Registration No. 333-_____
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
___Pre-Effective Amendment No. ___Post-Effective Amendment No.
(Check appropriate box or boxes)
THE LAZARD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
(212) 632-6400
(Area Code and Telephone Number)
30 Rockefeller Plaza, New York, New York 10020
(Address of Principal Executive Offices: Number,
Street, City, State, Zip Code)
(Name and Address of Agent for Service)
William G. Butterly, III, Esq.
c/o Lazard Freres & Co. LLC
30 Rockefeller Plaza
58th Floor
New York, New York 10020
copy to:
Stuart H. Coleman, Esq.
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement is declared effective.
It is proposed that this Registration Statement become effective on
May 31, 1996 pursuant to Rule 488.
---------------------
Registrant has previously filed a declaration of indefinite registration
of its shares pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended; accordingly, no fee is payable herewith. Registrant's Rule 24f-2
Notice for the fiscal year ended December 31, 1995 was filed on February 27,
1996.
<PAGE>
THE LAZARD FUNDS, INC.
Cross Reference Sheet
Pursuant to Rule 481(a) Under the Securities Act of 1933
<TABLE>
<CAPTION>
Prospectus/Proxy
Form N-14 Item No. Statement Caption
Part A
<S> <C> <C>
Item 1. Beginning of Registration
Statement and Outside Front
Cover Page of Prospectus Cover Page
Item 2. Beginning and Outside Back
Cover Page of Prospectus Cover Page
Item 3. Synopsis Information and Risk
Factors Summary
Item 4. Information About the
Transaction Letter to Shareholders;
Summary; Information about the Exchange
Item 5. Information About the
Registrant Letter to Shareholders; Comparison of the Portfolios
Item 6. Information About the Company
Being Acquired Letter to Shareholders; Comparison of the Portfolios
Item 7. Voting Information Letter to Shareholders; Voting Information
Item 8. Interest of Certain Persons
and Experts Not Applicable
Item 9. Additional Information
Required for Reoffering by
Persons Deemed to be Under-
writers Not Applicable
Statement of Additional
Part B Information Caption
Item 10. Cover Page Cover Page
Item 11. Table of Contents Not Applicable
Item 12. Additional Information About
the Registrant Statement of Additional Information of The Lazard Funds, Inc.
dated May 1, 1996(1)
Item 13. Additional Information About
the Company Being Acquired Statement of Additional Information of The Lazard
Funds, Inc. dated May 1, 1996(1)
Item 14. Financial Statements Annual Report of The Lazard Funds, Inc.
for fiscal year ended December 31, 1995.
Part C
Item 15. Indemnification
Item 16. Exhibits
Item 17. Undertakings
<FN>
1 Incorporated herein by reference to the Registration Statement of the
Registrant on Form N-1A dated May 1, 1996 (File No. 33-40682).
</FN>
</TABLE>
<PAGE>
PRELIMINARY COPY
LAZARD SPECIAL EQUITY PORTFOLIO
of
The Lazard Funds, Inc.
30 Rockefeller Plaza
New York, New York 10020
Dear Shareholder:
As a shareholder of the Lazard Special Equity Portfolio (the "Special
Equity Portfolio") of The Lazard Funds, Inc. (the "Fund"), you are entitled to
vote on the proposal to combine the Special Equity Portfolio with another Fund
portfolio, the Lazard Small Cap Portfolio (the "Small Cap Portfolio"), as
described below and in the enclosed materials.
As of April 18, 1996 the Special Equity Portfolio had net assets of $31
million. At that date, the Small Cap Portfolio, which has a similar investment
objective and similar management policies, had assets of $793 million.
Management of the Fund has determined that operational efficiencies might be
achievable if the Special Equity Portfolio were to exchange its assets (subject
to liabilities) for shares of the Small Cap Portfolio. The larger fund should
enable shareholders to share in the benefits of economies of scale and lower
overall expense ratios.
The proposal provides that the Special Equity Portfolio exchange (the
"Exchange") all of its assets, subject to liabilities, for shares of the Small
Cap Portfolio. Promptly thereafter, the Special Equity Portfolio will distribute
pro rata the shares received in the Exchange to its shareholders in complete
liquidation of the Special Equity Portfolio. Thus, each shareholder will receive
for his or her Special Equity Portfolio shares a number of Small Cap Portfolio
shares equal to the value of such Special Equity Portfolio shares as of the date
of the Exchange. The Exchange will not result in the imposition of Federal
income tax on you.
Further information about the transaction is contained in the enclosed
materials, which you should review carefully. Please take the time to consider
the enclosed materials and then vote by completing, dating and signing the
enclosed proxy card. A self-addressed, postage-paid envelope has been enclosed
for your convenience.
THE FUND'S BOARD MEMBERS RECOMMEND THAT SPECIAL EQUITY PORTFOLIO
SHAREHOLDERS VOTE IN FAVOR OF THE PROPOSED TRANSACTION.
If you have any questions after considering the enclosed materials, please
feel free to call William G. Butterly, III, Vice President and Secretary at
1-212-632-6400 (New York State) or 1-800-823-6300 (other continental states)
between the hours of 9:00 a.m. and 5:30 p.m. (New York time), Monday through
Friday.
Sincerely,
Norman Eig
Chairman of the Board
May 31, 1996
<PAGE>
LAZARD SPECIAL EQUITY PORTFOLIO
of
The Lazard Funds, Inc.
Notice of Special Meeting of Shareholders
To the Shareholders:
A Special Meeting of Shareholders of the Lazard Special Equity
Portfolio (the "Special Equity Portfolio") of The Lazard Funds, Inc. (the
"Fund") will be held at the offices of Lazard Freres Asset Management, 30
Rockefeller Plaza, 58th Floor, Conference Room A, New York, New York, on Friday,
June 21, 1996 at 10:00 a.m. for the following purposes:
1. To consider an amendment to the Fund's Charter and an
Agreement and Plan of Reorganization (the "Plan") for the Special
Equity Portfolio providing for the transfer of all or substantially
all of its assets, subject to liabilities, to the Lazard Small Cap
Portfolio (the "Small Cap Portfolio") of the Fund, in exchange (the
"Exchange") for the Small Cap Portfolio's shares and the assumption by
the Small Cap Portfolio of stated liabilities. Shares received in the
Exchange will be distributed by the Special Equity Portfolio to its
shareholders in liquidation of the Special Equity Portfolio, after
which the Special Equity Portfolio will be terminated as a series of
the Fund and its shares will be reclassified, pursuant to the Charter
amendment, as shares of the Small Cap Portfolio; and
2. To transact such other business as may properly come
before the meeting, or any adjournment or adjournments thereof.
Shareholders of record at the close of business on May 21, 1996, will be
entitled to receive notice of and to vote at the meeting.
By Order of the Board of Directors
William G. Butterly, III
Vice President and Secretary
New York, New York
May 31, 1996
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WE NEED YOUR PROXY VOTE IMMEDIATELY
A SHAREHOLDER MAY THINK HIS OR HER VOTE IS NOT
IMPORTANT, BUT IT IS VITAL. BY LAW, THE MEETING OF
SHAREHOLDERS WILL HAVE TO BE ADJOURNED WITHOUT
CONDUCTING ANY BUSINESS IF LESS THAN A QUORUM OF SHARES
ELIGIBLE TO VOTE IS REPRESENTED. IN THAT EVENT, THE
SPECIAL EQUITY PORTFOLIO, AT SHAREHOLDERS' EXPENSE,
WOULD CONTINUE TO SOLICIT VOTES IN AN ATTEMPT TO
ACHIEVE A QUORUM. CLEARLY, YOUR VOTE COULD BE CRITICAL
TO ENABLE THE SPECIAL EQUITY PORTFOLIO TO HOLD THE
MEETING AS SCHEDULED, SO PLEASE RETURN YOUR PROXY CARD
IMMEDIATELY. YOU AND ALL OTHER SHAREHOLDERS WILL
BENEFIT FROM YOUR COOPERATION.
============================================================================
<PAGE>
PRELIMINARY COPY May 31, 1996
PROSPECTUS/PROXY STATEMENT FOR
LAZARD SPECIAL EQUITY PORTFOLIO
of
The Lazard Funds, Inc.
Special Meeting of Shareholders
to be held on June 21, 1996
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of The Lazard Funds, Inc. (the
"Fund"), on behalf of its Lazard Special Equity Portfolio (the "Special Equity
Portfolio"), to be used at the Special Meeting of Shareholders (the "Meeting")
of the Special Equity Portfolio to be held on Friday, June 21, 1996 at 10:00
a.m., at the offices of Lazard Freres Asset Management, 30 Rockefeller Plaza,
58th Floor, Conference Room A, New York, New York, for the purposes set forth in
the accompanying Notice of Special Meeting of Shareholders. Shareholders of
record at the close of business on May 21, 1996 (each, a "Shareholder" and,
collectively, the "Shareholders") are entitled to receive notice of and to vote
at the Meeting. Shareholders are entitled to one vote for each share of common
stock, par value $.001 per share, held and fractional votes for each fractional
share held. Shares represented by executed and unrevoked proxies will be voted
in accordance with the specifications made thereon. If the enclosed form of
proxy is executed and returned, it nevertheless may be revoked by giving another
proxy or by letter or telegram directed to the Fund, which must indicate the
Shareholder's name and account number. To be effective, such revocation must be
received before the Meeting. In addition, any Shareholder who attends the
Meeting in person may vote by ballot at the Meeting, thereby canceling any proxy
previously given. As of May 21, 1996, there were ____________ shares of the
Special Equity Portfolio issued and outstanding.
It is proposed that the Special Equity Portfolio transfer all or
substantially all of its assets, subject to liabilities, to the Lazard Small Cap
Portfolio (the "Small Cap Portfolio" and , together with the Special Equity
Portfolio each, a "Portfolio" and collectively, the "Portfolios") of the Fund in
exchange (the "Exchange") for shares of the Small Cap Portfolio, all as more
fully described herein. Upon consummation of the Exchange, the Small Cap
Portfolio shares received by the Special Equity Portfolio will be distributed to
its Shareholders, with each Shareholder receiving a pro rata distribution of the
Small Cap Portfolio shares (or fractions thereof) for the Special Equity
Portfolio shares held prior to the Exchange. Thus, it is contemplated that each
Shareholder will receive for the Shareholder's shares a number of Small Cap
Portfolio shares (or fractions thereof) equal in value to the aggregate net
asset value of Special Equity Portfolio's shares as of the date of the Exchange.
The Fund is an open-end, management investment company comprised of twelve
portfolios. Each Portfolio has the same investment adviser and distributor, and
similar investment objectives and management policies. The Portfolios differ
substantively only to the extent set forth herein. The Portfolios have different
portfolio managers who are described herein.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Small Cap Portfolio
that Shareholders should know before voting on the Proposal or investing in the
Small Cap Portfolio. The Fund's prospectus dated May 1, 1996 (the "Fund
Prospectus"), and the Fund's Annual Report for the fiscal year ended December
31, 1995, each accompany this Prospectus/Proxy Statement and are incorporated
herein by reference.
Additional information, contained in a Statement of Additional Information
dated May 31, 1996 forming a part of the Fund's Registration Statement on Form
N-14 (File No. 333-______), has been filed with the Securities and Exchange
Commission and is available without charge by calling 1-212-632-6400 (New York
State) and 1-800-823-6300 (other continental states) or by writing to the Fund
at its principal executive offices located at 30 Rockefeller Plaza, New York,
New York 10020. The Statement of Additional Information is incorporated herein
by reference in its entirety.
- ----------------------------------------------------------------
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/PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
Summary................................................................
Reasons for the Exchange...............................................
Information about the Exchange.........................................
Additional Information about the Portfolios............................
Voting Information.....................................................
Financial Statements and Experts.......................................
Other Matters..........................................................
Notice to Banks, Broker/Dealers and
Voting Trustees and Their Nominees...................................
APPROVAL OF AN AGREEMENT AND PLAN OF REORGANIZATION PROVIDING FOR THE
TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE SPECIAL
EQUITY PORTFOLIO TO THE SMALL CAP PORTFOLIO OF THE FUND AND A RELATED
CHARTER AMENDMENT.
SUMMARY
This Summary is qualified by reference to the more complete information
contained elsewhere in this Prospectus/Proxy Statement, the Fund Prospectus and
the form of Agreement and Plan of Reorganization attached to this
Prospectus/Proxy Statement as Exhibit A.
Proposed Transaction. The Fund's Board, including the Board members who are
not "interested persons" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")), has unanimously approved an Agreement and Plan of
Reorganization (the "Plan") and an amendment to the Fund's Charter, with respect
to the Special Equity Portfolio. The Plan provides that, subject to the
requisite approval of Shareholders, on the date of the Exchange, the Special
Equity Portfolio will assign, transfer and convey to the Small Cap Portfolio all
of the assets (subject to liabilities) of the Special Equity Portfolio,
including all securities and cash, in exchange for Small Cap Portfolio shares
having an aggregate net asset value equal to the value of the net assets of the
Special Equity Portfolio acquired. The Special Equity Portfolio will distribute
all Small Cap Portfolio shares received by it among its Shareholders so that
each Shareholder will receive a pro rata distribution of Small Cap Portfolio
shares (or fractions thereof), having an aggregate net asset value equal to the
aggregate net asset value of the Shareholder's Special Equity Portfolio shares
as of the date of the Exchange. Contemporaneously therewith, upon the
effectiveness of the Charter amendment described herein, the Special Equity
Portfolio will be terminated as a series of the Fund and its shares will be
reclassified as shares of the Small Cap Portfolio having the aggregate net asset
value described above.
As a result of the Exchange, each Shareholder will cease to be a
shareholder of the Special Equity Portfolio and will become a shareholder of the
Small Cap Portfolio as of the close of business on the closing date of the
Exchange.
The Fund's Board has concluded unanimously that the Exchange would be in
the best interests of Shareholders of the Special Equity Portfolio and the
interests of existing Shareholders of the Special Equity Portfolio would not be
diluted as a result of the transactions contemplated thereby. See "Reasons for
the Exchange."
Tax Consequences. Prior to the closing of the Exchange, the Fund will
receive an opinion of counsel to the effect that, for Federal income tax
purposes, (a) no gain or loss will be recognized by Special Equity Portfolio
Shareholders for Federal income tax purposes as a result of the Exchange, (b)
the holding period and aggregate tax basis of Small Cap Portfolio shares
received by a Special Equity Portfolio Shareholder will be the same as the
holding period and aggregate tax basis of a Shareholder's Special Equity
Portfolio shares, and (c) the holding period and tax basis of the Special Equity
Portfolio's assets transferred to the Small Cap Portfolio as a result of the
Exchange will be the same as the holding period and tax basis of such assets
held by the Special Equity Portfolio immediately prior to the Exchange. See
"Information about the Exchange-- Federal Income Tax Consequences."
Comparison of the Portfolios. The following discussion is a summary of
certain parts of the Fund Prospectus. Information contained herein is qualified
by the more complete information set forth in the Fund Prospectus, which is
incorporated herein by reference.
General. Each Portfolio is an open-end, management investment company that
seeks capital appreciation. The Special Equity Portfolio invests primarily in
equity securities of domestic and foreign companies with total market
capitalizations in excess of $10 million, but, generally less than $500 million,
that are believed by Lazard Freres Asset Management ("Lazard") to be undervalued
in the market place. The Small Cap Portfolio invests primarily in equity
securities of domestic companies with market capitalizations under $1 billion
that are believed by Lazard to be undervalued in the market place.
The equity securities in which each Portfolio may invest include, common
stocks, preferred stocks, convertible securities, rights and warrants. The
Special Equity Portfolio may purchase foreign equity and debt securities if they
are listed on a domestic or foreign securities exchange or represented by
American Depositary Receipts. The Small Cap Portfolio may not invest in foreign
securities.
The Special Equity Portfolio may invest up to 35% of its total assets in
certain fixed-income securities. It also may purchase put and call options and
write covered put and call options.
The Small Cap Portfolio may not invest in fixed-income securities (except
for temporary defensive purposes) or engage in options transactions.
Each Portfolio may borrow money from banks for temporary or emergency
purposes in an amount up to 5% of its total assets, except that the Small Cap
Portfolio may borrow up to 15% of its total assets to meet redemption requests
which might require the untimely disposition of securities. In addition, the
Special Equity Portfolio may borrow for investment purposes in an amount up to
33-1/3% of the value of its total assets.
For a more complete discussion of each Portfolio's management policies, see
"Investment Objectives and Policies" in the Fund Prospectus.
Fundamental Policies. The Special Equity Portfolio is a diversified
investment company that may not invest more than 5% of the value of its total
assets in the obligations of a single issuer, except that up to 25% of the value
of the Special Equity Portfolio's total assets may be invested, and securities
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
may be purchased, without regard to any such limitation. The Small Cap Portfolio
is a non-diversified investment company, meaning that the proportion of its
assets that may be invested in the securities of a single issuer is not limited
by the 1940 Act.
For a more complete discussion of each Portfolio's fundamental policies,
see "Investment Restrictions" in both the Fund Prospectus and in the Fund's
Statement of Additional Information.
Risk Factors. The investment risks of each Portfolio are substantially
similar, except as described below. Since a relatively high percentage of Small
Cap Portfolio's assets may be invested in the securities of a limited number of
issuers, some of which may be within the same industry or economic sector, Small
Cap Portfolio's investment securities may be more susceptible to any single
economic, political or regulatory occurrence than the investment securities of a
diversified investment company. However, to meet federal tax requirements, at
the close of each quarter, the Small Cap Portfolio may not have more than 25% of
its total assets invested in any one issuer and, with respect to 50% of its
total assets, not more than 5% of its total assets invested in any one issuer.
These limitations do not apply to U.S. Government securities.
The Special Equity Portfolio may invest in foreign securities; the Small
Cap Portfolio may not invest in foreign securities. Investing in foreign
securities 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.
The Special Equity Portfolio is permitted to borrow for investment purposes
up to 33-1/3% of the value of its total assets. This borrowing, known as
leveraging, generally will be unsecured. Leveraging exaggerates the effect on
net asset value of any increase or decrease in the market value of the
Portfolio's investment securities.
Fees and Expenses. The following information concerning fees and expenses
is derived from information set forth under the caption "Fee Table" in the Fund
Prospectus.
Annual Fund Operating Expenses (as a percentage of average daily net assets):
Small Cap
Portfolio
Special Pro Forma
Small Cap Equity After
Portfolio Portfolio Exchange
Management Fees
(after fee waiver) .75% 1.50% .75%
12b-1 Fees None None None
Other Expenses .09% .09% .08%
Total Fund
Operating Expenses
(after expense
reimbursement) .84% 1.59% .83%
Example
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Small Cap
Portfolio
Pro Forma
Small Cap Special Equity After
Portfolio Portfolio Exchange
<S> <C> <C> <C>
1 Year $ 9 $ 16 $9
3 Years $ 27 $ 51 $27
5 Years $ 47 $ 87 $46
10 Years $104 $190 $103
</TABLE>
Annual Fund Operating Expenses noted above have been restated to reflect
undertakings by Lazard with respect to the Special Equity Portfolio to limit the
aggregate expenses of the Portfolio (exclusive of extraordinary expenses) to an
annual rate of 1.50% until the net assets of the Special Equity Portfolio exceed
$90,000,000 or October 31, 1996, whichever occurs sooner. The expenses noted
above, without reimbursement, with respect to the Special Equity Portfolio would
have been: Other Expenses - .31% and Total Fund Operating Expenses - 1.81%.
Assuming the approval of the Exchange, Lazard, based on
internally-developed estimates dated as of April 15, 1996, believes that the
Small Cap Portfolio initially will have annual Total Fund Operating Expenses of
approximately .83% of average net assets.
Investment Adviser. Lazard is each Portfolio's investment adviser.
The Small Cap Portfolio's portfolio managers are Herbert W. Gullquist,
Eileen Alexanderson, Leonard M. Wilson, Bradley J. Purcell and Michael S. Rome.
Except for Mr. Rome, who has managed the Small Cap Portfolio since January 1,
1995, each portfolio manager has held their position since the inception of the
Small Cap Portfolio. Mr. Gullquist has been employed by Lazard since 1982, Ms.
Alexanderson since 1979, Mr. Wilson since 1988, Mr. Purcell since 1991 and Mr.
Rome since 1991. The Special Equity Portfolio's portfolio manager is Charles
Dreifus. He has held that position since the inception of the Special Equity
Portfolio and has been employed by Lazard since 1982.
Capitalization. Each Portfolio's shares are of one class. The following
table sets forth, as of April 15, 1996, (1) the capitalization of the Small Cap
Portfolio, (2) the capitalization of the Special Equity Portfolio and (3) the
pro forma capitalization of the Small Cap Portfolio, as adjusted showing the
effect of the Exchange had it occurred on such date.
<TABLE>
<CAPTION>
Small Cap
Portfolio
Pro Forma
Small Cap Special Equity After
Portfolio Portfolio Exchange
<S> <C> <C> <C>
Total net assets.................... $786,874,172.59 $31,064,261.00 $817,938,433.59
Net asset value
per share......................... $17.11 $12.09 $17.11
Shares outstanding.................. 45,988,862.801 2,568,751.328 47,804,424.519
</TABLE>
Purchase Procedures. The purchase procedures of the Portfolios are
identical. See "Purchase of Shares" in the Fund Prospectus for a complete
discussion of purchase procedures.
Redemption Procedures. The redemption procedures of the Portfolios are
identical. See "Redemption of Shares" in the Fund Prospectus for a complete
discussion of redemption procedures.
Distributions. The dividend and distributions policies of the Portfolios
are identical. See "Dividends and Distributions" in the Fund Prospectus for a
complete discussion of such policies.
REASONS FOR THE EXCHANGE
The Board of Directors of the Fund has concluded that the Exchange is in
the best interests of the Special Equity Portfolio's shareholders. The Board
believes that the Exchange will permit shareholders to pursue substantially
similar investment goals in a larger Portfolio, with a lower expense ratio,
without diluting shareholders' interests.
In determining whether to recommend approval of the Exchange, the Board
considered the following factors, among others: (1) the compatibility of each
Portfolio's investment objective, management policies and investment
restrictions; (2) the terms and conditions of the Exchange and whether the
Exchange would result in dilution of shareholder interests; (3) expense ratios
and published information regarding the fees and expenses of the Portfolios, as
well as the expense ratios of similar funds and the estimated expense ratio of
the combined Small Cap Portfolio; (4) the tax consequences of the Exchange; and
(5) the estimated costs incurred by each Portfolio as a result of the Exchange.
INFORMATION ABOUT THE EXCHANGE
Plan of Exchange. The following summary of the Plan is qualified in its
entirety by reference to the Plan attached hereto as Exhibit A. The Plan
provides that the Small Cap Portfolio will acquire all or substantially all of
the assets of the Special Equity Portfolio, in exchange for Small Cap Portfolio
shares, and assume the Special Equity Portfolio's stated liabilities on June 28,
1996 or such later date as may be agreed upon by the parties (the "Closing
Date"). The number of Small Cap Portfolio shares to be issued to the Special
Equity Portfolio, will be determined on the basis of the relative net asset
values per share and aggregate net assets of the Small Cap Portfolio and the
Special Equity Portfolio, generally computed as of the close of trading on the
floor of the New York Stock Exchange (currently at 4:00 p.m., New York time) on
the Closing Date. Portfolio securities of the Special Equity Portfolio and the
Small Cap Portfolio will be valued in accordance with the valuation practices of
the Small Cap Portfolio, which are described under the caption "Determination of
Net Asset Value" in both the Fund Prospectus and the Fund's Statement of
Additional Information dated May 1, 1996.
Prior to the Closing Date, the Special Equity Portfolio will declare a
dividend or dividends which, together with all previous such dividends, will
have the effect of distributing to the Special Equity Portfolio's Shareholders
all of such Portfolio's investment company taxable income, if any, for the
taxable year ending on or prior to the Closing Date (computed without regard to
any deduction for dividends paid) and all of its net capital gain realized in
the taxable year ending on or prior to the Closing Date (after reduction for any
capital loss carry forward).
As conveniently as practicable after the Closing Date, the Special Equity
Portfolio will liquidate and distribute pro rata to its Shareholders of record
as of the close of business on the Closing Date the Small Cap Portfolio shares
received by it in the Exchange. Such liquidation and distribution will be
accomplished by establishing accounts on the share records of the Small Cap
Portfolio in the name of each Special Equity Portfolio Shareholder, each account
representing the respective pro rata number of Small Cap Portfolio shares due to
the Shareholder. Contemporaneously with such distribution, the Special Equity
Portfolio will be terminated as a series of the Fund and, pursuant to a Charter
amendment, its shares will be reclassified as shares of the Small Cap Portfolio.
After the Closing Date, any outstanding certificates representing Special Equity
Portfolio shares will represent the Small Cap Portfolio shares distributed to
the record holders of the Special Equity Portfolio. Upon presentation to the
Fund's transfer agent, Special Equity Portfolio share certificates will be
exchanged for Small Cap Portfolio share certificates, at the applicable exchange
rate. Certificates for Small Cap Portfolio shares will be issued only upon the
investor's written request.
The Plan may be amended at any time prior to the Exchange. The Fund will
provide Special Equity Portfolio Shareholders with information describing any
material amendment to the Plan prior to Shareholder consideration. The Plan is
subject to approval by the requisite number of Special Equity Portfolio's
Shareholders.
In connection with the Exchange, effective as of the Closing Date, the Fund
will amend its Charter to: (a) reclassify all of the issued and outstanding
shares of the Special Equity Portfolio into such number of issued and
outstanding shares of the Small Cap Portfolio as is determined in the manner
described above on the Closing Date and (b) reclassify all of the authorized but
unissued shares of the Special Equity Portfolio into unissued shares of the
Small Cap Portfolio. A copy of the Articles of Amendment in the form approved by
the Fund's Board is attached as Exhibit B.
The total expenses of the Exchange are expected to be approximately
$28,000. Each Portfolio will bear its own expenses, except for the expenses of
preparing, printing and mailing this Prospectus/Proxy Statement, the proxy cards
and other related materials, which will be borne by each Portfolio ratably
according to its respective aggregate net assets on the date of the Exchange.
If the Exchange is not approved by the Special Equity Portfolio's
Shareholders, the Fund's Board will consider other appropriate courses of
action, including liquidating the Special Equity Portfolio.
Federal Income Tax Consequences. The exchange of the Special Equity
Portfolio assets for Small Cap Portfolio shares is intended to qualify for
Federal income tax purposes as a tax-free reorganization under Section 368(a)(1)
of the Code. As a condition to the closing of the Exchange, the Fund will
receive the opinion of Stroock & Stroock & Lavan, counsel to the Fund and each
Portfolio, to the effect that, on the basis of the existing provisions of the
Code, Treasury regulations issued thereunder, current administrative regulations
and pronouncements and court decisions, and certain facts, assumptions and
representations, for Federal income tax purposes: (1) the transfer of all or
substantially all of the Special Equity Portfolio's assets in exchange for Small
Cap Portfolio shares and the assumption by the Small Cap Portfolio of the
Special Equity Portfolio's liabilities will constitute a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Code; (2) no gain or loss will be
recognized by the Small Cap Portfolio upon the receipt of Special Equity
Portfolio assets solely in exchange for Small Cap Portfolio shares and the
assumption by the Small Cap Portfolio of liabilities of the Special Equity
Portfolio; (3) no gain or loss will be recognized by the Special Equity
Portfolio upon the transfer of its assets to the Small Cap Portfolio in exchange
for Small Cap Portfolio shares and the assumption by the Small Cap Portfolio of
the Special Equity Portfolio's liabilities or upon the distribution (whether
actual or constructive) of Small Cap Portfolio shares to Shareholders in
exchange for their Special Equity Portfolio shares; (4) no gain or loss will be
recognized by Special Equity Portfolio Shareholders upon the exchange of Special
Equity Portfolio shares for Small Cap Portfolio shares; (5) the aggregate tax
basis for Small Cap Portfolio shares received by a Special Equity Portfolio
Shareholder pursuant to the Exchange will be the same as the aggregate tax basis
for Special Equity Portfolio shares held by such Shareholder immediately prior
to the Exchange, and the holding period of Small Cap Portfolio shares to be
received by each Special Equity Portfolio Shareholder will include the period
during which Special Equity Portfolio shares surrendered in exchange therefor
were held by such Shareholder (provided Special Equity Portfolio shares were
held as capital assets on the date of the Exchange); and (6) the tax basis of
Special Equity Portfolio assets acquired by the Small Cap Portfolio will be the
same as the tax basis of such assets to the Special Equity Portfolio immediately
prior to the Exchange, and the holding period of Special Equity Portfolio assets
in the hands of the Small Cap Portfolio will include the period during which
those assets were held by the Special Equity Portfolio.
Neither the Special Equity Portfolio nor the Small Cap Portfolio has sought
a tax ruling from the Internal Revenue Service ("IRS"). The opinion of counsel
is not binding on the IRS nor does it preclude the IRS from adopting a contrary
position. Special Equity Portfolio Shareholders should consult their tax
advisers regarding the effect, if any, of the proposed Exchange in light of
their individual circumstances. Because the foregoing discussion relates only to
the Federal income tax consequences of the Exchange, Special Equity Portfolio
Shareholders also should consult their tax advisers as to state and local tax
consequences, if any, of the Exchange.
Required Vote and Board's Recommendation
The Fund's Board has approved the Plan, the Exchange, and the Charter
amendment and has determined that (i) participation in the Exchange is in the
Special Equity Portfolio's best interests and (ii) the interests of Shareholders
of the Special Equity Portfolio will not be diluted as a result of the Exchange.
Pursuant to the Fund's Charter documents, an affirmative vote of a majority of
the Special Equity Portfolio's outstanding shares is required to approve the
Plan, the Exchange and the Charter amendment in connection therewith.
THE BOARD, INCLUDING THE "NON-INTERESTED" BOARD MEMBERS, RECOMMENDS THAT
SPECIAL EQUITY PORTFOLIO SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN, THE
EXCHANGE AND THE CHARTER AMENDMENT.
<PAGE>
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS
Information about the Portfolios is incorporated by reference into this
Prospectus/Proxy Statement from the Fund Prospectus forming a part of the
Registration Statement on Form N-1A (File No. 33-40682).
The Portfolios are subject to the requirements of the 1940 Act, and file
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Portfolios may be inspected and copied at the Public Reference
Facilities of the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the Northeast regional office of the Commission at 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
also be obtained from the Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, Washington, D.C.
20549, at prescribed rates.
VOTING INFORMATION
In addition to the use of the mails, proxies may be solicited personally,
by telephone or by telegraph, and the Special Equity Portfolio may pay persons
holding its shares in their names or those of their nominees for their expenses
in sending soliciting materials to their principals.
If a proxy is properly executed and returned accompanied by instructions to
withhold authority to vote, represents a broker "non-vote" (that is, a proxy
from a broker or nominee indicating that such person has not received
instructions from the beneficial owner or other person entitled to vote Special
Equity Portfolio shares on a particular matter with respect to which the broker
or nominee does not have discretionary power) or is marked with an abstention
(collectively, "abstentions"), the Special Equity Portfolio shares represented
thereby will be considered to be present at a Meeting for purposes of
determining the existence of a quorum for the transaction of business.
Abstentions will not constitute a vote "for" or "against" a matter and will be
disregarded in determining the "votes cast" on an issue. For this reason,
abstentions will have the effect of a "no" vote for the purpose of obtaining
requisite approval for the Proposal.
In the event that a quorum is not present at the Meeting, or if a quorum is
present but sufficient votes to approve the Proposal are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. In determining whether to adjourn the
Meeting, the following factors may be considered: the nature of the Proposal,
the percentage of votes actually cast, the percentage of negative votes actually
cast, the nature of any further solicitation and the information to be provided
to Shareholders with respect to the reasons for the solicitation. Any
adjournment will require the affirmative vote of a majority of those shares
affected by the adjournment that are represented at the Meeting in person or by
proxy. If a quorum is present, the persons named as proxies will vote those
proxies which they are entitled to vote "FOR" the Proposal in favor of such
adjournments, and will vote those proxies required to be voted "AGAINST" the
Proposal against any adjournment. A quorum is constituted with respect to the
Special Equity Portfolio by the presence in person or by proxy of the holders of
one-third or more of the outstanding shares entitled to vote at the Meeting.
The votes of the Small Cap Portfolio's shareholders are not being solicited
since their approval or consent is not necessary for the Exchange.
As of April 15, 1996, the following were known by the Fund to own of record
or beneficially 5% or more of the outstanding voting securities of the Special
Equity Portfolio:
<TABLE>
<CAPTION>
Name and Address Number of Percentage of
of Stockholder Shares Shares
Outstanding
<S> <C> <C>
Booz Allen & Hamilton Inc. 503,207.198 19.64%
Employees Retirement Income
Trust
25 Hanover Road
Florhan Park, NJ 07932-1401
Marie-Caroline Sainpy 182,149.238 7.11%
750 Columbus Avenue
New York, NY 10025-6464
</TABLE>
As of April 15, 1996, the following were known by the Fund to own of record
or beneficially 5% or more of the outstanding voting securities of the Small Cap
Portfolio:
<TABLE>
<CAPTION>
Name and Address Number of Percentage of
of Stockholder Shares Shares
Outstanding
<S> <C> <C>
Mercantile Safe Deposit & 5,408,212.563 11.78%
Trust Co. Custodian
Bakery & Confectionery I
Int's Pension
P.O. Box 17002
Baltimore, MD 21203-7002
United Food and Commercial 2,533,915.904 5.52%
Workers Unions and Employees
Pension Fund
Suite 310
1800 Phoenix Boulevard
Atlanta, GA 30349-5559
</TABLE>
As of April 15, 1996, Directors and officers of the Fund, as a group, owned
less than 1% of each Portfolio's outstanding shares.
FINANCIAL STATEMENTS AND EXPERTS
The audited financial statements of the Special Equity Portfolio and the
Small Cap Portfolio for the fiscal year ended December 31, 1995, which are
included in Fund's Statement of Additional Information, have each been audited
by ABA Seymour Schneidman Financial Services Group, a division of Anchin, Block
& Anchin LLP, independent auditors, whose respective reports thereon are
included therein and hereby are incorporated herein by reference in reliance
upon their reports given on their authority as experts in accounting and
auditing.
OTHER MATTERS
The Fund's Board members are not aware of any other matters which may come
before the Meeting. However, should any such matters properly come before the
Meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the proxy in accordance with their judgment on such matters.
NOTICE TO BANKS, BROKER/DEALERS AND VOTING TRUSTEES
AND THEIR NOMINEES
Please advise the Fund, in care of Lazard Freres Asset Management, 30
Rockefeller Plaza, 58th Floor, New York, New York 10020, Attention: William G.
Butterly, III, whether other persons are the beneficial owners of Special Equity
Portfolio shares for which proxies are being solicited from you, and, if so, the
number of copies of the Prospectus/Proxy Statement and other soliciting material
you wish to receive in order to supply copies to the beneficial owners of
Special Equity Portfolio shares.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS
WHO DO NOT EXPECT TO ATTEND IN PERSON ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE PROXY CARD IN THE ENCLOSED STAMPED ENVELOPE.
Dated: May 31, 1996
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated April 23, 1996 (the
"Agreement"), between the Lazard Special Equity Portfolio ("Special Equity
Portfolio") and the Lazard Small Cap Portfolio ("Small Cap Portfolio"), each a
series of The Lazard Funds, Inc. (the "Fund"), a Maryland corporation.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of substantially all of the
assets of the Special Equity Portfolio in exchange solely for shares of common
stock, par value $.001 per share, of the Small Cap Portfolio and the assumption
by the Small Cap Portfolio of certain liabilities of the Special Equity
Portfolio and the distribution, after the Closing Date hereinafter referred to,
of shares of the Small Cap Portfolio to the shareholders of the Special Equity
Portfolio in liquidation of the Special Equity Portfolio as provided herein, all
upon the terms and conditions hereinafter set forth in this Agreement.
WHEREAS, the Special Equity Portfolio is a registered, diversified,
open-end management investment company and the Small Cap Portfolio is a
registered, non-diversified, open-end management investment company, and the
Special Equity Portfolio will own at the time of the Reorganization securities
which are assets of the character in which the Small Cap Portfolio is permitted
to invest;
WHEREAS, the Fund is authorized to issue shares of common stock of both its
Small Cap Portfolio and the Special Equity Portfolio;
WHEREAS, the Fund's Board has determined that the exchange of all or
substantially all of the assets of the Special Equity Portfolio and certain
liabilities of the Special Equity Portfolio, for shares of the Small Cap
Portfolio, and the assumption of such liabilities is in the best interests of
the Small Cap Portfolio's shareholders and that the interests of the Small Cap
Portfolio's existing shareholders would not be diluted as a result of this
transaction; and
WHEREAS, the Fund's Board has determined that the exchange of all or
substantially all of the assets and certain of the liabilities of the Special
Equity Portfolio, for shares of the Small Cap Portfolio, and the assumption of
such liabilities is in the best interests of the Special Equity Portfolio's
shareholders and that the interests of the Special Equity Portfolio's existing
shareholders would not be diluted as a result of this transaction:
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS, ASSUMPTION OF LIABILITIES AND
LIQUIDATION.
1.1. Subject to the terms and conditions contained herein, the
Special Equity Portfolio agrees to assign, transfer and convey to the Small Cap
Portfolio all of the assets of the Special Equity Portfolio, including all
securities and cash (subject to liabilities), and the Small Cap Portfolio agrees
in exchange therefor (i) to deliver to the Special Equity Portfolio the number
of shares of the Small Cap Portfolio, including fractional shares of the Small
Cap Portfolio, determined as set forth in paragraph 2.3; and (ii) to assume
certain liabilities of the Special Equity Portfolio, as set forth in paragraph
1.2. Such transactions shall take place at the closing (the "Closing") on the
closing date (the "Closing Date") provided for in paragraph 3.1. In lieu of
delivering certificates for the shares of the Small Cap Portfolio, the Small Cap
Portfolio shall credit the shares of the Small Cap Portfolio to the Special
Equity Portfolio's account on the books of the Small Cap Portfolio and shall
deliver a confirmation thereof to the Special Equity Portfolio.
1.2. The Special Equity Portfolio will endeavor to discharge all
of its known liabilities and obligations prior to the Closing Date. The Small
Cap Portfolio shall assume all liabilities, expenses, costs, charges and
reserves reflected on an unaudited statement of assets and liabilities of the
Special Equity Portfolio prepared by Lazard Freres Asset Management, as of the
Valuation Date (as defined in paragraph 2.1), in accordance with generally
accepted accounting principles consistently applied from the prior audited
period.
1.3. Delivery of the assets of the Special Equity Portfolio to be
transferred shall be made on the Closing Date and shall be delivered to State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02106,
the Fund's custodian (the "Custodian"), for the account of the Small Cap
Portfolio, with all securities not in bearer or book-entry form duly endorsed,
or accompanied by duly executed separate assignments or stock powers, in proper
form for transfer, with signatures guaranteed, and with all necessary stock
transfer stamps, sufficient to transfer good and marketable title thereto
(including all accrued interest and dividends and rights pertaining thereto) to
the Custodian for the account of the Small Cap Portfolio free and clear of all
liens, encumbrances, rights, restrictions and claims. All cash delivered shall
be in the form of immediately available funds payable to the order of the
Custodian for the account of the Small Cap Portfolio.
1.4. The Special Equity Portfolio will pay or cause to be paid to
the Small Cap Portfolio any interest received on or after the Closing Date with
respect to assets transferred to the Small Cap Portfolio hereunder. The Special
Equity Portfolio will transfer to the Small Cap Portfolio any distributions,
rights or other assets received by the Special Equity Portfolio after the
Closing Date as distributions on or with respect to the securities transferred.
Such assets shall be deemed included in assets transferred to the Small Cap
Portfolio on the Closing Date and shall not be separately valued.
1.5. As soon after the Closing Date as is conveniently
practicable (the "Liquidation Date"), the Special Equity Portfolio will
liquidate and distribute pro rata to the Special Equity Portfolio's shareholders
of record, determined as of the close of business on the Closing Date (the
"Special Equity Portfolio Shareholders"), shares of the Small Cap Portfolio
received by the Special Equity Portfolio pursuant to paragraph 1.1. Such
liquidation and distribution will be accomplished by the transfer of the
applicable shares of the Small Cap Portfolio then credited to the account of the
Special Equity Portfolio on the books of the Small Cap Portfolio to open
accounts on the share records of the Small Cap Portfolio in the names of the
Special Equity Portfolio Shareholders and representing the respective pro rata
number of the applicable Small Cap Portfolio shares due such shareholders. All
issued and outstanding shares of the Special Equity Portfolio will be
reclassified as shares of the Small Cap Portfolio.
1.6. Ownership of Small Cap Portfolio shares will be shown on the
books of the Fund's transfer agent. Shares of the Small Cap Portfolio will be
issued in the manner described in the current prospectus and statement of
additional information of the Fund.
1.7. Any transfer taxes payable upon issuance of the shares of
the Small Cap Portfolio in a name other than the registered holder of the
Special Equity Portfolio shares on the books of the Small Cap Portfolio as of
that time, as a condition of such issuance and transfer, shall be paid by the
person to whom such shares of the Small Cap Portfolio are to be issued and
transferred.
1.8. Any reporting responsibility of the Special Equity Portfolio
is and shall remain the responsibility of the Special Equity Portfolio up to and
including the Closing Date and such later date on which the Special Equity
Portfolio' existence is terminated.
2. VALUATION.
2.1. The value of the Special Equity Portfolio's assets to be
acquired by the Small Cap Portfolio hereunder shall be the value of such assets
computed as of the close of trading on the floor of the New York Stock Exchange
(currently, 4:00 p.m., New York time) on the Closing Date (such time and date
being hereinafter called the "Valuation Date"), using the valuation procedures
set forth in the Fund's Articles of Incorporation and its then-current
prospectus or statement of additional information.
2.2. The net asset value of a share of the Small Cap Portfolio
shall be the net asset value per share computed as of the Valuation Date, using
the valuation procedures set forth in the Fund's Articles of Incorporation and
its then-current prospectus or statement of additional information.
2.3. The number of shares of the Small Cap Portfolio to be issued
(including fractional shares, if any) in exchange for the Special Equity
Portfolio's net assets shall be determined by dividing the value of the net
assets of the Special Equity Portfolio determined using the same valuation
procedures referred to in paragraph 2.1 by the net asset value of one share of
the Small Cap Portfolio, determined in accordance with paragraph 2.2.
2.4. All computations of value shall be made in accordance with
the regular practices of the Small Cap Portfolio.
3. CLOSING AND CLOSING DATE.
3.1. The Closing Date shall be June 28, 1996 or such later date
as the parties may mutually agree. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held at 10:00 a.m., New
York time, at the offices of Lazard Freres Asset Management, 30 Rockefeller
Plaza, New York, New York, or such other time and/or place as the parties may
mutually agree.
3.2. The Custodian shall deliver at the Closing a certificate of
an authorized officer stating that the Special Equity Portfolio's portfolio
securities, cash and any other assets have been delivered in proper form to the
Small Cap Portfolio within two business days prior to or on the Closing Date.
3.3. If on the Valuation Date (a) the New York Stock Exchange or
another primary trading market for portfolio securities of the Small Cap
Portfolio or the Special Equity Portfolio shall be closed to trading or trading
thereon shall be restricted; or (b) trading or the reporting of trading on said
Exchange or elsewhere shall be disrupted so that accurate appraisal of the value
of the net assets of the Small Cap Portfolio or the Special Equity Portfolio is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.
3.4. The Fund's transfer agent shall deliver at the Closing a
certificate of an authorized officer stating that its records contain the names
and addresses of the Special Equity Portfolio's shareholders and the number and
percentage ownership of outstanding Special Equity Portfolio shares, owned by
each such shareholder immediately prior to the Closing. The Small Cap Portfolio
shall issue and deliver a confirmation evidencing the Small Cap Portfolio shares
to be credited on the Closing Date, or provide evidence satisfactory to the
Special Equity Portfolio that such Small Cap Portfolio shares have been credited
to the Special Equity Portfolio's account on the books of the Small Cap
Portfolio. At the Closing, each party shall deliver to the other such bills of
sale, checks, assignments, receipts or other documents as such other party or
its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1. The Special Equity Portfolio represents and warrants to the
Small Cap Portfolio as follows:
(a) The Special Equity Portfolio is a series of the Fund, a
corporation duly organized and validly existing and in good standing under the
laws of the State of Maryland.
(b) The Special Equity Portfolio is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end,
diversified, management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) At the Closing Date, all Federal and other tax returns and
reports of the Special Equity Portfolio required by law to have been filed by
such dates shall have been filed, and all Federal and other taxes shall have
been paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Special Equity Portfolio's knowledge no such
return is currently under audit and no assessment has been asserted with respect
to such returns.
(d) For each fiscal year of its operation, the Special Equity
Portfolio has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company.
4.2. The Small Cap Portfolio represents and warrants to the
Special Equity Portfolio as follows:
(a) The Small Cap Portfolio is a series of the Fund, a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland.
(b) The Small Cap Portfolio is registered under the 1940 Act as
an open-end, non-diversified, management investment company, and such
registration has not been revoked or rescinded and is in full force and effect.
(c) At the Closing Date, all Federal and other tax returns and
reports of the Small Cap Portfolio required by law then to be filed shall have
been filed, and all Federal and other taxes shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof.
(d) For each fiscal year of its operation, the Small Cap
Portfolio has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SMALL CAP
PORTFOLIO
The obligations of the Small Cap Portfolio to complete the
transactions provided for herein shall be subject, at its election, to the
performance by the Special Equity Portfolio of all the obligations to be
performed by it hereunder on or before the Closing Date and, in addition
thereto, the following condition:
All representations and warranties of the Special Equity
Portfolio contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SPECIAL
EQUITY PORTFOLIO.
The obligations of the Special Equity Portfolio to consummate the
transactions provided for herein shall be subject, at its election, to the
performance by the Small Cap Portfolio of all the obligations to be performed by
it hereunder on or before the Closing Date and, in addition thereto, the
following condition:
All representations and warranties of the Small Cap Portfolio
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SMALL
CAP PORTFOLIO AND THE SPECIAL EQUITY PORTFOLIO.
7.1. The Special Equity Portfolio shall have declared a dividend
or dividends which, together with all previous such dividends, shall have the
effect of distributing to the Special Equity Portfolio Shareholders all of the
Special Equity Portfolio's investment company taxable income for all taxable
years ending on or prior to the Closing Date (computed without regard to any
deduction for dividends paid) and all of its net capital gain realized in all
taxable years ending on or prior to the Closing Date (after reduction for any
capital loss carry forward).
