Securities Act File No. 33-40682
Investment Company Act File No. 811-06312
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 21 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 21 /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
David M. Goldenberg, Esq.
30 Rockefeller Plaza
New York, New York 10112
(Name and Address of Agent for Services)
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)
----
X
---- 60 days after filing pursuant to paragraph (a) (1)
---- on (DATE) pursuant to paragraph (a) (1)
---- 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
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PROSPECTUS
_______ __, 200_
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Lazard Mortgage Portfolio
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30 Rockefeller Plaza
New York, New York 10112
(800) 823-6300
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE SHARES DESCRIBED IN THIS PROSPECTUS OR DETERMINED
WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE
IS COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
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CAREFULLY REVIEW THIS
IMPORTANT SECTION, WHICH RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES
SUMMARIZES THE PORTFOLIO'S
INVESTMENTS, RISKS, PAST
PERFORMANCE AND FEES.
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REVIEW THIS SECTION FOR MORE INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
INFORMATION ON INVESTMENT
STRATEGIES AND THEIR RISKS.
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REVIEW THIS SECTION FOR FUND MANAGEMENT
DETAILS ON THE PEOPLE AND - INVESTMENT MANAGER
ORGANIZATIONS WHO OVERSEE THE - PRINCIPAL PORTFOLIO MANAGERS
PORTFOLIO. - ADMINISTRATOR
- DISTRIBUTOR
- CUSTODIAN
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REVIEW THIS SECTION FOR SHAREHOLDER INFORMATION
DETAILS ON HOW SHARES ARE - GENERAL
VALUED, HOW TO PURCHASE, SELL - HOW TO BUY SHARES
AND EXCHANGE SHARES, RELATED - HOW TO SELL SHARES
CHARGES AND PAYMENTS OF - INVESTOR SERVICES
DIVIDENDS AND DISTRIBUTIONS. - GENERAL POLICIES
- ACCOUNT POLICIES, DIVIDENDS AND TAXES
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REVIEW THIS SECTION FOR RECENT FINANCIAL HIGHLIGHTS
FINANCIAL INFORMATION.
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WHERE TO LEARN MORE ABOUT THE BACK COVER
PORTFOLIO.
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Lazard Asset Management, a division of Lazard Freres & Co. LLC ("Lazard"),
serves as the Portfolio's investment manager.
THE PORTFOLIO The Lazard Funds, Inc. (the "Fund") consists
of twelve separate portfolios, only one of
which, Lazard Mortgage Portfolio (the
"Portfolio"), is being offered through this
Prospectus. The Portfolio has its own
investment objective, strategies and
risk/return profile. Because you could lose
money by investing in the Portfolio, be sure
to read all risk disclosures carefully before
investing.
You should be aware that the Portfolio:
o Is not a bank deposit
o Is not guaranteed, endorsed or insured by
any bank, financial institution or
government entity, such as the Federal
Deposit Insurance Corporation
o Is not guaranteed to achieve its stated
goals
The minimum initial investment for Portfolio
Shares is $1,000,000.
<PAGE>
RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES
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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 STRATEGIES The Portfolio invests primarily in
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 A security guaranteed by the U.S. Government
is guaranteed only as to principal and
interest. Neither the market value of the
security nor the Portfolio's share price is
guaranteed.
Prices of certain mortgage-related securities
tend to move inversely with changes in
interest rates. In periods of declining
interest rates, mortgages underlying a
mortgage-related security are more likely to
be prepaid, which could hurt the Portfolio's
share price or yield. Other mortgage-related
securities also are subject to credit risks
associated with the underlying mortgage
properties. These securities 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.
The Portfolio is non-diversified, which means
that it may invest a greater percentage of
its assets in a particular issuer compared to
funds that are diversified. Accordingly, its
performance may be more sensitive to changes
in the market value of a single issuer or
group of issuers.
<PAGE>
PERFORMANCE BAR CHART AND TABLE
As of the date of this prospectus, the Portfolio had not completed a year of
operations. Accordingly, no performance information is provided.
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 the Portfolio has no sales charge (load). Annual
Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected
in the share price.
ANNUAL PORTFOLIO
OPERATING EXPENSES
(FEES THAT ARE
DEDUCTED FROM
PORTFOLIO ASSETS)
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Management fees .40%
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Distribution and
Service (12b-1) fees None
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Other expenses* .86%
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Total Annual Portfolio
Operating Expenses 1.26%
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Fee Waiver and
Expense Reimbursement** (.61)%
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Net Operating
Expenses** .65%
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* "Other expenses" are based on estimated amounts for the current fiscal year.
** The Investment Manager has contractually agreed to waive its fee and/or
reimburse the Portfolio through December 31, 2001 to the extent Total Annual
Portfolio Operating Expenses exceed .65% of the Portfolio's average daily net
assets.
<PAGE>
EXPENSE EXAMPLE
Use the table at right to compare the Portfolio's fees and expenses with those
of other funds. It illustrates the amount of fees and expenses you would pay,
assuming the following:
o $10,000 initial investment
o 5% annual return each year
o redemption at the end of each period o no changes in operating
expenses
Because this example is hypothetical and for comparison only, your actual costs
will be higher or lower.
