, Tobacco 2.4%,
Transportation 1.0%, Transportation & Freight Services 2.8%.
Forward Foreign Currency Contracts open at December 31, 1994:
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
---------------- ----------- ------ --------------
IDR 1,610,080 $733 1/3/95 --
The accompanying notes are an integral part of these
financial statements.
F-16
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- ---------------------------------------------------------------------------------------------------------------------
LAZARD LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL LAZARD STRATEGIC LAZARD
EQUITY EQUITY FIXED-INCOME BOND YIELD SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value* $86,353,791 $816,874,147 $34,661,487 $24,030,179 $59,537,996 $427,202,681
$66,177,537 $16,593,088
Cash 886 426,548 231 94 141 176
Receivables for:
Investments sold 1,248,959 4,891,509 82,712 -- 1,310,527 5,339,067
Dividends and interest 197,209 1,343,990 1,173,781 467,934 1,893,796 415,524
Capital stock sold 1,725,657 12,578,453 -- 25,147 25,000 1,327,230
Due from manager (note 3) -- -- 20,226 -- --
Deferred organizational
expenses (note 2) -- 24,770 25,201 25,273 23,726 24,806
Other -- 23,780 1,225 -- -- --
----------- ------------ ---------- ---------- ---------- -----------
Total assets 89,526,502 836,163,197 35,944,637 24,568,853 62,791,186 434,309,484
----------- ------------ ---------- ---------- ---------- -----------
LIABILITIES
Payables for:
Investments purchased -- 910,807 -- -- -- 4,106,277
Capital stock
repurchased 20,000 767,933 -- 10,000 1,400 7,091
Dividends declared 10,412 17,556 28,194 21,325 44,344 140,276
Investment management
fees payable (note 3) 330,183 523,506 56,179 -- 255,657 262,515
Net foreign currency
contracts (note 2) -- 1,682,717 1,817 -- 105,129 --
Due to custodian -- -- -- -- -- --
Due to Manager (note 3) -- -- -- -- -- --
Accrued expenses and
other payables 60,689 383,696 55,693 43,994 56,325 120,702
---------- ----------- ---------- ---------- ---------- -----------
Total liabilities 421,284 4,286,215 141,883 75,319 462,855 4,636,861
---------- ----------- ---------- ---------- ---------- -----------
Net assets, at value 89,105,218 831,876,982 35,802,754 24,493,534 62,328,331 429,672,623
========== =========== ========== ========== ========== ===========
NET ASSETS
Paid in capital 85,181,181 822,772,036 35,983,526 26,569,782 67,682,264 397,194,343
Accumulated undistributed
investment income--net (12,571) 1,965 1,314 -- (13,973) 848,046
Unrealized appreciation
(depreciation) on:
Investments--net 4,317,570 24,522,549 (136,685) (918,773) (2,185,497) 31,831,321
Foreign exchange
transactions--net -- (1,658,002) 4,811 -- (97,395) --
Accumulated undistributed
realized gain
(loss)--net (380,962) (13,761,566) (50,212) (1,157,475) (3,057,068) (201,087)
----------- ------------ ----------- ----------- ----------- ------------
NET ASSETS, AT VALUE $89,105,218 $831,876,982 $35,802,754 $24,493,534 $62,328,331 $429,672,623
----------- ------------ ----------- ----------- ----------- ------------
Shares of capital stock
outstanding** 6,482,310 74,103,632 3,499,078 2,650,557 6,846,915 29,940,743
---------- ------------ ----------- ----------- ----------- ------------
NET ASSET VALUE PER SHARE $ 13.75 $ 11.23 $ 10.23 $ 9.24 $ 9.10 $ 14.35
========== ============ =========== =========== =========== ============
</TABLE>
- ---------------------------------------------------------------------
LAZARD LAZARD LAZARD
INTERNATIONAL SPECIAL EMERGING
SMALL CAP EQUITY MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------
ASSETS
Investments, at value* $83,711,614 $66,177,537 $16,177,537
Cash -- 1,931 449,209
Receivables for:
Investments sold 2,797 246,268 219,625
Dividends and interest 77,102 142,787 8,200
Capital stock sold 261,400 200,945 236,415
Due from manager (note 3) -- -- --
Deferred organizational
expenses (note 2) 13,813 -- 18,810
Other -- -- --
---------- ---------- ----------
Total assets 84,066,726 66,769,468 17,525,347
---------- ---------- ----------
LIABILITIES
Payables for:
Investments purchased -- 26,300 449,834
Capital stock
repurchased 958 4,920,478 --
Dividends declared -- 38,267 --
Investment management
fees payable (note 3) 254,805 264,385 --
Net foreign currency
contracts (note 2) 263,000 -- --
Due to custodian 2,591 -- --
Due to Manager (note 3) 17,642 -- 20,680
Accrued expenses and
other payables 95,524 22,433 29,928
---------- ---------- ----------
Total liabilities 634,520 5,271,863 500,442
---------- ---------- ----------
Net assets, at value 83,432,206 61,497,605 17,024,905
========== ========== ==========
NET ASSETS
Paid in capital 89,858,286 54,762,037 18,726,579
Accumulated
undistributed
investment income--net 1,577 (918) --
Unrealized appreciation
(depreciation) on:
Investments--net (2,655,042) 5,185,779 (1,533,400)
Foreign exchange
transactions--net (260,777) -- 1,082
Accumulated
undistributed
realized gain
(loss)--net (3,511,838) 1,550,707 (169,356)
----------- ---------- -----------
NET ASSETS, AT VALUE $83,432,206 $61,497,605 $17,024,905
----------- ----------- -----------
Shares of capital stock
outstanding** 8,034,455 5,170,257 1,727,237
----------- ----------- -----------
NET ASSET VALUE
PER SHARE $ 10.38 $ 11.8 $ 9.86
=========== =========== ===========
* For identified cost, see accompanying portfolios of investments
** $0.001 par value, 1,000,000,000 shares authorized
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-17
<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD DECEMBER 31, 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
LAZARD LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL LAZARD STRATEGIC LAZARD
EQUITY EQUITY FIXED-INCOME BOND YIELD SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest* $ 226,035 $ 1,698,667 $1,430,166 $1,397,145 $4,597,223 $ 876,311
Dividends* 1,255,743 11,297,567 -- -- -- 4,516,808
---------- ----------- ---------- ---------- ---------- ----------
Total investment income 1,481,778 12,996,234 1,430,166 1,397,145 4,597,223 5,393,119
---------- ----------- ---------- ---------- ---------- ----------
EXPENSES:
Management fee (note 3) 504,424 5,782,629 159,460 101,133 379,666 2,974,688
Custodian fees 88,721 1,075,688 64,900 45,218 82,092 128,403
Professional services 32,171 122,760 22,304 28,063 29,509 74,148
Registration fees 31,047 142,277 23,375 23,412 34,760 84,740
Shareholder services 25,673 41,759 19,462 19,791 21,184 32,199
Directors' fees and
expenses 12,325 12,325 12,325 12,325 12,325 12,325
Shareholders reports 1,829 7,396 2,279 1,085 3,051 4,650
Organizational expenses
(note 2) -- 13,505 13,505 13,505 13,505 13,505
Other 10,000 45,426 3,176 4,608 4,761 46,336
---------- ----------- ---------- ---------- ---------- ---------- -
Total expenses before
reimbursement from
Manager 706,190 7,243,765 320,786 249,140 580,853 3,370,994
Less: Management fees
waived and reimbursement
of expenses from Manager
(note 3) -- -- (97,542) (87,343) (49,046) --
---------- ----------- ---------- ---------- ---------- ----------
Expenses--net 706,190 7,243,765 223,244 161,797 531,807 3,370,994
---------- ----------- ---------- ---------- ---------- ----------
INVESTMENT INCOME--NET 775,588 5,752,469 1,206,922 1,235,348 4,065,416 2,022,125
---------- ----------- ---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET
Realized gain (loss)
on:
Investments--net 3,165,434 55,072,017 (203,675) (1,151,722) (2,019,723) 22,502,779
Foreign exchange
transactions--net -- (4,426,772) 383,997 -- (1,058,348) --
Net change in unrealized
appreciation (depreciation)
on:
Investments--net (1,765,260) (66,195,408) (532,708) (965,163) (2,204,301) (17,010,725)
Foreign exchange
transactions--net -- (2,168,065) 20,594 -- (112,343) --
---------- ----------- ---------- ---------- ---------- ----------
Realized and unrealized
gain (loss) on
investments--net 1,400,174 (17,718,228) (331,792) (2,116,885) (5,394,715) 5,492,054
---------- ----------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $2,175,762 ($11,965,759) $ 875,130 ($ 881,537) ($1,329,299) $7,514,179
========== =========== =========== ========= ========== ==========
*Net of foreign withholding
taxes of: $ 15,801 $ 1,516,782 $ 44,494 $ 442 $ 29,031 $ 0
========== =========== =========== ========= ========== ==========
</TABLE>
- ---------------------------------------------------------------
LAZARD LAZARD LAZARD
INTERNATIONAL SPECIAL EMERGING
SMALL CAP EQUITY MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO+
- ---------------------------------------------------------------
INVESTMENT INCOME
Interest* $ 203,947 $ 453,669 $ 36,799
Dividends* 1,043,768 1,817,672 56,040
---------- ---------- ----------
Total investment income 1,247,715 2,271,341 92,839
---------- ---------- ----------
EXPENSES:
Management fee (note 3) 469,056 1,321,860 57,542
Custodian fees 184,379 89,094 37,577
Professional services 40,436 27,897 11,357
Registration fees 37,778 15,180 10,678
Shareholder services 25,976 25,924 8,138
Directors' fees and
expenses 12,325 12,325 3,178
Shareholders reports 5,165 3,312 1,250
Organizational expenses
(note 2) 3,529 -- 1,870
Other 11,191 10,826 1,266
---------- ---------- ----------
Total expenses before
reimbursement from
Manager 789,835 1,506,418 132,856
Less: Management fees
waived and reimbursement
of expenses from Manager
(note 3) (133,156) -- (58,052)
---------- ---------- ----------
Expenses--net 656,679 1,506,418 74,804
---------- ---------- ----------
INVESTMENT INCOME--NET 591,036 764,923 18,035
---------- ---------- ----------
REALIZED AND UNREALIZED GAI
Realized gain (loss) on:
Investments--net (3,313,732) 10,854,080 60,507
Foreign exchange
transactions--net (755,097) -- (247,898)
Net change in unrealized
appreciation
(depreciation on:
Investments--net (3,370,627) (13,546,230) (1,533,400)
Foreign exchange
transactions--net (282,918) -- 1,082
---------- ---------- ----------
Realized and unrealized
gain (loss) on
investments--net (7,722,374) (2,692,150) (1,719,709)
---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS ($7,131,338) ($1,927,227) ($1,701,674)
========== ========== ==========
*Net of foreign withholding
taxes of: $ 110,784 $ 19,103 4,746
========== ========== ==========
+ For the period July 15, 1994 (commencement of operations) through December 31,
1994.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-18
<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD LAZARD LAZARD
EQUITY INTERNATIONAL EQUITY INTERNATIONAL FIXED-INCOME BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------- --------------------------- -------------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------------- --------------------------- -------------------------- ------------------------
1994 1993 1994 1993 1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
Operations:
Investment income--net $ 775,588 $ 460,998 $ 5,752,469 $ 4,085,950 $ 1,206,922 $ 606,099 $ 1,235,348 $ 568,838
Realized gain (loss)
on investments and
foreign exchange
transactions 3,165,434 2,140,771 50,645,245 9,421,589 180,322 405,966 (1,151,722) 309,710
Unrealized
appreciation
(depreciation)--net (1,765,260) 3,413,452 (68,363,473) 97,860,793 (512,114) 396,538 (965,163) (28,584)
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets
resulting
from operations 2,175,762 6,015,221 (11,965,759) 111,368,332 875,130 1,408,603 (881,537) 849,964
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Distributions to
shareholders from:
Investment income--net (819,467) (461,391) (5,752,469) (4,083,985) (1,206,922) (604,786) (1,235,348) (568,838)
Realized gains--net (3,479,186) (3,146,903) (74,500,587) (3,502,309) (287,561) (122,486) (58,029) (286,450)
(Excess of) offset to
investment
income--net -- -- 5,752,469 3,104,881 -- (151,831) -- --
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
(4,298,653) (3,608,294) (74,500,587) (4,481,413) (1,494,483) (879,103) (1,293,377) (855,288)
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Capital stock
transaction:
Net proceeds from
sales 44,216,711 23,404,562 348,583,561 344,796,131 25,803,649 8,923,074 18,506,638 10,895,985
Net proceeds from
reinvestment of
distributions 4,207,450 3,517,241 72,041,335 4,233,394 1,439,206 819,140 1,205,567 800,067
Cost of shares
redeemed (4,318,758) (6,851,870) (105,923,266) (28,279,855) (4,276,403) (4,998,769) (6,605,325) (6,660,679)
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets from
capital stock
transactions 44,105,403 20,069,933 314,701,630 320,749,670 22,966,452 4,743,445 13,106,880 5,035,373
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Total increase in net
assets 41,982,512 22,476,860 228,235,284 427,636,589 22,347,099 5,272,945 10,931,966 5,030,049
Net assets at beginning
of period 47,122,706 24,645,846 603,641,698 176,005,109 13,455,655 8,182,710 13,561,568 8,531,519
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Net assets at end of
period* $89,105,218 $47,122,706 $831,876,982 $603,641,698 $35,802,754 $13,455,655 $24,493,534 $13,561,568
=========== =========== ============ ============ =========== =========== =========== ===========
Shares issued and
repurchased:
Shares outstanding at
beginning of period 3,391,490 1,934,883 48,980,591 18,562,151 1,279,788 835,758 1,319,047 835,937
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Shares sold 3,088,569 1,700,019 27,102,620 32,614,940 2,492,028 844,536 1,891,145 1,076,462
Shares issued to
shareholders from
reinvestment of
distributions 304,879 255,976 6,362,069 354,113 138,395 77,764 125,665 76,584
Shares repurchased (302,628) (499,388) (8,341,648) (2,550,613) (411,133) (478,270) (685,300) (669,936)
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) 3,090,820 1,456,607 25,123,041 30,418,440 2,219,290 444,030 1,331,510 483,110
=========== =========== ============ ============ =========== =========== =========== ===========
Shares outstanding at
end of period 6,482,310 3,391,490 74,103,632 48,980,591 3,499,078 1,279,788 2,650,557 1,319,047
=========== =========== ============ ============ =========== =========== =========== ===========
*Includes
undistributed/over
distributed net
investment income of: ($ 12,571) $ 31,307 $ 1,965 $ 1,965 $ 1,314 $ 1,313 $ -- $ --
=========== =========== ============ ============ =========== =========== =========== ===========
+ For the period December 1, 1993 through December 31, 1993.
++For the period July 15, 1994 through December 31, 1994.
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-19
<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD LAZARD LAZARD
STRATEGIC YIELD SMALL CAP INTERNATIONAL SMALL CAP SPECIAL EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------- --------------------------- -------------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------------- --------------------------- -------------------------- ------------------------
1994 1993 1994 1993 1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
Operations:
Investment income--net $ 4,065,416 $1,062,795 $ 2,022,125 $ 410,730 $ 591,036 $ 4,625 $ 764,923 $ 1,129,329
Realized gain (loss)
on investments and
foreign exchange
transactions (3,078,071) 156,681 22,502,779 36,119,628 (4,068,829) (34,045) 10,854,080 26,601,413
Unrealized appreciation
(depreciation)--net (2,316,644) 744,785 (17,010,725) 31,553,727 (3,653,545) 737,726 (13,546,230) (13,162,940)
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations (1,329,299) 1,964,261 7,514,179 68,084,085 (7,131,338) 708,306 (1,927,227) 14,567,802
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Distributions to
shareholders from:
Investment income--net (4,065,416) (1,076,768) (1,181,605) (413,517) (591,036) (3,048) (760,649) (1,130,085)
Realized gains--net (182,040) (149,699) (31,911,994) (31,861,924) -- -- (16,861,086) (19,720,794)
(Excess of) offset to
investment income--net -- 53,979 -- -- 591,036 -- -- --
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
(4,247,456) (1,172,488) (33,093,599) (32,275,441) -- (3,048) (17,621,735) (20,850,879)
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Capital stock
transaction:
Net proceeds
from sales 47,082,168 27,833,204 96,349,172 130,331,691 87,421,230 13,111,717 6,540,035 15,980,457
Net proceeds from
reinvestment of
distributions 4,028,879 1,137,646 32,373,017 31,997,973 -- 3,236 16,313,998 20,135,402
Cost of shares
redeemed (18,148,713) (4,460,872) (24,422,634) (15,356,950) (10,380,143) (297,754) (59,936,521) (62,191,320)
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets from
capital stock
transactions 32,962,334 24,509,978 104,299,555 146,972,714 77,041,087 12,817,199 (37,082,488) (26,075,461)
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Total increase in net
assets 27,385,579 25,301,751 78,720,135 182,781,358 69,909,749 13,522,457 (56,631,450) (32,358,538)
Net assets at beginning
of period 34,942,752 9,641,001 350,952,488 168,171,130 13,522,457 -- 118,129,055 150,487,593
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Net assets at end of
period* $62,328,331 $34,942,752 $429,672,623 $350,952,488 $83,432,206 $13,522,457 $61,497,605 $118,129,055
=========== =========== ============ ============ =========== =========== =========== ===========
Shares issued and
repurchased:
Shares outstanding at
beginning of period 3,449,123 1,014,700 23,005,203 12,951,609 1,244,608 -- 7,508,865 8,907,002
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Shares sold 4,889,580 2,770,066 6,292,755 8,946,657 7,756,773 1,272,145 429,986 915,404
Shares issued to
shareholders from
reinvestment of
distributions 425,219 113,829 2,255,296 2,140,090 -- 271 1,278,144 1,282,226
Shares repurchased (1,917,007) (449,472) (1,612,511) (1,033,153) (966,926) (27,808) (4,046,738) (3,595,767)
----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) 3,397,792 2,434,423 6,935,540 10,053,594 6,789,847 1,244,608 (2,338,608) (1,398,137)
=========== =========== ============ ============ =========== =========== =========== ===========
Shares outstanding at
end of period 6,846,915 3,449,123 29,940,743 23,005,203 8,034,455 1,244,608 5,170,257 7,508,865
=========== =========== ============ ============ =========== =========== =========== ===========
*Includes undistributed/
over distributed net
investment income of: ($ 13,973) ($ 13,973) $ 848,046 $ 7,526 $ 1,577 $ 1,577 ($ 918) ($ 5,191)
=========== =========== ============ ============ =========== =========== =========== ===========
</TABLE>
<PAGE>
LAZARD
EMERGING MARKETS
PORTFOLIO
-------------------
PERIOD ENDED
DECEMBER 31,
-------------------
1994++
-------------------
INCREASE (DECREASE) IN
NET ASSETS:
Operations:
Investment income--net $ 18,035
Realized gain (loss)
on investments and
foreign exchange
transactions (187,391)
Unrealized appreciation
(depreciation)--net (1,532,318)
-----------
Net increase (decrease) in
net assets resulting from
operations (1,701,674)
-----------
Distributions to shareholders
from:
Investment income--net (18,035)
Realized gains--net --
(Excess of) offset to
investment income--net 18,035
-----------
--
-----------
Capital stock transaction:
Net proceeds from sales 19,386,871
Net proceeds from
reinvestment of
distributions --
Cost of shares
redeemed (660,292)
-----------
Net increase (decrease)
in net assets from
capital stock
transactions 18,726,579
-----------
Total increase in net
assets 17,024,905
-----------
Net assets at beginning
of period --
-----------
Net assets at end of
period* $17,024,905
===========
Shares issued and repurchased:
Shares outstanding at
beginning of period --
-----------
Shares sold 1,786,246
Shares issued to
shareholders from
reinvestment of
distributions --
Shares repurchased (59,009)
-----------
Net increase (decrease) 1,727,237
===========
Shares outstanding at
end of period 1,727,237
===========
*Includes undistributed/
over distributed net
investment income of: $ --
===========
+ For the period December 1, 1993 through December 31, 1993.
++For the period July 15, 1994 through December 31, 1994.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-20
<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
---------------------------------
NET GAINS (LOSSES)
NET ASSET VALUE, ON SECURITIES TOTAL FROM
BEGINNING INVESTMENT (BOTH REALIZED AND INVESTMENT
PERIOD OF PERIOD INCOME-NET UNREALIZED)-NET OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LAZARD EQUITY PORTFOLIO
Year ended 12/31/94 $13.89 $0.141 $ 0.441 $0.582
Year ended 12/31/93 12.74 0.158 2.172 2.330
Year ended 12/31/92 12.34 0.123 0.518 0.641
Year ended 12/31/91 11.53 0.107 3.051 3.158
Year ended 12/31/90 12.34 0.191 (0.778) (0.587)
Year ended 12/31/89 10.32 0.204 2.231 2.435
Year ended 12/31/88 8.73 0.181 1.597 1.778
6/1/87* to 12/31/87 10.00 0.110 (1.280) (1.170)
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended 12/31/94 12.32 0.078 (0.049) 0.029
Year ended 12/31/93 9.48 0.021 2.919 2.940
Year ended 12/31/92 10.30 0.097 (0.779) (0.682)
10/29/91* to 12/31/91 10.00 0.020 0.300 0.320
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended 12/31/94 10.51 0.592 (0.161) 0.431
Year ended 12/31/93 9.79 0.571 0.912 1.483
Year ended 12/31/92 10.28 0.614 (0.403) 0.211
11/8/91* to 12/31/91 10.00 0.110 0.280 0.390
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended 12/31/94 10.28 0.584 (1.010) (0.426)
Year ended 12/31/93 10.21 0.551 0.302 0.853
Year ended 12/31/92 10.25 0.577 (0.004) 0.573
11/12/91* to 12/31/91 10.00 0.140 0.250 0.390
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended 12/31/94 10.13 0.762 (0.990) (0.228)
Year ended 12/31/93 9.50 0.644 0.738 1.382
Year ended 12/31/92 9.97 1.049 (0.450) 0.599
10/1/91* to 12/31/91 10.00 0.250 (0.030) 0.220
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended 12/31/94 15.26 0.070 0.220 0.290
Year ended 12/31/93 12.98 0.019 3.830 3.849
Year ended 12/31/92 10.42 0.019 2.560 2.579
10/30/91* to 12/31/91 10.00 0.030 0.420 0.450
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended 12/31/94 10.86 0.072 (0.548) (0.476)
12/1/93* to 12/31/93 10.00 0.004 0.859 0.863
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Year ended 12/31/94 15.73 0.156 (0.557) (0.401)
Year ended 12/31/93 16.90 0.157 1.478 1.635
Year ended 12/31/92 15.14 0.161 2.181 2.342
Year ended 12/31/91 11.54 0.230 4.160 4.390
Year ended 12/31/90 13.72 0.714 (2.155) (1.441)
Year ended 12/31/89 13.13 0.260 1.874 2.134
Year ended 12/31/88 10.64 0.224 2.761 2.985
Year ended 12/31/87 11.66 0.112 (0.291) (0.179)
1/16/86* to 12/31/86 10.00 0.075 1.585 1.660
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
7/15/94* to 12/31/94 10.00 0.010 (0.154) (0.144)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
LESS:
----------------------------------- RATIOS TO AVERAGE NET ASSETS
DIVIDENDS FROM DISTRIBUTIONS NET ASSET ----------------------------
AND IN EXCESS OF FROM CAPITAL VALUE, END TOTAL INVESTMENT
INVESTMENT INCOME-NET GAINS OF PERIOD RETURN EXPENSES INCOME-NET
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LAZARD EQUITY PORTFOLIO
Year ended 12/31/94 $(0.152) $(0.574) $13.75 4.2% 1.05% 1.15%
Year ended 12/31/93 (0.165) (1.015) 13.89 18.6 1.05(e) 1.31
Year ended 12/31/92 (0.132) (0.109) 12.74 5.3 1.05(d) 1.19
Year ended 12/31/91 (0.082) (2.266) 12.34 27.5 1.93 0.84
Year ended 12/31/90 (0.223)(b) -- 11.53 (4.7) 1.77 1.62
Year ended 12/31/89 (0.214) (0.201) 12.34 23.6 1.78 1.71
Year ended 12/31/88 (0.188) -- 10.32 20.4 1.84 1.86
6/1/87* to 12/31/87 (0.100) -- 8.73 (11.7)++ 1.68+ 1.93+
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended 12/31/94 -- (1.123) 11.23 0.2 0.94 0.75
Year ended 12/31/93 (0.021) (0.079) 12.32 31.0 0.99 1.13
Year ended 12/31/92 (0.138) -- 9.48 (6.6) 1.05(d) 2.13
10/29/91* to 12/31/91 (0.020) -- 10.30 3.2++ 1.05+,(c) 2.19+
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended 12/31/94 (0.593) (0.116) 10.23 4.2 1.05(f) 5.68
Year ended 12/31/93 (0.570) (0.193) 10.51 15.7 1.05(e) 5.50
Year ended 12/31/92 (0.614) (0.087) 9.79 2.0 1.05(d) 6.08
11/8/91* to 12/31/91 (0.110) -- 10.28 3.9++ 1.05+,(c) 4.82+
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended 12/31/94 (0.584) (0.029) 9.24 (4.2) 0.80(f) 6.11
Year ended 12/31/93 (0.551) (0.232) 10.28 8.6 0.80(e) 5.22
Year ended 12/31/92 (0.577) (0.036) 10.21 5.7 0.80(d) 5.59
11/12/91* to 12/31/91 (0.140) -- 10.25 3.9++ 0.80+,(c) 5.50+
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended 12/31/94 (0.761) (0.039) 9.10 (2.3) 1.05(f) 8.03
Year ended 12/31/93 (0.633) (0.119) 10.13 15.6 1.05(e) 6.36
Year ended 12/31/92 (1.049) (0.020) 9.50 6.0 1.05(d) 10.57
10/1/91* to 12/31/91 (0.250) -- 9.97 2.1++ 1.05+,(c) 9.52+
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended 12/31/94 (0.042) (1.158) 14.35 2.0 0.85 0.51
Year ended 12/31/93 (0.020) (1.549) 15.26 30.1 0.88 0.16
Year ended 12/31/92 (0.019) -- 12.98 24.8 1.05(d) 0.29
10/30/91* to 12/31/91 (0.030) -- 10.42 4.5++ 1.05+,(c) 2.47+
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended 12/31/94 -- -- 10.38 (4.5) 1.05(f) 0.95
12/1/93* to 12/31/93 (0.003) -- 10.86 8.7++ 1.05+,(e) 1.76+
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Year ended 12/31/94 (0.155) (3.279) 11.89 (2.6) 1.71 0.87
Year ended 12/31/93 (0.157) (2.648) 15.73 10.2 1.67 0.74
Year ended 12/31/92 (0.160) (0.422) 16.90 15.5 1.70 1.04
Year ended 12/31/91 (0.227) (0.563) 15.14 38.2 1.77 1.63
Year ended 12/31/90 (0.739) -- 11.54 (10.5) 1.78 4.70(a)
Year ended 12/31/89 (0.264) (1.280) 13.72 16.2 1.78 1.82
Year ended 12/31/88 (0.245) (0.250) 13.13 28.0 1.96 1.87
Year ended 12/31/87 (0.105) (0.736) 10.64 (1.9) 1.81 0.82
1/16/86* to 12/31/86 -- -- 11.66 16.6++ 2.23+ 0.71+
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
7/15/94* to 12/31/94 -- -- 9.86 (1.4)++ 1.30+,(f) 0.31+
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NET ASSETS,
PORTFOLIO END OF
TURNOVER PERIOD
RATE (000'S)
- --------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
Year ended 12/31/94 66.52% $ 89,105
Year ended 12/31/93 63.92 47,123
Year ended 12/31/92 174.45 24,646
Year ended 12/31/91 90.00 14,821
Year ended 12/31/90 70.00 14,397
Year ended 12/31/89 78.00 16,239
Year ended 12/31/88 111.00 12,336
6/1/87* to 12/31/87 97.00 10,186
- --------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended 12/31/94 106.15 831,877
Year ended 12/31/93 86.95 603,642
Year ended 12/31/92 60.37 176,005
10/29/91* to 12/31/91 0.18 4,967
- --------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended 12/31/94 65.90 35,803
Year ended 12/31/93 115.84 13,546
Year ended 12/31/92 256.20 8,183
11/8/91* to 12/31/91 6.43 1,427
- --------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended 12/31/94 120.51 24,494
Year ended 12/31/93 174.63 13,562
Year ended 12/31/92 131.38 8,532
11/12/91* to 12/31/91 10.46 3,256
- --------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended 12/31/94 195.18 62,328
Year ended 12/31/93 215.60 34,943
Year ended 12/31/92 122.88 9,641
10/1/91* to 12/31/91 11.26 4,256
- --------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended 12/31/94 70.11 429,673
Year ended 12/31/93 98.47 350,952
Year ended 12/31/92 106.91 168,171
10/30/91* to 12/31/91 5.50 2,512
- --------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended 12/31/94 112.92 83,432
12/1/93* to 12/31/93 0.84 13,522
- --------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Year ended 12/31/94 11.29 61,498
Year ended 12/31/93 26.31 118,129
Year ended 12/31/92 10.93 150,488
Year ended 12/31/91 19.48 111,395
Year ended 12/31/90 27.18 76,972
Year ended 12/31/89 40.67 101,522
Year ended 12/31/88 64.90 74,695
Year ended 12/31/87 90.86 53,942
1/16/86* to 12/31/86 73.12 51,403
- --------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
7/15/94* to 12/31/94 30.68 17,025
- --------------------------------------------------------------------------------
*Commencement of operations.
+Annualized.
++Not Annualized.
(a)The Portfolio received a special distribution from one of its portfolio
investments. Had the Fund not received this distribution, the ratio would
have been 2.20%.
(b)Includes $.032 per share of distributions from paid-in capital, none of which
is a return of capital for tax purposes.
(c)If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets would have been
10.84%+ ($0.056) for the International Equity Portfolio, 20.71%+ ($0.293) for
the International Fixed-Income Portfolio, 7.80%+ ($.0114) for the Bond
Portfolio, 6.22%+ ($0.075) for the Strategic Yield Portfolio, and 11.05%+
($0.085) for the Small Cap Portfolio.
(d)If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets would have been
1.53% ($0.050) for the Equity Portfolio, 1.37% ($0.014) for the International
Equity Portfolio, 2.80% ($0.176) for the International Fixed-Income
Portfolio, 3.23% ($0.0251) for the Bond Portfolio, 2.99% ($0.192) for the
Strategic Yield Portfolio, and 1.14%+ ($0.006) for the Small Cap Portfolio.
