-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KBOBmOaNUceLbx3k038eYW3DGu7flg0a2WlWelQj5DeIqCMX5aU7AsXeoL9eB5OG /EScvrIE6hQKgf8HEqmJiw== 0000899681-99-000205.txt : 19990503 0000899681-99-000205.hdr.sgml : 19990503 ACCESSION NUMBER: 0000899681-99-000205 CONFORMED SUBMISSION TYPE: N-14AE PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAZARD FUNDS INC CENTRAL INDEX KEY: 0000874964 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-14AE SEC ACT: SEC FILE NUMBER: 333-77493 FILM NUMBER: 99607499 BUSINESS ADDRESS: STREET 1: STATE STREET BANK & TRUST CO STREET 2: PO BOX 9110 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 2126326000 MAIL ADDRESS: STREET 1: STATE STREET BANK & TRUST CO STREET 2: PO BOX 9110 CITY: BOSTON STATE: MA ZIP: 02109 N-14AE 1 REGISTRATION NO. 333-_____ U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_| Pre-Effective Amendment No. __ |_| Post-Effective Amendment No. __ (Check appropriate box or boxes) THE LAZARD FUNDS, INC. (Exact Name of Registrant as Specified in Charter) (800) 632-6000 (Area Code and Telephone Number) 30 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10112 (Address of Principal Executive Offices: Number, Street, City, State, Zip Code) (Name and Address of Agent for Service) William G. Butterly III, Esq. c/o The Lazard Funds, Inc. 30 Rockefeller Plaza New York, New York 10112 copy to: Stuart H. Coleman, Esq. Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, New York 10038-4982 Approximate Date of Proposed Public Offering: As soon as practicable after this Registration Statement is declared effective. Registrant is registering shares of common stock, par value $.001 per share. No filing fee is required because Registrant previously registered 1,550,000,000 shares on Form N-1A (Registration Nos. 33-40682, 811-06312) pursuant to Rule 24f-2 under the Investment Company Act of 1940. It is proposed that this filing will become effective on June 1, 1999 pursuant to Rule 488. THE LAZARD FUNDS, INC. Form N-14 Cross Reference Sheet Pursuant to Rule 481(a) Under the Securities Act of 1933 FORM N-14 ITEM NO. PROSPECTUS/PROXY STATEMENT CAPTION PART A Item 1. Beginning of Registration Statement Cover Page and Outside Front Cover Page of Prospectus Item 2. Beginning and Outside Back Cover Page Cover Page of Prospectus Item 3. Synopsis Information and Risk Factors Summary Item 4. Information About the Transaction Letter to Shareholders; Summary; Reasons for the Exchange; Information About the Exchange Item 5. Information About the Registrant Letter to Shareholders; Additional Information About Each Portfolio Item 6. Information About the Company Being Letter to Shareholders; Acquired Additional Information About Each Portfolio Item 7. Voting Information Letter to Shareholders; Voting Information Item 8. Interest of Certain Persons and Experts Not Applicable Item 9. Additional Information Required Not Applicable for Reoffering by Persons Deemed to be Underwriters Statement of Additional INFORMATION CAPTION PART B Item 10. Cover Page Statement of Additional Information Cover Page Item 11. Table of Contents Not Applicable Item 12. Additional Information about the Statement of Additional Registrant Information of The Lazard Funds, Inc. dated May 1, 19991 Item 13. Additional Information about the Statement of Additional Company being Acquired Information of The Lazard Funds, Inc. dated May 1, 19991 Item 14. Financial Statements Statement of Additional Information of The Lazard Funds, Inc. dated May 1, 19991 PART C Item 15. Indemnification Item 16. Exhibits Item 17. Undertakings - ------------------- 1 Incorporated herein by reference to the Registration Statement of the Registrant on Form N-1A dated May 1, 1999 (File No. 33-40682). LAZARD BANTAM VALUE PORTFOLIO c/o The Lazard Funds, Inc. 30 Rockefeller Plaza New York, New York 10112 Dear Shareholder: As a shareholder of Lazard Bantam Value Portfolio (the "Portfolio"), a series of The Lazard Funds, Inc. (the "Fund"), you are entitled to vote on the proposal described below and in the enclosed materials. The Portfolio has been unable to attract sufficient assets under management to operate efficiently without expense subsidization by Lazard Asset Management, the Portfolio's investment manager. Accordingly, management of the Portfolio has determined that it would be in the best interest of the Portfolio and its shareholders if the Portfolio were to exchange its assets (subject to liabilities) for shares of another portfolio advised by Lazard Asset Management that has the same investment objective and substantially similar management policies. Greater aggregate net assets should enable shareholders to share in the benefits of economies of scale, which may result in lower overall expense ratios by spreading the fixed costs of portfolio operations over a larger asset base. The portfolio selected for this purpose is Lazard Small Cap Portfolio (the "Acquiring Portfolio"), another series of the Fund. The Portfolio would exchange (the "Exchange") all of its assets, subject to liabilities, attributable to its Institutional Shares and Open Shares, for Institutional Shares and Open Shares, respectively, of the Acquiring Portfolio (collectively, the "Acquiring Portfolio Shares"). Promptly thereafter, the Portfolio would distribute pro rata the Acquiring Portfolio Shares received in the Exchange to its shareholders in complete liquidation of the Portfolio. Thus, each shareholder will receive for his or her Institutional Shares or Open Shares of the Portfolio a number of corresponding Institutional Shares or Open Shares, respectively, of the Acquiring Portfolio equal to the value of such Portfolio shares as of the date of the Exchange. No sales charge or contingent deferred sales charge will be imposed at the time of the Exchange. The Exchange will not result in the imposition of Federal income tax on you. Shareholders who do not wish to participate in the Exchange may redeem their shares before the Exchange. Further information about the transaction is contained in the enclosed materials. Please take the time to review carefully the enclosed materials and then vote by completing, dating, signing and returning the enclosed proxy card. A self-addressed, postage-paid envelope has been enclosed for your convenience. THE FUND'S BOARD MEMBERS RECOMMEND THAT SHAREHOLDERS VOTE IN FAVOR OF THE PROPOSED TRANSACTION. IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED NO LATER THAN JULY 15, 1999. If you have any questions after considering the enclosed materials, please call toll-free 1-800-632-6000. Sincerely, Herbert W. Gullquist, President, THE LAZARD FUNDS, INC. June 7, 1999 Preliminary Copy LAZARD BANTAM VALVE PORTFOLIO NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To the Shareholders: A Special Meeting of Shareholders of Lazard Bantam Value Portfolio (the "Portfolio"), a series of The Lazard Funds, Inc. (the "Fund"), will be held at the offices of the Fund, 30 Rockefeller Plaza, 58th Floor, New York, New York 10112, on Friday, July 16, 1999 at 10:00 a.m. for the following purposes: 1. To approve or disapprove an Agreement and Plan of Reorganization providing for the transfer of all of the Portfolio's assets (subject to liabilities), attributable to its Institutional Shares and Open Shares, to the Lazard Small Cap Portfolio (the "Acquiring Portfolio"), a series of the Fund, solely in exchange (the "Exchange") for Institutional Shares and Open Shares, respectively, of the Acquiring Portfolio. The Portfolio will distribute the Institutional Shares and Open Shares of the Acquiring Portfolio received in the Exchange to its Institutional Class and Open Class shareholders, respectively, in an amount equal in net asset value to the Institutional Shares and Open Shares, respectively, of the Portfolio held by such shareholders as of the date of the Exchange, after which the Portfolio will be terminated as a series of the Fund; and 2. To transact such other business as may properly come before the meeting, or any adjournment or adjournments thereof. Shareholders of record at the close of business on June 1, 1999, will be entitled to receive notice of and to vote at the meeting. By Order of the Board of Directors William G. Butterly, III Secretary New York, New York June 7, 1999 ================================================================================ WE NEED YOUR PROXY VOTE IMMEDIATELY A SHAREHOLDER MAY THINK HIS OR HER VOTE IS NOT IMPORTANT, BUT IT IS VITAL. BY LAW, THE MEETING OF SHAREHOLDERS WILL HAVE TO BE ADJOURNED WITHOUT CONDUCTING ANY BUSINESS IF LESS THAN A QUORUM OF THE SHARES ELIGIBLE TO VOTE ARE REPRESENTED. IN THAT EVENT, THE PORTFOLIO, AT SHAREHOLDERS' EXPENSE, WOULD CONTINUE TO SOLICIT VOTES IN AN ATTEMPT TO ACHIEVE A QUORUM. CLEARLY, YOUR VOTE COULD BE CRITICAL TO ENABLE THE PORTFOLIO TO HOLD THE MEETING AS SCHEDULED, SO PLEASE RETURN YOUR PROXY CARD IMMEDIATELY. YOU AND ALL OTHER SHAREHOLDERS WILL BENEFIT FROM YOUR COOPERATION. ================================================================================ Preliminary Copy June 1, 1999 TRANSFER OF THE ASSETS OF LAZARD BANTAM VALUE PORTFOLIO TO AND IN EXCHANGE FOR INSTITUTIONAL SHARES AND OPEN SHARES OF LAZARD SMALL CAP PORTFOLIO PROSPECTUS/PROXY STATEMENT SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON FRIDAY, JULY 16, 1999 This Prospectus/Proxy Statement is furnished in connection with a solicitation of proxies by the Board of The Lazard Funds, Inc. (the "Fund"), on behalf of its Lazard Bantam Value Portfolio (the "Acquired Portfolio"), to be used at the Special Meeting of Shareholders (the "Meeting") of the Acquired Portfolio to be held on Friday, July 16, 1999 at 10:00 a.m., at the offices of the Fund, 30 Rockefeller Plaza, 58th Floor, New York, New York 10112, for the purposes set forth in the accompanying Notice of Special Meeting of Shareholders. Shareholders of record at the close of business on June 1, 1999 (each, a "Shareholder" and, collectively, the "Shareholders") are entitled to receive notice of and to vote at the Meeting. It is proposed that the Acquired Portfolio transfer all of its assets, subject to liabilities, attributable to its Institutional Shares and Open Shares, to the Lazard Small Cap Portfolio, another series of the Fund (the "Acquiring Portfolio," and, together with the Acquired Portfolio, the "Portfolios"), in exchange (the "Exchange") for Institutional Shares and Open Shares, respectively, of the Acquiring Portfolio (collectively, "Acquiring Portfolio Shares"), all as more fully described herein. Upon completion of the Exchange, Acquiring Portfolio Shares received by the Acquired Portfolio will be distributed to Acquired Portfolio Shareholders, with each Acquired Portfolio Shareholder receiving a pro rata distribution of Acquiring Portfolio Shares (or fractions thereof) for Acquired Portfolio shares held prior to the Exchange. Thus, each Shareholder will receive a number of Institutional Shares or Open Shares of the Acquiring Portfolio (or fractions thereof) equal in value to the aggregate net asset value of the Shareholder's Institutional Shares or Open Shares, respectively, of the Acquired Portfolio as of the date of the Exchange. ---------------------------------- This Prospectus/Proxy Statement, which should be retained for future reference, sets forth concisely information about the Acquiring Portfolio that Shareholders should know before voting on the Proposal or receiving Acquiring Portfolio Shares. A Statement of Additional Information dated June 1, 1999, relating to this Prospectus/Proxy Statement, has been filed with the Securities and Exchange Commission (the "Commission") and is incorporated herein by reference in its entirety. The Commission maintains a Web site (http://www.sec.gov) that contains the Statement of Additional Information, material incorporated by reference, and other information regarding the Acquiring Portfolio and the Acquired Portfolio. For a free copy of the Statement of Additional Information, write to the Acquiring Portfolio at its principal executive offices located at 30 Rockefeller Center, New York, New York 10112, or call 1-800-632-6000. - ---------------------------------------------------------------- AN INVESTMENT IN A PORTFOLIO IS NOT A BANK DEPOSIT. IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. IT IS NOT A COMPLETE INVESTMENT PROGRAM. YOU COULD LOSE MONEY IN A PORTFOLIO, BUT YOU ALSO HAVE THE POTENTIAL TO MAKE MONEY. - ---------------------------------------------------------------- THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE SECURITIES DESCRIBED IN THIS PROSPECTUS/PROXY STATEMENT OR DETERMINED WHETHER THIS PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME. - ---------------------------------------------------------------- Each Portfolio is an open-end management investment company, with the same investment adviser, distributor and investment objective. Both Portfolios also have substantially similar management policies. The substantive differences between the Acquired Portfolio and the Acquiring Portfolio are set forth in this Prospectus/Proxy Statement. The Fund's Prospectus dated May 1, 1999 and Annual Report for the fiscal year ended December 31, 1998 accompany this Prospectus/Proxy Statement and are incorporated herein by reference. FOR FREE COPIES OF THE FUND'S PROSPECTUS, WRITE TO THE FUND AT ITS PRINCIPAL EXECUTIVE OFFICES, LOCATED AT 30 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10112, OR CALL 1-800-632-6000. Shareholders are entitled to one vote for each Acquired Portfolio share held and fractional votes for each fractional Acquired Portfolio share held. Institutional Class and Open Class Shareholders will vote together on the Proposal. Acquired Portfolio shares represented by executed and unrevoked proxies will be voted in accordance with the specifications made thereon. If the enclosed form of proxy is executed and returned, it nevertheless may be revoked by giving another proxy or by letter or telegram directed to the Acquired Portfolio, which must indicate the Shareholder's name and account number. To be effective, such revocation must be received before the Meeting. Also, any Shareholder who attends the Meeting in person may vote by ballot at the Meeting, thereby canceling any proxy previously given. As of April 28, 1999, there were 4,070,937 Institutional Shares and 349,669 Open Shares of the Acquired Portfolio issued and outstanding. Proxy materials will be mailed to shareholders of record on or about June 7, 1999. TABLE OF CONTENTS PAGE Summary.................................................................. Reasons for the Exchange................................................. Information about the Exchange........................................... Additional Information about each Portfolio.............................. Voting Information....................................................... Financial Statements and Experts......................................... Other Matters............................................................ Notice to Banks, Broker/Dealers and Voting Trustees and Their Nominees..................................... Appendix A: Form of Agreement and Plan of Reorganization................................................. A-1 APPROVAL OF AN AGREEMENT AND PLAN OF REORGANIZATION PROVIDING FOR THE TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE ACQUIRED PORTFOLIO TO THE ACQUIRING PORTFOLIO SUMMARY This Summary is qualified by reference to the more complete information contained elsewhere in this Prospectus/Proxy Statement, the Fund's Prospectus and the form of Agreement and Plan of Reorganization attached to this Prospectus/Proxy Statement as Appendix A. PROPOSED TRANSACTION. The Fund's Board, including the Board members who are not "interested persons" (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")), has unanimously approved an Agreement and Plan of Reorganization (the "Plan"). The Plan provides that, subject to the requisite approval of Acquired Portfolio Shareholders, the Acquired Portfolio transfer to the Acquiring Portfolio all of its assets (subject to liabilities), attributable to its Institutional Shares and Open Shares, in exchange for Institutional Shares and Open Shares, respectively, of the Acquiring Portfolio having an aggregate net asset value equal to the aggregate net asset value of the Institutional Shares and Open Shares, respectively, of the Acquired Portfolio. The Acquired Portfolio will distribute such Acquiring Portfolio Shares among its Shareholders. Each Institutional Class and Open Class Shareholder of the Acquired Portfolio will receive Institutional Shares and Open Shares, respectively, of the Acquiring Portfolio(or fractions thereof), having an aggregate net asset value equal to the aggregate net asset value of the Shareholder's Institutional Shares or Open Shares of the Acquired Portfolio as of the date of the Exchange. Thereafter, the Acquired Portfolio will be terminated as a series of the Fund. As a result of the Exchange, each Shareholder will cease to be a shareholder of the Acquired Portfolio and will become a shareholder of the Acquiring Portfolio as of the close of business on the closing date of the Exchange. The Fund's Board has concluded unanimously that the Exchange would be in the best interests of Shareholders of the Acquired Portfolio and the interests of existing Shareholders of the Acquired Portfolio would not be diluted as a result of the transactions contemplated thereby. See "Reasons for the Exchange." TAX CONSEQUENCES. The Exchange is designed to qualify for federal income tax purposes as a tax-free reorganization. As a condition to the closing of the Exchange, each Portfolio will receive an opinion of counsel to the effect that, for Federal income tax purposes, (a) no gain or loss will be recognized by Acquired Portfolio Shareholders for Federal income tax purposes as a result of the Exchange, (b) the holding period and aggregate tax basis of Acquiring Portfolio Shares received by an Acquired Portfolio Shareholder will be the same as the holding period and aggregate tax basis of the Shareholder's Acquired Portfolio shares, and (c) the holding period and tax basis of the Acquired Portfolio's assets transferred to the Acquiring Portfolio as a result of the Exchange will be the same as the holding period and tax basis of such assets held by the Acquired Portfolio immediately prior to the Exchange. See "Information about the Exchange--Tax Consequences." COMPARISON OF THE PORTFOLIOS. The following discussion is qualified by the more complete information set forth in the Fund's Prospectus, which is incorporated herein by reference. GENERAL. Each Portfolio is an open-end, management investment company advised by Lazard Asset Management ("LAM"). Each Portfolio has the same investment objective, namely to seek capital appreciation. The management policies of the Portfolios are substantially similar in that each Portfolio seeks to achieve its investment objective by investing primarily in equity securities, principally common stocks, of U.S. companies that LAM believes are undervalued based on earnings, cash flow and asset values. The Acquired Portfolio invests primarily in U.S. companies with a market capitalization under $500 million, while the Acquiring Portfolio invests primarily in U.S. companies with a market capitalization in the range of companies represented in the Russell 2000 Index. The Russell 2000 Index is composed of selected common stocks of small, generally unseasoned U.S. companies with market capitalizations generally ranging between $250 million and $2.5 billion. Under normal market conditions, each Portfolio invests at least 80% of its total assets in small capitalization equity securities, which include common stocks, preferred stocks, convertible securities and warrants. The Acquired Portfolio also may invest in American and Global Depositary Receipts ("ADRs and GDRs"); the Acquiring Portfolio may not invest in ADRs and GDRs. Each Portfolio may invest up to 20% of its total assets in larger capitalization equity securities or investment grade debt securities, including cash equivalents. The Acquired Portfolio may invest up to 10% of its total assets in foreign securities trading in U.S. markets; the Acquiring Portfolio may not invest in these securities. Each Portfolio may engage in lending portfolio securities. In addition, the Acquired Portfolio may engage--and the Acquiring Portfolio may not engage--in options transactions and leveraging. For more information on either Portfolio's management policies, see "Investment Objectives, Strategies and Risks--Lazard Small Cap Portfolio" and "--Lazard Bantam Value Portfolio" in the Fund's Prospectus. RISK FACTORS. The investment risks of each Portfolio are substantially similar. Because stocks fluctuate in price, the value of your investment in either Portfolio will fluctuate, which means that you could lose money. A Portfolio's stock investments could cause sudden drops in share price or contribute to long-term underperformance. Small companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. Value stocks involve the risk that they may never reach what LAM believes is their full market value. Each Portfolio is a non-diversified investment company, meaning that the proportion of its assets that may be invested in the securities of a single issuer is not limited by the 1940 Act. Accordingly, each Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. In addition, the Acquired Portfolio may invest in ADRs and GDRs and may engage in options transactions and leveraging. These securities and investment techniques involve added risks to which the Acquiring Portfolio is not subject. See "Investment Objectives, Strategies and Risks--Lazard Small Cap Portfolio---Risk Factors" and "--Lazard Bantam Value Portfolio--Risk Factors" in the Fund's Prospectus for a further description of investment risks. FEES AND EXPENSES. The following information concerning fees and expenses of each Portfolio is derived from information set forth under the caption "Risk/Return Summary and Portfolio Expenses--Lazard Small Cap Portfolio" and "--Lazard Bantam Value Portfolio" in the Fund's Prospectus. Annual portfolio operating expenses set forth below are for the fiscal year ended December 31, 1998 for the Acquiring Portfolio and for the fiscal year ending December 31, 1999 for the Acquired Portfolio. The "Pro Forma After Exchange" information is based on assets of each Portfolio as of December 31, 1998. Annual portfolio operating expenses are paid out of Portfolio assets, so their effect is included in the Portfolio's share price ANNUAL PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets):
Pro Forma After Exchange Acquiring Acquired Acquiring Portfolio Portfolio Portfolio Institu- Institu- Institu- tional Open tional Open tional Open Shares Shares Shares Shares Shares Shares Management Fees .75% .75% .75% .75% .75% .75% Distribution and Service (12b-1)Fees none .25% none .25% none .25% Other Expenses .06% .09% .34% .60% .06% .09% Total Portfolio Operating Expenses .81% 1.09% 1.09% 1.60% .81% 1.09% Fee Waiver and Expense Reimbursement* N/A N/A .04% .25% N/A N/A Net Expenses* .81% 1.09% 1.05% 1.35% .81% 1.09% ----------------------- * Reflects a contractual obligation by LAM to reimburse the Acquired Portfolio through December 31, 1999 to the extent Total Portfolio Operating Expenses exceed 1.05% and 1.35% of the average daily net assets of the Acquired Portfolio's Institutional Shares and Open Shares, respectively.
EXAMPLE This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. PRO FORMA AFTER EXCHANGE ACQUIRING ACQUIRED ACQUIRING PORTFOLIO PORTFOLIO PORTFOLIO INSTITU- INSTITU- INSTITU- TIONAL OPEN TIONAL OPEN TIONAL OPEN SHARES SHARES SHARES SHARES SHARES SHARES 1 Year $83 $111 $107* $137* $83 $111 3 Years $259 $347 $343 $481 $259 $347 5 Years $450 $601 $597 $847 $450 $601 10 Years $1,002 $1,329 $1,325 $1,879 $1,002 $1,329 - --------------------- * 1 Year figure is based on a contractual agreement. PAST PERFORMANCE. The two tables below show the Acquiring Portfolio's annual returns for its Institutional Shares and long-term performance for its Institutional Shares and Open Shares. The first table shows you how the Acquiring Portfolio's performance has varied from year to year. The second compares the Acquiring Portfolio's performance over time to that of the Russell 2000 Index. Both tables assume reinvestment of dividends and distributions. For performance information of the Acquired Portfolio, see the Fund's Prospectus under the caption of "Risk/Return Summary and Portfolio Expenses--Lazard Bantam Value Portfolio." As with all mutual funds, the past is not a prediction of the future. YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) INSTITUTIONAL SHARES 24.75% 30.09% 2.03% 21.52% 23.93% 28.06% (12.62)% - ------------------------------------------------------------------------------ '92 '93 ' 94 '95 '96 '97 '98 Best Quarter: Q4 '98 +18.39% Worst Quarter: Q3 '98 -25.53% AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
Since 1 Year 5 Years Inception Institutional Shares (12.62%) 11.45% 16.11%1 Open Shares (12.86%) N/A 4.82%2 Russell 2000 Index (2.55%) 11.86% 13.89% (Institutional) 8.49% (Open) - ------------- 1 Inception date was 10/30/91. 2 Inception date was 1/30/97.
INVESTMENT RESTRICTIONS. The 1940 Act requires that certain investment policies and restrictions be designated as fundamental policies that cannot be changed without shareholder approval. In addition, the Acquired Portfolio has adopted certain non-fundamental policies which may be changed by vote of a majority of the Fund's Board members at any time. The investment policies and restrictions of the Portfolios are substantially similar. Differences between the Portfolios are note below, although none of these differences has any material effect on the portfolio management of the Portfolios. Each Portfolio may borrow money from banks for temporary purposes. The Acquired Portfolio also may borrow money to the extent permitted under the 1940 Act (which currently limits borrowing to no more than 33-1/3% of the Portfolio's total assets). The Acquiring Portfolio may lend portfolio securities up to 33-1/3% of its total assets, while the Acquired Portfolio may lend portfolio securities up to 10% of its total assets. The Acquiring Portfolio may not purchase securities of other investment companies, except in connection with a merger, consolidation or reorganization. The Acquired Portfolio has adopted this investment restriction as a non-fundamental policy. In addition, the Acquired Porfolio has a non-fundamental policy permitting it to purchase securities of other investment companies to the extent permitted under the 1940 Act (which currently limits such purchases to 10% of the Portfolio's total assets in securities of all other investment companies, 5% of the Portfolio's total assets in the securities of any one investment company or 3% of the total voting stock of anyone investment company). Neither Portfolio may purchase or sell real estate or real estate limited partnership interests, except that the Acquired Portfolio may purchase and sell securities that are secured by real estate. Neither Portfolio may purchase or sell commodities or commodity contracts, except that the Acquired Portfolio may purchase and sell swaps, options, futures and forward contracts, including those relating to indices. Neither Portofolio may invest in interests in oil and gas; this investment restriction is a non-fundamental policy of the Acquired Porfolio. Neither Portfolio may make short sales; this investment restriction is a non-fundamental policy of the Acquired Portfolio. Neither Portfolio may make investments for the purpose of exercising control or management; this investment restriction is a non-fundamental policy of the Acquired Portfolio. In all other respects, the investment policies and restrictions of the Portfolios are identical. INVESTMENT ADVISER. LAM serves as both the Acquired Portfolio's and the Acquiring Portfolio's investment adviser. LAM is a division of Lazard Freres, a New York limited liability company, which is registered as an investment adviser with the Securities and Exchange Commission and is a member of the New York, American and Midwest Stock Exchanges. Lazard Freres provides its clients with a wide variety of investment banking, brokerage and related services. LAM provides investment management services to client discretionary accounts with assets totaling approximately $64 billion as of March 31, 1999. Each Portfolio's primary portfolio managers are Herbert W. Gullquist and Eileen Alexanderson. Mr. Gullquist has been Vice Chairman of LAM since 1997. He joined LAM in November, 1982. Ms. Alexanderson has been a Managing Director of LAM since January, 1997. Prior thereto, she was a Senior Vice President of LAM. She joined LAM in 1979. CAPITALIZATION. Each Portfolio has classified its shares into two classes--Institutional Shares and Open Shares. The following table sets forth as of December 31, 1998 (1) the capitalization of each class of the Acquired Portfolio, (2) the capitalization of each class of the Acquiring Portfolio, and (3) the pro forma capitalization of the Acquiring Portfolio, as adjusted showing the effect of the Exchange had it occurred on such date.
PRO FORMA AFTER EXCHANGE ACQUIRING ACQUIRED ACQUIRING PORTFOLIO PORTFOLIO PORTFOLIO ----------------------------- -------------------------------- -------------------------- Institu- Institu- Institu- Tional Open Tional Open Tional Open Shares Shares Shares Shares Shares Shares ------------- ------------- ------------ -------------- -------------- ----------- Total net assets $1,411,502,906 $93,547,363 $59,737,554 $7,056,688 $1,466,502,906 $98,547,363 Net asset value per share $17.39 $17.35 $12.19 $12.11 $17.39 $17.35 Shares outstanding 81,187,480 5,391,454 4,899,918 582,897 84,330,242 5,679,963
As of April 28, 1999, there were 56,436,199 Institutional Shares of the Acquiring Portfolio outstanding at a net asset value per share of $17.62 and 5,716,464 Open Shares of the Acquiring Portfolio outstanding at a net asset value per share of $17.56. As of such date, there were 4,070,937 Institutional Shares of the Acquired Portfolio outstanding at a net asset value per share of $12.73 and 349,669 Open Shares of the Acquired Portfolio outstanding at a net asset value per share of $12.63. For information as to beneficial or record ownership of shares of the Acquired Portfolio and Acquiring Portfolio, see "Voting Information" below. PURCHASE PROCEDURES. The purchase procedures of the Acquired Portfolio and the Acquiring Portfolio with respect to each corresponding class of shares are identical. See "Shareholder Information--How to Buy Shares" in the Fund's Prospectus for a complete discussion of purchase procedures. REDEMPTION PROCEDURES. The redemption procedures of the Acquired Portfolio and the Acquiring Portfolio with respect to each class of shares are identical. See "Shareholder Information--Selling Shares" in the Fund's Prospectus for a complete discussion of redemption procedures. DISTRIBUTIONS. The dividend and distribution policies of each Portfolio are identical. See "Account Policies, Dividends and Taxes" in the Fund's Prospectus for a complete discussion of such policies. SHAREHOLDER SERVICES. The shareholder services offered by the Acquired Portfolio and the Acquiring Portfolio with respect to each corresponding class of shares are identical. See "Shareholder Information--Investor Services" in the Fund's Prospectus for a complete description of shareholder services. DISTRIBUTION AND SERVICING (12B-1) PLAN. The Fund on behalf of each Portfolio has adopted a Distribution and Servicing Plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Portfolio's Open Shares. Under the Plan, the Fund pays its distributor for advertising, marketing and distributing each Portfolio's Open Shares and for the provision of certain services to the holders of Open Shares a fee at the annual rate of .25% of the value of the daily net assets of the Portfolio's Open Shares. Because this fee is paid out of the Portfolio's assets on an ongoing basis, over time it will increase the cost of your investment and may cost you more than paying other types of sales charges. REASONS FOR THE EXCHANGE The Fund's Board members have concluded that the Exchange is in the best interests of each Portfolio's shareholders. The Board believes that the Exchange will permit shareholders to pursue the same investment objective in a larger fund without diluting shareholders' interests. The Acquired Portfolio has been unable to attract sufficient assets to operate efficiently without expense subsidization. As of April 28, 1999, the Acquired Portfolio had assets under management of approximately $56,000,000. The expense ratio of the Acquiring Portfolio is lower than that of the Acquired Portfolio. By combining the Acquired Portfolio with the Acquiring Portfolio, Acquired Portfolio Shareholders should obtain the benefits of economies of scale, which may result in lower overall expense ratios by spreading the fixed costs of fund operations over a larger asset base. In determining whether to recommend approval of the Exchange, the Board considered the following factors, among others: (1) the compatibility of each Portfolio's investment objective, management policies and investment restrictions, as well as shareholder services offered by each Portfolio; (2) the terms and conditions of the Exchange and their conclusion that the Exchange would not result in dilution of shareholder interests; (3) expense ratios and published information regarding the fees and expenses of each Portfolio, as well as the expense ratios of similar funds and the estimated expense ratio of the combined Portfolio; (4) the tax-free nature of the Exchange; and (5) the estimated costs incurred by each Portfolio as a result of the Exchange. In addition, the Board considered the Acquired Portfolio's inability to attract sufficient assets to operate efficiently without expense subsidization. INFORMATION ABOUT THE EXCHANGE PLAN OF EXCHANGE. The following summary of the Plan is qualified in its entirety by reference to the form of Plan attached hereto as Appendix A. The Plan provides that the Acquiring Portfolio will acquire all of the assets of the Acquired Portfolio, in exchange for Acquiring Portfolio Shares, and assume the Acquired Portfolio's liabilities on July 30, 1999 or such later date as may be agreed upon by the parties (the "Closing Date"). The number and Class of Acquiring Portfolio Shares to be issued to the Acquired Portfolio will be determined on the basis of the relative net asset values per share and aggregate net assets of the respective Class of shares of each Portfolio, generally computed as of the close of trading on the floor of the New York Stock Exchange (currently at 4:00 p.m., New York time) (except for options and futures contracts, if any, which will be valued 15 minutes after the close of trading) on the Closing Date (the "Valuation Time"). Portfolio securities of each Portfolio will be valued in accordance with the valuation practices of the Acquiring Portfolio, which are described under the caption "Shareholder Information -- General" in the Fund's Prospectus and under the caption "Determination of Net Asset Value" in the Statement of Additional Information. Before the Closing Date, the Acquired Portfolio will declare a dividend or other distribution which, together with all previous dividends and other distributions, will have the effect of distributing to Acquired Portfolio Shareholders all of the Acquired Portfolio's previously undistributed investment company taxable income (computed without regard to any deduction for dividends paid) and all of its net capital gains realized in the taxable year ending on or prior to the Closing Date (after reduction for any capital loss carryforward). As conveniently as practicable after the Closing Date, the Acquired Portfolio will distribute pro rata to its Institutional Class and Open Class shareholders of record as of the Valuation Time, in liquidation of the Acquired Portfolio, Institutional Shares and Open Shares, respectively, of the Acquiring Portfolio received by it in the Exchange. Such distribution will be accomplished by establishing an account on the share records of the Acquiring Portfolio in the name of each Acquired Portfolio Shareholder, each account representing the respective pro rata number of Acquiring Portfolio Shares due to each Acquired Portfolio Shareholder. After such distribution and the winding up of its affairs, the Acquired Portfolio will be terminated as a series of the Fund. After the Closing Date, any outstanding certificates representing Acquired Portfolio Shares will represent the Acquiring Portfolio Shares distributed to the record holders of the Acquired Portfolio. Upon presentation to the transfer agent of the Acquiring Portfolio, Acquired Portfolio Share certificates will be exchanged for Acquiring Portfolio Share certificates, at the applicable exchange rate. Certificates for Acquiring Portfolio Shares will be issued only upon the investor's written request. The Plan may be amended at any time prior to the Exchange. The Acquired Portfolio will provide its Shareholders with information describing any material amendment to the Plan prior to the Meeting. The obligations of each Portfolio under the Plan are subject to various conditions, including approval by the requisite number of Acquired Portfolio Shares and the continuing accuracy of various representations and warranties of each Portfolio being confirmed by the respective parties. The total expenses of the Exchange are expected to be approximately $30,000, and will be borne pro rata according to the aggregate net assets of each Portfolio. If the Exchange is not approved by Shareholders of the Acquired Portfolio, the Fund's Board will consider other appropriate courses of action. FEDERAL INCOME TAX CONSEQUENCES. The exchange of the Acquired Portfolio's assets for Acquiring Portfolio Shares is intended to qualify for federal income tax purposes as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). As a condition to the closing of the Exchange, each Portfolio will receive the opinion of Stroock & Stroock & Lavan LLP, counsel to each Portfolio, substantially to the effect that, on the basis of the existing provisions of the Code, Treasury regulations issued thereunder, current administrative regulations and pronouncements and court decisions, and certain facts, assumptions and representations, for federal income tax purposes: (1) the transfer of all of the Acquired Portfolio's assets in exchange for Acquiring Portfolio Shares and the assumption by the Acquiring Portfolio of the Acquired Portfolio's liabilities will constitute a "reorganization" within the meaning of Section 368(a)(1)(C)of the Code; (2) no gain or loss will be recognized by the Acquired Portfolio upon the transfer of its assets to the Acquiring Portfolio solely in exchange for Acquiring Portfolio Shares and the assumption by the Acquiring Portfolio of the Acquired Portfolio's liabilities or upon the distribution (whether actual or constructive) of Acquiring Portfolio Shares to the Acquired Portfolio Shareholders in exchange for their Acquired Portfolio Shares; (3) no gain or loss will be recognized by the Acquiring Portfolio upon the receipt of the Acquired Portfolio's assets solely in exchange for Acquiring Portfolio Shares and the assumption by the Acquiring Portfolio of the Acquired Portfolio's liabilities; (4) no gain or loss will be recognized by the Acquired Portfolio Shareholders upon the exchange of Acquired Portfolio Shares for Acquiring Portfolio Shares; (5) the aggregate tax basis for Acquiring Portfolio Shares received by each Acquired Portfolio Shareholder pursuant to the Exchange will be the same as the aggregate tax basis for Acquired Portfolio Shares held by such Shareholder immediately prior to the Exchange, and the holding period of Acquiring Portfolio Shares to be received by each Acquired Portfolio Shareholder will include the period during which the Acquired Portfolio Shares surrendered in exchange therefor were held by such Shareholder (provided the Acquired Portfolio Shares were held as capital assets on the date of the Exchange); and (6) the tax basis of the Acquired Portfolio's assets acquired by the Acquiring Portfolio will be the same as the tax basis of such assets to the Acquired Portfolio immediately prior to the Exchange, and the holding period of the Acquired Portfolio's assets in the hands of the Acquiring Portfolio will include the period during which those assets were held by the Acquired Portfolio. No opinion will be expressed as to the effect of the reorganization on (i) the Acquired Portfolio or the Acquiring Portfolio with respect to any asset as to which any unrealized gain or loss is required to be recognized for Federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting, and (ii) any Acquired Portfolio Shareholder that is required to recognize unrealized gains and losses for federal income tax purposes under a mark-to-market system of accounting. NEITHER PORTFOLIO HAS SOUGHT A TAX RULING FROM THE INTERNAL REVENUE SERVICE ("IRS"). THE OPINION OF COUNSEL IS NOT BINDING ON THE IRS NOR DOES IT PRECLUDE THE IRS FROM ADOPTING A CONTRARY POSITION. Acquired Portfolio Shareholders should consult their tax advisers regarding the effect, if any, of the proposed Exchange in light of their individual circumstances. Since the foregoing discussion relates only to the Federal income tax consequences of the Exchange, Acquired Portfolio Shareholders also should consult their tax advisers as to state and local tax consequences, if any, of the Exchange. REQUIRED VOTE AND BOARD'S RECOMMENDATION The Fund's Board has approved the Plan and the Exchange and has determined that (i) participation in the Exchange is in the Acquired Portfolio's best interests and (ii) the interests of Acquired Portfolio Shareholders will not be diluted as a result of the Exchange. An affirmative vote of a majority of the Acquired Portfolio's outstanding shares is required to approve the Plan and the Exchange. THE FUND'S BOARD, INCLUDING THE "NON-INTERESTED" BOARD MEMBERS, RECOMMENDS THAT ACQUIRED PORTFOLIO SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN AND THE EXCHANGE. ADDITIONAL INFORMATION ABOUT EACH PORTFOLIO Information about the Portfolios is incorporated by reference into this Prospectus/Proxy Statement from the Fund's Prospectus and Statement of Additional Information, each dated May 1, 1999, forming a part of its Registration Statement on Form N-1A (File No. 33-40682). Each Portfolio is subject to the requirements of the 1940 Act, and files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Fund may be inspected and copied at the Public Reference Facilities of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the Northeast regional office of the Commission at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material also can be obtained from the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates. VOTING INFORMATION In addition to the use of the mails, proxies may be solicited personally, by telephone or by telegraph, and the Acquired Portfolio may pay persons holding its Shares in their names or those of their nominees for their expenses in sending soliciting materials to their principals. The Acquired Portfolio may retain an outside firm to assist in the solicitation of proxies primarily by contacting shareholders by telephone and telegram, which would cost approximately $10,000 and would be borne pro rata between the Portfolios. Authorizations to execute proxies may be obtained by telephonic or electronically transmitted instructions in accordance with procedures designed to authenticate the shareholder's identity. In all cases where a telephonic proxy is solicited, the shareholder will be asked to provide his or her address, social security number (in the case of an individual) or taxpayer identification number (in the case of a non-individual) and the number of shares owned and to confirm that the shareholder has received the Prospectus/Proxy Statement and proxy card in the mail. Within 72 hours of receiving a shareholder's telephonic or electronically transmitted voting instructions, a confirmation will be sent to the shareholder to ensure that the vote has been taken in accordance with the shareholder's instructions and to provide a telephone number to call immediately if the shareholder's instructions are not correctly reflected in the confirmation. Shareholders requiring further information with respect to telephonic or electronically transmitted voting instructions or the proxy generally should contact D.F. King & Co., Inc. toll free at 1-800-735-3529. Any shareholder giving a proxy may revoke it at any time before it is exercised by submitting to the Fund a written notice of revocation or a subsequently executed proxy or by attending the Meeting and voting in person. If a proxy is properly executed and returned accompanied by instructions to withhold authority to vote, represents a broker "non-vote" (that is, a proxy from a broker or nominee indicating that such person has not received instructions from the beneficial owner or other person entitled to vote Acquired Portfolio Shares on a particular matter with respect to which the broker or nominee does not have discretionary power) or is marked with an abstention (collectively, "abstentions"), the Acquired Portfolio Shares represented thereby will be considered to be present at a Meeting for purposes of determining the existence of a quorum for the transaction of business. Abstentions will not constitute a vote "for" or "against" a matter and will be disregarded in determining the "votes cast" on an issue. For this reason, abstentions will have the effect of a "no" vote for the purpose of obtaining requisite approval for the Proposal. If a quorum is not present at the Meeting, or if a quorum is present but sufficient votes to approve the Proposal are not received, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies. In determining whether to adjourn the Meeting, the following factors may be considered: the nature of the Proposal, the percentage of votes actually cast, the percentage of negative votes actually cast, the nature of any further solicitation and the information to be provided to Shareholders with respect to the reasons for the solicitation. Any adjournment will require the affirmative vote of a majority of those shares affected by the adjournment that are represented at the Meeting in person or by proxy. If a quorum is present, the persons named as proxies will vote those proxies which they are entitled to vote "FOR" the Proposal in favor of such adjournment, and will vote those proxies required to be voted "AGAINST" the Proposal against any adjournment. A quorum is constituted with respect to the Acquired Portfolio by the presence in person or by proxy of the holders of more than one-third of the outstanding Acquired Portfolio Shares entitled to vote at the Meeting. The votes of Acquiring Portfolio Shareholders are not being solicited since their approval or consent is not necessary for the Exchange. As of April 6, 1999, the following Shareholders were known by the Acquired Portfolio to own of record 5% or more of the outstanding voting shares of the indicated Class of the Acquired Portfolio:
NAME AND ADDRESS ACQUIRED PORTFOLIO - ----------------- ------------------------------------------------------------------- PERCENTAGE OF NUMBER OF SHARES SHARES OUTSTANDING ---------------------------------- ------------------------------- Institutional Class Lazard Freres & Co. LLC 427,937 9.92% United Food & Commercial Workers Unions & Empl Pen Fund Small Cap 1800 Phoenix Blvd. Ste. 310 30 Rockefeller Plaza New York, NY 10112 Lazard Freres & Co. LLC 333,942 7.74% National Automatic Sprinkler Industry Small Cap Pension Fund Board of Trustees c/o Michael Jacobson 8000 Corporate Drive 30 Rockefeller Plaza New York, NY 10112 Lazard Freres & Co. LLC 331,235 7.68% Graphic Communications Intl. Union Supplemental Retirement & Disability Fund--Small Cap Attn: Mr. G L Griesbauer Jr. 1900 L Street NW 30 Rockefeller Plaza New York, NY 10112 Lazard Freres & Co. LLC 294,155 6.82% Ursinus College Attn: Business Office P.O. Box 1000 Main Street Collegeville, PA 19426-1000 Lazard Freres & Co. LLC 239,559 5.55% Smith College Attn: Jonathan Lovell Budget Director College Hall Northampton, MA 01063-0001 Open Class Charles Schwab & Co. Inc. 51,625 13.36% Special Custody Account For Benefit of Customers Attn: Mutual Fund 101 Montgomery St. San Francisco, CA 94104 Wendel & Co #725000 26,481 6.85% The Bank of New York Mutual Fund/Reorg Dept. PO Box 1066 Wall Street Station New York, NY 10268-1066
It is not anticipated that any of the 5% record owners identified above will own beneficially or of record 5% or more of the Acquiring Portfolio's outstanding shares as a result of the Exchange. As of April 6, 1999, the following were known by the Acquiring Portfolio to own of record 5% or more of the outstanding voting shares of the indicated Class of the Acquiring Portfolio:
PERCENTAGE OF SHARES NAME AND ADDRESS NUMBER OF SHARES OUTSTANDING - ---------------- --------------------- ----------------------------------- BEFORE AFTER EXCHANGE EXCHANGE ---------- --------- Institutional Class Merrill Lynch For The Sole 6,583,446 9.40% 7.81% Benefit of Its Customers Attn: Fund Admin LZSCX 4800 Deer Lake Dr. East 2nd Floor Jacksonville, FL 32246-6484 Lazard Freres & Co. LLC 7.71% 6.40% Mercantile Safe Deposit & Trust Co., Custodian for 5,399,058 Bakery & Confectionery Intl. Pension Plan--Small Cap--A/C26501-25 Attn: Charles Loritz PO Box 17002 30 Rockefeller Plaza New York, NY 10112 Northern Trust Trustee 3,742,709 5.34% 4.44% FBO ITT Industries Master Retirement Trust #22-51598 PO Box 92956 Chicago, IL 60675-2956 Open Class Connecticut General 3,932,274 72.94% 69.23% Life Ins Co. One Commercial Plaza 280 Trumbull St. Attn: Liz Pezda H-19-B P.O. Box 2975 Hartford, CT 06104
A shareholder who beneficially owns, directly or indirectly, more than 25% of a Fund's voting securities may be deemed a "control person" (as defined in the 1940 Act) of that Fund. As of April 6, 1999, Board members and officers of the Fund, as a group, owned less than 1% of the Acquiring Portfolio's outstanding shares. As of April 6, 1999, Board member and officers of the Fund, as a group, owned less than 1% of the Acquired Portfolio's outstanding shares. FINANCIAL STATEMENTS AND EXPERTS The audited financial statements of the Acquired Portfolio and the Acquiring Portfolio for the fiscal year ended December 31, 1998, have been incorporated herein by reference in reliance upon the authority of the report given by Anchin, Block & Anchin LLP, the Fund's independent auditors. OTHER MATTERS The Fund's Board members are not aware of any other matters which may come before the Meeting. However, should any such matters properly come before the Meeting, it is the intention of the persons named in the accompanying form of proxy to vote the proxy in accordance with their judgment on such matters. NOTICE TO BANKS, BROKER/DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES Please advise the Acquired Portfolio, in care of D.F. King & Co., Inc., 77 Water Street, New York, NY 10005, whether other persons are the beneficial owners of Acquired Portfolio Shares for which proxies are being solicited from you, and, if so, the number of copies of the Prospectus/Proxy Statement and other soliciting material you wish to receive in order to supply copies to the beneficial owners of such Shares. IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED STAMPED ENVELOPE. APPENDIX A FORM OF AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION dated ___________, 1999 (the "Agreement"), between THE LAZARD FUNDS, INC., a Maryland corporation (the "Fund"), on behalf of its Lazard Bantam Value Portfolio (the "Acquired Portfolio"), and the Fund, on behalf of its Lazard Small Cap Portfolio (the "Acquiring Portfolio" and, together with the Acquired Portfolio, the "Portfolios"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization") will consist of the transfer of all of the assets of the Acquired Portfolio, attributable to such Portfolio's Institutional Shares and Open Shares, in exchange solely for Institutional Shares and Open Shares, respectively, of common stock, par value $.001 per share, of the Acquiring Portfolio (collectively, "Acquiring Portfolio Shares"), and the assumption by the Acquiring Portfolio of the liabilities of the Acquired Portfolio, attributable to its Institutional Shares and Open Shares, and the distribution of the Acquiring Portfolio Shares to the shareholders of the Acquired Portfolio in liquidation of the Acquired Portfolio as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, each Portfolio is a registered, open-end, non-diversified management investment company; WHEREAS, the Acquired Portfolio owns securities which are assets of the character in which the Acquiring Portfolio is permitted to invest; WHEREAS, both the Acquiring Portfolio and the Acquired Portfolio are authorized to issue their respective Institutional Shares and Open Shares of common stock; WHEREAS, the Fund's Board has determined that the exchange of all of the assets and the liabilities of the Acquired Portfolio for Acquiring Portfolio Shares is in the best interests of the Acquiring Portfolio and its shareholders and that the interests of the Acquiring Portfolio's existing shareholders would not be diluted as a result of this transaction; and WHEREAS, the Fund's Board has determined that the exchange of all of the assets and the liabilities of the Acquired Portfolio for Acquiring Portfolio Shares is in the best interests of the Acquired Portfolio and its shareholders and that the interests of the Acquired Portfolio's existing shareholders would not be diluted as a result of this transaction: NOW THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED PORTFOLIO IN EXCHANGE FOR THE ACQUIRING PORTFOLIO SHARES AND ASSUMPTION OF ACQUIRED PORTFOLIO LIABILITIES AND LIQUIDATION OF THE ACQUIRED PORTFOLIO. 1.1. Subject to the terms and conditions contained herein, the Acquired Portfolio agrees to assign, transfer and convey to the Acquiring Portfolio all of the assets of the Acquired Portfolio, including all securities and cash (subject to liabilities), attributable to its Institutional Shares and Open Shares, and the Acquiring Portfolio agrees in exchange therefor (i) to deliver to the Acquired Portfolio the number of Acquiring Portfolio Institutional Shares and Open Shares, respectively, including fractional shares, determined as set forth in paragraph 2.3; and (ii) to assume the liabilities of the Acquired Portfolio, attributable to its Institutional Shares and Open Shares, as set forth in paragraph 1.2. Such transactions shall take place at the closing (the "Closing") on the closing date (the "Closing Date") provided for in paragraph 3.1. In lieu of delivering certificates for the Acquiring Portfolio Shares, the Acquiring Portfolio shall credit the Acquiring Portfolio Shares to the Acquired Portfolio's account on the books of the Acquiring Portfolio and shall deliver a confirmation thereof to the Acquired Portfolio. 1.2. The Acquired Portfolio will endeavor to discharge all of its known liabilities and obligations prior to the Closing Date. The Acquiring Portfolio shall assume all liabilities, expenses, costs, charges and reserves, attributable to the Acquired Portfolio's Institutional Shares and Open Shares, reflected on an unaudited statement of assets and liabilities of the Acquired Portfolio prepared by Lazard Asset Management, as of the Valuation Time (as defined in paragraph 2.1), in accordance with generally accepted accounting principles consistently applied from the prior audited period. The Acquiring Portfolio shall assume only those liabilities of the Acquired Portfolio reflected in that unaudited statement of assets and liabilities and shall not assume any other liabilities, whether absolute or contingent. 1.3. Delivery of the assets of the Acquired Portfolio to be transferred shall be made on the Closing Date and shall be delivered to State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, the Fund's custodian (the "Custodian"), for the account of the Acquiring Portfolio, with all securities not in bearer or book-entry form duly endorsed, or accompanied by duly executed separate assignments or stock powers, in proper form for transfer, with signatures guaranteed, and with all necessary stock transfer stamps, sufficient to transfer good and marketable title thereto (including all accrued interest and rights pertaining thereto) to the Custodian for the account of the Acquiring Portfolio free and clear of all liens, encumbrances, rights, restrictions and claims. All cash delivered shall be in the form of immediately available funds payable to the order of the Custodian for the account of the Acquiring Portfolio. 1.4. The Acquired Portfolio will pay or cause to be paid to the Acquiring Portfolio any interest received on or after the Closing Date with respect to assets transferred to the Acquiring Portfolio hereunder. The Acquired Portfolio will transfer to the Acquiring Portfolio any distributions, rights or other assets received by the Acquired Portfolio after the Closing Date as distributions on or with respect to the securities transferred. Such assets shall be deemed included in assets transferred to the Acquiring Portfolio on the Closing Date and shall not be separately valued. 1.5. As soon after the Closing Date as is conveniently practicable (the "Liquidation Date"), the Acquired Portfolio will liquidate and distribute pro rata to the Acquired Portfolio's Institutional Class and Open Class shareholders of record, determined as of the Valuation Time (collectively, the "Acquired Portfolio Shareholders"), the Institutional Shares and Open Shares, respectively, of the Acquiring Portfolio received by the Acquired Portfolio pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the applicable Class of Acquiring Portfolio Shares then credited to the account of the Acquired Portfolio on the books of the Acquiring Portfolio to open accounts on the share records of the Acquiring Portfolio in the names of the Acquired Portfolio Shareholders and representing the respective pro rata number of the applicable Class of Acquiring Portfolio Shares due such shareholders. All issued and outstanding shares of the Acquired Portfolio simultaneously will be canceled on the books of the Acquired Portfolio. 1.6. Ownership of Acquiring Portfolio Shares will be shown on the books of the Acquiring Portfolio's transfer agent. Shares of the Acquiring Portfolio will be issued in the manner described in the Fund's current prospectus and statement of additional information. 1.7. Any transfer taxes payable upon issuance of the Acquiring Portfolio Shares in a name other than the registered holder of the Acquiring Portfolio shares on the books of the Acquired Portfolio as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Portfolio Shares are to be issued and transferred. 1.8. Any reporting responsibility of the Acquired Portfolio is and shall remain the responsibility of the Acquired Portfolio up to and including the Closing Date and such later date on which the Acquired Portfolio's existence is terminated as a series of the Fund. 2. VALUATION. 2.1. The value of the Acquired Portfolio's assets to be acquired by the Acquiring Portfolio hereunder shall be the value of such assets computed as of the close of trading on the floor of the New York Stock Exchange (currently, 4:00 p.m., New York time), except that options and futures contracts will be valued 15 minutes after the close of trading on the floor of the New York Stock Exchange, on the Closing Date (such time and date being hereinafter called the "Valuation Time"), using the valuation procedures set forth in the Fund's Articles of Incorporation, as the same may have been amended (the "Fund's Articles of Incorporation"), and then-current prospectus or statement of additional information. 2.2. The net asset value of an Acquiring Portfolio Share shall be the net asset value per share computed as of the Valuation Time, using the valuation procedures set forth in the Fund's Article of Incorporation and then-current prospectus or statement of additional information. 2.3. The number of Institutional Shares and Open Shares of the Acquiring Portfolio to be issued (including fractional shares, if any) in exchange for the Acquired Portfolio's net assets attributable to the Acquired Portfolio's Institutional Shares and Open Shares, respectively, shall be determined by dividing the value of the net assets of the applicable Class of the Acquired Portfolio determined using the same valuation procedures referred to in paragraph 2.1 by the net asset value of one Acquiring Portfolio Share of the corresponding Class determined in accordance with paragraph 2.2. 2.4. All computations of value shall be made in accordance with the regular practices of the Fund. 3. CLOSING AND CLOSING DATE. 3.1. The Closing Date shall be July 30, 1999 or such later date as the parties may mutually agree. All acts taking place at the Closing shall be deemed to take place simultaneously as of the close of business on the Closing Date unless otherwise provided. The Closing shall be held at 5:00 p.m., New York time, at the offices of The Lazard Funds, Inc., 30 Rockefeller Center, New York, New York, or such other time and/or place as the parties may mutually agree. 3.2. The Custodian shall deliver at the Closing a certificate of an authorized officer stating that the Acquired Portfolio's portfolio securities, cash and any other assets have been presented for examination to the Acquiring Portfolio prior to the Closing Date and have been delivered in proper form to the Acquiring Portfolio. 3.3. If at the Valuation Time (a) the New York Stock Exchange or another primary trading market for portfolio securities of either Portfolio shall be closed to trading or trading thereon shall be restricted; or (b) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of either Portfolio is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.4. The transfer agent for the Acquired Portfolio shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Acquired Portfolio Shareholders and the number and percentage ownership of outstanding Institutional Shares and Open Shares of the Acquired Portfolio owned by each such Shareholder immediately prior to the Closing. The Acquiring Portfolio shall issue and deliver a confirmation evidencing the Acquiring Portfolio Shares to be credited on the Closing Date to the Fund's Secretary, or provide evidence satisfactory to the Acquired Portfolio that such Acquiring Portfolio Shares have been credited to the Acquired Portfolio's account on the books of the Acquiring Portfolio. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES. 4.1. The Acquired Portfolio represents and warrants to the Acquiring Portfolio as follows: (a) The Acquired Portfolio is a series of the Fund, a corporation duly organized and validly existing and in good standing under the laws of the State of Maryland, and has the power to own all its properties and assets and to carry out this Agreement. (b) The Acquired Portfolio is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, non-diversified, management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The Acquired Fund is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Fund's Articles of Incorporation or its Bylaws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Portfolio is a party or by which it is bound. (d) The Acquired Portfolio has no material contracts or other commitments outstanding (other than this Agreement) which will be terminated with liability to it on or prior to the Closing Date. (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquired Portfolio or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquired Portfolio knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions herein contemplated. (f) The Statement of Assets and Liabilities of the Acquired Portfolio for the fiscal year ended December 31, 1998 has been audited by Anchin, Block & Anchin LLP, independent auditors, and is in accordance with generally accepted accounting principles, consistently applied, and such statement (copies of which have been furnished to the Acquiring Portfolio) fairly reflects the financial condition of the Acquired Portfolio as of such date, and there are no known contingent liabilities of the Acquired Portfolio as of such date not disclosed therein. (g) Since December 31, 1998, there has not been any material adverse change in the Acquired Portfolio's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Portfolio of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed on the statement of assets and liabilities referred to in Section 1.2 hereof. (h) At the Closing Date, all Federal and other tax returns and reports of the Acquired Portfolio required by law to have been filed by such dates shall have been filed, and all Federal and other taxes shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Portfolio's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns. (i) For each fiscal year of its operation, the Acquired Portfolio has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (j) All issued and outstanding shares of each Class of the Acquired Portfolio are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. All of the issued and outstanding shares of each Class of the Acquired Portfolio will, at the time of Closing, be held by the persons and in the amounts set forth in the records of the transfer agent as provided in paragraph 3.4. The Acquired Portfolio does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquired Portfolio shares, nor is there outstanding any security convertible into any of the Acquired Portfolio shares. (k) On the Closing Date, the Acquired Portfolio will have full right, power and authority to sell, assign, transfer and deliver the assets to be transferred by it hereunder. (l) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of the Fund's Board and, subject to the approval of the Acquired Portfolio Shareholders and assuming due execution and delivery hereof by the Acquiring Portfolio, this Agreement will constitute the valid and legally binding obligation of the Acquired Portfolio, enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (m) The proxy statement of the Acquired Portfolio (the "Proxy Statement") included in the Registration Statement referred to in paragraph 5.5 (other than information therein that has been furnished by the Acquiring Portfolio) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not materially misleading. 4.2. The Acquiring Portfolio represents and warrants to the Acquired Portfolio as follows: (a) The Acquiring Portfolio is a series of the Fund, a corporation duly organized, validly existing and in good standing under the laws of Maryland, and has power to carry on its business as it is now being conducted and to carry out this Agreement. (b) The Acquiring Portfolio is registered under the 1940 Act as an open-end, non-diversified management investment company, and such registration has not been revoked or rescinded and is in full force and effect. (c) The current prospectus and statement of additional information of the Fund conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act and the rules and regulations of the Securities and Exchange Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading. (d) The Acquiring Portfolio is not, and the execution, delivery and performance of this Agreement will not result, in material violation of the Fund's Articles of Incorporation or its Bylaws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Portfolio is a party or by which it is bound. (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or to its knowledge threatened against the Acquiring Portfolio or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquiring Portfolio knows of no facts which might form the basis for the institution of such proceedings, and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects its business or its ability to consummate the transactions contemplated herein. (f) The Statement of Assets and Liabilities of the Acquiring Portfolio for the fiscal year ended December 31, 1998 has been audited by Anchin, Block & Anchin LLP, independent auditors, and is in accordance with generally accepted accounting principles, consistently applied, and such statement (copies of which have been furnished to the Acquired Fund) fairly reflects the financial condition of the Acquiring Fund as of such date. (g) Since December 31, 1998, there has not been any material adverse change in the Acquiring Portfolio's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Portfolio of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed on the statement of assets and liabilities as of December 31, 1998 referred to in Section 4.2(f) hereof. (h) At the Closing Date, all Federal and other tax returns and reports of the Acquiring Portfolio required by law then to be filed shall have been filed, and all Federal and other taxes shown as due on said returns and reports shall have been paid or provision shall have been made for the payment thereof. (i) For each fiscal year of its operation, the Acquiring Portfolio has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company. (j) All issued and outstanding shares of each Class of the Acquiring Portfolio are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Portfolio does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the Acquiring Portfolio Shares, nor is there outstanding any security convertible into any Acquiring Portfolio Shares. (k) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action, if any, on the part of the Fund's Board members and, subject to the approval of the Acquired Portfolio Shareholders and assuming due execution and delivery hereof by the Acquired Portfolio, this Agreement will constitute the valid and legally binding obligation of the Acquiring Portfolio enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and to general principles of equity and the discretion of the court (regardless of whether the enforceability is considered in a proceeding in equity or at law). (l) The Proxy Statement included in the Registration Statement (only insofar as it relates to the Acquiring Portfolio and is based on information furnished by the Acquiring Portfolio) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not materially misleading. 5. COVENANTS OF THE PORTFOLIOS. 5.1. Each Portfolio will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include payment of customary dividends and distributions. 5.2. The Acquired Portfolio will call a meeting of the Acquired Portfolio Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3. Subject to the provisions of this Agreement, each Portfolio will take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.4. As promptly as practicable, but in any case within sixty days after the Closing Date, the Acquired Portfolio shall furnish the Acquiring Portfolio, in such form as is reasonably satisfactory to the Acquiring Portfolio, a statement of the earnings and profits of the Acquired Portfolio for Federal income tax purposes which will be carried over to the Acquiring Portfolio as a result of Section 381 of the Code and which will be certified by the Fund's President or its Vice President and Treasurer. 5.5. The Acquired Portfolio will provide the Fund with information reasonably necessary for the preparation of a prospectus (the "Prospectus") which will include the Proxy Statement, referred to in paragraph 4.1(m), all to be included in a Registration Statement on Form N-14 of the Fund (the "Registration Statement"), in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act in connection with the meeting of the Acquired Portfolio Shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.6. The Acquiring Portfolio agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING PORTFOLIO. The obligations of the Acquiring Portfolio to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Portfolio of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 6.1. All representations and warranties of the Acquired Portfolio contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2. The Acquired Portfolio shall have delivered to the Acquiring Portfolio a statement of the assets and liabilities, together with a list of the Acquired Portfolio's portfolio securities showing the tax basis of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Fund's Treasurer. 6.3. The Acquired Portfolio shall have delivered to the Acquiring Portfolio on the Closing Date a certificate executed in its name by the Fund's President or Vice President and its Treasurer, in form and substance satisfactory to the Acquiring Portfolio, to the effect that the representations and warranties of the Acquired Portfolio made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquiring Portfolio shall reasonably request. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED PORTFOLIO. The obligations of the Acquired Portfolio to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquiring Portfolio of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Acquiring Portfolio contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 7.2. The Acquiring Portfolio shall have delivered to the Acquired Portfolio on the Closing Date a certificate executed in its name by the Fund's President or Vice President and its Treasurer, in form and substance reasonably satisfactory to the Acquired Portfolio, to the effect that the representations and warranties of the Acquiring Portfolio made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquired Portfolio shall reasonably request. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PORTFOLIO. If any of the conditions set forth below do not exist on or before the Closing Date with respect to either Portfolio, the other party to this Agreement shall, at its option, not be required to complete the transactions contemplated by this Agreement. 8.1. This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Portfolio in accordance with the provisions of the Fund's Articles of Incorporation. 8.2. On the Closing Date, no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3. All consents of other parties and all other consents, orders and permits of Federal, state and local regulatory authorities (including those of the Securities and Exchange Commission and of state Blue Sky and securities authorities) deemed necessary by either Portfolio to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of either Portfolio, provided that either party hereto may for itself waive any of such conditions. 8.4. The Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. 8.5. The Acquired Portfolio shall have declared a dividend or other distribution which, together with all previous dividends and other distributions, shall have the effect of distributing to the Acquired Portfolio Shareholders all of the Acquired Portfolio's investment company taxable income for all taxable years ending on or prior to the Closing Date (computed without regard to any deduction for dividends paid) and all of its net capital gain realized in all such taxable years (after reduction for any capital loss carryforward). 8.6. The parties shall have received an opinion of Stroock & Stroock & Lavan LLP substantially to the effect that for federal income tax purposes: (a) The transfer of all or substantially all of the Acquired Portfolio's assets in exchange for the Acquiring Portfolio Shares and the assumption by the Acquiring Portfolio of certain identified liabilities of the Acquired Portfolio will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be recognized by the Acquiring Portfolio upon the receipt of the assets of the Acquired Portfolio solely in exchange for the Acquiring Portfolio Shares and the assumption by the Acquiring Portfolio of certain identified liabilities of the Acquired Portfolio; (c) No gain or loss will be recognized by the Acquired Portfolio upon the transfer of the Acquired Portfolio's assets to the Acquiring Portfolio solely in exchange for the Acquiring Portfolio Shares and the assumption by the Acquiring Portfolio of certain identified liabilities of the Acquired Portfolio or upon the distribution (whether actual or constructive) of the Acquiring Portfolio Shares to Acquired Portfolio Shareholders in exchange for their shares of the Acquired Portfolio; (d) No gain or loss will be recognized by the Acquired Portfolio Shareholders upon the exchange of their Acquired Portfolio shares for Acquiring Portfolio Shares; (e) The aggregate tax basis for the Acquiring Portfolio Shares received by each of the Acquired Portfolio Shareholders pursuant to the Reorganization will be the same as the aggregate tax basis of the Acquired Portfolio shares held by such shareholder immediately prior to the Reorganization, and the holding period of the Acquiring Portfolio Shares to be received by each Acquired Portfolio Shareholder will include the period during which the Acquired Portfolio shares exchanged therefor were held by such Shareholder (provided the Acquired Portfolio shares were held as capital assets on the date of the Reorganization); and (f) The tax basis of the Acquired Portfolio assets transferred to the Acquiring Portfolio will be the same as the tax basis of such assets to the Acquired Portfolio immediately prior to the Reorganization, and the holding period of the assets of the Acquired Portfolio in the hands of the Acquiring Portfolio will include the period during which those assets were held by the Acquired Portfolio. No opinion will be expressed as to the effect of the reorganization on (i) the Acquired Portfolio or the Acquiring Portfolio with respect to any asset as to which any unrealized gain or loss is required to be recognized for Federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting, and (ii) any Acquired Portfolio Shareholder that is required to recognize unrealized gains and losses for federal income tax purposes under a mark-to-market system of accounting. 9. TERMINATION OF AGREEMENT. 9.1. This Agreement and the transaction contemplated hereby may be terminated and abandoned by resolution of the Board at any time prior to the Closing Date (and notwithstanding any vote of the Acquired Portfolio Shareholders) if circumstances should develop that, in the opinion of the Board, make proceeding with the Agreement inadvisable. 9.2. If this Agreement is terminated and the transaction contemplated hereby is abandoned pursuant to the provisions of this Section 9, this Agreement shall become void and have no effect, without any liability on the part of any party hereto or the Board members, officers or shareholders of either Fund, in respect of this Agreement, except that the parties shall bear the aggregate expenses of the transaction contemplated hereby in proportion to their respective net assets as of the date this Agreement is terminated or the exchange contemplated hereby is abandoned. 10. WAIVER. At any time prior to the Closing Date, any of the foregoing conditions may be waived by the Fund's Board if, in the judgment of the Fund's Board, such waiver will not have a material adverse effect on the benefits intended under this Agreement to the shareholders of the Portfolio. 11. MISCELLANEOUS. 11.1. None of the representations and warranties included or provided for herein shall survive consummation of the transactions contemplated hereby. 11.2. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and merges and supersedes all prior discussions, agreements and understandings of every kind and nature between them relating to the subject matter hereof. Neither party shall be bound by any condition, definition, warranty or representation, other than as set forth or provided in this Agreement or as may be, on or subsequent to the date hereof, set forth in a writing signed by the party to be bound thereby. 11.3. This Agreement shall be governed and construed in accordance with the internal laws of the State of New York, without giving effect to principles of conflict of laws; provided, however, that the due authorization, execution and delivery of this Agreement by the Acquiring Portfolio and the Acquired Portfolio shall be governed and construed in accordance with the internal laws of Maryland without giving effect to principles of conflict of laws. 11.4. This Agreement may be executed in counterparts, each of which, when executed and delivered, shall be deemed to be an original. 11.5. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 11.6. (a) Any references in this Agreement to actions taken, deliveries by or to, or representations and warranties made by or to, the Acquiring Fund shall be deemed references to actions taken, deliveries by or to, representations and warranties made by or to, the Fund on behalf of the Acquiring Fund. (b) Any references in this Agreement to actions taken, deliveries by or to, or representations and warranties made by or to, the Acquired Fund shall be deemed references to actions taken, deliveries by or to, representations and warranties made by or to, the Fund on behalf of the Acquired Fund. IN WITNESS WHEREOF, each Portfolio has caused this Agreement and Plan of Reorganization to be executed and attested on its behalf by its duly authorized representatives as of the date first above written. THE LAZARD FUNDS, INC. on behalf of its Lazard Small Cap Portfolio By: __________________________ Herbert W. Gullquist, President ATTEST: __________________________ __________________________ THE LAZARD FUNDS, INC. on behalf of its Lazard Bantam Value Portfolio By: __________________________ Herbert W. Gullquist, President ATTEST: __________________________ Preliminary Copy LAZARD BANTAM VALUE PORTFOLIO The undersigned shareholder of the Lazard Bantam Value Portfolio (the "Portfolio"), a series of The Lazard Funds, Inc. (the "Fund"), hereby appoints William G. Butterly, III and James Giallanza, and each of them, the attorneys and proxies of the undersigned, with full power of substitution, to vote, as indicated herein, all of the shares of common stock of the Portfolio standing in the name of the undersigned at the close of business on June 1, 1999, at a Special Meeting of Shareholders to be held at the offices of the Fund, 30 Rockefeller Center, 58th Floor, New York, New York 10112, at 10:00 a.m. on Friday, July 16, 1999, and at any and all adjournments thereof, with all of the powers the undersigned would possess if then and there personally present and especially (but without limiting the general authorization and power hereby given) to vote as indicated on the proposal, as more fully described in the Prospectus/Proxy Statement for the meeting. Please mark boxes in blue or black ink. 1. To approve or disapprove an Agreement and Plan of Reorganization providing for the transfer of all of the assets, subject to liabilities, of the Portfolio, attributable to the Portfolio's Institutional Shares and Open Shares, in exchange for Institutional Shares and Open Shares, respectively, of Lazard Small Cap Portfolio, and the pro rata distribution of those shares to Portfolio Institutional Class and Open Class, shareholders, respectively, and the subsequent termination of the Portfolio as a series of the Fund. FOR AGAINST ABSTAIN [ ] [ ] [ ] 2. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting, or any adjournment(s) thereof. THIS PROXY IS SOLICITED BY THE FUND'S BOARD OF DIRECTORS AND WILL BE VOTED FOR THE ABOVE PROPOSAL UNLESS OTHERWISE INDICATED. Signature(s) should be exactly as name or names appearing on this proxy. If shares are held jointly, each holder should sign. If signing is by attorney, executor, administrator, trustee or guardian, please give full title. Dated: ________________, 1999 -------------------------- Signature(s) -------------------------- Signature(s) Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope LAZARDFUNDS PROSPECTUS MAY 1, 1999 AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE SHARES DESCRIBED IN THIS PROSPECTUS OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
TABLE OF CONTENTS =============================================================================================================== PAGE -------------------------------------------- CAREFULLY REVIEW THIS IMPORTANT SECTION, WHICH 6 RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES SUMMARIZES EACH PORTFOLIO'S INVESTMENTS, RISKS, --------------------------------------------- PAST PERFORMANCE AND FEES. 6 Lazard Equity Portfolio 8 Lazard Mid Cap Portfolio 10 Lazard Small Cap Portfolio 12 Lazard Bantam Value Portfolio 14 Lazard Global Equity Portfolio 16 Lazard International Equity Portfolio 18 Lazard International Small Cap Portfolio 20 Lazard Emerging Markets Portfolio 22 Lazard Bond Portfolio 24 Lazard High Yield Portfolio 26 Lazard International Fixed-Income Portfolio 28 Lazard Strategic Yield Portfolio --------------------------------------------- REVIEW THIS SECTION FOR INFORMATION ON INVESTMENT 30 INVESTMENT OBJECTIVES, STRATEGIES AND RISKS STRATEGIES AND THEIR RISKS. --------------------------------------------- 30 Lazard Equity Portfolio 30 Lazard Mid Cap Portfolio 31 Lazard Small Cap Portfolio 32 Lazard Bantam Value Portfolio 32 Lazard Global Equity Portfolio 33 Lazard International Equity Portfolio 34 Lazard International Small Cap Portfolio 35 Lazard Emerging Markets Portfolio 36 Lazard Bond Portfolio 36 Lazard High Yield Portfolio 37 Lazard International Fixed-Income Portfolio 39 Lazard Strategic Yield Portfolio --------------------------------------------- REVIEW THIS SECTION FOR DETAILS ON THE PEOPLE AND 40 FUND MANAGEMENT ORGANIZATIONS WHO OVERSEE THE PORTFOLIOS. --------------------------------------------- 40 Investment Manager 40 Principal Portfolio Managers 41 Administrator 41 Distributor 41 Custodian
PAGE REVIEW THIS SECTION FOR DETAILS ON HOW SHARES ARE -------------------------------------------- VALUED, HOW TO PURCHASE, SELL AND EXCHANGE 41 SHAREHOLDER INFORMATION SHARES, RELATED CHARGES AND PAYMENTS OF DIVIDENDS -------------------------------------------- AND DISTRIBUTIONS. 41 General 42 How to Buy Shares 43 Distribution and Service (12b-1) Fees 43 How to Sell Shares 43 Investor Services 44 General Policies 45 Account Policies, Dividends and Taxes --------------------------------------------- REVIEW THIS SECTION FOR RECENT FINANCIAL INFORMATION. 45 FINANCIAL HIGHLIGHTS --------------------------------------------- --------------------------------------------- WHERE TO LEARN MORE ABOUT THE PORTFOLIOS BACK COVER ---------------------------------------------
------------------------------------------------------------------- LAZARD ASSET MANAGEMENT, A DIVISION OF LAZARD FRERES & CO. LLC ("LAZARD FRERES"), SERVES AS EACH PORTFOLIO'S INVESTMENT MANAGER. ------------------------------------------------------------------- The Portfolios The Lazard Funds, Inc. consists of twelve separate Portfolios, each with its own investment objective, strategies and risk/return profile. Each Portfolio invests in different securities, depending on its investment objective. Each Portfolio can be expected to have a different degree of risk and yield or return. Because you could lose money by investing in a Portfolio, be sure to read all risk disclosures carefully before investing. You should be aware that the Portfolios: o Are not bank deposits o Are not guaranteed, endorsed or insured by any bank, financial institution or government entity, such as the Federal Deposit Insurance Corporation o Are not guaranteed to achieve their stated goals Each Portfolio offers Institutional Shares and Open Shares. Institutional Shares and Open Shares have different investment minimums and different expense ratios. Who May Want to Invest? ------------------------------ EQUITY PORTFOLIOS ------------------------------ Lazard Equity Portfolio Lazard Mid Cap Portfolio Lazard Small Cap Portfolio Lazard Bantam Value Portfolio Lazard Global Equity Portfolio Lazard International Equity Portfolio Lazard International Small Cap Portfolio Lazard Emerging Markets Portfolio These Portfolios will invest primarily in equity securities, including common stocks, preferred stocks and convertible securities of both U.S. and non-U.S. issuers. The Investment Manager seeks to identify undervalued securities based on earnings, cash flow or asset values. The Investment Manager focuses on individual stock selection rather than on general stock market trends. The securities in which the Portfolios will invest generally have one or more of the following characteristics: o are undervalued relative to their earnings, cash flow or asset values; o have an attractive price/value relationship with expectations that some catalyst will cause the perception of value to change within two years; o are out of favor due to circumstances which are unlikely to harm the company's franchise or earnings power; o have low projected P/E or price-to-cash flow multiples; Because different types of stocks tend to shift in and out of favor depending on market and economic conditions, the Equity Portfolios' performance may sometimes be higher or lower than that of other types of funds (such as those emphasizing growth stocks). Consider investing in these Portfolios if you are: o seeking a long-term goal such as retirement o looking to add a growth component to your portfolio o willing to accept higher risks of investing in the stock market in exchange for potentially higher long-term returns These Portfolios may not be appropriate if you are: o pursuing a short-term goal or investing emergency reserves o uncomfortable with an investment that will go up and down in value --------------------------------- FIXED-INCOME PORTFOLIOS --------------------------------- Lazard Bond Portfolio Lazard High Yield Portfolio Lazard International Fixed-Income Portfolio Lazard Strategic Yield Portfolio These Portfolios will invest in a variety of both U.S. and non-U.S. fixed-income securities. The Investment Manager focuses on individual security selection in fixed-income markets. The risks associated with each Portfolio will vary. Each investor should review carefully the risks associated with each Portfolio. Consider investing in these Portfolios if you are: o looking to add a monthly income component to your investments o seeking higher potential returns than those offered by money market funds o willing to accept the risks of price and dividend fluctuations These Portfolios may not be appropriate if you are: o investing emergency reserves o uncomfortable with an investment that will go up and down in value RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES ================================================================================ LAZARD EQUITY PORTFOLIO INVESTMENT OBJECTIVE The Portfolio seeks long-term capital appreciation. PRINCIPAL INVESTMENT The Portfolio invests primarily in equity securities, STRATEGIES principally common stocks, of relatively large U.S. companies with market capitalizations in the range of the S&P 500(R) Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. PRINCIPAL INVESTMENT While stocks have historically been a leading choice RISKS of long-term investors, they do fluctuate in price. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Value stocks involve the risk that they may never reach what the Investment Manager believes is their full market value. They also may decline in price, even though in theory they are already underpriced. The accompanying bar chart and table provide some indication of the risks of investing in Lazard Equity Portfolio by showing the Portfolio's annual returns and its long-term performance. The bar chart shows how the performance of the Portfolio's Institutional Shares has varied from year to year. The table compares the performance of the Portfolio's Institutional Shares and Open Shares over time to that of the S&P 500(R) Index, a widely recognized, unmanaged index of common stocks. Both the bar chart and table assume reinvestment of dividends and distributions. Past performance does not indicate how the Portfolio will perform in the future. PERFORMANCE BAR CHART AND TABLE ------------------------------- YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES [FIGURES BELOW REPRESENTS BAR CHART IN THE PRINTED FORM] 1989 23.65% 1990 -4.73% 1991 27.55% 1992 5.26% 1993 18.62% 1994 4.23% 1995 37.69% 1996 19.91% 1997 25.13% 1998 17.31% - -------------------------------------------------------------------------------- Best quarter: 12/31/98 21.97% Worst quarter: 9/30/98 (15.02)% - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
INCEPTION PAST PAST PAST SINCE DATE YEAR 5 YEARS 10 YEARS INCEPTION - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES 6/1/87 17.31% 20.36% 16.83% 14.98% - -------------------------------------------------------------------------------- OPEN SHARES 2/5/97 16.98% N/A N/A 18.95% - -------------------------------------------------------------------------------- S&P 500(R) INDEX 28.57% 24.06% 19.21% 16.50% (Institutional) 31.00% (Open) - --------------------------------------------------------------------------------
