LAZARD
Retirement Series
ANNUAL REPORT
DECEMBER 31, 1998
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LAZARD RETIREMENT SERIES, INC.
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BOARD OF DIRECTORS
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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
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NORMAN EIG CHAIRMAN OF THE BOARD
HERBERT W. GULLQUIST PRESIDENT
WILLIAM G. BUTTERLY, III VICE PRESIDENT AND SECRETARY
JAMES GIALLANZA TREASURER
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LAZARD RETIREMENT SERIES, INC.
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TABLE OF CONTENTS
Overview .................................................... 2
Growth Charts ............................................... 5
Performance Table ........................................... 7
Portfolio of Investments
Lazard Retirement Equity Portfolio ....................... 8
Lazard Retirement Small Cap Portfolio .................... 10
Lazard Retirement International Equity Portfolio ......... 13
Lazard Retirement Emerging Markets Portfolio ............. 15
Notes to Portfolios of Investments ....................... 18
Statements of
Assets and Liabilities ................................... 20
Operations ............................................... 21
Changes in Net Assets .................................... 22
Financial Highlights ........................................ 24
Notes to Financial Highlights ............................... 26
Notes to Financial Statements ............................... 27
Report of Independent Auditors .............................. 32
1
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LAZARD RETIREMENT SERIES, INC.
OVERVIEW
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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
2
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LAZARD RETIREMENT SERIES, INC.
OVERVIEW (CONTINUED)
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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
3
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LAZARD RETIREMENT SERIES, INC.
OVERVIEW (CONTINUED)
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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.
4
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LAZARD RETIREMENT SERIES, INC.
GROWTH CHARTS
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LAZARD RETIREMENT EQUITY PORTFOLIO
The Lazard Retirement 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 LAZARD RETIREMENT
EQUITY PORTFOLIO AND THE STANDARD & POOR'S 500 STOCK INDEX
[Table below represents a line chart in the printed report]
LREP S&P 500
3-19-98 10000 10000
Mar-98 10230 10154.37
Apr-98 10309.79 10256.52
May-98 10250 10080.11
Jun-98 10409.9 10489.56
Jul-98 10199.62 10377.33
Aug-98 9029.72 8874.17
Sep-98 9299.71 9442.65
Oct-98 10219.45 10210.71
Nov-98 10599.61 10829.59
Dec-98 11088.68 11453.59
LAZARD RETIREMENT SMALL CAP PORTFOLIO
The Lazard Retirement 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 LAZARD RETIREMENT SMALL CAP
PORTFOLIO AND THE RUSSELL 2000 INDEX
[Table below represents a line chart in the printed report]
LRSCP Russell 2000
11-4-97 10000 10000
Nov-97 9720 9762.77
Dec-97 9855.83 9933.62
Jan-98 9855.83 9776.87
Feb-98 10566.97 10499.77
Mar-98 10957.59 10932.78
Apr-98 10957.59 10993.24
May-98 10446.77 10401.15
Jun-98 10186.65 10422.99
Jul-98 9475.62 9579.25
Aug-98 8285.48 7719.15
Sep-98 8505.88 8323.25
Oct-98 8936.27 8662.67
Nov-98 9376.83 9116.51
Dec-98 9539.05 9680.64
Past performance is not indicative, nor a guarantee, of future results.
5
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LAZARD RETIREMENT SERIES, INC.
GROWTH CHARTS (CONTINUED)
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LAZARD RETIREMENT INTERNATIONAL EQUITY PORTFOLIO
The Lazard Retirement International 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 LAZARD RETIREMENT INTERNATIONAL
EQUITY PORTFOLIO AND THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE,
AUSTRALIA AND FAR EAST INDEX
[Table below represents a line chart in the printed report]
LRIEP MSCI EAFE
9-1-98 10000 10000
Sep-98 9620 9693
Oct-98 10310.14 10703.01
Nov-98 10930.19 11251
Dec-98 11230.11 11695.87
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO
The Lazard Retirement Emerging Markets Portfolio seeks long-term capital
appreciation through investing primarily in equity securities of non-U.S.
companies 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 Retirement Emerging Markets Portfolio seeks
securities of issuers whose potential is significantly enhanced by their
relationship to the emerging market country and that the Investment Manager
believes are undervalued based on their return on total capital or equity.
COMPARISON OF $10,000 INVESTMENT IN LAZARD RETIREMENT EMERGING
MARKETS PORTFOLIO, THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS
FREE INDEX AND THE INTERNATIONAL FINANCE CORP. INVESTABLE TOTAL RETURN INDEX
[Table below represents a line chart in the printed report]
LREMP IFC MSCI
11-4-97 10000 10000 10000
Nov-97 9360 9180 9534
Dec-97 9529.38 9401.22 9659.85
Jan-98 9027.31 8663.88 9026.16
Feb-98 9880.83 9568.18 9947.73
Mar-98 10402.99 9983.4 10337.51
Apr-98 10362.83 9874.65 10365.42
May-98 9107.64 8521.42 9071.81
Jun-98 8494.69 7627.56 8141.95
Jul-98 8755.48 7869.4 8466.82
Aug-98 6104.32 5594.04 6085.95
Sep-98 6576.19 5948.9 6379.29
Oct-98 7098.33 6575.33 7112.27
Nov-98 7630.71 7122.19 7647.82
Dec-98 7351.66 7018.97 7531.58
Past performance is not indicative, nor a guarantee, of future results.
6
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LAZARD RETIREMENT SERIES, INC.
PERFORMANCE TABLE
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<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998 PERIODS ENDED DECEMBER 31, 1998
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ONE SINCE ONE SINCE
YEAR INCEPTION* YTD YEAR INCEPTION*
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<S> <C> <C> <C> <C> <C>
Lazard Retirement Equity Portfolio -- -- 10.89% -- 10.89%
Standard & Poor's 500 Stock Index -- -- 14.54% -- 14.54%
Lazard Retirement Small Cap Portfolio (3.22)% (3.99)% (3.22)% (3.22)% (4.61)%
Russell 2000 Index (2.55)% (2.74)% (2.55)% (2.55)% (3.19)%
Lazard Retirement International Equity Portfolio -- -- 12.30% -- 12.30%
MSCI EAFE Index -- -- 16.96% -- 16.96%
Lazard Retirement Emerging Markets Portfolio (22.85)% (23.31)% (22.85)% (22.85)% (26.48)%
MSCI Emerging Markets Free Index (25.34)% (26.32)% (25.34)% (25.34)% (29.81)%
IFC Investable Total Return Index (22.02)% (21.69)% (22.02)% (22.02)% (24.68)%
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NOTES TO PERFORMANCE TABLE
* Performance is measured from March 19, 1998 for Lazard Retirement Equity
Portfolio, from November 4, 1997 for Lazard Retirement Small Cap Portfolio and
Lazard Retirement Emerging Markets Portfolio, and from September 1, 1998 for
Lazard Retirement International Equity Portfolio.
The performance for the relevant index is for the comparable period. Portfolio
returns are net of fees and assume reinvestment of dividends and
distributions, if any. Certain expenses of a Portfolio may have been waived
and/or reimbursed by the Investment Manager and/or the Administrator; without
such waiver/reimbursement of expenses the Portfolio's total return would have
been lower.