LAZARD MORTGAGE PORTFOLIO 1+ 3+
Year Years
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$66 $339
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+ Year 1 fees and expenses are based on the net amount pursuant to contractual
agreement.
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
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LAZARD MORTGAGE PORTFOLIO
Ticker Symbol: Not Available
INVESTMENT OBJECTIVE AND STRATEGIES
Lazard 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 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 by
Standard & Poor's Ratings Services or Aaa by Moody's Investors Service, Inc., 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. 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. In addition, the 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 and
simultaneously agrees to purchase a similar security from the institution at a
later date at an agreed upon price.
The Portfolio may engage, to a limited extent, in various investment techniques,
such as options and futures transactions and lending portfolio securities.
ADDITIONAL RISK FACTORS
A security guaranteed by the U.S. Government is guaranteed only as to principal
and interest. Neither the market value of the security nor the Portfolio'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 Portfolio to invest for higher yields, the most immediate
effect is usually a drop in the security's price, and therefore in the
Portfolio's share price as well. As a result, the value of your investment in
the Portfolio 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 Portfolio'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. Forward roll transactions
involve the risk that the market value of the securities sold by the Portfolio
may decline below the securities' purchase price.
Under adverse market conditions, the Portfolio could invest some or all of its
assets in money market securities. The Portfolio would do this to avoid losses,
but this could reduce the benefit from any upswing in the market for
mortgage-related securities and may result in the Portfolio not achieving its
investment objective.
While the Portfolio may engage in options and futures transactions primarily to
hedge its portfolio, it may also 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. As such, a small investment in certain derivatives could
have a potentially large impact on the Portfolio's performance.
<PAGE>
FUND MANAGEMENT
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INVESTMENT MANAGER
Lazard Asset Management, 30 Rockefeller Plaza, New York, New York 10112, serves
as the Investment Manager of the Portfolio. The Investment Manager provides
day-to-day management of the Portfolio's investments and assists in the overall
management of the Portfolio's affairs. The Investment Manager is a division of
Lazard, 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 Chicago Stock
Exchanges. Lazard provides its clients with a wide variety of investment
banking, brokerage and related services. The Investment Manager and its
affiliates provide investment management services to client discretionary
accounts with assets totaling approximately $71.6 billion as of September 30,
2000. Its clients are both individuals and institutions, some of whose accounts
have investment policies similar to those of several of the Fund's other
Portfolios.
The Fund has agreed to pay the Investment Manager an investment management fee
at the annual rate of .40% of the Portfolio's average daily net asset value. The
investment management fees are accrued daily and paid monthly.
PRINCIPAL PORTFOLIO MANAGERS
The Portfolio is managed on a team basis. The principal persons who are
primarily responsible for the day-to-day management of the assets of the
Portfolio are Kenneth C. Weiss and Eric S. Silvergold (each since inception).
BIOGRAPHICAL INFORMATION OF PRINCIPAL PORTFOLIO MANAGERS
KENNETH C. WEISS. Mr. Weiss has been a Managing Director of the Investment
Manager since February 2000, when he joined the Investment Manager. Prior
thereto, he was President and Chief Executive Officer of Hyperion Capital
Management.
ERIC S. SILVERGOLD. Mr. Silvergold has been a Senior Vice President of the
Investment Manager since December 1999 (a Vice President prior to that time). He
joined the Investment Manager in April 1995.
ADMINISTRATOR
State Street Bank and Trust Company ("State Street"), located at 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Portfolio's administrator.
DISTRIBUTOR
Lazard acts as distributor for the Portfolio.
CUSTODIAN
State Street acts as custodian of the Portfolio's investments.
<PAGE>
SHAREHOLDER INFORMATION
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GENERAL
Portfolio shares are sold, without a sales
charge, on a continuous basis at the net
asset value per share ("NAV") next determined
after an order in proper form is received by
the Fund's Transfer Agent, Boston Financial
Data Services, Inc., or another authorized
entity. The NAV 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. The Portfolio's securities
typically are valued using available market
quotations or at fair value which may be
determined by one or more pricing services.
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.
MINIMUM INVESTMENT
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. Please
note that the minimum initial investment is
$1,000,000.
<PAGE>
<TABLE>
<CAPTION>
HOW TO BUY SHARES
INITIAL PURCHASE ADDITIONAL PURCHASES
<S> <C> <C>
BY MAIL 1. Complete a Purchase Application. 1. Make a check payable to "The
Indicate the services to be used. Lazard Funds, Inc." Write the
shareholder's account number on
the check.
2. Mail the Purchase Application and a check for
$1,000,000 or more for Institutional Shares,
payable to "The Lazard Funds, Inc." to: 2. Mail the check and the
detachable stub from the Statement
of Account (or a letter providing
The Lazard Funds, Inc. the account number) to the address
P.O. Box 9363 set forth in Item 2 under "Initial
Boston, Massachusetts Purchase - By Mail."
02205-9363
Attention: (Name of Portfolio)
BY WIRE 1. Call (800) 986-3455 toll-free from any Instruct the wiring bank to
state and provide the following: transmit the specified amount in
federal funds to State Street Bank
and Trust Company, as instructed
in Item 2 under "Initial Purchase
o the name of the Portfolio to be - By Wire."
invested in
o name(s) in which shares are to be registered
o address
o social security or tax identification
number
o dividend payment election
o amount to be wired
o name of the wiring bank, and
o name and telephone number of the person to
be contacted in connection with the order.