FEES AND EXPENSES - ----------------- As an investor, you pay certain fees and expenses in connection with buying and holding Portfolio shares. The following table illustrates those fees and expenses. Keep in mind that the Portfolio has no sales charge (load). Annual Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected in the share price. EXPENSE EXAMPLE - --------------- Use the table at the right to compare the Portfolio's fees and expenses with those of other funds. It illustrates the amount of fees and expenses you would pay, assuming the following: o $10,000 initial investment o 5% annual return each year o redemption at the end of each period o no changes in operating expenses Because this example is hypothetical and for comparison only, your actual costs may be higher or lower. - -------------------------------------------------------------------------------- Annual Portfolio Operating Expenses (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) INSTITUTIONAL OPEN SHARES SHARES - -------------------------------------------------------------------------------- Management fees .75% .75% - -------------------------------------------------------------------------------- Distribution and Service (12b-1) fees None .25% - -------------------------------------------------------------------------------- Other expenses .10% .12% - -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses .85% 1.12% - -------------------------------------------------------------------------------- 1 3 5 10 LAZARD EQUITY PORTFOLIO Year Years Years Years INSTITUTIONAL SHARES $ 87 $271 $471 $1,049 - -------------------------------------------------------------------------------- OPEN SHARES $114 $356 $617 $1,363 - -------------------------------------------------------------------------------- RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES =============================================================================== LAZARD MID CAP PORTFOLIO INVESTMENT OBJECTIVE The Portfolio seeks long-term capital appreciation. PRINCIPAL INVESTMENT The Portfolio invests primarily in equity securities, STRATEGIES principally common stocks, of medium-size U.S. companies in the range of the Russell Midcap Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. PRINCIPAL INVESTMENT While stocks have historically been a leading choice RISKS of long-term investors, they do fluctuate in price. Midcap companies carry additional risks because their earnings tend to be less predictable, their shares prices more volatile and their securities less liquid than larger, more established companies. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Value stocks involve the risk that they may never reach what the Investment Manager believes is their full market value. They also may decline in price, even though in theory they are already underpriced. The Portfolio is non-diversified and may invest a greater precentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. The accompanying bar chart and table provide some indication of the risks of investing in the Lazard Mid Cap Portfolio by showing the Portfolio's annual returns and its long-term performance. The bar chart shows the performance of the Portfolio's Institutional Shares for its first full calendar year of operations. The table compares the performance of the Portfolio's Institutional Shares and Open Shares over time to that of the Russell Midcap Index, an unmanaged index of mid-capitalization common stocks. Both the bar chart and table assume reinvestment of dividends and distributions. Past performance does not indicate how the Portfolio will perform in the future. PERFORMANCE BAR CHART AND TABLE ------------------------------- YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES [FIGURES BELOW REPRESENTS BAR CHART IN THE PRINTED FORM] 1998 3.65% - -------------------------------------------------------------------------------- Best quarter: 12/31/98 17.09% Worst quarter: 9/30/98 (16.68)% - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998) INCEPTION PAST SINCE DATE YEAR INCEPTION - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES 11/4/97 3.65% 5.58% - -------------------------------------------------------------------------------- OPEN SHARES 11/4/97 3.42% 5.34% - -------------------------------------------------------------------------------- RUSSELL MIDCAP INDEX 10.10% 11.58% - -------------------------------------------------------------------------------- FEES AND EXPENSES - ----------------- As an investor, you pay certain fees and expenses in connection with buying and holding Portfolio shares. The following table illustrates those fees and expenses. Keep in mind that the Portfolio has no sales charge (load). Annual Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected in the share price. EXPENSE EXAMPLE - --------------- Use the table at the right to compare the Portfolio's fees and expenses with those of other funds. It illustrates the amount of fees and expenses you would pay, assuming the following: o $10,000 INITIAL INVESTMENT o 5% annual return each year o redemption at the end of each period o no changes in operating expenses, except for the first year periods reflected in the table Because this example is hypothetical and for comparison only, your actual costs may be higher or lower. - -------------------------------------------------------------------------------- Annual Portfolio Operating Expenses (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) INSTITUTIONAL OPEN SHARES SHARES - -------------------------------------------------------------------------------- Management fees .75% .75% - -------------------------------------------------------------------------------- Distribution and Service (12b-1) fees None .25% - -------------------------------------------------------------------------------- Other expenses .48% .66% - -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses 1.23% 1.66% - -------------------------------------------------------------------------------- Fee Waiver and Expense Reimbursement* .18% .31% - -------------------------------------------------------------------------------- Net Expenses* 1.05% 1.35% - -------------------------------------------------------------------------------- * Reflects a contractual obligation by the Investment Manager to waive its fees and/or reimburse the Portfolio through December 31, 1999 to the extent Total Annual Portfolio Operating Expenses exceed in any fiscal year 1.05% and 1.35% of the average daily net assets of the Portfolio's Institutional Shares and Open Shares, respectively. LAZARD MIDCAP 1 3 5 10 PORTFOLIO Year+ Years+ Years+ Years+ INSTITUTIONAL SHARES $107 $343 $597 $1,325 - -------------------------------------------------------------------------------- OPEN SHARES $137 $481 $847 $1,879 - -------------------------------------------------------------------------------- + Year 1 fees and expenses are based on a contractual agreement. RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES ================================================================================ LAZARD SMALL CAP PORTFOLIO INVESTMENT OBJECTIVE The Portfolio seeks long-term capital appreciation. PRINCIPAL INVESTMENT The Portfolio invests primarily in equity securities, STRATEGIES principally common stocks, of relatively small U.S. companies in the range of the Russell 2000 Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. PRINCIPAL INVESTMENT While stocks have historically been a leading choice RISKS of long-term investors, they do fluctuate in price. Small companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Value stocks involve the risk that they may never reach what the Investment Manager believes is their full market value. They also may decline in price, even though in theory they are already underpriced. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. The accompanying bar chart and table provide some indication of the risks of investing in the Lazard Small Cap Portfolio by showing the Portfolio's annual returns and its long-term performance. The bar chart shows how the performance of the Portfolio's Institutional Shares has varied from year to year. The table compares the performance of the Portfolio's Institutional Shares and Open Shares over time to that of the Russell 2000 Index, an unmanaged index of smaller capitalization common stocks. Both the bar chart and table assume reinvestment of dividends and distributions. Past performance does not indicate how the Portfolio will perform in the future. PERFORMANCE BAR CHART AND TABLE ------------------------------- YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES [FIGURES BELOW REPRESENTS BAR CHART IN THE PRINTED FORM] 1992 24.75% 1993 30.09% 1994 2.03% 1995 21.52% 1996 23.93% 1997 28.06% 1998 -12.62% - -------------------------------------------------------------------------------- Best quarter: 12/31/98 18.39% Worst quarter: 9/30/98 (25.53)% - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998)
INCEPTION PAST PAST SINCE DATE YEAR 5 YEARS INCEPTION - ----------------------------------------------------------------------------------- INSTITUTIONAL SHARES 10/30/91 (12.62)% 11.45% 16.11% - ----------------------------------------------------------------------------------- OPEN SHARES 1/30/97 (12.86)% N/A 4.82% - ----------------------------------------------------------------------------------- RUSSELL 2000 INDEX (2.55%) 11.86% 13.89% (Institutional) 8.49% (Open) - -----------------------------------------------------------------------------------
FEES AND EXPENSES - ----------------- As an investor, you pay certain fees and expenses in connection with buying and holding Portfolio shares. The following table illustrates those fees and expenses. Keep in mind that the Portfolio has no sales charge (load). Annual Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected in the share price. EXPENSE EXAMPLE - --------------- Use the table at the right to compare the Portfolio's fees and expenses with those of other funds. It illustrates the amount of fees and expenses you would pay, assuming the following: o $10,000 initial investment o 5% annual return each year o redemption at the end of each period o no changes in operating expenses Because this example is hypothetical and for comparison only, your actual costs may be higher or lower. Annual Portfolio Operating Expenses (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) INSTITUTIONAL OPEN SHARES SHARES - -------------------------------------------------------------------------------- Management fees .75% .75% - -------------------------------------------------------------------------------- Distribution and Service (12b-1) fees None .25% - -------------------------------------------------------------------------------- Other expenses .06% .09% - -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses .81% 1.09% LAZARD SMALL CAP 1 3 5 10 PORTFOLIO Year Years Years Years INSTITUTIONAL SHARES $83 $259 $450 $1,002 - -------------------------------------------------------------------------------- OPEN SHARES $111 $347 $601 $1,329 - -------------------------------------------------------------------------------- RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES ================================================================================ LAZARD BANTAM VALUE PORTFOLIO INVESTMENT OBJECTIVE The Portfolio seeks long-term capital appreciation. PRINCIPAL INVESTMENT The Portfolio invests primarily in equity securities STRATEGIES of small U.S. companies with market capitalizations under $500 million that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. PRINCIPAL INVESTMENT While stocks have historically been a leading choice RISKS of long-term investors, they do fluctuate in price. Small companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Value stocks involve the risk that they may never reach what the Investment Manager believes is their full market value. They also may decline in price, even though in theory they are already underpriced. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. The accompanying bar chart and table provide some indication of the risks of investing in the Lazard Bantam Value Portfolio by showing the Portfolio's annual returns and its long-term performance. The bar chart shows how the performance of the Portfolio's Institutional Shares has varied from year to year. The table compares the performance of the Portfolio's Institutional Shares and Open Shares over time to that of the Russell 2000 Index, an unmanaged index of smaller capitalization common stocks. Both the bar chart and table assume reinvestment of dividends and distributions. Past performance does not indicate how the Portfolio will perform in the future. PERFORMANCE BAR CHART AND TABLE ------------------------------- YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES [FIGURES BELOW REPRESENTS BAR CHART IN THE PRINTED FORM] 97 33.94% 98 -13.82% AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998) INCEPTION PAST SINCE DATE YEAR INCEPTION - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES 3/1/96 (13.82)% 16.39% - -------------------------------------------------------------------------------- OPEN SHARES 1/23/97 (14.02)% 4.96% - -------------------------------------------------------------------------------- RUSSELL 2000 INDEX 11.16% (Institutional) 8.22% (Open) - -------------------------------------------------------------------------------- FEES AND EXPENSES - ----------------- As an investor, you pay certain fees and expenses in connection with buying and holding Portfolio shares. The following table illustrates those fees and expenses. Keep in mind that the Portfolio has no sales charge (load). Annual Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected in the share price. EXPENSE EXAMPLE - --------------- Use the table at the right to compare the Portfolio's fees and expenses with those of other funds. It illustrates the amount of fees and expenses you would pay, assuming the following: o $10,000 initial investment o 5% annual return each year o redemption at the end of each period o no changes in operating expenses, except for the first year periods reflected in the table Because this example is hypothetical and for comparison only, your actual costs may be higher or lower. - -------------------------------------------------------------------------------- Annual Portfolio Operating Expenses (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) INSTITUTIONAL OPEN SHARES SHARES - -------------------------------------------------------------------------------- Management fees .75% .75% - -------------------------------------------------------------------------------- Distribution and Service (12b-1) fees None .25% - -------------------------------------------------------------------------------- Other expenses .34% .60% - -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses 1.09% 1.60% - -------------------------------------------------------------------------------- Fee Waiver and Expense Reimbursement* .04% .25% - -------------------------------------------------------------------------------- Net Expenses* 1.05% 1.35% - -------------------------------------------------------------------------------- * Reflects a contractual obligation by the Investment Manager to waive its fees and/or reimburse the Portfolio through December 31, 1999 to the extent Total Annual Portfolio Operating Expenses exceed in any fiscal year 1.05% and 1.35% of the average daily net assets of the Portfolio's Institutional Shares and Open Shares, respectively. LAZARD BANTAM VALUE 1 3 5 10 PORTFOLIO Year+ Years+ Years+ Years+ INSTITUTIONAL SHARES $107 $343 $597 $1,325 - -------------------------------------------------------------------------------- OPEN SHARES $137 $481 $847 $1,879 - -------------------------------------------------------------------------------- + Year 1 fees and expenses are based on a contractual agreement. RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES ================================================================================ LAZARD GLOBAL EQUITY PORTFOLIO INVESTMENT OBJECTIVE The Portfolio seeks long-term capital appreciation. PRINCIPAL INVESTMENT The Portfolio invests primarily in equity securities, principally common stocks, of relatively large companies, with market capitalizations in the range of the Morgan Stanley Capital International (MSCI) World Index, both U.S. and non-U.S., 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. The percentage of the Portfolio's assets invested in particular geographic sectors may shift from time to time based on the Investment Manager's judgment. Ordinarily, the Portfolio invests in at least three different foreign countries. PRINCIPAL INVESTMENT While stocks have historically been a leading choice RISKS of long-term investors, they do fluctuate in price. Foreign securities include special risks, such as exposure to currency fluctuations, changing political climate and potentially less liquidity. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Value stocks involve the risk that they may never reach what the Investment Manager believes is their full market value. They also may decline in price, even though in theory they are already underpriced. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. The accompanying bar chart and table provide some indication of the risks of investing in the Lazard Global Equity Portfolio by showing the Portfolio's annual returns and its long-term performance. The bar chart shows how the performance of the Portfolio's Institutional Shares has varied from year to year. The table compares the performance of the Portfolio's Institutional Shares and Open Shares over time to that of the MSCI World Index, an arithmetic, market value-weighted average return which is derived from equities of Europe, Australasia and Far East (EAFE) Index countries and equities from Canada and the U.S. Both the bar chart and table assume reinvestment of dividends and distributions. Past performance does not indicate how the Portfolio will perform in the future. PERFORMANCE BAR CHART AND TABLE ------------------------------- YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES [FIGURES BELOW REPRESENTS BAR CHART IN THE PRINTED FORM] 97 15.26% 98 17.10% - -------------------------------------------------------------------------------- Best quarter: 12/31/98 18.45% Worst quarter: 9/30/98 (16.39)% - -------------------------------------------------------------------------------- FEES AND EXPENSES - ----------------- As an investor, you pay certain fees and expenses in connection with buying and holding Portfolio shares. The following table illustrates those fees and expenses. Keep in mind that the Portfolio has no sales charge (load). Annual Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected in the share price. EXPENSE EXAMPLE - --------------- Use the table at the right to compare the Portfolio's fees and expenses with those of other funds. It illustrates the amount of fees and expenses you would pay, assuming the following: o $10,000 initial investment o 5% annual return each year o redemption at the end of each period o no changes in operating expenses, except for the first year periods reflected in the table. Because this example is hypothetical and for comparison only, your actual costs may be higher or lower. AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998) INCEPTION PAST SINCE DATE YEAR INCEPTION - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES 1/4/96 17.10% 16.09% - -------------------------------------------------------------------------------- OPEN SHARES 1/30/97 16.82% 17.52% - -------------------------------------------------------------------------------- MSCI WORLD INDEX 24.32% 17.57% (Institutional) 20.19% (Open) - -------------------------------------------------------------------------------- Annual Portfolio Operating Expenses (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) INSTITUTIONAL OPEN SHARES SHARES - -------------------------------------------------------------------------------- Management fees .75% .75% - -------------------------------------------------------------------------------- Distribution and Service (12b-1) fees None .25% - -------------------------------------------------------------------------------- Other expenses 1.43% 1.85% - -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses 2.18% 2.85% - -------------------------------------------------------------------------------- Fee Waiver and Expense Reimbursement* 1.13% 1.50% - -------------------------------------------------------------------------------- Net Expenses* 1.05% 1.35% - -------------------------------------------------------------------------------- * Reflects a contractual obligation by the Investment Manager to waive its fees and/or reimburse the Portfolio through December 31, 1999 to the extent Total Annual Portfolio Operating Expenses exceed in any fiscal year 1.05% and 1.35% of the average daily net assets of the Portfolio's Institutional Shares and Open Shares, respectively. LAZARD GLOBAL EQUITY 1 3 5 10 PORTFOLIO Year+ Years+ Years+ Years+ INSTITUTIONAL SHARES $107 $573 $1,066 $2,425 - -------------------------------------------------------------------------------- OPEN SHARES $137 $741 $1,371 $3,068 - -------------------------------------------------------------------------------- + Year 1 fees and expenses are based on a contractual agreement. RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES ================================================================================ LAZARD INTERNATIONAL EQUITY PORTFOLIO INVESTMENT OBJECTIVE The Portfolio seeks long-term capital appreciation. PRINCIPAL INVESTMENT The Portfolio invests primarily in equity securities, STRATEGIES principally common stocks, of relatively large non-U.S. companies with market capitalizations in the range of the Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East Index 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. The percentage of the Portfolio's assets invested in particular geographic sectors may shift from time to time based on the Investment Manager's judgment. Ordinarily, the Portfolio invests in at least three different foreign countries. PRINCIPAL INVESTMENT While stocks have historically been a leading choice RISKS of long-term investors, they do fluctuate in price. The Portfolio's performance will be influenced by political, social and economic factors. These risks include changes in currency exchange rates, a lack of adequate company information, political instability and differing auditing and legal standards. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Value stocks involve the risk that they may never reach what the Investment Manager believes is their full market value. They also may decline in price, even though in theory they are already underpriced. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. The accompanying bar chart and table provide some indication of the risks of investing in the Lazard International Equity Portfolio by showing the Portfolio's annual returns and its long-term performance. The bar chart shows how the performance of the Portfolio's Institutional Shares has varied from year to year. The table compares the performance of the Portfolio's Institutional Shares and Open Shares over time to that of the Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East Index, an unmanaged index comprised of international equities. Both the bar chart and table assume reinvestment of dividends and distributions. Past performance does not indicate how the Portfolio will perform in the future. PERFORMANCE BAR CHART AND TABLE ------------------------------- Year-by-Year Total Returns as of 12/31 for Institutional Shares [FIGURES BELOW REPRESENTS BAR CHART IN THE PRINTED FORM] 1992 -6.62% 1993 31.05% 1994 0.24% 1995 13.14% 1996 15.64% 1997 11.84% 1998 16.04% - -------------------------------------------------------------------------------- Best quarter: 12/31/98 17.96% Worst quarter: 9/30/98 (17.11)% - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998) INCEPTION PAST PAST SINCE DATE YEAR 5 YEARS INCEPTION - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES 10/29/91 16.04% 11.22% 11.26% - -------------------------------------------------------------------------------- OPEN SHARES 1/23/97 15.82% N/A 15.44% - -------------------------------------------------------------------------------- MSCI EUROPE, 20.00% 9.19% 8.65% AUSTRALASIA AND (Institutional) FAR EAST INDEX 12.82% (Open) - --------------------------------------------------------------------------- FEES AND EXPENSES - ----------------- As an investor, you pay certain fees and expenses in connection with buying and holding Portfolio shares. The following table illustrates those fees and expenses. Keep in mind that the Portfolio has no sales charge (load). Annual Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected in the share price. EXPENSE EXAMPLE - --------------- Use the table at the right to compare the Portfolio's fees and expenses with those of other funds. It illustrates the amount of fees and expenses you would pay, assuming the following: o $10,000 initial investment o 5% annual return each year o redemption at the end of each period o no changes in operating expenses Because this example is hypothetical and for comparison only, your actual costs may be higher or lower. - -------------------------------------------------------------------------------- Annual Portfolio Operating Expenses (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) INSTITUTIONAL OPEN SHARES SHARES - -------------------------------------------------------------------------------- Management fees .75% .75% - -------------------------------------------------------------------------------- Distribution and Service (12b-1) fees None .25% - -------------------------------------------------------------------------------- Other expenses .15% .24% - -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses .90% 1.24% - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL SMALL CAP 1 3 5 10 EQUITY PORTFOLIO Year Years Years Years INSTITUTIONAL SHARES $ 92 $287 $498 $1,108 - -------------------------------------------------------------------------------- OPEN SHARES $126 $393 $681 $1,500 - -------------------------------------------------------------------------------- RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES ================================================================================ LAZARD INTERNATIONAL SMALL CAP PORTFOLIO INVESTMENT OBJECTIVE The Portfolio seeks long-term capital appreciation. PRINCIPAL INVESTMENT The Portfolio invests primarily in equity securities, principally common stocks, of relatively small, non-U.S. companies in the range of the Morgan Stanley Capital International Europe, Australasia and Far East Small Cap Index 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 smaller, well managed non-U.S. companies that have the potential to grow. The percentage of the Portfolio's assets invested in particular geographic sectors may shift from time to time based on the Investment Manager's judgment. Ordinarily, the Portfolio invests in at least three different foreign countries. PRINCIPAL INVESTMENT While stocks have historically been a leading choice RISKS of long-term investors, they do fluctuate in price. The Portfolio's performance will be influenced by political, social and economic factors affecting non-U.S. companies. These risks include changes in currency exchange rates, a lack of adequate company information, political instability and differing auditing and legal standards. Small companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Value stocks involve the risk that they may never reach what the Investment Manager believes is their full market value. They also may decline in price, even though in theory they are already underpriced. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. The accompanying bar chart and table provide some indication of the risks of investing in the Lazard International Small Cap Portfoio by showing the Portfolio's annual returns and its long-term performance. The bar chart shows how the performance of the Portfolio's Institutional Shares has varied from year to year. The table compares the performance of the Portfolio's Institutional Shares and Open Shares over time to that of the Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East Small Cap Index and the Salomon Extended Market Index Ex-U.S., each of which is an unmanaged index of securities listed on foreign stock exchanges. Both the bar chart and table assume reinvestment of dividends and distributions. Past performance does not indicate how the Portfolio will perform in the future. PERFORMANCE BAR CHART AND TABLE ------------------------------- YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES [FIGURES BELOW REPRESENTS BAR CHART IN THE PRINTED FORM] 1994 -4.51% 1995 1.90% 1996 15.65% 1997 0.27% 1998 7.55% - -------------------------------------------------------------------------------- Best quarter: 3/31/98 20.62% Worst quarter: 9/30/98 (19.58)% - -------------------------------------------------------------------------------- FEES AND EXPENSES - ----------------- As an investor, you pay certain fees and expenses in connection with buying and holding Portfolio shares. The following table illustrates those fees and expenses. Keep in mind that the Portfolio has no sales charge (load). Annual Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected in the share price. EXPENSE EXAMPLE - --------------- Use the table at the right to compare the Portfolio's fees and expenses with those of other funds. It illustrates the amount of fees and expenses you would pay, assuming the following: o $10,000 initial investment o 5% annual return each year o redemption at the end of each period o no changes in operating expenses, except for the first year periods reflected in the table Because this example is hypothetical and for comparison only, your actual costs may be higher or lower. AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998) INCEPTION PAST PAST SINCE DATE YEAR 5 YEARS INCEPTION - ------------------------------------------------------------------------------ INSTITUTIONAL SHARES 12/1/93 7.55% 3.94% 5.58% - ------------------------------------------------------------------------------ OPEN SHARES 2/13/97 7.21% N/A 1.97% - ------------------------------------------------------------------------------ MSCI EUROPE, 5.44% (3.38)% (1.75)% AUSTRALASIA AND FAR (Institutional) EAST SMALL CAP INDEX (10.27)% (Open) - ------------------------------------------------------------------------------ SALOMON EMI 12.15% 4.47% 5.68% INDEX EX-U.S. (Institutional) 2.04% (Open) - ------------------------------------------------------------------------------- Annual Portfolio Operating Expenses (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) INSTITUTIONAL OPEN SHARES SHARES - -------------------------------------------------------------------------------- Management fees .75% .75% - -------------------------------------------------------------------------------- Distribution and Service (12b-1) fees None .25% - -------------------------------------------------------------------------------- Other expenses .29% .93% - -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses 1.04% 1.93% - -------------------------------------------------------------------------------- Fee Waiver and Expense Reimbursement* -- .50% - -------------------------------------------------------------------------------- Net Expenses* 1.04% 1.43% - -------------------------------------------------------------------------------- * Reflects a contractual obligation by the Investment Manager to waive its fee and/or reimburse the Portfolio through December 31, 1999 to the extent Total Annual Portfolio Operating Expenses exceed in any fiscal year 1.04% and 1.43% of the average daily net assets of the Portfolio's Institutional Shares and Open Shares, respectively. LAZARD INTERNATIONAL 1 3 5 10 PORTFOLIO Year+ Years+ Years+ Years+ INSTITUTIONAL SHARES $106 $331 $574 $1,271 - -------------------------------------------------------------------------------- OPEN SHARES $146 $558 $996 $2,213 - -------------------------------------------------------------------------------- + Year 1 fees and expenses are based on a contractual agreement. RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES ================================================================================ LAZARD EMERGING MARKETS PORTFOLIO INVESTMENT OBJECTIVE The Portfolio seeks long-term capital appreciation. PRINCIPAL INVESTMENT The Portfolio invests primarily in equity securities, STRATEGIES principally common stocks, of non-U.S. companies whose principal activities are in emerging market countries 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 Morgan Stanley Capital International Emerging Markets (Free) Index, which currently includes: Argentina, Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, Sri Lanka, South Africa, Taiwan, Thailand, Turkey and Venezuela. PRINCIPAL INVESTMENT The securities markets of emerging market countries RISKS can be extremely volatile. The Portfolio's performance will be influenced by political, social and economic factors affecting companies in emerging market countries. These risks include changes in currency exchange rates, a lack of adequate company information, political instability, and differing auditing and legal standards. In addition, emerging market countries generally have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Value stocks involve the risk that they may never reach what the Investment Manager believes is their full market value. They also may decline in price, even though in theory they are already underpriced. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. The accompanying bar chart and table provide some indication of the risks of investing in the Lazard Emerging Markets Portfolio by showing the Portfolio's annual returns and its long-term performance. The bar chart shows how the performance of the Portfolio's Institutional Shares has varied from year to year. The table compares the performance of the Portfolio's Institutional Shares and Open Shares over time to that of the Morgan Stanley Capital International (MSCI) Emerging Markets (Free) Index and the International Finance Corp. (IFC) Investable Total Return Index, an index of emerging markets securities that represents 65% of market capital compiled by the International Finance Corporation. Both the bar chart and table assume reinvestment of dividends and distributions. Past performance does not indicate how the Portfolio will perform in the future. PERFORMANCE BAR CHART AND TABLE ------------------------------- YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES [FIGURES BELOW REPRESENTS BAR CHART IN THE PRINTED FORM] 1995 -5.88% 1996 23.63% 1997 -9.84% 1998 -23.49% - -------------------------------------------------------------------------------- Best quarter: 6/30/97 12.07% Worst quarter: 9/30/98 (23.59)% - -------------------------------------------------------------------------------- FEES AND EXPENSES - ----------------- As an investor, you pay certain fees and expenses in connection with buying and holding Portfolio shares. The following table illustrates those fees and expenses. Keep in mind that the Portfolio has no sales charge (load). Annual Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected in the share price. EXPENSE EXAMPLE - --------------- Use the table at the right to compare the Portfolio's fees and expenses with those of other funds. It illustrates the amount of fees and expenses you would pay, assuming the following: o $10,000 initial investment o 5% annual return each year o redemption at the end of each period o no changes in operating expenses, except for the first year periods reflected in the table Because this example is hypothetical and for comparison only, your actual costs may be higher or lower. AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998) INCEPTION PAST SINCE DATE YEAR INCEPTION - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES 7/15/94 (23.49)% (5.10)% - -------------------------------------------------------------------------------- OPEN SHARES 1/8/97 (23.30)% (17.99)% - -------------------------------------------------------------------------------- MSCI EMERGING (25.34)% (8.70)% MARKETS (FREE) INDEX (Institutional) (19.40)% (Open) - -------------------------------------------------------------------------------- IFC INVESTABLE TOTAL (22.02)% (8.85)% RETURN INDEX (Institutional) (19.53)% (Open) - -------------------------------------------------------------------------------- Annual Portfolio Operating Expenses (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) INSTITUTIONAL OPEN SHARES SHARES - -------------------------------------------------------------------------------- Management fees 1.00% 1.00% - -------------------------------------------------------------------------------- Distribution and Service (12b-1) fees None .25% - -------------------------------------------------------------------------------- Other expenses .29% .51% - -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses 1.29% 1.76% - -------------------------------------------------------------------------------- Fee Waiver and Expense Reimbursement* .01% .16% - -------------------------------------------------------------------------------- Net Expenses* 1.28% 1.60% - -------------------------------------------------------------------------------- * Reflects a contractual obligation by the Investment Manager to waive its fees and/or reimburse the Portfolio through December 31, 1999 to the extent Total Annual Portfolio Operating Expenses exceed in any fiscal year 1.28% and 1.60% of the average daily net assets of the Portfolio's Institutional Shares and Open Shares, respectively. LAZARD EMERGING MARKETS 1 3 5 10 PORTFOLIO Year+ Years+ Years+ Years+ INSTITUTIONAL SHARES $130 $408 $707 $1,556 - -------------------------------------------------------------------------------- OPEN SHARES $163 $539 $939 $2,060 - -------------------------------------------------------------------------------- + Year 1 fees and expenses are based on a contractual agreement. RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES ================================================================================ LAZARD BOND PORTFOLIO INVESTMENT OBJECTIVE The Portfolio seeks to build and preserve capital. PRINCIPAL INVESTMENT The Portfolio invests in a range of bonds and other STRATEGIES fixed-income securities, including mortgage-backed securities, asset-backed securities, municipal securities, corporate fixed-income securities and U.S. Government securities. The Portfolio invests the major portion of its assets in investment grade fixed-income securities and may invest up to 10% of its total assets in fixed-income securities rated below investment grade ("junk" bonds). Under normal market conditions, the Portfolio invests at least 80% of its total assets in fixed-income securities with maturities of greater than one year. Under normal market conditions, the Portfolio's effective duration (a measure of interest rate sensitivity) will range between two and seven years. PRINCIPAL INVESTMENT While bonds are designed to produce a stable stream of RISKS income, their prices move inversely with changes in interest rates. The Portfolio is subject to credit risk, or the risk that an issuer of bonds held by the Portfolio fails to make timely interest or principal payments, potentially reducing the Portfolio's income or share price. The value of your investment in the Portfolio will go up and down, which means that you could lose money. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. The accompanying bar chart and table provide some indication of the risks of investing in the Lazard Bond Portfolio by showing the Portfolio's annual returns and its long-term performance. The bar chart shows how the performance of the Portfolio's Institutional Shares has varied from year to year. The table compares the performance of the Portfolio's Institutional Shares and Open Shares over time to that of the Lehman Intermediate Government/ Corporate Bond Index, an index calculated by Lehman Brothers. Both the bar chart and table assume reinvestment of dividends and distributions. Past performance does not indicate how the Portfolio will perform in the future. PERFORMANCE BAR CHART AND TABLE ------------------------------- YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES [FIGURES BELOW REPRESENTS BAR CHART IN THE PRINTED FORM] 1992 5.69% 1993 8.59% 1994 -4.20% 1995 16.20% 1996 4.36% 1997 8.56% 1998 5.77% - -------------------------------------------------------------------------------- Best quarter: 6/30/95 6.15% Worst quarter: 3/31/94 (2.40)% - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998) INCEPTION PAST PAST SINCE DATE YEAR 5 YEARS INCEPTION INSTITUTIONAL SHARES 11/12/91 5.77% 5.93% 6.69% - -------------------------------------------------------------------------------- OPEN SHARES 3/5/97 5.42% N/A 6.93% - -------------------------------------------------------------------------------- LEHMAN INTERMEDIATE 8.43% 6.60% 7.35% GOV'T/CORP. BOND INDEX (Institutional) 8.66% (Open) - -------------------------------------------------------------------------------- FEES AND EXPENSES - ----------------- As an investor, you pay certain fees and expenses in connection with buying and holding Portfolio shares. The following table illustrates those fees and expenses. Keep in mind that the Portfolio has no sales charge (load). Annual Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected in the share price. EXPENSE EXAMPLE - --------------- Use the table at the right to compare the Portfolio's fees and expenses with those of other funds. It illustrates the amount of fees and expenses you would pay, assuming the following: o $10,000 initial investment o 5% annual return each year o redemption at the end of each period o no changes in operating expenses, except for the first year periods reflected in the table. Because this example is hypothetical and for comparison only, your actual costs may be higher or lower. Annual Portfolio Operating Expenses (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) - -------------------------------------------------------------------------------- INSTITUTIONAL OPEN SHARES SHARES - -------------------------------------------------------------------------------- Management fees .50% .50% - -------------------------------------------------------------------------------- Distribution and Service (12b-1) fees None .25% - -------------------------------------------------------------------------------- Other expenses .29% .46% - -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses .79% 1.21% - -------------------------------------------------------------------------------- Fee Waiver and Expense Reimbursement* .01% .11% - -------------------------------------------------------------------------------- Net Expenses* .78% 1.10% - -------------------------------------------------------------------------------- * Reflects a contractual obligation by the Investment Manager to waive its fees and/or reimburse the Portfolio through December 31, 1999 to the extent Total Annual Portfolio Operating Expenses exceed in any fiscal year 1.28% and 1.60% of the average daily net assets of the Portfolio's Institutional Shares and Open Shares, respectively. 1 3 5 10 LAZARD BOND PORTFOLIO YEAR+ YEARS+ YEARS+ YEARS+ - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES $ 80 $251 $438 $977 - -------------------------------------------------------------------------------- OPEN SHARES $112 $373 $654 $1,456 - -------------------------------------------------------------------------------- + Year 1 fees and expenses are based on a contractual agreement. RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES ================================================================================ LAZARD HIGH YIELD PORTFOLIO INVESTMENT OBJECTIVE The Portfolio seeks maximum total return from a combination of capital appreciation and current income. PRINCIPAL INVESTMENT The Portfolio invests primarily in high-yielding STRATEGIES corporate fixed-income securities rated, at the time of purchase, below investment grade ("junk bonds"). While the Portfolio's emphasis is currently on high-yielding corporate bonds, it may also invest in mortgage-related securities, asset-backed securities, zero coupon securities, municipal securities, preferred stock and convertible securities of U.S. and non-U.S. issuers. The Portfolio may invest, to a limited extent, in companies in, or governments of, emerging market countries. PRINCIPAL INVESTMENT High yield bonds involve greater credit risk than RISKS investment grade bonds. They tend to be more volatile in price, less liquid and are considered speculative. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Other risk factors could have an effect on the Portfolio's performance, including: o if there is a decline in the credit quality of a bond, or a perception of a decline, the bond's value could fall, potentially lowering the Portfolio's share price o if the Portfolio's mortgage-related securities are paid off substantially earlier or later than expected, the Portfolio's share price or yield could be hurt o the price and yield of non-U.S. debt securities could be affected by factors ranging from political and economic instability to changes in currency exchange rates The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. PERFORMANCE BAR CHART AND TABLE ------------------------------- As of the date of this prospectus, the Portfolio had not completed a year of operations. Accordingly, no performance information is provided. FEES AND EXPENSES - ----------------- As an investor, you pay certain fees and expenses in connection with buying and holding Portfolio shares. The following table illustrates those fees and expenses. Keep in mind that the Portfolio has no sales charge (load). Annual Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected in the share price. EXPENSE EXAMPLE - --------------- Use the table at the right to compare the Portfolio's fees and expenses with those of other funds. It illustrates the amount of fees and expenses you would pay, assuming the following: o $10,000 INITIAL INVESTMENT o 5% annual return each year o redemption at the end of each period o no changes in operating expenses, except for the first year periods reflected in the table Because this example is hypothetical and for comparison only, your actual costs may be higher or lower. - -------------------------------------------------------------------------------- Annual Portfolio Operating Expenses (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) INSTITUTIONAL OPEN SHARES SHARES - -------------------------------------------------------------------------------- Management fees .75% .75% - -------------------------------------------------------------------------------- Distribution and Service (12b-1) fees None .25% - -------------------------------------------------------------------------------- Other expenses .80% 8.77% - -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses 1.55% 9.77% - -------------------------------------------------------------------------------- Fee Waiver and Expense Reimbursement* .50% 8.42% - -------------------------------------------------------------------------------- Net Expenses* 1.05% 1.35% - -------------------------------------------------------------------------------- * Reflects a contractual obligation by the Investment Manager to waive its fee and/or reimburse the Portfolio through December 31, 1999 to the extent Total Annual Portfolio Operating Expenses exceed in any fiscal year 1.05% and 1.35% of the average daily net assets of the Portfolio's Institutional Shares and Open Shares, respectively. LAZARD HIGH YIELD 1 3 5 10 PORTFOLIO Year+ Years+ Years+ Years+ INSTITUTIONAL SHARES $107 $441 $797 $1,803 - -------------------------------------------------------------------------------- OPEN SHARES $137 $2,067 $3,817 $7,513 - -------------------------------------------------------------------------------- + Year 1 fees and expenses are based on a contractual agreement. RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES ================================================================================ LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO INVESTMENT OBJECTIVE The Portfolio seeks maximum total return from a combination of capital appreciation and current income. PRINCIPAL INVESTMENT The Portfolio generally invests at least 80% of its STRATEGIES total assets in fixed-income securities of companies within, or governments, their agencies or instrumentalities of, at least three different non-U.S. countries. The Investment Manager currently intends to invest the Portfolio's assets primarily in companies within, or governments of, Continental Europe, the United Kingdom, Canada and the Pacific Basin. The Portfolio invests primarily in non-U.S. fixed-income securities of varying maturities. The Portfolio typically invests more than half of its total assets in corporate bonds, mortgage-related securities and asset-backed securities. The Portfolio typically invests less than half of its total assets in foreign government obligations. The Portfolio generally invests at least 85% of its total assets in investment grade fixed-income securities and may invest up to 15% of its total assets in fixed-income securities rated below investment grade ("junk" bonds). Under normal market conditions, the Portfolio's effective duration (a measure of interest rate sensitivity) will range between two and eight years. PRINCIPAL INVESTMENT While bonds are designed to produce a stable stream of RISKS income, their prices move inversely with changes in interest rates. The Portfolio is subject to credit risk, or the risk that an issuer of bonds held by the Portfolio fails to make timely interest or principal payments, potentially reducing the Portfolio's income or share price. The Portfolio's performance will be influenced by political, social and economic factors of non-U.S. countries. These risks include changes in currency exchange rates, a lack of adequate company information, political instability and differing auditing and legal standards. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Mortgage-related securities can have a different interest rate sensitivity than other bonds, because of prepayments and other factors. For example, when interest rates fall, mortgage-related securities may be paid off earlier than expected, and the Portfolio may reinvest those assets at lower rates. This lessens these securities appreciation potential when interest rates decline. When interest rates rise, mortgage-related securities may decline less in price, given their generally higher coupon. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. The accompanying bar chart and table provide some indication of the risks of investing in the Lazard International Fixed-Income Portfolio by showing the Portfolio's annual returns and its long-term performance. The bar chart shows how the performance of the Portfolio's Institutional Shares has varied from year to year. The table compares the performance of the Portfolio's Institutional Shares and Open Shares over time to that of the Salomon World Government Bond Index Ex-U.S., an index compiled by Salomon Smith Barney. Both the bar chart and table assume reinvestment of dividends and distributions. Past performance does not indicate how the Portfolio will perform in the future. PERFORMANCE BAR CHART AND TABLE ------------------------------- YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES [FIGURES BELOW REPRESENTS BAR CHART IN THE PRINTED FORM] 1992 2.03% 1993 15.67% 1994 4.17% 1995 19.38% 1996 5.52% 1997 -5.58% 1998 13.20% - -------------------------------------------------------------------------------- Best quarter: 3/31/95 13.20% Worst quarter: 3/31/97 (5.63)% - -------------------------------------------------------------------------------- FEES AND EXPENSES - ----------------- As an investor, you pay certain fees and expenses in connection with buying and holding Portfolio shares. The following table illustrates those fees and expenses. Keep in mind that the Portfolio has no sales charge (load). Annual Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected in the share price. EXPENSE EXAMPLE - --------------- Use the table at the right to compare the Portfolio's fees and expenses with those of other funds. It illustrates the amount of fees and expenses you would pay, assuming the following: o $10,000 initial investment o 5% annual return each year o redemption at the end of each period o no changes in operating expenses, except for the first year periods reflected in the table Because this example is hypothetical and for comparison only, your actual costs may be higher or lower. AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998) INCEPTION PAST PAST SINCE DATE YEAR 5 YEARS INCEPTION - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES 11/8/91 13.20% 7.00% 7.86% - -------------------------------------------------------------------------------- OPEN SHARES 1/8/97 12.92% N/A 3.72% - -------------------------------------------------------------------------------- SALOMON WORLD 17.19% 8.26% 9.61% GOVERNMENT BOND (Institutional) INDEX EX-U.S. 6.81% (Open) - -------------------------------------------------------------------------------- Annual Portfolio Operating Expenses (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) INSTITUTIONAL OPEN SHARES SHARES - -------------------------------------------------------------------------------- Management Fees .75% .75% - -------------------------------------------------------------------------------- Distribution and Service (12b-1) fees None .25% - -------------------------------------------------------------------------------- Other expenses .35% .92% - -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses 1.10% 1.92% - -------------------------------------------------------------------------------- Fee Waiver and Expense Reimbursement* .01% .57% - -------------------------------------------------------------------------------- Net Expenses* 1.09% 1.35% - -------------------------------------------------------------------------------- * Reflects a contractual obligation by the Investment Manager to waive its fees and/or reimburse the Portfolio through December 31, 1999 to the extent Total Annual Portfolio Operating Expenses exceed in any fiscal year 1.09% and 1.35% of the average daily net assets of the Portfolio's Institutional Shares and Open Shares, respectively. LAZARD INTERNATIONAL 1 3 5 10 FIXED-INCOME PORTFOLIO Year+ Years+ Years+ Years+ INSTITUTIONAL SHARES $111 $349 $605 $1,339 - -------------------------------------------------------------------------------- OPEN SHARES $137 $548 $984 $2,197 - -------------------------------------------------------------------------------- + Year 1 fees and expenses are based on a contractual agreement. RISK/RETURN SUMMARY AND PORTFOLIO EXPENSES ================================================================================ LAZARD STRATEGIC YIELD PORTFOLIO INVESTMENT OBJECTIVE The Portfolio seeks total return from a combination of capital appreciation and current income. PRINCIPAL INVESTMENT The Portfolio invests in a wide variety of U.S. and STRATEGIES non-U.S. fixed-income securities. The Portfolio typically invests approximately half of its total assets in investment grade corporate bonds, mortgage-related securities and asset-backed securities. The Portfolio typically invests approximately half of its total assets in fixed-income securities rated below investment grade ("junk" bonds), emerging markets securities, structured notes and local currency-denominated bonds. Structured notes are securities that provide cash flows based on the movements of underlying variables, such as exchange rates or interest rates. At least 95% of these fixed-income securities will be rated, at the time of purchase, at least CCC by S&P or Caa by Moody's, or the unrated equivalent as determined by the Investment Manager. The remaining 5% may be rated as low as the lowest rating assigned by S&P or Moody's. Consequently, the Portfolio may invest all of its assets in fixed-income securities rated below investment grade. The Portfolio may invest up to 50% of its total assets in non-U.S. dollar denominated fixed-income securities of foreign issuers. PRINCIPAL INVESTMENT While bonds are designed to produce a stable stream of RISKS income, their prices move inversely with changes in interest rates. High yield bonds involve greater credit risk than investment grade bonds. They tend to be more volatile in price, less liquid and are considered speculative. The Portfolio's performance will be influenced by political, social and economic factors affecting non-U.S. countries. These risks include changes in currency exchange rates, a lack of adequate company information, political instability and differing auditing and legal standards. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Emerging market countries generally have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. Emerging markets may be more volatile than the markets of more mature economies, and the securities of emerging market issuers often are subject to rapid and large changes in price. Mortgage-related securities can have a different interest rate sensitivity than other bonds, because of prepayments and other factors. For example, when interest rates fall, mortgage-related securities may be paid off earlier than expected, and the Portfolio may reinvest those assets at lower rates. This lessens these securities appreciation potential when interest rates decline. When interest rates rise, mortgage-related securities may decline less in price, given their generally higher coupon. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in market value of a single company or industry. The accompanying bar chart and table provide some indication of the risks of investing in the Lazard Strategic Yield Portfolio by showing the Portfolio's annual returns and its long-term performance. The bar chart shows how the performance of the Portfolio's Institutional Shares has varied from year to year. The table compares the performance of the Portfolio's Institutional Shares and Open Shares over time to that of the One Month LIBOR U.S. Dollar Fixed Index, an average derived from sixteen quotations provided by banks determined by the British Bankers Association. Both the bar chart and table assume reinvestment of dividends and distributions. Past performance does not indicate how the Portfolio will perform in the future. FEES AND EXPENSES - ----------------- As an investor, you pay certain fees and expenses in connection with buying and holding Portfolio shares. The following table illustrates those fees and expenses. Keep in mind that the Portfolio has no sales charge (load). Annual Portfolio Operating Expenses are paid out of Portfolio assets, and are reflected in the share price. EXPENSE EXAMPLE - --------------- Use the table at the right to compare the Portfolio's fees and expenses with those of other funds. It illustrates the amount of fees and expenses you would pay, assuming the following: o $10,000 INITIAL INVESTMENT o 5% annual return each year o redemption at the end of each period o no changes in operating expenses Because this example is hypothetical and for comparison only, your actual costs may be higher or lower. PERFORMANCE BAR CHART AND TABLE ------------------------------- YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR INSTITUTIONAL SHARES [FIGURES BELOW REPRESENTS BAR CHART IN THE PRINTED FORM] 1992 5.96% 1993 15.60% 1994 -2.34% 1995 13.56% 1996 13.74% 1997 5.30% 1998 0.75% - -------------------------------------------------------------------------------- Best quarter: 3/31/93 6.33 Worst quarter: 9/30/98 (3.78)% - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1998) INCEPTION PAST PAST SINCE DATE YEAR 5 YEARS INCEPTION - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES 10/31/91 0.75% 6.00% 7.36% - -------------------------------------------------------------------------------- OPEN SHARES 1/23/97 0.37% N/A 2.12% - -------------------------------------------------------------------------------- ONE MONTH LIBOR 5.54% 5.44% 4.88% USD FIXED INDEX (Institutional) 5.61% (Open) - -------------------------------------------------------------------------------- Annual Portfolio Operating Expenses (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS) INSTITUTIONAL OPEN SHARES SHARES - -------------------------------------------------------------------------------- Management fees .75% .75% - -------------------------------------------------------------------------------- Distribution and Service (12b-1) fees None .25% - -------------------------------------------------------------------------------- Other expenses .15% .28% - -------------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses .90% 1.28% - -------------------------------------------------------------------------------- LAZARD STRATEGIC 1 3 5 10 YIELD PORTFOLIO Year Years Years Years INSTITUTIONAL SHARES $92 $287 $498 $1,108 - -------------------------------------------------------------------------------- OPEN SHARES $130 $406 $702 $1,545 - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVES, STRATEGIES AND RISKS ================================================================================ LAZARD EQUITY PORTFOLIO ================================================================================ Ticker Symbol: LZEQX (Institutional) LZEOX (Open) INVESTMENT OBJECTIVE AND STRATEGIES - ----------------------------------- The Equity Portfolio seeks long-term capital appreciation. The Portfolio invests primarily in equity securities, principally common stocks, of U.S. companies with market capitalizations in the range of the S&P 500(R) Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Portfolio generally invests at least 80% of its total assets in equity securities. The Portfolio may invest up to 20% of its total assets in U.S. Government securities and investment grade debt obligations of U.S. corporations. The Portfolio also may invest up to 10% of its total assets in non-U.S. equity or debt securities that trade in U.S. markets. The Portfolio may engage, to a limited extent, in various investment techniques, such as options transactions, leveraging and lending portfolio securities. The Portfolio typically sells a stock when it is no longer considered a value company, appears less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or falls short of the Investment Manager's expectations. RISK FACTORS - ------------ While stocks have historically been a leading choice of long-term investors, they do fluctuate in price. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Because different types of stocks tend to shift in and out of favor depending on market and economic conditions, the Portfolio's performance may sometimes be lower or higher than that of other types of funds (such as those emphasizing smaller companies). Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. The Portfolio would do this only in seeking to avoid losses, but this could reduce the benefit from any upswing in the market and may result in the Portfolio not achieving its investment objective. Value stocks involve the risk that they may never reach what the Investment Manager believes is their full market value. They also may decline in price, even though in theory they are already underpriced. While the Portfolio may engage in options transactions primarily to hedge its portfolio, it may use options to increase returns; however, there is the risk that these transactions sometimes may reduce returns or increase volatility. LAZARD MID CAP PORTFOLIO ================================================================================ Ticker Symbol: LZMIX (Institutional) N/A (Open) INVESTMENT OBJECTIVE AND STRATEGIES - ----------------------------------- The Mid Cap Portfolio seeks long-term capital appreciation. The Portfolio invests primarily in equity securities, principally common stocks, of medium-size U.S. companies in the range of the Russell Midcap Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Russell Midcap Index is composed of selected common stocks of medium-size U.S. companies. The Portfolio generally invests at least 80% of its total assets in the equity securities of undervalued medium-size companies. The Portfolio may invest up to 20% of its total assets in the equity securities of larger capitalization companies or investment grade debt securities. The Portfolio may also invest up to 15% of its total assets in non-U.S. equity or debt securities. The Portfolio may engage, to a limited extent, in various investment techniques, such as options and futures transactions, foreign currency transactions, leveraging, short-selling and lending portfolio securities. The Portfolio typically sells a stock when it is no longer considered a value company, appears less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or falls short of the Investment Manager's expectations. RISK FACTORS - ------------ While stocks have historically been a leading choice of long-term investors, they do fluctuate in price. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Because different types of stocks tend to shift in and out of favor depending on market and economic conditions, the Portfolio's performance may sometimes be lower or higher than that of other types of funds (such as those emphasizing larger companies). Mid cap companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. Some of INVESTMENT OBJECTIVES, STRATEGIES AND RISKS (CONTINUED) ================================================================================ the Portfolio's investments will rise and fall based on investor perception. Investments in value stocks are subject to the risk that they may never reach what the Investment Manager believes is their full value. They also may decline in price, even though in theory they are already undervalued. And, while investments in value stocks may limit downside risk over time, the Portfolio may, as a trade-off, produce smaller gains than riskier stock funds. Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. The Portfolio would do this only in seeking to avoid losses, but this could reduce the benefit from any upswing in the market and may result in the Portfolio not achieving its investment objective. While the Portfolio may engage in options and futures transactions and foreign currency transactions primarily to hedge its portfolio, it may use these transactions to increase returns; however, there is the risk that these transactions sometimes may reduce returns or increase volatility. In addition, derivatives, such as options and futures, can be illiquid and highly sensitive to changes in their underlying security, interest rate or index, and as a result can be highly volatile. A small investment in certain derivatives could have a potentially large impact on the Portfolio's performance. The Portfolio can buy securities with borrowed money (a form of leverage), which could have the effect of magnifying the Portfolio's gains or losses. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. LAZARD SMALL CAP PORTFOLIO ================================================================================ Ticker Symbol: LZSCX (Institutional) LZCOX (Open) INVESTMENT OBJECTIVE AND STRATEGIES - ----------------------------------- The Small Cap Portfolio seeks long-term capital appreciation. The Portfolio invests primarily in equity securities, principally common stocks, of relatively small U.S. companies in the range of the Russell 2000 Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Russell 2000 Index is composed of selected common stocks of small, generally unseasoned U.S. companies. The Portfolio generally invests at least 80% of its total assets in equity securities of small U.S. companies. These securities generally have one or more of the following characteristics: o have the potential to become a larger factor in the company's business; o have significant debt but have high levels of free cash flow; and o have a relatively short corporate history with the expectation that the business may grow. The Portfolio may invest up to 20% of its total assets in equity securities of larger U.S. companies or investment grade debt securities. The Portfolio may engage, to a limited extent, in various investment techniques, such as lending portfolio securities. The Portfolio typically sells a stock when it is no longer considered a value company, appears less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or falls short of the Investment Manager's expectations. RISK FACTORS - ------------ While stocks have historically been a leading choice of long-term investors, they do fluctuate in price. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Because different types of stocks tend to shift in and out of favor depending on market and economic conditions, the Portfolio's performance may sometimes be lower or higher than that of other types of funds (such as those emphasizing larger companies). Small companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. Some of the Portfolio's investments will rise and fall based on investor perception only. Investments in value stocks are subject to the risk that they may never reach what the Investment Manager believes is their full value. They also may decline in price, even though in theory they are already undervalued. And, while investments in value stocks may limit downside risk over time, the Portfolio may, as a trade-off, produce smaller gains than riskier stock funds. Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. The Portfolio would do this only in seeking to avoid losses, but this could reduce the benefit from any upswing in the market and may result in the Portfolio not achieving its investment objective. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared INVESTMENT OBJECTIVES, STRATEGIES AND RISKS (CONTINUED) ================================================================================ with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. LAZARD BANTAM VALUE PORTFOLIO ================================================================================ Ticker Symbol: LABVX (Institutional) N/A (Open) INVESTMENT OBJECTIVE AND STRATEGIES - ----------------------------------- The Bantam Value Portfolio seeks long-term capital appreciation. The Portfolio invests primarily in equity securities, principally common stocks, of small U.S. companies with market capitalizations under $500 million that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Portfolio generally invests at least 80% of its total assets in equity securities of small U.S. companies. The Portfolio may invest up to 20% of its total assets in equity securities of large U.S. companies or investment grade debt securities. The Portfolio also may invest up to 10% of its total assets in non-U.S. equities or investment grade debt securities that trade in U.S. markets. The Portfolio may engage, to a limited extent, in various investment techniques, such as options transactions and lending portfolio securities. The Portfolio typically sells a stock when it is no longer considered a value company, appears less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or falls short of the investment Manager's expectations. RISK FACTORS - ------------ While stocks have historically been a leading choice of long-term investors, they do fluctuate in price. The value of your investment in the Portfolio will go up and down, which means that you could lose money. Because different types of stocks tend to shift in and out of favor depending on market and economic conditions, the Portfolio's performance may sometimes be lower or higher than that of other types of funds (such as those emphasizing larger companies). Small companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. Some of the Portfolio's investments will rise and fall based on investor perception only. Investments in value stocks are subject to the risk that they may never reach what the Investment Manager believes is their full value. They also may decline in price, even though in theory they are already undervalued. And, while investments in value stocks may limit downside risk over time, the Portfolio may, as a trade-off, produce smaller gains than riskier stock funds. Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. The Portfolio would do this only in seeking to avoid losses, but this could reduce the benefit from any upswing in the market and may result in the Portfolio not achieving its investment objective. While the Portfolio may engage in options transactions primarily to hedge its portfolio, it may use options to increase returns; however, there is the risk that these transactions sometimes may reduce returns or increase volatility. At times, the Portfolio may engage in short-term trading, which could produce higher brokerage costs and taxable distributions. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. LAZARD GLOBAL EQUITY PORTFOLIO ================================================================================ Ticker Symbol: LZGEX(Institutional) N/A (Open) INVESTMENT OBJECTIVE AND STRATEGIES - ----------------------------------- The Global Equity Portfolio seeks long-term capital appreciation. The Portfolio invests primarily in equity securities, principally common stocks, of relatively large companies, (those whose market value is more than $1 billion) both U.S. and non-U.S., that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Portfolio generally invests at least 80% of its total assets in equity securities, including American and Global Depositary Receipts, of companies located in at least four different countries, including the United States. The allocation of the Portfolio's assets among geographic regions may shift from time to time based on the Investment Manager's judgment and its analysis of market conditions. However, the Investment Manager currently intends to invest at least 25% of the Portfolio's total assets in securities of U.S. companies. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS (CONTINUED) ================================================================================ The Portfolio may invest up to 20% of its total assets in investment grade fixed-income securities. The Portfolio may engage, to a limited extent, in various investment techniques, such as options and futures transactions, foreign currency transactions and lending portfolio securities. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. RISK FACTORS - ------------ While stocks have historically been a leading choice of long-term investors, they do fluctuate in price. The value of your investment in the Portfolio will go up and down, which means that you could lose money. The Portfolio's performance will be influenced by political, social and economic factors affecting companies around the world. These risks include changes in currency exchange rates, a lack of adequate company information, political instability, and differing auditing and legal standards. To the extent the Portfolio invests in companies in emerging market countries, these countries generally have economic structures that are less diverse and mature and political systems that are less stable, than those of developed countries. Value stocks involve the risk that they may never reach what the Investment Manager believes is their full market value. They also may decline in price, even though in theory they are already underpriced. Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. The Portfolio would do this only in seeking to avoid losses, but this could reduce the benefit from any upswing in the market and may result in the Portfolio not achieving its investment objective. While the Portfolio may engage in options and futures transactions and foreign currency transactions primarily to hedge its portfolio, it may use these transactions to increase returns; however, there is the risk that these transactions sometimes may reduce returns or increase volatility. In addition, derivatives, such as options and futures, can be illiquid and highly sensitive to changes in their underlying security, interest rate or index, and as a result can be highly volatile. A small investment in certain derivatives could have a potentially large impact on the Portfolio's performance. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. LAZARD INTERNATIONAL EQUITY PORTFOLIO ================================================================================ Ticker Symbol: LZIEX (Institutional) LZIOX (Open) INVESTMENT OBJECTIVE AND STRATEGIES - ----------------------------------- The International Equity Portfolio seeks long-term capital appreciation. The Portfolio invests primarily in equity securities, principally common stocks, of relatively large non-U.S. companies with market capitalizations in the range of the MSCI Europe, Australasia and Far East Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The Portfolio generally invests at least 80% of its total assets in equity securities of companies located in at least three different foreign countries. The allocation of the Portfolio's assets among geographic sectors may shift from time to time based on the Investment Manager's judgment and its analysis of market conditions. However, the Investment Manager currently intends to invest the Portfolio's assets primarily in companies based in developed markets. The Portfolio may invest up to 20% of its total assets in investment grade fixed-income securities and short-term money market instruments. The Portfolio may engage, to a limited extent, in various investment techniques, such as foreign currency transactions and lending portfolio securities. The Portfolio typically sells a stock when it is no longer considered a value company, appears less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or falls short of the Investment Manager's expectations. RISK FACTORS - ----------- While stocks have historically been a leading choice of long-term investors, they do fluctuate in price. The value of your investment in the Portfolio will go up and down, which means that you could lose money. The Portfolio's performance will be influenced by political, social and economic factors affecting companies around the world. These risks include changes in currency exchange rates, a lack of adequate company information, political instability, and differing auditing and legal standards. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS (CONTINUED) ================================================================================ Value stocks involve the risk that they may never reach what the Investment Manager believes is their full market value. They also may decline in price, even though in theory they are already underpriced. Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. The Portfolio would do this only in seeking to avoid losses, but this could reduce the benefit from any upswing in the market and may result in the Portfolio not achieving its investment objective. While the Portfolio may engage in foreign currency transactions primarily to hedge its portfolio, it may use these transactions to increase returns; however, there is the risk that these transactions sometimes may reduce returns or increase volatility. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. LAZARD INTERNATIONAL SMALL CAP PORTFOLIO ================================================================================ Ticker Symbol: LZISX (Institutional) N/A (Open) INVESTMENT OBJECTIVE AND STRATEGIES - ----------------------------------- The International Small Cap Portfolio seeks long-term capital appreciation. The Portfolio invests primarily in equity securities, principally common stocks, of relatively small non-U.S. companies in the range of the Morgan Stanley Capital International Europe, Australasia and Far East Small Cap Index (the "MSCI EAFE Small Cap Index") that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. The MSCI EAFE Small Cap Index is an unmanaged index of securities listed on foreign stock exchanges. The Portfolio generally invests at least 80% of its total assets in equity securities, including American and Global Depositary Receipts, of small non-U.S. companies. The Portfolio generally invests at least 65% of its total assets in equity securities of small companies located in at least three foreign countries. The allocation of the Portfolio's assets among geographic regions may shift from time to time based on the Investment Manager's judgment and its analysis of market conditions. However, the Investment Manager currently intends to invest the Portfolio's assets primarily in companies based in Continental Europe, the United Kingdom, the Pacific Basin, Latin America and Canada. The Portfolio may invest up to 20% of its total assets in equity securities of large companies or investment grade debt securities. The Portfolio may engage, to a limited extent, in various investment techniques, such as options and futures transactions, foreign currency transactions and lending portfolio securities. The Portfolio typically sells a stock when it is no longer considered a value company, appears less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or falls short of the Investment Manager's expectations. RISK FACTORS - ------------ While stocks have historically been a leading choice of long-term investors, they do fluctuate in price. The value of your investment in the Portfolio will go up and down, which means that you could lose money. The Portfolio's performance will be influenced by political, social and economic factors affecting companies around the world. These risks include changes in currency exchange rates, a lack of adequate company information, political instability, and differing auditing and legal standards. Small companies carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. Some of the Portfolio's investments will rise and fall based on investor perception only. Investments in value stocks are subject to the risk that they may never reach what the Investment Manager believes is their full value. They also may decline in price, even though in theory they are already undervalued. And, while investments in value stocks may limit downside risk over time, the Portfolio may, as a trade-off, produce smaller gains than riskier stock funds. Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. The Portfolio would do this only in seeking to avoid losses, but this could reduce the benefit from any upswing in the market and may result in the Portfolio not achieving its investment objective. While the portfolio may engage in options and futures transactions and foreign currency transactions primarily to hedge its portfolio, it may use these transactions to increase returns; however, there is the risk that these transactions sometimes may reduce returns or increase volatility. In addition, derivatives, such as options and futures, can be illiquid and highly sensitive to changes in their INVESTMENT OBJECTIVES, STRATEGIES AND RISKS (CONTINUED) ================================================================================ underlying security, interest rate or index, and as a result can be highly volatile. A small investment in certain derivatives could have a potentially large impact on the portfolio's performance. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. LAZARD EMERGING MARKETS PORTFOLIO ================================================================================ Ticker Symbol: LZEMX (Institutional) N/A (Open) INVESTMENT OBJECTIVE AND STRATEGIES - ----------------------------------- The Emerging Markets Portfolio seeks long-term capital appreciation. The Portfolio invests primarily in equity securities, principally common stocks, of non-U.S. companies whose principal business activities are located in emerging market countries that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. Emerging market countries include all countries represented by the Morgan Stanley Capital International Emerging Markets (Free) Index, which currently includes: Argentina, Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, Sri Lanka, South Africa, Taiwan, Thailand, Turkey and Venezuela. The Portfolio generally invests at least 65% of its total assets in equity securities, including American and Global Depositary Receipts, of companies whose principal business activities are located in emerging market countries. The Portfolio invests at least 65% of its total assets in equity securities of companies in at least three different foreign countries. The allocation of the Portfolio's assets among emerging market countries may shift from time to time based on the Investment Manager's judgment and its analysis of market conditions. However, the Portfolio is likely to focus on companies in Latin America, the Pacific Basin and Europe. The Portfolio may invest, to a limited extent, in closed-end investment companies that invest in emerging market securities. When the Investment Manager believes it is warranted, the Portfolio may invest, without limitation, in high quality fixed-income securities or the equity securities of U.S. companies. The Portfolio may engage, to a limited extent, in various investment techniques, such as options and futures transactions, foreign currency transactions and lending portfolio securities. The Portfolio typically sells a stock when it is no longer considered a value company, appears less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or falls short of the Investment Manager's expectations. RISK FACTORS - ------------ The securities markets of emerging market countries can be extremely volatile. The value of your investment in the Portfolio will go up and down, which means that you could lose money. The Portfolio's performance will be influenced by political, social and economic factors affecting companies in emerging market countries. These risks include changes in currency exchange rates, a lack of adequate company information, political instability, and differing auditing and legal standards. In addition, emerging market countries generally have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. Emerging markets may be more volatile than the markets of more mature economies; however, such markets may provide higher rates of return to investors. Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. The Portfolio would do this only in seeking to avoid losses, but this could reduce the benefit from any upswing in the market and may result in the Portfolio not achieving its investment objective. While the Portfolio may engage in options and futures transactions and foreign currency transactions primarily to hedge its portfolio, it may use these transactions to increase returns; however, there is the risk that these transactions sometimes may reduce returns or increase volatility. In addition, derivatives, such as options and futures, can be illiquid and highly sensitive to changes in their underlying security, interest rate or index, and as a result can be highly volatile. A small investment in certain derivatives could have a potentially large impact on the Portfolio's performance. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS (CONTINUED) ================================================================================ LAZARD BOND PORTFOLIO ================================================================================ Ticker Symbol: LZBDX (Institutional) N/A (Open) INVESTMENT OBJECTIVE AND STRATEGIES - ----------------------------------- The Bond Portfolio seeks to build and preserve capital. The Portfolio invests in a range of bonds and other fixed-income securities, including mortgage-backed securities, asset-backed securities, municipal securities, corporate fixed-income securities and U.S. Government securities. The allocation of the Portfolio's assets among fixed-income sectors may shift from time to time based on the Investment Manager's judgment. The Portfolio invests the major portion of its assets in investment grade bonds and other fixed-income securities or the unrated equivalent as determined by the Investment Manager. The Portfolio may invest up to 10% of its total assets in bonds and other fixed-income securities rated, at the time of purchase, below investment grade and as low as the lowest rating assigned by Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's"), or the unrated equivalent ("junk bonds") as determined by the Investment Manager. The Portfolio generally invests at least 80% of its total assets in bonds and other fixed-income securities with maturities of greater than one year. The Investment Manager anticipates that, under normal market conditions, the Portfolio's effective duration will range between two and seven years. Duration is a measure of how sensitive the securities held by the Portfolio may be to changes in interest rates. The Portfolio may engage, to a limited extent, in various investment techniques, such as options and futures transactions and lending portfolio securities. The Portfolio typically sells a fixed-income security when new information changes the Investment Manager's fundamental view of the issuer, the current price appreciation makes the future value of the security less attractive or the market sector becomes overvalued relative to other sectors. RISK FACTORS - ------------ While bonds are designed to produce a stable stream of income, their prices move inversely with changes in interest rates. The value of your investment in the Portfolio will go up and down, which means that you could lose money. The Portfolio is subject to credit risk, or the risk that an issuer of bonds held by the Portfolio fails to make timely interest or principal payments, potentially reducing the Portfolio's income or share price. The Portfolio's investments in lower-rated, higher-yielding bonds are subject to greater credit risk than its higher-rated investments. Lower-rated bonds tend to be more volatile, less liquid and are considered speculative. While the Portfolio may engage in options and futures transactions primarily to hedge its portfolio, it may use these transactions to increase returns; however, there is the risk that these transactions sometimes may reduce returns or increase volatility. In addition, derivatives, such as options and futures, can be illiquid and highly sensitive to changes in their underlying security, interest rate or index, and as a result can be highly volatile. A small investment in certain derivatives could have a potentially large impact on the Portfolio's performance. Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. Although the Portfolio would do this only in seeking to avoid losses, it could have the effect of reducing the benefit from any upswing in the bond market and may result in the Portfolio not achieving its investment objective. At times, the Portfolio may engage in short-term trading, which could produce higher brokerage costs and taxable distributions. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. LAZARD HIGH YIELD PORTFOLIO ================================================================================ Ticker Symbol: LZHYX (Institutional) N/A (Open) INVESTMENT OBJECTIVE AND STRATEGIES - ----------------------------------- The High Yield Portfolio seeks maximum total return from a combination of capital appreciation and current income. The Portfolio invests primarily in U.S. high-yielding, fixed-income securities rated, at the time of purchase, below investment grade ("junk" bonds). The Portfolio generally invests at least 80% of its total assets in bonds and other fixed-income securities rated, at the time of purchase, below investment grade by S&P or Moody's and as low as the lowest rating assigned by S&P and Moody's, or the unrated equivalent as determined by the Investment Manager. While the Portfolio's investment INVESTMENT OBJECTIVES, STRATEGIES AND RISKS (CONTINUED) ================================================================================ emphasis is currently on high-yielding corporate bonds, it may also invest in mortgage-related securities, asset-backed securities, zero coupon securities, municipal securities, preferred stock and convertible securities of U.S. and non-U.S. issuers. The Portfolio may invest, to a limited extent in companies in, or governments of, emerging market countries. When the Investment Manager believes it appropriate based on market conditions, the Portfolio may invest in investment grade securities or the unrated equivalent as determined by the Investment Manager. The Portfolio may engage, to a limited extent, in various investment techniques, such as options and futures transactions, foreign currency transactions, leveraging, short-selling and lending portfolio securities. The Portfolio typically sells a fixed-income security when new information changes the Investment Manager's fundamental view of the issuer, the current price appreciation makes the future value of the security less attractive or the market sector becomes overvalued relative to other sectors. RISK FACTORS - ------------ While bonds are designed to produce a stable stream of income, their prices move inversely with changes in interest rates. The value of your investment in the Portfolio will go up and down, which means that you could lose money. High yield bonds involve greater credit risk, including the risk of default, than investment grade bonds. They tend to be more volatile in price, less liquid and are considered speculative. As with stocks, the prices of junk bonds can fall in response to bad news about the issuer, the issuer's industry or the economy in general. Other risk factors could have an effect on the Portfolio's performance: o if an issuer fails to make timely interest or principal payments o if there is a decline in the credit quality of a bond, or perception of a decline, the bond's value could fall, potentially lowering the Portfolio's share price o if the Portfolio's mortgage-related securities are paid off substantially earlier or later than expected, the Portfolio's share price or yield could be hurt o the price and yield of non-U.S. debt securities could be affected by factors ranging from political and economic instability to changes in currency exchange rates o during unusual market conditions, the Portfolio may not be able to sell certain securities at the time and price it would like While the Portfolio may engage in options and futures transactions and foreign currency transactions primarily to hedge its portfolio, it may use these transactions to increase returns; however, there is the risk that these transactions sometimes may reduce returns or increase volatility. In addition, derivatives, such as options and futures, can be illiquid and highly sensitive to changes in their underlying security, interest rate or index, and as a result can be highly volatile. A small investment in certain derivatives could have a potentially large impact on the Portfolio's performance. The Portfolio can buy securities with borrowed money (a form of leverage), which could have the effect of magnifying the Portfolio's gains or losses. Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. The Portfolio would do this only in seeking to avoid losses, but this could reduce the benefit from any upswing in the high yield bond market and may result in the Portfolio not achieving its investment objective. At times, the Portfolio may engage in short-term trading, which could produce higher brokerage costs and taxable distributions. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO ================================================================================ Ticker Symbol: LZIFX (Institutional) N/A (Open) INVESTMENT OBJECTIVE AND STRATEGIES - ----------------------------------- The International Fixed-Income Portfolio seeks high total return from a combination of current income and capital appreciation. The Portfolio invests primarily in non-U.S. fixed-income securities of varying maturities. The Portfolio typically invests more than half of its total assets in corporate bonds, mortgage-related securities and asset-backed securities. The Portfolio typically invests less than half of its total assets in foreign government obligations. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS (CONTINUED) ================================================================================ The Portfolio generally invests at least 80% of its total assets in fixed-income securities of companies within, or governments, their agencies or instrumentalities of, at least three different non-U.S. countries. The Portfolio may invest in any region of the world, including emerging market countries. However, the Investment Manager currently intends to invest the Portfolio's assets primarily in companies within, or governments of, Continental Europe, the United Kingdom, Canada and the Pacific Basin. The Portfolio also may invest in American or Global Depositary Receipts issued in relation to a pool of fixed-income securities in which the Portfolio could invest directly. The Portfolio generally invests at least 85% of its total assets in investment grade fixed-income securities or the unrated equivalent as determined by the Investment Manager. The Portfolio may invest up to 15% of its total assets in fixed-income securities rated, at the time of purchase, below investment grade and as low as the lowest rating assigned by S&P and Moody's or the unrated equivalent as determined by the Investment Manager. The Investment Manager anticipates that, under normal market conditions, the Portfolio's effective duration will range between two and eight years. Duration is a measure of how sensitive the securities held by the Portfolio may be to changes in interest rates. The Portfolio may engage, to a limited extent, in various investment techniques, such as options and futures transactions, foreign currency transactions and lending portfolio securities. The Portfolio typically sells a fixed-income security when new information changes the Investment Manager's fundamental view of the issuer, the current price appreciation makes the future value of the security less attractive or the market sector becomes overvalued relative to other sectors. RISK FACTORS - ------------ While bonds are designed to produce a stable stream of income, their prices move inversely with changes in interest rates. The value of your investment in the Portfolio will go up and down, which means that you could lose money. The Portfolio is subject to credit risk, or the risk that an issuer of bonds held by the Portfolio fails to make timely interest or principal payments, potentially reducing the Portfolio's income or share price. The Portfolio's performance will be influenced by political, social and economic factors affecting companies around the world. These risks include changes in currency exchange rates, a lack of adequate company information, political instability, and differing auditing and legal standards. The Portfolio's investments in lower-rated, higher-yielding bonds are subject to greater credit risk than its higher-rated investments. Lower-rated bonds tend to be more volatile, less liquid and are considered speculative. Mortgage-related securities can have a different interest rate sensitivity than other bonds, because of prepayments and other factors. For example, when interest rates fall, mortgage-related securities may be paid off earlier than expected, and the Portfolio may reinvest those assets at lower rates. This lessens these securities' appreciation potential when interest rates decline. When interest rates rise, mortgage-related securities may decline less in price, given their generally higher coupon. While the Portfolio may engage in options and futures transactions and foreign currency transactions primarily to hedge its portfolio, it may use these transactions to increase returns; however, there is the risk that these transactions sometimes may reduce returns or increase volatility. In addition, derivatives, such as options and futures, can be illiquid and highly sensitive to changes in their underlying security, interest rate or index, and as a result can be highly volatile. A small investment in certain derivatives could have a potentially large impact on the Portfolio's performance. Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. The Portfolio would do this only in seeking to avoid losses, but this could reduce the benefit from any upswing in the bond market and may result in the Portfolio not achieving its investment objective. At times, the Portfolio may engage in short-term trading, which could produce higher brokerage costs and taxable distributions. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS (CONTINUED) ================================================================================ LAZARD STRATEGIC YIELD PORTFOLIO ================================================================================ Ticker Symbol: LZSYX (Institutional) N/A (Open) INVESTMENT OBJECTIVE AND STRATEGIES - ----------------------------------- The Strategic Yield Portfolio seeks total return from a combination of capital appreciation and current income. The Portfolio invests primarily in a wide variety of U.S. and non-U.S. fixed-income securities. The Portfolio typically invests approximately half of its total assets in investment grade corporate bonds, mortgage-related securities and asset-backed securities. The Portfolio typically invests approximately half of its total assets in fixed-income securities rated below investment grade ("junk" bonds), emerging markets securities, structured notes and local currency-denominated bonds. Structured notes are securities that provide cash flows based on the movements of underlying variables, such as exchange rates or interest rates. At least 95% of these fixed-income securities will be rated, at the time of purchase, at least CCC by S&P or Caa by Moody's, or the unrated equivalent as determined by the Investment Manager. The remaining 5% may be rated, at the time of purchase, as low as the lowest rating assigned by S&P and Moody's. Consequently, the Portfolio may invest all of its assets in fixed-income securities rated below investment grade. The Portfolio may invest up to 50% of its total assets in non-U.S. dollar denominated fixed-income securities of foreign issuers. The Portfolio may invest without limitation in U.S. dollar denominated fixed-income securities of foreign issuers. The Portfolio also may invest in American or Global Depositary Receipts issued in relation to a pool of fixed-income securities in which the Portfolio could invest directly. When, in the Investment Manager's judgment, business or financial conditions warrant, the Portfolio may assume a temporary defensive position and invest without limit in investment grade fixed-income securities or short-term money market instruments. The Portfolio may engage, to a limited extent, in various investment techniques, such as options transactions, foreign currency transactions and lending portfolio securities. The Portfolio typically sells a fixed-income security when new information changes the Investment Manager's fundamental view of the issuer, the current price appreciation makes the future value of the security less attractive or the market sector becomes overvalued relative to other sectors. RISK FACTORS - ------------ While bonds are designed to produce a stable stream of income, their prices move inversely with changes in interest rates. The value of your investment in the Portfolio will go up and down, which means that you could lose money. The Portfolio is subject to credit risk, or the risk that an issuer of bonds held by the Portfolio fails to make timely interest or principal payments, potentially reducing the Portfolio's income or share price. The Portfolio's investments in lower-rated, higher-yielding bonds are subject to greater credit risk than its higher-rated investments. Lower-rated bonds tend to be more volatile, less liquid and are considered speculative. The Portfolio's performance will be influenced by political, social and economic factors affecting companies around the world. These risks include changes in currency exchange rates, a lack of adequate company information, political instability, and differing auditing and legal standards. Emerging market countries generally have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. Emerging markets may be more volatile than the markets of more mature economies, and the securities of emerging market issuers often are subject to rapid and large changes in price. Mortgage-related securities can have a different interest rate sensitivity than other bonds, because of prepayments and other factors. For example, when interest rates fall, mortgage-related securities may be paid off earlier than expected, and the Portfolio may reinvest those assets at lower rates. This lessens these securities' appreciation potential when interest rates decline. When interest rates rise, mortgage-related securities may decline less in price, given their generally higher coupon. While the Portfolio may engage in options and futures transactions and foreign currency transactions primarily to hedge its portfolio, it may use these transactions to increase returns; however, there is the risk that these transactions sometimes may reduce returns or increase volatility. In addition, derivatives, such as options and futures, can be illiquid and highly sensitive to changes in their underlying security, interest rate or index, and as a result can be highly volatile. A small investment in certain derivatives could have a potentially large impact on the Portfolio's performance. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS (CONTINUED) ================================================================================ Under adverse market conditions, the Portfolio could invest some or all of its assets in money market securities. The Portfolio would do this only in seeking to avoid losses, but this could reduce the benefit from any upswing in the bond market and may result in the Portfolio not achieving its investment objective. At times, the Portfolio may engage in short-term trading, which could produce higher brokerage costs and taxable distributions. The Portfolio is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Portfolio's securities may be more sensitive to changes in the market value of a single company or industry. FUND MANAGEMENT ================================================================================ INVESTMENT MANAGER - ------------------ Lazard Asset Management, 30 Rockefeller Plaza, New York, New York 10112, serves as the Investment Manager of the Portfolios. The Investment Manager provides day-to-day management of the Portfolios' investments and assists in the overall management of the Portfolios' affairs. The Investment Manager is a division of Lazard Freres, a New York limited liability company, which is registered as an investment adviser with the Securities and Exchange Commission (the "Commission") and is a member of the New York, American and Midwest Stock Exchanges. Lazard Freres provides its clients with a wide variety of investment banking, brokerage and related services. The Investment Manager provides investment management services to client discretionary accounts with assets totaling approximately $64 billion as of March 31, 1999. Its clients are both individuals and institutions, some of whose accounts have investment policies similar to those of several of the Portfolios. The Fund has agreed to pay the Investment Manager an investment management fee at the annual rate set forth below as a percentage of the relevant Portfolio's average daily net asset value. The investment management fees are accrued daily and paid monthly. For the fiscal year ended December 31, 1998, the Investment Manager waived a portion of its management fees with respect to each Portfolio, which resulted in the Portfolios paying the Investment Manager a management fee at the effective annual rate set forth below as a percentage of the relevant Portfolio's average daily net asset value. Effective Annual Rate Investment of Investment Management Management Name of Portfolio Fee Payable Fee Paid After Waiver - ----------------- ----------- --------------------- Institutional Open Shares Shares Equity Portfolio .75% .75% .75% Mid Cap Portfolio .75% .57% .45% Small Cap Portfolio .75% .75% .75% Bantam Value Portfolio .75% .72% .50% Global Equity Portfolio .75% 0.00% 0.00% International Equity Portfolio .75% .75% .75% International Small Cap Portfolio .75% .75% .25% Emerging Markets Portfolio 1.00% 1.00% .85% Bond Portfolio .50% .50% .40% High Yield Portfolio .75% .39% 0.00% International Fixed- Income Portfolio .75% .75% .19% Strategic Yield Portfolio .75% .75% .75% PRINCIPAL PORTFOLIO MANAGERS All of the Portfolios are managed on a team basis. The names of the principal persons who are primarily responsible for the day-to-day management of the assets of each of the Portfolios are as follows: EQUITY PORTFOLIO--Herbert W. Gullquist (since inception) and Michael S. Rome (since 1991) MID CAP PORTFOLIO--Herbert W. Gullquist and Eileen Alexanderson (each since inception) SMALL CAP PORTFOLIO--Herbert W. Gullquist and Eileen Alexanderson (each since inception) BANTAM VALUE PORTFOLIO--Herbert W. Gullquist and Eileen Alexanderson (each since inception) GLOBAL EQUITY PORTFOLIO--Herbert W. Gullquist, John R. Reinsberg and Michael S. Rome (each since inception) INTERNATIONAL EQUITY PORTFOLIO--Herbert W. Gullquist (since inception) and John R. Reinsberg (since January 1992) INTERNATIONAL SMALL CAP PORTFOLIO--Herbert W. Gullquist and John R. Reinsberg (each since inception) EMERGING MARKETS PORTFOLIO--Herbert W. Gullquist and John R. Reinsberg (each since inception) BOND PORTFOLIO--Thomas F. Dunn (since January 1995) and Ira O. Handler (since August 1997) HIGH YIELD PORTFOLIO--Thomas F. Dunn and Peter R.S. Bakker (each since inception) INTERNATIONAL FIXED-INCOME PORTFOLIO--Thomas F. Dunn (since January 1995) and Ira O. Handler (since June 1992) STRATEGIC YIELD PORTFOLIO--Thomas F. Dunn (since January 1995) and Ira O. Handler (since 1993) BIOGRAPHICAL INFORMATION OF PRINCIPAL PORTFOLIO MANAGERS EILEEN ALEXANDERSON. Ms. Alexanderson has been a Managing Director of the Investment Manager since January 1997. Prior thereto, Ms. Alexanderson was a Senior Vice President of the Investment Manager. She joined the Investment Manager in 1979. PETER R.S. BAKKER. Mr. Bakker has been a Senior Vice President of the Investment Manager since January 1998 (a Vice President from January 1996 to January 1998). He joined the Investment Manager in May 1995. Prior thereto, he was a Senior Vice President of NatWest Markets. THOMAS F. DUNN. Mr. Dunn is a Managing Director of the Investment Manager. He joined the Investment Manager in January 1995. Prior thereto, he was a Senior Vice President of Goldman Sachs Asset Management. HERBERT W. GULLQUIST. Mr. Gullquist has been Vice Chairman of the Investment Manager since 1997 and a Managing Director and Chief Investment Officer of the Investment Manager since 1982. He joined the Investment Manager in November 1982. IRA O. HANDLER. MR. HANDLER HAS BEEN A MANAGING DIRECTOR OF THE INVESTMENT MANAGER SINCE JANUARY 1998 (A SENIOR VICE PRESIDENT FROM JANUARY 1994 TO JANUARY 1998). HE JOINED THE INVESTMENT MANAGER IN 1992. JOHN R. REINSBERG. Mr. Reinsberg is a Managing Director of the Investment Manager. He joined the Investment Manager in January 1992. MICHAEL S. ROME. Mr. Rome is a Managing Director of the Investment Manager. He joined the Investment Manager in March 1991. ADMINISTRATOR State Street Bank and Trust Company ("State Street"), located at 225 Franklin Street, Boston, Massachusetts 02110, serves as each Portfolio's administrator. DISTRIBUTOR Lazard Freres acts as distributor for the Portfolios. CUSTODIAN State Street acts as custodian of the Portfolio's investments. State Street may enter into subcustodial arrangements on behalf of the Portfolios for the holding of foreign securities. YEAR 2000 ISSUES Each Portfolio could be adversely affected if the computer systems used by the Investment Manager and the Fund's other service providers do not properly process and calculate date-related information from and after January 1, 2000. While year 2000-related computer problems could have a negative effect on the Portfolios, the Investment Manager is working to avoid such problems and to obtain assurances from service providers that they are taking similar steps. While the Portfolios cannot, at this time, predict the degree of impact, it is possible that foreign markets will be less prepared than U.S. markets. SHAREHOLDER INFORMATION ================================================================================ GENERAL ================================================================================ Portfolio shares are sold, without a sales charge, on a continuous basis at the net asset value per share ("NAV") next determined after an order in proper form is received by the Fund's Transfer Agent, Boston Financial Data Services, Inc., or another agent of the Fund. The NAV is determined as of the close of trading on the floor of the New York Stock Exchange (normally 4:00 p.m., Eastern time), on each day the New York Stock Exchange is open for business. Equity securities typically are valued based on market value, or where market quotations are not readily available, based on fair value as determined in good faith by the Board. Debt securities having remaining maturities of 60 days or less are valued on an amortized cost basis unless the Board determines that such method does not represent fair value. Other debt securities are valued using available market quotations or at fair value which may be determined by one or more pricing services. Foreign securities held by a Portfolio may trade on days when the Portfolio does not calculate its NAVand thus affect the Portfolio's NAVon days when shareholders will not be able to buy or sell the Portfolio's shares. SHAREHOLDER INFORMATION (CONTINUED) ================================================================================ MINIMUM INVESTMENTS All purchases made by check should be in U.S. dollars and made payable to "The Lazard Funds, Inc." Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemption proceeds will be transmitted to you promptly upon bank clearance of your purchase check, which may take up to 15 calendar days. - -------------------------------------------------------------------------------- INITIAL SUBSEQUENT INVESTMENT INVESTMENTS - -------------------------------------------------------------------------------- Institutional Shares $1,000,000 $5,000 - ------------------------------------------------------------------------------- Open Shares 10,000 1,000 - ------------------------------------------------------------------------------- IRA Rollover/Transfer- Open Shares 10,000 1,000 - ------------------------------------------------------------------------------- HOW TO BUY SHARES ================================================================================ INITIAL PURCHASE BY MAIL ------- 1. Complete a Purchase Application. Indicate the services to be used. 2. Mail the Purchase Application and a check for $10,000 or more for Open Shares, or $1,000,000 or more for Institutional Shares, payable to "The Lazard Funds, Inc." to: The Lazard Funds, Inc. P.O. Box 9363 Boston, Massachusetts 02205-9363 Attention: (Name of Portfolio and Class of Shares) BY WIRE ------- 1. Call (800) 986-3455 toll free from any state and provide the following: o the Portfolio(s) and Class of shares to be invested in o name(s) in which shares are to be registered o address o social security or tax identification number o dividend payment election o amount to be wired o name of the wiring bank, and o name and telephone number of the person to be contacted in connection with the order. An account number will then be assigned. 2. Instruct the wiring bank to transmit the specified amount in federal funds, giving the wiring bank the account name(s) and assigned account number, to the Custodian: ABA #: 011000028 State Street Bank and Trust Company Boston, Massachusetts Custody and Shareholder Services Division DDA 9905-2375 Attention: (Name of Portfolio and Class of Shares) The Lazard Funds, Inc. Shareholder's Name and Account Number 3. Complete a Purchase Application. Indicate the services to be used. Mail the Purchase Application to the address set forth in Item 2 under "Initial Purchase--By Mail." ADDITIONAL PURCHASES - -------------------- BY MAIL ------- 1. Make a check payable to "The Lazard Funds, Inc." Write the shareholder's account number on the check. 2. Mail the check and the detachable stub from the Statement of Account (or a letter providing the account number) to the address set forth in Item 2 under "Initial Purchase--By Mail." BY WIRE ------- Instruct the wiring bank to transmit the specified amount in federal funds to State Street Bank and Trust Company, as instructed in Item 2 under "Initial Purchase -- By Wire." PURCHASES THROUGH THE AUTOMATIC INVESTMENT PLAN (OPEN SHARES ONLY) Investors may participate in the Automatic Investment Plan by purchasing Open Shares of any Portfolio at regular intervals selected by the investor. The Automatic Investment Plan enables an investor to make regularly scheduled rinvestments and may provide investors with a convenient way to invest for long-term financial goals. An account must be opened with a minimum investment of $10,000. Thereafter, the minimum periodic investment is $250. To obtain an Automatic Investment Plan application, call the Fund at (800) 823-6300. SHAREHOLDER INFORMATION (CONTINUED) ================================================================================ INDIVIDUAL RETIREMENT ACCOUNTS (OPEN SHARES ONLY) The Fund may be used as an instrument for existing IRAs. Completion of a Lazard Funds IRA application is required. The minimum initial investment for an IRA rollover account is $10,000. For a Direct IRA Account, a $5 establishment fee and a $12 annual maintenance and custody fee is payable to State Street for each IRA Fund account; in addition, a $10 termination fee will be charged and paid to State Street when the account is closed. For more information on IRAs, call the Fund at (800) 823-6300. DISTRIBUTION AND SERVICE (12B-1) FEES (OPEN SHARES ONLY) The Fund has adopted a plan under rule 12b-1 that allows each Portfolio to pay Lazard Freres a fee at the annual rate of .25% of the value of the average daily net assets of a Portfolio's Open Shares for the sale of a Portfolio's Open Shares and for services provided to holders of Open Shares. Because these fees are deducted from the Portfolio's assets on an on-going basis, over time these fees will increase the cost of a shareholder's investment and may cost shareholders more than paying other types of sales charges. HOW TO SELL SHARES ================================================================================ GENERAL The Fund imposes no charges when shares are sold. Securities dealers and other institutions may charge their clients a fee for effecting sales of Portfolio shares. Upon receipt by the Transfer Agent, Lazard Freres or another agent of a sale request in proper form, Portfolio shares will be sold at their next determined NAV. Payment of sale proceeds may be made in securities. Checks for sale proceeds ordinarily will be mailed within seven days. Where the shares to be sold had been purchased by check, the sale proceeds will be transmitted to you promptly upon bank clearance of your purchase check, which may take up to 15 calendar days. SELLING SHARES THROUGH THE TRANSFER AGENT: Shareholders who do not have a brokerage account with Lazard Freres should submit their sale requests to the Transfer Agent by mail (see Items 1-4 below). 1. Write a letter of instruction to the Fund. Indicate the dollar amount, or number and Portfolio and Class, of shares to be sold, the shareholder's account number, and social security or taxpayer identification number. 2. Sign the letter in exactly the same way the account is registered. If there is more than one owner of the shares, all must sign. 3. If shares to be sold have a value of $50,000 or more, the signature(s) must be guaranteed by a domestic bank, savings and loan institution, domestic credit union, member bank of the Federal Reserve System, broker-dealer, registered securities association or clearing agency, or other participant in a signature guarantee program. Signature guarantees by a notary public are not acceptable. Further documentation may be requested to evidence the authority of the person or entity making the sale request. 4. Mail the letter to the Transfer Agent at the following address: The Lazard Funds, Inc. P.O. Box 9363 Boston, Massachusetts 02205-9363 Attention: (Name of Portfolio and Class of Shares) TELEPHONE REDEMPTIONS: A shareholder may redeem shares by calling the Transfer Agent. To redeem shares by telephone, the shareholder must have properly completed and submitted to the Transfer Agent either a Purchase Application authorizing such redemption or a Telephone Redemption Authorization Form. The Transfer Agent's toll-free number for redemptions is (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. THROUGH A LAZARD FRERES BROKERAGE ACCOUNT: Shareholders who have a brokerage account with Lazard Freres should contact their Lazard Freres account representative for specific instructions on how to sell Portfolio shares. INVESTOR SERVICES ================================================================================ AUTOMATIC REINVESTMENT PLAN allows your dividends and capital gain distributions to be reinvested in additional shares of your Portfolio or another Portfolio. AUTOMATIC INVESTMENTS allows you to purchase Open Shares through automatic deductions from a designated bank account. SHAREHOLDER INFORMATION (CONTINUED) ================================================================================ INDIVIDUAL RETIREMENT ACCOUNTS. Call us at (800) 823-6300 for more information and an IRA kit. EXCHANGE PRIVILEGE allows you to exchange shares of one Portfolio that have been held for seven days or more for shares of the same Class of another Portfolio in an identically registered account. Shares will be exchanged at the next determined NAV. There is no cost associated with this service. All exchanges are subject to the minimum initial investment requirements. A shareholder may exchange shares by writing or calling the Transfer Agent. To exchange shares by telephone, the shareholder must have properly completed and submitted to the Transfer Agent either a Purchase Application authorizing such exchanges or a signed letter requesting that the exchange privilege be added to the account. The Transfer Agent's toll-free number for exchanges is (800) 986-3455. In order to confirm that telephone instructions for exchanges are genuine, the Fund has established reasonable procedures to be employed by the Fund and the Transfer Agent, including the requirement that a form of personal identification be provided. The Fund reserves the right to limit the number of times shares may be exchanged between Portfolios, to reject any telephone exchange order, or to otherwise modify or discontinue exchange privileges at any time. TELEPHONE REDEMPTION allows you to redeem shares at the net asset value next determined after you call the Transfer Agent with your request. GENERAL POLICIES ================================================================================ The Fund reserves the right to: o Redeem an account, with notice, if the value of the account falls below $1,000 due to redemptions o Convert Institutional Shares held by a shareholder whose account is less than $1,000,000 to Open Shares, upon written notice to the shareholder o Suspend redemptions or postpone payments when the NYSE is closed for any reason other than its usual weekend or holiday closings or when trading is restricted by the SEC o Change the required minimum investment amounts o Delay sending out redemption proceeds for up to seven days (this usually applies to very large redemptions received without notice, excessive trading, or during unusual market conditions) o Make a redemption-in-kind (a payment in portfolio securities instead of in cash) if it is determined that a redemption is too large and/or may cause harm to the Portfolio and its shareholders o Refuse any purchase or exchange request if such request could adversely affect the Portfolio's NAV, including if such person or group has engaged in excessive trading (to be determined in the Fund's discretion) o Close an account due to excessive trading after prior warning and notification SHAREHOLDER INFORMATION (CONTINUED) ================================================================================ ACCOUNT POLICIES, DIVIDENDS AND TAXES ------------------------------------- ACCOUNT STATEMENTS You will receive quarterly statements detailing your account activity. All investors will also receive a yearly statement detailing the tax characteristics of any dividends and distributions that you have received in your account. You will also receive confirmations after each trade executed in your account. DIVIDENDS AND DISTRIBUTIONS Income dividends are normally declared and paid annually but may be declared and paid twice annually for each of the Equity Portfolios. Income dividends are normally declared each business day and paid monthly for each of the Fixed-Income Portfolios. Net capital gains, if any, are normally distributed annually but may be distributed twice annually. Dividends and distributions of a Portfolio will be invested in additional shares of the same Class of the Portfolio at net asset value and credited to the shareholder's account on the payment date or, at the shareholder's election, paid in cash. Dividend checks and Statements of Account will be mailed approximately two business days after the payment date. TAX INFORMATION Please be aware that the following tax information is general and refers to the provisions of the Internal Revenue Code of 1986, as amended, which are in effect as of the date of this Prospectus. You should consult a tax adviser about the status of your distributions from your Portfolio. All dividends and short-term capital gains distributions are generally taxable to you as ordinary income, whether you receive the distribution in cash or reinvest it in additional shares. An exchange of one Portfolio's shares for shares of another Portfolio will be treated as a sale of the Portfolio's shares and any gain on the transaction may be subject to federal income tax. Keep in mind that distributions may be taxable to you at different rates depending on the length of time the Portfolio held the applicable investment, not the length of time that you held your Portfolio shares. When you do sell your Portfolio shares, a capital gain may be realized, except for IRA accounts. Federal law requires a Portfolio to withhold taxes on distributions paid to shareholders who: o fail to provide a social security number or taxpayer identification number o fail to certify that their social security number or taxpayer identification number is correct o fail to certify that they are exempt from withholding FINANCIAL HIGHLIGHTS -------------------- The tables on the following pages describe each Portfolio's performance for the fiscal periods indicated. Certain information reflects financial results for a single Portfolio share. "Total return" shows how much your investment in a Portfolio would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. The information in the tables has been independently audited by Anchin, Block & Anchin LLP, whose report, along with the Portfolios' financial statements, is included in the Fund's annual report, which is available upon request. FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- LAZARD EQUITY PORTFOLIO SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED -------------------------------------------------------------------- INSTITUTIONAL SHARES 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 -------- -------- -------- -------- -------- Net asset value, beginning of period .................. $ 19.98 $ 19.24 $ 17.41 $ 13.75 $ 13.89 -------- -------- -------- -------- ------- Income (loss) from investment operations: Net investment income ............................... 0.28 0.22 0.33 0.23 0.14 Net realized and unrealized gain (loss) ............. 3.10 4.54 3.06 4.93 0.44 -------- -------- -------- -------- ------- Total from investment operations .................... 3.38 4.76 3.39 5.16 0.58 -------- -------- -------- -------- ------- Less distributions from and in excess of: Net investment income ............................... (0.26) (0.22) (0.33) (0.18) (0.15) Net realized gain ................................... (1.35) (3.80) (1.23) (1.32) (0.57) -------- -------- -------- -------- ------- Total distributions ................................. (1.61) (4.02) (1.56) (1.50) (0.72) -------- -------- -------- -------- ------- Net asset value, end of period ........................ $ 21.75 $ 19.98 $ 19.24 $ 17.41 $ 13.75 ======== ======== ======== ======== ======= TOTAL RETURN (A) ...................................... 17.3% 25.1% 19.9% 37.7% 4.2% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) .............. $361,126 $333,575 $278,605 $163,787 $89,105 Ratios to average net assets: Net expenses (b) .................................... 0.85% 0.86% 0.89% 0.92% 1.05% Gross expenses (b) .................................. 0.85% 0.87% 0.89% 0.92% 1.05% Net investment income (b) ........................... 1.28% 1.00% 1.87% 1.45% 1.15% Portfolio turnover rate ............................... 76% 78% 66% 81% 67%
YEAR FOR THE PERIOD ENDED 2/5/97* TO OPEN SHARES 12/31/98 12/31/97 --------- --------- Net asset value, beginning of period .................. $ 19.99 $ 20.19 -------- ------- Income (loss) from investment operations: Net investment income ............................... 0.20 0.13 Net realized and unrealized gain (loss) ............. 3.12 3.62 -------- ------- Total from investment operations .................... 3.32 3.75 -------- ------- Less distributions from and in excess of: Net investment income ............................... (0.20) (0.15) Net realized gains .................................. (1.35) (3.80) -------- ------- Total distributions ................................. (1.55) (3.95) -------- ------- Net asset value, end of period ........................ $ 21.76 $ 19.99 ======== ======= TOTAL RETURN (A) ...................................... 17.0% 18.9% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) .............. $117,624 $22,811 Ratios to average net assets: Net expenses (b) .................................... 1.12% 1.22% Gross expenses (b) .................................. 1.12% 1.35% Net investment income (b) ........................... 0.96% 0.60%
SEE NOTES TO FINANCIAL HIGHLIGHTS. FINANCIAL HIGHLIGHTS (continued) - -------------------------------------------------------------------------------- LAZARD MID-CAP PORTFOLIO SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR FOR THE PERIOD ENDED 11/4/97* TO INSTITUTIONAL SHARES 12/31/98 12/31/97 --------- --------- Net asset value, beginning of period .................. $ 10.26 $ 10.00 ------- ------- Income (loss) from investment operations: Net investment income ............................... 0.05 0.02 Net realized and unrealized gain (loss) ............. 0.31 0.26 ------- ------- Total from investment operations .................... 0.36 0.28 ------- ------- LESS DISTRIBUTIONS FROM AND IN EXCESS OF: Net investment income ............................... (0.05) (0.02) Net realized gain ................................... (0.11) -- ------- ------- Total distributions ................................. (0.16) (0.02) ------- ------- Net asset value, end of period ........................ $ 10.46 $ 10.26 ======= ======= TOTAL RETURN (A) ...................................... 3.7% 2.8% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) .............. $55,731 $49,779 Ratios to average net assets: Net expenses (b) .................................... 1.05% 1.05% Gross expenses (b) .................................. 1.23% 1.44% Net investment income (b) ........................... 0.48% 1.02% Portfolio turnover rate ............................... 86% 1%
YEAR FOR THE PERIOD ENDED 11/4/97* TO OPEN SHARES 12/31/98 12/31/97 --------- --------- Net asset value, beginning of period .................. $ 10.26 $ 10.00 ------- ------- Income (loss) from investment operations: Net investment income ............................... 0.02 0.01 Net realized and unrealized gain (loss) ............. 0.32 0.26 ------- ------- Total from investment operations .................... 0.34 0.27 ------- ------- Less distributions from and in excess of: Net investment income ............................... (0.04) (0.01) NET REALIZED GAIN ................................... (0.11) -- ------- ------- Total distributions ................................. (0.15) (0.01) ------- ------- Net asset value, end of period ........................ $ 10.45 $ 10.26 ======= ======= TOTAL RETURN (A) ...................................... 3.4% 2.7% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) .............. $16,345 $1,806 Ratios to average net assets: Net expenses (b) .................................... 1.35% 1.35% Gross expenses (b) .................................. 1.66% 4.97% Net investment income (b) ........................... 0.29% 0.72%
SEE NOTES TO FINANCIAL HIGHLIGHTS. FINANCIAL HIGHLIGHTS (continued) - -------------------------------------------------------------------------------- LAZARD SMALLCAP PORTFOLIO SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED -------------------------------------------------------------------- INSTITUTIONAL SHARES 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 -------- -------- -------- -------- -------- Net asset value, beginning of period .................. $ 20.02 $ 18.44 $ 15.95 $ 14.35 $ 15.26 ---------- ---------- -------- -------- -------- Income (loss) from investment operations: Net investment income ............................... 0.08 0.07 0.11 0.13 0.07 Net realized and unrealized gain (loss) ............. (2.60) 4.92 3.68 2.95 0.22 ---------- ---------- -------- -------- -------- Total from investment operations .................... (2.52) 4.99 3.79 3.08 0.29 ---------- ---------- -------- -------- -------- Less distributions from and in excess of: Net investment income ............................... (0.01) (0.06) (0.11) (0.16) (0.04) Net realized gain ................................... (0.10) (3.35) (1.19) (1.32) (1.16) ---------- ---------- -------- -------- -------- Total distributions ................................. (0.11) (3.41) (1.30) (1.48) (1.20) ---------- ---------- -------- -------- -------- Net asset value, end of period ........................ $ 17.39 $ 20.02 $ 18.44 $ 15.95 $ 14.35 ========== ========== ======== ======== ======== TOTAL RETURN (A) ...................................... (12.6)% 28.1% 23.9% 21.5% 2.0% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) .............. $1,411,503 $1,445,075 $981,405 $646,371 $429,673 Ratios to average net assets: Net expenses (b) .................................... 0.81% 0.82% 0.84% 0.84% 0.85% Gross expenses (b) .................................. 0.81% 0.82% 0.84% 0.84% 0.85% Net investment income (b) ........................... 0.50% 0.35% 0.60% 0.90% 0.51% Portfolio turnover rate ............................... 46% 56% 51% 70% 70%
YEAR FOR THE PERIOD ENDED 1/30/97* TO OPEN SHARES 12/31/98 12/31/97 --------- --------- Net asset value, beginning of period .................... $ 20.02 $ 18.75 ------- ------- Income (loss) from investment operations: Net investment income ................................. 0.03 0.01 Net realized and unrealized gain (loss) ............... (2.60) 4.61 ------- ------- Total from investment operations ...................... (2.57) 4.62 ------- ------- Less distributions from and in excess of: Net investment income ................................. -- -- Net realized gain ..................................... (0.10) (3.35) ------- ------- Total distributions ................................... (0.10) (3.35) ------- ------- Net asset value, end of period .......................... $ 17.35 $ 20.02 ======= ======= TOTAL RETURN (A) ........................................ (12.9)% 25.6% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ................ $93,547 $46,097 Ratios to average net assets: Net expenses (b) ...................................... 1.09% 1.14% Gross expenses (b) .................................... 1.09% 1.23% Net investment income (b) ............................. 0.21% 0.12%
SEE NOTES TO FINANCIAL HIGHLIGHTS. FINANCIAL HIGHLIGHTS (continued) - -------------------------------------------------------------------------------- LAZARD BANTAMVALUE PORTFOLIO SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED FOR THE PERIOD ------------------------- 3/1/96* TO INSTITUTIONAL SHARES 12/31/98 12/31/97 12/31/96 ---------- ---------- -------- Net asset value, beginning of period .................... $ 14.32 $ 12.58 $ 10.00 ------- ------- ------- Income (loss) from investment operations: Net investment income ................................. -- -- 0.22 Net realized and unrealized gain (loss) ............... (1.98) 4.12 3.11 ------- ------- ------- Total from investment operations ...................... (1.98) 4.12 3.33 ------- ------- ------- Less distributions from and in excess of: Net investment income ................................. -- -- (0.22) Net realized gain ..................................... (0.15) (2.38) (0.53) ------- ------- ------- Total distributions ................................... (0.15) (2.38) (0.75) ------- ------- ------- Net asset value, end of period .......................... $ 12.19 $ 14.32 $ 12.58 ======= ======= ======= TOTAL RETURN (A) ........................................ (13.8)% 33.9% 33.3% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ................ $59,737 $69,972 $34,549 Ratios to Average Net Assets: Net expenses (b) ...................................... 1.05% 1.05% 1.05% Gross expenses (b) .................................... 1.09% 1.14% 1.91% Net investment income (b) ............................. (0.40)% (0.42)% 2.80% Portfolio turnover rate ................................. 95% 110% 262%
YEAR FOR THE PERIOD ENDED 1/23/97* TO OPEN SHARES 12/31/98 12/31/97 --------- --------- Net asset value, beginning of period .................... $14.26 $13.13 ------ ------ Income (loss) from investment operations: Net investment income (loss) .......................... (0.04) -- Net realized and unrealized gain (loss) ............... (1.96) 3.51 ------ ------ Total from investment operations ...................... (2.00) 3.51 ------ ------ Less distributions from and in excess of: Net investment income ................................. -- -- Net realized capital gains ............................ (0.15) (2.38) ------ ------ Total distributions ................................... (0.15) (2.38) ------ ------ Net asset value, end of period .......................... $12.11 $14.26 ====== ====== TOTAL RETURN (A) ........................................ (14.0)% 27.8% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ................ $7,057 $8,348 Ratios to average net assets: Net expenses (b) ...................................... 1.35% 1.35% Gross expenses (b) .................................... 1.60% 1.88% Net investment income (b) ............................. (0.70)% (0.69)%
SEE NOTES TO FINANCIAL HIGHLIGHTS. FINANCIAL HIGHLIGHTS (continued) - -------------------------------------------------------------------------------- LAZARD GLOBAL EQUITY PORTFOLIO SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED FOR THE PERIOD ------------------------- 1/4/96* TO INSTITUTIONAL SHARES 12/31/98 12/31/97 12/31/96 ---------- ---------- -------- Net asset value, beginning of period ..................... $ 11.91 $ 11.48 $10.00 ------- ------- ------ Income (loss) from investment operations: Net investment income .................................. 0.10 0.14 0.09 Net realized and unrealized gain (loss) ................ 1.90 1.58 1.49 ------- ------- ------ Total from investment operations ....................... 2.00 1.72 1.58 ------- ------- ------ Less distributions from and in excess of: Net investment income .................................. (0.08) (0.15) (0.10) Net realized gain ...................................... (0.69) (1.14) -- ------- ------- ------ Total distributions .................................... (0.77) (1.29) (0.10) ------- ------- ------ Net asset value, end of period ........................... $ 13.14 $ 11.91 $11.48 ======= ======= ====== TOTAL RETURN (A) ......................................... 17.1% 15.3% 15.8% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ................. $17,710 $10,359 $9,784 Ratios to average net assets: Net expenses (b) ....................................... 1.05% 1.05% 1.05% Gross expenses (b) ..................................... 2.18% 2.55% 5.06% Net investment income (b) .............................. 1.07% 1.02% 1.70% Portfolio turnover rate .................................. 48% 64% 74%
Year For the period Ended 1/30/97* to Open Shares 12/31/98 12/31/97 --------- --------- Net asset value, beginning of period ..................... $ 11.92 $ 11.31 ------- ------- Income (loss) from investment operations: Net investment income (loss) ........................... 0.09 0.08 Net realized and unrealized gain (loss) ................ 1.88 1.78 ------- ------- Total from investment operations ....................... 1.97 1.86 ------- ------- Less distributions from and in excess of: Net investment income .................................. (0.04) (0.11) Net realized gain ...................................... (0.69) (1.14) ------- ------- Total distributions .................................... (0.73) (1.25) ------- ------- Net asset value, end of period ........................... $ 13.16 $ 11.92 ======= ======= TOTAL RETURN (A) ......................................... 16.8% 16.7% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ................. $ 4,824 $ 2,290 Ratios to average net assets: Net expenses (b) ....................................... 1.35% 1.35% Gross expenses (b) ..................................... 2.85% 4.23% Net investment income (b) .............................. 0.77% 0.67%
SEE NOTES TO FINANCIAL HIGHLIGHTS. FINANCIAL HIGHLIGHTS (continued) - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL EQUITY PORTFOLIO SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED -------------------------------------------------------------------- INSTITUTIONAL SHARES 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 -------- -------- -------- -------- -------- Net asset value, beginning of period ................... $ 13.97 $ 13.62 $ 12.50 $ 11.23 $ 12.32 ---------- ---------- ---------- ---------- -------- Income (loss) from investment operations: Net investment income ................................ 0.18 0.22 0.17 0.19 0.08 Net realized and unrealized gain (loss) .............. 2.03 1.40 1.76 1.29 (0.05) ---------- ---------- ---------- ---------- -------- Total from investment operations ..................... 2.21 1.62 1.93 1.48 0.03 ---------- ---------- ---------- ---------- -------- Less distributions from and in excess of: Net investment income ................................ (0.14) (0.34) (0.19) (0.09) -- Net realized gain .................................... (0.81) (0.93) (0.62) (0.12) (1.12) ---------- ---------- ---------- ---------- -------- Total distributions .................................. (0.95) (1.27) (0.81) (0.21) (1.12) ---------- ---------- ---------- ---------- -------- Net asset value, end of period ......................... $ 15.23 $ 13.97 $ 13.62 $ 12.50 $ 11.23 ========== ========== ========== ========== ======== TOTAL RETURN (A) ....................................... 16.0% 11.8% 15.6% 13.1% 0.2% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ............... $2,879,289 $2,099,724 $1,816,173 $1,299,549 $831,877 Ratios to average net assets: Net expenses (b) ..................................... 0.90% 0.89% 0.91% 0.95% 0.94% Gross expenses (b) ................................... 0.90% 0.89% 0.91% 0.95% 0.94% Net investment income (b) ............................ 1.37% 1.18% 1.93% 1.82% 0.75% Portfolio turnover rate ................................ 41% 37% 39% 63% 106%
YEAR FOR THE PERIOD ENDED 1/23/97* TO OPEN SHARES 12/31/98 12/31/97 --------- --------- Net asset value, beginning of period ................... $ 13.95 $ 13.29 ---------- ---------- Income (loss) from investment operations: Net investment income ................................ 0.18 0.16 Net realized and unrealized gain (loss) .............. 2.00 1.71 ---------- ---------- Total from investment operations ..................... 2.18 1.87 ---------- ---------- Less distributions from and in excess of: Net investment income ................................ (0.09) (0.28) Net realized gain .................................... (0.81) (0.93) ---------- ---------- Total distributions .................................. (0.90) (1.21) ---------- ---------- Net asset value, end of period ......................... $ 15.23 $ 13.95 ========== ========== TOTAL RETURN (A) ....................................... 15.8% 14.1% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ............... $ 47,303 $ 10,794 Ratios to average net assets: Net expenses (b) ..................................... 1.24% 1.25% Gross expenses (b) ................................... 1.24% 1.61% Net investment income (b) ............................ 1.02% 0.37%
SEE NOTES TO FINANCIAL HIGHLIGHTS. FINANCIAL HIGHLIGHTS (continued) - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL SMALLCAP PORTFOLIO SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED -------------------------------------------------------------------- INSTITUTIONAL SHARES 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 -------- -------- -------- -------- -------- Net asset value, beginning of period ................... $ 11.69 $ 11.93 $ 10.52 $ 10.38 $ 10.86 -------- -------- -------- -------- ------- Income (loss) from investment operations: Net investment income ................................ 0.05 0.07 0.08 0.14 0.07 Net realized and unrealized gain (loss) .............. 0.83 (0.03) 1.55 0.06 (0.55) -------- -------- -------- -------- ------- Total from investment operations ..................... 0.88 0.04 1.63 0.20 (0.48) -------- -------- -------- -------- ------- Less distributions from and in excess of: Net investment income ................................ (0.05) (0.07) (0.08) -- -- Net realized gain .................................... (1.12) (0.21) (0.14) (0.06) -- -------- -------- -------- -------- ------- Total distributions .................................. (1.17) (0.28) (0.22) (0.06) -- -------- -------- -------- -------- ------- Net asset value, end of period ....................... $ 11.40 $ 11.69 $ 11.93 $ 10.52 $ 10.38 ======== ======== ======== ======== ======= TOTAL RETURN (A) ....................................... 7.6% 0.3% 15.6% 1.9% (4.5)% Net assets, end of period (in thousands) ............... $177,779 $141,695 $126,973 $115,534 $83,432 Ratios to average net assets: Net expenses (b) ..................................... 1.04% 1.09% 1.12% 1.13% 1.05% Gross expenses (b) ................................... 1.04% 1.09% 1.12% 1.13% 1.26% Net investment income (b) ............................ 0.81% 0.73% 1.67% 1.56% 0.95% Portfolio turnover rate ................................ 56% 63% 101% 118% 113%
YEAR FOR THE PERIOD ENDED 1/23/97* TO OPEN SHARES 12/31/98 12/31/97 --------- --------- Net asset value, beginning of period ................... $ 11.69 $ 12.32 -------- -------- Income (loss) from investment operations: Net investment income (loss) ......................... 0.01 0.02 Net realized and unrealized gain (loss) .............. 0.83 (0.42) -------- -------- Total from investment operations ..................... 0.84 (0.40) -------- -------- Less distributions from and in excess of: Net investment income ................................ (0.03) (0.02) Net realized capital gains ........................... (1.12) (0.21) -------- -------- Total distributions .................................. (1.15) (0.23) -------- -------- Net asset value, end of period ......................... $11.38 $ 11.69 ======== ======== TOTAL RETURN (A) ....................................... 7.2% (3.2)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ............... $ 2,646 $ 1,873 Ratios to average net assets: Net expenses (b) ..................................... 1.43% 1.43% Gross expenses (b) ................................... 1.93% 3.39% Net investment income (b) ............................ 0.43% 0.34%
SEE NOTES TO FINANCIAL HIGHLIGHTS. FINANCIAL HIGHLIGHTS (continued) - -------------------------------------------------------------------------------- LAZARD EMERGING MARKETS PORTFOLIO SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED FOR THE PERIOD ------------------------------------------------------ 7/15/94* TO INSTITUTIONAL SHARES 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 --------- --------- -------- -------- -------- Net asset value, beginning of period ..................... $ 9.20 $ 11.21 $ 9.24 $ 9.86 $ 10.00 -------- -------- -------- ------- ------- Income (loss) from investment operations: Net investment income .................................. 0.10 0.10 0.07 0.08 0.01 Net realized and unrealized gain (loss) ................ (2.26) (1.18) 2.11 (0.66) (0.15) -------- -------- -------- ------- ------- Total from investment operations ....................... (2.16) (1.08) 2.18 (0.58) (0.14) -------- -------- -------- ------- ------- Less distributions from and in excess of: Net investment income .................................. (0.10) (0.09) (0.08) (0.04) -- Net realized gain ...................................... -- (0.84) (0.13) -- -- -------- -------- -------- ------- ------- Total distributions .................................... (0.10) (0.93) (0.21) (0.04) -- -------- -------- -------- ------- ------- Net asset value, end of period ........................... $ 6.94 $ 9.20 $ 11.21 $ 9.24 $ 9.86 ======== ======== ======== ======= ======= TOTAL RETURN (A) ......................................... (23.5)% (9.8)% 23.6% (5.9)% (1.4)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ................. $298,033 $236,340 $145,328 $35,216 $17,025 Ratios to average net assets: Net expenses (b) ....................................... 1.28% 1.32% 1.38% 1.30% 1.30% Gross expenses (b) ..................................... 1.29% 1.33% 1.48% 2.00% 2.31% Net investment income (b) .............................. 1.84% 1.26% 1.40% 1.22% 0.31% Portfolio turnover rate .................................. 36% 40% 51% 102% 31%
YEAR FOR THE PERIOD ENDED 1/8/97* TO OPEN SHARES 12/31/98 12/31/97 --------- --------- Net asset value, beginning of period ..................... $ 9.20 $ 11.45 -------- -------- Income (loss) from investment operations: Net investment income .................................. 0.11 0.07 Net realized and unrealized gain (loss) ................ (2.26) (1.42) -------- -------- Total from investment operations ....................... (2.15) (1.35) -------- -------- Less distributions from and in excess of: Net investment income .................................. (0.08) (0.07) Net realized gain ...................................... -- (0.83) -------- -------- Total distributions .................................... (0.08) (0.90) -------- -------- Net asset value, end of period ........................... $ 6.97 $ 9.20 ======== ======== TOTAL RETURN (A) ......................................... (23.3)% (12.0)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ................. $8,191 $7,769 Ratios to average net assets: Net expenses (b) ....................................... 1.60% 1.60% Gross expenses (b) ..................................... 1.76% 1.93% Net investment income (b) .............................. 1.54% 1.01%
SEE NOTES TO FINANCIAL HIGHLIGHTS. Financial Highlights (CONTINUED) - -------------------------------------------------------------------------------- LAZARD BOND PORTFOLIO SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED -------------------------------------------------------------------- INSTITUTIONAL SHARES 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 -------- -------- -------- -------- -------- Net asset value, beginning of period .................... $ 10.03 $ 9.88 $ 10.10 $ 9.24 $ 10.28 -------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income ................................. 0.55 0.59 0.56 0.60 0.58 Net realized and unrealized gain (loss) ............... 0.01 0.23 (0.14) 0.86 (1.01) -------- ------- ------- ------- ------- Total from investment operations ...................... 0.56 0.82 0.42 1.46 (0.43) -------- ------- ------- ------- ------- Less distributions from and in excess of: Net investment income ................................. (0.55) (0.60) (0.57) (0.60) (0.58) Net realized gain ..................................... (0.15) (0.07) (0.07) -- (0.03) -------- ------- ------- ------- ------- Total distributions ................................... (0.70) (0.67) (0.64) (0.60) (0.61) -------- ------- ------- ------- ------- Net asset value, end of period .......................... $ 9.89 $ 10.03 $ 9.88 $ 10.10 $ 9.24 ======== ======= ======= ======= ======= TOTAL RETURN (A) ........................................ 5.8% 8.6% 4.4% 16.2% (4.2)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ................ $100,397 $92,428 $69,906 $46,083 $24,494 Ratios to average net assets: Net expenses (b) ...................................... 0.78% 0.80% 0.80% 0.80% 0.80% Gross expenses (b) .................................... 0.79% 0.81% 0.88% 0.97% 1.23% Net investment income (b) ............................. 5.45% 5.81% 5.77% 6.07% 6.11% Portfolio turnover rate ................................. 335% 447% 460% 244% 121%
YEAR FOR THE PERIOD ENDED 3/5/97* TO OPEN SHARES 12/31/98 12/31/97 --------- -------- Net asset value, beginning of period .................... $ 10.02 $ 9.86 ------- ------ Income (loss) from investment operations: Net investment income ................................. 0.52 0.46 Net realized and unrealized gain (loss) ............... 0.01 0.24 ------- ------ Total from investment operations ...................... 0.53 0.70 ------- ------ Less distributions from and in excess of: Net investment income ................................. (0.52) (0.47) Net realized gain ..................................... (0.15) (0.07) ------- ------ Total distributions ................................... (0.67) (0.54) ------- ------ Net asset value, end of period .......................... $ 9.88 $10.02 ======= ====== TOTAL RETURN (A) ........................................ 5.4% 7.2% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ................ $15,226 $7,283 Ratios to average net assets: Net expenses (b) ...................................... 1.10% 1.10% Gross expenses (b) .................................... 1.21% 1.49% Net investment income (b) ............................. 5.11% 5.46%
SEE NOTES TO FINANCIAL HIGHLIGHTS. FINANCIAL HIGHLIGHTS (continued) - -------------------------------------------------------------------------------- LAZARD HIGH YIELD PORTFOLIO SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: For the period 1/2/98* to INSTITUTIONAL SHARES 12/31/98 --------- Net asset value, beginning of period ................... $ 10.00 ------- Income (loss) from investment operations: Net investment income (loss) ......................... 0.88 Net realized and unrealized gain (loss) .............. (0.57) ------- Total from investment operations ..................... 0.31 ------- Less distributions from and in excess of: Net investment income ................................ (0.89) Net realized gain .................................... -- ------- Total distributions .................................. (0.89) ------- Net asset value, end of period ......................... $ 9.42 ======= TOTAL RETURN (A) ....................................... 2.9% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ............... $41,935 Ratios to average net assets: Net expenses (b) ..................................... 1.05% Gross expenses (b) ................................... 1.55% Net investment income (b) ............................ 8.87% Portfolio turnover rate ................................ 418% FOR THE PERIOD 2/24/98* TO Open Shares 12/31/98 --------- Net asset value, beginning of period ................... $10.37 ------ Income (loss) from investment operations: Net investment income ................................ 0.72 Net realized and unrealized gain (loss) .............. (0.94) ------ Total from investment operations ..................... (0.22) ------ Less distributions from and in excess of: Net investment income ................................ (0.73) Net realized gain .................................... -- ------ Total distributions .................................. (0.73) ------ Net asset value, end of period ......................... $ 9.42 ====== TOTAL RETURN (A) ....................................... (2.2)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ............... $ 949 Ratios to average net assets: Net expenses (b) ..................................... 1.35% Gross expenses (b) ................................... 9.77% Net investment income (b) ............................ 8.59% SEE NOTES TO FINANCIAL HIGHLIGHTS. FINANCIAL HIGHLIGHTS (continued) - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED -------------------------------------------------------------------- INSTITUTIONAL SHARES 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 -------- -------- -------- -------- -------- Net asset value, beginning of period ................... $ 9.63 $ 10.78 $ 10.85 $ 10.23 $ 10.51 -------- -------- ------- ------- -------- Income (loss) from investment operations: Net investment income ................................ 0.32 0.40 0.54 0.70 0.59 Net realized and unrealized gain (loss) .............. 0.98 (1.05) 0.03 1.25 (0.16) -------- -------- ------- ------- -------- Total from investment operations ..................... 1.30 (0.65) 0.57 1.95 0.43 -------- -------- ------- ------- -------- Less distributions from and in excess of: Net investment income ................................ (0.22) (0.13) (0.59) (1.13) (0.59) Net realized gain .................................... -- (0.12) (0.05) (0.20) (0.12) Capital .............................................. -- (0.25) -- -- -- -------- -------- ------- ------- -------- Total distributions .................................. (0.22) (0.50) (0.64) (1.33) (0.71) -------- -------- ------- ------- -------- Net asset value, end of period ......................... $ 10.71 $ 9.63 $ 10.78 $ 10.85 $ 10.23 ======== ======== ======= ======= ======== TOTAL RETURN (A) ....................................... 13.2% (5.6)% 5.5% 19.4% 4.2% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ............... $115,500 $110,185 $88,430 $45,624 $35,803 Ratios to average net assets: Net expenses (b) ..................................... 1.09% 1.06% 1.05% 1.05% 1.05% Gross expenses (b) ................................... 1.10% 1.10% 1.21% 1.25% 1.51% Net investment income (b) ............................ 4.27% 5.13% 5.54% 5.99% 5.68% Portfolio turnover rate ................................ 187% 166% 242% 190% 66%
YEAR PERIOD FROM ENDED 1/2/97* TO OPEN SHARES 12/31/98 12/31/97 --------- --------- Net asset value, beginning of period ................... $ 9.63 $ 10.64 -------- -------- Income (loss) from investment operations: Net investment income (loss) ......................... 0.31 0.43 Net realized and unrealized gain (loss) .............. 0.96 (0.98) -------- -------- Total from investment operations ..................... 1.27 (0.55) -------- -------- Less distributions from and in excess of: Net investment income ................................ (0.21) (0.08) Net realized capital gains ........................... -- (0.12) Capital .............................................. -- (0.26) -------- -------- Total distributions .................................. (0.21) (0.46) -------- -------- Net asset value, end of period ......................... $ 10.69 $ 9.63 ======== ======== TOTAL RETURN (A) ....................................... 12.9% (4.8)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ............... $ 4,751 $ 2,772 Ratios to average net assets: Net expenses (b) ..................................... 1.35% 1.35% Gross expenses (b) ................................... 1.92% 2.71% Net investment income (b) ............................ 4.01% 4.68%
SEE NOTES TO FINANCIAL HIGHLIGHTS. FINANCIAL HIGHLIGHTS (continued) - -------------------------------------------------------------------------------- LAZARD STRATEGIC YIELD PORTFOLIO SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
YEAR ENDED -------------------------------------------------------------------- INSTITUTIONAL SHARES 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 -------- -------- -------- -------- -------- Net asset value, beginning of period .................. $ 9.66 $ 10.01 $ 9.52 $ 9.10 $ 10.13 -------- -------- -------- ------- ------- Income (loss) from investment operations: Net investment income ............................... 0.76 0.81 0.76 0.75 0.76 Net realized and unrealized gain (loss) ............. (0.69) (0.28) 0.50 0.43 (0.99) -------- -------- -------- ------- ------- Total from investment operations .................... 0.07 0.53 1.26 1.18 (0.23) -------- -------- -------- ------- ------- Less distributions from and in excess of: Net investment income ............................... (0.44) (0.82) (0.77) (0.76) (0.76) Net realized gain ................................... -- (0.06) -- -- (0.04) Capital ............................................. (0.28) -- -- -- -- -------- -------- -------- ------- ------- Total distributions ................................. (0.72) (0.88) (0.77) (0.76) (0.80) -------- -------- -------- ------- ------- Net asset value, end of period ........................ $ 9.01 $ 9.66 $ 10.01 $ 9.52 $ 9.10 ======== ======== ======== ======= ======= TOTAL RETURN (A) ...................................... 0.8% 5.3% 13.7% 13.6% (2.3)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) .............. $397,599 $399,452 $199,083 $78,474 $62,328 Ratios to average net assets: Net expenses (b) .................................... 0.90% 0.94% 1.08% 1.09% 1.05% Gross expenses (b) .................................. 0.90% 0.95% 1.08% 1.09% 1.15% Net investment income (b) ........................... 6.94% 7.42% 7.88% 8.02% 8.03% Portfolio turnover rate ............................... 276% 161% 189% 205% 195%
YEAR FOR THE PERIOD ENDED 1/23/97* TO OPEN SHARES 12/31/98 12/31/97 --------- --------- Net asset value, beginning of period .................. $ 9.66 $ 10.08 -------- -------- Income (loss) from investment operations: Net investment income (loss) ........................ 0.73 0.72 Net realized and unrealized gain (loss) ............. (0.69) (0.35) -------- -------- Total from investment operations .................... 0.04 0.37 -------- -------- Less distributions from and in excess of: Net investment income ............................... (0.40) (0.73) Net realized gain ................................... -- (0.06) Capital ............................................. (0.28) -- -------- -------- Total distributions ................................. (0.68) (0.79) -------- -------- Net asset value, end of period ........................ $ 9.02 $ 9.66 ======== ======== TOTAL RETURN (A) ...................................... 0.4% 3.8% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) .............. $ 22,460 $ 15,300 Ratios to average net assets: Net expenses (b) .................................... 1.28% 1.39% Gross expenses (b) .................................. 1.28% 1.44% Net investment income (b) ........................... 6.60% 6.92%
NOTES TO FINANCIAL HIGHLIGHTS: *Commencement of operations. (a) Total Returns are historical and assume changes in share price, reinvestments of all dividends and distributions, and no sales charge. Had certain expenses not been reduced during the periods shown, total returns would have been lower. Periods of less than one year are not annualized. (b) Annualized for periods of less than one year. For more information about the Portfolios, the following documents are available free upon request: ANNUAL/SEMIANNUAL REPORTS (REPORTS): - ------------------------------------ The Fund's annual and semi-annual reports to shareholders contain additional information on each Portfolio's investments. In the annual report, you will find a broad discussion of the market conditions and investment strategies that significantly affected each Portfolio's performance during its last fiscal year. STATEMENT OF ADDITIONAL INFORMATION (SAI): - ------------------------------------------ The SAI provides more detailed information about the Portfolios, including their operations and investment policies. It is incorporated by reference and is legally considered a part of this prospectus. You can review the Fund's Reports and the SAI at the Public Reference Room of the Securities and Exchange Commission. You can get text-only copies: o For a fee, by writing the Public Reference Section of the Commission, Washington, D.C. 20549-6009 or calling 1-800-SEC-0330. o Free from the Commission's Website at http://www.sec.gov. Investment Company Act file no. 811-6312 - -------------------------------------------------------------------------------- You can get free copies of Reports and the SAI, or request other information and discuss your questions about the Portfolios by contacting the Fund at: The Lazard Funds, Inc. 30 Rockefeller Plaza New York, New York 10112 Telephone: 1-800-823-6300 http://www.lazardfunds.com - -------------------------------------------------------------------------------- ================================================================================ THE LAZARD FUNDS, INC. TRANSFER AGENT AND 30 Rockefeller Plaza DIVIDEND DISBURSING AGENT New York, New York 10112 Boston Financial Data Services, Inc. Telephone: (800) 823-6300 P.O. Box 9363 http://www.lazardfunds.com Boston, Massachusetts 02205-9363 INVESTMENT MANAGER INDEPENDENT PUBLIC ACCOUNTANTS Lazard Asset Management Anchin, Block & Anchin LLP 30 Rockefeller Plaza 1375 Broadway New York, New York 10112 New York, New York 10018 DISTRIBUTOR LEGAL COUNSEL Lazard Freres & Co. LLC Stroock & Stroock & Lavan LLP 30 Rockefeller Plaza 180 Maiden Lane New York, New York 10112 New York, New York 10038-4982 CUSTODIAN State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 LAZARDFUNDS 30 Rockefeller Plaza New York, NY 10112 Telephone 800.823.6300 http://www.lazardfunds.com NO SALES OR REDEMPTION CHARGES No person has been authorized to give any information or to make any representations not contained in this Prospectus, and information or representations not contained herein must not be relied upon as having been authorized by the Fund or the Distributor. This Prospectus does not constitute an offer of any security other than the registered securities to which it relates or an offer to any person in any jurisdiction where such offer would be unlawful. PRELIMINARY COPY THE LAZARD FUNDS, INC. PART B STATEMENT OF ADDITIONAL INFORMATION June 1, 1999 Transfer of the Assets of LAZARD BANTAM VALUE PORTFOLIO 30 Rockefeller Plaza New York, New York 10112 1-800-632-6000 To and in Exchange for Institutional Shares and Open Shares of LAZARD SMALL CAP PORTFOLIO 30 Rockefeller Plaza New York, New York 10112 1-800-632-6000 This Statement of Additional Information, which is not a prospectus, supplements and should be read in conjunction with the Prospectus/Proxy Statement dated June 1, 1999, relating specifically to the proposed transfer of all of the assets and liabilities of Lazard Bantam Value Portfolio, attributable to its Institutional Shares and Open Shares, in exchange for Institutional Shares and Open Shares, respectively, of Lazard Small Cap Portfolio. The transfer is to occur pursuant to an Agreement and Plan of Reorganization. This Statement of Additional Information consists of this cover page and the following described documents, each of which is attached hereto and incorporated herein by reference: 1. The Statement of Additional Information of The Lazard Funds, Inc. dated May 1, 1999. 2. Annual Report of The Lazard Funds, Inc. for the fiscal year ended December 31, 1998. The Prospectus/Proxy Statement dated June 1, 1999 may be obtained by writing to The Lazard Funds, Inc., 30 Rockefeller Plaza, New York, New York 10112. THE LAZARD FUNDS, INC. 30 Rockefeller Plaza New York, New York 10112 (800) 823-6300 STATEMENT OF ADDITIONAL INFORMATION MAY 1, 1999 The Lazard Funds, Inc. (the "Fund") is a no-load, open-end management investment company known as a mutual fund. This Statement of Additional Information, which is not a prospectus, supplements and should be read in conjunction with the current Prospectus of the Fund, dated May 1, 1999, as it may be revised from time to time, relating to the following twelve portfolios (individually, a "Portfolio" and collectively, the "Portfolios"): Lazard Equity Portfolio Lazard Emerging Markets Portfolio Lazard Mid Cap Portfolio Lazard Bond Portfolio Lazard Small Cap Portfolio Lazard High Yield Portfolio Lazard Bantam Value Portfolio Lazard International Lazard Global Equity Portfolio Fixed-Income Portfolio Lazard International Equity Portfolio Lazard Strategic Yield Portfolio Lazard International Small Cap Portfolio Each Portfolio currently offers two classes of shares--Institutional Shares and Open Shares. Institutional Shares and Open Shares are identical, except as to minimum investment requirements and the services offered to and expenses borne by each Class. To obtain a copy of the Fund's Prospectus, please write or call the Fund at the address and telephone number given above. The most recent Annual Report and Semi-Annual Report to Shareholders for each Portfolio are separate documents supplied with this Statement of Additional Information, and the financial statements, accompanying notes and report of independent auditors appearing in the Annual Report are incorporated by reference into this Statement of Additional Information. TABLE OF CONTENTS Page Description of the Fund and Portfolios................................. 3 Investment Restrictions................................................ 19 Management............................................................. 22 Determination of Net Asset Value....................................... 27 Portfolio Transactions................................................. 28 How to Buy and How to Sell Shares...................................... 31 Distribution and Servicing Plan........................................ 32 Dividends and Distributions............................................ 33 Taxation............................................................... 34 Performance Information................................................ 36 Information About the Fund and Portfolios.............................. 39 Counsel and Independent Auditors....................................... 51 Additional Information................................................. 51 Appendix............................................................... 53 DESCRIPTION OF THE FUND AND PORTFOLIOS The Fund is a Maryland corporation organized on May 17, 1991. Each Portfolio is a separate portfolio of the Fund, an open-end management investment company, known as a mutual fund. The Equity Portfolio is a diversified investment company, which means that, with respect to 75% of its total assets, the Equity Portfolio will not invest more than 5% of its assets in the securities of any single issuer. Each of the other Portfolios is a non-diversified investment company, which means that the proportion of the Portfolio's assets that may be invested in the securities of a single issuer is not limited by the Investment Company Act of 1940, as amended (the "1940 Act"). Lazard Asset Management, a division of Lazard Freres & Co. LLC ("Lazard Freres"), serves as the investment manager (the "Investment Manager") to each of the Portfolios. Lazard Freres is the distributor of each Portfolio's shares. CERTAIN PORTFOLIO SECURITIES The following information supplements and should be read in conjunction with the Fund's Prospectus. DEPOSITORY RECEIPTS. (All Portfolios, except the Small Cap Portfolio) Each of these Portfolios may invest in the securities of foreign issuers in the form of American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. ADRs are receipts typically issued by a United States bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. GDRs are receipts issued outside the United States, typically by non-United States banks and trust companies that evidence ownership of either foreign or domestic securities. Generally, ADRs in registered form are designed for use in the United States securities markets and GDRs in bearer form are designed for use outside the United States. These securities may be purchased through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the underlying security and a depositary, whereas a depositary may establish an unsponsored facility without participation by the issuer of the deposited security. Holders of unsponsored depositary receipts generally bear all the costs of such facilities and the depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights to the holders of such receipts in respect of the deposited securities. FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES. (All Portfolios, except the Equity Portfolio and Small Cap Portfolio) Each of these Portfolios may invest in obligations issued or guaranteed by one or more foreign governments or any of their political subdivisions, agencies or instrumentalities that are determined by the Investment Manager to be of comparable quality to the other obligations in which the Portfolio may invest. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Coal and Steel Community, the Asian Development Bank and the InterAmerican Development Bank. CONVERTIBLE SECURITIES. (All Portfolios) Convertible securities may be converted at either a stated price or stated rate into underlying shares of common stock. Convertible securities have characteristics similar to both fixed-income and equity securities. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, enjoy seniority in right of payment to all equity securities, and convertible preferred stock is senior to common stock, of the same issuer. Because of the subordination feature, however, convertible securities typically have lower ratings than similar non-convertible securities. Although to a lesser extent than with fixed-income securities, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stock. A unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and so may not experience market value declines to the same extent as the underlying common stock. When the market price of the underlying common stock increases, the prices of the convertible securities tend to rise as a reflection of the value of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. Convertible securities are investments that provide for a stable stream of income with generally higher yields than common stocks. There can be no assurance of current income because the issuers of the convertible securities may default on their obligations. A convertible security, in addition to providing fixed income, offers the potential for capital appreciation through the conversion feature, which enables the holder to benefit from increases in the market price of the underlying common stock. There can be no assurance of capital appreciation, however, because securities prices fluctuate. Convertible securities, however, generally offer lower interest or dividend yields than non-convertible securities of similar quality because of the potential for capital appreciation. WARRANTS. (All Portfolios, except the International Equity Portfolio, Bond Portfolio and International Fixed-Income Portfolio) A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the corporation's capital stock at a set price for a specified period of time. A Portfolio may invest up to 5% of its total assets in warrants, except that this limitation does not apply to warrants purchased by the Portfolio that are sold in units with, or attached to, other securities. PARTICIPATION INTERESTS. (All Portfolios) Each Portfolio may purchase from financial institutions participation interests in securities in which the Portfolio may invest. A participation interest gives the Portfolio an undivided interest in the security in the proportion that the Portfolio's participation interest bears to the total principal amount of the security. These instruments may have fixed, floating or variable rates of interest with remaining maturities of 13 months or less. If the participation interest is unrated, or has been given a rating below that which is permissible for purchase by the Portfolio, the participation interest will be collateralized by U.S. Government securities, or, in the case of unrated participation interests, the Investment Manager must have determined that the instrument is of comparable quality to those instruments in which the Portfolio may invest. Each Portfolio may invest in corporate obligations denominated in U.S. or (except with respect to the Equity Portfolio and Small Cap Portfolio) foreign currencies that are originated, negotiated and structured by a syndicate of lenders ("Co-Lenders") consisting of commercial banks, thrift institutions, insurance companies, financial companies or other financial institutions one or more of which administers the security on behalf of the syndicate (the "Agent Bank"). Co-Lenders may sell such securities to third parties called "Participants." Each Portfolio may invest in such securities either by participating as a Co-Lender at origination or by acquiring an interest in the security from a Co-Lender or a Participant (collectively, "participation interests"). Co-Lenders and Participants interposed between the Portfolio and the corporate borrower (the "Borrower"), together with Agent Banks, are referred to herein as "Intermediate Participants." Each Portfolio also may purchase a participation interest in a portion of the rights of an Intermediate Participant, which would not establish any direct relationship between the Fund, on behalf of the Portfolio, and the Borrower. In such cases, the Portfolio would be required to rely on the Intermediate Participant that sold the participation interest not only for the enforcement of the Portfolio's rights against the Borrower, but also for the receipt and processing of payments due to the Portfolio under the security. Because it may be necessary to assert through an Intermediate Participant such rights as may exist against the Borrower, if the Borrower fails to pay principal and interest when due, the Portfolio may be subject to delays, expenses and risks that are greater than those that would be involved if the Portfolio were to enforce its rights directly against the Borrower. Moreover, under the terms of a participation interest, the Portfolio may be regarded as a creditor of the Intermediate Participant (rather than of the Borrower), so that the Portfolio also may be subject to the risk that the Intermediate Participant may become insolvent. Similar risks may arise with respect to the Agent Bank if, for example, assets held by the Agent Bank for the benefit of the Portfolio were determined by the appropriate regulatory authority or court to be subject to the claims of the Agent Bank's creditors. In such case, the Portfolio might incur certain costs and delays in realizing payment in connection with the participation interest or suffer a loss of principal and/or interest. Further, in the event of the bankruptcy or insolvency of the Borrower, the obligation of the Borrower to repay the loan may be subject to certain defenses that can be asserted by such Borrower as a result of improper conduct by the Agent Bank or Intermediate Participant. VARIABLE AND FLOATING RATE SECURITIES. (All Portfolios) Variable and floating rate securities provide for a periodic adjustment in the interest rate paid on the obligations. The terms of such obligations must provide that interest rates are adjusted periodically based upon an interest rate adjustment index as provided in the respective obligations. The adjustment intervals may be regular, and range from daily up to annually, or may be event based, such as based on a change in the prime rate. Each Portfolio may invest in floating rate debt instruments ("floaters"). The interest rate on a floater is a variable rate which is tied to another interest rate, such as a money- market index or Treasury bill rate. The interest rate on a floater resets periodically, typically every six months. Because of the interest rate reset feature, floaters provide the Portfolio with a certain degree of protection against rises in interest rates, although the Portfolio will participate in any declines in interest rates as well. Each Portfolio also may invest in inverse floating rate debt instruments ("inverse floaters"). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floating rate security may exhibit greater price volatility than a fixed rate obligation of similar credit quality. MUNICIPAL OBLIGATIONS. (Bond Portfolio, High Yield Portfolio and Strategic Yield Portfolio) In circumstances where the Investment Manager determines that investment in municipal obligations would facilitate the Portfolio's ability to accomplish its investment objective, each of these Portfolios may invest its assets in such obligations, including municipal obligations issued at a discount. Dividends on shares attributable to interest on municipal obligations held by the Portfolio will not be exempt from federal income taxes. Municipal obligations are susceptible to risks arising from the financial condition of the states, public bodies or municipalities issuing the securities. To the extent that state or local governmental entities are unable to meet their financial obligations, the income derived by the Portfolio from municipal obligations could be impaired. Municipal obligations are debt obligations issued by states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities, or multistate agencies or authorities. Municipal obligations bear fixed, floating or variable rates of interest. Certain municipal obligations are subject to redemption at a date earlier than their stated maturity pursuant to call options, which may be separated from the related municipal obligations and purchased and sold separately. Each of these Portfolios also may acquire call options on specific municipal obligations. The Portfolio generally would purchase these call options to protect the Portfolio from the issuer of the related municipal obligation redeeming, or other holder of the call option from calling away, the municipal obligation before maturity. Municipal obligations generally include debt obligations issued to obtain funds for various public purposes as well as certain industrial development bonds issued by or on behalf of public authorities. Municipal obligations are classified as general obligation bonds, revenue bonds and notes. General obligation bonds are secured by the issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenue derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source, but not from the general taxing power. Industrial development bonds, in most cases, are revenue bonds and generally do not carry the pledge of the credit of the issuing municipality, but generally are guaranteed by the corporate entity on whose behalf they are issued. Notes are short-term instruments which are obligations of the issuing municipalities or agencies and are sold in anticipation of a bond sale, collection of taxes or receipt of other revenues. Municipal obligations include municipal lease/purchase agreements which are similar to installment purchase contracts for property or equipment issued by municipalities. While, in general, municipal obligations are tax exempt securities having relatively low yields as compared to taxable, non-municipal obligations of similar quality, certain municipal obligations are taxable obligations, offering yields comparable to, and in some cases greater than, the yields available on other permissible Portfolio investments. Dividends received by shareholders on Portfolio shares which are attributable to interest income received by the Portfolio from municipal obligations generally will be subject to federal income tax. Each of these Portfolios will invest in municipal obligations, the ratings of which correspond with the ratings of other permissible Portfolio investments. Each of these Portfolios currently intends to invest no more than 25% of its assets in municipal obligations. However, this percentage may be varied from time to time without shareholder approval. ZERO COUPON AND STRIPPED U.S. TREASURY SECURITIES. (Bond Portfolio, High Yield Portfolio and Strategic Yield Portfolio) Each of these Portfolios may invest in zero coupon U.S. Treasury securities, which are Treasury notes and Bonds that have been stripped of their unmatured interest coupons, the coupons themselves and receipts or certificates representing interests in such stripped debt obligations and coupons. Zero coupon securities also are issued by corporations and financial institutions which constitute a proportionate ownership of the issuer's pool of underlying U.S. Treasury securities. A zero coupon security pays no interest to its holder during its life and is sold at a discount to its face value at maturity. The market prices of zero coupon securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to a greater degree to changes in interest rates than non-zero coupon securities having similar maturities and credit qualities. MORTGAGE-RELATED SECURITIES. (Bond Portfolio, High Yield Portfolio, International Fixed-Income Portfolio and Strategic Yield Portfolio and, to a limited extent, the Equity Portfolio, Mid Cap Portfolio, Small Cap Portfolio, Bantam Value Portfolio and Global Equity Portfolio) Mortgage-related securities are secured, directly or indirectly, by pools of mortgages, and may include complex instruments such as collateralized mortgage obligations and stripped mortgage-backed securities. These securities also may include mortgage pass-through securities, interests in REMICs or other kinds of mortgage-backed securities. The mortgage-related securities which may be purchased include those with fixed, floating and variable interest rates, those with interest rates that change based on multiples of changes in interest rates and those with interest rates that change inversely to changes in interest rates. RESIDENTIAL MORTGAGE-RELATED SECURITIES--Each of these Portfolios may invest in mortgage-related securities representing participation interests in pools of one- to four-family residential mortgage loans issued by governmental agencies or instrumentalities, such as the GNMA, FNMA and FHLMC, or by private entities. Residential mortgage-related securities issued by private entities are structured to provide protection to the senior class investors against potential losses on the underlying mortgage loans. This protection is generally provided by having the holders of the subordinated class of securities ("Subordinated Securities") take the first loss if there are defaults on the underlying commercial mortgage loans. Other protection, which may benefit all of the classes or particular classes, may include issuer guarantees, reserve funds, additional Subordinated Securities, cross-collateralization and over-collateralization. COMMERCIAL MORTGAGE-RELATED SECURITIES--Each of these Portfolios may invest in commercial mortgage-related securities, which generally are multi-class debt or pass-through certificates secured by mortgage loans on commercial properties. Similar to residential mortgage-related securities, commercial mortgage-related securities have been issued using a variety of structures, including multi-class structures featuring senior and subordinated classes. SUBORDINATED SECURITIES--Each of these Portfolios may invest in Subordinated Securities issued or sponsored by commercial banks, savings and loan institutions, mortgage bankers, private mortgage insurance companies and other non-governmental issuers. Subordinated Securities have no governmental guarantee, and are subordinated in some manner as to the payment of principal and/or interest to the holders of more senior mortgage-related securities arising out of the same pool of mortgages. The holders of Subordinated Securities typically are compensated with a higher stated yield than are the holders of more senior mortgage-related securities. On the other hand, Subordinated Securities typically subject the holder to greater risk than senior mortgage-related securities and tend to be rated in a lower rating category, and frequently a substantially lower rating category, than the senior mortgage-related securities issued in respect of the same pool of mortgage. Subordinated Securities generally are likely to be more sensitive to changes in prepayment and interest rates and the market for such securities may be less liquid than is the case for traditional fixed-income securities and senior mortgage-related securities. COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH SECURITIES--Collateralized mortgage obligations or "CMOs" are multiclass bonds backed by pools of mortgage pass-through certificates or mortgage loans. CMOs may be collateralized by (a) pass-through certificates issued or guaranteed by GNMA, FNMA or FHLMC, (b) unsecuritized mortgage loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans' Affairs, (c) unsecuritized conventional mortgages, (d) other mortgage-related securities or (e) any combination thereof. CMOs may be issued by agencies or instrumentalities of the U.S. Government, or by private originators of, or investors in, mortgage loans, including depository institutions, mortgage banks, investment banks and special purpose subsidiaries of the foregoing. The issuer of CMOs or multi-class pass-through securities may elect to be treated as a REMIC. The Bond Portfolio, High Yield Portfolio and International Fixed-Income Portfolio may invest, to a limited extent, in residual interests in REMICs. See "Taxation." Each class of CMOs, often referred to as a "tranche," is issued at a specific coupon rate and has a stated maturity or final distribution date; these characteristics will vary from one tranche to another. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than the stated maturities or final distribution dates. The principal and interest on the underlying mortgages may be allocated among the several classes of a series of a CMO in many ways. One or more tranches of a CMO may have coupon rates which reset periodically at a specified increment over an index, such as the London Interbank Offered Rate ("LIBOR") (or sometimes more than one index). These floating rate CMOs typically are issued with lifetime caps on the coupon rate thereon. Each of these Portfolios also may invest in inverse floating rate CMOs. Inverse floating rate CMOs constitute a tranche of a CMO with a coupon rate that moves in the reverse direction to an applicable index such as the LIBOR. Accordingly, the coupon rate thereon will increase as interest rates decrease. Inverse floating rate CMOs are typically more volatile than fixed or floating rate tranches of CMOs. Many inverse floating rate CMOs have coupons that move inversely to a multiple of the applicable indexes. The coupon varying inversely to a multiple of an applicable index creates a leverage factor. The markets for inverse floating rate CMOs with highly leveraged characteristics may at times be very thin. The Portfolio's ability to dispose of its positions in such securities will depend on the degree of liquidity in the markets for such securities. It is impossible to predict the amount of trading interest that may exist in such securities, and therefore the future degree of liquidity. It should be noted that inverse floaters based on multiples of a stated index are designed to be highly sensitive to changes in interest rates and can subject the holders thereof to extreme reductions of yield and loss of principal. STRIPPED MORTGAGE-BACKED SECURITIES--Each of these Portfolios also may invest in stripped mortgage-backed securities. Stripped mortgage-backed securities are created by segregating the cash flows from underlying mortgage loans or mortgage securities to create two or more new securities, each with a specified percentage of the underlying security's principal or interest payments. Mortgage securities may be partially stripped so that each investor class received some interest and some principal. When securities are completely stripped, however, all of the interest is distributed to holders of one type of security, known as an interest-only security, or IO, and all of the principal is distributed to holders of another type of security known as a principal-only security, or PO. Strips can be created in a pass-through structure or as tranches of a CMO. The yields to maturity on IOs and POs are very sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Portfolio may not fully recoup its initial investment in IOs. Conversely, if the underlying mortgage assets experience less than anticipated prepayments of principal, the yield on POs could be materially and adversely affected. REAL ESTATE INVESTMENT TRUSTS--Each of these Portfolios may invest in Real Estate Investment Trusts ("REITs"), although each of the Mid Cap Portfolio, Bantam Value Portfolio, Equity Portfolio, Global Equity Portfolio and Small Cap Portfolio currently intends to limit its investments in REITs to no more than 5% of its assets. A REIT is a corporation, or a business trust that would otherwise be taxed as a corporation, which meets the definitional requirements of the Code. The Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating corporate level Federal income tax and making the REIT a pass-through vehicle for Federal income tax purposes. To meet the definitional requirements of the Code, a REIT must, among other things, invest substantially all of its assets in interests in real estate (including mortgages and other REITs) or cash and government securities, derive most of its income from rents from real property or interest on loans secured by mortgages on real property, and distribute to shareholders annually a substantial portion of its otherwise taxable income. REITs are characterized as equity REITs, mortgage REITs and hybrid REITs. Equity REITs, which may include operating or finance companies, own real estate directly and the value of, and income earned by, the REITs depends upon the income of the underlying properties and the rental income they earn. Equity REITs also can realize capital gains (or losses) by selling properties that have appreciated (or depreciated) in value. Mortgage REITs can make construction, development or long-term mortgage loans and are sensitive to the credit quality of the borrower. Mortgage REITs derive their income from interest payments on such loans. Hybrid REITs combine the characteristics of both equity and mortgage REITs, generally by holding both ownership interests and mortgage interests in real estate. The value of securities issued by REITs are affected by tax and regulatory requirements and by perceptions of management skill. They also are subject to heavy cash flow dependency, defaults by borrowers or tenants, self-liquidation and the possibility of failing to qualify for tax-free status under the Code or to maintain exemption from the 1940 Act. GOVERNMENT-AGENCY SECURITIES--Mortgage-related securities issued by the Government National Mortgage Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as to the timely payment of principal and interest by GNMA and such guarantee is backed by the full faith and credit of the United States. GNMA is a wholly-owned U.S. Government corporation within the Department of Housing and Urban Development. GOVERNMENT-RELATED SECURITIES--Mortgage-related securities issued by the Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are solely the obligations of FNMA and are not backed by or entitled to the full faith and credit of the United States Government. FNMA is a government-sponsored organization owned entirely by private stockholders. Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the United States Government created pursuant to an Act of Congress, which is owned entirely by Federal Home Loan Banks. PRIVATE ENTITY SECURITIES--These mortgage-related securities are issued by commercial banks, savings and loan institutions, mortgage bankers, private mortgage insurance companies and other non-governmental issuers. Timely payment of principal and interest on mortgage-related securities backed by pools created by non-governmental issuers often is supported partially by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance. The insurance and guarantees are issued by government entities, private insurers and the mortgage poolers. There can be no assurance that the private insurers or mortgage poolers can meet their obligations under the policies, so that if the issuers default on their obligations the holders of the security could sustain a loss. No insurance or guarantee covers the Portfolio or the price of the Portfolio's shares. Mortgage-related securities issued by non-governmental issuers generally offer a higher rate of interest than government-agency and government-related securities because there are no direct or indirect government guarantees of payment. CMO RESIDUALS--CMO Residuals are derivative mortgage securities issued by agencies or instrumentalities of the U.S. Government or by private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose subsidiaries of the foregoing. The cash flow generated by the Mortgage Assets underlying series of CMOs is applied first to make required payments of principal of and interest on the CMOs and second to pay the related administrative expenses of the issuer. The residual in a CMO structure generally represents the interest in any excess cash flow remaining after making the foregoing payments. Each payment of such excess cash flow to a holder of the related CMO Residual represents dividend or interest income and/or a return of capital. The amount of residual cash flow resulting from a CMO will depend on, among other things, the characteristics of the Mortgage Assets, the coupon rate of each class of CMOs, prevailing interest rates, the amount of administrative expenses and the prepayment experience on the Mortgage Assets. In particular, the yield to maturity on CMO Residuals is extremely sensitive to prepayments on the related underlying Mortgage Assets in the same manner as an IO class of SMBS. See "Stripped Mortgage-Backed Securities," above. In addition, if a series of a CMO includes a class that bears interest at an adjustable rate, the yield to maturity on the related CMO residual will also be extremely sensitive to the level of the index upon which interest rate adjustments are based. As described above with respect to SMBS, in certain circumstances, the Portfolio may fail to fully recoup its initial investment in a CMO Residual. CMO Residuals are generally purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers. CMO Residuals may not have the liquidity of other more established securities trading in other markets. Transactions in CMO Residuals are generally completed only after careful review of the characteristics of the securities in question. In addition, CMO Residuals may or, pursuant to an exemption therefrom, may not have been registered under the Securities Act. CMO Residuals, whether or not registered under the Securities Act, may be subject to certain restrictions of transferability. Ownership of certain CMO Residuals imposes liability for certain of the expenses of the related CMO issuer on the purchaser. The Investment Manager will not purchase any CMO Residual that imposes such liability on the Portfolio. OTHER MORTGAGE-RELATED SECURITIES--Other mortgage-related securities include securities other than those described above that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. Other mortgage-related securities may be equity or debt securities issued by agencies or instrumentalities of the U.S. Government or by private originators of, or investors in, mortgage loans, including savings and loan associations, homebuilders, mortgage banks, commercial banks, investment banks, partnerships, trusts and special purpose entities of the foregoing. ASSET-BACKED SECURITIES. (Bond Portfolio, High Yield Portfolio, International Fixed-Income Portfolio and Strategic Yield Portfolio) Each of these Portfolios may invest in asset-backed securities, including interests in pools of receivables, such as motor vehicle installment purchase obligations, credit card receivables, home equity loans, home improvement loans and manufactured housing loans. These securities may be in the form of pass-through instruments or asset-backed bonds. The securities, all of which are issued by non-governmental entities and carry no direct or indirect government guarantee, are structurally similar to the collateralized mortgage obligations and mortgage pass-through securities described above. As with mortgage-backed securities, asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties and use similar credit enhancement techniques. Asset-backed securities present certain risks that are not presented by mortgage-related securities. Primarily, these securities may provide the Portfolio with a less effective security interest in the related collateral than do mortgage-related securities. Therefore, there is the possibility that recoveries on the underlying collateral may not, in some cases, be available to support payments on these securities. Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Most organizations that issue asset-backed securities relating to motor vehicle installment purchase obligations perfect their interests in their respective obligations only by filing a financing statement and by having the servicer of the obligations, which is usually the originator, take custody thereof. In such circumstances, if the servicer were to sell the same obligations to another party, in violation of its duty not to so do, there is a risk that such party could acquire an interest in the obligations superior to that of the holders of the securities. Also, although most such obligations grant a security interest in the motor vehicle being financed, in most states the security interest in a motor vehicle must be noted on the certificate of title to perfect such security interest against competing claims of other parties. Due to the large number of vehicles involved, however, the certificate of title to each vehicle financed, pursuant to the obligations underlying the securities, usually is not amended to reflect the assignment of the seller's security interest for the benefit of the holders of the securities. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on those securities. In addition, various state and federal laws give the motor vehicle owner the right to assert against the holder of the owner's obligation certain defenses such owner would have against the seller of the motor vehicle. The assertion of such defenses could reduce payments on the related securities. INVESTMENT COMPANIES. (All Portfolios) Each Portfolio may invest, to the extent permitted under the 1940 Act, in securities issued by investment companies which principally invest in securities of the type in which the Portfolio invests. Investments in the securities of investment companies may involve duplication of advisory fees and certain other expenses. ILLIQUID SECURITIES. (All Portfolios) Each Portfolio may invest up to 10% (15% in the case of the Mid Cap Portfolio and High Yield Portfolio) of the value of its net assets in securities as to which a liquid trading market does not exist, provided such investments are consistent with the Portfolio's investment objective. Such securities may include securities that are not readily marketable, such as certain securities that are subject to legal or contractual restrictions on resale, repurchase agreements providing for settlement in more than seven days after notice, certain mortgage-related securities, and certain privately negotiated, non-exchange traded options and securities used to cover such options. As to these securities, the Portfolio is subject to a risk that should the Portfolio desire to sell them when a ready buyer is not available at a price the Portfolio deems representative of their value, the value of the Portfolio's net assets could be adversely affected. MONEY MARKET INSTRUMENTS. (All Portfolios) When the Investment Manager determines that adverse market conditions exist, a Portfolio may adopt a temporary defensive position and invest some or all of its assets in money market instruments, including U.S. Government securities, repurchase agreements, bank obligations and commercial paper. 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 Fund's Prospectus. BORROWING MONEY. (All Portfolios) Each Portfolio, except as noted, is permitted to borrow money from banks for temporary or emergency (not leveraging) purposes, including to meet redemption requests which might require the untimely disposition of securities, in an amount up to 15% (5% for purposes other than meeting redemption requests) of the value of its total assets (including the amount borrowed) valued at the lesser of cost or market, less liabilities (including the amount borrowed) at the time the borrowing is made. The Equity Portfolio, however, may borrow for temporary purposes only to meet redemption requests in an amount up to 10% of the value of its total assets. While borrowings exceed 5% of a Portfolio's total assets, the Portfolio will not make any additional investments. In addition, the Mid Cap Portfolio, Bantam Value Portfolio, Global Equity and, although currently it has no intention of doing so, Equity Portfolio may borrow for investment purposes to the extent permitted under the 1940 Act, which permits an investment company to borrow in an amount up to 33-1/3% of the value of it total assets. See "Leverage" below. LEVERAGE. (Equity Portfolio, Mid Cap Portfolio, Bantam Value Portfolio, Global Equity Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio and High Yield Portfolio) Leveraging (that is, buying securities using borrowed money) exaggerates the effect on net asset value of any increase or decrease in the market value of the Portfolio's investment. Money borrowed for leveraging is limited to 33-1/3% of the value of the Portfolio's total assets. These borrowings would be subject to interest costs which may or may not be recovered by appreciation of the securities purchased; in certain cases, interest costs may exceed the return received on the securities purchased. For borrowings for investment purposes, the 1940 Act requires the Portfolio to maintain continuous asset coverage (that is, total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed. If the required coverage should decline as a result of market fluctuations or other reasons, the Portfolio may be required to sell some of its portfolio securities within three days to reduce the amount of its borrowings and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. The Portfolio also may be required to maintain minimum average balances in connection with such borrowing or pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate. Each of these Portfolios may enter into reverse repurchase agreements with banks, brokers or dealers. This form of borrowing involves the transfer by the Portfolio of an underlying debt instrument in return for cash proceeds based on a percentage of the value of the security. The Portfolio retains the right to receive interest and principal payments on the security. At an agreed upon future date, the Portfolio repurchases the security at principal plus accrued interest. To the extent a Portfolio enters into a reverse repurchase agreement, the Portfolio will maintain in a segregated custodial account permissible liquid assets at least equal to the aggregate amount of its reverse repurchase obligations, plus accrued interest, in certain cases, in accordance with releases promulgated by the Securities and Exchange Commission. Except for these transactions, each of these Portfolio's borrowings generally will be unsecured. LENDING PORTFOLIO SECURITIES. (All Portfolios) Each Portfolio may lend securities from its portfolio to brokers, dealers and other financial institutions needing to borrow securities to complete certain transactions. The Portfolio continues to be entitled to payments in amounts equal to the interest, dividends or other distributions payable on the loaned securities which affords the Portfolio an opportunity to earn interest on the amount of the loan and on the loaned securities' collateral. Loans of portfolio securities may not exceed 33-1/3% (10% with respect to the Equity Portfolio, Small Cap Portfolio, International equity Portfolio, Bond Portfolio, International Fixed-Income Portfolio and Strategic Yield Portfolio) of the value of the Portfolio's total assets, and the Portfolio will receive collateral consisting of cash, U.S. Government securities or irrevocable letters of credit which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. Such loans are terminable by the Portfolio at any time upon specified notice. The Portfolio might experience risk of loss if the institution with which it has engaged in a portfolio loan transaction breaches its agreement with the Portfolio. In connection with its securities lending transactions, a Portfolio may return to the borrower or a third party which is unaffiliated with the Portfolio, and which is acting as a "placing broker," a part of the interest earned from the investment of collateral received for securities loaned. DERIVATIVES. (All Portfolios) Each Portfolio may invest in, or enter into, derivatives to the extent described in the Prospectus, for a variety of reasons, including to hedge certain market risks, to provide a substitute for purchasing or selling particular securities or to increase potential income gain. Derivatives may provide a cheaper, quicker or more specifically focused way for the Portfolio to invest than "traditional" securities would. Derivatives can be volatile and involve various types and degrees of risk, depending upon the characteristics of the particular derivative and the portfolio as a whole. Derivatives permit a Portfolio to increase or decrease the level of risk, or change the character of the risk, to which its portfolio is exposed in much the same way as the Portfolio can increase or decrease the level of risk, or change the character of the risk, of its portfolio by making investments in specific securities. Derivatives may entail investment exposures that are greater than their cost would suggest, meaning that a small investment in derivatives could have a large potential impact on a Portfolio's performance. If a Portfolio invests in derivatives at inopportune times or judges market conditions incorrectly, such investments may lower the Portfolio's return or result in a loss. A Portfolio also could experience losses if its derivatives were poorly correlated with its other investments, or if the Portfolio were unable to liquidate its position because of an illiquid secondary market. The market for many derivatives is, or suddenly can become, illiquid. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices for derivatives. Although neither the Fund nor any Portfolio will be a commodity pool, certain derivatives subject the Portfolios to the rules of the Commodity Futures Trading Commission which limit the extent to which a Portfolio can invest in such derivatives. A Portfolio may invest in futures contracts and options with respect thereto for hedging purposes without limit. However, no Portfolio may invest in such contracts and options for other purposes if the sum of the amount of initial margin deposits and premiums paid for unexpired options with respect to such contracts, other than for bona fide hedging purposes, exceeds 5% of the liquidation value of the Portfolio's assets, after taking into account unrealized profits and unrealized losses on such contracts and options; provided, however, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in calculating the 5% limitation. When required by the Commission, a Portfolio will segregate permissible liquid assets to cover its obligations relating to its transactions in derivatives. To maintain this required cover, the Portfolio may have to sell portfolio securities at disadvantageous prices or times since it may not be possible to liquidate a derivative position at a reasonable price. Derivatives may be purchased on established exchanges or through privately negotiated transactions referred to as over-the-counter derivatives. Exchange-traded derivatives generally are guaranteed by the clearing agency which is the issuer or counterparty to such derivatives. This guarantee usually is supported by a daily payment system (i.e., variation margin requirements) operated by the clearing agency in order to reduce overall credit risk. As a result, unless the clearing agency defaults, there is relatively little counterparty credit risk associated with derivatives purchased on an exchange. By contrast, no clearing agency guarantees over-the-counter derivatives. Therefore, each party to an over-the-counter derivative bears the risk that the counterparty will default. Accordingly, the Investment Manager will consider the credit worthiness of counterparties to over-the-counter derivatives in the same manner as it would review the credit quality of a security to be purchased by the Portfolio. Over-the-counter derivatives are less liquid than exchange-traded derivatives since the other party to the transaction may be the only investor with sufficient understanding of the derivative to be interested in bidding for it. FUTURES TRANSACTIONS--IN GENERAL. (All Portfolios, except the Equity Portfolio, Small Cap Portfolio, Bantam Value Portfolio, International Equity Portfolio and Strategic Yield Portfolio) Each of these Portfolios may enter into futures contracts in U.S. domestic markets, such as the Chicago Board of Trade and the International Monetary Market of the Chicago Mercantile Exchange, or on exchanges located outside the United States, such as the London International Financial Futures Exchange, the Deutsche Termine Borse and the Sydney Futures Exchange Limited. Foreign markets may offer advantages such as trading opportunities or arbitrage possibilities not available in the United States. Foreign markets, however, may have greater risk potential than domestic markets. For example, some foreign exchanges are principal markets so that no common clearing facility exists and an investor may look only to the broker for performance of the contract. In addition, any profits a Portfolio might realize in trading could be eliminated by adverse changes in the exchange rate, or the Portfolio could incur losses as a result of those changes. Transactions on foreign exchanges may include both commodities which are traded on domestic exchanges and those which are not. Unlike trading on domestic commodity exchanges, trading on foreign commodity exchanges is not regulated by the Commodity Futures Trading Commission. Engaging in these transactions involves risk of loss to the Portfolio which could adversely affect the value of the Portfolio's net assets. Although each of these Portfolios intends to purchase or sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for any particular contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the trading day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting the Portfolio to substantial losses. Successful use of futures by a Portfolio also is subject to the Investment Manager's ability to predict correctly movements in the direction of the relevant market, and, to the extent the transaction is entered into for hedging purposes, to ascertain the appropriate correlation between the transaction being hedged and the price movements of the futures contract. For example, if a Portfolio uses futures to hedge against the possibility of a decline in the market value of securities held in its portfolio and the prices of such securities instead increase, the Portfolio will lose part or all of the benefit of the increased value of securities which it has hedged because it will have offsetting losses in its futures positions. Furthermore, if in such circumstances the Portfolio has insufficient cash, it may have to sell securities to meet daily variation margin requirements. The Portfolio may have to sell such securities at a time when it may be disadvantageous to do so. Pursuant to regulations and/or published positions of the Commission, a Portfolio may be required to segregate permissible liquid assets in connection with its commodities transactions in an amount generally equal to the value of the underlying commodity. The segregation of such assets will have the effect of limiting the Portfolio's ability otherwise to invest those assets. The Board of Directors has adopted the requirement that futures contracts and options on futures contracts be used by the Bond Portfolio or the International Fixed-Income Portfolio solely as a hedge and not for speculation. In addition to this requirement, the Board of Directors has also adopted two percentage restrictions on the use of futures contracts. The first restriction is that the Bond Portfolio and the International Fixed-Income Portfolio will not enter into any futures contracts or options on futures contracts if immediately thereafter the amount of margin deposits on all the futures contracts of the Portfolio and premiums paid on options on futures contracts would exceed 5% of the market value of the total assets of the Portfolio. The second restriction is that the aggregate market value of the outstanding futures contracts purchased by either the Bond Portfolio or International Fixed-Income Portfolio not exceed 50% of the market value of the total assets of such Portfolio. Neither of these restrictions will be changed by the Fund's Board of Directors without considering the policies and concerns of the various applicable federal and state regulatory agencies. SPECIFIC FUTURES TRANSACTIONS. Each of these Portfolios, except the Bond Portfolio, High Yield Portfolio and International Fixed-Income Portfolio, may purchase and sell stock index futures contracts. A stock index future obligates the Portfolio to pay or receive an amount of cash equal to a fixed dollar amount specified in the futures contract multiplied by the difference between the settlement price of the contract on the contract's last trading day and the value of the index based on the stock prices of the securities that comprise it at the opening of trading in such securities on the next business day. The Bond Portfolio, High Yield Portfolio, International Fixed-Income Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and International Small Cap Portfolio may purchase and sell interest rate futures contracts. An interest rate future obligates the Portfolio to purchase or sell an amount of a specific debt security at a future date at a specific price. Each of these Portfolios, except the Bond Portfolio, may purchase and sell currency futures. A currency future obligates the Portfolio to purchase or sell an amount of a specific currency at a future date at a specific price. OPTIONS--IN GENERAL. (All Portfolios, except the Small Cap Portfolio and International Equity Portfolio) Each of these Portfolios may invest up to 5% of its assets, represented by the premium paid, in the purchase of call and put options. A Portfolio may write (i.e., sell) covered call and put option contracts to the extent of 20% of the value of its net assets at the time such option contracts are written. A call option gives the purchaser of the option the right to buy, and obligates the writer to sell, the underlying security or securities at the exercise price at any time during the option period, or at a specific date. Conversely, a put option gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying security or securities at the exercise price at any time during the option period, or at a specified date. A covered call option written by a Portfolio is a call option with respect to which the Portfolio owns the underlying security or otherwise covers the transaction by segregating cash or other securities. A put option written by a Portfolio is covered when, among other things, cash or liquid securities having a value equal to or greater than the exercise price of the option are placed in a segregated account with the Fund's custodian to fulfill the obligation undertaken. The principal reason for writing covered call and put options is to realize, through the receipt of premiums, a greater return than would be realized on the underlying securities alone. A Portfolio receives a premium from writing covered call or put options which it retains whether or not the option is exercised. There is no assurance that sufficient trading interest to create a liquid secondary market on a securities exchange will exist for any particular option or at any particular time, and for some options no such secondary market may exist. A liquid secondary market in an option may cease to exist for a variety of reasons. In the past, for example, higher than anticipated trading activity or order flow, or other unforeseen events, at times have rendered certain of the clearing facilities inadequate and resulted in the institution of special procedures, such as trading rotations, restrictions on certain types of orders or trading halts or suspensions in one or more options. There can be no assurance that similar events, or events that may otherwise interfere with the timely execution of customers' orders, will not recur. In such event, it might not be possible to effect closing transactions in particular options. If, as a covered call option writer, a Portfolio is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise or it otherwise covers its position. SPECIFIC OPTIONS TRANSACTIONS. Each of these Portfolios may purchase and sell call and put options in respect of specific securities (or groups or "baskets" of specific securities) or indices listed on national securities exchanges or traded in the over-the-counter market. An option on an index is similar to an option in respect of specific securities, except that settlement does not occur by delivery of the securities comprising the index. Instead, the option holder receives an amount of cash if the closing level of the index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. Thus, the effectiveness of purchasing or writing index options will depend upon price movements in the level of the index rather than the price of a particular security. Except as described below, each of the Equity Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and Bantam Value Portfolio will write call options on indices only if on such date the Portfolio holds a portfolio of stocks at least equal to the value of the index times the multiplier times the number of contracts. When one of the Portfolios writes a call option on a broadly based stock market index, it will segregate or put into escrow with the Fund's custodian, or pledge to a broker as collateral for the option, at least ten "qualified securities" with a market value at the time the option is written of not less than 100% of the current index value times the multiplier times the number of contracts. If one of the Portfolios has written an option on an industry or market segment index, it will so segregate, escrow, or pledge at least five "qualified securities," all of which are stocks of issuers in such industry or market segment, with a market value at the time the option is written of not less than 100% of the current index value times the multiplier times the number of contracts. Such stocks will include stocks which represent at least 50% of the weighting of the industry or market segment index and will represent at least 50% of the Portfolio's holdings in that industry or market segment. No individual security will represent more than 15% of the amount so segregated, escrowed or pledged, in the case of broadly based stock market index options, or 25% of such amount, in the case of industry or market segment index options. If at the close of business on any day the market value of such qualified securities so segregated, escrowed or pledged falls below 100% of the current index value times the multiplier times the number of contracts, the Portfolio will so segregate, escrow or pledge an amount in cash, Treasury bills or other high grade short-term obligations equal in value to the difference. In addition, when one of the Portfolios writes a call on an index which is in-the-money at the time the call is written, the Portfolio will segregate with the Fund's custodian or pledge to the broker as collateral cash, Treasury bills or other high grade short-term obligations equal in value to the amount by which the call is in-the-money times the multiplier times the number of contracts. Any amount segregated pursuant to the foregoing sentence may be applied to the Portfolio's obligation to segregate additional amounts in the event that the market value of the qualified securities falls below 100% of the current index value times the multiplier times the number of contracts. A "qualified security" is an equity security which is listed on a national domestic or foreign securities exchange or quoted on the Nasdaq National Market System against which the Portfolio has not written a stock call option; however, if the Portfolio owns a call on the same index as the call written where the exercise price of the call owned is equal to or less than the exercise price of the call written, or greater than the call written if the difference is maintained by the Portfolio in permissible liquid assets in a segregated account with the Fund's custodian, it will not be subject to the requirements described in this paragraph. Each of these Portfolios, except the Equity Portfolio, Small Cap Portfolio, Bantam Value Portfolio and Bond Portfolio, may purchase and sell call and put options on foreign currency. These options convey the right to buy or sell the underlying currency at a price which is expected to be lower or higher than the spot price of the currency at the time the option is exercised or expires. Each of these Portfolios may purchase cash-settled options on interest rate swaps, interest rate swaps denominated in foreign currency (except in the case of the Equity Portfolio), and (except in the case of the Bond Portfolio and International Fixed-Income Portfolio) equity index swaps in pursuit of its investment objective. Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (for example, an exchange of floating-rate payments for fixed-rate payments) denominated in U.S. dollars or foreign currency. Equity index swaps involve the exchange by the Portfolio with another party of cash flows based upon the performance of an index or a portion of an index of securities which usually includes dividends. A cash-settled option on a swap gives the purchaser the right, but not the obligation, in return for the premium paid, to receive an amount of cash equal to the value of the underlying swap as of the exercise date. These options typically are purchased in privately negotiated transactions from financial institutions, including securities brokerage firms. Successful use by a Portfolio of options will be subject to the Investment Manager's ability to predict correctly movements in the prices of individual stocks, the stock market generally, foreign currencies or interest rates. To the extent the Investment Manager's predictions are incorrect, the Portfolio may incur losses. FUTURE DEVELOPMENTS. The relevant Portfolios may take advantage of opportunities in the area of options and futures contracts and options on futures contracts and any other Derivatives which are not presently contemplated for use by the Portfolio or which are not currently available but which may be developed, to the extent such opportunities are both consistent with the Portfolio's investment objective and legally permissible for the Portfolio. Before entering into such transactions or making any such investment, the Portfolio will provide appropriate disclosure in the Prospectus or Statement of Additional Information. SHORT-SELLING. (Mid Cap Portfolio and High Yield Portfolio) Each of these Portfolios may engage in short sales of securities. In these transactions, the Portfolio sells a security it does not own in anticipation of a decline in the market value of the security. To complete the transaction, the Portfolio must borrow the security to make delivery to the buyer. The Portfolio is obligated to replace the security borrowed by purchasing it subsequently at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Portfolio, which would result in a loss or gain, respectively. The Portfolio also may make short sales "against the box," in which the Portfolio enters into a short sale of a security it owns. Securities will not be sold short if, after effect is given to any such short sale, the total market value of all securities sold short would exceed 25% of the value of the Portfolio's net assets. Until the Portfolio closes its short position or replaces the borrowed security, it will: (a) maintain a segregated account, containing permissible liquid assets, at such a level that the amount deposited in the account plus the amount deposited with the broker as collateral always equals the current value of the security sold short; or (b) otherwise cover its short position. FORWARD COMMITMENTS. (All Portfolios) A Portfolio may purchase or sell securities on a forward commitment, when-issued or delayed delivery basis, which means delivery and payment take place a number of days after the date of the commitment to purchase or sell the securities at a predetermined price and/or yield. Typically, no interest accrues to the purchaser until the security is delivered. When purchasing a security on a forward commitment basis, the Portfolio assumes the rights and risks of ownership of the security, including the risk or price and yield fluctuations, and takes such fluctuations into account when determining its net asset value. Because the Portfolio is not required to pay for these securities until the delivery date, these risks are in addition to the risks associated with the Portfolio's other investments. If the Portfolio is fully or almost fully invested when forward commitment purchases are outstanding, such purchases may result in a form of leverage. The Portfolio intends to engage in forward commitments to increase its portfolio's financial exposure to the types of securities in which it invests. Leveraging the portfolio in this manner will increase the Portfolio's exposure to changes in interest rates and will increase the volatility of its returns. The Portfolio will set aside in a segregated account permissible liquid assets at least equal at all times to the amount of the Portfolio's purchase commitments. At no time will the Portfolio have more than 33-1/3% of its assets committed to purchase securities on a forward commitment basis. Securities purchased on a forward commitment or when-issued basis are subject to changes in value (generally changing in the same way, i.e., appreciating when interest rates decline and depreciating when interest rates rise) based upon the public's perception of the creditworthiness of the issuer and changes, real or anticipated, in the level of interest rates. Securities purchased on a forward commitment or when-issued basis may expose a Portfolio to risks because they may experience such fluctuations prior to their actual delivery. Purchasing securities on a forward commitment or when-issued basis can involve the additional risk that the yield available in the market when the delivery takes place actually may be higher than that obtained in the transaction itself. Purchasing securities on a forward commitment or when-issued basis when the Portfolio is fully or almost fully invested may result in greater potential fluctuation in the value of the Portfolio's net assets and its net asset value per share. SWAP AGREEMENTS. (All Portfolios) To the extent consistent with the Portfolio's investment objective and management policies as set forth herein, each Portfolio may enter into equity, interest rate, index, total return and currency rate swap agreements. These transactions are entered into in an attempt to obtain a particular return when it is considered desirable to do so, possibly at a lower cost to the Portfolio than if the Portfolio had invested directly in the asset that yielded the desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than a year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or "swapped" between the parties are generally calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a "basket" of securities representing a particular index. Forms of swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent interest rates exceed a specified rate or "cap"; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent interest rates fall below a specified level or "floor"; and interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels. Most swap agreements entered into by a Portfolio would calculate the obligations of the parties to the agreement on a "net basis." Consequently, the Portfolio's current obligations (or rights) under a swap agreement generally will be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). The risk of loss with respect to swaps is limited to the net amount of payments that the Portfolio is contractually obligated to make. If the other party to a swap defaults, the Portfolio's risk of loss consists of the net amount of payments that the Portfolio contractually is entitled to receive. FOREIGN CURRENCY TRANSACTIONS. (All Portfolios, except the Equity Portfolio, Small Cap Portfolio, Bantam Value Portfolio and Bond Portfolio) Foreign currency transactions may be entered into for a variety of purposes, including: to fix in U.S. dollars, between trade and settlement date, the value of a security the Portfolio has agreed to buy or sell; to hedge the U.S. dollar value of securities the Portfolio already owns, particularly if it expects a decrease in the value of the currency in which the foreign security is denominated; or to gain exposure to the foreign currency in an attempt to realize gains. Foreign currency transactions may involve, for example, the Portfolio's purchase of foreign currencies for U.S. dollars or the maintenance of short positions in foreign currencies, which would involve the Portfolio agreeing to exchange an amount of a currency it did not currently own for another currency at a future date in anticipation of a decline in the value of the currency sold relative to the currency the Portfolio contracted to receive in the exchange. The Portfolio's success in these transactions will depend principally on the Investment Manager's ability to predict accurately the future exchange rates between foreign currencies and the U.S. dollar. INVESTMENT CONSIDERATIONS AND RISKS EQUITY SECURITIES. (All Portfolios, except the Bond Portfolio, High Yield Portfolio, International Fixed-Income Portfolio and Strategic Yield Portfolio) Equity securities fluctuate in value, often based on factors unrelated to the value of the issuer of the securities, and such fluctuations can be pronounced. Changes in the value of a Portfolio's investments will result in changes in the value of its shares and thus the Portfolio's total return to investors. The securities of the smaller companies in which the Small Cap, International Small Cap, Emerging Markets and Bantam Value Portfolios may invest may be subject to more abrupt or erratic market movements than larger, more established companies, because securities of smaller companies typically are traded in lower volume and the issuers typically are more subject to changes in earnings and prospects. Smaller capitalization companies often have limited product lines, markets or financial resources. They may be dependent on management for one or a few key persons, and can be more susceptible to losses and the risk of bankruptcy. In addition, securities of the small capitalization sector may be thinly traded (and therefore have to be sold at a discount from current market prices or sold in small lots over an extended period of time), may be followed by fewer investment research analysts and may be subject to wider price swings, and thus may create a greater chance of loss than by investing in securities of larger capitalization companies. FIXED-INCOME SECURITIES. (All Portfolios) Even though interest-bearing securities are investments which promise a stable stream of income, the prices of such securities generally are inversely affected by changes in interest rates and, therefore, are subject to the risk of market price fluctuations. Certain portfolio securities, such as those with interest rates that fluctuate directly or indirectly based on multiples of a stated index, are designed to be highly sensitive to changes in interest rates and can subject the holders thereof to extreme reductions of yield and possibly loss of principal. The values of fixed-income securities also may be affected by changes in the credit rating or financial condition of the issuer. Certain portfolio securities, such as those rated below investment grade by Standard & Poor's Ratings Group ("S&P") and Moody's Investors Service, Inc. ("Moody's" and together with S&P, the "Rating Agencies"), may be subject to such risk with respect to the issuing entity and to greater market fluctuations than certain lower yielding, higher rated fixed-income securities. Once the rating of a portfolio security has been changed, the Portfolio will consider all circumstances deemed relevant in determining whether to continue to hold the security. Federal income tax law requires the holder of a zero coupon security or of certain pay-in-kind bonds to accrue income with respect to these securities prior to the receipt of cash payments. A Portfolio investing in such securities may be required to distribute such income accrued with respect to these securities and may have to dispose of portfolio securities under disadvantageous circumstances in order to generate cash to satisfy these distribution requirements. MORTGAGE-RELATED SECURITIES. (Bond Portfolio, High Yield Portfolio, International Fixed-Income Portfolio and Strategic Yield Portfolio) As with other interest-bearing securities, the prices of certain mortgage-related securities are inversely affected by changes in interest rates. However, although the value of a mortgage-related security may decline when interest rates rise, the converse is not necessarily true, since during periods of declining interest rates the mortgages underlying the security are more likely to be prepaid. For this and other reasons, a mortgage-related security's stated maturity may be shortened by unscheduled prepayments on the underlying mortgages, and, therefore, it is possible that the realized return of the security may differ materially from the return originally expected by the Investment Manager. Moreover, with respect to certain stripped mortgage-backed securities, if the underlying mortgage securities experience greater than anticipated prepayments of principal, the Portfolio may fail to fully recoup its initial investment even if the securities are rated in the highest rating category by a nationally recognized statistical rating organization. During periods of rapidly rising interest rates, prepayments of mortgage-related securities may occur at slower than expected rates. Slower prepayments effectively may lengthen a mortgage-related security's expected maturity (but not past its stated maturity), which generally would cause the value of such security to fluctuate more widely in response to changes in interest rates. Were the prepayments on the Portfolio's mortgage-related securities to decrease broadly, the Portfolio's effective duration, and thus sensitivity to interest rate fluctuations, would increase. Commercial real property loans, however, often contain provisions that substantially reduce the likelihood that such securities will be prepaid. The provisions generally impose significant prepayment penalties on loans and in some cases there may be prohibitions on principal prepayments for several years following origination. Certain mortgage-related securities are subject to credit risks associated with the performance of the underlying mortgage properties. Adverse changes in economic conditions and circumstances are more likely to have an adverse impact on mortgage-related securities secured by loans on commercial properties than on those secured by loans on residential properties. In addition, as described above, these securities are subject to prepayment risk, although commercial mortgages typically have shorter maturities than residential mortgages and prepayment protection features. Some mortgage-related securities have structures that make their reactions to interest rate changes and other factors difficult to predict, making their values highly volatile. In certain instances, the credit risk associated with mortgage-related securities can be reduced by third party guarantees or other forms of credit support. Improved credit risk does not reduce prepayment risk which is unrelated to the rating assigned to the mortgage-related security. Prepayment risk can lead to fluctuations in value of the mortgage-related security which may be pronounced. If a mortgage-related security is purchased at a premium, all or part of the premium may be lost if the market value of the security declines whether resulting from changes in interest rates or prepayments on the underlying mortgage collateral. Certain mortgage-related securities that may be purchased by these Portfolios, such as inverse floating rate collateralized mortgage obligations, have coupons that move inversely to a multiple of a specific index which may result in increased price volatility. FOREIGN SECURITIES. (All Portfolios, except the Small Cap Portfolio) Foreign securities markets generally are not as developed or efficient as those in the United States. Securities of some foreign issuers are less liquid and more volatile than securities of comparable U.S. issuers. Similarly, volume and liquidity in most foreign securities markets are less than in the United States and, at times, volatility of price can be greater than in the United States. Because evidences of ownership of such securities usually are held outside the United States, the Portfolios will be subject to additional risks which include possible adverse political and economic developments, seizure or nationalization of foreign deposits and adoption of governmental restrictions, which might adversely affect or restrict the payment of principal and interest on the foreign securities to investors located outside the country of the issuer, whether from currency blockage or otherwise. With respect to the Emerging Markets, International Fixed-Income, Strategic Yield and High Yield Portfolios, emerging market countries have economic structures that generally are less diverse and mature, and political systems that are less stable, than those of developed countries. Emerging markets may be more volatile than the markets of more mature economies; however, such markets may provide higher rates of return to investors. Many emerging market countries providing investment opportunities for these Portfolios have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have adverse effects on the economies and securities markets of certain of these countries. Since foreign securities often are purchased with and payable in currencies of foreign countries, the value of these assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. FOREIGN CURRENCY TRANSACTION. (All Portfolios, except the Equity Portfolio, Small Cap Portfolio, Bantam Value Portfolio and Bond Portfolio) Currency exchange rates may fluctuate significantly over short periods of time. They generally are determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries, actual or perceived changes in interest rates and other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably by intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the United States or abroad. SIMULTANEOUS INVESTMENTS BY OTHER PORTFOLIOS OR Funds. (All Portfolios) Investment decisions for each Portfolio are made independently from those of the other portfolios and accounts managed by the Investment Manager. If, however, such other portfolios or accounts desire to invest in, or dispose of, the same securities as the Portfolio, available investments or opportunities for sales will be allocated equitably to each. In some cases, this procedure may adversely affect the size of the position obtained for or disposed of by a Portfolio or the price paid or received by a Portfolio. LOWER RATED SECURITIES. (Bond Portfolio, High Yield Portfolio, International Fixed-Income Portfolio and Strategic Yield Portfolio). Each of these Portfolios may invest in securities rated below investment grade such as those rated Ba by Moody's or BB by S&P, and as low as the lowest rating assigned by the Rating Agencies (commonly known as junk bonds). They may be subject to certain risks and to greater market fluctuations than lower yielding investment grade securities. See "Appendix" for a general description of the Rating Agencies' ratings. Although ratings may be useful in evaluating the safety of interest and principal payments, they do not evaluate the market value risk of these securities. The Portfolio will rely on the Investment Manager's judgment, analysis and experience in evaluating the creditworthiness of an issuer. You should be aware that the market values of many of these securities tend to be more sensitive to economic conditions than are higher rated securities and will fluctuate over time. These securities generally are considered by the Rating Agencies to be, on balance, predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation and generally will involve more credit risk than securities in the higher rating categories. Companies that issue certain of these securities often are highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is the case with the higher rated securities. For example, during an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of these securities may not have sufficient revenues to meet their interest payment obligations. The issuer's ability to service its debt obligations also may be affected adversely by specific corporate developments, forecasts, or the unavailability of additional financing. The risk of loss because of default by the issuer is significantly greater for the holders of these securities because such securities generally are unsecured and often are subordinated to other creditors of the issuer. Because there is no established retail secondary market for many of these securities, the Portfolio anticipates that such securities could be sold only to a limited number of dealers or institutional investors. To the extent a secondary trading market for these securities does exist, it generally is not as liquid as the secondary market for higher rated securities. The lack of a liquid secondary market may have an adverse impact on market price and yield and the Portfolio's ability to dispose of particular issues when necessary to meet the Portfolio's liquidity needs or in response to a specific economic event such as a deterioration in the creditworthiness of the issuer. The lack of a liquid secondary market for certain securities also may make it more difficult for the Portfolio to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of these securities. In such cases, judgment may play a greater role in valuation because less reliable, objective data may be available. These securities may be particularly susceptible to economic downturns. It is likely that an economic recession could disrupt severely the market for such securities and may have an adverse impact on the value of such securities. In addition, it is likely that any such economic downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities. The Portfolio may acquire these securities during an initial offering. Such securities may involve special risks because they are new issues. The Portfolio has no arrangement with any persons concerning the acquisition of such securities, and the Investment Manager will review carefully the credit and other characteristics pertinent to such new issues. The credit risk factors pertaining to lower rated securities also apply to lower rated zero coupon securities and pay-in-kind bonds, in which each of these Portfolios may invest. Pay-in-kind bonds pay interest through the issuance of additional securities. Zero coupon securities and pay-in-kind bonds carry an additional risk in that, unlike bonds which pay interest throughout the period to maturity, the Portfolio will realize no cash until the cash payment date unless a portion of such securities are sold and, if the issuer defaults, the Portfolio may obtain no return at all on its investment. STRATEGIC YIELD PORTFOLIO--During the year ended December 31, 1998, the percentages of the Strategic Yield Portfolio's assets invested in securities rated in particular rating categories by S&P were, on a weighted average basis, as follows: Percentage of S&P Ratings Total Investments TSY 4.17% AGY 21.17% AAA 10.83% AA- 1.33% A+ 0.56% A 3.19% A- 0.53% A1+ 2.10% A1 3.94% A3 0.17% BBB+ 0.29% BBB 0.39% BBB- 1.46% BB+ 0.43% BB 2.96% BB- 1.27% B+ 3.51% B 9.05% B- 8.76% CCC+ 0.16% CCC 0.49% No Rating* 23.24% ------- 100.0% - ---------------------- * The Investment Manager estimates these securities to have an average rating of BBB. The actual distribution of the Portfolio's investments by ratings on any given date will vary. In addition, the distribution of the Portfolio's investments by ratings as set forth above should not be considered as representative of the Portfolio's future investment portfolio composition. INVESTMENT RESTRICTIONS Each Portfolio's investment objective is a fundamental policy, which cannot be changed without approval by the holders of a majority (as defined in the 1940 Act) of the Portfolio's outstanding voting shares. In addition, the following investment restrictions, except as otherwise noted, are fundamental policies. However, the amendment of these restrictions to add an additional Portfolio, which amendment does not substantively affect the restrictions with respect to an existing Portfolio, will not require approval as described in the preceding sentence. None of the Portfolios may: (i) issue senior securities, borrow money or pledge or mortgage its assets, except that (A) each Portfolio may borrow from banks for temporary purposes, including the meeting of redemption requests which might require the untimely disposition of securities, as described in the Prospectus, (B) each of the Mid Cap Portfolio, International Small Cap Portfolio, High Yield Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and Bantam Value Portfolio also may borrow money to the extent permitted under the 1940 Act and, as a non-fundamental policy, may pledge, hypothecate, mortgage or otherwise encumber its assets to secure permitted borrowings; provided, however, that the Portfolio will not make new investments to the extent borrowings exceed 5% of its total assets, except for borrowings covered within the interpretations of Section 18(f) of the 1940 Act, and (C) the Equity Portfolio may additionally utilize leverage as described in the Prospectus. For purposes of this investment restriction, a Portfolio's entry into options, forward contracts, futures contracts, including those related to indexes, shall not constitute borrowing; (ii) make loans, except loans of portfolio securities not having a value in excess of 33-1/3% (10% in the case of the Equity Portfolio, Small Cap Portfolio, International Equity Portfolio, Bond Portfolio, International Fixed-Income Portfolio and Strategic Yield Portfolio) of a Portfolio's total assets and except that each Portfolio may purchase debt obligations in accordance with its investment objectives and policies; (iii) invest in illiquid securities as defined in "Investment Objectives and Management Policies--Illiquid Securities" if immediately after such investment more than 10% (15% in the case of the Mid Cap Portfolio and High Yield Portfolio) of the value of the Portfolio's net assets, or, in the case of the Equity Portfolio, more than 10% of the value of that Portfolio's total assets, taken at market value, would be invested in such securities (this restriction is not a fundamental policy of the Mid Cap Portfolio, High Yield Portfolio, Global Equity Portfolio and Bantam Value Portfolio); (iv) purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization; provided, however, that this restriction is not a fundamental policy of the Mid Cap Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value Portfolio and High Yield Portfolio, and provided further, that (A) the Mid Cap Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value Portfolio and High Yield Portfolio may purchase securities of other investment companies to the extent permitted under the 1940 Act (this restriction is not a fundamental policy of these Portfolios) and (B) the Equity Portfolio, International Equity Portfolio and Small Cap Portfolio may purchase securities in an amount up to 5% of the value of the Portfolio's total assets in any one closed-end fund and may purchase in the aggregate securities of closed-end funds in an amount of up to 10% of the value of the Portfolio's total assets; (v) purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of the Portfolio's investments in that industry would exceed 25% of the current value of such Portfolio's total assets, provided that there is no limitation with respect to investments in obligations of the U.S. Government, its agencies or instrumentalities; (vi) (A) purchase or sell real estate or real estate limited partnerships, except that a Portfolio may purchase and sell securities of companies which deal in real estate or interests therein and the Mid Cap Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value Portfolio and High Yield Portfolio also may purchase and sell securities that are secured by real estate; (B) purchase or sell commodities or commodity contracts (except that the Mid Cap Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value Portfolio and High Yield Portfolio may purchase and sell swaps, options, forward contracts, futures contracts, including those relating to indices, and options on futures contracts or indices, the Mid Cap Portfolio, International Equity Portfolio, International Fixed-Income Portfolio, Strategic Yield Portfolio and High Yield Portfolio may purchase or sell foreign currency forward exchange contracts, the International Fixed-Income Portfolio and Bond Portfolio may enter into futures contracts and options on futures contracts, the International Fixed-Income Portfolio may enter into futures contracts on foreign currencies and the International Fixed-Income Portfolio and Strategic Yield Portfolio may purchase and write put and call options on foreign currencies); and (C) invest in interests in or leases relating to oil, gas, or other mineral exploration or development programs; provided, however, that this clause (C) is not a fundamental policy of the Equity Portfolio, Mid Cap Portfolio, Global Equity Portfolio, Bantam Value Portfolio and High Yield Portfolio; (vii) purchase securities on margin (except for short-term credits necessary for the clearance of transactions) or, except for the Mid Cap Portfolio and High Yield Portfolio, make short sales of securities, provided, however, that this prohibition on short sales is not a fundamental policy of the Global Equity Portfolio and Bantam Value Portfolio; (viii) underwrite securities of other issuers, except to the extent that the purchase of municipal obligations or other permitted investments directly from the issuer thereof or from an underwriter for an issuer and the later disposition of such securities in accordance with the Portfolio's investment program may be deemed to be an underwriting; or (ix) make investments for the purpose of exercising control or management; provided, however, that this restriction is not a fundamental policy of the International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and Bantam Value Portfolio. This restriction has not been adopted by the Mid Cap Portfolio or High Yield Portfolio. In addition to the restrictions noted above, the Equity Portfolio has adopted the following restrictions as fundamental policies. The Equity Portfolio may not: (i) purchase restricted securities, which are securities that must be registered under the Securities Act of 1933, as amended, before they may be offered or sold to the public, except that the Equity Portfolio may invest up to 5% of the value of its total assets, taken at cost, in such securities; (ii) invest more than 5% of the current value of its total assets in the securities of any one issuer, other than obligations of the United States Government, its agencies or instrumentalities or securities which are backed by the full faith and credit of the United States; or (iii) purchase securities of an issuer if, as a result, as to 75% of the Portfolio's total assets, the Portfolio would own more than 10% of the voting securities of such issuer. * * * If a percentage restriction is adhered to at the time of investment, a later change in percentage resulting from a change in values or assets will not constitute a violation of such restriction. MANAGEMENT The Fund's Board is responsible for the management and supervision of each Portfolio. The Board approves all significant agreements with those companies that furnish services to the Portfolios. These companies are as follows: Lazard Asset Management................ Investment Manager Lazard Freres & Co. LLC................ Distributor Boston Financial Data Services, Inc.... Transfer Agent and Dividend Disbursing Agent State Street Bank and Trust Company.... Custodian The Directors and officers of the Fund and their principal occupations during the past five years are set forth below. Unless otherwise specified, the address of each of the following persons is 30 Rockefeller Plaza, New York, New York 10112. Principal Occupation During Name, Address and Age Position With Fund Past 5 Years - -------------------------- ------------------- ---------------------------- Norman Eig* (58) Chairman of the Vice Chairman and Managing Board Director (formerly General Partner), Lazard Freres. Herbert W. Gullquist* (61) President, Vice Chairman and Managing Director Director (formerly General Partner), Lazard Freres; Chief Investment Officer of the Investment Manager. John J. Burke (70) Director Retired; Former Vice 50 Burning Tree Lane Chairman, Director, Montana Butte, MT 59701 Power Company. Kenneth S. Davidson (54) Director Managing Partner, Davidson Davidson Capital Capital Management Management Corporation Corporation; Director, 635 Madison Avenue, Blackthorn Fund N.V. and 16th Floor Ottertail Valley Railroad. New York, NY 10022 Carl Frischling* (62) Director Senior Partner, Kramer, Kramer, Levin, Levin, Naftalis & Frankel; Naftalis & Frankel from 1992 to 1994, Senior 919 Third Avenue Partner, Reid & Priest. New York, NY 10022 Lester Z. Lieberman (68) Director Private Investor; Director 1500 Mt. Kemble Avenue of Dowel Associates; Morristown, NJ 07960 Chairman of the Board of Trustees of Newark Beth Israel Medical Center and Irvington General Hospital; Member of the New Jersey State Investment Council; prior to 1994, Director of United Jersey Bank, N.A. and Clarkson University. Richard Reiss, Jr. (55) Director Managing Partner, Georgica Georgica Advisers LLC Advisers LLC, an investment 1114 Avenue of the Americas manager. New York, NY 10036 John Rutledge (50) Director President, Rutledge & Rutledge & Company Company, an economics and One Greenwich investment advisory firm; Office Park Chairman, Claremont 51 Weaver Street Economics Institute. Greenwich, CT 06831 William Katz (45) Director President and Chief BBDO Worldwide Network Operating Officer of BBDO, 1285 Avenue of the Americas an advertising agency; from New York, NY 10019 May 1994 to February 1996, General Manager of BBDO; prior thereto, Executive Vice President and Senior Account Director of BBDO. William G. Butterly, III (38) Vice President, Senior Vice President, Legal Secretary Affairs of the Investment Manager. James Giallanza (33) Treasurer Certified Public Accountant; Vice President of the Investment Manager; from August 1990 to July 1998, Manager, Price Waterhouse LLP. - ----------- * An "interested person" of the Fund as defined in the 1940 Act. The Fund has adopted a Distribution and Servicing Plan with respect to shares of the Portfolios. So long as the Plan remains in effect, the Directors who are not "interested persons" of the Fund, as defined in the 1940 Act, will be selected and nominated by the Directors who are not "interested persons" of the Fund. The Fund pays its Directors its allocable share of the aggregate of a fixed fee of $20,000 per annum and a per meeting fee of $1,000 for the Fund and Lazard Retirement Series, Inc., and reimburses them for their expenses. The aggregate amount of compensation paid to each Director by the Fund for the year ended December 31, 1998, was as follows: Total Compensation From the Fund and Aggregate Compensation Lazard Retirement Fund Name of Director From the Fund Series, Inc. - -------------------- ---------------------- ----------------------- John J. Burke $18,600 $24,000 Kenneth S. Davidson $18,600 $24,000 Norman Eig N/A N/A Carl Frischling $18,600 $24,000 Herbert W. Gullquist N/A N/A William Katz $18,600 $24,000 Lester Z. Lieberman $18,600 $24,000 Richard Reiss, Jr. $18,600 $24,000 John Rutledge $18,600 $24,000 The Fund does not compensate officers or Directors who are employees or affiliated persons of the Investment Manager. As of April 6, 1999, the Fund's officers and Directors, as a group, owned less than 1% of the shares of each Portfolio. INVESTMENT MANAGER AND INVESTMENT MANAGEMENT AGREEMENTS Lazard Asset Management, 30 Rockefeller Plaza, New York, New York 10112, has entered into an investment management agreement with the Fund on behalf of each Portfolio (the "Management Agreements"). Pursuant to each Management Agreement, Lazard Asset Management regularly provides each Portfolio with investment research, advice and supervision and furnishes continuously an investment program for each Portfolio consistent with its investment objectives and policies, including the purchase, retention and disposition of securities. Lazard Asset Management is a division of Lazard Freres, a New York limited liability company, which is registered as an investment adviser with the Commission and is a member of the New York, American and Midwest Stock Exchanges. Lazard Freres provides its clients with a wide variety of investment banking and related services, including investment management. It is a major underwriter of corporate securities, conducts a broad range of trading and brokerage activities in corporate and governmental bonds and stocks and acts as a financial adviser to utilities. Lazard Asset Management provides investment management services to client discretionary accounts with assets as of March 31, 1999 totaling approximately $64 billion. Its clients are both individuals and institutions, some of whose accounts have investment policies similar to those of several of the Portfolios. [As of April 6, 1999, Lazard Asset Management held voting and dispositive power with respect to a sufficient number of shares of each Portfolio held by client accounts as to be considered a controlling person of such Portfolio.] Under the terms of each Management Agreement, the Investment Manager will pay the compensation of all personnel of the Fund, except the fees of Directors of the Fund who are not employees or affiliated persons of the Investment Manager. The Investment Manager will make available to the Portfolios such of the Investment Manager's members, directors, officers and employees as are reasonably necessary for the operations of each Portfolio, or as may be duly elected officers or directors of the Fund. Under each Management Agreement, the Investment Manager also pays each Portfolio's office rent and provides investment advisory research and statistical facilities and all clerical services relating to research, statistical and investment work. The Investment Manager, including its employees who serve the Portfolios, may render investment advice, management and other services to others. As compensation for its services, each of the Portfolios has agreed to pay the Investment Manager an investment management fee, accrued daily and payable monthly, at the annual rates set forth below as a percentage of the average daily value of the net assets of the relevant Portfolio: Investment Management Name of Portfolio Fee Payable Equity Portfolio .75% Mid Cap Portfolio .75% Small Cap Portfolio .75% Bantam Value Portfolio .75% Global Equity Portfolio .75% International Equity Portfolio .75% International Small Cap Portfolio .75% Emerging Markets Portfolio 1.00% Bond Portfolio .50% High Yield Portfolio .75% International Fixed-Income Portfolio .75% Strategic Yield Portfolio .75% For the fiscal year ending December 31, 1999, the Investment Manager has agreed to waive its management fees or otherwise bear the expenses of the following Portfolios to the extent the aggregate expenses of the Portfolios exceed the percentage of the value of the Portfolio's average daily net assets set forth opposite the Portfolio's name: Name of Portfolio Maximum Total Portfolio Operating Expenses Institutional Shares Open Shares Mid Cap Portfolio 1.05% 1.35% Bantam Value Portfolio 1.05% 1.35% Global Equity Portfolio 1.05% 1.35% International Small Cap Portfolio 1.04% 1.43% Emerging Markets Portfolio 1.28% 1.60% Bond Portfolio .78% 1.10% High Yield Portfolio 1.05% 1.35% International Fixed-Income Portfolio 1.09% 1.35% For the fiscal years ended December 31, 1996, 1997 and 1998, the management fees payable by each Portfolio, the amounts waived by the Investment Manager and the net fees paid to the Investment Manager were as follows: Fee Payable Fee Payable Fee Payable For Fiscal For Fiscal For Fiscal Year Ended Year Ended Year Ended December 31, December 31, December 31, Name of Portfolio 1996 1997 1998 - --------------------- ------------- -------------- -------------- Equity Portfolio $ 1,829,111 $ 2,475,417 $ 3,316,469 Mid Cap Portfolio N/A $ 56,562 $ 459,760 Small Cap Portfolio $ 6,243,613 $ 8,868,261 $11,726,934 Bantam Value Portfolio $ 134,134 $ 418,572 $ 575,206 Global Equity Portfolio $ 39,032 $ 87,691 $ 119,985 International Equity Portfolio $11,746,379 $15,062,772 $19,452,067 International Small Cap Portfolio $ 870,310 $ 1,061,698 $ 1,354,903 Emerging Markets Portfolio $ 983,215 $ 2,418,181 $ 2,794,119 Bond Portfolio $ 306,035 $ 429,720 $ 523,656 High Yield Portfolio N/A N/A $ 225,562 International Fixed-Income Portfolio $ 462,235 $ 772,515 $ 857,644 Strategic Yield Portfolio $ 908,760 $ 2,447,618 $ 3,422,135 Reduction in Reduction in Reduction in Fee For Fee For Fee For Fiscal Year Fiscal Year Fiscal Year Ended Ended Ended December 31, December 31, December 31, Name of Portfolio 1996 1997 1998 - ----------------- ------------ ------------------ ----------- Equity Portfolio -0- $ 11,054 -0- Mid Cap Portfolio N/A $ 24,010 $ 119,681 Small Cap Portfolio -0- $ 11,502 -0- Bantam Value Portfolio $126,612 $ 56,620 $ 40,732 Global Equity Portfolio $ 39,032 $ 87,691 $ 119,985 International Equity Portfolio -0- $ 16,852 -0- International Small Cap Portfolio -0- $ 21,116 $ 16,356 Emerging Markets Portfolio $ 87,208 $ 19,725 $ 17,870 Bond Portfolio $ 37,009 $ 21,802 $ 11,309 High Yield Portfolio N/A N/A $ 107,939 International Fixed-Income Portfolio $100,766 $ 58,602 $ 21,538 Strategic Yield Portfolio -0- $ 3,456 -0- Net Fee Paid Net Fee Paid Net Fee Paid For Fiscal For Fiscal For Fiscal Year Ended Year Ended Year Ended December 31, December 31, December 31, Name of Portfolio 1996 1997 1998 - ------------------------- -------------- -------------- ------------- Equity Portfolio $ 1,829,111 $ 2,464,363 $ 3,316,469 Mid Cap Portfolio N/A $ 32,552 $ 340,079 Small Cap Portfolio $ 6,243,613 $ 8,856,759 $11,726,934 Bantam Value Portfolio $ 7,522 $ 361,952 $ 534,474 Global Equity Portfolio -0- -0- $ -0- International Equity Portfolio $11,746,379 $ 15,045,920 $19,452,067 International Small Cap Portfolio $ 870,310 $ 1,040,582 $ 1,338,547 Emerging Markets Portfolio $ 896,107 $ 2,398,456 $ 2,776,249 Bond Portfolio $ 269,026 $ 407,918 $ 512,347 High Yield Portfolio N/A N/A $ 117,623 International Fixed-Income Portfolio $ 361,469 $ 713,913 $ 836,106 Strategic Yield Portfolio $ 908,760 $ 2,444,162 $ 3,422,135 Each Management Agreement provides that the relevant Portfolio pays all of its expenses that are not specifically assumed by the Investment Manager. Expenses attributable to each Portfolio will be charged against the assets of that Portfolio. Other expenses of the Fund will be allocated among the Portfolios in a manner which may, but need not, be proportionate in relation to the net assets of each Portfolio. Expenses payable by each of the Portfolios include, but are not limited to, clerical salaries, brokerage and other expenses of executing portfolio transactions; legal, auditing or accounting expenses; trade association dues; taxes or governmental fees; the fees and expenses of any person providing administrative services to the Fund; the fees and expenses of the custodian and transfer agent of the Fund; clerical expenses of issue, redemption or repurchase of shares of the Portfolio; the expenses and fees for registering and qualifying securities for sale; the fees of Directors of the Fund who are not employees or affiliated persons of the Investment Manager or its affiliates; travel expenses of all Directors, officers and employees; insurance premiums; and the cost of preparing and distributing reports and notices to shareholders. In addition, the Open Shares of each Portfolio are subject to an annual distribution and servicing fee. See "Distribution and Servicing Plan." The organizational expenses of the Fund are being amortized and allocated among the International Equity Portfolio, International Fixed-Income Portfolio, Bond Portfolio, Strategic Yield Portfolio and Small Cap Portfolio. Each Management Agreement is subject to annual approval by (i) the Fund's Board or (ii) vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the relevant Portfolio, provided that in either event the continuance also is approved by a majority of the Directors who are not "interested persons" (as defined in the 1940 Act) of the Fund or the Investment Manager, by vote cast in person at a meeting called for the purpose of voting on such approval. The Management Agreement was approved by shareholders of the Equity Portfolio, Small Cap Portfolio, International Equity Portfolio, International Fixed-Income Portfolio, Bond Portfolio and Strategic Yield Portfolio on December 16, 1992 and initially by the Board on September 11, 1991 (and amended and restated on October 19, 1993); by the sole shareholder for the International Small Cap Portfolio and Emerging Markets Portfolio on August 25, 1993 and initially by the Board on July 20, 1993; by the sole shareholder for the Bantam Value Portfolio and Global Equity Portfolio and initially by the Board on October 16, 1995; and by the sole shareholder for the Mid Cap Portfolio and High Yield Portfolio and by the Board on July 29, 1997. The Management Agreement for each Portfolio was last approved by the Fund's Board, including a majority of the Directors who are not "interested persons" of any party to the Management Agreement, at a meeting held on October 27, 1998. Each Management Agreement is terminable without penalty, on 60 days' notice, by the Fund's Board or by vote of the holders of a majority of the shares of such Portfolio, or, upon not less than 60 days' notice, by the Investment Manager. Each Management Agreement provides for automatic termination in the event of its assignment (as defined in the 1940 Act). Each Management Agreement provides that in the absence of willful misfeasance, bad faith or gross negligence on the part of the Investment Manager, or of reckless disregard of its obligations thereunder, the Investment Manager shall not be liable for any action or failure to act in accordance with its duties thereunder. ADMINISTRATOR AND CUSTODIAN The Fund has engaged State Street Bank and Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts 02110, to provide certain administrative services to the Portfolios. Each Portfolio will bear the cost of such administrative expenses at the annual rate of $45,000 plus .02% of the value of the average daily net assets of each Class of the Portfolio up to $1 billion and .01% of the value of such assets over $1 billion. State Street also acts as the Fund's custodian. As the Fund's custodian, State Street, among other things, maintains a custody account or accounts in the name of each Portfolio; receives and delivers all assets for each Portfolio upon purchase and upon sale or maturity; collects and receives all income and other payments and distributions on account of the assets of each Portfolio and disburses the Portfolio's assets in payment of its expenses. The custodian does not determine the investment policies of any Portfolio or decide which securities any Portfolio will buy or sell. DISTRIBUTOR Lazard Freres serves as the distributor of each Portfolio's shares and conducts a continuous offering pursuant to a "best efforts" arrangement. As the distributor, it accepts purchase and redemption orders for Portfolio shares. In addition, the distribution agreement obligates Lazard Freres to pay certain expenses in connection with the offering of Portfolio shares. After the prospectus and periodic reports have been prepared, set in type and mailed to shareholders, Lazard Freres also will pay for the printing and distribution of copies thereof used in connection with the offering to prospective investors. DETERMINATION OF NET ASSET VALUE Net asset value per share for each Class of each Portfolio is determined by State Street for the Fund on each day the New York Stock Exchange is open for trading. The New York Stock Exchange is ordinarily closed on the following national holidays: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share is determined by dividing the value of the total assets of the Portfolio represented by such Class, less all liabilities, by the total number of Portfolio shares of such Class outstanding. The value of securities, other than options listed on national securities exchanges and debt securities maturing in 60 days or less, is determined as of the close of regular trading on the New York Stock Exchange. Options on stock and stock indices traded on national securities exchanges are valued as of the close of options trading on such exchanges (which is currently 4:10 p.m., New York time). Debt securities maturing in 60 days or less are valued at amortized cost, except where to do so would not reflect accurately their fair value, in which case such securities would be valued at their fair value as determined under the supervision of the Board of Directors. Each security for which the primary market is on a national securities exchange is valued at the last sale price on the principal exchange on which it is traded, or, if no sales are reported on such exchange on that day, at the closing bid price. Any security held by a Portfolio for which the primary market is the Nasdaq National Market System is valued at the last sale price as quoted by such system or, in the absence of any sale on the valuation date, at the closing bid price. Any other unlisted security for which current over-the-counter market quotations or bids are readily available is valued at its last quoted bid price or, if available, the mean of two such prices. All other securities and other assets for which current market quotations are not readily available are valued at fair value as determined in good faith by the Fund's Board of Directors and in accordance with procedures adopted by the Board of Directors. The portfolio securities of any of the Portfolios also may be valued on the basis of prices provided by a pricing service when such prices are believed by the Investment Manager to reflect the fair market value of such securities. The Bantam Value Portfolio, International Small Cap Portfolio and Small Cap Portfolio invest primarily in equity securities of companies with relatively small market capitalizations. Because of the difference between the bid and asked prices of over-the-counter securities, there may be an immediate reduction in the net asset value of the shares of the Bantam Value Portfolio, International Small Cap Portfolio or Small Cap Portfolio after such Portfolio has completed a purchase of securities that will be valued by the relevant Portfolio at their bid price, since those securities usually will have been purchased at or near the asked price. Trading in securities on European and Far Eastern securities exchanges and over-the-counter markets ordinarily is completed well before the close of business on each business day in New York (i.e., a day on which the New York Stock Exchange is open). In addition, European or Far Eastern securities trading generally or in a particular country or countries may not take place on all business days in New York. Furthermore, trading takes place in Japanese markets on certain Saturdays and in various foreign markets on days which are not business days in New York and on which the net asset value of a Portfolio is not calculated. Each Portfolio calculates net asset value per share, and therefore effects sales, redemptions and repurchases of its shares, as of the close of regular trading on the New York Stock Exchange once on each day on which the New York Stock Exchange is open. Such calculation may not take place contemporaneously with the determination of the prices of the majority of the portfolio securities used in such calculation. If events materially affecting the value of such securities occur between the time when their price is determined and the time when the Portfolio's net asset value is calculated, such securities will be valued at fair value as determined in good faith by the Board of Directors. PORTFOLIO TRANSACTIONS GENERAL Subject to the supervision of the Board of Directors, the Investment Manager is primarily responsible for the investment decisions and the placing of portfolio transactions for each Portfolio. In selecting brokers or dealers to execute portfolio transactions on behalf of a Portfolio, the Investment Manager seeks the best overall terms available, taking into account such factors as price, size of order, difficulty of execution and skill required of the executing broker. While the Investment Manager will generally seek reasonably competitive spreads or commissions, the Portfolios will not necessarily be paying the lowest spread or commission available. Purchases and sales of portfolio securities on a securities exchange are effected by the Investment Manager through brokers who charge a negotiated commission for their services based on the quality and quantity of execution services provided by the broker in the light of generally prevailing rates. Orders may be directed to any broker including, to the extent and in the manner permitted by applicable law, Lazard Freres. In the over-the-counter market, securities are generally traded on a "net" basis with dealers acting as principal for their own accounts without a stated commission, although the price of the security usually includes a profit to the dealer. In underwritten offerings, securities are purchased at a fixed price that includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. To the extent consistent with applicable provisions of the 1940 Act and the rules adopted by the Commission thereunder, the Fund's Board has determined that securities transactions for a Portfolio may be executed through Lazard Freres if, in the judgment of the Investment Manager, the use of Lazard Freres is likely to result in price and execution at least as favorable as those of other qualified brokers or dealers, and if, in the transaction, Lazard Freres charges the Portfolio a rate consistent with that charged to comparable unaffiliated customers in similar transactions. Purchase and sale orders for securities held by a Portfolio may be combined with those for other Portfolios in the interest of the most favorable net results for all. When the Investment Manager determines that a particular security should be bought for or sold by more than one Portfolio, the Investment Manager undertakes to allocate those transactions between the participants equitably. RESEARCH AND STATISTICAL INFORMATION When it can be done consistently with the policy of obtaining the best overall terms available, the Investment Manager may select brokers or dealers who supply market quotations to the Fund's custodian for valuation purposes, or who supply research, market and statistical information to the Investment Manager. Although such research, market and statistical information may be useful to the Investment Manager, it is only supplementary to the Investment Manager's own research efforts, since the information must still be analyzed, weighed and reviewed by the Investment Manager's staff. Information so received will be in addition to, and not in lieu of, the services required to be performed by the Investment Manager under the Management Agreement with the Fund on behalf of the Portfolios. Such information may be useful to the Investment Manager in providing services to both the Portfolios and clients other than the Portfolios, and, conversely, supplemental information obtained by the placement of business of other clients may be useful to the Investment Manager in carrying out its obligations to the Portfolios. The total dollar amount of transactions pursuant to which brokerage was directed in consideration of research services provided during the year ended December 31, 1998, was $1,894,819,000, and the related commissions were $4,385,000. In addition, when it can be done consistently with the above stated policy, the Investment Manager may place orders with brokers and dealers (i) who refer persons to the Investment Manager for the purpose of purchasing shares of the Portfolios or (ii) who provide services to the Fund at no fee or for a reduced fee. BROKERAGE COMMISSIONS In connection with its portfolio securities transactions for the fiscal years ended December 31, 1996, 1997 and 1998, each Portfolio indicated below paid brokerage commissions as follows: YEAR ENDED DECEMBER 31, 1996
