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/
Pre-Effective Amendment No. 17 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 19 /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 10112
(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 10112
(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)
immediately upon filing pursuant to paragraph (b)
----
on (DATE) pursuant to paragraph (b)
----
60 days after filing pursuant to paragraph (a)(1)
----
on (DATE) pursuant to paragraph (a)(1)
----
X 75 days after filing pursuant to paragraph (a)(2)
----
on (DATE) pursuant to paragraph (a)(2) 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.
----
<PAGE>
LAZARD FUNDS
PROSPECTUS
____________, 1999
--------------------------------------
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
Lazard Mortgage Portfolio
--------------------------------------
30 Rockefeller Plaza
New York, New York 10112
(800) 823-6300
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THE SHARES DESCRIBED
IN THIS PROSPECTUS OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
<PAGE>
Table of Contents
CAREFULLY REVIEW THIS IMPORTANT SECTION, WHICH SUMMARIZES EACH PORTFOLIO'S
INVESTMENTS, RISKS, PAST PERFORMANCE AND FEES.
RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES
__ 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
__ Lazard Mortgage Portfolio
REVIEW THIS SECTION FOR INFORMATION ON INVESTMENT STRATEGIES AND THEIR
RISKS.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
__ 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
__ Lazard Mortgage Portfolio
REVIEW THIS SECTION FOR DETAILS ON THE PEOPLE AND ORGANIZATIONS WHO
OVERSEE THE PORTFOLIO.
FUND MANAGEMENT
__ Investment Manager
__ Principal Portfolio Managers
__ Administrator
__ Distributor
__ Custodian
REVIEW THIS SECTION FOR DETAILS ON HOW SHARES ARE VALUED, HOW TO PURCHASE,
SELL AND EXCHANGE SHARES, RELATED CHARGES AND PAYMENTS OF DIVIDENDS AND
DISTRIBUTIONS.
SHAREHOLDER INFORMATION
__ General
__ How to Buy Shares
__ How to Sell Shares
__ Investor Services
__ General Policies
REVIEW THIS SECTION FOR RECENT FINANCIAL INFORMATION.
FINANCIAL HIGHLIGHTS
WHERE TO LEARN MORE ABOUT THE PORTFOLIOS.
BACK COVER
<PAGE>
The Portfolios The Lazard Funds, Inc. consists of thirteen
separate Portfolios, each with its own
investment objective, strategies and
risk/return profile. Each Portfolio invests in
different securities, depending on its
investment objective. Each Portfolio can be
expected to have a different degree of risk
and yield or return. Because you could lose
money by investing in a Portfolio, be sure to
read all risk disclosures carefully before
investing.
You should be aware that the Portfolios:
o Are not bank deposits
o Are not guaranteed, endorsed or insured by
any bank, financial institution or
government entity, such as the Federal
Deposit Insurance Corporation
o Are not guaranteed to achieve their stated
goals
Each Portfolio offers Institutional Shares and
Open Shares. Institutional Shares and Open
Shares have different investment minimums and
different expense ratios.
INFORMATION ON EACH PORTFOLIO'S RECENT
STRATEGIES AND HOLDINGS CAN BE FOUND IN THE
CURRENT ANNUAL/SEMI-ANNUAL REPORT (SEE BACK
COVER).
Who May Want to Invest? EQUITY PORTFOLIOS--These Portfolios will
invest primarily in equity securities,
including common stocks, preferred stocks and
Lazard Equity Portfolio convertible securities of both U.S. and non-
Lazard Mid Cap Portfolio U.S. issuers. The Investment Manager seeks to
Lazard Small Cap Portfolio identify undervalued securities and focuses
Lazard Bantam Value on individual stock selection rather than on
Portfolio forecasting stock market trends.
Lazard Global Equity
Portfolio Consider investing in these Portfolios if you
Lazard International Equity are:
Portfolio
Lazard International Small X seeking a long-term goal such as retirement
Cap Portfolio
Lazard Emerging Markets X looking to add a growth component to your
Portfolio portfolio
X willing to accept higher risks of investing
in the stock market in exchange for
potentially higher long-term returns
These Portfolios may not be appropriate if you
are:
X pursuing a short-term goal or investing
emergency reserves
X uncomfortable with an investment that will
go up and down in value
FIXED-INCOME PORTFOLIOS--These Portfolios will
invest in a variety of both U.S. and non-
U.S. fixed-income securities. The Investment
Lazard Bond Portfolio Manager focuses on individual security
Lazard High Yield Portfolio selection in fixed-income markets. The
Lazard International Fixed- risks associated with each Portfolio will
Income Portfolio vary. Each investor should review carefully
Lazard Strategic Yield the risks associated with each Portfolio.
Portfolio
Lazard Mortgage Portfolio Consider investing in these Portfolios if you
are:
X looking to add a monthly income component
to your investments
X seeking higher potential returns than those
offered by money market funds
X willing to accept the risks of price and
dividend fluctuations
These Portfolios may not be appropriate if you
are:
X investing emergency reserves
X uncomfortable with an investment that will
go up and down in value
Investment Manager Lazard Asset Management, a division of Lazard
Freres & Co. LLC ("Lazard Freres"), serves as
each Portfolio's investment manager.
<PAGE>
RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES
- ------------------------------------------
Lazard Equity Portfolio
- -------------------------------------
Investment Objective The Portfolio seeks long-term capital
appreciation.
Principal Investment The Portfolio invests primarily in equity
Strategies securities of relatively large U.S. companies
that the Investment Manager believes are
undervalued based on their return on total
capital or equity.
Principal Investment Risks While stocks have historically been a leading
choice of long-term investors, they do
fluctuate in price. The value of your
investment in the Portfolio will go up and
down, which means that you could lose money.
The accompanying bar Performance Bar Chart and Table
chart and table
show the Lazard Year-by-Year Total Returns as of 12/31 For
Equity Portfolio's Institutional Shares
annual returns and
its long-term
performance. The
bar chart shows how
the performance of [To be provided]
the Portfolio's
Institutional
Shares has varied ______________________________________________
from year to year.
The table compares Best quarter: 12/31/98 21.97%
the performance of Worst quarter: 12/31/87 (18.08)%
the Portfolio's ______________________________________________
Institutional Shares
and Open Shares
over time to that of
the S&P 500(R)Index,
a widely recognized,
unmanaged index of common
stocks. Both the bar chart
and table assume reinvestment
of dividends and distributions.
Past performance does not indicate how
the Portfolio will perform in the future.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
Inception
Date Past Year Past 5 Years Past 10 Years Since Inception
<S> <C> <C> <C> <C> <C>
Institutional Shares 6/1/87 17.31% 20.36% 16.83% 14.98%
Open Shares 2/5/97 16.98% N/A N/A 18.95%
S&P 500(R)INDEX 28.57% 24.06% 19.21% 16.50% (Institutional)
31.00% (Open)
FEES AND EXPENSES
-------------------------------------------------------------
As an investor, you
pay certain fees and
expenses in
connection with
buying and holding
Portfolio shares.
The following table
illustrates those
fees and expenses.
Keep in mind that Annual Portfolio
the Portfolio has no Operating Expenses
sales charge (load). Annual Portfolio as a % of
Operating Expenses are paid out average daily Institutional Open
of Portfolio assets, and are reflected in net assets Shares Shares
the share price. <S> <C> <C>
-------------------------------------------------------------
Management fees .75% .75%
-------------------------------------------------------------
Distribution and
Servicing (12b-1) fees None .25%
-------------------------------------------------------------
Other expenses .10% .12%
-------------------------------------------------------------
Total Portfolio
Operating Expenses .85% 1.12%
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EXPENSE EXAMPLE
Use the table at the right
to compare the Portfolio's 1 3 5 10
fees and expenses with LAZARD EQUITY PORTFOLIO Year Years Years Years
those of other funds. <S> <C> <C> <C> <C>
It illustrates the amount INSTITUTIONAL SHARES $ 87 $271 $471 $1,049
of fees and expenses you would -------------------------------------------------------------------------------------
pay, assuming the following: OPEN SHARES $114 $356 $617 $1,363
o $10,000 initial investment -----------------------------------------------------------------------------------
o 5% annual return each year
o redemption at the end of
each period
o no changes in expenses
Because this example is
hypothetical and for comparison only,
your actual costs will be different.
</TABLE>
<PAGE>
- ------------------------------------------
Lazard Mid Cap Portfolio
- ------------------------------------------
Investment Objective The Portfolio seeks long-term capital
appreciation.
Principal Investment The Portfolio invests primarily in equity
Strategies securities of medium-size U.S. companies in
the range of the Russell Midcap Index that the
Investment Manager believes are undervalued
based on their return on total capital or
equity.
Principal Investment Risks While stocks have historically been a leading
choice of long-term investors, they do
fluctuate in price. The value of your
investment in the Portfolio will go up and
down, which means that you could lose money.
The accompanying bar Performance Bar Chart and Table
chart and table
show the Lazard Mid Year-by-Year Total Returns as of 12/31
Cap Portfolio's for Institutional Shares
annual returns and
its long-term
performance. The
bar chart shows how [To be provided]
the performance of
the Portfolio's
Institutional ____________________________________________
Shares has varied
from year to year. Best quarter: 12/31/98 17.09%
The table compares Worst quarter: 9/30/98 (16.68)%
the performance of ____________________________________________
the Portfolio's
Institutional Shares
and Open Shares
over time to that of
the Russell Midcap
Index, an unmanaged
index of mid-
capitalization
common stocks.
Both the bar chart
and table assume reinvestment of
dividends and distributions.
Past performance does not indicate how the
Portfolio will perform in the future.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
Inception Date Past Year Past 5 Years Since Inception
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES 11/4/97 3.65% N/A 5.58%
OPEN SHARES 11/4/97 3.42% N/A 5.34%
RUSSELL MIDCAP INDEX 10.10% N/A 11.58%
FEES AND EXPENSES
------------------------------------------------------------------
As an investor, you
pay certain fees and Annual Portfolio
expenses in connection Operating Expenses
with buying and as a % of
holding Portfolio average daily Institutional Open
shares. The following net assets Shares Shares
table illustrates ------------------------------------------------------------------
those fees and <S> <C> <C>
expenses. Keep in Management fees .75% .75%
mind that the -----------------------------------------------------------------
Portfolio has no Distribution and
sales charge (load). Servicing (12b-1) fees None .25%
Annual Portfolio ------------------------------------------------------------------
Operating Expenses are Other expenses .48% .66%
paid out of Portfolio -----------------------------------------------------------------
assets, and are Total Portfolio
reflected in the Operating Expenses 1.23% 1.66%
share price. ------------------------------------------------------------------
Fee Waiver and
Expense Reimbursement* .18% .31%
------------------------------------------------------------------
Net Expenses* 1.05% 1.35%
------------------------------------------------------------------
EXPENSE EXAMPLE
Use the table at the right
to compare the Portfolio's fees 1 3 5 10
and expenses with those of LAZARD MID CAP PORTFOLIO Year Years Years Years
other funds. It illustrates <S> <C> <C> <C> <C>
the amount of fees and expenses INSTITUTIONAL SHARES $107 $334 $579 $1,283
you would pay, assuming the following: -------------------------------------------------------------------------------
o $10,000 initial investment OPEN SHARES $137 $428 $739 $1,624
o 5% annual return each year -------------------------------------------------------------------------------
o redemption at the end of each period
o no changes in expenses
Because this example is hypothetical
and for comparison only, your actual
costs will be different.
</TABLE>
- ------------------------
* Reflects an agreement by the Investment Manager to reimburse the Portfolio
through December 31, 2000 to the extent Total Portfolio Operating Expenses
exceed in any fiscal year 1.05% and 1.35% of the average daily net assets
of the Portfolio's Institutional Shares and Open Shares, respectively.
<PAGE>
- -------------------------------
Lazard Small Cap Portfolio
- -------------------------------
INVESTMENT OBJECTIVE The Portfolio seeks long-term capital
appreciation.
PRINCIPAL INVESTMENT The Portfolio invests primarily
STRATEGIES in equity securities of relatively small U.S.
companies in the range of the Russell 2000
Index that the Investment Manager believes are
undervalued based on their return on total
capital or equity.
PRINCIPAL INVESTMENT RISKS While stocks have historically been a leading
choice of long-term investors, they do
fluctuate in price. Small companies carry
additional risks because their earnings tend
to be less predictable, their share prices
more volatile and their securities less liquid
than larger, more established companies. The
value of your investment in the Portfolio will
go up and down, which means that you could
lose money.
The accompanying Performance Bar Chart and Table
bar chart and
table show the Year-by-Year Total Returns as of 12/31 For
Lazard Small Cap Institutional Shares
Portfolio's annual
returns and its [To be provided]
long-term performance.
The bar chart shows ____________________________________________
how the performance
of the Portfolio's Best quarter: 12/31/92 18.39%
Institutional Worst quarter: 9/30/98 (23.53)%
Shares has varied ____________________________________________
year to year. The
table compares the
performance of the
Portfolio's Institutional
Shares and Open
Shares over time to
that of the Russell 2000
Index, an unmanaged index of
smaller capitalization common stocks.
Both the bar chart and table
assume reinvestment of dividends
and distributions.
Past performance
does not indicate how the Portfolio
will perform in the future.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
Inception Date Past Year Past 5 Years Since Inception
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES 10/30/91 (12.62)% 11.45% 16.11%
OPEN SHARES 1/30/97 (12.86)% N/A 4.82%
RUSSELL 2000 INDEX (2.55)% 11.86% 13.89% (Institutional)
8.49% (Open)
- ----------------------------------------------------------------------------------------------------------------
FEES AND EXPENSES
As an investor, you
pay certain fees and
expenses in connection Annual Portfolio
with buying and Operating Expenses
holding Portfolio as a % of average Institutional Open
shares. The following daily net assets Shares Shares
table illustrates
those fees and <S> <C> <C>
expenses. Keep in ---------------------------------------------------------------
mind that the Management fees .75% .75%
Portfolio has no --------------------------------------------------------------
sales charge (load). Distribution and
Annual Portfolio Servicing (12-b) fees None .25%
Operating Expenses are --------------------------------------------------------------
paid out of Portfolio Other expenses .06% .09%
assets, and are ---------------------------------------------------------------
reflected in the share price. Total Portfolio .81% 1.09%
Operating Expenses
---------------------------------------------------------------
EXPENSE EXAMPLE
Use the table at right to
compare the Portfolio's fees and
expenses with those of other funds. Lazard Small Cap 1 3 5 10
It illustrates the amount of fees Portfolio Year Years Years Years
and expenses you would pay, <S> <C> <C> <C> <C>
assuming the following: Institutional Shares $ 83 $259 $450 $1,002
o $10,000 initial investment ----------------------------------------------------------------------------
o 5% annual return each year Open Shares $111 $347 $601 $1,329
o redemption at the end of each period -----------------------------------------------------------------------------
o no changes in expenses
Because this example is hypothetical
and for comparison only, your actual
costs will be different.
</TABLE>
<PAGE>
- -----------------------------------------------
Lazard Bantam Value Portfolio
- -----------------------------------------------
INVESTMENT OBJECTIVE The Portfolio seeks long-term capital
appreciation.
PRINCIPAL INVESTMENT The Portfolio invests primarily in equity
STRATEGIES securities of small U.S. companies with market
capitalizations under $500 million that the
Investment Manager believes are undervalued
based on their return on total capital or
equity.
PRINCIPAL INVESTMENT RISKS While stocks have historically been a leading
choice of long-term investors, they do
fluctuate in price. Small companies carry
additional risks because their earnings tend
to be less predictable, their share prices
more volatile and their securities less liquid
than larger, more established companies. The
value of your investment in the Portfolio will
go up and down, which means that you could
lose money.
The accompanying Performance Bar Chart and Table
bar chart and
table show the Year-by-Year Total Returns as of 12/31 for
Lazard Bantam Institutional Shares
Value Portfolio's
annual returns and [To be provided]
its long-term
performance. The
bar chart shows how ______________________________________________
the performance of
the Portfolio's Best quarter: 9/30/97 20.43%
Institutional Worst quarter: 9/30/98 (23.01)%
Shares has varied _______________________________________________
from year to year.
The table compares
the performance of
the Portfolio's
Institutional
Shares and Open
Shares over time to
that of the Russell 2000 Index,
an unmanaged index of
smaller capitalization common
stocks. Both the bar chart
and table assume reinvestment
of dividends and distributions.
Past performance does not indicate
how the Portfolio will perform in the
future.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
Inception Date Past Year Since Inception
<S> <C> <C> <C>
INSTITUTIONAL SHARES 3/1/96 (13.82)% 16.39%
OPEN SHARES 1/23/97 (14.02)% 4.96%
RUSSELL 2000 INDEX (2.55)% 11.16% (Institutional)
8.22% (Open)
FEES AND EXPENSES
-------------------------------------------------------------------
As an investor, you pay
certain fees and Annual Portfolio
expenses in connection Operating Expenses
with buying and holding as a % of
Portfolio shares. The average daily Institutional Open
following table net assets Shares Shares
illustrates those fees <S> <C> <C>
and expenses. Keep in ------------------------------------------------------------------
mind that the Portfolio Management fees .75% .75%
has no sales charge ------------------------------------------------------------------
(load). Annual Portfolio Distribution and
Operating Expenses are Servicing (12b-1) fees None .25%
paid out of Portfolio ------------------------------------------------------------------
assets, and are Other expenses .34% .60%
reflected in the share price. ------------------------------------------------------------------
Total Portfolio
Operating expenses 1.09% 1.60%
-------------------------------------------------------------------
Fee Waiver and
Expense Reimbursement* .04% .25%
-------------------------------------------------------------------
Net Expenses* 1.05% 1.35%
-------------------------------------------------------------------
EXPENSE EXAMPLE
Use the table at right to compare the
Portfolio's fees and expenses with those Lazard Bantam Value Portfolio 1 3 5 10
of other funds. It illustrates the amount Year Years Years Years
of fees and expenses you would pay, <S> <C> <C> <C> <C>
assuming the following: Institutional Shares $107 $334 $579 $1,283
o $10,000 initial investment ---------------------------------------------------------------------------------
o 5% annual return each year Open Shares $137 $428 $739 $1,624
o redemption at the end of each period ---------------------------------------------------------------------------------
o no changes in expenses
Because this example is hypothetical
and for comparison only,
your actual costs will be different.
</TABLE>
- ------------------------
* Reflects an agreement by the Investment Manager to reimburse the Portfolio
through December 31, 2000 to the extent Total Portfolio Operating Expenses
exceed in any fiscal year 1.05% and 1.35% of the average daily net assets
of the Portfolio's Institutional Shares and Open Shares, respectively.
<PAGE>
- --------------------------------------------
Lazard Global Equity Portfolio
- -------------------------------------------
INVESTMENT OBJECTIVE The Portfolio seeks long-term capital
appreciation.
PRINCIPAL INVESTMENT The Portfolio invests primarily in equity
STRATEGIES securities of relatively large companies, both
U.S. and non-U.S., that the Investment Manager
believes are undervalued based on their return
on total capital or equity.
PRINCIPAL INVESTMENT RISKS While stocks have historically been a leading
choice of long-term investors, they do
fluctuate in price. Foreign securities include
special risks, such as exposure to currency
fluctuations, changing political climate and
potentially less liquidity. The value of your
investment in the Portfolio will go up and
down, which means that you could lose money.
The accompanying Performance Bar Chart and Table
bar chart and
table show the Year-by-Year Total Returns as of 12/31 for
Lazard Global Institutional Shares
Equity Portfolio's
annual returns and [To be provided]
its long-term
performance. The ______________________________________________
bar chart shows how
the performance of Best quarter: 12/31/98 18.45%
the Portfolio's Worst quarter: 9/30/98 (16.39)%
Institutional ______________________________________________
Shares has varied
from year to year.
The table compares
the performance of
the Portfolio's Institutional
Shares and Open Shares over
time to that of the Morgan
Stanley Capital
International World
Index, an unmanaged
index derived from
equities of Europe,
Australia and Far East Index
countries plus equities from
Canada and the United
States. Both the bar chart and
table assume reinvestment of dividends and
distributions.