An account number will then 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 State
Street Bank and Trust Company:
ABA #: 011000028
State Street Bank and Trust Company
Boston, Massachusetts
Custody and Shareholder Services Division
DDA 9905-2375
Attention: (Name of Portfolio)
The Lazard Funds, Inc.
Shareholder's Name and Account Number
3. Complete a Purchase Application. Indicate the
services to be used. Mail the Purchase Application
to the address set forth in Item 2 under "Initial
Purchase - By Mail."
</TABLE>
HOW TO SELL SHARES
GENERAL
The Fund imposes no charges when shares are sold. However, securities dealers
and other institutions may charge their clients a fee for effecting sales of
Portfolio shares. Upon receipt by the Transfer Agent, Lazard or another
authorized entity of a sale request in proper form, Portfolio shares will be
sold at their next determined NAV. (See below.)
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. Alternatively, redemption requests may be
satisfied through a transfer of in-kind portfolio securities:
SELLING SHARES
THROUGH THE TRANSFER AGENT: Shareholders
who do not have a brokerage
account with Lazard should submit their
sale requests to the Transfer Agent by
telephone or mail, as follows:
TELEPHONE REDEMPTIONS:
A shareholder may redeem
shares by calling the 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 redemption or a
Telephone Redemption Authorization Form.
To place a redemption request, or to
have telephone redemption privileges
added to your account, please call the
Transfer Agent's toll-free number, (800)
986-3455. In order to confirm that
telephone instructions 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.
BY MAIL:
1. Write a letter of instruction to the
Fund. Indicate the dollar amount, or
number of shares to be sold, the
Portfolio name, 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
account, 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. In addition, all redemption
requests that include instructions for
redemption proceeds to be sent somewhere
other than the address on file, must be
signature guaranteed.
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)
THROUGH A LAZARD BROKERAGE
ACCOUNT: Shareholders who have a
brokerage account with Lazard should
contact their 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.
EXCHANGE PRIVILEGE allows you
to exchange shares of one Portfolio that
have been held for seven days or more
for shares of the Institutional Class of
another Portfolio in an identically
registered account. Shares will be
exchanged at the next determined NAV.
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.
The Fund's exchange privilege
is not designed to provide investors
with a means of speculating on
short-term market movements. A pattern
of frequent exchanges can be disruptive
to efficient portfolio management and,
consequently, can be detrimental to the
Portfolio's performance and
shareholders. Accordingly, if the Fund's
management determines that an investor
is following a market-timing strategy or
is otherwise engaging in excessive
trading, the Fund, with or without prior
notice, may temporarily or permanently
terminate the availability of the
exchange privilege, or reject in whole
or part any exchange request, with
respect to such investor's account.
Generally, an investor who makes more
than four exchanges per Portfolio during
any 12 month period, or who makes
exchanges that appear to coincide with a
market-timing strategy, may be deemed to
be engaged in excessive trading. If an
exchange request is refused, the Fund
will take no other action with respect
to the shares until it receives further
instructions from the investor. The
Fund's policy on excessive trading
applies to investors who invest in the
Portfolio directly or through financial
intermediaries.
TELEPHONE REDEMPTION allows
you to redeem shares at the net asset
value next determined after you call the
Transfer Agent with your request.
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 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 amount
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 at the
Fund's discretion)
o Close an account due to excessive trading after prior
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 each business day and paid
monthly for the Portfolio. Net capital
gains, if any, are normally distributed
annually but may be distributed twice
annually.
Dividends and distributions of
the Portfolio will be invested in
additional shares 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 the following 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 the
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 taxable capital gain or loss
may be realized, except for IRA
accounts.
Federal law requires the
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
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As a new Portfolio, financial highlights information is not available for the
Portfolio as of the date of this Prospectus.
<PAGE>
For more information about the Portfolio, the following document is available
free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Portfolio, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
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YOU CAN GET A FREE COPY OF THE SAI, OR REQUEST OTHER INFORMATION AND DISCUSS
YOUR QUESTIONS ABOUT THE PORTFOLIO BY CONTACTING THE FUND AT:
THE LAZARD FUNDS, INC.
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
TELEPHONE: 1-800-823-6300
HTTP://WWW.LAZARDNET.COM
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You can review the SAI at the Public Reference Room of the Securities and
Exchange Commission in Washington, D.C. For information, call 1-202-942-8090.
You can get text-only copies:
o After paying a duplicating fee, by writing the Public Reference Section of
the Commission, Washington, D.C. 20549-6009, or by e-mail request to
[email protected].
o Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-6312
<PAGE>
THE LAZARD FUNDS, INC.
LAZARD MORTGAGE PORTFOLIO
30 Rockefeller Plaza
New York, New York 10112
(800) 823-6300
STATEMENT OF ADDITIONAL INFORMATION
_______ __, 200_
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 relating to Lazard Mortgage Portfolio
(the "Portfolio"), dated _______ __, 200_, as it may be revised from time to
time.
To obtain a copy of the Portfolio's Prospectus, please write or call
the Fund at the address and telephone number given above.