(e)If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets would have been
1.18% ($0.020) for the Equity Portfolio, 2.87%+ ($0.010) for the
International Small Cap Portfolio, 2.08% ($0.119) for the International
Fixed-Income Portfolio, 1.76% ($0.101) for the Bond Portfolio, and 1.63%
($0.058) for the Strategic Yield Portfolio.
(f)If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets would have been
1.26% ($0.016) for the International Small Cap Portfolio, 1.51% ($0.048) for
the International Fixed-Income Portfolio, 1.23% ($0.041) for the Bond
Portfolio, 1.15% ($0.009) for the Strategic Yield Portfolio and 2.31%+
($0.034) for the Emerging Markets Portfolio.
F-22
<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Lazard Funds, Inc. (the "Fund") was incorporated in Maryland on May
17, 1991 and is registered under the Investment Company Act of 1940 (the
"Act"), as amended, as an open-end management investment company. The Fund
was originally comprised of five portfolios: Lazard International Equity
Portfolio (the "International Equity Portfolio"), Lazard International
Fixed-Income Portfolio, formerly Lazard Global Fixed-Income Portfolio, (the
"International Fixed-Income Portfolio"), Lazard Bond Portfolio, formerly
Lazard High Quality Bond Portfolio, (the "Bond Portfolio"), Lazard Strategic
Yield Portfolio, formerly Lazard High-Yield Portfolio, (the "Strategic Yield
Portfolio") and Lazard Small Cap Portfolio (the "Small Cap Portfolio").
Effective January 1, 1992, the Lazard Equity Fund and the Lazard Special
Equity Fund, Inc. ("Old Funds") were reorganized as separate portfolios ("New
Funds") of the Fund, namely Lazard Equity Portfolio (the "Equity Portfolio"),
and Lazard Special Equity Portfolio (the "Special Equity Portfolio"),
respectively. The per share data included herein includes per share data for
both the Old Funds and New Funds.
Effective November 1, 1993, Lazard International Small Cap Portfolio
(the "International Small Cap Portfolio") and Lazard Emerging Markets
Portfolio (the "Emerging Markets Portfolio") were added to the Fund. The
Lazard Emerging Markets Portfolio was first offered for sale on July 15,
1994.
The Board of Directors of the Fund approved a change in certain
non-fundamental investment policies effective January 1, 1993 for the
International Fixed-Income Portfolio, and effective May 1, 1993, for the Bond
Portfolio, and Strategic Yield Portfolio.
The Equity Portfolio and Special Equity Portfolio are operated as
"diversified" as defined in the Act. The remaining
Portfolios are "non-diversified."
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
(a) VALUATION OF INVESTMENTS--The value of securities, other than
options listed on national securities exchanges and debt securities maturing
in 60 days or less, is determined as of the close of regular trading on the
New York Stock Exchange. Options on stocks and stock indices traded on
national securities exchanges are valued as of the close of options trading
on such exchanges (which is currently 4:10 p.m. New York time). Debt
securities maturing in sixty days or less are valued at amortized cost. Each
security for which the primary market is on a national securities exchange is
valued at the last sale price in the principal exchange on which it is
traded, or, if no sales are reported on such exchange on that day, at the
closing bid price.
Any security held by any Portfolio except the Special Equity Portfolio
for which the primary market is the National Association of Securities
Dealers Automated Quotations National Market System is valued at the last
sale price as quoted by such System or, in the absence of any sale on the
valuation date, at the closing bid price. Any other unlisted security for
which current over-the-counter market quotations or bids are readily
available is valued at its last quoted bid price or, for each of these
Portfolios except the Equity Portfolio, if available, the mean of two such
prices.
Any security held by the Special Equity Portfolio that is not listed on
a national securities exchange but that is quoted on the National Association
of Securities Dealers Automated Quotations System is valued at the last bid
price as quoted by such System. Any other security held by the Special Equity
Portfolio for which current over-the-counter market quotations or bids are
readily available is valued at its last quoted bid price or, if available,
the mean of two such prices.
All other securities and other assets for which current market
quotations are not readily available are valued at fair value as determined
in good faith by the Fund's Board of Directors and in accordance with
procedures adopted by the Board of Directors. The portfolio securities of any
of the Portfolios may also be valued on the basis of prices provided by a
pricing service when such prices are believed by the Investment Manager to
reflect the fair market value of such securities.
(b) SECURITIES TRANSACTIONS AND INVESTMENT INCOME--Security transactions
are accounted for on the trade date. Realized gains and losses on sales of
investments are recorded on a first-in, first-out basis. Dividend income is
recorded on the ex-date. Interest income is accrued daily. The Portfolios
amortize premiums and accrue discounts on fixed income securities.
(c) FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--In connection with
portfolio purchases and sales of securities denominated in a foreign
currency, International Equity Portfolio, International Fixed-Income
Portfolio, Strategic Yield Portfolio, International Small Cap Portfolio and
Emerging Markets Portfolio the ("eligible portfolios") enter into forward
foreign currency exchange contracts ("contracts"). Additionally, from time to
time each portfolio may enter into contracts to hedge certain other foreign
currency denominated assets. Certain risks may arise upon entering these
contracts from the possible movement in foreign exchange rates and the
potential inability of counterparties to meet the terms of their contracts.
These contracts are presented at an amount representing the net increase or
decrease in value from the date the contract was entered into, to the
financial statement date. Gains or losses on these contracts are included in
realized or unrealized foreign exchange transaction in the accompanying
Statements of Operations.
(d)FOREIGN CURRENCY TRANSLATIONS--The books and records of the eligible
portfolios are maintained in U.S. dollars. Foreign exchange transactions are
translated into U.S. dollars on the following basis:
(i) the foreign currency market value of investment securities,
contracts, and other assets and liabilities stated in foreign currencies are
translated at the exchange rate at the end of the period; and
(ii) purchases and sales of investment securities, dividends, interest
income and expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
The eligible portfolios isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities. Such exchange rate changes are included in realized and
unrealized gain (loss) on investments as foreign exchange transactions.
Foreign exchange gain (loss) is treated as ordinary income for federal income
tax purposes to the extent constituting "Section 988 Transactions" pursuant
to the Internal Revenue Code ("IRC"), including, currency gains (losses )
related to the sale of debt securities, forward foreign currency exchange
contracts, payments of liabilities, and collections of receivables.
F-23
<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(e) FEDERAL INCOME TAXES--The Fund's policy is to qualify each Portfolio
as a regulated investment company under the IRC and to distribute all of its
taxable income, including any realized net capital gains to shareholders.
Therefore, no Federal income tax provision is required.
(f) DIVIDENDS AND DISTRIBUTIONS--The Fund intends to declare dividends
from net investment income on shares of the International Fixed-Income
Portfolio, the Bond Portfolio and the Strategic Yield Portfolio daily and pay
such dividends monthly. Dividends from net investment income on shares of the
Equity Portfolio will be declared and paid quarterly. Dividends from net
investment income on shares of the International Equity Portfolio, Small Cap
Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio and
the Special Equity Portfolio will be declared and paid annually. During any
particular year, net realized gains from investment transactions in excess of
available capital loss carry forwards would be taxable to the Fund if not
distributed. The Fund intends to declare and distribute these amounts
annually to shareholders; however, to avoid taxation a second distribution
may be required.
Income distributions and capital gains distributions are determined in
accordance with federal income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due
to differing treatments for foreign currency transactions.
(g) ORGANIZATIONAL EXPENSES--Costs incurred by the Fund in connection
with its organization and initial registration of shares have been deferred
and are being amortized on a straight line basis over a five-year period from
the date of commencement of operations of each Portfolio. In the event that
any of the initial shares of any of the Portfolios during such period are
redeemed, the appropriate Portfolio will be reimbursed by such holder for any
unamortized organizational expenses in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
(h) ALLOCATION OF EXPENSES--Expenses not directly chargeable to a
specific Portfolio are allocated primarily on the basis of relative net
assets.
(i) CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS--In 1993 the
Fund adopted Statement of Position 93-2 DETERMINATION, DISCLOSURE, AND
FINANCIAL STATEMENT PRESENTATION OF LNCOME, CAPITAL GAINS, AND RETURN OF
CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES. Accordingly, permanent book
and tax basis differences relating to shareholder distributions have been
reclassified. As of January 1, 1993 the International Equity Portfolio,
reclassified ($762,583) from accumulated undistributed investment income--net
to accumulated undistributed realized gain (loss)--net. Investment
income--net, realized gain (loss)--net and net assets were not affected by
this change.
3. INVESTMENT MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment management agreement (the
"Management Agreement") with Lazard Freres Asset Management (the "Manager"),
a division of Lazard Freres & Co., on behalf of each Portfolio. Pursuant to
the Management Agreement, the Manager will regularly provide the Portfolios
with investment research, advice and supervision and furnish continuously an
investment program for each Portfolio consistent with its investment
objectives and policies, including the purchase, retention and disposition of
securities. Each of the Portfolios pays the 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: Equity Portfolio, .75%;
International Equity Portfolio, .75%; International Fixed-Income Portfolio,
.75%; Bond Portfolio, .50%; Strategic Yield Portfolio, .75%; Small Cap
Portfolio, .75%; International Small Cap, .75%; Special Equity Portfolio,
1.50% and Emerging Markets Portfolio, 1.00%. The investment management fees
are accrued daily and payable monthly with the exception of those paid by the
Special Equity Portfolio, which are payable quarterly.
Under certain state regulations, if the total expenses of any of the
Portfolios exceed certain limitations the Fund's Manager is required to
reimburse the Portfolio for such excess.
The Manager has agreed to maintain the annualized total operating
expenses of the International Fixed-Income Portfolio, Strategic Yield
Portfolio and International Small Cap Portfolio at a level not to exceed
1.05%; Emerging Markets at a level not to exceed 1.30%; and Bond Portfolio at
a level not to exceed. 0.80% of the average daily value of the net assets of
the relevant portfolio until December 31, 1994 or such time as the respective
Portfolio reaches total net assets of $100 million.
For the year ended December 31, 1994, the Manager did not impose
management fees amounting to $57,542 for Emerging Markets Portfolio and did
not impose part of its management fee amounting to $49,046 for Strategic
Yield Portfolio, $97,542 for International Fixed-Income Portfolio, $87,343
for Bond Portfolio, and $133,156 for International Small Cap Portfolio. For
the same period the Manager reimbursed expenses amounting to $510 for
Emerging Markets Portfolio. At December 31, 1994, certain Portfolios had
amounts "Due from Manager" shown on the Statement of Assets and Liabilities
which represents reimbursement for excess operating expenses.
The Fund has a distribution agreement with Lazard Freres & Co. As the
distributor, Lazard Freres & Co. acts as distributor for shares of each of
the Portfolios and bears the cost of printing and mailing prospectuses to
potential investors and of any advertising expenses incurred in connection
with the distribution of shares.
Certain Directors of the Fund are General Partners of the Manager.
F-24
<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales of portfolio securities, (excluding short-term
securities), for the year ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL STRATEGIC SMALL INTERNATIONAL SPECIAL EMERGING
EQUITY EQUITY FIXED-INCOME BOND YIELD CAP SMALL CAP EQUITY MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO(1) PORTFOLIO(2) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------- ------------- ------------ ------------ ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases $79,243,960 $954,887,128 $35,314,267 $32,770,823 $120,164,139 $328,437,345 $136,491,409 $ 8,464,948 $22,023,570
Sales 43,821,291 768,397,496 13,091,526 22,483,769 97,297,729 263,550,259 65,947,901 50,070,332 4,430,004
</TABLE>
(1) INCLUDES PURCHASES AND SALES OF U.S. GOVERNMENT SECURITIES OF
$19,472,897 AND $11,961,554, RESPECTIVELY.
(2) INCLUDES PURCHASES AND SALES OF U.S. GOVERNMENT SECURITIES OF
$20,870,920 AND $23,036,281, RESPECTIVELY.
For the same period, the Equity Portfolio, Small Cap Portfolio and
Special Equity Portfolio paid brokerage commissions of $1,655; $14,125;
$10,397; respectively, to Lazard Freres & Co. for portfolio transactions
executed on behalf of the Portfolios.
Included in the Receivable for investments sold at December 31, 1994 for
Strategic Yield Portfolio and Special Equity Portfolio are $102,733 and
$65,748, respectively for unsettled sales with Lazard Freres & Co.
Realized gains reported by the International Equity Portfolio includes
$1,395,157 of investment gain and $1,045,185 of foreign exchange transaction
gain arising from in-kind redemptions.
5. FEDERAL INCOME TAXES
For Federal income tax purposes capital loss carryforwards of
$2,325,314; $1,151,722; $3,365,427 and $149,287 are available to the extent
provided by regulations to offset future realized capital gains of the
International Small Cap Portfolio, Bond Portfolio, Strategic Yield Portfolio
and Emerging Markets, respectively. These losses expire in 2002.
Certain capital and currency losses incurred after October 31, within
the taxable year are deemed to arise on the first business day of the
Portfolios' next taxable year. During the year ended December 31, 1994,
International Equity Portfolio, International Fixed-Income Portfolio and
Strategic Yield Portfolio will elect to defer net capital and currency losses
of $7,249,726; $4,161 and $40,186 respectively.
6. PRIVATE PLACEMENTS
At December 31, 1994, the Small Cap Portfolio held the following
securities which were private placements and represented 1.28% (at value) of
the net assets of the Portfolio:
ACQUISITION
SECURITY DATE VALUE
-------- ----------- ----------
Independent Bancorp of Arizona 4/14/93 $2,773,225
Verbex Voice Systems Inc. 7/12/93 1,180,501
Interactive Light Holdings Inc. 2/4/94 1,000,000
Pharma Patch Plc 2/24/94 170,626
Trinity Biotech Plc 10/24/94 396,113
----------
$5,520,465
==========
The Independent Bancorp of Arizona, Pharma Patch Plc, and Trinity
Biotech Plc are valued based on readily available market quotations. Verbex
Voice Systems Inc. and Interactive Light Holdings Inc. are valued as
determined in good faith by the Fund's Board of Directors and in accordance
with the procedures adopted by the Board of Directors. The Small Cap
Portfolio will bear any cost, including those involved in registration under
the Securities Act of 1933, in connection with the disposition of such
securities.
F-25
<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
The Lazard Funds, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of The Lazard Funds, Inc. (comprised of,
Lazard Equity Portfolio, Lazard International Equity Portfolio, Lazard
International Fixed-Income Portfolio, Lazard Bond Portfolio, Lazard Strategic
Yield Portfolio, Lazard Small Cap Portfolio, Lazard International Small Cap
Portfolio, Lazard Special Equity Portfolio and Lazard Emerging Markets
Portfolio) as of December 31, 1994, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended and the selected per share data and ratios for
each of the periods presented, except as noted below. These financial statements
and per share data and ratios are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
per share data and ratios based on our audits. The selected per share data and
ratios for the periods through December 31, 1991 of Lazard Equity Portfolio and
Lazard Special Equity Portfolio were audited by other auditors whose reports
dated February 5, 1992 and February 3, 1992, respectively, expressed unqualified
opinions on those selected per share data and ratios.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected per
share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1994, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and selected per share data and
ratios audited by us, as stated above, present fairly, in all material respects,
the financial position of each of the respective portfolios constituting the
Lazard Funds, Inc. as of December 31, 1994, the results of their operations for
the year then ended and changes in their net assets for each of the two years in
the period then ended and the selected per share data and ratios for the periods
presented in conformity with generally accepted accounting principles.
SEYMOUR SCHNEIDMAN & ASSOCIATES
New York, New York
February 1, 1995
F-26
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--93.6%
AEROSPACE & DEFENSE--3.3%
Lockheed Martin Corp. 32,000 $ 2,020,000
McDonnell Douglas Corp. 29,800 2,287,150
------------
4,307,150
------------
AUTOMOTIVE--1.7%
Fiat SPA (a),(b) 145,500 1,600,500
Navistar International Corp. (a) 44,600 674,575
------------
2,275,075
------------
BANKS--5.5%
Chemical Banking Corp. 61,000 2,882,250
First Interstate Bancorp 32,400 2,600,100
Mellon Bank Corp. 44,300 1,843,988
------------
7,326,338
------------
BROADCASTING--3.4%
Capital Cities ABC Inc. 20,000 2,160,000
CBS Inc. 35,700 2,391,900
------------
4,551,900
------------
CHEMICALS & PLASTICS--6.7%
E I du Pont de Nemours & Co. 48,300 3,320,625
FMC Corp (a) 11,800 793,550
Hercules Inc. 57,900 2,822,625
W R Grace & Co. 32,400 1,988,550
------------
8,925,350
------------
COMMUNICATIONS--5.0%
TeleDanmark Class B (b) 53,300 1,492,400
Airtouch Communications (a) 65,800 1,875,300
U.S. West Inc. 79,400 3,305,025
------------
6,672,725
------------
COMMUNICATION SERVICES--3.8%
AT&T Corp. 57,500 3,054,687
TeleCommunications Inc. (New) Class A (a) 84,900 1,989,844
------------
5,044,531
------------
COMPUTERS & BUSINESS EQUIPMENT--1.4%
Digital Equipment Corp. (a) 45,000 1,833,750
------------
CONGLOMERATES--2.1%
ITT Corp. 23,200 2,726,000
------------
DRUGS & HEALTH CARE--7.7%
Astra AB (b) 56,100 1,725,075
American Home Products Corp. 25,900 2,004,013
Bausch & Lomb Inc. 42,100 1,747,150
Columbia/HCA Healthcare Corp. 60,225 2,604,731
Schering Plough Corp. 47,700 2,104,762
------------
10,185,731
------------
ENERGY--7.6%
Amoco Corp. 31,500 2,098,688
Kerr Mcgee Corp. 19,200 1,029,600
Mobil Corp. 31,000 2,976,000
Noble Affiliates Inc. 43,500 1,109,250
Royal Dutch Petroleum Co. (b) 23,500 2,864,062
------------
10,077,600
------------
ENTERTAINMENT--0.8%
Carnival Cruise Lines, Inc. 47,800 1,117,325
------------
FINANCIAL SERVICES--6.1%
Chase Manhattan Corp. 40,000 $ 1,880,000
Dean Witter Discover & Co. 38,342 1,802,074
Integra Financial Corp. 23,100 1,123,237
Travelers Inc. 74,000 3,237,500
------------
8,042,811
------------
FOOD & BEVERAGE--2.8%
CPC International Inc. 30,700 1,895,725
PepsiCo Inc. 40,700 1,856,938
------------
3,752,663
------------
INDUSTRIAL & MACHINERY--3.1%
Allied Signal Inc. 63,000 2,803,500
Sundstrand Corp. 22,400 1,338,400
------------
4,141,900
------------
METALS--0.9%
USX U.S. Steel Group 33,700 1,158,438
------------
OFFICE EQUIPMENT--1.5%
Xerox Corp. 17,300 2,028,425
------------
PAPER PRODUCTS--6.6%
Champion International Corp. 42,700 2,225,737
Georgia Pacific Corp. 21,700 1,882,475
Scott Paper Co. 64,000 3,168,000
Willamette Industries Inc. 26,000 1,443,000
------------
8,719,212
------------
PUBLISHING--1.2%
American Greetings Corp. 52,500 1,542,188
------------
RETAILING--8.3%
Gap Inc. 68,300 2,381,962
K Mart Corp. 79,200 1,158,300
Nike Inc. 25,000 2,100,000
Sears Roebuck & Co. 56,200 3,364,975
Toys R Us Inc. (a) 67,700 1,980,225
------------
10,985,462
------------
TECHNOLOGY--8.0%
Intel Corp. 58,600 3,710,112
International Business Machines 26,700 2,563,200
Novell Inc. (a) 96,500 1,923,969
Sun Microsystems Inc. (a) 49,700 2,410,450
------------
10,607,731
------------
TOBACCO--3.0%
Philip Morris Cos. Inc. 54,200 4,031,125
------------
TOYS & AMUSEMENTS--1.3%
Mattel Inc. 67,500 1,755,000
------------
UTILITIES--1.8%
National Power PLC (a),(b) 80,800 999,900
Southern Electric PLC (b) 71,000 1,446,625
------------
2,446,525
------------
TOTAL COMMON STOCKS
(Identified cost $104,325,406) 124,254,955
------------
</TABLE>
F-27
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS--0.7%
TOBACCO--0.7%
RJR Nabisco Holdings Class C (conv.) 164,100 $ 1,005,113
------------
TOTAL PREFERRED STOCKS
(Identified cost $1,016,950) 1,005,113
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT TERM INVESTMENTS--6.3%
FEDERAL AGENCIES--5.2%
Federal National Mortgage Association
Discount Notes, 5.89%, 7/5/95 $1,690,000 1,688,894
Federal National Mortgage Association
Discount Notes, 5.90%, 7/7/95 5,215,000 5,209,872
------------
6,898,766
------------
U.S. GOVERNMENT OBLIGATIONS--1.1%
United States Treasury Bills, 5.16%,
7/6/95 880,000 879,369
United States Treasury Bills, 5.18%,
8/3/95 510,000 507,576
------------
1,386,945
------------
TOTAL SHORT TERM INVESTMENTS
(Identified cost $8,285,711) 8,285,711
------------
TOTAL INVESTMENTS
(Identified cost $113,628,067)(c) 100.6% 133,545,779
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS (0.6) (768,304)
---- ----------
NET ASSETS 100.0% $132,777,475
---- ----------
---- ----------
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $113,628,067;
aggregate gross unrealized appreciation is $20,842,743 and the aggregate
gross unrealized depreciation is $925,031, resulting in net unrealized
appreciation of $19,917,712.
The accompanying notes are an integral part of these
financial statements.
F-28
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS*--96.9%
AUSTRALIA--3.4%
News Corp. Ltd. (b) 983,000 $ 19,660,000
Westpac Bank Corp. 4,251,900 15,381,785
--------------
TOTAL AUSTRALIA 35,041,785
--------------
CANADA--1.2%
Inco Ltd. 435,800 12,311,350
--------------
DENMARK--1.4%
Unidanmark Class A 294,900 14,470,605
--------------
FINLAND--2.0%
Kymmene Corp. 665,300 20,717,607
--------------
FRANCE--9.9%
Accor 84,500 11,252,035
Alcatel Alsthom (Cie Gen El) 140,000 12,605,281
Banque Nationale de Paris 191,722 9,247,614
Generale des Eaux 216,292 24,075,543
Michelin Class B (a) 226,800 10,046,651
Roussel Uclaf 1,000 156,041
Roussel Uclaf 144A (b) 224,400 17,503,200
Total SA-B 308,081 18,543,411
--------------
TOTAL FRANCE 103,429,776
--------------
GERMANY--9.1%
Hoechst AG 97,600 21,088,206
Mannesmann AG 32,100 9,807,108
Mannesmann AG (b) 48,505 14,502,995
Siemens AG 44,400 22,041,073
Veba AG 70,328 27,639,937
--------------
TOTAL GERMANY 95,079,319
--------------
HONG KONG--2.2%
HSBC Holdings Ltd. 1,400,600 17,964,996
Peregrine Investment 3,718,000 5,285,482
--------------
TOTAL HONG KONG 23,250,478
--------------
INDONESIA--0.3%
Hanjaya Mandala Sampoerna 404,000 3,174,674
--------------
ITALY--1.7%
Fiat SPA (a) 8,068,400 17,554,472
--------------
JAPAN--15.5%
Dai Nippon Printing 543,000 8,649,047
DDI Corp. 3,871 31,057,519
Hitachi 2,215,000 22,083,358
Mazda Motor Corp. (a) 2,612,000 9,183,836
Mitsubishi Heavy Ind. 2,526,000 17,166,846
Omron Corp. 908,000 17,355,436
Promise Co. 203,600 8,503,852
Rohm Co., Ltd. 466,000 24,082,119
Sekisui Chemical 500,000 5,899,357
Sony Corp. 375,000 18,007,787
--------------
TOTAL JAPAN 161,989,157
--------------
MALAYSIA--0.4%
Aokam Perdana Berhad 1,567,000 3,888,577
--------------
MEXICO--1.1%
Grupo Industrial Alfa SA 966,500 11,737,176
--------------
NETHERLANDS--10.2%
Akzo NV 168,100 $ 20,091,720
Heineken NV 193,100 29,223,588
Internationale-Nederlanden Group NV 411,420 22,754,885
Nedlloyd Group NV 436,300 14,867,144
Royal Dutch Petroleum Co. (b) 164,200 20,011,875
--------------
TOTAL NETHERLANDS 106,949,212
--------------
NEW ZEALAND--2.5%
Fletcher Challenge 6,106,600 17,146,490
Lion Nathan Ltd. 4,593,900 9,090,750
--------------
TOTAL NEW ZEALAND 26,237,240
--------------
NORWAY--1.1%
Aker AS Class A 401,700 5,378,601
Aker AS Class B 465,100 5,850,077
--------------
TOTAL NORWAY 11,228,678
--------------
SOUTH KOREA--1.0%
Samsung Electronics Ltd. Global
Deposit Receipt Republic 144A
Non-Voting (a),(b) 87,234 4,536,168
Samsung Electronics Ltd. Global
Deposit Shares 144A (a),(b) 25,000 1,318,750
Samsung Electronics Ltd. Global
Depositary Receipt 144A (a),(b) 1,850 169,506
Samsung Electronics Ltd. Global
Depositary Shares 144A (a),(b) 78,100 4,061,200
Samsung Electronics Ltd. Sponsored
Global Deposit 144A (b) 9,349 865,951
--------------
TOTAL SOUTH KOREA 10,951,575
--------------
SPAIN--0.5%
Banco Santander SA 130,100 5,128,813
--------------
SWEDEN--5.3%
Asea AB 264,500 22,480,918
Astra AB 698,500 21,038,288
Volvo AB 633,900 12,074,535
--------------
TOTAL SWEDEN 55,593,741
--------------
SWITZERLAND--10.8%
Baloise Holdings 6,410 14,612,462
Ciba Geigy AG 31,910 23,388,658
Nestle SA 30,185 31,430,148
Schweizerische Rueckversicherungs 30,000 23,108,989
SGS Holding 11,691 20,305,688
--------------
TOTAL SWITZERLAND 112,845,945
--------------
UNITED KINGDOM--17.3%
Barclays Bank PLC 1,375,300 14,776,764
British Aerospace Ord. 2,966,195 26,562,236
British Aerospace PLC New (a) 117,216 1,323,737
Cadbury Schweppes 3,164,889 23,106,157
Lloyds Abbey Life PLC 1,911,300 11,886,724
Midlands Electric 1,783,000 17,866,868
Mirror Group PLC 3,596,600 7,608,522
National Power Ord. 1,127,500 7,989,522
National Power P/P Ord. 2,020,800 5,560,655
Rank Organisation 2,905,200 18,345,227
Royal Bank of Scotland 3,398,700 23,110,295
Thorn EMI 1,067,100 22,099,001
--------------
TOTAL UNITED KINGDOM 180,235,708
--------------
TOTAL COMMON STOCKS
(Identified cost $932,864,093) 1,011,815,888
--------------
</TABLE>
F-29
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
WARRANTS--0.0%
Baloise Holdings 3,745 $ 35,775
--------------
TOTAL WARRANTS
(Identified cost $0) 35,775
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT TERM INVESTMENTS--6.0%
COMMERCIAL PAPER--0.1%
Ford Motor Credit Corp., 6.05%, 7/3/95 $ 1,295,000 1,294,565
--------------
FEDERAL AGENCIES--5.8%
Federal National Mortgage Association
Discount Notes, 5.88%, 7/5/95 29,295,000 29,275,862
Federal National Mortgage Association
Discount Notes, 5.90%, 7/7/95 31,245,000 31,214,275
--------------
60,490,137
--------------
U.S. GOVERNMENT OBLIGATIONS--0.1%
United States Treasury Bills,
5.20%, 8/3/95 925,000 920,591
--------------
TOTAL SHORT TERM INVESTMENTS
(Identified cost $62,705,293) 62,705,293
--------------
TOTAL INVESTMENTS
(Identified cost $995,569,386)(c) 102.9% 1,074,556,956
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS (2.9) (29,895,734)
----------- --------------
NET ASSETS 100.0% $1,044,661,222
======= ==============
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $995,569,386;
aggregate gross unrealized appreciation is $100,232,709 and the aggregate
gross unrealized depreciation is $21,245,139, resulting in net unrealized
appreciation of $78,987,570.
* Percentages of common stocks are presented in the portfolio by country.
Percentages by industry are as follows:
Aerospace & Defense 2.7%, Automotive 4.7%, Banks 9.8%, Chemicals & Plastics
4.5%, Domestic Oil 1.1%, Drugs & Health Care 5.9%, Electrical Equipment 7.2%,
Electronics 5.0%, Energy 1.9%, Entertainment 1.8%, Financial Services 2.3%,
Food & Beverage 9.4%, Forest Products 0.4%, Industrial & Machinery 2.1%,
Insurance 2.5%, International Oil 1.8%, Machinery 4.0%, Mining 1.2%,
Miscellaneous 3.0%, Paper Products 3.6%, Publishing 2.6%, Retailing 2.1%,
Services 3.8%, Steel 1.1%, Telephone 3.0%, Transportation & Freight Services
1.4%, Utilities 8.0%.