7.2. The Fund shall have received an opinion of Stroock & Stroock
& Lavan substantially to the effect that for Federal income tax purposes: (a)
The transfer of all or substantially all of the Special Equity Portfolio's
assets in exchange for shares of the Small Cap Portfolio and the assumption by
the Small Cap Portfolio of certain identified liabilities of the Special Equity
Portfolio will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code; (b) No gain or loss will be recognized by the Small
Cap Portfolio upon the receipt of the assets of the Special Equity Portfolio
solely in exchange for shares of Small Cap Portfolio and the assumption by the
Small Cap Portfolio of certain identified liabilities of the Special Equity
Portfolio; (c) No gain or loss will be recognized by the Special Equity
Portfolio upon the transfer of the Special Equity Portfolio's assets to the
Small Cap Portfolio in exchange for Small Cap Portfolio shares and the
assumption by the Small Cap Portfolio of certain identified liabilities of the
Special Equity Portfolio or upon the distribution (whether actual or
constructive) of the Small Cap Portfolio shares to Special Equity Portfolio
Shareholders in exchange for their shares of the Special Equity Portfolio; (d)
No gain or loss will be recognized by the Special Equity Portfolio Shareholders
upon the exchange of their Special Equity Portfolio shares for the Small Cap
Portfolio shares; (e) The aggregate tax basis for the Small Cap Portfolio shares
received by each Special Equity Portfolio Shareholder pursuant to the
Reorganization will be the same as the aggregate tax basis of Special Equity
Portfolio shares held by such shareholder immediately prior to the
Reorganization, and the holding period of the Small Cap Portfolio shares to be
received by each Special Equity Portfolio Shareholder will include the period
during which the Special Equity Portfolio shares exchanged therefor were held by
such shareholder (provided the Special Equity Portfolio shares were held as
capital assets on the date of the Reorganization); and (f) The tax basis of the
Special Equity Portfolio assets acquired by the Small Cap Portfolio will be the
same as the tax basis of such assets to the Special Equity Portfolio immediately
prior to the Reorganization, and the holding period of the assets of the Special
Equity Portfolio in the hands of the Small Cap Portfolio will include the period
during which those assets were held by the Special Equity Portfolio.
8. TERMINATION OF AGREEMENT.
8.1. This Agreement and the transaction contemplated hereby may
be terminated and abandoned by resolution of the Fund's Board at any time prior
to the Closing Date (and notwithstanding any vote of the Special Equity
Portfolio Shareholders) if circumstances should develop that, in the opinion of
the Fund's Board, make proceeding with the Agreement inadvisable.
8.2. If this Agreement is terminated and the transaction
contemplated hereby is abandoned pursuant to the provisions of this Section 8,
this Agreement shall become void and have no effect, without any liability on
the part of any party hereto or the directors, officers or shareholders of the
Fund, in respect of this Agreement, except that the parties shall bear the
aggregate expenses of the transaction contemplated hereby in proportion to their
respective net assets as of the date this Agreement is terminated or the
exchange contemplated hereby is abandoned.
9. WAIVER.
At any time prior to the Closing Date, any of the foregoing
conditions may be waived by the Fund's Board if, in its judgment, such waiver
will not have a material adverse effect on the benefits intended under this
Agreement to the shareholders of the Small Cap Portfolio or of the Special
Equity Portfolio, as the case may be.
10. MISCELLANEOUS.
10.1. This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof, and merges and supersedes all prior discussions, agreements and
understandings of every kind and nature between them relating to the subject
matter hereof. Neither party shall be bound by any condition, definition,
warranty or representation, other than as set forth or provided in this
Agreement or as may be, on or subsequent to the date hereof, set forth in a
writing signed by the party to be bound thereby.
10.2. This Agreement shall be governed and construed in
accordance with the internal laws of the State of New York, without giving
effect to principles of conflict of laws; provided, however, that the due
authorization, execution and delivery of this Agreement by the Small Cap
Portfolio and the Special Equity Portfolio shall be governed and construed in
accordance with the internal laws of the State of Maryland without giving effect
to principles of conflict of laws.
10.3. This Agreement may be executed in counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
IN WITNESS WHEREOF, the Small Cap Portfolio and the Special
Equity Portfolio have caused this Agreement and Plan of Reorganization to be
executed and attested on its behalf by its duly authorized representatives as of
the date first above written.
THE LAZARD FUNDS, INC.,
on behalf of its SMALL CAP
PORTFOLIO
By:_____________________
Herbert W. Gullquist,
President
ATTEST: _______________________________
William G. Butterly, III,
Vice President and Secretary
THE LAZARD FUNDS, INC.,
on behalf of its SPECIAL
EQUITY PORTFOLIO
By:______________________
Herbert W. Gullquist,
President
ATTEST: _________________________________
William G. Butterly, III,
Vice President and Secretary
<PAGE>
EXHIBIT B
THE LAZARD FUNDS, INC.
ARTICLES OF AMENDMENT
THE LAZARD FUNDS, INC., a Maryland corporation having its
principal office in Maryland in the City of Baltimore, Maryland (the
"Corporation"), certifies to the State Department of Assessments and Taxation
that: FIRST: The Charter of the Corporation is amended by reclassifying and
changing all of the Class H shares of the Corporation, which are marketed as the
Lazard Special Equity Portfolio ("Special Equity Portfolio"), to Class F shares
of the Corporation, which are marketed as the Lazard Small Cap Portfolio ("Small
Cap Portfolio"), on the terms set forth herein. SECOND: Upon effectiveness of
these Articles of Amendment:
(a) All of the assets and stated liabilities belonging to the
Corporation's Special Equity Portfolio shall be conveyed, transferred
and delivered to the Corporation's Small Cap Portfolio, and shall
thereupon become and be assets and liabilities belonging to the Small
Cap Portfolio.
(b) Each of the issued and outstanding shares (and fractions
thereof) of the Corporation's Special Equity Portfolio will
automatically, and without the need of any further act or deed, be
reclassified and changed to full and fractional issued and outstanding
shares of the Corporation's Small Cap Portfolio in such number of such
shares as shall be determined by dividing the net asset value of a
share of the Special Equity Portfolio by the net asset value of a
share of the Small Cap Portfolio, all determined as of the effective
time of these Articles of Amendment.
(c) Each unissued share (or fraction thereof) of the
Corporation's Special Equity Portfolio will automatically, and without
the need of any further act or deed, be reclassified and changed to
such number of unissued shares (or fractions thereof) of the
Corporation's Small Cap Portfolio as shall result, as of the effective
time of these Articles of Amendment and as a result hereof, in the
total number of unissued shares of the Corporation's Small Cap
Portfolio being increased by 50,000,000 shares less the number of
issued and outstanding shares of the Small Cap Portfolio resulting
from paragraph (b) above.
(d) Open accounts on the share records of the Corporation's Small
Cap Portfolio shall be established representing the appropriate number
of shares of stock owned by the former holders of shares of the
Corporation's Special Equity Portfolio.
THIRD: This amendment does not increase the authorized capital stock
of the Corporation or the aggregate par value thereof and does not amend the
description of any class of stock as set forth in the Charter. The amendment
reclassifies and changes the 50,000,000 previously authorized shares of the
Special Equity Portfolio to 50,000,000 additional shares of the Small Cap
Portfolio.
FOURTH: Outstanding certificates representing issued and outstanding
shares of the Special Equity Portfolio immediately prior to these Articles of
Amendment becoming effective shall, upon these Articles of Amendment becoming
effective, be deemed to represent the appropriate number, calculated as set
forth above, of shares of the Small Cap Portfolio. Certificates representing
shares of the Small Cap Portfolio resulting from the aforesaid change and
reclassification need not be issued until certificates representing the shares
of the Special Equity Portfolio so changed and reclassified, if issued, have
been received by the Corporation or its agent duly endorsed for transfer.
FIFTH: This amendment has been duly authorized and declared advisable
by the Board of Directors of the Corporation and approved by the stockholders of
the Corporation entitled to vote thereon. SIXTH: These Articles of Amendment
shall be effective as of __:__ _.m., __________, 1996.
IN WITNESS WHEREOF, THE LAZARD FUNDS, INC. has caused these Articles
of Amendment to be signed in its name and on its behalf by its President, and
attested by its Vice President and Secretary, as of the _____ day of __________,
1996. The undersigned President of The Lazard Funds, Inc. who executed on behalf
of said Corporation these Articles of Amendment, hereby acknowledges, in the
name and on behalf of said Corporation, these Articles of Amendment to be the
corporate act of said Corporation and certifies that to the best of his
knowledge, information and belief, the matters and facts set forth herein with
respect to authorization and approval are true in all material respects, under
the penalties of perjury.
THE LAZARD FUNDS, INC.
By:_____________________
Herbert W. Gullquist,
President
ATTEST:
By:__________________________
William G. Butterly, III,
Vice President and
Secretary
<PAGE>
THE LAZARD FUNDS, INC.
(LAZARD SPECIAL EQUITY PORTFOLIO)
The undersigned shareholder of the Lazard Special Equity Portfolio
(the "Portfolio") of The Lazard Funds, Inc. ("Fund") hereby appoints William G.
Butterly, III and Gus Coutsouros, and each of them, the attorneys and proxies of
the undersigned, with full power of substitution, to vote, as indicated herein,
all of the shares of common stock of the Portfolio standing in the name of the
undersigned at the close of business on May 21, 1996, at a Special Meeting of
Shareholders of the Portfolio to be held at the offices of Lazard Freres Asset
Management, 30 Rockefeller Plaza, 58th Floor, Conference Room A, New York, New
York at 10:00 a.m. on Friday, June 21, 1996, and at any and all adjournments
thereof, with all of the powers the undersigned would possess if then and there
personally present and especially (but without limiting the general
authorization and power hereby given) to vote as indicated on the proposal, as
more fully described in the Prospectus/Proxy Statement for the meeting.
Please mark boxes in blue or black ink.
1. To approve an amendment to the Fund's Charter providing for the
reclassification of the shares of the Lazard Special Equity Portfolio ("Special
Equity Portfolio") as shares of the Lazard Small Cap Portfolio ("Small Cap
Portfolio") and an Agreement and Plan of Reorganization between the Special
Equity Portfolio and the Small Cap Portfolio of the Fund, providing for the
transfer of substantially all of the assets of the Special Equity Portfolio,
subject to its liabilities.
_____FOR _____AGAINST _____ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting, or any adjournment(s)
thereof.
THIS PROXY IS SOLICITED BY FUND'S BOARD OF DIRECTORS AND WILL BE VOTED
FOR THE ABOVE PROPOSAL UNLESS OTHERWISE INDICATED.
Signature(s) should be exactly as name or names
appearing on this proxy. If shares are held jointly,
each holder should sign. If signing is by attorney,
executor, administrator, trustee or guardian, please
give full title.
Dated: ___________, 1996
Signature(s)
Signature(s)
Sign, Date and Return the Proxy
Card Promptly Using the
Enclosed Envelope
<PAGE>
THE LAZARD FUNDS, INC.
======================
PROSPECTUS
May 1, 1996
LAZARD FRERES & CO. LLC
30 Rockefeller Plaza, New York, New York 10020
(212) 632-6400
(800) 823-6300
<PAGE>
May 1, 1996
PROSPECTUS
THE LAZARD FUNDS, INC.
- ------------------------------------------------------
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) 823-6300 (other continental states)
------------------------------------------------------
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 May 1, 1996, 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.
------------------------------------------------------
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.
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.
Shares of the Lazard Special Equity Portfolio currently are not being offered,
except pursuant to dividend reinvestments.
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. Shares of the Lazard Emerging World Funds Portfolio currently are not
being offered.
<PAGE>
TABLE OF CONTENTS
Fee Table ................................................................. 3
Summary ................................................................... 4
Financial Highlights ...................................................... 5
Investment Objectives and Policies ........................................ 8
Additional Permitted Investment Activities and Risk Factors ............... 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>
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
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER
TRANSACTION EXPENSES None None None None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
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)* .17% .20% .30% .30% .34% .09% .38% .09% .30% .30% .30% .30%
Total Portfolio
Operating
Expenses(after
expense
reimbursement)* .92% .95% 1.05% .80% 1.09% .84% 1.13% 1.59% 1.30% 1.05% 1.05% 1.05%
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 9 $ 10 $ 11 $ 8 $ 11 $ 9 $ 12 $ 16 $ 13 $ 11 $ 11 $ 11
3 years $ 29 $ 30 $ 33 $26 $ 35 $ 27 $ 36 $ 51 $ 41 $ 33 $ 33 $ 33
5 years $ 51 $ 53 $ 58 $44 $ 60 $ 47 $ 63 $ 87 $ 71 $ 58 $ 58 $ 58
10 years $114 $117 $128 $99 $133 $104 $138 $190 $157 $128 $128 $128
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%.
- ------------------------------------------------------------------------------------------------------------------------------------
</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 International Fixed-Income 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, 1996 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, 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%. Effective May 1, 1995, the Fund
has engaged State Street Bank and Trust Company ("State Street") 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. Had Lazard Freres
Asset Management not undertaken to bear such expenses, (and State Street not
waived certain fees) total portfolio operating expenses for the fiscal year
ended December 31, 1995 would have been 1.25% for the International Fixed-Income
Portfolio, .97% for the Bond Portfolio, 1.81% for the Special Equity Portfolio
and 2.00% for the Emerging Markets Portfolio. "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. Investors
may purchase Fund shares without a sales charge directly from Lazard Freres &
Co. LLC. Securities dealers and other institutions effecting transactions in
Fund shares for the accounts of their clients may charge their clients direct
fees in connection with such transactions.
+The management fee payable by the Special Equity Portfolio is substantially
higher than that of most other registered investment companies.
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 and Risk Factors -- 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.
The Fund's Board has approved, subject to shareholder approval, the
reorganization ("Reorganization") of the Special Equity Portfolio into the Small
Cap Portfolio. If the transaction is consummated, former Special Equity
Portfolio shareholders will receive a number of shares of the Small Cap
Portfolio equal to the value of such shareholder's Special Equity Portfolio
shares as of the date of the Reorganization. The transaction is expected to be
tax free for Federal income tax purposes. If the transaction is consummated, the
Special Equity Portfolio's existence will be terminated. In anticipation of the
Reorganization, Special Equity Portfolio ceased offering its shares for sale
effective April 25, 1996, except to the extent of dividend reinvestments. A
meeting of the Special Equity Portfolio's shareholders to consider the
transaction is scheduled to be held on or about June 21, 1996. A
Prospectus/Proxy Statement with respect to the proposed transaction will be
mailed prior to the shareholders' meeting to Special Equity Portfolio
shareholders of record as of May 21, 1996. The Prospectus/Proxy Statement will
provide further information regarding the proposed transaction.
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 and Risk Factors." No assurance can
be given that any of the portfolios will achieve its respective investment
objective.
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 and
Risk Factors--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, except as otherwise noted, have been
audited by ABA Seymour Schneidman Financial Services Group, a division of
Anchin, Block & Anchin LLP, Independent Accountants. The financial highlights
set forth below for the Equity Portfolio and the Special Equity Portfolio, for
periods prior to January 1, 1992 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 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>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------- LESS:
TOTAL ----------------------------
NET FROM DIVIDENDS DISTRIBU- NET
ASSET NET REALIZED INVEST- FROM AND TIONS ASSET
VALUE, AND UNREALIZED MENT IN EXCESS OF FROM VALUE,
BEGINNING INVESTMENT GAIN (LOSS) OPERA- INVESTMENT REALIZED END OF
PERIOD OF PERIOD INCOME-NET ON INVESTMENTS TIONS INCOME-NET GAINS PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
Year ended
12/31/95................. $ 13.75 $ 0.226 $ 4.931 $ 5.157 $(0.175) $(1.322) $17.41
12/31/94................. 13.89 0.141 0.441 0.582 (0.152) (0.574) 13.75
12/31/93................. 12.74 0.158 2.172 2.330 (0.165) (1.015) 13.89
12/31/92................. 12.34 0.123 0.518 0.641 (0.132) (0.109) 12.74
12/31/91................. 11.53 0.107 3.051 3.158 (0.082) (2.266) 12.34
12/31/90................. 12.34 0.191 (0.778) (0.587 ) (0.223)(b) -- 11.53
12/31/89................. 10.32 0.204 2.231 2.435 (0.214) (0.201) 12.34
12/31/88................. 8.73 0.181 1.597 1.778 (0.188) -- 10.32
6/1/87* to 12/31/87...... 10.00 0.110 (1.280) (1.170 ) (0.100) -- 8.73
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended
12/31/95................. 11.23 0.187 1.288 1.475 (0.091) (0.114) 12.50
12/31/94................. 12.32 0.078 (0.049) 0.029 -- (1.123) 11.23
12/31/93................. 9.48 0.021 2.919 2.940 (0.021) (0.079) 12.32
12/31/92................. 10.30 0.097 (0.779) (0.682 ) (0.138) -- 9.48
10/29/91* to 12/31/91.... 10.00 0.020 0.300 0.320 (0.020) -- 10.30
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended
12/31/95................. 10.23 0.701 1.250 1.951 (1.129) (0.202) 10.85
12/31/94................. 10.51 0.592 (0.161) 0.431 (0.593) (0.116) 10.23
12/31/93................. 9.79 0.571 0.912 1.483 (0.570) (0.193) 10.51
12/31/92................. 10.28 0.614 (0.403) 0.211 (0.614) (0.087) 9.79
11/8/91* to 12/31/91..... 10.00 0.110 0.280 0.390 (0.110) -- 10.28
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended
12/31/95................. 9.24 0.595 0.863 1.458 (0.594) (0.004) 10.10
12/31/94................. 10.28 0.584 (1.010) (0.426 ) (0.584) (0.029) 9.24
12/31/93................. 10.21 0.551 0.302 0.853 (0.551) (0.232) 10.28
12/31/92................. 10.25 0.577 (0.004) 0.573 (0.577) (0.036) 10.21
11/12/91* to 12/31/91.... 10.00 0.140 0.250 0.390 (0.140) -- 10.25
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended
12/31/95................. 9.10 0.748 0.430 1.178 (0.758) -- 9.52
12/31/94................. 10.13 0.762 (0.990) (0.228 ) (0.761) (0.039) 9.10
12/31/93................. 9.50 0.644 0.738 1.382 (0.633) (0.119) 10.13
12/31/92................. 9.97 1.049 (0.450) 0.599 (1.049) (0.020) 9.50
10/1/91* to 12/31/91..... 10.00 0.250 (0.030) 0.220 (0.250) -- 9.97
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended
12/31/95................. 14.35 0.126 2.951 3.077 (0.154) (1.323) 15.95
12/31/94................. 15.26 0.070 0.220 0.290 (0.042) (1.158) 14.35
12/31/93................. 12.98 0.019 3.830 3.849 (0.020) (1.549) 15.26
12/31/92................. 10.42 0.019 2.560 2.579 (0.019) -- 12.98
10/30/91* to 12/31/91.... 10.00 0.030 0.420 0.450 (0.030) -- 10.42
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended
12/31/95................. 10.38 0.139 0.056 0.195 -- (0.055) 10.52
12/31/94................. 10.86 0.072 (0.548) (0.476 ) -- -- 10.38
12/1/93* to 12/31/93..... 10.00 0.004 0.859 0.863 (0.003) -- 10.86
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
-----------------
NET
INVEST- ASSETS,
MENT PORTFOLIO END OF
TOTAL INCOME- TURNOVER PERIOD
PERIOD RETURN++ EXPENSES NET RATE (000'S)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
Year ended
12/31/95................. 37.7 % 0.92%(h) 1.45% 80.72% $163,787
12/31/94................. 4.2 1.05 1.15 66.52 89,105
12/31/93................. 18.6 1.05(e) 1.31 63.92 47,123
12/31/92................. 5.3 1.05(d) 1.19 174.45 24,646
12/31/91................. 27.5 1.93 0.84 90.00 14,821
12/31/90................. (4.7 ) 1.77 1.62 70.00 14,397
12/31/89................. 23.6 1.78 1.71 78.00 16,239
12/31/88................. 20.4 1.84 1.86 111.00 12,336
6/1/87* to 12/31/87...... (11.7 ) 1.68+ 1.93+ 97.00 10,186
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended
12/31/95................. 13.1 0.95(h) 1.82 62.54 1,299,549
12/31/94................. 0.2 0.94 0.75 106.15 831,877
12/31/93................. 31.0 0.99 1.13 86.95 603,642
12/31/92................. (6.6 ) 1.05(d) 2.13 60.37 176,005
10/29/91* to 12/31/91.... 3.2 1.05+,(c) 2.19+ 0.18 4,967
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended
12/31/95................. 19.4 1.05(g),(h) 5.99 189.97 45,624
12/31/94................. 4.2 1.05(f) 5.68 65.90 35,803
12/31/93................. 15.7 1.05(e) 5.50 115.84 13,546
12/31/92................. 2.0 1.05(d) 6.08 256.20 8,183
11/8/91* to 12/31/91..... 3.9 1.05+,(c) 4.82+ 6.43 1,427
- ------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended
12/31/95................. 16.2 0.80(g),(h) 6.07 244.28 46,083
12/31/94................. (4.2 ) 0.80(f) 6.11 120.51 24,494
12/31/93................. 8.6 0.80(e) 5.22 174.63 13,562
12/31/92................. 5.7 0.80(d) 5.59 131.38 8,532
11/12/91* to 12/31/91.... 3.9 0.80+,(c) 5.50+ 10.46 3,256
- ------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended
12/31/95................. 13.6 1.09(h) 8.02 205.33 78,474
12/31/94................. (2.3 ) 1.05(f) 8.03 195.18 62,328
12/31/93................. 15.6 1.05(e) 6.36 215.60 34,943
12/31/92................. 6.0 1.05(d) 10.57 122.88 9,641
10/1/91* to 12/31/91..... 2.1 1.05+,(c) 9.52+ 11.26 4,256
- ------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended
12/31/95................. 21.5 0.84(h) 0.90 69.68 646,371
12/31/94................. 2.0 0.85 0.51 70.11 429,673
12/31/93................. 30.1 0.88 0.16 98.47 350,952
12/31/92................. 24.8 1.05(d) 0.29 106.91 168,171
10/30/91* to 12/31/91.... 4.5 1.05+,(c) 2.47+ 5.50 2,512
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended
12/31/95................. 1.9 1.13(h) 1.56 117.53 115,534
12/31/94................. (4.5 ) 1.05(f) 0.95 112.92 83,432
12/1/93* to 12/31/93..... 8.7 1.05+,(e) 1.76+ 0.84 13,522
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------- LESS:
TOTAL ----------------------------
NET FROM DIVIDENDS DISTRIBU- NET
ASSET NET REALIZED INVEST- FROM AND TIONS ASSET
VALUE, AND UNREALIZED MENT IN EXCESS OF FROM VALUE,
BEGINNING INVESTMENT GAIN (LOSS) OPERA- INVESTMENT REALIZED END OF
PERIOD OF PERIOD INCOME-NET ON INVESTMENTS TIONS INCOME-NET GAINS PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Year ended
12/31/95................. $ 11.89 $ 0.195 $ 1.725 $ 1.920 $(0.188) $(1.382) $12.24
12/31/94................. 15.73 0.156 (0.557) (0.401 ) (0.155) (3.279) 11.89
12/31/93................. 16.90 0.157 1.478 1.635 (0.157) (2.648) 15.73
12/31/92................. 15.14 0.161 2.181 2.342 (0.160) (0.422) 16.90
12/31/91................. 11.54 0.230 4.160 4.390 (0.227) (0.563) 15.14
12/31/90................. 13.72 0.714 (2.155) (1.441 ) (0.739) -- 11.54
12/31/89................. 13.13 0.260 1.874 2.134 (0.264) (1.280) 13.72
12/31/88................. 10.64 0.224 2.761 2.985 (0.245) (0.250) 13.13
12/31/87................. 11.66 0.112 (0.291) (0.179 ) (0.105) (0.736) 10.64
1/16/86* to 12/31/86..... 10.00 0.075 1.585 1.660 -- -- 11.66
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Year ended
12/31/95................. 9.86 0.080 (0.660) (0.580 ) (0.040) -- 9.24
7/15/94* to 12/31/94..... 10.00 0.010 (0.154) (0.144 ) -- -- 9.86
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
-------------------- NET
INVEST- ASSETS,
MENT PORTFOLIO END OF
TOTAL INCOME- TURNOVER PERIOD
PERIOD RETURN++ EXPENSES NET RATE (000'S)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Year ended
12/31/95................. 16.3 % 1.59%(g),(h) 1.17% 15.35% $ 47,020
12/31/94................. (2.6 ) 1.71 0.87 11.29 61,498
12/31/93................. 10.2 1.67 0.74 26.31 118,129
12/31/92................. 15.5 1.70 1.04 10.93 150,488
12/31/91................. 38.2 1.77 1.63 19.48 111,395
12/31/90................. (10.5 ) 1.78 4.70(a) 27.18 76,972
12/31/89................. 16.2 1.78 1.82 40.67 101,522
12/31/88................. 28.0 1.96 1.87 64.90 74,695
12/31/87................. (1.9 ) 1.81 0.82 90.86 53,942
1/16/86* to 12/31/86..... 16.6 2.23+ 0.71+ 73.12 51,403
- ----------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Year ended
12/31/95................. (5.9 ) 1.30(g),(h) 1.22 102.22 35,216
7/15/94* to 12/31/94..... (1.4 ) 1.30+,(f) 0.31+ 30.68 17,025
- ----------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
(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%+ ($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 (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 and State Street had not waived certain fees and
reimbursed certain expenses and the Portfolios had not paid fees indirectly
the ratio of expenses to average net assets (and net investment income per
share) would have been 1.25% ($0.678) for the International Fixed-Income
Portfolio, 0.97% ($0.578) for the Bond Portfolio, 1.81% ($0.157) for the
Special Equity Portfolio and 2.00% ($0.034) for the Emerging Markets
Portfolio.
(h) "Ratio of total expenses to average net assets" for the year ended December
31, 1995 includes fees paid indirectly. Excluding fees paid indirectly for
the year ended December 31, 1995, the expense ratios would have been 0.92%
for the Equity Portfolio, 0.95% for the International Equity Portfolio,
1.05% for the International Fixed-Income Portfolio, 0.80% for the Bond
Portfolio, 1.09% for the Strategic Yield Portfolio, 0.84% for the Small Cap
Portfolio, 1.13% for the International Small Cap Portfolio, 1.59% for the
Special Equity Portfolio, and 1.30% for the Emerging Markets Portfolio.
Further information about each Portolio's performance is contained in the Fund's
annual report for the fiscal year ended December 31, 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.
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
engages in a value-oriented search for equity securities before they have
attracted wide investor interest. The Investment Manager attempts to identify
inexpensive securities through traditional measures of value, including low
price to earnings ratio, high yield, unrecognized assets, potential for
management change and/or the potential to improve profitability. The Investment
Manager focuses on individual stock selection (a "bottom-up" approach) rather
than on forecasting stock market trends (a "top-down" approach). Risk is
tempered by diversification of investments.
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
Ratings Group ("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 and Risk Factors--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 and Risk Factors--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.
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 (i.e., 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 and Risk Factors--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 and Risk
Factors--Investment in Foreign Securities."
In selecting investments for the International Equity Portfolio, the Investment
Manager attempts to identify 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 Japan Asset Management K.K. in Tokyo, 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 and
Risk Factors--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 and Risk Factors--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
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 and Risk Factors --
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
for speculative purposes consistent with the portfolio's investment objective or
to reduce market risk. Options and futures are forms of derivative securities.
See "Additional Permitted Investment Activities and Risk Factors -- 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 (which are commonly known
as "junk bonds") 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 which are forms of derivative securities,
as described below. The International Fixed-Income Portfolio also may invest in
American Global Depositary Receipts issued in relation to a pool of fixed-income
securities in which the Portfolio could invest directly.
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 and Risk Factors--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 (commonly known 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, 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 and Risk
Factors--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
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 for speculative
purposes consistent with its investment objective or to reduce market risk.
Options and futures are forms of derivative securities . See "Additional
Permitted Investment Activities and Risk Factors--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
(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
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 and Risk
Factors--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
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.
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 (commonly known as "junk bonds") 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 and Risk Factors--Investment in
Foreign Securities."
During the year ended December 31, 1995 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:
Percentage of
Moody's Ratings Total Investments
--------------- ----------------
Agency 20.2%
Aaa 19.9%
Aa1 0.4%
Aa2 3.2%
A1 2.4%
A3 1.8%
A 2.3%
Baa1 2.5%
Baa2 2.1%
Baa3 4.0%
Ba2 2.0%
Ba3 5.0%
B1 8.9%
B3 6.5%
B 1.7%
Caa 0.5%
No Rating* 16.9%
*The Investment Manager estimates these securities to have an average rating of
A.
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 Strategic Yield Portfolio also
may invest in American or Global Depositary Receipts issued in relation to a
pool of fixed-income securities in which the Portfolio could invest directly.
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, represented by the premium paid, in the purchase of call and put options
on the types of securities in which the Portfolio may invest. The Portfolio may
write covered call and put options contracts to the extent that the value of the
call or put options, represented by the premium paid, 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. Options are a form of derivative security.
See "Additional Permitted Investment Activities and Risk Factors--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 interbank 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 interbank 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 and Risk Factors--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
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 and Risk
Factors--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.
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 and
Risk Factors--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
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 and Risk Factors--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 in not less
than three different countries (not including the United States). The remaining
portion of the assets of the Portfolio may be invested in the same or different
countries. The percentage of the 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 and Risk Factors--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.
Options and futures are forms of derivative securities. See "Additional
Permitted Investment Activities and Risk Factors--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 and Risk Factors--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,
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, and warrants in
proportions that will vary from time to time. The Portfolio also may purchase
and write options and options on stock indices, which are forms of derivative
securities. 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 and Risk Factors--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 and Risk Factors--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 and Risk Factors--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 and Risk Factors--Illiquid Securities."
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 and Risk
Factors--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 in 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 generally will include any countries (i) having an "emerging stock
market" as defined by the International Finance Corporation; (ii) with low- to
middle-income economies according to the World Bank; or (iii) listed in World
Bank publications as developing. Currently, the countries not included in these
categories are 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 and Risk Factors--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 and Risk Factors -- 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 and Risk Factors--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
short-term money market instruments or hold its assets in cash. See "Additional
Permitted Investment Activities and Risk Factors--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 engages in 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 identify
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 and Risk Factors--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 and Risk Factors--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. Options and futures are forms of
derivative securities. See "Additional Permitted Investment Activities and Risk
Factors--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 and Risk Factors--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 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.
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 and Risk Factors--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 as
defined for purposes of the Emerging Markets Portfolio.
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 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 to 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 a 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 and Risk
Factors--Short-Term Money Market Instruments." The Emerging World Funds
Portfolio will not invest in fixed-income securities rated lower than investment
grade. At least 65% of the Portfolio's assets will be invested in Emerging
Market Funds.
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. Options and futures are
forms of derivative securities. See "Additional Permitted Investment
Activities and Risk Factors--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 and Risk Factors--Short-Term Money
Market Instruments."
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.
Additional Permitted Investment Activities and Risk Factors
Except as otherwise noted below, the following description of additional
permitted investment activities and risk factors 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 and Risk
Factors--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
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 and Risk Factors--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
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,
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 and Emerging Markets 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. Such securities may have limited
marketability and, therefore, may be subject to wide fluctuations in market
value. In addition, certain issuers of such securities may lack a significant
operating history and be dependent on products or services without an
established market share.
American and Global Depositary Receipts
Certain of the Portfolios may invest in the securities of foreign issuers in the
form of American Depositary Receipts ("ADRs") and Global Depositary Receipts
("GDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a United States bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. GDRs are
receipts issued outside the United States, typically by non-United States banks
and trust companies, that evidence ownership of either foreign or domestic
securities. Generally, ADRs in registered form are designed for use in the
United States securities markets and GDRs in bearer form are designed for use
outside the United States.
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.
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") for speculative purposes 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.
Derivatives
Certain of the Portfolio's may invest in derivative securities ("Derivatives").
These are financial instruments which derive their performance, at least in
part, from the performance of an underlying asset, index or interest rate. The
Derivatives a Portfolio may use, to the extent described above, may include
options and futures, mortgage-related securities and asset-backed securities.
While Derivatives can be used effectively in furtherance of a Portfolio's
investment objective, under certain market conditions, they can increase the
volatility of the Portfolio's net asset value, can decrease the liquidity of the
Portfolio's investments and make more difficult the accurate pricing of the
Portfolio's investment securities.
Derivatives can be volatile and involve various types and security degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Portfolio to increase or decrease the
level of risk, or change the character of the risk, to which its investments are
exposed in much the same way as a Portfolio can increase or decrease the level
of risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in Derivatives could have a large
potential impact on a Portfolio's performance.
If a Portfolio invests in Derivatives at inappropriate times or judges market
conditions incorrectly, such investments may lower the Portfolio's return or
result in a loss. A Portfolio also could experience losses if it were unable to
liquidate its position because of an illiquid secondary market. The market for
many Derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
Derivatives.
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. See "Additional Permitted Investment Activities and
Risk Factors" in the Statement of Additional Information for further discussion
of the use, risks and costs of futures contracts and options on futures
contracts.
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, represented by the premium paid, in the purchase of call and put
options on the types of securities in which the Portfolio may invest. The
Strategic Yield Portfolio may also write covered call and put options contracts
to the extent that the value of the call or put options, represented by the
premium paid, 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
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 and Risk Factors--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.
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."
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.
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 and Risk Factors--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 and Risk Factors-- 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 the Special Equity Portfolio, invest in illiquid
securities as defined in "Additional Permitted Investment Activities and Risk
Factors--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 and Risk Factors--Temporary Bank Borrowing;
Warrants; and Repurchase Agreements" in this Prospectus or under "Additional
Permitted Investment Activities and Risk Factors--Borrowing for Investment" in
the Statement of Additional Information;
(ii) Deviate from the percentage restrictions set forth under "Additional
Permitted Investment Activities and Risk Factors--Investment in Unseasoned
Companies" with respect to investment in unseasoned companies;
(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
investment management services to client discretionary accounts with assets
totalling approximately $30.7 billion as of December 31, 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 employees or affiliated persons of the Investment Manager.
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 International Fixed-Income 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, 1996 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, 1995, total operating expenses, as a
percentage of the Portfolio's average net assets, were as follows: International
Fixed-Income Portfolio, 1.05%;
Bond Portfolio, .80%; Special Equity Portfolio, 1.59% and Emerging Markets
Portfolio, 1.30%. For the fiscal year ended December 31, 1995, total operating
expenses, as a percentage of average net assets, were .92% for the Equity
Portfolio; .95% for the International Equity Portfolio; 1.09% for the Strategic
Yield Portfolio; 1.13% for the International Small Cap Portfolio and .84% 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.
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.
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.
Bond Portfolio: THOMAS F. DUNN. (Since January 1, 1995). Mr. Dunn's biographical
information is described under "International Fixed-Income Portfolio".
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.
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.
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. Fund shares are sold without a sales charge. Securities
dealers and other institutions effecting transactions in Fund shares for the
accounts of their clients may charge their clients direct fees in connection
with such transactions.
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, a recognized non-U.S. exchange or non NASDAQ listing 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." The Transfer Agent and the Distributor may, in certain cases, agree to
next day settlement for certain purchases through the Transfer Agent.
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.
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.
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. The Fund imposes no charges when shares are redeemed. Securities dealers
and other institutions may charge their clients a nominal fee for effecting
redemptions of Fund shares.
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.
The Fund has secured a $50 million committed line of credit from State Street to
assist in meeting redemption requests when deemed necessary.
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 either the Fund or the Transfer Agent fails 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.
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
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.
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, will be validly issued, fully paid and
non-assessable. As of April 15, 1996, 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.
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>
APPENDIX
Bond and Commercial Paper Ratings
S&P Bond Ratings
A S&P'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 S&P. 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.
S&P's Commercial Paper Ratings
A is the highest commercial paper rating category utilized by S&P, which uses
the numbers 1+, l, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P 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.
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.
<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, Block & Anchin LLP
1375 Broadway
New York, New York 10018
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.
PART B
STATEMENT OF ADDITIONAL INFORMATION
May 31, 1996
Acquisition of the Assets of
LAZARD SPECIAL EQUITY PORTFOLIO
By and in Exchange for Shares of
LAZARD SMALL CAP PORTFOLIO
30 Rockefeller Plaza
New York, New York 10020
212-632-6400 (New York States
1-800-228-0203 (other Continental States)
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the Prospectus/Proxy
Statement dated May 31, 1996, relating specifically to the proposed transfer of
all or substantially all of the assets and liabilities of the Special Equity
Portfolio of The Lazard Funds, Inc. in exchange for shares of the Small Cap
Portfolio of The Lazard Funds, Inc. The transfer is to occur pursuant to an
Agreement and Plan of Reorganization. This Statement of Additional Information
consists of this cover page and the following described documents, each of which
is attached hereto and incorporated herein by reference:
1. The Statement of Additional Information of The Lazard Funds, Inc.
dated May 1, 1996.
2. Annual Report of The Lazard Funds, Inc. for the fiscal year ended
December 31, 1995.
The Prospectus/Proxy Statement dated May 31, 1996 may be obtained by
writing to The Lazard Funds, Inc., 30 Rockefeller Plaza, New York, New York
10020.
<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
("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 May 1, 1996. 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.
May 1, 1996
TABLE OF CONTENTS PAGE
Additional Permitted Investment Activities and Risk Factors.................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
<PAGE>
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND RISK FACTORS
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.
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,
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%
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
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 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
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 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 Ratings Group ("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 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
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
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
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.
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 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
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.
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* (55) Chairman of the Board, Managing Director (formerly General Partner),
Director Lazard Freres
Herbert W. Gullquist* (58) President, Director Managing Director (formerly General Partner),
Lazard Freres
John J. Burke (67) Director Vice Chairman, Director, Montana Power Company;
50 Burning Tree Lane
Butte, MT 59701
Kenneth S. Davidson (51) 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
Carl Frischling* (58) Director Senior Partner, Kramer, Levin, Naftalis, Nessen,
170 East 83rd Street Kamin & Frankel; from 1992 to 1994, Senior
New York, NY 10028 Partner, Reid & Priest; from 1979 to 1992, Senior
Partner, Spengler Carlson Grubar Brodsky & Frischling.
Lester Z. Lieberman (65) 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. (52) 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.
Gus Coutsouros (33) 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 (56) Vice President and Principal, Scudder, Stevens & Clark
175 Federal Street Assistant Secretary
Boston, MA 02110
Thomas F. McDonough (49) Vice President and Principal, Scudder, Stevens & Clark
175 Federal Street Assistant Secretary
Boston, MA 02110
</TABLE>
Compensation received from the Fund during 1995 by the Directors who are
not employees or affiliated persons of the Investment Manager 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 $25,000 0 0 $25,000
Lester Z. Lieberman $25,000 0 0 $25,000
Richard Reiss, Jr. $25,000 0 0 $25,000
John Rutledge $25,000 0 0 $25,000
Ken Davidson $ 6,000 0 0 $ 6,000
Carl Frischling* $19,000 0 0 $19,000
</TABLE>
*Estimated for 1996
The Fund does not compensate officers or Directors who are employees
or affilated persons of the Investment Manager. As of April 15, 1996, 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 and the Global Equity
Portfolio. As of that date, the officers and Directors of the Fund, as a group,
owned 1.19% and 1.53% of the shares of the Strategic Yield Portfolio and Lazard
Global Equity 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
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 December 31, 1995 totaling approximately $30.7 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 April 15, 1996, 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 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, 1995, the
Investment Manager received management fees equal to $982,130 for the Equity
Portfolio, $7,895,766 for the International Equity Portfolio, $4,066,987 for the
Small Cap Portfolio, $525,597 for the Strategic Yield Portfolio, $755,928 for
the Special Equity Portfolio, $232,537 for the International Fixed-Income
Portfolio, $286,080 for the Bond Portfolio, $736,353 for the International Small
Cap Portfolio and $93,501 for the Emerging Markets Portfolio. For the fiscal
year ended December 31, 1995, the Investment Management received no management
fees for the Bantam Value Portfolio, Global Equity Portfolio and Emerging World
Funds Portfolio. 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.
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
affiliated persons 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
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.
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 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.
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
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, 1995, 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 $331,180, $2,303,409, $1,507,582, $976,314,
$77,242 and $280,844, respectively. Of those amounts, $0, $0, $3,324, $0,
$13,658, and $0, respectively, were paid to Lazard Freres. For the fiscal year
ended December 31, 1995, Lazard Freres received 0%, 0%, 0% 0.2%, 17.7%, and 0%,
respectively, of the total brokerage commissions paid by those Portfolios and
the total transactions effected through Lazard Freres represented 0%, 0%, .19%,
0%, 14.3% and 0%, respectively, of the total dollar amount of transactions on
which brokerage were paid by those Portfolios. For the fiscal year ended
December 31, 1995, no brokerage commissions were paid by the International
Fixed-Income Portfolio, Bond Portfolio or Strategic Yield Portfolio.
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, $4,374,956, $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
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.
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, 1995 was $606,138,615 and the related commissions were $1,553,885. 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.
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 Value 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.
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.
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 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 thirteen 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
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 April
15, 1996 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, 27.66%, WDB Insurance Ltd, 7 Reid St. Box HM1624,
Hamilton, Bermuda, HMGX, 12.05%; International Equity Portfolio: Lazard Freres
Asset Management, 30 Rockefeller Plaza, New York, NY 10020, 51.54%;
International Fixed-Income Portfolio: Lazard Freres Asset Management, 30
Rockefeller Plaza, New York, NY 10020, 7.34%; 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, 34.64%; Strategic Yield
Portfolio: Lazard Freres Asset Management, 30 Rockefeller Plaza, New York, NY
10020, 33.66%; Mellon Bank, N.A., Mutual Funds, P.O. Box 320, Pittsburgh, PA
15230-0320, 24.12%; Small Cap Portfolio: Lazard Freres Asset Management, 30
Rockefeller Plaza, New York, NY 10020, 65.20%; International Small Cap
Portfolio: Lazard Freres Asset Management, 30 Rockefeller Plaza, New York, NY
10020, 65.61%; Special Equity Portfolio: Booz Allen & Hamilton Inc., Employees
Retirement Income Trust, 25 Hanover Road, Florham Park, NJ 07932-1495, 19.7%;
and Emerging Markets Portfolio: Lazard Freres Asset Management, 30 Rockefeller
Plaza, New York, NY 10020, 64.48%. 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
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.
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 March 29, 1996 for the
International Fixed-Income Portfolio, Bond Portfolio and Strategic Yield
Portfolio were 5.3%, 6.1% and 8.7%, respectively. The actual distribution rates
for such period for the International Fixed-Income Portfolio, Bond Portfolio and
Strategic Yield Portfolio were 0.43%, 0.44% and 0.50%, respectively. For the
one-year period ending March 29, 1996 the Portfolios had total returns as
follows: Equity Portfolio, 35.2%; International Equity Portfolio, 21.9%;
International Fixed-Income Portfolio, 3.7%; Bond Portfolio, 10.5%; Strategic
Yield Portfolio, 15.2%; Small Cap Portfolio, 21.7%; International Small Cap
Portfolio, 12.1%; Special Equity Portfolio, 11.5%; and Emerging Markets
Portfolio 22.0%. For the period from commencement of operations to March 31,
1996, the International Equity Portfolio, International Fixed-Income Portfolio,
Bond Portfolio, Strategic Yield Portfolio, Small Cap Portfolio International
Small Cap Portfolio and Bantam Value Portfolio had total returns as follows:
International Equity Portfolio, 49.6%; International Fixed-Income Portfolio,
50.1%; Bond Portfolio, 31.5%; Strategic Yield Portfolio, 42.1%; Small Cap
Portfolio, 124.1% and International Small Cap Portfolio, 9.7% and Emerging
Markets Portfolio, 2.4% Global Equity Portfolio 3.1% and Bantam Value Portfolio
6.3%. For the five-year period ended March 29, 1996 and for the period from
their respective commencement of operations to March 29, 1996, the Equity
Portfolio and Special Equity Portfolio had average annual returns equal to 16.8%
and 13.6%, and 11.0% and 11.4%, 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
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 Emerging World Funds Portfolio
which had not commenced operations as of the date hereof.
<PAGE>
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.