Percentage Percentage Amount of of Total of Total Brokerage Brokerage Brokerage Commissions Commissions Transactions Brokerage Paid to Paid to Effected Through Name of Portfolio Commissions Paid Lazard Freres Lazard Freres Lazard Freres - -------------------- ------------------ -------------- -------------- ----------------- Equity Portfolio $ 483,954 -0- -0- -0- Small Cap Portfolio $ 1,522,251 $ 4,465 0.29% 0.31% Bantam Value Portfolio $ 206,307 $ 12,195 5.91% 3.49% Global Equity Portfolio $ 29,963 $ 1,104 3.69% 9.28% International Equity Portfolio $ 2,707,977 -0- -0- -0- International Small Cap Portfolio $ 580,942 -0- -0- -0- Emerging Markets Portfolio $ 621,547 -0- -0- -0- YEAR ENDED DECEMBER 31, 1997 Percentage Amount of Percentage of of Total Brokerage Total Brokerage Brokerage Brokerage Commissions Commissions Transactions Commissions Paid to Paid to Effected Through Name of Portfolio Paid Lazard Freres Lazard Freres Lazard Freres Equity Portfolio $ 592,299 -0- -0- -0- Mid Cap Portfolio $ 59,461 -0- -0- -0- Small Cap Portfolio $ 2,003,525 -0- -0- -0- Bantam Value Portfolio $ 231,614 -0- -0- -0- Global Equity Portfolio $ 26,640 $45 0.17% 0.19% International Equity Portfolio $ 3,041,586 -0- -0- -0- International Small Cap Portfolio $ 429,111 -0- -0- -0- Emerging Markets Portfolio $ 1,098,476 -0- -0- -0- YEAR ENDED DECEMBER 31, 1998 Percentage of Amount of Percentage of Total Brokerage Brokerage Total Brokerage Transactions Brokerage Commissions Commissions Effected Commissions Paid to Paid to Through Name of Portfolio Paid Lazard Freres Lazard Freres Lazard Freres Equity Portfolio $ 802,204 $ 51,625 6.44% 7.24% Mid Cap Portfolio $ 183,975 $ 5,270 2.86% 2.73% Small Cap Portfolio $ 2,544,527 $ 61,090 2.40% 0.95% Bantam Value Portfolio $ 273,070 $ 3,635 1.33% 1.50% Global Equity Portfolio $ 33,371 $ 2,734 8.87% 14.52% International Equity Portfolio $ 4,724,137 -0- -0- -0- International Small Cap Portfolio $ 439,572 -0- -0- -0- Emerging Markets Portfolio $ 1,016,826 $ 812 0.23% 0.39%
HOW TO BUY AND HOW TO SELL SHARES GENERAL. The minimum initial investment for each Portfolio is $10,000 for Open Shares, unless the investor is a client of a securities dealer or other institution which has made an aggregate minimum initial purchase for its clients of at least $10,000, and $1,000,000 for Institutional Shares. Subsequent investments for each Portfolio must be at least $1,000 for Open Shares and $5,000 for Institutional Shares. For directors, members and employees of Lazard Freres and its affiliates, and the trustees of benefit plans covering any of the foregoing individuals, the minimum initial investment for each Portfolio is $5,000 for Institutional Shares. The minimum investment requirements may be waived or lowered for investments effected through banks and other institutions that have entered into special arrangements with the Fund or Lazard Freres and for investments effected on a group basis by certain other entities and their employees, such as pursuant to a payroll deduction plan. The Fund reserves the right to vary further the initial and subsequent investment minimum requirements at any time. Securities dealers and other institutions effecting transactions in Portfolio shares for the accounts of their clients may charge their clients direct fees in connection with such transactions. The Fund and Lazard Freres reserve the right to reject any purchase order. All funds will be invested in full and fractional shares. Stock certificates will not be issued. Shares of each Portfolio may be purchased in exchange for securities which are permissible investments of that Portfolio, subject to the Investment Manager's determination that the securities are acceptable. Securities accepted in exchange for Portfolio shares will be valued at the mean between their bid and asked quotations. In addition, securities accepted in exchange for Portfolio shares are required to be liquid securities that are not restricted as to transfer and have a value that is readily ascertainable (and not established only by valuation procedures) as evidenced by a listing on the American Stock Exchange, the New York Stock Exchange, The Nasdaq Stock Market, a recognized non-U.S. exchange or non-Nasdaq listing with at least two market makers. PURCHASES THROUGH THE TRANSFER AGENT. Orders for Portfolio shares will become effective at the net asset value per share next determined after receipt by the Transfer Agent or other agent of a check drawn on any member of the Federal Reserve System or after receipt by the Custodian or other agent of a bank wire or Federal Reserve Wire. Checks must be payable in United States dollars and will be accepted subject to collection at full face value. The Transfer Agent and Lazard Freres, in certain cases, may agree to next day settlement for certain purchases through the Transfer Agent. By investing in a Portfolio, a shareholder appoints the Transfer Agent, as agent, to establish an open account to which all shares purchased will be credited, together with any dividends and capital gain distributions that are paid in additional shares. PURCHASES THROUGH A LAZARD FRERES BROKERAGE ACCOUNT. Shares of all of the Portfolios are sold by Lazard Freres only to customers of Lazard Freres without a sales charge, on a continuing basis at the net asset value of the Portfolio next determined after receipt of a purchase order by Lazard Freres. Payments must be made to Lazard Freres within three business days of the order. Because Lazard Freres does not forward investors' funds until the business day on which the order is settled, it may benefit from temporary use of these funds. Please contact your Lazard Freres account representative for specific instructions on how to purchase Portfolio shares through your Lazard Freres brokerage account. AUTHORIZED BROKERS. The Fund has authorized one or more brokers to accept on its behalf purchase and redemption orders. Such brokers are authorized to designate other intermediaries to accept purchase and redemption orders on the Fund's behalf. The Fund will be deemed to have received a purchase or redemption order when an authorized broker or, if applicable, a broker's authorized designee, accepts the order. Customer orders will be priced at the Fund's net asset value next computed after such orders are accepted by an authorized broker or the broker's authorized designee. REDEMPTION COMMITMENT. The Fund has committed to pay in cash all redemption requests by any shareholder of record, limited in amount during any 90-day period to the lesser of $250,000 or 1% of the value of a Portfolio's net assets at the beginning of such period. Such commitment is irrevocable without the prior approval of the Commission. In the case of requests for redemption in excess of such amount, the Fund's Board reserves the rights to make payments in whole or part in securities (which may include non-marketable securities) or other assets of the Portfolio in case of an emergency or any time a cash distribution would impair the liquidity of the Portfolio to the detriment of the existing shareholders. In such event, the securities would be valued in the same manner as the Portfolio's investments are valued. If the recipient sold such securities, brokerage charges might be incurred. SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the date of payment postponed (a) during any period when the New York Stock Exchange is closed (other than customary weekend and holiday closings), (b) when trading in the markets the Portfolio ordinarily utilizes is restricted, or when an emergency exists as determined by the Commission so that disposal of the Portfolio's investments or determination of its net asset value is not reasonably practicable, or (c) for such other periods as the Commission by order may permit to protect the Portfolio's shareholders. DISTRIBUTION AND SERVICING PLAN (OPEN SHARES ONLY) Open Shares are subject to a Distribution and Servicing Plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the Distribution and Servicing Plan, the Fund pays Lazard Freres for advertising, marketing and distributing each Portfolio's Open Shares and for the provision of certain services to the holders of Open Shares a fee at an annual rate of .25% of the value of the average daily net assets of the Portfolio's Open Class. The services provided may include personal services relating to shareholder accounts, such as answering shareholder inquiries regarding the Fund and providing reports and other information, and services related to the maintenance of shareholder accounts. The fee payable for such services is intended to be a "service fee" as defined in Conduct Rules of the NASD. Under the Distribution and Servicing Plan, Lazard Freres may make payments to third parties in respect of these services. From time to time, Lazard Freres may defer or waive receipt of fees under the Distribution and Servicing Plan while retaining the ability to be paid by the Fund under the Distribution and Servicing Plan thereafter. The fees payable to Lazard Freres under the Distribution and Servicing Plan for advertising, marketing and distributing Open Shares and for payments to third parties are payable without regard to actual expenses incurred. Rule 12b-1 (the "Rule") adopted by the Commission under the 1940 Act provides, among other things, that an investment company may bear expenses of distributing its shares only pursuant to a plan adopted in accordance with the Rule. The Fund's Board has adopted such a plan (the "Distribution and Servicing Plan") with respect to each Portfolio's Open Shares, pursuant to which the Fund pays Lazard Freres for advertising, marketing and distributing Open Shares of the Portfolios and for the provision of certain services to the holders of Open Shares of the Portfolios. Lazard Freres may make payments to certain financial institutions, securities dealers and other industry professionals (collectively, "Service Agents") for providing these services. The Fund's Board determined, in the exercise of its business judgment, that the Fund's Distribution and Servicing Plan is reasonably likely to benefit each Portfolio and holders of Open Shares. A quarterly report of the amounts expended under the Distribution Servicing Plan, and the purposes for which such expenditures were incurred, must be made to the Board for its review. In addition, the Distribution and Servicing Plan provides that it may not be amended to increase materially the costs which holders of Open Shares of a Portfolio may bear for distribution pursuant to the Distribution and Servicing Plan without such shareholders' approval and that other material amendments of the Distribution and Servicing Plan must be approved by the Board and by the Board members who are not "interested persons" (as defined in the 1940 Act) of the Fund and have no direct or indirect financial interest in the operation of the Distribution and Servicing Plan or in any agreements entered into in connection with the Distribution and Servicing Plan, by vote cast in person at a meeting called for the purpose of considering such amendments. The Distribution and Servicing Plan is subject to annual approval by such vote cast in person at a meeting called for the purpose of voting on the Distribution and Servicing Plan. The Distribution and Servicing Plan was last so approved on October 27, 1998. As to each Portfolio, the Distribution and Servicing Plan may be terminated at any time by vote of a majority of the Board members who are not "interested persons" and have no direct or indirect financial interest in the operation of the Distribution and Servicing Plan or in any agreements entered into in connection with the Distribution and Servicing Plan or by vote of the holders of a majority of such Portfolio's Open Shares. For the fiscal year ended December 31, 1998, each Portfolio paid the Distributor the amount set forth below with respect to its Open Shares under the Distribution and Servicing Plan: Amount Paid to Distributor Under Distribution and Servicing Plan For Name of Portfolio for Fiscal Year Ended December 31, 1998 Equity Portfolio $ 219,862 Mid Cap Portfolio $ 22,660 Small Cap Portfolio $ 245,099 Bantam Value Portfolio $ 21,161 Global Equity Portfolio $ 9,246 International Equity Portfolio $ 76,823 International Small Cap Portfolio $ 8,134 Emerging Markets Portfolio $ 29,160 Bond Portfolio $ 28,672 High Yield Portfolio $ 573 International Fixed-Income Portfolio $ 9,533 Strategic Yield Portfolio $ 48,934 DIVIDENDS AND DISTRIBUTIONS The Fund intends to declare as a dividend on the outstanding shares of each of the Bond Portfolio, High Yield Portfolio, International Fixed-Income Portfolio and Strategic Yield Portfolio substantially all of the Portfolio's net investment income at the close of each business day to shareholders of record at 4:00 p.m. (New York time). Net investment income for a Saturday, Sunday or holiday will be included in the dividend declared on the previous business day. Dividends declared on the shares of the Bond Portfolio, High Yield Portfolio, International Fixed-Income Portfolio and Strategic Yield Portfolio ordinarily will be paid on the last business day of each month. Shareholders who redeem all their shares of any of these Portfolios prior to a dividend payment date will receive, in addition to the redemption proceeds, any dividends that are declared but unpaid. Shareholders of any of these Portfolios who redeem only a portion of their shares will be entitled to all dividends that are declared by unpaid on the redeemed shares on the next dividend payment date. Dividends from net investment income on the Equity Portfolio, Mid Cap Portfolio, International Equity Portfolio, Small Cap Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and Bantam Value Portfolio generally will be declared and paid at least annually and may be declared and paid twice annually. Dividends for each Class of a Portfolio will be calculated at the same time and in the same manner and will be of the same amount, except that certain expenses will be borne exclusively by one Class and not by the other, such as fees payable under the Distribution and Servicing Plan. Open Shares will receive lower per share dividends than Institutional Shares because of the higher expenses borne by Open Shares. Investment income for a Portfolio includes, among other things, interest income, accretion of market and original issue discount and amortization of premium and, in the case of the Equity Portfolio, Mid Cap Portfolio, International Equity Portfolio, Small Cap Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and Bantam Value Portfolio, also would include dividends. With respect to all of the Portfolios, net realized capital gains, if any, will be distributed at least annually and may be declared and paid twice annually. If a dividend check mailed to a shareholder who elected to receive dividends and/or capital gain distributions in cash is returned as undeliverable by the postal or other delivery service, such shareholder's distribution option automatically will be converted to all dividends and other distributions reinvested in additional shares. NO INTEREST WILL ACCRUE ON AMOUNTS REPRESENTED BY UNCASHED DISTRIBUTION OR REDEMPTION CHECKS. Each Portfolio forwards to the Fund's custodian the monies for dividends to be paid in cash on the payment date. TAXATION Management believes that each Portfolio has qualified for the fiscal year ended December 31, 1998 as a "regulated investment company" under Subchapter M of the Code. It is intended that each such Portfolio will continue to so qualify as a regulated investment company, if such qualification is in the best interests of its shareholders. Each Portfolio will be treated as a separate entity for tax purposes and thus the provisions of the Code applicable to regulated investment companies generally will be applied to each Portfolio separately, rather than to the Fund as a whole. As a regulated investment company, a Portfolio will pay no Federal income tax on net investment income and net realized securities gains to the extent that such income and gains are distributed to shareholders in accordance with applicable provisions of the Code. To qualify as a regulated investment company, the Portfolio must distribute at least 90% of its net income (consisting of net investment income and net short-term capital gain) to its shareholders and meet certain asset diversification and other requirements. If the Portfolio did not qualify as a regulated investment company, it would be treated for tax purposes as an ordinary corporation subject to Federal income tax. The term "regulated investment company" does not imply the supervision of management of investment practices or policies by any government agency. Any dividend or distribution paid shortly after an investor's purchase may have the effect of reducing the net asset value of the shares below the cost of the investment. Such a dividend or distribution would be a return of investment in an economic sense, although taxable as stated in the Prospectus. In addition, the Code provides that if a shareholder holds shares of a Portfolio for six months or less and has received a capital gain distribution with respect to such shares, any loss incurred on the sale of such shares will be treated as long-term capital loss to the extent of the capital gain distribution received. Corporate shareholders of the Equity Portfolio, Mid Cap Portfolio, Small Cap Portfolio, Bantam Value Portfolio and Global Equity Portfolio will be eligible for the dividends-received deduction on the dividends (excluding the net capital gain dividends) paid by the Portfolio, to the extent that the Portfolio's income is derived from certain dividends received from domestic corporations. A corporation's dividends-received deduction will be disallowed unless the corporation holds shares in the Portfolio for 46 days or more during the 90-day period commencing 45 days before the shares become ex-dividend. Furthermore, a corporation's dividends-received deduction will be disallowed to the extent a corporation's investment in shares of the Portfolio is financed with indebtedness. It is anticipated that distributions from Portfolios, other than the Equity Portfolio, Mid Cap Portfolio, Small Cap Portfolio, Bantam Value Portfolio and Global Equity Portfolio, will not qualify for the dividends-received distribution. Each year the Fund will notify shareholders of the federal income tax status of distributions. The Bond Portfolio, High Yield Portfolio and International Fixed-Income Portfolio may invest in Real Estate Mortgage Investment Conduits ("REMICs"). Interests in REMICs are classified as either "regular" interests or "residual" interests. Under the Code, special rules apply with respect to the treatment of a portion of the Portfolio's income from REMIC residual interests. (Such portion is referred to herein as "Excess Inclusion Income.") Excess Inclusion Income generally cannot be offset by net operating losses and, in addition, constitutes unrelated business taxable income to entities which are subject to the unrelated business income tax. The Code provides that a portion of Excess Inclusion Income attributable to REMIC residual interests held by regulated investment companies such as the Portfolios shall, pursuant to regulations, be allocated to the shareholders of such regulated investment company in proportion to the dividends received by such shareholders. Accordingly, shareholders of the Bond Portfolio, High Yield Portfolio and International Fixed-Income Portfolio generally will not be able to use net operating losses to offset such Excess Inclusion Income. In addition, if a shareholder of one of the Portfolios is an entity subject to the unrelated business income tax (including a qualified pension plan, an IRA, a 401(k) plan, a Keogh plan, or another tax-exempt entity) and is allocated any amount of Excess Inclusion Income, such a shareholder may be required to file a return and pay a tax on such Excess Inclusion Income even though a shareholder might not have been required to pay such tax or file such return absent the receipt of such Excess Inclusion Income. The Investment Manager anticipates that only a small portion, if any, of the assets of the Bond Portfolio, High Yield Portfolio and International Fixed-Income Portfolio will be invested in REMIC residual interests. Accordingly, the amount of Excess Inclusion Income, if any, received by the Portfolios and allocated to their shareholders should be quite small. Shareholders that are subject to the unrelated business income tax should consult their own tax adviser regarding the treatment of their income derived from the Portfolios. Except as discussed above with respect to Excess Inclusion Income, a dividend or capital gains distribution with respect to shares held by a tax-deferred or qualified plan, such as an IRA, 403(b)(7) retirement plan or corporate pension or profit sharing plan, will not be taxable to the plan. Distributions from such plans will be taxable to individual participants under applicable tax rules without regard to the income earned by the qualified plan. Ordinarily, gains and losses realized from portfolio transactions will be treated as capital gains and losses. However, all or a portion of the gain or loss realized from the disposition of foreign currency, non-U.S. dollar denominated debt instruments, and certain financial futures and options, may be treated as ordinary income or loss under Section 988 of the Code. In addition, all or a portion of the gain realized from the disposition of certain market discount bonds will be treated as ordinary income under Section 1276 of the Code. Finally, all or a portion of the gain realized from engaging in "conversion transactions" may be treated as ordinary income under Section 1258 of the Code. "Conversion transactions" are defined to include certain forward, futures, option and straddle transactions, transactions marketed or sold to produce capital gains, or transactions described in Treasury regulations to be issued in the future. Under Section 1256 of the Code, gain or loss realized by a Portfolio from certain financial futures and options transactions (other than those taxed under Section 988 of the Code) will be treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss. Gain or loss will arise upon the exercise or lapse of such futures and options as well as from closing transactions. In addition, any such futures or options remaining unexercised at the end of the Portfolio's taxable year will be treated as sold for their then fair market value, resulting in additional gain or loss to the Portfolio characterized in the manner described above. Offsetting positions held by a Portfolio involving financial futures and options may constitute "straddles." Straddles are defined to include "offsetting positions" in actively traded personal property. The tax treatment of straddles is governed by Sections 1092 and 1258 of the Code, which, in certain circumstances, overrides or modifies the provisions of Sections 988 and 1256 of the Code. As such, all or a portion of any short- or long-term capital gain from certain "straddle" transactions may be recharacterized as ordinary income. If a Portfolio were treated as entering into straddles by reason of its future or options transactions, such straddles could be characterized as "mixed straddles" if the futures or options transactions comprising such straddles were governed by Section 1256 of the Code. The Portfolio may make one or more elections with respect to "mixed straddles." Depending upon which election is made, if any, the results to the Portfolio may differ. If no election is made, to the extent the straddle rules apply to positions established by the Portfolio, losses realized by the Portfolio will be deferred to the extent of unrealized gain in any offsetting positions. Moreover, as a result of the straddle and conversion transaction rules, short-term capital loss on straddle positions may be recharacterized as long-term capital loss, and long-term capital gain may be recharacterized as short-term capital gain or ordinary income. The Taxpayer Relief Act of 1997 included constructive sale provisions that generally apply if a Portfolio either (1) holds an appreciated financial position with respect to stock, certain debt obligations, or partnership interests ("appreciated financial position") and then enters into a short sale, futures or forward contract, or offsetting notional principal contract (collectively, a "Contract") with respect to the same or substantially identical property or (2) holds an appreciated financial position that is a Contract and then acquires property that is the same as, or substantially identical to, the underlying property. In each instance, with certain exceptions, the Portfolio generally will be taxed as if the appreciated financial position were sold at its fair market value on the date the Portfolio enters into the financial position or acquires the property, respectively. Transactions that are identified hedging or straddle transactions under other provisions of the Code can be subject to the constructive sale provisions. Income received by a Portfolio from sources within foreign countries may be subject to withholding and other taxes imposed by such countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. It is impossible to determine the effective rate of foreign tax in advance since the amount of each Portfolio's assets to be invested in various countries is not known. If more than 50% of the value of a Portfolio's total assets at the close of its taxable year consists of the stock or securities of foreign corporations, the Portfolio may elect to "pass through" to its shareholders the amount of foreign income taxes paid by the Portfolio. Pursuant to such election, shareholders would be required: (i) to include in gross income, even though not actually received, their respective pro rata shares of the foreign taxes paid by the Portfolio; (ii) treat their income from the Portfolio as being from foreign sources to the extent that the Portfolio's income is from foreign sources; and (iii) either to deduct their pro rata share of foreign taxes in computing their taxable income, or to use it as a foreign tax credit against federal income (but not both). No deduction for foreign taxes could be claimed by a shareholder who does not itemize deductions. It is anticipated that each of the International Equity Portfolio, International Fixed-Income Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and Bantam Value Portfolio will be operated so as to meet the requirements of the Code to "pass through" to shareholders of the Portfolio credits for foreign taxes paid, although there can be no assurance that these requirements will be met. Each shareholder will be notified within 45 days after the close of each taxable year of the Portfolio whether the foreign taxes paid by the Portfolio will "pass through" for that year, and, if so, the amount of each shareholder's pro rata share of (i) the foreign taxes paid, and (ii) the Portfolio's gross income from foreign sources. Of course, shareholders who are not liable for federal income taxes, such as retirement plans qualified under Section 401 of the Code, will not be affected by any such "pass through" of foreign tax credits. If a Portfolio invests in an entity that is classified as a "passive foreign investment company" ("PFIC") for Federal income tax purposes, the operation of certain provisions of the Code applying to PFICs could result in the imposition of certain Federal income taxes on the Portfolio. In addition, gain realized from the sale, other disposition or marking-to-market of PFIC securities may be treated as ordinary income under Section 1291 or Section 1296 of the Code. Investment by a Portfolio in securities issued at a discount or providing for deferred interest or for payment of interest in the form of additional obligations could, under special tax rules, affect the amount, timing and character of distributions to shareholders by causing a Portfolio to recognize income prior to the receipt of cash payments. For example, the Portfolio could be required to recognize annually a portion of the discount (or deemed discount) at which such securities were issued and to distribute an amount equal to such income in order to maintain its qualification as a regulated investment company. In such case, the Portfolio may have to dispose of securities which it might otherwise have continued to hold in order to generate cash to satisfy these distribution requirements. PERFORMANCE INFORMATION Current yield is computed pursuant to a formula which operates as follows: The amount of the relevant Portfolio's expenses accrued for the 30-day period (net of reimbursements) is subtracted from the amount of the dividends and interest earned (computed in accordance with the regulatory requirements) by such Portfolio during the period. That result is then divided by the product of: (a) the average daily number of such Portfolio's shares outstanding during the period that were entitled to receive dividends, and (b) the net asset value per share on the last day of the period less any undistributed earned income per share reasonably expected to be declared as a dividend shortly thereafter. The quotient is then added to 1, and that sum is raised to the 6th power, after which 1 is subtracted. The current yield is then arrived at by multiplying the result by 2. A Portfolio's "actual distribution rate" is computed in the same manner as yield, except that actual income dividends declared per share during the period in question is substituted for net investment income per share. The yield and the actual distribution rate for the 30-day period ended December 31, 1998 for Institutional Shares and Open Shares of each Portfolio indicated below was as follows: 30-Day Yield Distribution Rate --------------------- ------------------------ Institutional Open Institutional Open Name of Portfolio Shares Shares Shares Shares - -------------------- ------ ------ ------- ------ Bond 5.64% 5.27% 5.38% 5.02% High Yield 9.33% 9.03% 9.03% 8.74% International Fixed-Income 3.21% 2.90% 1.13% 1.04% Strategic Yield 7.02% 6.61% 6.94% 5.99% Average annual total return is calculated by determining the ending redeemable value of an investment purchased with a hypothetical $1,000 payment made at the beginning of the period (assuming the reinvestment of dividends and distributions), dividing by the amount of the initial investment, taking the "n"th root of the quotient (where "n" is the number of years in the period) and subtracting 1 from the result. The average annual total return of Institutional Shares and Open Shares for the indicated Portfolio and periods ended December 31, 1998 (the date listed in the footnote is the beginning of the period for the indicated Portfolio) was as follows: Institutional Shares Average Annual Total Returns for Periods Ended December 31, 1998 Name of Portfolio 1-Year 5-Years 10-Years Equity 17.31% 20.36% 16.83%(3) International Equity 16.04% 11.22% 11.26%(4) International Fixed-Income 13.20% 7.00% 7.86%(5) Bond 5.77% 5.93% 6.69%(6) Strategic Yield 0.75% 6.00% 7.36%(7) Small Cap (12.62)% 11.45% 16.11%(8) International Small Cap 7.55% 3.94% 5.58%(1) Emerging Markets (23.49)% N/A (5.10)%(2) Bantam Value (13.82)% 16.39%(9) N/A Global Equity 17.10% N/A 16.09%(10) Mid Cap 3.65% N/A 5.58%(11) High Yield N/A N/A N/A(12) - --------------- (1) December 1, 1993. (2) July 15, 1994. (3) June 1, 1987. (4) October 29, 1991. (5) November 8, 1991. (6) November 12, 1991. (7) October 1, 1991. (8) October 30, 1991. (9) March 1, 1996. (10) January 4, 1996. (11) November 4, 1997. (12) January 2, 1998. Open Shares Average Annual Total Returns for Periods Ended December 31, 1998 Name of Portfolio 1-Year 5-Years 10-Years Equity 16.98% 18.95%(1) N/A International Equity 15.82% 15.44%(2) N/A International Fixed-Income 12.92% 3.72%(3) N/A Bond 5.42% 6.93%(4) N/A Strategic Yield 0.37% 2.12%(2) N/A Small Cap (12.86)% 4.82%(5) N/A International Small Cap 7.21% 1.97%(6) N/A Emerging Markets (23.30)% (17.99)%(3) N/A Bantam Value (14.02)% 4.96%(2) N/A Global Equity 16.82% 17.52%(5) N/A Mid Cap 3.42% 5.34%(7) N/A High Yield N/A(8) N/A N/A - --------------- (1) February 5, 1997. (2) January 23, 1997. (3) January 8, 1997. (4) March 5, 1997. (5) January 30, 1997. (6) February 13, 1997. (7) November 4, 1997. (8) February 24, 1998. Total return is calculated by subtracting the amount of the relevant Portfolio's net asset value per share at the beginning of a stated period from the net asset value per share at the end of the period (after giving effect to the reinvestment of dividends and distributions during the period), and dividing the result by the net asset value per share at the beginning of the period. The total return of Institutional Shares and Open Shares for the indicated Portfolio from inception through December 31, 1998 (the date listed in the footnote is the date operations commenced or, with respect to Open Shares, the initial public offering date for the indicated Portfolio) was as follows: Total Return Through December 31, 1998 Name of Portfolio Institutional Shares Open Shares Equity 403.93%(1) 39.08%(13) Mid Cap 6.50%(2) 6.22%(2) International Equity 114.93%(3) 32.12%(14) International Fixed-Income 72.06%(4) 7.49%(15) Bond 59.05%(5) 13.03%(16) Strategic Yield 67.42%(6) 4.15%(14) Small Cap 191.73%(7) 9.44%(17) International Small Cap 31.80%(8) 3.74%(18) Emerging Markets (20.86)%(9) (32.49)%(15) Bantam Value 53.85%(10) 9.84%(14) Global Equity 56.27%(11) 36.34%(17) High Yield 2.90%(12) (2.24)%(19) - ------------------- (1) June 1, 1987. (2) November 4, 1997. (3) October 29, 1991. (4) November 8, 1991. (5) November 12, 1991. (6) October 1, 1991. (7) October 30, 1991. (8) December 1, 1993. (9) July 15, 1994. (10) March 1, 1996. (11) January 4, 1996. (12) January 2, 1998. (13) February 5, 1997. (14) January 23, 1997. (15) January 8, 1997. (16) March 5, 1997. (17) January 30, 1997. (18) February 13, 1997. (19) February 24, 1998. A Portfolio's yield, actual distribution rate and total return are not fixed and will fluctuate in response to prevailing market conditions or as a function of the type and quality of the securities held by such Portfolio, its average portfolio maturity and its expenses. Yield, actual distribution rate and total return information is useful in reviewing a Portfolio's performance and such information may provide a basis for comparison with other investments but such information may not provide a basis for comparison with certificates of deposit, which pay a fixed rate of return, or money market funds, which seek a stable net asset value. Investment return and principal value of an investment in a Portfolio will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance of each Class will be calculated separately and will take into account any applicable distribution and service fees. As a result, at any given time, the performance of Open Shares should be expect to be lower than that of Institutional Shares. From time to time, the Fund may compare a Portfolio's performance against one or more broad-based indices or data from Lipper Analytical Services, Inc., Money Magazine, Morningstar, Inc. and other industry publications. In addition, the Fund may compare a Portfolio's performance against inflation with the performance of other instruments against inflation, such as short-term Treasury Bills (which are direct obligations of the U.S. Government) and FDIC-insured bank money market accounts. INFORMATION ABOUT THE FUND AND PORTFOLIOS On January 1, 1992, the Fund on behalf of the Equity Portfolio acquired the assets and liabilities of Lazard Equity Fund, formerly a portfolio of Scudder Fund, Inc. ("Scudder Fund") an open-end, diversified management investment company. Lazard Freres has agreed to indemnify Scudder Fund and its directors from any and all claims arising out of the transfer of assets to the maximum extent that Scudder Fund would be so permitted by the Maryland General Corporation Law, subject to the limitations of the 1940 Act. In addition, the Fund has agreed to indemnify, with respect to the Equity Portfolio, the Scudder Fund and its directors and officers from claims arising out of acts or omissions occurring prior to the transfer to the same extent that such individuals could have been indemnified by the Scudder Fund. If, however, the Fund (or the Equity Portfolio) ceases to exist, Lazard Freres has agreed, in lieu of the Fund, to so indemnify to so indemnify the directors and officers of Scudder Fund. As of April 6, 1999, the following shareholders owned beneficially or of record 5% or more of the indicated Portfolio's outstanding shares: Percentage of Total Name and Address Institutional Shares Outstanding EQUITY PORTFOLIO Smith Barney Inc. 14.90% 00109801250 388 Greenwich Street New York, NY 10013-2339 Seagrams Retirement Savings and Investment Trust 9.34% c/o The Bank of New York Attn: Alex Kovalenko 1 Wall Street, 12th Floor New York, NY 10005-2501 Lazard Freres & Co. LLC 7.04% Employee Savings Plan--Equity Fund Attn: Francis J. Conroy 30 Rockefeller Plaza New York, NY 10112 MID CAP PORTFOLIO Lazard Freres & Co. LLC 16.09% District No. 9 IAMAW 30 Rockefeller Plaza, 60th Floor New York, NY 10112 Norwest Bank Colorado N.A. 5.53% Cust FBO City of Aurora Fire MPAP 740 Broadway #8751 Denver, CO 80203-3410 SMALL CAP PORTFOLIO Merrill Lynch For The Sole 9.40% Benefit of Its Customers Attn: Fund Admin LZSCX 4800 Deer Lake Dr. East 2nd Floor Jacksonville, FL 32246-6484 Lazard Freres & Co. LLC 7.71% Mercantile Safe Deposit & Trust Co., Custodian for Bakery & Confectionery Intl. Pension Plan--Small Cap--A/C26501-25 Attn: Charles Loritz PO Box 17002 30 Rockefeller Plaza New York, NY 10112 Northern Trust Trustee 5.34% FBO ITT Industries Master Retirement Trust #22-51598 PO Box 92956 Chicago, IL 60675-2956 BANTAM VALUE PORTFOLIO Lazard Freres & Co. LLC 9.92% United Food & Commercial Workers Unions & Empl Pen Fund Small Cap 1800 Phoenix Blvd. Ste. 310 30 Rockefeller Plaza New York, NY 10112 Lazard Freres & Co. LLC 7.74% National Automatic Sprinkler Industry Small Cap Pension Fund Board of Trustees c/o Michael Jacobson 8000 Corporate Drive 30 Rockefeller Plaza New York, NY 10112 Lazard Freres & Co. LLC 7.68% Graphic Communications Intl. Union Supplemental Retirement & Disability Fund--Small Cap Attn: Mr. G L Griesbauer Jr. 1900 L Street NW 30 Rockefeller Plaza New York, NY 10112 Lazard Freres & Co. LLC 6.82% Ursinus College Attn: Business Office P.O. Box 1000 Main Street Collegeville, PA 19426-1000 Lazard Freres & Co. LLC 5.55% Smith College Attn: Jonathan Lovell Budget Director College Hall Northampton, MA 01063-0001 GLOBAL EQUITY PORTFOLIO Blue Cross Blue Shield of 58.86% Massachusetts Inc. Managed Care Attn: Treasury 01/06 100 Summer Street Boston, MA 02110-2106 Lazard Freres & Co. LLC 10.12% The Baycrest Centre Foundation Helaine Maisels Admin Assistance Finance Dept. 3560 Bathurst Street North York, Ontario Blue Cross Blue Shield of 9.33% Massachusetts Inc. Indemnity Attn: Treasury 01/06 100 Summer Street Boston, MA 02110-2106 Lazard Freres & Co. LLC 8.42% Mount Sinai Hospital Foundation of Toronto Attn: Marty Stein 331-600 University Avenue Toronto, ON M5G 1X5 INTERNATIONAL EQUITY PORTFOLIO Lazard Freres & Co. LLC 8.92% Mercantile Safe Deposit & Trust Co. Custodian for Bakery & Confectionery Intl. Eq. A/C26501-33 Attn: Charles Loritz PO Box 17002 30 Rockefeller Plaza New York, NY 10112 Merrill Lynch For The Sole 5.50% Benefit Of Its Customers Attn: Fund Admin LZIEX 4800 Deerlake Dr. E FL 2 Jacksonville, FL 32246 INTERNATIONAL SMALL CAP PORTFOLIO Lazard Freres & Co. LLC 7.57% The George Washington University Int'l Small Cap Attn: Louis Katz & Courtney Lowe 2121 I Street 707 Rice Hall Lazard Freres & Co. LLC 5.83% United Air Lines Inc. Pension & Welfare Plans Administration Committee Attn: David V Drystra PO Box 66100 30 Rockefeller Plaza New York, NY 10112 EMERGING MARKETS PORTFOLIO Lazard Freres & Co. LLC 5.85% University of British Columbia Faculty Pension Plan Stanley Hamilton/Dir Ops 235-2075 Wesbrook Mall Vancouver, BC Merrill Lynch For The Sole 5.74% Benefit Of Its Customers Attn: Fund Admin LZEMX 4800 Deer Lake Dr East 2nd Fl Jacksonville, FL 32246-6484 Lazard Freres & Co. LLC 5.26% United Air Lines Inc. Pension & Welfare Plans Administration Committee Attn: David V Drystra PO Box 66100 30 Rockefeller Plaza New York, NY 10112 BOND PORTFOLIO Lazard Freres & Co. LLC 7.30% Elaine Louise David-Weill C/O Janis Inscho Lazard Freres & Co. LLC 30 Rockefeller Plaza New York, NY 10112 Lazard Freres & Co. LLC 5.32% Local 1922 Pension Fund Attn: Laurie Greco Fund Mngr 1065 Old Country Road Suite 214 Westbury, NY 11590-5628 INTERNATIONAL FIXED-INCOME PORTFOLIO Lazard Freres & Co. LLC 32.08% Graphic Communications Intl. Union Supplemental Retirement Disability Fund--Fixed-Income A/C Attn: Mr. G L Griesbauer Jr. 1900 L Street NW 30 Rockefeller Plaza New York, NY 10112 M & I Trust Co., Custodian for 18.50% CUNA Individual Acct Master Plan 1000 N. Water St., 14th Floor Milwaukee, WI 53202-6648 Smith Barney Inc. 10.11% 00109801250 388 Greenwich Street New York, NY 10013-2339 HIGH YIELD PORTFOLIO MAC & CO A/C IBWF8440002 49.08% Mutual Funds Operations P.O. Box 3198 Pittsburgh, PA 15230-3198 Lazard Freres & Co. LLC 16.06% Employee Security Fund of the 30 Rockefeller Plaza 60th Floor New York, NY 10112-0002 Lazard Freres & Co. LLC 12.89% Mass Bay Transportation 30 Rockefeller Plaza 60th Floor New York, NY 10112-0002 Lazard Freres & Co. LLC 7.49% Steamfitters Local Union #420 30 Rockefeller Plaza 60th Fl. New York, NY 10112-0002 STRATEGIC YIELD PORTFOLIO Lazard Freres & Co. LLC 14.58% Mack Trucking Inc. Retirement Trust - Strategic Yield Attn: Mark Cherry 2100 Mack Blvd. Allentown, PA 18103-5622 HEP & Co. 9.17% MF MAC 9139-027 Calabasas, CA Mac & Co A/C-CLRF5053712 6.50% Mutual Fund Operations P.O. Box 3198 Pittsburgh, PA 15230-3198 Lazard Freres & Co. LLC DePauw University Attn: Thomas S. Dixon 313 South Locust Street Greencastle, IN 46135-1736 Percentage of Total Name and Address Open Shares Outstanding Equity Portfolio Connecticut General 83.97% Life Ins. Co. One Commercial Plaza 280 Trumbull Street Attn: Liz Pezda H-19-B P.O. Box 2975 Hartford, CT 06104 SMALL CAP PORTFOLIO Connecticut General 68.53% Life Ins Co. One Commercial Plaza 280 Trumbull St. Attn: Liz Pezda H-19-B P.O. Box 2975 Hartford, CT 06104 BANTAM VALUE PORTFOLIO Charles Schwab & Co. Inc. 13.36% Special Custody Account For Benefit of Customers Attn: Mutual Fund 101 Montgomery St. San Francisco, CA 94104 Wendel & Co #725000 6.85% The Bank of New York Mutual Fund/Reorg Dept. PO Box 1066 Wall Street Station New York, NY 10268-1066 GLOBAL EQUITY PORTFOLIO Cushion Trust Limited 27.26% 21 Moorfields London EC2P 2HT United Kingdom Lazard Freres & Co. LLC 18.90% Gaetana Enders 555 Park Avenue New York, NY 10021-8166 Trifid Securities Limited 5.66% PO Box 108 2-6 Church Street St. Helier Jersey Channel Islands JE4 8QD Lazard Freres & Co. LLC 5.53% Estate of H. Fred Baerwald Attn Jessica Bourgeois 229 Berkeley Place Brooklyn, NY 11217-3801 INTERNATIONAL EQUITY PORTFOLIO Connecticut General Life Insurance Co. 35.73% One Commercial Plaza 280 Trumbull St. Attn: Liz Pezda H-19-B P.O. Box 2975 Hartford, CT 06104-2975 Smith Barney 401K Advisor Gr Tr 6.72% Smith Barney Corporate Trust Co. DTD 01/01/1998 Pl Val Scvcs 2 Tower Center PO Box 1063 East Brunswick, NJ 08816-1063 EMERGING MARKETS PORTFOLIO Charles Schwab & Co. Inc. 16.27% Special Custody Account For Benefit of Customers Attn: Mutual Fund 101 Montgomery St. San Francisco, CA 94104 Resource Partners LLC 9.64% 225 Main Street Westport, CT 06880-3216 Saxon & Co FBO A/C 8.03% 10 01 042 0617829 52106N889 P.O. Box 7780-1888 Philadelphia, PA 19182-0001 Sax & Co FBO 7.94% A/C 10 01 042 0617730 52106N889 P.O. Box 7780-1888 Philadelphia, PA 19182-0001 PCM Managed Equity Fund I LP 7.86% 4200 Somerset Dr Ste 200 Prairie Village, KS 66208-5244 INTERNATIONAL SMALL CAP PORTFOLIO Thomas J. Kohout Trustee 12.12% Thomas J. Kohout Trustee Rev Trust U/A 12/16/77 Restated 10/09/98 1910 East Bay Tree Circle Lakeside Val Vista Estates Gilbert, AZ 85234-4938 Marsha Von Mueffling Crawford 9.79% 770 Park Ave. Apt. 6D New York, NY 10021-4153 Wendel & Co A/C 154948 8.11% The Bank of New York Mutual Fund Reorg Dept. P.O. Box 1066 Wall Street Station New York, NY 10268-1066 Lazard Freres and Co. LLC 5.34% Jeremy N. Rubenstein Linda Tang Rubenstein Tenants by the Entirety 5805 Rockmere Drive Bethesda, MD 20816-2445 BOND PORTFOLIO Lazard Freres and Co. LLC 11.63% SUNY Univ. Hospital @ Brooklyn Brooklyn Anesthesia Research PC Retirement Trust Attn: Ed Hahn 450 Clarkson Avenue Lazard Freres & Co. LLC 9.83% The Catholic Cemeteries of The Archdiocese of Washington Inc. Attn Jane S. Landon 13801 Georgia Avenue Silver Spring, MD 20906-5271 INTERNATIONAL FIXED-INCOME PORTFOLIO Lazard Freres & Co. LLC 13.29% Trust U/A DTD 10/30/96 Between Jane Engelhard Settlor & EG Beimfohr J. Bemberg S Craighead Mrs. Engelhard c/o Mrs. Simonton 97 Main St. Lazard Freres & Co. LLC 6.11% NationsBank NA-Madeira School Attn: Franklin B. Smith 8328 Georgetown Pike McLean, VA 22102-1203 STRATEGIC YIELD PORTFOLIO Lazard Freres & Co. LLC 5.46% North Ottawa Community Hospital Funded Depreciation Account Attn: Jim Davidson 1309 Sheldon Road Grand Haven, MI 49417-2488 MID CAP PORTFOLIO Connecticut General Life Ins. Co. 71.69% One Commercial Plaza 280 Trumbull Street Attn Liz Pezda H-19-B P.O. Box 2975 Hartford, CT 06104-2975 HIGH YIELD PORTFOLIO Lazard Freres & Co. LLC 60.43% Marvin Josephson 30 Rockefeller Plaza 60th Fl. New York, NY 10112-0002 Casey C. Sasner 7.60% Rick M. Sasner JT Ten 115 Monument Street Pacific Palisades, CA 90272-3856 Lazard Freres & Co. LLC 7.13% Mitchell G. Garren 30 Rockefeller Plaza 60th Fl. New York, NY 10112-0002 Lazard Freres & Co. LLC 5.59% Frances J. Brooks 30 Rockefeller Plaza 60th Fl. New York, NY 10112-0002 A shareholder who beneficially owns, directly or indirectly, more than 25% of the Fund's voting securities may be deemed a "control person" (as define d in the 1940 Act) of the Fund. Certain of the shareholders are investment management clients of the Investment Manager that have entered into agreements with the Investment Manager pursuant to which the Investment Manager has investment discretion and voting power over any assets held in the clients' accounts, including shares of the Portfolios. For purposes of the list above, the Fund considers the Investment Manager to be a beneficial owner of Portfolio shares held in management accounts on behalf of its investment management clients. Generally, all shares have equal voting rights and will be voted in the aggregate, and not by class, except where voting by Class is required by law or where the matter involve d affects only one Class. As used in this Statement of Additional Information, the vote of a majority of the outstanding voting securities means, with respect to the Fund or a Portfolio, the vote of the lesser of (i) 67% of the shares represented at a meeting if the holders of more than 50% of the outstanding shares of the Fund or Portfolio, as the case may be, are present in person or by proxy, or (ii) more than 50% of the outstanding shares of the Fund or Portfolio, as the case may be. Shareholders are entitled to on e vote for each full share held, and fractional votes for fractional shares held. Each share of the applicable Class of a Portfolio is entitled to such dividends and distributions out of the income earned on the assets belonging to that Portfolio as are declared in the discretion of the Fund's Board of Directors. In the event of the liquidation of a Portfolio, shares of each Class of the Portfolio are entitled to receive the assets attributable to such Class of that Portfolio that are available for distribution based upon the relative net assets of the applicable Class. Shareholders are not entitled to any preemptive rights. All shares, when issued, will be fully paid and non-assessable by the Fund. COUNSEL AND INDEPENDENT AUDITORS Legal matters in connection with the issuance of the shares of the Fund offered hereby will be passed upon by Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982. Anchin, Block & Anchin LLP, 1375 Broadway, New York, New York 10018, has been selected as the independent auditors for the Fund. ADDITIONAL INFORMATION The Fund's Registration Statement, including the Prospectus, the Statement of Additional Information and the exhibits filed therewith, may be examined at the office of the Commission in Washington, D.C. Statements contained in the Prospectus or this Statement of Additional Information as to the content of any contract or other document referred to herein or in the Prospectus are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. A special service is available to banks, brokers, investment advisers, trust companies and others who have a number of accounts in any Portfolio. In addition to the copy of the regular Statement of Account furnished to the registered holder after each transaction, a monthly summary of accounts can be provided. The monthly summary will show for each account the account number, the month-end share balance and the dividends and distributions paid during the month. All costs of this service will be borne by the Portfolio. For information on the special monthly summary of accounts, contact the Fund. APPENDIX Description of certain ratings. S&P BOND RATINGS AAA Bonds rated AAA have the highest rating assigned to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in small degree. A Bonds rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. BBB Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher rated categories. BB Bonds rated BB have less near-term vulnerability to default than other speculative grade bonds. However, they face major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payment. B Bonds rated B have a greater vulnerability to default but presently have the capacity to meet interest payments and principal repayments. Adverse business, financial or economic conditions would likely impair capacity or willingness to pay interest and repay principal. CCC Bonds rated CCC have a current identifiable vulnerability to default, and are dependent upon favorable business, financial and economic conditions to meet timely payments of interest and repayment of principal. In the event of adverse business, financial or economic conditions to meet timely payments of interest and repayment of principal. In the event of adverse business, financial or economic conditions, they are not likely to have the capacity to pay interest and repay principal. CC The rating CC is typically applied to bonds subordinated to senior debt which is assigned an actual or implied CCC rating. C The rating C is typically applied to bonds subordinated to senior debt which is assigned an actual or implied CCC- rating. D Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears. S&P's letter ratings may be modified by the additional of a plus or a minus sign, which is used to show relative standing within the major ratings categories, except in the AAA (Prime Grade) category. COMMERCIAL PAPER RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Issues assigned an A rating are regarded as having the greatest capacity for timely payment. Issues in this category are delineated with the numbers 1, 2 and 3 to indicate the relative degree of safety. A-1 This designation indicates the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted within a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated A-1. Moody's BOND RATINGS Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities of fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa Bond which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca Bonds which are rated Ca present obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's applies the numerical modifiers 1, 2 and 3 to show relative standing within the major rating categories, except in the Aaa category and in the categories below B. The modifier 1 indicates a rating for the security in the higher end of a rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of a rating category. COMMERCIAL PAPER RATINGS The rating Prime-1 (P-1) is the highest commercial paper rating assigned by Moody's. Issuers of P-1 paper must have a superior capacity for repayment of short-term promissory obligations, and ordinarily will be evidenced by leading market positions in well established industries, high rates of return on funds employed, conservative capitalization structures with moderate reliance on debt and ample asset protection, broad margins in earnings coverage of fixed financial charges and high internal cash generation, and well established access to a range of financial markets and assured sources of alternate liquidity. Issuers (or related supporting institutions) rated Prime-2 (P-2) have a strong capacity for repayment of short-term promissory obligations. This ordinarily will be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternative liquidity is maintained. LAZARDFunds ANNUAL REPORT DECEMBER 31, 1998 ================================================================================ THE LAZARD FUNDS, INC. - -------------------------------------------------------------------------------- BOARD OF DIRECTORS - ------------------ JOHN J. BURKE RETIRED VICE CHAIRMAN, MONTANA POWER COMPANY KENNETH S. DAVIDSON PRIVATE INVESTOR NORMAN EIG VICE CHAIRMAN, LAZARD FRERES & CO. LLC CARL FRISCHLING SENIOR PARTNER, KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL HERBERT W. GULLQUIST VICE CHAIRMAN, LAZARD FRERES & CO. LLC WILLIAM KATZ PRESIDENT AND CHIEF OPERATING OFFICER, BBDO NEW YORK LESTER Z. LIEBERMAN PRIVATE INVESTOR RICHARD REISS, JR. MANAGING PARTNER, GEORGICA ADVISERS, LLC JOHN RUTLEDGE PRESIDENT, RUTLEDGE AND COMPANY OFFICERS - -------- NORMAN EIG CHAIRMAN OF THE BOARD HERBERT W. GULLQUIST PRESIDENT WILLIAM G. BUTTERLY, III VICE PRESIDENT AND SECRETARY JAMES GIALLANZA TREASURER ================================================================================ THE LAZARD FUNDS, INC. - -------------------------------------------------------------------------------- TABLE OF CONTENTS Overview ............................................... 2 Growth Charts .......................................... 5 Performance Table ...................................... 11 Portfolio of Investments Lazard Equity Portfolio ............................. 14 Lazard Mid Cap Portfolio ............................ 17 Lazard Small Cap Portfolio .......................... 19 Lazard Bantam Value Portfolio ....................... 23 Lazard Global Equity Portfolio ...................... 25 Lazard International Equity Portfolio ............... 27 Lazard International Small Cap Portfolio ............ 29 Lazard Emerging Markets Portfolio ................... 32 Lazard Bond Portfolio ............................... 35 Lazard High Yield Portfolio ......................... 41 Lazard International Fixed-Income Portfolio ......... 45 Lazard Strategic Yield Portfolio .................... 54 Notes to Portfolios of Investments .................. 66 Statements of Assets and Liabilities .............................. 70 Operations .......................................... 72 Changes in Net Assets ............................... 74 Financial Highlights ................................... 80 Notes to Financial Highlights .......................... 92 Notes to Financial Statements .......................... 93 Report of Independent Auditors ......................... 99 Tax Information (unaudited) ............................ 100 ================================================================================ THE LAZARD FUNDS, INC. OVERVIEW - -------------------------------------------------------------------------------- The record-breaking merger and acquisition activity that began 1998 was briefly, if dramatically, interrupted by extreme volatility following the devaluation of the Russian ruble in late August. This devaluation led to the unraveling of the hedge fund industry, with highly sophisticated, highly leveraged players developing stunning losses. This crisis-within-a-crisis further upset the U.S. market, and the temporary loss of confidence was at least as perilous as the devaluation that inspired it. When the market finally regained momentum, it was partially due to the re-emergence of more merger and acquisition activity. While spring had brought the remarkable union of Chrysler and Daimler-Benz, few could have foreseen the unbelievable fourth quarter union of Deutsche Bank and Bankers Trust, nor the Herculean joining of Exxon and Mobil. Encouraged by these remarkable mergers, the Dow shot back up to 9000 and investors regained much of their lost confidence. As capital markets have once again asserted many of their fundamental strengths, analysts and consultants are scrambling to make sense of it all. What lessons are to be derived from the volatility? Have we truly averted a crisis, or merely postponed its arrival on our shores? And how do the latest mergers figure into the picture? The analyses have been diverse, with some analysts predicting a soft landing for the economy, while the economic Cassandras augur disaster. Despite the panicky headlines, it's our belief that 1998 didn't so much introduce risk into the general economy as much as it reminded investors of the risk that has always been inherent in financial markets. The real question this poses to investors is, how does one protect one's money? And what areas of the market will be able to maintain a reasonable degree of stability? EUROPE Throughout 1998, Europe prepared for the inception of its single currency, the Euro, with remarkable cross-border merger and acquisition activity. European Daimler-Benz's decision to reach across the Atlantic to "merge" with American car manufacturer Chrysler (the action more closely resembled an acquisition) set the pace for a large number of equally stunning corporate unions. All of this was only briefly interrupted by the currency crisis in Russia before European companies continued with an impressive show of corporate consolidations. Such unions are underpinned by what can only be described as a new global paradigm. Governments of industrialized countries have turned away from state-operated socialist programs and have begun to solve economic development problems by more aggressively undertaking capital, trade, labor and currency deregulation as well as by privatizing enterprises that have long been public. The result has been intense competition. Deregulated Europe is becoming less an aggregate of separate markets and more one, sprawling market in which all companies compete for both customers and capital. Moreover, with one European currency, the Euro, consumers may more easily compare prices with their neighbors. To attract capital, companies must generate competitive returns, not just relative to peers within ================================================================================ THE LAZARD FUNDS, INC. OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- their own country, but to industry peers across the globe as well. For example, a French investor today should buy the most promising company within the global automobile industry, not the most promising auto stock in France alone. Amidst the changing environment, the typical focus of bottom-up investing--corporate accounting, cash flow, and emerging competition-- will be crucial. JAPAN In 1998, Japan watched helplessly as countless economic reforms failed to effect real change. The early summer rescue of the Yen by the U.S. Treasury did little to reassure investors, and ultimately resulted in the Prime Minister's resignation in July. Japanese corporations continue to be characterized by lifetime employment, close links to the ruling party, minimal transparency, and murky accounting. However, by the fourth quarter it was clear that at least some of the newer reforms introduced by Hashimoto's successor, Obuchi, were slowly taking effect, and many analysts are watching Japan expectantly. With the valuations of Japanese corporations at record lows, and with reforms being taken more seriously, the hope is that Japan will be able to raise itself from its current malaise. In light of volatility in the U.S. markets, Japan is also being regarded as having the potential to outperform, particularly if the U.S. economy is damaged by crises in neighboring Latin America. In this uncertain but potentially rewarding environment, bottom-up stock picking with an emphasis on thorough research and one-on-one meetings with management will be crucial. UNITED STATES The volatility of late summer took many investors by surprise, as the Dow fell over 500 points in a single day following the devaluation of the ruble. One of the more stunning effects of the ruble's fall was the collapse of hedge fund management team Long-Term Capital Management, Inc. ("LTCM"). Requiring a $3.65 billion bailout by a consortium of investment banks, LTCM's collapse recalled, in its magnitude, the disastrous hubris displayed by the previous decade's similarly-fated financial risk-takers. The shock waves created by the hedge fund industry's downfall caused investors to seek security in large cap stocks, which, in turn, resulted in a rocky environment for small and mid capitalization stocks. Following the Dow's surging comeback after a shaky fourth quarter beginning, S&P 500 stocks continue to be the best performing asset class in the world, spurred further by low inflation, interest rate cuts from the Federal Reserve, strong economic growth, and the advantage of a decade of corporate restructuring. The most recent flurry of merger and acquisition activity has benefited small and mid cap stocks, since it is those undervalued stocks which tend to be taken over. In light of the continuing M&A phenomenon, a focus on thoroughly knowing undervalued small and mid cap companies will be beneficial. CONCLUSION Insofar as we watched the most elaborate investments collapse, while most of the more conservative investments regained their earnings for the year, the lesson would seem clear. That is, sometimes, the simplest things are the best constructed. In a turbulent environment, we place our faith in the plain logic of investing in undervalued companies that have strong management teams and real growth potential. Admittedly, our emphasis on researching and understanding individual companies (in an era when many investors are chasing internet companies based on projected earnings for the year 2010) might be considered old-fashioned. Indeed, it's not an elaborate plan--more like the investment process stripped down to its most basic level. Which is why, when the markets turn volatile, we don't have to move our clients' investments from company to company in search of a safer place to put the money. It's already there. ================================================================================ THE LAZARD FUNDS, INC. GROWTH CHARTS - -------------------------------------------------------------------------------- LAZARD EQUITY PORTFOLIO The Lazard Equity Portfolio seeks long-term capital appreciation through investing primarily in equity securities of relatively large U.S. companies that the Investment Manager believes are undervalued based on their return on total capital or equity. COMPARISON OF $10,000 INVESTMENT IN THE INSTITUTIONAL SHARES OF THE LAZARD EQUITY PORTFOLIO AND THE STANDARD & POOR'S 500 STOCK INDEX [TABLE BELOW REPRESENTS LINE CHART IN THE PRINTED REPORT] LEP S&P 500 Dec-88 10,000.00 10,000.00 Jan-89 10,629.84 10,732.30 Feb-89 10,591.09 10,464.85 Mar-89 10,726.74 10,709.00 Apr-89 11,221.20 11,265.01 May-89 11,736.56 11,720.79 Jun-89 11,561.53 11,654.33 Jul-89 12,389.38 12,706.60 Aug-89 12,643.02 12,955.02 Sep-89 12,584.49 12,902.42 0ct-89 12,174.51 12,602.82 Nov-89 12,272.38 12,859.80 Dec-89 12,364.65 13,168.56 Jan-90 11,613.15 12,284.42 Feb-90 11,843.61 12,442.65 Mar-90 12,134.19 12,772.38 Apr-90 11,703.23 12,453.71 May-90 12,547.79 13,668.07 Jun-90 12,497.52 13,575.81 Jul-90 12,487.37 13,532.23 Aug-90 11,357.65 12,309.05 Sep-90 10,752.45 11,709.97 Oct-90 10,771.77 11,660.08 Nov-90 11,480.44 12,413.79 Dec-90 11,780.05 12,759.64 Jan-91 12,250.02 13,315.32 Feb-91 13,159.32 14,267.63 Mar-91 13,302.36 14,613.20 Apr-91 13,281.46 14,647.83 May-91 13,701.63 15,279.74 Jun-91 13,076.50 14,579.77 Jul-91 13,691.56 15,259.34 Aug-91 14,266.75 15,620.83 Sep-91 14,071.60 15,359.49 Oct-91 14,236.08 15,565.92 Nov-91 13,485.73 14,938.77 Dec-91 15,023.46 16,647.32 Jan-92 15,181.73 16,337.18 Febo92 15,583.50 16,548.75 Mar-92 15,108.69 16,226.88 Apt-92 15,039.82 16,703.30 May-92 15,015.40 16,785.14 Jun-92 14,417.23 16,535.38 Jul-92 14,828.32 17,210.85 Aug-92 14,412.35 16,858.54 Sep-92 14,632.57 17,056.63 Oct-92 14,878.69 17,115.48 Nov-92 15,590.71 17,698.26 Dec-92 15,813.32 17,915.42 Jan-93 16,111.21 18,065.19 Feb-93 16,297.40 18,311.42 Mar-93 17,004.90 18,697.79 Apr-93 16,659.24 18,245.86 May-93 17,094.69 18,733.94 Jun-93 17,194.23 18,788.83 Jul-93 17,228.22 18,713.30 Aug-93 17,868.20 19,423.28 Sep-93 17,842.60 19,274.31 0ct-93 18,566.57 19,673.09 Nov-93 18,425.23 19,485.61 Dec-93 18,757.37 19,721.19 Jan-94 19,702.67 20,391.71 Feb-94 19,446.09 19,838.28 Mar-94 18,595.32 18,973.33 Apr-94 18,905.92 19,216.57 May-94 19,130.12 19,531.91 Jun-94 18,683.97 19,053.18 Jul-94 19,341.64 19,678.89 Aug-94 20,209.71 20,485.72 Sep-94 19,884.18 19,984.85 Oct-94 20,164.01 20,433.91 Nov-94 19,443.38 19,689.70 Dec-94 19,550.66 19,981.70 Jan-95 19,877.69 20,499.83 Feb-95 20,745.03 21,298.71 Mar-95 21,327.99 21,927.23 Apr-95 21,922.44 22,572.99 May-95 22,835.28 23,475.23 Jun-95 23,548.44 24,020.56 Jul-95 24,442.45 24,817.08 Aug-95 24,814.52 24,879.37 Sep-95 25,673.15 25,929.28 Oct-95 25,501.28 25,836.71 Nov-95 26,679.37 26,970.95 Dec-95 26,918.97 27,490.41 Jan-96 27,846.68 28,426.18 Feb-96 28,635.23 28,689.69 Mar-96 28,867.15 28,965.97 Apr-96 29,486.40 29,392.93 May-96 29.837.81 30,150.97 Jun-96 29.534.32 30,265.85 Jul-96 27,927.63 28928.7O Aug-96 28,872.97 29,538.81 Sep-96 29,914.45 31,201.26 0ct-96 30,631.84 32,061.79 Nov-96 32,698.73 34,485.34 Dec-96 32,278.93 33,802.18 Jan-97 33,822.41 35,914.14 Feb-97 34,225.06 36,195.71 Mar-97 32,950.01 34,708.43 Apr-97 33,939.85 36,780.52 May-97 36,323.78 39,019.72 Jun-97 37,516.40 40,767.80 Jul-97 40,327.58 44,011.70 Aug-97 38,918.12 41,546.16 Sep-97 40,609.47 43,821.64 Oct-97 38,286.00 42,358.00 Nov-97 39,577.99 44,318.75 Dec-97 40,389.22 45,079.71 Jan-98 40,328.61 45,578.29 Feb-98 43,219.33 48,865.39 Mar-98 45,766.40 51,367.79 Apr-98 46,110.06 51,884.55 May-98 44,897.36 50,992.14 Jun-98 45,710.00 53,063.44 Jul-98 44,530.68 52,495.66 Aug-98 37,481.47 44,895.34 Sep-98 38,845.80 47,775.37 0ct-98 42,998.42 51,663.81 Nov-98 45,621.32 54,796.70 Dec-98 47,379.56 57,957.93 LAZARD MID CAP PORTFOLIO The Lazard Mid Cap Portfolio seeks long-term capital appreciation through investing primarily in equity securities of medium size U.S. companies in the range of the Russell Midcap Index that the Investment Manager believes are undervalued based on their return on total capital or equity. COMPARISON OF $10,000 INVESTMENT IN THE INSTITUTIONAL SHARES OF THE LAZARD MID CAP PORTFOLIO AND THE RUSSELL MIDCAP INDEX [TABLE BELOW REPRESENTS LINE CHART IN THE PRINTED REPORT] Lazard Midcap Russell Midcap 11-4-97 $10000.00 $10000.00 Nov-97 $9990.00 $10033.30 Dec-97 $10274.67 $10309.21 Jan-98 $10284.68 $10115.40 Feb-98 $11145.91 $10906.42 Mar-98 $11656.64 $11423.39 Apr-98 $11696.70 $11451.95 May-98 $11115.87 $11097.51 Jun-98 $10915.78 $11251.21 Jul-98 $10174.60 $10714.64 Aug-98 $8674.86 $9000.83 Sep-98 $9095.59 $9583.37 Oct-98 $9536.73 $10236.86 Nov-98 $10128.01 $10721.57 Dec-98 $10650.11 $11350.39 PAST PERFORMANCE IS NOT INDICATIVE, NOR A GUARANTEE, OF FUTURE RESULTS. ================================================================================ THE LAZARD FUNDS, INC. GROWTH CHARTS (CONTINUED) - -------------------------------------------------------------------------------- LAZARD SMALL CAP PORTFOLIO The Lazard Small Cap Portfolio seeks long-term capital appreciation through investing primarily in equity securities of small U.S. companies in the range of the Russell 2000 Index that the Investment Manager believes are undervalued based on their return on total capital or equity. COMPARISON OF $10,000 INVESTMENT IN THE INSTITUTIONAL SHARES OF THE LAZARD SMALL CAP PORTFOLIO AND THE RUSSELL 2000 INDEX [TABLE BELOW REPRESENTS LINE CHART IN THE PRINTED REPORT] LSCP Russell 2000 10-30-91 10000 10000 Nov-91 9720 9537.2 Dec-91 10453.51 10300.37 Jan-92 11316.28 11135.73 Feb-92 11827.92 11460.78 Mar-92 11827.92 11072.95 Apr-92 11547.02 10684.29 May-92 11557.05 10826.39 Jun-92 10955.12 10317.65 Jul-92 11256.09 10676.30 Aug-92 10935.06 10374.37 Sep-92 11015.32 10613.29 Oct-92 11547.02 10948.25 Nov-92 12560.27 11786.66 Dec-92 13041.26 12196.96 Jan-93 13443.15 12609.46 Feb-93 13563.71 12318.69 Mar-93 14216.78 12718.30 Apr-93 13885.23 12368.68 May-93 14528.25 12915.74 Jun-93 14920.09 12995.95 Jul-93 15045.6 13175.42 Aug-93 15925.82 13744.34 Sep-93 16232.87 14132.20 Oct-93 16386.4 14496.11 Nov-93 16171.46 14023.83 Dec-93 16965.56 14503.02 Jan-94 17588.15 14957.40 Feb-94 17599.26 14903.10 Mar-94 16765.44 14118.16 Apr-94 16743.2 14201.88 May-94 16787.67 14042.11 Jun-94 16598.67 13568.33 Jul-94 16947.64 13791.39 Aug-94 17926.49 14559.57 Sep-94 17926.49 14510.21 Oct-94 17641.94 14451.59 Nov-94 16754.15 13867.6 Dec-94 17310.35 14238.84 Jan-95 17237.97 14059 Feb-95 17973.81 14644.28 Mar-95 18408.08 14895.28 Apr-95 18794.09 15226.25 May-95 19348.99 15487.99 Jun-95 20217.52 16291.51 Jul-95 21146.93 17229.9 Aug-95 21255.63 17586.39 Sep-95 21267.7 17900.48 Oct-95 20047.92 17099.97 Nov-95 20893.31 17818.34 Dec-95 21036.36 18288.39 Jan-96 21221.01 18268.64 Feb-96 22012.35 18838.07 Mar-96 22408.01 19221.43 Apr-96 23283.42 20249.2 May-96 24063.06 21047.22 Jun-96 23375.92 20183.02 Jul-96 21697.72 18420.23 Aug-96 23098.42 19489.71 Sep-96 23930.92 20251.37 Oct-96 24142.34 19939.3 Nov-96 25582.69 20760.8 Dec-96 26070.43 21304.94 Jan-97 26819.74 21730.61 Feb-97 26720.78 21203.64 Mar-97 25745.26 20203.04 Apr-97 26494.57 20259.41 May-97 29083.24 22513.27 Jun-97 30426.21 23478.19 Jul-97 31942.47 24570.63 Aug-97 32621.18 25132.8 Sep-97 34108.55 26972.27 Oct-97 32765.58 25787.38 Nov-97 32621.09 25620.54 Dec-97 33384.95 26068.89 Jan-98 33068.14 25657.53 Feb-98 35436.11 27554.65 Mar-98 36703.47 28691 Apr-98 36803.53 28849.66 May-98 34869.13 27295.82 Jun-98 33784.7 27353.14 Jul-98 31399.5 25138.9 Aug-98 25144.72 20257.43 Sep-98 25833.69 21842.78 Oct-98 27326.87 22733.52 Nov-98 28450.01 23924.53 Dec-98 29172.64 25404.98 LAZARD BANTAM VALUE PORTFOLIO The Lazard Bantam Value Portfolio seeks long-term capital appreciation through investing primarily in equity securities of small U.S. companies with market capitalizations under $500 million that the Investment Manager believes are undervalued based on their return on total capital or equity. COMPARISON OF $10,000 INVESTMENT IN THE INSTITUTIONAL SHARES OF THE LAZARD BANTAM VALUE PORTFOLIO AND THE RUSSELL 2000 INDEX [TABLE BELOW REPRESENTS LINE CHART IN THE PRINTED REPORT] LBVP Russell 2000 3-1-96 10000 10000 Mar-96 10630 10204 Apr-96 11450 10749.61 May-96 11880 11173.25 Jun-96 11770 10714.48 Jul-96 11160 9778.67 Aug-96 11930 10346.42 Sep-96 12210 10750.76 0ct-96 12730 10585.09 Nov-96 13310 11021.2 Dec-96 13329.42 11310.06 Jan-97 14082.31 11536.04 Feb-97 14050.5 11256.29 Mar-97 13520.29 10725.11 Apr-97 13265.79 10755.03 May-97 14979.59 11951.53 Jun-97 16012.29 12463.77 Jul-97 17131.96 13043.71 Aug-97 17849.41 13342.15 Sep-97 19284.32 14318.66 Oct-97 18490 13689.64 Nov-97 18121.17 13601.07 Dec-97 17853.1 13839.09 Jan-98 17204.8 13620.71 Feb-98 18813.08 14627.82 Mar-98 19897.73 15231.07 Apr-98 20022.4 15315.3 May-98 18700.87 14490.42 Jun-98 17853.72 14520.85 Jul-98 16507.55 13345.39 Aug-98 13202.74 10753.98 Sep-98 13745.37 11595.59 Oct-98 14376.28 12068.45 Nov-98 15550.83 12700.72 Dec-98 15385.37 13486.26 PAST PERFORMANCE IS NOT INDICATIVE, NOR A GUARANTEE, OF FUTURE RESULTS. ================================================================================ THE LAZARD FUNDS, INC. GROWTH CHARTS (CONTINUED) - -------------------------------------------------------------------------------- LAZARD GLOBAL EQUITY PORTFOLIO The Lazard Global Equity Portfolio seeks long-term capital appreciation through investing primarily in the equity securities of relatively large companies, both U.S. and non-U.S., that the Investment Manager believes are undervalued based on their return on total capital or equity. COMPARISON OF $10,000 INVESTMENT IN THE INSTITUTIONAL SHARES OF THE LAZARD GLOBAL EQUITY PORTFOLIO AND THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX [TABLE BELOW REPRESENTS LINE CHART IN THE PRINTED REPORT] LGEP MSCI World 1-4-96 10000 10000 Jan-96 10010 10117.88 Feb-96 10170 10177.37 Mar-96 10310 10344.59 Apr-96 10430 10585.72 May-96 10460 10592.71 Jun-96 10530 10644.19 Jul-96 10160 10265.89 Aug-96 10290 10381.79 Sep-96 10620 10786.17 0ct-96 10720 10859.3 Nov-96 11570 11465.68 Dec-96 11578.38 11279.93 Jan-97 11550 11413.71 Feb-97 11749.84 11542.8 Mar-97 11679.24 11312.29 Apr-97 11911.21 11679.94 May~97 12451.39 12398.73 Jun-97 13215.21 13014.94 Jul-97 13717.46 13612.2 Aug-97 12974.56 12699.5 Sep-97 13780.24 13387.31 0ct-97 12900 12680.55 Nov-97 13131.5 12902.79 Dec-97 13345.5 13057.88 Jan-98 13592.23 13419.61 Feb-98 14500.62 14325.19 Mar-98 15442.66 14927.9 Apr-98 15610.88 15071.53 May-98 15644.52 14880.4 Jun-98 15779.06 15231.57 Jul-98 15768.02 15204.87 Aug-98 13454.85 13174.98 Sep-98 13193.29 13405.72 0ct-98 14349.02 14615.29 Nov-98 15211.4 15482.17 Dec-98 15627.28 16236.2 LAZARD INTERNATIONAL EQUITY PORTFOLIO The Lazard International Equity Portfolio seeks long-term capital appreciation through investing primarily in the equity securities of non-U.S. companies that the Investment Manager believes are undervalued based on their return on total capital or equity. COMPARISON OF $10,000 INVESTMENT IN THE INSTITUTIONAL SHARES OF THE LAZARD INTERNATIONAL EQUITY PORTFOLIO AND THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST INDEX [TABLE BELOW REPRESENTS LINE CHART IN THE PRINTED REPORT] LIEP MSCI 10-29-91 10000 10000 Nov-91 9990 9533.13 Dec-91 10319.15 10025.6 Jan-92 10459.41 9811.65 Feb-92 10569.61 9460.46 Mar-92 10319.15 8835.87 Apr-92 10539.56 8877.43 May-92 11030.47 9471.63 Jun-92 10820.08 9022.68 Jul-92 10198.93 8791.76 Aug-92 10078.7 9343.19 Sep-92 9627.87 9158.69 Oct-92 9457.55 8678.28 Nov-92 9417.48 8759.94 Dec-92 9635.88 8805.25 Jan-93 9554.57 8804.12 Feb-93 9768.02 9070.12 Mar-93 10042.46 9860.73 Apr-93 10266.08 10796.54 May-93 10550.68 11024.56 Jun-93 10428.71 10852.56 Jul-93 10744.82 11232.45 Aug-93 11539.22 11838.81 Sep-93 11203.13 11572.33 Oct-93 11793.84 11928.97 Nov-93 11569.78 10886.26 Dec-93 12627.59 11672.32 Jan-94 13826.8 12659.16 Feb-94 13396.32 12624.09 Mar-94 12842.84 12080.36 Apr-94 13324.57 12592.92 May-94 13242.57 12520.62 Jun-94 12955.58 12697.56 Jul-94 13598.43 12819.68 Aug-94 14217.01 13123.18 Sep-94 13526.27 12709.8 Oct-94 13763.39 13133.04 Nov-94 12938.62 12501.86 Dec-94 12657.4 12580.13 Jan-95 12048.76 12096.8 Feb-95 12127.66 12062.08 Mar-95 12285.46 12814.39 Apr-95 12815.2 13296.34 May-95 12927.91 13137.85 Jun-95 13142.06 12907.41 Jul-95 13976.12 13711.03 Aug-95 13728.15 13187.95 Sep-95 14032.47 13445.51 0ct-95 13807.05 13084.09 Nov-95 13942.3 13448.09 Dec-95 14320.59 13989.92 Jan-96 14400.79 14047.42 Feb-96 14607 14094.9 Mar-96 14962.15 14394.27 Apr-96 15333.92 14812.71 May-96 15230.31 14540.16 Jun-96 15518.11 14622.02 Jul-96 15091.36 14194.62 Aug-96 15114.38 14225.71 Sep-96 15471.23 14603.68 Oct-96 15540.3 14454.29 Nov-96 16357.61 15029.42 Dec-96 16559.83 14836.14 Jan-97 16134.24 14316.88 Feb-97 16535.47 14551.1 Mar-97 16936.7 14603.78 Apr-97 16814.76 14681.32 May-97 17520.06 15636.64 Jun-97 18609.71 16499 Jul-97 19038.22 16765.95 Aug-97 17838.38 15513.87 Sep-97 19344.3 16382.96 Oct-97 18144.47 15123.68 Nov-97 18266.93 14969.51 Dec-97 18520.41 15100.08 Jan-98 18957.91 15790.15 Feb-98 20045 16803.32 Mar-98 21291.19 17320.73 Apr-98 21635.88 17457.83 May-98 22220.05 17373.09 Jun-98 21982.29 17505.12 Jul-98 22248.28 17682.59 Aug-98 19193.59 15491.91 Sep-98 18220.47 15016.96 0ct-98 19605.23 16582.33 Nov-98 20724.69 17431.87 Dec-98 21493.37 18119.39 PAST PERFORMANCE IS NOT INDICATIVE, NOR A GUARANTEE, OF FUTURE RESULTS. ================================================================================ THE LAZARD FUNDS, INC. GROWTH CHARTS (CONTINUED) - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL SMALL CAP PORTFOLIO The Lazard International Small Cap Portfolio seeks long-term capital appreciation through investing primarily in equity securities of relatively small, non-U.S. companies in the range of the Morgan Stanley Capital International Europe, Australia and Far East Small Cap Index that the Investment Manager believes are undervalued based on their return on total capital or equity. The Lazard International Small Cap Portfolio operates similarly to the Lazard Small Cap Portfolio, except that this Portfolio, by investing primarily in the equity securities of non-U.S. issuers, considers additional investment determinations including, among other items, the effect of currency fluctuations and the political and economic factors of other jurisdictions. COMPARISON OF $10,000 INVESTMENT IN THE INSTITUTIONAL SHARES OF THE LAZARD INTERNATIONAL SMALL CAP PORTFOLIO, THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST SMALL CAP INDEX AND THE SALOMON EMI INDEX EX-US [TABLE BELOW REPRESENTS LINE CHART IN THE PRINTED REPORT] LISCP Salomon EMI Ex-US MSCI Small Cap 12-1-93 10000 10000 10000 Dec-93 10872.5 10644 10854.3 Jan-94 12082.8 11707.3 12056.9 Feb-94 11882.7 11789.3 12286.4 Mar-94 11162.6 11595.9 12009.5 Apr-94 11042.6 11943.8 12515.7 May-94 10992.5 11773 12357.5 Jun-94 10712.5 12020.3 12610.7 Jul-94 10912.5 12157.3 12634.4 Aug-94 11352.6 12286.2 12761 Sep-94 11002.5 11934.8 12302.1 Oct-94 11092.6 12150.8 12476.1 Nov-94 10612.5 11392.6 11605.9 Dec-94 10382.4 11545.2 11756.3 Jan-95 10072.3 11170 11305.3 Feb-95 10012.3 11006.9 11155 Mar-95 9782.3 11474.7 11384.4 Apr-95 10002.3 11819 11637.6 May~95 10272.4 11612.1 11368.6 Jun-95 10362.4 11469.3 11115.4 Jul-95 10752.5 12138 11827.5 Aug-95 10652.5 11830.9 11495.1 Sep-95 10962.5 11923.2 11463.5 Oct-95 10532.4 11579.8 11004.7 Nov-95 10502.4 11702.5 11139.1 Dec-95 10567.7 12150.7 11519 Jan-96 10738.7 12367 11867 Feb-96 10829.1 12559.9 11977.8 Mar-96 10969.9 12848.8 12215.1 Apr-96 11412.3 13524.7 12856 May-96 11492.8 13415.1 12594.8 Jun-96 11533 13416.5 12579.1 Jul-96 11130.8 12909.3 11882.8 Aug-96 11482.7 13039.7 11922.4 Sep-96 11553.1 13112.7 11977.8 Oct-96 11643.6 13061.6 11764.2 Nov-96 12186.6 13275.8 11914.4 Dec-96 12221.4 13031.5 11503.1 Jan-97 12385.4 12750 11271 Feb-97 12621 12964.2 11481.2 Mar-97 12426.3 12791.8 11191.5 Apr-97 11985.8 12601.2 10818.4 May-97 12556.1 13409 11638 Jun-97 13124 13712 11847.6 Jul-97 13010.4 13504.9 11430.7 Aug-97 12618 12928.3 10701.2 Sep-97 13351.2 13158.4 10475.4 Oct-97 12711 12638.7 9895.2 Nov-97 12308.2 12075 9205.2 Dec-97 12254.2 11808.1 8668.5 Jan-98 12526.7 12300.5 9210.4 Feb-98 13679.8 13218.1 10035.7 Mar-98 14780.5 13839.4 10257.6 Apr-98 15440.9 13944.6 10237.9 May-98 15786.8 14203.9 10271.2 Jun-98 15314.8 13789.2 9862.5 Jul-98 15115.7 13694 9727.8 Aug-98 13341.1 12015.1 8433.4 Sep-98 12315.2 11702.7 8045.6 Oct-98 12657.5 12529 8690.1 Nov-98 12753.7 12929.9 9105.3 Dec-98 13179.7 13242.8 9140.2 LAZARD EMERGING MARKETS PORTFOLIO The Lazard Emerging Markets Portfolio seeks long-term capital appreciation through investing primarily in equity securities of non-U.S. issuers who are located, or doing significant business, in emerging market countries. Emerging market countries include countries where political and economic trends have recently produced, or are producing, a more stable economy, or countries that have recently developed, or are developing, financial markets and investment liquidity. The Lazard Emerging Markets Portfolio seeks securities of issuers whose potential is significantly enhanced by their relationship to the emerging markets country that the Investment Manager believes are undervalued based on their return on total capital or equity. COMPARISON OF $10,000 INVESTMENT IN THE INSTITUTIONAL SHARES OF THE LAZARD EMERGING MARKETS PORTFOLIO, THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE INDEX AND THE INTERNATIONAL FINANCE CORP. INVESTABLE TOTAL RETURN INDEX LEMP MSCI IFC Emerging 7-15-94 10000 10000 10000 Jul-94 10210 10280 10325 Aug-94 11300 11555.75 11652.28 Sep-94 11660 11687.48 11941.49 0ct-94 11580 11477.11 11548.85 Nov-94 11320 10880.3 11113.69 Dec-94 9860 10006.61 9929.64 Jan-95 8640 8941.91 8602.34 Feb-95 8420 8712.99 8491.12 Mar-95 8400 8768.76 8469.04 Apr-95 8650 9162.48 8824.48 May-95 9160 9649.92 9154.78 Jun-95 9140 9678.87 9209.71 Jul-95 9490 9896.16 9502.77 Aug-95 9370 9663.01 9248.09 Sep-95 9460 9617.11 9177.99 0ct-95 9040 9248.96 8831.71 Nov-95 8920 9084.05 8787.55 Dec-95 9280.04 9486.93 9093.27 Jan-96 10163.86 10161.26 9855.74 Feb-96 10244.2 9999.7 9636.94 Mar-96 10244.2 10077.6 9777.64 Apr-96 10897.53 10480.5 10171.97 May-96 11269.15 10433.65 10082.56 Jun-96 11168.71 10498.76 10202.34 Jul-96 10676.56 9781.27 9532.05 Aug-96 10867.39 10031.67 9827.64 Sep-96 11168.71 10118.55 9972.49 0ct-96 11048.18 9848.69 9758.39 Nov-96 11369.58 10013.75 9902.71 Dec-96 11472.68 10059.01 9946.58 Jan-97 12240.26 10745.14 10648.61 Feb-97 12762.21 11205.35 11170.18 Mar-97 12639.4 10910.99 10890.36 Apr-97 12772.44 10930.3 10705.46 May-97 13189.13 11243.12 11069.45 Jun-97 14164.56 11844.86 11547.42 Jul-97 14143.81 12021.7 11658.91 Aug-97 12597.64 10491.94 10170.36 Sep-97 13178.75 10782.65 10501.52 0ct-97 10770 9013.36 8778.4 Nov-97 10252.45 8684.48 8369.69 Dec-97 10343.93 8893.76 8480.36 Jan-98 9781.73 8196.22 7924.29 Feb-98 10624.99 9051.71 8733.42 Mar-98 11243.37 9444.52 9075.61 Apr-98 11175.91 9341.64 9,099.O7 May-98 9837.95 8061.45 7964.29 Jun-98 9276.2 7215.84 7147.8 Jul-98 9535.01 7444.62 7433.12 Aug-98 6649.72 5292.08 5343.19 Sep-98 7088.6 5627.79 5600.97 Oct-98 7684.75 6220.4 6244.51 Nov-98 8247.27 6737.74 6714.72 Dec-98 7914.91 6640.1 6612.54 PAST PERFORMANCE IS NOT INDICATIVE, NOR A GUARANTEE, OF FUTURE RESULTS. ================================================================================ THE LAZARD FUNDS, INC. GROWTH CHARTS (CONTINUED) - -------------------------------------------------------------------------------- LAZARD BOND PORTFOLIO The Lazard Bond Portfolio seeks to build and preserve capital through investing in a range of bonds, including obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, mortgage-backed securities, asset-backed securities, municipal securities and corporate fixed-income securities. COMPARISON OF $10,000 INVESTMENT IN THE INSTITUTIONAL SHARES OF THE LAZARD BOND PORTFOLIO AND THE LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX LBP Lehman Int. G/C 11-12-91 10000.00 10000.00 Nov-91 10103.50 10114.80 Dec-91 10392.20 10361.90 Jan-92 10277.70 10268.00 Feb-92 10304.8 10308.60 Mar-92 10242.60 10268.00 Apr-92 10323.30 10358.30 May-92 10467.00 10518.80 Jun-92 10599.70 10674.60 Jul-92 10810.90 10886.80 Aug-92 10912.90 10995.70 Sep-92 11037.20 11145.00 0ct-92 10891.40 11000.40 Nov-92 10843.60 10958.60 Dec-92 10983.30 11105.30 Jan-93 11180.90 11321.30 Feb-93 11360.50 11499.80 Mar-93 11383.20 11545.50 Apr-93 11464.60 11638.50 May-93 11409.80 11612.60 Jun-93 11626.00 11794.90 Jul-93 11713.30 11823.80 Aug-93 11912.00 12011.30 Sep-93 11901.70 12061.10 Oct-93 11939.30 12093.40 Nov-93 11903.30 12026.00 Dec-93 11926.30 12081.10 Jan-94 12117.80 12215.30 Feb-94 11910.10 12034.60 Mar-94 11640.60 11836.00 Apr-94 11494.60 11755.50 May-94 11441.80 11763.30 Jun-94 11434.40 11765.00 Jul-94 11635.30 11934.30 Aug-94 11648.20 11971.60 Sep-94 11396.70 11861.50 0ct-94 11405.80 11859.90 Nov-94 11369.80 11806.00 Dec-94 11421.20 11847.80 Jan-95 11608.40 12047.50 Feb-95 11841.20 12297.40 Mar-95 11910.40 12367.70 Apr-95 12070.80 12520.40 May-95 12550.10 12899.00 Jun-95 12643.00 12985.40 Jul-95 12573.30 12987.20 Aug-95 12703.90 13105.40 Sep-95 12843.20 13200.40 0ct-95 13022.20 13347.50 Nov-95 13167.20 13522.90 Dec-95 13271.50 13664.60 Jan-96 13387.20 13782.50 Feb-96 13239.00 13620.70 Mar-96 13151.70 13550.50 Apr-96 13119.80 13502.60 May-96 13108.10 13492.40 Jun-96 13222.80 13635.80 Jul-96 13262.50 13676.30 Aug-96 13303.60 13687.10 Sep-96 13504.50 13877.80 0ct-96 13713.00 14123.00 Nov-96 13916.30 14309.20 Dec-96 13850.60 14217.50 Jan-97 13949.50 14272.80 Feb-97 13984.30 14300.10 Mar-97 13876.20 14201.40 Apr-97 14048.20 14368.20 May-97 14187.40 14487.50 Jun-97 14318.80 14619.70 Jul-97 14578.10 14917.20 Aug-97 14531.80 14842.20 Sep-97 14717.40 15014.80 0ct-97 14865.80 15181.10 Nov-97 14894.50 15214.70 Dec-97 15036.60 15336.30 Jan-98 15228.00 15537.20 Feb-98 15223.10 15525.30 Mar-98 15233.20 15575.10 Apr-98 15303.50 15653.30 May-98 15404.70 15768.00 Jun-98 15504.80 15868.80 Jul-98 15543.60 15924.60 Aug-98 15627.50 16174.60 Sep-98 15869.70 16580.60 Oct-98 15719.00 16564.20 Nov-98 15807.00 16562.90 Dec-98 15905.00 16629.20 LAZARD HIGH YIELD PORTFOLIO The Lazard High Yield Portfolio seeks maximum total return, from a combination of capital appreciation and current income, by investing primarily in U.S., high-yielding, fixed-income securities that are rated below investment grade. COMPARISON OF $10,000 INVESTMENT IN THE INSTITUTIONAL SHARES OF THE LAZARD HIGH YIELD PORTFOLIO AND THE MERRILL LYNCH HIGH YIELD MASTER II INDEX LHYP Merrill Lynch High Yield 1-2-98 10000 10000 Jan-98 10222.27 10159.4 Feb-98 10473.66 10200.55 Mar-98 10715.86 10297.45 Apr-98 10848.05 10341.63 May-98 10849.67 10403.78 Jun-98 10878.96 10457.57 Jul-98 10969.26 10524.18 Aug-98 10353.88 9992.92 Sep-98 10147.84 10018.9 Oct-98 9801.8 9805 Nov-98 10227.2 10313.68 Dec-98 10289.58 10295.22 PAST PERFORMANCE IS NOT INDICATIVE, NOR A GUARANTEE, OF FUTURE RESULTS. ================================================================================ THE LAZARD FUNDS, INC. GROWTH CHARTS (CONTINUED) - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO The Lazard International Fixed-Income Portfolio seeks high total return from a combination of current income and capital appreciation. COMPARISON OF $10,000 INVESTMENT IN THE INSTITUTIONAL SHARES OF THE LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO AND THE SALOMON WORLD GOVERNMENT BOND INDEX EX-US LIFIP SWGBI Ex-US 11-8-91 10000 10000 Nov-91 10036.5 10156 Dec-91 10394.5 10684.1 Jan-92 10093 10495 Feb-92 10106.3 10436.2 Mar-92 9966.7 10325.6 Apr-92 10027.9 10398.9 May-92 10311.9 10718.2 Jun-92 10507 11018.3 Jul-92 10664.4 11275 Aug-92 10974.1 11590.7 Sep-92 10958.8 11706.6 0ct-92 10712.4 11388.2 Nov-92 10536 11207.1 Dec-92 10606 11274.4 Jan-93 10780.4 11428.8 Feb-93 10985.4 11656.3 Mar-93 11184.5 11945.3 Apt-93 11550.9 12303.7 May-93 11746.6 12527.6 Jun-93 11625.3 12293.3 Jul-93 11657.8 12302 Aug-93 12045.5 12739.9 Sep-93 12228.8 12955.2 0ct-93 12212.1 12895.6 Nov-93 12132.2 12836.3 Dec-93 12267.5 12978.8 Jan-94 12353.8 13034.6 Feb-94 12323.5 13071.1 Mar-94 12412.5 13230.5 Apr-94 12389.6 13316.5 May-94 12309.3 13136.8 Jun-94 12613.8 13454.7 Jul-94 12603.2 13489.7 Aug-94 12505.1 13411.4 Sep-94 12749 13677 0ct-94 13068.7 14029.8 Nov-94 12838.6 13747.8 Dec-94 12779.1 13754.7 Jan-95 12966.2 14054.6 Feb-95 13374.6 14452.3 Mar-95 14465.5 15740.2 Apr-95 14872.2 16077.1 May-95 15226.3 16428.3 Jun-95 15311.4 16509.9 Jul-95 15316 16597.4 Aug-95 14508.6 15648.4 Sep-95 14894.1 16110 0ct-95 14998.8 16161.5 Nov-95 15108.8 16302.9 Dec-95 15255.6 16444.6 Jan-96 14986.2 16081.1 Feb-96 15010.8 16127.2 Mar-96 15014.5 16166.9 Apr-96 15035.6 16134.5 May-96 15090.4 16143.4 Jun-96 15176.4 16233.8 Jul-96 15569.4 16681.9 Aug-96 15659.9 16793.6 Sep-96 15684.6 16761.7 Oct-96 15935.7 17045 Nov-96 16132.2 17240.3 Dec-96 16097.2 17118.3 Jan-97 15456.4 16422.6 Feb-97 15337.2 16232.1 Mar-97 15190.8 16128.2 Apr-97 14886.4 15800.8 May-97 15387 16382.3 Jun-97 15580.3 16583.8 Jul-97 15203.7 16151 Aug-97 15175 16223.6 Sep-97 15550 16617.9 0ct-97 15729 16990.1 Nov-97 15405.9 16555.2 Dec-97 15199.7 16388 Jan-98 15267.3 16499.4 Feb-98 15514.1 16732 Mar-98 15269.2 16456 Apr-98 15603.6 16818 May-98 15492 16791.1 Jun-98 15459.5 16730.6 Jul-98 15507.4 16750.7 Aug-98 15443.8 17209.7 Sep-98 16339.5 18338.6 0ct-98 16949 19165.7 Nov-98 16740.5 18775.2 Dec-98 17205.9 19304 LAZARD STRATEGIC YIELD PORTFOLIO The Lazard Strategic Yield Portfolio seeks total return from a combination of current income and capital appreciation. The Lazard Strategic Yield Portfolio may invest up to 50% of its total assets in non-U.S., fixed-income securities. Many of the high-yielding securities in which the Lazard Strategic Yield Portfolio invests are rated in the lower rating categories (i.e., below investment grade) by the nationally recognized securities rating services. These securities, which are often referred to as "junk bonds", are subject to greater risk of loss of principal and interest than higher rated securities and are considered to be predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. COMPARISON OF $10,000 INVESTMENT IN THE INSTITUTIONAL SHARES OF THE LAZARD STRATEGIC YIELD PORTFOLIO AND THE ONE MONTH LIBOR USD FIXED INDEX LSYP 30 Day Libor Oct 1, 91 10000 10000 0ct-91 10359.7 10041.8 Nov-91 10493.2 10084.2 Dec-91 10212.9 10119.7 Jan-92 10133.8 10154.3 Feb-92 10298.7 10189.6 Mar-92 10421.4 10225 Apr-92 10420.1 10257.9 May-92 10536.4 10291.5 Jun-92 10640.3 10324.6 Jul-92 10841.5 10353.1 Aug-92 10955.8 10382.7 Sep-92 11071.4 10409.8 0ct-92 10596.5 10437.6 Nov-92 10594 10473.9 Dec-92 10821.1 10502.3 Jan-93 11106.5 10529.2 Feb-93 11322.1 10556.8 Mar-93 11506 10584.3 Apr-93 11516.1 10611.5 May-93 11617.2 10639.8 Jun-93 11928 10667.6 Jul-93 12086 10695.4 Aug-93 12184.6 10723.4 Sep-93 12172.4 10751.5 0ct-93 12354.4 10779.6 Nov-93 12391.5 10811.1 Dec-93 12508.8 10840 Jan-94 12759.9 10867.8 Feb-94 12574.3 10899.6 Mar-94 12322 10932.5 Apr-94 12151.3 10968.3 May-94 12146.9 11007.6 Jun-94 12057 11048.6 Jul-94 12191.7 11089.2 Aug-94 12357.7 11133.3 Sep-94 12288.5 11179.1 Oct-94 12258.6 11225.2 Nov-94 12315.9 11280.3 Dec-94 12216.5 11335.2 Jan-95 12206.5 11391.2 Feb-95 12267.8 11447.8 Mar-95 12329.6 11504.7 Apr-95 12613.8 11561.3 May-95 12959.5 11618.1 Jun-95 13033.5 11675.8 Jul-95 13135.4 11731.6 Aug-95 13276.8 11787.6 Sep-95 13399.8 11843.8 0ct-95 13492.7 11899.9 Nov-95 13663.8 11957.6 Dec-95 13873.3 12012.9 Jan-96 14155.6 12066 Feb-96 14102.5 12118.2 Mar-96 14205.9 12171.8 Apr-96 14340.3 12225 May-96 14478.1 12279.1 Jun-96 14643 12333.7 Jul-96 14732.3 12388.2 Aug-96 14891.4 12443 Sep-96 15216.8 12498 0ct-96 15387 12552.6 Nov-96 15619.5 12609.4 Dec-96 15780.6 12665.8 Jan-97 15977.1 12721.8 Feb-97 16135.3 12778.1 Mar-97 16052.2 12837.1 Apr-97 16140.6 12896.4 May-97 16338.9 12956 Jun-97 16499.2 13015.8 Jul-97 16611.4 13075.3 Aug-97 16526.9 13135.4 Sep-97 16702.1 13195.8 0ct-97 16487.4 13256.1 Nov-97 16582.4 13320.3 Dec-97 16618.3 13382.2 Jan-98 16761.2 13443.4 Feb-98 16926.1 13505.5 Mar-98 17145.9 13567.9 Apr-98 17241.6 13630.2 May-98 17234.2 13692.9 Jun-98 17199.7 13755.8 Jul-98 17423.3 13819 Aug-98 16550.4 13882.5 Sep-98 16550.4 13942.9 0ct-98 16326.3 14002.5 Nov-98 16644.7 14066.5 Dec-98 16742.1 14124.4 PAST PERFORMANCE IS NOT INDICATIVE, NOR A GUARANTEE, OF FUTURE RESULTS. ================================================================================ THE LAZARD FUNDS, INC. PERFORMANCE TABLE - --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 1998 ---------------------------------------------------------------- INSTITUTIONAL SHARES --------------------------------------------------------------- ONE THREE FIVE TEN SINCE YEAR YEAR YEAR YEAR INCEPTION* ------------- ------------- ----------- ----------- ----------- Lazard Equity Portfolio 17.31% 20.74% 20.36% 16.83% 14.98% Standard & Poor's 500 Stock Index 28.57% 28.23% 24.06% 19.21% 16.50% Lazard Mid Cap Portfolio 3.65% -- -- -- 5.58% Russell Midcap Index 10.10% -- -- -- 11.58% Lazard Small Cap Portfolio (12.62%) 11.52% 11.45% -- 16.11% Russell 2000 Index (2.55%) 11.58% 11.86% -- 13.89% Lazard Bantam Value Portfolio (13.82%) -- -- -- 16.39% Russell 2000 Index (2.55%) -- -- -- 11.16% Lazard Global Equity Portfolio 17.10% -- -- -- 16.09% MSCI World Index 24.34% -- -- -- 17.57% Lazard International Equity Portfolio 16.04% 14.49% 11.22% -- 11.26% MSCI EAFE Index 20.00% 9.00% 9.19% -- 8.65% Lazard International Small Cap Portfolio 7.55% 7.64% 3.94% -- 5.58% MSCI EAFE Small Cap Index 5.44% (7.42%) (3.38%) -- (1.75%) Salomon EMI Index Ex-US 12.15% 2.91% 4.47% 5.68% Lazard Emerging Markets Portfolio (23.49%) (5.17% -- -- (5.10%) MSCI Emerging Markets Free Index (25.34%) (11.22%) -- -- (8.70%) IFC Investable Total Return Index (22.02%) (10.07%) (8.85%) Lazard Bond Portfolio 5.77% 6.22% 5.93% -- 6.69% Lehman Intermediate Gov't/Corp. Bond Index 8.43% 6.76% 6.60% -- 7.35% Lazard High Yield Portfolio -- -- -- -- -- Merrill Lynch High Yield Master II Index -- -- -- -- -- Lazard International Fixed-Income Portfolio+ 13.20% 4.09% 7.00% -- 7.86% Salomon World Government Bond Index Ex-US+ 17.79% 5.49% 8.26% -- 9.61% Lazard Strategic Yield Portfolio 0.75% 6.47% 6.00% -- 7.36% One Month LIBOR USD Fixed Index 5.54% 5.55% 5.44% -- 4.88%
