|
Securities Act File No. 33-40682 |
Investment Company Act File No. 811-06312 |
|
|
|
SECURITIES AND EXCHANGE COMMISSION |
|
Washington, D.C. 20549 |
|
FORM N-1A |
|
|
|
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |
/X/ |
|
|
Post-Effective Amendment No. 53 |
/X/ |
|
|
and |
|
|
/X/ |
|
|
Amendment No. 53 |
/X/ |
|
|
(Check appropriate box or boxes) |
|
|
|
THE LAZARD FUNDS, INC. |
|
|
|
(Exact Name of Registrant as Specified in Charter) |
|
|
|
(212) 632-6000 |
|
|
|
(Registrants Telephone Number, including Area Code) |
|
|
|
30 Rockefeller Plaza, New York, New York 10112 |
|
|
|
(Address of Principal Executive: Number, Street, City, State, Zip Code) |
|
|
|
Nathan A. Paul, Esq. |
|
30 Rockefeller Plaza |
|
New York, New York 10112 |
|
(Name and Address of Agent for Services) |
|
|
|
Copy to: |
|
Janna Manes, 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. |
April 30, 2010
Lazard Funds Prospectus
|
|
|
|
|
Institutional |
|
Open |
U.S. Equity |
|
|
|
Lazard U.S. Equity Value Portfolio |
LEVIX |
|
LEVOX |
Lazard U.S. Strategic Equity Portfolio |
LZUSX |
|
LZUOX |
Lazard U.S. Mid Cap Equity Portfolio |
LZMIX |
|
LZMOX |
Lazard U.S. Small-Mid Cap Equity Portfolio |
LZSCX |
|
LZCOX |
|
|
|
|
International Equity |
|
|
|
Lazard International Equity Portfolio |
LZIEX |
|
LZIOX |
Lazard International Equity Select Portfolio |
LZSIX |
|
LZESX |
Lazard International Strategic Equity Portfolio |
LISIX |
|
LISOX |
Lazard International Small Cap Equity Portfolio |
LZISX |
|
LZSMX |
|
|
|
|
|
|
|
|
|
|
|
|
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. Any representation to the contrary is a criminal offense. |
|
|
|
|
|
|||
|
Institutional |
|
Open |
Global Equity |
|
|
|
Lazard Global Listed Infrastructure Portfolio |
GLIFX |
|
GLFOX |
|
|
|
|
Emerging Markets |
|
|
|
Lazard Emerging Markets Equity Portfolio |
LZEMX |
|
LZOEX |
Lazard Emerging Markets Equity Select Portfolio |
LESIX |
|
LESOX |
Lazard Developing Markets Equity Portfolio |
LDMIX |
|
LDMOX |
Lazard Emerging Markets Equity Blend Portfolio |
EMBIX |
|
EMBOX |
|
|
|
|
Fixed Income |
|
|
|
Lazard U.S. High Yield Portfolio |
LZHYX |
|
LZHOX |
|
|
|
|
Capital Allocator |
|
|
|
Lazard Capital Allocator Opportunistic |
LCAIX |
|
LCAOX |
Strategies Portfolio |
|
|
|
|
Lazard Funds
Lazard Funds Table of Contents
p
|
|
|
|
|
2 |
Carefully review this important section for |
|||
2 |
information on the Portfolios investment |
|||
6 |
objectives, fees and past performance and a |
|||
10 |
summary of the Portfolios principal investment |
|||
14 |
strategies and risks. |
|||
18 |
|
|||
22 |
|
|||
26 |
|
|||
30 |
|
|||
34 |
|
|||
37 |
|
|||
41 |
|
|||
44 |
|
|||
48 |
|
|||
51 |
|
|||
55 |
|
|||
60 |
|
|||
61 |
|
|||
63 |
Review this section for additional information |
|||
63 |
on the Portfolios principal investment |
|||
64 |
strategies and risks. |
|||
65 |
|
|||
66 |
|
|||
68 |
|
|||
69 |
|
|||
71 |
|
|||
73 |
|
|||
75 |
|
|||
78 |
|
|||
79 |
|
|||
80 |
|
|||
82 |
|
|||
84 |
|
|||
86 |
|
|||
88 |
Review this section for details on the people and |
|||
88 |
organizations who oversee the Portfolios. |
|||
89 |
|
|||
89 |
|
|||
92 |
|
|||
92 |
|
|||
93 |
|
|||
92 |
|
|||
93 |
Review this section for details on how shares |
|||
93 |
are valued, how to purchase, sell and exchange |
|||
94 |
shares, related charges and payments of |
|||
96 |
dividends and distributions. |
|||
97 |
|
|||
98 |
|
|||
98 |
|
|||
99 |
|
|||
101 |
Review this section for recent financial information. |
|||
115 |
|
|||
|
Where to learn more about the Portfolios. |
Prospectus1
Lazard Funds Summary Section p Lazard U.S. Equity Value Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio, a series of The Lazard Funds, Inc. (the Fund).
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
.75%
.75%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses
2.69%
4.52%
Total Annual Portfolio Operating Expenses
3.44%
5.52%
Fee Waiver and Expense Reimbursement*
2.44%
4.22%
Total Annual Portfolio Operating Expenses After Fee Waiver and Expense Reimbursement*
1.00%
1.30%
*
Reflects a contractual agreement by Lazard Asset Management LLC (the Investment Manager) to waive its fee and, if necessary, reimburse the Portfolio through April 30, 2011, to the extent Total Annual Portfolio Operating Expenses exceed 1.00% and 1.30% of the average daily net assets of the Portfolios Institutional Shares and Open Shares, respectively, and from May 1, 2011 through April 30, 2020, to the
extent Total Annual Portfolio Operating Expenses exceed 1.10% and 1.40% of the average daily net assets of the Portfolios Institutional Shares and Open Shares, respectively, exclusive of taxes, brokerage, interest on borrowings, fees and expenses of Acquired Funds and extraordinary expenses, and excluding shareholder redemption fees or other transaction fees. This agreement can only be amended by
agreement of the Fund and the Investment Manager to lower the net amount shown and will terminate automatically in the event of termination of the Investment Management Agreement between the Investment Manager and the Fund, on behalf of the Portfolio.
Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same, giving effect to
the fee waivers described above. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years
5 Years
10 Years Institutional Shares
$102
$340
$597
$1,332 Open Shares
$132
$434
$757
$1,672 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. During the most recent fiscal year, the Portfolios portfolio turnover rate was 62% of the average value of its portfolio. 2Prospectus
Shares
Shares
Maximum Redemption Fee (as a % of amount redeemed,
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of relatively large U.S. companies with market capitalizations generally in the range of companies included in the Russell 1000® Value Index (ranging from approximately $101 million to $326 billion as of March 24, 2010) at the time of
initial purchase by the Portfolio that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of U.S. companies. The Portfolio may invest up to 10% of its total assets in securities of non-U.S. companies that trade in U.S. markets. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. Prospectus3
Performance Bar Chart and Table The accompanying bar chart and table provide some indication of the risks of investing in Lazard U.S. Equity Value Portfolio by showing the Portfolios year-by-year and average annual performance. The bar chart shows how the performance of the Portfolios Institutional Shares has varied from year to year.
Performance information is available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future.
Best Quarter: Average Annual Total Returns After-tax returns for the Open Shares vary from those of Institutional Shares. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
Inception 1 Year
Life of Institutional Shares:
9/30/05 Returns Before Taxes
24.81%
0.44% Returns After Taxes on Distributions 24.56%
-0.57% Returns After Taxes on Distributions and 16.46%
0.01% Open Shares 9/30/05
24.49%
0.18% Russell 1000 Value Index
19.69% -1.59% 4Prospectus
Year-by-Year Total Returns for Institutional Shares
As of 12/31
6/30/09 19.10%
Worst Quarter:
12/31/08 -21.54%
(for the periods ended December 31, 2009)
Date
Fund
Sale of Portfolio Shares
(Institutional)
-1.59%
(Open)
Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts Andrew D. Lacey, portfolio manager/analyst on various of the Investment Managers U.S. Equity and Global Equity teams, has been with the Portfolio since inception. Nicholas Sordoni, portfolio manager/analyst on the Investment Managers U.S. Equity Value team, has been with the Portfolio since inception. Ronald Temple, portfolio manager/analyst on various of the Investment Managers U.S. Equity teams, has been with the Portfolio since February 2009. J. Richard Tutino, portfolio manager/analyst on the Investment Managers U.S. Equity Value and U.S. Equity Select teams, has been with the Portfolio since inception. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. Prospectus5
Lazard Funds Summary Section p Lazard U.S. Strategic Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
.75%
.75%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses
.34%
.39%
Total Annual Portfolio Operating Expenses
1.09%
1.39%
Fee Waiver and Expense Reimbursement*
.04%
.04% Total Annual Portfolio Operating Expenses After Fee Waiver and Expense Reimbursement* 1.05%
1.35%
*
Reflects a contractual agreement by the Investment Manager to waive its fee and, if necessary, reimburse the Portfolio through April 30, 2011, to the extent Total Annual Portfolio Operating Expenses exceed 1.05% and 1.35% of the average daily net assets of the Portfolios Institutional Shares and Open Shares, respectively, exclusive of taxes, brokerage, interest on borrowings, fees and expenses of Acquired
Funds and extraordinary expenses, and excluding shareholder redemption fees or other transaction fees. This agreement can only be amended by agreement of the Fund and the Investment Manager to lower the net amount shown and will terminate automatically in the event of termination of the Investment Management Agreement between the Investment Manager and the Fund, on behalf of the Portfolio.
Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same, giving effect to
the fee waiver in year one only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years
5 Years
10 Years Institutional Shares
$107
$343
$597
$1,325 Open Shares
$137
$436
$757
$1,665 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. During the most recent fiscal year, the Portfolios portfolio turnover rate was 76% of the average value of its portfolio. 6Prospectus
Shares
Shares
Maximum Redemption Fee (as a % of amount redeemed,
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of U.S. companies that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. Although the Portfolio generally focuses on large cap companies, the market capitalizations of issuers in
which the Portfolio invests may vary with market conditions and the Portfolio also may invest in mid cap and small cap companies. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of U.S. companies. The Portfolio may invest up to 15% of its total assets in securities of non-U.S. companies, including American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs). Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Small and mid cap companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. The shares of small and mid cap companies tend to trade less frequently than those of larger companies,
which can have an adverse effect on the pricing of these securities and on the ability to sell these securities when the Investment Manager deems it appropriate. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. Prospectus7
Performance Bar Chart and Table The accompanying bar chart and table provide some indication of the risks of investing in Lazard U.S. Strategic Equity Portfolio by showing the Portfolios year-by-year and average annual performance. The bar chart shows how the performance of the Portfolios Institutional Shares has varied from year to year.
Performance information is available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future.
Best Quarter: Average Annual Total Returns After-tax returns for the Open Shares vary from those of Institutional Shares. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
Inception 1 Year
5 Years
Life of Institutional Shares:
12/30/04 Returns Before Taxes
28.12
%
0.46%
0.46% Returns After Taxes on Distributions
28.12
%
-0.48%
-0.48% Returns After Taxes on Distributions and
18.27
%
0.25%
0.25% Open Shares
12/30/04
27.71
%
0.18%
0.18% S&P 500® Index
26.46
%
0.42% 0.39% 8Prospectus
Year-by-Year Total Returns for Institutional Shares
As of 12/31
6/30/09 16.46%
Worst Quarter:
12/31/08 -23.06%
(for the periods ended December 31, 2009)
Date
Fund
Sale of Portfolio Shares
(Institutional)
0.39%
(Open)
Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts Christopher H. Blake, portfolio manager/analyst on the Investment Managers U.S. Strategic Equity and U.S. Mid Cap Equity teams, has been with the Portfolio since inception. Robert A. Failla, portfolio manager/analyst on the Investment Managers U.S. Strategic Equity, U.S. Mid Cap Equity and Global Equity teams, has been with the Portfolio since inception. Andrew D. Lacey, portfolio manager/analyst on various of the Investment Managers U.S. Equity and Global Equity teams, has been with the Portfolio since inception. Ronald Temple, portfolio manager/analyst on various of the Investment Managers U.S. Equity teams, has been with the Portfolio since February 2009. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. Prospectus9
Lazard Funds Summary Section p Lazard U.S. Mid Cap Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
.75%
.75%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses
.16%
.17%
Total Annual Portfolio Operating Expenses
.91%
1.17% Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years
5 Years
10 Years Institutional Shares
$93
$290
$504
$1,120 Open Shares
$119
$372
$644
$1,420 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. During the most recent fiscal year, the Portfolios portfolio turnover rate was 77% of the average value of its portfolio. 10Prospectus
Shares
Shares
Maximum Redemption Fee (as a % of amount redeemed,
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of mid cap U.S. companies that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Investment Manager considers mid cap companies to be those companies that, at the time
of initial purchase by the Portfolio, have market capitalizations within the range of companies included in the Russell Midcap® Index (ranging from approximately $101 million to $18 billion as of March 24, 2010). Because mid cap companies are defined in part by reference to an index, the market capitalization
of companies in which the Portfolio may invest may vary with market conditions. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of medium-size (mid cap) U.S. companies. The Portfolio may invest up to 20% of its assets in equity securities of larger or smaller U.S. companies. The Portfolio also may invest up to 15% of its assets in equity securities of non-U.S. companies, including ADRs and GDRs. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Mid and small cap companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. The shares of mid and small cap companies tend to trade less frequently than those of larger companies,
which can have an adverse effect on the pricing of these securities and on the ability to sell these securities when the Investment Manager deems it appropriate. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. Prospectus11
Performance Bar Chart and Table The accompanying bar chart and table provide some indication of the risks of investing in Lazard U.S. Mid Cap Equity Portfolio by showing the Portfolios year-by-year and average annual performance. The bar chart shows how the performance of the Portfolios Institutional Shares has varied from year to year
over the past 10 calendar years. Performance information is available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future.
Best Quarter: Average Annual Total Returns After-tax returns for the Open Shares vary from those of Institutional Shares. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
Inception 1 Year
5 Years
10 Years
Life of Institutional Shares:
11/4/97 Returns Before Taxes
38.49%
0.73%
7.05%
6.69% Returns After Taxes on Distributions 38.33%
-0.46%
4.88%
4.80% Returns After Taxes on Distributions and 25.22%
0.33%
5.01%
4.86% Open Shares 11/4/97
38.26%
0.46%
6.74%
6.38% Russell Midcap Index
40.48%
2.43%
4.98% 6.62% 12Prospectus
Year-by-Year Total Returns for Institutional Shares
As of 12/31
6/30/09 21.18%
Worst Quarter:
12/31/08 -26.54%
(for the periods ended December 31, 2009)
Date
Fund
Sale of Portfolio Shares
(Institutional)
6.62%
(Open)
Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts Christopher H. Blake, portfolio manager/analyst on the Investment Managers U.S. Strategic Equity and U.S. Mid Cap Equity teams, has been with the Portfolio since November 2001. Robert A. Failla, portfolio manager/analyst on the Investment Managers U.S. Strategic Equity, U.S. Mid Cap Equity and Global Equity teams, has been with the Portfolio since July 2005. Andrew D. Lacey, portfolio manager/analyst on various of the Investment Managers U.S. Equity and Global Equity teams, has been with the Portfolio since January 2001. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. Prospectus13
Lazard Funds Summary Section p Lazard U.S. Small-Mid Cap Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
.75%
.75%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses
.48%
.52%
Total Annual Portfolio Operating Expenses
1.23%
1.52%
Fee Waiver and Expense Reimbursement*
.08%
.07% Total Annual Portfolio Operating Expenses After Fee Waiver and Expense Reimbursement* 1.15%
1.45%
*
Reflects a contractual agreement by the Investment Manager to waive its fee and, if necessary, reimburse the Portfolio through April 30, 2011, to the extent Total Annual Portfolio Operating Expenses exceed 1.15% and 1.45% of the average daily net assets of the Portfolios Institutional Shares and Open Shares, respectively, exclusive of taxes, brokerage, interest on borrowings, fees and expenses of Acquired
Funds and extraordinary expenses, and excluding shareholder redemption fees or other transaction fees. This agreement can only be amended by agreement of the Fund and the Investment Manager to lower the net amount shown and will terminate automatically in the event of termination of the Investment Management Agreement between the Investment Manager and the Fund, on behalf of the Portfolio.
Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same, giving effect to
the fee waiver in year one only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years
5 Years
10 Years Institutional Shares
$117
$383
$669
$1,487 Open Shares
$148
$474
$823
$1,812 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. During the most recent fiscal year, the Portfolios portfolio turnover rate was 195% of the average value of its portfolio. 14Prospectus
Shares
Shares
Maximum Redemption Fee (as a % of amount redeemed,
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of small to mid capitalization U.S. companies. The Investment Manager considers small-mid cap companies to be those companies that, at the time of initial purchase by the Portfolio, have market capitalizations within the range of
companies included in the Russell 2500® Index (ranging from approximately $10.8 million to $10.4 billion as of March 24, 2010). Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of small-mid cap U.S. companies. The Investment Manager focuses on relative value in seeking to construct a diversified portfolio of investments for the Portfolio that maintains sector and industry balance, using
investment opportunities identified through bottom-up fundamental research conducted by the Investment Managers small cap, mid cap and global research platforms. The Portfolio may invest up to 20% of its assets in equity securities of larger U.S. companies and may invest up to 10% of its total assets in securities of non-U.S. equity companies, including ADRs and GDRs. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Small and mid cap companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. The shares of small and mid cap companies tend to trade less frequently than those of larger companies,
which can have an adverse effect on the pricing of these securities and on the ability to sell these securities when the Investment Manager deems it appropriate. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. Prospectus15
Performance Bar Chart and Table The accompanying bar chart and table provide some indication of the risks of investing in Lazard U.S. Small-Mid Cap Equity Portfolio by showing the Portfolios year-by-year and average annual performance. The bar chart shows how the performance of the Portfolios Institutional Shares has varied from year to
year over the past 10 calendar years. Performance information is available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future.
Best Quarter: Average Annual Total Returns After-tax returns for the Open Shares vary from those of Institutional Shares. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The Russell 2000/2500 Linked Index shown in the table is an unmanaged index created by the Investment Manager, which
links the performance of the Russell 2000® Index for all periods prior to August 25, 2008 and the Russell 2500 Index for all periods thereafter. 16Prospectus
Year-by-Year Total Returns for Institutional Shares
As of 12/31
6/30/09 28.30%
Worst Quarter:
12/31/08 -25.00%
(for the periods ended December 31, 2009)
Inception 1 Year
5 Years
10 Years
LIfe of Institutional Shares:
10/30/91 Returns Before Taxes
55.47%
3.11%
7.67% 10.58% Returns After Taxes on Distributions 55.47%
0.68%
5.32%
8.16% Returns After Taxes on Distributions and 36.05%
2.00%
5.86%
8.33% Open Shares 1/30/97
54.96%
2.77%
7.39% 6.54% Russell 2500 Index
34.39%
1.58%
4.91% 9.91% Russell 2000/2500 Linked Index
34.39%
1.10%
3.82% 8.65% Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts Daniel Breslin, portfolio manager/analyst on the Investment Managers U.S. Small-Mid Cap Equity team, has been with the Portfolio since May 2007. Andrew D. Lacey, portfolio manager/analyst on various of the Investment Managers U.S. Equity and Global Equity teams, has been with the Portfolio since May 2003. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. Prospectus17
Date
Fund
Sale of Portfolio Shares
(Institutional)
7.14%
(Open)
(Institutional)
5.76%
(Open)
Lazard Funds Summary Section p Lazard International Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
.75%
.75%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses
.24%
.27%
Total Annual Portfolio Operating Expenses
.99%
1.27% Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years
5 Years
10 Years Institutional Shares $101
$315
$547
$1,213 Open Shares
$129
$403
$697
$1,534 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. During the most recent fiscal year, the Portfolios portfolio turnover rate was 66% of the average value of its portfolio. 18Prospectus
Shares
Shares
Maximum Redemption Fee (as a % of amount redeemed,
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of relatively large non-U.S. companies with market capitalizations in the range of companies included in the Morgan Stanley Capital International (MSCI®) Europe, Australasia and Far East (EAFE®) Index (ranging from
approximately $1.2 billion to $185 billion as of March 24, 2010) that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. In choosing stocks for the Portfolio, the Investment Manager looks for established companies in economically developed countries and may invest up to 30% of the Portfolios assets in securities of companies whose principal business activities are located in emerging market countries. Under normal
circumstances, the Portfolio invests at least 80% of its assets in equity securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Prospectus19
Performance Bar Chart and Table The accompanying bar chart and table provide some indication of the risks of investing in Lazard International Equity Portfolio by showing the Portfolios year-by-year and average annual performance. The bar chart shows how the performance of the Portfolios Institutional Shares has varied from year to year
over the past 10 calendar years. Performance information is available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future.
Best Quarter: Average Annual Total Returns After-tax returns for the Open Shares vary from those of Institutional Shares. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
Inception 1 Year
5 Years
10 Years
Life of Institutional Shares:
10/29/91 Returns Before Taxes
25.19%
3.41%
0.68%
5.94% Returns After Taxes on Distributions 25.50%
3.05%
0.13%
4.93% Returns After Taxes on Distributions and 16.69%
3.02%
0.49%
4.83% Open Shares 1/23/97
24.91%
3.10%
0.39%
4.18% MSCI EAFE Index
31.78%
3.54%
1.17%
5.37% 20Prospectus
Year-by-Year Total Returns for Institutional Shares
As of 12/31
6/30/09 21.90%
Worst Quarter:
9/30/02 -17.29%
(for the periods ended December 31, 2009)
Date
Fund
Sale of Portfolio Shares
(Institutional)
4.66%
(Open)
Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts Michael A. Bennett, portfolio manager/analyst on the Investment Managers International Equity teams, has been with the Portfolio since May 2003. Michael G. Fry, portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams, has been with the Portfolio since November 2005. Michael Powers, portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams, has been with the Portfolio since May 2003. John R. Reinsberg, portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams, has been with the Portfolio since inception. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. Prospectus21
Lazard Funds Summary Section p Lazard International Equity Select Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Redemption Fee (as a % of amount redeemed,
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
.85%
.85%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses
2.61%
2.52%
Total Annual Portfolio Operating Expenses
3.46%
3.62%
Fee Waiver and Expense Reimbursement*
2.31%
2.17%
Total Annual Portfolio Operating Expenses After Fee Waiver and Expense Reimbursement*
1.15%
1.45%
*
Reflects a contractual agreement by the Investment Manager to waive its fee and, if necessary, reimburse the Portfolio through April 30, 2011, to the extent Total Annual Portfolio Operating Expenses exceed 1.15% and 1.45% of the average daily net assets of the Portfolios Institutional Shares and Open Shares, respectively, exclusive of taxes, brokerage, interest on borrowings, fees and expenses of Acquired
Funds and extraordinary expenses, and excluding shareholder redemption fees or other transaction fees. This agreement can only be amended by agreement of the Fund and the Investment Manager to lower the net amount shown and will terminate automatically in the event of termination of the Investment Management Agreement between the Investment Manager and the Fund, on behalf of the Portfolio.
Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same, giving effect to
the fee waiver in year one only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years
5 Years
10 Years Institutional Shares
$117
$847
$1,599
$3,584 Open Shares
$148
$908
$1,689
$3,738 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. During the most recent fiscal year, the Portfolios portfolio turnover rate was 67% of the average value of its portfolio. 22Prospectus
Shares
Shares
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in equity securities of relatively large non-U.S. companies with market capitalizations in the range of companies included in the MSCI EAFE Index (ranging from approximately $1.2 billion to $185 billion as of March 24, 2010) that the Investment Manager believes are undervalued
based on their earnings, cash flow or asset values. The Investment Manager currently intends to hold securities, including ADRs, GDRs and common stocks, of between approximately 30 and 55 different issuers on a long-term basis. In choosing stocks for the Portfolio, the Investment Manager looks for established companies in economically developed countries. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities. The Portfolio may invest up to 30% of its assets in securities of companies whose principal business activities are located in emerging market countries, although the allocation of the Portfolios assets to emerging market countries may vary from time to time. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Because the Portfolio will invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios net asset value (NAV) may be relatively more susceptible to adverse effects from any single corporate, economic, market, political or regulatory occurrence than if the Portfolios
investments consisted of a larger number of securities. Prospectus23
Performance Bar Chart and Table The accompanying bar chart and table provide some indication of the risks of investing in Lazard International Equity Select Portfolio by showing the Portfolios year-by-year and average annual performance. The bar chart shows how the performance of the Portfolios Institutional Shares has varied from year to
year. Performance information is available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future.
Best Quarter: Average Annual Total Returns After-tax returns for the Open Shares vary from those of Institutional Shares. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
Inception 1 Year
5 Years
Life of Institutional Shares:
5/31/01 Returns Before Taxes
20.86%
1.62%
2.99% Returns After Taxes on Distributions 21.10%
0.51%
2.30% Returns After Taxes on Distributions and 13.91%
1.80%
2.88% Open Shares 5/31/01
20.49%
1.28%
2.70% MSCI EAFE Index
31.78%
3.54% 4.60% 24Prospectus
Year-by-Year Total Returns for Institutional Shares
As of 12/31
6/30/09 18.73%
Worst Quarter:
9/30/02 -20.82%
(for the periods ended December 31, 2009)
Date
Fund
Sale of Portfolio Shares
(Institutional)
4.60%
(Open)
Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts Michael A. Bennett, portfolio manager/analyst on the Investment Managers International Equity teams, has been with the Portfolio since May 2003. Gabrielle M. Boyle, portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams, has been with the Portfolio since May 2003. Adam Cohen, portfolio manager/analyst on the Investment Managers Global, International and European Equity Select teams, has been with the Portfolio since April 2008. Michael Powers, portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams, has been with the Portfolio since May 2003. John R. Reinsberg, portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams, has been with the Portfolio since inception. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. Prospectus25
Lazard Funds Summary Section p Lazard International Strategic Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Redemption Fee (as a % of amount redeemed,
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
.75%
.75%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses
.16%
.21%
Total Annual Portfolio Operating Expenses
.91%
1.21% Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years
5 Years
10 Years Institutional Shares
$93
$290
$504
$1,120 Open Shares
$123
$384
$665
$1,466 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. During the most recent fiscal year, the Portfolios portfolio turnover rate was 129% of the average value of its portfolio. 26Prospectus
Shares
Shares
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of non-U.S. companies whose principal activities are located in countries represented by the MSCI EAFE Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Portfolio
may invest up to 30% of its assets in securities of companies whose principal business activities are located in emerging market countries, although the allocation of the Portfolios assets to emerging market countries may vary from time to time. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities. The Investment Manager currently intends to hold securities of between approximately 30 to 55 different issuers. The countries represented by the MSCI EAFE Index currently include: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Because the Portfolio will invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios NAV may be relatively more susceptible to adverse effects from any single corporate, economic, market, political or regulatory occurrence than if the Portfolios investments consisted
of a larger number of securities. Prospectus27
Performance Bar Chart and Table The accompanying bar chart and table provide some indication of the risks of investing in Lazard International Strategic Equity Portfolio by showing the Portfolios year-by-year and average annual performance. The bar chart shows how the performance of the Portfolios Institutional Shares has varied from year
to year. Performance information is available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future.
Best Quarter: Average Annual Total Returns After-tax returns for the Open Shares vary from those of Institutional Shares. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
Inception 1 Year
Life of Institutional Shares:
10/31/05 Returns Before Taxes
27.76%
4.02% Returns After Taxes on Distributions 27.63%
3.24% Returns After Taxes on Distributions and 18.78%
3.58% Open Shares 2/3/06
27.38%
0.24% MSCI EAFE Index
31.78% 2.84% 28Prospectus
Year-by-Year Total Returns for Institutional Shares
As of 12/31
6/30/09 23.21%
Worst Quarter:
9/30/08 -18.44%
(for the periods ended December 31, 2009)
Date
Fund
Sale of Portfolio Shares
(Institutional)
-0.33%
(Open)
Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts Michael A. Bennett, portfolio manager/analyst on the Investment Managers International Equity teams, has been with the Portfolio since September 2008. Robin O. Jones, portfolio manager/analyst on the Investment Managers International Strategic Equity team, has been with the Portfolio since May 2009. Mark Little, portfolio manager/analyst on the Investment Managers International Strategic Equity team, has been with the Portfolio since inception. Brian Pessin, portfolio manager/analyst on the Investment Managers Global, International and European Small Cap Equity teams, has been with the Portfolio since inception. John R. Reinsberg, portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams, has been with the Portfolio since inception. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. Prospectus29
Lazard Funds Summary Section p Lazard International Small Cap Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
.75%
.75%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses
.46%
.48%
Total Annual Portfolio Operating Expenses
1.21%
1.48%
Fee Waiver and Expense Reimbursement*
.08%
.05%
Total Annual Portfolio Operating Expenses After Fee Waiver and Expense Reimbursement*
1.13%
1.43%
*
Reflects a contractual agreement by the Investment Manager to waive its fee and, if necessary, reimburse the Portfolio through April 30, 2011, to the extent Total Annual Portfolio Operating Expenses exceed 1.13% and 1.43% of the average daily net assets of the Portfolios Institutional Shares and Open Shares, respectively, exclusive of taxes, brokerage, interest on borrowings, fees and expenses of Acquired
Funds and extraordinary expenses, and excluding shareholder redemption fees or other transaction fees. This agreement can only be amended by agreement of the Fund and the Investment Manager to lower the net amount shown and will terminate automatically in the event of termination of the Investment Management Agreement between the Investment Manager and the Fund, on behalf of the Portfolio.
Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same, giving effect to
the fee waiver in year one only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years
5 Years
10 Years Institutional Shares
$115
$376
$658
$1,464 Open Shares
$146
$463
$803
$1,764 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. During the most recent fiscal year, the Portfolios portfolio turnover rate was 51% of the average value of its portfolio. 30Prospectus
Shares
Shares
Maximum Redemption Fee (as a % of amount redeemed,
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of relatively small non-U.S. companies that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Investment Manager considers small non-U.S. companies to be those non-U.S.
companies with market capitalizations, at the time of initial purchase by the Portfolio, below $5 billion or in the range of the smallest 10% of companies included in the MSCI EAFE Index (based on market capitalization of the Index as a whole, which ranged from approximately $1.2 billion to $185 billion as
of March 24, 2010). In choosing stocks for the Portfolio, the Investment Manager looks for smaller, well-managed non-U.S. companies that have the potential to grow. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of small cap companies. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Small cap companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. The shares of small cap companies tend to trade less frequently than those of larger companies, which can have an
adverse effect on the pricing of these securities and on the ability to sell these securities when the Investment Manager deems it appropriate. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Prospectus31
Performance Bar Chart and Table The accompanying bar chart and table provide some indication of the risks of investing in Lazard International Small Cap Equity Portfolio by showing the Portfolios year-by-year and average annual performance. The bar chart shows how the performance of the Portfolios Institutional Shares has varied from
year to year over the past 10 calendar years. Performance information is available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future.
Best Quarter: Average Annual Total Returns After-tax returns for the Open Shares vary from those of Institutional Shares. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
Inception 1 Year
5 Years
10 Years
Life of Institutional Shares:
12/1/93 Returns Before Taxes
39.17%
-0.70%
4.60%
6.13% Returns After Taxes on Distributions
39.17%
-3.35%
2.83%
4.75% Returns After Taxes on Distributions and
25.46%
0.06%
4.21%
5.44% Open Shares
2/13/97
39.00%
-0.96%
4.25%
5.42% MSCI EAFE Small Cap Index
46.78%
3.50%
6.45% 4.32% 32Prospectus
Year-by-Year Total Returns for Institutional Shares
As of 12/31
6/30/09 31.53%
Worst Quarter:
12/31/08 -27.07%
(for the periods ended December 31, 2009)
Date
Fund
Sale of Portfolio Shares
(Institutional)
4.49%
(Open)
Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts Brian Pessin, portfolio manager/analyst on the Investment Managers Global, International and European Small Cap Equity teams, has been with the Portfolio since January 2003. John R. Reinsberg, portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams, has been with the Portfolio since inception. Edward Rosenfeld, portfolio manager/analyst on the Investment Managers Global, International and European Small Cap Equity teams, has been with the Portfolio since May 2007. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. Prospectus33
Lazard Funds Summary Section p Lazard Global Listed Infrastructure Portfolio Investment Objective The Portfolio seeks total return. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Fees (fees paid directly from your investment)
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
Management Fees
.90%
.90%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses*
.53%
.58%
Total Annual Portfolio Operating Expenses*
1.43%
1.73%
Fee Waiver and Expense Reimbursement**
.13%
.13%
Total Annual Portfolio Operating Expenses After Fee Waiver and Expense Reimbursement**
1.30%
1.60%
*
Other Expenses are based on estimated amounts for the current fiscal year. ** Reflects a contractual agreement by the Investment Manager to waive its fee and, if necessary, reimburse the Portfolio through April 30, 2011, to the extent Total Annual Portfolio Operating Expenses exceed 1.30% and 1.60% of the average daily net assets of the Portfolios Institutional Shares and Open Shares, respectively, exclusive of taxes, brokerage, interest on borrowings, fees and expenses of Acquired
Funds and extraordinary expenses, and excluding shareholder redemption fees or other transaction fees. This agreement can only be amended by agreement of the Fund and the Investment Manager to lower the net amount shown and will terminate automatically in the event of termination of the Investment Management Agreement between the Investment Manager and the Fund, on behalf of the Portfolio. Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same, giving effect to
the fee waiver in year one only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years Institutional Shares
$132
$440 Open Shares
$163
$533 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. 34Prospectus
Shares
Shares
Maximum Redemption Fee (as a % of amount redeemed,
on shares owned for 30 days or less)
Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of infrastructure companies and concentrates its investments in industries represented by infrastructure companies. The Investment Manager focuses on companies with a minimum market capitalization of $250 million that own
physical infrastructure and which the Investment Manager believes are undervalued. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of infrastructure companies, which consist of utilities, pipelines, toll roads, airports, railroads, ports, telecommunications and other infrastructure companies, with securities listed on a national or other recognized
securities exchange. Under normal market conditions, the Portfolio invests significantly (at least 40%unless market conditions are not deemed favorable by the Investment Manager, in which case the Portfolio would invest at least 30%) in infrastructure companies organized or located outside the U.S. or doing a substantial amount of
business outside the U.S. The Portfolio allocates its assets among various regions and countries, including the United States (but in no less than three different countries). The Portfolio may invest in equity securities of companies with some business activities located in emerging market countries. The allocation
of the Portfolios assets to emerging market countries may shift from time to time based on the Investment Managers judgment and analysis of market conditions. The Investment Manager generally seeks to substantially hedge foreign currency exposure in the Portfolio back to the U.S. dollar by entering into foreign currency forward contracts, although the Portfolios total foreign currency exposure may not be fully hedged at all times. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Securities and instruments of infrastructure companies are more susceptible to adverse economic or regulatory occurrences affecting their industries. Infrastructure companies may be subject to a variety of factors that may adversely affect their business or operations, including high interest costs in connection
with capital construction programs, high leverage, costs associated with environmental and other regulations, the effects of economic slowdown, surplus capacity, increased competition from other providers of services, uncertainties concerning the availability of fuel at reasonable prices, the effects of energy
conservation policies and other factors. Infrastructure companies also may be affected by or subject to:
regulation by various government authorities, including rate regulation; service interruption due to environmental, operational or other mishaps; the imposition of special tariffs and changes in tax laws, regulatory policies and accounting standards; and general changes in market sentiment towards infrastructure and utilities assets. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Irrespective of any foreign currency exposure hedging, the Portfolio may experience a decline in the value of its portfolio securities, in U.S. dollar terms, due solely to fluctuations in currency exchange rates. Forward currency contracts may reduce returns or increase volatility, perhaps substantially. These contracts can be Prospectus35
illiquid and highly sensitive to changes in the value of the related currency. Forward currency contracts also are subject to the risk of default by the counterparty to the contract. Performance Bar Chart and Table Because the Portfolio did not have a full calendar year of performance as of the date of this Prospectus, no performance returns are presented in this part of the Prospectus. Annual performance returns provide some indication of the risks of investing in the Portfolio by showing changes in performance from year
to year. Comparison of Portfolio performance to an appropriate index indicates how the Portfolios average annual returns compare with those of a broad measure of market performance. Performance information will be available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past
performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future. Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts John Mulquiney, portfolio manager/analyst on the Investment Managers Global Listed Infrastructure team, has been with the Portfolio since inception. Warryn Robertson, portfolio manager/analyst on the Investment Managers Global Listed Infrastructure team, has been with the Portfolio since inception. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolio on page 60. 36Prospectus
Lazard Funds Summary Section p
This Portfolio is currently closed to investment by certain new investors. See pages 93-94 for more information. Lazard Emerging Markets Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
1.00%
1.00%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses
.15%
.30%
Total Annual Portfolio Operating Expenses
1.15%
1.55% Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years
5 Years
10 Years Institutional Shares
$117
$365
$633
$1,398 Open Shares
$158
$490
$845
$1,845 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. During the most recent fiscal year, the Portfolios portfolio turnover rate was 49% of the average value of its portfolio. Prospectus37
Shares
Shares
Maximum Redemption Fee (as a % of amount redeemed,
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of non-U.S. companies whose principal activities are located in emerging market countries and that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. Emerging market countries include all countries represented by the MSCI Emerging Markets (EM®) Index, which currently includes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa,
Taiwan, Thailand and Turkey. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of companies whose principal business activities are located in emerging market countries. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. 38Prospectus
Performance Bar Chart and Table The accompanying bar chart and table provide some indication of the risks of investing in Lazard Emerging Markets Equity Portfolio by showing the Portfolios year-by-year and average annual performance. The bar chart shows how the performance of the Portfolios Institutional Shares has varied from year to
year over the past 10 calendar years. Performance information is available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future.
Best Quarter: Average Annual Total Returns After-tax returns for the Open Shares vary from those of Institutional Shares. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
Inception 1 Year
5 Years
10 Years
Life of Institutional Shares:
7/15/94 Returns Before Taxes
69.82%
16.76%
11.54%
8.78% Returns After Taxes on Distributions 69.10%
14.62%
10.45%
7.78% Returns After Taxes on Distributions and 46.16%
14.14%
10.02%
7.48% Open Shares 1/8/97
69.14%
16.43%
11.22%
8.93% MSCI EM Index
78.51%
15.51%
9.78%
6.91% Prospectus39
Year-by-Year Total Returns for Institutional Shares
As of 12/31
6/30/09 34.12%
Worst Quarter:
12/31/08 -30.50%
(for the periods ended December 31, 2009)
Date
Fund
Sale of Portfolio Shares
(Institutional)
8.14%
(Open)
Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts Rohit Chopra, portfolio manager/analyst on the Investment Managers Emerging Markets Equity team, has been with the Portfolio since May 2007. James M. Donald, portfolio manager/analyst on the Investment Managers Emerging Markets Equity team, has been with the Portfolio since November 2001. Erik McKee, portfolio manager/analyst on the Investment Managers Emerging Markets Equity team, has been with the Portfolio since July 2008. John R. Reinsberg, portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams, has been with the Portfolio since inception. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. 40Prospectus
Lazard Funds Summary Section p Lazard Emerging Markets Equity Select Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
1.00%
1.00%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses* .30%
.35%
Total Annual Portfolio Operating Expenses* 1.30%
1.60%
*
Other Expenses are based on estimated amounts for the current fiscal year.
Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same, giving effect to
the fee waiver in year one only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years Institutional Shares $132
$412 Open Shares $163
$505 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. Prospectus41
Shares
Shares
Maximum Redemption Fee (as a % of amount redeemed,
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in equity securities, including common stocks, ADRs and GDRs, of non-U.S. companies whose principal activities are located in emerging market countries and that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Portfolio
typically focuses on companies with a market capitalization of greater than $3 billion. Emerging market countries include all countries represented by the MSCI EM Index, which currently includes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and
Turkey. The Investment Manager currently intends to hold securities of between approximately 30 and 55 different issuers. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of companies whose principal business activities are located in emerging market countries. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Because the Portfolio will invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios NAV may be relatively more susceptible to adverse effects from any single corporate, economic, market, political or regulatory occurrence than if the Portfolios investments consisted
of a larger number of securities. 42Prospectus
Performance Bar Chart and Table Because the Portfolio has not commenced investment operations prior to the date of this Prospectus, no performance returns are presented in this part of the Prospectus. Annual performance returns provide some indication of the risks of investing in the Portfolio by showing changes in performance from year to
year. Comparison of Portfolio performance to an appropriate index indicates how the Portfolios average annual returns compare with those of a broad measure of market performance. After the Portfolio commences investment operations, performance information will be available at www.LazardNet.com or by
calling (800) 823-6300. The Portfolios past performance is not necessarily an indication of how the Portfolio will perform in the future. Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts Rohit Chopra, portfolio manager/analyst on the Investment Managers Emerging Markets Equity team James M. Donald, portfolio manager/analyst on the Investment Managers Emerging Markets Equity team Erik McKee, portfolio manager/analyst on the Investment Managers Emerging Markets Equity team John R. Reinsberg, portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. Prospectus43
Lazard Funds Summary Section p Lazard Developing Markets Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Redemption Fee (as a % of amount redeemed,
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
1.00%
1.00%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses
1.81%
1.29%
Total Annual Portfolio Operating Expenses
2.81%
2.54%
Fee Waiver and Expense Reimbursement*
1.51%
.94%
Total Annual Portfolio Operating Expenses After Fee Waiver and Expense Reimbursement*
1.30%
1.60%
*
Reflects a contractual agreement by the Investment Manager to waive its fee and, if necessary, reimburse the Portfolio through April 30, 2011, to the extent Total Annual Portfolio Operating Expenses exceed 1.30% and 1.60% of the average daily net assets of the Portfolios Institutional Shares and Open Shares, respectively, exclusive of taxes, brokerage, interest on borrowings, fees and expenses of Acquired
Funds and extraordinary expenses, and excluding shareholder redemption fees or other transaction fees. This agreement can only be amended by agreement of the Fund and the Investment Manager to lower the net amount shown and will terminate automatically in the event of termination of the Investment Management Agreement between the Investment Manager and the Fund, on behalf of the Portfolio.
Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same, giving effect to
the fee waiver in year one only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years
5 Years
10 Years Institutional Shares
$132
$735
$1,366
$3,069 Open Shares
$163
$705
$1,275
$2,828 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. During the most recent fiscal year, the Portfolios portfolio turnover rate was 96% of the average value of its portfolio. 44Prospectus
Shares
Shares
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of non-U.S. companies whose principal activities are located in emerging market countries (also known as developing markets). Emerging market countries include all countries represented by the MSCI EM Index, which currently includes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and
Turkey. The Investment Manager employs a relative growth investment philosophy that is based on value creation through the process of bottom-up stock selection. The Investment Managers approach consists of an analytical framework, accounting validation, fundamental analysis and portfolio construction parameters.
The Investment Managers selection process focuses on growth and considers the sustainability of growth and the trade off between valuation and growth. A premium may be paid for higher, sustainable growth. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of companies whose principal business activities are located in emerging market countries. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to have the potential for growth, but that may not realize such perceived potential for extended periods of time or may never realize such perceived growth potential. Such stocks may be more volatile than other stocks because they can be
more sensitive to investor perceptions of the issuing companys growth potential. The stocks in which the Portfolio invests may respond differently to market and other developments than other types of stocks. Prospectus45
Performance Bar Chart and Table The accompanying bar chart and table provide some indication of the risks of investing in Lazard Developing Markets Equity Portfolio by showing the Portfolios performance for the first complete calendar year of operation. The bar chart shows the performance of the Portfolios Institutional Shares.
Performance information is available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future.
Best Quarter: Average Annual Total Returns After-tax returns for the Open Shares vary from those of Institutional Shares. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
Inception 1 Year
Life of Institutional Shares:
9/30/08 Returns Before Taxes
108.53%
28.22% Returns After Taxes on Distributions 106.37%
27.14% Returns After Taxes on Distributions and 70.82%
23.52% Open Shares 9/30/08
108.17%
27.95% MSCI EM Index
78.51% 22.78% 46Prospectus
Total Returns for Institutional Shares
As of 12/31
6/30/09 56.64%
Worst Quarter:
3/31/09 -4.43%
(for the periods ended December 31, 2009)
Date
Fund
Sale of Portfolio Shares
(Institutional)
22.78%
(Open)
Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts James M. Donald, portfolio manager/analyst on the Investment Managers Emerging Markets Equity team, has been with the Portfolio since inception. Peter Gillespie, portfolio manager/analyst on the Investment Managers Developing Markets Equity team, has been with the Portfolio since inception. Kevin OHare, portfolio manager/analyst on the Investment Managers Developing Markets Equity team, has been with the Portfolio since inception. John R. Reinsberg, portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams, has been with the Portfolio since inception. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. Prospectus47
Lazard Funds Summary Section p
Lazard Emerging Markets Equity Blend Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees 1.05%
1.05%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses* .25%
.30%
Total Annual Portfolio Operating Expenses* 1.30%
1.60%
*
Other Expenses are based on estimated amounts for the current fiscal year.
Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same, giving effect to
the fee waiver in year one only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years Institutional Shares $132
$412 Open Shares $163
$505 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. 48Prospectus
Shares
Shares
Maximum Redemption Fee (as a % of amount redeemed,
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in equity securities, including common stocks, ADRs and GDRs, of non-U.S. companies whose principal activities are located in emerging market countries. Emerging market countries include all countries represented by the MSCI EM Index, which currently includes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and
Turkey. The Investment Manager will allocate the Portfolios assets between the Investment Managers Emerging Markets Equity Select and Developing Markets Equity investment strategies. In the Emerging Markets Equity Select strategy, assets are invested in companies that the Investment Manager believes are
undervalued based on their earnings, cash flow or asset values. The strategy typically focuses on companies with a market capitalization of greater than $3 billion. In the Developing Markets Equity strategy, the Investment Manager employs a relative growth investment philosophy that is based on value creation
through the process of bottom-up stock selection. The Investment Managers approach consists of an analytical framework, accounting validation, fundamental analysis and portfolio construction parameters. The Investment Manager currently intends to maintain an allocation of approximately 40%-60% of the Portfolios assets in each strategy, but the allocation ranges could change in the future without prior notice to shareholders. The Investment Manager will make allocation decisions between the Emerging
Markets Equity Select and Developing Markets Equity strategies based on quantitative and qualitative analysis through proprietary software models. Quantitative analysis includes, among others, statistical analysis of portfolio risks, factor dependencies and trading tendencies. Qualitative analysis includes, among
others, analysis of the global economic environment as well as internal and external research on individual securities, portfolio holdings, attribution factors, behavioral patterns and overall market views and scenarios. The Investment Manager will periodically review the allocation of Portfolio assets between the
strategies and modify the relative weightings to emphasize risk or to seek to mitigate risk exposures. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of companies whose principal business activities are located in emerging market countries. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests a portion of its assets in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and
other developments than other types of stocks. The Portfolio invests a portion of its assets in stocks believed by the Investment Manager to have the potential for growth, but that may not realize such perceived potential for extended periods of time or may never realize such perceived growth potential. Such stocks may be more volatile than other stocks because they can be
more sensitive to investor perceptions of the issuing companys growth potential. The stocks in which the Portfolio invests may respond differently to market and other developments than other types of stocks. The Portfolios ability to achieve its investment objective depends in part on the Investment Managers skill in determining the Portfolios allocation between the investment strategies. The Investment Managers evaluations and assumptions underlying its allocation decisions may differ from actual market
conditions. Prospectus49
Performance Bar Chart and Table Because the Portfolio has not commenced investment operations prior to the date of this Prospectus, no performance returns are presented in this part of the Prospectus. Annual performance returns provide some indication of the risks of investing in the Portfolio by showing changes in performance from year to
year. Comparison of Portfolio performance to an appropriate index indicates how the Portfolios average annual returns compare with those of a broad measure of market performance. After the Portfolio commences investment operations, performance information will be available at www.LazardNet.com or by
calling (800) 823-6300. The Portfolios past performance is not necessarily an indication of how the Portfolio will perform in the future. Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analyst Jai Jacob, portfolio manager/analyst on the Investment Managers Multi-Strategy investment team James M. Donald, portfolio manager/analyst on the Investment Managers Emerging Markets Equity team Kevin OHare, portfolio manager/analyst on the Investment Managers Developing Markets Equity team Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. 50Prospectus
Lazard Funds Summary Section p Lazard U.S. High Yield Portfolio Investment Objective The Portfolio seeks maximum total return from a combination of capital appreciation and current income. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Redemption Fee (as a % of amount redeemed,
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
.55%
.55%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses
.34%
.41%
Total Annual Portfolio Operating Expenses
.89%
1.21%
Fee Waiver and Expense Reimbursement*
.34%
.36%
Total Annual Portfolio Operating Expenses After Fee Waiver and Expense Reimbursement*
.55%
.85%
*
Reflects a contractual agreement by the Investment Manager to waive its fee and, if necessary, reimburse the Portfolio through April 30, 2011, to the extent Total Annual Portfolio Operating Expenses exceed .55% and .85% of the average daily net assets of the Portfolios Institutional Shares and Open Shares, respectively, exclusive of taxes, brokerage, interest on borrowings, fees and expenses of Acquired
Funds and extraordinary expenses, and excluding shareholder redemption fees or other transaction fees. This agreement can only be amended by agreement of the Fund and the Investment Manager to lower the net amount shown and will terminate automatically in the event of termination of the Investment Management Agreement between the Investment Manager and the Fund, on behalf of the Portfolio.
Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same, giving effect to
the fee waiver in year one only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years
5 Years
10 Years Institutional Shares
$56
$250
$460
$1,065 Open Shares
$87
$348
$630
$1,434 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. During the most recent fiscal year, the Portfolios portfolio turnover rate was 17% of the average value of its portfolio. Prospectus51
Shares
Shares
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio invests primarily in high-yielding U.S. corporate fixed-income securities which, at the time of purchase, are rated below investment grade (lower than Baa by Moodys Investors Service, Inc. (Moodys) or lower than BBB by Standard & Poors Ratings Group (S&P) (junk bonds). The Portfolio
may invest in non-U.S. securities, including, to a limited extent, in companies in, or governments of, emerging market countries. Under normal circumstances, the Portfolio invests at least 80% of its assets in bonds and other fixed-income securities of U.S. companies rated, at the time of purchase, below investment grade by S&P or Moodys and as low as the lowest rating assigned by S&P or Moodys, or the unrated equivalent as determined
by the Investment Manager. The Portfolio focuses its investments in high-yielding securities that may be considered better quality (B+ or higher by Moodys or S&P or the unrated equivalent as determined by the Investment Manager). Although the Portfolio may invest in fixed-income securities without
regard to their maturity, the Portfolios average weighted maturity is expected to range between two and ten years. Securities are evaluated based on their fundamental and structural characteristics. Valuation analysis is tailored to the specific asset class, but may include credit research, prepayment or call options, maturity, duration, coupon, currency and country risks. Principal Investment Risks While bonds are designed to produce a stable stream of income, their prices move inversely with changes in interest rates. Interest rate risk is usually greater for fixed-income securities with longer maturities or durations. The Portfolios investments in lower-rated, higher-yielding bonds are subject to greater
credit risk than its higher-rated investments. Junk bonds tend to be more volatile, less liquid and are considered speculative. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Other risk factors could have an effect on the Portfolios performance, including:
if an issuer fails to make timely interest or principal payments if there is a decline in the credit quality of a bond, or a perception of a decline, the bonds value could fall, potentially lowering the Portfolios share price the price and yield of non-U.S. debt securities could be affected by factors ranging from political and economic instability to changes in currency exchange rates during unusual market conditions, the Portfolio may not be able to sell certain securities at the time and price it would like Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. 52Prospectus
Performance Bar Chart and Table The accompanying bar chart and table provide some indication of the risks of investing in Lazard U.S. High Yield Portfolio by showing the Portfolios year-by-year and average annual performance. The bar chart shows how the performance of the Portfolios Institutional Shares has varied from year to year over
the past 10 calendar years. Performance information is available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future.
Best Quarter: Average Annual Total Returns After-tax returns for the Open Shares vary from those of Institutional Shares. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
Inception 1 Year
5 Years
10 Years
Life of Institutional Shares:
1/2/98 Returns Before Taxes
34.66%
4.96%
2.98%
2.97% Returns After Taxes on Distributions 30.96%
2.12%
-0.40%
-0.48% Returns After Taxes on Distributions and 22.25%
2.54%
0.39%
0.35% Open Shares 2/24/98
34.40%
4.75%
2.72%
2.32% Merrill Lynch High Yield Master II® Index
57.51%
6.35%
6.52%
5.88% Prospectus53
Year-by-Year Total Returns for Institutional Shares
As of 12/31
6/30/09 13.08%
Worst Quarter:
12/31/08 -15.96%
(for the periods ended December 31, 2009)
Date
Fund
Sale of Portfolio Shares
(Institutional)
5.76%
(Open)
Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts J. William Charlton, portfolio manager/analyst on the Investment Managers U.S. High Yield Fixed Income team, has been with the Portfolio since November 2002. Thomas M. Dzwil, portfolio manager/analyst on the Investment Managers U.S. High Yield Fixed Income team, has been with the Portfolio since May 2003. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. 54Prospectus
Lazard Funds Summary Section p Lazard Capital Allocator Opportunistic Strategies Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Institutional
Open
Shareholder Transaction Fees (fees paid directly from your investment)
Maximum Redemption Fee (as a % of amount redeemed,
1.00%
1.00%
Annual Portfolio Operating Expenses (expenses that you pay each year as a percentage
Management Fees
1.00%
1.00%
Distribution and Service (12b-1) Fees
None
.25%
Other Expenses
.16%
.19% Acquired Fund Fees and Expenses (Underlying Funds) .47%
.47%
Total Annual Portfolio Operating Expenses
1.63%
1.91% Fee Waiver and Expense Reimbursement* .14%
.12% Total Annual Portfolio Operating Expenses After Fee Waiver and Expense Reimbursement* 1.49%
1.79%
* Reflects a contractual agreement by the Investment Manager to waive its fee and, if necessary, reimburse the Portfolio through April 30, 2011, to the extent Total Annual Portfolio Operating Expenses exceed 1.02% and 1.32% of the average daily net assets of the Portfolios Institutional Shares and Open Shares, respectively, exclusive of taxes, brokerage, interest on borrowings, fees and expenses of Acquired
Funds and extraordinary expenses, and excluding shareholder redemption fees or other transaction fees. This agreement can only be amended by agreement of the Fund and the Investment Manager to lower the net amount shown and will terminate automatically in the event of termination of the Investment Management Agreement between the Investment Manager and the Fund, on behalf of the Portfolio.
Example This Example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Portfolios operating expenses remain the same, giving effect to
the fee waiver in year one only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year
3 Years
5 Years
10 Years Institutional Shares
$152
$501
$874
$1,923 Open Shares
$182
$589
$1,021
$2,225 Portfolio Turnover The Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Portfolio shares are held in a taxable account. These costs, which are not reflected
in annual portfolio operating expenses or in the Example, affect the Portfolios performance. During the most recent fiscal year, the Portfolios portfolio turnover rate was 113% of the average value of its portfolio. Prospectus55
Shares
Shares
on shares owned for 30 days or less)
of the value of your investment)
Principal Investment Strategies The Portfolio utilizes an asset allocation strategy to invest in a global portfolio of uncorrelated assets that can include exposure, through underlying vehicles, to stocks, bonds, commodities and other investments. The Portfolio invests primarily in common stock of exchange-traded open-end management investment companies and similar products, which generally pursue a passive index-based strategy (commonly known as exchange-traded funds or ETFs), as well as actively managed closed-end management investment
companies (closed-end funds) (collectively, Underlying Funds). ETFs in which the Portfolio may invest include both ETFs designed to correlate directly with an index and ETFs designed to correlate inversely with an index. The Portfolio, through Underlying Funds in which it invests, may invest in non-
U.S. companies (including those in emerging markets), and the Portfolio also may invest directly in equity and debt securities in addition to its investments in Underlying Funds. The Portfolios investment portfolio is concentrated in a relatively small number of holdings (generally 10 to 30). Investors can invest
directly in Underlying Funds and do not need to invest in Underlying Funds through mutual funds or separately managed accounts. The
Portfolio may engage in derivatives transactions, including certain foreign
currency transactions (which may include forward currency contracts, swap
agreements and options), entering into equity and total return swap agreements
and writing put and covered call options on securities (including ETFs),
indexes and currencies, for hedging purposes or to seek to increase returns. Principal Investment Risks While stocks (including those in which the Underlying Funds invest) have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Shares of Underlying Funds in which the Portfolio invests may trade at prices that vary from their NAVs, sometimes significantly. The shares of Underlying Funds may trade at prices at, below or above their most recent NAV. Shares of closed-end funds, in particular, frequently trade at persistent discounts to
their NAV. In addition, the performance of an ETF pursuing a passive index-based strategy may diverge from the performance of the index. The Portfolios investments in Underlying Funds are subject to the risks of Underlying Funds investments, as well as to the general risks of investing in Underlying
Funds. Portfolio shares will bear not only the Portfolios management fees and operating expenses, but also their proportional share of the management fees and operating expenses of Underlying Funds in which the Portfolio invests. The Portfolio may be limited by the 1940 Act in the amount of its assets that may be invested in Underlying Funds unless an Underlying Fund has received an exemptive order from the Securities and Exchange Commission (the SEC) on which the Portfolio may rely or an exemption is available. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The market value of debt securities is affected by changes in prevailing interest rates and the perceived credit quality of the issuer. When prevailing interest rates fall or perceived credit quality improves, the market value of the affected debt securities generally rises. Conversely, when interest rates rise or
perceived credit quality weakens, the market value of the affected debt securities generally declines. Because the Portfolio will invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios NAV may be relatively more susceptible to adverse effects from any single economic or market occurrence than if the Portfolios investments consisted of a larger number of
securities. Derivatives transactions, including those entered into for hedging purposes, may reduce returns or increase volatility. Many derivatives, such as those used in forward currency contracts, swap agreements and certain options, are subject to the risk of default by the counterparty, in addition to risks of changes in
the value of the related 56Prospectus
currency, security, securities or index. These derivatives also can be illiquid and highly sensitive to changes in the related currency, security, securities or index. As such, a small investment in certain derivatives could have a potentially large impact on the Portfolios performance. Performance Bar Chart and Table The accompanying bar chart and table provide some indication of the risks of investing in Lazard Capital Allocator Opportunistic Strategies Portfolio by showing the Portfolios performance for the first complete calendar year of operation. The bar chart shows the performance of the Portfolios Institutional
Shares. Performance information is available at www.LazardNet.com or by calling (800) 823-6300. The Portfolios past performance (before and after taxes) is not necessarily an indication of how the Portfolio will perform in the future.
Best Quarter: Average Annual Total Returns After-tax returns for the Open Shares vary from those of Institutional Shares. After-tax returns are calculated using the historical highest individual marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investors tax situation and may differ from
those shown. The after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The Global Market Exposure Index shown in the table is an unmanaged, blended index constructed by the Investment
Manager, which is comprised of 36% Barclays Capital U.S. Aggregate Bond Index, 19.5% S&P 500 Index, 15% MSCI Europe Index, 9% MSCI Pacific Index, 6% MSCI EM Index, 6% S&P MidCap 400 Index, 4.5% S&P SmallCap 600 Index and 4% Three Month London Interbank Offered Rate. Prospectus57
Total Returns for Institutional Shares
As of 12/31
6/30/09 14.66%
Worst Quarter:
3/31/09 -5.43%
(for the periods ended December 31, 2009)
Inception 1 Year
Life of Institutional Shares:
3/26/08 Returns Before Taxes
21.21% -4.28% Returns After Taxes on Distributions 20.78%
-5.10% Returns After Taxes on Distributions and 13.93%
-4.08% Open Shares 3/31/08
20.71% -4.40% MSCI World Index
29.99% -9.16% Global Market Exposure Index
22.92% -1.21% (Institutional) 58Prospectus
Date
Fund
Sale of Portfolio Shares
(Institutional)
-9.03%
(Open)
-1.21%
(Open)
Management Investment Manager Lazard Asset Management LLC Portfolio Manager/Analysts David R. Cleary, portfolio manager/analyst on the Investment Managers Capital Allocator Series team, has been with the Portfolio since inception. Christopher Komosa, portfolio manager/analyst on the Investment Managers Capital Allocator Series team, has been with the Portfolio since inception. Additional Information For important information about the purchase and sale of Portfolio shares, tax information and financial intermediary compensation, please turn to Additional Information about the Portfolios on page 60. Prospectus59
Lazard Funds Additional Information about the Portfolios p Purchase and Sale of Fund Shares The initial investment minimums are: Institutional Shares
$
100,000 Open Shares
$
2,500 IRA Rollover/Transfer (Open Shares only)
$
2,500 The subsequent investment minimum is $50. Portfolio shares are redeemable through the Funds transfer agent, Boston Financial Data Services, Inc. (the Transfer Agent), on any business day by telephone, mail or overnight delivery. Clients of financial intermediaries may be subject to the intermediaries procedures. Tax Information All dividends and short-term capital gains distributions are generally taxable to you as ordinary income, and long-term capital gains are generally taxable as such, whether you receive the distribution in cash or reinvest it in additional shares. Financial Intermediary Compensation Payments to Broker-Dealers and Other Financial Intermediaries If you purchase shares of a Portfolio through a broker-dealer or other financial intermediary (such as a bank), the Portfolio and the Investment Manager and its affiliates may pay the intermediary for the sale of Portfolio shares and related services. These payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson to recommend the Portfolio over another investment. Ask your salesperson or visit your financial intermediarys website for more information. 60Prospectus
Lazard Funds Overview p The Portfolios The Fund consists of fifteen separate Portfolios. Each Portfolio offers Institutional Shares and Open Shares. Institutional Shares and Open Shares have different investment minimums and different expense ratios. Each Portfolio has its own investment objective, strategies, and risk/return and expense profile.
Because you could lose money by investing in a Portfolio, be sure to read all risk disclosures carefully before investing. Each Portfolio other than Lazard Capital Allocator Opportunistic Strategies Portfolio has adopted a policy to invest at least 80% of its assets in specified securities appropriate to its name and to provide its shareholders with at least 60 days prior notice of any change with respect to this policy. Information on the recent strategies and holdings of each Portfolio that has commenced operations can be found in the current annual/semi-annual report (see back cover). EQUITY PORTFOLIOS Except as otherwise indicated, these Portfolios invest primarily in equity securities, including common stocks, preferred stocks and convertible securities. Under adverse market conditions, a Portfolio could pursue a defensive strategy by investing some or all of its assets in money market securities to seek to
avoid or mitigate losses. In pursuing such a strategy, a Portfolio may forgo more profitable investment strategies and, as a result, may not achieve its stated investment objective. Lazard U.S. Equity Value Portfolio Lazard Emerging Markets Equity Portfolio is currently closed to investment by certain new investors. See pages 93-94 for more information. Who May Want to Invest? Consider investing in these Portfolios if you are:
pursuing a long-term goal such as retirement looking to add an equity component to your investment portfolio willing to accept the higher risks of investing in the stock market in exchange for potentially higher long-term returns These Portfolios may not be appropriate if you are:
pursuing a short-term goal or investing emergency reserves uncomfortable with an investment that will fluctuate in value You should be aware that the Portfolios:
are not bank deposits are not guaranteed, endorsed or insured by any bank, financial institution or government entity, such as the Federal Deposit Insurance Corporation are not guaranteed to achieve their stated goals FIXED-INCOME PORTFOLIO Lazard U.S. High Yield Portfolio This Portfolio invests in a variety of U.S. fixed-income securities. The Portfolio is constructed using a bottom-up discipline in which the Investment Manager follows a systematic process to seek out undervalued opportunities within each sector. Who May Want to Invest? Consider investing in this Portfolio if you are:
looking to add a monthly income component to your investments seeking potentially higher returns than those offered by money market funds willing to accept the risks of price and dividend rate fluctuations Prospectus61
Lazard U.S. Strategic Equity Portfolio
Lazard U.S. Mid Cap Equity Portfolio
Lazard U.S. Small-Mid Cap Equity Portfolio
Lazard International Equity Portfolio
Lazard International Equity Select Portfolio
Lazard International Strategic Equity Portfolio
Lazard International Small Cap Equity Portfolio
Lazard Global Listed Infrastructure Portfolio
Lazard Emerging Markets Equity Portfolio
Lazard Emerging Markets Equity Select Portfolio
Lazard Developing Markets Equity Portfolio
Lazard Emerging Markets Equity Blend Portfolio
This Portfolio may not be appropriate if you are:
investing emergency reserves uncomfortable with an investment that will fluctuate in value You should be aware that the Portfolio:
is not a bank deposit is not guaranteed, endorsed or insured by any bank, financial institution or government entity, such as the Federal Deposit Insurance Corporation is not guaranteed to achieve its stated goal CAPITAL ALLOCATOR PORTFOLIO Lazard Capital Allocator Opportunistic Strategies Portfolio This Portfolio invests primarily in other investment companies. Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. The Portfolio might do this to seek to avoid or mitigate losses, but it may result in the Portfolio not achieving its investment objective. Who May Want to Invest? Consider investing in this Portfolio if you are:
pursuing a long-term goal such as retirement looking to add an equity component to your investment portfolio willing to accept the higher risks of investing in the stock market in exchange for potentially higher long-term returns This Portfolio may not be appropriate if you are:
pursuing a short-term goal or investing emergency reserves uncomfortable with an investment that will fluctuate in value You should be aware that the Portfolio:
is not a bank deposit is not guaranteed, endorsed or insured by any bank, financial institution or government entity, such as the Federal Deposit Insurance Corporation is not guaranteed to achieve its stated goal 62Prospectus
Lazard Funds Investment Objective, Strategies and Risks p Lazard U.S. Equity Value Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of relatively large U.S. companies with market capitalizations generally in the range of companies included in the Russell 1000 Value Index (ranging from approximately $101 million to $326 billion as of March 24, 2010) at the time of
initial purchase by the Portfolio that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Portfolio typically invests in 55 to 100 securities. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of U.S. companies. The Portfolio may invest up to 10% of its total assets in securities of non-U.S. companies that trade in U.S. markets. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Because the Portfolio may invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios NAV may be relatively more susceptible to adverse effects from any single corporate, economic, market, political or regulatory occurrence than if the Portfolios investments consisted
of a larger number of securities. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and potentially, less liquidity. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. Prospectus63
Lazard Funds Investment Objective, Strategies and Risks p Lazard U.S. Strategic Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of U.S. companies that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. Although the Portfolio generally focuses on large cap companies, the market capitalizations of issuers in
which the Portfolio invests may vary with market conditions and the Portfolio also may invest in mid cap and small cap companies. Ordinarily, the market capitalizations of the Portfolios investments will be within the range of companies included in the S&P 500 Index (ranging from approximately $1.25 billion to $316 billion as of March 24, 2010). Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of U.S. companies. The Portfolio may invest up to 15% of its total assets in securities of non-U.S. equity companies, including ADRs and GDRs. The Investment Manager currently intends to invest the Portfolios
assets in a relatively small number of issuers (generally 55 to 75). The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Small and mid cap companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. The shares of small and mid cap companies tend to trade less frequently than those of larger companies,
which can have an adverse effect on the pricing of these securities and on the ability to sell these securities when the Investment Manager deems it appropriate. Some of the Portfolios investments will rise and fall based only on investor perception. Because the Portfolio will invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios NAV may be relatively more susceptible to adverse effects from any single corporate, economic, market, political or regulatory occurrence than if the Portfolios investments consisted
of a larger number of securities. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. 64Prospectus
Lazard Funds Investment Objective, Strategies and Risks p Lazard U.S. Mid Cap Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of mid cap U.S. companies that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Investment Manager considers mid cap companies to be those companies that, at the time
of initial purchase by the Portfolio, have market capitalizations within the range of companies included in the Russell Midcap Index (ranging from approximately $101 million to $18 billion as of March 24, 2010). Because mid cap companies are defined in part by reference to an index, the market
capitalization of companies in which the Portfolio may invest may vary with market conditions. The Investment Manager is not required to sell a companys securities from the Portfolios holdings when the capitalization of the company increases or decreases so that the company no longer meets the definition
of a mid cap company. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of medium-size (mid cap) U.S. companies. The Portfolio may invest up to 20% of its assets in the equity securities of larger capitalization companies. The Portfolio also may invest up to 15% of its assets in equity
securities of non-U.S. companies, including ADRs and GDRs. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Mid cap companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established, companies. The shares of mid cap companies tend to trade less frequently than those of larger companies, which can have an
adverse effect on the pricing of these securities and on the ability to sell these securities when the Investment Manager deems it appropriate. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Some of the Portfolios investments will rise and fall based only on investor perception. And, while investments in value stocks may limit downside risk over time, the Portfolio may, as a trade-off, produce smaller gains than riskier stock funds. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. Prospectus65
Lazard Funds Investment Objective, Strategies and Risks p Lazard U.S. Small-Mid Cap Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of small to mid capitalization U.S. companies. The Investment Manager considers small-mid cap companies to be those companies that, at the time of initial purchase by the Portfolio, have market capitalizations within the range of
companies included in the Russell 2500 Index (ranging from approximately $10.8 million to $10.4 billion as of March 24, 2010). Because small-mid cap companies are defined in part by reference to an index, the market capitalization of companies in which the Portfolio may invest may vary with market
conditions. The Investment Manager is not required to sell a companys securities from the Portfolios holdings when the capitalization of that company increases such that the company no longer meets the definition of a small-mid cap company. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of small-mid cap U.S. companies. The Investment Manager focuses on relative value in seeking to construct a diversified portfolio of investments for the Portfolio that maintains sector and industry balance, using
investment opportunities identified through bottom-up fundamental research conducted by the Investment Managers small cap, mid cap and global research platforms. The Investment Manager believes that contribution of ideas from multiple sources within the firm benefits the generation of investment ideas
for consideration by the Portfolios portfolio management team. Companies selected for investment in the Portfolio generally have, in the Investment Managers opinion, one or more of the following characteristics:
sustainable returns strong free cash flow with balance sheet flexibility attractive valuation, utilizing peer group and historical comparisons The Portfolio may invest up to 20% of its assets in equity securities of larger U.S. companies and may invest up to 10% of its total assets in securities of non-U.S. equity companies, including ADRs and GDRs. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Small and mid cap companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. The shares of small and mid cap companies tend to trade less frequently than those of larger companies,
which can have an adverse effect on the pricing of these securities and on the ability to sell these securities when the Investment Manager deems it appropriate. Some of the Portfolios investments will rise and fall based only on investor perception. 66Prospectus
The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Because the Portfolio may invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios NAV may be relatively more susceptible to adverse effects from any single corporate, economic, market, political or regulatory occurrence than if the Portfolios investments consisted
of a larger number of securities. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. Prospectus67
Lazard Funds Investment Objective, Strategies and Risks p Lazard International Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of relatively large non-U.S. companies with market capitalizations in the range of companies included in the MSCI EAFE Index (ranging from approximately $1.2 billion to $185 billion as of March 24, 2010) that the Investment
Manager believes are undervalued based on their earnings, cash flow or asset values. In choosing stocks for the Portfolio, the Investment Manager looks for established companies in economically developed countries and may invest up to 30% of the Portfolios assets in securities of companies whose principal business activities are located in emerging market countries. The allocation of the
Portfolios assets among geographic sectors, and between developed and emerging market countries, may shift from time to time based on the Investment Managers judgment. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. 68Prospectus
Lazard Funds Investment Objective, Strategies and Risks p Lazard International Equity Select Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio invests primarily in equity securities of relatively large non-U.S. companies with market capitalizations in the range of companies included in the MSCI EAFE Index (ranging from approximately $1.2 billion to $185 billion as of March 24, 2010) that the Investment Manager believes are undervalued
based on their earnings, cash flow or asset values. The Investment Manager currently intends to hold securities, including ADRs, GDRs and common stocks, of between approximately 30 and 55 different issuers on a long-term basis. This strategy could result in lower brokerage costs to the Portfolio and lower taxable distributions. Although the Investment
Manager does not anticipate frequent trading in the Portfolios securities, the Investment Manager will sell portfolio positions when it considers such action appropriate. In choosing stocks for the Portfolio, the Investment Manager looks for established companies in economically developed countries. The allocation of the Portfolios assets among geographic sectors may shift from time to time based on the Investment Managers judgment. Under normal circumstances, the
Portfolio invests at least 80% of its assets in equity securities. The Portfolio may invest up to 30% of its assets in securities of companies whose principal business activities are located in emerging market countries, although the allocation of the Portfolios assets to emerging market countries may vary from time to time. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Prospectus69
Because the Portfolio will invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios NAV may be relatively more susceptible to adverse effects from any single corporate, economic, market, political or regulatory occurrence than if the Portfolios investments consisted
of a larger number of securities. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. 70Prospectus
Lazard Funds Investment Objective, Strategies and Risks p Lazard International Strategic Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of non-U.S. companies whose principal activities are located in countries represented by the MSCI EAFE Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Portfolio
may invest up to 30% of its assets in securities of companies whose principal business activities are located in emerging market countries, although the allocation of the Portfolios assets to emerging market countries may vary from time to time. The Portfolio may invest in companies of any size, and the market
capitalizations of companies in which the Portfolio invests may vary with market conditions. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities. The Investment Manager currently intends to hold securities of between approximately 30 to 55 different issuers. The allocation of the Portfolios assets among geographic sectors may shift from time to time based
on the Investment Managers judgment. The countries represented by the MSCI EAFE Index currently include: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Prospectus71
Because the Portfolio will invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios NAV may be relatively more susceptible to adverse effects from any single corporate, economic, market, political or regulatory occurrence than if the Portfolios investments consisted
of a larger number of securities. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. 72Prospectus
Lazard Funds Investment Objective, Strategies and Risks p Lazard International Small Cap Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of relatively small non-U.S. companies that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Investment Manager considers small non-U.S. companies to be those non-U.S.
companies with market capitalizations, at the time of initial purchase by the Portfolio, below $5 billion or in the range of the smallest 10% of companies included in the MSCI EAFE Index (based on market capitalization of the Index as a whole, which ranged from approximately $1.2 billion to $185 billion as of
March 24, 2010). Because small non-U.S. companies are defined in part by reference to an index, the market capitalization of companies in which the Portfolio may invest may vary with market conditions. The Investment Manager is not required to sell a companys securities from the Portfolios holdings
when the capitalization of the company increases so that the company no longer meets the definition of a small non-U.S. company. In choosing stocks for the Portfolio, the Investment Manager looks for smaller, well-managed non-U.S. companies that have the potential to grow. The percentage of the Portfolios assets invested in particular geographic sectors may shift from time to time based on the Investment Managers judgment. Under
normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of small cap companies. These securities generally have one or more of the following characteristics:
the potential to become a larger factor in the companys business sector significant debt but high levels of free cash flow a relatively short corporate history with the expectation that the business may grow The Portfolio may invest up to 20% of its assets in equity securities of larger companies. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Small cap companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. The shares of small cap companies tend to trade less frequently than those of larger companies, which can have an
adverse effect on the pricing of these securities and on the ability to sell these securities when the Investment Manager deems it appropriate. Some of the Portfolios investments will rise and fall based only on investor perception. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing Prospectus73
and legal standards, and, potentially, less liquidity.
The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. 74Prospectus
Lazard Funds Investment Objective, Strategies and Risks p Lazard Global Listed Infrastructure Portfolio Investment Objective The Portfolio seeks total return. Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of infrastructure companies and concentrates its investments in industries represented by infrastructure companies. The Investment Manager focuses on companies with a minimum market capitalization of $250 million that own
physical infrastructure and which the Investment Manager believes are undervalued. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of infrastructure companies, which consist of utilities, pipelines, toll roads, airports, railroads, ports, telecommunications and other infrastructure companies, with securities listed on a national or other recognized
securities exchange. Infrastructure companies typically derive at least 50% of their revenues from, or have at least 50% of their assets committed to, the generation, production, transmission, sale or distribution of energy or natural resources used to produce energy; distribution, purification and treatment of water;
provision of communications services and media; management, ownership and/or operation of infrastructure assets or construction, development or financing of infrastructure assets, such as pipelines, toll roads, airports, railroads or ports. Infrastructure companies also include energy-related companies organized as
master limited partnerships (MLPs) and their affiliates, and the Portfolio may invest up to 25% of its net assets in these energy-related MLPs and their affiliates. The Portfolio seeks to focus its investments in a subset of infrastructure securities that are considered preferred infrastructure securities by the Investment Manager. Generally, the Investment Manager considers securities that are more likely to exhibit certain desirable characteristics, such as longevity of the
issuer, lower risk of capital loss and revenues linked to inflation, to be preferred infrastructure securities. Under normal market conditions, the Portfolio invests significantly (at least 40%unless market conditions are not deemed favorable by the Investment Manager, in which case the Portfolio would invest at least 30%) in infrastructure companies organized or located outside the U.S. or doing a substantial amount of
business outside the U.S. The Portfolio allocates its assets among various regions and countries, including the United States (but in no less than three different countries). The Portfolio considers a company that derives at least 50% of its revenue from business outside the U.S. or has at least 50% of its assets
outside the U.S. as doing a substantial amount of business outside the U.S. The Portfolio may invest in equity securities of companies with some business activities located in emerging market countries. The allocation of the Portfolios assets to emerging market countries may shift from time to time based on
the Investment Managers judgment and analysis of market conditions. The Investment Manager generally seeks to substantially hedge foreign currency exposure in the Portfolio back to the U.S. dollar by entering into foreign currency forward contracts, although the Portfolios total foreign currency exposure may not be fully hedged at all times. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Prospectus75
Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Securities and instruments of infrastructure companies are more susceptible to adverse economic or regulatory occurrences affecting their industries. Infrastructure companies may be subject to a variety of factors that may adversely affect their business or operations, including high interest costs in connection
with capital construction programs, high leverage, costs associated with environmental and other regulations, the effects of economic slowdown, surplus capacity, increased competition from other providers of services, uncertainties concerning the availability of fuel at reasonable prices, the effects of energy
conservation policies and other factors. Infrastructure companies also may be affected by or subject to:
regulation by various government authorities, including rate regulation; service interruption due to environmental, operational or other mishaps; the imposition of special tariffs and changes in tax laws, regulatory policies and accounting standards; general changes in market sentiment towards infrastructure and utilities assets; difficulty in raising capital in adequate amounts on reasonable terms in periods of high inflation and unsettled capital markets; inexperience with and potential losses resulting from a developing deregulatory environment; costs associated with compliance with and changes in environmental and other regulations; and technological innovations that may render existing plants, equipment or products obsolete. An investment in MLP units involves some risks that differ from an investment in the common stock of a corporation. Investing in MLPs involves certain risks related to investing in the underlying assets of the MLPs and risks associated with pooled investment vehicles. MLPs holding credit-related
investments are subject to interest rate risk and the risk of default on payment obligations by debt issuers. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market 76Prospectus
and other developments than other types of stocks. Because the Portfolio may invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios NAV may be relatively more susceptible to adverse effects from any single corporate, economic, market, political or regulatory occurrence than if the Portfolios investments consisted
of a larger number of securities. Irrespective of any foreign currency exposure hedging, the Portfolio may experience a decline in the value of its portfolio securities, in U.S. dollar terms, due solely to fluctuations in currency exchange rates. Forward currency contracts may reduce returns or increase volatility, perhaps substantially. These contracts can be illiquid and highly sensitive to changes in the value of the related currency. Forward currency contracts also are subject to the risk of default by the counterparty to the contract. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. Prospectus77
Lazard Funds Investment Objective, Strategies and Risks p
This Portfolio is currently closed to investment by certain new investors. See pages 93-94 for more information. Lazard Emerging Markets Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of non-U.S. companies whose principal activities are located in emerging market countries and that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. Emerging market countries include all countries represented by the MSCI EM Index, which currently includes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and
Turkey. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of companies whose principal business activities are located in emerging market countries. The allocation of the Portfolios assets among emerging market countries may shift from time to time based on the
Investment Managers judgment and its analysis of market conditions. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. 78Prospectus
Lazard Funds Investment Objective, Strategies and Risks p Lazard Emerging Markets Equity Select Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio invests primarily in equity securities, including common stocks, ADRs and GDRs, of non-U.S. companies whose principal activities are located in emerging market countries and that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Portfolio
typically focuses on companies with a market capitalization of greater than $3 billion. Emerging market countries include all countries represented by the MSCI EM Index, which currently includes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and
Turkey. The Investment Manager currently intends to hold securities of between approximately 30 and 55 different issuers. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of companies whose principal business activities are located in emerging market countries. The allocation of the Portfolios assets among emerging market countries may shift from time to time based on the
Investment Managers judgment and its analysis of market conditions. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and other developments
than other types of stocks. Because the Portfolio will invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios NAV may be relatively more susceptible to adverse effects from any single corporate, economic, market, political or regulatory occurrence than if the Portfolios investments consisted
of a larger number of securities. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. Prospectus79
Lazard Funds Investment Objective, Strategies and Risks p Lazard Developing Markets Equity Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio invests primarily in equity securities, principally common stocks, of non-U.S. companies whose principal activities are located in emerging market countries (also known as developing markets). Emerging market countries include all countries represented by the MSCI EM Index, which currently includes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and
Turkey. The Portfolios investments will generally consist of a portfolio of approximately 60 to 90 securities. The Investment Manager employs a relative growth investment philosophy that is based on value creation through the process of bottom-up stock selection. The Investment Managers approach consists of an analytical framework, accounting validation, fundamental analysis and portfolio construction parameters.
The Investment Managers selection process focuses on growth and considers the sustainability of growth and the trade off between valuation and growth. A premium may be paid for higher, sustainable growth. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of companies whose principal business activities are located in emerging market countries. The allocation of the Portfolios assets among emerging market countries may shift from time to time based on the
Investment Managers judgment and its analysis of market conditions. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests in stocks believed by the Investment Manager to have the potential for growth, but that may not realize such perceived potential for extended periods of time or may never realize such perceived growth potential. Such stocks may be more volatile than other stocks because they can be
more sensitive to investor perceptions of the issuing companys growth potential. The stocks in which the Portfolio invests may 80Prospectus
respond differently to market and other developments than other types of stocks. Because the Portfolio will invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios NAV may be relatively more susceptible to adverse effects from any single corporate, economic, market, political or regulatory occurrence than if the Portfolios investments consisted
of a larger number of securities. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. Prospectus81
Lazard Funds Investment Objective, Strategies and Risks p
Lazard Emerging Markets Equity Blend Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio invests primarily in equity securities, including common stocks, ADRs and GDRs, of non-U.S. companies whose principal activities are located in emerging market countries. Emerging market countries include all countries represented by the MSCI EM Index, which currently includes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and
Turkey. The Investment Manager will allocate the Portfolios assets between the Investment Managers Emerging Markets Equity Select and Developing Markets Equity investment strategies. In the Emerging Markets Equity Select strategy, assets are invested in companies that the Investment Manager believes are
undervalued based on their earnings, cash flow or asset values. The strategy typically focuses on companies with a market capitalization of greater than $3 billion. In the Developing Markets Equity strategy, the Investment Manager employs a relative growth investment philosophy that is based on value creation
through the process of bottom-up stock selection. The Investment Managers approach consists of an analytical framework, accounting validation, fundamental analysis and portfolio construction parameters. The allocation among emerging market countries within each strategy may shift from time to time based
on the Investment Mangers judgment and its analysis of market conditions. The Investment Manager currently intends to maintain an allocation of approximately 40%-60% of the Portfolios assets in each strategy, but the allocation ranges could change in the future without prior notice to shareholders. The Investment Manager will make allocation decisions between the Emerging
Markets Equity Select and Developing Markets Equity strategies based on quantitative and qualitative analysis through proprietary software models. Quantitative analysis includes, among others, statistical analysis of portfolio risks, factor dependencies and trading tendencies. Qualitative analysis includes, among
others, analysis of the global economic environment as well as internal and external research on individual securities, portfolio holdings, attribution factors, behavioral patterns and overall market views and scenarios. The Investment Manager will periodically review the allocation of Portfolio assets between the
strategies and modify the relative weightings to emphasize risk or to seek to mitigate risk exposures. Under normal circumstances, the Portfolio invests at least 80% of its assets in equity securities of companies whose principal business activities are located in emerging market countries. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. 82Prospectus
Non-domestic securities carry special risks, such as exposure to currency fluctuations, less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity.
The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The Portfolio invests a portion of its assets in stocks believed by the Investment Manager to be undervalued, but that may not realize their perceived value for extended periods of time or may never realize their perceived value. The stocks in which the Portfolio invests may respond differently to market and
other developments than other types of stocks. The Portfolio invests a portion of its assets in stocks believed by the Investment Manager to have the potential for growth, but that may not realize such perceived potential for extended periods of time or may never realize such perceived growth potential. Such stocks may be more volatile than other stocks because they can be
more sensitive to investor perceptions of the issuing companys growth potential. The stocks in which the Portfolio invests may respond differently to market and other developments than other types of stocks. The Portfolios ability to achieve its investment objective depends in part on the Investment Managers skill in determining the Portfolios allocation between the investment strategies. The Investment Managers evaluations and assumptions underlying its allocation decisions may differ from actual market
conditions. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. Prospectus83
Lazard Funds Investment Objective, Strategies and Risks p Lazard U.S. High Yield Portfolio Investment Objective The Portfolio seeks maximum total return from a combination of capital appreciation and current income. Principal Investment Strategies The Portfolio invests primarily in high-yielding U.S. corporate fixed-income securities which, at the time of purchase, are rated below investment grade (lower than Baa by Moodys or lower than BBB by S&P (junk bonds). The Portfolio may invest in non-U.S. securities, including, to a limited extent, in
companies in, or governments of, emerging market countries. Under normal circumstances, the Portfolio invests at least 80% of its assets in bonds and other fixed-income securities of U.S. companies rated, at the time of purchase, below investment grade by S&P or Moodys and as low as the lowest rating assigned by S&P or Moodys, or the unrated equivalent as determined
by the Investment Manager. The Portfolio focuses its investments in high-yielding securities that may be considered better quality (B+ or higher by Moodys or S&P or the unrated equivalent as determined by the Investment Manager). Although the Portfolio may invest in fixed-income securities without
regard to their maturity, the Portfolios average weighted maturity is expected to range between two and ten years. Securities are evaluated based on their fundamental and structural characteristics. Valuation analysis is tailored to the specific asset class, but may include credit research, prepayment or call options, maturity, duration, coupon, currency and country risks. The Investment Manager assigns a relative yield spread target to each security purchased, which reflects the trading level at which the Investment Manager believes the security is fully valued. Targets are reviewed periodically, and performance is evaluated on an ongoing basis. The Investment Manager
typically sells a security for any of the following reasons:
the yield spread declines to a level at which the Investment Manager believes the security no longer reflects relative value the original underlying investment conditions are no longer valid, including a change in the fundamental rationale for the purchase in the opinion of the Investment Manager, the securitys respective asset category or sector has become overvalued relative to investment risks The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While bonds are designed to produce a stable stream of income, their prices move inversely with changes in interest rates. Interest rate risk is usually greater for fixed-income securities with longer maturities or durations. The Portfolios investments in lower-rated, higher-yielding bonds are subject to greater
credit risk than its higher-rated investments. Junk bonds tend to be more volatile, less liquid and are considered speculative. The value of your investment in the Portfolio will fluctuate, which means you could lose money. 84Prospectus
Other risk factors could have an effect on the Portfolios performance, including:
if an issuer fails to make timely interest or principal payments if there is a decline in the credit quality of a bond, or a perception of a decline, the bonds value could fall, potentially lowering the Portfolios share price the price and yield of non-U.S. debt securities could be affected by factors ranging from political and economic instability to changes in currency exchange rates during unusual market conditions, the Portfolio may not be able to sell certain securities at the time and price it would like Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. At times, the Portfolio may engage in short-term trading, which could produce higher brokerage costs and taxable distributions. Prospectus85
Lazard Funds Investment Objective, Strategies and Risks p Lazard Capital Allocator Opportunistic Strategies Portfolio Investment Objective The Portfolio seeks long-term capital appreciation. Principal Investment Strategies The Portfolio utilizes an asset allocation strategy to invest in a global portfolio of uncorrelated assets that can include exposure, through underlying vehicles, to stocks, bonds, commodities and other investments. The Investment Manager believes that over the long term, and on a risk-adjusted basis, there is no
one size fits all approach to asset allocation and that historical relationships coupled with market insights can help develop a global view to identify and anticipate certain secular and cyclical changes. The Investment Manager employs a multi-variable investment strategy incorporating both quantitative and
qualitative factors to generate the Portfolios asset allocation decisions. The Portfolio invests primarily in common stock of exchange-traded open-end management investment companies and similar products, which generally pursue a passive index-based strategy (commonly known as ETFs), as well as actively managed closed-end funds. ETFs in which the Portfolio may invest
include both ETFs designed to correlate directly with an index and ETFs designed to correlate inversely with an index. The Portfolio, through Underlying Funds in which it invests, may invest in non-U.S. companies (including those in emerging markets), and the Portfolio also may invest directly in equity and
debt securities in addition to its investments in Underlying Funds. The Portfolios investment portfolio is concentrated in a relatively small number of holdings (generally 10 to 30). Investors can invest directly in Underlying Funds and do not need to invest in Underlying Funds through mutual funds or separately managed
accounts. The Portfolios investments generally are categorized by the Investment Manager as falling within the following four categories: thematic, diversifying assets, discounted assets and contrarian/opportunistic. The Investment Manager makes allocation changes in the Portfolios investments based on a forward looking assessment of capital markets using a risk/reward and probability methodology. The
Portfolio may engage in derivatives transactions, including certain foreign
currency transactions (which may include forward currency contracts, swap
agreements and options), entering into equity and total return swap agreements
and writing put and covered call options on securities (including ETFs),
indexes and currencies, for hedging purposes or to seek to increase returns. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. Principal Investment Risks While stocks (including those in which the Underlying Funds invest) have historically been a leading choice of long-term investors, they do fluctuate in price, often based on factors unrelated to the issuers value. The value of your investment in the Portfolio will fluctuate, which means you could lose money. Shares of Underlying Funds in which the Portfolio invests may trade at prices that vary from their NAVs, sometimes significantly. The shares of Underlying Funds may trade at prices at, below or above their most recent NAV. Shares of closed-end funds, in particular, frequently trade at persistent discounts to
their NAV. In addition, the performance of an ETF pursuing a passive index-based strategy may diverge from the performance of the index. The Portfolios investments in Underlying Funds are subject to the risks of Underlying Funds investments, as well 86Prospectus
as to the general risks of investing in Underlying Funds. Portfolio shares will bear not only the Portfolios management fees and operating expenses, but also their proportional share of the management fees and operating expenses of Underlying Funds in which the Portfolio invests. The Portfolio may be limited by the 1940 Act in the amount of its assets that may be invested in Underlying Funds unless an Underlying Fund has received an exemptive order from the SEC on which the Portfolio may rely or an exemption is available. Many ETFs have received such an exemptive order,
and the Portfolios reliance is conditioned on compliance with certain conditions of the order. If an exemptive order has not been received and an exemption is not available under the 1940 Act, the Portfolio will be limited in the amount it can invest in Underlying Funds that are registered investment
companies to: (1) 3% or less of an Underlying Funds voting shares, (2) an Underlying Funds shares in value equal to or less than 5% of the Portfolios assets and (3) shares of Underlying Funds in the aggregate in value equal to or less than 10% of the Portfolios total assets. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. The securities markets of emerging market countries can be extremely volatile. The Portfolios performance will be influenced by political, social and economic factors affecting companies in emerging market countries. Emerging market countries can generally have economic structures that are less diverse and
mature, and political systems that are less stable, than those of developed countries. The market value of debt securities is affected by changes in prevailing interest rates and the perceived credit quality of the issuer. When prevailing interest rates fall or perceived credit quality improves, the market value of the affected debt securities generally rises. Conversely, when interest rates rise or
perceived credit quality weakens, the market value of the affected debt securities generally declines. Because the Portfolio will invest in a smaller number of issuers than other, more diversified, investment portfolios, the Portfolios NAV may be relatively more susceptible to adverse effects from any single economic or market occurrence than if the Portfolios investments consisted of a larger number of
securities. A contrarian/opportunistic strategy is susceptible to the risk that the Investment Managers determinations of opportunities in market anomalies do not materialize as expected so that investments using this strategy do not increase in value (and may lose value). Derivatives transactions, including those entered into for hedging purposes, may reduce returns or increase volatility. Many derivatives, such as those used in forward currency contracts, swap agreements and certain options, are subject to the risk of default by the counterparty, in addition to risks of changes in
the value of the related currency, security, securities or index. These derivatives also can be illiquid and highly sensitive to changes in the related currency, security, securities or index. As such, a small investment in certain derivatives could have a potentially large impact on the Portfolios performance. When the Portfolio lends securities to brokers, dealers and other financial institutions, there is a risk that the loaned securities may not be returned during normal settlement periods if the borrower defaults. Prospectus87
Lazard Funds Fund Management p Lazard Asset Management LLC, 30 Rockefeller Plaza, New York, New York 10112-6300, serves as the Investment Manager of each Portfolio. The Investment Manager provides day-to-day management of each Portfolios investments and assists in the overall management of the Funds affairs. The Investment
Manager and its global affiliates provide investment management services to client discretionary accounts with assets totaling approximately $116.5 billion as of December 31, 2009. Its clients are both individuals and institutions, some of whose accounts have investment policies similar to those of several of the
Portfolios. The Fund has agreed to pay the Investment Manager an investment management fee at the annual rate set forth below as a percentage of the relevant Portfolios average daily net assets. The investment management fees are accrued daily and paid monthly. For the fiscal year ended December 31, 2009, the Investment
Manager waived all or a portion of its management fees with respect to certain Portfolios, which resulted in such Portfolios paying the Investment Manager an investment management fee at the effective annual rate set forth below as a percentage of the relevant Portfolios average daily net assets.
Name of Portfolio
Investment
Effective U.S. Equity Value Portfolio
.75%
.00% U.S. Strategic Equity Portfolio
.75%
.71% U.S. Mid Cap Equity Portfolio
.75%
.75% U.S. Small-Mid Cap Equity Portfolio
.75%
.74% International Equity Portfolio
.75%
.75% International Equity Select Portfolio
.85%
.00% International Strategic Equity Portfolio
.75%
.75% International Small Cap Equity Portfolio
.75%
.71% Global Listed Infrastructure Portfolio
.90%
.00% Emerging Markets Equity Portfolio
1.00%
1.00% Emerging Markets Equity Select Portfolio 1.00% N/A% Developing Markets Equity Portfolio
1.00%
.43% Emerging Markets Equity Blend Portfolio
1.05% N/A% U.S. High Yield Portfolio
.55%
.21% Capital Allocator Opportunistic
1.00%
.88%
*
The Portfolio commenced investment operations on December 31, 2009. The Portfolio had not commenced investment operations as of December 31, 2009. A discussion regarding the basis for the approval of the investment management agreement between the Fund, on behalf of the Portfolios, and the Investment Manager is available in the Funds annual report to shareholders for the year ended December 31, 2009.