<PAGE>
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TABLE OF CONTENTS
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Description of the Fund and Portfolio.......................................3
Investment Restrictions....................................................15
Management.................................................................16
Determination of Net Asset Value...........................................21
Portfolio Transactions.....................................................21
How to Buy and How to Sell Shares..........................................23
Dividends and Distributions................................................24
Taxation...................................................................25
Performance Information....................................................27
Information About the Fund and Portfolio...................................28
Counsel and Independent Auditors...........................................29
Additional Information.....................................................29
Appendix...................................................................30
<PAGE>
DESCRIPTION OF THE FUND AND PORTFOLIO
The Fund is a Maryland corporation organized on May 17, 1991. The
Portfolio is a separate portfolio of the Fund, an open-end management investment
company, known as a mutual fund.
Lazard Asset Management, a division of Lazard Freres & Co. LLC
("Lazard"), serves as the investment manager (the "Investment Manager") to the
Portfolio.
Lazard is the distributor of the Portfolio's shares.
CERTAIN PORTFOLIO SECURITIES
The following information supplements and should be read in
conjunction with the Portfolio's Prospectus.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities are secured, directly
or indirectly, by pools of mortgages, and may include complex instruments such
as collateralized mortgage obligations. These securities also may include
mortgage pass-through securities, or other kinds of mortgage-backed securities.
The mortgage-related securities which may be purchased by the Portfolio include
those with fixed, floating and variable interest rates.
RESIDENTIAL MORTGAGE-RELATED SECURITIES--The Portfolio 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. The Portfolio will not invest in Subordinated
Securities.
COMMERCIAL MORTGAGE-RELATED SECURITIES--The Portfolio 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.
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 Government. 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.
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 Portfolio will
not invest in interests in REMICs classified as "residual" interests.
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. The Portfolio will not invest in inverse floating rate CMOs or CMO
residuals.
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.
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. The Portfolio 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.
PARTICIPATION INTERESTS. The 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.
The Portfolio may invest in corporate obligations denominated in U.S.
dollars 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." The
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." The 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. 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.
The 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.
ZERO COUPON AND STRIPPED U.S. TREASURY SECURITIES. The Portfolio 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.
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. The Portfolio 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.
INVESTMENT COMPANIES. The Portfolio may invest, to the extent
permitted under the Investment Company Act of 1940, as amended (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. The Portfolio may invest up to 10% 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 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. When the Investment Manager determines that
adverse market conditions exist, the 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. The Portfolio also may purchase money market instruments
when it has cash reserves or in anticipation of taking a market position.
INVESTMENT TECHNIQUES
The following information supplements and should be read in
conjunction with the Portfolio's Prospectus.
BORROWING MONEY. The Portfolio 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. While borrowings exceed 5% of the Portfolio's
total assets, the Portfolio will not make any additional investments.
LENDING PORTFOLIO SECURITIES. The Portfolio may lend securities from
its portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Portfolio continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Portfolio an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 33-1/3% of
the value of the Portfolio's total assets, and the Portfolio will receive
collateral consisting of cash, U.S. Government securities or irrevocable letters
of credit which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Such loans are
terminable by the Portfolio at any time upon specified notice. The Portfolio
might experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Portfolio. In
connection with its securities lending transactions, the 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. The 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 the 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 the Portfolio's performance.
If the 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. The Portfolio also could experience losses if its
derivatives were poorly correlated with its other investments, or if the
Portfolio were unable to liquidate its position because of an illiquid secondary
market. The market for many derivatives is, or suddenly can become, illiquid.
Changes in liquidity may result in significant, rapid and unpredictable changes
in the prices for derivatives.
Although neither the Fund nor the Portfolio will be a commodity pool,
certain derivatives subject the Portfolio to the rules of the Commodity Futures
Trading Commission which limit the extent to which the Portfolio can invest in
such derivatives. The Portfolio may invest in futures contracts and options with
respect thereto for hedging purposes without limit. However, the Portfolio may
not invest in such contracts and options for other purposes if the sum of the
amount of initial margin deposits and premiums paid for unexpired options with
respect to such contracts, other than for bona fide hedging purposes, exceeds 5%
of the liquidation value of the Portfolio's assets, after taking into account
unrealized profits and unrealized losses on such contracts and options;
provided, however, that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
When required by the Commission, the Portfolio will segregate
permissible liquid assets 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 variation margin system operated by the clearing agency
in order to reduce overall credit risk. As a result, unless the clearing agency
defaults, there is relatively little counterparty credit risk associated with
derivatives purchased on an exchange. By contrast, no clearing agency guarantees
over-the-counter derivatives. Therefore, each party to an over-the-counter
derivative bears the risk that the counterparty will default. Accordingly, the
Investment Manager will consider the creditworthiness of counterparties to
over-the-counter derivatives in the same manner as it would review the credit
quality of a security to be purchased by the Portfolio. Over-the-counter
derivatives are less liquid than exchange-traded derivatives since the other
party to the transaction may be the only investor with sufficient understanding
of the derivative to be interested in bidding for it.
FUTURES TRANSACTIONS--IN GENERAL. The Portfolio may enter into futures contracts
in U.S. domestic markets. Engaging in these transactions involves risk of loss
to the Portfolio which could adversely affect the value of the Portfolio's net
assets. Although the Portfolio 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 the 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 the 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,
the 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.
