LAZARD FUNDS INC, 485APOS, 1996-08-16

LAZARD FUNDS INC
485APOS, 1996-08-16

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File Nos. 33-40682
811-632

As filed with the Securities and Exchange Commission on August___, 1996

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|

Pre-Effective Amendment No.

Post-Effective Amendment No. 10 |X|

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|

Amendment No. 12 |X|

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THE LAZARD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)

30 Rockefeller Plaza, New York, New York 10020

(Address of Principal Executive Office) (Zip Code)

Registrant's Telephone Number, including Area Code: (212) 632-6000

William G. Butterly, III
Lazard Freres & Co. LLC

30 Rockefeller Plaza, New York, New York 10020

(Name and address of agent for service)

It is proposed that this filing will become effective (check appropriate box)

______ immediately upon filing pursuant to paragraph (b)
_______on May 1, 1996 pursuant to paragraph (b)
___x___60 days after filing pursuant to paragraph (a)(i)
_______on (date) pursuant to paragraph (a)(i)
_______75 days after filing pursuant to paragraph (a)(ii)
_______on (date) pursuant to paragraph a(ii) of Rule 485

If appropriate, check the following box:

_______ this post-effective amendment designates a new effective date for a
previously filed post effective amenedment.
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Registrant has registered an indefinite number of shares pursuant to Rule
24f-2 under the Investment Company Act of 1940. On February 27, 1996, Registrant
filed the notice required by such Rule for its fiscal year completed on December
31, 1995.
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<PAGE>

THE LAZARD FUNDS, INC.

CROSS REFERENCE SHEET

(as required by Rule 495(c))
TABLE OF CONTENTS

<TABLE>
N-1A Item No. ................................................................Location in Prospectus (Caption)
<S> <C> <C>
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table; Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Summary; Investment Objectives and Policies:
Investment Restrictions
Item 5. Management of the Fund Management; Account Services; Fee Table
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Taxation; Organization and Description of
Capital Stock
Item 7. Purchase of Securities Being Offered Purchase of Shares; Determination of Net Asset
Value
Item 8. Redemption of Repurchase Redemption of Shares
Item 9. Pending Legal Proceedings Not Applicable
Location in Statement of Additional Information (Caption)

PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Additional Permitted Investment Activities and Risk Factors

Investment Restrictions
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Holders of Organization and Description of Capital Stock
Securities
Item 16. Investment Advisory and Other Services Management
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Organization and Description of Capital Stock
Item 19. Purchase, Redemption and Pricing of Determination of Net Asset Value; Redemption of
Securities Being Offered Shares
Item 20. Tax Status Taxation
Item 21. Underwriters Not Applicable

Item 22. Calculation of Performance Data Yield and Total Return Quotations

Item 23. Financial Statements Financial Statements

</TABLE>

<PAGE>

THE LAZARD FUNDS, INC.
======================
PROSPECTUS

________, 1996

LAZARD FRERES & CO. LLC
30 Rockefeller Plaza, New York, New York 10020
(212) 632-6400
(800) 823-6300

<PAGE>

______, 1996

PROSPECTUS

THE LAZARD FUNDS, INC.
- ------------------------------------------------------
Lazard Equity Portfolio
Lazard International Equity Portfolio
Lazard International Fixed-Income Portfolio
Lazard Bond Portfolio
Lazard Strategic Yield Portfolio
Lazard Small Cap Portfolio
Lazard International Small Cap Portfolio
Lazard Emerging Markets Portfolio
Lazard Global Equity Portfolio
Lazard Bantam Value Portfolio
Lazard Emerging World Funds Portfolio

30 Rockefeller Plaza, New York, New York 10020
(212) 632-6400 (New York State)
(800) 823-6300 (other continental states)

- ------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND
RETAIN IT FOR FUTURE REFERENCE.

This Prospectus sets forth concisely the information a prospective investor
should know before investing in the portfolios. A Statement of Additional
Information dated _____, 1996, which may be revised from time to time,
containing additional and more detailed information about the portfolios, has
been filed with the Securities and Exchange Commission and is incorporated by
reference into this Prospectus. It is available without charge and can be
obtained by writing or calling the Fund at the address and telephone number
printed above.

- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The Lazard Funds, Inc. is a no-load, open-end management investment company that
currently has eleven separate investment portfolios. The portfolios are
professionally managed by Lazard Freres Asset Management, a division of Lazard
Freres & Co. LLC. By this prospectus, the Fund is offering Institutional Shares
and Retail Shares of each portfolio. Instutitional Shares and Retail Shares are
identical, except as to minimum investment requirements and the services offered
to and expenses borne by each class of shares.

LAZARD EQUITY PORTFOLIO seeks capital appreciation through investing primarily
in equity securities of companies with relatively large capitalizations that
appear to the investment manager to be inexpensively priced relative to the
return on total capital or equity.

LAZARD INTERNATIONAL EQUITY PORTFOLIO seeks capital appreciation through
investing primarily in the equity securities of non-United States companies. The
companies selected are those that the investment manager believes are
inexpensively priced relative to the return on total capital or equity.

LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO seeks high total return from a
combination of current income and capital appreciation, consistent with what the
investment manager considers to be prudent investment risk, through investing
primarily in foreign fixed-income securities of varying maturities.

LAZARD BOND PORTFOLIO seeks to build and preserve capital through investing in a
range of bonds, including obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, mortgage-backed securities,
asset-backed securities, municipal securities and corporate fixed-income
securities.

LAZARD STRATEGIC YIELD PORTFOLIO seeks to obtain a total return on its assets by
placing approximately equal emphasis on capital appreciation and current income
through investing principally in high-yielding fixed-income securities. The
Lazard Strategic Yield Portfolio may invest up to 50% of its total assets in
non-U.S. dollar denominated securities of foreign issuers. Many of the
high-yielding securities in which the Lazard Strategic Yield Portfolio invests
are rated in the lower rating categories (i.e., below investment grade) by the
nationally recognized securities rating services. These securities, which are
often referred to as "junk bonds," are subject to greater risk of loss of
principal and interest than higher rated securities and are considered to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal.

<PAGE>

LAZARD SMALL CAP PORTFOLIO seeks capital appreciation through investing
primarily in equity securities of companies with market capitalizations under $1
billion that are believed by the investment manager to be inexpensively priced
relative to the return on total capital or equity.

LAZARD INTERNATIONAL SMALL CAP PORTFOLIO seeks capital appreciation through
investing primarily in equity securities of non-United States companies with
market capitalizations under $1 billion that are believed by the investment
manager to be inexpensively priced relative to the return on total capital or
equity. The Lazard International Small Cap Portfolio operates similarly to the
Lazard Small Cap Portfolio, except that this Portfolio will invest primarily in
the equity securities of non-United States issuers and, therefore, investment
determinations include, among other items, the effect of currency fluctuations
and the political and economic factors of other jurisdictions.

LAZARD EMERGING MARKETS PORTFOLIO seeks capital appreciation through investing
primarily in equity securities of non-United States issuers who are located, or
doing significant business, in emerging market countries. Emerging market
countries include countries where political and economic trends have produced
recently, or are producing, a more stable economy, or countries that have
developed recently, or are developing, financial markets and investment
liquidity. The Lazard Emerging Markets Portfolio seeks securities of issuers
whose potential is significantly enhanced by their relationship to the emerging
markets country and are believed to be inexpensively priced relative to the
productivity of their equity or assets.

LAZARD GLOBAL EQUITY PORTFOLIO seeks capital appreciation through investing
primarily in equity securities of companies with relatively large
capitalizations that are located anywhere in the world which the investment
manager believes to be inexpensively priced relative to the return on total
capital or equity. In addition to security specific factors, investment
determinations include, among other items, analysis of U.S. and non-U.S.
markets.

LAZARD BANTAM VALUE PORTFOLIO seeks capital appreciation through investing
primarily in equity securities of companies with market capitalizations under
$500 million that are believed by the investment manager to be inexpensively
priced relative to the return on total capital or equity and which are likely to
increase market capitalization as a result of growth or are likely to be the
subject of acquisitions or other events.

LAZARD EMERGING WORLD FUNDS PORTFOLIO seeks capital appreciation through
investing primarily in securities of closed-end funds, generally at discounts to
net asset value, which in turn invest in emerging market securities. The
securities in which the Portfolio will invest will be principally listed on
recognized international exchanges or traded in recognized international
markets. Shares of the Lazard Emerging World Funds Portfolio currently are not
being offered.
<PAGE>

TABLE OF CONTENTS

Fee Table ................................................................. 4

Summary ................................................................... 6

Financial Highlights ...................................................... 7

Investment Objectives and Policies ........................................ 10

Additional Permitted Investment Activities and Risk Factors ............... 27

Investment Restrictions ................................................... 35

Management ................................................................ 36

Determination of Net Asset Value .......................................... 39

Purchase of Shares ........................................................ 40

Redemption of Shares ...................................................... 41

Distribution and Servicing Plan ........................................... 43

Exchange Privilege ........................................................ 43

Dividends and Distributions ............................................... 44

Taxation .................................................................. 44

Account Services .......................................................... 46

Shareholder Services ...................................................... 46

Organization and Description of Capital Stock ............................. 46

Custodian; Transfer and Dividend Disbursing Agent ......................... 47

Reports To Shareholders ................................................... 47

Performance Information ................................................... 47

Appendix (Bond and Commercial Paper Ratings) .............................. 48

<PAGE>
[This page intentionally left blank]
<PAGE>
FEE TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LAZARD LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL LAZARD STRATEGIC
EQUITY EQUITY FIXED-INCOME BOND YIELD
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------ ---------------- ---------------- ---------------- ---------------
INSTITU- INSTITU- INSTITU- INSTITU- INSTITU-
TIONAL RETAIL TIONAL RETAIL TIONAL RETAIL TIONAL RETAIL TIONAL RETAIL
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION EXPENSES None None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND
OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)

Management Fees .75% .75% .75% .75% .75% .75% .50% .50% .75% .75%
12b-1 Fees (distribution
and servicing) None .25% None .25% None .25% None .25% None .25%

Other Expenses (after
expense reimbursement)* .17% .17% .20% .20% .30% .30% .30% .30% .34% .34%

Total Portfolio Operating
Expenses(after expense
reimbursement)* .92% 1.17% .95% 1.20% 1.05% 1.30% .80% 1.05% 1.09% 1.34%
- ------------------------------------------------------------------------------------------------------------------------------------
EXAMPLE
YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING A 5%
ANNUAL RETURN (CUMULATIVELY THROUGH THE END OF EACH TIME PERIOD):

1 year $ 9 $ 12 $ 10 $ 12 $ 11 $ 13 $ 8 $ 11 $ 11 $ 14
3 years $ 29 $ 37 $ 30 $ 38 $ 33 $ 41 $26 $ 33 $ 35 $ 43
5 years $ 51 $ 65 $ 53 $ 66 $ 58 $ 71 $44 $ 58 $ 60 $ 74
10 years $ 114 $143 $117 $146 $128 $157 $99 $129 $ 133 $162

THESE EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES WHICH MAY BE MORE OR
LESS THAN THOSE SHOWN. MOREOVER, WHILE
THESE EXAMPLES ASSUME A 5% ANNUAL
RETURN, A PORTFOLIO'S ACTUAL PERFORMANCE
WILL VARY AND MAY RESULT IN AN ACTUAL
RETURN GREATER OR LESS THAN 5%.
- ------------------------------------------------------------------------------------------------------------------------------------
*The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in a Portfolio will bear directly
or indirectly. Long-term investors could pay more in 12b-1 fees than the
economic equivalent of paying a front-end sales charge. "Other Expenses" and
"Total Portfolio Operating Expenses" reflect the undertaking of Lazard Freres
Asset Management to bear, excluding 12b-1 Fees for the Retail Shares, (i)
with respect to each of the International Fixed-Income Portfolio, Global
Equity Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio
total operating expenses in excess of 1.05% of each such Portfolio's average
net assets, (ii) with respect to the Bond Portfolio total operating expenses
in excess of .80% of that Portfolio's average net assets, and (iii) with
respect to the Emerging Markets Portfolio total operating expenses in excess
of 1.30% of that Portfolio's average net assets, until the earlier of
December 31, 1996 or such time as the respective Portfolio reaches total net
assets of $100 million. Effective May 1, 1995, the Fund has engaged State
Street Bank and Trust Company ("State Street") to provide certain

</TABLE>
<PAGE>

The Lazards Funds, Inc. Page 5
<TABLE>
<CAPTION>
LAZARD
LAZARD LAZARD LAZARD LAZARD EMERGING
LAZARD INTERNATIONAL EMERGING GLOBAL BANTAM WORLD
SMALL CAP SMALL CAP MARKETS EQUITY VALUE FUNDS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- --------------- ---------------- ---------------
INSTITU- INSTITU- INSTITU- INSTITU- INSTITU- INSTITU-
TIONAL RETAIL TIONAL RETAIL TIONAL RETAIL TIONAL RETAIL TIONAL RETAIL TIONAL RETAIL
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction Expenses None None None None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND
OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)

Management Fees .75% .75% .75% .75% 1.00% 1.00% .75% .75% .75% .75% .75% .75%
12b-1 Fees (distribution
and servicing) None .25% None .25% None .25% None .25% None .25% None .25%
Other Expenses (after
expense reimbursement)* .09% .09% .38% .38% .30% .30% .30% .30% .30% .30% .30% .30%
Total Portfolio Operating
Expenses(after expense
reimbursement)* .84% 1.09% 1.13% 1.51% 1.30% 1.55% 1.05% 1.30% 1.05% 1.30% 1 .05% 1.30%

EXAMPLE
YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING A 5%
ANNUAL RETURN (CUMULATIVELY THROUGH THE END OF EACH TIME PERIOD):

1 year $ 9 $ 11 $ 12 $ 15 $ 13 $ 16 $ 11 $ 13 $ 11 $ 13 $ 11 $ 13
3 years $ 27 $ 35 $ 36 $ 48 $ 41 $ 49 $ 33 $ 41 $ 33 $ 41 $ 33 $ 41
5 years $ 47 $ 60 $ 63 $ 83 $ 71 $ 85 $ 58 $ 72 $ 58 $ 72 $ 58 $ 72
10 years $104 $133 $138 $181 $157 $186 $128 $158 $128 $158 $128 $158

- --------------------------------------------------------------------------------
administrative services. Each Portfolio will bear the cost of such
administrative expenses at the annual rate of $37,500 plus .02% of such
Portfolio's average daily net assets. State Street has agreed to waive the
$37,500 fee for one year for the Bond and International Fixed Income
Portfolios. Had Lazard Freres Asset Management not undertaken to bear such
expenses, (and State Street not waived certain fees) total portfolio
operating expenses for the fiscal year ended December 31, 1995 for
Institutional Shares would have been 1.25% for the International Fixed-Income
Portfolio, .97% for the Bond Portfolio and 2.00% for the Emerging Markets
Portfolio. "Other Expenses" for Institutional Shares with respect to the
Global Equity Portfolio, Bantam Value Portfolio and Emerging World Funds
Portfolio are based on estimated amounts for the current fiscal year. "Other
Expenses" for Retail Shares with respect to each Portfolio are based on
amounts for Institutional Shares for the Fund's last fiscal year. Investors
may purchase Fund shares without a sales charge directly from Lazard Freres &
Co. LLC. Securities dealers and other institutions effecting transactions in
Fund shares for the accounts of their clients may charge their clients direct
fees in connection with such transactions.
</TABLE>

<PAGE>

SUMMARY

The Lazard Funds, Inc. (the "Fund") is a Maryland corporation incorporated on
May 17, 1991. The Fund is a no-load, open-end management investment company,
known as a "series fund," that currently offers two classes of shares in the
following eleven separate series referred to as portfolios (individually, a
"Portfolio" and collectively, the "Portfolios"): Lazard Equity Portfolio (the
"Equity Portfolio"), Lazard International Equity Portfolio (the "International
Equity Portfolio"), Lazard International Fixed-Income Portfolio (the
"International Fixed-Income Portfolio"), Lazard Bond Portfolio (the "Bond
Portfolio"), Lazard Strategic Yield Portfolio (the "Strategic Yield Portfolio"),
Lazard Small Cap Portfolio (the "Small Cap Portfolio"), Lazard International
Small Cap Portfolio (the "International Small Cap Portfolio"), Lazard Emerging
Markets Portfolio (the "Emerging Markets Portfolio"), Lazard Global Equity
Portfolio (the "Global Equity Portfolio"), Lazard Bantam Value Portfolio (the
"Bantam Value Portfolio") and Lazard Emerging World Funds Portfolio (the
"Emerging World Funds Portfolio"). The Equity Portfolio is operated as a
"diversified" portfolio as that term is defined in the Investment Company Act of
1940, as amended (the "Investment Company Act"). The remaining Portfolios are
"non-diversified." Non-diversified portfolios typically invest in a smaller
number of securities than diversified portfolios and, therefore, may present a
slightly greater degree of risk than diversified portfolios. See "Additional
Permitted Investment Activities and Risk Factors -- Diversification."

Each Portfolio is a separate pool of assets constituting, in effect, a separate
fund with its own investment objectives and policies. Each Portfolio's shares
are classified into two classes--Institutional Shares and Retail Shares (each
such class being referred to as a "Class"). The Classes are identical, except
for the minimum investment requirements and the services offered to and expenses
borne by each Class. Retail Shares are subject to an annual distribution and
service fee at the rate of .25% of the value of the average daily net assets of
the Retail Class. The fee is payable for advertising, marketing and distributing
Retail Shares and for ongoing personal services relating to Retail Class
shareholder acounts and services related to the maintenance of such shareholder
accounts pursuant to a Distribution and Servicing Plan adopted in accordance
with Rule 12b-1 under the Investment Company Act. See "Distribution and
Servicing Plan." The amounts payable pursuant to the Distribution and Servicing
Plan will cause the Retail Class to have a higher expense ratio and to pay lower
dividends than the Institutional Class. A shareholder in a Portfolio will be
entitled to his pro rata share of all dividends and distributions arising from
that Portfolio's assets and, upon redeeming shares of that Portfolio, will
receive the then current net asset value of the applicable Class of that
Portfolio represented by the redeemed shares. See "Purchase of Shares" and
"Redemption of Shares." The Fund is empowered to establish, without shareholder
approval, additional portfolios which may have different investment objectives,
policies or restrictions.

Lazard Freres Asset Management, a division of Lazard Freres & Co. LLC ("Lazard
Freres"), serves as the investment manager (the "Investment Manager") to each of
the Portfolios. For a description of the Investment Manager, the services it
provides and the management fees, see "Management."

The Equity Portfolio seeks capital appreciation through investing primarily in
equity securities of companies with relatively large capitalizations that appear
to the Investment Manager to be inexpensively priced relative to the return on
total capital or equity.

The International Equity Portfolio seeks capital appreciation through investing
primarily in the equity securities of non-United States companies. The companies
selected are those that the investment manager believes are inexpensively priced
relative to the return on total capital or equity.

The International Fixed-Income Portfolio seeks high total return from a
combination of current income and capital appreciation, consistent with what the
Investment Manager considers to be prudent investment risk, through investing
primarily in foreign fixed-income securities of varying maturities.

The Bond Portfolio seeks to build and preserve capital through investing in a
range of bonds including obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, mortgage-backed securities,
asset-backed securities, municipal securities and corporate fixed-income
securities.

The Strategic Yield Portfolio seeks to obtain a total return on its assets by
placing approximately equal emphasis on capital appreciation and current income
through investing principally in high-yielding fixed-income securities. The
Strategic Yield Portfolio may invest up to 50% of its total assets in non-U.S.
dollar denominated securities of foreign issuers. The Portfolio may invest
without limitation in U.S. dollar denominated fixed-income securities of foreign
issuers. The types of securities in which the Strategic Yield Portfolio invests,
which are often referred to as "junk bonds," are subject to greater risk of loss
of principal and interest than higher rated securities and are considered to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal.

The Small Cap Portfolio seeks capital appreciation through investing primarily
in equity securities of companies with market capitalizations under $1 billion
that are believed by the Investment Manager to be inexpensively priced relative
to the return on total capital or equity. Investing in small capitalization
stocks can involve greater risk than is customarily associated with larger, more
established companies.

The International Small Cap Portfolio seeks capital appreciation through
investing primarily in equity securities of non-United States companies with
market capitalizations under $1 billion that are believed by the Investment
Manager to be inexpensively priced relative to the return on total capital or
equity. Investing in small capitalization stocks can involve greater risk than
is customarily associated with larger, more established companies. Investing in
non-United States issuers involves risks associated with currency fluctuation
and other political or economic risks in other countries.

The Emerging Markets Portfolio seeks capital appreciation through investing
primarily in equity securities of non-United States issuers located, or doing
significant business, in emerging market countries. Investing in emerging
markets involves greater risk than in developed markets due to uncertain
political and economic factors.

The Global Equity Portfolio seeks capital appreciation through investing
primarily in equity securities of companies with relatively large
capitalizations that are located anywhere in the world which the Investment
Manager believes to be inexpensively priced relative to the return on total
capital or equity. In addition to security specific factors, investment
determinations include, among other items, analysis of U.S. and non-U.S.
markets.

<PAGE>
THE LAZARD FUNDS, INC. PAGE 7

The Bantam Value Portfolio seeks capital appreciation through investing
primarily in equity securities of companies with market capitalizations under
$500 million that are believed by the Investment Manager to be inexpensively
priced relative to the return on total capital or equity and which are likely to
increase market capitalization as a result of growth or are likely to be the
subject of acquisitions or other events.

The Emerging World Funds Portfolio seeks capital appreciation through investing
primarily in securities of closed-end funds, generally at discounts to net asset
value, which in turn invest in emerging market securities. The securities in
which the Portfolio will invest will be principally listed on recognized
international exchanges or traded in recognized international markets.

An investment in any one or more of the Portfolios is not intended to constitute
a complete investment program. Each of the Portfolios has separate investment
objectives and policies and, accordingly, there may be different risks
associated with an investment in each of the Portfolios. For a description of
each Portfolio's investment objectives and policies and certain risks attendant
to investing in each Portfolio, see "Investment Objectives and Policies" and
"Additional Permitted Investment Activities and Risk Factors." No assurance can
be given that any of the portfolios will achieve its respective investment
objective.

Except as noted below, the Fund's policy with respect to turnover of securities
held in the Portfolios is to purchase securities for investment purposes and not
for the purpose of realizing short-term trading profits. Although a Portfolio
cannot accurately predict its annual portfolio turnover rate, the Investment
Manager anticipates that the annual portfolio turnover rate of the Equity
Portfolio, International Equity Portfolio, Small Cap Portfolio, Emerging Markets
Portfolio, International Small Cap Portfolio, Global Equity Portfolio, Bantam
Value Portfolio and Emerging World Funds Portfolio will not exceed 100%. The
annual turnover of the Bond Portfolio may exceed 100% and, in the case of the
Strategic Yield Portfolio and International Fixed-Income Portfolio, may be in
excess of 200% (but is not expected to exceed 300%). A 200% turnover rate is
greater than that of most other investment companies. A high rate of portfolio
turnover involves correspondingly greater transaction expenses than a lower
rate, which expenses are borne by the Portfolio and its shareholders and also
may result in the realization of substantial net short-term capital gains. See
"Additional Permitted Investment Activities and Risk Factors--Portfolio
Turnover" and "Taxation."

Shares of any Portfolio may be purchased and redeemed through Scudder Service
Corporation, the Fund's transfer agent (the "Transfer Agent") or through a
brokerage account with Lazard Freres or through certain other agents. The
minimum initial investment for Retail Shares of each Portfolio is $10,000 unless
you are a client of a securities dealer or other institution which has made an
aggregate minimum initial purchase for its clients of at least $10,000. The
minimum initial investment for Institutional Shares of each Portfolio is
$50,000. The minimum subsequent investment is $1,000 for Retail Shares and
$5,000 for Institutional Shares. For more information, see "Purchase of Shares"
and "Redemption of Shares."

Dividends on shares of the International Fixed-Income Portfolio, Bond Portfolio
and Strategic Yield Portfolio, are declared daily and paid monthly. Dividends on
shares of the Equity Portfolio are declared and paid quarterly. Dividends on
shares of the International Equity Portfolio, Small Cap Portfolio, Emerging
Markets Portfolio, International Small Cap Portfolio, Global Equity Portfolio,
Bantam Value Portfolio and Emerging World Funds Portfolio are generally declared
and paid annually but may be declared and paid twice annually. Capital gain
distributions for each Portfolio, if any, generally will be declared and paid
annually but may be declared and paid twice annually. See "Dividends and
Distributions."

FINANCIAL HIGHLIGHTS

The financial highlights set forth below for Institutional Shares, except as
otherwise noted, have been audited by ABA Seymour Schneidman Financial Services
Group, a division of Anchin, Block & Anchin LLP, Independent Accountants. The
financial highlights set forth below for the Equity Portfolio for periods prior
to January 1, 1992 were audited by other independent public accountants. This
information should be read in conjunction with the financial statements and
notes thereto with respect to each of the Portfolios that appear in the
Statement of Additional Information. The Global Equity Portfolio, the Bantam
Value Portfolio and the Emerging World Funds Portfolio had not commenced
operations, and Retail Shares on any Portfolio has not been offered, as of the
date of the financials and, therefore, no financial highlights data is provided
for such Portfolios or Class.

<PAGE>
PAGE 8 THE LAZARD FUNDS, INC.

- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC. - FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------- LESS:
TOTAL ----------------------------
NET FROM DIVIDENDS DISTRIBU- NET
ASSET NET REALIZED INVEST- FROM AND TIONS ASSET
VALUE, AND UNREALIZED MENT IN EXCESS OF FROM VALUE,
BEGINNING INVESTMENT GAIN (LOSS) OPERA- INVESTMENT REALIZED END OF
PERIOD OF PERIOD INCOME-NET ON INVESTMENTS TIONS INCOME-NET GAINS PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------

LAZARD EQUITY PORTFOLIO
Year ended
12/31/95................. $ 13.75 $ 0.226 $ 4.931 $ 5.157 $(0.175) $(1.322) $17.41
12/31/94................. 13.89 0.141 0.441 0.582 (0.152) (0.574) 13.75
12/31/93................. 12.74 0.158 2.172 2.330 (0.165) (1.015) 13.89
12/31/92................. 12.34 0.123 0.518 0.641 (0.132) (0.109) 12.74
12/31/91................. 11.53 0.107 3.051 3.158 (0.082) (2.266) 12.34
12/31/90................. 12.34 0.191 (0.778) (0.587 ) (0.223)(a) -- 11.53
12/31/89................. 10.32 0.204 2.231 2.435 (0.214) (0.201) 12.34
12/31/88................. 8.73 0.181 1.597 1.778 (0.188) -- 10.32
6/1/87* to 12/31/87...... 10.00 0.110 (1.280) (1.170 ) (0.100) -- 8.73
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended
12/31/95................. 11.23 0.187 1.288 1.475 (0.091) (0.114) 12.50
12/31/94................. 12.32 0.078 (0.049) 0.029 -- (1.123) 11.23
12/31/93................. 9.48 0.021 2.919 2.940 (0.021) (0.079) 12.32
12/31/92................. 10.30 0.097 (0.779) (0.682 ) (0.138) -- 9.48
10/29/91* to 12/31/91.... 10.00 0.020 0.300 0.320 (0.020) -- 10.30
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended
12/31/95................. 10.23 0.701 1.250 1.951 (1.129) (0.202) 10.85
12/31/94................. 10.51 0.592 (0.161) 0.431 (0.593) (0.116) 10.23
12/31/93................. 9.79 0.571 0.912 1.483 (0.570) (0.193) 10.51
12/31/92................. 10.28 0.614 (0.403) 0.211 (0.614) (0.087) 9.79
11/8/91* to 12/31/91..... 10.00 0.110 0.280 0.390 (0.110) -- 10.28
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended
12/31/95................. 9.24 0.595 0.863 1.458 (0.594) (0.004) 10.10
12/31/94................. 10.28 0.584 (1.010) (0.426 ) (0.584) (0.029) 9.24
12/31/93................. 10.21 0.551 0.302 0.853 (0.551) (0.232) 10.28
12/31/92................. 10.25 0.577 (0.004) 0.573 (0.577) (0.036) 10.21
11/12/91* to 12/31/91.... 10.00 0.140 0.250 0.390 (0.140) -- 10.25
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended
12/31/95................. 9.10 0.748 0.430 1.178 (0.758) -- 9.52
12/31/94................. 10.13 0.762 (0.990) (0.228 ) (0.761) (0.039) 9.10
12/31/93................. 9.50 0.644 0.738 1.382 (0.633) (0.119) 10.13
12/31/92................. 9.97 1.049 (0.450) 0.599 (1.049) (0.020) 9.50
10/1/91* to 12/31/91..... 10.00 0.250 (0.030) 0.220 (0.250) -- 9.97
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended
12/31/95................. 14.35 0.126 2.951 3.077 (0.154) (1.323) 15.95
12/31/94................. 15.26 0.070 0.220 0.290 (0.042) (1.158) 14.35
12/31/93................. 12.98 0.019 3.830 3.849 (0.020) (1.549) 15.26
12/31/92................. 10.42 0.019 2.560 2.579 (0.019) -- 12.98
10/30/91* to 12/31/91.... 10.00 0.030 0.420 0.450 (0.030) -- 10.42
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended
12/31/95................. 10.38 0.139 0.056 0.195 -- (0.055) 10.52
12/31/94................. 10.86 0.072 (0.548) (0.476 ) -- -- 10.38
12/1/93* to 12/31/93..... 10.00 0.004 0.859 0.863 (0.003) -- 10.86
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Year ended
12/31/95................. 9.86 0.080 (0.660) (0.580) (0.040) -- 9.24
12/1/93* to 12/31/93..... 10.00 0.010 (0.154) (0.144) -- -- 9.86
- ----------------------------------------------------------------------------------------------------------------------------------

* Commencement of operations.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.

(a) Includes $.032 per share of distributions from paid-in capital, none of
which is a return of capital for tax purposes.

(b) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets (and net
investment income per share) would have been 10.84%+ ($0.056) for the
International Equity Portfolio, 20.70%+ ($0.293) for the International
Fixed-Income Portfolio, 7.80%+ ($0.114) for the Bond Portfolio, 6.22%+
($0.075) for the Strategic Yield Portfolio, and 11.05%+ ($0.085) for the
Small Cap Portfolio.

(c) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets (and net
investment income per share) would have been 1.53% ($0.050) for the Equity
Portfolio, 1.37% ($0.014) for the International Equity Portfolio, 2.80%
($0.176) for the International Fixed-Income Portfolio, 3.23% ($0.0251) for
the Bond Portfolio, 2.99% ($0.192) for the Strategic Yield Portfolio, and
1.14%+ ($0.006) for the Small Cap Portfolio.

(d) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets (and net
investment income per share) would have been 1.18% ($0.020) for the Equity
Portfolio, 2.87%+ ($0.010) for the International Small Cap Portfolio, 2.08%
($0.119) for the International Fixed-Income Portfolio, 1.76% ($0.101) for
the Bond Portfolio, and 1.63% ($0.058) for the Strategic Yield Portfolio.

</TABLE>

<PAGE>
THE LAZARD FUNDS, INC. PAGE 9
<TABLE>
<CAPTION>

NET
INVEST- ASSETS,
MENT PORTFOLIO END OF
TOTAL INCOME- TURNOVER PERIOD
PERIOD RETURN++ EXPENSES NET RATE (000'S)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------

LAZARD EQUITY PORTFOLIO
Year ended
12/31/95................. 37.7 % 0.92%(g) 1.45% 80.72% $163,787
12/31/94................. 4.2 1.05 1.15 66.52 89,105
12/31/93................. 18.6 1.05(d) 1.31 63.92 47,123
12/31/92................. 5.3 1.05(c) 1.19 174.45 24,646
12/31/91................. 27.5 1.93 0.84 90.00 14,821
12/31/90................. (4.7) 1.77 1.62 70.00 14,397
12/31/89................. 23.6 1.78 1.71 78.00 16,239
12/31/88................. 20.4 1.84 1.86 111.00 12,336
6/1/87* to 12/31/87...... (11.7) 1.68+ 1.93+ 97.00 10,186
- ------------------------------------------------------------------------------------------------------

LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended
12/31/95................. 13.1 0.95(g) 1.82 62.54 1,299,549
12/31/94................. 0.2 0.94 0.75 106.15 831,877
12/31/93................. 31.0 0.99 1.13 86.95 603,642
12/31/92................. (6.6) 1.05(c) 2.13 60.37 176,005
10/29/91* to 12/31/91.... 3.2 1.05+ 2.19+ 0.18 4,967
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended
12/31/95................. 19.4 1.05(f),(g) 5.99 189.97 45,624
12/31/94................. 4.2 1.05(e) 5.68 65.90 35,803
12/31/93................. 15.7 1.05(d) 5.50 115.84 13,546
12/31/92................. 2.0 1.05(c) 6.08 256.20 8,183
11/8/91* to 12/31/91..... 3.9 1.05+,(b) 4.82+ 6.43 1,427
- ------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended
12/31/95................. 16.2 0.80(f),(g) 6.07 244.28 46,083
12/31/94................. (4.2) 0.80(e) 6.11 120.51 24,494
12/31/93................. 8.6 0.80(d) 5.22 174.63 13,562
12/31/92................. 5.7 0.80(c) 5.59 131.38 8,532
11/12/91* to 12/31/91.... 3.9 0.80+,(b) 5.50+ 10.46 3,256
- ------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended
12/31/95................. 13.6 1.09(g) 8.02 205.33 78,474
12/31/94................. (2.3) 1.05(e) 8.03 195.18 62,328
12/31/93................. 15.6 1.05(d) 6.36 215.60 34,943
12/31/92................. 6.0 1.05(c) 10.57 122.88 9,641
10/1/91* to 12/31/91..... 2.1 1.05+,(b) 9.52+ 11.26 4,256
- ------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended
12/31/95................. 21.5 0.84(g) 0.90 69.68 646,371
12/31/94................. 2.0 0.85 0.51 70.11 429,673
12/31/93................. 30.1 0.88 0.16 98.47 350,952
12/31/92................. 24.8 1.05(c) 0.29 106.91 168,171
10/30/91* to 12/31/91.... 4.5 1.05+,(b) 2.47+ 5.50 2,512
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended
12/31/95................. 1.9 1.13(g) 1.56 117.53 115,534
12/31/94................. (4.5) 1.05(e) 0.95 112.92 83,432
12/1/93* to 12/31/93..... 8.7 1.05+,(d) 1.76+ 0.84 13,522
- ------------------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Year ended
12/31/95................. (5.9) 1.30(f),(g) 1.22 102.22 35,216
12/1/93* to 12/31/93..... (1.4) 1.30+,(e) 0.31+ 30.68 17,025
- ------------------------------------------------------------------------------------------------------

(e) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets (and net
investment income per share) would have been 1.26% ($0.016) for the
International Small Cap Portfolio, 1.51% ($0.048) for the International
Fixed-Income Portfolio, 1.23% ($0.041) for the Bond Portfolio, 1.15%
($0.009) for the Strategic Yield Portfolio, and 2.31%+ ($0.034) for the
Emerging Markets Portfolio.

(f) If the Investment Manager and State Street had not waived certain fees and
reimbursed certain expenses and the Portfolios had not paid fees indirectly
the ratio of expenses to average net assets (and net investment income per
share) would have been 1.25% ($0.678) for the International Fixed-Income
Portfolio, 0.97% ($0.578) for the Bond Portfolio, 1.81% and 2.00% ($0.034)
for the Emerging Markets Portfolio.

(g) "Ratio of total expenses to average net assets" for the year ended December
31, 1995 includes fees paid indirectly. Excluding fees paid indirectly for
the year ended December 31, 1995, the expense ratios would have been 0.92%
for the Equity Portfolio, 0.95% for the International Equity Portfolio,
1.05% for the International Fixed-Income Portfolio, 0.80% for the Bond
Portfolio, 1.09% for the Strategic Yield Portfolio, 0.84% for the Small Cap
Portfolio, 1.13% for the International Small Cap Portfolio and 1.30% for the
Emerging Markets Portfolio.

Further information about each Portfolio's performance is contained in the Fund's
annual report for the fiscal year ended December 31, 1995 which may be obtained
without charge by writing to the address or calling the appropriate number set
forth on the cover page of this Prospectus.

</TABLE>
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

Each Portfolio has a different investment objective which it pursues through
separate investment policies as described herein. The differences in objectives
and policies among the Portfolios determine the types of portfolio securities in
which each Portfolio invests, and can be expected to affect the degree of risk
to which each Portfolio is subject and its yield or return. The following
investment objectives and related policies and activities of each of the
Portfolios, except as otherwise indicated, are not fundamental and may be
changed by the Board of Directors of the Fund without the approval of the
shareholders. If there is a change in the investment objective of any of these
Portfolios, shareholders should consider whether that Portfolio remains an
appropriate investment in light of their then-current financial position and
needs. The types of portfolio securities in which each Portfolio may invest are
described in greater detail below. There can be no assurance, of course, that
any of the Portfolios will achieve its respective investment objective.

EQUITY PORTFOLIO

The investment objective of the Equity Portfolio is to seek capital appreciation
through investing primarily in equity securities of companies with relatively
large capitalizations that appear to the Investment Manager to be inexpensively
priced relative to the return on total capital or equity. The Equity Portfolio
engages in a value-oriented search for equity securities before they have
attracted wide investor interest. The Investment Manager attempts to identify
inexpensive securities through traditional measures of value, including low
price to earnings ratio, high yield, unrecognized assets, potential for
management change and/or the potential to improve profitability. The Investment
Manager focuses on individual stock selection (a "bottom-up" approach) rather
than on forecasting stock market trends (a "top-down" approach). Risk is
tempered by diversification of investments.

Under normal market conditions, the Equity Portfolio will invest at least 65% of
its total assets in equity securities, including, in addition to common stocks,
preferred stocks and securities convertible into or exchangeable for common
stocks. In addition, at times judged by the Investment Manager to be
appropriate, the Equity Portfolio may hold up to 20% of its total assets in U.S.
Government Securities (as described below in "Bond Portfolio") and debt
obligations of domestic corporations rated BBB or better by Standard & Poor's
Ratings Group ("S&P"), or Baa or better by Moody's Investors Service, Inc.
("Moody's"). Obligations rated BBB by S&P or Baa by Moody's are considered
investment grade obligations that may have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade bonds. See the Appendix attached hereto for a description of
the ratings of S&P and Moody's.

The Equity Portfolio may also invest without limitation in short-term money
market instruments of the types described in "Additional Permitted Investment
Activities--Short-Term Money Market Instruments," including non-convertible
corporate debt securities such as notes, bonds and debentures that have
remaining maturities of not more than 12 months and are rated AA or better by
S&P or Aa or better by Moody's. The Equity Portfolio may also invest up to 10%
of its total assets in foreign equity or debt securities. For a description of
the risks associated with investing in foreign securities, see "Additional
Permitted Investment Activities and Risk Factors--Investment in Foreign
Securities."

The Equity Portfolio may borrow up to one-half of the market value of its
assets, less liabilities, in order to increase its investment in portfolio
securities, but has no present intention to do so. Any such borrowing will be
made only from banks, and will be made only to the extent that the value of the
Equity Portfolio's assets less its liabilities other than borrowings, is equal
to at least 300% of all borrowings. See "Additional Permitted Investment
Activities and Risk Factors--Borrowing for Investment" in the Statement of
Additional Information.

Securities owned by the Equity Portfolio are kept under continuing supervision,
and changes may be made whenever such securities no longer seem to meet the
Equity Portfolio's objective. Changes in the securities owned by the Portfolio
also may be made to increase or decrease investments in anticipation of changes
in security prices in general or to provide funds required for redemptions,
distributions to shareholders or other corporate purposes.

INTERNATIONAL EQUITY PORTFOLIO

The investment objective of the International Equity Portfolio is to seek
capital appreciation through investing primarily in the equity securities of
non-United States companies (i.e., incorporated or organized outside the United
States). The International Equity Portfolio expects to invest its assets

<PAGE>
THE LAZARD FUNDS, INC. PAGE 11

principally in common stocks of non-United States companies, although the
International Equity Portfolio may have substantial investments in American
Depositary Receipts and Global Depositary Receipts and in convertible bonds and
other convertible securities. There is no requirement, however, that the
International Equity Portfolio invest exclusively in common stocks or other
equity securities, and, if deemed advisable, the International Equity Portfolio
may invest up to 20% of the value of its total assets in fixed-income securities
and short-term money market instruments. See "Additional Permitted Investment
Activities and Risk Factors--Short-Term Money Market Instruments." The Portfolio
will not invest in fixed-income securities rated lower than investment grade.

It is the present intention of the Investment Manager to invest the
International Equity Portfolio's assets in companies based in Continental
Europe, the United Kingdom, the Pacific Basin and in such other areas and
countries as the Investment Manager may determine from time to time. Under
normal market conditions, the Portfolio will invest at least 80% of the value of
its total assets in the equity securities of companies within not less than
three different countries (not including the United States). The percentage of
the International Equity Portfolio's assets invested in particular geographic
sectors may shift from time to time in accordance with the judgment of the
Investment Manager. For a description of the risks associated with investing in
foreign securities see "Additional Permitted Investment Activities and Risk
Factors--Investment in Foreign Securities."

In selecting investments for the International Equity Portfolio, the Investment
Manager attempts to identify inexpensive markets world-wide through traditional
measures of value, including low price to earnings ratio, high yield,
unrecognized assets, potential for management change and/or the potential to
improve profitability. In addition, the Investment Manager seeks to identify
companies that it believes are financially productive and undervalued in those
markets. The Investment Manager focuses on individual stock selection (a
"bottom-up" approach) rather than on forecasting stock market trends (a
"top-down" approach).

The Investment Manager recognizes that some of the best opportunities are in
securities not generally followed by investment professionals. Thus, the
Investment Manager relies on its research capability and also maintains a
dialogue with foreign brokers and with the management of foreign companies in an
effort to gather the type of "local knowledge" that it believes is critical to
successful investment abroad. To this end, the Investment Manager communicates
with its affiliates, Lazard Freres & Cie. in Paris, Lazard Brothers & Co. Ltd.
in London and Lazard Japan Asset Management K.K. in Tokyo, for information
concerning current business trends, as well as for a better understanding of the
management of local businesses. The information supplied by these affiliates of
the Investment Manager will be limited to statistical and factual information,
advice regarding economic factors and trends or advice as to occasional
transactions in specific securities.

The International Equity Portfolio may enter into foreign currency forward
exchange contracts in order to protect against anticipated changes in foreign
currency exchange rates. See "Additional Permitted Investment Activities and
Risk Factors--Foreign Currency Forward Exchange Contracts."

When, in the judgment of the Investment Manager, business or financial
conditions warrant, the International Equity Portfolio may assume a temporary
defensive position and invest without limit in the equity securities of U.S.
companies or short-term money market instruments or hold its assets in cash. See
"Additional Permitted Investment Activities and Risk Factors--Short-Term Money
Market Instruments."

INTERNATIONAL FIXED-INCOME PORTFOLIO

The investment objective of the International Fixed-Income Portfolio is to seek
high total return from a combination of current income and capital appreciation,
consistent with what the Investment Manager considers to be prudent investment
risk, through investing primarily in foreign fixed-income securities of varying
maturities. The Portfolio seeks high current yields by investing in a portfolio
of fixed-income securities denominated in a range of foreign currencies and in
the U.S. Dollar. Under normal market conditions, the Portfolio will invest at
least 65% of the value of its total assets in the fixed-income securities of
companies within, or governments, political subdivisions, authorities, agencies
or instrumentalities of, not less than three different countries (not including
the United States). The Portfolio has the flexibility to invest in any region of
the world. It is the present intention of the Investment Manager, however, to
invest the International Fixed-Income Portfolio's assets principally in
fixed-income securities of companies within, or governments of, Continental
Europe, the United Kingdom, Canada, the Pacific Basin and in such other areas
and countries as the Investment Manager may determine
<PAGE>

PAGE 12 THE LAZARD FUNDS, INC.

from time to time, including countries that are considered emerging market
countries at the time of investment. For a description of the risks associated
with investing in foreign securities, see "Additional Permitted Investment
Activities and Risk Factors -- Investment in Foreign Securities."

In pursuing its investment objective, the International Fixed-Income Portfolio
invests in a broad range of fixed-income securities. Under normal market
conditions, the Investment Manager anticipates that the Portfolio will be
invested principally in fixed-income securities with maturities of greater than
one year. A longer average maturity is generally associated with a higher level
of volatility in the market value of a fixed-income security. The maturity of a
security measures only the time until final payment is due; it takes no account
of the pattern of the security's cash flows over time, including how cash flow
is affected by prepayments and by changes in interest rates. Since the
International Fixed-Income Portfolio's objective is to seek total return, the
Portfolio will invest in fixed-income obligations with an emphasis on return
rather than stability of the Portfolio's net asset value, and the average
"duration" of the Portfolio will vary depending on anticipated market
conditions. The Portfolio's average "duration" is a measure of the price
sensitivity of its investment portfolio, including expected cash flow,
redemptions and mortgage prepayments under a wide range of interest rate
conditions. In computing the duration of the Portfolio's investment portfolio,
the Investment Manager will estimate the duration of obligations that are
subject to prepayment or redemption by the issuer taking into account the
influence of interest rates. The Portfolio's average duration generally will be
shorter than the Portfolio's average maturity. Under normal market conditions,
the Investment Manager anticipates that the average weighted duration of the
Portfolio will be in the range of two to eight years.

In order to reduce the International Fixed-Income Portfolio's exposure to
foreign currency fluctuations versus the U.S. Dollar, the Portfolio may utilize
the following investment strategies: the purchase and sale of foreign currency
forward exchange contracts, options on foreign currencies and options on foreign
currency futures. The Portfolio may also utilize options and futures contracts
for speculative purposes consistent with the portfolio's investment objective or
to reduce market risk. Options and futures are forms of derivative securities.
See "Additional Permitted Investment Activities and Risk Factors -- Foreign
Currency Forward Exchange Contracts; Options on Foreign Currencies; Futures
Contracts and Options on Futures Contracts."

The Portfolio's investments consist of: (i) obligations issued or guaranteed by
foreign governments or any of their political subdivisions, authorities,
agencies, or instrumentalities, or by supranational entities; (ii) corporate
fixed-income securities issued by foreign or U.S. companies; (iii) certificates
of deposit and bankers' acceptances issued or guaranteed by, or time deposits
maintained at, banks (including foreign branches of U.S. banks or U.S. or
foreign branches of foreign banks) having total assets of more than $500
million; (iv) commercial paper issued by foreign or U.S. companies; and (v) U.S.
Government Securities (as defined below in "Bond Portfolio"). At least 85% of
the International Fixed-Income Portfolio's assets will be invested in (i)
fixed-income securities rated BBB or better by S&P or Baa or better by Moody's;
(ii) commercial paper issued by foreign or U.S. companies rated A or better by
S&P or Prime-2 or better by Moody's; or (iii) fixed-income securities or
commercial paper that, if unrated, is determined by the Investment Manager to be
of comparable quality. Up to 15% of the value of the Portfolio's assets may be
invested in high yield, high risk fixed-income securities that are rated below
BBB by S&P and below Baa by Moody's (i.e., below investment grade) or, if
unrated, are determined by the Investment Manager to be of comparable quality.
Fixed-income securities rated below investment grade (which are commonly known
as "junk bonds") are considered to be predominantly speculative as regards the
issuer's capacity to pay interest and repay principal which may, in any case,
decline during sustained periods of deteriorating economic conditions or rising
interest rates. The Portfolio has no current intention of investing more than 5%
of its total assets in securities that are in default. See the Appendix attached
hereto for a description of the ratings of fixed-income securities and
commercial paper. For a description of the special risks associated with
investing in fixed-income securities rated below investment grade, see
"Strategic Yield Portfolio--Special Risk Considerations."

The International Fixed-Income Portfolio may also invest in the fixed-income
securities in which the Bond Portfolio may invest, including mortgage-backed
securities and asset-backed securities which are forms of derivative securities,
as described below. The International Fixed-Income Portfolio also may invest in
American Global Depositary Receipts issued in relation to a pool of fixed-income
securities in which the Portfolio could invest directly.

<PAGE>
THE LAZARD FUNDS, INC. PAGE 13

When, in the judgment of the Investment Manager, business or financial
conditions warrant, the International Fixed-Income Portfolio may assume a
temporary defensive position and invest without limit in high quality short-term
debt securities or hold its assets in cash. See "Additional Permitted Investment
Activities and Risk Factors--Short-Term Money Market Instruments."

BOND PORTFOLIO

The investment objective of the Bond Portfolio is to build and preserve capital
through investing in a range of bonds and fixed-income securities. It is
expected that the Portfolio will invest in the following sectors of the bond and
fixed-income market: (i) U.S. Government Securities and repurchase agreements
pertaining to U.S. Government Securities, and (ii) other fixed-income
securities, including mortgage-backed securities, asset-backed securities,
municipal securities and corporate fixed-income securities, including preferred
stock of corporate issuers. The percentage of the Portfolio's assets invested in
a particular fixed-income sector may shift from time to time in accordance with
the judgment of the Investment Manager.

Under normal market conditions, the Portfolio will invest at least 65% of the
value of its total assets in bonds or other debt instruments with maturities of
greater than one year. The Portfolio believes that its investment objective and
policies may best be implemented by investing the major portion of the
Portfolio's assets in bonds and fixed-income securities rated at least BBB by
S&P or Baa by Moody's. The Portfolio may also invest up to 10% of the value of
its total assets in bonds and fixed-income securities rated BB or lower by S&P
and Ba or lower by Moody's or non-rated bonds and fixed-income securities.
Securities in the lower rating categories (commonly known as "junk bonds") are
subject to greater risk of loss of principal and interest than higher-rated
securities and are considered to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal, which may in any case
decline during sustained periods of deteriorating economic conditions. For a
description of the risks associated with investing in securities in the lower
rating categories, see "Strategic Yield Portfolio--Special Risk Considerations."
The Portfolio may invest in fixed-income securities that have not received a
rating but are determined by the Investment Manager to be of comparable quality
to the other securities in which the Bond Portfolio may invest.

When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Bond Portfolio may assume a temporary defensive position
and invest without limit in short-term money market instruments or hold its
assets in cash. See "Additional Permitted Investment Activities and Risk
Factors--Short-Term Money Market Instruments."

It is anticipated that under normal market conditions, the average duration of
the Bond Portfolio's securities will vary from between two to seven years.
However, there may be times when, in the Investment Manager's judgment, the
average duration of the Portfolio may extend beyond this range, because of
extreme economic conditions or extreme undervaluation or overvaluation in the
fixed-income markets. See "International Fixed-Income Portfolio" above for a
discussion of duration.

The Investment Manager analyzes sectors of the fixed-income market based on
yield spread premiums relative to the U.S. Treasury obligations market. Using a
variety of valuation techniques, the Investment Manager establishes a yield
spread it believes represents the fair value compensation or yield spread
premium required to justify the risk of investing in a given sector. Sectors of
the fixed-income market which offer compensation in excess of the fair value
yield spread will be emphasized by the Portfolio.

The Investment Manager selects individual securities based on maturity, duration
and sector characteristics, including yield spread premium relative to risk
characteristics. In determining the risk characteristics of a particular
security, the Investment Manager analyzes credit quality, event risk, call
features and diversification as well as the terms of the bond indenture pursuant
to which the security is issued.

Once securities are purchased, performance will be evaluated by the Investment
Manager on an on-going basis and a security may be sold if: (i) its yield spread
premium as compared to U.S. Treasury obligation yields declines to a level the
Investment Manager believes no longer reflects value; (ii) the investment
expectations underlying that security are no longer valid; or (iii) the
Investment Manager believes another security offers better value.

The Investment Manager's research capability is an important aspect of its
program for managing the Bond Portfolio's securities. In addition to the
qualitative analysis of sectors and securities, the Investment Manager applies

<PAGE>
PAGE 14 THE LAZARD FUNDS, INC.

quantitative valuation models to search for value across the entire fixed-income
market for securities that meet the Portfolio's investment criteria. Special
attention is paid to the valuation of call features and other options.

The Bond Portfolio may utilize options and futures contracts for speculative
purposes consistent with its investment objective or to reduce market risk.
Options and futures are forms of derivative securities. See "Additional
Permitted Investment Activities and Risk Factors--Futures Contracts and Options
on Futures Contracts."

U.S. GOVERNMENT SECURITIES. U.S. Government Securities include: (i) the
following U.S. Treasury obligations: U.S. Treasury bills (initial maturities of
one year or less), U.S. Treasury notes (initial maturities of one to 10 years),
and U.S. Treasury bonds (generally initial maturities of greater than 10 years),
all of which are backed by the full faith and credit of the United States; and
(ii) obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, including government guaranteed mortgage-related securities,
some of which are backed by the full faith and credit of the U.S. Treasury,
e.g., direct pass-through certificates of the Government National Mortgage
Association; some of which are supported by the right of the issuer to borrow
from the U.S. Government, e.g., obligations of Federal Home Loan Banks; and some
of which are backed only by the credit of the issuer itself, e.g., obligations
of the Student Loan Marketing Association. Although U.S. Government Securities
are backed by the full faith and credit of the U.S. Government or guaranteed by
the issuing agency or instrumentality and, therefore, there is generally
considered to be no risk as to the issuer's capacity to pay interest and repay
principal, due to fluctuations in interest rates there is no guarantee as to the
market value of U.S. Government Securities. See "Additional Permitted Investment
Activities" in, and Appendix A to, the Statement of Additional Information for a
further description of obligations issued or guaranteed by U.S.
Government agencies or instrumentalities.

