Securities Act File No. 33-40682
Investment Company Act File No. 811-6312
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 15 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 17 /X/
(Check appropriate box or boxes)
THE LAZARD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
30 Rockefeller Plaza, New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 632-6000
William G. Butterly III, Esq.
30 Rockefeller Plaza
New York, New York 10020
(Name and Address of Agent for Service)
copy to:
Stuart H. Coleman, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
It is proposed that this filing will become effective (check appropriate
box)
X immediately upon filing pursuant to paragraph (b)
____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(i)
_____ on (date) pursuant to paragraph (a)(i)
_____ 75 days after filing pursuant to paragraph (a)(ii)
_____ on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
_____ this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Registrant has registered an indefinite number of its shares of Common Stock
under the Securities Act of 1933 pursuant to Section 24(f) of the Investment
Company Act of 1940. Registrant's Rule 24f-2 Notice for its fiscal year ended
December 31, 1996 was filed on February 27, 1997.
<PAGE>
THE LAZARD FUNDS, INC.
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in
Part B of
Form N-1A Caption Page
1 Cover Cover Page
2 Synopsis 2
3 Condensed Financial Information 6
4 General Description of Registrant 9
5 Management of the Fund 28
5(a) Management's Discussion of Fund's Performance *
6 Capital Stock and Other Securities 42
7 Purchase of Securities Being Offered 32
8 Redemption or Repurchase 36
9 Pending Legal Proceedings *
Items in
Part B of
FORM N-1A
10 Cover Page 1
11 Table of Contents 2
12 General Information and History *
13 Investment Objectives and Policies 3
14 Management of the Fund 22
15 Control Persons and Principal Holders
of Securities 39
16 Investment Advisory and Other Services 24
17 Brokerage Allocation 29
18 Capital Stock and Other Securities 22
19 Purchase, Redemption and Pricing of
Securities Being Offered 27, 31
20 Tax Status 33
21 Underwriters *
22 Calculations of Performance Data 36
23 Financial Statements *
Items in
Part C of
FORM N-1A
24 Financial Statements and Exhibits C-1
25 Persons Controlled by or Under Common
Control with Registrant C-2
26 Number of Holders of Securities C-2
27 Indemnification C-2
28 Business and Other Connections of
Investment Adviser C-3
29 Principal Underwriters C-14
30 Location of Accounts and Records C-14
31 Management Services C-14
32 Undertakings C-15
- ---------
*Omitted since answer is negative or inapplicable.
LAZARD FUNDS
PROSPECTUS
NOVEMBER 1, 1997
<PAGE>
November 1, 1997
PROSPECTUS
THE LAZARD
FUNDS, INC.
- --------------------------------------
Lazard Equity Portfolio
Lazard Mid Cap Portfolio
Lazard Small Cap Portfolio
Lazard Bantam Value Portfolio
Lazard Global Equity Portfolio
Lazard International Equity Portfolio
Lazard International Small Cap Portfolio
Lazard Emerging Markets Portfolio
Lazard Bond Portfolio
Lazard High Yield Portfolio
Lazard International Fixed Income Portfolio
Lazard Strategic Yield Portfolio
- --------------------------------------
30 Rockefeller Plaza
New York, New York 10112
(800) 823-6300
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
This Prospectus sets forth concisely information about the Fund and the
Portfolios that a prospective investor should know before investing in a
Portfolio. A Statement of Additional Information dated November 1, 1997, which
may be revised from time to time, containing additional and more detailed
information about the Portfolios, has been filed with the Securities and
Exchange Commission and is incorporated by reference into this Prospectus. It is
available without charge and can be obtained by writing or calling the Fund at
the address and telephone number printed below. The Securities and Exchange
Commission maintains a Web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference, and other
information regarding the Fund.
- -----------------------------------------------------------------------------
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.
<PAGE>
The Lazard Funds, Inc. (the "Fund") is a no-load, open-end management investment
company, known as a mutual fund. By this Prospectus, the Fund is offering
Institutional Shares and Open Shares of twelve portfolios (each, a "Portfolio").
Institutional Shares and Open Shares are identical, except as to minimum
investment requirements and the services offered to and expenses borne by each
class of shares.
Lazard Asset Management (the "Investment Manager"), a division of Lazard Freres
& Co. LLC ("Lazard Freres"), professionally manages each Portfolio.
The names and investment objectives of the Portfolios are as follows:
LAZARD EQUITY PORTFOLIO seeks capital appreciation. This Portfolio invests
primarily in equity securities of companies with relatively large
capitalizations that the Investment Manager considers inexpensively priced
relative to the return on total capital or equity.
LAZARD MID CAP PORTFOLIO seeks capital appreciation. This Portfolio invests
primarily in equity securities of companies with market capitalizations in the
range of companies represented in the Russell Midcap Index that the Investment
Manager considers inexpensively priced relative to the return on total capital
or equity.
LAZARD SMALL CAP PORTFOLIO seeks capital appreciation. This Portfolio invests
primarily in equity securities of companies with market capitalizations in the
range of companies represented in the Russell 2000 Index that the Investment
Manager considers inexpensively priced relative to the return on total capital
or equity.
LAZARD BANTAM VALUE PORTFOLIO seeks capital appreciation. This Portfolio invests
primarily in equity securities of companies with market capitalizations under
$500 million that the Investment Manager considers inexpensively priced relative
to the return on total capital or equity and which it believes are likely to
increase market capitalization as a result of growth or are likely to be the
subject of acquisitions or other events.
LAZARD GLOBAL EQUITY PORTFOLIO seeks capital appreciation. This Portfolio
invests primarily in equity securities of companies with relatively large
capitalizations that are located anywhere in the world and that the Investment
Manager considers inexpensively priced relative to the return on total capital
or equity.
LAZARD INTERNATIONAL EQUITY PORTFOLIO seeks capital appreciation. This Portfolio
invests primarily in the equity securities of non-United States companies that
the Investment Manager considers inexpensively priced relative to the return on
total capital or equity.
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO seeks capital appreciation. This
Portfolio invests primarily in equity securities of non-United States companies
with market capitalizations under $1 billion that the Investment Manager
considers inexpensively priced relative to the return on total capital or
equity.
LAZARD EMERGING MARKETS PORTFOLIO seeks long-term capital appreciation. This
Portfolio invests primarily in equity securities of non-United States issuers
that are located, or doing significant business, in emerging market countries
that the Investment Manager considers inexpensively priced relative to the
return on total capital or equity.
LAZARD BOND PORTFOLIO seeks to build and preserve capital. This Portfolio
invests 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 HIGH YIELD PORTFOLIO seeks maximum total return, consisting of capital
appreciation and current income. This Portfolio invests principally in domestic
high-yielding fixed-income securities rated below investment grade (i.e., rated
below Baa/BBB by a nationally recognized statistical rating organization), which
are often referred to as "junk bonds." INVESTORS SHOULD CAREFULLY ASSESS THE
RISKS ASSOCIATED WITH AN INVESTMENT IN THIS PORTFOLIO.
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. This Portfolio
invests primarily in foreign fixed-income securities of varying maturities.
LAZARD STRATEGIC YIELD PORTFOLIO seeks total return by placing approximately
equal emphasis on capital apreciation and current income. This Portfolio
invests in a wide variety of domestic and foreign fixed-income securities,
including those of emerging markets and non- traditional sectors, many of which
are rated below investment grade (i.e., rated below Baa/BBB by a nationally
recognized statistical rating organization). INVESTORS SHOULD CAREFULLY ASSESS
THE RISKS ASSOCIATED WITH AN INVESTMENT IN THIS PORTFOLIO.
<PAGE>
TABLE OF CONTENTS
PAGE
Annual Operating Expenses................................................
Financial Highlights.....................................................
Description of the Portfolios............................................
General.............................................................
Investment Objectives and Policies..................................
Investment Considerations and Risks.................................
Management of the Fund and Portfolios....................................
Purchase of Shares.......................................................
Redemption of Shares.....................................................
Distribution and Servicing Plan..........................................
Exchange Privilege.......................................................
Dividends and Distributions..............................................
Taxation.................................................................
Organization and Description of Capital Stock............................
Reports to Shareholders and Account Services.............................
Performance Information..................................................
Appendix.................................................................
<PAGE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(as a percentage of average daily net assets)
Total
Management 12b-1 Other Portfolio
FEES FEES EXPENSES Operating
EXPENSES
Equity Portfolio
<S> <C> <C> <C>
Institutional Shares .75% None .14% .89%
Open Shares .75% .25% .22%* 1.22%*
Mid Cap Portfolio
Institutional Shares .75% None .30%* 1.05%*
Open Shares .75% .25% .35%* 1.35%*
Small Cap Portfolio
Institutional Shares .75% None .09% .84%
Open Shares .75% .25% .14%* 1.14%*
Bantam Value Portfolio
Institutional Shares .75% None .30%* 1.05%*
Open Shares .75% .25% .35%* 1.35%*
Global Equity Portfolio
Institutional Shares .75% None .30%* 1.05%*
Open Shares .75% .25% .35%* 1.35%*
International Equity
Portfolio
Institutional Shares .75% None .16% .91%
Open Shares .75% .25% .25%* 1.25%*
International Small Cap
Portfolio
Institutional Shares .75% None .37% 1.12%
Open Shares .75% .25% .43%* 1.43%*
Emerging Markets
Portfolio
Institutional Shares 1.00% None .28% 1.38%
Open Shares 1.00% .25% .35%* 1.60%*
Bond Portfolio
Institutional Shares .50% None .30%* .80%*
Open Shares .50% .25% .35%* 1.10%*
High Yield Portfolio
Institutional Shares .75% None .30%* 1.05%*
Open Shares .75% .25% .35%* 1.35%*
International Fixed
Income Portfolio
Institutional Shares .75% None .30%* 1.05%*
Open Shares .75% .25% .35%* 1.35%*
Strategic Yield Portfolio
Institutional Shares .75% None .33% 1.08%
Open Shares .75% .25% .39%* 1.39%*
CONTINUED ON NEXT PAGE.
- ---------------
* After expense reimbursement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Equity Portfolio
<S> <C> <C> <C> <C>
Institutional Shares $ 9 $28 $49 $110
Open Shares $12 $39 $67 $148
Mid Cap Portfolio
Institutional Shares $11 $33 $58 $128
Open Shares $14 $43 $74 $162
Small Cap Portfolio
Institutional Shares $ 9 $27 $47 $104
Open Shares $12 $36 $63 $139
Bantam Value Portfolio
Institutional Shares $11 $33 $58 $128
Open Shares $14 $43 $74 $162
Global Equity
Portfolio
Institutional Shares $11 $33 $58 $128
Open Shares $14 $43 $74 $162
International Equity
Portfolio
Institutional Shares $ 9 $29 $50 $112
Open Shares $13 $40 $69 $151
International Small
Cap Portfolio
Institutional Shares $11 $36 $62 $136
Open Shares $15 $45 $78 $171
Emerging Markets
Portfolio
Institutional Shares $14 $44 $76 $166
Open Shares $16 $50 $87 $190
Bond Portfolio
Institutional Shares $ 8 $26 $44 $ 99
Open Shares $11 $35 $61 $134
High Yield Portfolio
Institutional Shares $11 $33 $58 $128
Open Shares $14 $43 $74 $162
International Fixed
Income Portfolio
Institutional Shares $11 $33 $58 $128
Open Shares $14 $43 $74 $162
Strategic Yield
Portfolio
Institutional Shares $11 $34 $60 $132
Open Shares $14 $44 $76 $167
</TABLE>
The amounts listed in the examples should not be considered representative 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%.
CONTINUED ON NEXT PAGE.
<PAGE>
The purpose of the foregoing table is to assist investors in understanding the
costs and expenses borne by each Portfolio, the payment of which will reduce
investors' annual return. Long-term investors in Open Shares could pay more in
12b-1 fees than the economic equivalent of paying a front-end sales charge. With
respect to Institutional Shares, "Other Expenses" and "Total Portfolio Operating
Expenses" reflect the undertaking of the Investment Manager to bear, excluding
class specific expenses, (i) with respect to each of the Bantam Value Portfolio,
Global Equity Portfolio and International Fixed Income Portfolio, total
operating expenses in excess of 1.05% of each such Portfolio's average net
assets, and (ii) with respect to the Bond Portfolio, total operating expenses in
excess of .80% of that Portfolio's average net assets, in each case, until the
earlier of December 31, 1997 or such time as the respective Portfolio reaches
total net assets of $100 million. Had the Investment Manager not undertaken to
bear certain expenses, total portfolio operating expenses for the fiscal year
ended December 31, 1996 for Institutional Shares would have been 1.91% for the
Bantam Value Portfolio, 5.06% for the Global Equity Portfolio, .88% for the Bond
Portfolio and 1.21% for the International Fixed Income Portfolio. With respect
to Institutional Shares of the Mid Cap Portfolio and High Yield Portfolio and
Open Shares of each Portfolio, "Other Expenses" and "Total Portfolio Operating
Expenses" reflect the undertaking by the Investment Manager to bear, excluding
12b-1 fees and other class specific expenses, total operating expenses in excess
of the "Total Portfolio Operating Expenses" noted in the table above for each
such Portfolio. The information in the table does not reflect any other fee
waivers or expense reimbursement arrangements that were in effect for the
Portfolios during the last fiscal year or may be in effect during the current
fiscal year. "Other Expenses" for Institutional Shares with respect to the Mid
Cap Portfolio and High Yield Portfolio, and "Other Expenses" for Open Shares
with respect to each Portfolio, are based on estimated amounts for the current
fiscal year. Investors may purchase Fund shares without a sales charge directly
from Lazard Freres. 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.
FINANCIAL HIGHLIGHTS
The financial highlights set forth below for Institutional Shares have been
audited (except where noted) 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 for periods prior to January
1, 1992 were audited by other independent public accountants. Additional
financial information, related notes and report of independent accountants
accompany the Statement of Additional Information, which is available upon
request. The Mid Cap Portfolio and High Yield Portfolio had not commenced
operations as of the date of the financials and, therefore, no financial data
are provided for such Portfolios.
<PAGE>
<TABLE>
<CAPTION>
THE LAZARD FUNDS, INC
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
LESS
INCOME (LOSS) FROM DISTRIBUTIONS RATIOS TO
INVESTMENT FROM AND AVERAGE NET
OPERATIONS IN EXCESS ASSETS
OF:
Realized
and
Net Unrealized
Asset Invest- Gain Total Net Port- Aver- Net
Value, ment (Loss) from Invest- Realized Asset Total Invest- folio age Assets,
Begin- (Income) on Invest- ment Gains- Value, Return Expenses ment Turn- Comm- End
ning Loss- Invest- ment Income- Net End of ++ Net+ Income- over ission of
of Net ments- Opera- Net Period Net+ Rate Rate Period
Period Net tions Paid**
(000's)
- -----------------------------------------------------------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
INSTITUTIONAL SHARES
Six months ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/97+++...........$19.24 $0.117 $2.972 $3.089 $(0.052) $(0.257) $22.02 16.2% 0.87% 1.13% 35.36% $317,643
Year ended
12/31/96.............17.41 0.331 3.064 3.395 (0.329) (1.236) 19.24 19.9 0.89(h),(i) 1.87 65.80 $0.0582 278,605
12/31/95.............13.75 0.226 4.931 5.157 (0.175) (1.322) 17.41 37.7 0.92(g) 1.45 80.72 163,787
12/31/94.............13.89 0.141 0.441 0.582 (0.152) (0.574) 13.75 4.2 1.05 1.15 66.52 89,105
12/31/93.............12.74 0.158 2.172 2.330 (0.165) (1.015) 13.89 18.6 1.05(d) 1.31 63.92 47,123
12/31/92.............12.34 0.123 0.518 0.641 (0.132) (0.109) 12.74 5.3 1.05(c) 1.19 174.45 24,646
12/31/91.............11.53 0.107 3.051 3.158 (0.082) (2.266) 12.34 27.5 1.93 0.84 90.00 14,821
12/31/90.............12.34 0.191 (0.778) (0.587) (0.223)(a) -- 11.53 (4.7) 1.77 1.62 70.00 14,397
12/31/89.............10.32 0.204 2.231 2.435 (0.214) (0.201) 12.34 23.6 1.78 1.71 78.00 16,239
12/31/88............. 8.73 0.181 1.597 1.778 (0.188) -- 10.32 20.4 1.84 1.86 111.00 12,336
6/1/87* to 10.00 0.110 (1.280) (1.170) (0.100) -- 8.73 (11.7) 1.68+ 1.93+ 97.00 10,186
12/31/87.............
OPEN SHARES
Period from
2/5/97* to 20.19 0.052 2.061 2.113 (0.036) (0.257) 22.01 10.6 1.22(j),(k) 1.04 35.36 4,692
6/30/97+++
- -----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
INSTITUTIONAL SHARES
Six months
ended
6/30/97+++...........13.62 0.215 1.462 1.677 -- (0.097) 15.20 12.4 0.89% 2.16 24.95 2,080,607
Year ended
12/31/96.............12.50 0.166 1.767 1.933 (0.191) (0.622) 13.62 15.6 0.91(h),(i) 1.93 38.59 0.0219 1,816,173
12/31/95.............11.23 0.187 1.288 1.475 (0.091) (0.114) 12.50 13.1 0.95(g) 1.82 62.54 1,299,549
12/31/94.............12.32 0.078 (0.049) 0.029 -- (1.123) 11.23 0.2 0.94 0.75 106.15 831,877
12/31/93............. 9.48 0.021 2.919 2.940 (0.021) (0.079) 12.32 31.0 0.99 1.13 86.95 603,642
12/31/92.............10.30 0.097 (0.779) (0.682) (0.138) -- 9.48 (6.6) 1.05(c) 2.13 60.37 176,005
10/29/91* 10.00 0.020 0.300 0.320 (0.020) -- 10.30 3.2 1.05+,(b) 2.19+ 0.18 4,967
to 12/31/91..........
OPEN SHARES
Period from
1/23/97* 13.29 0.069 1.898 1.967 -- (0.097) 15.16 14.9 1.25(j),(k) 3.58 24.95 4,785
to 6/30/97+++
- ----------------------------------------------------------------------------------------------------------------------------------
See footnotes on page __.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LAZARD INTERNATIONAL FIXED INCOME PORTFOLIO
INSTITUTIONAL SHARES
Six months
ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/97+++..........$10.78 0.322 (0.673) (0.351) (0.273) (0.026) 10.13 (3.2) 1.05%(j),(k)5.44 68.79 114,631
Year ended
12/31/96.............10.85 0.539 0.032 0.571 (0.592) (0.049) 10.78 5.5 1.05(h) 5.54 241.85 88,430
12/31/95.............10.23 0.701 1.250 1.951 (1.129) (0.202) 10.85 19.4 1.05(f),(g) 5.99 189.97 45,624
12/31/94.............10.51 0.592 (0.161) 0.431 (0.593) (0.116) 10.23 4.2 1.05(e) 5.68 65.90 35,803
12/31/93............. 9.79 0.571 0.912 1.483 (0.570) (0.193) 10.51 15.7 1.05(d) 5.50 115.84 13,546
12/31/92.............10.28 0.614 (0.403) 0.211 (0.614) (0.087) 9.79 2.0 1.05(c) 6.08 256.20 8,183
11/8/91* 10.00 0.110 0.280 0.390 (0.110) -- 10.28 3.9 1.05+,(b) 4.82+ 6.43 1,427
to 12/31/91..........
OPEN SHARES
Period from
1/8/97* to 10.64 0.238 (0.474) (0.236) (0.238) (0.026) 10.14 (2.2) 1.35(j),(k) 5.19 68.79 1,908
6/30/97+++
- -----------------------------------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
INSTITUTIONAL SHARES
Six months
ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/97+++........... 9.88 0.293 0.036 0.329 (0.289) -- 9.92 3.4 0.80%(j),(k)5.91 261.45 81,886
Year ended
12/31/96.............10.10 0.559 (0.141) 0.418 (0.568) (0.070) 9.88 4.4 0.80(h),(i) 5.77 460.29 69,906
12/31/95............. 9.24 0.595 0.863 1.458 (0.594) (0.004) 10.10 16.2 0.80(f),(g) 6.07 244.28 46,083
12/31/94.............10.28 0.584 (1.010) (0.426) (0.584) (0.029) 9.24 (4.2) 0.80(e) 6.11 120.51 24,494
12/31/93.............10.21 0.551 0.302 0.853 (0.551) (0.232) 10.28 8.6 0.80(d) 5.22 174.63 13,562
12/31/92.............10.25 0.577 (0.004) 0.573 (0.577) (0.036) 10.21 5.7 0.80(c) 5.59 131.38 8,532
11/12/91* 10.00 0.140 0.250 0.390 (0.140) -- 10.25 3.9 0.80+,(b) 5.50+ 10.46 3,256
to 12/31/91..........
OPEN SHARES
Period from
3/5/97* to 9.86 0.172 0.060 0.232 (0.172) -- 9.92 2.4 1.10(j),(k) 5.70 261.45 5,084
6/30/97+++
- -----------------------------------------------------------------------------------------------------------------------------------
See footnotes on page __.
LAZARD STRATEGIC YIELD PORTFOLIO
INSTITUTIONAL SHARES
Six months
ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/97+++...........10.01 0.382 0.067 0.449 (0.379) -- 10.08 4.6 0.94%(j),(k)7.71 84.49 301,281
Year ended
12/31/96............. 9.52 0.758 0.498 1.256 (0.766) -- 10.01 13.7 1.08(h),(i) 7.88 188.88 199,083
12/31/95............. 9.10 0.748 0.430 1.178 (0.758) -- 9.52 13.6 1.09(g) 8.02 205.33 78,474
12/31/94.............10.13 0.762 (0.990) (0.228) (0.761) (0.039) 9.10 (2.3) 1.05(e) 8.03 195.18 62,328
12/31/93............. 9.50 0.644 0.738 1.382 (0.633) (0.119) 10.13 15.6 1.05(d) 6.36 215.60 34,943
12/31/92............. 9.97 1.049 (0.450) 0.599 (1.049) (0.020) 9.50 6.0 1.05(c) 10.57 122.88 9,641
10/1/91* 10.00 0.250 (0.030) 0.220 (0.250) -- 9.97 2.1 1.05+,(b) 9.52+ 11.26 4,256
to 12/31/91..........
OPEN SHARES
Period from
1/23/97* 10.08 0.317 0.010 0.327 (0.317) -- 10.09 3.3 1.39(j),(k) 7.67 84.49 9,906
to 6/30/97+++
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
INSTITUTIONAL SHARES
Six months
ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/97+++...........18.44 0.023 3.003 3.026 -- (0.396) 21.07 16.7 0.82%(j),(k)0.27 24.45 1,248,663
Year ended
12/31/96***..........15.95 0.105 3.680 3.785 (0.105) (1.190) 18.44 23.9 0.84(h),(i) 0.60 50.58 0.0575 981,405
12/31/95.............14.35 0.126 2.951 3.077 (0.154) (1.323) 15.95 21.5 0.84(g) 0.90 69.68 646,371
12/31/94.............15.26 0.070 0.220 0.290 (0.042) (1.158) 14.35 2.0 0.85 0.51 70.11 429,673
12/31/93.............12.98 0.019 3.830 3.849 (0.020) (1.549) 15.26 30.1 0.88 0.16 98.47 350,952
12/31/92.............10.42 0.019 2.560 2.579 (0.019) -- 12.98 24.8 1.05(c) 0.29 106.91 168,171
10/30/91* 10.00 0.030 0.420 0.450 (0.030) -- 10.42 4.5 1.05+,(b) 2.47+ 5.50 2,512
to 12/31/91..........
OPEN SHARES
Period from
1/30/97* 18.75 0.007 2.689 2.696 -- (0.396) 21.05 14.7 1.14(j),(k)-0.07 24.45 5,900
to 6/30/97+++
- ----------------------------------------------------------------------------------------------------------------------------------
See footnotes on page __.
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
INSTITUTIONAL SHARES
Six months ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/97+++...........11.93 0.173 0.700 0.873 -- (0.093) 12.71 7.4 1.09%(j),(k)1.29 31.41 145,203
Year ended
12/31/96.............10.52 0.079 1.551 1.630 (0.082) (0.138) 11.93 15.6 1.12 1.67 100.98 0.0150 126,973
12/31/95.............10.38 0.139 0.056 0.195 -- (0.055) 10.52 1.9 1.13(g) 1.56 117.53 115,534
12/31/94.............10.86 0.072 (0.548) (0.476) -- -- 10.38 (4.5) 1.05(e) 0.95 112.92 83,432
12/1/93* 10.00 0.004 0.859 0.863 (0.003) -- 10.86 8.7 1.05+,(d) 1.76+ 0.84 13,522
to 12/31/93..........
OPEN SHARES
Period from
2/13/97* 12.32 0.044 0.409 0.453 -- (0.093) 12.68 3.7 1.43(j),(k) 1.59 31.41 1,362
to 6/30/97+++
- -----------------------------------------------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS CAP PORTFOLIO
INSTITUTIONAL SHARES
Six months ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/97+++...........11.21 0.099 2.513 2.612 -- (0.172) 13.65 23.5 1.28%(j),(k)1.46 27.60 270,918
Year ended
12/31/96............. 9.24 0.074 2.107 2.181 (0.083) (0.128) 11.21 23.6 1.38(h),(i) 1.40 50.87 0.0042 145,328
12/31/95............. 9.86 0.080 (0.660) (0.580) (0.040) -- 9.24 (5.9) 1.30(f),(g) 1.22 102.22 35,216
7/15/94* 10.00 0.010 (0.154) (0.144) -- -- 9.86 (1.4) 1.30+,(e) 0.31+ 30.68 17,025
to 12/31/94..........
OPEN SHARES
Period from
1/8/97* to 11.45 0.036 2.326 2.362 -- (0.172) 13.64 20.8 1.60(j),(k) 1.66 27.60 8,809
6/30/97+++
- ----------------------------------------------------------------------------------------------------------------------------------
See footnotes on page __.
LAZARD GLOBAL EQUITY PORTFOLIO
INSTITUTIONAL SHARES
Six months
ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/97+++...........11.48 0.091 1.486 1.577 (0.004) (0.423) 12.63 14.1 1.05%(j),(k) 1.47 30.03 11,026
Year ended
1/4/96* to 10.00 0.085 1.492 1.577 (0.097) -- 11.48 15.8 1.05+,(h),(i)1.70+ 73.71 0.0422 9,784
12/31/96.............
OPEN SHARES
Period from
1/30/97* 11.31 0.048 1.685 1.733 -- (0.423) 12.62 15.7 1.35(j),(k) 2.05 30.03 1,487
to 6/30/97+++
- -----------------------------------------------------------------------------------------------------------------------------------
LAZARD BANTAM VALUE PORTFOLIO
INSTITUTIONAL SHARES
Six months
ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/97+++...........12.58 (0.040) 2.505 2.465 -- (0.315) 14.73 20.1 1.05%(j),(k)-0.49 64.21 51,739
Year ended
3/5/96* to 10.00 0.218 3.108 3.326 (0.218) (0.528) 12.58 33.3 1.05+,(h),(i) 2.80+ 261.60 0.0402 34,549
12/31/96.............
OPEN SHARES
Period from
1/23/97* 13.13 (0.014) 1.899 1.885 -- (0.315) 14.70 14.8 1.35(j),(k) -0.73 64.21 2,329
to 6/30/97+++
- ----------------------------------------------------------------------------------------------------------------------------------
See footnotes on page __.
</TABLE>
Footnotes to Financial Highlights
* Commencement of operations.
** The average commission rate paid is applicable for Portfolios that
invest greater than 10% of average assets in equity security transactions
on which commissions are charged. This disclosure is required for fiscal
periods beginning on or after September 1, 1995. *** Does not include the
operations of Special Equity Portfolio from January 1, 1996 through June
28, 1996 (acquisition date), whose net assets were acquired by the Small
Cap Portfolio.
+ Annualized for periods less than one year.
++ Total return represents aggregate total return for the periods indicated.
+++ Unaudited.
(a) Includes $.032 per share of distributions from paid-in capital, none
of which is a return of capital for tax purposes.
(b) 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.
(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 1.53% ($0.050) for Equity Portfolio, 1.37% ($0.014) for
International Equity Portfolio, 2.80% ($0.176) for
International Fixed Income Portfolio, 3.23% ($0.0251) for Bond
Portfolio, 2.99% ($0.192) for Strategic Yield Portfolio and
1.14% ($0.006) for 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 1.18% ($0.020) for Equity Portfolio, 2.08% ($0.119) for
International Fixed Income Portfolio, 1.76% ($0.101) for Bond
Portfolio, 1.63% ($0.058) for Strategic Yield Portfolio and
2.87%+ ($0.010) for International 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 1.51% ($0.048) for International Fixed Income Portfolio,
1.23% ($0.041) for Bond Portfolio, 1.15% ($0.009) for
Strategic Yield Portfolio, 1.26% ($0.016) for International
Small Cap Portfolio and 2.31%+ ($0.034) for Emerging Markets
Portfolio.
(f) 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
International Fixed Income Portfolio, 0.97% ($0.578) for Bond
Portfolio and 2.00% ($0.034) for Emerging Markets Portfolio.
(g) Includes fees paid indirectly. Excluding fees paid indirectly,
the ratio of expenses to average net assets would have been
0.92% for Equity Portfolio, 0.95% for International Equity
Portfolio, 1.05% for International Fixed Income Portfolio,
0.80% for Bond Portfolio, 1.08% for Strategic Yield Portfolio,
0.84% for Small Cap Portfolio, 1.13% for International Small
Cap Portfolio and 1.30% for Emerging Markets Portfolio.
(h) 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 0.89% ($0.331) for Equity Portfolio, 0.91%
($0.166) for International Equity Portfolio, 1.21% ($0.523) for
International Fixed Income Portfolio, 0.88% ($0.551) for Bond
Portfolio, 1.08% ($0.756) for Strategic Yield Portfolio, 0.84%
($0.105) for Small Cap Portfolio, 1.48% ($0.068) for Emerging
Markets Portfolio, 5.06% (-$0.115) for Global Equity Portfolio
and 1.91% ($0.151) for Bantam Value Portfolio.
(i) Includes fees paid indirectly. Excluding fees paid indirectly,
the ratio of expenses to average net assets would have been
0.89% for Equity Portfolio, 0.90% for International Equity
Portfolio, 0.80% for Bond Portfolio, 1.05% for Strategic Yield
Portfolio, 0.84% for Small Cap Portfolio, 1.36% for Emerging
Markets Portfolio, 1.05% for Global Equity Portfolio and 1.05%
for Bantam Value Portfolio.