SPECIFIC FUTURES TRANSACTIONS. The 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.
OPTIONS--IN GENERAL. The Portfolio may invest up to 5% of its assets,
represented by the premium paid, in the purchase of call and put options. The
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 the 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 liquid securities. A put option
written by the Portfolio is covered when, among other things, the Portfolio
segregates cash or liquid securities having a value equal to or greater than the
exercise price of the option 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. The 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, the 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. The Portfolio 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.
Successful use by the Portfolio of options will be subject to the
Investment Manager's ability to predict correctly movements in interest rates as
well as market conditions generally. To the extent the Investment Manager's
predictions are incorrect, the Portfolio may incur losses.
FUTURE DEVELOPMENTS. The Portfolio may take advantage of opportunities
in 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. To enhance current income, the 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, commercial paper, 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 segregate permissible liquid assets at least equal to the amount
of the repurchase price (including accrued interest).
FORWARD COMMITMENTS. The 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 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 segregate
permissible liquid assets at least equal at all times to the amount of its
purchase commitments.
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 the 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. To the extent consistent with the Portfolio's
investment objective and management policies as set forth herein, the Portfolio
may enter into interest rate, index and total return 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, 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 the 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.
CERTAIN INVESTMENT CONSIDERATIONS AND RISKS
MORTGAGE-RELATED SECURITIES. 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. 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.
SIMULTANEOUS INVESTMENTS BY OTHER PORTFOLIOS OR FUNDS. Investment
decisions for the 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 the Portfolio or
the price paid or received by the Portfolio.
INVESTMENT RESTRICTIONS
The 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. The Portfolio may not:
(i) issue senior securities, borrow money or pledge or
mortgage its assets, except that the 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. For purposes of this investment
restriction, the 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% of the Portfolio's total assets
and except that the Portfolio may purchase debt obligations in
accordance with its investment objectives and policies;
(iii) invest in illiquid securities as defined in
"Investment Objectives and Management Policies--Illiquid Securities"
if immediately after such investment more than 10% of the value of the
Portfolio's net assets would be invested in such securities (this
restriction is not a fundamental policy of the Portfolio);
(iv) purchase securities of other investment companies,
except to the extent permitted under the 1940 Act (this restriction is
not a fundamental policy of the Portfolio);
(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
the 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 the Portfolio may purchase and sell
securities of companies which deal in real estate or interests therein
and securities that are secured by real estate; (B) purchase or sell
commodities or commodity contracts (except that the Portfolio may
purchase and sell swaps, options, forward contracts, futures
contracts, including those relating to indices, and options on futures
contracts or indices); 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 Portfolio;
(vii) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions); or
(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.
* * *
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
MANAGEMENT
The Fund's Board is responsible for the management and supervision of
the Portfolio. The Board approves all significant agreements with those
companies that furnish services to the Portfolio. 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.
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND RINCIPAL OCCUPATION DURING PAST 5 YEARS
<S> <C> <C>
Norman Eig* (59) Chairman of the Board Vice Chairman and Managing Director (formerly
General Partner), Lazard.
Herbert W. Gullquist* (62) President, Director Vice Chairman and Managing Director (formerly
General Partner), Lazard; Chief Investment Officer
of the Investment Manager.
John J. Burke (71) Director Retired; Former Vice Chairman, Director, Montana
50 Burning Tree Lane Power Company.
Butte, MT 59701
Kenneth S. Davidson (55) Director Managing Partner, Davidson Capital Management
Davidson Capital Management Corporation; Director, Blackthorn Fund N.V. and
Corporation Ottertail Valley Railroad.
500 Park Avenue
Suite 510
New York, NY 10022
Carl Frischling* (63) Director Senior Partner, Kramer, Levin, Naftalis & Frankel
Kramer, Levin, Naftalis & LLP, attorneys at law.
Frankel LLP
919 Third Avenue
New York, NY 10022
Lester Z. Lieberman (69) Director Private Investor; Director of Dowel Associates;
1500 Mt. Kemble Avenue Chairman of the Board of Trustees of Newark Beth
Morristown, NJ 07960 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. (56) Director Managing Partner, Georgica Advisers LLC, an
Georgica Advisers LLC investment manager.
1114 Avenue of the Americas
New York, NY 10036
John Rutledge (51) Director President, Rutledge & Company, an economics and
Rutledge & Company investment advisory firm; Chairman, Claremont
One Greenwich Office Park Economics Institute.
51 Weaver Street
Greenwich, CT 06831
William Katz (46) Director President and Chief Operating Officer of BBDO, an
BBDO Worldwide Network advertising agency; from May 1994 to February
1285 Avenue of the Americas 1996, General Manager of BBDO; prior thereto,
New York, NY 10019 Executive Vice President and Senior Account
Director of BBDO.
David M. Goldenberg (34) Vice President, Director, Legal Affairs of the Investment Manager;
Secretary from April 1998 to May 2000, Global Director of
Compliance for SSB Citi Asset Management Group;
from June 1996 to April 1998, Associate General
Counsel of Smith Barney Asset Management; prior
thereto, Branch Chief and Senior Counsel in the
Division of Investment Management at the
Securities and Exchange Commission in Washington,
D.C.