CORPORATE FIXED-INCOME SECURITIES. The Bond Portfolio may invest in corporate
fixed-income securities, including preferred stocks of corporate issuers.

MUNICIPAL SECURITIES. In circumstances where the Investment Manager determines
that investment in municipal obligations would facilitate the Bond Portfolio's
ability to accomplish its investment objective, it may invest its assets in such
obligations, including municipal bonds issued at a discount. Dividends on shares
attributable to interest on municipal securities held by the Portfolio will not
be exempt from Federal income taxes. Municipal securities are susceptible to
risks arising from the financial condition of the states, public bodies or
municipalities issuing the securities. To the extent that state or local
governmental entities are unable to meet their financial obligations, the income
derived by the Portfolio from municipal securities could be impaired.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Bond Portfolio may invest
without limitation in mortgage- backed and asset-backed securities.
Mortgage-backed and asset-backed securities arise through the grouping by
governmental, government-related and private organizations of loans, receivables
and other assets originated by various lenders. Interests in pools of these
assets differ from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal paid at maturity or
specified call dates. Instead, these securities provide periodic payments which
generally consist of both interest and principal payments. The estimated life of
a mortgage-backed or asset-backed security and the average maturity of a
portfolio including such securities varies with the prepayment experience with
respect to the underlying debt instruments. Mortgage-backed and asset-backed
securities are each a form of derivative security.

MORTGAGE-BACKED SECURITIES--GENERAL. Mortgage-backed securities are securities
that directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans secured by real property. There are currently three
basic types of mortgage-backed securities: (i) those issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities, such as the
Government National Mortgage Association ("Ginnie Mae" or "GNMA"), the Federal
National Mortgage Association ("Fannie Mae" or "FNMA") and the Federal Home Loan
Mortgage Corporation ("Freddie Mac" or "FHLMC"); (ii) those issued by private
issuers that represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the U.S. Government or one of its
instrumentalities; and (iii) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or mortgage-backed
securities without a government guarantee by usually having some form of private

<PAGE>
THE LAZARD FUNDS, INC. PAGE 15

credit enhancement. An issuer of mortgage-backed securities meeting certai
conditions may elect to be treated as a Real Estate Mortgage Investment Conduit
(a "REMIC") under the Internal Revenue Code of 1986, as amended (the "Code").
See "Taxation."

Ginnie Maes are pass-through interests in pools of mortgage loans insured by the
Federal Housing Administration or by the Farmer's Home Administration or
guaranteed by the Veterans Administration. GNMA is a U.S. Government corporation
within the Department of Housing and Urban Development. Ginnie Maes are backed
by the full faith and credit of the United States, which means that the U.S.
Government guarantees that interest and principal will be paid when due. Fannie
Mae is a U.S. Government-sponsored corporation owned entirely by private
stockholders. Pass-through securities issued by Fannie Mae are guaranteed as to
timely payment of principal and interest by Fannie Mae. FHLMC issues
mortgage-related securities representing interests in residential mortgage loans
pooled by it. FHLMC is a corporate instrumentality of the U.S. Government. FHLMC
guarantees the timely payment of interest and ultimate collection of principal.
Fannie Maes and Freddie Macs are not backed by the full faith and credit of the
United States.

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates,
but also may be collateralized by whole loans or private mortgage pass-through
securities (such collateral will be collectively referred to herein as "Mortgage
Assets"). Multiclass pass-through securities are equity interests in a trust
composed of Mortgage Assets. Unless the context indicates otherwise, all
references herein to CMOs include multiclass pass-through securities. Payments
of principal of and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass- through securities. CMOs may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.

In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis. The principal of and interest on the Mortgage Assets may be
allocated among the several classes of a series of a CMO in a number of
different ways. In a common structure, the purpose of the allocation of the cash
flow of a CMO to the various classes is to obtain a more predictable cash flow
to the separate tranches than exists with the underlying collateral of the CMO.
Generally, the more predictable the cash flow is on a CMO tranche, the lower the
anticipated yield will be on that tranche at the time of issuance relative to
prevailing market yields on mortgage-backed securities.

The Bond Portfolio may also invest in, among others, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC" Bonds). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds are parallel pay
CMOs with the required principal on such securities having the highest priority
after interest has been paid to all classes.

STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities
("SMBS") are derivative multiclass mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks, and special purpose
subsidiaries of the foregoing.

SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of Mortgage Assets. A
common type of SMBS will have one class (the principal-only or "PO" class)
receiving some

<PAGE>

PAGE 16 THE LAZARD FUNDS, INC.

of the interest and most of the principal from the Mortgage Assets, while the
other class (the interest-only or "IO" class) will receive most of the interest
and the remainder of the principal. In the most extreme case, the IO class will
receive all of the interest, while the PO class will receive all of the
principal. The yield to maturity on an IO class is extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
Mortgage Assets, and a rapid rate of principal payments in excess of that
considered in pricing the securities will have a material adverse effect on an
IO security's yield to maturity. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, the Portfolio may fail to
fully recoup its initial investment in IO securities. Due to their structure and
underlying cash flows, SMBS may be more volatile than mortgage-backed securities
that are not stripped. The staff of the Securities and Exchange Commission (the
"Commission") currently considers certain SMBS to be illiquid securities. See
"Additional Permitted Investment Activities and Risk Factors--Illiquid
Securities" and "Investment Restrictions" below.

CMO RESIDUALS. CMO Residuals are derivative mortgage securities issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.

The cash flow generated by the Mortgage Assets underlying series of CMOs is
applied first to make required payments of principal of and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO Residual represents dividend or
interest income and/or a return of capital. The amount of residual cash flow
resulting from a CMO will depend on, among other things, the characteristics of
the Mortgage Assets, the coupon rate of each class of CMOs, prevailing interest
rates, the amount of administrative expenses and the prepayment experience on
the Mortgage Assets. In particular, the yield to maturity on CMO Residuals is
extremely sensitive to prepayments on the related underlying Mortgage Assets in
the same manner as an IO class of SMBS. See "Stripped Mortgage-Backed
Securities," above. In addition, if a series of a CMO includes a class that
bears interest at an adjustable rate, the yield to maturity on the related CMO
residual will also be extremely sensitive to the level of the index upon which
interest rate adjustments are based. As described above with respect to SMBS, in
certain circumstances, the Portfolio may fail to fully recoup its initial
investment in a CMO Residual.

CMO Residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. CMO
Residuals may not have the liquidity of other more established securities
trading in other markets. Transactions in CMO Residuals are generally completed
only after careful review of the characteristics of the securities in question.
In addition, CMO Residuals may or, pursuant to an exemption therefrom, may not
have been registered under the Securities Act of 1933 (the "Securities Act").
CMO Residuals, whether or not registered under the Securities Act, may be
subject to certain restrictions on transferability. Ownership of certain CMO
Residuals imposes liability for certain of the expenses of the related CMO
issuer on the purchaser. The Investment Manager will not purchase any CMO
Residual that imposes such liability on the Portfolio.

PRIVATE MORTGAGE PASS-THROUGH SECURITIES. Private mortgage pass-through
securities ("Private Pass-Throughs") are structured similarly to the Ginnie Mae,
Fannie Mae and Freddie Mac mortgage pass-through securities described above and
are issued by originators of and investors in mortgage loans, including savings
and loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. Private Pass-Throughs are usually
backed by a pool of conventional fixed rate or adjustable rate mortgage loans.
The estimated life of Private Pass-Throughs varies with the rate of prepayment
on the underlying mortgage loans. See "Special Risk Considerations" below. Since
Private Pass-Throughs typically are not guaranteed by an entity having the
credit status of Ginnie Mae, Fannie Mae or Freddie Mac, such securities
generally are structured with one or more types of credit enhancement. See
"Types of Credit Support" below.

TYPES OF CREDIT SUPPORT. Mortgage-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two categories--(i) liquidity protection and (ii) protection against
losses resulting from ultimate default by an
<PAGE>
THE LAZARD FUNDS, INC. PAGE 17

obligor on the underlying assets. Liquidity protection refers to the provision
of advances, generally by the entity administering the pool of assets, to ensure
that the receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default ensures ultimate
payment of the obligations on at least a portion of the assets in the pool. Such
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of such
approaches. The Portfolio will not pay any additional fees for such credit
support, although the existence of credit support may increase the price of a
security.

Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information regarding
the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that anticipated could adversely affect the return on an
investment in such a security.

ASSET-BACKED SECURITIES. The Bond Portfolio also may invest in asset-backed
securities including interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. These securities
may be in the form of pass-through instruments or asset-backed bonds. The
securities, all of which are issued by non-governmental entities and carry no
direct or indirect government guarantee, are structurally similar to the
collateralized mortgage obligations and mortgage pass-through securities
described above. As with mortgage-backed securities, asset-backed securities are
often backed by a pool of assets representing the obligations of a number of
different parties and use similar credit enhancement techniques.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most organizations that issue asset-backed securities
relating to motor vehicle installment purchase obligations perfect their
interests in their respective obligations only by filing a financing statement
and by having the servicer of the obligations, which is usually the originator,
take custody thereof. In such circumstances, if the servicer were to sell the
same obligations to another party, in violation of its duty not to so do, there
is a risk that such party could acquire an interest in the obligations superior
to that of the holders of the securities. Also, although most such obligations
grant a security interest in the motor vehicle being financed, in most states
the security interest in a motor vehicle must be noted on the certificate of
title to perfect such security interest against competing claims of other
parties. Due to the large number of vehicles involved, however, the certificate
of title to each vehicle financed, pursuant to the obligations underlying the
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the securities. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on those securities. In addition,
various state and federal laws give the motor vehicle owner the right to assert
against the holder of the owner's obligation certain defenses such owner would
have against the seller of the motor vehicle. The assertion of such defenses
could reduce payments on the related securities.

SPECIAL RISK CONSIDERATIONS. The yield characteristics of mortgage-backed and
asset-backed securities differ from traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if the Bond Portfolio purchases such a security at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity,
while

<PAGE>
PAGE 18 THE LAZARD FUNDS, INC.

a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if the Portfolio purchases
these securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity.

Prepayments on a pool of mortgage loans are influenced by a variety of economic,
geographic, social and other factors, including changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgage
properties and servicing decisions. An acceleration in prepayments in response
to sharply falling interest rates will shorten the security's average maturity
and limit the potential appreciation in the security's value relative to a
conventional debt security. As a result, mortgage-backed securities are not as
effective in locking in high long-term yields. Conversely, in periods of sharply
rising rates, prepayments generally slow, increasing the security's average life
and its potential for price depreciation. Amounts available for reinvestment by
the Portfolio are therefore likely to be greater during a period of declining
interest rates and, as a result, likely to be reinvested at lower interest rates
than during a period of rising interest rates. Generally, asset-backed
securities are less likely to experience substantial prepayments than are
mortgage-backed securities, primarily because the collateral supporting
asset-backed securities is of shorter maturity than mortgage loans; however,
certain of the factors that affect the rate of prepayments on mortgage-backed
securities (e.g., fluctuations in interest rates and unemployment), affect
asset-backed securities, but to a lesser degree.

The Bond Portfolio's return will also be affected by the yields on instruments
in which the Portfolio is able to reinvest the proceeds of payments and
prepayments. Accelerated prepayments on securities purchased by the Portfolio at
a premium also impose a risk of loss of principal because the premium may not
have been fully amortized at the time the principal is repaid in full.

New types of mortgage-backed securities and asset-backed securities are
developed and marketed from time to time. Consistent with its investment
limitations, the Bond Portfolio expects to invest in those new types of
instruments that the Investment Manager believes may assist the Portfolio in
achieving its investment objective and to supplement this prospectus to
appropriately describe such instruments.

YANKEE SECURITIES. The Bond Portfolio may invest without limitation in so-called
"Yankee Securities" which are securities issued by non-U.S. issuers which are
denominated in U.S. dollars and which trade and are capable of settlement in
U.S. markets. Issuers of Yankee Securities may be corporate or government
entities.

Non-rated securities may be considered for investment by the Portfolio when the
Investment Manager believes that the financial condition of the issuers of the
securities, or the protection afforded by the terms of the securities
themselves, limits the risk to the Portfolio to a degree comparable to that of
rated securities which are consistent with the Portfolio's objective and
policies.

STRATEGIC YIELD PORTFOLIO

The investment objective of the Strategic Yield Portfolio is to seek to obtain a
total return on its assets by placing approximately equal emphasis on capital
appreciation and current income through investing principally in high-yielding
fixed-income securities. Capital appreciation may result, for example, from an
improvement in the credit standing of an issuer whose securities are held by the
Portfolio or from a general decline in interest rates or both. Conversely,
capital depreciation may result, for example, from a lowered credit standing or
a general rise in interest rates, or a combination of both.

The Strategic Yield Portfolio will seek to achieve its objective through
investing, under normal market conditions, at least 65% of the value of its
total assets in fixed-income securities, such as bonds, debentures, notes,
convertible debt obligations, convertible preferred stocks and the types of
mortgage-backed and asset-backed securities in which the Bond Portfolio may
invest. The issuers of these obligations include governments, their political
subdivisions, agencies or municipalities, and corporations. At least 95% of
these obligations when purchased by the Portfolio will have a rating of at least
CCC by S&P or Caa by Moody's (commonly known as "junk bonds") or, if not rated,
will be of comparable quality as determined by the Investment Manager. The
Strategic Yield Portfolio may invest up to 50% of its total assets in non-U.S.
dollar denominated fixed-income securities of the types described above of
foreign issuers. The Strategic Yield Portfolio may invest without limitation in
U.S. dollar denominated fixed-income securities of foreign issuers. See
"Additional Permitted Investment Activities and Risk Factors--Investment in
Foreign Securities."

During the year ended December 31, 1995 the percentages of the Portfolio's
assets invested in securities (other than U.S.

<PAGE>
THE LAZARD FUNDS, INC. PAGE 19

Treasury obligations or obligations of foreign governments or U.S. or foreign
government agencies) rated in particular rating categories by Moody's were, on a
weighted average basis, as follows:

Percentage of
Moody's Ratings Total Investments
--------------- ----------------
Agency 20.2%
Aaa 19.9%
Aa1 0.4%
Aa2 3.2%
A1 2.4%
A3 1.8%
A 2.3%
Baa1 2.5%
Baa2 2.1%
Baa3 4.0%
Ba2 2.0%
Ba3 5.0%
B1 8.9%
B3 6.5%
B 1.7%
Caa 0.5%
No Rating* 16.9%

*The Investment Manager estimates these securities to have an average rating of
A.

The Strategic Yield Portfolio invests in lower-rated fixed-income securities
that are commonly referred to as "high-yield securities" or "junk bonds." The
Investment Manager believes these securities offer the potential for attractive
returns because the yields they afford are generally higher than those of
investment grade fixed-income securities. The Investment Manager expects most of
the Portfolio's investment securities will pay cash income. In a limited number
of cases, however, "zero coupon" or "payment-in-kind" high-yield securities may
be purchased when, in the opinion of the Investment Manager, they offer
exceptional value relative to their risk. See, "Zero Coupon, `Pay-in-Kind' and
`Stripped' U.S. Treasury Securities," below. The Strategic Yield Portfolio also
may invest in American or Global Depositary Receipts issued in relation to a
pool of fixed-income securities in which the Portfolio could invest directly.

The Investment Manager will attempt to minimize the risk inherent in the
high-yield market through investing in a broad range of high-yielding
fixed-income securities. In structuring its portfolio of investment securities,
the Investment Manager will take into consideration several factors including
the issuer, industry, credit rating, currency, country and, in certain cases,
the terms of a security's indenture. Security selection techniques used by the
Investment Manager will focus on individual issues with appropriate maturity,
duration, currency and sector characteristics. Individual securities will be
selected by the Investment Manager based on their yield relative to their risk
characteristics. In determining the risk characteristics of a particular
security, the Investment Manager will analyze the creditworthiness of the issuer
as well as the terms of the indenture pursuant to which the security is issued.

Performance of the Portfolio's investments will be continually evaluated by the
Investment Manager and a security may be sold if: (i) its yield spread premium
as compared to U.S. Treasury obligation yields declines to a level the
Investment Manager believes no longer reflects value; (ii) the investment
expectations underlying that security are no longer valid; or (iii) the
Investment Manager believes another security offers better value.

The Strategic Yield Portfolio may invest up to 5% of the value of its total
assets, represented by the premium paid, in the purchase of call and put options
on the types of securities in which the Portfolio may invest. The Portfolio may
write covered call and put options contracts to the extent that the value of the
call or put options, represented by the premium paid, does not exceed 10% of the
value of the covered assets. The Strategic Yield Portfolio may purchase and sell
call and put options on equity securities and stock indices, to the same extent
as it is permitted to purchase and sell call and put options on the types of
securities in which it may invest. Options are a form of derivative security.
See "Additional Permitted Investment Activities and Risk Factors--Stock or Bond
Options."

The Strategic Yield Portfolio may engage in foreign exchange transactions either
on a spot basis (for settlement in two business days) at the prevailing rate in
the interbank foreign exchange market or through entering into foreign currency
forward exchange contracts. A foreign currency forward exchange contract
involves the obligation to purchase an amount of a specific currency in return
for delivering a different amount of another currency on the specified
settlement date. These contracts are entered into in the interbank market
conducted directly between currency traders (typically commercial banks or other
financial institutions) and their customers.

When used for hedging purposes, foreign currency forward exchange contracts will
tend to minimize the Portfolio's risk of loss on its foreign securities holdings
due to a decline in the value of the underlying currency. However, at the same
time, foreign currency forward exchange contracts will tend to limit any

<PAGE>
PAGE 20 THE LAZARD FUNDS, INC.

potential gain which might result should the value of the underlying currency
increase during the contract period. See "Additional Permitted Investment
Activities and Risk Factors--Foreign Currency Forward Exchange Contracts."

The Strategic Yield Portfolio may also purchase and sell call and put options on
foreign currencies.

ZERO COUPON, "PAY-IN-KIND" AND "STRIPPED" U.S. TREASURY SECURITIES. The
Strategic Yield Portfolio may invest in "zero coupon" securities. A zero coupon
security pays no interest to its holder during its life. An investor acquires a
zero coupon security at a price which is generally an amount based upon its
present value, and which, depending upon the time remaining until maturity, may
be significantly less than its face value (sometimes referred to as a "deep
discount" price). Upon maturity of the zero coupon security, the investor
receives the face value of the security. The Strategic Yield Portfolio may also
invest in "pay-in-kind" securities (i.e., debt obligations the interest on which
may be paid in the form of additional obligations of the same type rather than
cash) which have characteristics similar to zero coupon securities.

As noted above, zero coupon securities do not entitle the holder to any periodic
payments of interest prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value. Zero coupon securities
and "pay-in-kind" securities may be more speculative and subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make periodic distributions of
interest. On the other hand, because there are no periodic interest payments to
be reinvested prior to maturity, zero coupon securities eliminate the
reinvestment risk and lock in a rate of return to maturity.

Federal tax law requires that a holder (such as the Strategic Yield Portfolio)
of a zero coupon security accrue a portion of the discount at which the security
was purchased (or, in the case of a "pay-in-kind" security, the difference
between the issue price and the sum of all the amounts payable on redemption) as
income each year even though the Strategic Yield Portfolio receives no interest
payment in cash on the security during the year. As a regulated investment
company, the Strategic Yield Portfolio must pay out substantially all of its net
investment income each year. Accordingly, in any year the Portfolio may be
required to pay out as an income distribution an amount which is greater than
the total amount of cash interest the Portfolio actually received. Such
distributions would be made from the cash assets of the Portfolio or by
liquidation of portfolio securities, if necessary. If a distribution of cash
necessitates the liquidation of portfolio securities, the Investment Manager
will select which securities to sell. The Portfolio may realize a gain or loss
from such sales. In the event the Portfolio realized net capital gains from such
transactions, its shareholders might receive a larger capital gain distribution,
and incur a potentially greater tax liability, than they would in the absence of
such transactions.

The Strategic Yield Portfolio may invest in "stripped" U.S. Treasury securities,
which are U.S. Treasury bills issued without interest coupons, U.S. Treasury
notes and bonds which have been stripped of their unmatured interest coupons,
and receipts or certificates representing interests in such stripped debt
obligations and coupons. Currently, the only U.S. Treasury security issued
without coupons is the Treasury bill. Although the U.S. Treasury does not itself
issue Treasury notes and bonds without coupons, under the U.S. Treasury STRIPS
program, interest and principal payments on certain long-term Treasury
securities may be maintained separately in the Federal Reserve book entry system
and may be separately traded and owned. In addition, in the last few years a
number of banks and brokerage firms have stripped the principal portions from
the coupon portions of U.S. Treasury bonds and notes and sold them separately in
the form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account). The staff of the Commission has indicated that, in its view,
these receipts or certificates should be considered as securities issued by the
bank or brokerage firm involved and, therefore, should not be included in the
Strategic Yield Portfolio's categorization of U.S. Government Securities.

RESTRICTED SECURITIES. The Strategic Yield Portfolio may invest in restricted
securities and in other assets having no ready market if such purchases at the
time thereof would not cause more than 10% of the value of the Portfolio's net
assets to be invested in all such restricted or not readily marketable (or other
illiquid) assets. See "Additional Permitted Investment Activities and Risk
Factors--Illiquid Securities" and "Investment Restrictions" below.

SPECIAL RISK CONSIDERATIONS. Securities in the lower rating categories are
subject to greater risk of loss of principal and interest than higher-rated
securities and are considered to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal, which may in any case
decline during sustained periods of deteriorating economic conditions or rising
interest rates. There has been unprecedented growth in the size of the market

<PAGE>
THE LAZARD FUNDS, INC. PAGE 21

for lower-rated securities over the past several years, although most recently
that market has declined in size. This growth occurred during a period of
general economic expansion. Lower-rated securities are generally considered to
be subject to greater market risk than higher-rated securities in times of
deteriorating economic conditions. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic and competitive industry
conditions than investment grade securities.

The market for lower-rated securities may be thinner and less active than that
for higher-quality securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, the Investment Manager may
experience difficulty in valuing such securities and, in turn, the Portfolio's
assets. In addition, adverse publicity and investor perceptions about
lower-rated securities, whether or not based on fundamental analysis, may tend
to decrease the market value and liquidity of such lower-rated securities.
Finally, it is noted that the transaction costs with respect to lower-rated
securities may be higher, and in some cases information less available, than is
the case with investment grade securities.

The use of credit ratings as a method for evaluating lower-rated securities
involves certain risks. The ratings of fixed-income securities by S&P and
Moody's are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be varying
degrees of difference in credit risk of securities within each rating category.

Non-rated securities may be considered for investment by the Strategic Yield
Portfolio when the Investment Manager believes that the financial condition of
the issuers of the securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Portfolio to a degree comparable
to that of rated securities which are consistent with the Portfolio's objectives
and policies.

When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Strategic Yield Portfolio may assume a temporary
defensive position and invest without limit in investment grade debt securities
or hold its assets in cash. See "Additional Permitted Investment Activities and
Risk Factors--Short-Term Money Market Instruments."

SMALL CAP PORTFOLIO

The investment objective of the Small Cap Portfolio is to seek capital
appreciation through investing primarily in equity securities of United States
companies with market capitalizations under $1 billion that are believed by the
Investment Manager to be inexpensively priced relative to the return on total
capital or equity. The equity securities in which the Small Cap Portfolio may
invest include, common stocks, preferred stocks, securities convertible into or
exchangeable for common stocks, rights and warrants listed on national or
regional securities exchanges or traded over-the-counter. Investments are
generally made in equity securities of companies which in the Investment
Manager's opinion have one or more of the following characteristics (the "Small
Cap Factors"): (i) are undervalued relative to their earnings power, cash flow,
and/or asset values; (ii) have an attractive price/value relationship, i.e. have
high returns on equity and/or assets with correspondingly low price-to-book
and/or price-to-asset value as compared to the market generally or the
companies' industry groups in particular, with expectations that some catalyst
will cause the perception of value to change within a 24-month time horizon;
(iii) have experienced significant relative underperformance and are out of
favor due to a set of circumstances which are unlikely to harm a company's
franchise or earnings power over the longer term; (iv) have low projected
price-to-earnings or price-to-cash-flow multiples relative to their industry
peer group and/or the market in general; (v) have the prospect, or the industry
in which the company operates has the prospect, to allow it to become a larger
factor in the business and receive a higher valuation as such; (vi) have
significant financial leverage but have high levels of free cash flow used to
reduce leverage and enhance shareholder value; and (vii) have a relatively short
corporate history with the expectation that the business may grow to generate
meaningful cash flow and earnings over a reasonable investment horizon.

Under normal market conditions, the Small Cap Portfolio will invest at least 80%
of the value of its total assets in the small capitalization equity securities
described above.

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PAGE 22 THE LAZARD FUNDS, INC.

The Investment Manager believes that the issuers of small capitalization stocks
often have sales and earnings growth rates which exceed those of larger
companies, and that such growth rates may in turn be reflected in more rapid
share price appreciation, however, investing in smaller capitalization stocks
can involve greater risk than is customarily associated with larger, more
established companies. For example, smaller capitalization companies often have
limited product lines, markets or financial resources. They may be dependent for
management on one or a few key persons, and can be more susceptible to losses
and risks of bankruptcy. Also, securities in the small capitalization sector may
be thinly traded (and therefore have to be sold at a discount from current
market prices or sold in small lots over an extended period of time), may be
followed by fewer investment research analysts and may be subject to wider price
swings and thus may create a greater chance of loss than investing in securities
of larger capitalization companies.

The Investment Manager continually evaluates the securities owned by the Small
Cap Portfolio, and changes may be made whenever the Investment Manager
determines such securities no longer meet the Small Cap Portfolio's objective.
Portfolio changes also may be made to increase or decrease investments in
anticipation of changes in security prices in general or to provide funds
required for redemptions, distributions to shareholders or other corporate
purposes.

When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Small Cap Portfolio may assume a temporary defensive
position and invest without limitation in large capitalization companies or
short-term money market instruments or hold its assets in cash. See "Additional
Permitted Investment Activities and Risk Factors--Short-Term Money Market
Instruments."

INTERNATIONAL SMALL CAP PORTFOLIO

The investment objective of the International Small Cap Portfolio is to seek
capital appreciation. The Portfolio will invest primarily in equity securities
of non-United States companies with market capitalizations under $1 billion that
are believed by the Investment Manager to be inexpensively priced relative to
the return on total capital or equity. The Portfolio will invest in equity
securities listed on national or regional securities exchanges or traded
over-the-counter of companies based in Continental Europe, the United Kingdom,
the Pacific Basin, Latin America, Canada and such other areas as the Investment
Manager may determine from time to time. The International Small Cap Portfolio
may also invest in American Depositary Receipts and Global Depositary Receipts
and in convertible bonds and other convertible securities. In selecting
investments for the International Small Cap Portfolio, the Investment Manager
will attempt to ascertain inexpensive markets world-wide through traditional
measures of value, including low price-to-earnings ratio, low price-to-book
ratio and/or low price-to-cash flow ratio and high yield. The Investment
Manager, following a bottom-up approach, seeks to identify securities within
such undervalued markets which in the Investment Manager's opinion have one or
more of the characteristics listed in the Small Cap Factors. Under normal market
conditions, the International Small Cap Portfolio will invest at least 80% of
the value of its total assets in the small capitalization equity securities
described above. Assets not invested in such small capitalization equity
securities would generally be invested in large capitalization equity securities
or debt securities, including cash equivalents. For a description of the risks
associated with investing in small capitalization equity securities see "Small
Cap Portfolio" above.

Under normal market conditions, the Portfolio will invest at least 65% of the
value of its total assets in the equity securities of companies in not less
than three different countries (not including the United States). The remaining
portion of the assets of the Portfolio may be invested in the same or different
countries. The percentage of the International Small Cap Portfolio's assets in a
particular geographic sector may shift from time to time in accordance with the
judgment of the Investment Manager. For a description of the risks associated
with investing in foreign securities see "Additional Permitted Investment
Activities and Risk Factors--Investment in Foreign Securities."

The International Small Cap Portfolio may enter into futures contracts, options
on futures contracts, and foreign currency forward exchange contracts in order
to protect against anticipated changes in foreign currency exchange rates.
Options and futures are forms of derivative securities. See "Additional
Permitted Investment Activities and Risk Factors--Futures Contracts and Options
on Futures Contracts, Foreign Currency Forward Exchange Contracts."

When, in the judgment of the Investment Manager, business or financial
conditions warrant, the International Small Cap
<PAGE>
THE LAZARD FUNDS, INC. PAGE 23

Portfolio may assume a temporary defensive position and invest without limit in
the equity securities of U.S. companies or short-term money market instruments
or hold its assets in cash. See "Additional Permitted Investment Activities and
Risk Factors--Short-Term Money Market Instruments."

EMERGING MARKETS PORTFOLIO

The investment objective of the Emerging Markets Portfolio is to seek long-term
capital appreciation. The Portfolio will invest primarily in securities of
issuers who are located, or doing significant business, in emerging market
countries. Emerging markets include countries where political and economic
trends have produced or are producing a more stable economic environment,
developed or developing financial markets and investment liquidity. Factors
affecting a determination of an emerging market include a legitimate program to
reduce government spending and deficits and reduce excessive regulation of
commercial activity, including reducing confiscatory tax rates, control of
inflation, lower trade barriers, stability of currency exchange rates,
increasing foreign and domestic investment, privatization of state-owned
companies and expansion of developed financial product exchanges.

Although the Emerging Markets Portfolio may invest in any issuer in an emerging
market, the Emerging Markets Portfolio is likely to focus on, but not be limited
to, Latin America, the Pacific Basin and Europe.

Under normal market conditions, the Emerging Markets Portfolio will invest at
least 65% of its total assets in securities of companies in not less than three
different countries (not including the United States). The remaining portion of
the assets of the Emerging Markets Portfolio may be invested in the same or
different countries. The percentage of the Emerging Markets Portfolio's assets
invested in particular emerging markets may shift from time to time in
accordance with the judgment of the Investment Manager. Emerging market
countries generally will include any countries (i) having an "emerging stock
market" as defined by the International Finance Corporation; (ii) with low- to
middle-income economies according to the World Bank; or (iii) listed in World
Bank publications as developing. Currently, the countries not included in these
categories are Canada, United Kingdom, France, Germany, Australia, New Zealand,
Austria, Belgium, Denmark, Finland, Ireland, Italy, Japan, Netherlands, Norway,
Spain, Sweden, Switzerland and United States. For a description of the risks
associated with investing in emerging markets see "Additional Permitted
Investment Activities and Risk Factors--Investment in Foreign Securities."

The Portfolio invests primarily in equity securities of issuers located, or
doing significant business, in emerging markets including: issuers organized
under the laws of the emerging market country or for which the principal trading
market for such securities is located in the emerging market country or issuers,
wherever organized, when at least 50% of the issuer's non-current assets,
capitalization, gross revenue or profit in any one of the two most recent fiscal
years represents (directly or indirectly through subsidiaries) assets or
activities located in the emerging market country. The Portfolio will also
invest in closed-end investment companies investing in emerging market
securities. The Emerging Markets Portfolio may also invest in American
Depositary Receipts and Global Depositary Receipts with respect to emerging
market securities.

Although the Emerging Markets Portfolio expects to invest principally in equity
securities of emerging markets issuers, there is no requirement that the
Emerging Markets Portfolio invest exclusively in equity securities. If deemed
advisable, the Emerging Markets Portfolio may invest in fixed-income securities
and short-term money market instruments. See "Additional Permitted Investment
Activities and Risk Factors -- Short-Term Money Market Instruments."

Following a bottom-up approach, the Investment Manager focuses on individual
stock selection rather than on forecasting stock market trends. In selecting a
specific stock for the Emerging Markets Portfolio, the Investment Manager relies
on its own research capability as well as information obtained from brokers
located in the emerging market country and information from affiliates of the
Investment Manager.

The Emerging Markets Portfolio may enter into futures contracts, options on
futures contracts and foreign currency forward exchange contracts to protect
against anticipated changes in foreign currency exchange rates. See "Additional
Permitted Investment Activities and Risk Factors--Futures Contracts and Options
on Futures Contracts, Foreign Currency Forward Exchange Contracts."

When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Emerging Markets Portfolio

<PAGE>
PAGE 24 THE LAZARD FUNDS, INC.

may assume a temporary defensive position and invest in the equity securities of
U.S. companies or short-term money market instruments or hold its assets in
cash. See "Additional Permitted Investment Activities and Risk
Factors--Short-Term Money Market Instruments."

GLOBAL EQUITY PORTFOLIO

The investment objective of the Global Equity Portfolio is to seek capital
appreciation. The Portfolio will invest primarily in equity securities of
companies, both U.S. and non-U.S., that the Investment Manager believes are
inexpensively priced relative to the return on total capital or equity. The
Global Equity Portfolio engages in a value-oriented search for equity securities
of issuers located anywhere in the world. In selecting investments for the
Global Equity Portfolio, the Investment Manager attempts to identify
inexpensive markets worldwide, including the U.S., through traditional measures
of value, including low price to earnings ratio, high yield, unrecognized
assets, potential for management change and/or potential to improve
profitability. In addition, the Investment Manager seeks to identify companies
that it believes are financially productive and undervalued in those markets.

At least 80% of the assets of the Global Equity Portfolio are expected to be
invested in the equity securities of companies within not less than four
countries, including the United States. The percentage of the Global Equity
Portfolio's assets invested in particular geographic sectors may shift from time
to time in accordance with the judgment of the Investment Manager. With a focus
on stock picking, the country allocation decision is an outgrowth of stock
selection and is used as an overlay and risk control mechanism to enhance
diversification. Nonetheless, it is the current intention of the Investment
Manager that not less than 25% of the assets of the Portfolio be invested in
securities of U.S. issuers. For a description of the risks associated with
investing in foreign securities see "Additional Permitted Investment
Activities and Risk Factors--Investment in Foreign Securities. "

The assets of the Global Equity Portfolio are expected to be invested
principally in equity securities, including American Depository Receipts and
Global Depository Receipts and in convertible bonds and other convertible
securities. There is no requirement, however, that the Global Equity Portfolio
invest exclusively in equity securities, and, if deemed advisable, the Global
Equity Portfolio may invest up to 20% of the value of its total assets in
fixed-income securities and short-term money market instruments. See "Additional
Permitted Investment Activities and Risk Factors--Short-Term Money Market
Instruments." The Global Equity Portfolio will not invest in fixed-income
securities rated lower than investment grade.

The Global Equity Portfolio may enter into foreign currency forward exchange
contracts, options and futures contracts in order to protect against anticipated
changes in foreign currency exchange rates. Options and futures are forms of
derivative securities. See "Additional Permitted Investment Activities and Risk
Factors--Foreign Currency Forward Exchange Contracts."

When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Global Equity Portfolio may assume a temporary defensive
position and invest without limit in the equity securities of U.S. companies or
short-term money market instruments or hold its assets in cash. See "Additional
Permitted Investment Activities and Risk Factors--Short-Term Money Market
Instruments."

BANTAM VALUE PORTFOLIO

The investment objective of the Bantam Value Portfolio is to seek capital
appreciation. The Portfolio will invest primarily in equity securities of
companies with market capitalizations under $500 million that are believed by
the Investment Manager to be inexpensively priced relative to the return on
total capital or equity. The equity securities in which the Bantam Value
Portfolio may invest include common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks, rights and warrants and
American Depository Receipts and Global Depository Receipts. Investments are
generally made in equity securities of companies which, in the Investment
Manager's opinion, have one or more of the characteristics listed in the Small
Cap Factors, as well as a potential for increasing recognition, market
capitalization and value. See "Small Cap Portfolio" above.

Under normal market conditions, the Bantam Value Portfolio will invest at least
80% of the value of its total assets in the small capitalization equity
securities described above. Assets not invested in such small capitalization
equity securities would generally be invested in large capitalization equity
securities or debt securities, including cash equivalents. For a description of

<PAGE>
THE LAZARD FUNDS, INC. PAGE 25

the risks associated with investing in small capitalization equity securities,
see "Small Cap Portfolio" above.

When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Bantam Value Portfolio may assume a temporary defensive
position and invest without limit in larger capitalization companies or
short-term money market instruments or hold its assets in cash. See "Additional
Permitted Investment Activities and Risk Factors--Short-Term Money Market
Instruments."

EMERGING WORLD FUNDS PORTFOLIO

The investment objective of the Emerging World Funds Portfolio is to seek
capital appreciation. The Portfolio will invest primarily in equity securities
of investment funds ("Emerging Markets Funds") that will largely invest in
equity securities of companies in one or more emerging markets countries as
defined for purposes of the Emerging Markets Portfolio.

The securities of the Emerging Market Funds in which the Portfolio will invest
generally will be listed on internationally recognized stock exchanges or trade
in international markets, and will generally be trading at a discount to net
asset value. The Portfolio may, however, invest directly in equity securities of
emerging market companies when shares of Emerging Market Funds are selling
at a premium, or when a particular emerging market country is not represented in
a suitable Emerging Market Fund. The Portfolio may also invest in warrants or
options on, and securities convertible into, equity securities of Emerging
Market Funds.

The Emerging World Funds Portfolio combines a "top-down" approach to country or
market valuation with a "bottom-up" approach to Emerging Market Fund security
selection. An emerging market for this purpose is described under "Emerging
Markets Portfolio" above. The Investment Managers will concentrate on countries
and regions that appear to be fundamentally undervalued using traditional
measures of value, which include low price to earnings ratios, high yield and
low price to cash flow and price to book value. The Investment Manager will
focus on those Emerging Market Funds that are trading at a discount to net asset
value where the discount has the prospect for being narrowed or eliminated due
to improved performance of the securities held by such fund and/or structural
changes to the Emerging Markets Fund such as conversion to an open-end fund.

The assets of the Emerging World Funds Portfolio are expected to be invested
principally in equity securities. There is no requirement, however, that the
Emerging World Funds Portfolio invest exclusively in equity securities, and, if
deemed advisable, the Emerging World Funds Portfolio may invest up to 20% of the
value of its total assets in fixed-income securities and short-term money market
instruments. See "Additional Permitted Investment Activities and Risk
Factors--Short-Term Money Market Instruments." The Emerging World Funds
Portfolio will not invest in fixed-income securities rated lower than investment
grade. At least 65% of the Portfolio's assets will be invested in Emerging
Market Funds.

The Emerging World Funds Portfolio, together with any "affiliated person" (as
defined in the Investment Company Act), may purchase only up to 3% of the total
outstanding stock of any Emerging Market Fund. Consequently, when affiliated
persons of the Portfolio hold shares of an Emerging Market Fund, the Portfolio's
ability to invest fully in shares of such Emerging Market Fund is restricted,
and the Investment Manager must then select, in some instances, alternative
investments that would not have been its first preference. Investment decisions
by the investment advisers of the Emerging Market Funds are made independently
of the Emerging World Funds Portfolio and the Investment Manager. The investment
adviser of one Emerging Market Fund may be purchasing securities of the same
issuer the securities of which are being sold by the investment adviser of
another Emerging Market Fund. The result of this would be an indirect expense to
the Portfolio without accomplishing any investment purpose. In addition,
Emerging Market Funds typically pay asset management and other fees.
Shareholders of the Emerging World Funds Portfolio may pay, in effect, two fees
with respect to the assets of the Portfolio invested in such Emerging Market
Funds.

The Emerging World Funds Portfolio may enter into foreign currency forward
exchange contracts, options and futures contracts in order to protect against
anticipated changes in foreign currency exchange rates. Options and futures are
forms of derivative securities. See "Additional Permitted Investment
Activities and Risk Factors--Foreign Currency Forward Exchange Contracts."

When, in the judgment of the Investment Manager, business or financial
conditions warrant, the Emerging World Funds Portfolio may assume a temporary
defensive position and invest

<PAGE>

PAGE 26 THE LAZARD FUNDS, INC.

without limit in the equity securities of U.S. companies or short-term money
market instruments or hold its assets in cash. See "Additional Permitted
Investment Activities and Risk Factors--Short-Term Money Market Instruments."

* * * *

References to maximum or minimum investment limitations with respect to dollar
amounts or percentages of each Portfolio's assets mean that such limitations are
followed at the time of an investment purchase and that subsequent changes in
such dollar amounts or percentages resulting in such maximum or minimum
investment limitations being exceeded are not considered violations of such
limitations.

Each Portfolio may purchase obligations that are not rated if, in the opinion of
the Investment Manager, the obligations are of investment quality comparable to
other rated investments that are permitted by each such Portfolio. After
purchase by any of the Portfolios, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Portfolio.
Neither event will require a sale of such security by a Portfolio. To the extent
the ratings given by S&P or Moody's may change as a result of changes in such
organizations or their rating systems, each Portfolio will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in this Prospectus and in the Statement of
Additional Information. The ratings of S&P and Moody's are more fully described
in the Appendix attached hereto.

<PAGE>

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND RISK FACTORS

Except as otherwise noted below, the following description of additional
permitted investment activities and risk factors is applicable to all of the
Portfolios.

SHORT-TERM MONEY MARKET INSTRUMENTS

Each Portfolio may at any time invest funds awaiting investment or held as
reserves for the purposes of satisfying redemption requests, payment of
dividends or making other distributions to shareholders, in cash and short-term
money market instruments; provided, however, that, with the exception of the
Equity Portfolio, such investments will not ordinarily exceed 5% of the total
assets of any Portfolio. Short-term money market instruments in which each
Portfolio except the Equity Portfolio may invest include (i) short-term U.S.
Government Securities and, in the case of the International Equity Portfolio,
International Fixed-Income Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Strategic Yield Portfolio, Global Equity Portfolio
and Emerging World Funds Portfolio, short-term obligations of foreign sovereign
governments and their agencies and instrumentalities, (ii) interest bearing
savings deposits on, and certificates of deposit and bankers' acceptances of,
United States and foreign banks, (iii) commercial paper of U.S. or, in the case
of the International Equity Portfolio, International Fixed-Income Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Strategic Yield
Portfolio, Global Equity Portfolio and Emerging World Funds Portfolio, of
foreign issuers rated A-1 or higher by S&P or Prime-1 by Moody's, issued by
companies which have an outstanding debt issue rated AA or higher by S&P or Aa
or higher by Moody's or, if not rated, determined by the Investment Manager to
be of comparable quality to those rated obligations which may be purchased by
the Portfolio and (iv) repurchase agreements relating to the foregoing.

Short-term money market instruments in which the Equity Portfolio may invest
have remaining maturities of not more than 12 months and include bank
obligations, corporate commercial paper subject to the same quality restrictions
as that purchased by the other Portfolios, non-convertible corporate debt
securities such as notes, bonds and debentures that are rated AA or better by
S&P or Aa or better by Moody's and variable amount master demand notes. For this
purpose, bank obligations include negotiable certificates of deposit, bankers'
acceptances, fixed time deposits and other short-term bank obligations. The
Equity Portfolio limits its investments in United States bank obligations to
obligations of United States banks (including foreign branches and thrift
institutions, the obligations of which are guaranteed by the U.S. parent) that
have more than $1 billion in total assets at the time of investment and are
members of the Federal Reserve System or are examined by the Comptroller of the
Currency or whose deposits are insured by the Federal Deposit Insurance
Corporation ("United States banks"). The Equity Portfolio limits its investments
in foreign bank obligations to United States dollar denominated obligations of
foreign banks (including United States branches), which banks at the time of
investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) are among the 100 largest banks in the world,
as determined on the basis of assets; and (iii) have branches or agencies in the
United States; and which obligations, in the opinion of the Investment Manager,
are of an investment quality comparable to obligations of United States banks
that may be purchased by the Portfolio. For a description of variable amount
master demand notes, see "Additional Permitted Investment Activities and Risk
Factors--Variable Amount Master Demand Notes" in the Statement of Additional
Information.

TEMPORARY BANK BORROWING

Each Portfolio may borrow from banks for temporary purposes, including the
meeting of redemption requests which might require the untimely disposition of
securities.

With respect to the International Equity Portfolio, International Fixed-Income
Portfolio, Bond Portfolio, Strategic Yield Portfolio, International Small Cap
Portfolio, Emerging Markets Portfolio, Small Cap Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio, temporary
or emergency borrowing in the aggregate may not exceed 15%, and borrowing for
purposes other than meeting redemptions may not exceed 5%, of the value of the
relevant Portfolio's total assets (including the amount borrowed) less
liabilities (including the amount borrowed) at the time the borrowing is made.
Securities may not be purchased by any of these Portfolios while borrowings in
excess of 5% of the value of such Portfolio's total assets are outstanding.

For temporary purposes only in order to meet redemptions, the Equity Portfolio
may borrow from banks up to 10% of the current value of its total net assets.
Such borrowings may be secured by the pledge of not more than 10% of the value

<PAGE>
PAGE 28 THE LAZARD FUNDS, INC.

of the Portfolio's total net assets and investments may not be purchased by the
Equity Portfolio while any such borrowing exists. Temporary borrowing by the
Equity Portfolio will be included in calculating the Portfolio's required 300%
coverage described in "Additional Permitted Investment Activities and Risk
Factors--Borrowing for Investment" in the Statement of Additional Information.

FLOATING AND VARIABLE RATE INSTRUMENTS

Certain of the obligations that the Portfolios may purchase have a floating or
variable rate of interest. Such obligations bear interest at rates that are not
fixed, but vary with changes in specified market rates or indices, such as the
Prime Rate, and at specified intervals. Certain of these obligations may carry a
demand feature that would permit the holder to tender them back to the issuer at
par value prior to maturity. Each Portfolio limits its purchases of floating and
variable rate obligations to those of the same quality as it otherwise is
allowed to purchase. The Investment Manager monitors on an ongoing basis the
ability of an issuer of a demand instrument to pay principal and interest on
demand. A Portfolio's right to obtain payment at par on a demand instrument can
be affected by events occurring between the date such Portfolio elects to demand
payment and the date payment is due that may affect the ability of the issuer of
the instrument to make payment when due, except when such demand instruments
permit same-day settlement. To facilitate settlement, these same-day demand
instruments may be held in book entry form at a bank other than the Fund's
custodian, subject to a subcustodian agreement approved by the Fund between that
bank and the Fund's custodian.

The floating and variable rate obligations that the Portfolios may purchase
include certificates of participation in obligations purchased from banks. A
certificate of participation gives the Portfolio an undivided interest in the
underlying obligations in the proportion that such Portfolio's interest bears to
the total principal amount of such obligations. Certain of such certificates of
participation may carry a demand feature that would permit the holder to tender
them back to the issuer prior to maturity.

To the extent that floating and variable rate instruments without demand
features are not readily marketable, they will be subject to the investment
restriction that no Portfolio may invest an amount equal to 10% or more of the
current value of its net assets in illiquid securities. See "Illiquid
Securities" and "Investment Restrictions" below.

LETTERS OF CREDIT

Municipal obligations, certificates of participation therein, commercial paper
and other short-term obligations may be backed by irrevocable letters of credit
issued by banks which assume the obligation for payment of principal and
interest in the event of default by an issuer. Only banks the securities of
which, in the opinion of the Investment Manager, are of investment quality
comparable to other permitted investments of the Portfolios may be used for
letter of credit-backed investments.

LOANS OF PORTFOLIO SECURITIES

In order to increase income, each Portfolio may lend securities from its
portfolio to brokers, dealers and financial institutions if cash or cash
equivalent collateral, including letters of credit, marked-to-market daily and
equal to at least 100% of the current market value of the securities loaned
(including accrued interest and dividends thereon) plus the interest payable to
the Portfolio with respect to the loan is maintained by the borrower with the
Portfolio in a segregated account. In determining whether to lend a security to
a particular broker, dealer or financial institution, the Investment Manager
will consider all relevant facts and circumstances, including the
creditworthiness of the broker, dealer or financial institution. No Portfolio
will enter into any portfolio security lending arrangement having a duration of
longer than one year. Any securities that a Portfolio may receive as collateral
will not become part of such Portfolio's investment portfolio at the time of the
loan and, in the event of a default by the borrower, the Portfolio will, if
permitted by law, dispose of such collateral except for such part thereof that
is a security in which such Portfolio is permitted to invest. During the time
securities are on loan, the borrower will pay the Portfolio any accrued income
on those securities, and the Portfolio may invest the cash collateral and earn

<PAGE>
THE LAZARD FUNDS, INC. PAGE 29

additional income or receive an agreed upon fee from a borrower that has
delivered cash equivalent collateral. No Portfolio will lend securities having a
value that exceeds 10% (331/3% in the case of the International Small Cap
Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value
Portfolio and Emerging World Funds Portfolio) of the current value of its total
assets. Loans of securities by a Portfolio will be subject to termination at the
Portfolio's or the borrower's option. Each Portfolio may pay reasonable
administrative and custodial fees in connection with a securities loan and may
pay a negotiated portion of the interest or fee earned with respect to the
collateral to the borrower or the placing broker. Borrowers and placing brokers
may not be affiliated, directly or indirectly, with the Fund or the Investment
Manager. The Equity Portfolio has no present intention to enter into loans of
portfolio securities.

REPURCHASE AGREEMENTS

Each Portfolio may enter into repurchase agreements in order to permit the
Portfolio to keep all of its assets at work while retaining "overnight" or
short-term flexibility in pursuit of investments of a longer-term nature. A
repurchase agreement arises when the seller of a security to the Portfolio
agrees to repurchase that security from the Portfolio at a mutually agreed upon
time and price. The period of maturity is usually quite short, often overnight
or a few days, although it may extend over a number of months. A Portfolio may
enter into repurchase agreements only with respect to obligations that could
otherwise be purchased by that Portfolio. If the seller defaults and the value
of the underlying securities has declined, the Portfolio may incur a loss. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, the Portfolio's disposition of the security may be delayed or
limited.

A Portfolio may not enter into a repurchase agreement if, as a result, more than
10% of the value of that Portfolio's net assets would be invested in repurchase
agreements with a maturity of more than seven days and other illiquid
securities. See "Illiquid Securities" and "Investment Restrictions" below. The
Portfolios will enter into repurchase agreements only with broker-dealers and
commercial banks that meet guidelines established by the Board of Directors.

WHEN-ISSUED SECURITIES

Each Portfolio may purchase securities on a when-issued basis, in which case
delivery and payment normally take place within 45 days after the date of the
commitment to purchase. A Portfolio will make commitments to purchase securities
on a when-issued basis only with the intention of actually acquiring the
securities but may sell them before the settlement date if it is deemed
advisable. When-issued securities are subject to market fluctuations and no
income accrues to the purchaser prior to issuance. The purchase price and the
interest rate that will be received on debt securities are fixed at the time the
purchaser enters into the commitment. Purchasing a security on a when-issued
basis can involve a risk that the market price at the time of delivery may be
lower than the agreed upon purchase price, in which case there could be an
unrealized loss at the time of delivery.

Each Portfolio will establish a segregated account in which it will maintain
liquid assets in an amount at least equal in value to the Portfolio's
commitments to purchase when-issued securities. If the value of these assets
declines, the Portfolio will place additional liquid assets in the account on a
daily basis so that the value of the assets in the account remains equal to the
amount of such commitments.

ILLIQUID SECURITIES

Each Portfolio may invest up to 10% of the value of its net assets in illiquid
securities. For this purpose illiquid securities include, among others, (i)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (ii) with respect to the
International Fixed-Income Portfolio, Bond Portfolio and Strategic Yield
Portfolio, options purchased by each of these Portfolios over-the-counter and
the cover for options written by each of these Portfolios over-the-counter, and
(iii) repurchase agreements not terminable within seven days. Securities
eligible for resale under Rule 144A under the Securities Act that have legal or
contractual restrictions on resale but have a readily available market are not
deemed illiquid securities for this purpose. The Equity Portfolio may invest up
to 5% of the value of its assets, taken at cost, in securities which must be
registered under the Securities Act before they may be offered or sold to the
public.

The Investment Manager will monitor the liquidity of such restricted securities
with respect to each Portfolio under the supervision of the Fund's Board of
Directors. See the Statement of Additional Information for further discussion of
illiquid securities.

INVESTMENT IN UNSEASONED COMPANIES

Assets of each Portfolio may be invested in securities of companies that have
operated for less than three years, including the operations of predecessors
("Unseasoned Companies"). Each Portfolio has undertaken that it will not make
investments that will result in more than 5% (10% in the case of the Small Cap

<PAGE>
PAGE 30 THE LAZARD FUNDS, INC.

Portfolio, International Small Cap Portfolio and Emerging Markets Portfolio) of
its total assets being invested in the securities of Unseasoned Companies and
equity securities that are not readily marketable. See "Illiquid Securities"
above. Investing in securities of Unseasoned Companies may, under certain
circumstances, involve greater risk than is customarily associated with
investment in more established companies. Such securities may have limited
marketability and, therefore, may be subject to wide fluctuations in market
value. In addition, certain issuers of such securities may lack a significant
operating history and be dependent on products or services without an
established market share.

AMERICAN AND GLOBAL DEPOSITARY RECEIPTS

Certain of the Portfolios may invest in the securities of foreign issuers in the
form of American Depositary Receipts ("ADRs") and Global Depositary Receipts
("GDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a United States bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. GDRs are
receipts issued outside the United States, typically by non-United States banks
and trust companies, that evidence ownership of either foreign or domestic
securities. Generally, ADRs in registered form are designed for use in the
United States securities markets and GDRs in bearer form are designed for use
outside the United States.