Forward Foreign Currency Contracts open at June 30, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ------------------ ---------------- -------- -----------
<S> <C> <C> <C>
DEM 29,026,049 $ 20,118,000 9/11/95 ($ 931,110)
FRF 155,019,249 $ 30,177,000 9/11/95 (1,715,876)
DFL 32,476,286 $ 20,118,000 9/11/95 (916,137)
SEK 224,593,228 $ 30,177,000 9/11/95 (517,820)
FRF 21,010 $ 4,325 7/31/95 (6)
ITL 2,496,829,136 $ 1,504,516 7/31/95 (21,430)
$ 648,622 GBP 406,074 7/07/95 (2,727)
$ 1,256,693 PTS 151,670,275 7/06/95 (4,513)
IDR 431,461,416 $ 193,480 7/06/95 (261)
$ 1,918,960 PTS 231,733,550 7/05/95 (5,782)
$ 2,012,970 GBP 1,251,494 7/05/95 (22,364)
$ 6,347,570 JPY 536,814,029 7/05/95 (13,855)
$ 3,663,716 DFL 5,665,204 7/05/95 (7,566)
$ 2,018,528 PTS 243,474,797 7/03/95 (8,416)
$ 854,202 GBP 531,716 7/03/95 (8,463)
$ 2,310,048 HKD 17,871,685 7/03/95 (388)
$ 3,646,960 JPY 307,621,092 7/03/95 (17,427)
IDR 2,849,556,052 $ 1,277,828 7/03/95 (1,721)
DFL 2,561,765 $1,637,434 7/03/95 (15,851)
-----------
($4,211,713)
===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-30
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENCY DENOMINATED BONDS* --95.2%
AUSTRALIAN DOLLAR--0.9%
GOVERNMENT OBLIGATIONS
Commonwealth of Australia,
6.25%, 3/15/99 AUD 250,000 $ 165,853
Commonwealth of Australia,
9.50%, 8/15/03 345,000 250,842
-----------
TOTAL AUSTRALIAN DOLLAR 416,695
-----------
AUSTRIAN SCHILLING--0.9%
GOVERNMENT OBLIGATION
Republic of Austria,
5.625%, 12/14/00 ATS 4,000,000 396,715
-----------
BRITISH POUND--5.9%
GOVERNMENT OBLIGATIONS
United Kingdom Treasury,
7.25%, 3/30/98 GBP 350,000 547,831
United Kingdom Treasury,
8.00%, 6/10/03 425,000 658,676
United Kingdom Treasury,
8.50%, 12/7/05 250,000 398,764
United Kingdom Treasury,
8.50%, 7/16/07 200,000 318,415
United Kingdom Treasury,
12.50%, 11/21/05 150,000 293,761
CORPORATE BOND
Tokyo Electric Power,
11.00%, 6/5/01 250,000 436,665
-----------
TOTAL BRITISH POUND 2,654,112
-----------
CANADIAN DOLLAR--3.1%
GOVERNMENT OBLIGATIONS
Government of Canada,
9.00%, 12/1/04 CAD 600,000 466,611
Government of Canada Real Return,
4.25%, 12/1/21 800,000 587,713
CORPORATE BOND
Quebec Housing,
8.95%, 5/13/13 419,000 311,008
-----------
TOTAL CANADIAN DOLLAR 1,365,332
-----------
CZECH KORUNA--3.9%
CORPORATE BONDS
CEZ,
14.375%, 1/27/01 CZK 10,000,000 410,058
Czech Trade Bank,
11.125%, 8/26/97 5,000,000 191,973
Skoda Finance,
11.625%, 2/9/98 30,000,000 1,165,764
-----------
TOTAL CZECH KORUNA 1,767,795
-----------
DANISH KRONE--5.0%
GOVERNMENT OBLIGATION
Kingdom of Denmark,
8.00%, 5/15/03 DKR 1,000,000 $ 179,946
CORPORATE BONDS
Kreditforeningen,
10.20%, 4/15/04 (a) 5,000,000 948,060
Nykredit,
6.00%, 10/1/26 8,000,000 1,108,046
-----------
TOTAL DANISH KRONE 2,236,052
-----------
DUTCH GUILDER--4.9%
GOVERNMENT OBLIGATIONS
Government of Netherlands,
6.75%, 2/15/99 DFL 1,590,000 1,051,278
Government of Netherlands,
8.75%, 1/15/07 300,000 216,360
Government of Netherlands,
9.00%, 5/15/00 1,300,000 933,785
-----------
TOTAL DUTCH GUILDER 2,201,423
-----------
FINNISH MARKKA--3.2%
GOVERNMENT OBLIGATION
Republic of Finland,
8.50%, 4/25/05 FIM 6,600,000 1,417,429
-----------
FRENCH FRANC--3.2%
GOVERNMENT OBLIGATIONS
Government of France,
7.00%, 11/12/99 FRF 2,500,000 513,367
Government of France,
8.50%, 10/25/19 4,350,000 928,947
-----------
TOTAL FRENCH FRANC 1,442,314
-----------
GERMAN MARK--9.9%
GOVERNMENT OBLIGATIONS
Federal Republic of Germany,
6.00%, 6/20/16 DEM 800,000 485,819
Federal Republic of Germany,
8.00%, 1/21/02 700,000 537,313
Federal Republic of Germany,
8.25%, 9/20/01 500,000 388,676
CORPORATE BONDS
International Bank Reconstruction
and Development,
7.125%, 4/12/05 3,300,000 2,370,302
State of Hessen,
6.00%, 11/29/13 1,000,000 664,907
-----------
TOTAL GERMAN MARK 4,447,017
-----------
</TABLE>
F-31
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
IRISH POUND--2.6%
GOVERNMENT OBLIGATION
Republic of Ireland,
6.25%, 4/1/99 IEP 770,000 $ 1,168,863
-----------
ITALIAN LIRA--7.3%
GOVERNMENT OBLIGATIONS
Republic of Italy,
8.50%, 8/1/99 ITL 5,100,000,000 2,761,558
Republic of Italy,
12.00%, 5/1/97 400,000,000 245,146
Republic of Italy,
12.00%, 1/1/02 400,000,000 243,435
-----------
TOTAL ITALIAN LIRA 3,250,139
-----------
JAPANESE YEN--32.1%
GOVERNMENT OBLIGATIONS
Credit Local De France,
6.00%, 10/31/01 JPY 80,000,000 1,130,317
Government of Japan,
3.40%, 3/22/04 165,000,000 2,023,686
Government of Japan,
5.50%, 3/20/02 60,000,000 832,729
Government of Japan,
6.40%, 3/20/00 255,000,000 3,594,160
Republic of Austria,
4.50%, 9/28/05 80,000,000 1,071,323
Republic of Austria,
6.25%, 10/16/03 15,000,000 221,226
Republic of Italy,
3.50%, 6/20/01 230,000,000 2,813,772
CORPORATE BOND
Export Import Bank,
4.375%, 10/1/03 205,000,000 2,702,938
-----------
TOTAL JAPANESE YEN 14,390,151
-----------
NEW ZEALAND DOLLAR--1.2%
GOVERNMENT OBLIGATION
Government of New Zealand,
10.00%, 7/15/97 NZD 800,000 552,758
-----------
NORWEGIAN KRONE--2.3%
CORPORATE BOND
Sparebanken Norway,
10.25%, 6/23/03 (a) NOK 6,000,000 1,025,887
-----------
SPANISH PESETA--3.0%
GOVERNMENT OBLIGATION
Government of Spain,
12.25%, 3/25/00 PTS 160,000,000 1,355,030
-----------
SWEDISH KRONA--0.9%
GOVERNMENT OBLIGATION
Kingdom of Sweden,
10.25%, 5/5/00 SEK 3,000,000 $ 407,645
-----------
UNITED STATES DOLLAR--4.9%
FOREIGN GOVERNMENT OBLIGATION--1.5%
Argentina Bote II,
6.0625%, 9/1/97 (b) USD 1,340,000 663,300
-----------
YANKEE BONDS--3.4%
Astra International,
9.75%, 4/29/01 100,000 101,500
Banpais,
8.25%, 8/18/95 800,000 792,000
Den Norske Credit,
6.3125%, 11/29/49 (a) 700,000 541,205
Hong Kong & Shanghai Bank,
6.75%, 8/29/49 (a) 100,000 80,220
-----------
1,514,925
-----------
TOTAL UNITED STATES DOLLAR 2,178,225
-----------
TOTAL CURRENCY DENOMINATED BONDS *
(Identified cost $39,799,094) 42,673,582
-----------
SHORT TERM INVESTMENTS--4.2%
U.S. GOVERNMENT OBLIGATIONS--4.2%
United States Treasury Bills,
5.16%, 7/6/95 275,000 274,803
United States Treasury Bills,
5.21%, 8/3/95 1,595,000 1,587,376
-----------
TOTAL SHORT TERM INVESTMENTS
(Identified cost $1,862,179) 1,862,179
-----------
TOTAL INVESTMENTS
(Identified cost $41,661,273) (c) 99.4% 44,535,761
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES 0.6 266,700
---- ---------
NET ASSETS 100.0% $44,802,461
===== ===========
</TABLE>
F-32
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
(a) Variable rate security. Interest shown is the current rate.
(b) Coupon set quarterly to 3 month LIBOR. Current rate shown.
(c) The aggregate cost for federal income tax purposes $41,661,273; aggregate
gross unrealized appreciation is $3,108,072 and the aggregate gross
unrealized depreciation is $233,584, resulting in net unrealized
appreciation of $2,874,488.
* Percentages of holdings are presented in the portfolio by currency
denomination. Percentages by country are as follows:
Argentina 1.5%, Austria 3.8%, Australia 0.9%, Canada 3.1%, Czech Republic
3.9%, Denmark 5.0%, Finland 3.2%, France 5.7%, Germany 9.9%, Honk Kong 0.2%,
Indonesia 0.2%, Ireland 2.6%, Italy 13.5%, Japan 21.4%, Netherlands 4.9%, New
Zealand 1.2%, Norway 3.5%, Spain 3.0%, Sweden 0.9%, United Kingdom 5.0%,
United States 1.8%.
Forward Foreign Currency Contracts open at June 30, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- -------------- --------------- -------- --------
<S> <C> <C> <C>
AUD 163,728 $ 117,000 9/12/95 $ 989
$ 478,000 CAD 655,458 9/12/95 (1,614)
$ 845,000 DEM 1,206,153 9/12/95 29,708
$ 543,000 DKR 3,055,733 9/12/95 21,954
$ 895,000 FRF 4,603,701 9/12/95 52,121
$ 83,000 JPY 7,119,740 9/12/95 1,826
NOK 6,483,516 $ 1,014,000 9/12/95 (39,314)
$ 146,000 SEK 1093,978 9/12/95 3,499
$ 360,058 JPY 30,338,458 7/10/95 (2,103)
$ 290,674 DFL 450,400 7/05/95 0
$ 692,163 DEM 968,267 7/03/95 8,008
DEM 1,071,760 $ 771,364 7/03/95 (3,645)
--------
$ 71,429
========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-33
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSET-BACKED SECURITIES--8.1%
American Financial Home Equity Loan,
8.00%, 7/25/06 $ 85,319 $ 86,865
Bridgestone Firestone,
6.25%, 12/1/99 183,333 183,562
D.R. Structure Finance Corp., 9.35%,
8/15/19 600,000 615,000
Fical Home Equity Loan Trust, 8.90%,
11/15/97 3,503 3,524
G E Capital Mortgage Services Inc.,
7.20%, 9/15/11 58,864 59,158
Green Tree Financial Corp., 6.60%,
6/15/19 387,522 388,975
Green Tree Financial Corp., 7.25%,
1/15/20 600,000 608,625
Olympic Automobile Receivable, 6.85%,
6/15/01 680,215 686,911
Security Pacific Home Equity Loan,
7.85%, 5/15/98 46,239 46,933
-----------
TOTAL ASSET-BACKED SECURITIES
(Identified Cost $2,628,730) 2,679,553
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS--2.8%
DLJ Mortgage Acceptance Corp., 6.50%,
4/25/24 425,000 422,742
Prudential Home Mortgage Securities
Co., 7.50%, 8/25/24 500,000 505,000
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Identified Cost $908,992) 927,742
-----------
CORPORATE BONDS--4.8%
CREDIT & FINANCE--2.2%
General Motors Acceptance Corp.,
5.625%, 2/1/99 750,000 725,250
-----------
FINANCIAL SERVICES--0.8%
Salomon Inc., 8.55%, 2/17/97 265,000 272,081
-----------
STEEL--1.5%
USX Marathon Group, 8.50%, 3/1/23 500,000 501,935
-----------
UTILITIES--0.3%
Texas New Mexico Power Co., 9.25%,
9/15/00 80,000 83,200
-----------
TOTAL CORPORATE BONDS
(Identified Cost $1,556,086) 1,582,466
-----------
MUNICIPAL BONDS--1.7%
Brazos River Authority Texas Revenue,
5.80%, 8/1/15 300,000 287,973
Clark County Nevada Passenger Facility,
5.75%, 7/1/23 300,000 277,686
-----------
TOTAL MUNICIPAL BONDS
(Identified Cost $566,010) 565,659
-----------
MORTGAGE PASS-THROUGH SECURITIES--2.8%
Federal National Mortgage Association,
6.00%, 12/1/00 $ 944,340 $ 928,404
-----------
TOTAL MORTGAGE PASS-THROUGH SECURITIES
(Identified Cost $907,377) 928,404
-----------
U.S. GOVERNMENT OBLIGATIONS--75.8%
United States Treasury Bonds, 8.875%,
2/15/19 4,765,000 5,957,012
United States Treasury Notes, 4.625%,
2/15/96 105,000 104,294
United States Treasury Notes, 6.875%,
10/31/96 2,063,000 2,090,397
United States Treasury Notes, 5.125%,
4/30/98 2,400,000 2,352,384
United States Treasury Notes, 7.50%,
11/15/01 4,050,000 4,347,432
United States Treasury Notes, 5.875%,
2/15/04 4,115,000 4,014,059
United States Treasury Notes, 5.125%,
12/31/98 5,355,000 5,215,288
United States Treasury Notes, 7.75%,
12/31/99 935,000 998,262
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $24,182,130) 25,079,128
-----------
FEDERAL AGENCIES--1.6%
Federal Home Loan Mortgage Corporation,
4.875%, 6/23/98 550,000 532,383
-----------
TOTAL FEDERAL AGENCIES
(Identified Cost $518,572) 532,383
-----------
SHORT TERM INVESTMENTS--0.4%
U.S. GOVERNMENT OBLIGATIONS--0.4%
United States Treasury Bills, 5.19%,
8/3/95 125,000 124,406
-----------
TOTAL SHORT TERM INVESTMENTS
(Identified Cost $124,406) 124,406
-----------
TOTAL INVESTMENTS
(Identified cost $31,392,303)(a) 98.0% 32,419,741
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES 2.0 657,062
-------- -----------
NET ASSETS 100.0% $33,076,803
======== ===========
</TABLE>
(a) The aggregate cost for federal income tax purposes is $31,392,303;
aggregate gross unrealized appreciation is $1,034,045 and the
aggregate gross unrealized depreciation is $6,607, resulting in net
unrealized appreciation of $1,027,438.
The accompanying notes are an integral part of these
financial statements.
F-34
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD STRATEGIC YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENCY DENOMINATED BONDS*--79.0%
AUSTRALIAN DOLLAR--2.6%
GOVERNMENT OBLIGATION
Commonwealth of Australia,
7.00%, 4/15/00 AUD 2,800,000 $ 1,867,125
-----------
BRITISH POUND--0.9%
GOVERNMENT OBLIGATION
United Kingdom Treasury,
2.50%, 7/17/24 GBP 350,000 643,689
-----------
CANADIAN DOLLAR--5.0%
GOVERNMENT OBLIGATIONS
Canada Trust (conv.),
7.00%, 7/1/09 CAD 2,000,000 1,310,521
Government of Canada
Real Return,
4.25%, 12/1/21 2,850,000 2,093,728
Quebec Housing,
8.95%, 5/13/13 394,000 292,452
-----------
TOTAL CANADIAN DOLLAR 3,696,701
-----------
CZECH KORUNA--4.6%
CORPORATE BONDS
Czech Electric Co.,
14.375%, 1/27/01 CZK 20,370,000 841,198
Czech Trade Bank,
11.125%, 8/26/97 20,000,000 767,892
Skoda Finance,
11.625%, 2/9/98 45,000,000 1,748,646
-----------
TOTAL CZECH KORUNA 3,357,736
-----------
DANISH KRONE--4.4%
CORPORATE BONDS
Kreditforeningen,
10.20%, 4/15/04 (a) DKR 9,000,000 1,706,509
Nykredit,
6.00%, 10/1/26 11,000,000 1,523,562
-----------
TOTAL DANISH KRONE 3,230,071
-----------
INDONESIAN RUPIAH--1.1%
CORPORATE BONDS
Astra International,
0.00%, 11/22/95 IDR 1,000,000,000 420,805
Bakrie & Brothers,
0.00%, 12/21/95 1,000,000,000 412,663
-----------
TOTAL INDONESIAN RUPIAH 833,468
-----------
IRISH POUND--2.7%
GOVERNMENT OBLIGATION
Republic of Ireland, 6.25%,
4/1/99 IEP 1,305,000 1,980,994
-----------
ITALIAN LIRA--1.0%
GOVERNMENT OBLIGATION
Republic of Italy,
8.50%, 8/1/99 ITL 1,400,000,000 758,075
-----------
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C>
NEW ZEALAND DOLLAR--1.3%
GOVERNMENT OBLIGATION
Government of New Zealand,
10.00%, 7/15/97 NZD 1,400,000 $ 967,327
-----------
NORWEGIAN KRONE--2.3%
CORPORATE BOND
Sparebanken Norway,
10.25%, 6/23/03 NOK 10,000,000 1,709,811
-----------
SPANISH PESETA--1.6%
GOVERNMENT OBLIGATION
Government of Spain,
12.25%, 3/25/00 PTS 140,000,000 1,185,651
-----------
SOUTH AFRICAN RAND--0.6%
GOVERNMENT OBLIGATION
Republic of South Africa,
12.00%, 2/28/05 ZAR 1,960,000 419,321
-----------
SWITZERLAND FRANC--0.5%
CORPORATE BOND
CPC International Inc.,
5.75%, 3/27/45 CHF 500,000 371,255
-----------
THAILAND BAHT--0.6%
BILL OF EXCHANGE
Krung Thai Thana BE,
0.00%, 9/21/95 THB 10,000,000 396,193
-----------
TURKISH LIRE--0.6%
GOVERNMENT OBLIGATION
Turkey Treasury Bill,
0.00%, 8/29/95 TRL 22,000,000,000 449,454
-----------
UNITED STATES DOLLAR--49.2%
CORPORATE BONDS--23.0%
Air & Water Technologies
Corp.,
8.00%, 5/15/15 USD 300,000 237,000
Astra International,
9.75%, 4/29/01 1,540,000 1,563,100
Banco De Comercio Exterior,
8.625%, 6/2/00 650,000 654,875
Banpais SA,
8.25%, 8/18/95 900,000 879,537
Burns Philp (conv.),
5.50%, 4/30/04 745,000 646,287
Citibank Ecuador Note,
0.00%, 9/11/95 500,000 500,000
Citibank N A Rupee Note,
12.937%, 7/3/95 433,125 433,125
Columbia Gas Systems Inc.,
10.25%, 8/1/11 (e) 700,000 1,050,000
Compania Sub Americana,
7.375%, 12/8/03 260,000 241,800
Dairy Farm International
Holdings Ltd. (Conv.),
6.50%, 5/10/49 250,000 188,125
</TABLE>
F-35
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD STRATEGIC YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Den Norske Credit,
6.3125%, 11/29/49 (a) $ 800,000 $ 618,520
Eletson Holdings Inc.,
9.25%, 11/15/03 700,000 675,500
Export-Import Bank of Japan,
8.00%, 6/4/00 496,375 502,332
Flagstar Corp.,
10.75%, 9/15/01 1,050,000 987,000
Fort Howard Corp.,
8.25%, 2/1/02 785,000 745,750
Hong Kong & Shanghai Bank,
6.75%, 8/29/49 1,200,000 962,640
Kansallis Osake Pankki,
8.4375%, 9/22/43 (a) 1,000,000 1,021,500
Noble Drilling Corp.,
9.25%, 10/1/03 820,000 834,350
NorthWest Airlines Inc.,
8.625%, 8/1/96 720,000 723,600
Pathmark Stores Inc.,
9.625%, 5/1/03 550,000 536,250
Rowan Cos. Inc.,
11.875%, 12/1/01 820,000 877,400
Sequa Corp.,
9.625%, 10/15/99 1,055,000 1,065,550
Sparbankernas Bank,
8.125%, 10/20/49 (a) 900,000 910,350
-----------
TOTAL CORPORATE BONDS 16,854,591
-----------
FEDERAL AGENCIES--0.7%
Government National Mortgage
Association,
6.00%, 7/1/25 500,000 500,200
-----------
U.S. GOVERNMENT OBLIGATIONS--4.3%
United States Treasury Notes,
4.625%, 2/15/96 385,000 382,413
United States Treasury Notes,
5.125%, 4/30/98 1,040,000 1,019,366
United States Treasury Notes,
5.125%, 12/31/98 1,820,000 1,772,516
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS 3,174,295
-----------
FOREIGN GOVERNMENT OBLIGATIONS--9.9%
Argentina Bote II,
6.0625%, 9/1/97 (c) 2,100,000 1,039,500
Argentina Bote X,
6.3125%, 4/1/00 (c) 600,000 376,800
Argentina Pensioner Bocon,
0.00%, 4/1/01 (d) 1,100,000 830,500
Banco Central de
Costa Rica,
6.9375%, 5/21/05 (a) 305,660 220,075
Federal Republic of Brazil,
6.6875%, 1/1/01 (a) 873,000 701,674
Republic of Brazil,
7.25%, 4/15/24 (a) 1,550,000 883,500
Republic of Brazil
Federative,
7.25%, 4/15/06 (a) 800,000 477,000
Republic of Poland,
3.25%, 10/27/14 (a) $ 1,500,000 $ 892,500
Republic of Poland,
7.125%, 10/27/24 (a) 1,000,000 766,250
Republic of South Africa,
9.625%, 12/15/99 500,000 519,375
Republic of South Africa,
9.625%, 12/15/99 550,000 571,313
-----------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS 7,278,487
-----------
YANKEE BONDS--4.1%
Bridas Corp.,
12.50%, 11/15/99 800,000 722,000
Compania Sub Americana 144A,
7.375%, 12/8/03 750,000 697,500
Essar Gujarat Ltd. 144A,
9.40%, 7/15/99 (a) 1,600,000 1,584,000
-----------
TOTAL YANKEE BONDS 3,003,500
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS--5.9%
Federal Home Loan
Mortgage Corp.,
5.963%, 2/1/24 (a) 1,810,075 1,833,832
Federal National Mortgage
Association,
7.329%, 11/1/27 (a) 1,780,444 1,816,231
Prudential Home Mortgage
Securities Co.,
6.00%, 10/25/00 750,000 731,250
-----------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS 4,381,313
-----------
MUNICIPAL BONDS--1.3%
Brazos River Authority
Texas Revenue,
5.80%, 8/1/15 500,000 479,955
Clark County Nevada Passenger
Facility,
5.75%, 7/1/23 500,000 462,810
-----------
TOTAL MUNICIPAL BONDS 942,765
-----------
TOTAL UNITED STATES DOLLAR 36,135,151
-----------
TOTAL CURRENCY DENOMINATED BONDS*
(Identified cost $56,629,853) 58,002,022
-----------
STRUCTURED NOTES--3.6%
Goldman
Malaysian/Philippines,
8.75%, 9/21/95 860,000 859,570
JP Morgan Polish Note,
0.00%, 7/26/95 660,000 657,623
Morgan Stanley
Group Inc.,
14.25%, 6/26/96 (a) 500,000 500,000
BT Hungarian,
0.00%, 12/1/95 (b) 741,445 652,027
-----------
TOTAL STRUCTURED NOTES
(Identified cost $2,634,509) 2,669,220
-----------
</TABLE>
F-36
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD STRATEGIC YIELD PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS--17.4%
FEDERAL AGENCIES--15.4%
Federal Home Loan
Mortgage Corp.,
5.89%, 7/5/95 $ 3,720,000 $ 3,717,565
Federal National Mortgage
Association Discount Notes,
5.90%, 7/7/95 7,610,000 7,602,517
-----------
11,320,082
-----------
U.S. GOVERNMENT OBLIGATIONS--2.0%
United States Treasury Bills,
5.12%, 8/3/95 1,080,000 1,074,931
United States Treasury Bills,
5.16%, 7/6/95 390,000 389,721
-----------
1,464,652
-----------
TOTAL SHORT TERM INVESTMENTS
(Identified cost $12,784,734) 12,784,734
-----------
TOTAL INVESTMENTS
(Identified cost
$72,049,096)(f) 100.0% 73,455,976
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS 0.0 (21,612)
----- -----------
NET ASSETS 100.0% $73,434,364
===== ===========
(a) Variable rate security. Interest shown is the current rate.
(b) Interest is linked to the Hungarian Forint Index.
(c) Coupon set quarterly to 3 month LIBOR. Current rate shown.
(d) Zero coupon until 5/1/97, then coupon set monthly to 30 day LIBOR.
(e) Bond in default.
(f) The aggregate cost for federal income tax purposes is $72,049,096;
aggregate gross unrealized appreciation is $1,849,236 and the
aggregate gross unrealized depreciation is $442,356, resulting in
net unrealized appreciation of $1,406,880.
* Percentages of holdings are presented in the portfolio by currency
denomination. Percentages by country are as follows:
Argentina 3.1%, Australia 2.5%, Brazil 2.8%, Canada 5.0%, Chile
0.3%, Costa Rica 0.3%, Czech Republic 4.6%, Denmark 4.4%, Greece
0.9%, Hong Kong 1.6%, India 2.2%, Indonesia 3.3%, Ireland 2.7%,
Italy 1.0%, Japan 0.7%, Netherlands 0.9%, New Zealand 1.3%, Norway
3.2%, Poland 3.6%, South Africa 0.6%, Spain 2.9%, Switzerland 0.5%,
Thailand 0.5%, Turkey 0.6%, United Kingdom 0.9%, United States
32.2%.
Percentages by industry are as follows:
Aerospace & Defense 1.5%, Banking 10.4%, Communication Services
0.6%, Consumer Goods 2.7%, Credit & Finance 6.3%, Environmental
Services 0.3%, Food & Beverages 3.0%, Paper Products 1.0%, Petroleum
Services 2.3%, Supermarkets 0.7%, Transportation & Freight Services
1.9%, Utilities 1.1%, Bill of Exchange 0.5%, Collateralized Mortgage
Obligation 6.0%, U.S. Government Obligations 4.3%, Foreign
Government Obligations 28.3%, Municipal Bonds 1.3%, Structured Notes
3.6%, Yankee Bonds 4.1%, Other 2.7%.
</TABLE>
Forward Foreign Currency Contracts open at June 30, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ------------------ -------------- -------- ---------
<S> <C> <C> <C>
AUD 2,260,006 $ 1,615,000 9/12/95 $ 13,646
CAD 4,667,735 $ 3,404,000 9/12/95 11,492
CHF 417,296 $ 352,000 9/12/95 (12,527)
DEM 3,140,720 $ 2,208,260 9/12/95 (69,407)
DKR 17,737,880 $ 3,152,000 9/12/95 (127,436)
PTS 142,350,480 $ 1,117,000 9/12/95 (49,454)
GBP 384,566 $ 603,000 9/12/95 (7,713)
IEP 1,229,575 $ 1,964,000 9/12/95 (45,940)
ITL 1,309,420,800 $ 762,000 9/12/95 (30,249)
JPY 3,979,800 $ 47,520 9/12/95 104
NOK 20,077,160 $ 3,140,000 9/12/95 (121,741)
XEU 346,725 $ 457,000 9/12/95 (4,303)
$ 1,951,516 AUD 2,714,208 7/03/95 (22,441)
AUD 2,738,886 $ 1,969,259 7/03/95 22,645
---------
($443,324)
=========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-37
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD SMALL CAP PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--90.1%
AUTO PARTS--3.6%
A.O. Smith Class B 53,800 $ 1,264,300
Carlisle Cos. Inc. 133,000 5,087,250
Durakon Industries Inc. (a) 250,000 3,812,500
Lear Seating Corp. (a) 224,800 5,142,300
Standard Motor Products Inc. 215,000 4,353,750
------------
19,660,100
------------
BROADCASTING--2.8%
Evergreen Media (a) 252,000 6,552,000
Katz Media Group Inc. (a) 230,000 3,651,250
Renaissance Communications Corp. (a) 155,500 5,209,250
------------
15,412,500
------------
BUILDING & CONSTRUCTION--1.5%
Centex Construction Products Inc. (a) 288,400 3,713,150
Redman Industries (a) 200,000 4,350,000
------------
8,063,150
------------
BUSINESS SERVICES AND SUPPLIES--1.3%
Ideon Group Inc. 700,000 6,912,500
------------
CHEMICALS & PLASTICS--2.5%
Fuller H B Co. 202,400 7,488,800
Mississippi Chemical Corp. 319,000 6,360,062
------------
13,848,862
------------
COMMUNICATIONS--5.4%
ACS Enterprises Inc. (a) 200,000 3,650,000
Associated Group Inc. Class A (a) 56,650 977,213
Associated Group Inc. Class B (a) 256,650 4,748,025
Cablevision Systems Corp. (a) 84,600 5,393,250
Cellular Communications Puerto Rico (a) 195,058 5,973,651
International Cabletel Inc. (a) 200,000 6,500,000
Preferred Entertainment Inc. (a) 140,000 2,292,500
------------
29,534,639
------------
CONSUMER GOODS--1.0%
American Recreation Holdings Inc. (a) 142,500 1,140,000
Triarc Cos. Inc. (a) 289,300 4,520,313
------------
5,660,313
------------
COSMETICS & TOILETRIES--1.1%
Maybelline Inc. 296,100 6,070,050
------------
DRUGS & HEALTH CARE--1.0%
Beverly Enterprises, Inc. (a) 460,400 5,697,450
------------
ELECTRICAL EQUIPMENT--1.3%
Belden Inc. 252,900 6,828,300
------------
ENERGY--3.5%
Enterra Corp. (a) 326,200 6,850,200
Helmerich & Payne Inc. 241,500 7,124,250
Vintage Petroleum Inc. 275,000 5,156,250
------------
19,130,700
------------
FINANCIAL SERVICES--7.3%
Albank Financial Corp. 169,000 4,415,125
Baybanks Inc. 79,200 6,276,600
Cullen Frost Bankers Inc. 136,000 5,508,000
Eaton Vance Corp. 100,500 3,241,125
PMI Group Inc. 201,800 8,753,075
Rollins Truck Leasing Corp. 548,700 5,898,525
Signet Banking Corp. 274,600 6,006,875
------------
40,099,325
------------
HOUSEHOLD APPLIANCES & HOME FURNISHINGS--1.7%
Ethan Allen Interiors Inc. (a) 188,000 $ 3,337,000
Miller (Herman) Inc. 245,500 6,076,125
------------
9,413,125
------------
INDUSTRIAL & MACHINERY--4.1%
Harnischfeger Industries Inc. 157,500 5,453,438
Mark IV Industries Inc. 431,729 9,282,173
Roper Industries 13,000 455,000
Trinova Corp. 211,400 7,399,000
------------
22,589,611
------------
INSURANCE--3.5%
Alexander & Alexander Services 199,800 4,770,225
American Bankers Insurance Group Inc. 208,600 6,623,050
Gryphon Holdings Inc. (a) 150,000 2,437,500
Western National Corp. 434,700 5,379,412
------------
19,210,187
------------
MACHINERY--3.6%
Briggs & Stratton Corp. 257,300 8,876,850
Manitowoc Inc. 119,600 3,453,450
Measurex Corp. 248,700 7,554,262
------------
19,884,562
------------
MANUFACTURING--6.3%
Alltrista Corp. (a) 311,400 5,994,450
Crane Co. 235,400 8,533,250
Pentair Inc. 139,500 6,068,250
Varlen Corp. 282,700 6,643,450
Wabash National Corp. 236,550 7,362,619
------------
34,602,019
------------
MINING--1.6%
The Pittston Co. 356,400 8,553,600
------------
PAPER PRODUCTS--1.3%
Bowater Inc. 155,000 6,955,625
------------
PUBLISHING--2.8%
Banta Corp. 234,700 7,803,775
Houghton Mifflin Co. 144,000 7,596,000
------------
15,399,775
------------
REAL ESTATE--4.3%
Avalon Properties Inc. 148,600 2,953,425
Bay Apartment Community Inc. 175,000 3,412,500
Crescent Real Estate Equities 193,900 6,180,562
Felcor Suite Hotels Inc. 240,000 6,120,000
GL Reality Corp. 75,000 759,375
Liberty Property 196,500 3,856,313
------------
23,282,175
------------
RESTAURANTS, LODGING & ENTERTAINMENT--0.9%
Sbarro, Inc. 219,900 5,112,675
------------
</TABLE>
F-38
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD SMALL CAP PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
RETAILING--12.1%
Alexanders Inc. (a) 80,000 $ 4,440,000
Carson Pirie Scott & Co. Illinois (a) 431,200 7,060,900
Fingerhut Cos. Inc. 534,100 8,345,312
Fred Meyer Inc. (a) 206,700 5,606,738
Home Shopping Network Inc. (a) 148,900 1,265,650
Intelligent Electronics Inc. 493,600 6,725,300
Jones Apparel Group Inc. (a) 297,600 8,890,800
Penn Traffic Co. (a) 150,000 5,306,250
Revco Inc. (a) 274,562 6,589,488
Sothebys Holdings Inc. 579,200 7,891,600
The Good Guys Inc. (a) 350,000 3,850,000
------------
65,972,038
------------
SERVICES--2.3%
Gtech Holdings Corp. (a) 434,800 12,717,900
------------
STEEL--3.0%
Allegheny Ludlum Corp. 345,000 6,813,750
Huntco Inc. 114,800 1,865,500
Lukens Inc. 233,800 7,540,050
------------
16,219,300
------------
TECHNOLOGY--8.3%
Exar Corp. (a) 171,300 5,053,350
Integrated Device Technology (a) 169,400 7,834,750
Oak Industries Inc. (a) 197,400 5,083,050
Tektronix Inc. 115,600 5,693,300
Verbex Voice Systems Inc. (a),(b) 180,501 180,501
VLSI Technology Inc. (a) 373,700 11,257,711
Wang Laboratories Inc. (a) 643,100 10,530,763
------------
45,633,425
------------
TEXTILES, SHOES AND APPAREL--1.2%
Authentic Fitness Corp. (a) 300,000 5,025,000
Westpoint Stevens Inc. (a) 90,300 1,614,113
------------
6,639,113
------------
TIRES & RUBBER--0.8%
TBC Corp. (a) 428,800 4,609,600
------------
TOTAL COMMON STOCKS
(Identified cost $418,945,104) 493,712,619
------------
PREFERRED STOCKS--0.2%
TECHNOLOGY
Verbex Voice Systems Inc. Series F
(conv.) (a),(b) 687,285 1,000,000
------------
TOTAL PREFERRED STOCKS
(Identified cost $1,500,000) 1,000,000
------------
WARRANTS--0.0%
DRUGS & HEALTH CARE--0.0%
Pharma Patch PLC Class A 75,000 $ 2,344
Pharma Patch PLC Class B 37,500 1,172
------------
TOTAL WARRANTS
(Identified cost $0) 3,516
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
CONVERTIBLE BONDS--0.5%
COMMUNICATIONS--0.3%
International Cabletel Inc.