Past performance does not
indicate how the Portfolio will perform in the future.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(for the periods ended December 31, 1998)
Inception Date Past Year Since Inception
<S> <C> <C> <C>
INSTITUTIONAL SHARES 1/4/96 17.10% 16.09%
OPEN SHARES 1/30/97 16.82% 17.52%
MSCI WORLD INDEX 24.34% 17.57% (Institutional)
20.19% (Open)
FEES AND EXPENSES
------------------------------------------------------------------
As an investor, you pay
certain fees and Annual Portfolio
expenses in connection Operating Expenses
with buying and holding as a % of
Portfolio shares. The average daily Institutional Open
following table net assets Shares Shares
illustrates those fees <S> <C> <C>
and expenses. Keep in ------------------------------------------------------------------
mind that the Portfolio Management fees .75% .75%
has no sales charge ------------------------------------------------------------------
(load). Annual Portfolio Distribution and
Operating Expenses are Servicing (12b-1) fees None .25%
paid out of Portfolio ------------------------------------------------------------------
assets, and are Other expenses 1.43% 1.85%
reflected in the share ------------------------------------------------------------------
price. Total Portfolio
Operating Expenses 2.18% 2.85%
------------------------------------------------------------------
Fee Waiver and
Expense Reimbursement* 1.13% 1.50%
------------------------------------------------------------------
Net Expenses* 1.05% 1.35%
------------------------------------------------------------------
EXPENSE EXAMPLE
Use the table at right to compare the
Portfolio's fees and expenses with those Lazard Global Equity Portfolio 1 3 5 10
of other funds. It illustrates the amount Year Years Years Years
of fees and expenses you would pay, <S> <C> <C> <C> <C>
assuming the following: Institutional Shares $107 $334 $579 $1,283
o $10,000 initial investment -------------------------------------------------------------------------
o 5% annual return each year Open Shares $137 $428 $739 $1,624
o redemption at the end of each period ------------------------------------------------------------------------
o no changes in expenses
Because this example is hypothetical
and for comparison only, your actual
costs will be different.
</TABLE>
- ------------------------
* Reflects an agreement by the Investment Manager to reimburse the Portfolio
through December 31, 2000 to the extent Total Portfolio Operating Expenses
exceed in any fiscal year 1.05% and 1.35% of the average daily net assets
of the Portfolio's Institutional Shares and Open Shares, respectively.
<PAGE>
- ---------------------------------------------------------
Lazard International Equity Portfolio
- ---------------------------------------------------------
INVESTMENT OBJECTIVE The Portfolio seeks long-term capital
appreciation.
PRINCIPAL INVESTMENT The Portfolio invests primarily in equity
STRATEGIES securities of relatively large non-U.S.
companies that the Investment Manager
believes are undervalued based on their
return on total capital or equity.
PRINCIPAL INVESTMENT RISKS While stocks have historically been a leading
choice of long-term investors, they do
fluctuate in price. The Portfolio's
performance will be influenced by political,
social and economic factors affecting non-U.S.
companies. These risks include changes in
currency exchange rates, a lack of adequate
company information, political instability and
differing auditing and legal standards. The
value of your investment in the Portfolio will
go up and down, which means that you could
lose money.
The accompanying Performance Bar Chart and Table
bar chart and table
show the Lazard Year-by-Year Total Returns as of 12/31 for
International Institutional Shares
Equity Portfolio's [To be provided]
annual returns and
its long-term ______________________________________________
performance. The
bar chart shows Best quarter: 12/31/98 17.96%
how the performance Worst quarter: 9/30/98 (17.11)%
of the Portfolio's ______________________________________________
Institutional
Shares has varied
from year to
year. The table
compares the performance of the
Portfolio's Institutional
Shares and Open
Shares over time to
that of the Morgan Stanley Capital
International (MSCI) Europe,
Australia and Far East Index, an
unmanaged index comprised of
international equities.
Both the bar chart and
table assume reinvestment
of dividends and distributions.
Past performance
does not indicate how the Portfolio will
perform in the future.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
Inception Date Past Year Past 5 Years Since Inception
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES 10/29/91 16.04% 11.22% 11.26%
OPEN SHARES 1/23/97 15.82% N/A 15.44%
MSCI EUROPE,
AUSTRALIA AND
FAR EAST INDEX 20.00% 9.19% 8.65% (Institutional)
12.82% (Open)
FEES AND EXPENSES
------------------------------------------------------------
As an investor, you pay
certain fees and
expenses in connection Annual Portfolio
with buying and holding Operating Expenses
Portfolio shares. The as a % of
following table average daily Institutional Open
illustrates those fees net assets Shares Shares
and expenses. Keep in <S> <C> <C>
mind that the Portfolio ---------------------------------------------------------------
has no sales charge Management fees .75% .75%
(load). Annual Portfolio ---------------------------------------------------------------
Operating Expenses are Distribution and
paid out of Portfolio Servicing (12b-1) fees None .25%
assets, and are ---------------------------------------------------------------
reflected in the share price. Other expenses .15% .24%
---------------------------------------------------------------
Total Portfolio
Operating Expenses .90% 1.24%
---------------------------------------------------------------
EXPENSE EXAMPLE
Use the table at right to compare the
Portfolio's fees and Lazard International 1 3 5 10
expenses with those of other funds. Equity Portfolio Year Years Years Years
It illustrates the amount <S> <C> <C> <C> <C>
of fees and expenses you Institutional Shares $92 $287 $498 $1,108
would pay, assuming the following: --------------------------------------------------------------------------------
o $10,000 initial investment Open Shares $126 $393 $681 $1,500
o 5% annual return each year --------------------------------------------------------------------------------
o redemption at the end of each period
o no changes in expenses
Because this example is hypothetical
and for comparison only, your actual
costs will be different.
</TABLE>
<PAGE>
- --------------------------------------------------------------
Lazard International Small Cap Portfolio
- --------------------------------------------------------------
INVESTMENT OBJECTIVE The Portfolio seeks long-term capital
appreciation.
PRINCIPAL INVESTMENT The Portfolio invests primarily in equity
STRATEGIES securities of relatively small, non-U.S.
companies in the range of the Morgan Stanley
Capital International Europe, Australia and
Far East Small Cap Index that the Investment
Manager believes are undervalued based on
their return on total capital or equity.
PRINCIPAL INVESTMENT RISKS While stocks have historically been a leading
choice of long-term investors, they do
fluctuate in price. The Portfolio's
performance will be influenced by political,
social and economic factors affecting non-
U.S. companies. These risks include changes in
currency exchange rates, a lack of adequate
company information, political instability and
differing auditing and legal standards. Small
companies carry additional risks because their
earnings tend to be less predictable, their
share prices more volatile and their
securities less liquid than larger, more
established companies. The value of your
investment in the Portfolio will go up and
down, which means that you could lose money.
The accompanying bar Performance Bar Chart and Table
chart and table show
the Lazard Year-by-Year Total Returns as of 12/31 for
International Small Institutional Shares
Cap Portfolio's
annual returns and [To be provided]
its long-term
performance. The
bar chart shows how _____________________________________________
the performance of
the Portfolio's Best quarter: 3/31/98 20.62%
Institutional Shares Worst quarter: 9/30/98 (19.58)%
has varied from year _____________________________________________
to year. The table
compares the
performance of the
Portfolio's
Institutional Shares
and Open Shares over
time to that of the
Morgan Stanley Capital International
(MSCI) Europe, Australia and Far
East Small Cap Index
and the Salomon
Extended Market Index
Ex-U.S., each of which is an
unmanaged index of securities
listed on foreign stock
exchanges. Both the bar chart
and table assume reinvestment of dividends
and distributions.
Past performance does not indicate
how the Portfolio will perform in the future.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
Inception Date Past Year Past 5 Years Since Inception
INSTITUTIONAL SHARES 12/1/93 7.55% 3.94% 5.58%
OPEN SHARES 2/13/97 7.21% N/A 1.97%
MSCI EUROPE, AUSTRALIA AND
FAR EAST SMALL CAP INDEX 5.44% (3.38)% ( 1.75)% (Institutional)
(10.27)% (Open)
SALOMON EMI INDEX EX-U.S. 12.15% 4.47% 5.68% (Institutional)
2.04% (Open)
FEES AND EXPENSES
-----------------------------------------------------------------
As an investor, you pay
certain fees and Annual Portfolio
expenses in connection Operating Expenses
with buying and holding as a % of
Portfolio shares. The average daily Institutional Open
following table net assets Shares Shares
illustrates those fees <S> <C> <C>
and expenses. Keep in -----------------------------------------------------------------
mind that the Portfolio Management fees .75% .75%
has no sales charge -----------------------------------------------------------------
(load). Annual Distribution and
Portfolio Operating Servicing (12b-1) fees None .25%
Expenses are paid out of -----------------------------------------------------------------
Portfolio assets, and Other expenses .29% .93%
are reflected in the share price. -----------------------------------------------------------------
Total Portfolio
Operating Expenses 1.04% 1.93%
-----------------------------------------------------------------
Fee Waiver and
Expense Reimbursement* -- .50%
-----------------------------------------------------------------
Net Expenses* 1.04% 1.43%
-----------------------------------------------------------------
EXPENSE EXAMPLE
Use the table at right to compare
the Portfolio's fees and Lazard International 1 3 5 10
expenses with those of other funds. Small Cap Portfolio Year Years Years Years
It illustrates the amount <S> <C> <C> <C> <C>
of fees and expenses you would pay, Institutional Shares $106 $331 $574 $1,271
assuming the following: -------------------------------------------------------------------------
o $10,000 initial investment Open Shares $146 $452 $782 $1,713
o 5% annual return each year -------------------------------------------------------------------------
o redemption at the end of each period
o no changes in expenses
Because this example is hypothetical
and for comparison only,
your actual costs will be different.
</TABLE>
- ------------------------
* Reflects an agreement by the Investment Manager to reimburse the Portfolio
through December 31, 2000 to the extent Total Portfolio Operating Expenses
exceed in any fiscal year 1.04% and 1.43% of the average daily net assets
of the Portfolio's Institutional Shares and Open Shares, respectively.
<PAGE>
- ------------------------------------------------------
Lazard Emerging Markets Portfolio
- ------------------------------------------------------
INVESTMENT OBJECTIVE The Portfolio seeks long-term capital
appreciation.
PRINCIPAL INVESTMENT The Portfolio invests primarily in equity
STRATEGIES securities of non-U.S. companies whose
principal activities are in emerging market
countries that the Investment Manager believes
are undervalued based on their return on total
capital or equity.
PRINCIPAL INVESTMENT RISKS While stocks have historically been a leading
choice of long-term investors, they do
fluctuate in price. The Portfolio's
performance will be influenced by political,
social and economic factors affecting
companies in emerging market countries. These
risks include changes in currency exchange
rates, a lack of adequate company information,
political instability, and differing auditing
and legal standards. In addition, emerging
market countries generally have economic
structures that are less diverse and mature
and political systems that are less stable,
than those of developed countries. The value
of your investment in the Portfolio will go up
and down, which means that you could lose
money.
The accompanying bar Performance Bar Chart and Table
chart and table
show the Lazard Year-by-Year Total Returns as of 12/31 for
Emerging Markets Institutional Shares
Portfolio's annual
returns and its [To be provided]
long-term performance.
The bar chart shows
how the performance ______________________________________________
of the Portfolio's
Institutional Shares Best quarter: 6/30/97 12.07%
has varied from Worst quarter: 9/30/98 (23.59)%
year to year. The _______________________________________________
table compares the
performance of the
Portfolio's
Institutional Shares
and Open Shares
over time to that of
the Morgan Stanley Capital
International (MSCI) Emerging Markets
Free Index and the International
Finance Corp. (IFC) Investable
Total Return Index, each of
which is an unmanaged index of
emerging market securities. Both the bar chart
and table assume reinvestment of
dividends and distributions.
Past performance does not indicate
how the Portfolio will perform in the future.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
Inception Date Past Year Since Inception
<S> <C> <C> <C>
INSTITUTIONAL SHARES 7/15/94 (23.49)% (5.10)%
OPEN SHARES 1/8/7 (23.30)% (17.99)%
MSCI EMERGING
MARKETS FREE INDEX (25.34)% (8.70)% (Institutional)
(19.40)% (Open)
IFC INVESTABLE
TOTAL RETURN INDEX (22.02)% (8.85)% (Institutional)
(19.53)% (Open)
FEES AND EXPENSES
------------------------------------------------------------------
As an investor, you
pay certain fees and
expenses in connection
with buying and
holding Portfolio Annual Portfolio
shares. The following Operating Expenses
table illustrates as a % of
those fees and average daily Institutional Open
expenses. Keep in net assets Shares Shares
mind that the <S> <C> <C>
Portfolio has no ------------------------------------------------------------------
sales charge (load). Management fees 1.00% 1.00%
Annual Portfolio ------------------------------------------------------------------
Operating Expenses are Distribution and
paid out of Portfolio Servicing (12b-1) fees None .25%
assets, and are ------------------------------------------------------------------
reflected in the share price. Other expenses .29% .51%
------------------------------------------------------------------
Total Portfolio
Operating Expenses 1.29% 1.76%
------------------------------------------------------------------
Fee Waiver and
Expense Reimbursement* .01% .16%
------------------------------------------------------------------
Net Expenses* 1.28% 1.60%
------------------------------------------------------------------
EXPENSE EXAMPLE
Use the table at right to compare the
Portfolio's fees and Lazard Emerging Markets 1 3 5 10
expenses with those of other funds. Portfolio Year Years Years Years
It illustrates the amount <S> <C> <C> <C> <C>
of fees and expenses you would pay, Institutional Shares $130 $406 $702 $1,545
assuming the following: --------------------------------------------------------------------------
o $10,000 initial investment Open Shares $163 $505 $871 $1,900
o 5% annual return each year -----------------------------------------------------------------------
o redemption at the end of each period
o no changes in expenses
Because this example is hypothetical
and for comparison only,
your actual costs will be different.
</TABLE>
- ------------------------
* Reflects an agreement by the Investment Manager to reimburse the Portfolio
through December 31, 2000 to the extent Total Portfolio Operating Expenses
exceed in any fiscal year 1.28% and 1.60% of the average daily net assets
of the Portfolio's Institutional Shares and Open Shares, respectively.
<PAGE>
- -------------------------------------
Lazard Bond Portfolio
- -------------------------------------
INVESTMENT OBJECTIVE The Portfolio seeks to build and preserve
capital.
PRINCIPAL INVESTMENT The Portfolio invests in a range of bonds and
STRATEGIES other fixed-income securities, including
mortgage-backed securities, asset-backed
securities, municipal securities, corporate
fixed-income securities and U.S. Government
securities.
PRINCIPAL INVESTMENT RISKS While bonds are designed to produce a stable
stream of income, their prices move inversely
with changes in interest rates. The value of
your investment in the Portfolio will go up
and down, which means that you could lose
money.
The accompanying bar Performance Bar Chart and Table
chart and table show
the Lazard Bond Year-by-Year Total Returns as of 12/31 for
Portfolio's annual Institutional Shares
returns and its
long-term performance. [To be provided]
The bar chart shows
how the performance
of the Portfolio's
Institutional Shares
has varied from year
to year. The table
compares the ______________________________________________
performance of the
Portfolio's Best quarter: 6/30/95 6.15%
Institutional Shares Worst quarter: 3/31/94 (2.40)%
and Open Shares over _______________________________________________
time to that of the
Lehman Intermediate
Government/ Corporate
Bond Index, an index
calculated by Lehman
Brothers. Both the
bar chart and table
assume reinvestment of
dividends and distributions.
Past performance does not indicate
how the Portfolio will perform in the future.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
Inception Date Past Year Past 5 Years Since Inception
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES 11/12/91 5.77% 5.93% 6.69%
OPEN SHARES 3/5/97 5.42% N/A 6.93%
LEHMAN INTERMEDIATE
GOV'T/CORP. BOND INDEX 8.43% 6.60% 7.35% (Institutional)
8.66% (Open)
FEES AND EXPENSES
------------------------------------------------------------------------
As an investor, you
pay certain fees and
expenses in connection
with buying and
holding Portfolio Annual Portfolio
shares. The following Operating Expenses
table illustrates as a % of
those fees and average daily Institutional Open
expenses. Keep in net assets Shares Shares
mind that the <S> <C> <C>
Portfolio has no ------------------------------------------------------------------------
sales charge (load). Management fee .50% .50%
Annual Portfolio ------------------------------------------------------------------------
Operating Expenses are Distribution and
paid out of Portfolio Servicing (12b-1) fees None .25%
assets, and are ------------------------------------------------------------------------
reflected in the share price. Other expenses .29% .46%
------------------------------------------------------------------------
Total Portfolio
Operating Expenses .79% 1.21%
------------------------------------------------------------------------
Fee Waiver and
Expense Reimbursement* .01% .11%
------------------------------------------------------------------------
Net Expenses* .78% 1.10%
------------------------------------------------------------------------
EXPENSE EXAMPLE
Use the table at right to compare the
Portfolio's fees and Lazard Bond Portfolio 1 3 5 10
expenses with those of other funds. Year Years Years Years
It illustrates the amount <S> <C> <C> <C> <C>
of fees and expenses you Institutional Shares $ 80 $249 $433 $ 966
would pay, assuming the following: -----------------------------------------------------------------------
o $10,000 initial investment Open Shares $112 $350 $606 $1,340
o 5% annual return each year -----------------------------------------------------------------------
o redemption at the end of each period
o no changes in expenses
Because this example is hypothetical
and for comparison only, your actual
costs will be different.
</TABLE>
- ------------------------
* Reflects an agreement by the Investment Manager to reimburse the Portfolio
through December 31, 2000 to the extent Total Portfolio Operating Expenses
exceed in any fiscal year .78% and 1.10% of the average daily net assets
of the Portfolio's Institutional Shares and Open Shares, respectively.
<PAGE>
- ---------------------------------------------
Lazard High Yield Portfolio
- ---------------------------------------------
INVESTMENT OBJECTIVE The Portfolio seeks maximum total return from
a combination of capital appreciation and
current income.
PRINCIPAL INVESTMENT The Portfolio invests primarily in U.S.
STRATEGIES high-yielding fixed-income securities rated,
at the time of purchase, below investment
grade.
PRINCIPAL INVESTMENT RISKS High yield bonds involve greater credit risk
than investment grade bonds. They tend to be
more volatile in price, less liquid and are
considered speculative. The value of your
investment in the Portfolio will go up and
down, which means that you could lose money.
<PAGE>
<TABLE>
<CAPTION>
FEES AND EXPENSES
---------------------------------------------------------------
As an investor, you
pay certain fees and
expenses in connection
with buying and
holding Portfolio Annual Portfolio
shares. The following Operating Expenses
table illustrates as a % of
those fees and average daily Institutional Open
expenses. Keep in net assets Shares Shares
mind that the <S> <C> <C>
Portfolio has no ---------------------------------------------------------------
sales charge (load). Management fee .75% .75%
Annual Portfolio ---------------------------------------------------------------
Operating Expenses are Distribution and
paid out of Portfolio Servicing (12b-1) fees None .25%
assets, and are ---------------------------------------------------------------
reflected in the Other expenses .80% 8.77%
share price. ---------------------------------------------------------------
Total Portfolio
operating expenses 1.55% 9.77%
---------------------------------------------------------------
Fee Waiver and
Expense Reimbursement* .50% 8.42%
---------------------------------------------------------------
Net Expenses* 1.05% 1.35%
---------------------------------------------------------------
EXPENSE EXAMPLE
Use the table at right to compare the
Portfolio's fees and Lazard High 1 3 5 10
expenses with those of other funds. Yield Portfolio Year Years Years Years
It illustrates the amount <S> <C> <C> <C> <C>
of fees and expenses you Institutional Shares $107 $334 $579 $1,283
would pay, assuming the following: --------------------------------------------------------------------------
o $10,000 initial investment Open Shares $137 $428 $739 $1,624
o 5% annual return each year --------------------------------------------------------------------------
o redemption at the end of each period
o no changes in expenses
Because this example is hypothetical
and for comparison only, your actual
costs will be different.
</TABLE>
- ------------------------
* Reflects an agreement by the Investment Manager to reimburse the Portfolio
through December 31, 2000 to the extent Total Portfolio Operating Expenses
exceed in any fiscal year 1.05% and 1.35% of the average daily net assets
of the Portfolio's Institutional Shares and Open Shares, respectively.
<PAGE>
- -------------------------------------------------------------------
Lazard International Fixed-Income Portfolio
- -------------------------------------------------------------------
INVESTMENT OBJECTIVE The Portfolio seeks high total return from a
combination of current income and capital
appreciation.
PRINCIPAL INVESTMENT The Portfolio invests primarily in non-U.S.
STRATEGIES fixed-income securities of varying
maturities.