INVESTMENT IN FOREIGN SECURITIES

The International Equity Portfolio, International Fixed-Income Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio and Emerging World Funds Portfolio may invest without limitation in
foreign securities. The Strategic Yield Portfolio may invest up to 50% of its
total assets in non-U.S. dollar denominated, and may invest without limitation
in U.S. dollar denominated, fixed-income securities of foreign issuers. The
Equity Portfolio and Bantam Value Portfolio may each invest up to 10% of its
total assets in foreign equity and debt securities provided that they are
trading in U.S. markets or are listed on a domestic securities exchange or
represented by American Depositary Receipts or Global Depositary Receipts.

Investing in securities issued by foreign governments and corporations or
entities involves considerations and possible risks not typically associated
with investing in obligations issued by the U.S. government and domestic
corporations. The values of foreign investments are affected by changes in
currency rates or exchange control regulations, application of foreign tax laws,
including withholding taxes, changes in governmental administration or economic
or monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States. Investments in foreign countries could be affected by
other factors not present in the United States, including expropriation,
confiscatory taxation, lack of uniform accounting and auditing standards and
potential difficulties in enforcing contractual obligations, and could be
subject to extended settlement periods.

In addition, many emerging market countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain of these countries.
In an attempt to control inflation, wage and price controls have been imposed in
certain countries. In many cases, emerging market countries are among the
world's largest debtors to commercial banks, foreign governments, international
financial organizations and other financial institutions. In recent years, the
governments of some of these countries have encountered difficulties in
servicing their external debt obligations, which led to defaults on certain
obligations and the restructuring of certain indebtedness.

FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS

Each of the International Equity Portfolio, International Fixed-Income
Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio,
Strategic Yield Portfolio, Global Equity Portfolio and Emerging World Funds
Portfolio may purchase or sell foreign currency forward exchange contracts
("forward contracts") for speculative purposes consistent with such Portfolio's
investment objective or to attempt to minimize the risk from adverse changes in

<PAGE>
THE LAZARD FUNDS, INC. PAGE 31

the relationship between the U.S. Dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. Each Portfolio may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock in" the U.S.
Dollar price of the security ("transaction hedge"). Additionally, when the
Portfolio believes that a foreign currency may suffer a substantial decline
against the U.S. Dollar, it may, for example, enter into a forward sale contract
to sell an amount of that foreign currency approximating the value of some or
all of the Portfolio's investment securities denominated in such foreign
currency, or when the Portfolio believes that the U.S. Dollar may suffer a
substantial decline against a foreign currency, it may enter into a forward
purchase contract to buy that foreign currency for a fixed dollar amount
("position hedge"). In this situation the Portfolio may, in the alternative,
enter into a forward contract to sell a different foreign currency for a fixed
U.S. Dollar amount where the Portfolio believes that the U.S. Dollar value of
the currency to be sold pursuant to the forward contract will fall whenever
there is a decline in the U.S. Dollar value of the currency in which portfolio
securities of the Portfolio are denominated ("cross-hedge").

Under certain conditions, Commission guidelines require investment companies to
set aside cash, U.S. Government Securities or other liquid high quality debt
securities in a segregated custodial account to cover forward contracts. As
required by Commission guidelines, the Portfolios will segregate assets to cover
forward contracts, if any, whose purpose is essentially speculative. The
Portfolios will not segregate assets to cover forward contracts entered into for
hedging purposes.

DERIVATIVES

Certain of the Portfolios may invest in derivative securities ("Derivatives").
These are financial instruments which derive their performance, at least in
part, from the performance of an underlying asset, index or interest rate. The
Derivatives a Portfolio may use, to the extent described above, may include
options and futures, mortgage-related securities and asset-backed securities.
While Derivatives can be used effectively in furtherance of a Portfolio's
investment objective, under certain market conditions, they can increase the
volatility of the Portfolio's net asset value, can decrease the liquidity of the
Portfolio's investments and make more difficult the accurate pricing of the
Portfolio's investment securities.

Derivatives can be volatile and involve various types and security degrees of
risk, depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Portfolio to increase or decrease the
level of risk, or change the character of the risk, to which its investments are
exposed in much the same way as a Portfolio can increase or decrease the level
of risk, or change the character of the risk, of its portfolio by making
investments in specific securities.

Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in Derivatives could have a large
potential impact on a Portfolio's performance.

If a Portfolio invests in Derivatives at inappropriate times or judges market
conditions incorrectly, such investments may lower the Portfolio's return or
result in a loss. A Portfolio also could experience losses if it were unable to
liquidate its position because of an illiquid secondary market. The market for
many Derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
Derivatives.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The International Fixed-Income Portfolio, Bond Portfolio, International Small
Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and Emerging
World Funds Portfolio may enter into contracts for the purchase or sale for
future delivery of fixed-income securities or contracts based on financial
indices including any index of U.S. Government Securities or corporate debt
securities ("futures contracts") and may purchase and write "covered" put and
call options to buy or sell futures contracts ("options on futures contracts").
The International Fixed-Income Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Global Equity Portfolio and Emerging World Funds
Portfolio may also enter into contracts for the purchase or sale for future
delivery of foreign currencies. A "sale" of a futures contract means the
acquisition of a contractual obligation to deliver the securities or foreign
currencies called for by the contract at a specified price on a specified date.

<PAGE>
PAGE 32 THE LAZARD FUNDS, INC.

A "purchase" of a futures contract means the incurring of a contractual
obligation to acquire the securities or foreign currencies, called for by the
contract at a specified price on a specified date. The purchaser of a futures
contract on an index agrees to take or make delivery of an amount of cash equal
to the difference between a specified dollar multiple of the value of the index
on the expiration date of the contract ("current contract value") and the price
at which the contract was originally struck. No physical delivery of the
fixed-income securities underlying the index is made. Options on futures
contracts to be written or purchased by the Bond Portfolio will be traded on
U.S. exchanges or over-the-counter. At the time a futures contract is purchased
or sold, the Portfolio must allocate cash or securities as a deposit payment
based on a percentage of a contract's face value. The futures contract is valued
daily thereafter and the Portfolio may be required to contribute additional cash
or securities that reflects any decline in the contract's value. These
investment techniques will be used only to hedge against anticipated future
changes in interest rates which otherwise might either adversely affect the
value of the portfolio securities of the Portfolio or adversely affect the
prices of securities or foreign currencies, which the Portfolio intends to
purchase at a later date. See "Additional Permitted Investment Activities and
Risk Factors" in the Statement of Additional Information for further discussion
of the use, risks and costs of futures contracts and options on futures
contracts.

WARRANTS

Each of the Equity Portfolio, Strategic Yield Portfolio, International Small Cap
Portfolio, Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio may invest
not more than 5% of its total assets at the time of purchase in warrants (other
than those that have been acquired in units or attached to other securities). In
addition, not more than 2% of the assets of any of these Portfolios may, at the
time of purchase, be invested in warrants that are not listed on an exchange.
Warrants represent rights to repurchase equity securities and debt securities at
a specific price valid for a specific period of time. The prices of warrants do
not necessarily correlate with the prices of the underlying securities. The
Equity Portfolio may only purchase warrants on securities in which it may invest
directly.

STOCK OR BOND OPTIONS

The Equity Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio may for hedging purposes purchase put and call options and write
covered put and call options on securities in which it may invest directly and
that, in the case of the Equity Portfolio, are traded on registered domestic
securities exchanges. The Strategic Yield Portfolio may invest up to 5% of its
total assets, represented by the premium paid, in the purchase of call and put
options on the types of securities in which the Portfolio may invest. The
Strategic Yield Portfolio may also write covered call and put options contracts
to the extent that the value of the call or put options, represented by the
premium paid, does not exceed 10% of the value of the covered assets. The
Strategic Yield Portfolio may purchase and sell call and put options on equity
securities and stock indices, to the same extent as it is permitted to purchase
and sell call and put options on the types of securities in which it may invest.
The writer of a call option, who receives a premium, has the obligation, upon
exercise of the option, to deliver the underlying security against payment of
the exercise price during the option period. The writer of a put option, who
receives a premium, has the obligation to buy the underlying security, upon
exercise, at the exercise price during the option period.

Each of the Equity Portfolio, Strategic Yield Portfolio, International Small Cap
Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value
Portfolio and Emerging World Funds Portfolio may write put and call options only
if they are "covered," and such options must remain "covered" as long as the
Portfolio is obligated as a writer. A call option is "covered" if the Portfolio
owns the underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration if held in a segregated account by the
Fund's custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Portfolio holds on a
share-for-share or equal principal amount basis a call on the same security as
the call written where the exercise price of the call held is equal to or less
than the exercise price of the call written or greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash,
treasury bills or other high-grade short-term obligations in a segregated
account with the Fund's custodian. A put option is "covered" if the Portfolio

<PAGE>
THE LAZARD FUNDS, INC. PAGE 33

maintains cash, treasury bills or other high-grade short-term obligations with a
value equal to the exercise price in a segregated account with the Fund's
custodian, or else owns on a share-for-share or equal principal amount basis a
put on the same security as the put written where the exercise price of the put
held is equal to or greater than the exercise price of the put written.

The principal reason for writing call options is to attempt to realize, through
the receipt of premiums, a greater current return than would be realized on the
underlying securities alone. In return for the premium, the Portfolio would give
up the opportunity for profit from a price increase in the underlying security
above the exercise price so long as the option remains open, but retains the
risk of loss should the price of the security decline. Upon exercise of a call
option when the market value of the security exceeds the exercise price, the
Portfolio would incur a loss equal to the difference between the exercise price
and the market value, less the premium received for writing the option.

The principal reason for purchasing put options is to protect the value of a
security owned against an anticipated decline in market value. Exercise of a put
option will generally be profitable only if the market price of the underlying
security declines sufficiently below the exercise price to offset the premium
paid and the transaction costs. If the market price of the underlying security
increases, the Portfolio's profit upon the sale of the security will be reduced
by the premium paid for the put option less any amount for which the put is
sold.

OPTIONS ON FOREIGN CURRENCIES

The International Fixed-Income Portfolio, Strategic Yield Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio and Emerging World Funds Portfolio may purchase and write put and call
options on foreign currencies for the purpose of protecting against declines in
the U.S. Dollar value of foreign currency denominated portfolio securities and
against increases in the U.S. Dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the
premium received, and the Portfolios could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to a Portfolio's position, it may forfeit the entire amount of
the premium plus related transaction costs. Options on foreign currencies to be
written or purchased by a Portfolio are traded on U.S. and foreign exchanges or
over-the-counter. There is no specific percentage limitation on either
Portfolio's investments in options on foreign currencies, although the
International Fixed-Income Portfolio will limit its investments in options
traded on the over-the-counter market to no more than 10% of the market value of
the Portfolio's net assets. See the Statement of Additional Information for
further discussion of the use, risks and costs of options on foreign currencies.

DIVERSIFICATION

The Equity Portfolio is operated as a "diversified" portfolio as that term is
defined in the Investment Company Act. As such, the Portfolio has at least 75%
of the value of its total assets invested in cash and cash items (including
receivables), U.S. Government Securities, securities of other investment
companies and "other securities." For these purposes, "other securities" are
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the value of the total assets of the Portfolio and to not more
than 10% of the outstanding voting securities of such issuer.

The International Equity Portfolio, International Fixed-Income Portfolio, Bond
Portfolio, Strategic Yield Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Small Cap Portfolio, Global Equity Portfolio, Bantam
Value Portfolio and Emerging World Funds Portfolio are "non-diversified," which
means that none of the Portfolios is limited in the proportion of its assets
that may be invested in the securities of a single issuer. Because these
Portfolios are non-diversified and each may invest in a smaller number of
individual issuers than a diversified investment company,

<PAGE>
PAGE 34 THE LAZARD FUNDS, INC.

an investment in any of these Portfolios may, under certain circumstances,
present greater risk to an investor than an investment in a diversified company.

Each of the Portfolios intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Code, which will relieve the
Portfolio of any liability for Federal income tax to the extent its earnings are
distributed to shareholders. To so qualify, among other requirements, each
Portfolio will limit its investments so that, at the close of each quarter of
the taxable year, (i) not more than 25% of the market value of the Portfolio's
total assets will be invested in the securities of a single issuer, and (ii)
with respect to 50% of the market value of its total assets, not more than 5% of
the market value of its total assets will be invested in the securities of a
single issuer and the Portfolio will not own more than 10% of the outstanding
voting securities of a single issuer. A Portfolio's investments in U.S.
Government Securities are not subject to these limitations.

PORTFOLIO TURNOVER

Except as noted below, the Fund's policy with respect to turnover of securities
held in the Portfolios is to purchase securities for investment purposes and not
for the purpose of realizing short-term trading profits. When circumstances
warrant, however, securities may be sold without regard to the length of time
held.

Although a Portfolio cannot accurately predict its annual portfolio turnover
rate, the Investment Manager does not expect the annual portfolio turnover of
the Equity Portfolio, Small Cap Portfolio, International Equity Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio or Emerging World Funds Portfolio to exceed
100%. However the annual portfolio turnover of the Bond Portfolio and Strategic
Yield Portfolio may exceed 100%. A 100% annual portfolio turnover rate would
occur, for example, if all of the stocks in a portfolio were replaced in a
period of one year. A 100% turnover rate is greater than that of many other
investment companies, including those which emphasize capital appreciation as a
basic policy, and may result in correspondingly greater brokerage commissions
being paid by the Portfolio.

The International Fixed-Income Portfolio and Strategic Yield Portfolio will
actively use trading to benefit from yield disparities among different issues of
fixed-income securities or otherwise to achieve its investment objective and
policies. The Investment Manager anticipates that the annual turnover in the
International Fixed-Income Portfolio and Strategic Yield Portfolio may be in
excess of 200% in future years (but is not expected to exceed 300%). A 200%
turnover rate is greater than that of most other investment companies. A high
rate of portfolio turnover involves correspondingly greater transaction expenses
than a lower rate, which expenses are borne by the Portfolio and its
shareholders. High portfolio turnover also may result in the realization of
substantial net short-term capital gains. However, in order for each Portfolio
to continue to qualify as a regulated investment company for Federal tax
purposes, less than 30% of the annual gross income of each Portfolio must be
derived from the sale of securities held by the Portfolio for less than three
months. See "Taxation."

- --------------------------------------------------------------------------------

The foregoing investment objectives and related policies and activities of each
of the Portfolios, except as indicated above, are not fundamental and may be
changed by the Board of Directors of the Fund without the approval of the
shareholders.

<PAGE>
THE LAZARD FUNDS, INC. PAGE 35

INVESTMENT RESTRICTIONS

The following investment restrictions and, except as otherwise noted, those
specifically so described in the Statement of Additional Information, are
fundamental policies of each of the Portfolios that may be changed only when
permitted by law and approved by the holders of a majority of such Portfolio's
outstanding voting securities, as defined in the Investment Company Act and as
described under "Organization and Description of Capital Stock" in the Statement
of Additional Information. The Fund is empowered to establish, without
shareholder approval, additional portfolios which may have different fundamental
investment restrictions.

In addition to the fundamental investment restrictions listed in the Statement
of Additional Information, no Portfolio may:

(i) issue senior securities, borrow money or pledge or mortgage its assets,
except that (A) each Portfolio may borrow from banks for temporary purposes,
including the meeting of redemption requests which might require the untimely
disposition of securities, as described above in "Additional Permitted
Investment Activities and Risk Factors--Temporary Bank Borrowing", (B) the
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio or Emerging World Funds Portfolio also may
borrow money to the extent permitted under the Investment Company Act and, as a
non-fundamental policy, may pledge, hypothecate, mortgage or otherwise encumber
its assets to secure permitted borrowings; provided, however, that the
International Small Cap Portfolio, the Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio or Emerging World Funds Portfolio will not
make new investments to the extent borrowings exceed 5% of the total assets of
the Portfolio, except for borrowings that are covered within the interpretations
of Section 18(f) of the Investment Company Act and (C) the Equity Portfolio may
additionally utilize leverage as described in "Additional Permitted Investment
Activities and Risk Factors-- Borrowing for Investment" in the Statement of
Additional Information. For purposes of this investment restriction, a
Portfolio's entry into options, forward contracts, futures contracts, including
those related to indexes, shall not constitute borrowing;

(ii) make loans, except loans of portfolio securities not having a value in
excess of 10% (331/3% in the case of the International Small Cap Portfolio,
Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value Portfolio or
Emerging World Funds Portfolio) of a Portfolio's total assets and except that
each Portfolio may purchase debt obligations in accordance with its investment
objectives and policies;

(iii) invest in illiquid securities as defined in "Additional Permitted
Investment Activities and Risk Factors--Illiquid Securities" if immediately
after such investment more than 10% of the value of the Portfolio's net assets,
or, in the case of the Equity Portfolio, more than 10% of the value of that
Portfolio's total assets, taken at market value, would be invested in such
securities (this restriction is not a fundamental policy of the Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio); or

(iv) purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization; provided, however,
that, this restriction is not a fundamental policy of the International Small
Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value
Portfolio or Emerging World Funds Portfolio and provided, further, that (A) the
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio may
purchase securities of other investment companies to the extent permitted under
the Investment Company Act (this restriction is not a fundamental policy of
these Portfolios) and (B) the Equity Portfolio, International Equity Portfolio
and Small Cap Portfolio may purchase securities in an amount up to 5% of the
value of the Portfolio's total assets in any one closed-end fund and may
purchase in the aggregate securities of closed-end funds in an amount of up to
10% of the value of the Portfolio's total assets.
<PAGE>

MANAGEMENT

DIRECTORS

The Board of Directors, under applicable laws of the State of Maryland, in
addition to supervising the actions of the Investment Manager, as set forth
below, decides upon matters of general policy.

INVESTMENT MANAGER AND INVESTMENT MANAGEMENT AGREEMENTS

Lazard Freres Asset Management, 30 Rockefeller Plaza, New York, New York 10020,
has entered into investment management agreements with the Fund on behalf of
each of the Portfolios. The investment management agreements entered into by
Lazard Freres Asset Management will collectively be referred to herein as the
"Management Agreements" and, where appropriate, individually as the "Management
Agreement." Pursuant to the Management Agreements, Lazard Freres Asset
Management 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.

The Investment Manager is also responsible for the selection of brokers and
dealers to effect securities transactions and the negotiation of brokerage
commissions, if any. Purchases and sales of securities on a securities exchange
are effected through brokers who charge a negotiated commission for their
services. Orders may be directed to any broker including, to the extent and in
the manner permitted by applicable law, Lazard Freres. The Investment Manager
has selected Lazard Freres as a broker for certain portfolio securities
transactions with respect to the Portfolios. Lazard Freres performs such
brokerage services in conformity with Rule 17e-1 under the Investment Company
Act and procedures adopted by the Fund's Board of Directors. In addition, the
Investment Manager may allocate brokerage transactions to brokers who direct to
the Investment Manager persons who purchase Fund shares.

Under the terms of each Management Agreement, the Investment Manager will pay
the compensation of all personnel of the Fund except the fees of Directors of
the Fund who are not employees or affiliated persons of the Investment Manager.
The Investment Manager will make available to the Portfolios such of the
Investment Manager's members, directors, officers and employees as are
reasonably necessary for the operations of each Portfolio, or as may be duly
elected officers or directors of the Fund. Under the Management Agreements, the
Investment Manager also pays each Portfolio's office rent and provides
investment advisory research and statistical facilities and all clerical
services relating to research, statistical and investment work. The Investment
Manager, including its employees who serve the Portfolios, may render investment
advice, management and other services to others.

Each of the Portfolios pays the Investment Manager an investment management fee
at the annual rate set forth below as a percentage of the average daily value of
the net assets of the relevant Portfolio: Equity Portfolio, .75%; International
Equity Portfolio, .75%; International Fixed-Income Portfolio, .75%; Bond
Portfolio, .50%; Strategic Yield Portfolio, .75%; Small Cap Portfolio, .75%;
International Small Cap Portfolio, .75%; Emerging Markets Portfolio, 1.00%;
Global Equity Portfolio, .75%; Bantam Value Portfolio, .75%; and Emerging World
Funds Portfolio, .75%. The investment management fees are accrued daily and paid
monthly.

Each Portfolio will bear all expenses not specifically assumed by the Investment
Manager, including, among others, the fee payable to the Portfolio's Investment
Manager, the fees of the Directors who are not "affiliated persons" of the
Investment Manager, the expenses of all Directors and the fees and out-of-pocket
expenses of the Fund's custodian and the transfer and dividend disbursing agent.
For a more detailed description of the expenses to be borne by the Portfolios,
see "Management" in the Statement of Additional Information.

Each of the Management Agreements provides that the Investment Manager will
reimburse each Portfolio for the Portfolio's expenses (exclusive of interest,
taxes, brokerage,

<PAGE>
THE LAZARD FUNDS, INC. PAGE 37

distribution expenditures and extraordinary expenses, all to the extent
permitted by applicable state securities law and regulations) which in any year
exceed the limits prescribed by any state in which the Portfolio's shares are
qualified for sale. The Fund may not qualify the shares of each Portfolio for
sale in every state. The Investment Manager has undertaken to bear, excluding
fees payable by the Retail Class pursuant to the Distribution and Servicing
Plan, (i) with respect to each of the International Fixed-Income Portfolio,
Global Equity Portfolio, Bantam Value Portfolio and Emerging World Funds
Portfolio, total operating expenses in excess of 1.05% of each such Portfolio's
average net assets, (ii) with respect to the Bond Portfolio, total operating
expenses in excess of .80% of that Portfolio's average net assets, and (iii)
with respect to the Emerging Markets Portfolio, total operating expenses in
excess of 1.30% of that Portfolio's average net assets, each until the earlier
of December 31, 1996 or such time as the respective Portfolio reaches total net
assets of $100 million. Pursuant to the same undertaking for each of those
Portfolios for the fiscal year ended December 31, 1995, total operating
expenses, as a percentage of the Portfolio's average net assets of the
Institutional Class, were as follows: International Fixed-Income Portfolio,
1.05%; Bond Portfolio, .80%; and Emerging Markets Portfolio, 1.30%. For the
fiscal year ended December 31, 1995, total operating expenses, as a percentage
of average net assets of the Institutional Class, were .92% for the Equity
Portfolio; .95% for the International Equity Portfolio; 1.09% for the Strategic
Yield Portfolio; 1.13% for the International Small Cap Portfolio and .84% for
the Small Cap Portfolio.

ADMINISTRATOR

State Street Bank and Trust Company ("State Street"), located at 225 Franklin
Street, Boston, Massachusetts 02110, serves as each Portfolio's administrator
pursuant to an Administration Agreement with the Fund. Under the Administration
Agreement, State Street receives from each Portfolio an annual fee of $37,500
plus .02% of the value of such Portfolio's average daily net assets.

DISTRIBUTOR

Under the terms of a distribution agreement with the Fund, Lazard Freres acts as
distributor for the Portfolios and bears the cost of printing and mailing
prospectuses to potential investors.

PRINCIPAL MANAGERS

The name and title of each of the principal persons employed by or associated
with the Investment Manager who are primarily responsible for the day-to-day
management of the assets of each of the Portfolios are as follows:

EQUITY PORTFOLIO: HERBERT W. GULLQUIST. (Since inception). Mr. Gullquist is a
Managing Director of the Investment Manager and has been with the Investment
Manager since 1982.

MICHAEL S. ROME. (Since 1991). Mr. Rome is a Managing Director of the Investment
Manager and has been with the Investment Manager since 1991.

SMALL CAP PORTFOLIO: HERBERT W. GULLQUIST. (Since inception). Mr. Gullquist's
biographical information is described under "Equity Portfolio".

MICHAEL S. ROME. (Since January 1, 1995). Mr. Rome's biographical information is
described under "Equity Portfolio".

EILEEN ALEXANDERSON. (Since inception). Ms. Alexanderson is a Senior Vice
President of the Investment Manager where she has been employed since 1979.

LEONARD M. WILSON. (Since inception). Mr. Wilson has been a Senior Vice
President of the Investment Manager since 1988.

BRADLEY J. PURCELL. (Since inception). Mr. Purcell is a Vice President of the
Investment Manager and has been with the Investment Manager since 1991.

INTERNATIONAL EQUITY PORTFOLIO: HERBERT W. GULLQUIST. (Since inception). Mr.
Gullquist's biographical information is described under "Equity Portfolio".

JOHN R. REINSBERG. (Since January 1992). Mr. Reinsberg is a Managing Director of
the Investment Manager and has been with the Investment Manager since 1992.
Prior thereto, he was Executive Vice President of General Electric Investment
Company.

INTERNATIONAL FIXED-INCOME PORTFOLIO: THOMAS F. DUNN. (Since January 1, 1995).
Mr. Dunn is a Managing Director of the Investment Manager and has been with the
Investment

<PAGE>
PAGE 38 THE LAZARD FUNDS, INC.

Manager since January 1, 1995. Prior thereto, he was a Senior Vice President of
Goldman Sachs Asset Management.

IRA O. HANDLER. (Since 1992). Mr. Handler is a Senior Vice President of the
Investment Manager and has been a Global & Emerging Fixed-Income Portfolio
Manager of the Investment Manager since 1992. From 1990 to 1992, he was a
foreign exchange manager with Timber Hill, Inc.

BOND PORTFOLIO: THOMAS F. DUNN. (Since January 1, 1995). Mr. Dunn's biographical
information is described under "International Fixed-Income Portfolio".

STRATEGIC YIELD PORTFOLIO: THOMAS F. DUNN. (Since January 1, 1995). Mr. Dunn's
biographical information is described under "International Fixed-Income
Portfolio".

IRA O. HANDLER. (Since 1993). Mr. Handler's biographical information is
described under "International Fixed-Income Portfolio".

INTERNATIONAL SMALL CAP PORTFOLIO: HERBERT W. GULLQUIST. (Since inception). Mr.
Gullquist's biographical information is described under "Equity Portfolio".

JOHN R. REINSBERG. (Since inception). Mr. Reinsberg's biographical information
is described under "International Equity Portfolio".

EMERGING MARKETS PORTFOLIO: HERBERT W. GULLQUIST. (Since inception). Mr.
Gullquist's biographical information is described under "Equity Portfolio".

JOHN R. REINSBERG. (Since inception). Mr. Reinsberg's biographical information
is described under "International Equity Portfolio".

GLOBAL EQUITY PORTFOLIO: HERBERT W. GULLQUIST. (Since inception). Mr.
Gullquist's biographical information is described under "Equity Portfolio."

JOHN R. REINSBERG. (Since inception). Mr. Reinsberg's biographical information
is described under "International Equity Portfolio".

MICHAEL S. ROME. (Since inception). Mr. Rome's biographical information is
described under "Equity Portfolio".

BANTAM VALUE PORTFOLIO: HERBERT W. GULLQUIST. (Since inception). Mr. Gullquist's
biographical information is described under "Equity Portfolio."

MICHAEL S. ROME. (Since inception). Mr. Rome's biographical information is
described under "Equity Portfolio".

EILEEN ALEXANDERSON. (Since inception). Ms. Alexanderson's biographical
information is described under "Small Cap Portfolio".

LEONARD M. WILSON. (Since inception). Mr. Wilson's biographical information is
described under "Small Cap Portfolio".

BRADLEY J. PURCELL. (Since inception). Mr. Purcell's biographical information is
described under "Small Cap Portfolio".

EMERGING WORLD FUNDS PORTFOLIO: ALEXANDER E. ZAGOREOS. (Since inception). Mr.
Zagoreos is a Managing Director of the Investment Manager and has been with the
Investment Manager since 1977.

<PAGE>
PAGE 39 THE LAZARD FUNDS, INC.

DETERMINATION OF NET ASSET VALUE

Net asset value per share of each Class for each Portfolio is determined by the
Fund's custodian, State Street Bank and Trust Company (the "Custodian"), on each
day the New York Stock Exchange is open for trading. The net asset value per
share of each Class of each Portfolio is computed by dividing the value of the
total assets of the Portfolio represented by such Class, less all liabilities,
by the total number of Portfolio shares of such Class outstanding.

The value of securities, other than options listed on national securities
exchanges and debt securities maturing in 60 days or less, is determined as of
the close of regular trading on the New York Stock Exchange. Options on 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. New
York time). Debt securities maturing in 60 days or less are valued at amortized
cost. Each security for which the primary market is on a national securities
exchange is valued at the last sale price on the principal exchange on which it
is traded, or, if no sales are reported on such exchange on that day, at the
closing bid price.

Any security held by any Portfolio for which the primary market is the National
Association of Securities Dealers Automated Quotations National Market System,
is valued at the last sale price as quoted by such system or, in the absence of
any sale on the valuation date, at the closing bid price. Any other unlisted
security for which current over-the-counter market quotations or bids are
readily available is valued at its last quoted bid price or, if available, the
mean of two such prices.

All other securities and other assets for which current market quotations are
not readily available are valued at fair value as determined in good faith by
the Fund's Board of Directors and in accordance with procedures adopted by the
Board of Directors. The portfolio securities of any of the Portfolios may also
be valued on the basis of prices provided by a pricing service when such prices
are believed by the Investment Manager to reflect the fair market value of such
securities.

The Small Cap Portfolio, International Small Cap Portfolio and Bantam Value
Portfolio invest primarily in equity securities of companies with relatively
small market capitalizations. Because of the difference between the bid and
asked prices of over-the-counter securities, there may be an immediate reduction
in the net asset value of the shares of the Small Cap Portfolio, International
Small Cap Portfolio or Bantam Value Portfolio after such Portfolio has completed
a purchase of securities that will be valued by the relevant Portfolio at their
bid price, since those securities usually will have been purchased at or near
the asked price.

<PAGE>

PURCHASE OF SHARES

The minimum initial investment is $10,000 for Retail Shares of each Portfolio,
unless you are a client of a securities dealer or other institution which has
made an aggregate minimum initial purchase for its clients of at least $10,000,
and $50,000 for Institutional Shares of each Portfolio. Investments in
Institutional Shares made by directors, members and employees of Lazard Freres
and affiliated companies and their relatives or by the trustees of benefit plans
covering those individuals are subject to a $5,000 minimum initial investment
requirement for each Portfolio. All minimums may, however, be waived in the sole
discretion of the Fund.The minimum subsequent investment for all investors is
$1,000 for Retail Shares and $5,000 for Institutional Shares. The minimum
investment requirements may be waived or lowered for investments effected
through banks and other institutions that have entered into special arrangements
with the Fund or the Distributor and for investments effected on a group basis
by certain other entities and their employees, such as pursuant to a payroll
deduction plan. Fund shares are sold without a sales charge. Securities dealers
and other institutions effecting transactions in Fund shares for the accounts of
their clients may charge their clients direct fees in connection with such
transactions.

Shares of any Portfolio may be purchased in exchange for securities which are
permissible investments of that Portfolio, subject to the Investment Manager's
determination that the securities are acceptable. Securities accepted in
exchange will be valued at the mean between their bid and asked quotations. In
addition, securities accepted in exchange are required to be liquid securities
that are not restricted as to transfer and have a value that is readily
ascertainable (and not established only by evaluation procedures) as evidenced
by a listing on the American Stock Exchange, the New York Stock Exchange,
NASDAQ, a recognized non-U.S. exchange or non NASDAQ listing with at least two
market makers. The Fund and Lazard Freres reserve the right to reject any
purchase order. All funds will be invested in full and fractional shares.

PURCHASES THROUGH THE TRANSFER AGENT

Orders for shares of all of the Portfolios will become effective at the net
asset value per share next determined after receipt by the Transfer Agent or
other agent of a check drawn on any member of the Federal Reserve System or
after receipt by the Custodian or other agent of a bank wire or Federal Reserve
Wire. Checks must be payable in United States dollars and will be accepted
subject to collection at full face value. See "Determination of Net Asset
Value." The Transfer Agent and the Distributor may, in certain cases, agree to
next day settlement for certain purchases through the Transfer Agent.

By investing in a Portfolio, a shareholder appoints the Transfer Agent, as
agent, to establish an open account to which all shares purchased will be
credited, together with any dividends and capital gain distributions that are
paid in additional shares. See "Dividends and Distributions." Although most
shareholders elect not to receive stock certificates, certificates for full
shares can be obtained on specific written request to the Transfer Agent. No
certificates are issued for fractional shares. IT IS MORE COMPLICATED TO REDEEM
SHARES HELD IN CERTIFICATE FORM.

INITIAL PURCHASE BY WIRE

1. Telephone toll free from any continental state: (800) 854-8525. Give the
Portfolio(s) and Class of shares to be invested in, name(s) in which shares are
to be registered, address, social security or tax identification number (where
applicable), dividend payment election, amount to be wired, name of the wiring
bank and name and telephone number of the person to be contacted in connection
with the order. An account number will be assigned.

2. Instruct the wiring bank to transmit the specified amount in federal funds
($50,000 or more), giving the wiring bank the account name(s) and assigned
account number, to the Custodian:

ABA #: 011000028 State Street Bank and Trust Company Boston, Massachusetts
Custody and Shareholder Services Division
DDA 9902-8102
Attention: (Name of Portfolio and Class of Shares)
The Lazard Funds, Inc.
Shareholder's Name and Account Number

3. Complete a Purchase Application. Indicate the services to be used. Mail the
Purchase Application to the Transfer Agent:

Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02106
Attention: (Name of Portfolio and Class of Shares)
The Lazard Funds, Inc.

<PAGE>

ADDITIONAL PURCHASES BY WIRE

Instruct the wiring bank to transmit the specified amount ($5,000 or more) in
federal funds to State Street Bank and Trust Company as instructed in Item 2
above.

INITIAL PURCHASE BY MAIL

1. Complete a Purchase Application. Indicate the services to be used.

2. Mail the Purchase Application and a check for $10,000 or more for Retail
Shares, or $50,000 or more for Institutional Shares, payable to the Portfolio
whose shares are to be purchased, to Scudder Service Corporation at the address
set forth in Item 3 above.

ADDITIONAL PURCHASES BY MAIL

1. Make a check ($1,000 or more for Retail Shares, or $5,000 or more for
Institutional Shares) payable to the Portfolio whose shares are to be purchased.
Write the shareholder's account number on the check.

2. Mail the check and the detachable stub from the Statement of Account (or a
letter providing the account number) to Scudder Service Corporation at the
address set forth in Item 3 above.

PURCHASES THROUGH A LAZARD FRERES BROKERAGE ACCOUNT

Shares of all of the Portfolios are sold by Lazard Freres only to customers of
Lazard Freres, without a sales charge, on a continuing basis at the net asset
value of the Portfolio next determined after receipt of a purchase order by
Lazard Freres. Payments must be made to Lazard Freres within three business days
of the order. Because Lazard Freres does not forward investors' funds until the
business day on which the order is settled, it may benefit from temporary use of
these funds. See "Management" in the Statement of Additional Information.

REDEMPTION OF SHARES

Upon receipt by the Transfer Agent, Lazard Freres or other agent of a
redemption request in proper form, shares of any Portfolio will be redeemed at
their next determined net asset value. See "Determination of Net Asset Value."
For the shareholder's convenience, the Fund has established several different
redemption procedures.

REDEMPTIONS THROUGH THE TRANSFER AGENT

SHAREHOLDERS OF A PORTFOLIO WHO DO NOT HAVE A BROKERAGE ACCOUNT WITH LAZARD
FRERES SHOULD SUBMIT THEIR REDEMPTION REQUESTS TO THE TRANSFER AGENT BY MAIL
(SEE ITEMS 1-4 BELOW). Redemption requests should be mailed to the Transfer
Agent at the address set forth in Item 5 below. Upon receipt by the Transfer
Agent of a redemption request in proper form, shares of a Portfolio will be
redeemed at their next determined net asset value. See "Determination of Net
Asset Value." Shares held in securities accounts at Lazard Freres may be
redeemed through Lazard Freres. See "Redemptions through a Lazard Freres
Brokerage Account."

1. Write a letter of instruction to the Fund. Indicate the dollar amount or
number and Class of shares to be redeemed. Refer to the shareholder's Portfolio
account number and set forth social security or taxpayer identification number
(where applicable).

2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.

3. If shares to be redeemed have a value of $50,000 or more, the signature(s)
must be guaranteed by a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System, broker-dealer,
registered securities association or clearing agency, or other participant in a
signature guarantee program. Signature guarantees by notaries public are not
acceptable. Further documentation, such as copies of corporate resolutions and
instruments of authority, may be requested from corporations, administrators,
executors, personal representatives, trustees or custodians to evidence the
authority of the person or entity making the redemption request.

4. If shares to be redeemed are held in certificate form, enclose the
certificates with the letter. Do not sign the certificates and for protection
use registered mail.

<PAGE>
PAGE 42 THE LAZARD FUNDS, INC.

5. Mail the letter to the Transfer Agent at the following address:

Scudder Service Corporation
P.O. Box 2038
Boston, Massachusetts 02106
Attention: (Name of Portfolio and Class of Shares)
The Lazard Funds, Inc.

Checks for redemption proceeds normally will be mailed within seven days, but
will not be mailed until all checks in payment for the purchase of the shares to
be redeemed have been collected, which may take up to 7 business days. Unless
other instructions are given in proper form, a check for the proceeds of a
redemption will be sent to the shareholder's address of record. The Custodian
may benefit from the use of redemption proceeds until the check issued to a
redeeming shareholder for such proceeds has cleared.

When proceeds of a redemption are to be paid to someone other than the
shareholder, either by wire or check, the signature(s) on the letter of
instruction must be guaranteed regardless of the amount of the redemption.

REDEMPTIONS THROUGH A LAZARD FRERES BROKERAGE ACCOUNT

Redemption requests for shares of a Portfolio submitted to and received by
Lazard Freres are effected at the net asset value of the Portfolio next
determined after redemption instructions are received from a customer by Lazard
Freres. The Fund imposes no charges when shares are redeemed. Securities dealers
and other institutions may charge their clients a nominal fee for effecting
redemptions of Fund shares.

Lazard Freres may benefit from the use of the redemption proceeds prior to the
clearance of a check issued to a redeeming shareholder for such proceeds or
prior to disbursement or reinvestment of such proceeds on behalf of the
shareholder.

- --------------------------------------------------------------------------------

Payment of redemption proceeds may be made in securities, subject to regulation
by some state securities commissions. The Fund may suspend the right of
redemption during any period when (i) trading on the New York Stock Exchange is
restricted or that Exchange is closed, other than customary weekend and holiday
closings, (ii) the Commission has by order permitted such suspension or (iii) an
emergency, as defined by rules of the Commission, exists making disposal of
portfolio securities or determination of the value of the net assets of the
Portfolios not reasonably practicable.

The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal income tax
purposes.

The Fund reserves the right to redeem upon not less than 30 days' written notice
the shares in an account that through redemption has a value of $5,000 or less.
However, any shareholder affected by the exercise of this right will be allowed
to make additional investments prior to the date fixed for redemption to avoid
liquidation of the account.

The Fund has secured a $50 million committed line of credit from State Street to
assist in meeting redemption requests when deemed necessary.

<PAGE>

DISTRIBUTION AND SERVICING PLAN (RETAIL SHARES ONLY)

Retail Shares are subject to a Distribution and Servicing Plan adopted pursuant
to Rule 12b-1 under the Investment Company Act. Under the Distribution and
Servicing Plan, the Fund pays Lazard Freres for advertising, marketing and
distributing each Portfolio's Retail Shares and for the provision of certain
services to the holders of Retail Shares a fee at an annual rate of .25 of 1% of
the value of the average daily net assets of the Portfolio's Retail Class. the
services provided may include personal services relating to shareholder
inquiries regarding the Fund and providing reports and other information, and
services related to the maintenance of such shareholder inquiries regarding the
Fund and providing reports and other information, and services related to the
maintenance of such shareholder accounts. The fee payable for such services is
intended to be a "service fee" as defined in Article III, Section 26 of the NASD
Rule of Fair Practice. Under the Distribution and Servicing Plan, Lazard Freres
may make payments to third parties in respect of these services. From time to
time, Lazard Freres may defer or waive receipt of fees under the Distribution
and Servicing Plan while retaining the ability to be paid by the Fund under the
Distribution and Servicing Plan thereafter. The fees payable to Lazard Freres
under the Distribution and Servicing Plan for advertising, marketing and
distributing Retail Shares and for payments to third parties are payable without
regard to actual expenses incurred.

EXCHANGE PRIVILEGE

Shares of any of the Portfolios that have been held for seven days or more may
be exchanged for shares of the same Class of one of the other Portfolios in an
identically registered account. All exchanges are subject to the minimum initial
and minimum subsequent investment requirements.

A shareholder may exchange shares by writing or, if the shareholder has so
elected, by calling the Transfer Agent. To elect to initiate exchanges by
telephone the shareholder must have properly completed either a Purchase
Application authorizing such exchanges or a Telephone Exchange Authorization
Form and submitted either to the Transfer Agent in advance of the first such
exchange. The Transfer Agent's toll-free number for exchanges is (800) 854-8525.
In order to confirm that telephone instructions for exchanges are genuine, the
Fund has established reasonable procedures to be employed by the Fund and the
Transfer Agent, including the requirement that a form of personal identification
be provided. If either the Fund or the Transfer Agent fails to follow these
procedures, the Fund may be liable for any losses due to unauthorized or
fraudulent instructions. None of the Portfolios, Lazard Freres nor the Transfer
Agent will be liable, however, for any loss, liability, cost or expense for
acting upon telephone instructions for exchanges reasonably believed to be
genuine, and the investor accordingly bears the risk of unauthorized telephone
requests for exchanges in these circumstances.

Procedures applicable to redemption of a Portfolio's shares are also applicable
to exchanging shares. The exchange privilege with respect to the shares of any
of the Portfolios is available only in states in which shares of that Portfolio
may be legally sold. The Fund reserves the right to limit the number of times
shares may be exchanged between Portfolios, to reject any telephone exchange
order or otherwise to modify or discontinue exchange privileges at any time. A
capital gain or loss for tax purposes will be realized upon an exchange,
depending upon the cost or other basis of shares redeemed.

<PAGE>

DIVIDENDS AND DISTRIBUTIONS

Dividends from net investment income on shares of the International Fixed-Income
Portfolio, Bond Portfolio and Strategic Yield Portfolio will be declared daily
and paid monthly. Dividends from net investment income on shares of the Equity
Portfolio will be declared and paid quarterly. Dividends from net investment
income on shares of the International Equity Portfolio, Small Cap Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio will be
generally declared and paid annually but may be declared and paid twice
annually. Investment income for a Portfolio includes, among other things,
interest income, accretion of market and original issue discount and
amortization of premium and, in the case of the Equity Portfolio, International
Equity Portfolio, Small Cap Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value Portfolio and
Emerging World Funds Portfolio would also include dividends. Net realized
capital gains from each of the Portfolios, if any, generally will be distributed
annually but may be distributed twice annually.

Dividends paid by each Class will be calculated at the same time and in the same
manner and will be of the same amount, except that certain expenses will be
borne exclusively by one Class and not by the other, such as fees payable under
the Distirbution and Servicing Plan. Retail Shares will receive lower per share
dividends that Institutional Shares because of the higher expenses borne by
Retail Shares. See "Fee Table."

Dividends and distributions will be invested in additional shares of the same
Portfolio at net asset value and credited to the shareholder's account on the
payment date or, at the shareholder's election, paid in cash. Dividend checks
and Statements of Account will be mailed approximately two business days after
the payment date. Each Portfolio forwards to the Custodian the monies for
dividends to be paid in cash on the payment date.

<PAGE>

TAXATION

U.S. FEDERAL INCOME TAXES

It is intended that each Portfolio will qualify as a regulated investment
company under Subchapter M of the Code. Each Portfolio will be treated as a
separate entity for tax purposes and thus the provisions of the Code applicable
to regulated investment companies generally will be applied to each Portfolio
separately, rather than to the Fund as a whole. In addition, net capital gains,
net investment income, and operating expenses will be determined separately for
each Portfolio. By qualifying as a regulated investment company under the Code,
a Portfolio will not be subject to federal income taxes with respect to net
investment income and net capital gains distributed to its shareholders. In
order to qualify as a regulated investment company for any taxable year, each
Portfolio must, among other things, (i) derive at least 90% of its gross income
from dividends, interest, certain payments with respect to securities loans and
gains from the sale or other disposition of stock or securities or foreign
currencies or other income (including, but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies and (ii) derive less than 30% of its
gross income from the sale or other disposition of stock or securities held for
less than three months.

Dividends from net investment income (including net short-term capital gains)
will be taxable to the shareholders as ordinary income, whether received in cash
or reinvested in additional shares. Distributions of net long-term capital
gains, if any, will be taxable to the shareholders as long-term capital gains,
whether received in cash or reinvested in additional shares, regardless of how
long the shareholder has held the shares.

Any dividend or distribution received by a shareholder on shares of a Portfolio
shortly after the purchase of such shares by him will have the effect of
reducing the net asset value of such shares by the amount of such dividend or
distribution. Such dividend or distribution, although in effect a return of
capital, is subject to applicable taxes to the extent that the investor is
subject to such taxes. If a shareholder holds shares less than six months and
during that period receives a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such shares during such
six-month period would be a long-term loss to the extent of such gain.

Corporate shareholders of the Equity Portfolio, Small Cap Portfolio, Global
Equity Portfolio and Bantam Value Portfolio will be eligible for the
dividends-received deduction on the dividends (excluding the net capital gain

<PAGE>
PAGE 45 THE LAZARD FUNDS, INC.

dividends) paid by the Portfolio, to the extent that the Portfolio's income is
derived from certain dividends received from domestic corporations. A
corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in the Portfolio at least 46 days. Furthermore, a
corporation's dividends-received deduction will be disallowed to the extent a
corporation's investment in shares of the Portfolio is financed with
indebtedness. It is anticipated that distributions from Portfolios other than
the Equity Portfolio, Small Cap Portfolio, Global Equity Portfolio and Bantam
Value Portfolio will not qualify for the dividends-received deduction. Each year
the Fund will notify shareholders of the federal income tax status of
distributions.

The International Fixed-Income Portfolio and the Bond Portfolio may invest in
REMICs. Interests in REMICs are classified as either "regular" interests or
"residual" interests. Under the Code, special rules apply with respect to the
treatment of a portion of the Portfolio's income from REMIC residual interests.
(Such portion is referred to herein as "Excess Inclusion Income.") Excess
Inclusion Income generally cannot be offset by net operating losses and, in
addition, constitutes unrelated business taxable income to entities which are
subject to the unrelated business income tax. The Code provides that a portion
of Excess Inclusion Income attributable to REMIC residual interests held by
regulated investment companies such as the Portfolios shall, pursuant to
regulations, be allocated to the shareholders of such regulated investment
company in proportion to the dividends received by such shareholders.
Accordingly, shareholders of the International Fixed-Income Portfolio and the
Bond Portfolio generally will not be able to use net operating losses to offset
such Excess Inclusion Income. In addition, if a shareholder of one of the
Portfolios is an entity subject to the unrelated business income tax (including
a qualified pension plan, an IRA, a 401(k) plan, a Keogh plan, or another
tax-exempt entity) and is allocated any amount of Excess Inclusion Income, such
a shareholder may be required to file a return and pay a tax on such Excess
Inclusion Income even though a shareholder might not have been required to pay
such tax or file such return absent the receipt of such Excess Inclusion Income.
It is anticipated that only a small portion, if any, of the assets of the
International Fixed-Income Portfolio and the Bond Portfolio will be invested in
REMIC residual interests. Accordingly, the amount of Excess Inclusion Income, if
any, received by the Portfolios and allocated to their shareholders should be

<PAGE>

quite small. Shareholders that are subject to the unrelated business income tax
should consult their own tax advisor regarding the treatment of their income
derived from the Portfolios.

Except as discussed above with respect to Excess Inclusion Income, a dividend or
capital gains distribution with respect to shares held by a tax-deferred or
qualified plan, such as an IRA, 403(b)(7) retirement plan or corporate pension
or profit sharing plan, will not be taxable to the plan. Distributions from such
plans will be taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the qualified plan.

Dividends and distributions paid by a Portfolio may be subject to state and
local taxes. Prior to investing in shares of a Portfolio a prospective
shareholder should consult his tax adviser concerning the federal, state and
local tax consequences of such an investment.

The foregoing discussion relates only to U.S. federal income tax law as it
affects shareholders who are U.S. citizens or residents or U.S. corporations or
trusts. The effects of federal income tax law on shareholders who are
non-resident aliens or foreign corporations or trusts may be substantially
different. Foreign investors should consult their counsel for further
information as to the U.S. tax consequences of receipt of income from a
Portfolio.

FOREIGN INCOME TAXES

Investment income received by a Portfolio from sources within foreign countries
may be subject to foreign income taxes withheld at the source. It is anticipated
that the International Equity Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Global Equity Portfolio and Emerging World Funds
Portfolio will be operated so as to meet the requirements of the Code to "pass
through" to such Portfolio's shareholders credits for foreign income taxes paid,
but there can be no assurance that it will qualify. It is possible that the
credit for foreign taxes will pass through to shareholders of the International
Fixed-Income Portfolio and the Strategic Yield Portfolio.

<PAGE>

ACCOUNT SERVICES

Shareholders will be sent a Statement of Account from the Distributor, as agent
of the Fund, whenever a share transaction is effected in the accounts.
Shareholders can write or call the Fund at the address and telephone number on
the cover of this Prospectus with any questions relating to their investment
shares of any of the Portfolios.

SHAREHOLDERS SERVICES

A special service is available to banks, brokers, investment advisers, trust
companies and others who have a number of accounts in one or more of the
Portfolios. A monthly summary of accounts can be provided, showing for each
account the account number, the month-end share balance and the dividends and
distributions paid during the month.

ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Fund consists of 1,550,000,000 shares of
common stock, $.001 par value. The Fund's Board of Directors has authorized the
following eleven portfolios: Equity Portfolio, International Equity Portfolio,
International Fixed-Income Portfolio, Bond Portfolio, Strategic Yield Portfolio,
Small Cap Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio. Shares of each Portfolio are classified into two classes of
shares--Retail Shares and Institutional Shares. The Fund's Board of Directors
may, in the future, designate and authorize the additional portfolios or
issuance of other classes of capital stock. All shares of the Fund have equal
voting rights and will be voted in the aggregate, and not by class, except where
voting by class is required by law or where the matter involved affects only one
class. A more complete statement of the voting rights of shareholders is
contained in the Statement of Additional Information. All shares of the Fund,
will be validly issued, fully paid and non-assessable. As of April 15, 1996, the
Investment Manager had the power to vote a sufficient number of the outstanding
shares of the Fund so that the Investment Manager would be deemed to be a
controlling person of the Fund.

On January 1, 1992, the Fund on behalf of the Equity Portfolio acquired the
assets and liabilities of Lazard Equity Fund, formerly a portfolio of Scudder
Fund, Inc. ("Scudder Fund") an open-end, diversified management investment
company.

<PAGE>

PAGE 46 THE LAZARD FUNDS, INC.

Lazard Freres has agreed to indemnify Scudder Fund and its directors from any
and all claims arising out of the transfer of assets to the maximum extent that
Scudder Fund would be so permitted by the Maryland General Corporation Law,
subject to the limitations of the Investment Company Act. In addition, the Fund
has agreed to indemnify, with respect to the Equity Portfolio, the Scudder Fund
and its directors and officers from claims arising out of acts or omissions
occurring prior to the transfer to the same extent that such individuals could
have been indemnified by Scudder Fund. If, however, the Fund (or the Equity
Portfolio) ceases to exist, Lazard Freres has agreed, in lieu of the Fund, to
indemnify the directors and officers of Scudder Fund as set forth in the next
preceding sentence.

Maryland law does not require annual meetings of shareholders except under
certain specified circumstances and it is anticipated that shareholder meetings
will be held only when required by federal or Maryland law. A meeting of
shareholders will be called, however, for the purpose of voting upon the
question of removal of a director of the Fund, upon the written request of
holders of not less than 10% of all votes entitled to be cast at the meeting.
The Fund will assist shareholders in communications concerning the removal of
any director of the Fund.

<PAGE>
THE LAZARD FUNDS, INC. PAGE 47

CUSTODIAN; TRANSFER
AND DIVIDEND DISBURSING AGENT

State Street has been retained to act as Custodian of the Portfolios'
investments. Scudder Service Corporation serves as the Fund's Transfer and
Dividend Disbursing Agent. Neither the Custodian nor the Transfer Agent has any
part in deciding any of the Portfolio's investment policies or which securities
are to be purchased or sold for any Portfolios. Subject to the supervision of
the Fund's Board of Directors, the Custodian may enter into subcustodial
arrangements on behalf of any of the Portfolios for the holding of foreign
securities.

REPORTS TO SHAREHOLDERS

The fiscal year of the Fund ends on December 31 of each year. The Fund sends to
the shareholders of each Portfolio, at least semi-annually, reports showing the
investments in each of the Portfolios and other information (including unaudited
financial statements) pertaining to each Portfolio. An annual report, containing
financial statements audited by the Fund's independent accountants, is sent to
shareholders each year.

PERFORMANCE INFORMATION

From time to time the Portfolios may advertise their "average annual total
return" and their "actual total return." THESE FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. These total
returns show what the investment results of each Class of the Portfolio would
have been over a specified period of time (such as one, five, or ten years, or
the period of time since commencement of operations, if shorter) assuming that
all distributions and dividends by the Portfolio were reinvested on their
reinvestment dates during the period less all recurring fees. Both types of
total return are computed in the same manner, except that the "average annual
total return" requires the additional step of determining the annual rate of
return required for the initial investment to equal the "actual total return" at
the end of the relevant period.