Past performance is not indicative, nor a guarantee, of future results; the
investment return and principal value of each Portfolio of Lazard Retirement
Series, 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 2000 Index is
an index of common stocks and is a registered trademark of the Frank Russell
Company. The Morgan Stanley Capital International (MSCI) Europe, Australia and
Far East (EAFE) Index is comprised of international equities that are compiled
by Morgan Stanley Capital International. 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.
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 Retirement 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 this index
provides a more accurate comparison given the Portfolio's investment
objectives.
7
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LAZARD RETIREMENT SERIES, INC.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
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DESCRIPTION SHARES VALUE
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LAZARD RETIREMENT EQUITY PORTFOLIO
COMMON STOCKS--97.9%
AEROSPACE & DEFENSE--2.3%
United Technologies Corp. ..................... 530 $ 57,638
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BANKING--11.1%
Bank of New York Company, Inc. ................ 1,490 59,973
BankAmerica Corp. ............................. 953 57,299
Chase Manhattan Corp. ......................... 870 59,214
Fleet Financial Group, Inc. ................... 1,180 52,731
Mellon Bank Corp. ............................. 725 49,844
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279,061
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CHEMICALS & PLASTICS--5.3%
Du Pont (E.I.) de Nemours &
Co ........................................... 1,425 75,614
Hoechst AG, ADR ............................... 1,415 58,015
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133,629
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COMPUTERS & BUSINESS
EQUIPMENT--9.8%
Hewlett-Packard Co. ........................... 1,200 81,975
International Business
Machines Corp. ............................... 495 91,451
NCR Corp. (a) ................................. 1,720 71,810
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245,236
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CONGLOMERATES--2.9%
Philip Morris Companies, Inc. ................. 1,380 73,830
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DIVERSIFIED--2.3%
Minnesota Mining &
Manufacturing Co. ............................ 800 56,900
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DRUGS & HEALTH CARE--10.9%
Amgen, Inc. (a) ............................... 680 71,102
Astra AB, ADR ................................. 2,350 48,616
Johnson & Johnson ............................. 1,060 88,907
Merck & Company, Inc. ......................... 440 64,983
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273,608
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ENERGY--3.5%
Mobil Corp. ................................... 1,020 $ 88,868
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FINANCIAL SERVICES--2.2%
Citigroup, Inc. ............................... 1,130 55,935
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FOOD & BEVERAGES--8.6%
Cadbury Schweppes PLC, ADR .................... 675 46,744
Diageo PLC, ADR ............................... 1,000 46,250
Heineken NV, ADR .............................. 717 43,173
PepsiCo, Inc. ................................. 1,960 80,237
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216,404
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HOTELS & RESTAURANTS--2.9%
McDonald's Corp. .............................. 935 71,644
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INSURANCE--7.3%
Aetna, Inc. ................................... 1,050 82,556
Allstate Corp. ................................ 1,220 47,123
The Hartford Financial
Services Group, Inc. ......................... 990 54,326
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184,005
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MANUFACTURING--3.5%
General Electric Co. .......................... 865 88,284
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MULTIMEDIA--2.2%
Gannett Company, Inc. ......................... 855 55,148
--------
OIL & GAS--3.5%
British Petroleum Company
PLC, ADR ..................................... 500 47,500
Royal Dutch Petroleum Co., ADR ................ 870 41,651
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89,151
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PAPER PRODUCTS--3.1%
Kimberly-Clark Corp. .......................... 1,440 78,480
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RETAIL--5.8%
Federated Department Stores,
Inc. (a) ..................................... 1,400 60,988
Sears, Roebuck & Co. .......................... 1,980 84,150
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145,138
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
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LAZARD RETIREMENT SERIES, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
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DESCRIPTION SHARES VALUE
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LAZARD RETIREMENT EQUITY PORTFOLIO
(CONTINUED)
TELECOMMUNICATIONS--8.6%
Ameritech Corp. ............................ 980 $ 62,107
AT&T Corp. ................................. 1,160 87,290
Bell Atlantic Corp. ........................ 1,270 67,310
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216,707
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UTILITIES--2.1%
Duke Energy Corp. .......................... 805 51,570
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TOTAL COMMON STOCKS
(Identified cost $2,243,067) .............. 2,461,236
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TOTAL INVESTMENTS
(Identified cost $2,243,067)
(b) ....................................... 97.9% $2,461,236
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES ..................... 2.1 51,785
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NET ASSETS ................................. 100.0% $2,513,021
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
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LAZARD RETIREMENT SERIES, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
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DESCRIPTION SHARES VALUE
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LAZARD RETIREMENT SMALL CAP
PORTFOLIO
COMMON STOCKS--90.4%
APPAREL & TEXTILES--1.2%
Stride Rite Corp. ............................. 2,400 $ 21,000
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AUTO PARTS--2.4%
Borg-Warner Automotive, Inc. .................. 200 11,162
Dura Automotive Systems,
Inc. (a) ..................................... 200 6,825
Tower Automotive, Inc. (a) .................... 900 22,444
--------
40,431
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BANKING--6.7%
Enhance Financial Services
Group, Inc. .................................. 800 24,000
HUBCO, Inc. ................................... 1,100 33,138
Independence Community
Bank Corp. ................................... 2,200 35,062
Staten Island Bancorp, Inc. ................... 1,100 21,931
--------
114,131
--------
BUILDING & CONSTRUCTION--1.1%
Apogee Enterprises, Inc. ...................... 1,600 18,000
--------
BUSINESS SERVICES AND
SUPPLIES--1.4%
CDI Corp. (a) ................................. 1,200 24,225
--------
COMMERCIAL SERVICES--1.7%
Nielsen Media Research, Inc. .................. 900 16,200
Pittston Brink's Group ........................ 400 12,750
--------
28,950
--------
COMPUTERS & BUSINESS
EQUIPMENT--3.0%
Bell & Howell Co. (a) ......................... 600 22,687
Wang Laboratories, Inc. (a) ................... 1,000 27,750
--------
50,437
--------
CONTAINERS: PAPER &
PLASTIC--1.7%
First Brands Corp. ............................ 750 $ 29,578
--------
DRUGS & HEALTH CARE--2.6%
Perrigo Co. (a) ............................... 1,600 14,100
Sierra Health Services, Inc. (a) .............. 1,100 23,168
Sun Healthcare Group, Inc. (a) ................ 1,100 7,219
--------
44,487
--------
ELECTRICAL EQUIPMENT--3.4%