PRINCIPAL INVESTMENT RISKS While bonds are designed to produce a stable
stream of income, their prices move inversely
with changes in interest rates. The
Portfolio's performance will be influenced by
political, social and economic factors
affecting non-U.S. countries. These risks
include changes in currency exchange rates, a
lack of adequate company information,
political instability and differing auditing
and legal standards. The value of your
investment in the Portfolio will go up and
down, which means that you could lose money.
The accompanying bar Performance Bar Chart and Table
chart and table show
the Lazard International Year-by-Year Total Returns as of 12/31 for
Fixed- Income Institutional Shares
Portfolio's annual
returns and its [To be provided]
long-term performance. The
bar chart shows how the
performance of the
Portfolio's Institutional
Shares has varied from year to ______________________________________________
year. The table
compares the Best quarter: 3/31/95 13.20%
performance of the Worst quarter: 3/31/97 (5.63)%
Portfolio's ______________________________________________
Institutional Shares and
Open Shares over time
to that of the Salomon
World Government Bond
Index Ex-U.S., an index
compiled by Salomon
Smith Barney. Both the
bar chart and table
assume reinvestment of
dividends and
distributions.
Past performance does not
indicate how the Portfolio will perform
in the future.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
Inception Date Past Year Past 5 Years Since Inception
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES 11/8/91 13.20% 7.00% 7.86%
OPEN SHARES 1/8/97 12.92% N/A 3.72%
SALOMON WORLD GOVERNMENT
BOND INDEX EX-U.S. 17.79% 8.26% 9.61% (Institutional)
6.81% (Open)
FEES AND EXPENSES
---------------------------------------------------------------
As an investor, you
pay certain fees and
expenses in connection
with buying and
holding Portfolio Annual Portfolio
shares. The following Operating Expenses
table illustrates as a % of
those fees and average daily Institutional Open
expenses. Keep in net assets Shares Shares
mind that the <S> <C> <C>
Portfolio has no ---------------------------------------------------------------
sales charge (load). Management fees .75% .75%
Annual Portfolio ---------------------------------------------------------------
Operating Expenses are Distribution and
paid out of Portfolio Servicing (12b-1) fees None .25%
assets, and are ---------------------------------------------------------------
reflected in the share price. Other expenses .35% .92%
---------------------------------------------------------------
Total Portfolio
Operating Expenses 1.10% 1.92%
---------------------------------------------------------------
Fee Waiver and
Expense Reimbursement* .01% .57%
---------------------------------------------------------------
Net Expenses* 1.09% 1.35%
---------------------------------------------------------------
EXPENSE EXAMPLE
Use the table at right to compare the
Portfolio's fees and expenses with Lazard International 1 3 5 10
those of other funds. Fixed-Income Portfolio Year Years Years Years
It illustrates the amount
of fees and expenses you would pay,
assuming the following: Institutional Shares $111 $347 $601 $1,329
o $10,000 initial investment -----------------------------------------------------------------------
o 5% annual return each year Open Shares $137 $428 $739 $1,624
o redemption at the end of each period -----------------------------------------------------------------------
o no changes in expenses
Because this example is hypothetical
and for comparison only, your actual
costs will be different.
</TABLE>
- ------------------------
* Reflects an agreement by the Investment Manager to reimburse the Portfolio
through December 31, 2000 to the extent Total Portfolio Operating Expenses
exceed in any fiscal year 1.09% and 1.35% of the average daily net assets
of the Portfolio's Institutional Shares and Open Shares, respectively.
<PAGE>
- --------------------------------------------------
Lazard Strategic Yield Portfolio
- --------------------------------------------------
INVESTMENT OBJECTIVE The Portfolio seeks total return from a
combination of capital appreciation and
current income.
PRINCIPAL INVESTMENT The Portfolio invests in a wide variety of
STRATEGIES U.S. and non-U.S. fixed-income securities,
including those of emerging markets and
non-traditional sectors, many of which are
rated, at the time of purchase, below
investment grade.
PRINCIPAL INVESTMENT RISKS While bonds are designed to produce a stable
stream of income, their prices move inversely
with changes in interest rates. The
Portfolio's performance will be influenced by
political, social and economic factors
affecting non-U.S. countries. These risks
include changes in currency exchange rates, a
lack of adequate company information,
political instability and differing auditing
and legal standards. High yield bonds involve
greater credit risk than investment grade
bonds. They tend to be more volatile in price,
less liquid and are considered speculative.
The value of your investment in
the Portfolio will go up and down, which means
that you could lose money.
The accompanying bar Performance Bar Chart and Table
chart and table show
the Lazard Strategic Year-by-Year Total Returns as of 12/31 for
Yield Portfolio's Institutional Shares
annual returns and its
long-term performance. [To be provided]
The bar chart shows how
the performance of the
Portfolio's
Institutional Shares has
varied from year to ______________________________________________
year. The table
compares the Best quarter: 3/31/93 6.33%
performance of the Worst quarter: 9/30/98 (3.78)%
Portfolio's ______________________________________________
Institutional Shares and
Open Shares over time
to that of the One Month
LIBOR U.S. Dollar Fixed Index,
an average derived from sixteen quotations
provided by banks determined by
the British Bankers Association.
Both the bar chart and table
assume reinvestment of dividends
and distributions.
Past performance does
not indicate how the Portfolio will perform
in the future.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998)
Inception Date Past Year Past 5 Years Since Inception
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES 10/1/91 0.75% 6.00% 7.36%
OPEN SHARES 1/23/97 0.37% N/A 2.12%
ONE MONTH LIBOR USD
FIXED INDEX 5.54% 5.44% 4.88% (Institutional)
5.61% (Open)
FEES AND EXPENSES
------------------------------------------------
As an investor, you pay
certain fees and
expenses in connection
with buying and holding Annual Portfolio
Portfolio shares. The Operating Expenses
following table as a % of
illustrates those fees average daily Institutional Open
and expenses. Keep in net assets Shares Shares
mind that the Portfolio <S> <S> <C>
has no sales charge --------------------------------------------------------------
(load). Annual Portfolio Management fees .75% .75%
Operating Expenses are --------------------------------------------------------------
paid out of Portfolio Distribution and
assets, and are Servicing (12b-1) fees None .25%
reflected in the share --------------------------------------------------------------
price. Other .15% .28%
--------------------------------------------------------------
Total Portfolio
Operating Expenses .90% 1.28%
--------------------------------------------------------------
EXPENSE EXAMPLE
Use the table at right to compare the
Portfolio's fees and Lazard Strategic 1 3 5 10
expenses with those of other funds. Yield Portfolio Year Years Years Years
It illustrates the amount <S> <C> <C> <C> <C>
of fees and expenses you Institutional Shares $ 92 $287 $498 $1,108
would pay, assuming the following: -----------------------------------------------------------------------------
o $10,000 initial investment Open Shares $130 $406 $702 $1,545
o 5% annual return each year -----------------------------------------------------------------------------
o redemption at the end of each period
o no changes in expenses
Because this example is hypothetical
and for comparison only, your actual
costs will be different.
</TABLE>
- -------------------------------------------------
Lazard Mortgage Portfolio
- -------------------------------------------------
INVESTMENT OBJECTIVE The Portfolio seeks total return from a
combination of current income and capital
appreciation, along with the preservation of
capital.
PRINCIPAL INVESTMENT The Portfolio invests primarily in
STRATEGIES mortgage-related securities issued or
guaranteed by the U.S. Government, its
agencies or instrumentalities. The Portfolio
also invests in mortgage-related securities
rated, at the time of purchase, Aaa/AAA by a
nationally recognized statistical rating
organization.
PRINCIPAL INVESTMENT RISKS The mortgage-related securities in which the
Portfolio principally will invest are subject
to prepayment risk and interest rate risk, and
may be more volatile or less liquid than more
traditional debt securities. The value of your
investment in the Portfolio will go up and
down, which means that you could lose money.
<TABLE>
<CAPTION>
FEES AND EXPENSES
---------------------------------------------------------------
As an investor, you pay
certain fees and
expenses in connection
with buying and holding
Portfolio shares. The Annual Portfolio
following table Operating Expenses
illustrates those fees as a % of
and expenses. Keep in average daily Institutional Open
mind that the Portfolio net assets Shares Shares
has no sales charge
(load). Annual Portfolio <S> <C> <C>
Operating Expenses are ---------------------------------------------------------------
paid out of Portfolio Management fees .40% .40%
assets, and are ---------------------------------------------------------------
reflected in the share Distribution and
price. Servicing (12b-1) fees None .25%
---------------------------------------------------------------
Other expenses .26% .26%
---------------------------------------------------------------
Total Portfolio
Operating Expenses .66% .91%
---------------------------------------------------------------
- ---------------------
* "Other expenses" are based on estimated amounts for the current fiscal year.
Actual expenses may be greater or less than the amounts indicated above.
EXPENSE EXAMPLE
Use the table at right to compare the
Portfolio's fees and expenses with Lazard Mortgage 1 3 5 10
those of other funds. Portfolio Year Years Years Years
It illustrates the amount <S> <C> <C> <C> <C>
of fees and expenses you Institutional Shares $67 $211 $368 $ 822
would pay, assuming the following: -----------------------------------------------------------------------------
o $10,000 initial investment Open Shares $93 $290 $504 $1,120
o 5% annual return each year -----------------------------------------------------------------------------
o redemption at the end of each period
o no changes in expenses
Because this example is hypothetical
and for comparison only, your actual
costs will be different.
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD EQUITY PORTFOLIO
Ticker Symbol: LZEQX (Institutional)
LZEOX (Open)
INVESTMENT OBJECTIVE AND STRATEGIES
The Equity Portfolio seeks long-term capital appreciation. The Portfolio invests
primarily in equity securities of relatively large U.S. companies that the
Investment Manager believes are undervalued based on their return on total
capital or equity.
The Portfolio generally invests at least 80% of its total assets in equity
securities. The Portfolio may invest up to 20% of its total assets in U.S.
Government securities and investment grade debt obligations of U.S.
corporations. The Portfolio also may invest up to 10% of its total assets in
non-U.S. equity or debt securities that trade in U.S. markets.
The Portfolio may engage in various investment techniques, such as options
transactions, leveraging and lending portfolio securities.
RISK FACTORS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the Portfolio will
go up and down, which means that you could lose money.
Because different types of stocks tend to shift in and out of favor depending on
market and economic conditions, the Portfolio's performance may sometimes be
lower or higher than that of other types of funds (such as those emphasizing
smaller companies). Under adverse market conditions, the Portfolio could invest
some or all of its assets in money market securities. The Portfolio would do
this only in seeking to avoid losses, but this could reduce the benefit from any
upswing in the market.
While the Portfolio may engage in options transactions primarily to hedge its
portfolio, it may use options to increase returns; however, there is the risk
that these transactions sometimes may reduce returns or increase volatility.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD MID CAP PORTFOLIO
Ticker Symbol: LZMIX (Institutional)
N/A (Open)
INVESTMENT OBJECTIVE AND STRATEGIES
The Mid Cap Portfolio seeks long-term capital appreciation. The Portfolio
invests primarily in equity securities of medium-size U.S. companies in the
range of the Russell Midcap Index that the Investment Manager believes are
undervalued based on their return on total capital or equity. The Russell Midcap
Index is composed of selected common stocks of medium-size U.S. companies.
The Portfolio generally invests at least 80% of its total assets in the equity
securities of undervalued medium-size companies. The Portfolio may invest up to
20% of its total assets in the equity securities of larger capitalization
companies or investment grade debt securities. The Portfolio may also invest up
to 15% of its total assets in non-U.S. equity or debt securities.
The Portfolio may engage in various investment techniques, such as options and
futures transactions, foreign currency transactions, leveraging, short-selling
and lending portfolio securities.
RISK FACTORS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the Portfolio will
go up and down, which means that you could lose money.
Because different types of stocks tend to shift in and out of favor depending on
market and economic conditions, the Portfolio's performance may sometimes be
lower or higher than that of other types of funds (such as those emphasizing
larger companies). Mid cap companies carry additional risks because their
earnings tend to be less predictable, their share prices more volatile and their
securities less liquid than larger, more established companies. Some of the
Portfolio's investments will rise and fall based on investor perception.
Investments in value stocks are subject to the risk that they may never reach
what the portfolio manager believes is their full value. They also may decline
in price, even though in theory they are already undervalued. And, while
investments in value stocks may limit downside risk over time, the Portfolio
may, as a trade-off, produce smaller gains than riskier stock funds.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. The Portfolio would do this only in seeking
to avoid losses, but this could reduce the benefit from any upswing in the
market.
While the Portfolio may engage in options and futures transactions and foreign
currency transactions primarily to hedge its portfolio, it may use these
transactions to increase returns; however, there is the risk that these
transactions sometimes may reduce returns or increase volatility. In addition,
derivatives, such as options and futures, can be illiquid and highly sensitive
to changes in their underlying security, interest rate or index, and as a result
can be highly volatile. A small investment in certain derivatives could have a
potentially large impact on the Portfolio's performance.
The Portfolio can buy securities with borrowed money (a form of leverage), which
could have the effect of magnifying the Portfolio's gains or losses.
The Portfolio is non-diversified and may invest a greater percentage of its
assets in a particular company compared with other funds. Accordingly, the
Portfolio's securities may be more sensitive to changes in the market value of a
single company or industry.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD SMALL CAP PORTFOLIO
Ticker Symbol: LZSCX (Institutional)
LZCOX (Open)
INVESTMENT OBJECTIVE AND STRATEGIES
The Small Cap Portfolio seeks long-term capital appreciation. The Portfolio
invests primarily in equity securities of relatively small U.S. companies in the
range of the Russell 2000 Index that the Investment Manager believes are
undervalued based on their return on total capital or equity. The Russell 2000
Index is composed of selected common stocks of small, generally unseasoned U.S.
companies.
The Portfolio generally invests at least 80% of its total assets in equity
securities of small U.S. companies. These securities generally have one or more
of the following characteristics:
o are undervalued relative to their
earnings, cash flow or asset values;
o have an attractive price/value relationship with
expectations that some catalyst will cause the
perception of value to change within two years;
o are out of favor due to circumstances
which are unlikely to harm the
company's franchise or earnings power;
o have low projected P/E or price-to-cash
flow multiples;
o have the potential to become a larger
factor in the company's business;
o have significant debt but have high
levels of free cash flow; and
o have a relatively short corporate
history with the expectation that the
business may grow.
The Portfolio may invest up to 20% of its total assets in equity securities of
larger U.S. companies or investment grade debt securities. The Portfolio may
engage in various investment techniques, such as lending portfolio securities.
RISK FACTORS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the Portfolio will
go up and down, which means that you could lose money.
Because different types of stocks tend to shift in and out of favor depending on
market and economic conditions, the Portfolio's performance may sometimes be
lower or higher than that of other types of funds (such as those emphasizing
larger companies). Small companies carry additional risks because their earnings
tend to be less predictable, their share prices more volatile and their
securities less liquid than larger, more established companies. Some of the
Portfolio's investments will rise and fall based on investor perception only.
Investments in value stocks are subject to the risk that they may never reach
what the portfolio manager believes is their full value. They also may decline
in price, even though in theory they are already undervalued. And, while
investments in value stocks may limit downside risk over time, the Portfolio
may, as a trade-off, produce smaller gains than riskier stock funds.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. The Portfolio would do this only in seeking
to avoid losses, but this could reduce the benefit from any upswing in the
market.
The Portfolio is non-diversified and may invest a greater percentage of its
assets in a particular company compared with other funds. Accordingly, the
Portfolio's securities may be more sensitive to changes in the market value of a
single company or industry.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD BANTAM VALUE PORTFOLIO
Ticker Symbol: LABVX (Institutional)
N/A (Open)
INVESTMENT OBJECTIVE AND STRATEGIES
The Bantam Value Portfolio seeks long-term capital appreciation. The Portfolio
invests primarily in equity securities of small U.S. companies with market
capitalizations under $500 million that the Investment Manager believes are
undervalued based on their return on total capital or equity.
The Portfolio generally invests at least 80% of its total assets in equity
securities of small U.S. companies that have one or more of the characteristics
listed in the description of the Lazard Small Cap Portfolio on page ____. The
Portfolio may invest up to 20% of its total assets in equity securities of large
U.S. companies or investment grade debt securities. The Portfolio also may
invest up to 10% of its total assets in non-U.S. equities or debt securities
that trade in U.S. markets.
The Portfolio may engage in various investment techniques, such as options
transactions and lending portfolio securities.
RISK FACTORS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the Portfolio will
go up and down, which means that you could lose money.
Because different types of stocks tend to shift in and out of favor depending on
market and economic conditions, the Portfolio's performance may sometimes be
lower or higher than that of other types of funds (such as those emphasizing
larger companies). Small companies carry additional risks because their earnings
tend to be less predictable, their share prices more volatile and their
securities less liquid than larger, more established companies. Some of the
Portfolio's investments will rise and fall based on investor perception only.
Investments in value stocks are subject to the risk that they may never reach
what the portfolio manager believes is their full value. They also may decline
in price, even though in theory they are already undervalued. And, while
investments in value stocks may limit downside risk over time, the Portfolio
may, as a trade-off, produce smaller gains than riskier stock funds.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. The Portfolio would do this only in seeking
to avoid losses, but this could reduce the benefit from any upswing in the
market.
While the Portfolio may engage in options transactions primarily to hedge its
portfolio, it may use options to increase returns; however, there is the risk
that these transactions sometimes may reduce returns or increase volatility.
The Portfolio is non-diversified and may invest a greater percentage of its
assets in a particular company compared with other funds. Accordingly, the
Portfolio's securities may be more sensitive to changes in the market value of a
single company or industry.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD GLOBAL EQUITY PORTFOLIO
Ticker Symbol: N/A
INVESTMENT OBJECTIVE AND STRATEGIES
The Global Equity Portfolio seeks long-term capital appreciation. The Portfolio
invests primarily in equity securities of relatively large companies, both U.S.
and non-U.S., that the Investment Manager believes are undervalued based on
their return on total capital or equity.
The Portfolio generally invests at least 80% of its total assets in equity
securities, including American and Global Depositary Receipts, of companies
located in at least four different countries, including the United States. The
allocation of the Portfolio's assets among geographic regions may shift from
time to time based on the Investment Manager's judgment. However, the Investment
Manager currently intends to invest at least 25% of the Portfolio's total assets
in securities of U.S. companies.
The Portfolio may invest up to 20% of its total assets in investment grade
fixed-income securities. The Portfolio may engage in various investment
techniques, such as options and futures transactions, foreign currency
transactions and lending portfolio securities.
RISK FACTORS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the Portfolio will
go up and down, which means that you could lose money.
The Portfolio's performance will be influenced by political, social and economic
factors affecting companies around the world. These risks include changes in
currency exchange rates, a lack of adequate company information, political
instability, and differing auditing and legal standards. To the extent the
Portfolio invests in companies in emerging market countries, these countries
generally have economic structures that are less diverse and mature and
political systems that are less stable, than those of developed countries.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. The Portfolio would do this only in seeking
to avoid losses, but this could reduce the benefit from any upswing in the
market.
While the Portfolio may engage in options and futures transactions and foreign
currency transactions primarily to hedge its portfolio, it may use these
transactions to increase returns; however, there is the risk that these
transactions sometimes may reduce returns or increase volatility. In addition,
derivatives, such as options and futures, can be illiquid and highly sensitive
to changes in their underlying security, interest rate or index, and as a result
can be highly volatile. A small investment in certain derivatives could have a
potentially large impact on the Portfolio's performance.
The Portfolio is non-diversified and may invest a greater percentage of its
assets in a particular company compared with other funds. Accordingly, the
Portfolio's securities may be more sensitive to changes in the market value of a
single company or industry.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Ticker Symbol: LZIEX (Institutional)
LZIOX (Open)
INVESTMENT OBJECTIVE AND STRATEGIES
The International Equity Portfolio seeks long-term capital appreciation. The
Portfolio invests primarily in equity securities of large non-U.S. companies
that the Investment Manager believes are undervalued based on their return on
total capital or equity.
The Portfolio generally invests at least 80% of its total assets in equity
securities of companies located in at least three different non-U.S. countries.
The allocation of the Portfolio's assets among geographic sectors may shift from
time to time based on the Investment Manager's judgment. However, the Investment
Manager currently intends to invest the Portfolio's assets primarily in
companies based in developed markets.
The Portfolio may invest up to 20% of its total assets in investment grade
fixed-income securities and short-term money market instruments. The Portfolio
may engage in various investment techniques, such as foreign currency
transactions and lending portfolio securities.