In addition, from time to time, the Fund may advertise "yield" and "actual
distribution rate" quotations for one or more Portfolios. A Portfolio's "yield"
for any 30-day period is computed by dividing the net investment income per
share earned during such period by the maximum public offering price per share
on the last day of the period, and then annualizing such 30-day yield in
accordance with a formula prescribed by the Commission which provides for
compounding on a semi-annual basis. A Portfolio's "actual distribution rate" is
computed in the same manner as yield except that actual income dividends
declared per share during the period in question is substituted for net
investment income per share.

Performance of each Class will be calculated separately and will take into
account any applicable distribution and service fees. As a result, at any given
time, the performance of Retail Shares should be expected to be lower than that
of Institutional Shares. See "Distribution and Servicing Plan."

<PAGE>

APPENDIX
BOND AND COMMERCIAL PAPER RATINGS

S&P BOND RATINGS

A S&P's corporate debt rating is a current assessment of the creditworthiness of
an obligor with respect to a specific obligation. Debt rated AAA has the highest
rating assigned by S&P. Capacity to pay interest and repay principal is
extremely strong. Debt rated AA has a very strong capacity to pay interest and
to repay principal and differs from the highest rated issues only in small
degree. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt of a higher rated category. Debt
rated BBB is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and to repay principal for debt in this
category than for higher rated categories.

Debt rated BB, B, CCC or CC is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. The rating C
is reserved for income bonds on which no interest is being paid. Debt rated D is
in default and payments of interest and/or repayment of principal is in arrears.

The ratings from AA to B may be modified by the addition of a plus or minus sign
to show relative standing within the major rating categories.

MOODY'S BOND RATINGS

Excerpts from Moody's description of its corporate bond ratings are as follows:
Aaa--judged to be the best quality, carry the smallest degree of investment
risk; Aa--judged to be of high quality by all standards; A--possess many
favorable investment attributes and are to be considered as higher medium grade
obligations; Baa--considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured and have speculative characteristics as
well; Ba, B, Caa, Ca, C--protection of interest and principal payments is
questionable; Ba indicates some speculative elements while Ca represents a high
degree of speculation and C represents the lowest rated class of bonds; Caa, Ca
and C bonds may be in default. Moody's applies the numerical modifiers 1, 2, and
3 in each generic rating classification from Aa to B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks at the lower end of
its generic rating category.

S&P'S COMMERCIAL PAPER RATINGS

A is the highest commercial paper rating category utilized by S&P, which uses
the numbers 1+, l, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: liquidity ratios are better than industry average, long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management. Issues rated B are regarded as having only an adequate
capacity for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities. The rating C is assigned to short-term
debt obligations with a doubtful capacity for repayment. An issue rated D is
either in default or is expected to be in default upon maturity.

MOODY'S COMMERCIAL PAPER RATINGS

Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity normally will be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well established access to
a range of financial markets and assured sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This normally will
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

<PAGE>
THE LAZARD FUNDS, INC. PAGE 49

Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.

The rating category Not Prime encompasses all other rated commercial paper
issuers.

<PAGE>

THE LAZARD FUNDS, INC.
30 Rockefeller Plaza
New York, New York 10020
Telephones: (212) 632-6400 (New York State);
(800) 228-0203 (other continental states)

INVESTMENT MANAGER
Lazard Freres Asset Management
30 Rockefeller Plaza
New York, New York 10020
Telephone: (212) 632-6400

DISTRIBUTOR
Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, New York 10020

CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110

TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02205

INDEPENDENT PUBLIC ACCOUNTANTS
ABA Seymour Schneidman Financial Services
Group, a division of Anchin, Block & Anchin LLP
1375 Broadway
New York, New York 10018

LEGAL COUNSEL
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004

NO SALES OR REDEMPTION CHARGES

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND INFORMATION OR
REPRESENTATIONS NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OF ANY SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE
UNLAWFUL.

<PAGE>

THE LAZARD FUNDS, INC.
30 Rockefeller Plaza
New York, New York 10020
(212) 632-6400 (New York State)
(800) 228-0203 (other continental states)

STATEMENT OF ADDITIONAL INFORMATION

The Lazard Funds, Inc. (the "Fund") is a no-load, open-end management
investment company that currently offers two classes of shares in the following
investment portfolios (collectively, the "Portfolios"): Lazard Equity Portfolio
(the "Equity Portfolio"); Lazard International Equity Portfolio (the
"International Equity Portfolio"); Lazard International Fixed-Income Portfolio
(the "International Fixed-Income Portfolio"); Lazard Bond Portfolio (the "Bond
Portfolio"); Lazard Strategic Yield Portfolio (the "Strategic Yield Portfolio");
Lazard Small Cap Portfolio (the "Small Cap Portfolio"); Lazard International
Small Cap Portfolio (the "International Small Cap Portfolio"); Lazard Emerging
Markets Portfolio (the "Emerging Markets Portfolio"); Lazard Global Equity
Portfolio (the "Global Equity Portfolio"); Lazard Bantam Value Portfolio (the
"Bantam Value Portfolio"); and Lazard Emerging World Funds Portfolio (the
"Emerging World Funds Portfolio"). Lazard Freres Asset Management, a division of
Lazard Freres & Co. LLC ("Lazard Freres"), serves as the investment manager
("Investment Manager") to each of the Portfolios.

The Fund currently offers Institutional Shares and Retail Shares of each
Portfolio. Institutional Shares and Retail Shares are identical, except as to
minimum investment requirements and the services offered to and expenses borne
by each class of shares.

This Statement of Additional Information is not a prospectus and is
authorized for distribution only when preceded or accompanied by the Fund's
Prospectus dated ____, 1996. This Statement of Additional Information contains
additional and more detailed information than that set forth in the Prospectus
and should be read in conjunction with the Prospectus, additional copies of
which may be obtained without charge by writing or calling the Fund at the
address and telephone number given above.

_____, 1996

<PAGE>

- --------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
- --------------------------------------------------------------------------------
Additional Permitted Investment Activities and Risk Factors....................3
Investment Restrictions.......................................................15
Management....................................................................18
Determination of Net Asset Value..............................................23
Portfolio Transactions........................................................24
Redemption of Shares..........................................................26
Distribution and Servicing Plan...............................................26
Dividends and Distributions...................................................26
Taxation......................................................................27
Shareholder Services..........................................................29
Organization and Description of Capital Stock.................................29
Other.........................................................................31
Custodian.....................................................................31
Counsel and Independent Accountants...........................................31
Yield and Total Return Quotations.............................................32

Appendices

Financial Statements

- 2 -

<PAGE>

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND RISK FACTORS

The following supplements, and should be read in conjunction with, the
information regarding the investment objectives and policies of each Portfolio
set forth in the Prospectus. Except as noted below, the investment policies
described below are not designated "fundamental policies" within the meaning of
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
and may be changed by the Board of Directors of the Fund without the approval of
the shareholders of the affected Portfolio or Portfolios; however, shareholders
will be notified prior to a material change in such policies.

U.S. GOVERNMENT SECURITIES

Each Portfolio may invest in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities ("U.S. Government Securities").
For a description of obligations issued or guaranteed by U.S. Government
agencies or instrumentalities, see Appendix A hereto.

CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES

Each Portfolio may invest in certificates of deposit and bankers'
acceptances which are considered to be short-term money market instruments.
Certificates of deposit are receipts issued by a depository institution in
exchange for the deposit of funds. The issuer agrees to pay the amount deposited
plus interest to the bearer of the receipt on the date specified on the
certificate. The certificate usually can be traded in the secondary market prior
to maturity. Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity.

COMMERCIAL PAPER

Each Portfolio may purchase commercial paper. Commercial paper consists of
short-term unsecured promissory notes issued by corporations in order to finance
their current operations. For a description of commercial paper ratings, see the
Appendix to the Prospectus.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

Each Portfolio may purchase securities offered on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements beyond two
months may be negotiated. During the period between a commitment by the
Portfolio and settlement, no payment is made for the securities purchased by the
purchaser and, thus, no interest accrues to the purchaser from the transaction.

- 3 -

<PAGE>

The use of when-issued transactions and forward commitments enables a
Portfolio to hedge against anticipated changes in interest rates and prices. For
instance, in anticipation of rising interest rates and falling market prices,
the Portfolio might sell securities in its portfolio on a forward commitment
basis to limit its exposure to falling prices. In periods of falling interest
rates and rising market prices, the Portfolio might sell a security it owns and
purchase the same or a similar security on a when-issued basis, thereby
obtaining the benefit of currently higher cash yields. In either instance, if
the Investment Manager's expectation were to prove incorrect, the Portfolio
could in some cases be obliged to purchase or sell securities at prices inferior
to current market prices.

When-issued securities and forward commitments may be sold prior to the
settlement date, but these Portfolios enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. To facilitate such transactions, the Fund's
custodian will maintain, in a separate account, cash, U.S. Government or other
appropriate high-grade debt obligations held by the Portfolio having value equal
to, or greater than, any commitments to purchase securities on a when-issued or
forward commitment basis and, with respect to forward commitments to sell
portfolio securities of the Portfolio, the portfolio securities themselves.

If a Portfolio chooses to dispose of the right to acquire a when-issued
security prior to its acquisition or dispose of its right to deliver or receive
against a forward commitment, it can incur a gain or loss. At the time the
Portfolio makes the commitment to purchase or sell a security on a when-issued
or forward commitment basis, it records the transaction and reflects the value
of the security purchased or, if a sale, the proceeds to be received, in
determining its net asset value.

Each Portfolio may purchase securities on a "when, as and if issued" basis
under which the issuance of the security depends upon the occurrence of a
subsequent event, such as approval of a merger, corporate reorganization or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in a Portfolio until the Investment Manager determines that issuance
of the security is probable. At such time, the Portfolio will record the
transaction and, in determining its net asset value, will reflect the value of
the security daily. At such time, the Portfolio will also establish a segregated
account with the Fund's custodian bank in which it will maintain cash or cash
equivalents or other high-grade debt portfolio securities equal in value to
recognized commitments for such securities. The value of the Portfolio's
commitments to purchase the securities of any one issuer, together with the
value of all securities of such issuer owned by the Portfolio, may not exceed 5%
of the value of the Portfolio's total assets at the time the initial commitment
to purchase such securities is made. Subject to the foregoing restrictions,
these Portfolios may purchase securities on such basis without limit. An
increase in the percentage of the Portfolio's assets committed to the purchase
of securities on a "when, as and if issued" basis may increase the volatility of
its net asset value. The Investment Manager and the Directors of the Fund do not
believe that the net asset value of any Portfolio will be adversely affected by
its purchase of securities on such basis.

ILLIQUID SECURITIES

No Portfolio will invest in illiquid securities if immediately after such
investment more than 10% of the value of the Portfolio's net assets (or at 5%
cost with respect the Equity Portfolio) would be invested in such securities.
For this purpose, illiquid securities include, among others,

- 4 -
<PAGE>

securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not deemed illiquid for purposes of this limitation.

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and securities which are otherwise not readily marketable. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and may be purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.

In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.

The Securities and Exchange Commission (the "Commission") has adopted
Rule 144A which allows a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act of resales of certain securities to qualified institutional buyers.

The Investment Manager will monitor the liquidity of restricted
securities in the Portfolios under the supervision of the Board of Directors.

BORROWING FOR INVESTMENT

Each of the Equity Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value Portfolio and
Emerging World Funds Portfolio may from time to time increase its ownership of
securities above the amounts otherwise possible by borrowing from banks on an
unsecured basis and investing the borrowed funds, although none of the
Portfolios has any present intention to do so. Any such borrowing will be made
only from banks, and will only be made to the extent that the value of the
Portfolio's assets, less its liabilities other than borrowings, is equal to at
least 300% of all borrowings including the proposed borrowing and any emergency
borrowings as described under "Additional Permitted Investment Activities --
Temporary Bank Borrowing" in the Prospectus. If the value of the Portfolio's
assets computed as provided above should fail to meet the 300% asset coverage

- 5 -
<PAGE>

described above, the Portfolio, within three days, is required to reduce its
bank debt to the extent necessary to meet such asset coverage and may have to
sell a portion of its investments at a time when independent investment judgment
would not dictate such action.

Interest on money borrowed by any of the Equity Portfolio, International
Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam
Value Portfolio and Emerging World Funds Portfolio is an expense of that
Portfolio which it would not otherwise incur so that the Portfolio may have
little or no net investment income during periods when its borrowings are
substantial.

Borrowing for investment purposes increases both investment opportunity and
investment risk. Since substantially all of each Portfolio's assets fluctuate in
value, whereas the obligation resulting from the borrowing is a fixed one, the
net asset value per share of the Portfolio will tend to increase more when the
portfolio assets increase in value, and decrease more when the portfolio assets
decrease in value than would otherwise be the case. This is the speculative
factor known as leverage. Such borrowings will be used only for the purchase of
securities.

INVESTMENT IN WARRANTS

The Equity Portfolio, Strategic Yield Portfolio, Small Cap Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio may invest
in warrants. None of these Portfolios may invest more than 5% of its total
assets at the time of purchase in warrants (other than those that have been
acquired in units or attached to other securities). In addition, not more than
2% of the assets of any of these Portfolios may, at the time of purchase, be
invested in warrants that are not listed on an exchange. Warrants represent
rights to purchase equity securities at a specific price valid for a specific
period of time. The prices of warrants do not necessarily correlate with the
prices of the underlying securities. The Equity Portfolio may only purchase
warrants on securities in which it may invest directly.

INVESTMENT IN OPTIONS

The Equity Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio may purchase for hedging purposes put and call options and write
"covered" put and call options on stocks and bonds in which it may invest
directly and that are traded on registered domestic securities exchanges and/or
recognized international stock exchanges, in the case of the International Small
Cap Portfolio, the Emerging Markets Portfolio, Global Equity Portfolio, and
Emerging World Funds Portfolio. The Strategic Yield Portfolio may invest up to
5% of its total assets in the purchase of the time value of call and put options
on the types of securities in which the Portfolio may invest. The time value of
an option is the option premium less the intrinsic value of the option at the
time of purchase. The Strategic Yield Portfolio may also write covered call and
put options contracts to the extent that the time value of the call or put
options does not exceed 10% of the value of the covered assets. The writer of a
call option, who receives a premium, has the obligation, upon exercise of the
option, to deliver

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<PAGE>

the underlying security against payment of the exercise price during the option
period. The writer of a put option, who receives a premium, has the obligation
to buy the underlying security, upon exercise, at the exercise price during the
option period.

The Equity Portfolio, Strategic Yield Portfolio, International Small Cap
Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value
Portfolio and Emerging World Funds Portfolio may write put and call options only
if they are covered, and such options must remain covered so long as the
Portfolio is obligated as a writer. A call option is "covered" if the Portfolio
owns the underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by the Fund's
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Portfolio holds on a
share-for-share basis a call on the same security as the call written where the
exercise price of the call held is equal to or less that the exercise price of
the call written or greater than the exercise price of the call written if the
difference is maintained by the Portfolio in cash, Treasury bills or other high
grade short-term obligations in a segregated account with the Fund's custodian.
A put option is "covered" if the Portfolio maintains cash, Treasury bills or
other high grade short-term obligations with a value equal to the exercise price
in a segregated account with the Fund's custodian, or else owns on a
share-for-share basis a put on the same security as the put written where the
exercise price of the put held is equal to or greater than the exercise of the
put written.

The principal reason for writing call options is to attempt to realize,
through the receipt of premiums, a greater current return than would be realized
on the underlying securities alone. In return for the premium, the Portfolio
would give up the opportunity for profit from a price increase in the underlying
security above the exercise price so long as the option remains open, but
retains the risk of loss should the price of the security decline. Upon exercise
of a call option when the market value of the security exceeds the exercise
price, the Portfolio would incur a loss equal to the difference between the
exercise price and the market value, less the premium received for writing the
option.

The principal reason for purchasing put options is to protect the value of
a security owned against an anticipated decline in market value. Exercise of a
put option will generally be profitable only if the market price of the
underlying security declines sufficiently below the exercise price to offset the
premium paid and the transaction costs. If the market price of the underlying
security increases, the Portfolio's profit upon the sale of the security will be
reduced by the premium paid for the put option less any amount for which the put
is sold.

Writing of options involves the risk that there will be no market in which
to effect a closing transaction. An exchange-traded option may be closed out
only on an exchange that provides a secondary market for an option of the same
series. Over-the-counter options are not generally terminable at the option of
the writer and may be closed out only by negotiation with the holder. There is
currently no secondary market for over-the-counter options. There is also no
assurance that a liquid secondary market on an exchange will exist.

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<PAGE>

INVESTMENT IN OPTIONS ON STOCK INDICES

The Equity Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio may purchase and sell for hedging purposes put and call options
on stock indices traded on national domestic or foreign securities exchanges.
The Strategic Yield Portfolio may purchase and sell put and call options on
equity securities and stock indices, to the same extent as it is permitted to
purchase and sell put and call options on the types of securities in which it
may invest. The Equity Portfolio intends to limit investments in options on
stock indices to no more than 5% of the Portfolio's total assets. Options on
stock indices are similar to options on stock except that, rather than the right
to take or make delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the stock index upon which the option is
based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. This amount of cash is equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple (the "multiplier"). The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike stock options, all settlements are in cash and
gain or loss depends on price movements in the stock market generally (or in a
particular industry or segment of the market) rather than price movements in
individual stocks.

The Equity Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Strategic Yield Portfolio, Global Equity Portfolio, Bantam Value
Portfolio and Emerging World Funds Portfolio will write put options on indices
only if they are covered by segregating with the Fund's custodian an amount of
cash, Treasury bills or other high grade short-term obligations equal to the
aggregate exercise price of the puts.

Except as described below, each of the Equity Portfolio, International
Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam
Value Portfolio and Emerging World Funds Portfolio will write call options on
indices only if on such date the Portfolio holds a portfolio of stocks at least
equal to the value of the index times the multiplier times the number of
contracts. When one of the Portfolios writes a call option on a broadly based
stock market index, it will segregate or put into escrow with the Fund's
custodian, or pledge to a broker as collateral for the option, at least ten
"qualified securities" with a market value at the time the option is written of
not less than 100% of the current index value times the multiplier times the
number of contracts. If one of the Portfolios has written an option on an
industry or market segment index, it will so segregate, escrow, or pledge at
least five "qualified securities," all of which are stocks of issuers in such
industry or market segment, with a market value at the time the option is
written of not less than 100% of the current index value times the multiplier
times the number of contracts. Such stocks will include stocks which represent
at least 50% of the weighting of the industry or market segment index and will
represent at least 50% of the Portfolio's holdings in that industry or market
segment. No individual security will represent more than 15% of the amount so
segregated, escrowed or pledged, in the case of broadly based stock market index
options, or 25% of such amount, in the case of industry or market segment index
options. If at the close of business on any day the market value of such
qualified securities so segregated, escrowed or pledged falls below 100% of the
current index value times the multiplier times the number of contracts, the
Portfolio will so segregate, escrow or pledge an amount in cash, Treasury bills
or other high grade short-term obligations equal in value to the difference. In
addition, when one of the Portfolios writes a call on an index which is
in-the-money at the time the call is written, the Portfolio will segregate with
the Fund's custodian or pledge to the broker as collateral cash, Treasury bills
or other high grade short-term obligations equal in value to the

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<PAGE>

amount by which the call is in-the-money times the multiplier times the number
of contracts. Any amount segregated pursuant to the foregoing sentence may be
applied to the Portfolio's obligation to segregate additional amounts in the
event that the market value of the qualified securities falls below 100% of the
current index value times the multiplier times the number of contracts. A
"qualified security" is an equity security which is listed on a national
domestic or foreign securities exchange or quoted on the National Association of
Securities Dealers Automated Quotations System against which the Portfolio has
not written a stock call option; however, if the Portfolio owns a call on the
same index as the call written where the exercise price of the call owned is
equal to or less than the exercise price of the call written, or greater than
the call written if the difference is maintained by the Portfolio in cash,
Treasury bills or other high grade short-term obligations in a segregated
account with the Fund's custodian, it will not be subject to the requirements
described in this paragraph.

FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS

The International Equity Portfolio, International Fixed-Income Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Strategic Yield
Portfolio, Global Equity Portfolio and Emerging World Funds Portfolio may
purchase or sell foreign currency forward exchange contracts. While the purchase
of these contracts is not presently regulated by the Commodity Futures Trading
Commission (the "CFTC") except for certain requirements as to the qualification
of the investor, the CFTC may in the future assert authority to regulate more
broadly the trading of foreign currency pursuant to forward contracts. In such
event, a Portfolio's ability to utilize forward contracts in the manner set
forth in the Prospectus may be restricted. Forward contracts reduce the
potential gain from a positive change in the relationship between the U.S.
dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for the Portfolio if it had not entered
into such contracts. The use of foreign currency forward exchange contracts will
not eliminate fluctuations in the underlying U.S. dollar equivalent value of the
prices of or rates of return on the Portfolio's foreign currency denominated
portfolio securities, and the use of such techniques will subject the Portfolio
to certain risks.

The matching of the increase in value of a forward contract and the decline
in the U.S. dollar equivalent value of the foreign currency denominated asset
that is the subject of the hedge generally will not be precise. In addition, a
Portfolio may not always be able to enter into foreign currency forward exchange
contracts at attractive prices and this will limit a Portfolio's ability to use
these contracts to hedge or cross-hedge its assets. Also, with regard to a
Portfolio's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying the
Portfolio's cross-hedges and the movements in the exchange rates of the foreign
currencies in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The International Fixed-Income Portfolio, Bond Portfolio, International
Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam
Value Portfolio and Emerging World Funds Portfolio may enter into contracts for
the purchase or sale for future delivery of fixed-income securities or contracts
based on financial indices including any index of U.S. Government Securities or
corporate debt securities and may purchase and write put and call options to buy

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<PAGE>

or sell futures contracts. The successful use of futures contracts and options
on futures contracts draws upon the Investment Manager's special skills and
experience with respect to such instruments and usually depends on the
Investment Manager's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, the Portfolio may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize losses and thus
will be in a worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of futures contracts or
options on futures and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.

The Board of Directors has adopted the requirement that futures contracts
and options on futures contracts be used by the Bond Portfolio or the
International Fixed-Income Portfolio solely as a hedge and not for speculation.
In addition to this requirement, the Board of Directors has also adopted two
percentage restrictions on the use of futures contracts. The first restriction
is that the Bond Portfolio and the International Fixed-Income Portfolio will not
enter into any futures contracts or options on futures contracts if immediately
thereafter the amount of margin deposits on all the futures contracts of the
Portfolio and premiums paid on options on futures contracts would exceed 5% of
the market value of the total assets of the Portfolio. The second restriction is
that the aggregate market value of the outstanding futures contracts purchased
by either the Bond Portfolio or International Fixed-Income Portfolio not exceed
50% of the market value of the total assets of Portfolio. Neither of these
restrictions will be changed by the Fund's Board of Directors without
considering the policies and concerns of the various applicable federal and
state regulatory agencies. Similar restrictions have not been adopted for the
International Small Cap Portfolio and Emerging Markets Portfolio.

For additional information on the use, risks and costs of futures contracts
and options on futures contracts, see Appendix B hereto.

OPTIONS ON FOREIGN CURRENCIES

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<PAGE>

SPECIAL RISKS OF INVESTMENT IN HIGH-YIELD SECURITIES

As discussed in the Prospectus, the Strategic Yield Portfolio invests
principally in high-yield fixed-income securities. The International
Fixed-Income Portfolio may invest up to 15% of its total assets in fixed-income
securities that are rated below BBB by Standard & Poor's Ratings Group ("S&P")
and Baa by Moody's Investors Service, Inc. ("Moody's"). Bonds rated below BBB by
S&P and Baa by Moody's are generally regarded as speculative and range from
having speculative characteristics to lacking characteristics of a desirable
investment and are commonly called "junk bonds." As a result, investment in such
bonds will generally entail greater speculative risks than those associated with
investment in high-grade bonds (i.e., bonds rated AAA, AA or A by S&P or Aaa, Aa
or A by Moody's).

The ratings of fixed-income securities by S&P and Moody's are a generally
accepted barometer of credit risk. They are, however, subject to certain
limitations from an investor's standpoint. Such limitations include the
following: the rating of an issuer is heavily weighted by past developments and
does not necessarily reflect probable future conditions; there is frequently a
lag between the time a rating is assigned and the time it is updated; and there
may be varying degrees of difference in credit risk of securities in each rating
category.

While ratings provide a generally useful guide to credit risks, they do
not, nor do they purport to, offer any criteria for evaluating interest rate
risk. Changes in the general level of interest rates cause fluctuations in the
prices of fixed-income securities already outstanding and will therefore result
in fluctuations in the net asset value of a Portfolio's shares. The extent of
the fluctuation is determined by a complex interaction of a number of factors.
The Investment Manager will evaluate those factors it considers relevant and
will make portfolio changes when it deems it appropriate in seeking to reduce
the risk of depreciation in the value of the relevant Portfolio.

MORTGAGE-BACKED SECURITIES

GOVERNMENT GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. The International
Fixed-Income Portfolio, Bond Portfolio and Strategic Yield Portfolio may invest
in mortgage pass-through securities representing participation interests in
pools of residential mortgage loans originated by United States governmental or
private lenders and guaranteed, to the extent provided in such securities, by
the U.S. Government or one of its agencies or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semiannually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.

The guaranteed mortgage pass-through securities in which the Portfolios may
invest include those issued or guaranteed by the Government National Mortgage
Association ("Ginnie Mae" or "GNMA"), the Federal National Mortgage Association
("Fannie Mae" or "FNMA") and the Federal Home Loan Mortgage Corporation
("Freddie Mac" or "FHLMC").

GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934, as amended (the "Housing Act"),
authorizes Ginnie Mae to guarantee the timely payment of the principal of and
interest on certificates that are based on and backed by a pool of mortgage
loans insured by the Federal Housing Administration under the Housing Act or
Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed by the Veterans'
Administration under the Servicemen's Readjustment Act of 1944, as amended ("VA
Loans"), or by pools of other eligible mortgage loans. The Housing Act provides

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<PAGE>

that the full faith and credit of the U.S. Government is pledged to the payment
of all amounts that may be required to be paid under any guarantee. In order to
meet its obligations under such guarantee, Ginnie Mae is authorized to borrow
from the U.S. Treasury with no limitations as to amount.

The Ginnie Mae Certificates will represent a pro rata interest in one
or more pools of the following types of mortgage loans: (i) fixed rate level
payment mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii)
fixed rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured
by manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans), (viii) mortgage loans that provide for
adjustments in payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (ix) mortgage-backed serial notes. All
of these mortgage loans will be FHA Loans or VA Loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on one-to
four-family housing units.

FANNIE MAE CERTIFICATES. Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act. Fannie Mae was originally established in 1939 as a U.S.
Government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder owned and privately managed corporation by
legislation enacted in 1968. Fannie Mae provides funds to the mortgage market
primarily by purchasing home mortgage loans from local lenders, thereby
replenishing their funds for additional lending. Fannie Mae acquires funds to
purchase home mortgage loans from many capital market investors that may not
ordinarily invest in mortgage loans directly, thereby expanding the total amount
of funds available for housing.

Each Fannie Mae Certificate will entitle the registered holder thereof to
receive amounts representing such holder's pro rata interest in scheduled
principal payments and interest payments (at such Fannie Mae Certificate's
pass-through rate, which is net of any servicing and guarantee fees on the
underlying mortgage loans), and any principal prepayments, on the mortgage loans
in the pool represented by such Fannie Mae Certificate and such holder's
proportionate interest in the full principal amount of any foreclosed or
otherwise finally liquidated mortgage loan. The full and timely payment of
principal of and interest on each Fannie Mae Certificate will be guaranteed by
Fannie Mae, which guarantee is not backed by the full faith and credit of the
U.S. Government.

Each Fannie Mae Certificate will represent pro rata interests in one or
more pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans, that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate mortgage loans secured by multifamily
projects.

FREDDIE MAC CERTIFICATES. Freddie Mac is a corporate instrumentality of the
United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act"). Freddie Mac was established primarily for the purpose
of increasing the availability of mortgage credit for the financing of needed
housing. The principal activity of Freddie Mac currently consists of the
purchase of first lien, conventional, residential mortgage loans and

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<PAGE>

participation interests in such mortgage loans and the resale of the mortgage
loans so purchased in the form of mortgage securities, primarily Freddie Mac
Certificates.

Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate, whether or not received. Freddie Mac also guarantees to
each registered holder of a Freddie Mac Certificate ultimate collection of all
principal of the related mortgage loans, without any offset or deduction, but
does not, generally, guarantee the timely payment of scheduled principal.
Freddie Mac may remit the amount due on account of its guarantee of collection
of principal at any time after default on an underlying mortgage loan, but not
later than 30 days following (i) foreclosure sale, (ii) payment of a claim by
any mortgage insurer, or (iii) the expiration of any right of redemption,
whichever occurs later, but in any event no later than one year after demand has
been made upon the mortgagor for accelerated payment of principal. The
obligations of Freddie Mac under its guarantee are obligations solely of Freddie
Mac and are not backed by the full faith and credit of the U.S. Government.

Freddie Mac Certificates represent pro rata interests in a group of
mortgage loans (a "Freddie Mac Certificate group") purchased by Freddie Mac. The
mortgage loans underlying the Freddie Mac Certificates will consist of fixed
rate or adjustable rate mortgage loans with original terms to maturity of
between ten and thirty years, substantially all of which are secured by first
liens on one- to four-family residential properties or multi-family projects.
Each mortgage loan must meet the applicable standards set forth in the FHLMC
Act. A Freddie Mac Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.

VARIABLE AMOUNT MASTER DEMAND NOTES

The Equity Portfolio may invest in variable amount master demand notes. A
variable amount master demand note is a type of commercial paper that differs
from ordinary commercial paper in that it is issued pursuant to a written
agreement between the issuer and the holder. Its amount may from time to time be
increased by the holder (subject to an agreed maximum) or decreased by the
holder or the issuer, it is payable on demand and the rate of interest varies
pursuant to an agreed-upon formula. Generally, master demand notes are not rated
by a rating agency. However, the Equity Portfolio may invest in a master demand
note if, in the opinion of the Investment Manager, it is of investment quality
comparable to rated securities in which the Equity Portfolio may invest. The
Investment Manager monitors the issuers of such master demand notes on a daily
basis. Because transfer of such notes is usually restricted by the issuer, and
there is no secondary trading market for such notes, the Equity Portfolio may
not invest in a master demand note if, as a result, more than 10% of the value
of the Portfolio's net assets would be invested in such notes or other illiquid
securities. See "Illiquid Securities" above.

SECURITIES WITH PUT RIGHTS

The Equity Portfolio may enter into put transactions with respect to
obligations held in its portfolio with broker-dealers and with commercial banks.
The right of the Equity Portfolio to exercise a put is unconditional and
unqualified. A put is not transferable by the Portfolio, although the Portfolio
may sell the underlying securities to a third party at any time. If necessary

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<PAGE>

and advisable, the Portfolio may pay for certain puts either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a put (thus reducing the yield to maturity otherwise available for the
same securities). The Portfolio expects, however, that puts generally will be
available without the payment of any direct or indirect consideration.

The Equity Portfolio may enter into puts only with banks or broker-dealers
which, in the opinion of the Investment Manager, present minimal credit risks.
The ability of the Portfolio to exercise a put will depend on the ability of the
bank or broker-dealer to pay for the underlying securities at the time the put
is exercised. In the event that a bank or broker-dealer should default on its
obligation to repurchase an underlying security, the Portfolio might be unable
to recover all or a portion of any loss sustained from having to sell the
securities elsewhere.

The Equity Portfolio intends to enter into puts solely to maintain
liquidity and it does not intend to exercise its rights thereunder for trading
purposes. The puts will be only for periods substantially less than the life of
the underlying securities. The acquisition of a put will not affect the
valuation by the Portfolio of the underlying security. Where the Equity
Portfolio pays directly or indirectly for a put, its cost will be reflected as
an unrealized loss for the period during which the put is held by the Portfolio
and will be reflected in realized gain or loss when the put is exercised or
expires. If the value of the underlying security increases, the potential for
unrealized or realized gain is reduced by the cost of the put.

REITS

The Small Cap Portfolio, Equity Portfolio, Global Equity Portfolio and
Bantam Value Portfolio may invest an unlimited amount of its assets in Real
Estate Investment Trusts ("REITS"), although it currently intends to limit its
investments in REITS to no more than 5% of its net assets. Each of the
Portfolios intends to invest in listed equity REITS, which own properties, and
listed mortgage REITS, which make short-term construction and development
mortgage loans or which invest in long-term mortgages or mortgage pools.
Accordingly, a prospective investor should realize that the Portfolio may be
subject to the considerations associated with the direct ownership of real
estate because of the Portfolio's ability to invest in the securities of
companies that own, construct, manage or sell residential, commercial or
industrial real estate. These include declines in the value of real estate,
factors related to general and local economic conditions, overbuilding and
increased competition, increases in property taxes and operating expenses,
changes in zoning laws, casualty or condemnation losses, limitations on rents,
changes in neighborhood values, the appeal of properties to tenants, and
increases in interest rates. The value of securities of companies that service
the real estate industry also may be affected by such risks.

In addition, equity REITS may be affected by any changes in the value of
the underlying property owned by the trusts, while mortgage REITS may be
affected by the quality of any credit extended. Further, equity and mortgage
REITS are dependent upon management skill, are not diversified and are therefore
subject to the risk of financing single or a limited number of projects. REITS
are also subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation and the possibility of failing to qualify for tax free
pass-through of income under the Internal Revenue Code of 1986, as amended (the
"Code"), and to maintain exemption under the Investment Company Act.

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<PAGE>

SUPRANATIONAL ORGANIZATIONS

The International Fixed-Income Portfolio may invest up to 25% of the value
of its total assets in debt securities issued by supranational organizations
such as the World Bank, which finances development projects in member countries
and the European Community, which is a multi-nation organization engaged in
cooperative economic activities.

-------------------------------

Except as noted, the foregoing policies and activities of the Portfolios
are not fundamental and may be changed by the Board of Directors of the Fund
without the approval of shareholders of the affected Portfolio or Portfolios;
however, shareholders will be notified prior to a material change in such
policies.

INVESTMENT RESTRICTIONS

The following investment restrictions, which supplement those set forth in
the Fund's Prospectus, are, except where noted, fundamental policies of each of
the Portfolios and may be changed, as to a Portfolio, only when permitted by law
and approved by the holders of a majority of such Portfolio's outstanding voting
securities, as described under "Organization and Description of Capital Stock."
The Fund is empowered to establish, without shareholder approval, additional
portfolios which may have different fundamental investment policies.

None of the Portfolios may:

(i) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the
purchase and as a result thereof, the value of any Portfolio's
investments in that industry would exceed 25% of the current value of
such Portfolio's total assets, provided that there is no limitation
with respect to investments in obligations of the U.S. Government, its
agencies or instrumentalities;

(ii) (a) purchase or sell real estate or real estate limited
partnerships, except that a Portfolio may purchase and sell securities
of companies which deal in real estate or interests therein and the
International Small Cap Portfolio, Emerging Markets Portfolio, Global
Equity Portfolio, Bantam Value Portfolio and Emerging World Funds
Portfolio also may purchase and sell securities that are secured by
real estate; provided, however, that this clause (a) is not a
fundamental policy of the Equity Portfolio; (b) purchase or sell
commodities or commodity contracts (except that the International Small
Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio,
Bantam Value Portfolio and Emerging World Funds Portfolio may purchase
and sell, swaps, options, forward contracts, futures contracts,
including those relating to indices, and options on futures contracts
or indices, the International Equity Portfolio, International
Fixed-Income Portfolio and Strategic Yield Portfolio may purchase or
sell foreign currency forward exchange contracts, the International
Fixed-Income Portfolio and Bond Portfolio may enter into futures
contracts and options on futures contracts, the International
Fixed-Income Portfolio may enter into futures contracts on foreign

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<PAGE>

currencies and the International Fixed-Income Portfolio and Strategic
Yield Portfolio may purchase and write put and call options on foreign
currencies); and (c) invest in interests in or leases relating to oil,
gas, or other mineral exploration or development programs; provided,
however, that this clause (c) is not a fundamental policy of the Equity
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging
World Funds Portfolio;

(iii) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of
securities, provided, however, that this prohibition on short sales is
not a fundamental policy of the Global Equity Portfolio, Bantam Value
Portfolio and Emerging World Funds Portfolio;

(iv) underwrite securities of other issuers, except to the extent that
the purchase of municipal obligations or other permitted investments
directly from the issuer thereof or from an underwriter for an issuer
and the later disposition of such securities in accordance with any
Portfolio's investment program may be deemed to be an underwriting; or

(v) make investments for the purpose of exercising control or
management; provided, however, that this restriction is not a
fundamental policy of the International Small Cap Portfolio, Emerging
Markets Portfolio, Global Equity Portfolio, Bantam Value Portfolio and
Emerging World Funds Portfolio.

In addition to the restrictions noted above applicable to all the
Portfolios, the Equity Portfolio has adopted the following fundamental
investment policies:

The Equity Portfolio may not:

(i) purchase restricted securities, which are securities that must be
registered under the Securities Act before they may be offered or sold
to the public, except that the Equity Portfolio may invest up to 5% of
the value of its total assets, taken at cost, in such securities;

(ii) invest more than 5% of the current value of its total assets in
the securities of any one issuer, other than obligations of the United
States Government, its agencies or instrumentalities or securities
which are backed by the full faith and credit of the United States; or

(iii) purchase securities of an issuer if, as a result, as to 75% of
the Portfolio's total assets, the Portfolio would own more than 10% of
the voting securities of such issuer.

- 16 -
<PAGE>

Whenever any investment policy or restriction states a minimum or maximum
percentage of a Portfolio's assets which may be invested in any security or
other asset, it is intended that such minimum or maximum percentage limitation
be determined immediately after and as a result of the Portfolio's acquisition
of such security or other asset. Accordingly, any later increase or decrease in
percentage beyond the specified limitations resulting from a change in values or
net assets will not be considered a violation.

In connection with the qualification or registration for sale under the
securities laws of certain states of the shares of the International Equity
Portfolio, International Fixed-Income Portfolio, Bond Portfolio and Small Cap
Portfolio, the Fund has agreed that, in addition to the foregoing investment
restrictions applicable to these Portfolios, none of them may (i) purchase any
security of any issuer if as a result the Portfolio would own more than 10% of
the outstanding voting securities of that issuer; (ii) invest in warrants; (iii)
invest more than 10% of its total assets in puts, calls, straddles, spreads or
any combination thereof; (iv) purchase or retain securities of any issuer if the
Directors or officers of the Fund or the Investment Manager who own beneficially
more than 1/2 of 1% of the securities of an issuer together own beneficially
more than 5% of such issuer. The investment restrictions set forth in (i), (iii)
and (iv) of the preceding sentence are additionally applicable to the Strategic
Yield Portfolio and the investment restrictions set forth in (i) and (iv) of the
preceding sentence are additionally applicable to the Equity Portfolio. The
investment restrictions set forth in this paragraph are not designated
fundamental policies of these Portfolios within the meaning of the Investment
Company Act and may be changed by the Board of Directors of the Fund without the
approval of the shareholders of the affected Portfolio or Portfolios.

- 17 -
<PAGE>

MANAGEMENT

The Directors and officers of the Fund and their principal occupations
during the past five years are set forth below. Unless otherwise specified, the
address of each of the following persons is 30 Rockefeller Plaza, New York, New
York 10020.
<TABLE>
<CAPTION>

NAME, ADDRESS AND AGE POSITION WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- ------------------------ ----------------------------------------
<S> <C> <C>
Norman Eig* (55) Chairman of the Board Managing Director (formerly General Partner),
Lazard Freres

Herbert W. Gullquist* (58) President, Director Managing Director (formerly General Partner),
Lazard Freres

John J. Burke (67) Director Vice Chairman, Director, Montana Power Company;
50 Burning Tree Lane
Butte, MT 59701

Kenneth S. Davidson (51) Director Managing Partner, Davidson Weil Associates;
Davidson Weil Associates Blackthorn Fund N.V., Director; Ottertail
767 Fifth Avenue, 43rd Floor Valley Railroad, Director.
New York, NY 10153

Carl Frischling* (58) Director Senior Partner, Kramer, Levin, Naftalis, Nessen,
170 East 83rd Street Kamin & Frankel; from 1992 to 1994, Senior
New York, NY 10028 Partner, Reid & Priest; from 1979 to 1992, Senior
Partner, Spengler Carlson Grubar Brodsky & Frischling.

Lester Z. Lieberman (65) Director Private Investor, Member of the Board of
25 Vreeland Road Directors of Dowel Associates, Chairman of the
Florham Park, NJ 07932 Boards of Trustees of Newark Beth Israel
Medical Center and Irvington General Hospital,
member of the New Jersey State Investment
Council, prior to 1994 was Member of the Boards
of Directors of United Jersey Bank, N.A. and
Clarkson University.

Richard Reiss, Jr. (52) Director Managing Partner, Cumberland Associates, an
1114 Avenue of the Americas investment manager
New York, NY 10036

John Rutledge (47) Director President, Rutledge & Company, an economics and
One Greenwich Office Park investment advisory firm, Chairman, Claremont
51 Weaver Street Economics Institute
Greenwich, CT 06831

William G. Butterly, III (35) Vice President, Vice President, Legal Affairs of the Investment
30 Rockefeller Plaza Secretary Manager, prior to May 1993, attorney with
New York, NY 10020 Shearman & Sterling

Gus Coutsouros (33) Treasurer Certified Public Accountant, Vice President and
30 Rockefeller Plaza Assistant Controller of the Investment Manager,
New York, NY 10020 prior to June 1992, Manager, National
Securities and Research Corp., prior to June
1991, Senior Accountant, Price Waterhouse.

Thomas W. Joseph (56) Vice President and Principal, Scudder, Stevens & Clark
175 Federal Street Assistant Secretary
Boston, MA 02110

Thomas F. McDonough (49) Vice President and Principal, Scudder, Stevens & Clark
175 Federal Street Assistant Secretary
Boston, MA 02110

</TABLE>

- --------
* An "interested person" of the Fund as defined in the Investment Company Act
and a member of the Executive Committee of the Fund, which meets with the
officers of the Fund in accordance with the Fund's procedures for the valuation
of illiquid securities and for other appropriate purposes.

- 18 -
<PAGE>

For so long as the Fund's plan described under "Distribution and Servicing
Plan" remains in effect, the Directors who are not "interested persons" of the
Fund, as defined in the Investment Company Act, will be selected and nominated
by the Directors who are not "interested persons" of the Fund.

Compensation received from the Fund during 1995 by the Directors who are
not employees or affiliated persons of the Investment Manager is set forth in
the following table.

<TABLE>

Compensation Table

TOTAL
COMPENSATION
AGGREGATE FROM FUND
COMPENSATION FROM AND FUND COMPLEX
NAME OF PERSON THE FUND PAID TO DIRECTORS
- -------------- ---------------- -----------------
<S> <C> <C>
John J. Burke $25,000 $25,000
Lester Z. Lieberman $25,000 $25,000
Richard Reiss, Jr. $25,000 $25,000
John Rutledge $25,000 $25,000
Kenneth S. Davidson $ 6,000 $ 6,000
Carl Frischling* $19,000 $19,000

</TABLE>
*Estimated for 1996

The Fund does not compensate officers or Directors who are employees or
affiliated persons of the Investment Manager. As of July 31, 1996, the officers
and Directors of the Fund, as a group, owned less than 1% of the shares of each
Portfolio, except the Strategic Yield Portfolio, Global Equity Portfolio and
Bantam Value Portfolio. As of that date, the officers and Directors of the Fund,
as a group, owned 1.03%, 1.34% and 1.29% of the shares of the Strategic Yield
Portfolio, the Global Equity Portfolio and the Bantam Value Portfolio,
respectively.

INVESTMENT MANAGER AND INVESTMENT MANAGEMENT AGREEMENTS

Lazard Freres Asset Management, 30 Rockefeller Plaza, New York, New York
10020, has entered into an investment management agreement with the Fund on

- 19 -
<PAGE>

behalf of each of the Portfolios. The investment management agreements entered
into by Lazard Freres Asset Management are collectively referred to herein as
the "Management Agreements" and, where appropriate, individually as the
"Management Agreement." Pursuant to each Management Agreement, Lazard Freres
Asset Management regularly provides each Portfolio with investment research,
advice and supervision and furnishes continuously an investment program for each
Portfolio consistent with its investment objectives and policies, including the
purchase, retention and disposition of securities.

Lazard Freres Asset Management is a division of Lazard Freres, a New York
limited liability company, which is registered as an investment adviser with the
Commission and is a member of the New York, American and Midwest Stock
Exchanges. Lazard Freres provides its clients with a wide variety of investment
banking and related services, including investment management. It is a major
underwriter of corporate securities, conducts a broad range of trading and
brokerage activities in corporate and governmental bonds and stocks and acts as
a financial adviser to municipal authorities and utilities and as an underwriter
and trader in municipal securities. Lazard Freres Asset Management provides
investment management services to client discretionary accounts with assets as
of December 31, 1995 totaling approximately $30.7 billion. Its clients are both
individuals and institutions, some of whose accounts have investment policies
similar to those of several of the Portfolios. As of April 15, 1996, Lazard
Freres Asset Management held voting and dispositive power with respect to a
sufficient number of shares of each Portfolio held by client accounts as to be
considered a controlling person of such Portfolio.

Subject to policies established by the Fund's Board of Directors, which has
overall responsibility for the business and affairs of each Portfolio, the
Investment Manager manages the operations of the Portfolios. In addition to
providing advisory services, the Investment Manager furnishes the Portfolios
with office space and certain facilities and personnel required for conducting
the business of the Portfolios and pays the compensation of the Fund's officers,
directors and employees affiliated with the Investment Manager or its
affiliates.

As compensation for its services, each of the Portfolios has agreed to pay
the Investment Manager an investment management fee at the annual rates set
forth below as a percentage of the average daily value of the net assets of the
applicable Class of the relevant Portfolio: Equity Portfolio, .75%;
International Equity Portfolio, .75%; International Fixed-Income Portfolio,
.75%; Bond Portfolio, .50%; Strategic Yield Portfolio, .75%; Small Cap
Portfolio, .75%; International Small Cap Portfolio, .75%; Emerging Markets
Portfolio, 1.00%; Global Equity Portfolio, .75%; Bantam Value Portfolio, .75%;
and Emerging World Funds Portfolio, .75%. The management fees are accrued daily
and paid monthly.

- 20 -
<PAGE>

The Investment Manager has undertaken to bear, excluding 12b-1 fees for the
Retail Shares (i) with respect to each of the International Fixed-Income
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio, total operating expenses in excess of 1.05%, (ii) with respect
to the Emerging Markets Portfolio, total operating expenses in excess of 1.30%,
and (iii) with respect to the Bond Portfolio, total operating expenses in excess
of .80%, of such Portfolio's average net assets, until the earlier of December
31, 1996 (or such time as the respective Portfolio reaches total net assets of
$100 million). Pursuant to the terms of the Management Agreements and these
arrangements, for the fiscal year ended December 31, 1995, the Investment
Manager received management fees equal to $982,130 for the Equity Portfolio,
$7,895,766 for the International Equity Portfolio, $4,066,987 for the Small Cap
Portfolio, $525,597 for the Strategic Yield Portfolio, $232,537 for the
International Fixed-Income Portfolio, $286,080 for the Bond Portfolio, $736,353
for the International Small Cap Portfolio and $93,501 for the Emerging Markets
Portfolio. For the fiscal year ended December 31, 1995, the Investment Manager
received no management fees for the Bantam Value Portfolio, Global Equity
Portfolio and Emerging World Funds Portfolio. For the fiscal year ended December
31, 1994, the Investment Manager received management fees equal to $504,424 for
the Equity Portfolio, $5,782,629 for the International Equity Portfolio,
$2,974,688 for the Small Cap Portfolio, $330,620 for the Strategic Yield
Portfolio, $62,918 for the International Fixed-Income Portfolio, $13,790 for the
Bond Portfolio and $335,900 for the International Small Cap Portfolio. For the
fiscal year ended December 31, 1994, the Investment Manager received no
management fee for the Emerging Markets Portfolio. For the fiscal year ended
December 31, 1993, the Investment Manager received management fees equal to
$217,301 for the Equity Portfolio, $2,701,856 for the International Equity
Portfolio, $1,948,153 for the Small Cap Portfolio, and $29,038 for the Strategic
Yield Portfolio. For the fiscal year ended December 31, 1993, the Investment
Manager received no management fees for the International Fixed-Income
Portfolio, Bond Portfolio, or Strategic Yield Portfolio, nor from the
International Small Cap Portfolio or Emerging Markets Portfolio which were first
established on July 20, 1993.

Each Management Agreement provides that the relevant Portfolio pays all of
its expenses that are not specifically assumed by the Investment Manager.
(Expenses attributable to each Portfolio will be charged against the assets of
that Portfolio, other expenses of the Fund will be allocated among the
Portfolios in a manner which may, but need not, be proportionate in relation to
the net assets of each Portfolio.) Expenses payable by each of the Portfolios
include, but are not limited to, clerical salaries; brokerage and other expenses
of executing portfolio transactions; legal, auditing or accounting expenses;
trade association dues; taxes or governmental fees; the fees and expenses of any
person providing administrative services to the Fund; the fees and expenses of
the custodian and transfer agent of the Fund; the cost of preparing share
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of shares of the Portfolio; the expenses and fees for
registering and qualifying securities for sale; the fees of Directors of the
Fund who are not employees or affiliated persons of the Investment Manager or
its affiliates; travel expenses of all Directors, officers and employees;
insurance premiums; and the cost of preparing and distributing reports and
notices to shareholders. In addition, the Retail Shares of each Portfolio are
subject to an annual distribution and servicing fee. See "Distribution and
Servicing Plan." The organizational expenses of the Fund are being amortized and
allocated among the International Equity Portfolio, International Fixed-Income
Portfolio, Bond Portfolio, Strategic Yield Portfolio and Small Cap Portfolio.
Furthermore, the Investment Manager will reimburse each Portfolio for its
expenses (exclusive of interest, taxes, brokerage, distribution expenditures and
extraordinary expenses, all to the extent permitted by applicable state
securities law and regulations) which in any year exceed the limits prescribed
by any state in which the Portfolio's shares are qualified for sale. The Fund
may not qualify the shares of each Portfolio for sale in every state. The Fund
believes that presently the most restrictive expense ratio limitation imposed by
any state is 2.5% of the first $30 million of the Portfolio's average net
assets, 2.0% of the next $70 million of its average net assets and 1.5% of its
average net assets in excess of $100 million.

- 21 -
<PAGE>

Each Management Agreement other than with respect to the International
Small Cap Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam
Value Portfolio and Emerging World Funds Portfolio was approved on September 11,
1991 (and amended and restated on October 19, 1993) by the Fund's Board of
Directors, including a majority of the Directors of the Fund who are not parties
to such Management Agreement or interested persons (as defined in the Investment
Company Act) of any such party (the "Disinterested Directors"), and by a
majority of the outstanding voting securities of the respective Portfolio at the
Fund's Initial Meeting of Stockholders held on December 16, 1992. Each of the
Management Agreements for the International Small Cap Portfolio and Emerging
Markets Portfolio was approved by the Fund's Board of Directors, including a
majority of the Disinterested Directors, at the meeting of the Board held on
July 20, 1993 and the sole shareholder of each such Portfolio on August 25,
1993. Each Management Agreement (other than the Management Agreements for the
Global Equity Portfolio, Bantam Value Portfolio and Emerging World Funds
Portfolio) was renewed by approval of the Fund's Board of Directors including a
majority of the Directors who are not interested persons, on October 16, 1995.
The Management Agreements for the Global Equity Portfolio, Bantam Value
Portfolio and Emerging World Funds Portfolio were approved by the Fund's Board
of Directors on October 16, 1995. Each such Management Agreement will continue
in effect, provided that such continuance is approved annually by a vote of a
majority of the respective Portfolio's outstanding voting securities or by the
Fund's Board of Directors and, in either case, by a majority of the
Disinterested Directors.

Each Management Agreement is terminable without penalty by the Fund on 60
days' written notice when authorized either by majority vote of the outstanding
voting securities of the particular Portfolio or by a vote of a majority of the
Fund's Directors, or by the Investment Manager on 60 days' written notice, and
will automatically terminate in the event of its assignment. Each Management
Agreement provides that in the absence of willful misfeasance, bad faith or
gross negligence on the part of the Investment Manager, or of reckless disregard
of its obligations thereunder, the Investment Manager shall not be liable for
any action or failure to act in accordance with its duties thereunder.

ADMINISTRATION

Effective May 1, 1995, the Fund engaged State Street Bank and Trust Company
("State Street") to provide certain administrative services to the Portfolios.
Each Portfolio will bear the cost of such administrative expenses at the annual
rate of $37,500 plus .02% of the average daily net assets of the applicable
Class of such Portfolios.

- 22 -
<PAGE>

State Street has agreed to waive the $37,500 fee for one year for the Bond and
International Fixed Income Portfolios.

DISTRIBUTOR

Lazard Freres serves as the distributor of shares of each of the Fund's
Portfolios and conducts a continuous offering pursuant to a "best efforts"
arrangement requiring it to take and pay for only such securities as may be sold
to the public. As the distributor, it accepts purchase and redemption orders for
shares of the Portfolios. In addition, the distribution agreement obligates
Lazard Freres to pay certain expenses in connection with the offering of the
shares of the Portfolios. After the prospectuses and periodic reports have been
prepared, set in type and mailed to shareholders, Lazard Freres will pay for the
printing and distribution of copies thereof used in connection with the offering
to prospective investors. Lazard Freres will also pay for other supplementary
sales literature and advertising costs.