Name of Portfolio
Institutional
Open U.S. Equity Value Portfolio*
1.00%
1.30% U.S. Strategic Equity Portfolio
1.05%
1.35% U.S. Mid Cap Equity Portfolio
1.05%
1.35% U.S. Small-Mid Cap Equity Portfolio
1.15%
1.45% International Equity Portfolio
1.05%
1.35% International Equity Select Portfolio
1.15%
1.45% International Strategic Equity Portfolio
1.15%
1.45% International Small Cap Equity Portfolio
1.13%
1.43% Global Listed Infrastructure Portfolio
1.30%
1.60% Emerging Markets Equity Portfolio
1.30%
1.60% Emerging Markets Equity Select Portfolio 1.30%
1.60% Developing Markets Equity Portfolio
1.30%
1.60% Emerging Markets Equity Blend Portfolio
1.35%
1.65% U.S. High Yield Portfolio
.55%
.85% Capital Allocator Opportunistic Strategies Portfolio**
1.02%
1.32%
*
This agreement continues in effect from May 1, 2011 through April 30, 2020, at levels of 1.10% and 1.40% of the average daily net assets of the Portfolios Institutional Shares and Open Shares, respectively. ** The addition of Acquired Fund Fees and Expenses will cause Total Annual Portfolio Operating Expenses After Fee Waiver and Expense Reimbursement to exceed the maximum amounts of 1.02% and 1.32% for Institutional Shares and Open Shares, respectively, agreed to by the Investment Manager. 88Prospectus
Management
Fee Payable
Annual Rate
of Investment
Management
Fee Paid
*
Strategies Portfolio
The Investment Manager has a contractual agreement to waive its fee and, if necessary, reimburse each Portfolio through April 30, 2011, to the extent Total Annual Portfolio Operating Expenses exceed the amounts shown below (expressed as a percentage of the average daily net assets of the Portfolios
Institutional Shares and Open Shares), exclusive of taxes, brokerage, interest on borrowings, fees and expenses of Acquired Funds and extraordinary expenses, and excluding shareholder redemption fees or other transaction fees. This agreement can only be amended by agreement of the Fund and the
Investment Manager to lower the net amount shown and will terminate automatically in the event of termination of the Investment Management Agreement between the Investment Manager and the Fund, on behalf of the Portfolios.
Shares
Shares
The Investment Manager manages the Portfolios on a team basis. The team is involved in all levels of the investment process. This team approach allows for every portfolio manager to benefit from the views of his or her peers. Each portfolio management team is comprised of multiple team members.
Although their roles and the contributions they make may differ, each member of the team participates in the management of the respective Portfolio. Members of each portfolio management team discuss the portfolio, including making investment recommendations, overall portfolio composition, and the like.
Research analysts perform fundamental research on companies (based on, for example, sectors or geographic regions) in which the Portfolio may invest. The names of the persons who are primarily responsible for the day-to-day management of the assets of the Portfolios are as follows: U.S. Equity Value PortfolioAndrew D. Lacey#, Nicholas Sordoni, Ronald Temple (since February 2009) and J. Richard Tutino U.S. Strategic Equity PortfolioChristopher H. Blake, Robert A. Failla and Andrew D. Lacey# and Ronald Temple (since February 2009) U.S. Mid Cap Equity PortfolioChristopher H. Blake (since November 2001), Robert A. Failla (since July 2005) and Andrew D. Lacey# (since January 2001) U.S. Small-Mid Cap Equity PortfolioDaniel Breslin (since May 2007) and Andrew D. Lacey* (since May 2003) International Equity PortfolioMichael A. Bennett (since May 2003), Michael G. Fry (since November 2005), Michael Powers (since May 2003) and John R. Reinsberg# International Equity Select PortfolioMichael A. Bennett, Gabrielle M. Boyle and Michael Powers (each since May 2003), Adam Cohen (since April 2008) and John R. Reinsberg* International Strategic Equity PortfolioMichael A. Bennett (since September 2008), Robin O. Jones (since May 2009), Mark Little, Brian Pessin and John R. Reinsberg# International Small Cap Equity PortfolioBrian Pessin (since January 2003), John R. Reinsberg* and Edward Rosenfeld (since May 2007) Global Listed Infrastructure PortfolioJohn Mulquiney and Warryn Robertson Emerging Markets Equity PortfolioRohit Chopra (since May 2007), James M. Donald (since November 2001), Erik McKee (since July 2008) and John R. Reinsberg* Emerging Markets Equity Select PortfolioRohit Chopra, James M. Donald, Erik McKee and John R. Reinsberg* Developing Markets Equity PortfolioJames M. Donald, Peter Gillespie, Kevin O Hare and John R. Reinsberg* Emerging Markets Equity Blend PortfolioJai Jacob, James M. Donald and Kevin OHare U.S. High Yield PortfolioJ. William Charlton (since November 2002) and Thomas M. Dzwil (since May 2003) Capital Allocator Opportunistic Strategies PortfolioDavid R. Cleary and Christopher Komosa
#
In addition to his oversight responsibility, Mr. Lacey or Mr. Reinsberg, as the case may be, is a member of the portfolio management team. * As a Deputy Chairman of the Investment Manager, Mr. Lacey or Mr. Reinsberg, as the case may be, is ultimately responsible for overseeing this Portfolio but is not responsible for its day-to-day management. As head of the Emerging Markets Group, Mr. Donald is ultimately responsible for overseeing this Portfolio but is not responsible for its day-to-day management. Unless otherwise indicated, each portfolio manager has served in that capacity since the relevant Portfolios inception (for Portfolios that have not yet commenced operations, the listed portfolio managers are anticipated to serve upon commencement of operations). Biographical Information of Principal Portfolio Managers Michael A. Bennett, a Managing Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers International Equity teams. Prior to joining the Investment Manager in 1992, Mr. Bennett was an international equity analyst with General Electric Investment Corporation and
worked at Keith Lippert Associates and Arthur Andersen & Company. Mr. Bennett has been working in the investment field since 1987 and is a Chartered Financial Analyst (CFA) Charterholder. Christopher H. Blake, a Managing Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers U.S. Strategic Equity and U.S. Mid Cap Equity teams. Mr. Blake joined the Investment Manager in 1995, when he began working in the investment field as a research analyst for
the Investment Manager. Prospectus89
Gabrielle M. Boyle, a Senior Managing Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams. Prior to joining the Investment Manager in 1993, she worked with Royal Insurance Asset Management. Ms. Boyle has been
working in the investment field since 1990 and is a member of the UK Society of Investment Professionals. Daniel Breslin, a Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers U.S. Small-Mid Cap Equity team. He began working in the investment field in 1992. Prior to joining the Investment Manager in 2002, Mr. Breslin was with Guardian Life and New York Life. J. William Charlton, a Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers U.S. High Yield Fixed Income team. Prior to joining the Investment Manager in 2002, Mr. Charlton worked at Offitbank. Rohit Chopra, a Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Emerging Markets Equity team, focusing on consumer and telecommunications research and analysis. He began working in the investment field in 1996. Prior to joining the Investment Manager in
1999, Mr. Chopra was with Financial Resources Group, Deutsche Bank and Morgan Stanley. David R. Cleary, a Managing Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Capital Allocator Series team and provides oversight to the U.S. Fixed Income platform. Prior to joining the Investment Manager in 1994, Mr. Cleary was with Union Bank of
Switzerland and IBJ Schroeder. Mr. Cleary is a CFA Charterholder. Adam Cohen, a Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Global, International and European Equity Select teams. He began working in the investment field in 1989. Prior to joining the Investment Manager in 2007, Mr. Cohen was a specialist financials
broker with Fox Pitt-Kelton and a Pan European Equity Research salesperson at Lehman Brothers, Salomon Brothers and at JP Morgan Chase. James M. Donald, a Managing Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Emerging Markets Equity team and Head of the Emerging Markets Group. Prior to joining the Investment Manager in 1996, Mr. Donald was a portfolio manager with Mercury Asset
Management. Mr. Donald is a CFA Charterholder. Thomas M. Dzwil, a Senior Vice President of the Investment Manager, is a portfolio manager/analyst on the Investment Managers U.S. High Yield Fixed Income team. Prior to joining the Investment Manager in 2002, Mr. Dzwil worked at Offitbank. Robert A. Failla, a Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers U.S. Strategic Equity, U.S. Mid Cap Equity and Global Equity teams. Prior to joining the Investment Manager in 2003, he was a portfolio manager with AllianceBernstein. He began working in
the investment field in 1993 and is a CFA Charterholder. Michael G. Fry, a Managing Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams. Prior to joining the Investment Manager in 2005, Mr. Fry held several positions at UBS Global Asset Management, including Head of
Global Equity Portfolio Management, Global Head of Equity Research and Head of Australian Equities. Mr. Fry began working in the investment field in 1981. Peter Gillespie, a Director
of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Developing Markets Equity team. Prior to joining the Investment Manager in 2007, he was a portfolio manager at Newgate Capital, LLP, GE Asset Management and an analyst at
Sinta Capital Corp. Mr. Gillespie is a CFA Charterholder. Jai Jacob, a Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Global Multi-Strategy team. Mr. Jacob began working in the investment field in 1998 when he joined the Investment Manager. Robin O. Jones, a Senior Vice President of the Investment Manager, is a portfolio manager/analyst on the Investment Managers International Strategic Equity team. Prior to rejoining the Investment Manager in 2007, Mr. Jones was a portfolio manager for Bluecrest Capital Management since 2006. Mr. Jones
initially joined the Investment Manager in 2002, when he began working in the investment field. Christopher Komosa, a Senior Vice President of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Capital Allocator Series team. Prior to joining the Investment Manager in 2006, Mr. Komosa 90Prospectus
was with Permal Asset Management, Pinnacle International Management, Caxton Associates and Graham Capital. Mr. Komosa is a CFA Charterholder. Andrew D. Lacey, a Deputy Chairman of the Investment Manager, is responsible for oversight of U.S. and Global strategies. He also is a portfolio manager/analyst on various of the Investment Managers U.S. Equity and Global Equity teams. Mr. Lacey joined the Investment Manager in 1996, and has been
working in the investment field since 1995. Mark Little, a Managing Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers International Strategic Equity team. Prior to joining the Investment Manager in 1997, Mr. Little was a manager with the Coopers & Lybrand corporate finance practice. He began working in
the investment field in 1992. John Mulquiney is a portfolio manager/analyst on the Investment Managers Global Listed Infrastructure team. Prior to joining the Investment Manager in August 2005, Mr. Mulquiney worked at Tyndall Australia and in the Asset and Infrastructure Group at Macquarie Bank, where he undertook transactions and
developed valuation models for airports, electricity generators, rail projects and health infrastructure. Mr. Mulquiney is a CFA Charterholder. Kevin OHare, a Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Developing Markets Equity team, focusing on the technology, health care, telecommunications and consumer discretionary sectors. He began working in the investment field in 1991. Prior to joining
the Investment Manager in 2001, Mr. OHare was with Merrill Lynch and Moore Capital Management. Mr. OHare is a CFA Charterholder. Brian Pessin, a Managing Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Global, International and European Small Cap Equity teams. Prior to joining the Investment Manager in 1999, Mr. Pessin was associated with Dawson, Samberg Capital Management,
Gabelli & Company and Auerbach, Grayson & Co. He has been working in the investment field since 1994 and is a CFA Charterholder. Michael Powers, a Managing Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams. He began working in the investment field in 1990 when he joined the Investment Manager. John R. Reinsberg, a Deputy Chairman of the Investment Manager, is responsible for oversight of International and Global strategies. He also is a portfolio manager/analyst on the Investment Managers Global Equity and International Equity teams. Prior to joining the Investment Manager in 1992, he served as
Executive Vice President of General Electric Investment Corporation and Trustee of the General Electric Pension Trust. Mr. Reinsberg began working in the investment field in 1981. Warryn Robertson is a portfolio manager/analyst on the Investment Managers Global Listed Infrastructure team. Prior to joining the Investment Manager in April 2001, Mr. Robertson spent three years with Capital Partners, an independent advisory house, where he was an associate director developing business
valuations for infrastructure assets and other alternative equity investments including airports, toll roads, timber plantations, power stations and coal mines. Mr. Robertson is a member of the Securities Institute of Australia and the Institute of Chartered Accountants. Edward Rosenfeld, a Senior Vice President of the Investment Manager, is a portfolio manager/analyst on the Investment Managers Global, International and European Small Cap Equity teams. He began working in the investment industry in 1996. Prior to joining the Investment Manager in 2001, Mr. Rosenfeld
was an analyst with J.P. Morgan. Nicholas Sordoni, a Senior Vice President of the Investment Manager, is a portfolio manager/analyst on the Investment Managers U.S. Equity Value team. Prior to joining the Investment Manager in 2002, Mr. Sordoni was an Equity Research Associate at Credit Suisse First Boston covering the health care
industry. Mr. Sordoni began working in the investment field in 1997. Mr. Sordoni is a CFA Charterholder. Ronald Temple, a Managing Director of the Investment Manager, is a portfolio manager/analyst on various of the Investment Managers U.S. Equity teams. In addition, Mr. Temple is a Co-Director of Research and a Research Analyst on the Global Research Platform, primarily covering the financials sector. Mr.
Temple joined the Investment Manager in 2001 and has been working in the investment field since 1991. Prospectus91
Erik
McKee, a
Director of the Investment Manager, is a portfolio manager/analyst on the
Investment Managers Emerging Markets Equity team, focusing on the
materials and industrials sectors. He began working in the investment field
in 1996. Prior to joining the Investment Manager in 1999, Mr. McKee was
with Bank of America and Unibanco in Sao Paulo, Brazil.
J. Richard Tutino, a Managing Director of the Investment Manager, is a portfolio manager/analyst on the Investment Managers U.S. Equity Value and U.S. Equity Select teams. Prior to joining the Investment Manager in 1997, Mr. Tutino was associated with Thorsell, Parker Partners and Dreman Value
Management. He is a member of the New York Society of Security Analysts and a CFA Charterholder. Additional information about the portfolio managers compensation, other accounts managed by the portfolio managers and the portfolio managers ownership of shares of the Portfolios is contained in the Funds Statement of Additional Information (SAI). An Advisory Board of three external advisors assists the portfolio managers in formulating policy for management of Lazard Capital Allocator Opportunistic Strategies Portfolio. The members of this team are Herbert W. Gullquist, Senior Advisor of the Investment Manager, Victor A. Canto, PhD, founder and
chairman of La Jolla Economics (an economics consulting firm), and John Reese, a former Managing Director of the Investment Manager. The Advisory Board is not responsible for managing the Portfolio on a day-to-day basis. State Street Bank and Trust Company (State Street), located at One Lincoln Street, Boston, Massachusetts 02111, serves as each Portfolios administrator. State Street acts as custodian of the Portfolios investments. State Street may enter into subcustodial arrangements on behalf of the Portfolios for the holding of non-domestic securities. 92Prospectus
Lazard Asset Management Securities LLC (the Distributor) acts as distributor for the Funds shares.
Lazard Funds Shareholder Information p Portfolio shares are sold and redeemed, without a sales charge, on a continuous basis at the NAV next determined after an order in proper form is received by the Transfer Agent or another authorized entity. The Fund determines the NAV of each Portfolios share classes as of the close of regular session trading on the New York Stock Exchange (the NYSE) (normally 4:00 p.m. Eastern time) on each day the NYSE is open for trading. The Fund values equity securities for which market quotations are readily
available at market value. Securities and other assets for which current market quotations are not readily available are valued at fair value as determined in good faith in accordance with procedures approved by the Board of Directors (the Board). Calculation of NAV may not take place contemporaneously with the determination of the prices of portfolio assets used in such calculation. If a significant event materially affecting the value of securities occurs between the close of the exchange or market on which the security is principally traded and the
time when NAV is calculated, or when current market quotations otherwise are determined not to be readily available or reliable, such securities will be valued at their fair value as determined by, or in accordance with procedures approved by, the Board. Fair valuing of non-domestic securities may be
determined with the assistance of a pricing service, using correlations between the movement of prices of such securities and indices of domestic securities and other appropriate indicators, such as closing market prices of relevant ADRs or futures contracts. The effect of using fair value pricing is that the NAV
will reflect the affected securities values as determined in the judgment of the Board or its designee instead of being determined by the market. Using a fair value pricing methodology to price securities may result in a value that is different from the most recent closing price of a security and from the prices
used by other investment companies to calculate their portfolios NAVs. Non-domestic securities may trade on days when a Portfolio is not open for business, thus affecting the value of the Portfolios assets on days when Portfolio shareholders may not be able to buy or sell Portfolio shares. 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. The Fund will not accept cash or cash equivalents (such as currency, money orders or travelers checks) for the purchase of Fund shares. Please note the following
minimums in effect for initial investments: Institutional Shares
$
100,000 Open Shares
$
2,500 IRA Rollover/Transfer (Open Shares only)
$
2,500 The subsequent investment minimum is $50. The minimum investment requirements may be waived or lowered for investments effected through banks and other institutions that have entered into arrangements with the Fund or the Distributor and for investments effected on a group basis by certain other entities and their employees, such as pursuant to
a payroll deduction plan and asset-based or wrap programs. Please consult your financial intermediary for information about minimum investment requirements. The Fund reserves the right to change or waive the minimum initial, and subsequent, investment requirements at any time. Lazard Emerging Markets Equity Portfolio Currently Closed to Certain New Investors The Portfolio was closed to investment by most new investors as of September 30, 2008. A shareholder that was a direct shareholder of the Portfolio (in the shareholders own name or as a beneficial owner of shares held in another name) on September 30, 2008, which account remains open, may make
additional investments in the Portfolio or open additional accounts in the Portfolio under the same primary social security number or tax identification number. In addition, the shareholder may continue to reinvest dividends and capital gains distributions in shares of the Portfolio. The following categories of investors may continue to invest in the Portfolio or open a new account:
financial advisors, planners, consultants, institutions and intermediaries with existing clients in the Portfolio on September 30, 2008,
Prospectus93
sponsor fee-based programs with existing clients in or allocations to the Portfolio on September 30, 2008, retirement or employee benefit plans (including 401(k) and other defined contribution plans), and their participants, that could have invested in the Portfolio on September 30, 2008, shareholders who are transferring or rolling over into an IRA account from an employee benefit plan through which they held shares of the Portfolio on September 30, 2008, employees of the Investments Manager or its affiliates, or an immediate family member of either, investors receiving shares of the Portfolio transferred from an existing shareholder or received as a gift from an existing shareholder of the Portfolio, and Fund Directors. The Portfolio may ask a shareholder to verify meeting one of the guidelines prior to permitting the shareholder to open a new account in the Portfolio. The Fund also reserves the right to close a Portfolio to investors at any time (including closing a Portfolio to one or more of the above categories of investors)
or to re-open a closed Portfolio to all investors at any future date. For questions about qualifying to purchase shares of Lazard Emerging Markets Equity Portfolio, please call 800-823-6300. Through the Transfer Agent: Shareholders who do not execute trades through a brokerage account should submit their purchase requests to the Transfer Agent by telephone or mail, as follows: Initial Purchase By Mail
Complete a Purchase Application. Indicate the services to be used. 2. Send the Purchase Application and a check for $2,500 or more for Open Shares, or $100,000 or more for Institutional Shares, payable to The Lazard Funds, Inc. to: regular mail overnight delivery By Wire Your bank may charge you a fee for this service.
1.
Call (800) 986-3455 toll-free from any state and provide the following:
the Portfolio(s) and Class of shares to be invested in name(s) in which shares are to be registered address social security or tax identification number dividend payment election amount to be wired name of the wiring bank, and name and telephone number of the person to be contacted in connection with the order. An account number will 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:
ABA #: 011000028 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 PurchaseBy Mail above. Additional Purchases By Mail
Make a check payable to The Lazard Funds, Inc. Write the shareholders account number on the check.
94Prospectus
1.
The Lazard Funds, Inc.
P.O. Box 8514
Boston, Massachusetts 02266-8514
Attention: (Name of Portfolio and Class of Shares)
The Lazard Funds, Inc.
30 Dan Road
Canton, Massachusetts 02021-2809
State Street Bank and Trust Company
Boston, Massachusetts
Custody and Shareholder Services Division
DDA 9905-2375
Attention: (Name of Portfolio and Class of Shares)
The Lazard Funds, Inc.
Shareholders Name and Account Number
1.
2. Mail the check and the detachable stub from the Statement of Account (or a letter providing the account number) to the address set forth in Item 2 under Initial PurchaseBy Mail above. By Wire Instruct the wiring bank to transmit the specified amount in federal funds to State Street, as instructed in Item 2 under Initial PurchaseBy Wire above. By ACH Shareholders may purchase additional shares of a Portfolio by automated clearing house (ACH). To set up the ACH purchases option, call (800) 986-3455. ACH is similar to making Automatic Investments (described below under Shareholder InformationInvestor ServicesAutomatic Investments), except that
shareholders may choose the date on which to make the purchase. The Fund will need a voided check or deposit slip before shareholders may purchase by ACH. By Exchange Shareholders may purchase additional shares of a Portfolio by exchange from another Portfolio, as described below under Shareholder InformationInvestor ServicesExchange Privilege. Through a Lazard Brokerage Account Shareholders who have a brokerage account with Lazard Capital Markets LLC should contact their account representative for specific instructions on how to purchase Portfolio shares. Purchases through the Automatic Investment Plan Investors may participate in the Automatic Investment Plan by making subsequent investments in Open Shares of a Portfolio at regular intervals selected by the investor. The Automatic Investment Plan enables an investor to make regularly scheduled investments and may provide investors with a convenient
way to invest for long-term financial goals. To enroll in the Automatic Investment Plan, call (800) 986-3455. Individual Retirement Accounts (Open Shares Only) The Fund may be used as an investment for IRAs. Completion of a Lazard Funds IRA application is required. For a Direct IRA Account (an account other than an IRA rollover) a $5 establishment fee and a $15 annual maintenance and custody fee is payable to State Street for each IRA Fund account; in
addition, a $10 termination fee will be charged and paid to State Street when the account is closed. For more information on IRAs, call (800) 986-3455. Market Timing/Excessive Trading Each Portfolio is intended to be a long-term investment vehicle and is not designed to provide investors with a means of speculating on short-term market movements. Excessive trading, market timing or other abusive trading practices may disrupt investment management strategies and harm performance and
may create increased transaction and administrative costs that must be borne by the Portfolios and their shareholders, including those not engaged in such activity. In addition, such activity may dilute the value of Portfolio shares held by long-term investors. The Funds Board has approved policies and
procedures with respect to frequent purchases and redemptions of Portfolio shares that are intended to discourage and prevent these practices, including regular monitoring of trading activity in Portfolio shares. The Fund will not knowingly accommodate excessive trading, market timing or other abusive trading
practices. The Fund routinely reviews Portfolio share transactions and seeks to identify and deter abusive trading practices. The Fund monitors for transactions that may be harmful to a Portfolio, either on an individual basis or as part of a pattern of abusive trading practices. Each Portfolio reserves the right to refuse,
with or without notice, any purchase or exchange request that could adversely affect the Portfolio, its operations or its shareholders, including those requests from any individual or group who, in the Funds view, is likely to engage in excessive trading, market timing or other abusive trading practices, and where
a particular account appears to be engaged in abusive trading practices, the Fund will seek to restrict future purchases of Portfolio shares by that account or may temporarily or permanently terminate the availability of the exchange privilege, or reject in whole or part any exchange request, with respect to such
investors account. The Fund may deem a shareholder to be engaged in abusive trading practices without advance notice and based on information unrelated to the specific trades in the shareholders account. For instance, the Fund may determine that the shareholders account is linked to another account that
was previously restricted or a third party intermediary may provide information to the Fund with respect to a particular account that is of concern to the Fund. Accounts under common ownership, control or perceived affiliation may be considered together for Prospectus95
(Minimum $50)
purposes of determining a pattern of excessive trading practices. An investor who makes more than six exchanges per Portfolio during any twelve-month period, or who makes exchanges that appear to coincide with a market timing strategy, may be deemed to be engaged in excessive trading. In certain cases,
the Fund may deem a single roundtrip trade or exchange (redeeming or exchanging a Portfolios shares followed by purchasing or exchanging into shares of that Portfolio) as a violation of the Funds policy against abusive trading practices. The Funds actions may not be subject to appeal. Each Portfolio deducts a 1.00% redemption fee on sales of shares owned for 30 days or less (not charged on shares acquired through reinvestment of dividends or distributions), except that no redemption fee will be charged with respect to shares purchased through certain omnibus account and other service
arrangements established by certain brokers and other financial intermediaries and approved by the Distributor and under certain other circumstances. See Shareholder InformationHow to Sell SharesRedemption Fee below. Redemption fees are only one way for the Fund to deter abusive trading practices. To discourage attempts to arbitrage pricing of international securities (among other reasons), the Board has adopted policies and procedures providing that if events materially affecting the value of securities occur between the
close of the exchange or market on which the security is principally traded and the time when a Portfolios NAV is calculated, such securities will be valued at their fair value as determined by, or in accordance with procedures approved by, the Board. See Shareholder InformationGeneral. The codes of ethics
of the Fund, the Investment Manager and the Distributor in respect of personal trading contain limitations on trading in Portfolio shares. As described below, the Fund may take up to seven days to pay redemption proceeds. This may occur when, among other circumstances, the investor redeeming shares is engaged in excessive trading or if the redemption request otherwise would be disruptive to efficient portfolio management or would
otherwise adversely affect the Portfolio. All of the policies described in this section apply uniformly to all Portfolio accounts. However, while the Fund and the Investment Manager will take reasonable steps to prevent trading practices deemed to be harmful to a Portfolio by monitoring Portfolio share trading activity, they may not be able to prevent
or identify such trading. If the Fund is not able to prevent abusive trading practices, such trading may disrupt investment strategies, harm performance and increase costs to all Portfolio investors, including those not engaged in such activity. The Funds policy on abusive trading practices does not apply to
automatic investment or automatic exchange privileges. Securities trading in foreign markets are particularly susceptible to time zone arbitrage. As a result, Portfolios investing in securities trading in non-U.S. markets, including Lazard Capital Allocator Opportunistic Strategies Portfolio, which may invest in Underlying Funds that invest in securities trading in non-
U.S. markets, may be at greater risk for market timing than funds that invest in securities trading in U.S. markets. Distribution and Servicing Arrangements The Fund has adopted a plan under rule 12b-1 (the 12b-1 plan) that allows each Portfolio to pay the Distributor a fee, at the annual rate of 0.25% of the value of the average daily net assets of each Portfolios Open Shares, for distribution and services provided to holders of Open Shares. Because these fees
are paid out of each Portfolios assets on an on-going basis, over time these recurring fees will increase the cost of your investment and may cost you more than paying other types of sales charges. Institutional Shares do not pay a rule 12b-1 fee. Third parties may receive payments pursuant to the 12b-1 plan. The Investment Manager or the Distributor may provide additional cash payments out of its own resources to financial intermediaries that sell shares and/or provide marketing, shareholder servicing, account administration or other services. Such payments are in addition to any fees paid by the Fund under rule
12b-1. The receipt of such payments pursuant to the 12b-1 plan or from the Investment Manager or Distributor could create an incentive for the third parties to offer a Portfolio instead of other mutual funds where such payments are not received. Further information is contained in the SAI, and you should consult
your financial intermediary for further details. 96Prospectus
General Checks for sale proceeds ordinarily will be mailed within seven days. Where the shares to be sold have been purchased by check or through the Automatic Investment Plan, the sale proceeds, net of any applicable redemption fee, will be transmitted to you promptly upon bank clearance of your purchase check,
which may take up to 15 calendar days. Redemption requests also may be satisfied, in whole or in part, through a redemption-in-kind (a payment in portfolio securities instead of cash). Redemption Fee Each Portfolio will impose a redemption fee equal to 1.00% of the NAV of Portfolio shares acquired by purchase or exchange and redeemed or exchanged within 30 days after such shares were acquired. This fee will be calculated based on the shares NAV at redemption and deducted from the redemption
proceeds. The fee will be retained by each Portfolio and used primarily to offset the transaction costs that short-term trading imposes on each Portfolio and its remaining shareholders. The redemption fee will not apply to shares acquired through the reinvestment of dividends or distributions. For purposes of
calculating the 30-day holding period, the Fund will first redeem shares acquired through the reinvestment of dividends or distributions and then will employ the first in, first out method, which assumes that the shares redeemed or exchanged are the ones held the longest. The Fund, in its discretion, may waive or reverse the redemption fee for Portfolio shares redeemed or exchanged: (1) through systematic, nondiscretionary rebalancing or asset allocation programs that have been approved by the Distributor and the Transfer Agent; (2) in connection with the Funds Systematic
Withdrawal Plan, described below; (3) by a fund-of-funds; (4) involuntarily, such as a redemption resulting from failure to maintain a minimum investment or due to a Portfolio merger or liquidation; (5) in connection with a conversion from one share class to another share class of the same Portfolio; (6) in the
event of shareholder death or post-purchase disability; (7) to return an excess contribution in an IRA or qualified plan account; (8) in connection with required minimum distributions from an IRA or qualified plan account; (9) in programs with financial intermediaries that include on their platforms qualified
default investment alternatives for participant-directed individual account plans (with respect to which Department of Labor regulations restrict the imposition of redemption fees and similar fees) and where adequate systems designed to deter abusive trading practices are in place; (10) by certain accounts under
situations deemed appropriate by the Fund, including where the capability to charge a fee does not exist or is not practical and where adequate systems designed to deter abusive trading practices are in place; or (11) in the event of transactions documented as inadvertent or prompted by bona fide emergencies
or other exigent circumstances. In certain situations, a financial intermediary, wrap sponsor or other omnibus account holder may apply the Portfolios redemption fees to the accounts of their underlying shareholders. If this is the case, the Portfolios will rely in part on the account holder to monitor and assess
the redemption fee on the underlying shareholder accounts in accordance with this Prospectus. The redemption fee may be waived, modified or terminated at any time, or from time to time, without advance notice. Selling Shares Through the Transfer Agent: Shareholders who do not execute trades through a brokerage account should submit their sale requests to the Transfer Agent by telephone or mail, as follows: By Telephone: 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. To place a redemption request, or to have the telephone redemption
privilege added to your account, please call the Transfer Agents 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:
Write a letter of instruction to the Fund. Indicate the dollar amount or number of shares to be sold, the Portfolio and Class, the shareholders account number, and social security or taxpayer identification number.
Prospectus97
1.
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 redemption 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. Send the letter to the Transfer Agent at the following address: regular mail overnight delivery Through a Lazard Brokerage Account: Shareholders who have a brokerage account with Lazard Capital Markets LLC should contact their account representative for specific instructions on how to sell Portfolio shares. Automatic Reinvestment Plan allows your dividends and capital gain distributions to be reinvested in additional shares of your Portfolio or another Portfolio. Automatic Investments allows you to purchase Open Shares through automatic deductions from a designated bank account. Systematic Withdrawal Plan allows you to receive payments at regularly scheduled intervals if your account holds at least $10,000 in Portfolio shares at the time plan participation begins. The maximum regular withdrawal amount for monthly withdrawals is 1% of the value of your Portfolio shares at the time
plan participation begins. Exchange Privilege allows you to exchange shares of one Portfolio that have been held for seven days or more for shares of the same Class of another Portfolio in an identically registered account. Shares will be exchanged at the next determined NAV, subject to any applicable redemption fee. There is no other
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 Agents 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 the exchange privilege at any time. 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. See Shareholder InformationHow to Buy SharesMarket Timing/ Excessive Trading for more information about restrictions on exchanges. In addition to the policies described above, the Fund reserves the right to:
redeem an account, with notice, if the value of the account falls below $1,000 due to redemptions convert Institutional Shares held by a shareholder whose account is less than $100,000 to Open Shares, upon written notice to the shareholder 98Prospectus
The Lazard Funds, Inc.
P.O. Box 8514
Boston, Massachusetts 02266-8514
Attention: (Name of Portfolio and Class of Shares)
The Lazard Funds, Inc.
30 Dan Road
Canton, Massachusetts 02021-2809
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 change or waive the required minimum investment amounts 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) 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 a Portfolio and its shareholders Also in addition to the policies described above, the Fund may refuse or restrict purchase or exchange requests for Portfolio shares by any person or group if, in the judgment of the Funds management:
a Portfolio would be unable to invest the money effectively in accordance with its investment objective and policies or could otherwise be adversely affected a Portfolio receives or anticipates receiving simultaneous orders that may significantly affect the Portfolio (e.g., amounts equal to 1% or more of the Portfolios total assets) The Fund also reserves the right to close a Portfolio to investors at any time. Account Policies, Dividends and Taxes Account Statements You will receive quarterly statements detailing your account activity. All investors will also receive an annual statement detailing the tax characteristics of any dividends and distributions that you have received in your account. You will also receive confirmations of each trade executed in your account. To reduce expenses, only one copy of the most recent annual and semi-annual reports of the Fund may be mailed to your household, even if you have more than one account with the Fund. Call (800) 542-1061 if you need additional copies of annual or semi-annual reports. Call the Transfer Agent at the
telephone number listed on the back cover if you need account information. Dividends and Distributions Income dividends are normally declared each business day and paid monthly for U.S. High Yield Portfolio. For Global Listed Infrastructure Portfolio, income dividends, if any, are anticipated to be paid quarterly. For all other Portfolios, income dividends are anticipated to be paid annually. Net capital gains, if
any, are normally distributed annually, but may be distributed more frequently. Annual year end distribution estimates are expected to be available on or about November 18, 2010 at www.LazardNet.com or by calling (800) 823-6300. Estimates for any spillback distributions (income and/or net capital gains
from the 2009 fiscal year that were not distributed by December 31, 2009) are expected to be available on or about August 10, 2010 at www.LazardNet.com or by calling (800) 823-6300. Dividends and distributions of a Portfolio will be reinvested in additional shares of the same Class of the Portfolio at the NAV on the ex-dividend date, and credited to the shareholders account on the payment date or, at the shareholders election, paid in cash. Each share Class of the Portfolio will generate a
different dividend because each has different expenses. Dividend checks and account statements 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 (the Code), 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, and long-term capital gains are generally taxable as such, whether you receive the distribution in cash or reinvest it in additional shares. An exchange of a Portfolios shares for shares of another Portfolio will
be treated as a sale of the Portfolios shares, and any gain on the transaction may be subject to income taxes. Keep in mind that distributions may be taxable to you at different rates which depend on the length of time a Prospectus99
Portfolio held the applicable investment, not the length of time that you held your Portfolio shares. The tax status of any distribution is the same regardless of how long you have been in a Portfolio and whether you reinvest your distributions or take them in cash. High portfolio turnover and more volatile
markets can result in taxable distributions to shareholders, regardless of whether their shares increased in value. When you do sell your Portfolio shares, a taxable capital gain or loss may be realized, except for IRA or other tax-deferred accounts. Federal law requires a Portfolio to withhold taxes on distributions paid to shareholders who:
fail to provide a social security number or taxpayer identification number fail to certify that their social security number or taxpayer identification number is correct fail to certify that they are exempt from withholding 100Prospectus
Lazard Funds Financial Highlights p Financial Highlights The financial highlights tables are intended to help you understand each Portfolios financial performance for the past five years or, if shorter, the period of each Portfolios operations. Certain information reflects financial results for a single Portfolio share. The total returns in the tables represent the rate that an
investor would have earned (or lost) on an investment in the Portfolio (assuming reinvestment of all dividends and distributions), if any. This information has been audited by Anchin, Block & Anchin LLP, whose report, along with each Portfolios financial statements, is included in the annual report, which is
available upon request. Prospectus101
LAZARD U.S. EQUITY VALUE PORTFOLIO Selected data for a share of capital
Year Ended
For the Period
12/31/09
12/31/08
12/31/07
12/31/06 Institutional Shares Net asset value, beginning of period
$
7.00
$
11.25
11.73
10.02
10.00 Income (loss) from investment operations: Net investment income (a)
0.12
0.18
0.17
0.18
0.03 Net realized and unrealized gain (loss)
1.62
(4.26
)
0.05
2.33
0.02 Total from investment operations
1.74
(4.08
)
0.22
2.51
0.05 Less distributions from: Net investment income
(0.12)
(0.17
)
(0.15
)
(0.62
)
(0.03
) Net realized gains
(0.55
)
(0.18
)
Total distributions
(0.12)
(0.17
)
(0.70
)
(0.80
)
(0.03
) Redemption fees
(c)
Net asset value, end of period
8.62
$
7.00
$
11.25
$
11.73
$
10.02 Total Return (b)
24.81%
(36.18)%
1.65%
25.23%
0.48% Ratios and Supplemental Data: Net assets, end of period (in thousands)
8,464
$
6,554
$
8,488
$
390
$
90 Ratios to average net assets: Net expenses (d)
1.00%
1.00%
1.00%
1.00%
1.00% Gross expenses (d)
3.44%
3.21%
3.56%
112.90%
388.31% Net investment income (d)
1.60%
1.90%
1.40%
1.57%
1.17% Portfolio turnover rate
62%
97%
83%
95%
13% Selected data for a share of capital
Year Ended
For the Period
12/31/09
12/31/08
12/31/07
12/31/06 Open Shares Net asset value, beginning of period
7.04
$
11.31
$
11.77
$
10.02
$
10.00 Income (loss) from investment operations: Net investment income (a)
0.09
0.15
0.13
0.12
0.02 Net realized and unrealized gain (loss)
1.64
(4.28
)
0.06
2.37
0.02 Total from investment operations
1.73
(4.13
)
0.19
2.49
0.04 Less distributions from: Net investment income
(0.10)
(0.14
)
(0.11
)
(0.56
)
(0.02
) Net realized gains
(0.55
)
(0.18
)
Total distributions
(0.10)
(0.14
)
(0.66
)
(0.74
)
(0.02
) Redemption fees
(c)
0.01
Net asset value, end of period
8.67
$
7.04
$
11.31
$
11.77
$
10.02 Total Return (b)
24.49%
(36.43)%
1.59%
24.83%
0.41% Ratios and Supplemental Data: Net assets, end of period (in thousands)
300
$
134
$
341
$
240
$
10 Ratios to average net assets: Net expenses (d)
1.30%
1.30%
1.30%
1.30%
1.30% Gross expenses (d)
5.52%
12.10%
9.40%
138.32%
596.46% Net investment income (d)
1.15%
1.56%
1.02%
1.05%
0.86% Portfolio turnover rate
62%
97%
83%
95%
13%
*
Commencement of operations. (a) Net investment income has been computed using the average shares method. (b) Total returns reflect reinvestment of all dividends and distributions, if any. Certain expenses of the Portfolio have been waived or reimbursed by the Portfolios Investment Manager or State Street; without such waiver/reimbursement of expenses, the Portfolios returns would have been lower. A period of less than one year is not annualized. (c) Amount is less than $0.01 per share. (d) Annualized for a period of less than one year. 102Prospectus
stock outstanding throughout each period
9/30/05* to
12/31/05
$
$
$
$
$
stock outstanding throughout each period
9/30/05* to
12/31/05
$
$
$
LAZARD U.S. STRATEGIC EQUITY PORTFOLIO Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Institutional Shares Net asset value, beginning of year
6.26
10.03
11.81
10.38
10.00 Income (loss) from investment operations: Net investment income (a)
0.08
0.12
0.11
0.08
0.09 Net realized and unrealized gain (loss)
1.68
(3.65
)
(0.04
)
1.73
0.41 Total from investment operations
1.76
(3.53
)
0.07
1.81
0.50 Less distributions from: Net investment income
(0.12
)
(0.12
)
(0.07
)
(0.03
) Net realized gains
(0.12
)
(1.73
)
(0.31
)
(0.09
) Total distributions
(0.24
)
(1.85
)
(0.38
)
(0.12
) Redemption fees
(c)
Net asset value, end of year
8.02
$
6.26
$
10.03
$
11.81
$
10.38 Total Return (b)
28.12%
(35.43)%
0.33%
17.44%
4.99% Ratios and Supplemental Data: Net assets, end of year (in thousands)
66,153
$
54,749
88,242
$
117,194
$
15,085 Ratios to average net assets: Net expenses
1.05%
1.05%
0.98%
1.05%
1.16% Gross expenses
1.09%
1.06%
0.98%
1.35%
13.80% Net investment income
1.26%
1.45%
0.86%
0.71%
0.90% Portfolio turnover rate
76%
82%
58%
82%
53% Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Open Shares Net asset value, beginning of year
6.28
$
10.05
$
11.83
$
10.39
$
10.00 Income (loss) from investment operations: Net investment income (a)
0.07
0.10
0.06
(c)
0.06 Net realized and unrealized gain (loss)
1.67
(3.65
)
(0.03
)
1.79
0.35 Total from investment operations
1.74
(3.55
)
0.03
1.79
0.41 Less distributions from: Net investment income
(0.10
)
(0.08
)
(0.04
)
Net realized gains
(0.12
)
(1.73
)
(0.31
)
(0.09
) Total distributions
(0.22
)
(1.81
)
(0.35
)
(0.09
) Redemption fees
(c)
0.07 Net asset value, end of year
$
8.02
$
6.28
$
10.05
$
11.83
$
10.39 Total Return (b)
27.71%
(35.63)%
(0.07)%
17.20%
4.79% Ratios and Supplemental Data: Net assets, end of year (in thousands)
8,945
$
7,218
$
11,558
$
11,836
$
234 Ratios to average net assets: Net expenses
1.35%
1.35%
1.35%
1.35%
1.50% Gross expenses
1.39%
1.51%
1.40%
7.38%
33.06% Net investment income
0.96%
1.15%
0.50%
0.03%
0.58% Portfolio turnover rate
76%
82%
58%
82%
53%
(a)
Net investment income has been computed using the average shares method. (b) Total returns reflect reinvestment of all dividends and distributions, if any. Certain expenses of the Portfolio have been waived or reimbursed by the Portfolios Investment Manager or State Street; without such waiver/reimbursement of expenses, the Portfolios returns would have been lower. (c) Amount is less than $0.01 per share. Prospectus103
stock outstanding throughout each year
$
$
$
$
$
$
$
$
stock outstanding throughout each year
$
$
LAZARD U.S. MID CAP EQUITY PORTFOLIO Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Institutional Shares Net asset value, beginning of year
$
7.50
$
12.46
$
14.41
$
13.23
$
13.20 Income (loss) from investment operations: Net investment income (a)
0.08
0.15
0.12
0.09
0.09 Net realized and unrealized gain (loss)
2.81
(4.93
)
(0.51
)
1.88
1.07 Total from investment operations
2.89
(4.78
)
(0.39
)
1.97
1.16 Less distributions from: Net investment income
(0.08
)
(0.18
)
(0.11
)
(0.08
)
(0.07
) Net realized gains
(1.45
)
(0.71
)
(1.06
) Total distributions
(0.08
)
(0.18
)
(1.56
)
(0.79
)
(1.13
) Redemption fees
(c)
(c)
(c)
(c)
Net asset value, end of year
$
10.31
$
7.50
$
12.46
$
14.41
$
13.23 Total Return (b)
38.49%
(38.33)%
(2.93)%
14.85%
8.89% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
143,267
103,650
$
277,953
$
235,367
$
171,912 Ratios to average net assets: Net expenses
0.91%
0.89%
0.87%
0.89%
0.93% Gross expenses
0.91%
0.89%
0.87%
0.89%
0.93% Net investment income
0.90%
1.41%
0.81%
0.66%
0.67% Portfolio turnover rate
77%
81%
100%
76%
80% Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Open Shares Net asset value, beginning of year
$
7.40
12.29
14.23
13.07
13.06 Income (loss) from investment operations: Net investment income (a)
0.05
0.13
0.09
0.05
0.05 Net realized and unrealized gain (loss)
2.78
(4.87
)
(0.51
)
1.86
1.05 Total from investment operations
2.83
(4.74
)
(0.42
)
1.91
1.10 Less distributions from: Net investment income
(0.05
)
(0.15
)
(0.07
)
(0.04
)
(0.03
) Net realized gains
(1.45
)
(0.71
)
(1.06
) Total distributions
(0.05
)
(0.15
)
(1.52
)
(0.75
)
(1.09
) Redemption fees
(c)
(c)
(c)
(c)
(c) Net asset value, end of year
$
10.18
$
7.40
$
12.29
$
14.23
$
13.07 Total Return (b)
38.26%
(38.53)%
(3.17)%
14.57%
8.53% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
69,737
$
64,372
$
158,062
$
80,410
$
54,370 Ratios to average net assets: Net expenses
1.17%
1.15%
1.13%
1.18%
1.23% Gross expenses
1.17%
1.15%
1.13%
1.18%
1.23% Net investment income
0.64%
1.17%
0.58%
0.37%
0.35% Portfolio turnover rate
77%
81%
100%
76%
80%
(a)
Net investment income has been computed using the average shares method. (b) Total returns reflect reinvestment of all dividends and distributions, if any. (c) Amount is less than $0.01 per share. 104Prospectus
stock outstanding throughout each year
$
stock outstanding throughout each year
$
$
$
$
LAZARD U.S. SMALL-MID CAP EQUITY PORTFOLIO Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Institutional Shares Net asset value, beginning of year
$
7.59
11.58
14.44
15.40
18.84 Income (loss) from investment operations: Net investment income (loss) (a)
(0.01
)
0.01
0.04
0.02
0.02 Net realized and unrealized gain (loss)
4.22
(4.00
)
(0.87
)
2.60
0.76 Total from investment operations
4.21
(3.99
)
(0.83
)
2.62
0.78 Less distributions from: Net investment income
(0.04
)
(0.01
)
(0.02
) Net realized gains
(1.99
)
(3.57
)
(4.20
) Total distributions
(2.03
)
(3.58
)
(4.22
) Redemption fees
(c)
(c)
(c)
(c) Net asset value, end of year
$
11.80
$
7.59
$
11.58
$
14.44
$
15.40 Total Return (b)
55.47%
(34.46)%
(6.38)%
17.11%
4.31% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
56,042
$
36,934
$
109,853
$
196,483
$
253,236 Ratios to average net assets: Net expenses
1.22%
1.13%
0.93%
0.91%
0.88% Gross expenses
1.23%
1.13%
0.93%
0.91%
0.88% Net investment income (loss)
(0.12)%
0.08%
0.24%
0.10%
0.10% Portfolio turnover rate
195%
138%
98%
86%
87% Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Open Shares Net asset value, beginning of year
$
7.46
11.43
14.27
15.29
18.78 Income (loss) from investment operations: Net investment loss (a)
(0.04
)
(0.03
)
(0.01
)
(0.03
)
(0.04
) Net realized and unrealized gain (loss)
4.14
(3.94
)
(0.84
)
2.58
0.75 Total from investment operations
4.10
(3.97
)
(0.85
)
2.55
0.71 Less distributions from: Net investment income
Net realized gains
(1.99
)
(3.57
)
(4.20
) Total distributions
(1.99
)
(3.57
)
(4.20
) Redemption fees
(c)
(c)
(c)
(c)
(c) Net asset value, end of year
$
11.56
$
7.46
$
11.43
$
14.27
$
15.29 Total Return (b)
54.96%
(34.73)%
(6.60)%
16.77%
3.93% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
19,531
10,500
25,203
$
35,627
$
37,057 Ratios to average net assets: Net expenses
1.51%
1.49%
1.25%
1.23%
1.19% Gross expenses
1.52%
1.49%
1.25%
1.23%
1.19% Net investment loss
(0.40)%
(0.26)%
(0.07)%
(0.21)%
(0.21)% Portfolio turnover rate
195%
138%
98%
86%
87%
(a)
Net investment income (loss) has been computed using the average shares method. (b) Total returns reflect reinvestment of all dividends and distributions, if any. Certain expenses of the Portfolio have been waived or reimbursed by the Portfolios Investment Manager; without such waiver/reimbursement of expenses, the Porffolios returns would have been lower. (c) Amount is less than $0.01 per share. Prospectus105
stock outstanding throughout each year
$
$
$
$
stock outstanding throughout each year
$
$
$
$
$
$
LAZARD INTERNATIONAL EQUITY PORTFOLIO Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Institutional Shares Net asset value, beginning of year
$
10.50
$
17.55
$
16.31
$
14.00
$
12.91 Income (loss) from investment operations: Net investment income (a)
0.26
0.36
0.36
0.33
0.26 Net realized and unrealized gain (loss)
2.38
(7.00
)
1.42
2.83
1.16 Total from investment operations
2.64
(6.64
)
1.78
3.16
1.42 Less distributions from: Net investment income
(c)
(0.41
)
(0.54
)
(0.85
)
(0.33
) Total distributions
(c)
(0.41
)
(0.54
)
(0.85
)
(0.33
) Redemption fees
(c)
(c)
(c)
(c)
(c) Net asset value, end of year
$
13.14
$
10.50
$
17.55
$
16.31
$
14.00 Total Return (b)
25.19%
(37.75)%
10.96%
22.92%
11.25% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
139,070
$
119,870
$
335,323
$
701,145
$
1,035,346 Ratios to average net assets: Net expenses
0.99%
0.93%
0.89%
0.84%
0.89% Gross expenses
0.99%
0.93%
0.89%
0.84%
0.89% Net investment income
2.33%
2.47%
2.08%
2.14%
2.03% Portfolio turnover rate
66%
44%
50%
68%
60% Selected data for a share of capital Year Ended 12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 Open Shares Net asset value, beginning of year
$
10.60
$
17.69
$
16.40
$
14.03
$
12.94 Income (loss) from investment operations: Net investment income (a)
0.22
0.31
0.32
0.25
0.23 Net realized and unrealized gain (loss)
2.42
(7.04
)
1.41
2.87
1.16 Total from investment operations
2.64
(6.73
)
1.73
3.12
1.39 Less distributions from: Net investment income
(0.36
)
(0.44
)
(0.75
)
(0.30
) Total distributions
(0.36
)
(0.44
)
(0.75
)
(0.30
) Redemption fees
(c)
(c)
(c)
(c) Net asset value, end of year
$
13.24
$
10.60
$
17.69
$
16.40
$
14.03 Total Return (b)
24.91%
(37.98)%
10.57%
22.59%
10.93% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
19,520
$
14,829
$
32,449
$
49,657
$
48,770 Ratios to average net assets: Net expenses
1.27%
1.28%
1.19%
1.15%
1.18% Gross expenses
1.27%
1.28%
1.19%
1.15%
1.18% Net investment income
1.98%
2.16%
1.89%
1.63%
1.78% Portfolio turnover rate
66%
44%
50%
68%
60%
(a)
Net investment income has been computed using the average shares method. (b) Total returns reflect reinvestment of all dividends and distributions, if any. (c) Amount is less than $0.01 per share. 106Prospectus
stock outstanding throughout each year
stock outstanding throughout each year
LAZARD INTERNATIONAL EQUITY SELECT PORTFOLIO Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Institutional Shares Net asset value, beginning of year
$
6.39
$
11.78
$
13.07
$
11.73
$
11.25 Income (loss) from investment operations: Net investment income (a)
0.17
0.30
0.22
0.25
0.18 Net realized and unrealized gain (loss)
1.16
(4.73
)
0.97
2.43
0.82 Total from investment operations
1.33
(4.43
)
1.19
2.68
1.00 Less distributions from: Net investment income
(0.02)
(0.33
)
(0.25
)
(0.23
)
(0.16
) Net realized gains
(0.63
)
(2.23
)
(1.11
)
(0.36
) Total distributions
(0.02)
(0.96
)
(2.48
)
(1.34
)
(0.52
) Redemption fees
(c)
(c)
(c)
(c)
Net asset value, end of year
$
7.70
$
6.39
$
11.78
$
13.07
$
11.73 Total Return (b)
20.86%
(38.74)%
9.25%
23.01%
8.90% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
3,925
$
3,860
$
12,103
$
16,677
$
12,262 Ratios to average net assets: Net expenses
1.15%
1.15%
1.15%
1.15%
1.15% Gross expenses
3.46%
2.24%
1.67%
1.85%
1.97% Net investment income
2.52%
3.06%
1.58%
1.90%
1.55% Portfolio turnover rate
67%
52%
50%
40%
33% Selected data for a share of capital Year Ended 12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 Open Shares Net asset value, beginning of year
$
6.41
$
11.81
$
13.10
$
11.75
$
11.28 Income (loss) from investment operations: Net investment income (a)
0.14
0.26
0.16
0.21
0.12 Net realized and unrealized gain (loss)
1.17
(4.73
)
0.99
2.44
0.83 Total from investment operations
1.31
(4.47
)
1.15
2.65
0.95 Less distributions from: Net investment income
(c)
(0.30
)
(0.21
)
(0.19
)
(0.12
) Net realized gains
(0.63
)
(2.23
)
(1.11
)
(0.36
) Total distributions
(c)
(0.93
)
(2.44
)
(1.30
)
(0.48
) Redemption fees
(c)
(c)
(c)
(c)
(c) Net asset value, end of year
$
7.72
$
6.41
$
11.81
$
13.10
$
11.75 Total Return (b)
20.49%
(39.00)%
8.92%
22.72%
8.46% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
4,530
$
5,853
$
13,916
$
12,545
$
10,026 Ratios to average net assets: Net expenses
1.45%
1.45%
1.45%
1.45%
1.45% Gross expenses
3.62%
2.47%
1.95%
2.13%
2.28% Net investment income
2.11%
2.67%
1.21%
1.65%
1.05% Portfolio turnover rate
67%
52%
50%
40%
33%
(a)
Net investment income has been computed using the average shares method. (b) Total returns reflect reinvestment of all dividends and distributions, if any. Certain expenses of the Portfolio have been waived or reimbursed by the Portfolios Investment Manager; without such waiver/reimbursement of expenses, the Portfolios returns would have been lower. (c) Amount is less than $0.01 per share. Prospectus107
stock outstanding throughout each year
stock outstanding throughout each year
LAZARD INTERNATIONAL STRATEGIC EQUITY PORTFOLIO Selected data for a share of capital
Year Ended
For the Period
12/31/09
12/31/08
12/31/07
12/31/06 Institutional Shares Net asset value, beginning of period
$
7.51
$
12.92
$12.66
$10.79
10.00 Income (loss) from investment operations: Net investment income (loss) (a)
0.20
0.26
0.23
0.19
(c) Net realized and unrealized gain (loss)
1.88
(5.43
)
1.36
2.64
0.79 Total from investment operations
2.08
(5.17
)
1.59
2.83
0.79 Less distributions from: Net investment income
(0.18
)
(0.22
)
(0.25)
(0.15
)
Net realized gains
(0.02
)
(1.08)
(0.81
)
Total distributions
(0.18
)
(0.24
)
(1.33)
(0.96
)
Redemption fees
(c)
(c)
(c)
(c)
(c) Net asset value, end of period
$
9.41
$
7.51
$
12.92
$
12.66
$
10.79 Total Return (b)
27.76%
(39.98)%
12.88%
26.22%
7.90% Ratios and Supplemental Data: Net assets, end of period (in thousands)
$
311,570
$
245,604
$
418,584
$
343,931
$
135,690 Ratios to average net assets: Net expenses (d)
0.91%
0.90%
0.88%
0.94%
1.46% Gross expenses (d)
0.91%
0.90%
0.88%
0.94%
1.46% Net investment income (loss) (d)
2.42%
2.48%
1.70%
1.57%
(0.20)% Portfolio turnover rate
129%
72%
84%
68%
12% Selected data for a share of capital
Year Ended
For the Period
12/31/09
12/31/08
12/31/07 Open Shares Net asset value, beginning of period
7.51
12.90
12.64
11.49 Income (loss) from investment operations: Net investment income (a)
0.16
0.23
0.17
0.12 Net realized and unrealized gain (loss)
1.90
(5.42
)
1.37
1.93 Total from investment operations
2.06
(5.19
)
1.54
2.05 Less distributions from: Net investment income
(0.14
)
(0.18
)
(0.20
)
(0.09
) Net realized gains
(0.02
)
(1.08
)
(0.81
) Total distributions
(0.14
)
(0.20
)
(1.28
)
(0.90
) Redemption fees
(c)
(c)
(c) Net asset value, end of period
$
9.43
$
7.51
$
12.90
$
12.64 Total Return (b)
27.38%
(40.18)%
12.37%
17.90% Ratios and Supplemental Data: Net assets, end of period (in thousands)
$
19,446
$
13,627
$
16,342
$
10,669 Ratios to average net assets: Net expenses (d)
1.21%
1.24%
1.28%
1.45% Gross expenses (d)
1.21%
1.24%
1.28%
1.63% Net investment income (d)
1.98%
2.23%
1.29%
1.10% Portfolio turnover rate
129%
72%
84%
68%
*
Commencement of operations. (a) Beginning with the fiscal year ended 12/31/06, net investment income (loss) has been computed using the average shares method. (b) Total returns reflect reinvestment of all dividends and distributions, if any. Certain expenses of the Portfolio have been waived or reimbursed by the Portfolios Investment Manager; without such waiver/reimbursement of expenses, the Portfolios returns would have been lower. A period of less than one year is not annualized. (c) Amount is less than $0.01 per share. (d) Annualized for a period of less than one year. 108Prospectus
stock outstanding throughout each period
10/31/05* to
12/31/05
$
stock outstanding throughout each period
2/3/06* to
12/31/06
$
$
$
$
LAZARD INTERNATIONAL SMALL CAP EQUITY PORTFOLIO Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Institutional Shares Net asset value, beginning of year
4.80
10.49
17.80
17.10
19.24 Income (loss) from investment operations: Net investment income (a)
0.08
0.15
0.27
0.22
0.24 Net realized and unrealized gain (loss)
1.80
(5.19
)
(1.20
)
4.16
2.45 Total from investment operations
1.88
(5.04
)
(0.93
)
4.38
2.69 Less distributions from: Net investment income
(0.14
)
(0.63
)
(0.25
)
(0.22
) Net realized gains
(0.51
)
(5.75
)
(3.43
)
(4.61
) Total distributions
(0.65
)
(6.38
)
(3.68
)
(4.83
) Redemption fees
(c)
(c)
(c)
(c)
(c) Net asset value, end of year
$
6.68
$
4.80
$
10.49
$
17.80
$
17.10 Total Return (b)
39.17%
(49.84)%
(4.61)%
26.31%
14.77% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
40,243
$
74,640
$
129,725
$
698,166
$
582,909 Ratios to average net assets: Net expenses
1.17%
0.98%
0.91%
0.86%
0.93% Gross expenses
1.21%
0.98%
0.91%
0.86%
0.93% Net investment income
1.55%
1.81%
1.48%
1.20%
1.24% Portfolio turnover rate
51%
61%
59%
49%
33% Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Open Shares Net asset value, beginning of year
$
4.82
$
10.51
$
17.77
$
17.09
$
19.22 Income (loss) from investment operations: Net investment income (a)
0.07
0.13
0.21
0.17
0.18 Net realized and unrealized gain (loss)
1.81
(5.20
)
(1.17
)
4.13
2.45 Total from investment operations
1.88
(5.07
)
(0.96
)
4.30
2.63 Less distributions from: Net investment income
(0.11
)
(0.55
)
(0.19
)
(0.16
) Net realized gains
(0.51
)
(5.75
)
(3.43
)
(4.61
) Total distributions
(0.62
)
(6.30
)
(3.62
)
(4.77
) Redemption fees
(c)
(c)
(c)
(c)
0.01 Net asset value, end of year
$
6.70
$
4.82
$
10.51
$
17.77
$
17.09 Total Return (b)
39.00%
(50.02)%
(4.79)%
25.83%
14.47% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
27,920
$
30,052
$
89,779
$
137,358
$
62,020 Ratios to average net assets: Net expenses
1.43%
1.31%
1.20%
1.19%
1.27% Gross expenses
1.48%
1.31%
1.20%
1.19%
1.27% Net investment income
1.28%
1.56%
1.17%
0.89%
0.93% Portfolio turnover rate
51%
61%
59%
49%
33%
(a)
Net investment income has been computed using the average shares method. (b) Total returns reflect reinvestment of all dividends and distributions, if any. Certain expenses of the Portfolio have been waived or reimbursed by the Portfolios Investment Manager; without such waiver/reimbursement of expenses, the Portfolios returns would have been lower. (c) Amount is less than $0.01 per share. Prospectus109
stock outstanding throughout each year
$
$
$
$
$
stock outstanding throughout each year
LAZARD GLOBAL LISTED INFRASTRUCTURE PORTFOLIO Selected data for a share of capital
Period Ended Institutional Shares Net asset value, beginning of period
10.00 Loss from investment operations: Net investment loss
(a) Total from investment operations
(a) Net asset value, end of period
$
10.00 Total Return
0.00% Ratios and Supplemental Data: Net assets, end of period (in thousands)
$
74 Ratios to average net assets: Net expenses (b)
1.30% Gross expenses (b)
1,825.00%
(c) Net investment loss (b)
(1.30)% Portfolio turnover rate
0% Selected data for a share of capital
Period Ended Open Shares Net asset value, beginning of period
10.00 Loss from investment operations: Net investment loss
(a) Total from investment operations
(a) Net asset value, end of period
$
10.00 Total Return
0.00% Ratios and Supplemental Data: Net assets, end of period (in thousands)
$
50 Ratios to average net assets: Net expenses (b)
1.60% Gross expenses (b)
1,825.00%
(c) Net investment loss (b)
(1.60)% Portfolio turnover rate
0%
* Portfolio commenced operations on December 31, 2009.