Bernard J. Grzelak(29) Treasurer Vice President of the Investment Manager; from
August 1993 to September 2000, a Manager with
Deloitte & Touche LLP.
-----------
* An "interested person" of the Fund as defined in the 1940 Act.
</TABLE>
The Fund has a standing nominating committee comprised of its
Directors who are not "interested persons" of the Fund, as defined in the 1940
Act. The function of the nominating committee is to select and nominate all
candidates who are not "interested persons" of the Fund for election to the
Fund's Board.
Prior to January 1, 2000, the Fund paid each Director who is not an
employee or affiliated person of the Investment Manager its allocable portion of
a fixed fee of $20,000 per year, plus $1,000 per meeting attended for the Fund
and Lazard Retirement Series, Inc., another multi-portfolio fund advised by the
Investment Manager, and reimbursed them for travel and out-of-pocket expenses.
The aggregate amount of compensation paid to each Director by the Fund for the
year ended December 31, 1999, was as follows:
Total Compensation From
Aggregate Compensation the Fund and
Name of Director From the Fund Lazard Retirement Series, Inc.
----------------- ---------------------- ------------------------------
John J. Burke $17,800 $24,000
Kenneth S. Davidson $17,800 $24,000
Norman Eig N/A N/A
Carl Frischling $17,800 $24,000
Herbert W. Gullquist N/A N/A
William Katz $17,800 $24,000
Lester Z. Lieberman $17,800 $24,000
Richard Reiss, Jr. $17,800 $24,000
John Rutledge $17,800 $24,000
Effective January 1, 2000, each Director who is not an employee or
affiliated person of the Investment Manager is paid a quarterly fee of
$7,500, plus $2,500 per meeting attended for the Fund and Lazard Retirement
Series, Inc. and is reimbursed for travel and other out-of-pocket expenses.
In addition, the Chairman of the Audit Committee for the Fund and Lazard
Retirement Series, Inc. also receives an annual fee of $5,000.
The Fund does not compensate officers or Directors who are employees
or affiliated persons of the Investment Manager.
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 the Portfolio (the "Management Agreement"). Pursuant to the
Management Agreement, Lazard Asset Management regularly provides the Portfolio
with investment research, advice and supervision and furnishes continuously an
investment program for the Portfolio consistent with its investment objectives
and policies, including the purchase, retention and disposition of securities.
Lazard Asset Management is a division of Lazard, 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 Chicago Stock
Exchanges. Lazard 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 and its affiliates
provide investment management services to client discretionary accounts with
assets as of September 30, 2000 totaling approximately $71.6 billion. Its
clients are both individuals and institutions, some of whose accounts have
investment policies similar to those of several of the Fund's Portfolios. As of
April 3, 2000, Lazard Asset Management held voting and dispositive power with
respect to a sufficient number of shares of each such Portfolio held by client
accounts as to be considered a controlling person of such Portfolio.
Each of the Fund, Lazard Asset Management and Lazard have adopted a
Code of Ethics that permits its personnel, subject to such Code, to invest in
securities, including securities that may be purchased or held by a Portfolio of
the Fund. The Lazard Asset Management Code of Ethics restricts the personal
securities transactions of its employees, and requires portfolio managers and
other investment personnel to comply with the Code's preclearance and disclosure
procedures. Its primary purpose is to ensure that personal trading by Lazard
Asset Management employees does not disadvantage any Fund Portfolio.
Under the terms of the 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 Portfolio
such of the Investment Manager's members, directors, officers and employees as
are reasonably necessary for the operations of the Portfolio, or as may be duly
elected officers or directors of the Fund. Under the Management Agreement, the
Investment Manager also pays the 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 Portfolio, may render investment advice, management
and other services to others.
As compensation for its services, the Portfolio has agreed to pay the
Investment Manager an investment management fee, accrued daily and payable
monthly, at the annual rate of .40% of the average daily value of the net assets
of the Portfolio.
The Management Agreement provides that the Portfolio pays all of its
expenses that are not specifically assumed by the Investment Manager. Expenses
attributable to the Portfolio will be charged against the assets of the
Portfolio. Other expenses of the Fund will be allocated among the Fund's
Portfolios in a manner which may, but need not, be proportionate in relation to
the net assets of each Portfolio. Expenses payable by the Portfolio 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.
The 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 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 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 the Portfolio, or, upon not less than 60 days' notice, by the
Investment Manager. The Management Agreement provides for automatic termination
in the event of its assignment (as defined in the 1940 Act). The 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 Portfolio. The Portfolio will bear the cost of
such administrative expenses at the annual rate of $37,500 plus .02% of the
value of the Portfolio's average daily net assets 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 the Portfolio; receives and delivers all assets for the
Portfolio upon purchase and upon sale or maturity; collects and receives all
income and other payments and distributions on account of the assets of the
Portfolio and disburses the Portfolio's assets in payment of its expenses. The
custodian does not determine the investment policies of the Portfolio or decide
which securities the Portfolio will buy or sell.
DISTRIBUTOR
Lazard serves as the distributor of the 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 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 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 of the 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 Portfolio's total assets, less all liabilities, by the total number of
Portfolio shares 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.