Anixter International, Inc. (a) ............... 1,800 36,562
MagneTek, Inc. (a) ............................ 1,900 21,969
--------
58,531
--------
ELECTRONICS--5.5%
Credence Systems Corp. (a) .................... 2,100 38,850
Kemet Corp. (a) ............................... 2,400 27,000
Lattice Semiconductor
Corp. (a) .................................... 600 27,544
--------
93,394
--------
FOOD & BEVERAGES--5.5%
American Italian Pasta Co.,
Class A (a) .................................. 300 7,913
Lance, Inc. ................................... 1,400 27,912
Ralcorp Holdings, Inc. (a) .................... 1,100 20,075
Vlasic Foods International,
Inc. (a) ..................................... 1,600 38,100
--------
94,000
--------
GAS EXPLORATION--1.5%
Barrett Resources Corp. (a) ................... 1,050 25,200
--------
HOMEBUILDERS--1.1%
Toll Brothers, Inc. (a) ....................... 800 18,050
--------
HOTELS & RESTAURANTS--1.0%
Lone Star Steakhouse &
Saloon, Inc. (a) ............................. 1,900 17,456
--------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
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LAZARD RETIREMENT SERIES, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
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DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------
LAZARD RETIREMENT SMALL CAP
PORTFOLIO (CONTINUED)
HOUSEHOLD APPLIANCES &
HOME FURNISHINGS--3.8%
Bassett Furniture Industries,
Inc .......................................... 1,100 $ 26,537
Furniture Brands
International, Inc. (a) ...................... 1,000 27,250
Harman International
Industries, Inc. ............................. 300 11,438
--------
65,225
--------
INDUSTRIAL & MACHINERY--5.8%
JLG Industries, Inc. .......................... 2,100 32,813
OmniQuip International, Inc. .................. 1,300 19,500
Regal-Beloit Corp. ............................ 1,300 29,900
Watts Industries, Inc., Class A ............... 1,000 16,625
--------
98,838
--------
INSURANCE--8.7%
Amerin Corp. (a) .............................. 900 21,263
Arthur J. Gallagher & Co. ..................... 500 22,062
E.W. Blanch Holdings, Inc. .................... 400 18,975
ESG Re, Ltd. .................................. 1,200 24,300
Frontier Insurance Group, Inc. ................ 1,175 15,128
HCC Insurance Holdings, Inc. .................. 800 14,100
NAC Re Corp. .................................. 700 32,856
--------
148,684
--------
LEISURE TIME--1.3%
Carmike Cinemas, Inc.,
Class A (a) .................................. 1,100 22,344
--------
MANUFACTURING--1.4%
Mark IV Industries, Inc. ...................... 1,900 24,700
--------
MEDICAL SUPPLIES--2.1%
The West Company, Inc. ........................ 1,000 35,687
--------
OIL & GAS--3.0%
Devon Energy Corp. ............................ 600 $ 18,412
Helmerich & Payne, Inc. ....................... 850 16,469
Vintage Petroleum, Inc. ....................... 1,900 16,388
--------
51,269
--------
PAPER PRODUCTS--1.6%
Chesapeake Corp. .............................. 600 21,861
Gibson Greetings, Inc. (a) .................... 500 5,938
--------
27,799
--------
PRINTING--5.6%
Bowne & Company, Inc. ......................... 2,000 35,750
Electronics for Imaging, Inc. (a) ............. 900 36,169
World Color Press, Inc. (a) ................... 800 22,798
--------
94,717
--------
PUBLISHING--1.9%
Banta Corp. ................................... 1,200 32,850
--------
REAL ESTATE--1.3%
Glenborough Realty Trust, Inc. ................ 1,100 22,413
--------
RETAIL--4.8%
General Nutrition Companies
Inc. (a) ..................................... 1,500 23,812
Hughes Supply, Inc. ........................... 400 11,700
Oakley, Inc. (a) .............................. 900 8,494
Pier 1 Imports, Inc. .......................... 2,500 24,219
The Elder-Beerman Stores
Corp. (a) .................................... 1,200 13,875
--------
82,100
--------
TECHNOLOGY--1.7%
VLSI Technology, Inc. (a) ..................... 2,600 28,438
--------
TELECOMMUNICATIONS
EQUIPMENT--0.4%
Allen Telecom, Inc. (a) ....................... 900 6,019
--------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------
LAZARD RETIREMENT SMALL CAP PORTFOLIO
(CONTINUED)
TRANSPORTATION--3.9%
Budget Group, Inc., Class A (a) ............... 1,800 $ 28,575
Circle International Group, Inc. .............. 450 9,225
CNF Transportation, Inc. ...................... 750 28,172
-----------
65,972
-----------
UTILITIES--2.1%
Calpine Corp. (a) ............................. 800 20,200
Sierra Pacific Resources ...................... 400 15,200
-----------
35,400
-----------
WHOLESALE TRADE--1.2%
Unisource Worldwide, Inc. ..................... 2,800 20,300
-----------
TOTAL COMMON STOCKS
(Identified cost $1,519,105) ................. 1,540,625
-----------
PRINCIPAL
AMOUNT
DESCRIPTION (000) VALUE
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT--9.2%
State Street Bank and Trust
Company, 4.75%, 01/04/99,
(Dated 12/31/98, collateral-
ized by $160,000 United
States Treasury Note, 5.625%,
12/31/99, with a value of
$161,600) (Identified cost
$157,000)................................. $ 157 $ 157,000
----------
TOTAL INVESTMENTS
(Identified cost $1,676,105) (b) 99.6% $1,697,625
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES ................... 0.4 6,762
------- ----------
NET ASSETS ............................... 100.0% $1,704,387
======= ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE
================================================================================
LAZARD RETIREMENT INTERNATIONAL EQUITY
PORTFOLIO
COMMON STOCKS--89.8%
AUSTRALIA--2.4%
Broken Hill Proprietary
Company, Ltd. ........................... 910 $ 6,702
Westpac Banking Corporation
Ltd .................................... 820 5,487
-------
TOTAL AUSTRALIA ......................... 12,189
-------
DENMARK--1.4%
Unidanmark, Class A ..................... 80 7,228
-------
FINLAND--1.0%
Merita, Ltd. ............................ 440 2,779
UPM Kymmene OYJ ........................ 80 2,228
-------
TOTAL FINLAND .......................... 5,007
-------
FRANCE--15.0%
Alcatel Alsthom (Cie Generale) 55 6,729
Axa-UAP ................................ 70 10,141
Banque Nationale de Paris .............. 120 9,877
Cie de Saint Gobain .................... 50 7,056
Cie Generale des Eaux .................. 55 14,264
Elf Aquitaine SA ....................... 70 8,088
Michelin, Class B ...................... 90 3,598
Rhone-Poulenc SA ....................... 175 9,002
Suez Lyonnaise des Eaux ................ 40 8,213
-------
TOTAL FRANCE ........................... 76,968
-------
GERMANY--10.4%
Allianz AG ............................. 25 9,166
DaimlerChrysler AG (a) ................. 75 7,403
Hoechst AG ............................. 175 7,256
Metro AG ............................... 158 12,609
Siemens AG ............................. 110 7,095
Thyssen AG ............................. 20 3,709
Viag AG ................................ 10 5,862
-------
TOTAL GERMANY .......................... 53,100
-------
HONG KONG--1.0%
HSBC Holdings, Ltd. ADR ................ 20 $ 4,960
-------
ITALY--5.6%
Ente Nazionale Idrocarburi
SPA (ENI) ............................. 1,140 7,446
Istituto Bancario San Paolo di
Torino ................................ 610 10,773
Telecom Italia SPA ..................... 1,690 10,630
-------
TOTAL ITALY ............................ 28,849
-------
JAPAN--8.5%
Matsushita Electric Industrial
Company, Ltd. ADR ..................... 42 7,329
Nintendo Co. ........................... 570 6,626
Nippon Telegraph & Telephone
Corp. ADR ............................. 140 5,250
Nissan Motor Company, Ltd. ............. 1,000 3,061
Promise Company, Ltd. .................. 100 5,201
Ricoh Company, Ltd. ADR ................ 155 6,975
Sony Corp. ............................. 90 6,457
Sumitomo Trust & Banking, Ltd. 1,000 2,654
-------
TOTAL JAPAN ............................ 43,553
-------
NETHERLANDS--3.8%
Heineken NV ............................ 160 9,624
ING Groep NV ........................... 30 1,828
Philips Electronics NV ................. 120 8,048
-------
TOTAL NETHERLANDS ...................... 19,500
-------
SINGAPORE--1.0%
United Overseas Bank, Ltd.