<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 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 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 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
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
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.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD EQUITY PORTFOLIO
COMMON STOCKS--95.0%
AEROSPACE & DEFENSE--3.2%
Lockheed Martin Corp. ................... 32,000 $ 2,528,000
McDonnell Douglas Corp. ................. 29,800 2,741,600
-------------
5,269,600
-------------
AIRLINE--0.9%
AMR Corp. (a)............................ 20,000 1,485,000
-------------
AUTOMOTIVE--3.1%
Chrysler Corp. .......................... 32,200 1,783,075
General Motors Corp. .................... 31,600 1,670,850
Varity Corp. (a)......................... 42,000 1,559,250
-------------
5,013,175
-------------
BANKS--5.2%
BankAmerica Corp. ....................... 31,000 2,007,250
Chase Manhattan Corp. ................... 27,000 1,636,875
Chemical Banking Corp. .................. 39,500 2,320,625
UJB Financial Corp. ..................... 69,400 2,481,050
-------------
8,445,800
-------------
BEVERAGES--1.3%
Cadbury Schweppes PLC (b)................ 64,400 2,141,300
-------------
BROADCASTING--2.9%
U S West, Inc. (a)....................... 132,100 2,509,900
Viacom, Inc. Class B (a)................. 45,900 2,174,513
-------------
4,684,413
-------------
CHEMICALS & PLASTICS--6.5%
E I du Pont de Nemours & Co. ............ 66,100 4,618,737
FMC Corp. (New) (a)...................... 20,000 1,352,500
Hercules, Inc. .......................... 49,200 2,773,650
W R Grace & Co. ......................... 32,400 1,915,650
-------------
10,660,537
-------------
COMMUNICATION SERVICES--8.2%
Airtouch Communications (a).............. 44,500 1,257,125
AT&T Corp. .............................. 78,900 5,108,775
NYNEX Corp. ............................. 63,900 3,450,600
TeleCommunications, Inc. (New) Liberty
Media Group Series A (a)............... 21,225 570,422
TeleCommunications, Inc. (New) TCI Group
Series A (a)........................... 155,900 3,098,512
-------------
13,485,434
-------------
COMPUTERS & BUSINESS EQUIPMENT--3.0%
Digital Equipment Corp. (a).............. 45,000 2,885,625
Gateway 2000, Inc. (a)................... 80,400 1,969,800
-------------
4,855,425
-------------
DRUGS & HEALTH CARE--5.9%
American Home Products Corp. ............ 25,900 2,512,300
Astra AB (b)............................. 56,100 2,222,962
Columbia/HCA Healthcare Corp. ........... 60,225 3,056,419
Pharmacia & Upjohn, Inc. ................ 47,500 1,840,625
-------------
9,632,306
-------------
ENERGY--8.8%
Amoco Corp. ............................. 31,500 2,264,062
Kerr-McGee Corp. ........................ 40,000 2,540,000
Mobil Corp. ............................. 38,100 4,267,200
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
Noble Affiliates, Inc. .................. 64,900 $ 1,938,888
Royal Dutch Petroleum Co. (b)............ 23,500 3,316,437
-------------
14,326,587
-------------
ENTERTAINMENT--2.4%
Carnival Corp. Class A................... 81,800 1,993,875
ITT Corp. (New) (a)...................... 36,200 1,918,600
-------------
3,912,475
-------------
FINANCIAL SERVICES--2.8%
Travelers Group, Inc. ................... 74,000 4,652,750
-------------
FOOD PROCESSING--1.6%
Archer Daniels Midland Co. .............. 146,900 2,644,200
-------------
INDUSTRIAL & MACHINERY--3.3%
Allied Signal, Inc. ..................... 63,000 2,992,500
ITT Industries, Inc. (a)................. 36,200 868,800
Sundstrand Corp. ........................ 22,400 1,576,400
-------------
5,437,700
-------------
INSURANCE--4.8%
Allstate Corp. .......................... 52,099 2,142,571
Cigna Corp. ............................. 22,900 2,364,425
Exel Ltd. ............................... 27,500 1,677,500
ITT Hartford Group, Inc. (a)............. 36,200 1,751,175
-------------
7,935,671
-------------
LEISURE TIME--1.5%
Brunswick Corp. ......................... 100,300 2,407,200
-------------
OFFICE EQUIPMENT--1.4%
Xerox Corp. ............................. 17,300 2,370,100
-------------
PAPER PRODUCTS--5.3%
Champion International Corp. ............ 59,900 2,515,800
James River Corp. of Virginia............ 76,800 1,852,800
Kimberly-Clark Corp. .................... 52,806 4,369,697
-------------
8,738,297
-------------
RETAIL--6.9%
Gap, Inc. ............................... 49,700 2,087,400
Nordstrom, Inc. ......................... 52,400 2,122,200
Sears Roebuck & Co. ..................... 80,700 3,147,300
Toys "R" Us, Inc. (a).................... 67,700 1,472,475
Woolworth Corp. ......................... 195,700 2,544,100
-------------
11,373,475
-------------
SAVINGS & LOAN--1.0%
Great Western Financial Corp. ........... 64,600 1,647,300
-------------
TECHNOLOGY--7.6%
Advanced Micro Devices, Inc. ............ 89,300 1,473,450
General Instrument Corp. (a)............. 93,200 2,178,550
Intel Corp. ............................. 34,000 1,929,500
International Business Machines.......... 48,200 4,422,350
SGS-Thomson Microelectronics NV (a)...... 58,900 2,370,725
-------------
12,374,575
-------------
TOBACCO--4.6%
Philip Morris Companies, Inc. ........... 54,200 4,905,100
UST, Inc. ............................... 78,100 2,606,588
-------------
7,511,688
-------------
TRANSPORTATION--1.4%
Kansas City Southern Industries, Inc. ... 50,400 2,305,800
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
LAZARD EQUITY PORTFOLIO (CONTINUED)
UTILITIES--1.4%
National Power PLC (b)................... 142,500 $ 1,353,750
Southern Electric PLC (b)................ 35,500 1,007,313
-------------
2,361,063
-------------
TOTAL COMMON STOCKS
(Identified cost $130,480,451)............. 155,671,871
-------------
PREFERRED STOCKS--1.3%
(Identified cost $2,175,536)
FINANCIAL SERVICES--1.3%
Time Warner Financing Trust.............. 68,500 2,140,625
-------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT TERM INVESTMENT--3.5%
REPURCHASE AGREEMENT--3.5%
(Identified cost $5,694,000)
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S. Treasury
Bills, due 12/12/96; total par value
$6,100,000; valued at $5,810,823)...... $ 5,694,000 5,694,000
-------------
<CAPTION>
DESCRIPTION VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified cost $138,349,987) (c)......... 99.8% $ 163,506,496
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES................................ 0.2 280,492
---- ----------
NET ASSETS.................................. 100.0% $ 163,786,988
===== =============
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $138,349,987;
aggregate gross unrealized appreciation is $31,359,389 and the aggregate
gross unrealized depreciation is $6,202,880, resulting in net unrealized
appreciation of $25,156,509.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES
------------
<S> <C> <C>
LAZARD INTERNATIONAL EQUITY PORTFOLIO
COMMON STOCKS--92.7%
AUSTRALIA--1.9%
Westpac Bank Corp. ................... 5,488,300 24,312,671
--------------
DENMARK--1.1%
Unidanmark Class A.................... 294,900 14,605,583
--------------
FINLAND--1.6%
Kymmene Corp. ........................ 797,000 21,073,022
--------------
FRANCE--11.7%
Accor................................. 97,629 12,639,736
Alcatel Alsthom (Cie Gen El).......... 421,900 36,374,552
Banque Nationale de Paris............. 446,722 20,151,295
Cie De St Gobain...................... 193,600 21,111,374
Generale des Eaux..................... 216,692 21,633,800
Roussel Uclaf......................... 1,000 169,491
Roussel Uclaf 144A (b)................ 224,400 18,905,700
Total SA-B............................ 308,081 20,792,479
--------------
TOTAL FRANCE.......................... 151,778,427
--------------
GERMANY--8.0%
Hoechst AG............................ 107,250 29,083,479
Mannesmann AG......................... 25,520 8,124,771
Mannesmann AG (b)..................... 52,205 16,601,190
Siemens AG............................ 45,800 25,063,088
Veba AG............................... 580,880 24,660,573
--------------
TOTAL GERMANY......................... 103,533,101
--------------
<CAPTION>
NUMBER
OF SHARES
------------
<S> <C> <C>
HONG KONG--2.1%
HSBC Holdings Ltd. ................... 1,418,444 $ 21,462,392
Peregrine Investment.................. 4,806,000 6,215,325
--------------
TOTAL HONG KONG....................... 27,677,717
--------------
ITALY--1.4%
Fiat SPA.............................. 9,620,500 17,567,540
--------------
JAPAN--26.4%
Dai Nippon Printing................... 615,000 10,423,729
DDI Corp. ............................ 3,122 24,189,830
Hitachi............................... 1,927,000 19,409,976
Matsushita Electric Industrial Co. ... 1,486,000 24,178,983
Mazda Motor Corp. (a)................. 4,151,000 17,649,288
Mitsubishi Heavy Ind. ................ 4,131,000 32,927,971
Nintendo Co. ......................... 262,700 19,972,833
Omron Corp. .......................... 911,000 20,999,322
Orix Corp. ........................... 500,000 20,581,114
Promise Co. .......................... 203,600 9,800,407
Ricoh Company, Ltd. .................. 1,150,000 12,585,956
Rohm Company, Ltd. ................... 467,000 26,369,104
Sekisui Chemical...................... 1,661,000 24,452,494
Sony Corp. ........................... 411,000 24,640,097
Sumitomo Trust & Banking.............. 1,981,000 28,012,203
Toyota Motor Corp. ................... 1,269,000 26,916,320
--------------
TOTAL JAPAN........................... 343,109,627
--------------
NETHERLANDS--7.4%
Heineken NV........................... 156,400 27,747,916
ING Groep NV.......................... 427,220 28,539,904
Koninklijke Nedlloyd Groep NV......... 483,200 10,960,603
Royal Dutch Petroleum Co. (b)......... 202,600 28,591,925
--------------
TOTAL NETHERLANDS..................... 95,840,348
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
LAZARD INTERNATIONAL EQUITY PORTFOLIO (CONTINUED)
NEW ZEALAND--1.9%
Fletcher Challenge.................... 5,504,000 $ 12,702,092
Lion Nathan Ltd. ..................... 5,031,100 12,005,436
--------------
TOTAL NEW ZEALAND..................... 24,707,528
--------------
NORWAY--0.8%
Aker AS Class A....................... 401,700 5,327,166
Aker AS Class B....................... 467,600 5,684,343
--------------
TOTAL NORWAY.......................... 11,011,509
--------------
SPAIN--2.3%
Banco Santander SA.................... 225,100 11,301,393
ENDESA................................ 323,500 18,321,888
--------------
TOTAL SPAIN........................... 29,623,281
--------------
SWEDEN--3.9%
Astra AB Series B..................... 601,900 23,841,394
Electrolux AB Series B................ 324,300 13,309,600
Volvo AB Series B..................... 691,900 14,172,086
--------------
TOTAL SWEDEN.......................... 51,323,080
--------------
SWITZERLAND--7.1%
Baloise Holdings...................... 6,428 13,374,252
Ciba Geigy AG......................... 32,820 28,879,324
Nestle SA............................. 23,630 26,139,471
SGS Holding........................... 11,706 23,239,480
--------------
TOTAL SWITZERLAND..................... 91,632,527
--------------
UNITED KINGDOM--15.1%
Allied Domecq PLC..................... 1,425,500 11,600,590
British Aerospace Ord. PLC............ 2,114,187 26,129,779
Cadbury Schweppes PLC................. 3,493,230 28,834,474
Lloyds Abbey Life PLC................. 1,917,400 13,400,062
Midlands Electric PLC................. 1,441,300 17,011,772
Mirror Group PLC...................... 4,500,900 12,302,507
National Grid Group PLC (a)........... 1,166,011 3,603,606
National Power Ord. PLC............... 1,292,600 9,023,508
National Power P/P Ord. PLC........... 2,020,800 4,833,098
Rank Organisation PLC................. 3,441,200 24,904,476
Sears PLC............................. 11,817,700 19,087,448
Thorn EMI PLC......................... 1,107,100 26,074,191
--------------
TOTAL UNITED KINGDOM.................. 196,805,511
--------------
TOTAL COMMON STOCKS
(Identified cost $1,080,502,927) 1,204,601,472
--------------
PREFERRED STOCKS--2.1%
(Identified cost $24,881,403)
AUSTRALIA--2.1%
News Corporation, Ltd. (b)............ 1,409,000 27,123,250
--------------
WARRANTS--0.0%
(Identified cost $0)
UNITED KINGDOM--0.0%
British Aerospace PLC (a)............. 117,216 569,787
</TABLE>
--------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENT--5.4%
REPURCHASE AGREEMENT--5.4%
(Identified cost $70,037,000)
State Street Bank and Trust Co.,
5.70%, 1/2/96 (collateralized by
U.S. Treasury Bills, due 12/12/96;
total par value $74,995,000; valued
at $71,439,787)..................... $ 70,037,000 $ 70,037,000
--------------
TOTAL INVESTMENTS
(Identified cost $1,175,421,330) (c).... 100.2% 1,302,331,509
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS.................................. (0.2) (2,782,062)
---- ------------
NET ASSETS............................... 100.0% $1,299,549,447
===== ==============
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $1,175,447,648;
aggregate gross unrealized appreciation is $154,092,979 and the aggregate
gross unrealized depreciation is $27,209,118, resulting in net unrealized
appreciation of $126,883,861.
* Percentages of common and preferred stocks are presented in the portfolio by
country.
Percentages by industry are as follows:
Aerospace & Defense 2.0%, Automotive 5.9%, Banks 8.7%, Chemicals & Plastics
4.1%, Computer & Business Equipment 1.0%, Construction Materials 1.6%,
Domestic Oil 0.8%, Drugs & Health Care 5.5%, Electrical Equipment 11.0%,
Electronics 5.5%, Energy 2.2% , Entertainment 1.9%, Financial Services 4.2%,
Food & Beverage 8.7%, Insurance 2.1%, International Oil 1.6%, Machinery
3.2%, Miscellaneous 0.9%, Mortgage Backed Securities 1.3%, Paper Products
2.6%, Publishing 3.0%, Retailing 3.5%, Services 3.5%, Telephone 1.9%,
Transportation & Freight Services 0.8%, Utilities 7.3%.
Forward Foreign Currency Contracts open at December 31, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- --------------- ---------------- -------- --------------
<S> <C> <C> <C>
$ 3,971,727 GPB 2,555,480 1/5/96 $ (2,974)
NZD 230,101 $149,750 1/4/96 (682)
$ 7,327,986 JPY 750,385,723 1/4/96 (60,327)
$ 856,911 ESP 103,986,191 1/3/96 353
$ 1,861,380 ESP 226,995,238 1/2/96 9,974
--------
$(53,656)
========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO
CURRENCY DENOMINATED BONDS*--93.2%
AUSTRALIAN DOLLAR--1.0%
CORPORATE BOND
Bayerische Vereinsbank, 10.00%,
12/16/99........................ AUD 210,000 $ 166,403
GOVERNMENT OBLIGATION
Commonwealth of Australia, 9.50%,
8/15/03......................... 345,000 277,126
-----------
TOTAL AUSTRALIAN DOLLAR........... 443,529
-----------
AUSTRIAN SCHILLING--0.9%
GOVERNMENT OBLIGATION
Republic of Austria, 5.625%,
12/14/00........................ ATS 4,000,000 404,227
-----------
BELGIAN FRANC--1.4%
GOVERNMENT OBLIGATION
Belgium Kingdom, 6.50%,
3/31/05......................... BEL 19,000,000 637,078
-----------
BRAZILIAN REAL--0.4%
CORPORATE BOND
Chase Brazil Note, 27.152%, 3/1/96
(a)............................. BRL 198,729 195,410
-----------
BRITISH POUND--6.2%
CORPORATE BONDS
Barclays Bank PLC, 12.75%,
11/26/97........................ GBP 310,000 531,993
Bayerische Landesbank
Girozentrale, 8.50%, 2/26/03.... 275,000 446,517
Tokyo Electric Power, 11.00%,
6/5/01.......................... 100,000 179,667
West LB Finance Curacao NV, 8.50%,
6/2/03.......................... 820,000 1,319,717
GOVERNMENT OBLIGATION
United Kingdom Treasury, 8.50%,
7/16/07......................... 200,000 333,903
-----------
TOTAL BRITISH POUND............... 2,811,797
-----------
CANADIAN DOLLAR--3.1%
CORPORATE BOND
Quebec Housing, 8.95%,
5/13/13......................... CAD 419,000 332,985
GOVERNMENT OBLIGATIONS
Government of Canada, 7.50%,
12/1/03......................... 800,000 603,752
Government of Canada, 9.00%,
12/1/04......................... 600,000 494,983
-----------
TOTAL CANADIAN DOLLAR............. 1,431,720
-----------
CZECH KORUNA--3.8%
CORPORATE BONDS
CEZ AS, 14.375%, 1/27/01.......... CZK 10,000,000 401,260
Czech Trade Bank, 11.125%,
8/26/97......................... 5,000,000 188,630
Skofin, 11.625%, 2/9/98........... 30,000,000 1,137,966
-----------
TOTAL CZECH KORUNA................ 1,727,856
-----------
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
DANISH KRONE--5.3%
CORPORATE BONDS
Kreditforen Denmark, 10.20%,
4/15/04 (a)..................... DKK 5,000,000 $ 992,346
Nykredit, 6.00%, 10/1/26.......... 8,285,520 1,240,776
GOVERNMENT OBLIGATION
Kingdom of Denmark, 8.00%,
5/15/03......................... 1,000,000 191,463
-----------
TOTAL DANISH KRONE................ 2,424,585
-----------
DUTCH GUILDER--4.9%
GOVERNMENT OBLIGATIONS
Government of Netherlands, 6.75%,
2/15/99......................... NLG 1,590,000 1,053,262
Government of Netherlands, 8.75%,
1/15/07......................... 300,000 224,154
Government of Netherlands, 9.00%,
5/15/00......................... 1,300,000 936,742
-----------
TOTAL DUTCH GUILDER............... 2,214,158
-----------
FRENCH FRANC--6.4%
GOVERNMENT OBLIGATIONS
Government of France, 6.75%,
10/25/03........................ FRF 2,300,000 477,425
Government of France, 7.50%,
4/25/05......................... 4,700,000 1,017,070
Government of France, 7.75%,
4/12/00......................... 2,000,000 437,819
Government of France, 8.50%,
10/25/19........................ 2,850,000 657,356
United Mexican States, 6.63%,
12/31/19........................ 3,000,000 340,770
-----------
TOTAL FRENCH FRANC................ 2,930,440
-----------
GERMAN MARK--11.0%
CORPORATE BONDS
Autobahn Tank & Rast, 6.00%,
10/16/00........................ DEM 610,000 435,739
Baden Wurttemberg, 6.75%,
6/22/05......................... 1,574,000 1,133,894
Bank Nederlandse Gem, 6.50%,
11/4/08......................... 800,000 550,603
International Bank Reconstruction
& Development, 7.125%,
4/12/05......................... 1,700,000 1,259,150
Land Hessen, 6.00%,
11/29/13........................ 1,000,000 690,136
GOVERNMENT OBLIGATION
Federal Republic of Germany,
8.25%, 9/20/01.................. 1,210,000 962,517
-----------
TOTAL GERMAN MARK................. 5,032,039
-----------
GREEK DRACHMA--0.2%
GOVERNMENT OBLIGATION
Greek Treasury Bill, 0.00%,
7/17/96......................... GRD 25,000,000 97,748
-----------
HUNGARIAN FORINTS--0.2%
GOVERNMENT OBLIGATION
Hungarian Treasury Bill, 0.00%,
10/11/96........................ HUF 15,200,000 89,745
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO (CONTINUED)
IRISH POUND--2.7%
GOVERNMENT OBLIGATION
Republic of Ireland, 6.25%,
4/1/99.......................... IEP 770,000 $ 1,222,310
-----------
ITALIAN LIRA--8.9%
GOVERNMENT OBLIGATIONS
Republic of Italy, 8.50%,
8/1/99.......................... ITL 5,885,000,000 3,517,011
Republic of Italy, 12.00%,
5/1/97.......................... 400,000,000 256,907
Republic of Italy, 12.00%,
1/1/02.......................... 400,000,000 268,216
-----------
TOTAL ITALIAN LIRA................ 4,042,134
-----------
JAPANESE YEN--26.0%
CORPORATE BOND
Export-Import Bank of Japan,
4.375%, 10/1/03................. JPY 205,000,000 2,181,537
GOVERNMENT OBLIGATIONS
Credit Local De France, 6.00%,
10/31/01........................ 80,000,000 923,002
Government of Japan, 5.50%,
9/20/02......................... 475,000,000 5,391,768
Republic of Austria, 4.50%,
9/28/05......................... 80,000,000 863,923
Republic of Austria, 6.25%,
10/16/03........................ 15,000,000 179,600
Republic of Italy, 3.50%,
6/20/01......................... 230,000,000 2,337,591
-----------
TOTAL JAPANESE YEN................ 11,877,421
-----------
NORWEGIAN KRONE--2.2%
CORPORATE BOND
Sparebanken Norway, 10.25%,
6/23/03 (a)..................... NOK 6,000,000 1,022,560
-----------
PORTUGUESE ESCUDO--0.2%
GOVERNMENT OBLIGATION
Republic of Portugal, 11.875%,
2/23/00......................... PTE 13,000,000 93,525
-----------
SOUTH AFRICAN RAND--0.2%
GOVERNMENT OBLIGATION
Republic of South Africa, 11.50%,
5/30/00......................... ZAR 405,500 102,085
-----------
SPANISH PESETA--3.2%
GOVERNMENT OBLIGATION
Kingdom of Spain, 12.25%,
3/25/00......................... ESP 160,000,000 1,448,178
-----------
SWEDISH KRONA--1.1%
GOVERNMENT OBLIGATION
Kingdom of Sweden, 10.25%,
5/5/00.......................... SEK 3,000,000 484,969
-----------
THAILAND BAHT--0.3%
CORPORATE BOND
Industrial Group Finance of
Thailand, 11.25%, 5/14/96....... THB 3,000,000 119,177
-----------
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES DOLLAR--3.6%
CONVERTIBLE BOND
Zenith Electric, 6.25%, 4/1/11.... USD $ 225,000 $ 159,750
CORPORATE BOND
Reliance Industries Ltd. 144A,
8.125%, 9/27/05................. 250,000 251,250
GOVERNMENT OBLIGATION
Argentina Bono 1998 Boax0,
8.9922%, 4/4/98 (b)............. 500,000 494,500
YANKEE BONDS
Astra International, 9.75%,
4/29/01......................... 100,000 106,000
Den Norske Credit, 6.125%,
11/29/49 (a).................... 700,000 552,545
Hong Kong & Shanghai Bank, 6.25%,
8/29/49 (a)..................... 100,000 79,850
-----------
TOTAL UNITED STATES DOLLAR........ 1,643,895
-----------
TOTAL CURRENCY DENOMINATED BONDS*
(Identified cost $40,755,329)....... 42,496,586
-----------
STRUCTURED NOTES--1.1%
ING Polish Note, 0.00%,
2/21/96......................... 224,047 216,766
United Mexican States 144A, 0.00%,
11/27/96 (c).................... 300,000 305,250
-----------
TOTAL STRUCTURED NOTES
(Identified cost $500,017).......... 522,016
-----------
SHORT TERM INVESTMENT--8.5%
REPURCHASE AGREEMENT--8.5%
(Identified cost $3,866,000)
State Street Bank and Trust Co.,
5.70%, 1/2/96 (collateralized by
U.S. Treasury Bills, due
12/12/96; total par value
$4,140,000; valued at
$3,943,739)..................... 3,866,000 3,866,000
-----------
TOTAL INVESTMENTS
(Identified cost $45,121,346) (d)... 102.8% 46,884,602
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS........................ (2.8) (1,260,299)
---- ---------
NET ASSETS........................... 100.0% $45,624,303
===== ===========
</TABLE>
(a) Variable rate security. Interest shown is the current rate.
(b) Coupon set quarterly to 3 month LIBOR. Current rate shown.
(c) Value set monthly based on CETES/LIBOR rates.
(d) The aggregate cost for federal income tax purposes is $45,125,136; aggregate
gross unrealized appreciation is $1,948,773 and the aggregate gross
unrealized depreciation is $189,307, resulting in net unrealized
appreciation of $1,759,466.
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO (CONTINUED)
* Percentages of holdings are presented in the portfolio by currency
denomination.
Percentages by country are as follows:
Argentina 1.1%, Australia 1.0%, Austria 0.9%, Belgium 1.4%, Brazil 0.4%,
Canada 3.1%, Czech Republic 3.8%, Denmark 5.3%, France 6.4%, Germany 11.0%,
Greece 0.2%, Hong Kong 0.2%, Hungary 0.2%, Ireland 2.7%, Italy 8.9%, Japan
26.1%, Mexico 0.7%, Netherlands 4.9%, Norway 3.5%, Poland 0.5%, Portugal
0.2%, South Africa 0.2%, Spain 3.2%, Sweden 1.3%, Thailand 0.3%, United
Kingdom 6.2%, United States 0.6%.
Forward Foreign Currency Contracts open at December 31, 1995:
<TABLE>
<CAPTION>
In Unrealized
Contracts Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ------------------------------------- ---- ------------- -------------
<S> <C> <C> <C> <C> <C>
AUD 162,499 $121,000 3/12/96 $ 642
$ 486,000 CAD 660,814 3/12/96 (2,132)
$ 229,503 DEM 328,025 3/12/96 5
DEM 153,082 $106,526 3/12/96 (580)
$ 986,922 DKK 5,454,127 3/12/96 (2,887)
DKK 3,050,518 $549,000 3/12/96 (1,376)
$ 1,398,000 FRF 6,906,120 3/12/96 13,991
$ 451,000 JPY 45,330,010 3/12/96 (7,382)
JPY 27,531,450 $275,000 3/12/96 5,566
NOK 6,557,669 $1,038,000 3/12/96 1,839
$ 171,000 SEK 1,123,453 3/12/96 (2,760)
XEU 48,513 $62,240 3/12/96 134
$ 3,548,592 ITL 5,684,489,869 1/19/96 30,780
DKK 5,452,746 $983,948 1/2/96 1,914
-------
$ 37,754
============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
LAZARD BOND PORTFOLIO
ASSET-BACKED SECURITIES--17.7%
American Financial Home Equity Loan,
Series 1991-1, Class A, 8.00%,
7/25/06................................. $ 72,756 $ 74,484
AT & T Universal Card Master Trust, Series
1995-2, Class A, 5.95%,
10/17/02................................ 810,000 817,087
Banc One Credit Card Master Trust, Series
1995-B, Class A, 6.30%,
10/15/02................................ 400,000 409,500
Bridgestone Firestone, Series 1992-A,
Class A, 6.25%, 12/1/99................. 83,333 83,437
Chase Manhattan Grantor Trust, Series
1995-A, Class A, 5.90%,
11/15/01................................ 389,662 391,002
Chase Manhattan Grantor Trust, Series
1995-B, Class A, 6.00%, 9/17/01......... 641,571 644,578
Discover Card Master Trust I, Series
1995-2, Class A, 6.55%, 2/18/03......... 750,000 774,135
Fical Home Equity Loan Trust, Series
1990-1, Class A, 8.90%,
11/15/97................................ 1,057 1,056
First Chicago Master Trust II, Series
1992-E, Class A, 6.25%, 8/15/99......... 400,000 404,248
Ford Credit Grantor Trust, Series 1994-B,
Class A, 7.30%, 10/15/99................ 347,198 353,815
Ford Credit Grantor Trust, Series 1995-A,
Class A, 5.90%, 5/15/00................. 461,522 463,253
G E Home Equity Loan, Inc., Series 1991-1,
Class A, 7.20%, 9/15/11................. 49,714 50,195
Green Tree Financial Corp., Series 1994-3,
Class A, 6.60%, 6/15/19................. 299,343 301,307
Green Tree Financial Corp., Series 1994-6,
Class A2, 7.25%, 11/15/19............... 600,000 609,558
MBNA Master Credit Card Trust, Series
1995-D, Class A, 6.05%,
11/15/02................................ 773,000 784,595
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
Olympic Automobile Receivable Trust,
Series 1994-B, Class A2, 6.85%,
6/15/01................................. $ 273,922 $ 278,673
Premier Auto Trust, Series 1994-1, Class
A3, 5.90%, 7/6/99....................... 252,000 252,709
Premier Auto Trust, Series 1995-4, Class
A2, 4.75%, 2/2/00....................... 746,072 740,476
Security Pacific Home Equity Loan, Series
1991-1, Class A, 7.85%, 5/15/98......... 32,530 32,835
Standard Credit Card Master Trust I,
Series 1995-3, Class A, 7.85%, 2/7/02... 660,000 708,464
------------
TOTAL ASSET-BACKED SECURITIES
(Identified Cost $8,080,503)................ 8,175,407
------------
CORPORATE BONDS--12.7%
AUTOMOTIVE--1.6%
General Motors Acceptance Corp., 5.625%,
2/1/99.................................. 750,000 746,445
------------
AUTO PARTS--0.7%
Walbro Corp. 144A, 9.875%, 7/15/05........ 335,000 334,163
------------
BROADCASTING--2.7%
Act III Broadcasting Inc., 10.25%,
12/15/05................................ 170,000 174,250
Comcast Corp., 9.50%, 1/15/08............. 184,000 195,040
Comcast Corp., 9.125%, 10/15/06........... 367,000 382,598
Paxson Communications Corp. 144A, 11.625%,
10/1/02................................. 160,000 162,400
SCI Television Inc., 11.00%, 6/30/05...... 294,000 310,905
------------
1,225,193
------------
CHEMICALS & PLASTICS--0.6%
Arcadian Partners LP, Series B, 10.75%,
5/1/05.................................. 263,000 290,615
------------
ELECTRONICS--0.8%
Alpine Group Inc. 144A, 12.25%,
7/15/03................................. 368,000 360,640
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
LAZARD BOND PORTFOLIO (CONTINUED)
FINANCIAL SERVICES--1.7%
Avco Financial Services Inc., 6.35%,
9/15/00................................. $ 128,000 $ 130,479
Bank of Boston Corp., 6.625%, 2/1/04...... 104,000 105,618
Citicorp, 8.00%, 2/1/03................... 126,000 139,258
Norwest Corporation Medium Term Note,
6.125%, 10/15/00........................ 149,000 151,235
Salomon Inc., 8.55%, 2/17/97.............. 265,000 271,919
------------
798,509
------------
FOREST PRODUCTS--0.5%
Williamhouse Regency Delaware Inc. 144A,
13.00%, 11/15/05........................ 238,000 249,900
------------
MANUFACTURING--1.0%
Silgan Corp., 11.75%, 6/15/02............. 434,000 465,465
------------
PAPER PRODUCTS--0.4%
Crown Paper Co., 11.00%, 9/1/05........... 215,000 188,125
------------
RESTAURANTS, LODGING & ENTERTAINMENT--0.7%
Flagstar Corp., 10.75%, 9/15/01........... 335,000 306,525
------------
RETAIL GROCERY--0.2%
Pueblo Xtra International, 9.50%,
8/1/03.................................. 73,000 69,715
------------
RETAIL--0.9%
D.R. Structured Finance Corp., Series
1994-K2, Class A2, 9.35%,
8/15/19................................. 600,000 396,000
------------
RETAIL TRADE--0.7%
Mothers Work Inc. 144A, 12.625%,
8/1/05.................................. 328,000 323,080
------------
UTILITIES--0.2%
Texas New Mexico Power Co., 9.25%,
9/15/00................................. 80,000 82,800
------------
TOTAL CORPORATE BONDS
(Identified cost $5,980,173)................ 5,837,175
------------
FEDERAL AGENCIES--5.2%
Federal Home Loan Mortgage Corp., 8.50%,
1/1/99.................................. 362,000 377,272
Federal Home Loan Mortgage Corp., 7.00%,
1/1/99.................................. 367,000 369,408
Federal Home Loan Mortgage Corp., 7.00%,
9/1/25.................................. 619,485 625,098
Federal Home Loan Mortgage Corp., 7.00%,
8/1/25.................................. 1,012,108 1,021,277
------------
TOTAL FEDERAL AGENCIES
(Identified cost $2,342,473)................ 2,393,055
------------
MUNICIPAL BOND--0.9%
(Identified cost $379,772)
Allegheny County Pennsylvania Hospital
Development, 5.375%, 12/1/25............ 400,000 393,256
------------
MORTGAGE PASS-THROUGH SECURITIES--13.4%
Federal National Mortgage Association,
9.00%, 1/1/99........................... 55,000 57,956
Federal National Mortgage Association,
9.00%, 10/1/25.......................... 173,675 182,901
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C>
Federal National Mortgage Association,
7.50%, 1/1/99........................... $ 303,000 $ 310,480
Federal National Mortgage Association,
9.00%, 7/1/25........................... 310,369 326,856
Federal National Mortgage Association,
8.00%, 10/1/25.......................... 391,577 405,525
Federal National Mortgage Association,
8.00%, 1/1/99........................... 414,000 429,008
Federal National Mortgage Association,
7.50%, 10/1/25.......................... 489,712 501,798
Federal National Mortgage Association,
7.50%, 9/1/25........................... 852,458 873,496
Federal National Mortgage Association,
8.00%, 9/1/25........................... 1,444,880 1,496,346
Government National Mortgage Association,
9.00%, 9/15/25.......................... 127,130 134,678
Government National Mortgage Association,
6.00%, 1/20/99.......................... 275,000 277,922
Government National Mortgage Association,
6.00%, 10/20/25 (a)..................... 1,154,060 1,165,600
------------
TOTAL MORTGAGE PASS-THROUGH SECURITIES
(Identified cost $6,068,445)................ 6,162,566
------------
U.S. GOVERNMENT OBLIGATIONS--43.2%
United States Treasury Bond Strip, 0.00%,
11/15/21................................ 1,270,000 258,788
United States Treasury Notes, 7.50%,
11/15/01................................ 491,000 540,792
United States Treasury Notes, 8.875%,
2/15/99................................. 720,000 793,800
United States Treasury Notes, 5.75%,
10/31/00................................ 1,115,000 1,131,023
United States Treasury Notes, 7.375%,
11/15/97................................ 1,580,000 1,639,740
United States Treasury Notes, 7.875%,
11/15/04................................ 3,044,000 3,523,430
United States Treasury Notes, 7.75%,
12/31/99................................ 3,436,000 3,728,610
United States Treasury Notes, 5.125%,
4/30/98................................. 6,500,000 6,486,805
United States Treasury Strips, 0.00%,
8/15/02................................. 1,000,000 699,840
United States Treasury Strips, 0.00%,
5/15/05................................. 1,898,000 1,116,992
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified cost $19,686,260)............... 19,919,820
------------
SHORT TERM INVESTMENTS--5.4%
REPURCHASE AGREEMENT--3.9%
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S. Treasury
Bills, due 12/12/96; total par value
$1,935,000; valued at $1,843,269)....... 1,806,000 1,806,000
------------
FEDERAL AGENCIES--0.7%
Federal National Mortgage Association
Discount Notes, 5.45%, 1/16/96.......... 130,000 129,705
Federal National Mortgage Association
Discount Notes, 5.45%, 1/3/96........... 185,000 184,944
------------
314,649
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
LAZARD BOND PORTFOLIO (CONTINUED)
U.S. GOVERNMENT OBLIGATION--0.8%
United States Treasury Bills, 4.65%,
1/11/96................................. $ 385,000 $ 384,503
------------
TOTAL SHORT TERM INVESTMENTS
(Identified cost $2,505,151)................ 2,505,152
------------
TOTAL INVESTMENTS
(Identified cost $45,042,777) (b)........... 98.5% 45,386,431
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES................................. 1.5 $ 696,972
---- ---------
NET ASSETS................................... 100.0% $ 46,083,403
===== ==========
</TABLE>
(a) Variable rate security. Interest shown is the current rate.
(b) The aggregate cost for federal income tax purposes is $45,042,777; aggregate
gross unrealized appreciation is $574,652 and the aggregate gross unrealized
depreciation is $230,998, resulting in net unrealized appreciation of
$343,654.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
LAZARD STRATEGIC YIELD PORTFOLIO
CURRENCY DENOMINATED BONDS*--89.3%
ARGENTINA PESO--1.2%
GOVERNMENT OBLIGATION
Bocon Pre 1 Pesos 2197, 0.00%,
4/1/01......................... ARP 1,100,000 $ 956,809
-----------
AUSTRALIAN DOLLAR--2.9%
GOVERNMENT OBLIGATIONS
Commonwealth of Australia, 8.75%,
1/15/01........................ AUD 1,218,000 941,130
Commonwealth of Australia,
13.00%, 7/15/00................ 1,469,000 1,310,930
-----------
TOTAL AUSTRALIAN DOLLAR.......... 2,252,060
-----------
BRAZILIAN REAL--1.2%
CORPORATE BOND
Chase Brazil Note, 27.152%,
3/1/96 (a)..................... BRL 973,037 956,787
-----------
BRITISH POUND--0.8%
GOVERNMENT OBLIGATIONS
United Kingdom Treasury, 2.50%,
7/17/24........................ GBP 350,000 657,201
-----------
CANADIAN DOLLAR--4.9%
CONVERTIBLE BOND
Canada Trustco, 7.00%, 7/1/09.... CAD 2,000,000 1,340,169
GOVERNMENT OBLIGATIONS
Canada Government, 7.50%,
12/1/03........................ CAD 2,930,000 2,211,243
Quebec Housing, 8.95%, 5/13/13... 394,000 313,117
-----------
TOTAL CANADIAN DOLLAR............ 3,864,529
-----------
CZECH KORUNA--3.9%
CORPORATE BONDS
CEZ AS, 14.375%, 1/27/01......... CZK 20,370,000 817,366
Czech Trade Bank, 11.125%,
8/26/97........................ 20,000,000 754,519
Skofin, 11.625%, 2/9/98.......... 40,000,000 1,517,288
-----------
TOTAL CZECH KORUNA............... 3,089,173
-----------
DANISH KRONE--3.6%
CORPORATE BONDS
Kreditforen Denmark, 10.20%,
4/15/04........................ DKK 9,000,000 1,786,223
Nykredit, 6.00%, 10/1/26......... 7,089,480 1,061,666
-----------
TOTAL DANISH KRONE............... 2,847,889
-----------
GERMAN MARK--1.0%
CORPORATE BOND
Autobahn Tank & Rast, 6.00%,
10/16/00....................... DEM 1,050,000 750,042
-----------
GREEK DRACHMA--0.6%
GOVERNMENT OBLIGATION
Greek Treasury Bill, 0.00%,
7/17/96........................ GRD 130,000,000 508,288
-----------
HUNGARIAN FORINTS--0.6%
GOVERNMENT OBLIGATION
Hungarian Treasury Bill, 0.00%,
10/11/96....................... HUF 75,900,000 448,134
-----------
INDONESIAN RUPIAH--1.1%
CORPORATE BONDS
Bakrie & Brothers, 0.00%,
4/15/96........................ IDR 1,000,000,000 413,345
Indah Kiat, 0.00%, 3/21/96....... 1,000,000,000 422,086
-----------
TOTAL INDONESIAN RUPIAH.......... 835,431
-----------
IRISH POUND--3.0%
GOVERNMENT OBLIGATION
Republic of Ireland, 6.25%,
4/1/99......................... IEP 1,505,000 2,389,061
-----------
ITALIAN LIRA--2.0%
GOVERNMENT OBLIGATION
Republic of Italy, 8.50%,
8/1/99......................... ITL 2,575,000,000 1,538,879
-----------
MEXICAN PESO--0.2%
CORPORATE BOND
Ajustobonos, 0.00%, 2/15/96...... MXP 555,000 163,398
-----------
NEW ZEALAND DOLLAR--0.9%
GOVERNMENT OBLIGATION
Government of New Zealand,
10.00%, 7/15/97................ NZD 1,065,000 715,375
-----------
NORWEGIAN KRONE--2.2%
CORPORATE BOND
Sparebanken Norway, 10.25%,
6/23/03 (a).................... NOK 10,000,000 1,704,267
-----------
PORTUGUESE ESCUDO--0.6%
GOVERNMENT OBLIGATION
Republic of Portugal, 11.875%,
2/23/00........................ PTE 61,500,000 442,447
-----------
SOUTH AFRICAN RAND--0.7%
GOVERNMENT OBLIGATION
Republic of South Africa, 11.50%,
5/30/00........................ ZAR 2,032,200 511,608
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- ------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED)
<S> <C> <C> <C>
SPANISH PESETA--1.6%
GOVERNMENT OBLIGATION
Kingdom of Spain, 12.25%,
3/25/00........................ ESP 140,000,000 $ 1,267,156
-----------
THAILAND BAHT--1.6%
CORPORATE BONDS
Industrial Group Finance of
Thailand, 11.25%, 5/14/96...... THB 3,000,000 119,177
Krung Thai Than BE, 0.00%,
1/12/96........................ 10,000,000 395,671
Phatra Thanakit BE, 0.00%,
6/20/96 (a).................... 20,000,000 755,592
-----------
TOTAL THAILAND BAHT.............. 1,270,440
-----------
UNITED STATES DOLLAR--54.7%
CONVERTIBLE BONDS
Burns Philp, 5.50%, 4/30/04...... USD $ 800,000 692,000
Dairy Farm International Holdings
Ltd., 0.00%, 5/10/49........... 250,000 197,500
Zenith Electric, 6.25%, 4/1/11... 535,000 379,850
CORPORATE BONDS
Act III Broadcasting Inc.,
10.25%, 12/15/05............... 400,000 410,000
Alpine Group Inc. 144A, 12.25%,
7/15/03........................ 718,000 703,640
Arcadian Partners Series B,
10.75%, 5/1/05................. 798,000 881,790
Astra International, 9.75%,
4/29/01........................ 1,540,000 1,632,400
Ce Casecnan Water & Energy Inc.
Series B 144A, 11.95%,
11/15/10....................... 750,000 757,500
Comcast Corp., 9.125%,
10/15/06....................... 320,000 333,600
Comcast Corp., 9.50%,
1/15/08........................ 479,000 507,740
Crown Paper Co., 11.00%,
9/1/05......................... 390,000 341,250
Den Norske Credit, 6.125%,
11/29/49 (a)................... 800,000 631,480
Eletson Holdings Inc., 9.25%,
11/15/03....................... 700,000 693,000
Export-Import Bank of Japan,
8.00%, 6/4/00.................. 444,125 448,886
Flagstar Corp., 10.75%,
9/15/01........................ 800,000 732,000
Forenings Banken 144A, 7.234%,
11/29/49 (a)................... 750,000 745,500
Fort Howard Corp., 8.25%,
2/1/02......................... 785,000 765,375
Fundy Cable Ltd., 11.00%,
11/15/05....................... 535,000 556,400
Hong Kong & Shanghai Bank, 6.25%,
8/29/49 (a).................... 1,200,000 958,200
Lennar Central Partners Ltd.
Participating Class D 144A,
9.89%, 9/15/04................. 370,000 370,000
Mothers Work Inc. 144A, 12.625%,
8/1/05......................... 739,000 727,915
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Noble Drilling Corp., 9.25%,
10/1/03........................ $ 820,000 $ 861,000
NorthWest Airlines Inc., 8.625%,
8/1/96......................... 420,000 421,050
Paxson Communications Corp. 144A,
11.625%, 10/1/02............... 425,000 432,969
Pueblo Xtra International, 9.50%,
8/1/03......................... 96,000 91,680
Reliance Industries, Ltd. 144A,
8.125%, 9/27/05................ 1,500,000 1,507,500
Rowan Companies, Inc., 11.875%,
12/1/01........................ 820,000 889,700
Silgan Corp., 11.75%, 6/15/02.... 767,000 822,607
Sparbankernas Bank, 7.719%,
10/20/49 (a)................... 900,000 914,985
Walbro Corp. 144A, 9.875%,
7/15/05........................ 850,000 847,875
Williamhouse Regency Delaware
Inc. 144A, 13.00%,
11/15/05....................... 575,000 603,750
FEDERAL AGENCIES
Federal Home Loan Mortgage Corp.,
6.946%, 2/1/24 (a)............. 1,646,326 1,681,825
Federal Home Loan Mortgage Corp.,
8.00%, 5/1/25.................. 2,116,850 2,193,585
Federal National Mortgage
Association, 7.503%, 11/1/27
(a)............................ 1,635,385 1,667,582
Government National Mortgage
Association, 6.00%, 10/20/25
(a)............................ 1,756,821 1,774,389
Government National Mortgage
Association, 6.00%, 11/20/25
(a)............................ 2,176,013 2,198,453
FOREIGN GOVERNMENT OBLIGATIONS
Argentina Bono 1998 Boax 0,
8.992%, 4/4/98 (b)............. 350,000 346,150
Argentina Bote X, 5.688%, 4/1/00
(b)............................ 600,000 358,800
Argentina Pensioner Bocon, 0.00%,
4/1/01 (c)..................... 200,000 194,750
Banco Central de Costa Rica
Series A, 6.727%,
5/21/05 (a).................... 240,032 196,827
Federal Republic of Brazil,
6.6875%, 1/1/01 (a)............ 855,000 734,231
Government of Poland, 6.875%,
10/27/24 (a)................... 2,200,000 1,661,000
Kingdom of Jordan, 4.00%,
12/23/23....................... 1,750,000 848,750
Republic of Brazil Federative,
6.8125%, 4/15/06 (a)........... 1,900,000 1,301,500
Republic of South Africa, 9.625%,
12/15/99....................... 750,000 811,875
MUNICIPAL BOND
Allegheny County Pennsylvania
Hospital Development, 5.375%,
12/1/25........................ 810,000 796,343
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- -------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED)
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
United States Treasury Notes,
5.625%, 8/31/97................ $ 1,435,000 $ 1,444,198
United States Treasury Notes,
6.875%, 10/31/96............... 100,000 101,281
YANKEE BOND
Bridas Corp., 12.50%, 11/15/99... 800,000 794,000
COLLATERALIZED MORTGAGE OBLIGATIONS
Asset Securitization Corp. Series
1995-MD4, Class ACS2, 2.433%,
8/13/29 (a).................... 3,880,000 759,631
Federal Home Loan Mortgage PC
Guaranteed, Series 1490, Class
E, 6.50%, 4/15/08.............. 3,575,000 750,750
Federal Home Loan Mortgage PC
Guaranteed, Series 1694, Class
V, 6.50%, 12/15/21............. 4,750,000 699,141
Federal Home Loan Mortgage PC,
Series 1587, Class HA, 6.50%,
10/15/08....................... 5,518,488 735,511
-----------
TOTAL UNITED STATES DOLLAR....... 42,909,714
-----------
TOTAL CURRENCY DENOMINATED BONDS*
(Identified cost $68,865,827)...... 70,078,688
-----------
STRUCTURED NOTES--4.5%
ING Polish Note, 0.00%, 2/21/96.. 335,665 324,756
J P Morgan Polish Note, 0.00%,
1/24/96........................ 724,280 701,031
Morgan Stanley Group Inc.,
14.25%, 6/26/96 (a)............ 500,000 419,500
YPF Sociedad Anonima, 7.50%,
10/26/02....................... 736,325 743,688
United Mexican States 144A,
0.00%, 11/27/96 (d)............ 1,300,000 1,322,750
-----------
TOTAL STRUCTURED NOTES
(Identified cost $3,517,303)....... 3,511,725
-----------
SHORT TERM INVESTMENT--4.5%
REPURCHASE AGREEMENT--4.5%
(Identified cost $3,520,000)
State Street Bank and Trust Co.,
5.70%, 1/2/96 (collateralized
by U.S. Treasury Bills, due
12/12/96; total par value
$3,770,000; valued at
$3,591,279).................... 3,520,000 3,520,000
-----------
TOTAL INVESTMENTS
(Identified cost $75,903,130)
(e).............................. 98.3% 77,110,413
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES........................ 1.7 1,363,511
---- ---------
NET ASSETS.......................... 100.0% $78,473,924
===== ==========
</TABLE>
(a) Variable rate security. Interest shown is the current rate.
(b) Coupon set quarterly to 3 month LIBOR. Current rate shown.
(c) Zero coupon until 5/1/97, then coupon set monthly to 30 day LIBOR.
(d) Value set monthly based on CETES/LIBOR rates.
(e) The aggregate cost for federal income tax purposes is $76,140,116; aggregate
gross unrealized appreciation is $1,517,650 and the aggregate gross
unrealized depreciation is $547,353, resulting in net unrealized
appreciation of $970,297.
* Percentages of holdings are presented in the portfolio by currency
denomination.
Percentages by country are as follows:
Argentina 3.3%, Australia 2.9%, Brazil 3.8%, Canada 4.9%, Costa Rica 0.3%,
Czech Republic 3.9%, Denmark 3.6%, Germany 1.0%, Greece 0.6%, Hong Kong 1.2%,
Hungary 0.6%, Indonesia 1.1%, Ireland 3.0%, Italy 2.0%, Japan 0.6%, Jordan
1.1%, Mexico 1.9%, New Zealand 0.9%, Norway 5.1%, Philippines 1.0%, Poland
3.4%, Portugal 0.6%, South Africa 1.7%, Spain 1.6%, Sweden 2.1%, Thailand
1.6%, United Kingdom 0.8%, United States 39.2%.
Percentages by industry are as follows:
Auto Parts 3.2%, Banking 6.6%, Broadcasting 1.1%, Building & Building
Materials 1.0%, Cable Systems 1.1%, Chemicals & Chemical Manufacturing 3.0%,
Electronics 1.4%, Food & Beverages 0.3%, Holdings Company 0.9%, Oil & Gas
Equipment 2.2%, Packaging 1.0%, Paper Manufacturing & Products 2.7%,
Restaurants 0.9%, Retail 1.0%, Shipbuilding 0.9%, Telecommunications 0.7%,
Transportation & Freight Services 0.5%, Utilities 2.0%, Collateralized
Mortgage Obligation 3.8%, U.S. Government Obligations 16.9%, Foreign
Government Obligations 37.8%, Municipal Bonds 1.0%, Structured Notes 2.8%,
Yankee Bonds 1.0%.