(j) 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 1.91% ($0.039) for Equity Portfolio - Open,
2.13% ($0.061) for International Equity Portfolio - Open, 1.13%
($0.318) for International Fixed Income Portfolio -
Institutional, 3.89% ($0.183) for International Fixed Income
Portfolio - Open, 0.81% ($0.293) for Bond Portfolio -
Institutional, 1.87% ($0.165) for Bond Portfolio - Open, 0.94%
($0.381) for Strategic Yield Portfolio - Institutional, 1.58%
($0.313) for Strategic Yield Portfolio - Open, 0.82% ($0.023)
for Small Cap Portfolio - Institutional, 2.01% ($0.039) for
Small Cap Portfolio - Open, 1.09% ($0.173) for International
Small Cap Portfolio - Institutional, 3.04% ($0.027) for
International Small Cap Portfolio - Open, 1.30% ($0.098) for
Emerging Markets Portfolio - Institutional, 1.96% ($0.032) for
Emerging Markets Portfolio - Open, 2.74% ($-0.013) for Global
Equity Portfolio - Institutional, 5.03% ($0.014) for Global
Equity Portfolio - Open, 1.30% ($-0.060) for Bantam Value
Portfolio - Institutional and 3.18% ($-0.030) for Bantam Value
Portfolio - Open.
(k) Includes fees paid indirectly. Excluding fees paid indirectly,
the ratio of expenses to average net assets would have been
1.22% for Equity Portfolio - Open, 1.25% for International
Equity Portfolio - Open, 1.05% for International Fixed Income
Portfolio - Institutional, 1.35% for International Fixed
Income Portfolio - Open, 0.80% for Bond Portfolio -
Institutional, 1.10% for Bond Portfolio - Open, 0.94% for
Strategic Yield Portfolio - Institutional, 1.40% for Strategic
Yield Portfolio - Open, 0.82% for Small Cap Portfolio -
Institutional, 1.14% for Small Cap Portfolio - Open, 1.09% for
International Small Cap Portfolio, 1.43% for International
Small Cap Portfolio - Open, 1.30% for Emerging Markets -
Institutional, 1.62% for Emerging Markets Portfolio - Open,
1.05% for Global Equity Portfolio - Institutional, 1.35% for
Global Equity Portfolio - Open, 1.05% for Bantam Value
Portfolio - Institutional and 1.35% for Bantam Value Portfolio
- Open.
Further information about each such Portfolio's performance is contained in the
Fund's annual report for the fiscal year ended December 31, 1996 which may be
obtained without charge by writing to the address or calling the appropriate
number set forth on the cover page of this Prospectus.
<PAGE>
DESCRIPTION OF THE PORTFOLIOS
GENERAL
Each Portfolio is a separate pool of assets constituting, in effect, a separate
fund with its own investment objectives and policies. Each Portfolio's shares
are classified into two classes -- Institutional Shares and Open Shares (each
such class being referred to as a "Class"). The Classes are identical, except
for the minimum investment requirements and the services offered to and expenses
borne by each Class. Open Shares are subject to an annual distribution and
service fee at the rate of .25% of the value of the average daily net assets of
the Open Class. The fee is payable for advertising, marketing and distributing
Open Shares and for ongoing personal services relating to Open Class shareholder
accounts and services related to the maintenance of such shareholder accounts
pursuant to a Distribution and Servicing Plan adopted in accordance with Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act"). See
"Distribution and Servicing Plan." The amounts paid pursuant to the Distribution
and Servicing Plan will cause the Open Class to have a higher expense ratio and
to pay lower dividends than the Institutional Class. A shareholder in a
Portfolio will be entitled to his or her pro rata share of all dividends and
distributions arising from the Portfolio's assets and, upon redeeming shares of
the Portfolio, will receive the then-current net asset value of the applicable
Class represented by the redeemed Portfolio shares. See "Purchase of Shares" and
"Redemption of Shares." The Fund may establish, without shareholder approval,
additional portfolios which may have different investment objectives, policies
or restrictions.
Shares of any Portfolio may be purchased and redeemed through Boston Financial
Data Services Inc., 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 for Open Shares of each Portfolio is $10,000 unless
the investor is a client of a securities dealer or other institution which has
made an aggregate minimum initial purchase for its clients of at least $10,000.
The minimum initial investment for Institutional Shares of each Portfolio is
$1,000,000. The minimum subsequent investment is $1,000 for Open Shares and
$5,000 for Institutional Shares. Institutional Shares held by a shareholder
whose Fund account's net asset value is less than $1,000,000 are subject to
conversion to Open Shares at the option of the Fund upon notice to the
shareholder. For more information, see "Purchase of Shares" and "Redemption of
Shares."
INVESTMENT OBJECTIVES AND POLICIES
Each Portfolio has a different investment objective which it pursues through
separate investment policies as described herein. The differences in objectives
and policies among the Portfolios determine the types of portfolio securities in
which each Portfolio invests, and can be expected to affect the degree of risk
to which each Portfolio is subject and its yield or return. The following
investment objectives and related policies and activities of each of the
Portfolios, except as otherwise indicated, are not fundamental and may be
changed by the Fund's Board of Directors without the approval of shareholders.
There can be no assurance that any of the Portfolios will achieve its respective
investment objective. The types of portfolio securities in which each Portfolio
may invest are described in greater detail below and under "Appendix--Certain
Portfolio Securities."
EQUITY PORTFOLIOS--These Portfolios will invest principally in equity
securities. These Portfolios will engage primarily in a value-oriented search
for equity securities before they have attracted wide investor interest. The
Investment Manager attempts to identify undervalued 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's global investment specialists
apply both quantitative and qualitative analysis to securities selection. 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.
EQUITY PORTFOLIO
The Equity Portfolio is a diversified portfolio the investment objective of
which is to seek capital appreciation. The Portfolio invests primarily in equity
securities of companies with relatively large capitalizations that the
Investment Manager considers inexpensively priced relative to the return on
total capital or equity.
Under normal market conditions, the Portfolio will invest at least 80% of its
total assets in equity securities, including 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 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. See
"Appendix--Certain Portfolio Securities-- Ratings."
The Portfolio also may invest without limitation in short-term money market
instruments of the types described in "Appendix--Certain Portfolio
Securities--Money Market Instruments."
The Portfolio also may invest up to 10% of its total assets in foreign equity or
debt securities trading in U.S. markets or listed on a domestic securities
exchange or represented by American or Global Depositary Receipts. For a
description of the risks associated with investing in foreign securities, see
"Investment Considerations and Risks--Foreign Securities."
In addition, the Portfolio may engage in various investment techniques, such as
options transactions and, although it has no present intention to do so,
leveraging and lending portfolio securities. For a discussion of the investment
techniques and their related risks, see "Investment Considerations and Risks"
and "Appendix--Investment Techniques" below and "Investment Objectives and
Management Policies--Management Policies" in the Statement of Additional
Information.
MID CAP PORTFOLIO
The Mid Cap Portfolio is a non-diversified portfolio the investment objective of
which is to seek capital appreciation. The Portfolio invests primarily in equity
securities of United States companies with market capitalizations in the range
of companies represented in the Russell Midcap Index* that the Investment
Manager considers inexpensively priced relative to the return on total capital
or equity. Market capitalization of a company's stock is its market price per
share times the number of shares outstanding. The Russell Midcap Index is
composed of selected common stocks of medium-size domestic companies with market
capitalizations ranging generally between $1 billion and $5 billion. The
Portfolio is not an index fund and will invest in securities that may or may not
be included in the Russell Midcap Index. The equity securities in which the
Portfolio may invest include common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks, rights and warrants and
American and Global Depositary Receipts.
* Russell Midcaptm is a trademark of Frank Russell Company. The Portfolio is
not sponsored, endorsed, sold or promoted by FRank Russell Company.
<PAGE>
Under normal market conditions, the Portfolio will invest at least 80% of the
value of its total assets in the equity securities of undervalued medium
capitalization issuers. Assets not invested in such equity securities generally
will be invested in the equity securities of larger capitalization issuers or
investment grade debt securities, including cash equivalents of the types
described in "Appendix--Certain Portfolio Securities--Money Market Instruments."
The Portfolio also may invest up to 15% of its total assets in foreign equity or
debt securities. For a description of the risks associated with investing in
foreign securities, see "Investment Considerations and Risks-- Foreign
Securities."
When, in the Investment Manager's judgment, business or financial conditions
warrant, the Portfolio may assume a temporary defensive position and invest
without limitation in larger capitalization companies or short-term money market
instruments of the types described in "Appendix--Certain Portfolio
Securities--Money Market Instruments" or hold its assets in cash.
In addition, the Portfolio may engage in various investment techniques, such as
options and futures transactions, foreign currency transactions, leveraging,
short-selling and lending portfolio securities. For a discussion of the
investment techniques and their related risks, see "Investment Considerations
and Risks" and "Appendix-Investment Techniques" below and "Investment
Objectives and Management Policies-Management Policies" in the Statement of
Additional Information.
SMALL CAP PORTFOLIO
The Small Cap Portfolio is a non-diversified portfolio the investment objective
of which is to seek capital appreciation. The Portfolio invests primarily in
equity securities of United States companies with market capitalizations in the
range of companies represented in the Russell 2000 Index** that the Investment
Manager considers inexpensively priced relative to the return on total capital
or equity. The Russell 2000 Index is composed of selected common stocks of
small, generally unseasoned U.S. companies with market capitalizations ranging
between $200 million and $1 billion. The equity securities in which the
Portfolio may invest include common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks, rights and warrants.
** Russell 2000tm is a trademark of Frank Russell Company. The Portfolio is
not sponsored, endorsed, sold or promoted by Frank Russell Company.
<PAGE>
Investments generally are made in equity securities of companies which, in the
Investment Manager's opinion, have one or more of the following characteristics
(the "Small Cap Factors"): (i) are undervalued relative to their earnings power,
cash flow, and/or asset values; (ii) have an attractive price/value relationship
(i.e., have high returns on equity and/or assets with correspondingly low
price-to-book and/or price-to-asset value as compared to the market generally or
the companies' industry groups in particular), with expectations that some
catalyst will cause the perception of value to change within a 24-month time
horizon; (iii) have experienced significant relative 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. Assets not invested in such small capitalization equity
securities generally will be invested in larger capitalization equity securities
or debt securities, including cash equivalents.
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 small capitalization stocks can
involve greater risk than is customarily associated with larger, more
established companies. See "Investment Considerations and Risks--Equity
Securities."
When, in the Investment Manager's judgment, business or financial conditions
warrant, the Portfolio may assume a temporary defensive position and invest
without limitation in large capitalization companies or short-term money market
instruments of the types described in "Appendix--Certain Portfolio
Securities--Money Market Instruments" or hold its assets in cash.
In addition, the Portfolio may engage in various investment techniques, such as
lending portfolio securities. For a discussion of the investment techniques and
their related risks, see "Investment Considerations and Risks" and
"Appendix--Investment Techniques" below and "Investment Objectives and
Management Policies--Management Policies" in the Statement of Additional
Information.
BANTAM VALUE PORTFOLIO
The Bantam Value Portfolio is a non-diversified Portfolio the investment
objective of which is to seek capital appreciation. The Portfolio invests
primarily in equity securities of companies with market capitalizations under
$500 million that the Investment Manager considers inexpensively priced relative
to the return on total capital or equity. The equity securities in which the
Portfolio may invest include common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks, rights and warrants and
American and Global Depositary Receipts. Investments generally are made in
equity securities of companies which, in the Investment Manager's opinion, have
one or more of the characteristics of 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 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 generally will be invested in larger capitalization equity securities
or investment grade debt securities, including cash equivalents of the types
described in "Appendix -- Certain Portfolio Securities -- Money Market
Instruments." For a description of the risks associated with investing in small
capitalization equity securities, see "Investment Considerations and
Risks--Equity Securities."
When, in the Investment Manager's judgment, business or financial conditions
warrant, the Portfolio may assume a temporary defensive position and invest
without limit in large capitalization companies or short-term money market
instruments of the types described in "Appendix--Certain Portfolio
Securities--Money Market Instruments" or hold its assets in cash.
The Portfolio also may invest up to 10% of its total assets in foreign equity or
debt securities trading in U.S. markets or listed on a domestic securities
exchange or represented by American or Global Depositary Receipts. For a
description of the risks associated with investing in foreign securities, see
"Investment Considerations and Risks--Foreign Securities."
In addition, the Portfolio may engage in various investment techniques, such as
options transactions and lending portfolio securities. For a discussion of the
investment techniques and their related risks, see "Investment Considerations
and Risks" and "Appendix--Investment Techniques" below and "Investment
Objectives and Management Policies--Management Policies" in the Statement of
Additional Information.
GLOBAL EQUITY PORTFOLIO
The Global Equity Portfolio is a non-diversified portfolio the investment
objective of which is to seek capital appreciation. The Portfolio invests
primarily in equity securities of companies, both U.S. and non-U.S., with
relatively large capitalizations that the Investment Manager considers
inexpensively priced relative to the return on total capital or equity. The
Portfolio engages in a value-oriented search for equity securities of issuers
located anywhere in the world. In selecting investments for the Portfolio, the
Investment Manager attempts to identify inexpensive markets worldwide, including
the United States, 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.
Under normal market conditions, the Portfolio expects to invest at least 80% of
its assets in the equity securities of companies within not less than four
countries, including the United States. The percentage of the Portfolio's assets
invested in particular geographic sectors may shift from time to time in
accordance with the Investment Manager's judgment. 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, the Investment Manager currently intends to invest not less than
25% of the Portfolio's assets in securities of U.S. issuers. For a description
of the risks associated with investing in foreign securities, see "Investment
Considerations and Risks--Foreign Securities."
The Portfolio's assets are expected to be invested principally in equity
securities, including American and Global Depositary Receipts, and in
convertible bonds and other convertible securities. The Portfolio is not
required to invest exclusively in equity securities, and, if deemed advisable,
the Portfolio may invest up to 20% of the value of its total assets in
fixed-income securities. The Portfolio will not invest in fixed-income
securities rated lower than investment grade.
When, in the Investment Manager's judgment, business or financial conditions
warrant, the 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 of the types described in "Appendix--Certain Portfolio
Securities--Money Market Instruments" or hold its assets in cash.
In addition, the Portfolio may engage in various investment techniques, such as
foreign currency transactions, options and futures transactions and lending
portfolio securities. For a discussion of the investment techniques and their
related risks, see "Investment Considerations and Risks" and
"Appendix--Investment Techniques" below and "Investment Objectives and
Management Policies--Management Policies" in the Statement of Additional
Information.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio is a non-diversified portfolio the investment
objective of which is to seek capital appreciation. The Portfolio invests
primarily in the equity securities of non-United States companies (i.e.,
incorporated or organized outside the United States) that the Investment Manager
considers inexpensively priced relative to the return on total capital or
equity. The Portfolio is not required to invest exclusively in common stocks or
other equity securities, and, if deemed advisable, the Portfolio may invest up
to 20% of the value of its total assets in fixed-income securities and
short-term money market instruments. The Portfolio will not invest in
fixed-income securities rated lower than investment grade. In addition, the
Portfolio may have substantial investments in American and Global Depositary
Receipts and in convertible bonds and other convertible securities.
The Investment Manager currently intends to invest the 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 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 "Investment Considerations and Risks--
Foreign Securities."
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 Gestion Banque in Paris, Lazard Asset
Management Limited 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.
When, in the Investment Manager's judgment, business or financial conditions
warrant, the 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 of the types described in "Appendix--Certain Portfolio
Securities--Money Market Instruments" or hold its assets in cash.
In addition, the Portfolio may engage in various investment techniques, such as
foreign currency transactions and lending portfolio securities. For a discussion
of the investment techniques and their related risks, see "Investment
Considerations and Risks" and "Appendix--Investment Techniques" below and
"Investment Objectives and Management Policies--Management Policies" in the
Statement of Additional Information.
INTERNATIONAL SMALL CAP PORTFOLIO
The International Small Cap Portfolio is a non-diversified portfolio the
investment objective of which is to seek capital appreciation. The Portfolio
invests primarily in equity securities of non- United States companies with
market capitalizations under $1 billion that the Investment Manager considers
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 Portfolio also may invest in American and Global Depositary Receipts and in
convertible bonds and other convertible securities. In selecting investments for
the Portfolio, the Investment Manager will attempt to ascertain undervalued
markets world-wide through traditional measures of value and identify securities
within such markets which, in the Investment Manager's opinion, have one or more
of the characteristics of the Small Cap Factors listed under "Small Cap
Portfolio."
Under normal market conditions, the 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 generally will be invested in larger capitalization equity securities
or investment grade debt securities, including cash equivalents of the types
described in "Appendix--Certain Portfolio Securities--Money Market Instruments."
For a description of the risks associated with investing in small capitalization
equity securities, see "Investment Considerations and Risks--Equity Securities."
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 Portfolio's assets invested in a particular
geographic sector may shift from time to time in accordance with the judgment of
the Investment Manager. See "Investment Considerations and Risks--Foreign
Securities."
When, in the Investment Manager's judgment, business or financial conditions
warrant, the 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 of the types described in "Appendix--Certain Portfolio
Securities--Money Market Instruments" or hold its assets in cash.
In addition, the Portfolio may engage in various investment techniques, such as
foreign currency transactions, options and futures transactions and lending
portfolio securities. For a discussion of the investment techniques and their
related risks, see "Investment Considerations and Risks" and
"Appendix--Investment Techniques" below and "Investment Objectives and
Management Policies--Management Policies" in the Statement of Additional
Information.
EMERGING MARKETS PORTFOLIO
The Emerging Markets Portfolio is a non-diversified portfolio the investment
objective of which is to seek long-term capital appreciation. The Portfolio
invests primarily in securities of issuers that are located, or doing
significant business, in emerging market countries that the Investment Manager
considers inexpensively priced relative to the return on total capital or
equity. 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 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 Portfolio may invest in any issuer in an emerging market, the
Portfolio is likely to focus on, but not be limited to, Latin America, the
Pacific Basin and Europe.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in securities of issuers located, or doing significant business, in
emerging market countries. The 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 Portfolio's
assets may be invested in the same or different countries. The percentage of the
Portfolio's assets invested in particular emerging markets may shift from time
to time in accordance with the Investment Manager's judgment. Emerging market
countries generally will include any countries (i) having an "emerging stock
market" as defined by the International Finance Corporation; (ii) with low- to
middle-income economies according to the World Bank; or (iii) listed in World
Bank publications as developing. Currently, the countries not included in these
categories are Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Spain, Sweden,
Switzerland, United Kingdom and United States. For a description of the risks
associated with investing in emerging markets, see "Investment Considerations
and Risks--Foreign Securities."
The Portfolio invests primarily in equity securities of issuers located, or
doing significant business, in emerging markets including: issuers organized
under the laws of the emerging market country or for which the principal trading
market for such securities is located in the emerging market country or issuers,
wherever organized, when the issuer's principal activities are in the emerging
market country. The Portfolio may invest in closed-end investment companies
investing in emerging market securities. The Portfolio also may invest in
American and Global Depositary Receipts with respect to emerging market
securities.
Although the Portfolio expects to invest principally in equity securities of
emerging markets issuers, there is no requirement that the Portfolio invest
exclusively in equity securities. When, in the Investment Manager's judgment,
business or financial conditions warrant, the Portfolio may invest without
limitation in fixed-income securities or assume a temporary defensive position
and invest in the equity securities of U.S. companies or short-term money market
instruments of the types described in "Appendix--Certain Portfolio
Securities--Money Market Instruments" or hold its assets in cash.
In addition, the Portfolio may engage in various investment techniques, such as
foreign currency transactions, options and futures transactions and lending
portfolio securities. For a discussion of the investment techniques and their
related risks, see "Investment Considerations and Risks" and
"Appendix--Investment Techniques" below and "Investment Objectives and
Management Policies--Management Policies" in the Statement of Additional
Information.
FIXED-INCOME PORTFOLIOS--These Portfolios will invest principally in
fixed-income securities. The Investment Manager attempts to generate sound
investment performance while controlling return volatility by using an active,
bottom-up investment approach. This approach emphasizes security selection,
relative value and long-term strategic allocations instead of interest rate
timing and short-term sector rotation. The Investment Manager generally focuses
its bottom-up strategy to identify sectors which often may be under-researched
or unpopular. Risk is tempered by diversification of investments.
BOND PORTFOLIO
The Bond Portfolio is a non-diversified portfolio the investment objective of
which is to build and preserve capital. The Portfolio invests in a range of
bonds and fixed-income securities, including mortgage-backed securities,
asset-backed securities, municipal securities, corporate fixed-income
securities, preferred stock and U.S. Government securities. The percentage of
the Portfolio's assets invested in a particular fixed-income sector may shift
from time to time in accordance with the Investment Manager's judgment.
The Portfolio invests the major portion of its assets in bonds and other
fixed-income securities rated investment grade by S&P or Moody's or, if not
rated, of comparable quality as determined by the Investment Manager. The
Portfolio may invest up to 10% of the value of its total assets in bonds and
other fixed-income securities rated lower than investment grade and as low as
the lowest rating assigned by S&P and Moody's or, if not rated, of comparable
quality as determined by the Investment Manager, which are often referred to as
"junk bonds." Securities rated below investment grade are subject to greater
risk of loss of principal and interest than higher-rated securities and are
considered to be predominantly speculative. Securities rated C by Moody's or D
by S&P, which is the lowest rating assigned by such rating organizations, are in
default and interest and/or repayment of principal is in arrears. For a
description of the risks associated with investing in securities rated below
investment grade, see "Investment Considerations and Risks--Lower Rated
Securities" and "Appendix--Certain Portfolio Securities--Ratings."
The Portfolio will invest, under normal market conditions, at least 80% of the
value of its total assets in bonds or other debt instruments with maturities of
greater than one year. Under normal market conditions, the Investment Manager
anticipates that the Portfolio's effective duration will range between two and
seven years. However, there may be times when, in the Investment Manager's
judgment, the Portfolio's effective duration may extend beyond this range,
because of extreme economic conditions or extreme undervaluation or
overvaluation in the fixed-income markets. The Portfolio's "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 effective duration generally will
be shorter than the Portfolio's average maturity.
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. The
Portfolio will focus on sectors of the fixed-income market which offer
compensation in excess of the fair value yield spread.
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. 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.
When, in the Investment Manager's judgment, business or financial conditions
warrant, the Portfolio may assume a temporary defensive position and invest
without limit in short-term money market instruments of the types described in
"Appendix--Certain Portfolio Securities-- Money Market Instruments" or hold its
assets in cash.
In addition, the Portfolio may engage in various investment techniques, such as
options and futures transactions and lending portfolio securities. For a
discussion of the investment techniques and their related risks, see "Investment
Considerations and Risks" and "Appendix-- Investment Techniques" below and
"Investment Objectives and Management Policies-- Management Policies" in the
Statement of Additional Information.
HIGH YIELD PORTFOLIO
The High Yield Portfolio is a non-diversified portfolio the investment objective
of which is to seek maximum total return, consisting of capital appreciation and
current income. The Portfolio invests principally in domestic high-yielding
fixed-income securities rated below investment grade, which are often referred
to as "junk bonds." Investments in fixed-income securities rated below
investment grade are subject to a greater risk of loss of principal and
non-payment of interest. Investors should carefully assess the risks associated
with an investment in this Portfolio.
Under normal market conditions, the Portfolio will invest at least 80% of the
value of its net assets in bonds, debentures, notes and other debt instruments
rated below investment grade by S&P or Moody's, or, if unrated, determined by
the Investment Manager to be of comparable quality. The Portfolio may invest in
securities rated C by Moody's or D by S&P, which is the lowest rating assigned
by such rating organizations and indicates that the securities are in default
and interest and/or repayment of principal is in arrears. The securities in
which the Portfolio may invest also include mortgage-related securities,
asset-backed securities, zero coupon securities, municipal securities, preferred
stock, convertible debt obligations and convertible preferred stock. The issuers
of such securities may include domestic and foreign corporations, partnerships,
trusts or similar entities, and governmental entities or their political
subdivisions, agencies or instrumentalities. The Portfolio may invest in
companies in, or governments of, developing countries. See "Investment
Considerations and Risks--Foreign Securities."
The Portfolio's investment in high-yield debt securities may cause the
Portfolio's share price to be highly volatile at times. Securities rated below
investment grade carry a high degree of risk and are considered speculative by
the credit rating agencies. Bond prices are inversely related to interest rate
changes; however, bond price volatility also is inversely related to the coupon
rate. Accordingly, below investment grade debt securities may be relatively less
sensitive to interest rate changes than higher quality debt securities of
comparable maturity, because of their higher coupon rate. This higher coupon
rate is what the investor receives in return for bearing greater credit risk.
The higher credit risks associated with below investment grade debt securities
potentially can have greater affect on the value of such securities than may be
the case with higher quality issues of comparable maturity. For a further
description of the risks associated with investing in securities in the lower
rating categories, see "Investment Considerations and Risks--Lower Rated
Securities" and "Appendix--Certain Portfolio Securities--Ratings." The Portfolio
may hold securities rated investment grade (or unrated securities of comparable
quality) when the yield differential between below investment grade and
investment grade securities narrows and the risk of loss may be reduced with
only a relatively small reduction in yield.
When, in the Investment Manager's judgment, business or financial conditions
warrant, the Portfolio may assume a temporary defensive position and invest all
of its assets in securities rated investment grade or short-term money market
instruments of the types described in "Appendix--Certain Portfolio
Securities--Money Market Instruments" or hold its assets in cash.
In addition, the Portfolio may engage in various investment techniques, such as
foreign currency transactions, options and futures transactions, leveraging,
lending portfolio securities and short- selling. For a discussion of the
investment techniques and their related risks, see "Investment Considerations
and Risks" and "Appendix--Investment Techniques" below and "Investment
Objectives and Management Policies--Management Policies" in the Statement of
Additional Information.
INTERNATIONAL FIXED INCOME PORTFOLIO
The International Fixed Income Portfolio is a non-diversified portfolio the
investment objective of which 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. The Portfolio invests primarily
in foreign fixed-income securities of varying maturities, typically greater than
one year. Under normal market conditions, the Investment Manager anticipates
that the Portfolio's effective duration will range between two and eight years.
The Portfolio's effective duration generally will be shorter than the
Portfolio's average maturity. The Portfolio's "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. See "Bond Portfolio" above for a discussion of duration.
The Portfolio seeks high current yields by investing in a portfolio of
fixed-income securities, such as bonds, debentures, notes, convertible debt
obligations, and mortgage-related and asset- backed securities, denominated in a
range of foreign currencies and in the U.S. dollar. Under normal market
conditions, the Portfolio will invest at least 80% 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. The Investment Manager
currently intends to invest the 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. See
"Emerging Markets Portfolio." For a description of the risks associated with
investing in foreign securities, see "Investment Considerations and Risks--
Foreign Securities." The 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.
At least 85% of the Portfolio's total assets will be invested in (i)
fixed-income securities rated investment grade by S&P or 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 total assets may
be invested in high yield, high risk fixed-income securities that are rated
below investment grade and as low as the lowest rating assigned by S&P and
Moody's or, if unrated, are determined by the Investment Manager to be of
comparable quality. Fixed-income securities rated below investment grade are
considered to be predominantly speculative. The Portfolio has no current
intention of investing more than 5% of its total assets in securities that are
in default. For a description of the risks associated with investing in
fixed-income securities rated below investment grade, see "Investment
Considerations and Risks--Lower Rated Securities" and "Appendix--Certain
Portfolio Securities--Ratings."
When, in the Investment Manager's judgment, business or financial conditions
warrant, the Portfolio may assume a temporary defensive position and invest
without limit in high quality short-term debt securities or money market
instruments of the types described in "Appendix-- Certain Portfolio
Securities--Money Market Instruments" or hold its assets in cash.
In addition, the Portfolio may engage in various investment techniques, such as
foreign currency transactions, options and futures transactions and lending
portfolio securities. For a discussion of the investment techniques and their
related risks, see "Investment Considerations and Risks" and "Appendix-
Investment Techniques" below and "Investment Objectives and Management
Policies-Management Policies" in the Statement of Additional Information.
STRATEGIC YIELD PORTFOLIO
The Strategic Yield Portfolio is a non-diversified portfolio the investment
objective of which is to seek total return on its assets by placing
approximately equal emphasis on capital appreciation and current income. The
Portfolio invests in a wide variety of domestic and foreign fixed-income
securities, including those of emerging markets and non-traditional sectors. See
"Emerging Markets Portfolio." Investors should carefully assess the risks
associated with an investment in this Portfolio.
Under normal market conditions, the Portfolio will invest at least 80% of the
value of its total assets in fixed-income securities, such as bonds, debentures,
notes, convertible debt obligations, convertible preferred stocks, structured
notes, and mortgage-backed and asset-backed securities. At least 95% of these
obligations when purchased by the Portfolio will have a rating of at least CCC
by S&P or Caa by Moody's or, if not rated, will be of comparable quality as
determined by the Investment Manager. The remaining 5% may be rated as low as
the lowest rating assigned by S&P and Moody's. Consequently, the Portfolio may
invest all of its assets in fixed-income securities rated below investment
grade, which are often referred to as "junk bonds." For a description of the
risks associated with investing in securities rated below investment grade, see
"Investment Considerations and Risks--Lower Rated Securities" and
"Appendix--Certain Portfolio Securities--Ratings." The Portfolio may invest up
to 50% of its total assets in non- U.S. dollar denominated fixed-income
securities of foreign issuers. The Portfolio may invest without limitation in
U.S. dollar denominated fixed-income securities of foreign issuers. See
"Investment Considerations and Risks--Foreign Securities." The 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.
In selecting investments for the Portfolio, 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. 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.
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
"pay-in-kind" high-yield securities may be purchased when, in the Investment
Manager's opinion, they offer exceptional value relative to their risk. See
"Appendix--Certain Portfolio Securities--Zero Coupon 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.
When, in the Investment Manager's judgment, business or financial conditions
warrant, the Portfolio may assume a temporary defensive position and invest
without limit in investment grade debt securities or short-term money market
instruments of the types described in "Appendix--Certain Portfolio
Securities--Money Market Instruments" or hold its assets in cash.
In addition, the Portfolio may engage in various investment techniques, such as
options transactions, foreign currency transactions and lending portfolio
securities. For a discussion of the investment techniques and their related
risks, see "Investment Considerations and Risks" and "Appendix-Investment
Techniques" below and "Investment Objectives and Management
Policies-Management Policies" in the Statement of Additional Information.
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL -- Since each Portfolio will pursue different types of investments, the
risks of investing will vary depending on the Portfolio selected for investment.