ADR ................................... 400 5,150
-------
SPAIN--5.6%
Corporacion Bancaria de
Espana SA (Argentaria) ................ 370 9,568
Endesa SA .............................. 270 7,143
Telefonica de Espana ................... 265 11,766
Telefonica SA, rights (a) .............. 265 235
-------
TOTAL SPAIN ............................ 28,712
-------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------
LAZARD RETIREMENT INTERNATIONAL EQUITY
PORTFOLIO (CONTINUED)
SWEDEN--6.6%
ABB AB ............................. 430 $ 4,578
Astra AB ........................... 410 8,326
Electrolux AB, Series B ............ 430 7,383
Nordbanken Holding AB .............. 410 2,624
Svenska Handelsbanken,
Series A .......................... 170 7,156
Volvo AB, Series B ................. 175 4,006
--------
TOTAL SWEDEN ....................... 34,073
--------
SWITZERLAND--5.6%
Nestle SA .......................... 3 6,530
Roche Holdings, Ltd. ADR ........... 50 6,112
SGS Holding SA ..................... 4 3,916
SMH AG ............................. 2 1,238
Zurich Versicherungs-
Gesellschaft ...................... 15 11,105
--------
TOTAL SWITZERLAND .................. 28,901
--------
UNITED KINGDOM--21.9%
Allied Zurich PLC (a) .............. 340 5,109
B.A.T Industries PLC ............... 800 7,044
British Aerospace PLC .............. 1,580 13,467
British Petroleum Company
PLC ............................... 580 8,634
Cadbury Schweppes PLC .............. 230 $ 3,936
Diageo PLC ......................... 750 8,318
EMI Group PLC ...................... 450 3,013
Granada Group PLC .................. 500 8,764
Great Universal Stores PLC ......... 460 4,853
Imperial Chemical Industries
PLC ............................... 720 6,238
Mirror Group PLC ................... 920 2,297
National Westminster Bank
PLC ............................... 510 9,871
Prudential Corporation PLC ......... 610 9,305
Royal & Sun Alliance
Insurance Group PLC ............... 900 7,327
Siebe PLC .......................... 1,790 7,033
Unilever PLC ....................... 610 6,861
--------
TOTAL UNITED KINGDOM ............... 112,070
--------
TOTAL COMMON STOCKS
(Identified cost $413,207)......... 460,260
--------
TOTAL INVESTMENTS
(Identified cost $413,207) (b) 89.8% $460,260
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES ............. 10.2 52,336
----- --------
NET ASSETS ......................... 100.0% $512,596
===== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------
LAZARD RETIREMENT EMERGING MARKETS
PORTFOLIO
COMMON STOCKS--76.6%
ARGENTINA--6.0%
Quilmes Industrial Quinsasa
ADR .............................. 2,600 $ 24,213
Telefonica de Argentina SA
ADR .............................. 800 22,350
YPF Sociedad Anonima,
Class D ADR ...................... 1,000 27,937
--------
TOTAL ARGENTINA ................... 74,500
--------
BRAZIL--7.6%
Companhia Cervejaria
Brahma ADR ....................... 2,200 20,762
Companhia Energetica de
Minas ADR ........................ 847 15,987
Eletropaulo Metropolitana -
Eletricidade de Sao Paulo SA ..... 270,000 12,513
Souza Cruz SA ..................... 3,300 21,303
Telecomunicacoes Brasileiras
SA ADR ........................... 340 24,714
--------
TOTAL BRAZIL ...................... 95,279
--------
CHILE--3.8%
AFP Provida SA ADR ................ 1,500 20,156
Banco BHIF ADR .................... 900 6,975
Quinenco SA ADR ................... 1,700 13,600
Santa Isabel SA ADR ............... 1,100 7,288
--------
TOTAL CHILE ....................... 48,019
--------
COLOMBIA--0.7%
Banco Ganadero SA ADR ............. 1,000 9,062
--------
CZECH REPUBLIC--1.1%
Ceske Energeticke Zavody AS
(a) .............................. 650 14,431
--------
GREECE--2.7%
Hellenic Telecommunication
Organization SA ADR (a) .......... 300 3,975
Hellenic Telecommunication
Organization SA .................. 833 $ 22,173
Panafon Hellenic Telecommu-
nication Co. ADR (a), (c) ........ 300 7,950
--------
TOTAL GREECE ...................... 34,098
--------
HONG KONG--4.1%
Guangshen Railway Company,
Ltd. ADR ......................... 1,500 9,000
Peregrine Investment Holdings,
Ltd. (d) ......................... 14,000 0
Shenzhen Expressway Co. ........... 82,000 19,051
Yue Yuen Industrial Holdings ...... 12,000 22,768
--------
TOTAL HONG KONG ................... 50,819
--------
HUNGARY--0.9%
Magyar Olaj-es Gazipari RT ........ 400 10,965
--------
INDIA--5.6%
Hindalco Industries, Ltd. GDR 900 10,305
Larsen & Toubro, Ltd. GDR (c) ..... 2,300 17,480
Mahanagar Telephone Nigam,
Ltd. GDR (c) ..................... 2,000 24,750
State Bank of India GDR (c) ....... 2,100 17,220
--------
TOTAL INDIA ....................... 69,755
--------
ISRAEL--3.8%
ECI Telecom, Ltd. ADR ............. 800 28,500
Supersol, Ltd. ADR ................ 1,600 19,600
--------
TOTAL ISRAEL ...................... 48,100
--------
MALAYSIA--1.4%
Jaya Tiasa Holdings Berhad ........ 13,000 17,276
--------
MEXICO--14.2%
Cemex SA de CV .................... 8,010 17,262
Fomento Economico Mexicano
SA ADR ........................... 820 21,833
Grupo Financiero Banamex
Accival SA de CV (a) ............. 16,000 20,995
Grupo Industrial Maseca SA de
CV ADR ........................... 2,500 31,094
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
15
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------
LAZARD RETIREMENT EMERGING MARKETS
PORTFOLIO (CONTINUED)
Grupo Televisa SA (a) ....... 800 $19,750
Kimberly-Clark de Mexico SA . 7,600 24,241
Panamerican Beverages, Inc.,
Class A ADR ................ 770 16,796
Pepsi-Gemex SA de CV GDR .... 2,000 15,625
Tubos de Acero de Mexico SA
ADR ........................ 1,500 9,656
-------
TOTAL MEXICO ................ 177,252
-------
PERU--2.0%
Credicorp, Ltd. ............. 500 4,500
Telefonica del Peru SA ADR .. 1,600 20,300
-------
TOTAL PERU .................. 24,800
-------
PHILIPPINES--1.8%
Benpres Holdings Corp.,
GDR (a), (c) ............... 2,800 9,044
Benpres Holdings Corp. ...... 83,000 13,442
-------
TOTAL PHILIPPINES ........... 22,486
-------
POLAND--2.7%
Bank Handlowy W. Warszawie 1,900 24,700
GDR (c) ....................