7.25%, 4/15/05 $ 1,400,000 1,491,000
------------
RESTAURANTS, LODGING & ENTERTAINMENT--0.2%
Interactive Light Holdings Inc.
8.00%, 1/25/99 (b) 1,000,000 1,000,000
------------
TECHNOLOGY--0.0%
Verbex Voice Systems Inc.
10.00%, 12/31/95 100,000 100,000
------------
TOTAL CONVERTIBLE BONDS
(Identified cost $2,500,000) 2,591,000
------------
SHORT TERM INVESTMENTS--10.3%
Federal Agencies--10.3%
Federal Home Loan Mortgage Corp., 5.89%,
7/5/95 10,910,000 10,902,860
Federal National Mortgage Association
Discount Notes, 5.90%, 7/5/95 26,005,000 25,987,965
Federal National Mortgage Association
Discount Notes, 5.90%, 7/7/95 19,330,000 19,310,992
------------
56,201,817
------------
U.S. GOVERNMENT OBLIGATIONS--0.0%
United States Treasury Bills,
5.20%, 8/3/95 190,000 189,094
------------
TOTAL SHORT TERM INVESTMENTS
(Identified cost $56,390,911) 56,390,911
------------
TOTAL INVESTMENTS
(Identified cost $479,336,015)(c) 101.1% 553,698,046
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS (1.1) (6,075,828)
---- ------------
NET ASSETS 100.0% $547,622,218
===== ============
</TABLE>
(a) Non-income producing security.
(b) Private placement (see note 6).
(c) The aggregate cost for federal income tax purposes is $479,336,015;
aggregate gross unrealized appreciation is $85,930,113 and the aggregate
gross unrealized depreciation is $11,568,082, resulting in net unrealized
appreciation of $74,362,031.
The accompanying notes are an integral part of these
financial statements.
F-39
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--86.0%
AUSTRIA--5.1%
Bau Holdings AG 39,900 $ 1,925,359
BWT AG 11,100 1,344,764
Vae Eisenbahnsyst 17,400 1,750,719
------------
TOTAL AUSTRIA 5,020,842
------------
AUSTRALIA--3.5%
Bilbury Ltd. (a),(c) 472,100 --
Goodman Fielder Ltd. 1,981,900 1,648,062
Pacific Mutual Ltd. 991,200 1,232,836
Shomega Ltd. 592,300 526,208
------------
TOTAL AUSTRALIA 3,407,106
------------
BRAZIL--2.2%
Capco Automotive Products Corp. 275,200 2,132,800
------------
FINLAND--2.8%
Valmet 123,000 2,779,092
------------
FRANCE--5.5%
Europe 1 Communication 6,000 1,426,010
Imetal 17,600 2,067,899
Unibail SA 19,400 1,895,492
------------
TOTAL FRANCE 5,389,401
------------
GERMANY--5.9%
Cewe Color Holding AG 2,600 883,650
Dorries Scharmann 13,800 1,177,526
Sander (Jil) AG 2,700 1,884,084
Schwarz Pharma AG 45,000 1,887,338
------------
TOTAL GERMANY 5,832,598
------------
HONG KONG--3.0%
Acme Landis Holdings 4,690,000 406,097
ASM Pacific Technology 1,129,000 897,329
Manhattan Card Co. 4,026,000 1,638,954
------------
TOTAL HONG KONG 2,942,380
------------
IRELAND--4.9%
Fitzwilton PLC 1,181,232 898,974
Irish Life PLC 560,600 1,880,900
Unidare PLC 378,200 2,042,651
------------
TOTAL IRELAND 4,822,525
------------
ISRAEL--1.5%
ECI Telecom Ltd. 105,400 1,442,662
------------
ITALY--1.9%
Arnoldo Mondadori Edit 296,800 1,897,343
------------
JAPAN--4.2%
Cowboy Company Ltd. 48,000 1,019,409
FCC Company Ltd. 75,000 2,106,071
Towa Pharm Company Ltd. 19,000 1,042,416
------------
TOTAL JAPAN 4,167,896
------------
LUXEMBORG--1.6%
Arbed SA 10,700 $ 1,561,028
------------
NETHERLANDS--2.0%
Van Ommeren 62,400 1,924,956
------------
NEW ZEALAND--4.6%
Lion Nathan Ltd. 1,312,200 2,596,679
Warehouse Group 480,600 1,895,668
------------
TOTAL NEW ZEALAND 4,492,347
------------
NORWAY--5.4%
Aker AS Class B 124,777 1,569,458
Trans Ocean Drilling 143,100 1,974,114
Unitor AS 99,300 1,724,434
------------
TOTAL NORWAY 5,268,006
------------
PAKISTAN--0.0%
Lever Brothers 540 11,679
Packages 750 3,147
------------
TOTAL PAKISTAN 14,826
------------
PORTUGAL--2.0%
Corticeira Amorim SA 129,100 1,941,353
------------
PUERTO RICO--0.8%
Cellular Communications Puerto Rico (a) 25,300 774,812
------------
SINGAPORE--0.9%
Amtek Engineering 636,000 928,401
------------
SOUTH AFRICA--0.1%
Safmarine & Rennies 29,050 84,283
------------
SOUTH KOREA--1.4%
Keumkang 14,900 1,364,178
------------
SPAIN--5.9%
Asturiana De Zinc 127,000 1,211,022
Corporation Finance Reunida 713,800 2,587,065
Vallehermoso SA 120,000 2,055,727
------------
TOTAL SPAIN 5,853,814
------------
SWEDEN--5.5%
Arjo AB 133,400 1,174,183
Hoganas AG 113,800 2,222,442
IRO 120,802 1,221,128
Linjebuss 77,000 836,600
------------
TOTAL SWEDEN 5,454,353
------------
SWITZERLAND--7.3%
Bil GT Gruppe AG 5,000 2,809,379
Danzas Holding 9,800 1,676,596
Swisslog 8,690 2,663,977
------------
TOTAL SWITZERLAND 7,149,952
------------
</TABLE>
F-40
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM--8.0%
Bell Cablemedia PLC (a),(b) 124,300 $ 2,361,700
Greycoat PLC 832,175 1,919,284
Scholl PLC 676,900 1,981,066
Seeboard PLC 263,200 1,628,516
------------
TOTAL UNITED KINGDOM 7,890,566
------------
TOTAL COMMON STOCKS
(Identified cost $86,775,029) 84,537,520
------------
PREFERRED STOCKS--4.4%
Germany--2.4%
Mobel Walther Preferred AG 4,687 2,372,478
------------
UNITED KINGDOM--2.0%
Signet Group PLC (a),(b) 38 1,976,000
------------
TOTAL PREFERRED STOCKS
(Identified cost $3,826,338) 4,348,478
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
CONVERTIBLE BOND--1.8%
United States--1.8%
International Cabletel Inc.,
7.25%, 4/15/05 $ 1,700,000 1,810,500
------------
TOTAL CONVERTIBLE BOND
(Identified cost $1,700,000) 1,810,500
------------
SHORT TERM INVESTMENTS--13.9%
U.S. Government Obligations--13.9%
United States Treasury Bills,
5.20%, 8/3/95 13,440,000 13,375,971
United States Treasury Bills,
5.34%, 7/6/95 295,000 294,781
------------
TOTAL SHORT TERM INVESTMENTS
(Identified cost $13,670,752) 13,670,752
------------
TOTAL INVESTMENTS
(Identified cost $105,972,119) (d) 106.1% 104,367,250
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS (6.1) (6,015,747)
---- ------------
NET ASSETS 100.0% $ 98,351,503
===== ============
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) Bankrupt security--valued at zero.
(d) The aggregate cost for federal income tax purposes is $105,972,119;
aggregate gross unrealized appreciation is $5,943,336 and the aggregate
gross unrealized depreciation is $7,548,205, resulting in net unrealized
depreciation of $1,604,869.
* Percentages of common and preferred stocks are presented in the portfolio by
currency denomination. Percentages by industry are as follows:
Automotive 2.2%, Auto Parts 2.1%, Broadcasting 1.4%, Building & Housing
0.4%, Communication Services 1.3%, Conglomerates 0.1%, Construction
Materials 5.1%, Cosmetics & Toiletries 2.0%, Electrical Equipment 2.1%,
Energy 2.0%, Engineering & Construction 2.0%, Financial Services 5.8%,
Food & Beverage 2.6%, Food Processing 1.7%, Healthcare 1.2%, Industrial &
Machinery 5.3%, Insurance 1.9%, Leisure Time 0.9%, Metals 2.8%, Metal
Fabricate/Hardware 0.9%, Miscellaneous 13.4%, Paper Products 4.8%,
Pharmaceuticals 1.1%, Real Estate 10.4%, Steel 2.3%, Shipping Services
1.7%, Technology 0.9%, Telecommunication Equipment 1.5%, Telephone 2.4%,
Textiles, Shoes and Apparel 1.9%, Transportation 0.8%, Transportation &
Freight Services 3.7%, Utilities 1.7%.
Forward Foreign Currency Contracts open at June 30, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- --------------- --------------- -------- ---------
<S> <C> <C> <C>
BEL 89,647,740 $ 3,042,000 9/13/95 ($118,487)
PTS 219,831,600 $ 1,740,000 9/13/95 (61,159)
FRF 18,080,335 $ 3,521,000 9/13/95 (198,594)
SEK 62,586,328 $ 8,428,000 9/13/95 (124,002)
$ 1,787,012 ATS 17,353,096 7/10/95 (5,379)
$ 887,101 IEP 539,468 7/05/95 (4,175)
$ 309,379 PTE 45,113,600 7/05/95 (1,015)
$ 119,324 ATS 1,162,277 7/03/95 6
$ 18,396 IEP 11,238 7/03/95 (4)
$ 1,785,029 JPY 150,715,343 7/03/95 (6,781)
$ 443,596 PTE 64,569,846 7/03/95 (2,244)
$ 52,107 SEK 378,503 7/03/95 (51)
---------
($521,885)
=========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-41
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--91.6%
AEROSPACE & DEFENSE--3.2%
Tech Sym Corp. (a) 72,000 $ 1,971,000
-----------
BUILDING & HOUSING--4.7%
Puerto Rican Cement Co., Inc. 95,000 2,897,500
-----------
BUSINESS SERVICES AND SUPPLIES--2.3%
Ennis Business Forms Inc. 115,000 1,423,125
-----------
CHEMICALS & PLASTICS--5.9%
Aceto Corp. 132,000 1,881,000
MacDermid Inc. 38,400 1,708,800
-----------
3,589,800
-----------
ELECTRONICS--1.9%
Isco Inc. 5,900 63,425
Keithley Instruments Inc. 50,000 1,100,000
-----------
1,163,425
-----------
FOOD & BEVERAGE--3.0%
Farmer Brothers Co. 15,000 1,830,000
-----------
HOUSEHOLD APPLIANCES & HOME FURNISHINGS--16.0%
Allen Organ Co. Class B 92,800 3,990,400
Boston Acoustics Inc. 60,000 1,110,000
Mikasa Inc. (a) 3,300 49,089
National Presto Industries Inc. 78,500 3,561,938
Pulaski Furniture Corp. 17,000 297,500
Virco Manufacturing Co. 90,000 787,500
-----------
9,796,427
-----------
INDUSTRIAL & MACHINERY--8.8%
Amtrol Inc. 10,000 180,000
Mestek Inc. (a) 900 11,362
Paul Mueller Co. 15,000 442,500
Penn Engineering & Manufacturing Corp. 25,000 1,887,500
Robbins and Myers Inc. 57,600 1,526,400
Tecumseh Products Co. 30,000 1,305,000
-----------
5,352,762
-----------
MISCELLANEOUS--4.3%
Deflecta Shield Corp. (a) 19,300 159,225
Mathews International Corp. 8,500 155,125
Tranzonic Companies Class A 80,000 1,210,000
Tranzonic Companies Class B 40,000 560,000
Versa Technologies Inc. 40,000 550,000
-----------
2,634,350
-----------
MULTI-INDUSTRY--3.6%
American Filtrona Corp. 25,000 725,000
Eastern Co. 20,000 275,000
Latshaw Enterprises Inc. (a),(b) 38,400 307,200
Raven Industries Inc. 15,000 292,500
Wynns International Inc. 24,400 567,300
-----------
2,167,000
-----------
RESTAURANTS, LODGING & ENTERTAINMENT--3.6%
Bowl America Inc. Class A 80,000 630,000
International Dairy Queen Class A (a) 80,000 1,540,000
-----------
2,170,000
-----------
RETAILING--10.6%
Arden Group Inc. Class A (a) 30,000 $ 1,335,000
Blair Corp. 76,900 2,643,437
Claire's Stores Inc. 35,000 634,375
Crown Books Corp. (a) 2,000 22,500
Dress Barn, (The) (a) 59,400 564,300
Haverty Furniture Cos. Inc. 10,500 102,375
Strawbridge & Clothier Class A 25,200 504,000
Value City Department Stores Inc. (a) 90,000 686,250
-----------
6,492,237
-----------
SERVICES--11.9%
AFA Protective Systems Inc. (a),(b) 15,100 1,525,100
Barra Inc. (a) 35,000 323,750
Ecology and Environment Inc. 115,395 923,160
Greiner Engineering Inc. 35,000 402,500
Grey Advertising Inc. 4,000 736,000
Hilb, Rogal & Hamilton Co. 60,000 750,000
Isomedix Inc. (a) 23,500 317,250
Value Line Inc. 78,000 2,320,500
-----------
7,298,260
-----------
TEXTILES, SHOES AND APPAREL--11.8%
Cone Mills Corp. (a) 45,000 579,374
Fab Industries Inc. 65,000 1,982,500
Garan Inc. 111,000 1,859,250
Superior Surgical Manufacturing Co. Inc. 115,000 1,207,500
Thomaston Mills Inc. Class A 100,000 1,250,000
Weyco Group Inc. 10,000 350,000
-----------
7,228,624
-----------
TOTAL COMMON STOCKS
(Identified cost $48,649,589) 56,014,510
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT TERM INVESTMENTS--9.6%
FEDERAL AGENCIES--7.6%
Federal National Mortgage Association
Discount Notes, 5.90%, 7/7/95 $4,635,000 4,630,442
-----------
U.S. GOVERNMENT OBLIGATIONS--2.0%
United States Treasury Bills,
5.16%, 7/6/95 235,000 234,831
United States Treasury Bills,
5.23%, 8/3/95 1,030,000 1,025,061
-----------
1,259,892
-----------
TOTAL SHORT TERM INVESTMENTS
(Identified cost $5,890,334) 5,890,334
-----------
</TABLE>
F-42
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified cost $54,539,923)(c) 101.2% $61,904,844
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS (1.2) (748,345)
---- -----------
NET ASSETS 100.0% $61,156,499
===== ===========
</TABLE>
(a) Non-income producing security.
(b) Affiliated issuer under the Investment Company Act of 1940 inasmuch as the
Portfolio owns more than 5% of the voting securities of the Company.
(c) The aggregate cost for federal income tax purposes is $54,539,923; aggregate
gross unrealized appreciation is $11,016,154 and the aggregate gross
unrealized depreciation is $3,651,233, resulting in net unrealized
appreciation of $7,364,921.
The accompanying notes are an integral part of these
financial statements.
F-43
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD EMERGING MARKETS PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS*--86.7%
ARGENTINA--5.4%
Capex SA (a) 56,000 $ 434,087
Juan Minetti 120,000 372,074
Metrogas Class B (b) 50,000 431,250
-------------
TOTAL ARGENTINA 1,237,411
-------------
BRAZIL--6.9%
Capco Automotive Products Corp. (a) 60,100 465,775
Ceval Alimentos SA 24,000,000 273,764
Dixie Lalekla SA (a) 467,000 360,207
Makro Atacadista SA (a),(b) 20,000 295,000
Melpaper SA (a) 830,500 180,445
-------------
TOTAL BRAZIL 1,575,191
-------------
CHILE--3.8%
AFP Provida SA (b) 17,000 456,875
Compania De Telefonos Chile S (b) 5,000 406,875
-------------
TOTAL CHILE 863,750
-------------
CHINA--1.8%
Ek Chor China Motorcycle Co. 26,000 419,250
-------------
COLOMBIA--4.0%
Banco De Bogota 35,000 206,525
Banco Industrial Colombiano 82,000 325,674
Gran Cadena De Almacenes Class B (a),(b) 18,000 373,500
-------------
TOTAL COLOMBIA 905,699
-------------
CZECH REPUBLIC--1.3%
Central European Media Entertainment
Light Class A (a) 20,000 297,500
-------------
GREECE--1.7%
Ergo Bank 4,000 184,057
Titan Cement Co. 5,500 208,821
-------------
TOTAL GREECE 392,878
-------------
HONG KONG--3.4%
Harbin Power Equipment (a) 1,248,000 399,183
Peregrine Investment 470,000 376,000
-------------
TOTAL HONG KONG 775,183
-------------
HUNGARY--4.1%
Danubius Hotel 51,600 503,599
Egis Gyogyszergyar 20,000 434,305
-------------
TOTAL HUNGARY 937,904
-------------
INDIA--5.4%
Ashok Leyland Ltd. (a),(b) 38,600 521,100
India Fund Inc. 30,000 307,500
Larsen & Toubro Ltd. (a),(b) 20,200 402,788
-------------
TOTAL INDIA 1,231,388
-------------
INDONESIA--5.0%
Bank Bali 145,000 367,872
Kawasan Industries Sababeka 298,000 588,774
PT Indonesian Satellite (b) 5,000 191,250
-------------
TOTAL INDONESIA 1,147,896
-------------
KOREA--8.0%
Korea Mobile Telecom 636 $ 602,659
Pohang Iron & Steel 4,380 434,447
Samsung Electronics Ltd. Sponsored
Global Deposit 144A (a),(b) 99 9,170
Samsung Electronics Ltd. Global
Depositary Receipt 144A (a),(b) 19 1,741
Samsung Electronics Ltd. 144A (a),(b) 6,700 348,400
Samsung Electronics Ltd. Global Deposit
Receipt Republic 144A Non-Voting
(a),(b) 1,325 68,900
Shinhan Bank 17,100 351,810
-------------
TOTAL KOREA 1,817,127
-------------
MALAYSIA--4.9%
Aokam Perdana Berhad 185,000 459,085
Genting Berhad 33,000 326,210
Kian Joo Can Factory Berhad 85,000 332,958
-------------
TOTAL MALAYSIA 1,118,253
-------------
MEXICO--5.4%
Fomento Economico 201,200 470,003
Grupo Fernandez Editores Series B (a) 670,000 252,992
Pan American Beverage Class A (b) 17,000 510,000
-------------
TOTAL MEXICO 1,232,995
-------------
PAKISTAN--2.1%
Hub Power Ltd. (a),(b) 33,000 478,500
-------------
PERU--1.2%
Backus & Johnston 116,339 275,093
-------------
PHILIPPINES--4.0%
Alaska Milk Corp. (a) 1,580,000 340,251
Bacnotan Consolidated Industries 400,000 371,000
Pilipino Telephone 247,500 195,741
-------------
TOTAL PHILIPPINES 906,992
-------------
POLAND--1.4%
Jelfa 22,000 320,461
-------------
PORTUGAL--4.3%
Corticeira Amorim SA 16,800 252,632
Modelo SGPS, SA 10,600 375,021
Portugal Telecom SA (b) 18,000 339,750
-------------
TOTAL PORTUGAL 967,403
-------------
RUSSIA--1.4%
First NIS Regional Fund (a),(b) 88,000 316,800
-------------
SOUTH AFRICA--8.1%
Iscor 195,000 221,475
Malbak 60,000 379,507
Murray & Roberts 50,500 291,642
Nedcor Ltd. (b) 11,000 539,000
Safmarine & Rennies 146,000 423,590
-------------
TOTAL SOUTH AFRICA 1,855,214
-------------
SRI LANKA--0.8%
Blue Diamond Jewel (a) 379,708 179,125
-------------
THAILAND--2.3%
Hua Thai Manufacturing PLC 16,800 44,918
Hua Thai Manufacturing PLC (alien
market) 32,600 71,975
Swedish Motors 40,000 160,421
Thai Airways 111,000 247,316
-------------
TOTAL THAILAND 524,630
-------------
</TABLE>
F-44
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
LAZARD EMERGING MARKETS PORTFOLIO
PORTFOLIO OF INVESTMENTS--JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
TOTAL COMMON STOCKS
(Identified cost $20,701,927) $ 19,776,643
-------------
PREFERRED STOCK--1.3%
BRAZIL--1.3%
Banco Bradesco SA 34,000,000 288,104
-------------
TOTAL PREFERRED STOCK
(Identified cost $249,964) 288,104
-------------
RIGHTS--0.0%
BRAZIL--0.0%
Banco Bradesco Preferred SA 613,972 714
-------------
TOTAL RIGHTS
(Identified cost $0) 714
-------------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
BOND--2.8%
ARGENTINA--2.8%
Argentina Pensioner Bocon,
0.00%, 4/1/01 (c) $ 840,000 634,200
-------------
TOTAL BOND
(Identified cost $646,115) 634,200
-------------
SHORT TERM INVESTMENTS--8.8%
FEDERAL AGENCIES--6.3%
Federal National Mortgage Association
Discount Notes, 5.89%, 7/5/95 1,440,000 1,439,058
-------------
TOTAL FEDERAL AGENCIES
(Identified cost $1,439,058) 1,439,058
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--2.5%
United States Treasury Bills,
5.21%, 8/3/95 $ 290,000 $ 288,614
United States Treasury Bills,
5.34%, 7/6/95 285,000 284,789
-------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified cost $573,403) 573,403
-------------
TOTAL SHORT TERM INVESTMENTS
(Identified cost $2,012,461) 2,012,461
-------------
TOTAL INVESTMENTS
(Identified cost $23,610,467)(d) 99.6% 22,712,122
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES 0.4 85,485
----- -------------
NET ASSETS 100.0% $ 22,797,607
===== =============
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) Zero coupon until 5/1/97, then coupon set monthly to 30 day LIBOR.
(d) The aggregate cost for federal income tax purposes is $23,610,467; aggregate
gross unrealized appreciation is $1,363,350 and the aggregate gross
unrealized depreciation is $2,261,695, resulting in net unrealized
depreciation of $898,345.
* Percentages of common and preferred stocks are presented in the portfolio by
currency denomination. Percentages by industry are as follows:
Apparel & Textiles 0.5%, Automotive 0.7%, Auto Parts 2.0%, Banks 4.4%,
Broadcasting 1.3%, Building & Housing 2.7%, Chemicals & Plastics 1.6%,
Communications 9.5%, Construction Materials 3.3%, Consumer Goods 0.8%,
Domestic Oil 1.9%, Drugs & Health Care 3.3%, Electrical Equipment 1.7%,
Electronics 1.9%, Engineering & Construction 1.3%, Financial Services 15.4%,
Food & Beverage 8.2%, Forest Products 3.9%, Holding Company--Diversified
1.7%, Investment Companies 1.4%, Leisure Time 1.8%, Manufacturing 1.5%,
Publishing 1.1%, Restaurants, Lodging & Entertainment 3.6%, Retailing 1.6%,
Steel 2.9%, Transportation 1.1%, Transportation & Freight Services 1.9%,
Utilities 2.1%, Wholesale Trade 2.9%.