Before investing in a Portfolio, each investor should assess the risks
associated with the types of investments made by the Portfolio. The net asset
value per share of each Portfolio should be expected to fluctuate. Investors
should consider each Portfolio as part of an overall investment program and
should invest only if they are willing to undertake the risks involved. See
"Investment Objectives and Management Policies" in the Statement of Additional
Information for a further discussion of certain risks.
EQUITY SECURITIES--(All Portfolios, except the Bond Portfolio, High Yield
Portfolio, International Fixed Income Portfolio and Strategic Yield Portfolio).
Equity securities fluctuate in value, often based on factors unrelated to the
value of the issuer of the securities, and such fluctuations can be pronounced.
Changes in the value of a Portfolio's investments will result in changes in the
value of its shares and thus the Portfolio's total return to investors.
The securities of the smaller companies in which the Small Cap, International
Small Cap, Emerging Markets and Bantam Value Portfolios may invest may be
subject to more abrupt or erratic market movements than larger, more established
companies, because securities of smaller companies typically are traded in lower
volume and the issuers typically are more subject to changes in earnings and
prospects. Smaller capitalization companies often have limited product lines,
markets or financial resources. They may be dependent on management for one or a
few key persons, and can be more susceptible to losses and the risk of
bankruptcy. In addition, securities of 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 by investing in securities of
larger capitalization companies.
FIXED-INCOME SECURITIES--(All Portfolios) Even though interest-bearing
securities are investments which promise a stable stream of income, the prices
of such securities generally are inversely affected by changes in interest rates
and, therefore, are subject to the risk of market price fluctuations. Certain
portfolio securities, such as those with interest rates that fluctuate directly
or indirectly based on multiples of a stated index, are designed to be highly
sensitive to changes in interest rates and can subject the holders thereof to
extreme reductions of yield and possibly loss of principal.
The values of fixed-income securities also may be affected by changes in the
credit rating or financial condition of the issuer. Certain portfolio
securities, such as those rated below investment grade by S&P and Moody's, may
be subject to such risk with respect to the issuing entity and to greater market
fluctuations than certain lower yielding, higher rated fixed-income securities.
Once the rating of a portfolio security has been changed, the Portfolio will
consider all circumstances deemed relevant in determining whether to continue to
hold the security. See "Appendix--Certain Portfolio Securities--Ratings" below
and "Appendix" in the Statement of Additional Information.
Federal income tax law requires the holder of a zero coupon security or of
certain pay-in-kind bonds to accrue income with respect to these securities
prior to the receipt of cash payments. A Portfolio investing in such securities
may be required to distribute such income accrued with respect to these
securities and may have to dispose of portfolio securities under disadvantageous
circumstances in order to generate cash to satisfy these distribution
requirements.
MORTGAGE-RELATED SECURITIES--(Bond Portfolio, High Yield Portfolio,
International Fixed Income Portfolio and Strategic Yield Portfolio)
Mortgage-related securities are complex derivative instruments, subject to both
credit and prepayment risk, and may be more volatile or less liquid than more
traditional debt securities. Mortgage-related securities are subject to credit
risks associated with the performance of the underlying mortgage properties.
Adverse changes in economic conditions and circumstances are more likely to have
an adverse impact on mortgage- related securities secured by loans on commercial
properties than on those secured by loans on residential properties. In
addition, as described below, these securities are subject to prepayment risk,
although commercial mortgages typically have shorter maturities than residential
mortgages and prepayment protection features. Some mortgage-related securities
have structures that make their reactions to interest rate changes and other
factors difficult to predict, making their values highly volatile.
In certain instances, the credit risk associated with mortgage-related
securities can be reduced by third party guarantees or other forms of credit
support. Improved credit risk does not reduce prepayment risk which is unrelated
to the rating assigned to the mortgage-related security. Prepayment risk can
lead to fluctuations in value of the mortgage-related security which may be
pronounced. If a mortgage-related security is purchased at a premium, all or
part of the premium may be lost if the market value of the security declines
whether resulting from changes in interest rates or prepayments on the
underlying mortgage collateral. Certain mortgage-related securities that may be
purchased by these Portfolios, such as inverse floating rate collateralized
mortgage obligations, have coupons that move inversely to a multiple of a
specific index which may result in a form of leverage. As with other
interest-bearing securities, the prices of certain mortgage- related securities
are inversely affected by changes in interest rates. However, although the value
of a mortgage-related security may decline when interest rates rise, the
converse is not necessarily true, since during periods of declining interest
rates the mortgages underlying the security are more likely to be prepaid. For
this and other reasons, a mortgage-related security's stated maturity may be
shortened by unscheduled prepayments on the underlying mortgages, and,
therefore, it is not possible to predict accurately the security's return to the
Portfolio. Moreover, with respect to certain stripped mortgage-backed
securities, if the underlying mortgage securities experience greater than
anticipated prepayments of principal, the Portfolio may fail to fully recoup its
initial investment even if the securities are rated in the highest rating
category by a nationally recognized statistical rating organization. During
periods of rapidly rising interest rates, prepayments of mortgage-related
securities may occur at slower than expected rates. Slower prepayments
effectively may lengthen a mortgage-related security's expected maturity (but
not past its stated maturity), which generally would cause the value of such
security to fluctuate more widely in response to changes in interest rates. Were
the prepayments on the Portfolio's mortgage-related securities to decrease
broadly, the Portfolio's effective duration, and thus sensitivity to interest
rate fluctuations, would increase. Commercial real property loans, however,
often contain provisions that substantially reduce the likelihood that such
securities will be prepaid. The provisions generally impose significant
prepayment penalties on loans and in some cases there may be prohibitions on
principal prepayments for several years following origination.
FOREIGN SECURITIES--(All Portfolios, except the Small Cap Portfolio) Foreign
securities markets generally are not as developed or efficient as those in the
United States. Securities of some foreign issuers are less liquid and more
volatile than securities of comparable U.S. issuers. Similarly, volume and
liquidity in most foreign securities markets are less than in the United States
and, at times, volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held outside the
United States, the Portfolios will be subject to additional risks which include
possible adverse political and economic developments, seizure or nationalization
of foreign deposits and adoption of governmental restrictions, which might
adversely affect or restrict the payment of principal and interest on the
foreign securities to investors located outside the country of the issuer,
whether from currency blockage or otherwise.
With respect to the Emerging Markets, International Fixed Income, Strategic
Yield and High Yield Portfolios, emerging market countries have economic
structures that generally are less diverse and mature, and political systems
that are less stable, than those of developed countries. Emerging markets may be
more volatile than the markets of more mature economies; however, such markets
may provide higher rates of return to investors. Many emerging market countries
providing investment opportunities for these Portfolios have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have adverse effects on the economies and securities markets of
certain of these countries.
Since foreign securities often are purchased with and payable in currencies of
foreign countries, the value of these assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations.
FOREIGN CURRENCY TRANSACTIONS--(All Portfolios, except the Equity Portfolio,
Small Cap Portfolio, Bantam Value Portfolio and Bond Portfolio) Currency
exchange rates may fluctuate significantly over short periods of time. They
generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries,
actual or perceived changes in interest rates and other complex factors, as seen
from an international perspective. Currency exchange rates also can be affected
unpredictably by intervention of U.S. or foreign governments or central banks,
or the failure to intervene, or by currency controls or political developments
in the United States or abroad. See "Appendix-- Investment Techniques--Foreign
Currency Transactions."
USE OF DERIVATIVES--(All Portfolios) Each Portfolio may invest in, or enter
into, derivatives ("Derivatives"). These are financial instruments which derive
their performance, at least in part, from the performance of an underlying
asset, index or interest rate. The Derivatives 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 a Portfolio's net asset
value, decrease the liquidity of a Portfolio's securities, and make more
difficult the accurate pricing of a Portfolio's securities. See "Appendix
- --Investment Techniques--Use of Derivatives" below, and "Investment Objectives
and Management Policies--Management Policies--Derivatives" in the Statement of
Additional Information.
LOWER RATED SECURITIES--(Bond Portfolio, High Yield Portfolio, International
Fixed Income Portfolio and Strategic Yield Portfolio) The High Yield Portfolio
invests primarily, and each other such Portfolio may invest a portion of its
assets, in higher yielding (and, therefore, higher risk) debt securities such as
those rated below investment grade by S&P and Moody's (commonly known as "junk
bonds"). They may be subject to certain risks with respect to the issuing entity
and to greater market fluctuations than certain lower yielding, higher rated
fixed- income securities. The retail secondary market for these securities may
be less liquid than that of higher rated securities; adverse conditions could
make it difficult at times for the Portfolio to sell certain securities or could
result in lower prices than those used in calculating the Portfolio's net asset
value. See "Appendix--Certain Portfolio Securities --Ratings."
PORTFOLIO TURNOVER--(All Portfolios) No Portfolio will consider portfolio
turnover to be a limiting factor in making investment decisions. The Investment
Manager anticipates that, under normal market conditions, the portfolio turnover
rate of each of the Equity Portfolio, Mid Cap Portfolio, Small Cap Portfolio,
Bantam Value Portfolio, Global Equity Portfolio, International Equity Portfolio,
International Small Cap Portfolio and Emerging Markets Portfolio will not exceed
100%. The annual portfolio turnover rate of the Bond Portfolio, International
Fixed Income Portfolio, Strategic Yield Portfolio and High Yield Portfolio may
exceed 200% (but is not expected to exceed 300%). A 200% portfolio 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. Such expenses are borne by the Portfolio and its shareholders and
may result in the realization of substantial net short-term capital gains.
NON-DIVERSIFIED PORTFOLIOS--(All Portfolios, except the Equity Portfolio) Each
Portfolio, other than the Equity Portfolio, is classified as a "non-diversified"
investment company, which means that the proportion of the Portfolio's assets
that may be invested in the securities of a single issuer is not limited by the
1940 Act. The Equity Portfolio is a "diversified" investment company, which is
required by the 1940 Act generally, with respect to 75% of its total assets, to
invest not more than 5% of such assets in the securities of a single issuer.
Since a relatively high percentage of each non-diversified Portfolio's assets
may be invested in the securities of a limited number of issuers, some of which
may be within the same industry, the securities of these Portfolios may be more
sensitive to changes in the market value of a single issuer or industry.
However, to meet Federal tax requirements, at the close of each quarter no
Portfolio may have more than 25% of its total assets invested in any one issuer
and, with respect to 50% of its total assets, more than 5% of its total assets
invested in any one issuer. These limitations do not apply to U.S. Government
securities.
SIMULTANEOUS INVESTMENT BY OTHER PORTFOLIOS OR FUNDS--(All Portfolios)
Investment decisions for each Portfolio are made independently from those of the
other portfolios and accounts managed by the Investment Manager. If, however,
such other portfolios or accounts desire to invest in, or dispose of, the same
securities as the Portfolio, available investments or opportunities for sales
will be allocated equitably to each. In some cases, this procedure may adversely
affect the size of the position obtained for or disposed of by a Portfolio or
the price paid or received by a Portfolio.
MANAGEMENT OF THE FUND AND THE PORTFOLIOS
DIRECTORS
The Board of Directors, under applicable laws of the State of Maryland, in
addition to supervising the actions of the Investment Manager, as set forth
below, decides upon matters of general policy.
INVESTMENT MANAGER AND INVESTMENT MANAGEMENT AGREEMENTS
Lazard Asset Management, 30 Rockefeller Plaza, New York, New York 10112, has
entered into investment management agreements (the "Management Agreements") with
the Fund on behalf of each of the Portfolios. Pursuant to the Management
Agreements, the Investment Manager regularly will provide the Portfolios with
investment research, advice and supervision and continuously furnish an
investment program for each Portfolio consistent with its investment objectives
and policies, including the purchase, retention and disposition of securities.
The Investment Manager also is responsible for the selection of brokers and
dealers to effect securities transactions and the negotiation of brokerage
commissions, if any. Purchases and sales of securities on a securities exchange
are effected through brokers who charge a negotiated commission for their
services. Brokerage commissions may be paid to Lazard Freres for executing
securities transactions if the use of Lazard Freres is likely to result in price
and execution at least as favorable as those of other qualified brokers or
dealers. The allocation of brokerage transactions also may take into account a
broker's sales of Portfolio shares. See "Portfolio Transactions" in the
Statement of Additional Information.
The Investment Manager is a division of Lazard Freres, a New York limited
liability company, which is registered as an investment adviser with the
Securities and Exchange Commission (the "Commission") and is a member of the New
York, American and Midwest Stock Exchanges. Lazard Freres provides its clients
with a wide variety of investment banking, brokerage and related services. The
Investment Manager provides investment management services to client
discretionary accounts with assets totaling approximately $38.1 billion as of
December 31, 1996. Its clients are both individuals and institutions, some of
whose accounts have investment policies similar to those of several of the
Portfolios.
The Fund has agreed to pay the Investment Manager an investment management fee
at the annual rate set forth below as a percentage of the average daily value of
the net assets of the relevant Portfolio:
INVESTMENT MANAGEMENT
NAME OF PORTFOLIO FEE PAYABLE
Equity Portfolio .75%
Mid Cap Portfolio .75%
Small Cap Portfolio .75%
Bantam Value Portfolio .75%
Global Equity Portfolio .75%
International Equity Portfolio .75%
International Small Cap Portfolio .75%
Emerging Markets Portfolio 1.00%
Bond Portfolio .50%
High Yield Portfolio .75%
International Fixed Income Portfolio .75%
Strategic Yield Portfolio .75%
The investment management fees are accrued daily and paid monthly.
Each Portfolio will bear all expenses not specifically assumed by the Investment
Manager, including, among others, the fee payable to the Investment Manager, the
fees of the Directors who are not "affiliated persons" of the Investment
Manager, the expenses of all Directors, the fees and out-of-pocket expenses of
the Fund's custodian and the transfer and dividend disbursing agent and, with
respect to Open Shares only, the fee payable under the Distribution and
Servicing Plan. See "Distribution and Servicing Plan." Expenses attributable to
a particular Portfolio are charged against the assets of that Portfolio; other
expenses of the Fund are allocated among the Portfolios on the basis determined
by the Board of Directors, including, but not limited to, proportionately in
relation to the net assets of each Portfolio. For a more detailed description of
the expenses to be borne by the Portfolios, see "Management" and "Distribution
and Servicing Plan" in the Statement of Additional Information. For a
description of expense reimbursement arrangements, see "Annual Operating
Expenses."
PRINCIPAL PORTFOLIO MANAGERS
All of the Portfolios are managed on a team basis. The names of the principal
persons 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) and Michael S. Rome
(since 1991)
MID CAP PORTFOLIO--Herbert W. Gullquist and Eileen Alexanderson (each since
inception)
SMALL CAP PORTFOLIO--Herbert W. Gullquist and Eileen Alexanderson (each since
inception)
BANTAM VALUE PORTFOLIO--Herbert W. Gullquist and Eileen Alexanderson (each since
inception)
GLOBAL EQUITY PORTFOLIO--Herbert W. Gullquist, John R. Reinsberg and Michael S.
Rome (each since inception)
INTERNATIONAL EQUITY PORTFOLIO--Herbert W. Gullquist (since inception) and John
R. Reinsberg (since January 1992)
INTERNATIONAL SMALL CAP PORTFOLIO--Herbert W. Gullquist and John R. Reinsberg
(each since inception)
EMERGING MARKETS PORTFOLIO--Herbert W. Gullquist and John R. Reinsberg (each
since inception)
BOND PORTFOLIO--Thomas F. Dunn (since January 1, 1995) and Ira O. Handler (since
August 1997)
HIGH YIELD PORTFOLIO--Peter R.S. Bakker and Thomas F. Dunn (each since
inception)
INTERNATIONAL FIXED INCOME PORTFOLIO--Thomas F. Dunn (since January 1995) and
Ira O. Handler (since June 1992)
STRATEGIC YIELD PORTFOLIO--Thomas F. Dunn (since January 1995) and Ira O.
Handler (since 1993)
BIOGRAPHICAL INFORMATION OF PRINCIPAL PORTFOLIO MANAGERS
EILEEN ALEXANDERSON. Ms. Alexanderson has been a Managing Director of the
Investment Manager since January, 1997. Prior thereto, Ms. Alexanderson was a
Senior Vice President of the Investment Manager.
PETER R.S. BAKKER. Mr. Bakker has been a Vice President of the Investment
Manager since January, 1996 and has been a Portfolio Manager with the Investment
Manager since May 1995. Prior thereto, he was a Senior Vice President of NatWest
Markets.
THOMAS F. DUNN. Mr. Dunn is a Managing Director of the Investment Manager and
has been a Fixed Income Portfolio Manager of the Investment Manager since
January 1, 1995. Prior thereto, he was a Senior Vice President of Goldman Sachs
Asset Management.
HERBERT W. GULLQUIST. Mr. Gullquist has been Managing Director of the
Investment Manager since 1982.
IRA O. HANDLER. Mr. Handler has been Senior Vice President of the Investment
Manager since January, 1994. Prior thereto, Mr Handler was a Vice President of
the Investment Manager. He has been a Global & Emerging Fixed-Income Portfolio
Manager of the Investment Manager since 1992.
JOHN R. REINSBERG. Mr. Reinsberg is a Managing Director of the Investment
Manager and has been an International/Global Equity Portfolio Manager of the
Investment Manager since 1992.
MICHAEL S. ROME. Mr. Rome is a Managing Director of the Investment Manager and
has been a U.S./Global Equity Portfolio Manager of the Investment Manager since
1991.
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, an annual fee of $45,000
plus .02% of the value of such Portfolio's average daily net assets up to $1
billion and .01% of such assets in excess of $1 billion.
DISTRIBUTOR
Under the terms of a distribution agreement with the Fund, Lazard Freres acts as
distributor for the Portfolios.
CUSTODIAN; TRANSFER AND DIVIDEND DISBURSING AGENT
State Street has been retained to act as Custodian of the Portfolios'
investments. Boston Financial Data Services Inc., an affiliate of State Street,
serves as the Fund's Transfer and Dividend Disbursing Agent. Neither the
Custodian nor the Transfer Agent has any part in deciding 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.
PURCHASE OF SHARES
GENERAL
The minimum initial investment for each Portfolio is $10,000 for Open Shares,
unless the investor is a client of a securities dealer or other institution
which has made an aggregate minimum initial purchase for its clients of at least
$10,000, and $1,000,000 for Institutional Shares. Subsequent investments for
each Portfolio must be at least $1,000 for Open Shares and $5,000 for
Institutional Shares. For directors, members and employees of Lazard Freres and
its affiliates, and the trustees of benefit plans covering any of the foregoing
individuals, the minimum initial investment for each Portfolio is $5,000 for
Institutional Shares. Institutional Shares held by a shareholder whose Fund
account's net asset value is less than $1,000,000 are subject to conversion to
Open Shares at the option of the Fund upon notice to the shareholder. 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 Lazard Freres and for investments effected on a
group basis by certain other entities and their employees, such as pursuant to a
payroll deduction plan. The Fund reserves the right to vary further the initial
and subsequent investment minimum requirements at any time.
Portfolio shares are sold without a sales charge. Securities dealers and other
institutions effecting transactions in Portfolio shares for the accounts of
their clients may charge their clients direct fees in connection with such
transactions. The Fund and Lazard Freres reserve the right to reject any
purchase order. All funds will be invested in full and fractional shares. Stock
certificates will not be issued.
Shares of each 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 for Portfolio shares will be valued at the mean between their bid and
asked quotations. In addition, securities accepted in exchange for Portfolio
shares 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 valuation procedures) as evidenced by a listing on the American Stock
Exchange, the New York Stock Exchange, The Nasdaq Stock Market, a recognized
non-U.S. exchange or non-Nasdaq listing with at least two market makers.
Fund shares are sold on a continuous basis at the net asset value per share next
determined after an order in proper form is received by the Transfer Agent or
other agent of the Fund. Net asset value per share is determined as of the close
of trading on the floor of the New York Stock Exchange (currently 4:00 p.m., New
York time), on each day the New York Stock Exchange is open for business. For
purposes of determining net asset value, options and futures contracts traded on
national securities exchanges will be valued as of the close of trading on such
exchanges (currently 4:10 p.m., New York time). Net asset value per share of
each Class for each Portfolio is computed by dividing the value of the
Portfolio's net assets represented by such Class (i.e., the value of its assets
less liabilities) by the total number of shares of such Class outstanding.
Equity securities typically are valued based on market value, or where market
quotations are not readily available, based on fair value as determined in good
faith by the Board. Debt securities having remaining maturities of 60 days or
less are valued on an amortized cost basis unless the Board determines that such
method does not represent fair value. Other debt securities are valued using
available market quotations or at fair value which may be determined by one or
more pricing services. For further information regarding the methods employed in
valuing each Portfolio's investments, see "Determination of Net Asset Value" in
the Statement of Additional Information.
PURCHASES THROUGH THE TRANSFER AGENT
Orders for Portfolio shares 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. The Transfer Agent and Lazard Freres, in certain cases, may
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."
INITIAL PURCHASE BY WIRE
1. Telephone toll free from any continental state: (800) 986-3455. Give the
Portfolio(s) and Class of shares 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
($10,000 or more for Open Shares or $1,000,000 or more for Institutional
Shares), 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 9905-2375
Attention: (Name of Portfolio and Class of Shares)
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:
Boston Financial Data Services Inc.
P.O. Box 9363
Boston, Massachusetts 02205-9363
Attention: (Name of Portfolio and Class of Shares)
The Lazard Funds, Inc.
ADDITIONAL PURCHASES BY WIRE
Instruct the wiring bank to transmit the specified amount ($1,000 or more for
Open Shares, or $5,000 or more for Institutional Shares) 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 $10,000 or more for Open
Shares, or $1,000,000 or more for Institutional Shares, payable to the Portfolio
whose shares are to be purchased, to Boston Financial Data Services Inc. at the
address set forth in Item 3 above.
ADDITIONAL PURCHASES BY MAIL
1. Make a check ($1,000 or more for Open Shares, or $5,000 or more for
Institutional Shares) 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 Boston Financial Data Services Inc. at
the address set forth in Item 3 above.
All purchases made by check should be in U.S. dollars and made payable to "The
Lazard Funds, Inc." Third party checks will not be accepted. When purchases are
made by check or periodic account investment, redemptions proceeds will be
transmitted to you promptly upon bank clearance of your purchase check, which
may take up to 15 calendar days.
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. Please
contact your Lazard Freres account representative for specific instructions on
how to purchase Portfolio shares through your Lazard Freres brokerage account.
PURCHASES THROUGH THE AUTOMATIC INVESTMENT PLAN (OPEN SHARES ONLY)
Investors may participate in the Automatic Investment Plan and purchase Open
Shares of any Portfolio at regular intervals selected by the investor. Provided
the investor's bank or other institution allows automatic withdrawals, funds in
the investor's designated bank account will be debited in the specified amount
and invested in Open Shares of one or more of the Portfolios through the use of
electronic fund transfers or automatic bank drafts. The Automatic Investment
Plan enables an investor to make regularly scheduled investments and may provide
investors with a convenient way to invest for long-term financial goals.
Investors should be aware, however, that periodic investment plans do not
guarantee a profit and will not protect an investor against loss in a declining
market. The minimum periodic investment is $250. Contact the Fund to obtain an
Automatic Investment Plan application.
INDIVIDUAL RETIREMENT ACCOUNTS (OPEN SHARES ONLY)
The Fund may be used as an investment for existing IRAs. Shares may be purchased
for IRAs established with other authorized custodians using a regular Fund
application.
A Direct IRA rollover account may be established with the Fund through a
custodial account with State Street. Completion of a Lazard Funds IRA
application is required in order to create such an account. The minimum initial
investment for an IRA rollover account is $10,000. Contributions to IRAs are
subject to limits set by the Internal Revenue Service. For a Direct IRA Account,
a $5 establishment fee and an annual $12 maintenance and custody fee is payable
to State Street for each IRA Fund account; in addition, a $10 termination fee
will be charged and paid to State Street when the account is closed. For more
information on IRAs, call the Fund at 1-800-823-6300.
REDEMPTION OF SHARES
GENERAL
Upon receipt by the Transfer Agent, Lazard Freres or other agent of a redemption
request in proper form, Portfolio shares 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.
The Fund imposes no charges when shares are redeemed. Securities dealers and
other institutions may charge their clients a fee for effecting redemptions of
Portfolio shares.
Payment of redemption proceeds may be made in securities. 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 has secured a $50 million committed line of credit from State Street to
assist in meeting redemption requests when deemed necessary.
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 4 below. Upon receipt by the Transfer
Agent of a redemption request in proper form, Portfolio shares will be redeemed
at their next determined net asset value. Shares held in securities accounts at
Lazard Freres may be redeemed through Lazard Freres. See "Redemption through a
Lazard Freres Brokerage Account" below.
1. Write a letter of instruction to the Fund. Indicate the dollar amount or
number and Portfolio and Class of shares to be redeemed, and the shareholder's
account number, and 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 a notary 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. Mail the letter to the Transfer Agent at the following address:
Boston Financial Data Services Inc.
P.O. Box 9363
Boston, Massachusetts 02205-9363
Attention: (Name of Portfolio and Class of Shares)
The Lazard Funds, Inc.
Checks for redemption proceeds ordinarily will be mailed within seven days.
Where the shares to be redeemed have been purchased by check, the redemption
proceeds will be transmitted to you promptly upon bank clearance of your
purchase check, which may take up to 15 calendar 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 Portfolio's net asset value 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 fee for effecting redemptions of
Portfolio 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. Please contact your Lazard Freres account representative for
specific instructions on how to redeem Portfolio shares through your Lazard
Freres brokerage account.
REDEMPTION OF SMALL ACCOUNTS (OPEN SHARES ONLY)
Due to the disproportionately higher cost of servicing small accounts, each
Portfolio reserves the right to redeem a shareholder's account at its option
upon not less than 30 day's written notice if the account's net asset value is
$500 ($250 for IRAs) or less and remains so during the notice period.
DISTRIBUTION AND SERVICING PLAN (OPEN SHARES ONLY)
Open Shares are subject to a Distribution and Servicing Plan adopted pursuant to
Rule 12b-1 under the 1940 Act. Under the Distribution and Servicing Plan, the
Fund pays Lazard Freres for advertising, marketing and distributing each
Portfolio's Open Shares and for the provision of certain services to the holders
of Open Shares a fee at an annual rate of .25% of the value of the average daily
net assets of the Portfolio's Open Class. The services provided may include
personal services relating to shareholder accounts, such as answering
shareholder inquiries regarding the Fund and providing reports and other
information, and services related to the maintenance of shareholder accounts.
The fee payable for such services is intended to be a "service fee" as defined
in Conduct Rules of the NASD. Under the Distribution and Servicing Plan, Lazard
Freres may make payments to third parties in respect of these services. From
time to time, Lazard Freres may defer or waive receipt of fees under the
Distribution and Servicing Plan while retaining the ability to be paid by the
Fund under the Distribution and Servicing Plan thereafter. The fees payable to
Lazard Freres under the Distribution and Servicing Plan for advertising,
marketing and distributing Open Shares and for payments to third parties are
payable without regard to actual expenses incurred.
EXCHANGE PRIVILEGE
Shares of each Portfolio that have been held for seven days or more may be
exchanged for shares of the same Class 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 and submitted to the
Transfer Agent in advance of the first such exchange, either a Purchase
Application authorizing such exchanges or a Telephone Exchange Authorization
Form. The Transfer Agent's toll-free number for exchanges is (800) 936-3455. 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 also are applicable
to exchanging shares. The exchange privilege with respect to each Portfolio's
shares is available only in states in which shares of the 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 Bond Portfolio,
International Fixed Income Portfolio, Strategic Yield Portfolio and High Yield
Portfolio will be declared each business day and paid monthly. Shares of the
Bond Portfolio, High Yield Portfolio, International Fixed Income Portfolio and
Strategic Yield Portfolio will begin earning dividends once the purchase amount
for such shares has been accepted and converted into federal funds and will
continue to earn dividends through the day a redemption order for such shares is
executed. 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 Mid Cap Portfolio, Small Cap Portfolio, Bantam Value Portfolio,
Global Equity Portfolio, International Equity Portfolio and Emerging Markets
Portfolio generally will be 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, Mid Cap
Portfolio, Small Cap Portfolio, Bantam Value Portfolio, Global Equity Portfolio,
International Equity Portfolio, International Small Cap Portfolio and Emerging
Markets 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 paid by each Class will be calculated
at the same time and in the same manner and will be of the same amount, except
that certain expenses will be borne exclusively by one Class and not by the
other, such as fees payable under the Distribution and Servicing Plan. Open
Shares will receive lower per share dividends than Institutional Shares because
of the higher expenses borne by Open Shares. See "Annual Operating Expenses."
Dividends and distributions of a Portfolio will be invested in additional shares
of the same Class of the 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. If a dividend check mailed to a shareholder who elected to receive
dividends and/or capital gain distributions in cash is returned as undeliverable
by the postal or other delivery service, such shareholder's distribution option
automatically will be converted to all dividends and other distributions
reinvested in additional shares. NO INTEREST WILL ACCRUE ON AMOUNTS REPRESENTED
BY UNCASHED DISTRIBUTION OR REDEMPTION CHECKS. 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, 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.
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
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, Mid Cap Portfolio, Small Cap
Portfolio, Bantam Value Portfolio and Global Equity 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 for 46 days or more during the 90-day
period commencing 45 days before the shares become ex-dividend. 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, Mid Cap Portfolio, Small Cap Portfolio, Bantam Value
Portfolio and Global Equity Portfolio, will not qualify for the
dividends-received distribution. Each year the Fund will notify shareholders of
the federal income tax status of distributions.
The Bond Portfolio, High Yield Portfolio and International Fixed Income
Portfolio may invest in Real Estate Mortgage Investment Conduits ("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 Bond Portfolio,
High Yield Portfolio and International Fixed Income 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. The Investment Manager anticipates that
only a small portion, if any, of the assets of the Bond Portfolio, High Yield
Portfolio and International Fixed Income 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 adviser 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 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 Global Equity Portfolio, International Equity Portfolio, International
Small Cap Portfolio and Emerging Markets 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 and High Yield Portfolio, International
Fixed Income Portfolio and Strategic Yield Portfolio.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Fund consists of 1,550,000,000 shares of
common stock, $.001 par value. To date, the Fund's Board of Directors has
authorized a total of thirteen Portfolios, twelve of which are offered pursuant
to this Prospectus. Shares of each Portfolio are classified into two classes of
shares--Open Shares and Institutional Shares. The Fund's Board of Directors, in
the future, may designate and authorize additional portfolios or 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
July 1, 1997, 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. Lazard Freres has agreed to indemnify Scudder Fund and its directors
from any and all claims arising out of the transfer of assets to the maximum
extent that Scudder Fund would be so permitted by the Maryland General
Corporation Law, subject to the limitations of the 1940 Act. In addition, the
Fund has agreed to indemnify, with respect to the Equity Portfolio, the Scudder
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 the Scudder Fund. If, however, the Fund (or the Equity
Portfolio) ceases to exist, Lazard Freres has agreed, in lieu of the Fund, to so
indemnify the directors and officers of Scudder Fund.