Telekomunikacja Polska SA,
GDR (a) .................... 1,800 9,225
-------
TOTAL POLAND ................ 33,925
-------
RUSSIA--0.3%
AO Tatneft ADR .............. 1,800 3,488
-------
SOUTH AFRICA--9.2%
Amalgamated Banks of South
Africa, Ltd. ................ 4,300 20,367
Barlow, Ltd. ................ 3,597 13,801
JD Group, Ltd. .............. 3,100 13,683
Naspers, Ltd. ............... 2,900 11,324
Rembrandt Group, Ltd. ....... 3,300 20,169
Sanlam, Ltd. (a) ............ 13,800 13,706
South African Breweries, Ltd. 1,300 21,894
-------
TOTAL SOUTH AFRICA .......... 114,944
-------
SOUTH KOREA--5.8%
Samsung Electronics Co. GDR
(c) ......................... 948 $36,498
SK Telecom Company, Ltd.,
ADR ......................... 3,500 35,656
-------
TOTAL SOUTH KOREA ............ 72,154
-------
THAILAND--1.4%
Bangkok Expressway Public
Company, Ltd. (a) ........... 18,000 17,827
-------
VENEZUELA--1.5%
Compania Anonima Nacional
Telefonos de Venezuela ADR .. 400 7,125
Mavesa SA ADR ................ 3,000 11,250
-------
TOTAL VENEZUELA .............. 18,375
-------
TOTAL COMMON STOCKS
(Identified cost $1,232,443) 957,555
-------
PREFERRED STOCKS--9.0%
BRAZIL--9.0%
Banco Bradesco SA ADR ........ 1,900 9,738
Banco Itau SA ................ 40,000 19,531
Companhia Riograndense
Telecom ..................... 40,800 14,688
Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar GDR .................. 1,300 20,150
Companhia Cimento Portland ... 80,000 9,104
Companhia Paranaense de
Energia-Copel ADR ........... 2,400 17,100
Telesp Celular SA (a) ........ 150,000 6,592
Telesp de Sao Paulo SA ....... 107,114 14,600
-------
TOTAL BRAZIL ................. 111,503
-------
THAILAND--0.0%
Industrial Finance Corporation
of Thailand, rights (a) ..... 10,800 0
-------
TOTAL PREFERRED STOCKS
(Identified cost $161,332) .. 111,503
-------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
16
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
DESCRIPTION (000) VALUE
- ----------------------------------------------------------------------
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO
(CONTINUED)
REPURCHASE AGREEMENT--8.1%
State Street Bank and Trust
Company, 4.75%, 01/04/99,
(Dated 12/31/98, collateral-
ized by $105,000 United
States Treasury Note, 5.625%,
12/31/99, with a value of
$106,050) (Identified cost
$101,000).................................. $ 101 $ 101,000
----------
TOTAL INVESTMENTS
(Identified cost
$1,494,775) (b) ........................... 93.7% $1,170,058
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES ..................... 6.3 79,310
------ ----------
NET ASSETS ................................. 100.0% $1,249,368
====== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
17
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
NOTES TO PORTFOLIOS OF INVESTMENTS
- --------------------------------------------------------------------------------
(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:
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE NET
GROSS GROSS UNREALIZED
AGGREGATE UNREALIZED UNREALIZED APPRECIATION
PORTFOLIO COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ----------------------------------- ------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Retirement Equity $2,253,709 $241,062 $ 33,535 $ 207,527
Retirement Small Cap 1,676,110 150,009 128,494 21,515
Retirement International Equity 414,286 49,906 3,932 45,974
Retirement Emerging Markets 1,495,942 76,058 401,942 (325,884)
</TABLE>
(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 $137,642, or 11% of net assets, for Lazard Retirement Emerging
Markets Portfolio.
(d) Bankrupt security valued at zero.
Abbreviations:
ADR--American Depositary Receipt
GDR--Global Depositary Receipt
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
18
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
PORTFOLIO HOLDINGS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LAZARD LAZARD
RETIREMENT RETIREMENT
INTERNATIONAL EMERGING
EQUITY MARKETS
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------
INDUSTRY
Aerospace & Defense .................... 2.6% --%
Automotive ............................. 3.5 --
Banks and Financial Services ........... 18.2 12.3
Brewery ................................ -- 5.4
Broadcasting ........................... -- 1.6
Chemicals & Plastics ................... 2.6 --
Conglomerates .......................... 2.8 7.0
Construction & Materials ............... 1.4 6.5
Consumer Goods ......................... 3.1 --
Drugs & Health Care .................... 2.8 --
Electrical Equipment ................... 6.5 --
Electronics ............................ -- 2.9
Food & Beverages ....................... 5.5 8.3
Household Products ..................... 1.4 --
Insurance .............................. 10.2 1.1
Leisure/Entertainment .................. 2.3 --
Manufacturing .......................... 4.9 --
Metals ................................. -- 0.8
Office Equipment ....................... 1.4 --
Oil & Gas .............................. 4.7 3.4
Paper Products ......................... 0.4 1.9
Petroleum Equipment & Services ......... 2.1 --
Printing ............................... -- 0.9
Publishing ............................. 0.5 --
Railroad ............................... -- 0.7
Repurchase Agreement ................... -- 8.1
Retail ................................. 3.4 6.1
Steel .................................. -- 0.8
Telecommunications ..................... 5.4 19.4
Tobacco ................................ 1.4 1.7
Toys & Amusement ....................... 1.3 --
Utilities .............................. 1.4 4.8
---- ----
Total Investments ...................... 89.8% 93.7%
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
19
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
RETIREMENT RETIREMENT
EQUITY SMALL CAP
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in securities, at value (cost $2,243,067, $1,676,105, $413,207, and
$1,494,775, respectively)......................................................... $2,461,236 $ 1,697,625
Cash .............................................................................. 22,853 186
Foreign currency (cost $0, $0, $432, and $3,654, respectively)..................... -- --
Receivables for:
Dividends and interest ........................................................... 3,859 1,216
Capital stock sold ............................................................... -- 14,649
Due from Manager .................................................................. 85,555 101,652
Deferred organizational costs ..................................................... 13,704 12,609
---------- -----------
Total assets ...................................................................... 2,587,207 1,827,937
---------- -----------
LIABILITIES
Payables for:
Investments purchased ............................................................ 20,588 68,472
Capital stock repurchased ........................................................ 1,459 --
Organizational costs ............................................................. 15,404 15,404
Accrued directors' fees payable ................................................... 2,688 2,688
Accrued distribution fees payable ................................................. 459 307
Accrued expenses and other payables ............................................... 33,588 36,679
---------- -----------
Total liabilities ................................................................. 74,186 123,550
---------- -----------
Net assets ........................................................................ 2,513,021 1,704,387
========== ===========
NET ASSETS
Paid in capital ................................................................... 2,300,713 1,738,172
Undistributed (distributions in excess of) investment income--net ................. -- --
Unrealized appreciation (depreciation) on:
Investments--net ................................................................. 218,169 21,520
Foreign currency--net ............................................................ -- --
Accumulated realized loss--net .................................................... (5,861) (55,305)
---------- -----------
Net assets ........................................................................ $2,513,021 $ 1,704,387
========== ===========
Shares of capital stock outstanding* .............................................. 227,507 179,072
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE .......................... $ 11.05 $ 9.52
</TABLE>
<TABLE>
<CAPTION>
LAZARD LAZARD
RETIREMENT RETIREMENT
INTERNATIONAL EMERGING
EQUITY MARKETS
PORTFOLIO PORTFOLIO
--------------- --------------
<S> <C> <C>
ASSETS
Investments in securities, at value (cost $2,243,067, $1,676,105, $413,207, and
$1,494,775, respectively)......................................................... $460,260 $ 1,170,058
Cash .............................................................................. 42,066 792