RISK FACTORS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the Portfolio will
go up and down, which means that you could lose money.
The Portfolio's performance will be influenced by political, social and economic
factors affecting companies around the world. These risks include changes in
currency exchanges rates, a lack of adequate company information, political
instability, and differing auditing and legal standards.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. The Portfolio would do this only in seeking
to avoid losses, but this could reduce the benefit from any upswing in the
market.
While the Portfolio may engage in foreign currency transactions primarily to
hedge its portfolio, it may use these transactions to increase returns; however,
there is the risk that these transactions sometimes may reduce returns or
increase volatility.
The Portfolio is non-diversified and may invest a greater percentage of its
assets in a particular company compared with other funds. Accordingly, the
Portfolio's securities may be more sensitive to changes in the market value of a
single company or industry.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Ticker Symbol: LZISX (Institutional)
N/A (Open)
INVESTMENT OBJECTIVE AND STRATEGIES
The International Small Cap Portfolio seeks long-term capital appreciation. The
Portfolio invests primarily in equity securities of relatively small non-U.S.
companies in the range of the Morgan Stanley Capital International Europe,
Australia and Far East Small Cap Index (the "MSCI EAFE Small Cap Index") that
the Investment Manager believes are undervalued based on their return on total
capital or equity. The MSCI EAFE Small Cap Index is an unmanaged index of
securities listed on foreign stock exchanges.
The Portfolio generally invests at least 80% of its total assets in equity
securities, including American and Global Depositary Receipts, of small non-U.S.
companies that have one or more of the characteristics listed in the description
of the Lazard Small Cap Portfolio on page __. The Portfolio generally invests at
least 65% of its total assets in equity securities of companies located in at
least three different non-U.S. countries. The allocation of the Portfolio's
assets among geographic regions may shift from time to time based on the
Investment Manager's judgment. However, the Investment Manager currently intends
to invest the Portfolio's assets primarily in companies based in Continental
Europe, the United Kingdom, the Pacific Basin, Latin America and Canada.
The Portfolio may invest up to 20% of its total assets in equity securities of
large companies or investment grade debt securities. The Portfolio may engage in
various investment techniques, such as options and futures transactions, foreign
currency transactions and lending portfolio securities.
RISK FACTORS
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the Portfolio will
go up and down, which means that you could lose money.
The Portfolio's performance will be influenced by political, social and economic
factors affecting companies around the world. These risks include changes in
currency exchange rates, a lack of adequate company information, political
instability, and differing auditing and legal standards.
Small companies carry additional risks because their earnings tend to be less
predictable, their share prices more volatile and their securities less liquid
than larger, more established companies. Some of the Portfolio's investments
will rise and fall based on investor perception only. Investments in value
stocks are subject to the risk that they may never reach what the portfolio
manager believes is their full value. They also may decline in price, even
though in theory they are already undervalued. And, while investments in value
stocks may limit downside risk over time, the Portfolio may, as a trade-off,
produce smaller gains than riskier stock funds.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. The Portfolio would do this only in seeking
to avoid losses, but this could reduce the benefit from any upswing in the
market.
While the Portfolio may engage in options and futures transactions and foreign
currency transactions primarily to hedge its portfolio, it may use these
transactions to increase returns; however, there is the risk that these
transactions sometimes may reduce returns or increase volatility. In addition,
derivatives, such as options and futures, can be illiquid and highly sensitive
to changes in their underlying security, interest rate or index, and as a result
can be highly volatile. A small investment in certain derivatives could have a
potentially large impact on the Portfolio's performance.
The Portfolio is non-diversified and may invest a greater percentage of its
assets in a particular company compared with other funds. Accordingly, the
Portfolio's securities may be more sensitive to changes in the market value of a
single company or industry.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD EMERGING MARKETS PORTFOLIO
Ticker Symbol: LZEMX (Institutional)
N/A (Open)
INVESTMENT OBJECTIVE AND STRATEGIES
The Emerging Markets Portfolio seeks long-term capital appreciation. The
Portfolio invests primarily in equity securities of non-U.S. companies whose
principal business activities are located in emerging market countries that the
Investment Manager believes are undervalued based on their 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.
The Portfolio generally invests at least 65% of its total assets in securities,
including American and Global Depositary Receipts, of companies whose principal
business activities are located in emerging market countries. The Portfolio
invests at least 65% of its total assets in securities of companies in at least
three different non-U.S. countries. The allocation of the Portfolio's assets
among emerging market countries may shift from time to time based on the
Investment Manager's judgment. However, the Portfolio is likely to focus on
companies in Latin America, the Pacific Basin and Europe.
The Portfolio may invest in closed-end investment companies that invest in
emerging market securities. When the Investment Manager believes it is
warranted, 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.
The Portfolio may engage in various investment techniques, such as options and
futures transactions, foreign currency transactions and lending portfolio
securities.
RISK FACTORS
The securities markets of emerging market countries can be extremely volatile.
The value of your investment in the Portfolio will go up and down, which means
that you could lose money.
The fund's performance will be influenced by political, social and economic
factors affecting companies in emerging market countries. These risks include
changes in currency exchange rates, a lack of adequate company information,
political instability, and differing auditing and legal standards. In addition,
emerging market countries generally have economic structures that 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.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. The Portfolio would do this only in seeking
to avoid losses, but this could reduce the benefit from any upswing in the
market.
While the Portfolio may engage in options and futures transactions and foreign
currency transactions primarily to hedge its portfolio, it may use these
transactions to increase returns; however, there is the risk that these
transactions sometimes may reduce returns or increase volatility. In addition,
derivatives, such as options and futures, can be illiquid and highly sensitive
to changes in their underlying security, interest rate or index, and as a result
can be highly volatile. A small investment in certain derivatives could have a
potentially large impact on the Portfolio's performance.
The Portfolio is non-diversified and may invest a greater percentage of its
assets in a particular company compared with other funds. Accordingly, the
Portfolio's securities may be more sensitive to changes in the market value of a
single company or industry.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD BOND PORTFOLIO
Ticker Symbol: LZBDX (Institutional)
N/A (Open)
INVESTMENT OBJECTIVE AND STRATEGIES
The Bond Portfolio seeks to build and preserve capital. The Portfolio invests in
a range of bonds and other fixed-income securities, including mortgage-backed
securities, asset-backed securities, municipal securities, corporate
fixed-income securities and U.S. Government securities. The allocation of the
Portfolio's assets among fixed-income sectors may shift from time to time based
on the Investment Manager's judgment.
The Portfolio invests the major portion of its assets in investment grade bonds
and other fixed-income securities or the unrated equivalent as determined by the
Investment Manager. The Portfolio may invest up to 10% of its total assets in
bonds and other fixed-income securities rated, at the time of purchase, below
investment grade and as low as the lowest rating assigned by Standard & Poor's
Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody"s"), or the
unrated equivalent as determined by the Investment Manager.
The Portfolio generally invests at least 80% of its total assets in bonds and
other fixed-income securities with maturities of greater than one year. The
Investment Manager anticipates that, under normal market conditions, the
Portfolio's effective duration will range between two and seven years. Duration
is a measure of how sensitive the securities held by the Portfolio may be to
changes in interest rates.
The Portfolio may engage in various investment techniques, such as options and
futures transactions and lending portfolio securities.
RISK FACTORS
While bonds are designed to produce a stable stream of income, their prices move
inversely with changes in interest rates. The value of your investment in the
Portfolio will go up and down, which means that you could lose money.
The Portfolio is subject to credit risk, or the risk that an issuer of bonds
held by the Portfolio fails to make timely interest or principal payments,
potentially reducing the Portfolio's income or share price.
The Portfolio's investments in lower-rated, higher-yielding bonds are subject to
greater credit risk than its higher-rated investments. Lower-rated bonds tend to
be more volatile, less liquid and are considered speculative.
While the Portfolio may engage in options and futures transactions primarily to
hedge its portfolio, it may use these transactions to increase returns; however,
there is the risk that these transactions sometimes may reduce returns or
increase volatility. In addition, derivatives, such as options and futures, can
be illiquid and highly sensitive to changes in their underlying security,
interest rate or index, and as a result can be highly volatile. A small
investment in certain derivatives could have a potentially large impact on the
Portfolio's performance.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. Although the Portfolio would do this only in
seeking to avoid losses, it could have the effect of reducing the benefit from
any upswing in the bond market.
The Portfolio is non-diversified and may invest a greater percentage of its
assets in a particular company compared with other funds. Accordingly, the
Portfolio's securities may be more sensitive to changes in the market value of a
single company or industry.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD HIGH YIELD PORTFOLIO
Ticker Symbol: LZHYX (Institutional)
N/A (Open)
INVESTMENT OBJECTIVE AND STRATEGIES
The High Yield Portfolio seeks maximum total return from a combination of
capital appreciation and current income. The Portfolio invests primarily in U.S.
high-yielding, fixed-income securities rated, at the time of purchase, below
investment grade ("junk" bonds).
The Portfolio generally invests at least 80% of its total assets in bonds and
other fixed-income securities rated, at the time of purchase, below investment
grade by S&P or Moody's and as low as the lowest rating assigned by S&P and
Moody's, or the unrated equivalent as determined by the Investment Manager. The
Portfolio may invest in mortgage-related securities, asset-backed securities,
zero coupon securities, municipal securities, preferred stock and convertible
securities of U.S. and non-U.S. issuers. The Portfolio may invest in companies
in, or governments of, developing countries. When the Investment Manager
believes it appropriate based on market conditions, the Portfolio may invest in
investment grade securities or the unrated equivalent as determined by the
Investment Manager.
The Portfolio may engage in various investment techniques, such as options and
futures transactions, foreign currency transactions, leveraging, short-selling
and lending portfolio securities.
RISK FACTORS
While bonds are designed to produce a stable stream of income, their prices move
inversely with changes in interest rates. The value of your investment in the
Portfolio will go up and down, which means that you could lose money.
High yield bonds involve greater credit risk, including the risk of default,
than investment grade bonds. They tend to be more volatile in price, less
liquid and are considered speculative. As with stocks, the prices of junk bonds
can fall in response to bad news about the issuer, the issuer's industry or the
economy in general.
Other risk factors could have an effect on the Portfolio's performance:
o if an issuer fails to make timely interest or principal payments
o if there is a decline in the credit quality of a bond, or
perception of a decline, the bond's value could fall, potentially
lowering the Portfolio's share price
o if the Portfolio's mortgage-related securities are paid off
substantially earlier or later than expected, the Portfolio's
share price or yield could be hurt
o the price and yield of non-U.S. debt securities could be affected
by factors ranging from political and economic instability to
changes in currency exchange rates
o during unusual market conditions, the Portfolio may not be able to
sell certain securities at the time and price it would like
While the Portfolio may engage in options and futures transactions and foreign
currency transactions primarily to hedge its portfolio, it may use these
transactions to increase returns; however, there is the risk that these
transactions sometimes may reduce returns or increase volatility. In addition,
derivatives, such as options and futures, can be illiquid and highly sensitive
to changes in their underlying security, interest rate or index, and as a result
can be highly volatile. A small investment in certain derivatives could have a
potentially large impact on the Portfolio's performance.
The Portfolio can buy securities with borrowed money (a form of leverage), which
could have the effect of magnifying the Portfolio's gains or losses.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. The Portfolio would do this only in seeking
to avoid losses, but this could reduce the benefit from any upswing in the high
yield bond market.
The Portfolio is non-diversified and may invest a greater percentage of its
assets in a particular company compared with other funds. Accordingly, the
Portfolio's securities may be more sensitive to changes in the market value of a
single company or industry.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Ticker Symbol: LZIFX (Institutional)
N/A (Open)
INVESTMENT OBJECTIVE AND STRATEGIES
The International Fixed-Income Portfolio seeks high total return from a
combination of current income and capital appreciation. The Portfolio invests
primarily in non-U.S. fixed-income securities of varying maturities.
The Portfolio generally invests at least 80% of its total assets in fixed-income
securities of companies within, or governments, their agencies or
instrumentalities of, at least three different non-U.S. countries. The Portfolio
may invest in any region of the world, including emerging market countries.
However, the Investment Manager currently intends to invest the Portfolio's
assets primarily in companies within, or governments of, Continental Europe, the
United Kingdom, Canada and the Pacific Basin. 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.
The Portfolio generally invests at least 85% of its total assets in investment
grade fixed-income securities or the unrated equivalent as determined by the
Investment Manager. The Portfolio may invest up to 15% of its total assets in
fixed-income securities rated, at the time of purchase, below investment grade
and as low as the lowest rating assigned by S&P and Moody's or the unrated
equivalent as determined by the Investment Manager.
The Investment Manager anticipates that, under normal market conditions, the
Portfolio's effective duration will range between two and eight years. Duration
is a measure of how sensitive the securities held by the Portfolio may be to
changes in interest rates.
The Portfolio may engage in various investment techniques, such as options and
futures transactions, foreign currency transactions and lending portfolio
securities.
RISK FACTORS
While bonds are designed to produce a stable stream of income, their prices move
inversely with changes in interest rates. The value of your investment in the
Portfolio will go up and down, which means that you could lose money.
The Portfolio is subject to credit risk, or the risk that an issuer of bonds
held by the Portfolio fails to make timely interest or principal payments,
potentially reducing the Portfolio's income or share price.
The Portfolio's performance will be influenced by political, social and economic
factors affecting companies around the world. These risks include changes in
currency exchange rates, a lack of adequate company information, political
instability, and differing auditing and legal standards.
The Portfolio's investments in lower-rated, higher-yielding bonds are subject to
greater credit risk than its higher-rated investments. Lower-rated bonds tend to
be more volatile, less liquid and are considered speculative.
While the Portfolio may engage in options and futures transactions and foreign
currency transactions primarily to hedge its portfolio, it may use these
transactions to increase returns; however, there is the risk that these
transactions sometimes may reduce returns or increase volatility. In addition,
derivatives, such as options and futures, can be illiquid and highly sensitive
to changes in their underlying security, interest rate or index, and as a result
can be highly volatile. A small investment in certain derivatives could have a
potentially large impact on the Portfolio's performance.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. The Portfolio would do this only in seeking
to avoid losses, but this could reduce the benefit from any upswing in the bond
market.
The Portfolio is non-diversified and may invest a greater percentage of its
assets in a particular company compared with other funds. Accordingly, the
Portfolio's securities may be more sensitive to changes in the market value of a
single company or industry.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD STRATEGIC YIELD PORTFOLIO
Ticker Symbol: LZSYX (Institutional)
N/A (Open)
INVESTMENT OBJECTIVE AND STRATEGIES
The Strategic Yield Portfolio seeks total return from a combination of capital
appreciation and current income. The Portfolio invests primarily in a wide
variety of U.S. and non-U.S. fixed-income securities, including those of
emerging markets and non-traditional sectors, many of which are rated, at the
time of purchase, below investment grade.
The Portfolio generally invests at least 80% of its total assets in fixed-income
securities, such as bonds, debentures, notes, convertible securities, structured
notes, and mortgage-related and asset-backed securities of U.S. and non-U.S.
issuers. At least 95% of these fixed-income securities will be rated, at the
time of purchase, at least CCC by S&P or Caa by Moody's, or the unrated
equivalent as determined by the Investment Manager. The remaining 5% may be
rated, at the time of purchase, 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.
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. 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.
When, in the Investment Managers judgment, business or financial conditions
warrant, the Portfolio may assume a temporary defensive position and invest
without limit in investment grade fixed-income securities or short-term money
market instruments.
The Portfolio may engage in various investment techniques, such as options
transactions, foreign currency transactions and lending portfolio securities.
RISK FACTORS
While bonds are designed to produce a stable stream of income, their prices move
inversely with changes in interest rates. The value of your investment in the
Portfolio will go up and down, which means that you could lose money.
The Portfolio is subject to credit risk, or the risk that an issuer of bonds
held by the Portfolio fails to make timely interest or principal payments,
potentially reducing the Portfolio's income or share price.
The Portfolio's investments in lower-rated, higher-yielding bonds are subject to
greater credit risk than its higher-rated investments. Lower-rated bonds tend to
be more volatile, less liquid and are considered speculative.
The Portfolio's performance will be influenced by political, social and economic
factors affecting companies around the world. These risks include changes in
currency exchange rates, a lack of adequate company information, political
instability, and differing auditing and legal standards.
While the Portfolio may engage in options and futures transactions and foreign
currency transactions primarily to hedge its portfolio, it may use these
transactions to increase returns; however, there is the risk that these
transactions sometimes may reduce returns or increase volatility. In addition,
derivatives, such as options and futures, can be illiquid and highly sensitive
to changes in their underlying security, interest rate or index, and as a result
can be highly volatile. A small investment in certain derivatives could have a
potentially large impact on the Portfolio's performance.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. The Portfolio would do this only in seeking
to avoid losses, but this could reduce the benefit from any upswing in the bond
market.
The Portfolio is non-diversified and may invest a greater percentage of its
assets in a particular company compared with other funds. Accordingly, the
Portfolio's securities may be more sensitive to changes in the market value of a
single company or industry.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
LAZARD MORTGAGE PORTFOLIO
Ticker Symbol: N/A
INVESTMENT OBJECTIVE AND STRATEGIES
The Mortgage Portfolio seeks total return from a combination of current income
and capital appreciation, along with the preservation of capital. The Portfolio
invests primarily in mortgaged-related securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. The Portfolio also invests
in mortgage-related securities rated, at the time of purchase, AAA by S&P or Aaa
by Moody's, or the unrated equivalent as determined by the Investment Manager.
The Portfolio generally invests at least 65% of its assets in mortgage-related
securities of U.S. issuers. The Portfolio generally will invest a majority of
its assets in mortgage-related securities issued or guaranteed by the Government
National Mortgage Association (popularly called "Ginnie Maes"), the Federal
National Mortgage Association ("Fannie Maes") and the Federal Home Loan Mortgage
Corporation ("Freddie Macs"). Ginnie Maes are guaranteed as to timely payment of
principal and interest by the Government National Mortgage Association and this
guarantee is backed by the full faith and credit of the U.S. Government. Fannie
Maes and Freddie Macs are not backed by the full faith and credit of the U.S.
Government.
The Portfolio also may invest in other mortgage-related securities issued by
U.S. and non-U.S. issuers. The Portfolio may invest up to 35% of its assets in
other securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, AAA-rated asset-backed securities and short-term money market
instruments.
The Portfolio may engage in various investment techniques, such as options and
futures transactions, short-selling and lending portfolio securities.
RISK FACTORS
A security guaranteed by the U.S. Government is guaranteed only as to principal
and interest. Neither the market value of such security nor the fund's share
price is guaranteed. Prices of certain Ginnie Maes and other mortgage-related
securities tend to move inversely with changes in interest rates. While a rise
in rates may allow the fund to invest for higher yields, the most immediate
effect is usually a drop in the security's price, and therefore in the fund's
share price as well. As a result, the value of your investment in the fund could
go up or down, which means that you could lose money.
Although the price of a Ginnie Mae or other mortgage-related security may
decline when interest rates rise, the converse is not necessarily true. In
periods of declining interest rates, the mortgages underlying a mortgage-related
security are more likely to be prepaid, which could hurt the fund's share price
or yield. During periods of rapidly rising interest rates, such mortgages may be
prepaid at slower than expected rates which effectively may lengthen a
mortgage-related security's expected maturity and cause the value of the
security to fluctuate more widely in response to changes in interest rates.
Other mortgage-related securities also are subject to credit risks associated
with the underlying mortgage properties. These securities may be more volatile
and less liquid than more traditional debt securities.
While the Portfolio may engage in options and futures transactions and foreign
currency transactions primarily to hedge its portfolio, it may use these
transactions to increase returns; however, there is the risk that these
transactions sometimes may reduce returns or increase volatility. In addition,
derivatives, such as options and futures, can be illiquid and highly sensitive
to changes in their underlying security, interest rate or index, and as a result
can be highly volatile. A small investment in certain derivatives could have a
potentially large impact on the Portfolio's performance.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. The Portfolio would do this only in seeking
to avoid losses, but this could reduce the benefit from any upswing in the
market for mortgage-related securities.
The Portfolio is non-diversified and may invest a greater percentage of its
assets in a particular company compared with other funds. Accordingly, the
Portfolio's securities may be more sensitive to changes in the market value of a
single company or industry.