(a) Amount is less than $0.01 per share. (b) Annualized for a period of less than one year. (c) Gross expense ratio was the result of the Portfolio being in existence for one day during the period ended 12/31/09. 110Prospectus
stock outstanding throughout the period
12/31/09*
$
stock outstanding throughout the period
12/31/09*
$
LAZARD EMERGING MARKETS EQUITY PORTFOLIO Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Institutional Shares Net asset value, beginning of year
10.88
23.88
20.60
17.84
13.98 Income (loss) from investment operations: Net investment income (a)
0.35
0.61
0.36
0.33
0.29 Net realized and unrealized gain (loss)
7.24
(11.78
)
6.41
4.98
5.42 Total from investment operations
7.59
(11.17
)
6.77
5.31
5.71 Less distributions from: Net investment income
(0.46
)
(0.49
)
(0.29
)
(0.27
)
(0.18
) Net realized gains
(1.34
)
(3.20
)
(2.28
)
(1.67
) Total distributions
(0.46
)
(1.83
)
(3.49
)
(2.55
)
(1.85
) Redemption fees
(c)
(c)
(c)
(c)
(c) Net asset value, end of year
$
18.01
$
10.88
$
23.88
$
20.60
$
17.84 Total Return (b)
69.82%
(47.88)%
33.05%
30.32%
41.40% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
8,497,341
$
3,295,983
$
5,270,497
$
2,744,753
$
1,413,671 Ratios to average net assets: Net expenses
1.15%
1.17%
1.20%
1.20%
1.27%
(d) Gross expenses
1.15%
1.17%
1.20%
1.20%
1.28% Net investment income
2.40%
3.16%
1.51%
1.67%
1.82% Portfolio turnover rate
49%
43%
53%
46%
48% Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Open Shares Net asset value, beginning of year
$
11.05
$
24.17
$
20.82
$
17.99
$
14.06 Income (loss) from investment operations: Net investment income (a)
0.29
0.52
0.29
0.26
0.20 Net realized and unrealized gain (loss)
7.35
(11.87
)
6.47
5.03
5.51 Total from investment operations
7.64
(11.35
)
6.76
5.29
5.71 Less distributions from: Net investment income
(0.41
)
(0.43
)
(0.22
)
(0.18
)
(0.14
) Net realized gains
(1.34
)
(3.20
)
(2.28
)
(1.67
) Total distributions
(0.41
)
(1.77
)
(3.42
)
(2.46
)
(1.81
) Redemption fees
(c)
(c)
0.01
(c)
0.03 Net asset value, end of year
$
18.28
$
11.05
$
24.17
$
20.82
$
17.99 Total Return (b)
69.14%
(48.09)%
32.71%
29.93%
41.31% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
3,478,654
$
1,135,042
$
1,467,458
$
441,673
$
195,944 Ratios to average net assets: Net expenses
1.55%
1.53%
(d)
1.47%
(d)
1.54%
1.59% Gross expenses
1.55%
1.54%
1.48%
1.54%
1.59% Net investment income
1.94%
2.72%
1.19%
1.30%
1.21% Portfolio turnover rate
49%
43%
53%
46%
48%
(a)
Net investment income has been computed using the average shares method. (b) Total returns reflect reinvestment of all dividends and distributions, if any. (c) Amount is less than $0.01 per share. (d) Portfolios leaving excess cash in demand deposit accounts may receive credits that are available to offset custody expenses. As a result of these credits, the net expenses were reduced by 0.01%. Prospectus111
stock outstanding throughout each year
$
$
$
$
$
stock outstanding throughout each year
LAZARD DEVELOPING MARKETS EQUITY PORTFOLIO Selected data for a share of capital
Year Ended
For the Period
12/31/09 Institutional Shares Net asset value, beginning of period
$
6.54
10.00 Income (loss) from investment operations: Net investment income (a)
0.01
0.01 Net realized and unrealized gain (loss)
7.09
(3.46
) Total from investment operations
7.10
(3.45
) Less distributions from: Net investment income
(0.04
)
(0.01
) Net realized gains
(0.42
)
Total distributions
(0.46
)
(0.01
) Redemption fees
(c)
Net asset value, end of period
$
13.18
$
6.54 Total Return (b)
108.53%
(34.54)% Ratios and Supplemental Data: Net assets, end of period (in thousands)
$
20,002
$
6,539 Ratios to average net assets: Net expenses (d)
1.30%
1.30% Gross expenses (d)
2.81%
11.98% Net investment income (d)
0.07%
0.34% Portfolio turnover rate
96%
72% Selected data for a share of capital
Year Ended
For the Period
12/31/09 Open Shares Net asset value, beginning of period
$
6.55
10.00 Income (loss) from investment operations: Net investment loss (a)
(0.08
)
(c) Net realized and unrealized gain (loss)
7.13
(3.45
) Total from investment operations
7.05
(3.45
) Less distributions from: Net investment income
(c)
Net realized gains
(0.42
)
Total distributions
(0.42
)
Redemption fees
0.01
Net asset value, end of period
$
13.19
$
6.55 Total Return (b)
108.17%
(34.60)% Ratios and Supplemental Data: Net assets, end of period (in thousands)
$
42,975
$
357 Ratios to average net assets: Net expenses (d)
1.60%
1.60% Gross expenses (d)
2.54%
28.95% Net investment loss (d)
(0.63)%
(0.09)% Portfolio turnover rate
96%
72%
*
Commencement of operations. (a) Net investment income (loss) has been computed using the average shares method. (b) Total returns reflect reinvestment of all dividends and distributions, if any. Certain expenses of the Portfolio have been waived or reimbursed by the Portfolios Investment Manager or State Street; without such waiver/reimbursement of expenses, the Portfolios returns would have been lower. A period of less than one year is not annualized. (c) Amount is less than $0.01 per share. (d) Annualized for a period of less than one year. 112Prospectus
stock outstanding throughout each period
9/30/08* to
12/31/08
$
stock outstanding throughout each period
9/30/08* to
12/31/08
$
LAZARD U.S. HIGH YIELD PORTFOLIO Selected data for a share of capital
Year Ended
12/31/09
12/31/08
12/31/07
12/31/06
12/31/05 Institutional Shares Net asset value, beginning of year
$
3.78
$
5.15
5.36
5.27
5.47 Income (loss) from investment operations: Net investment income (a)
0.34
0.38
0.40
0.40
0.42 Net realized and unrealized gain (loss)
0.92
(1.37
)
(0.21
)
0.09
(0.19
) Total from investment operations
1.26
(0.99
)
0.19
0.49
0.23 Less distributions from: Net investment income
(0.34)
(0.38
)
(0.40
)
(0.40
)
(0.43
) Total distributions
(0.34)
(0.38
)
(0.40
)
(0.40
)
(0.43
) Redemption fees
(c)
(c)
(c)
Net asset value, end of year
$
4.70
$
3.78
$
5.15
$
5.36
$
5.27 Total Return (b)
34.66%
(20.24)%
3.63%
9.71%
4.33% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
87,568
$
34,262
$
56,278
$
68,452
$
75,100 Ratios to average net assets: Net expenses
0.55%
0.55%
0.55%
0.55%
0.55% Gross expenses
0.89%
1.00%
0.90%
0.90%
0.86% Net investment income
7.96%
8.10%
7.56%
7.61%
7.89% Portfolio turnover rate
17%
33%
20%
29%
22% Selected data for a share of capital Year Ended 12/31/09 12/31/08 12/31/07 12/31/06 12/31/05 Open Shares Net asset value, beginning of year
$
3.79
$
5.17
$
5.37
$
5.29
$
5.48 Income (loss) from investment operations: Net investment income (a)
0.33
0.37
0.39
0.39
0.40 Net realized and unrealized gain (loss)
0.94
(1.38
)
(0.21
)
0.08
(0.19
) Total from investment operations
1.27
(1.01
)
0.18
0.47
0.21 Less distributions from: Net investment income
(0.33)
(0.37
)
(0.39
)
(0.39
)
(0.41
) Total distributions
(0.33)
(0.37
)
(0.39
)
(0.39
)
(0.41
) Redemption fees
(c)
(c)
0.01
0.01 Net asset value, end of year
$
4.73
$
3.79
$
5.17
$
5.37
$
5.29 Total Return (b)
34.40%
(20.35)%
3.53%
9.18%
4.22% Ratios and Supplemental Data: Net assets, end of year (in thousands)
$
6,126
$
5,220
$
1,776
$
2,179
$
2,986 Ratios to average net assets: Net expenses
0.85%
0.85%
0.85%
0.85%
0.85% Gross expenses
1.21%
1.74%
2.14%
2.12%
1.78% Net investment income
7.74%
7.89%
7.24%
7.29%
7.47% Portfolio turnover rate
17%
33%
20%
29%
22%
(a)
Net investment income has been computed using the average shares method. (b) Total returns reflect reinvestment of all dividends and distributions, if any. Certain expenses of the Portfolio have been waived or reimbursed by the Portfolios Investment Manager; without such waiver/reimbursement of expenses, the Portfolios returns would have been lower. (c) Amount is less than $0.01 per share. Prospectus113
stock outstanding throughout each year
$
$
$
stock outstanding throughout each year
LAZARD CAPITAL ALLOCATOR OPPORTUNISTIC STRATEGIES PORTFOLIO Selected data for a share of capital
Year Ended
For the Period
12/31/09 Institutional Shares Net asset value, beginning of period
$
7.36
10.00 Income (loss) from investment operations: Net investment income (a)
0.14
0.21 Net realized and unrealized gain (loss)
1.42
(2.59
) Total from investment operations
1.56
(2.38
) Less distributions from: Net investment income
(0.12
)
(0.26
) Total distributions
(0.12
)
(0.26
) Redemption fees
(c) Net asset value, end of period
$
8.80
$
7.36 Total Return (b)
21.21%
(23.64)% Ratios and Supplemental Data: Net assets, end of period (in thousands)
$
195,939
$
110,757 Ratios to average net assets: Net expenses (d)
1.02%
1.02% Gross expenses (d)
1.16%
1.27% Net investment income (d)
1.72%
3.01% Portfolio turnover rate
113%
94% Selected data for a share of capital
Year Ended
For the Period
12/31/09 Open Shares Net asset value, beginning of period
$
7.37
9.95 Income (loss) from investment operations: Net investment income (a)
0.12
0.30 Net realized and unrealized gain (loss)
1.41
(2.64
) Total from investment operations
1.53
(2.34
) Less distributions from: Net investment income
(0.10
)
(0.24
) Total distributions
(0.10
)
(0.24
) Redemption fees
(c)
(c) Net asset value, end of period
$
8.80
$
7.37 Total Return (b)
20.71%
(23.44)% Ratios and Supplemental Data: Net assets, end of period (in thousands)
$
16,856
$
9,319 Ratios to average net assets: Net expenses (d)
1.32%
1.32% Gross expenses (d)
1.44%
1.93% Net investment income (d)
1.44%
4.68% Portfolio turnover rate
113%
94%
*
Commencement of operations. (a) Net investment income has been computed using the average shares method. (b) Total returns reflect reinvestment of all dividends and distributions, if any. Certain expenses of the Portfolio have been waived or reimbursed by the Portfolios Investment Manager; without such waiver/reimbursement of expenses, the Portfolios returns would have been lower. A period of less than one year is not annualized. (c) Amount is less than $0.01 per share. (d) Annualized for a period of less than one year. 114Prospectus
stock outstanding throughout each period
3/26/08* to
12/31/08
$
stock outstanding throughout each period
3/31/08* to
12/31/08
$
Lazard Funds Other Performance of the Investment Manager p Lazard U.S. Equity Value Composite (Prior Performance of Similar Accounts) This is not the Portfolios Performance Lazard U.S. Equity Value Portfolios investment objective, policies and strategies are substantially similar to those used by the Investment Manager in advising certain discretionary accounts (the Other Accounts). The chart below shows the historical investment performance for a composite (the U.S. Equity
Value Composite) of the Other Accounts (consisting of all similarly managed, fully discretionary and fee paying accounts) and for the Portfolios benchmark index. The U.S. Equity Value Composite should not be interpreted as indicative of the Portfolios future performance.
Annual Total Returns
2002
2003
2004
2005
2006
2007
2008
2009
U.S. Equity Value Composite -13.3% 25.5%
16.4%
4.4%
22.3%
2.5% -35.5% 26.4%
Russell 1000 Value Index* -15.5% 30.0%
16.5%
7.1%
22.2% -0.2%
-36.9% 19.7%
Average Annual Total Returns
Inception
One Year
Three Years
Five Years
Since
U.S. Equity Value Composite
10/1/01
26.4% -5.8% 1.3%
4.8%
Russell 1000 Value Index*
N/A
19.7% -9.0%
-0.3% 3.8%
*
The Russell 1000 Value Index measures the performance of those Russell 1000 companies (the 1,000 largest companies in the Russell 3000 Index, which consists of the 3,000 largest U.S. companies by capitalization) with lower price-to-book ratios and lower forecasted growth values. The index is unmanaged, has no fees or costs and is not available for investment.
Certain Other Accounts are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the 1940 Act and the Code which, if applicable, may have adversely affected the performance of the U.S. Equity Value Composite. The performance results of the U.S. Equity
Value Composite reflect actual fees charged to Other Accounts, except custodian fees of separately managed accounts. However, the Portfolio bears fees and operational expenses not typically borne by managed accounts (including distribution and servicing fees of Open Shares). The U.S. Equity Value
Composite performance would have been lower than that shown above if the Other Accounts had been subject to the fees and expenses of the Portfolio. Additionally, although it is anticipated that the Portfolio and the Other Accounts will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and cash flows may result in different securities selections, differences in the relative weightings of securities or
differences in the prices paid for particular portfolio holdings. However, such differences do not alter the conclusion that the Portfolio and the Other Accounts have substantially similar investment objectives, policies and strategies. The returns of the U.S. Equity Value Composite are dollar-weighted based upon beginning period market values. This calculation methodology differs from guidelines of the SEC for calculating performance of mutual funds. Prospectus115
for the Year Ended December 31,
(for the periods ended December 31, 2009)
Date
Inception
Lazard U.S. Strategic Equity Composite (Prior Performance of Similar Accounts) This is not the Portfolios Performance Lazard U.S. Strategic Equity Portfolios investment objective, policies and strategies are substantially similar to those used by the Investment Manager in advising certain Other Accounts. The chart below shows the historical investment performance for a composite (the U.S. Strategic Equity Composite) of the
Other Accounts (consisting of all similarly managed, fully discretionary and fee paying accounts) and for the Portfolios benchmark index. The U.S. Strategic Equity Composite should not be interpreted as indicative of the Portfolios future performance.
Annual Total Returns
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
U.S. Strategic Equity Composite -9.0%
-3.1%
-17.2% 29.4%
19.9%
6.3%
18.1%
1.2% -34.5% 29.2%
S&P 500 Index* -9.1%
-11.9%
-22.1% 28.7%
10.9%
4.9%
15.8%
5.5% -37.0% 26.5%
Average Annual Total Returns
Inception
One Year
Three Years
Five Years
Ten Years
U.S. Strategic Equity Composite
3/1/98
29.2% -5.0% 1.5%
2.0%
S&P 500 Index*
N/A
26.5% -5.6% 0.4% -1.0%
*
The S&P 500 Index is a market capitalization-weighted index of 500 common stocks, designed to measure performance of the broad domestic economy through changes in the aggregate market value of these stocks, which represent all major industries. The index is unmanaged, has no fees or costs and is not available for investment.
Certain Other Accounts are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the 1940 Act and the Code, which, if applicable, may have adversely affected the performance of the U.S. Strategic Equity Composite. The performance results of the U.S.
Strategic Equity Composite reflect actual fees charged to the Other Accounts, except custodian fees of separately managed accounts. However, the Portfolio bears fees and operational expenses not typically borne by managed accounts (including distribution and servicing fees of Open Shares). The U.S. Strategic
Equity Composite performance would have been lower than that shown above if the Other Accounts had been subject to the fees and expenses of the Portfolio. Additionally, although it is anticipated that the Portfolio and the Other Accounts will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and cash flow may result in different securities selections, differences in the relative weightings of securities or
differences in the prices paid for particular portfolio holdings. However, such differences do not alter the conclusion that the Portfolio and the Other Accounts have substantially similar investment objectives, policies and strategies. The returns of the U.S. Strategic Equity Composite are dollar-weighted based upon beginning period market values. This calculation methodology differs from guidelines of the SEC for calculating performance of mutual funds. 116Prospectus
for the Year Ended December 31,
(for the periods ended December 31, 2009)
Date
Lazard U.S. Small-Mid Cap Equity Composite (Prior Performance of Similar Accounts) This is not the Portfolios Performance Lazard U.S. Small-Mid Cap Equity Portfolios investment objective, policies and strategies are substantially similar to those used by the Investment Manager in advising certain Other Accounts. The chart below shows the historical investment performance for a composite (the U.S. Small-Mid Cap Equity
Composite) of the Other Accounts (consisting of all similarly managed, fully discretionary and fee paying accounts) and for the Portfolios benchmark index. The U.S. Small-Mid Cap Equity Composite should not be interpreted as indicative of the Portfolios future performance.
Annual Total Returns
2001
2002
2003
2004
2005
2006
2007
2008
2009
U.S. Small-Mid Cap Equity Composite
15.2% -19.0% 33.2%
19.8%
9.0%
20.8%
0.2% -36.2% 55.5%
Russell 2500 Index*
1.3% -17.8% 45.5%
18.3%
8.1%
16.2%
1.4% -36.8% 34.4%
Average Annual Total Returns
Inception
One Year
Three Years
Five Years
Since
U.S. Small-Mid Cap Equity Composite
5/1/00
55.5% -0.2% 5.5%
7.9%
Russell 2500 Index*
N/A
34.4% -4.9% 1.6%
4.6%
*
The Russell 2500 Index is comprised of the 2,500 smallest U.S. companies included in the Russell 3000 Index (which consists of the 3,000 largest U.S. companies by capitalization). The index is unmanaged, has no fees or costs and is not available for investment.
Certain Other Accounts are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the 1940 Act and the Code which, if applicable, may have adversely affected the performance of the U.S. Small-Mid Cap Equity Composite. The performance results of the
U.S. Small-Mid Cap Equity Composite reflect actual fees charged to Other Accounts, except custodian fees of separately managed accounts. However, the Portfolio bears fees and operational expenses not typically borne by managed accounts (including distribution and servicing fees of Open Shares). The U.S.
Small-Mid Cap Equity Composite performance would have been lower than that shown above if the Other Accounts had been subject to the fees and expenses of the Portfolio. Additionally, although it is anticipated that the Portfolio and the Other Accounts will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and cash flows may result in different securities selections, differences in the relative weightings of securities or
differences in the prices paid for particular portfolio holdings. However, such differences do not alter the conclusion that the Portfolio and the Other Accounts have substantially similar investment objectives, policies and strategies. The returns of the U.S. Small-Mid Cap Equity Composite are dollar-weighted based upon beginning period market values. This calculation methodology differs from guidelines of the SEC for calculating performance of mutual funds. Prospectus117
for the Year Ended December 31,
(for the periods ended December 31, 2009)
Date
Inception
Lazard International Equity Select Composite (Prior Performance of Similar Accounts) This is not the Portfolios Performance Lazard International Equity Select Portfolios investment objective, policies and strategies are substantially similar to those used by the Investment Manager in advising certain Other Accounts. The chart below shows the historical investment performance for a composite (the International Equity Select
Composite) of the Other Accounts (consisting of all similarly managed, fully discretionary and fee paying accounts) and for the Portfolios benchmark index. The International Equity Select Composite should not be interpreted as indicative of the Portfolios future performance.
Annual Total Returns
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
International Equity Select Composite
3.2% -19.2%
-11.2% 31.0%
16.5%
9.1%
23.1%
10.2% -36.4% 22.9%
MSCI EAFE Index* -14.2%
-21.4%
-15.9% 38.6%
20.2%
13.5%
26.3%
11.2% -43.4% 31.8%
Average Annual Total Returns
Inception
One Year
Three Years
Five Years
Ten Years
International Equity Select Composite
1/1/94
22.9% -4.9% 2.9%
2.7%
MSCI EAFE Index*
N/A
31.8% -6.0% 3.5%
1.2%
*
The MSCI EAFE Index is a broadly diversified international index comprised of equity securities of approximately 1,000 companies located outside the United States. The index is unmanaged, has no fees or costs and is not available for investment.
Certain Other Accounts are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the 1940 Act and the Code, which, if applicable, may have adversely affected the performance of the International Equity Select Composite. The performance results of the
International Equity Select Composite reflect actual fees charged to the Other Accounts, except custodian fees of separately managed accounts. However, the Portfolio bears fees and operational expenses not typically borne by managed accounts (including distribution and servicing fees of Open Shares). The
International Equity Select Composite performance would have been lower than that shown above if the Other Accounts had been subject to the fees and expenses of the Portfolio. Additionally, although it is anticipated that the Portfolio and the Other Accounts will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and cash flow may result in different securities selections, differences in the relative weightings of securities or
differences in the prices paid for particular portfolio holdings. However, such differences do not alter the conclusion that the Portfolio and the Other Accounts have substantially similar investment objectives, policies and strategies. The returns of the International Equity Select Composite are dollar-weighted based upon beginning period market values on a monthly basis. This calculation method differs from guidelines of the SEC for calculating performance of mutual funds. 118Prospectus
for the Year Ended December 31,
(for the periods ended December 31, 2009)
Date
Lazard International Strategic Equity Composite (Prior Performance of Similar Accounts) This is not the Portfolios Performance Lazard International Strategic Equity Portfolios investment objective, policies and strategies are substantially similar to those used by the Investment Manager in advising certain Other Accounts. The chart below shows the historical investment performance for a composite (the International Strategic Equity
Composite) of the Other Accounts (consisting of all similarly managed, fully discretionary and fee paying accounts) and for the Portfolios benchmark index. The International Strategic Equity Composite should not be interpreted as indicative of the Portfolios future performance.
Annual Total Returns
2002
2003
2004
2005
2006
2007
2008
2009
International Strategic Equity Composite -6.7% 35.7%
25.8%
18.6%
26.1%
12.4% -40.5% 28.9%
MSCI EAFE Index* -15.9% 38.6%
20.2%
13.5%
26.3%
11.2% -43.4% 31.8%
Average Annual Total Returns
Inception
One Year
Three Years
Five Years
Since
International Strategic Equity Composite
10/1/01
28.9% -4.8% 5.2%
10.1%
MSCI EAFE Index*
N/A
31.8% -6.0% 3.5%
7.3%
*
The MSCI EAFE Index is a broadly diversified international index comprised of equity securities of approximately 1,000 companies located outside the United States. The index is unmanaged, has no fees or costs and is not available for investment.
Certain Other Accounts are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the 1940 Act and the Code which, if applicable, may have adversely affected the performance of the International Strategic Equity Composite. The performance results of the
International Strategic Equity Composite reflect actual fees charged to the Other Accounts, except custodian fees of separately managed accounts. However, the Portfolio bears fees and operational expenses not typically borne by managed accounts (including distribution and servicing fees of Open Shares). The
International Strategic Equity Composite performance would have been lower than that shown above if the Other Accounts had been subject to the fees and expenses of the Portfolio. Additionally, although it is anticipated that the Portfolio and the Other Accounts will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and cash flows may result in different securities selections, differences in the relative weightings of securities or
differences in the prices paid for particular portfolio holdings. However, such differences do not alter the conclusion that the Portfolio and the Other Accounts have substantially similar investment objectives, policies and strategies. The returns of the International Strategic Equity Composite are dollar-weighted based upon beginning period market values. This calculation methodology differs from guidelines of the SEC for calculating performance of mutual funds. Prospectus119
for the Year Ended December 31,
(for the periods ended December 31, 2009)
Date
Inception
Lazard Global Listed Infrastructure Composite (Prior Performance of Similar Accounts) This is not the Portfolios Performance Lazard Global Listed Infrastructure Portfolios investment objective, policies and strategies are substantially similar to those used by the Investment Manager in advising certain Other Accounts. The chart below shows the historical investment performance for a composite (the Global Listed Infrastructure
Composite) of the Other Accounts (consisting of all similarly managed, fully discretionary and fee paying accounts) and for the Portfolios benchmark indices. The Global Listed Infrastructure Composite should not be interpreted as indicative of the Portfolios future performance.
Annual Total Returns for the Year Ended December 31,
2007
2008
2009
Global Listed Infrastructure Composite
4.9% -31.5% 21.4%
UBS Global 50/50 Infrastructure & Utilities Index* 13.6%
-32.6% 14.9%
MSCI World Index** 4.7%
-38.7% 25.7%
Average Annual Total Returns
Inception Date
One Year
Three Years
Since
Global Listed Infrastructure Composite
9/1/06
21.4% -4.4%
-0.3%
UBS Global 50/50 Infrastructure & Utilities Index*
N/A
14.9% -4.2%
-0.8%
MSCI World Index**
N/A
25.7% -6.9%
-3.8%
*
The UBS Global 50/50 Infrastructure & Utilities Index tracks a 50% exposure to the global developed-market utilities sector and a 50% exposure to the global developed-market infrastructure sector. The index is unmanaged, has no fees or costs and is not available for investment.
** The MSCI World Index is a market capitalization-weighted index of companies representative of the market structure of 23 developed market countries in North America, Europe and the Asia/Pacific region. The index is unmanaged, has no fees or costs and is not available for investment.
Certain Other Accounts are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the 1940 Act and the Code which, if applicable, may have adversely affected the performance of the Global Listed Infrastructure Composite. The performance results of the
Global Listed Infrastructure Composite reflect actual fees charged to the Other Accounts, except custodian fees of separately managed accounts. However, the Portfolio bears fees and operational expenses not typically borne by managed accounts (including distribution and servicing fees of Open Shares). The
Global Listed Infrastructure Composite performance would have been lower than that shown above if the Other Accounts had been subject to the fees and expenses of the Portfolio. Additionally, although it is anticipated that the Portfolio and the Other Accounts will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and cash flows may result in different securities selections, differences in the relative weightings of securities or
differences in the prices paid for particular portfolio holdings. However, such differences do not alter the conclusion that the Portfolio and the Other Accounts have substantially similar investment objectives, policies and strategies. The returns of the Global Listed Infrastructure Composite are dollar-weighted based upon beginning period market values. This calculation methodology differs from guidelines of the SEC for calculating performance of mutual funds. 120Prospectus
(for the periods ended December 31, 2009)
Inception
Lazard Capital Allocator Opportunistic Strategies Composite (Prior Performance of Similar Accounts) This is not the Portfolios Performance Lazard Capital Allocator Opportunistic Strategies Portfolios investment objective, policies and strategies are substantially similar to those used by the Investment Manager in advising certain Other Accounts. The chart below shows the historical investment performance for a composite (the Capital Allocator
Opportunistic Strategies Composite) of the Other Accounts (consisting of all similarly managed, fully discretionary and fee paying accounts) and for the Portfolios benchmark indices. The Capital Allocator Opportunistic Strategies Composite should not be interpreted as indicative of the Portfolios future
performance.
Annual Total Returns for the Year Ended December 31,
2006
2007
2008
2009
Capital Allocator Opportunistic Strategies Composite
18.4%
16.6% -27.8% 21.2%
MSCI World Index*
20.1%
9.0% -40.7% 30.0%
Global Market Exposure Index**
13.9%
8.9% -24.1% 22.9%
Average Annual Total Returns
Inception Date
One Year
Three Years
Since
Capital Allocator Opportunistic Strategies Composite
9/1/05
21.2%
0.7%
4.1%
MSCI World Index*
N/A
30.0% -5.6% 1.5%
Global Market Exposure Index**
N/A
22.9%
0.5%
4.3%
*
The MSCI World Index is a market capitalization-weighted index of companies representative of the market structure of 23 developed market countries in North America, Europe and the Asia/Pacific region. The index is unmanaged, has no fees or costs and is not available for investment. ** The Global Market Exposure Index is a blended index constructed by the Investment Manager and is comprised of 36% Barclays Capital U.S. Aggregate Bond Index, 19.5% S&P 500 Index, 15% MSCI Europe Index, 9% MSCI Pacific Index, 6% MSCI Emerging Markets Index, 6% S&P MidCap 400 Index, 4.5% S&P SmallCap 600 Index and 4% Three Month London Interbank Offered Rate (LIBOR). The index is
unmanaged, has no fees or costs and is not available for investment. Certain Other Accounts are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the 1940 Act and the Code which, if applicable, may have adversely affected the performance of the Capital Allocator Opportunistic Strategies Composite. The performance
results of the Capital Allocator Opportunistic Strategies Composite reflect actual fees charged to the Other Accounts, except custodian fees of separately managed accounts. However, the Portfolio bears fees and operational expenses not typically borne by managed accounts (including distribution and servicing
fees of Open Shares). The Capital Allocator Opportunistic Strategies Composite performance would have been lower than that shown above if the Other Accounts had been subject to the fees and expenses of the Portfolio. Additionally, although it is anticipated that the Portfolio and the Other Accounts will hold similar securities, their investment results are expected to differ. In particular, differences in asset size and cash flows may result in different securities selections, differences in the relative weightings of securities or
differences in the prices paid for particular portfolio holdings. However, such differences do not alter the conclusion that the Portfolio and the Other Accounts have substantially similar investment objectives, policies and strategies. The returns of the Capital Allocator Opportunistic Strategies Composite are dollar-weighted based upon beginning period market values. This calculation methodology differs from guidelines of the SEC for calculating performance of mutual funds. Prospectus121
(for the periods ended December 31, 2009)
Inception
[This Page Intentionally Left Blank]
[This Page Intentionally Left Blank]
[This Page Intentionally Left Blank]
For more information about the Portfolios, the following documents are available, free of charge, upon request:
Annual and Semi-Annual Reports (Reports):
The Funds annual and semi-annual reports to shareholders contain additional information on each Portfolios investments. In the annual report, you will find a broad discussion of the market conditions and investment strategies that significantly affected each Portfolios performance during its last fiscal year.
Statement of Additional Information (SAI):
The SAI provides more detailed information about the Portfolios, including their operations and investment policies. It is incorporated by reference and is legally considered a part of this Prospectus.
Disclosure of Portfolio Holdings:
Each Portfolio will publicly disclose its portfolio holdings on a calendar quarter-end basis on its website accessible from http://www.lazardnet.com/lam/us/lazardfunds.shtml, approximately 14 days after such quarter end. The information will remain accessible until the Fund files a report on Form N-Q or Form N-CSR for the period that includes the date as of which the information was current.
A description of the Funds policies and procedures with respect to the disclosure of the Portfolios portfolio holdings is available in the Funds SAI.
Wherever theres opportunity, theres Lazard.SM
You can get a free copy of the Reports and the SAI at http://www.LazardNet.com, or request the Reports and the SAI and other information and discuss your questions about the Portfolios, by contacting the Fund at:
The Lazard Funds, Inc.
30 Rockefeller Plaza
New York, New York 10112-6300
Telephone: (800) 823-6300
http://www.LazardNet.com
You also can review the Reports and the SAI at the Public Reference Room of the SEC in Washington, D.C. For information, call (202) 551-8090. You can get text-only copies:
After paying a duplicating fee, by writing the Public Reference Branch of the SEC, 100 F Street NE, Room 1580, Washington, D.C. 20549-1520, or by e-mail request to publicinfo@sec.gov.
Free from the SECs website at http://www.sec.gov.
Investment Company Act file no. 811-06312
Investment Manager
Lazard Asset Management LLC
30 Rockefeller Plaza
New York, New York 10112-6300
Telephone: (800) 823-6300
Distributor
Lazard Asset Management Securities LLC
30 Rockefeller Plaza
New York, New York 10112-6300
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Transfer Agent and
Dividend Disbursing Agent
Boston Financial Data Services, Inc.
P.O. Box 8514
Boston, Massachusetts 02266-8514
Telephone: (800) 986-3455
Independent
Registered Public Accounting Firm
Anchin, Block & Anchin LLP
1375 Broadway
New York, New York 10018
http://www.anchin.com
Legal Counsel
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
http://www.stroock.com
No person has been authorized to give any information or to make any representations not contained in this Prospectus, and information or representations not contained herein must not be relied upon as having been authorized by the Fund or the Distributor. This Prospectus does not constitute an offer of any security other than the registered securities to which it relates or an offer to any person in any jurisdiction where such offer would be unlawful.
Lazard Asset Management LLC 30 Rockefeller Plaza New York, NY 10112-6300 800-823-6300 www.LazardNet.com
© 2010 The Lazard Funds, Inc. and Lazard Asset Management Securities LLC
5/10 LZDPS000
Lazard Funds
THE LAZARD FUNDS, INC.
30 Rockefeller Plaza
New York, New York 10112-6300
(800) 823-6300
STATEMENT OF ADDITIONAL INFORMATION
April 30, 2010
The Lazard Funds, Inc. (the Fund) is a no-load, open-end management investment company known as a mutual fund. This Statement of Additional Information, which is not a prospectus, supplements and should be read in conjunction with the current Prospectus of the Fund, dated April 30, 2010, as may be revised from time to time, relating to the following fifteen portfolios (individually, a Portfolio and collectively, the Portfolios):
|
|
|
|
Institutional Shares |
Open Shares |
U.S. Equity |
|
|
Lazard U.S. Equity Value Portfolio |
LEVIX |
LEVOX |
(Equity Value Portfolio) |
|
|
Lazard U.S. Strategic Equity Portfolio |
LZUSX |
LZUOX |
(Strategic Equity Portfolio) |
|
|
Lazard U.S. Mid Cap Equity Portfolio |
LZMIX |
LZMOX |
(Mid Cap Portfolio) |
|
|
Lazard U.S. Small-Mid Cap Equity Portfolio |
LZSCX |
LZCOX |
(Small-Mid Cap Portfolio) |
|
|
|
|
|
International Equity |
|
|
Lazard International Equity Portfolio |
LZIEX |
LZIOX |
(International Equity Portfolio) |
|
|
Lazard International Equity Select Portfolio |
LZSIX |
LZESX |
(International Equity Select Portfolio) |
|
|
Lazard International Strategic Equity Portfolio |
LISIX |
LISOX |
(International Strategic Portfolio) |
|
|
Lazard International Small Cap Equity Portfolio |
LZISX |
LZSMX |
(International Small Cap Portfolio) |
|
|
|
|
|
Global Equity |
|
|
Lazard Global Listed Infrastructure Portfolio |
GLIFX |
GLFOX |
(Global Listed Infrastructure Portfolio) |
|
|
|
|
|
Emerging Markets |
|
|
Lazard Emerging Markets Equity Portfolio |
LZEMX |
LZOEX |
(Emerging Markets Portfolio) |
|
|
Lazard Emerging Markets Equity Select Portfolio |
LESIX |
LESOX |
(Emerging Markets Select Portfolio) |
|
|
Lazard Developing Markets Equity Portfolio |
LDMIX |
LDMOX |
(Developing Markets Portfolio) |
|
|
Lazard Emerging Markets Equity Blend Portfolio |
EMBIX |
EMBOX |
(Emerging Markets Blend Portfolio) |
|
|
|
|
|
Fixed Income |
|
|
Lazard U.S. High Yield Portfolio |
LZHYX |
LZHOX |
(High Yield Portfolio) |
|
|
|
|
|
Capital Allocator |
|
|
Lazard Capital Allocator Opportunistic Strategies Portfolio |
LCAIX |
LCAOX |
Each Portfolio currently offers two classes of sharesInstitutional Shares and Open Shares. Institutional Shares and Open Shares are identical, except as to minimum investment requirements and the services offered to, and expenses borne by, each Class.