Forward Foreign Currency Contracts open at June 30, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C>
GRD 2,800,079 $ 12,409 7/07/95 (40)
IDR 213,594,761 $ 95,782 7/06/95 (129)
$ 22,653 PHP 576,075 7/03/95 $ (97)
-----
$(266)
=====
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-45
<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL STRATEGIC LAZARD SMALL
EQUITY EQUITY FIXED-INCOME LAZARD BOND YIELD CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value* $133,545,779 $1,074,556,956 $44,535,761 $32,419,741 $ 73,455,976 $553,698,046
Cash 42,822 3,943,906 5,470 161,499 3,702 9,359
Net foreign currency
contracts (note 2) -- -- 71,429 -- -- --
Receivables for:
Investments sold -- 3,377,303 1,575,009 517,093 5,238,892 2,727,475
Dividends and interest 182,795 5,302,627 1,045,810 417,416 1,176,679 366,575
Capital stock sold 198,269 6,874,236 6,000 237,050 47,200 595,442
Deferred organizational
expenses (note 2) -- 18,073 18,504 18,576 17,029 18,109
Other -- 23,779 1,225 -- -- --
------------ -------------- ----------- ------------ ------------ ------------
Total assets 133,969,665 1,094,096,880 47,259,208 33,771,375 79,939,478 557,415,006
------------ -------------- ----------- ------------ ------------ ------------
LIABILITIES
Payables for:
Investments purchased 787,591 31,768,536 2,166,100 568,029 5,830,932 4,894,032
Capital stock repurchased 252,969 12,044,303 98,500 22,500 40,000 4,462,303
Dividends declared -- -- 26,548 21,098 56,486 --
Investment management
fees payable (note 3) 94,819 636,464 104,103 38,305 88,082 328,986
Net foreign currency
contracts (note 2) -- 4,211,713 -- -- 443,324 --
Due to Manager -- -- -- -- -- --
Accrued expenses and
other payables 56,811 774,642 61,496 44,640 46,290 107,467
------------ -------------- ----------- ------------ ------------ ------------
Total liabilities 1,192,190 49,435,658 2,456,747 694,572 6,505,114 9,792,788
------------ -------------- ----------- ------------ ------------ ------------
Net assets, at value 132,777,475 1,044,661,222 44,802,461 33,076,803 73,434,364 547,622,218
============== =============== ============ ============== ============ ==============
NET ASSETS
Paid in capital 108,347,700 991,623,823 39,002,833 33,185,172 77,555,498 438,728,177
Accumulated
undistributed
(distributions in
excess of) investment
income--net 436,470 12,199,586 1,314 -- (13,904) 2,882,870
Unrealized appreciation
(depreciation) on:
Investments--net 19,917,712 78,987,570 2,874,488 1,027,438 1,406,880 74,362,031
Foreign exchange
transactions--net -- (4,118,669) 102,394 -- (436,345) --
Accumulated
undistributed realized
gain (loss)--net 4,075,593 (34,031,088) 2,821,432 (1,135,807) (5,077,765) 31,649,140
------------ -------------- ----------- ------------ ------------ ------------
NET ASSETS, AT VALUE $132,777,475 $1,044,661,222 $44,802,461 $33,076,803 $ 73,434,364 $547,622,218
------------ -------------- ----------- ------------ ------------ ------------
Shares of capital stock
outstanding** 8,044,272 89,558,309 3,776,829 3,338,369 7,920,557 32,665,573
------------ -------------- ----------- ------------ ------------ ------------
NET ASSET VALUE PER
SHARE $ 16.51 $ 11.66 $ 11.86 $ 9.91 $ 9.27 $ 16.76
========== ============ ========= ========== ========= ==========
<CAPTION>
LAZARD LAZARD LAZARD
INTERNATIONAL SPECIAL EMERGING
SMALL CAP EQUITY MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at value* $104,367,250 $ 61,904,844 $ 22,712,122
Cash 1,816,479 7,887 223,853
Net foreign currency
contracts (note 2) -- -- --
Receivables for:
Investments sold -- -- 95,911
Dividends and interest 252,624 78,294 18,396
Capital stock sold 75,850 25,160 35,550
Deferred organizational
expenses (note 2) 12,062 -- 17,204
Other -- 23,086 --
------------ ------------ ------------
Total assets 106,524,265 62,039,271 23,103,036
------------ ------------ ------------
LIABILITIES
Payables for:
Investments purchased 7,465,604 123,469 218,297
Capital stock repurchas 36,000 531,000 12,920
Dividends declared -- -- --
Investment management
fees payable (note 3) 51,214 206,154 28,655
Net foreign currency
contracts (note 2) 521,885 -- 266
Due to Manager -- -- 20,680
Accrued expenses and
other payables 98,059 22,149 24,611
------------ ------------ ------------
Total liabilities 8,172,762 882,772 305,429
------------ ------------ ------------
Net assets, at value 98,351,503 61,156,499 22,797,607
============== ============ ============
NET ASSETS
Paid in capital 104,686,021 49,122,816 25,498,381
Accumulated
undistributed
(distributions in
excess of) investment
income--net 845,830 400,899 146,361
Unrealized appreciation
(depreciation) on:
Investments--net (1,604,869) 7,364,921 (898,345)
Foreign exchange
transactions--net (514,044) -- (1,625)
Accumulated
undistributed realized
gain (loss)--net (5,061,435) 4,267,863 (1,947,165)
------------ ------------ ------------
NET ASSETS, AT VALUE $ 98,351,503 $ 61,156,499 $ 22,797,607
------------ ------------ ------------
Shares of capital stock
outstanding** 9,495,663 4,713,261 2,492,955
------------ ------------ ------------
NET ASSET VALUE PER
SHARE $ 10.36 $ 12.98 $ 9.14
========== ========= =========
</TABLE>
* For identified cost, see accompanying portfolios of investments
** $0.001 par value, 1,000,000,000 shares authorized
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL LAZARD STRATEGIC LAZARD
EQUITY EQUITY FIXED-INCOME BOND YIELD SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest* $ 225,874 $ 2,284,131 $1,548,376 $1,001,783 $ 3,330,411 $ 1,134,829
Dividends* 1,095,942 14,235,120 -- -- -- 2,861,490
----------- ------------ ---------- ---------- ----------- -----------
Total investment income 1,321,816 16,519,251 1,548,376 1,001,783 3,330,411 3,996,319
----------- ------------ ---------- ---------- ----------- -----------
EXPENSES:
Management fee (note 3) 414,397 3,487,680 149,912 69,892 240,798 1,780,275
Custodian fees 32,502 598,922 47,334 24,039 44,661 56,568
Professional services 15,893 58,609 14,148 11,434 13,885 31,928
Registration fees 19,225 92,975 8,190 8,810 9,904 31,733
Shareholder services 13,436 23,079 8,848 9,162 9,493 14,337
Directors' fees and expenses 5,896 5,895 5,413 5,895 5,895 5,895
Shareholders reports 1,392 3,667 946 793 1,359 3,002
Organizational expenses (note 2) -- 6,697 6,697 6,697 6,697 6,697
Other 8,476 44,106 8,459 6,911 6,542 31,061
----------- ------------ ---------- ---------- ----------- -----------
Total expenses before
reimbursement from Manager 511,217 4,321,630 249,947 143,633 339,234 1,961,496
Less: Management fees waived
(note 3) -- -- (40,070) (31,587) -- --
----------- ------------ ---------- ---------- ----------- -----------
Expenses--net 511,217 4,321,630 209,877 112,046 339,234 1,961,496
----------- ------------ ---------- ---------- ----------- -----------
INVESTMENT INCOME--NET 810,599 12,197,621 1,338,499 889,737 2,991,177 2,034,823
----------- ------------ ---------- ---------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET
Realized gain (loss) on:
Investments--net* 4,456,555 (9,908,859) 2,530,675 21,668 (1,473,316) 31,850,228
Foreign exchange
transactions--net -- (10,360,663) 340,969 -- (547,382) --
Net change in unrealized
appreciation (depreciation)
on:
Investments--net 15,600,142 54,465,021 3,011,173 1,946,211 3,592,377 42,530,710
Foreign exchange
transactions--net -- (2,460,667) 97,583 -- (338,949) --
----------- ------------ ---------- ---------- ----------- -----------
Realized and unrealized gain
(loss) on investments--net 20,056,697 31,734,832 5,980,400 1,967,879 1,232,730 74,380,938
----------- ------------ ---------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $20,867,296 $ 43,932,453 $7,318,899 $2,857,616 $ 4,223,907 $76,415,761
============ ============== =========== =========== ============ ============
*Net of foreign withholding
taxes of: $ 26,475 $ 2,432,696 $ 23,468 $ -- $ 1,749 $ --
============ ============== =========== =========== ============ ============
<CAPTION>
LAZARD LAZARD LAZARD
INTERNATIONAL SPECIAL EMERGING
SMALL CAP EQUITY MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest* $ 238,612 $ 147,515 $ 117,719
Dividends* 1,096,547 760,402 145,584
----------- ---------- -----------
Total investment income 1,335,159 907,917 263,303
----------- ---------- -----------
EXPENSES:
Management fee (note 3) 321,191 453,303 89,956
Custodian fees 97,673 28,953 47,989
Professional services 14,498 13,335 9,913
Registration fees 17,257 7,373 10,692
Shareholder services 13,897 9,326 10,486
Directors' fees and expenses 5,895 5,895 5,895
Shareholders reports 2,110 3,370 658
Organizational expenses (note 2) 1,750 -- 1,606
Other 16,635 7,556 1,048
----------- ---------- -----------
Total expenses before
reimbursement from Manager 490,906 529,111 178,243
Less: Management fees waived
(note 3) -- (23,011) (61,301)
----------- ---------- -----------
Expenses--net 490,906 506,100 116,942
----------- ---------- -----------
INVESTMENT INCOME--NET 844,253 401,817 146,361
----------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOS
Realized gain (loss) on:
Investments--net* (32,469) 2,717,157 (1,757,281)
Foreign exchange
transactions--net (1,517,128) -- (20,528)
Net change in unrealized
appreciation (depreciation)
on:
Investments--net 1,050,173 2,179,142 635,055
Foreign exchange
transactions--net (253,267) -- (2,707)
----------- ---------- -----------
Realized and unrealized gain
(loss) on investments--net (752,691) 4,896,299 (1,145,461)
----------- ---------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 91,562 $5,298,116 $ (999,100)
============ =========== ============
*Net of foreign withholding
taxes of: $ 139,389 $ 8,075 $ 20,952
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
LAZARD
LAZARD LAZARD INTERNATIONAL
EQUITY INTERNATIONAL EQUITY FIXED-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------ ------------------------------- -----------
SIX MONTHS YEAR ENDED SIX MONTHS SIX MONTHS
ENDED DECEMBER ENDED YEAR ENDED ENDED
JUNE 30, 31, JUNE 30, DECEMBER 31, JUNE 30,
------------------------------ ------------------------------- -----------
1995 1994 1995 1994 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income--net $ 810,599 $ 775,588 $ 12,197,621 $ 5,752,469 $ 1,338,499
Realized gain (loss) on
investments and foreign
exchange transactions 4,456,555 3,165,434 (20,269,522) 50,645,245 2,871,644
Unrealized appreciation
(depreciation)--net 15,600,142 (1,765,260) 52,004,354 (68,363,473) 3,108,756
------------ ----------- -------------- ------------- -----------
Net increase (decrease) in net
assets resulting from
operations 20,867,296 2,175,762 43,932,453 (11,965,759) 7,318,899
------------ ----------- -------------- ------------- -----------
Distributions to shareholders
from:
Investment income--net (361,558) (819,467) -- (5,752,469) (1,338,499)
Realized gains--net -- (3,479,186) -- (74,500,587) --
Offset to investment income--
net -- -- -- 5,752,469 --
------------ ----------- -------------- ------------- -----------
(361,558) (4,298,653) -- (74,500,587) (1,338,499)
------------ ----------- -------------- ------------- -----------
Capital stock transactions:
Net proceeds from sales 32,817,437 44,216,711 232,731,422 348,583,561 9,982,181
Net proceeds from
reinvestment of
distributions 349,602 4,207,450 -- 72,041,335 1,269,134
Cost of shares redeemed (10,000,520) (4,318,758) (63,879,635) (105,923,266) (8,232,008)
------------ ----------- -------------- ------------- -----------
Net increase (decrease) in net
assets from capital stock
transactions 23,166,519 44,105,403 168,851,787 314,701,630 3,019,307
------------ ----------- -------------- ------------- -----------
Total increase (decrease) in
net assets 43,672,257 41,982,512 212,784,240 228,235,284 8,999,707
Net assets at beginning of
period 89,105,218 47,122,706 831,876,982 603,641,698 35,802,754
------------ ----------- -------------- ------------- -----------
Net assets at end of period* $132,777,475 $89,105,218 $1,044,661,222 $ 831,876,982 $44,802,461
============== ============ =============== =============== ============
Shares issued and repurchased:
Shares outstanding at
beginning of period 6,482,310 3,391,490 74,103,632 48,980,591 3,499,078
------------ ----------- -------------- ------------- -----------
Shares sold 2,201,165 3,088,569 21,119,734 27,102,620 889,949
Shares issued to shareholders
from reinvestment of
distributions 22,924 304,879 -- 6,362,069 113,270
Shares repurchased (662,127) (302,628) (5,665,057) (8,341,648) (725,468)
------------ ----------- -------------- ------------- -----------
Net increase (decrease) 1,561,962 3,090,820 15,454,677 25,123,041 277,751
============== ============ =============== =============== ============
Shares outstanding at end
of period 8,044,272 6,482,310 89,558,309 74,103,632 3,776,829
============== ============ =============== =============== ============
*Includes undistributed (over
distributed) net investment
income of: $ 436,470 $ (12,571) $ 12,199,586 $ 1,965 $ 1,314
============== ============ =============== =============== ============
<CAPTION>
-----------------------------------------------------------------------------
LAZARD
INTERNATIONAL LAZARD
FIXED-INCOME BOND
PORTFOLIO PORTFOLIO
------------- ----------------------------
YEAR ENDED SIX MONTHS YEAR ENDED
DECEMBER ENDED DECEMBER
31, JUNE 30, 31,
------------ ----------------------------
1994 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Investment income--net $ 1,206,922 $ 889,737 $ 1,235,348
Realized gain (loss) on
investments and foreign
exchange transactions 180,322 21,668 (1,151,722)
Unrealized appreciation
(depreciation)--net (512,114) 1,946,211 (965,163)
----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations 875,130 2,857,616 (881,537)
----------- ----------- -----------
Distributions to shareholders
from:
Investment income--net (1,206,922) (889,737) (1,235,348)
Realized gains--net (287,561) -- (58,029)
Offset to investment income--
net -- -- --
----------- ----------- -----------
(1,494,483) (889,737) (1,293,377)
----------- ----------- -----------
Capital stock transactions:
Net proceeds from sales 25,803,649 10,189,491 18,506,638
Net proceeds from
reinvestment of
distributions 1,439,206 834,462 1,205,567
Cost of shares redeemed (4,276,403) (4,408,563) (6,605,325)
----------- ----------- -----------
Net increase (decrease) in net
assets from capital stock
transactions 22,966,452 6,615,390 13,106,880
----------- ----------- -----------
Total increase (decrease) in
net assets 22,347,099 8,583,269 10,931,966
Net assets at beginning of
period 13,455,655 24,493,534 13,561,568
----------- ----------- -----------
Net assets at end of period* $35,802,754 $33,076,803 $24,493,534
============ ============ ============
Shares issued and repurchased:
Shares outstanding at
beginning of period 1,279,788 2,650,557 1,319,047
----------- ----------- -----------
Shares sold 2,492,028 1,061,212 1,891,145
Shares issued to shareholders
from reinvestment of
distributions 138,395 86,809 125,665
Shares repurchased (411,133) (460,209) (685,300)
----------- ----------- -----------
Net increase (decrease) 2,219,290 687,812 1,331,510
============ ============ ============
Shares outstanding at end
of period 3,499,078 3,338,369 2,650,557
============ ============ ============
*Includes undistributed (over
distributed) net investment
income of: $ 1,314 $ -- $ --
============ ============ ============
</TABLE>
+ For the period July 15, 1994 (commencement of operations) through December 31,
1994
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LAZARD
LAZARD LAZARD LAZARD SPECIAL
STRATEGIC YIELD SMALL CAP INTERNATIONAL SMALL CAP EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------- ------------------------------ ----------------------------- -----------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
----------------------------- ------------------------------ ----------------------------- -----------
1995 1994 1995 1994 1995 1994 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------- -----------
$ 2,991,177 $ 4,065,416 $ 2,034,823 $ 2,022,125 $ 844,253 $ 591,036 $ 401,817
(2,020,698) (3,078,071) 31,850,228 22,502,779 (1,549,597) (4,068,829) 2,717,157
3,253,428 (2,316,644) 42,530,710 (17,010,725) 796,906 (3,653,545) 2,179,142
----------- ------------ ------------ ------------ ----------- ------------ -----------
4,223,907 (1,329,299) 76,415,761 7,514,179 91,562 (7,131,338) 5,298,116
----------- ------------ ------------ ------------ ----------- ------------ -----------
(2,991,107) (4,065,416) -- (1,181,605) -- (591,036) --
-- (182,040) -- (31,911,994) -- -- --
-- -- -- -- -- 591,036 --
----------- ------------ ------------ ------------ ----------- ------------ -----------
(2,991,107) (4,247,456) -- (33,093,599) -- -- --
----------- ------------ ------------ ------------ ----------- ------------ -----------
12,852,433 47,082,168 60,092,795 96,349,172 21,438,737 87,421,230 1,586,537
2,866,501 4,028,879 -- 32,373,017 -- -- --
(5,845,701) (18,148,713) (18,558,961) (24,422,634) (6,611,002) (10,380,143) (7,225,759)
----------- ------------ ------------ ------------ ----------- ------------ -----------
9,873,233 32,962,334 41,533,834 104,299,555 14,827,735 77,041,087 (5,639,222)
----------- ------------ ------------ ------------ ----------- ------------ -----------
11,106,033 27,385,579 117,949,595 78,720,135 14,919,297 69,909,749 (341,106)
62,328,331 34,942,752 429,672,623 350,952,488 83,432,206 13,522,457 61,497,605
----------- ------------ ------------ ------------ ----------- ------------ -----------
$73,434,364 $ 62,328,331 $547,622,218 $429,672,623 $98,351,503 $ 83,432,206 $61,156,499
============ ============== ============== ============== ============ ============== ============
6,846,915 3,449,123 29,940,743 23,005,203 8,034,455 1,244,608 5,170,257
----------- ------------ ------------ ------------ ----------- ------------ -----------
1,404,185 4,889,580 3,885,377 6,292,755 2,115,568 7,756,773 127,972
315,914 425,219 -- 2,255,296 -- -- --
(646,457) (1,917,007) (1,160,547) (1,612,511) (654,360) (966,926) (584,968)
----------- ------------ ------------ ------------ ----------- ------------ -----------
1,073,642 3,397,792 2,724,830 6,935,540 1,461,208 6,789,847 (456,996)
============ ============== ============== ============== ============ ============== ============
7,920,557 6,846,915 32,665,573 29,940,743 9,495,663 8,034,455 4,713,261
============ ============== ============== ============== ============ ============== ============
$ (13,904) $ (13,973) $ 2,882,870 $ 848,046 $ 845,830 $ 1,577 $ 400,899
============ ============== ============== ============== ============ ============== ============
<CAPTION>
- ---------------------------------------------------
LAZARD LAZARD
SPECIAL EQUITY EMERGING MARKETS
PORTFOLIO PORTFOLIO
- --------------------- ----------------------------
PERIOD
SIX MONTHS ENDED
YEAR ENDED ENDED DECEMBER
DECEMBER 31, JUNE 30, 31,
----------------------------
1994 1995 1994+
- ---------------------------------------------------
<S> <C> <C> <C>
-----------
$ 764,923 $ 146,361 $ 18,035
10,854,080 (1,777,809) (187,391)
(13,546,230) 632,348 (1,532,318)
------------ ----------- -----------
(1,927,227) (999,100) (1,701,674)
------------ ----------- -----------
(760,649) -- (18,035)
(16,861,086) -- --
-- -- 18,035
------------ ----------- -----------
(17,621,735) -- --
------------ ----------- -----------
6,540,035 8,584,820 19,386,871
16,313,998 -- --
(59,936,521) (1,813,018) (660,292)
------------ ----------- -----------
(37,082,488) 6,771,802 18,726,579
------------ ----------- -----------
(56,631,450) 5,772,702 17,024,905
118,129,055 17,024,905 --
------------ ----------- -----------
$ 61,497,605 $22,797,607 $17,024,905
============== ============ ============
7,508,865 1,727,237 --
------------ ----------- -----------
429,986 971,123 1,786,246
1,278,144 -- --
(4,046,738) (205,405) (59,009)
------------ ----------- -----------
(2,338,608) 765,718 1,727,237
============== ============ ============
5,170,257 2,492,955 1,727,237
============== ============ ============
$ (918) $ 146,361 $ --
============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------
NET
GAINS
(LOSSES)
NET ON
ASSET SECURITIES
VALUE, (BOTH TOTAL
BEGINNING REALIZED FROM
OF INVESTMENT AND INVESTMENT
PERIOD PERIOD INCOME-NET UNREALIZED)-NET OPERATIONS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LAZARD EQUITY PORTFOLIO
Six months ended 6/30/95 $13.75 $0.104 $2.704 $2.808
Year ended 12/31/94 13.89 0.141 0.441 0.582
Year ended 12/31/93 12.74 0.158 2.172 2.330
Year ended 12/31/92 12.34 0.123 0.518 0.641
Year ended 12/31/91 11.53 0.107 3.051 3.158
Year ended 12/31/90 12.34 0.191 (0.778) (0.587)
Year ended 12/31/89 10.32 0.204 2.231 2.435
Year ended 12/31/88 8.73 0.181 1.597 1.778
6/1/87* to 12/31/87 10.00 0.110 (1.280) (1.170)
- ---------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Six months ended 6/30/95 11.23 0.136 0.294 0.430
Year ended 12/31/94 12.32 0.078 (0.049) 0.029
Year ended 12/31/93 9.48 0.021 2.919 2.940
Year ended 12/31/92 10.30 0.097 (0.779) (0.682)
10/29/91* to 12/31/91 10.00 0.020 0.300 0.320
- ---------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO
Six months ended 6/30/95 10.23 0.370 1.630 2.000
Year ended 12/31/94 10.51 0.592 (0.161) 0.431
Year ended 12/31/93 9.79 0.571 0.912 1.483
Year ended 12/31/92 10.28 0.614 (0.403) 0.211
11/8/91* to 12/31/91 10.00 0.110 0.280 0.390
- ---------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Six months ended 6/30/95 9.24 0.304 0.670 0.974
Year ended 12/31/94 10.28 0.584 (1.010) (0.426)
Year ended 12/31/93 10.21 0.551 0.302 0.853
Year ended 12/31/92 10.25 0.577 (0.004) 0.573
11/12/91* to 12/31/91 10.00 0.140 0.250 0.390
- ---------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Six months ended 6/30/95 9.10 0.421 0.170 0.591
Year ended 12/31/94 10.13 0.762 (0.990) (0.228)
Year ended 12/31/93 9.50 0.644 0.738 1.382
Year ended 12/31/92 9.97 1.049 (0.450) 0.599
10/1/91* to 12/31/91 10.00 0.250 (0.030) 0.220
- ---------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Six months ended 6/30/95 14.35 0.060 2.350 2.410
Year ended 12/31/94 15.26 0.070 0.220 0.290
Year ended 12/31/93 12.98 0.019 3.830 3.849
Year ended 12/31/92 10.42 0.019 2.560 2.579
10/30/91* to 12/31/91 10.00 0.030 0.420 0.450
- ---------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Six months ended 6/30/95 10.38 0.089 (0.109) (0.020)
Year ended 12/31/94 10.86 0.072 (0.548) (0.476)
12/1/93* to 12/31/93 10.00 0.004 0.859 0.863
- ---------------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Six months ended 6/30/95 11.89 0.085 1.005 1.090
Year ended 12/31/94 15.73 0.156 (0.557) (0.401)
Year ended 12/31/93 16.90 0.157 1.478 1.635
Year ended 12/31/92 15.14 0.161 2.181 2.342
Year ended 12/31/91 11.54 0.230 4.160 4.390
Year ended 12/31/90 13.72 0.714 (2.155) (1.441)
Year ended 12/31/89 13.13 0.260 1.874 2.134
Year ended 12/31/88 10.64 0.224 2.761 2.985
Year ended 12/31/87 11.66 0.112 (0.291) (0.179)
1/16/86* to 12/31/86 10.00 0.075 1.585 1.660
- ---------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Six months ended 6/30/95 9.86 0.059 (0.779) (0.720)
7/15/94* to 12/31/94 10.00 0.010 (0.154) (0.144)
- ---------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
+ Annualized.
++ Not Annualized.
(a) The Portfolio received a special distribution from one of its portfolio
investments. Had the Fund not received this distribution, the ratio would
have been 2.20%.
(b) Includes $.032 per share of distributions from paid-in capital, none of
which is a return of capital for tax purposes.
(c) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets (and net
investment income per share) would have been 10.84%+ ($0.056) for the
International Equity Portfolio, 20.70%+ ($0.293) for the International
Fixed-Income Portfolio, 7.80%+ ($.0114) for the Bond Portfolio, 6.22%+
($0.075) for the Strategic Yield Portfolio, and 11.05%+ ($0.085) for the
Small Cap Portfolio.
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LESS:
- -------------------------------
DIVIDENDS
FROM NET RATIOS TO
AND IN ASSET AVERAGE NET
EXCESS DISTRIBUTIONS VALUE, ASSETS NET ASSETS,
OF FROM END ---------------- PORTFOLIO END OF
INVESTMENT CAPITAL OF TOTAL INVESTMENT TURNOVER PERIOD
INCOME-NET GAINS PERIOD RETURN EXPENSES INCOME-NET RATE (000'S)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.048) -- $16.51 20.4%++ 0.93% 1.47% 35.85% $ 132,777
(0.152) $(0.574) 13.75 4.2 1.05 1.15 66.52 89,105
(0.165) (1.015) 13.89 18.6 1.05(e) 1.31 63.92 47,123
(0.132) (0.109) 12.74 5.3 1.05(d) 1.19 174.45 24,646
(0.082) (2.266) 12.34 27.5 1.93 0.84 90.00 14,821
(0.223)(b) -- 11.53 (4.7) 1.77 1.62 70.00 14,397
(0.214) (0.201) 12.34 23.6 1.78 1.71 78.00 16,239
(0.188) -- 10.32 20.4 1.84 1.86 111.00 12,336
(0.100) -- 8.73 (11.7)++ 1.68+ 1.93+ 97.00 10,186
- ----------------------------------------------------------------------------------------------------
-- -- 11.66 3.8++ 0.93 2.62 40.45 1,044,661
-- (1.123) 11.23 0.2 0.94 0.75 106.15 831,877
(0.021) (0.079) 12.32 31.0 0.99 1.13 86.95 603,642
(0.138) -- 9.48 (6.6) 1.05(d) 2.13 60.37 176,005
(0.020) -- 10.30 3.2++ 1.05+,(c) 2.19+ 0.18 4,967
- ----------------------------------------------------------------------------------------------------
(0.370) -- 11.86 19.8++ 1.05(g) 6.70 83.07 44,802
(0.593) (0.116) 10.23 4.2 1.05(f) 5.68 65.90 35,803
(0.570) (0.193) 10.51 15.7 1.05(e) 5.50 115.84 13,546
(0.614) (0.087) 9.79 2.0 1.05(d) 6.08 256.20 8,183
(0.110) -- 10.28 3.9++ 1.05+,(c) 4.82+ 6.43 1,427
- ----------------------------------------------------------------------------------------------------
(0.304) -- 9.91 10.7++ 0.80(g) 6.37 59.32 33,077
(0.584) (0.029) 9.24 (4.2) 0.80(f) 6.11 120.51 24,494
(0.551) (0.232) 10.28 8.6 0.80(e) 5.22 174.63 13,562
(0.577) (0.036) 10.21 5.7 0.80(d) 5.59 131.38 8,532
(0.140) -- 10.25 3.9++ 0.80+,(c) 5.50+ 10.46 3,256
- ----------------------------------------------------------------------------------------------------
(0.421) -- 9.27 6.7++ 1.06 9.32 94.71 73,434
(0.761) (0.039) 9.10 (2.3) 1.05(f) 8.03 195.18 62,328
(0.633) (0.119) 10.13 15.6 1.05(e) 6.36 215.60 34,943
(1.049) (0.020) 9.50 6.0 1.05(d) 10.57 122.88 9,641
(0.250) -- 9.97 2.1++ 1.05+,(c) 9.52+ 11.26 4,256
- ----------------------------------------------------------------------------------------------------
-- -- 16.76 16.8++ 0.83 0.86 37.63 547,622
(0.042) (1.158) 14.35 2.0 0.85 0.51 70.11 429,673
(0.020) (1.549) 15.26 30.1 0.88 0.16 98.47 350,952
(0.019) -- 12.98 24.8 1.05(d) 0.29 106.91 168,171
(0.030) -- 10.42 4.5++ 1.05+,(c) 2.47+ 5.50 2,512
- ----------------------------------------------------------------------------------------------------
-- -- 10.36 (0.2)++ 1.15 1.97 70.83 98,352
-- -- 10.38 (4.5) 1.05(f) 0.95 112.92 83,432
(0.003) -- 10.86 8.7++ 1.05+,(e) 1.76+ 0.84 13,522
- ----------------------------------------------------------------------------------------------------
-- -- 12.98 9.2++ 1.67(g) 1.33 7.00 61,156
(0.155) (3.279) 11.89 (2.6) 1.71 0.87 11.29 61,498
(0.157) (2.648) 15.73 10.2 1.67 0.74 26.31 118,129
(0.160) (0.422) 16.90 15.5 1.70 1.04 10.93 150,488
(0.227) (0.563) 15.14 38.2 1.77 1.63 19.48 111,395
(0.739) -- 11.54 (10.5) 1.78 4.70(a) 27.18 76,972
(0.264) (1.280) 13.72 16.2 1.78 1.82 40.67 101,522
(0.245) (0.250) 13.13 28.0 1.96 1.87 64.90 74,695
(0.105) (0.736) 10.64 (1.9) 1.81 0.82 90.86 53,942
-- -- 11.66 16.6++ 2.23+ 0.71+ 73.12 51,403
- ----------------------------------------------------------------------------------------------------
-- -- 9.14 (7.3)++ 1.30(g) 1.63 58.16 22,798
-- -- 9.86 (1.4)++ 1.30+,(f) 0.31+ 30.68 17,025
- ----------------------------------------------------------------------------------------------------
</TABLE>
(d) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets (and net
investment income per share) would have been 1.53% ($0.050) for the Equity
Portfolio, 1.37% ($0.014) for the International Equity Portfolio, 2.80%
($0.176) for the International Fixed-Income Portfolio, 3.23% ($0.0251) for
the Bond Portfolio, 2.99% ($0.192) for the Strategic Yield Portfolio, and
1.14%+ ($0.006) for the Small Cap Portfolio.
(e) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets (and net
investment income per share) would have been 1.18% ($0.020) for the Equity
Portfolio, 2.87%+ ($0.010) for the International Small Cap Portfolio, 2.08%
($0.119) for the International Fixed-Income Portfolio, 1.76% ($0.101) for
the Bond Portfolio, and 1.63% ($0.058) for the Strategic Yield Portfolio.
(f) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets (and net
investment income per share) would have been 1.26% ($0.016) for the
International Small Cap Portfolio, 1.51% ($0.048) for the International
Fixed-Income Portfolio, 1.23% ($0.041) for the Bond Portfolio, 1.15%
($0.009) for the Strategic Yield Portfolio, and 2.31%+ ($0.034) for the
Emerging Markets Portfolio.
(g) If the Investment Manager had not waived certain expenses the ratio of
expenses to average net assets (and net investment income per share) would
have been 1.25% ($0.360) for the International Fixed-Income Portfolio, 1.03%
($0.295) for the Bond Portfolio, 1.75% ($0.080) for the Special Equity
Portfolio and 1.98% ($0.034) for the Emerging Markets Portfolio.
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Lazard Funds, Inc. (the "Fund") was incorporated in Maryland on May 17,
1991 and is registered under the Investment Company Act of 1940 (the "Act"), as
amended, as an open-end management investment company. The Fund was originally
composed of five portfolios: Lazard International Equity Portfolio (the
"International Equity Portfolio"), Lazard International Fixed-Income Portfolio,
formerly Lazard Global Fixed-Income Portfolio (the "International Fixed-Income
Portfolio"), Lazard Bond Portfolio, formerly Lazard High Quality Bond Portfolio
(the "Bond Portfolio"), Lazard Strategic Yield Portfolio, formerly Lazard
High-Yield Portfolio, (the "Strategic Yield Portfolio") and Lazard Small Cap
Portfolio (the "Small Cap Portfolio").
Effective January 1, 1992, the Lazard Equity Fund and the Lazard Special
Equity Fund, Inc. ("Old Funds") were reorganized as separate portfolios ("New
Funds") of the Fund, namely Lazard Equity Portfolio (the "Equity Portfolio"),
and Lazard Special Equity Portfolio (the "Special Equity Portfolio"),
respectively. The per share data included herein includes per share data for
both the Old Funds and New Funds.
Effective November 1, 1993, Lazard International Small Cap Portfolio (the
"International Small Cap Portfolio") and Lazard Emerging Markets Portfolio (the
"Emerging Markets Portfolio") were added to the Fund. The Lazard Emerging
Markets Portfolio was first offered for sale on July 15, 1994.
The Equity Portfolio and Special Equity Portfolio are operated as
"diversified" as defined in the Act. The remaining Portfolios are
"non-diversified."
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
(a) Valuation of Investments--The value of securities, other than options
listed on national securities exchanges and debt securities maturing in 60 days
or less, is determined as of the close of regular trading on the New York Stock
Exchange. Options on stocks and stock indices traded on national securities
exchanges are valued as of the close of options trading on such exchanges (which
is currently 4:10 p.m. New York time). Debt securities maturing in sixty days or
less are valued at amortized cost. Each security for which the primary market is
on a national securities exchange is valued at the last sale price in the
principal exchange on which it is traded, or, if no sales are reported on such
exchange on that day, at the closing bid price.
Any security held by any Portfolio except the Special Equity Portfolio for
which the primary market is the National Association of Securities Dealers
Automated Quotations National Market System is valued at the last sale price as
quoted by such System or, in the absence of any sale on the valuation date, at
the closing bid price. Any other unlisted security for which current
over-the-counter market quotations or bids are readily available is valued at
its last quoted bid price or, for each of these Portfolios except the Equity
Portfolio, if available, the mean of two such prices.