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.
REPORTS TO SHAREHOLDERS AND ACCOUNT SERVICES
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.
Shareholders will be sent a Statement of Account from Lazard Freres, 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 in Portfolio
shares.
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.
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 each Class 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 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.
Performance of each Class will be calculated separately and will take into
account any applicable distribution and service fees. As a result, at any given
time, the performance of Open Shares should be expected to be lower than that of
Institutional Shares. See "Distribution and Servicing Plan."
PRIVATE ACCOUNT PERFORMANCE
Set forth below is performance information derived from historical composite
performance of all fee paying, fully discretionary Private Accounts managed by
the Investment Manager, which have investment objectives, policies and
strategies substantially similar to those of the Mid Cap Portfolio and High
Yield Portfolio and, thus, is deemed relevant to investors in such Portfolios.
THE MID CAP PORTFOLIO AND HIGH YIELD PORTFOLIO DO NOT YET HAVE THEIR OWN
PERFORMANCE RECORD AND THE PERFORMANCE INFORMATION OF THE PRIVATE ACCOUNTS
SHOULD NOT BE VIEWED AS A SUBSTITUTE FOR THE MID CAP PORTFOLIO'S OR HIGH YIELD
PORTFOLIO'S OWN PERFORMANCE NOR INDICATIVE OF THE FUTURE PERFORMANCE OF SUCH
PORTFOLIOS. Moreover, the Private Accounts are not registered under the 1940 Act
and, therefore, are not subject to certain investment restrictions,
diversification requirements and other restrictions that are imposed by the 1940
Act and the IRS, which, if imposed, might have adversely affected the
performance of the Private Accounts. The performance results of the Private
Accounts have been calculated in accordance with Performance Presentation
Standards of the Association for Investment Management and Research, adjusted to
reflect a hypothetical management fee equal to the highest rate charged to an
account. The performance results of the Private Accounts would have been lower
had they been subject to the estimated fees and expenses to be incurred by the
respective Portfolio.
Average Annual Total Return
Period Ended June 30, 1997
Since
1 Year Inception
Mid Cap Private Account Composite 31.2% 28.9%*
High Yield Private Account Composite 20.6% 18.3%**
- ---------------------
* From January 1, 1996.
** From March 1, 1995.
<PAGE>
APPENDIX
INVESTMENT TECHNIQUES
BORROWING MONEY--(All Portfolios) Each Portfolio, except as noted, is permitted
to borrow money from banks for temporary or emergency (not leveraging) purposes,
including to meet redemption requests which might require the untimely
disposition of securities, in an amount up to 15% (5% for purposes other than
meeting redemption requests) of the value of its total assets (including the
amount borrowed) valued at the lesser of cost or market, less liabilities
(including the amount borrowed) at the time the borrowing is made. The Equity
Portfolio, however, may borrow for temporary purposes only to meet redemption
requests in an amount up to 10% of the value of its total assets. While
borrowings exceed 5% of a Portfolio's total assets, the Portfolio will not make
any additional investments. In addition, the Mid Cap Portfolio, Bantam Value
Portfolio, Global Equity Portfolio, International Small Cap Portfolio, Emerging
Markets Portfolio, High Yield Portfolio and, although currently it has no
intention of doing so, Equity Portfolio may borrow for investment purposes to
the extent permitted under the 1940 Act, which permits an investment company to
borrow in an amount up to 33-1/3% of the value of it total assets. See
"Leverage" below.
FOREIGN CURRENCY TRANSACTIONS--(All Portfolios, except the Equity Portfolio,
Small Cap Portfolio, Bantam Value Portfolio and Bond Portfolio) Foreign currency
transactions may be entered into for a variety of purposes, including: to fix in
U.S. dollars, between trade and settlement date, the value of a security the
Portfolio has agreed to buy or sell; to hedge the U.S. dollar value of
securities the Portfolio already owns, particularly if it expects a decrease in
the value of the currency in which the foreign security is denominated; or to
gain exposure to the foreign currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Portfolio's purchase
of foreign currencies for U.S. dollars or the maintenance of short positions in
foreign currencies, which would involve the Portfolio agreeing to exchange an
amount of a currency it did not currently own for another currency at a future
date in anticipation of a decline in the value of the currency sold relative to
the currency the Portfolio contracted to receive in the exchange. The
Portfolio's success in these transactions will depend principally on the
Investment Manager's ability to predict accurately the future exchange rates
between foreign currencies and the U.S. dollar.
LENDING PORTFOLIO SECURITIES -- (All Portfolios) Each Portfolio may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions. The
Portfolio continues to be entitled to payments in amounts equal to the interest,
dividends or other distributions payable on the loaned securities which affords
the Portfolio an opportunity to earn interest on the amount of the loan and on
the loaned securities' collateral. Loans of portfolio securities may not exceed
33-1/3% (10% with respect to the Equity Portfolio, Small Cap Portfolio,
International Equity Portfolio, Bond Portfolio, International Fixed Income
Portfolio and Strategic Yield Portfolio) of the value of the Portfolio's total
assets, and the Portfolio will receive collateral consisting of cash, U.S.
Government securities or irrevocable letters of credit which will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. Such loans are terminable by the Portfolio at any time
upon specified notice. The Portfolio might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with the Portfolio.
USE OF DERIVATIVES--(All Portfolios) The types of Derivatives a Portfolio may
invest in, or enter into, may include, to the extent described under
"Description of the Portfolios," options and futures, mortgage-related
securities and asset-backed securities. These instruments and certain related
risks are described more specifically in the Statement of Additional
Information.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
Portfolio's investments as a whole. Derivatives permit the Portfolio to increase
or decrease the level of risk, or change the character of the risk, of its
portfolio by making investments in specific securities.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in Derivatives could have a large
potential impact on the Portfolio's performance.
If the Portfolio invests in Derivatives at inappropriate times or judges market
conditions incorrectly, such investments may lower the Portfolio's return or
result in a loss. The Portfolio also could experience losses if its Derivatives
were poorly correlated with its other investments or if the Portfolio were
unable to liquidate its position because of an illiquid secondary market. The
market for many Derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid and unpredictable changes in the
prices for Derivatives.
Although neither the Fund nor any Portfolio will be a commodity pool, certain
Derivatives subject the Portfolio to the rules of the Commodity Futures Trading
Commission which limit the extent to which the Portfolio can invest in such
Derivatives. If permitted by its policies, a Portfolio may invest in futures
contracts and options with respect thereto for hedging purposes without limit.
However, the Portfolio may not invest in such contracts and options for other
purposes if the sum of the amount of initial margin deposits and premiums paid
for unexpired options with respect to such contracts, other than for bona fide
hedging purposes, exceeds 5% of the liquidation value of the Portfolio's assets,
after taking into account unrealized profits and unrealized losses on such
contracts and options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation.
When required by the Commission, a Portfolio will set aside permissible liquid
assets in a segregated account to cover its obligations relating to its
transactions in Derivatives. To maintain this required cover, the Portfolio may
have to sell portfolio securities at disadvantageous prices or times since it
may not be possible to liquidate a Derivative position at a reasonable price.
FORWARD COMMITMENTS--(All Portfolios) Each Portfolio may purchase securities on
a forward commitment or when-issued basis, which means that delivery and payment
take place a number of days after the date of the commitment to purchase. The
payment obligation and the interest rate receivable on a forward commitment or
when-issued security are fixed when the Portfolio enters into the commitment,
but the Portfolio does not make payment until it receives delivery from the
counterparty. The Portfolio will commit to purchase such securities only with
the intention of actually acquiring the securities, but the Portfolio may sell
these securities before the settlement date if it is deemed advisable. When
required by the Commission, a Portfolio may have to set aside permissible liquid
assets in a segregated account to cover its commitments.
SHORT-SELLING--(Mid Cap Portfolio and High Yield Portfolio) Each of these
Portfolios may engage in short sales of securities. In these transactions, the
Portfolio sells a security it does not own in anticipation of a decline in the
market value of the security. To complete the transaction, the Portfolio must
borrow the security to make delivery to the buyer. The Portfolio is obligated to
replace the security borrowed by purchasing it subsequently at the market price
at the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Portfolio, which would result in a
loss or gain, respectively. The Portfolio also may make short sales "against the
box," in which the Portfolio enters into a short sale of a security it owns in
order to hedge an unrealized gain on the security. Securities will not be sold
short if, after effect is given to any such short sale, the total market value
of all securities sold short would exceed 25% of the value of the Portfolio's
net assets.
LEVERAGE--(Equity Portfolio, Mid Cap Portfolio, Bantam Value Portfolio, Global
Equity Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio
and High Yield Portfolio) Leveraging exaggerates the effect on net asset value
of any increase or decrease in the market value of the Portfolio's investment.
Money borrowed for leveraging is limited to 33-1/3% of the value of the
Portfolio's total assets. These borrowings would be subject to interest costs
which may or may not be recovered by appreciation of the securities purchased;
in certain cases, interest costs may exceed the return received on the
securities purchased.
Each of these Portfolios may enter into reverse repurchase agreements with
banks, brokers or dealers. This form of borrowing involves the transfer by the
Portfolio of an underlying debt instrument in return for cash proceeds based on
a percentage of the value of the security. The Portfolio retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, the Portfolio repurchases the security at principal plus accrued
interest. To the extent a Portfolio enters into a reverse repurchase agreement,
the Portfolio will maintain in a segregated custodial account permissible liquid
assets at least equal to the aggregate amount of its reverse repurchase
obligations, plus accrued interest, in certain cases, in accordance with
releases promulgated by the Securities and Exchange Commission. Except for these
transactions, each of these Portfolio's borrowings generally will be unsecured.
CERTAIN PORTFOLIO SECURITIES
CONVERTIBLE SECURITIES--(All Portfolios) Convertible securities may be converted
at either a stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although convertible
bonds, as corporate debt obligations, enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior to common stock, of
the same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible securities.
DEPOSITARY RECEIPTS--(All Portfolios, except the Small Cap Portfolio) Each of
these 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.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES--(All
Portfolios, except the Equity Portfolio and Small Cap Portfolio) Each of these
Portfolios may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Investment Manager to be of
comparable quality to the other obligations in which the Portfolio may invest.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.
WARRANTS--(All Portfolios, except the International Equity Portfolio, Bond
Portfolio and International Fixed Income Portfolio) A warrant is an instrument
issued by a corporation which gives the holder the right to subscribe to a
specified amount of the corporation's capital stock at a set price for a
specified period of time. A Portfolio may invest up to 5% of its total assets in
warrants, except that this limitation does not apply to warrants purchased by
the Portfolio that are sold in units with, or attached to, other securities.
MORTGAGE-RELATED SECURITIES--(Bond Portfolio, High Yield Portfolio,
International Fixed Income Portfolio and Strategic Yield Portfolio and, to a
limited extent, the Equity Portfolio, Mid Cap Portfolio, Small Cap Portfolio,
Bantam Value Portfolio and Global Equity Portfolio) Mortgage-related securities
are secured, directly or indirectly, by pools of mortgages, and may include
complex instruments such as collateralized mortgage obligations and stripped
mortgage- backed securities. These securities also may include mortgage
pass-through securities, interests in REMICs or other kinds of mortgage-backed
securities. The mortgage-related securities which may be purchased include those
with fixed, floating and variable interest rates, those with interest rates that
change based on multiples of changes in interest rates and those with interest
rates that change inversely to changes in interest rates.
RESIDENTIAL MORTGAGE-RELATED SECURITIES. Each of these
Portfolios may invest in mortgage-related securities representing participation
interests in pools of one- to four-family residential mortgage loans issued by
governmental agencies or instrumentalities, such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"), or by
private entities. Similar to commercial mortgage-related securities, residential
mortgage-related securities have been issued using a variety of structures,
including multi-class structures featuring senior and subordinated classes.
Mortgage-related securities issued by GNMA include GNMA Mortgage Pass-Through
Certificates (also known as "Ginnie Maes") which are guaranteed as to the timely
payment of principal and interest by GNMA and such guarantee is backed by the
full faith and credit of the United States Government. GNMA certificates also
are supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by FNMA
include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as
"Fannie Maes") which are solely the obligations of FNMA and are not backed by or
entitled to the full faith and credit of the United States Government. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by FHLMC include FHLMC Mortgage Participation
Certificates (also known as "Freddie Macs" or "PCs"). Freddie Macs are not
guaranteed by the United States Government or by any Federal Home Loan Bank and
do not constitute a debt or obligation of the United States Government or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of
interest, which is guaranteed by FHLMC. FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When FHLMC does not guarantee timely payment of principal, FHLMC
may remit the amount due on account of its guarantee of ultimate payment of
principal at any time after default on an underlying mortgage, but in no event
later than one year after it becomes payable.
COMMERCIAL MORTGAGE-RELATED SECURITIES. Each of these Portfolios
may invest in commercial mortgage-related securities, which generally are
multi-class debt or pass-through certificates secured by mortgage loans on
commercial properties. These mortgage-related securities generally are
structured to provide protection to the senior class investors against potential
losses on the underlying mortgage loans. This protection is generally provided
by having the holders of the subordinated class of securities ("Subordinated
Securities") take the first loss if there are defaults on the underlying
commercial mortgage loans. Other protection, which may benefit all of the
classes or particular classes, may include issuer guarantees, reserve funds,
additional Subordinated Securities, cross-collateralization and
over-collateralization.
SUBORDINATED SECURITIES. Each of these Portfolios may invest in
Subordinated Securities issued or sponsored by commercial banks, savings and
loan institutions, mortgage bankers, private mortgage insurance companies and
other non-governmental issuers. Subordinated Securities have no governmental
guarantee, and are subordinated in some manner as to the payment of principal
and/or interest to the holders of more senior mortgage-related securities
arising out of the same pool of mortgages. The holders of Subordinated
Securities typically are compensated with a higher stated yield than are the
holders of more senior mortgage-related securities. On the other hand,
Subordinated Securities typically subject the holder to greater risk than senior
mortgage-related securities and tend to be rated in a lower rating category, and
frequently a substantially lower rating category, than the senior
mortgage-related securities issued in respect of the same pool of mortgage.
Subordinated Securities generally are likely to be more sensitive to changes in
prepayment and interest rates and the market for such securities may be less
liquid than is the case for traditional fixed-income securities and senior
mortgage- related securities.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations or "CMOs" are multiclass bonds
backed by pools of mortgage pass-through certificates or mortgage loans. CMOs
may be collateralized by (a) pass-through certificates issued or guaranteed by
GNMA, FNMA or FHLMC, (b) unsecuritized mortgage loans insured by the Federal
Housing Administration or guaranteed by the Department of Veterans' Affairs, (c)
unsecuritized conventional mortgages, (d) other mortgage-related securities or
(e) any combination thereof. CMOs may be issued by agencies or instrumentalities
of the U.S. government, or by private originators of, or investors in, mortgage
loans, including depository institutions, mortgage banks, investment banks and
special purpose subsidiaries of the foregoing. The issuer of CMOs or multi-class
pass-through securities may elect to be treated as a REMIC. The Bond Portfolio,
High Yield Portfolio and International Fixed Income Portfolio may invest, to a
limited extent, in residual interests in REMICs. See "Taxation."
Each class of CMOs, often referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date; these
characteristics will vary from one tranche to another. Principal prepayments on
collateral underlying a CMO may cause it to be retired substantially earlier
than the stated maturities or final distribution dates. The principal and
interest on the underlying mortgages may be allocated among the several classes
of a series of a CMO in many ways. One or more tranches of a CMO may have coupon
rates which reset periodically at a specified increment over an index, such as
the London Interbank Offered Rate ("LIBOR") (or sometimes more than one index).
These floating rate CMOs typically are issued with lifetime caps on the coupon
rate thereon. Each of these Portfolios also may invest in inverse floating rate
CMOs. Inverse floating rate CMOs constitute a tranche of a CMO with a coupon
rate that moves in the reverse direction to an applicable index such as the
LIBOR. Accordingly, the coupon rate thereon will increase as interest rates
decrease. Inverse floating rate CMOs are typically more volatile than fixed or
floating rate tranches of CMOs.
Many inverse floating rate CMOs have coupons that move inversely to a multiple
of the applicable indexes. The coupon varying inversely to a multiple of an
applicable index creates a leverage factor. The markets for inverse floating
rate CMOs with highly leveraged characteristics may at times be very thin. The
Portfolio's ability to dispose of its positions in such securities will depend
on the degree of liquidity in the markets for such securities. It is impossible
to predict the amount of trading interest that may exist in such securities, and
therefore the future degree of liquidity. It should be noted that inverse
floaters based on multiples of a stated index are designed to be highly
sensitive to changes in interest rates and can subject the holders thereof to
extreme reductions of yield and loss of principal.
STRIPPED MORTGAGE-BACKED SECURITIES. Each of these Portfolios
also may invest in stripped mortgage-backed securities. Stripped mortgage-backed
securities are created by segregating the cash flows from underlying mortgage
loans or mortgage securities to create two or more new securities, each with a
specified percentage of the underlying security's principal or interest
payments. Mortgage securities may be partially stripped so that each investor
class received some interest and some principal. When securities are completely
stripped, however, all of the interest is distributed to holders of one type of
security, known as an interest-only security, or IO, and all of the principal is
distributed to holders of another type of security known as a principal-only
security, or PO. Strips can be created in a pass-through structure or as
tranches of a CMO. The yields to maturity on IOs and POs are very sensitive to
the rate of principal payments (including prepayments) on the related underlying
mortgage assets. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Portfolio may not fully recoup its
initial investment in IOs. Conversely, if the underlying mortgage assets
experience less than anticipated prepayments of principal, the yield on POs
could be materially and adversely affected.
REAL ESTATE INVESTMENT TRUSTS. A REIT is a corporation, or a
business trust that would otherwise be taxed as a corporation, which meets the
definitional requirements of the Code. The Code permits a qualifying REIT to
deduct dividends paid, thereby effectively eliminating corporate level Federal
income tax and making the REIT a pass-through vehicle for Federal income tax
purposes. To meet the definitional requirements of the Code, a REIT must, among
other things, invest substantially all of its assets in interests in real estate
(including mortgages and other REITs) or cash and government securities, derive
most of its income from rents from real property or interest on loans secured by
mortgages on real property, and distribute to shareholders annually a
substantial portion of its otherwise taxable income. REITs are characterized as
equity REITs, mortgage REITs and hybrid REITs. Equity REITs, which may include
operating or finance companies, own real estate directly and the value of, and
income earned by, the REITs depends upon the income of the underlying properties
and the rental income they earn. Equity REITs also can realize capital gains (or
losses) by selling properties that have appreciated (or depreciated) in value.
Mortgage REITs can make construction, development or long-term mortgage loans
and are sensitive to the credit quality of the borrower. Mortgage REITs derive
their income from interest payments on such loans. Hybrid REITs combine the
characteristics of both equity and mortgage REITs, generally by holding both
ownership interests and mortgage interests in real estate. The value of
securities issued by REITs are affected by tax and regulatory requirements and
by perceptions of management skill. They also are subject to heavy cash flow
dependency, defaults by borrowers or tenants, self-liquidation and the
possibility of failing to qualify for tax-free status under the Code or to
maintain exemption from the 1940 Act.
ASSET-BACKED SECURITIES--(Bond Portfolio, High Yield Portfolio,
International Fixed Income Portfolio and Strategic Yield Portfolio) Asset-backed
securities are a form of Derivative. The securitization techniques used for
asset-backed securities are similar to those used for mortgage- related
securities. These securities include debt securities and securities with
debt-like characteristics. The collateral for these securities has included home
equity loans, automobile and credit card receivables, boat loans, computer
leases, airplane leases, mobile home loans, recreational vehicle loans and
hospital account receivables. Each of these Portfolios may invest in these and
other types of asset-backed securities that may be developed in the future.
Asset-backed securities present certain risks that are not presented by
mortgage-related securities. Primarily, these securities may provide the
Portfolio with a less effective security interest in the related collateral than
do mortgage-related securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available to
support payments on these securities.
ZERO COUPON AND STRIPPED U.S. TREASURY SECURITIES--(Bond Portfolio, High Yield
Portfolio and Strategic Yield Portfolio) Each of these Portfolios may invest in
zero coupon U.S. Treasury securities, which are Treasury notes and Bonds that
have been stripped of their unmatured interest coupons, the coupons themselves
and receipts or certificates representing interests in such stripped debt
obligations and coupons. Zero coupon securities also are issued by corporations
and financial institutions which constitute a proportionate ownership of the
issuer's pool of underlying U.S. Treasury securities. A zero coupon security
pays no interest to its holder during its life and is sold at a discount to its
face value at maturity. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically and are likely to respond to a greater degree to changes in
interest rates than non- zero coupon securities having similar maturities and
credit qualities.
MUNICIPAL OBLIGATIONS--(Bond Portfolio, High Yield Portfolio and Strategic Yield
Portfolio) In circumstances where the Investment Manager determines that
investment in municipal obligations would facilitate the Portfolio's ability to
accomplish its investment objective, each of these Portfolios may invest its
assets in such obligations, including municipal obligations issued at a
discount. Dividends on shares attributable to interest on municipal obligations
held by the Portfolio will not be exempt from federal income taxes. Municipal
obligations 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 obligations
could be impaired.
INVESTMENT COMPANIES--(All Portfolios) Each Portfolio may invest, to the extent
permitted under the 1940 Act, in securities issued by investment companies which
principally invest in securities of the type in which the Portfolio invests.
Investments in the securities of investment companies may involve duplication of
advisory fees and certain other expenses.
MONEY MARKET INSTRUMENTS--(All Portfolios) Each Portfolio, unless otherwise
provided, may invest in the following types of Money Market Instruments:
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities that differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury; others
by discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others only by the credit of
the agency or instrumentality. These securities bear fixed, floating or variable
rates of interest. While the U.S. Government provides financial support to such
U.S. Government-sponsored agencies and instrumentalities, no assurance can be
given that it will always do so since it is not so obligated by law.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio
buys, and the seller agrees to repurchase, a security at a mutually agreed upon
time and price (usually within seven days). The repurchase agreement thereby
determines the yield during the purchaser's holding period, while the seller's
obligation to repurchase is secured by the value of the underlying security.
Repurchase agreements could involve risks in the event of a default or
insolvency of the other party to the agreement, including possible delays or
restrictions upon the Portfolio's ability to dispose of the underlying
securities. The Portfolio may enter into repurchase agreements with certain
banks or non-bank dealers.
BANK OBLIGATIONS. The Portfolio may purchase certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations
issued by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. With respect to such securities
issued by foreign subsidiaries or foreign branches of domestic banks, and
domestic and foreign branches of foreign banks, the Portfolio may be subject to
additional investment risks that are differing in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. See "Investment Considerations and Risks--Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the obligation of
a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time (in no event longer than seven days) at a stated
interest rate.
Banker's acceptances are credit instruments evidencing the obligation of a bank
to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term,
unsecured promissory notes issued to finance short-term credit needs. The
commercial paper of U.S. issuers or foreign issuers (in the case of the
International Equity Portfolio, International Fixed Income Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Strategic Yield
Portfolio and Global Equity Portfolio) purchased by the Portfolio will consist
only of direct obligations which, at the time of their purchase, are (a) rated
not lower than Prime-1 by Moody's, A-1 by S&P, Fitch-1 by Fitch or Duff-1 by
Duff, (b) issued by companies having an outstanding debt issue currently rated
at least Aa/AA by one or more Rating Agencies, or (c) if unrated, determined by
the Investment Manager to be of comparable quality to those rated obligations
which may be purchased by the Portfolio.
PARTICIPATION INTERESTS. Each Portfolio may purchase from
financial institutions participation interests in securities in which the
Portfolio may invest. A participation interest gives the Portfolio an undivided
interest in the security in the proportion that the Portfolio's participation
interest bears to the total principal amount of the security. These instruments
may have fixed, floating or variable rates of interest with remaining maturities
of 13 months or less. If the participation interest is unrated, or has been
given a rating below that which is permissible for purchase by the Portfolio,
the participation interest will be collateralized by U.S. Government securities,
or, in the case of unrated participation interests, the Investment Manager must
have determined that the instrument is of comparable quality to those
instruments in which the Portfolio may invest.
ILLIQUID SECURITIES--(All Portfolios) Each Portfolio may invest up to 10% (15%
in the case of the Mid Cap Portfolio and High Yield Portfolio) of the value of
its net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with the Portfolio's investment
objective. Such securities may include securities that are not readily
marketable, such as certain securities that are subject to legal or contractual
restrictions on resale, repurchase agreements providing for settlement in more
than seven days after notice, certain mortgage-related securities, and certain
privately negotiated, non-exchange traded options and securities used to cover
such options. As to these securities, the Portfolio is subject to a risk that
should the Portfolio desire to sell them when a ready buyer is not available at
a price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected.
RATINGS--(Bond Portfolio, High Yield Portfolio, International Fixed Income
Portfolio and Strategic Yield Portfolio and, to a limited extent, all other
Portfolios) Securities rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Bonds rated BBB by
S&P are investment grade and regarded as having adequate capacity to pay
interest and repay principal; however, adverse changes in economic conditions
and circumstances are more likely to have an adverse impact on these bonds and,
therefore, impair timely payment. Securities rated Ba by Moody's are judged to
have speculative elements; their future cannot be considered as well assured and
often the protection of interest and principal payments may be very moderate.
Securities rated BB by S&P are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term vulnerability to
default than other speculative grade debt, they face major ongoing uncertainties
or exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
Securities rated Caa by Moody's or CCC by S&P are of poor standing and may be in
default or there may be present elements of danger with respect to principal or
interest. Securities rated C by Moody's are regarded as having extremely poor
prospects of ever attaining any real investment standing. Securities rated D by
S&P, are in default, and payment of interest and/or repayment of principal is in
arrears. Such securities, though high yielding, are characterized by great risk.
See "Appendix" in the Statement of Additional Information for a general
description of securities ratings.
The ratings of Moody's and S&P represent their opinions as to the quality of the
obligations which they undertake to rate. Ratings are relative and subjective
and, although ratings may be useful in evaluating the safety of interest and
principal payments, they do not evaluate the market value risks of such
obligations. Although these ratings may be an initial criterion for selection of
portfolio investments, the Investment Manager also will evaluate these
securities and the ability of the issuers of such securities to pay interest and
principal. The ability of the Fixed-Income Portfolios' to achieve their
respective investment objectives may be more dependent on the Investment
Manager's credit analysis than might be the case for a fund that invested in
higher rated securities.
STRATEGIC YIELD PORTFOLIO. During the year ended December 31,
1996, the percentages of the Strategic Yield 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 S&P were, on a weighted average basis, as follows:
Percentage of
S&P Ratings Total Investments
TSY 5.3%
AGY 8.6%
AAA 11.4%
AA+ 0.2%
AA 2.0%
AA- 0.6%
A+ 1.0%
A 1.1%
A- 1.4%
BBB+ 0.7%
BBB 0.4%
BBB- 0.1%
BB+ 1.0%
BB 1.6%
BB- 2.2%
B+ 4.9%
B 6.6%
B- 10.8%
CCC+ 0.6%
CCC- 0.3%
No Rating* 36.9%
- -----------------------
* The Investment Manager estimates these securities to have an average
rating of BBB-.
The actual distribution of the Portfolio's investments by ratings on any given
date will vary. In addition, the distribution of the Portfolio's investments by
ratings as set forth above should not be considered as representative of the
Portfolio's future investment portfolio composition.
<PAGE>
THE LAZARD FUNDS, INC.
30 Rockefeller Plaza
New York, New York 10112
Telephone: (800) 823-6300
INVESTMENT MANAGER
Lazard Asset Management
30 Rockefeller Plaza
New York, New York 10112
DISTRIBUTOR
Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, New York 10112
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Boston Financial Data Services Inc.
P.O. Box 9363
Boston, Massachusetts 02205-9363
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 LLP
180 Maiden Lane
New York, New York 10038-4982
<PAGE>
LAZARD FUNDS
30 Rockefeller Plaza
58th Floor
New York, New York 10112
Telephone 800-823-6300
NO SALES OR REDEMPTION CHARGES
No person has been authorized to give any
information or to make any representations
not contained in this Prospectus, and information
or representations not contained herein must not
be relied upon as having been authorized by the
Fund or the Distributor. This Prospectus does
not constitute an offer of any security other
than the registered securities to which it
relates or an offer to any person in any
jurisdiction where such offer would be unlawful.
<PAGE>
THE LAZARD FUNDS, INC.
30 Rockefeller Plaza
New York, New York 10112
(800) 823-6300
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1997
The Lazard Funds, Inc. (the "Fund") is a no-load, open-end management
investment company known as a mutual fund. This Statement of Additional
Information, which is not a prospectus, supplements and should be read in
conjunction with the current Prospectus of the Fund, dated November 1, 1997, as
it may be revised from time to time, relating to the following twelve portfolios
(individually, a "Portfolio" and collectively, the "Portfolios"):
Lazard Equity Portfolio Lazard International Small Cap Portfolio
Lazard Mid Cap Portfolio Lazard Emerging Markets Portfolio
Lazard Small Cap Portfolio Lazard Bond Portfolio
Lazard Bantam Value Portfolio Lazard High Yield Portfolio
Lazard Global Equity Portfolio Lazard International Fixed Income Portfolio
Lazard International Equity Lazard Strategic Yield Portfolio
Portfolio
Each Portfolio currently offers two classes of shares--Institutional
Shares and Open Shares. Institutional Shares and Open Shares are identical,
except as to minimum investment requirements and the services offered to and
expenses borne by each Class.
Lazard Asset Management, a division of Lazard Freres & Co. LLC
("Lazard Freres"), serves as the investment manager (the "Investment Manager")
to each of the Portfolios.
To obtain a copy of the Fund's Prospectus, please write or call the
Fund at the address and telephone number given above.