NOTES TO PERFORMANCE TABLE * Performance is measured for Lazard Equity Portfolio from: June 1, 1987-Institutional, February 5, 1997--Open; Lazard Mid Cap Portfolio from: November 4, 1997--Institutional, November 4, 1997--Open; Lazard Small Cap Portfolio from: October 30, 1991--Institutional, January 30, 1997--Open; Lazard Bantam Value Portfolio from: March 1, 1996--Institutional, January 23, 1997-- Open; Lazard Global Equity Portfolio from: January 4, 1996--Institutional, January 30, 1997--Open; Lazard International Equity Portfolio from: October 29, 1991--Institutional, January 23, 1997--Open; Lazard International Small Cap Portfolio from: December 1, 1993--Institutional, February 13, 1997--Open; Lazard Emerging Markets Portfolio from: July 15, 1994--Institutional, January 8, 1997--Open; Lazard Bond Portfolio from: November 12, 1991--Institutional, March 5, 1997--Open; Lazard High Yield Portfolio from: January 2, 1998--Institutional, February 24, 1998--Open; Lazard International Fixed-Income Portfolio from: November 8, 1991--Institutional, January 8, 1997--Open; Lazard Strategic Yield Portfolio from: October 1, 1991--Institutional, January 23, 1997--Open. The performance for the relevant index is for the comparable period. Portfolio returns are net of fees and assume reinvestment of all dividends and distributions, if any. Certain expenses of a Portfolio may have been reimbursed by the Investment Manager and/or the Administrator, without such waiver/reimbursement of expenses the Portfolio's total return would have been lower. + Effective January 1, 1993, the Portfolio is measured by the index "excluding U.S." Performance of the index "Since Inception" is a blended return of the index "including U.S." and the index "excluding U.S." for the applicable periods. See additional footnotes on next page. ================================================================================ THE LAZARD FUNDS, INC. PERFORMANCE TABLE (CONTINUED) - --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 1998 --------------------------------------------------------------------------------- INSTITUTIONAL SHARES --------------------------------------------------------------------------------- ONE THREE FIVE TEN SINCE YTD YEAR YEAR YEAR YEAR INCEPTION* ------------- ------------- ------------- ------------ ------------ ------------- Lazard Equity Portfolio 17.31% 17.31% 76.01% 152.59% 373.80% 403.93% Standard & Poor's 500 Stock Index 28.57% 28.57% 110.83% 193.89% 479.58% 486.34% Lazard Mid Cap Portfolio 3.65% 3.65% -- -- -- 6.50% Russell Midcap Index 10.10% 10.10% -- -- -- 13.51% Lazard Small Cap Portfolio (12.62%) (12.62%) 38.68% 71.95% -- 191.73% Russell 2000 Index (2.55%) (2.55%) 38.91% 75.17% -- 154.05% Lazard Bantam Value Portfolio (13.82%) (13.82%) -- -- -- 53.85% Russell 2000 Index (2.55%) (2.55%) -- -- -- 34.86% Lazard Global Equity Portfolio 17.10% 17.10% -- -- -- 56.27% MSCI World Index 24.34% 24.34% -- -- -- 62.36% Lazard International Equity Portfolio 16.04% 16.04% 50.09% 70.21% -- 114.93% MSCI EAFE Index 20.00% 20.00% 29.52% 55.24% -- 81.20% Lazard International Small Cap Portfolio 7.55% 7.55% 24.72% 21.33% -- 31.80% MSCI EAFE Small Cap Index 5.44% 5.44% (20.65%) (15.79%) -- (8.60%) Salomon EMI Index Ex-US 12.15% 12.15% 8.99% 24.42% -- 32.43% Lazard Emerging Markets Portfolio (23.49%) (23.49%) (14.72%) -- -- (20.86%) MSCI Emerging Markets Free Index (25.34%) (25.34%) (30.01%) -- -- (33.60%) IFC Investable Total Return Index (22.02%) (22.02%) (27.28%) -- -- (33.87%) Lazard Bond Portfolio 5.77% 5.77% 19.85% 33.36% -- 59.05% Lehman Intermediate Gov't/Corp. Bond Index 8.43% 8.43% 21.70% 37.65% -- 66.30% Lazard High Yield Portfolio 2.90% -- -- -- -- 2.90% Merrill Lynch High Yield Master II Index 2.95% -- -- -- -- 2.95% Lazard International Fixed-Income Portfolio+ 13.20% 13.20% 12.79% 40.26% -- 72.06% Salomon World Government Bond Index Ex-US+ 17.79% 17.79% 17.40% 48.74% -- 93.04% Lazard Strategic Yield Portfolio 0.75% 0.75% 20.68% 33.84% -- 67.42% One Month LIBOR USD Fixed Index 5.54% 5.54% 17.57% 30.30% -- 41.24%
Past performance is not indicative, nor a guarantee, of future results; the investment return and principal value of each Portfolio of The Lazard Funds, Inc. will fluctuate, so that an investor's shares in a Portfolio, when redeemed, may be worth more or less than their original cost. Within the longer periods illustrated there may have been short-term fluctuations, counter to the overall trend of investment results, and no single period of any length may be taken as typical of what may be expected in future periods. The performance data of the indices have been prepared from sources and data that the Investment Manager believes to be reliable, but no representation is made as to their accuracy. These indices are unmanaged and have no fees or costs. The S&P 500 Stock Index is an index of common stocks and is a registered trademark of The McGraw-Hill Companies. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell 2000 Index is an index of common stocks and is a registered trademark of the Frank Russell Company. The Morgan Stanley Capital International (MSCI) World Index is an arithmetic, market value-weighted average return net of dividends taxation, which is derived from equities of Europe, Australia and Far East (EAFE) Index countries and equities from Canada and the United States. See additional footnotes on next page. ================================================================================ THE LAZARD FUNDS, INC. PERFORMANCE TABLE (CONTINUED) - --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS PERIODS ENDED DECEMBER 31, 1998 PERIOD ENDED DECEMBER 31, 1998 -------------------------------------------------------------------- OPEN SHARES -------------------------------------------------------------------- ONE SINCE ONE SINCE YEAR INCEPTION* YTD YEAR INCEPTION* ------------- ------------ ------------- ------------- ------------- Lazard Equity Portfolio 16.98% 18.95% 16.98% 16.98% 39.08% Standard & Poor's 500 Stock Index 28.57% 31.00% 28.57% 28.57% 67.09% Lazard Mid Cap Portfolio 3.42% 5.34% 3.42% 3.42% 6.22% Russell Midcap Index 10.10% 11.58% 10.10% 10.10% 13.50% Lazard Small Cap Portfolio (12.86%) 4.82% (12.86%) (12.86%) 9.44% Russell 2000 Index (2.55%) 8.49% (2.55%) (2.55%) 16.91% Lazard Bantam Value Portfolio (14.02%) 4.96% (14.02%) (14.02%) 9.84% Russell 2000 Index (2.55%) 8.22% (2.55%) (2.55%) 16.57% Lazard Global Equity Portfolio 16.82% 17.52% 16.82% 16.82% 36.34% MSCI World Index 24.34% 20.19% 24.34% 24.34% 42.25% Lazard International Equity Portfolio 15.82% 15.44% 15.82% 15.82% 32.12% MSCI EAFE Index 20.00% 12.82% 20.00% 20.00% 26.36% Lazard International Small Cap Portfolio 7.21% 1.97% 7.21% 7.21% 3.74% MSCI EAFE Small Cap Index 5.44% (10.27%) 5.44% 5.44% (18.43%) Salomon EMI Index Ex-US 12.15% 2.04% 12.15% 12.15% 3.86% Lazard Emerging Markets Portfolio (23.30%) (17.99%) (23.30%) (23.30%) (32.49%) MSCI Emerging Markets Free Index (25.34%) (19.40%) (25.34%) (25.34%) (34.77%) IFC Investable Total Return Index (22.02%) (19.53%) (22.02%) (22.02%) (34.97%) Lazard Bond Portfolio 5.42% 6.93% 5.42% 5.42% 13.03% Lehman Intermediate Gov't/Corp. Bond Index 8.43% 8.66% 8.43% 8.43% 16.40% Lazard High Yield Portfolio -- -- (2.24%) -- (2.24%) Merrill Lynch High Yield Master II Index -- -- 0.82% -- 0.82% Lazard International Fixed-Income Portfolio 12.92% 3.72% 12.92% 12.92% 7.49% Salomon World Government Bond Index Ex-US 17.79% 6.81% 17.79% 17.79% 13.93% Lazard Strategic Yield Portfolio 0.37% 2.12% 0.37% 0.37% 4.15% One Month LIBOR USD Fixed Index 5.54% 5.61% 5.54% 5.54% 11.17%
The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is comprised of International Equities and is compiled by Morgan Stanley Capital International. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Small Cap Index is an arithmetic, market-value weighted average of the performance of securities listed on the stock exchanges of EAFE Index countries. The Salomon Extended Market Index (EMI) Ex-US and the Salomon World Government Bond Index Ex-US are compiled by Salomon Smith Barney. The Morgan Stanley Capital International (MSCI) Emerging Markets Free (EMF) Index is comprised of emerging market securities in countries open to non-local investors that are compiled by Morgan Stanley Capital International. The IFC Investable Total Return Index is an index of emerging market securities that represent 65% of market capital compiled by the International Finance Corporation. The Lehman Intermediate Gov't/Corp. Bond Index is an index calculated by Lehman Brothers. The Merrill Lynch High Yield Master II Index provides a broad-based measure of the performance of the non-investment grade U.S. domestic bond market. The London Interbank Offered Rates (LIBOR) US Dollar Fixed Index is an average derived from sixteen quotations provided by banks determined by the British Bankers Association. This performance data is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. Effective January 1, 1998 Lazard International Small Cap Portfolio changed its comparative index to the MSCI EAFE Small Cap Index, from the Salomon EMI Index Ex-US. Also on January 1, 1998, Lazard Emerging Markets Portfolio changed its comparative index to the MSCI Emerging Markets Free Index, from the IFC Investable Total Return Index. The Investment Manager feels that these indices provide a more accurate comparison given each Portfolio's investment objective. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD EQUITY PORTFOLIO COMMON STOCKS--96.1% AEROSPACE & DEFENSE--4.2% Allied Signal, Inc. ......................... 116,300 $ 5,153,544 British Aerospace PLC ADR (a) ............... 102,000 3,582,750 Gulfstream Aerospace Corp. (a) .............. 65,800 3,503,850 United Technologies Corp. ................... 73,400 7,982,250 ----------- 20,222,394 ----------- AUTOMOTIVE--2.2% General Motors Corp. ........................ 144,300 10,326,469 ----------- AUTO PARTS--0.7% TRW, Inc. ................................... 62,700 3,522,956 ----------- BANKING--12.3% Bank One Corp. .............................. 125,200 6,393,025 BankAmerica Corp. ........................... 156,350 9,400,544 Chase Manhattan Corp. ....................... 109,024 7,420,446 First Union Corp. ........................... 206,700 12,569,943 Fleet Financial Group, Inc. ................. 189,200 8,454,875 Mellon Bank Corp. ........................... 106,900 7,349,375 Washington Mutual, Inc. ..................... 196,000 7,484,750 ----------- 59,072,958 ----------- CHEMICALS & PLASTICS--0.3% Du Pont (E.I.) de Nemours & Co ......................................... 25,800 1,369,013 ----------- COMPUTERS & BUSINESS EQUIPMENT--6.3% Hewlett-Packard Co. ......................... 163,700 11,182,756 International Business Machines Corp. ............................. 75,200 13,893,200 NCR Corp. (a) ............................... 124,600 5,202,050 ----------- 30,278,006 ----------- CONGLOMERATES--3.8% Philip Morris Companies, Inc. ............... 343,400 18,371,900 ----------- DIVERSIFIED--0.9% Minnesota Mining & Manufacturing Co. .......................... 57,800 4,111,025 ----------- DRUGS & HEALTH CARE--9.6% American Home Products Corp ....................................... 224,000 12,614,000 Amgen, Inc. (a) ............................. 85,200 8,908,725 Bristol-Myers Squibb Co. .................... 80,900 10,825,431 Johnson & Johnson ........................... 70,700 5,929,963 Merck & Company, Inc. ....................... 53,100 7,842,206 ----------- 46,120,325 ----------- ELECTRONICS--5.6% Honeywell, Inc. ............................. 86,900 6,544,656 Intel Corp. ................................. 59,100 7,007,044 Motorola, Inc. .............................. 85,200 5,202,525 Texas Instruments, Inc. ..................... 94,500 8,085,656 ----------- 26,839,881 ----------- ENERGY--2.2% Mobil Corp. ................................. 105,600 9,200,400 Noble Affiliates, Inc. ...................... 54,800 1,349,450 ----------- 10,549,850 ----------- FINANCIAL SERVICES--5.0% American Express Co. ........................ 39,400 4,028,650 Citigroup, Inc. ............................. 130,349 6,452,276 Morgan Stanley Dean Witter & Co ......................................... 78,100 5,545,100 The Hartford Financial Services Group, Inc. ....................... 141,900 7,786,762 ----------- 23,812,788 ----------- FOOD & BEVERAGES--7.8% ConAgra, Inc. ............................... 194,300 6,120,450 Diageo PLC ADR .............................. 143,572 6,640,205 Heineken NV ADR ............................. 141,350 8,511,108 PepsiCo, Inc. ............................... 218,700 8,953,031 Unilever NV ADR ............................. 86,100 7,140,919 ----------- 37,365,713 ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD EQUITY PORTFOLIO (CONTINUED) HOTELS & RESTAURANTS-1.5% McDonald's Corp. ............................ 90,400 $ 6,926,900 ----------- HOUSEHOLD PRODUCTS--0.4% Procter & Gamble Co. ........................ 18,200 1,661,888 ----------- INDUSTRIAL & MACHINERY-- 1.2% Ingersoll-Rand Co. .......................... 119,000 5,585,563 ----------- INSURANCE--2.2% Aetna, Inc. ................................. 78,900 6,203,512 Allstate Corp. .............................. 112,398 4,341,373 ----------- 10,544,885 ----------- MULTIMEDIA--1.3% Gannett Company, Inc. ....................... 93,600 6,037,200 ----------- OIL & GAS--1.7% Chevron Corp. ............................... 24,500 2,031,969 Exxon Corp. ................................. 84,800 6,201,000 ----------- 8,232,969 ----------- PAPER PRODUCTS--0.8% Kimberly-Clark Corp. ........................ 70,212 3,826,554 ----------- PETROLEUM EQUIPMENT & SERVICES--1.2% Schlumberger Ltd. ........................... 128,900 5,945,512 ----------- PHOTOGRAPHY--1.1% Eastman Kodak Co. ........................... 73,700 5,306,400 ----------- PUBLISHING--1.3% New York Times Co. .......................... 185,400 6,431,062 ----------- RETAIL--5.8% Federated Department Stores, Inc. (a) ................................. 113,600 $ 4,948,700 Newell Co. ................................ 51,300 2,116,125 Office Depot, Inc. (a) .................... 166,100 6,135,319 Republic Industries, Inc. (a) ............. 188,900 2,786,275 Sears, Roebuck & Co. ...................... 88,300 3,752,750 TJX Companies, Inc. ....................... 111,400 3,230,600 Toys "R" Us, Inc. (a) ..................... 286,100 4,827,937 ----------- 27,797,706 ----------- SERVICES--1.2% First Data Corp. .......................... 176,600 5,596,012 ------------ TELECOMMUNICATIONS--10.6% Ameritech Corp. ........................... 200,000 12,675,000 AT&T Corp. ................................ 174,900 13,161,225 Bell Atlantic Corp. ....................... 333,700 17,686,100 SBC Communications, Inc. .................. 136,400 7,314,450 ------------ 50,836,775 ------------ UTILITIES--4.9% Consolidated Edison, Inc. ................. 117,600 6,218,100 Duke Energy Corp. ......................... 34,600 2,216,563 FPL Group, Inc. ........................... 103,800 6,396,675 PacifiCorp ................................ 286,700 6,038,619 Southern Co. .............................. 93,400 2,714,437 ------------ 23,584,394 ------------ TOTAL COMMON STOCKS (Identified cost $374,279,275) ........................... 460,277,098 ------------ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD EQUITY PORTFOLIO (CONTINUED) REPURCHASE AGREEMENT--4.6% State Street Bank and Trust Company, 4.75%, 01/04/99, (Dated 12/31/98, collateral- ized by $18,990,000 United States Treasury Note, 7.875%, 11/15/04, with a value of $22,216,401) (Identified cost $21,778,000) ......................... $ 21,778 $21,778,000 ------------ TOTAL INVESTMENTS (Identified cost $396,057,275) (b) ........................ 100.7% $482,055,098 LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS .......................... (0.7) (3,305,278) --------- ------------- NET ASSETS ................................. 100.0% $478,749,820 ========= ============= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD MID CAP PORTFOLIO COMMON STOCKS--97.7% AEROSPACE & DEFENSE--3.6% Gulfstream Aerospace Corp. (a) .............. 22,800 $1,214,100 Litton Industries, Inc. (a) ................. 21,000 1,370,250 ---------- 2,584,350 ---------- APPAREL & TEXTILES--1.6% Polo Ralph Lauren Corp., Class A (a) ................................ 2,400 46,050 Warnaco Group, Inc., Class A ................ 42,500 1,073,125 ---------- 1,119,175 ---------- AUTO PARTS--1.7% Borg-Warner Automotive, Inc. ................ 21,600 1,205,550 ---------- BANKING--7.7% Hibernia Corp., Class A ..................... 64,200 1,115,475 North Fork Bancorporation, Inc ........................................ 80,350 1,923,378 Sovereign Bancorp, Inc. ..................... 97,500 1,389,375 Union Planters Corp. ........................ 25,400 1,150,938 ---------- 5,579,166 ---------- BROADCASTING--2.0% King World Productions, Inc.(a) ............. 49,500 1,457,156 ---------- COMMERCIAL SERVICES--4.1% Gartner Group, Inc., Class A (a) ................................ 30,300 643,875 H & R Block, Inc. ........................... 29,900 1,345,500 Pittston Brink's Group ...................... 30,100 959,437 ---------- 2,948,812 ---------- COMPUTERS & BUSINESS EQUIPMENT--4.7% Fore Systems (a) ............................ 36,100 661,081 NCR Corp. (a) ............................... 34,500 1,440,375 Quantum Corp. (a) ........................... 59,800 1,270,750 ---------- 3,372,206 ---------- CONSTRUCTION MATERIAL -- 1.4% Johns Manville Corp. ........................ 63,200 $1,038,850 ---------- DRUGS & HEALTH CARE--3.2% Mallinckrodt, Inc. .......................... 43,100 1,328,019 Perrigo Co. (a) ............................. 112,900 994,931 ---------- 2,322,950 ---------- ENERGY--0.9% Noble Affiliates, Inc. ...................... 27,700 682,113 ---------- FINANCIAL SERVICES--7.5% Heller Financial, Inc. ...................... 54,200 1,592,125 Lennar Corp. ................................ 43,800 1,105,950 The CIT Group, Inc., Class A ................ 35,200 1,119,800 Waddell & Reed Financial, Inc. .............. 65,500 1,551,531 ---------- 5,369,406 ---------- GAS & PIPELINE UTILITIES--0.9% Cooper Cameron Corp. (a) .................... 25,300 619,850 ---------- HOUSEHOLD APPLIANCES & HOME FURNISHINGS--4.0% Ethan Allen Interiors, Inc. ................. 38,900 1,594,900 Maytag Corp. ................................ 20,600 1,282,350 ---------- 2,877,250 ---------- HOUSEHOLD PRODUCTS--1.6% Dial Corp. .................................. 39,700 1,146,338 ---------- INDUSTRIAL & MACHINERY--1.8% Briggs & Stratton Corp. ..................... 26,300 1,311,713 ---------- INSURANCE--11.2% Ace, Ltd. ................................... 32,400 1,115,775 Ambac Financial Group, Inc. ................. 19,500 1,173,656 American Bankers Insurance Group, Inc. ................................ 30,400 1,470,600 Everest Reinsurance Holdings ................ 39,300 1,530,244 HSB Group, Inc. ............................. 24,600 1,010,137 Old Republic International Corp ....................................... 41,150 925,875 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD MID CAP PORTFOLIO (CONTINUED) Reliance Group Holdings, Inc. ....................... 64,800 $ 834,300 ---------- 8,060,587 ---------- MANUFACTURING--2.6% Crane Co. ........................................... 33,300 1,005,244 Mark IV Industries, Inc. ............................ 64,700 841,100 ---------- 1,846,344 ---------- OIL & GAS--1.9% Enron Oil & Gas Co. ................................. 54,400 938,400 R & B Falcon Corp. (a) .............................. 56,900 433,862 ---------- 1,372,262 ---------- REAL ESTATE--1.3% Mack California Realty Corp. ........................ 29,300 904,638 ---------- RESTAURANTS--2.0% Tricon Global Restaurants, Inc. (a) ................................................ 28,500 1,428,562 ---------- RETAIL--5.0% Circuit City Stores--Circuit City Group ......................................... 39,300 1,962,544 Tandy Corp. ......................................... 39,800 1,639,262 ---------- 3,601,806 ---------- RETAIL TRADE--7.5% Consolidated Stores Corp. (a) ....................... 40,300 813,556 Ross Stores, Inc. ................................... 30,200 1,189,125 Saks, Inc. (a) ...................................... 62,400 1,969,500 TJX Companies, Inc. ................................. 50,200 1,455,800 ---------- 5,427,981 ---------- SOFTWARE--1.1% Autodesk, Inc. ...................................... 18,500 789,719 ---------- STEEL--1.3% Carpenter Technology Corp. .......................... 27,400 929,888 ---------- TECHNOLOGY--1.8% Advanced Micro Devices, Inc. (a) ........................................... 33,600 $ 972,300 Altera Corp. (a) .................................... 5,900 359,162 ---------- 1,331,462 ---------- TELEPHONE--2.7% Cincinnati Bell, Inc. ............................... 50,800 1,920,875 ---------- TRANSPORTATION & FREIGHT SERVICES--2.2% CNF Transportation, Inc. ............................ 43,100 1,618,944 ---------- UTILITIES--10.4% CalEnergy Company, Inc. (a) ......................... 39,300 1,363,219 Illinova Corp. ...................................... 57,400 1,435,000 Ipalco Enterprises, Inc. ............................ 33,300 1,846,069 Niagara Mohawk Power Corp. (a) .......................................... 90,100 1,452,862 NIPSCO Industries, Inc. ............................. 47,100 1,433,606 ---------- 7,530,756 ---------- TOTAL COMMON STOCKS (Identified cost $68,561,524) .................................. 70,398,709 ---------- PRINCIPAL AMOUNT (000) ---------- REPURCHASE AGREEMENT--3.3% State Street Bank and Trust Company, 4.75%, 01/04/99, (Dated 12/31/98, collateral- ized by $2,155,000 United States Treasury Note, 7.250%, 05/15/04, with a value of $2,440,538) (Identified cost $2,389,000) ............................. $2,389 2,389,000 ------------ TOTAL INVESTMENTS (Identified cost $70,950,524) (b) ................... 101.0% $72,787,709 LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS ........................ (1.0) (711,630) -------- ------------ NET ASSETS ................................ 100.0% $72,076,079 ======== ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD SMALL CAP PORTFOLIO COMMON STOCKS--94.3% APPAREL & TEXTILES--1.0% Stride Rite Corp. ........................... 813,700 $ 7,119,875 The Timberland Co., Class A (a) ............. 179,500 8,178,469 ----------- 15,298,344 ----------- AUTO PARTS--4.5% Borg-Warner Automotive, Inc. ................ 213,000 11,888,062 Dura Automotive Systems, Inc. (a) ................................... 357,600 12,203,100 Excel Industries, Inc. ...................... 344,700 6,032,250 Superior Industries International, Inc. ........................ 477,100 13,269,344 Tower Automotive, Inc. (a) .................. 1,002,800 25,007,325 ----------- 68,400,081 ----------- BANKING--6.1% Bancorp Queens County, Inc. ................. 334,045 9,937,839 Coast Federal Trust (a) ..................... 310,000 2,053,750 Cullen/Frost Bankers, Inc. .................. 324,000 17,779,500 Enhance Financial Services Group, Inc. ................................ 404,400 12,132,000 Hibernia Corp., Class A ..................... 908,770 15,789,879 HUBCO, Inc. ................................. 589,825 17,768,478 Independence Community Bank Corp. ................................. 718,900 11,457,469 Staten Island Bancorp, Inc. ................. 214,700 4,280,581 ----------- 91,199,496 ----------- BUILDING & CONSTRUCTION--0.7% Apogee Enterprises, Inc. .................... 982,700 11,055,375 ----------- BUSINESS SERVICES AND SUPPLIES--0.8% CDI Corp. (a) ............................... 386,100 7,794,394 Vanstar Corp. (a) ........................... 450,000 4,162,500 ----------- 11,956,894 ----------- CHEMICALS & PLASTICS--1.9% A. Schulman, Inc. ........................... 517,200 11,733,975 Ferro Corp. ................................. 290,400 $ 7,550,400 H.B. Fuller Co. ............................. 197,500 9,504,687 ----------- 28,789,062 ----------- COMMERCIAL SERVICES--2.7% Inacom Corp. (a) ............................ 592,000 8,806,000 Nielsen Media Research, Inc. ................ 940,533 16,929,594 Pittston Brink's Group ...................... 449,200 14,318,250 ----------- 40,053,844 ----------- COMMUNICATION SERVICES--0.0% Dynatech Corp. (a) .......................... 196,550 540,513 ----------- COMPUTERS & BUSINESS EQUIPMENT--2.3% Bell & Howell Co. (a) ....................... 602,200 22,770,687 Silicon Valley Group, Inc. (a) .............. 53,500 682,125 Wang Laboratories, Inc. (a) ................. 390,400 10,833,600 ----------- 34,286,412 ----------- CONSTRUCTION MATERIALS--0.7% Lone Star Industries, Inc. .................. 273,000 10,049,813 ----------- CONTAINERS: PAPER & PLASTIC--2.0% First Brands Corp. .......................... 753,900 29,731,931 ----------- COSMETICS & TOILETRIES--0.9% Alberto Culver Co., Class A ................. 553,800 13,983,450 ----------- DRUGS & HEALTH CARE--1.6% Apria Healthcare Group, Inc. (a) ................................... 760,600 6,797,863 Magellan Health Services, Inc. (a) ................................... 759,160 6,357,965 Perrigo Co. (a) ............................. 1,273,620 11,223,776 ----------- 24,379,604 ----------- ELECTRICAL EQUIPMENT--2.7% Anixter International, Inc. (a) ............. 988,500 20,078,906 Belden, Inc. ................................ 548,020 11,611,174 MagneTek, Inc. (a) .......................... 731,700 8,460,281 ----------- 40,150,361 ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - ------------------------------------------------------------------------------- LAZARD SMALL CAP PORTFOLIO (CONTINUED) ELECTRONICS--3.9% AMETEK, Inc. .................................. 733,100 $16,357,294 Credence Systems Corp. (a) .................... 700,000 12,950,000 Kemet Corp. (a) ............................... 1,230,200 13,839,750 Lattice Semiconductor Corp. (a) .................................... 351,500 16,136,047 ----------- 59,283,091 ----------- FOOD & BEVERAGES--2.7% American Italian Pasta Co., Class A (a) .................................. 285,700 7,535,337 Lance, Inc. ................................... 565,600 11,276,650 Ralcorp Holdings, Inc. (a) .................... 314,200 5,734,150 Vlasic Foods International, Inc. (a) ..................................... 648,800 15,449,550 ----------- 39,995,687 ----------- GAS EXPLORATION--0.9% Barrett Resources Corp. (a) ................... 577,800 13,867,200 ----------- HOMEBUILDERS--3.6% Kaufman & Broad Home Corp. .................... 463,900 13,337,125 Lennar Corp. .................................. 499,800 12,619,950 Toll Brothers, Inc. (a) ....................... 738,500 16,662,406 Walter Industries, Inc. (a) ................... 753,400 11,536,438 ----------- 54,155,919 ----------- HOTELS & RESTAURANTS--1.3% Lone Star Steakhouse & Saloon, Inc. (a) ............................. 1,047,900 9,627,581 Morton's Restaurant Group, Inc. (a) ..................................... 356,900 6,736,487 NPC International, Inc. (a) ................... 303,000 3,654,938 ----------- 20,019,006 ----------- HOUSEHOLD APPLIANCES & HOME FURNISHINGS--3.6% Bassett Furniture Industries, Inc .......................................... 322,900 7,789,962 Bush Industries, Inc., Class A ................ 466,600 5,803,338 Furniture Brands International, Inc. (a) ..................................... 839,400 $22,873,650 Harman International Industries, Inc. ............................. 471,300 17,968,312 ----------- 54,435,262 ----------- INDUSTRIAL & MACHINERY--4.7% Briggs & Stratton Corp. ....................... 413,230 20,609,846 JLG Industries, Inc. .......................... 1,261,200 19,706,250 Regal-Beloit Corp. ............................ 640,100 14,722,300 Roper Industries, Inc. ........................ 551,800 11,242,925 Wyman-Gordon Co. (a) .......................... 340,100 3,486,025 ----------- 69,767,346 ----------- INSURANCE--6.1% American Medical Security Group, Inc. .................................. 382,900 5,575,981 Amerin Corp. (a) .............................. 486,900 11,503,012 ARM Financial Group, Inc., Class A ...................................... 372,000 8,253,750 Arthur J. Gallagher & Co. ..................... 286,800 12,655,050 Delphi Financial Group, Inc., Class A ...................................... 289,855 15,199,272 HCC Insurance Holdings, Inc. .................. 621,900 10,960,988 NAC Re Corp. .................................. 333,505 15,653,891 Orion Capital Corp. ........................... 17,300 688,756 Reliance Group Holdings, Inc. ................. 900,400 11,592,650 ----------- 92,083,350 ----------- INVESTMENT COMPANIES--0.6% Affiliated Managers Group, Inc. (a) ..................................... 285,100 8,517,363 ----------- LEISURE TIME--2.6% Anchor Gaming (a) ............................. 6,000 338,250 Carmike Cinemas, Inc., Class A (a) .................................. 524,700 10,657,969 Polaris Industries, Inc. ...................... 524,400 20,549,925 Vail Resorts, Inc. (a) ........................ 366,000 8,052,000 ----------- 39,598,144 ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD SMALL CAP PORTFOLIO (CONTINUED) MANUFACTURING--6.6% Aeroquip-Vickers, Inc. ........................ 174,200 $ 5,215,113 Alltrista Corp. (a) ........................... 448,400 10,761,600 Carlisle Companies, Inc. ...................... 256,400 13,236,650 Crane Co. ..................................... 696,510 21,025,896 Mark IV Industries, Inc. ...................... 1,251,864 16,274,232 Modine Manufacturing Co. ...................... 356,700 12,930,375 Varlen Corp. .................................. 870,568 20,077,474 ----------- 99,521,340 ----------- MEDICAL SUPPLIES--3.5% ADAC Laboratories (a) ......................... 504,000 10,064,250 Datascope Corp. (a) ........................... 711,000 16,353,000 Dentsply International, Inc. .................. 600,800 15,470,600 The West Company, Inc. ........................ 305,100 10,888,256 ----------- 52,776,106 ----------- OIL & GAS--2.5% Atwood Oceanics, Inc. (a) ..................... 271,600 4,617,200 Devon Energy Corp. ............................ 297,400 9,126,462 Helmerich & Payne, Inc. ....................... 769,220 14,903,637 Tuboscope, Inc. (a) ........................... 364,500 2,961,563 Vintage Petroleum, Inc. ....................... 674,000 5,813,250 ----------- 37,422,112 ----------- PAPER PRODUCTS--1.3% Chesapeake Corp. .............................. 307,500 11,339,062 The Standard Register Co. ..................... 270,100 8,356,219 ----------- 19,695,281 ----------- PRINTING--1.2% Electronics for Imaging, Inc. (a) ............. 452,700 18,192,881 ----------- PUBLISHING--1.8% Banta Corp. ................................... 671,350 18,378,206 World Color Press, Inc. (a) ................... 277,000 8,431,188 ----------- 26,809,394 ----------- REAL ESTATE--4.1% Catellus Development Corp. (a) .................................... 528,900 $ 7,569,881 FelCor Suite Hotels, Inc. ..................... 587,025 13,538,264 Glenborough Realty Trust, Inc. ................ 681,600 13,887,600 Kilroy Realty Corp. ........................... 511,000 11,753,000 Reckson Services Industries, Inc. (a) ..................................... 51,192 211,167 Reckson Associates Realty Corp ......................................... 639,900 14,197,782 ----------- 61,157,694 ----------- RETAIL--4.8% Eagle Hardware & Garden, Inc. (a) ..................................... 442,300 14,374,750 General Nutrition Companies, Inc. (a) ..................................... 980,000 15,925,000 Genesis Direct, Inc. (a) ...................... 350,000 2,734,375 Hughes Supply, Inc. ........................... 361,400 10,570,950 Oakley, Inc. (a) .............................. 750,000 7,078,125 Pier 1 Imports, Inc. .......................... 1,011,400 9,797,937 Talbots, Inc. ................................. 379,200 11,897,400 ----------- 72,378,537 ----------- RETAIL TRADE--2.1% Cole National Corp. (a) ....................... 422,600 7,237,025 Movado Group, Inc. ............................ 304,800 8,115,300 The Elder-Beerman Stores Corp. (a) .................................... 609,500 7,047,344 The Wet Seal, Inc., Class A (a) ............... 327,000 9,871,312 ----------- 32,270,981 ----------- STEEL--0.9% WHX Corp. (a) ................................. 1,340,000 13,483,750 ----------- TECHNOLOGY--0.5% VLSI Technology, Inc. (a) ..................... 656,500 7,180,469 ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD SMALL CAP PORTFOLIO (CONTINUED) TELECOMMUNICATIONS--2.5% Associated Group, Inc., Class B (a) .............................. 298,500 $ 12,686,250 NTL, Inc. (a) ............................. 161,700 9,125,944 Vanguard Cellular Systems, Inc. (a) ................................. 605,600 15,632,050 Verbex Voice Systems, Inc., (a), (h) ........................... 180,501 0 ------------- 37,444,244 ------------- TELECOMMUNICATIONS EQUIPMENT--1.3% Allen Telecom, Inc. (a) ................... 704,765 4,713,116 Oak Industries, Inc. (a) .................. 404,885 14,170,975 ------------- 18,884,091 ------------- TRANSPORTATION--1.0% Budget Group, Inc., Class A (a) ........... 538,400 8,547,100 Pittston Burlington Group ................. 596,520 6,636,285 ------------- 15,183,385 ------------- UTILITIES--1.9% Calpine Corp. (a) ......................... 668,200 16,872,050 Sierra Pacific Resources .................. 317,800 12,076,400 ------------- 28,948,450 ------------- WHOLESALE TRADE--0.4% Unisource Worldwide, Inc. ................. 927,700 6,725,825 ------------- TOTAL COMMON STOCKS (Identified cost $1,332,063,345) .................... 1,419,672,088 ------------- PREFERRED STOCKS--0.0% Verbex Voice Systems, Inc. Series F (a), (h) (Identified cost $1,500,000) ............. 687,285 0 ------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- CONVERTIBLE BONDS--0.6% COMMUNICATIONS--0.6% International Cable Tel, Inc., 7.00%, 06/15/08 (a) ................... $ 5,589 $ 8,439,390 -------------- RESTAURANTS, LODGING & ENTERTAINMENT--0.0% Interactive Light Holdings, Inc., 8.00%, 01/25/99 (a), (h) .............. 1,000 500,000 -------------- TELECOMMUNICATIONS--0.0% Verbex Voice Systems, Inc., 10.00%, 12/31/95 (a), (h) ............. 100 0 -------------- TOTAL CONVERTIBLE BONDS (Identified cost $6,689,000) ....................... 8,939,390 -------------- REPURCHASE AGREEMENT--4.7% State Street Bank and Trust Company, 4.75%, 01/04/99, (Dated 12/31/98, collateral- ized by $21,000,000 United States Treasury Note, 0.000%, 07/01/99, with a value of $21,309,500, and $45,510,000 United States Treasury Note, 5.625%, 12/31/99, with a value of $45,908,213, and $5,210,000 United States Treasury Note, 0.000%, 06/17/99, with a value of $5,103,195) (Identified cost $70,890,000) ..................... 70,890 70,890,000 -------------- TOTAL INVESTMENTS (Identified cost $1,409,642,345) (b) ............... 99.6% $1,499,501,478 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ................. 0.4 5,548,791 -------------- -------------- NET ASSETS .............................. 100.0% $1,505,050,269 ============== ============== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD BANTAM VALUE PORTFOLIO COMMON STOCKS--92.0% APPAREL & TEXTILES--6.9% Candie's, Inc. (a) ............................... 365,800 $1,371,750 Novel Denim Holdings, Ltd. (a) 60,600 1,287,750 Stride Rite Corp. ................................ 113,300 991,375 Tefron, Ltd. (a) ................................. 150,300 986,344 ---------- 4,637,219 ---------- AUTO PARTS--6.6% Dura Automotive Systems, Inc. (a) ........................................ 54,900 1,873,462 Excel Industries, Inc. ........................... 146,200 2,558,500 ---------- 4,431,962 ---------- BANKING--0.8% Republic Banking Corp. ........................... 47,500 504,688 ---------- BUSINESS SERVICES AND SUPPLIES--7.0% Box Hill Systems Corp. (a) ....................... 222,400 1,195,400 GP Strategies Corp. (a) .......................... 118,800 1,782,000 Paxar Corp. (a) .................................. 68,900 615,794 Vanstar Corp. (a) ................................ 116,400 1,076,700 ---------- 4,669,894 ---------- COMMERCIAL SERVICES--1.4% Inacom Corp. (a) ................................. 62,600 931,175 ---------- DRUGS & HEALTH CARE--9.7% Apria Healthcare Group, Inc. (a) ........................................ 432,300 3,863,681 CorVel Corp. (a) ................................. 74,000 2,608,500 ---------- 6,472,181 ---------- EDUCATION--3.4% Career Education Corp. (a) ....................... 76,000 2,280,000 ---------- ENGINEERING & CONSTRUCTION--3.1% EMCOR Group, Inc. (a) ............................ 130,000 2,096,250 ---------- HOTELS & RESTAURANTS---2.0% NPC International, Inc. (a) ...................... 112,000 $1,351,000 ---------- INDUSTRIAL & MACHINERY--2.9% OmniQuip International, Inc. ..................... 127,700 1,915,500 ---------- INSURANCE--5.4% Delphi Financial Group, Inc., Class A ......................................... 29,011 1,521,264 ESG Re, Ltd. ..................................... 47,400 959,850 Stirling Cooke Brown Holdings, Ltd. .................................. 64,000 1,112,000 ---------- 3,593,114 ---------- LEISURE TIME--8.8% Carmike Cinemas, Inc., Class A (a) ..................................... 77,700 1,578,281 Powerhouse Technologies, Inc. (a) ........................................ 170,300 2,469,350 Steinway Musical Instruments, Inc. (a) ........................... 42,900 1,115,400 Trendwest Resorts, Inc. (a) ...................... 56,300 703,750 ---------- 5,866,781 ---------- MANUFACTURING--9.5% Ballantyne of Omaha, Inc. (a) .................... 235,700 2,077,106 Hawk Corp., Class A (a) .......................... 120,700 1,010,863 Regal-Beloit Corp. ............................... 65,200 1,499,600 Varlen Corp. ..................................... 76,750 1,770,047 ---------- 6,357,616 ---------- MEDICAL SUPPLIES--3.0% ADAC Laboratories (a) ............................ 87,900 1,755,253 The West Company, Inc. ........................... 5,968 212,983 ---------- 1,968,236 ---------- OIL & GAS--3.3% Atwood Oceanics, Inc. (a) ........................ 61,300 1,042,100 Louis Dreyfus Natural Gas Corp. (a) ....................................... 82,000 1,168,500 ---------- 2,210,600 ---------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - ------------------------------------------------------------- ------------- LAZARD BANTAM VALUE PORTFOLIO (CONTINUED) RETAIL TRADE--6.9% Grand Union Co. (a) .............................. 97,000 $ 1,188,250 The Elder-Beerman Stores Corp. (a) ....................................... 147,400 1,704,312 Vans, Inc. (a) ................................... 250,000 1,718,750 ----------- 4,611,312 ----------- STEEL--2.3% WHX Corp. (a) .................................... 152,000 1,529,500 ----------- TELECOMMUNICATIONS EQUIPMENT--2.7% Allen Telecom, Inc. (a) .......................... 268,000 1,792,250 ----------- TOYS & AMUSEMENTS--2.1% Midway Games, Inc. (a) ........................... 129,100 1,420,100 ----------- TRANSPORTATION--4.2% Budget Group, Inc., Class A (a) 82,900 1,316,038 Genesee & Wyoming, Inc., Class A (a) ..................................... 63,000 803,250 Interpool, Inc. .................................. 39,000 653,250 ----------- 2,772,538 ----------- TOTAL COMMON STOCKS (Identified cost $66,553,100)..................... 61,411,916 -----------
PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - --------------------------------- ------------ ------------- REPURCHASE AGREEMENT--7.7% State Street Bank and Trust Company, 4.75%, 01/04/99, (Dated 12/31/98, collateral- ized by $5,125,000 United States Treasury Note, 5.750%, 11/15/00, with a value of $5,261,745) (Identified cost $5,157,000).................... $ 5,157 $ 5,157,000 ----------- TOTAL INVESTMENTS (Identified cost $71,710,100) (b) .............. 99.7% $66,568,916 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ................. 0.3 225,326 ------- ----------- NET ASSETS ...................... 100.0% $66,794,242 ======= ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------- -------------------- --------------------- LAZARD GLOBAL EQUITY PORTFOLIO COMMON STOCKS--96.8% AUSTRALIA--1.2% Broken Hill Proprietary Company, Ltd. ................ 36,541 $ 269,126 --------- FRANCE--7.1% Alcatel Alsthom (Cie Generale) 1,560 190,850 Axa-UAP ....................... 1,870 270,918 Banque Nationale de Paris ..... 3,540 291,380 Cie de Saint Gobain ........... 850 119,952 Cie Generale des Eaux ......... 1,250 324,182 Elf Aquitaine SA .............. 1,850 213,754 Rhone-Poulenc SA .............. 3,798 195,368 --------- TOTAL FRANCE .................. 1,606,404 --------- GERMANY--5.5% Allianz AG .................... 680 249,298 DaimlerChrysler AG (a) ........ 2,709 267,389 Hoechst AG .................... 4,500 186,577 Siemens AG .................... 3,000 193,508 Thyssen AG .................... 800 148,374 Viag AG ....................... 350 205,178 --------- TOTAL GERMANY ................. 1,250,324 --------- HONG KONG--1.0% HSBC Holdings, Ltd. ........... 8,926 222,355 --------- ITALY--3.3% Ente Nazionale Idrocarburi SPA (ENI) .................... 33,700 220,121 Instituto Bancario San Paolo di Torino (a) ................ 15,800 279,029 Telecom Italia SPA ............ 40,600 255,369 --------- TOTAL ITALY ................... 754,519 --------- JAPAN--7.3% Matsushita Electric Industrial Company, Ltd. ................ 16,000 282,919 Nippon Telegraph & Telephone Corp. ........................ 24 $ 185,122 NTT Mobile Communications ..... 6 246,793 Omron Corp. ................... 9,000 123,238 Promise Company, Ltd. ......... 3,190 165,919 Ricoh Company, Ltd. ........... 31,000 285,732 Sony Corp. .................... 2,500 181,999 Sumitomo Trust & Banking, Ltd. ......................... 45,000 119,416 Sumitomo Trust & Banking, Ltd. (a) ..................... 1 42,902 --------- TOTAL JAPAN ................... 1,634,040 --------- NETHERLANDS--3.2% Heineken NV ................... 5,862 352,587 ING Groep NV .................. 1,900 115,798 Philips Electronics NV ........ 3,600 241,444 --------- TOTAL NETHERLANDS ............. 709,829 --------- SPAIN--3.9% Corporacion Bancaria de Espana SA (Argentaria) ....... 11,500 297,372 Endesa SA ..................... 8,100 214,298 Telefonica de Espana .......... 8,227 365,271 Telefonica SA, rights (a) ..... 8,227 7,294 --------- TOTAL SPAIN ................... 884,235 --------- SWEDEN--3.1% ABB AB ........................ 13,800 146,920 Astra AB ...................... 10,513 213,500 Svenska Handelsbanken, Series A ..................... 5,900 248,351 Volvo AB, Series B ............ 3,800 86,993 --------- TOTAL SWEDEN .................. 695,764 --------- SWITZERLAND--3.9% Nestle SA ..................... 133 289,488 Roche Holding AG .............. 18 219,612 Zurich Versicherungs - Gesellschaft (a) ............. 512 379,052 --------- TOTAL SWITZERLAND ............. 888,152 --------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD GLOBAL EQUITY PORTFOLIO (CONTINUED) UNITED KINGDOM--12.8% Allied Zurich PLC (a) ............. 8,300 $ 124,728 B.A.T Industries PLC .............. 24,900 219,256 British Aerospace PLC ............. 31,300 266,770 British Petroleum Company PLC .............................. 15,100 224,781 Cadbury Schweppes PLC ............. 14,942 255,695 Diageo PLC ........................ 21,048 233,420 EMI Group PLC ..................... 16,800 112,484 Granada Group PLC ................. 14,400 252,401 National Westminster Bank PLC .............................. 13,600 263,233 Prudential Corporation PLC ........ 25,500 388,990 Royal & Sun Alliance Insurance Group PLC ........................ 29,400 239,342 Unilever PLC ...................... 26,200 294,690 ----------- TOTAL UNITED KINGDOM .............. 2,875,790 ----------- UNITED STATES--44.5% Aetna, Inc. ....................... 2,750 216,219 AlliedSignal, Inc. ................ 3,900 172,819 American Home Products Corp. ............................ 8,400 473,025 AT&T Corp. ........................ 6,600 496,650 BankAmerica Corp. ................. 3,930 236,291 Bell Atlantic Corp. ............... 8,100 429,300 Bristol-Myers Squibb Co. .......... 1,800 240,863 Chase Manhattan Corp. ............. 4,900 333,506 Citigroup, Inc. ................... 5,850 289,575 Exxon Corp. ....................... 3,000 219,375 Federated Department Stores, Inc. (a) ......................... 4,800 209,100 First Data Corp. .................. 9,000 285,187 First Union Corp. ................. 3,900 237,169 Fleet Financial Group, Inc. ....... 7,300 326,219 FPL Group, Inc. ................... 3,300 203,363 General Motors Corp. .............. 5,000 357,812 Halliburton Co. ................... 3,600 106,650 Hewlett-Packard Co. ............... 4,000 273,250 Honeywell, Inc. ................... 2,800 210,875 International Business Machines Corp. ................... 2,420 447,095 Johnson & Johnson ................. 4,400 369,050 McDonald's Corp. .................. 5,100 390,787 Merck & Company, Inc. ............. 2,000 295,375 Minnesota Mining & Manufacturing Co. ................ 2,600 184,925 Mobil Corp. ....................... 4,900 426,912 Motorola, Inc. .................... 5,100 311,419 Philip Morris Companies, Inc. ..... 7,790 416,765 Sears, Roebuck & Co. .............. 6,470 274,975 Southern Co. ...................... 1,200 34,875 Texas Instruments, Inc. ........... 4,100 350,806 The Hartford Financial Services Group, Inc. ............. 5,560 305,105 Toys "R" Us, Inc. (a) ............. 12,100 204,188 TRW, Inc. ......................... 4,000 224,750 United Technologies Corp. ......... 4,300 467,625 ----------- TOTAL UNITED STATES ............... 10,021,900 ----------- TOTAL COMMON STOCKS (Identified cost $18,858,067)...... 21,812,438 ----------- PRINCIPAL AMOUNT (000) ---------- REPURCHASE AGREEMENT--2.4% State Street Bank and Trust Company, 4.75%, 01/04/99, (Dated 12/31/98, collateralized by $540,000 United States Treasury Note, 5.625%, 12/31/99, with a value of $545,400) (Identified cost $531,000)......................... $ 531 531,000 ----------- TOTAL INVESTMENTS (Identified cost $19,389,067) (b) 99.2% $22,343,438 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......... 0.8 190,858 ----------- ----------- NET ASSETS ......................... 100.0% $22,534,296 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL EQUITY PORTFOLIO COMMON STOCKS--97.6% AUSTRALIA--2.1% Broken Hill Proprietary Company, Ltd. ..................... 5,093,963 $37,517,214 Westpac Banking Corporation, Ltd. .............................. 3,669,600 24,555,446 ----------- TOTAL AUSTRALIA .................... 62,072,660 ----------- DENMARK--1.3% Unidanmark, Class A ................ 419,700 37,918,938 ----------- FINLAND--1.0% Merita, Ltd. ....................... 2,200,000 13,892,920 UPM-Kymmene OYJ .................... 559,600 15,584,075 ----------- TOTAL FINLAND ...................... 29,476,995 ----------- FRANCE--15.6% Alcatel Alsthom (Cie Generale) ..... 337,540 41,294,466 Axa-UAP ............................ 363,100 52,604,364 Banque Nationale de Paris .......... 663,922 54,647,989 Cie de Saint Gobain ................ 314,630 44,400,478 Cie Generale des Eaux .............. 336,492 87,267,644 Elf Aquitaine SA ................... 438,100 50,619,317 Michelin, Class B .................. 510,900 20,423,207 Rhone-Poulenc SA ................... 1,244,690 64,026,622 Suez Lyonnaise des Eaux ............ 203,100 41,702,522 ----------- TOTAL FRANCE ....................... 456,986,609 ----------- GERMANY--10.5% Allianz AG ......................... 114,156 41,851,264 DaimlerChrysler AG (a) ............. 430,043 42,446,942 Hoechst AG ......................... 1,300,200 53,908,448 Metro AG ........................... 922,924 73,652,281 Siemens AG ......................... 660,400 42,597,504 Thyssen AG ......................... 114,000 21,143,286 Viag AG ............................ 54,115 31,723,482 ----------- TOTAL GERMANY ...................... 307,323,207 ----------- HONG KONG--1.0% HSBC Holdings, Ltd. ................ 1,117,148 $27,829,207 ----------- ITALY--6.0% Ente Nazionale Idrocarburi SPA (ENI) ............................. 6,544,800 42,749,306 Instituto Bancario San Paolo di Torino (a) ..................... 3,695,500 65,262,693 Telecom Italia SPA ................. 10,507,400 66,090,272 ----------- TOTAL ITALY ........................ 174,102,271 ----------- JAPAN--14.5% Asahi Breweries, Ltd. .............. 2,393,000 35,244,096 Japan Tobacco, Inc. ................ 5,083 50,807,519 Matsushita Electric Industrial Company, Ltd. ..................... 1,861,000 32,907,023 Nintendo Co. ....................... 340,700 33,000,133 Nippon Telegraph & Telephone Corp. ............................. 3,193 24,628,890 Nissan Motor Company, Ltd. ......... 4,495,000 13,757,364 NTT Mobile Communications .......... 1,093 44,957,541 Omron Corp. ........................ 1,225,000 16,773,994 Orix Corp. ......................... 611,300 45,637,965 Promise Company, Ltd. .............. 569,600 29,626,254 Ricoh Company, Ltd. ................ 4,400,000 40,555,506 Sony Corp. ......................... 510,800 37,186,059 Sumitomo Trust & Banking, Ltd. 7,369,000 19,555,064 ----------- TOTAL JAPAN ........................ 424,637,408 ----------- MALAYSIA--0.3% Genting Berhad ..................... 4,167,500 9,047,862 ----------- NETHERLANDS--3.4% Heineken NV ........................ 865,775 52,074,613 ING Groep NV ....................... 252,600 15,395,060 Philips Electronics NV ............. 483,800 32,447,331 ----------- TOTAL NETHERLANDS .................. 99,917,004 ----------- SINGAPORE--0.9% United Overseas Bank, Ltd. ......... 4,096,800 26,302,895 ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - ------------------------------------- ------------------- --------------------- LAZARD INTERNATIONAL EQUITY PORTFOLIO (CONTINUED) SPAIN--6.0% Corporacion Bancaria de Espana SA (Argentaria) ............ 2,332,400 $ 60,312,201 Endesa SA .......................... 1,585,900 41,957,388 Telefonica de Espana ............... 1,649,618 73,241,553 Telefonica SA, rights (a) .......... 1,649,618 1,462,510 ------------- TOTAL SPAIN ........................ 176,973,652 ------------- SWEDEN--7.1% ABB AB ............................. 2,968,000 31,598,562 Astra AB ........................... 2,601,666 52,835,133 Electrolux AB, Series B ............ 2,353,100 40,401,912 Nordbanken Holding AB .............. 2,291,600 14,666,601 Svenska Handelsbanken, Series A .......................... 1,048,500 44,134,871 Volvo AB, Series B ................. 1,026,900 23,508,690 ------------- TOTAL SWEDEN ....................... 207,145,769 ------------- SWITZERLAND--6.1% Nestle SA .......................... 14,754 32,113,606 Roche Holding AG ................... 3,082 37,602,329 SGS Holding SA ..................... 15,093 14,777,670 SMH AG ............................. 21,115 13,065,262 Zurich Versicherungs- Gesellschaft ...................... 109,630 81,163,070 ------------- TOTAL SWITZERLAND .................. 178,721,937 ------------- UNITED KINGDOM--21.8% Allied Zurich PLC (a) .............. 2,063,550 31,009,819 B.A.T Industries PLC ............... 4,823,150 42,470,003 British Aerospace PLC .............. 9,277,948 79,076,048 British Petroleum Company PLC 3,542,300 52,731,364 Cadbury Schweppes PLC .............. 1,246,431 21,329,522 Diageo PLC ......................... 3,950,194 43,807,186 EMI Group PLC ...................... 1,805,700 12,090,000 Granada Group PLC .................. 2,698,000 47,290,081 Great Universal Stores PLC ......... 3,020,600 31,867,104 Imperial Chemical Industries PLC ............................... 3,754,300 32,528,119 Mirror Group PLC ................... 3,504,300 8,747,650 National Westminster Bank PLC 2,836,900 54,909,262 Prudential Corporation PLC ......... 3,804,500 58,035,849 Royal & Sun Alliance Insurance Group PLC ......................... 5,400,300 43,963,233 Siebe PLC .......................... 9,911,700 38,945,291 Unilever PLC ....................... 3,376,400 37,976,787 ------------- TOTAL UNITED KINGDOM ............... 636,777,318 ------------- TOTAL COMMON STOCKS (Identified cost $2,363,965,380).................... 2,855,233,732 ------------- PRINCIPAL AMOUNT (000) ------------- REPURCHASE AGREEMENT--2.2% State Street Bank and Trust Company, 4.75%, 01/04/99, (Dated 12/31/98, collateralized by $13,895,000 United States Treasury Note, 6.375%, 05/15/00, with a value of $14,346,588, and $50,560,000 United States Treasury Note, 5.625%, 12/31/99, with a value of $51,002,400) (Identified cost $64,064,000) ..................... $ 64,064 64,064,000 ---------- TOTAL INVESTMENTS (Identified cost $2,428,029,380) (b) ......... 99.8% $2,919,297,732 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ................... 0.2 7,294,704 -------- -------------- NET ASSETS ........................ 100.0% $2,926,592,436 ======== ============== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL SMALL CAP PORTFOLIO COMMON STOCKS--94.5% AUSTRALIA--2.9% Cochlear, Ltd. ..................... 931,000 $5,248,606 ---------- AUSTRIA--1.0% KTM Motorradholding AG ............. 26,500 1,783,317 ---------- CANADA--2.5% Club Monaco, Inc. (a), (c) ......... 364,200 1,846,614 Maple Leaf Foods, Inc. ............. 146,186 1,410,693 Queensway Financial Holdings, Ltd. (a) .......................... 80,000 1,256,133 ---------- TOTAL CANADA ....................... 4,513,440 ---------- DENMARK--0.7% Falck AS ........................... 14,894 1,205,225 ---------- FINLAND--5.4% Amer Group, Ltd. ................... 191,400 1,978,188 Asko OYJ-A, Class A ................ 101,730 1,729,749 Rocla OY (a) ....................... 161,500 1,140,224 Sampo Insurance Company, Ltd. 61,800 2,345,224 Santasalo-JOT Group ................ 137,000 838,282 Vaisala OY ......................... 21,400 1,762,699 ---------- TOTAL FINLAND ...................... 9,794,366 ---------- FRANCE--6.0% C.E.A. Industries .................. 16,871 2,063,989 Carbone-Lorraine ................... 46,900 2,222,948 Cie des Signaux SA ................. 39,700 2,911,286 Compagnie Plastic-Omnium SA 13,860 1,326,256 SCOR SA ADR (a) .................... 33,500 2,240,313 ---------- TOTAL FRANCE ....................... 10,764,792 ---------- GERMANY--10.0% Data Modul AG ...................... 31,974 1,304,591 Fielmann AG ........................ 62,300 2,990,520 Hawesko Holding AG (a) ............. 62,700 3,498,800 Holsten Brauerei AG ................ 337 69,802 Kamps AG (a) ....................... 19,500 1,263,651 KSB AG ............................. 7,850 $1,332,983 Marseille-Kliniken AG .............. 286,200 5,151,806 Prosieben Media AG ................. 54,400 2,513,381 ---------- TOTAL GERMANY ...................... 18,125,534 ---------- HONG KONG--2.5% CDL Hotels International, Ltd. ..... 4,976,600 1,278,258 Esprit Asia Holdings, Ltd. ......... 5,803,500 2,509,387 Peregrine Investment Holdings, Ltd. (d) .......................... 2,163,800 0 Shaw Brothers (Hong Kong), Ltd. 1,479,500 639,724 ---------- TOTAL HONG KONG .................... 4,427,369 ---------- IRELAND--2.7% Adare Printing Group PLC ........... 308,000 2,702,558 Anglo Irish Bank Corporation PLC ............................... 754,000 2,175,431 ---------- TOTAL IRELAND ...................... 4,877,989 ---------- ITALY--7.5% Banca Popolare di Brescia .......... 215,400 5,250,005 Industrie Natuzzi SPA .............. 98,800 2,457,650 Interpump Group SPA ................ 352,000 1,724,395 Manuli Rubber Industries SPA (a) ........................... 699,800 2,581,741 Premafin Finanziaria SPA (a) ....... 1,805,000 1,561,069 ---------- TOTAL ITALY ........................ 13,574,860 ---------- JAPAN--4.8% Aderans Company, Ltd. .............. 93,700 2,909,217 Honma Golf Company, Ltd. ........... 30,600 148,872 Kawasumi Laboratories .............. 66,000 1,296,064 Laox ............................... 160,000 1,174,702 Paris Miki, Inc. ................... 137,900 3,171,517 ---------- TOTAL JAPAN ........................ 8,700,372 ---------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL SMALL CAP PORTFOLIO (CONTINUED) NETHERLANDS--5.0% Avalix Groep NV (a) ................. 162,700 $ 1,342,338 Scala Business Solutions NV, 3/31/99 warrants (a) ............... 59,100 75,611 Scala Business Solutions NV, 3/31/01 warrants (a) ............... 59,100 4,788 Scala Business Solutions NV (a) ..... 505,140 4,570,916 Telegraaf Holdings .................. 110,100 2,959,520 ----------- TOTAL NETHERLANDS ................... 8,953,173 ----------- NORWAY--2.8% Electric Farm ASA (a) ............... 36,240 0 P4 Radio Hele Norg ASA (a) .......... 724,800 2,098,519 Schibsted ASA ....................... 240,800 3,042,285 ----------- TOTAL NORWAY ........................ 5,140,804 ----------- PORTUGAL--2.0% Campanhia de Seguros Mundial Confianca SA (a) ................... 110,600 3,519,135 ----------- SPAIN--2.5% Banco Pastor SA ..................... 72,400 4,533,915 ----------- SWEDEN--6.7% Caran AB ............................ 221,700 2,728,683 Elanders AB ......................... 124,750 2,333,842 Getinge Industries AB ............... 184,798 2,774,881 Industrial & Financial Systems AB ......................... 239,400 2,755,009 Monark Stiga AB ..................... 348,575 1,540,203 ----------- TOTAL SWEDEN ........................ 12,132,618 ----------- SWITZERLAND--8.4% Brauerei Eoichof AG ................. 4,228 4,355,114 Edipresse SA ........................ 12,660 3,640,314 Gretag Imaging Group (a) ............ 33,800 2,903,399 Moevenpick Holding AG ............... 1,730 967,198 SAIA-Burgess Electronics AG (a)...... 5,900 1,460,290 Swisslog Holding AG (a) ............. 19,600 1,854,845 ----------- TOTAL SWITZERLAND ................... 15,181,160 ----------- TAIWAN--1.1% Want Want Holdings, Ltd. ............ 1,662,000 1,994,400 ----------- UNITED KINGDOM--20.0% Ashtead Group PLC ................... 605,200 1,377,511 Carpetright PLC ..................... 357,300 1,335,645 Corporate Services Group PLC ........ 463,900 1,173,430 Denison International PLC, ADR (a) ............................ 121,500 1,518,750 Devro PLC ........................... 468,300 1,346,003 Dialog Corp. PLC .................... 487,000 477,372 Euromoney Publications PLC .......... 50,644 1,156,928 Games Workshop Group PLC ............ 151,100 1,292,848 Goode Durrant PLC ................... 346,100 1,575,534 Hogg Robinson PLC ................... 789,400 2,698,439 Hozelock Group PLC .................. 531,800 2,650,606 Jardine Lloyd Thompson Group PLC .......................... 769,800 2,442,795 JBA Holdings PLC .................... 535,900 1,691,660 Man (E D & F) Group PLC ............. 594,500 3,456,970 Manganese Bronze Holdings PLC ....................... 82,800 258,621 Seton Healthcare Group PLC .......... 356,423 4,974,170 Signet Group PLC, ADR (a) ........... 217,312 3,368,336 Victrex PLC ......................... 779,900 2,163,869 Westminster Health Care Holdings PLC ....................... 337,700 1,166,998 ----------- TOTAL UNITED KINGDOM ................ 36,126,485 ----------- TOTAL COMMON STOCKS (Identified cost $171,915,228)...................... 170,597,560 ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - ------------------------------------ ------------ --------------- LAZARD INTERNATIONAL SMALL CAP PORTFOLIO (CONTINUED) REPURCHASE AGREEMENT--5.5% State Street Bank and Trust Company, 4.75%, 01/04/99, (Dated 12/31/98, collateralized by $10,300,000 United States Treasury Note, 0.000%, 07/01/99, with a value of $10,068,250) (Identified cost $9,867,000) ...................... $ 9,867 $ 9,867,000 ------------ TOTAL INVESTMENTS (Identified cost $181,782,228) (b) ............... 100.0% $180,464,560 LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS ..................... 0.0 (39,229) ------- ------------ NET ASSETS ........................ 100.0% $180,425,331 ======= ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD EMERGING MARKETS PORTFOLIO COMMON STOCKS--83.2% ARGENTINA--6.7% Quilmes Industrial Quinsasa ADR ................................. 722,150 $6,725,022 Telefonica de Argentina SA ADR ................................. 213,500 5,964,656 YPF Sociedad Anonima Class D ADR ......................... 280,300 7,830,881 ---------- TOTAL ARGENTINA ...................... 20,520,559 ---------- BRAZIL--5.8% Companhia Cervejaria Brahma, ADR ................................. 189,700 1,790,294 Eletropaulo Metropolitana - Eletricidade de Sao Paulo SA ........ 78,020,000 3,615,923 Souza Cruz SA ........................ 861,700 5,562,576 Telecomunicacoes Brasileiras SA ADR .............................. 95,100 6,912,581 ---------- TOTAL BRAZIL ......................... 17,881,374 ---------- CHILE--4.3% AFP Provida SA ADR ................... 420,000 5,643,750 Banco BHIF ADR ....................... 216,900 1,680,975 Quinenco SA ADR ...................... 468,700 3,749,600 Santa Isabel SA ADR .................. 319,800 2,118,675 ---------- TOTAL CHILE .......................... 13,193,000 ---------- COLOMBIA--0.9 Banco Ganadero SA ADR ................ 295,300 2,676,156 ---------- CZECH REPUBLIC--1.3% Ceske Energeticke Zavody AS (a) .............................. 172,000 3,868,704 ---------- GREECE--2.9% Hellenic Telecommunication Organization SA ADR (a) ............. 17,500 231,875 Hellenic Telecommunication Organization SA ..................... 254,222 6,767,021 Panafon Hellenic Telecommunication Co. ADR (a), (c) ........................ 69,400 1,839,100 ---------- TOTAL GREECE ......................... 8,837,996 ---------- HONG KONG--4.5% Guangshen Railway Company, Ltd. ADR ............................ 444,300 2,665,800 Peregrine Investment Holdings, Ltd. (d) ............................ 2,329,000 0 Shenzhen Expressway Co. (a) .......... 21,334,000 4,956,528 Yue Yuen Industrial Holdings ......... 3,191,300 6,055,051 ---------- TOTAL HONG KONG ...................... 13,677,379 ---------- HUNGARY--1.1% Magyar Olaj-es Gazipari RT. .......... 120,200 3,295,023 ---------- INDIA--6.4% Hindalco Industries, Ltd GDR ......... 264,800 3,031,960 Larsen & Toubro, Ltd. GDR (c) ........ 257,400 1,956,240 Larsen & Toubro, Ltd. ................ 798,000 3,015,752 Mahanagar Telephone Nigam, Ltd. GDR (a), (c) ................... 545,100 6,745,613 State Bank of India GDR (a), (c) ..... 601,700 4,933,940 ---------- TOTAL INDIA .......................... 19,683,505 ---------- ISRAEL--4.6% ECI Telecom, Ltd. ADR ................ 241,100 8,589,188 Supersol, Ltd. ADR ................... 452,600 5,544,350 ---------- TOTAL ISRAEL ......................... 14,133,538 ---------- MALAYSIA--1.3% Jaya Tiasa Holdings Berhad ........... 2,980,000 3,960,263 ---------- MEXICO--15.6% Cemex SA de CV ....................... 2,158,904 4,652,529 Fomento Economico Mexicano SA ADR .............................. 207,400 5,522,025 Grupo Financiero Banamex Accival SA de CV (a) ................ 4,310,100 5,655,728 Grupo Industrial Maseca SA de CV ADR .............................. 689,300 8,573,169 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARE VALUE - ------------------------------------------------------------------------------ LAZARD EMERGING MARKETS PORTFOLIO (CONTINUED) Grupo Televisa SA (a) ................. 207,700 $ 5,127,594 Kimberly-Clark de Mexico SA ........... 2,082,800 6,643,432 Panamerican Beverages, Inc., Class A ADR .......................... 210,300 4,587,169 Pepsi-Gemex SA de CV GDR .............. 546,800 4,271,875 Tubos de Acero de Mexico SA ADR ............................... 421,400 2,712,762 ----------- TOTAL MEXICO .......................... 47,746,283 ----------- PERU--2.2% Credicorp, Ltd. ....................... 162,600 1,463,400 Telefonica del Peru SA ADR ............ 409,200 5,191,725 ----------- TOTAL PERU ............................ 6,655,125 ----------- PHILIPPINES--2.3% Benpres Holdings Corp. GDR (a), (c) ......................... 680,000 2,196,400 Benpres Holdings Corp. (a) ............ 29,316,000 4,747,836 ----------- TOTAL PHILIPPINES ..................... 6,944,236 ----------- POLAND--3.0% Bank Handlowy W. Warszawie ............ 542,400 6,691,145 Telekomunikacja Polska SA GDR (a) .............................. 495,300 2,501,265 ----------- TOTAL POLAND .......................... 9,192,410 ----------- RUSSIA--0.2% AO Tatneft ADR ........................ 412,300 798,831 ----------- SOUTH AFRICA--10.1% Amalgamated Banks of South Africa, Ltd. ......................... 1,104,323 5,230,737 Barlow, Ltd. .......................... 958,515 3,677,646 JD Group, Ltd. ........................ 871,478 3,846,736 Naspers, Ltd. ......................... 873,100 3,409,215 Rembrandt Group, Ltd. ................. 835,200 5,104,528 Sanlam, Ltd. (a) ...................... 3,567,300 3,542,893 South African Breweries, Ltd. ......... 366,200 6,167,265 ----------- TOTAL SOUTH AFRICA .................... 30,979,020 ----------- SOUTH KOREA--6.6% Samsung Electronics Co. ............... 150,215 10,076,767 SK Telecom Company, Ltd. .............. 8,493 6,224,176 SK Telecom Company, Ltd. ADR 390,061 3,973,746 ----------- TOTAL SOUTH KOREA ..................... 20,274,689 ----------- THAILAND--1.6% Bangkok Expressway Public Company, Ltd. (a) .................... 4,871,000 4,824,099 ----------- VENEZUELA--1.8% Compania Anonima Nacional Telefonos de Venezuela ADR ........... 145,500 2,591,719 Mavesa SA ADR ......................... 809,000 3,033,750 ----------- TOTAL VENEZUELA ....................... 5,625,469 ----------- TOTAL COMMON STOCKS (Identified cost $309,980,625)........ 254,767,659 ----------- PREFERRED STOCKS--11.2% BRAZIL--11.2% Banco Bradesco SA ADR .................465,929,611 2,583,571 Banco Bradesco SA, rights (a) ......... 19,312,382 0 Banco Itau SA ......................... 11,786,000 5,754,881 Cemig Cia Energetica de Minas Gerais ...............................224,447,516 4,272,360 Companhia Brasileira de Distribuicao Grupo Pao de Acucar GDR (a) ....................... 338,900 5,252,950 Companhia Cervejaria Brahma (a) ........................... 8,091,100 3,535,629 Companhia Cimento Portland ............ 24,820,000 2,824,423 Companhia Paranaense de Energia-Copel ADR .................... 433,300 3,087,262 Companhia Riograndense Telecom .............................. 10,617,800 3,822,513 Copel Paranqense de Energia ...........236,399,000 1,702,120 Telesp Celular SA (a) ................. 36,140,000 1,588,210 ----------- TOTAL BRAZIL .......................... 34,423,919 ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- LAZARD EMERGING MARKETS PORTFOLIO (CONTINUED) THAILAND--0.0% Industrial Finance Corp. of Thailand, rights (a) ................. 2,031,350 $ 0 ---------- TOTAL PREFERRED STOCKS (Identified cost $53,499,641)......... 34,423,919 ---------- PRINCIPAL AMOUNT (000) --------------- CONVERTIBLE BONDS--1.4% BRAZIL--1.3% Telesp de Sao Paulo SA ............... $ 27,806,118 3,790,174 --------- PHILIPPINES--0.1% Bacnotan Consolidated Industries, 5.50%, 06/21/04 (c) ........................ 1,112 378,080 --------- TOTAL CONVERTIBLE BONDS (Identified cost $6,868,313)......... 4,168,254 --------- REPURCHASE AGREEMENT--3.5% State Street Bank and Trust Company, 4.75%, 01/04/99, (Dated 12/31/98, collateralized by $10,505,000 United States Treasury Note, 6.750%, 04/30/00, with a value of $10,925,200) (Identified cost $10,708,000)......................... $ 10,708 $ 10,708,000 ------------ TOTAL INVESTMENTS (Identified cost $381,056,579) (b) .................. 99.3% $304,067,832 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ...................... 0.7 2,156,066 -------- ------------ NET ASSETS ........................... 100.0% $306,223,898 ======== ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD BOND PORTFOLIO ASSET-BACKED SECURITIES--5.9% Chase Manhattan Grantor Trust, Series 1996-B, Class A 6.61%, 09/15/02 .................................... $ 516 $ 521,369 Citibank Credit Card Master Trust, Series 1998-1, Class B 5.95%, 01/15/03 .................................... 993 990,882 Delta Funding Home Equity Loan Trust, Series 1997-3, Class A6, 7.72%, 05/25/20 .......................... 394 405,210 Federal Express Corp. Trust, Series 1998-1, Class 1A 6.72%, 01/15/22 .................................... 1,288 1,343,139 First USA Credit Card Master Trust, Series 1997-6, Class B 6.58%, 03/17/05 .................................... 1,461 1,497,218 Fleetwood Credit Grantor Trust, Series 1997-B, Class A 6.40%, 05/15/13 .................................... 566 576,930 NationsBank Auto Owner Trust, Series 1996-A, Class A4 6.625%, 12/15/00 ................................... 440 443,300 PNC Student Loan Trust I, Series 1997-2, Class A7 6.728%, 01/25/07 ................................... 867 903,414 Travelers Bank Credit Card Master Trust, Series 1998-1, Class A, 6.00%, 01/15/05 ........................... 91 91,487 UCFC Loan Trust, Series 1997-C, Class A 8.00%, 09/15/00 .................................... 578 72,160 --------- TOTAL ASSET-BACKED SECURITIES (Identified cost $6,698,101)......................... 6,845,109 --------- COLLATERALIZED MORTGAGE OBLIGATIONS--17.8% Asset Securitization Corp.: Series 1996-D2, Class ACS2 1.49%, 02/28/26 (e) ................................ 2,125 185,274 Series 1996-MD6, Class A1B 6.88%, 11/13/29 (e) ............................... 248 $ 260,539 Series 1996-D3, Class A1A 7.01%, 10/13/26 ................................... 78 80,855 Series 1995-MD4, Class A1 7.10%, 08/13/29 ................................... 309 318,026 Series 1996-D3, Class A1B 7.21%, 10/31/26 ................................... 375 401,310 CS First Boston Mortgage: Series 1998-C2 6.30%, 11/11/30 ................................... 550 560,141 Series 1997-C1, Class AIB 7.15%, 08/20/06 (e) ............................... 780 821,574 DLJ Mortgage Acceptance Corp., Series 1993-MF7, Class A1, 7.40%, 06/18/03 ................................ 328 348,126 Federal Home Loan Mortgage Corp.: Series 1679, Class J 6.00%, 02/15/09 ................................... 359 356,420 Series 1697, Class D 6.00%, 03/15/09 ................................... 359 354,175 Series 1513, Class L 6.50%, 07/15/07 ................................... 230 235,030 Series 1478, Class H 6.50%, 03/15/08 ................................... 373 381,626 Series G025, Class B 6.50%, 12/25/08 ................................... 707 716,940 Series 1519, Class G 6.75%, 05/15/08 ................................... 619 635,875 Series 1946, Class PD 6.75%, 05/15/24 ................................... 683 699,861 7.00%, 11/01/28 .................................... 6,233 6,356,349 Federal National Mortgage Association REMIC: Series 1992-203, Class SA 3.844%, 11/25/07 (e) .............................. 243 15,739 Series 1992-129, Class G 4.00%, 06/25/18 ................................... 423 417,633 Series 1994-48, Class E 6.00%, 11/25/08 ................................... 517 521,358 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. =============================================================================== THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - ------------------------------------------------------------------------------- LAZARD BOND PORTFOLIO (CONTINUED) Series 1996-40, Class J 6.00%, 12/25/08 ................. $ 840 $ 849,450 Series 1994-28, Class H 6.25%, 03/25/23 ................. 367 369,980 Series 1993-134, Class K 6.50%, 05/25/08 ................. 295 297,194 Series 1993-206, Class KA 6.50%, 12/25/22 ................. 502 512,511 Series 1994-30, Class LC 6.50%, 07/25/23 ................. 363 363,867 Series 1999-97, Class SA 10.00%, 04/25/21 ................ 37 927 Series 1991-G13, Class L 10.095%, 05/25/21 (e) ........... 158 36,418 First Union Lehman Brothers Bank, Series 1998-C2, Class A1, 6.28%, 06/18/07 ........ 1,015 1,038,705 G3 Mortgage Reinsurance, Ltd., 7.892%, 05/25/08 (c) ............. 300 269,156 GMAC Commercial Mortgage Securities, Inc., Series 1996-C1, Class A2A 6.79%, 09/15/03 (e) ............. 266 275,298 Headlands Mortgage Securities, Inc.: Series 1997-1, Class X1 0.686%, 03/25/27 ................ 4,755 49,890 Series 1997-4, Class X 1.121%, 11/25/27 ................ 2,790 43,783 LB Commercial Conduit Mortgage Trust, Series 1996-C2, Class A 1.00%, 10/25/26 ................. 311 328,711 Merrill Lynch Mortgage Investments, Inc.: Series 1996-C1, Class IO 0.736%, 04/25/28 (c), (e) ....... 4,489 115,210 Series 1998-C3, Class A1 5.65%, 12/15/30 ................. 1,000 994,844 Midland Realty Acceptance Corp., Series 1996-C1, Class A2, 7.475%, 12/25/05 ............ 344 368,479 Morgan Stanley Capital One, Inc.: Series 1998-HF1, Class X 1.046%, 02/15/18 ................ 4,384 258,986 Series 1996-WF1,Class X 1.405%, 11/15/28 (c), (e) ....... 2,696 157,972 Series 1997-C1, Class IO 2.562%, 02/15/20 (e) ............ 663 9,336 Mortgage Capital Funding, Inc., 1.367%, 11/20/12 ................. 3,378 259,216 Prudential Home Mortgage Security, Series 1993-41, Class A5, 0.914%, 10/25/00....... 15,432 111,424 Structured Asset Securitization Corp.: Series 1996-CFL, Class X1 1.461%, 02/25/28 (e) ............ 2,067 112,161 Series 1996-CFL, Class X2 1.153%, 02/25/28 (e) ............ 1,228 27,314 United States Department Veteran Affairs, Series 1997-1, Class IO, 0.368%, 02/15/27 (e) .............................. 8,650 85,155 ---------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Identified cost $20,995,437)..... 20,602,838 ---------- CORPORATE BONDS--25.2% AEROSPACE & DEFENSE--0.7% Raytheon Co., 6.30%, 03/15/05 .................. 832 858,641 ---------- BANKING--1.3% Capital One Bank: 6.70%, 05/15/08 .................. 416 402,280 7.15%, 09/15/06 .................. 268 269,394 U.S. Bancorp, Inc., 7.50%, 06/01/26 .................. 728 831,616 ---------- 1,503,290 ---------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD BOND PORTFOLIO (CONTINUED) BREWERY--0.8% Anheuser Busch Company, Inc., 7.10%, 06/15/07 ................ $ 799 $ 864,150 --------- BUILDING & CONSTRUCTION--0.8% CSC Holdings, Ltd., 10.50%, 05/15/16 ............... 308 361,900 Penhall Acquisition Corp., 12.00%, 08/01/06 (c) ........... 550 517,000 --------- 878,900 --------- CHEMICALS--0.2% Climachem, Inc., 10.75%, 12/01/07 ............... 260 261,300 --------- COMMUNICATION SERVICES--0.1% Talton Holdings, Inc., 11.00%, 06/30/07 ............... 73 69,350 --------- COMPUTERS & BUSINESS EQUIPMENT--0.3% PSINet, Inc., 10.00%, 02/15/05 ............... 310 306,900 --------- CONTAINERS--0.1% Amtrol Acquisition, Inc., 10.625%, 12/31/06 .............. 82 79,745 --------- ENERGY--0.4% Midamerican Energy Co., 6.375%, 06/15/06 ............... 454 459,689 --------- ENTERTAINMENT--1.3% Casino America, Inc., 12.50%, 08/01/03 ............... 144 159,120 Regal Cinemas, Inc., 9.50%, 06/01/08 (c) ............ 730 751,900 Station Casinos, Inc., 10.125%, 03/15/06 .............. 600 628,500 --------- 1,539,520 --------- FINANCIAL SERVICES--4.9% AT&T Capital Corp., 6.60%, 05/15/05 ................ 586 561,423 First USA Trust, 6.50%, 01/18/06 (c) ............ 400 401,380 Ford Motor Credit Co., 6.75%, 05/15/05 ................ 743 786,042 General Motors Acceptance Corp., 6.75%, 02/07/02 ............... 821 850,408 Goldman Sachs Group LP, 6.625%, 12/01/04 (c) ........... 521 532,413 Heller Financial, Inc., 6.50%, 11/01/01 ................ 279 284,036 MBNA Corp., 6.75%, 03/15/08 ................ 429 418,597 Republic New York Corp., 7.25%, 07/15/02 ................ 838 872,398 Resolution Funding Strips, 0.00%, 04/15/07 ................ 1,248 825,901 Sears Roebuck Acceptance Corp., 7.14%, 05/02/03 ............... 149 157,553 --------- 5,690,151 --------- FOOD & BEVERAGES--0.3% Advantica Restaurant Group, Inc., 11.25%, 01/15/08 ............... 250 253,125 Fleming Cos., Inc., 10.50%, 12/01/04 ............... 65 61,100 --------- 314,225 --------- FOOD PROCESSING--0.0% Rifkin Acquisitions Partners LP, 11.125%, 01/15/06 .............. 40 44,000 --------- FUNERAL SERVICES--0.3% Service Corp. International, 6.75%, 06/01/01 ................ 377 385,863 --------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 37 ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD BOND PORTFOLIO (CONTINUED) HEALTHCARE--0.7% Dynacare, Inc., 10.75%, 01/15/06 ................. $ 122 $ 119,560 Quest Diagnostics, Inc., 10.75%, 12/15/06 ................. 218 241,980 Tenet Healthcare Corp., 8.625%, 01/15/07 ................. 400 418,000 --------- 779,540 --------- INDUSTRIAL--1.1% J.H. Heafner, Inc., 10.00%, 05/15/08 (c) ............. 310 310,000 Mediq, Inc., 11.00%, 06/01/08 (c) ............. 350 336,000 Pen Holdings, Inc., 9.875%, 06/15/08 ................. 400 400,000 Transdigm, Inc., 10.375%, 12/01/08 (c) ............ 250 251,250 --------- 1,297,250 --------- INDUSTRIAL & MACHINERY--0.7% High Voltage Engineering Corp., 10.50%, 08/15/04 ................. 374 353,430 NationsRent, Inc., 10.375%, 12/15/08 (c) ............ 210 209,475 United Rentals, Inc., 9.25%, 01/15/09 (c) .............. 250 251,875 --------- 814,780 --------- LEISURE TIME--0.2% Booth Creek Ski Holdings, Inc., 12.50%, 03/15/07 ................. 270 267,300 --------- MANUFACTURING--0.0% W.R. Carpenter North America, Inc., 10.625%, 06/15/07 .......... 54 54,675 --------- MORTGAGE BACKED SECURITIES--1.1% Associates Corporation North America, 6.25%, 11/01/08 ......... 645 667,911 Fort James Corp., 6.875%, 09/15/07 ................. 636 657,980 --------- 1,325,891 --------- OIL & GAS--0.7% Texaco Capital, Inc., 6.00%, 06/15/05 .................. 776 785,180 --------- OTHER--0.3% RMOF, 2.16%, 01/31/22 .................. 4,434 321,492 --------- RESTAURANTS, LODGING & ENTERTAINMENT--0.2% American Restaurant Group, Inc., 11.50%, 02/15/03 ........... 205 178,350 --------- RETAIL--0.9% Frank's Nursery & Crafts, Inc., 10.25%, 03/01/08 ................. 300 295,500 Home Interiors & Gifts, Inc., 10.125%, 06/01/08 (c) ............ 300 297,000 Jitney-Jungle Stores of America, Inc., 10.375%, 09/15/07 .......... 15 15,375 Petro Stopping Centers, 10.50%, 02/01/07 ................. 365 381,425 Renters Choice, Inc., 11.00%, 08/15/08 (c) ............. 100 101,500 --------- 1,090,800 --------- TELECOMMUNICATIONS--3.4% Coaxial Communications Central Ohio, LLC, 10.00%, 08/15/06 (c) ............ 500 516,250 Fundy Cable Ltd., 11.00%, 11/15/05 ................. 452 476,860 GTE Corp., 9.10%, 06/01/03 .................. 395 451,339 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 38 ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD BOND PORTFOLIO (CONTINUED) ITC Deltacom, Inc., 9.75%, 11/15/08 (c) .............. $ 650 $ 672,750 LodgeNet Entertainment Corp., 10.25%, 12/15/06 ................. 245 242,550 TCI Communications, Inc., 6.875%, 02/15/06 ................. 673 718,138 US West Communications, Inc., 5.625%, 11/15/08 ................ 836 843,616 ----------- 3,921,503 ----------- TRANSPORTATION--0.5% Atlantic Express, Inc., 10.75%, 02/01/04 ................. 407 411,070 Atlas Air, Inc., 9.25%, 04/15/08 .................. 120 119,700 ----------- 530,770 ----------- UTILITIES--3.9% Calpine Corp., 8.75%, 07/15/07 .................. 650 687,921 GTE North, Inc., 6.375%, 02/15/10 ................. 1,155 1,223,757 National Rural Utilities Cooperative, 6.125%, 05/15/05 ................ 778 810,256 Texas Utilities Co., Series B 6.375%, 10/01/04 ................. 821 848,101 Western Resources, Inc., 7.125%, 08/01/09 ................. 850 955,952 ----------- 4,525,987 ----------- TOTAL CORPORATE BONDS (Identified cost $29,029,261)..... 29,149,242 ----------- MUNICIPALS--3.6% California Department Water Resource Center, Series U 5.00%, 12/01/29 ................. 570 563,781 Denver City & County Airport Revenue, Series A 5.00%, 11/15/25 ................. 1,145 1,111,978 Houston Airport Systems Revenue, Series B 5.00%, 07/01/25 ................. 715 694,558 Long Island Power Authority, 5.125%, 04/01/11 ................. 570 599,919 Philadelphia Airport Systems Revenue, Series A 5.125%, 07/01/28 ................ 570 559,370 Wayne Charter County Airport Revenue, Series A 5.00%, 12/01/22 ................. 585 569,065 ----------- TOTAL MUNICIPALS (Identified cost $4,133,313)...... 4,098,671 ----------- MORTGAGE PASS-THROUGH SECURITIES--23.5% Federal Home Loan Mortgage Corp.: 6.50%, 04/15/11 .................. 682 689,884 6.50%, 08/01/13 .................. 1,792 1,819,132 6.50%, 10/01/13 .................. 787 798,670 6.50%, 11/01/13 .................. 623 632,150 6.50%, 09/01/28 .................. 1,591 1,603,361 6.50%, 10/01/28 .................. 442 445,366 6.50%, 11/01/28 .................. 127 128,813 6.50%, TBA ....................... 1,081 1,096,869 7.00%, 08/01/09 .................. 877 895,612 7.00%, 08/01/28 .................. 132 134,786 7.472%, 09/01/26 (e) ............. 70 71,268 7.50%, 12/01/28 .................. 563 578,128 7.504%, 11/01/26 (e) ............. 92 93,446 8.00%, 03/01/28 .................. 1,126 1,166,500 Federal National Mortgage Association: 6.50%, 08/01/28 ................. 1,646 1,658,372 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 39 ===============================================================================- THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - ------------------------------------------------------------------------------- LAZARD BOND PORTFOLIO (CONTINUED) 6.50%, 09/01/28 ........................... $ 1,605 $ 1,617,154 6.50%, 12/01/28 ........................... 4,031 4,060,698 7.00%, 05/01/28 ........................... 592 604,004 7.00%, 08/01/28 ........................... 142 145,723 7.00%, TBA ................................ 1,060 1,082,525 7.075%, 05/01/06 .......................... 448 480,246 7.323%, 06/01/25 (e) ...................... 117 118,856 7.467%, 07/01/25 (e) ...................... 164 167,281 8.00%, 12/01/09 ........................... 318 327,595 8.00%, 06/01/12 ........................... 289 298,022 8.00%, 12/01/12 ........................... 480 494,325 10.00%, 08/01/18 .......................... 217 43,757 Government National Mortgage Association: 1.00%, 06/20/28 .......................... 1,445 1,463,887 5.50%, 10/20/27 ........................... 864 874,364 6.50%, 07/20/27 ........................... 216 218,592 6.50%, 09/20/27 ........................... 324 328,592 6.625%, 09/20/26 .......................... 294 299,012 7.00%, 04/15/28 ........................... 860 880,717 8.00%, 11/15/28 ........................... 1,794 1,865,316 ------------ TOTAL MORTGAGE PASS-THROUGH SECURITIES (Identified cost $27,180,737).............. 27,183,023 ------------ U.S. GOVERNMENT OBLIGATIONS--20.0% Tennessee Valley Authority Federal, 0.00%, 11/15/29 .......................... 751 731,767 United States Treasury Notes: 3.625%, 07/15/02 .......................... 1,845 1,831,163 4.75%, 11/15/08 ........................... 110 110,859 5.75%, 11/15/00 ........................... 2,700 2,752,299 United States Treasury Strips: 0.00%, 11/15/04 ........................... 13,564 10,274,458 0.00%, 05/15/09 ........................... 12,384 7,360,183 ------------ TOTAL U.S. GOVERNMENT OBLIGATIONS (Identified cost $22,981,825).............. 23,060,729 ------------ REPURCHASE AGREEMENT--4.8% State Street Bank and Trust Company, 4.75%, 01/04/99, (Dated 12/31/98, collateralized by $5,950,000 United States Treasury Bill, 0.000%, 12/09/99, with a value of $5,703,075) (g) (Identified cost $5,588,000)................................ 5,588 5,588,000 ------------ TOTAL INVESTMENTS (Identified cost $116,606,674) (b) ....................................... 100.8% $116,527,612 LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS .............................. (0.8) (904,509) ------------ ------------ NET ASSETS ................................. 100.0% $115,623,103 ============ ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 40 ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD HIGH YIELD PORTFOLIO CORPORATE BONDS--88.2% AEROSPACE & DEFENSE--0.8% Sabreliner Corp., 11.00%, 06/15/08 (c) ......................... $ 400 $ 352,000 --------- AUTOMOTIVE--2.4% J.B. Poindexter & Co., 12.50%, 05/15/04 ............................. 500 470,000 United Rentals, Inc., 9.25%, 01/15/09 (c) .......................... 550 555,500 --------- 1,025,500 --------- BROADCASTING--4.5% Echostar DBS Corp., 12.50%, 07/01/02 ............................. 400 460,000 Golden Sky Systems, Inc., 12.375%, 08/01/06 (c) ........................ 500 512,500 Paxson Communications Corp., 11.625%, 10/01/02 ............................ 310 314,650 Radio Unica Corp., 1.00%, 08/01/06 (c) .......................... 250 135,000 Spanish Broadcasting Systems, Inc., 11.00%, 03/15/04 ....................... 500 530,000 --------- 1,952,150 --------- BUILDING & CONSTRUCTION--1.1% Penhall Acquisition Corp., 12.00%, 08/01/06 (c) ......................... 500 470,000 --------- CABLE T.V. OPERATOR--6.3% CSC Holdings, Inc.: 9.875%, 04/01/23 ............................. 358 398,275 10.50%, 05/15/16 ............................. 500 587,500 Fundy Cable, Ltd., 11.00%, 11/15/05 ............................. 600 633,000 Coaxial Communications Central Ohio, LLC, 10.00%, 08/15/06 (c) ......................... 500 516,250 Rifkin Acquisitions Partners LP, 11.125%, 01/15/06 ............................ 500 550,000 --------- 2,685,025 --------- CHEMICALS--2.3% Climachem, Inc., 10.75%, 12/01/07 ............................. 495 497,475 Geo Specialty Chemicals, Inc., 10.125%, 08/01/08 (c) ........................ 500 480,000 --------- 977,475 --------- COMMERCIAL SERVICES--0.6% Fisher Scientific International, Inc., 9.00%, 02/01/08 (c) .......................... 250 248,750 --------- COMMUNICATION SERVICES--2.5% Centennial Cellular Operating Co. 10.75%, 12/15/08 (c) ......................... 600 603,000 Talton Holdings, Inc., 11.00%, 06/30/07 ............................. 500 475,000 --------- 1,078,000 --------- COMPUTER SERVICES--4.0% Concentric Network Corp., 12.75%, 12/15/07 ............................. 500 510,000 Primark Corp., 9.25%, 12/15/08 (c) .......................... 550 550,000 PSINet, Inc.: 10.00%, 02/15/05 ............................. 140 138,600 11.50%, 11/01/08 (c) ......................... 500 523,750 --------- 1,722,350 --------- CONSUMER DURABLES--1.2% Generac Portable Products LLC, 11.25%, 07/01/06 (c) ......................... 500 500,000 --------- CONTAINERS--2.4% Amtrol, Inc., 10.625%, 12/31/06 ............................ 500 486,250 Silgan Holdings, Inc., 13.25%, 07/15/06 ............................. 500 560,000 --------- 1,046,250 --------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 41 - -------------------------------------------------------------------------------- THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD HIGH YIELD PORTFOLIO (CONTINUED) ENERGY--0.4% Mariner Energy, Inc., Series B 10.50%, 08/01/06 ................ $ 200 $ 166,000 --------- ENTERTAINMENT--7.7% Casino America, Inc., 12.50%, 08/01/03 ................ 500 552,500 Penn National Gaming, Inc., 10.625%, 12/15/04 ............... 500 525,000 Production Resource Group LLC, 11.50%, 01/15/08 ................ 500 490,000 Regal Cinemas, Inc.: 8.875%, 12/15/10 ................ 150 148,875 9.50%, 06/01/08 (c) ............. 500 515,000 Station Casinos, Inc., 10.125%, 03/15/06 ............... 500 523,750 TVN Entertainment Corp., 14.00%, 08/01/08 ................ 500 445,000 Young America Corp., 11.625%, 02/15/06 ............... 300 126,000 --------- 3,326,125 --------- FOOD & BEVERAGES--4.3% Advantica Restaurant Group, Inc., 11.25%, 01/15/08 .......... 700 708,750 Agrilink Foods, Inc., 11.875%, 11/01/08 (c) ........... 600 610,500 American Restaurant Group, Inc., 11.50%, 02/15/03 .......... 575 500,250 Mrs. Field's Original, 1.00%, 12/01/05 ................. 80 45,800 --------- 1,865,300 --------- HEALTHCARE--5.0% Dynacare, Inc., 10.75%, 01/15/06 ................ 625 612,500 Fresenius Medical Care Capital Trust, 9.00%, 12/01/06 .......... 250 261,250 Genesis Health Ventures, Inc., 9.875%, 01/15/09 (c) ............ 1,100 1,061,500 Tenet Healthcare Corp., 8.625%, 01/15/07 ................ 200 209,000 --------- 2,144,250 --------- INDUSTRIAL--11.1% Dictaphone Corp., 11.75%, 08/01/05 ................ 500 375,000 Globe Holdings, Inc., 1.00%, 08/01/09 (c) ............. 300 126,000 Interpool Capital Trust, 9.875%, 02/15/27 ................ 500 440,455 J.H. Heafner, Inc., 10.00%, 05/15/08 ................ 650 650,000 Mediq, Inc., 11.00%, 06/01/08 ................ 800 768,000 Morris Material Handling, Inc., 9.50%, 04/01/08 ................. 450 333,000 NationsRent, Inc., 10.375%, 12/15/08 (c) ........... 600 598,500 Transdigm, Inc., 10.375%, 12/01/08 (c) ........... 375 376,875 Unisys Corp., 11.75%, 10/15/04 ................ 600 696,000 W.R. Carpenter North America, Inc., 10.625%, 06/15/07 ......... 400 405,000 --------- 4,768,830 --------- LEISURE TIME--2.1% Booth Creek Ski Holdings, Inc., Series B 12.50%, 03/15/07 ................ 900 891,000 --------- LODGING & ENTERTAINMENT--1.0% Courtyard by Marriott II Ltd., 10.75%, 02/01/08 ................ 400 414,000 --------- MANUFACTURING--5.6% Axiohm Transaction Solutions, 9.75%, 10/01/07 ................. 500 472,500 Exide Corp., 10.00%, 4/15/05 ................. 500 493,750 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 42 ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD HIGH YIELD PORTFOLIO (CONTINUED) Henry Co., 10.00%, 04/15/08 ..................... $ 500 $ 500,000 High Voltage Engineering Corp., 10.50%, 08/15/04 .............. 