Foreign currency (cost $0, $0, $432, and $3,654, respectively)..................... 433 3,648
Receivables for:
Dividends and interest ........................................................... 175 4,209
Capital stock sold ............................................................... -- 10,406
Due from Manager .................................................................. 36,997 106,181
Deferred organizational costs ..................................................... 17,407 12,609
-------- -----------
Total assets ...................................................................... 557,338 1,307,903
-------- -----------
LIABILITIES
Payables for:
Investments purchased ............................................................ -- 3,162
Capital stock repurchased ........................................................ 208 --
Organizational costs ............................................................. 17,861 15,404
Accrued directors' fees payable ................................................... 2,688 2,688
Accrued distribution fees payable ................................................. 81 221
Accrued expenses and other payables ............................................... 23,904 37,060
-------- -----------
Total liabilities ................................................................. 44,742 58,535
-------- -----------
Net assets ........................................................................ 512,596 1,249,368
======== ===========
NET ASSETS
Paid in capital ................................................................... 468,066 1,637,699
Undistributed (distributions in excess of) investment income--net ................. (1,825) 654
Unrealized appreciation (depreciation) on:
Investments--net ................................................................. 47,053 (324,717)
Foreign currency--net ............................................................ (1) (17)
Accumulated realized loss--net .................................................... (697) (64,251)
--------- -----------
Net assets ........................................................................ $512,596 $ 1,249,368
========= ===========
Shares of capital stock outstanding* .............................................. 45,638 172,204
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE .......................... $ 11.23 $ 7.26
</TABLE>
* $0.001 par value, 500,000,000 shares authorized for the Portfolios in total.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
20
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD LAZARD RETIREMENT RETIREMENT
RETIREMENT RETIREMENT INTERNATIONAL EMERGING
EQUITY SMALL CAP EQUITY MARKETS
PORTFOLIO** PORTFOLIO PORTFOLIO*** PORTFOLIO
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME:
Interest ......................................................... $ 2,910 $ 5,587 $ 471 $ 4,204
Dividends ........................................................ 9,530 7,646 639 28,914
--------- ------------ -------- ------------
Total investment income* .......................................... 12,440 13,233 1,110 33,118
--------- ------------ -------- ------------
EXPENSES:
Management fees .................................................. 4,605 7,508 813 12,576
Administration fees .............................................. 31,380 37,700 12,522 37,751
Distribution fees ................................................ 1,567 2,503 271 3,144
Custodian fees ................................................... 23,037 34,952 10,217 39,579
Professional services ............................................ 29,255 29,369 15,417 39,529
Registration fees ................................................ 654 312 131 38
Shareholders' services ........................................... 19,018 19,724 4,150 19,546
Directors' fees and expenses ..................................... 11,088 13,903 5,366 13,903
Shareholders' reports ............................................ 7,424 11,943 2,375 10,381
Amortization of organizational expenses .......................... 2,811 3,366 1,512 3,366
Other ............................................................ 61 860 2 892
--------- ------------ -------- ------------
Total expenses before fees waived and expenses reimbursed ......... 130,900 162,140 52,776 180,705
Management fees waived and expenses reimbursed ................... (90,160) (109,160) (37,810) (118,757)
Administration fees waived ....................................... (31,250) (37,500) (12,500) (37,500)
Expense reductions ............................................... (281) (464) (731) (1,809)
--------- ------------ -------- ------------
Expenses--net ..................................................... 9,209 15,016 1,735 22,639
--------- ------------ -------- ------------
INVESTMENT INCOME (LOSS)--NET ..................................... 3,231 (1,783) (625) 10,479
--------- ------------ -------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY--NET
Realized gain (loss) on:
Investments--net ................................................ (2,724) (55,446) (697) (64,251)
Foreign currency--net ........................................... -- -- (2,593) (1,924)
Change in net unrealized appreciation (depreciation) on
Investments--net ................................................ 218,169 30,724 47,053 (249,359)
Foreign currency--net ........................................... -- -- (1) (77)
--------- ------------ ----------- ------------
Realized and unrealized gain (loss) on investments and
foreign currency--net ........................................... 215,445 (24,722) 43,762 (315,611)
--------- ------------ ---------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ...................................................... $ 218,676 $ (26,505) $ 43,137 $ (305,132)
========= ============ ========== ============
* Net of foreign withholding taxes of: ........................... $ 166 $ 7 $ 56 $ 2,254
========= ============ ========== ============
</TABLE>
** Portfolio commenced operations on March 19, 1998.
*** Portfolio commenced operations on September 1, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
21
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
RETIREMENT RETIREMENT
EQUITY SMALL CAP
PORTFOLIO PORTFOLIO
-------------- ------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998** 1998 1997***
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income (loss)--net .................................. $ 3,231 $ (1,783) $ 648
Realized gain (loss) on investments and foreign
currency--net ................................................. (2,724) (55,446) --
Change in unrealized appreciation (depreciation)--net .......... 218,169 30,724 (9,204)
---------- ---------- --------
Net increase (decrease) in net assets resulting from
operations ..................................................... 218,676 (26,505) (8,556)
---------- ---------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
From investment income--net .................................... (3,231) (270) (648)
In excess of investment income--net ............................ (2,008) (247) (283)
In excess of realized gains--net ............................... (3,082) -- --
---------- ---------- --------
Net decrease in net assets resulting from distributions ......... (8,321) (517) (931)
---------- ---------- --------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from sales ........................................ 2,442,944 1,618,594 600,030
Net proceeds from reinvestment of distributions ................ 8,321 517 931
Cost of shares redeemed ........................................ (148,599) (479,176) --
---------- ---------- --------
Net increase (decrease) in net assets from capital stock
transactions ................................................... 2,302,666 1,139,935 600,961
---------- ---------- --------
Total increase (decrease) in net assets ......................... 2,513,021 1,112,913 591,474
Net assets at beginning of period ............................... -- 591,474 --
---------- ---------- --------
Net assets at end of period* .................................... $2,513,021 $1,704,387 $591,474
========== ========== ========
SHARES ISSUED AND REPURCHASED:
Shares outstanding at beginning of period ...................... -- 60,099 --
---------- ---------- --------
Shares sold .................................................... 242,014 172,507 60,003
Shares issued to shareholders from reinvestment of
distributions ................................................. 776 56 96
Shares repurchased ............................................. (15,283) (53,590) --
---------- ---------- --------
Net increase (decrease) ........................................ 227,507 118,973 60,099
---------- ---------- --------
Shares outstanding at end of period ............................ 227,507 179,072 60,099
========== ========== ========
* Includes undistributed (distributions in excess of)