DETERMINATION OF NET ASSET VALUE

Net asset value per share for the applicable Class of each Portfolio is
determined by the Fund on each day the New York Stock Exchange is open for
trading. The New York Stock Exchange is normally closed on the following
national holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
per share is of each Class determined by dividing the value of the total assets
of the Portfolio represented by such Class, less all liabilities, by the total
number of Portfolio shares of such class outstanding.

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the New York Stock
Exchange is open). In addition, European or Far Eastern securities trading
generally or in a particular country or countries may not take place on all
business days in New York. Furthermore, trading takes place in Japanese markets
on certain Saturdays and in various foreign markets on days which are not
business days in New York and on which the net asset value of each Class of a
Portfolio is not calculated. Each Class of each Portfolio calculates net asset
value per share, and therefore effects sales, redemptions and repurchases of its
shares, as of the close of regular trading on the New York Stock Exchange once
on each day on which the New York Stock Exchange is open. Such calculation may
not take place

- 23 -
<PAGE>

contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. If events materially affecting
the value of such securities occur between the time when their price is
determined and the time when the Portfolio's net asset value is calculated, such
securities will be valued at fair value as determined in good faith by the Board
of Directors.

PORTFOLIO TRANSACTIONS

Subject to the supervision of the Board of Directors, the Investment
Manager is primarily responsible for the investment decisions and the placing of
portfolio transactions for each Portfolio. In placing orders, it is the policy
of the Investment Manager to obtain the most favorable net results, taking into
account such factors as price, size of order, difficulty of execution and skill
required of the executing broker. While the Investment Manager will generally
seek reasonably competitive spreads or commissions, the Portfolios will not
necessarily be paying the lowest spread or commission available.

Purchases and sales of portfolio securities on a securities exchange for
the Portfolios are effected by the Investment Manager through brokers who charge
a negotiated commission for their services based on the quality and quantity of
execution services provided by the broker in the light of generally prevailing
rates. Orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Lazard Freres. In the over-the-counter
market, securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.

Subject to the above considerations, Lazard Freres may act as a main broker
for the Portfolios. For Lazard Freres to effect any portfolio transactions for
the Portfolios, the commissions, fees or other remuneration received by Lazard
Freres must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange
during a comparable period of time. This standard allows Lazard Freres to
receive no more than the remuneration that would be expected to be received by
an unaffiliated broker in a commensurate arm's-length transaction. Furthermore,
the Board of Directors of the Fund, including a majority of the Disinterested
Directors, have adopted procedures that are reasonably designed to provide that
any commissions, fees or other remuneration paid to Lazard Freres are consistent
with the foregoing standard. Brokerage transactions with Lazard Freres are also
subject to such fiduciary standards as may be imposed upon Lazard Freres by
applicable law.

For the fiscal year ended December 31, 1995, the total brokerage
commissions paid by the Equity Portfolio, International Equity Portfolio, Small
Cap Portfolio, International Small Cap Portfolio, and Emerging Markets Portfolio
were $331,180, $2,303,409, $1,507,582, $976,314, and $280,844, respectively. Of
those amounts, $0, $0, $3,324, $0, and $0, respectively, were paid to Lazard
Freres. For the fiscal year ended December 31, 1995, Lazard Freres received 0%,
0%, 0% 0.2%, and 0%, respectively, of the total brokerage commissions paid by of
those Portfolios and the total transactions effected through Lazard Freres
represented 0%, 0%, .19%, 0%, and 0%, respectively, of the total dollar amount
of transactions on which brokerage were paid by those Portfolios. For the fiscal
year ended December 31, 1995, no brokerage commissions were paid by the
International Fixed-Income Portfolio, Bond Portfolio or Strategic Yield
Portfolio.

- 24 -
<PAGE>

For the fiscal year ended December 31, 1994, the total brokerage
commissions paid by the Equity Portfolio, International Equity Portfolio, Small
Cap Portfolio, International Small Cap Portfolio, and Emerging Markets Portfolio
were $160,325, $4,374,956, $997,227, $563,176, and $80,889, respectively. Of
those amounts, $1,655, $0, $14,125, $0, and $0, respectively, were paid to
Lazard Freres. For the fiscal year ended December 31, 1994. Lazard Freres
received 1.0%, 0%, 1.4%, 0%, and 0%, respectively. Of the total brokerage
commissions paid by those Portfolios and the total transactions effected through
Lazard Freres represented 0.6%, 0%, 0.4%, 0%, and 0% respectively, of the total
dollar amount of transactions on which brokerage transactions were paid by those
Portfolios. For the fiscal year ended December 31, 1994, no brokerage
commissions were paid by the International Fixed-Income Portfolio, Bond
Portfolio or Strategic Yield Portfolio.

For the fiscal year ended December 31, 1993, the total brokerage
commissions paid by the Equity Portfolio, International Equity Portfolio, Small
Cap Portfolio, and International Small Cap Portfolio were $75,705, $1,819,457,
$908,261, and $1,012,320, respectively. Of those amounts, $17,679, $19,285,
$40,435, and $0, respectively, were paid to Lazard Freres. For the fiscal year
ended December 31, 1993, Lazard Freres received 23.4%, 1.1%, 4.5%, and 0%,
respectively, of the total brokerage commissions paid by those Portfolios and
the total transactions effected through Lazard Freres represented 23.0%, 1.2%,
3.7%, and 0%, respectively, of the total dollar amount of transactions on which
brokerage transactions were paid by those Portfolios. For the fiscal year ended
December 31, 1993, no brokerage commissions were paid by the International
Fixed-Income Portfolio, Bond Portfolio, Strategic Yield Portfolio or Emerging
Markets Portfolio.

Purchase and sale orders for securities held by a Portfolio may be combined
with those for other Portfolios in the interest of the most favorable net
results for all. When the Investment Manager determines that a particular
security should be bought for or sold by more than one Portfolio, the Investment
Manager undertakes to allocate those transactions between the participants
equitably.

RESEARCH AND STATISTICAL INFORMATION

When it can be done consistently with the policy of obtaining the most
favorable net results, it is the practice of the Investment Manager to place
orders with brokers and dealers who supply market quotations to the Fund's
custodian for valuation purposes, or who supply research, market and statistical
information to the Investment Manager. Although research, market and statistical
information is useful to the Investment Manager, it is its opinion that such
information is only supplementary to the Investment Manager's own research
efforts, since the information must still be analyzed, weighed and reviewed by
the Investment Manager's staff. Information so received will be in addition to,
and not in lieu of, the services required to be performed by the Investment
Manager under the Management Agreements with the Fund on behalf of the
Portfolios. This information may be useful to the Investment Manager in
providing services to clients other than the Portfolios, and not all of this
information is used by the Investment Manager in connection with the Portfolios.
The total dollar amount of transactions pursuant to which brokerage was directed
in consideration of research services provided during the year ending December
31, 1995 was $606,138,615 and the related commissions were $1,553,885. In
addition, when it can be done consistently with the above stated policy, the
Investment Manager may place orders with brokers and dealers (i) who refer
persons to the Investment Manager for the purpose of purchasing shares of the
Portfolios or (ii) who provide services to the Fund at no fee or for a reduced
fee.

- 25 -
<PAGE>

REDEMPTION OF SHARES

Payment of the redemption price for shares redeemed may be made either in
cash or in portfolio securities (selected in the discretion of the Board of
Directors of the Fund and taken at their value used in determining the net asset
value per share of the applicable Class of each Portfolio as described in the
Prospectus under "Determination of Net Asset Value"), or partly in cash and
partly in portfolio securities; however, payments will be made wholly in cash
unless the Board of Directors believes that economic conditions exist which
would make such a practice detrimental to the best interests of the relevant
Portfolio. If payment for shares redeemed is made wholly or partly in portfolio
securities, brokerage costs may be incurred by the investor in converting the
securities to cash. A Portfolio will not distribute in kind portfolio securities
that are not readily marketable. The Fund has filed a formal election with the
Commission pursuant to which the Fund will only effect a redemption in portfolio
securities where the particular stockholder of record is redeeming more than
$250,000 or 1% of a Portfolio's total net assets, whichever is less, during any
90-day period. In the opinion of the Investment Manager, however, the amount of
a redemption request would have to be significantly greater than $250,000 or 1%
of total net assets before a redemption wholly or partly in portfolio securities
was made.

DISTRIBUTION AND SERVICING PLAN

(Retail Shares Only)

Rule 12b-1 (the "Rule") adopted by the Commission under the Investment
Company Act provides, among other things, that an investment company may bear
expenses of distributing its shares only pursuant to a plan adopted in
accordance with the Rule. The Fund's Board of Directors has adopted such a plan
(the "Distribution and Servicing Plan") with respect to each Portfolio's Retail
Shares, pursuant to which each Portfolio pays the Distributor for advertising,
marketing and distributing such Portfolio's Retail Shares, and for the provision
of certain services to the holders of Retail Shares. Under the Distribution and
Servicing Plan, the Distributor may make payments to certain third parties in
respect to these services. The Portfolio's Board of Directors believes that
there is a reasonable likelihood that the Distribution and Servicing Plan will
benefit each Portfolio and the holders of Retail Shares.

A quarterly report of the amounts expended under the Distribution and
Servicing Plan, and the purposes for which such expenditures were incurred, must
be made to the Directors for their review. In addition, the Distribution and
Servicing Plan provides that it may not be amended to increase materially the
costs which holders of Retail Shares may bear pursuant to the Distribution and
Servicing Plan without the approval of the holders of Retail Shares and that
other material amendments of the Distribution and Servicing Plan must be
approved by the Board of Directors and by the Directors who are not "interested
persons" (as defined in the Investment Company Act) of the Fund and have no
direct or indirect financial interest in the operation of the Distribution and
Servicing Plan or in any agreements entered into in connection with the
Distribution and Servicing Plan, by vote cast in person at a meeting called for
the purpose of considering such amendments. The Distribution and Servicing Plan
is subject to annual approval by such vote of the Directors cast in person at a
meeting called for the purpose of voting on the Distribution and Servicing Plan.
The Distribution and Servicing Plan was so approved by the Directors at a
meeting held on July 22, 1996. As to each Portfolio, the Distribution and
Servicing Plan may be terminated at any time by a vote of a majority of the
Directors who are not "interested persons" and have no direct or indirect
financial interest in the operation of the Distribution and Servicing Plan or in
any agreements entered into in connection with the Distribution and Servicing
Plan or by vote of the holders of a majority of such Portfolio's Retail Shares.

DIVIDENDS AND DISTRIBUTIONS

The Fund intends to declare as a dividend on the outstanding shares of each
of the International Fixed-Income Portfolio, the Bond Portfolio and the
Strategic Yield Portfolio substantially all of each Portfolio's net investment
income at the close of each business day to shareholders of record at 4:00 p.m.
(New York time). Purchased shares of the International Fixed-Income Portfolio,
the Bond Portfolio and the Strategic Yield Portfolio will begin earning
dividends on the business day following the day the purchase order is accepted
and settled and redeemed shares of any of these Portfolios will earn a dividend
on the day the redemption order is executed. Net investment income for a
Saturday, Sunday or holiday will be included in the dividend declared on the
previous business day. Dividends declared on the shares of the International
Fixed-Income Portfolio, Bond Portfolio and Strategic Yield Portfolio will be
paid five business days prior to the end of each month. Shareholders who redeem
all their shares of any of these Portfolios prior to a dividend payment date
will receive, in addition to the redemption proceeds, any dividends that are
declared but unpaid. Shareholders of any of these Portfolios who redeem only a
portion of their shares will be entitled to all dividends that are declared but
unpaid on the redeemed shares on the next dividend payment date.

Dividends from net investment income on the Equity Portfolio will be
declared and paid quarterly. Dividends from net investment income on the
International Equity Portfolio, Small Cap Portfolio, International Small Cap
Portfolio, Emerging Markets Portfolio, Global Equity Portfolio, Bantam Value
Portfolio and Emerging World Funds Portfolio generally will be declared and paid
at least annually and may be declared and paid twice annually.

Investment income for a Portfolio includes, among other things, interest
income, accretion of market and original issue discount and amortization of
premium and, in the case of the Equity Portfolio, International Equity
Portfolio, Small Cap Portfolio, International Small Cap Portfolio, Emerging
Markets Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging
World Funds Portfolio would also include dividends.

Dividends paid by each Class will be calculated at the same time and in the
same manner and will be of the same amount, except that certain expenses will be
borne exclusively by one Class and not by the other, such as fees payable under
the Distribution and Servicing Plan. Retail Shares will receive lower per share
dividends than Institutional Shares because of the higher expenses borne by
Retail Shares. See "Fee Table" in the Fund's Prospectus.

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<PAGE>

With respect to all of the Portfolios, net realized capital gains from each
of the Portfolios, if any, will be distributed at least annually and may be
declared and paid twice annually. Dividends and distributions on shares of a
Portfolio will be invested in additional shares of the same Portfolio at net
asset value and credited to the shareholder's account on the payment date or, at
the shareholder's election, paid in cash. Dividend checks and Statements of
Account will be mailed approximately two business days after the payment date.
Each Portfolio forwards to the Fund's custodian the monies for dividends to be
paid in cash on the payment date

TAXATION

The Prospectus describes generally the tax treatment of distributions by
the Fund. This section of the Statement of Additional Information includes
additional information concerning federal taxes.

It is intended that each Portfolio will declare and distribute dividends in
the amounts and at the times necessary to avoid the application of the 4%
federal excise tax imposed on certain undistributed income of regulated
investment companies. Each Portfolio will be required to pay the 4% excise tax
to the extent it does not distribute to its shareholders during any calendar
year at least 98% of its ordinary income for the calendar year plus 98% of its
capital gain net income for the twelve months ended October 31, or December 31
if elected by the Portfolio, of such year. Certain distributions of a Portfolio
which are paid in January of a given year but are declared in the prior October,
November or December to shareholders of record as of a specified date during
such a month may be treated as having been distributed in December and will be
taxable to shareholders as if received in December.

Except as described below with respect to straddles, gains or losses on
sales of securities by a Portfolio will be long-term capital gains or losses if
the securities have been held by the Portfolio for more than one year and other
gains or losses on sales of securities will be short-term capital gains or
losses.

Certain listed options, futures contracts and forward foreign currency
contracts are considered "section 1256 contracts" for U.S. federal income tax
purposes. In general, gain or loss realized by a Portfolio on section 1256
contracts will be considered 60% long-term and 40% short-term capital gain or
loss. Also, section 1256 contracts held by a Portfolio at the end of each
taxable year will be "marked to market," that is, treated for federal income tax
purposes as though sold for fair market value on the last business day of such
taxable year. A Portfolio can elect to exempt its section 1256 contracts which
are part of a "mixed straddle" (as described below) from the application of
section 1256.

With respect to over-the-counter put and call options, gain or loss
realized by a Portfolio upon the lapse or sale of such options held by the
Portfolio will be either long-term or short-term capital gain or loss depending
upon the Portfolio's holding period with respect to such option. However, gain
or loss realized upon the lapse or closing out of such options that are written
by a Portfolio will be treated as short-term capital gain or loss. In general,
if a Portfolio exercises an option, or an option that the Portfolio has written
is exercised, gain or loss on the option will not be separately recognized but
the premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.

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<PAGE>

Any security, option, futures contract, forward foreign currency contract,
forward commitment, or other position entered into or held by a Portfolio which
acts as a hedge with respect to any other position held by the Portfolio may
constitute a "straddle" for federal income tax purposes. A straddle of at least
one, but not all, the positions of which are section 1256 contracts will
constitute a "mixed straddle." In general, straddles are subject to certain
rules that may affect the character and timing of a Portfolio's gains and losses
with respect to straddle positions by requiring, among other things, that loss
realized on disposition of one position of a straddle not be recognized until
the other position in such straddle is disposed of; that the Portfolio's holding
period in straddle positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather than long-term
capital gain); and that losses recognized with respect to certain straddle
positions, which would otherwise constitute short-term capital losses, be
treated as long-term capital losses. Different elections are available to the
Portfolios which may mitigate the effects of the straddle rules, particularly
with respect to mixed straddles.

Under section 988 of the Code, foreign currency gain or loss realized with
respect to foreign currency denominated debt instruments and other foreign
currency denominated positions held or entered into by a Portfolio, except for
futures contracts or options that are marked to market under Code section 1256,
will be ordinary income or loss. In addition, foreign currency gain or loss
realized with respect to certain foreign currency "hedging" transactions will be
treated as ordinary income or loss, regardless of whether they would otherwise
be marked to market, under Code section 1256.

Income received by a Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of each Portfolio's assets to be
invested in various countries is not known.

If more than 50% of the value of a Portfolio's total assets at the close of
its taxable year consists of the stock or securities of foreign corporations,
the Portfolio may elect to "pass through" to its shareholders the amount of
foreign income taxes paid by the Portfolio. Pursuant to such election,
shareholders would be required: (i) to include in gross income, even though not
actually received, their respective pro rata shares of the foreign taxes paid by
the Portfolio; (ii) treat their income from the Portfolio as being from foreign
sources to the extent that the Portfolio's income is from foreign sources; and
(iii) either to deduct their pro rata share of foreign taxes in computing their
taxable income, or to use it as a foreign tax credit against federal income (but
not both). No deduction for foreign taxes could be claimed by a shareholder who
does not itemize deductions.

It is anticipated that the International Equity Portfolio, International
Fixed-Income Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio will be operated so as to meet the requirements of the Code to
"pass through" to shareholders of the Portfolios credits for foreign taxes paid,
although there can be no assurance that these requirements will be met. Each
shareholder will be notified within 45 days after the close of each taxable year
of the Portfolio whether the foreign taxes paid by the Portfolio will "pass
through" for that year, and, if so, the amount of each shareholder's pro rata
share of (i) the foreign taxes paid, and (ii) the Portfolio's gross income from
foreign sources. Of course, shareholders who are not liable for federal income

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<PAGE>

taxes, such as retirement plans qualified under section 401 of the Code, will
not be affected by any such "pass through" of foreign tax credits.

Any gain or loss realized upon a sale or redemption of shares of a
Portfolio by a shareholder who is not a dealer in securities is treated as
long-term capital gain or loss if the shares have been held for more than one
year and otherwise as short-term capital gain or loss; however, any loss
realized by a shareholder upon the sale or redemption of shares of a Portfolio
held for six months or less is treated as long-term capital loss to the extent
of any long-term capital gain distribution received by the shareholder.

Any loss realized on a sale or exchange of shares of a Portfolio will be
disallowed to the extent shares of such Portfolio are reacquired within the
61-day period beginning 30 days before and ending 30 days after the shares are
disposed of.

If a Portfolio invests in an entity that is classified as a "passive
foreign investment company" ("PFIC") for federal income tax purposes, the
operation of certain provisions of the Code applying to PFICs could result in
the imposition of certain federal income taxes on the Portfolio. In addition,
gain realized from the sale or other disposition of PFIC securities may be
treated as ordinary income under Section 1291 of the Code.

SHAREHOLDER SERVICES

A special service is available to banks, brokers, investment advisers,
trust companies and others who have a number of accounts in any Portfolio. In
addition to the copy of the regular Statement of Account furnished to the
registered holder after each transaction, a monthly summary of accounts can be
provided. The monthly summary will show for each account the account number, the
month-end share balance and the dividends and distributions paid during the
month. All costs of this service will be borne by the Portfolio. For information
on the special monthly summary of accounts, contact the Fund.

ORGANIZATION AND DESCRIPTION OF CAPITAL STOCK

The Fund was incorporated in Maryland on May 17, 1991 as a series
investment company. The authorized capital stock of the Fund consists of
1,550,000,000 shares of common stock, $.001 par value. The Fund's Board of
Directors has authorized the issuance of the following eleven portfolios: Equity
Portfolio; International Equity Portfolio; International Fixed-Income Portfolio;
Bond Portfolio; Strategic Yield Portfolio; Small Cap Portfolio; International
Small Cap Portfolio; Emerging Markets Portfolio; Global Equity Portfolio; Bantam
Value Portfolio; and Emerging World Funds Portfolio. Shares of each Portfolio
are classified into two classes of shares--Retail Shares and Institutional
Shares. The Board of Directors may, in the future, designate and authorize
additional portfolios or the issuance of additional classes of capital stock.

On January 1, 1992, the Fund, on behalf of the Equity Portfolio, acquired
the assets and liabilities of Lazard Equity Fund, formerly a portfolio of
Scudder Fund, an open-end, diversified management investment company.

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<PAGE>

Lazard Freres has agreed to indemnify Scudder Fund and its directors from
any and all claims arising out of the transfer of assets to the maximum extent
that Scudder Fund would be so permitted by the Maryland General Corporation Law,
subject to the limitations of the Investment Company Act. In addition, the Fund
has agreed to indemnify Scudder Fund and its directors and officers from claims
arising out of acts or omissions occurring prior to the transfer to the same
extent that such individuals could have been indemnified by Scudder Fund. If,
however, the Fund (or the Equity Portfolio) ceases to exist, Lazard Freres has
agreed, in lieu of the Fund, to indemnify the directors and officers of Scudder
Fund as set forth in the next preceding sentence.

Following for each Portfolio is the name, address and percentage of
ownership of each person who owns of record or is known by the Fund as of July
31, 1996 to own of record or beneficially 5% or more of the Institutional Shares
of that Portfolio: Equity Portfolio: Lazard Freres Asset Management, 30
Rockefeller Plaza, New York, NY 10020, 42.71%, WDB Insurance Ltd, 7 Reid St. Box
HM1624, Hamilton, Bermuda, HMGX, 11.10%; International Equity Portfolio: Lazard
Freres Asset Management, 30 Rockefeller Plaza, New York, NY 10020, 74.17%;
International Fixed-Income Portfolio: Lazard Freres Asset Management, 30
Rockefeller Plaza, New York, NY 10020, 5.38%; Graphic Communications
International Union Supplemental Retirement & Disability Fund, 1900 L Street NW,
Washington, DC 20036-5002, 15.40%; Bond Portfolio: Lazard Freres Asset
Management, 30 Rockefeller Plaza, New York, NY 10020, 18.21%; Sachem Trust
National Association , 23 Boston Street, Gilford, CT. 06737, 10.71%, 10.79%;
Strategic Yield Portfolio: Lazard Freres Asset Management, 30 Rockefeller Plaza,
New York, NY 10020, 33.02%; Mellon Bank, N.A., Mutual Funds, P.O. Box 320,
Pittsburgh, PA 15230-0320, 7.73%; Small Cap Portfolio: Lazard Freres Asset
Management, 30 Rockefeller Plaza, New York, NY 10020, 74.77%; International
Small Cap Portfolio: Lazard Freres Asset Management, 30 Rockefeller Plaza, New
York, NY 10020, 81.21%; Emerging Markets Portfolio: Lazard Freres Asset
Management, 30 Rockefeller Plaza, New York, NY 10020, 80.95%; Bantam Value
Portfolio, Lazard Freres Asset Management, 30 Rockefeller Plaza, New York, New
York 10020, 78.27% and Lazard Global Equity Portfolio, Lazard Freres Asset
Management, 30 Rockefeller Plaza, New York, NY 10020, 49.21%. A shareholder who
beneficially owns, directly or indirectly, more than 25% of a Portfolio's voting
securities may be deemed a "control person" (as defined in the Investment
Company Act) of the Portfolios.

Certain of the stockholders of the Portfolios are investment management
clients of the Investment Manager that have entered into agreements with the
Investment Manager pursuant to which the Investment Manager has investment
discretion and voting power over any assets held in the clients' accounts,
including any shares of the Portfolios. Accordingly, for purposes of the list
above, the Fund considered the Investment Manager to be a beneficial owner of
any shares of the Portfolios held in management accounts on behalf of its
investment management clients.

Generally, all shares of the Fund have equal voting rights and will be
voted in the aggregate, and not by class, except where voting by class is
required by law or where the matter involved affects only one class. As used in

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<PAGE>

the Prospectus and in this Statement of Additional Information, the vote of a
majority of the Fund's outstanding voting securities means the vote of the
lesser of (i) 67% of the Fund's shares represented at a meeting if the holders
of more than 50% of the outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Fund's outstanding shares and the vote of a majority
of a Portfolio's outstanding voting securities means the vote of the lesser of
(i) 67% of the shares of the Portfolio represented at a meeting if the holders
of more than 50% of the outstanding shares of the Portfolio are present in
person or by proxy, or (ii) more than 50% of the outstanding shares of the
Portfolio. Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held.

Each share of the applicable Class of a Portfolio of the Fund is entitled
to such dividends and distributions out of the income earned on the assets
belonging to that Portfolio as are declared in the discretion of the Fund's
Board of Directors. In the event of the liquidation or dissolution of the Fund,
shares of a Portfolio are entitled to receive the assets attributable to the
applicable Class of that Portfolio that are available for distribution, and a
proportionate distribution, based upon the relative net assets of the applicable
Class of the Portfolio, of any general assets not attributable to a Portfolio
that are available for distribution.

Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Fund.

OTHER

The Registration Statement, including the Prospectus, the Statement of
Additional Information and the exhibits filed therewith, may be examined at the
office of the Commission in Washington, D.C. Statements contained in the
Prospectus or the Statement of Additional Information as to the contents of any
contract or other document referred to herein or in the Prospectus are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.

CUSTODIAN

As the Fund's custodian, State Street Bank, among other things, maintains a
custody account or accounts in the name of each Portfolio; receives and delivers
all assets for each Portfolio upon purchase and upon sale or maturity; collects
and receives all income and other payments and distributions on account of the
assets of each Portfolio and disburses the Portfolio's assets in payment of its
expenses. The custodian does not determine the investment policies of any
Portfolio or decide which securities any Portfolio will buy or sell.

COUNSEL AND INDEPENDENT ACCOUNTANTS

Legal matters in connection with the issuance of the shares of the Fund
offered hereby will be passed upon by Stroock & Stroock & Lavan, Seven Hanover
Square, New York, New York 10004-2696.

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<PAGE>

ABA Seymour Schneidman Financial Services Group, a division of Anchin,
Block & Anchin LLP, has been selected as the independent accountants for the
Fund.

YIELD AND TOTAL RETURN QUOTATIONS

From time to time, the Fund may advertise "yield," "actual distribution
rate" and "total return" quotations for one or more of the Portfolios. A
Portfolio's "yield" for any 30-day period is computed by dividing the net
investment income per share earned during such period by the maximum public
offering price per share on the last day of the period, and then annualizing
such 30-day yield in accordance with a formula prescribed by the Commission
which provides for compounding on a semi-annual basis. A Portfolio's "actual
distribution rate" is computed in the same manner as yield except that actual
income dividends declared per share during the period in question is substituted
for net investment income per share. Advertisements of a Portfolio's "total
return" disclose a Portfolio's average annual compounded total return for its
most recently completed one-, five- and ten-year periods (or the period since
the Portfolio's inception). A Portfolio's total return for each such period is
computed by finding, through the use of a formula prescribed by the Commission,
the average annual compounded rate of return over the period that would equate
an assumed initial amount invested to the value of such investment at the end of
the period. For purposes of computing total return, income dividends and capital
gains distributions paid on shares of a Portfolio are assumed to have been
reinvested when received.

The yield for the 30-day period ended June 30, 1996 and the actual
distribution rate for such period for the Institutional Shares of each Portfolio
indicated below was as follows:

Name of Portfolio 30-Day Yield Distribution Rate
- ----------------- ------------ -----------------

Bond 6.1% 0.44%
International Fixed-Income 5.3% 0.43%
Strategic Yield 8.7% 0.50%

The average annual total return of Institutional Shares for the indicated
Portfolio and periods ended June 30, 1996 was as follows:

Name of Portfolio 1-Year 5-Year 10-Year
- ----------------- ------ ------ -------

Equity 25.3% 17.7% 13.5%(8)
International Equity 18.2% 9.9%(1) N/A
International Fixed-Income 0.9% 9.4%(2) N/A
Bond 4.5% 6.2%(3) N/A
Strategic Yield 12.2% 8.4%(4) N/A
Small Cap 15.6% 20.0%(5) N/A
International Small Cap 11.3% 5.7%(6) N/A
Emerging Markets 22.2% 5.8%(7) N/A

_________________
(1) For the period October 29, 1991 through June 30, 1996.
(2) For the period November 8, 1991 through June 30, 1996.
(3) For the period November 12, 1991 through June 30, 1996.
(4) For the period October 1, 1991 throgh June 30, 1996.
(5) For the period October 30, 1991 through June 30, 1996.
(6) For the period December 1, 1993 through June 30, 1996.
(7) For the period July 15, 1994 through June 30, 1996.
(8) For the period June 1, 1987 through June 30, 1996.

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<PAGE>

The total return of Institutional Shares for the indicated Portfolio for
the period from inception of the Portfolio through June 30, 1996 was as
follows:

Name of Portfolio Total Return from Inception
- ----------------- ---------------------------

Equity 214.1%(1)
International Equity 55.2%(2)
International Fixed-Income 51.8%(3)
Bond 32.2%(4)
Strategic Yield 46.4%(5)
Small Cap 133.8%(6)
International Small Cap 15.3%(7)
Emerging Markets 11.7%(8)
Global Equity 5.3%(9)
Bantam Value 17.7%(10)
_________________

(1) For the period June 1, 1987 (commencement of operations) through March 29,
1996.

(2) For the period October 29, 1991 (commencement of operations) through March
29, 1996.

(3) For the period November 8, 1991 (commencement of operations) through March
29, 1996.

(4) For the period November 12, 1991 (commencement of operations) through March
29, 1996.

(5) For the period October 1, 1991 (commencement of operations) through March
29, 1996.

(6) For the period October 30, 1991 (commencement of operations) through March
29, 1996.

(7) For the period December 1, 1993 (commencement of operations) through March
29, 1996.

(8) For the period July 15, 1994 (commencement of operations) through March 29,
1996.

(9) For the period January 3, 1996 (commencement of operations) through
March 29, 1996.

(10) For the period March 1, 1996 (commencement of operations) through
March 29, 1996.

A Portfolio's yield, actual distribution rate and total return are not
fixed and will fluctuate in response to prevailing market conditions or as a
function of the type and quality of the securities held by such Portfolio, its
average portfolio maturity and its expenses. Yield, actual distribution rate and
total return information is useful in reviewing a Portfolio's performance and
such information may provide a basis for comparison with other investments but
such information may not provide a basis for comparison with certificates of
deposit, which pay a fixed rate of return, or money market funds, which seek a
stable net asset value. Investment return and principal value of an investment
in a Portfolio will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.

No performance data is provided for the Emerging World Funds Portfolio
which had not commenced operations as of the date performance information was
calculated or for the Retail Shares of any Portfolio which had not been offered
as of the date hereof.

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<PAGE>

APPENDIX A

DESCRIPTION OF OBLIGATIONS
ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES

FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS--are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
These bonds are not guaranteed by the U.S. Government.

MARITIME ADMINISTRATION BONDS--are bonds issued and provided by the
Department of Transportation of the U.S. Government and are guaranteed by the
U.S. Government.

FHA DEBENTURES--are debentures issued by the Federal Housing Administration
of the U.S. Government and are guaranteed by the U.S. Government.

GNMA CERTIFICATES--are mortgage-backed securities which represent a partial
ownership interest in a pool of mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration.

FHLMC BONDS--are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation.

FNMA BONDS--are bonds issued and guaranteed by the Federal National
Mortgage Association.

FEDERAL HOME LOAN BANK NOTES AND BONDS--are notes and bonds issued by the
Federal Home Loan Bank System and are not guaranteed by the U.S. Government.

STUDENT LOAN MARKETING ASSOCIATION ("SALLIE MAE") NOTES AND
BONDS--are notes and bonds issued by the Student Loan Marketing
Association.

Although this list includes a description of the primary types of U.S.
Government agency or instrumentality obligations in which the Portfolios intend
to invest, each Portfolio may invest in obligations of U.S. Government agencies
or instrumentalities other than those listed above.

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<PAGE>

APPENDIX B

FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS AND FOREIGN CURRENCIES

FUTURES CONTRACTS

Each of the International Fixed-Income Portfolio, Bond Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio may enter
into contracts for the purchase or sale for future delivery of fixed-income
securities or contracts based on financial indices including any index of U.S.
Government Securities or corporate debt securities. In addition, the
International Fixed-Income Portfolio, International Small Cap Portfolio,
Emerging Markets Portfolio, Global Equity Portfolio and Emerging World Funds
Portfolio may enter into contracts for the purchase or sale for future delivery
of foreign currencies. U.S. futures contracts have been designed by exchanges
which have been designated "contracts markets" by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures commission merchant,
or brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the contracts as between
the clearing members of the exchange. Each of the International Fixed-Income
Portfolio, Bond Portfolio, International Small Cap Portfolio, Emerging Markets
Portfolio, Global Equity Portfolio, Bantam Value Portfolio and Emerging World
Funds Portfolio may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S. Government,
such as long-term U.S. Treasury Bonds, Treasury Notes, Government National
Mortgage Association modified pass-through mortgage-backed securities and
three-month U.S. Treasury Bills. The International Fixed-Income Portfolio, Bond
Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global
Equity Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio may
also enter into futures contracts which are based on bonds issued by entities
other than the U.S. government.

At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1-1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" would be required if there has been a decline in
the contract's value.

At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some cases, securities called for by a futures contract may not
have been issued when the contract was written.

Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange

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<PAGE>

on which the contracts are traded, the International Fixed-Income Portfolio and
the Bond Portfolio will incur brokerage fees when they purchase or sell futures
contracts.

The purpose of the acquisition or sale of a futures contract in the case of
a Portfolio, which holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities or
foreign currency. For example, if interest rates were expected to increase, the
Portfolio might enter into futures contracts for the sale of debt securities.
Such a sale would have much the same effect as selling an equivalent value of
the debt securities owned by the Portfolio. If interest rates did increase, the
value of the debt securities in the Portfolio would decline, but the value of
the futures contracts to the Portfolio would increase at approximately the same
rate, thereby keeping the net asset value of the Portfolio from declining as
much as it otherwise would have. The Portfolio could accomplish similar results
by selling debt securities and investing in bonds with short maturities when
interest rates are expected to increase; however, since the futures market is
more liquid than the cash market, the use of futures contracts as an investment
technique allows the Portfolio to maintain a defensive position without having
to sell its portfolio securities.

Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the Portfolio could
take advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market. To the extent a Portfolio enters into futures contracts for
this purpose, the assets in the segregated asset account maintained to cover the
Portfolio's obligations with respect to such futures contracts will consist of
cash, U.S. Government Securities, cash equivalents or high quality liquid debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial and variation margin payments made by the Portfolio with respect to
such futures contracts.

The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Investment Manager may
still not result in a successful transaction.

In addition, futures contracts entail risks. Although the Fund believes
that use of such contracts will benefit the Portfolio, if the Investment
Manager's investment judgment about the general direction of interest rates is
incorrect, the overall performance of the Portfolio would be poorer than if it

- 36 -
<PAGE>

had not entered into any such contracts. For example, if the Portfolio has
hedged against the possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its portfolio and interest
rates decrease instead, the Portfolio will lose part or all of the benefit of
the increased value of its debt securities which it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell debt
securities from its portfolio to meet daily variation margin requirements. Such
sales of bonds may be, but will not necessarily be, at increased prices which
reflect the rising market. The Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.

OPTIONS ON FUTURES CONTRACTS

Each of the International Fixed-Income Portfolio, Bond Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio, Bantam Value Portfolio and Emerging World Funds Portfolio may
purchase and write options on futures contracts for hedging purposes. The
purchase of a call option on a futures contract is similar in some respects to
the purchase of a call option on an individual security. Depending on the
pricing of the option compared to either the price of the futures contract upon
which it is based or the price of the underlying debt securities, it may or may
not be less risky than ownership of the futures contract or underlying debt
securities. As with the purchase of futures contracts, when the Portfolio is not
fully invested it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates.

The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's investment portfolio holdings.
The writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option that a Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions, a
Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of its portfolio securities.

The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, one of the Portfolios may purchase a put option on a futures contract
to hedge the Portfolio's investment portfolio against the risk of rising
interest rates.

The amount of risk the Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an

- 37 -
<PAGE>

option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.

OPTIONS ON FOREIGN CURRENCIES

Each of the International Fixed-Income Portfolio, Strategic Yield
Portfolio, International Small Cap Portfolio, Emerging Markets Portfolio, Global
Equity Portfolio and Emerging World Funds Portfolio may purchase and write
options on foreign currencies in a manner similar to that in which futures
contracts on foreign currencies, or forward contracts, will be utilized. For
example, a decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order to protect
against such diminutions in the value of portfolio securities, these Portfolios
may purchase put options on the foreign currency. If the value of the currency
does decline, the Portfolio will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the adverse effects
of such movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.

The International Fixed-Income Portfolio, Strategic Yield Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio and Emerging World Funds Portfolio may write options on foreign
currencies for the same types of hedging purposes. For example, where one of
these Portfolios anticipates a decline in the dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates it could,
instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received.

Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, these Portfolios also may be
required to forego all or a portion of the benefits which might otherwise have
been obtained from favorable movements in exchange rates.

- 38 -
<PAGE>

foreign currencies. A call option written on a foreign currency is "covered" if
the Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by the Fund's Custodian) upon conversion or exchange of other foreign
currency held in its portfolio. A call option is also "covered" if the Portfolio
has a call on the same foreign currency and in the same principal amount as the
call written where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater than the exercise
price of the call written if the difference is maintained by the Portfolio in
cash, U.S. Government Securities and other high quality liquid debt securities
in a segregated account with the Fund's Custodian.

The International Fixed-Income Portfolio, Strategic Yield Portfolio,
International Small Cap Portfolio, Emerging Markets Portfolio, Global Equity
Portfolio and Emerging World Funds Portfolio also may write call options on
foreign currencies that are not covered for cross-hedging purposes. A call
option on a foreign currency is for cross-hedging purposes if it is not covered,
but is designed to provide a hedge against a decline in the U.S. dollar value of
a security which the Portfolio owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse change in
the exchange rate. In such circumstances, the Portfolio collateralizes the
option by maintaining in a segregated account with the Fund's Custodian, cash,
U.S. Government Securities or other high quality liquid debt securities in an
amount not less than the value of the underlying foreign currency in U.S.
dollars marked to market daily.

ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS
AND OPTIONS ON FOREIGN CURRENCIES

Unlike transactions in futures contracts, options on foreign currencies and
forward contracts are not traded on contract markets regulated by the CFTC or
(with the exception of certain foreign currency options) by the Securities and
Exchange Commission (the "Commission"). To the contrary, such instruments are
traded through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to regulation by the Commission. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.

Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the Commission, as are other securities traded on
such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default. Further,
a liquid secondary market in options traded on a national securities exchange
may be more readily available than in the over-the-counter market, potentially

- 39 -
<PAGE>

permitting the Portfolio to liquidate open positions at a profit prior to
exercise or expiration, or to limit losses in the event of adverse market
movements.

The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.

In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.

- 40 -
<PAGE>

- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LAZARD EQUITY PORTFOLIO
COMMON STOCKS--95.0%
AEROSPACE & DEFENSE--3.2%
Lockheed Martin Corp. ................... 32,000 $ 2,528,000
McDonnell Douglas Corp. ................. 29,800 2,741,600
-------------
5,269,600
-------------
AIRLINE--0.9%
AMR Corp. (a)............................ 20,000 1,485,000
-------------
AUTOMOTIVE--3.1%
Chrysler Corp. .......................... 32,200 1,783,075
General Motors Corp. .................... 31,600 1,670,850
Varity Corp. (a)......................... 42,000 1,559,250
-------------
5,013,175
-------------
BANKS--5.2%
BankAmerica Corp. ....................... 31,000 2,007,250
Chase Manhattan Corp. ................... 27,000 1,636,875
Chemical Banking Corp. .................. 39,500 2,320,625
UJB Financial Corp. ..................... 69,400 2,481,050
-------------
8,445,800
-------------
BEVERAGES--1.3%
Cadbury Schweppes PLC (b)................ 64,400 2,141,300
-------------
BROADCASTING--2.9%
U S West, Inc. (a)....................... 132,100 2,509,900
Viacom, Inc. Class B (a)................. 45,900 2,174,513
-------------
4,684,413
-------------
CHEMICALS & PLASTICS--6.5%
E I du Pont de Nemours & Co. ............ 66,100 4,618,737
FMC Corp. (New) (a)...................... 20,000 1,352,500
Hercules, Inc. .......................... 49,200 2,773,650
W R Grace & Co. ......................... 32,400 1,915,650
-------------
10,660,537
-------------
COMMUNICATION SERVICES--8.2%
Airtouch Communications (a).............. 44,500 1,257,125
AT&T Corp. .............................. 78,900 5,108,775
NYNEX Corp. ............................. 63,900 3,450,600
TeleCommunications, Inc. (New) Liberty
Media Group Series A (a)............... 21,225 570,422
TeleCommunications, Inc. (New) TCI Group
Series A (a)........................... 155,900 3,098,512
-------------
13,485,434
-------------
COMPUTERS & BUSINESS EQUIPMENT--3.0%
Digital Equipment Corp. (a).............. 45,000 2,885,625
Gateway 2000, Inc. (a)................... 80,400 1,969,800
-------------
4,855,425
-------------
DRUGS & HEALTH CARE--5.9%
American Home Products Corp. ............ 25,900 2,512,300
Astra AB (b)............................. 56,100 2,222,962
Columbia/HCA Healthcare Corp. ........... 60,225 3,056,419
Pharmacia & Upjohn, Inc. ................ 47,500 1,840,625
-------------
9,632,306
-------------
ENERGY--8.8%
Amoco Corp. ............................. 31,500 2,264,062
Kerr-McGee Corp. ........................ 40,000 2,540,000
Mobil Corp. ............................. 38,100 4,267,200

<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
Noble Affiliates, Inc. .................. 64,900 $ 1,938,888
Royal Dutch Petroleum Co. (b)............ 23,500 3,316,437
-------------
14,326,587
-------------
ENTERTAINMENT--2.4%
Carnival Corp. Class A................... 81,800 1,993,875
ITT Corp. (New) (a)...................... 36,200 1,918,600
-------------
3,912,475
-------------
FINANCIAL SERVICES--2.8%
Travelers Group, Inc. ................... 74,000 4,652,750
-------------
FOOD PROCESSING--1.6%
Archer Daniels Midland Co. .............. 146,900 2,644,200
-------------
INDUSTRIAL & MACHINERY--3.3%
Allied Signal, Inc. ..................... 63,000 2,992,500
ITT Industries, Inc. (a)................. 36,200 868,800
Sundstrand Corp. ........................ 22,400 1,576,400
-------------
5,437,700
-------------
INSURANCE--4.8%
Allstate Corp. .......................... 52,099 2,142,571
Cigna Corp. ............................. 22,900 2,364,425
Exel Ltd. ............................... 27,500 1,677,500
ITT Hartford Group, Inc. (a)............. 36,200 1,751,175
-------------
7,935,671
-------------
LEISURE TIME--1.5%
Brunswick Corp. ......................... 100,300 2,407,200
-------------
OFFICE EQUIPMENT--1.4%
Xerox Corp. ............................. 17,300 2,370,100
-------------
PAPER PRODUCTS--5.3%
Champion International Corp. ............ 59,900 2,515,800
James River Corp. of Virginia............ 76,800 1,852,800
Kimberly-Clark Corp. .................... 52,806 4,369,697
-------------
8,738,297
-------------
RETAIL--6.9%
Gap, Inc. ............................... 49,700 2,087,400
Nordstrom, Inc. ......................... 52,400 2,122,200
Sears Roebuck & Co. ..................... 80,700 3,147,300
Toys "R" Us, Inc. (a).................... 67,700 1,472,475
Woolworth Corp. ......................... 195,700 2,544,100
-------------
11,373,475
-------------
SAVINGS & LOAN--1.0%
Great Western Financial Corp. ........... 64,600 1,647,300
-------------
TECHNOLOGY--7.6%
Advanced Micro Devices, Inc. ............ 89,300 1,473,450
General Instrument Corp. (a)............. 93,200 2,178,550
Intel Corp. ............................. 34,000 1,929,500
International Business Machines.......... 48,200 4,422,350
SGS-Thomson Microelectronics NV (a)...... 58,900 2,370,725
-------------
12,374,575
-------------
TOBACCO--4.6%
Philip Morris Companies, Inc. ........... 54,200 4,905,100
UST, Inc. ............................... 78,100 2,606,588
-------------
7,511,688
-------------
TRANSPORTATION--1.4%
Kansas City Southern Industries, Inc. ... 50,400 2,305,800
-------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-1
<PAGE>

<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT TERM INVESTMENT--3.5%
REPURCHASE AGREEMENT--3.5%
(Identified cost $5,694,000)
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S. Treasury
Bills, due 12/12/96; total par value
$6,100,000; valued at $5,810,823)...... $ 5,694,000 5,694,000
-------------
<CAPTION>
DESCRIPTION VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified cost $138,349,987) (c)......... 99.8% $ 163,506,496
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES................................ 0.2 280,492
---- ----------
NET ASSETS.................................. 100.0% $ 163,786,988
===== =============
</TABLE>

(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $138,349,987;
aggregate gross unrealized appreciation is $31,359,389 and the aggregate
gross unrealized depreciation is $6,202,880, resulting in net unrealized
appreciation of $25,156,509.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES
------------
<S> <C> <C>
LAZARD INTERNATIONAL EQUITY PORTFOLIO
COMMON STOCKS--92.7%
AUSTRALIA--1.9%
Westpac Bank Corp. ................... 5,488,300 24,312,671
--------------
DENMARK--1.1%
Unidanmark Class A.................... 294,900 14,605,583
--------------
FINLAND--1.6%
Kymmene Corp. ........................ 797,000 21,073,022
--------------
FRANCE--11.7%
Accor................................. 97,629 12,639,736
Alcatel Alsthom (Cie Gen El).......... 421,900 36,374,552
Banque Nationale de Paris............. 446,722 20,151,295
Cie De St Gobain...................... 193,600 21,111,374
Generale des Eaux..................... 216,692 21,633,800
Roussel Uclaf......................... 1,000 169,491
Roussel Uclaf 144A (b)................ 224,400 18,905,700
Total SA-B............................ 308,081 20,792,479
--------------
TOTAL FRANCE.......................... 151,778,427
--------------
GERMANY--8.0%
Hoechst AG............................ 107,250 29,083,479
Mannesmann AG......................... 25,520 8,124,771
Mannesmann AG (b)..................... 52,205 16,601,190
Siemens AG............................ 45,800 25,063,088
Veba AG............................... 580,880 24,660,573
--------------
TOTAL GERMANY......................... 103,533,101
--------------
<CAPTION>
NUMBER
OF SHARES
------------
<S> <C> <C>
HONG KONG--2.1%
HSBC Holdings Ltd. ................... 1,418,444 $ 21,462,392
Peregrine Investment.................. 4,806,000 6,215,325
--------------
TOTAL HONG KONG....................... 27,677,717
--------------
ITALY--1.4%
Fiat SPA.............................. 9,620,500 17,567,540
--------------
JAPAN--26.4%
Dai Nippon Printing................... 615,000 10,423,729
DDI Corp. ............................ 3,122 24,189,830
Hitachi............................... 1,927,000 19,409,976
Matsushita Electric Industrial Co. ... 1,486,000 24,178,983
Mazda Motor Corp. (a)................. 4,151,000 17,649,288
Mitsubishi Heavy Ind. ................ 4,131,000 32,927,971
Nintendo Co. ......................... 262,700 19,972,833
Omron Corp. .......................... 911,000 20,999,322
Orix Corp. ........................... 500,000 20,581,114
Promise Co. .......................... 203,600 9,800,407
Ricoh Company, Ltd. .................. 1,150,000 12,585,956
Rohm Company, Ltd. ................... 467,000 26,369,104
Sekisui Chemical...................... 1,661,000 24,452,494
Sony Corp. ........................... 411,000 24,640,097
Sumitomo Trust & Banking.............. 1,981,000 28,012,203
Toyota Motor Corp. ................... 1,269,000 26,916,320
--------------
TOTAL JAPAN........................... 343,109,627
--------------
NETHERLANDS--7.4%
Heineken NV........................... 156,400 27,747,916
ING Groep NV.......................... 427,220 28,539,904
Koninklijke Nedlloyd Groep NV......... 483,200 10,960,603
Royal Dutch Petroleum Co. (b)......... 202,600 28,591,925
--------------
TOTAL NETHERLANDS..................... 95,840,348
--------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-2
<PAGE>

<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENT--5.4%
REPURCHASE AGREEMENT--5.4%
(Identified cost $70,037,000)
State Street Bank and Trust Co.,
5.70%, 1/2/96 (collateralized by
U.S. Treasury Bills, due 12/12/96;
total par value $74,995,000; valued
at $71,439,787)..................... $ 70,037,000 $ 70,037,000
--------------
TOTAL INVESTMENTS
(Identified cost $1,175,421,330) (c).... 100.2% 1,302,331,509
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS.................................. (0.2) (2,782,062)
---- ------------
NET ASSETS............................... 100.0% $1,299,549,447
===== ==============
</TABLE>

(a) Non-income producing security.
(b) American Depository Receipts.
(c) The aggregate cost for federal income tax purposes is $1,175,447,648;
aggregate gross unrealized appreciation is $154,092,979 and the aggregate
gross unrealized depreciation is $27,209,118, resulting in net unrealized
appreciation of $126,883,861.

* Percentages of common and preferred stocks are presented in the portfolio by
country.

Percentages by industry are as follows:

Aerospace & Defense 2.0%, Automotive 5.9%, Banks 8.7%, Chemicals & Plastics
4.1%, Computer & Business Equipment 1.0%, Construction Materials 1.6%,
Domestic Oil 0.8%, Drugs & Health Care 5.5%, Electrical Equipment 11.0%,
Electronics 5.5%, Energy 2.2% , Entertainment 1.9%, Financial Services 4.2%,
Food & Beverage 8.7%, Insurance 2.1%, International Oil 1.6%, Machinery
3.2%, Miscellaneous 0.9%, Mortgage Backed Securities 1.3%, Paper Products
2.6%, Publishing 3.0%, Retailing 3.5%, Services 3.5%, Telephone 1.9%,
Transportation & Freight Services 0.8%, Utilities 7.3%.

Forward Foreign Currency Contracts open at December 31, 1995:

<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- --------------- ---------------- -------- --------------
<S> <C> <C> <C>
$ 3,971,727 GPB 2,555,480 1/5/96 $ (2,974)
NZD 230,101 $149,750 1/4/96 (682)
$ 7,327,986 JPY 750,385,723 1/4/96 (60,327)
$ 856,911 ESP 103,986,191 1/3/96 353
$ 1,861,380 ESP 226,995,238 1/2/96 9,974
--------
$(53,656)
========
</TABLE>

- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>

<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
DANISH KRONE--5.3%
CORPORATE BONDS
Kreditforen Denmark, 10.20%,
4/15/04 (a)..................... DKK 5,000,000 $ 992,346
Nykredit, 6.00%, 10/1/26.......... 8,285,520 1,240,776
GOVERNMENT OBLIGATION
Kingdom of Denmark, 8.00%,
5/15/03......................... 1,000,000 191,463
-----------
TOTAL DANISH KRONE................ 2,424,585
-----------
DUTCH GUILDER--4.9%
GOVERNMENT OBLIGATIONS
Government of Netherlands, 6.75%,
2/15/99......................... NLG 1,590,000 1,053,262
Government of Netherlands, 8.75%,
1/15/07......................... 300,000 224,154
Government of Netherlands, 9.00%,
5/15/00......................... 1,300,000 936,742
-----------
TOTAL DUTCH GUILDER............... 2,214,158
-----------
FRENCH FRANC--6.4%
GOVERNMENT OBLIGATIONS
Government of France, 6.75%,
10/25/03........................ FRF 2,300,000 477,425
Government of France, 7.50%,
4/25/05......................... 4,700,000 1,017,070
Government of France, 7.75%,
4/12/00......................... 2,000,000 437,819
Government of France, 8.50%,
10/25/19........................ 2,850,000 657,356
United Mexican States, 6.63%,
12/31/19........................ 3,000,000 340,770
-----------
TOTAL FRENCH FRANC................ 2,930,440
-----------
GERMAN MARK--11.0%
CORPORATE BONDS
Autobahn Tank & Rast, 6.00%,
10/16/00........................ DEM 610,000 435,739
Baden Wurttemberg, 6.75%,
6/22/05......................... 1,574,000 1,133,894
Bank Nederlandse Gem, 6.50%,
11/4/08......................... 800,000 550,603
International Bank Reconstruction
& Development, 7.125%,
4/12/05......................... 1,700,000 1,259,150
Land Hessen, 6.00%,
11/29/13........................ 1,000,000 690,136
GOVERNMENT OBLIGATION
Federal Republic of Germany,
8.25%, 9/20/01.................. 1,210,000 962,517
-----------
TOTAL GERMAN MARK................. 5,032,039
-----------
GREEK DRACHMA--0.2%
GOVERNMENT OBLIGATION
Greek Treasury Bill, 0.00%,
7/17/96......................... GRD 25,000,000 97,748
-----------
HUNGARIAN FORINTS--0.2%
GOVERNMENT OBLIGATION
Hungarian Treasury Bill, 0.00%,
10/11/96........................ HUF 15,200,000 89,745
-----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>

<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES DOLLAR--3.6%
CONVERTIBLE BOND
Zenith Electric, 6.25%, 4/1/11.... USD $ 225,000 $ 159,750
CORPORATE BOND
Reliance Industries Ltd. 144A,
8.125%, 9/27/05................. 250,000 251,250
GOVERNMENT OBLIGATION
Argentina Bono 1998 Boax0,
8.9922%, 4/4/98 (b)............. 500,000 494,500
YANKEE BONDS
Astra International, 9.75%,
4/29/01......................... 100,000 106,000
Den Norske Credit, 6.125%,
11/29/49 (a).................... 700,000 552,545
Hong Kong & Shanghai Bank, 6.25%,
8/29/49 (a)..................... 100,000 79,850
-----------
TOTAL UNITED STATES DOLLAR........ 1,643,895
-----------
TOTAL CURRENCY DENOMINATED BONDS*
(Identified cost $40,755,329)....... 42,496,586
-----------
STRUCTURED NOTES--1.1%
ING Polish Note, 0.00%,
2/21/96......................... 224,047 216,766
United Mexican States 144A, 0.00%,
11/27/96 (c).................... 300,000 305,250
-----------
TOTAL STRUCTURED NOTES
(Identified cost $500,017).......... 522,016
-----------
SHORT TERM INVESTMENT--8.5%
REPURCHASE AGREEMENT--8.5%
(Identified cost $3,866,000)
State Street Bank and Trust Co.,
5.70%, 1/2/96 (collateralized by
U.S. Treasury Bills, due
12/12/96; total par value
$4,140,000; valued at
$3,943,739)..................... 3,866,000 3,866,000
-----------
TOTAL INVESTMENTS
(Identified cost $45,121,346) (d)... 102.8% 46,884,602
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS........................ (2.8) (1,260,299)
---- ---------
NET ASSETS........................... 100.0% $45,624,303
===== ===========
</TABLE>

(a) Variable rate security. Interest shown is the current rate.
(b) Coupon set quarterly to 3 month LIBOR. Current rate shown.
(c) Value set monthly based on CETES/LIBOR rates.
(d) The aggregate cost for federal income tax purposes is $45,125,136; aggregate
gross unrealized appreciation is $1,948,773 and the aggregate gross
unrealized depreciation is $189,307, resulting in net unrealized
appreciation of $1,759,466.