<PAGE>
FUND MANAGEMENT
INVESTMENT MANAGER
Lazard Asset Management, 30 Rockefeller Plaza, New York, New York 10112, serves
as the Investment Manager of the Portfolios. 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 $71 billion as of December 31, 1998. 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 relevant Portfolio's
average daily net asset value. The investment management fees are accrued daily
and paid monthly. For the fiscal year ended December 31, 1998, the Investment
Manager waived a portion of its management fees with respect to each Portfolio
(other than the Mortgage Portfolio which had not commenced operations) which
resulted in the Portfolios paying the Investment Manager a management fee at the
effective annual rate set forth below as a percentage of the relevant
Portfolio's average daily net asset value.
Investment Effective Annual Rate
Management of Investment Management
Name of Portfolio Fee Payable Fee Paid After Waiver
Institutional Open
Shares Shares
Equity Portfolio .75% .75% .75%
Mid Cap Portfolio .75% .57% .45%
Small Cap Portfolio .75% .75% .75%
Bantam Value Portfolio .75% .72% .50%
Global Equity Portfolio .75% 0% 0%
International Equity Portfolio .75% .75% .75%
International Small Cap Portfolio .75% .75% .25%
Emerging Markets Portfolio 1.00% 1.00% .85%
Bond Portfolio .50% .50% .40%
High Yield Portfolio .75% .39% 0%
International Fixed-Income Portfolio .75% .75% .19%
Strategic Yield Portfolio .75% .75% .75%
Mortgage Portfolio .40% N/A N/A
<PAGE>
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 1995) and Ira O. Handler (since
August 1997)
HIGH YIELD PORTFOLIO-- Thomas F. Dunn and Peter R.S. Bakker (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)
MORTGAGE PORTFOLIO-- Ira O. Handler and Eric S. Silvergold (each since
inception)
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 and has been a Small Cap/Mid Cap
Portfolio Manager since the inception of the Portfolios.
PETER R.S. BAKKER. Mr. Bakker has been a Senior Vice President of the Investment
Manager since January, 1998 (a Vice President from January 1996 to January 1998)
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 1995. Prior thereto, he was a Senior Vice President of Goldman Sachs
Asset Management.
HERBERT W. GULLQUIST. Mr. Gullquist has been Vice Chairman of the Investment
Manager since 1997 and a Managing Director and Chief Investment Officer of the
Investment Manager since 1982.
IRA O. HANDLER. Mr. Handler has been a Managing Director of the Investment
Manager since January 1998 (a Senior Vice President from January 1994 to January
1998) and has been a Global and 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.
ERIC S. SILVERGOLD. Mr. Silvergold is a Vice President of the Investment Manager
and has been a Fixed-Income Portfolio Manager of the Investment Manager since
April 1995.
ADMINISTRATOR
State Street Bank and Trust Company ("State Street"), located at 225 Franklin
Street, Boston, Massachusetts 02110, serves as each Portfolio's administrator.
DISTRIBUTOR
Lazard Freres acts as distributor for the Portfolios.
CUSTODIAN
State Street acts as custodian of the Portfolio's investments. State Street may
enter into subcustodial arrangements on behalf of the Portfolios for the holding
of foreign securities.
YEAR 2000 ISSUES
Each Portfolio could be adversely effected if the computer systems used by the
Investment Manager and the fund's other service providers do not properly
process and calculate date-related information from and after January 1, 2000.
While year 2000-related computer problems could have a negative effect on the
Portfolios, the Investment Manager is working to avoid such problems and to
obtain assurances from service providers that they are taking similar steps.
<PAGE>
SHAREHOLDER INFORMATION
GENERAL
Portfolio shares are sold without a sales charge.
Portfolio 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 (normally 4:00 p.m., Eastern time),
on each day the New York Stock Exchange is open
for business. 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.
Securities traded in foreign markets may trade
when the NYSE is closed. Those securities are
generally valued at the closing of the exchange
where they are primarily traded.
MINIMUM INVESTMENTS
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.
-------------------------------------------------
INITIAL
INVESTMENT
------------------------------------
Institutional
Shares $1,000,000
------------------------------------
Open Shares 10,000
------------------------------------
IRA Rollover/Transfer 10,000
------------------------------------
<PAGE>
HOW TO BUY SHARES
Initial Purchase Additional Purchases
By Mail 1.Complete a Purchase 1. Make a check payable
Application. Indicate to "The Lazard Funds,
the services to be used. Inc." Write the
shareholder's account
2. Mail the Purchase number on the check.
Application and a check
for $10,000 or more for
Open Shares, or
$1,000,000 or more for
Institutional Shares,
payable to "The Lazard
Funds, Inc." to: 2. Mail the check and
The Lazard Funds, Inc. the detachable stub from
P.O. Box 9363 the Statement of Account
Boston, Massachusetts (or a letter providing
02205-9363 the account number) to
Attention: (Name of the address set forth
Portfolio and Class of in Item 2 under "Initial
Shares) Purchase."
By Wire 1. Telephone toll free Instruct the wiring bank
from any state: to transmit the
(800)986-3455. specified amount
Give the Portfolio(s) and in federal funds to State
Class of shares to be Street Bank and Trust
invested in, name(s) in Company, as instructed in
which shares are to be Item 2 under "Initial
registered, address, Purchase -- By Wire."
social security or tax
identification number,
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,
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 address set forth in Item 2
under "Initial Purchase."
PURCHASES THROUGH THE AUTOMATIC INVESTMENT PLAN (OPEN SHARES ONLY)
Investors may participate in the Automatic Investment Plan by purchasing Open
Shares of any Portfolio at regular intervals selected by the investor. 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. An account must be initially opened with $10,000 and
the minimum periodic investment thereafter is $250. To obtain an Automatic
Investment Plan application, call the Fund at (800) 823-6300.
INDIVIDUAL RETIREMENT ACCOUNTS (OPEN SHARES ONLY)
The Fund may be used as an instrument for existing IRAs. 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. For a Direct
IRA Account, a $5 establishment fee and a $12 annual 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 (800) 823-6300.
<PAGE>
SELLING SHARES
GENERAL
The Fund imposes no charges when shares are sold. Securities dealers and other
institutions may charge their clients a fee for effecting sales of Portfolio
shares. Upon receipt by the Transfer Agent, Lazard Freres or another agent of a
sale request in proper form, Portfolio shares will be sold at their next
determined net asset value. Payment of sale proceeds may be made in securities.
Checks for sale proceeds ordinarily will be mailed within seven days. Where the
shares to be sold have been purchased by check, the sale proceeds will be
transmitted to you promptly upon bank clearance of your purchase check, which
may take up to 15 calendar days.
HOW TO SELL SHARES
INSTRUCTIONS
Through the Transfer Agent
Shareholders who do not have a brokerage account
with Lazard Freres should submit their sale
requests to the Transfer Agent by mail (see Items
1-4 below).
1. Write a letter of instruction to the Fund.
Indicate the dollar amount, or number and
Portfolio and Class, of shares to be sold, and the
shareholder's account number, and social security
or taxpayer identification number.
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 sold 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 may be
requested to evidence the authority of the person
or entity making the sale request.
4. Mail the letter to the Transfer Agent at the
following address:
The Lazard Funds, Inc.
P.O. Box 9363
Boston, Massachusetts 02205-9363
Attention: (Name of Portfolio and Class of Shares)
Telephone A shareholder may redeem shares by calling the
Redemptions Transfer Agent. To redeem shares by telephone,
the shareholder must have properly completed and
submitted to the Transfer Agent either a Purchase
Application authorizing such redemptions or a
Telephone Redemption Authorization Form. The
Transfer Agent's toll-free number for redemptions
is (800) 986-3455. In order to confirm that
telephone insructions for redemptions 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.
Through a Lazard Freres Shareholders who have a brokerage account with
Brokerage Account Lazard Freres should contact their Lazard Freres
account representative for specific instructions
on how to sell Portfolio shares.
INVESTOR SERVICES
AUTOMATIC REINVESTMENT PLAN allows your dividends
and capital gain distributions to be reinvested in
additional shares of your Portfolio or another
Portfolio. You can elect to receive cash.
AUTOMATIC INVESTMENTS allows you to purchase Open
Shares through automatic deductions from a
designated bank account.
INDIVIDUAL RETIREMENT ACCOUNTS. Call us at (800)
823-6300 for more information and an IRA kit.
EXCHANGE PRIVILEGE allows you to exchange shares
of one Portfolio that have been held for seven
days or more for shares of the same Class of
another Portfolio in an identically registered
account. There is no cost associated with this
service. All exchanges are subject to the minimum
initial investment requirements.
A shareholder may exchange shares by writing or
calling the Transfer Agent. To exchange shares by
telephone, the shareholder must have properly
completed and submitted to the Transfer Agent
either a Purchase Application authorizing such
exchanges or a signed letter requesting that the
exchange privilege be added to the account. The
Transfer Agent's toll-free number for exchanges is
(800) 986-3455. 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.
The Fund reserves the right to limit the number of
times shares may be exchanged between Portfolios,
to reject any telephone exchange order, or to
otherwise modify or discontinue exchange
privileges at any time.
TELEPHONE REDEMPTION allows you to redeem shares
at the net asset value next determined after you
call the Transfer Agent with your request.
<PAGE>
GENERAL POLICIES
The Fund reserves the right to:
o Redeem an account, with notice, if the value of the account
falls below $1,000 due to redemptions
o Convert Institutional Shares held by a shareholder whose account
is less than $1,000,000 to Open Shares, upon written notice to the
shareholder
o Suspend redemptions or postpone payments when the NYSE is closed
for any reason other than its usual weekend or holiday closings or
when trading is restricted by the SEC
o Change the required minimum investment amounts
o Delay sending out redemption proceeds for up to seven days (this
usually applies to very large redemptions received without notice,
excessive trading, or during unusual market conditions)
o Make a redemption-in-kind (a payment in portfolio securities
instead of in cash) if it is determined that a redemption is too
large and/or may cause harm to the Portfolio and its shareholders
o Refuse any purchase or exchange request if such request could
adversely affect the Portfolio's NAV, including if such person or
group has engaged in excessive trading (to be determined in the
Fund's discretion)
o Close an account due to excessive trading after prior warning and
notification
<PAGE>
ACCOUNT POLICIES, DIVIDENDS AND TAXES
ACCOUNT STATEMENTS
You will receive quarterly statements detailing
your account activity. All investors will also
receive a yearly statement detailing the tax
characteristics of any dividends and distributions
that you have received in your account. You will
also receive confirmations after each trade
executed in your account.
DIVIDENDS AND DISTRIBUTIONS
Income dividends are normally declared and paid
annually but may be declared and paid twice
annually for each of the Equity Portfolios. Income
dividends are normally declared each business day
and paid monthly for each of the Fixed-Income
Portfolios. Net capital gains, if any, are
normally distributed annually but may be
distributed twice annually.
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.
Dividend checks and Statements of Account will be
mailed approximately two business days after the
payment date.
TAX INFORMATION
Please be aware that this tax information is
general and refers to the provisions of the
Internal Revenue Code of 1986, as amended, which
are in effect as of the date of this Prospectus.
You should consult a tax adviser about the status
of your distributions from your Portfolio.
All dividends and short-term capital gains
distributions are generally taxable to you as
ordinary income, whether you receive the
distribution in cash or reinvest it in additional
shares. An exchange of one Portfolio's shares for
shares of another Portfolio will be treated as a
sale of the Portfolio's shares and any gain on the
transaction may be subject to federal income tax.
Keep in mind that distributions may be taxable to
you at different rates depending on the length of
time the Portfolio held the applicable investment
NOT the length of time that YOU held your
Portfolio shares. When you do sell your Portfolio
shares, a capital gain may be realized, except for
IRA accounts.
Federal law requires a Portfolio to withhold taxes
on distributions paid to shareholders who:
o fail to provide a social security number or
taxpayer identification number
o fail to certify that their social security
number or taxpayer identification number is
correct
o fail to certify that they are exempt from
withholding
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below describe each Portfolio's performance for the fiscal periods
indicated. "Total return" shows how much your investment in a Portfolio would
have increased (or decreased) during each period, assuming you had reinvested
all dividends and distributions. The information in the tables has been
independently audited by __________________________, whose report, along with
the Portfolios' financial statements, is included in the Fund's annual report.
<PAGE>
<TABLE>
<CAPTION>
THE LAZARD FUNDS, INC
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Less Distributions
Investment Operations from and in Excess of: Ratios to Average Net Assests
Net Net
Net Net Realized Total Net Net Net Net Port- Assets,
Asset Invest- and from Invest- Realized Asset Total Net Gross Invest- folio End
Value, ment Unreal- Invest- ment Gains Value, Return Expen- Expenses ment Turn- of
Beginning Income ized ment Income End (a) ses (b) (b) Income over Period
of (Loss) Gain Opera- of (b) Rate (000s)
Period Period (Loss) tions Period
- -----------------------------------------------------------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO
INSTITUTIONAL SHARES
Year ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/98.. $19.98 $0.28 $3.10 $3.38 $(0.26) $(1.35) $21.75 17.3% 0.85% 0.85% 1.28% 76% 361,126
12/31/97.. 19.24 0.22 4.54 4.76 (0.22) (3.80) 19.98 25.1 0.86 0.87 1.00 78 333,575
12/31/96.. 17.41 0.33 3.06 3.39 (0.33) (1.23) 19.24 19.9 0.89 0.89 1.87 66 278,605
12/31/95.. 13.75 0.23 4.93 5.16 (0.18) (1.32) 17.41 37.7 0.92 0.92 1.45 81 163,787
12/31/94.. 13.89 0.14 0.44 0.58 (0.15) (0.57) 13.75 4.2 1.05 1.05 1.15 67 89,105
OPEN SHARES
Year ended
12/31/98.. 19.99 0.20 3.12 3.32 (0.20) (1.35) 21.76 17.0 1.12 1.12 0.96 76 117,624
Period from
2/5/97*
to 12/31/97..20.19 0.13 3.62 3.75 (0.15) (3.80) 19.99 18.9 1.22 1.35 0.60 78 22,811
LAZARD MID CAP PORTFOLIO
INSTITUTIONAL SHARES
Year ended
12/31/98.. 10.26 0.05 0.31 0.36 (0.05) (0.11) 10.46 3.7 1.05 1.23 0.48 86 55,731
Period from
11/4/97* to
12/31/97.. 10.00 0.02 0.26 0.28 (0.02) -- 10.26 2.8 1.05 1.44 1.02 1 49,779
OPEN SHARES
Year ended
12/31/98.. 10.26 0.02 0.32 0.34 (0.04) (0.11) 10.45 3.4 1.35 1.66 0.29 86 16,345
Period from
11/4/97* to
12/31/97.. 10.00 0.01 0.26 0.27 (0.01) -- 10.26 2.7 1.35 4.97 0.72 1 1,806
See footnotes to Financial Highlights.
- -----------------------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
INSTITUTIONAL SHARES
Year ended
12/31/98.. 20.02 0.08 (2.60) (2.52) (0.01) (0.10) -- 17.39 (12.6) 0.81 0.81 0.50 46 1,411,503
12/31/97.. 18.44 0.07 4.92 4.99 (0.06) (3.35) -- 20.02 28.1 0.82 0.82 0.35 56 1,445,075
12/31/96.. 15.95 0.11 3.68 3.79 (0.11) (1.19) -- 18.44 23.9 0.84 0.84 0.60 51 981,405
12/31/95.. 14.35 0.13 2.95 3.08 (0.16) (1.32) -- 15.95 21.5 0.84 0.84 0.90 70 646,371
12/31/94.. 15.26 0.07 0.22 0.29 (0.04) (1.16) -- 14.35 2.0 0.85 0.85 0.51 70 429,673
OPEN SHARES
Year ended
12/31/98.. 20.02 0.03 (2.60) (2.57) -- (0.10) -- 17.35 (12.9) 1.09 1.09 0.21 46 93,547
Period from --
1/30/97* to
12/31/97.. 18.75 0.01 4.61 4.62 -- (3.35) -- 20.02 25.6 1.14 1.23 0.12 56 46,097
See footnotes to Financial Highlights.
LAZARD BANTAM VALUE PORTFOLIO
INSTITUTIONAL SHARES
Year ended
12/31/98.. 14.32 -- (1.98) (1.98) -- (0.15) 12.19 (13.8) 1.05 1.09 (0.40) 95 59,737
12/31/97.. 12.58 -- 4.12 4.12 -- (2.38) 14.32 33.9 1.05 1.14 (0.42) 110 69,972
3/1/96* to
12/31/96.. 10.00 0.22 3.11 3.33 (0.22) (0.53) 12.58 33.3 1.05 1.91 2.80 262 34,549
OPEN SHARES
Year ended
12/31/98.. 14.26 (0.04) (1.96) (2.00) -- (0.15) 12.11 (14.0) 1.35 1.60 (0.70) 95 7,057
Period from
1/23/97* to
12/31/97.. 13.13 -- 3.51 3.51 -- (2.38) 14.26 27.8 1.35 1.88 (0.69) 110 8,348
See footnotes to Financial Highlights.