Forward Foreign Currency Contracts open at December 31, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ------------------- ------------------- -------- --------------
<S> <C> <C> <C>
$ 2,319,053 JPY 222,420,361 9/3/96 $(92,983)
JPY 222,420,361 $2,364,916 9/3/96 138,846
$ 755,892 THB 19,033,360 4/5/96 (300)
AUD 2,897,236 $2,155,000 3/12/96 9,100
CAD 4,790,223 $3,523,000 3/12/96 15,455
$ 282,658 DEM 403,700 3/12/96 (203)
DEM 6,008,452 $4,199,968 3/12/96 (3,940)
$ 1,113,480 DKK 6,153,537 3/12/96 (3,257)
DKK 21,775,923 $3,919,000 3/12/96 (9,819)
ESP 147,262,500 $1,190,000 3/12/96 (15,194)
GBP 447,225 $685,000 3/12/96 (8,321)
IEP 1,455,175 $2,313,000 3/12/96 (17,341)
ITL 2,461,074,000 $1,522,000 3/12/96 (13,064)
$ 95,000 JPY 9,567,450 3/12/96 (1,369)
JPY 32,520,300 $325,000 3/12/96 6,743
NOK 10,417,722 $1,649,000 3/12/96 2,922
$ 56,983 XEU 44,624 3/12/96 144
XEU 669,831 $860,792 3/12/96 3,285
$ 1,552,698 ITL 2,487,266,171 1/19/96 13,468
$ 247,918 ZAR 911,967 1/4/96 2,244
DKK 6,152,360 $1,110,194 1/2/96 2,159
--------
$ 28,575
========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
LAZARD SMALL CAP PORTFOLIO
COMMON STOCKS--91.4%
AUTO PARTS--5.3%
A.O. Smith Class B...................... 300,000 $ 6,225,000
Carlisle Companies, Inc. ............... 133,000 5,369,875
Durakon Industries, Inc. (a)............ 430,000 5,375,000
Lear Seating Corp. (a).................. 224,800 6,519,200
Masland Corp. .......................... 528,000 7,392,000
Standard Motor Products, Inc. Class A... 215,000 3,225,000
-------------
34,106,075
-------------
BANKS--4.7%
Albank Financial Corp. ................. 169,000 5,070,000
Baybanks, Inc. ......................... 59,600 5,855,700
Cullen Frost Bankers, Inc. ............. 136,000 6,800,000
Hibernia Corp. Class A.................. 580,000 6,235,000
Signet Banking Corp. ................... 274,600 6,521,750
-------------
30,482,450
-------------
BROADCASTING--2.2%
Cablevision Systems Corp. Class A (a)... 84,600 4,589,550
Evergreen Media Corp. Class A (a)....... 100,000 3,200,000
Katz Media Group, Inc. (a).............. 348,200 6,137,025
-------------
13,926,575
-------------
BUILDING & CONSTRUCTION--1.7%
Centex Construction Products, Inc.
(a)................................... 288,400 4,145,750
Redman Industries, Inc. (New) (a)....... 200,000 6,750,000
-------------
10,895,750
-------------
CHEMICALS & PLASTICS--3.6%
Crompton & Knowles Corp. ............... 563,700 7,469,025
Fuller H B Co. ......................... 237,400 8,249,650
Mississippi Chemical Corp. ............. 319,000 7,416,750
-------------
23,135,425
-------------
COMMUNICATIONS--3.0%
Associated Group, Inc. Class A (a)...... 56,650 1,069,269
Associated Group, Inc. Class B (a)...... 256,650 4,876,350
Cellular Communications of Puerto Rico,
Inc. (a).............................. 230,058 6,384,109
International CableTel, Inc. (a)........ 296,000 7,252,000
-------------
19,581,728
-------------
COMPUTERS & BUSINESS EQUIPMENT--1.7%
Wang Labs, Inc. (a)..................... 643,100 10,691,538
-------------
COMPUTER SOFTWARE--0.9%
Ameridata Technologies, Inc. (a)........ 610,000 5,871,250
-------------
COSMETICS & TOILETRIES--2.9%
Alberto Culver Co. Class A.............. 276,900 8,445,450
Maybelline, Inc. ....................... 291,800 10,577,750
-------------
19,023,200
-------------
DRUGS & HEALTH CARE--1.7%
FHP International Corp. (a)............. 132,500 3,776,250
Perrigo Co. (a)......................... 618,000 7,338,750
-------------
11,115,000
-------------
ELECTRICAL EQUIPMENT--2.4%
Belden, Inc. ........................... 252,900 6,512,175
UCAR International, Inc. (a)............ 275,000 9,281,250
-------------
15,793,425
-------------
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS--4.1%
Amphenol Corp. Class A (a).............. 416,800 $ 10,107,400
Lexmark International Group, Inc. Class
A (a)................................. 413,600 7,548,200
Oak Industries, Inc. (a)................ 455,900 8,548,125
-------------
26,203,725
-------------
ENERGY--0.2%
California Energy Company, Inc. (a)..... 81,700 1,593,150
-------------
FINANCIAL SERVICES--1.2%
Rollins Truck Leasing Corp. ............ 685,800 7,629,525
-------------
HOUSEHOLD APPLIANCES & HOME
FURNISHINGS--3.9%
Ethan Allen Interiors, Inc. (a)......... 298,000 6,071,750
Heilig Meyers Co. ...................... 277,900 5,106,413
Miller (Herman), Inc. .................. 276,700 8,301,000
Sunbeam Corp. Delaware (New)............ 364,100 5,552,525
-------------
25,031,688
-------------
INDUSTRIAL & MACHINERY--2.3%
Mark IV Industries, Inc. ............... 431,729 8,526,648
Trinova Corp. .......................... 211,400 6,051,325
-------------
14,577,973
-------------
INSURANCE--6.4%
Alexander & Alexander Services, Inc. ... 167,900 3,190,100
American Bankers Insurance Group,
Inc. ................................. 208,600 8,135,400
Gryphon Holdings, Inc. (a).............. 150,000 2,887,500
NAC Re Corp. ........................... 240,000 8,640,000
Prudential Reinsurance Holdings,
Inc. ................................. 310,900 7,267,287
Reliance Group Holdings, Inc. .......... 276,100 2,381,363
Western National Corp. ................. 550,000 8,868,750
-------------
41,370,400
-------------
LEISURE TIME--2.1%
Players International, Inc. (a)......... 570,000 6,091,875
Polaris Industries, Inc. ............... 260,000 7,637,500
-------------
13,729,375
-------------
MACHINERY--4.5%
Briggs & Stratton Corp. ................ 289,300 12,548,387
Manitowoc, Inc. ........................ 313,000 9,585,625
Measurex Corp. ......................... 248,700 7,025,775
-------------
29,159,787
-------------
MANUFACTURING--4.0%
Alltrista Corp. (a)..................... 311,400 5,605,200
Crane Co. .............................. 271,400 10,007,875
Pentair, Inc. .......................... 139,500 6,940,125
Varlen Corp. ........................... 157,700 3,390,550
-------------
25,943,750
-------------
MEDICAL SUPPLIES--1.5%
Dentsply International, Inc. ........... 240,000 9,600,000
-------------
OIL & GAS--3.4%
Diamond Shamrock, Inc. ................. 200,000 5,175,000
Helmerich & Payne, Inc. ................ 306,500 9,118,375
Vintage Petroleum, Inc. ................ 332,000 7,470,000
-------------
21,763,375
-------------
PAPER PRODUCTS--0.9%
Bowater, Inc. .......................... 155,000 5,502,500
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
LAZARD SMALL CAP PORTFOLIO (CONTINUED)
PUBLISHING--2.4%
Banta Corp. ............................ 211,100 $ 9,288,400
Houghton Mifflin Co. ................... 144,000 6,192,000
-------------
15,480,400
-------------
REAL ESTATE--4.8%
Avalon Properties, Inc. ................ 238,600 5,129,900
Bay Apartment Communities, Inc. ........ 175,000 4,243,750
Crescent Real Estate Equities, Inc. .... 193,900 6,616,837
FelCor Suite Hotels, Inc. .............. 330,000 9,157,500
Liberty Property Trust.................. 271,500 5,633,625
-------------
30,781,612
-------------
RESTAURANTS, LODGING & ENTERTAINMENT--2.2%
IHOP Corp. (New) (a).................... 297,500 7,735,000
Sbarro, Inc. ........................... 301,300 6,477,950
-------------
14,212,950
-------------
RETAIL--8.4%
Alexander's, Inc. (a)................... 80,000 5,560,000
Carson Pirie Scott & Co. (a)............ 431,200 8,570,100
Fred Meyer, Inc. (a).................... 119,300 2,684,250
Good Guys, Inc. (a)..................... 175,800 1,582,200
Home Shopping Network, Inc. (a)......... 648,900 5,840,100
Intelligent Electronics, Inc. .......... 855,600 5,133,600
Jones Apparel Group, Inc. (a)........... 232,600 9,158,625
Revco D.S., Inc. (a).................... 217,062 6,132,001
Sothebys Holdings, Inc. ................ 693,200 9,878,100
-------------
54,538,976
-------------
SERVICES--3.0%
Gtech Holdings Corp. (a)................ 321,700 8,364,200
The Pittston Services Group............. 356,400 11,182,050
-------------
19,546,250
-------------
STEEL--2.0%
Huntco, Inc. Class A.................... 301,300 4,632,488
Lukens, Inc. ........................... 298,800 8,590,500
-------------
13,222,988
-------------
TECHNOLOGY--0.0%
Verbex Voice Systems, Inc. (a),(b)...... 180,501 180,501
-------------
TELECOMMUNICATION--0.5%
CAI Wireless Systems, Inc. (a).......... 330,000 3,176,250
-------------
TELECOMMUNICATION EQUIPMENT--1.3%
Scientific Atlanta, Inc. ............... 575,000 8,625,000
-------------
TEXTILES, SHOES & APPAREL--2.2%
Authentic Fitness Corp. ................ 275,000 5,706,250
Warnaco Group, Inc. Class A............. 265,000 6,625,000
Westpoint Stevens, Inc. Class A (a)..... 90,300 1,811,644
-------------
14,142,894
-------------
TOTAL COMMON STOCKS
(Identified cost $511,858,156)............ 590,635,485
-------------
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS--0.1%
(Identified cost $1,500,000)
TECHNOLOGY--0.1%
Verbex Voice Systems, Inc. Series F
(conv.) (a),(b)....................... 687,285 $ 500,343
-------------
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
CONVERTIBLE BONDS--0.3%
COMMUNICATIONS--0.2%
International CableTel, Inc. 144A,
7.25%, 4/15/05........................ $ 1,400,000 1,498,000
-------------
RESTAURANTS, LODGING & ENTERTAINMENT--0.1%
Interactive Light Holdings, Inc., 8.00%,
1/25/99 (b)........................... 1,000,000 500,000
-------------
TECHNOLOGY--0.0%
Verbex Voice Systems, Inc., 10.00%,
12/31/95 (b).......................... 100,000 100,000
-------------
TOTAL CONVERTIBLE BONDS
(Identified cost $2,500,000).............. 2,098,000
-------------
SHORT TERM INVESTMENT--7.4%
REPURCHASE AGREEMENT--7.4%
(Identified cost $47,748,000)
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S.
Treasury Notes, 5.75%, due 9/30/97;
total par value $47,615,000; valued at
$48,704,574).......................... 47,748,000 47,748,000
-------------
TOTAL INVESTMENTS
(Identified cost $563,606,156) (c)........ 99.2% 640,981,828
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES............................... 0.8 5,389,176
---- ----------
NET ASSETS................................. 100.0% $ 646,371,004
===== =============
</TABLE>
(a) Non-income producing security.
(b) Private placement (see note 6).
(c) The aggregate cost for federal income tax purposes is $563,606,156;
aggregate gross unrealized appreciation is $96,906,783 and the aggregate
gross unrealized depreciation is $19,531,111, resulting in net unrealized
appreciation of $77,375,672.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
LAZARD INTERNATIONAL SMALL CAP
PORTFOLIO
COMMON STOCKS--87.9%
ARGENTINA--2.0%
Capex SA 144A (c)....................... 158,200 $ 2,293,900
-------------
AUSTRALIA--1.2%
Bibury Ltd. (a),(d)..................... 472,100 0
Pacific Mutual Ltd. .................... 991,200 1,436,628
-------------
TOTAL AUSTRALIA......................... 1,436,628
-------------
AUSTRIA--1.3%
Vae Eisenbahnsyst....................... 17,400 1,467,480
-------------
BRAZIL--1.7%
Capco Automotive Products Corp. ........ 275,200 1,960,800
-------------
DENMARK--2.4%
Spar Nord Holding....................... 39,100 1,323,872
Sparekassen Bikube...................... 45,200 1,497,848
-------------
TOTAL DENMARK........................... 2,821,720
-------------
FINLAND--2.6%
Finnair................................. 296,700 2,217,030
Sampo Insurance Company Ltd. ........... 14,500 776,774
-------------
TOTAL FINLAND........................... 2,993,804
-------------
FRANCE--3.9%
Club Mediterranee....................... 4,622 369,043
Imetal.................................. 17,600 2,102,512
Unibail SA.............................. 19,400 2,004,574
-------------
TOTAL FRANCE............................ 4,476,129
-------------
GERMANY--9.0%
Cewe Color Holding AG................... 6,100 2,019,868
Doerries Scharmann AG................... 76,994 279,100
Hornbach Holding AG..................... 30,300 2,640,293
Moebel Walther AG....................... 101,770 3,369,867
WMF Wuerttembergische Metallwarenfabrik
AG.................................... 9,600 2,074,590
-------------
TOTAL GERMANY........................... 10,383,718
-------------
HONG KONG--3.5%
Manhattan Card Co. ..................... 4,026,000 1,718,177
Peregrine Investment.................... 1,800,000 2,327,837
-------------
TOTAL HONG KONG......................... 4,046,014
-------------
IRELAND--3.4%
Fitzwilton PLC.......................... 2,861,700 2,199,193
Unidare PLC............................. 378,200 1,695,421
-------------
TOTAL IRELAND........................... 3,894,614
-------------
ISRAEL--2.1%
ECI Telecom Ltd. ....................... 105,400 2,404,437
-------------
ITALY--2.7%
Arnoldo Mondadori Editore............... 350,800 3,039,438
Unipol.................................. 21,000 134,546
-------------
TOTAL ITALY............................. 3,173,984
-------------
JAPAN--7.2%
Cowboy Company Ltd. .................... 149,000 2,525,424
FCC Company Ltd. ....................... 80,000 2,820,339
Towa Pharmaceutical Company Ltd. ....... 80,000 2,944,310
-------------
TOTAL JAPAN............................. 8,290,073
-------------
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
NEW ZEALAND--4.8%
Fisher & Paykel......................... 719,416 $ 2,187,032
Warehouse Group......................... 437,100 1,160,189
Wrightson Ltd. ......................... 2,925,200 2,218,379
-------------
TOTAL NEW ZEALAND....................... 5,565,600
-------------
NORWAY--5.0%
Aker AS Class B......................... 186,800 2,270,820
Fokus Bank (a).......................... 649,000 3,504,176
-------------
TOTAL NORWAY............................ 5,774,996
-------------
PAKISTAN--0.0%
Lever Brothers.......................... 540 11,126
Packages................................ 750 2,214
-------------
TOTAL PAKISTAN.......................... 13,340
-------------
PHILIPPINES--1.9%
Philippine Commercial International
Bank (a).............................. 243,000 2,241,937
-------------
PORTUGAL--2.0%
Corticeira Amorim SA.................... 197,100 2,271,572
-------------
SPAIN--5.1%
Corporation Financiera Reunida SA....... 1,070,400 3,706,249
Vallehermoso SA......................... 120,000 2,230,833
-------------
TOTAL SPAIN............................. 5,937,082
-------------
SWEDEN--6.0%
Getinge Industrier AB................... 44,466 2,025,839
IRO AB (a).............................. 204,100 2,305,451
TV 4 AB Series A........................ 149,200 2,584,153
-------------
TOTAL SWEDEN............................ 6,915,443
-------------
SWITZERLAND--6.9%
Bil GT Gruppe AG........................ 5,000 2,947,551
Logitech International PLC.............. 25,100 2,589,423
Swisslog Holding AG..................... 8,690 2,410,750
-------------
TOTAL SWITZERLAND....................... 7,947,724
-------------
TAIWAN--1.6%
Yageo Corp. (a), (c).................... 213,100 1,917,900
-------------
UNITED KINGDOM--11.6%
Amec PLC................................ 35,247 51,455
Bell Cablemedia PLC (a),(b)............. 75,400 1,206,400
Greycoat PLC............................ 832,175 1,796,433
London Clubs International PLC.......... 342,800 2,246,647
McBride PLC (a)......................... 660,000 1,978,258
Scholl PLC.............................. 1,028,400 3,066,513
Takare PLC.............................. 1,087,400 3,039,789
-------------
TOTAL UNITED KINGDOM.................... 13,385,495
-------------
TOTAL COMMON STOCKS
(Identified cost $103,585,858)............ 101,614,390
-------------
PREFERRED STOCKS--4.7%
AUSTRIA--1.3%
Bau Holdings AG......................... 39,900 1,500,432
-------------
GERMANY--1.7%
Sander (Jil) AG......................... 2,700 1,976,298
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO (CONTINUED)
UNITED KINGDOM--1.7%
Signet Group PLC (a),(b)................ 38 $ 1,900,000
-------------
TOTAL PREFERRED STOCKS
(Identified cost $5,664,250).............. 5,376,730
-------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
CONVERTIBLE BONDS--3.0%
PHILIPPINES--1.4%
Bacnotan Consolidated Industries,
5.50%, 6/21/04........................ $ 2,000,000 1,700,000
-------------
UNITED STATES--1.6%
International CableTel Inc. 144A,
7.25%, 4/15/05........................ 1,700,000 1,819,000
-------------
TOTAL CONVERTIBLE BONDS
(Identified cost $3,700,000).............. 3,519,000
-------------
SHORT TERM INVESTMENT--6.7%
REPURCHASE AGREEMENT--6.7%
(Identified cost $7,711,000)
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S.
Treasury Bills, due 12/12/96; total
par value $8,260,000; valued at
$7,868,426)........................... 7,711,000 7,711,000
-------------
TOTAL INVESTMENTS
(Identified cost $120,661,108) (e)........ 102.3% 118,221,120
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS.............................. (2.3) (2,686,681)
---- ----------
NET ASSETS................................. 100.0% $ 115,534,439
===== =============
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) Global Depository Receipts.
(d) Company currently in bankruptcy.
(e) The aggregate cost for federal income tax purposes is $120,735,712;
aggregate gross unrealized appreciation is $6,708,912 and the aggregate
gross unrealized depreciation is $9,223,504, resulting in net unrealized
depreciation of $2,514,592.
* Percentages of common stocks, preferred stocks, and convertible bonds are
presented in the portfolio by currency denomination.
Percentages by industry are as follows:
Agriculture 1.9%, Automotive 1.7%, Auto Parts 2.4%, Broadcasting 2.2%,
Computers 2.2%, Construction Materials 5.3%, Cosmetics & Toiletries 4.4%,
Electrical Equipment 1.5%, Electronics 1.9%, Engineering & Construction 1.3%,
Entertainment 1.9%, Financial Services 14.8%, Food & Beverages 2.2%, Health
Care 2.6%, Household Products 1.8%, Industrial & Machinery 2.3%, Insurance
0.8%, Leisure Time 1.8%, Lodging 0.3%, Manufacturing 3.3%, Miscellaneous
5.1%, Mortgage Backed Securities 5.7%, Paper Products 2.0%, Pharmaceuticals
2.6%, Publishing 2.6%, Real Estate 5.2%, Retailing 2.6%, Retail Trade 2.9%,
Telecommunication 1.6%, Telecommunication Equipment 2.1%, Telephone 1.0%,
Textiles, Shoes, and Apparel 1.7%, Transportation & Freight Services 1.9%,
Venture Capital 2.0%.
Forward Foreign Currency Contracts open at December 31, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ---------------- --------------- -------- --------------
<S> <C> <C> <C>
BEL 93,045,843 $3,141,000 3/13/96 $(32,706)
DEM 7,821,860 $5,436,000 3/13/96 (36,959)
SEK 63,425,392 $9,599,000 3/13/96 101,636
$ 1,094,460 GBP 702,929 1/4/96 (2,786)
$ 117,722 NZD 180,278 1/4/96 138
$ 142,407 NZD 218,583 1/3/96 495
$ 264,919 SEK 1,754,164 1/3/96 (728)
$ 758,901 FIM 3,282,247 1/2/96 (4,257)
--------
$ 24,833
========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES
-----------
<S> <C> <C>
LAZARD SPECIAL EQUITY PORTFOLIO
COMMON STOCKS--89.5%
AEROSPACE & DEFENSE--1.2%
Tech-Sym Corp. (a)........................ 17,500 $ 557,812
------------
AUTO & TRUCK--1.0%
Oshkosh Truck Corp. Class B............... 18,000 270,000
Republic Automotive Parts, Inc. (a)....... 15,000 191,250
------------
461,250
------------
BUILDING & HOUSING--5.0%
Puerto Rican Cement Co., Inc. ............ 65,000 2,153,125
Simpson Manufacturing Co. (a)............. 15,000 195,000
------------
2,348,125
------------
BUSINESS SERVICES & SUPPLIES--2.6%
Ennis Business Forms...................... 100,000 1,225,000
------------
CHEMICALS & PLASTICS--6.2%
Aceto Corp. .............................. 77,000 1,174,250
MacDermid, Inc. .......................... 30,000 1,755,000
------------
2,929,250
------------
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
FOOD & BEVERAGE--4.2%
Farmer Brothers Co. ...................... 15,000 $ 1,980,000
------------
HOUSEHOLD APPLIANCES & HOME
FURNISHINGS--14.2%
Allen Organ Co. Class B................... 60,000 2,445,000
Boston Acoustics, Inc. ................... 40,000 920,000
Chromcraft Revington, Inc. (a)............ 9,000 239,625
Mikasa, Inc. (a).......................... 22,000 297,000
National Presto Industries, Inc. ......... 47,100 1,872,225
Virco Manufacturing Co. .................. 99,000 903,375
------------
6,677,225
------------
INDUSTRIAL & MACHINERY--9.7%
Amtrol, Inc. ............................. 25,000 381,250
Paul Mueller Co. ......................... 15,000 476,250
Penn Engineering & Manufacturing Corp. ... 20,000 1,940,000
Robbins & Myers, Inc. .................... 40,000 1,140,000
Tecumseh Products Co. Class A............. 12,000 621,000
------------
4,558,500
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
DESCRIPTION SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
<CAPTION>
LAZARD SPECIAL EQUITY PORTFOLIO (CONTINUED)
<S> <C> <C>
MISCELLANEOUS--6.8%
Brenco, Inc. ............................. 15,300 $ 156,825
Matthews International Corp. ............. 8,500 159,375
Mine Safety Appliances Co. ............... 800 38,200
NCH Corp. ................................ 16,400 947,100
Tranzonic Companies Class A............... 80,000 1,100,000
Tranzonic Companies Class B............... 40,000 555,000
Versa Technologies, Inc. ................. 16,400 250,100
------------
3,206,600
------------
MULTI-INDUSTRY--4.2%
American Filtrona Corp. .................. 15,000 502,500
Core Industries, Inc. .................... 12,300 158,363
Kysor Industrial Corp. Delaware........... 6,200 150,350
Latshaw Enterprises, Inc. (a),(b)......... 38,400 259,200
RPC Energy Services, Inc. (a)............. 18,500 168,812
Wynns International, Inc. ................ 24,400 722,850
------------
1,962,075
------------
RESTAURANTS, LODGING & ENTERTAINMENT--2.7%
Bowl America, Inc. Class A................ 80,000 610,000
International Dairy Queen, Inc.
Class A (a)............................. 30,000 682,500
------------
1,292,500
------------
RETAIL--11.0%
Arden Group, Inc. Class A (a)............. 25,000 1,425,000
Blair Corp. .............................. 58,000 1,834,250
Dress Barn, Inc. (a)...................... 100,000 962,500
Haverty Furniture Company, Inc. .......... 11,800 160,775
Value City Department Stores, Inc. (a).... 115,000 776,250
------------
5,158,775
------------
SERVICES--11.6%
AFA Protective Systems, Inc. (b).......... 15,100 1,661,000
Grey Advertising, Inc. ................... 4,000 784,000
Hilb, Rogal & Hamilton Co. ............... 100,000 1,337,500
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Isomedix, Inc. (a)........................ 28,400 $ 408,250
Value Line, Inc. ......................... 35,000 1,286,250
------------
5,477,000
------------
TEXTILES, SHOES & APPAREL--9.1%
Fab Industries, Inc. ..................... 50,000 1,593,750
Garan, Inc. .............................. 80,000 1,350,000
Superior Surgical Manufacturing Company,
Inc. ................................... 100,000 950,000
Weyco Group, Inc. ........................ 10,000 375,000
------------
4,268,750
------------
TOTAL COMMON STOCKS
(Identified cost $34,483,841)............... 42,102,862
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT TERM INVESTMENT--11.1%
FEDERAL AGENCY--11.1%
(Identified cost $5,209,190)
Federal Home Loan Mortgage Corp., 5.60%,
1/2/96.................................. $ 5,210,000 5,209,190
------------
TOTAL INVESTMENTS
(Identified cost $39,693,031) (c)........... 100.6% $ 47,312,052
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS...................................... (0.6) (291,849)
---- ---------
NET ASSETS................................... 100.0% $ 47,020,203
===== ============
</TABLE>
(a) Non-income producing security.
(b) Affiliated issuer under the Investment Company Act of 1940 in as much as the
Portfolio owns more than 5% of the voting securities of the Company.
(c) The aggregate cost for federal income tax purposes is $39,693,031; aggregate
gross unrealized appreciation is $9,365,862 and the aggregate gross
unrealized depreciation is $1,746,841, resulting in net unrealized
appreciation of $7,619,021.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
LAZARD EMERGING MARKETS PORTFOLIO
COMMON STOCKS--79.9%
ARGENTINA--7.4%
Capex SA.................................. 140,000 $ 1,021,796
Juan Minetti.............................. 144,000 475,105
Metrogas SA Class B (b)................... 57,000 555,750
YPF Sociedad Anonima Class D (b).......... 25,000 540,625
-----------
TOTAL ARGENTINA........................... 2,593,276
-----------
BRAZIL--2.8%
Capco Automotive Products Corp. (a)....... 60,100 428,212
Makro Atacadista SA (a),(c)............... 100,000 568,500
-----------
TOTAL BRAZIL.............................. 996,712
-----------
CHILE--4.2%
AFP Provida SA (b)........................ 17,000 469,625
Chilectra SA (b).......................... 8,000 398,000
Compania De Telefonos Chile (b)........... 7,300 604,987
-----------
TOTAL CHILE............................... 1,472,612
-----------
<CAPTION>
NUMBER
OF SHARES
----------
<S> <C> <C>
CHINA--1.6%
Ek Chor China Motorcycle Co. ............. 47,000 $ 546,375
-----------
COLOMBIA--1.7%
Banco De Bogota........................... 66,451 318,589
Banco Industrial Colombiano............... 82,000 290,507
-----------
TOTAL COLOMBIA............................ 609,096
-----------
CZECH REPUBLIC--1.5%
Komercni Banka AS 144A (a),(c)............ 30,000 546,000
-----------
GREECE--3.0%
Ergo Bank................................. 10,000 398,372
Papastratos Cigarette SA.................. 10,000 316,336
Titan Cement Co. SA (a)................... 8,000 335,737
-----------
TOTAL GREECE.............................. 1,050,445
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO (CONTINUED)
<S> <C> <C>
HONG KONG--5.2%
China Hong Kong Photo Products............ 1,100,000 $ 622,373
Harbin Power Equipment.................... 1,248,000 183,992
Peregrine Investment...................... 360,000 465,568
Yue Yuen Industrial Holding............... 2,100,000 556,741
-----------
TOTAL HONG KONG........................... 1,828,674
-----------
HUNGARY--3.0%
Danubius Hotel............................ 51,600 485,296
Egis Gyogyszergyar........................ 25,000 555,332
-----------
TOTAL HUNGARY............................. 1,040,628
-----------
INDIA--2.9%
Ashok Leyland Ltd. 144A (a), (c).......... 58,600 600,650
Hindalco Industries Ltd. 144A (a), (c).... 12,500 426,625
-----------
TOTAL INDIA............................... 1,027,275
-----------
INDONESIA--5.9%
Bank Bali................................. 125,750 247,485
Bimantara Citra (a)....................... 540,000 448,721
Citra Marga Nusaphala Persada............. 470,000 441,942
Kawasan Industries Jababeka............... 298,000 482,222
Trias Sentosa............................. 210,000 468,403
-----------
TOTAL INDONESIA........................... 2,088,773
-----------
ISRAEL--0.5%
Blue Square (a)........................... 24,000 161,433
-----------
KOREA--7.8%
Chosun Brewery............................ 7,610 301,251
Chosun Brewery Ord. (New) (a)............. 2,790 109,676
Korea Chemical............................ 3,760 389,401
Korea Mobile Telecom...................... 836 942,420
Pohang Iron & Steel (b)................... 9,600 210,000
Samsung Electronics Ltd. 144A (a), (c).... 6,800 397,800
Shinhan Bank.............................. 17,100 381,964
-----------
TOTA KOREA................................ 2,732,512
-----------
LUXEMBOURG--1.4%
First NIS Regional Fund (a)............... 88,000 484,000
-----------
MALAYSIA--2.9%
Genting Berhad............................ 33,000 275,466
Kian Joo Can Factory Berhad............... 125,000 516,793
Southern Bank Berhad...................... 125,000 238,217
-----------
TOTAL MALAYSIA............................ 1,030,476
-----------
MEXICO--6.7%
Cemex SA.................................. 204,000 671,627
Fomento Economico Series B................ 271,200 609,541
Grupo Fernandez Editores Series B (a)..... 1,070,000 298,185
Pan American Beverage Class A............. 11,000 352,000
Telefonos de Mexico SA (b)................ 13,000 414,375
-----------
TOTAL MEXICO.............................. 2,345,728
-----------
PAKISTAN--1.9%
Hub Power Ltd. 144A (a),(c)............... 38,000 655,500
-----------
PERU--1.3%
Backus & Johnston......................... 265,358 455,851
-----------
PHILIPPINES--3.4%
Alaska Milk Corp. (a)..................... 2,300,000 333,206
Benpress Holdings Corp. 144A (c).......... 64,600 323,000
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
C & P Homes (a)........................... 300,100 $ 220,241
Philippine Commercial International
Bank (a)................................ 34,400 317,377
-----------
TOTAL PHILIPPINES......................... 1,193,824
-----------
POLAND--0.7%
Jelfa (a)................................. 22,000 253,417
-----------
PORTUGAL--3.5%
Corticeira Amorim SA...................... 31,800 366,494
Investec-Consultoria Internacional SA
(a)..................................... 27,000 541,172
Portugal Telecom SA (a),(b)............... 18,000 342,000
-----------
TOTAL PORTUGAL............................ 1,249,666
-----------
SOUTH AFRICA--5.0%
JD Group Ltd. ............................ 100,654 662,651
Kersaf Investments........................ 50,000 630,915
Malbak.................................... 69,391 480,623
-----------
TOTAL SOUTH AFRICA........................ 1,774,189
-----------
SRI LANKA--0.3%
Blue Diamond Jewel........................ 408,186 120,832
-----------
TAIWAN--2.1%
Siliconware Precision Industries Inc. 144A
(a),(c)................................. 16,700 275,550
Yageo Corp. (a),(c)....................... 52,600 473,400
-----------
TOTAL TAIWAN.............................. 748,950
-----------
VENEZUELA--1.1%
Venezolana De Ceme........................ 309,000 379,492
-----------
ZIMBABWE--2.1%
Bindura Nickel............................ 250,000 362,171
Delta Corp. .............................. 225,000 376,658
-----------
TOTAL ZIMBABWE............................ 738,829
-----------
TOTAL COMMON STOCKS
(Identified cost $28,827,960)............... 28,124,565
-----------
PREFERRED STOCKS--6.6%
BRAZIL--4.4%
Brahma Cia Cervejaria..................... 1,700,000 699,606
Cemig Cia Energetica de Minas Gerais...... 20,000,000 442,387
Dixie Toga SA (a)......................... 467,000 408,385
-----------
TOTAL BRAZIL.............................. 1,550,378
-----------
COLOMBIA--2.2%
Banco Industrial Colombiano SA (b)........ 35,000 573,125
Gran Cadena De Almacenes Class B 144A (a),
(b)..................................... 18,000 207,000
-----------
TOTAL COLOMBIA............................ 780,125
-----------
TOTAL PREFERRED STOCKS
(Identified cost $2,368,183)................ 2,330,503
-----------
WARRANTS--0.0%
(Identified cost $0)
INDONESIA--0.0%
Bank Bali (a)............................. 29,000 12,683
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO (CONTINUED)
<S> <C> <C>
CONVERTIBLE BONDS--3.7%
PHILIPPINES--1.3%
Bacnotan Consolidated Industries, 5.50%,
6/21/04................................. $ 550,000 $ 467,500
-----------
TAIWAN--1.0%
United Micro Electronics, 1.25%, 6/8/04... 285,000 357,675
-----------
UNITED STATES--1.4%
International Financial Holdings, Inc.
144A, 6.50%, 8/1/99..................... 370,000 492,100
-----------
TOTAL CONVERTIBLE BONDS
(Identified cost $1,527,925)................ 1,317,275
-----------
SHORT TERM INVESTMENT--13.8%
REPURCHASE AGREEMENT--13.8%
(Identified cost $4,852,000)
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S. Treasury
Bills, due 12/12/96; total par value
$5,200,000; valued at $4,953,489)....... 4,852,000 4,852,000
-----------
TOTAL INVESTMENTS
(Identified cost $37,576,068) (d)........... 104.0% 36,637,026
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS...................................... (4.0) (1,420,768)
----- -----------
NET ASSETS................................... 100.0% $35,216,258
===== ===========
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) Global Depository Receipts.
(d) The aggregate cost for federal income tax purposes is $37,579,111; aggregate
gross unrealized appreciation is $2,072,339 and the aggregate gross
unrealized depreciation is $3,014,424, resulting in net unrealized
depreciation of $942,085.
* Percentages of common and preferred stocks and convertible bonds are
presented in the portfolio by currency denomination.
Percentage by industry are as follows:
Apparel & Textiles 1.6%, Auto Parts 1.2%, Banks 3.4%, Brewery 2.0%,
Chemicals 1.3 %, Chemicals & Plastics 1.1%, Commercial Services 1.3%,
Communications 8.3%, Construction Materials 7.7%, Consumer Goods 0.4%,
Domestic Oil 1.6%, Drugs & Health Care 2.3%, Electrical Equipment 0.5%,
Electronics 2.9%, Financial Services 10.2%, Food & Beverages 6.1%, Forest
Products 1.1%, Holding Company--Diversified 1.4%, Homebuilders 0.6%,
International Oil 1.5%, Leisure Time 3.3%, Manufacturing 1.5%, Metals 1.2%,
Miscellaneous 4.9%, Mortgage Backed Securities 6.2%, Publishing 2.3%,
Restaurants, Lodging & Entertainment 2.2%, Retailing 2.9%, Steel 0.6%,
Tobacco 0.9%, Utilities 4.3%, Wholesale Trade 3.4%.