<PAGE>
TABLE OF CONTENTS
Page
Investment Objectives and Management Policies.................... 3
Investment Restrictions.......................................... 18
Management....................................................... 21
Determination of Net Asset Value................................. 27
Portfolio Transactions........................................... 28
Purchase and Redemption of Shares................................ 31
Distribution and Servicing Plan.................................. 31
Dividends and Distributions...................................... 32
Taxation......................................................... 33
Performance Information.......................................... 36
Organization and Description of Capital Stock.................... 38
Counsel and Independent Auditors................................. 51
Additional Information........................................... 51
Appendix......................................................... 52
Financial Statements and Report of Independent Auditors.......... 57
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTIONS IN THE FUND'S PROSPECTUS ENTITLED "DESCRIPTION OF
THE PORTFOLIOS" AND "APPENDIX."
PORTFOLIO SECURITIES
DEPOSITARY RECEIPTS. (All Portfolios, except the Small Cap Portfolio)
These securities may be purchased through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored depositary receipts generally bear all the
costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
REPURCHASE AGREEMENTS. (All Portfolios) The Fund's custodian or
sub-custodian will have custody of, and will hold in a segregated account,
securities acquired by a Portfolio under a repurchase agreement. Repurchase
agreements are considered by the staff of the Securities and Exchange Commission
(the "Commission") to be loans by the Portfolio that enters into them. In an
attempt to reduce the risk of incurring a loss on a repurchase agreement, the
Portfolio will enter into repurchase agreements only with domestic banks with
total assets in excess of $1 billion, or primary government securities dealers
reporting to the Federal Reserve Bank of New York, with respect to securities of
the type in which the Portfolio may invest, and will require that additional
securities be deposited with it if the value of the securities purchased should
decrease below the resale price.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS. (All
Portfolios) These instruments include variable amount master demand notes, which
are obligations that permit a Portfolio to invest fluctuating amounts at varying
rates of interest pursuant to direct arrangements between the Portfolio, as
lender, and the borrower. These notes permit daily changes in the amounts
borrowed. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value, plus accrued interest,
at any time. Accordingly, where these obligations are not secured by letters of
credit or other credit support arrangements, the Portfolio's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. Such obligations frequently are not rated by credit rating agencies, and
the Portfolio may invest in them only if at the time of an investment the
borrower meets the criteria set forth in the Prospectus for other commercial
paper issuers.
CONVERTIBLE SECURITIES. (All Portfolios) Although to a lesser extent
than with fixed-income securities, the market value of convertible securities
tends to decline as interest rates increase and, conversely, tends to increase
as interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stock. A unique feature of convertible
securities is that as the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis, and so may
not experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the value
of the underlying common stock. While no securities investments are without
risk, investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
Convertible securities are investments that provide for a stable
stream of income with generally higher yields than common stocks. There can be
no assurance of current income because the issuers of the convertible securities
may default on their obligations. A convertible security, in addition to
providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices fluctuate. Convertible
securities, however, generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital appreciation.
PARTICIPATION INTERESTS. (All Portfolios) Each Portfolio may invest in
corporate obligations denominated in U.S. or (except with respect to the Equity
Portfolio and Small Cap Portfolio) foreign currencies that are originated,
negotiated and structured by a syndicate of lenders ("Co-Lenders") consisting of
commercial banks, thrift institutions, insurance companies, financial companies
or other financial institutions one or more of which administers the security on
behalf of the syndicate (the "Agent Bank"). Co-Lenders may sell such securities
to third parties called "Participants." Each Portfolio may invest in such
securities either by participating as a Co-Lender at origination or by acquiring
an interest in the security from a Co-Lender or a Participant (collectively,
"participation interests"). Co-Lenders and Participants interposed between the
Portfolio and the corporate borrower (the "Borrower"), together with Agent
Banks, are referred to herein as "Intermediate Participants." Each Portfolio
also may purchase a participation interest in a portion of the rights of an
Intermediate Participant, which would not establish any direct relationship
between the Fund, on behalf of the Portfolio, and the Borrower. In such cases,
the Portfolio would be required to rely on the Intermediate Participant that
sold the participation interest not only for the enforcement of the Portfolio's
rights against the Borrower, but also for the receipt and processing of payments
due to the Portfolio under the security. Because it may be necessary to assert
through an Intermediate Participant such rights as may exist against the
Borrower, if the Borrower fails to pay principal and interest when due, the
Portfolio may be subject to delays, expenses and risks that are greater than
those that would be involved if the Portfolio were to enforce its rights
directly against the Borrower. Moreover, under the terms of a participation
interest, the Portfolio may be regarded as a creditor of the Intermediate
Participant (rather than of the Borrower), so that the Portfolio also may be
subject to the risk that the Intermediate Participant may become insolvent.
Similar risks may arise with respect to the Agent Bank if, for example, assets
held by the Agent Bank for the benefit of the Portfolio were determined by the
appropriate regulatory authority or court to be subject to the claims of the
Agent Bank's creditors. In such case, the Portfolio might incur certain costs
and delays in realizing payment in connection with the participation interest or
suffer a loss of principal and/or interest. Further, in the event of the
bankruptcy or insolvency of the Borrower, the obligation of the Borrower to
repay the loan may be subject to certain defenses that can be asserted by such
Borrower as a result of improper conduct by the Agent Bank or Intermediate
Participant.
VARIABLE AND FLOATING RATE SECURITIES. (All Portfolios) Variable and
floating rate securities provide for a periodic adjustment in the interest rate
paid on the obligations. The terms of such obligations must provide that
interest rates are adjusted periodically based upon an interest rate adjustment
index as provided in the respective obligations. The adjustment intervals may be
regular, and range from daily up to annually, or may be event based, such as
based on a change in the prime rate.
Each Portfolio may invest in floating rate debt instruments
("floaters"). The interest rate on a floater is a variable rate which is tied to
another interest rate, such as a money- market index or Treasury bill rate. The
interest rate on a floater resets periodically, typically every six months.
Because of the interest rate reset feature, floaters provide the Portfolio with
a certain degree of protection against rises in interest rates, although the
Portfolio will participate in any declines in interest rates as well.
Each Portfolio also may invest in inverse floating rate debt
instruments ("inverse floaters"). The interest rate on an inverse floater resets
in the opposite direction from the market rate of interest to which the inverse
floater is indexed. An inverse floating rate security may exhibit greater price
volatility than a fixed rate obligation of similar credit quality.
ILLIQUID SECURITIES. (All Portfolios) Each Portfolio may invest up to
10% (15% in the case of the Mid Cap Portfolio and High Yield Portfolio) of the
value of its net assets in illiquid securities, provided such investments are
consistent with the Portfolio's investment objective. 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) repurchase agreements providing for settlement in more than
seven days after notice, and (iii) certain privately negotiated, non-exchange
traded options and securities used to cover such options written by the
Portfolio. When purchasing securities that have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and are not readily
marketable, a Portfolio will endeavor, to the extent practicable, to obtain the
right to registration at the expense of the issuer. Generally, there will be a
lapse of time between the Portfolio's decision to sell any such security and the
registration of the security permitting sale. During any such period, the price
of the securities will be subject to market fluctuations. However, where a
substantial market of qualified institutional buyers has developed for certain
unregistered securities purchased by the Portfolio pursuant to Rule 144A under
the Securities Act, the Portfolio intends to treat such securities as liquid
securities in accordance with procedures approved by the Fund's Board. Because
it is not possible to predict with assurance how the market for specific
restricted securities sold pursuant to Rule 144A will develop, the Fund's Board
has directed the Investment Manager to monitor carefully each Portfolio's
investments in such securities with particular regard to trading activity,
availability of reliable price information and other relevant information. To
the extent that, for a period of time, qualified institutional buyers cease
purchasing restricted securities pursuant to Rule 144A, a Portfolio's investing
in such securities may have the effect of increasing the level of illiquidity in
its investment portfolio during such period.
MUNICIPAL OBLIGATIONS. (Bond Portfolio, High Yield Portfolio and
Strategic Yield Portfolio) Municipal obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multistate agencies or authorities. Municipal obligations bear fixed, floating
or variable rates of interest. Certain municipal obligations are subject to
redemption at a date earlier than their stated maturity pursuant to call
options, which may be separated from the related municipal obligations and
purchased and sold separately. Each of these Portfolios also may acquire call
options on specific municipal obligations. The Portfolio generally would
purchase these call options to protect the Portfolio from the issuer of the
related municipal obligation redeeming, or other holder of the call option from
calling away, the municipal obligation before maturity.
Municipal obligations generally include debt obligations issued to
obtain funds for various public purposes as well as certain industrial
development bonds issued by or on behalf of public authorities. Municipal
obligations are classified as general obligation bonds, revenue bonds and notes.
General obligation bonds are secured by the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Industrial
development bonds, in most cases, are revenue bonds and generally do not carry
the pledge of the credit of the issuing municipality, but generally are
guaranteed by the corporate entity on whose behalf they are issued. Notes are
short-term instruments which are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal obligations include municipal
lease/purchase agreements which are similar to installment purchase contracts
for property or equipment issued by municipalities.
While, in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal obligations
of similar quality, certain municipal obligations are taxable obligations,
offering yields comparable to, and in some cases greater than, the yields
available on other permissible Portfolio investments. Dividends received by
shareholders on Portfolio shares which are attributable to interest income
received by the Portfolio from municipal obligations generally will be subject
to federal income tax. Each of these Portfolios will invest in municipal
obligations, the ratings of which correspond with the ratings of other
permissible Portfolio investments. Each of these Portfolios currently intends to
invest no more than 25% of its assets in municipal obligations. However, this
percentage may be varied from time to time without shareholder approval.
MORTGAGE-RELATED SECURITIES. (Bond Portfolio, High Yield Portfolio,
International Fixed Income Portfolio and Strategic Yield Portfolio and, to a
limited extent, the Equity Portfolio, Mid Cap Portfolio, Small Cap Portfolio,
Bantam Value Portfolio and Global Equity Portfolio) Mortgage-related securities
are a form of Derivative collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private organizations.
These securities may include complex instruments such as collateralized mortgage
obligations and stripped mortgage-backed securities, mortgage pass-through
securities, interests in REMICs or other kinds of mortgage-backed securities,
including those with fixed, floating and variable interest rates, those with
interest rates that change based on multiples of changes in a specified index of
interest rates and those with interest rates that change inversely to changes in
interest rates.
GOVERNMENT-AGENCY SECURITIES--Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development.
GOVERNMENT-RELATED SECURITIES--Mortgage-related securities issued by the Federal
National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of FNMA and are not backed by or entitled to the full faith and
credit of the United States Government. FNMA is a government-sponsored
organization owned entirely by private stockholders.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the
United States Government created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks.
PRIVATE ENTITY SECURITIES--These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Timely payment
of principal and interest on mortgage-related securities backed by pools created
by non-governmental issuers often is supported partially by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance. The insurance and guarantees are issued by government entities,
private insurers and the mortgage poolers. There can be no assurance that the
private insurers or mortgage poolers can meet their obligations under the
policies, so that if the issuers default on their obligations the holders of the
security could sustain a loss. No insurance or guarantee covers the Portfolio or
the price of the Portfolio's shares. Mortgage-related securities issued by
non-governmental issuers generally offer a higher rate of interest than
government-agency and government-related securities because there are no direct
or indirect government guarantees of payment.
COMMERCIAL MORTGAGE-BACKED SECURITIES--These mortgage-related securities reflect
an interest in, and are secured by, mortgage loans on commercial real property.
The market for commercial mortgage-backed securities developed more recently and
in terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage- or asset-backed securities.
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 (such
collateral 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.
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 accrued 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.
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.
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. CMO Residuals, whether or not
registered under the Securities Act, may be subject to certain restrictions of
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.
REAL ESTATE INVESTMENT TRUSTS--Each of these Portfolios may invest an unlimited
amount of its assets in Real Estate Investment Trusts ("REITs"), although each
of the Mid Cap Portfolio, Bantam Value Portfolio, Equity Portfolio, Global
Equity Portfolio and Small Cap Portfolio currently intends to limit its
investments in REITs to no more than 5% of its assets. Each Portfolio intends to
invest in listed equity REITs, which own properties, listed mortgage REITs,
which make short-term construction and development mortgage loans or which
invest in long- term mortgages or mortgage pools, and listed hybrid REITs, which
combine characteristics of both equity and mortgage REITs. Accordingly, 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 therefore are
subject to the risk of financing single or a limited number of projects. REITs
also are 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 of 1940, as
amended (the "1940 Act").
OTHER MORTGAGE-RELATED SECURITIES--Other mortgage-related securities include
securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property. Other mortgage-related securities may be equity or debt
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, homebuilders, mortgage banks, commercial banks, investment
banks, partnerships, trusts and special purpose entities of the foregoing.
ASSET-BACKED SECURITIES. (Bond Portfolio, High Yield Portfolio,
International Fixed Income Portfolio and Strategic Yield Portfolio). Each of
these Portfolios 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.
MANAGEMENT POLICIES
LENDING PORTFOLIO SECURITIES. (All Portfolios) In connection with its
securities lending transactions, a Portfolio may return to the borrower or a
third party which is unaffiliated with the Portfolio, and which is acting as a
"placing broker," a part of the interest earned from the investment of
collateral received for securities loaned.
The Commission currently requires that the following conditions must
be met whenever portfolio securities are loaned: (1) the Portfolio must receive
at least 100% cash collateral from the borrower; (2) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (3) the Portfolio must be able to terminate the loan
at any time; (4) the Portfolio must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions payable on the loaned
securities, and any increase in market value; (5) the Portfolio may pay only
reasonable custodian fees in connection with the loan; and (6) while voting
rights on the loaned securities may pass to the borrower, the Fund's Board must
terminate the loan and regain the right to vote the securities if a material
event adversely affecting the investment occurs.
DERIVATIVES. (All Portfolios) Each Portfolio may invest in Derivatives
(as defined in the Prospectus), to the extent described in the Prospectus, for a
variety of reasons, including to hedge certain market risks, to provide a
substitute for purchasing or selling particular securities or to increase
potential income gain. Derivatives may provide a cheaper, quicker or more
specifically focused way for the Portfolio to invest than "traditional"
securities would.
Derivatives may be purchased on established exchanges or through
privately negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (i.e., variation margin requirements)
operated by the clearing agency in order to reduce overall credit risk. As a
result, unless the clearing agency defaults, there is relatively little
counterparty credit risk associated with Derivatives purchased on an exchange.
By contrast, no clearing agency guarantees over-the-counter Derivatives.
Therefore, each party to an over-the-counter Derivative bears the risk that the
counterparty will default. Accordingly, the Investment Manager will consider the
creditworthiness of counterparties to over-the-counter Derivatives in the same
manner as it would review the credit quality of a security to be purchased by
the Portfolio. Over- the-counter Derivatives are less liquid than
exchange-traded Derivatives since the other party to the transaction may be the
only investor with sufficient understanding of the Derivative to be interested
in bidding for it.
FUTURES TRANSACTIONS--IN GENERAL. (All Portfolios, except the Equity Portfolio,
Small Cap Portfolio, Bantam Value Portfolio, International Equity Portfolio and
Strategic Yield Portfolio) Each of these Portfolios may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or, if
permitted as described in the Prospectus, on exchanges located outside the
United States, such as the London International Financial Futures Exchange and
the Sydney Futures Exchange Limited. Foreign markets may offer advantages such
as trading opportunities or arbitrage possibilities not available in the United
States. Foreign markets, however, may have greater risk potential than domestic
markets. For example, some foreign exchanges are principal markets so that no
common clearing facility exists and an investor may look only to the broker for
performance of the contract. In addition, any profits a Portfolio might realize
in trading could be eliminated by adverse changes in the exchange rate, or the
Portfolio could incur losses as a result of those changes. Transactions on
foreign exchanges may include both commodities which are traded on domestic
exchanges and those which are not. Unlike trading on domestic commodity
exchanges, trading on foreign commodity exchanges is not regulated by the
Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Portfolio
which could adversely affect the value of the Portfolio's net assets. Although
each of these Portfolios intends to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contract prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting the Portfolio
to substantial losses.
Successful use of futures by a Portfolio also is subject to the
Investment Manager's ability to predict correctly movements in the direction of
the relevant market, and, to the extent the transaction is entered into for
hedging purposes, to ascertain the appropriate correlation between the
transaction being hedged and the price movements of the futures contract. For
example, if a Portfolio uses futures to hedge against the possibility of a
decline in the market value of securities held in its portfolio and the prices
of such securities instead increase, the Portfolio will lose part or all of the
benefit of the increased value of securities which it has hedged because it will
have offsetting losses in its futures positions. Furthermore, if in such
circumstances the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. The Portfolio may have
to sell such securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the Commission,
a Portfolio may be required to segregate permissible liquid assets in connection
with its commodities transactions in an amount generally equal to the value of
the underlying commodity. The segregation of such assets will have the effect of
limiting the Portfolio's ability otherwise to invest those assets.
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 such 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.
SPECIFIC FUTURES TRANSACTIONS. Each of these Portfolios, except the Bond
Portfolio, High Yield Portfolio and International Fixed Income Portfolio, may
purchase and sell stock index futures contracts. A stock index future obligates
the Portfolio to pay or receive an amount of cash equal to a fixed dollar amount
specified in the futures contract multiplied by the difference between the
settlement price of the contract on the contract's last trading day and the
value of the index based on the stock prices of the securities that comprise it
at the opening of trading in such securities on the next business day.
The Bond Portfolio, High Yield Portfolio, International Fixed Income
Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and International
Small Cap Portfolio may purchase and sell interest rate futures contracts. An
interest rate future obligates the Portfolio to purchase or sell an amount of a
specific debt security at a future date at a specific price.
Each of these Portfolios, except the Bond Portfolio, may purchase and
sell currency futures. A currency future obligates the Portfolio to purchase or
sell an amount of a specific currency at a future date at a specific price.
OPTIONS--IN GENERAL. (All Portfolios, except the Small Cap Portfolio and
International Equity Portfolio) Each of these Portfolios may purchase and write
(i.e., sell) call or put options with respect to specific securities. A call
option gives the purchaser of the option the right to buy, and obligates the
writer to sell, the underlying security or securities at the exercise price at
any time during the option period, or at a specific date. Conversely, a put
option gives the purchaser of the option the right to sell, and obligates the
writer to buy, the underlying security or securities at the exercise price at
any time during the option period, or at a specified date.
A covered call option written by a Portfolio is a call option with
respect to which the Portfolio owns the underlying security or otherwise covers
the transaction by segregating cash or other securities. A put option written by
a Portfolio is covered when, among other things, cash or liquid securities
having a value equal to or greater than the exercise price of the option are
placed in a segregated account with the Fund's custodian to fulfill the
obligation undertaken. The principal reason for writing covered call and put
options is to realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. A Portfolio receives a
premium from writing covered call or put options which it retains whether or not
the option is exercised.
There is no assurance that sufficient trading interest to create a
liquid secondary market on a securities exchange will exist for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow, or other unforeseen events, at times have rendered
certain of the clearing facilities inadequate and resulted in the institution of
special procedures, such as trading rotations, restrictions on certain types of
orders or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, a Portfolio is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
SPECIFIC OPTIONS TRANSACTIONS. Each of these Portfolios may purchase and sell
call and put options in respect of specific securities (or groups or "baskets"
of specific securities) or indices listed on national securities exchanges or
traded in the over-the-counter market. An option on an index is similar to an
option in respect of specific securities, except that settlement does not occur
by delivery of the securities comprising the index. Instead, the option holder
receives an amount of cash if the closing level of the 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. Thus, the effectiveness of
purchasing or writing index options will depend upon price movements in the
level of the index rather than the price of a particular security.
Except as described below, each of the Equity Portfolio, International
Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and
Bantam Value 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 Nasdaq National Market
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 permissible liquid assets in a segregated account with the Fund's
custodian, it will not be subject to the requirements described in this
paragraph.
Each of these Portfolios, except the Equity Portfolio, Small Cap
Portfolio, Bantam Value Portfolio and Bond Portfolio, may purchase and sell call
and put options on foreign currency. These options convey the right to buy or
sell the underlying currency at a price which is expected to be lower or higher
than the spot price of the currency at the time the option is exercised or
expires.
Each of these Portfolios may purchase cash-settled options on interest
rate swaps, interest rate swaps interest rate swaps denominated in foreign
currency (except in the case of the Equity Portfolio), and (except in the case
of the Bond Portfolio and International Fixed Income Portfolio) equity index
swaps in pursuit of its investment objective. Interest rate swaps involve the
exchange by a Portfolio with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating-rate payments for
fixed-rate payments) denominated in U.S. dollars or foreign currency. Equity
index swaps involve the exchange by the Portfolio with another party of cash
flows based upon the performance of an index or a portion of an index of
securities which usually includes dividends. A cash-settled option on a swap
gives the purchaser the right, but not the obligation, in return for the premium
paid, to receive an amount of cash equal to the value of the underlying swap as
of the exercise date. These options typically are purchased in privately
negotiated transactions from financial institutions, including securities
brokerage firms.
Successful use by a Portfolio of options will be subject to the
Investment Manager's ability to predict correctly movements in the prices of
individual stocks, the stock market generally, foreign currencies or interest
rates. To the extent the Investment Manager's predictions are incorrect, the
Portfolio may incur losses.
FUTURE DEVELOPMENTS. The relevant Portfolios may take advantage of
opportunities in the area of options and futures contracts and options on
futures contracts and any other Derivatives which are not presently contemplated
for use by the Portfolio or which are not currently available but which may be
developed, to the extent such opportunities are both consistent with the
Portfolio's investment objective and legally permissible for the Portfolio.
Before entering into such transactions or making any such investment, the
Portfolio will provide appropriate disclosure in the Prospectus or Statement of
Additional Information.
LEVERAGE. (Equity Portfolio, Mid Cap Portfolio, Bantam Value
Portfolio, Global Equity Portfolio, International Small Cap Portfolio, Emerging
Markets Portfolio and High Yield Portfolio) For borrowings for investment
purposes, the 1940 Act requires the Portfolio to maintain continuous asset
coverage (that is, total assets including borrowings, less liabilities exclusive
of borrowings) of 300% of the amount borrowed. If the required coverage should
decline as a result of market fluctuations or other reasons, the Portfolio may
be required to sell some of its portfolio securities within three days to reduce
the amount of its borrowings and restore the 300% asset coverage, even though it
may be disadvantageous from an investment standpoint to sell securities at that
time. The Portfolio also may be required to maintain minimum average balances in
connection with such borrowing or pay a commitment or other fee to maintain a
line of credit; either of these requirements would increase the cost of
borrowing over the stated interest rate. To the extent the Portfolio enters into
a reverse repurchase agreement, the Portfolio will maintain in a segregated
custodial account permissible liquid assets at least equal to the aggregate
amount of its reverse repurchase obligations, plus accrued interest, in certain
cases, in accordance with releases promulgated by the Commission. The Commission
views reverse repurchase transactions as collateralized borrowings by the
Portfolio.
SHORT-SELLING. (Mid Cap Portfolio and High Yield Portfolio) Until the
Portfolio closes its short position or replaces the borrowed security, it will:
(a) maintain a segregated account, containing permissible liquid assets, at such
a level that the amount deposited in the account plus the amount deposited with
the broker as collateral always equals the current value of the security sold
short; or (b) otherwise cover its short position.
FORWARD COMMITMENTS. (All Portfolios) Securities purchased on a
forward commitment or when-issued basis are subject to changes in value
(generally changing in the same way, i.e., appreciating when interest rates
decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a forward
commitment or when-issued basis may expose a Portfolio to risks because they may
experience such fluctuations prior to their actual delivery. Purchasing
securities on a when-issued basis can involve the additional risk that the yield
available in the market when the delivery takes place actually may be higher
than that obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Portfolio is fully or almost fully
invested may result in greater potential fluctuation in the value of the
Portfolio's net assets and its net asset value per share.
INVESTMENT CONSIDERATIONS AND RISKS
LOWER RATED SECURITIES. (Bond Portfolio, High Yield Portfolio,
International Fixed Income Portfolio and Strategic Yield Portfolio). Each of
these Portfolios is permitted to invest in securities rated Ba by Moody's
Investors Service, Inc. ("Moody's") or BB by Standard & Poor's Ratings Group
("S&P" and together with Moody's, the "Rating Agencies"), and as low as the
lowest rating assigned by the Rating Agencies. Such securities, though higher
yielding, are characterized by risk. See "Description of the
Portfolios-Investment Considerations and Risks-Lower Rated Securities"
in the Prospectus for a discussion of certain risks and the "Appendix" for a
general description of the Rating Agencies' ratings. Although ratings may be
useful in evaluating the safety of interest and principal payments, they do not
evaluate the market value risk of these securities. The Portfolio will rely on
the Investment Manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer.
Investors should be aware that the market values of many of these
securities tend to be more sensitive to economic conditions than are higher
rated securities. These securities generally are considered by the Rating
Agencies to be, on balance, predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation and generally will involve more credit risk than securities in the
higher rating categories.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of such
issuers generally is greater than is the case with the higher rated securities.
For example, during an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of these securities may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be affected adversely by
specific corporate developments, forecasts, or the unavailability of additional
financing. The risk of loss because of default by the issuer is significantly
greater for the holders of these securities because such securities generally
are unsecured and often are subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, the Portfolio anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the extent a
secondary trading market for these securities does exist, it generally is not as
liquid as the secondary market for higher rated securities. The lack of a liquid
secondary market may have an adverse impact on market price and yield and the
Portfolio's ability to dispose of particular issues when necessary to meet the
Portfolio's liquidity needs or in response to a specific economic event such as
a deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Portfolio to obtain accurate market quotations for purposes of valuing its
portfolio and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play a
greater role in valuation because less reliable, objective data may be
available.
These securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could disrupt severely the
market for such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities.
The Portfolio may acquire these securities during an initial offering.
Such securities may involve special risks because they are new issues. The
Portfolio has no arrangement with any persons concerning the acquisition of such
securities, and the Investment Manager will review carefully the credit and
other characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also
apply to lower rated zero coupon securities and pay-in-kind bonds, in which each
of these Portfolios may invest. Pay-in-kind bonds pay interest through the
issuance of additional securities. Zero coupon securities and pay-in-kind bonds
carry an additional risk in that, unlike bonds which pay interest throughout the
period to maturity, the Portfolio will realize no cash until the cash payment
date unless a portion of such securities are sold and, if the issuer defaults,
the Portfolio may obtain no return at all on its investment.
INVESTMENT RESTRICTIONS
The following investment restrictions, except as otherwise noted, are
fundamental policies, which cannot be changed, as to a Portfolio, without
approval by the holders of a majority (as defined in the 1940 Act) of such
Portfolio's outstanding voting shares. However, the amendment of these
restrictions to add an additional Portfolio, which amendment does not
substantively affect the restrictions with respect to an existing Portfolio,
will not require approval as described in the preceding sentence. None of the
Portfolios 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 in the
Prospectus, (B) each of the Mid Cap Portfolio, International
Small Cap Portfolio, High Yield Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio and Bantam Value
Portfolio also may borrow money to the extent permitted
under the 1940 Act and, as a non-fundamental policy, may
pledge, hypothecate, mortgage or otherwise encumber its
assets to secure permitted borrowings; provided, however,
that the Portfolio will not make new investments to the
extent borrowings exceed 5% of its total assets, except for
borrowings covered within the interpretations of Section
18(f) of the 1940 Act, and (C) the Equity Portfolio may
additionally utilize leverage as described in the
Prospectus. 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 33-1/3% (10% in the case of the
Equity Portfolio, Small Cap Portfolio, International Equity
Portfolio, Bond Portfolio, International Fixed Income
Portfolio and Strategic Yield 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) invest in illiquid securities as defined in
"Investment Objectives and Management Policies--Illiquid
Securities" if immediately after such investment more than
10% (15% in the case of the Mid Cap Portfolio and High Yield
Portfolio) 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 Mid Cap
Portfolio, High Yield Portfolio, Global Equity Portfolio and
Bantam Value Portfolio);
(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 Mid Cap
Portfolio, International Small Cap Portfolio, Emerging
Markets Portfolio, Global Equity Portfolio, Bantam Value
Portfolio or High Yield Portfolio, and provided, further,
that (A) the Mid Cap Portfolio, International Small Cap
Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and High Yield Portfolio,
may purchase securities of other investment companies to the
extent permitted under the 1940 Act (this restriction is not
a fundamental policy of these Portfolios) and (B) the Equity
Portfolio, International Equity Portfolio and Small Cap
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;
(v) 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 the 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;
(vi) (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 Mid Cap Portfolio, International
Small Cap Portfolio, Emerging Markets Portfolio, Global
Equity Portfolio, Bantam Value Portfolio and High Yield
Portfolio also may purchase and sell securities that are
secured by real estate; (B) purchase or sell commodities or
commodity contracts (except that the Mid Cap Portfolio,
International Small Cap Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio, Bantam Value Portfolio
and High Yield Portfolio may purchase and sell swaps,
options, forward contracts, futures contracts, including
those relating to indices, and options on futures contracts
or indices, the Mid Cap Portfolio, International Equity
Portfolio, International Fixed Income Portfolio, Strategic
Yield Portfolio and High 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, Mid
Cap Portfolio, Global Equity Portfolio, Bantam Value
Portfolio and High Yield Portfolio;
(vii) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or,
except for the Mid Cap Portfolio and High Yield Portfolio,
make short sales of securities, provided, however, that this
prohibition on short sales is not a fundamental policy of
the Global Equity Portfolio and Bantam Value Portfolio;
(viii) 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 the Portfolio's
investment program may be deemed to be an underwriting; or
(ix) 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 and Bantam Value Portfolio. This restriction has
not been adopted by the Mid Cap Portfolio or High Yield
Portfolio.
In addition to the restrictions noted above, the
Equity Portfolio has adopted the following restrictions as fundamental
policies. The Equity Portfolio may not:
(i) purchase restricted securities, which are securities
that must be registered under the Securities Act of 1933, as
amended, 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.
* * *
If a percentage restriction is adhered to at the time of
investment, a later change in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
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 10112.
Name, Address and Age Position with Fund Principal Occupation During
Past 5 Years
Norman Eig* (57) Chairman of the Managing Director (formerly
Board General Partner), Lazard
Freres.
Herbert W. Gullquist* (59) President, Managing Director (formerly
Director General Partner), Lazard
Freres.
John J. Burke (68) Director Vice Chairman, Director,
50 Burning Tree Lanr Montana Power Company.
Butte, MT 59701
Kenneth S. Davidson (52) Director Managing Partner, Davidson
Davidson Weil Weil Associates; Director,
Associates Blackthorn Fund N.V. and
767 Fifth Avenue, Ottertail Valley Railroad.
43rd Floor
New York, NY 10153
Carl Frischling* (60) Director Senior Partner, Kramer,
170 East 83rd Street Levin, Naftalis & Frankel;
New York, NY 10028 from 1992 to 1994, Senior
Partner, Reid & Priest; from
1979 to 1992, Senior Partner,
Spengler Carlson Grubar
Brodsky & Frischling.