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 the Portfolio
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.
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 the Portfolio. In selecting brokers or dealers to
execute portfolio transactions on behalf of the 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 Portfolio 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. 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 the Portfolio may be executed
through Lazard if, in the judgment of the Investment Manager, the use of Lazard
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 charges
the Portfolio a rate consistent with that charged to comparable unaffiliated
customers in similar transactions.
Purchase and sale orders for securities held by the Portfolio may be
combined with those for other Portfolios of the Fund 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 Portfolio. Such information may be useful to the Investment
Manager in providing services to both the Portfolio and clients other than the
Portfolio, 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 Portfolio. 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 Fund's Portfolios or (ii) who
provide services to the Fund at no fee or for a reduced fee.
HOW TO BUY AND HOW TO SELL SHARES
GENERAL. The minimum initial investment is $1,000,000. The minimum
investment requirements may be waived or lowered for investments effected
through banks and other institutions that have entered into special arrangements
with the Fund or Lazard 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 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 the Portfolio may be purchased in exchange for securities
which are permissible investments of the 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.
By investing in the 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 BROKERAGE ACCOUNT. Shares of the Portfolio
are sold by Lazard only to customers of Lazard without a sales charge, on a
continuous basis at the net asset value of the Portfolio next determined after
receipt of a purchase order by Lazard. Payments must be made to Lazard by the
settlement date. Because Lazard 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 account representative for specific
instructions on how to purchase Portfolio shares through your Lazard 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 the 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.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to declare as a dividend on the outstanding shares of
the 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 Portfolio ordinarily will be paid on the last business day of each
month. Shareholders who redeem all their shares prior to a dividend payment date
will receive, in addition to the redemption proceeds, any dividends that are
declared but unpaid. Shareholders of the Portfolio who redeem only a portion of
their shares will be entitled to all dividends that are declared but unpaid on
the redeemed shares on the next dividend payment date.
Investment income for the Portfolio includes, among other things,
interest income, accretion of market and original issue discount and
amortization of premium.
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. The Portfolio forwards to the Fund's custodian the monies
for dividends to be paid in cash on the payment date.
TAXATION
The Portfolio intends to qualify as a "regulated investment company"
under Subchapter M of the Code, and to continue to so qualify, if such
qualification is in the best interests of its shareholders. The 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
the Portfolio separately, rather than to the Fund as a whole. As a regulated
investment company, the 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 the
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.
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. 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 the Portfolio
from certain financial futures and options transactions 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 the 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 Section 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 the 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.
If the 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, 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.
Investment by the 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 the 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 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 the
Portfolio during the period. That result is then divided by the product of: (a)
the average daily number of the 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. The 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.
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"
the root of the quotient (where "n" is the number of years in the period) and
subtracting 1 from the result.
Total return is calculated by subtracting the amount of the
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 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 the Portfolio, its
average portfolio maturity and its expenses. Yield, actual distribution rate and
total return information is useful in reviewing the 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 the Portfolio will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
From time to time, the Fund may compare the 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 the 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.
No performance data is provided for the Portfolio which had not
commenced operations as of the date of this Statement of Additional Information.
INFORMATION ABOUT THE FUND AND PORTFOLIO
On January 1, 1992, the Fund on behalf of its 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 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 has agreed, in lieu of the Fund, to so
indemnify to so indemnify the directors and officers of Scudder Fund.
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
Portfolio. 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.
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
the Portfolio, the vote of the lesser of (i) 67% of the shares represented at a
meeting if the holders of more than 50% of the outstanding shares of the Fund or
Portfolio, as the case may be, are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of the Fund or Portfolio, as the case may be.
Shareholders are entitled to one vote for each full share held, and fractional
votes for fractional shares held.
Each Portfolio share is entitled to such dividends and distributions
out of the income earned on the assets belonging to the Portfolio as are
declared in the discretion of the Fund's Board of Directors. In the event of the
liquidation of the Portfolio, shares of the Portfolio are entitled to receive
the assets attributable to such Class of the Portfolio that are available for
distribution.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Fund.
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.
Anchin, Block & Anchin LLP, 1375 Broadway, New York, New York 10018,
has been selected as the independent auditors for the Fund.
ADDITIONAL INFORMATION
The Fund's Registration Statement, including the Prospectus, the
Statement of Additional Information and the exhibits filed therewith, may be
examined at the office of the Commission in Washington, D.C. Statements
contained in the Prospectus or this Statement of Additional Information as to
the content of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
A special service is available to banks, brokers, investment advisers,
trust companies and others who have a number of accounts in any Portfolio. In
addition to the copy of the regular Statement of Account furnished to the
registered holder after each transaction, a monthly summary of accounts can be
provided. The monthly summary will show for each account the account number, the
month-end share balance and the dividends and distributions paid during the
month. All costs of this service will be borne by the Portfolio. For information
on the special monthly summary of accounts, contact the Fund.
<PAGE>
APPENDIX
Description of certain ratings.
S&P
BOND RATINGS
AAA
Bonds rated AAA have the highest rating assigned to a debt obligation.
Capacity to pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade bonds. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payment.