Forward Foreign Currency Contracts open at December 31, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ----------- ----------- -------- --------------
<S> <C> <C> <C>
$ 141,295 PEN 326,108 1/2/96 $ (183)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL
EQUITY EQUITY FIXED-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value*..................... $ 157,812,496 $1,232,294,509 $ 43,018,602
Investments in repurchase agreements, at cost and
value.................................................. 5,694,000 70,037,000 3,866,000
Cash..................................................... 438 1,017 262
Net foreign currency contracts (note 2).................. -- -- 37,754
Receivables for:
Investments sold....................................... -- 2,923,500 2,218,953
Dividends and interest................................. 288,199 2,212,207 1,366,951
Capital stock sold..................................... 374,224 13,482,088 122,511
Deferred organizational expenses (note 2)................ -- 11,265 11,696
Other.................................................... -- -- --
------------- -------------- ------------
Total assets............................................. 164,169,357 1,320,961,586 50,642,729
------------- -------------- ------------
LIABILITIES
Payables for:
Investments purchased.................................. -- 19,016,374 4,816,290
Capital stock repurchased.............................. 191,954 993,056 10,826
Dividends declared..................................... -- 16,445 37,253
Investment management fees payable (note 3).............. 118,750 798,137 101,798
Net foreign currency contracts (note 2).................. -- 53,656 --
Due to Manager........................................... -- -- --
Accrued directors fees payable........................... 2,778 2,778 2,778
Accrued expenses and other payables...................... 68,887 531,693 49,481
------------- -------------- ------------
Total liabilities........................................ 382,369 21,412,139 5,018,426
------------- -------------- ------------
Net assets, at value..................................... 163,786,988 1,299,549,447 45,624,303
============= ============== ============
NET ASSETS
Paid in capital.......................................... 131,965,086 1,169,741,962 43,666,321
Undistributed (distributions in excess of) investment
income--net............................................ -- 63,301 24,037
Unrealized appreciation (depreciation) on:
Investments--net....................................... 25,156,509 126,910,179 1,763,256
Foreign currency--net.................................. -- (35,747) 13,676
Accumulated realized gain (loss)--net.................... 6,665,393 2,869,752 157,013
------------- -------------- ------------
NET ASSETS, AT VALUE..................................... $ 163,786,988 $1,299,549,447 $ 45,624,303
============= ============== ============
Shares of capital stock outstanding**.................... 9,405,110 103,988,517 4,204,312
============= ============== ============
NET ASSET VALUE PER SHARE................................ $ 17.41 $ 12.50 $ 10.85
============= ============== ============
</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.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD LAZARD LAZARD
LAZARD STRATEGIC LAZARD INTERNATIONAL SPECIAL EMERGING
BOND YIELD SMALL CAP SMALL CAP EQUITY MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 43,580,431 $ 73,590,413 $ 593,233,828 $ 110,510,120 $ 47,312,052 $ 31,785,026
1,806,000 3,520,000 47,748,000 7,711,000 -- 4,852,000
63 995 728 763,380 9,076 1,149
-- 28,575 -- 24,833 -- --
366,924 2,934,989 7,165,530 -- 221,037 40,889
553,239 1,845,795 749,739 390,583 53,462 54,388
2,315,034 1,100,000 1,498,625 48,088 5,151 1,136,426
11,768 10,221 11,301 10,283 -- 14,674
-- -- -- -- 23,086 --
------------ ------------ ------------- ------------- ------------ ------------
48,633,459 83,030,988 650,407,751 119,458,287 47,623,864 37,884,552
------------ ------------ ------------- ------------- ------------ ------------
2,253,838 4,305,501 3,117,733 3,704,869 409,404 2,132,621
140,279 31,271 348,671 36,706 -- 397,087
40,260 64,009 -- -- -- --
80,148 93,407 402,416 64,707 156,547 69,012
-- -- -- -- -- 183
-- -- -- -- -- 20,680
2,778 2,778 2,778 2,778 2,778 2,778
32,753 60,098 165,149 114,788 34,932 45,933
------------ ------------ ------------- ------------- ------------ ------------
2,550,056 4,557,064 4,036,747 3,923,848 603,661 2,668,294
------------ ------------ ------------- ------------- ------------ ------------
46,083,403 78,473,924 646,371,004 115,534,439 47,020,203 35,216,258
============ ============ ============= ============= ============ ============
45,330,824 80,585,414 569,127,212 119,225,351 37,141,252 37,977,655
40,199 62,968 -- (22,525) -- 3,727
343,654 1,207,283 77,375,672 (2,439,988) 7,619,021 (939,042)
-- 8,059 -- 27,094 -- (1,569)
368,726 (3,389,800) (131,880) (1,255,493) 2,259,930 (1,824,513)
------------ ------------ ------------- ------------- ------------ ------------
$ 46,083,403 $ 78,473,924 $ 646,371,004 $ 115,534,439 $ 47,020,203 $ 35,216,258
============ ============ ============= ============= ============ ============
4,560,693 8,245,403 40,536,196 10,986,319 3,842,845 3,812,846
============ ============ ============= ============= ============ ============
$ 10.10 $ 9.52 $ 15.95 $ 10.52 $ 12.24 $ 9.24
============ ============ ============= ============= ============ ============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL
EQUITY EQUITY FIXED-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest*......................................................... $ 535,797 $ 4,165,491 $ 2,966,123
Dividends*........................................................ 2,571,107 24,929,197 --
------------ ------------- -------------
Total investment income............................................. 3,106,904 29,094,688 2,966,123
------------ ------------- -------------
EXPENSES:
Management fee (note 3)........................................... 982,130 7,895,766 314,329
Administration fees (note 3)...................................... 39,265 147,565 27,200
Custodian fees (note 3)........................................... 61,339 1,442,079 74,621
Professional services............................................. 23,741 139,202 38,965
Registration fees................................................. 40,646 163,159 23,517
Shareholder services.............................................. 28,098 56,217 15,195
Directors' fees and expenses...................................... 11,217 13,792 14,190
Shareholders' reports............................................. 6,706 12,175 2,337
Amortization of organizational expenses (note 2).................. -- 13,505 13,505
Other............................................................. 13,739 111,644 2,173
------------ ------------- -------------
Total expenses before fees waived and expenses reimbursed........... 1,206,881 9,995,104 526,032
Management fees waived and expenses reimbursed (note 3)........... -- -- (81,792)
Administration fees waived (note 3)............................... -- -- --
Fees paid indirectly (note 2)..................................... (820) (12,411) (1,547)
------------ ------------- -------------
Expenses--net....................................................... 1,206,061 9,982,693 442,693
------------ ------------- -------------
INVESTMENT INCOME--NET.............................................. 1,900,843 19,111,995 2,523,430
------------ ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET
Realized gain (loss) on:
Investments--net*.............................................. 17,975,165 34,556,028 2,294,418
Foreign exchange transactions--net............................. -- (16,586,286) 423,923
Net unrealized appreciation (depreciation) during the period on:
Investments--net............................................... 20,838,939 102,387,630 1,899,941
Foreign currency--net.......................................... -- 1,622,255 8,865
------------ ------------- -------------
Realized and unrealized gain (loss) on investments--net........... 38,814,104 121,979,627 4,627,147
------------ ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS..... $ 40,714,947 $ 141,091,622 $ 7,150,577
============ ============= ==========
*Net of foreign withholding taxes of:............................... $ 68,660 $ 3,114,151 $ 29,944
============ ============= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD LAZARD LAZARD
LAZARD STRATEGIC LAZARD INTERNATIONAL SPECIAL EMERGING
BOND YIELD SMALL CAP SMALL CAP EQUITY MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,255,143 $ 6,380,257 $ 2,657,903 $ 543,364 $ 314,283 $ 218,910
-- -- 6,738,744 2,093,899 1,318,974 376,771
----------- ----------- ------------ ------------- ------------- -------------
2,255,143 6,380,257 9,396,647 2,637,263 1,633,257 595,681
----------- ----------- ------------ ------------- ------------- -------------
164,220 525,597 4,066,987 736,353 888,834 236,306
26,180 30,732 91,734 34,635 28,661 25,173
45,246 104,008 117,360 214,946 32,541 110,068
24,226 34,117 86,437 35,325 29,918 26,210
14,302 14,219 49,700 20,181 27,815 26,945
15,550 13,523 41,852 29,968 23,332 23,460
11,316 12,978 11,266 11,590 11,314 12,131
2,943 7,108 12,377 7,681 2,983 5,627
13,505 13,505 13,505 3,530 -- 4,136
2,664 8,664 56,085 14,044 29,194 2,781
----------- ----------- ------------ ------------- ------------- -------------
320,152 764,451 4,547,303 1,108,253 1,074,592 472,837
(34,072) -- -- -- (132,906) (142,805)
(21,875) -- -- -- -- (21,875)
(1,235) (5,026) (9,569) (614) (55) (959)
----------- ----------- ------------ ------------- ------------- -------------
262,970 759,425 4,537,734 1,107,639 941,631 307,198
----------- ----------- ------------ ------------- ------------- -------------
1,992,173 5,620,832 4,858,913 1,529,624 691,626 288,483
----------- ----------- ------------ ------------- ------------- -------------
1,538,947 613,040 48,772,968 2,832,676 5,875,256 (1,723,841)
-- (829,920) -- (3,047,215) -- (79,972)
1,262,427 3,392,780 45,544,351 215,054 2,433,242 594,358
-- 105,454 -- 287,871 -- (2,651)
----------- ----------- ------------ ------------- ------------- -------------
2,801,374 3,281,354 94,317,319 288,386 8,308,498 (1,212,106)
----------- ----------- ------------ ------------- ------------- -------------
$ 4,793,547 $ 8,902,186 $ 99,176,232 $ 1,818,010 $ 9,000,124 $ (923,623)
========== ========== ============ ========== ========== ============
$ -- $ 12,123 $ -- $ 270,513 $ 11,220 $ 36,665
========== ========== ============ ========== ========== ============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL
EQUITY EQUITY FIXED-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------- ------------------------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------------- ------------------------------- -------------
1995 1994 1995 1994 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income--net................... $ 1,900,843 $ 775,588 $ 19,111,995 $ 5,752,469 $ 2,523,430
Realized gain (loss) on investments and
foreign exchange transactions.......... 17,975,165 3,165,434 17,969,742 50,645,245 2,718,341
Unrealized appreciation (depreciation)--
net.................................... 20,838,939 (1,765,260) 104,009,885 (68,363,473) 1,908,806
------------- ------------ -------------- -------------- -------------
Net increase (decrease) in net assets
resulting from operations................ 40,714,947 2,175,762 141,091,622 (11,965,759) 7,150,577
------------- ------------ -------------- -------------- -------------
Distributions to shareholders:
From investment income--net.............. (1,412,326) (819,467) (6,515,474) (5,752,469) (2,523,430)
From realized gains--net................. (11,452,652) (3,479,186) (14,115,900) (74,500,587) (801,842)
(In excess of) offset to investment
income--net............................ -- -- -- 5,752,469 (1,799,275)
In excess of realized gains--net......... -- -- -- -- --
------------- ------------ -------------- -------------- -------------
(12,864,978) (4,298,653) (20,631,374) (74,500,587) (5,124,547)
------------- ------------ -------------- -------------- -------------
Capital stock transaction:
Net proceeds from sales.................. 55,622,979 44,216,711 497,338,051 348,583,561 13,752,209
Net proceeds from reinvestment of
distributions.......................... 12,294,787 4,207,450 19,395,497 72,041,335 4,630,486
Cost of shares redeemed.................. (21,085,965) (4,318,758) (169,521,331) (105,923,266) (10,587,176)
------------- ------------ -------------- -------------- -------------
Net increase (decrease) in net assets from
capital stock transactions............... 46,831,801 44,105,403 347,212,217 314,701,630 7,795,519
------------- ------------ -------------- -------------- -------------
Total increase (decrease) in net assets... 74,681,770 41,982,512 467,672,465 228,235,284 9,821,549
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*.............. $ 163,786,988 $ 89,105,218 $1,299,549,447 $ 831,876,982 $ 45,624,303
=============== ============= ================= ================ ===============
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.............................. 3,491,105 3,088,569 42,535,462 27,102,620 1,219,616
Shares issued to shareholders from
reinvestment of distributions.......... 710,986 304,879 1,554,544 6,362,069 418,379
Shares repurchased....................... (1,279,291) (302,628) (14,205,121) (8,341,648) (932,761)
------------- ------------ -------------- -------------- -------------
Net increase (decrease)................... 2,922,800 3,090,820 29,884,885 25,123,041 705,234
------------- ------------ -------------- -------------- -------------
Shares outstanding at end of period....... 9,405,110 6,482,310 103,988,517 74,103,632 4,204,312
=============== ============= ================= ================ ===============
* Includes undistributed (overdistributed)
net investment income of:................ $ -- $ (12,571) $ 63,301 $ 1,965 $ 24,037
=============== ============= ================= ================ ===============
<CAPTION>
LAZARD
INTERNATIONAL LAZARD
FIXED-INCOME BOND
PORTFOLIO PORTFOLIO
-------------- ---------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------- ---------------------------
1994 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income--net................... $ 1,206,922 $ 1,992,173 $ 1,235,348
Realized gain (loss) on investments and
foreign exchange transactions.......... 180,322 1,538,947 (1,151,722)
Unrealized appreciation (depreciation)--
net.................................... (512,114) 1,262,427 (965,163)
------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations................ 875,130 4,793,547 (881,537)
------------ ------------ ------------
Distributions to shareholders:
From investment income--net.............. (1,206,922) (1,992,173) (1,235,348)
From realized gains--net................. (287,561) (16,046) (58,029)
(In excess of) offset to investment
income--net............................ -- -- --
In excess of realized gains--net......... -- -- --
------------ ------------ ------------
(1,494,483) (2,008,219) (1,293,377)
------------ ------------ ------------
Capital stock transaction:
Net proceeds from sales.................. 25,803,649 24,539,689 18,506,638
Net proceeds from reinvestment of
distributions.......................... 1,439,206 1,820,886 1,205,567
Cost of shares redeemed.................. (4,276,403) (7,556,034) (6,605,325)
------------ ------------ ------------
Net increase (decrease) in net assets from
capital stock transactions............... 22,966,452 18,804,541 13,106,880
------------ ------------ ------------
Total increase (decrease) in net assets... 22,347,099 21,589,869 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 $ 46,083,403 $ 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 2,500,066 1,891,145
Shares issued to shareholders from
reinvestment of distributions.......... 138,395 186,028 125,665
Shares repurchased....................... (411,133) (775,958) (685,300)
------------ ------------ ------------
Net increase (decrease)................... 2,219,290 1,910,136 1,331,510
------------ ------------ ------------
Shares outstanding at end of period....... 3,499,078 4,560,693 2,650,557
============= ============= =============
* Includes undistributed (overdistributed)
net investment income of:................ $ 1,314 $ 40,199 $ --
============= ============= =============
</TABLE>
+ For the period July 15, 1994 through December 31, 1994
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD
STRATEGIC LAZARD LAZARD
YIELD LAZARD INTERNATIONAL SPECIAL
PORTFOLIO SMALL CAP SMALL CAP EQUITY
- --------------------------------- PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------ ----------------------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
- --------------------------------- ------------------------------ ----------------------------- -------------
1995 1994 1995 1994 1995 1994 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 5,620,832 $ 4,065,416 $ 4,858,913 $ 2,022,125 $ 1,529,624 $ 591,036 $ 691,626
(216,880) (3,078,071) 48,772,968 22,502,779 (214,539) (4,068,829) 5,875,256
3,498,234 (2,316,644) 45,544,351 (17,010,725) 502,925 (3,653,545) 2,433,242
------------- ------------- -------------- ------------- ------------- ------------- -------------
8,902,186 (1,329,299) 99,176,232 7,514,179 1,818,010 (7,131,338) 9,000,124
------------- ------------- -------------- ------------- ------------- ------------- -------------
(5,620,832) (4,065,416) (4,858,913) (1,181,605) -- (591,036) (691,626)
-- (182,040) (48,772,968) (31,911,994) -- -- (5,248,285)
(88,052) -- -- -- -- 591,036 --
-- -- (778,930) -- (594,717) -- --
------------- ------------- -------------- ------------- ------------- ------------- -------------
(5,708,884) (4,247,456) (54,410,811) (33,093,599) (594,717) -- (5,939,911)
------------- ------------- -------------- ------------- ------------- ------------- -------------
22,589,307 47,082,168 239,938,336 96,349,172 45,713,631 87,421,230 2,211,152
5,445,026 4,028,879 54,147,470 32,373,017 584,483 -- 5,125,731
(15,082,042) (18,148,713) (122,152,846) (24,422,634) (15,419,174) (10,380,143) (24,874,498)
------------- ------------- -------------- ------------- ------------- ------------- -------------
12,952,291 32,962,334 171,932,960 104,299,555 30,878,940 77,041,087 (17,537,615)
------------- ------------- -------------- ------------- ------------- ------------- -------------
16,145,593 27,385,579 216,698,381 78,720,135 32,102,233 69,909,749 (14,477,402)
62,328,331 34,942,752 429,672,623 350,952,488 83,432,206 13,522,457 61,497,605
------------- ------------- -------------- ------------- ------------- ------------- -------------
$ 78,473,924 $ 62,328,331 $ 646,371,004 $ 429,672,623 $ 115,534,439 $ 83,432,206 $ 47,020,203
=============== =============== ================ =============== =============== =============== ===============
6,846,915 3,449,123 29,940,743 23,005,203 8,034,455 1,244,608 5,170,257
------------- ------------- -------------- ------------- ------------- ------------- -------------
2,439,621 4,889,580 14,336,125 6,292,755 4,381,937 7,756,773 175,167
590,779 425,219 3,421,484 2,255,296 56,201 -- 414,107
(1,631,912) (1,917,007) (7,162,156) (1,612,511) (1,486,274) (966,926) (1,916,686)
------------- ------------- -------------- ------------- ------------- ------------- -------------
1,398,488 3,397,792 10,595,453 6,935,540 2,951,864 6,789,847 (1,327,412)
------------- ------------- -------------- ------------- ------------- ------------- -------------
8,245,403 6,846,915 40,536,196 29,940,743 10,986,319 8,034,455 3,842,845
=============== =============== ================ =============== =============== =============== ===============
$ 62,968 $ (13,973) $ -- $ 848,046 $ (22,525) $ 1,577 $ --
=============== =============== ================ =============== =============== =============== ===============
<CAPTION>
LAZARD
LAZARD EMERGING
SPECIAL EQUITY MARKETS
PORTFOLIO PORTFOLIO
-------------- ---------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- --------------- ---------------
1994 1995 1994+
- ---------------------------------------------------------
<S> <C> <C> <C>
$ 764,923 $ 288,483 $ 18,035
10,854,080 (1,803,813) (187,391)
(13,546,230) 591,707 (1,532,318)
------------- --------------- ---------------
(1,927,227) (923,623) (1,701,674)
------------- --------------- ---------------
(760,649) (136,100) (18,035)
(16,861,086) -- --
-- -- 18,035
-- -- --
------------- --------------- ---------------
(17,621,735) (136,100) --
------------- --------------- ---------------
6,540,035 28,211,253 19,386,871
16,313,998 113,328 --
(59,936,521) (9,073,505) (660,292)
------------- --------------- ---------------
(37,082,488) 19,251,076 18,726,579
------------- --------------- ---------------
(56,631,450) 18,191,353 17,024,905
118,129,055 17,024,905 --
------------- --------------- ---------------
$ 61,497,605 $35,216,258 $17,024,905
=============== ================== ==================
7,508,865 1,727,237 --
------------- --------------- ---------------
429,986 3,079,834 1,786,246
1,278,144 12,192 --
(4,046,738) (1,006,417) (59,009)
------------- --------------- ---------------
(2,338,608) 2,085,609 1,727,237
------------- --------------- ---------------
5,170,257 3,812,846 1,727,237
=============== ================== ==================
$ (918) $ 3,727 $ --
=============== ================== ==================
</TABLE>
<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
------------------------------------------- LESS:
TOTAL ----------------------------
NET FROM DIVIDENDS DISTRIBU- NET
ASSET NET REALIZED INVEST- FROM AND TIONS ASSET
VALUE, AND UNREALIZED MENT IN EXCESS OF FROM VALUE,
BEGINNING INVESTMENT GAIN (LOSS) OPERA- INVESTMENT REALIZED END OF
PERIOD OF PERIOD INCOME-NET ON INVESTMENTS TIONS INCOME-NET GAINS PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
Year ended
12/31/95................. $ 13.75 $ 0.226 $ 4.931 $ 5.157 $(0.175) $(1.322) $17.41
12/31/94................. 13.89 0.141 0.441 0.582 (0.152) (0.574) 13.75
12/31/93................. 12.74 0.158 2.172 2.330 (0.165) (1.015) 13.89
12/31/92................. 12.34 0.123 0.518 0.641 (0.132) (0.109) 12.74
12/31/91................. 11.53 0.107 3.051 3.158 (0.082) (2.266) 12.34
12/31/90................. 12.34 0.191 (0.778) (0.587 ) (0.223)(b) -- 11.53
12/31/89................. 10.32 0.204 2.231 2.435 (0.214) (0.201) 12.34
12/31/88................. 8.73 0.181 1.597 1.778 (0.188) -- 10.32
6/1/87* to 12/31/87...... 10.00 0.110 (1.280) (1.170 ) (0.100) -- 8.73
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended
12/31/95................. 11.23 0.187 1.288 1.475 (0.091) (0.114) 12.50
12/31/94................. 12.32 0.078 (0.049) 0.029 -- (1.123) 11.23
12/31/93................. 9.48 0.021 2.919 2.940 (0.021) (0.079) 12.32
12/31/92................. 10.30 0.097 (0.779) (0.682 ) (0.138) -- 9.48
10/29/91* to 12/31/91.... 10.00 0.020 0.300 0.320 (0.020) -- 10.30
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended
12/31/95................. 10.23 0.701 1.250 1.951 (1.129) (0.202) 10.85
12/31/94................. 10.51 0.592 (0.161) 0.431 (0.593) (0.116) 10.23
12/31/93................. 9.79 0.571 0.912 1.483 (0.570) (0.193) 10.51
12/31/92................. 10.28 0.614 (0.403) 0.211 (0.614) (0.087) 9.79
11/8/91* to 12/31/91..... 10.00 0.110 0.280 0.390 (0.110) -- 10.28
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended
12/31/95................. 9.24 0.595 0.863 1.458 (0.594) (0.004) 10.10
12/31/94................. 10.28 0.584 (1.010) (0.426 ) (0.584) (0.029) 9.24
12/31/93................. 10.21 0.551 0.302 0.853 (0.551) (0.232) 10.28
12/31/92................. 10.25 0.577 (0.004) 0.573 (0.577) (0.036) 10.21
11/12/91* to 12/31/91.... 10.00 0.140 0.250 0.390 (0.140) -- 10.25
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended
12/31/95................. 9.10 0.748 0.430 1.178 (0.758) -- 9.52
12/31/94................. 10.13 0.762 (0.990) (0.228 ) (0.761) (0.039) 9.10
12/31/93................. 9.50 0.644 0.738 1.382 (0.633) (0.119) 10.13
12/31/92................. 9.97 1.049 (0.450) 0.599 (1.049) (0.020) 9.50
10/1/91* to 12/31/91..... 10.00 0.250 (0.030) 0.220 (0.250) -- 9.97
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended
12/31/95................. 14.35 0.126 2.951 3.077 (0.154) (1.323) 15.95
12/31/94................. 15.26 0.070 0.220 0.290 (0.042) (1.158) 14.35
12/31/93................. 12.98 0.019 3.830 3.849 (0.020) (1.549) 15.26
12/31/92................. 10.42 0.019 2.560 2.579 (0.019) -- 12.98
10/30/91* to 12/31/91.... 10.00 0.030 0.420 0.450 (0.030) -- 10.42
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended
12/31/95................. 10.38 0.139 0.056 0.195 -- (0.055) 10.52
12/31/94................. 10.86 0.072 (0.548) (0.476 ) -- -- 10.38
12/1/93* to 12/31/93..... 10.00 0.004 0.859 0.863 (0.003) -- 10.86
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
-----------------
NET
INVEST- ASSETS,
MENT PORTFOLIO END OF
TOTAL INCOME- TURNOVER PERIOD
PERIOD RETURN++ EXPENSES NET RATE (000'S)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
Year ended
12/31/95................. 37.7 % 0.92%(h) 1.45% 80.72% $163,787
12/31/94................. 4.2 1.05 1.15 66.52 89,105
12/31/93................. 18.6 1.05(e) 1.31 63.92 47,123
12/31/92................. 5.3 1.05(d) 1.19 174.45 24,646
12/31/91................. 27.5 1.93 0.84 90.00 14,821
12/31/90................. (4.7 ) 1.77 1.62 70.00 14,397
12/31/89................. 23.6 1.78 1.71 78.00 16,239
12/31/88................. 20.4 1.84 1.86 111.00 12,336
6/1/87* to 12/31/87...... (11.7 ) 1.68+ 1.93+ 97.00 10,186
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended
12/31/95................. 13.1 0.95(h) 1.82 62.54 1,299,549
12/31/94................. 0.2 0.94 0.75 106.15 831,877
12/31/93................. 31.0 0.99 1.13 86.95 603,642
12/31/92................. (6.6 ) 1.05(d) 2.13 60.37 176,005
10/29/91* to 12/31/91.... 3.2 1.05+,(c) 2.19+ 0.18 4,967
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended
12/31/95................. 19.4 1.05(g),(h) 5.99 189.97 45,624
12/31/94................. 4.2 1.05(f) 5.68 65.90 35,803
12/31/93................. 15.7 1.05(e) 5.50 115.84 13,546
12/31/92................. 2.0 1.05(d) 6.08 256.20 8,183
11/8/91* to 12/31/91..... 3.9 1.05+,(c) 4.82+ 6.43 1,427
- ------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended
12/31/95................. 16.2 0.80(g),(h) 6.07 244.28 46,083
12/31/94................. (4.2 ) 0.80(f) 6.11 120.51 24,494
12/31/93................. 8.6 0.80(e) 5.22 174.63 13,562
12/31/92................. 5.7 0.80(d) 5.59 131.38 8,532
11/12/91* to 12/31/91.... 3.9 0.80+,(c) 5.50+ 10.46 3,256
- ------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended
12/31/95................. 13.6 1.09(h) 8.02 205.33 78,474
12/31/94................. (2.3 ) 1.05(f) 8.03 195.18 62,328
12/31/93................. 15.6 1.05(e) 6.36 215.60 34,943
12/31/92................. 6.0 1.05(d) 10.57 122.88 9,641
10/1/91* to 12/31/91..... 2.1 1.05+,(c) 9.52+ 11.26 4,256
- ------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended
12/31/95................. 21.5 0.84(h) 0.90 69.68 646,371
12/31/94................. 2.0 0.85 0.51 70.11 429,673
12/31/93................. 30.1 0.88 0.16 98.47 350,952
12/31/92................. 24.8 1.05(d) 0.29 106.91 168,171
10/30/91* to 12/31/91.... 4.5 1.05+,(c) 2.47+ 5.50 2,512
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended
12/31/95................. 1.9 1.13(h) 1.56 117.53 115,534
12/31/94................. (4.5 ) 1.05(f) 0.95 112.92 83,432
12/1/93* to 12/31/93..... 8.7 1.05+,(e) 1.76+ 0.84 13,522
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------- LESS:
TOTAL ----------------------------
NET FROM DIVIDENDS DISTRIBU- NET
ASSET NET REALIZED INVEST- FROM AND TIONS ASSET
VALUE, AND UNREALIZED MENT IN EXCESS OF FROM VALUE,
BEGINNING INVESTMENT GAIN (LOSS) OPERA- INVESTMENT REALIZED END OF
PERIOD OF PERIOD INCOME-NET ON INVESTMENTS TIONS INCOME-NET GAINS PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Year ended
12/31/95................. $ 11.89 $ 0.195 $ 1.725 $ 1.920 $(0.188) $(1.382) $12.24
12/31/94................. 15.73 0.156 (0.557) (0.401 ) (0.155) (3.279) 11.89
12/31/93................. 16.90 0.157 1.478 1.635 (0.157) (2.648) 15.73
12/31/92................. 15.14 0.161 2.181 2.342 (0.160) (0.422) 16.90
12/31/91................. 11.54 0.230 4.160 4.390 (0.227) (0.563) 15.14
12/31/90................. 13.72 0.714 (2.155) (1.441 ) (0.739) -- 11.54
12/31/89................. 13.13 0.260 1.874 2.134 (0.264) (1.280) 13.72
12/31/88................. 10.64 0.224 2.761 2.985 (0.245) (0.250) 13.13
12/31/87................. 11.66 0.112 (0.291) (0.179 ) (0.105) (0.736) 10.64
1/16/86* to 12/31/86..... 10.00 0.075 1.585 1.660 -- -- 11.66
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Year ended
12/31/95................. 9.86 0.080 (0.660) (0.580 ) (0.040) -- 9.24
7/15/94* to 12/31/94..... 10.00 0.010 (0.154) (0.144 ) -- -- 9.86
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
-------------------- NET
INVEST- ASSETS,
MENT PORTFOLIO END OF
TOTAL INCOME- TURNOVER PERIOD
PERIOD RETURN++ EXPENSES NET RATE (000'S)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Year ended
12/31/95................. 16.3 % 1.59%(g),(h) 1.17% 15.35% $ 47,020
12/31/94................. (2.6 ) 1.71 0.87 11.29 61,498
12/31/93................. 10.2 1.67 0.74 26.31 118,129
12/31/92................. 15.5 1.70 1.04 10.93 150,488
12/31/91................. 38.2 1.77 1.63 19.48 111,395
12/31/90................. (10.5 ) 1.78 4.70(a) 27.18 76,972
12/31/89................. 16.2 1.78 1.82 40.67 101,522
12/31/88................. 28.0 1.96 1.87 64.90 74,695
12/31/87................. (1.9 ) 1.81 0.82 90.86 53,942
1/16/86* to 12/31/86..... 16.6 2.23+ 0.71+ 73.12 51,403
- ----------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Year ended
12/31/95................. (5.9 ) 1.30(g),(h) 1.22 102.22 35,216
7/15/94* to 12/31/94..... (1.4 ) 1.30+,(f) 0.31+ 30.68 17,025
- ----------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
(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%+ ($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 (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 and Administrator had not waived certain fees and
reimbursed certain expenses and the Portfolios had not paid fees indirectly
the ratio of expenses to average net assets (and net investment income per
share) would have been 1.25% ($0.678) for the International Fixed-Income
Portfolio, 0.97% ($0.578) for the Bond Portfolio, 1.81% ($0.157) for the
Special Equity Portfolio and 2.00% ($0.034) for the Emerging Markets
Portfolio.
(h) "Ratio of total expenses to average net assets" for the year ended December
31, 1995 includes fees paid indirectly. Excluding fees paid indirectly for
the year ended December 31, 1995, the expense ratios would have been 0.92%
for the Equity Portfolio, 0.95% for the International Equity Portfolio,
1.05% for the International Fixed-Income Portfolio, 0.80% for the Bond
Portfolio, 1.08% for the Strategic Yield Portfolio, 0.84% for the Small Cap
Portfolio, 1.13% for the International Small Cap Portfolio, 1.59% for the
Special Equity Portfolio, 1.30% for the Emerging Markets Portfolio.
<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.
Effective December 30, 1995, Lazard Global Equity Portfolio, Lazard Bantam Value
Portfolio and Lazard Emerging World Funds Portfolio were added to the Fund. The
Lazard Global Equity Portfolio was first offered for sale on January 4, 1996.
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 or specific identification
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 risk management 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.
(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.
(I) FEES PAID INDIRECTLY--Portfolios leaving excess cash in demand deposit
accounts may receive credits which are available to offset custody expenses. The
Statements of Operations report gross custody expense, and reflect the amount of
such credits as a reduction in total expenses.
(J) ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires the Fund to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and expense
during the reporting period. Actual results could differ from those estimates.
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.
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 December 31, 1996 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 year ended December 31, 1995, the Manager did not impose part of its
management fee amounting to $81,792 for International Fixed-Income Portfolio,
$34,072 for Bond Portfolio, $104,245 for Special Equity Portfolio and $142,805
for Emerging Markets Portfolio. For the Special Equity Portfolio, the Manager
reimbursed $28,661 for Administrative Fees.
Effective June 1, 1995, the Fund has engaged State Street Bank and Trust Company
("State Street") 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 the
Bond and Emerging Markets Portfolios for one year or until each Portfolio
reaches net assets of $50 million.
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 year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Equity Portfolio $ 136,115,551 $ 98,319,414
International Equity 958,136,052 617,956,968
International Fixed-
Income 82,002,248 77,059,477
Bond(1) 93,823,671 77,259,918
Strategic Yield(2) 142,277,826 127,543,921
Small Cap 433,744,267 348,508,399
International Small Cap 137,601,260 108,309,231
Special Equity 8,213,439 33,702,368
Emerging Markets 39,309,777 22,364,600
</TABLE>
(1) Includes purchases and sales of U.S. Government securities of $68,932,503
and $63,560,433, respectively.
(2) Includes purchases and sales of U.S. Government securities of $15,853,916
and $17,588,675, respectively.
For the period, the Small Cap Portfolio and Special Equity Portfolio paid
brokerage commissions of $3,324 and $13,658, respectively, to Lazard Freres &
Co. LLC for portfolio transactions executed on behalf of the Portfolios.
Included in the payable for investments purchased at December 31, 1995, for the
Special Equity Portfolio, is $285,255 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 $3,297,896 and $1,537,156 are
available to the extent provided by regulations to offset future realized
capital gains of the Strategic Yield Portfolio and Emerging Markets Portfolio,
respectively. These losses expire through 2003.
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, 1995,
International Equity Portfolio, Bond Portfolio, Strategic Yield Portfolio, Small
Cap Portfolio, International Small Cap Portfolio, and Emerging Markets Portfolio
will elect to defer net capital and currency losses of $4,705,302, $29,502,
$7,241, $1,687,171, $1,180,891, and $284,313, respectively. The Special Equity
Portfolio and the International Equity Portfolio redesignated $50,277, and
$2,679,708, respectively, of ordinary income dividends to long-term capital gain
distributions.
6. PRIVATE PLACEMENTS
At December 31, 1995, the Small Cap Portfolio held the following securities
which were private placements and represented 0.20% (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 $ 500,000
Verbex Voice Systems Inc.
Series F Preferred
(conv.) 7/12/93 500,343
Verbex Voice Systems Inc. 6/7/94 180,501
Verbex Voice Systems Inc.
10.00%, 12/31/95 3/17/95 100,000
----------
$1,280,844
==========
</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.
<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, 1995, 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 financial highlights for each of the
periods presented, except as noted below. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights 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
financial highlights.
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 financial
highlights 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, 1995, 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 financial highlights 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, 1995, 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 financial highlights for the periods presented in conformity
with generally accepted accounting principles.
ANCHIN, BLOCK & ANCHIN LLP
New York, New York
January 27, 1996
<PAGE>
THE LAZARD FUNDS, INC.
--------------------------------
Annual Report
December 31, 1995
LAZARD FRERES & CO. LLC
30 Rockefeller Plaza, New York, New York 10020
(800) 823-6300
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
- ------------------
JOHN J. BURKE(1) Retired Vice Chairman, Montana Power Company
KENNETH S. DAVIDSON(1) Private Investor
NORMAN EIG(2) Managing Director, Lazard Freres & Co. LLC
HERBERT W. GULLQUIST(2) Managing Director, Lazard Freres & Co. LLC
LESTER Z. LIEBERMAN(1) Private Investor
RICHARD REISS(1) Managing Partner, Cumberland Associates
JOHN RUTLEDGE(1) President, Rutledge and Company
OFFICERS
- --------
NORMAN EIG Chairman of the Board
HERBERT W. GULLQUIST President
WILLIAM G. BUTTERLY, III Vice President and Secretary
GUS COUTSOUROS Treasurer
Member of (1) Audit Committee (2) Executive Committee
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Overview........................................... 2
Growth Charts...................................... 3
Performance Table.................................. 6
Portfolio of Investments
Lazard Equity Portfolio........................... 7
Lazard International Equity Portfolio............. 8
Lazard International Fixed-Income Portfolio....... 10
Lazard Bond Portfolio............................. 12
Lazard Strategic Yield Portfolio.................. 14
Lazard Small Cap Portfolio........................ 17
Lazard International Small Cap Portfolio.......... 19
Lazard Special Equity Portfolio................... 20
Lazard Emerging Markets Portfolio................. 21
Statements of Assets and Liabilities.............. 24
Operations........................................ 26
Changes in Net Assets............................. 28
Financial Highlights.............................. 30
Notes to Financial Statements..................... 32
Report of Independent Auditors.................... 36
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
OVERVIEW
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS,
1995 was a very impressive year for investors. Equity and fixed income returns
were strong as interest rates fell and capital structures changed, and corporate
activity increased.
Most major equity markets around the world had positive returns, with the U.S.
market clearly leading the way. The S&P 500 rose by 37.6%, reversing a
disappointing 1994. The surprise was the magnitude of these gains that were
powered by the unexpected strength of corporate profits. Operating earnings
increased an estimated 18% to 20% in 1995 and profit margins expanded to 30-year
highs due to the continued pace of cost-cutting and financial re-engineering by
U.S. companies.
Interest rates worldwide fell as inflation continued to decelerate. In the U.S.,
the Federal Reserve Bank successfully orchestrated a "soft landing," resulting
in moderating economic activity and low inflation. This fueled a rise in the
U.S. bond market that was paralleled by most major bond markets around the
world. The yield on the U.S. Treasury 30-year bond declined by 200 basis points
and again touched under 6%. For the year, the Lehman Aggregate Bond Index
returned 18.5% and the Salomon Brothers World Government Bond Index Ex-U.S. was
up 19.6%.
The "old capital structure" is breaking down. European monetary union (EMU) and
the prospect of a "converging Europe" have become increasingly effective as a
disciplinary force. Governments around the world, both local and federal, are
downsizing as state-owned monopolies are being dismantled and privatized. In the
business world, performance incentives and entrepreneurship are replacing
seniority and lifetime employment as the competition for global capital
accelerates.
Global corporate finance activity increased in 1995. Worldwide, companies
consolidated, repurchased shares and "de-merged" through asset sales and
spin-offs at an unprecedented pace. Growing corporate cash flows are allowing
companies to re-invest and shrink their capital base further enhancing
shareholder value. The Fund's holdings in defense and aerospace, media,
telecommunications, paper and bank stocks all benefited from this trend.
In Japan, government and business leaders finally began to actively address
their problems. Stimulative fiscal and monetary programs, along with an
initiative to restructure the banking system have all been introduced. Japanese
company managements are also beginning to rationalize costs using Western style
tactics: performance-oriented compensation, outsourcing to low-cost sites, asset
sales and share repurchases.
Looking ahead, the challenge is to find companies that can productively
re-deploy assets. This is most likely found in industries undergoing significant
consolidation including insurance, electric utility/power generation, defense,
and banks.
Many companies are embracing the concept of "shareholder value" by making their
businesses better and being responsive to the real owners of their capital.
Corporate governance and investor relations are beginning to unveil much of the
value that has been hidden away in companies for years.
THE LAZARD FUNDS, INC.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
GROWTH CHARTS
- --------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
The 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.
COMPARISON OF $50,000 INVESTMENT IN THE LAZARD EQUITY PORTFOLIO AND
THE STANDARD & POOR'S 500 STOCK INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD LAZARD EQUITY
(FISCAL YEAR COVERED) PORTFOLIO S&P 500
<S> <C> <C>
MAY-87 50000.00 50000.00
JUN-87 51550.00 52515.00
JUL-87 54230.60 55172.26
AUG-87 55586.37 57224.67
SEP-87 53863.19 55971.45
OCT-87 44544.86 43954.38
NOV-87 42273.07 40336.93
DEC-87 44133.08 43398.51
JAN-88 45986.67 45290.68
FEB-88 47872.13 47319.70
MAR-88 47489.15 45876.45
APR-88 48343.95 46449.91
MAY-88 48053.89 46747.19
JUN-88 50120.21 48906.91
JUL-88 49468.65 48789.53
AUG-88 48429.80 47062.38
SEP-88 50657.57 49076.65
OCT-88 52886.51 50494.97
NOV-88 51881.66 49697.15
DEC-88 53126.82 50581.75
JAN-89 56473.81 54329.86
FEB-89 56247.92 52922.72
MAR-89 56979.14 54187.57
APR-89 59600.18 57059.51
MAY-89 62341.79 59227.77
JUN-89 61406.66 58925.71
JUL-89 65827.94 64293.85
AUG-89 67144.50 65463.99
SEP-89 66808.78 65215.23
OCT-89 64604.09 63760.93
NOV-89 65120.92 64997.89
DEC-89 65641.89 66570.84
JAN-90 61637.74 62190.48
FEB-90 62870.49 62911.89
MAR-90 64442.25 64623.09
APR-90 62122.33 63078.60
MAY-90 66595.14 69058.45
JUN-90 66328.76 68644.10
JUL-90 66262.43 68479.36
AUG-90 60298.81 62240.89
SEP-90 57102.97 59259.55
OCT-90 57217.18 59058.07
NOV-90 60993.51 62790.54
DEC-90 62579.35 64542.39
JAN-91 65082.52 67349.99
FEB-91 69898.63 72165.51
MAR-91 70667.51 73911.92
APR-91 70526.18 74089.30
MAY-91 72783.01 77282.55
JUN-91 69434.99 73743.01
JUL-91 72698.44 77179.44
AUG-91 75751.77 79008.59
SEP-91 74691.25 77689.15
OCT-91 75587.54 78730.18
NOV-91 71581.40 75557.35
DEC-91 79741.68 84201.11
JAN-92 80618.84 82634.97
FEB-92 82714.93 83709.23
MAR-92 80233.48 82076.90
APR-92 79832.32 84489.96
MAY-92 79672.65 84903.96
JUN-92 76485.75 83638.89
JUL-92 78703.83 87059.72
AUG-92 76500.13 85275.00
SEP-92 77647.63 86281.24
OCT-92 78967.64 86574.60
NOV-92 82758.08 89526.79
DEC-92 83916.70 90627.97
JAN-93 85511.11 91389.25
FEB-93 86537.25 92632.14
MAR-93 90258.35 94586.68
APR-93 88453.18 92297.68
MAY-93 90752.96 94762.03
JUN-93 91297.48 95036.84
JUL-93 91480.08 94656.69
AUG-93 94864.84 98244.18
SEP-93 94769.98 97487.70
OCT-93 98655.54 99505.70
NOV-93 97866.30 98560.39
DEC-93 99627.89 99752.97
JAN-94 104609.29 103144.57
FEB-94 103249.37 100349.36
MAR-94 98706.40 95974.12
APR-94 100384.40 97202.59
MAY-94 101589.02 98796.72
JUN-94 99252.47 96376.20
JUL-94 102726.31 99537.33
AUG-94 107348.99 103618.37
SEP-94 105631.41 101090.08
OCT-94 107110.25 103617.33
NOV-94 103254.28 99845.66
DEC-94 103873.80 101323.37
JAN-95 105639.66 103947.65
FEB-95 110287.80 108001.61
MAR-95 113375.86 111187.66
APR-95 116550.38 114456.57
MAY-95 121445.50 119034.84
JUN-95 125210.31 121796.44
JUL-95 129968.30 125840.09
AUG-95 131917.83 126154.69
SEP-95 136534.95 131478.41
OCT-95 135579.21 131005.09
NOV-95 141815.85 136756.21
DEC-95 143092.19 139395.61
</TABLE>
LAZARD INTERNATIONAL EQUITY PORTFOLIO
The 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.
COMPARISON OF $50,000 INVESTMENT IN THE LAZARD INTERNATIONAL EQUITY PORTFOLIO
AND
THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST INDEX
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL
MEASUREMENT PERIOD EQUITY
(FISCAL YEAR COVERED) PORTFOLIO EAFE
<S> <C> <C>
10/31/91 50000.00 50000.00
NOV-91 49950.00 47665.00
DEC-91 51598.35 50129.28
JAN-92 52320.73 49061.53
FEB-92 52896.25 47300.22
MAR-92 51626.74 44178.40
APR-92 52710.91 44386.04
MAY-92 55188.32 47359.91
JUN-92 54139.74 45115.05
JUL-92 51053.78 43960.10
AUG-92 50441.13 46716.40
SEP-92 48171.28 45791.42
OCT-92 47304.20 43387.37
NOV-92 47114.98 43795.21
DEC-92 48198.62 44022.94
JAN-93 47813.04 44014.14
FEB-93 48864.92 45343.37
MAR-93 50233.14 49297.31
APR-93 51338.27 53975.62
MAY-93 52775.74 55114.51
JUN-93 52142.43 54254.72
JUL-93 53706.70 56153.64
AUG-93 57681.00 59180.32
SEP-93 56008.25 57848.76
OCT-93 58976.69 59630.50
NOV-93 57856.13 54418.80
DEC-93 63121.04 58347.83
JAN-94 69117.54 63278.22
FEB-94 66974.89 63101.05
MAR-94 64228.92 60381.39
APR-94 66669.62 62941.56
MAY-94 66269.61 62582.79
JUN-94 64811.67 63465.21
JUL-94 68052.26 64080.82
AUG-94 71114.61 65599.54
SEP-94 67629.99 63533.15
OCT-94 68847.33 65648.81
NOV-94 64716.49 62491.10
DEC-94 63292.73 62884.79
JAN-95 60254.68 60470.02
FEB-95 60676.46 60300.70
MAR-95 61465.26 64057.44
APR-95 64108.26 66466.00
MAY-95 64685.24 65675.05
JUN-95 65784.89 64519.17
JUL-95 69929.33 68538.71
AUG-95 68670.61 65934.24
SEP-95 70181.36 67219.96
OCT-95 69058.46 65472.24
NOV-95 69749.04 67292.37
DEC-95 71632.27 70004.25
</TABLE>
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
The 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.
COMPARISON OF $50,000 INVESTMENT IN THE LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO AND THE SALOMON WORLD GOVERNMENT BOND NON-U.S.
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL
MEASUREMENT PERIOD FIXED-INCOME
(FISCAL YEAR COVERED) PORTFOLIO SWGBI NON-U.S.
<S> <C> <C>
10/31/91 50000.0 50000.0
NOV-91 50200.0 50780.0
DEC-91 52007.2 53420.6
JAN-92 50499.0 52469.7
FEB-92 50549.5 52175.8
MAR-92 49841.8 51622.8
APR-92 50140.8 51994.5
MAY-92 51544.8 53590.7
JUN-92 52524.1 55091.2
JUL-92 53312.0 56374.9
AUG-92 54858.1 57953.4
SEP-92 54803.2 58532.9
OCT-92 53597.5 56940.8
NOV-92 52740.0 56035.4
DEC-92 53109.1 56371.6
JAN-93 53958.9 57143.9
FEB-93 54984.1 58281.1
MAR-93 55973.8 59726.5
APR-93 57821.0 61518.3
MAY-93 58803.9 62637.9
JUN-93 58215.9 61466.6
JUL-93 58390.5 61509.6
AUG-93 60317.4 63699.3
SEP-93 61222.2 64775.9
OCT-93 61161.0 64477.9
NOV-93 60732.8 64181.3
DEC-93 61400.9 64893.7
JAN-94 61830.7 65172.7
FEB-94 61707.0 65355.2
MAR-94 62139.0 66152.6
APR-94 62014.7 66582.6
MAY-94 61642.6 65690.4
JUN-94 63183.7 67280.1
JUL-94 63120.5 67455.0
AUG-94 62615.5 67063.7
SEP-94 63867.8 68391.6
OCT-94 65464.5 70156.1
NOV-94 64286.2 68746.0
DEC-94 63964.7 68780.3
JAN-95 64924.2 70279.1
FEB-95 66936.9 72270.8
MAR-95 72425.7 78711.6
APR-95 74453.6 80395.2
MAY-95 76240.5 82150.2
JUN-95 76697.9 82559.3
JUL-95 76697.94 82996.86
AUG-95 72632.95 78249.44
SEP-95 74594.04 80557.80
OCT-95 75116.20 80815.59
NOV-95 75642.01 81518.68
DEC-95 76322.79 82227.90
</TABLE>
LAZARD BOND PORTFOLIO
The 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 and its agencies or instrumentalities, mortgage-backed securities,
asset-backed securities, municipal securities and corporate fixed-income
securities.
COMPARISON OF $50,000 INVESTMENT IN THE LAZARD BOND PORTFOLIO AND
THE LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD LAZARD BOND
(FISCAL YEAR COVERED) PORTFOLIO LEHMAN G/C
<S> <C> <C>
10/31/91 50000.0 50000.0
NOV-91 50500.0 50575.0
DEC-91 51964.5 51809.0
JAN-92 51392.9 51337.6
FEB-92 51547.1 51537.8
MAR-92 51237.8 51336.8
APR-92 51647.7 51788.6
MAY-92 52370.8 52591.3
JUN-92 53051.6 53369.6
JUL-92 54112.6 54431.7
AUG-92 54599.6 54976.0
SEP-92 55200.2 55723.7
OCT-92 54482.6 54999.3
NOV-92 54264.7 54790.3
DEC-92 54970.1 55524.5
JAN-93 55959.6 56607.2
FEB-93 56854.9 57501.6
MAR-93 56968.7 57731.6
APR-93 57367.4 58193.4
MAY-93 57080.6 58065.4
JUN-93 58165.1 58977.0
JUL-93 58572.3 59118.6
AUG-93 59568.0 60058.6
SEP-93 59508.4 60310.8
OCT-93 59687.0 60473.7
NOV-93 59507.9 60135.0
DEC-93 59626.9 60411.6
JAN-94 60581.0 61082.2
FEB-94 59551.1 61760.2
MAR-94 58181.4 60846.1
APR-94 57425.0 59842.2
MAY-94 57137.9 59435.3
JUN-94 57080.8 59476.9
JUL-94 58108.2 59482.8
AUG-94 58166.3 59667.2
SEP-94 56886.7 59118.3
OCT-94 56943.6 59112.4
NOV-94 56772.7 58846.4
DEC-94 57056.6 59052.3
JAN-95 57969.5 60050.3
FEB-95 59128.9 61293.3
MAR-95 59483.7 61642.7
APR-95 60257.0 62400.9
MAY-95 62667.2 64285.4
JUN-95 63105.9 64716.1
JUL-95 62727.3 64722.6
AUG-95 63354.5 65311.6
SEP-95 64051.4 65781.8
OCT-95 64948.2 66512.0
NOV-95 65662.6 67383.3
DEC-95 66187.9 68090.8
</TABLE>
LAZARD STRATEGIC YIELD PORTFOLIO
The 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 Strategic Yield Portfolio may invest up to 50% of its total
assets in non dollar denominated fixed-income 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.
COMPARISON OF $50,000 INVESTMENT IN THE LAZARD STRATEGIC YIELD PORTFOLIO AND
THE LIBOR USD FIX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD LAZARD STRATEGIC
(FISCAL YEAR COVERED) YIELD PORTFOLIO 30 DAY LIBOR
<S> <C> <C>
10/1/91 50000.0 50000.0
OCT-91 51800.0 50210.0
NOV-91 52473.4 50420.9
DEC-91 51056.6 50597.4
JAN-92 50648.2 50769.4
FEB-92 51458.5 50947.1
MAR-92 52076.0 51125.4
APR-92 52076.0 51289.0
MAY-92 52648.9 51458.2
JUN-92 53175.4 51622.9
JUL-92 54185.7 51767.5
AUG-92 54781.7 51917.6
SEP-92 55384.3 52052.6
OCT-92 53002.8 52193.1
NOV-92 53002.8 52375.8
DEC-92 54115.9 52517.2
JAN-93 55522.9 52653.7
FEB-93 56577.8 52790.6
MAR-93 57483.1 52927.9
APR-93 57540.5 53065.5
MAY-93 58058.4 53208.8
JUN-93 59626.0 53347.1
JUL-93 60401.1 53485.8
AUG-93 60884.3 53624.9
SEP-93 60823.4 53764.3
OCT-93 61735.8 53904.1
NOV-93 61921.0 54060.4
DEC-93 62478.3 54206.4
JAN-94 63727.9 54347.3
FEB-94 62771.9 54504.9
MAR-94 61516.5 54668.5
APR-94 60655.3 54848.9
MAY-94 60655.3 55046.3
JUN-94 60230.7 55250.0
JUL-94 60893.2 55454.4
AUG-94 61745.7 55676.2
SEP-94 61375.3 55904.5
OCT-94 61252.5 56133.7
NOV-94 61497.5 56408.8
DEC-94 61005.5 56685.2
JAN-95 60944.5 56962.9
FEB-95 61249.3 57247.7
MAR-95 61555.5 57534.0
APR-95 62971.3 57815.9
MAY-95 64671.5 58099.2
JUN-95 65059.5 58389.7
JUL-95 65580.0 58670.0
AUG-95 66301.4 58951.6
SEP-95 66898.1 59234.5
OCT-95 67366.4 59504.7
NOV-95 68242.1 59788.5
DEC-95 69265.8 60076.7
</TABLE>
LAZARD SMALL CAP PORTFOLIO
The 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 productivity of their equity or assets employed.
COMPARISON OF $50,000 INVESTMENT IN THE LAZARD SMALL CAP PORTFOLIO AND
THE RUSSELL 2000 STOCK INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD LAZARD SMALL CAP
(FISCAL YEAR COVERED) PORTFOLIO RUSSELL 2000
<S> <C> <C>
10/31/91 50000.00 50000.00
NOV-91 48600.00 47685.00
DEC-91 52245.00 51528.41
JAN-92 56581.34 55702.21
FEB-92 59127.50 57328.72
MAR-92 59127.50 55391.01
APR-92 57708.44 53452.32
MAY-92 57766.14 54163.24
JUN-92 54762.30 51601.32
JUL-92 56240.89 53397.04
AUG-92 54609.90 51891.25
SEP-92 54992.17 53089.93
OCT-92 57631.79 54778.19
NOV-92 62703.39 58968.72
DEC-92 65086.12 61020.84
JAN-93 67103.79 63083.34
FEB-93 67707.72 61626.12
MAR-93 70957.70 63622.80
APR-93 69325.67 61879.54
MAY-93 72514.65 64614.61
JUN-93 74472.54 65015.22
JUL-93 75068.33 65912.43
AUG-93 79497.36 68759.85
SEP-93 81007.81 70698.88
OCT-93 81736.88 72515.84
NOV-93 80674.30 70130.07
DEC-93 84627.34 72528.52
JAN-94 87758.55 74805.91
FEB-94 87846.31 74536.61
MAR-94 83717.53 70601.08
APR-94 83633.81 71017.62
MAY-94 83884.72 70222.23
JUN-94 82961.98 67834.67
JUL-94 84704.18 68947.16
AUG-94 89617.03 72787.52
SEP-94 89617.03 72547.32
OCT-94 88183.16 72264.38
NOV-94 83774.00 69344.90
DEC-94 86538.54 71210.28
JAN-95 86192.39 70313.03
FEB-95 89898.66 73238.05
MAR-95 92056.23 74497.75
APR-95 93989.41 76151.60
MAY-95 96809.09 77461.40
JUN-95 101165.50 81481.65
7/1/95 105819.11 86174.99
AUG-95 106348.21 87958.82
SEP-95 106454.55 89533.28
OCT-95 100386.64 85531.14
NOV-95 104602.88 89123.45
DEC-95 105335.10 91476.31
</TABLE>
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
The 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.
COMPARISON OF $50,000 INVESTMENT IN THE LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
AND
THE SALOMON EMI EX-U.S. INDEX
<TABLE>
<CAPTION>
LAZARD INTERNA-
MEASUREMENT PERIOD TIONAL SMALL CAP
(FISCAL YEAR COVERED) PORTFOLIO EMI EX-U.S.
<S> <C> <C>
12/1/94 50000.0 50000.0
DEC-93 54350.0 53550.0
JAN-94 60382.9 58899.6
FEB-94 59356.3 59311.9
MAR-94 55735.6 58339.2
APR-94 55122.5 60089.4
MAY-94 54846.9 59230.1
JUN-94 53475.7 60474.0
JUL-94 54491.8 61163.4
AUG-94 56671.4 61811.7
SEP-94 54914.6 60043.9
OCT-94 55353.9 61130.7
NOV-94 52973.7 57316.1
DEC-94 51808.3 58084.2
JAN-95 50254.0 56196.4
FEB-95 49952.5 55376.0
MAR-95 48803.6 57729.4
APR-95 49877.3 59461.3
MAY-95 51224.0 58420.7
JUN-95 51685.0 57702.2
JUL-95 53649.0 56992.4
AUG-95 53166.2 60315.1
SEP-95 54708.0 58789.1
OCT-95 52574.4 59247.7
NOV-95 52416.7 59875.7
DEC-95 52731.2 62168.9
</TABLE>
LAZARD SPECIAL EQUITY PORTFOLIO
The 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.
COMPARISON OF $50,000 INVESTMENT IN THE LAZARD SPECIAL EQUITY PORTFOLIO AND
THE RUSSELL 2000 STOCK INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD LAZARD SPECIAL
(FISCAL YEAR COVERED) EQUITY PORTFOLIO RUSSELL 2000
<S> <C> <C>
1/16/86 50000.0 50000.0
JAN-86 49600.0 50790.0
FEB-86 52526.4 54436.7
MAR-86 55520.4 57049.7
APR-86 56075.6 57848.4
MAY-86 58262.6 59815.2
JUN-86 60010.4 59755.4
JUL-86 57550.0 54168.3
AUG-86 58470.8 55890.8
SEP-86 56365.9 52442.4
OCT-86 58789.6 54524.3
NOV-86 59318.7 54338.9
DEC-86 58191.6 52768.5
JAN-87 63428.9 58873.9
FEB-87 68249.5 63825.2
MAR-87 69000.2 65542.1
APR-87 67206.2 63647.9
MAY-87 67071.8 63444.2
JUN-87 68614.5 65074.7
JUL-87 71221.8 67105.1
AUG-87 73572.1 69091.4
SEP-87 73057.1 67833.9
OCT-87 55450.4 47056.4
NOV-87 54008.6 44538.9
DEC-87 56979.1 48124.3
JAN-88 58574.5 50222.5
FEB-88 62381.9 54747.5
MAR-88 65750.5 57309.7
APR-88 68051.8 58610.6
MAY-88 67507.4 57034.0
JUN-88 71422.8 61100.5
JUL-88 71137.1 60520.1
AUG-88 69500.9 58976.8
SEP-88 71099.5 60539.7
OCT-88 72521.5 59867.7
NOV-88 71288.6 57886.1
DEC-88 72999.5 60161.0
JAN-89 75627.5 62850.2
FEB-89 76308.1 63309.0
MAR-89 78368.5 64803.1
APR-89 79779.1 67628.5
MAY-89 82252.3 70543.3
JUN-89 83157.0 68927.9
JUL-89 84321.2 71588.5
AUG-89 86513.6 73335.2
SEP-89 87292.2 73569.9
OCT-89 84237.0 69214.6
NOV-89 83647.3 69678.3
DEC-89 84734.7 69943.1
JAN-90 80074.3 63837.1
FEB-90 81836.0 65816.0
MAR-90 83963.7 68396.0
APR-90 83124.0 66159.4
MAY-90 85700.9 70843.5
JUN-90 85358.1 71027.7
JUL-90 84248.4 67916.7
AUG-90 75318.1 58829.5
SEP-90 71853.5 53599.5
OCT-90 69338.6 50324.6
NOV-90 72736.2 54164.4
DEC-90 75791.1 56293.0
JAN-91 80262.8 61365.0
FEB-91 85961.4 68250.2
MAR-91 89056.1 73034.5
APR-91 90570.0 72844.6
MAY-91 92200.3 76312.0
JUN-91 90540.7 71901.2
JUL-91 95882.6 74417.7
AUG-91 95786.7 77163.7
SEP-91 98756.1 77757.9
OCT-91 99941.1 79810.7
NOV-91 99441.4 76115.5
DEC-91 104612.4 82250.4
JAN-92 107123.1 88912.7
FEB-92 111193.8 91508.9
MAR-92 113306.4 88415.9
APR-92 112739.9 85321.3
MAY-92 112627.2 86456.1
JUN-92 109361.0 82366.7
JUL-92 110345.2 85233.1
AUG-92 108579.7 82829.5
SEP-92 109774.1 84742.9
OCT-92 109883.9 87437.7
NOV-92 117465.8 94126.7
DEC-92 120872.4 97402.3
JAN-93 123048.1 100694.5
FEB-93 122063.7 98368.5
MAR-93 124382.9 101555.6
APR-93 121895.2 98773.0
MAY-93 124455.0 103138.8
JUN-93 125699.6 103778.2
JUL-93 127082.3 105210.4
AUG-93 127717.7 109755.4
SEP-93 129505.7 112850.5
OCT-93 131836.8 115750.8
NOV-93 130254.8 111942.6
DEC-93 133120.4 115771.0
JAN-94 133120.4 119406.2
FEB-94 133919.1 118976.4
MAR-94 134187.0 112694.4
APR-94 133381.8 113359.3
MAY-94 131647.9 112089.7
JUN-94 130068.1 108278.7
JUL-94 132019.1 110054.4
AUG-94 134659.5 116184.5
SEP-94 132639.6 115801.0
OCT-94 133170.2 115349.4
NOV-94 130906.3 110689.3
DEC-94 129466.3 113666.9
JAN-95 129466.3 112234.6
FEB-95 133220.8 116903.6
MAR-95 134419.8 118914.4
APR-95 137377.1 121554.3
MAY-95 138476.1 123645.0
JUN-95 141245.6 130062.2
JUL-95 143505.5 137553.7
AUG-95 146949.7 140401.1
SEP-95 149594.7 142914.3
OCT-95 147051.6 136526.0
NOV-95 148816.3 142260.1
DEC-95 150453.2 146015.8
</TABLE>
LAZARD EMERGING MARKETS PORTFOLIO
The 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.