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>

LAZARD INTERNATIONAL FIXED-INCOME
PORTFOLIO (CONTINUED)

* Percentages of holdings are presented in the portfolio by currency
denomination.

Percentages by country are as follows:

Argentina 1.1%, Australia 1.0%, Austria 0.9%, Belgium 1.4%, Brazil 0.4%,
Canada 3.1%, Czech Republic 3.8%, Denmark 5.3%, France 6.4%, Germany 11.0%,
Greece 0.2%, Hong Kong 0.2%, Hungary 0.2%, Ireland 2.7%, Italy 8.9%, Japan
26.1%, Mexico 0.7%, Netherlands 4.9%, Norway 3.5%, Poland 0.5%, Portugal
0.2%, South Africa 0.2%, Spain 3.2%, Sweden 1.3%, Thailand 0.3%, United
Kingdom 6.2%, United States 0.6%.

Forward Foreign Currency Contracts open at December 31, 1995:
<TABLE>
<CAPTION>
In Unrealized
Contracts Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ------------------------------------- ---- ------------- -------------
<S> <C> <C> <C> <C> <C>
AUD 162,499 $121,000 3/12/96 $ 642
$ 486,000 CAD 660,814 3/12/96 (2,132)
$ 229,503 DEM 328,025 3/12/96 5
DEM 153,082 $106,526 3/12/96 (580)
$ 986,922 DKK 5,454,127 3/12/96 (2,887)
DKK 3,050,518 $549,000 3/12/96 (1,376)
$ 1,398,000 FRF 6,906,120 3/12/96 13,991
$ 451,000 JPY 45,330,010 3/12/96 (7,382)
JPY 27,531,450 $275,000 3/12/96 5,566
NOK 6,557,669 $1,038,000 3/12/96 1,839
$ 171,000 SEK 1,123,453 3/12/96 (2,760)
XEU 48,513 $62,240 3/12/96 134
$ 3,548,592 ITL 5,684,489,869 1/19/96 30,780
DKK 5,452,746 $983,948 1/2/96 1,914
-------
$ 37,754
============
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
LAZARD BOND PORTFOLIO
ASSET-BACKED SECURITIES--17.7%
American Financial Home Equity Loan,
Series 1991-1, Class A, 8.00%,
7/25/06................................. $ 72,756 $ 74,484
AT & T Universal Card Master Trust, Series
1995-2, Class A, 5.95%,
10/17/02................................ 810,000 817,087
Banc One Credit Card Master Trust, Series
1995-B, Class A, 6.30%,
10/15/02................................ 400,000 409,500
Bridgestone Firestone, Series 1992-A,
Class A, 6.25%, 12/1/99................. 83,333 83,437
Chase Manhattan Grantor Trust, Series
1995-A, Class A, 5.90%,
11/15/01................................ 389,662 391,002
Chase Manhattan Grantor Trust, Series
1995-B, Class A, 6.00%, 9/17/01......... 641,571 644,578
Discover Card Master Trust I, Series
1995-2, Class A, 6.55%, 2/18/03......... 750,000 774,135
Fical Home Equity Loan Trust, Series
1990-1, Class A, 8.90%,
11/15/97................................ 1,057 1,056
First Chicago Master Trust II, Series
1992-E, Class A, 6.25%, 8/15/99......... 400,000 404,248
Ford Credit Grantor Trust, Series 1994-B,
Class A, 7.30%, 10/15/99................ 347,198 353,815
Ford Credit Grantor Trust, Series 1995-A,
Class A, 5.90%, 5/15/00................. 461,522 463,253
G E Home Equity Loan, Inc., Series 1991-1,
Class A, 7.20%, 9/15/11................. 49,714 50,195
Green Tree Financial Corp., Series 1994-3,
Class A, 6.60%, 6/15/19................. 299,343 301,307
Green Tree Financial Corp., Series 1994-6,
Class A2, 7.25%, 11/15/19............... 600,000 609,558
MBNA Master Credit Card Trust, Series
1995-D, Class A, 6.05%,
11/15/02................................ 773,000 784,595

<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
Olympic Automobile Receivable Trust,
Series 1994-B, Class A2, 6.85%,
6/15/01................................. $ 273,922 $ 278,673
Premier Auto Trust, Series 1994-1, Class
A3, 5.90%, 7/6/99....................... 252,000 252,709
Premier Auto Trust, Series 1995-4, Class
A2, 4.75%, 2/2/00....................... 746,072 740,476
Security Pacific Home Equity Loan, Series
1991-1, Class A, 7.85%, 5/15/98......... 32,530 32,835
Standard Credit Card Master Trust I,
Series 1995-3, Class A, 7.85%, 2/7/02... 660,000 708,464
------------
TOTAL ASSET-BACKED SECURITIES
(Identified Cost $8,080,503)................ 8,175,407
------------
CORPORATE BONDS--12.7%
AUTOMOTIVE--1.6%
General Motors Acceptance Corp., 5.625%,
2/1/99.................................. 750,000 746,445
------------
AUTO PARTS--0.7%
Walbro Corp. 144A, 9.875%, 7/15/05........ 335,000 334,163
------------
BROADCASTING--2.7%
Act III Broadcasting Inc., 10.25%,
12/15/05................................ 170,000 174,250
Comcast Corp., 9.50%, 1/15/08............. 184,000 195,040
Comcast Corp., 9.125%, 10/15/06........... 367,000 382,598
Paxson Communications Corp. 144A, 11.625%,
10/1/02................................. 160,000 162,400
SCI Television Inc., 11.00%, 6/30/05...... 294,000 310,905
------------
1,225,193
------------
CHEMICALS & PLASTICS--0.6%
Arcadian Partners LP, Series B, 10.75%,
5/1/05.................................. 263,000 290,615
------------
ELECTRONICS--0.8%
Alpine Group Inc. 144A, 12.25%,
7/15/03................................. 368,000 360,640
------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>

<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C>
Federal National Mortgage Association,
7.50%, 1/1/99........................... $ 303,000 $ 310,480
Federal National Mortgage Association,
9.00%, 7/1/25........................... 310,369 326,856
Federal National Mortgage Association,
8.00%, 10/1/25.......................... 391,577 405,525
Federal National Mortgage Association,
8.00%, 1/1/99........................... 414,000 429,008
Federal National Mortgage Association,
7.50%, 10/1/25.......................... 489,712 501,798
Federal National Mortgage Association,
7.50%, 9/1/25........................... 852,458 873,496
Federal National Mortgage Association,
8.00%, 9/1/25........................... 1,444,880 1,496,346
Government National Mortgage Association,
9.00%, 9/15/25.......................... 127,130 134,678
Government National Mortgage Association,
6.00%, 1/20/99.......................... 275,000 277,922
Government National Mortgage Association,
6.00%, 10/20/25 (a)..................... 1,154,060 1,165,600
------------
TOTAL MORTGAGE PASS-THROUGH SECURITIES
(Identified cost $6,068,445)................ 6,162,566
------------
U.S. GOVERNMENT OBLIGATIONS--43.2%
United States Treasury Bond Strip, 0.00%,
11/15/21................................ 1,270,000 258,788
United States Treasury Notes, 7.50%,
11/15/01................................ 491,000 540,792
United States Treasury Notes, 8.875%,
2/15/99................................. 720,000 793,800
United States Treasury Notes, 5.75%,
10/31/00................................ 1,115,000 1,131,023
United States Treasury Notes, 7.375%,
11/15/97................................ 1,580,000 1,639,740
United States Treasury Notes, 7.875%,
11/15/04................................ 3,044,000 3,523,430
United States Treasury Notes, 7.75%,
12/31/99................................ 3,436,000 3,728,610
United States Treasury Notes, 5.125%,
4/30/98................................. 6,500,000 6,486,805
United States Treasury Strips, 0.00%,
8/15/02................................. 1,000,000 699,840
United States Treasury Strips, 0.00%,
5/15/05................................. 1,898,000 1,116,992
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified cost $19,686,260)............... 19,919,820
------------
SHORT TERM INVESTMENTS--5.4%
REPURCHASE AGREEMENT--3.9%
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S. Treasury
Bills, due 12/12/96; total par value
$1,935,000; valued at $1,843,269)....... 1,806,000 1,806,000
------------
FEDERAL AGENCIES--0.7%
Federal National Mortgage Association
Discount Notes, 5.45%, 1/16/96.......... 130,000 129,705
Federal National Mortgage Association
Discount Notes, 5.45%, 1/3/96........... 185,000 184,944
------------
314,649
------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE>

<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES................................. 1.5 $ 696,972
---- ---------
NET ASSETS................................... 100.0% $ 46,083,403
===== ==========

</TABLE>

(a) Variable rate security. Interest shown is the current rate.
(b) The aggregate cost for federal income tax purposes is $45,042,777; aggregate
gross unrealized appreciation is $574,652 and the aggregate gross unrealized
depreciation is $230,998, resulting in net unrealized appreciation of
$343,654.

- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C>
LAZARD STRATEGIC YIELD PORTFOLIO
CURRENCY DENOMINATED BONDS*--89.3%
ARGENTINA PESO--1.2%
GOVERNMENT OBLIGATION
Bocon Pre 1 Pesos 2197, 0.00%,
4/1/01......................... ARP 1,100,000 $ 956,809
-----------
AUSTRALIAN DOLLAR--2.9%
GOVERNMENT OBLIGATIONS
Commonwealth of Australia, 8.75%,
1/15/01........................ AUD 1,218,000 941,130
Commonwealth of Australia,
13.00%, 7/15/00................ 1,469,000 1,310,930
-----------
TOTAL AUSTRALIAN DOLLAR.......... 2,252,060
-----------
BRAZILIAN REAL--1.2%
CORPORATE BOND
Chase Brazil Note, 27.152%,
3/1/96 (a)..................... BRL 973,037 956,787
-----------
BRITISH POUND--0.8%
GOVERNMENT OBLIGATIONS
United Kingdom Treasury, 2.50%,
7/17/24........................ GBP 350,000 657,201
-----------
CANADIAN DOLLAR--4.9%
CONVERTIBLE BOND
Canada Trustco, 7.00%, 7/1/09.... CAD 2,000,000 1,340,169
GOVERNMENT OBLIGATIONS
Canada Government, 7.50%,
12/1/03........................ CAD 2,930,000 2,211,243
Quebec Housing, 8.95%, 5/13/13... 394,000 313,117
-----------
TOTAL CANADIAN DOLLAR............ 3,864,529
-----------
CZECH KORUNA--3.9%
CORPORATE BONDS
CEZ AS, 14.375%, 1/27/01......... CZK 20,370,000 817,366
Czech Trade Bank, 11.125%,
8/26/97........................ 20,000,000 754,519
Skofin, 11.625%, 2/9/98.......... 40,000,000 1,517,288
-----------
TOTAL CZECH KORUNA............... 3,089,173
-----------
DANISH KRONE--3.6%
CORPORATE BONDS
Kreditforen Denmark, 10.20%,
4/15/04........................ DKK 9,000,000 1,786,223
Nykredit, 6.00%, 10/1/26......... 7,089,480 1,061,666
-----------
TOTAL DANISH KRONE............... 2,847,889
-----------
GERMAN MARK--1.0%
CORPORATE BOND
Autobahn Tank & Rast, 6.00%,
10/16/00....................... DEM 1,050,000 750,042
-----------
GREEK DRACHMA--0.6%
GOVERNMENT OBLIGATION
Greek Treasury Bill, 0.00%,
7/17/96........................ GRD 130,000,000 508,288
-----------
HUNGARIAN FORINTS--0.6%
GOVERNMENT OBLIGATION
Hungarian Treasury Bill, 0.00%,
10/11/96....................... HUF 75,900,000 448,134
-----------
INDONESIAN RUPIAH--1.1%
CORPORATE BONDS
Bakrie & Brothers, 0.00%,
4/15/96........................ IDR 1,000,000,000 413,345
Indah Kiat, 0.00%, 3/21/96....... 1,000,000,000 422,086
-----------
TOTAL INDONESIAN RUPIAH.......... 835,431
-----------
IRISH POUND--3.0%
GOVERNMENT OBLIGATION
Republic of Ireland, 6.25%,
4/1/99......................... IEP 1,505,000 2,389,061
-----------
ITALIAN LIRA--2.0%
GOVERNMENT OBLIGATION
Republic of Italy, 8.50%,
8/1/99......................... ITL 2,575,000,000 1,538,879
-----------
MEXICAN PESO--0.2%
CORPORATE BOND
Ajustobonos, 0.00%, 2/15/96...... MXP 555,000 163,398
-----------
NEW ZEALAND DOLLAR--0.9%
GOVERNMENT OBLIGATION
Government of New Zealand,
10.00%, 7/15/97................ NZD 1,065,000 715,375
-----------
NORWEGIAN KRONE--2.2%
CORPORATE BOND
Sparebanken Norway, 10.25%,
6/23/03 (a).................... NOK 10,000,000 1,704,267
-----------
PORTUGUESE ESCUDO--0.6%
GOVERNMENT OBLIGATION
Republic of Portugal, 11.875%,
2/23/00........................ PTE 61,500,000 442,447
-----------
SOUTH AFRICAN RAND--0.7%
GOVERNMENT OBLIGATION
Republic of South Africa, 11.50%,
5/30/00........................ ZAR 2,032,200 511,608
-----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-8
<PAGE>

- ------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------

LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED)
<S> <C> <C> <C>
SPANISH PESETA--1.6%
GOVERNMENT OBLIGATION
Kingdom of Spain, 12.25%,
3/25/00........................ ESP 140,000,000 $ 1,267,156
-----------
THAILAND BAHT--1.6%
CORPORATE BONDS
Industrial Group Finance of
Thailand, 11.25%, 5/14/96...... THB 3,000,000 119,177
Krung Thai Than BE, 0.00%,
1/12/96........................ 10,000,000 395,671
Phatra Thanakit BE, 0.00%,
6/20/96 (a).................... 20,000,000 755,592
-----------
TOTAL THAILAND BAHT.............. 1,270,440
-----------
UNITED STATES DOLLAR--54.7%
CONVERTIBLE BONDS
Burns Philp, 5.50%, 4/30/04...... USD $ 800,000 692,000
Dairy Farm International Holdings
Ltd., 0.00%, 5/10/49........... 250,000 197,500
Zenith Electric, 6.25%, 4/1/11... 535,000 379,850
CORPORATE BONDS
Act III Broadcasting Inc.,
10.25%, 12/15/05............... 400,000 410,000
Alpine Group Inc. 144A, 12.25%,
7/15/03........................ 718,000 703,640
Arcadian Partners Series B,
10.75%, 5/1/05................. 798,000 881,790
Astra International, 9.75%,
4/29/01........................ 1,540,000 1,632,400
Ce Casecnan Water & Energy Inc.
Series B 144A, 11.95%,
11/15/10....................... 750,000 757,500
Comcast Corp., 9.125%,
10/15/06....................... 320,000 333,600
Comcast Corp., 9.50%,
1/15/08........................ 479,000 507,740
Crown Paper Co., 11.00%,
9/1/05......................... 390,000 341,250
Den Norske Credit, 6.125%,
11/29/49 (a)................... 800,000 631,480
Eletson Holdings Inc., 9.25%,
11/15/03....................... 700,000 693,000
Export-Import Bank of Japan,
8.00%, 6/4/00.................. 444,125 448,886
Flagstar Corp., 10.75%,
9/15/01........................ 800,000 732,000
Forenings Banken 144A, 7.234%,
11/29/49 (a)................... 750,000 745,500
Fort Howard Corp., 8.25%,
2/1/02......................... 785,000 765,375
Fundy Cable Ltd., 11.00%,
11/15/05....................... 535,000 556,400
Hong Kong & Shanghai Bank, 6.25%,
8/29/49 (a).................... 1,200,000 958,200
Lennar Central Partners Ltd.
Participating Class D 144A,
9.89%, 9/15/04................. 370,000 370,000
Mothers Work Inc. 144A, 12.625%,
8/1/05......................... 739,000 727,915
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Noble Drilling Corp., 9.25%,
10/1/03........................ $ 820,000 $ 861,000
NorthWest Airlines Inc., 8.625%,
8/1/96......................... 420,000 421,050
Paxson Communications Corp. 144A,
11.625%, 10/1/02............... 425,000 432,969
Pueblo Xtra International, 9.50%,
8/1/03......................... 96,000 91,680
Reliance Industries, Ltd. 144A,
8.125%, 9/27/05................ 1,500,000 1,507,500
Rowan Companies, Inc., 11.875%,
12/1/01........................ 820,000 889,700
Silgan Corp., 11.75%, 6/15/02.... 767,000 822,607
Sparbankernas Bank, 7.719%,
10/20/49 (a)................... 900,000 914,985
Walbro Corp. 144A, 9.875%,
7/15/05........................ 850,000 847,875
Williamhouse Regency Delaware
Inc. 144A, 13.00%,
11/15/05....................... 575,000 603,750
FEDERAL AGENCIES
Federal Home Loan Mortgage Corp.,
6.946%, 2/1/24 (a)............. 1,646,326 1,681,825
Federal Home Loan Mortgage Corp.,
8.00%, 5/1/25.................. 2,116,850 2,193,585
Federal National Mortgage
Association, 7.503%, 11/1/27
(a)............................ 1,635,385 1,667,582
Government National Mortgage
Association, 6.00%, 10/20/25
(a)............................ 1,756,821 1,774,389
Government National Mortgage
Association, 6.00%, 11/20/25
(a)............................ 2,176,013 2,198,453
FOREIGN GOVERNMENT OBLIGATIONS
Argentina Bono 1998 Boax 0,
8.992%, 4/4/98 (b)............. 350,000 346,150
Argentina Bote X, 5.688%, 4/1/00
(b)............................ 600,000 358,800
Argentina Pensioner Bocon, 0.00%,
4/1/01 (c)..................... 200,000 194,750
Banco Central de Costa Rica
Series A, 6.727%,
5/21/05 (a).................... 240,032 196,827
Federal Republic of Brazil,
6.6875%, 1/1/01 (a)............ 855,000 734,231
Government of Poland, 6.875%,
10/27/24 (a)................... 2,200,000 1,661,000
Kingdom of Jordan, 4.00%,
12/23/23....................... 1,750,000 848,750
Republic of Brazil Federative,
6.8125%, 4/15/06 (a)........... 1,900,000 1,301,500
Republic of South Africa, 9.625%,
12/15/99....................... 750,000 811,875
MUNICIPAL BOND
Allegheny County Pennsylvania
Hospital Development, 5.375%,
12/1/25........................ 810,000 796,343
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-9
<PAGE>

- -------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------------------

LAZARD STRATEGIC YIELD PORTFOLIO (CONTINUED)
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
United States Treasury Notes,
5.625%, 8/31/97................ $ 1,435,000 $ 1,444,198
United States Treasury Notes,
6.875%, 10/31/96............... 100,000 101,281
YANKEE BOND
Bridas Corp., 12.50%, 11/15/99... 800,000 794,000
COLLATERALIZED MORTGAGE OBLIGATIONS
Asset Securitization Corp. Series
1995-MD4, Class ACS2, 2.433%,
8/13/29 (a).................... 3,880,000 759,631
Federal Home Loan Mortgage PC
Guaranteed, Series 1490, Class
E, 6.50%, 4/15/08.............. 3,575,000 750,750
Federal Home Loan Mortgage PC
Guaranteed, Series 1694, Class
V, 6.50%, 12/15/21............. 4,750,000 699,141
Federal Home Loan Mortgage PC,
Series 1587, Class HA, 6.50%,
10/15/08....................... 5,518,488 735,511
-----------
TOTAL UNITED STATES DOLLAR....... 42,909,714
-----------
TOTAL CURRENCY DENOMINATED BONDS*
(Identified cost $68,865,827)...... 70,078,688
-----------
STRUCTURED NOTES--4.5%
ING Polish Note, 0.00%, 2/21/96.. 335,665 324,756
J P Morgan Polish Note, 0.00%,
1/24/96........................ 724,280 701,031
Morgan Stanley Group Inc.,
14.25%, 6/26/96 (a)............ 500,000 419,500
YPF Sociedad Anonima, 7.50%,
10/26/02....................... 736,325 743,688
United Mexican States 144A,
0.00%, 11/27/96 (d)............ 1,300,000 1,322,750
-----------
TOTAL STRUCTURED NOTES
(Identified cost $3,517,303)....... 3,511,725
-----------
SHORT TERM INVESTMENT--4.5%
REPURCHASE AGREEMENT--4.5%
(Identified cost $3,520,000)
State Street Bank and Trust Co.,
5.70%, 1/2/96 (collateralized
by U.S. Treasury Bills, due
12/12/96; total par value
$3,770,000; valued at
$3,591,279).................... 3,520,000 3,520,000
-----------
TOTAL INVESTMENTS
(Identified cost $75,903,130)
(e).............................. 98.3% 77,110,413
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES........................ 1.7 1,363,511
---- ---------
NET ASSETS.......................... 100.0% $78,473,924
===== ==========

</TABLE>

(a) Variable rate security. Interest shown is the current rate.
(b) Coupon set quarterly to 3 month LIBOR. Current rate shown.
(c) Zero coupon until 5/1/97, then coupon set monthly to 30 day LIBOR.
(d) Value set monthly based on CETES/LIBOR rates.
(e) The aggregate cost for federal income tax purposes is $76,140,116; aggregate
gross unrealized appreciation is $1,517,650 and the aggregate gross
unrealized depreciation is $547,353, resulting in net unrealized
appreciation of $970,297.

* Percentages of holdings are presented in the portfolio by currency
denomination.

Percentages by country are as follows:

Argentina 3.3%, Australia 2.9%, Brazil 3.8%, Canada 4.9%, Costa Rica 0.3%,
Czech Republic 3.9%, Denmark 3.6%, Germany 1.0%, Greece 0.6%, Hong Kong 1.2%,
Hungary 0.6%, Indonesia 1.1%, Ireland 3.0%, Italy 2.0%, Japan 0.6%, Jordan
1.1%, Mexico 1.9%, New Zealand 0.9%, Norway 5.1%, Philippines 1.0%, Poland
3.4%, Portugal 0.6%, South Africa 1.7%, Spain 1.6%, Sweden 2.1%, Thailand
1.6%, United Kingdom 0.8%, United States 39.2%.

Percentages by industry are as follows:

Auto Parts 3.2%, Banking 6.6%, Broadcasting 1.1%, Building & Building
Materials 1.0%, Cable Systems 1.1%, Chemicals & Chemical Manufacturing 3.0%,
Electronics 1.4%, Food & Beverages 0.3%, Holdings Company 0.9%, Oil & Gas
Equipment 2.2%, Packaging 1.0%, Paper Manufacturing & Products 2.7%,
Restaurants 0.9%, Retail 1.0%, Shipbuilding 0.9%, Telecommunications 0.7%,
Transportation & Freight Services 0.5%, Utilities 2.0%, Collateralized
Mortgage Obligation 3.8%, U.S. Government Obligations 16.9%, Foreign
Government Obligations 37.8%, Municipal Bonds 1.0%, Structured Notes 2.8%,
Yankee Bonds 1.0%.

Forward Foreign Currency Contracts open at December 31, 1995:

<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ------------------- ------------------- -------- --------------
<S> <C> <C> <C>
$ 2,319,053 JPY 222,420,361 9/3/96 $(92,983)
JPY 222,420,361 $2,364,916 9/3/96 138,846
$ 755,892 THB 19,033,360 4/5/96 (300)
AUD 2,897,236 $2,155,000 3/12/96 9,100
CAD 4,790,223 $3,523,000 3/12/96 15,455
$ 282,658 DEM 403,700 3/12/96 (203)
DEM 6,008,452 $4,199,968 3/12/96 (3,940)
$ 1,113,480 DKK 6,153,537 3/12/96 (3,257)
DKK 21,775,923 $3,919,000 3/12/96 (9,819)
ESP 147,262,500 $1,190,000 3/12/96 (15,194)
GBP 447,225 $685,000 3/12/96 (8,321)
IEP 1,455,175 $2,313,000 3/12/96 (17,341)
ITL 2,461,074,000 $1,522,000 3/12/96 (13,064)
$ 95,000 JPY 9,567,450 3/12/96 (1,369)
JPY 32,520,300 $325,000 3/12/96 6,743
NOK 10,417,722 $1,649,000 3/12/96 2,922
$ 56,983 XEU 44,624 3/12/96 144
XEU 669,831 $860,792 3/12/96 3,285
$ 1,552,698 ITL 2,487,266,171 1/19/96 13,468
$ 247,918 ZAR 911,967 1/4/96 2,244
DKK 6,152,360 $1,110,194 1/2/96 2,159
--------
$ 28,575
========
</TABLE>

- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.

F-10
<PAGE>

<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS--4.1%
Amphenol Corp. Class A (a).............. 416,800 $ 10,107,400
Lexmark International Group, Inc. Class
A (a)................................. 413,600 7,548,200
Oak Industries, Inc. (a)................ 455,900 8,548,125
-------------
26,203,725
-------------
ENERGY--0.2%
California Energy Company, Inc. (a)..... 81,700 1,593,150
-------------
FINANCIAL SERVICES--1.2%
Rollins Truck Leasing Corp. ............ 685,800 7,629,525
-------------
HOUSEHOLD APPLIANCES & HOME
FURNISHINGS--3.9%
Ethan Allen Interiors, Inc. (a)......... 298,000 6,071,750
Heilig Meyers Co. ...................... 277,900 5,106,413
Miller (Herman), Inc. .................. 276,700 8,301,000
Sunbeam Corp. Delaware (New)............ 364,100 5,552,525
-------------
25,031,688
-------------
INDUSTRIAL & MACHINERY--2.3%
Mark IV Industries, Inc. ............... 431,729 8,526,648
Trinova Corp. .......................... 211,400 6,051,325
-------------
14,577,973
-------------
INSURANCE--6.4%
Alexander & Alexander Services, Inc. ... 167,900 3,190,100
American Bankers Insurance Group,
Inc. ................................. 208,600 8,135,400
Gryphon Holdings, Inc. (a).............. 150,000 2,887,500
NAC Re Corp. ........................... 240,000 8,640,000
Prudential Reinsurance Holdings,
Inc. ................................. 310,900 7,267,287
Reliance Group Holdings, Inc. .......... 276,100 2,381,363
Western National Corp. ................. 550,000 8,868,750
-------------
41,370,400
-------------
LEISURE TIME--2.1%
Players International, Inc. (a)......... 570,000 6,091,875
Polaris Industries, Inc. ............... 260,000 7,637,500
-------------
13,729,375
-------------
MACHINERY--4.5%
Briggs & Stratton Corp. ................ 289,300 12,548,387
Manitowoc, Inc. ........................ 313,000 9,585,625
Measurex Corp. ......................... 248,700 7,025,775
-------------
29,159,787
-------------
MANUFACTURING--4.0%
Alltrista Corp. (a)..................... 311,400 5,605,200
Crane Co. .............................. 271,400 10,007,875
Pentair, Inc. .......................... 139,500 6,940,125
Varlen Corp. ........................... 157,700 3,390,550
-------------
25,943,750
-------------
MEDICAL SUPPLIES--1.5%
Dentsply International, Inc. ........... 240,000 9,600,000
-------------
OIL & GAS--3.4%
Diamond Shamrock, Inc. ................. 200,000 5,175,000
Helmerich & Payne, Inc. ................ 306,500 9,118,375
Vintage Petroleum, Inc. ................ 332,000 7,470,000
-------------
21,763,375
-------------
PAPER PRODUCTS--0.9%
Bowater, Inc. .......................... 155,000 5,502,500
-------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-11
<PAGE>

<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS--0.1%
(Identified cost $1,500,000)
TECHNOLOGY--0.1%
Verbex Voice Systems, Inc. Series F
(conv.) (a),(b)....................... 687,285 $ 500,343
-------------
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
CONVERTIBLE BONDS--0.3%
COMMUNICATIONS--0.2%
International CableTel, Inc. 144A,
7.25%, 4/15/05........................ $ 1,400,000 1,498,000
-------------
RESTAURANTS, LODGING & ENTERTAINMENT--0.1%
Interactive Light Holdings, Inc., 8.00%,
1/25/99 (b)........................... 1,000,000 500,000
-------------
TECHNOLOGY--0.0%
Verbex Voice Systems, Inc., 10.00%,
12/31/95 (b).......................... 100,000 100,000
-------------
TOTAL CONVERTIBLE BONDS
(Identified cost $2,500,000).............. 2,098,000
-------------
SHORT TERM INVESTMENT--7.4%
REPURCHASE AGREEMENT--7.4%
(Identified cost $47,748,000)
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S.
Treasury Notes, 5.75%, due 9/30/97;
total par value $47,615,000; valued at
$48,704,574).......................... 47,748,000 47,748,000
-------------
TOTAL INVESTMENTS
(Identified cost $563,606,156) (c)........ 99.2% 640,981,828
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES............................... 0.8 5,389,176
---- ----------
NET ASSETS................................. 100.0% $ 646,371,004
===== =============
</TABLE>

(a) Non-income producing security.
(b) Private placement (see note 6).
(c) The aggregate cost for federal income tax purposes is $563,606,156;
aggregate gross unrealized appreciation is $96,906,783 and the aggregate
gross unrealized depreciation is $19,531,111, resulting in net unrealized
appreciation of $77,375,672.

- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.

F-12
<PAGE>

<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
NEW ZEALAND--4.8%
Fisher & Paykel......................... 719,416 $ 2,187,032
Warehouse Group......................... 437,100 1,160,189
Wrightson Ltd. ......................... 2,925,200 2,218,379
-------------
TOTAL NEW ZEALAND....................... 5,565,600
-------------
NORWAY--5.0%
Aker AS Class B......................... 186,800 2,270,820
Fokus Bank (a).......................... 649,000 3,504,176
-------------
TOTAL NORWAY............................ 5,774,996
-------------
PAKISTAN--0.0%
Lever Brothers.......................... 540 11,126
Packages................................ 750 2,214
-------------
TOTAL PAKISTAN.......................... 13,340
-------------
PHILIPPINES--1.9%
Philippine Commercial International
Bank (a).............................. 243,000 2,241,937
-------------
PORTUGAL--2.0%
Corticeira Amorim SA.................... 197,100 2,271,572
-------------
SPAIN--5.1%
Corporation Financiera Reunida SA....... 1,070,400 3,706,249
Vallehermoso SA......................... 120,000 2,230,833
-------------
TOTAL SPAIN............................. 5,937,082
-------------
SWEDEN--6.0%
Getinge Industrier AB................... 44,466 2,025,839
IRO AB (a).............................. 204,100 2,305,451
TV 4 AB Series A........................ 149,200 2,584,153
-------------
TOTAL SWEDEN............................ 6,915,443
-------------
SWITZERLAND--6.9%
Bil GT Gruppe AG........................ 5,000 2,947,551
Logitech International PLC.............. 25,100 2,589,423
Swisslog Holding AG..................... 8,690 2,410,750
-------------
TOTAL SWITZERLAND....................... 7,947,724
-------------
TAIWAN--1.6%
Yageo Corp. (a), (c).................... 213,100 1,917,900
-------------
UNITED KINGDOM--11.6%
Amec PLC................................ 35,247 51,455
Bell Cablemedia PLC (a),(b)............. 75,400 1,206,400
Greycoat PLC............................ 832,175 1,796,433
London Clubs International PLC.......... 342,800 2,246,647
McBride PLC (a)......................... 660,000 1,978,258
Scholl PLC.............................. 1,028,400 3,066,513
Takare PLC.............................. 1,087,400 3,039,789
-------------
TOTAL UNITED KINGDOM.................... 13,385,495
-------------
TOTAL COMMON STOCKS
(Identified cost $103,585,858)............ 101,614,390
-------------
PREFERRED STOCKS--4.7%
AUSTRIA--1.3%
Bau Holdings AG......................... 39,900 1,500,432
-------------
GERMANY--1.7%
Sander (Jil) AG......................... 2,700 1,976,298
-------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-13
<PAGE>

<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
CONVERTIBLE BONDS--3.0%
PHILIPPINES--1.4%
Bacnotan Consolidated Industries,
5.50%, 6/21/04........................ $ 2,000,000 1,700,000
-------------
UNITED STATES--1.6%
International CableTel Inc. 144A,
7.25%, 4/15/05........................ 1,700,000 1,819,000
-------------
TOTAL CONVERTIBLE BONDS
(Identified cost $3,700,000).............. 3,519,000
-------------
SHORT TERM INVESTMENT--6.7%
REPURCHASE AGREEMENT--6.7%
(Identified cost $7,711,000)
State Street Bank and Trust Co., 5.70%,
1/2/96 (collateralized by U.S.
Treasury Bills, due 12/12/96; total
par value $8,260,000; valued at
$7,868,426)........................... 7,711,000 7,711,000
-------------
TOTAL INVESTMENTS
(Identified cost $120,661,108) (e)........ 102.3% 118,221,120
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS.............................. (2.3) (2,686,681)
---- ----------
NET ASSETS................................. 100.0% $ 115,534,439
===== =============
</TABLE>

(a) Non-income producing security.
(b) American Depository Receipts.
(c) Global Depository Receipts.
(d) Company currently in bankruptcy.
(e) The aggregate cost for federal income tax purposes is $120,735,712;
aggregate gross unrealized appreciation is $6,708,912 and the aggregate
gross unrealized depreciation is $9,223,504, resulting in net unrealized
depreciation of $2,514,592.
* Percentages of common stocks, preferred stocks, and convertible bonds are
presented in the portfolio by currency denomination.

Percentages by industry are as follows:
Agriculture 1.9%, Automotive 1.7%, Auto Parts 2.4%, Broadcasting 2.2%,
Computers 2.2%, Construction Materials 5.3%, Cosmetics & Toiletries 4.4%,
Electrical Equipment 1.5%, Electronics 1.9%, Engineering & Construction 1.3%,
Entertainment 1.9%, Financial Services 14.8%, Food & Beverages 2.2%, Health
Care 2.6%, Household Products 1.8%, Industrial & Machinery 2.3%, Insurance
0.8%, Leisure Time 1.8%, Lodging 0.3%, Manufacturing 3.3%, Miscellaneous
5.1%, Mortgage Backed Securities 5.7%, Paper Products 2.0%, Pharmaceuticals
2.6%, Publishing 2.6%, Real Estate 5.2%, Retailing 2.6%, Retail Trade 2.9%,
Telecommunication 1.6%, Telecommunication Equipment 2.1%, Telephone 1.0%,
Textiles, Shoes, and Apparel 1.7%, Transportation & Freight Services 1.9%,
Venture Capital 2.0%.
Forward Foreign Currency Contracts open at December 31, 1995:

<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ---------------- --------------- -------- --------------
<S> <C> <C> <C>
BEL 93,045,843 $3,141,000 3/13/96 $(32,706)
DEM 7,821,860 $5,436,000 3/13/96 (36,959)
SEK 63,425,392 $9,599,000 3/13/96 101,636
$ 1,094,460 GBP 702,929 1/4/96 (2,786)
$ 117,722 NZD 180,278 1/4/96 138
$ 142,407 NZD 218,583 1/3/96 495
$ 264,919 SEK 1,754,164 1/3/96 (728)
$ 758,901 FIM 3,282,247 1/2/96 (4,257)
--------
$ 24,833
========
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES
-----------
<S> <C> <C>
LAZARD SPECIAL EQUITY PORTFOLIO
COMMON STOCKS--89.5%
AEROSPACE & DEFENSE--1.2%
Tech-Sym Corp. (a)........................ 17,500 $ 557,812
------------
AUTO & TRUCK--1.0%
Oshkosh Truck Corp. Class B............... 18,000 270,000
Republic Automotive Parts, Inc. (a)....... 15,000 191,250
------------
461,250
------------
BUILDING & HOUSING--5.0%
Puerto Rican Cement Co., Inc. ............ 65,000 2,153,125
Simpson Manufacturing Co. (a)............. 15,000 195,000
------------
2,348,125
------------
BUSINESS SERVICES & SUPPLIES--2.6%
Ennis Business Forms...................... 100,000 1,225,000
------------
CHEMICALS & PLASTICS--6.2%
Aceto Corp. .............................. 77,000 1,174,250
MacDermid, Inc. .......................... 30,000 1,755,000
------------
2,929,250
------------

<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
FOOD & BEVERAGE--4.2%
Farmer Brothers Co. ...................... 15,000 $ 1,980,000
------------
HOUSEHOLD APPLIANCES & HOME
FURNISHINGS--14.2%
Allen Organ Co. Class B................... 60,000 2,445,000
Boston Acoustics, Inc. ................... 40,000 920,000
Chromcraft Revington, Inc. (a)............ 9,000 239,625
Mikasa, Inc. (a).......................... 22,000 297,000
National Presto Industries, Inc. ......... 47,100 1,872,225
Virco Manufacturing Co. .................. 99,000 903,375
------------
6,677,225
------------
INDUSTRIAL & MACHINERY--9.7%
Amtrol, Inc. ............................. 25,000 381,250
Paul Mueller Co. ......................... 15,000 476,250
Penn Engineering & Manufacturing Corp. ... 20,000 1,940,000
Robbins & Myers, Inc. .................... 40,000 1,140,000
Tecumseh Products Co. Class A............. 12,000 621,000
------------
4,558,500
------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-14
<PAGE>

<CAPTION>
LAZARD SPECIAL EQUITY PORTFOLIO (CONTINUED)
<S> <C> <C>
MISCELLANEOUS--6.8%
Brenco, Inc. ............................. 15,300 $ 156,825
Matthews International Corp. ............. 8,500 159,375
Mine Safety Appliances Co. ............... 800 38,200
NCH Corp. ................................ 16,400 947,100
Tranzonic Companies Class A............... 80,000 1,100,000
Tranzonic Companies Class B............... 40,000 555,000
Versa Technologies, Inc. ................. 16,400 250,100
------------
3,206,600
------------
MULTI-INDUSTRY--4.2%
American Filtrona Corp. .................. 15,000 502,500
Core Industries, Inc. .................... 12,300 158,363
Kysor Industrial Corp. Delaware........... 6,200 150,350
Latshaw Enterprises, Inc. (a),(b)......... 38,400 259,200
RPC Energy Services, Inc. (a)............. 18,500 168,812
Wynns International, Inc. ................ 24,400 722,850
------------
1,962,075
------------
RESTAURANTS, LODGING & ENTERTAINMENT--2.7%
Bowl America, Inc. Class A................ 80,000 610,000
International Dairy Queen, Inc.
Class A (a)............................. 30,000 682,500
------------
1,292,500
------------
RETAIL--11.0%
Arden Group, Inc. Class A (a)............. 25,000 1,425,000
Blair Corp. .............................. 58,000 1,834,250
Dress Barn, Inc. (a)...................... 100,000 962,500
Haverty Furniture Company, Inc. .......... 11,800 160,775
Value City Department Stores, Inc. (a).... 115,000 776,250
------------
5,158,775
------------
SERVICES--11.6%
AFA Protective Systems, Inc. (b).......... 15,100 1,661,000
Grey Advertising, Inc. ................... 4,000 784,000
Hilb, Rogal & Hamilton Co. ............... 100,000 1,337,500
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Isomedix, Inc. (a)........................ 28,400 $ 408,250
Value Line, Inc. ......................... 35,000 1,286,250
------------
5,477,000
------------
TEXTILES, SHOES & APPAREL--9.1%
Fab Industries, Inc. ..................... 50,000 1,593,750
Garan, Inc. .............................. 80,000 1,350,000
Superior Surgical Manufacturing Company,
Inc. ................................... 100,000 950,000
Weyco Group, Inc. ........................ 10,000 375,000
------------
4,268,750
------------
TOTAL COMMON STOCKS
(Identified cost $34,483,841)............... 42,102,862
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT TERM INVESTMENT--11.1%
FEDERAL AGENCY--11.1%
(Identified cost $5,209,190)
Federal Home Loan Mortgage Corp., 5.60%,
1/2/96.................................. $ 5,210,000 5,209,190
------------
TOTAL INVESTMENTS
(Identified cost $39,693,031) (c)........... 100.6% $ 47,312,052
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS...................................... (0.6) (291,849)
---- ---------
NET ASSETS................................... 100.0% $ 47,020,203
===== ============
</TABLE>

(a) Non-income producing security.
(b) Affiliated issuer under the Investment Company Act of 1940 in as much as the
Portfolio owns more than 5% of the voting securities of the Company.
(c) The aggregate cost for federal income tax purposes is $39,693,031; aggregate
gross unrealized appreciation is $9,365,862 and the aggregate gross
unrealized depreciation is $1,746,841, resulting in net unrealized
appreciation of $7,619,021.

- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
LAZARD EMERGING MARKETS PORTFOLIO
COMMON STOCKS--79.9%
ARGENTINA--7.4%
Capex SA.................................. 140,000 $ 1,021,796
Juan Minetti.............................. 144,000 475,105
Metrogas SA Class B (b)................... 57,000 555,750
YPF Sociedad Anonima Class D (b).......... 25,000 540,625
-----------
TOTAL ARGENTINA........................... 2,593,276
-----------
BRAZIL--2.8%
Capco Automotive Products Corp. (a)....... 60,100 428,212
Makro Atacadista SA (a),(c)............... 100,000 568,500
-----------
TOTAL BRAZIL.............................. 996,712
-----------
CHILE--4.2%
AFP Provida SA (b)........................ 17,000 469,625
Chilectra SA (b).......................... 8,000 398,000
Compania De Telefonos Chile (b)........... 7,300 604,987
-----------
TOTAL CHILE............................... 1,472,612
-----------

<CAPTION>
NUMBER
OF SHARES
----------
<S> <C> <C>
CHINA--1.6%
Ek Chor China Motorcycle Co. ............. 47,000 $ 546,375
-----------
COLOMBIA--1.7%
Banco De Bogota........................... 66,451 318,589
Banco Industrial Colombiano............... 82,000 290,507
-----------
TOTAL COLOMBIA............................ 609,096
-----------
CZECH REPUBLIC--1.5%
Komercni Banka AS 144A (a),(c)............ 30,000 546,000
-----------
GREECE--3.0%
Ergo Bank................................. 10,000 398,372
Papastratos Cigarette SA.................. 10,000 316,336
Titan Cement Co. SA (a)................... 8,000 335,737
-----------
TOTAL GREECE.............................. 1,050,445
-----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-15
<PAGE>

- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO (CONTINUED)
<S> <C> <C>
HONG KONG--5.2%
China Hong Kong Photo Products............ 1,100,000 $ 622,373
Harbin Power Equipment.................... 1,248,000 183,992
Peregrine Investment...................... 360,000 465,568
Yue Yuen Industrial Holding............... 2,100,000 556,741
-----------
TOTAL HONG KONG........................... 1,828,674
-----------
HUNGARY--3.0%
Danubius Hotel............................ 51,600 485,296
Egis Gyogyszergyar........................ 25,000 555,332
-----------
TOTAL HUNGARY............................. 1,040,628
-----------
INDIA--2.9%
Ashok Leyland Ltd. 144A (a), (c).......... 58,600 600,650
Hindalco Industries Ltd. 144A (a), (c).... 12,500 426,625
-----------
TOTAL INDIA............................... 1,027,275
-----------
INDONESIA--5.9%
Bank Bali................................. 125,750 247,485
Bimantara Citra (a)....................... 540,000 448,721
Citra Marga Nusaphala Persada............. 470,000 441,942
Kawasan Industries Jababeka............... 298,000 482,222
Trias Sentosa............................. 210,000 468,403
-----------
TOTAL INDONESIA........................... 2,088,773
-----------
ISRAEL--0.5%
Blue Square (a)........................... 24,000 161,433
-----------
KOREA--7.8%
Chosun Brewery............................ 7,610 301,251
Chosun Brewery Ord. (New) (a)............. 2,790 109,676
Korea Chemical............................ 3,760 389,401
Korea Mobile Telecom...................... 836 942,420
Pohang Iron & Steel (b)................... 9,600 210,000
Samsung Electronics Ltd. 144A (a), (c).... 6,800 397,800
Shinhan Bank.............................. 17,100 381,964
-----------
TOTA KOREA................................ 2,732,512
-----------
LUXEMBOURG--1.4%
First NIS Regional Fund (a)............... 88,000 484,000
-----------
MALAYSIA--2.9%
Genting Berhad............................ 33,000 275,466
Kian Joo Can Factory Berhad............... 125,000 516,793
Southern Bank Berhad...................... 125,000 238,217
-----------
TOTAL MALAYSIA............................ 1,030,476
-----------
MEXICO--6.7%
Cemex SA.................................. 204,000 671,627
Fomento Economico Series B................ 271,200 609,541
Grupo Fernandez Editores Series B (a)..... 1,070,000 298,185
Pan American Beverage Class A............. 11,000 352,000
Telefonos de Mexico SA (b)................ 13,000 414,375
-----------
TOTAL MEXICO.............................. 2,345,728
-----------
PAKISTAN--1.9%
Hub Power Ltd. 144A (a),(c)............... 38,000 655,500
-----------
PERU--1.3%
Backus & Johnston......................... 265,358 455,851
-----------
PHILIPPINES--3.4%
Alaska Milk Corp. (a)..................... 2,300,000 333,206
Benpress Holdings Corp. 144A (c).......... 64,600 323,000
<CAPTION>
NUMBER
DESCRIPTION OF SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
C & P Homes (a)........................... 300,100 $ 220,241
Philippine Commercial International
Bank (a)................................ 34,400 317,377
-----------
TOTAL PHILIPPINES......................... 1,193,824
-----------
POLAND--0.7%
Jelfa (a)................................. 22,000 253,417
-----------
PORTUGAL--3.5%
Corticeira Amorim SA...................... 31,800 366,494
Investec-Consultoria Internacional SA
(a)..................................... 27,000 541,172
Portugal Telecom SA (a),(b)............... 18,000 342,000
-----------
TOTAL PORTUGAL............................ 1,249,666
-----------
SOUTH AFRICA--5.0%
JD Group Ltd. ............................ 100,654 662,651
Kersaf Investments........................ 50,000 630,915
Malbak.................................... 69,391 480,623
-----------
TOTAL SOUTH AFRICA........................ 1,774,189
-----------
SRI LANKA--0.3%
Blue Diamond Jewel........................ 408,186 120,832
-----------
TAIWAN--2.1%
Siliconware Precision Industries Inc. 144A
(a),(c)................................. 16,700 275,550
Yageo Corp. (a),(c)....................... 52,600 473,400
-----------
TOTAL TAIWAN.............................. 748,950
-----------
VENEZUELA--1.1%
Venezolana De Ceme........................ 309,000 379,492
-----------
ZIMBABWE--2.1%
Bindura Nickel............................ 250,000 362,171
Delta Corp. .............................. 225,000 376,658
-----------
TOTAL ZIMBABWE............................ 738,829
-----------
TOTAL COMMON STOCKS
(Identified cost $28,827,960)............... 28,124,565
-----------
PREFERRED STOCKS--6.6%
BRAZIL--4.4%
Brahma Cia Cervejaria..................... 1,700,000 699,606
Cemig Cia Energetica de Minas Gerais...... 20,000,000 442,387
Dixie Toga SA (a)......................... 467,000 408,385
-----------
TOTAL BRAZIL.............................. 1,550,378
-----------
COLOMBIA--2.2%
Banco Industrial Colombiano SA (b)........ 35,000 573,125
Gran Cadena De Almacenes Class B 144A (a),
(b)..................................... 18,000 207,000
-----------
TOTAL COLOMBIA............................ 780,125
-----------
TOTAL PREFERRED STOCKS
(Identified cost $2,368,183)................ 2,330,503
-----------
WARRANTS--0.0%
(Identified cost $0)
INDONESIA--0.0%
Bank Bali (a)............................. 29,000 12,683
-----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-16
<PAGE>

(a) Non-income producing security.
(b) American Depository Receipts.
(c) Global Depository Receipts.
(d) The aggregate cost for federal income tax purposes is $37,579,111; aggregate
gross unrealized appreciation is $2,072,339 and the aggregate gross
unrealized depreciation is $3,014,424, resulting in net unrealized
depreciation of $942,085.

* Percentages of common and preferred stocks and convertible bonds are
presented in the portfolio by currency denomination.

Percentage by industry are as follows:

Apparel & Textiles 1.6%, Auto Parts 1.2%, Banks 3.4%, Brewery 2.0%,
Chemicals 1.3 %, Chemicals & Plastics 1.1%, Commercial Services 1.3%,
Communications 8.3%, Construction Materials 7.7%, Consumer Goods 0.4%,
Domestic Oil 1.6%, Drugs & Health Care 2.3%, Electrical Equipment 0.5%,
Electronics 2.9%, Financial Services 10.2%, Food & Beverages 6.1%, Forest
Products 1.1%, Holding Company--Diversified 1.4%, Homebuilders 0.6%,
International Oil 1.5%, Leisure Time 3.3%, Manufacturing 1.5%, Metals 1.2%,
Miscellaneous 4.9%, Mortgage Backed Securities 6.2%, Publishing 2.3%,
Restaurants, Lodging & Entertainment 2.2%, Retailing 2.9%, Steel 0.6%,
Tobacco 0.9%, Utilities 4.3%, Wholesale Trade 3.4%.

Forward Foreign Currency Contracts open at December 31, 1995:

<TABLE>
<CAPTION>
Unrealized
Contracts In Exchange Delivery Appreciation
to Deliver For Date (Depreciation)
- ----------- ----------- -------- --------------
<S> <C> <C> <C>
$ 141,295 PEN 326,108 1/2/96 $ (183)
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-17
<PAGE>

- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL
EQUITY EQUITY FIXED-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value*..................... $ 157,812,496 $1,232,294,509 $ 43,018,602
Investments in repurchase agreements, at cost and
value.................................................. 5,694,000 70,037,000 3,866,000
Cash..................................................... 438 1,017 262
Net foreign currency contracts (note 2).................. -- -- 37,754
Receivables for:
Investments sold....................................... -- 2,923,500 2,218,953
Dividends and interest................................. 288,199 2,212,207 1,366,951
Capital stock sold..................................... 374,224 13,482,088 122,511
Deferred organizational expenses (note 2)................ -- 11,265 11,696
Other.................................................... -- -- --
------------- -------------- ------------
Total assets............................................. 164,169,357 1,320,961,586 50,642,729
------------- -------------- ------------
LIABILITIES
Payables for:
Investments purchased.................................. -- 19,016,374 4,816,290
Capital stock repurchased.............................. 191,954 993,056 10,826
Dividends declared..................................... -- 16,445 37,253
Investment management fees payable (note 3).............. 118,750 798,137 101,798
Net foreign currency contracts (note 2).................. -- 53,656 --
Due to Manager........................................... -- -- --
Accrued directors fees payable........................... 2,778 2,778 2,778
Accrued expenses and other payables...................... 68,887 531,693 49,481
------------- -------------- ------------
Total liabilities........................................ 382,369 21,412,139 5,018,426
------------- -------------- ------------
Net assets, at value..................................... 163,786,988 1,299,549,447 45,624,303
============= ============== ============
NET ASSETS
Paid in capital.......................................... 131,965,086 1,169,741,962 43,666,321
Undistributed (distributions in excess of) investment
income--net............................................ -- 63,301 24,037
Unrealized appreciation (depreciation) on:
Investments--net....................................... 25,156,509 126,910,179 1,763,256
Foreign currency--net.................................. -- (35,747) 13,676
Accumulated realized gain (loss)--net.................... 6,665,393 2,869,752 157,013
------------- -------------- ------------
NET ASSETS, AT VALUE..................................... $ 163,786,988 $1,299,549,447 $ 45,624,303
============= ============== ============
Shares of capital stock outstanding**.................... 9,405,110 103,988,517 4,204,312
============= ============== ============
NET ASSET VALUE PER SHARE................................ $ 17.41 $ 12.50 $ 10.85
============= ============== ============
</TABLE>

* For identified cost, see accompanying portfolios of investments
** $0.001 par value, 1,000,000,000 shares authorized

The accompanying notes are an integral part of these financial statements.