Lester Z. Lieberman (66) Director Private Investor; Director of
25 Vreeland Road Dowel Associates; Chairman
Florham Park, NJ 07932 of the Board of Trustees of
Newark Beth Israel Medical
Center and Irvington General
Hospital; Member of the New
Jersey State Investment
Council; prior to 1994,
Director of United Jersey
Bank, N.A. and Clarkson
University.
Richard Reiss, Jr. (53) Director Managing Partner, Cumberland
1114 Avenue of the Associates, an investment
Americas manager.
New York, NY 10036
John Rutledge (48) Director President, Rutledge &
One Greenwich Company, an economics and
Office Park investment advisory firm;
51 Weaver Street Chairman, Claremont
Greenwich, CT Economics Institute.
06831
William Katz (43) Director President and Chief Operating
1285 Avenue of the Officer of BBDO, an
Americas advertising agency; from May
New York, NY 10019 1994 to February 1996,
General Manager of BBDO;
prior thereto, Executive
Vice President and Senior
Account Director of BBDO.
William G. Butterly, Vice President, Vice President, Legal Affairs
III (36) Secretary of the Investment Manager;
prior to May 1993, attorney
with Shearman & Sterling.
Gus Coutsouros (34) Treasurer Certified Public Accountant,
Vice President and Assistant
Controller of the Investment
Manager; prior to June 1992,
Manager, National Securities
and Research Corp.
- -----------
* An "interested person" of the Fund as defined in the 1940 Act.
The Fund has adopted a Distribution and Servicing Plan with respect to
shares of the Portfolios. So long as the Plan remains in effect, the Directors
who are not "interested persons" of the Fund, as defined in the 1940 Act, will
be selected and nominated by the Directors who are not "interested persons" of
the Fund.
The Fund pays its Directors its allocable share of the aggregate of a
fixed fee of $20,000 per annum and a per meeting fee of $1,000 for the Fund and
Lazard Retirement Series, Inc., and reimburses them for their expenses. The
aggregate amount of compensation paid to each Director by the Fund for the year
ended December 31, 1996, was as follows:
Total Compensation from
Aggregate Compensation the Fund and
Name of Director From the Fund Lazard Retirement Series, inc.*
Norman Eig N/A N/A
Herbert W. Gullquist N/A N/A
John J. Burke $31,452 $31,452
Lester Z. Lieberman $27,829 $27,829
Richard Reiss, Jr. $27,000 $27,000
John Rutledge $27,000 $27,000
Kenneth S. Davidson $27,000 $27,000
Carl Frischling $13,791 $13,791
William Katz $24,000** $24,000**
- -----------------------
* Lazard Retirement Series, Inc. was not operational in 1996.
** Estimated for 1997.
The Fund does not compensate officers or Directors who are employees
or affiliated persons of the Investment Manager. As of July 1, 1997, the
officers and Directors of the Fund, as a group, owned less than 1% of the shares
of each Portfolio.
INVESTMENT MANAGER AND INVESTMENT MANAGEMENT AGREEMENTS
Lazard Asset Management, 30 Rockefeller Plaza, New York, New York
10112, has entered into an investment management agreement with the Fund on
behalf of each Portfolio (the "Management Agreements"). Pursuant to each
Management Agreement, Lazard 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 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 utilities. Lazard Asset Management provides investment
management services to client discretionary accounts with assets as of December
31, 1996 totaling approximately $38.1 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 July 1, 1997, Lazard 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.
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 each Management Agreement, 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.
As compensation for its services, each of the Portfolios has agreed to
pay the Investment Manager an investment management fee, accrued daily and
payable monthly, at the annual rates set forth below as a percentage of the
average daily value of the net assets of the relevant Portfolio:
Investment Management
Name of Portfolio Fee Payable
Equity Portfolio .75%
Mid Cap Portfolio .75%
Small Cap Portfolio .75%
Bantam Value Portfolio .75%
Global Equity Portfolio .75%
International Equity Portfolio .75%
International Small Cap Portfolio .75%
Emerging Markets Portfolio 1.00%
Bond Portfolio .50%
High Yield Portfolio .75%
International Fixed Income Portfolio .75%
Strategic Yield Portfolio .75%
The Investment Manager has undertaken to bear, excluding 12b-1 fees
for the Open Shares, (i) with respect to each of the International Fixed Income
Portfolio, Global Equity Portfolio and Bantam Value Portfolio, total operating
expenses in excess of 1.05%, and (ii) with respect to the Bond Portfolio, total
operating expenses in excess of .80%, of such Portfolio's average net assets, in
each case until the earlier of December 31, 1997 (or such time as the respective
Portfolio reaches total net assets of $100 million). Pursuant to the terms of
the Management Agreements and these arrangements, the fees paid by each
Portfolio (other than the Mid Cap Portfolio and High Yield Portfolio which had
not commenced operations) to the Investment Manager for the fiscal years ended
December 31, 1994, 1995 and 1996, were as follows:
<TABLE>
<CAPTION>
Fee Paid For Fee Paid For Fee Paid For
Fiscal Year Fiscal Year Fiscal Year
Name of Portfolio Ended Ended Ended
- ----------------- December 31, 1994 December 31, 1995 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Equity Portfolio $ 504,424 $ 982,130 $ 1,829,111
Small Cap Portfolio $ 2,974,688 $4,066,987 $ 6,243,613
Bantam Value Portfolio N/A -0- $ 10,891
Global Equity Portfolio N/A -0- -0-
International Equity Portfolio $ 5,782,629 $7,895,766 $ 11,746,379
International Small Cap Portfolio $ 335,900 $ 736,353 $ 870,310
Emerging Markets Portfolio -0- $ 93,501 $ 896,107
Bond Portfolio $ 13,790 $ 286,080 $ 269,026
International Fixed Income Portfolio $ 62,918 $ 232,537 $ 361,469
Strategic Yield Portfolio $ 330,620 $ 525,597 $ 908,760
</TABLE>
Each Management Agreement 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; the fees and expenses of
the custodian and transfer agent of the Fund; 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 Open Shares of each Portfolio are
subject to an annual distribution and servicing fee. See "Distribution and
Servicing Plan." 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.
Each Management Agreement is subject to annual approval by (i) the
Fund's Board or (ii) vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the relevant Portfolio, provided that in either
event the continuance also is approved by a majority of the Directors who are
not "interested persons" (as defined in the 1940 Act) of the Fund or the
Investment Manager, by vote cast in person at a meeting called for the purpose
of voting on such approval. The Management Agreement was approved by
shareholders of the Equity Portfolio, Small Cap Portfolio, International Equity
Portfolio, International Fixed Income Portfolio, Bond Portfolio and Strategic
Yield Portfolio on December 16, 1992 and initially by the Board on September 11,
1991 (and amended and restated on October 19, 1993); by the sole shareholder for
the International Small Cap Portfolio and Emerging Markets Portfolio on August
25, 1993 and initially by the Board on July 20, 1993; by the sole shareholder
for the Bantam Value Portfolio and Global Equity Portfolio and initially by the
Board on October 16, 1995; and by the sole shareholder for the Mid Cap Portfolio
and High Yield Portfolio and by the Board on July 29, 1997. The Management
Agreement for each Portfolio, other than the Mid Cap Portfolio and High Yield
Portfolio was last approved by the Fund's Board, including a majority of the
Directors who are not "interested persons" of any party to the Management
Agreement, at a meeting held on October 22, 1996. Each Management Agreement is
terminable without penalty, on 60 days' notice, by the Fund's Board or by vote
of the holders of a majority of the shares of such Portfolio, or, upon not less
than 60 days' notice, by the Investment Manager. Each Management Agreement
provides for automatic termination in the event of its assignment (as defined in
the 1940 Act). 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.
ADMINISTRATOR AND CUSTODIAN
The Fund has engaged State Street Bank and Trust Company ("State
Street"), 225 Franklin Street, Boston, Massachusetts 02110, to provide certain
administrative services to the Portfolios. Each Portfolio will bear the cost of
such administrative expenses at the annual rate of $45,000 plus .02% of the
value of the average daily net assets of each Class of the Portfolio up to $1
billion and .01% of the value of such assets over $1 billion.
State Street also acts as the Fund's custodian. As the Fund's
custodian, State Street, 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.
DISTRIBUTOR
Lazard Freres serves as the distributor of each Portfolio's shares and
conducts a continuous offering pursuant to a "best efforts" arrangement. As the
distributor, it accepts purchase and redemption orders for Portfolio shares. In
addition, the distribution agreement obligates Lazard Freres to pay certain
expenses in connection with the offering of Portfolio shares. After the
prospectus and periodic reports have been prepared, set in type and mailed to
shareholders, Lazard Freres also will pay for the printing and distribution of
copies thereof used in connection with the offering to prospective investors.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each Class of each Portfolio is
determined by State Street for the Fund on each day the New York Stock Exchange
is open for trading. The New York Stock Exchange is ordinarily closed on the
following national holidays: New Year's Day, Martin Luther King, Jr. 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 represented by such
Class, less all liabilities, by the total number of Portfolio shares of such
Class outstanding.
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 stock 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, except where to do so would not reflect accurately
their fair value, in which case such securities would be valued at their fair
value as determined under the supervision of the Board of Directors. 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 a Portfolio for which the primary market is the
Nasdaq 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, 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 also may 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 Bantam Value Portfolio, International Small Cap Portfolio and
Small Cap 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 Bantam Value Portfolio,
International Small Cap Portfolio or Small Cap 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.
Trading in securities on European and Far Eastern securities exchanges
and over- the-counter markets ordinarily is 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 net asset value of a Portfolio 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
GENERAL
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 selecting brokers or dealers to
execute portfolio transactions on behalf of a Portfolio, the Investment Manager
seeks the best overall terms available, 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
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.
To the extent consistent with applicable provisions of the 1940 Act
and the rules adopted by the Commission thereunder, the Fund's Board has
determined that securities transactions for a Portfolio may be executed through
Lazard Freres if, in the judgment of the Investment Manager, the use of Lazard
Freres is likely to result in price and execution at least as favorable as those
of other qualified brokers or dealers, and if, in the transaction, Lazard Freres
charges the Portfolio a rate consistent with that charged to comparable
unaffiliated customers in similar transactions.
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 best
overall terms available, the Investment Manager may select brokers or 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 such research, market and statistical information may be
useful to the Investment Manager, it 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 Agreement with the Fund
on behalf of the Portfolios. Such information may be useful to the Investment
Manager in providing services to both the Portfolios and clients other than the
Portfolios, and, conversely, supplemental information obtained by the placement
of business of other clients may be useful to the Investment Manager in carrying
out its obligations to the Portfolios. The total dollar amount of transactions
pursuant to which brokerage was directed in consideration of research services
provided during the year ended December 31, 1996, was $433,508,500 and the
related commissions were $867,017. 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.
BROKERAGE COMMISSIONS
In connection with its portfolio securities transactions for the
fiscal years ended December 31, 1994, 1995 and 1996, each Portfolio indicated
below paid brokerage commissions as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
Percentage
Amount of Percentage of Total
Brokerage of Total Brokerage
Brokerage Commissions Brokerage Transactions
Name of Portfolio Commissions Paid to Commissions Effected
Paid Lazard Paid to Through
Freres Lazard Lazard
Freres Freres
<S> <C> <C> <C> <C>
Equity Portfolio $ 160,325 $ 1,655 1.0% 0.6%
Small Cap Portfolio $ 997,227 $ 14,125 1.4% 0.4%
International Equity Portfolio $4,374,956 -0- -0- -0-
International Small Cap Portfolio $ 563,176 -0- -0- -0-
Emerging Markets Portfolio $ 80,889 -0- -0- -0-
YEAR ENDED DECEMBER 31, 1995
Percentage
Amount of Percentage of Total
Brokerage of Total Brokerage
Brokerage Commissions Brokerage Transactions
NAME OF PORTFOLIO Commissions Paid TO Commissions Effected
Paid Lazard Paid to Through
Freres Lazard Lazard
Freres Freres
<S> <C> <C> <C> <C>
Equity Portfolio $ 331,180 -0- -0- -0-
Small Cap Portfolio $ 1,507,582 $ 3,324 0.2% 0.19%
International Equity Portfolio $ 2,303,409 -0- -0- -0-
International Small Cap Portfolio $ 976,314 -0- -0- -0-
Emerging Markets Portfolio $ 280,844 -0- -0- -0-
Portfolio
YEAR ENDED DECEMBER 31, 1996
Percentage
Amount of Percentage of Total
Brokerage of Total Brokerage
Brokerage Commissions Brokerage Transactions
NAME OF PORTFOLIO Commissions Paid to Commissions Effected
Paid Lazard Paid to Through
Freres Lazard Lazard
Freres Freres
<S> <C> <C> <C> <C>
Equity Portfolio $ 483,954 -0- -0- -0-
Small Cap Portfolio $1,522,251 $ 4,465 0.29% 0.31%
Bantam Value Portfolio $ 206,307 $ 12,195 5.91% 3.49%
Global Equity Portfolio $ 29,963 $ 1,104 3.69% 9.28%
International Equity Portfolio $2,707,977 -0- -0- -0-
International Small Cap Portfolio $ 580,942 -0- -0- -0-
Emerging Markets Portfolio $ 621,547 -0- -0- -0-
</TABLE>
PURCHASE AND REDEMPTION OF SHARES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTIONS IN THE PROSPECTUS ENTITLED "PURCHASE OF SHARES"
AND "REDEMPTION OF SHARES."
TERMS OF PURCHASE AND REDEMPTION. The Fund has authorized one or more
brokers to accept on its behalf purchase and redemption orders. Such brokers are
authorized to designate other intermediaries to accept purchase and redemption
orders on the Fund's behalf. The Fund will be deemed to have received a purchase
or redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order. Customer orders will be priced at the
Fund's net asset value next computed after such orders are accepted by an
authorized broker or the broker's authorized designee.
REDEMPTION COMMITMENT. The Fund has committed to pay in cash all
redemption requests by any shareholder of record, limited in amount during any
90-day period to the lesser of $250,000 or 1% of the value of a Portfolio's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the Commission. In the case of requests for redemption in
excess of such amount, the Fund's Board reserves the rights to make payments in
whole or part in securities (which may include non-marketable securities) or
other assets of the Portfolio in case of an emergency or any time a cash
distribution would impair the liquidity of the Portfolio to the detriment of the
existing shareholders. In such event, the securities would be valued in the same
manner as the Portfolio's investments are valued. If the recipient sold such
securities, brokerage charges might be incurred.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b) when
trading in the markets the Portfolio ordinarily utilizes is restricted, or when
an emergency exists as determined by the Commission so that disposal of the
Portfolio's investments or determination of its net asset value is not
reasonably practicable, or (c) for such other periods as the Commission by order
may permit to protect the Portfolio's shareholders.
DISTRIBUTION AND SERVICING PLAN
(OPEN SHARES ONLY)
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE PROSPECTUS ENTITLED "DISTRIBUTION AND
SERVICING PLAN."
Rule 12b-1 (the "Rule") adopted by the Commission under the 1940 Act
provides, among other things, that an investment company may bear expenses of
distributing its shares only pursuant to a plan adopted in accordance with the
Rule. The Fund's Board has adopted such a plan (the "Distribution and Servicing
Plan") with respect to each Portfolio's Open Shares, pursuant to which the Fund
pays Lazard Freres for advertising, marketing and distributing Open Shares of
the Portfolios and for the provision of certain services to the holders of Open
Shares of the Portfolios. Lazard Freres may make payments to certain financial
institutions, securities dealers and other industry professionals (collectively,
"Service Agents") for providing these services. The Fund's Board determined, in
the exercise of its business judgment, that the Fund's Distribution and
Servicing Plan is reasonably likely to benefit each Portfolio and holders of
Open Shares.
A quarterly report of the amounts expended under the Distribution
Servicing Plan, and the purposes for which such expenditures were incurred, must
be made to the Board for its review. In addition, the Distribution and Servicing
Plan provides that it may not be amended to increase materially the costs which
holders of Open Shares of a Portfolio may bear for distribution pursuant to the
Distribution and Servicing Plan without such shareholders' approval and that
other material amendments of the Distribution and Servicing Plan must be
approved by the Board and by the Board members who are not "interested persons"
(as defined in the 1940 Act) of the Fund and have no direct or indirect
financial interest in the operation of the Distribution and Servicing Plan or in
any agreements entered into in connection with the Distribution and Servicing
Plan, by vote cast in person at a meeting called for the purpose of considering
such amendments. The Distribution and Servicing Plan is subject to annual
approval by such vote cast in person at a meeting called for the purpose of
voting on the Distribution and Servicing Plan. The Distribution and Servicing
Plan was last so approved on July 29, 1997. As to each Portfolio, the
Distribution and Servicing Plan may be terminated at any time by vote of a
majority of the Board members who are not "interested persons" and have no
direct or indirect financial interest in the operation of the Distribution and
Servicing Plan or in any agreements entered into in connection with the
Distribution and Servicing Plan or by vote of the holders of a majority of such
Portfolio's Open Shares.
DIVIDENDS AND DISTRIBUTIONS
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE PROSPECTUS ENTITLED "DIVIDENDS AND
DISTRIBUTIONS."
The Fund intends to declare as a dividend on the outstanding shares of
each of the Bond Portfolio, High Yield Portfolio, International Fixed Income
Portfolio and Strategic Yield Portfolio substantially all of the Portfolio's net
investment income at the close of each business day to shareholders of record at
4:00 p.m. (New York time). 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 Bond Portfolio, High Yield Portfolio,
International Fixed Income Portfolio and Strategic Yield Portfolio ordinarily
will be paid on the last business day 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 by 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 Mid Cap
Portfolio, International Equity Portfolio, Small Cap Portfolio, International
Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and
Bantam Value Portfolio generally will be declared and paid at least annually and
may be declared and paid twice annually.
Dividends for each Class of a Portfolio will be calculated at the same
time and in the same manner and will be of the same amount, except that certain
expenses will be borne exclusively by one Class and not by the other, such as
fees payable under the Distribution and Servicing Plan. Open Shares will receive
lower per share dividends than Institutional Shares because of the higher
expenses borne by Open Shares. See "Annual Operating Expenses" in the Fund's
Prospectus.
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, Mid Cap
Portfolio, International Equity Portfolio, Small Cap Portfolio, International
Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and
Bantam Value Portfolio, also would include dividends.
With respect to all of the Portfolios, net realized capital gains, 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 FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE PROSPECTUS ENTITLED "TAXATION."
Each Portfolio intends to qualify as a regulated investment company
under the Code and to continue to so qualify as long as such qualification is in
the best interests of its shareholders. As a regulated investment company, a
Portfolio will pay no Federal income tax on net investment income and net
realized securities gains to the extent that such income and gains are
distributed to shareholders in accordance with applicable provisions of the
Code. To qualify as a regulated investment company, the Portfolio must
distribute at least 90% of its net income (consisting of net investment income
and net short-term capital gain) to its shareholders and meet certain asset
diversification and other requirements. The term "regulated investment company"
does not imply the supervision of management of investment practices or policies
by any government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the net asset value of the shares below the cost
of the investment. Such a dividend or distribution would be a return of
investment in an economic sense, although taxable as stated in the Prospectus.
In addition, the Code provides that if a shareholder holds shares of a Portfolio
for six months or less and has received a capital gain distribution with respect
to such shares, any loss incurred on the sale of such shares will be treated as
long-term capital loss to the extent of the capital gain distribution received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains and losses. However, all or a portion of the gain or
loss realized from the disposition of foreign currency, non-U.S. dollar
denominated debt instruments, and certain financial futures and options, may be
treated as ordinary income or loss under Section 988 of the Code. In addition,
all or a portion of the gain realized from the disposition of certain market
discount bonds will be treated as ordinary income under Section 1276 of the
Code. Finally, all or a portion of the gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section 1258
of the Code. "Conversion transactions" are defined to include certain forward,
futures, option and straddle transactions, transactions marketed or sold to
produce capital gains, or transactions described in Treasury regulations to be
issued in the future.
Under Section 1256 of the Code, gain or loss realized by a Portfolio
from certain financial futures and options transactions (other than those taxed
under Section 988 of the Code) will be treated as 60% long-term capital gain or
loss and 40% short-term capital gain or loss. Gain or loss will arise upon the
exercise or lapse of such futures and options as well as from closing
transactions. In addition, any such futures or options remaining unexercised at
the end of the Portfolio's taxable year will be treated as sold for their then
fair market value, resulting in additional gain or loss to the Portfolio
characterized in the manner described above.
Offsetting positions held by a Portfolio involving financial futures
and options may constitute "straddles." Straddles are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of straddles is governed by Sections 1092 and 1258 of the Code, which, in
certain circumstances, overrides or modifies the provisions of Sections 988 and
1256 of the Code. As such, all or a portion of any short- or long-term capital
gain from certain "straddle" transactions may be recharacterized as ordinary
income.
If a Portfolio were treated as entering into straddles by reason of
its future or options transactions, such straddles could be characterized as
"mixed straddles" if the futures or options transactions comprising such
straddles were governed by Section 1256 of the Code. The Portfolio may make one
or more elections with respect to "mixed straddles." Depending upon which
election is made, if any, the results to the Portfolio may differ. If no
election is made, to the extent the straddle rules apply to positions
established by the Portfolio, losses realized by the Portfolio will be deferred
to the extent of unrealized gain in any offsetting positions. Moreover, as a
result of the straddle and conversion transaction rules, short-term capital loss
on straddle positions may be recharacterized as long-term capital loss, and
long-term capital gain may be recharacterized as short-term capital gain or
ordinary income.
Recently enacted legislation added constructive sale provisions that
may apply if the Portfolio enters into short sales, or futures, forwards, or
offsetting notional principal contracts with respect to appreciated stock and
certain debt obligations that it holds. In such event, the Portfolio will be
taxed as if the appreciated property were sold at its fair market value on the
date the Portfolio entered into such short sale or contract. Such legislation
similarly may apply if the Portfolio has entered into a short sale, option,
futures or forward contract, or other position with respect to property, that
position has appreciated in value, and the Portfolio acquires that same or
substantially identical property. In such event, the Portfolio will be taxed as
if the appreciated position were sold at its fair market value on the date of
such acquisition. Transactions that are identified hedging or straddle
transactions under other provisions of the Code can be subject to the
constructive sale provisions.
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 each of the International Equity Portfolio,
International Fixed Income Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Global Equity Portfolio and Bantam Value Portfolio
will be operated so as to meet the requirements of the Code to "pass through" to
shareholders of the Portfolio 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.
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, other disposition or marking-to-market of PFIC
securities may be treated as ordinary income under Section 1291 or Section 1296
of the Code.
Investment by a Portfolio in securities issued at a discount or
providing for deferred interest or for payment of interest in the form of
additional obligations could, under special tax rules, affect the amount, timing
and character of distributions to shareholders by causing a Portfolio to
recognize income prior to the receipt of cash payments. For example, the
Portfolio could be required to recognize annually a portion of the discount (or
deemed discount) at which such securities were issued and to distribute an
amount equal to such income in order to maintain its qualification as a
regulated investment company. In such case, the Portfolio may have to dispose of
securities which it might otherwise have continued to hold in order to generate
cash to satisfy these distribution requirements.
PERFORMANCE INFORMATION
Current yield is computed pursuant to a formula which operates as
follows: The amount of the relevant Portfolio's expenses accrued for the 30-day
period (net of reimbursements) is subtracted from the amount of the dividends
and interest earned (computed in accordance with the regulatory requirements) by
such Portfolio during the period. That result is then divided by the product of:
(a) the average daily number of such Portfolio's shares outstanding during the
period that were entitled to receive dividends, and (b) the net asset value per
share on the last day of the period less any undistributed earned income per
share reasonably expected to be declared as a dividend shortly thereafter. The
quotient is then added to 1, and that sum is raised to the 6th power, after
which 1 is subtracted. The current yield is then arrived at by multiplying the
result by 2. 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.
The yield and the actual distribution rate for the 30-day period ended
June 30, 1997 for Open Shares and Institutional Shares of each Portfolio
indicated below was as follows:
NAME OF PORTFOLIO 30-Day Yield Distribution Rate
Institutional Institutional
Open Shares Shares Open Shares Shares
Bond 5.8% 6.1% 5.6% 5.9%
International Fixed Income 4.7% 5.0% 7.8% 8.0%
Strategic Yield 7.9% 8.4% 8.8% 9.3%
Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000 payment
made at the beginning of the period (assuming the reinvestment of dividends and
distributions), dividing by the amount of the initial investment, taking the
"n"th root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result.
The average annual total return of Institutional Shares for the
indicated Portfolio and periods ended June 30, 1997 (the date listed in the
footnote is the beginning of the period for the indicated Portfolio) was as
follows:
NAME OF PORTFOLIO 1-YEAR 5-YEAR 10-YEAR
Equity 27.01% 21.08% 14.35%(3)
International Equity 19.93% 11.46% 11.58%(4)
International Fixed Income 2.66% 8.20% 8.14%(5)
Bond 8.28% 6.20% 6.54%(6)
Strategic Yield 12.68% 11.02% 9.10%(7)
Small Cap 30.20% 22.67% 21.69%(8)
International Small Cap 13.80% 7.89%(1) N/A
Emerging Markets 26.82% 0 12.48%(2) N/A
- ---------------
(1) December 1, 1993.
(2) July 15, 1994.
(3) June 1, 1987.
(4) October 29, 1991.
(5) November 8, 1991.
(6) November 12, 1991.
(7) October 1, 1991.
(8) October 30, 1991.
Total return is calculated by subtracting the amount of the relevant
Portfolio's net asset value per share at the beginning of a stated period from
the net asset value per share at the end of the period (after giving effect to
the reinvestment of dividends and distributions during the period), and dividing
the result by the net asset value per share at the beginning of the period.
The total return of Open Shares and Institutional Shares for the
indicated Portfolio and period through June 30, 1997 (the date listed in the
footnote is the date operations commenced or, with respect to Open Shares, the
initial public offering date for the indicated Portfolio) was as follows:
NAME OF PORTFOLIO INSTITUTIONAL OPEN SHARES
SHARES
Equity 299.02%(1) 10.62%(11)
International Equity 86.11%(2) 14.87%(12)
International Fixed Income 55.80%(3) (2.17)%(13)
Bond 43.19%(4) 2.38%(14)
Strategic Yield 64.97%(5) 3.29%(12)
Small Cap 204.26%(6) 14.67%(15)
International Small Cap 31.24%(7) 3.74%(16)
Emerging Markets 41.65%(8) 20.79%(13)
Global Equity 32.15%(9) 15.72%(15)
Bantam Value 60.12%(10) 14.77%(12)
- -------------------
(1) June 1, 1987.
(2) October 29, 1991.
(3) November 8, 1991.
(4) November 12, 1991.
(5) October 1, 1991.
(6) October 30, 1991.
(7) December 1, 1993.
(8) July 15, 1994.
(9) January 3, 1996.
(10) March 1, 1996.
(11) February 5, 1997.
(12) January 23, 1997.
(13) January 8, 1997.
(14) March 5, 1997.
(15) January 30, 1997.
(16) February 13, 1997.
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.
Performance of each Class will be calculated separately and will take
into account any applicable distribution and service fees. As a result, at any
given time, the performance of Open Shares should be expect to be lower than
that of Institutional Shares.
No performance data is provided for the Mid Cap Portfolio and High
Yield Portfolio which had not commenced operations as of the date performance
information was calculated.
From time to time, the Fund may compare a Portfolio's performance
against one or more broad-based indices or data from Lipper Analytical Services,
Inc., Money Magazine, Morningstar, Inc. and other industry publications. In
addition, the Fund may compare a Portfolio's performance against inflation with
the performance of other instruments against inflation, such as short-term
Treasury Bills (which are direct obligations of the U.S. Government) and
FDIC-insured bank money market accounts.
ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK
The Fund is a Maryland corporation organized on May 17, 1991 as an
open-end investment company. The authorized capital stock of the Fund consists
of one billion, five hundred and fifty million (1,550,000,000) shares of common
stock, $.001 par value per share. To date, the Fund's Board of Directors has
authorized the issuance of thirteen Portfolios. Shares of each Portfolio are
classified into two classes-Open Shares and Institutional Shares. The Board
of Directors may, in the future, create additional portfolios or classes of
shares.
As of October 29, 1997, the following shareholders owned beneficially
or of record 5% or more of the indicated Portfolio's outstanding shares:
Percent of Total
Name and Address Institutional Shares
Outstanding
EQUITY PORTFOLIO
Seagrams Retirement Savings and Investment Trust 8.00%
c/o The Bank of New York
1 Wall Street, 12th Floor
New York, NY 10005-2501
Smith Barney Inc. 7.39%
388 Greenwich Street
New York, NY 10013
Lazard Freres & Co. LLC 6.00%
Employee Savings Plan--Equity Fund
30 Rockefeller Plaza
New York, NY 10112
SMALL CAP PORTFOLIO
Lazard Freres & Co. LLC 10.84%
Mercantile Safe Deposit & Trust Co.,
Custodian for Bakery &
Confectionery Intl
Pension Plan--Small Cap
30 Rockefeller Plaza
New York, NY 10112
BANTAM VALUE PORTFOLIO
Lazard Freres & Co. LLC 9.03%
United Food & Commercial
Workers Unions & Empl Pen Fund
1800 Phoenix Blvd Ste. 310
Atlanta, GA 30349
Lazard Freres & Co. LLC 6.99%
Graphic Communications Intl
Union Supplemental Retirement & Disability
Fund--Equity
30 Rockefeller Plaza
New York, NY 10112
GLOBAL EQUITY PORTFOLIO
Lazard Freres & Co. LLC 47.01%
Mount Sinai Hospital
Foundation of Toronto
331-500 University Avenue
Toronto, ON M5G 1X5
Lazard Freres & Co. LLC 12.17%
Maick (1997) Investment
Limited Partnership
225 Water Street Ste. 84C
Jacksonville, FL 32202
Lazard Freres & Co. LLC 7.66%
Bitterroot Enterprises Inc.
P.O. Box 7048
Wilmington, DE 19803
INTERNATIONAL EQUITY PORTFOLIO
Lazard Freres & Co. LLC 10.75%
Mercantile Safe Deposit & Trust Co.