COMPARISON OF $50,000 INVESTMENT IN THE LAZARD EMERGING MARKETS PORTFOLIO AND
THE
INTERNATIONAL FINANCE CORP. INVESTABLE TOTAL RETURN INDEX
<TABLE>
<CAPTION>
LAZARD EMERGING
MEASUREMENT PERIOD MARKETS
(FISCAL YEAR COVERED) PORTFOLIO IFC INVESTABLE
<S> <C> <C>
7/1/94 50000.00 50000.00
JUL-94 51050.00 50000.00
AUG-94 56512.35 56450.00
SEP-94 58320.75 57844.32
OCT-94 57912.50 55947.02
NOV-94 56638.42 53821.03
DEC-94 49332.07 48116.00
JAN-95 43214.89 41673.27
FEB-95 42134.52 41135.69
MAR-95 42050.25 41053.42
APR-95 43311.76 42765.34
MAY-95 45867.15 44360.49
JUN-95 45775.42 44622.22
JUL-95 47514.88 46018.89
AUG-95 46897.19 44822.40
SEP-95 47366.16 44463.82
OCT-95 45282.05 42774.20
NOV-95 44693.38 42560.33
DEC-95 46481.12 44007.38
</TABLE>
Past performance is not indicative, nor a guarantee, of future results.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS
PERIOD ENDED DECEMBER 31, AVERAGE ANNUAL RETURNS
1995 PERIOD ENDED DECEMBER 31, 1995
----------------------------- ------------------------------------
ONE FIVE SINCE ONE FIVE SINCE
YEAR YEAR INCEPTION* YEAR YEAR INCEPTION*
----------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lazard Equity Portfolio 37.7% 128.5% 186.3% 37.7% 18.0% 13.0%
Standard & Poor's 500 Index 37.6% 115.5% 178.2% 37.6% 16.6% 12.6%
Lazard International Equity Portfolio 13.1% -- 43.2% 13.1% -- 9.0%
EAFE 11.2% -- 39.8% 11.2% -- 8.4%
Lazard International Fixed-Income Portfolio+ 19.4% -- 52.6% 19.4% -- 10.7%
Salomon World Government Bond Index Ex-US+ 19.6% -- 69.8% 19.6% -- 13.5%
Lazard Bond Portfolio:++ 16.2% -- 32.7% 16.2% -- 7.0%
Lehman Intermediate Gov't/Corp Index:++ 15.3% -- 36.6% 15.3% -- 7.8%
Lazard Strategic Yield Portfolio:+++ 13.6% -- 38.7% 13.6% -- 8.0%
LIBOR USD Fix:+++ 6.1% -- 20.6% 6.1% -- 4.5%
Lazard Small Cap Portfolio 21.5% -- 110.4% 21.5% -- 19.5%
Russell 2000 28.5% -- 83.0% 28.5% -- 15.6%
Lazard International Small Cap Portfolio 1.9% -- 5.8% 1.9% -- 2.7%
Salomon EMI Ex-US 5.2% -- 21.5% 5.2% -- 9.8%
Lazard Special Equity Portfolio 16.3% 99.3% 203.1% 16.3% 14.8% 11.8%
Russell 2000 28.5% 159.4% 190.6% 28.5% 21.0% 11.3%
Lazard Emerging Markets Portfolio (5.9%) -- (7.2%) (5.9%) -- (5.0%)
IFC Investable Total Return Index (8.5%) -- (9.1%) (8.5%) -- (6.3%)
</TABLE>
* Performance is measured from June 1, 1987 for Lazard Equity Portfolio; from
January 16, 1986 for Lazard Special Equity Portfolio; from October 31, 1991 for
Lazard International Equity Portfolio, Lazard International Fixed-Income
Portfolio, Lazard Bond Portfolio and Lazard Small Cap Portfolio; from October 1,
1991 for Lazard Strategic Yield Portfolio; from December 1, 1993 for Lazard
International Small Cap Portfolio; from July 15, 1994 for the Lazard Emerging
Markets Portfolio. The performance for the relevant index is for the comparable
period. Portfolio returns are net of fees and assume reinvestment of dividends
and capital gain distributions, if any.
+Effective January 1, 1993, the Portfolio, formerly Lazard Global Fixed-Income
Portfolio, has been renamed to reflect the Board of Directors approval of
changes in certain non-fundamental investment policies of the Portfolio. The
performance of the Portfolio is now measured by the index "excluding U.S."
Performance of the index "Since Inception" shown above is a blended return of
the index "including U.S." and the index "excluding U.S." for the applicable
periods.
++Effective May 1, 1993, the Portfolio, formerly Lazard High Quality Bond
Portfolio, has been renamed to reflect the Board of Directors approval of
changes in certain non-fundamental investment policies of the Portfolio. The
performance of the Portfolio is now measured by the "Intermediate" index rather
than the "Bond" index. Performance of the index shown "One Year", and "Since
Inception" above now includes only the "Intermediate" index.
+++Effective May 1, 1993, the Portfolio, formerly Lazard High-Yield Portfolio,
has been renamed to reflect the Board of Directors approval of changes in
certain non-fundamental investment policies of the Portfolio.
The performance of the index is now measured by the "LIBOR USD Fix" index
rather than the "Merrill" or "Lehman" indices. Performance of the index shown
"One Year", & "Since Inception" above now includes only the "LIBOR USD Fix"
index.
Past performance is not indicative, nor a guarantee, of future results; the
investment return and principal value of each portfolio of The Lazard Funds,
Inc. will fluctuate so that an investor's shares in a portfolio may be more or
less than their original cost. Within the longer periods illustrated there may
have been short-term fluctuations, counter to the overall trend of investment
results, and no single period of any length may be taken as typical of what may
be expected in future periods.
The performance data of the indices have been prepared from sources and data
that the investment manager believes to be reliable, but no representation is
made as to their accuracy. These indices are unmanaged and have no fees or
costs. The S&P 500 Index is an index of common stocks and is a registered
trademark of Standard & Poor's Corporation. The Morgan Stanley-Europe, Australia
and Far East Index (EAFE) is comprised of international equities that are
compiled by Morgan Stanley Capital International. The Salomon World Government
Bond Index Ex-US is an index compiled by Salomon Brothers. The Lehman
Intermediate Government/Corporate Index is an index calculated by Lehman
Brothers. The London Interbank Offered Rates--U.S. dollar Fix rates--is an
average derived from sixteen quotations provided by banks determined by the
British Bankers Association. The Russell 2000 Index is an index of common stocks
and is a registered trademark of the Frank Russell Company. The Salomon Extended
Market Index (EMI) Ex-US is an index compiled by Salomon Brothers. The IFC
Investable Total Return Index is an index of emerging markets securities that
represent 65% of market capital compiled by the International Finance
Corporation.
This performance data is not authorized for distribution to prospective
investors in the fund unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD EQUITY PORTFOLIO
COMMON STOCKS--95.0%
AEROSPACE & DEFENSE--3.2%
Lockheed Martin Corp. ................... 32,000 $ 2,528,000
McDonnell Douglas Corp. ................. 29,800 2,741,600
-------------
5,269,600
-------------
AIRLINE--0.9%
AMR Corp. (a)............................ 20,000 1,485,000
-------------
AUTOMOTIVE--3.1%
Chrysler Corp. .......................... 32,200 1,783,075
General Motors Corp. .................... 31,600 1,670,850
Varity Corp. (a)......................... 42,000 1,559,250
-------------
5,013,175
-------------
BANKS--5.2%
BankAmerica Corp. ....................... 31,000 2,007,250
Chase Manhattan Corp. ................... 27,000 1,636,875
Chemical Banking Corp. .................. 39,500 2,320,625
UJB Financial Corp. ..................... 69,400 2,481,050
-------------
8,445,800
-------------
BEVERAGES--1.3%
Cadbury Schweppes PLC (b)................ 64,400 2,141,300
-------------
BROADCASTING--2.9%
U S West, Inc. (a)....................... 132,100 2,509,900
Viacom, Inc. Class B (a)................. 45,900 2,174,513
-------------
4,684,413
-------------
CHEMICALS & PLASTICS--6.5%
E I du Pont de Nemours & Co. ............ 66,100 4,618,737
FMC Corp. (New) (a)...................... 20,000 1,352,500
Hercules, Inc. .......................... 49,200 2,773,650
W R Grace & Co. ......................... 32,400 1,915,650
-------------
10,660,537
-------------
COMMUNICATION SERVICES--8.2%
Airtouch Communications (a).............. 44,500 1,257,125
AT&T Corp. .............................. 78,900 5,108,775
NYNEX Corp. ............................. 63,900 3,450,600
TeleCommunications, Inc. (New) Liberty
Media Group Series A (a)............... 21,225 570,422
TeleCommunications, Inc. (New) TCI Group
Series A (a)........................... 155,900 3,098,512
-------------
13,485,434
-------------
COMPUTERS & BUSINESS EQUIPMENT--3.0%
Digital Equipment Corp. (a).............. 45,000 2,885,625
Gateway 2000, Inc. (a)................... 80,400 1,969,800
-------------
4,855,425
-------------
DRUGS & HEALTH CARE--5.9%
American Home Products Corp. ............ 25,900 2,512,300
Astra AB (b)............................. 56,100 2,222,962
Columbia/HCA Healthcare Corp. ........... 60,225 3,056,419
Pharmacia & Upjohn, Inc. ................ 47,500 1,840,625
-------------
9,632,306
-------------
ENERGY--8.8%
Amoco Corp. ............................. 31,500 2,264,062
Kerr-McGee Corp. ........................ 40,000 2,540,000
Mobil Corp. ............................. 38,100 4,267,200
Noble Affiliates, Inc. .................. 64,900 $ 1,938,888
Royal Dutch Petroleum Co. (b)............ 23,500 3,316,437
-------------
14,326,587
-------------
ENTERTAINMENT--2.4%
Carnival Corp. Class A................... 81,800 1,993,875
ITT Corp. (New) (a)...................... 36,200 1,918,600
-------------
3,912,475
-------------
FINANCIAL SERVICES--2.8%
Travelers Group, Inc. ................... 74,000 4,652,750
-------------
FOOD PROCESSING--1.6%
Archer Daniels Midland Co. .............. 146,900 2,644,200
-------------
INDUSTRIAL & MACHINERY--3.3%
Allied Signal, Inc. ..................... 63,000 2,992,500
ITT Industries, Inc. (a)................. 36,200 868,800
Sundstrand Corp. ........................ 22,400 1,576,400
-------------
5,437,700
-------------
INSURANCE--4.8%
Allstate Corp. .......................... 52,099 2,142,571
Cigna Corp. ............................. 22,900 2,364,425
Exel Ltd. ............................... 27,500 1,677,500
ITT Hartford Group, Inc. (a)............. 36,200 1,751,175
-------------
7,935,671
-------------
LEISURE TIME--1.5%
Brunswick Corp. ......................... 100,300 2,407,200
-------------
OFFICE EQUIPMENT--1.4%
Xerox Corp. ............................. 17,300 2,370,100
-------------
PAPER PRODUCTS--5.3%
Champion International Corp. ............ 59,900 2,515,800
James River Corp. of Virginia............ 76,800 1,852,800
Kimberly-Clark Corp. .................... 52,806 4,369,697
-------------
8,738,297
-------------
RETAIL--6.9%
Gap, Inc. ............................... 49,700 2,087,400
Nordstrom, Inc. ......................... 52,400 2,122,200
Sears Roebuck & Co. ..................... 80,700 3,147,300
Toys "R" Us, Inc. (a).................... 67,700 1,472,475
Woolworth Corp. ......................... 195,700 2,544,100
-------------
11,373,475
-------------
SAVINGS & LOAN--1.0%
Great Western Financial Corp. ........... 64,600 1,647,300
-------------
TECHNOLOGY--7.6%
Advanced Micro Devices, Inc. ............ 89,300 1,473,450
General Instrument Corp. (a)............. 93,200 2,178,550
Intel Corp. ............................. 34,000 1,929,500
International Business Machines.......... 48,200 4,422,350
SGS-Thomson Microelectronics NV (a)...... 58,900 2,370,725
-------------
12,374,575
-------------
TOBACCO--4.6%
Philip Morris Companies, Inc. ........... 54,200 4,905,100
UST, Inc. ............................... 78,100 2,606,588
-------------
7,511,688
-------------
TRANSPORTATION--1.4%
Kansas City Southern Industries, Inc. ... 50,400 2,305,800
-------------
UTILITIES--1.4%
National Power PLC (b)................... 142,500 $ 1,353,750
Southern Electric PLC (b)................ 35,500 1,007,313
-------------
2,361,063
-------------
TOTAL COMMON STOCKS
(Identified cost $130,480,451)............. 155,671,871
-------------
PREFERRED STOCKS--1.3%
(Identified cost $2,175,536)
FINANCIAL SERVICES--1.3%
Time Warner Financing Trust.............. 68,500 2,140,625
-------------
SHORT TERM INVESTMENT--3.5%
REPURCHASE AGREEMENT--3.5%
(Identified cost $5,694,000)
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S. Treasury
Bills, due 12/12/96; total par value
$6,100,000; valued at $5,810,823)...... $ 5,694,000 5,694,000
-------------
TOTAL INVESTMENTS
(Identified cost $138,349,987) (c)......... 99.8% $ 163,506,496
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES................................ 0.2 280,492
---- ----------
NET ASSETS.................................. 100.0% $ 163,786,988
===== =============
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $138,349,987;
aggregate gross unrealized appreciation is $31,359,389 and the aggregate
gross unrealized depreciation is $6,202,880, resulting in net unrealized
appreciation of $25,156,509.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
------------ --------
<S> <C> <C>
LAZARD INTERNATIONAL EQUITY PORTFOLIO
COMMON STOCKS--92.7%
AUSTRALIA--1.9%
Westpac Bank Corp. ................... 5,488,300 24,312,671
--------------
DENMARK--1.1%
Unidanmark Class A.................... 294,900 14,605,583
--------------
FINLAND--1.6%
Kymmene Corp. ........................ 797,000 21,073,022
--------------
FRANCE--11.7%
Accor................................. 97,629 12,639,736
Alcatel Alsthom (Cie Gen El).......... 421,900 36,374,552
Banque Nationale de Paris............. 446,722 20,151,295
Cie De St Gobain...................... 193,600 21,111,374
Generale des Eaux..................... 216,692 21,633,800
Roussel Uclaf......................... 1,000 169,491
Roussel Uclaf 144A (b)................ 224,400 18,905,700
Total SA-B............................ 308,081 20,792,479
--------------
TOTAL FRANCE.......................... 151,778,427
--------------
GERMANY--8.0%
Hoechst AG............................ 107,250 29,083,479
Mannesmann AG......................... 25,520 8,124,771
Mannesmann AG (b)..................... 52,205 16,601,190
Siemens AG............................ 45,800 25,063,088
Veba AG............................... 580,880 24,660,573
--------------
TOTAL GERMANY......................... 103,533,101
--------------
HONG KONG--2.1%
HSBC Holdings Ltd. ................... 1,418,444 $ 21,462,392
Peregrine Investment.................. 4,806,000 6,215,325
--------------
TOTAL HONG KONG....................... 27,677,717
--------------
ITALY--1.4%
Fiat SPA.............................. 9,620,500 17,567,540
--------------
JAPAN--26.4%
Dai Nippon Printing................... 615,000 10,423,729
DDI Corp. ............................ 3,122 24,189,830
Hitachi............................... 1,927,000 19,409,976
Matsushita Electric Industrial Co. ... 1,486,000 24,178,983
Mazda Motor Corp. (a)................. 4,151,000 17,649,288
Mitsubishi Heavy Ind. ................ 4,131,000 32,927,971
Nintendo Co. ......................... 262,700 19,972,833
Omron Corp. .......................... 911,000 20,999,322
Orix Corp. ........................... 500,000 20,581,114
Promise Co. .......................... 203,600 9,800,407
Ricoh Company, Ltd. .................. 1,150,000 12,585,956
Rohm Company, Ltd. ................... 467,000 26,369,104
Sekisui Chemical...................... 1,661,000 24,452,494
Sony Corp. ........................... 411,000 24,640,097
Sumitomo Trust & Banking.............. 1,981,000 28,012,203
Toyota Motor Corp. ................... 1,269,000 26,916,320
--------------
TOTAL JAPAN........................... 343,109,627
--------------
NETHERLANDS--7.4%
Heineken NV........................... 156,400 27,747,916
ING Groep NV.......................... 427,220 28,539,904
Koninklijke Nedlloyd Groep NV......... 483,200 10,960,603
Royal Dutch Petroleum Co. (b)......... 202,600 28,591,925
--------------
TOTAL NETHERLANDS..................... 95,840,348
--------------
NEW ZEALAND--1.9%
Fletcher Challenge.................... 5,504,000 $ 12,702,092
Lion Nathan Ltd. ..................... 5,031,100 12,005,436
--------------
TOTAL NEW ZEALAND..................... 24,707,528
--------------
NORWAY--0.8%
Aker AS Class A....................... 401,700 5,327,166
Aker AS Class B....................... 467,600 5,684,343
--------------
TOTAL NORWAY.......................... 11,011,509
--------------
SPAIN--2.3%
Banco Santander SA.................... 225,100 11,301,393
ENDESA................................ 323,500 18,321,888
--------------
TOTAL SPAIN........................... 29,623,281
--------------
SWEDEN--3.9%
Astra AB Series B..................... 601,900 23,841,394
Electrolux AB Series B................ 324,300 13,309,600
Volvo AB Series B..................... 691,900 14,172,086
--------------
TOTAL SWEDEN.......................... 51,323,080
--------------
SWITZERLAND--7.1%
Baloise Holdings...................... 6,428 13,374,252
Ciba Geigy AG......................... 32,820 28,879,324
Nestle SA............................. 23,630 26,139,471
SGS Holding........................... 11,706 23,239,480
--------------
TOTAL SWITZERLAND..................... 91,632,527
--------------
UNITED KINGDOM--15.1%
Allied Domecq PLC..................... 1,425,500 11,600,590
British Aerospace Ord. PLC............ 2,114,187 26,129,779
Cadbury Schweppes PLC................. 3,493,230 28,834,474
Lloyds Abbey Life PLC................. 1,917,400 13,400,062
Midlands Electric PLC................. 1,441,300 17,011,772
Mirror Group PLC...................... 4,500,900 12,302,507
National Grid Group PLC (a)........... 1,166,011 3,603,606
National Power Ord. PLC............... 1,292,600 9,023,508
National Power P/P Ord. PLC........... 2,020,800 4,833,098
Rank Organisation PLC................. 3,441,200 24,904,476
Sears PLC............................. 11,817,700 19,087,448
Thorn EMI PLC......................... 1,107,100 26,074,191
--------------
TOTAL UNITED KINGDOM.................. 196,805,511
--------------
TOTAL COMMON STOCKS
(Identified cost $1,080,502,927) 1,204,601,472
--------------
PREFERRED STOCKS--2.1%
(Identified cost $24,881,403)
AUSTRALIA--2.1%
News Corporation, Ltd. (b)............ 1,409,000 27,123,250
--------------
WARRANTS--0.0%
(Identified cost $0)
UNITED KINGDOM--0.0%
British Aerospace PLC (a)............. 117,216 569,787
--------------
SHORT TERM INVESTMENT--5.4%
REPURCHASE AGREEMENT--5.4%
(Identified cost $70,037,000)
State Street Bank and Trust Co.,
5.70%, 1/2/96 (collateralized by
U.S. Treasury Bills, due 12/12/96;
total par value $74,995,000; valued
at $71,439,787)..................... $ 70,037,000 $ 70,037,000
--------------
TOTAL INVESTMENTS
(Identified cost $1,175,421,330) (c).... 100.2% 1,302,331,509
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS.................................. (0.2) (2,782,062)
---- ------------
NET ASSETS............................... 100.0% $1,299,549,447
===== ==============
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $1,175,447,648;
aggregate gross unrealized appreciation is $154,092,979 and the aggregate
gross unrealized depreciation is $27,209,118, resulting in net unrealized
appreciation of $126,883,861.
* Percentages of common and preferred stocks are presented in the portfolio by
country.
Percentages by industry are as follows:
Aerospace & Defense 2.0%, Automotive 5.9%, Banks 8.7%, Chemicals & Plastics
4.1%, Computer & Business Equipment 1.0%, Construction Materials 1.6%,
Domestic Oil 0.8%, Drugs & Health Care 5.5%, Electrical Equipment 11.0%,
Electronics 5.5%, Energy 2.2% , Entertainment 1.9%, Financial Services 4.2%,
Food & Beverage 8.7%, Insurance 2.1%, International Oil 1.6%, Machinery
3.2%, Miscellaneous 0.9%, Mortgage Backed Securities 1.3%, Paper Products
2.6%, Publishing 3.0%, Retailing 3.5%, Services 3.5%, Telephone 1.9%,
Transportation & Freight Services 0.8%, Utilities 7.3%.
Forward Foreign Currency Contracts open at December 31, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- --------------- ---------------- -------- --------------
<S> <C> <C> <C>
$ 3,971,727 GPB 2,555,480 1/5/96 $ (2,974)
NZD 230,101 $149,750 1/4/96 (682)
$ 7,327,986 JPY 750,385,723 1/4/96 (60,327)
$ 856,911 ESP 103,986,191 1/3/96 353
$ 1,861,380 ESP 226,995,238 1/2/96 9,974
--------
$(53,656)
========
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO
CURRENCY DENOMINATED BONDS*--93.2%
AUSTRALIAN DOLLAR--1.0%
CORPORATE BOND
Bayerische Vereinsbank, 10.00%,
12/16/99........................ AUD 210,000 $ 166,403
GOVERNMENT OBLIGATION
Commonwealth of Australia, 9.50%,
8/15/03......................... 345,000 277,126
-----------
TOTAL AUSTRALIAN DOLLAR........... 443,529
-----------
AUSTRIAN SCHILLING--0.9%
GOVERNMENT OBLIGATION
Republic of Austria, 5.625%,
12/14/00........................ ATS 4,000,000 404,227
-----------
BELGIAN FRANC--1.4%
GOVERNMENT OBLIGATION
Belgium Kingdom, 6.50%,
3/31/05......................... BEL 19,000,000 637,078
-----------
BRAZILIAN REAL--0.4%
CORPORATE BOND
Chase Brazil Note, 27.152%, 3/1/96
(a)............................. BRL 198,729 195,410
-----------
BRITISH POUND--6.2%
CORPORATE BONDS
Barclays Bank PLC, 12.75%,
11/26/97........................ GBP 310,000 531,993
Bayerische Landesbank
Girozentrale, 8.50%, 2/26/03.... 275,000 446,517
Tokyo Electric Power, 11.00%,
6/5/01.......................... 100,000 179,667
West LB Finance Curacao NV, 8.50%,
6/2/03.......................... 820,000 1,319,717
GOVERNMENT OBLIGATION
United Kingdom Treasury, 8.50%,
7/16/07......................... 200,000 333,903
-----------
TOTAL BRITISH POUND............... 2,811,797
-----------
CANADIAN DOLLAR--3.1%
CORPORATE BOND
Quebec Housing, 8.95%,
5/13/13......................... CAD 419,000 332,985
GOVERNMENT OBLIGATIONS
Government of Canada, 7.50%,
12/1/03......................... 800,000 603,752
Government of Canada, 9.00%,
12/1/04......................... 600,000 494,983
-----------
TOTAL CANADIAN DOLLAR............. 1,431,720
-----------
CZECH KORUNA--3.8%
CORPORATE BONDS
CEZ AS, 14.375%, 1/27/01.......... CZK 10,000,000 401,260
Czech Trade Bank, 11.125%,
8/26/97......................... 5,000,000 188,630
Skofin, 11.625%, 2/9/98........... 30,000,000 1,137,966
-----------
TOTAL CZECH KORUNA................ 1,727,856
-----------
DANISH KRONE--5.3%
CORPORATE BONDS
Kreditforen Denmark, 10.20%,
4/15/04 (a)..................... DKK 5,000,000 $ 992,346
Nykredit, 6.00%, 10/1/26.......... 8,285,520 1,240,776
GOVERNMENT OBLIGATION
Kingdom of Denmark, 8.00%,
5/15/03......................... 1,000,000 191,463
-----------
TOTAL DANISH KRONE................ 2,424,585
-----------
DUTCH GUILDER--4.9%
GOVERNMENT OBLIGATIONS
Government of Netherlands, 6.75%,
2/15/99......................... NLG 1,590,000 1,053,262
Government of Netherlands, 8.75%,
1/15/07......................... 300,000 224,154
Government of Netherlands, 9.00%,
5/15/00......................... 1,300,000 936,742
-----------
TOTAL DUTCH GUILDER............... 2,214,158
-----------
FRENCH FRANC--6.4%
GOVERNMENT OBLIGATIONS
Government of France, 6.75%,
10/25/03........................ FRF 2,300,000 477,425
Government of France, 7.50%,
4/25/05......................... 4,700,000 1,017,070
Government of France, 7.75%,
4/12/00......................... 2,000,000 437,819
Government of France, 8.50%,
10/25/19........................ 2,850,000 657,356
United Mexican States, 6.63%,
12/31/19........................ 3,000,000 340,770
-----------
TOTAL FRENCH FRANC................ 2,930,440
-----------
GERMAN MARK--11.0%
CORPORATE BONDS
Autobahn Tank & Rast, 6.00%,
10/16/00........................ DEM 610,000 435,739
Baden Wurttemberg, 6.75%,
6/22/05......................... 1,574,000 1,133,894
Bank Nederlandse Gem, 6.50%,
11/4/08......................... 800,000 550,603
International Bank Reconstruction
& Development, 7.125%,
4/12/05......................... 1,700,000 1,259,150
Land Hessen, 6.00%,
11/29/13........................ 1,000,000 690,136
GOVERNMENT OBLIGATION
Federal Republic of Germany,
8.25%, 9/20/01.................. 1,210,000 962,517
-----------
TOTAL GERMAN MARK................. 5,032,039
-----------
GREEK DRACHMA--0.2%
GOVERNMENT OBLIGATION
Greek Treasury Bill, 0.00%,
7/17/96......................... GRD 25,000,000 97,748
-----------
HUNGARIAN FORINTS--0.2%
GOVERNMENT OBLIGATION
Hungarian Treasury Bill, 0.00%,
10/11/96........................ HUF 15,200,000 89,745
-----------
IRISH POUND--2.7%
GOVERNMENT OBLIGATION
Republic of Ireland, 6.25%,
4/1/99.......................... IEP 770,000 $ 1,222,310
-----------
ITALIAN LIRA--8.9%
GOVERNMENT OBLIGATIONS
Republic of Italy, 8.50%,
8/1/99.......................... ITL 5,885,000,000 3,517,011
Republic of Italy, 12.00%,
5/1/97.......................... 400,000,000 256,907
Republic of Italy, 12.00%,
1/1/02.......................... 400,000,000 268,216
-----------
TOTAL ITALIAN LIRA................ 4,042,134
-----------
JAPANESE YEN--26.0%
CORPORATE BOND
Export-Import Bank of Japan,
4.375%, 10/1/03................. JPY 205,000,000 2,181,537
GOVERNMENT OBLIGATIONS
Credit Local De France, 6.00%,
10/31/01........................ 80,000,000 923,002
Government of Japan, 5.50%,
9/20/02......................... 475,000,000 5,391,768
Republic of Austria, 4.50%,
9/28/05......................... 80,000,000 863,923
Republic of Austria, 6.25%,
10/16/03........................ 15,000,000 179,600
Republic of Italy, 3.50%,
6/20/01......................... 230,000,000 2,337,591
-----------
TOTAL JAPANESE YEN................ 11,877,421
-----------
NORWEGIAN KRONE--2.2%
CORPORATE BOND
Sparebanken Norway, 10.25%,
6/23/03 (a)..................... NOK 6,000,000 1,022,560
-----------
PORTUGUESE ESCUDO--0.2%
GOVERNMENT OBLIGATION
Republic of Portugal, 11.875%,
2/23/00......................... PTE 13,000,000 93,525
-----------
SOUTH AFRICAN RAND--0.2%
GOVERNMENT OBLIGATION
Republic of South Africa, 11.50%,
5/30/00......................... ZAR 405,500 102,085
-----------
SPANISH PESETA--3.2%
GOVERNMENT OBLIGATION
Kingdom of Spain, 12.25%,
3/25/00......................... ESP 160,000,000 1,448,178
-----------
SWEDISH KRONA--1.1%
GOVERNMENT OBLIGATION
Kingdom of Sweden, 10.25%,
5/5/00.......................... SEK 3,000,000 484,969
-----------
THAILAND BAHT--0.3%
CORPORATE BOND
Industrial Group Finance of
Thailand, 11.25%, 5/14/96....... THB 3,000,000 119,177
-----------
UNITED STATES DOLLAR--3.6%
CONVERTIBLE BOND
Zenith Electric, 6.25%, 4/1/11.... USD $ 225,000 $ 159,750
CORPORATE BOND
Reliance Industries Ltd. 144A,
8.125%, 9/27/05................. 250,000 251,250
GOVERNMENT OBLIGATION
Argentina Bono 1998 Boax0,
8.9922%, 4/4/98 (b)............. 500,000 494,500
YANKEE BONDS
Astra International, 9.75%,
4/29/01......................... 100,000 106,000
Den Norske Credit, 6.125%,
11/29/49 (a).................... 700,000 552,545
Hong Kong & Shanghai Bank, 6.25%,
8/29/49 (a)..................... 100,000 79,850
-----------
TOTAL UNITED STATES DOLLAR........ 1,643,895
-----------
TOTAL CURRENCY DENOMINATED BONDS*
(Identified cost $40,755,329)....... 42,496,586
-----------
STRUCTURED NOTES--1.1%
ING Polish Note, 0.00%,
2/21/96......................... 224,047 216,766
United Mexican States 144A, 0.00%,
11/27/96 (c).................... 300,000 305,250
-----------
TOTAL STRUCTURED NOTES
(Identified cost $500,017).......... 522,016
-----------
SHORT TERM INVESTMENT--8.5%
REPURCHASE AGREEMENT--8.5%
(Identified cost $3,866,000)
State Street Bank and Trust Co.,
5.70%, 1/2/96 (collateralized by
U.S. Treasury Bills, due
12/12/96; total par value
$4,140,000; valued at
$3,943,739)..................... 3,866,000 3,866,000
-----------
TOTAL INVESTMENTS
(Identified cost $45,121,346) (d)... 102.8% 46,884,602
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS........................ (2.8) (1,260,299)
---- ---------
NET ASSETS........................... 100.0% $45,624,303
===== ===========
</TABLE>
(a) Variable rate security. Interest shown is the current rate.
(b) Coupon set quarterly to 3 month LIBOR. Current rate shown.
(c) Value set monthly based on CETES/LIBOR rates.
(d) The aggregate cost for federal income tax purposes is $45,125,136; aggregate
gross unrealized appreciation is $1,948,773 and the aggregate gross
unrealized depreciation is $189,307, resulting in net unrealized
appreciation of $1,759,466.
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO (CONTINUED)
* Percentages of holdings are presented in the portfolio by currency
denomination.
Percentages by country are as follows:
Argentina 1.1%, Australia 1.0%, Austria 0.9%, Belgium 1.4%, Brazil 0.4%,
Canada 3.1%, Czech Republic 3.8%, Denmark 5.3%, France 6.4%, Germany 11.0%,
Greece 0.2%, Hong Kong 0.2%, Hungary 0.2%, Ireland 2.7%, Italy 8.9%, Japan
26.1%, Mexico 0.7%, Netherlands 4.9%, Norway 3.5%, Poland 0.5%, Portugal
0.2%, South Africa 0.2%, Spain 3.2%, Sweden 1.3%, Thailand 0.3%, United
Kingdom 6.2%, United States 0.6%.
Forward Foreign Currency Contracts open at December 31, 1995:
<TABLE>
<CAPTION>
In Unrealized
Contracts Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ------------------------------------- ---- ------------- -------------
<S> <C> <C> <C> <C> <C>
AUD 162,499 $121,000 3/12/96 $ 642
$ 486,000 CAD 660,814 3/12/96 (2,132)
$ 229,503 DEM 328,025 3/12/96 5
DEM 153,082 $106,526 3/12/96 (580)
$ 986,922 DKK 5,454,127 3/12/96 (2,887)
DKK 3,050,518 $549,000 3/12/96 (1,376)
$ 1,398,000 FRF 6,906,120 3/12/96 13,991
$ 451,000 JPY 45,330,010 3/12/96 (7,382)
JPY 27,531,450 $275,000 3/12/96 5,566
NOK 6,557,669 $1,038,000 3/12/96 1,839
$ 171,000 SEK 1,123,453 3/12/96 (2,760)
XEU 48,513 $62,240 3/12/96 134
$ 3,548,592 ITL 5,684,489,869 1/19/96 30,780
DKK 5,452,746 $983,948 1/2/96 1,914
-------
$ 37,754
============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
LAZARD BOND PORTFOLIO
ASSET-BACKED SECURITIES--17.7%
American Financial Home Equity Loan,
Series 1991-1, Class A, 8.00%,
7/25/06................................. $ 72,756 $ 74,484
AT & T Universal Card Master Trust, Series
1995-2, Class A, 5.95%,
10/17/02................................ 810,000 817,087
Banc One Credit Card Master Trust, Series
1995-B, Class A, 6.30%,
10/15/02................................ 400,000 409,500
Bridgestone Firestone, Series 1992-A,
Class A, 6.25%, 12/1/99................. 83,333 83,437
Chase Manhattan Grantor Trust, Series
1995-A, Class A, 5.90%,
11/15/01................................ 389,662 391,002
Chase Manhattan Grantor Trust, Series
1995-B, Class A, 6.00%, 9/17/01......... 641,571 644,578
Discover Card Master Trust I, Series
1995-2, Class A, 6.55%, 2/18/03......... 750,000 774,135
Fical Home Equity Loan Trust, Series
1990-1, Class A, 8.90%,
11/15/97................................ 1,057 1,056
First Chicago Master Trust II, Series
1992-E, Class A, 6.25%, 8/15/99......... 400,000 404,248
Ford Credit Grantor Trust, Series 1994-B,
Class A, 7.30%, 10/15/99................ 347,198 353,815
Ford Credit Grantor Trust, Series 1995-A,
Class A, 5.90%, 5/15/00................. 461,522 463,253
G E Home Equity Loan, Inc., Series 1991-1,
Class A, 7.20%, 9/15/11................. 49,714 50,195
Green Tree Financial Corp., Series 1994-3,
Class A, 6.60%, 6/15/19................. 299,343 301,307
Green Tree Financial Corp., Series 1994-6,
Class A2, 7.25%, 11/15/19............... 600,000 609,558
MBNA Master Credit Card Trust, Series
1995-D, Class A, 6.05%,
11/15/02................................ 773,000 784,595
Olympic Automobile Receivable Trust,
Series 1994-B, Class A2, 6.85%,
6/15/01................................. $ 273,922 $ 278,673
Premier Auto Trust, Series 1994-1, Class
A3, 5.90%, 7/6/99....................... 252,000 252,709
Premier Auto Trust, Series 1995-4, Class
A2, 4.75%, 2/2/00....................... 746,072 740,476
Security Pacific Home Equity Loan, Series
1991-1, Class A, 7.85%, 5/15/98......... 32,530 32,835
Standard Credit Card Master Trust I,
Series 1995-3, Class A, 7.85%, 2/7/02... 660,000 708,464
------------
TOTAL ASSET-BACKED SECURITIES
(Identified Cost $8,080,503)................ 8,175,407
------------
CORPORATE BONDS--12.7%
AUTOMOTIVE--1.6%
General Motors Acceptance Corp., 5.625%,
2/1/99.................................. 750,000 746,445
------------
AUTO PARTS--0.7%
Walbro Corp. 144A, 9.875%, 7/15/05........ 335,000 334,163
------------
BROADCASTING--2.7%
Act III Broadcasting Inc., 10.25%,
12/15/05................................ 170,000 174,250
Comcast Corp., 9.50%, 1/15/08............. 184,000 195,040
Comcast Corp., 9.125%, 10/15/06........... 367,000 382,598
Paxson Communications Corp. 144A, 11.625%,
10/1/02................................. 160,000 162,400
SCI Television Inc., 11.00%, 6/30/05...... 294,000 310,905
------------
1,225,193
------------
CHEMICALS & PLASTICS--0.6%
Arcadian Partners LP, Series B, 10.75%,
5/1/05.................................. 263,000 290,615
------------
ELECTRONICS--0.8%
Alpine Group Inc. 144A, 12.25%,
7/15/03................................. 368,000 360,640
------------
FINANCIAL SERVICES--1.7%
Avco Financial Services Inc., 6.35%,
9/15/00................................. $ 128,000 $ 130,479
Bank of Boston Corp., 6.625%, 2/1/04...... 104,000 105,618
Citicorp, 8.00%, 2/1/03................... 126,000 139,258
Norwest Corporation Medium Term Note,
6.125%, 10/15/00........................ 149,000 151,235
Salomon Inc., 8.55%, 2/17/97.............. 265,000 271,919
------------
798,509
------------
FOREST PRODUCTS--0.5%
Williamhouse Regency Delaware Inc. 144A,
13.00%, 11/15/05........................ 238,000 249,900
------------
MANUFACTURING--1.0%
Silgan Corp., 11.75%, 6/15/02............. 434,000 465,465
------------
PAPER PRODUCTS--0.4%
Crown Paper Co., 11.00%, 9/1/05........... 215,000 188,125
------------
RESTAURANTS, LODGING & ENTERTAINMENT--0.7%
Flagstar Corp., 10.75%, 9/15/01........... 335,000 306,525
------------
RETAIL GROCERY--0.2%
Pueblo Xtra International, 9.50%,
8/1/03.................................. 73,000 69,715
------------
RETAIL--0.9%
D.R. Structured Finance Corp., Series
1994-K2, Class A2, 9.35%,
8/15/19................................. 600,000 396,000
------------
RETAIL TRADE--0.7%
Mothers Work Inc. 144A, 12.625%,
8/1/05.................................. 328,000 323,080
------------
UTILITIES--0.2%
Texas New Mexico Power Co., 9.25%,
9/15/00................................. 80,000 82,800
------------
TOTAL CORPORATE BONDS
(Identified cost $5,980,173)................ 5,837,175
------------
FEDERAL AGENCIES--5.2%
Federal Home Loan Mortgage Corp., 8.50%,
1/1/99.................................. 362,000 377,272
Federal Home Loan Mortgage Corp., 7.00%,
1/1/99.................................. 367,000 369,408
Federal Home Loan Mortgage Corp., 7.00%,
9/1/25.................................. 619,485 625,098
Federal Home Loan Mortgage Corp., 7.00%,
8/1/25.................................. 1,012,108 1,021,277
------------
TOTAL FEDERAL AGENCIES
(Identified cost $2,342,473)................ 2,393,055
------------
MUNICIPAL BOND--0.9%
(Identified cost $379,772)
Allegheny County Pennsylvania Hospital
Development, 5.375%, 12/1/25............ 400,000 393,256
------------
MORTGAGE PASS-THROUGH SECURITIES--13.4%
Federal National Mortgage Association,
9.00%, 1/1/99........................... 55,000 57,956
Federal National Mortgage Association,
9.00%, 10/1/25.......................... 173,675 182,901
Federal National Mortgage Association,
7.50%, 1/1/99........................... $ 303,000 $ 310,480
Federal National Mortgage Association,
9.00%, 7/1/25........................... 310,369 326,856
Federal National Mortgage Association,
8.00%, 10/1/25.......................... 391,577 405,525
Federal National Mortgage Association,
8.00%, 1/1/99........................... 414,000 429,008
Federal National Mortgage Association,
7.50%, 10/1/25.......................... 489,712 501,798
Federal National Mortgage Association,
7.50%, 9/1/25........................... 852,458 873,496
Federal National Mortgage Association,
8.00%, 9/1/25........................... 1,444,880 1,496,346
Government National Mortgage Association,
9.00%, 9/15/25.......................... 127,130 134,678
Government National Mortgage Association,
6.00%, 1/20/99.......................... 275,000 277,922
Government National Mortgage Association,
6.00%, 10/20/25 (a)..................... 1,154,060 1,165,600
------------
TOTAL MORTGAGE PASS-THROUGH SECURITIES
(Identified cost $6,068,445)................ 6,162,566
------------
U.S. GOVERNMENT OBLIGATIONS--43.2%
United States Treasury Bond Strip, 0.00%,
11/15/21................................ 1,270,000 258,788
United States Treasury Notes, 7.50%,
11/15/01................................ 491,000 540,792
United States Treasury Notes, 8.875%,
2/15/99................................. 720,000 793,800
United States Treasury Notes, 5.75%,
10/31/00................................ 1,115,000 1,131,023
United States Treasury Notes, 7.375%,
11/15/97................................ 1,580,000 1,639,740
United States Treasury Notes, 7.875%,
11/15/04................................ 3,044,000 3,523,430
United States Treasury Notes, 7.75%,
12/31/99................................ 3,436,000 3,728,610
United States Treasury Notes, 5.125%,
4/30/98................................. 6,500,000 6,486,805
United States Treasury Strips, 0.00%,
8/15/02................................. 1,000,000 699,840
United States Treasury Strips, 0.00%,
5/15/05................................. 1,898,000 1,116,992
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified cost $19,686,260)............... 19,919,820
------------
SHORT TERM INVESTMENTS--5.4%
REPURCHASE AGREEMENT--3.9%
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S. Treasury
Bills, due 12/12/96; total par value
$1,935,000; valued at $1,843,269)....... 1,806,000 1,806,000
------------
FEDERAL AGENCIES--0.7%
Federal National Mortgage Association
Discount Notes, 5.45%, 1/16/96.......... 130,000 129,705
Federal National Mortgage Association
Discount Notes, 5.45%, 1/3/96........... 185,000 184,944
------------
314,649
------------
U.S. GOVERNMENT OBLIGATION--0.8%
United States Treasury Bills, 4.65%,
1/11/96................................. $ 385,000 $ 384,503
------------
TOTAL SHORT TERM INVESTMENTS
(Identified cost $2,505,151)................ 2,505,152
------------
TOTAL INVESTMENTS
(Identified cost $45,042,777) (b)........... 98.5% 45,386,431
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES................................. 1.5 $ 696,972
---- ---------
NET ASSETS................................... 100.0% $ 46,083,403
===== ==========
</TABLE>
(a) Variable rate security. Interest shown is the current rate.
(b) The aggregate cost for federal income tax purposes is $45,042,777; aggregate
gross unrealized appreciation is $574,652 and the aggregate gross unrealized
depreciation is $230,998, resulting in net unrealized appreciation of
$343,654.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
LAZARD STRATEGIC YIELD PORTFOLIO
CURRENCY DENOMINATED BONDS*--89.3%
ARGENTINA PESO--1.2%
GOVERNMENT OBLIGATION
Bocon Pre 1 Pesos 2197, 0.00%,
4/1/01......................... ARP 1,100,000 $ 956,809
-----------
AUSTRALIAN DOLLAR--2.9%
GOVERNMENT OBLIGATIONS
Commonwealth of Australia, 8.75%,
1/15/01........................ AUD 1,218,000 941,130
Commonwealth of Australia,
13.00%, 7/15/00................ 1,469,000 1,310,930
-----------
TOTAL AUSTRALIAN DOLLAR.......... 2,252,060
-----------
BRAZILIAN REAL--1.2%
CORPORATE BOND
Chase Brazil Note, 27.152%,
3/1/96 (a)..................... BRL 973,037 956,787
-----------
BRITISH POUND--0.8%
GOVERNMENT OBLIGATIONS
United Kingdom Treasury, 2.50%,
7/17/24........................ GBP 350,000 657,201
-----------
CANADIAN DOLLAR--4.9%
CONVERTIBLE BOND
Canada Trustco, 7.00%, 7/1/09.... CAD 2,000,000 1,340,169
GOVERNMENT OBLIGATIONS
Canada Government, 7.50%,
12/1/03........................ CAD 2,930,000 2,211,243
Quebec Housing, 8.95%, 5/13/13... 394,000 313,117
-----------
TOTAL CANADIAN DOLLAR............ 3,864,529
-----------
CZECH KORUNA--3.9%
CORPORATE BONDS
CEZ AS, 14.375%, 1/27/01......... CZK 20,370,000 817,366
Czech Trade Bank, 11.125%,
8/26/97........................ 20,000,000 754,519
Skofin, 11.625%, 2/9/98.......... 40,000,000 1,517,288
-----------
TOTAL CZECH KORUNA............... 3,089,173
-----------
DANISH KRONE--3.6%
CORPORATE BONDS
Kreditforen Denmark, 10.20%,
4/15/04........................ DKK 9,000,000 1,786,223
Nykredit, 6.00%, 10/1/26......... 7,089,480 1,061,666
-----------
TOTAL DANISH KRONE............... 2,847,889
-----------
GERMAN MARK--1.0%
CORPORATE BOND
Autobahn Tank & Rast, 6.00%,
10/16/00....................... DEM 1,050,000 750,042
-----------
GREEK DRACHMA--0.6%
GOVERNMENT OBLIGATION
Greek Treasury Bill, 0.00%,
7/17/96........................ GRD 130,000,000 508,288
-----------
HUNGARIAN FORINTS--0.6%
GOVERNMENT OBLIGATION
Hungarian Treasury Bill, 0.00%,
10/11/96....................... HUF 75,900,000 448,134
-----------
INDONESIAN RUPIAH--1.1%
CORPORATE BONDS
Bakrie & Brothers, 0.00%,
4/15/96........................ IDR 1,000,000,000 413,345
Indah Kiat, 0.00%, 3/21/96....... 1,000,000,000 422,086
-----------
TOTAL INDONESIAN RUPIAH.......... 835,431
-----------
IRISH POUND--3.0%
GOVERNMENT OBLIGATION
Republic of Ireland, 6.25%,
4/1/99......................... IEP 1,505,000 2,389,061
-----------
ITALIAN LIRA--2.0%
GOVERNMENT OBLIGATION
Republic of Italy, 8.50%,
8/1/99......................... ITL 2,575,000,000 1,538,879
-----------
MEXICAN PESO--0.2%
CORPORATE BOND
Ajustobonos, 0.00%, 2/15/96...... MXP 555,000 163,398
-----------
NEW ZEALAND DOLLAR--0.9%
GOVERNMENT OBLIGATION
Government of New Zealand,
10.00%, 7/15/97................ NZD 1,065,000 715,375
-----------
NORWEGIAN KRONE--2.2%
CORPORATE BOND
Sparebanken Norway, 10.25%,
6/23/03 (a).................... NOK 10,000,000 1,704,267
-----------
PORTUGUESE ESCUDO--0.6%
GOVERNMENT OBLIGATION
Republic of Portugal, 11.875%,
2/23/00........................ PTE 61,500,000 442,447
-----------
SOUTH AFRICAN RAND--0.7%
GOVERNMENT OBLIGATION
Republic of South Africa, 11.50%,
5/30/00........................ ZAR 2,032,200 511,608
-----------
SPANISH PESETA--1.6%
GOVERNMENT OBLIGATION
Kingdom of Spain, 12.25%,
3/25/00........................ ESP 140,000,000 $ 1,267,156
-----------
THAILAND BAHT--1.6%
CORPORATE BONDS
Industrial Group Finance of
Thailand, 11.25%, 5/14/96...... THB 3,000,000 119,177
Krung Thai Than BE, 0.00%,
1/12/96........................ 10,000,000 395,671
Phatra Thanakit BE, 0.00%,
6/20/96 (a).................... 20,000,000 755,592
-----------
TOTAL THAILAND BAHT.............. 1,270,440
-----------
UNITED STATES DOLLAR--54.7%
CONVERTIBLE BONDS
Burns Philp, 5.50%, 4/30/04...... USD $ 800,000 692,000
Dairy Farm International Holdings
Ltd., 0.00%, 5/10/49........... 250,000 197,500
Zenith Electric, 6.25%, 4/1/11... 535,000 379,850
CORPORATE BONDS
Act III Broadcasting Inc.,
10.25%, 12/15/05............... 400,000 410,000
Alpine Group Inc. 144A, 12.25%,
7/15/03........................ 718,000 703,640
Arcadian Partners Series B,
10.75%, 5/1/05................. 798,000 881,790
Astra International, 9.75%,
4/29/01........................ 1,540,000 1,632,400
Ce Casecnan Water & Energy Inc.