LAZARD GLOBAL EQUITY PORTFOLIO
INSTITUTIONAL SHARES
Year ended
12/31/98..$11.91 $0.10 $1.90 $2.00 $(0.08) $(0.69) $13.14 17.1% 1.05% 2.18% 1.07% 48% $17,710
12/31/97.. 11.48 0.14 1.58 1.72 $(0.15) $(1.14) 11.91 15.3 1.05 2.55 1.02 64 10,359
1/4/96* to
12/31/96.. 10.00 0.09 1.49 1.58 (0.10) -- 11.48 15.8 1.05 5.06 1.70 74 9,784
OPEN SHARES
Year ended
12/31/98.. 11.92 0.09 1.88 1.97 (0.04) (0.69) 13.16 16.8 1.35 2.85 0.77 48 4,824
Period from
1/30/97* to
12/31/97.. 11.31 0.08 1.78 1.86 (0.11) (1.14) 11.92 16.7 1.35 4.23 0.67 64 2,290
LAZARD INTERNATIONAL EQUITY PORTFOLIO
INSTITUTIONAL SHARES
Year ended
12/31/98.. 13.97 0.18 2.03 2.21 (0.14) (0.81) 15.23 16.0 0.90 0.90 1.37 41 2,879,289
12/31/97.. 13.62 0.22 1.40 1.62 (0.34) (0.93) 13.97 11.8 0.89 0.89 1.18 37 2,099,724
12/31/96.. 12.50 0.17 1.76 1.93 (0.19) (0.62) 13.62 15.6 0.91 0.91 1.93 39 1,816,173
12/31/95.. 11.23 0.19 1.29 1.48 (0.09) (0.12) 12.50 13.1 0.95 0.95 1.82 63 1,299,549
12/31/94.. 12.32 0.08 (0.05) 0.03 -- (1.12) 11.23 0.2 0.94 0.94 0.75 106 831,877
OPEN SHARES
Year ended
12/31/98.. 13.95 0.18 2.00 2.18 (0.09) (0.81) 15.23 15.8 1.24 1.24 1.02 41 47,303
Period from
1/23/97*
to 12/31/97..13.29 0.16 1.71 1.87 (0.28) (0.93) 13.95 14.1 1.25 1.61 0.37 37 10,794
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
INSTITUTIONAL SHARES
Year ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/98..$11.69 $0.05 $0.83 $0.88 $(0.05) $(1.12) $11.40 7.6% 1.04% 1.04% 0.81% 56% $177,779
12/31/97.. 11.93 0.07 (0.03) 0.04 (0.07) (0.21) 11.69 0.3 1.09 1.09 0.73 63 141,695
12/31/96.. 10.52 0.08 1.55 1.63 (0.08) (0.14) 11.93 15.6 1.12 1.12 1.67 101 126,973
12/31/95.. 10.38 0.14 0.06 0.20 -- (0.06) 10.52 1.9 1.13 1.13 1.56 118 115,534
12/31/94.. 10.86 0.07 (0.55) (0.48) -- -- 10.38 (4.5) 1.05 1.26 0.95 113 83,432
OPEN SHARES
Year ended
12/31/98.. 11.69 0.01 0.83 0.84 (0.03) (1.12) 11.38 7.2 1.43 1.93 0.43 56 2,646
Period from
2/13/97* to
12/31/97.. 12.32 0.02 (0.42) (0.40) (0.02) (0.21) 11.69 (3.2) 1.43 3.39 0.34 63 1,873
LAZARD EMERGING MARKETS PORTFOLIO
INSTITUTIONAL SHARES
Year ended
12/31/98.. 9.20 0.10 (2.26) (2.16) (0.10) -- 6.94 (23.5) 1.28 1.29 1.84 36 298,033
12/31/97.. 11.21 0.10 (1.18) (1.08) (0.09) (0.84) 9.20 (9.8) 1.32 1.33 1.26 40 236,340
12/31/96... 9.24 0.07 2.11 2.18 (0.08) (0.13) 11.21 23.6 1.38 1.48 1.40 51 145,328
12/31/95... 9.86 0.08 (0.66) (0.58) (0.04) -- 9.24 (5.9) 1.30 2.00 1.22 102 35,216
7/15/94* to
12/31/94.. 10.00 0.01 (0.15) (0.14) -- -- 9.86 (1.4) 1.30 2.31 0.31 31 17,025
OPEN SHARES
Year ended
12/31/98.. 9.20 0.11 (2.26) (2.15) (0.08) -- 6.97 (23.3) 1.60 1.76 1.54 36 8,191
Period from
1/8/97* to
12/31/97.. 11.45 0.07 (1.42) (1.35) (0.07) (0.83) 9.20 (12.0) 1.60 1.93 1.01 40 7,769
LAZARD BOND PORTFOLIO
INSTITUTIONAL SHARES
Year ended
12/31/98.. 10.03 0.55 0.01 0.56 (0.55) (0.15) -- 9.89 5.8 0.78 0.79 5.45 335 100,397
12/31/97.. 9.88 0.59 0.23 0.82 (0.60) (0.07) -- 10.03 8.6 0.80 0.81 5.81 447 92,428
12/31/96.. 10.10 0.56 (0.14) 0.42 (0.57) (0.07) -- 9.88 4.4 0.80 0.88 5.77 460 69,906
12/31/95.. 9.24 0.60 0.86 1.46 (0.60) -- -- 10.10 16.2 0.80 0.97 6.07 244 46,083
12/31/94.. 10.28 0.58 (1.01) (0.43) (0.58) (0.03) -- 9.24 (4.2) 0.80 1.23 6.11 121 24,494
OPEN SHARES
Year ended
12/31/98.. 10.02 0.52 0.01 0.53 (0.52) (0.15) -- 9.88 5.4 1.10 1.21 5.11 335 15,226
Period from
3/5/97* to
12/31/97.. 9.86 0.46 0.24 0.70 (0.47) (0.07) -- 10.02 7.2 1.10 1.49 5.46 447 7,283
- -----------------------------------------------------------------------------------------------------------------------------------
LAZARD HIGH YIELD PORTFOLIO
Institutional Shares
Period from
1/2/98 to
12/31/98.. $10.00 $0.88 $(0.57) $0.31 $(0.89) -- $9.42 2.9% 1.05% 1.55% 8.87% 418% $41,935
OPEN SHARES
Period from
2/24/98 to
12/31/98.. 10.37 0.72 (0.94) ( 0.22) (0.73) -- 9.42 (2.2) 1.35 9.77 8.59 418 949
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
INSTITUTIONAL SHARES
Cap-
Year ended ital
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/98.. $9.63 $0.32 $0.98 $1.30 $(0.22) -- -- $10.71 13.2% 1.09% 1.10% 4.27% 187% $115,500
12/31/97.. 10.78 0.40 (1.05) (0.65) (0.13) $(0.12) $(0.25) 9.63 (5.6) 1.06 1.10 5.13 166 110,185
12/31/96.. 10.85 0.54 0.03 0.57 (0.59) (0.05) -- 10.78 5.5 1.05 1.21 5.54 242 88,430
12/31/95.. 10.23 0.70 1.25 1.95 (1.13) (0.20) -- 10.85 19.4 1.05 1.25 5.99 190 45,624
12/31/94.. 10.51 0.59 (0.16) 0.43 (0.59) (0.12) -- 10.23 4.2 1.05 1.51 5.68 66 35,803
OPEN SHARES
Year ended
12/31/98.. 9.63 0.31 0.96 1.27 (0.21) -- -- 10.69 12.9 1.35 1.92 4.01 187 4,751
Period from
1/8/97* to
12/31/97.. 10.64 0.43 (0.98) (0.55) (0.08) (0.12) (0.26) 9.63 (4.8) 1.35 2.71 4.68 166 2,772
LAZARD STRATEGIC YIELD PORTFOLIO
INSTITUTIONAL SHARES
Year ended
12/31/98..$ 9.66 $0.76 $(0.69) $0.07 $(0.44) -- $(0.28) $9.01 0.8% 0.90% 0.90% 6.94% 276% $397,599
12/31/97.. 10.01 0.81 (0.28) 0.53 (0.82) $(0.06) -- 9.66 5.3 0.94 0.95 7.42 161 399,452
12/31/96.. 9.52 0.76 0.50 1.26 (0.77) -- -- 10.01 13.7 1.08 1.08 7.88 189 199,083
12/31/95.. 9.10 0.75 0.43 1.18 (0.76) -- -- 9.52 13.6 1.09 1.09 8.02 205 78,474
12/31/94.. 10.13 0.76 (0.99) (0.23) (0.76) (0.04) -- 9.10 (2.3) 1.05 1.15 8.03 195 62,328
OPEN SHARES
Year ended
12/31/98.. 9.66 0.73 (0.69) 0.04 (0.40) -- (0.28) 9.02 0.4 1.28 1.28 6.60 276 22,460
Period from
1/23/97* to
12/31/97.. 10.08 0.72 (0.35) 0.37 (0.73) (0.06) 9.66 3.8 1.39 1.44 6.92 161 15,300
See footnotes to Financial Highlights.
*Commencement of operations.
(a) Total Returns are historical and assume changes in share price,
reinvestments of all dividends and distributions, and no sales charge. Had
certain expenses not been reduced during the periods shown, total returns
would have been lower. Periods of less than one year are not annualized.
(b) Annualized for periods less than one year.
</TABLE>
<PAGE>
For more information about the Portfolios, the following documents are available
free upon request:
ANNUAL/SEMIANNUAL REPORTS (REPORTS):
The Fund's annual and semi-annual reports to shareholders contain additional
information on each Portfolio's investments. In the annual report, you will find
a broad discussion of the market conditions and investment strategies that
significantly affected each Portfolio's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Portfolios, including their
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
- -------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION AND
DISCUSS YOUR QUESTIONS ABOUT THE PORTFOLIOS BY CONTACTING THE FUND AT:
LAZARD FUNDS
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
TELEPHONE: 1-800-823-6300
HTTP://WWW.LAZARDFUNDS.COM
- -------------------------------------------------------------------------------
You can review the Fund's Reports and the SAI at the Public Reference Room of
the Securities and Exchange Commission. You can get text-only copies:
o For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-6312
<PAGE>
THE LAZARD FUNDS, INC.
30 Rockefeller Plaza
New York, New York 10112
(800) 823-6300
STATEMENT OF ADDITIONAL INFORMATION
_______________, 1999
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 May 1, 1999, as it
may be revised from time to time, relating to the following thirteen portfolios
(individually, a "Portfolio" and collectively, the "Portfolios"):
Lazard Equity Portfolio Lazard Emerging Markets Portfolio
Lazard Mid Cap Portfolio Lazard Bond Portfolio
Lazard Small Cap Portfolio Lazard High Yield Portfolio
Lazard Bantam Value Portfolio Lazard International Fixed-Income
Lazard Global Equity Portfolio Portfolio
Lazard International Equity Portfolio Lazard Strategic Yield Portfolio
Lazard International Small Cap Portfolio Lazard Mortgage 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.
To obtain a copy of the Fund's Prospectus, please write or call the
Fund at the address and telephone number given above.
The most recent Annual Report and Semi-Annual Report to Shareholders
for each Portfolio are separate documents supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing in the Annual Report are incorporated
by reference into this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
Page
Description of the Fund and Portfolios.................................. 3
Investment Restrictions.................................................19
Management..............................................................22
Determination of Net Asset Value........................................27
Portfolio Transactions..................................................28
How to Buy and How to Sell Shares.......................................31
Distribution and Servicing Plan.........................................32
Dividends and Distributions.............................................33
Taxation................................................................34
Performance Information.................................................36
Information About the Fund and Portfolios...............................39
Counsel and Independent Auditors........................................51
Additional Information..................................................51
Appendix................................................................53
<PAGE>
DESCRIPTION OF THE FUND AND PORTFOLIOS
The Fund is a Maryland corporation organized on May 17, 1991. Each
Portfolio is a separate portfolio of the Fund, an open-end management investment
company, known as a mutual fund. The Equity Portfolio is a diversified
investment company, which means that, with respect to 75% of its total assets,
the Equity Portfolio will not invest more than 5% of its assets in the
securities of any single issuer. Each of the other Portfolios is 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 Investment Company Act of 1940, as amended (the "1940 Act").
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.
Lazard Freres is the distributor of each Portfolio's shares.
CERTAIN PORTFOLIO SECURITIES
The following information supplements and should be read in
conjunction with the Fund's Prospectus.
DEPOSITORY RECEIPTS. (All Portfolios, except the Small Cap Portfolio
and Mortgage 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.
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.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES.
(All Portfolios, except the Equity Portfolio, Small Cap Portfolio and U.S.
Mortgage 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.
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.
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.
WARRANTS. (All Portfolios, except the International Equity Portfolio,
Bond Portfolio, International Fixed-Income Portfolio and Mortgage 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.
PARTICIPATION INTERESTS. (All Portfolios) 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.
Each Portfolio may invest in corporate obligations denominated in U.S.
or (except with respect to the Equity Portfolio, Small Cap Portfolio and U.S.
Mortgage 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.
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.
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.
ZERO COUPON AND STRIPPED U.S. TREASURY SECURITIES. (Bond Portfolio,
High Yield Portfolio, Strategic Yield Portfolio and Mortgage 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.
MORTGAGE-RELATED SECURITIES. (Bond Portfolio, High Yield Portfolio,
International Fixed-Income Portfolio, Mortgage 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 GNMA, FNMA and FHLMC, or by private entities.
Residential mortgage-related securities issued by private entities 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.
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.
Similar to residential mortgage-related securities, commercial mortgage-related
securities have been issued using a variety of structures, including multi-class
structures featuring senior and subordinated classes.
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, International Fixed-Income Portfolio and Mortgage
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--Each of these Portfolios, except the U.S.
Mortgage Portfolio, may invest 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. 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.
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.
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.
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, Strategic Yield Portfolio and U.S.
Mortgage Portfolio). Each of these Portfolios may invest in asset-backed
securities, including interests in pools of receivables, such as motor vehicle
installment purchase obligations, credit card receivables, home equity loans,
home improvement loans and manufactured housing loans. 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-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. 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.
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.
ILLIQUID SECURITIES. (All Portfolios) Each Portfolio may invest up to
10% (15% in the case of the Mid Cap Portfolio, High Yield Portfolio and U.S.
Mortgage 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.
MONEY MARKET INSTRUMENTS. (All Portfolios) When the Investment Manager
determines that adverse market conditions exist, a Portfolio may adopt a
temporary defensive position and invest some or all of its assets in money
market instruments, including U.S. Government securities, repurchase agreements,
bank obligations and commercial paper.
INVESTMENT TECHNIQUES
The following information supplements and should be read in
conjunction with the Fund's Prospectus.
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, Mortgage 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.
LEVERAGE. (Equity Portfolio, Mid Cap Portfolio, Bantam Value
Portfolio, Global Equity Portfolio, International Small Cap Portfolio, Emerging
Markets Portfolio, High Yield Portfolio and Mortgage Portfolio) Leveraging (that
is, buying securities using borrowed money) 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. 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.
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.
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. 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.
DERIVATIVES. (All Portfolios) Each Portfolio may invest in, or enter
into, derivatives 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 can be volatile and involve various types and degrees of
risk, depending upon the characteristics of the particular derivative and the
portfolio as a whole. Derivatives permit a Portfolio to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Portfolio can increase or decrease the level
of risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in derivatives could
have a large potential impact on a Portfolio's performance.
If a Portfolio invests in derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Portfolio's return
or result in a loss. A Portfolio also could experience losses if 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 Portfolios to the rules of the Commodity Futures
Trading Commission which limit the extent to which a Portfolio can invest in
such derivatives. A Portfolio may invest in futures contracts and options with
respect thereto for hedging purposes without limit. However, no Portfolio may
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.
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
credit worthiness 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 on
exchanges located outside the United States, such as the London International
Financial Futures Exchange, the Deutsche Termine Borse 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, International Fixed-Income Portfolio and U.S.
Mortgage 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, Mortgage 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 and Mortgage
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 invest up to 5% of
its assets, represented by the premium paid, in the purchase of call and put
options. A Portfolio may write (i.e., sell) covered call and put option
contracts to the extent of 20% of the value of its net assets at the time such
option contracts are written. 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
System against which the Portfolio has not written a stock call option; however,
if the Portfolio owns a call on the same index as the call written where the
exercise price of the call owned is equal to or less than the exercise price of
the call written, or greater than the call written if the difference is
maintained by the Portfolio in 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, Bond Portfolio and Mortgage 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 denominated in foreign currency (except in the
case of the Equity Portfolio and Mortgage Portfolio), and (except in the case of
the Bond Portfolio, International Fixed-Income Portfolio and Mortgage 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.
FORWARD ROLL TRANSACTIONS. (Mortgage Portfolio only) To enhance
current income, the Mortgage Portfolio may enter into forward roll
transactions with respect to mortgage-related securities. In a forward roll
transaction, the Portfolio sells a mortgage-related security to a financial
institution, such as a bank or broker-dealer, and simultaneously agrees to
purchase a similar security from the institution at a later date at an agreed
upon price. The securities that are purchased will bear the same interest rate
as those sold, but generally will be collateralized by different pools of
mortgages with different pre-payment histories than those sold. During the
period between the sale and purchase, the Portfolio will not be entitled to
receive interest and principal payments on the securities sold. Proceeds of the
sale typically will be invested in short-term instruments, particularly
repurchase agreements and agency discount notes, and the income from these
investments, together with any additional fee income received on the sale will
be expected to generate income for the Portfolio exceeding the yield on the
securities sold. Forward roll transactions involve the risk that the market
value of the securities sold by the Portfolio may decline below the purchase
price of those securities. The Portfolio will set aside in a segregated account
permissible liquid assets at least equal to the amount of the repurchase price
(including accrued interest).
SHORT-SELLING. (Mid Cap Portfolio, High Yield Portfolio and U.S.
Mortgage 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. 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.
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) A Portfolio may purchase or sell
securities on a forward commitment, when-issued or delayed delivery basis, which
means delivery and payment take place a number of days after the date of the
commitment to purchase or sell the securities at a predetermined price and/or
yield. Typically, no interest accrues to the purchaser until the security is
delivered. When purchasing a security on a forward commitment basis, the
Portfolio assumes the rights and risks of ownership of the security, including
the risk or price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Portfolio is not
required to pay for these securities until the delivery date, these risks are in
addition to the risks associated with the Portfolio's other investments. If the
Portfolio is fully or almost fully invested when forward commitment purchases
are outstanding, such purchases may result in a form of leverage. The Portfolio
intends to engage in forward commitments to increase its portfolio's financial
exposure to the types of securities in which it invests. Leveraging the
portfolio in this manner will increase the Portfolio's exposure to changes in
interest rates and will increase the volatility of its returns. The Portfolio
will set aside in a segregated account permissible liquid assets at least equal
at all times to the amount of the Portfolio's purchase commitments. At no time
will the Portfolio have more than 33-1/3% of its assets committed to purchase
securities on a forward commitment basis.
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 forward commitment or 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.
SWAP AGREEMENTS. (All Portfolios) To the extent consistent with the
Portfolio's investment objective and management policies as set forth herein,
each Portfolio may enter into equity, interest rate, index, total return and
currency rate swap agreements. These transactions are entered into in an attempt
to obtain a particular return when it is considered desirable to do so, possibly
at a lower cost to the Portfolio than if the Portfolio had invested directly in
the asset that yielded the desired return. Swap agreements are two-party
contracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than a year. In a standard swap transaction, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments, which
may be adjusted for an interest factor. The gross returns to be exchanged or
"swapped" between the parties are generally calculated with respect to a
"notional amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index. Forms
of swap agreements include interest rate caps, under which, in return for a
premium, one party agrees to make payments to the other to the extent interest
rates exceed a specified rate or "cap"; interest rate floors, under which, in
return for a premium, one party agrees to make payments to the other to the
extent interest rates fall below a specified level or "floor"; and interest rate
collars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.
Most swap agreements entered into by a Portfolio would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, the
Portfolio's current obligations (or rights) under a swap agreement generally
will be equal only to the net amount to be paid or received under the agreement
based on the relative values of the positions held by each party to the
agreement (the "net amount"). The risk of loss with respect to swaps is limited
to the net amount of payments that the Portfolio is contractually obligated to
make. If the other party to a swap defaults, the Portfolio's risk of loss
consists of the net amount of payments that the Portfolio contractually is
entitled to receive.
FOREIGN CURRENCY TRANSACTIONS. (All Portfolios, except the Equity
Portfolio, Small Cap Portfolio, Bantam Value Portfolio, Bond Portfolio and U.S.
Mortgage 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.
INVESTMENT CONSIDERATIONS AND RISKS
EQUITY SECURITIES. (All Portfolios, except the Bond Portfolio, High
Yield Portfolio, International Fixed-Income Portfolio, Strategic Yield Portfolio
and Mortgage 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 Standard & Poor's
Ratings Group ("S&P") and Moody's Investors Service, Inc. ("Moody's" and
together with S&P, the "Rating Agencies"), may be subject to such risk with
respect to the issuing entity and to greater market fluctuations than certain
lower yielding, higher rated fixed-income securities. Once 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.
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, Strategic Yield Portfolio and U.S.
Mortgage Portfolio) 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 possible that the realized return of
the security may differ materially from the return originally expected by the
Investment Manager. 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.
Certain 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 above, 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 increased price volatility.
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 TRANSACTION. (All Portfolios, except the Equity
Portfolio, Small Cap Portfolio, Bantam Value Portfolio, Bond Portfolio and U.S.
Mortgage 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.
SIMULTANEOUS INVESTMENTS 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.
LOWER RATED SECURITIES. (Bond Portfolio, High Yield Portfolio,
International Fixed-Income Portfolio and Strategic Yield Portfolio). Each of
these Portfolios may invest in securities rated below investment grade such as
those rated Ba by Moody's or BB by S&P, and as low as the lowest rating assigned
by the Rating Agencies (commonly known as junk bonds). They may be subject to
certain risks and to greater market fluctuations than lower yielding investment
grade securities. See "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.
You 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 and will fluctuate over time. 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.
STRATEGIC YIELD PORTFOLIO--During the year ended December 31, 1998, 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
AAA ____%
AA+ ____%
AA- ____%
A ____%
A- ____%
BBB ____%
BBB- ____%
BB+ ____%
BB ____%
BB- ____%
B+ ____%
B ____%
B- ____%
CCC+ ____%
CCC ____%
No Rating* ____%
- ----------------------
* The Investment Manager estimates these securities to have an average
rating of _____.
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.
INVESTMENT RESTRICTIONS
Each Portfolio's investment objective is a fundamental policy, which
cannot be changed without approval by the holders of a majority (as defined in
the 1940 Act) of the Portfolio's outstanding voting shares. In addition, the
following investment restrictions, except as otherwise noted, are fundamental
policies. 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, Bantam Value Portfolio
and Mortgage 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 and the Mortgage Portfolio may enter into
repurchase agreements 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, High Yield
Portfolio and Mortgage 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, U.S.
Mortgage 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, High Yield Portfolio or Mortgage Portfolio, and
provided further, that (A) the Mid Cap Portfolio,
International Small Cap Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio, Bantam Value Portfolio,
High Yield Portfolio and Mortgage 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, High Yield
Portfolio and Mortgage 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, High Yield Portfolio and Mortgage 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, High Yield Portfolio and
Mortgage 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, High Yield
Portfolio or Mortgage 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.
<PAGE>
MANAGEMENT
The Fund's Board is responsible for the management and supervision of
each Portfolio. The Board approves all significant agreements with those
companies that furnish services to the Portfolios. These companies are as
follows:
Lazard Asset Management........................... Investment Manager
Lazard Freres & Co. LLC........................... Distributor
Boston Financial Data Services, Inc............... Transfer Agent and
Dividend Disbursing Agent
State Street Bank and Trust Company............... Custodian
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 Vice Chairman and Managing
Board Director (formerly General
Partner), Lazard Freres.
Herbert W. Gullquist* (60) President, Director Vice Chairman and Managing
Director (formerly General
Partner), Lazard Freres;
Chief Investment Officer of
the Investment Manager.