Custodian for Bakery & Confectionery Intl
30 Rockefeller Plaza
New York, NY 10112
INTERNATIONAL SMALL CAP PORTFOLIO
Lazard Freres & Co. LLC 6.96%
The George Washington University
Intl Small Cap
Attn: Lindfa McNeil
2121 I Street
707 Rice Hall
Lazard Freres & Co. LLC 6.67%
United Air Lines Inc. Pension & Welfare Plans
30 Rockefeller Plaza
New York, NY 10112
EMERGING MARKETS PORTFOLIO
Lazard Freres & Co. LLC 7.18%
Presbyterian Church (USA)
Foundation Foreign
260 East Twelfth Street
Jeffersonville, IN 47130
Lazard Freres & Co. LLC 6.05%
University of British Columbia
Faculty Pension Plan
Emerging Markets
4-6328 Memorial Road
Vancouver BC V6T 1Z2 Canada
Lazard Freres & Co. LLC 6.00%
United Air Lines Inc. Pension & Welfare Plans
30 Rockefeller Plaza
New York, NY 10112
BOND PORTFOLIO
Lazard Freres & Co. LLC 7.54%
Elaine Louise David-Weill
30 Rockefeller Plaza
New York, NY 10112-0194
Lazard Freres & Co. LLC 6.63%
Local 1922 Pension Fund
Attn: Laurie Greco Fund Mngr
1065 Old Country Road Ste 214
Westburty, NY 11590-5628
INTERNATIONAL FIXED INCOME PORTFOLIO
Lazard Freres & Co. LLC 28.26%
Graphic Communications Intl
Union Supplemental Retirement
Disability Fund--Fixed Income
30 Rockefeller Plaza
New York, NY 10112
M & I Trust Co., Custodian for 15.31%
Cuka Individual Acct Master Plan
1000 N. Water St., 14th Floor
Milwaukee, WI 53202
Charles Schwab & Co. Inc. 7.80%
Special Custody Account
For Benefit of Customers
101 Montgomery St.
San Francisco, CA 54104
STRATEGIC YIELD PORTFOLIO
Merrill Lynch for the Sole Benefit 12.88%
of its Customers
4800 Deere Lake Dr E
Jacksonville, FL 32246-6484
Lazard Freres & Co. LLC 12.07%
Mack Trusts Inc. Retirement
Trust - Strategic Yield
Attn: Mark Cherry
2100 Mack Blvd.
Allentown, PA 18103-5622
Northern Trust Co. 6.23%
F/B/O Cristel Denaan Trust
P.O. Box 92956
Chicago, IL 60675
Mac & Co 6.02%
F/B/O Cornell University
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230
EQUITY PORTFOLIO
Connecticut General Life Ins. Co. 57.40%
One Commercial Plaza
280 Trumbull Street
P.O. Box 2975
Hartford, CT 06104
SMALL CAP PORTFOLIO
Connecticut General Life Ins Co. 69.82%
One Commercial Plaza
280 Trumbull St.
P.O. Box 2975
Hartford, CT 06104
BANTAM VALUE PORTFOLIO
Charles Schwab & Co. Inc. 34.19%
Special Custoday Account
For Benefiet of Customers
Attn: Mutual FD 101 Montgomery
San Francisco, CA 94104
GLOBAL EQUITY PORTFOLIO
Lazard Freres & Co. LLC 44.81%
Gaetana Enders
555 Park Avenue
New York, NY 10021
Auckland & Trust Company 6.60%
P.O. Box 199
Auckland, New Zealand
Lazard Freres & Co. LLC 6.35%
Edward B. Meyercord, Jr.
46 Oxbon Drive
Summit, NJ 07901
Lazard Freres & Co. LLC 5.69%
First Trust Corp. A/C #185183
Custodian for the IRA of Abby Ellison
360 West 22nd Street, Apt. 10K
Lazard Freres & Co. LLC 5.47%
Christian D. De Gennaro
39 University Drive
Box 8825
Bethlehem, PA 18015
INTERNATIONAL EQUITY PORTFOLIO
Lazard Freres & Co. LLC 12.06%
Taurus Securities Limited
The Tropic Isle Building
Torotla Wickhams Cay
British Virgin Islands
Lazard Freres & Co. LLC 5.50%
Lazard Trust Company Channel
Islands Ltd T1319
30 Rockefeller Plaza
New York, NY 10112
INTERNATIONAL SMALL CAP PORTFOLIO
Marsha Von Mueffling Crawford 15.62%
770 Park Ave
New York, NY 10021
Crestar Bank, as Custodian 11.52%
F/B/O William E. Massey Jr.
P.O. Box 26246
Richmond, VA 23260
Wendel & Co 10.38%
The Bank of New York
Mutual Fund/Reorg. Dept.
P.O. Box 1066
Wall St. Station
New York, NY 10268
Lazard Freres & Co. LLC 8.64%
Jeremy N. Rubenstein and
Linda Tang Rubenstein,
Tenants by the Entirety
5805 Rockmere Drive
Bethesda, MD 20816
Lazard Freres & Co. LLC 5.20%
Lazard Trust Company Channel
Islands Ltd T1319
30 Rockefeller Plaza
New York, NY 10112
BOND PORTFOLIO
Lazard Freres & Co. LLC 23.87%
The Catholic Cemeteries of The
Archdiocese of Washington Inc.
13801 Georgia Avenue
Silver Spring, MD 20906
Lazard Freres & Co. LLC 22.01%
SUNY Univ Hospital
Brooklyn Anesthesia Research
PC Retirement Trust
30 Rockefeller Plaza
New York, NY 10112
Lazard Freres & Co. LLC 8.17%
Estate of Joseph Froelich
Sally Froelich Andrew Schoen
and Daryl Froelich Moss Exec
Attn: Mrs. Sally Froelich
6 Overlook Road
Lazard Freres & Co. LLC 7.07%
Peter W. Quesada
c/o Fork River Company
5 Milk Street
P.O. Box 7525
Portland, ME 64112
Lazard Freres & Co. LLC 5.78%
Horst D. Horst & Richard J. Horst JTWROS
188 East 64th Street
New York, NY 10021
INTERNATIONAL FIXED INCOME PORTFOLIO
Lazard Freres & Co. LLC 14.06%
Manfred Steinfeld
Shelby Williams Industries
11-111 Merchandise Mart
Chicago, IL 60554
Lazard Freres & Co. LLC 9.85%
NationsBank Na-Madeira School
Attn: Franklin B. Smith
8328 Georgetown Pike
McLean, VA 22102-1203
Lazard Freres & Co. LLC 6.72%
The Catholic Cemeteries of The
Archdiocese of Washington Inc.
13801 Georgia Avenue
Silver Spring, MD 20906
Lazard Freres & Co. LLC 6.61%
Patricia N. McEntee
91 Kensett Road
Manhasset, NY 11030
Lazard Freres & Co. LLC 5.55%
SUNY Univ. Hospital
Brooklyn Anesthesia Research
PC Retirement Trust
30 Rockefeller Plaza
New York, NY 10112
Lazard Freres & Co. LLC 5.33%
Peter Longo & Raffaela Longo TIC
6 Justin Court
Saddle River, NJ 07458-1409
DE&G Ltd 5.33%
2413 Nottingham St.
Houston, TX 77005
STRATEGIC YIELD PORTFOLIO
Lazard Freres & Co. LLC 6.67%
Shore View Nursing Home
c/o Clearview Octagon Corp.
30 Rockefeller Plaza
New York, NY 10112
A shareholder who beneficially owns, directly or indirectly, more than
25% of the Fund's voting securities may be deemed a "control person" (as defined
in the 1940 Act) of the Fund.
Certain of the shareholders 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 shares of the
Portfolios. For purposes of the list above, the Fund considers the Investment
Manager to be a beneficial owner of Portfolio shares held in management accounts
on behalf of its investment management clients.
Generally, all shares 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
outstanding voting securities means, with respect to the Fund or a Portfolio,
the vote of the lesser of (i) 67% of the shares represented at a meeting if the
holders of more than 50% of the outstanding shares of the Fund or Portfolio, as
the case may be, are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of the Fund or Portfolio, as the case may be. Shareholders
are entitled to one vote for each full share held, and fractional votes for
fractional shares held.
Each share of the applicable Class of a Portfolio 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 of a Portfolio, shares of each Class
of the Portfolio are entitled to receive the assets attributable to such Class
of that Portfolio that are available for distribution based upon the relative
net assets of the applicable Class.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Fund.
COUNSEL AND INDEPENDENT AUDITORS
Legal matters in connection with the issuance of the shares of the
Fund offered hereby will be passed upon by Stroock & Stroock & Lavan LLP, 180
Maiden Lane, New York, New York 10038-4982.
ABA Seymour Schneidman Financial Services Group, a division of Anchin,
Block & Anchin LLP, has been selected as the independent auditors for the Fund.
ADDITIONAL INFORMATION
The Fund's 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 this Statement of Additional Information as to
the content 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.
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.
<PAGE>
APPENDIX
Description of certain ratings.
S&P
BOND RATINGS
AAA
Bonds rated AAA have the highest rating assigned to a debt obligation.
Capacity to pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade bonds. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payment.
B
Bonds rated B have a greater vulnerability to default but presently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC
Bonds rated CCC have a current identifiable vulnerability to default,
and are dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayment of principal. In the event of
adverse business, financial or economic conditions to meet timely payments of
interest and repayment of principal. In the event of adverse business, financial
or economic conditions, they are not likely to have the capacity to pay interest
and repay principal.
CC
The rating CC is typically applied to bonds subordinated to senior
debt which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to bonds subordinated to senior debt
which is assigned an actual or implied CCC- rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
S&P's letter ratings may be modified by the additional of a plus or a
minus sign, which is used to show relative standing within the major ratings
categories, except in the AAA (Prime Grade) category.
COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Issues assigned an A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1
This designation indicates the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted within a plus sign (+)
designation.
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Moody's
BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities of fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa
Bond which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca
Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and in
the categories below B. The modifier 1 indicates a rating for the security in
the higher end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of a rating
category.
COMMERCIAL PAPER RATINGS
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by 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, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily 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 alternative liquidity is
maintained.
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS
The Fund's Annual Report to Shareholders for the fiscal year ended
December 31, 1996 and Semi-Annual Report to Shareholders for the six-month
period ended June 30, 1997 for each Portfolio (other than the Mid Cap Portfolio
and High Yield Portfolio which had not commenced operations) are separate
documents supplied with this Statement of Additional Information, and the
financial statements, accompanying notes and, with respect to the Annual Report,
report of independent auditors appearing therein are incorporated by reference
in this Statement of Additional Information.
<PAGE>
THE LAZARD FUNDS, INC.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(b) Exhibits
1(a) Articles of Incorporation 1
1(b) Articles of Amendment 8
1(c) Articles Supplementary 8
2 By-Laws 1
3 Not applicable
5(A) Form of Investment Management Agreement between
the Registrant and Lazard Asset Management
with respect to the Lazard International Equity
Portfolio4
5(B) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard International Fixed-Income
Portfolio4
5(C) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Bond Portfolio4
5(D) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with respect
to the Lazard Strategic Yield Portfolio4
5(E) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Small Cap Portfolio4
5(F) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Equity Portfolio4
5(G) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Emerging Market Portfolio3
5(H) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard International Small Cap
Portfolio3
5(I) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Global Equity Portfolio6
5(J) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Bantam Value Portfolio6
5(K) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Emerging World Funds Portfolio6
5(L) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Mid Cap Portfolio
5(M) Form of Investment Management Agreement between the Registrant
and Lazard Asset Management with respect to the
Lazard High Yield Portfolio
5(N) Form of Administration Agreement between the Registrant and
State Street Bank and Trust Company6
6 Distribution Agreement, as revised8
7 Not Applicable
8 Form of Custodian Agreement2
9 Form of Transfer Agency and Service Agreement2
10 Opinion and Consent of Counsel7
11 Consent of Independent Auditors
12 Not applicable
13 Investment Representation Letter3
14 Not applicable
15 Distribution and Servicing Plan
16 Schedule for Computation of Total Return Performance Quotations5
17 Financial Data Schedule8
18 Rule 18f-3 Plan8
Other Exhibits:
Power of Attorney of Messrs. Burke, Lieberman, Eig, Gullquist,
Reiss and Rutledge3
Power of Attorney of Mr. Davidson7
Power of Attorney of Mr. Frischling8
Power of Attorney of Mr. Katz9
_______________
1. Incorporated by reference from Registrant's Registration Statement on
Form N-1A (file Nos. 33-40682 and 811-6312) filed with the Securities
and Exchange Commission on May 20, 1991.
2. Incorporated by reference from Registrant's Pre-Effective Amendment
No.1 filed with the Securities and Exchange Commission on
July 23, 1991.
3. Incorporated by reference from Registrant's Post-Effective Amendment
No. 5 filed with the Securities and Exchange Commission on
September 1, 1993.
4. Incorporated by reference from Registrant's Post-Effective Amendment
No. 6 filed with the Securities and Exchange Commission on March
31, 1994.
5. Incorporated by reference from Registrant's Post-Effective Amendment
No. 1 filed with the Securities and Exchange Commission on March 3,
1992.
6. Incorporated by reference from Registrant's Post-Effective Amendment
No. 8 filed with the Securities and Exchange Commission on October
13, 1995.
7. Incorporated by reference from Registrant's Post-Effective Amendment
No. 9 filed with the Securities and Exchange Commission on December
27, 1995.
8. Incorporated by reference from Registrant's Post-Effective Amendment
No. 10 filed with the Securities and Exchange Commission on August
15, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of August 30, 1997, the number of record holders of each Portfolio
were as follows:
INSTITUTIONAL OPEN
------------- -------
Lazard International Equity Portfolio 1,833 80
Lazard International Fixed-Income Portfolio 854 44
Lazard Bond Portfolio 422 32
Lazard Equity Portfolio 1,260 63
Lazard Strategic Yield Portfolio 901 194
Lazard Small Cap Portfolio 2,115 157
Lazard International Small Cap Portfolio 1,100 45
Lazard Emerging Markets Portfolio 1,214 205
Lazard Global Equity Portfolio 111 27
Lazard Bantam Value Portfolio 808 136
Lazard Emerging World Funds Portfolio 0 0
Lazard Mid Cap Portfolio 0 0
Lazard High Yield Portfolio 0 0
Item 27. Indemnification
Reference is made to Article EIGHTH of the Registrant's Articles of
Incorporation filed as Exhibit 1 and to Section 2-418 of the Maryland General
Corporation Law. The application of these provisions is limited by Article VIII
of the Registrant's By-Laws filed as Exhibit 2 and by the following undertaking
set forth in the rules promulgated by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in such Act and is, therefore,
unenforceable. In the event that a claim for indemnificaetion against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in such Act and will be
governed by the final adjudication of such issue.
Reference also is made to the Investment Management Agreements and the
Distribution Agreement filed as Exhibits 5 and 6, respectively.
Item 28. Business and Other Connections of Investment Advisers.
The description of the Investment Manager under the Captions
"Management of the Fund and Portfolios" in the Prospectus and
"Management" in the Statement of Additional
Information consituting Parts A and B, respectively, of this
Registration Statement is incorporated by reference herein.
Following is a list of the General Members of Lazard Freres & Co. LLC,
together with thier other business connections which are of
substantial nature during the previous two years:
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ---------------------- --------------------------------- --------
Eileen D. Alexanderson None
William Araskog None
F. Harlan Batrus Mutual of America Capital Management Corp. Director
666 Fifth Avenue
New York, New York 10103
Ryan Labs, Inc. Director
350 Albany Street
New York, New York 10280
David G. Braunschvig None
Patrick J. Callahan, Jr. Berry Metal Co. Director
Route 68
Harmony, Pennsylvania 16307
BT Capital Corp. Director
280 Park Avenue
New York, New York 10017
Lee Brass Co. (Prior to 3/1/95) Director
P.O. Box 1229
Anniston, Alabama 36202
Michigan Wheel Corp. Director
1501 Buchanan Avenue
Southwest Grand Rapids, Michigan 49507
Rotation Dynamics Corp. Director
15 Salt Creek Lane
Suite 316
Hinsdale, Illinois 60521
Somerset Technologies, Inc. Director
P.O. Box 791
New Brunswick, New Jersey 08903
GAR Holding Co. (Prior to 4/1/96) Director
600 Union Street
Ashland, Ohio 44805
Michel David-Weill BSN Gervais Danone (Proior to 8/1/96) Director
1260130 Rue Jules Gruesde
Levallois-Perret (Hauts de Seine)
France 92303
Credit Mobilier Industriel Chairman of
(Prior to 8/1/96) the Board
(SOVAC)
19-21 Rue de la Bienfaisance
75008 Paris, France
The Dannon Company, Inc. Director
22-11 38th Avenue
Long Island City, New York 11101
Eurafrance President and
12 Avenue Percier Chairman of
75008 Paris, France the Board
Exor Group Director
19 Avenue Montaigne
75008 Paris, France
Euralux Director
8 Rue Ste-Zithe
2763 Luxembourg
Fiat S.P.A. (Prior to 8/1/96) Director
Corso Marconi 10
10125 Torino
Italy
Group Danone Director
7 Rue de Teheran
75008 Paris, France
ITT Industries, Inc. Director
320 Park Avenue
New York, New York 10022
La France S.A. Director
7 & 9 Boulevard Haussmann
75009 Paris, France
La France-Iard Director
7 & 9 Boulevard Haussmann
75009 Paris, France
La France-Vie Director
7 & 9 Boulevard Haussmann
75009 Paris, France
Lazard Brothers & Co., Limited Director
21 Moorfields
London EC2P-2HT
England
Pearson plc Director
Millbank Tower
London SWI P4QZ
Publicis S.A. Director
133 Champs-Ezlysees
75008 Paris, France
S.A. de la Rue Imperiale de Lyon Director
49, Rue de la Republique
Lyon (Rhone) 69002
France
John V. Doyle None
Charles R. Dreifus None
Thomas F. Dunn Goldman, Sach & Co. Senior
(Prior to 1/1/95) Portfolio
85 Broadway Street Manager
New York, New York 10004
Norman Eig The Lazard Funds, Inc. Director,
30 Rockefeller Plaza Chairman
New York, New York 10020
The Emerging World Trust Fund Limited Director
30 Rockefeller Plaza
New York, New York 10020
Lazard Pension Management, Inc. Director
30 Rockefeller Plaza
New York, New York 10020
Richard P. Emerson None
Peter R. Ezersky None
Jonathan F. Foster None
Albert H. Garner None
James S. Gold Smart & Final Inc. Director
4700 South Boyle Avenue
Los Angeles, California 90058
Jeffrey A. Golman None
Steven J. Golub Mineral Technologies Inc. Director
405 Lexington Avenue
New York, New York 10174-1901
Herbert W. Gullquist The Lazard Funds, Inc. Director,
30 Rockefeller Plaza President
New York, New York 10020
The Emerging World Trust Fund Limited Director
30 Rockefeller Plaza
New York, New York 10020
Lazard Freres Asset Director,
Management (Canada), Inc. President
30 Rockefeller Plaza
New York, New York 10020
Lazard Pension Management, Inc. Director,
30 Rockefeller Plaza President
New York, New York 10020
Thomas R. Haack None
J. Ira Harris Manpower Inc. Director
5301 North Ironwood Road
Milwaukee, Wisconsin 53201
Caremark International, Inc. Director
(Prior to 9/20/96)
2215 Sanders Road
Northbrook, Illinois 60062
Brinker International Inc. Director
6820 LBJ Freeway
Dallas, Texas 75240
Melvin L. Heineman Lazard Freres & Co., Ltd Director
21 Moorsfields
London EC2P 2HT
England
Lazard Pension Management, Inc. Director
("Prior to 1/1/97)
30 Rockefeller Plaza
New York, New York 10020
Kenneth M. Jacobs None
Jonathan H. Kagan Continental Cablevision, Inc. Director
Pilot House
54 Lewis Wharf
Boston, Massachusetts 02110
Firearms Training Systems, Inc. Director
7340 McGinnis Ferry Road
Suwanee, Georgia 301274
La Salle Re Ltd. Director
Cumberland House
One Victoria Street
P.O. HM 1502
Hamilton Hm FX
Bermuda
Patient Education Media, Inc. Director
1271 Avenue of the Americas
New York, New York 10020
Phar-Mor Inc. (Prior to 1/1/96) Director
20 Federal Plaza West
Youngstown, OH 44501
Tyco Toys, Inc. Director
6000 Midlantic Drive
Mount Laurel, New Jersey 08054
James L. Kempner Lazard Freres & Co. Capital Markets
30 Rockefeller Plaza
New York, NY 10020
William J. Kreisel Morgan Stanley & Co., Inc. Managing
(Prior to 12/95) Director
1221 Avenue of the Americas
New York, NY 10020
Larry A. Kohn Goldman Sachs & Co. Vice
(Prior to 1/97) President
85 Broad Street
New York, NY 10004
Sandra A. Lamb None
Edgar D. Legaspi None
Michael S. Liss Bear Stearns & Co. Senior
(Prior to 10/1/95) Portfolio
245 Park Avenue Manager
New York, New York 10004
William R. Loomis, Jr. Englehard Hanovia Inc. Director
280 Park Avenue
3rd Floor - West Wing
New York, New York 10017
Minorco S.A. Director
Boite Postal 185
L-2011 Luxembourg
Minorco (U.S.A.) Inc. Director
30 Rockefeller Plaza
Suite 4212
New York, NY 10112
Terra Industries, Inc. Director
600 4th Street
Sioux City, Iowa 51101
J. Robert Lovejoy Lazard Freres & Co. Capital Markets
30 Rockefeller Plaza
New York, NY 10020
Matthew, J. Lustig None
Philippe L. Magistretti None
Damon Mezzacappa Corporate Property Investors Director
30 Rockefeller Plaza
New York, New York 10020
Christina A. Mohr Loehmann's Holdings Inc. Director
2500 Halsey Street
Bronx, New York 10461
United Retail Group, Inc. Director
365 West Passaic Street
Rochelle Park, New Jersey 07662
Robert P. Morgenthau Lazard Freres Asset Management Director,
(Canada), Inc. Vice
30 Rockefeller Plaza President
New York, New York 10020
Steven J. Niemczyk None
Hamish W. M. Norton None
Jonathan O'Herron Trigen Energy Corporation Director
1 Water Street
White Plains, New York 10601
James A. Paduano Donovan Data Systems, Inc. Director
666 Fifth Avenue
New York, New York 10019
Pilgrim Electronics, Inc.
(Prior to 4/1/95) Director
60 Beaver Brook Road
Danbury, Connecticut 06810
Secure Products Inc. Director
47 Maple Street
Summit, NJ 07901
Louis Perlmutter None
Robert E. Poll, Jr. None
Lester Pollack Continental Cablevision, Inc. Director
Pilot House
54 Louis Wharf
Boston Massachusetts 02210
CNA Financial Corp. (Prior to 3/1/95) Director
CNA Plaza
Chicago, Illinois 60685
Firearms Training Systems, Inc. Director
7340 McGinnis Ferry Road
Suwaanee, Georgia 30174
Kaufman & Broad Home Corp. Director
11601 Wilshire Boulevard
Los Angeles, California 90025-1748
La Salle Re Ltd. Director
Cumberland House
One Victoria Street
P.O. HM FX
Bermuda
La Salle Re Holdings Ltd. Director
Cumberland House
One Victoria Street
P.O. HM FX
Bermuda
Loews Corporation (Prior to 1/1/96) Director
666 Fifth Avenue
New York, New York 10103
Paramount Communications, Inc. Director
(Prior to 3/1/95)
15 Columbus Circle
New York, New York 10023
Parlex Corp. Director
145 Milk Street
Metuen, Massachusetts 01844
Polaroid Corp. Director
549 Technology Square
Cambridge, Massachusetts 02139
SD Holding (Bermuda) Ltd. Director
Hurst Holme
Trott Road
Hamilton HMII
Bermuda
Sphere Drake Acquisitions (U.K.) Ltd. Director
52-24 Leadenhall Street
London EC3A 2BJ
England
Sphere Drake Holding Ltd. Director
52-24 Leadenhall Street
London EC3A 2BJ
England
Sphere Drake Ltd. Director
52-24 Leadenhall Street
London EC3A 2BJ
England
Sun America Inc. Director
11601 Wilshire Boulevard
Los Angeles, CA 90025
Tidewater Inc. Director
1440 Canal Street
Suite 2100
New Orleans, Louisianna 70112
Michael J. Price Avidia Systems, Inc. Director
10 Fairfield Blvd.
Wallingford, CT 06492
Steven L. Rattner Falcon Holding Group L.P. Director
10900 Wilshire Boulevard
Los Angeles, California 90024
John R. Reese Owosso Corp. Director
312 West Main Street
Owosso, Michigan 48867
Owosso Gan, Inc. Director
312 West Main Street
Owosso, Michigan 48867
John R. Reinsberg None
Louis G. Rice None
Luis E. Rinaldini Cedar Fair Management Co. Director
(Prior to 3/1/95)
CN 5006 Causeway Drive
Sandusky, Ohio 44870
Bruno M. Roger CAP Gemini Sogeti Director
6, Bid Jean Pain a Grenoble (38005)
France
Carnaud Metal Box Packaging Director
(Prior to 8/1/96)
153, Rue de Courcelles a Paris 17eme
France
Compagnie De Credit Director
121, Boulevard Haussmann a Paris Seme
France
Compagnie De Saint-Gobain Director
Les Miroirs
18 Avenue d'Alsace
Paris la Defense (92096)
France
Eurafrance Director
12, Avenue Percier a Paris Seme
France
Financiere Et Industrielle Gaz Director
Et Eaux
3, Rue Jacques Bingen a Paris 17eme
France
Fonds Partenaires Gestion (F.P.G.) Director
121, Boulevard Haussmann a Paris Seme
France
Lazard, Burlkin, Kuna & Co. Director
(Prior to 1/1/96)
Ulmenstrasse 37-39
60325 Frankfurt am Main
Federal Republic of Germany
Lazard & Co. GmbH Director
Ulmenstrasse 37-39
60325 Frankfurt am Main
Federal Republic of Germany
LVMH-Moet Hennessy Louis Vuitton Director
30, Avenue Hoche a Paris 8eme
France
Marine-Wendel Director
189, Rue Taitbout a Paris 9eme
France
Midial (Prior to 1/1/96) Director
192, Avenue Charles de Gaulle
Neuille S/Sein (92200)
France
Pinault-Printemps-Redoute Director
61, Rue Caumartin
75009 Paris
PSA Finance Holding (Prior to 1/1/96) Director
75, av. de la Grande Armee a Paris 16eme
France
Sidel Director
66, Rue de Miromesnil
75008 Paris
Societe Centrale Puour L'Industrie Director
9, Avenue Hoche a Paris 8eme
France
Societe Financiere Generale Director
Immobiliere (S.F.G.I.)
23, rue de I'Arcasde a Paris 8eme
France
Sofina (Belgique) Director
Rue de Naples, 38-B-1050 Bruzelles
Sogeti S.A. (Prior to 8/1/96) Director
6, bld Jean Pain a Grenoble (38005)
France
Sovac (Prior to 8/1/96) Director
19-21, rue de la Bienfaisance a Paris 8eme
France
Sovaclux S.A. Director
14 rue Aldringen - Luxembourg
Thomson S.A. Director
51 esplanade du General de Gaulle
La Defense 10-92800 Puteaux
France
Thomson CSF Director
51 Esplanade du General de Gaulle
La Defense 10-92800 Puteaux
France
U.A.P. Director
9, place Vendome
75001 Paris
Felix G. Rohatyn Crown Cork & Seal Co., Inc. Director
9300 Ashton Road
Philadelphia, PA 19136
General Instrument Corp. Director
181 West Madison Street
Chicago, Illinois 60602
Howmet Turbine Components Corp. Director
(Prior to 1/1/96)
221 West Webster Avenue
Mouskegon, Michigan 49440
Pechiney S.A. (Prior to 3/1/95) Director
23 Rue Balzac
75008 Paris, France
Pfizer Inc. Director
235 East 42nd Street
New York, New York 10017-5755
Michael S. Rome None
Gerald Rosenfeld Case Corporation Director
700 State Street
Racine, Wisconsin 53404
Steven H. Sands None
Peter L. Smith Dixie Yarns Inc. Director
1100 Watkins Street
Chattanooga, Tennessee 37401
Arthur P. Solomon None
Michael B. Solomon Charming Shoppes Inc. Director
450 Winks Lane
Bensalem, Pennsylvania 19020
Edouard M. Stern Mainz Holdings Limited Director
P.O. Box 3161
Roadtown Tortola BVI
Penthievre Holdings B.V. Director
Jupiter Straat 158
2130 Ah Hoofddorp Netherlands
John S. Tamagni Western Holdings Inc. Director
(Prior to 9/20/96)
1491 Tyrell Lane
Boise, Idaho 83706
David L. Tashjian None
J. Mikesell Thomas First National Bank of Chicago Executive
(Prior to 1/1/95) Vice
One First National Plaza President
Chicago, Illinois 60603
Donald A. Wagner None
Ali E. Wambold The Albert Fisher Group plc Director
Fisher House
61 Thames Street
Windsor, Berkshire SO4 IQW
England
Lazard Brothers & Co., Ltd. Director
21 Moorfields
London EC2P 2HT
England
Lazard Burklin, Kuna & Co. Director
(Prior to 3/1/95)
Ulmeastrasse 37039
60325 Frankfurt and Main
Federal Republic of Germany
Lazard Freres & Co., Ltd. Director
21 Moorfields
London EC2P 2HT
England
Lazard S.P.A. Director
Plazza Meda, 3
Milano, Italy 20121
Tomkins PLC Director
East Putney House
84 Upper Richmond Road
London SW15 2ST
England, UK
John B. Ward None
Michael A. Wildish None
Kendrick P. Wilson III American Buildings Company Director
State Docks Road
Eufaula, Alabama 36027
Bank United Director
3200 Southwest Freeway
Houston, Texas 77027
ITT Corp. Director
1330 Avenue of the Americas
New York, NY 10019
Meigher Communications, Inc. Director
100 Avenue of Americas
New York, NY 10013
Alexander E. Zagoreos Drayton Korea Investment Trust Director
11 Devenshire Square
London EC2M 4YR
The Egypt Trust Director
One Rockefeller Plaza
New York, NY 10020
The Emerging World Trust Fund Limited Director
One Rockefeller Plaza
New York, NY 10020
Fleming Continental European Director
Investment Trust
25 Copthall Avenue
London EC2R 7DR
Gartmore Emerging Pacific Director
Investment Trust
Gartmore House
16-18 Monument Street
London EC3R 8AJ
Greek Progress Fund Director
Ergobank
5, Evripidou
40-44, Praxit, Elous
105-61 Athens
Greece
Latin American Investment Trust Director
Exchange House
Primrose Street
London EC2A 2NY
Merlin Green International Director
Investment Trust
Knightsbridge House
197 Knightsbridge
London SW7 1RB
New Zealand Investment Director
23 Cathedral Yard
Exeter
Devon EX1 1HB
Taiwan Opportunities Fund Director
c/o Martin-Currie
20 Castle Terrace
Edinburgh EHI 2ES
U.K.