F-18
<PAGE>

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
LAZARD LAZARD LAZARD LAZARD
LAZARD STRATEGIC LAZARD INTERNATIONAL SPECIAL EMERGING
BOND YIELD SMALL CAP SMALL CAP EQUITY MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 43,580,431 $ 73,590,413 $ 593,233,828 $ 110,510,120 $ 47,312,052 $ 31,785,026
1,806,000 3,520,000 47,748,000 7,711,000 -- 4,852,000
63 995 728 763,380 9,076 1,149
-- 28,575 -- 24,833 -- --
366,924 2,934,989 7,165,530 -- 221,037 40,889
553,239 1,845,795 749,739 390,583 53,462 54,388
2,315,034 1,100,000 1,498,625 48,088 5,151 1,136,426
11,768 10,221 11,301 10,283 -- 14,674
-- -- -- -- 23,086 --
------------ ------------ ------------- ------------- ------------ ------------
48,633,459 83,030,988 650,407,751 119,458,287 47,623,864 37,884,552
------------ ------------ ------------- ------------- ------------ ------------
2,253,838 4,305,501 3,117,733 3,704,869 409,404 2,132,621
140,279 31,271 348,671 36,706 -- 397,087
40,260 64,009 -- -- -- --
80,148 93,407 402,416 64,707 156,547 69,012
-- -- -- -- -- 183
-- -- -- -- -- 20,680
2,778 2,778 2,778 2,778 2,778 2,778
32,753 60,098 165,149 114,788 34,932 45,933
------------ ------------ ------------- ------------- ------------ ------------
2,550,056 4,557,064 4,036,747 3,923,848 603,661 2,668,294
------------ ------------ ------------- ------------- ------------ ------------
46,083,403 78,473,924 646,371,004 115,534,439 47,020,203 35,216,258
============ ============ ============= ============= ============ ============
45,330,824 80,585,414 569,127,212 119,225,351 37,141,252 37,977,655
40,199 62,968 -- (22,525) -- 3,727
343,654 1,207,283 77,375,672 (2,439,988) 7,619,021 (939,042)
-- 8,059 -- 27,094 -- (1,569)
368,726 (3,389,800) (131,880) (1,255,493) 2,259,930 (1,824,513)
------------ ------------ ------------- ------------- ------------ ------------
$ 46,083,403 $ 78,473,924 $ 646,371,004 $ 115,534,439 $ 47,020,203 $ 35,216,258
============ ============ ============= ============= ============ ============
4,560,693 8,245,403 40,536,196 10,986,319 3,842,845 3,812,846
============ ============ ============= ============= ============ ============
$ 10.10 $ 9.52 $ 15.95 $ 10.52 $ 12.24 $ 9.24
============ ============ ============= ============= ============ ============
</TABLE>

F-19
<PAGE>

- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL
EQUITY EQUITY FIXED-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest*......................................................... $ 535,797 $ 4,165,491 $ 2,966,123
Dividends*........................................................ 2,571,107 24,929,197 --
------------ ------------- -------------
Total investment income............................................. 3,106,904 29,094,688 2,966,123
------------ ------------- -------------
EXPENSES:
Management fee (note 3)........................................... 982,130 7,895,766 314,329
Administration fees (note 3)...................................... 39,265 147,565 27,200
Custodian fees (note 3)........................................... 61,339 1,442,079 74,621
Professional services............................................. 23,741 139,202 38,965
Registration fees................................................. 40,646 163,159 23,517
Shareholder services.............................................. 28,098 56,217 15,195
Directors' fees and expenses...................................... 11,217 13,792 14,190
Shareholders' reports............................................. 6,706 12,175 2,337
Amortization of organizational expenses (note 2).................. -- 13,505 13,505
Other............................................................. 13,739 111,644 2,173
------------ ------------- -------------
Total expenses before fees waived and expenses reimbursed........... 1,206,881 9,995,104 526,032
Management fees waived and expenses reimbursed (note 3)........... -- -- (81,792)
Administration fees waived (note 3)............................... -- -- --
Fees paid indirectly (note 2)..................................... (820) (12,411) (1,547)
------------ ------------- -------------
Expenses--net....................................................... 1,206,061 9,982,693 442,693
------------ ------------- -------------
INVESTMENT INCOME--NET.............................................. 1,900,843 19,111,995 2,523,430
------------ ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET
Realized gain (loss) on:
Investments--net*.............................................. 17,975,165 34,556,028 2,294,418
Foreign exchange transactions--net............................. -- (16,586,286) 423,923
Net unrealized appreciation (depreciation) during the period on:
Investments--net............................................... 20,838,939 102,387,630 1,899,941
Foreign currency--net.......................................... -- 1,622,255 8,865
------------ ------------- -------------
Realized and unrealized gain (loss) on investments--net........... 38,814,104 121,979,627 4,627,147
------------ ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS..... $ 40,714,947 $ 141,091,622 $ 7,150,577
============ ============= ==========
*Net of foreign withholding taxes of:............................... $ 68,660 $ 3,114,151 $ 29,944
============ ============= ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-20
<PAGE>

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD LAZARD LAZARD
LAZARD STRATEGIC LAZARD INTERNATIONAL SPECIAL EMERGING
BOND YIELD SMALL CAP SMALL CAP EQUITY MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------

F-21
<PAGE>

- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD LAZARD
LAZARD INTERNATIONAL INTERNATIONAL
EQUITY EQUITY FIXED-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------- ------------------------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------------- ------------------------------- -------------
1995 1994 1995 1994 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income--net................... $ 1,900,843 $ 775,588 $ 19,111,995 $ 5,752,469 $ 2,523,430
Realized gain (loss) on investments and
foreign exchange transactions.......... 17,975,165 3,165,434 17,969,742 50,645,245 2,718,341
Unrealized appreciation (depreciation)--
net.................................... 20,838,939 (1,765,260) 104,009,885 (68,363,473) 1,908,806
------------- ------------ -------------- -------------- -------------
Net increase (decrease) in net assets
resulting from operations................ 40,714,947 2,175,762 141,091,622 (11,965,759) 7,150,577
------------- ------------ -------------- -------------- -------------
Distributions to shareholders:
From investment income--net.............. (1,412,326) (819,467) (6,515,474) (5,752,469) (2,523,430)
From realized gains--net................. (11,452,652) (3,479,186) (14,115,900) (74,500,587) (801,842)
(In excess of) offset to investment
income--net............................ -- -- -- 5,752,469 (1,799,275)
In excess of realized gains--net......... -- -- -- -- --
------------- ------------ -------------- -------------- -------------
(12,864,978) (4,298,653) (20,631,374) (74,500,587) (5,124,547)
------------- ------------ -------------- -------------- -------------
Capital stock transaction:
Net proceeds from sales.................. 55,622,979 44,216,711 497,338,051 348,583,561 13,752,209
Net proceeds from reinvestment of
distributions.......................... 12,294,787 4,207,450 19,395,497 72,041,335 4,630,486
Cost of shares redeemed.................. (21,085,965) (4,318,758) (169,521,331) (105,923,266) (10,587,176)
------------- ------------ -------------- -------------- -------------
Net increase (decrease) in net assets from
capital stock transactions............... 46,831,801 44,105,403 347,212,217 314,701,630 7,795,519
------------- ------------ -------------- -------------- -------------
Total increase (decrease) in net assets... 74,681,770 41,982,512 467,672,465 228,235,284 9,821,549
Net assets at beginning of period......... 89,105,218 47,122,706 831,876,982 603,641,698 35,802,754
------------- ------------ -------------- -------------- -------------
Net assets at end of period*.............. $ 163,786,988 $ 89,105,218 $1,299,549,447 $ 831,876,982 $ 45,624,303
=============== ============= ================= ================ ===============
Shares issued and repurchased:
Shares outstanding at beginning of
period................................... 6,482,310 3,391,490 74,103,632 48,980,591 3,499,078
------------- ------------ -------------- -------------- -------------
Shares sold.............................. 3,491,105 3,088,569 42,535,462 27,102,620 1,219,616
Shares issued to shareholders from
reinvestment of distributions.......... 710,986 304,879 1,554,544 6,362,069 418,379
Shares repurchased....................... (1,279,291) (302,628) (14,205,121) (8,341,648) (932,761)
------------- ------------ -------------- -------------- -------------
Net increase (decrease)................... 2,922,800 3,090,820 29,884,885 25,123,041 705,234
------------- ------------ -------------- -------------- -------------
Shares outstanding at end of period....... 9,405,110 6,482,310 103,988,517 74,103,632 4,204,312
=============== ============= ================= ================ ===============
* Includes undistributed (overdistributed)
net investment income of:................ $ -- $ (12,571) $ 63,301 $ 1,965 $ 24,037
=============== ============= ================= ================ ===============

LAZARD
INTERNATIONAL LAZARD
FIXED-INCOME BOND
PORTFOLIO PORTFOLIO
-------------- ---------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------- ---------------------------
1994 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income--net................... $ 1,206,922 $ 1,992,173 $ 1,235,348
Realized gain (loss) on investments and
foreign exchange transactions.......... 180,322 1,538,947 (1,151,722)
Unrealized appreciation (depreciation)--
net.................................... (512,114) 1,262,427 (965,163)
------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations................ 875,130 4,793,547 (881,537)
------------ ------------ ------------
Distributions to shareholders:
From investment income--net.............. (1,206,922) (1,992,173) (1,235,348)
From realized gains--net................. (287,561) (16,046) (58,029)
(In excess of) offset to investment
income--net............................ -- -- --
In excess of realized gains--net......... -- -- --
------------ ------------ ------------
(1,494,483) (2,008,219) (1,293,377)
------------ ------------ ------------
Capital stock transaction:
Net proceeds from sales.................. 25,803,649 24,539,689 18,506,638
Net proceeds from reinvestment of
distributions.......................... 1,439,206 1,820,886 1,205,567
Cost of shares redeemed.................. (4,276,403) (7,556,034) (6,605,325)
------------ ------------ ------------
Net increase (decrease) in net assets from
capital stock transactions............... 22,966,452 18,804,541 13,106,880
------------ ------------ ------------
Total increase (decrease) in net assets... 22,347,099 21,589,869 10,931,966
Net assets at beginning of period......... 13,455,655 24,493,534 13,561,568
------------ ------------ ------------
Net assets at end of period*.............. $ 35,802,754 $ 46,083,403 $ 24,493,534
============= ============= =============
Shares issued and repurchased:
Shares outstanding at beginning of
period................................... 1,279,788 2,650,557 1,319,047
------------ ------------ ------------
Shares sold.............................. 2,492,028 2,500,066 1,891,145
Shares issued to shareholders from
reinvestment of distributions.......... 138,395 186,028 125,665
Shares repurchased....................... (411,133) (775,958) (685,300)
------------ ------------ ------------
Net increase (decrease)................... 2,219,290 1,910,136 1,331,510
------------ ------------ ------------
Shares outstanding at end of period....... 3,499,078 4,560,693 2,650,557
============= ============= =============
* Includes undistributed (overdistributed)
net investment income of:................ $ 1,314 $ 40,199 $ --
============= ============= =============
</TABLE>

+ For the period July 15, 1994 through December 31, 1994

The accompanying notes are an integral part of these financial statements.

F-22
<PAGE>

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LAZARD
STRATEGIC LAZARD LAZARD
YIELD LAZARD INTERNATIONAL SPECIAL
PORTFOLIO SMALL CAP SMALL CAP EQUITY
- --------------------------------- PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------ ----------------------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
- --------------------------------- ------------------------------ ----------------------------- -------------
1995 1994 1995 1994 1995 1994 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 5,620,832 $ 4,065,416 $ 4,858,913 $ 2,022,125 $ 1,529,624 $ 591,036 $ 691,626
(216,880) (3,078,071) 48,772,968 22,502,779 (214,539) (4,068,829) 5,875,256
3,498,234 (2,316,644) 45,544,351 (17,010,725) 502,925 (3,653,545) 2,433,242
------------- ------------- -------------- ------------- ------------- ------------- -------------
8,902,186 (1,329,299) 99,176,232 7,514,179 1,818,010 (7,131,338) 9,000,124
------------- ------------- -------------- ------------- ------------- ------------- -------------
(5,620,832) (4,065,416) (4,858,913) (1,181,605) -- (591,036) (691,626)
-- (182,040) (48,772,968) (31,911,994) -- -- (5,248,285)
(88,052) -- -- -- -- 591,036 --
-- -- (778,930) -- (594,717) -- --
------------- ------------- -------------- ------------- ------------- ------------- -------------
(5,708,884) (4,247,456) (54,410,811) (33,093,599) (594,717) -- (5,939,911)
------------- ------------- -------------- ------------- ------------- ------------- -------------
22,589,307 47,082,168 239,938,336 96,349,172 45,713,631 87,421,230 2,211,152
5,445,026 4,028,879 54,147,470 32,373,017 584,483 -- 5,125,731
(15,082,042) (18,148,713) (122,152,846) (24,422,634) (15,419,174) (10,380,143) (24,874,498)
------------- ------------- -------------- ------------- ------------- ------------- -------------
12,952,291 32,962,334 171,932,960 104,299,555 30,878,940 77,041,087 (17,537,615)
------------- ------------- -------------- ------------- ------------- ------------- -------------
16,145,593 27,385,579 216,698,381 78,720,135 32,102,233 69,909,749 (14,477,402)
62,328,331 34,942,752 429,672,623 350,952,488 83,432,206 13,522,457 61,497,605
------------- ------------- -------------- ------------- ------------- ------------- -------------
$ 78,473,924 $ 62,328,331 $ 646,371,004 $ 429,672,623 $ 115,534,439 $ 83,432,206 $ 47,020,203
=============== =============== ================ =============== =============== =============== ===============
6,846,915 3,449,123 29,940,743 23,005,203 8,034,455 1,244,608 5,170,257
------------- ------------- -------------- ------------- ------------- ------------- -------------
2,439,621 4,889,580 14,336,125 6,292,755 4,381,937 7,756,773 175,167
590,779 425,219 3,421,484 2,255,296 56,201 -- 414,107
(1,631,912) (1,917,007) (7,162,156) (1,612,511) (1,486,274) (966,926) (1,916,686)
------------- ------------- -------------- ------------- ------------- ------------- -------------
1,398,488 3,397,792 10,595,453 6,935,540 2,951,864 6,789,847 (1,327,412)
------------- ------------- -------------- ------------- ------------- ------------- -------------
8,245,403 6,846,915 40,536,196 29,940,743 10,986,319 8,034,455 3,842,845
=============== =============== ================ =============== =============== =============== ===============
$ 62,968 $ (13,973) $ -- $ 848,046 $ (22,525) $ 1,577 $ --
=============== =============== ================ =============== =============== =============== ===============
<CAPTION>
LAZARD
LAZARD EMERGING
SPECIAL EQUITY MARKETS
PORTFOLIO PORTFOLIO
-------------- ---------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- --------------- ---------------
1994 1995 1994+
- ---------------------------------------------------------
<S> <C> <C> <C>
$ 764,923 $ 288,483 $ 18,035
10,854,080 (1,803,813) (187,391)
(13,546,230) 591,707 (1,532,318)
------------- --------------- ---------------
(1,927,227) (923,623) (1,701,674)
------------- --------------- ---------------
(760,649) (136,100) (18,035)
(16,861,086) -- --
-- -- 18,035
-- -- --
------------- --------------- ---------------
(17,621,735) (136,100) --
------------- --------------- ---------------
6,540,035 28,211,253 19,386,871
16,313,998 113,328 --
(59,936,521) (9,073,505) (660,292)
------------- --------------- ---------------
(37,082,488) 19,251,076 18,726,579
------------- --------------- ---------------
(56,631,450) 18,191,353 17,024,905
118,129,055 17,024,905 --
------------- --------------- ---------------
$ 61,497,605 $35,216,258 $17,024,905
=============== ================== ==================
7,508,865 1,727,237 --
------------- --------------- ---------------
429,986 3,079,834 1,786,246
1,278,144 12,192 --
(4,046,738) (1,006,417) (59,009)
------------- --------------- ---------------
(2,338,608) 2,085,609 1,727,237
------------- --------------- ---------------
5,170,257 3,812,846 1,727,237
=============== ================== ==================
$ (918) $ 3,727 $ --
=============== ================== ==================
</TABLE>
F-23
<PAGE>

- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------- LESS:
TOTAL ----------------------------
NET FROM DIVIDENDS DISTRIBU- NET
ASSET NET REALIZED INVEST- FROM AND TIONS ASSET
VALUE, AND UNREALIZED MENT IN EXCESS OF FROM VALUE,
BEGINNING INVESTMENT GAIN (LOSS) OPERA- INVESTMENT REALIZED END OF
PERIOD OF PERIOD INCOME-NET ON INVESTMENTS TIONS INCOME-NET GAINS PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------

LAZARD EQUITY PORTFOLIO
Year ended
12/31/95................. $ 13.75 $ 0.226 $ 4.931 $ 5.157 $(0.175) $(1.322) $17.41
12/31/94................. 13.89 0.141 0.441 0.582 (0.152) (0.574) 13.75
12/31/93................. 12.74 0.158 2.172 2.330 (0.165) (1.015) 13.89
12/31/92................. 12.34 0.123 0.518 0.641 (0.132) (0.109) 12.74
12/31/91................. 11.53 0.107 3.051 3.158 (0.082) (2.266) 12.34
12/31/90................. 12.34 0.191 (0.778) (0.587 ) (0.223)(b) -- 11.53
12/31/89................. 10.32 0.204 2.231 2.435 (0.214) (0.201) 12.34
12/31/88................. 8.73 0.181 1.597 1.778 (0.188) -- 10.32
6/1/87* to 12/31/87...... 10.00 0.110 (1.280) (1.170 ) (0.100) -- 8.73
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended
12/31/95................. 11.23 0.187 1.288 1.475 (0.091) (0.114) 12.50
12/31/94................. 12.32 0.078 (0.049) 0.029 -- (1.123) 11.23
12/31/93................. 9.48 0.021 2.919 2.940 (0.021) (0.079) 12.32
12/31/92................. 10.30 0.097 (0.779) (0.682 ) (0.138) -- 9.48
10/29/91* to 12/31/91.... 10.00 0.020 0.300 0.320 (0.020) -- 10.30
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended
12/31/95................. 10.23 0.701 1.250 1.951 (1.129) (0.202) 10.85
12/31/94................. 10.51 0.592 (0.161) 0.431 (0.593) (0.116) 10.23
12/31/93................. 9.79 0.571 0.912 1.483 (0.570) (0.193) 10.51
12/31/92................. 10.28 0.614 (0.403) 0.211 (0.614) (0.087) 9.79
11/8/91* to 12/31/91..... 10.00 0.110 0.280 0.390 (0.110) -- 10.28
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended
12/31/95................. 9.24 0.595 0.863 1.458 (0.594) (0.004) 10.10
12/31/94................. 10.28 0.584 (1.010) (0.426 ) (0.584) (0.029) 9.24
12/31/93................. 10.21 0.551 0.302 0.853 (0.551) (0.232) 10.28
12/31/92................. 10.25 0.577 (0.004) 0.573 (0.577) (0.036) 10.21
11/12/91* to 12/31/91.... 10.00 0.140 0.250 0.390 (0.140) -- 10.25
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended
12/31/95................. 9.10 0.748 0.430 1.178 (0.758) -- 9.52
12/31/94................. 10.13 0.762 (0.990) (0.228 ) (0.761) (0.039) 9.10
12/31/93................. 9.50 0.644 0.738 1.382 (0.633) (0.119) 10.13
12/31/92................. 9.97 1.049 (0.450) 0.599 (1.049) (0.020) 9.50
10/1/91* to 12/31/91..... 10.00 0.250 (0.030) 0.220 (0.250) -- 9.97
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended
12/31/95................. 14.35 0.126 2.951 3.077 (0.154) (1.323) 15.95
12/31/94................. 15.26 0.070 0.220 0.290 (0.042) (1.158) 14.35
12/31/93................. 12.98 0.019 3.830 3.849 (0.020) (1.549) 15.26
12/31/92................. 10.42 0.019 2.560 2.579 (0.019) -- 12.98
10/30/91* to 12/31/91.... 10.00 0.030 0.420 0.450 (0.030) -- 10.42
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended
12/31/95................. 10.38 0.139 0.056 0.195 -- (0.055) 10.52
12/31/94................. 10.86 0.072 (0.548) (0.476 ) -- -- 10.38
12/1/93* to 12/31/93..... 10.00 0.004 0.859 0.863 (0.003) -- 10.86
- ----------------------------------------------------------------------------------------------------------------------------------

RATIOS TO AVERAGE
NET ASSETS
-----------------
NET
INVEST- ASSETS,
MENT PORTFOLIO END OF
TOTAL INCOME- TURNOVER PERIOD
PERIOD RETURN++ EXPENSES NET RATE (000'S)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------

LAZARD EQUITY PORTFOLIO
Year ended
12/31/95................. 37.7 % 0.92%(h) 1.45% 80.72% $163,787
12/31/94................. 4.2 1.05 1.15 66.52 89,105
12/31/93................. 18.6 1.05(e) 1.31 63.92 47,123
12/31/92................. 5.3 1.05(d) 1.19 174.45 24,646
12/31/91................. 27.5 1.93 0.84 90.00 14,821
12/31/90................. (4.7 ) 1.77 1.62 70.00 14,397
12/31/89................. 23.6 1.78 1.71 78.00 16,239
12/31/88................. 20.4 1.84 1.86 111.00 12,336
6/1/87* to 12/31/87...... (11.7 ) 1.68+ 1.93+ 97.00 10,186
- ------------------------------------------------------------------------------------------------------

LAZARD INTERNATIONAL EQUITY PORTFOLIO
Year ended
12/31/95................. 13.1 0.95(h) 1.82 62.54 1,299,549
12/31/94................. 0.2 0.94 0.75 106.15 831,877
12/31/93................. 31.0 0.99 1.13 86.95 603,642
12/31/92................. (6.6 ) 1.05(d) 2.13 60.37 176,005
10/29/91* to 12/31/91.... 3.2 1.05+,(c) 2.19+ 0.18 4,967
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL FIXED-INCOME PORTFOLIO
Year ended
12/31/95................. 19.4 1.05(g),(h) 5.99 189.97 45,624
12/31/94................. 4.2 1.05(f) 5.68 65.90 35,803
12/31/93................. 15.7 1.05(e) 5.50 115.84 13,546
12/31/92................. 2.0 1.05(d) 6.08 256.20 8,183
11/8/91* to 12/31/91..... 3.9 1.05+,(c) 4.82+ 6.43 1,427
- ------------------------------------------------------------------------------------------------------
LAZARD BOND PORTFOLIO
Year ended
12/31/95................. 16.2 0.80(g),(h) 6.07 244.28 46,083
12/31/94................. (4.2 ) 0.80(f) 6.11 120.51 24,494
12/31/93................. 8.6 0.80(e) 5.22 174.63 13,562
12/31/92................. 5.7 0.80(d) 5.59 131.38 8,532
11/12/91* to 12/31/91.... 3.9 0.80+,(c) 5.50+ 10.46 3,256
- ------------------------------------------------------------------------------------------------------
LAZARD STRATEGIC YIELD PORTFOLIO
Year ended
12/31/95................. 13.6 1.09(h) 8.02 205.33 78,474
12/31/94................. (2.3 ) 1.05(f) 8.03 195.18 62,328
12/31/93................. 15.6 1.05(e) 6.36 215.60 34,943
12/31/92................. 6.0 1.05(d) 10.57 122.88 9,641
10/1/91* to 12/31/91..... 2.1 1.05+,(c) 9.52+ 11.26 4,256
- ------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP PORTFOLIO
Year ended
12/31/95................. 21.5 0.84(h) 0.90 69.68 646,371
12/31/94................. 2.0 0.85 0.51 70.11 429,673
12/31/93................. 30.1 0.88 0.16 98.47 350,952
12/31/92................. 24.8 1.05(d) 0.29 106.91 168,171
10/30/91* to 12/31/91.... 4.5 1.05+,(c) 2.47+ 5.50 2,512
- ------------------------------------------------------------------------------------------------------
LAZARD INTERNATIONAL SMALL CAP PORTFOLIO
Year ended
12/31/95................. 1.9 1.13(h) 1.56 117.53 115,534
12/31/94................. (4.5 ) 1.05(f) 0.95 112.92 83,432
12/1/93* to 12/31/93..... 8.7 1.05+,(e) 1.76+ 0.84 13,522
- ------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-24
<PAGE>

- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------- LESS:
TOTAL ----------------------------
NET FROM DIVIDENDS DISTRIBU- NET
ASSET NET REALIZED INVEST- FROM AND TIONS ASSET
VALUE, AND UNREALIZED MENT IN EXCESS OF FROM VALUE,
BEGINNING INVESTMENT GAIN (LOSS) OPERA- INVESTMENT REALIZED END OF
PERIOD OF PERIOD INCOME-NET ON INVESTMENTS TIONS INCOME-NET GAINS PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------

LAZARD SPECIAL EQUITY PORTFOLIO
Year ended
12/31/95................. $ 11.89 $ 0.195 $ 1.725 $ 1.920 $(0.188) $(1.382) $12.24
12/31/94................. 15.73 0.156 (0.557) (0.401 ) (0.155) (3.279) 11.89
12/31/93................. 16.90 0.157 1.478 1.635 (0.157) (2.648) 15.73
12/31/92................. 15.14 0.161 2.181 2.342 (0.160) (0.422) 16.90
12/31/91................. 11.54 0.230 4.160 4.390 (0.227) (0.563) 15.14
12/31/90................. 13.72 0.714 (2.155) (1.441 ) (0.739) -- 11.54
12/31/89................. 13.13 0.260 1.874 2.134 (0.264) (1.280) 13.72
12/31/88................. 10.64 0.224 2.761 2.985 (0.245) (0.250) 13.13
12/31/87................. 11.66 0.112 (0.291) (0.179 ) (0.105) (0.736) 10.64
1/16/86* to 12/31/86..... 10.00 0.075 1.585 1.660 -- -- 11.66
- ----------------------------------------------------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Year ended
12/31/95................. 9.86 0.080 (0.660) (0.580 ) (0.040) -- 9.24
7/15/94* to 12/31/94..... 10.00 0.010 (0.154) (0.144 ) -- -- 9.86
- ----------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
RATIOS TO AVERAGE
NET ASSETS
-------------------- NET
INVEST- ASSETS,
MENT PORTFOLIO END OF
TOTAL INCOME- TURNOVER PERIOD
PERIOD RETURN++ EXPENSES NET RATE (000'S)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
LAZARD SPECIAL EQUITY PORTFOLIO
Year ended
12/31/95................. 16.3 % 1.59%(g),(h) 1.17% 15.35% $ 47,020
12/31/94................. (2.6 ) 1.71 0.87 11.29 61,498
12/31/93................. 10.2 1.67 0.74 26.31 118,129
12/31/92................. 15.5 1.70 1.04 10.93 150,488
12/31/91................. 38.2 1.77 1.63 19.48 111,395
12/31/90................. (10.5 ) 1.78 4.70(a) 27.18 76,972
12/31/89................. 16.2 1.78 1.82 40.67 101,522
12/31/88................. 28.0 1.96 1.87 64.90 74,695
12/31/87................. (1.9 ) 1.81 0.82 90.86 53,942
1/16/86* to 12/31/86..... 16.6 2.23+ 0.71+ 73.12 51,403
- ----------------------------------------------------------------------------------------
LAZARD EMERGING MARKETS PORTFOLIO
Year ended
12/31/95................. (5.9 ) 1.30(g),(h) 1.22 102.22 35,216
7/15/94* to 12/31/94..... (1.4 ) 1.30+,(f) 0.31+ 30.68 17,025
- ----------------------------------------------------------------------------------------
</TABLE>

* Commencement of operations.
+ Annualized.

++ Total return represents aggregate total return for the periods indicated.

(a) The Portfolio received a special distribution from one of its portfolio
investments. Had the Fund not received this distribution, the ratio would
have been 2.20%.

(b) Includes $.032 per share of distributions from paid-in capital, none of
which is a return of capital for tax purposes.

(c) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets (and net
investment income per share) would have been 10.84%+ ($0.056) for the
International Equity Portfolio, 20.70%+ ($0.293) for the International
Fixed-Income Portfolio, 7.80%+ ($0.114) for the Bond Portfolio, 6.22%+
($0.075) for the Strategic Yield Portfolio, and 11.05%+ ($0.085) for the
Small Cap Portfolio.

(d) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets (and net
investment income per share) would have been 1.53% ($0.050) for the Equity
Portfolio, 1.37% ($0.014) for the International Equity Portfolio, 2.80%
($0.176) for the International Fixed-Income Portfolio, 3.23% ($0.0251) for
the Bond Portfolio, 2.99% ($0.192) for the Strategic Yield Portfolio, and
1.14%+ ($0.006) for the Small Cap Portfolio.

(e) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets (and net
investment income per share) would have been 1.18% ($0.020) for the Equity
Portfolio, 2.87%+ ($0.010) for the International Small Cap Portfolio, 2.08%
($0.119) for the International Fixed-Income Portfolio, 1.76% ($0.101) for
the Bond Portfolio, and 1.63% ($0.058) for the Strategic Yield Portfolio.

(f) If the Investment Manager had not waived management fees and reimbursed
certain expenses the ratio of expenses to average net assets (and net
investment income per share) would have been 1.26% ($0.016) for the
International Small Cap Portfolio, 1.51% ($0.048) for the International
Fixed-Income Portfolio, 1.23% ($0.041) for the Bond Portfolio, 1.15%
($0.009) for the Strategic Yield Portfolio, and 2.31%+ ($0.034) for the
Emerging Markets Portfolio.

(g) If the Investment Manager and Administrator had not waived certain fees and
reimbursed certain expenses and the Portfolios had not paid fees indirectly
the ratio of expenses to average net assets (and net investment income per
share) would have been 1.25% ($0.678) for the International Fixed-Income
Portfolio, 0.97% ($0.578) for the Bond Portfolio, 1.81% ($0.157) for the
Special Equity Portfolio and 2.00% ($0.034) for the Emerging Markets
Portfolio.

(h) "Ratio of total expenses to average net assets" for the year ended December
31, 1995 includes fees paid indirectly. Excluding fees paid indirectly for
the year ended December 31, 1995, the expense ratios would have been 0.92%
for the Equity Portfolio, 0.95% for the International Equity Portfolio,
1.05% for the International Fixed-Income Portfolio, 0.80% for the Bond
Portfolio, 1.08% for the Strategic Yield Portfolio, 0.84% for the Small Cap
Portfolio, 1.13% for the International Small Cap Portfolio, 1.59% for the
Special Equity Portfolio, 1.30% for the Emerging Markets Portfolio.

F-25
<PAGE>

- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1. ORGANIZATION

The Lazard Funds, Inc. (the "Fund") was incorporated in Maryland on May 17, 1991
and is registered under the Investment Company Act of 1940 (the "Act"), as
amended, as an open-end management investment company. The Fund was originally
composed of five portfolios: Lazard International Equity Portfolio (the
"International Equity Portfolio"), Lazard International Fixed-Income Portfolio,
formerly Lazard Global Fixed-Income Portfolio (the "International Fixed-Income
Portfolio"), Lazard Bond Portfolio, formerly Lazard High Quality Bond Portfolio
(the "Bond Portfolio"), Lazard Strategic Yield Portfolio, formerly Lazard
High-Yield Portfolio, (the "Strategic Yield Portfolio") and Lazard Small Cap
Portfolio (the "Small Cap Portfolio").

Effective January 1, 1992, the Lazard Equity Fund and the Lazard Special Equity
Fund, Inc. ("Old Funds") were reorganized as separate portfolios ("New Funds")
of the Fund, namely Lazard Equity Portfolio (the "Equity Portfolio"), and Lazard
Special Equity Portfolio (the "Special Equity Portfolio"), respectively. The per
share data included herein includes per share data for both the Old Funds and
New Funds.

Effective November 1, 1993, Lazard International Small Cap Portfolio (the
"International Small Cap Portfolio") and Lazard Emerging Markets Portfolio (the
"Emerging Markets Portfolio") were added to the Fund.

Effective December 30, 1995, Lazard Global Equity Portfolio, Lazard Bantam Value
Portfolio and Lazard Emerging World Funds Portfolio were added to the Fund. The
Lazard Global Equity Portfolio was first offered for sale on January 4, 1996.

The Equity Portfolio and Special Equity Portfolio are operated as "diversified"
as defined in the Act. The remaining Portfolios are "non-diversified."

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies:

(A) VALUATION OF INVESTMENTS--The value of securities, other than options listed
on national securities exchanges and debt securities maturing in 60 days or
less, is determined as of the close of regular trading on the New York Stock
Exchange. Options on 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. New York time). Debt securities maturing in sixty days or
less are valued at amortized cost. Each security for which the primary market is
on a national securities exchange is valued at the last sale price in the
principal exchange on which it is traded, or, if no sales are reported on such
exchange on that day, at the closing bid price.

Any security held by any Portfolio except the Special Equity Portfolio for which
the primary market is the National Association of Securities Dealers Automated
Quotations National Market System is valued at the last sale price as quoted by
such System or, in the absence of any sale on the valuation date, at the closing
bid price. Any other unlisted security for which current over-the-counter market
quotations or bids are readily available is valued at its last quoted bid price
or, for each of these Portfolios except the Equity Portfolio, if available, the
mean of two such prices.

Any security held by the Special Equity Portfolio that is not listed on a
national securities exchange but that is quoted on the National Association of
Securities Dealers Automated Quotations System is valued at the last bid price
as quoted by such System. Any other security held by the Special Equity
Portfolio for which current over-the-counter market quotations or bids are
readily available is valued at its last quoted bid price or, if available, the
mean of two such prices.

(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME--Security transactions are
accounted for on the trade date. Realized gains and losses on sales of
investments are recorded on a first-in, first-out or specific identification
basis. Dividend income is recorded on the ex-date.

F-26
<PAGE>

- --------------------------------------------------------------------------------
The Lazard Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

Interest income is accrued daily. The Portfolios amortize premiums and accrue
discounts on fixed income securities.

(C) FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The International Equity
Portfolio, International Fixed-Income Portfolio, Strategic Yield Portfolio,
International Small Cap Portfolio and the Emerging Markets Portfolio (the
"eligible portfolios") may enter into forward foreign currency exchange
contracts ("forward contracts"). To the extent permitted by each eligible
portfolio's investment objectives, restrictions and policies, forward contracts
may be entered into for risk management purposes. Depending on how such
strategies are utilized, the risks associated with their use may vary.

Certain risks may arise upon entering into these forward contracts from the
possible movement in foreign exchange rates and the potential inability of
counterparties to meet the terms of their agreements. Forward contracts are
presented at an amount representing the net increase or decrease in value from
the date that the forward contract was entered into, to the financial statement
date. Gains and losses on these forward contracts are included in realized or
unrealized foreign exchange transactions in the accompanying Statements of
Operations.

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.

(D) FOREIGN CURRENCY TRANSLATIONS--The books and records of the eligible
portfolios are maintained in U.S. dollars. Foreign exchange transactions are
translated into U.S. dollars on the following basis:

(i) the foreign currency market value of investment securities, contracts, and
other assets and liabilities stated in foreign currencies are translated at the
exchange rate at the end of the period; and

(ii) purchases and sales of investment securities, dividends, interest income
and expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.

The eligible portfolios do not isolate that portion of the results of operations
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with net realized and unrealized gain or loss from investments. Foreign
exchange gain (loss) is treated as ordinary income for federal income tax
purposes to the extent constituting "Section 988 Transactions" pursuant to the
Internal Revenue Code ("IRC"), including, currency gains (losses) related to the
sale of debt securities, forward foreign currency exchange contracts, payments
of liabilities, and collections of receivables.

(E) FEDERAL INCOME TAXES--The Fund's policy is to qualify each Portfolio as a
regulated investment company under the IRC and to distribute all of its taxable
income, including any realized net capital gains to shareholders. Therefore, no
Federal income tax provision is required.

(F) DIVIDENDS AND DISTRIBUTIONS--The Fund intends to declare dividends from net
investment income on shares of the International Fixed-Income Portfolio, the
Bond Portfolio and the Strategic Yield Portfolio daily and pay such dividends
monthly. Dividends from net investment income on shares of the Equity Portfolio
will be declared and paid quarterly. Dividends from net investment income on
shares of the International Equity Portfolio, Small Cap Portfolio, International
Small Cap Portfolio, Emerging Markets Portfolio and the Special Equity Portfolio
will be declared and paid annually. During any particular year, net realized
gains from investment transactions in excess of available capital loss carry
forwards would be taxable to the Fund if not distributed. The Fund intends to
declare and distribute these amounts annually to shareholders; however, to avoid
taxation a second distribution may be required.

Income distributions 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. Permanent book and tax differences relating to
shareholder distributions

F-27
<PAGE>

will result in reclassifications and may affect the allocation between
investment income--net and realized gains--net.

(G) ORGANIZATIONAL EXPENSES--Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are being
amortized on a straight line basis over a five-year period from the date of
commencement of operations of each Portfolio. In the event that any of the
initial shares of any of the Portfolios during such period are redeemed, 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.

(H) ALLOCATION OF EXPENSES--Expenses not directly chargeable to a specific
Portfolio are allocated primarily on the basis of relative net assets.

(I) FEES PAID INDIRECTLY--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 expense, and reflect the amount of
such credits as a reduction in total expenses.

(J) 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 AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES

The Fund has entered into an investment management agreement (the "Management
Agreement") with Lazard Freres Asset Management (the "Manager"), a division of
Lazard Freres & Co. LLC, on behalf of each Portfolio. Pursuant to the Management
Agreement, 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 value of the net assets of the
relevant Portfolio: Equity Portfolio, 0.75%; International Equity Portfolio,
0.75%; International Fixed-Income Portfolio, 0.75%; Bond Portfolio, 0.50%;
Strategic Yield Portfolio, 0.75%; Small Cap Portfolio, 0.75%; International
Small Cap, 0.75%; Special Equity Portfolio, 1.50% and Emerging Markets
Portfolio, 1.00%. The investment management fees are accrued daily and payable
monthly with the exception of those paid by the Special Equity Portfolio, which
are payable quarterly.

Under certain state regulations, if the total expenses of any of the Portfolios
exceed certain limitations the Fund's Manager is required to reimburse the
Portfolio for such excess.

The Manager has agreed to maintain the annualized total operating expenses of
the International Fixed-Income Portfolio at a level not to exceed 1.05%;
Emerging Market Portfolio at a level not to exceed 1.30%; and Bond Portfolio at
a level not to exceed 0.80% of the average daily value of net assets of the
relevant portfolio until December 31, 1996 or such time as the respective
Portfolio reaches total net assets of $100 million. For the period commencing
May 1, 1995, the Manager has agreed to bear total operating expenses (exclusive
of extraordinary expenses) of the Special Equity Portfolio in excess of 1.50% of
the average daily value of the net assets until October 31, 1996, or such time
as the total net assets of the Portfolio equals or exceeds $90 million.

For the year ended December 31, 1995, the Manager did not impose part of its
management fee amounting to $81,792 for International Fixed-Income Portfolio,
$34,072 for Bond Portfolio, $104,245 for Special Equity Portfolio and $142,805
for Emerging Markets Portfolio. For the Special Equity Portfolio, the Manager
reimbursed $28,661 for Administrative Fees.

Effective June 1, 1995, the Fund has engaged 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 plus 0.02% of
average assets up to average assets of $1 billion and plus 0.01% of average
assets over $1 billion. State Street has agreed to waive the $37,500 fee for the
Bond and

F-28
<PAGE>

Emerging Markets Portfolios for one year or until each Portfolio reaches net
assets of $50 million.

The Fund has a distribution agreement with Lazard Freres & Co. LLC. As the
distributor, Lazard Freres & Co. LLC 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
the distribution of shares.

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, $20,000 per year, plus $1,000 per meeting attended, and reimburses
them for travel and out of pocket expenses.

4. SECURITY TRANSACTIONS AND TRANSACTIONS
WITH AFFILIATES

Purchase and sales of portfolio securities, (excluding short-term securities),
for the year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Equity Portfolio $ 136,115,551 $ 98,319,414
International Equity 958,136,052 617,956,968
International Fixed-
Income 82,002,248 77,059,477
Bond(1) 93,823,671 77,259,918
Strategic Yield(2) 142,277,826 127,543,921
Small Cap 433,744,267 348,508,399
International Small Cap 137,601,260 108,309,231
Special Equity 8,213,439 33,702,368
Emerging Markets 39,309,777 22,364,600
</TABLE>

(1) Includes purchases and sales of U.S. Government securities of $68,932,503
and $63,560,433, respectively.
(2) Includes purchases and sales of U.S. Government securities of $15,853,916
and $17,588,675, respectively.

For the period, the Small Cap Portfolio and Special Equity Portfolio paid
brokerage commissions of $3,324 and $13,658, respectively, to Lazard Freres &
Co. LLC for portfolio transactions executed on behalf of the Portfolios.

Included in the payable for investments purchased at December 31, 1995, for the
Special Equity Portfolio, is $285,255 for unsettled purchases with Lazard Freres
& Co. LLC.

5. FEDERAL INCOME TAXES

For Federal income tax purposes capital loss carryforwards (exclusive of certain
capital losses incurred after October 31) of $3,297,896 and $1,537,156 are
available to the extent provided by regulations to offset future realized
capital gains of the Strategic Yield Portfolio and Emerging Markets Portfolio,
respectively. These losses expire through 2003.

Additionally, certain capital and currency losses incurred after October 31,
within the taxable year are deemed to arise on the first business day of the
Portfolio's next taxable year. During the year ended December 31, 1995,
International Equity Portfolio, Bond Portfolio, Strategic Yield Portfolio, Small
Cap Portfolio, International Small Cap Portfolio, and Emerging Markets Portfolio
will elect to defer net capital and currency losses of $4,705,302, $29,502,
$7,241, $1,687,171, $1,180,891, and $284,313, respectively. The Special Equity
Portfolio and the International Equity Portfolio redesignated $50,277, and
$2,679,708, respectively, of ordinary income dividends to long-term capital gain
distributions.

6. PRIVATE PLACEMENTS

At December 31, 1995, the Small Cap Portfolio held the following securities
which were private placements and represented 0.20% (at value) of the net assets
of the Portfolio:
<TABLE>
<CAPTION>
ACQUISITION
SECURITY DATE VALUE
- --------------------------- ----------- ----------
<S> <C> <C>
Interactive Light Holdings
Inc. 8.00%, 1/25/99 2/4/94 $ 500,000
Verbex Voice Systems Inc.
Series F Preferred
(conv.) 7/12/93 500,343
Verbex Voice Systems Inc. 6/7/94 180,501
Verbex Voice Systems Inc.
10.00%, 12/31/95 3/17/95 100,000
----------
$1,280,844
==========
</TABLE>
Verbex Voice Systems Inc. and Interactive Light Holdings Inc. are valued as
determined in good faith by the Fund's Board of Directors and in accordance with
the procedures adopted by the Board of Directors. The Small Cap Portfolio will
bear any cost, including those involved in registration under the Securities Act
of 1933, in connection with the disposition of such securities.

F-29

<PAGE>
- --------------------------------------------------------------------------------
THE LAZARD FUNDS, INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
The Lazard Funds, Inc.

We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of The Lazard Funds, Inc. (comprised of,
Lazard Equity Portfolio, Lazard International Equity Portfolio, Lazard
International Fixed-Income Portfolio, Lazard Bond Portfolio, Lazard Strategic
Yield Portfolio, Lazard Small Cap Portfolio, Lazard International Small Cap
Portfolio, Lazard Special Equity Portfolio, and Lazard Emerging Markets
Portfolio) as of December 31, 1995, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, except as noted below. 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. The financial highlights for the
periods through December 31, 1991 of Lazard Equity Portfolio and Lazard Special
Equity Portfolio were audited by other auditors whose reports dated February 5,
1992 and February 3, 1992, respectively, expressed unqualified opinions on those
financial highlights.

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, 1995, 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 audited by us,
as stated above, present fairly, in all material respects, the financial
position of each of the respective portfolios constituting the Lazard Funds,
Inc. as of December 31, 1995, the results of their operations for the year then
ended and changes in their net assets for each of the two years in the period
then ended and the financial highlights for the periods presented in conformity
with generally accepted accounting principles.

ANCHIN, BLOCK & ANCHIN LLP

New York, New York
January 27, 1996

F-30

<PAGE>

PART C

OTHER INFORMATION

Item 24. Financial Statements

(a) Financial Statements
Included in the Registrant's Statement of Additional Information, filed
herewith, are a Report of Independent Auditors, a Statement of Assets
and Liabilities and the Notes to Financial Statement for The Lazard
Funds, Inc., prepared by ABA Seymour Schneidman Fiancial Services
Group, a division of Anchin, Block and Anchin LLP.

(b) Exhibits

1(a) Articles of Incorporation1
1(b) Articles of Amendment
1(c) Articles Supplementary

2 By-Laws1
3 Not applicable
5(A) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard International
Equity Portfolio6
5(B) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard International
Fixed-Income Portfolio6
5(C) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Bond
Portfolio6
5(D) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Strategic
Yield Portfolio6
5(E) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Small Cap
Portfolio6
5(F) Form of Administrative Services Agreement2
5(G) Form of Sub-Investment Management Agreement between Lazard Freres Asset
Management and Lazard International Investment Management Limited with
respect to the Lazard Global Fixed-Income Portfolio3
5(H) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Equity
Portfolio6
5(I) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Special
Equity Portfolio6
5(J) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Emerging
Markets Portfolio5
5(K) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard International
Small Cap Portfolio5
5(L) Form of Administrative Services Sub-Contract between Lazard Freres
Asset Management and Scudder Investment Services, Inc.4

5(M) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Global Equity
Portfolio8
5(N) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Bantam Value
Portfolio8
5(O) Form of Investment Management Agreement between the Registrant and
Lazard Freres Asset Management with respect to the Lazard Emerging
World Funds Portfolio8
5(P) Form of Administration Agreement between the Registrant and State
Street Bank and Trust Company8

6 Distribution Agreement, as revised

7 Not applicable
8 Form of Custodian Agreement2
9(A) Form of Transfer Agency and Service Agreement2

10(A) Opinion and Consent of Stroock & Stroock & Lavan9

10(B) Opinion and Consent of Venable, Baetjer and Howard, LLP9

11 Consent of Independent Auditors

C-1

<PAGE>
12 Not applicable
13 Investment Representation Letter5
14 Not applicable

15 Distribution and Servicing Plan

16 Schedule for Computation of Total Return Performance Quotations7
17 Financial Data Schedule

18 Rule 18f-3 Plan

Power of Attorney of Mr. Davidson9

Power of Attorney of Mr. Frischling

1. Incorporated by reference from Registrant's Registration Statement on Form
N-1A (file Nos. 33-40682 and 811-6312) filed with the Securities and Exchange
Commission on May 20, 1991.

2. Incorporated by reference from Registrant's Pre-Effective Amendment No. 1
filed with the Securities and Exchange Commission on July 23, 1991.

3. Incorporated by reference from Registrant's Pre-Effective Amendment No. 2
filed with the Securities and Exchange Commission on September 23, 1991.

4. Incorporated by reference from Registrant's Post-Effective Amendment No. 1
filed with the Securities and Exchange Commission on November 1, 1991.

5. Incorporated by reference from Registrant's Post-Effective Amendment No. 5
filed with the Securities and Exchange Commission on September 1, 1993.

6. Incorporated by reference from Registrant's Post Effective Amendment No. 6
filed with the Securities and Exchange Commission on March 31, 1994.

7. Incorporated by reference from Registrant's Post-Effective Amendment No. 1
filed with the Securities and Exchange Commission on March 3, 1992.

8. Incorporated by reference from Registrant's Post-Effective Amendment No. 8
filed with the Securities and Exchange Commission on October 13, 1995.

9. Incorporated by reference from Registrant's Post-Effective Amendment No. 9
filed with the Securities and Exchange Commission on December 27, 1995.

Item 25. Persons Controlled by or under Common Control with Registrant.
None.

Item 26. Number of Holders of Securities.

As of June 30, 1996, the number of record holders of each Portfolio
were as follows:

Lazard International Equity Portfolio 1792
Lazard International Fixed-Income Portfolio 355
Lazard Bond Portfolio 410
Lazard Equity Portfolio 1130
Lazard Strategic Yield Portfolio 702
Lazard Small Cap Portfolio 1901
Lazard International Small Cap Portfolio 1002
Lazard Emerging Markets Portfolio 922
Lazard Global Equity Portfolio 66
Lazard Bantam Value Portfolio 501
Lazard Emerging World Funds Portfolio 0

Item 27. Indemnification.