Series B 144A, 11.95%,
11/15/10....................... 750,000 757,500
Comcast Corp., 9.125%,
10/15/06....................... 320,000 333,600
Comcast Corp., 9.50%,
1/15/08........................ 479,000 507,740
Crown Paper Co., 11.00%,
9/1/05......................... 390,000 341,250
Den Norske Credit, 6.125%,
11/29/49 (a)................... 800,000 631,480
Eletson Holdings Inc., 9.25%,
11/15/03....................... 700,000 693,000
Export-Import Bank of Japan,
8.00%, 6/4/00.................. 444,125 448,886
Flagstar Corp., 10.75%,
9/15/01........................ 800,000 732,000
Forenings Banken 144A, 7.234%,
11/29/49 (a)................... 750,000 745,500
Fort Howard Corp., 8.25%,
2/1/02......................... 785,000 765,375
Fundy Cable Ltd., 11.00%,
11/15/05....................... 535,000 556,400
Hong Kong & Shanghai Bank, 6.25%,
8/29/49 (a).................... 1,200,000 958,200
Lennar Central Partners Ltd.
Participating Class D 144A,
9.89%, 9/15/04................. 370,000 370,000
Mothers Work Inc. 144A, 12.625%,
8/1/05......................... 739,000 727,915
Noble Drilling Corp., 9.25%,
10/1/03........................ $ 820,000 $ 861,000
NorthWest Airlines Inc., 8.625%,
8/1/96......................... 420,000 421,050
Paxson Communications Corp. 144A,
11.625%, 10/1/02............... 425,000 432,969
Pueblo Xtra International, 9.50%,
8/1/03......................... 96,000 91,680
Reliance Industries, Ltd. 144A,
8.125%, 9/27/05................ 1,500,000 1,507,500
Rowan Companies, Inc., 11.875%,
12/1/01........................ 820,000 889,700
Silgan Corp., 11.75%, 6/15/02.... 767,000 822,607
Sparbankernas Bank, 7.719%,
10/20/49 (a)................... 900,000 914,985
Walbro Corp. 144A, 9.875%,
7/15/05........................ 850,000 847,875
Williamhouse Regency Delaware
Inc. 144A, 13.00%,
11/15/05....................... 575,000 603,750
FEDERAL AGENCIES
Federal Home Loan Mortgage Corp.,
6.946%, 2/1/24 (a)............. 1,646,326 1,681,825
Federal Home Loan Mortgage Corp.,
8.00%, 5/1/25.................. 2,116,850 2,193,585
Federal National Mortgage
Association, 7.503%, 11/1/27
(a)............................ 1,635,385 1,667,582
Government National Mortgage
Association, 6.00%, 10/20/25
(a)............................ 1,756,821 1,774,389
Government National Mortgage
Association, 6.00%, 11/20/25
(a)............................ 2,176,013 2,198,453
FOREIGN GOVERNMENT OBLIGATIONS
Argentina Bono 1998 Boax 0,
8.992%, 4/4/98 (b)............. 350,000 346,150
Argentina Bote X, 5.688%, 4/1/00
(b)............................ 600,000 358,800
Argentina Pensioner Bocon, 0.00%,
4/1/01 (c)..................... 200,000 194,750
Banco Central de Costa Rica
Series A, 6.727%,
5/21/05 (a).................... 240,032 196,827
Federal Republic of Brazil,
6.6875%, 1/1/01 (a)............ 855,000 734,231
Government of Poland, 6.875%,
10/27/24 (a)................... 2,200,000 1,661,000
Kingdom of Jordan, 4.00%,
12/23/23....................... 1,750,000 848,750
Republic of Brazil Federative,
6.8125%, 4/15/06 (a)........... 1,900,000 1,301,500
Republic of South Africa, 9.625%,
12/15/99....................... 750,000 811,875
MUNICIPAL BOND
Allegheny County Pennsylvania
Hospital Development, 5.375%,
12/1/25........................ 810,000 796,343
U.S. GOVERNMENT OBLIGATIONS
United States Treasury Notes,
5.625%, 8/31/97................ $ 1,435,000 $ 1,444,198
United States Treasury Notes,
6.875%, 10/31/96............... 100,000 101,281
YANKEE BOND
Bridas Corp., 12.50%, 11/15/99... 800,000 794,000
COLLATERALIZED MORTGAGE OBLIGATIONS
Asset Securitization Corp. Series
1995-MD4, Class ACS2, 2.433%,
8/13/29 (a).................... 3,880,000 759,631
Federal Home Loan Mortgage PC
Guaranteed, Series 1490, Class
E, 6.50%, 4/15/08.............. 3,575,000 750,750
Federal Home Loan Mortgage PC
Guaranteed, Series 1694, Class
V, 6.50%, 12/15/21............. 4,750,000 699,141
Federal Home Loan Mortgage PC,
Series 1587, Class HA, 6.50%,
10/15/08....................... 5,518,488 735,511
-----------
TOTAL UNITED STATES DOLLAR....... 42,909,714
-----------
TOTAL CURRENCY DENOMINATED BONDS*
(Identified cost $68,865,827)...... 70,078,688
-----------
STRUCTURED NOTES--4.5%
ING Polish Note, 0.00%, 2/21/96.. 335,665 324,756
J P Morgan Polish Note, 0.00%,
1/24/96........................ 724,280 701,031
Morgan Stanley Group Inc.,
14.25%, 6/26/96 (a)............ 500,000 419,500
YPF Sociedad Anonima, 7.50%,
10/26/02....................... 736,325 743,688
United Mexican States 144A,
0.00%, 11/27/96 (d)............ 1,300,000 1,322,750
-----------
TOTAL STRUCTURED NOTES
(Identified cost $3,517,303)....... 3,511,725
-----------
SHORT TERM INVESTMENT--4.5%
REPURCHASE AGREEMENT--4.5%
(Identified cost $3,520,000)
State Street Bank and Trust Co.,
5.70%, 1/2/96 (collateralized
by U.S. Treasury Bills, due
12/12/96; total par value
$3,770,000; valued at
$3,591,279).................... 3,520,000 3,520,000
-----------
TOTAL INVESTMENTS
(Identified cost $75,903,130)
(e).............................. 98.3% 77,110,413
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES........................ 1.7 1,363,511
---- ---------
NET ASSETS.......................... 100.0% $78,473,924
===== ==========
</TABLE>
(a) Variable rate security. Interest shown is the current rate.
(b) Coupon set quarterly to 3 month LIBOR. Current rate shown.
(c) Zero coupon until 5/1/97, then coupon set monthly to 30 day LIBOR.
(d) Value set monthly based on CETES/LIBOR rates.
(e) The aggregate cost for federal income tax purposes is $76,140,116; aggregate
gross unrealized appreciation is $1,517,650 and the aggregate gross
unrealized depreciation is $547,353, resulting in net unrealized
appreciation of $970,297.
* Percentages of holdings are presented in the portfolio by currency
denomination.
Percentages by country are as follows:
Argentina 3.3%, Australia 2.9%, Brazil 3.8%, Canada 4.9%, Costa Rica 0.3%,
Czech Republic 3.9%, Denmark 3.6%, Germany 1.0%, Greece 0.6%, Hong Kong 1.2%,
Hungary 0.6%, Indonesia 1.1%, Ireland 3.0%, Italy 2.0%, Japan 0.6%, Jordan
1.1%, Mexico 1.9%, New Zealand 0.9%, Norway 5.1%, Philippines 1.0%, Poland
3.4%, Portugal 0.6%, South Africa 1.7%, Spain 1.6%, Sweden 2.1%, Thailand
1.6%, United Kingdom 0.8%, United States 39.2%.
Percentages by industry are as follows:
Auto Parts 3.2%, Banking 6.6%, Broadcasting 1.1%, Building & Building
Materials 1.0%, Cable Systems 1.1%, Chemicals & Chemical Manufacturing 3.0%,
Electronics 1.4%, Food & Beverages 0.3%, Holdings Company 0.9%, Oil & Gas
Equipment 2.2%, Packaging 1.0%, Paper Manufacturing & Products 2.7%,
Restaurants 0.9%, Retail 1.0%, Shipbuilding 0.9%, Telecommunications 0.7%,
Transportation & Freight Services 0.5%, Utilities 2.0%, Collateralized
Mortgage Obligation 3.8%, U.S. Government Obligations 16.9%, Foreign
Government Obligations 37.8%, Municipal Bonds 1.0%, Structured Notes 2.8%,
Yankee Bonds 1.0%.
Forward Foreign Currency Contracts open at December 31, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ------------------- ------------------- -------- --------------
<S> <C> <C> <C>
$ 2,319,053 JPY 222,420,361 9/3/96 $(92,983)
JPY 222,420,361 $2,364,916 9/3/96 138,846
$ 755,892 THB 19,033,360 4/5/96 (300)
AUD 2,897,236 $2,155,000 3/12/96 9,100
CAD 4,790,223 $3,523,000 3/12/96 15,455
$ 282,658 DEM 403,700 3/12/96 (203)
DEM 6,008,452 $4,199,968 3/12/96 (3,940)
$ 1,113,480 DKK 6,153,537 3/12/96 (3,257)
DKK 21,775,923 $3,919,000 3/12/96 (9,819)
ESP 147,262,500 $1,190,000 3/12/96 (15,194)
GBP 447,225 $685,000 3/12/96 (8,321)
IEP 1,455,175 $2,313,000 3/12/96 (17,341)
ITL 2,461,074,000 $1,522,000 3/12/96 (13,064)
$ 95,000 JPY 9,567,450 3/12/96 (1,369)
JPY 32,520,300 $325,000 3/12/96 6,743
NOK 10,417,722 $1,649,000 3/12/96 2,922
$ 56,983 XEU 44,624 3/12/96 144
XEU 669,831 $860,792 3/12/96 3,285
$ 1,552,698 ITL 2,487,266,171 1/19/96 13,468
$ 247,918 ZAR 911,967 1/4/96 2,244
DKK 6,152,360 $1,110,194 1/2/96 2,159
--------
$ 28,575
========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
LAZARD SMALL CAP PORTFOLIO
COMMON STOCKS--91.4%
AUTO PARTS--5.3%
A.O. Smith Class B...................... 300,000 $ 6,225,000
Carlisle Companies, Inc. ............... 133,000 5,369,875
Durakon Industries, Inc. (a)............ 430,000 5,375,000
Lear Seating Corp. (a).................. 224,800 6,519,200
Masland Corp. .......................... 528,000 7,392,000
Standard Motor Products, Inc. Class A... 215,000 3,225,000
-------------
34,106,075
-------------
BANKS--4.7%
Albank Financial Corp. ................. 169,000 5,070,000
Baybanks, Inc. ......................... 59,600 5,855,700
Cullen Frost Bankers, Inc. ............. 136,000 6,800,000
Hibernia Corp. Class A.................. 580,000 6,235,000
Signet Banking Corp. ................... 274,600 6,521,750
-------------
30,482,450
-------------
BROADCASTING--2.2%
Cablevision Systems Corp. Class A (a)... 84,600 4,589,550
Evergreen Media Corp. Class A (a)....... 100,000 3,200,000
Katz Media Group, Inc. (a).............. 348,200 6,137,025
-------------
13,926,575
-------------
BUILDING & CONSTRUCTION--1.7%
Centex Construction Products, Inc.
(a)................................... 288,400 4,145,750
Redman Industries, Inc. (New) (a)....... 200,000 6,750,000
-------------
10,895,750
-------------
CHEMICALS & PLASTICS--3.6%
Crompton & Knowles Corp. ............... 563,700 7,469,025
Fuller H B Co. ......................... 237,400 8,249,650
Mississippi Chemical Corp. ............. 319,000 7,416,750
-------------
23,135,425
-------------
COMMUNICATIONS--3.0%
Associated Group, Inc. Class A (a)...... 56,650 1,069,269
Associated Group, Inc. Class B (a)...... 256,650 4,876,350
Cellular Communications of Puerto Rico,
Inc. (a).............................. 230,058 6,384,109
International CableTel, Inc. (a)........ 296,000 7,252,000
-------------
19,581,728
-------------
COMPUTERS & BUSINESS EQUIPMENT--1.7%
Wang Labs, Inc. (a)..................... 643,100 10,691,538
-------------
COMPUTER SOFTWARE--0.9%
Ameridata Technologies, Inc. (a)........ 610,000 5,871,250
-------------
COSMETICS & TOILETRIES--2.9%
Alberto Culver Co. Class A.............. 276,900 8,445,450
Maybelline, Inc. ....................... 291,800 10,577,750
-------------
19,023,200
-------------
DRUGS & HEALTH CARE--1.7%
FHP International Corp. (a)............. 132,500 3,776,250
Perrigo Co. (a)......................... 618,000 7,338,750
-------------
11,115,000
-------------
ELECTRICAL EQUIPMENT--2.4%
Belden, Inc. ........................... 252,900 6,512,175
UCAR International, Inc. (a)............ 275,000 9,281,250
-------------
15,793,425
-------------
ELECTRONICS--4.1%
Amphenol Corp. Class A (a).............. 416,800 $ 10,107,400
Lexmark International Group, Inc. Class
A (a)................................. 413,600 7,548,200
Oak Industries, Inc. (a)................ 455,900 8,548,125
-------------
26,203,725
-------------
ENERGY--0.2%
California Energy Company, Inc. (a)..... 81,700 1,593,150
-------------
FINANCIAL SERVICES--1.2%
Rollins Truck Leasing Corp. ............ 685,800 7,629,525
-------------
HOUSEHOLD APPLIANCES & HOME
FURNISHINGS--3.9%
Ethan Allen Interiors, Inc. (a)......... 298,000 6,071,750
Heilig Meyers Co. ...................... 277,900 5,106,413
Miller (Herman), Inc. .................. 276,700 8,301,000
Sunbeam Corp. Delaware (New)............ 364,100 5,552,525
-------------
25,031,688
-------------
INDUSTRIAL & MACHINERY--2.3%
Mark IV Industries, Inc. ............... 431,729 8,526,648
Trinova Corp. .......................... 211,400 6,051,325
-------------
14,577,973
-------------
INSURANCE--6.4%
Alexander & Alexander Services, Inc. ... 167,900 3,190,100
American Bankers Insurance Group,
Inc. ................................. 208,600 8,135,400
Gryphon Holdings, Inc. (a).............. 150,000 2,887,500
NAC Re Corp. ........................... 240,000 8,640,000
Prudential Reinsurance Holdings,
Inc. ................................. 310,900 7,267,287
Reliance Group Holdings, Inc. .......... 276,100 2,381,363
Western National Corp. ................. 550,000 8,868,750
-------------
41,370,400
-------------
LEISURE TIME--2.1%
Players International, Inc. (a)......... 570,000 6,091,875
Polaris Industries, Inc. ............... 260,000 7,637,500
-------------
13,729,375
-------------
MACHINERY--4.5%
Briggs & Stratton Corp. ................ 289,300 12,548,387
Manitowoc, Inc. ........................ 313,000 9,585,625
Measurex Corp. ......................... 248,700 7,025,775
-------------
29,159,787
-------------
MANUFACTURING--4.0%
Alltrista Corp. (a)..................... 311,400 5,605,200
Crane Co. .............................. 271,400 10,007,875
Pentair, Inc. .......................... 139,500 6,940,125
Varlen Corp. ........................... 157,700 3,390,550
-------------
25,943,750
-------------
MEDICAL SUPPLIES--1.5%
Dentsply International, Inc. ........... 240,000 9,600,000
-------------
OIL & GAS--3.4%
Diamond Shamrock, Inc. ................. 200,000 5,175,000
Helmerich & Payne, Inc. ................ 306,500 9,118,375
Vintage Petroleum, Inc. ................ 332,000 7,470,000
-------------
21,763,375
-------------
PAPER PRODUCTS--0.9%
Bowater, Inc. .......................... 155,000 5,502,500
-------------
PUBLISHING--2.4%
Banta Corp. ............................ 211,100 $ 9,288,400
Houghton Mifflin Co. ................... 144,000 6,192,000
-------------
15,480,400
-------------
REAL ESTATE--4.8%
Avalon Properties, Inc. ................ 238,600 5,129,900
Bay Apartment Communities, Inc. ........ 175,000 4,243,750
Crescent Real Estate Equities, Inc. .... 193,900 6,616,837
FelCor Suite Hotels, Inc. .............. 330,000 9,157,500
Liberty Property Trust.................. 271,500 5,633,625
-------------
30,781,612
-------------
RESTAURANTS, LODGING & ENTERTAINMENT--2.2%
IHOP Corp. (New) (a).................... 297,500 7,735,000
Sbarro, Inc. ........................... 301,300 6,477,950
-------------
14,212,950
-------------
RETAIL--8.4%
Alexander's, Inc. (a)................... 80,000 5,560,000
Carson Pirie Scott & Co. (a)............ 431,200 8,570,100
Fred Meyer, Inc. (a).................... 119,300 2,684,250
Good Guys, Inc. (a)..................... 175,800 1,582,200
Home Shopping Network, Inc. (a)......... 648,900 5,840,100
Intelligent Electronics, Inc. .......... 855,600 5,133,600
Jones Apparel Group, Inc. (a)........... 232,600 9,158,625
Revco D.S., Inc. (a).................... 217,062 6,132,001
Sothebys Holdings, Inc. ................ 693,200 9,878,100
-------------
54,538,976
-------------
SERVICES--3.0%
Gtech Holdings Corp. (a)................ 321,700 8,364,200
The Pittston Services Group............. 356,400 11,182,050
-------------
19,546,250
-------------
STEEL--2.0%
Huntco, Inc. Class A.................... 301,300 4,632,488
Lukens, Inc. ........................... 298,800 8,590,500
-------------
13,222,988
-------------
TECHNOLOGY--0.0%
Verbex Voice Systems, Inc. (a),(b)...... 180,501 180,501
-------------
TELECOMMUNICATION--0.5%
CAI Wireless Systems, Inc. (a).......... 330,000 3,176,250
-------------
TELECOMMUNICATION EQUIPMENT--1.3%
Scientific Atlanta, Inc. ............... 575,000 8,625,000
-------------
TEXTILES, SHOES & APPAREL--2.2%
Authentic Fitness Corp. ................ 275,000 5,706,250
Warnaco Group, Inc. Class A............. 265,000 6,625,000
Westpoint Stevens, Inc. Class A (a)..... 90,300 1,811,644
-------------
14,142,894
-------------
TOTAL COMMON STOCKS
(Identified cost $511,858,156)............ 590,635,485
-------------
PREFERRED STOCKS--0.1%
(Identified cost $1,500,000)
TECHNOLOGY--0.1%
Verbex Voice Systems, Inc. Series F
(conv.) (a),(b)....................... 687,285 $ 500,343
-------------
CONVERTIBLE BONDS--0.3%
COMMUNICATIONS--0.2%
International CableTel, Inc. 144A,
7.25%, 4/15/05........................ $ 1,400,000 1,498,000
-------------
RESTAURANTS, LODGING & ENTERTAINMENT--0.1%
Interactive Light Holdings, Inc., 8.00%,
1/25/99 (b)........................... 1,000,000 500,000
-------------
TECHNOLOGY--0.0%
Verbex Voice Systems, Inc., 10.00%,
12/31/95 (b).......................... 100,000 100,000
-------------
TOTAL CONVERTIBLE BONDS
(Identified cost $2,500,000).............. 2,098,000
-------------
SHORT TERM INVESTMENT--7.4%
REPURCHASE AGREEMENT--7.4%
(Identified cost $47,748,000)
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S.
Treasury Notes, 5.75%, due 9/30/97;
total par value $47,615,000; valued at
$48,704,574).......................... 47,748,000 47,748,000
-------------
TOTAL INVESTMENTS
(Identified cost $563,606,156) (c)........ 99.2% 640,981,828
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES............................... 0.8 5,389,176
---- ----------
NET ASSETS................................. 100.0% $ 646,371,004
===== =============
</TABLE>
(a) Non-income producing security.
(b) Private placement (see note 6).
(c) The aggregate cost for federal income tax purposes is $563,606,156;
aggregate gross unrealized appreciation is $96,906,783 and the aggregate
gross unrealized depreciation is $19,531,111, resulting in net unrealized
appreciation of $77,375,672.
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL SMALL CAP
PORTFOLIO
COMMON STOCKS--87.9%
ARGENTINA--2.0%
<S> <C> <C>
Capex SA 144A (c)....................... 158,200 $ 2,293,900
-------------
AUSTRALIA--1.2%
Bibury Ltd. (a),(d)..................... 472,100 0
Pacific Mutual Ltd. .................... 991,200 1,436,628
-------------
TOTAL AUSTRALIA......................... 1,436,628
-------------
AUSTRIA--1.3%
Vae Eisenbahnsyst....................... 17,400 1,467,480
-------------
BRAZIL--1.7%
Capco Automotive Products Corp. ........ 275,200 1,960,800
-------------
DENMARK--2.4%
Spar Nord Holding....................... 39,100 1,323,872
Sparekassen Bikube...................... 45,200 1,497,848
-------------
TOTAL DENMARK........................... 2,821,720
-------------
FINLAND--2.6%
Finnair................................. 296,700 2,217,030
Sampo Insurance Company Ltd. ........... 14,500 776,774
-------------
TOTAL FINLAND........................... 2,993,804
-------------
FRANCE--3.9%
Club Mediterranee....................... 4,622 369,043
Imetal.................................. 17,600 2,102,512
Unibail SA.............................. 19,400 2,004,574
-------------
TOTAL FRANCE............................ 4,476,129
-------------
GERMANY--9.0%
Cewe Color Holding AG................... 6,100 2,019,868
Doerries Scharmann AG................... 76,994 279,100
Hornbach Holding AG..................... 30,300 2,640,293
Moebel Walther AG....................... 101,770 3,369,867
WMF Wuerttembergische Metallwarenfabrik
AG.................................... 9,600 2,074,590
-------------
TOTAL GERMANY........................... 10,383,718
-------------
HONG KONG--3.5%
Manhattan Card Co. ..................... 4,026,000 1,718,177
Peregrine Investment.................... 1,800,000 2,327,837
-------------
TOTAL HONG KONG......................... 4,046,014
-------------
IRELAND--3.4%
Fitzwilton PLC.......................... 2,861,700 2,199,193
Unidare PLC............................. 378,200 1,695,421
-------------
TOTAL IRELAND........................... 3,894,614
-------------
ISRAEL--2.1%
ECI Telecom Ltd. ....................... 105,400 2,404,437
-------------
ITALY--2.7%
Arnoldo Mondadori Editore............... 350,800 3,039,438
Unipol.................................. 21,000 134,546
-------------
TOTAL ITALY............................. 3,173,984
-------------
JAPAN--7.2%
Cowboy Company Ltd. .................... 149,000 2,525,424
FCC Company Ltd. ....................... 80,000 2,820,339
Towa Pharmaceutical Company Ltd. ....... 80,000 2,944,310
-------------
TOTAL JAPAN............................. 8,290,073
-------------
NEW ZEALAND--4.8%
Fisher & Paykel......................... 719,416 $ 2,187,032
Warehouse Group......................... 437,100 1,160,189
Wrightson Ltd. ......................... 2,925,200 2,218,379
-------------
TOTAL NEW ZEALAND....................... 5,565,600
-------------
NORWAY--5.0%
Aker AS Class B......................... 186,800 2,270,820
Fokus Bank (a).......................... 649,000 3,504,176
-------------
TOTAL NORWAY............................ 5,774,996
-------------
PAKISTAN--0.0%
Lever Brothers.......................... 540 11,126
Packages................................ 750 2,214
-------------
TOTAL PAKISTAN.......................... 13,340
-------------
PHILIPPINES--1.9%
Philippine Commercial International
Bank (a).............................. 243,000 2,241,937
-------------
PORTUGAL--2.0%
Corticeira Amorim SA.................... 197,100 2,271,572
-------------
SPAIN--5.1%
Corporation Financiera Reunida SA....... 1,070,400 3,706,249
Vallehermoso SA......................... 120,000 2,230,833
-------------
TOTAL SPAIN............................. 5,937,082
-------------
SWEDEN--6.0%
Getinge Industrier AB................... 44,466 2,025,839
IRO AB (a).............................. 204,100 2,305,451
TV 4 AB Series A........................ 149,200 2,584,153
-------------
TOTAL SWEDEN............................ 6,915,443
-------------
SWITZERLAND--6.9%
Bil GT Gruppe AG........................ 5,000 2,947,551
Logitech International PLC.............. 25,100 2,589,423
Swisslog Holding AG..................... 8,690 2,410,750
-------------
TOTAL SWITZERLAND....................... 7,947,724
-------------
TAIWAN--1.6%
Yageo Corp. (a), (c).................... 213,100 1,917,900
-------------
UNITED KINGDOM--11.6%
Amec PLC................................ 35,247 51,455
Bell Cablemedia PLC (a),(b)............. 75,400 1,206,400
Greycoat PLC............................ 832,175 1,796,433
London Clubs International PLC.......... 342,800 2,246,647
McBride PLC (a)......................... 660,000 1,978,258
Scholl PLC.............................. 1,028,400 3,066,513
Takare PLC.............................. 1,087,400 3,039,789
-------------
TOTAL UNITED KINGDOM.................... 13,385,495
-------------
TOTAL COMMON STOCKS
(Identified cost $103,585,858)............ 101,614,390
-------------
PREFERRED STOCKS--4.7%
AUSTRIA--1.3%
Bau Holdings AG......................... 39,900 1,500,432
-------------
GERMANY--1.7%
Sander (Jil) AG......................... 2,700 1,976,298
-------------
UNITED KINGDOM--1.7%
Signet Group PLC (a),(b)................ 38 $ 1,900,000
-------------
TOTAL PREFERRED STOCKS
(Identified cost $5,664,250).............. 5,376,730
-------------
CONVERTIBLE BONDS--3.0%
PHILIPPINES--1.4%
Bacnotan Consolidated Industries,
5.50%, 6/21/04........................ $ 2,000,000 1,700,000
-------------
UNITED STATES--1.6%
International CableTel Inc. 144A,
7.25%, 4/15/05........................ 1,700,000 1,819,000
-------------
TOTAL CONVERTIBLE BONDS
(Identified cost $3,700,000).............. 3,519,000
-------------
SHORT TERM INVESTMENT--6.7%
REPURCHASE AGREEMENT--6.7%
(Identified cost $7,711,000)
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S.
Treasury Bills, due 12/12/96; total
par value $8,260,000; valued at
$7,868,426)........................... 7,711,000 7,711,000
-------------
TOTAL INVESTMENTS
(Identified cost $120,661,108) (e)........ 102.3% 118,221,120
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS.............................. (2.3) (2,686,681)
---- ----------
NET ASSETS................................. 100.0% $ 115,534,439
===== =============
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) Global Depository Receipts.
(d) Company currently in bankruptcy.
(e) The aggregate cost for federal income tax purposes is $120,735,712;
aggregate gross unrealized appreciation is $6,708,912 and the aggregate
gross unrealized depreciation is $9,223,504, resulting in net unrealized
depreciation of $2,514,592.
* Percentages of common stocks, preferred stocks, and convertible bonds are
presented in the portfolio by currency denomination.
Percentages by industry are as follows:
Agriculture 1.9%, Automotive 1.7%, Auto Parts 2.4%, Broadcasting 2.2%,
Computers 2.2%, Construction Materials 5.3%, Cosmetics & Toiletries 4.4%,
Electrical Equipment 1.5%, Electronics 1.9%, Engineering & Construction 1.3%,
Entertainment 1.9%, Financial Services 14.8%, Food & Beverages 2.2%, Health
Care 2.6%, Household Products 1.8%, Industrial & Machinery 2.3%, Insurance
0.8%, Leisure Time 1.8%, Lodging 0.3%, Manufacturing 3.3%, Miscellaneous
5.1%, Mortgage Backed Securities 5.7%, Paper Products 2.0%, Pharmaceuticals
2.6%, Publishing 2.6%, Real Estate 5.2%, Retailing 2.6%, Retail Trade 2.9%,
Telecommunication 1.6%, Telecommunication Equipment 2.1%, Telephone 1.0%,
Textiles, Shoes, and Apparel 1.7%, Transportation & Freight Services 1.9%,
Venture Capital 2.0%.
Forward Foreign Currency Contracts open at December 31, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ---------------- --------------- -------- --------------
<S> <C> <C> <C>
BEL 93,045,843 $3,141,000 3/13/96 $(32,706)
DEM 7,821,860 $5,436,000 3/13/96 (36,959)
SEK 63,425,392 $9,599,000 3/13/96 101,636
$ 1,094,460 GBP 702,929 1/4/96 (2,786)
$ 117,722 NZD 180,278 1/4/96 138
$ 142,407 NZD 218,583 1/3/96 495
$ 264,919 SEK 1,754,164 1/3/96 (728)
$ 758,901 FIM 3,282,247 1/2/96 (4,257)
--------
$ 24,833
========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------- ---------
<S> <C> <C>
LAZARD SPECIAL EQUITY PORTFOLIO
COMMON STOCKS--89.5%
AEROSPACE & DEFENSE--1.2%
Tech-Sym Corp. (a)........................ 17,500 $ 557,812
------------
AUTO & TRUCK--1.0%
Oshkosh Truck Corp. Class B............... 18,000 270,000
Republic Automotive Parts, Inc. (a)....... 15,000 191,250
------------
461,250
------------
BUILDING & HOUSING--5.0%
Puerto Rican Cement Co., Inc. ............ 65,000 2,153,125
Simpson Manufacturing Co. (a)............. 15,000 195,000
------------
2,348,125
------------
BUSINESS SERVICES & SUPPLIES--2.6%
Ennis Business Forms...................... 100,000 1,225,000
------------
CHEMICALS & PLASTICS--6.2%
Aceto Corp. .............................. 77,000 1,174,250
MacDermid, Inc. .......................... 30,000 1,755,000
------------
2,929,250
------------
FOOD & BEVERAGE--4.2%
Farmer Brothers Co. ...................... 15,000 $ 1,980,000
------------
HOUSEHOLD APPLIANCES & HOME
FURNISHINGS--14.2%
Allen Organ Co. Class B................... 60,000 2,445,000
Boston Acoustics, Inc. ................... 40,000 920,000
Chromcraft Revington, Inc. (a)............ 9,000 239,625
Mikasa, Inc. (a).......................... 22,000 297,000
National Presto Industries, Inc. ......... 47,100 1,872,225
Virco Manufacturing Co. .................. 99,000 903,375
------------
6,677,225
------------
INDUSTRIAL & MACHINERY--9.7%
Amtrol, Inc. ............................. 25,000 381,250
Paul Mueller Co. ......................... 15,000 476,250
Penn Engineering & Manufacturing Corp. ... 20,000 1,940,000
Robbins & Myers, Inc. .................... 40,000 1,140,000
Tecumseh Products Co. Class A............. 12,000 621,000
------------
4,558,500
------------
MISCELLANEOUS--6.8%
Brenco, Inc. ............................. 15,300 $ 156,825
Matthews International Corp. ............. 8,500 159,375
Mine Safety Appliances Co. ............... 800 38,200
NCH Corp. ................................ 16,400 947,100
Tranzonic Companies Class A............... 80,000 1,100,000
Tranzonic Companies Class B............... 40,000 555,000
Versa Technologies, Inc. ................. 16,400 250,100
------------
3,206,600
------------
MULTI-INDUSTRY--4.2%
American Filtrona Corp. .................. 15,000 502,500
Core Industries, Inc. .................... 12,300 158,363
Kysor Industrial Corp. Delaware........... 6,200 150,350
Latshaw Enterprises, Inc. (a),(b)......... 38,400 259,200
RPC Energy Services, Inc. (a)............. 18,500 168,812
Wynns International, Inc. ................ 24,400 722,850
------------
1,962,075
------------
RESTAURANTS, LODGING & ENTERTAINMENT--2.7%
Bowl America, Inc. Class A................ 80,000 610,000
International Dairy Queen, Inc.
Class A (a)............................. 30,000 682,500
------------
1,292,500
------------
RETAIL--11.0%
Arden Group, Inc. Class A (a)............. 25,000 1,425,000
Blair Corp. .............................. 58,000 1,834,250
Dress Barn, Inc. (a)...................... 100,000 962,500
Haverty Furniture Company, Inc. .......... 11,800 160,775
Value City Department Stores, Inc. (a).... 115,000 776,250
------------
5,158,775
------------
SERVICES--11.6%
AFA Protective Systems, Inc. (b).......... 15,100 1,661,000
Grey Advertising, Inc. ................... 4,000 784,000
Hilb, Rogal & Hamilton Co. ............... 100,000 1,337,500
Isomedix, Inc. (a)........................ 28,400 $ 408,250
Value Line, Inc. ......................... 35,000 1,286,250
------------
5,477,000
------------
TEXTILES, SHOES & APPAREL--9.1%
Fab Industries, Inc. ..................... 50,000 1,593,750
Garan, Inc. .............................. 80,000 1,350,000
Superior Surgical Manufacturing Company,
Inc. ................................... 100,000 950,000
Weyco Group, Inc. ........................ 10,000 375,000
------------
4,268,750
------------
TOTAL COMMON STOCKS
(Identified cost $34,483,841)............... 42,102,862
------------
SHORT TERM INVESTMENT--11.1%
FEDERAL AGENCY--11.1%
(Identified cost $5,209,190)
Federal Home Loan Mortgage Corp., 5.60%,
1/2/96.................................. $ 5,210,000 5,209,190
------------
TOTAL INVESTMENTS
(Identified cost $39,693,031) (c)........... 100.6% $ 47,312,052
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS...................................... (0.6) (291,849)
---- ---------
NET ASSETS................................... 100.0% $ 47,020,203
===== ============
</TABLE>
(a) Non-income producing security.
(b) Affiliated issuer under the Investment Company Act of 1940 in as much as the
Portfolio owns more than 5% of the voting securities of the Company.
(c) The aggregate cost for federal income tax purposes is $39,693,031; aggregate
gross unrealized appreciation is $9,365,862 and the aggregate gross
unrealized depreciation is $1,746,841, resulting in net unrealized
appreciation of $7,619,021.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
LAZARD EMERGING MARKETS PORTFOLIO
COMMON STOCKS--79.9%
ARGENTINA--7.4%
Capex SA.................................. 140,000 $ 1,021,796
Juan Minetti.............................. 144,000 475,105
Metrogas SA Class B (b)................... 57,000 555,750
YPF Sociedad Anonima Class D (b).......... 25,000 540,625
-----------
TOTAL ARGENTINA........................... 2,593,276
-----------
BRAZIL--2.8%
Capco Automotive Products Corp. (a)....... 60,100 428,212
Makro Atacadista SA (a),(c)............... 100,000 568,500
-----------
TOTAL BRAZIL.............................. 996,712
-----------
CHILE--4.2%
AFP Provida SA (b)........................ 17,000 469,625
Chilectra SA (b).......................... 8,000 398,000
Compania De Telefonos Chile (b)........... 7,300 604,987
-----------
TOTAL CHILE............................... 1,472,612
-----------
CHINA--1.6%
Ek Chor China Motorcycle Co. ............. 47,000 $ 546,375
-----------
COLOMBIA--1.7%
Banco De Bogota........................... 66,451 318,589
Banco Industrial Colombiano............... 82,000 290,507
-----------
TOTAL COLOMBIA............................ 609,096
-----------
CZECH REPUBLIC--1.5%
Komercni Banka AS 144A (a),(c)............ 30,000 546,000
-----------
GREECE--3.0%
Ergo Bank................................. 10,000 398,372
Papastratos Cigarette SA.................. 10,000 316,336
Titan Cement Co. SA (a)................... 8,000 335,737
-----------
TOTAL GREECE.............................. 1,050,445
-----------
HONG KONG--5.2%
China Hong Kong Photo Products............ 1,100,000 $ 622,373
Harbin Power Equipment.................... 1,248,000 183,992
Peregrine Investment...................... 360,000 465,568
Yue Yuen Industrial Holding............... 2,100,000 556,741
-----------
TOTAL HONG KONG........................... 1,828,674
-----------
HUNGARY--3.0%
Danubius Hotel............................ 51,600 485,296
Egis Gyogyszergyar........................ 25,000 555,332
-----------
TOTAL HUNGARY............................. 1,040,628
-----------
INDIA--2.9%
Ashok Leyland Ltd. 144A (a), (c).......... 58,600 600,650
Hindalco Industries Ltd. 144A (a), (c).... 12,500 426,625
-----------
TOTAL INDIA............................... 1,027,275
-----------
INDONESIA--5.9%
Bank Bali................................. 125,750 247,485
Bimantara Citra (a)....................... 540,000 448,721
Citra Marga Nusaphala Persada............. 470,000 441,942
Kawasan Industries Jababeka............... 298,000 482,222
Trias Sentosa............................. 210,000 468,403
-----------
TOTAL INDONESIA........................... 2,088,773
-----------
ISRAEL--0.5%
Blue Square (a)........................... 24,000 161,433
-----------
KOREA--7.8%
Chosun Brewery............................ 7,610 301,251
Chosun Brewery Ord. (New) (a)............. 2,790 109,676
Korea Chemical............................ 3,760 389,401
Korea Mobile Telecom...................... 836 942,420
Pohang Iron & Steel (b)................... 9,600 210,000
Samsung Electronics Ltd. 144A (a), (c).... 6,800 397,800
Shinhan Bank.............................. 17,100 381,964
-----------
TOTA KOREA................................ 2,732,512
-----------
LUXEMBOURG--1.4%
First NIS Regional Fund (a)............... 88,000 484,000
-----------
MALAYSIA--2.9%
Genting Berhad............................ 33,000 275,466
Kian Joo Can Factory Berhad............... 125,000 516,793
Southern Bank Berhad...................... 125,000 238,217
-----------
TOTAL MALAYSIA............................ 1,030,476
-----------
MEXICO--6.7%
Cemex SA.................................. 204,000 671,627
Fomento Economico Series B................ 271,200 609,541
Grupo Fernandez Editores Series B (a)..... 1,070,000 298,185
Pan American Beverage Class A............. 11,000 352,000
Telefonos de Mexico SA (b)................ 13,000 414,375
-----------
TOTAL MEXICO.............................. 2,345,728
-----------
PAKISTAN--1.9%
Hub Power Ltd. 144A (a),(c)............... 38,000 655,500
-----------
PERU--1.3%
Backus & Johnston......................... 265,358 455,851
-----------
PHILIPPINES--3.4%
Alaska Milk Corp. (a)..................... 2,300,000 333,206
Benpress Holdings Corp. 144A (c).......... 64,600 323,000
C & P Homes (a)........................... 300,100 $ 220,241
Philippine Commercial International
Bank (a)................................ 34,400 317,377
-----------
TOTAL PHILIPPINES......................... 1,193,824
-----------
POLAND--0.7%
Jelfa (a)................................. 22,000 253,417
-----------
PORTUGAL--3.5%
Corticeira Amorim SA...................... 31,800 366,494
Investec-Consultoria Internacional SA
(a)..................................... 27,000 541,172
Portugal Telecom SA (a),(b)............... 18,000 342,000
-----------
TOTAL PORTUGAL............................ 1,249,666
-----------
SOUTH AFRICA--5.0%
JD Group Ltd. ............................ 100,654 662,651
Kersaf Investments........................ 50,000 630,915
Malbak.................................... 69,391 480,623
-----------
TOTAL SOUTH AFRICA........................ 1,774,189
-----------
SRI LANKA--0.3%
Blue Diamond Jewel........................ 408,186 120,832
-----------
TAIWAN--2.1%
Siliconware Precision Industries Inc. 144A
(a),(c)................................. 16,700 275,550
Yageo Corp. (a),(c)....................... 52,600 473,400
-----------
TOTAL TAIWAN.............................. 748,950
-----------
VENEZUELA--1.1%
Venezolana De Ceme........................ 309,000 379,492
-----------
ZIMBABWE--2.1%
Bindura Nickel............................ 250,000 362,171
Delta Corp. .............................. 225,000 376,658
-----------
TOTAL ZIMBABWE............................ 738,829
-----------
TOTAL COMMON STOCKS
(Identified cost $28,827,960)............... 28,124,565
-----------
PREFERRED STOCKS--6.6%
BRAZIL--4.4%
Brahma Cia Cervejaria..................... 1,700,000 699,606
Cemig Cia Energetica de Minas Gerais...... 20,000,000 442,387
Dixie Toga SA (a)......................... 467,000 408,385
-----------
TOTAL BRAZIL.............................. 1,550,378
-----------
COLOMBIA--2.2%
Banco Industrial Colombiano SA (b)........ 35,000 573,125
Gran Cadena De Almacenes Class B 144A (a),
(b)..................................... 18,000 207,000
-----------
TOTAL COLOMBIA............................ 780,125
-----------
TOTAL PREFERRED STOCKS
(Identified cost $2,368,183)................ 2,330,503
-----------
WARRANTS--0.0%
(Identified cost $0)
INDONESIA--0.0%
Bank Bali (a)............................. 29,000 12,683
-----------
CONVERTIBLE BONDS--3.7%
PHILIPPINES--1.3%
Bacnotan Consolidated Industries, 5.50%,
6/21/04................................. $ 550,000 $ 467,500
-----------
TAIWAN--1.0%
United Micro Electronics, 1.25%, 6/8/04... 285,000 357,675
-----------
UNITED STATES--1.4%
International Financial Holdings, Inc.
144A, 6.50%, 8/1/99..................... 370,000 492,100
-----------
TOTAL CONVERTIBLE BONDS
(Identified cost $1,527,925)................ 1,317,275
-----------
SHORT TERM INVESTMENT--13.8%
REPURCHASE AGREEMENT--13.8%
(Identified cost $4,852,000)
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S. Treasury
Bills, due 12/12/96; total par value
$5,200,000; valued at $4,953,489)....... 4,852,000 4,852,000
-----------
TOTAL INVESTMENTS
(Identified cost $37,576,068) (d)........... 104.0% 36,637,026
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS...................................... (4.0) (1,420,768)
----- -----------
NET ASSETS................................... 100.0% $35,216,258
===== ===========
</TABLE>
(a) Non-income producing security.
(b) American Depository Receipts.
(c) Global Depository Receipts.
(d) The aggregate cost for federal income tax purposes is $37,579,111; aggregate
gross unrealized appreciation is $2,072,339 and the aggregate gross
unrealized depreciation is $3,014,424, resulting in net unrealized
depreciation of $942,085.
* Percentages of common and preferred stocks and convertible bonds are
presented in the portfolio by currency denomination.
Percentage by industry are as follows:
Apparel & Textiles 1.6%, Auto Parts 1.2%, Banks 3.4%, Brewery 2.0%,
Chemicals 1.3 %, Chemicals & Plastics 1.1%, Commercial Services 1.3%,
Communications 8.3%, Construction Materials 7.7%, Consumer Goods 0.4%,
Domestic Oil 1.6%, Drugs & Health Care 2.3%, Electrical Equipment 0.5%,
Electronics 2.9%, Financial Services 10.2%, Food & Beverages 6.1%, Forest
Products 1.1%, Holding Company--Diversified 1.4%, Homebuilders 0.6%,
International Oil 1.5%, Leisure Time 3.3%, Manufacturing 1.5%, Metals 1.2%,
Miscellaneous 4.9%, Mortgage Backed Securities 6.2%, Publishing 2.3%,
Restaurants, Lodging & Entertainment 2.2%, Retailing 2.9%, Steel 0.6%,
Tobacco 0.9%, Utilities 4.3%, Wholesale Trade 3.4%.