B
Bonds rated B have a greater vulnerability to default but presently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC
Bonds rated CCC have a current identifiable vulnerability to default,
and are dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayment of principal. In the event of
adverse business, financial or economic conditions to meet timely payments of
interest and repayment of principal. In the event of adverse business, financial
or economic conditions, they are not likely to have the capacity to pay interest
and repay principal.
CC
The rating CC is typically applied to bonds subordinated to senior
debt which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to bonds subordinated to senior debt
which is assigned an actual or implied CCC- rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
S&P's letter ratings may be modified by the additional of a plus or a
minus sign, which is used to show relative standing within the major ratings
categories, except in the AAA (Prime Grade) category.
COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Issues assigned an A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1
This designation indicates the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted within a plus sign (+)
designation.
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Moody's
BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities of fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa
Bond which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca
Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and in
the categories below B. The modifier 1 indicates a rating for the security in
the higher end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of a rating
category.
COMMERCIAL PAPER RATINGS
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
<PAGE>
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) N/A
(d)(11) N/A
(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) N/A
(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 Auditors11
(m) Distribution and Servicing Plan8
(n) N/A
(o) Rule 18f-3 Plan7
(p) Code of Ethics10
Other Exhibits:
Power of Attorney of Board Members9
---------------
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 (the "SEC") on May 20, 1991.
2. Incorporated by reference from Registrant's Pre-Effective Amendment
No. 1 filed with the SEC on July 23, 1991.
3. Incorporated by reference from Registrant's Post-Effective Amendment
No. 5 filed with the SEC on September 1, 1993.
4. Incorporated by reference from Registrant's Post-Effective Amendment
No. 6 filed with the SEC on March 31, 1994.
5. Incorporated by reference from Registrant's Post-Effective Amendment
No. 8 filed with the SEC on October 13, 1995.
6. Incorporated by reference from Registrant's Post-Effective Amendment
No. 9 filed with the SEC on December 27, 1995.
7. Incorporated by reference from Registrant's Post-Effective Amendment
No. 10 filed with the SEC on August 15, 1996.
8. Incorporated by reference from Registrant's Post-Effective Amendment
No. 15 filed with the SEC on October 31, 1997.
9. Incorporated by reference from Registrant's Post-Effective Amendment
No. 19 filed with the SEC on May 1, 2000.
10. Incorporated by reference from Registrant's Post-Effective Amendment
No. 20 filed with the SEC on August 15, 2000.
11. 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 (a) 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 SEC:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, 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 SEC such indemnification is against public
policy as expressed in such Act and is, therefore, unenforceable. In
such event that a claim for indemnification 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 (d) and (e), respectively.
Item 26. Business and Other Connections of Investment Advisers
The description of the Investment Manager under the Captions "Fund
Management - Investment Manager" 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. Registrant is fulfilling the requirement of this Item
26 to provide a list of the officers and directors of Lazard Freres &
Co. LLC, the Registrant's investment adviser, together with information
as to any other business, profession, vocation or employment of a
substantial nature engaged in by Lazard Freres & Co. LLC or those of
its officers and directors during the past two years, by incorporating
by reference the information contained in the Form ADV filed with the
SEC pursuant to the Investment Advisers Act of 1940 by Lazard Freres &
Co. LLC (SEC File No. 801-6568).
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.;
American AAdvantage Fund; International Equity Fund; AmSouth
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; Frank Russell Funds
Fixed Income III Portfolio and Multistrategy Bond 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; New
Covenant Growth Fund; Pacific Select Fund Mid Cap Value Fund; The
Target Funds Target International Equity Portfolio and Target Small
Capitalization Value Portfolio; 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. Small-Cap Value Portfolio; TIFF Investment Program, Inc.
TIFF Emerging Markets Fund; and Travelers Series Trust Lazard
International Stock Portfolio.
(b) Registrant is fulfilling the requirement of this Item 27 by
incorporating by reference the information contained in the Form ADV
filed with the SEC pursuant to the Investment Advisers Act of 1940 by
Lazard Freres & Co. LLC (SEC File No. 801-6568) and the information
contained in the Form BD filed with the SEC pursuant to the Securities
Exchange Act of 1934 by Lazard Freres & Co. LLC (SEC File No. 8-2595).
(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 10112.
Item 29. Management Services
Not Applicable
Item 30. Undertakings
None
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 the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on the 12th day
of December, 2000.
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 December 12, 2000
----------------------- Executive, Financial
Herbert W. Gullquist and Accounting Officer)
and Director
/S/Norman Eig* Director December 12, 2000
--------------
Norman Eig
/s/ John J. Burke* Director December 12, 2000
------------------
John J. Burke
/s/ Lester Z. Lieberman* Director December 12, 2000
-----------------------
Lester Z. Lieberman
/s/ Richard Reiss, Jr.* Director December 12, 2000
------------------------
Richard Reiss, Jr.
/s/ John Rutledge* Director December 12, 2000
-----------------------
John Rutledge
/s/ Kenneth S. Davidson* Director December 12, 2000
------------------------
Kenneth S. Davidson
/s/ Carl Frischling* Director December 12, 2000
-----------------------
Carl Frischling
/s/ William Katz* Director December 12, 2000
----------------------
William Katz
*By:/s/ David M. Goldenberg, Esq.
------------------------
Attorney-in-fact, David M. Goldenberg, Esq.