John J. Burke (69) Director Retired; Former Vice
50 Burning Tree Lane Chairman, Director, Montana
Butte, MT 59701 Power Company.
Kenneth S. Davidson (53) Director Managing Partner, Davidson
Davidson Capital Management Capital Management
Corporation Corporation; Director,
635 Madison Avenue, Blackthorn Fund N.V. and
16th Floor Ottertail Valley Railroad.
New York, NY 10022
Carl Frischling* (61) Director Senior Partner, Kramer,
Kramer, Levin, Levin, Naftalis & Frankel;
Naftalis & Frankel from 1992 to 1994, Senior
919 Third Avenue Partner, Reid & Priest.
New York, NY 10022
Lester Z. Lieberman (67) Director Private Investor; Director
1500 Mt. Kemble Avenue of Dowel Associates;
Morristown, NJ 07960 Chairman 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. (54) Director Managing Partner, Georgica
Georgica Advisers LLC Advisers LLC, an investment
1114 Avenue of the Americas manager.
New York, NY 10036
John Rutledge (49) Director President, Rutledge &
Rutledge & Company Company, an economics and
One Greenwich investment advisory firm;
Office Park Chairman, Claremont
51 Weaver Street Economics Institute.
Greenwich, CT 06831
William Katz (44) Director President and Chief
BBDO Worldwide Network Operating Officer of BBDO,
1285 Avenue of the Americas an advertising agency; from
New York, NY 10019 May 1994 to February 1996,
General Manager of BBDO;
prior thereto, Executive
Vice President and Senior
Account Director of BBDO.
William G. Butterly, III (37) Vice President, Senior Vice President, Legal
Secretary Affairs of the Investment
Manager.
James Giallanza (32) Treasurer Certified Public Accountant;
Vice President of the
Investment Manager; from
August 1990 to July 1998,
Manager, Price Waterhouse
LLP.
- -----------
* 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, 1998, was as follows:
Total Compensation from
Aggregate Compensation the Fund and
Name of Director from the Fund Lazard Retirement Series, Inc.*
John J. Burke $18,600 $24,000
Kenneth S. Davidson $18,600 $24,000
Norman Eig N/A N/A
Carl Frischling $18,600 $24,000
Herbert W. Gullquist N/A N/A
William Katz $18,600 $24,000
Lester Z. Lieberman $18,600 $24,000
Richard Reiss, Jr. $18,600 $24,000
John Rutledge $18,600 $24,000
The Fund does not compensate officers or Directors who are employees
or affiliated persons of the Investment Manager. As of __________, 1999, the
Fund's officers and Directors, 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, 1998 totaling approximately $___ 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 __________, 1999, 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:
<PAGE>
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%
Mortgage Portfolio .40%
The Investment Manager has undertaken to bear, excluding 12b-1 fees
for the Open Shares, (i) with respect to each of the 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, 1999 (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 U.S.
Mortgage Portfolio which had not commenced operations) to the Investment Manager
for the fiscal years ended December 31, 1996, 1997 and 1998, 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, 1996 December 31, 1997 December 31, 1998
<S> <C> <C> <C>
Equity Portfolio $ 1,829,111 $2,464,363 $__________
Mid Cap Portfolio N/A $ 32,552 $__________
Small Cap Portfolio $ 6,243,613 $8,856,759 $__________
Bantam Value Portfolio $ 10,891 $ 361,952 $__________
Global Equity Portfolio -0- -0- $__________
International Equity Portfolio $11,746,379 $15,045,920 $__________
International Small Cap Portfolio $ 870,310 $ 1,040,582 $__________
Emerging Markets Portfolio $ 896,107 $ 2,398,456 $__________
Bond Portfolio $ 269,026 $ 407,918 $__________
International Fixed-Income Portfolio $ 361,469 $ 713,913 $__________
Strategic Yield Portfolio $ 908,760 $ 2,444,162 $__________
High Yield Portfolio N/A N/A $__________
</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; by the sole shareholder for the Mid Cap Portfolio and
High Yield Portfolio and by the Board on July 29, 1997; and by the sole
shareholder for the Mortgage Portfolio and by the Board on ________, 1999. The
Management Agreement for each Portfolio, other than the Mortgage 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 27, 1998. 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.
<PAGE>
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, 1997, was $2,463,881,000, and the
related commissions were $3,695,000. 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, 1996, 1997 and 1998, each Portfolio indicated
below paid brokerage commissions as follows:
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
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-
YEAR ENDED DECEMBER 31, 1997
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 $ 592,299 -0- 0.00% 0.00%
Small Cap Portfolio $ 2,003,525 -0- 0.00% 0.00%
Bantam Value Portfolio $ 231,614 -0- 0.00% 0.00%
Global Equity Portfolio $ 26,640 $45 0.17% 0.19%
International Equity Portfolio $ 3,041,586 -0- 0.00% 0.00%
International Small Cap Portfolio $ 429,111 -0- 0.00% 0.00%
Emerging Markets Portfolio $ 1,098,476 -0- 0.00% 0.00%
YEAR ENDED DECEMBER 31, 1998
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 $ _______ $ _______ _______% _______%
Small Cap Portfolio $ _______ $ _______ _______% _______%
Bantam Value Portfolio $ _______ $ _______ _______% _______%
Global Equity Portfolio $ _______ $ _______ _______% _______%
International Equity Portfolio $ _______ $ _______ _______% _______%
International Small Cap Portfolio $ _______ $ _______ _______% _______%
Emerging Markets Portfolio $ _______ $ _______ _______% _______%
</TABLE>
HOW TO BUY AND HOW TO SELL 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. 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.
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.
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.
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.
Please contact your Lazard Freres account representative for specific
instructions on how to purchase Portfolio shares through your Lazard Freres
brokerage account.
AUTHORIZED BROKERS. 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)
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.
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 __________, 1998. 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.
For the fiscal year ended December 31, 1998, each Portfolio paid the
Distributor the amount set forth below with respect to its Open Shares under the
Distribution and Servicing Plan:
Amount Paid to Distributor
Under Distribution and
Servicing Plan For
Name of Portfolio Fiscal Year Ended December 31, 1998
Equity Portfolio $________
Mid Cap Portfolio $________
Small Cap Portfolio $________
Bantam Value Portfolio $________
Global Equity Portfolio $________
International Equity Portfolio $________
International Small Cap Portfolio $________
Emerging Markets Portfolio $________
Bond Portfolio $________
High Yield Portfolio $________
International Fixed-Income Portfolio $________
Strategic Yield Portfolio $________
Mortgage Portfolio N/A
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, Strategic Yield Portfolio and Mortgage 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, Strategic Yield
Portfolio and Mortgage 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.
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. 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. Each Portfolio forwards to the
Fund's custodian the monies for dividends to be paid in cash on the payment
date.
TAXATION
Management believes that each Portfolio (except the Mortgage Portfolio
which had not commenced operations) has qualified for the fiscal year ended
December 31, 1998 as a "regulated investment company" under Subchapter M of the
Code. It is intended that each such Portfolio will continue to so qualify as a
regulated investment company, if such qualification is in the best interests of
its shareholders. 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. 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. If
the Portfolio did not qualify as a regulated investment company, it would be
treated for tax purposes as an ordinary corporation subject to Federal income
tax. 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.
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, International Fixed-Income
Portfolio and Mortgage 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, International Fixed-Income Portfolio and Mortgage 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, International Fixed-Income Portfolio and U.S.
Mortgage 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.
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.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally apply if a Portfolio either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short sale,
futures or forward contract, or offsetting notional principal contract
(collectively, a "Contract") with respect to the same or substantially identical
property or (2) holds an appreciated financial position that is a Contract and
then acquires property that is the same as, or substantially identical to, the
underlying property. In each instance, with certain exceptions, the Portfolio
generally will be taxed as if the appreciated financial position were sold at
its fair market value on the date the Portfolio enters into the financial
position or acquires the property, respectively. 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
December 31, 1998 for Institutional Shares and Open Shares of each Portfolio
indicated below was as follows:
Name of Portfolio 30-Day Yield Distribution Rate
Institutional Open Institutional Open
Shares Shares Shares Shares
Bond ____% ____% ____% ____%
High Yield ____% ____% ____% ____%
International Fixed-Income ____% ____% ____% ____%
Strategic Yield ____% ____% ____% ____%
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 and Open
Shares for the indicated Portfolio and periods ended December 31, 1998 (the date
listed in the footnote is the beginning of the period for the indicated
Portfolio) was as follows:
Institutional Shares Average Annual Total Returns
For Periods Ended December 31, 1998
NAME OF PORTFOLIO 1-YEAR 5-YEARS 10-YEARS
Equity ____% ____% ____%(3)
International Equity ____% ____% ____%(4)
International Fixed-Income ____% ____% ____%(5)
Bond ____% ____% ____%(6)
Strategic Yield ____% ____% ____%(7)
Small Cap ____% ____% ____%(8)
International Small Cap ____% ____%(1) N/A
Emerging Markets ____% ____%(2) N/A
Bantam Value ____% ____%(9) N/A
Global Equity ____% ____%(10) 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.
(9) March 5, 1996.
(10) January 4, 1996.
Open Shares Average Annual Total Returns
For Periods Ended December 31, 1998
NAME OF PORTFOLIO 1-YEAR 5-YEARS 10-YEARS
Equity _____% _____%(1) N/A
International Equity _____% _____%(2) N/A
International Fixed-Income _____% _____%(3) N/A
Bond _____% _____%(4) N/A
Strategic Yield _____% _____%(2) N/A
Small Cap _____% _____%(5) N/A
International Small Cap _____% _____%(6) N/A
Emerging Markets _____% _____%(3) N/A
Bantam Value _____% _____%(2) N/A
Global Equity _____% _____%(5) N/A
- ---------------
(1) February 5, 1997.
(2) January 23, 1997.
(3) January 8, 1997.
(4) March 5, 1997.
(5) January 30, 1997.
(6) February 13, 1997.
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 Institutional Shares and Open Shares for the
indicated Portfolio from inception through December 31, 1998 (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:
Total Return Through December 31, 1998
NAME OF PORTFOLIO INSTITUTIONAL SHARES OPEN SHARES
Equity ______%(1) ______%(13)
Mid Cap ______%(2) ______%(2)
International Equity ______%(3) ______%(14)
International Fixed-Income ______%(4) ______%(15)
Bond ______%(5) ______%(16)
Strategic Yield ______%(6) ______%(14)
Small Cap ______%(7) ______%(17)
International Small Cap ______%(8) ______%(18)
Emerging Markets ______%(9) ______%(15)
Bantam Value ______%(10) ______%(14)
Global Equity ______%(11) ______%(17)
High Yield ______%(12) ______%(19)
- -------------------
(1) June 1, 1987.
(2) November 4, 1997.
(3) October 29, 1991.
(4) November 8, 1991.
(5) November 12, 1991.
(6) October 1, 1991.
(7) October 30, 1991.
(8) December 1, 1993.
(9) July 15, 1994.
(10) March 5, 1996.
(11) January 4, 1996.
(12) January 2, 1998.
(13) February 5, 1997.
(14) January 23, 1997.
(15) January 8, 1997.
(16) March 5, 1997.
(17) January 30, 1997.
(18) February 13, 1997.
(19) February 24, 1998.
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 Mortgage 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.
INFORMATION ABOUT THE FUND AND PORTFOLIOS
On January 1, 1992, the Fund on behalf of the Equity Portfolio
acquired the assets and liabilities of Lazard Equity Fund, formerly a portfolio
of Scudder Fund, 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 to so indemnify the directors and officers of Scudder Fund.
As of __________, 1999, the following shareholders owned beneficially
or of record 5% or more of the indicated Portfolio's outstanding shares:
<PAGE>
Name and Address Percentage of Total
Institutional Shares Outstanding
[EQUITY PORTFOLIO
Seagrams Retirement Savings and Investment Trust 9.62%
c/o The Bank of New York
1 Wall Street, 12th Floor
New York, NY 10005-2501
Smith Barney Inc. 7.76%
388 Greenwich Street
New York, NY 10013
Lazard Freres & Co. LLC 6.39%
Employee Savings Plan--Equity Fund
30 Rockefeller Plaza
New York, NY 10112
SMALL CAP PORTFOLIO
Merrill Lynch For The Sole 9.09%
Benefit of Its Customers
Attn: Fund Admin LZSCX
4800 Deer Lake Dr. East 2nd Floor
Jacksonville, FL 32246-6484
Lazard Freres & Co. LLC 7.05%
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 8.55%
United Food & Commercial
Workers Unions & Empl Pen Fund
1800 Phoenix Blvd. Ste. 310
Atlanta, GA 30349
Lazard Freres & Co. LLC 6.61%
Graphic Communications Intl.
Union Supplemental Retirement & Disability
Fund--Equity
30 Rockefeller Plaza
New York, NY 10112
Lazard Freres & Co. LLC 5.87%
Ursinus College
Attn: Business Office
P.O. Box 1000
Main Street
Collegeville, PA 19426-1000
GLOBAL EQUITY PORTFOLIO
Lazard Freres & Co. LLC 43.86%
Mount Sinai Hospital
Foundation of Toronto
331-500 University Avenue
Toronto, ON M5G 1X5
Lazard Freres & Co. LLC 12.62%
Majck (1997) Investment
Limited Partnership
225 Water Street Ste. 84C
Jacksonville, FL 32202
Lazard Freres & Co. LLC 8.22%
Bitterroot Enterprises Inc.
P.O. Box 7048
Wilmington, DE 19803
INTERNATIONAL EQUITY PORTFOLIO
Lazard Freres & Co. LLC 9.98%
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 6.44%
The George Washington
University Int'l Small Cap
Att: Louis Katz & Courtney Lowe
2121 I Street
707 Rice Hall
Lazard Freres & Co. LLC 6.17%
United Air Lines Inc. Pension & Welfare Plans
30 Rockefeller Plaza
New York, NY 10112
EMERGING MARKETS PORTFOLIO
Lazard Freres & Co. LLC 6.17%
University of British Columbia
Faculty Pension Plan
Emerging Markets
4-6328 Memorial Road
Vancouver, BC V6T TZ2
Lazard Freres & Co. LLC 6.17%
Presbyterian Church (USA)
Foundation Foreign
260 East Twelfth Street
Jeffersonville, IN 47130
Lazard Freres & Co. LLC 5.21%
United Air Lines Inc. Pension & Welfare Plans
30 Rockefeller Plaza
New York, NY 10112
BOND PORTFOLIO
Lazard Freres & Co. LLC 7.70%
Elaine Louise David-Weill
30 Rockefeller Plaza
New York, NY 10112-0194
Lazard Freres & Co. LLC 6.08%
Local 1922 Pension Fund
Attn: Laurie Greco Fund Mngr
1065 Old Country Road Suite 214
Westbury, NY 11590-5628
INTERNATIONAL FIXED-INCOME PORTFOLIO
Lazard Freres & Co. LLC 29.50%
Graphic Communications Intl.
Union Supplemental Retirement
Disability Fund--Fixed-Income
30 Rockefeller Plaza
New York, NY 10112
M & I Trust Co., Custodian for 17.27
Cuka Individual Acct Master Plan
1000 N. Water St., 14th Floor
Milwaukee, WI 53202
Charles Schwab & Co. Inc. 8.96
Special Custody Account
For Benefit of Customers
101 Montgomery St.
San Francisco, CA 54104
HIGH YIELD PORTFOLIO
Lazard Freres & Co. LLC 39.45%
Mass Bay Transportation
30 Rockefeller Plaza 60th Floor
New York, NY 10112-0002
Lazard Freres & Co. LLC 21.14%
Steamfitters Local Union #420
30 Rockefeller Plaza 60th Fl.
New York, NY 10112-0002
Lazard Freres & Co. LLC 13.94%
Oregon Retail Employees Pen Tr.
30 Rockefeller Plaza 60th Floor
New York, NY 10112-0002
Trust Company of America 8.67%
F/B/O IEA
P.O. Box 6503
Englewood, CO 80155-6503
Lazard Freres & Co. LLC 7.52%
Homeland Foundation
30 Rockefeller Plaza 60th Floor
New York, NY 10112-0002
STRATEGIC YIELD PORTFOLIO
Merrill Lynch For The Sole 13.37%
Benefit of Its Customers
Attn: Fund Admin LZSYX
4800 Deer Lake Dr. East 2nd Floor
Jacksonville, FL 32246-6484
Lazard Freres & Co. LLC 11.30%
Mack Trucking Inc. Retirement
Trust - Strategic Yield
Attn: Mark Cherry
2100 Mack Blvd.
Allentown, Patterson 18103-5622
Northern Trust Co. 5.83%
F/B/O Cristel Denaan Trust
P.O. Box 92956
Chicago, IL 60675
Mac & Co 5.44%
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230
Percentage of Total
Name and Address Open Shares Outstanding
EQUITY PORTFOLIO
Connecticut General 79.17%
Life Ins. Co.
One Commercial Plaza
280 Trumbull Street
P.O. Box 2975
Hartford, CT 06104
SMALL CAP PORTFOLIO
Connecticut General 77.21%
Life Ins Co.
One Commercial Plaza
280 Trumbull St.
P.O. Box 2975
Hartford, CT 06104
BANTAM VALUE PORTFOLIO
Charles Schwab & Co. Inc. 25.95%
Special Custody Account
For Benefit of Customers
Attn: Mutual Fund 101 Montgomery
San Francisco, CA 94104
GLOBAL EQUITY PORTFOLIO
Lazard Freres & Co. LLC 29.72%
Gaetana Enders
555 Park Avenue
New York, NY 10021-8166
Cusition Trust Limited 15.96%
21 Moorfields
London EC2P 2HT United Kingdom
Lazard Freres & Co. LLC 6.95%
FFBS&J Profit Sharing Plan
FBO Stanley Katz
Attn: Gary Spagnoli
One New York Plaza
New York, NY 10004-1901
Lazard Freres & Co. LLC 6.60%
Edward B. Meyercord Jr.
46 Oxbow Drive
Summit, NJ 07901-2216
INTERNATIONAL EQUITY PORTFOLIO
Connecticut General Life Insurance Co. 11.67%
One Commercial Plaza
280 Trumbull St.
Attn: Liz Pezda 11-19-B
P.O. Box 2975
Hartford, CT 06104-2975
Balsa & Co. 5.89%
c/o Chase Manhattan Bank
P.O. Box 1768 Grand Central Station
New York, NY 10163-1768
EMERGING MARKETS PORTFOLIO
Charles Schwab & Co. Inc. 7.84%
Special Custody Account
For Benefit of Customers
Attn: Mutual Fund 101 Montgomery
San Francisco, CA 94104
INTERNATIONAL SMALL CAP PORTFOLIO
Donaldson Lufkin Jenrette 8.81%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Marsha Von Mueffling Crawford 8.00%
770 Park Ave. Apt. 6D
New York, NY 10021-4153
Attn: Mr. Fred Pakis 6.69%
Lazard Freres & Co. LLC
Clarendon Capital Mgmt Co.
Limited Partnership LLP
8115 North Mohave Road
Paradise Valley, AZ 85253-2291
Wendel & Co A/C 154948 6.63%
The Bank of New York
Mutual Fund Reorg Dept.
P.O. Box 1066
Wall Street Station
New York, NY 10268-1066
BOND PORTFOLIO
Lazard Freres and Co. LLC 13.67%
Suny Univ. Hospital @ Brooklyn
Brooklyn Anesthesia Research
PC Retirement Trust
Attn: Ed Hahn
450 Clarkson Avenue
Lazard Freres & Co. LLC 12.05%
The Catholic Cemeteries of The
Archdiocese of Washington Inc.