Any security held by the Special Equity Portfolio that is not listed on a
national securities exchange but that is quoted on the National Association of
Securities Dealers Automated Quotations System is valued at the last bid price
as quoted by such System. Any other security held by the Special Equity
Portfolio for which current over-the-counter market quotations or bids are
readily available is valued at its last quoted bid price or, if available, the
mean of two such prices.
All other securities and other assets for which current market quotations
are not readily available are valued at fair value as determined in good faith
by the Fund's Board of Directors and in accordance with procedures adopted by
the Board of Directors. The portfolio securities of any of the Portfolios may
also be valued on the basis of prices provided by a pricing service when such
prices are believed by the Investment Manager to reflect the fair market value
of such securities.
(b) Securities Transactions and Investment Income--Security transactions are
accounted for on the trade date. Realized gains and losses on sales of
investments are recorded on a first-in, first-out basis. Dividend income is
recorded on the ex-date. Interest income is accrued daily. The Portfolios
amortize premiums and accrue discounts on fixed income securities.
(c) Forward Foreign Currency Exchange Contracts--The International Equity
Portfolio, International Fixed-Income Portfolio, Strategic Yield Portfolio,
International Small Cap Portfolio and the Emerging Markets Portfolio (the
"eligible portfolios") may enter into forward foreign currency exchange
contracts ("forward contracts"). To the extent permitted by each eligible
portfolio's investment objectives, restrictions and policies, forward contracts
may be entered into for both risk management and investment purposes. Depending
on how such strategies are utilized, the risks associated with their use may
vary.
Certain risks may arise upon entering into these forward contracts from the
possible movement in foreign exchange rates and the potential inability of
counterparties to meet the terms of their agreements. Forward contracts are
presented at an amount representing the net increase or decrease in value from
the date that the forward contract was entered into, to the financial statement
date. Gains and losses on these forward contracts are included in realized or
unrealized foreign exchange transactions in the accompanying Statements of
Operations.
Risk management includes hedging strategies which serve to reduce an
eligible portfolio's exposure to foreign currency fluctuations. Such exposure
may exist during the period that a foreign denominated investment is held, or
during the period between the trade date and settlement date of an investment
which is purchased or sold.
Eligible portfolios can utilize forward contracts for investment purposes.
For example, forward contracts to purchase foreign currencies can increase an
eligible portfolio's exposure to a particular currency without acquiring a
security denominated in that currency. As of June 30, 1995, the International
Fixed-Income Portfolio had a fair
F-52
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
value of $107,494 in such forward contracts outstanding, and had an average fair
value of $219,370 in such outstanding forward contracts for the six month period
ended June 30, 1995.
(d) Foreign Currency Translations--The books and records of the eligible
portfolios are maintained in U.S. dollars. Foreign exchange transactions are
translated into U.S. dollars on the following basis:
(i) the foreign currency market value of investment securities, contracts,
and other assets and liabilities stated in foreign currencies are translated at
the exchange rate at the end of the period; and
(ii) purchases and sales of investment securities, dividends, interest
income and expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
The eligible portfolios do not isolate that portion of the results of
operations from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with net realized and unrealized gain or loss from
investments. Foreign exchange gain (loss) is treated as ordinary income for
federal income tax purposes to the extent constituting "Section 988
Transactions" pursuant to the Internal Revenue Code ("IRC"), including, currency
gains (losses) related to the sale of debt securities, forward foreign currency
exchange contracts, payments of liabilities, and collections of receivables.
(e) Federal Income Taxes--The Fund's policy is to qualify each Portfolio as
a regulated investment company under the IRC and to distribute all of its
taxable income, including any realized net capital gains to shareholders.
Therefore, no Federal income tax provision is required.
(f) Dividends and Distributions--The Fund intends to declare dividends from
net investment income on shares of the International Fixed-Income Portfolio, the
Bond Portfolio and the Strategic Yield Portfolio daily and pay such dividends
monthly. Dividends from net investment income on shares of the Equity Portfolio
will be declared and paid quarterly. Dividends from net investment income on
shares of the International Equity Portfolio, Small Cap Portfolio, International
Small Cap Portfolio, Emerging Markets Portfolio and the Special Equity Portfolio
will be declared and paid annually. During any particular year, net realized
gains from investment transactions in excess of available capital loss carry
forwards would be taxable to the Fund if not distributed. The Fund intends to
declare and distribute these amounts annually to shareholders; however, to avoid
taxation a second distribution may be required.
Income distributions and capital gains distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles. These differences which may result in
distribution reclassifications are primarily due to differing treatments of
foreign currency transactions. Permanent book and tax differences relating to
shareholder distributions will result in reclassifications and may affect the
allocation between investment income--net and realized gains--net.
(g) Organizational Expenses--Costs incurred by the Fund in connection with
its organization and initial registration of shares have been deferred and are
being amortized on a straight line basis over a five-year period from the date
of commencement of operations of each Portfolio. In the event that any of the
initial shares of any of the Portfolios during such period are redeemed, the
appropriate Portfolio will be reimbursed by such holder for any unamortized
organizational expenses in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.
(h) Allocation of Expenses--Expenses not directly chargeable to a specific
Portfolio are allocated primarily on the basis of relative net assets.
3. INVESTMENT MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment management agreement (the
"Management Agreement") with Lazard Freres Asset Management (the "Manager"), a
division of Lazard Freres & Co. LLC, on behalf of each Portfolio. Pursuant to
the Management Agreement, the Manager will regularly provide the Portfolios with
investment research, advice and supervision and furnish continuously an
investment program for each Portfolio consistent with its investment objectives
and policies, including the purchase, retention and disposition of securities.
Each of the Portfolios pays the 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: Equity Portfolio, 0.75%; International
Equity Portfolio, 0.75%; International Fixed-Income Portfolio, 0.75%; Bond
Portfolio, 0.50%; Strategic Yield Portfolio, 0.75%; Small Cap Portfolio, 0.75%;
International Small Cap, 0.75%; Special Equity Portfolio, 1.50% and Emerging
Markets Portfolio, 1.00%. The investment management fees are accrued daily and
payable monthly with the exception of those paid by the Special Equity
Portfolio, which are payable quarterly.
Effective June 1, 1995, the Fund has engaged State Street Bank and Trust
Company to provide certain administrative services. Each Portfolio will bear the
cost of such expenses at the annual rate of $37,500 plus 0.02% of average assets
up to average assets of $1 billion and plus 0.01% of average assets over $1
billion. State Street has agreed to waive the $37,500 fee for one year or until
each Portfolio reaches net assets of $50 million, whichever comes first, for the
Bond and Emerging Markets Portfolios. Administration expenses for the Special
Equity Portfolio are paid for by the Manager.
Under certain state regulations, if the total expenses of any of the
Portfolios exceed certain limitations the Fund's Manager is required to
reimburse the Portfolio for such excess.
The Manager has agreed to maintain the annualized total operating expenses
of the International Fixed-Income Portfolio at a level not to exceed 1.05%;
Emerging Market Portfolio at a level not to exceed 1.30%; and Bond Portfolio at
a level not to exceed 0.80% of the average daily value of net assets of the
relevant portfolio until
F-53
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
December 31, 1995 or such time as the respective Portfolio reaches total net
assets of $100 million. For the period commencing May 1, 1995, the Manager has
agreed to bear total operating expenses (exclusive of extraordinary expenses) of
the Special Equity Portfolio in excess of 1.50% of the average daily value of
the net assets until October 31, 1996, or such time as the total net assets of
the Portfolio equals or exceeds $90 million.
For the six months ended June 30, 1995, the Manager did not impose part of
its management fee amounting to $40,070 for International Fixed-Income
Portfolio, $31,587 for Bond Portfolio, $23,011 for Special Equity Portfolio and
$61,301 for Emerging Markets Portfolio.
The Fund has a distribution agreement with Lazard Freres & Co. LLC. As the
distributor, Lazard Freres & Co. LLC acts as distributor for shares of each of
the Portfolios and bears the cost of printing and mailing prospectuses to
potential investors and of any advertising expenses incurred in connection with
the distribution of shares.
Certain Directors of the Fund are Managing Directors of the Manager. The
Fund pays each director who is not an officer of the Manager or an interested
Director, $20,000 per year, plus $1,000 per meeting attended, and reimburses
them for travel and out of pocket expenses.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchase and sales of portfolio securities, (excluding short-term
securities), for the six months ended June 30, 1995 were as follows:
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL FIXED- STRATEGIC SMALL INTERNATIONAL
EQUITY EQUITY INCOME BOND YIELD CAP SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO(1) PORTFOLIO(2) PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchases $61,359,192 $564,469,728 $35,201,396 $22,697,588 $54,225,244 $177,969,052 $68,700,117
Sales 37,357,805 352,337,189 32,167,225 15,844,201 51,283,681 166,751,577 57,181,056
<CAPTION>
SPECIAL EMERGING
EQUITY MARKETS
PORTFOLIO PORTFOLIO
- ----------------------------------------
<S> <C> <C>
Purchases $ 3,922,585 $15,593,223
Sales 12,087,542 9,730,548
</TABLE>
(1) Includes purchases and sales of U.S. Government securities of $21,109,257
and $9,795,939, respectively.
(2) Includes purchases and sales of U.S. Government securities of $3,497,941 and
$3,538,794, respectively.
For the same period, the Small Cap Portfolio and Special Equity Portfolio
paid brokerage commissions of $786 and $6,200, respectively, to Lazard Freres &
Co. LLC for portfolio transactions executed on behalf of the Portfolios.
Included in the payable for investments purchased at June 30, 1995, for the
Special Equity Portfolio, is $3,765 for unsettled purchases with Lazard Freres &
Co. LLC.
5. FEDERAL INCOME TAXES
For Federal income tax purposes capital loss carryforwards (exclusive of
certain capital losses incurred after October 31) of $703,582; $2,330,411 and
$426,494 are available to the extent provided by regulations to offset future
realized capital gains of the Bond Portfolio, Strategic Yield Portfolio and
International Small Cap Portfolio, respectively. These losses expire in 2002.
Additionally, certain capital and currency losses incurred after October 31,
within the taxable year are deemed to arise on the first business day of the
Portfolio's next taxable year. During the year ended December 31, 1994, Equity
Portfolio, International Equity Portfolio, International Fixed-Income Portfolio,
Bond Portfolio, Strategic Yield Portfolio, International Small Cap Portfolio,
and Emerging Markets Portfolio will elect to defer net capital and currency
losses of $345,637, $14,298,894, $17,028, $394,012, $553,445, $1,920,587, and
$163,226, respectively.
6. PRIVATE PLACEMENTS
At June 30, 1995, the Small Cap Portfolio held the following securities
which were private placements and represented 0.42% (at value) of the net assets
of the Portfolio:
<TABLE>
<CAPTION>
ACQUISITION
SECURITY DATE VALUE
- ------------------------------- ----------- -----------
<S> <C> <C>
Interactive Light Holdings Inc.
8.00%, 1/25/99 2/4/94 $1,000,000
Verbex Voice Systems Inc.
Series F Preferred (conv.) 7/12/93 1,000,000
Verbex Voice Systems Inc. 6/7/94 180,501
Verbex Voice Systems Inc.
10.00%, 12/31/95 3/17/95 100,000
----------
$2,280,501
==========
</TABLE>
Verbex Voice Systems Inc. and Interactive Light Holdings Inc. are valued as
determined in good faith by the Fund's Board of Directors and in accordance with
the procedures adopted by the Board of Directors. The Small Cap Portfolio will
bear any cost, including those involved in registration under the Securities Act
of 1933, in connection with the disposition of such securities.
F-54
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements
(a) Financial Statements
Included in the Registrant's Statement of Additional Information, filed
herewith, are a Report of Independent Auditors, a Statement of Assets
and Liabilities and the Notes to Financial Statement for The Lazard
Funds, Inc., prepared by Seymour Schneidman and Associates.
(b) Exhibits
1 Articles of Incorporation1
2 By-Laws1
3 Not applicable
5(A) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard International
Equity Portfolio6
5(B) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard International
Fixed-Income Portfolio6
5(C) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Bond
Portfolio6
5(D) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Strategic
Yield Portfolio6
5(E) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Small Cap
Portfolio6
5(F) Form of Administrative Services Agreement2
5(G) Form of Sub-Investment Management Agreement between Lazard Freres Asset
Management and Lazard International Investment Management Limited with
respect to the Lazard Global Fixed-Income Portfolio3
5(H) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Equity
Portfolio6
5(I) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Special
Equity Portfolio6
5(J) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Emerging
Markets Portfolio5
5(K) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard International
Small Cap Portfolio5
5(L) Form of Administrative Services Sub-Contract between Lazard Freres
Asset Management and Scudder Investment Services, Inc.4
5(M) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Global Equity
Portfolio
5(N) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Bantam Value
Portfolio
5(O) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Emerging
World Funds Portfolio
5(P) Form of Administration Agreement between the Registrant and State
Street Bank and Trust Company
6 Form of Distribution Agreement2
7 Not applicable
8 Form of Custodian Agreement2
9(A) Form of Transfer Agency and Service Agreement2
10(A) Opinion and Consent of Stroock & Stroock & Lavan*
10(B) Opinion and Consent of Venable, Baetjer and Howard*
11 Consent of Independent Auditors
*To be filed by amendment
C-1
<PAGE>
12 Not applicable
13 Investment Representation Letter5
14 Not applicable
15 Not applicable
16 Schedule for Computation of Total Return Performance Quotations7
(c) Other Exhibits:
Powers of Attorney of Messrs. Burke, Lieberman, Eig, Gullquist, Reiss
and Rutledge5
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of September 30, 1995, the number of record holders of each
Portfolio were as follows:
Lazard International Equity Portfolio 1,595
Lazard International Fixed-Income Portfolio 287
Lazard Bond Portfolio 325
Lazard Equity Portfolio 936
Lazard Strategic Yield Portfolio 521
Lazard Small Cap Portfolio 1,355
Lazard Special Equity Portfolio 427
Lazard International Small Cap Portfolio 862
Lazard Emerging Markets Portfolio 551
Lazard Global Equity Portfolio 0
Lazard Bantam Value Portfolio 0
Lazard Emerging World Funds Portfolio 0
Item 27. Indemnification.
It is the Registrant's policy to indemnify its directors and officers,
employees and other agents to the maximum extent permitted by Section
2-418 of the General Corporation Law of the State of Maryland and as
set forth in Article EIGHTH of Registrant's Articles of Incorporation,
incorporated by reference to Exhibit 1 and Article VIII of the
Registrant's By-Laws, incorporated by reference to Exhibit 2. The
liability of Lazard Freres Asset Management (the "Investment Manager")
for any loss suffered by the Lazard International Equity Portfolio,
Lazard International Fixed-Income Portfolio, Lazard Bond Portfolio,
Lazard Strategic Yield Portfolio, Lazard Small Cap Portfolio, Lazard
Emerging Markets Portfolio, Lazard International Small Cap Portfolio,
Lazard Global Equity Portfolio, Lazard Bantam Value Portfolio, and
Lazard Emerging World Funds Portfolio or their shareholders is set
forth in Section 9 of the Investment Management Agreement referenced by
Exhibits 5(A), 5(B), 5(C), 5(D), 5(E), 5(J), 5(K), 5(M), 5(N), and
5(O). The liability of the Investment Manager for any loss suffered by
the Lazard Equity Portfolio or its shareholders is set forth in Section
5 of the Investment Management Agreement referenced by Exhibit 5(H).
The liability of the Investment Manager for any losses suffered by the
Lazard Special Equity Portfolio or its shareholders is set forth in
Section 9 of the Management Agreement referenced by Exhibit 5(I). The
liability of Lazard Freres & Co. LLC, the Registrant's distributor, for
any loss suffered by the Registrant, each of its directors and officers
and each person, if any, who controls the Registrant is set forth in
Section 5(b) of the form of Distribution Agreement referenced by
Exhibit 6. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
C-2
<PAGE>
officer or the Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
1. Incorporated by reference from Registrant's Registration Statement on Form
N-1A (file Nos. 33-40682 and 811-6312) filed with the Securities and Exchange
Commission on May 20, 1991.
2. Incorporated by reference from Registrant's Pre-Effective Amendment No. 1
filed with the Securities and Exchange Commission on July 23, 1991.
3. Incorporated by reference from Registrant's Pre-Effective Amendment No. 2
filed with the Securities and Exchange Commission on September 23, 1991.
4. Incorporated by reference from Registrant's Post-Effective Amendment No. 1
filed with the Securities and Exchange Commission on November 1, 1991.
5. Incorporated by reference from Registrant's Post-Effective Amendment No. 5
filed with the Securities and Exchange Commission on September 1, 1993.
6. Incorporated by reference from Registrant's Post Effective Amendment No. 6
filed with the Securities and Exchange Commission on March 31, 1994.
7. Incorporated by reference from Registrant's Post-Effective Amendment No. 1
filed with the Securities and Exchange Commission on March 3, 1992.
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Item 28. Business and Other Connections of Investment Advisers.
The description of the Investment Manager under the Caption
"Management" in the Prospectus and in the Statement of Additional
Information constituting Parts A and B, respectively, of this
Registration Statement is incorporated by reference herein. Following
is a list of the General Members of Lazard Freres & Co. LLC, together
with their other business connections which are of substantial nature
during the previous two years:
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Robert F. Agostinelli Frontera S.A. Director
Excelsorlaan 36-38
1930 Zaventem
Brussells, Belgium
Lazard Freres & Co. Ltd. Director
21 Moorfields
London EC2P 2HT
England
Lazard, Burklin, Kuna & Co. Director
Ulmenstrasse 37-39
60325 Frankfurt am Main
Federal Republic of Germany
Lazard S.p.A. Director
Plazza Meda, 3
Milano, Italy 20121
William Araskog None
F. Harlan Batrus Mutual of America Capital Management Corp. Director
666 Fifth Avenue
New York, New York 10103
Ryan Labs, Inc. Director
350 Albany Street
New York, New York 10280
Patrick J. Callahan, Jr. Berry Metal Co. Director
Route 68
Harmony, Pennsylvania 16307
BT Capital Corp. Director
280 Park Avenue
New York, New York 10017
Lee Brass Co. Director
P.O. Box 1229
Anniston, Alabama 36202
Michigan Wheel Corp. Director
1501 Buchanan Avenue
Southwest Grand Rapids, Michigan 49507
Rotation Dynamics Corp. Director
15 Salt Creek Lane
Suite 316
Hinsdale, Illinois 60521
C-4
<PAGE>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Somerset Technologies, Inc. Director
P.O. Box 791
New Brunswick, New Jersey 08903
GAR Holding Co. Director
600 Union Street
Ashland, Ohio 44805
Michel David-Weill BSN Gervais Danone Director
1260130 Rue Jules Gruesde
Levallois-Perret (Hauts de Seine)
France 92302
Credit Mobilier Industriel Chairman of the Board
(SOVAC)
19-21 Rue de la Bienfaisance
75008 Paris, France
The Dannon Company, Inc. Director
22-11 38th Avenue
Long Island City, New York 11101
Eurafrance President and Chairman of
12 Avenue Percier the Board
75008 Paris, France
Exor Group Director
19 Avenue Montaigne
75008 Paris, France
Euralux Director
8 Rue Ste-Zithe
2763 Luxembourg
Fiat S.p.A. Director
Corso Marconi 10
10125 Torino
Italy
Groupe Danone Director
7 Rue de Teheran
75008 Paris, France
ITT Corp. Director
320 Park Avenue
New York, New York 10022
La France S.A. Director
7 & 9 Boulevard Haussmann
75009 Paris, France
La France-Iard Director
7 & 9 Boulevard Haussmann
75009 Paris, France
La France-Vie Director
7 & 9 Boulevard Haussmann
75009 Paris, France
Lazard Brothers & Co., Limited Director
21 Moorfields
London EC2P-2HT
England
C-5
<PAGE>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Pearson plc Director
Millbank Tower
London SWI P4QZ
Publicis S.A. Director
133 Champs-Ezlysees
75008 Paris, France
S.A. de la Rue Imperiale de Lyon Director
49, Rue de la Republique
Lyon (Rhone) 69002
France
Michael J. DelGiudice Orange & Rockland Utilities Inc. Director
One Blue Hill Plaza
Blue River, New York 10965
John V. Doyle None
Charles R. Dreifus None
Thomas F. Dunn Goldman, Sachs & Co. Senior Portfolio Manager
85 Broadway Street
New York, New York 10004
Norman Eig The Lazard Funds, Inc. Director, Chairman
30 Rockefeller Plaza
New York, New York 10020
The Emerging World Trust Fund Limited Director
30 Rockefeller Plaza
New York, New York 10020
Lazard Pension Management, Inc. Director
30 Rockefeller Plaza
New York, New York 10020
Peter R. Ezersky None
Albert H. Garner None
James S. Gold Smart & Final Inc. Director
4700 South Boyle Avenue
Los Angeles, California 90058
Jeffrey A. Golman None
Steven J. Golub Mineral Technologies Inc. Director
405 Lexington Avenue
New York, New York 10174-1901
Herbert W. Gullquist The Lazard Funds, Inc. Director, President
30 Rockefeller Plaza
New York, New York 10020
The Emerging World Trust Fund Limited Director
30 Rockefeller Plaza
New York, New York 10020
Lazard Freres Asset Management (Canada), Inc. Director, President
30 Rockefeller Plaza
New York, New York 10020
C-6
<PAGE>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Lazard Pension Management, Inc. Director, President
30 Rockefeller Plaza
New York, New York 10020
Thomas R. Haack None
J. Ira Harris Manpower Inc. Director
5301 North Ironwood Road
Milwaukee, Wisconsin 53201
Caremark International, Inc. Director
2215 Sanders Road
Northbrook, Illinois 60062
Brinker International Inc. Director
6820 LBJ Freeway
Dallas, Texas 75240
Melvin L. Heineman Lazard Freres & Co., Ltd. Director
21 Moorfields
London EC2P 2HT
England
Lazard Pension Management, Inc. Director
30 Rockefeller Plaza
New York, New York 10020
Kenneth M. Jacobs None
Jonathan H. Kagan Continental Cablevision, Inc. Director
Pilot House
54 Lewis Wharf
Boston, Massachusetts 02110
La Salle Re Ltd. Director
Cumberland House
One Victoria Street
P.O. HM 1502
Hamilton HM FX
Bermuda
Phar-Mor Inc. Director
20 Federal Plaza West
Youngstown, OH 44501
Tyco Toys, Inc. Director
6000 Midlantic Drive
Mount Laurel, New Jersey 08054
James L. Kempner None
Sandra A. Lamb None
M. Steven Langman None
Edgar D. Legaspi None
Michael S. Liss Bear Stearns & Co. Senior Portfolio Manager
245 Park Avenue
New York, New York 10004
William R. Loomis, Jr. Engelhard Hanovia Inc. Director
280 Park Avenue
3rd Floor - West Wing
New York, New York 10017
C-7
<PAGE>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Minorco S.A. Director
Boite Postal 185
L-2011 Luxembourg
J. Robert Lovejoy None
Matthew J. Lustig None
Philippe L. Magistretti Banque AIG President
Paris, France
Damon Mezzacappa Corporate Property Investors Director
30 Rockefeller Plaza
New York, New York 10020
Christina A. Mohr Loehmann's Holdings Inc. Director
2500 Halsey Street
Bronx, New York 10461
United Retail Group, Inc. Director
365 West Passaic Street
Rochelle Park, New Jersey 07662
Robert P. Morgenthau Lazard Freres Asset Management (Canada), Inc. Director, Vice-President
30 Rockefeller Plaza
New York, New York 10020
Steven J. Niemczyk None
Hamish W. M. Norton None
Jonathan O'Herron Trigon Energy Corporation Director
1 Water Street
White Plains, New York 10601
James A. Paduano Donovan Data Systems, Inc. Director
666 Fifth Avenue
New York, New York 10019
Pilgrim Electronics, Inc. Director
60 Beaver Brook Road
Danbury, Connecticut 06810
Louis Perlmutter None
Robert E. Poll, Jr. None
Lester Pollack Continental Cablevision, Inc. Director
Pilot House
54 Louis Wharf
Boston, Massachusetts 02210
CNA Financial Corp. Director
CNA Plaza
Chicago, Illinois 60685
Kaufman & Broad Home Corp. Director
11601 Wilshire Boulevard
Los Angeles, California 90025-1748
La Salle Re Ltd. Director
Cumberland House
One Vicotoria Street
P.O. HM FX
Bermuda
C-8
<PAGE>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Loews Corporation Director
666 Fifth Avenue
New York, New York 10103
Paramount Communications, Inc. Director
15 Columbus Circle
New York, New York 10023
Parlex Corp. Director
145 Milk Street
Metuen, Massachusetts 01844
Polaroid Corp. Director
549 Technology Square
Cambridge, Massachusetts 02139
SD Holding (Bermuda) Ltd. Director
Hurst Holme
Trott Road
Hamilton, HMII
Bermuda
Sphere Drake Acquisitions (U.K.) Ltd. Director
52-24 Leadenhall Street
London EC3A 2BJ
England
Sphere Drake Holding Ltd. Director
52-24 Leadenhall Street
London EC3A 2BJ
England
Sphere Drake Ltd. Director
52-24 Leadenhall Street
London EC3A 2BJ
England
Sun America Inc. Director
11601 Wilshire Boulevard
Los Angeles, CA 90025
Tidewater Inc. Director
1440 Canal Street
Suite 2100
New Orleans, Louisianna 70112
Michael J. Price None
Steven L. Rattner Falcon Holding Group L.P. Director
10900 Wilshire Boulevard
Los Angeles, California 90024
John R. Reese Durabond Holdings Director
312 West Main Street
Owosso, Michigan 48867
Owosso Corp. Director
312 West Main Street
Owosso, Michigan 48867
John R. Reinsberg None
C-9
<PAGE>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Luis E. Rinaldini Cedar Fair Management Co. Director
CN 5006 Causeway Drive
Sandusky, Ohio 44870
Bruno M. Roger CAP Gemini Sogeti Director
6, bid Jean Pain a Grenoble (38005)
France
Carnaud Metal Box Packaging Director
153, Rue de Courcelles a Paris 17eme
France
Compagnie De Credit Director
121, boulevard Haussmann a Paris Seme
France
Compagnie De Saint-Gobain Director
Les Miroirs
18 avenue d'Alsace
Paris la Defense (92096)
France
Eurafrance Director
12, avenue Percier a Paris Seme
France
Financiere Et Industrielle Gaz Director
Et Eaux
3, rue Jacques Bingen a Paris 17eme
France
Fonds Partenaires Gestion (F.P.G.) Director
121, boulevard Haussmann a Paris Seme
France
Lazard, Burlkin, Kuna & Co. Director
Ulmenstrasse 37-39
60325 Frankfurt am Main
Federal Republic of Germany
LVMH-Moet Hennessy Louis Vuitton Director
30, avenue Hoche a Paris 8eme
France
Marine-Wendel Director
189, rue Taitbout a Paris 9eme
France
Midial Director
192, avenue Charles de Gaulle
Neuille S/Sein (92200)
France
Moet Hennessy Director
30, avenue Hoche a Paris 8eme
France
Pinault-Printemps-Redoute Director
61, rue Caumartin
75009 Paris
PSA Finance Holding Director
75, av. de la Grande Armee a Paris 16eme
France
C-10
<PAGE>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Sidel Director
66, rue de Miromesnil
75008 Paris
Societe Centrale Puour L'Industrie Director
9, avenue Hoche a Paris 8eme
France
Societe Financiere Generale Director
Immobiliere (S.F.G.I.)
23, rue de I'Arcasde a Paris 8eme
France
Sofina (Belgique) Director
Rue de Naples, 38-B-1050 Bruzelles
Sogeti S.A. Director
6, bld Jean Pain a Grenoble (38005)
France
Sovac Director
19-21, rue de la Bienfaisance aParis 8eme
France
Sovaclux S.A. Director
14 rue Aldringen - Luxembourg
Thomson S.A. Director
51 esplanade du General de Gaulle
La Defense 10-92800 Puteaux
France
Thomson CSF Director
51 Esplanade du General de Gaulle
La Defense 10-92800 Puteaux
France
U.A.P. Director
9, place Vendome
75001 Paris
Felix G. Rohatyn General Instrument Corp. Director
181 West Madison Street
Chicago, Illinois 60602
Howmet Turbine Components Corp. Director
221 West Webster Avenue
Mouskegon, Michigan 49440
Pechiney S.A. Director
23 Rue Balzac
75008 Paris, France
Pfizer Inc. Director
235 East 42nd Street
New York, New York 10017-5755
Michael S. Rome None
Gerald Rosenfeld Case Corporation Director
700 State Street
Racine, Wisconsin 53404
C-11
<PAGE>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Peter L. Smith Dixie Yarns Inc. Director
1100 Watkins Street
Chattanooga, Tennessee 37401
Arthur P. Solomon None
Michael B. Solomon Charming Shoppes Inc. Director
450 Winks Lane
Bensalem, Pennsylvania 19020
Edouard M. Stern Mainz Holdings Limited Director
P.O. Box 3161
Roadtown Tortola BVI
Penthievre Holdings B.V. Director
Jupiter Straat 158
2130 Ah Hoofddorp Netherlands
Paul A. Street GE Capital Senior Vice President
260 Long Ridge Road
Stamford, Connecticut 06927
John S. Tamagni Western Holdings Inc. Director
1491 Tyrell Lane
Boise, Idaho 83706
David L. Tashjian None
J. Mikesell Thomas First National Bank of Chicago Executive Vice President
One First National Plaza
Chicago, Illinois 60603
Ali E. Wambold The Albert Fisher Group plc Director
Fisher House
61 Thames Street
Windsor, Berkshire SO4 IQW
England
Lazard Brothers & Co., Ltd. Director
21 Moorfields
London EC2P 2HT
England
Lazard, Burklin, Kuna & Co. Director
Ulmeastrasse 37-39
60325 Frankfurt and Main
Federal Republic of Germany
Lazard Freres & Co., Ltd. Director
21 Moorfields
London EC2P 2HT
England
Lazard S.p.A. Director
Plazza Meda, 3
Milano, Italy 20121
Kendrick R. Wilson III American Buildings Company Director
State Docks Road
Eufaula, Alabama 36027
United Savings Association of Texas FSB Director
3200 Southwest Freeway
Houston, Texas 77027
C-12
<PAGE>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Philip P. Young None
Alexander E. Zagoreos Drayton Korea Investment Trust Director
11 Devonshire Square
London EC2M 4YR
The Emerging World Trust Fund Limited Director
One Rockefeller Plaza
New York, NY 10020
Fleming Continental European Investment Trust Director
25 Copthall Avenue
London EC2R 7DR
Gartmore Emerging Pacific Investment Trust Director
Gartmore House
16-18 Monument Street
London EC3R 8AJ
Greek Progress Fund Director
Ergobank
5, Evripidou
40-44, Praxit, Elous
105-61 Athens
Greece
Latin American Investment Trust Director
Exchange House
Primrose Street
London EC2A 2NY
Merlin Green International Investment Trust Director
Knightsbridge House
197 Knightsbridge
London SW7 1RB
New Zealand Investment Trust Director
23 Cathedral Yard
Exeter
Devon EX1 1HB
World Trust Fund Director
Kredietrust
11 rue Aldringen
Luxembourg l-2960
</TABLE>
C-13
<PAGE>
Item 29. Principal Underwriters
(a) Lazard Freres & Co. LLC, through its division Lazard Freres Asset
Management, currently serves as an investment adviser to the following
investment companies: Target Portfolio Trust; The Accessor Funds;
Fortis Series Fund, Inc.; and the Managers Funds.