World Trust Fund Director
Kredietrust
11 rue Aldringen
Luxembourg 1-2960
Item 29. Principal Underwriters
(a) Lazard Freres & Co. LLC, through its division Lazard Asset
Management, currently serves as an investment adviser to the following
invesetment companies: Lazard Retirement Series, Inc., Target
Portfolio Trust; The Accessor Funds;
Fortis Series Fund, Inc.; and the Managers Funds.
(b) Eileen D. Alexanderson, William R. Araskog, F. Harlan Batrus, David G.
Braunschvig, Patrick J. Callahan, Jr., Michael David-Weill, John V.
Doyle, Charles R. Dreifus, Thomas F. Dunn, Norman Eig, Richard P.
Emerson, Peter R. Ezersky, Jonathan F. Foster, Albert H. Garner, James
S. Gold, Jeffrey A. Golman, Steven J. Golub, Herbert W. Gullquist,
Thomas R. Haack, J. Ira Harris, Melvin L. Heineman, Kenneth M. Jacobs,
Jonathan H. Kagan, James L. Kempner, William J. Kneisel, Larry A.
Kohn, Sandra A. Lamb, Edgar D. Legaspi, Michael S. Liss, William E.
Loomis, Jr., J. Robert Lovejoy, Matthew J. Lustig, Philippe L.
Magistretti, Damon Mezzacappa, Robert P. Morgenthau, Steven J.
Niemczyk, Hamish W. M. Norton, Jonathan O'Herron, James A. Paduano,
Louis Perlmutter, Robert E. Poll, Jr., Lester Pollack, Michael J.
Price, Steven L. Rattner, John R. Reese, John R. Reinsberg, Louis G.
Rice, Luis E. Rinaldini, Bruno M. Roger, Felix G. Rohatyn, Michael S.
Rome, Gerard Rosenfeld, Stephen H. Sands, Peter L. Smith, Arthur P.
Solomon, Michael B. Solomon, Edouard M. Stern, John S. Tamagni, David
L. Tashjian, Joseph M. Thomas, Donald A. Wagner, Ali E. Wambold, John
B. Ward, Michael A. Wildish, Kendrick R. Wilson, III and Alexander E.
Zagoreos are the general members of Lazard Freres & Co. LLC. Mr.
David-Weill is the senior member of Lazard Freres & Co. LLC. The
address of all such members is 30 Rockefeller Plaza, New York, New
York 10020.
(c) Not applicable.
Item 30. Location of Accounts and Records
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder are maintained as follows: Journals, ledgers,
securities records and other original records are maintained primarily
at the offices of the Registrant's Custodian, State Street Bank &
Trust Company. All other records so required to be maintained are
maintained at the offices of Lazard Freres & Co. LLC, 30 Rockefeller
Plaza, New York, New York 10020.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
Registrant hereby undertakes
(1) to file a post-effective amendment, using financial
statements which need not be certified, within four to six
months from the effective date of Registrant's 1933 Act
Registration Statement pertaining to Registrant's Mid Cap
Portfolio and High Yield Portfolio.
(2) to call a meeting of shareholders for the purpose of voting
upon the question of removal of a director or directors when
requested in writing to do so by the holders of at least 10%
of the Registrant's outstanding shares of common stock and
in connection with such meeting to comply with the
provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
(3) To furnish each person to whom a prospectus is delivered
with a copy of the Fund's latest Annual Report to
Shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, and State
of New York, on the 31st day of October, 1997.
THE LAZARD FUNDS, INC.
(Registrant)
By: /S/HERBERT W. GULLQUIST
Herbert W. Gullquist, President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/S/Herbert W. Gullquist President (Principal October 31, 1997
Herbert W. Gullquist Executive, Financial
and Accounting Officer)
and Director
/S/Norman Eig Director October 31, 1997
Norman Eig
/s/ John J. Burke* Director October 31, 1997
John J. Burke
/s/ Lester Z. Lieberman* Director October 31, 1997
Lester Z. Lieberman
/s/ Richard Reiss, Jr.* Director October 31, 1997
Richard Reiss, Jr.
/s/ John Rutledge* Director October 31, 1997
John Rutledge
/s/ Kenneth S. Davidson* Director October 31, 1997
Kenneth S. Davidson
/s/ Carl Frischling* Director October 31, 1997
Carl Frischling
/s/ William Katz* Director October 31, 1997
William Katz
*By:/s/ William G. Butterly, III
------------------------
Attorney-in-fact, William G. Butterly, III
THE LAZARD FUNDS, INC.
Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A under
the Securities Act of 1933 and
the Investment Company Act of 1940
--------------------------------
EXHIBITS
--------------------------------
INDEX TO EXHIBITS
(5L) Investment Management Agreement between The Lazard Funds, Inc., on
behalf of Lazard Mid Cap Portfolio, and Lazard Asset Management.
(5M) Investment Management Agreement between The Lazard Funds, Inc., on behalf
of Lazard High Yield Portfolio, and Lazard Asset Management.
(11) Consent of Independent Auditors
(15) Distribution and Servicing Plan
EXHIBIT 5(L)
THE LAZARD FUNDS, INC.
INVESTMENT MANAGEMENT AGREEMENT
Agreement, made the 29th day of July, 1997, between The Lazard Funds, Inc.,
a Maryland corporation (the "Fund"), on behalf of the Lazard Mid Cap Portfolio
(the "Portfolio"), and Lazard Asset Management, a division of Lazard Freres &
Co. LLC, a New York limited liability company (the "Investment Manager").
W I T N E S S E T H:
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"),
authorized to reclassify and issue any unissued shares to any number of
additional classes or series each having its own investment objective, policies
and restrictions; and
WHEREAS, the Fund desires to retain the Investment Manager to render
investment advisory services to the Portfolio and the Investment Manager is
willing to render such investment advisory services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Investment Manager to act as manager of the
Portfolio for the period and on the terms set forth in this Agreement. The
Investment Manager accepts such appointment and agrees to render the services
herein described, for the compensation herein provided.
2. Subject to the supervision of the Board of Directors of the Fund, the
Investment Manager shall manage the investment operations of the Portfolio and
the assets of the Portfolio, including the purchase, retention and disposition
thereof, in accordance with the Portfolio's investment objective, policies and
restrictions as stated in the Fund's Prospectus (hereinafter defined) and
subject to the following understandings:
(a) The Investment Manager shall provide supervision of
the Portfolio's investments and determine from time to time
what investments or securities will be purchased, retained,
sold or loaned by the Portfolio, and what portion of the
assets will be invested or held uninvested as cash.
(b) The Investment Manager shall use its best judgment
in the performance of its duties under this Agreement.
(c) The Investment Manager, in the performance of its
duties and obligations under this Agreement, shall act in
conformity with the Articles of Incorporation, By-Laws and
Prospectus of the Fund and with the instructions and
directions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act
and all other applicable federal and state laws and
regulations.
(d) The Investment Manager shall determine the
securities to be purchased or sold by the Portfolio and will
place orders pursuant to its determinations with or through
such persons, brokers or dealers (including Lazard Freres &
Co. LLC) to carry out the policy with respect to brokerage as
set forth in the Fund's Prospectus or as the Fund's Board of
Directors may direct from time to time. In providing the
Portfolio with investment supervision, it is recognized that
the Investment Manager will give primary consideration to
securing the most favorable price and efficient execution.
On occasions when the Investment Manager deems the
purchase or sale of a security to be in the best interest of
the Portfolio as well as other clients, the Investment
Manager, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so sold or
purchased in order to obtain the most favorable price or
lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be
made by the Investment Manager in the manner it considers to
be the most equitable and consistent with its fiduciary
obligations to the Portfolio and to such other clients.
(e) The Investment Manager shall render to the Fund's
Board of Directors such periodic and special reports with
respect to the Portfolio's securities transactions as the
Board may reasonably request.
(f) The Investment Manager shall provide the Fund's
custodian on each business day with information relating to
all transactions concerning the Portfolio's assets.
(g) The investment management services of the
Investment Manager to the Portfolio under this Agreement are
not to be deemed exclusive, and the Investment Manager shall
be free to render similar services to others, including other
portfolios of the Fund.
3. The Fund has delivered to the Investment Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Fund, filed with
the State Department of Assessments and Taxation of Maryland
(such Articles of Incorporation, as in effect on the date
hereof and as amended from time to time, are herein called
the "Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect on
the date hereof and as amended from time to time, are herein
called the "By-Laws");
(c) Certified resolutions of the Board of Directors of
the Fund authorizing the appointment of the Investment
Manager and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-1A (the
"Registration Statement"), as filed with the Securities and
Exchange Commission (the "Commission") relating to the Fund
and shares of the Fund's Common Stock;
(e) Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the Commission; and
(f) Prospectus of the Fund (such prospectus, as
currently in effect and as amended or supplemented from time
to time, being herein called the "Prospectus").
4. The Investment Manager shall authorize and permit any of the general
members, officers and employees of the Investment Manager, and any of the
directors, officers and employees of any of its affiliates, who may be elected
as Directors or officers of the Fund to serve in the capacities in which they
are elected. All services to be furnished by the Investment Manager under this
Agreement may be furnished through the medium of any such general members,
directors, officers or employees of the Investment Manager or any of its
affiliates.
5. The Investment Manager shall keep the books and records of the Fund and
the Portfolio required to be maintained by it pursuant to this Agreement and by
the Fund pursuant to the rules under the 1940 Act. The Investment Manager agrees
that all records which it maintains for the Fund or the Portfolio are the
property of the Fund or the Portfolio and it will surrender promptly to the Fund
or the Portfolio any of such records upon the request of the Fund or the
Portfolio. The Investment Manager further agrees to preserve such records
prescribed by Rule 31a-2 under the 1940 Act.
6. The Investment Manager will bear all of its expenses incurred in
connection with the services to be rendered by the Investment Manager to the
Portfolio under this Agreement, including, without limitation, the compensation
of all personnel of the Fund and the Investment Manager, except the fees of
Directors of the Fund who are not affiliated persons of the Investment Manager.
The Fund or the Portfolio assumes and will pay all other expenses in
connection with the Fund or the Portfolio not assumed by the Investment Manager,
including but not limited to:
(a) the fees and expenses of Directors who are not
affiliated persons of the Investment Manager or any of its
affiliates;
(b) the fees and expenses of the Fund's administrator;
(c) the fees and expenses of the custodian which relate
to (i) the custodial function and the recordkeeping connected
therewith, (ii) the maintenance of the required accounting
records of the Fund, (iii) the pricing of the shares of the
Portfolio, including the cost of any pricing service or
services which may be retained pursuant to the authorization
of the Directors of the Fund, and (iv) for both mail and wire
orders, the cashiering function in connection with the
issuance and redemption of the Portfolio's securities;
(d) the fees and expenses of the Fund's transfer agent,
which may be the custodian, which relate to the maintenance
of, and communications with respect to, each stockholder
account;
(e) the charges and expenses of legal counsel and
independent accountants for the Fund;
(f) brokers' commissions, any issue or transfer taxes
and any other charges in connection with portfolio
transactions on behalf of the Portfolio;
(g) all taxes and corporate fees payable by the Fund or
the Portfolio to federal, state or other governmental
agencies, and all costs of maintaining corporate existence;
(h) the allocable share of the fees of any trade
association of which the Fund may be a member;
(i) the cost of share certificates, if any,
representing shares of the Portfolio;
(j) the fees and expenses involved in registering and
maintaining registrations of the Fund and of its shares with
the Commission, and, if required, qualifying the shares of
the Portfolio under state securities laws, including the
preparation and printing of the Fund's registration
statements and prospectuses for filing under federal and
state securities laws for such purposes;
(k) all expenses of stockholders' and Directors'
meetings and of preparing, printing and mailing prospectuses
and reports to stockholders in quantities required for
distribution to the stockholders, and communications expenses
with respect to individual stockholder accounts;
(l) the cost of obtaining fidelity insurance and any
liability insurance covering the Directors and officers of
the Fund as such;
(m) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of
the Fund's business;
(n) expenses of issue, repurchase or redemption of
shares of the Fund;
(o) fees payable to the Investment Manager hereunder;
(p) interest expenses of the Fund;
(q) fees of accounting and pricing services of the
Fund; and
(r) all other expenses properly payable by the Fund.
7. For the services provided to the Portfolio and the expenses assumed
pursuant to this Agreement, the Portfolio will pay monthly to the Investment
Manager as full compensation therefor a management fee, accrued daily, at the
annual rate of 0.75% of the Portfolio's average daily net assets.
8. The Investment Manager shall not be liable for any error of judgment or
for any loss suffered by the Portfolio in connection with the matters to which
this Agreement relates, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services (in which case any
award of damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the 1940 Act) or a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement. The federal securities laws may impose liabilities even, under
certain circumstances, on persons who act in good faith, and therefore nothing
herein shall in any way constitute a waiver or limitation of any right which the
Portfolio may have under any federal securities law.
9. This Agreement shall continue until December 31, 1998 and thereafter
shall continue automatically for successive annual periods ending on December
31st, provided such continuance is specifically approved at least annually by
(i) the Fund's Board of Directors or (ii) vote of a majority (as defined in the
1940 Act) of the Portfolio's outstanding voting securities, provided that in
either event its continuance also is approved by a majority of the Fund's
Directors who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable without
penalty, on 60 days' notice, by the Fund's Board of Directors or by vote of
holders of a majority of the Portfolio's shares or, upon not less than 90 days'
notice, by the Investment Manager. This Agreement shall automatically terminate
in the event of its assignment (as defined by the 1940 Act).
10. Nothing in this Agreement shall limit or restrict the right of any
general member, officer or employee of the Investment Manager or any director,
officer or employee of any of its affiliates who may also be a Director, officer
or employee of the Fund to engage in any other business or to devote his time
and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Investment Manager to engage in any other business or to render services of
any kind to any other corporation, firm, individual or association.
11. During the term of this Agreement, the Fund agrees to furnish to the
Investment Manager at its principal office all prospectuses, proxy statements,
reports to stockholders, sales literature, or other material prepared for
distribution to stockholders of the Fund or the public, which refer in any way
to the Investment Manager, prior to use thereof and not to use such material if
the Investment Manager reasonably objects in writing within five business days
(or such other time as may be mutually agreed) after receipt thereof. In the
event of termination of this Agreement, the Fund will continue to furnish to the
Investment Manager copies of any of the above-mentioned materials which refer in
any way to the Investment Manager. The Fund shall furnish or otherwise make
available to the Investment Manager such other information relating to the
business affairs of the Fund as the Investment Manager at any time, or from time
to time, reasonably requests in order to discharge its obligations hereunder.
12. This Agreement may be amended by mutual consent, but the consent of the
Fund must be approved in conformity with the requirements of the 1940 Act.
13. Any notice or other communication required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (1) to the Investment Manager at 30 Rockefeller Plaza, New
York, New York 10020, Attention: Secretary, or (2) to the Fund at 30 Rockefeller
Plaza, New York, New York 10020, Attention: President.
14. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
THE LAZARD FUNDS, INC.
By:_________________________________
LAZARD ASSET MANAGEMENT,
a division of Lazard Freres & Co. LLC
By:_________________________________
<PAGE>
EXHIBIT 5(M)
THE LAZARD FUNDS, INC.
INVESTMENT MANAGEMENT AGREEMENT
Agreement, made the 29th day of July, 1997, between The Lazard Funds, Inc.,
a Maryland corporation (the "Fund"), on behalf of the Lazard High Yield
Portfolio (the "Portfolio"), and Lazard Asset Management, a division of Lazard
Freres & Co. LLC, a New York limited liability company (the "Investment
Manager").
W I T N E S S E T H:
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"),
authorized to reclassify and issue any unissued shares to any number of
additional classes or series each having its own investment objective, policies
and restrictions; and
WHEREAS, the Fund desires to retain the Investment Manager to render
investment advisory services to the Portfolio and the Investment Manager is
willing to render such investment advisory services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Investment Manager to act as manager of the
Portfolio for the period and on the terms set forth in this Agreement. The
Investment Manager accepts such appointment and agrees to render the services
herein described, for the compensation herein provided.
2. Subject to the supervision of the Board of Directors of the Fund, the
Investment Manager shall manage the investment operations of the Portfolio and
the assets of the Portfolio, including the purchase, retention and disposition
thereof, in accordance with the Portfolio's investment objective, policies and
restrictions as stated in the Fund's Prospectus (hereinafter defined) and
subject to the following understandings:
(a) The Investment Manager shall provide supervision of
the Portfolio's investments and determine from time to time
what investments or securities will be purchased, retained,
sold or loaned by the Portfolio, and what portion of the
assets will be invested or held uninvested as cash.
(b) The Investment Manager shall use its best judgment
in the performance of its duties under this Agreement.
(c) The Investment Manager, in the performance of its
duties and obligations under this Agreement, shall act in
conformity with the Articles of Incorporation, By-Laws and
Prospectus of the Fund and with the instructions and
directions of the Board of Directors of the Fund and will
conform to and comply with the requirements of the 1940 Act
and all other applicable federal and state laws and
regulations.
(d) The Investment Manager shall determine the
securities to be purchased or sold by the Portfolio and will
place orders pursuant to its determinations with or through
such persons, brokers or dealers (including Lazard Freres &
Co. LLC) to carry out the policy with respect to brokerage as
set forth in the Fund's Prospectus or as the Fund's Board of
Directors may direct from time to time. In providing the
Portfolio with investment supervision, it is recognized that
the Investment Manager will give primary consideration to
securing the most favorable price and efficient execution.
On occasions when the Investment Manager deems the
purchase or sale of a security to be in the best interest of
the Portfolio as well as other clients, the Investment
Manager, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so sold or
purchased in order to obtain the most favorable price or
lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be
made by the Investment Manager in the manner it considers to
be the most equitable and consistent with its fiduciary
obligations to the Portfolio and to such other clients.
(e) The Investment Manager shall render to the Fund's
Board of Directors such periodic and special reports with
respect to the Portfolio's securities transactions as the
Board may reasonably request.
(f) The Investment Manager shall provide the Fund's
custodian on each business day with information relating to
all transactions concerning the Portfolio's assets.
(g) The investment management services of the
Investment Manager to the Portfolio under this Agreement are
not to be deemed exclusive, and the Investment Manager shall
be free to render similar services to others, including other
portfolios of the Fund.
3. The Fund has delivered to the Investment Manager copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Fund, filed with
the State Department of Assessments and Taxation of Maryland
(such Articles of Incorporation, as in effect on the date
hereof and as amended from time to time, are herein called
the "Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as in effect on
the date hereof and as amended from time to time, are herein
called the "By-Laws");
(c) Certified resolutions of the Board of Directors of
the Fund authorizing the appointment of the Investment
Manager and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-1A (the
"Registration Statement"), as filed with the Securities and
Exchange Commission (the "Commission") relating to the Fund
and shares of the Fund's Common Stock;
(e) Notification of Registration of the Fund under the
1940 Act on Form N-8A as filed with the Commission; and
(f) Prospectus of the Fund (such prospectus, as
currently in effect and as amended or supplemented from time
to time, being herein called the "Prospectus").
4. The Investment Manager shall authorize and permit any of the general
members, officers and employees of the Investment Manager, and any of the
directors, officers and employees of any of its affiliates, who may be elected
as Directors or officers of the Fund to serve in the capacities in which they
are elected. All services to be furnished by the Investment Manager under this
Agreement may be furnished through the medium of any such general members,
directors, officers or employees of the Investment Manager or any of its
affiliates.
5. The Investment Manager shall keep the books and records of the Fund and
the Portfolio required to be maintained by it pursuant to this Agreement and by
the Fund pursuant to the rules under the 1940 Act. The Investment Manager agrees
that all records which it maintains for the Fund or the Portfolio are the
property of the Fund or the Portfolio and it will surrender promptly to the Fund
or the Portfolio any of such records upon the request of the Fund or the
Portfolio. The Investment Manager further agrees to preserve such records
prescribed by Rule 31a-2 under the 1940 Act.
6. The Investment Manager will bear all of its expenses incurred in
connection with the services to be rendered by the Investment Manager to the
Portfolio under this Agreement, including, without limitation, the compensation
of all personnel of the Fund and the Investment Manager, except the fees of
Directors of the Fund who are not affiliated persons of the Investment Manager.
The Fund or the Portfolio assumes and will pay all other expenses in
connection with the Fund or the Portfolio not assumed by the Investment Manager,
including but not limited to:
(a) the fees and expenses of Directors who are not
affiliated persons of the Investment Manager or any of its
affiliates;
(b) the fees and expenses of the Fund's administrator;
(c) the fees and expenses of the custodian which relate
to (i) the custodial function and the recordkeeping connected
therewith, (ii) the maintenance of the required accounting
records of the Fund, (iii) the pricing of the shares of the
Portfolio, including the cost of any pricing service or
services which may be retained pursuant to the authorization
of the Directors of the Fund, and (iv) for both mail and wire
orders, the cashiering function in connection with the
issuance and redemption of the Portfolio's securities;
(d) the fees and expenses of the Fund's transfer agent,
which may be the custodian, which relate to the maintenance
of, and communications with respect to, each stockholder
account;
(e) the charges and expenses of legal counsel and
independent accountants for the Fund;
(f) brokers' commissions, any issue or transfer taxes
and any other charges in connection with portfolio
transactions on behalf of the Portfolio;
(g) all taxes and corporate fees payable by the Fund or
the Portfolio to federal, state or other governmental
agencies, and all costs of maintaining corporate existence;
(h) the allocable share of the fees of any trade
association of which the Fund may be a member;
(i) the cost of share certificates, if any,
representing shares of the Portfolio;
(j) the fees and expenses involved in registering and
maintaining registrations of the Fund and of its shares with
the Commission, and, if required, qualifying the shares of
the Portfolio under state securities laws, including the
preparation and printing of the Fund's registration
statements and prospectuses for filing under federal and
state securities laws for such purposes;
(k) all expenses of stockholders' and Directors'
meetings and of preparing, printing and mailing prospectuses
and reports to stockholders in quantities required for
distribution to the stockholders, and communications expenses
with respect to individual stockholder accounts;
(l) the cost of obtaining fidelity insurance and any
liability insurance covering the Directors and officers of
the Fund as such;
(m) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of
the Fund's business;
(n) expenses of issue, repurchase or redemption of
shares of the Fund;
(o) fees payable to the Investment Manager hereunder;
(p) interest expenses of the Fund;
(q) fees of accounting and pricing services of the
Fund; and
(r) all other expenses properly payable by the Fund.
7. For the services provided to the Portfolio and the expenses assumed
pursuant to this Agreement, the Portfolio will pay monthly to the Investment
Manager as full compensation therefor a management fee, accrued daily, at the
annual rate of 0.75% of the Portfolio's average daily net assets.
8. The Investment Manager shall not be liable for any error of judgment or
for any loss suffered by the Portfolio in connection with the matters to which
this Agreement relates, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services (in which case any
award of damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the 1940 Act) or a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement. The federal securities laws may impose liabilities even, under
certain circumstances, on persons who act in good faith, and therefore nothing
herein shall in any way constitute a waiver or limitation of any right which the
Portfolio may have under any federal securities law.
9. This Agreement shall continue until December 31, 1998 and thereafter
shall continue automatically for successive annual periods ending on December
31st, provided such continuance is specifically approved at least annually by
(i) the Fund's Board of Directors or (ii) vote of a majority (as defined in the
1940 Act) of the Portfolio's outstanding voting securities, provided that in
either event its continuance also is approved by a majority of the Fund's
Directors who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable without
penalty, on 60 days' notice, by the Fund's Board of Directors or by vote of
holders of a majority of the Portfolio's shares or, upon not less than 90 days'
notice, by the Investment Manager. This Agreement shall automatically terminate
in the event of its assignment (as defined by the 1940 Act).
10. Nothing in this Agreement shall limit or restrict the right of any
general member, officer or employee of the Investment Manager or any director,
officer or employee of any of its affiliates who may also be a Director, officer
or employee of the Fund to engage in any other business or to devote his time
and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Investment Manager to engage in any other business or to render services of
any kind to any other corporation, firm, individual or association.
11. During the term of this Agreement, the Fund agrees to furnish to the
Investment Manager at its principal office all prospectuses, proxy statements,
reports to stockholders, sales literature, or other material prepared for
distribution to stockholders of the Fund or the public, which refer in any way
to the Investment Manager, prior to use thereof and not to use such material if
the Investment Manager reasonably objects in writing within five business days
(or such other time as may be mutually agreed) after receipt thereof. In the
event of termination of this Agreement, the Fund will continue to furnish to the
Investment Manager copies of any of the above-mentioned materials which refer in
any way to the Investment Manager. The Fund shall furnish or otherwise make
available to the Investment Manager such other information relating to the
business affairs of the Fund as the Investment Manager at any time, or from time
to time, reasonably requests in order to discharge its obligations hereunder.
12. This Agreement may be amended by mutual consent, but the consent of the
Fund must be approved in conformity with the requirements of the 1940 Act.
13. Any notice or other communication required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (1) to the Investment Manager at 30 Rockefeller Plaza, New
York, New York 10020, Attention: Secretary, or (2) to the Fund at 30 Rockefeller
Plaza, New York, New York 10020, Attention: President.
14. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
THE LAZARD FUNDS, INC.
By:_________________________________
LAZARD ASSET MANAGEMENT,
a division of Lazard Freres & Co. LLC
By:_________________________________
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Statement of Additional Information
constituting part of The Lazard Funds, Inc. Post-Effective Amendment No 15 to
Registration Statement on Form N-1A of our report dated January 28, 1997,
relating to the financial statements and selected per share data and ratios of
The Lazard Funds, Inc. which appears in such Statement of Additional
Information. We also consent to the incorporation by reference of our report in
the Prospectus constituting part of such Post-Effective Amendment No. 15 and to
the reference to us under the heading "Financial Highlights" in the Prospectus.
We also consent to the reference to our firm under the caption "Counsel and
Independent Auditors" in the Statement of Additional Information.
Anchin, Block & Anchin LLP
October 31, 1997
THE LAZARD FUNDS, INC.
DISTRIBUTION AND SERVICING PLAN
INTRODUCTION: It has been proposed that the above-captioned investment
company (the "Fund") adopt a Distribution and Servicing Plan (the "Plan")
relating to its Open Shares in accordance with Rule 12b-1, promulgated under the
Investment Company Act of 1940, as amended (the "Act"), with respect to each
series of the Fund set forth on Exhibit A hereto, as such Exhibit may be revised
from time to time (each, a "Series"). Under the Plan, the Fund would pay the
Fund's distributor (the "Distributor") for (a) advertising, marketing and
distributing shares of each Series and (b) providing services to shareholders of
each Series. The Distributor would be permitted to pay third parties in respect
of these services. If this proposal is to be implemented, the Act and said Rule
12b-1 require that a written plan describing all material aspects of the
proposed financing be adopted by the Fund.
The Fund's Board, in considering whether the Fund should implement a
written plan, has requested and evaluated such information as it deemed
necessary to an informed determination as to whether a written plan should be
implemented and has considered such pertinent factors as it deemed necessary to
form the basis for a decision to use assets attributable to the Series' Open
Shares for such purposes.
In voting to approve the implementation of such a plan, the Board members
have concluded, in the exercise of their reasonable business judgment and in
light of their respective fiduciary duties, that there is a reasonable
likelihood that the plan set forth below will benefit each Series and holders of
its Open Shares.
THE PLAN: The material aspects of this Plan are as follows:
1. As to each Series, the Fund shall pay to the Distributor a fee at the
annual rate set forth opposite each Series' name on Exhibit A hereto of the
value of the relevant Series' average daily net assets for (i) advertising,
marketing and distributing such shares and (ii) the provision of personal
services to shareholders and/or the maintenance of shareholder accounts. The
Distributor may pay third parties a fee in respect of these services. The
Distributor shall determine the amounts to be paid to third parties and the
basis on which such payments will be made. Payments to third parties are subject
to compliance by each such party with the terms of any related Plan agreement
between it and the Distributor.
2. For the purpose of determining the fees payable under this Plan, the
value of the net assets of a Series' Open Shares shall be computed in the manner
specified in the Fund's charter documents for the computation of net asset
value.
3. The Board shall be provided, at least quarterly, with a written report
of all amounts expended with respect to each Series pursuant to this Plan. The
report shall state the purpose for which the amounts were expended.
4. As to each Series, this Plan will become effective upon approval by (a)
holders of a majority of a Series' outstanding Open Shares, and (b) a majority
of the Board members, including a majority of the Board members who are not
"interested persons" (as defined in the Act) of the Fund and have no direct or
indirect financial interest in the operation of this Plan or in any agreements
entered into in connection with this Plan, pursuant to a vote cast in person at
a meeting called for the purpose of voting on the approval of this Plan.
5. As to each Series, this Plan shall continue for a period of one year
from its effective date, unless earlier terminated in accordance with its terms,
and thereafter shall continue automatically for successive annual periods,
provided such continuance is approved at least annually in the manner provided
in paragraph 4(b) hereof.
6. As to each Series, this Plan may be amended at any time by the Board,
provided that (a) any amendment to increase materially the costs which a Series
may bear pursuant to this Plan shall be effective only upon approval by a vote
of the holders of a majority of the Series' outstanding Open Shares, and (b) any
material amendments of the terms of this Plan shall become effective only upon
approval as provided in paragraph 4(b) hereof.
7. As to each Series, this Plan is terminable without penalty at any time
by (a) vote of a majority of the Board members who are not "interested persons"
(as defined in the Act) of the Fund and have no direct or indirect financial
interest in the operation of this Plan or in any agreements entered into in
connection with this Plan, or (b) vote of the holders of a majority of the
Series' outstanding Open Shares.
Effective: July 23, 1996
<PAGE>
EXHIBIT A
Fee as a
Percentage of
Average Daily
Name of Series Net Assets
Lazard Bantam Value Portfolio .25%
Lazard Bond Portfolio .25%
Lazard Emerging Markets Portfolio .25%
Lazard Equity Portfolio .25%
Lazard Global Equity Portfolio .25%
Lazard High Yield Portfolio .25%
Lazard International Equity Portfolio .25%
Lazard International Fixed-Income Portfolio .25%
Lazard International Small Cap Portfolio .25%
Lazard Mid Cap Portfolio .25%
Lazard Small Cap Portfolio .25%
Lazard Strategic Yield Portfolio .25%
Revised: July 29, 1997