To obtain a copy of the Funds Prospectus, please write or call the Fund at the address and telephone number above.
The Funds most recent Annual Report and Semi-Annual Report to Shareholders are separate documents supplied with this Statement of Additional Information, and the financial statements, accompanying notes and report of independent registered public accounting firm appearing in the Annual Report are incorporated by reference into this Statement of Additional Information.
(ii)
TABLE OF CONTENTS
|
|
|
Page |
|
|
1 |
|
|
|
24 |
|
|
|
26 |
|
|
|
43 |
|
|
|
44 |
|
|
|
48 |
|
|
|
49 |
|
|
|
51 |
|
|
|
52 |
|
|
|
55 |
|
|
|
67 |
|
|
|
68 |
DESCRIPTION OF THE FUND AND PORTFOLIOS
The Fund is a Maryland corporation organized on May 17, 1991. Each Portfolio is a separate series of the Fund, an open-end management investment company, known as a mutual fund. Each Portfolio is a diversified investment company, which means that, with respect to 75% of its total assets, the Portfolio will not invest more than 5% of its total assets in the securities of any single issuer nor hold more than 10% of the outstanding voting securities of any single issuer.
Lazard Asset Management LLC serves as the investment manager (the Investment Manager) to each of the Portfolios.
Lazard Asset Management Securities LLC (the Distributor) is the distributor of each Portfolios shares.
Certain Portfolio Securities
The following information supplements and should be read in conjunction with the Funds Prospectus.
Common
and Preferred Stocks. Stocks represent shares of ownership in a company.
Generally, preferred stock has a specified dividend and ranks after bonds and
before common stocks in its claim on income for dividend payments and on assets
should the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro-rata basis; profits may be
paid out in dividends or reinvested in the company to help it grow. Increases
and decreases in earnings are usually reflected in a companys stock price, so
common stocks generally have the greatest appreciation and depreciation potential
of all corporate securities.
Depositary Receipts. Each Portfolio may invest in the securities of foreign issuers in the form of American Depositary Receipts and American Depositary Shares (collectively, ADRs) and Global Depositary Receipts and Global Depositary Shares (collectively, GDRs). These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. ADRs are receipts typically issued by a United States bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. GDRs are receipts issued outside the United States, typically by non-United States banks and trust companies, that evidence ownership of either foreign or domestic securities. Generally, ADRs in registered form are designed for use in the United States securities markets and GDRs in bearer form are designed for use outside the United States.
These securities may be purchased through sponsored or unsponsored facilities. A sponsored facility is established jointly by the issuer of the underlying security and a depositary. A depositary may establish an unsponsored facility without participation by the issuer of the deposited security. Holders of unsponsored depositary receipts generally bear all the costs of such facilities, and the depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights to the holders of such receipts in respect of the deposited securities.
Foreign Government Obligations; Securities of Supranational Entities. Each Portfolio may invest in obligations issued or guaranteed by one or more foreign governments or any of their political subdivisions, agencies or instrumentalities that are determined by the Investment Manager to be of comparable quality to the other obligations in which the Portfolio may invest. Such securities also include debt obligations of supranational entities. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Coal and Steel Community, the Asian Development Bank and the InterAmerican Development Bank.
Foreign Securities. Each Portfolio may invest in non-U.S. securities as described in the Portfolios Prospectus.
Fixed-Income
Securities. The High Yield and Capital Allocator Portfolios may invest in
fixed-income securities as described in the Prospectus. In addition, Equity
Value and Strategic Equity Portfolios each may invest up to 20% of its assets
in U.S. Government securities and investment grade debt obligations of U.S.
corporations; Mid Cap, Small-Mid Cap and International Small Cap Portfolios may
each invest up to 20% of its assets in investment grade debt securities; and
International Equity, International Equity Select, International Strategic and
Global Listed Infrastructure Portfolios may each invest up to 20% of its assets
in investment grade fixed-income securities and short-term money market
instruments.
Convertible Securities. Convertible securities may be converted at either a stated price or stated rate into underlying shares of common stock. Convertible securities have characteristics similar to both fixed-income and equity securities. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, enjoy seniority in right of payment to all equity securities, and convertible preferred stock is senior to common stock, of the same issuer. Because of the subordination feature, however, convertible securities typically have lower ratings than similar non-convertible securities.
Although to a lesser extent than with fixed-income securities, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stock. A unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis and so may not experience market value declines to the same extent as the underlying common stock. When the market price of the underlying common stock increases, the prices of the convertible securities tend to rise as a reflection of the value of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer.
Convertible securities provide for a stable stream of income with generally higher yields than common stocks, but there can be no assurance of current income because the issuers of the convertible securities may default on their obligations. A convertible security, in addition to providing fixed income, offers the potential for capital appreciation through the conversion feature, which enables the holder to benefit from increases in the market price of the underlying common stock. There can be no assurance of capital appreciation, however, because securities prices fluctuate. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality because of the potential for capital appreciation.
Warrants. A warrant is a form of derivative that gives the holder the right to subscribe to a specified amount of the issuing corporations capital stock at a set price for a specified period of time. A Portfolio may invest up to 5% of its total assets in warrants, except that this limitation does not apply to warrants purchased by the Portfolio that are sold in units with, or attached to, other securities.
Participation Interests. Each Portfolio may purchase from financial institutions participation interests in securities in which the Portfolio may invest.
2
Each Portfolio may invest in corporate obligations denominated in U.S. or foreign currencies that are originated, negotiated and structured by a syndicate of lenders (Co-Lenders) consisting of commercial banks, thrift institutions, insurance companies, financial companies or other financial institutions one or more of which administers the security on behalf of the syndicate (the Agent Bank). Co-Lenders may sell such securities to third parties called Participants. Each Portfolio may invest in such securities either by participating as a Co-Lender at origination or by acquiring an interest in the security from a Co-Lender or a Participant (collectively, participation interests). Co-Lenders and Participants interposed between the Portfolio and the corporate borrower (the Borrower), together with Agent Banks, are referred to herein as Intermediate Participants.
Each Portfolio also may purchase a participation interest in a portion of the rights of an Intermediate Participant, which would not establish any direct relationship between the Fund, on behalf of the Portfolio, and the Borrower. A participation interest gives the Portfolio an undivided interest in the security in the proportion that the Portfolios 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 would be required to rely on the Intermediate Participant that sold the participation interest not only for the enforcement of the Portfolios 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 Banks 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 a change in the prime rate.
Each Portfolio may invest in floating rate debt instruments (floaters). The interest rate on a floater is a variable rate which is tied to another interest rate, such as a money-market index or Treasury bill rate. The interest rate on a floater resets periodically, typically every six months. Because of the interest rate reset feature, floaters provide the Portfolio with a certain degree of protection against rises in interest rates, although the Portfolio will participate in any declines in interest rates as well.
Each Portfolio also may invest in inverse floating rate debt instruments (inverse floaters). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which
3
the inverse floater is indexed or inversely to a multiple of the applicable index. An inverse floating rate security may exhibit greater price volatility than a fixed rate obligation of similar credit quality.
Municipal Obligations. (High Yield Portfolio only) Municipal obligations are debt obligations issued by states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities, or multi-state agencies or authorities, to obtain funds for various public purposes, and include certain industrial development bonds issued by or on behalf of public authorities. Municipal obligations are classified as general obligation bonds, revenue bonds and notes. General obligation bonds are secured by the issuers pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenue derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source, but not from the general taxing power. Industrial development bonds, in most cases, are revenue bonds and generally do not carry the pledge of the credit of the issuing municipality, but generally are guaranteed by the corporate entity on whose behalf they are issued. Notes are short-term instruments which are obligations of the issuing municipalities or agencies and are sold in anticipation of a bond sale, collection of taxes or receipt of other revenues. Municipal obligations include municipal lease/purchase agreements which are similar to installment purchase contracts for property or equipment issued by municipalities. Municipal obligations bear fixed, floating or variable rates of interest which are determined in some instances by formulas under which the municipal obligations interest rate will change directly or inversely to changes in interest rates or an index, or multiples thereof, in many cases subject to a maximum and minimum. Certain municipal obligations are subject to redemption at a date earlier than their stated maturity pursuant to call options, which may be separated from the related municipal obligations and purchased and sold separately. High Yield Portfolio also may acquire call options on specific municipal obligations. The Portfolio generally would purchase these call options to protect it from the issuer of the related municipal obligation redeeming, or other holder of the call option from calling away, the municipal obligation before maturity.
While, in general, municipal obligations are tax exempt securities having relatively low yields as compared to taxable, non-municipal obligations of similar quality, certain municipal obligations are taxable obligations offering yields comparable to, and in some cases greater than, the yields available on other permissible Portfolio investments. Dividends received by shareholders on Portfolio shares which are attributable to interest income received by the Portfolio from municipal obligations generally will be subject to federal income tax. High Yield Portfolio may invest in municipal obligations, the ratings of which correspond with the ratings of other permissible Portfolio investments. The Portfolio currently intends to invest no more than 25% of its assets in municipal obligations. However, this percentage may be varied from time to time without shareholder approval.
Zero Coupon, Pay-In-Kind and Step Up Securities. (High Yield Portfolio only) High Yield 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 issuers 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 Portfolio may invest in pay-in-kind bonds which are bonds which generally pay interest through the issuance of additional bonds. High Yield Portfolio also may purchase step up coupon bonds which are debt securities which typically do not pay interest for a specified period of time and then pay interest at a series of different rates. The market prices of these securities generally are more volatile and are likely to respond to a greater degree to changes in interest rates than the market prices of securities that pay interest periodically having similar maturities and credit qualities. In addition, unlike bonds that pay interest throughout the period to maturity, the Portfolio will realize no cash until the cash payment date unless a portion of such securities
4
are sold and, if the issuer defaults, the Portfolio may obtain no return at all on its investment. Federal income tax law requires the holder of a zero coupon security or of certain pay-in-kind or step up bonds to accrue income with respect to these securities prior to the receipt of cash payments. To maintain its qualification as a regulated investment company and avoid liability for federal income taxes, High Yield 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.
Mortgage-Related
Securities. (High Yield Portfolio and, to a limited extent, Equity Value,
Strategic Equity, Mid Cap, Small-Mid Cap and Capital Allocator Portfolios only)
Mortgage-related securities are a form of derivative collateralized by pools of
commercial or residential mortgages. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related
and private organizations. These securities may include complex instruments
such as those described below and including pass-through securities, adjustable
rate mortgages, real estate investment trusts or other kinds of mortgage-backed
securities, including those with fixed, floating and variable interest rates,
those with interest rates based on multiples of changes in a specified index of
interest rates and those with interest rates that change inversely to changes
in interest rates, as well as those that do not bear interest.
Residential Mortgage-Related Securities. Each of these Portfolios may invest in mortgage-related securities representing participation interests in pools of one- to four-family residential mortgage loans issued by governmental agencies or instrumentalities, such as the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), or issued by private entities. Similar to commercial mortgage-related securities, residential mortgage-related securities have been issued using a variety of structures, including multi-class structures featuring senior and subordinated classes.
Mortgage-related securities issued by GNMA include GNMA Mortgage Pass-Through Certificates (also know as Ginnie Maes) which are guaranteed as to the timely payment of principal and interest by GNMA and such guarantee is backed by the full faith and credit of the United States. GNMA certificates also are supported by the authority of GNMA to borrow funds from the U.S. Treasury to make payments under its guarantee. Mortgage-related securities issued by FNMA include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as Fannie Maes) which are solely the obligations of FNMA and are not backed by or entitled to the full faith and credit of the United States. Fannie Maes are guaranteed as to timely payment of principal and interest by FNMA. Mortgage-related securities issued by FHLMC include FHLMC Mortgage Participation Certificates (also known as Freddie Macs or PCs). Freddie Macs are not guaranteed by the United States or by any Federal Home Loan Bank and do not constitute a debt or obligation of the United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of interest, which is guaranteed by FHLMC. FHLMC guarantees either ultimate collection or timely payment of all principal payments on the underlying mortgage loans. When FHLMC does not guarantee timely payment of principal, FHLMC may remit the amount due on account of its guarantee of ultimate payment of principal at any time after default on an underlying mortgage, but in no event later than one year after it becomes payable.
Commercial Mortgage-Related Securities. Each of these Portfolios may invest in commercial mortgage-related securities which generally are multi-class debt or pass-through certificates secured by mortgage loans on commercial properties. 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. These mortgage-related securities generally are constructed to provide protection to the senior classes of investors against potential losses on the underlying mortgage loans. This protection is generally provided by having the holders of the subordinated class of securities
5
(Subordinated Securities) take the first loss if there are defaults on the underlying commercial mortgage loans. Other protection, which may benefit all of the classes or particular classes, may include issuer guarantees, reserve funds, additional Subordinated Securities, cross-collateralization and over-collateralization.
Subordinated Securities. Each of these Portfolios may invest in Subordinated Securities issued or sponsored by commercial banks, savings and loan institutions, mortgage bankers, private mortgage insurance companies and other non-governmental issuers. Subordinated Securities have no governmental guarantee, and are subordinated in some manner as to the payment of principal and/or interest to the holders of more senior mortgage-related securities arising out of the same pool of mortgages. The holders of Subordinated Securities typically are compensated with a higher stated yield than are the holders of more senior mortgage-related securities. On the other hand, Subordinated Securities typically subject the holder to greater risk than senior mortgage-related securities and tend to be rated in a lower rating category, and frequently a substantially lower rating category, than the senior mortgage-related securities issued in respect of the same pool of mortgages. Subordinated Securities generally are likely to be more sensitive to changes in prepayment and interest rates and the market for such securities may be less liquid than is the case for traditional fixed-income securities and senior mortgage-related securities.
Collateralized Mortgage Obligations (CMOs) and Multi-Class Pass-Through Securities. Each of these Portfolios may invest in CMOs, which are multi-class bonds backed by pools of mortgage pass-through certificates or mortgage loans. CMOs may be collateralized by (a) GNMA, Fannie Mae or FHLMC pass-through certificates, (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.
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. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than the stated maturities or final distribution dates. The principal and interest on the underlying mortgages may be allocated among the several classes of a series of a CMO in many ways. One or more tranches of a CMO may have coupon rates which reset periodically at a specified increment over an index, such as the London Interbank Offered Rate (LIBOR) (or sometimes more than one index). These floating rate CMOs typically are issued with lifetime caps on the coupon rate thereon. Each of these Portfolios also may invest in inverse floating rate CMOs. Inverse floating rate CMOs constitute a tranche of a CMO with a coupon rate that moves in the reverse direction to an applicable index such as the LIBOR. Accordingly, the coupon rate thereon will increase as interest rates decrease. Inverse floating rate CMOs are typically more volatile than fixed or floating rate tranches of CMOs. High Yield Portfolio may invest, to a limited extent, in residual interests in real estate mortgage investment conduits (REMICs). See Taxation.
Many inverse floating rate CMOs have coupons that move inversely to a multiple of the applicable indexes. The coupon varying inversely to a multiple of an applicable index creates a leverage factor. Inverse floaters based on multiples of a stated index are designed to be highly sensitive to changes in interest rates and can subject the holders thereof to extreme reductions of yield and loss of principal. The markets for inverse floating rate CMOs with highly leveraged characteristics may at times be very thin. Each Portfolios ability to dispose of its positions in such securities will depend on the degree of liquidity in the markets for such securities. It is impossible to predict the amount of trading interest that may exist in such securities, and therefore the future degree of liquidity.
Stripped Mortgage-Backed Securities. Each of these Portfolios also may invest in stripped mortgage-backed securities which are created by segregating the cash flows from underlying mortgage loans or mortgage securities to create two or more new securities, each with a specified percentage of the
6
underlying securitys principal or interest payments. Mortgage securities may be partially stripped so that each investor class received some interest and some principal. When securities are completely stripped, however, all of the interest is distributed to holders of one type of security, known as an interest-only security, or IO, and all of the principal is distributed to holders of another type of security known as a principal-only security, or PO. Strips can be created in a pass-through structure or as tranches of a CMO. The yields to maturity on IOs and POs are very sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Portfolio may not fully recoup its initial investment in IOs. Conversely, if the underlying mortgage assets experience less than anticipated prepayments of principal, the yield on POs could be materially and adversely affected.
Private Entity Securities. Each of these Portfolios may invest in mortgage-related securities 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 Portfolios shares. Mortgage-related securities issued by non-governmental issuers generally offer a higher rate of interest than government-agency and government-related securities because there are no direct or indirect government guarantees of payment.
CMO Residuals. CMO Residuals are derivative mortgage securities issued by agencies or instrumentalities of the U.S. Government or by private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose subsidiaries of the foregoing.
The cash flow generated by the mortgage assets underlying series of CMOs is applied first to make required payments of principal of and interest on the CMOs and second to pay the related administrative expenses of the issuer. The residual in a CMO structure generally represents the interest in any excess cash flow remaining after making the foregoing payments. Each payment of such excess cash flow to a holder of the related CMO Residual represents dividend or interest income and/or a return of capital. The amount of residual cash flow resulting from a CMO will depend on, among other things, the characteristics of the mortgage assets, the coupon rate of each class of CMOs, prevailing interest rates, the amount of administrative expenses and the prepayment experience on the mortgage assets. In particular, the yield to maturity on CMO Residuals is extremely sensitive to prepayments on the related underlying mortgage assets in the same manner as an IO class of stripped mortgage-back securities. See Stripped Mortgage-Backed Securities above. In addition, if a series of a CMO includes a class that bears interest at an adjustable rate, the yield to maturity on the related CMO residual will also be extremely sensitive to the level of the index upon which interest rate adjustments are based. As described above with respect to stripped mortgage-back securities, in certain circumstances, the Portfolio may fail to fully recoup its initial investment in a CMO Residual.
CMO Residuals generally are purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers. CMO Residuals may not have the liquidity of other more established securities trading in other markets. Transactions in CMO Residuals are generally completed only after careful review of the characteristics of the securities in question. In addition, whether or not registered under the Securities Act of 1933, as amended (the Securities Act), CMO Residuals may be subject to certain restrictions of transferability. Ownership of certain CMO Residuals
7
imposes liability for certain of the expenses of the related CMO issuer on the purchaser. The Investment Manager will not purchase any CMO Residual that imposes such liability on the Portfolio.
Other Mortgage-Related Securities. Other mortgage-related securities in which a Portfolio may invest 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.
Real Estate Investment Trusts. Each Portfolio may invest in Real Estate Investment Trusts (REITs). A REIT is a corporation, or a business trust that would otherwise be taxed as a corporation, which meets the definitional requirements of the Internal Revenue Code of 1986, as amended (the Code). The Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating corporate level federal income tax and making the REIT a pass-through vehicle for federal income tax purposes. To meet the definitional requirements of the Code, a REIT must, among other things, invest substantially all of its assets in interests in real estate (including mortgages and other REITs) or cash and government securities, derive most of its income from rents from real property or interest on loans secured by mortgages on real property, and distribute to shareholders annually a substantial portion of its otherwise taxable income.
REITs are characterized as equity REITs, mortgage REITs and hybrid REITs. Equity REITs, which may include operating or finance companies, own real estate directly and the value of, and income earned by, the REITs depends upon the income of the underlying properties and the rental income they earn. Equity REITs also can realize capital gains (or losses) by selling properties that have appreciated (or depreciated) in value. Mortgage REITs can make construction, development or long-term mortgage loans and are sensitive to the credit quality of the borrower. Mortgage REITs derive their income from interest payments on such loans. Hybrid REITs combine the characteristics of both equity and mortgage REITs, generally by holding both ownership interests and mortgage interests in real estate. The values of securities issued by REITs are affected by tax and regulatory requirements and by perceptions of management skill. They also are subject to heavy cash flow dependency, defaults by borrowers or tenants, self-liquidation and the possibility of failing to qualify for tax-free status under the Code or to maintain exemption from the Investment Company Act of 1940, as amended (the 1940 Act).
Asset-Backed Securities. (High Yield Portfolio only) Asset-backed securities are a form of derivative. The securitization techniques used for asset-backed securities are similar to those used for mortgage-related securities. These securities include debt securities and securities with debt-like characteristics. The collateral for these securities has included credit card and automobile receivables, home equity loans, boat loans, computer leases, airplane leases, mobile home loans, recreational vehicle loans and hospital account receivables. The Portfolio may invest in these and other types of asset-backed securities that may be developed in the future.
Asset-backed securities present certain risks that are not presented by mortgage-backed securities. Primarily, these securities may provide the Portfolio with a less effective security interest in the related collateral than do mortgage-backed 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
8
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 sellers 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 owners obligation certain defenses such owner would have against the seller of the motor vehicle. The assertion of such defenses could reduce payments on the related securities.
Investment Companies. Each Portfolio, except Small-Mid Cap and International Equity Portfolios, may invest, to the extent permitted under the 1940 Act, in securities issued by investment companies which principally invest in securities of the type in which the Portfolio invests. Under the 1940 Act, a Portfolios investment in such securities, subject to certain exceptions, currently is limited to (i) 3% of the total voting stock of any one investment company, (ii) 5% of the Portfolios total assets with respect to any one investment company and (iii) 10% of the Portfolios total assets in the aggregate. Small-Mid Cap and International Equity Portfolios may not purchase securities of other investment companies except in connection with a merger, consolidation, acquisition or reorganization, and may purchase securities of any one closed-end fund in an amount up to 5% of the Portfolios total assets and may purchase securities of closed-end funds in the aggregate in an amount of up to 10% of the Portfolios total assets. Investments in the securities of investment companies may involve duplication of advisory fees and certain other expenses. The Portfolios do not intend to invest in investment companies affiliated with the Fund or the Investment Manager.
For
purposes of considering a Portfolios status as a diversified company under
Section 5(b)(1) of the 1940 Act, investments in other investment companies are
excluded from the diversification test, in accordance with the language in
Section 5(b)(1). As a result, the Capital Allocator Portfolio (which invests
primarily in Underlying Funds (as defined in the Prospectus)) may hold fewer
securities than other diversified mutual funds not focusing on investments in
other investment companies, although the Portfolio will gain additional
diversification through the Underlying Funds portfolios of investments.
However, the Capital Allocator Portfolio does not intend to limit its
investments to Underlying Funds that are diversified companies or to
otherwise monitor the diversification of the Underlying Funds investments. It
is currently intended that the Capital Allocator Portfolio will investment in
approximately 10 to 30 Underlying Funds.
With
respect to the Capital Allocator Portfolios investments in ETFs (defined
below), the Fund may enter into an agreement with certain ETFs pursuant to
Securities and Exchange Commission (SEC) exemptive orders obtained by the
ETFs and on which the Capital Allocator Portfolio may rely. These agreements
and orders also may require the Investment Manager to vote the Portfolios
Underlying Fund shares in proportion to votes cast by other ETF stockholders.
The Capital Allocator Portfolio also may invest in an Underlying Fund in excess
of the limits in (i)-(iii) above if it complies with Section 12(d)(1)(F) of the
1940 Act, which limits the amount the Portfolio, the other Portfolios and other
affiliated persons of the Portfolio can invest in any one Underlying Fund to 3%
of the Underlying Funds total outstanding stock. In this case, to comply with
provisions of the 1940 Act, on any matter upon which Underlying Fund
stockholders are solicited to vote the Investment Manager will vote Underlying
9
Fund shares in the same general proportion as shares held by other stockholders of the Underlying Fund.
Exchange-Traded Funds. Investments in investment companies may include shares of exchange-traded funds (collectively, ETFs), which are designed to provide investment results generally corresponding to a securities index. ETFs usually are units of beneficial interest in an investment trust or represent undivided ownership interests in a portfolio of securities, in each case with respect to a portfolio of all or substantially all of the component securities of, and in substantially the same weighting as, the relevant benchmark index. ETFs are listed on an exchange and trade in the secondary market on a per-share basis.
The values of ETFs are subject to change as the values of their respective component securities fluctuate according to market volatility. Investments in ETFs that are designed to correspond to an equity index, for example, involve certain inherent risks generally associated with investments in a broadly based portfolio of common stocks, including the risk that the general level of stock prices may decline, thereby adversely affecting the value of ETFs invested in by each Portfolio. Moreover, a Portfolios investments in ETFs may not exactly match the performance of a direct investment in the respective indices to which they are intended to correspond due to the temporary unavailability of certain index securities in the secondary market or other extraordinary circumstances, such as discrepancies with respect to the weighting of securities.
Most ETFs are open-end investment companies, and, as a result, investments in such ETFs may not be purchased by the Small-Mid Cap or International Equity Portfolios except in connection with a merger, consolidation, acquisition or reorganization.
Master
Limited Partnerships. (Global Listed Infrastructure and Capital Allocator
Portfolios only) Each of these Portfolios may invest in equity securities of
master limited partnerships (MLPs). An MLP generally has two classes of
partners, the general partner and the limited partners. The general partner
normally controls the MLP through an equity interest plus units that are
subordinated to the common (publicly traded) units for an initial period and
then only converting to common if certain financial tests are met. As a
motivation for the general partner to successfully manage the MLP and increase
cash flows, the terms of most MLPs typically provide that the general partner
receives a larger portion of the net income as distributions reach higher
target levels. As cash flow grows, the general partner receives a greater
interest in the incremental income compared to the interest of limited
partners. The general partners incentive compensation typically increases up
to 50% of incremental income. Nevertheless, the aggregate amount distributed to
limited partners will increase as MLP distributions reach higher target levels.
Given this incentive structure, the general partner has an incentive to
streamline operations and undertake acquisitions and growth projects in order
to increase distributions to all partners.
MLP common units represent an equity ownership interest in a partnership, providing limited voting rights and entitling the holder to a share of the companys success through distributions and/or capital appreciation. Unlike stockholders of a corporation, common unit holders do not elect directors annually and generally have the right to vote only on certain significant events, such as mergers, a sale of substantially all of the assets, removal of the general partner or material amendments to the partnership agreement. MLPs are required by their partnership agreements to distribute a large percentage of their current operating earnings. Common unit holders generally have first right to a minimum quarterly distribution prior to distributions to the convertible subordinated unit holders or the general partner (including incentive distributions). Common unit holders typically have arrearage rights if the minimum quarterly distribution is not met. In the event of liquidation, MLP common unit holders have first right to the partnerships remaining assets after bondholders, other debt holders, and preferred unit holders have been paid in full. MLP common units trade on a national securities exchange or over-the-counter. Some limited liability companies (LLCs) may be treated as MLPs for federal income tax purposes. Similar to
10
MLPs, LLCs typically do not pay federal income tax at the entity level and are required by their operating agreements to distribute a large percentage of their current operating earnings. In contrast to MLPs, LLCs have no general partner and there are no incentives that entitle management or other unit holders to increased percentages of cash distributions as distributions reach higher target levels. In addition, LLC common unit holders typically have voting rights with respect to the LLC, whereas MLP common units have limited voting rights. MLP common units and other equity securities can be affected by macro economic and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards MLPs or its business sector, changes in a particular issuers financial condition, or unfavorable or unanticipated poor performance of a particular issuer (in the case of MLPs, generally measured in terms of distributable cash flow). Prices of common units of individual MLPs and other equity securities can also be affected by fundamentals unique to the partnership or company, including earnings power and coverage ratios.
MLP convertible subordinated units are typically issued by MLPs to founders, corporate general partners of MLPs, entities that sell assets to the MLP, and institutional investors, and may be purchased in direct placements from such persons. The purpose of the convertible subordinated units is to increase the likelihood that during the subordination period there will be available cash to be distributed to common unit holders. Convertible subordinated units generally are not entitled to distributions until holders of common units have received specified minimum quarterly distributions, plus any arrearages, and may receive less in distributions upon liquidation. Convertible subordinated unit holders generally are entitled to a minimum quarterly distribution prior to the payment of incentive distributions to the general partner, but are not entitled to arrearage rights. Therefore, they generally entail greater risk than MLP common units. They are generally convertible automatically into the senior common units of the same issuer at a one-to-one ratio upon the passage of time or the satisfaction of certain financial tests. These units do not trade on a national exchange or over-the-counter, and there is no active market for convertible subordinated units. The value of a convertible security is a function of its worth if converted into the underlying common units. Convertible subordinated units generally have similar voting rights to MLP common units. Because convertible subordinated units generally convert to common units on a one-to-one ratio, the price that the Portfolio could be expected to pay upon purchase or to realize upon resale is generally tied to the common unit price less a discount. The size of the discount varies depending on a variety of factors including the likelihood of conversion, and the length of time remaining to conversion, and the size of the block purchased.
MLP I-Shares represent an indirect investment in MLP I-units. I-units are equity securities issued to affiliates of MLPs, typically a limited liability company, that own an interest in and manage the MLP. The issuer has management rights but is not entitled to incentive distributions. The I-Share issuers assets consist exclusively of MLP I-units. Distributions by MLPs to I-unit holders are made in the form of additional I-units, generally equal in amount to the cash received by common unit holders of MLPs. Distributions to I-Share holders are made in the form of additional I-Shares, generally equal in amount to the I-units received by the I-Share issuer. The issuer of the I-Share is taxed as a corporation for federal income tax purposes; however, the MLP does not allocate income or loss to the I-Share issuer. Accordingly, investors receive a Form 1099, are not allocated their proportionate share of income of the MLPs and are not subject to state income tax filing obligations. The price of I-Shares and their volatility tend to be correlated to the price of common units, although the price correlation is not precise.
Illiquid Securities. Each Portfolio may invest up to 15% (10% in the case of Small-Mid Cap, International Equity, International Small Cap and Emerging Markets Portfolios) 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 Portfolios investment objective. These securities may include securities that are not readily marketable, such as securities that are subject to legal or contractual restrictions on resale (such as private placements and certain restricted securities), repurchase agreements providing for settlement in
11
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. Illiquid securities may be difficult to value accurately, and a
Portfolio is subject to the risk that should the Portfolio desire to sell them
when a ready buyer is not available at a price that is deemed to be
representative of their value, the value of the Portfolios net assets could be
adversely affected.
Money
Market Instruments; Temporary Defensive Positions. When the Investment
Manager determines that adverse market conditions exist, a Portfolio may adopt
a temporary defensive position and invest some or all of its assets in money
market instruments, including U.S. Government securities, repurchase
agreements, bank obligations and commercial paper and other short-term
obligations (Money Market Instruments). For Emerging Markets, Emerging
Markets Select, Developing Markets and Emerging Markets Blend Portfolios, when
the Investment Manager believes it is warranted for defensive purposes, each
Portfolio may invest without limitation in high quality fixed-income securities
or equity securities of U.S. companies. Each 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 Funds Prospectus.
Borrowing Money. Each Portfolio may borrow to the extent permitted under the 1940 Act, which permits an investment company to borrow in an amount up to 33⅓% 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 such borrowings exceed 5% of a Portfolios total assets, the Portfolio will not make any additional investments. Money borrowed will be subject to interest costs. In addition, each Portfolio other than Small-Mid Cap and International Equity Portfolios may borrow for investment purposes to the extent permitted under the 1940 Act. See Leverage below.
Leverage. (All Portfolios, except Small-Mid Cap and International Equity Portfolios) Leveraging (buying securities using borrowed money) exaggerates the effect on net asset value of any increase or decrease in the market value of the Portfolios investment. Money borrowed for leveraging is limited to 33⅓% of the value of the Portfolios total assets. Interest costs may or may not be recovered by appreciation of the securities purchased; in certain cases, interest costs may exceed the return received on the securities purchased. For borrowings for investment purposes, the 1940 Act requires the Portfolio to maintain continuous asset coverage (total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed. If the required coverage should decline as a result of market fluctuations or other reasons, the Portfolio may be required to sell some of its portfolio holdings within three days to reduce the amount of its borrowings and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. The Portfolio also may be required to maintain minimum average balances in connection with such borrowing or pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate.
Each Portfolio may enter into reverse repurchase agreements with banks, brokers or dealers. This form of borrowing involves the transfer by the Portfolio of an underlying debt instrument in return for cash proceeds based on a percentage of the value of the security. Each Portfolio retains the right to receive interest and principal payments on the security. As a result of these transactions, the Portfolio is exposed to greater potential fluctuation in the value of its assets and its net asset value per share. At an agreed upon future date, the Portfolio repurchases the security at principal plus accrued interest. To the extent a Portfolio enters into a reverse repurchase agreement, the Portfolio will maintain in a segregated
12
custodial account permissible liquid assets at least equal to the aggregate amount of its reverse repurchase obligations, plus accrued interest, in certain cases, in accordance with releases promulgated by the SEC. The SEC views reverse repurchase transactions as collateralized borrowing by a Portfolio. Except for these transactions, each Portfolios borrowings generally will be unsecured.
Lending Portfolio Securities. Each Portfolio may lend securities from its portfolio to brokers, dealers and other financial institutions needing to borrow securities to complete certain transactions. In connection with such loans, the Portfolio remains the owner of the loaned securities and continues to be entitled to payments in amounts equal to the interest, dividends or other distributions payable on the loaned securities. The Portfolio also has the right to terminate a loan at any time. The Portfolio may call the loan to vote proxies if a material issue affecting the Portfolios investment is to be voted upon. Loans of portfolio securities may not exceed 33⅓% of the value of the Portfolios total assets. 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. If the collateral consists of a letter of credit or securities, the borrower will pay the Portfolio a loan premium fee. If the collateral consists of cash, the Portfolio will reinvest the cash and pay the borrower a pre-negotiated fee or rebate from any return earned on the investment. Should the borrower of the securities fail financially, the Portfolio may experience delays in recovering the loaned securities or exercising its rights in the collateral. Loans are made only to borrowers that are deemed by the Investment Manager to be of good financial standing. In a loan transaction, the Portfolio will also bear the risk of any decline in value of securities acquired with cash collateral.
Derivatives. (All Portfolios, except Small-Mid Cap Portfolio) Each Portfolio may invest in, or enter into, derivatives, such as options, futures contracts, options on futures contracts and swap agreements, for a variety of reasons, including to hedge certain market risks, to provide a substitute for purchasing or selling particular securities or to increase potential income gain. Derivatives may provide a cheaper, quicker or more specifically focused way for the Portfolio to invest than traditional securities would.
Derivatives can be volatile and involve various types and degrees of risk, depending upon the characteristics of the particular derivative and the portfolio as a whole. Derivatives permit a Portfolio to increase or decrease the level of risk, or change the character of the risk, to which its portfolio is exposed in much the same way as the Portfolio can increase or decrease the level of risk, or change the character of the risk, of its portfolio by making investments in specific securities. However, derivatives may entail investment exposures that are greater than their cost would suggest, meaning that a small investment in derivatives could have a large potential impact on a Portfolios performance.
If a Portfolio invests in derivatives at inopportune times or judges market conditions incorrectly, such investments may lower the Portfolios return or result in a loss. A Portfolio also could experience losses if its derivatives were poorly correlated with its other investments, or if the Portfolio were unable to liquidate its position because of an illiquid secondary market. The market for many derivatives is, or suddenly can become, illiquid. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices for derivatives.
The Fund will not be a commodity pool (i.e., a pooled investment vehicle which trades in commodity futures contracts and options thereon and the operator of which is registered with the Commodity Futures Trading Commission (the CFTC)). In addition, the Fund has claimed an exclusion from the definition of commodity pool operator and, therefore, is not subject to registration or regulation as a pool operator under the Commodity Exchange Act.
13
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. In 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.
Successful use of derivatives by a Portfolio also is subject to the Investment Managers ability to predict correctly movements in the direction of the relevant market and to the extent the transaction is entered into for hedging purposes, to ascertain the appropriate correlation between the transaction being hedged and the price movements of the futures contract. For example, if a Portfolio uses futures to hedge against the possibility of a decline in the market value of securities held in its portfolio and the prices of such securities instead increase, the Portfolio will lose part or all of the benefit of the increased value of securities which it has hedged because it will have offsetting losses in its futures positions. Furthermore, if in such circumstances the Portfolio has insufficient cash, it may have to sell securities to meet daily variation margin requirements. The Portfolio may have to sell such securities at a time when it may be disadvantageous to do so.
Pursuant to regulations and/or published positions of the SEC, a Portfolio may be required to 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 securities at disadvantageous prices or times since it may not be possible to liquidate a derivative position at a reasonable price. The segregation of such assets will have the effect of limiting the Portfolios ability to otherwise invest those assets.
Futures TransactionsIn General. (All Portfolios, except Small-Mid Cap and International Equity Portfolios) Each Portfolio may enter into futures contracts in U.S. domestic markets, or on exchanges located outside the United States. Foreign markets may offer advantages such as trading opportunities or arbitrage possibilities not available in the United States. Foreign markets, however, may have greater risk potential than domestic markets. For example, some foreign exchanges are principal markets so that no common clearing facility exists and an investor may look only to the broker for performance of the contract. In addition, any profits a Portfolio might realize in trading could be eliminated by adverse changes in the currency exchange rate, or the Portfolio could incur losses as a result of those changes. Transactions on foreign exchanges may include both commodities which are traded on domestic exchanges and those which are not. Unlike trading on domestic commodity exchanges, trading on foreign commodity exchanges is not regulated by the CFTC.
Engaging in these transactions involves risk of loss to the Portfolio which could adversely affect the value of the Portfolios net assets. Although each of these Portfolios intends to purchase or sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for any particular contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the trading day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading,
14
thereby preventing prompt liquidation of futures positions and potentially subjecting the Portfolio to substantial losses.
Specific Futures Transactions. Each Portfolio other than Small-Mid Cap, International Equity and High Yield Portfolios may purchase and sell stock index futures contracts. A stock index future obligates the Portfolio to pay or receive an amount of cash equal to a fixed dollar amount specified in the futures contract multiplied by the difference between the settlement price of the contract on the contracts last trading day and the value of the index based on the stock prices of the securities that comprise it at the opening of trading in such securities on the next business day.
Each Portfolio other than Mid Cap, Small-Mid Cap and International Equity Portfolios may purchase and sell interest rate futures contracts. An interest rate future obligates the Portfolio to purchase or sell an amount of a specific debt security at a future date at a specific price.
Each Portfolio, except Small-Mid Cap and International Equity Portfolios, may buy and sell foreign currency futures. A currency future obligates the Portfolio to purchase or sell an amount of a specific currency at a future date at a specific price.
OptionsIn General. (All Portfolios, except Small-Mid Cap and International Equity Portfolios) Each of these Portfolios may buy and sell (write) covered call and put options. 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 specific date.
A covered call option written by a Portfolio is a call option with respect to which the Portfolio owns the underlying security or otherwise covers the transaction by segregating permissible liquid assets. A put option written by a Portfolio is covered when, among other things, the Portfolio segregates permissible liquid assets 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. A Portfolio receives a premium from writing covered call or put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a liquid secondary market on a securities exchange will exist for any particular option or at any particular time, and for some options no such secondary market may exist. A liquid secondary market in an option may cease to exist for a variety of reasons. In the past, for example, higher than anticipated trading activity or order flow, or other unforeseen events, at times have rendered certain of the clearing facilities inadequate and resulted in the institution of special procedures, such as trading rotations, restrictions on certain types of orders or trading halts or suspensions in one or more options. There can be no assurance that similar events, or events that may otherwise interfere with the timely execution of customers orders, will not recur. In such event, it might not be possible to effect closing transactions in particular options. If, as a covered call option writer, a Portfolio is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise or it otherwise covers its position.
Specific Options Transactions. Each Portfolio other than Small-Mid Cap and International Equity Portfolios may buy 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-
15
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.
As the writer (seller) of a call option, a Portfolio would receive cash (the premium) from the purchaser of the option, and the purchaser has the right to receive from the Portfolio the cash value of the underlying index or any appreciation in the underlying security over the exercise price on the expiration date or otherwise upon exercise. In effect, the Portfolio forgoes, during the life of the option, the opportunity to profit from increases in the market value of the underlying security or securities held by the Portfolio with respect to which the option was written above the sum of the premium and the exercise price. For index options, this will depend, in part, on the extent of correlation of the performance of the Portfolios portfolio securities with the performance of the relevant index. Covered call option writing will generally limit the Portfolios ability to benefit from the full appreciation potential of its stock investments underlying the options, and the Portfolio retains the risk of loss (less premiums received) if the value of these stock investments declines. The Portfolios written call options on individual stocks will be covered because the Portfolio will hold the underlying stock in its portfolio throughout the term of the option. The Portfolio also will cover its written index call option positions by either segregating liquid assets in an amount equal to the contract value of the index or by entering into offsetting positions.
A Portfolio may write call options that are at-the-money (the exercise price of the option is equal to the value of the underlying index or stock when the option is written), close-to-the-money (with an exercise price close to the current cash value of the underlying index or the market value of the underlying security when the option is written), out-of-the-money (with an exercise price above the current cash value of the underlying index or the market value of the underlying security when the option is written) or in-the-money (with an exercise price below the current cash value of the underlying index or market value of the underlying security when the option is written), based on market conditions and other factors.
Each Portfolio other than Small-Mid Cap and International Equity Portfolios may buy and sell call and put options on foreign currency. These options convey the right to buy or sell the underlying currency at a price which is expected to be lower or higher than the spot price of the currency at the time the option is exercised or expires.
Each Portfolio other than Small-Mid Cap and International Equity Portfolios may purchase cash-settled options on interest rate swaps, interest rate swaps denominated in foreign currency and equity index swaps in pursuit of its investment objective. Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (for example, an exchange of floating-rate payments for fixed-rate payments) denominated in U.S. dollars or foreign currency. Equity index swaps involve the exchange by the Portfolio with another party of cash flows based upon the performance of an index or a portion of an index of securities which usually includes dividends. A cash-settled option on a swap gives the purchaser the right, but not the obligation, in return for the premium paid, to receive an amount of cash equal to the value of the underlying swap as of the exercise date. These options typically are purchased in privately negotiated transactions from financial institutions, including securities brokerage firms.
Successful use by a Portfolio of options will be subject to the Investment Managers ability to predict correctly movements in the prices of individual stocks, the stock market generally, foreign
16
currencies or interest rates. To the extent the Investment Managers predictions are incorrect, the Portfolio may incur losses.
Swap Agreements. To the extent consistent with the Portfolios investment objective and management policies as set forth herein, each Portfolio other than Small-Mid Cap and International Equity Portfolios may enter into equity, interest rate, index, total return and currency rate swap agreements. These transactions are entered into in an attempt to obtain a particular return when it is considered desirable to do so, possibly at a lower cost to the Portfolio than if the Portfolio had invested directly in the asset that yielded the desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than a year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or swapped between the parties are generally calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a basket of securities representing a particular index. Forms of swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent interest rates exceed a specified rate or cap; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent interest rates fall below a specified level or floor; and interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels.
Most swap agreements entered into by a Portfolio would calculate the obligations of the parties to the agreement on a net basis. Consequently, the Portfolios 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 Portfolios risk of loss consists of the net amount of payments that the Portfolio contractually is entitled to receive.
Future Developments. A 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 Portfolios 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 its Prospectus or this Statement of Additional Information.
Foreign Currency Transactions. (All Portfolios, except Small-Mid Cap Portfolio) Foreign currency transactions may be entered into for a variety of purposes, including: to fix in U.S. dollars, between trade and settlement date, the value of a security the Portfolio has agreed to buy or sell; to hedge the U.S. dollar value of securities the Portfolio already owns, particularly if it expects a decrease in the value of the currency in which the foreign security is denominated; or to gain exposure to the foreign currency in an attempt to realize gains.
Foreign currency transactions may involve, for example, the Portfolios purchase of foreign currencies for U.S. dollars or the maintenance of short positions in foreign currencies. A short position would involve the Portfolio agreeing to exchange an amount of a currency it did not currently own for another currency at a future date in anticipation of a decline in the value of the currency sold relative to the currency the Portfolio contracted to receive. The Portfolios success in these transactions will depend principally on the Investment Managers ability to predict accurately the future exchange rates between foreign currencies and the U.S. dollar.
17
Short-Selling. (All Portfolios, except Small-Mid Cap, International Equity, International Small Cap and Emerging Markets Portfolios) Each of these Portfolios may engage in short sales of securities, although the Fund has no current intention of engaging in short sales and will not do so without prior approval of the Funds Board of Directors (the Board). In these transactions, the Portfolio sells a security it does not own in anticipation of a decline in the market value of the security. To complete the transaction, the Portfolio must borrow the security to make delivery to the buyer. The Portfolio is obligated to replace the security borrowed by purchasing it subsequently at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Portfolio, which would result in a loss or gain, respectively. The Portfolio also may make short sales against the box, in which the Portfolio enters into a short sale of a security it owns. Securities will not be sold short if, after effect is given to any such short sale, the total market value of all securities sold short would exceed 25% of the value of the Portfolios net assets. A Portfolio may not make a short-sale which results in the Portfolio having sold short in the aggregate more than 5% of the outstanding securities of any class of issuer.
Until the Portfolio closes its short position or replaces the borrowed security, it will: (a) segregate permissible liquid assets in an amount that, together with the amount deposited as collateral, always equals the current value of the security sold short; or (b) otherwise cover its short position.
Forward Commitments. A Portfolio may purchase or sell securities on a forward commitment, when-issued or delayed delivery basis, which means that delivery and payment take place a number of days after the date of the commitment to purchase or sell. The payment obligation and the interest rate receivable on a forward commitment, when-issued or delayed-delivery security are fixed when the Portfolio enters into the commitment, but the Portfolio does not make a payment until it receives delivery from the counterparty. The Portfolio will segregate permissible liquid assets at least equal to the full notional value of its forward commitment contracts or, with respect to forward commitments that include a contractual cash settlement requirement, will segregate such assets at least equal at all times to the amount of the Portfolios purchase commitment. The Portfolio intends to engage in forward commitments to increase the Portfolios financial exposure to the types of securities in which it invests, which will increase the Portfolios exposure to changes in interest rates and will increase the volatility of its returns. If the Portfolio is fully or almost fully invested when forward commitment purchases are outstanding, such purchases may result in a form of leverage. At no time will the Portfolio have more than 33⅓% of its total assets committed to purchase securities on a forward commitment basis.
Securities purchased on a forward commitment, when-issued or delayed-delivery 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 publics perception of the creditworthiness of the issuer and changes, real or anticipated, in the level of interest rates. Securities purchased on a forward commitment, when-issued or delayed-delivery basis may expose a Portfolio to risks because they may experience such fluctuations prior to their actual delivery. Purchasing securities on a forward commitment, when-issued or delayed-delivery 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, when-issued or delayed-delivery basis when the Portfolio is fully or almost fully invested may result in greater potential fluctuation in the value of the Portfolios net assets and its net asset value per share.