Forward Foreign Currency Contracts open at December 31, 1995:
<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ----------- ----------- -------- --------------
<S> <C> <C> <C>
$ 141,295 PEN 326,108 1/2/96 $ (183)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL
EQUITY EQUITY FIXED-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value*..................... $ 157,812,496 $1,232,294,509 $ 43,018,602
Investments in repurchase agreements, at cost and
value.................................................. 5,694,000 70,037,000 3,866,000
Cash..................................................... 438 1,017 262
Net foreign currency contracts (note 2).................. -- -- 37,754
Receivables for:
Investments sold....................................... -- 2,923,500 2,218,953
Dividends and interest................................. 288,199 2,212,207 1,366,951
Capital stock sold..................................... 374,224 13,482,088 122,511
Deferred organizational expenses (note 2)................ -- 11,265 11,696
Other.................................................... -- -- --
------------- -------------- ------------
Total assets............................................. 164,169,357 1,320,961,586 50,642,729
------------- -------------- ------------
LIABILITIES
Payables for:
Investments purchased.................................. -- 19,016,374 4,816,290
Capital stock repurchased.............................. 191,954 993,056 10,826
Dividends declared..................................... -- 16,445 37,253
Investment management fees payable (note 3).............. 118,750 798,137 101,798
Net foreign currency contracts (note 2).................. -- 53,656 --
Due to Manager........................................... -- -- --
Accrued directors fees payable........................... 2,778 2,778 2,778
Accrued expenses and other payables...................... 68,887 531,693 49,481
------------- -------------- ------------
Total liabilities........................................ 382,369 21,412,139 5,018,426
------------- -------------- ------------
Net assets, at value..................................... 163,786,988 1,299,549,447 45,624,303
============= ============== ============
NET ASSETS
Paid in capital.......................................... 131,965,086 1,169,741,962 43,666,321
Undistributed (distributions in excess of) investment
income--net............................................ -- 63,301 24,037
Unrealized appreciation (depreciation) on:
Investments--net....................................... 25,156,509 126,910,179 1,763,256
Foreign currency--net.................................. -- (35,747) 13,676
Accumulated realized gain (loss)--net.................... 6,665,393 2,869,752 157,013
------------- -------------- ------------
NET ASSETS, AT VALUE..................................... $ 163,786,988 $1,299,549,447 $ 45,624,303
============= ============== ============
Shares of capital stock outstanding**.................... 9,405,110 103,988,517 4,204,312
============= ============== ============
NET ASSET VALUE PER SHARE................................ $ 17.41 $ 12.50 $ 10.85
============= ============== ============
</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.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD LAZARD LAZARD
LAZARD STRATEGIC LAZARD INTERNATIONAL SPECIAL EMERGING
BOND YIELD SMALL CAP SMALL CAP EQUITY MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 43,580,431 $ 73,590,413 $ 593,233,828 $ 110,510,120 $ 47,312,052 $ 31,785,026
1,806,000 3,520,000 47,748,000 7,711,000 -- 4,852,000
63 995 728 763,380 9,076 1,149
-- 28,575 -- 24,833 -- --
366,924 2,934,989 7,165,530 -- 221,037 40,889
553,239 1,845,795 749,739 390,583 53,462 54,388
2,315,034 1,100,000 1,498,625 48,088 5,151 1,136,426
11,768 10,221 11,301 10,283 -- 14,674
-- -- -- -- 23,086 --
------------ ------------ ------------- ------------- ------------ ------------
48,633,459 83,030,988 650,407,751 119,458,287 47,623,864 37,884,552
------------ ------------ ------------- ------------- ------------ ------------
2,253,838 4,305,501 3,117,733 3,704,869 409,404 2,132,621
140,279 31,271 348,671 36,706 -- 397,087
40,260 64,009 -- -- -- --
80,148 93,407 402,416 64,707 156,547 69,012
-- -- -- -- -- 183
-- -- -- -- -- 20,680
2,778 2,778 2,778 2,778 2,778 2,778
32,753 60,098 165,149 114,788 34,932 45,933
------------ ------------ ------------- ------------- ------------ ------------
2,550,056 4,557,064 4,036,747 3,923,848 603,661 2,668,294
------------ ------------ ------------- ------------- ------------ ------------
46,083,403 78,473,924 646,371,004 115,534,439 47,020,203 35,216,258
============ ============ ============= ============= ============ ============
45,330,824 80,585,414 569,127,212 119,225,351 37,141,252 37,977,655
40,199 62,968 -- (22,525) -- 3,727
343,654 1,207,283 77,375,672 (2,439,988) 7,619,021 (939,042)
-- 8,059 -- 27,094 -- (1,569)
368,726 (3,389,800) (131,880) (1,255,493) 2,259,930 (1,824,513)
------------ ------------ ------------- ------------- ------------ ------------
$ 46,083,403 $ 78,473,924 $ 646,371,004 $ 115,534,439 $ 47,020,203 $ 35,216,258
============ ============ ============= ============= ============ ============
4,560,693 8,245,403 40,536,196 10,986,319 3,842,845 3,812,846
============ ============ ============= ============= ============ ============
$ 10.10 $ 9.52 $ 15.95 $ 10.52 $ 12.24 $ 9.24
============ ============ ============= ============= ============ ============
</TABLE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL
EQUITY EQUITY FIXED-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest*......................................................... $ 535,797 $ 4,165,491 $ 2,966,123
Dividends*........................................................ 2,571,107 24,929,197 --
------------ ------------- -------------
Total investment income............................................. 3,106,904 29,094,688 2,966,123
------------ ------------- -------------
EXPENSES:
Management fee (note 3)........................................... 982,130 7,895,766 314,329
Administration fees (note 3)...................................... 39,265 147,565 27,200
Custodian fees (note 3)........................................... 61,339 1,442,079 74,621
Professional services............................................. 23,741 139,202 38,965
Registration fees................................................. 40,646 163,159 23,517
Shareholder services.............................................. 28,098 56,217 15,195
Directors' fees and expenses...................................... 11,217 13,792 14,190
Shareholders' reports............................................. 6,706 12,175 2,337
Amortization of organizational expenses (note 2).................. -- 13,505 13,505
Other............................................................. 13,739 111,644 2,173
------------ ------------- -------------
Total expenses before fees waived and expenses reimbursed........... 1,206,881 9,995,104 526,032
Management fees waived and expenses reimbursed (note 3)........... -- -- (81,792)
Administration fees waived (note 3)............................... -- -- --
Fees paid indirectly (note 2)..................................... (820) (12,411) (1,547)
------------ ------------- -------------
Expenses--net....................................................... 1,206,061 9,982,693 442,693
------------ ------------- -------------
INVESTMENT INCOME--NET.............................................. 1,900,843 19,111,995 2,523,430
------------ ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET Realized gain (loss) on:
Investments--net*.............................................. 17,975,165 34,556,028 2,294,418
Foreign exchange transactions--net............................. -- (16,586,286) 423,923
Net unrealized appreciation (depreciation) during the period on:
Investments--net............................................... 20,838,939 102,387,630 1,899,941
Foreign currency--net.......................................... -- 1,622,255 8,865
------------ ------------- -------------
Realized and unrealized gain (loss) on investments--net........... 38,814,104 121,979,627 4,627,147
------------ ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS..... $ 40,714,947 $ 141,091,622 $ 7,150,577
============ ============= ==========
*Net of foreign withholding taxes of:............................... $ 68,660 $ 3,114,151 $ 29,944
============ ============= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD LAZARD LAZARD
LAZARD STRATEGIC LAZARD INTERNATIONAL SPECIAL EMERGING
BOND YIELD SMALL CAP SMALL CAP EQUITY MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2,255,143 $ 6,380,257 $ 2,657,903 $ 543,364 $ 314,283 $ 218,910
-- -- 6,738,744 2,093,899 1,318,974 376,771
----------- ----------- ------------ ------------- ------------- -------------
2,255,143 6,380,257 9,396,647 2,637,263 1,633,257 595,681
----------- ----------- ------------ ------------- ------------- -------------
164,220 525,597 4,066,987 736,353 888,834 236,306
26,180 30,732 91,734 34,635 28,661 25,173
45,246 104,008 117,360 214,946 32,541 110,068
24,226 34,117 86,437 35,325 29,918 26,210
14,302 14,219 49,700 20,181 27,815 26,945
15,550 13,523 41,852 29,968 23,332 23,460
11,316 12,978 11,266 11,590 11,314 12,131
2,943 7,108 12,377 7,681 2,983 5,627
13,505 13,505 13,505 3,530 -- 4,136
2,664 8,664 56,085 14,044 29,194 2,781
----------- ----------- ------------ ------------- ------------- -------------
320,152 764,451 4,547,303 1,108,253 1,074,592 472,837
(34,072) -- -- -- (132,906) (142,805)
(21,875) -- -- -- -- (21,875)
(1,235) (5,026) (9,569) (614) (55) (959)
----------- ----------- ------------ ------------- ------------- -------------
262,970 759,425 4,537,734 1,107,639 941,631 307,198
----------- ----------- ------------ ------------- ------------- -------------
1,992,173 5,620,832 4,858,913 1,529,624 691,626 288,483
----------- ----------- ------------ ------------- ------------- -------------
1,538,947 613,040 48,772,968 2,832,676 5,875,256 (1,723,841)
-- (829,920) -- (3,047,215) -- (79,972)
1,262,427 3,392,780 45,544,351 215,054 2,433,242 594,358
-- 105,454 -- 287,871 -- (2,651)
----------- ----------- ------------ ------------- ------------- -------------
2,801,374 3,281,354 94,317,319 288,386 8,308,498 (1,212,106)
----------- ----------- ------------ ------------- ------------- -------------
$ 4,793,547 $ 8,902,186 $ 99,176,232 $ 1,818,010 $ 9,000,124 $ (923,623)
========== ========== ============ ========== ========== ============
$ -- $ 12,123 $ -- $ 270,513 $ 11,220 $ 36,665
========== ========== ============ ========== ========== ============
</TABLE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL
EQUITY EQUITY FIXED-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------- ------------------------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------------- ------------------------------- -------------
1995 1994 1995 1994 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income--net................... $ 1,900,843 $ 775,588 $ 19,111,995 $ 5,752,469 $ 2,523,430
Realized gain (loss) on investments and
foreign exchange transactions.......... 17,975,165 3,165,434 17,969,742 50,645,245 2,718,341
Unrealized appreciation (depreciation)--
net.................................... 20,838,939 (1,765,260) 104,009,885 (68,363,473) 1,908,806
------------- ------------ -------------- -------------- -------------
Net increase (decrease) in net assets
resulting from operations................ 40,714,947 2,175,762 141,091,622 (11,965,759) 7,150,577
------------- ------------ -------------- -------------- -------------
Distributions to shareholders:
From investment income--net.............. (1,412,326) (819,467) (6,515,474) (5,752,469) (2,523,430)
From realized gains--net................. (11,452,652) (3,479,186) (14,115,900) (74,500,587) (801,842)
(In excess of) offset to investment
income--net............................ -- -- -- 5,752,469 (1,799,275)
In excess of realized gains--net......... -- -- -- -- --
------------- ------------ -------------- -------------- -------------
(12,864,978) (4,298,653) (20,631,374) (74,500,587) (5,124,547)
------------- ------------ -------------- -------------- -------------
Capital stock transaction:
Net proceeds from sales.................. 55,622,979 44,216,711 497,338,051 348,583,561 13,752,209
Net proceeds from reinvestment of
distributions.......................... 12,294,787 4,207,450 19,395,497 72,041,335 4,630,486
Cost of shares redeemed.................. (21,085,965) (4,318,758) (169,521,331) (105,923,266) (10,587,176)
------------- ------------ -------------- -------------- -------------
Net increase (decrease) in net assets from
capital stock transactions............... 46,831,801 44,105,403 347,212,217 314,701,630 7,795,519
------------- ------------ -------------- -------------- -------------
Total increase (decrease) in net assets... 74,681,770 41,982,512 467,672,465 228,235,284 9,821,549
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*.............. $ 163,786,988 $ 89,105,218 $1,299,549,447 $ 831,876,982 $ 45,624,303
=============== ============= ================= ================ ===============
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.............................. 3,491,105 3,088,569 42,535,462 27,102,620 1,219,616
Shares issued to shareholders from
reinvestment of distributions.......... 710,986 304,879 1,554,544 6,362,069 418,379
Shares repurchased....................... (1,279,291) (302,628) (14,205,121) (8,341,648) (932,761)
------------- ------------ -------------- -------------- -------------
Net increase (decrease)................... 2,922,800 3,090,820 29,884,885 25,123,041 705,234
------------- ------------ -------------- -------------- -------------
Shares outstanding at end of period....... 9,405,110 6,482,310 103,988,517 74,103,632 4,204,312
=============== ============= ================= ================ ===============
* Includes undistributed (overdistributed)
net investment income of:................ $ -- $ (12,571) $ 63,301 $ 1,965 $ 24,037
=============== ============= ================= ================ ===============
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income--net................... $ 1,206,922 $ 1,992,173 $ 1,235,348
Realized gain (loss) on investments and
foreign exchange transactions.......... 180,322 1,538,947 (1,151,722)
Unrealized appreciation (depreciation)--
net.................................... (512,114) 1,262,427 (965,163)
------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations................ 875,130 4,793,547 (881,537)
------------ ------------ ------------
Distributions to shareholders:
From investment income--net.............. (1,206,922) (1,992,173) (1,235,348)
From realized gains--net................. (287,561) (16,046) (58,029)
(In excess of) offset to investment
income--net............................ -- -- --
In excess of realized gains--net......... -- -- --
------------ ------------ ------------
(1,494,483) (2,008,219) (1,293,377)
------------ ------------ ------------
Capital stock transaction:
Net proceeds from sales.................. 25,803,649 24,539,689 18,506,638
Net proceeds from reinvestment of
distributions.......................... 1,439,206 1,820,886 1,205,567
Cost of shares redeemed.................. (4,276,403) (7,556,034) (6,605,325)
------------ ------------ ------------
Net increase (decrease) in net assets from
capital stock transactions............... 22,966,452 18,804,541 13,106,880
------------ ------------ ------------
Total increase (decrease) in net assets... 22,347,099 21,589,869 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 $ 46,083,403 $ 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 2,500,066 1,891,145
Shares issued to shareholders from
reinvestment of distributions.......... 138,395 186,028 125,665
Shares repurchased....................... (411,133) (775,958) (685,300)
------------ ------------ ------------
Net increase (decrease)................... 2,219,290 1,910,136 1,331,510
------------ ------------ ------------
Shares outstanding at end of period....... 3,499,078 4,560,693 2,650,557
============= ============= =============
* Includes undistributed (overdistributed)
net investment income of:................ $ 1,314 $ 40,199 $ --
============= ============= =============
</TABLE>
+ For the period July 15, 1994 through December 31, 1994
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD
STRATEGIC LAZARD LAZARD
YIELD LAZARD INTERNATIONAL SPECIAL
PORTFOLIO SMALL CAP SMALL CAP EQUITY
- --------------------------------- PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------ ----------------------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
- --------------------------------- ------------------------------ ----------------------------- -------------
1995 1994 1995 1994 1995 1994 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,620,832 $ 4,065,416 $ 4,858,913 $ 2,022,125 $ 1,529,624 $ 591,036 $ 691,626
(216,880) (3,078,071) 48,772,968 22,502,779 (214,539) (4,068,829) 5,875,256
3,498,234 (2,316,644) 45,544,351 (17,010,725) 502,925 (3,653,545) 2,433,242
------------- ------------- -------------- ------------- ------------- ------------- -------------
8,902,186 (1,329,299) 99,176,232 7,514,179 1,818,010 (7,131,338) 9,000,124
------------- ------------- -------------- ------------- ------------- ------------- -------------
(5,620,832) (4,065,416) (4,858,913) (1,181,605) -- (591,036) (691,626)
-- (182,040) (48,772,968) (31,911,994) -- -- (5,248,285)
(88,052) -- -- -- -- 591,036 --
-- -- (778,930) -- (594,717) -- --
------------- ------------- -------------- ------------- ------------- ------------- -------------
(5,708,884) (4,247,456) (54,410,811) (33,093,599) (594,717) -- (5,939,911)
------------- ------------- -------------- ------------- ------------- ------------- -------------
22,589,307 47,082,168 239,938,336 96,349,172 45,713,631 87,421,230 2,211,152
5,445,026 4,028,879 54,147,470 32,373,017 584,483 -- 5,125,731
(15,082,042) (18,148,713) (122,152,846) (24,422,634) (15,419,174) (10,380,143) (24,874,498)
------------- ------------- -------------- ------------- ------------- ------------- -------------
12,952,291 32,962,334 171,932,960 104,299,555 30,878,940 77,041,087 (17,537,615)
------------- ------------- -------------- ------------- ------------- ------------- -------------
16,145,593 27,385,579 216,698,381 78,720,135 32,102,233 69,909,749 (14,477,402)
62,328,331 34,942,752 429,672,623 350,952,488 83,432,206 13,522,457 61,497,605
------------- ------------- -------------- ------------- ------------- ------------- -------------
$ 78,473,924 $ 62,328,331 $ 646,371,004 $ 429,672,623 $ 115,534,439 $ 83,432,206 $ 47,020,203
=============== =============== ================ =============== =============== =============== ===============
6,846,915 3,449,123 29,940,743 23,005,203 8,034,455 1,244,608 5,170,257
------------- ------------- -------------- ------------- ------------- ------------- -------------
2,439,621 4,889,580 14,336,125 6,292,755 4,381,937 7,756,773 175,167
590,779 425,219 3,421,484 2,255,296 56,201 -- 414,107
(1,631,912) (1,917,007) (7,162,156) (1,612,511) (1,486,274) (966,926) (1,916,686)
------------- ------------- -------------- ------------- ------------- ------------- -------------
1,398,488 3,397,792 10,595,453 6,935,540 2,951,864 6,789,847 (1,327,412)
------------- ------------- -------------- ------------- ------------- ------------- -------------
8,245,403 6,846,915 40,536,196 29,940,743 10,986,319 8,034,455 3,842,845
=============== =============== ================ =============== =============== =============== ===============
$ 62,968 $ (13,973) $ -- $ 848,046 $ (22,525) $ 1,577 $ --
=============== =============== ================ =============== =============== =============== ===============
<CAPTION>
LAZARD
LAZARD EMERGING
SPECIAL EQUITY MARKETS
PORTFOLIO PORTFOLIO
-------------- ---------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- --------------- ---------------
1994 1995 1994+
- ---------------------------------------------------------
<S> <C> <C>
$ 764,923 $ 288,483 $ 18,035
10,854,080 (1,803,813) (187,391)
(13,546,230) 591,707 (1,532,318)
------------- --------------- ---------------
(1,927,227) (923,623) (1,701,674)
------------- --------------- ---------------
(760,649) (136,100) (18,035)
(16,861,086) -- --
-- -- 18,035
-- -- --
------------- --------------- ---------------
(17,621,735) (136,100) --
------------- --------------- ---------------
6,540,035 28,211,253 19,386,871
16,313,998 113,328 --
(59,936,521) (9,073,505) (660,292)
------------- --------------- ---------------
(37,082,488) 19,251,076 18,726,579
------------- --------------- ---------------
(56,631,450) 18,191,353 17,024,905
118,129,055 17,024,905 --
------------- --------------- ---------------
$ 61,497,605 $35,216,258 $17,024,905
=============== ================== ==================
7,508,865 1,727,237 --
------------- --------------- ---------------
429,986 3,079,834 1,786,246
1,278,144 12,192 --
(4,046,738) (1,006,417) (59,009)
------------- --------------- ---------------
(2,338,608) 2,085,609 1,727,237
------------- --------------- ---------------
5,170,257 3,812,846 1,727,237
=============== ================== ==================
$ (918) $ 3,727 $ --
=============== ================== ==================
</TABLE>
- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------- LESS:
TOTAL ----------------------------
NET FROM DIVIDENDS DISTRIBU- NET
ASSET NET REALIZED INVEST- FROM AND TIONS ASSET
VALUE, AND UNREALIZED MENT IN EXCESS OF FROM VALUE,
BEGINNING INVESTMENT GAIN (LOSS) OPERA- INVESTMENT REALIZED END OF
PERIOD OF PERIOD INCOME-NET ON INVESTMENTS TIONS INCOME-NET GAINS PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LAZARD EQUITY PORTFOLIO
Year ended
12/31/95................. $ 13.75 $ 0.226 $ 4.931 $ 5.157 $(0.175) $(1.322) $17.41
12/31/94................. 13.89 0.141 0.441 0.582 (0.152) (0.574) 13.75
12/31/93................. 12.74 0.158 2.172 2.330 (0.165) (1.015) 13.89
12/31/92................. 12.34 0.123 0.518 0.641 (0.132) (0.109) 12.74
12/31/91................. 11.53 0.107 3.051 3.158 (0.082) (2.266) 12.34
12/31/90................. 12.34 0.191 (0.778) (0.587 ) (0.223)(b) -- 11.53
12/31/89................. 10.32 0.204 2.231 2.435 (0.214) (0.201) 12.34
12/31/88................. 8.73 0.181 1.597 1.778 (0.188) -- 10.32
6/1/87* to 12/31/87...... 10.00 0.110 (1.280) (1.170 ) (0.100) -- 8.73
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended
12/31/95................. 11.23 0.187 1.288 1.475 (0.091) (0.114) 12.50
12/31/94................. 12.32 0.078 (0.049) 0.029 -- (1.123) 11.23
12/31/93................. 9.48 0.021 2.919 2.940 (0.021) (0.079) 12.32
12/31/92................. 10.30 0.097 (0.779) (0.682 ) (0.138) -- 9.48
10/29/91* to 12/31/91.... 10.00 0.020 0.300 0.320 (0.020) -- 10.30
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended
12/31/95................. 10.23 0.701 1.250 1.951 (1.129) (0.202) 10.85
12/31/94................. 10.51 0.592 (0.161) 0.431 (0.593) (0.116) 10.23
12/31/93................. 9.79 0.571 0.912 1.483 (0.570) (0.193) 10.51
12/31/92................. 10.28 0.614 (0.403) 0.211 (0.614) (0.087) 9.79
11/8/91* to 12/31/91..... 10.00 0.110 0.280 0.390 (0.110) -- 10.28
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended
12/31/95................. 9.24 0.595 0.863 1.458 (0.594) (0.004) 10.10
12/31/94................. 10.28 0.584 (1.010) (0.426 ) (0.584) (0.029) 9.24
12/31/93................. 10.21 0.551 0.302 0.853 (0.551) (0.232) 10.28
12/31/92................. 10.25 0.577 (0.004) 0.573 (0.577) (0.036) 10.21
11/12/91* to 12/31/91.... 10.00 0.140 0.250 0.390 (0.140) -- 10.25
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended
12/31/95................. 9.10 0.748 0.430 1.178 (0.758) -- 9.52
12/31/94................. 10.13 0.762 (0.990) (0.228 ) (0.761) (0.039) 9.10
12/31/93................. 9.50 0.644 0.738 1.382 (0.633) (0.119) 10.13
12/31/92................. 9.97 1.049 (0.450) 0.599 (1.049) (0.020) 9.50
10/1/91* to 12/31/91..... 10.00 0.250 (0.030) 0.220 (0.250) -- 9.97
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended
12/31/95................. 14.35 0.126 2.951 3.077 (0.154) (1.323) 15.95
12/31/94................. 15.26 0.070 0.220 0.290 (0.042) (1.158) 14.35
12/31/93................. 12.98 0.019 3.830 3.849 (0.020) (1.549) 15.26
12/31/92................. 10.42 0.019 2.560 2.579 (0.019) -- 12.98
10/30/91* to 12/31/91.... 10.00 0.030 0.420 0.450 (0.030) -- 10.42
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended
12/31/95................. 10.38 0.139 0.056 0.195 -- (0.055) 10.52
12/31/94................. 10.86 0.072 (0.548) (0.476 ) -- -- 10.38
12/1/93* to 12/31/93..... 10.00 0.004 0.859 0.863 (0.003) -- 10.86
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
-----------------
NET
INVEST- ASSETS,
MENT PORTFOLIO END OF
TOTAL INCOME- TURNOVER PERIOD
PERIOD RETURN++ EXPENSES NET RATE (000'S)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LAZARD EQUITY PORTFOLIO
Year ended
12/31/95................. 37.7 % 0.92%(h) 1.45% 80.72% $163,787
12/31/94................. 4.2 1.05 1.15 66.52 89,105
12/31/93................. 18.6 1.05(e) 1.31 63.92 47,123
12/31/92................. 5.3 1.05(d) 1.19 174.45 24,646
12/31/91................. 27.5 1.93 0.84 90.00 14,821
12/31/90................. (4.7 ) 1.77 1.62 70.00 14,397
12/31/89................. 23.6 1.78 1.71 78.00 16,239
12/31/88................. 20.4 1.84 1.86 111.00 12,336
6/1/87* to 12/31/87...... (11.7 ) 1.68+ 1.93+ 97.00 10,186
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended
12/31/95................. 13.1 0.95(h) 1.82 62.54 1,299,549
12/31/94................. 0.2 0.94 0.75 106.15 831,877
12/31/93................. 31.0 0.99 1.13 86.95 603,642
12/31/92................. (6.6 ) 1.05(d) 2.13 60.37 176,005
10/29/91* to 12/31/91.... 3.2 1.05+,(c) 2.19+ 0.18 4,967
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended
12/31/95................. 19.4 1.05(g),(h) 5.99 189.97 45,624
12/31/94................. 4.2 1.05(f) 5.68 65.90 35,803
12/31/93................. 15.7 1.05(e) 5.50 115.84 13,546
12/31/92................. 2.0 1.05(d) 6.08 256.20 8,183
11/8/91* to 12/31/91..... 3.9 1.05+,(c) 4.82+ 6.43 1,427
- ------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended
12/31/95................. 16.2 0.80(g),(h) 6.07 244.28 46,083
12/31/94................. (4.2 ) 0.80(f) 6.11 120.51 24,494
12/31/93................. 8.6 0.80(e) 5.22 174.63 13,562
12/31/92................. 5.7 0.80(d) 5.59 131.38 8,532
11/12/91* to 12/31/91.... 3.9 0.80+,(c) 5.50+ 10.46 3,256
- ------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended
12/31/95................. 13.6 1.09(h) 8.02 205.33 78,474
12/31/94................. (2.3 ) 1.05(f) 8.03 195.18 62,328
12/31/93................. 15.6 1.05(e) 6.36 215.60 34,943
12/31/92................. 6.0 1.05(d) 10.57 122.88 9,641
10/1/91* to 12/31/91..... 2.1 1.05+,(c) 9.52+ 11.26 4,256
- ------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended
12/31/95................. 21.5 0.84(h) 0.90 69.68 646,371
12/31/94................. 2.0 0.85 0.51 70.11 429,673
12/31/93................. 30.1 0.88 0.16 98.47 350,952
12/31/92................. 24.8 1.05(d) 0.29 106.91 168,171
10/30/91* to 12/31/91.... 4.5 1.05+,(c) 2.47+ 5.50 2,512
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended
12/31/95................. 1.9 1.13(h) 1.56 117.53 115,534
12/31/94................. (4.5 ) 1.05(f) 0.95 112.92 83,432
12/1/93* to 12/31/93..... 8.7 1.05+,(e) 1.76+ 0.84 13,522
- ------------------------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Year ended
12/31/95................. $ 11.89 $ 0.195 $ 1.725 $ 1.920 $(0.188) $(1.382) $12.24
12/31/94................. 15.73 0.156 (0.557) (0.401 ) (0.155) (3.279) 11.89
12/31/93................. 16.90 0.157 1.478 1.635 (0.157) (2.648) 15.73
12/31/92................. 15.14 0.161 2.181 2.342 (0.160) (0.422) 16.90
12/31/91................. 11.54 0.230 4.160 4.390 (0.227) (0.563) 15.14
12/31/90................. 13.72 0.714 (2.155) (1.441 ) (0.739) -- 11.54
12/31/89................. 13.13 0.260 1.874 2.134 (0.264) (1.280) 13.72
12/31/88................. 10.64 0.224 2.761 2.985 (0.245) (0.250) 13.13
12/31/87................. 11.66 0.112 (0.291) (0.179 ) (0.105) (0.736) 10.64
1/16/86* to 12/31/86..... 10.00 0.075 1.585 1.660 -- -- 11.66
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Year ended
12/31/95................. 9.86 0.080 (0.660) (0.580 ) (0.040) -- 9.24
7/15/94* to 12/31/94..... 10.00 0.010 (0.154) (0.144 ) -- -- 9.86
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFO
Year ended
12/31/95................. 16.3 % 1.59%(g),(h) 1.17% 15.35% $ 47,020
12/31/94................. (2.6 ) 1.71 0.87 11.29 61,498
12/31/93................. 10.2 1.67 0.74 26.31 118,129
12/31/92................. 15.5 1.70 1.04 10.93 150,488
12/31/91................. 38.2 1.77 1.63 19.48 111,395
12/31/90................. (10.5 ) 1.78 4.70(a) 27.18 76,972
12/31/89................. 16.2 1.78 1.82 40.67 101,522
12/31/88................. 28.0 1.96 1.87 64.90 74,695
12/31/87................. (1.9 ) 1.81 0.82 90.86 53,942
1/16/86* to 12/31/86..... 16.6 2.23+ 0.71+ 73.12 51,403
- ----------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORT
Year ended
12/31/95................. (5.9 ) 1.30(g),(h) 1.22 102.22 35,216
7/15/94* to 12/31/94..... (1.4 ) 1.30+,(f) 0.31+ 30.68 17,025
- ----------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
(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.
(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 and Administrator had not waived certain fees and
reimbursed certain expenses and the Portfolios had not paid fees indirectly
the ratio of expenses to average net assets (and net investment income per
share) would have been 1.25% ($0.678) for the International Fixed-Income
Portfolio, 0.97% ($0.578) for the Bond Portfolio, 1.81% ($0.157) for the
Special Equity Portfolio and 2.00% ($0.034) for the Emerging Markets
Portfolio.
(h) "Ratio of total expenses to average net assets" for the year ended December
31, 1995 includes fees paid indirectly. Excluding fees paid indirectly for
the year ended December 31, 1995, the expense ratios would have been 0.92%
for the Equity Portfolio, 0.95% for the International Equity Portfolio,
1.05% for the International Fixed-Income Portfolio, 0.80% for the Bond
Portfolio, 1.08% for the Strategic Yield Portfolio, 0.84% for the Small Cap
Portfolio, 1.13% for the International Small Cap Portfolio, 1.59% for the
Special Equity Portfolio, 1.30% for the Emerging Markets Portfolio.
<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.
Effective December 30, 1995, Lazard Global Equity Portfolio, Lazard
Bantam Value Portfolio and Lazard Emerging World Funds Portfolio were added to
the Fund. The Lazard Global Equity Portfolio was first offered for sale on
January 4, 1996.
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 or specific
identification 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 risk management 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.
(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.
(I) FEES PAID INDIRECTLY--Portfolios leaving excess cash in demand
deposit accounts may receive credits which are available to offset custody
expenses. The Statements of Operations report gross custody expense, and reflect
the amount of such credits as a reduction in total expenses.
(J) ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires the Fund to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expense during the reporting period. Actual results could differ from
those estimates.
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.
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 December 31, 1996 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 year ended December 31, 1995, the Manager did not impose part
of its management fee amounting to $81,792 for International Fixed-Income
Portfolio, $34,072 for Bond Portfolio, $104,245 for Special Equity Portfolio and
$142,805 for Emerging Markets Portfolio. For the Special Equity Portfolio, the
Manager reimbursed $28,661 for Administrative Fees.
Effective June 1, 1995, the Fund has engaged State Street Bank and
Trust Company ("State Street") 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 the Bond and Emerging Markets Portfolios for one year or until each
Portfolio reaches net assets of $50 million.
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 year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Equity Portfolio $ 136,115,551 $ 98,319,414
International Equity 958,136,052 617,956,968
International Fixed-
Income 82,002,248 77,059,477
Bond(1) 93,823,671 77,259,918
Strategic Yield(2) 142,277,826 127,543,921
Small Cap 433,744,267 348,508,399
International Small Cap 137,601,260 108,309,231
Special Equity 8,213,439 33,702,368
Emerging Markets 39,309,777 22,364,600
</TABLE>
(1) Includes purchases and sales of U.S. Government securities of $68,932,503
and $63,560,433, respectively.
(2) Includes purchases and sales of U.S. Government securities of $15,853,916
and $17,588,675, respectively.
For the period, the Small Cap Portfolio and Special Equity Portfolio
paid brokerage commissions of $3,324 and $13,658, respectively, to Lazard Freres
& Co. LLC for portfolio transactions executed on behalf of the Portfolios.
Included in the payable for investments purchased at December 31,
1995, for the Special Equity Portfolio, is $285,255 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 $3,297,896 and
$1,537,156 are available to the extent provided by regulations to offset future
realized capital gains of the Strategic Yield Portfolio and Emerging Markets
Portfolio, respectively. These losses expire through 2003.
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,
1995, International Equity Portfolio, Bond Portfolio, Strategic Yield Portfolio,
Small Cap Portfolio, International Small Cap Portfolio, and Emerging Markets
Portfolio will elect to defer net capital and currency losses of $4,705,302,
$29,502, $7,241, $1,687,171, $1,180,891, and $284,313, respectively. The Special
Equity Portfolio and the International Equity Portfolio redesignated $50,277,
and $2,679,708, respectively, of ordinary income dividends to long-term capital
gain distributions.
6. PRIVATE PLACEMENTS
At December 31, 1995, the Small Cap Portfolio held the following
securities which were private placements and represented 0.20% (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 $ 500,000
Verbex Voice Systems Inc.
Series F Preferred
(conv.) 7/12/93 500,343
Verbex Voice Systems Inc. 6/7/94 180,501
Verbex Voice Systems Inc.
10.00%, 12/31/95 3/17/95 100,000
----------
$1,280,844
==========
</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.
<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, 1995, 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 financial highlights for
each of the periods presented, except as noted below. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights 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
financial highlights.
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 financial
highlights 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, 1995, 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 financial highlights
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, 1995, 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 financial highlights for the periods presented in
conformity with generally accepted accounting principles.
ANCHIN, BLOCK & ANCHIN LLP
New York, New York
January 27, 1996
THE LAZARD FUNDS, INC.
30 Rockefeller Plaza
New York, New York 10020
TELEPHONE
(800) 823-6300
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 2038
Boston, Massachusetts 02106
Telephone: (800) 854-8525
INDEPENDENT PUBLIC ACCOUNTANTS
Anchin, Block & Anchin LLP
1375 Broadway
New York, New York 10019
LEGAL COUNSEL
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
This report is for the information of the stockholders of The Lazard
Funds, Inc. Its use in connection with any offering of the Fund's shares is
authorized only in the case of a concurrent or prior delivery of the Fund's
current prospectus.
<PAGE>
THE LAZARD FUNDS, INC.
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to Item 27 of
Part C of Post-Effective Amendment No. 9 to the Registrant's Registration
Statement on Form N-1A as filed on December 30, 1995.
Item 16. Exhibits - All references are to the Registrant's
Registration Statement on Form N-1A (File No. 33-40682)
(the "Registration Statement"), unless otherwise noted.
(1)(a) Registrant's Articles of Incorporation are incorporated by
reference to Registrant's Registration Statement on Form
N-1A, filed on May 20, 1991.
*(1)(b) Form of Articles of Amendment.
(2) Registrant's Bylaws are incorporated by reference to
Registrant's Registration Statement on Form N-1A, filed on
May 20, 1991.
(3) Not Applicable.
**(4) Form of Agreement and Plan of Reorganization.
(5) Not Applicable.
(6) Registrant's Investment Management Agreements are
incorporated by reference to Post-Effective Amendment Nos.
5, 6 and 8 to Registrant's Registration Statement on Form
N-1A, filed on September 1, 1993, March 31, 1994 and
December 14, 1995, respectively.
(7) Registrant's Distribution Agreement is incorporated by
reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, filed on July 23,
1991.
(8) Not Applicable.
- --------
* Filed herewith as Exhibit B to the Prospectus/Proxy Statement.
** Filed herewith as Exhibit A to the Prospectus/Proxy Statement.
(9) Registrant's Custody Agreement is incorporated by
reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, filed on July 23,
1991.
(10) Not Applicable.
(11) Form of Opinion and consent of Stroock & Stroock & Lavan
regarding legality of issuance of shares and other matters.
(12) Opinion and consent of Stroock & Stroock & Lavan regarding
tax matters.
(13) Not Applicable.
(14) Consent of Independent Auditors.
(15) Not Applicable.
***(16) Powers of Attorney.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of
a prospectus which is a part of this registration
statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, as amended, the reoffering
prospectus will contain the information called for by the
applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the
information called for by the other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as a
part of an amendment to the registration statement and
will not be used until the amendment is effective, and
that, in determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment
shall be deemed to be a new registration statement for the
securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona
fide offering of them.
- --------
*** Incorporated by reference to the signature page hereto.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of New York, State of
New York, on the 23rd day of April, 1996.
THE LAZARD FUNDS, INC.
(Registrant)
By:/s/Herbert W. Gullquist
---------------------------------
Herbert W. Gullquist, President
Each person whose signature appears below on this Registration
Statement hereby constitutes and appoints William G. Butterly, III and Gus
Coutsouros, and each of them, with full power to act without the other, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (until revoked in writing) to sign any and all amendments to this
Registration Statement (including post-effective amendments and amendments
thereto), and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/Herbert W. Gullquist President and Director April 23, 1996
- -------------------------
Herbert W. Gullquist
/s/Norman Eig Director April 23, 1996
- -------------------------
Norman Eig
/s/John J. Burke Director April 23, 1996
- ------------------------
John J. Burke
/s/Kenneth S. Davidson Director April 23, 1996
- -----------------------
Kenneth S. Davidson
/s/Lester Z. Lieberman Director April 23, 1996
- -----------------------
Lester Z. Lieberman
/s/Richard Reiss, Jr. Director April 23, 1996
- -----------------------
Richard Reiss, Jr.
/s/John Rutledge Director April 23, 1996
- -----------------------
John Rutledge
/s/Carl Frischling Director April 23, 1996
- ----------------------
Carl Frischling
<PAGE>
INDEX OF EXHIBITS
(11) Form of Opinion and Consent of Stroock & Stroock & Lavan
regarding the issuance of shares.
(12) Opinion and Consent of Stroock & Stroock & Lavan
regarding the tax consequences of the transaction.
(14) Consent of Independent Auditors.
<PAGE>
Exhibit 11
__________, 1996
The Lazard Funds, Inc.
30 Rockefeller Plaza
New York, New York 10020
Ladies and Gentlemen:
We have acted as counsel to The Lazard Funds, Inc. (the "Fund") in
connection with the issuance by the Fund of shares of common stock (the
"Shares") of its Lazard Small Cap Portfolio (the "Small Cap Portfolio") pursuant
to an Agreement and Plan of Reorganization (the "Plan") dated as of April 23,
1996 between the Small Cap Portfolio and the Fund's Lazard Special Equity
Portfolio (the "Special Equity Portfolio"). Under the Plan, if approved by the
Special Equity Portfolio's shareholders, the Small Cap Portfolio will acquire
the Special Equity Portfolio's assets in exchange for the Shares. In connection
with the Plan, the Fund has filed a Registration Statement on Form N-14 (the
"Registration Statement") registering the Shares to be issued pursuant to the
Plan.
We have examined copies of the Fund's Charter, together with a proposed
form of Articles of Amendment that would reclassify the shares of common stock
of the Fund's Special Equity Portfolio as shares of common stock of the Fund's
Small Cap Portfolio ("Articles of Amendment"). We have also examined the By-Laws
of the Fund, the Registration Statement and such other documents, records,
papers, statutes and authorities as we deemed necessary to form a basis for the
opinion hereinafter expressed. In our examination of such material, we have
assumed the genuineness of all signatures and the conformity to original
documents of all copies submitted to us. As to various questions of fact
material to such opinion, we have relied upon statements and certificates of
officers and representatives of the Fund and others.
Attorneys involved in the preparation of this opinion are admitted only to
the bar of the State of New York. As to various questions arising under the laws
of the State of Maryland, we have relied on the opinion of Venable, Baetjer and
Howard, LLP, a copy of which is attached hereto. Qualifications set forth in
their opinion are deemed incorporated herein.
Based upon the foregoing, we are of the opinion that when the Charter
amendment encompassed in the Articles of Amendment has been duly approved by the
Special Equity Portfolio's stockholders and the Articles of Amendment have been
accepted for record by the Maryland State Department of Assessments and Taxation
and become effective, the Shares will have been duly authorized, and their
issuance thereafter in accordance with the Plan and the Articles of Amendment,
subject to compliance with applicable federal and state laws regulating the
distribution of securities, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus/Proxy
Statement included in the Registration Statement, and to the filing of this
opinion as an exhibit to any application made by or on behalf of the Fund or any
distributor or dealer in connection with the registration and qualification of
the Fund or its Shares under the securities laws of any state or jurisdiction.
In giving such permission, we do not admit hereby that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
STROOCK & STROOCK & LAVAN
<PAGE>
Exhibit 11
Form of Opinion
________________, 1996
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2594
Re: The Lazard Funds, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel to The Lazard Funds, Inc., a
Maryland corporation (the "Company"), in connection with the Agreement and Plan
of Reorganization dated April 23, 1996 (the "Plan") and a related amendment to
the Company's Charter effecting a transfer of the economic interest in the
assets attributable to the Company's Class H Common Stock (the "Special Equity
Portfolio") to the Company's Class F Common Stock (the "Small Cap Portfolio") in
exchange for shares of Common Stock, par value $.001 per share, of the Small Cap
Portfolio and the distribution of such shares to the stockholders of the Special
Equity Portfolio (the "Transaction"). Capitalized terms used herein have the
same meanings ascribed to them in the Plan unless defined otherwise herein.
We have examined the Company's Charter, together with a proposed form of
Articles of Amendment that would reclassify shares of Common Stock of the
Special Equity Portfolio of the Company as shares of Common Stock of the Small
Cap Portfolio of the Company (the "Articles of Amendment"). We have also
examined the Company's Bylaws, its Registration Statement on Form N-14 to be
filed with the Securities and Exchange Commission substantially in the form in
which it is to become effective (the "Registration Statement"), and the Plan. We
have further examined and relied upon a certificate of the Maryland State
Department of Assessments and Taxation ("SDAT") to the effect the Company is
duly incorporated and existing under the laws of the State of Maryland and is in
good standing and duly authorized to transact business in the State of Maryland.
We have also examined and relied upon a certificate of the Secretary of the
Company certifying, among other matters, (i) the Plan and the Articles of
Amendment presented to us as being substantially in the form approved by the
Board of Directors of the Company; and (ii) the resolutions of the Board of
Directors of the Company relating to the Plan, the Articles of Amendment, and
the issuance of the shares of Common Stock of the Small Cap Portfolio pursuant
to the Plan and the related amendment to the Charter.
We have further assumed, without independent verification, the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, and the conformity with originals of all documents submitted to us as
copies.
Based on such examination and assumptions, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Maryland.
2. When the charter amendment encompassed in the Articles of Amendment has
been duly approved by the stockholders of the Company and the Articles of
Amendment have been accepted for record by SDAT and become effective, the shares
of Common Stock of the Small Cap Portfolio to be issued in the Transaction will
have been duly authorized and upon their issuance thereafter in accordance with
the Plan and the Articles of Amendment will, to the extent of the number of
shares of Common Stock of the Small Cap Portfolio then authorized in the Charter
of the Company and unissued, be validly issued, fully paid and nonassessable
shares of Common Stock of the Small Cap Portfolio of the Company.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing the matters set forth above. It does not extend to the
securities or "Blue Sky" laws of Maryland, to federal securities laws, or to
other laws.
You may rely upon our opinion in rendering your opinion to the Company that
is to be filed as an exhibit to the Registration Statement. We consent to the
filing of this opinion as an exhibit to the Registration Statement. This opinion
may not be relied upon by any other person or for any other purpose without our
prior written consent.
Very truly yours,
Venable, Baetjer and Howard, LLP
<PAGE>
Exhibit 12
STROOCK & STROOCK & LAVAN
7 Hanover Square
New York, New York 10004
May 1, 1996
The Lazard Funds, Inc.
30 Rockefeller Plaza
New York, New York 10020
Re:Registration Statement on Form N14
(Registration No. 333 )
Ladies and Gentlemen:
You have requested our opinion as to certain Federal income tax
consequences of the reorganization contemplated by the Agreement and Plan of
Reorganization, substantially in the form included as Exhibit A to the
Registration Statement on Form N14 of The Lazard Funds, Inc. (the "Fund") (Reg.
No. 333_____) (the "Registration Statement"), between the Lazard Special Equity
Portfolio (the "Special Equity Portfolio") and the Lazard Small Cap Portfolio
(the "Small Cap Portfolio"), each of which are series of the Fund. You have
advised us that the Special Equity Portfolio and Small Cap Portfolio have
qualified and will qualify as "regulated investment companies" within the
meaning of Subchapter M of Chapter 1 of the Internal Revenue Code of 1986, as
amended (the "Code"), for each of its taxable years ending on or before or
including the Closing Date.
In rendering this opinion, we have examined the Agreement and Plan of
Reorganization, the Registration Statement, the Articles of Incorporation of the
Fund dated May 16, 1991, the Fund's Prospectus and Statement of Additional
Information, incorporated by reference in the Registration Statement, and such
other documents as we have deemed necessary or relevant for the purpose of this
opinion. In issuing our opinion, we have relied upon the representation of the
Fund that its Articles of Incorporation is the document pursuant to which it has
operated to date and will operate following the reorganization and that it has
operated and will operate following the reorganization in accordance with all
laws applicable to such entity and the statements and representations made
herein and in the Registration Statement. As to various questions of fact
material to this opinion, where relevant facts were not independently
established by us, we have relied upon statements of, and written information
provided by, representatives of the Fund. We also have examined such matters of
law as we have deemed necessary or appropriate for the purpose of this opinion.
We note that our opinion is based on our examination of such law, our review of
the documents described above, the statements and representations referred to
above and in the Registration Statement and the Agreement and Plan of
Reorganization, the provisions of the Code, the regulations, published rulings
and announcements thereunder, and the judicial interpretations thereof currently
in effect. Any change in applicable law or any of the facts and circumstances
described in the Registration Statement, or inaccuracy of any statements or
representations on which we have relied, may affect the continuing validity of
our opinion.
Capitalized terms not defined herein have the respective meanings given such
terms in the Agreement and Plan of Reorganization.
Based on the foregoing, it is our opinion that for Federal income tax purposes:
(a) The transfer of all or substantially all of the Special Equity
Portfolio's assets in exchange for the Small Cap Portfolio shares and the
assumption by the Small Cap Portfolio of certain identified liabilities of the
Special Equity Portfolio will constitute a "reorganization" within the meaning
of Section 368(a)(1)(C) of the Code;
(b) No gain or loss will be recognized by the Small Cap Portfolio upon the
receipt of the assets of the Special Equity Portfolio solely in exchange for the
Small Cap Portfolio shares and the assumption by the Small Cap Portfolio of
certain identified liabilities of the Special Equity Portfolio;
(c) No gain or loss will be recognized by the Special Equity Portfolio upon
the transfer of the Special Equity Portfolio's assets to the Small Cap Portfolio
in exchange for the Small Cap Portfolio shares and the assumption by the Small
Cap Portfolio of certain identified liabilities of the Special Equity Portfolio
or upon the distribution of the Small Cap Portfolio shares to Special Equity
Portfolio Shareholders in exchange for their shares of the Special Equity
Portfolio;
(d) No gain or loss will be recognized by Special Equity Portfolio
Shareholders upon the exchange of their Special Equity Portfolio shares for the
Small Cap Portfolio shares;
(e) The aggregate tax basis for the Small Cap Portfolio Shares received by
the Special Equity Portfolio Shareholder pursuant to the reorganization will be
the same as the aggregate tax basis of the Special Equity Portfolio shares held
by such shareholder immediately prior to the reorganization, and the holding
period of the Small Cap Portfolio shares to be received by the Special Equity
Portfolio Shareholder will include the period during which the Special Equity
Portfolio shares exchanged therefor were held by such shareholder (provided the
Special Equity Portfolio shares were held as capital assets on the date of the
reorganization); and
(f) The tax basis of the Special Equity Portfolio's assets acquired by the
Small Cap Portfolio will be the same as the tax basis of such assets to the
Special Equity Portfolio immediately prior to the reorganization, and the
holding period of the assets of the Special Equity Portfolio in the hands of the
Small Cap Portfolio will include the period during which those assets were held
by the Special Equity Portfolio.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus/Proxy
Statement included in the Registration Statement, and to the filing of this
opinion as an exhibit to any Statement, and to the filing of this opinion as an
exhibit to any application made by or on behalf of the Fund or any distributor
or dealer in connection with the registration and qualification of the Fund or
the Small Cap Portfolio shares under the securities laws of any state or
jurisdiction. In giving such permission, we do not admit hereby that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan
STROOCK & STROOCK & LAVAN
<PAGE>
Exhibit 14
April 30, 1996
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial
Statements and Experts" in this Registration Statement (Form N-14) of The Lazard
Funds, Inc.
We also consent to the use of our report dated January 27, 1996 for The
Lazard Funds, Inc. and to the references to our firm under the captions
"Condensed Financial Information" and "Counsel and Independent Accountants"
included in the Registration Statement of The Lazard Funds, Inc. dated May 1,
1996 which are incorporated by reference in this Registration Statement.
ABA Seymour Schneidman
Financial Services Group
a division of
Anchin, Block & Anchin LLP
New York, New York