investment income--net ........................................ $ -- $ -- $ 270
========== ========== ========
</TABLE>
** Portfolio commenced operations on March 19, 1998.
*** Portfolio commenced operations on November 4, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
22
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
RETIREMENT RETIREMENT
INTERNATIONAL EQUITY EMERGING MARKETS
PORTFOLIO PORTFOLIO
---------------------- ------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998** 1998 1997***
---------------------- -------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income (loss)--net .................................. $ (625) $ 10,479 $ 4,321
Realized gain (loss) on investments and foreign
currency--net ................................................. (3,290) (66,175) (68)
Change in unrealized appreciation (depreciation)--net .......... 47,052 (249,436) (75,298)
-------- ---------- ----------
Net increase (decrease) in net assets resulting from
operations ..................................................... 43,137 (305,132) (71,045)
-------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
From investment income--net .................................... -- (10,051) (4,321)
In excess of investment income--net ............................ -- -- (874)
From Capital ................................................... -- -- (582)
-------- ---------- ----------
Net decrease in net assets resulting from distributions ......... -- (10,051) (5,777)
-------- ---------- ----------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from sales ........................................ 469,985 242,183 1,500,060
Net proceeds from reinvestment of distributions ................ -- 10,051 5,777
Cost of shares redeemed ........................................ (526) (116,698) --
-------- ---------- ----------
Net increase (decrease) in net assets from capital stock
transactions ................................................... 469,459 135,536 1,505,837
-------- ---------- ----------
Total increase (decrease) in net assets ......................... 512,596 (179,647) 1,429,015
Net assets at beginning of period ............................... -- 1,429,015 --
-------- ---------- ----------
Net assets at end of period* .................................... $512,596 $1,249,368 $1,429,015
======== ========== ==========
SHARES ISSUED AND REPURCHASED:
Shares outstanding at beginning of period ...................... -- 150,628 --
-------- ---------- ----------
Shares sold .................................................... 45,686 32,741 150,006
Shares issued to shareholders from reinvestment of
distributions ................................................. -- 1,440 622
Shares repurchased ............................................. (48) (12,605) --
-------- ---------- ----------
Net increase (decrease) ........................................ 45,638 21,576 150,628
-------- ---------- ----------
Shares outstanding at end of period ............................ 45,638 172,204 150,628
======== ========== ==========
* Includes undistributed (distributions in excess of)
investment income--net ........................................ $ (1,825) $ 654 $ (68)
======== ========== ==========
</TABLE>
** Portfolio commenced operations on September 1, 1998.
*** Portfolio commenced operations on November 4, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
23
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
- --------------------------------------------------------------------------------
LAZARD RETIREMENT EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
3/19/98* TO
12/31/98
---------------
<S> <C>
Net asset value, beginning of period ............. $ 10.00
-------
Income (loss) from investment operations:
Net investment income ........................... 0.02
Net realized and unrealized gain (loss) ......... 1.06
-------
Total from investment operations ................ 1.08
-------
Less distributions from and in excess of:
Net investment income ........................... (0.02)
Net realized gain ............................... (0.01)
-------
Total distributions ............................. (0.03)
-------
Net asset value, end of period ................... $ 11.05
=======
TOTAL RETURN (A) ................................. 10.9%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ......... $ 2,513
Ratios to average net assets:
Net expenses (b) ................................ 1.50%
Gross expenses (b) .............................. 21.32%
Net investment income (b) ....................... 0.53%
Portfolio turnover rate .......................... 40%
</TABLE>
LAZARD RETIREMENT SMALL CAP PORTFOLIO
<TABLE>
<CAPTION>
YEAR FOR THE PERIOD
ENDED 11/4/97* TO
12/31/98 12/31/97
------------- ---------------
<S> <C> <C>
Net asset value, beginning of period ............. $ 9.84 $ 10.00
-------- -------
Income (loss) from investment operations:
Net investment income ........................... -- 0.02
Net realized and unrealized gain (loss) ......... (0.32) (0.16)
-------- -------
Total from investment operations ................ (0.32) (0.14)
-------- -------
Less distributions from and in excess of:
Net investment income ........................... -- (0.02)
Net realized gain ............................... -- --
-------- -------
Total distributions ............................. -- (0.02)
-------- -------
Net asset value, end of period ................... $ 9.52 $ 9.84
======== =======
TOTAL RETURN (A) ................................. (3.2)% (1.4)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ......... $ 1,704 $ 591
Ratios to average net assets:
Net expenses (b) ................................ 1.50% 1.50%
Gross expenses (b) .............................. 16.20% 52.55%
Net investment income (b) ....................... (0.18)% 0.71%
Portfolio turnover rate .......................... 61% 0%
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
24
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
- --------------------------------------------------------------------------------
LAZARD RETIREMENT INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
9/1/98* TO
12/31/98
---------------
<S> <C>
Net asset value, beginning of period ............. $ 10.00
-------
Income (loss) from investment operations:
Net investment income ........................... ( 0.04)
Net realized and unrealized gain (loss) ......... 1.27
-------
Total from investment operations ................ 1.23
-------
Less distributions from and in excess of:
Net investment income ........................... --
Net realized gain ............................... --
-------
Total distributions ............................. --
-------
Net asset value, end of period ................... $ 11.23
=======
TOTAL RETURN (A) ................................. 12.3%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ......... $ 513
Ratios to average net assets:
Net expenses (b) ................................ 1.60%
Gross expenses (b) .............................. 48.67%
Net investment income (b) ....................... (0.58)%
Portfolio turnover rate .......................... 7%
</TABLE>
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO
<TABLE>
<CAPTION>
YEAR FOR THE PERIOD
ENDED 11/4/97* TO
12/31/98 12/31/97
------------ ---------------
<S> <C> <C>
Net asset value, beginning of period ............ $ 9.49 $ 10.00
------- -------
Income (loss) from investment operations:
Net investment income .......................... 0.06 0.04
Net realized and unrealized gain (loss) ........ (2.23) (0.51)
------- --------
Total from investment operations ............... (2.17) (0.47)
------- --------
Less distributions from and in excess of:
Net investment income .......................... (0.06) (0.04)
Net realized gain .............................. -- --
------- --------
Total distributions ............................ (0.06) (0.04)
------- --------
Net asset value, end of period .................. $ 7.26 $ 9.49
======= ========
TOTAL RETURN (A) ................................ (22.9)% (4.7)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ........ $ 1,249 $ 1,429
Ratios to average net assets:
Net expenses (b) ............................... 1.80% 1.80%
Gross expenses (b) ............................. 14.37% 23.17%
Net investment income (b) ...................... 0.83% 1.96%
Portfolio turnover rate ......................... 44% 0%
</TABLE>
SEE NOTES TO FINANCIAL HIGHLIGHTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
25
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
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.