(b) Robert F. Agostinelli, William R. Araskog, F, Harlan Batrus, Patrick J.
Callahan, Jr., Michel David-Weill, Michael J. DelGiudice, John V.
Doyle, Charles R. Dreifus, Thomas F. Dunn, Norman Eig, Peter R.
Ezersky, Albert H. Garner, James S. Gold, Jeffrey A. Golman, Steven J.
Golub, Herbert W. Gullquist, Thomas R. Haack, J. Ira Harris, Melvin L.
Heineman, Kenneth M. Jacobs, Jonathan H. Kagan, James L. Kempner,
Sandra A. Lamb, M. Steven Langman, Edgar D. Legaspi, Michael S. Liss,
William E. Loomis, Jr., J. Robert Lovejoy, Matthew J. Lustig, Philippe
L. Magistretti, Damon Mezzacappa, Christina A. Mohr, Robert P.
Morgenthau, Steven J. Niemczyk, Hamish W. M. Norton, Jonathan O'Herron,
James A. Paduano, Louis Perlmutter, Robert E. Poll, Jr., Lester
Pollack, Michael J. Price, Steven L. Rattner, John R. Reese, John R.
Reinsberg, Luis E. Rinaldini, Bruno M. Roger, Felix G. Rohatyn, Michael
S. Rome, Gerard Rosenfeld, Peter L. Smith, Arthur P. Solomon, Michael
B. Solomon, Edouard M. Stern, Paul A. Street, John S. Tamagni, David L.
Tashjian, Joseph M. Thomas, Ali E. Wambold, Kendrick R. Wilson, III,
Philip P. Young and Alexander E. Zagoreos are the general members of
Lazard Freres & Co. LLC. Mr. David-Weill is the senior member of Lazard
Freres & Co. LLC. The address of all such members is 30 Rockefeller
Plaza, New York, New York 10020.
(c) Not applicable.
Item 30. Location of Accounts and Records
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder are maintained as follows: Journals, ledgers,
securities records and other original records are maintained primarily
at the offices of the Registrant's Custodian, State Street Bank & Trust
Company. All other records so required to be maintained are maintained
at the offices of Lazard Freres & Co. LLC, 30 Rockefeller Plaza, New
York, New York 10020.
Item 31. Management Services.
Other than as set forth under the caption "Management" in the
Prospectus constituting Part A of this Registration Statement and the
Statement of Additional Information constituting Part B of this
Registration Statement, Registrant is not a party to any
management-related service contract.
Item 32. Undertakings.
Registrant hereby undertakes:
(1) to call a meeting of shareholders for the purpose of voting upon
the question of removal of a director or directors when requested in
writing to do so by the holders of at least 10% of the Registrant's
outstanding shares of common stock and in connection with such meeting
to comply with the provisions of Section 15(c) of the Investment
Company Act of 1940 relating to shareholder communications. (2) to
furnish each person to whom a prospectus is delivered with a copy of
its latest annual report to shareholders, upon request and without
charge, beginning with the annual report to shareholders for the fiscal
year ended December 31, 1994.
C-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant certifies that it
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in The City of New York
and State of New York, on the 12th day of October, 1995.
THE LAZARD FUNDS, INC.
By: /s/ William G. Butterly, III
---------------------------------------
William G. Butterly, III
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
<TABLE>
<S> <C> <C> <C>
Signature Title Date
--------------------------------------- ------------------- ----------------
1. Principal Executive Officer Chairman October 12, 1995
* /s/ William G. Butterly, III
----------------------------------
Norman Eig
2. Principal Financial & Accounting Officer: Treasurer October 12, 1995
/s/ Gus Coutsouros
------------------
Gus Coutsouros
3. All of the Directors:
*John J. Burke
*Norman Eig
*Herbert W. Gullquist
*Lester Z. Lieberman
*Richard Reiss, Jr.
*John Rutledge
*By: /s/ William G. Butterly, III October 12, 1995
-----------------------------
Attorney-in-fact, William G. Butterly, III
</TABLE>
C-15
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Sequential
Page Number
5(M) Form of Investment Management Agreement between the
Registrant and Lazard Freres Asset Management with respect to
the Lazard Global Equity Portfolio
5(N) Form of Investment Management Agreement between the
Registrant and Lazard Freres Asset Management with respect to
the Lazard Bantam Value Portfolio
5(O) Form of Investment Management Agreement between the
Registrant and Lazard Freres Asset Management with respect to
the Lazard Emerging World Funds Portfolio
5(P) Form of Administration Agreement between the Registrant and
State Street Bank and Trust Company
10(A) Opinion and consent of Strook & Strook & Lavan
10(B) Opinion and consent of Venable, Baetjer and Howard
11 Consent of Independent Auditors
<PAGE>
EXHIBIT 5(M)
<PAGE>
THE LAZARD FUNDS, INC.
INVESTMENT MANAGEMENT AGREEMENT
Agreement, made the 16th day of October, 1995, between The
Lazard Funds, Inc., a Maryland corporation (the "Fund"), on behalf of the Lazard
Global Equity Portfolio (the "Portfolio", a portfolio of the Fund), and Lazard
Freres Asset Management, a division of Lazard Freres & Co. LLC, a New York
limited liability company (the "Investment Manager").
W I T N E S S E T H
WHEREAS, the Fund is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), authorized to reclassify and issue any unissued shares to any number of
additional classes or series each having its own investment objective, policies
and restrictions; and
WHEREAS, the Fund desires to retain the Investment Manager to
render investment advisory services to the Portfolio and the Investment Manager
is willing to render such investment advisory services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Investment Manager to act as
manager of the Portfolio for the period and on the terms set forth in this
Agreement. The Investment Manager accepts such appointment and agrees to render
the services herein described, for the compensation herein provided.
2. Subject to the supervision of the Board of Directors of the
Fund, the Investment Manager shall manage the investment operations of the
Portfolio and the assets of the Portfolio, including the purchase, retention and
disposition thereof, in accordance with the Portfolio's investment objective,
policies and restrictions as stated in the Fund's Prospectus (hereinafter
defined) and subject to the following understandings:
(a) The Investment Manager shall provide supervision
of the Portfolio's investments and determine from time to time
what investments or securities will be purchased, retained,
sold or loaned by the Portfolio, and what portion of the
assets will be invested or held uninvested as cash.
(b) The Investment Manager shall use its best
judgment in the performance of its duties under this
Agreement.
(c) The Investment Manager, in the performance of its
duties and obligations under this Agreement, shall act in
conformity with the Articles of Incorporation, By-Laws and
Prospectus of the Fund and with the instructions and
directions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act
and all other applicable federal and state laws and
regulations.
(d) The Investment Manager shall determine the
securities to be purchased or sold by the Portfolio and will
place orders pursuant to its determinations with or through
such persons, brokers or dealers (including Lazard Freres &
Co. LLC) to carry out the policy with respect to brokerage as
set forth in the Fund's Prospectus or as the Fund's Board of
Directors may direct from time to time. In providing the
Portfolio with investment supervision, it is recognized that
the Investment Manager will give primary consideration to
securing the most favorable price and efficient execution.
On occasions when the Investment Manager deems the
purchase or sale of a security to be in the best interest of
the Portfolio as well as other clients, the Investment
Manager, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so sold or
purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event,
allocation of the securities so purchased or sold, as well as
the expenses incurred in the transaction, will be made by the
Investment Manager in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the
Portfolio and to such other clients.
(e) The Investment Manager shall render to the Fund's
Board of Directors such periodic and special reports with
respect to the Portfolio's securities transactions as the
Board may reasonably request.
(f) The Investment Manager shall provide the Fund's
Custodian on each business day with information relating to
all transactions concerning the Portfolio's assets.
(g) The investment management services of the
Investment Manager to the Portfolio under this Agreement are
not to be deemed exclusive, and the Investment Manager shall
be free to render similar services to others, including other
portfolios of the Fund.
3. The Fund has delivered to the Investment Manager
copies of each of the following documents and will deliver to
it all future amendments and supplements, if any:
(a) Articles of Incorporation of the Fund, filed with
the State Department of Assessments and Taxation of Maryland
(such Articles of Incorporation, as in effect on the date
hereof and as amended from time to time, are herein called the
"Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect
on the date hereof and as amended from time to time, are
herein called the "By-Laws");
(c) Certified resolutions of the Board of Directors
of the Fund authorizing the appointment of the Investment
Manager and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-1A (the
"Registration Statement"), as filed with the Securities and
Exchange Commission (the "Commission") relating to the Fund
and shares of the Fund's Common Stock;
(e) Notification of Registration of the Fund under
the 1940 Act on Form N-8A as filed with the Commission; and
(f) Prospectus of the Fund (such prospectus, as
currently in effect and as amended or supplemented from time
to time, being herein called the "Prospectus").
4. The Investment Manager shall authorize and permit any of
the general members, officers and employees of the Investment Manager, and any
of the directors, officers and employees of any of its affiliates, who may be
elected as Directors or officers of the Fund to serve in the capacities in which
they are elected. All services to be furnished by the Investment Manager under
this Agreement may be furnished through the medium of any such general members,
directors, officers or employees of the Investment Manager or any of its
affiliates.
5. The Investment Manager shall keep the books and records of
the Fund and the Portfolio required to be maintained by it pursuant to this
Agreement and by the Fund pursuant to the rules under the 1940 Act. The
Investment Manager agrees that all records which it maintains for the Fund or
the portfolio are the property of the Fund or the Portfolio and it will
surrender promptly to the Fund or the Portfolio any of such records upon the
request of the Fund or the Portfolio. The Investment Manager further agrees to
preserve such records prescribed by Rule 31a-2 under the 1940 Act.
6. The Investment Manager will bear all of its expenses
incurred in connection with the services to be rendered by the Investment
Manager to the Portfolio under this Agreement, including without limitation the
compensation of all personnel of the Fund and the Investment Manager, except the
fees of Directors of the Fund who are not affiliated persons of the Investment
Manager.
The Fund or the Portfolio assumes and will pay all other
expenses in connection with the Fund or the Portfolio not assumed by the
Investment Manager, including but not limited to:
(a) the fees and expenses of Directors who are not
affiliated persons of the Investment Manager or any of its
affiliates;
(b) the fees and expenses of the Fund's
administrator, if any;
(c) the fees and expenses of the custodian which
relate to (i) the custodial function and the recordkeeping
connected therewith, (ii) the maintenance of the required
accounting records of the Fund, (iii) the pricing of the
shares of the Portfolio, including the cost of any pricing
service or services which may be retained pursuant to the
authorization or the Directors of the Fund, and (iv) for both
mail and wire orders, the cashiering function in connection
with the issuance and redemption of the Portfolios securities;
(d) the fees and expenses of the Fund's transfer
agent, which may be the custodian, which relate to the
maintenance of, and communications with respect to, each
stockholder account;
(e) the charges and expenses of legal counsel and
independent accountants for the Fund;
(f) brokers', commissions, any issue or transfer
taxes and any other charges in connection with portfolio
transactions on behalf of the Portfolio;
(g) all taxes and corporate fees payable by the Fund
or the Portfolio to federal, state or other governmental
agencies, and all costs of maintaining corporate existence;
(h) the allocable share of the fees of any trade
association of which the Fund may be a member;
(i) the cost of share certificates, if any,
representing shares of the Portfolio;
(j) the fees and expenses involved in registering and
maintaining registrations of the Fund and of its shares with
the Commission, registering the Fund as a broker or dealer and
qualifying the shares of the Portfolio under state securities
laws, including the preparation and printing of the Fund's
registration statements and prospectuses for filing under
federal and state securities laws for such purposes;
(k) all expenses of stockholders' and directors'
meetings and of preparing, printing and mailing prospectuses
and reports to stockholders in quantities required for
distribution to the stockholders, and communications expenses
with respect to individual stockholder accounts;
(l) the cost of obtaining fidelity insurance and any
liability insurance covering the Directors and officers of the
Fund as such;
(m) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of
the Fund's business;
(n) expenses of issue, repurchase or redemption of
shares of the Fund;
(o) fees payable to the Investment Manager hereunder;
(p) interest expenses of the Fund;
(q) fees of accounting and pricing services of the
Fund; and
(r) all other expenses properly payable by the Fund.
7. In the event the expenses of the Portfolio for any fiscal
year ( including the fees payable to the Investment Manager but excluding
interest, taxes, brokerage commissions, distribution expenditures, litigation
and indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Portfolio's business) exceed the lowest applicable
annual expense limitation established pursuant to the statute or regulations of
any jurisdictions in which shares of the Portfolio are then qualified for offer
and sale, the compensation due the Investment Manager will be reduced by the
amount of such excess, or, if such reduction exceeds the compensation payable to
the Investment Manager, the Investment Manager will pay to the Portfolio the
amount of such reduction which exceeds the amount of such compensation;
provided, however, that the Investment Manager shall not be required to reduce
its compensation and/or reimburse the Portfolio in excess of the amount required
by applicable state securities laws and regulations. Any reduction in the fee
payable or any payment by the Investment Manager to the Portfolio shall be made
quarterly. Any such reductions or payments are subject to re-adjustment during
the year.
8. For the services provided to the Portfolio and the expenses
assumed pursuant to this Agreement, the Portfolio will pay monthly to the
investment Manager as full compensation therefor a management fee, accrued
daily, at the annual rate of 0.75% of the Portfolio's average daily net assets.
9. The Investment Manager shall not be liable for any error of
judgment or for any loss suffered by the Portfolio in connection with the
matters to which this Agreement relates, except a loss resulting from a breach
of fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
10. This Agreement shall continue in full force and effect
until the earlier of (a) December 31, 1996 or (b) the first meeting of the
stockholders of the Fund after the date hereof. If approved at such meeting by
the affirmative vote of a majority of the outstanding voting securities of the
Portfolio (as defined by the 1940 Act), this Agreement shall continue in full
force and effect from year to year thereafter if such continuance is approved in
the manner required by the 1940 Act and the Investment Manager shall not have
notified the Fund in writing at least 60 days prior to the anniversary date of
the previous continuance that it does not desire such continuance. This
Agreement may be terminated at any time, without payment of penalty by the
Portfolio, on 60 days' written notice to the Investment Manager by vote of the
Board of Directors of the Fund, or by vote of a majority of the outstanding
voting securities of the Portfolio (as defined by the 1940 Act). This Agreement
shall automatically terminate in the event of its assignment (as defined by the
1940 Act).
11. Nothing in this Agreement shall limit or restrict the
right of any general member, officer or employee of the Investment Manager or
any director, officer or employee of any of its affiliates who may also be a
Director, officer or employee of the Fund to engage in any other business or to
devote his time and attention in part to the management or other aspects of any
business, whether of a similar or dissimilar nature, nor limit or restrict the
right of the Investment Manager to engage in any other business or to render
services of any kind to any other corporation, firm, individual or association.
12. During the term of this Agreement, the Fund agrees to
furnish to the Investment Manager at its principal office all prospectuses,
proxy statements, reports to stockholders, sales literature, or other material
prepared for distribution to stockholders of the Fund or the public, which refer
in any way to the Investment Manager, prior to use thereof and not to use such
material if the Investment Manager reasonably objects in writing within five
business days (or such other time as may be mutually agreed) after receipt
thereof. In the event of termination of this Agreement, the Fund will continue
to furnish to the Investment Manager copies of any of the above-mentioned
materials which refer in any way to the Investment Manager. The Fund shall
furnish or otherwise make available to the Investment Manager such other
information relating to the business affairs of the Fund as the Investment
Manager at any time, or from time to time, reasonably requests in order to
discharge its obligations hereunder.
13. This Agreement may be amended by mutual consent, but the
consent of the Fund must be approved in conformity with the requirements of the
1940 Act.
14. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Investment Manager at 30
Rockefeller Plaza, New York, NY 10020, Attention: Secretary, or (2) to the Fund
at 30 Rockefeller Plaza, New York, NY 10020, Attention: President.
15. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
THE LAZARD FUNDS, INC.
By:_____________________________________
LAZARD FRERES ASSET MANAGEMENT,
a division of Lazard Freres & Co. LLC
By:______________________________________
<PAGE>
EXHIBIT 5(N)
<PAGE>
THE LAZARD FUNDS, INC.
INVESTMENT MANAGEMENT AGREEMENT
Agreement, made the 16th day of October, 1995, between The
Lazard Funds, Inc., a Maryland corporation (the "Fund"), on behalf of the Lazard
Bantam Value Portfolio (the "Portfolio", a portfolio of the Fund), and Lazard
Freres Asset Management, a division of Lazard Freres & Co. LLC, a New York
limited liability company (the "Investment Manager").
W I T N E S S E T H
WHEREAS, the Fund is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), authorized to reclassify and issue any unissued shares to any number of
additional classes or series each having its own investment objective, policies
and restrictions; and
WHEREAS, the Fund desires to retain the Investment Manager to
render investment advisory services to the Portfolio and the Investment Manager
is willing to render such investment advisory services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Investment Manager to act as
manager of the Portfolio for the period and on the terms set forth in this
Agreement. The Investment Manager accepts such appointment and agrees to render
the services herein described, for the compensation herein provided.
2. Subject to the supervision of the Board of Directors of the
Fund, the Investment Manager shall manage the investment operations of the
Portfolio and the assets of the Portfolio, including the purchase, retention and
disposition thereof, in accordance with the Portfolio's investment objective,
policies and restrictions as stated in the Fund's Prospectus (hereinafter
defined) and subject to the following understandings:
(a) The Investment Manager shall provide supervision
of the Portfolio's investments and determine from time to time
what investments or securities will be purchased, retained,
sold or loaned by the Portfolio, and what portion of the
assets will be invested or held
uninvested as cash.
(b) The Investment Manager shall use its best
judgment in the performance of its duties under this
Agreement.
(c) The Investment Manager, in the performance of its
duties and obligations under this Agreement, shall act in
conformity with the Articles of Incorporation, By-Laws and
Prospectus of the Fund and with the instructions and
directions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act
and all other applicable federal and state laws and
regulations.
(d) The Investment Manager shall determine the
securities to be purchased or sold by the Portfolio and will
place orders pursuant to its determinations with or through
such persons, brokers or dealers (including Lazard Freres &
Co. LLC) to carry out the policy with respect to brokerage as
set forth in the Fund's Prospectus or as the Fund's Board of
Directors may direct from time to time. In providing the
Portfolio with investment supervision, it is recognized that
the Investment Manager will give primary consideration to
securing the most favorable price and efficient execution.
On occasions when the Investment Manager deems the
purchase or sale of a security to be in the best interest of
the Portfolio as well as other clients, the Investment
Manager, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so sold or
purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event,
allocation of the securities so purchased or sold, as well as
the expenses incurred in the transaction, will be made by the
Investment Manager in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the
Portfolio and to such other clients.
(e) The Investment Manager shall render to the Fund's
Board of Directors such periodic and special reports with
respect to the Portfolio's securities transactions as the
Board may reasonably request.
(f) The Investment Manager shall provide the Fund's
Custodian on each business day with information relating to
all transactions concerning the Portfolio's assets.
(g) The investment management services of the
Investment Manager to the Portfolio under this Agreement are
not to be deemed exclusive, and the Investment Manager shall
be free to render similar services to others, including other
portfolios of the Fund.
3. The Fund has delivered to the Investment Manager copies of
each of the following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Fund, filed with
the State Department of Assessments and Taxation of Maryland
(such Articles of Incorporation, as in effect on the date
hereof and as amended from time to time, are herein called the
"Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect
on the date hereof and as amended from time to time, are
herein called the "By-Laws");
(c) Certified resolutions of the Board of Directors
of the Fund authorizing the appointment of the Investment
Manager and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-1A (the
"Registration Statement"), as filed with the Securities and
Exchange Commission (the "Commission") relating to the Fund
and shares of the Fund's Common Stock;
(e) Notification of Registration of the Fund under
the 1940 Act on Form N-8A as filed with the Commission; and
(f) Prospectus of the Fund (such prospectus, as
currently in effect and as amended or supplemented from time
to time, being herein called the "Prospectus").
4. The Investment Manager shall authorize and permit any of
the general members, officers and employees of the Investment Manager, and any
of the directors, officers and employees of any of its affiliates, who may be
elected as Directors or officers of the Fund to serve in the capacities in which
they are elected. All services to be furnished by the Investment Manager under
this Agreement may be furnished through the medium of any such general members,
directors, officers or employees of the Investment Manager or any of its
affiliates.
5. The Investment Manager shall keep the books and records of
the Fund and the Portfolio required to be maintained by it pursuant to this
Agreement and by the Fund pursuant to the rules under the 1940 Act. The
Investment Manager agrees that all records which it maintains for the Fund or
the portfolio are the property of the Fund or the Portfolio and it will
surrender promptly to the Fund or the Portfolio any of such records upon the
request of the Fund or the Portfolio. The Investment Manager further agrees to
preserve such records prescribed by Rule 31a-2 under the 1940 Act.
6. The Investment Manager will bear all of its expenses
incurred in connection with the services to be rendered by the Investment
Manager to the Portfolio under this Agreement, including without limitation the
compensation of all personnel of the Fund and the Investment Manager, except the
fees of Directors of the Fund who are not affiliated persons of the Investment
Manager.
The Fund or the Portfolio assumes and will pay all other
expenses in connection with the Fund or the Portfolio not assumed by the
Investment Manager, including but not limited to:
(a) the fees and expenses of Directors who are not
affiliated persons of the Investment Manager or any of its
affiliates;
(b) the fees and expenses of the Fund's
administrator, if any;
(c) the fees and expenses of the custodian which
relate to (i) the custodial function and the recordkeeping
connected therewith, (ii) the maintenance of the required
accounting records of the Fund, (iii) the pricing of the
shares of the Portfolio, including the cost of any pricing
service or services which may be retained pursuant to the
authorization or the Directors of the Fund, and (iv) for both
mail and wire orders, the cashiering function in connection
with the issuance and redemption of the Portfolios securities;
(d) the fees and expenses of the Fund's transfer
agent, which may be the custodian, which relate to the
maintenance of, and communications with respect to, each
stockholder account;
(e) the charges and expenses of legal counsel and
independent accountants for the Fund; (f) brokers',
commissions, any issue or transfer taxes and any other charges
in connection with portfolio transactions on behalf of the
Portfolio;
(g) all taxes and corporate fees payable by the Fund
or the Portfolio to federal, state or other governmental
agencies, and all costs of maintaining corporate existence;
(h) the allocable share of the fees of any trade
association of which the Fund may be a member;
(i) the cost of share certificates, if any,
representing shares of the Portfolio;
(j) the fees and expenses involved in registering and
maintaining registrations of the Fund and of its shares with
the Commission, registering the Fund as a broker or dealer and
qualifying the shares of the Portfolio under state securities
laws, including the preparation and printing of the Fund's
registration statements and prospectuses for filing under
federal and state securities laws for such purposes;
(k) all expenses of stockholders' and directors'
meetings and of preparing, printing and mailing prospectuses
and reports to stockholders in quantities required for
distribution to the stockholders, and communications expenses
with respect to individual stockholder accounts;
(l) the cost of obtaining fidelity insurance and any
liability insurance covering the Directors and officers of the
Fund as such;
(m) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of
the Fund's business;
(n) expenses of issue, repurchase or redemption of
shares of the Fund;
(o) fees payable to the Investment Manager hereunder;
(p) interest expenses of the Fund;
(q) fees of accounting and pricing services of the
Fund; and
(r) all other expenses properly payable by the Fund.
7. In the event the expenses of the Portfolio for any fiscal
year ( including the fees payable to the Investment Manager but excluding
interest, taxes, brokerage commissions, distribution expenditures, litigation
and indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Portfolio's business) exceed the lowest applicable
annual expense limitation established pursuant to the statute or regulations of
any jurisdictions in which shares of the Portfolio are then qualified for offer
and sale, the compensation due the Investment Manager will be reduced by the
amount of such excess, or, if such reduction exceeds the compensation payable to
the Investment Manager, the Investment Manager will pay to the Portfolio the
amount of such reduction which exceeds the amount of such compensation;
provided, however, that the Investment Manager shall not be required to reduce
its compensation and/or reimburse the Portfolio in excess of the amount required
by applicable state securities laws and regulations. Any reduction in the fee
payable or any payment by the Investment Manager to the Portfolio shall be made
quarterly. Any such reductions or payments are subject to re-adjustment during
the year.
8. For the services provided to the Portfolio and the expenses
assumed pursuant to this Agreement, the Portfolio will pay monthly to the
investment Manager as full compensation therefor a management fee, accrued
daily, at the annual rate of 0.75% of the Portfolio's average daily net assets.
9. The Investment Manager shall not be liable for any error of
judgment or for any loss suffered by the Portfolio in connection with the
matters to which this Agreement relates, except a loss resulting from a breach
of fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
10. This Agreement shall continue in full force and effect
until the earlier of (a) December 31, 1996 or (b) the first meeting of the
stockholders of the Fund after the date hereof. If approved at such meeting by
the affirmative vote of a majority of the outstanding voting securities of the
Portfolio (as defined by the 1940 Act), this Agreement shall continue in full
force and effect from year to year thereafter if such continuance is approved in
the manner required by the 1940 Act and the Investment Manager shall not have
notified the Fund in writing at least 60 days prior to the anniversary date of
the previous continuance that it does not desire such continuance. This
Agreement may be terminated at any time, without payment of penalty by the
Portfolio, on 60 days' written notice to the Investment Manager by vote of the
Board of Directors of the Fund, or by vote of a majority of the outstanding
voting securities of the Portfolio (as defined by the 1940 Act). This Agreement
shall automatically terminate in the event of its assignment (as defined by the
1940 Act).
11. Nothing in this Agreement shall limit or restrict the
right of any general member, officer or employee of the Investment Manager or
any director, officer or employee of any of its affiliates who may also be a
Director, officer or employee of the Fund to engage in any other business or to
devote his time and attention in part to the management or other aspects of any
business, whether of a similar or dissimilar nature, nor limit or restrict the
right of the Investment Manager to engage in any other business or to render
services of any kind to any other corporation, firm, individual or association.
12. During the term of this Agreement, the Fund agrees to
furnish to the Investment Manager at its principal office all prospectuses,
proxy statements, reports to stockholders, sales literature, or other material
prepared for distribution to stockholders of the Fund or the public, which refer
in any way to the Investment Manager, prior to use thereof and not to use such
material if the Investment Manager reasonably objects in writing within five
business days (or such other time as may be mutually agreed) after receipt
thereof. In the event of termination of this Agreement, the Fund will continue
to furnish to the Investment Manager copies of any of the above-mentioned
materials which refer in any way to the Investment Manager. The Fund shall
furnish or otherwise make available to the Investment Manager such other
information relating to the business affairs of the Fund as the Investment
Manager at any time, or from time to time, reasonably requests in order to
discharge its obligations hereunder.
13. This Agreement may be amended by mutual consent, but the
consent of the Fund must be approved in conformity with the requirements of the
1940 Act.
14. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Investment Manager at 30
Rockefeller Plaza, New York, NY 10020, Attention: Secretary, or (2) to the Fund
at 30 Rockefeller Plaza, New York, NY 10020, Attention: President.
15. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
THE LAZARD FUNDS, INC.
By:_____________________________________
LAZARD FRERES ASSET MANAGEMENT,
a division of Lazard Freres & Co. LLC
By:______________________________________
<PAGE>
EXHIBIT 5(O)
<PAGE>
THE LAZARD FUNDS, INC.
INVESTMENT MANAGEMENT AGREEMENT
Agreement, made the 16th day of October, 1995, between The
Lazard Funds, Inc., a Maryland corporation (the "Fund"), on behalf of the Lazard
Emerging World Funds Portfolio (the "Portfolio", a portfolio of the Fund), and
Lazard Freres Asset Management, a division of Lazard Freres & Co. LLC, a New
York limited liability company (the "Investment Manager").
W I T N E S S E T H
WHEREAS, the Fund is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), authorized to reclassify and issue any unissued shares to any number of
additional classes or series each having its own investment objective, policies
and restrictions; and
WHEREAS, the Fund desires to retain the Investment Manager to
render investment advisory services to the Portfolio and the Investment Manager
is willing to render such investment advisory services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Investment Manager to act as
manager of the Portfolio for the period and on the terms set forth in this
Agreement. The Investment Manager accepts such appointment and agrees to render
the services herein described, for the compensation herein provided.
2. Subject to the supervision of the Board of Directors of the
Fund, the Investment Manager shall manage the investment operations of the
Portfolio and the assets of the Portfolio, including the purchase, retention and
disposition thereof, in accordance with the Portfolio's investment objective,
policies and restrictions as stated in the Fund's Prospectus (hereinafter
defined) and subject to the following understandings:
(a) The Investment Manager shall provide supervision
of the Portfolio's investments and determine from time to time
what investments or securities will be purchased, retained,
sold or loaned by the Portfolio, and what portion of the
assets will be invested or held uninvested as cash.
(b) The Investment Manager shall use its best
judgment in the performance of its duties under this
Agreement.
(c) The Investment Manager, in the performance of its
duties and obligations under this Agreement, shall act in
conformity with the Articles of Incorporation, By-Laws and
Prospectus of the Fund and with the instructions and
directions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act
and all other applicable federal and state laws and
regulations.
(d) The Investment Manager shall determine the
securities to be purchased or sold by the Portfolio and will
place orders pursuant to its determinations with or through
such persons, brokers or dealers (including Lazard Freres &
Co. LLC) to carry out the policy with respect to brokerage as
set forth in the Fund's Prospectus or as the Fund's Board of
Directors may direct from time to time. In providing the
Portfolio with investment supervision, it is recognized that
the Investment Manager will give primary consideration to
securing the most favorable price and efficient execution. On
occasions when the Investment Manager deems the purchase or
sale of a security to be in the best interest of the Portfolio
as well as other clients, the Investment Manager, to the
extent permitted by applicable laws and regulations, may
aggregate the securities to be so sold or purchased in order
to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation
of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the
Investment Manager in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the
Portfolio and to such other clients.