Certain Investment Considerations and Risks
Equity Securities. Equity securities, including common stock, preferred stock, convertible securities and warrants, fluctuate in value, often based on factors unrelated to the value of the issuer of the
18
securities, and such fluctuations can be pronounced. Changes in the value of a Portfolios investments will result in changes in the value of its shares and thus the Portfolios total return to investors.
Initial Public Offerings. (All Portfolios, except High Yield Portfolio) Each of these Portfolios may purchase securities of companies in initial public offerings (IPOs) or shortly thereafter. An IPO is a corporations first offering of stock to the public. Shares are given a market value reflecting expectations for the corporations future growth. Special rules of the Financial Industry Regulatory Authority (FINRA) apply to the distribution of IPOs. Corporations offering stock in IPOs generally have limited operating histories and may involve greater investment risk. The prices of these companies securities may be very volatile, rising and falling rapidly, sometimes based solely on investor perceptions rather than economic reasons. IPO securities will be sold when the Investment Manager believes the price has reached full value. IPO securities may be sold by a Portfolio on the same day the Portfolio receives an allocation.
Smaller
Company Securities. Each Portfolio other than International Equity,
International Equity Select and High Yield Portfolios may purchase securities
of smaller capitalization companies, the prices of which may be subject to more
abrupt or erratic market movements than securities of larger, more established
companies, because securities of smaller companies typically are traded in
lower volume and the issuers typically are subject to greater changes in
earnings and prospects. Smaller capitalization companies often have limited
product lines, markets or financial resources. They may be dependent on
management for one or a few key persons, and can be more susceptible to losses
and the risk of bankruptcy. In addition, securities of the small capitalization
sector may be thinly traded (and therefore may have to be sold at a discount
from current market prices or sold in small lots over an extended period of
time), may be followed by fewer investment research analysts and may pose a
greater chance of loss than investments in securities of larger capitalization
companies.
Fixed-Income Securities. Even though interest-bearing securities are investments which promise a stable stream of income, the prices of such securities generally are inversely affected by changes in interest rates and, therefore, are subject to the risk of market price fluctuations. Certain portfolio securities, such as those with interest rates that fluctuate directly or indirectly based on multiples of a stated index, are designed to be highly sensitive to changes in interest rates and can subject the holders thereof to extreme reductions of yield and possibly loss of principal.
The values of fixed-income securities also may be affected by changes in the credit rating or financial condition of the issuer. Certain securities, such as those rated below investment grade by Standard & Poors Ratings Group (S&P) and Moodys Investors Service, Inc. (Moodys and together with S&P, the Rating Agencies), may be subject to such risk with respect to the issuing entity and to greater market fluctuations than certain lower yielding, higher rated fixed-income securities. Once the rating of a portfolio security has been changed, the Portfolio will consider all circumstances deemed relevant in determining whether to continue to hold the security.
Mortgage-Related
Securities. (High Yield Portfolio and, to a limited extent, Equity Value,
Strategic Equity, Mid Cap, Small-Mid Cap and Capital Allocator Portfolios only)
Mortgage-related securities are complex derivative instruments, subject to both
credit and prepayment risk, and may be more volatile and less liquid, and more
difficult to price accurately, than more traditional debt securities. Although
certain mortgage-related securities are guaranteed by a third party (such as a
U.S. Government agency or instrumentality with respect to government-related
mortgage-backed securities) or otherwise similarly secured, the market value of
the security, which may fluctuate, is not secured. Mortgage-related securities
generally are subject to credit risks associated with the performance of the
underlying mortgage properties and to prepayment risk. 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
19
does not reduce prepayment risk which is unrelated to the rating assigned to the mortgage-related security. Prepayment risk can lead to fluctuations in value of the mortgage-related security which may be pronounced. If a mortgage-related security is purchased at a premium, all or part of the premium may be lost if the market value of the security declines, whether resulting from changes in interest rates or prepayments on the underlying mortgage collateral. Certain mortgage-related securities, such as inverse floating rate collateralized mortgage obligations, have coupons that move inversely to a multiple of a specific index which may result in increased price volatility.
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 securitys stated maturity may be shortened by unscheduled prepayments on the underlying mortgages, and, therefore, it is not possible to predict accurately the securitys return to the Portfolio. Moreover, with respect to certain stripped mortgage-backed securities, if the underlying mortgage securities experience greater than anticipated prepayments of principal, the Portfolio may fail to fully recoup its initial investment even if the securities are rated in the highest rating category by a nationally recognized statistical rating organization. During periods of rapidly rising interest rates, prepayments of mortgage-related securities may occur at slower than expected rates. Slower prepayments effectively may lengthen a mortgage-related securitys expected 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 Portfolios mortgage-related securities to decrease broadly, the Portfolios effective duration, and thus sensitivity to interest rate fluctuations, would increase. Commercial real property loans, however, often contain provisions that substantially reduce the likelihood that such securities will be prepaid. The provisions generally impose significant prepayment penalties on loans and in some cases there may be prohibitions on principal prepayments for several years following origination.
Foreign Securities. Foreign securities markets generally are not as developed or efficient as those in the United States. Securities of some foreign issuers, including depositary receipts, foreign government obligations and securities of supranational entities, are less liquid and more volatile than securities of comparable U.S. issuers. Similarly, volume and liquidity in most foreign securities markets are less than in the United States and, at times, volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held outside the United States, a Portfolio will be subject to additional risks which include possible adverse political and economic developments, seizure or nationalization of foreign deposits and adoption of governmental restrictions, which might adversely affect or restrict the payment of principal and interest on the foreign securities to investors located outside the country of the issuer, whether from currency blockage or otherwise. Moreover, foreign securities held by a Portfolio may trade on days when the Portfolio does not calculate its net asset value and thus affect the Portfolios net asset value on days when investors have no access to the Portfolio.
Developing countries have economic structures that generally are less diverse and mature, and political systems that are less stable, than those of developed countries. The markets of developing countries may be more volatile than the markets of more mature economies; however, such markets may provide higher rates of return to investors. Many developing countries providing investment opportunities for these Portfolios have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have adverse effects on the economies and securities markets of certain of these countries.
20
The
Portfolios consider emerging market countries to include all countries
represented by the Morgan Stanley Capital International (MSCI®)
Emerging Markets Index and other countries not considered developed countries
by MSCI, and investments in emerging markets may include those companies
included in the MSCI Emerging Markets Index and companies with their principal
business activities located in, or that have 50% or more of their assets in or
revenue or net income from, emerging market countries. The MSCI Emerging
Markets Index currently includes the following countries: Brazil, Chile, China,
Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea,
Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa,
Taiwan, Thailand and Turkey. For purposes of each of Emerging Markets
Portfolios, Emerging Markets Select Portfolios, Developing Markets
Portfolios and Emerging Markets Blend Portfolios policy to invest at least
80% of its net assets, plus any borrowings for investment purposes, in equity
securities of companies whose principal business activities are located in
emerging market countries, only countries included in the MSCI Emerging Markets
Index are considered to be emerging markets (although the Portfolio may
invest in other countries with its remaining assets). Because foreign
securities often are purchased with and payable in currencies of foreign
countries, the value of these assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations.
Foreign Currency Transactions. (All Portfolios, except Small-Mid Cap Portfolio) Currency exchange rates may fluctuate significantly over short periods of time. They generally are determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries, actual or perceived changes in interest rates and other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably by intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the United States or abroad.
Lower Rated Securities. (High Yield Portfolio only) High Yield Portfolio invests at least 80% of its assets in higher yielding (and, therefore, higher risk) debt securities rated as low as the lowest rating assigned by a Rating Agency (commonly known as junk bonds).
Bond prices are inversely related to interest rate changes; however, bond price volatility also may be inversely related to coupon. Accordingly, below investment grade securities may be relatively less sensitive to interest rate changes than higher quality securities of comparable maturity, because of their higher coupon. This higher coupon is what the investor receives in return for bearing greater credit risk. The higher credit risk associated with below investment grade securities potentially can have a greater effect on the value of such securities than may be the case with higher quality issues of comparable maturity, and will be a substantial factor in the Portfolios relative share price volatility. The ratings of the Rating Agencies represent their opinions as to the quality of the obligations which they undertake to rate. Although ratings may be useful in evaluating the safety of interest and principal payments, they do not evaluate the market value risk of these securities. See Appendix for a general description of the Rating Agencies ratings. The Portfolio will rely on the judgment, analysis and experience of the Investment Manager in evaluating the creditworthiness of an issuer.
Companies that issue certain of these securities often are highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is the case with higher rated securities and will fluctuate over time. For example, during an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of these securities may not have sufficient revenues to meet their interest payment obligations. The issuers ability to service its debt obligations also may be affected adversely by specific corporate developments, forecasts, or the unavailability of additional financing. The risk of loss because of default by the issuer is significantly greater for the holders of these securities because such securities generally are unsecured and often are subordinated to other creditors of the issuer.
21
Because there is no established retail secondary market for many of these securities, the Portfolio anticipates that such securities could be sold only to a limited number of dealers or institutional investors. To the extent a secondary trading market for these securities does exist, it generally is not as liquid as the secondary market for higher rated securities. The lack of a liquid secondary market may have an adverse impact on market price and yield and the Portfolios ability to dispose of particular issues when necessary to meet the Portfolios liquidity needs or in response to a specific economic event such as a deterioration in the creditworthiness of the issuer. The lack of a liquid secondary market for certain securities also may make it more difficult for the Portfolio to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value and could result in the Portfolio selling such securities at lower prices than those used in calculating the Portfolios net asset value. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of these securities. In such cases, judgment may play a greater role in valuation because less reliable, objective data may be available.
These securities may be particularly susceptible to economic downturns. An economic recession could adversely affect the ability of the issuers of lower rated bonds to repay principal and pay interest thereon and increase the incidence of default for such securities. It is likely that an economic recession could disrupt severely the market for such securities and may have an adverse impact on their value.
High Yield Portfolio may acquire these securities during an initial offering. Such securities may involve special risks because they are new issues. The Portfolio does not have an arrangement with any persons concerning the acquisition of such securities, and the Investment Manager will review carefully the credit and other characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also apply to lower rated zero coupon, pay-in-kind and step up securities. In addition to the risks associated with the credit rating of the issuers, the market prices of these securities may be very volatile during the period no interest is paid.
Simultaneous Investments; Overlapping Positions. Investment decisions for each Portfolio are made independently from those of the other Portfolios and other accounts managed by the Investment Manager. If, however, such other Portfolios or accounts desire to invest in, or dispose of, the same securities as a Portfolio, available investments or opportunities for sales will be allocated equitably to each. In some cases, this procedure may adversely affect the size of the position obtained for or disposed of by a Portfolio or the price paid or received by a Portfolio. In some cases, the Investment Manager may seek to limit the number of overlapping investments by similar Portfolios (securities of an issuer held in more than one Portfolio) so that shareholders invested in such Portfolios may achieve a more diverse investment experience. In such cases, a Portfolio may be disadvantaged by the Investment Managers decision to purchase or maintain an investment in one Portfolio to the exclusion of one or more other Portfolios (including a decision to sell the investment in one Portfolio so that it may be purchased by another Portfolio).
Disclosure of Portfolio Holdings
It is the policy of the Fund to protect the confidentiality of the Portfolios holdings and prevent the selective disclosure of non-public information about such holdings. The Fund will publicly disclose the Portfolios holdings on a calendar quarter-end basis on its website accessible from http://www.lazardnet.com/lam/us/lazardfunds.shtml, approximately 14 days after such quarter end. The information will remain accessible until the Fund files a report on Form N-Q or Form N-CSR for the period that includes the date as of which the information was current.
22
In order to avoid conflicts of interest between the Fund, on the one hand, and the Investment Manager or any affiliated person of the Fund or the Investment Manager, on the other (1) disclosure of portfolio holdings information is made only when such disclosure is in the best interest of Portfolio shareholders and the Fund has a legitimate business purpose for doing so and (2) none of the Fund or the Investment Manager or their affiliates may receive any compensation in connection with an arrangement to make portfolio holdings information available.
In accordance with the foregoing, the Fund provides portfolio holdings information to ratings services or third party service providers who provide necessary or beneficial services when such service providers need access to this information in the performance of their services and are subject to duties of confidentiality (1) imposed by law, including a duty not to trade on non-public information, and/or (2) pursuant to an agreement that confidential information is not to be disclosed or used (including trading on such information) other than as required by law. From time to time, the Fund will communicate with these service providers to confirm that they understand the Funds policies and procedures regarding such disclosure. Such service providers currently include the Funds investment manager, administrator, custodian, auditors and legal counsel and each of their respective affiliates and advisors, as well as Institutional Shareholder Services, Inc., Lipper Inc., Morningstar, Inc., Bloomberg, BNY Mellon Analytical Services, LLC, Canterbury Consulting Incorporated and Thomson Vestek, Inc. The Fund also provides portfolio holdings information to Market Street Trust Company, Mercer Global Investments and Morgan Stanley Smith Barney pursuant to confidentiality agreements. Service providers receive holdings information at a frequency appropriate to their services, which may be as frequently as daily.
The
Investment Manager currently manages certain multi-strat investment
strategies. Using these strategies, the Investment Managers Multi-Strat
portfolio management team may allocate assets in a clients account among
various strategies managed by other portfolio management teams. The assets may
be invested according to those underlying strategies using separate accounts,
mutual funds, private investment funds or other available vehicles, as applicable.
For example, the Emerging Market multi-strat strategy may allocate assets to
the Emerging Markets Select Portfolio and the Developing Markets Portfolio, as
well as certain private investment funds, and other emerging-market related
strategies via separately managed account vehicles. The Emerging Markets Blend
Portfolio invests in securities comprising the Emerging Markets Select and
Developing Markets strategies, which are the same strategies pursued by the
Emerging Markets Select and Developing Markets Portfolios. The Investment
Managers Multi-Strat portfolio management team will allocate assets among the
underlying strategies in its discretion, consistent with the investment
objectives and guidelines associated with the relevant clients account. In making
these allocation decisions, the Multi-Strat portfolio management team will have
access to detailed information related to the underlying strategies that may
not be available to other investors or clients. This includes, but is not
limited to, holdings information, transaction detail, performance information
of the Portfolios and access to the Portfolios portfolio management teams. The
Investment Manager has implemented procedures designed to ensure that the
Multi-Strat portfolio management team does not trade in a way that
disadvantages other investors in an underlying Portfolio.
Disclosure of portfolio holdings information may be authorized only by the Funds Chief Compliance Officer or the General Counsel of the Investment Manager, each of whom evaluates such disclosure in light of the best interests of Portfolio shareholders and any potential conflicts of interest. The service providers that receive portfolio holdings information from the Fund as described above, and any additions to this list of service providers, are reported to the Funds Board for its review. Any exceptions to the Funds portfolio holdings disclosure policy are reported to the Board.
23
Each Portfolios 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 Portfolios outstanding voting shares. In addition, each Portfolio (except as noted) has adopted investment restrictions numbered 1 through 9 as fundamental policies. However, the amendment of these restrictions to add an additional Portfolio, which amendment does not substantively affect the restrictions with respect to an existing Portfolio, will not require approval as described in the first sentence. Investment restrictions numbered 10 through 15 are not fundamental policies and may be changed, as to a Portfolio, by vote of a majority of the Funds Board at any time.
Under
normal circumstances, each of the following Portfolios will invest at least 80%
of its net assets, plus any borrowings for investment purposes, as follows (or
other investments with similar economic characteristics): (i) Equity Value and
Strategic Equityequity securities of U.S. companies; (ii) Mid Cap
Portfolioequity securities of medium-size U.S. companies; (iii) Small-Mid Cap
Portfolioequity securities of small-mid cap U.S. companies; (iv) International
Equity, International Equity Select and International Strategic
Portfoliosequity securities; (v) International Small Cap Portfolioequity
securities of small cap companies; (vi) Global Listed Infrastructure
Portfolioequity securities of infrastructure companies; (vii) Emerging Markets, Emerging Markets Select, Developing
Markets and Emerging Markets Blend Portfoliosequity securities of companies
whose principal business activities are located in emerging market countries as
defined in the Prospectus; and (viii) High Yield Portfoliobonds and other
fixed-income securities of U.S. companies rated, at the time of purchase, below
investment grade by S&P or Moodys and as low as the lowest rating assigned
by S&P or Moodys, or the unrated equivalent as determined by the
Investment Manager. Each of these Portfolios has adopted a policy to provide
its shareholders with at least 60 days prior notice of any change with respect
to its 80% policy.
None of the Portfolios may:
|
|
1. |
issue senior securities, borrow money or pledge or mortgage its assets, except that (A) each Portfolio may borrow from banks for temporary purposes, including the meeting of redemption requests which might require the untimely disposition of securities, as described in the Prospectus and (B) each of Equity Value, Strategic Equity, Mid Cap, International Equity Select, International Strategic, International Small Cap, Global Listed Infrastructure, Emerging Markets, Emerging Markets Select, Developing Markets, Emerging Markets Blend, High Yield and Capital Allocator Portfolios also may borrow money to the extent permitted under the 1940 Act; provided, however, that the Portfolio will not make new investments to the extent borrowings exceed 5% of its total assets, except for borrowings covered within the interpretations of Sections 18(f) of the 1940 Act. For purposes of this investment restriction, a Portfolios entry into options, forward contracts, futures contracts, including those related to indexes, shall not constitute borrowing; |
|
|
2. |
make loans, except loans of portfolio securities not having a value in excess of 33⅓% of a Portfolios total assets and except that each Portfolio may purchase debt obligations in accordance with its investment objectives and policies; |
|
|
3. |
for all Portfolios except Equity Value, Strategic Equity, Mid Cap, International Equity Select, International Strategic, Global Listed Infrastructure, Emerging Markets Select, Developing Markets, Emerging Markets Blend, High Yield and Capital Allocator Portfolios, invest in illiquid securities as defined in Certain Portfolio SecuritiesIlliquid Securities if immediately after such investment more than 10% of the value of the Portfolios net assets, taken at market value, |
24
|
|
|
would be invested in such securities; |
|
|
4. |
for Small-Mid Cap and International Equity Portfolios, (A) purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization; and (B) Small-Mid Cap and International Equity Portfolios may purchase securities in an amount up to 5% of the value of the Portfolios total assets in any one closed-end fund and may purchase in the aggregate securities of closed-end funds in an amount of up to 10% of the value of the Portfolios total assets; |
|
|
5. |
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 Portfolios investments in that industry would exceed 25% of the current value of such Portfolios total assets (except that the Global Listed Infrastructure Portfolio will invest over 25% of its assets in industries represented by infrastructure companies), provided that there is no limitation with respect to investments in obligations of the U.S. Government, its agencies or instrumentalities; |
|
|
6. |
(A) purchase or sell real estate or real estate limited partnerships, except that a Portfolio may purchase and sell securities of companies which deal in real estate or interests therein and Equity Value, Strategic Equity, Mid Cap, International Equity Select, International Strategic, International Small Cap, Global Listed Infrastructure, Emerging Markets, Emerging Markets Select, Developing Markets, Emerging Markets Blend, High Yield and Capital Allocator Portfolios also may purchase and sell securities that are secured by real estate; (B) purchase or sell commodities or commodity contracts (except that Equity Value, Strategic Equity, Mid Cap, International Equity Select, International Strategic, International Small Cap, Global Listed Infrastructure, Emerging Markets, Emerging Markets Select, Developing Markets, Emerging Markets Blend, High Yield and Capital Allocator Portfolios may purchase and sell swaps, options, forward contracts, futures contracts, including those relating to indices, and options on futures contracts or indices, and Equity Value, Strategic Equity, Mid Cap, International Equity, International Equity Select, International Strategic, High Yield and Capital Allocator Portfolios may purchase or sell foreign currency forward exchange contracts); and (C) for all Portfolios except Equity Value, Strategic Equity, Mid Cap, International Equity Select, International Strategic, Global Listed Infrastructure, Emerging Markets Select, Developing Markets, Emerging Markets Blend, High Yield and Capital Allocator Portfolios, invest in interests in or leases relating to oil, gas, or other mineral exploration or development programs; |
|
|
7. |
purchase securities on margin (except for short-term credits necessary for the clearance of transactions) or, except for Equity Value, Strategic Equity, Mid Cap, International Equity Select, International Strategic, Global Listed Infrastructure, Emerging Markets Select, Developing Markets, Emerging Markets Blend, High Yield and Capital Allocator Portfolios, make short sales of securities; |
|
|
8. |
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 Portfolios investment program may be deemed to be an underwriting; |
|
|
9. |
for Small-Mid Cap and International Equity Portfolios, make investments for the purpose of exercising control or management; |
* * *
|
|
10. |
for all Portfolios other than Small-Mid Cap and International Equity Portfolios, pledge, |
25
|
|
|
hypothecate, mortgage or otherwise encumber its assets other than to secure permitted borrowings; |
|
|
11. |
for Equity Value, Strategic Equity, Mid Cap, International Equity Select, International Strategic, Global Listed Infrastructure, Emerging Markets Select, Developing Markets, Emerging Markets Blend, High Yield and Capital Allocator Portfolios, invest in illiquid securities as defined in Certain Portfolio SecuritiesIlliquid Securities if immediately after such investment more than 15% of the value of the Portfolios net assets would be invested in such securities; |
|
|
12. |
for all Portfolios other than Small-Mid Cap and International Equity Portfolios, purchase securities of other investment companies, except to the extent permitted under the 1940 Act; |
|
|
13. |
for Equity Value, Strategic Equity, Mid Cap, International Equity Select, International Strategic, Global Listed Infrastructure, Emerging Markets Select, Developing Markets, Emerging Markets Blend, High Yield and Capital Allocator Portfolios, invest in interests in or leases relating to oil, gas, or other mineral exploration or development programs; |
|
|
14. |
for International Equity Select Portfolio, make short sales of securities; or |
|
|
15. |
for International Small Cap and Emerging Markets Portfolios, make investments for the purpose of exercising control or management. |
* * *
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. With respect to Investment
Restriction No. 1, however, if borrowings exceed 33⅓% of the value of a
Portfolios total assets as a result of a change in values or assets, the
Portfolio must take steps to reduce such borrowings at least to the extent of
such excess within three business days.
Boards Oversight Role; Board Composition and Structure
The
Boards role in management of the Fund is oversight. As is the case with
virtually all investment companies (as distinguished from operating companies),
service providers to the Fund, primarily the Investment Manager and its
affiliates, have responsibility for the day-to-day management of the
Portfolios, which includes responsibility for risk management (including
management of investment performance and investment risk, valuation risk,
issuer and counterparty credit risk, compliance risk and operational risk). As
part of its oversight, the Board, or its committees or delegates, interacts
with and receives reports from senior personnel of service providers, including
senior investment personnel of the Investment Manager, the Funds and the
Investment Managers Chief Compliance Officer and portfolio management
personnel with responsibility for management of the Portfolios. The Boards
Audit Committee (which consist of all of the Independent Directors) meets
during its scheduled meetings with, and between meetings have access to, the
Funds independent registered public accounting firm and the Funds Treasurer.
The Board also receives periodic presentations from senior personnel of the
Investment Manager or its affiliates regarding risk management generally, as
well as periodic presentations regarding specific operational, compliance or
investment areas such as trading and brokerage allocation and execution,
investment research and internal audit. The Board also receives reports from
counsel regarding regulatory compliance and governance matters. The Board has
adopted policies and procedures designed to address certain risks to the
Portfolios. In addition, the Investment Manager and other service
26
providers to
the Fund have adopted a variety of policies, procedures and controls designed
to address particular risks to the Portfolios. However, it is not possible to
eliminate all of the risks applicable to the Portfolios. The Boards oversight
role does not make the Board a guarantor of the Portfolios investments or
activities.
The 1940 Act requires that at least 40% of the Funds Directors be Independent Directors and as such are not affiliated with the Investment Manager. To rely on certain exemptive rules under the 1940 Act, a majority of the Funds Directors must be Independent Directors, and for certain important matters, such as the approval of investment advisory agreements or transactions with affiliates, the 1940 Act or the rules thereunder require the approval of a majority of the Independent Directors. Currently, 75% of the Funds Directors are Independent Directors. The Board does not have a Chairman, but the Independent Directors have designated a lead Independent Director who chairs meetings or executive sessions of the Independent Directors, reviews and comments on Board meeting agendas and facilitates communication among the Independent Directors, their counsel and management. The Board has determined that its leadership structure, in which the Independent Directors have designated a lead Independent Director to function as described above, is appropriate in light of the services that the Investment Manager and its affiliates provide to the Fund and potential conflicts of interest that could arise from these relationships.
Directors and Officers
Set forth in the chart below are the names and certain biographical and other information for each Director. Following the chart is additional information about the Directors experience, qualifications, attributes or skills.
|
|
|
|
|
Name (Age) |
|
Position(s) with the Fund |
|
Principal Occupation(s) and Other Public |
|
|
|
|
|
Non-Interested Directors: |
|
|
|
|
|
|
|
|
|
Kenneth S. Davidson (65) |
|
Director |
|
Davidson Capital Management Corporation, President (1978 present) |
|
|
|
|
|
|
|
|
|
Aquiline Holdings LLC, Partner (2006 present) |
|
|
|
|
|
Nancy A. Eckl (47) |
|
Director |
|
American Beacon Advisors, Inc. (American Beacon) and certain funds advised by American Beacon, Vice President (1990 2006) |
|
|
|
|
|
|
|
|
|
College Retirement Equities Fund (eight accounts), Trustee (2007 present) |
|
|
|
|
|
|
|
|
|
TIAA-CREF Funds (47 funds) and TIAA-CREF Life Funds (10 funds), Trustee (2007 present) |
|
|
|
|
|
|
|
|
|
TIAA Separate Account VA-1, Member of the Management Committee (2007 present) |
|
|
|
|
|
Lester Z. Lieberman (79) |
|
Director |
|
Private Investor |
27
|
|
|
|
|
Name (Age) |
|
Position(s) with the Fund |
|
Principal Occupation(s) and Other Public |
|
|
|
|
|
Leon M. Pollack (69) |
|
Director |
|
Private Investor |
|
|
|
|
|
Richard Reiss, Jr. (66) |
|
Director |
|
Georgica Advisors LLC, an investment manager, Chairman (1997 present) |
|
|
|
|
|
|
|
|
|
OCharleys, Inc., a restaurant chain, Director (1984 present) |
|
|
|
|
|
Robert M. Solmson (62) |
|
Director |
|
Fairwood Capital, LLC, a private investment corporation engaged primarily in real estate and hotel investments, President (2008 present) |
|
|
|
|
|
Interested Directors(3): |
|
|
|
|
|
|
|
|
|
Charles L. Carroll (49) |
|
Chief
Executive Officer, |
|
Investment Manager, Deputy Chairman and Head of Global Marketing (2004 present) |
|
|
|
|
|
Ashish Bhutani (49) |
|
Director |
|
Investment Manager, Chief Executive Officer (2004 present) |
|
|
|
|
|
|
|
|
|
Lazard Ltd, Vice Chairman (2010 present) |
|
|
(1) |
The address of each Director is Lazard Asset Management LLC, 30 Rockefeller Plaza, New York, New York 10112-6300. |
|
|
(2) |
Each Director also serves as a Director of Lazard Retirement Series, Inc., an open-end registered management investment company, and Lazard Global Total Return and Income Fund, Inc. and Lazard World Dividend & Income Fund, Inc., closed-end registered management investment companies (collectively with the Fund, the Lazard Funds, in total comprised of 21 investment portfolios). Each Director serves an indefinite term, until his or her successor is elected, and each Director serves in the same capacity for the other Lazard Funds. All of the Independent Directors, except Mr. Lieberman, are also board members of Lazard Alternative Strategies Fund, L.L.C., a privately-offered fund registered under the 1940 Act and advised by an affiliate of the Investment Manager. |
|
|
(3) |
Messrs. Bhutani and Carroll are interested persons (as defined in the 1940 Act) of the Fund because of their positions with the Investment Manager. |
Additional
information about each Director follows (supplementing the information provided
in the chart above), which describes some of the specific experiences,
qualifications, attributes or skills that each Director possesses which the
Board believes has prepared them to be effective Directors. The Board believes
that the significance of each Directors experience, qualifications, attributes
or skills is an individual matter (meaning that experience that is important
for one Director may not have the same value for another) and that these
factors are best evaluated at the Board level, with no single Director, or
particular factor, being indicative of Board effectiveness. However, the Board
believes that Directors need to have the ability to critically review,
evaluate, question and discuss information provided to them, and to interact
effectively with Fund management, service providers and counsel, in order to
exercise effective business judgment in the performance of their duties; the
Board believes that its members satisfy this standard. Experience relevant to
having this ability may be achieved through a Directors educational
background; business, professional training or practice (e.g., accounting or law), public service
or academic positions; experience from service as a board member (including the
Board of the Fund) or as an executive of investment funds, public companies or
significant private or not-for-profit entities or other
28
|
|
|
organizations; and/or other life experiences. The charter for the Boards Nominating Committee contains certain other factors considered by the Committee in identifying potential Director nominees. To assist them in evaluating matters under federal and state law, the Independent Directors are counseled by their own independent legal counsel, who participates in Board meetings and interacts with the Investment Manager; Fund and independent legal counsel to the Independent Directors has significant experience advising funds and fund board members. The Board and its committees have the ability to engage other experts as appropriate. The Board evaluates its performance on an annual basis. |
||
|
||
|
|
Charles L. Carroll is Deputy Chairman of the Investment Manager and Head of Global Marketing, responsible for oversight of the Investment Managers global marketing efforts in the Institutional, Financial Institutions, and Private Client arenas. Additionally, he serves as Chief Executive Officer, President and Director of the other Lazard Funds. Mr. Carroll joined Lazard in 1993 as Senior Vice President responsible for marketing Lazard investment solutions to financial institutions worldwide. Mr. Carroll is a member of the firms Global Management and Investment Oversight Committees. He entered the investment field in 1987, joining Shearson Asset Management in New York City as Vice President and National Product Manager. Mr. Carroll later served as First Vice President and Consulting Services Director with Shearson Lehman Brothers. Mr. Carroll attended the University of Utah and currently sits on the Board of Trustees for the Williston Northampton School. |
|
|
|
|
|
Ashish Bhutani is the Chief Executive Officer of the Investment Manager, where from June 2003 to March 2004 he served as Head of New Products and Strategic Planning. Mr. Bhutani also serves as a Vice Chairman on the Board of Directors of Lazard Ltd. Prior to joining Lazard in 2003, he was Co-Chief Executive Officer North America of Dresdner Kleinwort Wasserstein from 2001 through 2002, and was a member of its Global Corporate and Markets Board, and its Global Executive Committee. Prior to that, Mr. Bhutani was with Wasserstein Perella Group (the predecessor firm) from 1989 to 2001, where he was Deputy Chairman of Wasserstein Perella Group and Chief Executive Officer of Wasserstein Perella Securities. Mr. Bhutani began his career at Salomon Brothers in 1985 as a Vice President in the fixed income group. |
|
|
|
|
|
Kenneth S. Davidson is a founding member of Aquiline Holdings LLC, a New York-based global investment firm. From 1977 through 1995, Mr. Davidson was the founder and managing partner of Davidson Weil Associates, and was previously a vice president and senior portfolio manager at Oppenheimer Capital Corporation. He also serves on the boards of several prominent non-profit organizations. Mr. Davidson is a graduate of Colgate University. |
|
|
|
|
|
Nancy A. Eckl has over 20 years of experience working in the mutual fund/investment management field in a wide range of capacities, including investment manager selection/oversight, accounting, compliance and operations. From 1990 to 2006, Ms. Eckl was Vice President of American Beacon Advisors, Inc., an investment management firm, and of the American Beacon Funds (open-end mutual funds). Ms. Eckl also served as Vice President of certain other funds advised by American Beacon Advisors. Ms. Eckl graduated from the University of Notre Dame and is a Certified Public Accountant. |
|
|
|
|
|
Lester Z. Lieberman is Chairman of the Healthcare Foundation of New Jersey, an independent, endowed grant-making organization. He retired as the chief executive at Clarkson Industries, Inc., a publicly-held manufacturing company. Prior to joining Clarkson Industries, he founded Atmos Engineering Co., which was later sold to Clarkson Industries. Mr. Lieberman serves on the boards of a number of established non-profit organizations. He is a graduate of the Newark College of Engineering, and he has received honorary degrees |
29
|
|
|
|
|
from Clarkson University and the University of Medicine and Dentistry of New Jersey. |
|
|
|
|
|
Leon M. Pollack spent 33 years in the financial community, the last 13 as a managing director of the investment firm of Donaldson, Lufkin & Jenrette. Mr. Pollack also is a board member of non-profit organizations. Mr. Pollack received his bachelors degree in history from Adelphi Universitys College of Arts and Sciences and earned an MA in education from New York University. |
|
|
|
|
|
Richard Reiss, Jr. is the founder and Chairman of Georgica Advisors LLC and its affiliated entities, Reiss Capital Management and Value Insight Partners. Previously, Mr. Reiss was Managing Partner of Cumberland Associates and its three investment funds and a Senior Vice President and Director of Research at Shearson Lehman Brothers. Mr. Reiss has served on the boards of a number of companies and non-profit organizations. He received an AB, cum laude, from Dartmouth College and a JD from New York University School of Law. |
|
|
|
|
|
Robert M. Solmson is the former Chairman and Chief Executive Officer of RFS Hotel Investors, a real estate investment trust which he formed in 1993. He also served as its President. |
Set forth below is the name and certain biographical and other information for the Funds officers (in addition to Mr. Carroll).
|
|
|
|
|
Name (Age) |
|
Position(s) with the Fund |
|
Principal Occupation(s) During the Past |
|
|
|
|
|
Nathan A. Paul (37) |
|
Vice
President and |
|
Managing Director and General Counsel of the Investment Manager |
|
|
|
|
|
Stephen St. Clair (51) |
|
Treasurer |
|
Vice President of the Investment Manager |
|
|
|
|
|
Brian D. Simon (47) |
|
Chief
Compliance Officer |
|
Director (since January 2006) and Chief Compliance Officer (since January 2009); and previously Senior Vice President (2002 to 2005) of the Investment Manager |
|
|
|
|
|
Tamar Goldstein (35) |
|
Assistant
Secretary |
|
Vice President (since March 2009) and previously Counsel (October 2006 to February 2009) of the Investment Manager; Associate at Schulte Roth & Zabel LLP, a law firm, from May 2004 to October 2006 |
|
|
|
|
|
Cesar A. Trelles (35) |
|
Assistant
Treasurer |
|
Fund Administration Manager of the Investment Manager |
|
|
(1) |
The address of each officer is Lazard Asset Management LLC, 30 Rockefeller Plaza, New York, New York 10112-6300. |
|
|
(2) |
Each officer serves for an indefinite term, until his or her successor is elected and qualifies or until his or her earlier resignation or removal. Each officer serves in the same capacity for the other Lazard Funds. |
Board Committees, Share Ownership and Compensation
The Fund has standing audit and nominating committees, each comprised of its Directors who are not interested persons of the Fund, as defined in the 1940 Act (Independent Directors).
30
The function of the audit committee is to (1) oversee the Funds accounting and financial reporting processes and the audits of the Funds financial statements, (2) assist in Board oversight of the quality and integrity of the Funds financial statements and the Funds compliance with legal and regulatory requirements relating to accounting, financial reporting, internal control over financial reporting and independent audits, (3) approve engagement of the independent registered public accounting firm and review and evaluate the qualifications, independence and performance of the independent registered public accounting firm and (4) act as a liaison between the Funds independent registered public accounting firm and the Board.
Nominations may be submitted only by a shareholder or group of shareholders that, individually or as a group, has beneficially owned the lesser of (a) 1% of the Funds outstanding shares or (b) $500,000 of the Funds shares for at least one year prior to the date such shareholder or group submits a candidate for nomination. Not more than one nominee for Director may be submitted by such a shareholder or group each calendar year. In evaluating potential nominees, including any nominees recommended by shareholders, the nominating committee takes into consideration the factors listed in the nominating committee charter, including character and integrity, business and professional experience, and whether the committee believes that the person has the ability to apply sound and independent business judgment and would act in the interest of the Fund and its shareholders. A nomination submission must include all information relating to the recommended nominee that is required to be disclosed in solicitations or proxy statements for the election of Directors, as well as information sufficient to evaluate the factors listed above. Nomination submissions must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected by the shareholders, and such additional information must be provided regarding the recommended nominee as reasonably requested by the nominating committee.
The audit committee met three times and the nominating committee did not meet during the fiscal year ended December 31, 2009.
The table below indicates the dollar range of each Directors ownership of Portfolio shares and aggregate holdings of all of the Lazard Funds, in each case as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio |
Ashish |
|
Charles L. |
|
Kenneth S. |
|
Nancy A. |
|
Lester Z. |
|
Leon M. |
|
Richard |
|
Robert M. |
|
Equity Value Portfolio |
None |
|
None |
|
None |
|
$1 - |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Equity Portfolio |
None |
|
None |
|
None |
|
$1 - |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid Cap Portfolio |
None |
|
None |
|
None |
|
$1 - |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small-Mid Cap Portfolio |
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity Portfolio |
None |
|
None |
|
None |
|
$10,001- |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity Select Portfolio |
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Strategic Portfolio |
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Small Cap Portfolio |
None |
|
$10,001- |
|
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Listed Infrastructure Portfolio* |
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio |
Ashish |
|
Charles L. |
|
Kenneth S. |
|
Nancy A. |
|
Lester Z. |
|
Leon M. |
|
Richard |
|
Robert M. |
|
Emerging Markets Portfolio |
None |
|
Over |
|
None |
|
$10,001- |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developing Markets Portfolio |
None |
|
$50,001- |
|
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High Yield Portfolio |
None |
|
Over |
|
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Allocator Portfolio |
None |
|
Over |
|
None |
|
None |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Holdings of all Lazard Funds |
Over |
|
Over |
|
None |
|
$10,001- |
|
None |
|
None |
|
None |
|
None |
|
|
|
* |
Global Listed Infrastructure Portfolio commenced operations on December 31, 2009. |
Emerging
Markets Select Portfolio and Emerging Markets Blend Portfolio will commence
operations in 2010, so no holdings information is provided for these
Portfolios.
As of December 31, 2009, none of the Directors or his or her immediate family members owned securities of the Investment Manager or the Distributor or any person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with the Investment Manager or the Distributor.
Each
Director who is not an affiliated person of the Investment Manager or any of
its affiliates is paid an annual aggregate fee of $60,000, plus $4,000 per
meeting attended in person ($1,500 per meeting attended by telephone) for the
Fund and the other Lazard Funds, and is reimbursed for travel and other out-of-pocket
expenses for attending Board and committee meetings. The Independent Directors
also are paid $1,000 for each committee, subcommittee or other special meetings
not held in conjunction with a Board meeting, as specifically authorized by the
Board and held in connection with delegated Fund business. No additional
compensation is provided in respect of committee meetings held in conjunction
with a meeting of the Board. Compensation is divided among the Lazard Funds
based on relative net assets. The Directors do not receive benefits from the
Fund pursuant to any pension, retirement or similar arrangement. The Chairman
of the Audit Committees of the Boards of the Lazard Funds, Lester Z. Lieberman,
also receives an additional annual fee of $5,000. The aggregate amount of
compensation paid to each Director for the year ended December 31, 2009, was as
follows:
|
|
|
|
|
Director |
|
Aggregate Compensation from the |
|
Total Compensation from |
|
||||
Ashish Bhutani |
|
None |
|
None |
Charles L. Carroll |
|
None |
|
None |
Kenneth S. Davidson |
|
$73,853 |
|
$85,000 |
Nancy A. Eckl |
|
$73,853 |
|
$85,000 |
Lester Z. Lieberman |
|
$77,041 |
|
$87,000 |
Leon M. Pollack |
|
$71,215 |
|
$82,000 |
Richard Reiss, Jr. |
|
$72,353 |
|
$83,500 |
Robert M. Solmson |
|
$73,853 |
|
$85,000 |
The Fund does not compensate officers or Directors who are employees or affiliated persons of the Investment Manager. As of the date of this Statement of Additional Information, the Funds officers and Directors, as a group, owned less than 1% of the shares of each Portfolio.
32
Portfolio Managers
Team Management. Portfolio managers at the Investment Manager manage multiple accounts for a diverse client base, including private clients, institutions and investment funds. The Investment Manager manages all portfolios on a team basis. The team is involved at all levels of the investment process. This team approach allows for every portfolio manager to benefit from his/her peers, and for clients to receive the firms best thinking, not that of a single portfolio manager. The Investment Manager manages all like investment mandates against a model portfolio. Specific client objectives, guidelines or limitations then are applied against the model, and any necessary adjustments are made.
Material Conflicts Related to Management of Similar Accounts. Although the potential for conflicts of interest exist when an investment adviser and portfolio managers manage other accounts that invest in securities in which a Portfolio may invest or that may pursue a strategy similar to one of the Portfolios component strategies (collectively, Similar Accounts), the Investment Manager has procedures in place that are designed to ensure that all accounts are treated fairly and that the Portfolio is not disadvantaged, including procedures regarding trade allocations and conflicting trades (e.g., long and short positions in the same security, as described below). In addition, each Portfolio, as a series of a registered investment company, is subject to different regulations than certain of the Similar Accounts, and, consequently, may not be permitted to engage in all the investment techniques or transactions, or to engage in such techniques or transactions to the same degree, as the Similar Accounts.
Potential conflicts of interest may arise because of the Investment Managers management of a Portfolio and Similar Accounts, including the following:
1. Conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of limited investment opportunities, as the Investment Manager may be perceived as causing accounts it manages to participate in an offering to increase the Investment Managers overall allocation of securities in that offering, or to increase the Investment Managers ability to participate in future offerings by the same underwriter or issuer. Allocations of bunched trades, particularly trade orders that were only partially filled due to limited availability, and allocation of investment opportunities generally, could raise a potential conflict of interest, as the Investment Manager may have an incentive to allocate securities that are expected to increase in value to preferred accounts. Initial public offerings, in particular, are frequently of very limited availability. A potential conflict of interest may be perceived to arise if transactions in one account closely follow related transactions in a different account, such as when a purchase increases the value of securities previously purchased by the other account, or when a sale in one account lowers the sale price received in a sale by a second account. These potential allocation and trading conflicts are relevant primarily for all portfolio managers of the Portfolios focusing on small capitalization companies, whose shares tend to have more limited and volatile trading than those of companies with larger market capitalizations (Small-Mid Cap and International Small Cap Portfolios).
2.
Portfolio managers may be perceived to have a conflict of interest because of
the large number of Similar Accounts, in addition to the Portfolios, that they
are managing on behalf of the Investment Manager. Although the Investment
Manager does not track each individual portfolio managers time dedicated to
each account, the Investment Manager periodically reviews each portfolio
managers overall responsibilities to ensure that he or she is able to allocate
the necessary time and resources to effectively manage a Portfolio. As
illustrated in the table below, all of the portfolio managers of the Portfolios
except Messrs. Charlton, Dzwil, Gillespie and OHare manage a significant
number of Similar Accounts (10 or more) in addition to the Portfolio(s) managed
by them.
3. Generally, the Investment Manager and/or some or all of a Portfolios portfolio managers have
33
investments in Similar Accounts. This could be viewed as creating a potential conflict of interest, since certain of the portfolio managers do not invest in the Portfolios.
4. The portfolio managers noted in footnote (#) to the table below manage Similar Accounts with respect to which the advisory fee is based on the performance of the account, which could give the portfolio managers and the Investment Manger an incentive to favor such Similar Accounts over the corresponding Portfolios. In addition, certain hedge funds managed by the Investment Manager (but not the Portfolios portfolio managers) may also be permitted to sell securities short. When the Investment Manager engages in short sales of securities of the type in which a Portfolio invests, the Investment Manager could be seen as harming the performance of the Portfolio for the benefit of the account engaging in short sales if the short sales cause the market value of the securities to fall. As described above, the Investment Manager has procedures in place to address these conflicts.
Other
Accounts Managed by the Portfolio Managers.
The chart below includes information regarding the members of the portfolio
management teams responsible for managing the Portfolios. Specifically, it
shows the number of other portfolios and assets managed by management teams of
which each Portfolios portfolio manager is a member. Regardless of the number
of accounts, the portfolio management team still manages each account based on
a model portfolio as described above.
|
|
|
|
|
|
|
Portfolio Manager |
|
Registered Investment |
|
Other Pooled Investment |
|
Other Accounts |
Michael A. Bennett# |
|
5 (2.6 billion) |
|
none |
|
264 (9.6 billion) |
Christopher H. Blake# |
|
7 (9.5 billion) |
|
3 (565.9 million) |
|
68 (1.9 billion) |
Gabrielle M. Boyle# |
|
1 (1.8 billion) |
|
1 (12.7 million) |
|
249 (7 billion) |
Daniel Breslin |
|
1 (148.1 million) |
|
1 (6.8 million) |
|
17 (116.5 million) |
J. William Charlton and |
|
none |
|
2 (36.5 million) |
|
5 (211.2 million) |
Rohit Chopra# |
|
5 (1.7 billion) |
|
94 (7 billion) |
|
13 (4.2 billion) |
David R. Cleary |
|
2 (2.7 million) |
|
2 (8.9 million) |
|
330 (425.8 million) |
Adam Cohen# |
|
1 (1.8 billion) |
|
1 (12.7 million) |
|
249 (7 billion) |
James M. Donald# |
|
6 (3.5 billion) |
|
14 (4.2 billion) |
|
142 (8 billion) |
Robert A. Failla# |
|
7 (9.5 billion) |
|
6 (724.6 million) |
|
80 (3.5 billion) |
Michael G. Fry |
|
4 (816 million) |
|
3 (158.7 million) |
|
34 (4.3 billion) |
Peter Gillespie |
|
none |
|
2 (63.4 million) |
|
2 (1.1 million) |
Jai Jacob |
|
none |
|
4 (158.2 million) |
|
9 (11.1 million) |
Robin O. Jones |
|
none |
|
none |
|
35 (1.7 billion) |
Andrew D. Lacey# |
|
7 (9.5 billion) |
|
7 (697.7 million) |
|
237 (4.7 billion) |
Mark Little |
|
none |
|
none |
|
35 (1.7 billion) |
Erik McKee# |
|
5 (1.7 billion) |
|
13 (4.2 billion) |
|
94 (7 billion) |
John Mulquiney |
|
none |
|
7 (601.8 million) |
|
8 (1.5 billion) |
Kevin OHare |
|
none |
|
2 (63.4 million) |
|
2 (1.1 million) |
Brian Pessin# |
|
none |
|
6 (734.6 million) |
|
47 (2.2 billion) |
Michael Powers# |
|
5 (2.6 billion) |
|
1 (12.7 million) |
|
271 (9.7 billion) |
John R. Reinsberg# |
|
4 (816 million) |
|
4 (102.6 million) |
|
59 (4.3 billion) |
Warryn Robertson |
|
none |
|
7 (601.8 million) |
|
8 (1.5 billion) |
34
|
|
|
|
|
|
|
Portfolio Manager |
|
Registered Investment |
|
Other Pooled Investment |
|
Other Accounts |
Edward Rosenfeld# |
|
none |
|
6 (734.6 million) |
|
12 (553.8 million) |
Nicholas Sordoni |
|
none |
|
1 (26.5 million) |
|
16 (713.5 million) |
Ronald Temple# |
|
3 (6.8 billion) |
|
4 (592.5 million) |
|
185 (2.6 billion) |
J. Richard Tutino |
|
none |
|
1 (26.5 million) |
|
158 (1.2 billion) |
|
|
|
|
* |
Total assets in accounts as of December 31, 2009, unless otherwise indicated. |
||
|
|||
# |
None of the portfolio managers, except as follows, manage any accounts with respect to which the advisory fee is based on the performance of the account: |
||
|
(1) |
Messrs. Bennett, Cohen and Powers and Ms. Boyle manage one registered investment company with assets under management of approximately $1.8 billion. |
|
|
(2) |
Mr. Donald manages one registered investment company and four other accounts with assets under management of approximately $1.8 billion and $1.2 billion, respectively. |
|
|
(3) |
Messrs. Blake, Failla and Lacey manage one registered investment company with assets under management of approximately $6.3 billion. |
|
|
(4) |
Messrs. Chopra, Donald and McKee manage four other accounts with assets under management of approximately $1.2 billion. |
|
|
(5) |
Mr. Pessin manages one other pooled investment vehicle and one other account with assets under management of approximately $69.6 million and $218.4 million, respectively. |
|
|
(6) |
Mr. Reinsberg manages four other pooled investment vehicles with assets under management of approximately $102.6 million. |
|
|
(7) |
Mr. Rosenfeld manages one other pooled investment vehicle and one other account with assets under management of approximately $69.6 million and $218.4 million, respectively. |
|
|
(8) |
Mr. Temple manages one registered investment company with assets under management of approximately $6.3 billion. |
|
## |
Includes an aggregation of any Similar Accounts within managed account programs where the third party program sponsor is responsible for applying specific client objectives, guidelines and limitations against the model portfolio managed by the portfolio management team. |
Compensation for Portfolio Managers. The Investment Managers portfolio managers are generally responsible for managing multiple types of accounts that may, or may not, invest in securities in which the Fund may invest or pursue a strategy similar to a Portfolios strategies. Portfolio managers responsible for managing the Portfolios may also manage sub-advised registered investment companies, collective investment trusts, unregistered funds and/or other pooled investment vehicles, separate accounts, separately managed account programs (often referred to as wrap accounts) and model portfolios.