It is the Registrant's policy to indemnify its directors and officers,
employees and other agents to the maximum extent permitted by Section
2-418 of the General Corporation Law of the State of Maryland and as
set forth in Article EIGHTH of Registrant's Articles of Incorporation,
incorporated by reference to Exhibit 1 and Article VIII of the
Registrant's By-Laws, incorporated by reference to Exhibit 2. The
liability of Lazard Freres Asset Management (the "Investment Manager")
for any loss suffered by the Lazard International Equity Portfolio,
Lazard International Fixed-Income Portfolio, Lazard Bond Portfolio,
Lazard Strategic Yield Portfolio, Lazard Small Cap Portfolio, Lazard
Emerging Markets Portfolio, Lazard International Small Cap Portfolio,
Lazard Global Equity Portfolio, Lazard Bantam Value Portfolio, and
Lazard Emerging World Funds Portfolio or their shareholders is set
forth in Section 9 of the Investment Management Agreement referenced by
Exhibits 5(A), 5(B), 5(C), 5(D), 5(E), 5(J), 5(K), 5(M), 5(N), and
5(O). The liability of the Investment Manager for any loss suffered by
the Lazard Equity Portfolio or its shareholders is set forth in Section
5 of the Investment Management Agreement referenced by Exhibit 5(H).
The liability of the Investment Manager for any losses suffered by the
Lazard Special Equity Portfolio or its shareholders is set forth in
Section 9 of the Management Agreement referenced by Exhibit 5(I). The
liability of Lazard Freres & Co. LLC, the Registrant's distributor, for
any loss suffered by the Registrant, each of its directors and officers
and each person, if any, who controls the Registrant is set forth in
Section 5(b) of the form of Distribution Agreement referenced by
Exhibit 6. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,

C-2
<PAGE>

officer or the Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

C-3
<PAGE>

Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------

Item 28. Business and Other Connections of Investment Advisers.
The description of the Investment Manager under the Caption
"Management" in the Prospectus and in the Statement of Additional
Information constituting Parts A and B, respectively, of this
Registration Statement is incorporated by reference herein. Following
is a list of the General Members of Lazard Freres & Co. LLC, together
with their other business connections which are of substantial nature
during the previous two years:

Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
<S> <C> <C>
William Araskog None

F. Harlan Batrus Mutual of America Capital Management Corp. Director
666 Fifth Avenue
New York, New York 10103

Ryan Labs, Inc. Director
350 Albany Street
New York, New York 10280

David G. Braunschvig None

Patrick J. Callahan, Jr. Berry Metal Co. Director
Route 68
Harmony, Pennsylvania 16307

BT Capital Corp. Director
280 Park Avenue
New York, New York 10017

Lee Brass Co. (Prior to 3/1/95) Director
P.O. Box 1229
Anniston, Alabama 36202

Michigan Wheel Corp. Director
1501 Buchanan Avenue
Southwest Grand Rapids, Michigan 49507

Rotation Dynamics Corp. Director
15 Salt Creek Lane
Suite 316
Hinsdale, Illinois 60521

C-4
<PAGE>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Somerset Technologies, Inc. Director
P.O. Box 791
New Brunswick, New Jersey 08903

GAR Holding Co. (Prior to 4/1/96) Director
600 Union Street
Ashland, Ohio 44805

Michel David-Weill BSN Gervais Danone (Prior to 8/1/96) Director
1260130 Rue Jules Gruesde
Levallois-Perret (Hauts de Seine)
France 92302

Credit Mobilier Industriel (Prior to 8/1/96) Chairman of the Board
(SOVAC)
19-21 Rue de la Bienfaisance
75008 Paris, France

The Dannon Company, Inc. Director
22-11 38th Avenue
Long Island City, New York 11101

Eurafrance President and Chairman of
12 Avenue Percier the Board
75008 Paris, France

Exor Group Director
19 Avenue Montaigne
75008 Paris, France

Euralux Director
8 Rue Ste-Zithe
2763 Luxembourg

Fiat S.p.A. (Prior to 8/1/96) Director
Corso Marconi 10
10125 Torino
Italy

Groupe Danone Director
7 Rue de Teheran
75008 Paris, France

ITT Industries, Inc. Director
320 Park Avenue
New York, New York 10022

La France S.A. Director
7 & 9 Boulevard Haussmann
75009 Paris, France

La France-Iard Director
7 & 9 Boulevard Haussmann
75009 Paris, France

La France-Vie Director
7 & 9 Boulevard Haussmann
75009 Paris, France

Lazard Brothers & Co., Limited Director
21 Moorfields
London EC2P-2HT
England

C-5
<PAGE>

Publicis S.A. Director
133 Champs-Ezlysees
75008 Paris, France

S.A. de la Rue Imperiale de Lyon Director
49, Rue de la Republique
Lyon (Rhone) 69002
France

John V. Doyle None

Charles R. Dreifus None

Thomas F. Dunn Goldman, Sachs & Co. (Prior to 1/1/95) Senior Portfolio Manager
85 Broadway Street
New York, New York 10004

Norman Eig The Lazard Funds, Inc. Director, Chairman
30 Rockefeller Plaza
New York, New York 10020

The Emerging World Trust Fund Limited Director
30 Rockefeller Plaza
New York, New York 10020

Lazard Pension Management, Inc. Director
30 Rockefeller Plaza
New York, New York 10020

Peter R. Ezersky None

Jonathan F. Foster None

Albert H. Garner None

James S. Gold Smart & Final Inc. Director
4700 South Boyle Avenue
Los Angeles, California 90058

Jeffrey A. Golman None

Steven J. Golub Mineral Technologies Inc. Director
405 Lexington Avenue
New York, New York 10174-1901

Herbert W. Gullquist The Lazard Funds, Inc. Director, President
30 Rockefeller Plaza
New York, New York 10020

The Emerging World Trust Fund Limited Director
30 Rockefeller Plaza
New York, New York 10020

Lazard Freres Asset Management (Canada), Inc. Director, President
30 Rockefeller Plaza
New York, New York 10020

C-6
<PAGE>

Thomas R. Haack None

J. Ira Harris Manpower Inc. Director
5301 North Ironwood Road
Milwaukee, Wisconsin 53201

Caremark International, Inc. Director
2215 Sanders Road
Northbrook, Illinois 60062

Brinker International Inc. Director
6820 LBJ Freeway
Dallas, Texas 75240

Melvin L. Heineman Lazard Freres & Co., Ltd. Director
21 Moorfields
London EC2P 2HT
England

Lazard Pension Management, Inc. Director
30 Rockefeller Plaza
New York, New York 10020

Kenneth M. Jacobs None

Jonathan H. Kagan Continental Cablevision, Inc. Director
Pilot House
54 Lewis Wharf
Boston, Massachusetts 02110

Firearms Training Systems, Inc. Director
7340 McGinnis Ferry Road
Suwanee, Georgia 30174

La Salle Re Ltd. Director
Cumberland House
One Victoria Street
P.O. HM 1502
Hamilton HM FX
Bermuda

Patient Education Media, Inc. Director
1271 Avenue of the Americas
New York, New York 10020

Phar-Mor Inc. (Prior to 1/1/96) Director
20 Federal Plaza West
Youngstown, OH 44501

Tyco Toys, Inc. Director
6000 Midlantic Drive
Mount Laurel, New Jersey 08054

James L. Kempner Lazard Freres & Co. Capital Markets
30 Rockefeller Plaza
New York, NY 10020

Sandra A. Lamb None

Edgar D. Legaspi None

Michael S. Liss Bear Stearns & Co. (Prior to 10/1/95) Senior Portfolio Manager
245 Park Avenue
New York, New York 10004

William R. Loomis, Jr. Engelhard Hanovia Inc. (Prior to 3/1/95) Director
280 Park Avenue
3rd Floor - West Wing
New York, New York 10017

C-7
<PAGE>

Minorco (U.S.A.) Inc. Director
30 Rockefeller Plaza
Suite 4212
New York, NY 10112

Terra Industries, Inc. Director
600 4th Street
Sioux City, Iowa 51101

J. Robert Lovejoy Lazard Freres & Co. Capital Markets
30 Rockefeller Plaza
New York, NY 10020

Matthew J. Lustig None

Philippe L. Magistretti None

Damon Mezzacappa Corporate Property Investors Director
30 Rockefeller Plaza
New York, New York 10020

Christina A. Mohr Loehmann's Holdings Inc. Director
2500 Halsey Street
Bronx, New York 10461

United Retail Group, Inc. Director
365 West Passaic Street
Rochelle Park, New Jersey 07662

Robert P. Morgenthau Lazard Freres Asset Management (Canada), Inc. Director, Vice-President
30 Rockefeller Plaza
New York, New York 10020

Steven J. Niemczyk None

Hamish W. M. Norton None

Jonathan O'Herron Trigon Energy Corporation Director
1 Water Street
White Plains, New York 10601

James A. Paduano Donovan Data Systems, Inc. Director
666 Fifth Avenue
New York, New York 10019

Pilgrim Electronics, Inc. (Prior to 4/1/95) Director
60 Beaver Brook Road
Danbury, Connecticut 06810

Secure Products Inc. Director
47 Maple Street
Summit, NJ 07901

Louis Perlmutter None

Robert E. Poll, Jr. None

Lester Pollack Continental Cablevision, Inc. Director
Pilot House
54 Louis Wharf
Boston, Massachusetts 02210

CNA Financial Corp. (Prior to 3/1/95) Director
CNA Plaza
Chicago, Illinois 60685

Kaufman & Broad Home Corp. Director
11601 Wilshire Boulevard
Los Angeles, California 90025-1748

La Salle Re Ltd. Director
Cumberland House
One Vicotoria Street
P.O. HM FX
Bermuda

C-8
<PAGE>

Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------

Loews Corporation (Prior to 1/1/96) Director
666 Fifth Avenue
New York, New York 10103

Paramount Communications, Inc. (Prior to 3/1/95) Director
15 Columbus Circle
New York, New York 10023

Parlex Corp. Director
145 Milk Street
Metuen, Massachusetts 01844

Polaroid Corp. Director
549 Technology Square
Cambridge, Massachusetts 02139

SD Holding (Bermuda) Ltd. Director
Hurst Holme
Trott Road
Hamilton, HMII
Bermuda

Sphere Drake Acquisitions (U.K.) Ltd. Director
52-24 Leadenhall Street
London EC3A 2BJ
England

Sphere Drake Holding Ltd. Director
52-24 Leadenhall Street
London EC3A 2BJ
England

Sphere Drake Ltd. Director
52-24 Leadenhall Street
London EC3A 2BJ
England

Sun America Inc. Director
11601 Wilshire Boulevard
Los Angeles, CA 90025

Tidewater Inc. Director
1440 Canal Street
Suite 2100
New Orleans, Louisianna 70112

Michael J. Price None

Steven L. Rattner Falcon Holding Group L.P. Director
10900 Wilshire Boulevard
Los Angeles, California 90024

John R. Reese Owosso Corp. Director
312 West Main Street
Owosso, Michigan 48867

Owosso Gan, Inc. Director
312 West Main Street
Owosso, Michigan 48867

John R. Reinsberg None

Louis G. Rice None

C-9
<PAGE>

Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------

Luis E. Rinaldini Cedar Fair Management Co. (Prior to 3/1/95) Director
CN 5006 Causeway Drive
Sandusky, Ohio 44870

Bruno M. Roger CAP Gemini Sogeti Director
6, bid Jean Pain a Grenoble (38005)
France

Carnaud Metal Box Packaging (Prior to 8/1/96) Director
153, Rue de Courcelles a Paris 17eme
France

Compagnie De Credit Director
121, boulevard Haussmann a Paris Seme
France

Compagnie De Saint-Gobain Director
Les Miroirs
18 avenue d'Alsace
Paris la Defense (92096)
France

Eurafrance Director
12, avenue Percier a Paris Seme
France

Financiere Et Industrielle Gaz Director
Et Eaux
3, rue Jacques Bingen a Paris 17eme
France

Fonds Partenaires Gestion (F.P.G.) Director
121, boulevard Haussmann a Paris Seme
France

Lazard, Burlkin, Kuna & Co. (Prior to 1/1/96) Director
Ulmenstrasse 37-39
60325 Frankfurt am Main
Federal Republic of Germany

Lazard & Co. GmbH Director
Ulmenstrasse 37-39
60325 Frankfurt am Main
Federal Republic of Germany

LVMH-Moet Hennessy Louis Vuitton Director
30, avenue Hoche a Paris 8eme
France

Marine-Wendel Director
189, rue Taitbout a Paris 9eme
France

Midial (Prior to 1/1/96) Director
192, avenue Charles de Gaulle
Neuille S/Sein (92200)
France

Pinault-Printemps-Redoute Director
61, rue Caumartin
75009 Paris

PSA Finance Holding (Prior to 1/1/96) Director
75, av. de la Grande Armee a Paris 16eme
France

C-10
<PAGE>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Sidel Director
66, rue de Miromesnil
75008 Paris

Societe Centrale Puour L'Industrie Director
9, avenue Hoche a Paris 8eme
France

Societe Financiere Generale Director
Immobiliere (S.F.G.I.)
23, rue de I'Arcasde a Paris 8eme
France

Sofina (Belgique) Director
Rue de Naples, 38-B-1050 Bruzelles

Sogeti S.A. (Prior to 8/1/96) Director
6, bld Jean Pain a Grenoble (38005)
France

Sovac (Prior to 8/1/96) Director
19-21, rue de la Bienfaisance aParis 8eme
France

Sovaclux S.A. Director
14 rue Aldringen - Luxembourg

Thomson S.A. Director
51 esplanade du General de Gaulle
La Defense 10-92800 Puteaux
France

Thomson CSF Director
51 Esplanade du General de Gaulle
La Defense 10-92800 Puteaux
France

U.A.P. Director
9, place Vendome
75001 Paris

Felix G. Rohatyn Crown Cork & Seal Co., Inc. Director
9300 Ashton Road
Philadelphia, PA 19136

General Instrument Corp. Director
181 West Madison Street
Chicago, Illinois 60602

Howmet Turbine Components Corp.(Prior to 1/1/96) Director
221 West Webster Avenue
Mouskegon, Michigan 49440

Pechiney S.A. (Prior to 3/1/95) Director
23 Rue Balzac
75008 Paris, France

Pfizer Inc. Director
235 East 42nd Street
New York, New York 10017-5755

Michael S. Rome None

Gerald Rosenfeld Case Corporation Director
700 State Street
Racine, Wisconsin 53404

C-11
<PAGE>
Name and Address of Company with
Name of General Member which General Member is Connected Capacity
- ----------------------------------------------------------------------------------------
Peter L. Smith Dixie Yarns Inc. Director
1100 Watkins Street
Chattanooga, Tennessee 37401

Arthur P. Solomon None

Michael B. Solomon Charming Shoppes Inc. Director
450 Winks Lane
Bensalem, Pennsylvania 19020

Edouard M. Stern Mainz Holdings Limited Director
P.O. Box 3161
Roadtown Tortola BVI

Penthievre Holdings B.V. Director
Jupiter Straat 158
2130 Ah Hoofddorp Netherlands

Paul A. Street GE Capital (Prior to 10/1/94) Senior Vice President
260 Long Ridge Road
Stamford, Connecticut 06927

Lazard Asia Ltd. Director
80 Raffles Place
22-20 UOB Plaza II
Singapore 048624

John S. Tamagni Western Holdings Inc. Director
1491 Tyrell Lane
Boise, Idaho 83706

David L. Tashjian None

J. Mikesell Thomas First National Bank of Chicago (Prior to 1/1/95) Executive Vice President
One First National Plaza
Chicago, Illinois 60603

Donald A. Wagner None

Ali E. Wambold The Albert Fisher Group plc Director
Fisher House
61 Thames Street
Windsor, Berkshire SO4 IQW
England

Lazard Brothers & Co., Ltd. Director
21 Moorfields
London EC2P 2HT
England

Lazard, Burklin, Kuna & Co. (Prior to 3/1/95) Director
Ulmeastrasse 37-39
60325 Frankfurt and Main
Federal Republic of Germany

Lazard Freres & Co., Ltd. Director
21 Moorfields
London EC2P 2HT
England

Lazard S.p.A. Director
Plazza Meda, 3
Milano, Italy 20121

Tomkins PLC Director
East Putney House
84 Upper Richmond Road
London SW15 2ST
England, UK

Michael A. Wildish None

Kendrick R. Wilson III American Buildings Company Director
State Docks Road
Eufaula, Alabama 36027

Bank United Director
3200 Southwest Freeway
Houston, Texas 77027

ITT Corp. Director
1330 Avenue of Americas
New York, NY 10019

Meigher Communications, Inc. Director
100 Avenue of Americas
New York, NY 10013

C-12
<PAGE>

The Egypt Trust Director
One Rockefeller Plaza
New York, NY 10020

The Emerging World Trust Fund Limited Director
One Rockefeller Plaza
New York, NY 10020

Fleming Continental European Investment Trust Director
25 Copthall Avenue
London EC2R 7DR

Gartmore Emerging Pacific Investment Trust Director
Gartmore House
16-18 Monument Street
London EC3R 8AJ

Greek Progress Fund Director
Ergobank
5, Evripidou
40-44, Praxit, Elous
105-61 Athens
Greece

Latin American Investment Trust Director
Exchange House
Primrose Street
London EC2A 2NY

Merlin Green International Investment Trust Director
Knightsbridge House
197 Knightsbridge
London SW7 1RB

New Zealand Investment Trust Director
23 Cathedral Yard
Exeter
Devon EX1 1HB

Taiwan Opportunities Fund Director
c/o Martin-Currie
20 Castle Terrace
Edinburgh EHI 2ES
U.K.

World Trust Fund Director
Kredietrust
11 rue Aldringen
Luxembourg l-2960
</TABLE>
C-13
<PAGE>

Item 29. Principal Underwriters
(a) Lazard Freres & Co. LLC, through its division Lazard Freres Asset
Management, currently serves as an investment adviser to the following
investment companies: Target Portfolio Trust; The Accessor Funds;
Fortis Series Fund, Inc.; and the Managers Funds.

(b) William R. Araskog, F. Harlan Batrus, David G. Braunschvig, Patrick J.
Callahan, Jr., Michel David-Weill, John V. Doyle, Charles R. Dreifus,
Thomas F. Dunn, Norman Eig, Peter R. Ezersky, Jonathan F. Foster,
Albert H. Garner, James S. Gold, Jeffrey A. Golman, Steven J. Golub,
Herbert W. Gullquist, Thomas R. Haack, J. Ira Harris, Melvin L.
Heineman, Kenneth M. Jacobs, Jonathan H. Kagan, James L. Kempner,
Sandra A. Lamb, Edgar D. Legaspi, Michael S. Liss, William E. Loomis,
Jr., J. Robert Lovejoy, Matthew J. Lustig, Philippe L. Magistretti,
Damon Mezzacappa, Christina A. Mohr, Robert P. Morgenthau, Steven J.
Niemczyk, Hamish W. M. Norton, Jonathan O'Herron, James A. Paduano,
Louis Perlmutter, Robert E. Poll, Jr., Lester Pollack, Michael J.
Price, Steven L. Rattner, John R. Reese, John R. Reinsberg, Louis G.
Rice, Luis E. Rinaldini, Bruno M. Roger, Felix G. Rohatyn, Michael S.
Rome, Gerard Rosenfeld, Peter L. Smith, Arthur P. Solomon, Michael B.
Solomon, Edouard M. Stern, Paul A. Street, John S. Tamagni, David L.
Tashjian, Joseph M. Thomas, Donald A. Wagner, Ali E. Wambold, Michael
A. Wildish, Kendrick R. Wilson, III and Alexander E. Zagoreos are the
general members of Lazard Freres & Co. LLC. Mr. David-Weill is the
senior member of Lazard Freres & Co. LLC. The address of all such
members is 30 Rockefeller Plaza, New York, New York 10020.

Item 30. Location of Accounts and Records

The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder are maintained as follows: Journals, ledgers,
securities records and other original records are maintained primarily
at the offices of the Registrant's Custodian, State Street Bank & Trust
Company. All other records so required to be maintained are maintained
at the offices of Lazard Freres & Co. LLC, 30 Rockefeller Plaza, New
York, New York 10020.

Item 31. Management Services.

Other than as set forth under the caption "Management" in the
Prospectus constituting Part A of this Registration Statement and the
Statement of Additional Information constituting Part B of this
Registration Statement, Registrant is not a party to any
management-related service contract.

Item 32. Undertakings.

Registrant hereby undertakes:

(1) to call a meeting of shareholders for the purpose of voting upon
the question of removal of a director or directors when requested in
writing to do so by the holders of at least 10% of the Registrant's
outstanding shares of common stock and in connection with such meeting
to comply with the provisions of Section 15(c) of the Investment
Company Act of 1940 relating to shareholder communications. (2) to
furnish each person to whom a prospectus is delivered with a copy of
its latest annual report to shareholders, upon request and without
charge, beginning with the annual report to shareholders for the fiscal
year ended December 31, 1995.

(2) to file a post-effective amendment, using financial statements
which need not be certified, within four to six months from the
effective date of Registrant's 1933 Act Registration Statement
pertaining to Registrant's Global Equity, Bantam Value and Emerging
World Funds Portfolios.

(3) to furnish each person to whom a prospectus is delivered with a
copy of the fund's latest Annual Report to Shareholders, upon request
and without charge.

C-14
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and

the Investment Company Act of 1940, as amended, the Registrant certifies that it
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in The City of New York
and State of New York, on the 12th day of August, 1996.

THE LAZARD FUNDS, INC.
By: /s/ William G. Butterly, III
---------------------------------------
William G. Butterly, III
Vice President and Secretary

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
<TABLE>

Signature Title Date
--------------------------------------- ------------------- --------------
1. Principal Executive Officer Chairman August 12, 1996
* /s/ William G. Butterly, III
----------------------------------
Norman Eig

2. Principal Financial & Accounting Officer: Treasurer August 12, 1996
/s/ Gus Coutsouros
------------------
Gus Coutsouros

3. All of the Directors:
*John J. Burke
*Kenneth S. Davidson
*Norman Eig
*Herbert W. Gullquist
*Lester Z. Lieberman
*Richard Reiss, Jr.
*John Rutledge
*Carl Frischling
*By: /s/ William G. Butterly, III August 12, 1996
-----------------------------
Attorney-in-fact, William G. Butterly, III

</TABLE>
C-15
<PAGE>

INDEX TO EXHIBITS

Exhibit Number Sequential
Page Number

1(B) Articles of Amendment

1(C) Articles Supplementary

6 Distribution Agreement, as revised

11 Consent of Independent Auditors

15 Distribution and Servicing Plan

18 Rule 18f-3 Plan

ARTICLES OF AMENDMENT

THE LAZARD FUNDS INC., a Maryland corporation having its principal office
in the State of Maryland at 32 South Street, Baltimore, Maryland (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:

FIRST: The charter of the Corporation is hereby amended by redesignating
the issued and unissued shares of stock of the Corporation by striking the
second paragraph of paragraph (1) of Article FIFTH of the Articles of
Incorporation in its entirety and inserting in lieu thereof the following:

"Until such time as the Board of Directors shall provide otherwise in
accordance with paragraph (2) of this Article, two hundred fifty million
(250,000,000) of the authorized shares of stock of the Corporation are
designated as Institutional Common Stock, one hundred fifty million
(150,000,000) of such shares are designated as Lazard International Equity
Portfolio Institutional Common Stock, fifty million (50,000,000) of such
shares are designated as Lazard International Fixed-Income Portfolio
Institutional Common Stock, fifty million (50,000,000) of such shares are
designated as Lazard Bond Portfolio Institutional Common Stock, fifty
million (50,000,000) of such shares are designated as Lazard Strategic
Yield Portfolio Institutional Common Stock, one hundred fifty million
(150,000,000) of such shares are designated as Lazard Small Cap Portfolio
Institutional Common Stock, fifty million (50,000,000) of such shares are
designated as Lazard Equity Portfolio Institutional Common Stock, fifty
million (50,000,000) of such shares are designated as Lazard Emerging
Markets Portfolio Institutional Common Stock, fifty million (50,000,000)

<PAGE>

of such shares are designated as Lazard International Small Cap Portfolio
Institutional Common Stock, fifty million (50,000,000) of such shares are
designated as Lazard Global Equity Portfolio Institutional Common Stock,
fifty million (50,000,000) of such shares are designated as Lazard Bantam
Value Portfolio Institutional Common Stock, and fifty million (50,000,000)
of such shares are designated as Lazard Emerging World Funds Portfolio
Institutional Common Stock."

SECOND: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940.

THIRD: These Articles of Amendment were approved by at least a majority of
the entire Board of Directors of the Corporation and are limited to changes
expressly permitted by Section 2-605 of subtitle 6 of Title 2 of the Maryland
General Corporation Law to be made without action by the stockholders of the
Corporation.

The undersigned President of the Corporation acknowledges these Articles of
Amendment to be the corporate act of the Corporation and states that to the best
of his knowledge, information and belief, the matters and facts set forth in
these Articles with respect to the authorization and approval of the amendment
of the Corporation's charter are true in all material respects, and that this
statement is made under the penalties of perjury.

-2-

<PAGE>

IN WITNESS WHEREOF, The Lazard Funds, Inc. has caused this instrument to be
signed in its name and on its behalf by its President, and witnessed by its Vice
President and Secretary, on the _____ day of July, 1996.

THE LAZARD FUNDS, INC.

BY:
------------------------
Herbert W. Gullquist
President

WITNESS:

- ------------------------------
William G. Butterly, III
Vice President and Secretary

-3-

ARTICLES SUPPLEMENTARY

THE LAZARD FUNDS, INC., a Maryland corporation having its principal office
in the State of Maryland at 32 South Street, Baltimore, Maryland (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:

FIRST: The aggregate number of shares of Common Stock that the Corporation
has authority to issue is increased by five hundred fifty million (550,000,000)
shares of Common Stock, $.001 par value per share, with an aggregate par value
of five hundred fifty thousand dollars ($550,000), of which fifty million
(50,000,000) shares shall be classified as Lazard International Equity Portfolio
Retail Common Stock, fifty million (50,000,000) shares shall be classified as
Lazard International Fixed-Income Portfolio Retail Common Stock, fifty million
(50,000,000) shares shall be classified as Lazard Bond Portfolio Retail Common
Stock, fifty million (50,000,000) shares shall be classified as Lazard Strategic
Yield Portfolio Retail Common Stock, fifty million (50,000,000) shares shall be
classified as Lazard Small Cap Portfolio Retail Common Stock, fifty million
(50,000,000) shares shall be classified as Lazard Equity Portfolio Retail Common
Stock, fifty million (50,000,000) shares shall be classified as Lazard Emerging
Markets Portfolio Retail Common Stock, fifty million (50,000,000) shares shall
be classified as Lazard International Small Cap Portfolio Retail Common Stock,
fifty million (50,000,000) shares shall be classified as Lazard Global Equity
Portfolio Retail Common Stock, fifty million (50,000,000) shares shall be
classified as Lazard Bantam Value Portfolio Retail Common Stock, and fifty
million (50,000,000) shares shall be classified as Lazard Emerging World Funds
Portfolio Retail Common Stock (hereinafter sometimes collectively referred to as
"Retail Common Stock").

SECOND: The shares of Retail Common Stock of each Portfolio classified by
the Corporation's Board of Directors hereby shall have the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption as set forth in
Article FIFTH of the Corporation's Charter and shall be subject to all
provisions of the Corporation's Charter relating to stock of the Corporation
generally, and to the following:

(1) As more fully set forth hereinafter, the assets and liabilities
and the income and expenses

<PAGE>

of the Retail Common Stock of each Portfolio shall be determined separately
from those of any other class of the Corporation's stock invested in the
same Portfolio and from those of any other class of the Corporation's stock
in accordance with the number of shares outstanding of each such class or
as otherwise determined by the Board of Directors and, accordingly, the net
asset value, the dividends and distributions payable to holders, and the
amounts distributable in the event of liquidation of the Corporation to
holders of shares of the Corporation's stock may vary from class to class.
Except for these differences, differences with respect to voting powers set
forth in the Articles of Incorporation, and certain other differences
hereinafter set forth, the Retail Common Stock of each Portfolio and each
other class of the Corporation's stock shall have the same preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption.

(2) Assets of the Corporation attributable to the Retail class of each
Portfolio shall be invested in the same investment portfolio with the
assets of the Corporation attributable to other classes of the
Corporation's stock having the same Portfolio name.

(3) The dividends and distributions of investment income and capital
gains with respect to the Retail Common Stock of each Portfolio shall be in
such amounts as may be declared from time to time by the Board of
Directors, and such dividends and distributions may vary between the Retail
Common Stock of each Portfolio and any other class of the Corporation's
stock to reflect differing allocations of the expenses of the Corporation
between the classes and any resultant differences between the net asset
values per share of the classes, to such extent and for such purposes as
the Board of Directors may deem appropriate. The allocation of investment
income, capital gains, expenses and liabilities of the Corporation among
the Retail Common Stock of each Portfolio and any other class of the
Corporation's stock shall be determined by the Board of Directors in a
manner that is consistent with applicable law.

(4) Except as may otherwise be required by law pursuant to any
applicable order, rule or interpretation issued by the Securities and
Exchange Commission, or otherwise, all holders of shares of Retail Common
Stock of each Portfolio of the Corporation shall vote as a single class
with the

-2-

<PAGE>

holders of shares of all other classes of Common Stock of the Corporation
irrespective of the class thereof except that the holders of Retail Common
Stock of each Portfolio shall have, respectively, (i) exclusive voting
rights with respect to any matter submitted to a vote of stockholders that
affects only holders of Retail Common Stock of any Portfolio, including,
without limitation, the provisions of any plan adopted by the Corporation
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended
(a "Plan"), applicable to Retail Common Stock of any Portfolio and (ii) no
voting rights with respect to the provisions of any Plan applicable to
another class of stock of the Corporation or with regard to any other
matter submitted to a vote of stockholders that does not affect holders of
Retail Common Stock of any Portfolio of the Corporation.

THIRD: Immediately before the increase in the aggregate number of shares as
set forth in Article FIRST hereof, the Corporation was authorized to issue one
billion (1,000,000,000) shares of stock, all of which were shares of Common
Stock, with a par value of one-tenth of one cent ($.001) each, having an
aggregate par value of one million dollars ($1,000,000), consisting of two
hundred fifty million (250,000,000) shares of Institutional Common Stock, one
hundred fifty million (150,000,000) shares of Lazard International Equity
Portfolio Institutional Common Stock, fifty million (50,000,000) shares of
Lazard International Fixed-Income Portfolio Institutional Common Stock, fifty
million (50,000,000) shares of Lazard Bond Portfolio Institutional Common Stock,
fifty million (50,000,000) shares of Lazard Strategic Yield Portfolio
Institutional Common Stock, one hundred fifty million (150,000,000) shares of
Lazard Small Cap Portfolio Institutional Common Stock, fifty million
(50,000,000) shares of Lazard Equity Portfolio Institutional Common Stock, fifty
million (50,000,000) shares of Lazard Emerging Markets Portfolio Institutional
Common Stock, fifty million (50,000,000) shares of Lazard International Small
Cap Portfolio Institutional Common Stock, fifty million (50,000,000) shares of
Lazard Global Equity Portfolio Institutional Common Stock, fifty million
(50,000,000) shares of Lazard Bantam Value Portfolio Institutional Common Stock,
and fifty million (50,000,000) shares of Lazard Emerging World Funds Portfolio
Institutional Common Stock.

FOURTH: As hereby increased and classified, the total number of shares of
stock which the Corporation has authority to issue is one billion five hundred
fifty million (1,550,000,000) shares, all of which are shares of Common Stock,
with a par value of one-tenth of one cent ($.001) per share, having an aggregate
par value of one million five hundred fifty thousand dollars ($1,550,000), of
which two hundred fifty million

-3-

<PAGE>

(250,000,000) shares are classified as Institutional Common Stock, two hundred
million (200,000,000) shares are classified as shares of the Lazard
International Equity Portfolio, of which fifty million (50,000,000) shares are
classified as Retail and one hundred fifty million (150,000,000) shares are
classified as Institutional, one hundred million (100,000,000) shares are
classified as shares of the Lazard International Fixed-Income Portfolio, of
which fifty million (50,000,000) shares are classified as Retail and fifty
million (50,000,000) shares are classified as Institutional, one hundred million
(100,000,000) shares are classified as shares of the Lazard Bond Portfolio, of
which fifty million (50,000,000) shares are classified as Retail and fifty
million (50,000,000) shares are classified as Institutional, one hundred million
(100,000,000) shares are classified as shares of the Lazard Strategic Yield
Portfolio, of which fifty million (50,000,000) shares are classified as Retail
and fifty million (50,000,000) shares are classified as Institutional, two
hundred million (200,000,000) shares are classified as shares of the Lazard
Small Cap Portfolio, of which fifty million (50,000,000) shares are classified
as Retail and one hundred fifty million (150,000,000) shares are classified as
Institutional, one hundred million (100,000,000) shares are classified as shares
of the Lazard Equity Portfolio, of which fifty million (50,000,000) shares are
classified as Retail and fifty million (50,000,000) shares are classified as
Institutional, one hundred million (100,000,000) shares are classified as shares
of the Lazard Emerging Markets Portfolio, of which fifty million (50,000,000)
shares are classified as Retail and fifty million (50,000,000) shares are
classified as Institutional, one hundred million (100,000,000) shares are
classified as shares of the Lazard International Small Cap Portfolio, of which
fifty million (50,000,000) shares are classified as Retail and fifty million
(50,000,000) shares are classified as Institutional, one hundred million
(100,000,000) shares are classified as shares of the Lazard Global Equity
Portfolio, of which fifty million (50,000,000) shares are classified as Retail
and fifty million (50,000,000) shares are classified as Institutional, one
hundred million (100,000,000) shares are classified as shares of the Lazard
Bantam Value Portfolio, of which fifty million (50,000,000) shares are
classified as Retail and fifty million (50,000,000) shares are classified as
Institutional, and one hundred million (100,000,000) shares are classified as
shares of the Lazard Emerging World Funds Portfolio, of which fifty million
(50,000,000) shares are classified as Retail and fifty million (50,000,000)
shares are classified as Institutional.

FIFTH: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.

-4-

<PAGE>

SIXTH: The Board of Directors of the Corporation increased the total number
of shares of Common Stock that the Corporation has authority to issue pursuant
to Section 2-105(c) of the Maryland General Corporation Law and classified the
increased shares pursuant to authority provided in the Corporation's Charter.

The undersigned President acknowledges these Articles Supplementary to be
the corporate act of the Corporation and states that to the best of his
knowledge, information and belief, the matters and facts with respect to
authorization and approval set forth in these Articles are true in all material
respects and that this statement is made under penalties of perjury.

IN WITNESS WHEREOF, The Lazard Funds, Inc. has caused these Articles
Supplementary to be signed in its name and on its behalf by its President and
witnessed by its Vice President and Secretary on July __, 1996.

THE LAZARD FUNDS, INC.

By:
------------------------
Herbert W. Gullquist
President

Witness:

- ----------------------------
William G. Butterly, III
Vice President and Secretary

-5-

DISTRIBUTION AGREEMENT

AGREEMENT made the 24th day of September, 1991, as revised July 22, 1996,
between The Lazard Funds, Inc., a Maryland corporation (the "Fund"), and Lazard
Freres & Co. LLC, a New York limited liability company (the "Distributor").

W I T N E S S E T H:

WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"),
authorized to reclassify and issue any unissued shares to any number of
additional classes or series, each having its own investment objective, policies
and restrictions (each such class to be hereinafter referred to as a
"Portfolio"), and it is in the interest of the Fund to offer the shares of each
Portfolio for sale continuously;

WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of shares of $.001 par value
common stock of the Fund (the "Common Stock") representing interests in each
Portfolio, to commence after the effectiveness of the Fund's registration
statement filed pursuant to the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act.

NOW, THEREFORE, the parties agree as follows:

Section 1. APPOINTMENT OF THE DISTRIBUTOR. The Fund hereby appoints the
Distributor as its exclusive agent to sell and to arrange for the sale of the
shares of Common Stock of each Portfolio, including both issued shares and
authorized but unissued shares, on the terms and for the period set forth in
this Agreement and the Distributor hereby accepts such appointment and agrees to
act hereunder.

Section 2. SERVICES AND DUTIES OF THE DISTRIBUTOR.

(a) The Distributor agrees to sell, as agent for the Fund, from time to
time during the term of this Agreement, the Common Stock of each Portfolio upon
the terms described in the Prospectus. As used in this Agreement, the term
"Prospectus" shall mean the prospectus included as part of the Fund's
registration statement, as such Prospectus may be amended or supplemented from
time to time, and the term "Registration Statement" shall mean the Registration
Statement most recently filed from time to time by the Fund with the Securities
and Exchange Commission and effective under the 1933 Act and the 1940 Act, as
such Registration Statement is amended by any amendments thereto at the time in
effect.

(b) Upon the commencement of each Portfolio's operations, the Distributor
will hold itself available to receive orders, satisfactory to the Distributor,
for the

<PAGE>

purchase of shares of the Common Stock of the Portfolio and will accept such
orders on behalf of the Fund as of the time of receipt of such orders and will
transmit such orders as are so accepted to the Fund's transfer and dividend
disbursing agent as promptly as practicable. Purchase orders shall be deemed
effective at the time and in the manner set forth in the Prospectus.

(c) The offering price of shares of the Common Stock of each Portfolio
shall be the net asset value (as determined as set forth in the Prospectus) per
share of the Common Stock next determined following receipt of an order, plus
postage and other charges, if any, determined as set forth in the Prospectus.
The Fund shall furnish the Distributor, with all possible promptness, an advice
of each computation of the net asset value of each Portfolio.

(d) The Distributor shall not be obligated to sell any certain number of
shares of the Common Stock of any Portfolio and nothing herein contained shall
prevent the Distributor from entering into like distribution arrangements with
other investment companies so long as the performance of its obligations
hereunder is not impaired thereby.

(e) The Distributor is authorized on behalf of the Fund to purchase shares
of the Common Stock of any Portfolio presented to it by dealers at the price
determined in accordance with, and in the manner set forth in, the Prospectus.

Section 3. DUTIES OF THE FUND.

(a) The Fund agrees to sell shares of the Common Stock of any Portfolio so
long as there is Common Stock available for sale; and to deliver certificates
for, or cause the Fund's transfer and dividend disbursing agent to issue
non-negotiable share deposit receipts evidencing, such shares of Common Stock
registered in such names and amounts as the Distributor has requested in
writing, as promptly as practicable after receipt by the Fund of the net asset
value thereof and written request of the Distributor therefor.

(b) The Fund shall keep the Distributor fully informed with regard to its
affairs and shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of shares of the Common
Stock of the Portfolios, and this shall include one certified copy, upon request
by the Distributor, of all financial statements prepared for the Fund by
independent accountants and such reasonable number of copies of its most current
Prospectus and annual and interim reports as the Distributor may request and
shall cooperate fully in the efforts of the Distributor to

-2-

<PAGE>

sell and arrange for the sale of shares of the Common Stock of the Portfolios
and in the performance of the Distributor under this Agreement.

(c) The Fund shall take, from time to time, all necessary action to fix the
number of authorized shares of Common Stock and such steps, including payment of
the related filing fee, as may be necessary to register the same under the 1933
Act to the end that there will be available for sale such number of shares of
Common Stock as the Distributor may be expected to sell. The Fund agrees to file
from time to time such amendments, reports and other documents as may be
necessary in order that there may be no untrue statement of a material fact in
the Registration Statement or Prospectus, or necessary in order that there may
be no omission to state a material fact in the Registration Statement or
Prospectus which omission would make the statements therein misleading.

(d) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of the shares of Common Stock of each
Portfolio for sale under the securities laws of such states as the Distributor
and the Fund may approve, and, if necessary or appropriate in connection
therewith, to qualify and maintain the qualification of the Fund as a broker or
dealer in such states; provided that the Fund shall not be required to amend its
Articles of Incorporation or By-Laws to comply with the laws of any state, to
maintain an office in any state, to change the terms of the offering of shares
of Common Stock in any state from the terms set forth in its Registration
Statement and Prospectus, to qualify as a foreign corporation in any state or to
consent to service of process in any state other than with respect to claims
arising out of the offering of shares of Common Stock. The Distributor shall
furnish such information and other material relating to its affairs and
activities as may be required by the Fund in connection with such
qualifications.

Section 4. EXPENSES.

(a) The Fund shall bear all costs and expenses of the continuous offering
of its shares of Common Stock in connection with: (i) fees and disbursements of
its counsel and independent accountants; (ii) the preparation, filing and
printing of any Registration Statements and/or Prospectuses required by and
under the federal securities laws; (iii) the preparation and mailing of annual
and interim reports, Prospectuses and proxy materials to stockholders; and (iv)
the qualifications of shares of Common Stock for sale and of the Fund as a
broker or dealer under the securities laws of such states or other jurisdictions
as shall be selected by the Fund and the Distributor and the cost and expenses
payable to each such state for continuing qualification therein.

-3-

<PAGE>

(b) Unless the Fund has adopted with respect to a Portfolio a plan pursuant
to Rule 12b-1 under the 1940 Act which provides otherwise, the Distributor shall
bear (i) the costs and expenses of preparing, printing and distributing any
materials not prepared by the Fund and other materials used by the Distributor
in connection with its offering of shares of Common Stock for sale to the
public, including the additional cost of printing copies of the Prospectus and
of annual and interim reports to stockholders other than copies thereof required
for distribution to stockholders or for filing with any federal securities
authorities, (ii) any expenses of advertising and promotion incurred by the
Distributor in connection with such offering and (iii) the expenses of
registration or qualification of the Distributor as a broker or dealer under
federal or state laws and the expenses of continuing such registration or
qualification.

Section 5. INDEMNIFICATION.

(a) The Fund will indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor within the meaning of the 1940 Act
against any losses, claims, damages or liabilities to which the Distributor or
such controlling person may become subject, under the 1940 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's Registration Statement,
Prospectus or any other written sales material prepared by the Fund which is
utilized by the Distributor in connection with the sale of shares of Common
Stock or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or (in the case of
the Registration Statement and Prospectus) necessary to make the statements
therein not misleading or (in the case of such other sales material) necessary
to make the statements therein not misleading in the light of the circumstances
under which they were made; and will reimburse the Distributor and each such
controlling person for any legal or other expenses reasonably incurred by the
Distributor or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the Fund will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
such Registration Statement or Prospectus in conformity with written information
furnished to the Fund by the Distributor specifically for use therein; and
PROVIDED, FURTHER, that nothing herein shall be so construed as to protect the
Distributor against any liability to the Fund or its security holders to which
the Distributor would otherwise be subject by reason of willful misfeasance, bad
faith or gross

-4-

<PAGE>
negligence in the performance of its duties, or by reason of the reckless
disregard ("disabling conduct") by the Distributor of its obligations and duties
under this Agreement. This indemnity agreement will be in addition to any
liability which the Fund may otherwise have. Any indemnification hereunder
(unless ordered by a court) shall be made by the Fund only as authorized in the
specific case upon a determination that indemnification of the Distributor is
proper in the circumstances and that the Distributor is not liable by reason of
disabling conduct. Such determination shall be made (i) by the Board of
Directors, by a majority vote of a quorum which consists of Directors who are
neither "interested persons" of the Fund as defined in Section 2(a)(19) of the
1940 Act nor parties to the proceeding, or (ii) if the required quorum is not
obtainable or if a quorum of such Directors so directs, by independent legal
counsel in a written opinion.

(b) The Distributor will indemnify and hold harmless the Fund, each of its
directors and officers and each person, if any, who controls the Fund within the
meaning of the 1940 Act, against any losses, claims, damages or liabilities to
which the Fund or any such director, officer or controlling person may become
subject, under the 1940 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, Prospectus or any sales material not
prepared by the Fund which is utilized in connection with the sale of shares of
Common Stock or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or (in
the case of the Registration Statement and Prospectus) necessary to make the
statements therein not misleading or (in the case of such other sales material)
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, in the case of the Registration
Statement and Prospectus to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in conformity with written information furnished to the Fund by the Distributor
specifically for use therein; and the Distributor will reimburse any legal or
other expenses reasonably incurred by the Fund or any such director, officer or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action. This indemnity agreement will be in addition
to any liability which the Distributor may otherwise have.

(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but

-5-

<PAGE>
the omission so to notify the indemnifying party will not relieve it from
liability which it may have to any indemnified party otherwise than under this
Section. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, to assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.

Section 6. COMPLIANCE WITH SECURITIES LAWS. The Fund represents that it is
registered as an open-end management investment company under the 1940 Act, and
agrees that it will comply with all of the provisions of the 1940 Act and of the
rules and regulations thereunder. The Fund and the Distributor each agree to
comply with all of the applicable terms and provisions of the 1940 Act, the 1933
Act and, subject to the provisions of Section 3(d) of this Agreement, all
applicable state "Blue Sky" laws. The Distributor agrees to comply with all of
the applicable terms and provisions of the Securities Exchange Act of 1934.

Section 7. SUSPENSION OF SALES. The Fund shall have the right to suspend
the sales of shares of the Common Stock of one or more Portfolios and the
authority of the Distributor to accept orders for shares of the Common Stock of
any such Portfolio if the Board of Directors of the Fund determines that it is
in the best interest of the Fund or the Portfolio to do so. In that event, the
Distributor may make such sales as are necessary to cover unconditional orders
accepted by it prior to the suspension.

Section 8. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall
continue in full force and effect until the earlier of (a) December 31, 1993 or
(b) the first meeting of the shareholders of the Fund after the date hereof. If
approved at such meeting by the affirmative vote of a majority of the
outstanding voting securities of the Fund (as defined by the 1940 Act), this
Agreement shall continue in full force and effect from year to year thereafter
if such continuance is approved in the manner required by the 1940 Act and the
Distributor shall not have notified the Fund in writing at least 60 days prior
to the anniversary date of the previous continuance that it does not desire such
continuance. This Agreement may be terminated at any time, without payment of
penalty by the Fund, on 60 days' written notice to the Distributor by vote of
the Board of Directors of the Fund or by

-6-
<PAGE>

vote of a majority of the outstanding voting securities of the Fund (as defined
by the 1940 Act). This Agreement shall automatically terminate in the event of
its assignment (as defined by the 1940 Act).

Section 9. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the Board of
Directors of the Fund, or by the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those directors of the Fund who
are not parties to this Agreement or interested persons of any such party and
who have no direct or indirect financial interest in this Agreement, cast in
person at a meeting called for the purpose of voting on such approval.

Section 10. NOTICES. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (l) to the Distributor at One Rockefeller Plaza, New York, New
York 10020, Attention: Secretary or (2) to the Fund at One Rockefeller Plaza,
New York, New York 10020, Attention: President.

Section 11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

LAZARD FRERES & CO. LLC

By: _______________________

THE LAZARD FUNDS, INC.

By: _______________________

-7-

August 12, 1996

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post- Effective Amendment No. 12 of The Lazard Funds,
Inc. Registration Statement on Form N-1A of our reports dated January 27, 1996,
relating to the financial statements and selected per share data and ratios of
The Lazard Funds, Inc. which appears in such Statement of Additional
Information. We also consent to the incorporation by reference of our report in
the Prospectus constituting part of such Post-Effective Amendment No. 12 and to
the reference to us under the heading "Selected per Share Data and Ratios" in
the Prospectus.

We consent to the reference to our firm under the caption "Counsel and
Independent Accountants" in the registration statement (Form N-1A No. 33-40682)
of The Lazard Funds, Inc.

/s/Anchin, Block & Anchin LLP
Anchin, Block & Anchin LLP
1375 Broadway
New York, NY 10018
August 12, 1996

THE LAZARD FUNDS, INC.

DISTRIBUTION AND SERVICING PLAN

INTRODUCTION: It has been proposed that the above-captioned investment
company (the "Fund") adopt a Distribution and Servicing Plan (the "Plan")
relating to its Retail Shares in accordance with Rule 12b-1, promulgated under
the Investment Company Act of 1940, as amended (the "Act"), with respect to each
series of the Fund set forth on Exhibit A hereto, as such Exhibit may be revised
from time to time (each, a "Series"). Under the Plan, the Fund would pay the
Fund's distributor (the "Distributor") for (a) advertising, marketing and
distributing shares of each Series and (b) providing services to shareholders of
each Series. The Distributor would be permitted to pay third parties in respect
of these services. If this proposal is to be implemented, the Act and said Rule
12b-1 require that a written plan describing all material aspects of the
proposed financing be adopted by the Fund. The Fund's Board, in considering
whether the Fund should implement a written plan, has requested and evaluated
such information as it deemed necessary to an informed determination as to
whether a written plan should be implemented and has considered such pertinent
factors as it deemed necessary to form the basis for a decision to use assets
attributable to the Series' Retail Shares for such purposes. In voting to
approve the implementation of such a plan, the Board members have concluded, in
the exercise of their

<PAGE>

reasonable business judgment and in light of their respective fiduciary duties,
that there is a reasonable likelihood that the plan set forth below will benefit
the Series and its Retail shareholders.

THE PLAN: The material aspects of this Plan are as follows:

1. As to each Series, the Fund shall pay to the Distributor a fee at the
annual rate set forth opposite each Series' name on Exhibit A hereto of the
value of the relevant Series' average daily net assets for (i) advertising,
marketing and distributing such shares and (ii) the provision of personal
services to shareholders and/or the maintenance of shareholder accounts. The
Distributor may pay third parties a fee in respect of these services. The
Distributor shall determine the amounts to be paid to third parties and the
basis on which such payments will be made. Payments to third parties are subject
to compliance by each such party with the terms of any related Plan agreement
between it and the Distributor.

2. For the purpose of determining the fees payable under this Plan, the
value of the net assets of a Series' Retail Shares shall be computed in the
manner specified in the Fund's charter documents for the computation of net
asset value.

3. The Board shall be provided, at least quarterly, with a written report
of all amounts expended with respect to each Series pursuant to this Plan. The
report shall state the purpose for which the amounts were expended.

-2-

<PAGE>

4. As to each Series, this Plan will become effective upon approval by (a)
holders of a majority of a Series' outstanding Retail Shares, and (b) a majority
of the Board members, including a majority of the Board members who are not
"interested persons" (as defined in the Act) of the Fund and have no direct or
indirect financial interest in the operation of this Plan or in any agreements
entered into in connection with this Plan, pursuant to a vote cast in person at
a meeting called for the purpose of voting on the approval of this Plan.

5. As to each Series, this Plan shall continue for a period of one year
from its effective date, unless earlier terminated in accordance with its terms,
and thereafter shall continue automatically for successive annual periods,
provided such continuance is approved at least annually in the manner provided
in paragraph 4(b) hereof.

6. As to each Series, this Plan may be amended at any time by the Board,
provided that (a) any amendment to increase materially the costs which a Series
may bear pursuant to this Plan shall be effective only upon approval by a vote
of the holders of a majority of the Series' outstanding Retail Shares, and (b)
any material amendments of the terms of this Plan shall become effective only
upon approval as provided in paragraph 4(b) hereof.

7. As to each Series, this Plan is terminable without penalty at any time
by (a) vote of a majority of the Board members who are not "interested persons"
(as defined in the Act)

-3-

<PAGE>

of the Fund and have no direct or indirect financial interest in the operation
of this Plan or in any agreements entered into in connection with this Plan, or
(b) vote of the holders of a majority of the Series' outstanding Retail Shares.
Effective: __________, 1996

-4-

EXHIBIT A
Fee as a
Percentage of
Average Daily
Name of Series Net Assets
- -------------- -------------

Lazard Bantam Value Portfolio .25%
Lazard Bond Portfolio .25%
Lazard Emerging Markets Portfolio .25%
Lazard Emerging World Funds Portfolio .25%
Lazard Equity Portfolio .25%
Lazard Global Equity Portfolio .25%
Lazard International Equity Portfolio .25%
Lazard International Fixed-Income Portfolio .25%
Lazard International Small Cap Portfolio .25%
Lazard Small Cap Portfolio .25%
Lazard Strategic Yield Portfolio .25%

-5-

EXHIBIT 18

THE LAZARD FUNDS, INC.

Rule 18f-3 Plan

Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940
Act"), requires that the Board of an investment company desiring to offer
multiple classes pursuant to said Rule adopt a plan setting forth the separate
arrangement and expense allocation of each class, and any related conversion
features or exchange privileges.

The Board, including a majority of the non-interested Board members, of The
Lazard Funds, Inc. (the "Fund") which desires to offer multiple classes with
respect to each series of the Fund listed on Schedule A attached hereto, as such
Schedule may be revised from time to time, has determined that the following
plan is in the best interests of each class individually and the Fund as a
whole:

1. CLASS DESIGNATION: Fund shares shall be divided into the Institutional
Shares and the Retail Shares.

2. DIFFERENCES IN SERVICES: The services offered to shareholders of each
Class shall be substantially the same, except for certain services provided to
the Retail Shares pursuant to a Distribution and Servicing Plan.

3. DIFFERENCES IN DISTRIBUTION ARRANGEMENTS: Institutional Shares and
Retail Shares shall be offered at net asset value. Neither Class shall be
subject to any front-end or contingent sales charges.

<PAGE>

Retail Shares shall be subject to an annual distribution and servicing fee
at the rate of .25% of the value of the average daily net assets of the Retail
Class pursuant to a Distribution and Servicing Plan adopted in accordance with
Rule 12b-1 under the 1940 Act.

4. EXPENSE ALLOCATION. The following expenses shall be allocated, to the
extent practicable, on a Class-by- Class basis: (a) fees under the Distribution
and Servicing Plan; (b) transfer agent fees identified by the Fund's transfer
agent as being attributable to a specific Class; (c) litigation or other legal
expenses relating solely to a specific Class; and (d) fees and expenses of an
administration that are identified and approved by the Fund's Board as being
attributable to a specific Class.

Dated: July ___, 1996

-2-

<PAGE>

SCHEDULE A

Name of Series
- --------------

Lazard Bantam Value Portfolio
Lazard Bond Portfolio
Lazard Emerging Markets Portfolio
Lazard Emerging World Funds Portfolio
Lazard Equity Portfolio
Lazard Global Equity Portfolio
Lazard International Equity Portfolio
Lazard International Fixed-Income Portfolio
Lazard International Small Cap Portfolio
Lazard Small Cap Portfolio
Lazard Strategic Yield Portfolio

A-1

</LEGEND>
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<INVESTMENTS-AT-VALUE> 1074556956
<RECEIVABLES> 15554166
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<OTHER-ITEMS-LIABILITIES> 17667122
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<SHARES-COMMON-PRIOR> 74103632
<ACCUMULATED-NII-CURRENT> 12199586
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (34031088)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 74868901
<NET-ASSETS> 1044661222
<DIVIDEND-INCOME> 14235120
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<PER-SHARE-NAV-BEGIN> 11.23
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> .29
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<PAGE>

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<CIK> 0000874964
<NAME> THE LAZARD FUNDS, INC.
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<NAME> LAZARD INTERNATIONAL FIXED INCOME PORTFOLIO
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<RECEIVABLES> 2626819
<ASSETS-OTHER> 96628
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47259208
<PAYABLE-FOR-SECURITIES> 2166100
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 290647
<TOTAL-LIABILITIES> 2456747
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<PAID-IN-CAPITAL-COMMON> 39002833
<SHARES-COMMON-STOCK> 3776829
<SHARES-COMMON-PRIOR> 3499078
<ACCUMULATED-NII-CURRENT> 1314
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2821432
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2976882
<NET-ASSETS> 44802461
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1548376
<OTHER-INCOME> 0
<EXPENSES-NET> 209877
<NET-INVESTMENT-INCOME> 1338499
<REALIZED-GAINS-CURRENT> 2871644
<APPREC-INCREASE-CURRENT> 3108756
<NET-CHANGE-FROM-OPS> 7318899
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1338499
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 889949
<NUMBER-OF-SHARES-REDEEMED> (725468)
<SHARES-REINVESTED> 113270
<NET-CHANGE-IN-ASSETS> 8999707
<ACCUMULATED-NII-PRIOR> 1206922
<ACCUMULATED-GAINS-PRIOR> 180322
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 149912
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 249947
<AVERAGE-NET-ASSETS> 40307816
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> 1.63
<PER-SHARE-DIVIDEND> (.37)
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<PER-SHARE-NAV-END> 11.86
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

<PAGE>

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<NAME> THE LAZARD FUNDS, INC.
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<MULTIPLIER> 1

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<CIK> 0000874964
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<TOTAL-ASSETS> 79939478
<PAYABLE-FOR-SECURITIES> 5830932
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 674182
<TOTAL-LIABILITIES> 6505114
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77555498
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<SHARES-COMMON-PRIOR> 6846915
<ACCUMULATED-NII-CURRENT> (13904)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5077765)
<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3330411
<OTHER-INCOME> 0
<EXPENSES-NET> 339234
<NET-INVESTMENT-INCOME> 2991177
<REALIZED-GAINS-CURRENT> (2020698)
<APPREC-INCREASE-CURRENT> 3253428
<NET-CHANGE-FROM-OPS> 4223907
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<DISTRIBUTIONS-OF-INCOME> (2991107)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 1404185
<NUMBER-OF-SHARES-REDEEMED> (646457)
<SHARES-REINVESTED> 315914
<NET-CHANGE-IN-ASSETS> 11106033
<ACCUMULATED-NII-PRIOR> 4065416
<ACCUMULATED-GAINS-PRIOR> (3078071)
<OVERDISTRIB-NII-PRIOR> 13973
<OVERDIST-NET-GAINS-PRIOR> 0
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