(e) The Investment Manager shall render to the Fund's
Board of Directors such periodic and special reports with
respect to the Portfolio's securities transactions as the
Board may reasonably request.
(f) The Investment Manager shall provide the Fund's
Custodian on each business day with information relating to
all transactions concerning the Portfolio's assets.
(g) The investment management services of the
Investment Manager to the Portfolio under this Agreement are
not to be deemed exclusive, and the Investment Manager shall
be free to render similar services to others, including other
portfolios of the Fund.
3. The Fund has delivered to the Investment Manager copies of
each of the following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Fund, filed with
the State Department of Assessments and Taxation of Maryland
(such Articles of Incorporation, as in effect on the date
hereof and as amended from time to time, are herein called the
"Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect
on the date hereof and as amended from time to time, are
herein called the "By-Laws");
(c) Certified resolutions of the Board of Directors
of the Fund authorizing the appointment of the Investment
Manager and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-1A (the
"Registration Statement"), as filed with the Securities and
Exchange Commission (the "Commission") relating to the Fund
and shares of the Fund's Common Stock;
(e) Notification of Registration of the Fund under
the 1940 Act on Form N-8A as filed with the Commission; and
(f) Prospectus of the Fund (such prospectus, as
currently in effect and as amended or supplemented from time
to time, being herein called the "Prospectus").
4. The Investment Manager shall authorize and permit any of
the general members, officers and employees of the Investment Manager, and any
of the directors, officers and employees of any of its affiliates, who may be
elected as Directors or officers of the Fund to serve in the capacities in which
they are elected. All services to be furnished by the Investment Manager under
this Agreement may be furnished through the medium of any such general members,
directors, officers or employees of the Investment Manager or any of its
affiliates.
5. The Investment Manager shall keep the books and records of
the Fund and the Portfolio required to be maintained by it pursuant to this
Agreement and by the Fund pursuant to the rules under the 1940 Act. The
Investment Manager agrees that all records which it maintains for the Fund or
the portfolio are the property of the Fund or the Portfolio and it will
surrender promptly to the Fund or the Portfolio any of such records upon the
request of the Fund or the Portfolio. The Investment Manager further agrees to
preserve such records prescribed by Rule 31a-2 under the 1940 Act.
6. The Investment Manager will bear all of its expenses
incurred in connection with the services to be rendered by the Investment
Manager to the Portfolio under this Agreement, including without limitation the
compensation of all personnel of the Fund and the Investment Manager, except the
fees of Directors of the Fund who are not affiliated persons of the Investment
Manager.
The Fund or the Portfolio assumes and will pay all other
expenses in connection with the Fund or the Portfolio not assumed by the
Investment Manager, including but not limited to:
(a) the fees and expenses of Directors who are not
affiliated persons of the Investment Manager or any of its
affiliates;
(b) the fees and expenses of the Fund's
administrator, if any;
(c) the fees and expenses of the custodian which
relate to (i) the custodial function and the recordkeeping
connected therewith, (ii) the maintenance of the required
accounting records of the Fund, (iii) the pricing of the
shares of the Portfolio, including the cost of any pricing
service or services which may be retained pursuant to the
authorization or the Directors of the Fund, and (iv) for both
mail and wire orders, the cashiering function in connection
with the issuance and redemption of the Portfolios securities;
(d) the fees and expenses of the Fund's transfer
agent, which may be the custodian, which relate to the
maintenance of, and communications with respect to, each
stockholder account;
(e) the charges and expenses of legal counsel and
independent accountants for the Fund;
(f) brokers', commissions, any issue or transfer
taxes and any other charges in connection with portfolio
transactions on behalf of the Portfolio;
(g) all taxes and corporate fees payable by the Fund
or the Portfolio to federal, state or other governmental
agencies, and all costs of maintaining corporate existence;
(h) the allocable share of the fees of any trade
association of which the Fund may be a member;
(i) the cost of share certificates, if any,
representing shares of the Portfolio;
(j) the fees and expenses involved in registering and
maintaining registrations of the Fund and of its shares with
the Commission, registering the Fund as a broker or dealer and
qualifying the shares of the Portfolio under state securities
laws, including the preparation and printing of the Fund's
registration statements and prospectuses for filing under
federal and state securities laws for such purposes;
(k) all expenses of stockholders' and directors'
meetings and of preparing, printing and mailing prospectuses
and reports to stockholders in quantities required for
distribution to the stockholders, and communications expenses
with respect to individual stockholder accounts;
(l) the cost of obtaining fidelity insurance and any
liability insurance covering the Directors and officers of the
Fund as such;
(m) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of
the Fund's business;
(n) expenses of issue, repurchase or redemption of
shares of the Fund;
(o) fees payable to the Investment Manager hereunder;
(p) interest expenses of the Fund;
(q) fees of accounting and pricing services of the
Fund; and
(r) all other expenses properly payable by the Fund.
7. In the event the expenses of the Portfolio for any fiscal
year ( including the fees payable to the Investment Manager but excluding
interest, taxes, brokerage commissions, distribution expenditures, litigation
and indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Portfolio's business) exceed the lowest applicable
annual expense limitation established pursuant to the statute or regulations of
any jurisdictions in which shares of the Portfolio are then qualified for offer
and sale, the compensation due the Investment Manager will be reduced by the
amount of such excess, or, if such reduction exceeds the compensation payable to
the Investment Manager, the Investment Manager will pay to the Portfolio the
amount of such reduction which exceeds the amount of such compensation;
provided, however, that the Investment Manager shall not be required to reduce
its compensation and/or reimburse the Portfolio in excess of the amount required
by applicable state securities laws and regulations. Any reduction in the fee
payable or any payment by the Investment Manager to the Portfolio shall be made
quarterly. Any such reductions or payments are subject to re-adjustment during
the year.
8. For the services provided to the Portfolio and the expenses
assumed pursuant to this Agreement, the Portfolio will pay monthly to the
investment Manager as full compensation therefor a management fee, accrued
daily, at the annual rate of 0.75% of the Portfolio's average daily net assets.
9. The Investment Manager shall not be liable for any error of
judgment or for any loss suffered by the Portfolio in connection with the
matters to which this Agreement relates, except a loss resulting from a breach
of fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
10. This Agreement shall continue in full force and effect
until the earlier of (a) December 31, 1996 or (b) the first meeting of the
stockholders of the Fund after the date hereof. If approved at such meeting by
the affirmative vote of a majority of the outstanding voting securities of the
Portfolio (as defined by the 1940 Act), this Agreement shall continue in full
force and effect from year to year thereafter if such continuance is approved in
the manner required by the 1940 Act and the Investment Manager shall not have
notified the Fund in writing at least 60 days prior to the anniversary date of
the previous continuance that it does not desire such continuance. This
Agreement may be terminated at any time, without payment of penalty by the
Portfolio, on 60 days' written notice to the Investment Manager by vote of the
Board of Directors of the Fund, or by vote of a majority of the outstanding
voting securities of the Portfolio (as defined by the 1940 Act). This Agreement
shall automatically terminate in the event of its assignment (as defined by the
1940 Act).
11. Nothing in this Agreement shall limit or restrict the
right of any general member, officer or employee of the Investment Manager or
any director, officer or employee of any of its affiliates who may also be a
Director, officer or employee of the Fund to engage in any other business or to
devote his time and attention in part to the management or other aspects of any
business, whether of a similar or dissimilar nature, nor limit or restrict the
right of the Investment Manager to engage in any other business or to render
services of any kind to any other corporation, firm, individual or association.
12. During the term of this Agreement, the Fund agrees to
furnish to the Investment Manager at its principal office all prospectuses,
proxy statements, reports to stockholders, sales literature, or other material
prepared for distribution to stockholders of the Fund or the public, which refer
in any way to the Investment Manager, prior to use thereof and not to use such
material if the Investment Manager reasonably objects in writing within five
business days (or such other time as may be mutually agreed) after receipt
thereof. In the event of termination of this Agreement, the Fund will continue
to furnish to the Investment Manager copies of any of the above-mentioned
materials which refer in any way to the Investment Manager. The Fund shall
furnish or otherwise make available to the Investment Manager such other
information relating to the business affairs of the Fund as the Investment
Manager at any time, or from time to time, reasonably requests in order to
discharge its obligations hereunder.
13. This Agreement may be amended by mutual consent, but the
consent of the Fund must be approved in conformity with the requirements of the
1940 Act.
14. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Investment Manager at 30
Rockefeller Plaza, New York, NY 10020, Attention: Secretary, or (2) to the Fund
at 30 Rockefeller Plaza, New York, NY 10020, Attention: President.
15. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
THE LAZARD FUNDS, INC.
By:_____________________________________
LAZARD FRERES ASSET MANAGEMENT,
a division of Lazard Freres & Co. LLC
By:______________________________________
<PAGE>
EXHIBIT 5(P)
<PAGE>
ADMINISTRATION AGREEMENT
Agreement dated as of June 1, 1995 by and between State Street
Bank and Trust Company, a Massachusetts trust company (the "Administrator"), and
The Lazard Funds, Inc. (the "Fund").
WHEREAS, the Fund is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain the Administrator to
furnish certain administrative services to the Fund, and the Administrator is
willing to furnish such services on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
The Fund hereby appoints the Administrator to act as
administrator with respect to the Fund for purposes of providing certain
administrative services for the period and on the terms set forth in this
Agreement. The Administrator accepts such appointment and agrees to render the
services stated herein.
The Fund consists of the portfolio(s) and/or class(es) of
shares (each an "Investment Fund") listed in Schedule A to this Agreement. In
the event that the Fund establishes one or more additional Investment Funds with
respect to which it wishes to retain the Administrator to act as administrator
hereunder, the Fund shall notify the Administrator in writing. Upon written
acceptance by the Administrator, such Investment Fund shall become subject to
the provisions of this Agreement to the same extent as the existing Investment
Funds, except to the extent that such provisions (including those relating to
the compensation and expenses payable by the Fund and its Investment Funds) may
be modified with respect to each additional Investment Fund in writing by the
Fund and the Administrator at the time of the addition of the Investment Fund.
2. DELIVERY OF DOCUMENTS
The Fund will promptly deliver to the Administrator copies of
each of the following documents and all future amendments and supplements, if
any:
a. The Fund's charter document and by-laws;
b. The Fund's currently effective registration statement
under the Securities Act of 1933, as amended (the
"1933 Act") and the 1940 Act and the Fund's
1
<PAGE>
Prospectus(es) and Statement(s) of Additional
Information relating to all Investment Funds and all
amendments and supplements thereto as presently in
effect;
c. Certified copies of the resolutions of the Board of
Directors of the Fund (the "Board") authorizing (1)
this Agreement and (2) certain individuals on behalf
of the Fund to (a) give instructions to the
Administrator pursuant to this Agreement and (b) sign
checks and pay expenses;
d. A copy of the investment advisory agreements between
the Fund and its investment adviser; and
e. Such other certificates, documents or opinions which
the Administrator may, in its reasonable discretion,
deem necessary or appropriate in the proper
performance of its duties.
3. REPRESENTATION AND WARRANTIES OF THE ADMINISTRATOR
The Administrator represents and warrants to the Fund that:
a. It is a Massachusetts trust company, duly organized,
validly existing and in good standing under the laws
of The Commonwealth of Massachusetts, and has all
power and authority necessary to own or hold its
property, to perform its administrative services and
to conduct its business as described in this
Agreement;
b. All requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement;
c. No legal or administrative proceedings have been
instituted or threatened which would impair the
Administrator's ability to perform its duties and
obligations under this Agreement; and
d. Its entrance into this Agreement shall not cause a
material breach or be in material conflict with any
other agreement or obligation of the Administrator or
any law or regulation applicable to it.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Administrator that:
a. It is a corporation, duly organized and existing and
in good standing under the laws of Maryland;
b. It has the corporate power and authority under
applicable laws and by its charter document and
by-laws to enter into and perform this Agreement;
2
<PAGE>
c. All requisite proceedings have been taken to
authorize it to enter into and perform this
Agreement;
d. It is an investment company properly registered under
the 1940 Act;
e. A registration statement under the 1933 Act and the
1940 Act has been filed and will be effective and
remain effective during the term of this Agreement.
The Fund also warrants to the Administrator that as
of the date of commencement of this Agreement, all
necessary filings under the securities laws of the
states in which the Fund offers or sells its shares
have been made;
f. No legal or administrative proceedings have been
instituted or threatened which would impair the
Fund's ability to perform its duties and obligation
under this Agreement;
g. Its entrance into this Agreement shall not cause a
material breach or be in material conflict with any
other agreement or obligation of the Fund or any law
or regulation applicable to it; and
h. As of the close of business on the date of this
Agreement, the Fund is authorized to issue shares of
capital stock, and it offers shares in the authorized
amounts as set forth in Schedule A to this Agreement.
5. ADMINISTRATION SERVICES
The Administrator shall provide the following services subject
to the control, supervision and direction of the Fund and to review and
correction by the Fund's auditors and legal counsel and in accordance with
procedures which may be established from time to time between the Fund and the
Administrator:
a. Oversee the maintenance by the Fund's custodian of
certain books and records of the Fund as required
under Rule 31a-1(b) of the 1940 Act;
b. Prepare the Fund's federal, state and local income
tax returns for review by the Fund's independent
accountants and filing by the Fund's treasurer;
c. Review calculation, submit for approval and arrange
for payment of the Fund's expenses;
d. Prepare for review and approval by officers of the
Fund financial information for the Fund's semi-annual
and annual reports, proxy statements and other
communications required or otherwise to be sent to
Fund shareholders, and arrange for the printing and
dissemination of such reports and communications to
shareholders;
e. Prepare for review by an officer of and legal counsel
for the Fund, the Fund's periodic financial reports
required to be filed with the Securities and Exchange
Commission ("SEC") on Form N-SAR and financial
information required by Form N-1A and such other
reports, forms or filings as may be mutually agreed
upon;
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f. Prepare reports relating to the business and affairs
of the Fund as may be mutually agreed upon and not
otherwise prepared by the Fund's investment adviser,
custodian, counsel or auditors;
g. Oversee and review calculations of fees paid to the
investment adviser, the custodian and the transfer
agent;
h. Consult with the Fund's officers, independent
accountants, legal counsel, custodian and transfer
agent in establishing the accounting policies of the
Fund;
i. Respond to or refer to the Fund's officers or
transfer agent, shareholder inquiries relating to the
Fund;
j. Provide periodic testing of portfolios to assist the
Fund's adviser in complying with Internal Revenue
Code mandatory qualification requirements, the
requirements of the 1940 Act and Fund prospectus
limitations as may be mutually agreed upon;
k. Prepare Rule 24f-2 Notices; and
l. Prepare and file all state registrations of the
Fund's securities as detailed in Schedule C to this
Agreement.
The Administrator will also provide the office facilities and the personnel
required by it to perform the services contemplated herein.
6. FEES; EXPENSES; EXPENSE REIMBURSEMENT
The Administrator shall receive from the Fund such
compensation for the Administrator's services provided pursuant to this
Agreement as may be agreed to from time to time in a written fee schedule
approved by the parties and initially set forth in Schedule B to this Agreement.
The fees are to be billed monthly and shall be due and payable upon receipt of
the invoice. Upon the termination of this Agreement before the end of any month,
the fee for the part of the month before such termination shall be prorated
according to the proportion which such part bears to the full monthly period and
shall be payable upon the date of termination of this Agreement. In addition,
the Fund shall reimburse the Administrator for its reasonable out-of-pocket
costs incurred in connection with this Agreement.
The Fund agrees to promptly reimburse the Administrator for
any equipment and supplies specially ordered by or for the exclusive use of the
Fund through the Administrator and for any other expenses not contemplated by
this Agreement that the Administrator may incur on the Fund's behalf at the
Fund's request or as consented to by the Fund.
The Fund will bear all expenses that are incurred in its
operation and not specifically assumed by the Administrator. Expenses to be
borne by the Fund, include, but are not limited to: organizational expenses;
cost of services of independent accountants and outside legal and tax counsel
(including such counsel's review of the Fund's registration statement, proxy
materials, federal and state tax qualification as a regulated investment company
4
<PAGE>
and other reports and materials prepared by the Administrator under this
Agreement); cost of any services contracted for by the Fund directly from
parties other than the Administrator; cost of trading operations and brokerage
fees, commissions and transfer taxes in connection with the purchase and sale of
securities for the Fund; investment advisory fees; taxes, insurance premiums and
other fees and expenses applicable to its operation; costs incidental to any
meetings of shareholders including, but not limited to, legal and accounting
fees, proxy filing fees and the costs of preparation, printing and mailing of
any proxy materials; costs incidental to Board meetings, including fees and
expenses of Board members; the salary and expenses of any officer,
director\trustee or employee of the Fund; costs incidental to the preparation,
printing and distribution of the Fund's registration statements and any
amendments thereto and shareholder reports; cost of typesetting and printing of
prospectuses; cost of preparation and filing of the Fund's tax returns, Form
N-1A and Form N-SAR, and all notices, registrations and amendments associated
with applicable federal and state tax and securities laws; all applicable
registration fees and filing fees required under federal and state securities
laws; fidelity bond and directors' and officers' liability insurance; and cost
of independent pricing services used in computing the Fund's net asset value.
The Administrator is authorized to and may employ or associate with
such person or persons as the Administrator may deem desirable to assist it in
performing its duties under this Agreement; provided, however, that the
compensation of such person or persons shall be paid by the Administrator and
that the Administrator shall be as fully responsible to the Fund for the acts
and omissions of any such person or persons as it is for its own acts and
omissions.
7. INSTRUCTIONS AND ADVICE
At any time the Administrator may apply to any officer of the
Fund for instructions and may consult with outside counsel for the Fund or the
auditors for the Fund at the expense of the Fund, or with its own legal counsel
with respect to any matter arising in connection with the services to be
performed by the Administrator under this Agreement. The Administrator shall not
be liable and shall be indemnified by the Fund for any action taken or omitted
by it in good faith in reliance upon any such instructions or advice or upon any
paper or document reasonably believed by it to be genuine and to have been
signed by the proper person or persons. The Administrator shall not be held to
have notice of any change of authority of any person until receipt of written
notice thereof from the Fund. Nothing in this paragraph shall be construed as
imposing upon the Administrator any obligation to seek such instructions or
advice, or to act in accordance with such advice when received.
8. LIMITATION OF LIABILITY AND INDEMNIFICATION
The Administrator shall be responsible for the performance of
only such duties as are set forth in this Agreement and except as otherwise
provided under Section 6, shall have no responsibility for the actions or
activities of any other party, including other service providers. The
Administrator shall have no liability for any error of judgement or mistake of
law or for any loss or damage resulting from the performance or nonperformance
of its duties hereunder unless solely caused by or resulting from the negligence
or willful misconduct of the Administrator, its officers or employees. The
Administrator shall not be liable for consequential damages under any provision
of this Agreement or for any consequential damages arising out of any act or
failure to act hereunder. In any event, the Administrator's liability under this
Agreement shall be limited to its total annual compensation earned and fees paid
hereunder during the preceding eighteen months for any liability or loss
suffered by the Fund including, but not limited to, any liability relating to
5
<PAGE>
qualification of the Fund as a regulated investment company or any liability
relating to the Fund's compliance with any federal or state tax or securities
statute, regulation or ruling.
The Fund shall indemnify and hold the Administrator harmless
from all loss, cost, damage and expense, including reasonable fees and expenses
for counsel, incurred by the Administrator resulting from any claim, demand,
action or suit in connection with the Administrator's acceptance of this
Agreement, any action or omission by it in the performance of its duties
hereunder, or as a result of acting upon any instructions reasonably believed by
it to have been duly authorized by the Fund, provided that this indemnification
shall not apply to actions or omissions of the Administrator, its officers or
employees in cases of its or their own negligence or willful misconduct.
The Fund will be entitled to participate at its own expense in
the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification provided above. In the
event the Fund elects to assume the defense of any such suit and retain counsel,
the Administrator or any of its affiliated persons, named as defendant or
defendants in the suit, may retain additional counsel but shall bear the fees
and expenses of such counsel unless (i) the Fund shall have specifically
authorized the retaining of such counsel or (ii) the Administrator shall have
determined in good faith that the retention of such counsel is required as a
result of a conflict of interest.
The indemnification contained herein shall survive the
termination of this Agreement.
9. CONFIDENTIALITY
The Administrator agrees that, except as otherwise required by
law, it will keep confidential all records and information in its possession
relating to the Fund or its shareholders or shareholder accounts and will not
disclose the same to any person except at the request or with the written
consent of the Fund.
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<PAGE>
10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS; RECORDS
The Fund assumes full responsibility for complying with all
securities, tax, commodities and other laws, rules and regulations applicable to
it provided, however, that the foregoing does not limit the Administrator's
responsibility to the Fund for the performance of its duties under this
Agreement as determined in accordance with Section 8 of this Agreement.
In compliance with the requirements of Rule 31a-3 under the
1940 Act, the Administrator agrees that all records which it maintains for the
Fund shall at all times remain the property of the Fund, shall be readily
accessible during normal business hours, and shall be promptly surrendered upon
the termination of the Agreement or otherwise on written request. The
Administrator further agrees that all records which it maintains for the Fund
pursuant to Rule 31a-1 under the 1940 Act will be preserved for the periods
prescribed by Rule 31a-2 under the 1940 Act unless any such records are earlier
surrendered as provided above. Records shall be surrendered in usable
machine-readable form.
11. SERVICES NOT EXCLUSIVE
The services of the Administrator to the Fund are not to be
deemed exclusive, and the Administrator shall be free to render similar services
to others. The Administrator shall be deemed to be an independent contractor and
shall, unless otherwise expressly provided herein or authorized by the Fund from
time to time, have no authority to act or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
12. TERM, TERMINATION AND AMENDMENT
This Agreement shall become effective on June 1, 1995. The
Agreement shall remain in effect for a period of one year from the effective
date, and shall automatically renew thereafter for periods of one year unless
terminated in writing by either party at the end of such period or thereafter on
sixty (60) days' prior written notice. Termination of this Agreement with
respect to any given Investment Fund shall in no way affect the continued
validity of this Agreement with respect to any other Investment Fund. Upon
termination of this Agreement, the Fund shall pay to the Administrator such
compensation and any reimbursable expenses as may be due under the terms hereof
as of the date of such termination, including reasonable out-of-pocket expenses
associated with such termination. This Agreement may be modified or amended from
time to time by mutual written agreement of the parties hereto.
13. NOTICES
Any notice or other communication authorized or required by
this Agreement to be given to either party shall be in writing and deemed to
have been given when delivered in person or by confirmed facsimile, or posted by
certified mail, return receipt requested, to the following address (or such
other address as a party may specify by written notice to the other): if to the
Fund: Lazard Freres Asset Management, 1 Rockefeller Plaza, New York, New York
10154, Attn: Gus Coutsouros, Treasurer, fax: (212) 698-1156; if to the
Administrator: State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts 02171, Attn: David M. Elwood, Vice President and Senior
Counsel, fax: (617) 985-2497.
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<PAGE>
14. NON-ASSIGNABILITY
This Agreement shall not be assigned by either party hereto
without the prior consent in writing of the other party, except that the
Administrator may assign this Agreement to a successor of all or a substantial
portion of its business, or to a party controlling, controlled by or under
common control with the Administrator.
15. SUCCESSORS
This Agreement shall be binding on and shall inure to the
benefit of the Fund and the Administrator and their respective successors and
permitted assigns.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding between the
parties hereto with respect to the Provision of Administrative Services and
supersedes all previous representations, warranties or commitments regarding the
services to be performed hereunder whether oral or in writing. This Agreement is
independent of and shall not be deemed to supersede any provisions of the
Custodian Contract between the Fund and the Administrator.
17. WAIVER
The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
18. FORCE MAJEURE
The Administrator shall not be responsible or liable for any
failure or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its control,
including without limitation, work stoppage, power or other mechanical failure,
computer virus, natural disaster, governmental action or communication
disruption, nor shall any such failure or delay give the Fund the right to
terminate this Agreement, provided that the Administrator uses commercially
reasonable efforts to resume performance as soon as possible.
19. SEVERABILITY
If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
20. GOVERNING LAW
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
THE LAZARD FUNDS, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
STATE STREET BANK AND TRUST COMPANY
By:_______________________________________
Name:_____________________________________
Title:____________________________________
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<PAGE>
ADMINISTRATION AGREEMENT
THE LAZARD FUNDS, INC.
SCHEDULE A
LISTING OF INVESTMENT FUNDS AND AUTHORIZED SHARES
Investment Fund Authorized Shares
Lazard Equity Portfolio
Lazard International Equity Portfolio
Lazard International Fixed-Income Portfolio
Lazard Bond Portfolio
Lazard Strategic Yield Portfolio
Lazard Small Cap Portfolio
Lazard International Small Cap Portfolio
Lazard Special Equity Portfolio
Lazard Emerging Markets Portfolio
10
<PAGE>
ADMINISTRATION AGREEMENT
THE LAZARD FUNDS, INC.
SCHEDULE B
FEES AND EXPENSES
STATE STREET BANK AND TRUST COMPANY
THE LAZARD FUNDS, INC.
================================================================================
FUND ADMINISTRATION FEE SCHEDULE
I. FUND SUB-ADMINISTRATION SERVICES
Average Assets
Base Fee per Portfolio $37,500*
First $1 Billion per Portfolio 2.0 Basis Points
Thereafter 1.0 Basis Points
*Lazard Bond and Emerging Markets Fund - Fee waived for one year or net
asset of $50 million, whichever comes first.
The Base Fee will be increased each year in an amount equal to the
increase in the Consumer Price Index for that year.
II. BLUE SKY ADMINISTRATION SERVICES
Blue Sky services for the initial share class are included in the above
fees. Additional classes may be added for $7,500 per class, per year.
III. OUT-OF-POCKET EXPENSES - INCLUDE, BUT MAY NOT BE LIMITED TO:
- Printing for shareholder reports and SEC filings
- Legal fees, audit
fees and other professional fees
- Postage, telephone, fax, and photocopying
- Supplies related to fund records
- Travel and lodging for Board and Operations meetings
- Advertised yields $300 per fund, per month
- Preparation of financial statements other than Annual, Semi-annual
and quarterly board reporting $3,000 per financial report
IV. SPECIAL ARRANGEMENTS
Fee for activities of non-recurring nature such as new fund
registration, fund consolidations or reorganizations, and/or
preparation of special reports will be subject to negotiation.
================================================================================
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<PAGE>
================================================================================
V. TERM OF THE CONTRACT
The parties agree that the fee schedule shall remain in effect for
three full years from the commencement of Trust operations and from
year to year thereafter until it is revised as a result of negotiations
initiated by either party.
THE LAZARD FUNDS, INC. STATE STREET BANK AND TRUST COMPANY
By: _______________________ By: _______________________
Title: _______________________ Title: _______________________
Date: _______________________ Date: _______________________
================================================================================
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<PAGE>
ADMINISTRATION AGREEMENT
THE LAZARD FUNDS, INC.
SCHEDULE C
REGISTRATION OF FUND SHARES
WITH STATE SECURITIES ADMINISTRATORS
The Administrator will prepare required documentation and register Fund shares
in accordance with the securities laws of each jurisdiction in which Fund shares
are to be offered or sold pursuant to instructions given to the Administrator by
the Fund. The registration services shall consist of the following:
1. Filing of Fund's Application to Register Securities and
amendments, if applicable;
2. Filing of amendments to the Fund's registration statement;
3. Filing Fund sales reports and advertising literature where
required;
4. Payment at the expense of the Fund of all Fund state
registration and filing fees;
5. Filing the Prospectuses and Statements of Additional
Information and any amendments or supplements thereto;
6. Filing of annual reports and proxy statements where required;
and
7. The performance of such additional services as the
Administrator and the Fund may agree upon in writing.
Unless otherwise specified in writing by the Administrator, registration
services by the Administrator shall not include determining the availability of
exemptions under a jurisdiction's blue sky law. Any such determination shall be
made by the Fund or its legal counsel. In connection with the services described
herein, the Fund shall issue in favor of the Administrator a power of attorney
to register Fund shares on behalf of the Fund, which power of attorney shall be
substantially in the form of Exhibit I attached hereto.
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<PAGE>
EXHIBIT I
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, as of June 1, 1995 that THE LAZARD FUNDS, INC.
(the "Fund") makes, constitutes, and appoints STATE STREET BANK AND TRUST
COMPANY (the "Administrator") with principal offices at 225 Franklin Street,
Boston, Massachusetts its lawful attorney-in-fact for it to do as if it were
itself acting, the following:
1. REGISTRATION OF FUND SHARES. The power to register shares of the Fund
in each jurisdiction in which Fund shares are offered or sold and in
connection therewith the power to prepare, execute, and deliver and
file any and all Fund applications, including without limitation,
applications to register shares, to register agents, consents,
including consents to service of process, reports, including without
limitation, all periodic reports, claims for exemption, or other
documents and instruments now or hereafter required or appropriate in
the judgment of the Administrator in connection with the registration
of Fund shares.
2. CHECKS. The power to draw, endorse, and deposit checks in the name of
the Fund in connection with the registration of Fund shares with state
securities administrators.
The execution of this limited power of attorney shall be deemed coupled with an
interest and shall be revocable only upon receipt by the Administrator of such
termination of authority. Nothing herein shall be construed to constitute the
appointment of the Administrator as or otherwise authorize the Administrator to
act as an officer, director or employee of the Fund.
IN WITNESS WHEREOF, the Fund has caused this Agreement to be executed in its
name and on its behalf by and through its duly authorized officer, as of the
date first written above.
THE LAZARD FUNDS, INC.
By:_______________________
Name:_____________________
Title:____________________
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EXHIBIT 10(A)
<PAGE>
EXHIBIT 10(B)
<PAGE>
EXHIBIT 11
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 8 of the Lazard Funds,
Inc. Registration Statement on Form N-1A of our reports dated February 1, 1995,
relating to the financial statements and selected per share data and ratios of
The Lazard Funds, Inc. which appears in such Statement of Additional
Information. We also consent to the incorporation by reference of our report in
the Prospectus constituting part of such Post-Effective Amendment No. 8 and to
the reference to us under the heading "Selected per Share Data and Ratios" in
the Prospectus.
We consent to the reference to our firm under the caption "Counsel and
Independent Accountants" in the registration statement (Form N-1A No. 33-40682)
of The Lazard Funds, Inc.
ANCHIN, BLOCK & ANCHIN, LLP
(Successor firm to Seymour Schneidman & Associates)
400 Park Avenue
New York, NY 10022
October 6, 1995