The Investment Manager compensates portfolio managers by a competitive salary and bonus structure, which is determined both quantitatively and qualitatively. Salary and bonus are paid in cash and stock. Portfolio managers are compensated on the performance of the aggregate group of portfolios managed by the teams of which they are a member rather than for a specific fund or account. Various factors are considered in the determination of a portfolio managers compensation. All of the portfolios managed by a portfolio manager are comprehensively evaluated to determine his or her positive and consistent performance contribution over time. Further factors include the amount of assets in the portfolios as well as qualitative aspects that reinforce the Investment Managers investment philosophy.
Total compensation is generally not fixed, but rather is based on the following factors: (i) leadership, teamwork and commitment, (ii) maintenance of current knowledge and opinions on companies owned in the portfolio; (iii) generation and development of new investment ideas, including the quality of security analysis and identification of appreciation catalysts; (iv) ability and willingness to develop and share ideas on a team basis; and (v) the performance results of the portfolios managed by the investment teams of which the portfolio manager is a member.
35
Variable bonus is based on the portfolio managers quantitative performance as measured by his or her ability to make investment decisions that contribute to the pre-tax absolute and relative returns of the accounts managed by the teams of which the portfolio manager is a member, by comparison of each account to a predetermined benchmark (as set forth in the prospectus or other governing document) over the current fiscal year and the longer-term performance (3-, 5- or 10-year, if applicable) of such account, as well as performance of the account relative to peers. The variable bonus for each Portfolios portfolio management team in respect of its management of the Portfolio is determined by reference to the corresponding indices listed below. The portfolio managers bonus also can be influenced by subjective measurement of the managers ability to help others make investment decisions.
|
|
|
|
|
Portfolio |
|
|
Index |
|
|
|
|
||
Equity Value Portfolio |
|
Russell 1000® Value Index |
||
Strategic Equity Portfolio |
|
S&P 500® Index |
||
Mid Cap Portfolio |
|
Russell Midcap® Index |
||
Small-Mid Cap Portfolio |
|
Russell 2500® Index |
||
International Equity Portfolio |
|
MSCI Europe, Australasia and Far East (EAFE®) Index |
||
International Equity Select Portfolio |
|
MSCI EAFE Index |
||
International Strategic Portfolio |
|
MSCI EAFE Index |
||
International Small Cap Portfolio |
|
MSCI EAFE Small Cap Index |
||
Global Listed Infrastructure Portfolio |
|
UBS Global 50/50 Infrastructure & Utilities Index |
||
Emerging Markets Portfolio |
|
MSCI Emerging Markets Index |
||
Emerging Markets Select Portfolio |
|
MSCI Emerging Markets Index |
||
Developing Markets Portfolio |
|
MSCI Emerging Markets Index |
||
Emerging Markets Blend Portfolio |
|
MSCI Emerging Markets Index |
||
High Yield Portfolio |
|
Merrill Lynch High Yield Master II® Index |
||
Capital Allocator Portfolio |
|
MSCI World Index |
In addition, effective May 4, 2005, the Lazard Ltd 2005 Equity Incentive Plan was adopted and approved by the Board of Directors of Lazard Ltd. The purpose of this plan is to give the company a competitive advantage in attracting, retaining and motivating officers, employees, directors, advisors and/or consultants and to provide the company and its subsidiaries and affiliates with a stock plan providing incentives directly linked to shareholder value.
Ownership of Securities. As of December 31, 2009, except as noted, the portfolio managers owned the following shares of the Portfolios:
|
|
|
|
Portfolio/Portfolio Manager |
|
Market Value of Shares |
|
|
|||
|
|
|
|
Equity Value Portfolio |
|
|
|
|
Andrew D. Lacey |
|
$100,001-$500,000 |
|
Nicholas Sordoni |
|
$10,001-$50,000 |
|
Ronald Temple |
|
$10,001-$50,000 |
|
J. Richard Tutino |
|
$10,001-$50,000 |
|
|
|
|
Strategic Equity Portfolio |
|
|
|
|
Christopher H. Blake |
|
$10,001-$50,000 |
|
Robert A. Failla |
|
$50,001-$100,000 |
|
Andrew D. Lacey |
|
$100,001-$500,000 |
|
Ronald Temple |
|
$50,001-$100,000 |
|
|
|
|
Mid Cap Portfolio |
|
|
|
|
Christopher H. Blake |
|
$10,001-$50,000 |
|
Robert A. Failla |
|
None |
36
|
|
|
|
Portfolio/Portfolio Manager |
|
Market Value of Shares |
|
|
|||
|
|
|
|
|
Andrew D. Lacey |
|
$100,001-$500,000 |
|
|
|
|
Small-Mid Cap Portfolio |
|
|
|
|
Daniel Breslin |
|
None |
|
Andrew D. Lacey |
|
$50,001-$100,000 |
International Equity Portfolio |
|
|
|
|
Michael A. Bennett |
|
$100,001-$500,000 |
|
Michael G. Fry |
|
None |
|
Michael Powers |
|
$50,001-$100,000 |
|
John R. Reinsberg |
|
$100,001-$500,000 |
|
|
|
|
International Equity Select Portfolio |
|
|
|
|
Michael A. Bennett |
|
$100,001-$500,000 |
|
Gabrielle M. Boyle |
|
None |
|
Adam Cohen |
|
None |
|
Michael Powers |
|
$50,001-$100,000 |
|
John R. Reinsberg |
|
None |
|
|
|
|
International Strategic Portfolio |
|
|
|
|
Michael A. Bennett |
|
$10,001-$50,000 |
|
Robin O. Jones |
|
None |
|
Mark Little |
|
None |
|
Brian Pessin |
|
None |
|
John R. Reinsberg |
|
None |
|
|
|
|
International Small Cap Portfolio |
|
|
|
|
Brian Pessin |
|
$100,001-$500,000 |
|
John R. Reinsberg |
|
$100,001-$500,000 |
|
Edward Rosenfeld |
|
$1-$10,000 |
|
|
|
|
Global Listed Infrastructure Portfolio |
|
|
|
|
John Mulquiney* |
|
None |
|
Warryn Robertson* |
|
None |
|
|
|
|
Emerging Markets Portfolio |
|
|
|
|
Rohit Chopra |
|
$10,001-$50,000 |
|
James M. Donald |
|
$500,001-$1,000,000 |
|
Erik McKee |
|
$50,001-$100,000 |
|
John R. Reinsberg |
|
$500,001-$1,000,000 |
|
|
|
|
Developing Markets Portfolio |
|
|
|
|
James M. Donald |
|
$500,001-$1,000,000 |
|
Peter Gillespie |
|
$10,001-$50,000 |
|
Kevin OHare |
|
$100,001-$500,000 |
|
John R. Reinsberg |
|
$100,001-$500,000 |
|
|
|
|
High Yield Portfolio |
|
|
|
|
J. William Charlton |
|
$100,001-$500,000 |
|
Thomas M. Dzwil |
|
None |
|
|
|
|
Capital Allocator Portfolio |
|
|
|
|
David R. Cleary |
|
$500,001-$1,000,000 |
|
Christopher Komosa |
|
$10,001-$50,000 |
|
|
37
|
|
* |
Global Listed Infrastructure Portfolio commenced operations on December 31, 2009. |
Emerging Markets Select Portfolio and Emerging Markets Blend Portfolio will commence operations in 2010, so no ownership information is provided for these Portfolios.
Investment Manager and Investment Management Agreements
The Investment Manager, located at 30 Rockefeller Plaza, New York, NY 10112-6300, has entered into an investment management agreement (the Management Agreement) with the Fund on behalf of the Portfolios. Pursuant to the Management Agreement, the Investment Manager regularly provides each Portfolio with investment research, advice and supervision and furnishes continuously an investment program for each Portfolio consistent with its investment objective and policies, including the purchase, retention and disposition of securities.
The Investment Manager, a wholly-owned subsidiary of Lazard, is registered as an investment adviser with the SEC. The Investment Manager provides day-to-day management of the Portfolios investments and assists in the overall management of the Funds affairs. Its clients are both individuals and institutions, some of whose accounts have investment policies similar to those of several of the Portfolios.
The Fund, the Investment Manager and the Distributor each have adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act that permits its personnel, subject to such Code of Ethics, to invest in securities, including securities that may be purchased or held by a Portfolio. The Codes of Ethics restrict the personal securities transactions of employees and require portfolio managers and other investment personnel to comply with the preclearance and disclosure procedures. The primary purpose of the Codes of Ethics is to ensure that personal trading by employees does not disadvantage any 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 Portfolios such of the Investment Managers members, officers and employees as are reasonably necessary for the operations of each Portfolio, or as may be duly elected officers or directors of the Fund. Under the Management Agreement, the Investment Manager also pays each Portfolios office rent and provides investment advisory research and statistical facilities and all clerical services relating to research, statistical and investment work. The Investment Manager, including its employees who serve the Portfolios, may render investment advice, management and other services to other clients.
As compensation for its services, the Fund has agreed to pay the Investment Manager an investment management fee, accrued daily and payable monthly, at the annual rates set forth below as a percentage of the average daily net asset value of the relevant Portfolio:
|
|
|
|
|
Portfolio |
|
Management Fee Rate |
|
|
|
|
|||
Equity Value Portfolio |
|
.75 |
% |
|
Strategic Equity Portfolio |
|
.75 |
|
|
Mid Cap Portfolio |
|
.75 |
|
|
Small-Mid Cap Portfolio |
|
.75 |
|
|
International Equity Portfolio |
|
.75 |
|
|
International Equity Select Portfolio |
|
.85 |
|
|
International Strategic Portfolio |
|
.75 |
|
|
International Small Cap Portfolio |
|
.75 |
|
|
Global Listed Infrastructure Portfolio |
|
.90 |
|
|
Emerging Markets Portfolio |
|
1.00 |
|
|
Emerging Markets Select Portfolio |
|
1.00 |
|
|
Developing Markets Portfolio |
|
1.00 |
|
|
Emerging Markets Blend Portfolio |
|
1.05 |
|
|
High Yield Portfolio |
|
.55 |
|
|
Capital Allocator Portfolio |
|
1.00 |
|
|
38
Through April 30, 2011 (except as noted), the Investment Manager has agreed to waive its management fees and, if necessary, reimburse the Portfolio, to the extent Total Annual Portfolio Operating Expenses exceed the percentage of the value of the Portfolios average daily net assets set forth opposite the Portfolios name, exclusive of taxes, brokerage, interest on borrowings, fees and expenses of Acquired Funds (investments in other investment companies) and extraordinary expenses, and excluding shareholder redemption fees or other transaction fees:
|
|
|
|
|
|
|
|
|
|
Maximum Total Portfolio Operating Expenses |
|
||||
|
|
|
|
||||
|
|
|
|
||||
Portfolio |
|
Institutional Shares |
|
Open Shares |
|
||
|
|
|
|||||
Equity Value Portfolio* |
|
1.00 |
% |
|
1.30 |
% |
|
Strategic Equity Portfolio |
|
1.05 |
|
|
1.35 |
|
|
Mid Cap Portfolio |
|
1.05 |
|
|
1.35 |
|
|
Small-Mid Cap Portfolio |
|
1.15 |
|
|
1.45 |
|
|
International Equity Portfolio |
|
1.05 |
|
|
1.35 |
|
|
International Equity Select Portfolio |
|
1.15 |
|
|
1.45 |
|
|
International Strategic Portfolio |
|
1.15 |
|
|
1.45 |
|
|
International Small Cap Portfolio |
|
1.13 |
|
|
1.43 |
|
|
Global Listed Infrastructure Portfolio |
|
1.30 |
|
|
1.60 |
|
|
Emerging Markets Portfolio |
|
1.30 |
|
|
1.60 |
|
|
Emerging Markets Select Portfolio |
|
1.30 |
|
|
1.60 |
|
|
Developing Markets Portfolio |
|
1.30 |
|
|
1.60 |
|
|
Emerging Markets Blend Portfolio |
|
1.35 |
|
|
1.65 |
|
|
High Yield Portfolio |
|
.55 |
|
|
.85 |
|
|
Capital Allocator Portfolio** |
|
1.02 |
|
|
1.32 |
|
|
|
|
* |
This agreement continues in effect from May 1, 2011 through April 30, 2020, at levels of 1.10% and 1.40% of the average daily net assets of the Portfolios Institutional Shares and Open Shares, respectively. |
** |
The addition of Acquired Fund Fees and Expenses will cause Total Annual Portfolio Operating Expenses After Fee Waiver and Expense Reimbursement to exceed the maximum amounts of 1.02% and 1.32% for Institutional Shares and Open Shares, respectively. |
For the fiscal years ended December 31, 2007, 2008 and 2009, the management fees payable by each Portfolio, the amounts waived (and reimbursed), by the Investment Manager and the net fees paid to the Investment Manager were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio |
|
Fee Payable For Fiscal |
|
Fee Payable For Fiscal |
|
Fee Payable For Fiscal |
|
|||||||||
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
Equity Value Portfolio |
|
|
$ |
60,517 |
|
|
|
$ |
64,432 |
|
|
|
$ |
54,555 |
|
|
Strategic Equity Portfolio |
|
|
|
920,426 |
|
|
|
|
611,937 |
|
|
|
|
491,605 |
|
|
Mid Cap Portfolio |
|
|
|
3,175,248 |
|
|
|
|
2,137,519 |
|
|
|
|
1,352,713 |
|
|
Small-Mid Cap Portfolio |
|
|
|
1,470,195 |
|
|
|
|
637,288 |
|
|
|
|
408,402 |
|
|
International Equity Portfolio |
|
|
|
3,802,457 |
|
|
|
|
1,679,042 |
|
|
|
|
1,031,583 |
|
|
International Equity Select Portfolio |
|
|
|
256,934 |
|
|
|
|
154,613 |
|
|
|
|
75,359 |
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio |
|
Fee Payable For Fiscal |
|
Fee Payable For Fiscal |
|
Fee Payable For Fiscal |
|
|||||||||
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Strategic Portfolio |
|
|
|
3,202,170 |
|
|
|
|
2,682,287 |
|
|
|
|
2,060,777 |
|
|
International Small Cap Portfolio |
|
|
|
4,519,629 |
|
|
|
|
1,275,372 |
|
|
|
|
541,008 |
|
|
Global Listed Infrastructure Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerging Markets Portfolio |
|
|
|
48,169,061 |
|
|
|
|
64,375,771 |
|
|
|
|
76,191,090 |
|
|
Developing Markets Portfolio |
|
|
|
|
|
|
|
|
13,948 |
|
|
|
|
244,566 |
|
|
High Yield Portfolio |
|
|
|
378,909 |
|
|
|
|
278,680 |
|
|
|
|
391,385 |
|
|
Capital Allocator Portfolio |
|
|
|
|
|
|
|
|
1,156,510 |
|
|
|
|
1,649,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Portfolio |
|
Reduction in |
|
Reduction in |
|
Reduction in |
|
|||||||||
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
Equity Value Portfolio |
|
|
$ |
219,250 |
|
|
|
$ |
191,470 |
|
|
|
$ |
162,664 |
|
|
Strategic Equity Portfolio |
|
|
|
6,531 |
|
|
|
|
18,725 |
|
|
|
|
25,105 |
|
|
Mid Cap Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small-Mid Cap Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,032 |
|
|
International Equity Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity Select Portfolio |
|
|
|
153,167 |
|
|
|
|
191,531 |
|
|
|
|
197,383 |
|
|
International Strategic Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Small Cap Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
34,170 |
|
|
Global Listed Infrastructure Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,996 |
|
|
Emerging Markets Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developing Markets Portfolio |
|
|
|
|
|
|
|
|
150,953 |
|
|
|
|
284,576 |
|
|
High Yield Portfolio |
|
|
|
262,885 |
|
|
|
|
247,532 |
|
|
|
|
243,692 |
|
|
Capital Allocator Portfolio |
|
|
|
|
|
|
|
|
254,999 |
|
|
|
|
234,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Portfolio |
|
Net Fee Paid For |
|
Net Fee Paid For |
|
Net Fee Paid For |
|
|||||||||
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
Equity Value Portfolio |
|
|
$ |
(158,733 |
) |
|
|
$ |
(127,038 |
) |
|
|
$ |
(108,109 |
) |
|
Strategic Equity Portfolio |
|
|
|
913,895 |
|
|
|
|
593,212 |
|
|
|
|
466,500 |
|
|
Mid Cap Portfolio |
|
|
|
3,175,248 |
|
|
|
|
2,137,519 |
|
|
|
|
1,352,713 |
|
|
Small-Mid Cap Portfolio |
|
|
|
1,470,195 |
|
|
|
|
637,288 |
|
|
|
|
400,370 |
|
|
International Equity Portfolio |
|
|
|
3,802,457 |
|
|
|
|
1,679,042 |
|
|
|
|
1,031,583 |
|
|
International Equity Select Portfolio |
|
|
|
103,767 |
|
|
|
|
(36,918 |
) |
|
|
|
(122,024 |
) |
|
International Strategic Portfolio |
|
|
|
3,202,170 |
|
|
|
|
2,682,287 |
|
|
|
|
2,060,777 |
|
|
International Small Cap Portfolio |
|
|
|
4,519,629 |
|
|
|
|
1,275,372 |
|
|
|
|
506,838 |
|
|
Global Listed Infrastructure Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,996 |
) |
|
Emerging Markets Portfolio |
|
|
|
48,169,061 |
|
|
|
|
64,375,771 |
|
|
|
|
76,191,090 |
|
|
Developing Markets Portfolio |
|
|
|
|
|
|
|
|
(137,005 |
) |
|
|
|
(40,010 |
) |
|
High Yield Portfolio |
|
|
|
116,024 |
|
|
|
|
31,148 |
|
|
|
|
147,693 |
|
|
Capital Allocator Portfolio |
|
|
|
|
|
|
|
|
901,511 |
|
|
|
|
1,414,871 |
|
|
40
Emerging
Markets Select Portfolio and Emerging Markets Blend Portfolio will commence
operations in 2010, so no fee information is provided for these Portfolios.
The Management Agreement provides that each Portfolio pays all of its expenses that are not specifically assumed by the Investment Manager. Expenses attributable to each Portfolio will be charged against the assets of that Portfolio. Other expenses of the Fund will be allocated among the Portfolios in a manner which may, but need not, be proportionate in relation to the net assets of each Portfolio. Expenses payable by each of the Portfolios include, but are not limited to, brokerage and other expenses of executing portfolio transactions; legal, auditing or accounting expenses; trade association dues; taxes or governmental fees; the fees and expenses of any person providing administrative services to the Fund; the fees and expenses of the custodian and transfer agent of the Fund; clerical expenses of issue, redemption or repurchase of shares of the Portfolio; the expenses and fees for registering and qualifying securities for sale; the fees of Directors of the Fund who are not employees or affiliated persons of the Investment Manager or its affiliates; travel expenses of all Directors, officers and employees; insurance premiums; and the cost of preparing and distributing reports and notices to shareholders. In addition, Open Shares of each Portfolio are subject to an annual distribution and servicing fee. See Distribution and Servicing Arrangements.
As to each Portfolio, the Management Agreement is subject to annual approval by (i) the Funds Board or (ii) vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the relevant Portfolio, provided that in either event the continuance also is approved by a majority of the Independent Directors of the Fund or the Investment Manager, by vote cast in person at a meeting called for the purpose of voting on such approval. As to each Portfolio, the Management Agreement is terminable without penalty, on 60 days notice, by the Funds Board or by vote of the holders of a majority of the shares of such Portfolio, or, upon not less than 90 days notice, by the Investment Manager. The Management Agreement will terminate automatically, as to the relevant Portfolio, 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.
Proxy Voting
The Fund has delegated voting of proxies in respect of portfolio holdings to the Investment Manager, to vote the Funds proxies in accordance with the Investment Managers proxy voting policy and guidelines (the Voting Guidelines) that provide as follows:
|
|
|
|
|
The Investment Manager votes proxies in the best interests of its clients. |
|
|
|
|
|
Unless the Investment Managers Proxy Committee otherwise determines, the Investment Manager votes proxies in a manner consistent with the Voting Guidelines. |
|
|
|
|
|
To avoid conflicts of interest, the Investment Manager votes proxies where a material conflict has been deemed to exist in accordance with specific proxy voting guidelines regarding various standard proxy proposals (Approved Guidelines) or, if the Approved Guideline is to vote case-by-case, in accordance with the recommendation of an independent source. |
|
|
|
|
|
The Investment Manager also may determine not to vote proxies in respect of securities of any issuer if it determines that it would be in the clients overall best interests not to vote. |
41
The Voting Guidelines address how it will vote proxies on particular types of matters such as the election for directors, adoption of option plans and anti-takeover proposals. For example, the Investment Manager generally will:
|
|
|
|
|
vote as recommended by management in routine election or re-election of directors; |
|
|
|
|
|
favor programs intended to reward management and employees for positive, long-term performance, evaluating whether the Investment Manager believes, under the circumstances, that the level of compensation is appropriate or excessive; and |
|
|
|
|
|
vote against anti-takeover measures, such as adopting supermajority voting requirements, shareholder rights plans and fair price provisions. |
The Funds proxy voting record for the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 823-6300 or (2) on the SECs website at http://www.sec.gov. Information as of June 30 each year will generally be available by the following August 31.
Administrator, Custodian and Transfer Agent
The Fund has entered into an administrative agreement with State Street Bank and Trust Company (State Street), One Lincoln Street, Boston, Massachusetts 02111, to provide certain administrative services to the Portfolios. Each Portfolio bears the cost of such services at a fixed annual rate of $42,500, plus $7,500 per additional class, and 0.02% of average daily net assets up to $1 billion and 0.01% of average daily net assets over $1 billion. State Street has agreed to waive $18,750 of the $42,500 base fee for the Equity Value Portfolio until the Portfolios net assets reach $25 million.
State Street also acts as the Funds custodian. As the Funds custodian, State Street, among other things, maintains a custody account or accounts in the name of each Portfolio; receives and delivers all assets for each Portfolio upon purchase and upon sale or maturity; collects and receives all income and other payments and distributions on account of the assets of each Portfolio and disburses the Portfolios assets in payment of its expenses. The custodian does not determine the investment policies of any Portfolio or decide which securities any Portfolio will buy or sell.
Boston Financial Data Services, Inc. (BFDS), P.O. Box 8154, Boston, Massachusetts 02266-8154, is the Funds transfer and dividend disbursing agent. Under a transfer agency agreement with the Fund, BFDS arranges for the maintenance of shareholder account records for each Portfolio, the handling of certain communications between shareholders and the Fund and the payment of dividends and distributions payable by the Fund. For these services, BFDS receives a monthly fee computed on the basis of the number of shareholder accounts it maintains for the Fund during the month, subject to a minimum fee amount per share class in each Portfolio, and is reimbursed for certain out-of-pocket expenses.
Distributor
Lazard Asset Management Securities LLC, 30 Rockefeller Plaza, New York, New York 10112-6300, serves as the distributor of each Portfolios 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 the Distributor to pay certain expenses in connection with the offering of Portfolio shares. After the Prospectus and periodic reports have been
42
prepared, set in type and mailed to shareholders, the Distributor also will pay for any printing and distribution of copies thereof used in connection with the offering to prospective investors.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each Class of each Portfolio is determined by State Street for the Fund on each day the New York Stock Exchange (the NYSE) is open for business. The NYSE is ordinarily closed on the following national holidays: New Years Day, Martin Luther King Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share is determined by dividing the value of the total assets of the Portfolio represented by such Class, less all liabilities, by the total number of Portfolio shares of such Class outstanding.
Market values for securities listed on the NYSE, NASDAQ national market or other U.S. exchanges or markets are generally based on the last reported sales price on the principal exchange or market on which the security is traded, generally as of the close of regular trading on the NYSE (normally 4:00 p.m. Eastern time) on each valuation date; securities not traded on the valuation date are valued at the closing bid price. The Fund values NASDAQ-traded securities at the NASDAQ Official Closing Price, which may not be the last reported sales price in certain instances. 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 normally 4:10 p.m., Eastern time). Any securities not listed, for which current over-the-counter market quotations or bids are readily available, are valued at the last quoted bid price or, if available, the mean of two such prices. Securities listed on foreign exchanges are valued at the last reported sales price except as described below; securities not traded on the valuation date are valued at the last quoted bid price.
Bonds and other fixed-income securities that are not exchange-traded are valued on the basis of prices provided by pricing services which are based primarily on institutional trading in similar groups of securities, or by using brokers quotations. Mortgage-backed securities issued by certain government-related organizations are valued using pricing services or brokers quotations based on a matrix system which considers such factors as other security prices, yields and maturities. Debt securities maturing in 60 days or less are valued at amortized cost, except where to do so would not accurately reflect their fair value, in which case such securities are valued at fair value as determined under the supervision of the Board.
Calculation of a Portfolios net asset value may not take place contemporaneously with the determination of the prices of portfolio assets used in such calculation. Trading on Europe, Latin and South America and Far East securities exchanges and in over-the-counter markets ordinarily is completed well before the close of business on each business day in New York (i.e., a day on which the NYSE is open). In addition, European or Far Eastern securities trading generally or in a particular country or countries may not take place on all business days in New York and on which the net asset value of a Portfolio is calculated. If a significant event materially affecting the value of securities occurs between the close of the exchange or market on which the security is principally traded and the time when a Portfolios net asset value is calculated, or when current market quotations otherwise are determined not to be readily available or reliable, such securities will be valued at their fair value as determined by, or in accordance with procedures approved by, the Board. The Valuation Committee of the Investment Manager may evaluate a variety of factors to determine the fair value of securities for which market quotations are determined not to be readily available or reliable. These factors include, but are not limited to, the type of security, the value of comparable securities, observations from financial institutions and relevant news events. Input from the Investment Managers analysts also will be considered. Fair valuing of foreign securities may be determined with the assistance of a pricing service using correlations
43
between the movement of prices of such securities and indices of domestic securities and other appropriate indicators, such as closing market prices of relevant ADRs or futures contracts. The effect of using fair value pricing is that the net asset value of a Portfolio will reflect the affected securities values as determined in the judgment of the Board or its designee instead of being determined by the market. Using a fair value pricing methodology to price securities may result in a value that is different from the most recent closing price of a security and from the prices used by other investment companies to calculate their portfolios net asset values. Foreign securities may trade on days when a Portfolio is not open for business, thus affecting the value of the Portfolios assets on days when Portfolio shareholders may not be able to buy or sell Portfolio shares.
General
Subject to the supervision of the Board, the Investment Manager is primarily responsible for the investment decisions and the placing of portfolio transactions for each Portfolio. In arranging for the Portfolios securities transactions, the Investment Manager is primarily concerned with seeking best execution, which is considered to be the most favorable combination of price and quantity that can be traded at a point in time given, among other factors, the liquidity, market conditions, and required urgency of execution. In choosing broker-dealers, the Investment Manager considers all relevant factors, including but not limited to: the ability of a broker-dealer to provide a prompt and efficient agency execution; the ability and willingness of a broker-dealer to facilitate the transactions by acting as principal and going at risk for its own accounts; the ability of a broker-dealer to provide accurate and timely settlement of the transaction; the Investment Managers knowledge of the negotiated commission rates currently available and other current transactions costs; the clearance and settlement capabilities of the broker; the Investment Managers knowledge of the financial condition of the broker or dealer selected; and any other matter relevant to the selection of a broker-dealer.
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 underwriters concession or discount.
To the extent consistent with applicable provisions of the 1940 Act and the rules adopted by the SEC thereunder, the Funds Board has determined that securities transactions for a Portfolio may be executed through the Distributor if, in the judgment of the Investment Manager, the use of the Distributor 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, the Distributor charges the Portfolio a rate consistent with that charged to comparable unaffiliated customers in similar transactions.
Purchase and sale orders for securities held by a Portfolio may be combined with those for other Portfolios in the interest of the most favorable net results for all. In some cases, this policy may adversely affect the price paid or received by an account, or the size of the position obtained or liquidated. 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.
IPO Allocations. (All Portfolios, except High Yield Portfolio) Under the Investment Managers trade allocation procedures applicable to domestic and foreign initial and secondary public offerings and Rule 144A transactions (collectively herein IPO), the Investment Manager will generally allocate IPO
44
shares among client accounts, including the Portfolios, pro rata based upon the aggregate asset size (excluding leverage) of the account. The Investment Manager may also allocate IPO shares on a random basis, as selected electronically, or other basis. It is often difficult for the Investment Manager to obtain a sufficient number of IPO shares to provide a full allocation to each account. The Investment Managers allocation procedures are designed to allocate IPO securities in a fair and equitable manner.
The Portfolios listed below held securities of their regular brokers or dealers during the fiscal year ended December 31, 2009:
|
|
|
|
|
|
|
|
Portfolio |
|
Broker/Dealer |
|
Value on December 31, 2009 |
|||
|
|
||||||
|
|
|
|
|
|
||
Equity Value Portfolio |
|
State Street Bank & Trust Company |
|
|
$ |
41 |
|
|
|
Bank of America Corp. |
|
|
|
310 |
|
|
|
The Goldman Sachs Group, Inc. |
|
|
|
107 |
|
|
|
JPMorgan Chase & Co. |
|
|
|
310 |
|
|
|
Morgan Stanley |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
Strategic Equity Portfolio |
|
State Street Bank & Trust Company |
|
|
|
965 |
|
|
|
Bank of America Corp. |
|
|
|
569 |
|
|
|
JP Morgan Chase & Co. |
|
|
|
1,950 |
|
|
|
Morgan Stanley |
|
|
|
728 |
|
|
|
|
|
|
|
|
|
Mid Cap Portfolio |
|
State Street Bank & Trust Company |
|
|
|
3,137 |
|
|
|
|
|
|
|
|
|
Small-Mid Cap Portfolio |
|
State Street Bank & Trust Company |
|
|
|
3,593 |
|
|
|
|
|
|
|
|
|
International Equity Portfolio |
|
Banco Santander SA |
|
|
|
2,681 |
|
|
|
Credit Suisse Group AG |
|
|
|
3,482 |
|
|
|
State Street Bank & Trust Company |
|
|
|
3,198 |
|
|
|
UBS AG |
|
|
|
1,830 |
|
|
|
|
|
|
|
|
|
International Equity Select Portfolio |
|
Credit Suisse Group AG |
|
|
|
208 |
|
|
|
State Street Bank & Trust Company |
|
|
|
1 |
|
|
|
UBS AG |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
International Strategic Portfolio |
|
Credit Suisse Group AG |
|
|
|
4,629 |
|
|
|
State Street Bank & Trust Company |
|
|
|
7,677 |
|
|
|
UBS AG |
|
|
|
5,834 |
|
|
|
|
|
|
|
|
|
International Small Cap Portfolio |
|
State Street Bank & Trust Company |
|
|
|
384 |
|
|
|
|
|
|
|
|
|
Global Listed Infrastructure Portfolio |
|
State Street Bank & Trust Company |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
Emerging Markets Portfolio |
|
State Street Bank & Trust Company |
|
|
|
508,821 |
|
|
|
|
|
|
|
|
|
Developing Markets Portfolio |
|
State Street Bank & Trust Company |
|
|
|
2,885 |
|
|
|
|
|
|
|
|
|
High Yield Portfolio |
|
State Street Bank & Trust Company |
|
|
|
4,802 |
|
|
|
|
|
|
|
|
|
Capital Allocator Portfolio |
|
State Street Bank & Trust Company |
|
|
|
3,332 |
|
Emerging
Markets Select Portfolio and Emerging Markets Blend Portfolio will commence
operations in 2010, so no holdings information is provided for these
Portfolios.
45
Research and Statistical Information
Consistent with the requirements of best execution, brokerage commissions on a Portfolios transactions may be paid to brokers in recognition of investment research and information furnished as well as for brokerage and execution services provided by such brokers. The Investment Manager may in its discretion cause accounts to pay such broker-dealers a commission for effecting a portfolio transaction in excess of the amount of commission another broker or dealer adequately qualified to effect such transaction would have charged for effecting that transaction. This may be done where the Investment Manager has determined in good faith that such commission is reasonable in relation to the value of the brokerage and/or research to that particular transaction or to the Investment Managers overall responsibilities with respect to the accounts as to which it exercises investment discretion.
The Investment Manager receives a wide range of research (including proprietary research) and brokerage services from brokers. These services include information on the economy, industries, groups of securities, and individual companies; statistical information; technical market action, pricing and appraisal services; portfolio management computer services (including trading and settlement systems); risk management analysis; and performance analysis. Broker-dealers may also supply market quotations to the Funds custodian for valuation purposes.
Any research received in respect of a Portfolios brokerage commission may be useful to the Portfolio, but also may be useful in the management of the account of another client of the Investment Manager. Similarly, the research received for the commissions of such other client may be useful for the Portfolio.
Brokerage Commissions
In connection with its portfolio securities transactions for the fiscal years ended December 31, 2007, 2008 and 2009, each Portfolio indicated below paid brokerage commissions as follows:
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio |
|
Total |
|
Amount of |
|
Percentage of |
|
Percentage of |
|
|||
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|||
Equity Value Portfolio |
|
|
$ |
16,233 |
|
|
|
|
|
|
|
|
Strategic Equity Portfolio |
|
|
|
152,966 |
|
|
|
|
|
|
|
|
Mid Cap Portfolio |
|
|
|
838,492 |
|
|
|
|
|
|
|
|
Small-Mid Cap Portfolio |
|
|
|
636,510 |
|
|
|
|
|
|
|
|
International Equity Portfolio |
|
|
|
879,383 |
|
|
|
|
|
|
|
|
International Equity Select Portfolio |
|
|
|
20,138 |
|
|
|
|
|
|
|
|
International Strategic Portfolio |
|
|
|
1,112,304 |
|
|
|
|
|
|
|
|
International Small Cap Portfolio |
|
|
|
1,205,870 |
|
|
|
|
|
|
|
|
Emerging Markets Portfolio |
|
|
|
13,820,592 |
|
|
|
|
|
|
|
|
46
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio |
|
Total |
|
Amount of |
|
Percentage of |
|
Percentage of |
|
|||
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|||
Equity Value Portfolio |
|
|
$ |
17,596 |
|
|
|
|
|
|
|
|
Strategic Equity Portfolio |
|
|
|
159,107 |
|
|
|
|
|
|
|
|
Mid Cap Portfolio |
|
|
|
666,151 |
|
|
|
|
|
|
|
|
Small-Mid Cap Portfolio |
|
|
|
386,200 |
|
|
|
|
|
|
|
|
International Equity Portfolio |
|
|
|
307,710 |
|
|
|
|
|
|
|
|
International Equity Select Portfolio |
|
|
|
16,980 |
|
|
|
|
|
|
|
|
International Strategic Portfolio |
|
|
|
752,798 |
|
|
|
|
|
|
|
|
International Small Cap Portfolio |
|
|
|
218,042 |
|
|
|
|
|
|
|
|
Emerging Markets Portfolio |
|
|
|
15,501,407 |
|
|
|
|
|
|
|
|
Developing Markets Portfolio |
|
|
|
11,593 |
|
|
|
|
|
|
|
|
Capital Allocator Portfolio |
|
|
|
225,699 |
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio |
|
Total |
|
Amount of |
|
Percentage of |
|
Percentage of |
|
|||
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value Portfolio |
|
|
$ |
9,939 |
|
|
|
|
|
|
|
|
Strategic Equity Portfolio |
|
|
|
99,229 |
|
|
|
|
|
|
|
|
Mid Cap Portfolio |
|
|
|
340,706 |
|
|
|
|
|
|
|
|
Small-Mid Cap Portfolio |
|
|
|
226,204 |
|
|
|
|
|
|
|
|
International Equity Portfolio |
|
|
|
232,045 |
|
|
|
|
|
|
|
|
International Equity Select Portfolio |
|
|
|
11,889 |
|
|
|
|
|
|
|
|
International Strategic Portfolio |
|
|
|
948,485 |
|
|
|
|
|
|
|
|
International Small Cap Portfolio |
|
|
|
109,089 |
|
|
|
|
|
|
|
|
Global Listed Infrastructure Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
Emerging Markets Portfolio |
|
|
|
19,728,544 |
|
|
|
|
|
|
|
|
Developing Markets Portfolio |
|
|
|
91,637 |
|
|
|
|
|
|
|
|
Capital Allocator Portfolio |
|
|
|
298,625 |
|
|
|
|
|
|
|
|
The aggregate amount of transactions during the fiscal year ended December 31, 2009 in securities effected on an agency basis through a broker for, among other things, research services, and the commissions and concessions related to such transactions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio |
|
Transaction Amount |
|
Commissions and Concessions |
|
||||||
|
|
|
|||||||||
Equity Value Portfolio |
|
|
$ |
9,300,074 |
|
|
|
$ |
9,939 |
|
|
Strategic Equity Portfolio |
|
|
|
97,558,329 |
|
|
|
|
99,229 |
|
|
Mid Cap Portfolio |
|
|
|
280,496,128 |
|
|
|
|
340,706 |
|
|
Small-Mid Cap Portfolio |
|
|
|
200,880,491 |
|
|
|
|
226,204 |
|
|
International Equity Portfolio |
|
|
|
173,578,409 |
|
|
|
|
232,045 |
|
|
47
|
|
|
|
|
|
|
|
Portfolio |
|
Transaction Amount |
|
Commissions and Concessions |
|
||
International Equity Select Portfolio |
|
10,853,480 |
|
|
11,889 |
|
|
International Strategic Portfolio |
|
692,223,371 |
|
|
948,485 |
|
|
International Small Cap Portfolio |
|
118,498,626 |
|
|
109,089 |
|
|
Global Listed Infrastructure Portfolio |
|
|
|
|
|
|
|
Emerging Markets Portfolio |
|
10,122,307,424 |
|
|
19,728,544 |
|
|
Developing Markets Portfolio |
|
83,402,813 |
|
|
91,637 |
|
|
Capital Allocator Portfolio |
|
413,021,907 |
|
|
298,625 |
|
|
Emerging
Markets Select Portfolio and Emerging Markets Blend Portfolio will commence
operations in 2010, so no transactional information is provided for these
Portfolios.
HOW TO BUY AND HOW TO SELL SHARES
General. The minimum initial investment for each Portfolio is $2,500 for Open Shares, unless the investor is a client of a securities dealer or other institution which has made an aggregate minimum initial purchase for its clients of at least $2,500 for Open Shares, and $100,000 for Institutional Shares. The minimum investment requirements may be waived or lowered for investments effected through banks and other institutions that have entered into special arrangements with the Fund or the Distributor and for investments effected on a group basis by certain other entities and their employees, such as pursuant to a payroll deduction plan. The Fund reserves the right to change or waive the minimum initial, and subsequent, investment 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 the Distributor reserve the right to reject any purchase order. All funds will be invested in full and fractional shares. Stock certificates will not be issued.
Each Portfolio may, in its discretion, accept securities in payment for shares of the Portfolio. Securities may be accepted in payment for shares only if the securities are, in the judgment of the Investment Manager, appropriate investments for the Portfolio. In addition, securities accepted in payment for Portfolio shares must: (i) meet the Portfolios investment objective and policies; (ii) be acquired by the Portfolio for investment and not for resale; and (iii) be liquid securities with readily available market prices on the NYSE, The NASDAQ Stock Market, a recognized non-U.S. exchange or non-NASDAQ listing with at least two market makers. These securities are valued by the same method used to value the Portfolios portfolio holdings. The contribution of securities to the Portfolio may be a taxable transaction to the shareholder.
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 a Portfolio, a shareholder appoints the Transfer Agent, as agent, to establish an account to which all shares purchased will be credited, together with any dividends and capital gain distributions that are paid in additional shares.
Service Agents. The Fund has authorized one or more brokers and other financial intermediaries (Service Agents) to accept on its behalf purchase and redemption orders. Service Agents are authorized to designate other intermediaries to accept purchase and redemption orders on the Funds behalf. The
48
Fund will be deemed to have received a purchase or redemption order when a Service Agent or, if applicable, a Service Agents authorized designee, accepts the order. Customer orders will be priced at the respective Portfolios net asset value next computed after such orders are accepted by a Service Agent or its authorized designee. Service Agents may charge their clients fees which would not apply to shares purchased through the Distributor.
The Fund, may, in its discretion, approve a request to exchange Open Shares in a Portfolio for Institutional Shares of the same Portfolio, or to exchange Institutional Shares in a Portfolio for Open Shares of the same Portfolio, when a shareholder is no longer a client of a Service Agent that is authorized (or whose designee is so authorized) to accept on the Funds behalf purchase and redemption orders in the relevant class of shares of the Portfolio. For federal income tax purposes, no gain or loss will be recognized upon any such exchange within the same Portfolio (although the Fund does not give tax advice and you should consult your own tax advisor).
Redemption Fee. Each Portfolio will impose a redemption fee equal to 1.00% of the net asset value of shares acquired by purchase or exchange and redeemed or exchanged within 30 days after such shares were acquired, calculated as described in the Prospectus. The fee will be retained by the Portfolio and used primarily to offset the transaction costs that short-term trading imposes on the Portfolio and its remaining shareholders. The redemption fee may be waived, modified or terminated at any time, or from time to time.
Redemption Commitment. The Fund has committed to pay in cash all redemption requests by any shareholder of record, limited in amount during any 90-day period to the lesser of $250,000 or 1% of the value of a Portfolios net assets at the beginning of such period. Such commitment is irrevocable without the prior approval of the SEC. In the case of requests for redemption in excess of such amount, the Funds Board reserves the right to make payments, in whole or in part in portfolio securities or other assets of the Portfolio in cases of emergency or at any time that the Investment Manager believes 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 Portfolios 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 NYSE 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 SEC so that disposal of the Portfolios investments or determination of its net asset value is not reasonably practicable; or (c) for such other periods as the SEC by order may permit to protect the Portfolios shareholders.
DISTRIBUTION AND SERVICING ARRANGEMENTS
Distribution and Servicing Plan for Open Shares
Open Shares are subject to a Distribution and Servicing Plan adopted by the Funds Board pursuant to Rule 12b-1 (the Rule) adopted by the SEC under the 1940 Act which provides, among other things, that an investment company may bear expenses of distributing its shares only pursuant to a plan adopted in accordance with the Rule. Pursuant to the Distribution and Servicing Plan, the Fund pays the Distributor for advertising, marketing and distributing each Portfolios Open Shares, and for the provision of certain services to the holders of Open Shares, a fee at the annual rate of 0.25% of the average daily net assets of the Portfolios Open Shares. The Distributor may make payments to Service Agents for providing these services. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the Fund and providing reports and other
49
information, and services related to the maintenance of shareholder accounts. The fee payable for such services is intended to be a service fee as defined in Conduct Rules of FINRA. From time to time, the Distributor may defer or waive receipt of fees under the Distribution and Servicing Plan while retaining the ability to be paid by the Fund under the Distribution and Servicing Plan thereafter. The fees payable under the Distribution and Servicing Plan are payable without regard to actual expenses incurred. The Funds Board believes there is a reasonable likelihood that the Distribution and Servicing Plan will benefit each Portfolio and holders of its Open Shares.
A quarterly report of the amounts expended under the Distribution and Servicing Plan, and the purposes for which such expenditures were incurred, must be made to the Board for its review. The Distribution and Servicing Plan provides that it may not be amended to increase materially the costs which holders of Open Shares of a Portfolio may bear without such shareholders approval and that other material amendments of the Distribution and Servicing Plan must be approved by the Board and by the Independent Directors of the Fund who have no direct or indirect financial interest in the operation of the Distribution and Servicing Plan or in any agreements entered into in connection with the Distribution and Servicing Plan, by vote cast in person at a meeting called for the purpose of considering such amendments. The Distribution and Servicing Plan is subject to annual approval by such vote cast in person at a meeting called for the purpose of voting on the Distribution and Servicing Plan. As to each Portfolio, the Distribution and Servicing Plan may be terminated at any time by vote of a majority of the Independent Directors who have no direct or indirect financial interest in the operation of the Distribution and Servicing Plan or in any agreements entered into in connection with the Distribution and Servicing Plan, or by vote of the holders of a majority of such Portfolios Open Shares.
For the fiscal year ended December 31, 2009, the Portfolios paid the Distributor the amounts set forth below with respect to their Open Shares under the Distribution and Servicing Plan:
|
|
|
|
|
|
|
Portfolio |
|
Amount Paid Under |
|
|||
|
|
|
|
|
|
|
Equity Value Portfolio |
|
|
$ |
567 |
|
|
Strategic Equity Portfolio |
|
|
|
18,976 |
|
|
Mid Cap Portfolio |
|
|
|
166,657 |
|
|
Small-Mid Cap Portfolio |
|
|
|
32,351 |
|
|
International Equity Portfolio |
|
|
|
40,879 |
|
|
International Equity Select Portfolio |
|
|
|
13,205 |
|
|
International Strategic Portfolio |
|
|
|
32,728 |
|
|
International Small Cap Portfolio |
|
|
|
72,939 |
|
|
Global Listed Infrastructure Portfolio |
|
|
|
|
|
|
Emerging Markets Portfolio |
|
|
|
5,210,982 |
|
|
Developing Markets Portfolio |
|
|
|
32,323 |
|
|
High Yield Portfolio |
|
|
|
18,461 |
|
|
Capital Allocator Portfolio |
|
|
|
34,359 |
|
|
Emerging
Markets Select Portfolio and Emerging Markets Blend Portfolio will commence
operations in 2010, so no distribution fee information is provided for these
Portfolios.
Payments by the Investment Manager or Distributor
The Investment Manager or the Distributor may provide additional cash payments out of its own resources to financial intermediaries that sell shares and/or provide other services. Such payments are in
50
addition to any fees paid by the Fund under Rule 12b-1. These additional payments may be paid to intermediaries that provide shareholder servicing and administration and/or marketing and related administrative support; opportunities to participate in conferences and educational workshops, meetings and events; and/or access to and information about sales meetings and conferences and sales representatives, financial advisors or management personnel of the intermediary. Cash compensation also may be paid to financial intermediaries in connection with consideration or inclusion of the Fund for or on a recommended or similar list, including a preferred or select sales list, or in other programs. In some cases, these payments may create an incentive for a financial intermediary or its representatives to recommend or sell Fund shares. Shareholders or potential shareholders should contact their financial intermediary representative for details about any payments the representative or the financial intermediary may receive in connection with the sale of Fund shares or the provision of services to the Fund.