26
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
Lazard Retirement Series, Inc. (the "Fund") was incorporated in Maryland on
February 13, 1997 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 nine portfolios (each referred to as a "Portfolio"),
which are offered only to qualified pension and retirement plans and variable
annuity and variable life insurance separate accounts established by insurance
companies to fund variable annuity contracts and variable life insurance
policies. Currently, only the following four portfolios, each of which is
"non-diversified", as defined in the Act, are being offered: Lazard Retirement
Equity Portfolio ("Equity Portfolio"), Lazard Retirement Small Cap Portfolio
("Small Cap Portfolio"), Lazard Retirement International Equity Portfolio
("International Equity Portfolio") and Lazard Retirement Emerging Markets
Portfolio ("Emerging Markets Portfolio"). Equity Portfolio commenced operations
on March 19, 1998, International Equity Portfolio commenced operations on
September 1, 1998, Small Cap Portfolio and Emerging Markets Portfolio each
commenced operations on November 4, 1997. The other five portfolios have issued
20,001 shares at $10 per share, but had not commenced operations as of December
31, 1998.
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.
27
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, 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 foreign currencies
are translated into U.S. dollars at the prevailing rate 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 fluctuations arising from changes
in their market prices. Such fluctuations are included in net realized and
unrealized gain or loss on 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. International Equity Portfolio
and Emerging Markets Portfolio (the "Eligible Portfolios") may enter into
forward foreign currency contracts for risk management. Risk management includes
hedging strategies which serve to reduce an Eligible 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 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:
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT
- ---------------------- ----------
<S> <C>
Small Cap $50,471
International Equity 697
Emerging Markets 42,202
</TABLE>
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 day of the following tax year. For the tax period ended
December 31, 1998, the fol-
28
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
lowing Portfolios have elected to defer net capital and currency losses arising
between November 1, 1998 and December 31, 1998, as follows:
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT
- ---------------------- ---------
<S> <C>
Small Cap $4,834
International Equity 748
Emerging Markets 21,263
</TABLE>
(E) DIVIDENDS AND DISTRIBUTIONS--The Fund intends to declare and to pay
dividends annually from net investment income on shares of Equity Portfolio,
Small Cap Portfolio, International Equity 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 gains
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
differences 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 year ended December 31, 1998:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
------------------------------------------------
UNDISTRIBUTED ACCUMULATED
INVESTMENT REALIZED
INCOME GAIN
PORTFOLIO PAID IN CAPITAL (LOSS)-NET (LOSS)-NET
- ------------------ ----------------- --------------- ------------
<S> <C> <C> <C>
Equity $ (1,953) $2,008 $ (55)
Small Cap (2,171) 2,030 141
International
Equity (1,393) (1,200) 2,593
Emerging Markets (2,218) 294 1,924
</TABLE>
(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. In the
event that any of the initial shares of any of the Portfolios are redeemed
during such amortization 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.
(G) ALLOCATION OF EXPENSES--Expenses not directly chargeable to a specific
Portfolio are allocated primarily on the basis of relative net assets.
(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,
29
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
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%; Small Cap Portfolio, 0.75%; International
Equity Portfolio, 0.75%; and Emerging Markets Portfolio, 1.00%. 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:
<TABLE>
<CAPTION>
ANNUAL
PORTFOLIO OPERATING EXPENSES
- ---------------------- -------------------
<S> <C>
Equity 1.50%
Small Cap 1.50
International Equity 1.60
Emerging Markets 1.80
</TABLE>
For the period ended December 31, 1998, the Manager waived, in entirety, its
management fee amounting to $4,605 for Equity Portfolio, $7,508 for Small Cap
Portfolio, $813 for International Equity Portfolio and $12,576 for Emerging
Markets Portfolio. For the same period, the Manager has agreed to reimburse
expenses amounting to $85,555 for Equity Portfolio, $101,652 for Small Cap
Portfolio, $36,997 for International Equity Portfolio and $106,181 for Emerging
Markets Portfolio.
The Fund has entered into an administrative agreement with State Street Bank and
Trust Company ("State Street") to provide certain administrative services. Each
Portfolio will bear the cost of such expenses at the annual rate of $37,500 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 Equity
Portfolio, Small Cap Portfolio, Interna-
30
<PAGE>
================================================================================
LAZARD RETIREMENT SERIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
tional Equity Portfolio and Emerging Markets Portfolio for one year or until
each Portfolio reaches net assets of $50 million, if sooner than 1 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 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 each
Portfolio. The distribution fee is an asset-based fee to support distribution
efforts and/or servicing of accounts. Each Portfolio will pay a monthly
distribution fee at an annual rate of 0.25% of the average daily net assets of
each Portfolio for such services under the 12b-1 plan adopted by the Fund. The
distribution fee may be retained by the Distributor if a 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 The Lazard Funds, Inc., a related party, and
reimburses them for travel and out of pocket expenses.
4. SECURITY 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:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- ------------------ -------------- ------------
<S> <C> <C>
Equity $ 2,526,127 $ 280,335
Small Cap 1,586,553 522,902
International
Equity 431,992 18,088
Emerging Markets 716,653 490,001
</TABLE>
For the period ended December 31, 1998, Equity Portfolio, Small Cap Portfolio,
International Equity Portfolio, and Emerging Markets Portfolio paid brokerage
commissions of $2,501, $70, $2, and $125, respectively, to Lazard Freres & Co.
LLC for portfolio transactions executed on behalf of the Portfolios.
31
<PAGE>
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LAZARD RETIREMENT SERIES, INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Lazard Retirement Series, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of Lazard Retirement Series, Inc.
[comprised of Lazard Retirement Equity Portfolio (commenced operations on March
19, 1998), Lazard Retirement Small Cap Portfolio, Lazard Retirement
International Equity Portfolio (commenced operations on September 1, 1998) and
Lazard Retirement Emerging Markets Portfolio] as of December 31, 1998 and the
related statements of operations for the period from commencement of operations
or the year then ended, the statements of changes in net assets and the
financial highlights for the periods from commencement of operations through
December 31, 1998. 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 Lazard Retirement Series, Inc. as of
December 31, 1998, the results of their operations for the period from
commencement of operations or the year then ended, changes in their net assets
and the financial highlights for the periods from commencement of operations
through December 31, 1998 in conformity with generally accepted accounting
principles.
ANCHIN, BLOCK & ANCHIN LLP
New York, New York
February 4, 1999
32
<PAGE>
LAZARD RETIREMENT SERIES, 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
<PAGE>
LAZARD
Retirement Series
30 Rockefeller Plaza
58th Floor
New Yor, NY 10112
Telephone 800.823.6300
http://www/lazardfunds.com
This report is for the information of the stockholders of Lazard Retirement
Series, 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.