Attn Jane S. Landon
13801 Georgia Avenue
Silver Spring, MD 20906-5271
Lazard Freres and Co. LLC 6.37%
Estate of Joseph Froelich
Sally Froelich Andrew Schoen
And Daryl Froelich Moss Exec
Attn Mrs. Sally Froelich
6 Overlook Road
Lazard Freres & Co. LLC 5.17%
Peter W. Quesada
c/o Fore River Company
5 Milk Street
P.O. Box 7525
Portland, ME 04112-7525
INTERNATIONAL FIXED-INCOME PORTFOLIO
Lazard Freres & Co. LLC 15.92%
Trust U/A DTD 10/30/96 Between
Jane Engelhard Settlor & EG
Beimfohr J. Bemberg S Craighead
Mrs. Engelhard c/o Mrs. Simonton
97 Main St.
Lazard Freres & Co. LLC 10.44%
Manfred Steinfield
Shelby Williams Industries
11-111 Merchandise Mart
Chicago, IL 60654
Lazard Freres & Co. LLC 7.32%
NationsBank NA-Madeira School
Attn: Franklin B. Smith
8328 Georgetown Pike
McLean, VA 22102-1203
STRATEGIC YIELD PORTFOLIO
Resource Partners LLC 18.05%
225 Main Street
Westport, CT 06880-3216
MID CAP PORTFOLIO
First Tennessee Bank NA 15.03%
165 Madison Ave.
Memphis, TN 38103-2723
Lazard Freres & Co. LLC 11.46%
Oak Grove Resources Limited 2
30 Rockefeller Plaza 60th Floor
New York, NY 10112-0002
Balsa & Co 6.59%
C/O Chase Manhattan Bank
P.O. Box 1768 Grand Central Station
New York, NY 10163-1768
HIGH YIELD PORTFOLIO
Lazard Freres & Co. LLC 31.67%
Francesca G. Olivieri
1230 Park Avenue Apt. 15H
New York, NY 10128-1726
Roni Goldberg 31.02%
928 Glenview Rd.
Ridgewood, NJ 07450-1101
Post & Co A/C No. 415708 15.47%
c/o The Bank of New York
Mutual Fund Reorg Dept.
P.O. Box 1066
Wall Street Station
New York, NY 10268
Robert A. Sasner 15.45%
Caryn D. Sasner JT Ten
3312 Coolidge Avenue
Los Angeles, CA 90066-1221
Yuhong Geng 6.29%
34 Laddins Rock Road
Old Greenwich, CT 06870]
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 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 on e 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.
___________________________________________________________________,
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.
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>
THE LAZARD FUNDS, INC.
PART C. OTHER INFORMATION
Item 23. Exhibits
(a)(1) Articles of Incorporation1
(a)(2) Articles of Amendment7
(a)(3) Articles Supplementary7
(b) By-Laws1
(d)(1) Form of Investment Management Agreement between
the Registrant and Lazard Asset Management
with respect to the Lazard International Equity
Portfolio4
(d)(2) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard International Fixed-Income
Portfolio4
(d)(3) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with respect
to the Lazard Bond Portfolio4
(d)(4) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with respect
to the Lazard Strategic Yield Portfolio4
(d)(5) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Small Cap Portfolio4
(d)(6) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with respect to
the Lazard Equity Portfolio4
(d)(7) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Emerging Market Portfolio3
(d)(8) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard International Small Cap Portfolio3
(d)(9) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Global Equity Portfolio5
(d)(10) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Bantam Value Portfolio5
(d)(11) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Emerging World Funds Portfolio5
(d)(12) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with
respect to the Lazard Mid Cap Portfolio8
(d)(13) Form of Investment Management Agreement between the
Registrant and Lazard Asset Management with respect to
the Lazard High Yield Portfolio8
(d)(14) Form of Investment Management Agreement between the Registrant
and Lazard Asset Management with respect to the Lazard
Mortgage Portfolio9
(e) Distribution Agreement, as revised7
(g) Form of Custodian Agreement2
(h)(1) Form of Transfer Agency and Service Agreement2
(h)(2) Form of Administration Agreement between the Registrant
and State Street Bank and Trust Company5
(i) Opinion and Consent of Counsel6
(j) Consent of Independent Auditors9
(m) Distribution and Servicing Plan8
(n) Financial Data Schedule9
(o) Rule 18f-3 Plan7
Other Exhibits:
Power of Attorney of Messrs. Burke, Lieberman, Eig,
Gullquist, Reiss and Rutledge3
Power of Attorney of Mr. Davidson6
Power of Attorney of Mr. Frischling7
Power of Attorney of Mr. Katz8
- ---------------
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. 8 filed with the Securities and Exchange Commission on October
13, 1995.
6. Incorporated by reference from Registrant's Post-Effective Amendment
No. 9 filed with the Securities and Exchange Commission on December
27, 1995.
7. Incorporated by reference from Registrant's Post-Effective Amendment
No. 10 filed with the Securities and Exchange Commission on August
15, 1996.
8. Incorporated by reference from Registrant's Post-Effective Amendment
No. 15 filed with the Securities and Exchange Commission on
October 31, 1997.
9. To be filed by amendment.
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
Item 25. 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 26. 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
Gerardo Braggiotti Lazard S.P.A. Managing Director
Via dell'Orso, 2
20121 Milano, Italia
Lazard Brothers & Co. Ltd. Managing Director
21 Moorfields
London EC2P 2HT
England
Centrale of Mediobanca Director
S.P.A. (prior to 12/97)
Milano Italia
Patrick J. Callahan, Jr. Berry Metal Co. Director
Route 68
Harmony, Pennsylvania 16307
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
Michel David-Weill 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
Group Danone Director
7 Rue de Teheran
75008 Paris, France
Instituto Finanziario Director
Industriale S.P.A.
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 Asia Ltd. Director
80 Raffles Place
#22-20 VOB Plaza II
Singapore 048624
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 Lyo Director
49, Rue de la Republique
Lyon (Rhone) 69002
France
John V. Doyle None
Thomas F. Dunn None
Norman Eig Lazard Freres & Co. LLC Vice Chairman
30 Rockefeller Plaza
New York, New York 10020
The Lazard Funds, Inc. Director,
30 Rockefeller Plaza Chairman
New York, New York 10020
Lazard Retirement Series, Inc. Director,
30 Rockefeller Plaza Chairman
New York, New York 10020
Lazard Investment Funds Director
Limited
20/22 Lower Hatch Street
Dublin 2
Ireland
Lazard Pension Management, Inc. Director,
30 Rockefeller Plaza Chief Investment
New York, New York 10020 Officer &
Treasurer
Lazard Asset Management Director
Holdings Limited
21 Moorfields
London EC2P 2HT
England
Lazard Asset Management Director
Pacific Co.
Level 49, Governor Phillip Tower
1 Farrer Place
Sydney NSW 2000
Australia
Lazard Asset Management Director
Limited
21 Moorfields
London EC2P 2HT
England
Lazard Asset Management Member of the
(Deutschland) GmbH Supervisory
Ulmenstrasse 37-39 Board
60325 Frankfurt am Main
Federal Republic of Germany
Lazard Asset Management Managing
(Deutschland) Gesellschaft Director
fur Beteiligungen mbH
Ulmenstrasse 37-39
60325 Frankfurt am Main
Federal Republic of Germany
Richard P. Emerson None
Peter R. Ezersky None
Eli H. Fink Deloitte & Touche Partner,
(Prior to 4/98) Vice Chairman
1633 Broadway
New York, New York 10019
Jonathan F. Foster None
Robert P. Freeman The Fortress Group, Inc. Director
1650 Tyson Blvd. Suite 600
McLean, VA 22102
ARV Assisted Living, Inc. Director
245 Fischer Ave., Suite D-1
Costa Mesa, CA 92626
Albert H. Garner None
James S. Gold Smart & Final Inc. Director
4700 South Boyle Avenue
Los Angeles, California 90058
Hain Food Group Director
59 Charles Lindbergh Blvd.
Uniondale, NY 11553
Jeffrey A. Golman None
Steven J. Golub Mineral Technologies Inc. Director
405 Lexington Avenue
New York, New York 10174-1901
Herbert W. Gullquist Lazard Freres & Co., LLC Vice Chairman
30 Rockefeller Plaza
New York, New York 10020
The Lazard Funds, Inc. Director,
30 Rockefeller Plaza President
New York, New York 10020
Lazard Retirement Series Director,
30 Rockefeller Plaza President
New York, New York 10020
Lazard Far East Investors Director
Limited
Lazard House, P.O. Box 108
2-6 Church Street, St. Helier
Jersey, JE4 8QD Channel Islands
Lazard Asset Management (Canada), Inc. Director,
30 Rockefeller Plaza President
New York, New York 10020
Lazard Pension Management, Inc. Director,
30 Rockefeller Plaza President
New York, New York 10020
Lazard Asset Management Director
Holdings Limited
21 Moorfields
London EC2P 2HT
England
Lazard Asset Management Director,
Pacific Co. Chairman
Level 49, Governor Phillip Tower
1 Farrer Place
Sydney NSW 2000
Australia
Lazard Asset Management Director
Limited
21 Moorfields
London EC2P 2HT
England
Lazard London International Director
Investment Mgmt Limited
21 Moorfields
London EC2P 2HT
England
Lazard Asset Management Member of the
(Deutschland) GmbH Supervisory
Ulmenstrasse 37-39 Board
60325 Frankfurt am Main
Federal Republic of Germany
Lazard Asset Management Managing
(Deutschland) Gesellschaft Director
fur Beteiligungen mbH
Ulmenstrasse 37-39
60325 Frankfurt am Main
Federal Republic of Germany
Thomas R. Haack None
Ira O. Handler None
Yasushi Hatakeyama None
Melvin L. Heineman Lazard Freres & Co., Ltd Director
21 Moorfields
London EC2P 2HT
England
Lazard Asset Management Pacific Co. Director
Level 49, Governor Phillip Tower
1 Farrer Place
Sydney NSW 2000
Australia
Robert E. Hougie None
Kenneth M. Jacobs National Imaging Associates, Inc. Director
ARV Assisted Living, Inc. Director
245 Fischer Ave., Suite D-1
Costa Mesa, CA 92626
Patient Education Media, Inc. Director
1271 Avenue of the Americas
New York, New York 10020
Tyco Toys, Inc. Director
6000 Midlantic Drive
Mount Laurel, New Jersey 08054
James L. Kempner Lazard Capital Markets
21 Moorefields
London EC2P 2HT
England
Larry A. Kohn None
Lee O. Kraus None
Sandra A. Lamb None
David C. Lee Young Broadcasting Inc. Director
599 Lexington Ave.
New York, New York 10022
Michael S. Liss Celebrity Sightings LLC Director
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 Capital Markets
21 Moorefields
London EC2P 2HT
England
Matthew, J. Lustig None
Thomas E. Lynch None
Mark T. McMaster None
Anthony E. Meyer Lazard Freres Real Managing
Estate Investors, LLC Director
30 Rockefeller Plaza
New York, New York 10020
Atlas Industrial Corporation Director
Dermody Properties Director
Alex Haagen Properties Director
Prometheus Realty Investors LLC Director
Damon Mezzacappa Corporate Property Investors Director
30 Rockefeller Plaza
New York, New York 10020
Richard W. Moore Jr. None
Robert P. Morgenthau Lazard Asset Management Director,
(Canada), Inc. Vice
30 Rockefeller Plaza President
New York, New York 10020
Lazard Investment Funds Limited Director
20/22 Lower Hatch Street
Dublin 2
Ireland
Lazard Fund Manager (CI) Limited Director
Lazard House P.O. Box 108
2-6 Church Street St. Helier
Jersey, JE4 8QD Channel Islands
Lazard Global Bond Fund plc Director
20/22 Lower Hatch Street
Dublin 2
Ireland
Lazard Global Equity Fund plc Director
20/22 Lower Hatch Street
Dublin 2
Ireland
Lazard Global Liquidity Fund plc Director
20/22 Lower Hatch Street
Dublin 2
Ireland
Lazard Strategic Yield Fund plc Director
20/22 Lower Hatch Street
Dublin 2
Ireland
Global Funds Management plc Director
20/22 Lower Hatch Street
Dublin 2
Ireland
Lazard Asset Management (CI) Director
Holdings Ltd.
Lazard House P.O. Box 108
2-6 Church Street St. Helier
Jersey, JE4 8QD Channel Islands
Lazard Asset Management (CI) Ltd Director
Lazard House P.O. Box 108
2-6 Church Street St. Helier
Jersey, JE4 8QD Channel Islands
Lazard Investment Funds (CI) Ltd Director
Lazard House P.O. Box 108
2-6 Church Street St. Helier
Jersey, JE4 8QD Channel Islands
Lazard Funds Administration Services Director
(CI) Ltd.
Lazard House P.O. Box 108
2-6 Church Street St. Helier
Jersey, JE4 8QD Channel Islands
Steven J. Niemczyk None
Hamish W. M. Norton None
James A. Paduano Donovan Data Systems, Inc. Director
666 Fifth Avenue
New York, New York 10019
Secure Products Inc. Director
47 Maple Street
Summit, NJ 07901
Credit Agricole Lazard Director
Financial Products Bank Ltd.
Adam P. Parten None
Louis Perlmutter None
Russell E. Planitzer Intersolv, Inc. Director
9420 Key West Ave.
Rockville, MD 20850
Steven L. Rattner Falcon Holding Group L.P. Director
10900 Wilshire Boulevard
Los Angeles, California 90024
John R. Reinsberg Lazard Asset Management Executive
Pacific Co. Vice President,
Level 49, Governor Phillip Director
Tower
1 Farrer Place
Sydney NSW 2000
Australia
Lazard Asset Management Member of the
(Deutschland) GmbH Supervisory
Ulmenstrasse 37-39 Board
60325 Frankfurt am Main
Federal Republic of Germany
Louis G. Rice None
Luis E. Rinaldini None
Bruno M. Roger
AXA Supervisory
21 Rue de Chateaudun Board
75441 Paris France Member
CAP Gemini Sogeti Director
6, Bid Jean Pain a Grenoble (38005)
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 & 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
Pinault-Printemps-Redoute Director
61, Rue Caumartin
75009 Paris
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
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
Michael S. Rome None
Steven H. Sands Isogen LLC Director
Skila, Inc. Director
National Imaging Associates, Inc. Director
Gary S. Shedlin None
Arthur P. Solomon Alexander Haagaen Director
FAC Director
Berkshire Realty Trust Director
1 Beacon Street, Suite 1550
Boston, MA 02108
Cliveden Director
Hill House
1 Little New Street
London EC4A 3TR
England
David A. Tanner E.M. Warburg, Pincus Managing
& Co. LLC (prior to 12/97) Director
466 Lexington Avenue
New York, New York 10017
Golden Books Family Director
Entertainment Inc.
Renaissance Re Holdings Director
Ltd. (prior to 7/98)
Poserdon Resources Inc. Director
Charter Financial Inc. Director
David L. Tashjian None
J. Mikesell Thomas None
Michael P. Triguboff Lazard Asset Management Pacific Co. Managing Director
Level 49, Governor Phillip Tower
1 Farrer Place
Sydney NSW 2000
Australia
Triguboff Management Pty Limited Director
Donald A. Wagner None
Ali E. Wambold The Albert Fisher Group plc Director
Fisher House
61 Thames Street
Windsor, Berkshire SO4 IQW
England
Lazard Freres & Co., Ltd. Director
21 Moorfields
London EC2P 2HT
England
Tomkins PLC Director
East Putney House
84 Upper Richmond Road
London SW15 2ST
England, UK
Corporate Advisors L.P. Member of
30 Rockefeller Plaza Investment
New York, NY 10020 Advisory
Board
Michael A. Weinstock None
Antonio F. Weiss None
Alexander E. Zagoneos The Egypt Trust Director
11 Rue Aldringen
Luxembourg 1-2960
Lazard Emerging World Fund Director
30 Rockefeller Plaza
New York, NY 10020
Flemings Continental European Director
Investment Trust, plc
25 Copthall Avenue
London EC2R 7DR
Gartmore Emerging Pacific Director
Investment Trust plc
Gartmore House
16-18 Monument Street
London EC3R 8AJ
The Greek Progress Fund Director
Ergobank
5, Evripidou
40-44, Praxit, Elous
105-61 Athens
Greece
Jupiter International Green Director
Investment Trust plc
Knightsbridge House
197 Knightsbridge
London SW7 1R8
England
Latin American Investment Trust plc Director
Exchange House
Primrose Street
London EC2A 2NY
New Zealand Investment Trust plc Director
23 Cathedral Yard
Exeter
Devon EX1 1HB
Taiwan Opportunities Fund Ltd. Director
c/o Martin-Currie
20 Castle Terrace
Edinburgh EHI 2ES
U.K.
The World Trust Fund Director
Kredietrust
11 rue Aldringen
Luxembourg 1-2960
Lazard Select Fund Director
Lazard House P.O. Box 108
2-6 Church Street
St. Helier
Jersey, JE4 8QD
Channel Islands
Ermitage Selz Fund Director
Forum Bourse
17 Rue Des Bains
Boite Pastale 44
L-2010 Luxembourg
Lazard Asset Management Egypt Director
3, Shagaret El Dor Street, Apt. 31
Zamalek, Cairo, Egypt
Taiwan American Fund Limited Director
c/o Martin-Currie
20 Castle Terrace
Edinburgh EHI 2ES
U.K.
Item 27. Principal Underwriters
(a) Lazard Freres & Co. LLC, through its division Lazard Asset Management,
currently serves as an investment adviser or subadviser to the
following investment companies: Lazard Retirement Series, Inc.; ISG
International Equity Fund; Fortis Series Fund, Inc. Lazard
International Stock Series; EQ Advisors Trust Lazard Large Cap Value
Portfolio and Lazard Small Cap Value Portfolio; JNL Series Trust
Lazard/JNL Mid Cap Value Series and Lazard/JNL Small Cap Value Series;
The Managers Funds Managers International Equity Fund; Members Mutual
Funds Members International Stock Fund; Nationwide Investing
Foundation III Prestige Advisor Series Prestige International Fund;
Nationwide Separate Account Trust Nationwide Small Company Fund; The
Target Portfolio Trust Target International Equity Portfolio and
Target Small Capitalization Value Portfolio; Prudential Diversified
Funds Prudential Diversified Moderate Growth Fund and Prudential
Diversified High Growth Fund; Style Select Series, Inc. Large-Cap
Blend Portfolio and Small-Cap Value Portfolio; TIFF Investment
Program, Inc. TIFF Emerging Markets Fund; and Travelers Series Trust
Lazard International Stock Portfolio.
(b) Eileen D. Alexanderson, William Araskog, F. Harlan Batrus, Gerardo
Braggiotti, Patrick J. Callahan, Jr., Michel David-Weill, John V.
Doyle, Thomas F. Dunn, Norman Eig, Richard P. Emerson, Peter R.
Ezersky, Eli H. Fink, Jonathan F. Foster, Robert P. Freeman, Albert H.
Garner, James S. Gold, Jeffrey A. Golman, Steven J. Golub, Herbert W.
Gullquist, Thomas R. Haack, Ira O. Handler, Melvin L. Heineman, Robert
E. Hougie, Kenneth M. Jacobs, Jonathan H. Kagan, James L. Kempner,
Larry A. Kohn, Lee O. Kraus, Sandra A. Lamb, David C. Lee, Michael S.
Liss, William R. Loomis, Jr., J. Robert Lovejoy, Matthew J. Lustig,
Thomas E. Lynch, Mark T. McMaster, Anthony E. Meyer, Damon Mezzacappa,
Robert P. Morgenthau, Steven J. Niemczyk, Hamish W. M. Norton, James
A. Paduano, Adam P. Parten, Louis Perlmutter, Russell E. Planitzer,
Lester Pollack, Steven L. Rattner, John R. Reinsberg, Louis G. Rice,
Luis E. Rinaldini, Bruno M. Roger, Michael S. Rome, Steven H. Sands,
Gary S. Shedlin, Arthur P. Solomon, David A. Tanner, David L.
Tashjian, J. Mikesell Thomas, Michael P. Triguboff, Donald A. Wagner,
Ali E. Wambold, Michael A. Weinstock 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 28. 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 29. Management Services
Not Applicable
Item 30. Undertakings
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant 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 26th day
of February, 1999.
THE LAZARD FUNDS, INC.
(Registrant)
By: /S/HERBERT W. GULLQUIST*
Herbert W. Gullquist, President
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 February 26, 1999
- ----------------------- Executive, Financial
Herbert W. Gullquist and Accounting Officer)
and Director
/S/Norman Eig* Director February 26, 1999
- --------------
Norman Eig
/s/ John J. Burke* Director February 26, 1999
- ------------------
John J. Burke
/s/ Lester Z. Lieberman* Director February 26, 1999
- -----------------------
Lester Z. Lieberman
/s/ Richard Reiss, Jr.* Director February 26, 1999
- ------------------------
Richard Reiss, Jr.
/s/ John Rutledge* Director February 26, 1999
- -----------------------
John Rutledge
/s/ Kenneth S. Davidson* Director February 26, 1999
- ------------------------
Kenneth S. Davidson
/s/ Carl Frischling* Director February 26, 1999
- -----------------------
Carl Frischling
/s/ William Katz* Director February 26, 1999
- ----------------------
William Katz
*By:/s/ William G. Butterly, III
------------------------
Attorney-in-fact, William G. Butterly, III