From time to time, the Investment Manager or the Distributor also may provide cash or non-cash compensation to financial intermediaries or their representatives in the form of occasional gifts or meals, event tickets or other entertainment; support for due diligence trips; educational conference sponsorship; support for recognition programs; and other forms of cash or non-cash compensation permissible under applicable broker-dealer regulations.
The Fund intends to declare as a dividend on the outstanding shares of High Yield Portfolio substantially all of the Portfolios net investment income at the close of each business day to shareholders of record as of the close of regular trading on the NYSE. 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 High Yield Portfolio ordinarily will be paid on the last business day of each month. Shareholders who redeem all their shares of the Portfolio prior to a dividend payment date will receive, in addition to the redemption proceeds, any dividends that are declared but unpaid through the date of their redemption. Shareholders who redeem only a portion of their shares will receive all dividends declared but unpaid on those shares on the next dividend payment date.
For
Global Listed Infrastructure Portfolio, dividends from net investment income,
if any, are anticipated to be paid quarterly. Dividends from net investment
income, if any, on all Portfolios except Global Listed Infrastructure Portfolio
and High Yield Portfolio generally will be declared and paid at least annually,
and may be declared and paid more frequently.
Dividends for each Class of a Portfolio will be calculated at the same time and in the same manner and will be of the same amount, except that certain expenses will be borne exclusively by one Class and not by the other, such as fees payable under the Distribution and Servicing Plan. Open Shares will receive lower per share dividends than Institutional Shares because of the higher expenses borne by Open Shares.
Investment income for a Portfolio includes, among other things, interest income, accretion of market and original issue discount and amortization of premium and, in the case of each Portfolio except High Yield Portfolio, would include dividends.
With respect to all of the Portfolios, net realized capital gains, if any, will be distributed at least annually, and may be declared and paid more frequently. 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 shareholders 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.
51
The Investment Manager believes that each Portfolio has qualified for the most recent fiscal year as a regulated investment company under Subchapter M of the Code. It is intended that each such Portfolio will continue to so qualify as a regulated investment company if such qualification is in the best interests of its shareholders. Each Portfolio will be treated as a separate entity for tax purposes and thus the provisions of the Code applicable to regulated investment companies generally will be applied to each Portfolio separately, rather than to the Fund as a whole. As a regulated investment company, a Portfolio will pay no federal income tax on net investment income and net realized securities gains to the extent that such income and gains are distributed to shareholders in accordance with applicable provisions of the Code. To qualify as a regulated investment company, the Portfolio must distribute at least 90% of its net income (consisting of net investment income and net short-term capital gain) to its shareholders and meet certain asset diversification and other requirements. If the Portfolio did not qualify as a regulated investment company, it would be treated, for tax purposes, as an ordinary corporation subject to federal income tax. The term regulated investment company does not imply the supervision of management of investment practices or policies by any government agency.
Each Portfolio may in certain years use equalization accounting in determining the portion of its net investment income and capital gain net income that has been distributed. A Portfolio that elects to use equalization accounting in a year will allocate a portion of its realized investment income and capital gain to redemptions of Portfolio shares and will reduce the amount of such income and/or gain that it distributes in cash. The Internal Revenue Service (the IRS) has not published any guidance concerning the methods to be used in allocating investment company income and capital gain to redemptions of shares. In the event that the IRS determines that a Portfolio is using an improper method of allocation and has under-distributed its net investment income or capital gain net income for any taxable year, such Portfolio may be liable for additional federal income tax.
Any dividend or distribution paid shortly after an investors purchase may have the effect of reducing the net asset value of the shares below the investors cost of those shares. Such a dividend or distribution would be a return of investment in an economic sense, although taxable as stated in the Prospectus. In addition, the Code provides that if a shareholder holds shares of a Portfolio for six months or less and has received a capital gain distribution with respect to such shares, any loss incurred on the sale of such shares will be treated as long-term capital loss to the extent of the capital gain distribution received.
Corporate
shareholders of Equity Value, Strategic Equity, Mid Cap, Small-Mid Cap, Global
Listed Infrastructure and Capital Allocator Portfolios will be eligible for the
dividends-received deduction on the dividends (excluding the net capital gain
dividends) paid by the Portfolio, to the extent that the Portfolios income is
derived from certain dividends received from domestic corporations. A
corporations dividends-received deduction will be disallowed unless the
corporation holds shares in the Portfolio for 46 days or more during the 90-day
period commencing 45 days before the shares become ex-dividend. Furthermore, a
corporations dividends-received deduction will be disallowed to the extent a
corporations investment in shares of the Portfolio is financed with
indebtedness. It is anticipated that distributions from the other Portfolios
will not qualify for the dividends-received distribution. Each year the Fund
will notify shareholders of the federal income tax status of distributions.
High Yield Portfolio may invest in REMICs. Interests in REMICs are classified as either regular interests or residual interests. Under the Code, special rules apply with respect to the treatment of a portion of the Portfolios income from REMIC residual interests. (Such portion is referred to herein as Excess Inclusion Income.) Excess Inclusion Income generally cannot be offset by net operating losses and, in addition, constitutes unrelated business taxable income to entities which are
52
subject to the unrelated business income tax. The Code provides that a portion of Excess Inclusion Income attributable to REMIC residual interests held by regulated investment companies such as the Portfolios shall, pursuant to regulations, be allocated to the shareholders of such regulated investment company in proportion to the dividends received by such shareholders. Accordingly, shareholders of High Yield Portfolio generally will not be able to use net operating losses to offset such Excess Inclusion Income. In addition, if a shareholder of one of the Portfolios is an entity subject to the unrelated business income tax (including a qualified pension plan, an IRA, a 401(k) plan, a Keogh plan, or another tax-exempt entity) and is allocated any amount of Excess Inclusion Income, such a shareholder may be required to file a return and pay a tax on such Excess Inclusion Income even though a shareholder might not have been required to pay such tax or file such return absent the receipt of such Excess Inclusion Income. The Investment Manager anticipates that only a small portion, if any, of the assets of High Yield Portfolio will be invested in REMIC residual interests. Accordingly, the amount of Excess Inclusion Income, if any, received by the Portfolio and allocated to its shareholders should be quite small. Shareholders that are subject to the unrelated business income tax should consult their own tax adviser regarding the treatment of their income derived from the Portfolio.
Except as discussed above with respect to Excess Inclusion Income, a dividend or capital gains distribution with respect to shares held by a tax-deferred or qualified plan, such as an IRA, 403(b)(7) retirement plan or corporate pension or profit sharing plan, will not be taxable to the plan. Distributions from such plans will be taxable to individual participants under applicable tax rules without regard to the income earned by the qualified plan.
Ordinarily, gains and losses realized from portfolio transactions will be treated as capital gains and losses. However, a portion of the gain or loss realized from the disposition of foreign currencies and non-U.S. dollar denominated securities (including debt instruments and certain futures or forward contracts and options) may be treated as ordinary income or loss. In addition, all or a portion of any gains realized from the sale or other disposition of certain market discount bonds will be treated as ordinary income. Finally, all or a portion of the gain realized from engaging in conversion transactions (generally including certain transactions designed to convert ordinary income into capital gain) may be treated as ordinary income.
Certain
Portfolios may invest in preferred securities or other securities the U.S.
federal income tax treatment of which may not be clear or may be subject to
recharacterization by the IRS. To the extent the tax treatment of such
securities or the income from such securities differs from the tax treatment
expected by a Portfolio, it could affect the timing or character of income
recognized by the Portfolio, requiring the Portfolio to purchase or sell
securities, or otherwise change its portfolio, in order to comply with the tax
rules applicable to regulated investment companies under the Code.
Gain or loss, if any, realized by a Portfolio from certain financial futures or forward contracts and options transactions (Section 1256 contracts) 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 exercise or lapse of such Section 1256 contract as well as from closing transactions. In addition, any Section 1256 contracts remaining unexercised at the end of the Portfolios taxable year will be treated as sold for its then fair market value, resulting in additional gain or loss to such Portfolio.
Offsetting positions held by a Portfolio involving certain financial futures or forward contracts or options transactions with respect to actively traded personal property may be considered, for tax purposes, to constitute straddles. To the extent the straddle rules apply to positions established by the Portfolio, losses realized by the Portfolio may be deferred to the extent of unrealized gain in the offsetting position. In addition, short-term capital loss on straddle positions may be recharacterized as long-term capital loss, and long-term capital gains on straddle positions may be treated as short-term capital gains or ordinary
53
income. Certain of the straddle positions held by the Portfolio may constitute mixed straddles. The Portfolio may make one or more elections with respect to the treatment of mixed straddles, resulting in different tax consequences. In certain circumstances, the provisions governing the tax treatment of straddles override or modify certain of the provisions discussed above.
If a Portfolio either (1) holds an appreciated financial position with respect to stock, certain debt obligations, or partnership interests (appreciated financial position) and then enters into a short sale, futures or forward contract, or offsetting notional principal contract (collectively, a Contract) with respect to the same or substantially identical property or (2) holds an appreciated financial position that is a Contract and then acquires property that is the same as, or substantially identical to, the underlying property, 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.
If a Portfolio enters into certain derivatives (including forward contracts, long positions under notional principal contracts, and related puts and calls) with respect to equity interests in certain pass-thru entities (including other regulated investment companies, real estate investment trusts, partnerships, real estate mortgage investment conduits and certain trusts and foreign corporations), long-term capital gain with respect to the derivative may be recharacterized as ordinary income to the extent it exceeds the long-term capital gain that would have been realized had the interest in the pass-thru entity been held directly by the Portfolio during the term of the derivative contract. Any gain recharacterized as ordinary income will be treated as accruing at a constant rate over the term of the derivative contract and may be subject to an interest charge. The Treasury has authority to issue regulations expanding the application of these rules to derivatives with respect to debt instruments and/or stock in corporations that are not pass-through entities.
Investment by a Portfolio in securities issued or acquired 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 each year to accrue a portion of the discount (or deemed discount) at which the securities were issued and to distribute 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 the distribution requirements.
Certain Portfolios may invest in an entity that is classified as a passive foreign investment company (PFIC) for federal income tax purposes, the operation of certain provisions of the Code applying to PFICs could result in the imposition of certain federal income taxes on the Portfolios. In addition, gain realized from the sale or other disposition of PFIC securities held beyond the end of the Portfolios taxable year may be treated as ordinary income.
Income received by a Portfolio from sources within foreign countries may be subject to withholding and other taxes imposed by such countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. It is impossible to determine the effective rate of foreign tax in advance, since the amount of each Portfolios assets to be invested in various countries is not known.
If you are neither a resident nor a citizen of the United States, or if you are a foreign entity, the Portfolios ordinary income dividends (which include distributions of net short-term capital gains) will generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate applies.
54
If more than 50% of the value of a Portfolios total assets at the close of its taxable year consists of the stock or securities of foreign corporations, the Portfolio may elect to pass through to its shareholders the amount of foreign income taxes paid by the Portfolio. Pursuant to such election, shareholders would be required: (i) to include in gross income, even though not actually received, their respective pro rata shares of the foreign taxes paid by the Portfolio; (ii) treat their income from the Portfolio as being from foreign sources to the extent that the Portfolios income is from foreign sources; and (iii) either to deduct their pro rata share of foreign taxes in computing their taxable income, or to use it as a foreign tax credit against federal income (but not both). No deduction for foreign taxes could be claimed by a shareholder who does not itemize deductions.
It
is anticipated that each of International Equity, International Equity Select,
International Strategic, International Small Cap, Global Listed Infrastructure,
Emerging Markets,
Emerging Markets Select, Developing Markets and Emerging Markets Blend Portfolios will be operated so as to meet
the requirements of the Code to pass through to shareholders credits for foreign
taxes paid, although there can be no assurance that these requirements will be
met. Each shareholder will be notified within 45 days after the close of each
taxable year of the Portfolio whether the foreign taxes paid by the Portfolio
will pass through for that year, and, if so, the amount of each shareholders
pro rata share of (i) the foreign taxes paid, and (ii) the
Portfolios gross income from foreign sources. Of course, shareholders who are
not liable for federal income taxes, such as retirement plans qualified under
Section 401 of the Code, will not be affected by any such pass through of
foreign tax credits.
The foregoing is only a general summary of some of the important federal income tax considerations generally affecting the Portfolios and their shareholders. No attempt is made to present a complete explanation of the federal tax treatment of the Portfolios activities or to discuss state and local tax matters affecting the Portfolios. Shareholders are urged to consult their own tax advisers for more detailed information concerning tax implications of investments in the Portfolios.
ADDITIONAL INFORMATION ABOUT THE FUND AND PORTFOLIOS
As
of March 31, 2010, no person owned of record or was known by the Fund to own
beneficially 5% or more of a Class of the indicated Portfolios outstanding
voting securities except the following:
|
|
|
|
Name and Address |
|
Percentage of Total |
|
|
|
||
|
|
|
|
Equity Value Portfolio |
|
|
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
Lazard Frères & Co. LLC |
|
|
|
30 Rockefeller Plaza |
|
|
|
New York, NY 10112 |
|
83% |
|
|
|
|
|
Mitra & Co |
|
|
|
FBO 79 |
|
|
|
11270 West Park Place, Suite 400 |
|
|
|
Milwaukee, WI 53224 |
|
8% |
|
55
|
|
|
|
Strategic Equity Portfolio |
|
|
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
34% |
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
Iron Workers Local 40361 |
|
|
|
30 Rockefeller Plaza, 60th Floor |
|
|
|
New York, NY 10112 |
|
14% |
|
|
|
|
|
National Financial Services Corp. |
|
|
|
FBO Its Customers |
|
|
|
One World Financial Center |
|
|
|
200 Liberty Street |
|
|
|
New York, NY 10281 |
|
12% |
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
Lazard Frères & Co. LLC |
|
|
|
30 Rockefeller Plaza, 60th Floor |
|
|
|
New York, NY 10112 |
|
9% |
|
|
|
|
|
Mid Cap Portfolio |
|
|
|
|
|
|
|
Merrill Lynch |
|
|
|
FBO Its Customers |
|
|
|
4800 Deer Lake Drive East, 2nd Floor |
|
|
|
Jacksonville, FL 32246 |
|
35% |
|
|
|
|
|
City of Los Angeles |
|
|
|
8515 E. Orchard Road |
|
|
|
Greenwood Village, CO 80111 |
|
17% |
|
|
|
|
|
Citistreet Core Market |
|
|
|
State Street Bank as Trustee |
|
|
|
1 Heritage Drive |
|
|
|
North Quincy, MA 02171 |
|
13% |
|
|
|
|
|
State Street
Bank as Trustee for Olin Corporation |
|
|
|
105 Rosemont Avenue |
|
|
|
Westwood, MA 02090 |
|
6% |
|
|
|
|
|
Small-Mid Cap Portfolio |
|
|
|
|
|
|
|
National Financial Services Corp. |
|
|
|
FBO Its Customers |
|
|
|
One World Financial Center |
|
|
|
200 Liberty Street |
|
|
|
New York, NY 10281 |
|
26% |
|
56
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
11% |
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
International Union of Operating Engineers |
|
|
|
Local 57 Pension Fund |
|
|
|
141 Gano Street |
|
|
|
Providence, RI 02906 |
|
8% |
|
|
|
|
|
IBEW 7th District |
|
|
|
Retirement Benefit Trust Fund |
|
|
|
418 South Polk Street, Suite 200 |
|
|
|
Amarillo, TX 79101 |
|
6% |
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
Milbank Winthrop & Co. |
|
|
|
654 Madison Avenue, Suite 1550 |
|
|
|
New York, NY 10065 |
|
6% |
|
|
|
|
|
International Equity Portfolio |
|
|
|
|
|
|
|
Oprah Winfrey, Trustee |
|
|
|
Phoenix Investment Trust |
|
|
|
C/O Harpo Inc.- Sophie Lee |
|
|
|
P.O. Box 617666 |
|
|
|
Chicago, IL 60661 |
|
21% |
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
The McConnell Foundation |
|
|
|
Redding, CA |
|
17% |
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
9% |
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
Somerville Retirement System |
|
|
|
50 Evergreen Avenue |
|
|
|
Somerville, MA 02145 |
|
6% |
|
|
|
|
|
Citigroup Global Markets Inc. |
|
|
|
388 Greenwich Street |
|
|
|
New York, NY 10013 |
|
6% |
|
57
|
|
|
|
National Financial Services Corp. |
|
|
|
FBO Its Customers |
|
|
|
One World Financial Center |
|
|
|
200 Liberty Street |
|
|
|
New York, NY 10281 |
|
5% |
|
|
|
|
|
Agnes Neill Williams |
|
|
|
Potomac, MD |
|
5% |
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
The Baycrest Centre Foundation |
|
|
|
3560 Bathurst Street |
|
|
|
North York, Ontario |
|
5% |
|
|
|
|
|
International Equity Select Portfolio |
|
|
|
|
|
|
|
Merrill Lynch |
|
|
|
FBO Its Customers |
|
|
|
4800 Deer Lake Drive East, 2nd Floor |
|
|
|
Jacksonville, FL 32246 |
|
22% |
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
21% |
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
Kenneth Blackman, Esq. |
|
|
|
30 Rockefeller Plaza, 60th Floor |
|
|
|
New York, NY 10112 |
|
7% |
|
|
|
|
|
First Clearing, LLC |
|
|
|
FBO Its Customers |
|
|
|
2801 Market Street |
|
|
|
St. Louis, MO 63103 |
|
6% |
|
|
|
|
|
International Strategic Portfolio |
|
|
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
Market Street International |
|
|
|
30 Rockefeller Plaza, 60th Floor |
|
|
|
New York, NY 10112 |
|
17% |
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
The Board of Public Utilities |
|
|
|
30 Rockefeller Plaza |
|
|
|
New York, NY 10112 |
|
12% |
|
58
|
|
|
|
First Union National Bank |
|
|
|
Omnibus Reinvest |
|
|
|
1525 West Wt. Harris Blvd. |
|
|
|
Charlotte, NC 28288 |
|
9% |
|
|
|
|
|
Wendel & Company |
|
|
|
c/o The Bank of New York Mutual Funds |
|
|
|
P.O. Box 1066 |
|
|
|
Wall Street Station |
|
|
|
New York, NY 10268 |
|
8% |
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
The Steamfitters Industry |
|
|
|
30 Rockefeller Plaza, 60th Floor |
|
|
|
New York, NY 10112 |
|
7% |
|
|
|
|
|
Mac & Co. |
|
|
|
P.O. Box 3198 |
|
|
|
525 William Penn Place |
|
|
|
Pittsburgh, PA 15230 |
|
6% |
|
|
|
|
|
Wendel & Company |
|
|
|
c/o The Bank of New York Mutual Funds |
|
|
|
P.O. Box 1066 |
|
|
|
Wall Street Station |
|
|
|
New York, NY 10268 |
|
5% |
|
|
|
|
|
International Small Cap Portfolio |
|
|
|
|
|
|
|
Wells Fargo Bank |
|
|
|
P.O. Box 1533 |
|
|
|
Minneapolis, MN 55480 |
|
50% |
|
|
|
|
|
National Financial Services Corp. |
|
|
|
FBO Its Customers |
|
|
|
One World Financial Center |
|
|
|
200 Liberty Street |
|
|
|
New York, NY 10281 |
|
18% |
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
Pension Plan for the Employees of Marine Atlantic Inc. |
|
|
|
10 Marine Drive |
|
|
|
Marine Atlantic Port Aux Basques NL AOM ICO |
|
14% |
|
|
|
|
|
Global Listed Infrastructure Portfolio |
|
|
|
|
|
|
|
Genworth Financial Trust Company |
|
|
|
3200 North Central Avenue, Floor 7 |
|
|
|
Phoenix, AZ 85012 |
|
99% |
|
59
|
|
|
|
Emerging Markets Portfolio |
|
|
|
|
|
|
|
National Financial Services Corp. |
|
|
|
FBO Its Customers |
|
|
|
One World Financial Center |
|
|
|
200 Liberty Street |
|
|
|
New York, NY 10281 |
|
21% |
|
|
|
|
|
Citigroup Global Markets Inc. |
|
|
|
388 Greenwich Street |
|
|
|
New York, NY 10013 |
|
17% |
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
7% |
|
|
|
|
|
Developing Markets Portfolio |
|
|
|
|
|
|
|
Lazard Capital Markets, LLC |
|
|
|
30 Rockefeller Plaza, 60th Floor |
|
|
|
New York, NY 10112 |
|
40% |
|
|
|
|
|
Lazard Capital Markets LLC |
|
|
|
Bireleys Orange Japan Emerging |
|
|
|
30 Rockefeller Plaza, 60th Floor |
|
|
|
New York, NY 10112 |
|
11% |
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
10% |
|
|
|
|
|
National Financial Services, LLC |
|
|
|
FBO Its Customers |
|
|
|
One World Financial Center |
|
|
|
200 Liberty Street, 5th Floor |
|
|
|
New York, NY 10281 |
|
8% |
|
|
|
|
|
Lazard Group LLC |
|
|
|
30 Rockefeller Plaza |
|
|
|
New York, NY 10112 |
|
7% |
|
60
|
|
|
|
High Yield Portfolio |
|
|
|
|
|
|
|
Merrill Lynch |
|
|
|
FBO Its Customers |
|
|
|
4800 Deer Lake Drive East |
|
|
|
Jacksonville, FL 32246 |
|
15% |
|
|
|
|
|
Mac & Co. |
|
|
|
Mutual Funds Operations |
|
|
|
P.O. Box 3198 |
|
|
|
Pittsburgh, PA 15230 |
|
13% |
|
|
|
|
|
SEI Private Trust Co. |
|
|
|
FBO Harlysville Bank |
|
|
|
One Freedom Valley Drive |
|
|
|
Oaks, PA 19456 |
|
8% |
|
|
|
|
|
The Bernard Heller Foundation |
|
|
|
Westlake Village, CA |
|
7% |
|
|
|
|
|
Capital Allocator Portfolio |
|
|
|
|
|
|
|
National Financial Services Corp. |
|
|
|
FBO Its Customers |
|
|
|
One World Financial Center |
|
|
|
200 Liberty Street |
|
|
|
New York, NY 10281 |
|
15% |
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
13% |
|
|
|
|
|
Name and Address |
|
Percentage of Total |
|
|
|
||
|
|
|
|
Equity Value Portfolio |
|
|
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
32% |
|
|
|
|
|
Pershing LLC |
|
|
|
P.O. Box 2052 |
|
|
|
Jersey City, NJ 07303 |
|
13% |
|
|
|
|
|
National Financial Services LLC |
|
|
|
FEBO Marjorie L. Brown |
|
|
|
Bedford, OH |
|
9% |
|
61
|
|
|
|
Ameritrade Inc. |
|
|
|
FBO Its Customers |
|
|
|
P.O. Box 2226 |
|
|
|
Omaha, NE 68103 |
|
7% |
|
|
|
|
|
National Financial Services LLC |
|
|
|
FEBO Wegmans 401K Plan |
|
|
|
Camillus, NY |
|
7% |
|
|
|
|
|
Pershing LLC |
|
|
|
P.O. Box 2052 |
|
|
|
Jersey City, NJ 07303 |
|
5% |
|
|
|
|
|
Strategic Equity Portfolio |
|
|
|
|
|
|
|
Priac as Trustee/Custodian |
|
|
|
FBO Various Retirement Plans |
|
|
|
280 Trumbull Street |
|
|
|
One Commercial Plaza |
|
|
|
Hartford, CT 06103 |
|
66% |
|
|
|
|
|
Merrill Lynch |
|
|
|
FBO Its Customers |
|
|
|
4800 Deer Lake Drive East, 2nd Floor |
|
|
|
Jacksonville, FL 32246 |
|
9% |
|
|
|
|
|
Mid Cap Portfolio |
|
|
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
FBO 24000996 |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
30% |
|
|
|
|
|
National Financial Services LLC |
|
|
|
FEBO Various Retirement Plans |
|
|
|
4 Manhattanville Road |
|
|
|
Purchase, NY 10577 |
|
15% |
|
|
|
|
|
Citistreet Core Market |
|
|
|
State Street Bank as Trustee |
|
|
|
1 Heritage Drive |
|
|
|
North Quincy, MA 02171 |
|
8% |
|
|
|
|
|
JPMorgan Chase |
|
|
|
Elkay Manufacturing Co. Ret. Svgs. Plan |
|
|
|
9300 Ward Parkway |
|
|
|
Kansas City, MO 64114 |
|
6% |
|
62
|
|
|
|
ING Life Insurance and Annuity Company |
|
|
|
151 Farmington Avenue, TN41 |
|
|
|
Hartford, CT 06156 |
|
5% |
|
|
|
|
|
Merrill Lynch |
|
|
|
FBO Its Customers |
|
|
|
4800 Deer Lake Drive East, 2nd Floor |
|
|
|
Jacksonville, FL 32246 |
|
5% |
|
|
|
|
|
Nationwide Trust Company, Custodian |
|
|
|
FBO IPO Portfolio Accounting |
|
|
|
P.O. Box 182029 |
|
|
|
Columbus, OH 43218 |
|
5% |
|
|
|
|
|
Small-Mid Cap Portfolio |
|
|
|
|
|
|
|
Nationwide Life Insurance, QVPA |
|
|
|
C/O IPO Portfolio Accounting |
|
|
|
P.O. Box 182029 |
|
|
|
Columbus, OH 43218 |
|
18% |
|
|
|
|
|
Prudential Retirement Insurance & Annuity Co. |
|
|
|
FBO Various Retirement Plans |
|
|
|
280 Trumbull Street |
|
|
|
One Commercial Plaza |
|
|
|
Hartford, CT 06103 |
|
11% |
|
|
|
|
|
Mercer Trust FBO Savings Plan |
|
|
|
For Employees of Furniture Brands Intl. |
|
|
|
1 Investors Way #2 |
|
|
|
Norwood, MA 02062 |
|
10% |
|
|
|
|
|
Nationwide Life Insurance, NWVA |
|
|
|
C/O IPO Portfolio Accounting |
|
|
|
P.O. Box 182029 |
|
|
|
Columbus, OH 43218 |
|
9% |
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
9% |
|
|
|
|
|
Nationwide Trust Co. |
|
|
|
FBO IPO Portfolio Accounting |
|
|
|
P.O. Box 182029 |
|
|
|
Columbus, OH 43218 |
|
5% |
|
63
|
|
|
|
International Equity Portfolio |
|
|
|
|
|
|
|
Charles Atwood Company |
|
|
|
136 E. Michigan Avenue, Suite 1201 |
|
|
|
Kalamazoo, MI 49007 |
|
22% |
|
|
|
|
|
Prudential Retirement Insurance & Annuity Co. |
|
|
|
FBO Various Retirement Plans |
|
|
|
280 Trumbull Street |
|
|
|
One Commercial Plaza |
|
|
|
Hartford, CT 06103 |
|
19% |
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
Special Custody Account |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
9% |
|
|
|
|
|
ING National Trust |
|
|
|
151 Farmington Avenue |
|
|
|
Hartford, CT 06156 |
|
5% |
|
|
|
|
|
International Equity Select Portfolio |
|
|
|
|
|
|
|
First Clearing, LLC |
|
|
|
FBO Its Customers |
|
|
|
10750 Wheat First Drive |
|
|
|
Glen Allen, VA 23060 |
|
14% |
|
|
|
|
|
Nationwide Trust Co. |
|
|
|
FBO IPO Portfolio Accounting |
|
|
|
P.O. Box 182029 |
|
|
|
Columbus, OH 43218 |
|
12% |
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
11% |
|
|
|
|
|
National Financial Services LLC |
|
|
|
FEBO American Trust and Savings |
|
|
|
P.O. Box 938 |
|
|
|
Dubuque, IA 52004 |
|
9% |
|
|
|
|
|
National Financial Services LLC |
|
|
|
FEBO Bernhardt-Reese Unit Trust |
|
|
|
60 Macbain Avenue |
|
|
|
Atherton, CA 94027 |
|
8% |
|
64
|
|
|
|
International Strategic Portfolio |
|
|
|
|
|
|
|
Genworth Financial Trust Co. |
|
|
|
3200 North Central Avenue |
|
|
|
Phoenix, AZ 85012 |
|
37% |
|
|
|
|
|
Ameritrade Inc. |
|
|
|
FBO Its Customers |
|
|
|
P.O. Box 2226 |
|
|
|
Omaha, NE 68103 |
|
30% |
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
Special Custody Account |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
21% |
|
|
|
|
|
International Small Cap Portfolio |
|
|
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
Special Custody Account |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
64% |
|
|
|
|
|
Ameritrade Inc. |
|
|
|
FBO Its Customers |
|
|
|
P.O. Box 2226 |
|
|
|
Omaha, NE 68103 |
|
5% |
|
|
|
|
|
Emerging Markets Portfolio |
|
|
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
Special Custody Account |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
24% |
|
|
|
|
|
Developing Markets Portfolio |
|
|
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
Special Custody Account |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
71% |
|
|
|
|
|
Ameritrade Inc. |
|
|
|
FBO Its Customers |
|
|
|
P.O. Box 2226 |
|
|
|
Omaha, NE 68103 |
|
6% |
|
65
|
|
|
|
Capital Allocator Portfolio |
|
|
|
|
|
|
|
Charles Schwab & Co., Inc. |
|
|
|
FBO Its Customers |
|
|
|
101 Montgomery Street |
|
|
|
San Francisco, CA 94104 |
|
14% |
|
Under the 1940 Act, a shareholder that beneficially owns, directly or indirectly, more than 25% of a Portfolios total outstanding shares may be deemed a control person (as defined in the 1940 Act) of the Portfolio.
Certain of the shareholders are investment management clients of the Investment Manager that have entered into agreements with the Investment Manager pursuant to which the Investment Manager has investment discretion and voting power over any assets held in the clients accounts, including shares of the Portfolios. For purposes of the list above, the Fund considers the Investment Manager to be a beneficial owner of Portfolio shares held in management accounts on behalf of its investment management clients.
Generally, all shares have equal voting rights and will be voted in the aggregate, and not by class, except where voting by Class is required by law or where the matter involved affects only one Class. As used in this Statement of Additional Information, the vote of a majority of the outstanding voting securities means, with respect to the Fund or a Portfolio, the vote of the lesser of (i) 67% of the shares represented at a meeting if the holders of more than 50% of the outstanding shares of the Fund or Portfolio, as the case may be, are present in person or by proxy, or (ii) more than 50% of the outstanding shares of the Fund or Portfolio, as the case may be. Shareholders are entitled to one vote for each full share held, and fractional votes for fractional shares held.
Shareholders are not entitled to any preemptive, subscription or conversion rights and are freely transferable. All shares, when issued and paid for in accordance with the terms of the offering, will be fully paid and non-assessable by the Fund. Each share of the applicable Class of a Portfolio is entitled to such dividends and distributions out of the income earned on the assets belonging to that Portfolio as are declared in the discretion of the Funds Board. In the event of the liquidation of a Portfolio, shares of each Class of the Portfolio are entitled to receive the assets attributable to such Class of that Portfolio that are available for distribution based on the relative net assets of the applicable Class.
Unless otherwise required by the 1940 Act, ordinarily it will not be necessary for the Fund to hold annual meetings of shareholders. As a result, shareholders may not consider each year the election of Directors or the appointment of independent auditors. However, the holders of at least 10% of the shares outstanding and entitled to vote may require the Fund to hold a special meeting of shareholders for purposes of removing a Director from office. Shareholders may remove a Director by the affirmative vote of two-thirds of the Funds outstanding voting shares. In addition, the Board will call a meeting of shareholders for the purpose of electing Directors if, at any time, less than a majority of the Directors then holding office have been elected by shareholders.
The Fund is a series fund, which is a mutual fund divided into separate portfolios, each of which is treated as a separate entity for certain matters under the 1940 Act and for other purposes. A shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. For certain matters shareholders vote together as a group; as to others they vote separately by portfolio.
66
To date, the Board has authorized fifteen Portfolios. All consideration received by the Fund for shares of one of the Portfolios, and all assets in which such consideration is invested, will belong to that Portfolio (subject only to the rights of creditors of the Fund) and will be subject to the liabilities related thereto. The income attributable to, and the expenses of, one Portfolio would be treated separately from those of the other Portfolios. The Fund has the ability to create, from time to time, new series without shareholder approval.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted under the provisions of the 1940 Act or applicable state law or otherwise to the holders of the outstanding voting securities of an investment company, such as the Fund, will not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares of each portfolio affected by such matter. Rule 18f-2 further provides that a portfolio shall be deemed to be affected by a matter unless it is clear that the interests of each portfolio in the matter are identical or that the matter does not affect any interest of such portfolio. The Rule exempts the selection of independent auditors and the election of Directors from the separate voting requirements of the rule.
Each Portfolio will send annual and semi-annual financial statements to its shareholders.
The Funds Registration Statement, including the Prospectus, the Statement of Additional Information and the exhibits filed therewith, may be examined at the office of the SEC 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 the Fund. In addition to 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. For information on the special monthly summary of accounts, contact the Fund.
COUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Legal matters in connection with the issuance of the shares of the Fund offered hereby have been 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, is the
independent registered public accounting firm for the Fund.
67
Rating Categories
Description of certain ratings assigned by S&P and Moodys:
S&P
Long-term
AAA
An obligation rated AAA has the highest rating
assigned by S&P. The obligors capacity to meet its financial commitment on
the obligation is extremely strong.
AA
An obligation rated AA differs from the highest
rated obligations only in small degree. The obligors capacity to meet its
financial commitment on the obligation is very strong.
A
An obligation rated A is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligors capacity to meet
its financial commitment on the obligation is still strong.
BBB
An obligation rated BBB exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
BB, B, CCC, CC, and C
Obligations rated BB, B, CCC, CC, and C are
regarded as having significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse conditions.
BB
An obligation rated BB is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to the obligors inadequate capacity to meet its
financial commitment on the obligation.
B
An obligation rated B is more vulnerable to
nonpayment than obligations rated BB, but the obligor currently has the
capacity to meet its financial commitment on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligors capacity or
willingness to meet its financial commitment on the obligation.
CCC
An obligation rated CCC is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial commitment on
the obligation.
68
CC
An obligation rated CC is currently highly
vulnerable to nonpayment.
C
A subordinated debt or preferred stock obligation
rated C is currently highly vulnerable to nonpayment. The C rating may be
used to cover a situation where a bankruptcy petition has been filed or similar
action taken, but payments on this obligation are being continued. A C also
will be assigned to a preferred stock issue in arrears on dividends or sinking
fund payments, but that is currently paying.
D
An obligation rated D is in payment default. The D
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The D
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
r
The symbol r is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the credit rating.
Examples include: obligations linked or indexed to equities, currencies, or
commodities; obligations exposed to severe prepayment risksuch as
interest-only or principal-only mortgage securities; and obligations with
unusually risky interest terms, such as inverse floaters.
N.R.
The designation N.R. indicates that no rating has
been requested, that there is insufficient information on which to base a
rating, or that S&P does not rate a particular obligation as a matter of
policy.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign designation to show relative standing within the major rating categories.
Short-term
A-1
A short-term obligation rated A-1 is rated in the
highest category by S&P. The obligors capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are given a plus sign (+) designation. This indicates that the
obligors capacity to meet its financial commitment on these obligations is
extremely strong.
A-2
A short-term obligation rated A-2 is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories. However, the obligors
capacity to meet its financial commitment on the obligation is satisfactory.
A-3
A short-term obligation rated A-3 exhibits adequate
protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation.
B
A short-term obligation rated B is regarded as
having significant speculative characteristics. The obligor currently has the
capacity to meet its financial commitment on the obligation; however, it faces
69
major ongoing uncertainties which could lead to the obligors inadequate capacity to meet is financial commitment on the obligation.
C
A short-term obligation rated C is currently
vulnerable to nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial commitment on the
obligation.
D
A short-term obligation rated D is in payment
default. The D rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
Moodys
Long-term
Aaa
Bonds 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 edged. 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 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 or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than the
Aaa securities.
A
Bonds 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 some time in the
future.
Baa
Bonds 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 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.
70
B
Bonds 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 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 rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C
Bonds 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.
Note: Moodys applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
Prime rating system (short-term)
Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics:
|
|
|
|
|
Leading market positions in well-established industries. |
|
|
|
|
|
High rates of return on funds employed. |
|
|
|
|
|
Conservative capitalization structure with moderate reliance on debt and ample asset protection. |
|
|
|
|
|
Broad margins in earnings coverage of fixed financial charges and high internal cash generation. |
|
|
|
|
|
Well-established access to a range of financial markets and assured sources of alternate liquidity. |
Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
71
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
72
THE LAZARD FUNDS, INC.
PART C. OTHER INFORMATION
|
|
|
|
|
|
|
ITEM 28. |
EXHIBITS. |
|
|
(a) |
Articles of Incorporation, Articles of Amendment and Articles Supplementary(1), (2), (3), (6), (7), (8), (9), (10), (11), (12),* |
|
|
(b) |
By-Laws(9) |
|
|
(d) |
Investment Management Agreement, as revised* |
|
|
(e) |
Distribution Agreement, as revised(7) |
|
|
(g) |
Amended and Restated Custodian Contract(1) |
|
|
(h)(1) |
Revised Transfer Agency and Service Agreement(1) |
(h)(2) |
Amendment to Revised Transfer Agency and Service Agreement(1) |
(h)(3) |
Administration Agreement(4) |
|
|
(i) |
Opinion and Consent of Counsel(5) |
|
|
(j) |
Consent of Independent Registered Public Accounting Firm* |
|
|
(m)(1) |
Distribution and Servicing Plan, as revised* |
(m)(2) |
Form of Servicing Agreement, as revised* |
|
|
(n) |
18f-3 Plan, as revised* |
|
|
(p) |
Code of Ethics(8) |
|
|
Other Exhibits: |
|
|
|
(s) |
Powers of Attorney of Board Members(9) |
|
|
|
|
||
* |
Filed herewith. |
|
|
|
|
1. |
Incorporated by reference from Registrants Post-Effective Amendment No. 28 filed with the Securities and Exchange Commission (the SEC) on April 29, 2003. |
|
2. |
Incorporated by reference from Registrants Post-Effective Amendment No. 22 filed with the SEC on December 29, 2000. |
|
3. |
Incorporated by reference from Registrants Post-Effective Amendment No. 25 filed with the SEC on April 30, 2001. |
|
4. |
Incorporated by reference from Registrants Post-Effective Amendment No. 8 filed with the SEC on October 13, 1995. |
|
5. |
Incorporated by reference from Registrants Post-Effective Amendment No. 9 filed with the SEC on December 27, 1995. |
|
6. |
Incorporated by reference from Registrants Post-Effective Amendment No. 31 filed with the SEC on December 3, 2004. |
|
7. |
Incorporated by reference from Registrants Post-Effective Amendment No. 34 filed with the SEC on July 20, 2005. |
|
8. |
Incorporated by reference from Registrants Post-Effective Amendment No. 38 filed with the SEC on February 27, 2006. |
|
9. |
Incorporated by reference from Registrants Post-Effective Amendment No. 42 filed with the SEC on February 13, 2008. |
|
|
10. |
Incorporated by reference from Registrants Post-Effective Amendment No. 44 filed with the SEC on April 29, 2008. |
11. |
Incorporated by reference from Registrants Post-Effective Amendment No. 48 filed with the SEC on September 24, 2008. |
12. |
Incorporated by reference from Registrants Post-Effective Amendment No. 51 filed with the SEC on December 22, 2009. |
|
|
ITEM 29. |
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. |
|
|
|
None. |
|
|
ITEM 30. |
INDEMNIFICATION. |
|
|
Reference is made to Article NINTH of Registrants 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 Registrants By-Laws filed as Exhibit (b) 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 Registrant pursuant to the foregoing provisions, or otherwise, 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 the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a director, officer or controlling person of 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, 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 Agreement and the Distribution Agreement filed as Exhibits (d) and (e), respectively. |
|
|
ITEM 31. |
BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER. |
|
|
The descriptions of personnel of Lazard Asset Management LLC under the Captions Fund Management in the Prospectus and Management in the Statement of Additional Information constituting Parts A and B, respectively, of this Registration Statement are incorporated by reference herein. The following is a list of the directors and senior officers of the Investment Manager. None of the persons listed below has had other business connections of a substantial nature during the past two fiscal years. |
|
Title / Name |
Director |
Charles G. Ward |
Chief Executive Officer and Director |
Ashish Bhutani |
Deputy Chairmen |
Charles Carroll |
Andrew Lacey |
John Reinsberg |
Chairman USA |
Robert P. DeConcini |
Senior Managing Directors |
Gabrielle Boyle |
Andreas Huebner |
Robert Prugue |
|
Bill Smith |
Managing Directors |
Jennifer Abate |
Ardra Belitz |
Michael Bennett |
Maureen Beshar |
Christopher Blake |
Nicholas Bratt |
Charles Burgdorf |
Irene Cheng |
Henry Choon |
David Cleary |
Kenneth Colton |
Robert Connin |
Alan Custis |
Kun Deng |
James Donald |
Anthony Dote, Jr. |
Yury Dubrovsky |
Michael Fry |
Jeffrey Gould |
Timothy Griffen |
William Holzer |
Peter Hunsberger |
Matthias Kruse |
John Lee |
Mark Little |
Carmine Lizza |
Gerald B. Mazzari |
Andrew Norris |
Nathan Paul |
Brian Pessin |
David Pizzimenti |
Michael Powers |
Ganesh Ramachandran |
Eulogio (Joe) Ramos |
Sean Reynolds |
Susan Roberts |
Robert Rowland |
Nina Saglimbeni |
James Schachtel |
Ulrich Schweiger |
Darrin Sokol |
Jeremy Taylor |
Ronald Temple |
Richard Tutino |
Merida Welles |
Markus van de Weyer |
Charles Wilson |
|
|
ITEM 32. |
PRINCIPAL UNDERWRITERS. |
|
|
|
|
(a) |
Lazard Asset Management Securities LLC, a Delaware limited liability company, is the principal underwriter of the Registrant and also serves as the principal underwriter of Lazard Retirement Series, Inc. |
|
|
|
|
(b) |
The following information is given regarding directors and officers of Lazard Asset Management Securities LLC, whose principal business address is 30 Rockefeller Plaza, New York, New York 10112. |
|
|
|
Name |
Position and Offices with |
Position and Offices with |
Charles L. Carroll |
Chief Executive Officer |
President and Director |
Lorelei B. Martin |
Chief Compliance Officer |
None |
Gerald B. Mazzari |
Chief Financial Officer and Chief |
None |
Nathan A. Paul |
Chief Legal Officer |
Secretary |
|
|
(c) |
Not applicable. |
|
|
ITEM 33. |
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, as amended, and the rules thereunder are maintained as follows: journals, ledgers, securities records and other original records are maintained primarily at the offices of Registrants custodian, State Street Bank and Trust Company. All other records so required to be maintained are maintained at the offices of LAM, 30 Rockefeller Plaza, New York, New York 10112.
|
|
ITEM 34. |
MANAGEMENT SERVICES. |
|
|
|
Not applicable. |
|
|
ITEM 35. |
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 9th day of April, 2010.
|
|
|
|
|
THE LAZARD FUNDS, INC. |
|
|
|
|
|
|
|
By: |
/s/ Charles Carroll |
|
|
|
Charles Carroll, Chief Executive Officer |
|
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/ Charles Carroll |
|
President and Director |
April 9, 2010 |
Charles Carroll |
|
|
|
|
|
|
|
/s/ Stephen St. Clair |
|
Treasurer and Chief Financial Officer |
April 9, 2010 |
Stephen St. Clair |
|
|
|
|
|
|
|
/s/ Ashish Bhutani |
|
Director |
April 9, 2010 |
Ashish Bhutani |
|
|
|
|
|
|
|
/s/ Kenneth S. Davidson |
* |
Director |
April 9, 2010 |
Kenneth S. Davidson |
|
|
|
|
|
|
|
/s/ Nancy A. Eckl |
* |
Director |
April 9, 2010 |
Nancy A. Eckl |
|
|
|
|
|
|
|
/s/ Lester Z. Lieberman |
* |
Director |
April 9, 2010 |
Lester Z. Lieberman |
|
|
|
|
|
|
|
/s/ Leon M. Pollack |
* |
Director |
April 9, 2010 |
Leon M. Pollack |
|
|
|
|
|
|
|
/s/ Richard Reiss, Jr. |
* |
Director |
April 9, 2010 |
Richard Reiss, Jr. |
|
|
|
|
|
|
|
/s/ Robert M. Solmson |
* |
Director |
April 9, 2010 |
Robert M. Solmson |
|
|
|
|
|
|
*By: |
/s/ Nathan A. Paul |
|
|
Attorney-in-fact, Nathan A. Paul |
|
EXHIBIT INDEX
|
|
(a) |
Articles Supplementary |
|
|
(d) |
Investment Management Agreement, as revised |
|
|
(j) |
Consent of Independent Registered Public Accounting Firm |
|
|
(m)(1) |
Distribution and Servicing Plan, as revised |
|
|
(m)(2) |
Form of Servicing Agreement, as revised |
|
|
(n) |
18f-3 Plan, as revised |
L.-K#7\C7QK\C7/F_->2=U3R'=TKG
M:#N>9M<*YEIM%2=,\_7&K@JDN[-#%11Z_&WS*:^1\ARVJ4[SNZMJS??W/--:
MOI;ZB,O\F+:TWV+:]LFP/MI[YY.-.^[NTE&R]QRE@G)G=-JIE'[<9_)R-591
MY%W&IN?M^X[SCX2.\[L*U(GN>4R28$MMT/WNW>.[,3)?WQW92ONORW>G;<
MECN^[]NYFO-S%Y=`2PQIF.-'A5;M'H7N+5REU-)=K_;.\Y[O)WW=E.9N17NN
M=GKQV?>C$,YXW[7\5"W1M._CHMS"\A3RWB^6O+Q=[WVTMN2G-SFZ!8SMN1K$
MD'PQUCRK(H%;UR&3X[[H[[<4>\[LOOUMW7.IM3+:V&28_#'%\6DR>7QO>>AL
M;P?W)WE[#;N^[*L04[GE*UK,0_UD+5.F,[D8G&FY1S8G&[DVYV/?]U?M[VIW
MO=% HX:[F)1_Q(+DXW:MF6T30/FE=Q
M(5A'70C%NKUTV1,MX70QN*E;3[]LIWG=Y9P]QS_'W)O9_FQ+"C
M78D:24$SP^0[V(>[[S,U_M'+!DZ6^II^6*=YF2K>=T_CY&2^3[O:3WO=D_-_
M>.74R)"W7UQ%XVDB\;3IN8G]N\IW?+Q]MQ=WW7UN5`M]?E*AUY+V+9!&)II@
MH\MW[%\0B9^&&CR6?M73^1;.VOW79'6O=]T\7O\`K\G]?RQ[^6[O=QZ>
MF,3+GMGR6\OK?Z+HD9&3-;/9R_<^G9=E_,S^W[[NN1>2_=]VTK-JMNYYHY+9
MS)N#;Z1BMF=Z+PH_<_T17RN]5XU?N?Z(D./ON]4L]WW/U-Q`=QRNRHD1-M6<
M4LDI1+_;C\RKD;2B7X1^9!?<7W+WO9<;V';=]W7]MYZOU[5[CEW<'&Y5K7WD
M-7?E9=*5U(E%?+D
MY-*K7\C=_@/$<'A/&GI.,J)K;+_P!F
MG+FG5L\^^=[QY>>YPYVY.5XN.F?5SL'P,YDRQ^M\/#^WC2MT4L_3^)C=,:\N
MQLW['\/Q=OP<=N:,JEKV!BS*UW"$39ZY,8^,_NC[AD