500 472,500 Precise Technology, Inc., 11.125%, 06/15/07 .................... 500 482,500 ---------- 2,421,250 ---------- MINING--1.3% Pen Holdings, Inc., 9.875%, 06/15/08 ..................... 550 550,000 ---------- PUBLISHING--1.3% T/SF Communications Corp., 10.375%, 11/01/07 .................... 550 554,125 ---------- RETAIL--5.2% Frank's Nursery and Crafts, Inc., 10.25%, 03/01/08 ..................... 350 344,750 Home Interiors & Gifts, Inc., 10.125%, 06/01/08 (c) ................ 700 693,000 Jitney-Jungle Stores of America, Inc., 10.375%, 09/15/07 .............. 500 512,500 Petro Stopping Centers, 10.50%, 02/01/07 ............................. 450 470,250 Renters Choice, Inc., 11.00%, 08/15/08 (c) ................. 200 203,000 ---------- 2,223,500 ---------- SECURITY--1.4% Loomis Fargo & Co., 10.00%, 01/15/04 ..................... 600 594,000 ---------- TELECOMMUNICATIONS--11.3% AMSC Acquisition, Inc., 12.25%, 04/01/08 ..................... 500 310,000 Dobson Communications Corp., 11.75%, 04/15/07 ..................... 250 248,750 Econophone, Inc., 13.50%, 07/15/07 ..................... 500 511,875 Facilicom International, Inc., 10.50%, 01/15/08 (c) ................. 249 201,690 IPC Information Systems, Inc., 1.00%, 05/01/08 (f) .................. 200 126,000 Iridium LLC, 10.875%, 07/15/05 .................... 250 212,500 ITC Deltacom, Inc.: 9.75%, 11/15/08 (c) .................. 100 103,500 11.00%, 06/01/07 ..................... 500 547,500 LodgeNet Entertainment Corp., 10.25%, 12/15/06 ..................... 500 495,000 Long Distance International, Inc., 12.25%, 04/15/08 (c) ........... 300 250,500 McLeodUSA, Inc., 9.50%, 11/01/08 (c) .................. 300 318,000 Nextel Communications, Inc., 12.00%, 11/01/08 (c) ................. 500 552,500 Pegasus Communications Corp., 9.75%, 12/01/06 (c) .................. 500 501,250 Qwest Communications International, Inc., 10.875%, 04/01/07 ................... 390 454,350 ---------- 4,833,415 ---------- TRANSPORTATION--1.2% Atlantic Express, Inc., 10.75%, 02/01/04 ..................... 525 530,250 ---------- TRANSPORTATION & FREIGHT SERVICES--1.2% Atlas Air, Inc., 9.25%, 04/15/08 ...................... 500 498,750 ---------- TOTAL CORPORATE BONDS (Identified cost $38,613,745)......... 37,838,295 ---------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 43 ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- DESCRIPTION SHARES VALUE - ------------------------------------------------------------------------------- LAZARD HIGH YIELD PORTFOLIO (CONTINUED) PREFERRED STOCKS--6.1% Adelphia Communications Corp. ............................ 5,000 $ 590,000 American Mobile Satellite Corp., warrant 4/01/08 (c) ....... 500 1,940 American Restaurant Group, Inc., 08/15/08 warrant ........... 200 2 American Restaurant Group, Inc. ............................. 212 212,000 Dobson Communications Corp. 272 261,120 Forman Petroleum Corp., 06/01/04 warrant ................. 250 0 Harborside Healthcare Corp. ....... 310 288,300 High Voltage Engineering Corp...... 265 259,700 Hyperion Telecommunications, Inc. ............................. 318 252,810 Jitney-Jungle Stores of America, Inc. ............................. 1,600 214,400 Long Distance International, Inc., 04/13/08 warrant ........... 300 38 Nextel Communications, Inc. ....... 7 5,775 Paxson Communications Corp. ....... 17 15,385 Paxson Communications Corp. ....... 42 367,500 S.F. Holdings Group, Inc. (c) ..... 1,110 2,220 S.F. Holdings Group, Inc. ......... 330 145,200 --------- TOTAL PREFERRED STOCKS (Identified cost $2,986,601)....... 2,616,390 --------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT--3.6% State Street Bank and Trust Company, 4.75%, 01/04/99, (Dated 12/31/98, collateralized by $1,530,000 United States Treasury Note, 6.375%, 05/15/00, with a value of $1,579,725) (Identified cost $1,545,000).................... $ 1,545 $ 1,545,000 ----------- TOTAL INVESTMENTS (Identified cost $43,145,346) (b).............. 97.9% $41,999,685 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ................ 2.1 883,878 ------- ----------- NET ASSETS ..................... 100.0% $42,883,563 ======= =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - ------------------------------------------------------------------------------- LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO CURRENCY DENOMINATED BONDS--88.9% ARGENTINE PESO--1.1% Argentina Bocon, (USD), 5.01%, 09/01/02 (e) ............ $ 35 $ 38,220 Argentina Resolution Co., 0.00%, 07/01/99 ................ 125 118,807 Mastellone Hermanos SA, 11.75%, 04/01/08 ............... 239 192,395 Republic of Argentina: 3.01%, 04/01/01 (e) ............ 816 563,547 3.01%, 09/01/02 (e) ............ 103 96,547 3.01%, 04/01/07 (e) ............ 385 284,259 Republic of Argentina, (USD), 6.188%, 03/31/05 (e) ........... 51 43,707 ---------- TOTAL ARGENTINE PESO ............ 1,337,482 ---------- AUSTRALIAN DOLLAR--1.2% Commonwealth of Australia, 9.50%, 08/15/03 (g) ............ 1,988 1,455,836 ---------- AUSTRIAN SCHILLING--1.2% Republic of Austria, 8.00%, 03/18/02 ................ 14,670 1,421,393 ---------- BELGIAN FRANC--2.7% Kingdom of Belgium, 5.75%, 03/28/08 ................ 97,496 3,180,395 ---------- BRITISH POUND--9.6% Bayerische Landesbank Girozentrale, 6.875%, 06/07/02 .............. 826 1,428,929 Birmingham Midshires Building Society, 9.125%, 01/05/06 .............. 150 293,290 Brunner Mond Group PLC, 12.50%, 07/15/08 ............... 198 299,352 Chelsea Village PLC, 8.875%, 12/17/07 ............... 326 551,367 Coca Cola Enterprises PLC, 6.75%, 03/12/08 ................ 158 280,385 Finance for Resident Society House, 11.126%, 10/05/58 .............. 300 879,403 Haven Funding PLC, 8.125%, 09/30/37 ............... 290 650,139 HMV Media Group PLC, 10.875%, 05/15/08 .............. 300 463,532 Landwirtschaftliche Rentenbank, 6.375%, 03/09/05 ............... 494 867,188 Middleweb PLC, 10.50%, 05/30/08 (c) ........... 274 430,188 North American Capital Corp., 8.25%, 11/17/03 (g) ............ 876 1,590,925 Textron Golf & Turk PLC, 8.684%, 01/30/08 (c) ........... 303 583,447 United Kingdom Treasury Bonds: 7.25%, 12/07/07 (g) ............ 387 773,164 8.00%, 06/07/21 (g) ............ 514 1,287,776 United Kingdom Treasury Notes, 6.50%, 12/07/03 ......... 299 544,946 William Hill Finance PLC, 10.625%, 04/30/08 .............. 330 559,229 ---------- TOTAL BRITISH POUND ............. 11,483,260 ---------- CANADIAN DOLLAR--1.8% Argos Funding Trust, 5.963%, 02/27/06 ............... 250 161,923 Government of Canada, 8.00%, 06/01/23 ................ 682 615,964 Molson Breweries Company, Ltd., 6.00%, 06/02/08 (c) ............ 800 534,903 Province of Quebec, 8.625%, 11/04/11 ............... 111 232,899 Quebec Housing, 8.95%, 05/13/13 ................ 407 352,148 UniHost Corp., 10.00%, 06/30/03 ............... 402 239,333 ---------- TOTAL CANADIAN DOLLAR ........... 2,137,170 ---------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO (CONTINUED) COLOMBIAN PESO--0.0% Salomon COP Swap, 0.00%, 01/06/99 ................. $ 50 $ 52,385 ---------- CROATIAN KUNA--0.1% Republic of Croatia, 6.563%, 07/31/06 ................ 153 122,020 ---------- DANISH KRONE--5.3% Kingdom of Denmark: 7.00%, 11/10/24 ................. 5,452 1,096,517 8.00%, 03/15/06 ................. 15,774 3,056,502 Nykredit AS, 5.00%, 10/01/29 ................. 2,381 349,801 Realkredit Danmark, 5.00%, 10/01/29 ................. 11,757 1,726,335 Unikredit Realkred, 5.00%, 10/01/29 ................. 1,190 173,985 ---------- TOTAL DANISH KRONE ............... 6,403,140 ---------- FINNISH MARKKA--1.0% Republic of Finland, 9.50%, 03/15/04 ................. 5,000 1,251,912 ---------- FRENCH FRANC--6.1% Credit Foncier de France 7.50%, 03/29/05 ................. 18,250 3,848,462 Government of France: 0.00%, 10/25/19 ................. 15,923 1,029,541 0.00%, 04/25/21 ................. 29,202 1,737,704 Neopost, 6.131%, 09/30/07 (c), (e) ....... 1,900 327,938 Republic of France, 4.00%, 07/12/00 ................. 1,958 354,758 ---------- TOTAL FRENCH FRANC ............... 7,298,403 ---------- GERMAN MARK--18.4% AirTouch Communications, Inc., 5.50%, 07/24/08 ................. 620 375,038 Autobahn Tank & Rast, 6.00%, 10/16/00 ................. 425 265,211 Bundesrepublik Deutschland, 0.00%, 01/04/24 ................. 4,011 687,112 Core Dem, 6.39%, 07/05/15 ................. 400 235,209 Derby Cycle Corp., 9.375%, 05/15/08 ................ 379 167,146 Deutsche Bank AG, 11.00%, 04/15/99 ................ 100 106,440 Euronet Services, Inc., 12.375%, 07/01/06 ............... 1,061 203,720 Exide Holdings, 9.125%, 04/15/04 (c) ............ 1,005 590,964 Federal Republic of Germany: 0.00%, 01/04/21 (g) ............. 5,587 1,110,964 6.00%, 09/15/03 (g) ............. 3,020 2,018,649 6.00%, 07/04/07 (g) ............. 11,377 7,847,713 6.50%, 10/14/05 (g) ............. 7,082 4,948,391 Geberit International SA, 10.125%, 04/15/07 ............... 302 208,388 Impress Metal Pack Holding, 9.875%, 05/29/07 (c) ............ 927 609,063 Ineos PLC, 8.625%, 04/30/05 ................ 890 499,310 Land Hessen, 6.00%, 11/29/13 ................. 1,000 711,998 LBK Hess Thur Giro, 9.00%, 09/06/04 ................. 60 115,135 Sirona Dental Systems, 9.125%, 07/15/08 (c) ............ 845 501,950 Texon International PLC, 10.00%, 02/01/08 ................ 948 443,682 Viatel, Inc.: 10.00%, 04/15/11 warrant (c)..... 41 0 11.15%, 04/15/08 (c) ............ 800 477,619 ---------- TOTAL GERMAN MARK ................ 22,123,702 ---------- GREEK DRACHMA--0.7% Republic of Hellenic: 8.90%, 04/01/03 ................. 70,000 262,363 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO (CONTINUED) 12.80%, 06/30/00 ............................ $ 30,000 $ 108,207 13.00%, 08/14/03 (e) ........................ 113,000 410,204 ---------- TOTAL GREEK DRACHMA ......................... 780,774 ---------- HUNGARIAN FORINT--0.7% Government of Hungary: 16.00%, 01/12/00 ........................... 110,000 514,638 16.50%, 04/12/99 ........................... 39,000 180,869 23.00%, 05/06/99 ........................... 7,000 33,211 Republic of Hungary, 19.50%, 01/12/99 ........................... 12,000 55,725 ---------- TOTAL HUNGARIAN FORINT ...................... 784,443 ---------- IRISH POUND---0.5% Republic of Ireland, 8.00%, 08/18/06 ............................ 295 556,964 ---------- ITALIAN LIRA--0.9% Films PLC, 5.785%, 03/31/05 (e) ....................... 1,000,000 586,652 Republic of Italy, 10.50%, 04/28/14 ........................... 40 101,387 Societa Sportiva Lazio SPA, 6.375%, 10/15/07 ........................... 723,544 426,657 ---------- TOTAL ITALIAN LIRA .......................... 1,114,696 ---------- JAPANESE YEN--18.4% Asterique, 2.48%, 01/23/02 ............................ 191,549 1,694,374 European Investment Bank, 3.00%, 09/20/06 ............................ 562,000 5,321,725 Export-Import Bank of Japan, 4.375%, 10/01/03 (g) ....................... 509,000 5,132,773 International Bank for Reconstruction and Development, 4.75%, 12/20/04 (g) ........................ 808,500 8,470,298 Nippon Credit Bank, Ltd., 1.80%, 07/27/00 ............................ 60,000 519,328 Republic of Austria: 4.50%, 09/28/05 ............................ 80,000 841,220 6.25%, 10/16/03 ............................ 15,000 163,534 ---------- TOTAL JAPANESE YEN .......................... 22,143,252 ---------- LEBANESE POUND--0.7% LBP Treasury Bill, 0.00%, 03/18/99 ............................ 125,600 81,015 LBP Treasury Note, 0.00%, 02/11/99 ............................ 534,830 377,970 Paribas LBP Treasury Note, 18.12%, 01/21/99 ........................... 546,220 388,938 ---------- TOTAL LEBANESE POUND ........................ 847,923 ---------- MEXICAN PESO--1.0% Mexican Cetes: 0.00%, 01/14/99 ............................ 3,500 350,633 0.00%, 02/11/99 ............................ 780 75,618 0.00%, 04/08/99 ............................ 2,876 267,447 0.00%, 07/08/99 ............................ 680 58,898 UDI Bonos, 7.00%, 05/27/99 ............................ 350 83,789 United Mexican States, (USD): 0.00%, 01/01/03 ............................ 769 0 6.039%, 12/31/19 (e), (g) .................. 500 406,250 ---------- TOTAL MEXICAN PESO .......................... 1,242,635 ---------- MOROCCAN DIRHAM--0.1% Morocco Restructuring & Consolidation Agreement, (USD), 6.063%, 01/01/09 (e)................ 200 156,000 ---------- NETHERLANDS GUILDER--1.3% Government of Netherlands, 8.75%, 01/15/07 ............................ 1,426 994,337 West LB Finance Curacao NV, 8.125%, 01/24/07 ........................... 310 581,990 ---------- TOTAL NETHERLANDS GUILDER ................... 1,576,327 ---------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO (CONTINUED) POLISH ZLOTY--0.1% Polish Treasury Bill, 0.00%, 08/04/99 ................... $ 650 $ 171,815 --------- SOUTH AFRICAN RAND--0.3% Government of Namibia: 12.00%, 04/15/02 .................. 210 30,662 12.00%, 04/15/05 .................. 210 28,531 Lesotho Highlands Water, 12.50%, 04/15/02 .................. 997 151,997 Republic of South Africa, 12.00%, 02/28/05 .................. 740 106,622 South African Roads, 11.50%, 09/30/05 .................. 500 66,728 --------- TOTAL SOUTH AFRICAN RAND ........... 384,540 --------- SPANISH PESETA--0.5% Catalunya Generalitat, 9.30%, 11/24/03 ................... 67,000 582,219 --------- SWEDISH KRONA--2.6% Forenings Sparbanken, 0.00%, 03/29/99 ................... 4,300 315,862 Kingdom of Sweden: 9.00%, 04/20/09 ................... 7,200 1,237,101 10.25%, 05/05/03 .................. 7,300 1,128,136 Svenska Kredit: 0.00%, 01/15/99 ................... 640 159,180 0.00%, 01/25/99 ................... 3,300 244,628 --------- TOTAL SWEDISH KRONA ................ 3,084,907 --------- TURKISH LIRA--0.8% Turkey Daily Roll 2 0.00%, 02/18/99 ................... 62,000 214,227 Turkey DMG Daily Reset, 0.00%, 02/24/99 ................... 109,000 373,169 Turkey DMG Daily Reset 4, 0.00%, 02/26/99 ................... 71,576 242,551 Turkey DMG Daily Reset 5, 0.00%, 03/30/99 ................... 55,000 177,312 --------- TOTAL TURKISH LIRE ................. 1,007,259 --------- UNITED STATES DOLLAR--11.8% Cellco Finance NV, 15.00%, 08/01/05 (c) .............. 50 43,000 Chase Credit Card Master Trust, 5.00%, 08/15/08 (g) .............. 1,800 1,115,253 Citibank, 17.00%, 06/21/99 (g) .............. 140 139,370 Credit Lyonnais Paris, 6.563%, 09/19/49 (e), (g) ......... 580 469,800 Federal Farm Credit Banks, 5.55%, 07/01/99 (g) ............... 450 451,197 Federal Home Loan Banks, 5.54%, 07/13/99 ................... 110 110,292 Federal National Mortgage Association, 2.125%, 10/09/07 ................. 700,000 6,256,966 Finance One PLC, (USD), 2.00%, 08/31/01 (d) ............... 220 0 High Voltage Engineering Corp., 10.50%, 08/15/04 (g) ............. 157 148,365 Imasac SA, 11.00%, 05/02/05 (c) .............. 100 66,000 ING Bank NV, (London): 0.00%, 02/12/99 (c) ............... 400 450,000 0.00%, 02/12/99 ................... 100 113,500 0.00%, 08/11/99 (c) ............... 400 424,000 Interbank AKK Trust, 9.00%, 02/28/01 (c) ............... 250 215,000 International Finance Corp., 11.75%, 08/15/99 .................. 750 19,205 Merrill Lynch & Company, Inc.: 5.375%, 01/04/09 .................. 830 508,478 7.375%, 12/17/07 .................. 192 345,107 Rao Gazprom, 12.75%, 03/13/00 .................. 159 53,869 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO (CONTINUED) Republic of Panama, 4.00%, 07/17/14 ............................. $ 325 $ 242,125 Republic of Peru, 0.00%, 09/05/04 ............................. 600 399,420 Salomon Brothers Structured Note, 0.00%, 01/07/99 ............................. 230 233,149 Silgan Holdings, Inc., 13.25%, 07/15/06 ............................ 1 1,120 SK Telecom Company, Ltd., 7.75%, 04/29/04 (g) ......................... 300 269,103 Subic Power Corp., 9.50%, 12/28/08 (g) ......................... 103 77,586 Talton Holdings, Inc., 11.00%, 06/30/07 (g) ........................ 186 176,700 TTB Finance Cayman, Ltd., 6.176%, 03/18/07 (e), (g) ................... 486 403,380 United States Treasury Bills, 5.16%, 05/27/99 ............................. 160 156,652 United States Treasury Bonds, 0.00%, 11/15/24 (g) ......................... 2,095 520,126 United States Treasury Strips, 0.00%, 02/15/16 (g) ......................... 2,090 814,870 ----------- TOTAL UNITED STATES DOLLAR ................... 14,223,633 ----------- TOTAL CURRENCY DENOMINATED BONDS (Identified cost $102,541,756)............... 106,924,485 ----------- SHARES ------------ PREFERRED STOCKS--0.0% Forman Petroleum Corp. warrant 6/01/04 ............................. 309 0 Forman Petroleum Corp., rights ...................................... 51 5 ICG Holdings, Inc. ........................... 6 6,300 Paxson Communications Corp. 15 13,575 ----------- TOTAL PREFERRED STOCKS (Identified cost $23,961).................... 19,880 ----------- PRINCIPAL AMOUNT --------------- COMMERCIAL PAPER--6.2% American Express Credit Corp.: 4.50%, 05/27/99 ............................. $ 110 $ 107,993 4.70%, 07/06/99 ............................. 125 121,965 4.90%, 03/10/99 ............................. 124 122,852 4.95%, 03/16/99 ............................. 187 185,097 4.98%, 01/22/99 ............................. 50 49,855 5.00%, 02/19/99 ............................. 78 77,469 Ford Motor Credit Corp., 5.25%, 06/16/08 ............................. 572 355,870 General Electric Capital Corp.: 4.86%, 07/26/99 ............................. 250 243,047 4.90%, 03/31/99 ............................. 252 248,947 4.90%, 05/25/99 ............................. 100 98,040 4.90%, 06/07/99 ............................. 129 126,244 5.06%, 03/29/99 ............................. 172 169,897 5.08%, 02/23/99 ............................. 465 461,522 5.11%, 03/02/99 ............................. 100 99,148 5.12%, 01/08/99 ............................. 195 194,806 5.23%, 02/09/99 ............................. 197 195,884 5.32%, 01/11/99 ............................. 100 99,852 5.33%, 01/07/99 ............................. 466 465,599 5.42%, 02/25/99 ............................. 160 158,675 5.47%, 01/25/99 ............................. 143 142,479 General Motors Acceptance Corp.: 5.05%, 02/24/99 ............................. 100 99,243 5.07%, 01/28/99 ............................. 275 273,954 5.08%, 01/14/99 ............................. 200 199,633 5.09%, 01/04/99 ............................. 240 239,898 5.15%, 01/20/99 ............................. 140 139,619 5.15%, 02/16/99 ............................. 426 423,197 5.16%, 01/12/99 ............................. 140 139,779 5.19%, 01/11/99 ............................. 100 99,852 5.19%, 01/22/99 ............................. 100 99,697 5.19%, 02/05/99 ............................. 290 288,523 5.21%, 02/09/99 ............................. 110 109,379 5.24%, 02/12/99 ............................. 100 99,389 5.24%, 02/16/99 ............................. 80 79,464 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO (CONTINUED) 5.25%, 01/04/99 .............................. $ 100 $ 99,956 5.30%, 02/25/99 .............................. 160 158,705 5.32%, 01/13/99 .............................. 108 107,809 6.50%, 03/23/04 .............................. 77 131,510 Prudential Funding Corp.: 4.00%, 09/24/99 .............................. 150 145,567 4.50%, 09/09/99 .............................. 240 233,893 4.75%, 03/11/99 .............................. 144 142,290 4.80%, 06/07/99 .............................. 109 106,718 5.03%, 02/18/99 .............................. 130 129,128 5.05%, 02/01/99 .............................. 90 89,609 5.22%, 01/04/99 .............................. 150 149,935 ------------ TOTAL COMMERCIAL PAPER (Identified cost $7,509,188).................. 7,511,988 ------------ DISCOUNT NOTES--0.8% Federal Farm Credit Banks: 0.00%, 11/03/99 .............................. 449 431,902 0.00%, 12/21/99 .............................. 317 302,536 Federal National Mortgage Association, 0.00%, 01/07/99 ............................. 191 190,839 ------------ TOTAL DISCOUNT NOTES (Identified cost $925,277).................... 925,277 ------------ REPURCHASE AGREEMENT--1.3% State Street Bank and Trust Co., 4.75%, 01/04/99, (Dated 12/31/98, collateralized by $1,510,000 United States Treasury Note, 5.750%, 11/15/00, with a value of $1,550,290) (g) (Identified cost $1,517,000)................................... $ 1,517 $ 1,517,000 ------------ TOTAL INVESTMENTS (Identified cost $112,517,182) (b)............................ 97.2% $116,898,630 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............................... 2.8 3,352,144 -------- ------------ NET ASSETS .................................... 100.0% $120,250,774 ========= ============ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO (CONTINUED) Forward Foreign Currency Contracts open at December 31, 1998:
U.S. $ Cost U.S. $ Unrealized Foreign Currency Expiration Foreign on Origination Current Appreciation Purchase Contracts Date Currency Date Value (Depreciation) - -------------------- ------------ ---------------- ---------------- ------------- --------------- ARS 1/5/99 178,190 $ 173,000 $ 178,297 $ 5,297 ARS 7/1/99 114,840 110,000 112,247 2,247 ATS 3/11/99 2,964,511 252,654 253,709 1,055 BEL 3/11/99 39,479,722 1,153,670 1,146,361 (7,309) BRL 1/6/99 339,360 280,000 279,792 (208) CAD 3/11/99 4,468,208 2,876,924 2,923,719 46,795 CHF 3/11/99 1,215,274 888,813 891,087 2,274 CLP 1/12/99 10,351,000 22,000 21,787 (213) CLP 1/20/99 65,730,000 140,000 137,986 (2,014) CLP 2/5/99 108,813,000 230,000 227,379 (2,621) CLP 2/24/99 47,260,000 100,000 98,308 (1,692) CNY 1/7/99 291,295 35,000 35,159 159 CNY 1/28/99 2,305,875 275,000 277,579 2,579 COP 1/7/99 424,804,800 269,000 271,586 2,586 CRC 2/1/99 24,867,900 90,000 90,705 705 CRC 2/12/99 22,189,312 80,000 80,611 611 CZK 6/28/99 15,971,050 445,000 522,162 77,162 CZK 7/16/99 3,107,000 90,220 101,419 11,199 CZK 11/18/99 6,526,800 210,000 210,729 729 DEM 3/11/99 8,864,844 5,309,361 5,337,647 28,286 EEK 1/7/99 2,658,978 197,183 198,975 1,792 EEK 1/11/99 956,912 67,000 69,277 2,277 EEK 1/13/99 1,472,490 107,509 109,987 2,478 EEK 3/31/99 3,461,220 252,507 252,165 (342) EGP 1/12/99 482,776 140,000 140,677 677 EGP 2/9/99 251,835 73,000 73,157 157 EGP 2/18/99 449,111 130,000 130,343 343 ESP 3/11/99 2,818,936,918 19,912,197 19,905,742 (6,455) FRF 3/11/99 36,005,845 6,435,804 6,462,408 26,604 GBP 3/11/99 326,515 548,405 541,317 (7,088) GRD 2/16/99 5,000,000 15,559 17,726 2,167 GRD 5/6/99 8,748,120 26,946 30,640 3,694 GRD 12/28/99 93,381,860 317,000 317,899 899 GTQ 1/11/99 644,370 95,846 95,853 7 GTQ 1/21/99 542,520 80,000 80,317 317 HUF 3/11/99 41,624,330 187,000 188,885 1,885 HUF 3/23/99 31,550,400 144,000 142,664 (1,336) IDR 1/8/99 2,200,000,000 195,122 272,931 77,809 IDR 1/11/99 200,000,00 18,613 24,742 6,129
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO (CONTINUED)
U.S. $ Cost U.S. $ Unrealized Foreign Currency Expiration Foreign on Origination Current Appreciation Purchase Contracts Date Currency Date Value (Depreciation) - -------------------- ------------ ---------------- ---------------- ------------- --------------- IDR 3/10/99 1,000,000,000 $ 123,916 $ 117,578 $ (6,338) IDR 6/7/99 1,103,700,000 128,561 121,765 (6,796) IEP 3/11/99 32,600 48,509 48,658 149 ILS 2/16/99 1,560,461 359,000 370,594 11,594 ILS 6/11/99 611,200 160,000 141,531 (18,469) INR 1/14/99 8,620,000 200,000 202,118 2,118 INR 2/9/99 4,764,100 110,000 111,224 1,224 INR 2/25/99 7,352,000 160,000 170,897 10,897 INR 4/6/99 3,236,400 72,000 74,432 2,432 INR 5/25/99 1,790,000 40,000 40,574 574 ITL 3/11/99 20,828,940,081 12,606,730 12,641,073 34,343 JPY 3/11/99 347,781,419 2,950,398 3,105,200 154,802 KES 1/4/99 4,051,087 66,411 65,531 (880) KES 2/4/99 7,629,100 124,000 121,509 (2,491) KES 2/12/99 3,684,000 60,000 58,402 (1,598) KRW 1/22/99 67,000,000 50,000 55,426 5,426 KRW 2/8/99 253,270,000 190,000 209,500 19,500 KRW 2/26/99 25,160,000 20,000 20,768 768 KRW 4/20/99 174,900,000 110,000 143,540 33,540 KRW 4/27/99 270,300,000 170,000 221,645 51,645 KRW 7/26/99 309,125,000 250,000 250,818 818 KRW 9/29/99 187,500,000 150,000 151,230 1,230 MXN 3/29/99 1,815,116 172,000 171,741 (259) NLG 3/11/99 7,852,537 4,176,437 4,194,328 17,891 PEN 3/2/99 291,640 92,000 90,676 (1,324) PLN 1/4/99 883,632 240,000 251,467 11,467 PLN 1/25/99 519,033 143,000 146,850 3,850 PLN 7/6/99 455,588 125,000 124,703 (297) PLN 7/13/99 916,392 240,000 250,526 10,526 PLN 11/5/99 519,012 139,000 139,088 88 SKK 2/16/99 3,022,400 80,000 80,523 523 SKK 2/19/99 2,921,100 78,170 77,737 (433) SVC 2/16/99 590,330 67,000 66,892 (108) THB 1/8/99 6,870,000 190,833 188,895 (1,938) THB 5/27/99 4,000,000 109,022 108,874 (148) THB 12/21/99 7,071,000 187,113 188,976 1,863 UYU 6/7/99 1,244,235 109,000 109,263 263 XEU 3/11/99 12,640 15,000 14,883 (117) ZAR 11/26/99 398,790 63,000 61,552 (1,448) ------------ ----------- --------- $ 66,350,433 $66,964,961 $ 614,528 ------------ ----------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO (CONTINUED)
U.S. $ Cost U.S. $ Unrealized Foreign Currency Expiration Foreign on Origination Current Appreciation Sale Contracts Date Currency Date Value (Depreciation) - ------------------ ------------ ---------------- ---------------- -------------- --------------- ARS 1/5/99 178,190 $ 177,604 $ 178,297 $ (693) ARS 7/1/99 114,840 112,610 112,247 363 AUD 3/11/99 495,629 316,220 303,897 12,323 DEM 1/7/99 329,000 197,183 197,474 (291) DEM 1/11/99 113,230 67,000 67,977 (977) DEM 1/13/99 180,000 107,509 108,072 (563) DEM 2/19/99 130,000 78,170 78,196 (26) DEM 3/11/99 28,563,069 17,150,934 17,198,224 (47,290) DKK 3/11/99 24,915,081 3,919,945 3,922,175 (2,230) ESP 3/11/99 2,115,613,420 15,132,646 14,939,268 193,378 FIM 3/11/99 523,643 103,939 103,061 878 GBP 3/11/99 1,889,436 3,147,224 3,132,426 14,798 GRD 2/16/99 5,000,000 17,724 17,726 (2) INR 4/6/99 1,000,000 22,573 22,998 (425) JPY 3/11/99 305,539,788 2,667,800 2,728,042 (60,242) KES 1/4/99 4,051,087 64,921 65,531 (610) KRW 2/8/99 103,270,000 72,879 85,422 (12,543) KRW 4/20/99 174,900,000 99,658 143,540 (43,882) KRW 4/27/99 270,300,000 187,460 221,646 (34,186) KRW 7/26/99 309,125,000 250,000 250,818 (818) NOK 3/11/99 482,658 64,136 63,135 1,001 PLN 1/4/99 883,632 252,683 251,467 1,216 SEK 3/11/99 1,196,346 147,933 147,706 227 THB 1/8/99 6,870,000 186,939 188,895 (1,956) XEU 3/11/99 1,981,566 1,156,811 1,155,768 1,043 ------------ ----------- ----------- $ 45,702,501 $45,684,008 $ 18,493 ------------ ----------- ----------- Gross unrealized appreciation on Forward Foreign Currency Contracts $ 911,677 =========== Gross unrealized depreciation on Forward Foreign Currency Contracts $(278,656) ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - --------------------------------- -------------------- --------------------- LAZARD STRATEGIC YIELD PORTFOLIO CURRENCY DENOMINATED BONDS--85.6% ARGENTINE PESO--2.2% Argentina Bocon, (USD): 1.00%, 04/01/01 (g) ........... $ 5,243 $ 3,620,929 1.00%, 09/01/02 ............... 1,955 2,134,860 Argentina Resolution Co., 0.00%, 07/01/99 ............... 965 917,189 Mastellone Hermanos SA, 11.75%, 04/01/08 .............. 356 286,580 Republic of Argentina, 1.00%, 09/01/02 ............... 686 643,018 Republic of Argentina, (USD), 6.188%, 03/31/05 (e) .......... 1,804 1,525,778 ----------- TOTAL ARGENTINE PESO ........... 9,128,354 ----------- AUSTRALIAN DOLLAR--1.0% Credit Foncier, 8.50%, 09/09/02 (g) ........... 6,000 3,994,730 ----------- BRITISH POUND--4.6% Bimingham Midshires Building Society, 9.125%, 01/05/06 ............. 650 1,270,923 Brunner Mond Group PLC, 12.50%, 07/15/08 .............. 884 1,336,501 Chelsea Village PLC, 8.875%, 12/17/07 (g) .......... 1,233 2,085,386 Coca Cola Enterprises, 6.75%, 03/12/08 ............... 778 1,380,630 Finance for Social Resources, 11.126%, 10/05/58 (g) ......... 600 1,758,806 HMV Media Group PLC, 10.875%, 05/15/08 ............. 670 1,035,222 Landwirtschaftliche Rentenbank, 6.375%, 03/09/05 .............. 1,829 3,210,702 Middleweb PLC, 10.50%, 05/30/08 (c) .......... 1,170 1,836,933 North American Capital Corp., 8.25%, 11/17/03 ............... 1,225 2,224,752 Textron Golf & Turk PLC, 8.684%, 01/30/08 (c) .......... 1,121 2,158,563 William Hill Finance PLC, 10.625%, 04/30/08 (g) ......... 611 1,035,421 ----------- TOTAL BRITISH POUND ............ 19,333,839 ----------- CANADIAN DOLLAR--0.7% Argos Funding Trust, 5.963%, 02/27/06 .............. 1,000 647,694 Molson Breweries Company, Ltd., 6.00%, 06/02/08 (c) ........... 629 420,568 Quebec Province, 8.625%, 11/04/11 .............. 431 904,319 UniHost Corp., 10.00%, 06/30/03 .............. 1,714 1,020,438 ----------- TOTAL CANADIAN DOLLAR .......... 2,993,019 ----------- COLOMBIAN PESO--0.1% Salomon COP Swap (USD), 0.00%, 01/06/99 ............... 380 398,126 ----------- CROATIAN KUNA--0.2% Republic of Croatia, (USD), 6.563%, 07/31/06 .............. 904 717,762 ----------- DANISH KRONE--4.2% Kingdom of Denmark, 8.00%, 03/15/06 ............... 59,730 11,573,784 Nykredit AS, 5.00%, 10/01/29 ............... 20,427 3,000,997 Realkredit Danmark, 5.00%, 10/01/29 ............... 13,258 1,946,734 Unikredit Realkredit, 5.00%, 10/01/29 (g) ........... 8,904 1,301,820 ----------- TOTAL DANISH KRONE ............. 17,823,335 ----------- FRENCH FRANC--2.6% Credit Foncier de France, 7.50%, 03/29/05 ............... 46,200 9,742,407
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - ------------------------------------------------------------------------- -------------------- --------------------- LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED) Neopost, 6.131%, 09/30/07 (c), (e) ............................................. $ 7,800 $1,346,271 ---------- TOTAL FRENCH FRANC ..................................................... 11,088,678 ---------- GERMAN MARK--4.4% AirTouch Communications, Inc., 5.50%, 07/24/08 ....................................................... 2,420 1,463,856 Autobahn Tank & Rast, 6.00%, 10/16/00 (g) ................................................... 1,833 1,143,838 Bt & Co. Croatia Index Note, 1.00%, 03/01/99 ....................................................... 1,500 186,667 Bt Croatia, 1.00%, 10/01/99 ....................................................... 1,000 224,109 Core Dem, 6.39%, 07/05/15 ....................................................... 2,400 1,411,256 Derby Cycle Corp., 9.375%, 05/15/08 ...................................................... 1,561 688,429 Deutsche Bank AG, 11.00%, 04/15/99 ...................................................... 1,300 1,383,720 Euronet Services, Inc., 12.375%, 07/01/06 (g) ................................................. 4,525 868,835 Exide Holdings, 9.125%, 04/15/04 (c) .................................................. 4,051 2,382,083 Geberit International SA, 10.125%, 04/15/07 ..................................................... 1,189 820,443 Impress Metal Pack Holding, 9.875%, 05/29/07 (c), (g) ............................................. 4,157 2,731,258 Ineos PLC, 8.625%, 04/30/05 (g) .................................................. 3,725 2,089,809 Sirona Dental Systems, 9.125%, 07/15/08 (c) .................................................. 3,655 2,171,157 Texon International PLC, 10.00%, 02/01/08 ...................................................... 1,938 907,020 ---------- TOTAL GERMAN MARK ...................................................... 18,472,480 ---------- GREEK DRACHMA--0.7% Republic of Hellenic: 8.90%, 04/01/03 ....................................................... 110,000 412,284 12.80%, 06/30/00 ...................................................... 110,000 396,759 13.00%, 08/14/03 (e) .................................................. 605,000 2,196,227 ---------- TOTAL GREEK DRACHMA .................................................... 3,005,270 ---------- HUNGARIAN FORINT--1.3% Government of Hungary: 16.00%, 01/12/00 ...................................................... 555,000 2,596,579 23.00%, 05/06/99 ...................................................... 110,000 521,888 Republic of Hungary: 16.50%, 04/12/99 ...................................................... 250,000 1,159,417 16.50%, 07/24/99 ...................................................... 165,000 767,206 19.50%, 01/12/99 ...................................................... 64,000 297,202 ---------- TOTAL HUNGARIAN FORINT ................................................. 5,342,292 ---------- INDONESIAN RUPIAH---0.0% Polysindo Eka: 10.00%, 03/16/00 ...................................................... 194 9,709 19.00%, 04/26/99 ...................................................... 5,000,000 31,250 ---------- TOTAL INDONESIAN RUPIAH ................................................ 40,959 ---------- ITALIAN LIRA--1.0% Films PLC, 5.785%, 03/31/05 (e) .................................................. 4,200,000 2,463,939 Societa Sportiva Lazio SPA, 6.375%, 10/15/07 ...................................................... 3,038,887 1,791,960 ---------- TOTAL ITALIAN LIRA ..................................................... 4,255,899 ---------- JAPANESE YEN--1.0% Asterique, 2.48%, 01/23/02 (g) ................................................... 286,282 2,532,349 Export-Import Bank of Japan, 8.00%, 06/04/00 ....................................................... 130 130,233 International Bank for Reconstruction and Development, 4.50%, 03/20/03 (g) ................................................... 15,300 154,370 Nippon Credit Bank, Ltd., 1.80%, 07/27/00 ....................................................... 140,000 1,211,765 ---------- TOTAL JAPANESE YEN ..................................................... 4,028,717 ---------- LEBANESE POUND--1.1% LBP Treasury Bill, 0.00%, 03/18/99 ....................................................... 600,100 387,079
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - ------------------------------------------------------------------------------- LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED) LBP Treasury Note, 0.00%, 02/11/99 ................. $1,697,090 $1,199,352 Paribas LBP Treasury Bills: 18.12%, 01/21/99 ................ 2,794,200 1,989,618 18.70%, 01/14/99 ................ 1,197,820 857,608 ---------- TOTAL LEBANESE POUND ............. 4,433,657 ---------- LITHUANIAN LITAS--0.0% Lithuanian Treasury Bill, 0.00%, 01/22/99 ................. 358 89,036 ---------- MEXICAN PESO--2.3% Mexican Cetes: 0.00%, 01/14/99 ................. 8,280 829,499 0.00%, 04/08/99 ................. 21,318 1,981,932 0.00%, 07/08/99 ................. 9,610 832,368 1.00%, 06/03/99 ................. 3,003 267,169 UDI Bonos, 7.00%, 05/27/99 ................. 2,100 502,730 United Mexican States, (USD): 6.039%, 12/31/19 (e) ............ 1,000 812,500 6.098%, 12/31/19 (e) ............ 1,250 1,015,625 6.116%, 12/31/19 (e) ............ 1,250 1,015,625 6.25%, 12/31/19 (e) ............. 1,150 898,495 6.25%, 12/31/19 (e) ............. 2,000 1,562,600 ---------- TOTAL MEXICAN PESO ............... 9,718,543 ---------- MOROCCAN DIRHAM---0.4% Morocco Restructuring & Consolidation Agreement, (USD), 6.063%, 01/01/09 (e) ............ 1,900 1,482,000 ---------- PERUVIAN NOUVEAU SOL--0.3% Peru Trade Finance Paper, 0.00%, 09/04/04 ................. 2,099 1,397,578 ---------- PHILIPPINES PESO--0.1% Government of Philippines, 11.875%, 01/16/99 ............... 10,000 257,391 Republic of the Philippines GDR 6.50%, 12/01/17 ................. 250 217,500 ---------- TOTAL PHILIPPINES PESO ........... 474,891 ---------- POLISH ZLOTY--0.6% Government of Poland: 12.00%, 06/15/02 ................ 1,300 378,370 15.00%, 06/12/99 ................ 1,800 512,051 Polish Treasury Bill, 0.00%, 08/04/99 ................. 5,800 1,533,117 ---------- TOTAL POLISH ZLOTY ............... 2,423,538 ---------- SLOVAKIAN KORUNA--0.0% International Finance Corp., 11.75%, 08/15/99 ................ 3,550 90,903 ---------- SOUTH AFRICAN RAND--0.5% Government of Namibia: 12.00%, 04/15/02 ................ 1,460 213,172 12.00%, 04/15/05 ................ 1,460 198,359 Lesotho Highlands Water, 12.50%, 04/15/02 ................ 4,960 756,172 Republic of South Africa, 12.00%, 02/28/05 ................ 6,170 889,002 South African Roads, 11.50%, 09/30/05 ................ 975 130,120 ---------- TOTAL SOUTH AFRICAN RAND ......... 2,186,825 ---------- SWEDISH KRONA--1.0% Forenings Sparbanken, 0.00%, 03/29/99 ................. 27,200 1,998,012 Svensk Exportkredit AB: 0.00%, 01/15/99 ................. 3,000 746,157 0.00%, 01/25/99 ................. 19,400 1,438,115 ---------- TOTAL SWEDISH KRONA .............. 4,182,284 ---------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - -------------------------------------------------------------------------------- LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED) THAILAND BAHT--0.0% Finance One PLC, (USD), 2.00%, 08/31/01 (d) ............... $ 1,515 $ 0 Morgan Guaranty Trust, 0.00%, 07/31/99 (d) ............... 10,569 0 --------- TOTAL THAILAND BAHT ................ 0 --------- TURKISH LIRA--1.2% Turkey DMG Daily Reset, 0.00%, 02/24/99 ................... 398,000 1,362,582 Turkey DMG Daily Reset 4, 0.00%, 02/26/99 ................... 944,237 3,199,738 Turkey DMG Daily Reset 5, 0.00%, 03/30/99 ................... 210,000 677,011 --------- TOTAL TURKISH LIRE ................. 5,239,331 --------- UNITED STATES DOLLAR--54.1% Advantica Restaurant Group, Inc., 11.25%, 01/15/08 (g) .............. 2,500 2,531,250 Agrilink Foods, Inc., 11.875%, 11/01/08 (c) ............. 725 737,687 American Restaurant Group, Inc., 11.50%, 02/15/03 ............ 1,750 1,522,500 AMSC Acquisition, Inc., 12.25%, 04/01/08 .................. 1,300 806,000 Amtrol, Inc., 10.625%, 12/31/06 ................. 1,010 982,225 Asset Securitization Corp.: Series 1997-D5, Class C 1.385%, 02/14/41 (e) ............. 12,951 1,252,617 Series 1996-D2, Class ACS2 1.49%, 02/28/26 (e) .............. 7,035 613,364 Atlantic Express Transportation Corp., 10.75%, 02/01/04 .................. 1,254 1,266,540 Atlas Air, Inc., 9.25%, 04/15/08 ................... 250 249,375 Booth Creek Ski Holdings, Inc., 12.50%, 03/15/07 .................. 1,542 1,526,580 Calpine Corp., 10.50%, 05/15/06 .................. 470 518,175 Casino America, Inc., 12.50%, 08/01/03 .................. 646 713,830 Cellco Finance NV, 15.00%, 08/01/05 (c) .............. 310 266,600 Citibank Pen Time Deposit, 17.00%, 06/21/99 .................. 720 716,760 Climachem, Inc., 10.75%, 12/01/07 (g) .............. 2,074 2,084,370 Coaxial Communications Central Ohio, LLC., 10.00%, 08/15/06 (c), (g) ......... 2,100 2,168,250 Community Distributors, Inc., 10.25%, 10/15/04 (g) .............. 150 138,000 Concentric Network Corp., 12.75%, 12/15/07 .................. 1,695 1,728,900 Courtyard by Marriott II, Ltd., Series B 10.75%, 02/01/08 (g) ............. 1,310 1,355,850 Credit Lyonnais Paris, 6.563%, 09/19/49 (e) .............. 2,130 1,725,300 Credit Suisse First Boston Mortgage, Series 1998-C2, Class A 1 5.96%, 11/11/30 (g) .............. 3,383 3,432,338 CSC Holdings, Inc.: 9.875%, 02/15/13 .................. 650 724,750 10.50%, 05/15/16 (g) .............. 1,883 2,212,525 Dictaphone Corp., 11.75%, 08/01/05 (g) .............. 2,579 1,934,250 Dobson Communications Corp., 11.75%, 04/15/07 ................. 847 842,765 Dynacare, Inc., 10.75%, 01/15/06 (g) .............. 2,522 2,471,560 Echostar DBS Corp., 12.50%, 07/01/02 (g) .............. 1,241 1,427,150 Econophone, Inc., 13.50%, 07/15/07 (g) .............. 2,800 2,866,500 Federal Farm Credit Banks, 5.55%, 07/01/99 ................... 3,300 3,308,778 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - ----------------------------------------------------------------------------------------------------------------- LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED) Federal Home Loan Mortgage Corp.: Series 1974, Class VI 0.25%, 03/15/09 ...................................................... $ 20,632 $ 116,057 5.54%, 07/13/99 ...................................................... 565 566,503 6.50%, 05/01/13 ...................................................... 17,376 17,631,335 6.50%, 09/01/13 ...................................................... 1,333 1,353,476 6.50%, 10/01/13 ...................................................... 1,644 1,668,944 6.50%, 11/01/28 ...................................................... 2,507 2,525,546 7.00%, 08/01/28 ...................................................... 2,455 2,503,167 7.00%, 11/01/28 ...................................................... 9,697 9,885,037 7.50%, 12/01/28 ...................................................... 1,046 1,074,106 8.00%, 03/01/28 ...................................................... 2,090 2,164,221 8.00%, 12/01/28 ...................................................... 2,828 2,927,857 Federal National Mortgage Association: Series 1992-203, Class SA 3.844%, 11/25/07 (e) ................................................. 935 60,493 5.45%, 04/15/99 ...................................................... 900 900,846 6.50%, 09/01/28 ...................................................... 6,780 6,824,576 6.50%, 10/01/28 ...................................................... 9,719 9,783,854 6.50%, 11/01/28 ...................................................... 2,884 2,903,241 6.50%, 12/01/28 ...................................................... 2,860 2,879,557 8.00%, 06/01/12 ...................................................... 1,287 1,325,303 8.00%, 12/01/12 ...................................................... 2,134 2,197,842 Series 38, Class 2 10.00%, 08/01/18 ..................................................... 904 182,184 Series 1992-97, Class SA 10.00%, 04/25/21 (e) ................................................. 248 6,215 Series G-13, Class L 10.095%, 05/25/21 (e) ................................................ 709 163,208 First USA Trust, Series 1998-1 6.50%, 01/18/06 (c), (e) .............................................. 1,600 1,605,520 Fisher Scientific International, Inc., 9.00%, 02/01/08 (c) ................................................... 1,700 1,700,000 Ford Motor Credit Corp., 5.25%, 06/16/08 (g) ................................................... 2,157 1,341,977 Frank's Nursery and Crafts, Inc., 10.25%, 03/01/08 ...................................................... 1,000 985,000 Fresenius Medical Care Capital Trust, 9.00%, 12/01/06 ....................................................... 500 522,500 Fundy Cable, Ltd., 11.00%, 11/15/05 (g) .................................................. 1,208 1,274,440 G3 Mortgage Reinsurance Ltd., 7.892%, 05/25/08 (c), (e) ............................................. 1,500 1,345,781 Generac Portable Products LLC, 11.25%, 07/01/06 (c) .................................................. 700 700,000 Genesis Health Ventures, Inc., 9.875%, 01/15/09 (c) .................................................. 900 868,500 GMAC Commercial Mortgage Security, Inc., Series 1997-C2, Class A 6.451%, 12/15/04 ..................................................... 2,813 2,895,561 Government National Mortgage Association: 7.00%, 04/15/28 ...................................................... 527 539,797 7.00%, 11/15/28 ....................................................... 1,083 1,108,280 8.00%, 11/15/28 ....................................................... 8,890 9,240,968 Headlands Mortgage Securities, Inc.: Series 1997-1, Class X1 0.686%, 03/25/27 (e) ................................................. 67,969 713,005 Series 1997-4, Class X 1.121%, 11/25/27 (e) ................................................. 25,621 402,001 High Voltage Engineering Corp., 10.50%, 08/15/04 ...................................................... 1,954 1,846,530 Home Interiors & Gifts, 10.125%, 06/01/08 (c) ................................................. 2,850 2,821,500 Imasac SA, 11.00%, 05/02/05 (c) .................................................. 400 264,000 ING Bank NV: 0.00%, 02/12/99 (c) ................................................... 1,400 1,575,000 0.00%, 02/12/99 ....................................................... 1,100 1,248,500 0.00%, 08/11/99 (c) ................................................... 1,300 1,378,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - ------------------------------------------------------------------------------- LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED) Interbank AKK Trust, Series 1995-1, Class 1 9.00%, 02/28/01 (c) ............... $ 1,000 $ 860,000 IPC Information Systems, Inc., 1.00%, 05/01/08 (e) ................ 500 315,000 Iridium LLC/CAP, 10.875%, 07/15/05 .................. 600 510,000 J.H. Heafner, Inc.: 10.00%, 05/15/08 ................... 550 550,000 10.00%, 05/15/08 (c) ............... 425 425,000 Jitney-Jungle Stores of America, Inc., 10.375%, 09/15/07 .................. 1,635 1,675,875 LB Commercial Conduit Mortgage Trust, Series 1996-C2, Class A 7.434%, 10/25/26 .................. 3,076 3,244,694 Lodgenet Entertainment Corp., 10.25%, 12/15/06 ................... 585 579,150 Long Distance International, Inc., 12.25%, 04/15/08 (c) .............. 1,497 1,249,995 Loomis Fargo & Co., 10.00%, 01/15/04 ................... 725 717,750 Mediq, Inc., 11.00%, 06/01/08 ................... 1,350 1,296,000 Merrill Lynch & Company, Inc.: 5.375%, 01/04/09 ................... 3,590 2,199,322 7.375%, 12/17/07 ................... 575 1,033,524 Merrill Lynch Mortgage Investments, Inc., Series 1996-C1, Class IO 0.736%, 04/25/28 (c), (e) ......... 17,954 460,791 Morgan Stanley Capital One, Inc.: Series 1998 HF1, Class X 1.046%, 02/15/18 .................. 19,644 1,160,228 Series 1996-WF1, Class X 1.405%, 11/15/28 (c), (e) ......... 6,315 370,020 Series 1997-C1, Class IO 2.562%, 02/15/20 (e) .............. 2,786 39,186 Series 1998-HF2 Class A1 6.01%, 11/15/30 (g) ............... 5,906 5,967,472 Mortgage Capital Funding, Inc., Series 1997-MC2, Class X 1.367%, 11/20/12 .................. 15,136 1,161,238 Mosaic Re, Ltd., 14.02%, 07/09/99 (c) ............... 750 770,625 Mrs. Field's Original, 1.00%, 12/01/05 .................... 820 469,450 Nationslink Funding Corp., Series 1998-2, Class A1 6.001%, 11/20/07 .................. 3,292 3,320,505 NationsRent, Inc., 10.375%, 12/15/08 (c) .............. 1,500 1,496,250 Pacific Reinsurance, 1.00%, 05/31/03 .................... 1,340 1,336,650 Paxson Communications Corp., 11.625%, 10/01/02 (g) .............. 1,865 1,892,975 Pen Holdings, Inc., 9.875%, 06/15/08 ................... 750 750,000 Penhall Acquisition Corp., 12.00%, 08/01/06 (c), (g) .......... 3,000 2,820,000 Penn National Gaming, Inc., 10.625%, 12/15/04 .................. 1,150 1,207,500 Petro Stopping Centers, 10.50%, 02/01/07 (g) ............... 1,570 1,640,650 Poindexter (J.B.) & Co., 12.50%, 05/15/04 ................... 1,472 1,383,680 Primark Corp., 9.25%, 12/15/08 (c) ................ 1,250 1,250,000 Production Resource Group, 11.50%, 01/15/08 ................... 67 65,660 Prudential Home Mortgage Security: Series 1993-5, Class A9 0.439%, 03/25/00 (e) ............... 52,391 127,312 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - --------------------------------------------------------------------------------------------------------------- LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED) Series 1993-24, Class A7 0.509%, 07/25/00 ...................................................... $ 51,556 $ 181,995 Series 1993-41, Class A5 0.914%, 10/25/00 (e) ................................................. 15,433 111,427 PSINet, Inc.: 10.00%, 02/15/05 (g) .................................................. 1,770 1,752,300 11.50%, 11/01/08 (c) .................................................. 450 471,375 Quest Diagnostics, Inc., 10.75%, 12/15/06 ...................................................... 1,248 1,385,280 Qwest Communications International, Inc., 10.875%, 04/01/07 ..................................................... 50 58,250 Radio Unica Corp., 1.00%, 08/01/06 (c) ................................................... 600 324,000 Rao Gazprom, 12.75%, 03/13/00 ...................................................... 702 237,838 Renters Choice Inc., 11.00%, 08/15/08 (c) .................................................. 400 406,000 Republic of Panama, 4.00%, 07/17/14 (e) ................................................... 2,020 1,504,900 Republic of Peru: 0.00%, 09/05/04 ....................................................... 1,900 1,264,830 4.00%, 03/07/17 ....................................................... 250 156,875 Residential Mortgage Funding, 2.011%, 01/03/20 ...................................................... 11,659 705,415 Residential Reinsurance, 9.848%, 06/01/99 ...................................................... 750 759,600 Rifkin Acquisitions Partners LP, 11.125%, 01/15/06 ..................................................... 1,304 1,434,400 RMOF: 2.16%, 01/31/22 ....................................................... 17,618 1,277,344 2.185%, 07/15/22 (g) .................................................. 27,073 1,996,636 Sabreliner Corp., 11.00%, 06/15/08 (c) .................................................. 600 528,000 Salomon Brothers Structured Note: 0.00%, 01/07/99 ...................................................... 500 506,845 0.00%, 01/14/99 ...................................................... 814 825,144 Silgan Holdings, Inc., 13.25%, 07/15/06 (g) .................................................. 1,446 1,619,520 Sino Properties, 6.10%, 03/27/03 ....................................................... 2,200 1,320,000 SK Telecom Company, Ltd., 7.75%, 04/29/04 (g) ................................................... 2,225 1,995,845 Spanish Broadcasting Systems, Inc., 11.00%, 03/15/04 (g) .................................................. 2,006 2,126,360 Station Casinos, Inc., 10.125%, 03/15/06 ..................................................... 900 942,750 Structured Asset Securitization Corp.: Series 1996-CFL, Class X1 1.461%, 02/25/28 (e) ................................................. 5,579 302,638 Series 1996-CFL, Class X2 1.153%, 02/25/28 (e) ................................................. 2,573 57,223 Subic Power Corp., 9.50%, 12/28/08 ....................................................... 379 284,483 Swiss Re Earthquake Fund, 10.493%, 07/16/00 ..................................................... 1,000 1,005,000 T/SF Communications Corp., 10.375%, 11/01/07 ..................................................... 1,360 1,370,200 Talton Holdings, Inc., 11.00%, 06/30/07 ...................................................... 551 523,450 Transdigm, Inc., 10.375%, 12/01/08 (c) ................................................. 875 879,375 Trinity Re Florida Huricane Fund 99, 10.00%, 12/31/99 (e) ................................................. 1,550 1,550,000 TTB Finance Cayman, Ltd., 6.176%, 03/18/07 (e) .................................................. 1,926 1,598,580 TVN Entertainment Corp., 14.00%, 08/01/08 (g) .................................................. 2,025 1,802,250 UCFC Loan Trust, 8.00%, 09/15/00 ....................................................... 2,304 287,640 United Rentals, Inc., 9.25%, 01/15/09 (c) ................................................... 1,000 1,007,500
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - ---------------------------------------------------------------------- LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED) United States Department of Veteran Affairs REMIC, Series 1997-1, Class IO 0.368%, 02/15/27 (e) ........... $ 34,343 $ 338,066 U.S. Can Corp., 10.125%, 10/15/06 .............. 1,761 1,805,025 W.R. Carpenter North America, Inc., 10.625%, 06/15/07 (g) .......... 1,917 1,940,962 ----------- TOTAL UNITED STATES DOLLAR ...... 227,137,040 ----------- TOTAL CURRENCY DENOMINATED BONDS (Identified cost $373,108,172).................. 359,479,086 ----------- SHARES ------- PREFERRED STOCKS--2.3% Adelphia Communications Corp. .......................... 18,220 2,149,960 American Mobile Satellite Corp. 4/1/08 warrants (c) ...... 1,300 5,044 Dobson Communications Corp. .......................... 1,092 1,048,320 Echostar Communications Corp. .......................... 47 48,880 Forman Petroleum Corp. .......... 161 16 Forman Petroleum Corp. 6/1/04 warrants ................ 1,144 1 Georgetown Re, Ltd. ............. 2 1,000,000 Harborside Healthcare Corp. ..... 1,034 961,620 High Voltage Engineering Corp. 1,459 1,429,820 Hyperion Telecommunications, Inc. ........................... 989 786,255 ICG Holdings, Inc. .............. 786 825,300 Long Distance International, Inc. 4/13/08 warrants ............... 1,497 187 Nextel Communications, Inc., Class A ........................ 3,598 85,003 Nextel Communications, Inc. ....... 9 9,000 Nextel Communications, Inc. ....... 52 42,900 Paxson Communications Corp. 54 48,870 Paxson Communications Corp. 105 918,750 Spanish Broadcasting Systems, Inc. 6/30/99 warrants (c) ........ 800 164,000 United Mexican States, rights ..... 8,530,200 0 XCL, Ltd. (c) ..................... 190 15,200 XCL, Ltd. (c) ..................... 1,960 156,800 --------- TOTAL PREFERRED STOCKS (Identified cost $10,218,572)..... 9,695,926 --------- PRINCIPAL AMOUNT (000) --------- COMMERCIAL PAPER--6.2% American Express Credit Corp.: 4.50%, 05/27/99 ................. $ 654 642,065 4.70%, 07/06/99 .................. 465 453,708 4.90%, 03/10/99 .................. 496 491,409 5.00%, 02/19/99 .................. 427 424,094 General Electric Capital Corp.: 4.86%, 07/26/99 .................. 1,470 1,429,119 4.90%, 03/31/99 .................. 967 955,286 4.90%, 05/25/99 .................. 520 509,808 4.90%, 06/07/99 .................. 214 209,427 5.06%, 03/29/99 .................. 814 804,046 5.11%, 03/02/99 .................. 420 416,423 5.12%, 01/08/99 .................. 772 771,232 5.23%, 02/09/99 .................. 170 169,037 5.24%, 01/27/99 .................. 489 487,149 5.32%, 01/11/99 .................. 226 225,666 5.33%, 01/07/99 .................. 1,033 1,032,082 5.42%, 02/25/99 .................. 1,100 1,090,891 5.47%, 01/25/99 .................. 610 607,776 General Motors Acceptance Corp.: 5.05%, 02/24/99 ................. 540 535,910 5.07%, 01/28/99 .................. 635 632,586 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT DESCRIPTION (000) VALUE - ----------------------------------------------------------------------- -------------------- --------------------- LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED) 5.08%, 01/14/99 ..................................................... $ 4,660 $ 658,789 5.09%, 01/04/99 ..................................................... 1,113 1,112,528 5.15%, 01/20/99 ..................................................... 940 937,445 5.15%, 02/16/99 ..................................................... 1,688 1,676,892 5.16%, 01/12/99 ..................................................... 865 863,636 5.19%, 01/11/99 ..................................................... 1,582 1,579,658 5.19%, 02/05/99 ..................................................... 450 447,707 5.24%, 02/12/99 ..................................................... 380 377,677 5.24%, 02/16/99 ..................................................... 375 372,489 5.25%, 01/04/99 ..................................................... 532 531,767 5.30%, 02/25/99 ..................................................... 1,100 1,091,093 5.32%, 01/13/99 ..................................................... 521 520,076 6.50%, 03/23/04 ..................................................... 256 437,229 Prudential Funding Corp.: 4.00%, 09/24/99 ..................................................... 770 747,242 4.65%, 04/06/99 ..................................................... 400 395,092 4.75%, 03/23/99 ..................................................... 305 301,740 5.03%, 02/18/99 ..................................................... 685 680,406 5.05%, 02/01/99 ..................................................... 425 423,170 5.10%, 01/11/99 ..................................................... 372 371,473 5.25%, 01/07/99 ..................................................... 795 794,305 ------------ TOTAL COMMERCIAL PAPER (Identified cost $26,215,770)........................................ 26,208,128 ------------ DISCOUNT NOTES--0.7% Federal Farm Credit Banks: 0.00%, 11/03/99 ..................................................... 344 330,754 0.00%, 12/21/99 ..................................................... 1,772 1,691,150 Federal National Mortgage Association: 0.00%, 01/07/99 .................................................... 947 946,200 0.00%, 03/11/99 ..................................................... 90 89,104 ------------ TOTAL DISCOUNT NOTES (Identified cost $3,049,266)......................................... 3,057,208 ------------ U.S. GOVERNMENT OBLIGATIONS--2.7% United States Treasury Bills, 5.16%, 05/27/99 ..................................................... 1,210 1,184,679 United States Treasury Notes: 4.75%, 11/15/08 (g) ................................................. 4,010 4,041,318 5.75%, 11/15/00 ..................................................... 6,000 6,116,220 ------------ TOTAL U.S. GOVERNMENT OBLIGATIONS (Identified cost $11,305,090)........................................ 11,342,217 ------------ REPURCHASE AGREEMENT--2.9% State Street Bank and Trust Co., 4.75%, 01/04/99, (Dated 12/31/98, collateralized by $11,545,000 United States Treasury Note, 0.000%, 07/01/99 with a value of $11,285,238, and $1,065,000 United States Treasury Note, 6.000%, 06/30/99, with a value of $1,072,322) (g) (Identified cost $12,113,000).................................................... 12,113 12,113,000 ------------ TOTAL INVESTMENTS (Identified cost $436,009,870) (b)................................................... 100.4% $421,895,565 LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS .................................................... (0.4) (1,836,204) ---------- ------------ NET ASSETS ........................................................... 100.0% $420,059,361 ========== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED) Forward Foreign Currency Contracts open at December 31, 1998:
U.S. $ Cost U.S. $ Unrealized Foreign Currency Expiration Foreign on Origination Current Appreciation Purchase Contracts Date Currency Date Value (Depreciation) - -------------------- ------------ ---------------- ---------------- ------------- --------------- ARS 1/5/99 1,237,030 $ 1,201,000 $ 1,237,773 $ 36,773 ARS 7/1/99 929,160 890,000 908,181 18,181 BRL 1/6/99 1,611,960 1,330,000 1,329,013 (987) CLP 1/12/99 560,836,000 1,192,000 1,180,429 (11,571) CLP 1/20/99 441,330,000 940,000 926,476 (13,524) CLP 2/24/99 255,204,000 540,000 530,864 (9,136) CNY 1/7/99 6,616,547 795,000 798,618 3,618 CNY 1/28/99 5,324,475 635,000 640,955 5,955 COP 1/4/99 236,355,000 150,000 151,528 1,528 COP 1/7/99 1,631,313,600 1,033,000 1,042,932 9,932 CRC 2/1/99 117,431,750 425,000 428,328 3,328 CRC 2/12/99 105,399,232 380,000 382,901 2,901 CZK 6/28/99 118,257,550 3,295,000 3,866,346 571,346 CZK 7/16/99 6,960,000 202,102 227,190 25,088 CZK 11/18/99 1,243,200 40,000 40,139 139 DEM 3/11/99 30,558,498 18,397,667 18,399,700 2,033 DKK 3/11/99 20,396,089 3,177,951 3,210,787 32,836 EEK 1/11/99 5,395,455 390,000 403,257 13,257 EEK 1/13/99 7,141,577 521,420 533,439 12,019 EEK 1/27/99 6,764,744 488,715 502,884 14,169 EEK 3/31/99 13,268,010 967,945 966,633 (1,312) EGP 1/12/99 2,982,866 865,000 869,184 4,184 EGP 2/9/99 586,466 170,000 170,365 365 EGP 2/18/99 2,366,470 685,000 686,809 1,809 ESP 3/11/99 2,224,885,870 16,018,714 15,710,889 (307,825) FRF 3/11/99 1,170,066 205,715 210,006 4,291 GBP 3/11/99 1,359,765 2,243,705 2,254,305 10,600 GRD 3/18/99 30,000,000 90,498 105,850 15,352 GRD 4/14/99 300,000,000 903,615 1,054,154 150,539 GRD 12/28/99 476,335,860 1,617,000 1,621,586 4,586 GRD 12/29/99 45,694,000 155,000 155,538 538 GTQ 1/21/99 6,275,431 925,375 929,047 3,672 HUF 3/23/99 66,825,500 305,000 302,169 (2,831) IDR 1/8/99 8,700,000,000 771,619 1,079,318 307,699 IDR 1/11/99 4,000,000,000 372,266 494,842 122,576 IDR 1/28/99 4,200,000,000 516,923 511,431 (5,492) IDR 3/10/99 4,000,000,000 495,663 470,312 (25,351) IDR 6/7/99 1,839,500,000 214,269 202,942 (11,327) ILS 2/16/99 5,948,270 1,370,000 1,412,656 42,656 ILS 6/11/99 4,622,200 1,210,000 1,070,325 (139,675) INR 1/14/99 28,446,000 660,000 666,990 6,990 INR 2/9/99 12,993,000 300,000 303,339 3,339
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED)
U.S. $ Cost U.S. $ Unrealized Foreign Currency Expiration Foreign on Origination Current Appreciation Purchase Contracts Date Currency Date Value (Depreciation) - -------------------- ------------ ---------------- ---------------- ------------- --------------- INR 2/25/99 50,545,000 $ 1,100,000 $ 1,174,919 $ 74,919 INR 4/6/99 20,227,500 450,000 465,198 15,198 INR 5/25/99 23,270,000 520,000 527,460 7,460 JPY 3/11/99 132,631,800 1,117,276 1,184,216 66,940 KES 1/4/99 32,445,521 531,893 524,845 (7,048) KES 1/11/99 13,763,792 226,378 222,165 (4,213) KES 2/12/99 27,630,000 450,000 438,014 (11,986) KRW 2/8/99 466,550,000 350,000 385,920 35,920 KRW 4/20/99 3,466,200,000 2,180,000 2,844,705 664,705 KRW 4/27/99 1,160,700,000 730,000 951,772 221,772 KRW 7/26/99 1,817,655,000 1,470,000 1,474,809 4,809 KRW 9/29/99 962,500,000 770,000 776,316 6,316 MXN 3/29/99 8,590,142 814,000 812,775 (1,225) NZD 3/11/99 1,228,549 656,598 646,982 (9,616) PEN 3/2/99 1,331,400 420,000 413,954 (6,046) PHP 1/7/99 28,768,000 640,000 740,489 100,489 PLN 1/4/99 4,097,843 1,113,000 1,166,178 53,178 PLN 1/25/99 2,214,056 610,000 626,424 16,424 PLN 2/23/99 1,640,989 465,001 461,248 (3,753) PLN 7/6/99 1,694,786 465,000 463,894 (1,106) PLN 7/13/99 114,549 30,000 31,316 1,316 SKK 2/16/99 14,167,500 375,000 377,453 2,453 SKK 2/19/99 15,953,700 426,927 424,564 (2,363) SVC 2/16/99 2,801,866 318,000 317,488 (512) THB 1/8/99 34,000,000 944,444 934,853 (9,591) THB 5/27/99 24,000,000 654,129 653,243 (886) THB 12/21/99 34,997,000 926,092 935,314 9,222 XEU 3/11/99 27,481 32,611 32,357 (254) ZAR 11/26/99 2,177,520 344,000 336,091 (7,909) ----------- ----------- ---------- $86,217,511 $88,335,392 $2,117,881 ----------- ----------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED)
U.S. $ Cost U.S. $ Unrealized Foreign Currency Expiration Foreign on Origination Current Appreciation Sale Contracts Date Currency Date Value (Depreciation) - ------------------ ------------ ---------------- ---------------- --------------- ----------------- ARS 1/5/99 1,237,030 $ 1,232,961 $ 1,237,772 $ (4,811) ARS 7/1/99 929,160 911,120 908,181 2,939 AUD 3/11/99 6,950,946 4,481,970 4,262,007 219,963 CAD 3/11/99 3,433,392 2,210,642 2,246,599 (35,957) COP 1/4/99 236,355,000 153,267 151,529 1,738 DEM 1/11/99 659,100 390,000 395,685 (5,685) DEM 1/13/99 873,000 521,420 524,149 (2,729) DEM 1/27/99 828,001 488,715 497,466 (8,751) DEM 2/19/99 710,000 426,926 427,071 (145) DEM 3/11/99 84,720,151 50,913,628 51,011,192 (97,564) DEM 3/31/99 1,610,000 967,945 970,359 (2,414) DKK 3/11/99 144,372,158 22,741,029 22,727,312 13,717 ESP 3/11/99 2,271,146,847 16,042,453 16,037,558 4,895 FRF 3/11/99 63,813,320 11,407,458 11,453,355 (45,897) GBP 3/11/99 14,921,257 24,809,620 24,737,405 72,215 GRD 4/14/99 15,000,000 52,699 52,708 (9) INR 2/9/99 12,993,000 298,210 303,339 (5,129) ITL 3/11/99 7,140,509,223 4,319,466 4,333,571 (14,105) JPY 3/11/99 1,959,397,625 16,358,451 17,494,673 (1,136,222) KES 1/4/99 32,445,521 519,960 524,845 (4,885) KRW 2/8/99 466,550,000 329,252 385,920 (56,668) KRW 4/20/99 3,466,200,000 2,204,290 2,844,705 (640,415) KRW 4/27/99 1,160,700,000 804,959 951,771 (146,812) NZD 3/11/99 1,219,460 657,899 642,196 15,703 PHP 1/7/99 25,000,000 608,273 643,501 (35,228) PLN 1/4/99 4,097,843 1,171,817 1,166,178 5,639 THB 1/8/99 34,000,000 925,170 934,853 (9,683) XEU 3/11/99 5,155,627 6,076,156 6,070,607 5,549 ------------ ------------ ----------- $172,025,756 $173,936,507 $(1,910,751) ------------ ------------ ----------- Gross unrealized appreciation on Forward Foreign Currency Contracts $ 3,055,778 =========== Gross unrealized depreciation on Forward Foreign Currency Contracts $ 2,848,648 ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ===============================================================================- THE LAZARD FUNDS, INC. NOTES TO PORTFOLIOS OF INVESTMENTS DECEMBER 31, 1998 - -------------------------------------------------------------------------------- (a) Non-income producing security. (b) For federal income tax purposes, the aggregate cost, aggregate gross unrealized appreciation, aggregate gross unrealized depreciation and the net unrealized appreciation (depreciation) is as follows:
AGGREGATE AGGREGATE NET GROSS GROSS UNREALIZED AGGREGATE UNREALIZED UNREALIZED APPRECIATION PORTFOLIO COST APPRECIATION DEPRECIATION (DEPRECIATION) - ------------------------------ ---------------- -------------- -------------- --------------- Equity $ 396,057,275 $ 93,163,852 $ 7,166,029 $ 85,997,823 Mid Cap 70,950,524 8,474,504 6,637,319 1,837,185 Small Cap 1,411,268,006 235,760,470 147,526,998 88,233,472 Bantam Value 71,845,466 7,934,561 13,211,111 (5,276,550) Global Equity 19,471,020 3,607,411 734,993 2,872,418 International Equity 2,453,528,690 637,325,686 171,556,644 465,769,042 International Small Cap 181,782,228 29,916,347 31,234,015 (1,317,668) Emerging Markets 382,075,916 14,815,304 92,823,388 (78,008,084) Bond 116,880,591 1,190,577 1,543,556 (352,979) High Yield 43,329,180 463,679 1,793,174 (1,329,495) International Fixed-Income 113,120,321 5,224,245 1,445,936 3,778,309 Strategic Yield 433,907,627 6,076,730 18,088,792 (12,012,062)
(c) Pursuant to Rule 144A of the Securities Act of 1933, these securities may only be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 1998, these securities amounted to $1,846,614, $18,049,373, $5,691,131, $11,562,725, $5,254,072 and $42,137,646 or 1.0%, 5.9%, 4.9%, 27.0%, 4.4% and 10.0% of net assets for International Small Cap Portfolio, Emerging Markets Portfolio, Bond Portfolio, High Yield Portfolio, International Fixed-Income Portfolio and Strategic Yield Portfolio, respectively. (d) Bankrupt security valued at zero (e) Variable rate security. Interest rate shown is the current rate. (f) Front Loaded Interest Reduction Bond. (g) Segregated securities for when-issued purchases and/or forward foreign currency contracts. (h) At December 31, 1998, Small Cap Portfolio held the following securities which were private placements and therefore restricted as to resale, and represented 0.03% (at value) of the net assets of the Portfolio:
ACQUISITION ACQUISITION SECURITY DATE COST - ------------------------------------------------------------- ------------- ------------ Interactive Light Holdings, Inc. 8.00%, 1/25/99 02/04/94 $1,000,000 Verbex Voice Systems, Inc. Series F Preferred (conv.) 07/12/93 1,500,000 Verbex Voice Systems, Inc. 06/07/94 76,661 Verbex Voice Systems, Inc. 10.00%, 12/31/95 07/06/94 103,840 ---------- $2,680,501 ==========
Interactive Light Holdings, Inc. and Verbex Voice Systems Inc. are valued as determined in good faith and in accordance with the procedures adopted by the Board of Directors. Small Cap Portfolio will bear any cost, including those involved in registration under the Securities Act of 1933, in connection with the disposition of such securities. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. NOTES TO PORTFOLIOS OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- Abbreviations: ADR--American Depositary Receipt GDR--Global Depositary Receipt TBA--Settlement is on a delayed delivery or when-issued basis with final maturity to be announced in the future. REMIC--Real Estate Mortgage Investment Conduit CURRENCY TERMS -------------- ARS--Argentine Peso IEP--Irish Pound ATS--Austrian Schilling ILS--Israeli Shekel AUD-- Australian Dollar INR--Indian Rupee BEL-- Belgian Franc ITL--Italian Lira BRL--Brazilian Real JPY--Japanese Yen CAD-- Canadian Dollar KES--Kenyan Shilling CHF-- Swiss Franc KRW--South Korean Won CLP-- Chilean Peso MXN--Mexican Peso CNY--Chinese Yuan Renminbi NLG--Netherlands Guilder COP-- Colombian Peso NOK--Norwegian Krone CRC--Costa Rican Colon NZD--New Zealand Dollar CZK-- Czech Koruna PEN--Peruvian Nouveau Sol DEM--Deutsche Mark PHP--Philippine Peso DKK--Danish Krone PLN--Polish Zloty EEK--Estonian Krune SEK--Swedish Krona EGP--Eqyptian Pound SKK--Slovakian Koruna ESP--Spanish Peseta SVC--El Salvador Colon FIM--Finnish Markka THB--Thailand Baht FRF-- French Franc TRL--Turkish Lira GBP-- Pound Sterling USD--United States Dollar GRD--Greek Drachma UYU--Uruguayan Peso GTQ--Guatemalan Quetzal VEB--Venezuelan Bolivar HUF--Hungarian Forint XEU--European Currency Unit (ECU) IDR--Indonesian Rupiah ZAR--South African Rand THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- THE LAZARD FUNDS, INC. NOTES TO PORTFOLIOS OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PORTFOLIO HOLDINGS BY INDUSTRY, FOR THOSE PORTFOLIOS PREVIOUSLY PRESENTED BY COUNTRY:
LAZARD LAZARD LAZARD LAZARD GLOBAL INTERNATIONAL INTERNATIONAL EMERGING EQUITY EQUITY SMALL CAP MARKETS PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ----------- --------------- --------------- ------------ INDUSTRY Advertising ............................. --% --% 2.0% --% Apparel & Textiles ...................... -- -- 2.4 -- Aerospace & Defense ..................... 5.0 2.7 -- -- Automotive .............................. 3.2 3.4 2.0 -- Banks and Financial Services ............ 16.7 19.7 10.9 13.8 Brewery ................................. -- -- 2.5 5.9 Broadcasting ............................ -- -- 1.4 1.7 Business Services & Supplies ............ -- -- 1.7 -- Chemicals & Plastics .................... 0.8 3.0 2.7 -- Communication Services .................. 1.1 1.5 -- -- Computer Software ....................... -- -- 5.0 -- Computer Services ....................... -- -- 1.5 -- Computers & Business Equipment .......... 3.2 -- -- -- Conglomerates ........................... 3.3 3.0 -- 8.0 Construction & Materials ................ 0.5 1.5 -- 7.0 Construction & Mining Equipment ......... -- -- 0.7 -- Consumer Goods .......................... 0.9 3.5 -- -- Diversified Holding Company ............. 0.8 -- 2.2 -- Drugs & Health Care ..................... 8.0 3.1 5.7 -- Electrical Equipment .................... 3.6 4.9 -- 3.3 Electronics ............................. 5.5 1.7 5.4 -- Energy .................................. 1.9 -- -- -- Food & Beverages ........................ 6.3 6.3 5.3 9.2 Hospitals & Long-Term Care .............. -- -- 3.5 -- Hotels & Restaurants .................... 1.7 -- 1.3 -- Household Products ...................... -- 1.4 2.8 -- Industrial & Machinery .................. -- -- 3.9 -- Insurance ............................... 8.3 10.6 6.5 1.1 Leisure/Entertainment ................... 1.6 2.3 1.5 -- Manufacturing ........................... 2.4 5.0 1.8 -- Medical Supplies ........................ -- -- 3.1 -- Metals .................................. -- -- -- 1.0 Newspaper ............................... -- -- 1.7 -- Office Equipment ........................ 1.3 1.4 -- -- Oil & Gas ............................... 3.9 5.0 -- 3.9 Paper Products .......................... -- 0.5 -- 2.2 Petroleum Equipment & Services .......... 1.7 1.8 -- -- Plastics ................................ -- -- 1.4 -- Printing ................................ -- -- 2.8 1.1 Publishing .............................. -- 0.3 2.3 -- Railroad ................................ -- -- -- 0.9 Repurchase Agreement .................... 2.4 2.2 5.5 3.5 Retail .................................. 3.1 3.6 8.3 6.8 Services ................................ 1.3 -- 1.4 -- Steel ................................... -- -- -- 0.9 Telecommunications ...................... 7.7 5.7 -- 21.8 Tobacco ................................. 1.0 3.2 -- 1.8 Toys & Amusement ........................ -- 1.1 0.8 -- Utilities ............................... 2.0 1.4 -- 5.4 ---- ------- ----- ------- Total Investments ....................... 99.2% 99.8% 100.0% 99.3%
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. NOTES TO PORTFOLIOS OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998 - -------------------------------------------------------------------------------- PORTFOLIO HOLDINGS BY ASSET TYPE, FOR THOSE PORTFOLIOS PREVIOUSLY PRESENTED BY CURRENCY: LAZARD LAZARD INTERNATIONAL STRATEGIC FIXED-INCOME YIELD PORTFOLIO PORTFOLIO --------------- ------------ ASSET TYPE Asset-Backed Securities ...................... 1.1% 1.2% Collateralized Mortgage Obligations .......... 0.2 4.2 Commercial Paper ............................. 6.2 6.2 Corporate Bonds .............................. 38.8 40.4 Discount Notes ............................... 0.6 -- Foreign Government Obligations ............... 40.8 16.3 Preferred Stocks ............................. -- 2.3 REMICs ....................................... -- 0.1 Repurchase Agreement ......................... 1.3 2.9 Step-up Bonds ................................ 0.2 0.3 Structured Notes ............................. 0.9 3.0 United States Government Obligations ......... 7.1 23.5 ---- ------- Total Investments ............................ 97.2% 100.4% ================================================================================ THE LAZARD FUNDS, INC. STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1998 - -------------------------------------------------------------------------------- LAZARD EQUITY PORTFOLIO ----------------- ASSETS Investments in securities, at value (cost $396,057,275, $70,950,524, $1,409,642,345, $71,710,100, $19,389,067, $2,428,029,380, $181,782,228, $381,056,579, $116,606,674, $43,145,346, $112,517,182 and $436,009,870, respectively) ................ $ 482,055,098 Cash ......................................................... 3,622 Foreign currency (cost $0, $0, $0, $0, $69, $1,377,617, $21,323, $253,343, $0, $0, $9,598 and $30,350, respectively) ............................................... -- Receivables for: Investments sold ............................................ 3,447,007 Dividends and interest ...................................... 621,752 Capital stock sold .......................................... 3,594,093 Gross appreciation on foreign currency contracts ............ -- Due from Manager ............................................. -- Deferred organizational expenses ............................. -- ------------- Total assets ................................................. 489,721,572 ------------- LIABILITIES Payables for: Investments purchased ....................................... 9,353,643 Capital stock repurchased ................................... 1,191,528 Dividends payable ........................................... -- Gross depreciation on foreign currency contracts ............ -- Investment management fees payable ........................... 296,743 Accrued directors' fees payable .............................. 2,688 Accrued distribution fees payable ............................ 24,578 Accrued expenses and other payables .......................... 102,572 ------------- Total liabilities ............................................ 10,971,752 ------------- Net assets ................................................... 478,749,820 ============= NET ASSETS Paid in capital .............................................. 378,079,574 Undistributed (distributions in excess of) investment income--net ................................................. 119,713 Unrealized appreciation (depreciation) on: Investments--net ............................................ 85,997,823 Foreign currency--net........................................ -- Accumulated realized gain (loss)--net ........................ 14,552,710 ------------- Net assets ................................................... $ 478,749,820 ============= INSTITUTIONAL SHARES Net assets ................................................... $ 361,126,116 Shares of capital stock outstanding* ......................... 16,605,093 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE ..... $ 21.75 OPEN SHARES Net assets ................................................... $ 117,623,704 Shares of capital stock outstanding* ......................... 5,406,563 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE ..... $ 21.76
LAZARD LAZARD LAZARD BANTAM MID CAP SMALL CAP VALUE PORTFOLIO PORTFOLIO PORTFOLIO ----------------------------------------------------- ASSETS Investments in securities, at value (cost $396,057,275, $70,950,524, $1,409,642,345, $71,710,100, $19,389,067, $2,428,029,380, $181,782,228, $381,056,579, $116,606,674, $43,145,346, $112,517,182 and $436,009,870, respectively) ................ $ 72,787,709 $1,499,501,478 $ 66,568,916 Cash ......................................................... 446 208 22 Foreign currency (cost $0, $0, $0, $0, $69, $1,377,617, $21,323, $253,343, $0, $0, $9,598 and $30,350, respectively) ............................................... -- -- -- Receivables for: Investments sold ............................................ -- 7,935,045 617,904 Dividends and interest ...................................... 63,811 1,962,147 28,243 Capital stock sold .......................................... 30,459 6,750,247 93,000 Gross appreciation on foreign currency contracts ............ -- -- -- Due from Manager ............................................. -- -- -- Deferred organizational expenses ............................. 18,555 -- 505 -------------- -------------- -------------- Total assets ................................................. 72,900,980 1,516,149,125 67,308,590 -------------- -------------- -------------- LIABILITIES Payables for: Investments purchased ....................................... 614,859 6,527,195 25,938 Capital stock repurchased ................................... 100,329 3,423,577 386,342 Dividends payable ........................................... -- -- -- Gross depreciation on foreign currency contracts ............ -- -- -- Investment management fees payable ........................... 42,498 921,426 40,574 Accrued directors' fees payable .............................. 2,688 2,688 2,688 Accrued distribution fees payable ............................ 3,342 19,893 1,526 Accrued expenses and other payables .......................... 61,185 204,077 57,280 -------------- -------------- -------------- Total liabilities ............................................ 824,901 11,098,856 514,348 -------------- -------------- -------------- Net assets ................................................... 72,076,079 1,505,050,269 66,794,242 ============== ============== ============== NET ASSETS Paid in capital .............................................. 69,945,063 1,416,125,856 71,862,799 Undistributed (distributions in excess of) investment income--net ................................................. 13,218 7,069,548 -- Unrealized appreciation (depreciation) on: Investments--net ............................................ 1,837,185 89,859,133 (5,141,184) Foreign currency-- net ...................................... -- -- -- Accumulated realized gain (loss)--net ........................ 280,613 (8,004,268) 72,627 -------------- -------------- -------------- Net assets ................................................... $ 72,076,079 $1,505,050,269 $ 66,794,242 ============== ============== ============== INSTITUTIONAL SHARES Net assets ................................................... $ 55,730,688 $1,411,502,906 $ 59,737,554 Shares of capital stock outstanding* ......................... 5,327,538 81,187,480 4,899,918 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE ..... $ 10.46 $ 17.39 $ 12.19 OPEN SHARES Net assets ................................................... $ 16,345,391 $ 93,547,363 $ 7,056,688 Shares of capital stock outstanding* ......................... 1,564,634 5,391,454 582,897 NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE ..... $ 10.45 $ 17.35 $ 12.11
* $0.001 par value, 1,550,000,000 shares authorized for the Portfolios in total. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ===============================================================================- LAZARD LAZARD LAZARD LAZARD GLOBAL INTERNATIONAL INTERNATIONAL EMERGING EQUITY EQUITY SMALL CAP MARKETS PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO =============================================================================== $ 22,343,438 $ 2,919,297,732 $180,464,560 $ 304,067,832 736 398 954 912,890 69 1,363,292 21,260 253,579 150,981 -- -- -- 36,774 5,370,220 400,545 1,087,369 53,500 6,889,925 141,099 1,861,740 -- -- -- -- 74,593 -- -- -- 361 -- -- -- ------------ --------------- ------------ -------------- 22,660,452 2,932,921,567 181,028,418 308,183,410 ------------ --------------- ------------ -------------- 64,801 -- 227,185 914,612 -- 3,737,157 143,041 621,583 -- -- -- -- -- -- -- -- -- 1,801,595 118,332 254,749 2,688 2,688 2,688 2,688 972 9,650 613 2,133 57,695 778,041 111,228 163,747 ------------ --------------- ------------ -------------- 126,156 6,329,131 603,087 1,959,512 ------------ --------------- ------------ -------------- 22,534,296 2,926,592,436 180,425,331 306,223,898 ============ =============== ============ ============== 19,604,527 2,444,989,945 180,796,031 436,700,968 (9,939) (20,141,111) (35,422) 220,015 2,954,371 491,268,352 (1,317,668) (76,988,747) 551 225,120 1,189 (1,081) (15,214) 10,250,130 981,201 (53,707,257) ------------ --------------- ------------ -------------- $ 22,534,296 $ 2,926,592,436 $180,425,331 $ 306,223,898 ============ =============== ============ ============== $ 17,710,122 $ 2,879,288,851 $177,779,327 $ 298,032,599 1,347,859 189,079,168 15,590,528 42,950,229 $ 13.14 $ 15.23 $ 11.40 $ 6.94 $ 4,824,174 $ 47,303,585 $ 2,646,004 $ 8,191,299 366,528 3,106,682 232,449 1,176,048 $ 13.16 $ 15.23 $ 11.38 $ 6.97 LAZARD LAZARD LAZARD LAZARD INTERNATIONAL STRATEGIC BOND HIGH YIELD FIXED-INCOME YIELD PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - ---------------- --------------- --------------- ---------------- $116,527,612 $ 41,999,685 $116,898,630 $ 421,895,565 354 178 833 938 -- -- 9,532 30,367 1,679,503 232,838 658,694 5,573,624 1,017,297 1,026,997 2,142,915 7,640,647 2,761,514 -- 348,810 4,564,751 -- -- 911,677 3,055,778 -- -- -- -- -- 19,446 -- -- ------------ ------------- ------------ -------------- 121,986,280 43,279,144 120,971,091 442,761,670 ------------ ------------- ------------ -------------- 6,078,715 320,865 225,938 18,003,195 117,000 -- 47,062 625,201 48,847 5,107 5,692 829,815 -- -- 278,656 2,848,648 46,473 7,271 80,936 255,874 2,688 2,688 2,688 2,688 3,098 182 866 3,633 66,356 59,468 78,479 133,255 ------------ ------------- ------------ -------------- 6,363,177 395,581 720,317 22,702,309 ------------ ------------- ------------ -------------- 115,623,103 42,883,563 120,250,774 420,059,361 ============ ============= ============ ============== 116,074,933 46,280,385 115,109,368 454,082,459 (180,455) (21,463) (282,389) 1,046,593 (79,062) (1,145,661) 4,381,448 (14,114,305) -- -- 652,735 245,832 (192,313) (2,229,698) 389,612 (21,201,218) ------------ ------------- ------------ -------------- $115,623,103 $ 42,883,563 $120,250,774 $ 420,059,361 ============ ============= ============ ============== $100,396,638 $ 41,934,583 $115,500,090 $ 397,599,151 10,154,742 4,453,235 10,782,322 44,107,303 $ 9.89 $ 9.42 $ 10.71 $ 9.01 $ 15,226,465 $ 948,980 $ 4,750,684 $ 22,460,210 1,540,500 100,729 444,293 2,489,504 $ 9.88 $ 9.42 $ 10.69 $ 9.02 ================================================================================ THE LAZARD FUNDS, INC. STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 - --------------------------------------------------------------------------------
LAZARD LAZARD EQUITY MID CAP PORTFOLIO PORTFOLIO --------------- -------------- INVESTMENT INCOME INCOME: Interest ......................................................... $ 881,152 $ 239,771 Dividends ........................................................ 8,478,127 708,363 ----------- ------------ Total investment income* .......................................... 9,359,279 948,134 ----------- ------------ EXPENSES: Management fees .................................................. 3,316,469 459,760 Administration fees .............................................. 133,439 57,261 Distribution fees (Open Shares) .................................. 219,862 22,660 Custodian fees ................................................... 105,896 57,369 Professional services ............................................ 40,466 47,058 Registration fees ................................................ 51,450 24,653 Shareholders' services ........................................... 69,307 56,271 Directors' fees and expenses ..................................... 13,838 13,902 Shareholders' reports ............................................ 14,740 11,537 Amortization of organizational expenses .......................... -- 38,639 Other ............................................................ 28,525 5,178 ----------- ------------ Total expenses before fees waived and expenses reimbursed ......... 3,993,992 794,288 Management fees waived and expenses reimbursed ................... -- (119,681) Administration fees waived ....................................... -- (3,750) Expense reductions ............................................... (2,457) -- ----------- ------------ Expenses--net ..................................................... 3,991,535 670,857 ----------- ------------ INVESTMENT INCOME (LOSS)--NET ..................................... 5,367,744 277,277 ----------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY--NET Realized gain (loss) on: Investments--net ................................................ 36,224,831 1,047,283 Foreign currency--net ........................................... -- -- Net change in unrealized appreciation (depreciation) on: Investments--net ................................................ 24,446,325 551,315 Foreign currency--net ........................................... -- -- ----------- ------------ Realized and unrealized gain (loss) on investments and foreign currency--net ........................................... 60,671,156 1,598,598 ----------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ...................................................... $66,038,900 $ 1,875,875 =========== ============ * Net of foreign withholding taxes of: ........................... $ 59,398 $ 1,416 =========== ============ LAZARD LAZARD SMALL CAP BANTAM VALUE PORTFOLIO PORTFOLIO ----------------- ----------------- INVESTMENT INCOME INCOME: Interest ......................................................... $ 6,014,341 $ 261,509 Dividends ........................................................ 14,048,859 238,085 -------------- --------------- Total investment income* .......................................... 20,063,200 499,594 -------------- --------------- EXPENSES: Management fees .................................................. 11,726,934 575,206 Administration fees .............................................. 301,361 60,339 Distribution fees (Open Shares) .................................. 245,099 21,161 Custodian fees ................................................... 259,546 62,640 Professional services ............................................ 63,132 41,464 Registration fees ................................................ 112,104 27,724 Shareholders' services ........................................... 137,718 57,800 Directors' fees and expenses ..................................... 13,837 13,837 Shareholders' reports ............................................ 25,426 9,548 Amortization of organizational expenses .......................... -- 182 Other ............................................................ 115,438 6,243 -------------- --------------- Total expenses before fees waived and expenses reimbursed ......... 13,000,595 876,144 Management fees waived and expenses reimbursed ................... -- (40,732) Administration fees waived ....................................... -- -- Expense reductions ............................................... (19,180) (4,732) -------------- --------------- Expenses--net ..................................................... 12,981,415 830,680 -------------- --------------- INVESTMENT INCOME (LOSS)--NET ..................................... 7,081,785 (331,086) -------------- --------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY--NET Realized gain (loss) on: Investments--net ................................................ (8,015,535) 72,685 Foreign currency--net ........................................... -- -- Net change in unrealized appreciation (depreciation) on: Investments--net ................................................ (200,026,407) (12,144,931) Foreign currency--net ........................................... -- -- -------------- --------------- Realized and unrealized gain (loss) on investments and foreign currency--net ........................................... (208,041,942) (12,072,246) -------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ...................................................... $ (200,960,157) $ (12,403,332) ============== =============== * Net of foreign withholding taxes of: ........................... $ 24,052 $ -- ============== ===============
** Commenced operations on January 2, 1998. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ LAZARD LAZARD LAZARD LAZARD GLOBAL INTERNATIONAL INTERNATIONAL EMERGING EQUITY EQUITY SMALL CAP MARKETS PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - ------------- ---------------- --------------- ----------------- $ 39,546 $ 6,005,981 $ 509,630 $ 1,418,920 300,096 52,760,910 2,742,017 7,311,312 ---------- -------------- ------------- --------------- 339,642 58,766,891 3,251,647 8,730,232 ---------- -------------- ------------- --------------- 119,985 19,452,067 1,354,903 2,794,119 48,200 404,362 81,137 100,882 9,246 76,823 8,134 29,160 82,696 2,949,209 279,094 508,629 32,758 56,198 34,824 40,873 19,953 218,590 42,231 78,815 46,211 109,072 53,020 66,953 11,137 13,838 13,904 13,837 1,210 19,566 10,967 13,517 182 -- 3,214 4,678 2,076 147,548 19,552 6,804 ---------- -------------- ------------- --------------- 373,654 23,447,273 1,900,980 3,658,267 (194,578) -- (16,356) (17,870) -- -- -- -- -- (4,500) (1,365) (18,365) ---------- -------------- ------------- --------------- 179,076 23,442,773 1,883,259 3,622,032 ---------- -------------- ------------- --------------- 160,566 35,324,118 1,368,388 5,108,200 ---------- -------------- ------------- --------------- 878,761 145,444,421 13,308,772 (48,041,891) (16,203) (9,178,019) (626,958) (757,497) 1,695,964 177,729,923 (4,961,310) (28,054,440) (155) 440,345 7,701 44,820 ---------- -------------- ------------- --------------- 2,558,367 314,436,670 7,728,205 (76,809,008) ---------- -------------- ------------- --------------- $2,718,933 $ 349,760,788 $ 9,096,593 $ (71,700,808) ========== ============== ============= =============== $ 18,473 $ 6,250,498 $ 433,482 $ 683,973 ========== ============== ============= =============== LAZARD LAZARD LAZARD LAZARD HIGH INTERNATIONAL STRATEGIC BOND YIELD FIXED-INCOME YIELD PORTFOLIO PORTFOLIO** PORTFOLIO PORTFOLIO --------------- ---------------- --------------- ---------------- $ 6,520,653 $ 2,800,635 $ 6,107,211 $ 34,318,958 -- 182,639 27,582 1,472,366 ------------- --------------- ------------ ------------- 6,520,653 2,983,274 6,134,793 35,791,324 ------------- --------------- ------------ ------------- 523,656 225,562 857,644 3,422,135 65,947 49,968 67,871 136,257 28,672 573 9,533 48,934 117,717 50,586 207,503 368,520 35,347 31,193 35,990 48,036 28,778 27,756 23,582 42,931 50,280 41,432 54,165 64,419 13,837 11,175 13,837 13,846 1,328 638 10,409 8,819 -- 44,902 -- -- 7,839 1,733 8,517 27,752 ------------- --------------- ------------ ------------- 873,401 485,518 1,289,051 4,181,649 (11,309) (125,291) (21,538) -- -- (43,750) -- -- (10,339) -- (7,942) (11,525) ------------- --------------- ------------ ------------- 851,753 316,477 1,259,571 4,170,124 ------------- --------------- ------------ ------------- 5,668,900 2,666,797 4,875,222 31,621,200 ------------- --------------- ------------ ------------- 1,363,055 (2,212,117) 1,433,652 (23,125,302) -- -- (1,573,161) (6,897,177) (1,212,836) (1,145,661) 8,149,616 (1,923,204) -- -- 1,455,856 (1,117,869) ------------- --------------- ------------ ------------- 150,219 (3,357,778) 9,465,963 (33,063,552) ------------- --------------- ------------ ------------- $ 5,819,119 $ (690,981) $ 14,341,185 $ (1,442,352) ============= =============== ============ ============= $ -- $ -- $ 31,059 $ -- ============= =============== ============ ============= ================================================================================ THE LAZARD FUNDS, INC. STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
LAZARD EQUITY PORTFOLIO ------------------------------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1997 ---------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: Operations: Investment income (loss)--net .................................................... $ 5,367,744 $ 3,266,345 Realized gain (loss) on investments and foreign currency--net .................... 36,224,831 58,942,717 Change in unrealized appreciation (depreciation)--net ............................ 24,446,325 9,469,216 -------------- -------------- Net increase (decrease) in net assets resulting from operations ................... 66,038,900 71,678,278 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS: From investment income--net Institutional Shares ............................................................ (4,333,091) (3,202,517) Open Shares ..................................................................... (934,432) (70,473) From realized gains--net Institutional Shares ............................................................ (21,315,461) (53,939,994) Open Shares ..................................................................... (6,695,483) (2,267,870) In excess of investment income--net Institutional Shares ............................................................ -- -- Open Shares ..................................................................... -- -- In excess of realized gains--net Institutional Shares ............................................................ -- -- Open Shares ..................................................................... -- -- -------------- -------------- Net decrease in net assets resulting from distributions ........................... (33,278,467) (59,480,854) -------------- -------------- CAPITAL STOCK TRANSACTIONS: Net proceeds from sales Institutional Shares ............................................................ 87,372,723 90,619,277 Open Shares ..................................................................... 120,385,150 30,083,744 Net proceeds from reinvestment of distributions Institutional Shares ............................................................ 24,696,654 54,569,340 Open Shares ..................................................................... 7,533,249 2,261,137 Cost of shares redeemed Institutional Shares ............................................................ (111,996,715) (103,551,489) Open Shares ..................................................................... (38,387,846) (8,398,580) -------------- -------------- Net increase (decrease) in net assets from capital stock transactions ............. 89,603,215 65,583,429 -------------- -------------- Total increase (decrease) in net assets ........................................... 122,363,648 77,780,853 Net assets at beginning of period ................................................. 356,386,172 278,605,319 -------------- -------------- Net assets at end of period* ...................................................... $ 478,749,820 $ 356,386,172 ============== ============== SHARES ISSUED AND REPURCHASED: INSTITUTIONAL SHARES: Shares outstanding at beginning of period ........................................ 16,695,862 14,480,367 -------------- -------------- Shares sold ...................................................................... 4,095,584 4,234,980 Shares issued to shareholders from reinvestment of distributions ................. 1,165,225 2,733,379 Shares repurchased ............................................................... (5,351,578) (4,752,864) -------------- -------------- Net increase (decrease) .......................................................... (90,769) 2,215,495 -------------- -------------- Shares outstanding at end of period .............................................. 16,605,093 16,695,862 ============== ============== OPEN SHARES: Shares outstanding at beginning of period ........................................ 1,141,207 -- -------------- -------------- Shares sold ...................................................................... 5,735,707 1,390,648 Shares issued to shareholders from reinvestment of distributions ................. 355,884 113,384 Shares repurchased ............................................................... (1,826,235) (362,825) -------------- -------------- Net increase (decrease) .......................................................... 4,265,356 1,141,207 -------------- -------------- Shares outstanding at end of period .............................................. 5,406,563 1,141,207 ============== ============== * Includes undistributed (distributions in excess of) investment income--net ..... $ 119,713 $ 19,492 ============== ==============
** Commenced operations on November 4, 1997. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================
LAZARD MID CAP LAZARD SMALL CAP LAZARD BANTAM VALUE PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------------- --------------------------------------- --------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997** 1998 1997 1998 1997 - ----------------- ----------------- ------------------ ------------------ ------------------ ------------------ $277,277 $ 76,325 $ 7,081,785 $ 4,109,963 $ (331,086) $ (242,145) 1,047,283 (1,143) (8,015,535) 180,850,768 72,685 10,157,779 551,315 1,285,870 (200,026,407) 111,151,369 (12,144,931) 3,977,235 - -------------- ------------- -------------- -------------- --------------- --------------- 1,875,875 1,361,052 (200,960,157) 296,112,100 (12,403,332) 13,892,869 - -------------- ------------- -------------- -------------- --------------- --------------- (238,083) (69,578) (682,951) (3,427,982) -- -- (51,279) (1,235) -- -- -- -- {593,806) -- (7,744,125) (188,272,138) (805,472) (9,019,744) (171,721) -- (533,570) (5,550,731) (91,260) (964,614) (18,334) -- -- -- -- -- (3,181) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -------------- ------------- -------------- -------------- --------------- --------------- (1,076,404) (70,813) (8,960,646) (197,250,851) (896,732) (9,984,358) - -------------- ------------- -------------- -------------- --------------- --------------- 20,622,564 48,808,885 726,841,164 580,429,963 15,742,416 31,919,201 20,111,962 2,003,215 131,639,336 52,536,821 6,621,216 10,151,848 781,532 64,808 10,219,065 179,673,475 802,893 8,989,030 211,355 809 521,384 5,399,865 74,738 900,973 (16,067,323) (346,699) (577,391,571) (399,682,887) (15,048,400) (10,133,057) (5,968,971) (235,768) (68,030,676) (7,451,540) (6,418,518) (1,965,892) - -------------- ------------- -------------- -------------- --------------- --------------- 19,691,119 50,295,250 223,798,702 410,905,697 1,774,345 39,862,103 - -------------- ------------- -------------- -------------- --------------- --------------- 20,490,590 51,585,489 13,877,899 509,766,946 (11,525,719) 43,770,614 51,585,489 -- 1,491,172,370 981,405,424 78,319,961 34,549,347 - -------------- ------------- -------------- -------------- --------------- --------------- $ 72,076,079 $ 51,585,489 $1,505,050,269 $1,491,172,370 $ 66,794,242 $ 78,319,961 ============== ============= ============== ============== =============== =============== 4,851,388 -- 72,186,366 53,230,190 4,887,256 2,746,889 - -------------- ------------- -------------- -------------- --------------- --------------- 1,986,263 4,879,588 39,866,121 28,061,127 1,165,000 2,177,512 79,580 6,442 544,378 9,286,832 64,129 647,359 (1,589,693) (34,642) (31,409,385) (18,391,783) (1,216,467) (684,504) - -------------- ------------- -------------- -------------- --------------- --------------- 476,150 4,851,388 9,001,114 18,956,176 12,662 2,140,367 - -------------- ------------- -------------- -------------- --------------- --------------- 5,327,538 4,851,388 81,187,480 72,186,366 4,899,918 4,887,256 ============== ============= ============== ============== =============== =============== 176,048 -- 2,302,364 -- 585,520 -- - -------------- ------------- -------------- -------------- --------------- --------------- 1,988,746 199,579 6,772,629 2,362,406 484,655 642,453 21,545 80 28,259 277,559 6,106 64,441 (621,705) (23,611) (3,711,798) (337,601) (493,384) (121,374) - -------------- ------------- -------------- -------------- --------------- --------------- 1,388,586 176,048 3,089,090 2,302,364 (2,623) 585,520 - -------------- ------------- -------------- -------------- --------------- --------------- 1,564,634 176,048 5,391,454 2,302,364 582,897 585,520 ============== ============= ============== ============== =============== =============== $ 13,218 $ 12,085 $ 7,069,548 $ 681,981 $ -- $ -- ============== ============= ============== ============== =============== ===============
================================================================================ THE LAZARD FUNDS, INC. STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) - --------------------------------------------------------------------------------
LAZARD GLOBAL EQUITY PORTFOLIO --------------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1997 --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: Operations: Investment income (loss)--net .................................................... $ 160,566 $ 115,429 Realized gain (loss) on investments and foreign currency--net .................... 862,558 856,254 Change in unrealized appreciation (depreciation)--net ............................ 1,695,809 652,357 ------------ ------------ Net increase (decrease) in net assets resulting from operations ................... 2,718,933 1,624,040 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: From investment income--net Institutional Shares ............................................................ (109,536) (105,741) Open Shares ..................................................................... (14,500) (13,063) From realized gains--net Institutional Shares ............................................................ (821,122) (947,173) Open Shares ..................................................................... (225,207) (128,664) In excess of investment income--net Institutional Shares ............................................................ -- (6,344) Open Shares ..................................................................... -- (830) In excess of realized gains--net Institutional Shares ............................................................ (10,308) -- Open Shares ..................................................................... (3,101) -- ------------ ------------ Net decrease in net assets resulting from distributions ........................... (1,183,774) (1,201,815) ------------ ------------ CAPITAL STOCK TRANSACTIONS: Net proceeds from sales Institutional Shares ............................................................ 6,063,563 2,036,594 Open Shares ..................................................................... 3,126,095 2,834,230 Net proceeds from reinvestment of distributions Institutional Shares ............................................................ 933,169 1,020,486 Open Shares ..................................................................... 204,554 141,752 Cost of shares redeemed Institutional Shares ............................................................ (1,037,949) (2,916,057) Open Shares ..................................................................... (939,052) (674,496) ------------ ------------ Net increase (decrease) in net assets from capital stock transactions ............. 8,350,380 2,442,509 ------------ ------------ Total increase in net assets ...................................................... 9,885,539 2,864,734 Net assets at beginning of year ................................................... 12,648,757 9,784,023 ------------ ------------ Net assets at end of year* ........................................................ $ 22,534,296 $ 12,648,757 ============ ============ SHARES ISSUED AND REPURCHASED: INSTITUTIONAL SHARES: Shares outstanding at beginning of year .......................................... 870,086 852,071 ------------ ------------ Shares sold ...................................................................... 487,546 173,237 Shares issued to shareholders from reinvestment of distributions ................. 72,432 86,767 Shares repurchased ............................................................... (82,205) (241,989) ------------ ------------ Net increase (decrease) .......................................................... 477,773 18,015 ------------ ------------ Shares outstanding at end of year ................................................ 1,347,859 870,086 ============ ============ OPEN SHARES: Shares outstanding at beginning of period ........................................ 192,168 -- ------------ ------------ Shares sold ...................................................................... 233,011 233,628 Shares issued to shareholders from reinvestment of distributions ................. 15,814 11,953 Shares repurchased ............................................................... (74,465) (53,413) ------------ ------------ Net increase (decrease) .......................................................... 174,360 192,168 ------------ ------------ Shares outstanding at end of period year ......................................... 366,528 192,168 ============ ============ * Includes undistributed (distributions in excess of) investment Income--net ..... $ (9,939) $ (30,476) ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================
LAZARD INTERNATIONAL EQUITY LAZARD INTERNATIONAL SMALL CAP LAZARD EMERGING MARKETS PORTFOLIO PORTFOLIO PORTFOLIO - ----------------------------------------- ----------------------------------- ------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 1998 1997 - ------------------- ------------------- ---------------- ---------------- ----------------- ----------------- $ 35,324,118 $ 23,690,976 $ 1,368,388 $ 1,030,350 $ 5,108,200 $ 3,029,620 136,266,402 135,333,682 12,681,814 4,797,715 (48,799,388) 9,698,759 178,170,268 57,416,855 (4,953,609) (6,500,094) (28,009,620) (56,098,361) --------------- --------------- ------------- ------------- -------------- -------------- 349,760,788 216,441,513 9,096,593 (672,029) (71,700,808) (43,369,982) --------------- --------------- ------------- ------------- -------------- -------------- (25,534,748) (23,615,628) (752,862) (779,553) (4,058,419) (2,195,662) (250,536) (75,348) (5,976) (2,605) (121,120) (50,943) (144,495,716) (132,849,456) (15,715,143) (2,420,014) -- (12,058,986) (2,219,617) (407,971) (221,751) (20,012) -- (403,361) -- (19,997,743) -- -- -- -- -- (49,197) -- -- -- -- -- -- -- -- -- (6,127,590) -- -- -- -- -- (163,296) --------------- --------------- ------------- ------------- -------------- -------------- (172,500,617) (176,995,343) (16,695,732) (3,222,184) (4,179,539) (20,999,838) --------------- --------------- ------------- ------------- -------------- -------------- 1,265,219,569 540,108,125 105,522,613 33,547,354 223,793,607 224,014,461 140,707,664 14,105,912 7,946,853 3,051,529 42,143,524 17,560,383 168,928,556 165,563,968 15,939,095 2,967,819 6,418,310 16,809,709 2,243,315 496,902 221,922 21,902 39,672 582,273 (829,574,309) (461,972,317) (77,988,431) (17,963,195) (95,979,356) (88,595,351) (108,710,913) (3,403,545) (7,184,846) (1,136,469) (38,420,599) (7,220,528) --------------- --------------- ------------- ------------- -------------- -------------- 638,813,882 254,899,045 44,457,206 20,488,940 137,995,158 163,150,947 --------------- --------------- ------------- ------------- -------------- -------------- 816,074,053 294,345,215 36,858,067 16,594,727 62,114,811 98,781,127 2,110,518,383 1,816,173,168 143,567,264 126,972,537 244,109,087 145,327,960 --------------- --------------- ------------- ------------- -------------- -------------- $ 2,926,592,436 $ 2,110,518,383 $ 180,425,331 $ 143,567,264 $ 306,223,898 $ 244,109,087 =============== =============== ============= ============= ============== ============== 150,349,803 133,302,794 12,122,940 10,640,540 25,697,597 12,969,409 --------------- --------------- ------------- ------------- -------------- -------------- 81,842,532 36,635,849 7,901,725 2,689,836 28,909,650 18,858,547 11,354,528 11,731,335 1,379,036 253,037 845,770 1,776,539 (54,467,695) (31,320,175) (5,813,173) (1,460,473) (12,502,788) (7,906,898) --------------- --------------- ------------- ------------- -------------- -------------- 38,729,365 17,047,009 3,467,588 1,482,400 17,252,632 12,728,188 --------------- --------------- ------------- ------------- -------------- -------------- 189,079,168 150,349,803 15,590,528 12,122,940 42,950,229 25,697,597 =============== =============== ============= ============= ============== ============== 773,878 -- 160,229 -- 844,049 -- --------------- --------------- ------------- ------------- -------------- -------------- 9,132,813 967,597 571,256 251,402 5,261,508 1,447,155 150,724 35,205 19,069 1,866 7,814 62,861 (6,950,733) (228,924) (518,105) (93,039) (4,937,323) (665,967) --------------- --------------- ------------- ------------- -------------- -------------- 2,332,804 773,878 72,220 160,229 331,999 844,049 --------------- --------------- ------------- ------------- -------------- -------------- 3,106,682 773,878 232,449 160,229 1,176,048 844,049 =============== =============== ============= ============= ============== ============== $ (20,141,111) $ (21,193,548) $ (35,422) $ (18,014) $ 220,015 $ 48,851 =============== =============== ============= ============= ============== ==============
================================================================================ THE LAZARD FUNDS, INC. STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) - --------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO ------------------------------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31 1998 1997 ------------------ --------------- INCREASE (DECREASE) IN NET ASSETS: Operations: Investment income--net .......................................................... $ 5,668,900 $ 4,977,490 Realized gain (loss) on investments and foreign currency--net ................... 1,363,055 1,191,253 Change in unrealized appreciation (depreciation)--net ........................... (1,212,836) 976,970 ------------- ------------- Net increase (decrease) in net assets resulting from operations .................. 5,819,119 7,145,713 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: From investment income--net Institutional Shares ........................................................... (5,116,501) (4,784,961) Open Shares .................................................................... (589,199) (218,630) From realized gains--net Institutional Shares ........................................................... (1,325,439) (622,871) Open Shares .................................................................... (200,980) (47,549) In excess of investment income--net Institutional Shares ........................................................... (70) (103,346) Open Shares .................................................................... (9) (6,061) In excess of realized gains--net Institutional Shares ........................................................... (150,643) -- Open Shares .................................................................... (18,525) -- From Capital--Net Institutional Shares ........................................................... -- -- Open Shares .................................................................... -- -- -------------- ------------- Net decrease in net assets resulting from distributions .......................... (7,401,366) (5,783,418) -------------- ------------- CAPITAL STOCK TRANSACTIONS: Net proceeds from sales Institutional Shares ........................................................... 30,642,538 30,149,655 Open Shares .................................................................... 10,295,197 7,728,016 Net proceeds from reinvestment of distributions Institutional Shares ........................................................... 6,003,999 5,018,654 Open Shares .................................................................... 714,757 248,171 Cost of shares redeemed Institutional Shares ........................................................... (27,312,623) (13,915,433) Open Shares .................................................................... (2,849,142) (786,886) -------------- ------------- Net increase (decrease) in net assets from capital stock transactions ............ 17,494,726 28,442,177 -------------- ------------- Total increase in net assets ..................................................... 15,912,479 29,804,472 Net assets at beginning of year .................................................. 99,710,624 69,906,152 -------------- ------------- Net assets at end of year* ....................................................... $115,623,103 $ 99,710,624 ============== ============= SHARES ISSUED AND REPURCHASED: INSTITUTIONAL SHARES: Shares outstanding at beginning of year ......................................... 9,217,915 7,073,035 -------------- ------------- Shares sold ..................................................................... 3,060,161 3,039,325 Shares issued to shareholders from reinvestment of distributions ................ 599,942 503,472 Shares repurchased .............................................................. (2,723,276) (1,397,917) -------------- ------------- Net increase .................................................................... 936,827 2,144,880 -------------- ------------- Shares outstanding at end of year ............................................... 10,154,742 9,217,915 ============== ============= OPEN SHARES: Shares outstanding at beginning of period ....................................... 726,613 -- -------------- ------------- Shares sold ..................................................................... 1,025,899 779,924 Shares issued to shareholders from reinvestment of distributions ................ 71,508 24,775 Shares repurchased .............................................................. (283,520) (78,086) -------------- ------------- Net increase .................................................................... 813,887 726,613 -------------- ------------- Shares outstanding at end of period ............................................. 1,540,500 726,613 ============== ============= * Includes undistributed (distributions in excess of) investment Income--net ..... $ (180,445) $ (136,318) ============== =============
** Commenced operations on January 2, 1998. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================
LAZARD INTERNATIONAL LAZARD HIGH YIELD FIXED-INCOME LAZARD STRATEGIC YIELD PORTFOLIO PORTFOLIO PORTFOLIO - ------------------- ------------------------------- ------------------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998** 1998 1997 1998 1997 - ------------------- ---------------- ---------------- ----------------- ----------------- $ 2,666,797 $ 4,875,222 $ 5,281,736 $ 31,621,200 $ 24,177,268 (2,212,117) (139,509) (4,062,403) (30,022,479) 4,985,365 (1,145,661) 9,605,472 (6,930,080) (3,041,073) (15,784,090) ------------- ------------- ------------- --------------- --------------- (690,981) 14,341,185 (5,710,747) (1,442,352) 13,378,543 ------------- ------------- ------------- --------------- --------------- (2,646,121) (1,954,550) (856,065) (19,465,202) (24,262,314) (20,676) (62,023) (4,392) (791,250) (625,698) -- -- (162,035) -- (1,819,161) -- -- -- -- (77,090) (78,525) -- (561,048) (794,218) (2,563,969) (705) -- (8,622) (35,597) (73,087) -- -- (1,193,276) -- -- -- -- (18,323) -- -- -- -- (2,677,113) (13,228,346) -- -- -- (41,142) (592,897) -- ------------- ------------- ------------- --------------- --------------- (2,746,027) (2,016,573) (5,522,016) (34,907,510) (29,421,319) ------------- ------------- ------------- --------------- --------------- 52,193,575 30,541,436 62,994,956 476,144,319 420,086,629 984,032 2,380,537 2,930,820 154,324,729 18,214,057 2,664,900 2,276,718 4,103,522 21,895,133 22,349,566 21,381 72,083 57,737 1,174,776 692,322 (9,518,672) (39,431,530) (34,229,843) (465,223,430) (226,654,290) (24,645) (870,320) (97,029) (146,658,525) (2,976,085) ------------- ------------- ------------- --------------- --------------- 46,320,571 (5,031,076) 35,760,163 41,657,002 231,712,199 ------------- ------------- ------------- --------------- --------------- 42,883,563 7,293,536 24,527,400 5,307,140 215,669,423 -- 112,957,238 88,429,838 414,752,221 199,082,798 ------------- ------------- ------------- --------------- --------------- $ 42,883,563 $ 120,250,774 $ 112,957,238 $ 420,059,361 $ 414,752,221 ============== ============= ============= =============== =============== -- 11,439,832 8,201,037 41,370,616 19,892,579 -------------- ------------- ------------- --------------- --------------- 5,125,438 3,069,726 6,263,605 50,232,451 41,987,849 270,082 232,609 410,505 2,318,882 2,253,081 (942,285) (3,959,845) (3,435,315) (49,814,646) (22,762,893) -------------- ------------- ------------- --------------- --------------- 4,453,235 (657,510) 3,238,795 2,736,687 21,478,037 -------------- ------------- ------------- --------------- --------------- 4,453,235 10,782,322 11,439,832 44,107,303 41,370,616 ============== ============= ============= =============== =============== -- 287,789 -- 1,584,672 -- -------------- ------------- ------------- --------------- --------------- 101,097 239,066 291,721 16,328,778 1,813,716 1,997 7,344 5,813 124,369 70,193 (2,365) (89,906) (9,745) (15,548,315) (299,237) -------------- ------------- ------------- --------------- --------------- 100,729 156,504 287,789 904,832 1,584,672 -------------- ------------- ------------- --------------- --------------- 100,729 444,293 287,789 2,489,504 1,584,672 ============== ============= ============= =============== =============== $ (21,463) $ (282,389) $ (1,450,070) $ 1,046,593 $ (574,424) ============== ============= ============= =============== ===============
================================================================================ THE LAZARD FUNDS, INC. FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: - -------------------------------------------------------------------------------- LAZARD EQUITY PORTFOLIO
YEAR ENDED ----------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 INSTITUTIONAL SHARES ------------ ------------ ------------ ------------ ----------- Net asset value, beginning of period ............. $ 19.98 $ 19.24 $ 17.41 $ 13.75 $ 13.89 ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.28 0.22 0.33 0.23 0.14 Net realized and unrealized gain (loss) ......... 3.10 4.54 3.06 4.93 0.44 ------- ------- ------- ------- ------- Total from investment operations ................ 3.38 4.76 3.39 5.16 0.58 ------- ------- ------- ------- ------- Less distributions from and in excess of: Net investment income ........................... (0.26) (0.22) (0.33) (0.18) (0.15) Net realized gain ............................... (1.35) (3.80) (1.23) (1.32) (0.57) ------- ------- ------- ------- ------- Total distributions ............................. (1.61) (4.02) (1.56) (1.50) (0.72) ------- ------- ------- ------- ------- Net asset value, end of period ................... $ 21.75 $ 19.98 $ 19.24 $ 17.41 $ 13.75 ======= ======= ======= ======= ======= TOTAL RETURN (A) ................................. 17.3% 25.1% 19.9% 37.7% 4.2% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $361,126 $333,575 $278,605 $163,787 $89,105 Ratios to average net assets: Net expenses (b) ................................ 0.85% 0.86% 0.89% 0.92% 1.05% Gross expenses (b) .............................. 0.85% 0.87% 0.89% 0.92% 1.05% Net investment income (b) ....................... 1.28% 1.00% 1.87% 1.45% 1.15% Portfolio turnover rate .......................... 76% 78% 66% 81% 67%
YEAR FOR THE PERIOD ENDED 2/5/97* TO 12/31/98 12/31/97 OPEN SHARES ------------ --------------- Net asset value, beginning of period ............. $ 19.99 $ 20.19 -------- ------- Income (loss) from investment operations: Net investment income ........................... 0.20 0.13 Net realized and unrealized gain (loss) ......... 3.12 3.62 -------- ------- Total from investment operations ................ 3.32 3.75 -------- ------- Less distributions from and in excess of: Net investment income ........................... (0.20) (0.15) Net realized gain ............................... (1.35) (3.80) -------- ------- Total distributions ............................. (1.55) (3.95) -------- ------- Net asset value, end of period ................... $ 21.76 $ 19.99 ======== ======= TOTAL RETURN (A) ................................. 17.0% 18.9% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $117,624 $22,811 Ratios to average net assets: Net expenses (b) ................................ 1.12% 1.22% Gross expenses (b) .............................. 1.12% 1.35% Net investment income (b) ....................... 0.96% 0.60% SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: - -------------------------------------------------------------------------------- LAZARD MID CAP PORTFOLIO YEAR FOR THE PERIOD ENDED 11/4/97* TO 12/31/98 12/31/97 INSTITUTIONAL SHARES ------------ --------------- Net asset value, beginning of period ............. $ 10.26 $ 10.00 ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.05 0.02 Net realized and unrealized gain (loss) ......... 0.31 0.26 ------- ------- Total from investment operations ................ 0.36 0.28 ------- ------- Less distributions from and in excess of: Net investment income ........................... ( 0.05) ( 0.02) Net realized gain ............................... ( 0.11) -- ------- ------- Total distributions ............................. ( 0.16) ( 0.02) ------- ------- Net asset value, end of period ................... $ 10.46 $ 10.26 ======= ======= TOTAL RETURN (A) ................................. 3.7% 2.8% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $55,731 $49,779 Ratios to average net assets: Net expenses (b) ................................ 1.05% 1.05% Gross expenses (b) .............................. 1.23% 1.44% Net investment income (b) ....................... 0.48% 1.02% Portfolio turnover rate .......................... 86% 1% YEAR FOR THE PERIOD ENDED 11/4/97* TO 12/31/98 12/31/97 OPEN SHARES ------------ --------------- Net asset value, beginning of period ............. $ 10.26 $ 10.00 ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.02 0.01 Net realized and unrealized gain (loss) ......... 0.32 0.26 ------- ------- Total from investment operations ................ 0.34 0.27 ------- ------- Less distributions from and in excess of: Net investment income ........................... (0.04) (0.01) Net realized gain ............................... (0.11) -- ------- ------- Total distributions ............................. (0.15) (0.01) ------- ------- Net asset value, end of period ................... $ 10.45 $ 10.26 ======= ======= TOTAL RETURN (A) ................................. 3.4% 2.7% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $16,345 $ 1,806 Ratios to average net assets: Net expenses (b) ................................ 1.35% 1.35% Gross expenses (b) .............................. 1.66% 4.97% Net investment income (b) ....................... 0.29% 0.72% SEE NOTES TO FINANCIAL HIGHLIGHTS. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: - -------------------------------------------------------------------------------- LAZARD SMALL CAP PORTFOLIO
YEAR ENDED ----------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 INSTITUTIONAL SHARES --------------- --------------- ------------ ------------ ------------- Net asset value, beginning of period ............. $ 20.02 $ 18.44 $ 15.95 $ 14.35 $ 15.26 --------- --------- ------- ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.08 0.07 0.11 0.13 0.07 Net realized and unrealized gain (loss) ......... (2.60) 4.92 3.68 2.95 0.22 --------- --------- ------- ------- ------- Total from investment operations ................ (2.52) 4.99 3.79 3.08 0.29 --------- --------- ------- ------- ------- Less distributions from and in excess of: Net investment income ........................... (0.01) (0.06) (0.11) (0.16) (0.04) Net realized gain ............................... (0.10) (3.35) (1.19) (1.32) (1.16) --------- --------- ------- ------- ------- Total distributions ............................. (0.11) (3.41) (1.30) (1.48) (1.20) --------- --------- ------- ------- ------- Net asset value, end of period ................... $ 17.39 $ 20.02 $ 18.44 $ 15.95 $ 14.35 ========= ========= ======= ======= ======= TOTAL RETURN (A) ................................. (12.6)% 28.1% 23.9% 21.5% 2.0% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $1,411,503 $1,445,075 $981,405 $646,371 $429,673 Ratios to average net assets: Net expenses (b) ................................ 0.81% 0.82% 0.84% 0.84% 0.85% Gross expenses (b) .............................. 0.81% 0.82% 0.84% 0.84% 0.85% Net investment income (b) ....................... 0.50% 0.35% 0.60% 0.90% 0.51% Portfolio turnover rate .......................... 46% 56% 51% 70% 70%
YEAR FOR THE PERIOD ENDED 1/30/97* TO 12/31/98 12/31/97 OPEN SHARES ------------ --------------- Net asset value, beginning of period ............. $ 20.02 $ 18.75 ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.03 0.01 Net realized and unrealized gain (loss) ......... (2.60) 4.61 ------- ------- Total from investment operations ................ (2.57) 4.62 ------- ------- Less distributions from and in excess of: Net investment income ........................... -- -- Net realized gain ............................... (0.10) (3.35) ------- ------- Total distributions ............................. (0.10) (3.35) ------- ------- Net asset value, end of period ................... $ 17.35 $ 20.02 ======= ======= TOTAL RETURN (A) ................................. (12.9)% 25.6% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $93,547 $46,097 Ratios to average net assets: Net expenses (b) ................................ 1.09% 1.14% Gross expenses (b) .............................. 1.09% 1.23% Net investment income (b) ....................... 0.21% 0.12% SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: - -------------------------------------------------------------------------------- LAZARD BANTAM VALUE PORTFOLIO
YEAR ENDED FOR THE PERIOD --------------------------- 3/1/96* TO 12/31/98 12/31/97 12/31/96 INSTITUTIONAL SHARES ------------ ------------ --------------- Net asset value, beginning of period ............. $ 14.32 $ 12.58 $ 10.00 -------- -------- ------- Income (loss) from investment operations: Net investment income ........................... -- -- 0.22 Net realized and unrealized gain (loss) ......... (1.98) 4.12 3.11 -------- -------- ------- Total from investment operations ................ (1.98) 4.12 3.33 -------- -------- ------- Less distributions from and in excess of: Net investment income ........................... -- -- ( 0.22) Net realized gain ............................... (0.15) ( 2.38) ( 0.53) -------- -------- ------- Total distributions ............................. (0.15) ( 2.38) ( 0.75) -------- -------- ------- Net asset value, end of period ................... $ 12.19 $ 14.32 $ 12.58 ======= ======== ======= TOTAL RETURN (A) ................................. (13.8)% 33.9% 33.3% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $59,737 $ 69,972 $34,549 Ratios to average net assets: Net expenses (b) ................................ 1.05% 1.05% 1.05% Gross expenses (b) .............................. 1.09% 1.14% 1.91% Net investment income (b) ....................... (0.40)% (0.42)% 2.80% Portfolio turnover rate .......................... 95% 110% 262%
YEAR FOR THE PERIOD ENDED 1/23/97* TO 12/31/98 12/31/97 OPEN SHARES ------------- --------------- Net asset value, beginning of period ............. $ 14.26 $ 13.13 --------- --------- Income (loss) from investment operations: Net investment income (loss) .................... (0.04) -- Net realized and unrealized gain (loss) ......... (1.96) 3.51 --------- --------- Total from investment operations ................ (2.00) 3.51 --------- --------- Less distributions from and in excess of: Net investment income ........................... -- -- Net realized gain ............................... (0.15) (2.38) --------- --------- Total distributions ............................. (0.15) (2.38) --------- --------- Net asset value, end of period ................... $ 12.11 $ 14.26 ========= ========= TOTAL RETURN (A) ................................. (14.0)% 27.8% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $ 7,057 $ 8,348 Ratios to average net assets: Net expenses (b) ................................ 1.35% 1.35% Gross expenses (b) .............................. 1.60% 1.88% Net investment income (b) ....................... (0.70)% (0.69)% SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 83 ================================================================================ THE LAZARD FUNDS, INC FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: - -------------------------------------------------------------------------------- LAZARD GLOBAL EQUITY PORTFOLIO
YEAR ENDED FOR THE PERIOD --------------------------- 1/4/96* TO 12/31/98 12/31/97 12/31/96 INSTITUTIONAL SHARES ------------ ------------ --------------- Net asset value, beginning of period ............. $ 11.91 $ 11.48 $ 10.00 ------- ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.10 0.14 0.09 Net realized and unrealized gain (loss) ......... 1.90 1.58 1.49 ------- ------- ------- Total from investment operations ................ 2.00 1.72 1.58 ------- ------- ------- Less distributions from and in excess of: Net investment income ........................... (0.08) (0.15) (0.10) Net realized gain ............................... (0.69) (1.14) -- ------- ------- ------- Total distributions ............................. (0.77) (1.29) (0.10) ------- ------- ------- Net asset value, end of period ................... $ 13.14 $ 11.91 $ 11.48 ======= ======= ======= TOTAL RETURN (A) ................................. 17.1% 15.3% 15.8% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $17,710 $10,359 $ 9,784 Ratios to average net assets: Net expenses (b) ................................ 1.05% 1.05% 1.05% Gross expenses (b) .............................. 2.18% 2.55% 5.06% Net investment income (b) ....................... 1.07% 1.02% 1.70% Portfolio turnover rate .......................... 48% 64% 74%
YEAR FOR THE PERIOD ENDED 1/30/97* TO 12/31/98 12/31/97 OPEN SHARES ------------ --------------- Net asset value, beginning of period ............. $ 11.92 $ 11.31 ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.09 0.08 Net realized and unrealized gain (loss) ......... 1.88 1.78 ------- ------- Total from investment operations ................ 1.97 1.86 ------- ------- Less distributions from and in excess of: Net investment income ........................... (0.04) (0.11) Net realized gain ............................... (0.69) (1.14) ------- ------- Total distributions ............................. (0.73) (1.25) ------- ------- Net asset value, end of period ................... $ 13.16 $ 11.92 ======= ======= TOTAL RETURN (A) ................................. 16.8% 16.7% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $ 4,824 $ 2,290 Ratios to average net assets: Net expenses (b) ................................ 1.35% 1.35% Gross expenses (b) .............................. 2.85% 4.23% Net investment income (b) ....................... 0.77% 0.67% SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL EQUITY PORTFOLIO
YEAR ENDED ----------------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 INSTITUTIONAL SHARES --------------- --------------- --------------- --------------- ------------- Net asset value, beginning of period ............. $ 13.97 $ 13.62 $ 12.50 $ 11.23 $ 12.32 ---------- ---------- --------- --------- ------- Income (loss) from investment operations: Net investment income ........................... 0.18 0.22 0.17 0.19 0.08 Net realized and unrealized gain (loss) ......... 2.03 1.40 1.76 1.29 (0.05) ---------- ---------- --------- --------- ------- Total from investment operations ................ 2.21 1.62 1.93 1.48 0.03 ---------- ---------- --------- --------- ------- Less distributions from and in excess of: Net investment income ........................... (0.14) (0.34) (0.19) (0.09) -- Net realized gain ............................... (0.81) (0.93) (0.62) (0.12) (1.12) ---------- ---------- --------- --------- ------- Total distributions .............................. (0.95) (1.27) (0.81) (0.21) (1.12) ---------- ---------- --------- --------- ------- Net asset value, end of period ................... $ 15.23 $ 13.97 $ 13.62 $ 12.50 $ 11.23 ========== ========== ========= ========= ======= TOTAL RETURN (A) ................................. 16.0% 11.8% 15.6% 13.1% 0.2% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $2,879,289 $2,099,724 $1,816,173 $1,299,549 $831,877 Ratios to average net assets: Net expenses (b) ................................ 0.90% 0.89% 0.91% 0.95% 0.94% Gross expenses (b) .............................. 0.90% 0.89% 0.91% 0.95% 0.94% Net investment income (b) ....................... 1.37% 1.18% 1.93% 1.82% 0.75% Portfolio turnover rate .......................... 41% 37% 39% 63% 106%
YEAR FOR THE PERIOD ENDED 1/23/97* TO 12/31/98 12/31/97 OPEN SHARES ------------ --------------- Net asset value, beginning of period ............. $ 13.95 $ 13.29 ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.18 0.16 Net realized and unrealized gain (loss) ......... 2.00 1.71 ------- ------- Total from investment operations ................ 2.18 1.87 ------- ------- Less distributions from and in excess of: Net investment income .......................... (0.09) (0.28) Net realized gain .............................. (0.81) (0.93) ------- ------- Total distributions ............................. (0.90) (1.21) ------- ------- Net asset value, end of period ................... $ 15.23 $ 13.95 ======= ======= TOTAL RETURN (A) ................................. 15.8% 14.1% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $47,303 $10,794 Ratios to average net assets: Net expenses (b) ................................ 1.24% 1.25% Gross expenses (b) .............................. 1.24% 1.61% Net investment income (b) ....................... 1.02% 0.37% SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
YEAR ENDED ------------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 INSTITUTIONAL SHARES ------------ ------------ ------------ ------------ ------------- Net asset value, beginning of period ............. $ 11.69 $ 11.93 $ 10.52 $ 10.38 $ 10.86 ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.05 0.07 0.08 0.14 0.07 Net realized and unrealized gain (loss) ......... 0.83 (0.03) 1.55 0.06 (0.55) ------- ------- ------- ------- ------- Total from investment operations ................ 0.88 0.04 1.63 0.20 (0.48) ------- ------- ------- ------- ------- Less distributions from and in excess of: Net investment income ........................... (0.05) (0.07) (0.08) -- -- Net realized gain ............................... (1.12) (0.21) (0.14) (0.06) -- ------- ------- ------- ------- ------- Total distributions ............................. (1.17) (0.28) (0.22) (0.06) -- ------- ------- ------- ------- ------- Net asset value, end of period ................... $ 11.40 $ 11.69 $ 11.93 $ 10.52 $ 10.38 ======= ======= ======= ======= ======== TOTAL RETURN (A) ................................. 7.6% 0.3% 15.6% 1.9% (4.5)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $177,779 $141,695 $126,973 $115,534 $83,432 Ratios to average net assets: Net expenses (b) ................................ 1.04% 1.09% 1.12% 1.13% 1.05% Gross expenses (b) .............................. 1.04% 1.09% 1.12% 1.13% 1.26% Net investment income (b) ....................... 0.81% 0.73% 1.67% 1.56% 0.95% Portfolio turnover rate .......................... 56% 63% 101% 118% 113%
YEAR FOR THE PERIOD ENDED 2/13/97* TO 12/31/98 12/31/97 OPEN SHARES ------------ --------------- Net asset value, beginning of period ............. $ 11.69 $ 12.32 ------- -------- Income (loss) from investment operations: Net investment income ........................... 0.01 0.02 Net realized and unrealized gain (loss) ......... 0.83 (0.42) ------- -------- Total from investment operations ................ 0.84 (0.40) ------- -------- Less distributions from and in excess of: Net investment income ........................... (0.03) (0.02) Net realized gain ............................... (1.12) (0.21) ------- -------- Total distributions ............................. (1.15) (0.23) ------- -------- Net asset value, end of period ................... $ 11.38 $ 11.69 ======= ======== TOTAL RETURN (A) ................................. 7.2% (3.2)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $ 2,646 $ 1,873 Ratios to average net assets: Net expenses (b) ................................ 1.43% 1.43% Gross expenses (b) .............................. 1.93% 3.39% Net investment income (b) ....................... 0.43% 0.34% SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: - -------------------------------------------------------------------------------- LAZARD EMERGING MARKETS PORTFOLIO
YEAR ENDED FOR THE PERIOD ------------------------------------------------------ 7/15/94* TO 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 INSTITUTIONAL SHARES ------------ -------------- ------------ ------------- --------------- Net asset value, beginning of period ......... $ 9.20 $ 11.21 $ 9.24 $ 9.86 $ 10.00 ------- ------- ------- ------- -------- Income (loss) from investment operations: Net investment income ....................... 0.10 0.10 0.07 0.08 0.01 Net realized and unrealized gain (loss) ..... (2.26) (1.18) 2.11 (0.66) (0.15) ------- -------- ------- -------- -------- Total from investment operations ............ (2.16) (1.08) 2.18 (0.58) (0.14) ------- -------- ------- -------- -------- Less distributions from and in excess of: Net investment income ....................... (0.10) (0.09) (0.08) (0.04) -- Net realized gain ........................... -- (0.84) (0.13) -- -- ------- -------- ------- -------- -------- Total distributions ......................... (0.10) (0.93) (0.21) (0.04) -- ------- -------- ------- ------- -------- Net asset value, end of period ............... $ 6.94 $ 9.20 $ 11.21 $ 9.24 $ 9.86 ======= ======== ======= ======= ======== TOTAL RETURN (A) ............................. (23.5)% (9.8)% 23.6% (5.9)% (1.4)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ..... $298,033 $236,340 $145,328 $35,216 $ 17,025 Ratios to average net assets: Net expenses (b) ............................ 1.28% 1.32% 1.38% 1.30% 1.30% Gross expenses (b) .......................... 1.29% 1.33% 1.48% 2.00% 2.31% Net investment income (b) ................... 1.84% 1.26% 1.40% 1.22% 0.31% Portfolio turnover rate ...................... 36% 40% 51% 102% 31%
YEAR FOR THE PERIOD ENDED 1/8/97* TO 12/31/98 12/31/97 OPEN SHARES ------------- --------------- Net asset value, beginning of period ............. $ 9.20 $ 11.45 -------- --------- Income (loss) from investment operations: Net investment income ........................... 0.11 0.07 Net realized and unrealized gain (loss) ......... (2.26) (1.42) -------- --------- Total from investment operations ................ (2.15) (1.35) -------- --------- Less distributions from and in excess of: Net investment income ........................... (0.08) (0.07) Net realized gain ............................... -- (0.83) -------- --------- Total distributions ............................. (0.08) (0.90) -------- --------- Net asset value, end of period ................... $ 6.97 $ 9.20 ======== ========= TOTAL RETURN (A) ................................. (23.3)% (12.0)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $ 8,191 $ 7,769 Ratios to average net assets: Net expenses (b) ................................ 1.60% 1.60% Gross expenses (b) .............................. 1.76% 1.93% Net investment income (b) ....................... 1.54% 1.01% SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: - -------------------------------------------------------------------------------- LAZARD BOND PORTFOLIO
YEAR ENDED ------------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 INSTITUTIONAL SHARES ------------ ------------ ------------ ------------ ------------- Net asset value, beginning of period ............. $ 10.03 $ 9.88 $ 10.10 $ 9.24 $ 10.28 ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.55 0.59 0.56 0.60 0.58 Net realized and unrealized gain (loss) ......... 0.01 0.23 (0.14) 0.86 (1.01) ------- ------- ------- ------- ------- Total from investment operations ................ 0.56 0.82 0.42 1.46 (0.43) ------- ------- ------- ------- -------- Less distributions from and in excess of: Net investment income ........................... (0.55) (0.60) (0.57) (0.60) (0.58) Net realized gain ............................... (0.15) (0.07) (0.07) -- (0.03) ------- ------- ------- ------- ------- Total distributions ............................. (0.70) (0.67) (0.64) (0.60) (0.61) ------- ------- ------- ------- ------- Net asset value, end of period ................... $ 9.89 $ 10.03 $ 9.88 $ 10.10 $ 9.24 ======= ======= ======= ======= ======= TOTAL RETURN (A) ................................. 5.8% 8.6% 4.4% 16.2% (4.2)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $100,397 $92,428 $69,906 $46,083 $24,494 Ratios to average net assets: Net expenses (b) ................................ 0.78% 0.80% 0.80% 0.80% 0.80% Gross expenses (b) .............................. 0.79% 0.81% 0.88% 0.97% 1.23% Net investment income (b) ....................... 5.45% 5.81% 5.77% 6.07% 6.11% Portfolio turnover rate .......................... 335% 447% 460% 244% 121%
YEAR FOR THE PERIOD ENDED 3/5/97* TO 12/31/98 12/31/97 OPEN SHARES ------------ --------------- Net asset value, beginning of period ............. $ 10.02 $ 9.86 ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.52 0.46 Net realized and unrealized gain (loss) ......... 0.01 0.24 ------- ------- Total from investment operations ................ 0.53 0.70 ------- ------- Less distributions from and in excess of: Net investment income ........................... (0.52) (0.47) Net realized gain ............................... (0.15) (0.07) ------- ------- Total distributions ............................. (0.67) (0.54) ------- ------- Net asset value, end of period ................... $ 9.88 $ 10.02 ======= ======= TOTAL RETURN (A) ................................. 5.4% 7.2% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $15,226 $ 7,283 Ratios to average net assets: Net expenses (b) ................................ 1.10% 1.10% Gross expenses (b) .............................. 1.21% 1.49% Net investment income (b) ....................... 5.11% 5.46% SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: - -------------------------------------------------------------------------------- LAZARD HIGH YIELD PORTFOLIO
FOR THE PERIOD 1/2/98* TO 12/31/98 INSTITUTIONAL SHARES --------------- Net asset value, beginning of period ............. $ 10.00 ------- Income (loss) from investment operations: Net investment income ........................... 0.88 Net realized and unrealized gain (loss) ......... (0.57) ------- Total from investment operations ................ 0.31 ------- Less distributions from and in excess of: Net investment income ........................... (0.89) Net realized gain ............................... -- ------- Total distributions ............................. (0.89) ------- Net asset value, end of period ................... $ 9.42 ======= TOTAL RETURN (A) ................................. 2.9% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $41,935 Ratios to average net assets: Net expenses (b) ................................ 1.05% Gross expenses (b) .............................. 1.55% Net investment income (b) ....................... 8.87% Portfolio turnover rate .......................... 418%
FOR THE PERIOD 2/24/98* TO 12/31/98 OPEN SHARES --------------- Net asset value, beginning of period ............. $ 10.37 ------- Income (loss) from investment operations: Net investment income ........................... 0.72 Net realized and unrealized gain (loss) ......... (0.94) ------- Total from investment operations ................ (0.22) ------- Less distributions from and in excess of: Net investment income ........................... (0.73) Net realized gain ............................... -- ------- Total distributions ............................. (0.73) ------- Net asset value, end of period ................... $ 9.42 ======= TOTAL RETURN (A) (2.2)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $ 949 Ratios to average net assets: Net expenses (b) ................................ 1.35% Gross expenses (b) .............................. 9.77% Net investment income (b) ....................... 8.59% SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: - -------------------------------------------------------------------------------- LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
YEAR ENDED ------------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 INSTITUTIONAL SHARES ------------ -------------- ------------ ------------ ----------- Net asset value, beginning of period ............. $ 9.63 $ 10.78 $ 10.85 $ 10.23 $ 10.51 ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.32 0.40 0.54 0.70 0.59 Net realized and unrealized gain (loss) ......... 0.98 (1.05) 0.03 1.25 (0.16) ------- ------- ------- ------- ------- Total from investment operations ................ 1.30 (0.65) 0.57 1.95 0.43 ------- ------- ------- ------- ------- Less distributions from and in excess of: Net investment income ........................... (0.22) (0.13) (0.59) (1.13) (0.59) Net realized gain ............................... -- (0.12) (0.05) (0.20) (0.12) Capital ......................................... -- (0.25) -- -- ------- ------- ------- ------- Total distributions ............................. (0.22) (0.50) (0.64) (1.33) (0.71) ------- ------- ------- ------- ------- Net asset value, end of period ................... $ 10.71 $ 9.63 $ 10.78 $ 10.85 $ 10.23 ======= ======= ======= ======= ======= TOTAL RETURN (A) ................................. 13.2% (5.6)% 5.5% 19.4% 4.2% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $115,500 $110,185 $88,430 $45,624 $35,803 Ratios to average net assets: Net expenses (b) ................................ 1.09% 1.06% 1.05% 1.05% 1.05% Gross expenses (b) .............................. 1.10% 1.10% 1.21% 1.25% 1.51% Net investment income (b) ....................... 4.27% 5.13% 5.54% 5.99% 5.68% Portfolio turnover rate .......................... 187% 166% 242% 190% 66%
YEAR FOR THE PERIOD ENDED 1/8/97* TO 12/31/98 12/31/97 OPEN SHARES ------------ --------------- Net asset value, beginning of period ............. $ 9.63 $ 10.64 ------- -------- Income (loss) from investment operations: Net investment income ........................... 0.31 0.43 Net realized and unrealized gain (loss) ......... 0.96 (0.98) ------- -------- Total from investment operations ................ 1.27 (0.55) ------- -------- Less distributions from and in excess of: Net investment income ........................... (0.21) (0.08) Net realized gain ............................... -- (0.12) Capital ......................................... -- (0.26) ------- -------- Total distributions ............................. (0.21) (0.46) ------- -------- Net asset value, end of period ................... $ 10.69 $ 9.63 ======= ======== TOTAL RETURN (A) ................................. 12.9% (4.8)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $ 4,751 $ 2,772 Ratios to average net assets: Net expenses (b) ................................ 1.35% 1.35% Gross expenses (b) .............................. 1.92% 2.71% Net investment income (b) ....................... 4.01% 4.68% SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD: - -------------------------------------------------------------------------------- LAZARD STRATEGIC YIELD PORTFOLIO
YEAR ENDED ------------------------------------------------------------------------- 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 INSTITUTIONAL SHARES ------------ ------------ ------------ ------------ ------------- Net asset value, beginning of period ............. $ 9.66 $ 10.01 $ 9.52 $ 9.10 $ 10.13 ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.76 0.81 0.76 0.75 0.76 Net realized and unrealized gain (loss) ......... (0.69) (0.28) 0.50 0.43 (0.99) ------- ------- ------- ------- ------- Total from investment operations ................ 0.07 0.53 1.26 1.18 (0.23) ------- ------- ------- ------- ------- Less distributions from and in excess of: Net investment income ........................... (0.44) (0.82) (0.77) (0.76) (0.76) Net realized gain ............................... -- (0.06) -- -- (0.04) Capital ......................................... (0.28) -- -- -- -- ------- ------- ------- ------- ------- Total distributions ............................. (0.72) (0.88) (0.77) (0.76) (0.80) ------- ------- ------- ------- ------- Net asset value, end of period ................... $ 9.01 $ 9.66 $ 10.01 $ 9.52 $ 9.10 ======= ======= ======= ======= ======= TOTAL RETURN (A) ................................. 0.8% 5.3% 13.7% 13.6% (2.3)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $397,599 $399,452 $199,083 $78,474 $62,328 Ratios to average net assets: Net expenses (b) ................................ 0.90% 0.94% 1.08% 1.09% 1.05% Gross expenses (b) .............................. 0.90% 0.95% 1.08% 1.09% 1.15% Net investment income (b) ....................... 6.94% 7.42% 7.88% 8.02% 8.03% Portfolio turnover rate .......................... 276% 161% 189% 205% 195%
YEAR FOR THE PERIOD ENDED 1/23/97* TO 12/31/98 12/31/97 OPEN SHARES ------------ --------------- Net asset value, beginning of period ............. $ 9.66 $ 10.08 ------- ------- Income (loss) from investment operations: Net investment income ........................... 0.73 0.72 Net realized and unrealized gain (loss) ......... (0.69) (0.35) ------- ------- Total from investment operations ................ 0.04 0.37 ------- ------- Less distributions from and in excess of: Net investment income ........................... (0.40) (0.73) Net realized gain ............................... -- (0.06) Capital ......................................... (0.28) -- ------- ------- Total distributions ............................. (0.68) (0.79) ------- ------- Net asset value, end of period ................... $ 9.02 $ 9.66 ======= ======= TOTAL RETURN (A) ................................. 0.4% 3.8% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $22,460 $15,300 Ratios to average net assets: Net expenses (b) ................................ 1.28% 1.39% Gross expenses (b) .............................. 1.28% 1.44% Net investment income (b) ....................... 6.60% 6.92% SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- * Commencement of operations (a) Total Returns are historical and assume changes in share price, reinvestments of dividends and distributions and no sales charge. Had certain expenses not been reduced during the periods shown, total returns would have been lower. Periods of less than one year are not annualized. (b) Annualized for periods of less than one year. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. ================================================================================ THE LAZARD FUNDS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION The Lazard Funds, Inc. (the "Fund") was incorporated in Maryland on May 17, 1991 and is registered under the Investment Company Act of 1940 (the "Act"), as amended, as a no-load, open-end management investment company. The Fund is comprised of twelve portfolios (each referred to as a "Portfolio"), as follows: Lazard Equity Portfolio, Lazard Mid Cap Portfolio, Lazard Small Cap Portfolio, Lazard Bantam Value Portfolio, Lazard Global Equity Portfolio, Lazard International Equity Portfolio, Lazard International Small Cap Portfolio, Lazard Emerging Markets Portfolio, Lazard Bond Portfolio, Lazard High Yield Portfolio, Lazard International Fixed-Income Portfolio and Lazard Strategic Yield Portfolio. Effective November 1, 1996, the Board of Directors of the Fund approved the offering of two different classes of shares for the Portfolios--Institutional Shares and Retail ("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 of shares. The Equity Portfolio is operated as a "diversified" fund as defined in the Act. The remaining Portfolios are "non-diversified". 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies: (A) VALUATION OF INVESTMENTS--Market values for equity securities listed on the New York Stock Exchange ("NYSE"), other U.S. exchanges or NASDAQ are based on the last quoted sales prices on the principal exchange on which the security is traded 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. 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 quoted sales price; securities not traded on the valuation date are valued at the closing bid price. Bonds and other fixed-income securities are valued on the basis of prices provided by a pricing service which are based primarily on institutional size trading in similar groups of securities, or 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 sixty 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 in good faith in accordance with procedures adopted by the Board of Directors. Options on stocks and stock indices traded on national securities exchanges are valued as of the close of options trading on such exchanges (which is currently 4:10 p.m. Eastern Time). Securities for which market quotations are not readily available are valued at fair value as determined in good faith using methods approved by the Board of Directors. (B) PORTFOLIO SECURITY TRANSACTIONS AND INVESTMENT INCOME--Portfolio security transactions are accounted for on the trade date. Realized gains and losses on sales of investments are recorded on a specific identification basis and dividend income is recorded on the ex-dividend date. Interest income is accrued daily. The Portfolios amortize premiums and accrete discounts on fixed-income securities using the effective yield method. ================================================================================ THE LAZARD FUNDS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- (C) FOREIGN CURRENCY TRANSLATION AND FORWARD FOREIGN CURRENCY CONTRACTS--The accounting records of the Portfolios are maintained in U.S. dollars. Portfolio securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of transactions. The Portfolios do not isolate the portion of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in their market prices. Such fluctuations are included in net realized and unrealized gain or loss from investments. Net realized exchange gains (losses) from foreign currency transactions represent net foreign exchange gains (losses) from forward foreign currency contracts, disposition of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of net investment income recorded on the Portfolio's accounting records and the U.S. dollar equivalent amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, other than investments in securities, as a result of changes in exchange rates. A forward foreign currency contract is an agreement between two parties to buy or sell currency at a set price on a future date. Certain Portfolios may enter into forward foreign currency contracts for risk management. Risk management includes hedging strategies which serve to reduce a Portfolio's exposure to foreign currency fluctuations. Such exposure may exist during the period that a foreign denominated investment is held, or during the period between the trade date and settlement date of an investment which is purchased or sold. Upon entering into these contracts risks may arise from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of the foreign currency relative to the U.S. dollar. The U.S. dollar value of forward foreign currency contracts is determined using forward exchange rates provided by a quotation service. Daily fluctuations in the value of such contracts are recorded as unrealized gains or losses. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. Such gains and losses are disclosed in the realized or unrealized gain (loss) on foreign currency in the accompanying Statements of Operations. (D) FEDERAL INCOME TAXES--The Fund's policy is to continue to have each Portfolio qualify as a regulated investment company under the Internal Revenue Code and to distribute all of its taxable income, including any realized net capital gains to shareholders. Therefore, no federal income tax provision is required. At December 31, 1998, the following Portfolios had available for federal income tax purposes unused realized capital losses which can be used to offset future realized capital gains. The capital loss carryforwards will expire on December 31, 2006, as follows: PORTFOLIO AMOUNT - ------------------ ------------- Small Cap $6,880,893 Emerging Markets 50,767,177 High Yield 1,150,441 Strategic Yield 14,900,897 Under current tax law, certain capital and net foreign currency losses realized after October 31 within the taxable year may be deferred and treated as occurring on the first ================================================================================ THE LAZARD FUNDS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- day of the following tax year. For the tax year ended December 31, 1998, the following Portfolios elected to defer net capital and currency losses arising between November 1, 1998 and December 31, 1998 as follows: PORTFOLIO AMOUNT - ------------------------- ------------ Global Equity $ 9,036 International Equity 2,186,212 International Small Cap 77,804 Emerging Markets 2,332,238 Bond 147,945 High Yield 916,890 Strategic Yield 6,526,143 (E) DIVIDENDS AND DISTRIBUTIONS--The Fund intends to declare dividends from net investment income daily on shares of Bond Portfolio, High Yield Portfolio, International Fixed-Income Portfolio, and Strategic Yield Portfolio and to pay such dividends monthly. Dividends from net investment income on shares of Equity Portfolio will, beginning in 1999, be declared and paid annually, as is already the policy on shares of Mid Cap Portfolio, Small Cap Portfolio, Bantam Value Portfolio, Global Equity Portfolio, International Equity Portfolio, International Small Cap Portfolio and Emerging Markets Portfolio. During any particular year, net realized gains from investment transactions in excess of available capital loss carryforwards would be taxable to the Portfolio if not distributed. The Portfolios intend to declare and distribute these amounts annually to shareholders; however, to avoid taxation, a second distribution may be required. Income dividends and capital gain distributions are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These differences, which may result in distribution reclassifications, are primarily due to differing treatments of foreign currency transactions. Book and tax differ-ences relating to shareholder distributions will result in reclassifications and may affect the allocation between investment income--net, realized gains--net, and paid in capital. As a result of these book-tax differences, the Portfolios made the following reclassifications to the capital accounts for the period ended December 31, 1998: INCREASE (DECREASE) ------------------------------------------------ UNDISTRIBUTED ACCUMULATED INVESTMENT REALIZED PAID IN INCOME GAIN PORTFOLIO CAPITAL (LOSS)-NET (LOSS)-NET - ---------------------- ---------------- --------------- ------------ Equity $ (3,896) $ -- $ 3,896 Mid Cap (34,733) 34,733 -- Small Cap -- (11,267) 11,267 Bantam Value (331,086) 331,086 -- Global Equity -- (15,993) 15,993 International Equity -- (8,486,397) 8,486,397 International Small Cap -- (626,958) 626,958 Emerging Markets -- (757,497) 757,497 Bond -- (7,258) 7,258 High Yield (40,186) 57,767 (17,581) International Fixed- Income 862,859 (1,690,968) 828,109 Strategic Yield (13,821,243) 4,907,327 8,913,916 (F) ORGANIZATIONAL EXPENSES--Costs incurred by the Fund in connection with its organization have been deferred and are being amortized on a straight line basis over a five-year period from the date of commencement of operations of each Portfolio, with the exception of the initial registration costs for Mid Cap Portfolio and High Yield Portfolio, which are being amortized over a one year period. In the event that any of the initial shares of any of the Portfolios are redeemed during such period, the appropriate Portfolio will be reimbursed by such holder for any unamortized organizational expenses in the same proportion as the number of shares redeemed bears to the number of initial shares held at the time of redemption. ================================================================================ THE LAZARD FUNDS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- (G) ALLOCATION OF EXPENSES--Expenses not directly chargeable to a specific Portfolio are allocated primarily on the basis of relative net assets. The Portfolios will accrue distribution fees and shareholders' services fees to the respective class. Each Portfolio's income, expenses (other than the fees mentioned above) and realized and unrealized gains and losses are allocated proportionally each day between the classes based upon the relative net assets of each class. (H) EXPENSE REDUCTIONS--Portfolios leaving excess cash in demand deposit accounts may receive credits which are available to offset custody expenses. The Statements of Operations report gross custody expenses, and report the amount of such credits separately as an expense reduction. (I) STRUCTURED INVESTMENTS--Certain Portfolios may invest in structured investments whose values are linked either directly or inversely to changes in foreign currencies, interest rates, commodities, indices, or other underlying instruments. A Portfolio uses these securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets that might be difficult to invest in through conventional securities. Structured investments may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. (J) DELAYED DELIVERY COMMITMENTS--Each Portfolio may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. Collateral consisting of liquid securities or cash is maintained at the custodian in a segregated account in an amount at least equal to these commitments. (K) ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires the Fund to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates. 3. INVESTMENT MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION AGREEMENTS The Fund has entered into investment management agreements (the "Management Agreements") with Lazard Asset Management (the "Manager"), a division of Lazard Freres & Co. LLC, on behalf of each Portfolio. Pursuant to the Management Agreements, the Manager will regularly provide the Portfolios with investment research, advice and supervision and furnish continuously an investment program for each Portfolio consistent with its investment objectives and policies, including the purchase, retention and disposition of securities. Each of the Portfolios pays the Manager an investment management fee at the annual rate set forth below as a percentage of the average daily net assets of the relevant Portfolio: Equity Portfolio, 0.75%; Mid Cap Portfolio, 0.75%; Small Cap Portfolio, 0.75%; Bantam Value Portfolio, 0.75%; Global Equity Portfolio, 0.75%; International Equity Portfolio, 0.75%; International Small Cap Portfolio, 0.75%; Emerging Markets Portfolio, 1.00%; Bond Portfolio, 0.50%; High Yield Portfolio, 0.75%; International Fixed-Income Portfolio, 0.75%; and Strategic Yield Portfolio, 0.75%. The investment management fees are accrued daily and payable monthly. The Manager has voluntarily agreed to reduce its fees and, if necessary, reimburse the following Portfolios if annualized operating expenses exceed the following percentages of average daily net assets for the respective shares: ================================================================================ THE LAZARD FUNDS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- INSTITUTIONAL OPEN SHARES SHARES ANNUAL ANNUAL OPERATING OPERATING PORTFOLIO EXPENSES EXPENSES - ---------------------------- -------------- ---------- Mid Cap 1.05% 1.35% Bantam Value 1.05 1.35 Global Equity 1.05 1.35 International Equity -- 1.25 International Small Cap -- 1.43 Emerging Markets -- 1.60 Bond 0.80 1.10 High Yield 1.05 1.35 International Fixed-Income -- 1.35 Strategic Yield -- 1.39 For the period ended December 31, 1998, the Manager did not impose all or part of its management fee, resulting in waivers of: $92,050 for the Mid Cap Portfolio--Institutional, $27,631 for the Mid Cap Portfolio--Open, $19,868 for Bantam Value Portfolio--Institutional, $20,864 for Bantam Value Portfolio--Open, $92,237 for Global Equity Portfolio--Institutional, $27,748 for Global Equity Portfolio--Open, $16,356 for International Small Cap Portfolio--Open, $17,870 for Emerging Markets Portfolio--Open, $11,309 for Bond Portfolio--Open, $106,214 for High Yield Portfolio--Institutional, $1,725 for High Yield Portfolio--Open and $21,538 for International Fixed-Income Portfolio--Open. For the same period, the Manager has agreed to reimburse expenses amounting to $46,680 for Global Equity Portfolio--Institutional, $27,913 for Global Equity Portfolio--Open, and $17,352 for High Yield Portfolio--Open. The Fund has engaged State Street Bank and Trust Company ("State Street") to provide certain administrative services. Each Portfolio bears the cost of such expenses at the annual rate of $37,500 plus $7,500 per additional class, and 0.02% of average assets up to $1 billion plus 0.01% of average assets over $1 billion. State Street has agreed to waive the $37,500 fee for the Mid Cap Portfolio and the High Yield Portfolio for one year or until each Portfolio reaches net assets of $50 million, if sooner than one year. The Fund has a distribution agreement with Lazard Freres & Co. LLC ( the "Distributor"). The Distributor acts as distributor for shares of each of the Portfolios and bears the cost of printing and mailing prospectuses to potential investors and of any advertising expenses incurred in connection with distribution of shares. The Distributor provides the Open Shares of each Portfolio with distribution services pursuant to a separate Distribution Plan ( the "Plan") in accordance with Rule 12b-1 under the Act. Under the Plan, the Distributor is entitled to distribution fees from the Open Shares. The distribution fee is an asset-based fee to support distribution efforts and/or servicing of accounts. The Open Shares will pay a monthly distribution fee at an annual rate of 0.25% of the average daily net assets of the Portfolio's Open Shares for such services under the 12b-1 plan adopted by the Fund. The distribution fee may be retained by the Distributor if an Open Shares shareholder invests directly through the Distributor. Usually the fees are paid to external organizations such as 401(k) alliance sponsors, discount brokers and bank trust departments who distribute the Fund to the public. Certain Directors of the Fund are Managing Directors of the Manager. The Fund pays each director who is not an officer of the Manager or an interested Director its allocable share of a fixed fee of $20,000 per year, plus $1,000 per meeting attended for the Fund and Lazard Retirement Series, Inc., a related party, and reimburses them for travel and out of pocket expenses. ================================================================================ THE LAZARD FUNDS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 4. SECURITIES TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES Purchases and sales of portfolio securities (excluding short-term securities), for the period ended December 31, 1998 were as follows: PORTFOLIO PURCHASES SALES - --------- --------- ----- Equity $ 376,717,969 $ 322,976,016 Mid Cap 71,077,865 49,548,865 Small Cap 920,425,918 666,023,146 Bantam Value 68,145,410 70,382,975 Global Equity 14,478,497 7,475,625 International Equity 1,476,601,503 1,016,242,686 International Small Cap 118,808,775 95,428,959 Emerging Markets 225,355,228 91,141,160 Bond (1) 359,513,537 347,301,971 High Yield 155,743,204 111,954,902 International Fixed-Income (2) 196,053,754 206,224,048 Strategic Yield (3) 1,174,069,468 1,103,003,518 (1) INCLUDES PURCHASES AND SALES OF U.S. GOVERNMENT SECURITIES OF $297,283,221 AND $290,790,971, RESPECTIVELY. (2) INCLUDES PURCHASES AND SALES OF U.S. GOVERNMENT SECURITIES OF $18,533,747 AND $19,557,196, RESPECTIVELY. (3) INCLUDES PURCHASES AND SALES OF U.S. GOVERNMENT SECURITIES OF $479,341,480 AND $412,931,475, RESPECTIVELY. For the year ended December 31, 1998, Equity Portfolio, Mid Cap Portfolio, Bantam Value Portfolio, Small Cap Portfolio, Global Equity Portfolio, and Emerging Markets Portfolio paid brokerage commissions of $51,625, $5,270, $3,635, $61,090, $2,734 and $812, respectively, to Lazard Freres & Co. LLC for portfolio transactions executed on behalf of the Portfolios. 5. LINE OF CREDIT The Fund has entered into a $50 million Line of Credit Agreement (the "Agreement") with State Street Bank and Trust Company effective April 24, 1996, primarily for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest on borrowings is payable at the bank's Cost of Funds plus 0.50%, on an annualized basis. Under this Agreement, the Fund has agreed to pay a 0.08% per annum fee on the unused portion of the commitment, payable quarterly in arrears. During the year ended December 31, 1998, the Fund had no borrowings under this Agreement. ================================================================================ THE LAZARD FUNDS, INC. REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- The Board of Directors and Shareholders The Lazard Funds, Inc. We have audited the accompanying statements of assets and liabilities, including the schedules of portfolio investments, of The Lazard Funds, Inc. (comprised of Lazard Equity Portfolio, Lazard Mid Cap Portfolio, Lazard Small Cap Portfolio, Lazard Bantam Value Portfolio, Lazard Global Equity Portfolio, Lazard International Equity Portfolio, Lazard International Small Cap Portfolio, Lazard Emerging Markets Portfolio, Lazard Bond Portfolio, Lazard High Yield Portfolio, Lazard International Fixed-Income Portfolio and Lazard Strategic Yield Portfolio) as of December 31, 1998 and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights as stated above, present fairly, in all material respects, the financial position of each of the respective portfolios constituting The Lazard Funds, Inc. as of December 31, 1998, the results of their operations for the year then ended and changes in their net assets for each of the two years in the period then ended and the financial highlights for the periods presented in conformity with generally accepted accounting principles. ANCHIN, BLOCK & ANCHIN LLP New York, New York February 4, 1999 TAX INFORMATION (UNAUDITED) THE LAZARD FUNDS, INC. YEAR ENDED DECEMBER 31, 1998 The following tax information represents year end disclosures of various tax benefits passed through to shareholders for 1998. The amount of long-term capital gain paid was as follows: PORTFOLIO AMOUNT -------- ------ Equity $27,923,199 Mid Cap -- Small Cap 5,615,464 Bantam Value 329,477 Global Equity 818,097 International Equity 122,836,110 International Small Cap 13,581,815 Emerging Markets -- Bond 114,254 High Yield -- International Fixed-Income -- Strategic Yield -- Of the distributions made by the following Portfolios, the corresponding percentage representing the amount of each distribution which qualifies for the dividends received deduction available to corporate shareholders, is as follows: PORTFOLIO PERCENTAGE -------- ----------- Equity 100.00% Mid Cap 42.12 Small Cap 100.00 Bantam Value -- Global Equity 37.94 International Equity 0.30 International Small Cap -- Emerging Markets 1.10 Bond -- High Yield -- International Fixed-Income -- Strategic Yield 2.60 The above figures may differ from those cited elsewhere in this report due to differences in the calculations of income and capital gains for Securities and Exchange Commission (book) purposes and Internal Revenue Service (tax) purposes. THE LAZARD FUNDS, INC. 30 Rockefeller Plaza New York, New York 10112 TELEPHONE (800) 823-6300 INVESTMENT MANAGER Lazard Asset Management 30 Rockefeller Plaza New York, New York 10112 Telephone: (212) 632-6400 DISTRIBUTOR Lazard Freres & Co. LLC 30 Rockefeller Plaza New York, New York 10112 CUSTODIAN State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Boston Financial Data Services, Inc. 2 Heritage Drive North Quincy, Massachusetts 02171 Telephone: (800) 986-3455 INDEPENDENT PUBLIC ACCOUNTANTS Anchin, Block & Anchin LLP 1375 Broadway New York, New York 10018 LEGAL COUNSEL Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, New York 10038 LAZARDFunds 30 Rockefeller Plaza New York, NY 10112 Telephone (800) 823-6300 http://www.lazardfunds.com This report is for the information of the stockholders of The Lazard Funds, Inc. Its use in connection with any offering of the Fund's shares is authorized only in the case of a concurrent or prior delivery of the Fund's current prospectus. THE LAZARD FUNDS, INC. PART C OTHER INFORMATION ITEM 15. INDEMNIFICATION. The response to this item is incorporated by reference to Item 25 of Part C of Post-Effective Amendment No. 17 to the Registrant's Registration Statement on Form N-1A, filed on February 26, 1999. ITEM 16. Exhibits - All references are to Post-Effective Amendment No. 10 to the Registrant's Registration Statement on Form N-1A, filed on August 15, 1996 (File No. 33-40682) (the "Registration Statement") unless otherwise noted. (1)(a) Registrant's Articles of Incorporation are incorporated by reference to Exhibit (1) of the Registration Statement on Form N-1A, filed on May 20, 1991. (1)(b) Articles of Amendment to Articles of Incorporation are incorporated by reference to Exhibit (1)(b) of the Registration Statement. (1)(c) Articles Supplementary to Articles of Incorporation are incorporated by reference to Exhibit (1)(c) of the Registration Statement. (2) Registrant's Bylaws are incorporated by reference to Exhibit (2) of the Registration Statement on Form N-1A, filed on May 20, 1991. (3) Not Applicable. *(4) Form of Agreement and Plan of Reorganization. (5) Not Applicable. (6)(a) Investment Management Agreement between Registrant, on behalf of its Lazard Small Cap Portfolio, and Lazard Asset Management is incorporated by reference to Exhibit (5)(e) of Post-Effective Amendment No. 6 of the Registration Statement on Form N1-A, filed on March 31, 1994. - -------- * Filed herewith as Exhibit A to the Prospectus/Proxy Statement. (6)(b) Investment Management Agreement between Registrant, on behalf of its Lazard Bantam Value Portfolio, and Lazard Asset Management is incorporated by reference to Exhibit (5)(j) of Post-Effective Amendment No. 8 of the Registration Statement on Form N1-A, filed on October 13, 1995. (7) Distribution Agreement, as revised, is incorporated by reference to Exhibit (6) of Post-Effective Amendment No. 10 to the Registration Statement. (8) Not Applicable. (9) Custodian Agreement is incorporated by reference to Exhibit (8) of Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A, filed on July 23, 1991. (10)(a) Distribution and Servicing Plan is incorporated by reference to Exhibit (15) of Post-Effective Amendment No. 15 to the Registration Statement on Form N1-A, filed on October 31, 1997. (10)(b) Rule 18f-3 Plan is incorporated by reference to Exhibit (18) of the Registration Statement. (11)(a) Opinion and consent of Registrant's counsel is incorporated by reference to Exhibit (10) of Post-Effective Amendment No. 9 to the Registration Statement on Form N-1A, filed on December 27, 1995. (11)(b) Consent of Stroock & Stroock & Lavan LLP. (12) Opinion and consent of Stroock & Stroock & Lavan LLP regarding tax matters. (13) Not Applicable. (14) Consent of Independent Auditors. (15) Not Applicable. (16) Powers of Attorney.*** (17)(a) Form of Proxy.**** (17)(b) Registrant's Prospectus dated May 1, 1999.**** ITEM 17. UNDERTAKINGS. (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, as amended, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933, as amended, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. - ------------------------ *** Incorporated by reference to the signature page hereto. **** Filed herewith as part of the Prospectus/Proxy Statement. SIGNATURES As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the Registrant, in the City of New York, State of New York, on the 30th day of April, 1999. THE LAZARD FUNDS, INC. (Registrant) By: /S/ HERBERT W. GULLQUIST* ------------------------------- Herbert W. Gullquist, President Each person whose signature appears below on this Registration Statement hereby constitutes and appoints William G. Butterly, III and James Giallanza, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities (until revoked in writing) to sign any and all amendments to this Registration Statement (including post-effective amendments and amendments thereto), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. /S/ HERBERT W. GULLQUIST* President (Principal - ------------------------- Executive Officer) Herbert W. Gullquist and Director April 30, 1999 /S/ JAMES GIALLANZA Treasurer (Principal - ------------------------- Accounting and James Giallanza Financial Officer) April 30, 1999 /S/ NORMAN EIG* Chairman of the Board - ------------------------- of Directors April 30, 1999 Norman Eig /S/JOHN J. BURKE* Director April 30, 1999 - ------------------------- John J. Burke /S/ KENNETH S. DAVIDSON* Director April 30, 1999 - ------------------------- Kenneth S. Davidson /S/ CARL FRISCHLING* - ------------------------- Director April 30, 1999 Carl Frishling /S/ LESTER Z. LIEBERMAN* Director April 30, 1999 - ------------------------- Lester Z. Lieberman /S/ RICHARD REISS, JR.* Director April 30, 1999 - ------------------------- Richard Reiss, Jr. /S/ JOHN RUTLEDGE* Director April 30, 1999 - ------------------------- John Rutledge /S/ WILLIAM KATZ* Director April 30, 1999 - ------------------------- William Katz By: /S/ WILLIAM G. BUTTERLY, III ---------------------------- William G. Butterly, III Attorney-in-fact INDEX OF EXHIBITS (11)(b) Consent of Stroock & Stroock & Lavan LLP (12) Opinion and consent of Stroock & Stroock & Lavan LLP regarding tax matters (14) Consent of Independent Auditors EX-11 2 EXHIBIT (11)(b) STROOCK & STROOCK & LAVAN LLP 180 MAIDEN LANE NEW YORK, NEW YORK 100038 We hereby consent to the use of our legal opinion regarding the legality of issuance of shares and other matters filed as Exhibit (10) of Post-Effective Amendment No. 9 to the Registrant's Registration Statement on Form N-1A filed on December 27, 1995, which opinion is incorporated by reference as an exhibit to this Registration Statement on Form N-14. In giving such permission, we do not admit hereby that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, STROOCK & STROOCK & LAVAN LLP EX-12 3 EXHIBIT (12) _____________, 1999 Lazard Small Cap Portfolio c/o The Lazard Funds, Inc. 30 Rockefeller Plaza New York, New York 10112 Lazard Bantam Value Portfolio c/o The Lazard Funds, Inc. 30 Rockefeller Plaza New York, New York 10112 Re: Registration Statement on Form N-14 (REGISTRATION NO. 333- ) Ladies and Gentlemen: You have requested our opinion as to certain Federal income tax consequences of the reorganization contemplated by the Agreement and Plan of Reorganization, substantially in the form included as Exhibit A to the Registration Statement on Form N-14 of The Lazard Funds, Inc., a Maryland corporation (the "Company")(Reg. No. 333-_____) (the "Registration Statement"), between the Company, on behalf of its Lazard Bantam Value Portfolio (the "Acquired Fund"), and the Company, on behalf of its Lazard Small Cap Portfolio (the "Acquiring Fund"). You have advised us that each Fund has qualified and will qualify as a "regulated investment company" within the meaning of Subchapter M of Chapter 1 of the Internal Revenue Code of 1986, as amended (the "Code"), for each of its taxable years ending on or before or including the Closing Date. In rendering this opinion, we have examined the Agreement and Plan of Reorganization, the Registration Statement, the Company's Articles of Incorporation, as amended from time to time (the "Company's Charter"), the Company's Prospectus and Statement of Additional Information, incorporated by reference in the Registration Statement, and such other documents as we have deemed necessary or relevant for the purpose of this opinion. In issuing our opinion, we have relied upon the representation of the Company, on behalf of the Acquired Fund, that the Company's Charter is the document pursuant to which it has operated to date and that it has operated in accordance with all laws applicable to such entity and the statements and representations made herein and in the Registration Statement. We also have relied upon the representation of the Company, on behalf of the Acquiring Fund, that the Company's Charter is the document pursuant to which it has operated to date and will operate following the reorganization and that it has operated and will operate following the reorganization in accordance with all laws applicable to such entity and the statements and representations made herein and in the Registration Statement. As to various questions of fact material to this opinion, where relevant facts were not independently established by us, we have relied upon statements of, and written information provided by, representatives of the Company. We also have examined such matters of law as we have deemed necessary or appropriate for the purpose of this opinion. We note that our opinion is based on our examination of such law, our review of the documents described above, the statements and representations referred to above and in the Registration Statement and the Agreement and Plan of Reorganization, the provisions of the Code, the regulations, published rulings and announcements thereunder, and the judicial interpretations thereof currently in effect. Any change in applicable law or any of the facts and circumstances described in the Registration Statement, or inaccuracy of any statements or representations on which we have relied, may affect the continuing validity of our opinion. Capitalized terms not defined herein have the respective meanings given such terms in the Agreement and Plan of Reorganization. Based on the foregoing, it is our opinion that for Federal income tax purposes: a) The transfer of all of the Acquired Fund's assets in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of certain identified liabilities of the Acquired Fund will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code; b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund solely in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of certain identified liabilities of the Acquired Fund; c) No gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of certain identified liabilities of the Acquired Fund or upon the distribution of the Acquiring Fund Shares to Acquired Fund Shareholders in exchange for their shares of the Acquired Fund; d) No gain or loss will be recognized by Acquired Fund Shareholders upon the exchange of their Acquired Fund shares for the Acquiring Fund Shares; e) The aggregate tax basis for the Acquiring Fund Shares received by an Acquired Fund Shareholder pursuant to the reorganization will be the same as the aggregate tax basis of the Acquired Fund shares held by such shareholder immediately prior to the reorganization, and the holding period of the Acquiring Fund Shares to be received by the Acquired Fund Shareholder will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided the Acquired Fund shares were held as capital assets on the date of the reorganization); and f) The tax basis of the Acquired Fund's assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the reorganization, and the holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us in the Prospectus/Proxy Statement included in the Registration Statement, and to the filing of this opinion as an exhibit to the Registration Statement, and to the filing of this opinion as an exhibit to any application made by or on behalf of the Company or any distributor or dealer in connection with the registration and qualification of the Company, on behalf of the Acquiring Fund, or the Acquiring Fund Shares under the securities laws of any state or jurisdiction. In giving such permission, we do not admit hereby that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, STROOCK & STROOCK & LAVAN LLP EX-14 4 EXHIBIT 14 CONSENT OF INDEPENDENT AUDITORS We consent to the use in the registrant's Registration Statement on Form N-14, to be filed on April 30, 1999, to the reference to our firm under the caption "Financial Statements and Experts" in the Prospectus/Proxy Statement and to the incorporation by reference of our report on the financial statements of The Lazard Funds, Inc., in respect of its Lazard Bantam Value Portfolio and Lazard Small Cap Portfolio, dated February 4, 1999 in this Registration Statement (Form N-14) of the Lazard Funds, Inc. ANCHIN, BLOCK & ANCHIN LLP New York, New York April 29, 1999 -----END PRIVACY-ENHANCED MESSAGE-----